2020430962-532-155Portugal1 4532 237-784-154Ireland8891 309-420-92Total3 1085 068-1 960-493(in Euro million) Amortized cost of securities issued by government and related in Ireland and Portugal with maturities below 10 years amounted to €2,361 million with a net unrealized loss of €170 million as of June 30, 2011. Page 41 (in Euro million) % (value balance sheet) 2.87% 0.19% 3.06% 52.81% 5.03% 0.04% 1.75% 59.63% 3.19% 1.03% 0.01% 4.22% 1.22% 0.86% 0.06% 2.13% 0.88% 0.23% 66.63% 0.00% - 0.00% - 7.14% 0.00% 7.14% 23.17% 100.00% The holdings in Greek sovereign debt scheduled to mature before 2020, subject to the private sector initiative to support Greece announced on July 21, 2011 involving voluntary exchanges and roll-overs of existing Greek government bonds into a combination of four instruments together with a Greek buyback facility, were impaired at fair value, resulted in €-92 million net charge for the period ended June 30, 2011. Net amounts may evolve depending on the timing of realization of these potential losses and on the local regulation environment. In addition debt securities issued by government and related in Greece, Ireland and Portugal classified under Fair value option amounted to €28 million as of June 30, 2011. 5.2. Investment in real estate properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2011 (a) December 31, 2010 (a) (b) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization Impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 17,141 (1,651) (463) 15,027 19,062 16,636 (1,569) (438) 14,628 18,505 Banking and other activities 2,959 (164) (235) 2,560 3,179 2,833 (169) (230) 2,435 3,003 All activities 20,100 (1,815) (697) 17,588 22,241 19,469 (1,737) (668) 17,063 21,509 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). Fair value is generally based on valuations performed by qualified property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million) Impairment - Investment in real estate properties Amortization - Investment in real estate properties June 30, 2011 (a) June 30, 2011 (a) Opening value 668 1,737 Increase for the period 39 121 Write back following sale (3) (7) Write back following recovery in value (2) Others (b) (6) (37) Closing value 697 1,815 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011 (see Note 4). (b) Mainly includes change in scope and the effect of changes in exchange rates. As of December 31, 2010, the end of year balance of impairment on investment in real estate properties amounted to €668 million and the amortization balance amounted to €1,737 million. Page 42 5.3. Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: June 30, 2011 (a) December 31, 2010 (a) (b) INSURANCE Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 294,510 9,028 11,526 5,679 300,905 8,977 14,582 6,703 300,905 9,028 14,582 6,703 13,095 35 3,477 1,482 6,700 86 421 458 296,425 8,227 11,335 5,672 306,408 8,230 15,900 6,621 306,408 8,227 15,900 6,621 15,973 71 4,702 1,037 June 30, 2011 (a) December 31, 2010 (a) (b) BANKING AND OTHER ACTIVITIES Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 7,708 629 2,685 7,584 629 2,912 7,584 629 2,912 112 - 234 236 - 7 6,326 2,235 2,635 6,099 2,235 2,860 6,099 2,235 2,860 26 - 226 Non controlled investment funds available for sale 173 183 183 10 0 227 237 237 13 June 30, 2011 (a) December 31, 2010 (a) (b) TOTAL Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 302,218 9,657 14,211 5,852 308,490 9,606 17,494 6,886 308,490 9,657 17,494 6,886 13,207 35 3,711 1,493 6,936 86 428 458 302,751 10,462 13,970 5,900 312,507 10,465 18,760 6,858 312,507 10,462 18,760 6,858 15,999 71 4,928 1,050 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Net of impairment - including premiums/discounts and related accumulated amortization. (d) Net of impairment (details in Note 5.4). See also table 5.4.1 Breakdown of financial assets subject to impairment. Page 43 (in Euro million) Unrealized losses 5,990 67 137 88 (in Euro million) Unrealized losses 254 - 1 3 (in Euro million) Unrealized losses 6,244 67 138 92 5.4. Financial assets subject to impairment 5.4.1. Breakdown of financial assets subject to impairment (excluding investment in real estate properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2011 (a) December 31, 2010 (a) (b) Cost before impairment and revaluation to fair value (c) Impairment Cost after impairment but before revaluation to fair value (d) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (c) Impairment Cost after impairment but before revaluation to fair value (d) Revaluation to fair value Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market 303,229 9,658 (1,451) 301,778 9,658 7,165 3 308,943 9,661 305,083 10,424 (1,567) 303,516 10,424 10,450 8 Debt instruments 312,887 (1,451) 311,436 7,168 318,604 315,507 (1,567) 313,939 10,458 Equity instruments available for sale 16,748 (2,533) 14,214 3,345 17,559 16,604 (2,848) 13,757 5,194 Non controlled investment funds available for sale 6,931 (1,079) 5,852 1,166 7,018 6,517 (1,107) 5,410 1,825 Loans Held To Maturity (0) (0) Loans Available For Sale Loans at cost (e) 42,573 (553) 42,021 (109) 41,911 42,509 (521) 41,988 449 Loans 42,573 (553) 42,021 (109) 41,911 42,509 (521) 41,988 449 TOTAL 379,139 (5,615) 373,523 11,570 385,093 381,137 (6,043) 375,094 17,926 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (d) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (e) Including policy loans. (in Euro million) Carrying value 313,966 10,431 324,397 18,951 7,235 (0) 42,438 42,438 393,021 44 5.4.2. real estate properties) Change in impairment on invested assets (excluding investment in January 1, 2011 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 1,567 164 (211) (29) (40) Impairment - Equity instruments 2,848 237 (393) (158) Impairment - Non controlled investment funds 1,107 81 (31) (78) Impairment - Loans 521 31 (3) (13) 16 TOTAL 6,043 513 (638) (42) (260) (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (b) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized as of June 30, 2011 are classified as held for sale including discontinued operations. As of December 31, 2010, this classification applied for Australian and New Zealand operations and for UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). As of December 31, 2010, the end of year balance of impairment on invested assets excluding real estate properties amounted to €6,043 million. 5.5. Financial assets recognized at fair value Amounts presented below exclude the impact of derivatives and investment funds consolidated by equity method. Among invested financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €375.9 billion as of June 30, 2011 (€383.4 billion as of December 31, 2010): - €250.6 billion were determined directly by reference to an active market (€271.7 billion at the end of 2010), i.e. level 1 assets and - €125.2 billion related to assets not quoted in an active market/no active market (€111.8 billion at the end of 2010), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10.0 billion (€10.5 billion at the end of 2010). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: ■ values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and ■ assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: ■ assumed to be used by pricing services; or ■ used by the Group in the limited cases of application of mark to model valuations. As at June 30, 2011, some corporate bonds were reclassified out of level 1 into level 2 because of the widening of bid/ask spreads for such bonds reflecting a decrease in liquidity. Since June 30, 2010 some government bonds (Greece, Ireland, Portugal, Spain) have been transferred out of level 1 into level 2 because of an increased illiquidity observed in the market for such instruments. Further illiquidity was observed throughout the first half of year 2011 for most of these instruments, especially for Greek bonds. However, the pricing policy for such instruments was not modified so far (mark to market prices). Page 45 (in Euro million) June 30, 2011 (b) 1,451 2,533 1,079 553 5,615 Note 6 : Shareholders’ equity and minority interests 6.1. Impact of transactions with shareholders The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in note 1. 6.1.1. Change in shareholders’ equity Group share for the first half of 2011 a) Share capital and capital in excess of nominal value During the first half of 2011, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+22 million Realized losses on AXA shares for €-35 million b) Treasury shares As of June 30, 2011, the Company and its subsidiaries owned approximately 18 million AXA shares, representing 0.8% of the share capital, a decrease of 8 million shares compared to December 31, 2010, impacting shareholders’ equity by €+107 million. As of June 30, 2011, the carrying value of treasury shares and related derivatives was €388 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (51,158 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2011, 2.3 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €48 million and their market value €35 million at the end of June 2011. c) Undated subordinated debt and related financial expenses As described in note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2011, the change in other reserves was due to €-140 million in interest expense related to the undated subordinated debt (net of tax), and €-249 million in exchange rate differences. As of June 30, 2011 and December 31, 2010, undated subordinated debt recognized in shareholders’ equity broke down as follows: Page 46 (in Euro million) June 30, 2011 December 31, 2010 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M€ 6.0% 375 375 375 375 December 22, 2004 - 250 M€ 6.0% 250 250 250 250 January 25, 2005 - 250 M€ 6.0% 250 250 250 250 July 6, 2006 - 1000 M€ 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.7% 500 549 500 575 July 6, 2006 - 350 M£ 6.7% 350 388 350 407 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 442 600 454 November 7, 2006 - 150 M A$ 7.5% 150 111 150 114 December 14, 2006 - 750 M US$ 6.5% 750 516 750 559 December 14, 2006 - 750 M US$ 6.4% 750 516 750 559 October 5, 2007 - 750 M€ 6.2 % 750 746 750 746 October 16, 2007 - 700 M£ 6.8 % 700 773 700 811 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 232 27,000 249 Undated notes - (of which 500 M US$ at 7.1%) in US$ 875 605 875 655 Sub-Total undated subordinated debt 7,408 7,656 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 7,502 7,751 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-1,683 million as of June 30, 2011; €-1,543 million as of December 31, 2010. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At April 27, 2011 shareholders’ meeting, shareholders approved a dividend distribution of €1,601 million with respect to the 2010 financial year. e) Transaction AXA APH On April 1, 2011, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. This transaction had an impact on AXA Group of €0.7 billion realized capital gains recorded in net income regarding the sale of its Australian and New Zealand operations and €2.5 billion reduction in shareholders’ equity mainly related to the buy-out of minority interests in AXA APH Asian operations in accordance with the application of the new accounting principles on Business Combinations. The ownership increase in a controlled company while maintaining the control is accounted for in shareholders’ equity and no additional goodwill is recognized. 6.1.2. Change in shareholders’ equity Group share for the first half of 2010 a) Share capital and capital in excess of nominal value During the first half of 2010, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payments for €23 million, Realized losses on AXA shares for €-18 million. Page 47 b) Treasury shares As of June 30, 2010, the Company and its subsidiaries owned approximately 27 million AXA shares, representing 1.2% of the share capital, a decrease of 1 million shares or €13 million compared to December 31, 2009. As of June 30, 2010, the carrying value of treasury shares and related derivatives was €421 million. This figure included €0.3 million relating to AXA shares held by consolidated mutual funds (15,492 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2010, 2 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €51 million and their market value €27 million at the end of June 2010. c) Undated subordinated debt and related financial expenses During the first half of 2010, the change in other reserves was due to the redemption of undated subordinated debt (€-33 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-155 million in interest expense related to the undated subordinated debt (net of tax), and €+535 million in exchange rate differences. d) Dividends paid At the April 29, 2011 shareholders’ meeting, shareholders approved a dividend distribution of €1,259 million with respect to the 2009 financial year. 6.2. Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2011 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The decrease of gross unrealized gains and losses on assets available for sale totaled €-4,915 million, mainly due to €-1,516 million lower unrealized capital gains on equity securities, mainly driven by the sale of Taikang Life stake, as well as other realized capital gains; €-3,484 million on debt instruments primarily due to interest rates increase mainly impacting Japan, France, and Belgium. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2011 December 31, 2010 Gross unrealized gains and losses (a) 10,589 15,505 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (3,971) (5,801) Shadow accounting on Deferred Acquisition Costs (b) (378) (478) Shadow accounting on Value of purchased Business In force (363) (629) Unallocated unrealized gains and losses before tax 5,877 8,597 Deferred tax (1,299) (1,979) Unrealized gains and losses (net of tax) - Assets available for sale 4,578 6,618 Unrealized gains and losses (net of tax) - Equity accounted companies (c) 100 33 Unrealized gains and losses (net of tax) – 100% - Total 4,677 6,651 Minority interests' share in unrealized gains and losses (d) (17) (203) Translation reserves (e) (102) (262) Unrealized gains and losses (Net Group share) (c) 4,558 6,186 (a) Unrealized gains on total available for sale invested assets including loans and URGL on equity pick up but excluding URG L on CFH. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including unrealized gains and losses on assets from discontinued operations (d) Including foreign exchange impact attributable to minority interests. (e) Group share. Page 48 At June 30, 2011, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2011: (in Euro million) June 30, 2011 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 3,991 247 1,268 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (2,154) (202) (968) Shadow accounting on Deferred Acquisition Costs (b) (85) (6) Shadow accounting on Value of purchased Business In force (19) (39) Unallocated unrealized gains and losses before tax 1,732 45 255 Deferred tax (134) (13) (51) Unrealized gains and losses (net of tax) - Assets available for sale 1,598 33 204 Unrealized gains and losses (net of tax) - Equity accounted companies 4 Unrealized gains and losses (net of tax) – 100% - Total 1,602 33 204 Minority interests' share in unrealized gains and losses (c) (4) (0) Translation reserves (d) (148) Unrealized gains and losses (Net Group share) 1,598 33 56 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2011 and December 31, 2010 broke down as follows: (in Euro million) June 30, 2011 December 31, 2010 Unrealized gains and losses (net of tax) 100%, opening 6,651 4,687 Transfer in the income statement on the period (a) (906) (878) Investments bought in the current accounting period and changes in value (619) 2,519 Foreign exchange impact (278) 388 Change in scope and other changes (171) (66) Unrealized gains and losses (net of tax) 100%, closing 4,677 6,651 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €-2,069 million (of which €-1,945 million from group share and €- 124 million from minority interest rates) as of June 30, 2011. The group share translation reserves movement (€-1,945 million) was mainly driven by the United States (€-773 million), Japan (€-518 million), the United Kingdom (€-211 million), by the impact of the AXA APH transaction with AMP (€-471 million), partly offset by the Company (€+410 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. Page 49 c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2011 amounted to €+12 million net group share. 6.2.2. Comprehensive income for the first half of 2010 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The change in reserves for unrealized gains and losses on assets available for sale totaled €+1,177 million (net Group share), mainly attributable to the United States (€+448 million), France (€+263 million), Belgium (€+209 million) and Germany (€+192 million). The increase of gross unrealized gains and losses on assets available for sale totaled €+6,031 million, mainly due to debt securities (€+6,714 million) primarily following the decreases on interest rates, partly offset by a €-822 million decrease from equity securities. b) Translation reserve The total impact of foreign exchange rate movements was €+2,025 million (of which group share was €+1,613 million). The group share translation reserve movement (€+1,613 million) was mainly driven by the United States (€+1,570 million), Japan (€+979 million), Switzerland (€+786 million), and the United Kingdom (€+354 million), which was partly offset by the Company (€-2,733 million driven by the change in fair value of currency hedges set up to hedge net investments in foreign operations). c) Employee benefits actuarial gains and losses The group share change in employee benefits actuarial losses for the first half year 2010 amounted to €-487 million, mainly due to the decrease of discount rates especially in the United Kingdom (€-335 million) and in the United States (€-132 million), partly offset by lower long term inflation rates in the United Kingdom. 6.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2011 The €1,694 million decrease in minority interests to €2,476 million was due to transactions with shareholder for €-1,598 million as a result of AXA APH transaction and comprehensive income for €-96 million. The comprehensive income for the period notably included the following: - Net income attributable to minority interests for €+209 million; - Change in translation reserves for €-124 million, including €+248 million following the transaction with AXA APH - Reserves relating to changes in fair value through shareholders’ equity for €-181 million, including €-152 million following the transaction with AXA APH 6.3.2. Change in minority interests for the first half of 2010 The €+516 million increase in minority interests to €4,209 million was mainly due to transactions with shareholder for €-196 million, and comprehensive income for €+712 million. Transactions with shareholders included mainly dividends paid to minority interests holders for €-227 million. The comprehensive income for the period notably included the following: - Net income attributable to minority interests for €+198 million; and - Change in translation reserves for €+412 million. Page 50 Note 7 : Financing debt (in Euro million) Carrying value June 30, 2011 December 31, 2010 AXA Debt component of subordinated notes due 2014 (€) Debt component of subordinated notes, 3.75% due 2017 (€) Subordinated notes due 2020 (€) Subordinated notes, 5.75% due 2040 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) 6,467 1,935 1,390 - 1,300 821 360 6,401 1,901 1,360 50 1,300 890 378 Derivatives on debts instruments issued (a) 662 522 AXA Financial 139 150 Surplus Notes, 7.70 %, due 2015 138 149 MONY Life 11.25% Surplus Notes due 2024 1 1 AXA Bank Europe 389 366 Subordinated notes Subordinated undated notes, variable 145 219 366 Derivatives relating to subordinated debts 25 AXA-MPS Vita and Danni 108 108 Subordinated Notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 27 41 SUBORDINATED DEBT 7,131 7,066 AXA 1,910 1,892 Euro Medium Term Notes, 6.0% due through 2013, and BMTN Commercial paper 890 20 892 - Euro Medium Term Notes, due through 2015 1,000 1,000 AXA Financial 240 260 Senior notes, 7%, due 2028 240 260 AXA UK Holdings 169 178 GRE : Loan Notes, 6.625%, due 2023 169 178 Other financing debt instruments issued (less than €100 million) 150 170 Other financing debts instruments issued under euro 100 million 124 135 Derivatives relating to other financing debts instruments issued (a) 26 35 FINANCING DEBT INSTRUMENTS ISSUED 2,470 2,500 AXA 745 785 Morocco 67 68 Other financing debts owed to credit institutions (under €100 million) 13 34 FINANCING DEBT OWNED TO CREDIT INSTITUTIONS 825 887 TOTAL FINANCING DEBT 10,426 10,454 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. Total financing debt decreased by €28 million between December 31, 2010 and June 30, 2011, or increased by €57 million at constant exchange rates, to €10,426 million. The increase at constant exchange rates was mainly due to: i. €140 million increase in fair value of cross currency and interest rate swaps. Partly offset by: ii. iii. €50 million decrease following the early repayment of a subordinated debt; €32 million decrease in the Mediterranean and Latin America region reflecting repayment of financing debt owed to credit institutions. Page 51 Note 8 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: • number of outstanding ordinary shares during the period. • The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average (in Euro million) (a) June 30, 2011 June 30, 2010 NET INCOME GROUP SHARE 3,999 944 Undated subordinated debt financial charge (140) (155) NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT A 3,859 789 Weighted average number of ordinary shares (net of treasury shares) - opening 2,294 2,264 Increase in capital (excluding stock option exercised) (b) Stock options exercised (b) Treasury shares (b) 4 (0) Share purchase program (b) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2,298 2,263 NET INCOME PER ORDINARY SHARE C = A / B 1.68 0.35 Potentially dilutive instruments : Stock options 3 3 Other 1 4 FULLY DILUTED - WEIGHTED AVERAGE NUMBER OF SHARES (c) D 2,302 2,271 NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT E 3,859 789 FULLY DILUTED NET INCOME PER ORDINARY SHARE F = E / D 1.68 0.35 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) Weighted average. (c) Taking into account the impact of potentially dilutive instruments. Page 52 Statutory auditors’ review report on the 2011 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2011 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2011 ; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors, in a context characterised by a public debt crisis in certain euro-zone countries and in particular in Greece, the effects of which are described in notes 5.1 and 5.5 to the financial statements.. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 4, 2011 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2011 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 5, 2011. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations"},"Input":{"kind":"string","value":"Semestriel, 2011, Insurance, AXA"},"Query":{"kind":"string","value":"write me a financial report"}}},{"rowIdx":297,"cells":{"Period":{"kind":"string","value":"Semestriel"},"Year":{"kind":"number","value":2012,"string":"2,012"},"Subject":{"kind":"string","value":"Insurance"},"Company":{"kind":"string","value":"AXA"},"Prompt":{"kind":"string","value":"Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.\n\n### Instruction:\nWrite a detailed financial report on the given subject and company.\n\n### Subject:\nInsurance\n\n### Company:\nAXA\n\n### Response:\n"},"Response":{"kind":"string","value":"Half Year Financial Report June 30, 2012 Table of contents I Activity Report ...................................................................... II Consolidated financial statements ...................................... III Statutory auditors’ review report on the 2012 Half Year Financial Information .................................................... IV Statement of the person responsible for the Half Year Financial Report ...................................................................... Activity Report______________________________________________________________________Half Year 2012 Activity Report / Half Year 2012 Page 1 Activity Report______________________________________________________________________Half Year 2012 Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2011, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Cautionary statements concerning forward-looking statements ..................................................................... 2 Financial market conditions in first half of 2012 ........................................................................................... 3 Operating highlights ..................................................................................................................................... 5 Consolidated gross revenues ......................................................................................................................... 6 Consolidated underlying earnings, adjusted earnings and net income .......................................................... 11 Life & Savings Segment ............................................................................................................................. 17 Property & Casualty Segment ..................................................................................................................... 41 International Insurance Segment ................................................................................................................. 61 Asset Management Segment ....................................................................................................................... 65 Banking ...................................................................................................................................................... 67 Holdings and other companies .................................................................................................................... 71 Outlook ...................................................................................................................................................... 74 Glossary ..................................................................................................................................................... 75 Page 2 Activity Report______________________________________________________________________Half Year 2012 Financial market conditions in first half of 2012 In the United States and in Europe, economic indicators generally improved over the first quarter of 2012. In the United States, the manufacturing ISM index continued to deliver an optimistic message of expansion with external demand showing strength. In Europe, the situation from one country to another was quite mixed with sharp recessions in most of the peripheral nations and better performances in France and Germany. Banking and sovereign tensions continued to dissipate in the Euro area due to injections of long term liquidity by the ECB and progress on the reform front. After an encouraging first quarter for the global state of the economy, in the second quarter, a generalized slowdown affected developed as well as developing economies. In the United States, poor prospects in domestic demand, along with uncertainties in global markets, took a toll on companies’ confidence. The manufacturing ISM index declined in June, below 50, for the first time in three years, showing contraction in the industrial production. In the Euro zone, after a calmer period, concerns about the political situation in Greece, and the possibility of that country exiting the Euro zone, added to difficulties in the Spanish banking sector, resulted in new tensions on bond markets and on credit conditions. Economic indicators deteriorated everywhere in Europe. Even Germany, a country which, so far, had succeeded in maintaining growth amid the current economic setback, recorded a slowdown in May and June, according to the IFO Index. In this environment, Japanese investors remained cautious and scaled down capital expenditure. After the resurgence of automobile sales during the first quarter, private expenditure slowed down. Indeed, the labour market remained weak as wages and employment were nearly stagnant. Against this unfavourable environment, emerging countries were also affected. China showed signs of slowdown, while Brazil and India registered disappointing growth rates. Poor economic performance in their main partner countries finally depressed economic activity in emerging countries, in particular on investment. STOCK MARKETS Equity markets performance was mixed during the first half of this year. The MSCI World Index increased by 5% with good performance in the United States and in Japan. However, in Europe the performance was weak and very contrasted from one country to another (negative performance in the periphery, especially in Spain and Italy). The Dow Jones Industrial Average Index in New York increased by 5% in the first half of 2012 and the S&P 500 Index by 8%. The FTSE 100 Index in London ended the first half of 2012 almost exactly flat compared to December 31, 2011. The CAC 40 Index in Paris increased by 1% and the Nikkei Index in Tokyo appreciated by 7%. The MSCI G7 Index increased by 6% and the MSCI Emerging Index appreciated by 3%. The S&P 500 implied volatility Index decreased from 23.4% to 17.1% between December 31, 2011 and June 30, 2012. BOND MARKETS The US 10-year T-bond ended the half year at 1.66%, a decrease of 22 bp compared to December 31, 2011. The 10- year German Bund yield decreased by 23 bp to 1.60%. The France 10-year government bond yield decreased by 46 bp to 2.69%. The 10-year Japanese government bond ended the half year at 0.85 %, a decrease of 14.5 bp. The 10-year Belgium government bond ended the half year at 3.03%, a 106 bp decrease compared to December 31, 2011. Regarding the evolution of 10-year government bonds on European peripheral countries: Italy ended the half year at 5.82% (a decrease of 120 bp compared to December 31, 2011), Spain ended the half year at 6.33% (an increase of 124 bp compared to December 31, 2011), Greece ended the half year at 25.83% (a decrease of 913 bp compared to December 31, 2011), Ireland ended the half year at 8.21% (stable compared to December 31, 2011), Portugal ended the half year at 10.16% (a decrease of 320 bp compared to December 31, 2011). In Europe, the iTRAXX Main spreads decreased by 7 bp compared to December 31, 2011 and ended half year at 166 bp while the iTRAXX Crossover decreased by 93 bp to 662 bp. In the United States, the CDX Main spread Index decreased by 8 bp to 112 bp. Page 3 Activity Report______________________________________________________________________Half Year 2012 EXCHANGE RATES In this context, the Euro decreased against the main currencies during the first half of 2012 reflecting fears that Greece exits from the monetary union, and disappointing economic results. Compared to December 31, 2011, the US Dollar gained 2% against the Euro (closing exchange rate moved from $1.30 at the end of 2011 to $1.27 at the end of June 2012). The Yen decreased by 1% against the Euro (closing exchange rate moved from Yen 99.88 at the end of 2011 to Yen 101.26 at the end of June 2012). The Pound Sterling gained 3% against the Euro (closing exchange rate moved from £0.835 at the end of 2011 to £0.809 at the end of June 2012). The Swiss Franc gained 1% against the Euro (closing exchange rate moved from CHF 1.21 at the end of 2011 to CHF 1.20 at the end of June 2012). On an average rate basis, the US Dollar gained 7% against the Euro (from $1.40 over the first half of 2011 to $1.30 over the first half of 2012). The Yen gained 8% against the Euro (from Yen 112.4 over the six months to March 31, 2011 used for half year 2011 accounts to Yen 103.4 over the first half of 2012). The Pound Sterling gained 5% (from £0.869 over the first half of 2011 to £0.823 over the first half of 2012) and the Swiss Franc gained 5% against the Euro (from CHF 1.27 over the first half of 2011 to CHF 1.20 over the first half of 2012). Page 4 Activity Report______________________________________________________________________Half Year 2012 Operating highlights Significant acquisitions AXA and HSBC long-term partnership in Property & Casualty in Asia and Latin America On March 7, 2012, AXA and HSBC announced they have entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in India, Indonesia and China. This transaction will position AXA as the number one P&C player in Hong Kong, and strengthen its leading positions in Mexico and Singapore. The Hong Kong and Singapore businesses to be acquired benefit from multi-channel distribution, including through HSBC Bank branches, as well as strong agent and broker networks. The net upfront cash consideration for AXA is USD 494 million or ca. Euro 374 million, and will be funded through internal resources. The closing of the transaction is subject to regulatory approvals and is expected in the course of the second half of 2012. Significant disposals There were no significant disposals in the first half of 2012. Other AXA Rosenberg In the first half of 2011 a number of class action law suits were filed against AXA Rosenberg on behalf of certain AXA Rosenberg clients. These suits made various allegations including breach of fiduciary duty, negligence/gross negligence in connection with the coding error and requested damages in an unspecified amount to be determined at trial. In the last quarter of 2011, the parties entered into a settlement agreement following a nonbinding mediation process. In March 2012, the Federal District Court for the North District of California approved a settlement of these class actions under the terms of which AXA Rosenberg paid USD 65 million. Launch of the Joint-Venture in China between ICBC, AXA and Minmetals On July 19, 2012, ICBC-AXA Life, a Life Insurance joint-venture between Industrial and Commercial Bank of China Co. Ltd (ICBC), AXA and China Minmetals Corporation (Minmetals), announced its official launch in China. It has received approval from China’s State Council and all relevant regulatory bodies. ICBC-AXA Life succeeds AXA-Minmetals Assurance (AXA-Minmetals), established in 1999. Following the equity transfer agreement reached on October 28, 2010 between ICBC , AXA and Minmetals, ICBC bought 60% of shares of AXA-Minmetals and became the majority shareholder of the company. AXA owns 27.5% and Minmetals owns 12.5%. AXA rating On January 27, 2012, S&P affirmed the 'AA-' long-term ratings on AXA Group, assigning a negative outlook, and removing the CreditWatch with negative implications under which AXA Group and other financial institutions were placed on December 9, 2011 following the rating actions on the Eurozone sovereigns. In February 2012, Moody’s Investors Services reaffirmed the Aa3 rating for counterparty credit and financial strength on AXA’s principal insurance subsidiaries, and A2 for counterparty credit rating on the Company, assigning a negative outlook. Related-party transactions During the first half of the fiscal year 2012, there were (1) no modifications to the related-party transactions described in Note 28 \"Related-Party transactions\" of the audited consolidated financial statements for the fiscal year ended December 31, 2011 included in the full year 2011 Registration Document (pages 392 and 393) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2012, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2012. Page 5 Activity Report______________________________________________________________________Half Year 2012 Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 \"Risk factors\" included in the full year 2011 Registration Document (respectively on pages 172 to 184 and pages 185 to 204) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2011 Registration Document remains valid in all material respects at the date of this Report regarding the appreciation of the major risks and uncertainties affecting the Group at June 30, 2012 and which management expects may affect the Group during the remainder of 2012. Page 6 Activity Report______________________________________________________________________Half Year 2012 Consolidated gross revenues Consolidated Gross Revenues (a) HY 2012 HY 2011 FY 2011 Life & Savings 28,607 27,841 52,431 of which Gross written premiums 27,889 27,010 50,918 of which Fees and revenues from investment contracts with no participating feature 164 182 350 Property & Casualty 16,173 15,350 27,046 International Insurance 1,825 1,739 2,876 Asset Management 1,575 1,658 3,269 Banking (b) 226 248 485 Holdings and other companies (c) 0 0 0 TOTAL 48,405 46,836 86,107 (a) Net of intercompany eliminations. (b) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of option s and derivatives, net banking revenues and total consolidated revenues would respectively amount to €224 million and €48,403 million for half year 2012 and €479 million and €86,101 million for full year 2011. (c) Includes notably CDOs and real estate companies. (d) Changes are on a comparable basis. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE1 in this document means including, in both periods, acquisitions, disposals and business transfers, and net of intercompany transactions. Consolidated gross revenues for half year 2012 reached €48,405 million, up 3% compared to first half year 2011. The restatements to a comparable basis were mainly driven by the depreciation of Euro against most of major currencies (€+1,365 million or +2.9 points) and the impact of the disposal of Australia and New Zealand operations in 2011 (€-352 million or -0.8 point). On a comparable basis, gross consolidated revenues were up 1%. 1 Annual Premium Equivalent (APE) is a new regular premiums plus are tenth of single premiums, in line with EEV methodology. APE is Group share. Page 7 (in Euro million) HY 2012/ HY 2011 (d) 0.8% 3.7% 2.4% 10.1% 7.7% n.a. 1.4% Activity Report______________________________________________________________________Half Year 2012 Annual Premium Equivalent Annual Premium equivalent (in Euro million) HY 2012 HY 2011 FY 2011 HY 2012/HY 2011 (a) TOTAL France United States United Kingdom Japan Germany Switzerland Belgium Central & Eastern Europe Mediterranean and Latin American Region Hong Kong South-East Asia, India and China Mature markets High growth markets (a) Changes are on a comparable basis. 3,075 641 599 283 269 258 256 119 78 190 180 201 2,590 485 2,948 664 502 296 212 258 277 80 129 202 166 162 2,467 481 5,733 1,340 1,018 535 463 506 397 173 213 432 330 326 4,808 925 0.0% -5.2% 10.0% -9.3% 17.3% 0.2% -12.3% 49.6% -36.2% -6.0% -0.4% 18.0% 0.6% -3.0% Total Life & Savings New Business APE amounted to €3,075 million, up 4% on a reported basis or stable on a comparable basis. This was mainly driven by Belgium, South-East Asia, India and China, Japan and the United States, offset by Central & Eastern Europe, Switzerland, the United Kingdom, Mediterranean and Latin American Region and France. High growth markets decreased by 3% as strong growth in South-East Asia, India and China (€+29 million or +18%) was more than offset by Central & Eastern Europe (€-47 million or -36%), negatively impacted by regulatory developments in Poland. The United States APE increased by €50 million (+10%) to €599 million reflecting higher sales of unit-linked products (€+49 million) as a consequence of both higher (i) non GMxB Variable Annuity product sales (+31% or €+29 million) driven by the availability of Structured Capital Strategies product and the new Retirement Gateway product in the wholesale channel, and (ii) GMxB Variable Annuity product sales (+17% or €+20 million) mainly on new Accumulator 11 product. Belgium APE increased by €40 million (+50%) to €119 million, mainly driven by higher sales of Crest Classic G/A Savings product as a result of a two-month sales campaign in January and February, as well as G/A Protection & Health products reflecting the acquisition of a large Group contract. Japan APE increased by €37 million (+17%) to €269 million driven by higher sales of Variable Annuity products (€+18 million) as well as sales of G/A Protection & Health products (€+17 million) driven by Term Rider and LTTP products which were actively promoted. South-East Asia, India and China APE increased by €29 million (+18%) to €201 million mainly driven by (i) Thailand (€+15 million) reflecting higher sales of G/A Protection with Savings and G/A Pure Protection products, (ii) Indonesia (€+7 million) due to sales of unit-linked products through the bancassurance channel, and (iii) Singapore (€+4 million) driven by unit-linked products through the broker channel. Central & Eastern Europe APE decreased by 47 million (-36%) to €78 million. The decrease was driven by (i) Pension Funds (€- 32 million) as a result of the change in regulation in Poland and (ii) lower Life sales (€-15 million) mainly driven by unit-linked sales due to the end of cooperation with lower profitability brokers in the Czech Republic and Slovakia. Page 8 Activity Report______________________________________________________________________Half Year 2012 France APE decreased by €36 million (-5%) to €641 million mainly due to (i) lower sales of G/A Individual Savings (-10% or €-39 million) reflecting the negative trend in the French market, partly offset by (ii) an increase in G/A Protection & Health and Group retirement sales. Switzerland APE decreased by €34 million (-12%) to €256 million mainly driven by Group Life after exceptionally strong sales of full coverage insurance contracts in the first half of 2011. UK APE decreased by €28 million (-9%) to €283 million driven by unit-linked products (€-37 million) as a result of lower volumes in Individual Pension business and in Offshore Bond business written through Isle of Man. This was partly mitigated by Mutual Funds sales (€+10 million) through the Elevate wrap platform. Mediterranean and Latin American Region APE decreased by €12 million (-6%) to €190 million mainly due to mature markets (€-16 million) reflecting (i) a significant decrease in G/A Savings products (€-36 million or -38%) as a result of the increased focus on unit-linked products and high competitive environment from banks, partly offset by (ii) unit-linked products (€+21 million or +36%). Property & Casualty Revenues Property & Casualty Revenues (in Euro million) HY 2012 HY 2011 FY 2011 HY 2012/ HY 2011 (a) TOTAL . Mature markets Direct High growth markets 16,173 13,259 1,085 1,829 15,350 12,726 1,059 1,564 27,046 21,609 2,102 3,335 3.7% 2.4% -1.1% 17.4% (a) Changes are in comparable basis Property & Casualty gross revenues were up 5% to €16,173 million or up 4% on a comparable basis. Personal lines increased by 3% especially in Germany, the United Kingdom & Ireland, the Mediterranean and Latin American Region partly offset by Direct. Commercial lines increased by 5%, primarily in the Mediterranean and Latin American Region, the United Kingdom & Ireland, France and Asia. Personal lines (58% of P&C gross revenues) were up by 3% on a comparable basis, stemming from both Motor (+2%) and Non-Motor (+5%), primarily as a result of tariff increases in mature markets and higher volumes in high growth markets. Motor revenues grew by €105 million or +2% mainly driven by: Germany (+8%) mainly as a result of tariff increases and successful turn of year business, - the Mediterranean and Latin American Region (+4%), primarily driven by higher volumes in Turkey (+30%) and Mexico (+13%), tariff increases in Italy (+10%), partly offset by Spain (-9%) due to a competitive market in a depressed economic environment, Asia (+14%) driven by strong volume increase in Malaysia (+8%), - partly offset by Direct (-3%) reflecting a 35% decrease in the United Kingdom as a result of portfolio pruning and repricing with lower retention as well as lower new business, partly offset by significant growth in other countries (+10%) with Italy, Poland and France (+70%, +37% and +10% respectively) as well as higher volumes in Japan (+5%). Non-Motor revenues increased by €163 million or +5% mainly due to: the United Kingdom & Ireland (+8%) mainly in Household, driven by the United Kingdom with new partnerships and improved retention, Germany (+5%) and France (+2%) mainly due to tariff increases in Household. Commercial lines (41% of P&C gross revenues) increased by 5% on a comparable basis with Motor and Non- Motor up by 12% and 3% respectively. Motor revenues increased by €157 million or +12%, mainly driven by: the Mediterranean and Latin American Region (+23%) notably in Mexico (+40%) fuelled by positive portfolio developments, and in Turkey (+27%) reflecting more competitive products, - France (+14%) mainly as a result of both tariff increases and higher volumes, Page 9 Activity Report______________________________________________________________________Half Year 2012 - the United Kingdom (+14%) mainly driven by tariff increases and increased retained business in Motor fleet. Non-Motor revenues increased by €156 million or +3% reflecting growth in: the United Kingdom (+9%) primarily due to Health portfolio development in the United Kingdom and abroad, - France (+4%) mainly following tariff increases in Construction and Property, partly offset by lower volumes, - the Mediterranean and Latin American Region (+3%) mainly driven by new business in Health in the Gulf. International Insurance revenues International Insurance gross revenues were up 5% or 2% on comparable basis to €1,825 million mainly driven by (i) AXA Corporate Solutions up 2% to €1,334 million mainly as a result of positive portfolio developments and tariff increases in Construction, Property and Marine, partly offset by non renewal of a large contract in Liability and tariff decrease in Aviation, and (ii) AXA Assistance up 4% to €401 million. Asset management revenues Asset Management gross revenues decreased by 5% or 10% on a comparable basis to €1,575 million mainly driven by a decrease in management fees (€-117 million) at AllianceBernstein and lower performance fees and real estate transaction fees at AXA IM (€-35 million). AllianceBernstein revenues were down 13% to €965 million primarily due to lower management fees (-17%), resulting from lower bps (-3.6 bps) reflecting change in business mix, and lower average assets under management (-9%) versus 1H 2011. Assets Under Management (AUM) increased by 3% or €11 billion from year-end 2011 to €346 billion driven by (i) €+13 billion from market appreciation, (ii) €+8 billion favorable foreign rate exchange impact, partly offset by (iii) €- 5 billion net outflows (€5 billion net inflows from Retail clients offset by €-7 billion net outflows from Institutional clients and €-3 billion net outflows from Private Clients) and (iv) €-5 billion change in scope due to the disposal of AXA Canada and AXA Australia operations. AXA Investment Managers revenues were down 6% to €610 million. Excluding distribution fees (retroceded to distributors), net revenues decreased by €31 million (-6%) mainly resulting from lower performance and Real Estate transaction fees while management fees remained stable. AUM increased by 6% or +30 billion from year-end 2011 to €542 billion mainly as a result of (i) €+28 billion market appreciation, (ii) €+4 billion favorable foreign exchange rate impact, partly offset by (iii) €-2 billion outflows. Net outflows of €-2 billion were mainly driven by the voluntary exit from unprofitable employee shareholding plan schemes (€-4 billion) and outflows at AXA Rosenberg (€-1 billion), partly offset by net inflows mainly on AXA Private Equity, AXA Framlington and AXA Fixed Income. Net banking revenues Net banking revenues were down 9% to €226 million or down 8% on a comparable basis, mainly driven by France (- 43%) due to higher interest paid to customers on savings account as a result of the promotional campaign realized during the first half of 2012, while AXA Bank Belgium increased by 13% to €153 million mainly due to higher realized capital gains, partly offset by higher impairments on fixed income assets. Page 10 Activity Report______________________________________________________________________Half Year 2012 Consolidated underlying earnings, adjusted earnings and net income IASB and FASB deliberations regarding the Insurance Contracts Phase II project as well as change in USGAAP indicate that accounting standards are moving to lower capitalization and therefore less deferral of acquisition expenses. In this context, the Group changed its accounting policy on deferred acquisition costs as of January 1, 2012 and retrospectively restated comparative information related to previous periods. The impact of this change led to a reduction of total shareholders’ equity of €1,913 million (of which €1,910 million group share) as of January 1, 2011. In the tables of the document, “restated” refers to this voluntary change in accounting policy. HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Gross written premiums 45,749 43,959 43,959 80,570 Fees and revenues from investment contracts without participating feature 164 182 182 350 Revenues from insurance activities 45,913 44,141 44,141 80,920 Net revenues from banking activities 204 245 245 414 Revenues from other activities 2,268 2,449 2,449 4,708 TOTAL REVENUES 48,385 46,835 46,835 86,042 Change in unearned premium reserves net of unearned revenues and fees (4,069) (3,740) (3,740) (547) Net investment result excluding financing expenses (a) 14,209 11,065 11,065 15,114 Technical charges relating to insurance activities (a) (c) (45,494) (40,351) (40,351) (75,623) Net result of reinsurance ceded (572) (571) (571) (733) Bank operating expenses (47) (44) (44) (87) Insurance acquisition expenses (4,258) (4,345) (4,332) (8,160) Amortization of value of purchased life business in force (37) (87) (87) (241) Administrative expenses (c) (4,529) (5,047) (5,047) (9,552) Valuation allowances on tangible assets (0) (0) (0) 29 Change in value of goodwill (0) (1) (1) (0) Other (143) (158) (158) (388) Other operating income and expenses (55,081) (50,605) (50,592) (94,755) OPERATING EARNINGS BEFORE TAX 3,445 3,556 3,569 5,854 Net income from investments in affiliates and associates 44 46 46 85 Financing expenses (275) (196) (196) (360) UNDERLYING EARNINGS BEFORE TAX 3,214 3,406 3,420 5,579 Income tax expenses (791) (1,040) (1,048) (1,453) Minority interests (118) (145) (143) (224) Other UNDERLYING EARNINGS 2,305 2,222 2,228 3,901 Net realized capital gains or losses attributable to shareholders 123 171 174 (312) ADJUSTED EARNINGS 2,427 2,393 2,402 3,589 Profit or loss on financial assets (under fair value option) & derivatives 291 165 170 114 Exceptional operations (including discontinued operations) (8) 1,543 1,543 2,069 Goodwill and other related intangible impacts (56) (50) (50) (1,167) Integration and restructuring costs (69) (52) (52) (281) NET INCOME 2,586 3,999 4,013 4,324 (a) For the periods ended June 30, 2012 and December 31, 2011, the change in fair value of assets backing contracts with fin ancial risk borne by policyholders impacted the net investment result for respectively €+6,224 million and €+4,977 million, and benefits and claims by the offsetting amounts respectively. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) For the period ended December 31, 2011, €201 million have been reclassified from administrative expenses to technical charges relating to i nsurance activities to ensure consistency of the information. Page 11 (in Euro million) FY 2011 restated (b) 80,570 350 80,920 414 4,708 86,042 (547) 15,114 (75,623) (733) (87) (8,352) (241) (9,552) 29 (0) (388) (94,947) 5,662 85 (360) 5,386 (1,392) (222) 3,772 (312) 3,460 110 2,069 (1,167) (281) 4,190 Activity Report______________________________________________________________________Half Year 2012 Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Life & Savings 1,411 1,310 1,316 2,267 Property & Casualty International Insurance 1,044 118 989 143 989 143 1,848 276 Asset Management Banking 159 5 157 8 157 8 321 32 Holdings and other companies (a) (433) (384) (384) (843) UNDERLYING EARNINGS 2,305 2,222 2,228 3,901 Net realized capital gains or losses attributable to shareholders 123 171 174 (312) ADJUSTED EARNINGS 2,427 2,393 2,402 3,589 Profit or loss on financial assets (under Fair Value option) & derivatives 291 165 170 114 Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts (8) (56) 1,543 (50) 1,543 (50) 2,069 (1,167) Integration and restructuring costs (69) (52) (52) (281) NET INCOME 2,586 3,999 4,013 4,324 (a) Includes notably CDOs and real estate companies. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Group underlying earnings amounted to €2,305 million up 3% versus 1H 2011. On a constant exchange rate basis, underlying earnings remained stable driven by Property & Casualty and Life & Savings, partly offset by a decrease in Holdings and International Insurance. Life & Savings underlying earnings amounted to €1,411 million. On a constant exchange rate basis Life & Savings underlying earnings were up €40 million (+3%). On a comparable scope basis, restated for the sale of Bluefin and portfolios transferred in November 2011 to Resolution in the UK, and for the AXA APH Asian entities minority interest buy-out and disposal of Australia and New Zealand operations on April 2, 2011, Life & Savings underlying earnings were up €45 million (+3%) mainly attributable to Japan (€+135 million), Switzerland (€+23 million), the Mediterranean and Latin American Region (€+21 million), South-East Asia India and China (€+13 million), partly offset by the United States (€-156 million) mainly resulting from: (i) Lower Investment margin (€-25 million or -2%), mainly as a result of (i) lower investment income partly offset by lower allocation to policyholders in France (€-32 million), (ii) the United States (€-23 million) due to a decrease in investment income, partly offset by (iii) the Mediterranean and Latin American Region (€+8 million) mainly due to an exceptional release of policyholder bonus, and (iv) Switzerland (€+8 million) as a result of higher investment income mainly on real estate as well as lower interest credited. (ii) Higher fees & revenues (€+50 million or +1%) mainly driven by: a. Unit-linked management fees were down €27 million, mainly driven by France (€-18 million) due to lower average asset base and the United States (€-16 million) due to lower Separate Account balances, b. Loadings on premiums and mutual funds were up €75 million mainly driven by (i) France (€+100 million) due to an adjustment on Unearned Revenue Reserve (€+69 million) fully offset by DAC amortization, as well as higher loadings on premiums in Group Protection (€+23 million), (ii) Hong Kong (€+28 million) driven by higher new business and in-force growth, partly offset by (iii) the United States (€-69 million) due to the non repeat of a favourable change in assumptions in 1H 2011 related to Unearned Revenue Reserve amortization (€-71 million), c. Other fees were up €2 million. (iii) Net technical margin was down €608 million (or -93%) mainly driven by (i) the United States (€-724 million), primarily due to (a) higher Variable Annuity GMxB losses mainly resulting from reserve adjustments for lower partial withdrawal, partly offset by premium suspension on old contracts and other model and assumption refinements, as well as higher hedging losses, and due to (b) unfavorable mortality experience on Life products, partly offset by (ii) Japan (€+96 million) mainly due to the non repeat of the Great East Japan earthquake. (iv) Expenses decreased by €488 million (or -14%) as a result of: a. €393 million lower acquisition expenses, primarily driven by the United States (€+560 million) as a result of lower DAC amortization notably following the decrease in technical margin, partly offset by (i) France (€-64 million) mainly driven by higher DAC amortization (€-69 million) fully offset by Page 12 (in Euro million) FY 2011 restated (b) 2,138 1,848 276 321 32 (843) 3,772 (312) 3,460 110 2,069 (1,167) (281) 4,190 Activity Report______________________________________________________________________Half Year 2012 higher Unearned Revenue Reserve amortization, (ii) the Mediterranean and Latin American Region (€-33 million) due to higher DAC amortization reflecting increase in surrenders, b. €94 million lower administrative expenses reflecting both positive one-off impacts, as well as various efficiency programs net of inflation. (v) Lower tax expenses and minority interests (down €94 million) mainly driven by more favorable tax one-offs in Japan (€+59 million in 1H 2012 versus €-15 million in 1H 2011), as well as a change in country mix. Property & Casualty underlying earnings amounted to €1,044 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €41 million (+4%) mainly driven by: (i) Higher net technical result (including expenses) up €127 million (or +35%) driven by: a. Current year loss ratio improving by 0.2 point driven by tariff increases and lower claims frequency, partly offset by higher large claims, notably from freeze, and higher Nat Cat charge (+0.4 point), b. Higher positive prior year reserve developments by 0.1 point, c. Lower expense ratio improving by 0.5 point to 26.3%, reflecting (i) 0.4 point reduction in acquisition ratio mainly driven by productivity gains and a decrease in commission rate driven by a favorable product and business mix effect in the United Kingdom, and (ii) 0.1 point reduction in administrative expenses ratio benefiting from various efficiency programs net of inflation. d. As a result, the combined ratio improved by 0.8 point to 96.4%. (ii) Investment result remained stable at €1,033 million, as lower dividends in Germany and lower revenues on fixed rated bonds in France were offset by higher yields in Mediterranean and Latin American Region and the United Kingdom. (iii) Higher income tax expense and minority interests (up €76 million) mainly driven by higher pre-tax underlying earnings and unfavorable country mix while negative tax one-offs remained stable. International Insurance underlying earnings amounted to €118 million. On a constant exchange rate basis, underlying earnings decreased by €25 million (or -18%) mainly due to AXA Liabilities Managers, down €31 million, following lower favorable positive settlements on Property & Casualty run-off portfolios. Asset Management underlying earnings amounted to €159 million. On a constant exchange rate basis, underlying earnings decreased by €6 million (-4%) driven by (i) AXA IM (€-17 million or -17%) reflecting lower revenues partly offset by lower variable compensations, and partly offset by (ii) AllianceBernstein (€+11 million or +19%) as a result of lower variable compensations and staff reduction more than offsetting revenues decrease. Banking underlying earnings amounted to €5 million. On a constant exchange rate basis, underlying earnings decreased by €3 million (-39%). Holdings and other companies underlying earnings amounted to €-433 million. On a constant exchange rate basis, holdings underlying earnings decreased by €-48 million (12%) mainly driven by (i) AXA SA (€-69 million) due to an increase in financial charge and a lower income from net participation in BNP Paribas, partly offset by (ii) Other French Holdings (€+11 million) following an increase in operating profit of non consolidated entities. Group net capital gains attributable to shareholders amounted to €123 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were down €55 million mainly due to: (i) €-142 million lower realized capital gains, to €+369 million in the first half of 2012, mainly driven by lower realized gains on equities (€-134 million) and real estate (€-102 million), partly offset by higher realized gains on fixed income assets (€+80 million), (ii) €+58 million lower impairments to €-185 million in the first half of 2012, mainly driven by the non repeat of €-92 million net impairment charge on Greece government bonds, partly offset by higher impairments on equities and real estate, (iii) €+29 million higher intrinsic value related to equity hedging derivatives. As a result, adjusted earnings amounted to €2,427 million. On a constant exchange rate basis, adjusted earnings decreased by €56 million (-2%). Page 13 Activity Report______________________________________________________________________Half Year 2012 Net Income amounted to €2,586 million. On a constant exchange rate basis, net income decreased by €1,514 million (-38%) mainly as a result of: (i) Lower exceptional operations: down €1,550 million to €-8 million, mainly due to the non repeat of first half of 2011 exceptional capital gains of €1,440 million relating to the disposal of the stake in Taikang Life as well as Australia and New Zealand operations, (ii) Lower adjusted earnings : down €56 million, partly offset by (iii) More favorable change in fair value of financial assets and derivatives: up €114 million to €+291 million which can be analyzed as follows: a. €+191 million from decrease in interest rates and corporate spreads, b. €+99 million positive performance from private equity, equities and hedge funds, c. €+47 million positive change in fair value mainly from Asset Backed Securities mainly in Belgium, partly offset by d. €-47 million following foreign exchange rate movements, mainly on JPY. Page 14 Activity Report______________________________________________________________________Half Year 2012 Consolidated Shareholders’ Equity As of June 30, 2012, consolidated shareholders' equity totaled €48.7 billion. The movements in shareholders' equity since December 31, 2011 are presented in the table below: (in Euro million) FY 2011 published Change in DAC accounting methodology adopted retrospectively as at 01/01/2012 FY 2011 restated HY 2012 Shareholders' Equity 48,562 (2,104) 46,458 48,687 Shareholders' Equity At December 31, 2011 46,458 Share Capital 0 Capital in excess of nominal value 1 Equity-share based compensation 16 Treasury shares sold or bought in open market 17 Deeply subordinated debt (including interests charges) (148) Fair value recorded in shareholders' equity 1,788 Impact of currency fluctuations 609 Payment of N-1 dividend (1,626) Other (82) Net income for the period 2,586 Actuarial gains and losses on pension benefits (933) At June 30, 2012 48,687 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2012 HY 2011 published HY 2011 restated (a) FY 2011 published FY 2011 restated (a) Var. HY 2012 versus HY 2011 restated (a) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,340.3 2,343.3 2,298.4 2,302.5 2,298.4 2,302.5 2,301.0 2,305.0 2,301.0 2,305.0 Net income (Euro per Ordinary Share) 1.04 1.04 1.68 1.68 1.69 1.68 1.75 1.75 1.69 1.69 38% 38% Adjusted earnings (Euro per Ordinary Share) 0.97 0.97 0.98 0.98 0.98 0.98 1.43 1.43 1.38 1.37 1% 1% Underlying earnings (Euro per Ordinary Share) 0.92 0.92 0.91 0.90 0.91 0.91 1.57 1.57 1.51 1.51 1% 2% (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 15 Activity Report______________________________________________________________________Half Year 2012 RETURN ON EQUITY (“ROE”) (in Euro million) Period ended , June 30, 2012 Period ended , June 30, 2011 published Period ended , June 30, 2011 restated ( c) Change in % points ROE 11.1% 17.3% 18.0% 7.0 pts Net income group share 2,586 3,999 4,013 Average shareholders' equity 46,620 46,349 44,482 Adjusted ROE 13.8% 13.5% 14.3% 0.6 pts Adjusted earnings (a) Average shareholders' equity (b) 2,280 33,104 2,253 33,356 2,262 31,572 Underlying ROE 13.0% 12.5% 13.2% 0.2 pts Underlying earnings (a) Average shareholders' equity (b) 2,157 33,104 2,081 33,356 2,088 31,572 (a) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (b) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders' equity). (c) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 16 Activity Report______________________________________________________________________Half Year 2012 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings segment HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Gross revenues (a) 28,642 27,879 27,879 52,481 APE (Group share) 3,075 2,948 2,948 5,733 Investment margin 1,234 1,248 1,248 2,428 Fees & revenues 3,623 3,675 3,675 7,160 Net technical margin 16 645 645 (205) Expenses (3,001) (3,636) (3,623) (6,236) Amortization of VBI (37) (86) (86) (239) Other 25 22 22 43 Underlying earnings before tax 1,860 1,867 1,880 2,951 Income tax expenses / benefits (418) (495) (503) (597) Minority interests (31) (62) (61) (87) Underlying earnings Group share 1,411 1,310 1,316 2,267 Net capital gains or losses attributable to shareholders net of income tax 145 243 246 (35) Adjusted earnings Group share 1,556 1,553 1,562 2,232 Profit or loss on financial assets (under FV option) & derivatives 300 171 177 273 Exceptional operations (including discontinued operations) (26) 763 763 745 Goodwill and other related intangibles impacts (19) (15) (15) (1,015) Integration and restructuring costs (14) (16) (16) (42) Net income Group share 1,797 2,457 2,471 2,193 (a) Before intercompany eliminations. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Consolidated Gross Revenues HY 2012 HY 2011 France 6,754 7,105 United States 5,567 4,754 United Kingdom 317 327 Japan 3,180 2,865 Germany 3,290 3,328 Switzerland 4,838 4,544 Belgium 1,225 1,111 Central & Eastern Europe (d) 222 277 Mediterranean and Latin American Region (a) 2,258 2,338 Hong Kong 796 703 South-East Asia, India and China (c) 140 128 Other countries (b) 55 400 TOTAL 28,642 27,879 Intercompany transactions (35) (38) Contribution to consolidated gross revenues 28,607 27,841 of which high growth markets 1,350 1,296 of which mature markets 27,257 26,544 (a) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Other countries correspond to Australia / New Zealand, Luxembourg, AXA Global Distributors, AXA Life Europe, Architas and Family Protect . (c) South-East Asia revenues include Indonesia and Singapore. (d) Includes Poland, Hungary, Czech Republic and Slovakia. Page 17 (in Euro million) FY 2011 restated (b) 52,481 5,733 2,428 7,160 (205) (6,428) (239) 43 2,759 (536) (84) 2,138 (36) 2,102 269 745 (1,015) (42) 2,059 (in Euro million) FY 2011 13,658 9,657 651 5,747 7,001 6,158 2,142 514 4,796 1,465 255 436 52,481 (50) 52,431 2,617 49,814 Activity Report______________________________________________________________________Half Year 2012 Underlying earnings HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published France 375 379 374 632 United States 237 345 375 312 United Kingdom (13) (8) (8) (6) Japan 281 133 125 323 Germany 66 82 80 192 Switzerland 157 125 125 293 Belgium 77 82 82 155 Central & Eastern Europe (d) 17 7 7 9 Mediterranean and Latin American Region (a) 76 56 55 104 Hong Kong 119 89 83 224 South-East Asia, India and China (c) 35 18 18 50 Other countries (e) (14) 1 1 (19) UNDERLYING EARNINGS 1,411 1,310 1,316 2,267 of which high growth markets 178 121 115 295 of which mature markets 1,234 1,189 1,201 1,973 (a) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) South-East Asia earnings include Indonesia, Thailand, Philippines and Singapore. (d) Includes Poland, Hungary, Czech Republic and Slovakia. (e) Other countries correspond to Australia / New Zealand, Luxembourg, AXA Golbal Distributors, AXA Life Europe, Architas and Family Protect. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 published HY 2011 restated (a) FY 2011 published UNDERLYING EARNINGS 1,411 1,310 1,316 2,267 Net realized capital gains or losses attributable to shareholders 145 243 246 (35) ADJUSTED EARNINGS 1,556 1,553 1,562 2,232 Profit or loss on financial assets (under Fair Value option) & derivatives 300 171 177 273 Exceptional operations (including discontinued operations) (26) 763 763 745 Goodwill and related intangible impacts (19) (15) (15) (1,015) Integration and restructuring costs (14) (16) (16) (42) NET INCOME 1,797 2,457 2,471 2,193 (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 18 (in Euro million) FY 2011 restated (b) 620 235 (6) 303 188 293 155 9 102 210 50 (19) 2,138 281 1,857 (in Euro million) FY 2011 restated (a) 2,138 (36) 2,102 269 745 (1,015) (42) 2,059 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – France (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 6,754 641 554 828 273 (1,170) - 3 489 (113) (1) 375 49 424 77 - - - 7,105 664 587 749 253 (1,106) (7) 4 481 (106) (1) 374 146 520 37 - - - 13,658 1,340 1,111 1,520 449 (2,209) (69) 6 808 (187) (2) 620 193 812 (84) - - - Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 501 557 728 Gross revenues decreased by €352 million (-5%) to €6,754 million 1 . On a comparable basis, gross revenues decreased by €348 million (-5%) mainly due to: G/A Savings sales down €348 million (-11%) mainly driven by Individual Savings (-14%) affected by continued selective sales and negative performance of the French traditional savings market (-14%2), partly offset by higher large contracts in Group Retirement (+13%), Unit-Linked sales down €35 million (-4%) affected by the negative performance of the French Individual Unit-Linked Savings market (down 33%2). Unit-Linked share in Savings premiums increased by 1 point to 23% (above market of 13%2), G/A Protection and Health increased by €35 million (+1%) driven by €38 million in Group Protection and €8 million in Individual Protection both reflecting positive portfolio developments. Individual Health decreased by €10 million negatively impacted by the stop of assumed business with Mutuelle Mieux Etre. APE decreased by € 22 million (-3%) to €641 million. On a comparable basis, APE decreased by €36 million (-5%): G/A Savings sales down €36 million (-12%) driven down by Individual Savings (-14%) affected by continued selective sales and negative performance of the French traditional savings market, partly offset by higher large contracts in Group Retirement (+12%), Unit-Linked sales down € 7 million (-7%) affected by the negative performance of the French Individual Unit- Linked Savings market, G/A Protection and Health increased by €7 million (+3%) driven by €3 million in Group Protection and €4 million in Individual Protection both reflecting new long term care product success. Investment margin decreased by €32 million (-6%) to €554 million due to lower investment income (€-41 million), partly offset by lower amounts allocated to policyholders. Fees & revenues increased by €79 million (+11%) to €828 million. Excluding a €+69 million adjustment on URR reserves (fully offset in DAC), fees and revenues increased by €10 million driven by higher loadings on premiums in Group protection (€+25 million), partly offset by lower united-linked management fees due to a lower average asset base. 1 €6,746 million after intercompany eliminations. 2 Source: FFSA as of end of June 2012. Page 19 Activity Report______________________________________________________________________Half Year 2012 Net technical margin rose by €20 million (+8%) to €273 million driven by higher positive prior year reserve developments partly offset by lower current year result in Group Protection (€-24 million). Expenses increased by €64 million (+6%) to €-1,170 million. Excluding a €-69 million adjustment on DAC (fully offset in URR), expenses decreased by €-5 million driven by lower administrative expenses reflecting continuing efforts to contain expenses, while acquisition expenses remained stable. Amortization of VBI decreased by €7 million (-100%) to €0 million as a result of the accelerated amortization of the remaining balance of VBI in 2011. As a result, the underlying cost income ratio increased by 0.6 point to 70.6%. Excluding the above mentioned adjustment on DAC and URR, the underlying cost income ratio decreased by 0.6 point. Income tax expenses increased by €7 million (+7%) to €-113 million, mainly due to an increase in corporate tax rate (from 34.43% to 36.10%, enacted in the second half of 2011). As a result, underlying earnings marginally increased by €1 million (0%) to €375 million. Adjusted earnings decreased by €97 million (-19%), mainly due to lower realized capital gains (€-89 million) mostly on real estate and higher impairments (€-7 million) mainly on equities. Net income decreased by €56 million (-10%) to €501 million, reflecting lower adjusted earnings and lower foreign exchange rate impact (€-13 million), partly offset by the favorable change in fair value of freestanding derivatives and mutual funds (€+54 million) mainly driven by the credit spread tightening. Page 20 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations - United States (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,567 599 233 995 (580) (315) 7 - 340 (103) - 237 (26) 211 97 - (1) (8) 4,754 502 239 1,013 188 (898) 1 - 543 (168) - 375 (9) 365 51 - (1) (12) 9,657 1,018 474 1,931 (1,192) (1,028) (5) - 180 54 - 235 (11) 223 326 - (944) (29) Net income Group share 300 404 (424) Average exchange rate : 1.00 € = $ (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 1.2969 1.4042 1.3867 Gross revenues increased by €813 million (+17%) to €5,567 million 1. On a comparable basis, gross revenues increased by €388 million (+8%): Variable Annuity revenues (62% of gross revenues) increased by 25% reflecting strong sales results for non GMxB Variable Annuity Structured Capital Strategies and GMxB Accumulator products, as well as additional contributions received for certain old Accumulator contracts prompted by an announced deadline for acceptance of additional contributions, Life revenues (25% of gross revenues) increased by 1% driven by an increase in sales of the Indexed Universal Life (product launched in August 2010 and represents 43% of the half year 2012 Life sales) and an increase in renewal premiums reflecting strong first year sales last year, partially offset by lower Athena Universal Life and Term sales this year, Fees on Asset Management business (7% of gross revenues) decreased by 3% driven by lower average assets under management, Mutual Funds revenues (1% of gross revenues) increased by 5% reflecting higher advisory fees. APE increased by €96 million (+19%) to €599 million. On a comparable basis, APE increased by €50 million (+10%): Variable Annuity increased by 24% to €304 million reflecting higher sales of Accumulator mainly through the third party channels and non GMxB Structured Capital Strategies product partially offset by lower sales on GMxB Retirement Cornerstone. The new products launched in 2010, Retirement Cornerstone and Structured Capital Strategies, represented a combined 39% of the half year 2012 Variable Annuity APE, Life increased by 3% to €118 million reflecting increased sales of Indexed Universal Life primarily in third party channels, Mutual Funds decreased by 3% to €175 million. Investment margin decreased by €5 million (-2%) to €233 million. On a constant exchange rate basis, investment margin decreased by €23 million (-10%) driven by a decrease in investment income of €25 million reflecting lower yields on fixed income assets and alternative investments. Interest credited was flat reflecting higher balances offset by lower crediting rates. 1 €5,567 million after intercompany eliminations. Page 21 Activity Report______________________________________________________________________Half Year 2012 Fees & revenues decreased by €18 million (-2%) to €995 million. On a constant exchange rate basis, fees & revenues decreased by €94 million (-9%) primarily driven by the non repeat of 1H 2011 assumption change on Unearned Revenue Reserve (more than offset in DAC amortization) and by lower unit-linked management fees from lower average Separate Account balances. Net technical margin decreased by €768 million (-408%) to €-580 million. On a constant exchange rate basis, net technical margin decreased by €724 million (-385%) primarily due to GMxB reserve adjustments for partial withdrawals partially offset by premium suspension on old contracts, other model and assumption refinements, higher GMxB hedge losses resulting from increased volatility and basis losses, and the impact on life products of unfavorable mortality experience. Expenses decreased by €582 million (-65%) to €-315 million. On a constant exchange rate basis, expenses decreased by €607 million (-68%): Expenses, net of capitalization (including commissions and DAC capitalization) decreased by €60 million (- 10%) to €592 million mainly due to productivity actions (reduction of FTE, changes to benefit plan and staff relocation savings) implemented in 2011 and 2012, DAC amortization decreased by €547 million to €+277 million following higher GMxB losses partially offset by higher baseline amortization. Amortization of VBI decreased by €6 million to €7 million. On a constant exchange rate basis, amortization of VBI decreased by €5 million following a change in assumption reflecting higher expected margins on MONY in-force contracts. As a result, the underlying cost income ratio decreased by 14.7 points to 47.6%. Income tax expense decreased by €65 million to €-103 million. On a constant exchange rate basis, income tax expense decreased by €73 million which reflects lower underlying earnings. Underlying earnings decreased by €138 million (-37%) to €237 million. On a constant exchange rate basis, underlying earnings decreased by €156 million (-42%). Adjusted earnings decreased by €155 million (-42%) to €211 million. On a constant exchange rate basis, adjusted earnings decreased by €171 million (-47%) mainly reflecting the decrease in underlying earnings and higher impairments on fixed income assets. Net income decreased by €104 million (-26%) to €300 million. On a constant exchange rate basis, net income decreased by €127 million (-31%). This was primarily driven by lower adjusted earnings partially offset by higher gains on interest related derivatives due to lower interest rates. Page 22 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations - United Kingdom HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 317 283 2 168 1 (220) - - (49) 36 0 (13) - (13) 1 (0) (4) (3) (19) 0.8226 327 296 6 185 (0) (219) (1) - (31) 23 0 (8) 2 (6) 3 17 (6) (0) 7 0.8686 In the table above, HY 2011 and FY 2011 figures are not restated for scope effects. For consistency, 2012 figures have been compared to the same scope for 2011, i.e. excluding portfolios transferred to Resolution in November 2011 and Bluefin Corporate Consulting which was sold in April 2012. This is referred to as “comparable scope basis” in the commentary below. Half-year 2011 underlying earnings amounted to €-8 million, corresponding approximately to €18 million from the sold business and €-26 million from the retained business. Gross revenues decreased by €11 million (-3%) to €317 million1. On a constant exchange rate and comparable scope basis, gross revenues increased by €45 million (+18%) mainly attributable to €42 million premiums from Variable Annuity product sold through AXA Global Distributors, €10 million increased regular premiums on Sun Life Direct Protection business and €8 million increased revenues on the Elevate and Architas funds business. This was partially offset by €7 million lower revenues through the bancassurance channel. APE decreased by €13 million (-4%) to €283 million. On a constant exchange rate and comparable scope basis, APE was 9% (€-28 million) lower than prior year. New sales through the Elevate platform have increased significantly, up by €10 million (11%) as the platform continues to establish itself as one of the leaders in the growing UK platform market. This platform growth has been more than offset by reductions in sales of individual pensions due in part to the market shift to platforms. In addition economic uncertainty has led to a fall in sales of offshore business. Investment margin decreased by €4 million (-73%) to €2 million. On a constant exchange rate and on a comparable scope basis, the investment margin decreased by €2 million (-61%). Fees & revenues decreased by €17 million (-9%) to €168 million. On a constant exchange rate and on a comparable scope basis, fees & revenues increased by €3 million (2%) mainly due to an increase in Elevate revenues due to growth of new business. 1 €317 million after intercompany eliminations. Page 23 (in Euro million) FY 2011 651 535 15 375 23 (454) (2) - (43) 37 0 (6) 2 (5) 3 (37) (50) (3) (93) 0.8663 Activity Report______________________________________________________________________Half Year 2012 Net technical margin increased by €2 million to €1 million (384%). On a constant exchange rate and on a comparable scope basis, net technical margin remained stable. Expenses increased by €1 million (1%) to €220 million. On a constant exchange rate and on a comparable scope basis, expenses increased by €5 million (2%) due to investment in Wealth business growth and inflation, partly offset by expense savings reflecting continued cost management. As a consequence, the underlying cost income ratio increased by 12.8 points to 128.9%. On a constant exchange rate and on a comparable scope basis, the underlying cost income ratio increased by 2.1 points. Income tax benefits increased by €13 million to €36 million. On a constant exchange rate and on a comparable scope basis, income tax benefits increased by €17 million reflecting decrease in pre-tax underlying earnings as well as €19 million one-off tax benefit in 1H 2012. Underlying earnings decreased by €5 million to €-13 million. On a constant exchange rate and on a comparable scope basis, underlying earnings increased by €13 million. Adjusted earnings decreased by €7 million to €-13 million. On a constant exchange rate and on a comparable scope basis, adjusted earnings increased by €13 million due to the underlying earnings movement. Net income decreased by €26 million to €-19 million. On a constant exchange rate, net income decreased by €3 million. Page 24 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Japan (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 3,180 269 (0) 765 44 (447) (17) - 345 (61) (3) 281 67 348 41 - - - 2,865 212 (0) 727 (55) (418) (25) - 229 (103) (2) 125 81 206 105 - - - 5,747 463 0 1,456 (23) (890) (56) - 487 (180) (3) 303 12 315 19 - - - Net income Group share 389 310 335 Average exchange rate : 1.00 € = Yen (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 104.1900 112.3500 112.9700 Gross revenues increased by €315 million (+11%) to €3,180 million1. On a comparable basis, revenues increased by €84 million (+3%): Protection revenues (38% of gross revenues) decreased by €16 million (-2%) mainly due to lower Group Life sales (€-15m), lower Increasing Term Riders (€-44 million) due to a peak in surrenders partly offset by strong new business sales of LTTP (€+26 million) and increase in Whole Life products driven by better retention (€+27 million), Investment & Savings revenues (33% of gross revenues) increased by €109 million (+13%) mainly due to higher sales of Variable Annuity products driven by a continuous expansion of bank partnerships, Health revenues (29% of gross revenues) decreased by €8 million (-1%) driven by lower in-force not fully offset by new products notably in Cancer. APE increased by €57 million (+27%) to €269 million. On a comparable basis, APE increased by €37 million (+17%): - Protection (45% of APE) increased by €17 million (+16%) mainly supported by higher sales of LTTP products, - Investment & Savings (30% of APE) increased by €18 million (+39%) due to strong Variable Annuity sales. - Health (26% of APE) increased by €2 million (+3%) driven by the new Cancer product launched in 2011 and strongly promoted in all sales channels, partly offset by old products with lower profitability, Investment margin remained stable at €0 million. Fees & revenues increased by €37 million (+5%) to €765 million. On a constant exchange rate basis, fees & revenues remained stable. Net technical margin increased by €100 million to €44 million. On a constant exchange rate basis, net technical margin increased by €96 million mainly due to the 2011 impact of the Great East Japan earthquake (€+80 million) and better mortality experience (€+16 million). 1 € 3,180 million after intercompany eliminations. Page 25 Activity Report______________________________________________________________________Half Year 2012 Expenses increased by €29 million (+7%) to €-447 million. On a constant exchange rate basis, expenses decreased by €4 million (-1%) mainly due to lower advertising expenses. Amortization of VBI decreased by €7 million (-29%) to €-17 million. On a constant exchange rate basis, VBI amortization decreased by €8 million (-34%) mainly driven by the natural decline of VBI balance. As a result, the underlying cost income ratio improved by 8.5 points to 57.4%. Income tax expenses decreased by €40 million to €-61 million. On a constant exchange rate basis, income tax expenses decreased by €46 million due to a 2012 positive tax one-off (€+59 million) and non repeat of a 2011 negative tax one-off (€+15 million) partly offset by higher underlying pre-tax earnings (€-32 million). Underlying earnings increased by €156 million (+125%) to €281 million or increased by €135 million (+108%) on a constant exchange rate basis. Adjusted earnings increased by €142 million (+69%) to €348 million or increased by €117 million (+57%) on a constant exchange rate basis, due to higher underlying earnings, partly offset by lower realized capital gains on fixed income assets. Net income increased by €79 million to €389 million. On a constant exchange rate basis, net income increased by €51 million, due to higher adjusted earnings (€+116 million), partly offset by unfavorable change in mark-to-market of interest rate derivatives (€-14 million) and the Japanese Yen depreciation against major currencies (€-31 million). Page 26 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Germany (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 3,290 258 57 157 4 (102) (11) - 105 (39) (0) 66 (8) 57 24 - - - 3,328 258 50 150 35 (111) (10) - 114 (35) (0) 80 (7) 72 8 - - - 7,001 506 113 325 77 (260) (32) - 223 (34) (0) 188 (42) 147 2 - - (1) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 81 80 148 Gross revenues decreased by €37 million (-1%) to €3,290 million1: Life revenues (61% of gross revenues) decreased by €95 million (-4%) to €2,017 million due to lower single premiums from G/A short-term investment products and unit-linked Savings as well as lower regular premiums from Protection partly compensated by higher regular premiums from G/A Savings products, Health revenues (39% of gross revenues) increased by €57 million (+5%) to €1,273 million mainly from higher new business and premium adjustments. APE increased by €1 million (+0%) to €258 million: Life decreased by €15 million (-10%) mainly due to lower new business from unit-linked Savings attributable to prevailing market conditions and curtailment of “Twinstar” Variable Annuity product production, as well as decreasing single premiums from G/A short term investment products, partly compensated by higher new business from Pure Protection as well as G/A Savings, Health increased by €15 million (+14%) driven by strong sales supported by brokers’ anticipation of a change in regulation capping their commissions effective from April 1, 2012. Investment margin increased by €6 million (+13%) to €57 million due to a lower share allocated to policyholders, while investment income remained flat as higher distributions from private equity funds were offset by exceptional coupon payments in the previous year. Fees & revenues increased by €7 million (+5%) to €157 million mainly due to higher loadings on Health business in line with the portfolio growth. Net technical margin fell by €30 million (-87%) to €4 million mainly due to a decrease in the hedging margin on GMxB products (€-27 million) largely driven by higher interest rate volatility. Expenses decreased by €9 million (-8%) to €102 million due to productivity programs and lower amortization of deferred acquisition expenses due to one-off effects deriving from model refinements. 1 €3,281 million after intercompany eliminations. Page 27 Activity Report______________________________________________________________________Half Year 2012 Amortization of VBI increased by €1 million (+13%) to €-11 million. As a result, the underlying cost income ratio increased by 0.5 point to 52.0%. Income tax expenses increased by €4 million (+13%) to €-39 million due to higher effective tax rate as a result of a different legal entity mix. Underlying earnings decreased by €14 million (-18%) to €66 million. Adjusted earnings decreased by €15 million (-20%) to €57 million mainly due to lower underlying earnings. Net income increased by €1 million (+1%) to €81 million, as lower adjusted earnings were partly offset by favorable change in fair value of interest rate derivatives notably due to lower interest rates. Page 28 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Switzerland HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 4,838 256 63 141 111 (108) 1 - 208 (52) - 157 3 160 15 - (3) - 172 1.2046 4,544 277 52 131 130 (106) (35) - 172 (47) - 125 20 145 (1) 749 (3) - 890 1.2700 Gross revenues increased by €294 million (+6%) to €4,838 million1. On a comparable basis, gross revenues increased by €45 million (+1%): Group Life revenues increased by €23 million (+1%) to €4,402 million as a result of higher regular premiums from full protection schemes contracts (€+111 million) driven by lower surrenders and the strong new business written in prior year, Individual Life revenues increased by €22 million (+6%) to €437 million as a consequence of higher single premiums (€+25 million) mainly resulting from Protect Invest and the newly launched product Protect Star. APE decreased by €21 million (-8%) to €256 million. On a comparable basis, APE decreased by €34 million (-12%): Group Life decreased by €40 million (-17%) mainly due to the decrease of full-protection schemes (€-39 million) after the exceptional growth in prior year, Individual Life increased by €6 million (+12%) as a result of higher regular premiums mainly resulting from the success of the Protect Plan product. Investment margin increased by €11 million (+22%) to €63 million. On a constant exchange rate basis, investment margin increased by €8 million (+16%) as a result of a higher investment income mainly driven by income from real estate as well as lower interest credited. Fees & revenues increased by €10 million (+7%) to €141 million. On a constant exchange rate basis, fees & revenues increased by €2 million (+2%) mainly resulting from both Group Life and Individual Life. Net technical margin fell by €19 million (-14%) to €111 million. On a constant exchange rate basis, net technical margin decreased by €25 million (-19%) mainly driven by the non-recurrence of 1H 2011 favorable mortality margin in Individual Life as well as a gain of €8 million from the cancellation of a large internal co-insurance contract (offset by a corresponding VBI amortization). 1 €4,838 million after intercompany eliminations. Page 29 (in Euro million) FY 2011 6,158 397 118 265 270 (202) (59) - 392 (99) - 293 (13) 280 100 798 (7) - 1,172 1.2366 Activity Report______________________________________________________________________Half Year 2012 Expenses increased by €2 million (+2%) to €-108 million. On a constant exchange rate basis, expenses decreased by €3 million (-3%) mainly driven by lower administrative expenses (€-4 million) reflecting ongoing cost management and slightly higher acquisition costs (€+1 million). Amortization of VBI decreased by €36 million (-102%) to €1 million. On a constant exchange rate basis, amortization of VBI decreased by €36 million (-101%) mainly impacted by updated actuarial assumptions in Group and Individual Life (€+24 million) as well as the cancellation of the above-mentioned internal co-insurance contract in 1H 2011. As a result, the underlying cost income ratio decreased by 11.0 points to 34.0%. Income tax expenses increased by €5 million (+10%) to €-52 million. On a constant exchange rate basis, income tax expenses increased by €2 million (+4%) mainly due to higher pre-tax underlying earnings, partly offset by a lower withholding tax charge on dividends received from consolidated foreign subsidiaries. Underlying earnings increased by €31 million (+25%) to €157 million. On a constant exchange rate basis, underlying earnings increased by €23 million (+19%). Adjusted earnings increased by €15 million (+10%) to €160 million. On a constant exchange rate basis, adjusted earnings increased by €6 million (+4%) mainly driven by higher underlying earnings, partly offset by lower net realized capital gains mainly on equities. Net income decreased by €718 million (-81%) to €172 million. On a constant exchange rate basis, net income decreased by €727 million (-82%) mainly driven by the non-recurrence of the exceptional gain from the sale of the stake in Taikang Life (€+749 million) in 2011. Page 30 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Belgium (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 1,225 119 155 69 15 (129) (4) - 105 (28) (0) 77 44 121 59 (8) - (2) 1,111 80 148 65 25 (131) (3) - 104 (22) (0) 82 0 82 (24) - - (3) 2,142 173 288 163 34 (278) (5) - 203 (48) (0) 155 (88) 68 (70) - - (7) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 170 56 (9) Gross revenues increased by €114 million (+10%) to €1,225 million1: Individual Life & Savings increased by 11% (or €90 million) to €908 million mainly driven by the increase in G/A Investment & Savings products by €129 million (21%) mainly Crest Classic, partly offset by other Crest products, Group Life & Savings revenues increased by 8% (or €24 million) to €317 million. APE increased by €40 million (+50%) to €119 million: Individual Life & Savings APE increased by 36% (or €26 million) mainly driven by Crest Classic as a result of a two-month sales campaign in January and February, partly offset by other Crest products, - Group Life & Savings APE increased by 160% (or €14 million) to €23 million mainly driven by the acquisition of a large contract. Investment margin increased by €7 million (+5%) to €155 million mainly as a result of a higher asset base. Fees & revenues increased by €4 million (+6%) to €69 million mainly due to higher fees and loadings (+€3 million). Net technical margin decreased by €11 million (-43%) to €15 million mainly due to the contribution to the new policyholder protection fund (€-13 million) which was booked in expenses in 1H 2011. Excluding this impact, the net technical margin increased by €2 million due to a more favorable mortality experience. Expenses decreased by €2 million (-1%) to €-129 million mainly driven by the reclassification to technical margin of the contribution to the new policyholder protection fund (€+13 million). Excluding this impact, expenses increased by €11 million due to higher amortization of deferred acquisition costs following 2H 2011 update of actuarial assumptions (€-8 million) and higher general expenses (€-4 million), partly offset by lower commissions expenses (€+1 million). Amortization of VBI increased by €1 million to €-4 million. 1 €1,225 after intercompany eliminations. Page 31 Activity Report______________________________________________________________________Half Year 2012 As a result, the underlying cost income ratio improved by 0.4 point to 55.9%. Income tax expenses increased by €6 million to €-28 million due to lower equities dividends with a more favorable taxation rate. Underlying earnings decreased by €5 million to €77 million. Adjusted earnings increased by €38 million to €121 million, due to higher realized capital gains mainly on fixed income assets and a favourable change in intrinsic value of equity hedging derivatives, partly offset by lower underlying earnings. Net income increased by €114 million to €170 million mainly driven by higher adjusted earnings, a positive change in fair value on fixed income mutual funds and interest rate derivatives, partly offset by €-8 million from the disposal of “Vie Populaire” product portfolio. Page 32 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Central & Eastern Europe HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 222 78 14 56 18 (68) (1) - 19 (2) (0) 17 2 19 0 - (1) - 18 277 129 14 65 16 (85) (1) - 9 (2) (0) 7 1 8 0 - (1) - 7 Gross revenues decreased by €54 million (-20%) to €222 million1. On a comparable basis, gross revenues decreased by €42 million (-15%), mainly driven by lower insurance revenues in Czech Republic, Slovakia and Hungary (€-36 million) and by the decrease in Pension Fund products sales in Poland (€-3 million) due to a change in regulation. APE decreased by €51 million (-40%) to €78 million. On a comparable basis, APE decreased by €47 million (-36%) due to the a change in regulation in Poland affecting pension fund new business (€- 32 million or -57%), and lower Life & Savings APE (€-15 million or -20%) primarily in unit-linked (€-11 million or -19%) mainly in Czech Republic and Slovakia as a result of the decision to stop the cooperation with low quality brokers. Underlying earnings increased by €10 million to €17 million. On a constant exchange rate basis, underlying earnings increased by €11 million mainly due to both positive one-offs and productivity actions, partly offset by lower fees and revenues (€-6 million). As a result, the underlying cost income ratio improved by 12.0 points to 78.1%. Adjusted earnings increased by €11 million to €19 million. On a constant exchange rate basis, adjusted earnings increased by €11 million driven by higher underlying earnings and higher realized capital gains (€+1 million) mainly in the Czech Pension Fund portfolio. Net income increased by €11 million to €18 million. On a constant exchange rate basis, net income increased by €11 million driven by higher adjusted earnings. 1 €222 million after intercompany eliminations. Page 33 (in Euro million) FY 2011 514 213 29 115 35 (162) (2) - 15 (6) (0) 9 (0) 8 (0) - (2) - 6 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Mediterranean and Latin American Region (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,258 190 144 178 73 (235) (7) - 153 (50) (27) 76 3 79 (11) (0) (10) (1) 2,338 202 137 155 42 (220) (7) - 106 (29) (22) 55 4 59 (6) - (4) (1) 4,796 432 264 320 73 (448) (14) - 195 (52) (41) 102 (80) 22 14 (0) (12) (2) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 56 49 22 Gross revenues decreased by €80 million (-3%) or €75 million (-3%) on a comparable basis to €2,258 million1: Mature markets were down €81 million (-4%), mainly driven by a decrease of €507 million in G/A Savings products, mainly in Italy, in a context of high competitive environment from banks and the curtailment of Variable Annuity products (€-208 million), partly offset by higher sales in unit-linked Savings products (€+642 million), mainly driven by the success of new “Protected Unit” product at AXA MPS, High growth markets increased by €6 million (+3%) mainly driven by higher Group Protection new business in Morocco. APE decreased by €13 million (-6%) or €12 million (-6%) on a comparable basis to €190 million: Mature markets were down €16 million (-9%), mainly reflecting a strong decrease in G/A Savings products (€-36 million), partly offset by a better performance on unit-linked products (€+19 million), mainly at AXA MPS, in line with the strategy to focus on improving the business mix, High growth markets increased by €4 million (+15%) mainly driven by unit-linked Protection with Savings in Mexico (€+2 million). Investment margin increased by €7 million (+5%) or €8 million (+6%) on a comparable basis to €144 million, in both (i) mature markets (€+7 million) driven by non recurring policyholders bonus reserve release at AXA MPS and (ii) high growth markets (€+1 million) thanks to higher asset base. Fees & revenues increased by €23 million (+15%) or €24 million (+15%) on a comparable basis to €178 million: Mature markets up €23 million (+21%) notably at AXA MPS (€+24 million) driven by higher unearned revenues reserves amortization mainly reflecting higher surrenders combined with strong sales of new “Protected Unit” unit-linked product, High growth markets up €1 million (+2%) driven by Individual Protection with Savings in Mexico (€+1 million). Net technical margin rose by €30 million (+72%) or €31 million (+73%) on a comparable basis to €73 million: 1 €2,253 million after intercompany eliminations. Page 34 Activity Report______________________________________________________________________Half Year 2012 - Mature markets up €22 million mainly driven by higher GMxB margin (€+16 million) due to an improved basis risk as well as by an increase in surrender margin (€+5 million) mainly driven by Greece (€+4 million) due to a non-recurring favorable reserve development, High growth markets increased by €9 million reflecting improved mortality margin on Protection business in Mexico (€+5 million) and in Morocco (€+5 million). Expenses increased by €14 million (+7%) or €16 million (+7%) on a comparable basis to €-235 million: Mature markets up €5 million driven by AXA MPS reflecting higher deferred acquisition costs amortization following higher surrenders, High growth markets up €11 million mainly due to Mexico reflecting non recurring commission adjustments. Amortization of VBI decreased by €1 million (-8%) or €1 million (-8%) on a comparable basis to €-7 million, mainly due to the natural decline of VBI balance at AXA MPS. As a result, underlying cost income ratio decreased by 6.9 points to 61.2%. Income tax expenses increased by €21 million (+72%) or €21 million (+72%) on a comparable basis to €-50 million reflecting higher pre-tax underlying earnings. Underlying earnings increased by €21 million (+38%) or €21 million (+38%) on a comparable basis to €76 million. Adjusted earnings increased by €20 million (+33%) or €20 million (+33%) on a comparable basis to €79 million driven by equities due to higher realized capital gains, partly offset by higher impairment. Net income increased by €8 million (+16%) or €8 million (+16%) on a comparable basis to €56 million, reflecting unfavorable change in fair value of interest rate derivatives and accelerated amortization of the distribution agreement in Greece. Page 35 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Hong Kong (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 796 180 2 214 28 (107) (5) (4) 128 (9) - 119 11 130 (5) (13) - - 703 166 6 170 14 (85) 7 - 112 (7) (22) 83 4 87 (1) - - - 1,465 330 4 385 45 (185) 9 (7) 251 (17) (24) 210 (13) 197 (49) (1) - - Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 113 86 147 Gross revenues increased by €93 million (+13%) to €7961 million. On a comparable basis, gross revenues increased by €31 million (+4%) mainly due to higher revenues from G/A Protection & Health products (€+51 million) driven by strong renewal and high agency focus partly offset by lower revenues from unit-linked products (€-12 million) in line with the Hong Kong market trend, as well as G/A Savings products (€-9 million) following the non repeat of some 2011 large cases. APE increased by €14 million (+8%) to €180 million. On a comparable basis, APE remained stable as the higher demand for G/A Protection & Health products was offset by lower unit-linked sales. Investment margin decreased by €4 million (-62%) to €2 million. On a constant exchange rate basis, investment margin decreased by €4 million (-65%) as average asset yield decreased while interest crediting rate to policyholders remained stable. Fees & revenues increased by €43 million (+25%) to €214 million. On a constant exchange rate basis, fees & revenues increased by €26 million (+15%) driven by an increase in loadings on premiums (€+28 million) stemming from new business and growing in-force. Net technical margin rose by €14 million (+101%) to €28 million. On a constant exchange rate basis, net technical margin increased by €12 million (+85%) mainly due to the non-repeat of 2011 exceptional items: - a €7 million loss from early termination of an internal co-insurance treaty (offset in amortization of VBI), a €4 million GMxB hedge reserve adjustment reflecting better persistency. Expenses increased by €22 million (+26%) to €-107 million. On a constant exchange rate basis, expenses increased by €13 million (+16%) mainly due to higher investments in business infrastructure and higher acquisition expenses driven by new business and in-force growth. 1 € 796 million after intercompany eliminations. Page 36 Activity Report______________________________________________________________________Half Year 2012 Amortization of VBI increased by €11 million to €-5 million. On a constant exchange rate basis, amortization of VBI increased by €11 million due to the non-repeat of 2011 exceptional items: - the revised projection of future profits (€7 million), the early termination of an internal co-insurance treaty (€6 million). As a consequence, the underlying cost income ratio increased by 4.7 points to 46.1%. Income tax expenses increased by €2 million (+21%) to €-9 million. On a constant exchange rate basis, income tax expenses increased by €1 million (+15%) reflecting a higher taxable income. Underlying earnings increased by €36 million (+43%) to €119 million. On a constant exchange rate and scope basis, following the AXA APH minority interests buy-out in April 2011, underlying earnings increased by €3 million (+3%). Adjusted earnings increased by €43 million (+50%) to €130 million. On a constant exchange rate and scope basis, adjusted earnings decreased by €7 million (-6%) as higher underlying earnings were more than offset by lower realized capital gains and higher impairments on equities. Net income increased by €27 million (+31%) to €113 million. On a constant exchange rate and scope basis, net income decreased by €23 million (-18%) mainly reflecting the closure of two distribution networks (€-12 million) and lower adjusted earnings (€-7 million). Page 37 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – South-East Asia, India and China (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 140 201 35 (0) 35 (1) (4) - - 30 128 162 18 2 20 1 (4) - - 16 255 326 50 2 52 4 (17) - - 39 Gross Revenue increased by €12 million (+9%) to €140 million1. On a comparable basis, gross revenues increased by €7 million (+6%) mainly driven by higher revenues from unit-linked products in Singapore driven by higher new business, partly offset by a temporary slowdown in sales force recruitment in Indonesia. APE increased by €39 million (+24%) to €201 million. On a comparable basis, APE increased by €29 million (+18%) mainly driven by: - strong sales of G/A Protection with Savings and Whole Life products in Thailand (€+15 million), and higher sales of unit-linked products through the bancassurance channel in Indonesia (€+7 million) and through the broker channel in Singapore (€+4 million). Underlying earnings increased by €17 million (+97%) to €35 million. On a constant exchange rate and scope basis, following the AXA APH minority interests buy-out in April 2011, underlying earnings increased by €13 million mainly due to: - - China (€-10 million) due to a change in accounting methodology and unfavorable claims experience. Indonesia (€+11 million), Thailand (€+4 million) and Philippines (€+4 million) driven by growth in business, India (€+3 million) following lower operational losses, Adjusted earnings increased by €15 million (+77%) to €35 million. On a constant exchange rate and scope basis, adjusted earnings increased by €12 million primarily driven by underlying earnings growth. Net income increased by €14 million (+89%) to €30 million. On a constant exchange rate and scope basis, net income increased by €11 million mainly reflecting growth in adjusted earnings. 1 €140 million after intercompany eliminations. Page 38 Activity Report______________________________________________________________________Half Year 2012 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Australia / New Zealand 352 355 Luxembourg 41 46 78 AXA Global Distributors 13 1 3 Family protect 1 0 Other (0) (0) (0) TOTAL 55 400 436 Intercompany transactions (12) (2) (3) Contribution to consolidated gross revenues 44 399 433 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Australia and New Zealand 12 12 Luxembourg 3 3 4 AXA Global Distributors (7) (14) (27) Family Protect (9) (7) Other (1) (1) (2) UNDERLYING EARNINGS (14) 1 (19) Net realized capital gains or losses attributable to shareholders 0 2 2 ADJUSTED EARNINGS (13) 3 (18) Profit or loss on financial assets (under Fair Value option) & derivatives 0 5 5 Exceptional operations (including discontinued operations) 2 2 Goodwill and related intangible impacts Integration and restructuring costs (0) NET INCOME (13) 10 (11) AXA GLOBAL DISTRIBUTORS1 Underlying earnings as well as adjusted earnings and net income increased by €6 million to €-7 million due to higher commissions received and lower IT expenses. FAMILY PROTECT Direct protection activities were launched during the second semester of 2011. As a consequence, underlying earnings as well as adjusted earnings and net income reached €-9 million 1H 2012, reflecting continued investment in the transversal multi-country platform, progressive ramp-up of activity and direct marketing spend. 1 AXA Global Distributors was formed in March 2009 and is 100% owned by AXA SA. The AXA Global Distributors’ initiative aim is to distribute variable annuity products through third party partnerships, specifically large banks. P&L excluding infrastructure costs are reflected within AXA France and AXA UK Life & Savings segments. In the tables, AXA Global Distributors notably includes AXA Life Europe. Page 39 Activity Report______________________________________________________________________Half Year 2012 AUSTRALIA / NEW ZEALAND Following the disposal of the Australia and New Zealand operations on April 1 , 2011, Australia and New Zealand contributed only to the first quarter of 2011. Page 40 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment HY 2012 HY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 16,391 72.2% 70.1% 4,174 26.3% 1,033 1,533 (488) 16 (17) 1,044 45 1,089 (3) 8 (37) (41) 1,017 15,540 72.4% 70.4% 3,887 26.8% 1,025 1,392 (404) 21 (20) 989 111 1,100 82 93 (35) (29) 1,212 Page 41 (in Euro million) FY 2011 27,286 72.6% 70.9% 7,807 27.0% 2,034 2,591 (748) 38 (33) 1,848 (62) 1,786 (90) 147 (66) (78) 1,700 Activity Report______________________________________________________________________Half Year 2012 Consolidated Gross Revenues HY 2012 HY 2011 France 3,186 3,078 United Kingdom & Ireland 2,194 1,975 Germany 2,402 2,271 Switzerland 2,460 2,309 Belgium 1,146 1,138 Central & Eastern Europe (c) 35 28 Mediterranean and Latin American Region (a) 3,555 3,402 Direct (b) 1,085 1,059 Other countries (d) 329 279 TOTAL 16,391 15,540 Intercompany transactions (219) (190) Contribution to consolidated gross revenues 16,173 15,350 of which high growth markets of which Direct of which mature markets 1,829 1,085 13,259 1,564 1,059 12,726 (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (c) Includes Ukraine and Reso (Russia). (d) Other countries correspond to Luxembourg and Asia. Combined Ratio Total HY 2012 HY 2011 96.4% 97.2% France 94.8% 96.5% United Kingdom & Ireland 99.9% 100.0% Germany 97.4% 99.3% Switzerland 89.8% 87.4% Belgium 93.1% 100.2% Central & Eastern Europe 103.2% 98.7% Reso (Russia) 97.0% 103.1% Mediterranean and Latin American Region (a) 97.1% 96.5% Direct (b) 101.8% 102.0% Other countries ( c ) 95.8% 97.2% Mature Direct 95.7% 101.8% 97.0% 102.0% High growth 97.5% 96.0% (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (c) Other countries correspond to Luxembourg and Asia. Page 42 (in Euro million) FY 2011 (a) 5,596 3,772 3,638 2,643 2,100 65 6,848 2,102 522 27,286 (240) 27,046 3,335 2,102 21,609 (in Euro million) FY 2011 97.9% 95.7% 98.4% 103.2% 89.2% 99.1% 102.3% 97.7% 97.6% 105.4% 96.3% 97.2% 105.4% 98.2% Activity Report______________________________________________________________________Half Year 2012 Underlying earnings HY 2012 HY 2011 France 247 240 United Kingdom & Ireland 94 78 Germany 143 145 Switzerland 198 209 Belgium 114 72 Central & Eastern Europe ( c) 17 19 Mediterranean and Latin American Region (a) 198 202 Direct (b) 19 14 Other countries (d) 14 10 UNDERLYING EARNINGS 1,044 989 of which high growth markets 109 112 of which Direct 19 14 of which mature markets 916 863 (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. (c) Includes Ukraine and Reso (Russia). (d) Other countries correspond to Luxembourg and Asia. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 UNDERLYING EARNINGS 1,044 989 Net realized capital gains or losses attributable to shareholders 45 111 ADJUSTED EARNINGS 1,089 1,100 Profit or loss on financial assets (under Fair Value option) & derivatives (3) 82 Exceptional operations (including discontinued operations) 8 93 Goodwill and related intangibles impacts (37) (35) Integration and restructuring costs (41) (29) NET INCOME 1,017 1,212 Page 43 (in Euro million) FY 2011 496 211 221 397 142 37 353 (33) 23 1,848 178 (33) 1,703 (in Euro million) FY 2011 1,848 (62) 1,786 (90) 147 (66) (78) 1,700 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – France (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,186 72.9% 70.7% 825 24.1% 270 417 (170) - (0) 247 16 263 (7) - - - 256 3,078 74.0% 71.8% 759 24.7% 282 378 (138) - (0) 240 10 250 37 - - - 287 5,596 73.5% 71.1% 1,609 24.6% 550 791 (294) - (1) 496 (52) 445 (14) - - - 431 Gross revenues increased by €108 million (+4%) to €3,186 million1: Personal lines (57% of gross revenues) were up 2% to €1,796 million as a consequence of tariff increases, partly offset by negative net new contracts notably in Motor and Household, Commercial lines (43% of the gross revenues) were up 6% to €1,342 million mainly driven by tariff increases partly offset by lower volumes in a context of selective underwriting. Net technical result increased by €66 million (+9%) to €825 million: Current accident year loss ratio decreased by 1.1 points to 72.9% mainly driven by tariff increases and more favorable claims frequency, partly offset by the higher attritional claims ratio due to climatic events, impacting especially Household, All accident year loss ratio decreased by 1.2 points to 70.7% as a result of the decrease in current accident year loss ratio, while positive prior year reserve developments were stable. Expense ratio decreased by 0.6 point to 24.1% mainly driven by a contained cost base as well as a higher non- recurring positive impact on tax contribution (€+23 million in 1H 2012 versus €+10 million in 1H 2011). Enlarged expense ratio was down 1.7 points to 31.1%, driven by the improvement in expense ratio as well as a decrease in claims handling costs which included some seasonality effects. As a consequence, the combined ratio was down 1.8 points to 94.8%. Net investment result decreased by €12 million (-4%) to €270 million mainly due to lower yields on fixed income assets, partly compensated by higher distribution of dividends from credit funds. Income tax expenses increased by €32 million (+23%) to €-170 million mainly reflecting higher pre-tax underlying earnings, a higher corporate tax rate (€-7 million) (from 34.43% to 36.10%, enacted in the second half of 2011), as well as a tax one-off of €-11 million. As a result, underlying earnings increased by €7 million (+3%) to €247 million. 1 €3,138 million after intercompany eliminations. Page 44 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €13 million (+5%) to €263 million as a consequence of higher realized capital gains on equities and fixed income assets (€+18 million), and a favorable change of the intrinsic value of equity hedging derivatives (€+10 million), partly offset by higher impairments (€-23 million) of equities and real estate and lower underlying earnings. Net income decreased by €31 million (-11%) to €256 million mainly due to a lower change in fair value of mutual funds (€-26 million), less favorable foreign exchange impact (€-18 million), partly compensated by higher adjusted earnings. Page 45 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,194 71.2% 71.1% 581 28.9% 121 123 (28) - (0) 94 21 116 (17) - (1) (5) 93 1,975 69.2% 68.8% 567 31.1% 108 109 (30) - (0) 78 (2) 77 (11) - (1) (7) 58 3,772 67.6% 68.0% 1,181 30.4% 225 284 (73) - (0) 211 (26) 184 (120) 53 (1) (20) 97 Gross revenues increased by €218 million (+11%) to €2,194 million 1. On a comparable basis, gross revenues increased by €109 million (+6 %) mainly driven by: Personal Lines (50% of the total premiums) were up 3% at €1,093 million. Motor was down 7% to €276 million due to a downturn in market conditions in the UK increasing competitiveness and resulting in lower new business volumes, a reduction in retention levels and lower average premiums. Non-Motor was up 8% to €817 million. Property was up 19% to €310 million principally due to new schemes, increased volumes and improved retention in the UK. Healthcare was up 2% at €323 million following further expansion of the International business. Personal Other was up 1% to €184 million due to a new travel scheme, partially offset by continuing difficult market conditions, Commercial Lines (49% of the total premiums) were up 10% to €1,068 million. Motor was up 14% to €194 million mainly driven by tariff increases and increased retained business in UK fleet. Non-Motor was up 9% to €874 million. Property was up 4% to €280 million reflecting strong performance in a highly competitive market. Health was up 13% to €469 million mainly reflecting continued growth in UK and International Corporate business. Net technical result increased by €14 million (+2%) to €581 million. On a constant exchange rate basis, net technical result decreased by €13 million (-2%): Current year loss ratio increased by 2.0 points to 71.2% due to the impact of 1H 2012 Nat Cat charge (+1.3 points) and increased reinsurance costs (+0.5 point) reflecting the change in business mix and increased coverage. Improvements in Motor and Property following tariff increases and underwriting activity were offset by a change in business mix and an increase in bodily injury costs, All accident year loss ratio increased by 2.2 points to 71.1% mainly reflecting the movement in current year loss ratio. Expense ratio decreased by 2.3 points to 28.9 %.The administrative expense ratio decreased by 1.4 points to 8.1%, largely due to the sale of Denplan in December 2011 and non repeat of 1H 2011 decommissioning of an IT platform. The acquisition ratio was down 0.9 point to 20.7% driven by efficiency programs and a decrease in commission rate driven by favorable product and business mix effects. Enlarged expense ratio was down 2.2 points to 32.1%. 1 €2,108 million after intercompany eliminations. Page 46 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down 0.1 point to 99.9%. Net investment result increased by €14 million (+13%) to €121 million. On a constant exchange rate basis, net investment result increased by €9 million (+8%) mainly due to higher bond yields as a result of a portfolio repositioning and increased income from equity funds and other alternative asset classes. Income tax expenses decreased by €2 million (-6%) to €-28 million. On a constant exchange rate basis, income tax expenses decreased by €3 million (-10%) reflecting higher pre-tax underlying earnings more than offset by a decrease in one-off tax charges (€5 million). Underlying earnings increased by €16 million (+21%) to €94 million. On a constant exchange rate basis, underlying earnings increased by €14 million (+17%). Adjusted earnings increased by €39 million (+51%) to €116 million. On a constant exchange rate basis, adjusted earnings increased by €37 million (+48%) reflecting higher underlying earnings (+17%) as well as higher realized capital gains mainly on fixed income assets. Net Income increased by €34 million (+59%) to €93 million. On a constant exchange rate basis, net income increased by €33 million (+56%) due to the improvement in adjusted earnings and a reduction in restructuring costs (€2 million), partly offset by unfavorable change in fair value of financial assets and derivatives (€-10 million). Page 47 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Germany (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,402 70.5% 67.8% 606 29.6% 162 211 (68) - (0) 143 (0) 142 24 - (2) - 164 2,271 70.5% 71.0% 518 28.4% 185 197 (53) 2 (0) 145 19 164 43 - (2) - 206 3,638 73.4% 73.0% 975 30.2% 369 253 (34) 2 (0) 221 (49) 172 25 - (4) (8) 186 Gross revenues increased by €130 million (+6%) to €2,402 million1 : Personal Lines (57% of gross revenues) increased by 7% to €1,352 million 2 driven by a successful development in Motor (+8 %) and Property (+9%) triggered by tariff increases for both in-force and new business as well as positive net new contracts, Commercial Lines (37% of gross revenues) rose by 2% to €866 million resulting from new business especially in Motor (+3%) and Property (+3%), Other Lines (6% of gross revenues) rose by 17% to €152 million, mainly driven by higher assumed business in Legal Protection and other treaty business. Net technical result: increased by €88 million to €606 million: Current accident year loss ratio remained stable at 70.5%, as tariff increases were offset by higher average costs in Motor, an increase in freeze claims in Property due to the severe winter, as well as higher large claims, All accident year loss ratio decreased by 3.2 points to 67.8% mainly due to higher positive prior year reserve developments. Expense ratio increased by 1.2 points to 29.6% due to the non-recurrence of a positive one-off impact in 1H 2011 as well as a change in the expense pattern over the year. Enlarged expense ratio was up 0.5 point to 32.7% due to a decrease in claims handling costs driven by productivity programs. As a result, the combined ratio was down 1.9 points to 97.4%. Net investment result decreased by €23 million (-13%) to €162 million mainly due to a lower distribution from private equity (€ -13 million) as well as the non-recurrence of exceptional coupon payments in the previous year (€5 million). 1 € 2,374 million after intercompany eliminations. 2 On a comparable basis, after reclassification of small and medium enterprises from Commercial lines to Personal lines Page 48 Activity Report______________________________________________________________________Half Year 2012 Income tax expenses increased by €15 million (+28%) to €-68 million mainly due to lower tax free investment income in 1H 2012 and lower tax loss carry forward. Underlying earnings decreased by €3 million (-2%) to €143 million. Adjusted earnings decreased by €22 million (-13%) to €142 million mainly due to lower realized capital gains on equities. Net income decreased by €42 million (-20%) to €164 million mainly due to lower adjusted earnings as well as less favorable change in fair value of equity and foreign exchange derivatives. Page 49 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Switzerland (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,460 72.2% 65.5% 475 24.4% 113 252 (52) - (2) 198 1 199 10 - (14) - 195 2,309 69.4% 62.1% 486 25.4% 104 266 (55) - (2) 209 18 227 (5) - (14) - 207 2,643 68.9% 63.1% 976 26.1% 217 503 (103) - (3) 397 5 402 2 - (29) - 375 Gross revenues increased by €151 million (+7%) to €2,460 million1. On a comparable basis, gross revenues increased by €21 million (+1%): Personal lines (52% of gross revenues) increased by 2% to €1,284 million as a consequence of volume increase in all major business lines, Commercial lines (48% of gross revenues) slightly decreased to €1,183 million mainly resulting from a focus on profitability. Net technical result decreased by €11 million (-2%) to €475 million. On a constant exchange rate basis, the net technical result decreased by €36 million (-7%): Current accident year loss ratio increased by 2.8 points to 72.2% mainly driven by a higher Nat Cat charge (+1.8 points), higher large claims (+0.5 point) and a higher number of freeze claims in Property (+0.6 point), - All accident year loss ratio increased by 3.4 points to 65.5% as a consequence of the current accident year loss ratio development and lower positive prior year reserve developments. Expense ratio decreased by 1.0 point to 24.4% driven by lower administrative expenses reflecting ongoing strict cost management as well as by lower acquisition expenses. Enlarged expense ratio was down 1.0 point to 28.2%. As a result, the combined ratio was up 2.4 points to 89.8%. Net investment result increased by €8 million (+8%) to €113 million. On a constant exchange rate basis, the net investment result increased by €2 million (+2%) mainly driven by higher income from fixed-income funds. Income tax expenses decreased by €3 million (-6%) to €-52 million. On a constant exchange rate basis, income tax expenses decreased by €6 million (-10%) driven by lower pre-tax underlying earnings. Underlying earnings decreased by €10 million (-5%) to €198 million. On a constant exchange rate basis, underlying earnings decreased by €21 million (-10%). 1 €2,452 million after intercompany eliminations. Page 50 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings decreased by €27 million (-12%) to €199 million. On a constant exchange rate basis, adjusted earnings decreased by €37 million (-17%) mainly driven by lower underlying earnings and lower net realized capital gains mainly on equities. Net income decreased by €12 million (-6%) to €195 million. On a constant exchange rate basis, net income decreased by €22 million (-11%) mainly driven by lower adjusted earnings, partly offset by higher foreign exchange impacts and a more favorable change in fair value of fixed income funds. Page 51 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Belgium (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,146 70.3% 63.6% 381 29.5% 97 170 (55) - (0) 114 (1) 114 (19) - (1) (5) 88 1,138 73.6% 70.2% 307 30.1% 99 96 (24) - 0 72 42 114 7 - (1) (7) 112 2,100 73.6% 68.5% 659 30.6% 185 204 (62) - 0 142 98 240 17 - (2) (22) 233 Gross revenues increased by €9 million (+1%) to €1,146 million1: Personal lines (47% of the gross revenues) were up +2% to €546 million following tariff increases for both Motor and Household partly offset by negative net new contracts, Commercial lines (51% of the gross revenues) were stable at €589 million, the decrease in Health (€-8 million) due to the non-renewal of a large portfolio was partly offset by an increase in Workers’ Compensation (€+6 million) mainly driven by tariff increases. Net technical result increased by €74 million (+24%) to €381 million: Current accident year loss ratio decreased by 3.3 points to 70.3% mainly driven by a tariff increase (-1.6 points) and a lower Nat Cat charge (-1.2 points), All accident year loss ratio decreased by 6.6 points to 63.6% due to higher positive prior year reserve developments (mainly in Motor and Property personal lines) and an improved current accident year loss ratio. Expense ratio decreased by 0.6 point to 29.5% due to a non-recurring reclassification from acquisition costs to claims handling costs (-0.3 point) as well as a decrease of commission rates (-0.3 point) following revision of commission schemes. Enlarged expense ratio decreased by 0.3 point to 36.7% due to the decrease of commission rates. As a result, the combined ratio was down by 7.2 points to 93.1%. Net investment result decreased by €2 million (-2%) to €97 million mainly due to a lower asset base. Income tax expenses increased by €31 million (+127%) to €-55 million due to higher pre-tax underlying earnings and the non-recurrence of a 1H 2011 positive tax impact (€6 million). Underlying earnings increased by €43 million (+59%) to €114 million. Adjusted earnings were stable at €114 million, as higher underlying earnings were offset by lower realized capital gains on real estate and equities as well as higher realized capital losses on fixed income assets. Net income decreased by €24 million (-22%) to €88 million mainly reflecting an unfavorable change in fair value of 1 € 1,129 million after intercompany eliminations. Page 52 Activity Report______________________________________________________________________Half Year 2012 inflation derivatives mainly on long term business. Page 53 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Central & Eastern Europe Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Ukraine Reso (Russia) TOTAL Intercompany transactions 35 - 35 - 28 - 28 - 65 - 65 - Contribution to consolidated gross revenues 35 28 65 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Ukraine Reso (Russia) (a) 1 16 0 19 1 36 UNDERLYING EARNINGS 17 19 37 Net realized capital gains or losses attributable to shareholders (5) (14) (19) ADJUSTED EARNINGS 12 6 18 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 5 - (2) - 0 - (2) - 2 - (3) - NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. 15 4 17 RESO Underlying earnings decreased by €3 million to €16 million on a constant exchange rate basis, driven by higher acquisition expenses in a strong portfolio growth context (+34% in GWP) and lower investment result, partly offset by a lower all year loss ratio. The combined ratio was down 1.7 points to 97.0%. Adjusted earnings increased by €6 million to €11 million on a constant exchange rate basis, driven by lower net realized capital losses (€+14 million) mainly on fixed income assets, partly offset by higher impairments (€-5 million) and lower underlying earnings (€-3 million). Net income increased by €10 million to €15 million on a constant exchange rate basis, mainly due to higher adjusted earnings (€+6 million). UKRAINE Gross revenues increased by €7 million (+24%) to €35 million. On a comparable basis, gross revenues increased by €4 million (+15%) driven by the positive development of proprietary network, partly offset by lower premiums in bancassurance channel. Underlying earnings as well as adjusted earnings and net income increased by €1 million to €1 million on a constant exchange rate basis, due to a higher net investment result from fixed-income assets while the combined ratio remained stable at 103.2%. Page 54 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Mediterranean and Latin American Region (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,555 72.3% 71.6% 980 25.5% 206 305 (96) - (11) 198 13 210 4 8 (15) (16) 192 3,402 73.4% 70.7% 957 25.8% 192 306 (88) 0 (16) 202 34 235 12 - (14) (14) 220 6,848 73.4% 71.6% 1,884 25.9% 378 540 (162) - (24) 353 (17) 336 14 - (22) (21) 306 Gross revenues increased by €153 million (+4%) to €3,555 million1. On a comparable basis, gross revenues increased by €186 million (+6%) driven by strong contribution from high growth markets (+18% or €+237 million), partly offset by mature markets (-2% or €-51 million), mainly in Spain and Portugal which suffer from a difficult environment: Personal lines (59% of the gross revenues) were up 4% to €2,091 million driven by Motor lines (+4% or €+59 million) mainly in high growth markets (€+75 million) coming from a positive volume effect principally in Turkey and Mexico, partly offset by mature markets (€-16 million) mainly in Spain. Non Motor lines (+2% or €+15 million) were mainly driven by tariff increase in Health in Mexico (€+10 million), Commercial lines (41% of the gross revenues) were up 9% to €1,451 million driven by Motor lines (+23% or €+93 million) in Mexico (€+76 million) and Turkey (€+21 million). Non Motor lines (€+31 million) were driven by an increase in high growth markets (€+52 million) mostly related to new business in Health in Gulf, partly offset by an overall mitigated performance in Spain (€-18 million) and Portugal (€-6 million). Net technical result increased by €23 million (+2%) to €980 million. On a constant exchange rate basis, net technical result increased by €28 million (+3%), with high growth markets up 6% (or €+23 million) mainly reflecting increase in volumes and mature markets up 1% (or €+5 million): Current accident year loss ratio decreased by 1.0 point to 72.3%, including a Nat Cat charge of 0.5 point, mainly in Italy and Turkey. Mature markets decreased by 2.2 points while high growth markets increased by +0.4 point. Excluding Nat Cat charge, decrease in mature markets was mainly driven by lower frequency in Motor lines and the decrease of average costs in Health, partly offset by higher large losses. All accident year loss ratio increased by 0.9 point to 71.6% as less favorable prior year reserve developments (€-63 million) mainly in Spain and Mexico more than offset the improvement in current accident year loss ratio. Expense ratio decreased by 0.2 point to 25.5% driven by a positive volume effect in high growth markets (-0.5 point). Mature markets expense ratio was flat reflecting benefits from productivity programs offsetting lower volumes. Enlarged expense ratio was down 0.4 point to 28.5%. 1 €3,530 million after intercompany eliminations. Page 55 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was up 0.7 point to 97.1%. Net investment result increased by €13 million (+7%) to €206 million. On a constant exchange rate basis, net investment result increased by €15 million (+8%) driven by higher yields on fixed income assets in Mexico (€+11 million) and Turkey (€+6 million), partly offset by a lower asset base in Spain (€-7 million). Income tax expenses increased by €8 million (+9%) to €-96 million. On a constant exchange rate basis, income tax expenses increased by €8 million (+9%) due to the increase of effective tax rate reflecting unfavorable country mix, partly offset by lower pre-tax underlying earnings. Underlying earnings decreased by €4 million (-2%) to €198 million. On a constant exchange rate basis, underlying earnings decreased by €5 million (-2%). Adjusted earnings decreased by €25 million (-11%) to €210 million. On a constant exchange rate basis, adjusted earnings decreased by €25 million (-11%), reflecting lower realized capital gains mainly on equities, unfavorable change in intrinsic value of equity hedges and lower underlying earnings, partly offset by lower impairments mainly on real estate funds. Net income decreased by €28 million (-13%) to €192 million. On a constant exchange rate basis, net income decreased by €29 million (-13%) mainly reflecting lower adjusted earnings combined with unfavorable foreign exchange impact (€-5 million), mainly in Turkey and Mexico. Page 56 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Direct business (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,085 78.3% 79.9% 216 21.9% 50 31 (12) - (0) 19 (2) 17 (1) - (2) - 14 1,059 78.7% 80.0% 197 21.9% 43 23 (10) - (0) 14 3 16 (2) - (2) - 13 2,102 80.5% 84.2% 321 21.2% 86 (25) (8) - 0 (33) (4) (36) (15) - (4) (7) (63) Direct business includes operations in France (22% of total Direct gross revenues), the UK (21%), Japan (18%), South Korea (16%), Spain (9%), Italy (5%), Belgium (4%), Poland (3%) and Portugal (1%). Gross revenues increased by €25 million (+2%) to €1,085 million1. On a comparable basis, gross revenues decreased by €12 million (-1%): Personal Motor (88% of gross revenues) was down €33 million (-4%) to €951 million driven by the UK (€-99 million) as a result of lower volumes and a change in business mix reflecting selective underwriting and portfolio pruning as well as increased competitiveness of the market, partly offset by significant growth in other countries (+10% or €+66 million) supported by higher net new contracts leading to €+45 million in continental Europe with strong growth in France, Italy and Poland, €+14 million in Japan and €+7 million in South Korea, Personal Non-Motor (12% of gross revenues) was up €21 million (+19 %) to €131 million mainly supported by growth in the UK and in France. Net technical result increased by €18 million (+9%) to €216 million. On a constant exchange rate basis, net technical result increased by €10 million (+5%): Current accident year loss ratio decreased by 0.3 point to 78.3% mainly driven by tariff increases in Motor partly offset by unfavorable weather conditions in the UK leading to a higher Nat Cat charge (+0.3 point), - All accident year loss ratio decreased by 0.2 point to 79.9% as a result of the decrease in current accident year loss ratio and broadly stable negative prior year reserve developments. Expense ratio was stable at 21.9% (with a stable acquisition ratio and an administrative expense ratio up 0.1 point) reflecting operational leverage outside the UK following portfolio growth offset by lower average premium and higher IT costs in the UK. Enlarged expense ratio was up by 0.3 point to 27.7%. 1 €1,085 million after intercompany eliminations. Page 57 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down by 0.2 point to 101.8%. UK combined ratio was up 7.3 points to 108.8%. Other countries combined ratio was down 2.8 points to 99.3%. Net investment result increased by €7 million (+17%) to €50 million. On a constant exchange rate basis, net investment result increased by €6 million (+14%) mainly reflecting a higher asset base. Income tax expenses increased by €2 million to €-12 million. On a constant exchange rate basis, income tax expenses increased by €2 million mainly reflecting higher pre-tax underlying earnings. Underlying earnings increased by €5 million to €19 million. On a constant exchange rate basis, underlying earnings increased by €5 million. Adjusted earnings increased by €1 million to €17 million. On a constant exchange rate basis, adjusted earnings increased by €1 million mainly due to higher underlying earnings, €2 million lower impairment charges, partly offset by €6 million lower realized capital gains mainly on equities. Net income increased by €1 million to €14 million. On a constant exchange rate basis, net income increased by €1 million due to higher adjusted earnings. Page 58 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations - Other Countries Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Asia (a) 266 218 425 Luxembourg 63 61 97 TOTAL 329 279 522 Intercompany transactions (6) (6) (6) Contribution to consolidated gross revenues 323 273 516 (a) Includes Hong Kong, Singapore and Malaysia. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Asia (a) 11 5 13 Luxembourg 3 4 10 UNDERLYING EARNINGS 14 10 23 Net realized capital gains or losses attributable to shareholders 1 2 2 ADJUSTED EARNINGS 15 11 25 Profit or loss on financial assets (under Fair Value option) & derivatives (0) 0 (0) Exceptional operations (including discontinued operations) 93 93 Goodwill and related intangibles impacts Integration and restructuring costs (14) NET INCOME 0 105 118 (a) Includes Hong Kong, Singapore and Malaysia. ASIA1 Gross revenues increased by €48 million (+22%) to €266 million2. On a comparable basis, gross revenues increased by €30 million (+14%): Personal lines (45% of the gross revenues) were up €12 million (+12%) mainly due to new business in personal motor in both Malaysia and Singapore, Commercial lines (55% of the gross revenues) were up €18 million (+15%) mainly due to growth in commercial motor (€7 million) and health (€7 million) with new large accounts in Malaysia and Singapore as well as in workers compensation (€5 million) in Singapore and Hong Kong mainly due to new large accounts. Net technical result increased by €16 million (+25%) to €78 million. On a constant exchange rate basis, net technical result increased by €10 million (+17%): Current accident year loss ratio was stable at 68.3%, - All accident year loss ratio decreased by 1.5 points to 66.7% due to more favorable prior year reserve developments in Hong Kong and Singapore. Expense ratio decreased by 1.0 point to 28.6% mainly driven by productivity gains with strong increase in volumes across the board as well as lower commission rate in Hong Kong. Enlarged expense ratio decreased by 0.8 point to 31.2%. 1 Includes Hong Kong, Singapore and Malaysia. 2 €260 million after intercompany eliminations. Page 59 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down by 2.4 points to 95.3%. Net investment result increased by €2 million to €6 million. On a constant exchange rate basis, net investment result increased by €1 million mainly from a higher asset base in Malaysia. Income tax expenses increased by €2 million to €-3 million. On a constant exchange rate basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €5 million to €11 million. On a constant exchange rate basis, underlying earnings increased by €5 million. Adjusted earnings increased by €5 million to €11 million. On a constant exchange rate basis, adjusted earnings increased by €4 million driven by higher underlying earnings partially offset by lower net realized capital gains on equity. Net income decreased by €10 million to €-4 million. On a constant exchange rate basis, net income decreased by €10 million driven by higher adjusted earnings more than offset by €14 million of costs incurred to date related to the future integration of portfolio transferred from HSBC1. 1 The closing of the transaction is subject to regulatory approvals and is expected in the course of the second half 2012. Page 60 Activity Report______________________________________________________________________Half Year 2012 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AXA Corporate Solutions Assurance 1,339 1,286 2,003 AXA Global Life and AXA Global P&C (a) 53 51 73 AXA Assistance 474 460 911 Other (b) 38 34 70 TOTAL 1,904 1,831 3,057 Intercompany transactions (79) (92) (182) Contribution to consolidated gross revenues 1,825 1,739 2,876 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AXA Corporate Solutions Assurance 80 81 150 AXA Global Life and AXA Global P&C (a) 11 10 55 AXA Assistance 11 11 21 Other (b) 15 42 50 UNDERLYING EARNINGS 118 143 276 Net realized capital gains or losses attributable to shareholders 5 3 17 ADJUSTED EARNINGS 122 146 294 Profit or loss on financial assets (under Fair Value option) & derivatives 15 (7) (15) Exceptional operations (including discontinued operations) 0 1 Goodwill and related intangibles impacts Integration and restructuring costs (2) (4) NET INCOME 135 139 276 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Page 61 Activity Report______________________________________________________________________Half Year 2012 AXA Corporate Solutions Assurance (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,339 82.3% 82.4% 200 15.1% 101 129 (47) - (1) 80 2 83 14 - - - 96 1,286 85.9% 82.9% 183 14.5% 99 128 (46) - (1) 81 (1) 79 (4) - - - 75 2,003 84.7% 82.1% 360 15.8% 199 242 (90) - (2) 150 5 155 (13) - - - 142 Gross revenues increased by €54 million (+4%) to €1,339 million1. On a comparable basis, gross revenues increased by €25 million (+2%) mainly driven by Construction (+22% mainly driven by portfolio development and tariff increases), Property (+6%) and Marine (+4%), partly offset by a decrease in Liability (-12% mainly due to the non- renewal of a large contract) and Aviation (-4% mainly due to tariff decrease following favorable trend on large claims). Net technical result increased by €17 million (+9%) to €200 million. On a constant exchange rate basis, net technical result increased by €16 million (+9%): Current accident year loss ratio improved by 3.6 points to 82.3%. Excluding a change in cost allocation from claims handling costs to commissions (-0.8 point), current accident year loss ratio improved by 2.8 points mainly driven by lower Nat Cat charges and positive price effect in all lines of business (except Aviation). - All accident year loss ratio improved by 0.5 point to 82.4% as a result of improvement in the current year loss ratio partly offset by lower prior year reserve developments. Expense ratio increased by 0.7 point to 15.1% explained by the above mentioned change in cost allocation from claims handling costs to commissions. On a comparable basis, expense ratio decreased by 0.1 point. Enlarged expense ratio was down 1.0 point to 18.2%. As a result, the combined ratio was up 0.2 point to 97.5%. Net investment result increased by €2 million (+2%) to €101 million. On a constant exchange rate basis, net investment result increased by €1 million (+1%) mainly driven by higher income from real estate and higher distributions from mutual funds, partly offset by lower income from fixed income assets. Income tax expenses increased by €1 million (+2%) to €-47 million mainly due to higher corporate tax rate in France (€-2 million). Underlying earnings remained stable at €80 million. 1 €1.334 million after intercompany eliminations. Page 62 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €4 million (+5%) to €83 million. On a constant exchange rate basis, adjusted earnings increased by €3 million (+4%) mainly driven by a favorable effect on intrinsic value of equity hedging derivatives. Net income increased by €21 million (+29%) to €96 million. On a constant exchange rate basis, net income increased by €21 million (+28%) driven by positive foreign exchange impact (€+8 million), higher adjusted earnings and favorable change in fair value on mutual funds (€+6 million). Page 63 Activity Report______________________________________________________________________Half Year 2012 AXA Global Life and AXA Global P&C1 Underlying earnings increased by €2 million to €11 million as a result of higher technical result in AXA Motor cover as well as higher result in AXA Global Life, partly offset by higher expenses. Adjusted earnings increased by €1 million to €11 million as a result of higher underlying earnings. Net income increased by €4 million to €13 million mainly due to higher adjusted earnings and a €3 million more favorable change in fair value of financial assets and derivatives. AXA Assistance Gross revenues increased by €13 million to €474 million2. On a comparable basis, gross revenues increased by €16 million (+4%) mainly driven by strong development in Travel activities, higher revenues from a large contract in Spain as well as growth in France, partly offset by lower revenues from a large contract in Mexico. Underlying earnings remained stable at €11 million mainly driven by positive developments in France and Spain and improvement on Travel business offset by higher development costs. Adjusted earnings remained stable at €10 million. Net income decreased by €4 million (-37%) to €6 million mainly due to €3 million lower realized capital gains on foreign exchange rates and €2 million restructuring costs in the first half 2012. Other international activities Underlying earnings decreased by €26 million (-63%) to €15 million. On a constant exchange rate basis, underlying earnings decreased by €26 million (-63%) driven by lower gains on the P&C run-off portfolio, partly offset by lower losses on the Life run-off portfolio. Adjusted earnings decreased by €27 million (-60%). On a constant exchange rate basis, adjusted earnings decreased by €27 million (-60%) as a consequence of lower underlying earnings. Net income decreased by €26 million, (-57%). On a constant exchange rate basis, net income decreased by €26 million (-57%) reflecting lower adjusted earnings. 1 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. 2 €401 million after intercompany eliminations. Page 64 Activity Report______________________________________________________________________Half Year 2012 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AllianceBernstein AXA Investment Managers 1,004 730 1,064 759 2,038 1,563 TOTAL 1,734 1,823 3,601 Intercompany transactions (159) (165) (332) Contribution to consolidated gross revenues 1,575 1,658 3,269 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AllianceBernstein 74 57 106 AXA Investment Managers 85 99 215 UNDERLYING EARNINGS 159 157 321 Net realized capital gains or losses attributable to shareholders (1) (2) (2) ADJUSTED EARNINGS 159 154 318 Profit or loss on financial assets (under Fair Value option) & derivatives 3 6 (25) Exceptional operations (including discontinued operations) (0) (0) (3) Goodwill and related intangibles impacts Integration and restructuring costs (10) (0) (137) NET INCOME 152 160 153 Page 65 Activity Report______________________________________________________________________Half Year 2012 AllianceBernstein (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues 1,004 1,064 2,038 Net investment result 0 (6) (27) Total revenues 1,004 1,058 2,011 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : (826) 178 (40) (64) 74 0 74 2 0 0 (9) 67 1.297 (892) 166 (44) (64) 57 0 57 (0) 0 0 0 57 1.404 (1,738) 272 (68) (98) 106 0 106 (7) 0 0 (136) (38) 1.387 Assets under Management (\"AUM\") increased by €11 billion from year-end 2011 to €346 billion at June 30, 2012 as a result of €13 billion market appreciation and a €+8 billion favorable foreign exchange rate impact, partly offset by net outflows of €-5 billion (€5 billion net inflows from Retail clients offset by €-7 billion net outflows from Institutional clients and €-3 billion net outflows from Private Clients), and €-5 billion unfavorable change in scope due to the sale of AXA Australia and AXA Canada. Gross revenues decreased by €60 million (-6%) to €1,004 million1. On a comparable basis, gross revenues decreased by €133 million (-13%) primarily due to lower investment management fees resulting from a 9% decrease in average AUM combined with lower average bps (-3.6bps) reflecting a change in business mix from equity services to fixed income services. Net investment result increased by €6 million (+103%) to €0 million. On a constant exchange rate basis, net investment result increased by €6 million (+103%) due to higher unrealized gains related to deferred compensation obligations offset in general expenses, combined with a decrease in financing debt expenses. General expenses decreased by €67 million (-7%) to €-826 million. On a constant exchange rate basis, general expenses decreased by €130 million (-15%) due to lower compensation expenses resulting from lower revenues and staff reductions. As a result, the underlying cost income ratio improved by 2.8 points to 79.4%. Income tax expenses decreased by €4 million (-10%) to €-40 million. On a constant exchange rate basis, income tax expenses decreased by €8 million (-17%) due to a tax one-off of €8 million from a release of deferred taxes. Underlying and adjusted earnings increased by €17 million (+29%) to €74 million. On a constant exchange rate basis, underlying earnings increased by €11 million (+19%). AXA ownership of AllianceBernstein at June 30, 2012 is 63.5%, down 1.1% from December 31, 2011 due to the granting of units in 2012 for 2011 deferred compensation offset by repurchases of AllianceBernstein units during 2012 to fund deferred compensation plans. Net income increased by €9 million (+16%) to €67 million. On a constant exchange rate basis, net income increased by €4 million (+7%) due to the increase in adjusted earnings partly offset by restructuring costs (€-9 million). 1 965 million after intercompany eliminations. Page 66 Activity Report______________________________________________________________________Half Year 2012 AXA Investment Managers (“AXA IM”) (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues 730 759 1,563 Net investment result (11) (7) (20) Total revenues 718 751 1,543 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (579) 139 (50) (4) 85 (1) 85 1 (0) 0 (0) 85 (601) 150 (46) (5) 99 (2) 97 6 (0) 0 (0) 103 (1,239) 304 (79) (10) 215 (2) 212 (18) (3) 0 (1) 191 Assets under Management (\"AUM\") increased by €30 billion from year-end 2011 to €542 billion at the end of June 2012 as a result of €28 billion favorable market impact and €4 billion favorable foreign exchange impact, partly offset by €2 billion net outflows. Net outflows amounted to €-2 billion in the first half of 2012 mainly driven by the voluntary exit from unprofitable employee shareholding plan schemes (€-4 billion), and AXA Main Fund short term investments (€-2 billion), partly offset by net inflows on Retail (€+3 billion) and Institutional (€+1 billion) notably from AXA Fixed Income, AXA Framlington and AXA Private Equity. Gross revenues decreased by €29 million (-4%) to €730 million1. On a constant exchange rate basis and excluding distribution fees (retroceded to distributors), net revenues decreased by €31 million (-6%) to €541 million mainly due to lower performance fees (€-23 million) driven by AXA Private Equity, and lower AXA Real Estate transaction fees (€-12 million). Net investment result decreased by €4 million to €-11 million. On a constant exchange rate basis, net investment result decreased by €6 million mainly driven by higher interest charges. General expenses decreased by €22 million to €-579 million. On a constant exchange rate basis and excluding distribution fees, general expenses decreased by €21 million (-5%) mainly due to lower variable compensations triggered by lower profits. As a result, the underlying cost income ratio increased by 0.8 point to 73.7%. Income tax expenses increased by €4 million (+8%) to €-50 million. On a constant exchange rate basis, income tax expenses increased by €2 million (+4%) mainly due to a less favorable country mix contributing to pre-tax underlying earnings. Underlying earnings decreased by €14 million (-14%) to €85 million. On a constant exchange rate basis, underlying earnings decreased by €17 million (-17%). Adjusted earnings decreased by €12 million (-13%) to €85 million. On a constant exchange rate basis, adjusted earnings decreased by €15 million (-16%) due to lower underlying earnings and €2 million lower impairment charge. Net income decreased by €17 million (-17%) to €85 million. On a constant exchange rate basis, net income decreased by €20 million (-20%) mainly driven by lower adjusted earnings and a less favorable interest rate impact on internal derivatives. 1 €610 million after inter-company eliminations. Page 67 Activity Report______________________________________________________________________Half Year 2012 Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AXA Banks (a) 233 272 523 o/w Belgium (b) 167 169 328 o/w France 36 63 116 o/w Hungary 15 27 54 o/w Germany 12 12 23 o/w Switzerland (0) 0 o/wOthers (c) 2 1 1 Others 2 3 6 TOTAL 236 275 529 Intercompany transactions (9) (26) (44) Contribution to consolidated gross revenues 226 248 485 (a) Of which AXA Bank Europe and its branches: €184 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AXA Banks (a) 7 10 36 o/w Belgium (b) 27 27 55 o/w France (16) (0) 1 o/w Hungary (9) o/w Germany 2 2 4 o/w Switzerland (5) (11) o/w Others (c) (6) (5) (12) Others (2) (2) (4) UNDERLYING EARNINGS 5 8 32 Net realized capital gains or losses attributable to shareholders (11) (3) (5) ADJUSTED EARNINGS (6) 5 27 Profit or loss on financial assets (under Fair Value option) & derivatives 10 1 (13) Exceptional operations (including discontinued operations) (11) (144) Goodwill and related intangibles impacts (0) (86) Integration and restructuring costs (2) (7) (21) NET INCOME (9) (1) (237) (a) of which AXA Bank Europe and its branches: €21 million. (b) Includes commercial activities in Belgium for €7 million and shared services of AXA Bank Europe (treasury and support fun ctions) for €20 million. (c) Includes Slovakia and Czech Republic. Page 68 Activity Report______________________________________________________________________Half Year 2012 AXA Banks BELGIUM Net banking revenues decreased by €2 million (-1%) to €167 million. On a comparable basis1, net banking revenues increased by €17 million (+13%) mainly due to higher realized capital gains (€+20 million) and a lower funding cost (€+5 million), partly offset by higher impairments on fixed income assets (€-8 million). Revenues in retail banking activities remained stable at €169 million. Underlying earnings remained stable at €27 million with a lower commission margin from an internal business unit transfer (€-16 million) and higher taxes (€-8 million) compensating higher realized capital gains (€+20 million) and lower expenses (€+5 million). Adjusted earnings decreased by €8 million (-34%) to €16 million mainly due to above mentioned higher impairments on fixed income assets (€-8 million). Net income increased by €15 million (+78%) to €35 million mainly driven by higher foreign exchange result (€+11 million), deconsolidation of Switzerland (€ +8 million reflecting the transfer of the client portfolio to bank zweiplus on January 1, 2012) and lower restructuring costs (€+5 million), partly offset by lower adjusted earnings (€-8 million). FRANCE Net banking revenues decreased by €27 million (-42%) to €36 million. On a comparable basis1, net banking revenues decreased by €26 million (-43%) mainly due to higher interests paid to customers on savings accounts as a result of a promotional campaign during the first half of 2012 which led to a positive net new money collection of €1.0 billion, partly mitigated by higher interest revenues on mortgages as a result of an increase in new credit production despite a declining market trend. Underlying and adjusted earnings decreased by €15 million to €-16 million, following the decrease in net banking revenues, in a context of stable administrative expenses and cost of risk. Net income decreased by €17 million to €-19 million due to lower adjusted earnings and to unfavorable impact from interest-rate hedging instruments in a context of interest rates decrease. HUNGARY The Hungarian government enacted legislation in September 2011 allowing customers to redeem foreign currency denominated mortgages at non-market rates. In this context, Hungarian credit production has been stopped. Net banking revenues decreased by €12 million to €15 million. On a comparable basis1, net banking revenues decreased by €11 million mainly driven by lower interest income following the discontinuation of the lending activity and higher funding cost. Net income decreased by €11 million to €-20 million. On a constant exchange rate basis, net income decreased by €13 million mainly due to lower interest margin (€-9 million) following the discontinuation of the lending activities leading to a declining loan portfolio, higher provisions for loan losses (€-2 million) and lower foreign exchange result (€-2 million). The discontinuation of the lending activities together with new measures from the Hungarian government are expected to continue to negatively impact the Hungarian revenues and earnings. GERMANY Net banking revenues increased by €1 million (+4%) to €12 million. On a comparable basis1, net banking revenues increased by €2 million (+18%) especially due to an improved commercial margin mainly driven by lower interest paid for deposits and term accounts. Underlying earnings, adjusted earnings and net income remained stable at €2 million. 1 In banking segment, for net banking revenues, “on a comparable basis” means after intercompany eliminations, and other scope effects. Page 69 Activity Report______________________________________________________________________Half Year 2012 CZECH REPUBLIC Underlying earnings as well as adjusted earnings and net income remained stable at €-3 million on a constant exchange rate basis mainly driven by higher commercial margin (€+1 million) offset by higher administrative expenses (€-1 million). SLOVAKIA Underlying earnings as well as adjusted earnings and net income decreased by €1 million to €-3 million on a constant exchange rate basis mainly driven by higher expenses following marketing campaigns to support business growth. SWITZERLAND AXA Bank Switzerland closed its operations on January 1, 2012 following the transfer of its customer portfolio to bank zweiplus. The one-off costs associated with the closure of the Swiss branch booked in FY2011 amounted to €4 million. Page 70 Activity Report______________________________________________________________________Half Year 2012 Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 AXA (279) (214) Other French holdings companies (33) (38) Foreign holdings companies (122) (134) Others 1 1 UNDERLYING EARNINGS (433) (384) Net realized capital gains or losses attributable to shareholders (60) (180) ADJUSTED EARNINGS (493) (565) Profit or loss on financial assets (under Fair Value option) & derivatives (34) (89) Exceptional operations (including discontinued operations) 21 687 Goodwill and related intangibles impacts 0 0 Integration and restructuring costs (0) (1) NET INCOME (506) 33 AXA1 Underlying earnings decreased by €65 million to €-279 million mainly due to an increase in financial charge driven by €-32 million due to lower income on the net participation in BNP Paribas and by €-28 million as a result of the on- going amendment of the foreign currency hedging policy. Adjusted earnings increased by €26 million to €-339 million. Excluding the €92 million net impairment charge booked in 1H 2011 on Greece government bonds held by operational entities, adjusted earnings decreased by €66 million mainly driven by underlying earnings evolution. Net income decreased by €480 million to €-305 million. Excluding the €+682 million exceptional gain related to the disposal of the Australia & New Zealand operations in 1H 2011, net income increased by €202 million mainly driven by: - €+68 million linked to the sale of Canadian operations in respect of contingent consideration based on profitability metrics, €+68 million change of the mark to market on interest rate and foreign exchange derivatives which are not eligible to hedge accounting, €+38 million on time value related to equity derivatives, €+26 million increase in adjusted earnings. The foreign currency hedging policy has been amended balancing various objectives between net asset value protection, financial charge, liquidity and solvency positions. This new policy was implemented for US dollar and Swiss Franc and is currently being implemented for other currencies hedging (mainly Yen). The impact of this new policy was €-80 million after tax in 1H 2012 net income. 1 All the figures are after tax. Page 71 (in Euro million) FY 2011 (561) (47) (238) 2 (843) (224) (1,067) (17) 1,324 0 (0) 240 Activity Report______________________________________________________________________Half Year 2012 Other French holding companies AXA France Assurance Underlying earnings, adjusted earnings and net income decreased by €6 million to €-24 million mainly due to higher tax expenses resulting from higher inter-company dividends received. Other French holdings Underlying earnings increased by €10 million to €-9 million mainly due to an increase in operating profits from non consolidated entities. Adjusted earnings increased by €10 million to €-9 million mainly driven by underlying earnings evolution. Net income increased by €4 million to €-15 million. Excluding the €+9 million exceptional gain related to the disposal of the Australia & New Zealand operations in 1H 2011, net income increased by €13 million mainly driven by adjusted earnings evolution. Foreign Holding Companies AXA Financial Inc. Underlying earnings decreased by €5 million (-7%) to €-77 million. On a constant exchange rate basis, underlying earnings increased by €1 million (+2%). Adjusted earnings decreased by €5 million (-7%) to €-77 million. On a constant exchange rate basis, adjusted earnings increased by €1 million (+2%), in line with the underlying earnings evolution. Net income decreased by €38 million (-60%) to €-101 million. On a constant exchange rate basis, net income decreased by €30 million (-48%) driven by an unfavorable change in the fair value of the cross currency swaps. AXA UK Holdings Underlying earnings increased by €2 million (+85%) to €5 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+75%) mainly due to a decrease in pension costs (€10 million) offset by lower investment income (€-9 million) following a loan restructuring in 2H 2011. Adjusted earnings increased by €3 million (+85%) to €5 million. On a constant exchange rate basis, adjusted earnings increased by €2 million (+75%) due to the improvement in underlying earnings. Net income increased by €26 million to €15 million. On a constant exchange rate basis, net income increased by €25 million due to the improvement in adjusted earnings (€+2 million), favorable movement on derivatives (€+10 million) and non-repeat of a 1H 2011 tax one-off of €15 million. German Holding companies Underlying earnings remained stable. Adjusted earnings increased by €23 million (+48%) to €-24 million mainly due to a lower impairment charge. Net income increased by €14 million (+31%) to €-30 million mainly due to higher adjusted earnings, partly compensated by an unfavorable change in fair value of derivatives. Belgian Holding company Underlying earnings increased by €1 million (+17%) to €-6 million. Page 72 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €1 million (+18%) to €-6 million. Net income increased by €1 million (+9%) to €-5 million. Mediterranean and Latin American Region Holdings Underlying and adjusted earnings increased by €5 million (+13%) to €-30 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €5 million (+13%) reflecting lower financial charges. Net income increased by €3 million (+8%) to €-32 million. On a constant exchange rate basis, net income increased by €3 million (+8%) driven by the increase in adjusted earnings, partly offset by unfavorable change in financing hedges. Other CFP Underlying earnings, adjusted earnings and net income were stable at €1 million driven by stable positive run-off developments. Page 73 Activity Report______________________________________________________________________Half Year 2012 Outlook The macro economic environment will likely remain uncertain in the coming months and should continue to drive financial markets performance across the board. In this context, the Ambition AXA plan continues to be relevant despite the current market environment and AXA will continue to focus on its execution. Building on its financial strength and strong underlying fundamentals, AXA will continue to increase its exposure to the less market sensitive segments of Property & Casualty and Protection & Health. For the remainder of 2012, the business mix in Life & Savings will continue to shift towards more profitable segments, the favorable pricing environment will continue to support the Property & Casualty activity and the focus in Asset Management will be on further improving the investment performance. The delivery of the cost savings plan will also remain a priority, as well as the acceleration in high growth and direct markets. Page 74 Activity Report______________________________________________________________________Half Year 2012 Glossary The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Hungary, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia) India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece, France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, related impact on policyholder participation (Life & Savings business), - DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. Page 75 Activity Report______________________________________________________________________Half Year 2012 EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: Page 76 Activity Report______________________________________________________________________Half Year 2012 (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by \"underlying\" operating margin, where \"Underlying\" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Page 77 Activity Report______________________________________________________________________Half Year 2012 PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. BANKING Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Page 78 Consolidated financial statements_______________________________________________________Half Year 2012 Consolidated financial statements / Half Year 2012 Page 1 Consolidated financial statements_______________________________________________________Half Year 2012 Contents CONSOLIDATED STATEMENT OF FINANCIAL POSITION .............................................................................. 4 CONSOLIDATED STATEMENT OF INCOME ....................................................................................................... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME..................................................................... 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................... 8 CONSOLIDATED STATEMENT OF CASH FLOWS .......................................................................................... 10 Note 1 : Accounting principles ............................................................................................................................. 12 General information .................................................................................................................................. 12 1.1. General accounting principles ................................................................................................................... 12 1.2. Consolidation ........................................................................................................................................... 15 1.3. Foreign currency translation of financial statements and transactions ......................................................... 18 1.4. Segment reporting ..................................................................................................................................... 18 1.5. Intangible assets........................................................................................................................................ 19 1.6. Investments from insurance, banking and other activities ........................................................................... 20 1.7. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ............. 22 1.8. Derivative instruments .............................................................................................................................. 22 1.9. Assets / liabilities held for sale and assets / liabilities including discontinued operations ............................. 22 1.10. Cash and cash equivalents ......................................................................................................................... 23 1.11. Share capital and shareholders’ equity ....................................................................................................... 23 1.12. Liabilities arising from insurance and investment contracts ........................................................................ 23 1.13. Reinsurance .............................................................................................................................................. 26 1.14. Financing debt .......................................................................................................................................... 26 1.15. Other liabilities ......................................................................................................................................... 26 1.16. Provisions for risks, charges and contingent liabilities ............................................................................... 28 1.17. Revenue recognition ................................................................................................................................. 28 1.18. Subsequent events ..................................................................................................................................... 29 1.19. Note 2 : 2.1. 2.1.1. 2.1.2. 2.1.3. 2.2. Scope of consolidation ............................................................................................................................. 30 Consolidated companies ............................................................................................................................ 30 Main fully consolidated companies ........................................................................................................... 30 Proportionately consolidated companies .................................................................................................... 33 Main investments in companies accounted for using the equity method...................................................... 33 Consolidated entities relating to specific operations ................................................................................... 33 Note 3 : 3.1. Segment information............................................................................................................................... 34 Segmental consolidated statement of income ............................................................................................. 36 Note 4 : Assets and liabilities held for sale including discontinued operations.................................................... 38 Main Half Year 2012 transactions ............................................................................................................. 38 4.1. Main 2011 transactions ............................................................................................................................. 38 4.2. Note 5 : 5.1. 5.2. 5.3. 5.4. 5.4.1. 5.4.2. 5.5. Investments ............................................................................................................................................. 40 Breakdown of investments ........................................................................................................................ 40 Investment in real estate properties ............................................................................................................ 42 Unrealized gains and losses on financial investments ................................................................................. 43 Financial assets subject to impairment ....................................................................................................... 44 Breakdown of financial assets subject to impairment (excluding investment in real estate properties) ......... 44 Change in impairment on invested assets (excluding investment in real estate properties) ........................... 45 Financial assets recognized at fair value .................................................................................................... 45 Page 2 Consolidated financial statements_______________________________________________________Half Year 2012 Note 6 : 6.1. 6.1.1. 6.1.2. 6.2. 6.2.1. 6.2.2. 6.3. 6.3.1. 6.3.2. Shareholders’ equity and minority interests .......................................................................................... 47 Impact of transactions with shareholders ................................................................................................... 47 Change in shareholders’ equity Group share for the first half of 2012......................................................... 47 Change in shareholders’ equity Group share for the first half of 2011......................................................... 48 Comprehensive income for the period ....................................................................................................... 49 Comprehensive income for the first half of 2012 ....................................................................................... 49 Comprehensive income for the first half of 2011 ....................................................................................... 51 Change in minority interests ...................................................................................................................... 51 Change in minority interests for the first half of 2012 ................................................................................ 51 Change in minority interests for the first half of 2011 ................................................................................ 51 Note 7 : Financing debt ........................................................................................................................................ 52 Note 8 : Net income per ordinary share ............................................................................................................... 53 Page 3 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2012 (a) December 31, 2011 Restated (a) (b) January 1, 2011 Restated (a) (b) Goodwill 16,094 15,855 16,741 Value of purchased business in force (c) 3,026 3,074 3,105 Deferred acquisition costs and equivalent (b) 19,873 18,688 16,829 Other intangible assets 3,305 3,382 3,648 Intangible assets 42,298 40,999 40,322 Investments in real estate properties 16,208 16,061 15,751 Financial investments 432,239 418,765 409,630 Assets backing contracts where the financial risk is borne by policyholders (d) 142,850 134,230 137,757 5 Investments from insurance activities 591,296 569,056 563,137 5 Investments from banking and other activities 38,154 35,264 31,416 Investments in associates - Equity method 1,258 1,139 1,168 Reinsurers' share in insurance and investment contracts liabilities 10,857 10,698 11,096 Tangible assets 1,638 1,410 1,517 Deferred policyholders' participation assets 749 1,247 636 Deferred tax assets (b) 3,443 3,332 4,370 Other assets 5,831 5,990 6,524 Receivables arising from direct insurance and inward reinsurance operations 15,988 13,346 13,468 Receivables arising from outward reinsurance operations 789 671 1,008 Receivables - current tax 2,094 2,347 1,851 Other receivables 16,642 16,325 13,917 Receivables 35,514 32,689 30,244 4 Assets held for sale including discontinued operations 480 360 22,848 Cash and cash equivalents 30,417 31,072 22,095 TOTAL ASSETS 756,105 727,268 728,851 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movemen t in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Amounts gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. Page 4 Consolidated financial statements_______________________________________________________Half Year 2012 Notes June 30, 2012 (a) December 31, 2011 Restated (a) (b) Share capital and capital in excess of nominal value 25,206 25,188 Reserves and translation reserve (b) 20,895 17,080 Net consolidated income - Group share (b) 2,586 4,190 Shareholders’ equity – Group share 48,687 46,458 Minority interests 2,479 2,367 6 TOTAL SHAREHOLDERS' EQUITY 51,166 48,825 Subordinated debt 7,301 7,108 Financing debt instruments issued 2,492 2,506 Financing debt owed to credit institutions 833 807 7 Financing debt 10,627 10,421 Liabilities arising from insurance contracts 368,470 358,146 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 111,248 104,642 Total liabilities arising from insurance contracts 479,718 462,788 Liabilities arising from investment contracts with discretionary participating features 37,159 37,858 Liabilities arising from investment contracts with no discretionary participating features 403 380 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,803 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 28,180 26,336 Total liabilities arising from investment contracts 69,546 68,195 Unearned revenue and unearned fee reserves 2,993 2,975 Liabilities arising from policyholders' participation 22,597 17,938 Derivative instruments relating to insurance and investment contracts (2,514) (2,056) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 572,340 549,841 Liabilities arising from banking activities 35,721 34,023 Provisions for risks and charges 12,150 10,760 Deferred tax liabilities (b) 4,096 3,817 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 5,406 3,896 Other debts instruments issued, notes and bank overdrafts (d) 6,126 6,272 Payables arising from direct insurance and inward reinsurance operations 7,040 7,212 Payables arising from outward reinsurance operations 5,449 5,179 Payables – current tax 1,454 1,194 Collateral debts relating to investments under a lending agreement or equivalent 26,349 27,509 Other payables 17,857 18,130 Payables 69,680 69,391 4 Liabilities held for sale including discontinued operations 325 189 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 756,105 727,268 (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movemen t in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Amounts are shown net of related derivative instruments impact. June 30, 2012 (a) December 31, 2011 (a) Liabilities arising from insurance contracts where the financial risk is borne by policyholders (b) 111,248 104,642 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,803 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 28,180 26,336 Total Liabilities arising from contracts where the financial risk is borne by policyholders 143,231 134,599 Liabilities arising from insurance contracts 368,470 358,146 Liabilities arising from investment contracts with discretionary participating features 37,159 37,858 Liabilities arising from investment contracts with no discretionary participating features 403 380 Total Liabilities arising from other insurance and investment contracts 406,032 396,384 (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minim um features. Page 5 (in Euro million) January 1, 2011 Restated (a) (b) 24,723 23,065 0 47,788 4,167 51,955 7,066 2,500 887 10,454 342,559 108,587 451,146 37,233 720 4,700 25,006 67,659 2,757 15,897 (742) 536,717 27,532 10,495 3,473 4,855 6,504 7,472 5,916 1,348 23,399 18,562 68,058 20,168 728,851 (in Euro million) January 1, 2011 (a) 108,587 4,700 25,006 138,293 342,559 37,233 720 380,512 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2012 June 30, 2011 Restated (a) Gross written premiums 45,749 43,959 Fees and charges relating to investment contracts with no participating features 164 182 Revenues from insurance activities 45,913 44,141 Net revenues from banking activities 224 246 Revenues from other activities 2,268 2,449 Revenues (b) 48,405 46,836 Change in unearned premiums net of unearned revenues and fees (3,962) (3,727) Net investment income (c) 8,023 7,582 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity (d) (e) 770 2,360 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (f) 6,550 3,588 of which change in fair value of assets with financial risk borne by policyholders (g) 6,224 3,257 Change in investments impairment (h) (390) (380) Net investment result excluding financing expenses 14,953 13,149 Technical charges relating to insurance activities (g) (45,696) (40,577) Net result from outward reinsurance (572) (571) Bank operating expenses (64) (44) Acquisition costs (a) (4,293) (4,373) Amortization of the value of purchased business in force (47) (113) Administrative expenses (4,630) (5,045) Change in tangible assets impairment (0) (1) Change in goodwill impairment and other intangible assets impairment (67) (57) Other income and expenses (175) (91) Other operating income and expenses (55,544) (50,872) Income from operating activities before tax 3,852 5,387 Income arising from investments in associates - Equity method 42 31 Financing debts expenses (i) (289) (320) Net income from operating activities before tax 3,605 5,098 Income tax (a) (919) (976) Net operating income 2,687 4,122 4 Result from discontinued operations net of tax 99 Net consolidated income after tax 2,687 4,221 Split between : Net consolidated income - Group share 2,586 4,013 Net consolidated income - Minority interests 101 208 8 Earnings per share (j) 1.04 1.69 8 Fully diluted earnings per share (j) 1.04 1.68 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Gross of reinsurance. (c) Net of investment management costs. (d) Includes impairment releases on investments sold. (e) As of June 30, 2011, notably includes net realized gains on sale of Autralian and New Zealand operations (€695 million gr oss or €691 million net) and stake in Taikang Life (€779 million gross or €749 million net). (f) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (g) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (h) Excludes impairment releases on investments sold. (i) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (j) Refer to Note 8 for the split of earnings per share between continuing and discontinued operations. Page 6 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2012 (a) June 30, 2011 Restated (a) (b) Reserves relating to changes in fair value through shareholders' equity 1,810 (1,816) Translation reserves 647 (1,737) Employee benefits actuarial gains and losses (935) 12 Net gains and losses recognized directly through shareholders' equity 1,522 (3,541) Net consolidated income 2,687 4,221 TOTAL COMPREHENSIVE INCOME (CI) 4,209 680 Split between : CI - Group share 4,051 873 CI - Minority interests 158 (193) (a) AXA Japan closes its half year accounts at March 31. Given significant movement in foreign exchange rates since end of March, balance sheet items have been translated using June 30, 2012 exchange rates. As of June 30, 2011, Axa Japan's balance sheet was translated using March 31, 2011 exhange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Page 7 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (a) Shareholders 'equity opening January 1,2012 Restated (b) 2,357,198 2.29 5,398 20,471 (385) 4,838 50 6,059 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c ) 103 - - - - - - - - 2.29 - - - - - - - - 0 - - - - - - - - 1 16 - - - - - - - - 17 - - - - - - - - - - - - (0) - - - - - - - - - - - (16) - - (148) - Dividends paid Impact of transactions with shareholders 103 2.29 0 17 17 (0) (164) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses (d) Net consolidated income - - - - - - - - - - 1,725 - - 62 - - 135 - - Total Comprehensive Income (CI) 1,725 62 135 Shareholders' equity closing June 30, 2012 2,357,301 2.29 5,398 20,488 (368) 6,563 112 6,031 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Including changes in ownership interest in consolidated subsidiaries without losing control. (d) Actuarial gains and losses accrued since opening January 1, 2012. Page 8 Translation reserves (2,296) - - - - - - - 0 0 474 - - 474 (1,822) (in Euro million, except for number of shares and nominal value) Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 12,323 46,458 2,367 - - - - - - - (66) 0 1 16 17 (16) - - (148) (66) - - - - - - - (47) (1,626) (1,626) (1,692) (1,822) (47) 1,788 23 (933) 2,586 1,653 609 (933) 2,586 4,051 37 (3) 101 158 12,284 48,687 2,479 Consolidated financial statements_______________________________________________________Half Year 2012 Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (a) Shareholders 'equity opening January 1, 2011 Restated (b) 2,320,105 2.29 5,313 20,192 (495) 6,272 33 6,208 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 327 - - - - - - - - 2.29 - - - - - - - - 1 - - - - - - - - 3 22 - - - - - - - - 107 - - - - - - - - - - - - 152 - - - - - - - (0) - - - (35) - 0 (140) - Dividends paid Impact of transactions with shareholders 327 2.29 1 24 107 152 (0) (175) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses (d) Net consolidated income - - - - - - - - - - (1,800) - - 13 - - (249) - - Total Comprehensive Income (CI) (1,800) 13 (249) Shareholders' equity closing June 30, 2011 Restated (b) 2,320,432 2.29 5,314 20,216 (387) 4,623 46 5,784 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c)Including changes in ownership interest in consolidated subsidiaries without losing control. Notably include €2.5 billion reduction in shareholders' equity related to the buy-out of minority interests in AXA APH Asian operation. (d) Actuarial gains and losses accrued since opening January 1, 2011. Page 9 Translation reserves (2,075) - - - - - - - (478) (478) (1,117) - - (1,117) (3,669) (in Euro million, except for number of shares and nominal value) Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 12,341 47,788 4,167 - - - - - - - (2,093) (3,693) 1 3 22 107 (35) - 0 (140) (2,419) (1,601) - - - - - - - (1,501) (4,062) (1,501) (1,787) (29) 12 4,013 4,026 (1,365) 12 4,013 873 (372) 0 208 (193) 12,673 44,600 2,473 Avec et sans PB discrétionnaire Consolidated financial statements___________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2012 (a) June 30, 2011 Restated (a) (b) Operating income including discontinued operation before tax 3,605 5,098 Net amortization expense (c) 305 261 Change in goodwill impairment and other intangible assets impairment (d) 12 3 Net change in deferred acquisition costs and equivalent (1,219) (584) Net increase / (write back) in impairment on investments, tangible and other intangible assets 427 394 Change in fair value of investments at fair value through profit or loss (8,265) (581) Net change in liabilities arising from insurance and investment contracts (e) 14,193 10,337 Net increase / (write back) in other provisions (f) (59) (140) Income arising from investments in associates – Equity method (42) (29) Adjustment of non cash balances included in the operating income before tax 5,353 9,661 Net realized investment gains and losses 859 (5,342) Financing debt expenses 287 325 Adjustment for reclassification to investing or financing activities 1,146 (5,018) Dividends recorded in profit or loss during the period (1,595) (1,618) Investment income & expense recorded in profit or loss during the period (6,959) (6,429) Adjustment of transactions from accrued to cash basis (8,553) (8,047) Net cash impact of deposit accounting 130 (240) Dividends and interim dividends collected 1,797 1,742 Investment income 8,961 8,221 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (1,279) (1,333) Change in operating receivables and payables and net operating cash from banking activities (3,322) (2,100) Net cash provided by other assets and liabilities (g) (804) (1,759) Tax expenses paid (563) (339) Other operating cash impact and non cash adjustment (1,599) (1,360) Net cash impact of transactions with cash impact not included in the operating income before tax 3,322 2,831 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 4,873 4,526 Purchase of subsidiaries and affiliated companies, net of cash acquired (13) 220 Disposal of subsidiaries and affiliated companies, net of cash ceded 178 1,293 Net cash related to changes in scope of consolidation 165 1,512 Sales of debt instruments (g) 34,363 40,985 Sales of equity instruments and non controlled investment funds (g) (h) 9,077 10,073 Sales of investment properties held directly or not (g) 182 392 Sales and/or repayment of loans and other assets (g) (i) 13,445 14,360 Net cash related to sales and repayments of investments (g) (h) (i) 57,067 65,809 Purchases of debt instruments (g) (36,603) (45,367) Purchases of equity instruments and non controlled investment funds (g) (h) (9,806) (8,026) Purchases of investment properties held direct or not (g) (545) (467) Purchases and/or issues of loans and other assets (g) (i) (14,357) (12,735) Net cash related to purchases and issuance of investments (g) (h) (i) (61,310) (66,595) Sales of tangible and intangible assets 3 8 Purchases of tangible and intangible assets (230) (166) Net cash related to sales and purchases of tangible and intangible assets (226) (159) Increase in collateral payable / Decrease in collateral receivable 29,894 37,655 Decrease in collateral payable / Increase in collateral receivable (29,881) (35,861) Net cash impact of assets lending / borrowing collateral receivables and payables 13 1,794 Other investing cash impact and non cash adjustment NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (4,291) 2,362 Issuance of equity instruments 266 (14) Repayments of equity instruments (88) (314) Transactions on treasury shares (8) 35 Dividends payout (1,688) (1,682) Interests on undated subordinated debts paid (115) (112) Acquisition / sale of interests in subsidiaries without change in control (76) (3,291) Net cash related to transactions with shareholders (1,708) (5,378) Page 10 Consolidated financial statements___________________________________________________Half Year 2012 Cash provided by financial debts issuance 0 Cash used for financial debts repayments (24) Interests on financing debt paid (j) (238) Net cash related to Group financing (262) Other financing cash impact and non cash adjustment NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (1,970) NET CASH PROVIDED BY DISCONTINUED OPERATIONS (0) CASH AND CASH EQUIVALENT AS OF JANUARY 1 (k) 30,033 Net cash provided by operating activities 4,873 Net cash provided by investing activities (4,291) Net cash provided by financing activities (1,970) Net cash provided by discontinued operations (0) Impact of change in consolidation method and of reclassifications as held for sale (322) Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents 358 CASH AND CASH EQUIVALENT AS OF JUNE 30 (k) 28,680 (a) AXA Japan closes its half year accounts at March 31. Given significant movement in foreign exchange rates since end of Ma rch, balance sheet items have been translated using June 30, 2012 exchange rates. As of June 30, 2011, Axa Japan's balance sheet was translated using March 31, 2011 exhange rates. (b) As described in note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Includes premiums/discounts capitalization and relating amortization, amortization of investment and owner occupied prope rties (held directly). (d) Includes impairment and amortization of intangible assets booked during business combinations. (e) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by poli cyholders. (f) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (g) Includes related derivatives. (h) Includes equity instruments held directly or by controlled investment funds as well as non controlled investment funds. (i) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (j) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (k) Net of bank overdrafts. June 30, 2012 June 30, 2011 Restated (a) Cash and cash equivalent 30,417 Bank overdrafts (b) (1,737) Cash and cash equivalent as of December 31 (c) 28,680 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Included in \"Other debt instruments issued and bank overdrafts\". (c) The \"Cash and cash equivalents\" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from th e Satellite Investment Portfolio (see Note 1.7.2). The \"Cash and cash equivalents\" item in the Statement of Consolidated Cash Flows excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). Page 11 26 (67) (352) (392) (5,770) (68) 21,097 4,526 2,362 (5,770) (68) (0) (320) 21,827 (in Euro million) 22,656 (829) 21,827 Consolidated financial statements___________________________________________________Half Year 2012 Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, • Asset Management, • Banking. AXA is listed on Euronext Paris Compartiment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on August 2, 2012. 1.2. General accounting principles 1.2.1. Basis for preparation AXA’s consolidated interim financial statements are prepared as of June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half year end. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are definitive and effective as of June 30, 2012, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009, amended in October 2010 and December 2011, has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated interim financial statements also comply with IFRS as issued by the International Accounting Standards Board (IASB). Voluntary change in accounting policy on deferred acquisition costs (DAC) Deliberations at joint meetings of IASB and FASB regarding the Insurance Contracts Phase II project as well as change in USGAAP (ASU-2010-26) applicable as at January 1, 2012 for companies applying US GAAP indicate that accounting standards are moving to lower capitalization and therefore deferral of acquisition expenses. In this context, the Group changed its accounting policy on deferred acquisition costs as of January 1, 2012 and retrospectively restated comparative information related to previous periods. The change applied is in line with the updated draft wording provided at the IASB Insurance Working Group on October 24, 2011 around direct costs of acquiring a portfolio of insurance contracts which so far differs from ASU-2010-26 by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied (incremental direct cost of acquisition and specifying some other costs). The Group was seeking for better alignment with US GAAP applicants starting when the ASU-2010-26 change was applicable for such companies while conscious that the Group would be submitted to IFRS 4 Phase II whenever applicable. The impact of this change led to a reduction of total shareholders’ equity of €1, 913 million (of which €1,910 million group share) as of January 1, 2011. The adjustments on previous periods affected the following line items of the financial statements: Page 12 Consolidated financial statements___________________________________________________Half Year 2012 In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsDeferred acquisition costs and equivalents (a) 19,641 (2,813) 16,829 21,785 (3,097) 18,688 Deferred tax assets 4,097 273 4,370 3,052 280 3,332 Deferred tax liabilities (4,098) 626 (3,473) (4,526) 709 (3,817)NET EFFECT (1,913) (2,108)In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsAcquisition costs (4,398) 25 (4,373) (8,184) (199) (8,383)Income tax (963) (12) (976) (1,074) 63 (1,011)NET EFFECT 13 (136) June 30, 2011December 31, 2011(a) Corresponds to group Gross DAC amount. DAC assets should be looked at in conjunction with unearned revenues and reserves (URR: Revenues received at inception to cover furture services - see note 1.6.4), policyholder participation and tax. Life and Savings DAC net of URR, PB and tax amounted to €8,509 million as at December 31, 2011.Consolidated statement of financial positionConsolidated statement of incomeJanuary 1, 2011 December 31, 2011 Standards, amendments and interpretations published but not yet effective IFRS 9 - Financial instruments, published on November 12, 2009, amended on October 28, 2010 and December 16, 2011 and applicable to the Group from January 1, 2015 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting), its method of implementation and its impact are currently being examined within the Group. The amendment to IFRS 7 – Disclosures – Transfers of Financial Assets published on October 7, 2010, increases the disclosure requirements for transactions involving transfers of financial assets. The amendment is intended to provide additional information regarding risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure to the asset. The amendment also requires disclosure where transfers of financial assets are not evenly distributed throughout the period. The disclosure amendment is effective for annual periods beginning on or after July 1, 2011. It is not expected to have a material impact on the Group’s consolidated financial statements as of December 31, 2012. The amendment to IAS 12 – Income Taxes, published on 20 December 2010 addresses the measurement of deferred tax liabilities and deferred tax assets, which depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is difficult and subjective to assess whether recovery will be through use or through sale. The amendment provides a practical approach in such cases, by introducing a presumption that an asset is recovered entirely through sale unless the entity has clear evidence that recovery will occur in another manner. The presumption would apply when investment properties, property, plant and equipment or intangible assets are remeasured at fair value or revalued at fair value. The amendment is effective for annual periods beginning on or after January 1, 2012 and is not expected to have a material impact on the Group’s consolidated financial statements as of December 31, 2012. A package of five new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the five standards have an effective date for annual periods beginning on or after January 1, 2013, with earlier application permitted so long as each of the other standards in the package is also early applied. The analysis of the potential impact on the Group’s consolidated financial statements with regard to the package of five new and revised standards is currently underway. Page 13 Consolidated financial statements___________________________________________________Half Year 2012 IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements and replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. The application of the equity method instead of the proportional consolidation is not expected to have a material impact on the Group’s consolidated financial statements. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. IFRS 13 – Fair Value Measurement, published on May 12, 2011, defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 1 – Presentation of Financial Statements, published June 16, 2011, requires entities to group together items presented within other comprehensive income based on whether they are potentially reclassifiable to profit or loss in a subsequent period. The amendment also preserves the requirement that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The amendment is effective for annual periods beginning on or after July 1, 2012, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 19 – Employee Benefits, published June 16, 2011, addresses the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. The amendment also eliminates the corridor method deferral of recognition of gains and losses, which is not applied by the Group. The amendment is effective for annual periods beginning on or after January 1, 2013, with early application permitted. The analysis of the potential impact on the Group’s consolidated financial statements is currently underway. The amendments to IAS 32 – Financial Instruments: Presentation, and the amendments to IFRS 7 – Financial Instruments Disclosure published December 16, 2011, provide clarifications of the application of the offsetting rules and amend the related disclosure requirements. The amendments to IAS 32 clarify that to result in offset of a financial asset and a financial liability, a right to set-off must be available today rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IFRS 7 require disclosure of information about rights of offset and related arrangements. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and the IFRS 7 disclosure amendments are required for annual periods beginning on or after January 1, 2013. The amendments are not expected to have a material impact on the Group’s consolidated financial statements. Annual Improvements 2009 – 2011 Cycle, published on May 17, 2012, includes amendments to IFRSs that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They are applicable for annual periods beginning on or after January 1, 2013. These amendments are not expected to have a material impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. Page 14 Consolidated financial statements___________________________________________________Half Year 2012 All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date was January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: Goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS), and • Any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. As a result, the goodwill gross value corresponds to the gross value of these goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27 / SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Page 15 Consolidated financial statements___________________________________________________Half Year 2012 Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27 / SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 1.3.2. Business combinations and subsequent changes in the Group ownership interest In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and reflecting the difference between the fair value and the carrying value of the liabilities). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Page 16 Consolidated financial statements___________________________________________________Half Year 2012 Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill). According to a decision taken for each acquisition, any minority interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of minority interests in a controlled subsidiary Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. Page 17 Consolidated financial statements___________________________________________________Half Year 2012 Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: • in full for controlled subsidiaries, and; • to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated. However, in case of a loss, an impairment test is performed in order to assess whether an impairment has to be booked. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: • assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; • revenues and expenses are translated at the average exchange rates over the period; • all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step-by-step consolidation method (IFRIC 16). 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. Page 18 Consolidated financial statements___________________________________________________Half Year 2012 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as investment contracts with no discretionary Deferred origination costs (DOC) relating to participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned. In Life, the asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.6.4. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs. 1.6.5. Other intangible assets Other intangible assets include software developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. Page 19 Consolidated financial statements___________________________________________________Half Year 2012 They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized on a straight-line basis over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: • assets held to maturity, accounted for at amortized cost; • assets held for trading and assets designated as at fair value with change in fair value through profit or loss; • available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity; • loans and receivables (including some debt instruments not quoted in an active market) accounted for at amortized cost. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: • financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: – assets backing liabilities arising from contracts where the financial risk is borne by policyholders; – assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; – debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: • either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Page 20 Consolidated financial statements___________________________________________________Half Year 2012 Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local Assets and Liabilities Management (ALM) strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.7.3. Repurchase agreements and security lending The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements. The Group is also party to reverse repurchase agreements under which financial assets are purchased from a counterparty, subject to a simultaneous agreement to return these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remain with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as financial assets of the Group. The amounts of cash disbursed are recorded under financial investments, except for transactions arising from banking activities, which are recorded as separate assets. Interest income on reverse repurchase agreements is accrued over the duration of the agreements. Page 21 Consolidated financial statements___________________________________________________Half Year 2012 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc.). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Therefore, the gain or loss relating to any ineffective portion is directly recognized in the income statement. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed material. For the statement of financial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. Page 22 Consolidated financial statements___________________________________________________Half Year 2012 In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the statement of financial position and statement of income are provided in the notes to the consolidated financial statements. 1.11. Cash and cash equivalents Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. 1.12. Share capital and shareholders’ equity 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debt Undated subordinated debt and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or shareholders’ expectations). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. Liabilities arising from insurance and investment contracts 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: Page 23 Consolidated financial statements___________________________________________________Half Year 2012 they are likely to represent a significant portion of the overall contractual benefits; • their amount or timing is contractually at the discretion of the Group; and • they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: • liabilities arising from insurance contracts, • liabilities arising from insurance contracts where the financial risk is borne by policyholders, • liabilities arising from investment contracts with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features, • liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where IAS 39 applies. The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: Reserves must be sufficient, Life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield, Acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts, Claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. Pre-claims reserves Unearned premiums reserves represent the prorated portion of written premiums that relates to unexpired risks at the closing date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Changes in reserves are booked if there are impacts caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Page 24 Consolidated financial statements___________________________________________________Half Year 2012 Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. Post claims reserves Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, and actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where minimum are set to respectively 90%, 90% and 85% of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less developed in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; Page 25 Consolidated financial statements___________________________________________________Half Year 2012 • they include projections of future investments sales according to estimated surrender patterns; and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Depending on the type of business, the future investment cash flows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, …) to a reserve directly by discounting the cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in section 1.6.3). Unearned fees reserves Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs. 1.14. Reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. Financing debt Financing debts issued to finance the solvency requirements of operational entities or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position. 1.16. Other liabilities 1.16.1. Income taxes The half year income tax charge is based on the best estimate of the expected full year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carry forwards. Page 26 Consolidated financial statements___________________________________________________Half Year 2012 Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. The recoverability of deferred tax assets recognized in previous periods is re-assessed at each closing. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Comprehensive Income) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefits on the date of a change in the amount of benefits following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period. The impact in the income statement mainly relates to the service cost (annually accruing employee benefit) and the interest cost (unwinding of discount applied to the liability), reduced by the expected return on assets dedicated to the plan. Past service costs, settlements and curtailments also have an impact in the income statement. 1.16.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged options (with an application subject to specific local regulations within the Group). The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. Page 27 Consolidated financial statements___________________________________________________Half Year 2012 1.17. Provisions for risks, charges and contingent liabilities 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation. 1.18. Revenue recognition 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: • the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, • claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: • the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. Page 28 Consolidated financial statements___________________________________________________Half Year 2012 1.18.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.6.4) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interest expenses not related to financing, banking fees, capital gains and losses on sales of financial assets, change in fair value of assets under fair value option and related derivatives. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: • commissions received and fees for services relating to asset management activities • insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, and rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half year policyholders’ participation charge is based on the best estimate of the planned full year distribution rate for each portfolio of contracts at each Group entity level. 1.18.9. Net investment result excluding financing expenses The net investment result includes: • investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, investment management expenses (excludes financing debt expenses), • realized investment gains and losses net of releases of impairment following sales, • the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, • the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see section 1.18.6). 1.19. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: • such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. Page 29 Consolidated financial statements___________________________________________________Half Year 2012 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2012 December 31, 2011 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA Asia 100.00 100.00 100.00 100.00 AXA China 100.00 100.00 100.00 100.00 AXA France Assurance 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.98 100.00 99.98 AXA UK Plc 100.00 99.98 100.00 99.98 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100.00 100.00 100.00 100.00 AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 100.00 100.00 Japan AXA Japan Holding 98.95 98.95 98.94 98.94 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG 100.00 100.00 100.00 100.00 AXA Beteiligungsgesellschaft mbH 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 Finance Solutions SARL 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Italia S.p.A. AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 100.00 100.00 Page 30 Consolidated financial statements___________________________________________________Half Year 2012 June 30, 2012 December 31, 2011 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA France IARD AXA France Vie AXA Protection Juridique 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 United States AXA Equitable Life Insurance Company Mony Life Insurance Company AXA Financial (Bermuda) Ltd 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited Bluefin Group Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 Ireland AXA Insurance Limited AXA Life Europe Limited AXA Reinsurance Ireland Limited 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 99.98 100.00 100.00 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (a) 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 Japan AXA Life Insurance 100.00 98.95 100.00 98.94 Germany AXA Versicherung AG AXA Art AXA Lebenversicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Servis Life SA Les Assurés Réunis Merged with AXA Belgium SA 100.00 100.00 100.00 - 99.93 100.00 100.00 100.00 - 99.93 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 99.93 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Salud, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) 99.82 99.96 99.90 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.90 99.99 99.99 50.00 99.82 99.82 99.90 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.82 99.90 99.90 99.99 99.99 50.00 AXA MPS Danni (Italy) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Al Amane Assurance (Morocco) AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) 50.00 + 1 voting right 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.98 99.94 50.00 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.98 99.94 50.00 + 1 voting right 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.89 99.94 50.00 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.89 99.94 Switzerland AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland AXA Poland Pension Funds AXA Slovakia AXA Ukraine 99.99 100.00 100.00 100.00 100.00 100.00 50.17 99.99 100.00 100.00 100.00 100.00 100.00 50.17 99.99 100.00 100.00 100.00 100.00 100.00 50.00 99.99 100.00 100.00 100.00 100.00 100.00 50.00 Direct (b) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Minority interests buyout 100.00 98.67 100.00 100.00 100.00 98.67 98.95 100.00 100.00 94.13 100.00 100.00 100.00 94.13 98.94 100.00 Page 31 Consolidated financial statements___________________________________________________Half Year 2012 Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) Seguro Directo Gere Companhia de Seguros SA (Portugal) 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 (a) AXA Group has a full control given the shareholders' agreements. (b) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2012 December 31, 2011 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C (previously AXA Cessions) AXA Global Life (previously Saint-Georges Ré) AXA Assistance SA (sub group) Portman Insurance Ltd. (previously AXA Global Risks UK) Colisée RE (previously AXA RE) AXA Corporate Solutions Life Reinsurance Company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2012 December 31, 2011 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) (a) 95.83 63.49 95.82 63.49 95.55 64.60 95.54 64.60 (a) AXA also holds indirectly 100% of the general partner of AllianceBernstein L.P. June 30, 2012 December 31, 2011 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2012 December 31, 2011 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management (a) 100.00 100.00 100.00 100.00 (a) Formerly Compagnie Financière de Paris Consolidated investments and investment funds As of June 30, 2012, consolidated investment funds represented total invested assets of €104 billion (€96 billion at the end of 2011), corresponding to 236 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. As of June 30, 2012, the 21 consolidated real estate companies corresponded to total invested assets of €6,448 million (€6,689 million at the end of 2011), mainly in France and Germany. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of controlled investment funds and puttable instruments held by minority interest holders”. As of June 30, 2012, minority interests in controlled investment funds amounted to €5,406 million (€3,896 million as of December 31, 2011). Page 32 Consolidated financial statements___________________________________________________Half Year 2012 2.1.2. Proportionately consolidated companies June 30, 2012 December 31, 2011 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances 50.00 49.96 50.00 49.96 2.1.3. Main investments in companies accounted for using the equity method Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2012 December 31, 2011 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie (previously NSM Vie) 39.98 39.98 39.98 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd AXA Minmetals Assurance Co Ltd (a) PT AXA Mandiri Financial Services 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 Bharti AXA Life 26.00 26.00 26.00 26.00 Russia Reso Garantia (RGI Holdings B.V.) (b) 39.34 39.34 39.34 39.34 Asset Management Kyobo AXA Investment Managers Company Limited 50.00 47.91 50.00 47.77 (a) \"AXA Minmetals Assurance Co Ltd\" is accounted for using the equity method as its shareholders' agreements don't provide the Group with controlling power. (b) AXA's group share of interest in operating unit of Reso Garantia is 36.68% Investment funds and real estate entities accounted for using the equity method. As of June 30, 2012, real estate companies accounted for using the equity method represented total assets of €281 million (€306 million at the end of 2011) and investment funds accounted for using the equity method represented total assets of €3,697 million (€3,829 million at the end of 2011), mainly in the United States, Germany, Belgium, Switzerland and the United Kingdom. 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV was consolidated within the operations of AXA France Life & Savings. This structure was set up in order to improve AXA France Life & Savings assets / liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. This program was stopped in April 2012 and is no longer consolidated in AXA France Life & Savings operations. Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. Held assets amounted to €1,202 million as of June 30, 2012. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Page 33 Consolidated financial statements___________________________________________________Half Year 2012 Note 3 : Segment information Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional \"Holding companies\" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The AXA's Chief Executive Officer and the Deputy Chief Executive Officer are both members of the Board of Directors. They are assisted by a Management Committee in the day-to-day operational management of the Group and by an Executive Committee to consider Group strategy. The Group has built up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium- sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries) and one operating component for the Direct business (previously included within countries and regions and now reported as a separate reporting unit). International Insurance: This segment’s operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company, and the group Property & Casualty run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior accident years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to PartnerRe (ex Paris Ré). It also includes reinsurance activity managed by AXA Global Life and AXA Global P&C (ex AXA Cessions), which write reinsurance treaties of AXA entities after a selection of reinsurers. AXA Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes. Activities from both global lines of business are reported in International Insurance. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgages loans, savings) conducted primarily in France, Belgium, Switzerland, Germany and Central & Eastern Europe (Hungary, Slovakia and the Czech Republic). The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles including certain Special-Purpose Entities (SPE). Page 34 Consolidated financial statements___________________________________________________Half Year 2012 The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Page 35 Consolidated financial statements___________________________________________________Half Year 2012 3.1. Segmental consolidated statement of income June 30, 2012 Life & Savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 27,903 16,363 1,759 (276) Fees and charges relating to investment contracts with no participating features 164 Revenues from insurance activities 28,067 16,363 1,759 (276) Net revenues from banking activities 233 0 (10) Revenues from other activities 575 28 146 1,734 2 (215) Revenues 28,642 16,391 1,904 1,734 236 0 (501) Change in unearned premiums net of unearned revenues and fees (1,353) (2,427) (276) 94 Net investment income 7,036 1,034 96 1 (1) 265 (408) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 496 6,659 6,227 189 (19) 7 27 (2) 21 80 (139) 0 2 (3) Change in investments impairment (269) (102) (5) (1) (14) Net investment result excluding financing expenses 13,922 1,103 125 19 (1) 192 (406) Technical charges relating to insurance activities (35,397) (9,272) (1,163) 135 Net result from outward reinsurance (106) (538) 5 66 Bank operating expenses (64) (0) Acquisition costs (1,712) (2,402) (189) 10 Amortization of the value of purchased business in force (47) Administrative expenses (1,386) (1,308) (198) (1,305) (205) (379) 152 Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (20) (47) (0) Other income and expenses (79) 4 5 (128) 22 64 (64) Other operating income and expenses (38,747) (13,563) (1,539) (1,433) (247) (316) 300 Income from operating activities before tax 2,464 1,504 215 319 (12) (124) (514) Income arising from investments in associates – Equity method 26 15 0 (0) 2 Financing debts expenses (77) (3) (1) (22) (9) (658) 481 Net income from operating activities before tax 2,413 1,516 213 297 (21) (780) (33) Income tax (595) (483) (77) (84) 12 274 33 Net operating income 1,818 1,033 137 213 (8) (506) Result from discontinued operations net of tax Net consolidated income after tax 1,818 1,033 137 213 (8) (506) Split between : Net consolidated income - Group share 1,797 1,017 135 152 (9) (506) Net consolidated income - Minority interests 21 16 1 61 1 (0) (a) Includes SPEs. (b) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders'equity. Page 36 (in Euro million) TOTAL 45,749 164 45,913 224 2,268 48,405 (3,962) 8,023 770 6,550 6,224 (390) 14,953 (45,696) (572) (64) (4,293) (47) (4,630) (0) (67) (175) (55,544) 3,852 42 (289) 3,605 (919) 2,687 2,687 2,586 101 Consolidated financial statements___________________________________________________Half Year 2012 June 30, 2011 Restated (a) Life & Savings Property & Casualty International Insurance Asset Management Banking Holding companies (b) Inter- segment eliminations Gross written premiums 27,037 15,502 1,695 (276) Fees and charges relating to investment contracts with no participating features 182 Revenues from insurance activities 27,220 15,502 1,695 (276) Net revenues from banking activities 272 0 (26) Revenues from other activities 659 38 136 1,823 3 (209) Revenues 27,879 15,540 1,831 1,823 275 0 (511) Change in unearned premiums net of unearned revenues and fees (1,190) (2,393) (241) 97 Net investment income 6,396 1,041 134 16 (1) 348 (351) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 1,317 3,777 3,261 258 55 9 (6) (4) (3) 780 (249) 0 15 (5) Change in investments impairment (151) (91) (4) (134) Net investment result excluding financing expenses 11,338 1,263 132 9 (1) 744 (336) Technical charges relating to insurance activities (30,875) (8,785) (1,029) 113 Net result from outward reinsurance (65) (469) (111) 74 Bank operating expenses (44) 0 Acquisition costs (a) (1,889) (2,319) (176) 11 Amortization of the value of purchased business in force (113) Administrative expenses (1,869) (1,235) (190) (1,391) (238) (283) 160 Change in tangible assets impairment (1) 0 (0) Change in goodwill impairment and other intangible assets impairment (16) (40) (1) Other income and expenses (9) 0 2 (104) 15 41 (35) Other operating income and expenses (34,836) (12,848) (1,504) (1,496) (269) (241) 322 Income from operating activities before tax 3,191 1,561 218 337 5 503 (428) Income arising from investments in associates – Equity method 26 6 0 (0) Financing debts expenses (48) (3) (4) (17) (9) (676) 437 Net income from operating activities before tax 3,168 1,564 213 320 (4) (173) 9 Income tax (a) (620) (429) (73) (91) 3 243 (9) Net operating income 2,549 1,135 140 229 (0) 69 Result from discontinued operations net of tax 6 93 Net consolidated income after tax 2,555 1,228 140 229 (0) 69 Split between : Net consolidated income - Group share 2,471 1,212 139 160 (1) 33 Net consolidated income - Minority interests 83 17 1 69 1 37 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Includes SPEs. (c) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareho lders'equity. Page 37 (in Euro million) TOTAL 43,959 182 44,141 246 2,449 46,836 (3,727) 7,582 2,360 3,588 3,257 (380) 13,149 (40,577) (571) (44) (4,373) (113) (5,045) (1) (57) (91) (50,872) 5,387 31 (320) 5,098 (976) 4,122 99 4,221 4,013 208 Consolidated financial statements___________________________________________________Half Year 2012 Note 4 : Assets and liabilities held for sale including discontinued operations 4.1. Main Half Year 2012 transactions AXA BANK SWITZERLAND AXA Bank Switzerland closed its operations on February, 29 2012 following the transfer of its customer portfolio to Bank zweiplus on January 1, 2012. The one-off costs associated with the closure of the Swiss branch booked as of December 31, 2011 amounted to €4 million. The costs of the 2012 residual activity were €1 million. Related assets and liabilities (€189 million) were classified as held for sale at December 31, 2011. “VIE POPULAIRE” PORTFOLIO Belgium Life & Savings agreed to sell its “Vie Populaire” portfolio to DELA. The deal, which is subject to regulatory approvals from the Netherland National Bank and the Belgium National Bank, is expected to be closed before the end of 2012. Related assets and liabilities (€325 million) are classified as held for sale at June 30, 2012. 4.2. Main 2011 transactions CANADA On September 23, 2011, AXA completed the disposal of its Canadian operations in Property & Casualty and Life & Savings insurance to Intact Financial Corporation for a total cash consideration of CAD 2.6 billion (or ca. €1.9 billion). In addition, AXA is entitled to receive up to CAD 100 million (or ca. €72 million) in contingent considerations based on profitability metrics over a period of 5 years. The disposal of the Canadian operations led to a net capital gain of €902 million (or €956 million gross of tax) in AXA Group’s net income as of December 31, 2011. At June 30, 2012, the Company received €+68 million linked to the sale of Canadian operations in respect of contingent consideration based on profitability metrics. The statement of income of the Canadian operations disposed was as follows as of June 30, 2011: (in Euro million) June 30, 2011 Revenues 828 Change in unearned premiums net of unearned revenues and fees (44) Net investment result excluding financing expenses 96 Other operating income and expenses (756) Income from operating activities before tax 125 Income arising from investments in associates - Equity method 0 Financing debts expenses (0) Income from operating activities before tax 125 Income tax (26) Net operating income 99 Split between : Net consolidated income - Group share 99 Net consolidated income - Minority interests 0 Page 38 Consolidated financial statements___________________________________________________Half Year 2012 The statement of cash flows of the Canadian operations disposed was as follows as of June 30, 2011: (in Euro million) June 30, 2011 Net cash provided / (used) by operating activities 62 Net cash provided / (used) by investing activities (42) Net cash provided / (used) by financing activities (7) NET CASH PROVIDED BY DISCONTINUED OPERATIONS 14 Page 39 Consolidated financial statements___________________________________________________Half Year 2012 Note 5 : Investments Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Insurance June 30, 2012 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro hedge and other derivatives 19,393 1,272 14,936 1,272 2.53% 0.22% 3,246 2,443 6.40% 22,639 1,272 17,379 1,272 Investment in real estate properties 20,665 16,208 2.74% 3,246 2,443 6.40% 23,911 18,651 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (a) (b) Debt instruments held for trading 335,507 29,559 293 335,507 29,559 293 56.74% 5.00% 0.05% 7,137 55 209 7,137 55 209 18.71% 0.14% 0.55% 342,645 29,615 502 342,645 29,615 502 Debt instruments (at cost) that are not quoted in an active market (c) 5,940 5,831 0.99% 7,121 7,121 18.66% 13,061 12,952 Debt instruments 371,300 371,190 62.78% 14,523 14,523 38.06% 385,823 385,713 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) 11,647 6,063 11,647 6,063 1.97% 1.03% 2,024 418 2,024 418 5.31% 1.09% 13,671 6,480 13,671 6,480 Equity instruments held for trading 40 40 0.01% 40 40 Equity instruments 17,750 17,750 3.00% 2,442 2,442 6.40% 20,192 20,192 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (a) Non controlled investment funds held for trading 6,468 4,638 6,468 4,638 1.09% 0.78% 189 149 373 189 149 373 0.50% 0.39% 0.98% 6,657 4,787 373 6,657 4,787 373 Non controlled investment funds 11,106 11,106 1.88% 711 711 1.86% 11,817 11,817 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,598 5,598 0.95% 1 1 0.00% 5,598 5,598 Macro hedge and other derivatives 1,206 1,206 0.20% (2,094) (2,094) 5.49% (888) (888) Financial investments 406,959 406,850 68.81% 15,583 15,583 40.84% 422,542 422,433 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro hedge and other derivatives 0 0 - 26,770 0 0 - 25,388 0.00% 0.00% - 4.29% - - - 21,300 8 - - - 20,120 8 - - - 52.73% 0.02% 0 0 - 48,070 8 0 0 - 45,508 8 Loans 26,771 25,389 4.29% 21,308 20,128 52.75% 48,079 45,517 Assets backing contracts where the financial risk is borne by policyholders 142,850 142,850 24.16% 142,850 142,850 INVESTMENTS 597,245 591,296 100.00% 40,137 38,154 100.00% 637,382 629,450 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 454,395 448,446 75.84% Life & Savings Property & Casualty 390,749 55,438 385,515 54,718 65.20% 9.25% International Insurance 8,209 8,214 1.39% (a) Use of fair value option. (b) Includes notably assets measured at fair value under the fair value option (c) Eligible to the IAS 39 Loans and Receivables measurement category (d) Mainly relates to mortgage loans and policy loans. Page 40 (in Euro million) % (value balance sheet) 2.76% 0.20% 2.96% 54.44% 4.70% 0.08% 2.06% 61.28% 2.17% 1.03% 0.01% 3.21% 1.06% 0.76% 0.06% 1.88% 0.89% 0.14% 67.11% 0.00% 0.00% - 7.23% 0.00% 7.23% 22.69% 100.00% Consolidated financial statements___________________________________________________Half Year 2012 Insurance December 31, 2011 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro hedge and other derivatives 19,087 1,243 14,818 1,243 2.60% 0.22% 3,329 2,574 7.30% 22,417 1,243 17,392 1,243 Investment in real estate properties 20,330 16,061 2.82% 3,329 2,574 7.30% 23,660 18,635 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (a) (b) Debt instruments held for trading 325,510 25,775 188 325,510 25,775 188 57.20% 4.53% 0.03% 8,045 72 29 8,045 72 29 22.81% 0.20% 0.08% 333,554 25,847 217 333,554 25,847 217 Debt instruments (at cost) that are not quoted in an active market (c) 6,740 6,789 1.19% 4,364 4,364 12.37% 11,104 11,153 Debt instruments 358,213 358,262 62.96% 12,510 12,510 35.47% 370,723 370,772 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) 11,649 5,391 11,649 5,391 2.05% 0.95% 1,903 425 1,903 425 5.40% 1.21% 13,552 5,816 13,552 5,816 Equity instruments held for trading 35 35 0.01% 35 35 Equity instruments 17,075 17,075 3.00% 2,328 2,328 6.60% 19,404 19,404 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (a) Non controlled investment funds held for trading 6,672 5,010 6,672 5,010 1.17% 0.88% 179 166 374 179 166 374 0.51% 0.47% 1.06% 6,851 5,176 374 6,851 5,176 374 Non controlled investment funds 11,682 11,682 2.05% 719 719 2.04% 12,401 12,401 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,413 5,413 0.95% 1 1 0.00% 5,413 5,413 Macro hedge and other derivatives 1,283 1,283 0.23% (2,500) (2,500) 7.09% (1,218) (1,218) Financial investments 393,666 393,715 69.19% 13,057 13,057 37.03% 406,723 406,772 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro hedge and other derivatives - 0 - 26,107 - 0 - 25,050 - 0.00% - 4.40% - - - 21,406 12 - - - 19,621 12 - - - 55.64% 0.03% - 0 - 47,512 12 - 0 - 44,672 12 Loans 26,107 25,050 4.40% 21,418 19,634 55.68% 47,525 44,684 Assets backing contracts where the financial risk is borne by policyholders 134,230 134,230 23.59% 134,230 134,230 INVESTMENTS 574,333 569,056 100.00% 37,804 35,264 100.00% 612,137 604,321 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 440,103 434,826 76.41% Life & Savings Property & Casualty 378,060 53,759 373,471 53,070 65.63% 9.33% International Insurance 8,285 8,285 1.46% (a) Use of fair value option. (b) Includes notably assets measured at fair value under the fair value option (c) Eligible to the IAS 39 Loans and Receivables measurement category (d) Mainly relates to mortgage loans and policy loans. The exposure as of June 30, 2012 and December 31, 2011 to sovereign debt securities issued by governments and related in Greece, Ireland, Italy, Portugal and Spain, and classified as available for sale was as follows: (in Euro million)IssuerFair ValueAmortized Cost / Carrying valueUnrealized losses(Gross value)Unrealized losses (Net value)Fair ValueAmortized Cost / Carrying valueUnrealized losses (Gross value)Unrealized losses (Net value)Greece (a)- - - - 300 300 - - Ireland945 1,014 (69) (6) 970 1,112 (142) (24) Italy13,339 14,679 (1,341) (227) 13,883 16,136 (2,253) (400) Portugal573 942 (369) (54) 1,215 2,037 (822) (188) Spain6,470 7,729 (1,259) (308) 7,885 8,478 (592) (105) Total21,327 24,364 (3,038) (594) 24,255 28,064 (3,809) (716) June 30, 2012December 31, 2011(a) for controlled entities as of June 30, 2012 Net amounts correspond to amounts after the related impacts of deferred tax and shadow accounting on policyholders’ participation, deferred acquisition cost and value of purchased business in force and are presented at 100% share. Net amounts may evolve depending on the timing of realization of these potential losses and on the local regulatory environment. Greek government bonds that were subject to Private Sector Initiatives to support Greece were exchanged on March 12, 2012 against new Greek bonds representing 31.5% of initial nominal value, PSI notes, accrued interest notes and GDP-linked notes. The new Greek government bonds were disposed by the Group with no significant impacts. Page 41 (in Euro million) % (value balance sheet) 2.88% 0.21% 3.08% 55.19% 4.28% 0.04% 1.85% 61.35% 2.24% 0.96% 0.01% 3.21% 1.13% 0.86% 0.06% 2.05% 0.90% 0.20% 67.31% - 0.00% - 7.39% 0.00% 7.39% 22.21% 100.00% Consolidated financial statements___________________________________________________Half Year 2012 In addition debt securities issued by government and related in Greece, Ireland, Italy, Portugal and Spain classified under Fair value option amounted to €398 million as of June 30, 2012 and €737 million as of December 31, 2011. 5.2. Investment in real estate properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2012 December 31, 2011 Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 17,211 (1,741) (534) 14,936 19,394 16,957 (1,656) (483) 14,818 19,088 Banking and other activities 3,011 (207) (361) 2,443 3,246 3,103 (191) (339) 2,574 3,329 All activities 20,223 (1,948) (895) 17,379 22,640 20,061 (1,847) (822) 17,392 22,417 Fair value is generally based on valuations performed by qualified property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million) Impairment - Investment in real estate properties Amortization - Investment in real estate properties June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011 Opening value 822 668 1,847 1,737 Increase for the period 73 163 123 248 Write back following sale or reimbursement (21) (0) (8) (143) Write back following recovery in value (10) (11) Others (a) 30 2 (13) 4 Closing value 895 822 1,948 1,847 (a) Includes change in scope and the effect of changes in exchange rates. Page 42 Consolidated financial statements___________________________________________________Half Year 2012 5.3. Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: June 30, 2012 December 31, 2011 INSURANCE Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 316,677 5,860 9,011 5,645 337,000 5,970 10,848 6,503 337,000 5,860 10,848 6,503 26,279 187 1,958 982 5,956 77 121 124 313,472 6,791 8,988 6,020 326,306 6,742 10,886 6,820 326,306 6,791 10,886 6,820 June 30, 2012 December 31, 2011 BANKING AND OTHER ACTIVITIES Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 7,432 7,121 2,795 7,240 7,121 2,838 7,240 7,121 2,838 78 - 288 269 - 244 8,489 4,364 2,762 8,184 4,364 2,750 8,184 4,364 2,750 Non controlled investment funds available for sale 187 189 189 2 0 175 180 180 June 30, 2012 December 31, 2011 TOTAL Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 324,109 12,981 11,805 5,832 344,240 13,091 13,686 6,692 344,240 12,981 13,686 6,692 26,356 187 2,246 984 6,226 77 365 124 321,961 11,155 11,749 6,195 334,490 11,106 13,636 7,000 334,490 11,155 13,636 7,000 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in Note 5.4). See also table 5.4.1 Breakdown of financial assets subject to impairment. Page 43 Unrealized gains 20,749 97 2,010 895 Unrealized gains 36 - 281 5 Unrealized gains 20,785 97 2,291 900 (in Euro million) Unrealized losses 7,915 146 111 96 (in Euro million) Unrealized losses 340 - 293 0 (in Euro million) Unrealized losses 8,255 146 404 96 Consolidated financial statements___________________________________________________Half Year 2012 5.4. Financial assets subject to impairment 5.4.1. Breakdown of financial assets subject to impairment (excluding investment in real estate properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2012 December 31, 2011 Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Debt instruments available for sale 324,723 (1,386) 323,337 19,308 342,645 323,801 (2,474) 321,327 Debt instruments (at cost) that are not quoted in an active market 12,957 12,957 (5) 12,952 11,144 11,144 Debt instruments 337,680 (1,386) 336,294 19,302 355,596 334,945 (2,474) 332,471 Equity instruments available for sale 14,524 (2,716) 11,808 1,863 13,671 14,635 (2,883) 11,752 Non controlled investment funds available for sale 6,938 (1,106) 5,832 825 6,657 7,336 (1,141) 6,195 Loans Held To Maturity Loans Available For Sale 0 0 Loans at cost (c) 46,600 (583) 46,017 (509) 45,508 45,658 (610) 45,048 Loans 46,600 (583) 46,017 (509) 45,508 45,658 (610) 45,048 TOTAL 405,742 (5,791) 399,951 21,482 421,432 402,575 (7,108) 395,467 (a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Including policy loans. Page 44 Revaluation to fair value 12,227 9 12,237 1,800 656 (377) (377) 14,316 (in Euro million) Carrying value 333,554 11,153 344,707 13,552 6,851 44,672 44,672 409,783 Consolidated financial statements___________________________________________________Half Year 2012 5.4.2. real estate properties) Change in impairment on invested assets (excluding investment in January 1, 2012 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 2,474 59 (1,160) (1) 14 Impairment - Equity instruments 2,883 276 (438) (5) Impairment - Non controlled investment funds 1,141 35 (48) (22) Impairment - Loans 610 115 (3) (99) (41) TOTAL 7,108 485 (1,649) (99) (54) (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. January 1, 2011 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 1,567 1,175 (240) (43) 15 Impairment - Equity instruments 2,848 773 (764) 26 Impairment - Non controlled investment funds 1,107 87 (76) 23 Impairment - Loans 521 239 (13) (87) (50) TOTAL 6,043 2,273 (1,092) (130) 14 (a) Mainly relates ot changes in the scope of consolidation and impact of changes in exchange rates. 5.5. Financial assets recognized at fair value Among invested financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €414.1 billion as of June 30, 2012 (€400.2 billion as of December 31, 2011): - €216.2 billion were determined directly by reference to an active market (€192.4 billion at the end of 2011), i.e. level 1 assets and - €197.9 billion related to assets not quoted in an active market/no active market (€207.8 billion at the end of 2011), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10.6 billion (€10.2 billion at the end of 2011). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. As of June 30, 2012, some assets were reclassified out of level 2 into level 1. This was mainly related to some corporate bonds for which bid ask spreads further narrowed throughout the period. Page 45 (in Euro million) June 30, 2012 1,386 2,716 1,106 583 5,791 (in Euro million) December 31, 2011 2,474 2,883 1,141 610 7,108 Consolidated financial statements___________________________________________________Half Year 2012 Since June 30, 2010, some government bonds have been transferred out of level 1 into level 2 because of an increased illiquidity observed in the market for such instruments. The Long Term Refinancing Operation launched in December 2011 by European Central Bank brought liquidity in the market. However, since it is a temporary policy, the classification as of June 30, 2012 of those government bonds was maintained similar to the one as of December 31, 2011, although the quantitative market indications have shown an improved liquidity. Therefore, government bonds issued by Ireland, Portugal, Spain, Italy and Belgium remained classified as level 2 as of June 30, 2012. Page 46 Consolidated financial statements___________________________________________________Half Year 2012 Note 6 : Shareholders’ equity and minority interests 6.1. Impact of transactions with shareholders The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in Note 1. 6.1.1. Change in shareholders’ equity Group share for the first half of 2012 a) Share capital and capital in excess of nominal value During the first half of 2012, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+16 million b) Treasury shares As of June 30, 2012, the Company and its subsidiaries owned approximately 16 million AXA shares, representing 0.7% of the share capital, a decrease of 1 million shares compared to December 31, 2011. As of June 30, 2012, the carrying value of treasury shares and related derivatives was €368 million. This figure included €1.0 million relating to AXA shares held by consolidated mutual funds (81,965 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2012, 2.0 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €43 million and their market value €21 million at the end of June 2012. c) Undated subordinated debt and related financial expenses As described in Note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2012, the change in other reserves was due to €-148 million in interest expense related to the undated subordinated debt (net of tax), and €+135 million in exchange rate differences. Page 47 Consolidated financial statements___________________________________________________Half Year 2012 As of June 30, 2012 and December 31, 2011, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2012 December 31, 2011 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M€ 6.0% 375 375 375 375 December 22, 2004 - 250 M€ 6.0% 250 250 250 250 January 25, 2005 - 250 M€ 6.0% 250 250 250 250 July 6, 2006 - 1000 M€ 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.7% 500 614 500 593 July 6, 2006 - 350 M£ 6.7% 350 434 350 419 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 483 600 469 November 7, 2006 - 150 M A$ 7.5% 150 121 150 117 December 14, 2006 - 750 M US$ 6.5% 750 593 750 577 December 14, 2006 - 750 M US$ 6.4% 750 593 750 577 October 5, 2007 - 750 M€ 6.2 % 750 746 750 746 October 16, 2007 - 700 M£ 6.8 % 700 865 700 835 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 270 27,000 269 Undated notes - (of which 500 M US$ at 7.1%) in US$ 875 695 875 676 Sub-Total undated subordinated debt 7,944 7,809 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 8,038 7,903 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-1,982 million as of June 30, 2012; €-1,834 million as of December 31, 2011. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At the shareholders’ meeting held on April 25, 2012, shareholders approved a dividend distribution of €1,626 million with respect to the 2011 financial year. 6.1.2. Change in shareholders’ equity Group share for the first half of 2011 a) Share capital and capital in excess of nominal value During the first half of 2011, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+22 million b) Treasury shares As of June 30, 2011, the Company and its subsidiaries owned approximately 18 million AXA shares, representing 0.8% of the share capital, a decrease of 8 million shares compared to December 31, 2010, impacting shareholders’ equity by €+107 million. As of June 30, 2011, the carrying value of treasury shares and related derivatives was €388 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (51,158 shares) not backing contracts where financial risk is borne by policyholders. Page 48 Consolidated financial statements___________________________________________________Half Year 2012 As of June 30, 2011, 2.3 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €48 million and their market value €35 million at the end of June 2011. c) Undated subordinated debt and related financial expenses During the first half of 2011, the change in other reserves was due to €-140 million in interest expense related to the undated subordinated debt (net of tax), and €-249 million in exchange rate differences. d) Dividends paid At the shareholders’ meeting held on April 27, 2011, shareholders approved a dividend distribution of €1,601 million with respect to the 2010 financial year. e) Transaction AXA APH On April 1, 2011, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. This transaction had an impact on AXA Group of €0.7 billion realized capital gains recorded in net income regarding the sale of its Australian and New Zealand operations and €2.5 billion reduction in shareholders’ equity mainly related to the buy-out of minority interests in AXA APH Asian operations in accordance with the application of the new accounting principles on Business Combinations. The ownership increase in a controlled company while maintaining the control is accounted for in shareholders’ equity and no additional goodwill is recognized. 6.2. Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2012 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The increase of gross unrealized gains and losses on assets available for sale totaled €+7,650 million, of which €+7,601 million higher unrealized capital gains on debt securities was mainly driven by interest rates and corporate spreads decrease. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2012 December 31, 2011 Restated (a) Gross unrealized gains and losses (b) 22,872 15,221 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (11,611) (6,855) Shadow accounting on Deferred Acquisition Costs (c) (633) (416) Shadow accounting on Value of purchased Business In force (579) (554) Unallocated unrealized gains and losses before tax 10,049 7,396 Deferred tax (3,026) (2,157) Unrealized gains and losses (net of tax) - Assets available for sale 7,023 5,239 Unrealized gains and losses (net of tax) - Equity accounted companies (d) (15) (21) UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 7,008 5,218 Minority interests' share in unrealized gains and losses (e) (16) 3 Translation reserves (f) (428) (384) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (d) 6,563 4,838 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Unrealized gains on total available for sale invested assets including loans. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including unrealized gains and losses on assets from discontinued operations (e) Including foreign exchange impact attributable to minority interests. (f) Group share. Page 49 Consolidated financial statements___________________________________________________Half Year 2012 In the half year leading up to June 30, 2012, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2012: (in Euro million) June 30, 2012 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 6,471 3,943 2,753 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (4,151) (3,436) (2,250) Shadow accounting on Deferred Acquisition Costs (b) (81) (10) Shadow accounting on Value of purchased Business In force (61) Unallocated unrealized gains and losses before tax 2,238 507 432 Deferred tax (450) (162) (91) Unrealized gains and losses (net of tax) - Assets available for sale 1,788 344 341 Unrealized gains and losses (net of tax) - Equity accounted companies 4 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 1,792 344 341 Minority interests' share in unrealized gains and losses (c) (5) 0 Translation reserves (d) (174) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 1,787 345 167 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2012 and December 31, 2011 broke down as follows: (in Euro million) June 30, 2012 December 31, 2011 Restated (a) Unrealized gains and losses (net of tax) 100%, opening 5,218 6,736 Transfer in the income statement on the period (b) (189) (742) Investments bought in the current accounting period and changes in value 1,924 (533) Foreign exchange impact 51 59 Change in scope and other changes 4 (302) Unrealized gains and losses (net of tax) 100%, closing 7,008 5,218 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discou nt premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €+647 million (of which €+609 million from group share and €+37 million from minority interest rates) as of June 30, 2012. The group share translation reserves movement (€+609 million) was mainly driven by the United States (€+222 million), the United Kingdom (€+126 million), Switzerland (€+87 million), Mexico (€+67 million) and Hong Kong (€+54 million), partly offset by Japan (€-99m) and the Company (€-89 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. Page 50 Consolidated financial statements___________________________________________________Half Year 2012 c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2012 amounted to €-933 million net group share mostly due to the drop in discount rates. 6.2.2. Comprehensive income for the first half of 2011 As described in Note 1.2.1, comprehensive income for the first half of 2011 was retrospectively restated for the voluntary change in accounting policy of deferred acquisition costs. a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The decrease of gross unrealized gains and losses on assets available for sale totaled €-4,915 million, mainly driven by: €-1,516 million lower unrealized capital gains on equity securities, mainly from the sale of Taikang Life stake, as well as other realized capital gains; €-3,484 million on debt instruments primarily due to interest rates increase mainly impacting Japan, France, and Belgium. b) Translation reserve The total impact of foreign exchange rate movement was €-1,737 million (of which €-1,365 million from group share and €- 372 million from minority interest rates) as of June 30, 2011. The group share translation reserves movement (€-1,365 million) was mainly driven by the United States (€-699 million), Japan (€-506 million), the United Kingdom (€-211 million), partly offset by the Company (€+410 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2011 amounted to €+12 million net group share. 6.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2012 Minority interests increased by €112 million to €2,479 million driven by: Movements in the comprehensive income for the period, mainly: Net income attributable to minority interests for €+101 million; - Change in translation reserves for €+37 million; - Reserves relating to changes in fair value through shareholders’ equity for €+23 million. Transaction with minority interests’ holders, mainly: - Dividend payout to minorities for €-72 million. 6.3.2. Change in minority interests for the first half of 2011 The €1,694 million decrease in minority interests to €2,473 million was due to transactions with shareholder for €-1,501 million mainly related to AXA APH transaction and comprehensive income for €-193 million. The comprehensive income for the period notably included the following: Net income attributable to minority interests for €+208 million; - Change in translation reserves for €-372 million; - Reserves relating to changes in fair value through shareholders’ equity for €-29 million. Page 51 Consolidated financial statements___________________________________________________Half Year 2012 Note 7 : Financing debt (in Euro million) Carrying value June 30, 2012 December 31, 2011 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated Notes, 5.25% due 2040 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus Notes, 7,70 %, due 2015 MONY Life 11,25% Surplus Notes due 2024 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 6,646 2,007 1,450 1,300 951 403 536 159 158 1 360 139 6,452 1,970 1,419 1,300 923 389 451 155 154 1 364 143 Undated Subordinated debt fixed rate 221 221 AXA-MPS Vita and Danni 108 108 Subordinated Notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 28 28 Subordinated debt 7,301 7,108 AXA Euro Medium term Notes, 6.0% due through 2013, and BMTN 1,850 850 1,866 866 Euro Medium term Notes, due through 2015 1,000 1,000 AXA Financial 275 268 Senior notes , 7%, due 2028 275 268 AXA UK Holdings GRE : Loan Notes, 6.625%, due 2023 188 188 183 183 Other financing debt instruments issued (less than €100 million) 176 189 Other financing debts instruments issued under euro 100 million 148 137 Derivatives relating to other financing debts instruments issued (a) 27 52 Financing debt instruments issued 2,489 2,506 AXA 832 806 Other financing debts owed to credit institutions (under €100 million) 1 2 Financing debt owned to credit institutions 833 807 TOTAL FINANCING DEBT (b) 10,624 10,421 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Page 52 Consolidated financial statements___________________________________________________Half Year 2012 Note 8 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: • number of outstanding ordinary shares during the period. • The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average (in Euro million) (a) June 30, 2012 June 30, 2011 Restated (b) Net income Group share 2,586 4,013 Undated subordinated debt financial charge (148) (140) Net income including impact of undated subordinated debt A 2,438 3,873 Weighted average number of ordinary shares (net of treasury shares) - opening 2,340 2,294 Increase in capital (excluding stock options exercised) (c) 0 0 Stock options exercised (c) 0 0 Treasury shares (c) 0 4 Share purchase program (c) Weighted average number of ordinary shares B 2,340 2,298 BASIC NET INCOME PER ORDINARY SHARE C = A / B 1.04 1.69 Potentially dilutive instruments : Stock options 1 3 Other 2 1 Fully diluted - weighted average number of shares (d) D 2,343 2,303 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 1.04 1.68 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Weighted average. (d) Taking into account the impact of potentially dilutive instruments. In 2012, net income per ordinary share stood at €1.04 on a basic calculation, as well as on a fully diluted basis. In 2011, net income per ordinary share stood at €1.69 on a basic calculation, of which €1.64 attributable to continuing operations and €0.04 from discontinued operations. Fully diluted net income per share stood at €1.68, of which at €1.64 and €0.04 respectively. Before the voluntary change in accounting policy on deferred acquisition costs, 2011 net income per ordinary share stood at €1.68 on a basic calculation, of which €1.64 attributable to continuing operations and €0.04 from discontinued operations. Fully diluted net income per share stood at €1.68, of which at €1.63 and €0.04 respectively. Page 53 Statutory auditors’ review report on the 2012 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2012 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2012 ; the verification of the information contained in the half-year management report. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 3, 2012 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2012 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 6, 2012. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations"},"Input":{"kind":"string","value":"Semestriel, 2012, Insurance, AXA"},"Query":{"kind":"string","value":"write me a financial report"}}},{"rowIdx":298,"cells":{"Period":{"kind":"string","value":"Semestriel"},"Year":{"kind":"number","value":2013,"string":"2,013"},"Subject":{"kind":"string","value":"Insurance"},"Company":{"kind":"string","value":"AXA"},"Prompt":{"kind":"string","value":"Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.\n\n### Instruction:\nWrite a detailed financial report on the given subject and company.\n\n### Subject:\nInsurance\n\n### Company:\nAXA\n\n### Response:\n"},"Response":{"kind":"string","value":"Half Year Financial Report June 30, 2013 Table of contents I Activity Report ............................................................. II Consolidated financial statements ............................ III Statutory auditors’ review report on the 2013 Half Year Financial Information ............................................ IV Statement of the person responsible for the Half Year Financial Report .................................................... I Activity Report / Half Year 2013 Half Year 2013 Financial Report ACTIVITY REPORT 1 I I ACTIVITY REPORT Cautionary statements concerning statements forward-looking This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2012, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. 2 Half Year 2013 Financial Report ACTIVITY REPORT Financial Market conditions in the first half of 2013 For much of the first half of 2013, global stock markets pushed ahead to deliver strong positive returns. Underpinning markets was a sense of growing optimism over economic prospects of the United States as well as a widespread feeling that policymakers were managing to contain the sovereign debt crisis in Europe. Emerging markets fared less well than developed, with the slowdown in China acting as a brake on growth. In the early hours of 2013, an agreement was reached over the extension of tax cuts and a delay of the US government debt ceiling negotiations – the first part of the so-called US “fiscal cliff”. This was the key upward driver of world equity markets early in the year. However, with several developed markets reaching multi-year highs in May, anxieties about the potential withdrawal of monetary stimulus in the US led to a sell-off later on in the month and into June, eroding some of the earlier year gains. In the US, the Federal Reserve’s Quantitative Easing program, robust corporate results and a recovering economy, propelled equity markets upwards for much of the period, with equity markets hitting a series of record highs. The European political backdrop was periodically negative for the markets. Italy was left without the formation of a government after its election and Cyprus was forced to negotiate a bailout with the European Union, the International Monetary Fund and the European Central Bank (ECB) as its banking system was close to collapse. Economic news remained very weak; however, investors seemed to look past the -0.2% contraction in Q1 GDP, encouraged by at least a more stable environment, as well as support in the form of an ECB interest rate cut. Japanese equities outperformed all other major markets over the period, boosted by a steady stream of action by Prime Minister Shinzo Abe, with a program aimed at tackling deflation being well received. The announcement of a US$116 billion spending program is hoped to raise Japan’s GDP by around 2%. After seeing steep rises and record highs, the Japanese equity suffered a steep sell-off toward the end of the period. This came as the Yen regained some of its earlier strength and exporters’ shares faced profit-taking. Emerging markets were affected by this environment. After showing signs of renewed vigor early in the year, China’s economic data disappointed during the second quarter. In particular, the manufacturing sector experienced a notable downturn in confidence. Meanwhile, growing signs of a credit crunch in China, causing interbank lending rates to spike, continued to be ignored by the People’s Bank of China. Stock Markets Equity markets performed well in the first half of this year. Earnings were recovering and ample liquidity encouraged repricing risk. The MSCI World Index increased by 10% with good performance in the United States and Japan which benefitted from both ultra-expansionary policies pursued by the central bank and the weak Yen. The Dow Jones Industrial Average Index in New York increased by 14% in the first half of 2013 and the S&P 500 index by 13%. The FTSE 100 Index in London increased by 5% in the first half of 2013. The CAC 40 index in Paris increased by 3% and the Nikkei index in Tokyo appreciated by 32%. The MSCI G7 Index increased by 12% and the MSCI Emerging Index decreased by 6%. The S&P 500 implied volatility Index decreased from 18.0% to 16.9% between December 31, 2012 and June 30, 2013. Bond Markets The US 10-year T-bond ended the half year at 2.52%, an increase of 74 bps compared to December 31, 2012. The 10-year German Bund yield increased by 41 bps to 1.73%. The France 10-year government bond yield increased by 35 bps to 2.35%. The 10-year Japanese government bond ended the first quarter of 2013 at 0.55%, a decrease of 22 bps compared to December 31, 2012. The 10-year Belgium government bond ended the half year at 2.64%, a 58 bps increase compared to December 31, 2012. Half Year 2013 Financial Report 3 I I ACTIVITY REPORT Regarding the evolution of 10-year government bonds on European peripheral countries: Italy ended the half year at 4.55% (an increase of 5 bps compared to December 31, 2012), Spain ended the half year at 4.77% (a decrease of 50 bps compared to December 31, 2012), Greece ended the half year at 10.5% (a decrease of 140 bps compared to December 31, 2012), Ireland ended the half year at 4.10% (a decrease of 100 bps compared to December 31, 2012), Portugal ended the half year at 6.45% (a decrease of 56 bps compared to December 31, 2012). In Europe, the iTRAXX Main spreads increased by 2 bps compared to December 31, 2012 and ended half year at 119 bps while the iTRAXX Crossover decreased by 5 bps to 477 bps. In the United States, the CDX Main spread Index decreased by 7 bps to 87 bps. Exchange rates In this context, the Euro appreciated against main currencies except the Dollar. On an average rate basis, the US Dollar decreased by 1% against the Euro (the US Dollar remained fairly stable at $1.30 over the first half of 2012 and 2013). The Yen decreased by 8% against the Euro (from Yen 104.2 over the six months to March 31, 2012 used for half year 2012 accounts to Yen 113.03 over the six months to March 31, 2013 used for half year 2013 accounts). The Pound Sterling decreased by 3.7% (from £0.82 over the first half of 2012 to £0.85 over the first half of 2013) and the Swiss Franc decreased by 2% against the Euro (from CHF 1.20 over the first half of 2012 to CHF 1.23 over the first half of 2013). 4 Half Year 2013 Financial Report ACTIVITY REPORT Operating highlights Significant acquisitions AXA AND HSBC LONG-TERM PARTNERSHIP IN PROPERTY & CASUALTY IN ASIA AND LATIN AMERICA On March 7, 2012, AXA and HSBC announced they had entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in China, India and Indonesia. On November 5, 2012, AXA announced it has completed the acquisition of HSBC’s P&C businesses in Hong Kong and Singapore, and that it has consequently launched its exclusive P&C bancassurance cooperation with HSBC in these countries. On April 1, 2013, AXA finalised the acquisition of HSBC’s P&C operations in Mexico and launched subsequently the exclusive P&C bancassurance cooperation in this country. The P&C bancassurance cooperation in China, India and Indonesia will be launched in due course. AXA TO BUY 50% OF TIAN PING On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited (\"Tian Ping\") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces. Under the terms of the agreement and subject to regulatory approval, AXA will buy 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 237 million1) and subscribe to a dedicated capital increase for RMB 2.0 billion (or Euro 248 million1) to support future growth. AXA and Tian Ping's current shareholders will jointly control Tian Ping. AXA’s existing Chinese P&C operations are expected to be integrated within the new joint venture. In addition, AXA expects to invest Euro Ca. 0.3 billion over the first 3 years of operations to help further develop the company. AXA should become the largest foreign Property & Casualty insurer in China and consolidate its position as largest international P&C insurer in Asia (excluding Japan). This transaction is subject to customary closing conditions, including the receipt of regulatory approval. Significant disposals AXA ENTERS INTO EXCLUSIVITY IN CONNECTION WITH THE POTENTIAL SALE OF A MAJORITY STAKE IN AXA PRIVATE EQUITY On March 22, 2013, AXA announced that its asset management subsidiary, AXA Investment Managers (“AXA IM”) had received an irrevocable offer from an investor group for its entire stake in AXA Investment Managers Private Equity SA (“AXA Private Equity”). 1 EUR 1 = RMB 8.072 as of April 22, 2013 Half Year 2013 Financial Report 5 I I ACTIVITY REPORT The transaction would enable AXA to monetize its interest in AXA Private Equity, a business successfully developed by the Group since 1996, and would provide a strong foundation for the next growth phase of one of Europe’s leading private equity firms. Upon the completion of the proposed transaction, AXA Private Equity’s voting share capital would be held as follows: AXA Private Equity’s management and employees: 40.00% External investors: 33.14% AXA Group: 26.86% The transaction would value AXA Private Equity at Euro 510 million for 100%. The sale of AXA IM’s entire stake would result in AXA IM receiving a total consideration up to Euro 488 million. The consideration would be divided into an upfront payment of approximately Euro 348 million and a deferred consideration up to Euro 140 million, to be paid in instalments subject to achieving certain targets and meeting certain conditions. The proposed transaction is subject to customary conditions, including obtaining required regulatory approvals and should be finalized before the end of Q3 2013. AXA FINANCIAL SIGNS CLOSED MONY PORTFOLIO TRANSACTION WITH PROTECTIVE FOR USD 1.06 BILLION On April 10, 2013, AXA announced it had entered into definitive agreements with Protective Life Corporation (“Protective”) to sell MONY Life Insurance Company (“MONY”) and to reinsure an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (“MLOA”) primarily prior to 2004. Under the terms of the agreements and assuming a closing date of October 1, 2013, the total cash consideration will be USD 1.06 billion (or Euro 0.82 billion1). This consideration corresponds to implied 2012 multiples of 12x IFRS underlying earnings and 1.7x IFRS TNAV2. In 2004, AXA Financial acquired The MONY Group Inc. and its subsidiaries, including MONY, MLOA, U.S. Financial Life Insurance Company and Advest3 for USD 1.5 billion. Subsequent to the acquisition, most new business was written out of other AXA Financial subsidiaries and MONY/MLOA were effectively placed in run- off, with the exception of some new business at MLOA, which is excluded from the transaction. AXA is therefore disposing of a run-off mortality book primarily underwritten before 2004, with USD 10.5 billion (or Euro 8.0 billion) of statutory liabilities as of end of 2012. Other SUBORDINATED DEBT On January 17, 2013, AXA announced the issuance of USD 850 million undated subordinated debt (5.50% annual coupon, fixed for life) and on January 18, 2013 the issuance of €1 billion subordinated debt due 2043 (5.125% annual coupon, fixed until the first call date in July 2023 and floating thereafter with a step up of 100 basis points), to anticipate the refinancing of part of subordinated debt instruments maturing on January 1, 2014. Both transactions have been structured to comply with the expected eligibility criteria for a Tier 2 capital treatment under Solvency II. 1 EUR 1 = USD 1.29, as of April 5, 2013. 2 IFRS Tangible Net Asset Value = IFRS shareholders’ equity + off balance sheet net unrealized capital gains and losses – net intangible assets. 3 In 2005, AXA sold MONY’s brokerage subsidiary Advest to Merrill Lynch for USD 0.4 billion. 6 Half Year 2013 Financial Report ACTIVITY REPORT AXA RATING On April 30, 2013, Moody’s Investors Services reaffirmed the Aa3 insurance financial strength ratings of AXA’s main operating subsidiaries, maintaining a negative outlook. On May 3, 2013, Fitch reaffirmed all AXA entities' Insurer Financial Strength ratings at 'AA-', maintaining a negative outlook. On May 22, 2013, S&P reaffirmed long-term ratings on AXA Group core subsidiaries at 'A+' with a stable outlook. Related-party transactions During the first half of the fiscal year 2013, there were (1) no modifications to the related-party transactions described in Note 28 \"Related-Party transactions\" of the audited consolidated financial statements for the fiscal year ended December 31, 2012 included in the full year 2012 Registration Document (pages 312 and 313) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2013, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2013. Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 \"Risk factors\" included in the full year 2012 Registration Document (respectively on pages 140 to 142 and pages 143 to 155) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2012 Registration Document remains valid in all material respects at the date of this Report regarding the appreciation of the major risks and uncertainties affecting the Group at June 30, 2013 and which management expects may affect the Group during the remainder of 2013. Events subsequent to June 30, 2013 There have been no subsequent events to June 30, 2013. Half Year 2013 Financial Report 7 I I ACTIVITY REPORT Revenues & Earnings summary Consolidated gross revenues HY 2013 HY 2012 FY 2012 Life & Savings 29,603 28,607 55,016 o/w. Gross written premiums o/w. Fees and revenues from investment contracts with no participating feature Property & Casualty 28,909 133 16,497 27,889 164 16,173 53,572 334 28,315 International Insurance 1,909 1,825 2,987 Asset Management 1,741 1,575 3,343 Banking (b) 293 226 466 Holdings and other companies (c) 0 0 0 TOTAL 50,044 48,405 90,126 Revenues are disclosed net of intercompany eliminations. (a) Changes are on a comparable basis. (b) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of options and derivatives, net banking revenues and total consolidated revenues would respectively amount to €291 million and €50,042 million for half year 2013 and €460 million and €90,120 million for full year 2012. (c) Includes notably CDOs and real estate companies. Consolidated gross revenues for half year 2013 reached €50,044 million, up 3.4% compared to half year 2012. The restatements to a comparable basis were mainly driven by the exclusion of the appreciation of Euro against most of major currencies (€-600 million or -1.2 points) and by the impact of the acquisition of ERGO DAUM in South Korea in 2012 (€+30 million or +0.1 point). On a comparable basis, gross consolidated revenues were up 4.4%. LIFE & SAVINGS ANNUAL PREMIUM EQUIVALENT HY 2013 HY 2012 FY 2012 TOTAL 3,310 3,064 6,170 France 690 641 1,378 United States 655 599 1,244 United Kingdom 365 283 535 Japan 240 269 598 Germany 218 258 454 Switzerland 310 256 374 Belgium 94 119 175 Central & Eastern Europe 55 78 136 Mediterranean and Latin American Region 227 190 402 Hong Kong 215 180 408 South-East Asia, India and China 237 190 463 Mature markets 2,773 2,590 5,109 High growth markets 537 474 1,061 (a) Changes are on a comparable basis. 8 Half Year 2013 Financial Report (in Euro million) HY 2013 / HY 2012 (a) 5.1% 2.2% 2.7% 11.8% 29.9% n.a. 4.4% (in Euro million) HY 2013/HY 2012 (a) 9.3% 5.4% 10.7% 33.4% 3.4% 15.6% 23.6% 20.9% 28.8% 19.4% 21.4% 27.4% 8.3% 14.8% ACTIVITY REPORT Total Life & Savings New Business APE amounted to €3,310 million, up 8% on a reported basis or up 9% on a comparable basis. This was mainly driven by the United Kingdom, the United States, Switzerland, South- East Asia, India and China, partly offset by Belgium, Germany and Central & Eastern Europe. High growth markets APE increased by 15% as strong growth in South-East Asia, India and China (+27% or €+52 million) and Hong Kong (+21% or €+38 million) was partly offset by Central & Eastern Europe (-29% or €-22 million), negatively impacted by regulatory developments in Poland and the focus on higher margin products in Czech Republic. The United Kingdom APE increased by €94 million (+33%) to €365 million reflecting higher sales of Unit- Linked products (+44% or €+68 million) as a consequence of large Corporate pension Investment schemes underwritten at the beginning of the year, as well as higher Mutual Fund sales through the Elevate wrap platform (+24% or €+25 million). The United States APE increased by €64 million (+11%) to €655 million reflecting higher sales of Unit-Linked products as a consequence of both higher (i) non GMxB investment only product sales (+21% or €+24 million) in the wholesale channel, and (ii) fixed and floating rate GMxB product sales (+23% or €+35 million). Switzerland APE increased by €61 million (+24%) to €310 million driven by strong G/A Protection & Health sales (+28% or €+66 million), in particular in Group Life business reflecting an exceptional growth in full coverage insurance contracts. South-East Asia, India and China APE increased by €52 million (+27%) to €237 million mainly driven by (i) China (+28 million) reflecting higher sales of G/A Protection & Health products mainly through the newly launched joint-venture ICBC-AXA Life and (ii) Thailand (€+19 million) driven by sales initiatives through the bancassurance channel. Hong Kong APE increased by €38 million (+21%) to €215 million mainly driven by higher sales of Unit-Linked products (+57% or €+31 million) reflecting the establishment of a wider active broker network, while G/A Protection & Health sales were stable demonstrating a shift in mix towards Pure Protection and Health products. Mediterranean and Latin American Region APE increased by €37 million (+19%) to €227 million mainly due to mature markets (€+34 million) reflecting a better performance of Unit-Linked products, mainly at AXA MPS, in line with the strategy to focus on improving the business mix. France APE increased by €36 million (+5%) mainly driven by (i) an increase in Unit-Linked sales (+50% or €+45 million) driven by Group Retirement and Individual Savings, (ii) higher sales of G/A Protection & Health products with the launch of new products and commercial campaigns, partly offset by (iii) lower G/A Savings sales (-5% or €-13 million) in line with the decline of the French traditional savings market. Belgium APE decreased by €25 million (-21%) to €94 million driven by (i) a decrease in G/A Savings (-55% or €-49 million) mainly due to lower “Crest Classic” sales in the context of focusing on improving business mix, partly offset by the launch of a new bundled product and (ii) lower sales in G/A Protection & Health (-66% or €-18 million) after the production of a large contract in June 2012. This was partly offset by the higher focus on Unit-Linked business with the launch of new products generating €42 million of APE. Germany APE decreased by €40 million (-16%) to €218 million driven by (i) G/A Protection & Health (-14% or €-17 million) due to the non-repeat of high Health sales in the first half of 2012 in anticipation of a change in regulation capping brokers’ commissions, (ii) G/A Savings (-24% or €-14 million) due to a decrease in single premium short term investment products and (iii) Unit-Linked (-9% or €-3 million) mainly due to the curtailment of “Twinstar” Variable Annuity product. Central & Eastern Europe APE decreased by €22 million (-29%) to €55 million. The decrease was driven by lower Unit-Linked sales (-49% or €-27 million) mainly as a result of the change in regulation of Pension fund business in Poland and the focus on higher margin products in Czech Republic where the decrease in Unit- Linked sales was partly offset by an increase in G/A Pure Protection business (+98% or €+4 million). Half Year 2013 Financial Report 9 I I ACTIVITY REPORT Japan APE decreased by €9 million (-3%) to €240 million driven by (i) lower Variable Annuity sales (-54% or €-37 million) following product redesign in a more competitive environment, partly offset by (ii) higher G/A Protection & Health sales (+14% or €+26 million) following the successful launch of a new disability product. PROPERTY & CASUALTY REVENUES (in Euro million) HY 2013 HY 2012 FY 2012 HY 2013 / HY 2012 (a) TOTAL . Mature markets Direct High growth markets 16,497 13,073 1,152 2,272 16,173 13,259 1,085 1,829 28,315 22,257 2,215 3,843 2.2% -0.1% 6.6% 14.8% (a) Changes are on a comparable basis. Property & Casualty gross revenues were up 2% on both reported and comparable basis to €16,497 million. Personal lines increased by 1% mainly driven by the Mediterranean and Latin American Region, Direct, Switzerland and Asia. Commercial lines increased by 4%, primarily in the Mediterranean and Latin American Region high growth markets, the United Kingdom & Ireland, France and Asia. Overall average tariff increases amounted to 3%. Personal lines (58% of P&C gross revenues) were up by 1% on a comparable basis, mainly stemming from Motor (+2%) as a result of higher volumes in high growth markets and Direct, and tariff increases across the board, partly offset by lower volumes in mature markets in a difficult economic environment. Motor revenues grew by €99 million or +2% mainly driven by: Mediterranean and Latin American Region (+4%), primarily driven by Turkey (+32%) with strong tariff increases on third party liability products, partly offset by Spain (-6%) due to a competitive market in a depressed economic environment; Direct (+6%) mainly driven by resumed growth in the UK reflecting higher new business and improved retention, as well as in France, Italy and Japan partly offset by Spain; Switzerland (+2%) driven by higher volumes and a higher average premium; Asia (+4%) due to a strong increase in car sales in Malaysia; partly offset by Germany (-2%) reflecting lower volumes following significant tariff increases and Belgium (-3%) driven by portfolio pruning and selective underwriting. Non-Motor revenues decreased by €10 million or -0% mainly driven by: the United Kingdom & Ireland (-10%) mainly in Household, driven by portfolio pruning through tariff increases and exiting of partnerships; partly offset by Germany (+4%) and France (+1%) mainly attributable to tariff increases in Household, and higher volumes in both Direct business (+10%) and high growth markets (+11%). Commercial lines (42% of P&C gross revenues) increased by 4% on a comparable basis mainly driven by tariff increases across the board as well as volume increases in high growth markets. Motor revenues increased by €48 million or +3%, mainly driven by: the Mediterranean and Latin American Region (+9%) notably in Turkey (+50%) and the Gulf Region (+106%) reflecting positive portfolio developments, partly offset by negative volumes in Mexico (-10%) due to a more competitive environment; the United Kingdom & Ireland (+7%) driven by tariff increases and increased retention in fleet. Non-Motor revenues increased by €210 million or +4% reflecting growth in: the United Kingdom (+9%) due to Health portfolio development in the United Kingdom and abroad as well as tariff increases and better retention in Property; Asia (+15%) primarily driven by tariff increases and a new Health large account in Hong Kong; France (+3%) mainly following tariff increases in Construction and Property, partly offset by lower volumes; 10 Half Year 2013 Financial Report ACTIVITY REPORT the Mediterranean and Latin American Region (+11%) mainly driven by positive portfolio developments in Health in the Gulf Region and in Mexico, as well as in Property in Turkey. INTERNATIONAL INSURANCE REVENUES International Insurance revenues were up 5% or 3% on a comparable basis to €1,909 million mainly driven by (i) AXA Assistance up 9% to €487 million driven by higher volumes and (ii) AXA Corporate Solutions up 1% to €1,337 million mainly as a result of positive portfolio developments in Motor and Property and tariff increases in Marine and Motor, partly offset by a decrease in Aviation and Construction. ASSET MANAGEMENT REVENUES AND ASSETS UNDER MANAGEMENT Asset Management revenues increased by 11% or 12% on a comparable basis to €1,741 million mainly driven by higher management fees at both AllianceBernstein and AXA Investment Managers as a result of higher average Assets Under Management (AUM), as well as higher distribution fees at AllianceBernstein and higher real estate transaction fees at AXA Investment Managers. AllianceBernstein revenues were up 10% to €1,047 million primarily due to higher Retail distribution fees (€+43 million) as well as higher management fees (€+36 million) resulting from higher average AUM (+6%). AUM increased by 1% or €+5 billion from year-end 2012 to €354 billion driven by (i) €+5 billion favorable foreign exchange rate impact and (ii) €+2 billion net inflows, partly offset by (iii) €-2 billion from market depreciation. AXA Investment Managers revenues were up 15% to €694 million. Excluding distribution fees (retroceded to distributors), and on a comparable basis, revenues increased by €96 million (+18%) mainly driven by (i) higher management fees (+13%) as a result of higher average AUM (+7%) combined with +0.9bp higher management fees bps and (ii) higher real estate transaction fees. AUM increased by 3% or €+15 billion from year-end 2012 to €568 billion as a result of (i) €+14 billion market appreciation and (ii) €+10 billion net inflows, partly offset by (iii) €-8 billion unfavorable foreign exchange rate impact and (iv) €-2 billion change in scope. NET BANKING REVENUES Net banking revenues increased by 30% on both a reported and a comparable basis to €293 million driven by (i) France (+90%) due to higher net banking product reflecting a softer promotional campaign compared to 2012 and (ii) AXA Bank Belgium (+25%) mainly driven by higher interest margin. Half Year 2013 Financial Report 11 I I ACTIVITY REPORT Consolidated underlying earnings, adjusted earnings and net income The amendment to IAS 19 – Employee Benefits, published on June 16, 2011, became effective since January 1, 2013, and the comparative information in respect of 2012, has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the revised standard. HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published Gross written premiums 47,168 45,749 45,749 84,592 Fees and revenues from investment contracts without participating feature 133 164 164 334 Revenues from insurance activities 47,301 45,913 45,913 84,926 Net revenues from banking activities 283 204 204 426 Revenues from other activities 2,451 2,268 2,268 4,741 TOTAL REVENUES 50,036 48,385 48,385 90,093 Change in unearned premium reserves net of unearned revenues and fees (c) (3,816) (3,970) (3,970) (441) Net investment result excluding financing expenses (b) (c) (d) 13,330 14,234 14,235 28,770 Technical charges relating to insurance activities (b) (c) (45,154) (45,593) (45,593) (91,734) Net result of reinsurance ceded (938) (572) (572) (1,323) Bank operating expenses (44) (47) (47) (96) Insurance acquisition expenses (4,738) (4,258) (4,275) (9,472) Amortization of value of purchased life business in force (50) (37) (37) (179) Administrative expenses (c) (4,491) (4,528) (4,569) (9,033) Valuation allowances on tangible assets (0) (0) 28 Change in value of goodwill (0) (0) (0) (0) Other (136) (143) (143) (293) Other operating income and expenses (55,551) (55,179) (55,237) (112,102) OPERATING EARNINGS BEFORE TAX 3,999 3,471 3,414 6,321 Net income from investments in affiliates and associates 53 44 44 136 Financing expenses (333) (275) (275) (587) UNDERLYING EARNINGS BEFORE TAX 3,719 3,240 3,183 5,870 Income tax expenses (d) (990) (817) (801) (1,409) Minority interests (150) (118) (118) (210) UNDERLYING EARNINGS 2,579 2,305 2,263 4,251 Net realized capital gains or losses attributable to shareholders 375 123 123 297 ADJUSTED EARNINGS 2,954 2,427 2,386 4,548 Profit or loss on financial assets (under fair value option) & derivatives (228) 291 291 45 Exceptional operations (including discontinued operations) (86) (8) (8) (94) Goodwill and other related intangible impacts (54) (56) (56) (103) Integration and restructuring costs (118) (69) (69) (244) NET INCOME 2,467 2,586 2,544 4,152 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) For the periods ended June 30, 2013 and December 31, 2012, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectivly €+8,070 million and €+14,186 million by the offsetting amounts respectively. (c) For the period ended June 30, 2012, €100 million have been reclassified from change in unearned premium reserve net of unearned revenues and fees to technical charges relating to insurance activities to ensure consistency of the information. (d) HY 2012 published was adjusted to reflect intercompany elimination of €26 million between net investment result and income tax expenses. 12 Half Year 2013 Financial Report (in Euro million) FY 2012 restated (a) 84,592 334 84,926 426 4,741 90,093 (441) 28,771 (91,734) (1,323) (96) (9,506) (179) (9,131) 28 (0) (293) (112,234) 6,189 136 (587) 5,738 (1,373) (210) 4,155 297 4,452 45 (94) (103) (244) 4,057 ACTIVITY REPORT GROUP UNDERLYING EARNINGS (in Euro million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Life & Savings 1,534 1,411 1,396 2,635 2,603 Property & Casualty 1,128 1,044 1,036 1,895 1,877 International Insurance 103 118 118 167 167 Asset Management 194 159 159 382 379 Banking 61 5 5 5 4 Holdings and other companies (b) (441) (433) (451) (833) (875) UNDERLYING EARNINGS 2,579 2,305 2,263 4,251 4,155 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,579 million up 14% versus half year 2012. On a constant exchange rate basis, underlying earnings increased by 16% driven by Life & Savings, Property & Casualty and Asset Management, partly offset by a decrease in International Insurance. Life & Savings underlying earnings amounted to €1,534 million. On a constant exchange rate basis Life & Savings underlying earnings were up €173 million (+12%) mainly attributable to the United States (€+93 million), Japan (€+36 million), South-East Asia, India and China (€+21 million), Hong Kong (€+15 million), Germany (€+14 million) and the Mediterranean and Latin American Region (€+13 million), partly offset by France (€-23 million) mainly resulting from: Higher investment margin (€+106 million or +9%), mainly as a result of (i) Switzerland (€+42 million) reflecting a policyholder bonus reserve release in Individual Life, (ii) Japan (€+40 million) mainly due to higher dividends from equity funds in a rising Japanese stock market, (iii) the United States (€+27 million) and France (€+14 million) as the decrease in investment income reflecting lower reinvestment yields on fixed income assets was more than offset by lower allocation to policyholders, partly offset by (iv) the Mediterranean and Latin American Region (€-14 million) mainly driven by lower average assets. Higher fees & revenues (€+239 million or +7%) mainly driven by: o Unit-linked management fees were up €100 million, mainly driven by the United States (€+59 million) due to higher Separate Account balances and France (€+22 million) due to a higher average assets base. o Loadings on premiums and mutual funds were up €132 million driven by (i) the United States (€+74 million) reflecting Unearned Revenue Reserve assumption updates, (ii) the Mediterranean and Latin American Region (€+32 million) due to strong Unit-Linked sales and increased surrenders, (iii) Japan (€+28 million) mainly driven by new business and inforce growth in Protection & Health, partly offset by France (€-56 million) mainly due to the non- repeat of 1H 2012 Unearned Revenue Reserve adjustment (fully offset by DAC amortization). o Other fees were up €7 million. Net technical margin was up €405 million mainly driven by the United States (€+497 million), primarily due to (i) higher GMxB margin resulting from the non-repeat of 1H 2012 GMxB reserve strengthening for policyholder behavior assumption changes, as well as lower volatility and basis losses, partly offset by (ii) an adverse mortality experience in the Life business. This was partly compensated by France (€-58 million) driven by lower positive prior year reserve developments. Expenses increased by €479 million (or +16%) as a result of: o €459 million higher acquisition expenses, primarily driven by (i) the United States (€-510 million) mainly as a result of higher DAC amortization notably following the improved GMxB margin, (ii) Central & Eastern Europe (€-24 million) due to higher DAC amortization, partly offset by (iii) France (€+66 million) mainly due to the non-repeat of a 1H 2012 DAC adjustment. Half Year 2013 Financial Report 13 I I ACTIVITY REPORT o €20 million higher administrative expenses mainly reflecting various efficiency programs net of inflation as well as negative one-offs, mainly on tax contributions in France. Higher tax expenses and minority interests, €-97 million, driven by higher pre-tax underlying earnings as well as lower favorable tax one-offs (€+31 million in Japan and €+10 million in Hong Kong in 1H 2013 vs. €+78 million in 1H 2012). Property & Casualty underlying earnings amounted to €1,128 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €99 million (+10%) mainly driven by: Higher net technical result (including expenses) up €120 million (or +24%) driven by: o Current year loss ratio improving by 1.0 point driven by tariff increases and lower claims frequency, partly offset by higher large claims, and higher Nat Cat charge (+0.2 point) mainly as a result of floods in Bavaria and Saxony (€73 million charge at Group level); o Lower positive prior year reserve developments by 0.3 point; o Lower expense ratio improving by 0.1 point to 26.2%, with (i) 0.2 point reduction in the administrative expense ratio benefiting from various efficiency programs, partly offset by (ii) 0.1 point increase in the acquisition ratio as productivity gains were more than offset by an unfavorable product and business mix effect; o As a result, the combined ratio improved by 0.8 point to 95.7%. Investment result decreased by €23 million to €1,005 million, mainly driven by lower revenues on fixed income assets in France, Switzerland and the UK & Ireland. Lower income tax expense and minority interests, €+11 million, mainly driven by favorable tax one-offs in the Mediterranean and Latin American Region (€+14 million) and a favorable country mix, partly offset by higher pre-tax underlying earnings. International Insurance underlying earnings amounted to €103 million. On a constant exchange rate basis, underlying earnings decreased by €14 million (or -12%) mainly due to (i) AXA Corporate Solutions, down €8 million, following a decrease in the investment result and (ii) AXA Global P&C, down €2 million, due to the non-repeat of 1H 2012 premium boni on Motor cover. Asset Management underlying earnings amounted to €194 million. On a constant exchange rate basis, underlying earnings increased by €38 million (+24%) mainly driven by (i) AXA IM (€+34 million) reflecting higher revenues from both higher average AUM and improved margins, partly offset by higher variable compensations, and (ii) AllianceBernstein (€+3 million) as a result of higher revenues net of variable compensations and lower general administrative expenses, partly offset by the non repeat of a 1H 2012 positive tax one-off. Banking underlying earnings amounted to €61 million. On a constant exchange rate basis, underlying earnings increased by €55 million driven by (i) Belgium, up €36 million, as a result of higher interest margin and (ii) France, up €16 million, following the rise in operating revenues, in a context of lower cost of risk and administrative expenses. Holdings and other companies underlying earnings amounted to €-441 million. On a constant exchange rate basis, holdings underlying earnings increased by €12 million (+3%) mainly driven by (i) Germany holdings (€+11 million) reflecting lower pension costs, (ii) Mediterranean and Latin American holdings (€+5 million) due to lower financial charges, partly offset by (iii) AXA SA (€-2 million) mainly due to the new French tax of 3% on dividends paid by the company (€-46 million), partly offset by an increase in dividends from non-consolidated subsidiaries and a gain related to the hedging program on Performance Units at Group level. GROUP UNDERLYING EARNINGS TO NET INCOME Group net capital gains attributable to shareholders amounted to €375 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were up €256 million mainly due to: €+187 million higher realized capital gains, to €555 million in the first half of 2013, mainly driven by higher realized gains on real estate (€+83 million), fixed income assets (€+76 million) and equities 14 Half Year 2013 Financial Report ACTIVITY REPORT (€+12 million), notably driven by the sale of a 2.4% equity stake in BNP Paribas generating a €151 million gain; €+25 million lower impairments to €-160 million in the first half of 2013, mainly driven by more favorable equity market conditions (€+18 million); €+41 million higher intrinsic value related to equity hedging derivatives. As a result, adjusted earnings amounted to €2,954 million. On a constant exchange rate basis, adjusted earnings increased by €618 million (+26%). Net income amounted to €2,467 million. On a constant exchange rate basis, net income decreased by €32 million (-1%) mainly as a result of: higher adjusted earnings: up €618 million, more than offset by an unfavorable change in fair value of financial assets and derivatives in 1H 2013 compared to a favorable change in 1H 2012 that was driven by a general decrease in interest rates: down €-520 million to €-228 million which can be analyzed as follows: o €+15 million from the change in fair value of assets under fair value option, o €-143 million from the change in fair value of hedging derivatives not eligible for hedge accounting under IAS 39, mainly attributable to interest rates increase, o €-100 million following foreign exchange rate movements, mainly from JPY and AUD depreciation, notably driven by an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting under IAS 39; lower impact from exceptional operations: down €78 million to €-86 million, mainly due to the estimated net loss associated with the “closed MONY portfolio transaction” (€-32 million). Half Year 2013 Financial Report 15 I I ACTIVITY REPORT Consolidated Shareholders’ Equity As of June 30, 2013, consolidated shareholders' equity totaled €51.5 billion. The movements in shareholders' equity since December 31, 2012 are presented in the table below: (in Euro million) FY 2012 published IAS 19 Restatement FY 2012 restated HY 2013 Shareholders' Equity 53,664 (58) 53,606 51,468 Shareholders' Equity At December 31, 2012 53,606 Share Capital 7 Capital in excess of nominal value 28 Equity-share based compensation 23 Treasury shares sold or bought in open market 165 Deeply subordinated debt (including interests charges) 108 Fair value recorded in shareholders' equity (2,519) Impact of currency fluctuations (1,003) Payment of N-1 dividend (1,720) Other (20) Net income for the period 2,467 Actuarial gains and losses on pension benefits 324 At June 30, 2013 51,468 Shareholder Value Earnings per share (“EPS”) (in Euro million except ordinary shares in million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Var. HY 2013 versus HY 2012 restated (a) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,380.6 2,388.1 2,340.3 2,343.3 2,340.3 2,343.3 2,342.5 2,348.9 2,342.5 2,348.9 Net income (Euro per Ordinary Share) 0.98 0.97 1.04 1.04 1.02 1.02 1.65 1.64 1.61 1.60 4% 5% Adjusted earnings (Euro per Ordinary Share) 1.18 1.18 0.97 0.97 0.96 0.96 1.82 1.81 1.78 1.77 23% 23% Underlying earnings (Euro per Ordinary Share) 1.02 1.02 0.92 0.92 0.90 0.90 1.69 1.69 1.65 1.64 14% 13% (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 16 Half Year 2013 Financial Report Return On Equity (“ROE”) Period ended , June 30, 2013 Period ended , June 30, 2012 published ROE 9.5% 11.1% Net income group share 2,467 2,586 Average shareholders' equity 51,714 46,620 Adjusted ROE 16.5% 13.8% Adjusted earnings (b) 2,810 2,280 Average shareholders' equity (c) 34,114 33,104 Underlying ROE 14.3% 13.0% Underlying earnings (b) 2,435 2,157 Average shareholders' equity (c) 34,114 33,104 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (c) Excluding fair value of invested assets and derivatives and excluding undated debt (both recorded through shareholders' equity). Half Year 2013 Financial Report ACTIVITY REPORT (in Euro million) Period ended , June 30, 2012 restated (a) Change in % points 10.9% 1.4 pts 2,544 46,561 13.5% 2.9 pts 2,238 33,045 12.8% 1.5 pts 2,115 33,045 17 I I ACTIVITY REPORT Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published Gross revenues (b) 29,643 28,642 28,642 55,084 APE (Group share) 3,310 3,075 3,064 6,170 Investment margin 1,327 1,234 1,234 2,697 Fees & revenues 3,753 3,623 3,626 7,323 Net technical margin 418 16 16 357 Expenses (3,427) (3,001) (3,027) (6,857) Amortization of VBI (49) (37) (37) (179) Other 44 25 25 86 Underlying earnings before tax 2,067 1,860 1,836 3,427 Income tax expenses / benefits (484) (418) (410) (713) Minority interests (50) (31) (31) (78) Underlying earnings Group share 1,534 1,411 1,395 2,635 Net capital gains or losses attributable to shareholders net of income tax 286 145 145 214 Adjusted earnings Group share 1,820 1,556 1,541 2,849 Profit or loss on financial assets (under FV option) & derivatives (200) 300 300 152 Exceptional operations (including discontinued operations) (24) (26) (26) (54) Goodwill and other related intangibles impacts (15) (19) (19) (34) Integration and restructuring costs (79) (14) (14) (40) Net income Group share 1,501 1,797 1,781 2,873 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Before intercompany eliminations. Consolidated Gross Revenues HY 2013 HY 2012 France 7,211 6,754 United States 5,567 5,567 United Kingdom 285 317 Japan 2,605 3,180 Germany 3,232 3,290 Switzerland 5,206 4,838 Belgium 1,151 1,225 Central & Eastern Europe (a) 195 222 Mediterranean and Latin American Region (b) 3,001 2,258 Hong Kong 983 796 South-East Asia, India and China (c) 133 140 Other (d) 74 55 TOTAL 29,643 28,642 Intercompany transactions (40) (35) Contribution to consolidated gross revenues 29,603 28,607 o/w. high growth markets 1,511 1,350 o/w. mature markets 28,092 27,257 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (c) South-East Asia, India and China revenues include Singapore and non bancassurance subsidiaries in Indonesia. (d) Other corresponds to Luxembourg, AXA Life Invest, Architas and Family Protect . 18 Half Year 2013 Financial Report (in Euro million) FY 2012 restated (a) 55,084 6,170 2,697 7,327 357 (6,910) (179) 86 3,377 (696) (78) 2,603 214 2,817 152 (54) (34) (40) 2,841 (in Euro million) FY 2012 13,751 11,229 648 6,725 6,655 6,551 2,088 472 4,836 1,723 295 112 55,084 (68) 55,016 2,887 52,129 Underlying earnings HY 2013 HY 2012 published France 353 375 United States 311 237 United Kingdom (9) (13) Japan 292 281 Germany 79 66 Switzerland 150 157 Belgium 81 77 Central & Eastern Europe (b) 15 17 Mediterranean and Latin American Region (c) 90 76 Hong Kong 132 119 South-East Asia, India and China (d) 54 35 Other (e) (13) (14) UNDERLYING EARNINGS 1,534 1,411 o/w. high growth markets 209 178 o/w. mature markets 1,325 1,234 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes Poland, Hungary, Czech Republic and Slovakia. (c) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (d) South-East Asia, India and China earnings include Indonesia, Thailand, Philippines, China, India and Singapore. (e) Other correspond to Luxembourg, AXA Life Invest, Architas and Family Protect. Half Year 2013 Financial Report HY 2012 restated (a) 376 222 (13) 281 66 155 77 17 76 119 35 (14) 1,396 178 1,218 ACTIVITY REPORT (in Euro million) FY 2012 published FY 2012 restated (a) 706 707 522 492 (17) (17) 374 374 120 120 317 314 150 150 1 1 162 162 252 252 86 86 (38) (38) 2,635 2,603 352 352 2,283 2,251 19 I I ACTIVITY REPORT Life & Savings operations – France (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 7,211 690 568 790 215 (1,124) - 4 454 (101) (1) 353 214 567 12 - (10) - 6,754 641 554 828 273 (1,169) - 3 490 (113) (1) 376 49 425 77 - - - 13,751 1,378 1,210 1,559 514 (2,297) - 7 993 (284) (2) 707 124 830 185 - - - Net income Group share 569 502 1,015 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues increased by €457 million (+7%) to €7,211 million1: Unit-Linked revenues (17% of gross revenues) rose by €406 million (+48%), mainly driven by €+137 million in Individual Savings following Unit-Linked oriented commercial efforts and €+269 million in Group Retirement boosted by several large contracts. Unit-Linked share in Individual Savings premiums increased by 4 points to 28%, 11 points above market average at 17%2; G/A Protection & Health revenues (45% of gross revenues) increased by €204 million (+7%) driven by a €+195 million increase in Group Protection & Health as a result of tariff increases upon renewals and net new business inflows and €+19 million increase in Individual Protection reflecting positive portfolio developments; G/A Savings revenues (37% of gross revenues) decreased by €153 million (-5%) driven by Individual Savings (€-83 million) following the focus on Unit-Linked oriented offers, and Group Retirement (€-70 million) due to fewer G/A large contracts. APE increased by €49 million (+8%) to €690 million. On a comparable basis, APE increased by €36 million (+5%): Unit-Linked sales (20% of APE) rose by €45 million (+50%) mainly driven by €+20 million in Individual Savings reflecting Unit-Linked oriented commercial efforts and €+25 million in Group Retirement boosted by several large contracts; G/A Protection & Health sales (44% of APE) increased by €4 million (+1%) driven by €8 million increase in Individual Health and Protection as a result of the success of new products in Health (Modulango) and in Pure Protection (Long Term Care and Funerals). Group Protection & Health sales 1 €7,202 million after intercompany eliminations. 2 Source FFSA June 2013. 20 Half Year 2013 Financial Report ACTIVITY REPORT decreased by €5 million, following a slowdown on the French market (€-20 million) while international business (Employee Benefits and Mortgage insurance) grew strongly (€+15 million). G/A Savings sales (37% of APE) decreased by €13 million (-5%) driven by Individual Savings (€- 7million) following the focus on Unit-Linked oriented offers, and Group Retirement (€-6 million) due to fewer G/A large contracts. Investment margin increased by €14 million (+3%) to €568 million as lower investment income (€-141 million) notably due to lower reinvestment yields and lower inflation rate on fixed income assets, was more than offset by lower amounts allocated to policyholders. Fees & revenues decreased by €38 million (-5%) to €790 million due to the non recurrence of a €-69 million URR reserve adjustment in 2012 (fully offset in DAC), partly offset by higher fees on both Unit-Linked business, in line with higher average asset base, and Protection business, in line with revenues growth. Net technical margin fell by €58 million (-21%) to €215 million mainly driven by Group Protection and Retirement business due to lower positive prior year reserve development. Expenses decreased by €45 million (-4%) to €-1,124 million: Acquisition expenses fell by €66 million (-9%) to €-693 million, mainly due to the non recurrence of a €+69 million DAC adjustment in 2012 (fully offset in URR); Administrative expenses rose by €20 million (+5%) to €-430 million as continuing efforts to contain expenses were more than offset by higher tax contributions. As a result, the underlying cost income ratio increased by 0.8 point to 71.4%. Income tax expenses decreased by €13 million (-11%) to €-101 million mainly due to lower pre-tax underlying earnings. Underlying earnings decreased by €23 million (-6%) to €353 million. Adjusted earnings increased by €142 million (+33%) to €567 million driven by higher net realized capital gains (€+174 million) mainly on equities and real estate, including a €+151 million realized gains relating to the sale of a 2.4% equity stake in BNP Paribas, partly offset by higher impairment charges and a decrease in the impact of equity hedging derivatives (€-9 million), as well as lower underlying earnings (€-23 million). Net income increased by €68 million (+13%) to €569 million driven by higher adjusted earnings (€+142 million), partly offset by an unfavorable change in the fair value of mutual funds and of economic hedge derivatives not eligible for hedge accounting (€-69 million) mainly driven by higher interest rates. Half Year 2013 Financial Report 21 I I ACTIVITY REPORT Life & Savings operations - United States (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,567 655 258 1,120 (82) (845) (11) - 441 (130) - 311 (24) 288 (218) (32) (1) (59) 5,567 599 233 995 (580) (338) 7 - 317 (95) - 222 (26) 196 97 - (1) (8) 11,229 1,244 541 1,993 (632) (1,296) (3) - 602 (110) - 492 (37) 455 (103) - (1) (20) Net income Group share (23) 285 331 Average exchange rate : 1.00 € = $ 1.3129 1.2969 1.2969 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues are level with prior year at €5,567 million 1 . On a comparable basis, gross revenues increased by €68 million (+1%): Variable Annuity revenues (63% of gross revenues) increased by 2% reflecting strong sales results for non GMxB investment only products, floating roll up rate GMxB and Employer Sponsored products, partially offset by lower renewal premiums (additional contributions were received for certain old GMxB fixed rate contracts prompted by the suspension of additional contributions in 1Q 2012); Life revenues (24% of gross revenues) decreased by 2% driven primarily by lower sales of non Unit- Linked life products, in particular the Indexed Universal Life product; Asset Management Fees (7% of gross revenues) increased by 5%, reflecting improvement in market conditions in 1H 2013; Mutual Funds revenues (1% of gross revenues) increased by 20%, reflecting higher advisory fees received and increases in sales volume. APE increased by €56 million (+9%) to €655 million. On a comparable basis, APE increased by €64 million (+11%): Variable Annuity APE increased by 16% to €347 million reflecting higher sales of non GMxB investment only, floating rate GMxB and Employer Sponsored products, partially offset by lower sales of fixed rate GMxB products. Non-GMxB investment only and floating rate GMxB products launched since 2010 represented a combined 60% of 1H 2013 Variable Annuity APE; 1 €5,566 million after intercompany eliminations. 22 Half Year 2013 Financial Report ACTIVITY REPORT Life decreased by 19% to €95 million driven primarily by lower sales of non Unit-Linked life products, in particular on Indexed Universal Life product due to increased competition; Mutual Funds increased by 22% to €211 million, reflecting increased advisory account sales. Investment margin increased by €24 million (10%) to €258 million. On a constant exchange rate basis, investment margin increased by €27 million (+12%) as the decrease in investment income reflecting lower yields on fixed income assets, was more than offset by lower crediting rates . Fees & revenues increased by €126 million (+13%) to €1,120 million. On a constant exchange rate basis, fees & revenues increased by €140 million (+14%) primarily due to higher fees earned on higher average separate account balances and assumption updates of Unearned Revenue Reserve. Net technical margin rose by €498 million to €-82 million. On a constant exchange rate basis, net technical margin increased by €497 million primarily due to higher GMxB margin resulting from the non-repeat of 1H 2012 GMxB reserve strengthening for policyholder behavior assumption changes, as well as lower volatility and basis losses. This was partially offset by an adverse mortality experience in the Life business. Expenses increased by €507 million to €-845 million. On a constant exchange rate basis, expenses increased by €517 million: Expenses, net of capitalization (including commissions and DAC capitalization) increased by €27 million (-4%) to €635 million mainly due to higher commissions net of capitalization from increased asset balances and higher mutual funds sales, partly offset by productivity actions (reduction of FTE, changes to variable compensation program, real estate optimization including staff relocation); DAC amortization increased by €490 million to €-210 million mainly following higher GMxB margin. Amortization of VBI increased by €18 million to €-11 million. On a constant exchange rate basis, amortization of VBI increased by €18 million due the non-repeat of 1H 2012 revisions reflecting higher expected margins on MONY in-force contracts. As a result, the underlying cost income ratio increased by 14.9 points to 66%. Income tax expense increased by €35 million (+36%) to €-130 million. On a constant exchange rate basis, income tax expense increased by €36 million reflecting higher pre-tax underlying earnings. Underlying earnings increased by €89 million (40%) to €311 million. On a constant exchange rate basis, underlying earnings increased by €93 million (42%). Adjusted earnings increased by €92 million (+47%) to €288 million. On a constant exchange rate basis, adjusted earnings increased by €95 million (+48%) mainly reflecting the increase in underlying earnings. Net income decreased by €308 million (-108%) to €-23 million. On a constant exchange rate basis, net income decreased by €308 million (-108%). This was primarily driven by (i) higher adjusted earnings, more than offset by (ii) an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting (compared to a favorable change in fair value in 1H 2012), mainly attributable to higher interest rates, (iii) an estimated net loss associated with the ”closed MONY portfolio transaction” (€-32 million) and (iv) higher restructuring costs (€-52 million) driven by a real estate lease write-off, generating relocation savings. Half Year 2013 Financial Report 23 I I ACTIVITY REPORT Life & Savings operations - United Kingdom HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 285 365 2 147 (0) (168) - - (19) 10 0 (9) - (9) (1) - - (18) (28) 0.8508 317 283 2 168 1 (220) - - (49) 36 0 (13) - (13) 1 (0) (4) (3) (19) 0.8226 For consistency, 2013 figures have been compared to the same scope for 2012, i.e. excluding Bluefin Corporate Consulting which was sold in April 2012. This is referred to as “comparable scope basis” in the commentary below. Half Year 2012 underlying earnings amounted to €-13 million, corresponding approximately to €-2 million for sold business, and €-11 million for retained business. Gross revenues decreased by €31 million (-10%) to €285 million 1. On a constant exchange rate and comparable scope basis, gross revenues increased by €2 million (+1%). This was driven by growth in funds under management on the Elevate platform, an increase in Variable Annuity premiums and increased revenues through the growth of the Architas business. This was partly offset by lower revenues from bancassurance with this channel now closed to new business. APE increased by €82 million (+29%) to €365 million. On a constant exchange rate and comparable scope basis, APE was up €94 million (+33%) over prior year. New sales through the Elevate platform continued to increase, with IFA sales up by €39 million (+52%) as the platform continues to establish itself as one of the leaders in the UK platform market. The other significant growth was on the Corporate Pension Investment business (€+83 million) reflecting two significant new schemes in 2013. This was partially offset by sales decrease in the individual pensions (€-14 million) and in bancassurance (€-14 million) following the closure of this channel to new business. Investment margin increased by €1 million (60%) to €2 million. On a constant exchange rate and comparable scope basis, the investment margin increased by €1 million. 1 €285 million after intercompany eliminations. 24 Half Year 2013 Financial Report (in Euro million) FY 2012 648 535 3 334 4 (411) - - (71) 54 0 (17) - (17) 2 (2) (4) (11) (33) 0.8138 ACTIVITY REPORT Fees & revenues decreased by €21 million (-13%) to €147 million. On a constant exchange rate and comparable scope basis, fees & revenues increased by €8 million due to the growth of the business, partly offset by a decrease in bancassurance revenues. Net technical margin decreased by €1 million (-106%) to €0 million. On a constant exchange rate and comparable scope basis, net technical margin decreased by €1 million. Expenses decreased by €52 million (-24%) to €-168 million. On a constant exchange rate basis and comparable scope basis, expenses decreased by €20 million due to a €11 million reduction in bancassurance general expenses and further expense savings across the rest of the business. As a consequence, the underlying cost income ratio improved significantly by 15.9 points to 113%. On a constant exchange rate and comparable scope basis, the underlying cost income ratio reduced by 19.1 points. Income tax benefits decreased by €26 million (-72%) to €10 million. On a constant exchange rate and comparable scope basis, income tax benefits decreased by €25 million due to the reduction in one-off tax benefits (€-18 million) and the impact of the lower pre-tax loss. Underlying earnings increased by €4 million to €-9 million. On a constant exchange rate and comparable scope basis, underlying earnings increased by €2 million. Adjusted earnings increased by €4 million to €-9 million. On a constant exchange rate and comparable scope basis, adjusted earnings increased by €2 million due to the underlying earnings movement. Net income decreased by €9 million to €-28 million. On a constant exchange rate, net income decreased by €10 million as a result of higher restructuring costs. Half Year 2013 Financial Report 25 I I ACTIVITY REPORT Life & Savings operations – Japan HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Yen 2,605 240 37 738 28 (390) (14) - 399 (105) (3) 292 33 324 13 - - - 337 113.0264 3,180 269 (0) 765 44 (447) (17) - 345 (61) (3) 281 67 348 41 - - - 389 104.1900 Gross revenues decreased by €574 million (-18%) to €2,605 million1. On a comparable basis, revenues decreased by €354 million (-11%): Protection revenues (44% of gross revenues) increased by €52 million (+4%) mainly due to increased new business sales of Whole Life products (€+62 million) and better retention of Term and Term Riders products (€+47 million), partly offset by lower revenues from Increasing Term products (€-39 million) and Group Life products (€-7 million) which were not actively promoted; Investment & Savings revenues (22% of gross revenues) decreased by €409 million (-39%) mainly due to lower sales of Variable Annuity products following product redesign and increased competition in the bancassurance channel; Health revenues (33% of gross revenues) increased by €3 million (+0%) as new business from Medical Whole Life and Nursing products, boosted by the successful launch of “Disability Income” offset lower retention of Medical Term products. APE decreased by €30 million (-11%) to €240 million. On a comparable basis, APE decreased by €9 million (- 3%): Protection sales (54% of APE) increased by €9 million (+7%) mainly supported by stronger sales of Whole Life products before the discontinuation of Single Premium Whole Life in March 2013; Investment and Savings sales (12% of APE) decreased by €37 million (-54%) due to decreased Variable Annuity sales in bancassurance channel following product redesigned and increased competition; Health sales (34% of APE) increased by €19 million (+28%) driven by the successful launch of Disability Income (€+9 million) and strong sales of the new Medical Whole Life product (€+10 million) launched mid-2012. 1 €2,605 million after intercompany eliminations. 26 Half Year 2013 Financial Report (in Euro million) FY 2012 6,725 598 0 1,606 (31) (994) (89) - 492 (115) (4) 374 13 387 28 - - - 414 102.3473 ACTIVITY REPORT Investment margin increased by €37 million to €37 million. On a constant exchange rate basis, investment margin increased by €40 million mainly due to higher dividend income from equity funds in a rising Japanese stock market. Fees & revenues decreased by €27 million (-3%) to €738 million. On a constant exchange rate basis, fees & revenues increased by €36 million mainly due to higher Unit-Linked management fees driven by increased Variable Annuity inforce and higher loadings coming from a better business mix and increased retention. Net technical margin decreased by €16 million (-36%) to €28 million. On a constant exchange rate basis, net technical margin decreased by €14 million mainly due to a lower surrender margin thanks to an overall better retention. Expenses decreased by €57 million (-13%) to €-390 million. On a constant exchange rate basis, expenses decreased by €24 million (-5%) mainly due to ongoing expense control management and positive one-off effects. Amortization of VBI decreased by €3 million (-17%) to €-14 million. On a constant exchange rate basis, VBI amortization decreased by €2 million (-10%). As a result, the underlying cost income ratio improved by 7.0 points to 50.3%. Income tax expenses increased by €43 million to €-105 million. On a constant exchange rate basis, income tax expenses increased by €52 million due to the non-repeat of a 2012 positive tax one-off (€-49 million) and higher pre-tax underlying earnings (€-29 million), partly offset by a 2013 positive tax one-off (€+31 million). Underlying earnings increased by €11 million (+4%) to €292 million or increased by €36 million (+13%) on a constant exchange rate basis. Adjusted earnings decreased by €24 million (-7%) to €324 million or increased by €4 million (+1%) on a constant exchange rate basis, due to higher underlying earnings partly offset by lower net realized capital gains on fixed income assets. Net income decreased by €52 million to €337 million. On a constant exchange rate basis, net income decreased by €23 million, due to higher adjusted earnings (€+4 million) more than offset by a negative impact from Yen depreciation (€-41 million) mainly against the US dollar, lower favorable change in fair value of credit derivatives (€-23 million), partly offset by a more favorable change in fair value of funds (€+36 million) mainly invested in equity. Half Year 2013 Financial Report 27 I I ACTIVITY REPORT Life & Savings operations – Germany HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,232 218 51 149 29 (100) (7) - 122 (42) (0) 79 17 96 11 2 - - 109 3,290 258 57 157 4 (102) (11) - 105 (39) (0) 66 (8) 57 24 - - - 81 Gross revenues decreased by €58 million (-2%) to €3,232 million1. Life revenues (59% of gross revenues) decreased by €108 million (-5%) to €1,908 million mainly due to lower single premiums from G/A short term investment products as well as lower regular premiums from G/A Protection products; Health revenues (41% of gross revenues) increased by €50 million (+4%) to €1,323 million due to premium adjustments due to medical inflation. APE decreased by €40 million (-16%) to €218 million. Life decreased by €23 million (-20%) to €114 million, mainly due to decreasing single premiums from G/A short term investment products and conventional annuities, as well as the curtailment of “Twinstar” Variable Annuity product production; Health decreased by €17 million (-14%) to €104 million, due to the non recurrence of strong sales in the previous year driven by brokers’ anticipation of a change in regulation capping their commissions effective April 2012. Investment margin decreased by €6 million (-10%) to €51 million due to a decrease in investment income, mainly on fixed income assets, as a result of lower reinvestment yields. Fees & revenues decreased by €8 million (-5%) to €149 million mainly due to lower loadings on Health business following new business sales decrease. Net technical margin rose by €25 million to €29 million mainly due to (i) an increase in the hedge margin on GMxB products (up €14 million to €-19 million) and (ii) a higher mortality margin in Health business. 1 €3,221 million after intercompany eliminations. 28 Half Year 2013 Financial Report (in Euro million) FY 2012 6,655 454 111 340 6 (267) (23) - 167 (46) (0) 120 5 125 (5) - - (1) 119 ACTIVITY REPORT Expenses decreased by €3 million (-3%) to €-100 million, mainly due to savings derived from productivity programs, partly offset by inflation. Amortization of VBI decreased by €4 million (-34%) to €-7 million. As a result, the underlying cost income ratio decreased by 5.2 points to 46.8%. Income tax expenses increased by €3 million (+8%) to €-42 million, mainly due to higher pre-tax underlying earnings. Underlying earnings increased by €14 million (+21%) to €79 million. Adjusted earnings increased by €39 million (+68%) to €96 million due to higher underlying earnings and higher realized capital gains on fixed income assets. Net income increased by €28 million (+34%) to €109 million as the increase in adjusted earnings was partly offset by a less favorable change in the fair value of fixed income mutual funds and of economic hedge derivatives not eligible for hedge accounting, mostly attributable to higher interest rates. Half Year 2013 Financial Report 29 I I ACTIVITY REPORT Life & Savings operations – Switzerland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,206 310 103 147 73 (125) (1) - 196 (46) - 150 21 170 (13) - (3) - 4,838 256 63 144 111 (112) 1 - 206 (51) - 155 3 158 15 - (3) - 6,551 374 193 283 195 (257) (18) - 396 (83) - 314 23 336 (4) - (7) - Net income Group share 154 170 326 Average exchange rate : 1.00 € = Swiss Franc 1.2295 1.2046 1.2046 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues increased by €367 million (+8%) to €5,206 million1. On a comparable basis, gross revenues increased by €475 million (+10%) driven by both Group Life and Individual Life business: Group Life revenues increased by €444 million (+10%) to €4,748 million driven by premiums from full protection scheme contracts (€+467 million) as aresult of the strong business from both new and existing clients; Individual Life revenues increased by €31 million (+7%) to €458 million mainly due to higher single premiums (€+27 million) resulting from the continuing success of Protect Star product. APE increased by €54 million (+21%) to €310 million. On a comparable basis, APE increased by 61 million (+24%): Group Life increased by €66 million (+33%) driven by a strong growth in full protection scheme contracts (€+62 million); Individual Life decreased by €5 million (-9%) driven by lower Variable Annuity business demand. Investment margin increased by €40 million (+63%) to €103 million. On a constant exchange rate basis, investment margin increased by €42 million (+67%) as a result of a policyholder bonus reserve release on Individual Life (€+29 million), while lower investment income (€-25 million) mainly resulting from lower reinvestment yields on fixed income assets, was more than offset by lower policyholder participation (€+38 million). Fees & revenues increased by €3 million (+2%) to €147 million. On a constant exchange rate basis, fees & revenues increased by €6 million (+4%) mainly resulting from higher Group Life revenues. 1 €5,202 million after intercompany eliminations. 30 Half Year 2013 Financial Report ACTIVITY REPORT Net technical margin decreased by €38 million (-35%) to €73 million. On a constant exchange rate basis, net technical margin decreased by €37 million (-33%), mainly due to a deteriorated disability claims experience and a less favorable mortality margin. Expenses increased by €12 million (+11%) to €-125 million. On a constant exchange rate basis, expenses increased by €15 million (+13%) mainly driven by higher administrative expenses. Administrative expenses increased by €19 million (+26%) mainly driven by higher regulatory project costs and expenses related to new product launches. Amortization of VBI increased by €2 million to €-1 million. On a constant exchange rate basis, amortization of VBI increased by €2 million impacted by non-recurring 2012 positive assumption updates, partly offset by model refinements in Group Life (€+14 million). As a result, the underlying cost income ratio increased by 3.9 points to 39.1%. Income tax expenses decreased by €5 million (-9%) to €-46 million. On a constant exchange rate basis, income tax expenses decreased by €4 million (-7%) mainly driven by lower pre-tax underlying earnings. Underlying earnings decreased by €5 million (-3%) to €150 million. On a constant exchange rate basis, underlying earnings decreased by €2 million (-1%). Adjusted earnings increased by €12 million (+8%) to €170 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+10%) driven by higher realized capital gains mainly on hedge funds and fixed income assets. Net income decreased by €16 million (-9%) to €154 million. On a constant exchange rate basis, net income decreased by €12 million (-7%), mainly due to a negative change in the fair value of economic hedge derivatives not eligible for hedge accounting, partially offset by higher adjusted earnings. Half Year 2013 Financial Report 31 I I ACTIVITY REPORT Life & Savings operations – Belgium (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 1,151 94 162 61 12 (122) (2) - 110 (29) (0) 81 8 89 (19) - - (1) 1,225 119 155 69 15 (130) (4) - 105 (28) (0) 77 44 121 59 (8) - (2) 2,088 175 306 143 42 (265) (12) - 213 (63) (0) 150 52 201 87 (13) (0) (3) Net income Group share 69 170 272 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. For consistency, 2013 figures have been compared to the same scope for 2012, i.e. excluding “Vie Populaire” product portfolio which was sold in September 2012. This is referred to as “comparable scope basis” in the commentary below. Gross revenues decreased by €74 million (-6%) to €1,151 million1. On a comparable scope basis, gross revenues were €57 million (-5%) lower than prior year: G/A Protection & Health revenues (36% of gross revenues) decreased by €8 million (-2%) mainly due to run-off products in Individual Protection business (€-7 million); Unit-Linked revenues (34% of gross revenues) increased by €349 million mainly driven by the launch of Oxylife hybrid product (€+204 million) and the launch of two structured funds (€+97 million); G/A Savings revenues (31% of gross revenues) decreased by €398 million (-53%) mainly due to lower guaranteed rate on the run-off Crest product line (€-598 million), partly offset by the launch of Oxylife hybrid product (€+186 million). APE decreased by €25 million (-21%) to €94 million. On a comparable scope basis, APE was €23 million (- 20%) lower than prior year: G/A Protection & Health (10% of APE) decreased by €16 million (-63%) mainly due to the non-repeat of a 2012 large Corporate contract; Unit-Linked (48% of APE) increased by €42 million mainly driven by the launch of Oxylife hybrid product (€+28 million) and structured funds (€+10 million); G/A Savings (42% of APE) decreased by €49 million (-55%) mainly due to the curtailment of Crest product line (€-75 million), partly offset by the launch of Oxylife hybrid product (€+22 million). 1 €1,151 million after intercompany eliminiations. 32 Half Year 2013 Financial Report ACTIVITY REPORT Investment margin increased by €7 million (+4%) to €162 million. On a comparable scope basis, investment margin increased by €7 million (+4%). Fees & revenues decreased by €8 million (-12%) to €61 million. On a comparable scope basis, fees & revenues decreased by €4 million (-6%) mainly driven by a decrease in loadings on premiums as a result of lower gross revenues and a change in business mix. Net technical margin decreased by €3 million (-21%) to €12 million. On a comparable scope basis, net technical margin remained stable. Expenses decreased by €7 million (-6%) to €-122 million. On a comparable scope basis, expenses remained stable as lower commissions and expense savings reflecting continued cost management were offset by inflation. Amortization of VBI decreased by €2 million to €-2 million. On a comparable scope basis, VBI decreased by €2 million. As a result, the underlying cost income ratio improved by 2.8 points to 53.1%. On comparable scope basis, the underlying cost income ratio improved by 1.5 points. Income tax expenses increased by €-1 million (+4%) to €-29 million. On a comparable scope basis, income tax expenses increased by €-1 million due to the increase of pre-tax underlying earnings. Underlying earnings increased by €3 million (+5%) to €81 million. On a comparable scope basis, underlying earnings increased by €3 million. Adjusted earnings decreased by €32 million (-27%) to €89 million. On a comparable scope basis, adjusted earnings decreased by €32 million mainly due to lower realized capital gains (€-33 million) principally on fixed income assets and equities. Net income decreased by €101 million to €69 million. On comparable scope basis, net income decreased by €110 million mainly driven by lower adjusted earnings (€-32 million), the non repeat of 2012 favorable change in the fair value of mutual funds and others assets (€-45 million) and by an unfavorable change in fair value of interest rate hedging swaps not eligible for hedge accounting (€-33 million) as a result of the rise in interest rates. Half Year 2013 Financial Report 33 I I ACTIVITY REPORT Life & Savings operations – Central & Eastern Europe HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 195 55 5 85 21 (92) (1) - 17 (2) (0) 15 (0) 15 (0) 11 (1) (0) 25 222 78 14 56 18 (68) (1) - 19 (2) (0) 17 2 19 0 - (1) - 18 Gross revenues decreased by €27 million (-12%) to €195 million1. On a comparable basis, gross revenues decreased by €26 million (-12%), mainly driven by the change in accounting (transfer to off-balance sheet) of the “Transformed Funds” in Czech Republic due to regulatory changes effective from January 1st 2013 (€-83 million), partly offset by higher Unit-Linked revenues in the Czech Republic (€+42 million) and from Protection in Poland (€+7 million). APE decreased by €23 million (-29%) to €55 million. On a comparable basis, APE decreased by €22 million (- 29%) driven by Pension Fund activities in quasi run-off following the regulatory changes in Poland and Hungary in the prior years (-45% to €12 million) and Life business (-22% to €43 million) driven by lower Unit- Linked products sales (-56% to €13 million), partly offset by higher Protection sales (+58% to €10 million). Underlying earnings decreased by €2 million (-11%) to €15 million. On a constant exchange rate basis, Underlying earnings decreased by €2 million mainly due to the lower contribution from Pension Fund business in Czech Republic following regulatory changes (€-4 million to €2 million), partly offset by higher contributions from the Polish and the Slovakian operations. Adjusted earnings decreased by €4 million (-20%) to €15 million. On a constant exchange rate basis, Adjusted earnings decreased by €4 million driven by lower underlying earnings and lower realized capital gains (€-2 million). Net income increased by €7 million (+39%) to €25 million. On a constant exchange rate basis, net income increased by €7 million driven by an exceptional result from the change in regulation in the Czech Pension Funds (€11 million), partly offset by lower adjusted earnings. 1 €195 million after intercompany eliminations. 34 Half Year 2013 Financial Report (in Euro million) FY 2012 472 136 28 131 44 (189) (7) - 8 (8) (0) 1 5 5 0 - (12) (1) (8) ACTIVITY REPORT Life & Savings operations – Mediterranean and Latin American Region (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,001 227 131 210 83 (245) (6) - 173 (37) (46) 90 11 100 (1) (2) (1) (1) 96 2,258 190 144 178 73 (235) (7) - 153 (50) (27) 76 3 79 (11) (0) (10) (1) 57 4,836 402 288 372 141 (507) (14) - 280 (53) (65) 162 9 171 (26) (3) (10) (3) 129 Gross revenues increased by €743 million (+33%) or €738 million (+33%) on a comparable basis to €3,001 million1: Mature markets were up €735 million (+36%) mainly driven by higher sales in Unit-Linked savings products (€+720 million), stemming from the success of “Protected Unit” product at AXA MPS; High growth markets increased by €3 million (+2%) mainly driven by higher Individual Protection and Pension new business in Turkey (€+12 million) as well as growth in G/A Savings in Morocco (€+7 million), partly offset by lower retention in Protection in Mexico (€-16 million). APE increased by €38 million (+20%) or €37 million (+19%) on a comparable basis to €227 million: Mature markets were up €34 million (+21%) to €197 million, principally reflecting a better performance on Unit-Linked products (€+34 million), mainly at AXA MPS; High growth markets increased by €+2 million (+9%) to €30 million, mainly driven by Turkey (€+5 million) due to a good performance in Pension business, partly compensated by Mexico (€-3 million) which is actively de-emphasizing Protection with Savings products with low profitability. Investment margin decreased by €14 million (-9%) to €131 million. On a constant exchange rate basis, investment margin decreased by €14 million (-10%) mainly due to AXA MPS (€-10 million) driven by lower average assets as a consequence of a high level of surrenders. Fees & revenues increased by €33 million (+19%) to €210 million. On a constant exchange rate basis, fees & revenues increased by €32 million (+18%) largely driven by AXA MPS (€+39 million) from higher unearned revenues reserves amortization (partly offset in deferred acquisition costs) mainly reflecting higher surrenders combined with strong sales of “Protected Unit” unit-linked product. 1 €2,996 million after intercompany eliminations. Half Year 2013 Financial Report 35 I I ACTIVITY REPORT Net technical margin rose by €10 million (+14%) to €83 million. On a constant exchange rate basis, net technical margin increased by €10 million (+14%) with a strong contribution from mature markets (€+11 million) driven by a higher mortality margin (€+8 million) due to better claims experience in protection business as well as by an improved GMxB margin (€+3 million) notably from higher surrenders. Expenses increased by €11 million (+4%) to €-245 million. On a constant exchange rate basis, expenses increased by €9 million (+4%): Mature markets were up €16 million, mainly driven by AXA MPS, reflecting higher deferred acquisition costs amortization in line with increased surrenders; High growth markets decreased by €7 million primarily due to Mexico (€-9 million) mainly from 2012 non recurring commission adjustments partly offset by higher marketing costs to promote pension business in Turkey. Amortization of VBI decreased by €1 million (-8%) to €-6 million. On a constant exchange rate basis, amortization of VBI decreased by €1 million (-9%). As a result, underlying cost income ratio decreased by 2.1 points to 59.2%. Income tax expenses decreased by €13 million (-25%) to €-37 million. On a constant exchange rate basis, income tax expenses decreased by €13 million (-26%), despite higher pre-tax underlying earnings, due to higher tax benefits from technical reserves evolution at AXA MPS. Underlying earnings increased by €13 million (+18%) to €90 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+17%). Adjusted earnings increased by €22 million (+27%) to €100 million. On a constant exchange rate basis, adjusted earnings increased by €21 million (+27%) driven by higher underlying earnings and higher realized capital gains. Net income increased by €39 million (+70%) to €96 million. On a constant exchange rate basis, net income increased by €39 million (+70%) mainly driven by higher adjusted earnings and a favorable change in the fair value of interest rates hedging derivatives not eligible for hedge accounting, mainly at AXA MPS, as well as the non repeat of 2012 accelerated amortization of a distribution agreement in Greece. 36 Half Year 2013 Financial Report ACTIVITY REPORT Life & Savings operations – Hong Kong (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Hong Kong Dollar 983 215 6 241 21 (132) (7) - 130 2 - 132 6 138 16 (0) - - 154 10.1862 796 180 2 214 28 (107) (5) (4) 128 (9) - 119 11 130 (5) (13) - - 113 10.0651 1,723 408 9 444 42 (229) (13) (1) 251 1 - 252 21 273 (10) (29) - - 235 9.9938 Gross revenues increased by €187 million (+23%) to €983 million1. On a comparable basis, gross revenues increased by €198 million (+25%) due to higher revenues from Unit-Linked products (€+99 million) driven by higher new business sales reflecting a wider broker network and some large contracts in 2013, higher revenues from G/A Protection & Health products (€+73 million) mainly driven by in-force growth, and G/A Savings (€+25 million) with higher sales of retirement products. APE increased by €36 million (+20%) to €215 million. On a comparable basis, APE increased by €38 million (+21%) mainly due to higher sales of Unit-Linked products (€+31 million) reflecting a wider broker network and some large contracts in 2013, while G/A Protection & Health sales were stable with a change in mix towards Pure Protection and Health. Investment margin increased by €4 million to €6 million. On a constant exchange rate basis, investment margin increased by €4 million driven by higher investment income from investing in longer-term fixed income securities. Fees & revenues increased by €27 million (+13%) to €241 million. On a constant exchange rate basis, fees & revenues increased by €30 million (+14%) mainly driven by an increase in loadings on premiums stemming from new business and in-force growth. Net technical margin fell by €7 million (-24%) to €21 million. On a constant exchange rate basis, net technical margin decreased by €6 million (-23%) mainly driven by lower surrender margin following improved retention. 1 €983 million after intercompany eliminations. Half Year 2013 Financial Report 37 I I ACTIVITY REPORT Expenses increased by €24 million (+22%) to €-132 million. On a constant exchange rate basis, expenses increased by €26 million (+24%) mainly due to higher investments in business infrastructure and higher acquisition expenses driven by new business and in-force growth. Amortization of VBI increased by €2 million (+39%) to €-7 million. On a constant exchange rate basis, amortization of VBI increased by €2 million (+41%). As a consequence, the underlying cost income ratio increased by 5.5 points to 51.6%. Income tax expenses decreased from €9 million charge in 1H 2012 to a €2 million benefit in 1H 2013. On a constant exchange rate basis, income tax expenses decreased by €12 million, mainly due to a tax benefit (€10 million) driven by a change in the tax base for a block of insurance business in the context of the merger of two insurance entities. Underlying earnings increased by €14 million (+11%) to €132 million. On a constant exchange rate basis, underlying earnings increased by €15 million (+13%). Adjusted earnings increased by €8 million (+7%) to €138 million. On a constant exchange rate basis, adjusted earnings increased by €10 million (+8%) driven by higher underlying earnings (€+15 million), partly offset by lower net realized capital gains, mainly on equities. Net income increased by €41 million (+37%) to €154 million. On a constant exchange rate basis, net income increased by €43 million (+38%) driven by a favorable change in the fair value of interest rate derivatives (€+23 million), the non-repeat of 2012 losses related to the closure of two distribution networks (€+12 million), and higher adjusted earnings (€+10 million). 38 Half Year 2013 Financial Report ACTIVITY REPORT Life & Savings operations – South-East Asia, India and China (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 133 237 54 0 54 0 (2) - (0) 52 140 190 35 (0) 35 (1) (4) - - 30 295 463 86 (1) 85 (1) (7) - - 77 Note: For consistency, 2013 figures have been compared to the same scope for 2012, i.e. adjusted for (i) Group share change in China from 51% to 27.5% as of July 2012, and (ii) alignment of reporting period with group calendar year in Indonesia, China and Thailand since full year 2012. Gross Revenues1,2 decreased by €6 million (-5%) to €133 million. On a comparable basis, gross revenues increased by €2 million (+1%) mainly driven by higher revenues from G/A Protection & Health mainly in Singapore with the launch of new products, partly offset by the slowdown in Unit-Linked business in both Indonesia and Singapore. APE2 increased by €47 million (+24%) to €237 million. On a comparable basis, APE increased by €52 million (+27%) mainly driven by sales growth in G/A Protection & Health business in particular in China with continued momentum (€+28 million) reflecting ICBC-AXA Life joint venture which commenced in July 2012, and Thailand (€+19 million) driven by sales initiatives through both the agency and bancassurance channels. Underlying earnings2 increased by €19 million (+54%) to €54 million. On a constant exchange rate and scope basis, underlying earnings increased by €14 million (+32%) mainly due to business growth in Indonesia (€+8 million), China (€+1 million) and Philippines (€+1 million). Adjusted earnings2 increased by €19 million (+56%) to €54 million. On a constant exchange rate and scope basis, adjusted earnings increased by €14 million (+33%), driven by underlying earnings growth. Net income2 increased by €22 million (+74%) to €52 million. On a constant exchange rate and scope basis, net income increased by €16 million (+42%), mainly reflecting growth in adjusted earnings. 1 Gross revenues of €133 million is after intercompany eliminations and include Singapore and non-bancassurance subsidiaries in Indonesia. 2 South-East Asia, India & China Life & Savings scope: (i) for gross revenues: Singapore and non-bancassurance subsidiaries in Indonesia, on a 100% share basis; (ii) for APE, NBV, underlying earnings, adjusted earnings and net income: China, India, Indonesia, Thailand, Philippines and Singapore, on a group share basis. Malaysia operations are not consolidated. Half Year 2013 Financial Report 39 I I ACTIVITY REPORT Life & Savings Operations - Other The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2013 HY 2012 Luxembourg 61 41 AXA Life Invest 11 13 Family protect 3 1 Other (0) (0) TOTAL 74 55 Intercompany transactions (10) (12) Contribution to consolidated gross revenues 64 44 Underlying, Adjusted earnings and Net Income HY 2013 HY 2012 Luxembourg 3 3 AXA Life Invest (7) (7) Family Protect (8) (9) Other (1) (1) UNDERLYING EARNINGS (13) (14) Net realized capital gains or losses attributable to shareholders 0 0 ADJUSTED EARNINGS (13) (13) Profit or loss on financial assets (under Fair Value option) & derivatives 0 0 Exceptional operations (including discontinued operations) (1) Goodwill and related intangible impacts Integration and restructuring costs NET INCOME (14) (13) FAMILY PROTECT Underlying earnings as well as adjusted earnings and net income reached €-8 million in 1H 2013, reflecting continued investments and direct marketing expenditure to ensure the progressive ramp-up of the activity. AXA LIFE INVEST Underlying earnings as well as adjusted earnings were stable at €-7 million following lower revenues offset by lower expenses. Net income decreased by €1 million to €-8 million due to exceptional compensation. 40 Half Year 2013 Financial Report (in Euro million) FY 2012 82 27 3 (0) 112 (24) 87 (in Euro million) FY 2012 6 (19) (22) (2) (38) 1 (37) 0 (37) ACTIVITY REPORT Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. (in Euro million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Gross revenues (b) 16,693 16,391 16,391 28,559 28,559 Current accident year loss ratio (net) 71.3% 72.2% 72.2% 72.0% 72.0% All accident year loss ratio (net) 69.5% 70.1% 70.1% 70.8% 70.8% Net technical result before expenses 4,329 4,174 4,172 8,292 8,288 Expense ratio 26.2% 26.3% 26.4% 26.8% 26.9% Net investment result 1,005 1,033 1,033 2,007 2,006 Underlying earnings before tax 1,609 1,533 1,523 2,680 2,657 Income tax expenses / benefits (467) (488) (486) (838) (834) Net income from investments in affiliates and associates 7 16 16 43 43 Minority interests (22) (17) (17) 11 11 Underlying earnings Group share 1,128 1,044 1,036 1,895 1,877 Net capital gains or losses attributable to shareholders net of income tax 102 45 44 171 171 Adjusted earnings Group share 1,229 1,089 1,081 2,066 2,049 Profit or loss on financial assets (under FV option) & derivatives (35) (3) (3) 89 89 Exceptional operations (including discontinued operations) (1) 8 8 8 8 Goodwill and other related intangibles impacts (39) (37) (37) (70) (70) Integration and restructuring costs (24) (41) (41) (119) (119) Net income Group share 1,130 1,017 1,008 1,975 1,957 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Before intercompany eliminations. Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 France 3,188 3,186 5,730 United Kingdom & Ireland 2,109 2,194 4,150 Germany 2,386 2,402 3,824 Switzerland 2,425 2,460 2,744 Belgium 1,118 1,146 2,087 Central & Eastern Europe - Luxembourg (a) 97 99 173 Mediterranean and Latin American Region (b) 3,775 3,555 7,107 Direct (c) 1,152 1,085 2,215 Asia 444 266 529 TOTAL 16,693 16,391 28,559 Intercompany transactions (196) (219) (244) Contribution to consolidated gross revenues 16,497 16,173 28,315 o/w. high growth markets o/w. Direct o/w. mature markets 2,272 1,152 13,073 1,829 1,085 13,259 3,843 2,215 22,257 (a) Central & Eastern Europe includes Ukraine and Reso (Russia). (b) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (in Euro million) Half Year 2013 Financial Report 41 I I ACTIVITY REPORT Combined Ratio HY 2013 HY 2012 published HY 2012 restated (a) Total 95.7% 96.4% 96.5% France 92.9% 94.8% 94.7% United Kingdom & Ireland 98.2% 99.9% 99.9% Germany 97.4% 97.4% 97.4% Switzerland 90.5% 89.8% 90.7% Belgium 89.2% 93.1% 93.1% Central & Eastern Europe - Luxembourg (b) 102.0% 100.2% 100.2% Mediterranean and Latin American Region (c) 98.7% 97.1% 97.1% Direct (d) 99.3% 101.8% 101.8% Asia 93.2% 95.3% 95.3% Mature 95.0% 95.7% 95.8% Direct 99.3% 101.8% 101.8% High growth 97.6% 97.5% 97.5% (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Excluding RESO - RESO combined ratio amounted to 104.9% as of June 30, 2013. (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. Underlying earnings HY 2013 HY 2012 published HY 2012 restated (a) France 294 247 248 United Kingdom & Ireland 114 94 94 Germany 142 143 143 Switzerland 185 198 189 Belgium 143 114 114 Central & Eastern Europe - Luxembourg (b) 5 20 20 Mediterranean and Latin American Region (c) 173 198 198 Direct (d) 41 19 19 Asia 31 11 11 UNDERLYING EARNINGS 1,128 1,044 1,036 o/w. high growth markets 118 109 109 o/w. Direct 41 19 19 o/w. mature markets 969 916 908 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Central & Eastern Europe includes Ukraine and Reso (Russia). (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, and Mexico. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. 42 Half Year 2013 Financial Report FY 2012 published 97.6% 95.1% 100.7% 99.7% 88.7% 93.6% 99.6% 100.5% 100.6% 96.0% 96.3% 100.6% 104.2% FY 2012 published 486 154 251 420 222 52 232 54 23 1,895 77 54 1,763 FY 2012 restated (a) 97.7% 95.1% 100.7% 99.7% 89.6% 93.7% 99.6% 100.5% 100.6% 96.0% 96.4% 100.6% 104.2% (in Euro million) FY 2012 restated (a) 487 154 251 402 221 52 232 55 23 1,877 77 55 1,746 ACTIVITY REPORT Property & Casualty Operations – France (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 3,188 72.0% 69.2% 866 23.7% 261 462 (168) - (0) 294 (0) 293 (2) - (3) - 288 3,186 72.9% 70.6% 825 24.1% 270 418 (170) - (0) 248 16 264 (7) - - - 257 5,730 73.4% 70.9% 1,667 24.2% 513 793 (306) - (0) 487 58 545 39 - - - 584 Gross revenues increased by €+2 million to €3,188 million1. On a comparable basis, excluding the internal transfer to AXA Assistance of some service guarantees, gross revenues increased by 1% (or €+45 million): Personal lines (56% of gross revenues) were up 0.3% to €1,762 million mainly driven by tariff increases in all segments and positive net new contracts in Motor, despite negative net new contracts in Household; Commercial lines (44% of the gross revenues) were up by 3% to €1,382 million mainly driven by tariff increases, partly offset by lower volumes in a context of selective underwriting. Net technical result rose by €41 million (+5%) to €866 million: Current accident year loss ratio decreased by 0.9 point to 72.0%, mainly driven by tariff increases and lower frequency notably in Personal Motor and Household, especially related to climatic events; All accident year loss ratio decreased by 1.4 points to 69.2%, reflecting the improvement of current accident year loss ratio, as well as €14 million higher positive prior year reserve developments, notably in Liability. Expense ratio decreased by 0.4 point to 23.7% mainly driven by a contained cost base as well as a higher non recurring positive impact from tax contributions (€+24 million in 1H 2013 vs. €+16 million in 1H 2012). Enlarged expense ratio was down 0.8 point to 30.2%, driven by an improved expense ratio as well as lower claims handling costs. As a consequence, the combined ratio was down 1.8 points to 92.9%. 1 €3,143 million after intercompany eliminations. Half Year 2013 Financial Report 43 I I ACTIVITY REPORT Net investment result decreased by €9 million (-3%) to €261 million mainly due to lower yields on fixed income assets (€-8 million) as a result of lower reinvestment yields as well as a lower inflation rate. Income tax expenses decreased by €2 million (-1%) to €-168 million reflecting higher pre-tax underlying earnings, partly offset by the non repeat of 1H 2012 negative tax one-off (€+11 million). As a result, underlying earnings increased by €46 million (+18%) to €294 million. Adjusted earnings increased by €29 million (+11%) to €293 million as a consequence of higher underlying earnings and lower impairments (€+29 million) mainly on equities, reflecting the improved market conditions, partly offset by lower realized capital gains (€-27 million) on equities and by a decrease in the impact of equity hedging derivatives (€-19 million). Net income increased by €31 million (+12%) to €288 million in line with the increase in adjusted earnings. 44 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,109 69.1% 68.4% 621 29.8% 106 142 (28) - (0) 114 0 114 4 - (1) - 2,194 71.2% 71.1% 581 28.9% 121 123 (28) - (0) 94 21 116 (17) - (1) (5) 4,150 69.4% 70.5% 1,209 30.2% 233 203 (49) - (0) 154 41 195 (26) - (2) (13) Net income Group share 118 93 154 Average exchange rate : 1.00 € = £ (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 0.8508 0.8226 0.8138 Gross revenues decreased by €85m (-4%) to €2,109 million 1. On a comparable basis, gross revenues increased by €12 million (+1%): Personal lines (48% of gross revenues) were down 8% at €979 million. Motor was down 3% to €265 million due to adverse performance in Ireland as a result of decreases average premium. Non-Motor was down 10% to €714 million. Property was down 22% to €234 million principally due to unfavorable volume negatively impacted by tariff increases and exiting partnerships in the UK. Health was up 4% at €326 million following further growth in both the UK and International businesses. Other Personal lines were down 14% to €153 million following the continued exit from unprofitable schemes. Commercial lines (52% of gross revenues) were up 9% to €1,100 million. Motor was up 7% to €202 million mainly due to renewal tariff increases and higher retention within the UK. Non-Motor was up 9% to €898 million. Property was up 11% to €301 million reflecting improved retention, tariff increases and new e-partner deals. Health was up 7% to €461 million mainly due to continued growth in the UK and International Large Corporate business. Net technical result increased by €40 million (+7%) to €621 million. On a constant exchange rate basis, net technical result increased by €58 million (+10%). Current year loss ratio decreased by 2.1 points to 69.1% mainly driven by a lower Nat Cat charge (- 1.0 point), lower frequency especially in Property and continued price increases across all lines of business. All accident year loss ratio decreased by 2.7 points to 68.4% reflecting 2.1 points improvement of the current year loss ratio and higher positive prior year reserve developments. Expense ratio increased by 1.0 point to 29.8%. The administrative expense ratio was up 0.5 point to 8.6%, largely due to IT investments in Healthcare and the impact of the purchase of “Health on Line” partly offset by expense efficiencies across the UK & Ireland embedded through restructuring programs. The acquisition 1 €2,039 million after intercompany eliminations. Half Year 2013 Financial Report 45 I I ACTIVITY REPORT expense ratio was up 0.5 point to 21.2% mainly driven by 0.4 point increase in non-commission ratio due to the purchase of “Health on Line”, growth in Health International business, partly offset by restructuring programs across the UK and Ireland. Enlarged expense ratio was up 0.5 point to 32.5% as the increase in the expense ratio was partly offset by a 0.4 point improvement in the claims handling costs ratio due to a favorable business mix and lower claims frequency. As a result the combined ratio was down 1.7 points to 98.2%. Net investment result decreased by €15 million (-13%) to €106 million. On a constant exchange rate basis, net investment result decreased by €13 million (-10%) due to lower yields on fixed income assets and lower income from mutual funds. Income tax expenses were in line with the prior year at €-28 million. On a constant exchange rate basis, income tax expenses remained stable (+1%) reflecting higher pre-tax underlying earnings, partly offset by the non-repeat of 1H 2012 one off tax charges (€+5 million). Underlying earnings increased by €19 million (+20%) to €114 million. On a constant exchange rate basis, underlying earnings increased by €22 million (+23%). Adjusted earnings decreased by €2 million (-1%) to €114 million. On a constant exchange rate basis, adjusted earnings increased by €1 million (+1%) reflecting the increase in underlying earnings, and lower impairment charges (€+9 million), partly offset by a reduction in realized capital gains (€-28 million) mainly on fixed income assets. Net income increased by €25 million (+27%) to €118 million. On a constant exchange rate basis, net income increased by €27 million (+29%) due to the increase in adjusted earnings, an improvement in the change in fair value of interest rate derivatives mainly following the increase in interest rates (€+20 million), a reduction in restructuring costs (€+5 million) and a favorable foreign exchange rate impact (€+1 million). 46 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Germany (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 2,386 70.0% 68.6% 592 28.8% 159 207 (65) - (0) 142 38 180 (24) 3 (2) - 158 2,402 70.5% 67.8% 606 29.6% 162 211 (68) - (0) 143 (0) 142 24 - (2) - 164 3,824 71.3% 69.4% 1,163 30.4% 332 341 (91) - 0 251 5 255 53 - (4) (12) 292 Gross revenues decreased by € 16 million (-1%) to €2,386 million1: Personal Lines (57% of gross revenues) were stable at €1,355 million as tariff increases were offset by loss of contracts, mainly in Motor; Commercial Lines (36% of gross revenues) decreased by 1% to €858 million mainly in Commercial Motor and Liability, partly compensated by an increase in Property; Other Lines (6% of gross revenues) decreased by 3% to €150 million mainly driven by lower assumed business in Legal Protection. Net technical result decreased by €14 million to €592 million: Current accident year loss ratio decreased by 0.5 point to 70.0% due to improved attritional claims experience (-5.8 points) resulting from tariff increases and lower frequency, despite the floods in Bavaria and Saxony (€50 million), as well as hailstorm events; All accident year loss ratio increased by 0.8 point to 68.6% mainly due to lower positive prior year reserve developments. Expense ratio decreased by 0.8 point to 28.8% due to both lower general expenses as a result of productivity programs and lower commissions reflecting a favorable change in business mix. Enlarged expense ratio was down 0.6 point to 32.1%. As a result, the combined ratio was stable at 97.4%. Net investment result decreased by €3 million (-2%) to €159 million. Income tax expenses decreased by €3 million (-5%) to €-65 million due to a higher share of tax-free investment income. 1 €2,363 million after intercompany eliminations. Half Year 2013 Financial Report 47 I I ACTIVITY REPORT Underlying earnings remained stable at €142 million. Adjusted earnings increased by €38 million (+27%) to €180 million driven by higher realized capital gains mainly on equities. Net income decreased by €6 million (-4%) to €158 million, as increased adjusted earnings were more than offset by a negative change in the fair value of fixed income funds, mainly attributable to the rise in interest rates. 48 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Switzerland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,425 72.8% 65.8% 461 24.7% 106 234 (48) - (2) 185 13 198 (10) - (13) - 2,460 72.3% 65.6% 472 25.0% 113 241 (50) - (2) 189 1 191 10 - (14) - 2,744 69.3% 63.4% 1,006 26.2% 218 505 (99) - (3) 402 17 419 (13) - (28) - Net income Group share 175 186 378 Average exchange rate : 1.00 € = Swiss Franc (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1.2295 1.2046 1.2069 Gross revenues decreased by €35 million (-1%) to €2,425 million1. On a comparable basis, gross revenues increased by €17 million (+1%): Personal lines (53% of the gross revenues) were up 2% to €1,288 million as a consequence of volume growth in all major business lines; Commercial lines (47% of the gross revenues) were down 1% to €1,144 million mainly resulting from selective underwriting. Net technical result decreased by €12 million (-2%) to €461 million. On a constant exchange rate basis, net technical result decreased by €2 million (0%): Current accident year loss ratio increased by 0.5 point to 72.8% mainly driven by higher natural events charges (+1.5 points) caused by several hail storm events, partly compensated by an improved attritional claims experience, especially in Personal Property; All accident year loss ratio increased by 0.2 point to 65.8% as the slightly higher current accident year loss ratio was partly compensated by more favorable prior year reserve developments. Expense ratio decreased by 0.4 point to 24.7% driven by lower administrative expense ratio following continuing cost management discipline. Enlarged expense ratio was down by 0.7 point to 28.4%. As a result, the combined ratio was down by 0.2 point to 90.5%. 1 €2,418 million after intercompany eliminations. Half Year 2013 Financial Report 49 I I ACTIVITY REPORT Net investment result decreased by €7 million (-6%) to €106 million. On a constant exchange rate basis, net investment result decreased by €5 million (-4%) mainly attributable to a lower reinvestment yield on fixed income assets. Income tax expenses decreased by €2 million (-3%) to €-48 million. On a constant exchange rate basis, income tax expenses decreased by €1 million (-1%) driven by lower pre-tax underlying earnings. Underlying earnings decreased by €5 million (-3%) to €185 million. On a constant exchange rate basis, underlying earnings decreased by €1 million (-1%). Adjusted earnings increased by €7 million (+4%) to €198 million. On a constant exchange rate basis, adjusted earnings increased by €12 million (+6%) mainly driven by higher realized capital gains on fixed income assets. Net income decreased by €11 million (-6%) to €175 million. On a constant exchange rate basis, net income decreased by €8 million (-4%) as the increase in adjusted earnings was more than offset by an unfavorable change in the fair value of fixed income funds, mainly attributable to the rise in interest rates. 50 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Belgium (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,118 65.7% 58.5% 424 30.7% 103 213 (70) - - 143 29 172 (18) - (1) (3) 150 1,146 70.3% 63.6% 381 29.5% 97 169 (55) - (0) 114 (1) 114 (19) - (1) (5) 88 2,087 68.8% 63.4% 768 30.3% 196 329 (107) - (0) 221 11 232 8 - (2) (23) 214 Gross revenues decreased by €28 million (-2%) to €1,118 million1 : Personal lines (48% of the gross revenues) were down 1% to €538 million following negative net new contracts partly offset by tariff increases in both Motor and Household; Commercial lines (50% of the gross revenues) were down 4% to €565 million due to decreases in Motor (€-9 million) mainly following pruning actions, Workers’ Compensation (€-7 million) due to the economic environment, Health (€-6 million) due to portfolio losses and Marine (€-6 million) due to a transfer of a large contract to AXA Corporate Solutions. Net technical result increased by €43 million (+11%) to €424 million: Current accident year loss ratio decreased by 4.6 points to 65.7% mainly driven by an improved attritional claims experience (-3.4 points) resulting from tariff increases and lower frequency, as well as lower large claims (-1.7 points); All accident year loss ratio decreased by 5.1 points to 58.5% due to an improved current accident year loss ratio and higher positive prior year reserve developments, mainly on annuities. Expense ratio rose by 1.2 points to 30.7% due to lower revenues, higher non commission expenses and an increase in commission rates driven by a change in business mix. Enlarged expense ratio was up 1.6 points to 38.4%. As a result, the combined ratio was down 3.9 points to 89.2%. Net investment result increased by €6 million (+6%) to €103 million due to higher dividends following higher asset allocation in equities partially offset by lower reinvestment yields in fixed income assets. Income tax expenses increased by €15 million (+27%) to €-70 million due to higher pre-tax underlying earnings. 1 €1,098 million after intercompany eliminations. Half Year 2013 Financial Report 51 I I ACTIVITY REPORT Underlying earnings increased by €29 million (+26%) to €143 million. Adjusted earnings increased by €59 million (+52%) to €172 million mainly driven by higher underlying earnings and higher realized capital gains on fixed income assets. Net income increased by €63 million (+71%) to €150 million mainly driven by higher adjusted earnings and a favorable change in the fair value of inflation derivatives, partly offset by an unfavorable change in the fair value of mutual funds, mainly attributable to higher interest rates and widening credit spreads. 52 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Central & Eastern Europe and Luxembourg Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 Luxembourg Ukraine Reso (Russia) TOTAL Intercompany transactions Contribution to consolidated gross revenues 63 34 - 97 - 97 63 35 - 99 - 99 99 74 - 173 - 173 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 FY 2012 Luxembourg Ukraine Reso (Russia) (a) 2 1 1 3 1 16 8 1 43 UNDERLYING EARNINGS 5 20 52 Net realized capital gains or losses attributable to shareholders 8 (4) (4) ADJUSTED EARNINGS 12 16 49 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 1 - (1) - 5 - (2) - 10 - (2) - NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. 13 19 57 UKRAINE Gross revenues decreased by €1 million (-4%) to €34 million. On a comparable basis, gross revenues decreased by €1 million (-2%) driven by lower premiums in bancassurance channel, partly offset by positive developments in the proprietary network. Underlying earnings, adjusted earnings and net income were stable at €1 million on a constant exchange rate basis. RESO (RUSSIA) Underlying earnings decreased by €15 million to €1 million on a constant exchange rate basis, mainly driven by higher one-off expenses (€-13 million) and a deterioration in claims experience. As a result, the combined ratio was up 7.9 points to 104.9%. Adjusted earnings decreased by €3 million to €9 million on a constant exchange rate basis, driven by lower underlying earnings, partly offset by higher realized capital gains (€+9 million) and lower impairments (€+6 million). Half Year 2013 Financial Report 53 I I ACTIVITY REPORT Net income decreased by €6 million to €9 million on a constant exchange rate basis, mainly due to lower adjusted earnings. 54 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Mediterranean and Latin American Region (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,775 72.1% 73.6% 950 25.1% 202 250 (63) 1 (15) 173 15 188 13 (4) (10) (10) 176 3,555 72.3% 71.6% 980 25.5% 206 305 (96) - (11) 198 13 210 4 8 (15) (16) 192 7,107 73.0% 74.8% 1,775 25.7% 384 348 (138) 0 22 232 40 272 19 8 (24) (42) 233 Gross revenues increased by €221 million (+6%) to €3,775 million1. On a comparable basis, gross revenues increased by €204 million (+6%) driven by the acceleration of high growth markets (+16% or €+252 million), partly offset by mature markets (-2% or €-48 million) principally in Spain, continuing to suffer from a difficult economic environment. Personal lines (57% of the gross revenues) were up 3% to €2,152 million driven by Motor lines (+4% or €+58 million) reflecting growth in Turkey (€+81 million) from both tariff increases and positive volume effect, partly offset by a decrease in Spain (€-25 million) as positive net new contracts were more than offset by pricing and mix effects; Commercial lines (42% of the gross revenues) were up 10% to €1,613 million driven by Non-Motor lines (+11% or €+107 million) in high growth markets (€+108 million) with positive volume effect and tariff increases in Health in both the Gulf region (€+49 million) and Mexico (€+14 million) and new business in property in both Turkey (€+23 million) and Mexico (€+16 million). Motor lines were up 9% (or €+43 million) in Turkey (€+46 million) mainly from tariff increases and in the Gulf region (€+25 million) from a new large account, partly offset by high level of cancellations in both Mexico (€-26 million) and Spain (€-5 million); Other lines (1% of the gross revenues) were up 4% to €33 million. Net technical result decreased by €30 million (-3%) to €950 million. On a constant exchange rate basis, net technical result decreased by €36 million (-4%) due to Spain (€-105 million) and Morocco (€-22 million), partly offset by good results in Turkey (€+49 million) and Italy (€+47 million). Current accident year loss ratio decreased by 0.2 point to 72.1% including a 0.4 point Nat Cat charge. Mature markets increased by 0.5 point while high growth markets decreased by 1.3 points. Excluding 1 €3,748 million after intercompany eliminations. Half Year 2013 Financial Report 55 I I ACTIVITY REPORT the Nat Cat charge, improvement in high growth markets was mainly driven by tariff increases in Motor and Commercial Property in Turkey and in commercial health in Mexico. Deterioration in mature markets was mainly driven by an increase in average claim Motor costs in Spain, partly offset by Italy benefitting from lower frequency in personal Motor and Personal Property. All accident year loss ratio increased by 2.1 points to 73.6% with less favorable prior year reserve developments (€-79 million), mainly in Spain (€-52 million) due to an increase of average claim costs in both Motor and Household as well as in high growth markets (€-47 million), partly offset by more favorable prior year reserve developments in Motor in Italy (€+23 million). Expense ratio decreased by 0.5 point to 25.1% mainly driven by improved administrative expense ratio in high growth markets (-1.1 points) thanks to positive volume effect. Mature markets improved by 0.1 point reflecting benefits from productivity plans, partly offset by a negative volume effect. Enlarged expense ratio improved by 0.6 point to 28.0%. As a result, the combined ratio was up 1.5 points to 98.7%. Net investment result decreased by €4 million (-2%) to €202 million. On a constant exchange rate basis, net investment result decreased by €4 million (-2%) mainly driven by a lower asset base in mature markets. Income tax expenses decreased by €33 million (-34%) to €-63 million. On a constant exchange rate basis, income tax expenses decreased by €33 million (-35%) due to lower pre-tax underlying earnings and a decrease in the effective tax rate reflecting positive tax one-offs (€+14 million). Underlying earnings decreased 25 million (-12%) to €173 million. On a constant exchange rate basis, underlying earnings decreased by €25 million (-13%). Adjusted earnings decreased by €23 million (-11%) to €188 million. On a constant exchange rate basis, adjusted earnings decreased by €23 million (-11%) mainly driven by lower underlying earnings. Net income decreased by €16 million (-8%) to €176 million. On a constant exchange rate basis, net income decreased by €17 million (-9%) mainly reflecting lower adjusted earnings combined with lower restructuring costs in mature markets. 56 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Direct business (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,152 77.4% 76.8% 252 22.5% 51 58 (17) - (0) 41 (1) 41 1 - (1) (1) 39 1,085 78.3% 79.9% 216 21.9% 50 31 (12) - (0) 19 (2) 17 (1) - (2) - 14 2,215 78.9% 79.0% 459 21.6% 98 85 (30) - (0) 55 0 55 (1) - (4) (4) 46 Direct business includes operations in France (25% of total Direct gross revenues), the UK (20%), South Korea (19%), Japan (15%), Spain (8%), Italy (6%), Belgium (4%), Poland (3%) and Portugal (1%). Gross revenues increased by €67 million (+6%) to €1,152 million1. On a comparable basis, gross revenues increased by €72 million (+7%): Personal Motor (87% of gross revenues) was up €58 million (+6%) to €1,002 million mainly driven by higher new business and resilient retention in all markets but Spain (-11% or €-11 million), notably in France (+15% or €+27 million), Italy (+31% or €+15 million), Japan (+7% or €+13 million) and in the UK (+5% or €+10 million); Personal Non-Motor (13% of gross revenues) was up €14 million (+10%) to €148 million mainly supported by both higher volume and tariff increases in France and growth in South Korea. Net technical result increased by €36 million (+17%) to €252 million. On a constant exchange rate basis net technical result increased by €47 million (+22%): Current accident year loss ratio decreased by 1.1 points to 77.4% as a result of continued underwriting improvement, lower frequency in Motor together with a lower Nat Cat charge (-0.3 point) mainly driven by favorable weather conditions in the UK; All accident year loss ratio decreased by 3.2 points to 76.8% as a result of the decrease in current accident year loss ratio and favorable prior year reserve developments. Expense ratio increased by 0.5 point to 22.5%. Acquisition ratio increased by 0.2 point reflecting a lower average premium in the UK, and lower volumes in Spain. Administrative ratio increased by 0.3 point mainly due to the investment in South Korea to integrate the ERGO Datum Direct portfolio. Enlarged expense ratio was up by 0.3 point to 28.0%. 1 €1,152 million after intercompany eliminations. Half Year 2013 Financial Report 57 I I ACTIVITY REPORT As a result, the combined ratio was down by 2.5 points to 99.3%. Net investment result increased by €1 million (+2%) to €51 million. On a constant exchange rate basis, net investment result increased by €2 million (+4%) due to a higher asset base. Income tax expenses increased by €6 million to €-17 million. On a constant exchange rate basis, income tax expenses increased by €6 million reflecting higher pre-tax underlying earnings and an unfavorable country mix. Underlying earnings increased by €22 million to €41 million. On a constant exchange rate basis, underlying earnings increased by €24 million. Adjusted earnings increased by €24 million to €41 million. On a constant exchange rate basis, adjusted earnings increased by €25 million due to higher underlying earnings. Net income increased by €25 million to €39 million. On a constant exchange rate basis, net income increased by €26 million due to higher adjusted earnings. 58 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations - Asia (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 444 68.3% 65.7% 135 27.5% 9 36 (6) 5 (3) 31 (1) 30 0 - (6) (10) 14 266 68.3% 66.7% 78 28.6% 6 17 (3) - (3) 11 0 11 (0) - - (14) (4) 529 69.0% 67.6% 171 28.4% 14 36 (6) - (6) 23 3 27 (0) - (3) (25) (1) Note: Asia Property & Casualty scope (i) for gross revenues and combined ratio: Hong Kong, Malaysia and Singapore, on a 100% share basis; (ii) for underlying earnings, adjusted earnings and net income: India, Hong Kong, Malaysia, Singapore and Thailand, on a group share basis. China and Indonesia operations are not consolidated. Gross revenues increased by €178 million (+67%) to €444 million1. On a constant exchange rate and scope basis2 gross revenues increased by €41 million (+10%): Personal lines (46% of the gross revenues) were up €14 million (+7%) driven by Non Motor (€+10 million) with growth of Health business in Hong Kong notably through the HSBC bancassurance channel and by Motor (€+5 million) as a result of positive net new contracts mainly reflecting the increase in private car sales in Malaysia; Commercial lines (54% of the gross revenues) were up €28 million (+13%) mainly driven by (i) Health (€+16 million) from a large new client account and price increases in Hong Kong as well as volume growth in Singapore, (ii) Workers Compensation (€+4 million) due to price increases in Hong Kong and volume increase in Singapore, and (iii) Property (€+3 million) mainly driven by SME property business in Malaysia. Net technical result increased by €56 million (+72%) to €135 million. On a constant exchange rate and scope basis2, net technical result increased by €8 million (+6%). Current accident year loss ratio remained stable at 68.3%. On a constant scope basis, current accident year loss ratio increased by 0.6 point mainly due to (i) an increase in Personal Motor (+1.4 points to 72.4%) as Singapore suffered from a negative price effect and Malaysia from higher severity, while (ii) Commercial Lines loss ratio remained stable at 72.1% as Workers Compensation 1 €438 million after intercompany eliminations for Hong Kong, Singapore and Malaysia. 2 Restated for HSBC acquired portfolio in Hong Kong and Singapore starting November 2012. Half Year 2013 Financial Report 59 I I ACTIVITY REPORT deteriorated (+2.3 points to 77.5%) notably in Hong Kong, suffering from both higher frequency and severity and was offset by an improvement in Property (-1.4 points to 64.1%) driven by favorable claims experience in Malaysia. All accident year loss ratio decreased by 1.1 points to 65.7%. On a constant scope basis, all accident year loss ratio increased by 0.1 point due to the deterioration of current year loss ratio by +0.6 point, partly offset by higher positive favorable prior year reserve developments of -0.5 point mainly in Singapore. Expense ratio decreased by1.1 points to 27.5%. On a constant scope basis, the expense ratio decreased by 1.4 points mainly driven by lower acquisition expenses (-1.3 points) reflecting the lower commission paid to HSBC bank and a shift of business towards products with a lower commission rate. Enlarged expense ratio decreased by 1.3 points to 30.4% on a constant scope basis. As a result, the combined ratio was down 2.1 points to 93.2%. On a constant scope basis, combined ratio was down 1.2 points. Net investment result increased by €3 million to €9 million. On a constant exchange rate and scope basis, net investment result decreased by €1 million mainly from lower investment income in Hong Kong. Income tax expenses increased by €3 million to €-6 million. On a constant exchange rate and scope basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €20 million to €31 million1. On a constant exchange rate and scope basis, underlying earnings increased by €11 million. Adjusted earnings increased by €19 million to €30 million1. On a constant exchange rate and scope basis, adjusted earnings increased by €10 million driven by higher underlying earnings. Net income increased by €18 million to €14 million1. On a constant exchange rate basis, net income increased by €9 million driven by the increase in adjusted earnings and lower integration costs, partly offset by an amortization of the distribution agreement from the HSBC portfolio acquisition. 1 Thailand (Group share: 99.3%) and India (Group share : 26%) were consolidated for the first time in 2013. 60 Half Year 2013 Financial Report ACTIVITY REPORT International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AXA Corporate Solutions Assurance 1,341 1,339 2,072 AXA Global Life and AXA Global P&C 57 53 60 AXA Assistance 555 474 984 Other (a) 28 38 31 TOTAL 1,980 1,904 3,148 Intercompany transactions (71) (79) (161) Contribution to consolidated gross revenues 1,909 1,825 2,987 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA Corporate Solutions Assurance 72 81 145 AXA Global Life and AXA Global P&C 8 11 22 AXA Assistance 9 11 20 Other (b) 14 15 (20) UNDERLYING EARNINGS 103 118 167 Net realized capital gains or losses attributable to shareholders 16 5 (7) ADJUSTED EARNINGS 119 122 160 Profit or loss on financial assets (under Fair Value option) & derivatives (11) 15 23 Exceptional operations (including discontinued operations) (24) (1) Goodwill and related intangibles impacts Integration and restructuring costs (1) (2) (4) NET INCOME 83 135 178 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Half Year 2013 Financial Report 61 I I ACTIVITY REPORT AXA Corporate Solutions Assurance (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,341 82.4% 81.8% 210 15.3% 90 124 (50) - (1) 72 6 78 (9) - - - 69 1,339 82.3% 82.4% 200 15.1% 101 129 (47) - (1) 81 2 83 14 - - - 97 2,072 83.6% 82.2% 363 15.6% 195 240 (93) - (2) 145 (3) 142 24 - - - 166 Gross revenues increased by €1 million to €1,341 million 1 . On a comparable basis, gross revenues increased by €15 million (+1%) notably in Motor (+12%), Marine (+6%) and Property (+4%), driven by portfolio developments and tariff increases. This growth was partly offset by a decrease in Aviation (-21%) mainly due to tariff decrease following the favorable claims developments in recent years and in Construction (-19%), mainly due to the non-renewal of a large captive contract. Net technical result increased by €10 million (+5%) to €210 million. On a constant exchange rate basis, net technical result increased by €11 million (+5%). Current accident year loss ratio increased by 0.1 point to 82.4% driven by an increase in the frequency of large losses in Construction, partly offset by lower large claims in Property; All accident year loss ratio improved by 0.6 point to 81.8% driven by higher positive prior year reserve developments in Marine and Aviation, partly offset by negative developments, mainly in Liability. Expense ratio increased by 0.2 point to 15.3%. The acquisition expense ratio was up 0.6 point reflecting a shift in the portfolio from captive business whilst the administrative expense ratio was down 0.4 point reflecting efficiency programs, notably on IT. Enlarged expense ratio increased by 1.2 points to 19.5%. As a result, the combined ratio improved by 0.4 point to 97.1%. On both current and constant exchange rate basis, net investment result decreased by €10 million (-10%) to €90 million mainly due to lower income from fixed income assets and mutual funds. 1 €1,337 million after intercompany eliminations. 62 Half Year 2013 Financial Report ACTIVITY REPORT Income tax expenses increased by €3 million (+6%) to €-50 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+7%) mainly due to higher taxes on prior year reserve developments and an unfavorable country mix. As a result, underlying earnings decreased by €8 million (-10%) to €72 million. Adjusted earnings decreased by €5 million (-6%) to €78 million. On a constant exchange rate basis, adjusted earnings decreased by €4 million (-5%) due to lower underlying earnings, partly offset by higher realized capital gains mainly on real estate assets. Net income decreased by €27 million (-28%) to €69 million, on both reported and constant exchange rate basis, due to an unfavorable change in the fair value of mutual funds mainly due to higher interest rates and credit spread widening, as well as a negative foreign exchange rate impact. Half Year 2013 Financial Report 63 I I ACTIVITY REPORT AXA Global Life and AXA Global P&C1 Underlying earnings decreased by €3 million to €8 million as a result of lower technical results in AXA Motor cover as well as a lower result in AXA Global Life and higher expenses. Adjusted earnings decreased by €3 million to €8 million as a result of lower underlying earnings. Net income decreased by €6 million to €7 million mainly due to lower adjusted earnings and a less favorable change in the fair value of financial assets and derivatives (€-2 million). AXA Assistance Gross revenues increased by €81 million (+17%) to €555 million 2 . On a comparable basis, primarily excluding the internal transfer from AXA France of some service guarantees, gross revenues increased by €32 million (+7%) to € 514 million mainly driven by strong developments in Travel and Motor activities, notably reflecting higher revenues from some large contracts in Spain and the US, combined with growth of the in- force base in France, despite lower revenues in the UK. Underlying earnings decreased by €2 million (-17%) to €9 million mainly driven by the non-repeat of a favorable impact in unexpired risk reserve release (€-4 million), partly offset by positive developments in France, new business growth in Spain and the US, and improvements on Auto and Travel businesses in Brazil, mitigated by higher development costs in high growth markets. Adjusted earnings decreased by €1 million to €9 million mainly driven by lower underlying earnings. Net income decreased by €23 million to €-17 million primarily reflecting a €24 million exceptional capital loss following the anticipated disposal of a French based company. Other international activities Underlying earnings decreased by €2 million to €14 million. On a constant exchange rate basis, underlying earnings decreased by €1 million. Adjusted earnings increased by €6 million to €24 million. On a constant exchange rate basis, adjusted earnings increased by €6 million mainly as a result of higher net realized capital gains due to Real Estate restructuring and on fixed maturities. Net income increased by €4 million to €24 million. On a constant exchange rate basis, net income increased by €5 million driven by higher adjusted earnings. 1 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. 2 €487 million after intercompany eliminations. 64 Half Year 2013 Financial Report ACTIVITY REPORT Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AllianceBernstein 1,087 1,004 2,097 AXA Investment Managers 828 730 1,577 TOTAL 1,915 1,734 3,674 Intercompany transactions (174) (159) (332) Contribution to consolidated gross revenues 1,741 1,575 3,343 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AllianceBernstein 76 74 159 AXA Investment Managers 118 85 220 UNDERLYING EARNINGS 194 159 379 Net realized capital gains or losses attributable to shareholders (1) (1) (4) ADJUSTED EARNINGS 194 159 375 Profit or loss on financial assets (under Fair Value option) & derivatives 8 3 13 Exceptional operations (including discontinued operations) 0 (0) 0 Goodwill and related intangibles impacts Integration and restructuring costs (6) (10) (76) NET INCOME 196 152 311 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Half Year 2013 Financial Report 65 I I ACTIVITY REPORT AllianceBernstein (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues 1,087 1,004 2,097 Net investment result (1) 0 2 Total revenues 1,086 1,004 2,100 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ (880) 205 (58) (71) 76 0 76 2 0 0 (2) 77 1.3129 (826) 178 (40) (64) 74 0 74 2 0 0 (9) 67 1.297 (1,737) 363 (76) (128) 159 0 159 4 0 0 (74) 88 1.288 Assets under Management (\"AUM\") increased by €5 billion from year-end 2012 to €354 billion at June 30, 2013 as a result of €5 billion favorable foreign exchange rate impact and net inflows of €2 billion (€6 billion net inflows from Institutional clients partly offset by €-2 billion net outflows from Private Clients and €-2 billion net outflows from Retail clients), partly offset by €-2 billion market depreciation. Gross revenues increased by €83 million (+8%) to €1,087 million1. On a comparable basis, gross revenues increased by €95 million (+10%) primarily due to higher investment management fees resulting from a 6% increase in average AUM, higher Institutional Research Services fees up 7%, and distribution fees up 30% due to higher Retail average AUM. Net investment result decreased by €1 million to €-1 million. On a constant exchange rate basis, net investment result decreased by €1 million. General expenses increased by €54 million (+7%) to €-880 million. On a constant exchange rate basis, general expenses increased by €65 million (+8%) due to higher compensation expenses resulting from increased revenues partly offset by lower general administrative expenses, primarily office and related expenses as well as professional fees. As a result, the underlying cost income ratio improved by 2.1 points to 77.3%. Income tax expenses increased by €18 million (+46%) to €-58 million. On a constant exchange rate basis, income tax expenses increased by €19 million (+48%) primarily due to higher pre-tax underlying earnings and the non repeat of 2012 positive tax one-offs (€-8 million). Underlying and adjusted earnings increased by €2 million (+3%) to €76 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €3 million (+5%). 1 €1,047 million after intercompany eliminations. 66 Half Year 2013 Financial Report ACTIVITY REPORT AXA ownership of AllianceBernstein at June 30, 2013 was 64.2%, down 1.3% from December 31, 2012 due to the granting of units in 2013 for 2012 deferred compensation, partly offset by repurchases of AllianceBernstein units during 2013 to fund deferred compensation plans. Net income increased by €11 million (+15%) to €77 million. On a constant exchange rate basis, net income increased by €11 million (+17%) due to the increase in adjusted earnings and lower restructuring costs. Half Year 2013 Financial Report 67 I I ACTIVITY REPORT AXA Investment Managers (“AXA IM”) HY 2013 HY 2012 restated (a) (in Euro million) FY 2012 restated (a) Gross revenues 828 730 1,577 Net investment result (9) (11) (17) Total revenues 819 718 1,560 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a)Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (631) 188 (65) (6) 118 (1) 117 6 0 0 (4) 120 (579) 139 (50) (4) 85 (1) 85 1 (0) 0 (0) 85 (1,219) 341 (111) (11) 220 (4) 216 9 0 0 (2) 223 Assets under Management (\"AUM\") increased by €15 billion from year-end 2012 to €568 billion at the end of June 2013 as a result of €14 billion favorable market impact and €10 billion net inflows, partly offset by €-8 billion unfavorable foreign exchange impact, mainly due to GBP weakening vs. the Euro, and €-2 billion negative scope impact, mainly related to the partial sale of the UK Life & Savings operations. Net inflows amounted to €10 billion over the first half of 2013, mainly driven by inflows on (i) Retail (€+4 billion) and (ii) Institutional (€+4 billion), notably from AXA Fixed Income, Asian Joint Ventures, AXA Framlington, AXA Private Equity and AXA Real Estate, as well as on (iii) Main Fund (€+3 billion). Gross revenues increased by €98 million (+13%) to €828 million1. On a constant exchange rate basis and excluding distribution fees (retroceded to distributors), net revenues increased by €96 million (+18%) to €631 million, mainly driven by (i) higher management fees (€+62 million or +13%), driven by +7% higher average AUM and +1.0 higher management fee bps, owing to an improved client and product mix, (ii) higher AXA Real Estate transaction fees (€+18 million) and (iii) higher performance fees (€+13 million) mainly from AXA Structured Finance. Net investment result improved by €2 million (+20%) to €-9 million. On a constant exchange rate basis, net investment result increased by €3 million (+23%) mainly driven by lower debt financing expense. General expenses increased by €51 million (+9%) to €-631 million. On a constant exchange rate basis and excluding distribution fees, general expenses increased by €48 million (+12%) to €-434 million mainly due to variable compensation increases, as well as higher expenses at AXA Private Equity. As a result, the underlying cost income ratio improved by 3.9 points to 69.8%. Income tax expenses increased by €15 million (+30%) to €-65 million. On a constant exchange rate basis, income tax expenses increased by €16 million (+32%) due to higher pre-tax earnings. Underlying earnings increased by €32 million (+38%) to €118 million. On a constant exchange rate basis, underlying earnings increased by €34 million (+40%). 1 €694 million after intercompany eliminations. 68 Half Year 2013 Financial Report ACTIVITY REPORT Adjusted earnings increased by €32 million (+38%) to €117 million. On a constant exchange rate basis, adjusted earnings increased by €34 million (+40%), in line with the improvement in underlying earnings. Net income increased by €34 million (+40%) to €120 million. On a constant exchange rate basis, net income increased by €36 million (+42%) in line with the improvement in adjusted earnings. Half Year 2013 Financial Report 69 I I ACTIVITY REPORT Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking activities for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AXA Banks (a) 287 233 468 Belgium (b) 189 167 312 France 66 36 94 Hungary 19 15 35 Germany 11 12 23 Other (c) 3 2 4 Other 2 2 6 TOTAL 290 236 474 Intercompany transactions 4 (9) (8) Contribution to consolidated gross revenues 293 226 466 (a) Of which AXA Bank Europe and its branches: €211 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA Banks (b) 62 7 8 Belgium (c) 63 27 31 France 0 (16) (15) Hungary Germany 2 2 3 Other (d) (3) (6) (12) Other (2) (2) (3) UNDERLYING EARNINGS 61 5 4 Net realized capital gains or losses attributable to shareholders 0 (11) (5) ADJUSTED EARNINGS 61 (6) (1) Profit or loss on financial assets (under Fair Value option) & derivatives (13) 10 (3) Exceptional operations (including discontinued operations) (27) (11) (30) Goodwill and related intangibles impacts Integration and restructuring costs (1) (2) (4) NET INCOME 20 (9) (38) (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) of which AXA Bank Europe and its branches: €60 million. (c) Includes commercial activities in Belgium for €24 million and shared services of AXA Bank Europe (treasury and support functions) for €38 million. (d) Includes Slovakia and Czech Republic. 70 Half Year 2013 Financial Report ACTIVITY REPORT Belgium Net banking revenues increased by €22 million (+13%) to €189 million. Operating net banking revenues1 increased by €40 million (+27%) to €211 million mainly due to higher interest margin (€+39 million). Underlying earnings increased by €36 million (+132%) to €63 million due to higher operating net banking revenues (€+40 million), lower distribution commissions (€+4 million) and tight expense management (€+2 million), partly offset by an increase in provision for loan losses (€-7 million) due to growing loan portfolio and deterioration of the economic environment. Adjusted earnings increased by €48 million to €63 million mainly due to the increase in underlying earnings and the absence of impairments on fixed income assets (€+12 million). Net income increased by €12 million (+33%) to €47 million. Positive evolution of adjusted earnings (€+48 million) and the change in fair value of interest rate derivatives (€+14 million), was partly offset by a negative change in fair value of own debt due to decreasing liquidity spread (€-24 million), lower foreign exchange result (€-17 million) and the non repeat of the deconsolidation of Switzerland (€8 million reflecting the transfer of the client portfolio to Bank zweiplus in 2012). France Net banking revenues increased by €+29 million (+81%) to €66 million. Operating net banking revenues1 increased by €+21 million (+51%) mainly due to lower interests paid to customers on savings accounts following the non repeat of the promotional campaign during the first half of 2012, as well as higher interest income on retail loans (primarily mortgages) as a consequence of increasing new credit production. Underlying earnings and adjusted earnings increased by €+16 million to €+0 million, following the rise in operating net banking revenues, in a context of lower cost of risk and administrative expenses. Net income increased by €21 million to €+2 million as a result of the increase in underlying earnings and the favorable impact from interest-rate hedging instruments. Hungary Net income increased by €2 million to €-17 million due to an increased commercial margin mainly following the repricing of the mortgage book (€+5 million), decreased administrative expenses resulting from implemented cost-cutting program (€+2 million), higher fee income (€+1 million), compensated by an increased provision for loan losses (€-4 million) due to the deteriorating outstanding credit portfolio and the depreciation of Hungarian currency. 1 Before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2013 Financial Report 71 I I ACTIVITY REPORT Germany Net banking revenues decreased by €2 million (-14%) to €11 million1 mainly due to reduced commissions and less interest received from loan business, partly compensated by lower interest paid. Underlying earnings increased by €1 million (+44%) to €2 million resulting from lower administrative expenses and credit loss allowances, partly offset by lower revenues. Adjusted earnings and net income remained stable at €2 million. Czech Republic and Slovakia On May 21, 2013, AXA signed a partnership agreement with UniCredit Bank (UCB) in Czech Republic and Slovakia. Based on this partnership, AXA’s 120,000 banking clients in Czech Republic and Slovakia were invited to open an account with UCB, while UCB will distribute AXA’s insurance products through its network in both countries. As a result, AXA will cease banking operations in these two countries in the course of the second half of 2013. Net income decreased by €6 million to €-12 million mostly driven by one-off expenses related to the closure of banking activities (€9 million). 1 €15 million after intercompany eliminations. 72 Half Year 2013 Financial Report ACTIVITY REPORT Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA (283) (279) (591) Other French holding companies (28) (33) (39) Foreign holding companies (130) (140) (245) Other 1 1 1 UNDERLYING EARNINGS (441) (451) (875) Net realized capital gains or losses attributable to shareholders (28) (60) (72) ADJUSTED EARNINGS (469) (511) (947) Profit or loss on financial assets (under Fair Value option) & derivatives 23 (34) (228) Exceptional operations (including discontinued operations) (10) 21 (17) Goodwill and related intangibles impacts 0 0 0 Integration and restructuring costs (7) (0) (1) NET INCOME (464) (523) (1,192) (a) Restated means comparative information related to previous periods was retrospectively restated for the IAS19 amendment. AXA1 Underlying earnings decreased by €5 million to €-283 million mainly due to the new French tax of 3% on dividend paid by the Company for €-46 million partly offset by €+17 million increase in dividends from non- consolidated subsidiaries and €+19 million gain related to the hedging program on Performance Units at Group holding level. Adjusted earnings increased by €51 million to €-288 million mainly driven by the end of the premium amortization on equity call options in 2012 (€-48 million in 1H 2012). Net income increased by €81 million to €-224 million. Excluding profits linked to the sale of the Group’s Canadian operations in respect of the deferred contingent consideration (€+8 million in 1H 2013 vs. €+68 million in 1H 2012), Net income increased by €141 million mainly driven by: €+51 million from adjusted earnings evolution; €+128 million from a change in mark to market of interest rate and foreign exchange derivatives which are not eligible to hedge accounting; and €-66 million from the non repeat of 1H 2012 time value of equity options. 1 All the figures are after tax. Half Year 2013 Financial Report 73 I I ACTIVITY REPORT Other French holding companies AXA FRANCE ASSURANCE Underlying earnings, adjusted earnings and net income increased by €1 million to €-23 million mainly due to lower tax expenses (€+2 million) resulting from lower inter-company dividends received. OTHER FRENCH HOLDINGS Underlying earnings increased by €4 million to €-5 million mainly due to lower financial expenses. Adjusted earnings increased by €4 million to €-5 million driven by underlying earnings evolution. Net income decreased by €11 million to €-26 million linked to the restructuring of the participation in Bharti AXA General Insurance (€-21 million vs. €-4 million), partly offset by adjusted earnings evolution. Foreign Holding Companies AXA FINANCIAL INC. Underlying earnings decreased by €1 million (-1%) to €-78 million. On a constant exchange rate basis, underlying earnings decreased by €2 million (-3%) mainly reflecting the impact of higher share-based compensation expenses. Adjusted earnings decreased by €1 million (-1%) to €-78 million. On a constant exchange rate basis, adjusted earnings decreased by €2 million (-3%), in line with underlying earnings evolution. Net income increased by €1 million (+1%) to €-100 million. On a constant exchange rate basis, net income remained stable reflecting adjusted earnings evolution offset by a more favorable change in the fair value of cross currency swaps. AXA UK HOLDINGS Underlying earnings increased by €1 million (+12%) to €-11 million. On a constant exchange rate basis, underlying earnings increased by €1 million. Adjusted earnings increased by €1 million (+11%) to €-11 million. On a constant exchange rate basis, adjusted earnings increased by €1 million in line with the improvement in underlying earnings. Net Income decreased by €18 million to €-20 million. On a constant exchange rate basis, net income decreased by €19 million as the improvement in adjusted earnings (€+1 million) was more than offset by the adverse movements in the fair value attributable to foreign exchange (€-14 million) due to adverse changes in exchange rates as well as higher restructuring costs (€-6 million) relating to central service teams. GERMAN HOLDING COMPANIES Underlying earnings increased by €11 million (+59%) to €-8 million mainly due to lower pension costs and general expenses. Adjusted earnings decreased by €8 million (-32%) to €-32 million mainly driven by higher impairment charges, notably on real estate funds, partly compensated by higher underlying earnings. 74 Half Year 2013 Financial Report ACTIVITY REPORT Net income decreased by €9 million (-31%) to €-39 million mainly due to lower adjusted earnings and an unfavorable change in the fair value of fixed income funds and derivatives. BELGIAN HOLDING COMPANY Underlying earnings were stable at €-6 million. Adjusted earnings increased by €1 million to €-6 million, mainly due to higher realized capital gains. Net income was stable at €-5 million mainly driven by adjusted earnings evolution. MEDITERRANEAN AND LATIN AMERICAN REGION HOLDINGS Underlying and adjusted earnings increased by €5 million (+16%) to €-25 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €5 million (+16%) reflecting lower financial charges. Net income increased by €10 million (+31%) to €-22 million. On a constant exchange rate basis, net income increased by €10 million (+31%) driven by the increase in adjusted earning and a favorable change in fair value of financing hedges. Half Year 2013 Financial Report 75 I I ACTIVITY REPORT Outlook Despite early signs of global recovery in the first half of 2013, the short-term economic outlook remains challenging. In this context, the AXA Group carries on focusing its efforts towards the execution of its Ambition AXA plan whilst preparing for the world of tomorrow, by accelerating digital investments whilst maintaining our efficiency discipline, which will allow to better access and serve our clients. In the second half of 2013, the Life & Savings momentum will continue to be driven by the change in business mix towards selling more profitable Unit-Linked and Protection & Health products. In Property & Casualty, underwriting discipline and efficiency efforts should contribute to sustain profitability, whilst the pricing environment should continue to be supportive overall despite experiencing a slowdown in price increases in certain markets. The Asset Management business should continue to benefit from a good momentum driven by a favorable investment performance whilst remaining sensitive to the evolution of financial markets. 76 Half Year 2013 Financial Report ACTIVITY REPORT Glossary The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Hungary, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia) India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece and France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: Include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, Exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, And also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow through adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: Realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), Cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, Related impact on policyholder participation (Life & Savings business), Half Year 2013 Financial Report 77 I I ACTIVITY REPORT DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including undated subordinated debt (“Super Subordinated Debts” TSS / “Undated Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE: o All undated subordinated debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. 78 Half Year 2013 Financial Report ACTIVITY REPORT (ii) Change in UFR (Unearned Fees Reserve - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Half Year 2013 Financial Report 79 I I ACTIVITY REPORT Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by \"underlying\" operating margin, where \"Underlying\" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). 80 Half Year 2013 Financial Report ACTIVITY REPORT Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. BANKING Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Net operating revenues are disclosed before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2013 Financial Report 81 I II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II Consolidated financial statements / Half Year 2013 82 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Table of Contents II .1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .............................................................................. 85 II .2 CONSOLIDATED STATEMENT OF INCOME ..................................................................................................... 87 II .3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ..................................................................... 88 II .4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................... 89 II .5 CONSOLIDATED STATEMENT OF CASH FLOWS ........................................................................................... 91 Note 1 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. 1.16. 1.17. 1.18. 1.19. Accounting principles.................................................................................................................... 93 General information .......................................................................................................................... 93 General Accounting principles ......................................................................................................... 93 Consolidation .................................................................................................................................... 96 Foreign currency translation of financial statements and transactions ............................................ 99 Segment reporting ............................................................................................................................ 99 Intangible assets .............................................................................................................................. 99 Investments from insurance, banking and other activities ............................................................. 100 Assets backing liabilities arising from contracts where the financial risk is borne by policyholders 102 Derivative instruments .................................................................................................................... 102 Assets/liabilities held for sale and assets/liabilities including discontinued operations ................. 103 Cash and cash equivalents ............................................................................................................ 103 Share capital and shareholders’ equity .......................................................................................... 104 Liabilities arising from insurance and investment contracts ........................................................... 104 Reinsurance ................................................................................................................................... 107 Financing debt ................................................................................................................................ 107 Other liabilities ................................................................................................................................ 107 Provisions for risks, charges and contingent liabilities ................................................................... 109 Revenue recognition ...................................................................................................................... 109 Subsequent events......................................................................................................................... 111 Note 2 2.1. 2.2. Scope of consolidation ................................................................................................................ 112 Consolidated companies ................................................................................................................ 112 Consolidated entities relating to specific operations ...................................................................... 115 Note 3 3.1. Consolidated statement of income by segment ....................................................................... 116 Consolidated statement of income by segment ............................................................................. 117 Note 4 4.1. 4.2. 4.3. Transactions announced in consolidated entities ................................................................... 119 MONY Portfolio transaction ............................................................................................................ 119 HSBC Portfolio ............................................................................................................................... 119 AXA Bank Switzerland ................................................................................................................... 120 Note 5 5.1. 5.2. 5.3. 5.4. 5.5. Investments .................................................................................................................................. 121 Breakdown of investments ............................................................................................................. 121 Investment in real estate properties ............................................................................................... 123 Unrealized gains and losses on financial investments ................................................................... 123 Financial assets subject to impairment .......................................................................................... 124 Financial assets recognized at fair value ....................................................................................... 125 Note 6 6.1. 6.2. 6.3. Shareholders’ equity and minority interests ............................................................................. 126 Impact of transactions with shareholders ....................................................................................... 126 Comprehensive income for the period ........................................................................................... 128 Change in minority interests ........................................................................................................... 130 Half Year 2013 Financial Report 83 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 7 Financing debt .............................................................................................................................. 131 Note 8 Net income per ordinary share ................................................................................................... 132 84 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2013 (a) December 31, 2012 Restated (a) (b) January 1, 2012 Restated (a) (b) Goodwill 15,417 15,754 15,855 Value of purchased business in force (c) 2,458 2,685 3,074 Deferred acquisition costs and equivalent 20,038 19,047 18,624 Other intangible assets 3,271 3,349 3,382 Intangible assets 41,184 40,835 40,935 Investments in real estate properties 17,518 17,192 16,061 Financial investments 426,987 441,469 418,765 Assets backing contracts where the financial risk is borne by policyholders (d) 154,681 147,162 134,230 5 Investments from insurance activities 599,187 605,823 569,056 5 Investments from banking and other activities 38,589 35,199 35,264 Investments in associates - Equity method 1,388 1,312 1,139 Reinsurers' share in insurance and investment contracts liabilities 10,239 10,558 10,698 Tangible assets 1,296 1,457 1,410 Deferred policyholders' participation assets 96 4 1,247 Deferred tax assets 2,660 3,060 3,355 Other assets 4,051 4,522 6,012 Receivables arising from direct insurance and inward reinsurance operations 16,252 14,968 13,346 Receivables arising from outward reinsurance operations 1,002 746 671 Receivables - current tax 1,700 1,855 2,347 Other receivables 16,164 15,318 16,325 Receivables 35,118 32,887 32,689 4 Assets held for sale including discountinued operations (e) 7,054 181 360 Cash and cash equivalents 24,816 30,546 31,072 TOTAL ASSETS 761,627 761,862 727,226 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Amounts are gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (e) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). Half Year 2013 Financial Report 85 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) Notes June 30, 2013 (a) December 31, 2012 Restated (a) (b) January 1, 2012 Restated (a) (b) Share capital and capital in excess of nominal value 25,753 25,549 25,188 Reserves and translation reserve 23,247 24,001 21,189 Net consolidated income - Group share 2,467 4,057 n/a Shareholders’ equity – Group share 51,468 53,606 46,377 Minority interests 2,353 2,355 2,367 6 TOTAL SHAREHOLDERS' EQUITY 53,820 55,961 48,745 Subordinated debt 8,197 7,317 7,108 Financing debt instruments issued 1,629 2,514 2,506 Financing debt owed to credit institutions 786 831 807 7 Financing debt 10,613 10,662 10,421 Liabilities arising from insurance contracts 356,075 362,378 358,146 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 120,588 113,921 104,642 Total liabilities arising from insurance contracts 476,663 476,299 462,788 Liabilities arising from investment contracts with discretionary participating features 35,793 36,350 37,858 Liabilities arising from investment contracts with no discretionary participating features 183 251 380 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,039 4,080 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 30,643 29,983 26,336 Total liabilities arising from investment contracts 70,658 70,664 68,195 Unearned revenue and unearned fee reserves 3,006 2,897 2,975 Liabilities arising from policyholders' participation 25,423 31,357 17,944 Derivative instruments relating to insurance and investment contracts (1,207) (2,053) (2,056) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 574,542 579,165 549,847 Liabilities arising from banking activities (d) 36,428 33,494 34,023 Provisions for risks and charges 11,256 11,952 10,891 Deferred tax liabilities 4,157 5,175 3,793 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 6,244 3,775 3,896 Other debt instruments issued, notes and bank overdrafts (d) 4,495 4,510 6,272 Payables arising from direct insurance and inward reinsurance operations 7,630 8,955 7,212 Payables arising from outward reinsurance operations 5,904 5,352 5,179 Payables – current tax 1,030 1,170 1,194 Collateral debts relating to investments under a lending agreement or equivalent 23,488 24,397 27,509 Other payables 15,862 17,296 18,056 Payables 64,653 65,454 69,317 4 Liabilities held for sale including discontinued operations (e) 6,157 189 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 761,627 761,862 727,226 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Amounts are shown net of related derivative instruments impact. (e) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). 86 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .2 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2013 June 30, 2012 Restated (a) Gross written premiums 47,168 45,749 Fees and charges relating to investment contracts with no participating features 133 164 Revenues from insurance activities 47,301 45,913 Net revenues from banking activities 291 224 Revenues from other activities 2,451 2,268 Revenues (b) 50,044 48,405 Change in unearned premiums net of unearned revenues and fees (3,819) (3,962) Net investment income (c) 5,951 8,023 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity (d) 1,405 770 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (e) 6,500 6,550 of which change in fair value of assets with financial risk borne by policyholders (f) 8,070 6,224 Change in investments impairment (g) (390) (390) Net investment result excluding financing expenses 13,466 14,953 Technical charges relating to insurance activities (f) (45,267) (45,696) Net result from outward reinsurance (938) (572) Bank operating expenses (67) (64) Acquisition costs (4,628) (4,310) Amortization of the value of purchased business in force (59) (47) Administrative expenses (4,770) (4,671) Change in tangible assets impairment (0) (0) Change in goodwill impairment and other intangible assets impairment (46) (67) Other income and expenses (109) (175) Other operating income and expenses (55,884) (55,602) Income from operating activities before tax 3,806 3,795 Income arising from investments in associates - Equity method 62 42 Financing debts expenses (h) (348) (289) Net income from operating activities before tax 3,520 3,548 Income tax (899) (903) Net operating income 2,621 2,645 Net consolidated income after tax 2,621 2,645 Split between : Net consolidated income - Group share 2,467 2,544 Net consolidated income - Minority interests 154 101 8 Earnings per share 0.98 1.02 8 Fully diluted earnings per share 0.97 1.02 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Gross of reinsurance. (c) Net of investment management costs and including gains/losses from derivatives hedging variable annuities. (d) Includes impairment releases on investments sold. (e) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (f) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (g) Excludes impairment releases on investments sold. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). Half Year 2013 Financial Report 87 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2013 (a) June 30, 2012 Restated (a) (b) Reserves relating to changes in fair value through shareholders' equity (2,526) 1,810 Translation reserves (1,000) 646 Items that may be reclassified subsequently to Profit or Loss (3,526) 2,456 Employee benefits actuarial gains and losses 325 (891) Items that will not be reclassified subsequently to Profit or Loss 325 (891) Net gains and losses recognized directly through shareholders' equity (3,201) 1,565 Net consolidated income 2,621 2,645 Split between: Net consolidated income - Group share 2,467 2,544 Net consolidated income - Minority interests 154 101 TOTAL COMPREHENSIVE INCOME (CI) (580) 4,210 Split between: Total comprehensive income - Group share (731) 4,052 Total comprehensive income - Minority interests 151 158 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. 88 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in Euro million, except for number of shares and nominal value) Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders 'equity opening January 1, 2013 Restated (a) 2,388,611 2.29 5,470 20,749 (364) 10,887 134 5,735 (2,889) 13,885 53,606 2,355 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,254 - - - - - - - - 2.29 - - - - - - - - 7 - - - - - - - - 28 23 - - - - - - - - 165 - - - - - - - - - - - - (0) - - - - - - - - - - - (19) - 252 (144) - - - - - - - - (0) - - - - - - - (1) 7 28 23 165 (19) - 252 (144) (1) - - - - - - - (153) Dividends paid (1,720) (1,720) Impact of transactions with shareholders 3,254 2.29 7 51 165 (0) 90 (0) (1,721) (1,408) (153) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - (2,573) - - (2,573) 53 - - 53 (155) - - (155) (848) - - (848) 324 2,467 2,791 (2,519) (1,003) 324 2,467 (731) (6) 3 0 154 151 Shareholders' equity closing June 30, 2013 2,391,865 2.29 5,477 20,800 (199) 8,314 187 5,670 (3,736) 14,955 51,468 2,353 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half Year 2013 Financial Report 89 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Share Capital Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Shareholders 'equity opening January 1, 2012 Restated 2,357,198 2.29 5,398 20,471 (385) Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 103 - - - - - - - - 2.29 - - - - - - - - 0 - - - - - - - - 1 16 - - - - - - - - 17 - - - - - Dividends paid Impact of transactions with shareholders 103 2.29 0 17 17 Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income - - - - - - - - - - Total Comprehensive Income (CI) Shareholders' equity closing June 30, 2012 2,357,301 2.29 5,398 20,488 (368) NB: amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS19. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.2.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. 90 (in Euro million, except for number of shares and nominal value) Attributable to shareholders (a) Other reserves Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 4,838 50 6,059 (2,298) 12,244 46,377 2,367 - - - - - - - (0) - - - - - - - - - - - (16) - - (148) - - - - - - - - 0 - - - - - - - (66) 0 1 16 17 (16) - - (148) (66) - - - - - - - (47) (1,626) (1,626) (0) (164) 0 (1,692) (1,822) (47) 1,725 62 1,788 23 - - 1,725 - - 62 135 - - 135 474 - - 474 (889) 2,544 1,655 609 (889) 2,544 4,052 37 (2) 101 158 6,563 112 6,031 (1,824) 12,207 48,607 2,479 Half Year 2013 Financial Report Avec et sans PB discrétionnaire II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .5 CONSOLIDATED STATEMENT OF CASH FLOWS June 30, 2012 Restated (a) (b) (in Euro million) June 30, 2013 (a) Operating income including discontinued operation before tax 3,520 3,548 Net amortization expense (c) 357 305 Change in goodwill impairment and other intangible assets impairment (d) 12 Net change in deferred acquisition costs and equivalent (782) (1,219) Net increase / (write back) in impairment on investments, tangible and other intangible assets 416 427 Change in fair value of investments at fair value through profit or loss (10,037) (8,265) Net change in liabilities arising from insurance and investment contracts (e) 11,886 14,193 Net increase / (write back) in other provisions (f) (4) (59) Income arising from investments in associates – Equity method (62) (42) Adjustment of non cash balances included in the operating income before tax 1,774 5,353 Net realized investment gains and losses 2,054 859 Financing debt expenses 348 287 Adjustment for reclassification to investing or financing activities 2,401 1,146 Dividends recorded in profit or loss during the period (1,692) (1,595) Investment income & expense recorded in profit or loss during the period (g) (4,825) (6,959) Adjustment of transactions from accrued to cash basis (6,516) (8,553) Net cash impact of deposit accounting 858 130 Dividends and interim dividends collected 1,922 1,797 Investment income (g) 6,730 8,961 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (1,478) (1,279) Net operating cash from banking activities 160 (772) Change in operating receivables and payables (2,111) (2,550) Net cash provided by other assets and liabilities (h) Tax expenses paid (2,055) (765) (804) (563) Other operating cash impact and non cash adjustment 291 (1,542) Net cash impact of transactions with cash impact not included in the operating income before tax 3,552 3,379 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 4,731 4,873 Purchase of subsidiaries and affiliated companies, net of cash acquired (18) (13) Disposal of subsidiaries and affiliated companies, net of cash ceded 5 178 Net cash related to changes in scope of consolidation (13) 165 Sales of debt instruments (h) 30,649 34,363 Sales of equity instruments and non controlled investment funds (h) (i) 10,693 9,077 Sales of investment properties held directly or not (h) 630 182 Sales and/or repayment of loans and other assets (h) (j) 8,255 13,445 Net cash related to sales and repayments of investments (h) (i) (j) 50,228 57,067 Purchases of debt instruments (h) (32,014) (36,603) Purchases of equity instruments and non controlled investment funds (h) (i) (12,028) (9,806) Purchases of investment properties held direct or not (h) (1,236) (545) Purchases and/or issues of loans and other assets (h) (j) (12,416) (14,357) Net cash related to purchases and issuance of investments (h) (i) (j) (57,694) (61,311) Sales of tangible and intangible assets 4 3 Purchases of tangible and intangible assets (200) (230) Net cash related to sales and purchases of tangible and intangible assets (196) (226) Increase in collateral payable / Decrease in collateral receivable 22,171 29,894 Decrease in collateral payable / Increase in collateral receivable (22,693) (29,881) Net cash impact of assets lending / borrowing collateral receivables and payables (522) 13 NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (8,197) (4,292) Issuance of equity instruments 678 266 Repayments of equity instruments (382) (88) Transactions on treasury shares 153 (8) Dividends payout (1,873) (1,688) Interests on undated subordinated debts paid (101) (115) Acquisition / sale of interests in subsidiaries without change in control (21) (76) Net cash related to transactions with shareholders (1,546) (1,708) Cash provided by financial debts issuance 881 0 Cash used for financial debts repayments (1,676) (24) Interests on financing debt paid (k) (334) (238) Half Year 2013 Financial Report 91 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Net cash related to Group financing (1,130) NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (2,676) NET CASH PROVIDED BY DISCONTINUED OPERATIONS 0 CASH AND CASH EQUIVALENT AS OF JANUARY 1 (l) 30,101 Net cash provided by operating activities 4,731 Net cash provided by investing activities (8,197) Net cash provided by financing activities (2,676) Impact of change in consolidation method and of reclassifications as held for sale (261) Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (331) CASH AND CASH EQUIVALENT AS OF JUNE 30 (l) 23,367 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Includes premiums/discounts capitalization and relating amortization, amortization of investment and in the contest of owner occupied properties (held directly). (d) Includes impairment and amortization of intangible assets booked in the context of business combinations. (e) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (f) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (g) Includes gains/losses from derivatives hedging variable annuities. (h) Includes related derivatives. (i) Includes equity instruments held directly or by consolidated investment funds as well as non consolidated investment funds. (j) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (k) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (l) Net of bank overdrafts. (in Euro million) June 30, 2013 June 30, 2012 Cash and cash equivalent 24,816 Bank overdrafts (a) (1,449) Cash and cash equivalent as of June 30 (b) 23,367 (a) Included in \"Other debt instruments issued and bank overdrafts\". (b) The \"Cash and cash equivalents\" balances do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The \"Cash and cash equivalents\" item excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). 92 Half Year 2013 Financial Report (262) (1,970) (0) 30,033 4,873 (4,292) (1,970) (322) 358 28,680 30,417 (1,737) 28,680 CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 1 Accounting principles 1.1. GENERAL INFORMATION AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA is listed on Euronext Paris Compartiment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on August 1, 2013. 1.2. GENERAL ACCOUNTING PRINCIPLES 1.2.1. Basis for preparation AXA’s consolidated interim financial statements are prepared as of June 30. However, certain entities within AXA have a different reporting year end, in particular AXA Life Japan, whose interim period ended at March 31. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are endorsed by the European Union before the balance sheet date with a compulsory date of January 1, 2013. The Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. Amendments to standards published and adopted on January 1, 2013 The amendment to IAS 19 – Employee Benefits, published on June 16, 2011, eliminates the corridor method that allows the deferral of recognition of gains and losses. However, this method was not applied by the Group since all actuarial gains and losses were recognized through shareholders’ equity. The amendment also replaces interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). In addition, the amendment no longer allows the deferral of past service costs which are immediately to be recognized in Profit or Loss when incurred. The amendment clarifies that the distinction between short-term and long-term benefits is based on whether payment is expected to be within the next 12 months, rather than when payment can be demanded. As a result, the Group reclassified some benefit obligations (mainly unused “vacation accruals”) in the category of other long-term employee benefits. The retrospective application of the amendments to IAS19 led to a reduction of retained earnings in shareholders’ equity of €39 million as of January 1, 2012 as well as a reduction in net consolidated income after tax of €43 million as of June 30, 2012. In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsDeferred tax assets 3,332 22 3,355 3,047 13 3,060 Liabilities arising from policyholders' participation (17,938) (6) (17,944) (31,350) (7) (31,357)Provisions for risks and charges (10,760) (131) (10,891) (11,789) (163) (11,952)Deferred tax liabilities (3,794) 1 (3,793) (5,196) 21 (5,175)Other payables (18,130) 74 (18,056) (17,373) 77 (17,296)NET EFFECT (39) (58)In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsAcquisition costs (4,293) (17) (4,310) (9,539) (34) (9,574)Administrative expenses (4,630) (41) (4,671) (9,440) (98) (9,538)Income tax (919) 16 (903) (1,135) 36 (1,098)NET EFFECT (43) (96)Consolidated statement of incomeConsolidated statement of financial positionJune 30, 2012December 31, 2012January 1, 2012 December 31, 2012 Half Year 2013 Financial Report 93 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Additionally, the application of the following amendments to standards as of January 1, 2013 had no material impact on the Group’s consolidated interim financial statements: IFRS 13 – Fair Value Measurement, published on May 12, 2011, defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. The amendment to IAS 1 – Presentation of Financial Statements, published on June 16, 2011, requires entities to group together items presented within Other Comprehensive Income based on whether they are potentially reclassifiable to profit or loss in a subsequent period. The amendment also preserves the requirement that items in Other Comprehensive Income and profit or loss should be presented as either a single statement or two consecutive statements. The amendments to IFRS 7 – Financial Instruments Disclosure, published on December 16, 2011 amend disclosure requirements of information about rights of offset and related arrangements. Annual Improvements 2009 – 2011 Cycle, published on May 17, 2012, includes amendments to IFRS that are not part of a major project. They are presented in a single document rather than as a series of small changes. Standards, amendments and interpretations published but not yet being effective IFRS 9 - Financial Instruments, published on November 12, 2009, amended on October 28, 2010 and December 16, 2011 and applicable to the Group from January 1, 2015 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in Other Comprehensive Income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in Other Comprehensive Income, unless the recognition of the effects of changes in the liability’s credit risk in Other Comprehensive Income would create or enlarge an accounting mismatch in profit or loss. Moreover, the IASB issued an Exposure Draft on November 28, 2012 that proposes limited amendments to IFRS9, in particular the introduction of a third category of classification for financial instruments that would correspond to financial instruments held to collect contractual cash flows and for sale. These debt instruments would be measured at fair value with changes recognized in fair value through Other Comprehensive Income and realized gains or losses would be recycled through profit or loss upon sale. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting for which exposure drafts were published in 2012 and 2013), its method of implementation and its impact are currently being examined within the Group. A package of five new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the five standards have an effective date for annual periods beginning on or after January 1, 2013, with earlier application being permitted so long as each of the other standards in the package is also applied early. However, in December 2012, the European Union endorsed these five standards but decided to postpone to 2014 the 2013 mandatory application date required by IASB, still with early application permitted. As a result, the Group has chosen January 1, 2014, as application date. The potential impact on the Group’s consolidated financial statements with regard to the package of five new and revised standards is currently being analysed. IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements and replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. The application of the equity method instead of the proportional consolidation is not expected to have a material impact on the Group’s consolidated financial statements. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. 94 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. The amendments to IAS 32 – Financial Instruments: Presentation published on December 16, 2011, provide clarifications of the application of the offsetting rules. The amendments to IAS 32 clarify that in order to result in an offset of a financial asset and a financial liability, a right to set-off must be available today rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014. An analysis of the amendments is currently in progress. Investment entities (Amendments to IFRS 10, IFRS 12 and IAS 27), published on October 31, 2012, provides an exemption from consolidation of subsidiaries under IFRS 10 – Consolidated Financial Statements for entities which meet the definition of an “investment entity”. Under the amendments, investment entities would measure their investment in subsidiaries at fair value through profit or loss. However, at a higher level, the parent company of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity, unless the parent itself is an investment entity. For these reasons, the amendments, that are effective for annual periods beginning on or after January 1, 2014, with early application permitted, are not expected to have a material impact on the Group’s consolidated financial statements. The amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets, published on May 29, 2013, address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014, with earlier application permitted if IFRS 13 has already been applied. The amendments are not expected to have a material impact on the Group’s consolidated financial statements. IFRIC 21 – Levies, published May 20, 2013, is an interpretation on the accounting for levies imposed by governments. The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The interpretation is effective for annual periods beginning on or after January 1, 2014 and is not expected to have a material impact on the Group’s consolidated financial statements. Narrow-scope amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting, published on June 27, 2013 provides relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The amendments are effective for annual periods beginning on or after January 1, 2014 (with earlier application permitted) and are not expected to have a material impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in paragraph 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group’s transition date was January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date was January 1, 2005. Half Year 2013 Financial Report 95 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS); and any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. As a result, the goodwill gross value corresponds to the gross value of these goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. CONSOLIDATION 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27/SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27/SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 96 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.3.2. ownership interest Business combinations and subsequent changes in the Group In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and reflecting the difference between the fair value and the carrying value of the liabilities). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the New Business Value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re- measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill). Half Year 2013 Financial Report 97 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 According to a decision taken for each acquisition, any minority interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of minority interests in a controlled subsidiary Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: in full for controlled subsidiaries, and to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated. However, in case of a loss, an impairment test is performed, in order to assess whether an impairment has to be booked. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position. 98 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. FOREIGN CURRENCY TRANSLATION OF FINANCIAL STATEMENTS AND TRANSACTIONS The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; revenues and expenses are translated at the average exchange rates over the period; all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in paragraph 1.9. As mentioned in paragraph 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step- by-step consolidation method (IFRIC 16). 1.5. SEGMENT REPORTING The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. 1.6. INTANGIBLE ASSETS 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value models or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. Half Year 2013 Financial Report 99 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see paragraph 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see paragraph 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The direct costs of acquiring a portfolio of insurance contracts and investment contracts with discretionary participating features, primarily related to the selling, underwriting and initiating the insurance contracts in a portfolio, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned. For Life business, the asset is amortized based on the estimated gross profits emerging over the life of the contracts. This asset is tested for recoverability and any amount above future estimated gross profits is expensed. DAC are also tested through the liability adequacy test (see paragraph 1.13.2). For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.6.4. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs. 1.6.5. Other intangible assets Other intangible assets include software developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized on a straight line basis over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.7. ACTIVITIES INVESTMENTS FROM INSURANCE, BANKING AND OTHER Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. 100 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by- line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: assets held to maturity, accounted for at amortized cost; assets held for trading and assets designated as at fair value with change in fair value through profit or loss; available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity; loans and receivables (including some debt instruments not quoted in an active market) accounted for at amortized cost. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: o o assets backing liabilities arising from contracts where the financial risk is borne by policyholders, assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39, debt held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); o portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through profit or loss and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. Half Year 2013 Financial Report 101 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local Assets and Liabilities Management (ALM) strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.7.3. Repurchase agreements and security lending The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. While substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements. The Group is also party to reverse repurchase agreements under which financial assets are purchased from a counterparty, subject to a simultaneous agreement to return these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remain with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as financial assets of the Group. The amounts of cash disbursed are recorded under financial investments, except for transactions arising from banking activities, which are recorded as separate assets. Interest income on reverse repurchase agreements is accrued over the duration of the agreements. 1.8. ASSETS BACKING LIABILITIES ARISING FROM CONTRACTS WHERE THE FINANCIAL RISK IS BORNE BY POLICYHOLDERS Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc.). Details of these assets are provided in the notes. 1.9. DERIVATIVE INSTRUMENTS Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. 102 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Therefore, the gain or loss relating to any ineffective portion is directly recognized in the income statement. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed material. For the statement of financial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. ASSETS/LIABILITIES HELD FOR SALE AND ASSETS/LIABILITIES INCLUDING DISCONTINUED OPERATIONS These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain/loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the statement of financial position and statement of income are provided in the notes to the consolidated financial statements. 1.11. CASH AND CASH EQUIVALENTS Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. Half Year 2013 Financial Report 103 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.12. SHARE CAPITAL AND SHAREHOLDERS’ EQUITY 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debt Undated subordinated debt and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or shareholders’ expectations). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the Company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: they are likely to represent a significant portion of the overall contractual benefits; their amount or timing is contractually at the discretion of the Group; and they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the Company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually Unit- Linked contracts. 104 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The Group classifies its insurance and investment contracts into six categories: liabilities arising from insurance contracts; liabilities arising from insurance contracts where the financial risk is borne by policyholders; liabilities arising from investment contracts with discretionary participating features; liabilities arising from investment contracts with no discretionary participating features; liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to Unit-Linked contracts or multi-funds contracts containing a non-Unit- Linked fund with discretionary participating features; liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. participating features Insurance contracts and investment contracts with discretionary Except where IAS 39 applies, according to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), and the extension of shadow accounting . The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: reserves must be sufficient; life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield; acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts; property and casualty claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. PRE-CLAIMS RESERVES Unearned premiums reserves represent the pro rata portion of written premiums that relates to unexpired risks at the closing date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Changes in reserves are booked if there are impacts caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are generally calculated using a prospective approach based on discount rates usually set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and considers interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. Half Year 2013 Financial Report 105 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. POST CLAIMS RESERVES Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are generally not discounted, except in cases such as disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where the minimum is set to 90%, 90% and 85% respectively, of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less prevalent in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; they include projections of future investments sales according to estimated surrender patterns; and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. 106 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts are also considered. Depending on the type of business, the future investment cash flows and discounting may be based on a deterministic best estimate rate, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, etc.) directly with discounted cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DPA, DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” paragraph below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly Unit-Linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these Unit-Linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in paragraph 1.6.3). UNEARNED FEES RESERVES Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs. 1.14. REINSURANCE Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. FINANCING DEBT Financing debt issued to finance the solvency requirements of operational entities or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position and are accounted for at amortized cost. 1.16. OTHER LIABILITIES 1.16.1. Income taxes The half year income tax charge is based on the best estimate of the expected full year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from Half Year 2013 Financial Report 107 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carry forwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. The recoverability of deferred tax assets recognized in previous periods is re- assessed at each closing. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling). Actuarial gains and losses (now termed remeasurments under IAS19 revised) arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in Other Comprehensive Income) in full in the period in which they occur. Similarly, the actual return on assets and any change in asset ceiling, excluding the net interest income on assets, is recognized in shareholders’ equity. The regular impact in the income statement mainly relates to the current service cost (annually accruing employee benefit) and the net interest on the amount recorded in the opening balance sheet (unwinding of discount applied to the liability/asset at start of the annual period, taking account contributions and benefits payments during the period). Past service cost represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment to a plan. It is recognized totally and immediately in the income statement when incurred. Gains and losses on the settlement of a defined benefit plan also have an impact in the income statement when the settlement occurs. 1.16.3. Share-based compensation plans The Group’s share-based compensation plans are predominantly settled in equities. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under a specific French regulatory framework includes a traditional and a leveraged formula (with an application subject to specific local regulations within the Group). 108 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The cost of the traditional formula of Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged formula plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.17. PROVISIONS FOR RISKS, CHARGES AND CONTINGENT LIABILITIES 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see paragraph 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.18. REVENUE RECOGNITION 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. discretionary participating features Fees and revenues from investment contracts with no Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” paragraph 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues; claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. Half Year 2013 Financial Report 109 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.18.5. and fees Change in unearned premiums reserves net of unearned revenues Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in paragraph 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in paragraph 1.13.2) and investment contracts with no discretionary participating features (see paragraph 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests expenses not related to financing, banking fees, capital gains and losses on sales of financial assets, change in fair value of assets under fair value option and related derivatives. They exclude bank operating expenses and change in bad debt provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: commissions received and fees for services relating to asset management activities; insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products; and rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half year policyholders’ participation charge is based on the best estimate of the planned full year distribution rate for each portfolio of contracts at each Group entity level. 110 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.18.9. Net investment result excluding financing expenses The net investment result includes: investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments; investment management expenses (excludes financing debt expenses); realized investment gains and losses net of releases of impairment following sales; the change in unrealized gains and losses on invested assets measured at fair value through profit or loss; the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see paragraph 1.18.6). 1.19. SUBSEQUENT EVENTS Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date; such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. Half Year 2013 Financial Report 111 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 2 Scope of consolidation 2.1. CONSOLIDATED COMPANIES 2.1.1. Main fully consolidated companies June 30, 2013 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests France AXA AXA Asia AXA China AXA France Assurance Oudinot Participations Société Beaujon Parent company 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 AXA America Holding Inc. 100.00 100.00 United Kingdom Guardian Royal Exchange Plc AXA UK Plc 100.00 100.00 99.98 99.98 AXA Equity & Law Plc 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 Japan AXA Japan Holding 99.02 99.02 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 AXA Konzern AG 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 Finance Solutions SARL 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Italia S.p.A. AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 112 Half Year 2013 Financial Report December 31, 2012 Voting rights percentage Group share of interests Parent company 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 99.99 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.96 99.96 100.00 100.00 100.00 100.00 100.00 100.00 99.02 99.02 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Life & Savings and Property & Casualty France AXA France IARD AXA France Vie AXA Protection Juridique United States AXA Equitable Life Insurance Company Mony Life Insurance Company (a) AXA Re Arizona Company United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited AXA Portfolio Services Limited Ireland AXA Insurance Limited AXA Life Europe Limited AXA Reinsurance Ireland Limited Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (b) AXA Insurance Public Company Limited (Thailand) (c) Japan AXA Life Insurance Germany AXA Versicherung AG AXA Art AXA Lebensversicherung AG Pro Bav Pensionskasse Deutsche Ärzteversicherung AXA Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Les Assurés Réunis Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) AXA MPS Danni (Italy) AXA MPS Financial (Italy) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) AXA Middle East SAL (Lebanon) (c) Switzerland CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 June 30, 2013 December 31, 2012 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests 99.92 99.77 99.92 99.77 99.92 99.77 99.92 99.77 98.51 98.51 98.51 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 100.00 99.98 100.00 99.98 100.00 100.00 99.98 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 Minority interests buyout 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 Newly consolidated 99.31 99.31 100.00 99.02 100.00 99.02 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 99.74 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 Disposal 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Minority interests buyout 100.00 100.00 99.95 99.95 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.96 99.90 100.00 100.00 99.82 99.78 99.90 99.99 99.99 99.82 99.96 99.90 100.00 100.00 99.82 99.78 99.90 99.99 99.99 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Minority interests buyout 99.73 95.09 100.00 100.00 89.80 50.00 50.00 99.98 99.97 99.49 94.89 100.00 100.00 89.80 34.00 50.00 99.98 99.97 99.73 95.09 100.00 100.00 72.59 50.00 50.00 99.98 99.97 99.49 94.89 100.00 100.00 72.59 34.00 50.00 99.98 99.97 Newly consolidated 51.00 51.00 Half Year 2013 Financial Report 113 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance 100.00 66.67 100.00 66.67 100.00 66.67 100.00 66.67 AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 100.00 100.00 100.00 Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland AXA Poland Pension Funds AXA Slovakia 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 AXA Ukraine 50.17 50.17 50.17 50.17 Direct (d) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) 100.00 99.52 100.00 100.00 100.00 100.00 100.00 99.52 99.02 100.00 100.00 100.00 100.00 99.52 100.00 100.00 100.00 100.00 100.00 99.52 99.02 100.00 100.00 99.99 Seguro Directo Gere Companhia de Seguros SA (Portugal) 100.00 100.00 100.00 100.00 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) AXA Group exercises control in accordance with shareholders' agreements. (c) Consolidation through Equity Method as a proxy due to low materiality. (d) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2013 December 31, 2012 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C AXA Global Life AXA Assistance (sub group) Portman Insurance Ltd. Colisée RE 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 AXA Corporate Solutions Life Reinsurance Company 100.00 100.00 100.00 100.00 June 30, 2013 December 31, 2012 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) 95.87 95.82 95.87 95.82 AllianceBernstein (sub group) (a) 64.20 64.20 65.51 65.51 (a) The decrease in the Group share of interest is mainly due to the granting of holding units to the employees in relation with the share-based compensation programs June 30, 2013 December 31, 2012 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque 100.00 99.89 100.00 99.89 AXA Banque Financement 65.00 64.93 65.00 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2013 December 31, 2012 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management 100.00 100.00 100.00 100.00 Consolidated investments and investment funds As of June 30, 2013, consolidated investment funds represented total invested assets of €109 billion (€104 billion at the end of 2012), corresponding to 298 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. 114 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013, the 30 consolidated real estate companies corresponded to total invested assets of €6,481 million (€6,717 million at the end of 2012), mainly in Germany and France. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of consolidated investment funds and puttable instruments held by minority interest holders”. As of June 30, 2013, minority interests in consolidated investment funds amounted to €6,244 million (€3,775 million as of December 31, 2012). 2.1.2. Proportionately consolidated companies June 30, 2013 December 31, 2012 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances 50.00 49.96 50.00 49.96 2.1.3. method Main investments in companies accounted for using the equity Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2013 December 31, 2012 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie 39.98 39.98 39.98 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd (Thailand) ICBC-AXA Life Insurance Co. Ltd (China) PT AXA Mandiri Financial Services (Indonesia) Bharti AXA Life (India) 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 Bharti AXA General Insurance Company Limited (India) Newly consolidated 26.00 26.00 Russia Reso Garantia (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management AXA Investment Managers Asia Holdings Private Limited 49.00 46.95 49.00 46.95 Kyobo AXA Investment Managers Company Limited 50.00 47.91 50.00 47.91 Investment funds and real estate entities accounted for using the equity method. As of June 30, 2013, real estate companies accounted for using the equity method represented total assets of €274 million (€296 million at the end of 2012) and investment funds accounted for using the equity method represented total assets of €4,728 million (€4,900 million at the end of 2012), mainly in the United States, Germany, Belgium, Switzerland and the United Kingdom. 2.2. CONSOLIDATED ENTITIES RELATING TO SPECIFIC OPERATIONS Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. Held assets amounted to €1,200 million as of June 30, 2013. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Half Year 2013 Financial Report 115 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 3 Consolidated statement of income by segment Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional \"Holding companies\" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding Company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The Group has set up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographic operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates nine geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, Central Eastern Europe, Asia and Other countries) and one operating component for the Direct business (previously included within countries and regions and now reported as a separate reporting unit). International Insurance: This segment’s operations include insurance products that notably relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company and the Group Property & Casualty run-off managed by AXA Liabilities Managers. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgage loans, savings) conducted primarily in France, Belgium and Germany. The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles and Special-Purpose Entities (SPE). The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. 116 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 3.1. CONSOLIDATED STATEMENT OF INCOME BY SEGMENT (in Euro million) June 30, 2013 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations TOTAL Gross written premiums 28,927 16,665 1,843 (267) 47,168 Fees and charges relating to investment contracts with no participating features 133 133 Revenues from insurance activities 29,060 16,665 1,843 (267) 47,301 Net revenues from banking activities 287 0 4 291 Revenues from other activities 583 28 137 1,915 2 (214) 2,451 Revenues 29,643 16,693 1,980 1,915 290 0 (477) 50,044 Change in unearned premiums net of unearned revenues and fees (1,178) (2,496) (236) 90 (3,819) Net investment income (a) 4,849 1,008 78 4 (0) 307 (295) 5,951 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 1,201 6,573 8,072 180 (109) 8 (7) (4) 24 19 32 (13) (3) 1,405 6,500 8,070 Change in investments impairment (296) (48) (9) (0) (38) (390) Net investment result excluding financing expenses 12,328 1,031 71 24 (0) 320 (307) 13,466 Technical charges relating to insurance activities (35,047) (9,433) (932) 146 (45,267) Net result from outward reinsurance (173) (415) (391) 41 (938) Bank operating expenses (68) 1 (67) Acquisition costs (1,984) (2,451) (222) 29 (4,628) Amortization of the value of purchased business in force (59) (59) Administrative expenses (1,488) (1,295) (111) (1,418) (206) (397) 145 (4,770) Change in tangible assets impairment (0) (0) Change in goodwill impairment and other intangible assets impairment (6) (40) (0) (46) Other income and expenses (74) (10) (0) (102) 13 108 (43) (109) Other operating income and expenses (38,832) (13,644) (1,656) (1,520) (261) (288) 317 (55,884) Income from operating activities before tax 1,961 1,585 158 418 28 33 (377) 3,806 Income arising from investments in associates – Equity method 46 15 0 0 0 62 Financing debt expenses (63) (3) (1) (17) (8) (663) 407 (348) Net income from operating activities before tax 1,944 1,597 157 402 20 (630) 30 3,520 Income tax (390) (445) (73) (128) 1 166 (30) (899) Net operating income 1,554 1,152 84 273 21 (464) 2,621 Net consolidated income after tax 1,554 1,152 84 273 21 (464) 2,621 Split between : Net consolidated income - Group share 1,501 1,130 83 196 20 (464) 2,467 Net consolidated income - Minority interests 54 22 1 77 1 (0) 154 (a) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (b) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half Year 2013 Financial Report 117 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 June 30, 2012 (a) Life & savings Property & Casualty International Insurance Asset Management Banking Gross written premiums 27,903 16,363 1,759 Fees and charges relating to investment contracts with no participating features 164 Revenues from insurance activities 28,067 16,363 1,759 Net revenues from banking activities 233 Revenues from other activities 575 28 146 1,734 2 Revenues 28,642 16,391 1,904 1,734 236 Change in unearned premiums net of unearned revenues and fees (1,353) (2,427) (276) Net investment income (b) 7,036 1,034 96 1 (1) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 496 6,659 6,227 189 (19) 7 27 (2) 21 Change in investments impairment (269) (102) (5) (1) Net investment result excluding financing expenses 13,922 1,103 125 19 (1) Technical charges relating to insurance activities (35,394) (9,274) (1,163) Net result from outward reinsurance (106) (538) 5 Bank operating expenses (64) Acquisition costs (1,724) (2,407) (189) Amortization of the value of purchased business in force (47) Administrative expenses (1,401) (1,311) (198) (1,305) (205) Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (20) (47) (0) Other income and expenses (79) 4 5 (128) 22 Other operating income and expenses (38,771) (13,573) (1,539) (1,433) (247) Income from operating activities before tax 2,441 1,493 215 319 (12) Income arising from investments in associates – Equity method 26 15 0 (0) Financing debts expenses (77) (3) (1) (22) (9) Net income from operating activities before tax 2,389 1,505 213 297 (21) Income tax (587) (480) (77) (84) 13 Net operating income 1,802 1,025 137 213 (9) Net consolidated income after tax 1,802 1,025 137 213 (9) Split between : Net consolidated income - Group share 1,781 1,008 135 152 (9) Net consolidated income - Minority interests 21 16 1 61 1 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (c) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. 118 Half Year 2013 Financial Report Holding companies 0 0 265 80 (139) (14) 192 (0) (402) 64 (339) (147) 2 (658) (803) 279 (523) (523) (523) (0) Inter- segment eliminations (276) (276) (10) (215) (501) 94 (408) 0 2 (3) (406) 135 66 10 152 (64) 300 (514) 481 (33) 33 (in Euro million) TOTAL 45,749 164 45,913 224 2,268 48,405 (3,962) 8,023 770 6,550 6,224 (390) 14,953 (45,696) (572) (64) (4,310) (47) (4,671) (0) (67) (175) (55,602) 3,795 42 (289) 3,548 (903) 2,645 2,645 2,544 101 CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 4 Transactions announced in consolidated entities 4.1. MONY PORTFOLIO TRANSACTION On April 10, 2013, AXA announced that it had entered into definitive agreement with Protective Life Corporation to sell MONY life Insurance Company (“MONY”) and to reinsure an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (”MLOA”) primarily prior to 2004. Under the terms of the agreements and assuming a closing date of October 1, 2013, the total cash consideration will be $1.06 billion that corresponds to €0.81 billion using the foreign exchange rate as of June 30, 2013. This announced transaction led to recognize an estimated €-32 million exceptional loss in AXA interim consolidated financial statements as of June 30, 2013, resulting mainly from intangibles impairment, as well as associated costs with the announced transaction. The assets and liabilities of the MONY operations that are subject to the sale transaction were classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as of June 30, 2013. They related to the following main classes of assets and liabilities (amounts are presented net of intercompany balances with other AXA entities): (in Euro million) June 30, 2013 Intangible assets Investments 256 5,839 Other assets 621 TOTAL ASSETS HELD FOR SALE 6,716 Liabilities arising from insurance and investment contracts Provisions for risks and charges Other liabilities 6,240 10 (94) TOTAL LIABILITIES HELD FOR SALE 6,157 As of June 30, 2013, comprehensive income amounted to €25 million. 4.2. HSBC PORTFOLIO On March 7, 2012, AXA and HSBC announced they had entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in China, India and Indonesia. On November 5, 2012, AXA announced it has completed the acquisition of HSBC’s P&C businesses in Hong Kong and Singapore, and that it has consequently launched its exclusive P&C bancassurance cooperation with HSBC in these countries. This operation resulted in a goodwill of €169 million. The value of the distribution agreement was recognized as an intangible asset of €145 million and will be amortized over 10 years. On April 1, 2013, AXA finalised the acquisition of HSBC’s P&C operations in Mexico and launched subsequently the exclusive P&C bancassurance cooperation in this country. The value of the distribution agreement is recognized as an intangible asset of €44 million and will be amortized over 10 years. The P&C bancassurance cooperation in China, India and Indonesia will be launched in due course. Half Year 2013 Financial Report 119 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 4.3. AXA BANK SWITZERLAND AXA Bank Switzerland closed its operations on February 29, 2012 following the transfer of its customer portfolio to Bank zweiplus on January 1, 2012. Related assets and liabilities (€189 million) were classified as held for sale as of January 1, 2012. 120 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 5 Investments Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. BREAKDOWN OF INVESTMENTS Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro-hedges shown separately. Insurance June 30, 2013 (a) Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (b) Macro-hedge and other derivatives 20,895 1,056 16,462 1,056 2.75% 0.18% 3,176 2,080 5.39% 24,071 1,056 18,542 1,056 Investment in real estate properties 21,951 17,518 2.92% 3,176 2,080 5.39% 25,127 19,598 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (c) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (d) 324,190 33,329 314 6,828 324,190 33,329 314 6,950 54.10% 5.56% 0.05% 1.16% 9,512 71 22 2,603 9,512 71 22 2,603 24.65% 0.18% 0.06% 6.75% 333,702 33,400 335 9,432 333,702 33,400 335 9,554 Debt instruments 364,661 364,783 60.88% 12,208 12,208 31.63% 376,869 376,991 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (b) Equity instruments held for trading 13,209 6,755 96 13,209 6,755 96 2.20% 1.13% 0.02% 2,856 475 2,856 475 7.40% 1.23% 16,064 7,230 96 16,064 7,230 96 Equity instruments 20,060 20,060 3.35% 3,330 3,330 8.63% 23,390 23,390 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (b) Non consolidated investment funds held for trading 5,996 5,028 5,996 5,028 1.00% 0.84% 265 328 320 265 328 320 0.69% 0.85% 0.83% 6,261 5,356 320 6,261 5,356 320 Non consolidated investment funds 11,024 11,024 1.84% 912 912 2.36% 11,936 11,936 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 4,843 4,843 0.81% 1 1 0.00% 4,844 4,844 Macro-hedge and other derivatives 1,278 1,278 0.21% (1,452) (1,452) 3.76% (174) (174) Financial investments 401,866 401,989 67.09% 14,999 14,999 38.87% 416,865 416,987 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (b) Loans held for trading Loans at cost (e) Macro-hedge and other derivatives 0 0 - 25,999 0 0 - 24,998 0.00% 0.00% - 4.17% - - - 22,981 7 - - - 21,504 7 - - - 55.72% 0.02% 0 0 - 48,980 7 0 0 - 46,501 7 Loans 25,999 24,998 4.17% 22,989 21,511 55.74% 48,988 46,509 Assets backing contracts where the financial risk is borne by policyholders 154,681 154,681 25.82% 154,681 154,681 INVESTMENTS 604,499 599,187 100.00% 41,163 38,589 100.00% 645,662 637,776 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 449,817 444,505 74.18% Life & Savings Property & Casualty 383,999 58,307 379,455 57,541 63.33% 9.60% International Insurance 7,511 7,510 1.25% (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 Loans and Receivables measurement category. (e) Mainly relates to mortgage loans and policy loans. Half Year 2013 Financial Report % (value balance sheet) 2.91% 0.17% 3.07% 52.32% 5.24% 0.05% 1.50% 59.11% 2.52% 1.13% 0.02% 3.67% 0.98% 0.84% 0.05% 1.87% 0.76% 0.03% 65.38% 0.00% 0.00% - 7.29% 0.00% 7.29% 24.25% 100.00% 121 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Insurance December 31, 2012 Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro-hedge and other derivatives 20,348 1,224 15,968 1,224 2.64% 0.20% 3,487 2,461 6.99% 23,835 1,224 18,429 1,224 Investment in real estate properties 21,572 17,192 2.84% 3,487 2,461 6.99% 25,059 19,653 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (b) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (c) 341,965 29,861 405 6,191 341,965 29,861 405 5,998 56.45% 4.93% 0.07% 0.99% 8,372 63 21 1,817 8,372 63 21 1,817 23.78% 0.18% 0.06% 5.16% 350,336 29,924 426 8,008 350,336 29,924 426 7,815 Debt instruments 378,421 378,228 62.43% 10,273 10,273 29.19% 388,694 388,501 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) Equity instruments held for trading 12,630 6,635 45 12,630 6,635 45 2.08% 1.10% 0.01% 2,413 411 2,413 411 6.85% 1.17% 15,042 7,046 45 15,042 7,046 45 Equity instruments 19,309 19,309 3.19% 2,824 2,824 8.02% 22,133 22,133 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (a) Non consolidated investment funds held for trading 6,381 5,326 6,381 5,326 1.05% 0.88% 386 287 339 386 287 339 1.10% 0.82% 0.96% 6,767 5,613 339 6,767 5,613 339 Non consolidated investment funds 11,707 11,707 1.93% 1,013 1,013 2.88% 12,720 12,720 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 4,777 4,777 0.79% 1 1 0.00% 4,778 4,778 Macro-hedge and other derivatives 1,675 1,675 0.28% (1,988) (1,988) 5.65% (314) (314) Financial investments 415,889 415,697 68.62% 12,122 12,122 34.44% 428,012 427,819 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro-hedge and other derivatives (0) 0 - 27,324 (0) 0 - 25,772 0.00% 0.00% - 4.25% - 0 - 22,333 3 - 0 - 20,613 3 - 0.00% - 58.56% 0.01% (0) 1 - 49,657 3 (0) 1 - 46,385 3 Loans 27,324 25,772 4.25% 22,336 20,616 58.57% 49,660 46,388 Assets backing contracts where the financial risk is borne by policyholders 147,162 147,162 24.29% 147,162 147,162 INVESTMENTS 611,948 605,823 100.00% 37,945 35,199 100.00% 649,893 641,022 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 464,786 458,661 75.71% Life & Savings Property & Casualty 398,682 58,126 393,367 57,317 64.93% 9.46% International Insurance 7,978 7,977 1.32% (a) Assets measured at fair value under the fair value option. (b) Includes assets measured at fair value notably under the fair value option. (c) Eligible to the IAS 39 Loans and Receivables measurement category. (d) Mainly relates to mortgage loans and policy loans. The exposure as of June 30, 2013 and December 31, 2012 to sovereign debt securities issued by governments and related in Greece, Ireland, Italy, Portugal and Spain, and classified as available for sale was as follows: Issuer(in Euro million)Fair ValueAmortized Cost / Carrying valueUnrealized gains and losses(Gross value)Unrealized gains and losses (Net value)Fair ValueAmortized Cost / Carrying valueUnrealized gains and losses(Gross value)Unrealized gains and losses (Net value)Greece- - - - - - - - Ireland3,040 2,871 169 69 2,786 2,686 100 39 Italy17,715 17,440 275 11 16,214 15,881 332 63 Portugal622 735 (113) (9) 677 862 (185) (18) Spain9,227 9,210 17 81 7,160 7,552 (392) (60) Total30,605 30,255 349 151 26,837 26,981 (145) 24 June 30, 2013December 31, 2012 Net amounts correspond to amounts after the related impacts of deferred tax and shadow accounting on policyholders’ participation, deferred acquisition cost and value of purchased business in force and are presented at 100% share. Net amounts may evolve depending on the timing of realization of these potential gains and losses, and depending on the local regulatory environment. 122 Half Year 2013 Financial Report % (value balance sheet) 2.87% 0.19% 3.07% 54.65% 4.67% 0.07% 1.22% 60.61% 2.35% 1.10% 0.01% 3.45% 1.06% 0.88% 0.05% 1.98% 0.75% 0.05% 66.74% 0.00% 0.00% - 7.24% 0.00% 7.24% 22.96% 100.00% CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 5.2. INVESTMENT IN REAL ESTATE PROPERTIES Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: June 30, 2013 (a) December 31, 2012 (in Euro million) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 18,986 (1,925) (599) 16,462 20,895 18,358 (1,850) (541) 15,968 20,348 Other activities 2,713 (218) (415) 2,080 3,176 3,019 (209) (350) 2,461 3,487 All activities 21,699 (2,143) (1,014) 18,542 24,071 21,377 (2,058) (890) 18,429 23,835 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). Fair value is generally based on valuations performed by qualified property appraisers. Valuations are based on a multi- criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment - Investment in real estate properties Amortization - Investment in real estate properties (in Euro million) June 30, 2013 (a) December 31, 2012 June 30, 2013 (a) December 31, 2012 Opening value 890 822 2,058 1,847 Increase for the period 111 91 131 266 Write back following sale or reimbursement (1) (23) (27) (29) Write back following recovery in value (6) (28) Others (b) 20 28 (19) (25) Closing value 1,014 890 2,143 2,058 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Includes change in scope and the effect of changes in exchange rates. 5.3. UNREALIZED GAINS AND LOSSES ON FINANCIAL INVESTMENTS Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: (in Euro million) June 30, 2013 (a) December 31, 2012 INSURANCE Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 301,022 6,961 10,851 325,118 6,839 13,036 325,118 6,961 13,036 26,830 111 2,350 2,734 233 165 308,760 6,010 9,547 342,815 6,203 11,757 342,815 6,010 11,757 36,295 232 2,257 2,240 39 47 Non consolidated investment funds available for sale 5,214 6,042 6,042 938 109 5,513 6,368 6,368 940 84 (in Euro million) June 30, 2013 (a) December 31, 2012 OTHER ACTIVITIES Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 9,656 2,603 3,005 9,617 2,603 3,223 9,617 2,603 3,223 133 259 171 41 8,539 1,817 3,108 8,615 1,817 3,483 8,615 1,817 3,483 250 380 174 5 Non consolidated investment funds available for sale 264 265 265 1 0 386 386 386 Half Year 2013 Financial Report 123 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) June 30, 2013 (a) December 31, 2012 TOTAL Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 310,677 9,565 13,856 334,735 9,443 16,259 334,735 9,565 16,259 26,963 111 2,609 2,905 233 206 317,299 7,827 12,655 351,430 8,020 15,241 351,430 7,827 15,241 36,545 232 2,637 2,414 39 52 Non consolidated investment funds available for sale 5,478 6,307 6,307 939 109 5,899 6,754 6,754 940 84 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Net of impairment - including premiums/discounts and related accumulated amortization. (c) Net of impairment. 5.4. FINANCIAL ASSETS SUBJECT TO IMPAIRMENT 5.4.1. investment in real estate properties) Breakdown of financial assets subject to impairment (excluding Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2013 (a) December 31, 2012 Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value (in Euro million) Debt instruments available for sale 311,013 (1,254) 309,759 23,943 333,702 317,609 (1,340) 316,269 34,067 350,336 Debt instruments (at cost) that are not quoted in an active market (e) 9,557 9,557 (4) 9,554 7,806 7,806 9 7,815 Debt instruments 320,570 (1,254) 319,316 23,940 343,256 325,415 (1,340) 324,076 34,076 358,151 Equity instruments available for sale 16,308 (2,452) 13,857 2,208 16,064 15,144 (2,488) 12,656 2,386 15,042 Non consolidated investment funds available for sale 6,464 (986) 5,478 783 6,261 6,937 (1,038) 5,899 868 6,767 Loans held to maturity Loans available for sale 4 (4) 0 0 0 (0) 0 0 0 Loans at cost (d) (e) 47,511 (621) 46,890 (388) 46,501 47,496 (601) 46,895 (510) 46,385 Loans 47,515 (626) 46,890 (388) 46,501 47,497 (601) 46,895 (510) 46,385 TOTAL 390,858 (5,318) 385,540 26,542 412,082 394,993 (5,467) 389,526 36,820 426,346 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (c) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (d) Including policy loans. (e) Revaluation to fair value for instruments at cost related to the application of hedge accounting. 5.4.2. in real estate properties) Change in impairment on invested assets (excluding investment (in Euro million) January 1, 2013 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (b) June 30, 2013 (a) Impairment - Debt instruments 1,340 66 (91) (4) (57) 1,254 Impairment - Equity instruments 2,488 225 (230) (32) 2,452 Impairment - Non consolidated investment funds 1,038 54 (64) (42) 986 Impairment - Loans 601 76 (4) (42) (6) 626 TOTAL 5,467 422 (389) (46) (136) 5,318 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. 124 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) January 1, 2012 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2012 Impairment - Debt instruments 2,474 127 (1,226) (25) (11) 1,340 Impairment - Equity instruments 2,883 411 (760) (47) 2,488 Impairment - Non consolidated investment funds 1,141 81 (155) (30) 1,038 Impairment - Loans 610 172 (6) (121) (54) 601 TOTAL 7,108 792 (2,147) (145) (141) 5,467 (a) Mainly relates ot changes in the scope of consolidation and impact of changes in exchange rates. 5.5. FINANCIAL ASSETS RECOGNIZED AT FAIR VALUE Among financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €410 billion as of June 30, 2013 (€423 billion as of December 31, 2012): €259 billion were determined directly by reference to an active market (€252 billion at the end of 2012), i.e. level 1 assets and €151 billion related to assets not quoted in an active market/no active market (€171 billion at the end of 2012), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10 billion (€10 billion at the end of 2012). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. As of June 30, 2013, some assets were reclassified out of level 2 into level 1. This was mainly related to some corporate bonds for which spreads tightened throughout the period. For sovereign bonds, trends observed in 2012 were confirmed in the first semester 2013 with an acceleration of peripheral countries spread contraction and liquidity improvement. These market indicators will continue to be followed to assess the sustainability of those improvements. Therefore, the classification as at June 30, 2013 is maintained similar to the one as at December 31, 2012 levels. Half Year 2013 Financial Report 125 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 6 Shareholders’ equity and minority interests 6.1. IMPACT OF TRANSACTIONS WITH SHAREHOLDERS The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in Note 1. 6.1.1. 2013 Change in shareholders’ equity Group share for the first half of a) Share capital and capital in excess of nominal value During the first half of 2013, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based compensation for €+23 million. Increase in capital €+36 million; b) Treasury shares As of June 30, 2013, the Company and its subsidiaries owned approximately 4 million AXA shares, representing 0.2% of the share capital, a decrease of 12 million shares compared to December 31, 2012. As of June 30, 2013, the carrying value of treasury shares and related derivatives was €197 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (61,455 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2013, 1.6 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €32 million and their market value €21 million at the end of June 2013. c) Undated subordinated debt and related financial expenses As described in Note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2013, the change in other reserves was due to: €+634 million from the issuance of a new undated subordinated debt; €-381 million following the exercise of an early redemption call on an undated subordinated debt; €-144 million in interest expense related to the undated subordinated debt (net of tax); €-155 million in exchange rate differences. 126 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013 and December 31, 2012, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2013 December 31, 2012 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M € 6.0% 375 375 375 375 December 22, 2004 - 250 M € 6.0% 250 250 250 250 January 25, 2005 - 250 M € 6.0% 250 250 250 250 July 6, 2006 - 1000 M € 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M £ 6.7% 500 578 500 607 July 6, 2006 - 350 M £ 6.7% 350 408 350 429 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 420 600 469 November 7, 2006 - 150 M A$ 7.5% 150 105 150 118 December 14, 2006 - 750 M US$ 6.5% 750 571 750 566 December 14, 2006 - 750 M US$ 6.4% 750 571 750 566 October 5, 2007 - 750 M€ 6.2% 750 746 750 746 October 16, 2007 - 700 M £ 6.8% 700 814 700 855 January 22, 2013 - 850 M US$, 5.50% 850 644 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 209 27,000 238 Undated notes (of which 500 M US$ at 7.1% as of December 31, 2012) in US$ 375 287 875 663 Sub-Total Undated Subordinated Debt 7,238 7,786 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 7,333 7,880 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-2,269 million as of June 30, 2013; €-2,125 million as of December 31, 2012. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At the shareholders’ meeting held on April 30, 2013, shareholders approved a dividend distribution of €1,720 million with respect to the 2012 financial year. 6.1.2. 2012 Change in shareholders’ equity Group share for the first half of a) Share capital and capital in excess of nominal value During the first half of 2012, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+16 million. b) Treasury shares As of June 30, 2012, the Company and its subsidiaries owned approximately 16 million AXA shares, representing 0.7% of the share capital, a decrease of 1 million shares compared to December 31, 2011. Half Year 2013 Financial Report 127 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2012, the carrying value of treasury shares and related derivatives was €368 million. This figure included €1.0 million relating to AXA shares held by consolidated mutual funds (81,965 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2012, 2.0 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €43 million and their market value €21 million at the end of June 2012. c) Undated subordinated debt and related financial expenses During the first half of 2012, the change in other reserves was due to €-148 million in interest expense related to the undated subordinated debt (net of tax), and €+135 million in exchange rate differences. d) Dividends paid At the shareholders’ meeting held on April 25, 2012, shareholders approved a dividend distribution of €1,626 million with respect to the 2011 financial year. 6.2. COMPREHENSIVE INCOME FOR THE PERIOD The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2013 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The decrease of gross unrealized gains and losses on assets available for sale totaled to €-10,282 million, of which €- 10,222 million lower unrealized capital gains on debt securities which was mainly driven by interest rates increase. The following table shows the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2013 December 31, 2012 Gross unrealized gains and losses (a) 27,290 37,572 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (14,162) (20,116) Shadow accounting on Deferred Acquisition Costs (b) (596) (801) Shadow accounting on Value of purchased Business In force (561) (651) Unallocated unrealized gains and losses before tax 11,970 16,004 Deferred tax (3,666) (4,831) Unrealized gains and losses (net of tax) - Assets available for sale 8,304 11,173 Unrealized gains and losses (net of tax) - Equity accounted companies (c) 49 4 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 8,353 11,177 Minority interests' share in unrealized gains and losses (d) (68) (78) Translation reserves (e) 29 (211) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (c) 8,314 10,887 (a) Unrealized gains on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including unrealized gains and losses on assets from discontinued operations. (d) Including foreign exchange impact attributable to minority interests. (e) Group share. 128 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2013: (in Euro million) June 30, 2013 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 8,472 4,190 2,108 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (6,065) (3,659) (1,731) Shadow accounting on Deferred Acquisition Costs (b) (113) (10) Shadow accounting on Value of purchased Business In force (53) Unallocated unrealized gains and losses before tax 2,294 530 314 Deferred tax (704) (170) (66) Unrealized gains and losses (net of tax) - Assets available for sale 1,590 361 248 Unrealized gains and losses (net of tax) - Equity accounted companies 19 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 1,609 361 248 Minority interests' share in unrealized gains and losses (c) (4) 0 Translation reserves (d) (165) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 1,605 361 83 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2013 and December 31, 2012 broke down as follows: (in Euro million) June 30, 2013 December 31, 2012 Unrealized gains and losses (net of tax) 100%, opening 11,177 5,218 Transfer in the income statement on the period (a) (513) (469) Investments bought in the current accounting period and changes in fair value (2,095) 6,659 Foreign exchange impact (238) (231) Change in scope and other changes 21 (1) Unrealized gains and losses (net of tax) 100%, closing 8,351 11,177 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €-1,000 million (of which €-1,003 million from group share and €+3 million from minority interest rates) as of June 30, 2013. The group share translation reserves movement (€-1,003 million) was mainly driven by Japan (€-808 million), the United Kingdom (€-229 million) and Switzerland (€-172 million), partly offset by the Company (€+222 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations, and the United States (€+122 million). c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains for the first half year 2013 amounted to €+324 million net group share mostly due to the increase in discount rates. Half Year 2013 Financial Report 129 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 6.2.2. Comprehensive income for the first half of 2012 As described in Note 1.2.1, comprehensive income for the first half of 2012 was retrospectively restated for the amendments to IAS 19. a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The increase of gross unrealized gains and losses on assets available for sale totaled €+7,651 million, of which €+7,601 million higher unrealized capital gains on debt securities was mainly driven by interest rates and corporate spreads decrease. b) Translation reserve The total impact of foreign exchange rate movement was €+646 million (of which €+609 million from group share and €+37 million from minority interest rates) as of June 30, 2012. The group share translation reserves movement (€+609 million) was mainly driven by the United States (€+221 million), the United Kingdom (€+126 million), Switzerland (€+87 million), Mexico (€+67 million) and Hong Kong (€+54 million) partly offset by Japan (€-99 million) and the Company (€-89 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2012 amounted to €-889 million net group share mostly due to the drop in discount rates. 6.3. CHANGE IN MINORITY INTERESTS Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2013 Minority interests decreased by €2 million to €2,353 million driven by: Movements in the comprehensive income for the period, mainly Net income attributable to minority interests for €154 million; Transaction with minority interests’ holders, mainly Dividend payout to minorities for €-158 million. 6.3.2. Change in minority interests for the first half of 2012 Minority interests increased by €112 million to €2,479 million driven by: Movements in the comprehensive income for the period, mainly: o Net income attributable to minority interests for €+101 million; o Change in translation reserves for €+37 million; o Reserves relating to changes in fair value through shareholders’ equity for €+23 million. Transaction with minority interests’ holders, mainly: o Dividend payout to minorities for €-72 million. 130 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 7 Financing debt (in Euro million) Carrying value June 30, 2013 December 31, 2012 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated notes, 5.25% due 2040 (€) Subordinated notes, 5.125% due 2043 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus notes, 7.70 %, due 2015 MONY Life 11.25% Surplus notes due 2024 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 7,582 2,082 1,515 1,300 1,000 916 379 389 154 154 - 328 106 6,682 2,043 1,482 1,300 - 907 398 553 153 152 1 347 126 Undated Subordinated debt fixed rate 221 221 AXA-MPS Vita and Danni 108 108 Subordinated notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 26 26 Subordinated debt 8,197 7,317 AXA Euro Medium Term Notes, 6.0% due through 2013, and BMTN 1,000 - 1,841 841 Euro Medium Term Notes, due through 2015 1,000 1,000 AXA Financial 268 264 Senior notes, 7%, due 2028 268 264 AXA UK Holdings GRE: Loan Notes, 6.625%, due 2023 178 178 188 188 Other financing debt instruments issued (under €100 million) 183 221 Other financing debt instruments issued (under €100 million) 211 220 Derivatives relating to other financing debt instruments issued (a) (28) 1 Financing debt instruments issued 1,629 2,514 AXA 785 830 Other financing debt owed to credit institutions (under €100 million) 1 1 Financing debt owed to credit institutions 786 831 TOTAL FINANCING DEBT (b) 10,613 10,662 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not qualified as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Main movements on financing debt during the period were the following: The issuance of €1 billion subordinated debt due 2043 (5.125% annual coupon, fixed until the first call date in July 2023 and floating thereafter with a step up of 100 basis points), to anticipate the refinancing of part of subordinated debt instruments maturing on January 1, 2014. The repayment of €841 million Euro Medium Term Note maturing in 2013. Half Year 2013 Financial Report 131 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 8 Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. (in Euro million) (a) June 30, 2013 June 30, 2012 Restated (b) Net income Group share 2,467 2,544 Undated subordinated debt financial charge (144) (148) Net income including impact of undated subordinated debt A 2,323 2,396 Weighted average number of ordinary shares (net of treasury shares) - opening 2,372 2,340 Increase in capital (excluding stock options exercised) (c) 0 0 Stock options exercised (c) 2 0 Treasury shares (c) 6 0 Share purchase program (c) Weighted average number of ordinary shares B 2,381 2,340 BASIC NET INCOME PER ORDINARY SHARE C = A / B 0.98 1.02 Potentially dilutive instruments : Stock options 2 1 Other 6 2 Fully diluted - weighted average number of shares (d) D 2,388 2,343 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 0.97 1.02 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Weighted average. (d) Taking into account the impact of potentially dilutive instruments. As of June 30, 2013, net income per ordinary share stood at €0.98 on a basic calculation, and at €0.97 on a fully diluted basis. As of June 30, 2012, net income per ordinary share stood at €1.02 on a basic calculation, as well as on a fully diluted basis. Before the restatement required by the amendments to IAS 19, Half-Year 2012 net income per ordinary share stood at €1.04 on a basic calculation as well as on a fully diluted basis. 132 Half Year 2013 Financial Report STATUTORY AUDITORS’ REVIEW III Statutory auditors’ review report on the 2013 Half Year Financial Information Half year 2013 Financial Report 133 III III STATUTORY AUDITORS’ REVIEW PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2013 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2013 ; the verification of the information contained in the half-year management report. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 2, 2013 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Half year 2013 Financial Report 134 STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF YEAR FINANCIAL REPORT IV Statement of the person responsible for the Half Year Financial Report Half Year 2013 Financial Report 135 IV IV STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF YEAR REPORT Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2013 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 5, 2013. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations Half Year 2013 Financial Report 136"},"Input":{"kind":"string","value":"Semestriel, 2013, Insurance, AXA"},"Query":{"kind":"string","value":"write me a financial report"}}},{"rowIdx":299,"cells":{"Period":{"kind":"string","value":"Semestriel"},"Year":{"kind":"number","value":2014,"string":"2,014"},"Subject":{"kind":"string","value":"Insurance"},"Company":{"kind":"string","value":"AXA"},"Prompt":{"kind":"string","value":"Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.\n\n### Instruction:\nWrite a detailed financial report on the given subject and company.\n\n### Subject:\nInsurance\n\n### Company:\nAXA\n\n### Response:\n"},"Response":{"kind":"string","value":"Half Year Financial Report June 30, 2014 Table of contents I Activity Report ............................................................. II Consolidated financial statements ............................ III Statutory auditors’ review report on the 2014 Half- Year Financial Information ............................................ IV Statement of the person responsible for the Half- Year Financial Report .................................................... ACTIVITY REPORT I Activity Report / Half-Year 2014 Half Year 2014 Financial Report 1 I ACTIVITY REPORT CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2013, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Half Year 2014 Financial Report 2 I ACTIVITY REPORT FINANCIAL MARKET CONDITIONS IN THE FIRST HALF OF 2014 The first half of 2014 has been largely defined by central bank monetary policy, particularly in the US, UK and Europe, as well as the geopolitical risk in Russia, Ukraine and Iraq. Global stock markets rose to deliver +4.3% over the period (MSCI World Index) although in some areas returns were weaker than anticipated. Emerging markets experienced a weak start as growth in China slowed and several emerging economies were impacted as the US started to taper quantitative easing. This has seen fixed income markets rise and remain strong throughout the first half of the year, much in contrast to the bond sell-off that characterised the final months of 2013. As government bonds have rallied, their yields have fallen significantly causing investors to look to credit and high yield assets in search of yield. The US Federal Reserve maintained consistent monetary policy by steadily tapering quantitative easing and keeping the base rate at 0.25% throughout the period. The US, however, was hit by extremely harsh winter conditions that were largely cited as the cause of the softer economic data readings that emerged during the first half of the year. New Fed Chair Yellen caused some market fluctuations when she implied that interest rates might rise sooner than expected, but her long-term message was ultimately dovish. Recovery in Europe, although apparent, has been sluggish, with weak Eurozone GDP figures. The biggest threat, however, was the worryingly low levels of inflation. The European Central Bank took drastic actions to avoid potential deflation by introducing a number of measures, the most significant of which were cutting both the base and deposit rates to 0.15% and -0.10% respectively, and introducing a “targeted” long-term refinancing operation in order to stimulate growth and bank lending. Emerging markets struggled towards the start of the period as China released disappointing economic news and the US started tapering quantitative easing. Russia suffered on the back of its issues with Ukraine: its credit rating was downgraded and its growth forecast cut by Standard & Poor’s and the IMF respectively. However, India saw an exceptionally strong rebound in industrial production and Colombia and Mexico benefitted from improving economic data. Several regions struggled with inflation over the period, such as Brazil and Turkey. The Bank of Japan (BoJ) opted to continue its monetary easing policy as the economy showed distinct signs of recovery, inflation data being particularly encouraging. By period-end inflation had shown its fastest increase in 32 years. Stock Markets Equity markets had mixed performance in first half of 2014 across the globe with modest gains in US and European markets and decline in major Asian markets. The MSCI World Index increased by 4.3%. The Dow Jones Industrial Average Index in New York increased by 1.5% and the S&P 500 index increased by 6.1% in first half of 2014. The FTSE 100 Index in London decreased by 0.1% in first half of 2014. The CAC 40 index in Paris increased by 3.0% and the Nikkei index in Tokyo decreased by 6.9%. The MSCI G7 Index increased by 4.2% and the MSCI Emerging Index increased by 3.3%. The S&P 500 implied volatility Index decreased from 13.7% to 11.6% between December 31, 2013 and June 30, 2014. The S&P 500 realized volatility index increased from 10.3% to 11.3% between December 31, 2013 and June 30, 2014. Bond Markets The US 10-year T-bond ended the first half of 2014 at 2.53%, a decrease of 51 bps compared to December 31, 2013. The 10-year German Bund yield decreased by 68 bps to 1.25%. The France 10-year government bond yield decreased by 85 bps to 1.71%. The 10-year Japanese government bond ended the first half at 0.57%, a decrease of 18 bps compared to December 31, 2013. The 10-year Belgium government bond ended the first half at 1.70% (86 bps decrease compared to December 31, 2013). The 10-year government bonds in Eurozone peripheral countries decreased sharply: Italy ended the first half at 2.85% (a decrease of 128 bps compared to December 31, 2013), Spain ended the first half at 2.67% (a decrease of 149 bps compared to December 31, 2013), Greece ended the first half at 5.96% (a decrease of 246 bps compared to December 31, 2013), Ireland ended the first half at 2.36% (a decrease of 111 bps compared to December 31, 2013), Portugal ended the first half at 3.65% (a decrease of 248 bps compared to December 31, 2013). Half Year 2014 Financial Report 3 I ACTIVITY REPORT In Europe, the iTRAXX Main spreads decreased by 8 bps to 62 bps compared to December 31, 2013 while the iTRAXX Crossover decreased by 45 bps to 242 bps. In the United States, the CDX Main spread Index decreased by 4 bps to 59 bps. Exchange rates In this context, exchange rates were relatively stable during 1H 2014, but the Euro appreciated against main currencies compared to 1H 2013, as shown below: End of Period Exchange Rate Average Exchange Rate June 30, 2014 December 31, 2013 June 30, 2014 June 30, 2013 (for €1) (for €1) (for €1) (for €1) U.S. Dollar 1.37 1.38 1.37 1.31 Japanese Yen (x100) (a) 1.39 1.45 1.40 1.13 British Sterling Pound 0.80 0.83 0.82 0.85 Swiss Franc 1.21 1.23 1.22 1.23 (a) Yen average exchange rate for the six months ending March 31, 2013 used for half year 2013 accounts profit or loss. OPERATING HIGHLIGHTS Significant acquisitions AXA COMPLETED THE ACQUISITION OF 50% OF TIAN PING On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited (\"Tian Ping\") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces with a market share of 0.8%(1). On February 20, 2014, AXA announced the finalization of the acquisition. AXA has acquired 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 240 million(2)) and subsequently subscribed to a capital increase for RMB 2.0 billion (or Euro 251 million(2)) to support future growth, raising its stake to 50%. AXA and Tian Ping's current shareholders jointly control Tian Ping. AXA’s previously existing Chinese P&C operations have been integrated within the new joint venture. AXA becomes the largest foreign Property & Casualty insurer in China and consolidates its position as the largest international P&C insurer in Asia (excluding Japan). The acquired operations are consolidated through the equity method since February 20, 2014. AXA COMPLETED THE ACQUISITION OF 51% OF COLPATRIA'S INSURANCE OPERATIONS IN COLOMBIA On November 11, 2013, AXA announced it had entered into an agreement with Grupo Mercantil Colpatria to acquire a 51% stake in its composite insurance operations in Colombia (“Colpatria Seguros”)(3). On April 2, 2014, AXA announced it had completed the acquisition for a total consideration of COP 672 billion (or Euro 248 million(4)). The acquired operations are integrated within the Mediterranean & Latin American Region and fully consolidated since April 2, 2014. (1) Source: CIRC, December 2013. (2) 1 EUR = RMB 7.982 as of February 19, 2014. (3) The scope of the transaction includes the four insurance companies of Grupo Mercantil Colpatria: Seguros Colpatria S.A. (Property & Casualty), Seguros de Vida Colpatria S.A. (Life, Workers Compensation), Capitalizadora Colpatria S.A. (Capitalization) and Colpatria Medicina Prepagada S.A. (Voluntary Health). (4) EUR 1 = COP 2,711.67 as of March 31, 2014. Half Year 2014 Financial Report 4 I ACTIVITY REPORT Colpatria Seguros is the #4(1) insurance player in Colombia (7% market share), with operations in both Property & Casualty and Life & Savings. It enjoys strong positions in Property & Casualty (#2 with 9% market share), Workers Compensation (#4 with 14% market share) and Capitalization (#2 with 42% market share). The transaction allows AXA to enter the attractive Colombian market and benefit from its strong growth prospects through developed and profitable operations with a well-established local partner. AXA Colpatria Seguros will benefit from AXA’s strong know-how to accelerate further its development and leverage its competitive advantages in the Colombian market. Significant disposals AXA COMPLETED THE SALE OF ITS HUNGARIAN LIFE & SAVINGS INSURANCE OPERATIONS On June 3, 2014, AXA announced it had completed the sale of its Life & Savings operations in Hungary(2) to Vienna Insurance Group. AXA continues to have banking operations in the country. This transaction triggered an exceptional capital loss, which was accounted for in Net Income in 2013. Other PLACEMENT OF GBP 750 MILLION SUBORDINATED NOTES On January 9, 2014, AXA announced the successful placement of GBP 750 million of Reg S subordinated notes due 2054 to institutional investors. The initial coupon has been set at 5.625% per annum. It will be fixed until the first call date in January 2034 and floating thereafter with a step up of 100 basis points. The initial spread over Gilt was 215 basis points. The notes are treated as capital from a regulatory and rating agencies’ perspective within applicable limits. The transaction has been structured to comply with the expected eligibility criteria for Tier 2 capital treatment under Solvency II. PLACEMENT OF EUR 1 BILLION UNDATED SUBORDINATED NOTES On May 16, 2014, AXA announced the successful placement of EUR 1 billion of Reg S undated subordinated notes to institutional investors. The initial spread over swap is 225 basis points. The initial coupon has been set at 3.875% per annum. It will be fixed until the first call date in October 2025 and reset thereafter every 11 years with a 100 basis points step-up. The notes are treated as capital from a regulatory and rating agencies' perspective within applicable limits. The transaction has been structured to comply with the eligibility criteria for the 50% perpetual subordinated debt limit under Solvency 1 and in order to be eligible as capital under Solvency II. AXA Rating On March 11, 2014, Fitch reaffirmed all AXA entities' Insurer Financial Strength ratings at ‘AA-’. Outlook was revised to Stable from Negative. On May 9, 2014, Moody’s Investors Services reaffirmed the ‘Aa3’ insurance financial strength ratings of AXA’s main operating subsidiaries. The rating agency has also changed the outlook from negative to stable on all ratings. On May 26, 2014, S&P reaffirmed long-term ratings on AXA Group core subsidiaries at ‘A+’ with a stable outlook. Related-party transactions During the first half of the fiscal year 2014, there were (1) no modifications to the related-party transactions described in Note 28 \"Related-party transactions\" of the audited consolidated financial statements for the fiscal year ended December 31, 2013 included in the full year 2013 Registration Document (pages 320 and 321) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well (1) Based on information furnished by Colpatria and on Superintendencia Financiera de Colombia publicly available information. (2) AXA Insurance Company and AXA Money & More. Half Year 2014 Financial Report 5 I ACTIVITY REPORT as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2014, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2014. Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 \"Risk factors\" included in the full year 2013 Registration Document (respectively in pages 152 to 154 and pages 155 to 167) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2013 Registration Document remains valid in all material respects at the date of the publication of this Report regarding the appreciation of the major risks and uncertainties affecting the Group on June 30, 2014 or which management expects could affect the Group during the remainder of 2014. EVENTS SUBSEQUENT TO JUNE 30, 2014 There has been no event subsequent to June 30, 2014. Half Year 2014 Financial Report 6 I ACTIVITY REPORT REVENUES & EARNINGS SUMMARY The application of IFRS 10 and 11 has become effective since January 1, 2014, and the comparative information in respect of 2013 has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the new standards which in particular led to the change in consolidation method of a Property and Casualty company (Natio Assurances reported within the Direct segment) from proportionate consolidation to equity method. This change in consolidation method has no impact on the profit or loss for the current year or prior year. Consolidated gross revenues Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) June 30, 2014 / June 30, 2013 restated (b) Life & Savings 29,039 29,603 29,603 55,331 55,331 1.8% o/w. gross written premiums o/w. fees and revenues from investment contracts with no participating feature Property & Casualty 28,300 159 16,820 28,909 133 16,497 28,909 133 16,483 53,861 323 28,791 53,861 323 28,763 2.2% International Insurance 1,966 1,909 1,909 3,143 3,143 4.5% Asset Management 1,593 1,741 1,741 3,461 3,461 4.1% Banking (c) 287 293 293 524 524 3.3% Holdings and other companies (d) 0 0 0 0 0 n/a TOTAL 49,705 50,044 50,030 91,249 91,221 2.1% Revenues are disclosed net of intercompany eliminations. (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Changes are on a comparable basis. (c) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of options and derivatives, net banking revenues and total consolidated revenues would respectively amount to €286 million and €49,703 million for half year 2014 and €291 million and €50,028 million for half year 2013. (d) Includes notably CDOs and real estate companies. Consolidated gross revenues for half year 2014 reached €49,705 million, up 2.1% compared to half year 2013 on a comparable basis. The comparable basis mainly consisted in the adjustment of: (i) the foreign exchange rate movements (€-1.0 billion or -1.9 points), mainly Euro appreciation against JPY and USD, (ii) the alignment of closing dates in Japan(1) (€-0.2 billion or -0.4 point), (iii) the closed MONY portfolio transaction in 2013 (€-0.1 billion or -0.3 point), (iv) the disposal of AXA Private Equity (€-0.1 billion or -0.3 point), (v) the acquisition of Colpatria's insurance operations in Colombia in 2014 (€+0.2 billion or +0.4 point) and (vi) the restatement of the retrospective application of IFRS 10 and 11 as mentioned above. (1) AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. In the comparable basis, half year 2013 contribution was restated to cover January 1, 2013 to June 30, 2013 period. Half Year 2014 Financial Report 7 I ACTIVITY REPORT Life & Savings Annual Premium Equivalent (1) Annual Premium Equivalent (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 June 30, 2014 / June 30, 2013 (a) TOTAL 3,181 3,310 6,335 0.2% France 765 690 1,431 10.6% United States 634 655 1,322 1.2% United Kingdom 369 365 647 2.3% Japan 175 240 504 1.1% Germany 176 218 385 19.2% Switzerland 222 310 430 28.9% Belgium 72 94 151 23.5% Central & Eastern Europe 41 55 108 20.0% Mediterranean and Latin American Region 271 227 443 20.7% Hong Kong 226 215 443 9.3% South-East Asia, India and China 225 237 463 13.7% Mature markets 2,668 2,773 5,265 1.1% High growth markets 513 537 1,070 6.9% (a) Changes are on a comparable basis. Total Life & Savings New Business APE amounted to €3,181 million, down 3.9% on a reported basis or up 0.2% on a comparable basis. The increase in sales of G/A Savings and Unit-Linked products was offset by lower sales of G/A Protection & Health explained by the repositioning of the Group Life product mix in Switzerland and the non-repeat of 1Q13 strong Health sales recorded in Germany. High growth markets APE increased by 7% as strong growth in South-East Asia, India & China (+14% or €+31 million) and Hong Kong (+9% or €+20 million) was partly offset by a slowdown in Central & Eastern Europe (-20% or €-10 million). Protection & Health APE (38% of total) was down 4%, driven by (i) Switzerland, following the repositioning of the Group Life product mix towards more profitable semi-autonomous schemes (pure mortality and disability insurance contracts generating relatively lower APE but higher margins) and voluntary reduction in sales of full protection schemes, which have a capital intensive general account savings component, by (ii) Germany mainly in Health due to the non-repeat of 1Q13 strong sales resulting from the anticipation of a change in regulation and by (iii) the US mainly due to increased competition in Indexed Universal Life. This was partly offset by increased volumes in South-East Asia, India & China, France and Hong Kong. Unit-Linked APE (35% of total) was up 2% mainly driven by (i) the US primarily reflecting the continued success of the floating roll up rate GMxB product, and (ii) Germany and Italy mainly following the successful launch of new hybrid(2) products. This increase was partly offset by Belgium; General Account Savings APE (15% of total) was up 9% mainly driven by higher sales of hybrid products notably in France and Italy, partly offset by Germany mainly due to a voluntary shift in business mix towards Unit-Linked products. (1) Annual Premium Equivalent (APE) represents 100% of new regular premiums plus 10% of single premium, in line with EEV methodology. APE is Group share. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 8 I ACTIVITY REPORT Property & Casualty Revenues Property & Casualty Revenues (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) June 30, 2014 / June 30, 2013 restated (b) TOTAL . Mature markets Direct High growth markets 16,820 13,349 1,202 2,269 16,497 13,073 1,152 2,272 16,483 13,073 1,138 2,272 28,791 21,996 2,274 4,520 28,763 21,996 2,247 4,520 2.2% 1.2% 7.0% 4.8% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Changes are on a comparable basis. Property & Casualty gross revenues were up 2% on a reported basis, and on a comparable basis to €16,820 million. Personal lines increased by 1% mainly driven by France, Direct and Switzerland. Commercial lines increased by 3%, primarily in the Mediterranean and Latin American high growth markets, the United Kingdom & Ireland, France and Asia. Overall, average tariff increases amounted to 2%. Personal lines (57% of P&C gross revenues) were up by 1% on a comparable basis. Motor revenues grew by €61 million or +1% as a result of tariff increases in mature markets and higher volumes in Direct business and Asia, partly offset by lower average premiums with: Direct (+7%) driven by improved retention in the United Kingdom and South Korea, new business growth in France and Japan, partly offset by slowdown in Spain in a difficult market environment; France (+3%) driven by both tariff increases and higher volumes; Switzerland (+2%) driven by higher volumes; Asia (+7%) due to a strong increase in car sales in Malaysia; partly offset by Mediterranean and Latin American Region (-5%), primarily driven by Turkey (-14%) due to increased competition combined with a decrease in private car sales and by Italy (-5%) reflecting tariff decreases and a lower average premium. Non-Motor revenues increased by €58 million or +2% mainly driven by tariff increases across the board and higher volumes, partly offset by lower average premiums with: France (+3%) mainly driven by tariff increases in Household; Switzerland (+5%) reflecting tariff increases in Property and Liability; Direct (+9%) mainly attributable to Household in France and Accident and Health in South Korea; partly offset by the United Kingdom & Ireland (-5%) mainly due to the exit from unprofitable schemes and partnerships in the second half of 2013. Commercial lines (43% of P&C gross revenues) increased by 3% on a comparable basis mainly driven by tariff increases across the board as well as volume increases in high growth markets. Motor revenues increased by €33 million or +2%, mainly driven by: The United Kingdom & Ireland (+11%) principally due to increased new business volumes; France (+6%) mainly due to tariff increases; partly offset by Germany (-6%) reflecting stricter underwriting and pruning measures. Non-Motor revenues increased by €207 million or +4% mainly driven by: Mediterranean and Latin American Region (+8%) mainly driven by positive portfolio developments in Health in the Gulf Region and in Property in Turkey; France (+5%) following tariff increases in Property and positive developments in Creditor business; The United Kingdom & Ireland (+4%) as a result of new business increase in Property. Half Year 2014 Financial Report 9 I ACTIVITY REPORT International Insurance revenues International insurance revenues were up 5% on comparable basis to €1,966 million, mainly driven by (i) AXA Assistance up 7% to €558 million driven by higher volumes and (ii) AXA Corporate Solution Assurance up 3% to €1,379 million mainly as a consequence of positive portfolio developments and tariff increases in Construction, Marine and Property, partly offset by Aviation and Liability in a soft market environment. Asset management revenues and Assets under Management Asset Management revenues decreased by 9% on reported basis, or increased by 4% on a comparable basis, to €1,593 million mainly driven by higher management fees at both AllianceBernstein and AXA IM as a result of higher average Assets Under Management (AUM). AllianceBernstein revenues were up 3% (or €+28 million) on a comparable basis to €1,029 million mainly driven by higher management fees (€+22 million) resulting from higher average AUM (+4%), as well as higher performance fees (€+10 million). AUM increased by 7% or €25 billion from year-end 2013 to €371 billion mainly driven by (i) €+18 billion from market appreciation primarily on Fixed Income assets, (ii) €+3 billion net inflows, (iii) €+2 billion favorable foreign exchange rate impact and (iv) €+2 billion change in scope related to the acquisition of a Danish global equity asset management firm (CPH Capital). AXA Investment Managers revenues decreased by 15% (or €-121 million) on a reported basis to €707 million. Excluding distribution fees (retroceded to distributors) and on a comparable basis, net revenues increased by 5% (or €+27 million) mainly driven by higher management fees (€+26 million) resulting from higher average AUM (+3%). AUM increased by 6% or €35 billion from year-end 2013 to €582 billion mainly driven by (i) €+21 billion from market appreciation mainly on AXA’s insurance companies assets as a result of the decrease in interest rates and rising stock markets since end of 2013, (ii) €+11 billion net inflows and (iii) €+5 billion favorable foreign exchange rate impact. Net banking revenues Net banking revenues decreased by 2% on a reported basis or by 3% on a comparable basis to €274 million. Operating net banking(1) revenues were stable. (1) Before intercompany eliminations and before realized capital gains/losses or changes in fair value of fair value option assets and of hedging instruments. Half Year 2014 Financial Report 10 I ACTIVITY REPORT Consolidated Underlying Earnings, Adjusted Earnings And Net Income The application of IFRS 10 and 11 has become effective since January 1, 2014, and the comparative information in respect of 2013 has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the new standards which in particular led to the change in consolidation method of a Property and Casualty company (Natio Assurances reported within the Direct segment) from proportionate consolidation to equity method. This change in consolidation method has no impact on the profit or loss for the current year or prior year. (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) Gross written premiums 46,944 47,168 47,154 85,509 85,481 Fees and revenues from investment contracts without participating feature 159 133 133 323 323 Revenues from insurance activities 47,103 47,301 47,287 85,832 85,804 Net revenues from banking activities 244 283 283 517 517 Revenues from other activities 2,316 2,451 2,451 4,900 4,900 TOTAL REVENUES 49,663 50,036 50,022 91,248 91,220 Change in unearned premium reserves net of unearned revenues and fees (4,266) (3,816) (3,816) (296) (298) Net investment result excluding financing expenses (b) 14,066 13,330 13,328 33,254 33,249 Technical charges relating to insurance activities (b) (45,895) (45,154) (45,148) (96,098) (96,087) Net result of reinsurance ceded (363) (938) (935) (1,209) (1,205) Bank operating expenses (37) (44) (44) (80) (80) Insurance acquisition expenses (4,607) (4,738) (4,736) (9,902) (9,899) Amortization of value of purchased life business in force (57) (50) (50) (167) (167) Administrative expenses (4,428) (4,491) (4,489) (9,231) (9,227) Valuation allowances on tangible assets (0) (0) Change in value of goodwill (1) (0) (0) (0) (0) Other (75) (136) (136) (240) (240) Other operating income and expenses (55,463) (55,551) (55,539) (116,928) (116,906) OPERATING EARNINGS BEFORE TAX 4,001 3,999 3,994 7,277 7,265 Net income from investments in affiliates and associates 91 53 56 119 127 Financing expenses (266) (333) (333) (601) (601) UNDERLYING EARNINGS BEFORE TAX 3,826 3,719 3,718 6,794 6,790 Income tax expenses (900) (990) (989) (1,761) (1,757) Minority interests (148) (150) (150) (305) (305) UNDERLYING EARNINGS 2,777 2,579 2,579 4,728 4,728 Net realized capital gains or losses attributable to shareholders 335 375 375 434 434 ADJUSTED EARNINGS 3,112 2,954 2,954 5,162 5,162 Profit or loss on financial assets (under fair value option) & derivatives 37 (228) (228) (317) (317) Exceptional operations (including discontinued operations) (45) (86) (86) 38 38 Goodwill and other related intangible impacts (55) (54) (54) (138) (138) Integration and restructuring costs (41) (118) (118) (263) (263) NET INCOME 3,008 2,467 2,467 4,482 4,482 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) For the periods ended June 30, 2014 and June 30, 2013, \"the change in fair value of assets backing contracts with financial risk borne by policyholders\" impacted the net investment result for respectivly €+5,613 million and €+8,070 million, and benefits and claims by the offsetting amounts respectively. Half Year 2014 Financial Report 11 I ACTIVITY REPORT Group underlying earnings Underlying earnings (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Life & Savings 1,651 1,534 2,793 Property & Casualty 1,226 1,128 2,105 International Insurance 135 103 202 Asset Management 184 194 400 Banking 68 61 78 Holdings and other companies (a) (486) (441) (851) UNDERLYING EARNINGS 2,777 2,579 4,728 (a) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,777 million, up 8% versus half year 2013. On a constant exchange rate basis, underlying earnings increased by 11% driven by growth in most business segments. Life & Savings underlying earnings amounted to €1,651 million. On a constant exchange rate basis, Life & Savings underlying earnings increased by €198 million (+13%). On a comparable scope basis, mainly restated for the closed MONY portfolio transaction, Life & Savings underlying earnings were up €228 million (+15%) mainly attributable to the United States (€+170 million), France (€+44 million), the United Kingdom (€+22 million) and South-East Asia, India and China (€+17 million), partly offset by Japan (€-48 million) mainly resulting from: Higher investment margin (€+22 million or +2%) mainly attributable to (i) France (€+21 million) and (ii) Germany (€+16 million) both mainly reflecting lower crediting rates and (iii) the United States (€+15 million) driven by higher equity returns, partly offset by (iii) Japan (€-37 million) mainly due to the non-repeat of 2013 high dividends from equity and private equity funds following Japanese stock market rally. Higher Fees and Revenues (€+60 million or +2%): o Unit-Linked management fees were up €90 million mainly driven by (i) the United States (€+63 million) and (ii) France (€+17 million) as a consequence of higher average Separate Account balances following 2013 equity market rally; o Loadings on premiums and mutual funds were down €41 million mainly driven by lower Unearned Revenues Reserves amortization in the US (€-101 million) and France (€-64 million) due to assumptions and model updates. Excluding those impacts (largely offset in DAC), loadings on premiums and mutual funds were up €124 million driven by (i) Mediterranean and Latin American Region (€+49 million) mainly from increased surrenders at AXA MPS, (ii) Japan (€+40 million) due to higher loadings reflecting a better business mix and increased retention and (iii) Hong Kong (€+15 million) due to higher loadings on premiums stemming from new business and in-force growth; o Other revenues were up €11 million mainly driven by higher mutual funds product fees in the United States. Higher net technical margin (€+86 million or +23%) mainly attributable to (i) France (€+100 million) driven by a more favorable current year claims experience mainly in Group and Individual Protection business, and by higher positive prior year reserve developments in Retirement business, (ii) Germany (€+13 million) mainly driven by a higher mortality margins in all business lines, partly offset by the United States (€-23 million) primarily from lower life mortality margins, partly offset by an improvement in GMxB margin. Lower expenses (€+53 million or -2%) as a result of: o €+98 million lower acquisition expenses primarily driven by €+122 million lower DAC amortization mainly in the US (€+104 million) and France (€+72 million) due to assumptions and model updates, partly offset by Mediterranean and Latin American Region (€-26 million) reflecting increased surrenders. Excluding DAC amortization (largely offset in Unearned Revenues Reserves), acquisition expenses increased by €24 million mainly driven by higher commissions in line with activity growth mainly in Group Protection & Health business in France and Hong Kong; €-46 million higher administrative expenses as inflation, one-offs and business growth effects were partly offset by ongoing cost management efforts. o Half Year 2014 Financial Report 12 I ACTIVITY REPORT Higher tax expenses and minority interests (€-8 million or +2%) driven by higher pre-tax underlying earnings, partly offset by more favorable tax one-offs (€+121 million in the US in 1H 2014 vs. €+41 million in Japan and Hong Kong in 1H 2013). Property & Casualty underlying earnings amounted to €1,226 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €105 million (+9%) mainly attributable to Germany (€+50 million), Switzerland (€+37 million), the Mediterranean and Latin American Region (€+18 million), and Direct (€+12 million), partly offset by France (€-20 million) mainly resulting from: Lower net technical result (€-5 million or -1%) driven by: o Current year loss ratio improving by 0.1 point as a result of tariff increases and lower claims frequency, partly offset by higher severity and higher Nat Cat charges (+1.0 point to 1.7%) that amounted to €245 million largely as a result of ELA hailstorm (€241 million at Group level or +1.7 points) mainly impacting France, Belgium and Germany while Half Year 2013 was mainly impacted by floods in Bavaria and Saxony (€73 million charge at Group level); o Lower positive prior year reserve developments by 0.6 point to -1.3 points (compared to 1.8 points in 1H 2013); o Lower expense ratio improving by 0.4 point to 25.9% with (i) 0.3 point reduction in the acquisition ratio driven by both productivity gains and decrease in commission ratio and (ii) 0.1 point decrease in the administrative expenses ratio benefitting from various efficiency programs net of inflation; o As a result, the combined ratio deteriorated by 0.2 point to 95.8% while current year combined ratio improved by 0.4 point to 97.1%. Higher investment result (€+125 million or +12%) mainly driven by (i) France (€+64 million) driven by higher exceptional distributions from mutual funds and (ii) the Mediterranean and Latin American Region (€+46 million) mainly in Turkey reflecting higher interest rates and increased average asset base. Higher tax expenses and minority interests (€-38 million or +8%) driven by higher pre-tax underlying earnings as well as less favorable tax one-offs (€-3 million in 1H 2014 vs. €+14 million in 1H 2013 in the Mediterranean and Latin American Region). International insurance underlying earnings amounted to €135 million. On a constant exchange rate basis, underlying earnings increased by €32 million (or +31%) mainly attributable to (i) lower taxes on prior year reserve developments at AXA Corporate Solutions and (ii) favorable developments on the run-off portfolios. Asset Management underlying earnings amounted to €184 million. On a constant exchange rate basis, underlying earnings decreased by €8 million (or -4%). On a comparable scope basis, restated for the sale of AXA Private Equity, Asset Management underlying earnings were up €19 million (+11%) attributable to AllianceBernstein (€+10 million) and AXA IM (€+8 million), both due to higher revenues net of variable compensation. Banking underlying earnings amounted to €68 million. On a constant exchange rate basis, underlying earnings increased by €7 million (+12%) mainly attributable to (i) Belgium (€+3 million) as a result of a higher interest margin and (ii) France (€+2 million) due to a rise in net operating revenues reflecting higher interest income on retail loans. Holdings and other companies underlying earnings amounted to €-486 million. On a constant exchange rate basis, underlying earnings decreased by €51 million mainly attributable to AXA SA (€-79 million) mainly reflecting (i) Group investments to support advertising campaigns across the Group and increase digital capabilities, (ii) a decrease in dividends received from non-consolidated subsidiaries and (iii) an increase in the French tax on dividends of 3% due to higher dividend paid by the Company. Group adjusted earnings to net income Group net capital gains attributable to shareholders amounted to €335 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders decreased by €42 million mainly due to: Half Year 2014 Financial Report 13 I ACTIVITY REPORT €-117 million lower realized capital gains to €439 million mainly driven by lower realized gains on fixed income assets (€-63 million), real estate (€-33 million) and equities (€-30 million); €+68 million lower impairments to €-91 million mainly driven by equities (€+45 million) and real estate (€+16 million); €+7 million less unfavorable intrinsic value to €-13 million related to equity hedging derivatives. As a result, adjusted earnings amounted to €3,112 million. On a constant exchange rate basis, adjusted earnings increased by €241 million (+8%). Net income amounted to €3,008 million. On a constant exchange rate basis, net income increased by €618 million (+25%) mainly as a result of: higher adjusted earnings (€+241 million); a favorable change in fair value of financial assets and derivatives in half year 2014 compared to an unfavorable change in half year 2013; a change of €+269 million to €37 million which can be analyzed as follows: accounting under IAS 39, mainly attributable to interest rates decrease; o €+46 million from the change in fair value of assets accounted for as under fair value option; o €-87 million following foreign exchange rate movements notably driven by an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting under IAS 39. lower negative impact from exceptional operations (€+40 million) mainly driven by the non-repeat of the realized loss from the closed Mony portfolio transaction (€+32 million); lower restructuring costs (€+78 million) mainly driven by the non-repeat of 2013 real estate lease write-off in the United-States. Half Year 2014 Financial Report 14 I ACTIVITY REPORT CONSOLIDATED SHAREHOLDERS’ EQUITY As of June 30, 2014, consolidated shareholders' equity totalled €58.9 billion. The movements in shareholders' equity since December 31, 2013 are presented in the table below: Shareholders' Equity At December 31, 2013 52,923 Share Capital 9 Capital in excess of nominal value 31 Equity-share based compensation 15 Treasury shares sold or bought in open market 28 Deeply subordinated debt (including interests charges) 814 Fair value recorded in shareholders' equity 3,950 Impact of currency fluctuations 530 Payment of N-1 dividend (1,960) Other 10 Net income for the period 3,008 Actuarial gains and losses on pension benefits (455) At June 30, 2014 58,903 SHAREHOLDER VALUE Earnings per share (“EPS”) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) Var. June 30, 2014 versus June 30, 2013 restated (a) (in Euro million except ordinary shares in million) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,417.9 2,432.9 2,380.6 2,388.1 2,380.6 2,388.1 2,383.9 2,397.2 2,383.9 2,397.2 Net income (Euro per Ordinary Share) 1.18 1.18 0.98 0.97 0.98 0.97 1.76 1.75 1.76 1.75 21% 21% Adjusted earnings (Euro per Ordinary Share) 1.23 1.22 1.18 1.18 1.18 1.18 2.05 2.03 2.05 2.03 4% 4% Underlying earnings (Euro per Ordinary Share) 1.09 1.08 1.02 1.02 1.02 1.02 1.86 1.85 1.86 1.85 6% 6% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. Half Year 2014 Financial Report 15 I ACTIVITY REPORT Return On Equity (“ROE”) (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) Change in % points ROE 11.1% 9.5% 9.5% 1.6 pts Net income group share 3,008 2,467 2,467 Average shareholders' equity 54,107 51,714 51,714 Adjusted ROE 16.8% 16.5% 16.5% 0.3 pts Adjusted earnings (b) 2,964 2,810 2,810 Average shareholders' equity (c) 35,315 34,114 34,114 Underlying ROE 14.9% 14.3% 14.3% 0.6 pts Underlying earnings (b) 2,629 2,435 2,435 Average shareholders' equity (c) 35,315 34,114 34,114 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (c) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders' equity). Half Year 2014 Financial Report 16 I ACTIVITY REPORT LIFE & SAVINGS SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings segment (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues (a) 29,100 29,643 55,433 APE (Group share) 3,181 3,310 6,335 Investment margin 1,314 1,327 2,710 Fees & revenues 3,561 3,753 7,706 Net technical margin 461 418 726 Expenses (3,207) (3,427) (7,274) Amortization of VBI (57) (49) (167) Other 57 44 85 Underlying earnings before tax 2,129 2,067 3,787 Income tax expenses / benefits (429) (484) (905) Minority interests (49) (50) (89) Underlying earnings Group share 1,651 1,534 2,793 Net capital gains or losses attributable to shareholders net of income tax 163 286 332 Adjusted earnings Group share 1,813 1,820 3,125 Profit or loss on financial assets (under FV option) & derivatives 79 (200) (270) Exceptional operations (including discontinued operations) 28 (24) (70) Goodwill and other related intangibles impacts (8) (15) (65) Integration and restructuring costs (8) (79) (107) Net income Group share 1,906 1,501 2,614 (a) Before intercompany eliminations. Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 France 7,535 7,211 14,131 United States 5,489 5,567 11,304 United Kingdom 303 285 569 Japan 1,895 2,605 5,579 Germany 3,308 3,232 6,542 Switzerland 4,878 5,206 7,067 Belgium 1,041 1,151 2,012 Central & Eastern Europe (a) 152 195 389 Mediterranean and Latin American Region (b) 3,366 3,001 5,581 Hong Kong 892 983 1,849 South-East Asia, India and China (c) 157 133 268 Other (d) 84 74 141 TOTAL 29,100 29,643 55,433 Intercompany transactions (61) (40) (103) Contribution to consolidated gross revenues 29,039 29,603 55,331 o/w. high growth markets 1,441 1,511 2,884 o/w. mature markets 27,598 28,092 52,447 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Mexico and Colombia. (c) South-East Asia revenues include Singapore and non bancassurance subsidiaries in Indonesia. (d) Other correspond to Luxembourg, AXA Life Invest Services, Architas and Family Protect. Half Year 2014 Financial Report 17 I ACTIVITY REPORT Underlying earnings (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 France 397 353 708 United States 431 311 559 United Kingdom 13 (9) (12) Japan 198 292 447 Germany 84 79 138 Switzerland 150 150 277 Belgium 88 81 167 Central & Eastern Europe (a) 24 15 32 Mediterranean and Latin American Region (b) 91 90 174 Hong Kong 136 132 251 South-East Asia, India and China (c) 60 54 92 Other (d) (21) (13) (41) UNDERLYING EARNINGS 1,651 1,534 2,793 o/w. high growth markets 232 209 394 o/w. mature markets 1,419 1,325 2,399 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Mexico and Colombia. (c) South-East Asia earnings include Indonesia, Thailand, Philippines, China, India and Singapore. (d) Other correspond to Luxembourg, AXA Life Invest Services, Architas and Family Protect. Half Year 2014 Financial Report 18 I ACTIVITY REPORT Life & Savings operations – France (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 7,535 765 589 741 316 (1,091) - 4 559 (161) (1) 397 66 463 10 - (4) - 469 7,211 690 568 790 215 (1,124) - 4 454 (101) (1) 353 214 567 12 - (10) - 569 14,131 1,431 1,179 1,583 455 (2,285) - 11 943 (232) (2) 708 295 1,003 47 - (9) - 1,042 Gross revenues increased by €324 million (+4%) to €7,535 million(1): Unit-Linked revenues (16% of gross revenues) decreased by €22 million (-2%) despite the strong performance in Individual Savings (€+225 million or +25%) following Unit-Linked oriented commercial efforts, as Group Retirement sales decreased due to non-recurring large contracts signed during the first semester of 2013. Individual Unit-Linked share in Savings premiums increased by 3 points to 31%, above market average of 17%(2); G/A Savings revenues (39% of gross revenues) increased by €249 million (+9%) benefiting from growth in hybrid(3) product (€+214 million) and Group Retirement (€+35 million) sales; G/A Protection and Health revenues (45% of gross revenues) increased by €94 million (+3%) driven by a €56 million increase in Group Protection and a €12 million increase in Individual Protection reflecting positive portfolio developments. Individual Health increased by €26 million driven by tariff increases. APE increased by €75 million (+11%) to €765 million: Unit-Linked sales (18% of APE) increased by €5 million (+4%) driven up by a strong performance in Individual Savings (€+26 million) reflecting the focus of the sales force towards Unit-Linked offers; G/A Savings sales (37% of APE) increased by €33 million (+13%), benefiting from growth in hybrid products (€+22 million) and Group Retirement business (€+10 million); G/A Protection and Health sales (44% of APE) increased by €37 million (+12%) driven by €27 million increase in Group Protection & Health reflecting developments in both international (Employee Benefits and Mortgages) and traditional French businesses. Individual Health sales increased by €7 million (+14%) reflecting volume growth, increase in average premiums and tariff increases. Individual Protection sales increased by €3 million (+9%) mainly driven by strong volumes growth. (1) €7,523 million after intercompany eliminations. (2) Source FFSA June 2014. (3) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 19 I ACTIVITY REPORT Investment margin increased by €21 million (+4%) to €589 million reflecting lower crediting rates, while investment results remained stable. Fees & revenues decreased by €49 million (-6%) to €741 million due to €-78 million Unearned Revenues Reserves impact mainly resulting from a €-66 million adjustment (fully offset in deferred acquisition costs), partly offset by higher fees both on Unit-Linked business, in line with a higher average asset base, and on Protection business, in line with revenues growth. Net technical margin increased by €100 million (+47%) to €316 million driven by an increased current year result, mainly in Group and Individual Protection business due to a more favorable claims experience and by higher positive prior year reserve developments in Retirement business. Expenses decreased by €33 million (-3%) to €-1,091 million: Acquisition expenses fell by €50 million (-7%) to €-643 million, driven by a €+76 million positive deferred acquisition costs impact mainly resulting from a €+66 million adjustment (fully offset in Unearned Revenues Reserves) and by lower general acquisition expenses (€+11 million), partly offset by higher commissions (€-37 million) in line with business growth; Administrative expenses rose by €17 million (+4%) to €-447 million driven by higher asset based commissions in Savings business in line with higher assets under management. As a result, the underlying cost income ratio decreased by 5.1 points to 66.3%. Income tax expenses increased by €61 million (+60%) to €-161 million mainly due to higher pre-tax underlying earnings combined with a lower level of non taxable revenues (€-21 million). Underlying earnings increased by €44 million (+12%) to €397 million. Adjusted earnings decreased by €104 million (-18%) to €463 million driven by lower net realized capital gains (€-160 million) mainly due to the sale of a 2.4% equity stake in BNP Paribas in the first half of 2013 (€- 151 million), partly offset by higher underlying earnings (€+44 million). Net income decreased by €100 million (-18%) to €469 million driven by lower adjusted earnings (€-104 million) and an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting mainly as a consequence of lower interest rates (€-30 million), partly offset by a more favorable change in fair value of Mutual funds (€+27 million). Half Year 2014 Financial Report 20 I ACTIVITY REPORT Life & Savings operations - United States (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ 5,489 634 241 1,034 (139) (700) (9) - 427 4 (0) 431 (13) 418 11 21 (1) (1) 449 1.371 5,567 655 258 1,120 (82) (845) (11) - 441 (130) - 311 (24) 288 (218) (32) (1) (59) (23) 1.313 11,304 1,322 502 2,211 (113) (1,833) (20) - 746 (187) - 559 (47) 511 (301) (11) (1) (65) 133 1.327 On October 1, 2013, AXA Financial completed the closed MONY portfolio transaction. In 2013, MONY generated €131 million of Gross Revenues and €30 million of Underlying Earnings. Commentary below on a comparable basis reflects the exclusion of MONY and the change at constant exchange rate. Gross revenues decreased by €78 million (-1%) to €5,489 million(1). On a comparable basis, gross revenues increased €296 million (5%): Variable Annuity revenues (70% of gross revenues) increased by 8% reflecting strong sales results for non-GMxB investment only, floating roll up rate GMxB, and Employer Sponsored products; Life revenues (21% of gross revenues) decreased by 2% primarily driven by lower sales of Protection products; Asset Management fees (7% of gross revenues) increased by 5%, reflecting improved market conditions and sales; Mutual Fund revenues (2% of gross revenues) increased by 17%, reflecting higher advisory fees received driven by higher average assets. APE decreased by €21 million (-3%) to €634 million. On a comparable basis, APE increased by €8 million (+1%): Variable Annuity sales were up 6% to €353 million due to sales growth in the non-GMxB Investment only products (+5% versus 2013), in line with the strategy. Non-GMxB investment only and floating rate GMxB products launched since 2010 represented a combined 65% of first half 2014 Variable Annuity sales; Life sales decreased by 21% to €72 million driven by a decrease in G/A Protection products which were down 37% from the prior year, partly reflecting product repricing and the adverse interest rate environment impacting the competitivity of products as well as the non-repeat of a 2013 large case sale; (1) €5,488 million after intercompany eliminations. Half Year 2014 Financial Report 21 I ACTIVITY REPORT Mutual Funds sales were at €209 million, 3% better than prior year reflecting increased advisory account sales. Investment margin decreased by €17 million (-7%) to €241 million. On a comparable basis, Investment margin increased by €15 million (6%) principally due to higher equity returns, partially offset by lower balances and fixed income yields. Fees & revenues decreased by €86 million (-8%) to €1,034 million. On a comparable basis, fees & revenues decreased by €24 million (-2%) driven by the non-repeat of favorable assumption updates of Unearned Revenues Reserves in 2013 offset by higher fees reflecting higher average Separate Account balances. Net technical margin decreased by €57 million (-70%) to €-139 million. On a comparable basis, net technical margin decreased by €23 million (-19%) due to lower life mortality margins, partly offset by an improvement in GMxB margin. Expenses decreased by €145 million (-17%) to €-700 million. On a comparable basis, expenses decreased by €98 million (-12%): Expenses excluding DAC amortization increased by €7 million driven by higher asset based commissions on higher balances and mutual fund product sales, partially offset by continued expense management; DAC amortization of €96 million decreased €104 million from prior year, primarily driven by the non- repeat of unfavorable changes in expected future margins on variable and interest-sensitive life products due to updated mortality assumptions in 2013. Amortization of VBI decreased by €2 million (-15%) to €-9 million. On a comparable basis, amortization of VBI decreased by €1 million (-12%). As a result, the underlying cost income ratio decreased by 5.7 points to 62.4%. Income tax expenses decreased by €134 million from a tax expense of €130 million to a tax benefit of €4 million. On a comparable basis, income tax expenses decreased by €113 million, reflecting a €121 million benefit mainly from a tax settlement in 2014, partially offset by tax expenses from higher pre-tax underlying earnings. Underlying earnings increased by €120 million (+38%) to €431 million. On a comparable basis, underlying earnings increased by €170 million (+61%). Adjusted earnings increased by €130 million (+45%) to €418 million. On a constant exchange rate basis, adjusted earnings increased by €170 million (+64%) in line with higher underlying earnings. Net income increased by €472 million to €449 million. On a constant exchange rate basis, net income increased by €466 million primarily driven by (i) higher adjusted earnings, (ii) a favorable change in fair value of economic hedge derivatives mainly attributable to lower interest rates and (iii) the non-repeat of 2013 real estate lease write-off. Half Year 2014 Financial Report 22 I ACTIVITY REPORT Life & Savings operations - United Kingdom (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 303 369 2 153 2 (150) - - 7 6 (0) 13 1 14 1 - (0) (3) 11 0.821 285 365 2 147 (0) (168) - - (19) 10 0 (9) - (9) (1) - - (18) (28) 0.851 569 647 4 296 2 (326) - - (24) 13 0 (12) 0 (11) (2) - - (25) (38) 0.846 Gross revenues increased by €18 million (+6%) to €303 million(1). On a comparable basis, gross revenues increased by €5 million (+2%). Revenues on Variable Annuity products were €8 million higher due to new business growth with a further €6 million increase driven by the growth of regular premiums on SunLife protection business. Recurring revenue streams on investment business also increased as a result of 10% growth in funds under management. This was partially offset by the one-off impact of exiting the Bancassurance channel in April 2013. APE increased by €4 million (+1%) to €369 million. On a comparable basis, APE was down 2% compared to prior year. New business through the Elevate platform continued to perform strongly with IFA APE up by €9 million (+8%) as the platform continues to establish itself as one of the leaders in the UK platform market. This growth was more than offset by lower APE from the Corporate Pension Investment business, which saw two very large schemes sold in the first half of 2013, and by the exit of Bancassurance channel. Investment margin was in line with prior year at €2 million. Fees & revenues increased by €6 million (+4%) to €153 million. On a constant exchange rate basis, fees & revenues were in line with prior year. The growth of regular fees from Elevate business broadly offset the reduction in initial revenues following the closure of the Bancassurance channel and the impact of the industry Retail Distribution Review (RDR). Net technical margin increased by €2 million on a constant exchange rate basis to €2 million. (1) €300 million after intercompany eliminations. Half Year 2014 Financial Report 23 I ACTIVITY REPORT Expenses decreased by €18 million (-11%) to €-150 million. On a constant exchange rate basis, expenses decreased by €24 million due to €15 million of recurring savings and a reduction in costs following the closure of the Bancassurance channel, partly offset by increases due to inflation and business growth. As a consequence, the underlying cost income ratio improved significantly, decreasing by 17.4 points to 95.6%. Income tax benefits decreased by €4 million (-40%) to €6 million. On a constant exchange rate basis, income tax benefit decreased by €4 million (-42%) due to the increase in pre-tax earnings. Underlying earnings increased by €22 million to €13 million. On a constant exchange rate basis, underlying earnings increased by €22 million. Adjusted earnings increased by €23 million to €14 million. On a constant exchange rate basis, adjusted earnings increased by €22 million mainly due to higher underlying earnings. Net income increased by €39 million to €11 million. On a constant exchange rate basis, net income increased by €38 million as a result of lower restructuring costs (€+15m) and higher adjusted earnings (€+23m). Half Year 2014 Financial Report 24 I ACTIVITY REPORT Life & Savings operations – Japan (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Yen (a) The contribution of AXA Life Japan to the AXA consolidated result for 2013 annual accounts exceptionally covered a period of fifteen months. 1,895 175 0 628 33 (347) (17) - 297 (97) (2) 198 0 198 16 - - - 214 140.410 2,605 240 37 738 28 (390) (14) - 399 (105) (3) 292 33 324 13 - - - 337 113.026 5,579 504 153 1,696 (92) (998) (82) - 677 (226) (4) 447 0 447 (9) - - - 438 124.765 AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. Half Year 2013 accounts were covering October 1, 2012 to March 31, 2013 period. For consistency reasons, 2013 APE and Gross revenues have been restated to cover the January 1, 2013 to June 30, 2013 period. This restatement as well as the change at constant exchange rate are refered to as “comparable basis” in the comments below. Gross revenues decreased by €711 million (- 27%) to €1,895 million(1). On a comparable basis, revenues decreased by €68 million (-3%): Protection revenues (45% of gross revenues) decreased by €9 million (-1%) reflecting a decrease in inforce run-off portfolio of Increasing Term products (€-27 million), partly offset by steady in-force growth in Term & Term Rider products (€ +17 million); Health revenues (38% of gross revenues) increased by €12 million (+1%) with higher new business in medical products, partly offset by lower revenues from inforce portfolios; Investment & Savings revenues (17% of gross revenues) decreased by €71 million (-15%) mainly due to lower sales of Variable Annuity products (€-62 million) following product redesign and a shift in client appetite. APE decreased by €65 million (-27%) to €175 million. On a comparable basis, APE decreased by €3 million (-1%): Protection sales (54% of APE) increased by €13 million (+12%) driven by newly launched Simple Underwriting Long Term Life product (€+14 million) and a strong shift of sales to the Low Cash Value Whole Life product (€+14 million) from Long Term Life products (€-21 million) impacted by a regulated repricing; (1) €1,895 million after intercompany eliminations. Half Year 2014 Financial Report 25 I ACTIVITY REPORT Health sales (40% of APE) decreased by €9 million (-9%) reflecting the non-repeat of the successful launch of Disability Income product in 2013 (€-12 million), partly offset by steady growth in Medical product sales; Investment and Savings sales (6% of APE) decreased by €6 million (-33%) due to lower sales of Variable Annuity products in the bancassurance channel following product redesign and a shift in client appetite. Investment margin decreased by €37 million to €0 million. On a constant exchange rate basis, investment margin decreased by €37 million mainly due to the non-repeat of 2013 high dividend income from equity and private equity funds following Japanese stock market rally. Fees & revenues decreased by €110 million (-15%) to €628 million. On a constant exchange rate basis, fees & revenues increased by €42 million (+6%) mainly due to higher loadings driven by a better business mix, increased retention in G/A Protection & Health business (€+19 million) and the non-repeat of 2013 lower Unearned Revenues Reserves amortization following an increase in Variable Annuity account value (mostly offset by deferred acquisition costs amortization). Net technical margin increased by €4 million (+15%) to €33 million. On a constant exchange rate basis, net technical margin increased by €12 million (+43%) mainly driven by improved mortality and surrender margins, partly offset by higher GMxB losses (€-19 million). Expenses decreased by €43 million (-11%) to €-347 million. On a constant exchange rate basis, expenses increased by €41 million (+11%) mainly due to the non-repeat of 2013 positive one-off effects and 2013 lower deferred acquisition costs amortization following an increase in Variable Annuity account value (mostly offset by Unearned Revenues Reserves amortization). Amortization of VBI increased by €2 million (+17%) to €-17 million. On a constant exchange rate basis, VBI amortization increased by €7 million (+45%) mainly driven by various assumption changes. As a result, the underlying cost income ratio worsened by 4.7 points to 55.1%. Income tax expenses decreased by €7 million to €-97 million. On a constant exchange rate basis, income tax expenses increased by €16 million due to the non-repeat of a positive tax one-off in 1H13 (€-31 million), partly offset by lower pre-tax underlying earnings (€+15 million). Underlying earnings decreased by €94 million (-32%) to €198 million or decreased by €48 million (-16%) on a constant exchange rate basis. Adjusted earnings decreased by €126 million (-39%) to €198 million or decreased by €80 million (-25%) on a constant exchange rate basis, due to lower underlying earnings and lower realized capital gains mainly on fixed income assets. Net income decreased by €123 million (-37%) to €214 million. On a constant exchange rate basis, net income decreased by €74 million (-22%) mainly due to lower adjusted earnings (€-80 million). Half Year 2014 Financial Report 26 I ACTIVITY REPORT Life & Savings operations – Germany (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,308 176 67 155 42 (118) (10) - 136 (52) (0) 84 (5) 78 9 11 - - 99 3,232 218 51 149 29 (100) (7) - 122 (42) (0) 79 17 96 11 2 - - 109 6,542 385 69 270 41 (158) (33) - 190 (51) (0) 138 4 142 11 0 - (2) 152 Gross revenues increased by €76 million (+2%) to €3,308 million(1): Life revenues (58% of gross revenues) increased by €22 million (+1%) to €1,931 million driven by Unit-Linked single premiums, partly due to the successful launch of a new hybrid(2) product. This was partly offset by lower G/A regular premiums; Health revenues (42% of gross revenues) increased by €54 million (+4%) to €1,377 million mainly due to premium adjustments to cover medical inflation. APE decreased by €42 million (-19%) to €176 million: Life sales decreased by €7 million (-6%) to €107 million due to decreasing G/A regular premiums, partly compensated by the successful launch of a new hybrid product; Health sales decreased by €35 million (-34%) to €69 million due to the non-repeat of strong sales in the first half of 2013 driven by the introduction of unisex tariffs at the end of 2012. Investment margin increased by €16 million (+31%) to €67 million mainly reflecting lower crediting rates. Fees & revenues increased by €6 million (+4%) to €155 million. Net technical margin increased by €13 million (+44%) to €42 million mainly due to a higher mortality margin in all business lines (€+7 million) and lower hedge losses on GMxB products (€+6 million). (1) €3,294 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 27 I ACTIVITY REPORT Expenses increased by €18 million (+18%) to €-118 million mainly due to higher investments in IT systems and health business activities, as well as refinement of cost allocation between AXA Germany entities. Expense reductions from the cost saving program offset overall increase in wages and other expenses due to inflation. Amortization of VBI increased by €3 million (+36%) to €-10 million due to model refinements and assumption changes. As a result, the underlying cost income ratio increased by 1.5 pts to 48.3%. Income tax expenses increased by €10 million (+24%) to €-52 million due to higher pre-tax underlying earnings. Underlying earnings increased by €5 million (+6%) to €84 million. Adjusted earnings decreased by €18 million (-19%) to €78 million due to lower net realized capital gains on fixed income and equity assets. Net income decreased by €10 million (-9%) to €99 million as the decrease in adjusted earnings was partly offset by a positive one-off effect this year following last year’s merger of two AXA pension entities. Half Year 2014 Financial Report 28 I ACTIVITY REPORT Life & Savings operations – Switzerland (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 4,878 222 107 149 72 (129) (13) - 186 (37) - 150 43 193 14 - (3) - 204 1.221 5,206 310 103 147 73 (125) (1) - 196 (46) - 150 21 170 (13) - (3) - 154 1.230 7,067 430 193 288 143 (264) (7) - 353 (76) - 277 41 318 (21) - (7) - 290 1.229 Gross revenues decreased by €328 million (-6%) to €4,878 million(1). On a comparable basis, gross revenues decreased by €360 million (-7%): Group Life revenues decreased by €452 million (-10%) to €4,325 million driven by lower single premiums from full protection scheme contracts (€-475million) due to the strategic shift from full protection schemes towards semi-autonomous employee benefit solutions; Individual Life revenues increased by €91 million (+20%) to €553 million mainly due to higher single premiums (€+86 million) resulting from the continuing success of the G/A Protection with Savings product Protect Star. APE decreased by €88 million (-28%) to €222 million. On a comparable basis, APE decreased by €90 million (-29%): Group Life sales decreased by €101 million (-39%) driven by the strategic shift from full protection schemes towards semi-autonomous employee benefit solutions; Individual Life sales increased by €11 million (+23%) driven by the continuing success of the G/A Protection with Savings product Protect Star. Investment margin increased by €5 million (+5%) to €107 million. On a constant exchange rate basis, investment margin increased by €4 million (+4%) resulting from higher investment income mainly from equity investments due to a higher average asset base. Fees & revenues increased by €2 million (+1%) to €149 million. On a constant exchange rate basis, fees & revenues increased by €1 million (+1%) mainly resulting from higher Individual Life revenues. (1) €4,875 million after intercompany eliminations. Half Year 2014 Financial Report 29 I ACTIVITY REPORT Net technical margin remained stable at €72 million. On a constant exchange rate basis, net technical margin decreased by €1 million (-1%). Expenses increased by €4 million (+3%) to €-129 million. On a constant exchange rate basis, expenses increased by €3 million (+3%) mainly due to higher acquisition expenses driven by the success of protection products in Individual Life. Amortization of VBI increased by €12 million to €-13 million. On a constant exchange rate basis, amortization of VBI increased by €12 million mainly impacted by the non-repeat of 2013 model refinements. As a result, the Underlying cost income ratio increased by 4.2 points to 43.3%. Income tax expenses decreased by €10 million (-21%) to €-37 million. On a constant exchange rate basis, income tax expenses decreased by €10 million (-21%) driven by lower pre-tax underlying earnings and non- recurring tax charges from participation dividends in previous years. Underlying earnings remained stable at €150 million. On a constant exchange rate basis, underlying earnings decreased by €1 million (-1%). Adjusted earnings increased by €23 million (+13%) to €193 million. On a constant exchange rate basis, adjusted earnings increased by €21 million (+13%) mainly resulting from higher realized capital gains on equities and private equity investments. Net income increased by €50 million (+32%) to €204 million. On a constant exchange rate basis, net income increased by €48 million (+31%) mainly due to higher adjusted earnings and a positive change in fair value of economic interest rate hedge derivatives not eligible for hedge accounting. Half Year 2014 Financial Report 30 I ACTIVITY REPORT Life & Savings operations – Belgium (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,041 72 167 67 10 (121) 0 - 122 (35) (0) 88 71 158 30 - - (1) 186 1,151 94 162 61 12 (122) (2) - 110 (29) (0) 81 8 89 (19) - - (1) 69 2,012 151 339 132 18 (249) (4) - 237 (69) (0) 167 22 190 (15) - - (7) 168 Gross revenues decreased by €110 million (-10%) to €1,041 million(1): G/A Protection & Health revenues (39% of gross revenues) decreased by €5 million (-1%) mainly due to products in run-off in Individual Life Protection (€-4 million); Unit-Linked revenues (31% of gross revenues) decreased by €69 million (-18%) mainly due to a decrease in structured products (€-53 million) and variable annuity products (€-20 million); G/A Savings revenues (30% of gross revenues) decreased by €36 million (-10%) mainly due to the run-off Crest product line (€-14 million), and lower sales of the Oxylife hybrid(2) product (€-13 million). APE decreased by €22 million (-24%) to €72 million: G/A Protection & Health sales (13% of APE) were stable at €10 million; Unit-Linked sales (44% of APE) decreased by €13 million mainly due to a decrease in structured funds (€-5 million) and Oxylife hybrid products (€-4 million); G/A Savings sales (43% of APE) decreased by €9 million mainly due to lower new business in self- employed savings products. Investment margin increased by €6 million (+4%) to €167 million. Fees & revenues increased by €6 million (+10%) to €67 million driven by the growth in Unit-Linked fees as a result of higher assets under management. Net technical margin decreased by €2 million (-17%) to €10 million. (1) €1,041 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 31 I ACTIVITY REPORT Expenses decreased by €1 million (-1%) to €-121 million: Acquisition expenses fell by €3 million (-6%) to €-49 million mainly due to lower commissions on premiums; Administrative expenses increased by €3 million (+4%) to €-72 million mainly as a result of higher overhead costs from salary inflation, partly offset by continued costs management actions. Amortization of VBI decreased by €2 million (-104%) to €0 million. As a result, the underlying cost income ratio improved by 3.3 points to 49.9%. Income tax expenses increased by €6 million to €-35 million due to the increase in pre-tax underlying earnings. Underlying earnings increased by €7 million (+9%) to €88 million. Adjusted earnings increased by €69 million (+78%) to €158 million mainly due to higher realized capital gains (€+49 million) principally on equities and fixed income assets, and to lower impairments (€+16 million) mainly on real estate. Net income increased by €118 million (+172%) to €186 million due to (i) higher adjusted earnings (€+70 million), (ii) a more favorable change in fair value of mutual funds and other assets (€+26 million) mainly driven by a decrease in corporate spreads and (iii) a favorable change in fair value of interest rate hedging derivatives not eligible for hedge accounting (€+27 million). Half Year 2014 Financial Report 32 I ACTIVITY REPORT Life & Savings operations – Central & Eastern Europe (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 152 41 4 79 20 (72) (1) - 30 (5) (0) 24 0 25 (0) - (1) (0) 24 195 55 5 85 21 (92) (1) - 17 (2) (0) 15 (0) 15 (0) 11 (1) (0) 25 389 108 6 175 50 (192) (2) - 37 (6) (0) 32 0 32 (0) (52) (35) (3) (58) Gross revenues decreased by €42 million (-22%) to €152 million(1). On a comparable basis, gross revenues decreased by €16 million (-9%) driven by lower Unit-Linked new business sales in Czech Republic (-36% to €49 million), partly offset by higher revenues from Pure Protection business in Poland (+46% to €36 million), mainly through Bancassurance channel. APE decreased by €14 million (-26%) to €41 million. On a comparable basis, APE decreased by €10 million (- 20%) driven by Pension Fund activities impacted by the regulatory changes in Poland and Czech Republic (- 85% to €2 million). The region is currently focusing on other business lines with a significant increase in Protection business (+24% to €10 million), partly offset by lower production of Unit-Linked products in a continuing difficult economic environment. Underlying earnings increased by €10 million (+64%) to €25 million. On a constant exchange rate basis, underlying earnings increased by €10 million mainly driven by an exceptional result from the change in regulation on Polish Pension Funds. Adjusted earnings increased by €10 million (+65%) to €25 million. On a constant exchange rate basis, adjusted earnings increased by €10 million driven by higher underlying earnings. Net income decreased by €1 million (-3%) to €24 million. On a constant exchange rate basis, net income decreased by €1 million, despite higher adjusted earnings, mainly driven by the non-repeat of an exceptional positive result on Czech Pension Funds in the first half year of 2013 (€11 million). (1) €152 million after intercompany eliminations. Half Year 2014 Financial Report 33 I ACTIVITY REPORT Life & Savings operations – Mediterranean & Latin American Region (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,366 271 117 257 77 (266) (6) - 179 (42) (46) 91 (0) 91 (3) (0) 1 (1) 87 3,001 227 131 210 83 (245) (6) - 173 (37) (46) 90 11 100 (1) (2) (1) (1) 96 5,581 443 245 449 159 (509) (12) - 331 (75) (83) 174 17 191 3 (1) (1) (2) 190 Note: (i) Italy, Spain, Portugal, Greece, Turkey, Mexico, Morocco and Colombia are fully consolidated; (ii) Colombia was fully consolidated since April 2, 2014. In the comments below, the comparable basis includes April to June 2013 results of Colombia. Gross revenues increased by €365 million (+12%) or €309 million (+10%) on a comparable basis to €3,366 million(1): Mature markets were up €312 million (+11%) with higher sales of G/A Savings (€+555 million) mainly driven by increased volumes in both hybrid(2) and traditional products at AXA MPS as well as lower competition from bank deposit products in Spain and Italy, partly offset by lower Unit-Linked products sales (€-235 million), mainly due to lower “Protected Unit” product sales at AXA MPS; High growth markets decreased by €3 million (-1%) mainly due to lower sales of Individual Protection products in Turkey, partly offset by higher sales of Individual Protection in Mexico and growth from the newly consolidated entity in Columbia. APE increased by €44 million (+19%) or €47 million (+21%) on a comparable basis to €271 million: Mature markets sales were up €51 million (+26%) to €248 million driven by G/A Savings (€+40 million) from both hybrid and traditional products at AXA MPS as well as lower competition from bank deposit products in Spain and Italy, Unit-Linked products (€+7 million) and Group Protection business (€+4 million); High growth markets sales decreased by €4 million (-14%) mainly due to lower new large Group Protection accounts in Mexico (€-5 million), partly offset by Turkey (€+2 million) driven by Pension business. (1) €3,362 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 34 I ACTIVITY REPORT Investment margin decreased by €14 million (-11%) to €117 million. On a constant exchange rate basis, investment margin decreased by €12 million (-10%) mainly due to AXA MPS driven by a lower average yield as well as a lower average asset base as a consequence of high level of surrenders. Fees & revenues increased by €46 million (+22%) to €257 million. On a constant exchange rate basis, fees & revenues increased by €51 million (+24%) largely driven by AXA MPS (€+37 million) from higher Unearned Revenues Reserves amortization (partly offset in deferred acquisition costs) mainly reflecting higher surrenders combined with higher sales of Unit-Linked products. Net technical margin decreased by €8 million (-9%) to €77 million. On a constant exchange rate basis, net technical margin decreased by €5 million (-5%) mainly due to a deteriorated GMxB margin. Expenses increased by €21 million (+8%) to €-266 million. On a constant exchange rate basis, expenses increased by €27 million (+11%): Mature markets increased by €19 million mainly driven by AXA MPS reflecting higher deferred acquisition costs amortization in line with increased surrenders; High growth markets increased by €8 million primarily due to Mexico mainly due to higher deferred acquisition costs amortization. Amortization of VBI was stable at €-6 million. As a result, the underlying cost income ratio increased by 1.0 point to 60.3%. Income tax expenses increased by €5 million (+12%) to €-42 million. On a constant exchange rate basis, income tax expenses increased by €5 million (+13%), mainly due to higher pre-tax underlying earnings and lower tax benefit on General Account technical reserves evolution at AXA MPS, partly offset by a positive country mix. Underlying earnings increased by €1 million (+1%) to €91 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+3%). Adjusted earnings decreased by €10 million (-10%) to €91 million. On a constant exchange rate basis, adjusted earnings decreased by €9 million (-9%) mainly driven by higher impairments on fixed income assets. Net income decreased by €8 million (-9%) to €87 million. On a constant exchange rate basis, net income decreased by €8 million (-8%) mainly due to lower adjusted earnings and change in fair value of interest rate hedging derivatives. Half Year 2014 Financial Report 35 I ACTIVITY REPORT Life & Savings operations – Hong Kong (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Hong Kong Dollar 892 226 7 240 24 (125) (2) - 145 (8) - 136 (0) 136 (11) (0) - - 126 10.633 983 215 6 241 21 (132) (7) - 130 2 - 132 6 138 16 (0) - - 154 10.186 1,849 443 6 478 44 (264) (6) - 257 (6) - 251 0 251 18 0 - - 269 10.291 Gross revenues decreased by €91 million (-9%) to €892 million(1). On a comparable basis, gross revenues increased by €24 million (+3%) mainly due to higher revenues from G/A Protection & Health products (€+64 million) driven by strong new business sales and a steady in-force growth, partly offset by lower revenues from G/A Investment & Savings products (€-27 million) with a decrease in retirement product sales and from Unit-Linked products (€-14 million) mainly due to the termination of bancassurance partnership. APE increased by €10 million (+5%) to €226 million. On a comparable basis, APE increased by €20 million (+9%) due to higher sales of G/A Protection with Savings products (€+16 million) driven by successful marketing campaigns, Pure Protection and Health products (€+7 million) demonstrating an increasing focus on this profitable segment, and Unit-Linked products (€+4 million) thanks to strong IFA sales and despite the termination of a bancassurance partnership, partly offset by lower retirement products sales (€-8 million). Investment margin increased by €1 million (+20%) to €7 million. On a constant exchange rate basis, investment margin increased by €2 million (+25%) mainly due to higher investment income boosted by higher dividends from equity, partly offset by higher interest credited to policyholders. Fees & revenues remained stable at €240 million. On a constant exchange rate basis, fees & revenues increased by €9 million (+4%) mainly driven by an increase in loadings on premiums stemming from both new business and in-force growth. Net technical margin rose by €3 million (+15%) to €24 million. On a constant exchange rate basis, net technical margin increased by €4 million (+20%) driven by a higher surrender margin from Unit-Linked products and better claims experience in G/A Protection & Health business. (1) €878 million after intercompany eliminations. Half Year 2014 Financial Report 36 I ACTIVITY REPORT Expenses decreased by €7 million (-5%) to €-125 million. On a constant exchange rate basis, expenses decreased by €1 million (-1%), despite a steady portfolio growth, mainly driven by lower IT costs. Amortization of VBI decreased by €5 million (-74%) to €-2 million. On a constant exchange rate basis, amortization of VBI decreased by €5 million (-73%) driven by favorable assumption changes. As a consequence, the underlying cost income ratio decreased by 5.0 points to 46.7%. Income tax increased from a €3 million benefit in 2013 to a €-8 million charge in 2014. On a constant exchange rate basis, income tax expenses increased by €11 million mainly due to the non-repeat of 2013 tax benefits (€10 million) from the change in the tax base for a block of insurance business in the context of the merger of two insurance entities. Underlying earnings increased by €4 million (+3%) to €136 million. On a constant exchange rate basis, underlying earnings increased by €10 million (+8%). Adjusted earnings decreased by €2 million (-1%) to €136 million. On a constant exchange rate basis, adjusted earnings increased by €4 million (+3%) driven by higher underlying earnings (€+10 million), partly offset by lower net realized capital gains. Net income decreased by €28 million (-18%) to €126 million. On a constant exchange rate basis, net income decreased by €23 million (-15%) as higher adjusted earnings (€+4 million) were more than offset by an unfavorable change in fair value of interest rate hedging derivatives not eligible for hedge accounting (€-23 million). Half Year 2014 Financial Report 37 I ACTIVITY REPORT Life & Savings operations – South-East Asia, India & China (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 157 225 60 (0) 60 1 (3) - (0) 57 133 237 54 0 54 0 (2) - (0) 52 268 463 92 0 92 (1) (5) (13) (3) 70 2014 figures have been compared to the same scope for 2013 i.e. adjusted for alignment of reporting period with Group calendar year in India and Philippines since full year 2013. Gross Revenues(1) increased by €24 million (+18%) to €157 million. On a comparable basis, gross revenues increased by €40 million (+30%) mainly driven by higher revenues from G/A Protection & Health (€+34 million) mainly in Singapore reflecting employee benefits business growth after the acquisition of HSBC portfolio since the last quarter of 2013. Unit-Linked business recorded a growth of €+6 million due to higher single premium sales in Singapore, partly offset by Indonesia. APE(1) decreased by €12 million (-5%) to €225 million. On a comparable basis, APE increased by €31 million (+14%) mainly driven by: Strong performance in Thailand (€+30 million), in particular from G/A Protection with Savings products; China (€+8 million) and Singapore (€+3 million) with continued momentum in G/A Protection & Health business; Partly offset by a slowdown in Unit-Linked business in Indonesia (€-10 million). Underlying earnings(1) increased by €6 million (+11%) to €60 million. On a comparable basis, underlying earnings increased by €17 million (+31%) mainly due to: Business growth and higher investment earnings in Thailand (€+16 million); Improved business mix towards longer term G/A Protection & Health business as well as continuous expense management in India (€+5 million); Partly offset by the reversal of deferred tax assets in Indonesia (€-3 million). Adjusted earnings(1) increased by €6 million (+10%) to €60 million. On a comparable basis, adjusted earnings increased by €17 million (+31%) driven by underlying earnings growth. Net income(1) increased by €5 million (+9%) to €57 million. On a comparable basis, net income increased by €15 million (+29%) mainly due to higher adjusted earnings. (1) South-East Asia, India & China Life & Savings scope: (i) for gross revenues: Singapore and non-bancassurance subsidiaries in Indonesia, on a 100% share basis; (ii) for APE, underlying earnings, adjusted earnings and net income: China, India, Indonesia,Thailand, Philippines and Singapore, on a group share basis. Malaysia operations are not consolidated. Half Year 2014 Financial Report 38 I ACTIVITY REPORT Life & Savings Operations - Other The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Luxembourg 65 61 112 AXA Life Invest Services 11 11 22 Family Protect 7 3 7 Other 0 (0) TOTAL 84 74 141 Intercompany transactions (10) (10) (21) Contribution to consolidated gross revenues 73 64 121 Underlying, Adjusted earnings and Net Income (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Luxembourg 4 3 7 AXA Life Invest Services (8) (7) (17) Family Protect (17) (8) (31) Other (0) (1) (1) UNDERLYING EARNINGS (21) (13) (41) Net realized capital gains or losses attributable to shareholders 0 0 0 ADJUSTED EARNINGS (21) (13) (41) Profit or loss on financial assets (under Fair Value option) & derivatives 1 0 0 Exceptional operations (including discontinued operations) (1) (1) Goodwill and related intangible impacts Integration and restructuring costs (0) NET INCOME (20) (14) (41) FAMILY PROTECT Underlying earnings as well as adjusted earnings and net income were at €-17 million mainly due to higher direct marketing expenditures to ensure the progressive ramp-up of the activity. AXA LIFE INVEST SERVICES (1) Underlying earnings as well as adjusted earnings decreased by €1 million (-11%) to €-8 million. Net income remained stable at €-8 million. (1) AXA Life Invest Services aim to promote Unit-Linked products with guarantees through thid party bank patnerships. Half Year 2014 Financial Report 39 I ACTIVITY REPORT PROPERTY & CASUALTY SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. (in Euro million) HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) Gross revenues (b) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Before intercompany transactions 17,044 71.2% 69.9% 4,331 25.9% 1,115 1,719 (502) 29 (19) 1,226 16,693 71.3% 69.5% 4,329 26.2% 1,005 1,609 (467) 7 (22) 1,128 16,679 71.3% 69.5% 4,323 26.2% 1,003 1,605 (465) 10 (22) 1,128 151 102 102 1,378 1,229 1,229 (35) (20) (35) (1) (0) (1) (39) (24) 1,130 (48) (23) 1,286 (39) (24) 1,130 29,079 71.2% 70.1% 8,625 26.5% 2,042 3,028 (911) 29 (41) 2,105 108 2,213 46 20 (73) (121) 2,085 29,052 71.3% 70.1% 8,610 26.5% 2,037 3,016 (907) 37 (41) 2,105 108 2,213 46 20 (73) (121) 2,085 Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) France 3,355 3,188 3,188 5,942 5,942 United Kingdom & Ireland 2,202 2,109 2,109 3,907 3,907 Germany 2,404 2,386 2,386 3,807 3,807 Switzerland 2,485 2,425 2,425 2,714 2,714 Belgium 1,126 1,118 1,118 2,050 2,050 Central & Eastern Europe - Luxembourg (b) 87 97 97 171 171 Mediterranean and Latin American Region (c) 3,733 3,775 3,775 7,391 7,391 Direct (d) 1,202 1,152 1,138 2,274 2,247 Asia (e) 449 444 444 822 822 TOTAL 17,044 16,693 16,679 29,079 29,052 Intercompany transactions (224) (196) (196) (288) (288) Contribution to consolidated gross revenues 16,820 16,497 16,483 28,791 28,763 o/w. high growth markets o/w. Direct o/w. mature markets 2,269 1,202 13,349 2,272 1,152 13,073 2,272 1,138 13,073 4,520 2,274 21,996 4,520 2,247 21,996 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Central & Eastern Europe includes Ukraine and Reso (Russia). (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico and Colombia. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (e) Asia includes Hong Kong, Malaysia, Singapore. Half Year 2014 Financial Report 40 I ACTIVITY REPORT (in Euro million) Combined Ratio HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) Total 95.8% 95.7% 95.8% 96.6% 96.6% France 96.3% 92.9% 92.9% 94.7% 94.7% United Kingdom & Ireland 98.0% 98.2% 98.2% 98.5% 98.5% Germany 94.8% 97.4% 97.4% 98.2% 98.2% Switzerland 86.4% 90.5% 90.5% 88.9% 88.9% Belgium 91.5% 89.2% 89.2% 93.7% 93.7% Central & Eastern Europe - Luxembourg (b) 101.7% 102.0% 102.0% 103.9% 103.9% Mediterranean and Latin American Region (c) 98.8% 98.7% 98.7% 99.3% 99.3% Direct (d) 98.9% 99.3% 99.5% 99.1% 99.5% Asia (e) 93.6% 93.2% 93.2% 93.1% 93.1% Mature 94.9% 95.0% 95.0% 96.0% 96.0% Direct 98.9% 99.3% 99.5% 99.1% 99.5% High growth 99.0% 97.6% 97.6% 98.1% 98.1% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Excluding RESO - RESO combined ratio amounted to 98.3% as of June 30, 2014. (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico and Colombia. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (e) Asia includes Hong Kong, Singapore and Malaysia. Underlying earnings (in Euro million) HY 2014 HY 2013 FY 2013 France 274 294 531 United Kingdom & Ireland 116 114 202 Germany 193 142 295 Switzerland 223 185 405 Belgium 131 143 222 Central & Eastern Europe - Luxembourg (a) 17 5 25 Mediterranean and Latin American Region (b) 184 173 281 Direct (c) 53 41 85 Asia (d) 35 31 58 UNDERLYING EARNINGS 1,226 1,128 2,105 o/w. high growth markets 124 118 225 o/w. Direct 53 41 85 o/w. mature markets 1,049 969 1,796 (a) Central & Eastern Europe includes Ukraine and Reso (Russia). (b) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico, Lebanon and Colombia. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. (d) Asia includes India, Hong Kong, Malaysia, Singapore and Thailand. Half Year 2014 Financial Report 41 I ACTIVITY REPORT Property & Casualty Operations – France (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,355 73.8% 73.2% 786 23.1% 325 434 (160) - (0) 274 28 302 (31) - - - 271 3,188 72.0% 69.2% 866 23.7% 261 462 (168) - (0) 294 (0) 293 (2) - (3) - 288 5,942 73.7% 70.9% 1,710 23.7% 522 836 (304) - (1) 531 32 563 20 24 (3) - 604 Gross revenues increased by €167 million (+5%) to €3,355 million(1). On a comparable basis, mainly adjusted for the internal transfer to AXA Assistance of some service guarantees, gross revenues increased by 4% (or €+130 million): Personal lines (56% of gross revenues) were up 3% to €1,845 million mainly driven by tariff increases in all segments and positive net new contracts in Motor, while the portfolio remained stable in Household; Commercial lines (44% of gross revenues) were up by 5% to €1,458 million mainly driven by tariff increases, partly offset by lower volumes notably in Construction in a context of selective underwriting. Net technical result decreased by €80 million (-9%) to €786 million: The current accident year loss ratio increased by 1.8 points to 73.8% mainly reflecting higher attritional claims ratio due to higher Nat Cat charges (€59 million or +2.0 points related to ELA hailstorm) notably impacting Household and Motor, and a less favorable frequency in Bodily Injury mainly in Personal Motor, partly offset by tariff increases; The all accident year loss ratio increased by 3.9 points to 73.2%, due to the increase of current accident year loss ratio, as well as lower prior year reserve developments notably in Construction, partly offset by positive developments on Liability. Expense ratio decreased by 0.6 point to 23.1% mainly driven by a lower cost base reflecting continuous efforts to reduce expenses combined with a positive volume effect due to higher earned premiums. As a result, enlarged expense ratio was down 0.1 point to 30.1%, driven by an improved expense ratio. As a consequence, the combined ratio was up by 3.4 points to 96.3%. (1) €3,303 million after intercompany eliminations. Half Year 2014 Financial Report 42 I ACTIVITY REPORT Net investment result increased by €64 million (+24%) to €+325 million mainly driven by €+67 million higher exceptional distributions from mutual funds. Income tax expenses decreased by €8 million (-5%) to €-160 million mainly reflecting lower pre-tax underlying earnings. As a result, underlying earnings decreased by €20 million (-7%) to €274 million. Adjusted earnings increased by €9 million (+3%) to €302 million driven by higher net realized capital gains (€+28 million), mostly on equities, reflecting improved market conditions, partly compensated by lower underlying earnings (€-20 million). Net income decreased by €18 million (-6%) to €271 million mainly driven by a negative change in fair value of Mutual funds (€-30 million), partly offset by the increase in adjusted earnings (€+9 million). Half Year 2014 Financial Report 43 I ACTIVITY REPORT Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ (a) Before intercompany eliminations. 2,202 70.2% 69.1% 620 28.9% 105 144 (28) - (0) 116 19 135 (11) - (1) (2) 122 0.821 2,109 69.1% 68.4% 621 29.8% 106 142 (28) - (0) 114 0 114 4 - (1) - 118 0.851 3,907 67.2% 67.9% 1,264 30.6% 208 267 (65) - (0) 202 10 212 17 - (2) (12) 216 0.846 Gross revenues increased by €93 million (+4%) to €2,202 million(1). On a comparable basis, gross revenues increased by €26 million (+1%) Personal lines (45% of gross revenues) were down 3% to €974 million as a result of the ongoing strategy to focus on profitable growth. Motor was up 3% to €275 million due to AXA’s improved competitiveness in the UK, partially offset by lower new business volumes within Northern Ireland as AXA has maintained a strong pricing discipline in a softening market. Non-Motor was down 5% to €698 million: Property was down 7% to €224 million due to unfavorable market conditions and exiting of unprofitable schemes within the UK. Health was up 2% to €345 million with growth both in the UK and International business. Personal Other was down 19% to €129 million following the continued withdrawal from unprofitable schemes and the exit from the Pet insurance market in 2013; Commercial lines (55% of gross revenues) were up 5% to €1,197 million. Motor was up 11% to €231 million principally due to increased new business volumes in the UK. Non-Motor was up 4%. Property was up 9% to €340 million due to an increase in new business. Health was down 1% to €472 million due to the internal transfer of Asia business to the local AXA entity. Other was up 10% to €154 million due to new business sales and strong retention in Liability and Workers Compensation. Net technical result remained stable at €620 million. On a constant exchange rate basis, net technical result decreased by €20 million (-3%). The current year loss ratio increased by 1.1 points to 70.2% due to an increased Nat Cat charge (1.2 points). There were also increases in Personal Other from increased travel claims as the economy improves (0.3 point) and in Personal Motor in Ireland following increased weather related claims partly offset by improvements in the UK reflecting underwriting actions and the impact of legal reforms (0.2 point). In Property, increased natural weather events in in both UK and Ireland were more than offset by lower large losses (-0.1 point). Healthcare has decreased the overall loss ratio 0.5 point as International business margins improved ; The all accident year loss ratio increased by 0.7 point to 69.1% reflecting the increase in the current year loss ratio partly offset by higher positive prior year reserves developments (€+7 million). (1) €2,130 million after intercompany eliminations. Half Year 2014 Financial Report 44 I ACTIVITY REPORT Expense Ratio decreased by 0.9 point to 28.9%.The acquisition ratio was down 1.2 points to 20.0% mainly reflecting a decrease in commission ratio (-1.4 points) due to lower profit share costs and an improved business mix. This favorable movement was partly offset by the non-commission acquisition expense ratio up 0.2 point due to growth within UK Healthcare through ‘Health on Line’. The administrative expense ratio was up 0.3 point to 9.0%, reflecting the timing of project spend. As a result the enlarged expense ratio was down 0.8 point at 31.7% and the combined ratio was down 0.1 point to 98.0%. Net investment result decreased by €1 million (-1%) to €105 million. On a constant exchange rate basis, net investment result decreased by €4 million (-4%) mainly due to lower income from fixed maturity assets. Income tax expenses were in line with prior year to €-28 million. On a constant exchange rate basis, income tax expenses decreased by €1 million (-4%). Underlying earnings increased by €3 million (+3%) to €116 million. On a constant exchange rate basis, underlying earnings were in line with prior year. Adjusted earnings increased by €21 million (+19%) to €135 million. On a constant exchange rate basis, adjusted earnings increased by €18 million (+16%) reflecting increased realized capital gains (€+15 million) mainly on debt securities as well as lower impairment charges mainly on equities. Net Income increased by €4 million (+4%) to €122 million. On a constant exchange rate basis, net income increased by €1 million (+1%) due to the increase in adjusted earnings, partly offset by an unfavorable change in the fair value of financial assets and derivatives (€-18 million). Half Year 2014 Financial Report 45 I ACTIVITY REPORT Property & Casualty Operations – Germany (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,404 66.9% 66.5% 637 28.3% 178 277 (84) - (0) 193 12 205 14 - (2) (2) 215 2,386 70.0% 68.6% 592 28.8% 159 207 (65) - (0) 142 38 180 (24) 3 (2) - 158 3,807 70.3% 69.0% 1,179 29.2% 360 429 (133) - (0) 295 24 320 (25) 3 (4) (23) 271 Gross revenues increased by €18 million (+1%) to €2,404 million(1) : Personal lines (52% of gross revenues) were up 1% to €1,369 million driven by tariff increases, partly offset by lower volumes, mainly in Motor; Commercial lines (32% of gross revenues) were down 1% to €850 million, mainly in Motor due to stricter underwriting rules whereas Property and Liability increased slightly due to tariff increases; Other lines (16% of gross revenues) were up 7% to €425 million due to fronting business for the AXA Group. Net technical result increased by €45 million (+8%) to €637 million: The current accident year loss ratio decreased by 3.2 points to 66.9% reflecting improved attritional claims experience resulting from tariff increases in all retail lines and a mild winter. Nat Cat events remained stable as Half Year 2014 was impacted by ELA hailstorm (€54 million) while Half Year 2013 was impacted by floods in Bavaria and Saxony (€50 million); The all accident year loss ratio decreased by 2.2 points to 66.5% as the decrease in current accident year loss ratio was partly offset by lower positive prior year reserve developments as a result of reserve strengthening in commercial liability. Expense ratio decreased by 0.5 point to 28.3% mainly due to an administrative expense ratio down 0.6 point as a result of productivity programs and a refinement of cost allocation between AXA Germany entities. Enlarged expense ratio was down by 0.6 point to 31.5%. As a result, the combined ratio was down by 2.6 points to 94.8%. (1) €2,373 million after intercompany eliminations. Half Year 2014 Financial Report 46 I ACTIVITY REPORT Net investment result increased by €19 million (+12%) to €178 million mainly due to an exceptional interest profit on a tax claim. Income tax expenses increased by €19 million (+30%) to €-84 million following higher underlying earnings before tax. Underlying earnings increased by €50 million (+35%) to €193 million. Adjusted earnings increased by €24 million (+13%) to €205 million as the increase of underlying earnings was partly offset by lower net realized capital gains mainly on equities. Net income increased by €57 million (+36%) to €215 million due to the increase in adjusted earnings and favorable change in fair value of fixed income funds due to decreasing interest rates and corporate spreads. Half Year 2014 Financial Report 47 I ACTIVITY REPORT Property & Casualty Operations – Switzerland (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc (a) Before intercompany eliminations. 2,485 69.3% 62.6% 519 23.8% 93 282 (58) - (2) 223 42 265 (1) - (12) - 252 1.221 2,425 72.8% 65.8% 461 24.7% 106 234 (48) - (2) 185 13 198 (10) - (13) - 175 1.230 2,714 69.1% 64.0% 972 24.9% 207 506 (98) - (3) 405 6 411 (5) - (26) - 379 1.229 Gross revenues increased by €61 million (+3%) to €2,485 million(1). On a comparable basis, gross revenues increased by €41 million (+2%): Personal lines (53% of gross revenues) were up 2% to €1,329 million as a consequence of volume growth, especially in Motor, as well as tariff increases in Household reflecting an increased frequency of theft; Commercial lines (47% of gross revenues) were up 1% to €1,163 million driven by volume growth despite a very competitive market. Net technical result increased by €59 million (+13%) to €519 million. On a constant exchange rate basis, net technical result increased by €55 million (+12%): The current accident year loss ratio decreased by 3.5 points to 69.3% driven by lower large claims as well as an improved attritional claims experience, mainly driven by Personal Motor; The all accident year loss ratio decreased by 3.2 points to 62.6% broadly in line with the improvement in the current accident year loss ratio. Expense ratio improved by 0.9 point to 23.8%. The acquisition ratio was down 0.4 point due to favorable seasonality effects while the administration expense ratio was down 0.5 point mainly driven by continuing cost management discipline. The enlarged expense ratio was down by 0.9 point to 27.5%. As a result, the combined ratio was down by 4.1 points to 86.4%. (1) €2,477 million after intercompany eliminations. Half Year 2014 Financial Report 48 I ACTIVITY REPORT Net investment result decreased by €13 million (-12%) to €93 million. On a constant exchange rate basis, net investment result decreased by €13 million (-12%) mainly attributable to low reinvestment yields on fixed income assets. Income tax expenses increased by €10 million (+21%) to €58 million. On a constant exchange rate basis, income tax expenses increased by €10 million (+20%) driven by higher pre-tax underlying earnings. Underlying earnings increased by €38 million (+21%) to €223 million. On a constant exchange rate basis, underlying earnings increased by €37 million (+20%). Adjusted earnings increased by €67 million (+34%) to €265 million. On a constant exchange rate basis, adjusted earnings increased by €65 million (+33%) mainly driven by higher underlying earnings and higher net realized capital gains, mainly on equities. Net income increased by €77 million (+44%) to €252 million. On a constant exchange rate basis, net income increased by €76 million (+43%) mainly driven by higher adjusted earnings and a positive change in fair value of private equity and hedge funds. Half Year 2014 Financial Report 49 I ACTIVITY REPORT Property & Casualty Operations – Belgium (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,126 67.1% 61.6% 393 29.9% 109 195 (65) - - 131 32 163 (4) - (1) (4) 154 1,118 65.7% 58.5% 424 30.7% 103 213 (70) - - 143 29 172 (18) - (1) (3) 150 2,050 66.9% 63.4% 756 30.3% 199 329 (106) - - 222 44 266 (10) - (2) (21) 233 (a) Before intercompany eliminations. Gross revenues increased by €8 million (+1%) to €1,126 million(1): Personal lines (47% of gross revenues) were down 1% to €534 million following negative net new contracts partially offset by tariff increases in both Motor and Household; Commercial lines (51% of gross revenues) were up 2% to €575 million mainly due to an increase in Workers’ Compensation (€+7 million) explained by tariff increases on small business enterprises and more favorable economic environment. Net technical result decreased by €31 million (-7%) to €393 million: The current accident year loss ratio increased by 1.4 points to 67.1% driven by higher natural catastrophe events (+5.1 points) mainly driven by €54 million from the ELA storm, partially offset by an improvement of attritional claims (-3.3 points) as a result of tariff increases and lower frequency; The all accident year loss ratio increased by 3.1 points to 61.6% as a result of the evolution of the current accident year loss ratio and lower positive prior year reserve developments. Expense ratio was down 0.7 point to 29.9% driven by lower administrative costs, reflecting continued costs management actions partially offset by higher overhead costs from salary inflation. Enlarged expense ratio down 0.6 point to 37.7%. As a result, the combined ratio was up 2.4 points to 91.5%. Net investment result increased by €6 million (+6%) to €109 million mainly due to higher dividends on equities and mutual funds. (1) €1,108 million after intercompany eliminations. Half Year 2014 Financial Report 50 I ACTIVITY REPORT Income tax expenses decreased by €5 million to €-65 million due to lower pre-tax underlying earnings. Underlying earnings decreased by €13 million to €131 million. Adjusted earnings decreased by €10 million (-6%) to €163 million due to lower underlying earnings, partially offset by lower impairments on equities (€+3m). Net income increased by €3 million (+2%) to €154 million mainly driven by a favorable change in fair value of private equity mutual funds and inflation derivatives, partially offset by a decrease in adjusted earnings. Half Year 2014 Financial Report 51 I ACTIVITY REPORT Property & Casualty Operations – Central & Eastern Europe and Luxembourg Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 Luxembourg Ukraine Reso (Russia) TOTAL Intercompany transactions Contribution to consolidated gross revenues 64 23 - 87 - 87 63 34 - 97 - 97 100 71 - 171 - 171 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 Luxembourg Ukraine Reso (Russia) (a) 3 0 13 2 1 1 3 2 20 UNDERLYING EARNINGS 17 5 25 Net realized capital gains or losses attributable to shareholders (0) 8 1 ADJUSTED EARNINGS 16 12 26 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 4 - (20) - 1 - (1) - 15 - (1) (0) NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. (0) 13 39 UKRAINE Gross revenues decreased by €11 million (-32%) to €23 million. On a comparable basis, gross revenues decreased by €3 million (-8%) driven by the political unrest in Ukraine and its consequences on the economic conditions in the country. Underlying earnings and adjusted earnings decreased by €1 million to €0 million due to lower technical result and lower net investment result. As a result, the combined ratio deteriorated by 4.2 points to 109.6%. Net income decreased by €21 million to €-20 million. On a constant exchange rate basis, net income decreased by €28 million driven by a full write-off of goodwill (€-20 million) as a consequence of deteriorated economic perspectives. RESO (RUSSIA) Underlying earnings increased by €14 million to €13 million on a constant exchange rate basis, mainly driven by the non-repeat of higher one-off expenses (€+5 million) in the first half of 2013, higher net technical margin (€+7 million) and higher investment result (€+2 million). As a result, the combined ratio was down 6.6 points to 98.3%. Adjusted earnings increased by €6 million to €13 million on a constant exchange rate basis, driven by higher underlying earnings, partly offset by lower net realized capital gains. Net income increased by €9 million to €16 million on a constant exchange rate basis, mainly driven by higher adjusted earnings. Half Year 2014 Financial Report 52 I ACTIVITY REPORT Property & Casualty Operations – Mediterranean & Latin American Region (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,733 72.3% 73.3% 948 25.5% 232 276 (80) 1 (13) 184 14 198 8 - (7) (11) 188 3,775 72.1% 73.6% 950 25.1% 202 250 (63) 1 (15) 173 15 188 13 (4) (10) (10) 176 7,391 72.7% 73.8% 1,901 25.5% 404 453 (150) 2 (24) 281 (9) 272 28 (4) (19) (31) 245 (a) Before intercompany eliminations. Note: (i) Italy, Spain, Portugal, Greece, Turkey, Mexico, Morocco, Gulf region and Colombia are fully consolidated; (ii) Lebanon is consolidated under the equity method and contributes only to the underlying earnings, adjusted earnings and net income; (iii) Colombia was fully consolidated since April 2, 2014. In the comments below, the comparable basis includes April to June 2013 results of Colombia. Gross revenues decreased by €43 million (-1%) to €3,733 million(1). On a comparable basis, gross revenues increased by €41 million (+1%) driven by high growth markets (+5% or €+91 million) principally in the Gulf region (€+75 million) and the newly consolidated entity in Colombia (€+35 million), partly offset by a decline in mature markets (-3% or €-51 million). Personal lines (56% of gross revenues) were down 2% to €2,095 million driven by Motor (-5% or €- 71 million) mainly reflecting a decline in Turkey (€-46 million) from increased market competition and change in mix towards lower average premium products and Italy (€-21 million) from average premium decrease, partly offset by Health (+10% or €+31 million) predominantly from high growth markets (€+23 million) driven by tariff increase in Mexico (€+13 million); Commercial lines (43% of gross revenues) were up 5% to €1,628 million driven by Health (+22% or €+66 million) especially in the Gulf Region (€+55 million) mainly driven by a favorable renewal timing effect and increase in renewals and Mexico (€+12 million) from tariff increase; Other lines (1% of gross revenues) were up 13% to €37 million. Net technical result result decreased by €2 million (-0%) to €948 million. On a constant exchange rate basis, net technical result increased by €40 million (+4%) driven by both mature markets (€+28 million) and high growth markets (€+13 million). The current accident year loss ratio increased by 0.3 point to 72.3%, including a higher Nat Cat charge (+0.3 point). Excluding Nat Cat charge, loss ratio in high growth markets improved by 0.4 point while it remained stable in mature makets. Improvement in high growth markets was mainly driven by (1) €3,698 million after intercompany eliminations. Half Year 2014 Financial Report 53 I ACTIVITY REPORT lower large losses and further optimization of reinsurance partly offset by adverse claims experience in motor in Turkey and higher average costs in health in Mexico. Mature markets were stable driven by lower large losses, partly offset by an increase of average costs and an unfavorable product mix change in motor in Spain; The all accident year loss ratio was stable at 73.3% on a constant exchange basis with less unfavorable prior year reserves developments (€+7 million) mainly driven by Spain (€+42 million) in motor, partly offset by Turkey (€-36 million) due to reserve strengthening reflecting an increase in both frequency and average costs of legal claims in Motor. Expense ratio increased by 0.3 point to 25.5% due to administrative expenses (+0.3 point). Mature markets deteriorated by 0.9 point due to a negative volume effect and higher IT and relocation costs in Italy. High growth markets improved by 0.1 point driven by a positive volume effect. Enlarged expense ratio deteriorated by 0.4 point to 28.4%. As a result, the combined ratio was up 0.3 point to 98.8%. Net investment result increased by €31 million (+15%) to €232 million. On a constant exchange rate basis, net investment result increased by €46 million (+23%) mainly driven by Turkey (€+30 million) as a result of both higher interest rates and average asset base. Income tax expenses increased by €17 million (+27%) to €-80 million. On a constant exchange rate basis, income tax expenses increased by €19 million (+30%) due to both higher pre-tax underlying earnings and an increase in the effective tax rate reflecting unfavorable evolution of tax one-offs (€-3 million negative tax one- off in Half Year 2014 and €+14 million positive tax one-off in Half Year 2013). Underlying earnings increased by €11 million (+6%) to €184 million. On a constant exchange rate basis, underlying earnings increased by €18 million (+10%). Adjusted earnings increased by €10 million (+6%) to €198 million. On a constant exchange rate basis, adjusted earnings increased by €17 million (+9%) driven by underlying earnings increase. Net income increased by €12 million (+7%) to €188 million. On a constant exchange rate basis, net income increased by €18 million (+10%) mainly driven by the non-repeat of an exceptional charge to close a litigation, partly offset by a negative impact from investments in foreign currencies. Half Year 2014 Financial Report 54 I ACTIVITY REPORT Property & Casualty Operations – Direct business (in Euro million) HY 2014 HY 2013 restated (a) FY 2013 restated (a) Gross revenues (b) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,202 77.4% 76.5% 265 22.3% 55 68 (18) 4 (0) 53 4 57 2 (0) (1) (1) 56 1,138 77.5% 77.1% 246 22.4% 49 54 (16) 3 (0) 41 (1) 41 1 - (1) (1) 39 2,247 77.1% 77.2% 497 22.3% 100 112 (35) 8 (0) 85 3 88 7 (2) (4) (4) 84 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Before intercompany transactions Direct business includes operations in France (23% of total Direct gross revenues), the UK (22%), South Korea (20%), Japan (14%), Spain (7%), Italy (5%), Belgium (5%), Poland (3%) and Portugal (1%). Gross revenues increased by €64 million (+6%) to €1,202 million(1). On a comparable basis, gross revenues increased by €79 million (+7%): Personal Motor (86% of gross revenues) was up €65 million (+7%) to €1,036 million mainly driven by improved retention in the UK (+9% or €+18 million) and South Korea (+9% or €+18 million) as well as new business growth in Japan (+8% or €+14 million) and France (+6% or €+12 million), partly offset by Spain (-12% or €-11 million) following tariff increases and selective underwriting to improve the profitability; Personal Non-Motor (14% of gross revenues) was up €14 million (+9%) to €170 million mainly supported by higher new business in Household in France and in Health in South Korea. Net technical result increased by €19 million (+8%) to €265 million. On a constant exchange rate basis net technical result increased by €22 million (+9%): The current accident year loss ratio decreased by 0.2 point to 77.4% as a result of continued underwriting improvement and lower frequency in Motor, partly offset by higher Nat Cat charge (+1.2 points) following unfavorable weather conditions in France and Belgium ; The all accident year loss ratio decreased by 0.6 point to 76.5% mainly as a result of the decrease in current accident year loss ratio and more favorable prior year reserve developments. Expense ratio decreased by 0.1 point to 22.3% mainly driven by higher volumes. Enlarged expense ratio was increased by 0.1 point to 28.0%. (1) €1,202 million after intercompany eliminations. Half Year 2014 Financial Report 55 I ACTIVITY REPORT As a result, the combined ratio was down by 0.7 point to 98.9%. Net investment result increased by €7 million (+14%) to €55 million. On a constant exchange rate basis, net investment result increased by €6 million (+12%) mainly driven by a higher average asset base and increased returns from fixed income assets. Income tax expenses increased by €3 million (+18%) to €-18 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+19%) reflecting higher pre-tax underlying earnings. Underlying earnings increased by €12 million (+30%) to €53 million. On a constant exchange rate basis, underlying earnings increased by €12 million (+30%). Adjusted earnings increased by €16 million (+40%) to €57 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+40%) due to higher underlying earnings and net realized capital gains. Net income increased by €18 million (+46%) to €56 million. On a constant exchange rate basis, net income increased by €18 million (+46%) mainly due to higher adjusted earnings. Half Year 2014 Financial Report 56 I ACTIVITY REPORT Property & Casualty Operations - Asia (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 449 67.8% 65.7% 135 27.9% 11 36 (7) 10 (4) 35 1 36 (0) - (3) (4) 30 444 68.3% 65.7% 135 27.5% 9 36 (6) 5 (3) 31 (1) 30 0 - (6) (10) 14 822 68.0% 66.0% 270 27.0% 19 75 (13) 7 (10) 58 (3) 55 0 - (12) (30) 13 (a) Before intercompany eliminations. Note: Asia Property & Casualty scope (i) for gross revenues and combined ratio: Hong Kong, Malaysia and Singapore, on a 100% share basis; (ii) for underlying earnings, adjusted earnings and net income: China, India, Hong Kong, Malaysia, Singapore and Thailand, on a group share basis. Indonesia operations are not consolidated. China, India and Thailand are consolidated through equity method. China was consolidated for the first time in Half Year 2014 as of February 20th, 2014. In the comments below, the comparable basis includes the restated 4-month (March-June) results in 2013 for China. Gross revenues increased by €6 million (+1%) to €449 million(1). On a comparable basis, gross revenues increased by €36 million(2) (+8%): Personal lines (45% of the gross revenues) were up €10 million (+5%) to €203 million driven by (i) Motor (€+8 million) as a result of positive new inflows notably reflecting an increase in private car sales in Malaysia and by (ii) Non Motor (€+2 million) with a growth in Health business in Hong Kong; Commercial lines (55% of the gross revenues) were up €20 million (+8%) to €246 million mainly driven by (i) Health (€+7 million) from volume increases in Singapore and Malaysia, (ii) Property (€+6 million) mainly driven by higher business volume in Singapore, Hong Kong and Malaysia, (iii) Motor (€+5 million) mainly driven by Malaysia, and (iv) Workers Compensation (€+3 million) from price and volume increases in Hong Kong. Net technical result remained stable at €135 million. On a comparable basis, net technical result increased by €9 million (+6%): The current accident year loss ratio improved by 0.5 point to 67.8% mainly due to (i) Commercial Health (-2.0 points) driven by a favorable portfolio mix and improved reinsurance result in Malaysia, and tariff increases in Singapore, (ii) Commercial Property (-1.9 points) driven by lower attritional losses, (iii) Commercial Motor (-3.6 points) from lower attritional losses in Malaysia and Singapore, (1) €442 million after intercompany eliminations. (2) Including €5 million of fronting business not allocated to Personal and Commercial lines in 2013. Half Year 2014 Financial Report 57 I ACTIVITY REPORT partly offset by (iv) Personal Health (+3.5 points) driven by higher frequency and severity in Hong Kong as well as higher medical inflation in Singapore; The all accident year loss ratio improved by 0.1 point to 65.7% mainly due to the improvement of current accident year loss ratio, partly offset by lower positive prior year reserve developments. Expense ratio deteriorated by 0.4 point to 27.9%. On a comparable basis, expense ratio also deteriorated by 0.4 point mainly driven by higher acquisition expenses (+0.4 point) reflecting higher commissions in Singapore and non-commission expenses in Malaysia. Enlarged expense ratio deteriorated by 0.4 point to 30.8% on a comparable basis. As a result, the combined ratio deteriorated by 0.5 point to 93.6% on a comparable basis. Net investment result increased by €2 million to €11 million. On a comparable basis, the net investment result increased by €3 million mainly from higher yield on fixed income assets in Malaysia and change in asset mix in Singapore. Income tax expenses increased by €1 million to €-7 million. On a comparable basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €4 million to €35 million(1). On a comparable basis, underlying earnings increased by €2 million. Adjusted earnings increased by €6 million to €36 million. On a comparable basis, adjusted earnings increased by €4 million driven by higher underlying earnings and the non-repeat of 2013 net realized capital losses. Net income increased by €15 million to €30 million. On a comparable basis, net income increased by €13 million driven by the increase in adjusted earnings as well as lower integration costs in Hong Kong and Singapore, partly offset by €1 million integration costs related to AXA Tian Ping. (1) Including Thailand (Group share : 99.3%) and India (Group share: 26%) that were consolidated through equity method for the first time in 2013, and China (Group share : 50%) that was consolidated through equity method for the first time in 2014 as of February 20th. Half Year 2014 Financial Report 58 I ACTIVITY REPORT INTERNATIONAL INSURANCE SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AXA Corporate Solutions Assurance 1,379 1,341 2,099 AXA Global Life and AXA Global P&C 77 57 56 AXA Assistance 558 555 1,065 Other (a) 25 28 57 TOTAL 2,039 1,980 3,277 Intercompany transactions (73) (71) (134) Contribution to consolidated gross revenues 1,966 1,909 3,143 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA Corporate Solutions Assurance 86 72 149 AXA Global Life and AXA Global P&C 7 8 16 AXA Assistance 11 9 20 Other (a) 32 14 17 UNDERLYING EARNINGS 135 103 202 Net realized capital gains or losses attributable to shareholders 28 16 25 ADJUSTED EARNINGS 163 119 228 Profit or loss on financial assets (under Fair Value option) & derivatives 6 (11) (7) Exceptional operations (including discontinued operations) (0) (24) (32) Goodwill and related intangibles impacts Integration and restructuring costs (2) (1) (4) NET INCOME 166 83 184 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Half Year 2014 Financial Report 59 I ACTIVITY REPORT AXA Corporate Solutions Assurance (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,379 82.5% 81.1% 215 16.0% 95 128 (41) - (1) 86 26 112 6 - - - 118 1,341 82.4% 81.8% 210 15.3% 90 124 (50) - (1) 72 6 78 (9) - - - 69 2,099 85.5% 81.9% 381 15.8% 193 242 (91) - (2) 149 11 160 (11) - - - 150 Gross revenues increased by €38 million (+3%) to €1,379 million(1). On a comparable basis, gross revenues increased by €40 million (+3%) notably in Construction (+26%) from large corporate contracts, Motor (+6%) and Property (+2%) driven by portfolio developments and tariff increases. This growth was partly offset by a decrease in Aviation (-6%) mainly due to tariff decreases following favorable claims developments in recent years and in Liability (-2%) mainly due to cancellations in a soft market environment. Net technical result increased by €5 million (+2%) to €215 million. On a constant exchange rate basis, net technical result increased by €4 million (+2%). The current accident year loss ratio increased by 0.1 point to 82.5% driven by higher large losses in Property and Marine, partly offset by lower large losses in Construction; The all accident year loss ratio improved by 0.6 point to 81.1% mainly driven by higher positive prior reserve developments in Construction and Property. Expense ratio increased by 0.7 point to 16.0% due to a higher acquisition expense ratio resulting from higher commission rate resulting from a change in portfolio mix. Enlarged expense ratio deteriorated by 0.4 point to 19.8%. As a result, the combined ratio is stable at 97.1%. Net investment result increased by €4 million (+5%) to €95 million. On a constant exchange rate basis, net investment result increased by €4 million (+4%) mainly driven by higher dividends on equities. (1) €1,371 million after intercompany eliminations. Half Year 2014 Financial Report 60 I ACTIVITY REPORT Income tax expenses decreased by €10 million (-19%) to €-41 million. On a constant exchange rate basis, income tax expenses decreased by €10 million (-20%) mainly driven by lower taxes on prior year reserve developments. As a result, underlying earnings increased by €13 million (+19%) to €86 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+18%). Adjusted earnings increased by €34 million (+43%) to €112 million. On a constant exchange rate basis, adjusted earnings increased by €33 million (+42%) mainly driven by higher underlying earnings as well as higher net realized capital gains mainly on equities. Net income increased by €49 million (+71%) to €118 million. On a constant exchange rate basis, net income increased by €48 million (+70%) mainly driven by higher adjusted earnings and a positive foreign exchange impact. AXA Global Life and AXA Global P&C(1) Underlying earnings decreased by €1 million (-17%) to €7 million mainly due to lower brokerage income as a result of a decrease in premiums and commissions rate in AXA Global P&C, partly offset by a higher technical result on run off activities in AXA Global Life. Adjusted earnings decreased by €1 million (-16%) to €7 million mainly as a result of lower underlying earnings. Net income increased by €3 million (+42%) to €11 million mainly driven by a favorable change in fair value of Mutual funds and derivatives. AXA Assistance Gross revenues increased by €3 million (+1%) to €558 million. On a comparable basis, mainly adjusted for the internal transfer from AXA France of some service guarantees, the disposal of Cours Legendre and Domiserve, gross revenues increased by €32 million (+7%) mainly driven by strong developments in Travel, Ecommerce Business, Motor and Home activities combined with growth of the in-force base in Spain. Underlying earnings increased by €2 million (+19%) to €11 million mainly driven by strong growth of business and tight control of expenses in Europe. Adjusted earnings increased by €2 million (+22%) to €11 million mainly driven by higher underlying earnings. Net income increased by €22 million to €5 million primarily reflecting the non-repeat of 2013 exceptional capital losses following the disposal of French based companies. (1) Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. Half Year 2014 Financial Report 61 I ACTIVITY REPORT Other international activities Underlying earnings increased by €18 million to €32 million. On a constant exchange rate basis, underlying earnings increased by €18 million mainly driven by favorable developments on run-off portfolio. Adjusted earnings increased by €10 million to €34 million. On a constant exchange rate basis, adjusted earnings increased by €10 million driven by higher underlying earnings, partly offset by lower net realized capital gains in corporate debt instruments and on real estate restructuring. Net income increased by €9 million to €33 million. On a constant exchange rate basis, net income increased by €9 million driven by higher adjusted earnings. Half Year 2014 Financial Report 62 I ACTIVITY REPORT ASSET MANAGEMENT SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AllianceBernstein 1,069 1,087 2,177 AXA Investment Managers 707 828 1,638 TOTAL 1,776 1,915 3,815 Intercompany transactions (183) (174) (354) Contribution to consolidated gross revenues 1,593 1,741 3,461 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AllianceBernstein 83 76 185 AXA Investment Managers 101 118 216 UNDERLYING EARNINGS 184 194 400 Net realized capital gains or losses attributable to shareholders (1) (1) ADJUSTED EARNINGS 184 194 399 Profit or loss on financial assets (under Fair Value option) & derivatives 7 8 13 Exceptional operations (including discontinued operations) (1) 0 180 Goodwill and related intangibles impacts Integration and restructuring costs (2) (6) (15) NET INCOME 188 196 577 Half Year 2014 Financial Report 63 I ACTIVITY REPORT AllianceBernstein (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues 1,069 1,087 2,177 Net investment result (2) (1) 2 Total revenues 1,067 1,086 2,179 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ (857) 211 (54) (74) 83 0 83 (2) 0 0 (1) 80 1.371 (880) 205 (58) (71) 76 0 76 2 0 0 (2) 77 1.313 (1,719) 460 (114) (161) 185 0 185 1 0 0 (9) 176 1.327 Assets under Management (\"AUM\") increased by €25 billion from year-end 2013 to €371 billion at June 30, 2014 as a result of €18 billion market appreciation, net inflows of €3 billion (€2 billion net inflows from Institutional clients and €1 billion net inflows from Retail clients), change in scope of €2 billion and a €2 billion favorable foreign exchange rate impact. The positive change in scope related to an increase in AUM from the acquisition in June 2014 of CPH Capital Fondsmaeglerselskab A/S, a Danish global equity asset management firm. Gross revenues decreased by €18 million (-2%) to €1,069 million(1). On a comparable basis, gross revenues increased by €28 million (+3%) primarily due to higher investment management fees (+5%) resulting from a 4% increase in average AUM, higher Institutional Research Services fees up 8%, partly offset by distribution fees (-10%) due to outflows leading to lower average AUM in Retail mutual funds which charge these fees. Net investment result decreased by €1 million (-58%) to €-2 million. On a constant exchange rate basis, net investment result decreased by €1 million (-65%). General expenses decreased by €23 million (-3%) to €-857 million. On a constant exchange rate basis, general expenses increased by €14 million (+2%) due to higher compensation expenses resulting from increased revenues. The underlying cost income ratio improved by 0.4 point to 76.8%. Income tax expenses decreased by €4 million (-7%) to €-54 million. On a constant exchange rate basis, income tax expenses decreased by €2 million (-3%) due to a lower effective rate as a result of a favorable geographical mix of earnings. Underlying earnings and adjusted earnings increased by €7 million (+9%) to €83 million. On a constant exchange rate basis, underlying earnings increased by €10 million (+14%). (1) €1,029 million after intercompany eliminations. Half Year 2014 Financial Report 64 I ACTIVITY REPORT AXA ownership of AllianceBernstein at June 30, 2014 was 63.6%, compared to 63.7% at December 31, 2013. The slight decrease was mainly due to the exercise of options. Net income increased by €3 million (+4%) to €80 million. On a constant exchange rate basis, net income increased by €7 million (+9%) mainly due to the change in adjusted earnings. Half Year 2014 Financial Report 65 I ACTIVITY REPORT AXA Investment Managers (“AXA IM”) (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues 707 828 1,638 Net investment result (6) (9) (12) Total revenues 700 819 1,626 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (543) 158 (52) (5) 101 0 101 10 (1) 0 (1) 108 (631) 188 (65) (6) 118 (1) 117 6 0 0 (4) 120 (1,281) 345 (119) (11) 216 (1) 214 12 180 0 (6) 401 In order to provide a consistent analysis following the sale of AXA Private Equity (“AXA PE”) on September 30, 2013, commentaries are based on restated figures with all P&L aggregates from revenues to net income excluding AXA PE contribution in 2013. AXA PE underlying earnings amounted to €26 million in the first half of 2013. Comparable basis in the commentaries below refers to AXA PE exclusion in first half of 2013, constant foreign exchange rate restatement, distribution fees netting and fund expenses denetting. Assets under Management (\"AUM\") increased by €35 billion from year-end 2013 to €582 billion at the end of June 2014, mainly as a result of €26 billion combined market and foreign exchange rate impact and €11 billion net inflows. Net inflows of €11 billion in the first half of 2014 were driven by inflows both on (i) Main Fund (€+5 billion) mainly from Real Estate, and (ii) Third party (€+6 billion) mainly from Asian Joint Ventures and Fixed Income. Gross revenues decreased by €121 million (-15%) to €707 million(1). On a comparable basis, net revenues increased by €27 million (+5%) to €541 million, mainly driven by higher management fees (€+26 million or +6%) as a result of 3% increase in average assets and +0.5bp management fee, owing to a better product and client mix. Net investment result increased by €3 million (+31%) to €-6 million. On a comparable basis, net investment result was stable. General expenses decreased by €88 million (-14%) to €-543 million. On a comparable basis, general expenses increased by €20 million (+6%) mainly due to the non-recurrence of a €6 million net insurance receivable in 2013 and a non-recurring provision for risk of €11 million in 2014. (1) €563 million after intercompany eliminations. Half Year 2014 Financial Report 66 I ACTIVITY REPORT The underlying cost income ratio increased by 0.8 point to 70.5%. Excluding the above mentioned non- recurring expenses impacts in 2013 and 2014, and on a comparable basis, the underlying cost income ratio improved by 2.5 points. Income tax expenses decreased by €13 million (-20%) to €-52 million. On a comparable basis, income tax expenses decreased by €4 million (-7%) due to a more favorable country mix, partly offset by higher taxable results. Underlying earnings decreased by €17 million (-14%) to €101 million. On a comparable basis, underlying earnings increased by €8 million (+9%). Adjusted earnings decreased by €16 million (-14%) to €101 million. On a comparable basis, adjusted earnings increased by €8 million (+9%) in line with underlying earnings increase. Net income decreased by €12 million (-10%) to €108 million. On a comparable basis, net income increased by €15 million (+16%) driven by adjusted earnings increase, as well as a more favorable mark-to-market of fixed income funds. Half Year 2014 Financial Report 67 I ACTIVITY REPORT BANKING The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking activities for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AXA Banks (a) 274 287 507 Belgium (b) 197 189 316 France 50 66 131 Hungary 16 19 37 Germany 11 11 22 Other (c) 3 2 Other 2 2 6 TOTAL 276 290 513 Intercompany transactions 12 4 11 Contribution to consolidated gross revenues 287 293 524 (a) Of which AXA Bank Europe and its branches: €213 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA Banks (a) 70 62 80 Belgium (b) 65 63 80 France 2 0 1 Hungary Germany 3 2 5 Other (c) (3) (6) Other (2) (2) (2) UNDERLYING EARNINGS 68 61 78 Net realized capital gains or losses attributable to shareholders (1) 0 1 ADJUSTED EARNINGS 67 61 79 Profit or loss on financial assets (under Fair Value option) & derivatives (14) (13) (35) Exceptional operations (including discontinued operations) (33) (27) (37) Goodwill and related intangibles impacts Integration and restructuring costs (1) (1) (15) NET INCOME 19 20 (8) (a) of which AXA Bank Europe and its branches would amount to €65 million for half year 2014 and €60 million for half year 2013. (b) Includes commercial activities in Belgium for €47 million and shared services of AXA Bank Europe (treasury and support functions) for €18 million. (c) Includes Slovakia and Czech Republic. Half Year 2014 Financial Report 68 I ACTIVITY REPORT Belgium Net banking revenues increased by €8 million (+4%) to €197 million. Operating net banking revenues(1) were stable, as commercial margin increase (€+11 million) was offset by reduced reinvestment revenues due to lower credit spreads (€-11 million). Underlying earnings increased by €3 million (+4%) to €65 million due to lower provisions for loan losses (€+7 million) and lower distribution commissions (€+2 million), partly offset by a regulatory increase of levy rate on retail savings (€-6 million). Adjusted earnings increased by €2 million (+3%) to €66 million due to the increase of underlying earnings. Net income increased by €12 million (+25%) to €58 million. Positive evolution of adjusted earnings (€+2 million) and fair value of own debt (€+24 million), was partly offset by change in fair value of interest rate derivatives (€-16 million). Excluding charges paid by the foreign branches to the Belgian Head Office, net income of Belgian activities stood at €51 million, including realized capital gains and changes in fair values of €46 million. France Net banking revenues decreased by €16 million (-24%) to €50 million. Operating net banking revenues(1) increased by €2 million to €64 million, mainly due to higher interest income on retail loans primarily mortgages, as a consequence of increasing in-force business following the strong level of new credit production during the last two years, partly mitigated by higher commissions paid on new refinancing operations. Underlying earnings increased by €2 million to €2 million, following the rise in operating net banking revenues, while administrative expenses and cost of risks were globally stable. Adjusted earnings increased by €1 million to €1 million. Net income decreased by €9 million to €-7 million, as a result of the unfavorable impact from the decrease in interest rates on hedging instruments not eligible to hedge-accounting, partly offset by the increase in adjusted earnings. Hungary Based on the Hungarian Supreme court decision on June 16th, the Hungarian government enacted a legislation in July 2014 to retroactively correct bid-ask spread applied to retail forex loans and to abolish intransparant unilateral changes to interest rates and fees applied by the banks. As a result, a provision of €-18 million was set up to face the potential costs. Net income were decreased by €17 million at €-33 million. (1) Before intercompany eliminations and before realized capital gains/losses or changes in fair value of fair value option assets and of hedging instruments. Half Year 2014 Financial Report 69 I ACTIVITY REPORT Germany Net banking revenues remained stable at €11 million. Underlying earnings were stable at €3 million. Adjusted earnings and net income were stable at €3 million. Half Year 2014 Financial Report 70 I ACTIVITY REPORT HOLDINGS AND OTHER COMPANIES The Holdings and other companies consist of AXA’s non-operating companies, including mainly the AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA (360) (283) (589) Other French holding companies (26) (28) (31) Foreign holding companies (101) (130) (232) Other 0 1 2 UNDERLYING EARNINGS (486) (441) (851) Net realized capital gains or losses attributable to shareholders (6) (28) (31) ADJUSTED EARNINGS (493) (469) (882) Profit or loss on financial assets (under Fair Value option) & derivatives (21) 23 (64) Exceptional operations (including discontinued operations) (39) (10) (22) Goodwill and related intangibles impacts 0 0 0 Integration and restructuring costs (5) (7) (0) NET INCOME (558) (464) (969) AXA SA(1) Underlying earnings decreased by €79 million to €-360 million mainly due to: increased general expenses (€-37 million) in order to support advertising campaigns across the Group and invest in our digital capabilities; lower dividends received from non-consolidated entities (€-17 million); an increase in the French tax of 3% on dividends (€-13 million) due to a higher dividend paid. Adjusted earnings decreased by €86 million to €-371 million mainly driven by underlying earnings evolution. Net income decreased by €186 million to €-407 million. Excluding profits linked to the sale of the Group’s Canadian operations in respect of the deferred contingent consideration (nil in 2014 vs. €+8 million in 2013), net income decreased by €178 million mainly driven by: €-82 million mainly from a change in fair value of interest rate and foreign exchange economic derivatives not eligible for hedge accounting under IAS 39; €-86 million from adjusted earnings evolution. Other French holding companies AXA FRANCE ASSURANCE Underlying earnings increased by € 3 million (+15%) to €-20 million mainly due to dividends received from a non-consolidated entity (€+2 million) and lower taxes (€+1 million) resulting from a decrease in intercompany dividends. (1) All the figures are after tax. Half Year 2014 Financial Report 71 I ACTIVITY REPORT Adjusted earnings and net income increased by €3 million (+15%) to €-20 million in line with the increase in underlying earnings. OTHER FRENCH HOLDINGS Underlying earnings and adjusted earnings were stable at €-6 million. Net income increased by €8 million to €-19 million mainly due to a decrease in costs linked to the restructuring of the participation in Bharti AXA General Insurance. Foreign Holding Companies AXA FINANCIAL INC. Underlying earnings increased by €9 million (+11%) to €-69 million. On a constant exchange rate basis, underlying earnings increased by €6 million (+7%) mainly reflecting the impact of lower share-based compensation expenses. Adjusted earnings increased by €9 million (+11%) to €-69 million. On a constant exchange rate basis, adjusted earnings increased by €6 million (+7%), in line with underlying earnings evolution. Net income increased by €22 million (+22%) to €-78 million. On a constant exchange rate basis, net income increased by €19 million (+19%) reflecting the adjusted earnings evolution and a less unfavorable change in fair value of cross currency swaps. AXA UK HOLDINGS Underlying earnings increased by €6 million (+59%) to €-4 million. On a constant exchange rate basis, underlying earnings increased by €6 million mainly due to lower financing costs (€+3 million) and lower pension costs reflecting the reduction in pension deficit (€+5 million), partly offset by a reduction in investment income (€-3 million). Adjusted earnings increased by €11 million (+99%) to €0 million. On a constant exchange rate basis, adjusted earnings increased by €11 million (+99%) due to the increase in underlying earnings and realized capital gains. Net Income increased by €24 million (+118%) to €4 million. On a constant exchange rate basis, net income increased by €24 million (+117%) mainly driven by the improvement in adjusted earnings, a favorable change in the fair value of derivatives (€+7 million) due to foreign exchange and interest rate movements and non- repeat of 2013 restructuring costs (€+5 million). GERMAN HOLDING COMPANIES Underlying earnings increased by €3 million (+40%) to €-5 million mainly due to a higher investment result. Adjusted earnings increased by €28 million (+86%) to €-4 million mainly due to the non-repeat of impairment charges on real estate in the first half 2013. Net income increased by €31 million (+79%) to €-8 million mainly driven by adjusted earnings evolution. Half Year 2014 Financial Report 72 I ACTIVITY REPORT BELGIAN HOLDING COMPANY Underlying earnings increased by €1 million (+20%) to €-5 million. Adjusted earnings increased by €1 million (+11%) to €-5 million. Net income increased by €1 million (+12%) to €-4 million. MEDITERRANEAN AND LATIN AMERICAN REGION HOLDINGS Underlying earnings and adjusted earnings increased by €6 million (+22%) to €-19 million. On a constant exchange rate basis, underlying earnings increased by €6 million (+22%) mainly due by a higher investment income from interest rate hedging derivatives. Net income decreased by €2 million (-8%) to €-24 million. On a constant exchange rate basis, net income decreased by €2 million (-8%) mainly driven by adjusted earnings more than offset by change in fair value of hedging derivatives. Half Year 2014 Financial Report 73 I ACTIVITY REPORT OUTLOOK In a context of a challenging economic environment and low interest rates, AXA continues to successfully execute on its Ambition AXA plan. AXA is confident about the growth momentum for the year 2014 during which Life & Savings new business volumes and Property & Casualty revenues are expected to increase. The Asset Management business should continue to benefit from a good momentum driven by a favorable investment performance and a strong distribution footprint, whilst remaining sensitive to the evolution of financial markets. Ambition AXA is an important milestone of our long-term journey towards becoming a customer-centric organization, and thus further digital oriented. AXA will also focus on the more profitable market segments and faster growing geographies as well as on delivering the planned efficiency measures. This should enable to create lasting shareholder value and offer an attractive return. Half Year 2014 Financial Report 74 I ACTIVITY REPORT GLOSSARY The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia), India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico, Lebanon, Colombia), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece and France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: Include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, Exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, And also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow through adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). Underlying earnings Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: Realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), Cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, Related impact on policyholder participation (Life & Savings business), Half Year 2014 Financial Report 75 I ACTIVITY REPORT DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. Earnings per share Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). Return On Equity (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ / “Undated equity including undated subordinated debt (“Super Subordinated Debts” TSS Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE: o All undated subordinated debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. Life & Savings Margin Analysis Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. For insurance contracts and investment contracts with Discretionary Participation Features (DPF): o Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. o Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. o The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. o Change in URR (Unearned Revenues Reserves – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. For investment contracts without DPF: o Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Half Year 2014 Financial Report 76 I ACTIVITY REPORT o Change in UFR (Unearned Fees Reserves - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. Underlying Investment margin includes the following items: Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (Unit-Linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. Underlying Net Technical margin includes the following components: Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by \"underlying\" operating margin, where \"Underlying\" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Half Year 2014 Financial Report 77 I ACTIVITY REPORT Property & Casualty (including AXA Corporate Solutions Assurance) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. Current accident year loss ratio net of reinsurance is the ratio of: current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. All accident year loss ratio net of reinsurance is the ratio of: all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. Underlying expense ratio is the ratio of: Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. Asset Management Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. Half Year 2014 Financial Report 78 I ACTIVITY REPORT Banking Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Net operating revenues are disclosed before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2014 Financial Report 79 I CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II Consolidated financial statements / Half Year 2014 Half -Year 2014 Financial Report 80 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................................................... 82 II.2 CONSOLIDATED STATEMENT OF INCOME ........................................................................................... 84 II.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .......................................................... 85 II.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .................................................................... 86 II.5 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................. 88 NOTE 1 Accounting principles ........................................................................................................................... 90 1.1 General information ............................................................................................................................ 90 1.2 General accounting principles ............................................................................................................ 90 NOTE 2 Scope of consolidation ........................................................................................................................ 93 2.1 Consolidated companies..................................................................................................................... 93 2.2 Consolidated entities relating to specific operations ........................................................................... 96 NOTE 3 Consolidated statement of income by segment .................................................................................. 97 3.1 Consolidated statement of income by segment .................................................................................. 98 NOTE 4 Transactions in consolidated entities ................................................................................................ 100 4.1 TIAN PING insurance ....................................................................................................................... 100 4.2 COLPATRIA's insurance operations in Colombia ............................................................................ 100 4.3 Hungarian Life & Savings Insurance operations .............................................................................. 100 4.4 MONY Portfolio transaction .............................................................................................................. 100 NOTE 5 Investments ....................................................................................................................................... 102 5.1 Breakdown of investments ................................................................................................................ 102 5.2 Investment in real estate properties .................................................................................................. 103 5.3 Unrealized gains and losses on financial investments ..................................................................... 104 5.4 Financial assets subject to impairment ............................................................................................. 105 5.5 Investments recognized at fair value ................................................................................................ 106 NOTE 6 Shareholders’ equity and minority interests ...................................................................................... 108 6.1 Impact of transactions with shareholders ......................................................................................... 108 6.2 Comprehensive income for the period .............................................................................................. 110 6.3 Change in minority interests ............................................................................................................. 113 NOTE 7 Financing debt ................................................................................................................................... 114 NOTE 8 Net income per ordinary share .......................................................................................................... 115 Half -Year 2014 Financial Report 81 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2014 December 31, 2013 Restated (a) (b) January 1, 2013 Restated (a) (b) Goodwill 15,263 14,819 15,754 Value of purchased business in force (c) 2,317 2,382 2,685 Deferred acquisition costs and equivalent 19,925 19,345 19,042 Other intangible assets 3,098 3,159 3,349 Intangible assets 40,603 39,705 40,830 Investments in real estate properties 18,014 17,479 17,019 Financial investments 451,086 426,310 441,573 Assets backing contracts where the financial risk is borne by policyholders (d) 166,556 162,186 147,162 5 Investments from insurance activities 635,656 605,976 605,754 5 Investments from banking and other activities 36,743 35,790 33,298 Investments accounted for using the equity method 1,929 1,428 1,347 Reinsurers' share in insurance and investment contracts liabilities 18,054 17,808 10,620 Tangible assets 1,277 1,259 1,457 Deferred policyholders' participation assets 4 Deferred tax assets 1,683 2,240 3,054 Other assets 2,959 3,499 4,516 Receivables arising from direct insurance and inward reinsurance operations 15,518 14,096 14,926 Receivables arising from outward reinsurance operations 971 710 745 Receivables - current tax 1,885 1,885 1,855 Other receivables 13,830 12,926 15,315 Receivables 32,204 29,617 32,841 Assets held for sale including discountinued operations 183 164 181 Cash and cash equivalents 21,756 21,455 30,375 TOTAL ASSETS 790,088 755,441 759,762 All invested assets are shown net of related derivative instruments impact. (a) Before 2013, AXA Japan closed its full year accounts at September 30. Given significant movements in foreign exchange rates between September 30, 2012 and December 31, 2012, opening balance sheet items at January 1, 2013 were translated using December 31, 2012 exchange rates. Starting with 2013 annual accounts, AXA Life Japan aligned its closing date with the Group calendar year. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (c) Amounts are gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. Half -Year 2014 Financial Report 82 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 (in Euro million) Notes June 30, 2014 December 31, 2013 Restated (a) (b) Share capital and capital in excess of nominal value 26,239 26,199 Reserves and translation reserve 29,657 22,242 Net consolidated income - Group share (c) 3,008 4,482 Shareholders’ equity – Group share 58,903 52,923 Minority interests 2,597 2,520 6 TOTAL SHAREHOLDERS' EQUITY 61,500 55,444 Subordinated debt 6,814 7,986 Financing debt instruments issued 1,553 1,568 Financing debt owed to credit institutions 841 853 7 Financing debt 9,208 10,407 Liabilities arising from insurance contracts 361,557 348,334 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (d) 129,900 125,593 Total liabilities arising from insurance contracts 491,457 473,928 Liabilities arising from investment contracts with discretionary participating features 34,041 33,850 Liabilities arising from investment contracts with no discretionary participating features 97 99 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,946 4,243 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 33,093 32,682 Total liabilities arising from investment contracts 71,177 70,874 Unearned revenue and unearned fee reserves 3,039 2,999 Liabilities arising from policyholders' participation 36,205 26,271 Derivative instruments relating to insurance and investment contracts (1,639) (1,086) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 600,238 572,985 Liabilities arising from banking activities (e) 36,297 35,375 Provisions for risks and charges 11,026 10,393 Deferred tax liabilities 5,394 4,223 Minority interests of consolidated investment funds and puttable instruments held by minority interest holders 8,381 7,795 Other debt instruments issued, notes and bank overdrafts (e) 2,848 2,550 Payables arising from direct insurance and inward reinsurance operations 6,717 8,305 Payables arising from outward reinsurance operations 12,297 12,225 Payables – current tax 1,108 968 Collateral debts relating to investments under a lending agreement or equivalent 20,328 20,909 Other payables 14,745 13,862 Payables 66,424 66,615 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 790,088 755,441 (a) Before 2013, AXA Japan closed its full year accounts at September 30. Given significant movements in foreign exchange rates between September 30, 2012 and December 31, 2012, opening balance sheet items at January 1, 2013 were translated using December 31, 2012 exchange rates. Starting with 2013 annual accounts, AXA Life Japan aligned its closing date with the Group calendar year. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (c) AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. Therefore, its contribution to the AXA consolidated result for the 2013 annual accounts exceptionally covered a period of fifteen months. (d) Includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (e) Amounts are shown net of related derivative instruments impact. Half -Year 2014 Financial Report 83 January 1, 2013 Restated (a) (b) 25,549 28,058 n/a 53,606 2,371 55,977 7,317 2,514 831 10,662 362,292 113,921 476,213 36,350 251 4,080 29,983 70,664 2,897 31,357 (2,053) 579,079 33,495 11,951 5,170 4,005 3,123 8,937 5,350 1,170 24,397 16,446 63,428 759,762 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.2 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2014 June 30, 2013 Restated (a) Gross written premiums 46,944 47,154 Fees and charges relating to investment contracts with no participating features 159 133 Revenues from insurance activities 47,103 47,287 Net revenues from banking activities 286 291 Revenues from other activities 2,316 2,451 Revenues (b) 49,705 50,030 Change in unearned premiums net of unearned revenues and fees (4,269) (3,820) Net investment income (c) 7,600 5,949 Net realized gains and losses relating to investments at cost and at fair value through shareholders' equity (d) 1,107 1,405 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (e) 6,884 6,500 of which change in fair value of assets with financial risk borne by policyholders (f) 5,613 8,070 Change in investments impairment (g) (221) (390) Net investment result excluding financing expenses 15,370 13,464 Technical charges relating to insurance activities (f) (46,639) (45,261) Net result from outward reinsurance (363) (935) Bank operating expenses (50) (67) Acquisition costs (4,606) (4,626) Amortization of the value of purchased business in force (58) (59) Administrative expenses (4,472) (4,768) Change in goodwill impairment and other intangible assets impairment (69) (46) Other income and expenses (114) (109) Other operating income and expenses (56,371) (55,872) Income from operating activities before tax 4,435 3,801 Income from investment accounted for using the equity method 99 65 Financing debts expenses (h) (365) (348) Net income from operating activities before tax 4,169 3,518 Income tax (1,010) (897) Net operating income 3,159 2,621 Net consolidated income after tax 3,159 2,621 Split between : Net consolidated income - Group share 3,008 2,467 Net consolidated income - Minority interests 151 154 8 Earnings per share 1.18 0.98 8 Fully diluted earnings per share 1.18 0.97 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Gross of reinsurance. (c) Net of investment management costs and including gains/losses from derivatives hedging variable annuities. (d) Includes impairment releases on investments sold. (e) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (f) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (g) Excludes impairment releases on investments sold. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). Half -Year 2014 Financial Report 84 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2014 June 30, 2013 Reserves relating to changes in fair value through shareholders' equity 4,047 Translation reserves 546 Items that may be reclassified subsequently to Profit or Loss 4,593 Employee benefits actuarial gains and losses (455) Items that will not be reclassified subsequently to Profit or Loss (455) Net gains and losses recognized directly through shareholders' equity 4,138 Net consolidated income 3,159 Split between: Net consolidated income - Group share 3,008 Net consolidated income - Minority interests 151 TOTAL COMPREHENSIVE INCOME (CI) 7,297 Split between: Total comprehensive income - Group share 7,033 Total comprehensive income - Minority interests 263 Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Half -Year 2014 Financial Report 85 (2,526) (1,000) (3,526) 325 325 (3,201) 2,621 2,467 154 (580) (731) 151 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Other reserves (in Euro million, except for number of shares and nominal value) Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Restated (a) Shareholders 'equity opening January 1, 2014 2,417,865 2.29 5,537 21,170 (188) 8,488 162 5,418 (4,973) 17,310 52,923 2,521 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,855 - - - - - - - - 2.29 - - - - - - - - 9 - - - - - - - - 31 15 - - - - - - - - 28 - - - - - - - - - - - - - - - - - - - - - - - - (44) - 962 (148) - - - - - - - - - - - - - - - - 53 9 31 15 28 (44) - 962 (148) 53 - - - - - - - (187) Dividends paid (1,960) (1,960) Impact of transactions with shareholders 3,855 2.29 9 46 28 770 (1,906) (1,053) (187) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - 3,943 - - 3,943 8 - - 8 132 - - 132 398 - - 398 (455) 3,008 2,553 3,950 530 (455) 3,008 7,033 97 16 (0) 151 263 Shareholders' equity closing June 30, 2014 2,421,720 2.29 5,546 21,216 (160) 12,430 170 6,320 (4,575) 17,957 58,903 2,597 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half -Year 2014 Financial Report 86 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 Attributable to shareholders Share Capital Other reserves (in Euro million, except for number of shares and nominal value) Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Restated (a) Shareholders 'equity opening January 1, 2013 2,388,611 2.29 5,470 20,749 (364) 10,887 134 5,735 (2,889) 13,885 53,606 2,371 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,254 - - - - - - - - 2.29 - - - - - - - - 7 - - - - - - - - 28 23 - - - - - - - - 165 - - - - - - - - - - - - (0) - - - - - - - - - - - (19) - 252 (144) - - - - - - - - (0) - - - - - - - (1) 7 28 23 165 (19) - 252 (144) (1) - - - - - - - (71) Dividends paid (1,720) (1,720) Impact of transactions with shareholders 3,254 2.29 7 51 165 (0) 90 (0) (1,721) (1,408) (71) Reserves relating to changes in fair value through shareholders' equity (2,573) 53 (2,519) (6) Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - - - (2,573) - - 53 (155) - - (155) (848) - - (848) 324 2,467 2,791 (1,003) 324 2,467 (731) 3 0 154 151 Shareholders' equity closing June 30, 2013 2,391,865 2.29 5,477 20,800 (199) 8,314 187 5,670 (3,736) 14,955 51,468 2,450 NB: amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.2.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half -Year 2014 Financial Report 87 II Avec et sans PB discrétionnaire III CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.5 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2014 June 30, 2013 Restated (a) Operating income including discontinued operation before tax 4,169 3,518 Net amortization expense (b) 278 357 Change in goodwill impairment and other intangible assets impairment (c) 21 Net change in deferred acquisition costs and equivalent (795) (781) Net increase / (write back) in impairment on investments, tangible and other intangible assets 234 416 Change in fair value of investments at fair value through profit or loss (7,639) (10,037) Net change in liabilities arising from insurance and investment contracts (d) 14,230 11,875 Net increase / (write back) in other provisions (e) (57) (4) Income from investment accounted for using the equity method (99) (65) Adjustment of non cash balances included in the operating income before tax 6,173 1,761 Net realized investment gains and losses (364) 2,054 Financing debt expenses 365 348 Adjustment for reclassification to investing or financing activities 1 2,401 Dividends recorded in profit or loss during the period (1,694) (1,692) Investment income & expense recorded in profit or loss during the period (f) (6,537) (4,822) Adjustment of transactions from accrued to cash basis (8,230) (6,514) Net cash impact of deposit accounting 773 858 Dividends and interim dividends collected 1,833 1,922 Investment income (f) 9,572 6,726 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (2,010) (1,478) Net operating cash from banking activities Change in operating receivables and payables Net cash provided by other assets and liabilities (g) Tax expenses paid (902) (2,695) (1,679) (501) 76 (2,100) (2,014) (764) Other operating cash impact and non cash adjustment 154 291 Net cash impact of transactions with cash impact not included in the operating income before tax 4,545 3,517 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 6,657 4,684 Purchase of subsidiaries and affiliated companies, net of cash acquired (483) (17) Disposal of subsidiaries and affiliated companies, net of cash ceded 33 5 Net cash related to changes in scope of consolidation (450) (12) Sales of debt instruments (g) 28,601 30,646 Sales of equity instruments and non consolidated investment funds (g) (h) 12,763 10,675 Sales of investment properties held directly or not (g) 506 631 Sales and/or repayment of loans and other assets (g) (i) 13,131 8,255 Net cash related to sales and repayments of investments (g) (h) (i) 55,001 50,206 Purchases of debt instruments (g) (27,727) (32,009) Purchases of equity instruments and non consolidated investment funds (g) (h) (13,140) (12,005) Purchases of investment properties held direct or not (g) (1,067) (1,236) Purchases and/or issues of loans and other assets (h) (i) (14,653) (12,416) Net cash related to purchases and issuance of investments (g) (h) (i) (56,587) (57,666) Sales of tangible and intangible assets 1 4 Purchases of tangible and intangible assets (162) (200) Net cash related to sales and purchases of tangible and intangible assets (161) (196) Increase in collateral payable / Decrease in collateral receivable 10,684 22,171 Decrease in collateral payable / Increase in collateral receivable (12,599) (22,693) Net cash impact of assets lending / borrowing collateral receivables and payables (1,915) (522) Half -Year 2014 Financial Report 88 CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (4,112) Issuance of equity instruments 1,034 Repayments of equity instruments (35) Transactions on treasury shares 57 Dividends payout (2,156) Interests on undated subordinated debts paid (103) Acquisition / sale of interests in subsidiaries without change in control 4 Net cash related to transactions with shareholders (1,199) Cash provided by financial debts issuance 920 Cash used for financial debts repayments (2,205) Interests on financing debt paid (j) (310) Net cash related to Group financing (1,594) NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (2,794) NET CASH PROVIDED BY DISCONTINUED OPERATIONS CASH AND CASH EQUIVALENT AS OF JANUARY 1 (k) 20,477 Net cash provided by operating activities 6,657 Net cash provided by investing activities (4,112) Net cash provided by financing activities (2,794) Impact of change in consolidation method and of reclassifications as held for sale (l) 0 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents 537 CASH AND CASH EQUIVALENT AS OF JUNE 30 (k) 20,765 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes premiums/discounts capitalization and relating amortization, amortization of investment and in the contest of owner occupied properties (held directly). (c) Includes impairment and amortization of intangible assets booked in the context of business combinations. (d) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (e) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (f) Includes gains/losses from derivatives hedging variable annuities. (g) Includes related derivatives. (h) Includes equity instruments held directly or by consolidated investment funds as well as non consolidated investment funds. (i) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (j) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (k) Net of bank overdrafts. (l) Assets and liabilities related to MONY Life insurance Company portfolio for which the disposal process was not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (in Euro million) June 30, 2014 June 30, 2013 Restated (a) Cash and cash equivalent 21,756 Bank overdrafts (b) (991) Cash and cash equivalent as of June 30 (c) 20,765 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Included in \"Other debt instruments issued and bank overdrafts\". (c) The \"Cash and cash equivalents\" balances do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The \"Cash and cash equivalents\" item excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). Half -Year 2014 Financial Report 89 (8,190) 677 (382) 154 (1,873) (101) (21) (1,547) 881 (1,676) (334) (1,130) (2,676) 0 29,930 4,684 (8,190) (2,676) (261) (331) 23,155 24,604 (1,449) 23,155 III CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 1 ACCOUNTING PRINCIPLES 1.1 General information AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, Americas and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA is listed on Euronext Paris Compartment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on July 31, 2014. 1.2 General accounting principles AXA’s consolidated interim financial statements are prepared as of June 30. However, until 2013, certain subsidiaries within AXA had a different reporting year end. In particular, AXA Life Japan previously closed its interim accounts on March 31 and its full year accounts on September 30, however it aligned its closing dates with the Group calendar year starting with the 2013 annual accounts. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are endorsed by the European Union before the balance sheet date with a compulsory date of January 1, 2014. For existing and unchanged IFRS standards and interpretations, the accounting policies applied in the preparation of the consolidated interim financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended December 31, 2013. The 2014 half-year consolidated financial statements should be read in conjunction with the consolidated financial statements included in the 2013 annual financial report. Standards, amendments and interpretation published and adopted on January 1, 2014 A package of five new and revised standards was published on May 12, 2011 (followed by amendments for investment entities published on October 31, 2012) addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvement with other entities. IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. IFRS 11 – Joint Arrangements replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. The retrospective application of these standards and amendments by AXA resulted in: the change in the consolidation method of a limited number of investment funds and real estate companies (with the full consolidation of some entities previously accounted for under the equity method or not consolidated, and, in contrast, the deconsolidation of others); Half -Year 2014 Financial Report 90 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 the change from the proportionate consolidation method to the equity method for joint ventures, in particular Natio Assurances. The changes have no impact on the total of the profit or loss for the current year and prior year and on shareholders’ equity – Group share reported. The retrospective effect on the aggregates of the consolidated statement of financial position and the consolidated statement of income are as follows: (in Euro million) December 31, 2013 PublishedDecember 31, 2013 RestatedEffect of the changesJanuary 1, 2013 PublishedJanuary 1, 2013 RestatedEffect of the changesIntangible assets 39,71039,705(6)40,83540,830(5)Investments from insurance activities 606,039605,976(64)605,823605,754(69)Investments from banking and other activities (a)37,36035,790(1,570)35,19933,298(1,901)Investments accounted for using the equity method 1,3871,428421,3121,34735Reinsurers' share in insurance and investment contracts liabilities 17,72717,8088210,55810,62063Other assets 3,5053,499(6)4,5224,516(6)Receivables 29,66329,617(46)32,88732,841(46)Assets held for sale including discountinued operations 164164-181181-Cash and cash equivalents 21,58821,455(133)30,54630,375(171)TOTAL ASSETS 757,143755,441(1,701)761,862759,762(2,100)Consolidated statement of financial position Shareholders’ equity – Group share 52,92352,923153,60653,606-Minority interests (b)2,3912,5201302,3552,37116Financing debt 10,40710,407-10,66210,662-Liabilities arising from insurance and investment contracts573,058572,985(73)579,165579,079(86)Liabilities arising from banking activities 35,37435,375233,49433,4951Provisions for risks and charges 10,39310,393(1)11,95211,951-Deferred tax liabilities 4,2264,223(4)5,1755,170(5)Payables (c)68,37166,615(1,756)65,45463,428(2,026)TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 757,143755,441(1,701)761,862759,762(2,100) (a) Changes mainly relate to the Investments in real estate properties resulting from the changes in the consolidation method of some real estate companies. (b) Changes in minority interests relate to the change in consolidation method of some real estate companies. (c) Changes mainly relate to Other debt instruments issued, notes and bank overdrafts (€-1,163 million as of December 31, 2013 and €-1,387 million as of January 1, 2013) and Other payables (€-822 million as of December 31, 2013 and €-850 million as of January 1, 2013). (In Euro million)December 31, 2013 Published December 31, 2013 Restated Effect of the changesJune 30, 2013 PublishedJune 30, 2013 RestatedEffect of the changesRevenues 91,24991,221(28)50,04450,030(14)Change in unearned premiums net of unearned revenues and fees (246)(248)(2)(3,819)(3,820)(1)Net investment result excluding financing expenses 33,95833,953(5)13,46613,464(3)Other operating income and expenses (118,221)(118,199)22(55,884)(55,872)13Income from operating activities before tax 6,7406,727(13)3,8063,801(5)Income from investment accounted for using the equity method 131139862653Financing debts expenses (618)(618)-(348)(348)-Net income from operating activities before tax 6,2536,249(4)3,5203,518(2)Income tax (1,466)(1,462)4(899)(897)2Net operating income 4,7864,786-2,6212,621-Net consolidated income after tax 4,7864,786-2,6212,621-Consolidated statement of income As a result of the application of the new standards IFRS 10 / IFRS 11 and amendments to IAS 27 / IAS 28, the Note 1.3.1. Scope and basis of consolidation included in the consolidated financial statement for the year ended December 31, 2013 is changed as follows: Companies in which AXA exercises control are known as subsidiaries. They are fully consolidated from the date on which control is transferred to AXA. Under IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Only substantive rights (i.e. the holder must have the practicability to exercise them) and rights that are not protective shall be considered. An investor can have power with less than a majority of the voting rights of an investee, in particular through: the proportion of ownership with regards to the other investors; rights arising from other contractual arrangements; or Half -Year 2014 Financial Report 91 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Under IFRS 11, companies over which AXA exercises a joint controlling influence alongside one or more third parties are joint ventures and are accounted for under the equity method. Companies in which AXA exercises significant influence are accounted for under the equity method. Under IAS 28, significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights. Significant influence can also be exercised through an agreement with other shareholders. Under the equity method, AXA’s share of equity companies’ post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or accounted for under the equity method, depending on which conditions of IFRS 10 / IFRS 11 / IAS 28 listed above they satisfy. Fees received by asset managers are also taken into account in the assessment of the exposure to variability of returns. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. Additionally, the application of the amendments and interpretations below as of January 1, 2014 had no material impact on the Group’s consolidated interim financial statements. The amendments to IAS 32 – Financial Instruments: Presentation published on December 16, 2011, provide clarifications of the application of the offsetting rules. The amendments to IAS 32 clarify that in order to result in an offset of a financial asset and a financial liability, a right to set-off must be available immediately rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets, published on May 29, 2013, address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. IFRIC 21 – Levies, published May 20, 2013, is an interpretation on the accounting for levies imposed by governments. The interpretation, early adopted by AXA, clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. Narrow-scope amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting, published on June 27, 2013 provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. The half year income tax charge is based on the best estimate of the expected full year tax rate. In preparing the consolidated interim financial statements, significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2013. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million. Half -Year 2014 Financial Report 92 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 2 SCOPE OF CONSOLIDATION 2.1 Consolidated companies 2.1.1 MAIN FULLY CONSOLIDATED COMPANIES June 30, 2014 December 31, 2013 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA Asia 100.00 100.00 100.00 100.00 AXA China 100.00 100.00 100.00 100.00 AXA France Assurance 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.98 100.00 99.98 AXA UK Plc 100.00 99.98 100.00 99.98 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100.00 100.00 100.00 100.00 AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 100.00 100.00 Japan AXA Japan Holding 99.02 99.02 99.02 99.02 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 Finance Solutions SARL 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 100.00 100.00 Half -Year 2014 Financial Report 93 II Life & Savings and Property & Casualty France AXA France IARD AXA France Vie AXA Protection Juridique United States AXA Equitable Life Insurance Company AXA Re Arizona Company United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited AXA Portfolio Services Limited Ireland AXA Insurance Limited AXA Life Europe Limited AXA Life Invest Reinsurance Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (a) Japan AXA Life Insurance Germany AXA Versicherung AG AXA Art AXA Lebensversicherung AG Pro Bav Pensionskasse Deutsche Ärzteversicherung AXA Krankenversicherung AG DBV Deutsche Beamten-Versicherung AG Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Les Assurés Réunis Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) AXA MPS Danni (Italy) AXA MPS Financial (Italy) AXA Colpatria Capitalizadora (Colombia) AXA Colpatria Seguros de la vida (Colombia) AXA Colpatria Seguros (Colombia) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) Switzerland AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 June 30, 2014 December 31, 2013 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 99.98 100.00 100.00 Minority interest buyout 100.00 100.00 100.00 100.00 100.00 100.00 42.51 100.00 100.00 100.00 100.00 100.00 100.00 42.51 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 99.02 100.00 99.02 Minority interest buyout Minority interest buyout 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.90 99.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.96 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.99 99.99 50.00 99.82 99.96 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.99 99.99 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Acquisition Acquisition Acquisition Minority interest buyout 50.00 + 1 voting right 51.00 51.00 51.00 99.73 95.09 100.00 100.00 92.61 50.00 50.00 99.98 100.00 100.00 66.67 100.00 50.00 51.00 51.00 51.00 99.49 94.89 100.00 100.00 92.61 34.00 50.00 99.98 100.00 100.00 66.67 100.00 50.00 + 1 voting right - - - 99.73 95.09 100.00 100.00 92.61 50.00 50.00 99.98 99.97 100.00 66.67 100.00 50.00 - - 99.49 94.89 100.00 100.00 92.61 34.00 50.00 99.98 99.97 100.00 66.67 100.00 Disposal 99.99 100.00 - 99.99 100.00 - 99.99 100.00 100.00 99.99 100.00 100.00 Half -Year 2014 Financial Report 94 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 AXA Poland AXA Poland Pension Funds AXA Slovakia AXA Ukraine 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 Direct (b) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) Seguro Directo Gere Companhia de Seguros SA (Portugal) Minority interest buyout 100.00 99.61 100.00 100.00 100.00 100.00 100.00 100.00 99.61 99.02 100.00 100.00 100.00 100.00 100.00 99.55 100.00 100.00 100.00 100.00 100.00 100.00 99.55 99.02 100.00 100.00 100.00 100.00 (a) AXA Group exercises control in accordance with shareholders' agreements. (b) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2014 December 31, 2013 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C AXA Global Life AXA Assistance SA (sub group) Portman Insurance Ltd. Colisée RE AXA Corporate Solutions Life Reinsurance Company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2014 December 31, 2013 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) (a) Minority interests buyout 96.17 63.55 96.11 63.55 95.87 63.68 95.82 63.68 (a) The decrease in the Group share of interest is mainly due to the granting of holding units to the employees in relation with the share-based compensation programs. June 30, 2014 December 31, 2013 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque 100.00 99.89 100.00 99.89 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2014 December 31, 2013 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management 100.00 100.00 100.00 100.00 Consolidated investments and investment funds As of June 30, 2014, consolidated investment funds represented total invested assets of €95,041 million (€92,280 million at the end of 2013), corresponding to 255 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. As of June 30, 2014, the 24 consolidated real estate companies corresponded to total invested assets of €7,168 million (€5,025 million at the end of 2013), mainly in Germany, Japan and France. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of consolidated investment funds and puttable instruments held by minority interest holders”. As of June 30, 2014, minority interests in consolidated investment funds amounted to €8,369 million (€7,795 million as of December 31, 2013). Half -Year 2014 Financial Report 95 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 2.1.2 MAIN INVESTMENTS IN COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2014 December 31, 2013 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie (previously NSM Vie) Natio Assurances (a) 39.98 50.00 39.98 49.96 39.98 50.00 39.98 49.96 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd ICBC-AXA Life Insurance Co. Ltd (previously AXA Minmetals Assurance 45.00 50.00 45.00 50.00 45.00 50.00 45.00 50.00 Co Ltd) 27.50 27.50 27.50 27.50 PT AXA Mandiri Financial Services Bharti AXA Life Bharti AXA General Insurance Company Limited (India) AXA Insurance Public Company Limited (Thailand) 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 AXA Tian Ping Acquisition 50.00 50.00 Russia Reso Garantia (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management Kyobo AXA Investment Managers Company Limited Shares acquisition 50.00 48.06 50.00 47.91 Mediterranean and Latin American Region AXA Middle East SAL (Lebanon) 51.00 51.00 51.00 51.00 (a) Before the retrospective application of IFRS11 on January 1, 2014 (see note 1.2), Natio Assurances was proportionately consolidated. Investment funds and real estate entities accounted for using the equity method As of June 30, 2014, real estate companies accounted for using the equity method represented total assets of €261 million (€280 million at the end of 2013) and investment funds accounted for using the equity method represented total assets of €3,218 million (€3,076 million at the end of 2013), mainly in the United States, France, Germany, Belgium, Switzerland and the United Kingdom. 2.2 Consolidated entities relating to specific operations Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. On January 14, 2014 the loan was reimbursed. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Half -Year 2014 Financial Report 96 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 3 CONSOLIDATED STATEMENT OF INCOME BY SEGMENT Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional \"Holding companies\" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding Company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The Group has set up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates ten geographic operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, Asia (excluding Japan) and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates nine geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, Central Eastern Europe, Asia and Other countries) and one operating component for the Direct business. International Insurance: This segment’s operations include insurance products that notably relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company and the Group Property & Casualty run-off managed by AXA Liabilities Managers. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgage loans, savings) conducted primarily in France, Belgium and Germany. The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles and Special-Purpose Entities (SPE). The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Half -Year 2014 Financial Report 97 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 3.1 Consolidated statement of income by segment June 30, 2014 (in Euro million) Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations Gross written premiums 28,333 17,014 1,912 (315) Fees and charges relating to investment contracts with no participating features 159 Revenues from insurance activities 28,492 17,014 1,912 (315) Net revenues from banking activities 274 0 12 Revenues from other activities 608 29 128 1,776 2 (227) Revenues 29,100 17,044 2,039 1,776 276 0 (530) Change in unearned premiums net of unearned revenues and fees (1,433) (2,649) (297) 110 Net investment income (a) 6,467 1,119 115 (6) (0) 220 (316) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 829 6,837 5,617 229 (21) 44 11 27 6 34 (4) (4) Change in investments impairment (182) (23) (3) (13) Net investment result excluding financing expenses 13,951 1,303 168 21 (0) 246 (319) Technical charges relating to insurance activities (36,098) (9,666) (1,019) 144 Net result from outward reinsurance 276 (416) (281) 57 Bank operating expenses (50) (0) Acquisition costs (1,932) (2,437) (245) 8 Amortization of the value of purchased business in force (58) Administrative expenses (1,299) (1,320) (120) (1,269) (199) (454) 189 Change in goodwill impairment and other intangible assets impairment (10) (58) (1) Other income and expenses (55) 3 13 (137) (5) 105 (39) Other operating income and expenses (39,176) (13,892) (1,652) (1,407) (254) (349) 358 Income from operating activities before tax 2,443 1,806 258 390 22 (103) (381) Income from investment accounted for using the equity method 63 31 0 0 5 Financing debt expenses (51) (4) (4) (17) (5) (665) 380 Net income from operating activities before tax 2,455 1,833 254 373 17 (762) (0) Income tax (498) (526) (86) (109) 3 205 0 Net operating income 1,957 1,307 168 265 20 (558) Net consolidated income after tax 1,957 1,307 168 265 20 (558) Split between : Net consolidated income - Group share 1,906 1,286 166 188 19 (558) Net consolidated income - Minority interests 51 21 2 76 1 0 (a) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (b) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half -Year 2014 Financial Report 98 TOTAL 46,944 159 47,103 286 2,316 49,705 (4,269) 7,600 1,107 6,884 5,613 (221) 15,370 (46,639) (363) (50) (4,606) (58) (4,472) (69) (114) (56,371) 4,435 99 (365) 4,169 (1,010) 3,159 3,159 3,008 151 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 June 30, 2013 Restated (a) (in Euro million) Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations Gross written premiums 28,927 16,651 1,843 (267) Fees and charges relating to investment contracts with no participating features 133 Revenues from insurance activities 29,060 16,651 1,843 (267) Net revenues from banking activities 287 0 4 Revenues from other activities 583 28 137 1,915 2 (214) Revenues 29,643 16,679 1,980 1,915 290 0 (477) Change in unearned premiums net of unearned revenues and fees (1,178) (2,497) (236) 90 Net investment income (b) 4,849 1,006 78 4 (0) 307 (295) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 1,201 6,573 8,072 180 (109) 8 (7) (4) 24 19 32 (13) (3) Change in investments impairment (296) (48) (9) (0) (38) Net investment result excluding financing expenses 12,328 1,029 71 24 (0) 320 (307) Technical charges relating to insurance activities (35,047) (9,427) (932) 146 Net result from outward reinsurance (173) (412) (391) 41 Bank operating expenses (68) 1 Acquisition costs (1,984) (2,449) (222) 29 Amortization of the value of purchased business in force (59) Administrative expenses (1,488) (1,293) (111) (1,418) (206) (397) 145 Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (6) (40) (0) Other income and expenses (74) (10) (0) (102) 13 108 (43) Other operating income and expenses (38,832) (13,631) (1,656) (1,520) (261) (288) 317 Income from operating activities before tax 1,961 1,580 158 418 28 33 (377) Income from investment accounted for using the equity method 46 18 0 0 0 Financing debts expenses (63) (3) (1) (17) (8) (663) 407 Net income from operating activities before tax 1,944 1,595 157 402 20 (630) 30 Income tax (390) (444) (73) (128) 1 166 (30) Net operating income 1,554 1,152 84 273 21 (464) Net consolidated income after tax 1,554 1,152 84 273 21 (464) Split between : Net consolidated income - Group share 1,501 1,130 83 196 20 (464) Net consolidated income - Minority interests 54 22 1 77 1 (0) (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (c) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half -Year 2014 Financial Report 99 TOTAL 47,154 133 47,287 291 2,451 50,030 (3,820) 5,949 1,405 6,500 8,070 (390) 13,464 (45,261) (935) (67) (4,626) (59) (4,768) (0) (46) (109) (55,872) 3,801 65 (348) 3,518 (897) 2,621 2,621 2,467 154 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 4 TRANSACTIONS IN CONSOLIDATED ENTITIES 4.1 TIAN PING insurance On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited (\"Tian Ping\") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces with a market share of 0.8%(1). On February 20, 2014, AXA announced the finalization of the acquisition. AXA has acquired 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 240 million(2)) and subsequently subscribed to a capital increase for RMB 2.0 billion (or Euro 251 million(2)) to support future growth, raising its stake to 50%. AXA and Tian Ping's current shareholders jointly control AXA Tian Ping. AXA’s previously existing Chinese P&C operations have been merged within the new joint venture. The acquired operations are consolidated through the equity method since February 20, 2014. Given the short timing between the acquisition and the interim closing, the initial accounting is still on-going as of June 30, 2014. 4.2 COLPATRIA's insurance operations in Colombia On November 11, 2013, AXA announced it had entered into an agreement with Grupo Mercantil Colpatria(3) to acquire a 51% stake in its composite insurance operations in Colombia (“Colpatria Seguros”). On April 2, 2014, AXA announced it had completed the acquisition for a consideration of COP 672 billion (or Euro 248 million(4)). The acquired subsidarieis are fully consolidated. The initial accounting for the assets, liabilities and minorities interests is still on-going as of June 30. In accordance with IFRS 3- Business Combinations, adjustments can be made within twelve months of the acquisition date if new information becomes available to complete the initial accounting. 4.3 Hungarian Life & Savings Insurance operations On June 3, 2014, AXA announced it has completed the sale of its Life & Savings operations in Hungary(5) to Vienna Insurance Group. AXA continues to have banking operations in the country. These transactions led to recognize a €-50 million exceptional loss (net of tax and group share) in AXA consolidated financial statements as of December 31, 2013. 4.4 MONY Portfolio transaction On April 10, 2013, AXA announced it had entered into definitive agreements with Protective Life Corporation to sell MONY Life Insurance Company (“MONY”) and to get reinsurance for an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (“MLOA”) primarily prior to 2004. This announced transaction in 2013 led to recognize an estimated €-32 million exceptional loss in AXA interim consolidated financial statements as of June 30, 2013, resulting mainly from intangibles impairment, as well as associated costs with the announced transaction. (1) Source = CIRC, December 2013. (2) EUR = RMB 7,982 as of February 19, 2014. (3) The scope of the transaction includes the four insurance companies of Grupo Mercantil Colpatria: Seguros Colpatria S.A. (Property & Casualty), Seguros de Vida Colpatria S.A. (Life, Workers Compensation), Capitalizadora Colpatria S.A. (Capitalization) and Colpatria Medicina Prepagada S.A. (Voluntary Health). (4) EUR 1 = COP 2,711.67 as of March 31, 2014. (5) AXA Insurance Company and AXA Money & More. Half -Year 2014 Financial Report 100 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 On October 1, 2013, AXA announced it had successfully completed these transactions for a total cash consideration of US$1.06 billion (or €0.79 billion (1)). These transactions led to recognize €-11 million exceptional loss (net of tax and group share) in AXA consolidated financial statements as of December 31, 2013, following the refinement of the June 30, 2013 estimated impact. In AXA interim consolidated financial statements as of June 30, 2014 an exceptional gain of €+21 million (net of tax and group share) has been recognized following the re-evaluation of the transaction as part of the terms of the agreement. (1) EUR 1 = USD 1.35, as of October 1, 2013. Half -Year 2014 Financial Report 101 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 5 INVESTMENTS 5.1 Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro-hedges shown separately. Insurance June 30, 2014 Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro-hedge and other derivatives 22,445 1,018 16,996 1,018 2.67% 0.16% 1,713 574 1.56% 24,157 1,018 17,570 1,018 Investment in real estate properties 23,463 18,014 2.83% 1,713 574 1.56% 25,175 18,588 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (b) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (c) 339,886 35,691 363 4,700 339,886 35,691 363 4,499 53.47% 5.61% 0.06% 0.71% 9,806 320 21 2,090 9,806 320 21 2,090 26.69% 0.87% 0.06% 5.69% 349,693 36,010 385 6,789 349,693 36,010 385 6,588 Debt instruments 380,640 380,439 59.85% 12,237 12,237 33.30% 392,877 392,676 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) Equity instruments held for trading 14,982 7,745 152 14,982 7,745 152 2.36% 1.22% 0.02% 1,235 374 1,235 374 3.36% 1.02% 16,216 8,118 152 16,216 8,118 152 Equity instruments 22,878 22,878 3.60% 1,608 1,608 4.38% 24,486 24,486 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (a) Non consolidated investment funds held for trading 6,273 5,066 6,273 5,066 0.99% 0.80% 35 255 428 35 255 428 0.09% 0.69% 1.17% 6,308 5,321 428 6,308 5,321 428 Non consolidated investment funds 11,339 11,339 1.78% 718 718 1.95% 12,058 12,058 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 7,633 7,633 1.20% 34 34 0.09% 7,666 7,666 Macro-hedge and other derivatives 620 620 0.10% (1,229) (1,229) 3.35% (609) (609) Financial investments 423,110 422,909 66.53% 13,368 13,368 36.38% 436,478 436,277 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro-hedge and other derivatives 26 0 - 29,429 26 0 - 28,151 0.00% 0.00% - 4.43% - - - 24,501 (3) - - - 22,804 (3) - - - 62.06% 0.01% 26 0 - 53,930 (3) 26 0 - 50,955 (3) Loans 29,455 28,177 4.43% 24,498 22,801 62.06% 53,953 50,978 Assets backing contracts where the financial risk is borne by policyholders 166,556 166,556 26.20% 166,556 166,556 INVESTMENTS 642,583 635,656 100.00% 39,578 36,743 100.00% 682,161 672,399 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 476,028 469,100 73.80% Life & Savings Property & Casualty 404,928 63,949 398,863 63,088 62.75% 9.92% International Insurance 7,151 7,149 1.12% (a) Assets measured at fair value under the fair value option. (b) Includes assets measured at fair value notably under the fair value option. (c) Eligible to the IAS 39 Loans and Receivables measurement category. (d) Mainly relates to mortgage loans and policy loans. Half -Year 2014 Financial Report 102 % (value balance sheet) 2.61% 0.15% 2.76% 52.01% 5.36% 0.06% 0.98% 58.40% 2.41% 1.21% 0.02% 3.64% 0.94% 0.79% 0.06% 1.79% 1.14% 0.09% 64.88% 0.00% 0.00% - 7.58% 0.00% 7.58% 24.77% 100.00% II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Insurance December 31, 2013 Restated (a) Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (b) Macro-hedge and other derivatives 21,754 1,033 16,446 1,033 2.71% 0.17% 1,617 573 1.60% 23,370 1,033 17,019 1,033 Investment in real estate properties 22,787 17,479 2.88% 1,617 573 1.60% 24,403 18,052 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (c) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (d) 319,473 34,263 251 6,517 319,473 34,263 251 6,410 52.72% 5.65% 0.04% 1.06% 9,515 124 28 1,275 9,515 124 28 1,275 26.58% 0.35% 0.08% 3.56% 328,988 34,387 280 7,792 328,988 34,387 280 7,685 Debt instruments 360,505 360,397 59.47% 10,942 10,942 30.57% 371,447 371,339 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (b) Equity instruments held for trading 15,154 6,477 140 15,154 6,477 140 2.50% 1.07% 0.02% 2,035 374 2,035 374 5.69% 1.04% 17,189 6,851 140 17,189 6,851 140 Equity instruments 21,771 21,771 3.59% 2,409 2,409 6.73% 24,180 24,180 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (b) Non consolidated investment funds held for trading 6,041 4,396 6,041 4,396 1.00% 0.73% 281 213 388 281 213 388 0.79% 0.59% 1.09% 6,322 4,609 388 6,322 4,609 388 Non consolidated investment funds 10,437 10,437 1.72% 883 883 2.47% 11,320 11,320 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 6,876 6,876 1.13% 13 13 0.04% 6,888 6,888 Macro-hedge and other derivatives 886 886 0.15% (1,362) (1,362) 3.81% (476) (476) Financial investments 400,474 400,366 66.07% 12,885 12,885 36.00% 413,358 413,251 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (e) Macro-hedge and other derivatives - 0 - 26,714 - 0 - 25,943 - 0.00% - 4.28% - 0 - 23,711 10 - 0 - 22,323 10 - 0.00% - 62.37% 0.03% - 0 - 50,426 10 - 0 - 48,266 10 Loans 26,715 25,944 4.28% 23,722 22,333 62.40% 50,436 48,277 Assets backing contracts where the financial risk is borne by policyholders 162,186 162,186 26.76% 162,186 162,186 INVESTMENTS 612,161 605,976 100.00% 38,223 35,790 100.00% 650,384 641,766 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 449,975 443,789 73.24% Life & Savings Property & Casualty 383,193 59,510 377,779 58,740 62.34% 9.69% International Insurance 7,272 7,270 1.20% (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 Loans and Receivables measurement category. (e) Mainly relates to mortgage loans and policy loans. 5.2 Investment in real estate properties Investment in real estate properties include buildings owned both directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives was as follows: June 30, 2014 December 31, 2013 Restated (a) (in Euro million) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Investment in real estate properties at amortized cost Insurance 19,612 (1,984) (632) 16,996 22,445 18,984 (1,904) (633) 16,446 Other activities 785 (210) (0) 574 1,713 781 (208) (0) 573 All activities 20,397 (2,195) (632) 17,570 24,157 19,764 (2,112) (633) 17,019 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. Fair value is generally based on valuations performed by qualified property appraisers. Valuations are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Half -Year 2014 Financial Report 103 % (value balance sheet) 2.65% 0.16% 2.81% 51.26% 5.36% 0.04% 1.20% 57.86% 2.68% 1.07% 0.02% 3.77% 0.99% 0.72% 0.06% 1.76% 1.07% 0.07% 64.39% - 0.00% - 7.52% 0.00% 7.52% 25.27% 100.00% Fair value 21,754 1,617 23,370 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment - Investment in real estate properties Amortization - Investment in real estate properties (in Euro million) June 30, 2014 December 31, 2013 Restated (a) June 30, 2014 December 31, 2013 Restated (a) Opening value 633 552 2,112 2,058 Increase for the period 22 134 111 261 Write back following sale or reimbursement (3) (33) (17) (43) Write back following recovery in value (4) (18) Others (b) (16) (1) (11) (165) Closing value 632 633 2,195 2,112 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes change in scope and the effect of changes in exchange rates. 5.3 Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, were allocated as follows: (in Euro million) June 30, 2014 December 31, 2013 Restated (a) INSURANCE Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 302,159 4,525 11,904 340,121 4,726 15,036 340,121 4,525 15,036 38,898 216 3,193 936 15 61 297,303 6,431 12,222 320,110 6,538 15,158 320,110 6,431 15,158 25,277 141 3,034 2,469 33 98 Non consolidated investment funds available for sale 5,292 6,226 6,226 957 23 5,113 6,002 6,002 901 11 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (in Euro million) June 30, 2014 December 31, 2013 Restated (a) OTHER ACTIVITIES Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 9,911 2,089 973 10,065 2,089 1,235 10,065 2,089 1,235 204 272 50 10 9,607 1,275 1,912 9,625 1,275 2,263 9,625 1,275 2,263 136 361 118 10 Non consolidated investment funds available for sale 24 35 35 10 0 276 281 281 6 0 (in Euro million) June 30, 2014 December 31, 2013 Restated (a) TOTAL Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 312,070 6,614 12,877 350,186 6,816 16,270 350,186 6,614 16,270 39,102 216 3,464 986 15 71 306,910 7,706 14,133 329,735 7,813 17,421 329,735 7,706 17,421 25,413 141 3,395 2,587 33 108 Non consolidated investment funds available for sale 5,316 6,261 6,261 967 23 5,389 6,283 6,283 906 11 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Net of impairment - including premiums/discounts and related accumulated amortization. (c) Net of impairment. Half -Year 2014 Financial Report 104 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 5.4 Financial assets subject to impairment 5.4.1 BREAKDOWN OF FINANCIAL ASSETS SUBJECT TO IMPAIRMENT (EXCLUDING INVESTMENT IN REAL ESTATE PROPERTIES) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2014 December 31, 2013 Restated (a) Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value (in Euro million) Debt instruments available for sale 311,942 (931) 311,011 38,682 349,693 306,962 (1,078) 305,884 23,104 328,988 Debt instruments (at cost) that are not quoted in an active market (e) 6,582 6,582 7 6,588 7,694 7,694 (9) 7,685 Debt instruments 318,523 (931) 317,593 38,688 356,281 314,656 (1,078) 313,578 23,094 336,672 Equity instruments available for sale 14,822 (1,945) 12,877 3,339 16,216 16,515 (2,380) 14,135 3,054 17,189 Non consolidated investment funds available for sale 6,283 (967) 5,316 992 6,308 6,418 (1,029) 5,389 934 6,322 Loans held to maturity Loans available for sale 26 (0) 26 26 0 (0) Loans at cost (d) (e) 52,095 (619) 51,475 (520) 50,955 49,235 (621) 48,614 (348) 48,266 Loans 52,121 (620) 51,501 (520) 50,981 49,235 (621) 48,614 (348) 48,266 TOTAL 391,748 (4,462) 387,286 42,499 429,786 386,824 (5,108) 381,715 26,734 408,449 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (c) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (d) Including policy loans. (e) Revaluation to fair value for instruments at cost related to the application of hedge accounting. 5.4.2 CHANGE IN IMPAIRMENT ON INVESTED ASSETS (EXCLUDING INVESTMENT IN REAL ESTATE PROPERTIES) (in Euro million) January 1, 2014 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) June 30, 2014 Impairment - Debt instruments 1,078 103 (283) (4) 37 931 Impairment - Equity instruments 2,380 78 (527) 14 1,945 Impairment - Non consolidated investment funds 1,029 28 (59) (31) 967 Impairment - Loans 621 64 (4) (50) (11) 620 TOTAL 5,108 273 (873) (54) 9 4,462 (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (in Euro million) January 1, 2013 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2013 Restated (b) Impairment - Debt instruments 1,340 76 (203) (6) (129) 1,078 Impairment - Equity instruments 2,488 443 (420) (131) 2,380 Impairment - Non consolidated investment funds 1,027 100 (91) (7) 1,029 Impairment - Loans 601 116 (3) (72) (22) 621 TOTAL 5,456 736 (718) (78) (288) 5,108 (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. Half -Year 2014 Financial Report 105 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 5.5 Investments/Fair value Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IFRS 13 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data (market observable inputs): assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. 5.5.1 INVESTMENTS RECOGNIZED AT FAIR VALUE Among financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €432 billion as of June 30, 2014 (€408 billion as of December 31, 2013): €277 billion were determined directly by reference to an active market (€259 billion at the end of 2013), i.e. level 1 assets and €155 billion related to assets not quoted in an active market/no active market (€149 billion at the end of 2013), i.e. level 2 and level 3 assets of which level 3 assets amounted to €10 billion (€10 billion at the end of 2013). For sovereign bonds, trends observed in 2013 were confirmed in the first semester of 2014 with an acceleration of Eurozone peripheral countries’ spread contraction and liquidity improvement. These market indicators will continue to be followed to assess the sustainability of those improvements. Therefore, the classification as at June 30, 2014 is maintained similar to the one as at December 31, 2013. As of June 30, 2014, some assets were reclassified between levels 1 and 2. This was mainly related to some corporate bonds for which spreads widened and narrowed throughout the period. Transfer in and out of the level 3 category and other movements From January 1, 2014 to June 30, 2014, the amount of level 3 assets remained stable at €10.4 billion, representing 2.4% of the total assets at fair value (2.5% at the end of 2013 i.e. €10.2 billion). Main movements relating to level 3 assets to be noted were the following: €+1.0 billion of new investments; €-0.3 billion of asset sales mainly non consolidated funds AFS and other FVO assets held by controlled investment funds; €-0.3 billion transfers out of level 3 category due to more observable data; €-0.2 billion of change in unrealized gains and losses; €-0.2 billion of other movements (forex impact, changes in scope…). 5.5.2 INVESTMENTS RECOGNIZED AT AMORTIZED COST Among financial investments measured at amortized cost in the consolidated statement of financial position i.e. €85 billion as of June 30, 2014 (€82 billion as of December 31, 2013): €0.2 billion were determined directly by reference to an active market (€1.3 billion at the end of 2013), i.e. level 1 assets and Half -Year 2014 Financial Report 106 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 €85 billion related to assets not quoted in an active market/no active market (€81 billion at the end of 2013), i.e. level 2 and level 3 assets of which level 3 assets amounted to €37 billion (€34 billion at the end of 2013). Half -Year 2014 Financial Report 107 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 6 SHAREHOLDERS’ EQUITY AND MINORITY INTERESTS The Consolidated Statement of changes in Equity is presented as a primary financial statement. 6.1 Impact of transactions with shareholders 6.1.1 CHANGE IN SHAREHOLDERS’ EQUITY GROUP SHARE FOR THE FIRST HALF OF 2014 a) SHARE CAPITAL AND CAPITAL IN EXCESS OF NOMINAL VALUE During the first half of 2014, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Stock option exercice of 2 million shares for €36 million; Share-based payments for €15 million. b) TREASURY SHARES As of June 30, 2014, the Company and its subsidiaries owned approximately 1 million AXA shares, representing 0.03% of the share capital, a decrease of 3 million shares compared to December 31, 2013. As of June 30, 2014, the carrying value of treasury shares and related derivatives was €160 million. This included €0.9 million relating to AXA shares held by consolidated mutual funds (69,818 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2014, 2 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €40 million and their market value €36 million at the end of June 2014. c) UNDATED SUBORDINATED DEBT AND RELATED FINANCIAL EXPENSES As described in the accounting principles, undated subordinated debt issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2014, the change in other reserves was due to: €+997 million from the issuance of a new subordinated debt (net of fees); €-35 million from the exercice of a redemption call on undated subordinated debt; €-148 million in interest expense related to the undated subordinated debt (net of tax); €+132 million from foreign exchange rate fluctuations. Half -Year 2014 Financial Report 108 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 As of June 30, 2014 and December 31, 2013, undated subordinated debt recognized in shareholders’ equity broke down as follows: June 30, 2014 December 31, 2013 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance (a) Value of the undated subordinated debt in Euro million (in Euro million) October 29, 2004 - 375 M € 6.0% 375 375 375 375 December 22, 2004 - 250 M € 6.0% 250 250 250 250 January 25, 2005 - 250 M € 6.0% 250 250 250 250 July 6, 2006 - 1,000 M € 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M £ 6.7% 500 618 500 594 July 6, 2006 - 350 M £ 6.7% 350 437 350 420 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 410 600 386 November 7, 2006 - 150 M A$ 7.5% 150 103 150 97 December 14, 2006 - 750 M US$ 6.5% 750 546 750 541 December 14, 2006 - 750 M US$ 6.4% 750 546 750 541 October 5, 2007 - 750 M€ 6.2% 750 746 750 746 October 16, 2007 - 700 M £ 6.8% 700 871 700 837 May 20, 2014 - 1,000 M€ - 3.9% 1,000 997 January 22, 2013 - 850 M US$, 5.5% 850 617 850 611 Undated notes -625 M €, variables rates 625 625 660 660 Undated notes - 27,000 M JPY, 3.3% 27,000 195 27,000 187 Undated notes- 375 M US$, variables rates 375 275 375 272 Sub-Total Undated Subordinated Debt 8,855 7,761 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 8,949 7,856 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-2,558 million as of June 30, 2014; €-2,410 million as of December 31, 2013. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the option of the Company, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) DIVIDENDS PAID At the shareholders’ meeting held on April 23, 2014, shareholders approved a dividend distribution of 0.81€ per share corresponding to €1,960 million with respect to the 2013 financial year. 6.1.2 DHANGE IN SHAREHOLDERS’ EQUITY GROUP SHARE FOR THE FIRST HALF OF 2013 a) DHARE CAPITAL AND CAPITAL IN EXCESS OF NOMINAL VALUE During the first half of 2013, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based compensation for €23 million. Increase in capital of €36 million; Half -Year 2014 Financial Report 109 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 b) TREASURY SHARES As of June 30, 2013, the Company and its subsidiaries owned approximately 4 million AXA shares, representing 0.2% of the share capital, a decrease of 12 million shares compared to December 31, 2012. As of June 30, 2013, the carrying value of treasury shares and related derivatives was €197 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (61,455 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2013, 1.6 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €32 million and their market value €21 million at the end of June 2013. c) UNDATED SUBORDINATED DEBT AND RELATED FINANCIAL EXPENSES During the first half of 2013, the change in other reserves was due to: €+634 million from the issuance of a new undated subordinated debt; €-381 million following the exercise of an early redemption call on an undated subordinated debt; €-144 million in interest expense related to the undated subordinated debt (net of tax); €-155 million in exchange rate differences. d) DIVIDENDS PAID At the shareholders’ meeting held on April 30, 2013, shareholders approved a dividend distribution of €1,720 million with respect to the 2012 financial year. 6.2 Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. Half -Year 2014 Financial Report 110 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 6.2.1 COMPREHENSIVE INCOME FOR THE FIRST HALF OF 2014 a) RESERVE RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY The increase of gross unrealized gains and losses on assets available for sale totaled €+15,447 million, of which €+15,291 million increase in unrealized capital gains on debt securities which was mainly driven by interest rates and corporate spreads decrease. The following table shows the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2014 December 31, 2013 Restated (a) Gross unrealized gains and losses 42,455 27,008 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (23,386) (14,270) Shadow accounting on Deferred Acquisition Costs (b) (815) (523) Shadow accounting on Value of purchased Business In force (251) (215) Unallocated unrealized gains and losses before tax (c) 18,003 11,998 Deferred tax (5,475) (3,580) Unrealized gains and losses (net of tax) - Assets available for sale 12,529 8,418 Unrealized gains and losses (net of tax) - Equity accounted companies (d) 28 8 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 12,557 8,426 Minority interests' share in unrealized gains and losses (e) (202) (104) Translation reserves (f) 76 166 UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (c) 12,430 8,488 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Unrealized gains on total available for sale invested assets including loans. (c) Including unrealized gains and losses on assets from discontinued and/or held for sale operations. (d) Net of shadow accounting on unearned revenues and fees reserves. (e) Including foreign exchange impact attributable to minority interests. (f) Group share. As of June 30, 2014, most of the unrealized gains on assets available for sale related to the Life & Savings segment. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2014: June 30, 2014 (in Euro million) France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 14,032 6,529 3,112 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (10,452) (5,694) (2,546) Shadow accounting on Deferred Acquisition Costs (b) (184) (16) Shadow accounting on Value of purchased Business In force (71) Unallocated unrealized gains and losses before tax 3,396 836 479 Deferred tax (1,143) (267) (101) Unrealized gains and losses (net of tax) - Assets available for sale 2,253 568 378 Unrealized gains and losses (net of tax) - Equity accounted companies 23 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 2,276 568 378 Minority interests' share in unrealized gains and losses (c) (6) 0 Translation reserves (d) (169) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 2,270 568 209 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. Half -Year 2014 Financial Report 111 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2014 and December 31, 2013 broke down as follows: (in Euro million) June 30, 2014 December 31, 2013 Unrealized gains and losses (net of tax) 100%, opening 8,426 Transfer in the income statement on the period (a) (335) Investments bought in the current accounting period and changes in fair value (b) 4,418 Foreign exchange impact 86 Change in scope and other changes (b) (39) Unrealized gains and losses (net of tax) 100%, closing 12,556 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. b) CURRENCY TRANSLATION RESERVE The total impact of foreign exchange rate movement was €+546 million (of which €+530 million from group share and €+16 million from minority interests) as of June 30, 2014. The group share translation reserves movement (€+530 million) was mainly driven by Japan (€+238 million), the United Kingdom (€+193 million), Switzerland (€+89 million), the United States (€+71 million), Medla (€+45 million) and Asia excluding Japan (€+28 million), partly offset by Russia (€-72 million), and by the Company (€-121 million) driven by a change in fair value of hedging of net investments in foreign operations. c) EMPLOYEE BENEFITS ACTUARIAL GAINS AND LOSSES The total impact of employee benefits actuarial loss for the first half year 2014 amounted to €-455 million net group share, mostly due to the decrease in discount rates. 6.2.2 COMPREHENSIVE INCOME FOR THE FIRST HALF OF 2013 a) RESERVE RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY The decrease of gross unrealized gains and losses on assets available for sale totaled to €-10,282 million, of which €-10,222 million lower unrealized capital gains on debt securities which was mainly driven by interest rates increase. b) CURRENCY TRANSLATION RESERVE The total impact of foreign exchange rate movement was €-1,000 million (of which €-1,003 million from group share and €+3 million from minority interest rates) as of June 30, 2013. The group share translation reserves movement (€-1,003 million) was mainly driven by Japan (€-808 million), the United Kingdom (€-229 million) and Switzerland (€-172 million), partly offset by the Company (€+222 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations, and the United States (€+122 million). c) EMPLOYEE BENEFITS ACTUARIAL GAINS AND LOSSES The total impact of employee benefits actuarial gains for the first half year 2013 amounted to €+324 million net group share mostly due to the increase in discount rates. Half -Year 2014 Financial Report 112 11,177 (472) (1,866) (386) (27) 8,426 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 6.3 Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. As described in Note 1.2, minority interests for the first half of 2013 were retrospectively restated for the application of IFRS 10 and IFRS 11. 6.3.1 CHANGE IN MINORITY INTERESTS FOR THE FIRST HALF OF 2014 The €76 million increase in minority interests to €2,597 million was mainly driven by the comprehensive income and transactions with minority interests’ holders: The comprehensive income for the period notably included the following: o Net income attributable to minority interests for €+151 million; o Reserves relating to changes in fair value through shareholders’ equity for €+97 million; o Foreign exchange movements for €+16 million; Transactions with minority interests’ holders, mainly included: o Dividend payout to minorities for €-197 million; o The acquisition of Colpatria in Colombia for €+43 million. 6.3.2 CHANGE IN MINORITY INTERESTS FOR THE FIRST HALF OF 2013 Minority interests increased by €79 million to €2,450 million including: Movements in the comprehensive income for the period, mainly Net income attributable to minority interests for €+154 million; Transaction with minority interests’ holders, mainly the dividend payout to minorities for €-158 million. Half -Year 2014 Financial Report 113 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 7 FINANCING DEBT Carrying value (in Euro million) June 30, 2014 December 31, 2013 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated notes, 5.25% due 2040 (€) Subordinated notes, 5.125% due 2043 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Subordinated debt, 5.625% due 2054 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus notes, 7.70 %, due 2015 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 6,363 - 1,585 1,300 1,000 878 405 936 258 146 146 201 87 Undated Subordinated debt fixed rate 115 AXA-MPS Vita and Danni 79 Subordinated notes, euribor 6 months + 81bp 79 Other subordinated debt (under €100 million) 25 Subordinated debt 6,814 AXA 1,000 Euro Medium Term Notes, due through 2015 1,000 AXA Financial 255 Senior notes, 7%, due 2028 255 AXA UK Holdings GRE: Loan Notes, 6.625%, due 2023 190 190 Other financing debt instruments issued (under €100 million) 108 Other financing debt instruments issued (under €100 million) 155 Derivatives relating to other financing debt instruments issued (a) (47) Financing debt instruments issued 1,553 AXA 841 Other financing debt owed to credit institutions (under €100 million) 1 Financing debt owed to credit institutions 841 TOTAL FINANCING DEBT (b) 9,208 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not qualified as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Main movements on financing debt during the period were the following: the repayment of €2,122 million subordinated debt maturing on January 1, 2014. Issuance, on January 9, 2014, of £750 million (€936 million as of June 30, 2014 foreign exchange rate) subordinated debt due 2054 with an initial coupon at 5.625% per annum fixed until the first call date in January 2034 on January 9, 2014. Half -Year 2014 Financial Report 114 7,492 2,122 1,549 1,300 1,000 868 390 - 264 145 145 245 98 147 79 79 25 7,986 1,000 1,000 253 253 183 183 132 185 (53) 1,568 809 44 853 10,407 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 8 NET INCOME PER ORDINARY SHARE The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. (in Euro million) (a) June 30, 2014 June 30, 2013 Net income Group share 3,008 2,467 Undated subordinated debt financial charge (148) (144) Net income including impact of undated subordinated debt A 2,860 2,323 Weighted average number of ordinary shares (net of treasury shares) - opening 2,414 2,372 Increase in capital (excluding stock options exercised) (b) 1 0 Stock options exercised (b) 1 2 Treasury shares (b) 2 6 Share purchase program (b) Weighted average number of ordinary shares B 2,418 2,381 BASIC NET INCOME PER ORDINARY SHARE C = A / B 1.18 0.98 Potentially dilutive instruments : Stock options 7 2 Other 8 6 Fully diluted - weighted average number of shares (c) D 2,433 2,388 NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT 2,860 2,323 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 1.18 0.97 (a) Except for number of shares (million of units) and earnings per share (Euro). (b)Weighted average. (c) Taking into account the impact of potentially dilutive instruments. As of June 30, 2014, net income per ordinary share stood at €1.18 on a basic calculation, and at €1.18 on a fully diluted basis. As of June 30, 2013, net income per ordinary share stood at €0.98 on a basic calculation, and at €0.97 on a fully diluted basis. Half -Year 2014 Financial Report 115 II STATUTORY AUDITORS’REVIEW III Statutory auditors’ review report on the 2014 Half-Year Financial Information Half -Year 2014 Financial Report 116 III STATUTORY AUDITORS’REVIEW PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Regnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2014 HALF-YEAR FINANCIAL INFORMATION To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2014 ; the verification of the information contained in the half-year management report. 1. CONCLUSION ON THE FINANCIAL STATEMENTS We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. SPECIFIC VERIFICATION We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly-sur-Seine and Courbevoie, August 1, 2014 The Statutory Auditors French original signed by* PricewaterhouseCoopers Audit Mazars Michel Laforce Xavier Crépon Philippe Castagnac Gilles Magnan This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. Half -Year 2014 Financial Report 117 III STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF-YEAR REPORT IV Statement of the person responsible for the Half-Year Financial Report Half -Year 2014 Financial Report 118 IV STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF-YEAR REPORT Statement of the person responsible for the Half-Year Financial Report I certify, to the best of my knowledge, that the condensed financial statements for the past half-year have been prepared in accordance with applicable accounting standards and give a fair view of the assets, liabilities and financial position and profit or loss of the Company and all the undertakings included in the consolidation, and that the interim management report, to be found in the first part of this Report, presents a fair review of the important events that have occurred during the first six months of the financial year, their impact on the financial statements, major related-party transactions, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Paris, August 4, 2014. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations Half -Year 2014 Financial Report 119 IV"},"Input":{"kind":"string","value":"Semestriel, 2014, Insurance, AXA"},"Query":{"kind":"string","value":"write me a financial report"}}}],"truncated":false,"partial":false},"paginationData":{"pageIndex":2,"numItemsPerPage":100,"numTotalItems":355,"offset":200,"length":100}},"jwt":"eyJhbGciOiJFZERTQSJ9.eyJyZWFkIjp0cnVlLCJwZXJtaXNzaW9ucyI6eyJyZXBvLmNvbnRlbnQucmVhZCI6dHJ1ZX0sImlhdCI6MTczMzI5ODk0Nywic3ViIjoiL2RhdGFzZXRzL2VsaWVtL2ZpbmFuY2lhbF9yZXBvcnRzIiwiZXhwIjoxNzMzMzAyNTQ3LCJpc3MiOiJodHRwczovL2h1Z2dpbmdmYWNlLmNvIn0.1DPiHJ28tsQKztffTi0j9bwqfxfCixvqqAGnhb0LoTWXP4v7-1Yzjla-HNSIjrIKqeZrmU6vcqqnQbksiqkbAA","displayUrls":true},"discussionsStats":{"closed":0,"open":1,"total":1},"fullWidth":true,"hasGatedAccess":true,"hasFullAccess":true,"isEmbedded":false}">
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| FINANCIAL REPORT RAPPORT FINANCIER 1 Maroc Telecom • Financial report HY 2022 1 HY 2022 S1 2022 Preliminary remarks: This financial report and the condensed financial statements for the half year ended June 30th, 2021 were approved by the Management Board on July 22th, 2022, and reviewed by the Audit Committee at its meeting on July 25th, 2022. This report should be read in conjunction with the Management Board’s report for the year ended December 31, 2021 as published in Registration Document as filed with the Securities Regulator (AMF) on April 27th, 2022 (“2021 universal registration document”). 2 Maroc Telecom • Financial report HY 2022 2 CONTENTS HIGHLIGHTS...................................................................................................................................................... 4 1- CERTIFICATIONS.................................................................................................................................. 7 1.1 PERSON RESPONSIBLE FOR THE INTERIM REPORT .......................................................... 7 1.2 CERTIFICATION OF THE INTERIM REPORT ........................................................................... 7 1.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS ............... 7 2- HALF YEAR ACTIVITY REPORT........................................................................................................ 11 2.1 DESCRIPTION OF ACTIVITIES ............................................................................................... 11 2.2 RELATED-PARTY TRANSACTIONS....................................................................................... 19 2.3 GROWTH OUTLOOK ............................................................................................................... 22 3- FINANCIAL REPORT .......................................................................................................................... 24 3.1 CONSOLIDATED FINANCIAL DATA ...................................................................................... 24 3.2 INCOME STATEMENT AND FINANCIAL POSITION .............................................................. 27 3.3 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES ................................................. 32 3.4 STATUTORY FINANCIAL STATEMENTS ............................................................................... 46 3 Maroc Telecom • Financial report HY 2022 3 Highlights January 2022 Morocco: receipt of an ANRT report noting partial non-compliance with certain instructions included in the January 17th, 2020 decision on local loop unbundling; Redution in the national termination rate in Gabon, Côte d’Ivoire and Niger; Mauritania: abolition of Article 39 of the General Tax Code on the parent-subsidiary regime from which the CMC benefited in 2021. February 2022 Morocco: launch of the Shahid service, world leader in premium Arabic VOD content offering over 40,000 hours of film, series and documentaries; Chad: approval of a new Mobile Internet subscription catalog entailing price reductions in line with the authorities’ guidelines recommending a 30% price reduction; Benin: ARCEP notification of the decision on the guidelines for national roaming in Mobile electronic communications networks; Benin: adoption of a new decision on the pricing of electronic communications services provided by Mobile operators in the Republic of Benin; Chad: decree on the scheme for setting up and operating fiber optic networks signed by the Chad authorities. March 2022 Morocco: launch of the new B2B Mobile subscription range offering a wider range of Voice and Data services at advantageous and competitive prices. The new catalog offers nine subscription formulas at prices between MAD 69 and MAD 369, as well as two new unlimited formulas at MAD 399 and MAD 599 in addition to zero- commitment formulas; Mauritania: announcement by Tunisia Telecom, BSA Telecommunication and Comatel of the signing of an exclusive agreement with Telecel Group for the sale of 100% of the shares of Mauritano-Tunisienne des Télécommunications (Mattel); Niger: notification of the list of operators exercising a significant influence on the markets for 2022. April 2022 Morocco: expansion of the current IVR 600 Internet Pass range with the addition of new Passes: 3 GB at MAD 30 and 10 GB at MAD 100; Mauritania: adoption by the Council of Ministers of a decree capping and defining the procedures for levying fees for occupation of the public domain by operators of electronic communications networks open to the public. 4 Maroc Telecom • Financial report HY 2022 4 May 2022 Morocco: enhancement of the permanent multiple top-up offer via the “MonEspaceMT” application and on the website with a Voice and Data bonusx17 for values of MAD 30 and over and a Voice and Data bonusx13 on values from MAD 10 to 25 instead of x12; Morocco: new possibility of using Pass *9 dirham credit outstanding to buy an Internet top-up via the various channels: IVR, MonEspaceMT and WhatsApp; Burkina Faso, Côte d'Ivoire, Gabon and Togo: launch of new aggressive FTTH offers by Canalbox (GVA) with speeds multiplied by five at the same price. In response, new speeds on par with the competitor were implemented by Gabon Telecom, Onatel and Moov Africa CDI in June 2022. June 2022 Morocco: opening of the Phony DUO offer to the Professional segment, allowing customers to benefit from an ADSL connection of up to 12M, unlimited national fixed-line calls and 3 hours of free communications to national mobile numbers; Morocco: Maroc Telecom offers roaming customers in Saudi Arabia free incoming calls and a reduction in the Internet roaming rate (2 GB at MAD 100) during the 2022 Hajj period; Morocco: rollout of major communication campaigns to actively support the Roaming OUT business from the start of the summer season; Mauritania: publication of new national interconnection and access catalogs providing for a reduction in mobile call termination rates from MRU 0.18 to MRU 0.16 as of July 1st, 2022; Burkina Faso: adoption of the decree on the application of Law no. 001-2021/AN of March 30th, 2021 on the protection of persons with regard to the processing of personal data; Mauritania: adoption of the Electronic Communications Law by the National Assembly raising the cap on financial penalties to 5% of revenues. 5 Maroc Telecom • Financial report HY 2022 5 6 Maroc Telecom • Financial report HY 2022 6 1- CERTIFICATIONS In this document, "Maroc Telecom" or “the Company” refers to the company Itissalat Al-Maghrib, and “the Group” refers to the group constituted by the Company and all of its directly and indirectly owned subsidiaries. 1.1 PERSON RESPONSIBLE FOR THE INTERIM REPORT Mr. Abdeslam Ahizoune Chairman of the Management Board 1.2 CERTIFICATION OF THE INTERIM REPORT I hereby attest, to my knowledge, that the condensed interim financial statements are established in accordance with applicable accounting standards and give a true and fair view of the income and financial position and results of the company and all of the consolidated companies, and that the interim management report gives a true and fair view of the significant events having occurred during the first six months of the year, and their impact on the condensed interim financial statements, the main related-party transactions as well as a description of the principal risks and uncertainties for the remaining six months of the year. Mr. Abdeslam Ahizoune Chairman of the Management Board 1.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deloitte Audit, represented by Mrs. Sakina BENSOUDA KORACHI Boulevard Sidi Mohammed Ben Abdellah, Tour Ivoire III, 3ème étage, La Marina Casablanca, Maroc First appointed by the general meeting of 26 April 2016, his mandate was renewed at the general meeting of 29 April 2022 for a period of three financial years, i.e. until the end of the ordinary general meeting called to approve the accounts for the financial year ending 31 December 2024. Coopers Audit, represented by Mr. Abdelaziz ALMECHATT 83, avenue Hassan II – 20 100 Casablanca, Maroc First appointed in 1998 by the articles of association, his term of office was renewed at the general meeting of 29 April 2020 for a period of three financial years, i.e. until the end of the ordinary general meeting ruling on the accounts for the financial year ending 31 December 2022. 7 Maroc Telecom • Financial report HY 2022 7 To shareholders ITISSALAT AL-MAGHRIB (IAM) S.A Avenue Annakhil, Rabat Maroc This is a free translation into English of the statutory auditor’s limited review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. LIMITED REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL SITUATION OF ITISSALAT AL-MAGHRIB (IAM) S.A PERIOD FROM JANUARY 1st TO JUNE 30th, 2022 We have conducted a limited review of the interim consolidated financial situation of Itissalat Al Maghrib (IAM) S.A and its subsidiaries (Itissalat Al Maghrib Group) which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidation perimeter and a selection of explanatory information related to the period from 1st to June 30th June 2022. These interim consolidated financial statements show an amount of consolidated equity of MMAD 14.779 including a consolidated net profit of MMAD 894. These interim financial statements were closed by the Board of Directors on July 22nd, 2022 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional standards applicable in Morocco. Those standards require that a limited review should be planned and executed in order to obtain a moderate assurance that the interim consolidated financial situation referred to in the preceding first paragraph are free from material misstatement. A limited review includes mainly making inquiries of the company’s staff and analytical review to financial data; thus, it provides a lower level if assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying consolidated financial situation, do not give a true and fair view of financial performance of the Group Itissalat Al Maghrib S.A. at June 30th, 2022, and its financial position and assets according to International Accounting Standards IAS/IFRS, as adopted by the European Union. We refer to the notes 8.2 and 9, which set out, respectively, the ongoing tax audit of ITISSALAT AL MAGHRIB S.A. and the treatment of ANRT decision in the accompanying interim consolidated financial statements as at 30 June 2022. Our conclusion remains unchanged regarding these two topics. Casablanca, 25th, July 2022 The Statutory Auditors Deloitte Audit Coopers Audit Maroc S.A Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 8 Maroc Telecom • Financial report HY 2022 8 To Shareholders ITISSALAT AL-MAGHRIB (IAM) S.A Annakhil Avenue, Rabat Morocco This is a free translation into English of our limited review report on the half-year individual financial statements issued in French and it is provided solely for the convenience of English-speaking users. REPORT ON THE LIMITED REVIEW OF INTERIM FINANCIAL STATEMENTS of ITISSALAT AL-MAGHRIB (IAM) S.A. (Statutory Financial Statement) PERIOD FROM JANUARY 1st TO JUNE 30th, 2022 In application of provisions of the Dahir carrying Law No. 1-93-212 of 21 September 1993, as modified and completed, we have reviewed the interim financial statements of ITISSALAT AL MAGHRIB (IAM) S.A. which comprise the statement of financial position, the statement of profit and loss and a selection of additional disclosures (ETIC), related to the period from January 1st to June 30th, 2022. Those interim financial statements, which show a total equity of MAD 13.479.339 thousand including a net profit of MAD 959.076 thousand, are the responsibility of management of ITISSALAT AL MAGHRIB (IAM) S.A. These interim financial statements were closed by the Board of Directors on July 22nd, 2022 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional Standards applicable in Morocco related to limited review engagements. Those standards require that we plan and perform the review in order to obtain a moderate assurance that financial statements are free from material misstatement. A review includes mainly making inquiries of the company’s staff and analytical review of financial data; thus, it provides a lower level of assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying interim financial statements, do not present fairly the result of the period’s transactions of ITISSALAT AL MAGHRIB (IAM) S.A., the financial position and its assets as at June 30th, 2022, in accordance with Generally Accepted Accounting Principles in Morocco. We refer to the statements B15 and C5, which set out, respectively, the ongoing tax audit of ITISSALAT AL MAGHRIB (IAM) S.A. and the treatment of ANRT decision in the accompanying interim financial statements as at 30 June 2022. Our conclusion remains unchanged regarding these two topics. Casablanca, July 25th, 2022 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 9 Maroc Telecom • Financial report HY 2022 9 10 Maroc Telecom • Financial report HY 2022 10 2- HALF YEAR ACTIVITY REPORT 2.1 DESCRIPTION OF ACTIVITIES Details of the financial indicator adjustments for "Morocco" and "International" are provided in Appendix 1. Adjusted consolidated results of the Group: (IFRS in MAD millions)Q2 2021Q2 2022ChangeChange at constant exchange rates (1)H1 2021H1 2022ChangeChange at constant exchange rates (1)Revenues8,8668,798-0.8%-0.6%17,78017,568-1.2%-0.6%Adjusted EBITDA4,5994,6551.2%1.3%9,1609,1710.1%0.5% Margin (%)51.9%52.9%1.0 pt1.0 pt51.5%52.2%0.7 pt0.6 ptAdjusted EBITA2,8252,9283.6%3.6%5,5715,7403.0%3.3% Margin (%)31.9%33.3%1.4 pt1.3 pt31.3%32.7%1.3 pt1.2 ptAdjusted net income - Group share1,3591,3710.9%1.0%2,8322,8691.3%1.7% Margin (%)15.3%15.6%0.3 pt0.3 pt15.9%16.3%0.4 pt0.4 ptCAPEX(2)1,6972,58352.2%53.4%2,1153,72075.9%77.0%Of which frequencies and licences0000CAPEX/revenues (excluding frequencies and licences)19.1%29.4%10.2 pt10.4 pt11.9%21.2%9.3 pt9.3 ptAdjusted CFFO2,7972,175-22.2%-22.6%5,4785,326-2.8%-2.5%Net debt14,90812,166-18.4%-17.7%14,90812,166-18.4%-17.7%Net debt/EBITDA(3)0.8x0.6x0.8x0.6x ► Customer base As of June 30, 2022, the Group customer base comprised nearly 75 million customers, up 1.9% year-on-year, primarily driven by the increase in subsidiary customers (+2.8%). ► Revenues The Maroc Telecom Group posted H1 2022 consolidated revenues(4) of MAD 17,568 million, down 1.2% (-0.6% at constant exchange rates(1)). The Mobile business in Morocco continued to be hampered by competitive and regulatory factors (-5.0%), partly offset by thriving international business (+1.6% at constant exchange rates(1)) and Fixed-line activities in Morocco (+1.6%). ► Earnings from operations before depreciation and amortization H1 2022 Group consolidated adjusted earnings from operations before depreciation and amortization (EBITDA) rose 0.1% (+0.5% at constant exchange rates(1)) to MAD 9,171 million. This performance was driven by ongoing efforts to control operating costs, with an adjusted EBITDA almost stable in Morocco and a growth among the Moov Africa subsidiaries (+2,0% at constant exchange rates(1)). The adjusted EBITDA margin rose 0.7 pt to a high 52.2%. 11 Maroc Telecom • Financial report HY 2022 11 ► Earnings from operations Consolidated adjusted earnings from operations (EBITA)(5) for first half 2022 rose to MAD 5,740 million, up 3.0% (+3.3% at constant exchange rates(1)). The operating margin rose 1.3 pts to 32.7%. ► Group share of net income Adjusted Group share of net income for first half 2022 amounted to MAD 2,869 million, up 1.7% at constant exchange rates(1). ► CAPEX CAPEX(2) excluding frequencies and licenses amounted to MAD 3,720 million representing 21.2% of Group revenues, in line with guidance. ► Cash flow Adjusted net cash flows from operations (CFFO)(6) amounted to MAD 5,326 million, down 2.8% versus H1 2021 (-2.5% at constant exchange rates(1)), mainly due to the increase in capital expenditure. As of June 30, 2022, Group consolidated net debt(7) was down 18.4% at MAD 12,166 million, representing 0.6 time annualized EBITDA(3). ► Events after the end of the reporting period Notification on July 22, 2022 of the decision of the ANRT's Management Committee relating to the liquidation of the penalty imposed on Maroc Telecom in the context of January 17, 2020’s decision relating to unbundling. The amount of the penalty is set at 2.45 billion MAD, and Maroc Telecom has 30 days to appeal to the Rabat Court of Appeal. 12 Maroc Telecom • Financial report HY 2022 12 Review of the Group's activities: 2.1.1 MOROCCO (IFRS in MAD millions)Q2 2021Q2 2022ChangeH1 2021H1 2022ChangeRevenues4,8844,805-1.6%9,7749,561-2.2%Mobile3,0182,868-5.0%5,9855,684-5.0% Services2,8912,795-3.3%5,7665,497-4.7% Equipment12773-42.3%218187-14.4%Fixed-Line2,3322,3832.2%4,7024,7781.6% Of which Fixed Data*9289876.4%1,8381,9737.3% Elimination and other income-466-446--913-901Adjusted EBITDA2,7182,7531.3%5,3905,363-0.5% Margin (%)55.6%57.3%1.7 pt55.1%56.1%1.0 ptAdjusted EBITA1,7801,8876.0%3,5243,6262.9% Margin (%)36.4%39.3%2.8 pt36.1%37.9%1.9 ptCAPEX(2)1,0921,032-5.4%1,2991,75835.4%Of which frequencies and licences0000CAPEX/revenues (excluding frequencies and licences)22.3%21.5%-0.9 pt13.3%18.4%5.1 ptAdjusted CFFO1,5161,271-16.2%2,7373,19016.5%Net debt9,8886,522-34.0%9,8886,522-34.0%Net debt/EBITDA(3)0.9x0.5x0.9x0.6x Fixed Data includes the Internet, TV on ADSL and Data services to companies. Morocco revenues posted a limited decline versus first half 2021 (-2.2% in H1 2022 compared to -7.1% in H1 2021) and amounted to MAD 9,561 million. Fixed Data revenues continue to benefit from the FTTH boom, offsetting the decline in the Mobile Data business still hampered by competitive and regulatory factors. Adjusted earnings MAD 5,363 million, down 0.5% versus H1 2021. The adjusted EBITDA margin remained high at 56.1%, up 1.0 pt. from operations before depreciation and amortization (EBITDA) amounted Adjusted earnings from operations (EBITA)(5) amounted to MAD 3,626 million, up 2.9% year-on-year. The adjusted EBITA margin rose 1.9 pts to 37.9%. First half 2022 adjusted cash flows from operations (CFFO)(6) rose 16.5% to MAD 3,190 million. 13 Maroc Telecom • Financial report HY 2022 13 to 2.1.1.1 Mobile Unit06/30/202106/30/2022ChangeCustomer base(8)(000)19,63319,6820.3%Prepaid(000)17,30317,285-0.1%Postpaid(000)2,3292,3972.9%Of which Internet 3G/4G+(9)(000)10,97910,334-5.9%ARPU(10)(MAD/mois)48.845.5-6.7% During first half 2022, the Mobile customer base(8) grew by 0.3% year-on-year to 19.7 million customers, driven by the postpaid segment, which expanded by 2.9%. Mobile revenues fell 5.0% versus H1 2021 to MAD 5,684 million due to the decline in revenues from outgoing and incoming services amid a persisting adverse competitive and regulatory environment. Blended ARPU(10) amounted to MAD 45.5 for first half 2022, down 6.7% year-on-year. 2.1.1.2 Fixed-line and Internet Unit06/30/202106/30/2022ChangeFixed line(000)1,9991,942-2.9%High Speed Access(11)(000)1,7451,709-2.1% The Fixed-line customer base shrank 2.9% year-on-year to nearly 2 million lines as of June 30th, 2022. The broadband(11) customer base has 1.7 million subscribers with a strong increase in the FTTH customer base (+45%). Fixed-line and Internet revenues were up 1.6%. The Data revenue growth of 7.3% driven by FTTH services offsets the decline in Voice revenues. 14 Maroc Telecom • Financial report HY 2022 14 2.1.2 INTERNATIONAL 2.1.2.1 Financial indicators (IFRS in MAD millions)Q2 2021Q2 2022ChangeChange at constant exchange rates (1)H1 2021H1 2022ChangeChange at constant exchange rates (1)Revenues4,2234,2711.1%1.4%8,5158,5520.4%1.6%of wich Mobile services3,8963,9541.5%1.8%7,8597,9140.7%1.9%Adjusted EBITDA1,8821,9021.1%1.2%3,7713,8081.0%2.0% Margin (%)44.6%44.5%-0.0 pt-0.1 pt44.3%44.5%0.2 pt0.2 ptAdjusted EBITA1,0451,041-0.4%-0.5%2,0462,1153.3%4.1% Margin (%)24.7%24.4%-0.4 pt-0.5 pt24.0%24.7%0.7 pt0.6 ptCAPEX(2)6051,551156.2%159.4%8161,962140.3%143.2%Of which frequencies and licences00--00--CAPEX/revenues (excluding frequencies and licences)14.3%36.3%22.0 pt22.3 pt9.6%22.9%13.4 pt13.4 ptAdjusted CFFO1,281905-29.4%-30.1%2,7412,136-22.1%-21.4%Net debt5,9866,0130.5%2.3%5,9866,0130.5%2.3%Net debt/EBITDA(3)0.7x0.7x--0.7x0.7x-- First half international revenues rose 0.4% to MAD 8,552 million (+1.6% at constant exchange rates(1)), driven by a strong performance from Mobile Data (+29% at constant exchange rates(1)). Excluding the decrease in termination rates, subsidiaries’ revenues were up 2.8% at constant exchange rates(1). First half adjusted earnings from operations before depreciation and amortization (EBITDA) came to MAD 3,808 million, up 1.0% (+2.0% at constant exchange rates(1)). The adjusted EBITDA margin amounted to 44.5%, up 0.2 pt due to continuous improvement in the gross margin rate and tight control of operating expenses. First half adjusted earnings from operations (EBITA)(5) amounted to MAD 2,115 million, up 3.3% (+4.1% at constant exchange rates(1)), mainly due to the increase in adjusted EBITDA and decrease in depreciation and amortization. Boosted by this performance, the adjusted EBITA margin rose 0.7 pt to 24.7%. Adjusted net cash flows from operations (CFFO)(6) fell 21.4% at constant exchange rates(1) to MAD 2,136 million, mainly due to the increase in capital expenditure. 15 Maroc Telecom • Financial report HY 2022 15 2.1.2.2 Operational indicators Mobile Customer base(8)(000)49,717 51,101 Mauritania2,706 2,7260.7% Burkina Faso9,954 10,8709.2% Gabon 1,710 1,484-13.2% Mali9,341 9,157-2.0% Côte d’Ivoire10,014 10,2472.3% Benin4,893 5,3679.7% Togo2,955 2,666-9.8% Niger3,078 2,975-3.3% Central African Republic217 215-0.8% Chad4,849 5,39411.2%Fixed-lineCustomer base (000)346 358 Mauritania58 57-1.9% Burkina Faso76 760.5% Gabon 30 3621.3% Mali183 1893.4%Fixed BroadbandCustomer base (11)(000)138 150 Mauritania20 19-6.5% Burkina Faso15 165.0% Gabon 24 3233.3% Mali78 835.6%Unit06/30/202106/30/2022Change 16 Maroc Telecom • Financial report HY 2022 16 Notes : (1) Maintaining a constant exchange rate among the Moroccan dirham (MAD), the Mauritanian ouguiya (MRU) and the CFA franc. (2) Capital expenditure corresponds to acquisitions of property, plant and equipment and intangible assets recognised during the period. (3) The net debt/EBITDA ratio excludes the impact of IFRS 16, and takes into account the annualization of EBITDA. (4) Maroc Telecom consolidates in its financial statements Casanet and the Moov Africa subsidiaries in Mauritania, Burkina Faso, Gabon, Mali, Côte d’Ivoire, Benin, Togo, Niger, Central African Republic and Chad. (5) EBITA corresponds to operating profit before amortisation of intangible assets related to business combinations, impairment of goodwill and other intangible assets related to business combinations and other income and expenses related to financial investment transactions and transactions with shareholders (except when they are recognised directly in equity). (6) CFFO comprises the net cash flows from operating activities before taxes as presented in the cash flow statement, as well as dividends received from associates and non-consolidated equity interests. It also includes net capital expenditure, which corresponds to net cash outflows on acquisitions and disposals of property, plant and equipment and intangible assets. (7) Borrowings and other current and non-current liabilities less cash (and cash equivalents) including cash blocked for bank loans. (8) The active customer base consists of prepaid customers who have made or received a voice call (excluding calls from the public telecommunication network operator concerned or its Customer Relations Centres) or sent an SMS/MMS or who have used the Data services (excluding exchanges of technical data with the public telecommunication network operator concerned) in the past three months, and non-terminated postpaid customers. (9) The active customer base of the 3G and 4G+ Mobile Internet includes holders of a postpaid subscription contract (whether or not coupled with a voice offer) and holders of a prepaid subscription to the Internet service who have carried out at least one recharge during the past three months or whose credit is valid and who have used the service during this period. (10) ARPU (average revenues per user) is defined as revenues generated by incoming and outgoing calls and data services net of promotions, excluding roaming and equipment sales, divided by the average number of users in the period. This is the mixed ARPU of the prepaid and postpaid segments. (11) The broadband customer base includes ADSL, FTTH and leased connections and also includes CDMA in Mali. Important Warning: Forward-looking statements. This press release contains forward-looking statements and items of a forward-looking nature relating to the financial position, results of operations, strategy and outlook of Maroc Telecom and the impacts of certain operations. Although Maroc Telecom believes that these forward-looking statements are based on reasonable assumptions, they do not constitute guarantees as to the future performance of the company. Actual results may be very different from forward-looking statements due to a number of known or unknown risks and uncertainties, most of which are beyond our control, including the risks described in public documents filed by Maroc Telecom with the Moroccan Capital Market Authority (www.ammc.ma)and the French Financial Markets Authority (www.amf-france.org), also available in French on our website (www.iam.ma). This press release contains forward-looking information that can only be assessed on the day it is distributed. Maroc Telecom makes no commitment to supplement, update or modify these forward-looking statements due to new information, a future event or any other reason, subject to applicable regulations, in particular Articles 2.19 et seq. of the circular of the Moroccan Capital Market Authority and 223-1 et seq. of the general regulation of the French Financial Markets Authority. Maroc Telecom is a global telecommunications operator in Morocco, a leader in all its business segments, fixed, mobile and internet. It has grown internationally and is now present in eleven countries in Africa. Maroc Telecom is listed simultaneously in Casablanca and Paris and its reference shareholders are the Société de Participation dans les Télécommunications (SPT)* (53%) and the Kingdom of Morocco (22%). SPT is a company under Moroccan law controlled by Etisalat. Contacts Investor relations relations.investisseurs@iam.ma Press relations relations.presse@iam.ma 17 Maroc Telecom • Financial report HY 2022 17 Appendix 1: Transition from adjusted financial indicators to published financial indicators Adjusted EBITDA, adjusted EBITA, Group share of adjusted net income and adjusted CFFO are not strictly accounting measures and should be considered as additional information. They better illustrate the Group’s performance by excluding exceptional items. (in MAD millions)MoroccoInternationalGroupMoroccoInternationalGroupAdjusted EBITDA5,3903,7719,1605,3633,8089,171Published EBITDA5,3903,7719,1605,3633,8089,171Adjusted EBITA3,5242,0465,5713,6262,1155,740ANRT decision-2,451-2,451Restructuring costs-13-13-2-2Published EBITA3,5242,0335,5571,1752,1123,287Adjusted net income Group share2,8322,869ANRT decision-2,451Restructuring costs-6-1Published net income Group share 2,827417Adjusted CFFO2,7372,7415,4783,1902,1365,326Payment of licence-25-25-26-26Restructuring costs-13-13-2-2Published CFFO2,7372,7035,4403,1902,1085,297H1 2021H1 2022 Appendix 2: Impact of the IFRS 16 At the end of June 2022, the impacts of the application of IFRS 16 on the main consolidated aggregates of the Maroc Telecom Group were as follows: (in MAD millions)MoroccoInternationalGroupMoroccoInternationalGroupAdjusted EBITDA127147274129131261Adjusted EBITA8202982129Adjusted net income Group share-8-4Adjusted CFFO127147274129131261Net debt 7896551,4447376511,387H1 2021H1 2022 18 Maroc Telecom • Financial report HY 2022 18 2.2 RELATED-PARTY TRANSACTIONS Under the terms of Article 95 et seq. of Moroccan Law no. 17-95 concerning stock companies, as amended and supplemented by Law no. 20-05, Law no. 78-12 and Law no. 20-19, any agreement between the Company and a member of the Management Board or of the Supervisory Board, or one of its shareholders directly or indirectly holding more than 5% of the Company’s capital or voting rights, is subject to prior authorization by the Supervisory Board. The same applies to agreements in which any person referred to in the previous paragraph has an indirect interest or whereby any such person deals with the company through an intermediary. Also subject to the same authorization are agreements between the Company and an entity, if a member of the Company’s Management Board or of the Supervisory Board is the owner, an indefinitely responsible associate, the manager, the director, the Chief Executive Officer, or a member of the Management Board or of the Supervisory Board, of the said entity. The regulated agreements entered into or authorized during the first half of 2022 fiscal year, as well as the agreements entered into in prior years which continued to be executed during fiscal year 2022, are presented below. These agreements are not, however, the only parent-subsidiary flows existing between Maroc Telecom and its subsidiaries. 2.2.1 REGULATED AGREEMENTS SIGNED OR AUTHORIZED IN THE FIRST HALF OF 2022 None. 2.2.2 AGREEMENTS CONCLUDED IN PREVIOUS FINANCIAL YEARS AND WHICH CONTINUED TO BE EXECUTED DURING THE FIRST HALF OF THE FINANCIAL YEAR 2022 Brand licensing agreements Since January 26, 2015, Maroc Telecom has become the majority shareholder of Atlantique Telecom Côte d’Ivoire (currently “Moov Africa Côte d’Ivoire”), Etisalat Benin (currently “Moov Africa Benin”), Atlantique Telecom Togo (currently “Moov Africa Togo”), Atlantique Telecom Niger (currently “Moov Africa Niger”), Atlantique Telecom Gabon (absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique (currently “Moov Africa Centrafrique”). As a result, Maroc Telecom acquired the rights connected with the “Moov” and “No Limit” trademarks belonging to the Etisalat Group as well as the Trademark Licensing Agreements associated with them for the subsidiaries cited above. Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Technical support agreement Since January 26, 2015, Maroc Telecom has become the majority shareholder of Atlantique Telecom Côte d’Ivoire (currently “Moov Africa Côte d’Ivoire”), Etisalat Benin (currently “Moov Africa Benin”), Atlantique Telecom Togo (currently “Moov Africa Togo”), Atlantique Telecom Niger (currently “Moov Africa Niger”), Atlantique Telecom Gabon (absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique (currently “Moov Africa Centrafrique”). As a result, Maroc Telecom acquired the rights stemming from the Technical Assistance agreements by and between these companies and the Etisalat Group. Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Agreements for advances on current account Since January 26, 2015, Maroc Telecom has become the majority shareholder of Atlantique Telecom Côte d’Ivoire (currently “Moov Africa Côte d’Ivoire”), Etisalat Benin (currently “Moov Africa Benin”), Atlantique Telecom Togo (currently “Moov Africa Togo”), Atlantique Telecom Niger (currently “Moov Africa Niger”), Atlantique Telecom Gabon (absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique (currently “Moov Africa Centrafrique”). Maroc Telecom also acquired the Etisalat Group’s current accounts in these subsidiaries. 19 Maroc Telecom • Financial report HY 2022 19 Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Technical services agreement with Etisalat In May 2014, Maroc Telecom signed a Technical Services Agreement with Emirates Telecommunications Corporation (Etisalat) whereby the latter will provide to Maroc Telecom on request, directly or indirectly, technical support services, particularly in the following fields: digital media, insurance, financial rating. These services may be performed by expatriate personnel. As of May 14, 2014, Etisalat became the reference shareholder of Maroc Telecom via SPT and the members of the joint management bodies are Messrs. Jassem Mohamed ALZAABI, Hatem DOWIDAR, Luis ENRIQUEZ, Kamal SHEHADI, Hesham Abdulla AL QASSIM and Mohamed Karim BENNIS. Services agreement with Gabon Telecom In November 2016, Gabon Telecom signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Gabon Telecom and the member of the joint management bodies is Mr. Brahim BOUDAOUD. Services agreement with Sotelma In 2009, Sotelma signed an agreement with Maroc Telecom for the latter to provide it with technical support services. Maroc Telecom is the majority shareholder of Sotelma and the member of the joint management bodies is Mr. Abdelkader MAAMAR. Services agreement with Onatel In September 2007, Onatel signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and regulatory compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Onatel. Services agreement with Mauritel In 2001, Mauritel SA signed an agreement with Maroc Telecom for the latter to provide it with work projects linked to services, to technical support and to the sale of equipment. Maroc Telecom is the majority shareholder of Mauritel SA and the member of the joint management bodies is Mr. Hassan RACHAD. Agreement with Casanet Since fiscal year 2003, Maroc Telecom has entered into several agreements with its subsidiary Casanet, the purpose of which is, among other things, to maintain Maroc Telecom’s Menara Internet portal in operational conditions, and to provide development and hosting services for Maroc Telecom’s Mobile portal and Internet sites. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan RACHAD. Advance on current account – Casanet Maroc Telecom decided to transfer its business directory activity to its subsidiary Casanet. Accordingly, on December 4, 2007, the Supervisory Board authorized the Company to take on the necessary investment costs which would be financed by advances on a non-interest bearing current account. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan RACHAD. 20 Maroc Telecom • Financial report HY 2022 20 Service agreement with MT Cash S.A. On July 22, 2020, Maroc Telecom’s Supervisory Board authorized the conclusion of a service agreement with the subsidiary MT CASH S.A. Maroc Telecom is the majority shareholder of MT CASH and the joint management members are Messrs. Brahim BOUDAOUD, Hassan RACHAD, François VITTE and Abdelkader MAAMAR. Trade mark license agreement with Onatel On February 18, 2021, Maroc Telecom’s Supervisory Board authorized the conclusion of license agreements for the “Moov Africa” trade mark between Maroc Telecom and the Group’s subsidiaries. In this respect, Maroc Telecom and its subsidiary Onatel signed a trade mark license agreement in 2021. Trade mark license agreement with Gabon Telecom On February 18, 2021, Maroc Telecom’s Supervisory Board authorized the conclusion of license agreements for the “Moov Africa” trade mark between Maroc Telecom and the Group’s subsidiaries. As such, Maroc Telecom and its subsidiary Gabon Telecom signed a trade mark license agreement in 2021. The member of the joint management bodies between the two companies is Mr. Brahim BOUDAOUD. Trade mark license agreement with Sotelma On February 18, 2021, Maroc Telecom’s Supervisory Board authorized the conclusion of license agreements for the “Moov Africa” trade mark between Maroc Telecom and the Group’s subsidiaries. In this respect, Maroc Telecom and its subsidiary Sotelma signed a trade mark license agreement in 2021. The member of the joint management bodies between the two companies is Mr. Abdelkader MAAMAR. Trade mark license agreement with Moov Africa Chad On February 18, 2021, Maroc Telecom’s Supervisory Board authorized the conclusion of license agreements for the “Moov Africa” trade mark between Maroc Telecom and the Group’s subsidiaries. As such, Maroc Telecom and its subsidiary Moov Africa Chad signed a trade mark license agreement in 2021. The member of the joint management bodies between the two companies is Mr Hassan RACHAD. Sponsorship agreement with the Royal Moroccan Athletics Federation (FRMA) The agreement between Maroc Telecom and FRMA, of which Mr. Abdeslam AHIZOUNE is also Chairman, expired in October 2021. At its meeting of October 25, 2021, the Supervisory Board renewed the agreement for a maximum period of three (3) years and a maximum amount of MAD 3,000,000 a year. Partnership agreement with Maroc Cultures Association On December 6, 2021, the Supervisory Board authorized the partnership agreement for a period of three (3) years between Maroc Telecom and the Maroc Cultures Association, which Mr. Abdeslam AHIZOUNE also chairs. 21 Maroc Telecom • Financial report HY 2022 21 2.3 GROWTH OUTLOOK This section contains information regarding the Company’s objectives for fiscal-year 2022. The Company warns potential investors that these forward-looking statements are dependent on circumstances and events that are expected to occur in the future. These statements do not reflect historical Data and should not be considered as guarantees that the facts and Data mentioned will occur or that the objectives will be achieved. Because of their uncertain nature, these objectives may not be achieved, and the assumptions on which they are based may prove to be erroneous. Investors are encouraged to consider that some of the risks described in section 2.1 « Risks factors » the 2021 Universal Registration Document may affect the Company’s business and its ability to achieve its objectives. Based on recent market developments and provided that no new major exceptional event disrupts the Group's business, Maroc Telecom maintains its outlook for 2022, at constant scope and exchange rates: Decrease in revenues; Decrease in EBITDA; CAPEX excluding frequencies and licenses of approximately 20% of revenues. 22 Maroc Telecom • Financial report HY 2022 22 23 Maroc Telecom • Financial report HY 2022 23 3- FINANCIAL REPORT 3.1 CONSOLIDATED FINANCIAL DATA Maroc Telecom Group’s consolidated financial data is summarized in the following table. This selected financial data is drawn from the Group's consolidated financial statements prepared according to IFRS international standards (International Financial Reporting Standards), after a limited review by the statutory auditors : the firm Coopers Audit represented by Mr. Abdelaziz Almechatt and the firm Deloitte Maroc, represented by Mrs. Sakina Bensouda Korachi. CONSOLIDATED FINANCIAL DATA IN MOROCCAN DIRHAMS Balance sheet ASSETS (in MAD million) 12/31/2021 06/30/2022 Non-current assets Current assets Total assets SHAREHOLDERS’ EQUITY AND LIABILITIES (in MAD million) Share capital Shareholders’equity, attributable to equity holders of the parent Non-controlling interests Shareholders'equity Non-current liabilities Current liabilities Total Shareholders’ equity and liabilities 46,560 15,222 61,782 12/31/2021 5,275 14,914 3,887 18,800 4,321 38,661 47,412 15,852 63,264 06/30/2022 5,275 11,130 3,648 14,778 4,415 44,070 61,782 63,264 Income statement for the first-halves of 2022 and 2021 (In millions of MAD) H1-2021 H1-2022 Consolidated revenues Operating expenses* Earnings from operations Earnings from continuing operations Earnings for the period Earnings attributable to equity holders of the parents Earnings per share (in MAD) Diluted earnings per share (in MAD) *The June 2022 amount includes the provision for a fine applied by the Moroccan regulator (MMAD 2,451) 17,780 12,223 5,557 5,557 3,275 2,827 3.22 3.22 17,568 14,281 3,287 3,287 894 417 0.47 0.47 24 Maroc Telecom • Financial report HY 2022 24 Scope of consolidation Mauritel Maroc Telecom holds 52% of the voting rights of Mauritel, the incumbent operator in Mauritania and operator of a fixed-line and Mobile telecommunications network, subsequent to the merger of Mauritel SA (fixed-line) and Mauritel Mobile. Mauritel S.A. is owned by the holding company Compagnie Mauritanienne de Communications (CMC), in which Maroc Telecom holds an 80% equity stake. Consequently, Maroc Telecom holds a 41.2% interest in Mauritania's incumbent operator. Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. Onatel On December 29, 2006, Maroc Telecom acquired 51% of the capital of the Burkinabe operator Onatel. The Group increases its stake in Onatel to 61% as of April 17, 2018. The subsidiary has been fully consolidated in Maroc Telecom's financial statements since January 1, 2007. Gabon Telecom On February 9, 2007, Maroc Telecom acquired 51% of the capital of Gabon Telecom. Gabon Telecom has been fully consolidated by Maroc Telecom since March 1, 2007. Gabon Telecom acquires, from Maroc Telecom, 100% of Atlantique Telecom Gabon capital. This was absorbed by Gabon Telecom on June 29, 2016. Sotelma On July 31, 2009, Maroc Telecom acquired a 51% stake in Mali’s incumbent operator, Sotelma. Sotelma has been fully consolidated by Maroc Telecom since August 1, 2009. Casanet Casanet is a Moroccan internet provider established in 1995. In 2008, it became a wholly-owned subsidiary of Maroc Telecom and expanded its field of operations by specializing in information engineering. Casanet has been fully consolidated by Maroc Telecom since January 1, 2011. Moov Africa Côte d'Ivoire On January 26, 2015, Maroc Telecom acquired an 85% stake in the capital of Ivoirian Mobile operator. Moov Africa Côte d’Ivoire has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Benin On January 26, 2015, Maroc Telecom acquired 100% of the capital of Benin's Mobile operator. Moov Africa Benin has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Togo On January 26, 2015, Maroc Telecom acquired a 95% stake in the capital of Togo's Mobile operator. Moov Africa Togo has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Niger On January 26, 2015, Maroc Telecom acquired 100% of the capital of Niger's Mobile operator. Moov Africa Niger has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. 25 Maroc Telecom • Financial report HY 2022 25 Moov Africa Centrafrique On January 26, 2015, Maroc Telecom acquired 100% of the capital of the Central African Republic's Mobile operator. Moov Africa Centrafrique has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Chad On June 26, 2019, Maroc Telecom acquired 100% of the share capital of the Chadian operator Moov Africa Chad. Moov Africa Chad has been fully consolidated in Maroc Telecom's financial statements since July 1, 2019. Other nonconsolidated investments Investments whose significance in relation to the consolidated financial statements is not material or in which Maroc Telecom does not directly or indirectly exercise exclusive control, joint control or significant influence are not consolidated and are recorded under "Non-current financial assets". This is the case for MT Cash and MT Fly as well as minority interests held in RASCOM, Autoroutes du Maroc, Arabsat and other investments. 26 Maroc Telecom • Financial report HY 2022 26 3.2 INCOME STATEMENT AND FINANCIAL POSITION The following table sets out data regarding Maroc Telecom’s consolidated income statement for the first-halves of 2022 and 2021: (In millions of MAD) Note H1-2021 H1-2022 Revenues Cost of purchases Payroll costs Taxes and duties Other operating income and expenses Net depreciation, amortization and provisions* Earnings from operations Other income and charges from ordinary activities Earnings from continuing operations Income from cash and cash equivalents Gross borrowings costs Net borrowing costs Other financial income (expense) Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities Other income and expenses Total comprehensive income for the period Net earnings Attributable to equity holders of the parents Minority interests Total comprehensive income for the period Attributable to equity holders of the parents Minority interests 7 6 17,780 -2,562 -1,524 -1,688 -2,640 -3,809 5,557 0 5,557 6 -397 -391 -65 -456 -1,826 3,275 -275 53 3,053 3,275 2,827 448 3,053 2,693 359 17,568 -2,373 -1,539 -1,670 -2,712 -5,988 3,287 0 3,287 9 -317 -308 -13 -321 -2,072 894 61 0 955 894 417 477 955 436 519 EARNINGS PER SHARE H1-2022 Net earnings - group share (in millions of MAD) 417 Numbers of shares at June 30 879,095,340 Earnings per share (in MAD) 0.47 Diluted earnings per share (in MAD) 0.47 *The June 2022 amount includes the provision for a fine applied by the Moroccan regulator (-MAD 2,451) H1-2021 2,827 879,095,340 3.22 3.22 The analysis below presents the various items in Maroc Telecom's consolidated income statement and details their changes over the periods considered. 27 Maroc Telecom • Financial report HY 2022 27 COMPARAISON OF THE FIRST-HALVES OF 2022 and 2021 Revenues The following table shows the breakdown of revenues for the first-halves of 2022 and 2021. (In millions of MAD) Morocco International Eliminations Total consolidated revenues o/w Mobile o/w Mobile H1-2021 9,774 5,766 8,515 7,859 -509 17,780 H1-2022 9,561 5,497 8,552 7,914 -545 17,568 At the end of June 2022, Maroc Telecom group consolidated revenues amounted to MAD 17,568 million, down slightly by 1.2% due to the decrease in Mobile revenues in Morocco. Operating expenses The table below shows Maroc Telecom’s operating expenses for the first six-month periods of 2022 and 2021. (In millions of MAD) H1-2021 H1-2022 Revenues Cost of purchases % of revenues Payroll costs % of revenues Taxes and duties % of revenues Other operating income (expenses) % of revenues Net depreciation, amortization, impairment and provisions* % of revenues Total operating expenses % of revenues *The June 2022 amount includes the provision for a fine applied by the Moroccan regulator (MAD 2,451) 17,780 2,562 14.4% 1,524 8.6% 1,688 9.5% 2,640 14.8% 3,809 21.4% 12,223 17,568 2,373 13.5% 1,539 8.8% 1,670 9.5% 2,712 15.4% 5,988 34.1% 14,281 68.7% 81.3% Cost of purchases Between the first half of 2021 and 2022, the Group's consumed purchases decreased by 7.4%, mainly due to lower terminal costs in the Morocco segment. Personnel expenses In the first half of 2022, the Group's personnel costs represent 8.8% turnover and are slightly up by MAD 15 million. 28 Maroc Telecom • Financial report HY 2022 28 Taxes and duties Taxes and duties amounted to MAD 1,670 million, down 1.1% compared with 2021. The decrease concerns the international subsidiaries. Other operating income and expenses Other operating income and expenses increased from MAD 2,640 million in H1 2021 to MAD 2,712 million in H1 2022, i.e. an increase of 2.7% correlated to the recovery of post-covid activity. Operating profit The Group's consolidated operating income at June 30th, 2022 was MAD 3,287 million, down 41% compared with the first half of 2021. This decrease was due to the provisioning of a penalty by the ANRT in the amount of MAD 2,451 million. On a comparable basis*, earnings from operations increased by 3% compared to the first half of 2021. Net financial income In the first half of 2022, financial income increased by 30% in line with the decrease in the cost of net financial debt, which fell by MAD 83 million thanks to the Group's efforts to control its debt. Tax expense The tax charge is up 13% compared to the first half of 2021, in line with the increase in pre-tax income in the first half of 2022 (excluding the impact of the provision for the non-tax-deductible penalty imposed by the ANRT). Net income At the end of June 2022, the group recorded a net income of MAD 894 million, down 73% compared to the first half of 2021. On a comparable basis*, net income increased by 2% compared to June 30th, 2021. Minority interests Minority interests, reflecting the rights of shareholders other than Maroc Telecom in the earnings of consolidated entities, amounted to MAD 477 million in first-half 2022, compared with MAD 448 million in first- half 2021. Net income (Group share) At the end of June 2022, net income (Group share) amounted to MAD 417 million. On a comparable basis*, it amounted to MAD 2,868 million. Earnings per share Earnings per share amounted to MAD 0.47 in the first half of 2022, compared with MAD 3.22 in the first half of 2021, i.e. a decrease of 85% due to the impact of the ANRT's penalty provision. Cash and cash equivalents The Group's main resource is the cash generated by its operating activities. Comparable basis means the cancellation of the impacts of the provision for the exceptional penalty imposed by the Moroccan regulator recorded in the H1-2022 accounts. 29 Maroc Telecom • Financial report HY 2022 29 Cash flows The following table summarizes Maroc Telecom’s consolidated cash flow for the specific periods. (In millions of MAD) Net cash from operating activities (a) Net cash used in investing activities (b) Net cash used in financing activities (c) Foreign currency translation adjustments (d) Change in cash and cash equivalents (a)+(b)+(c)+(d) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period H1-2021 6,279 -2,745 -3,680 -69 -215 2,690 2,475 H1-2022 6,351 -2,925 -3,082 -80 264 2,024 2,288 Net cash flow from operating activities At June 30, 2022, net cash flows from operating activities amounted to MAD 6,351 million, compared with MAD 6,279 million at June 30, 2021, representing an increase of 1%, in line with the growth in the Group's business. Net cash flow from investing activities Net cash used in investing activities increased because of the acceleration of CAPEX projects. Net cash flow from financing activities At June 30, 2022, net cash flows from financing activities decreased by MAD 597 million due to payments of financial liabilities. Tangible and intangible fixed assets The table below sets out fixed assets acquired by Maroc Telecom Group by geographical area in the relevant periods. (In millions of MAD) Morocco International Total H1-2021 1,299 816 2,115 H1-2022 1,758 1,962 3,720 Investments in Morocco Investments in Morocco recorded a 35% growth at the end of June 2022, from MAD 1,299 million to MAD 1,758 million. Indeed, the MT Group continues to deploy its national investment policy for a wider coverage and a better quality of service. 30 Maroc Telecom • Financial report HY 2022 30 International investments The investments made by the Group's subsidiaries in the first half of 2022 have increased by 140% compared to the first half of 2021. In 2022, the pace of international investments is more sustained as the global pandemic situation improves. Financial resources In the first half of 2022, Maroc Telecom's net debt amounted to MAD 12,165 million compared with MAD 14,397 million at the end of December 2021, down 16%. (In millions of MAD) Outstanding debt and accrued interests (a) Cash*(b) Cash held for repayment of bank loans (c) Net debt (a) - (b) - (c) * Marketable securities are considered as cash equivalents when their investment period does not exceed three months 12/31/2021 06/30/2022 16,444 2,024 22 14,397 14,471 2,288 17 12,165 31 Maroc Telecom • Financial report HY 2022 31 3.3 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Consolidated statement of financial position at June 30, 2022 and at December 31, 2021 ASSETS (in millions of MAD) Note 12/31/2021 06/30/2022 Goodwill Other intangible assets Property, plant and equipment Right to use the asset Noncurrent financial assets Deferred tax assets Noncurrent assets Inventories Trade accounts receivable and other Short-term financial assets Cash and cash equivalents Assets available for sale 4 8,976 8,985 7,521 7,536 27,400 28,044 1,371 1,337 784 1,018 508 492 46,560 47,412 390 13,012 108 2,288 54 15,222 15,852 318 12,699 126 2,024 54 Current assets TOTAL ASSETS 61,782 63,264 SHAREHOLDERS’ EQUITY AND LIABILITIES (in millions of MAD) 12/31/2021 06/30/2022 Share capital Retained earnings Net earnings Equity attributable to equity holders of the parents Minority interests Total shareholders' equity Noncurrent provisions Borrowings and other long-term financial liabilities Deferred tax liabilities Other noncurrent liabilities Noncurrent liabilities Trade accounts payable Current tax liabilities Current provisions* Borrowings and other short-term financial liabilities Current liabilities 4 5,275 5,275 3,631 5,438 6,008 417 14,914 11,130 3,887 3,648 18,800 14,778 503 560 3,767 3,819 50 36 - - 4,321 4,415 23,865 28,799 787 836 1,332 3,782 12,677 10,652 38,661 44,070 61,782 63,264 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES *The June 2022 amount includes the provision for a penalty applied by the Moroccan regulator (MAD 2,451) 32 Maroc Telecom • Financial report HY 2022 32 Statement of comprehensive income for the first half of 2022 and 2021 (In millions of MAD) Note H1-2021 H1-2022 Revenues Cost of purchases Payroll costs Taxes and duties Other operating income and expenses Net depreciation, amortization and provisions* Earnings from operations Other income and charges from ordinary activities Earnings from continuing operations Income from cash and cash equivalents Gross borrowings costs Net borrowing costs Other financial income (expense) Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities Other income and expenses Total comprehensive income for the period Net earnings Attributable to equity holders of the parents Minority interests Total comprehensive income for the period Attributable to equity holders of the parents Minority interests 7 6 17,780 -2,562 -1,524 -1,688 -2,640 -3,809 5,557 0 5,557 6 -397 -391 -65 -456 -1,826 3,275 -275 53 3,053 3,275 2,827 448 3,053 2,693 359 17,568 -2,373 -1,539 -1,670 -2,712 -5,988 3,287 0 3,287 9 -317 -308 -13 -321 -2,072 894 61 0 955 894 417 477 955 436 519 EARNINGS PER SHARE Net earnings - group share (in millions of MAD) Numbers of shares at June 30 Earnings per share (in MAD) Diluted earnings per share (in MAD) *The June 2022 amount includes the provision for a penalty applied by the Moroccan regulator (-MAD 2,451) H1-2021 2,827 879,095,340 3.22 3.22 H1-2022 417 879,095,340 0.47 0.47 33 Maroc Telecom • Financial report HY 2022 33 Consolidated statement of cash flows for the first half of 2022 and 2021 (In millions of MAD) Note H1-2021 Earnings from operations* Depreciations, depreciation and other adjustments* Gross cash from operating activities Other changes in net working capital Net cash from operating activities before taxes Tax paid Net cash from operating activities (a) Purchase of PP&E and intangible assets Increase in financial assets Disposals of PP&E and intangible assets Decrease in financial assets Dividends received from nonconsolidated investments Net cash used in investing activities (b) Capital increase Dividends paid to shareholders Dividends paid by subsidiaries to their noncontrolling interests Changes in equity Borrowings and increase in other long-term financial liabilities Borrowings and increase in other long-term financial liabilities Changes in net current accounts Changes in current accounts receivable/financial creditors Net interests paid (Cash only) Other cash expenses (income) used in financing activities Changes in borrowings and other financial liabilities Net cash used in financing activities (d) Effect of foreign currency adjustments (g) Total cash flows (a+b+d+g) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period * Operating income and net depreciation, amortisation and impairment of fixed assets in June 2022 include the provision for a penalty payment applied by the Moroccan regulator (-MAD 2,451) 5,557 3,806 9,364 -1,192 8,172 -1,893 6,279 -2,735 -24 3 1 11 -2,745 3 0 -330 -330 361 3,156 477 -78 -3,349 -3,680 -69 -215 2,690 2,475 34 Maroc Telecom • Financial report HY 2022 34 H1-2022 3,287 5,988 9,276 -1,018 8,257 -1,906 6,351 -2,961 0 0 35 1 -2,925 0 -766 -766 673 2,620 481 112 -2,316 -3,082 -80 264 2,024 2,288 Statement of changes in consolidated equity at June 30, 2022 and December 31, 2021 (in MAD million)Share capitalOther comprehensive incomeOther comprehensive incomeTotal Group shareNon controling interestTotal capitaux propresPosition at January 1, 2021 5,275 7,786 -340 12,721 3,968 16,688Total comprehensive income for the period2,827-1342,6933593,053Change in gains and losses recognized directly in equity and recyclable in profit or loss 00Gains and losses on translation-186-186-89-275Change in gains and losses recognized directly in equity and recyclable in profit or loss 535353Actuarial differences00 Revaluation differences00 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments5353053 Capital increase00 Capital decrease00 Share-based compensation00 Change in interest shares without takeover/loss of control00 Change in interest shares with gain/loss of control00 Dividends-3,525-3,525-665-4,190 Treasury stock-8-8-8Other adjustements -68-68-68 Position at June 30, 2021 5,275 7,012 -474 11,813 3,662 15,476Total comprehensive income for the period3,181-873,0944383,532Change in gains and losses recognized directly in equity and recyclable in profit or loss 00 Revaluation differences-77-77-26-103Change in gains and losses recognized directly in equity and recyclable in profit or loss -10-10-8-19Actuarial differences-11-11-8-19 Revaluation differences00 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments0000 Capital increase00 Capital decrease00 Share-based compensation00 Change in ownership interest without gain/loss of control00 Change in ownership interest with gain/loss of control00Dividends0-213-213Treasury stock4404Other adjustements 2202 Position at December 31, 2021 5,275 10,199 -561 14,914 3,887 18,800 Total comprehensive income for the period41719436519955Change in gains and losses recognized directly in equity and recyclable in profit or loss 00 Revaluation differences19194261Change in gains and losses recognized directly in equity and recyclable in profit or loss 0000Actuarial differences00 Revaluation differences00 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments000 Capital increase00 Capital decrease00 Share-based compensation00 Change in ownership interest without gain/loss of control00 Change in ownership interest with gain/loss of control00Dividends-4,202-4202-757-4,959Treasury stock-17-17-17Other adjustements 0-1-1 Position at June 30, 2022 5,275 6,397 -542 11,130 3,648 14,778 35 Maroc Telecom • Financial report HY 2022 35 At June 30, 2022, Maroc Telecom’s share capital comprised 879,095,340 ordinary shares. Ownership of the shares was as follows: SPT*: 53%; - Kingdom of Morocco: 22%; - Other: 25%. SPT is a Moroccan company controlled by Etisalat 36 Maroc Telecom • Financial report HY 2022 36 Note 1. Accounting principles and valuation methods The highlights of the semester are described on page 4 and 5 of this financial report. 1.1 HIGHLIGHTS Group customer base expands 1.9% to nearly 75 million customers, including 23 million in Morocco (-0.2%) and nearly 52 million for the Moov Africa subsidiaries (+2.8%); Slight decline in consolidated revenues (-0.6%*), due to the decline in Mobile in Morocco (-5.0%) and especially in Mobile Data (-9.9%); Revenue growth of Moov Africa subsidiaries (+1.6%*) driven by Mobile Data (+29%*); Sustained Fixed Data revenue growth in Morocco (+7.3%) thanks to the expansion of the FTTH customer base (+45%); Group adjusted EBITDA up 0.5%*, with almost stable adjusted EBITDA in Morocco (-0.5%) and 2.0%* growth in the adjusted EBITDA of Moov Africa subsidiaries; Adjusted Group share of net income up 1.7%*; High level of Group CAPEX maintained, representing 21.2% of revenues; Net debt down 17.7%* to 0.6x EBITDA. 1.2 ACCOUNTING PRINCIPLES AND VALUATION METHODS The accounting principles used to prepare the interim consolidated financial statements for the six months ended 30 June 2022 are identical to those used for the year ended 31 December 2021, in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union as of today. The interim consolidated financial statements at June 30th, 2022 have been prepared in accordance with IAS 34 "Interim Financial Reporting", which permits the presentation of selected explanatory notes. These consolidated financial statements should be read in conjunction with the 2021 consolidated financial statements. The interim consolidated financial statements at June 30th, 2022, together with the notes thereto, were approved by Maroc Telecom's Executive Board on July 22th, 2022. At constant exchange rate MAD/Ouguiya/Franc CFA 37 Maroc Telecom • Financial report HY 2022 37 Note 2. Scope of consolidation at June 30, 2022 and December 31, 2022 38 Maroc Telecom • Financial report HY 2022 38 CompanyLegal form% Group interest% Capital heldConsolidation methodMaroc TelecomSA100%100%IGAvenue Annakhil Hay Riad Rabat-MarocCompagnie Mauritanienne de Communication (CMC)SAJune 30, 202280%80%IGDec 31, 202180%80%IG563, Avenue Roi Fayçal Nouakchott-MauritanieMauritel SASAJune 30, 202241%52%IGDec 31, 202141%52%IGAvenue Roi Fayçal Nouakchott-MauritanieOnatelSAJune 30, 202261%61%IGDec 31, 202161%61%IG705, AV. de la nation 01 BP10000 Ouagadougou – Burkina FasoGabon TelecomSAJune 30, 202251%51%IGDec 31, 202151%51%IGImmeuble 9 étages, BP 40 000 Libreville-GabonSotelmaSAJune 30, 202251%51%IGDec 31, 202151%51%IGACI 2000 près du palais de sport BP-740, Bamako- MaliCasanetSAJune 30, 2022100%100%IGDec 31, 2021100%100%IGImm Riad 1, RDC, Avenue Annakhil Hay Riad Rabat-MarocMoov Africa Côte d'IvoireSAJune 30, 202285%85%IGDec 31, 202185%85%IGPlateau, Immeuble KARRAT, Avenue Botreau Roussel, Abidjan- Côte d'IvoireMoov Africa BéninSAJune 30, 2022100%100%IGDec 31, 2021100%100%IGIlot 553, quartier Zongo Ehuzu, zone résidentielle, avenue Jean Paul 2, immeuble Etisalat, Cotonou- BéninMoov Africa TogoSAJune 30, 202295%95%IGDec 31, 202195%95%IGBoulevard de la Paix, Route de l’Aviation, Immeuble Moov-Etisalat, Lomé-TogoMoov Africa NigerSAJune 30, 2022100%100%IGDec 31, 2021100%100%IG720 Boulevard du 15 avril Zone Industrielle, BP 13 379, Niamey-NigerMoov Africa CentrafriqueSAJune 30, 2022100%100%IGDec 31, 2021100%100%IGBP 2439, PK 0, Place de la République, Immeuble SOCIM, rez-de-chaussée, Bangui - CentrafriqueMoov Africa ChadSAJune 30, 2022100%100%IGDec 31, 2021100%100%IGBP 6505, Avenue Charles DE GAULLE, N'Djamena-Chad 39 Maroc Telecom • Financial report HY 2022 39 Note 3. Dividends (In millions of MAD)H1-2021H1-2022Dividends received from equity affiliates to their minority shareholder (a)Total (a)665757Dividends distributed by Maroc Telecom to its shareholders (b)Kingdom of Morocco776925Etisalat1,8682,227Others8811,050Total (b) 3,525 4,202 Total dividends distributed (a) + (b) 4,190 4,959 As at June 30, 2022, Maroc Telecom had not yet paid any dividends, which totaled MAD 4,202 million and were classified as current liabilities. Dividends paid by subsidiaries to their minority shareholders amounted to MAD 757 million. Note 4. Borrowings and other financial liabilities at June 30, 2022 and December 31, 2021 (In millions of MAD)12/31/202106/30/2022Borrowings due less than one year 2,696 2,824 Rental obligation at +1 year 1,071 994 Borrowings due more than one year 2,403 2,339 Rental obligation at -1 year 389 393 Facilities and overdrafts 9,885 7,920 Borrowings and financial liabilities 16,444 14,471 Cash 2,024 2,288 Blocked cash 22 17 Net debt 14,397 12,165 Maroc Telecom's net debt fell from MAD 14,397 million at December 31, 2021 to MAD 12,165 million at June 30, 2022 due to the repayment of bank loans. 40 Maroc Telecom • Financial report HY 2022 40 4.1. BREAKDOWN OF NET DEBT BY MATURITY Half year ended June 30, 2022 (In millions of MAD)Due less than 1 year1 to 5 yearsDue more than 5 years TOTAL Borrowings 2,339 2,744 80 5,163 Rental obligation 393 734 260 1,387 Facilities and overdrafts 7,920 7,920 Borrowings and financial liabilities 10,652 3,478 341 14,471 Cash 2,288 2,288 Blocked cash 17 17 Net debt 8,347 3,478 341 12,165 Full December 31, 2021 (In millions of MAD)Due less than 1 year1 to 5 yearsDue more than 5 years TOTAL Borrowings2,4032,470226 5,099 Rental obligation389762309 1,460 Facilities and overdrafts9,885 9,885 Borrowings and financial liabilities 12,677 3,232 535 16,444 Cash 2,024 2,024 Blocked cash 22 22 Net debt 10,630 3,232 535 14,397 The breakdown by maturity is made on the basis of contractual maturities for debts and on the basis of the enforceable term for rental obligations. 4.2 BORROWING AND OTHER FINANCIAL LIABILITIES BY GEOGRAPHICAL AREA (In millions of MAD) 12/31/202106/30/2022Morocco 9,344 6,788 International 7,100 7,683 Borrowings and other financial liabilities 16,444 14,471 41 Maroc Telecom • Financial report HY 2022 41 Note 5. Restructuring expenses at June 30, 2022 and December 31, 2021 None. Note 6. Income tax payable for the first half of 2022 and 2021 (In millions of MAD) H1-2021 H1-2022 Income tax Deferred taxes Tax provisions Current tax Consolidated effective tax rate * 1,840 2,070 13 2 1,826 2,072 35.8% 69.9% Income taxes / income before taxes The tax charge at 30 June 2022 is up by 13% compared to the first half of 2021. This change is partly due to the increase in pre-tax income (excluding the impact of the provision for the ANRT penalty) due to the improvement in the health situation and partly explained by the change in the solidarity contribution rate in the Morocco segment. The effective tax rate was 69.9% in the first half of 2022, and 38.3% on a comparable basis*. Note 7. Segment data for the first six-month periods of 2022 and 2021 Segment earnings by geographical area First half of 2022 (In millions MAD)MoroccoInternationalEliminationsTotalRevenues 9,561 8,552 -545 17,568 Earnings from operations* 1,175 2,112 3,287 Net depreciation and impairment of assets* 4,236 1,752 5,988 Volantary redundancy plan 2 2 Operating income and net depreciation, amortisation and impairment of fixed assets for June 2022 include the provision for a penalty payment applied by the Moroccan regulator (-MAD 2,451) First half of 2021 (In millions MAD)MoroccoInternationalEliminationsTotalRevenues 9,774 8,515 -509 17,780 Earnings from operations 3,524 2,033 5,557 Net depreciation and impairment of assets 2,004 1,804 3,809 Volantary redundancy plan 13 13 Comparable basis means the cancellation of the impacts of the provision for the exceptional penalty payment imposed by the Moroccan regulator recorded in the H1-2022 accounts. 42 Maroc Telecom • Financial report HY 2022 42 Note 8. Contractual commitments and contingent assets and liabilities 8.1. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS RECORDED IN THE BALANCE SHEET Half year ended June 30, 2022 (In millions of MAD)Total< 1 year 1 to 5 years > 5 yearsLong-term debts 3,819 3,513 306 Capital lease obligations - Operating leases * 35 35 Irrevocable purchase obligations - Other long-term commitments - Total 3,854 35 3,513 306 Leases that do not fall within the scope of the new IFRS 16 standard. 8.2. CONTINGENT LIABILITIES The issues described in notes 31.3 of the 2021 annual report are still pending as at 30 June 2022. IAM maintains its position regarding the Inwi dispute. With regard to the REMACOTEM dispute, on May 6, 2022 the Bamako Court of Appeal granted a six-month grace period to the operators before the case proceeds. In addition, a tax audit began in June 2022 in Morocco in respect of corporate tax (IS), income tax (IR), value added tax (VAT), social solidarity contribution (CSS) and registration and stamp duties (DET) for the non- barred period. 43 Maroc Telecom • Financial report HY 2022 43 8.3. OTHER COMMITMENT GIVEN AND RECEIVED IN THE COURSE OF ORDINARY BUSINESS (In millions of MAD)12/31/202106/30/2022Commitments given4,3423,784Investment commitment 3,4022,752Downstream commitments and signature with banks803912Operating and financing lease commitments4235Satellite rental commitments6757Other commitments2929Network maintenance contracts with Ericsson2727Commitments on operating expenses 22Other commitments00Recovery of guarantees given by Etisalat on the financing of the Atlantic subsidiaries00Forward sale commitment00(In millions of MAD)12/31/202106/30/2022Commitments received1,1701,540Guarantees and endorsements1,1701,540Other commitments receivedForward purchase commitmentCommitment of the Moroccan State to contribute the assets of social worksInvestment agreement: exemption from customs duties on imports related to investments Investment commitments have decreased in view of the level of investment realizations. Commitments by guarantee and signature with banks increased mainly due to documentary credits related to the acquisition of technical facilities and equipment and letters of credit related to ongoing projects. Commitments received are mainly related to guarantees received from network equipment suppliers in the context of international Capex contracts and orders. Note 9. Events after the end of the reporting period Notification on July 22, 2022 of the decision of the ANRT's Management Committee relating to the liquidation of the penalty imposed on Maroc Telecom in connection with the January 17, 2020 decision relating to unbundling. The amount of the penalty payment is set at MAD 2.45 billion and Maroc Telecom has 30 days from the date of the decision to submit an appeal to the Court of Appeal in Rabat. Given the recent, complex and exceptional nature of the decision received, the case is still being analyzed by Itissalat Al-Maghrib S.A. As provided for by the law, Itissalat Al-Maghrib S.A. In this context and in accordance with IAS 37, Maroc Telecom has made a provision of MAD 2.45 billion in its 2022 interim financial statements 44 Maroc Telecom • Financial report HY 2022 44 Note 10. IFRS 16 10.1- ASSET-CLASS-BASED USAGE RIGHTS AT JUNE 30, 2022: (In millions MAD)Carrying valueAsset entry Depreciation/AmortizationLand50167-80Buildings38081-62Technical facilities38540-64Transportation equipment715-25Office equipmentOther assetsTotal1,337193-231 10.2- IMPACT OF LEASE OBLIGATIONS : HY-2022Interest expense34 Lease-related payments303 10.3- OCCUPANCY EXPENSES OUTSIDE THE SCOPE OF IFRS 16: HY-2022Leases with term ≤12 months208Leases with low underlying asset value2Leases with variable paymentsLeases with no presumed control of occupancy rightTotal210 45 Maroc Telecom • Financial report HY 2022 45 3.4 STATUTORY FINANCIAL STATEMENTS PREVIOUSASSETSEXERCICEGrossNETNET 12/31/2021CAPITALIZED COSTS (A)1,500,000750,000750,000900,000.Start-up costs0000.Deferred costs1,500,000750,000750,000900,000.Bond redemption premiums0000INTANGIBLE ASSETS (B)12,649,10310,583,1482,065,9551,976,662.Research and development costs0000.Patents, trademarks, and similar rights12,143,17310,512,7001,630,4731,688,907.Goodwill70,44770,44700.Other intangible assets435,4820435,482287,755PROPERTY, PLANT, AND EQUIPMENT (C)75,430,16960,347,83915,082,33015,042,441.Land961,9350961,935961,935.Buildings8,294,6905,690,6922,603,9982,660,222.Technical plant, machinery, and equipment59,201,08549,656,4939,544,5929,696,389.Vehicles278,662106,869171,793178,411.Office equipment, furniture, and fittings5,048,1494,730,505317,643328,408.Other property, plant, and equipment11,048011,04811,048.Work in progress1,634,600163,2801,471,3211,206,028FINANCIAL ASSETS (D)12,589,265387,41812,201,84712,384,146.Long-term loans 280,0510280,051812,669.Other financial receivables4,19004,1904,190.Equity investments12,305,024387,41811,917,60611,567,287.Other investments and securities0000UNREALISED FOREIGN EXCHANGE LOSSES (E) 10,276010,27631,913.Decrease in long-term receivables10,276010,27631,913.Increase in long-term debt0000TOTAL I (A+B+C+D+E) 102,178,81372,068,40530,110,40830,335,162INVENTORIES (F)242,924109,611133,31295,153.Merchandise174,78895,42879,36053,796.Raw materials and supplies68,13614,18353,95241,356.Work in progress0000.Intermediary and residual goods0000.Finished goods0000CURRENT RECEIVABLES (G)17,303,9809,055,9568,248,0247,936,884.Trade payables, advances and deposits14,257014,25713,247.Accounts receivable and related accounts15,128,7478,731,7226,397,0246,876,113.Employees22,552022,5523,708.Tax receivable380,0040380,004794,372.Shareholders’ current accounts0000.Other receivables1,300,404324,234976,171227,279.Accruals458,0160458,01622,165MARKETABLE SECURITIES (H)131,6070131,607131,859UNREALIZED FOREIGN EXCHANGE LOSSES (I)(current items)47,476047,47655,133 TOTAL II (F+G+H+I) 17,725,9869,165,5688,560,4198,219,028CASH AND CASH EQUIVALENTS306,9200306,920173,515.Checks0000.Bank deposits304,1860304,186171,349.Petty cash2,73402,7342,166TOTAL III 306,9200306,920173,515TOTAL GENERAL I+II+III 120,211,71981,233,97238,977,74738,727,705Amortization and provisions 46 Maroc Telecom • Financial report HY 2022 46 SHAREHOLDERS’ EQUITY AND LIABILITIESEXERCICEEXERCICE(in MAD thousands)NET 12/31/2020SHAREHOLDERS' EQUITY (A)13,479,34016,722,339 Share capital 5,274,5725,274,572 Less: capital subscribed and not paid-in00 Paid-in capital00 Additional paid-in capital00 Revaluation difference00 Statutory reserve527,457527,457 Other reserves6,718,2345,276,257 Retained earnings 00 Unallocated income 00 Net income of the year 959,0775,644,052QUASI-EQUITY (B)00 Investment subsidies00 Regulated provisions00DEBENTURE BONDS (C)1,4941,494 Debenture bonds00 Other long-term debt1,4941,494PROVISIONS (D)22,61244,248 Provisions for contingencies10,27631,913 Provisions for losses12,33612,336UNREALIZED FOREIGN EXCHANGE GAINS (E)00 Increase in long-term receivables00 Decrease in long-term debt00TOTAL I (A+B+C+D+E) 13,503,44616,768,081CURRENT LIABILITIES (F)16,092,91112,446,563 Accounts payable and related accounts 6,160,6326,174,176 Trade receivables, advances and down payments100,92378,995 Payroll costs821,465946,902 Social security contributions91,40591,786 Tax payable3,085,0852,959,742 Shareholders’ current accounts4,063,4091 Other payables207,511408,425 Accruals1,562,4831,786,536OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 3,259,808871,251UNREALIZED FOREIGN EXCHANGE GAINS (Current items) (H)70,35363,953Total II (F+G+H) 19,423,07213,381,768BANK OVERDRAFTS6,051,2298,577,856 Discounted bills00 Treasury loans00 Bank loans and overdrafts6,051,2298,577,856Total III 6,051,2298,577,856TOTAL GENERAL I+II+III38,977,74738,727,705 47 Maroc Telecom • Financial report HY 2022 47 Total of theTotal at(in MAD thousands)Current yearPrevious yearsyear06/30/2021I- OPERATING INCOME9,545,89609,545,8969,738,537Sales of goods133,9960133,996190,603Sales of manufactured goods and services rendered9,100,67309,100,6739,290,203Operating revenues9,234,66909,234,6699,480,806Change in inventories0000Company-constructed assets 0000Operating subsidies0000Other operating income14,163014,16316,179Operating write-backs: expense transfers297,0640297,064241,552TOTAL I9,545,89609,545,8969,738,537II- OPERATING EXPENSES6,074,51606,074,5166,321,438Cost of goods sold156,1080156,108317,817Raw materials and supplies1,515,68501,515,6851,513,503Other external expenses1,306,83301,306,8331,250,548Taxes (except corporate income tax)156,1900156,190130,353Payroll, costs1,084,01501,084,0151,069,546Other operating expenses2,54002,5402,233Operating allowances for amortization1,569,53001,569,5301,675,144Operating allowances for provisions283,6140283,614362,294TOTAL II6,074,51606,074,5166,321,438III- OPERATING INCOME I-II3,471,38003,471,3803,417,100IV- FINANCIAL INCOME1,531,63101,531,6311,422,016Income from equity investments and other financial investments1,228,68901,228,689966,490and other financial investments0Foreign exchange gains191,7980191,798218,893Interest and other financial income24,099024,09938,970Financial write - backs: expense transfers87,046087,046197,664TOTAL IV1,531,63101,531,6311,422,016V- FINANCIAL EXPENSES303,0610303,061399,155Interest and loans 109,7840109,784165,065Foreign exchange losses134,9640134,964137,326Other financial expenses 562056211,041Financial allowances57,752057,75285,723TOTAL V303,0610303,061399,155VI- FINANCIAL INCOME IV - V1,228,57001,228,5701,022,861VII- ORDINARY INCOME III + VI 4,699,95004,699,9504,439,961VIII- EXTRAORDINARY INCOME 81,200081,20088,433Proceeds from disposal of fixed assets 670672,089Subsidies received0000Write-backs of investment subsidies0000Other extraordinary income23,092023,09229,885Extraordinary write-backs: expense transfers 58,041058,04156,460TOTAL VIII81,200081,20088,433IX- EXTRAORDINARY EXPENSES 2,817,61902,817,619531,345 Net book value of disposed assets000169,752Subsidies granted 0000Other extraordinary expenses164,8870164,887136,940Regulated provisions 0000Extraordinary allowances for depreciation and provisions 2,652,73202,652,732224,654TOTAL IX2,817,61902,817,619531,345X- NON-CURRENT INCOME VIII - IX-2,736,4200-2,736,420-442,912XI- PRE-TAX INCOME VII + X1,963,53101,963,5313,997,049XII- CORPORATE INCOME TAX1,004,45401,004,454960,299XIII- NET INCOME XI - XII959,0770959,0773,036,751XIV- TOTAL REVENUES ( I+IV+VIII)XV- TOTAL EXPENSES ( II+V+IX+XII)11,158,726011,158,72611,248,987XVI- NET INCOME (total income - total expenses)10,199,650010,199,6508,212,236959,0770959,0773,036,751OPERATIONS 48 Maroc Telecom • Financial report HY 2022 48 The presentation guidelines and valuation methods used in preparing these documents comply with the rules and regulations in force. The table below summarizes the trends of the main financial indicators of Maroc Telecom over the last three halfs year: In MAD million H1 2020 H1 2021 H1 2022 Change 22/21 Revenues 10,182 9,481 9,235 2.6% Operating income 3,923 3,417 3,471 1.6% Financial income 859 1,023 1,229 20.1% Income tax expense 725 960 1,004 4.6% Non-current income 1,577 443 2,736 NA Net income 2,481 3,037 959 68,4% Investments 508 1,245 1,693 36.0% Key elements of the income statement Revenues Maroc Telecom's revenues for the first half of 2022 amounted to MAD 9,235 million, down 2.6% compared with the first half of 2021. Operating income and net income Earnings from operations rose from MAD 3,417 million to MAD 3,471 million, an increase of 1.6% compared to the first half of 2021. Financial income rose by 20.1% to MAD 1,229 million compared to MAD 1,023 million in the first half of 2021. This evolution is mainly due to the increase in dividends from subsidiaries during the first half of 2022. Pre-tax earnings amounted to MAD 1,964 million and corporate income tax to MAD 1,004 million, leading to net earnings of MAD 959 million, down 68.4% compared with the first half of 2021. It should be noted that earnings for 2022 include a provision for risks of MAD 2,451 million (following the decision of the Management Committee of the National Telecommunications Regulatory Agency relating to the liquidation of the penalty imposed on Maroc Telecom in the context of the January 17, 2020 decision relating to unbundling). 49 Maroc Telecom • Financial report HY 2022 49 Balance sheet At June 30, 2022, the balance sheet total reached MAD 38,978 million, marking an increase of 0.6% compared to the previous year. Breakdown of assets (Assets in MAD million) Non-valued fixed assets 2020 1,200 NET 2021 900 H1-2022 750 Change 22/21 16.7% Intangible assets 2,081 1,977 2,066 4.5% Property, plant and equipment 15,738 15,042 15,082 0.3% Long-term investments 12,216 12,384 12,202 1.5% Translation difference - loss 1 32 10 Na Total net non-current assets 31,236 30,335 30,110 0.7% Current assets 8,052 8,219 8,560 4.2% Cash assets 554 174 307 76.9% Total assets 39,842 38,728 38,978 0.6% Net fixed assets amounted to MAD 30,110 million at June 30, 2022, compared with MAD 30,335 million in the previous year. It represented 77% of total assets and decreased by 0.7% compared to 2021. Net intangible assets amounted to MAD 2,066 million in June 2022, compared to MAD 1,977 million in 2021. Net tangible assets increased by 0.3% from MAD 15,042 million in December 2021 to MAD 15,082 million in June 2022. Net financial assets amounted to MAD 12,202 million in June 2022, compared with MAD 12,384 million in 2021 following the recapitalisation operations and the repayment of loans to subsidiaries. Current assets excluding investments (except for those related to price adjustments) amounted to MAD 8,560 million in June 2022, compared with MAD 8,219 million in 2021, an increase of 4.2% mainly due to the recognition of dividends from subsidiaries whose payment due dates coincide with the second half of the year. Net cash and cash equivalents, including investments (excluding those related to price adjustments), amounted to MAD -5,744 million at June 30, 2022, compared with MAD -8,404 million at December 31, 2021. 50 Maroc Telecom • Financial report HY 2022 50 Liabilities and their components NET (Liabilities in MAD million) 2020 2021 H1 2022 Change 22/21 Shareholders' Equity 14,603 16,722 13,479 19.4% including net profit for the fiscal year 6,248 5,644 959 83,0% Financial borrowings 7 1 1 0.0% Long-term provisions for risks and losses 15 44 23 48.9% Translation difference - profit 4 0 0 Total permanent funds 14,629 16,768 13,503 19.5% Current liabilities 14,163 13,382 19,423 45,1% Cash liabilities 11,051 8,578 6,051 29.5% Total liabilities 39,842 38,728 38,978 0.6% Taking into account the profit for the period of MAD 959 million and the allocation of a dividend of MAD 4.2 billion, shareholders' equity at June 30, 2022 amounted to MAD 13,479 million, compared to MAD 16,722 million in 2021. At June 30, 2022, current liabilities amounted to MAD 19,423 million, compared with MAD 13,382 million in 2021, an increase of 45.1%. This is mainly due to the recognition of dividends payable during the second half of the year and the inclusion of a MAD 2,451 million provision for risks (following the decision of the Management Committee of the Agence Nationale de Réglementation des Télécommunications relating to the liquidation of the penalty imposed on Maroc Telecom in the context of the January 17, 2020 decision relating to unbundling). Cash and cash equivalents decreased by 29.5% to MAD 6,051 million, compared with MAD 8,578 million in 2021. 51 Maroc Telecom • Financial report HY 2022 51 Maroc Telecom Itissalat Al-Maghrib Société Anonyme à Directoire et Conseil de Surveillance au Capital de 5 274 572 040 dirhams RC 48 947 Siège Social Avenue Annakhil, Hay Riad Rabat, Maroc www.iam.ma du 52 Maroc Telecom • Financial report HY 2022 52 | Semestriel, 2022, Operator, MT | write me a financial report |
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| 1 FINANCIAL REPORT HY 2021 Maroc Telecom • Financial Report HY 2021 1 Preliminary remarks: This financial report and the condensed financial statements for the half year ended June 30th, 2021 were approved by the Management Board on July 16th, 2021, and review by the Audit Committee at its meeting on July 26th, 2021. This report should be read in conjunction with the Management Board’s report for the year ended December 31, 2020 as published in Registration Document as filed with the Securities Regulator (AMF) on April 28, 2021 (“2020 universal registration document”). 2 Maroc Telecom • Financial Report HY 2021 2 CONTENTS HIGHLIGHTS 4 1. CERTIFICATIONS 1.1 Person responsible for the interim report 1.2 Certification of the interim report 1.3 Persons responsible for the audit of the financial statements 2. H1 ACTIVITY REPORT 2.1 Description of activities 2.2 Related-party transactions 2.3 Growth outlook 3. FINANCIAL REPORT 3.1 Consolidated financial Data 3.2 Income statement and financial position 3.3 Consolidated financial statements and notes 3.4 Statutory financial statements 3 Maroc Telecom • Financial Report HY 2021 3 7 7 7 11 19 21 23 26 31 43 Highlights January 2021 In Morocco, upward review of the FTTH router tariff, with the introduction of the installment payment method, in order to comply with new regulatory requirements; The new visual identity “Moov Africa” is launched on January 1, 2021. The ten subsidiaries of Maroc Telecom Group (present in Mauritania, Burkina Faso, Gabon, Mali, Ivory Coast, Benin, Togo, Niger, Central African Republic and Chad) are now united around a common identity; In Burkina Faso, Côte d'Ivoire and Chad, launch of the FTTH service; In Burkina Faso, the Finance Act of 2020 introduced a financial activities tax of 17% of the activity’s revenue; In Mali, adoption of symmetry between the Sotelma and Orange call termination rates at FCFA 2.5, with a 50% bonus in favor of ATEL, and SMS termination rates/USSD codes at FCFA 1; In Togo, adoption of the decision defining the principles applicable to electronic communications services; In Chad, telecom operators were notified of two decrees, concerning 1/ the sharing of telecommunication infrastructures between operators in Chad, and 2/ the procedures for obtaining approval as an infrastructure and network installer and authorization to sell electronic communications equipment; In Gabon, reduction of the Mobile call termination rate to FCFA 7 as of January 1, 2021; In Côte d'Ivoire, reduction of the Mobile call termination rate to FCFA 5 as of January 1, 2021; In Benin, the regulator notified telecom operators of a new decision to cancel the national call termination rate in Benin from January 1, 2021. February 2021 In Morocco, exclusive introduction by Maroc Telecom of the eSIM service, designed to increase the connectivity of portable devices; In Morocco, launch by Maroc Telecom of a new Data-focused package of 30 GB + 3 hours at MAD 165 to satisfy customers that use the Internet more; In Morocco, extension by Maroc Telecom of the validity period of the Jawal MAD 10, MAD 20, MAD 50 and All in one (*5) passes, and enhancement of the MAD 50 and MAD 100 voice passes (4 hours and 8 hours); In Côte d'Ivoire, implementation of the new numbering plan consisting of the transition to ten digits; In Togo, approval of the Moov Africa Togo interconnection catalog which specifies a Mobile call termination rate of FCFA 7; In Niger, the regulator set the national call termination rate at FCFA 4.9 for the country's four operators with retroactive effect from January 1, 2021; In the Central African Republic, signature of a memorandum of understanding between the Central African Republic and Gabon for the implementation of free roaming between the two countries (for a period of 30 days up to a maximum of 300 minutes); In Chad, abolition of the surcharge on international traffic coming from the G5 Sahel sub-region and CEMAC, and exemption of Mobile Money revenues from the excise duty of 18%. March 2021 The regulatory authorities of ECOWAS member countries plan to agree on a shared strategy to complete the effective implementation of the Free Roaming regulation in the area; 4 Maroc Telecom • Financial Report HY 2021 4 In Togo, the regulator decided on the principles applicable to retail offers (display of prices, alignment of the period of validity of top-ups with the life of the SIM card, etc.); In Mauritania, notification of the ministerial order setting out the terms and conditions for the renewal of the Moov Mauritel 3G license; In Benin, SONATEL was awarded des Infrastructures Numériques (SBIN) for five years; the delegated management of the Société Béninoise In Chad, the regulator kept the Mobile call termination rate at FCFA 15/min and the SMS termination rate at FCFA 3. April 2021 In Morocco, Maroc Telecom introduced a new catalog of smart devices focused on the themes of Home Security, Home Comfort and Health & Fitness; In Côte d'Ivoire, entry into the market of a new Mobile Money operator called Wave. May 2021 In Morocco, launch by Maroc Telecom of a new IAM unlimited voice option (for national landlines and Mobiles) at MAD 59/month, valid for the residential Maitrisés, Particuliers and Libertés packages; In Morocco, Maroc Telecom added another hour to the MAD 100 *2 Pass to offer 5 GB + 3 hours; In Morocco, launch by Maroc Telecom of a new rewards brochure for converting Fidelio Mobile points into Pass Data (20 points = 2 GB; 50 points = 5 GB); In Morocco, introduction of ten new LTE destinations for Maroc Telecom travelers: Andorra, Greenland, Guam, Isle of Man, Guinea Bissau, Northern Mariana Islands, El Salvador, Tajikistan, Trinidad & Tobago, and Ukraine; In Morocco, adoption of the decision authorizing Wi-Fi 6E from June 2021; In Mauritania, adoption of the bill on Mobile Money activity by the Council of Ministers; In Togo, adoption of a decree limiting the number of SIM cards to three per subscriber of Mobile electronic communications services. June 2021 In Morocco, launch by Maroc Telecom, via its e-shop, of the sale of contract-free smartphones; In Morocco, launch by Maroc Telecom of the assistance service via WhatsApp for Fixed-line and Business Internet customers; In Morocco, launch by Maroc Telecom of a FTTH and ADSL sponsorship operation; In Morocco, cancellation of the option to convert Fidelio points into equipment following a decision by the Agence Nationale de Réglementation des Télécommunications (ANRT); In Mauritania, deactivation at the request of the regulator within the context of customer identification, of any SIM card that has not been used within 24 hours of its activation and restriction of the sale of new SIM-only packages to the operators’ own networks; In Burkina Faso, launch by competitors of Moov Africa Burkina (GVA and Orange) of the FTTH service in Ouagadougou; In Mauritania, granting of the Fixed-line authorization to Moov Mauritel by the National Regulatory Council, with effect from April 11, 2021, for a period of ten years. 5 Maroc Telecom • Financial Report HY 2021 5 6 Maroc Telecom • Financial Report HY 2021 6 1- CERTIFICATIONS In this document, "Maroc Telecom" or “the Company” refers to the company Itissalat Al-Maghrib, and “the Group” refers to the group constituted by the Company and all of its directly and indirectly owned subsidiaries. 1.1 PERSON RESPONSIBLE FOR THE INTERIM REPORT Mr. Abdeslam Ahizoune Chairman of the Management Board 1.2 CERTIFICATION OF THE INTERIM REPORT I hereby attest, to my knowledge, that the condensed interim financial statements are established in accordance with applicable accounting standards and give a true and fair view of the income and financial position and results of the company and all of the consolidated companies, and that the interim management report gives a true and fair view of the significant events having occurred during the first six months of the year, and their impact on the condensed interim financial statements, the main related-party transactions as well as a description of the principal risks and uncertainties for the remaining six months of the year. Mr. Abdeslam Ahizoune Chairman of the Management Board 1.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deloitte Audit, represented by Mrs Sakina BENSOUDA KORACHI Boulevard Sidi Mohammed Ben Abdellah, Tour Ivoire III, 3ème étage, La Marina Casablanca, Maroc First appointed by the general meeting of 26 April 2016, his mandate was renewed at the general meeting of 23 April 2019 for a period of three financial years, i.e. until the end of the ordinary general meeting called to approve the accounts for the financial year ending 31 December 2021. Coopers Audit, représenté by Mr Abdelaziz ALMECHATT 83, avenue Hassan II – 20 100 Casablanca, Maroc First appointed in 1998 by the articles of association, his term of office was renewed at the general meeting of 29 April 2020 for a period of three financial years, i.e. until the end of the ordinary general meeting ruling on the accounts for the financial year ending 31 December 2022. 7 Maroc Telecom • Financial Report HY 2021 7 To the shareholders ITISSALAT AL-MAGHRIB (IAM) S.A Avenue Annakhil, Rabat Maroc This is a free translation into English of the statutory auditor’s limited review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. LIMITED REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL SITUATION OF ITISSALAT AL-MAGHRIB (IAM) S.A PERIOD FROM JANUARY 1st TO JUNE 30th, 2021 We have conducted a limited review of the interim consolidated financial situation of Itissalat Al- Maghrib (IAM) S.A and its subsidiaries (Itissalat Al-Maghrib Group) which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidation perimeter and a selection of explanatory information related to the period from 1st to June 30th June 2021. These interim consolidated financial statements show an amount of consolidated equity of MMAD 15.476 including a consolidated net profit of MMAD 3.275. These interim financial statements were closed by the Board of Directors on July 16th, 2021 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional standards applicable in Morocco. Those standards require that a limited review should be planned and executed in order to obtain a moderate assurance that the interim consolidated financial situation referred to in the preceding first paragraph are free from material misstatement. A limited review includes mainly making inquiries of the company’s staff and analytical review to financial data; thus, it provides a lower level if assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying consolidated financial situation, do not give a true and fair view of financial performance of the Group Itissalat Al-Maghrib S.A. at June 30th, 2021, and its financial position and assets according to International Accounting Standards IAS/IFRS, as adopted by the European Union. Casablanca, 26th, July 2021 The Statutory Auditors Deloitte Audit Coopers Audit Maroc S.A Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 8 Maroc Telecom • Financial Report HY 2021 8 To Shareholders ITISSALAT AL-MAGHRIB (IAM) S.A Annakhil Avenue, Rabat Morocco This is a free translation into English of our limited review report on the half-year individual financial statements issued in French and it is pro7vided solely for the convenience of English-speaking users. REPORT ON THE LIMITED REVIEW OF INTERIM FINANCIAL STATEMENTS of ITISSALAT AL-MAGHRIB (IAM) S.A. (Statutory Financial Statement) PERIOD FROM JANUARY 1st TO JUNE 30th, 2021 In application of provisions of the Dahir carrying Law No. 1-93-212 of 21 September 1993, as modified and completed, we have reviewed the interim financial statements of ITISSALAT AL-MAGHRIB (IAM) S.A. which comprise the statement of financial position the statement of profit and loss related to the period from January 1st to June 30th, 2021. Those interim financial statements, which show a total equity of MAD 14.114.835 thousand including a net profit of MAD 3.036.751 thousand, are the responsibility of management of ITISSALAT AL-MAGHRIB (IAM) S.A. These interim financial statements were closed by the Board of Directors on July 16th, 2021 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional Standards applicable in Morocco related to limited review engagements. Those standards require that we plan and perform the review in order to obtain a moderate assurance that financial statements are free from material misstatement. A review includes mainly making inquiries of the company’s staff and analytical review of financial data; thus, it provides a lower level of assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying interim financial statements, do not present fairly the result of the period’s transactions of ITISSALAT AL-MAGHRIB (IAM) S.A., the financial position and its assets as at June 30th, 2021, in accordance with Generally Accepted Accounting Principles in Morocco. Casablanca, July 26th, 2021 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 9 Maroc Telecom • Financial Report HY 2021 9 10 Maroc Telecom • Financial Report HY 2021 10 2- HALF YEAR ACTIVITY REPORT 2.1 DESCRIPTION OF ACTIVITIES Details of the financial indicator adjustments for "Morocco" and "International" are provided in Appendix 1. (IFRS in MAD million) Revenues Q2-2020 Q2-2021 Change 9,014 8,866 1.6% Change at constant exchange rates (1) -0.8% H1-2020 H1-2021 Change 18,323 17,780 3.0% Adjusted EBITDA 4,809 4,599 4.4% 3.6% 9,603 9,160 4.6% Margin (%) 53.3% 51.9% 1.5 pt 1.5 pt 52.4% 51.5% 0.9 pt Adjusted EBITA 2,922 2,825 3.3% 2.6% 5,836 5,571 4.5% Margin (%) 32.4% 31.9% 0.6 pt 0.6 pt 31.8% 31.3% 0.5 pt Group share of adjusted Net Income 1,410 1,359 3.6% 3.4% 3,006 2,832 5.8% Margin (%) 15.6% 15,3% 0.3 pt 0.4 pt 16.4% 15.9% 0.5 pt CAPEX(2) Of which frequencies & licenses CAPEX/revenues (excl.frequencies & licenses) Adjusted CFFO 659 0 7.3% 4,206 1,697 0 19.1% 2,797 157.7% 11.8 pt 33.5% 158.1% 11.7 pt 32.8% 1,186 0 6.5% 7,099 2,115 0 11.9% 5,478 78.4% 5.4 pt 22.8% Net Debt 18,659 14,908 20.1% 20.0% 18,659 14,908 20.1% Net Debt/EBITDA(3) 0.9x 0.8x 0.9x 0.8x Customer base The number of customers of the Group stood at nearly 74 million at the end of June 2021, up by 7.5% year- on-year, driven by sustained growth of the subsidiaries’ customer bases (+11.1%). Revenues For the six months of 2021, the Maroc Telecom Group generated consolidated revenues(4) of MAD 17,780 million, down by 3.0% (-2.9% at constant exchange rates (1)). The decline in the Mobile business in Morocco was partly offset by the strong growth momentum in Fixed Broadband in Morocco and the activities of the Moov Africa subsidiaries. In the second quarter of 2021, consolidated revenues are almost stable (-0.8% at constant exchange rates (1)) thanks mainly to the performance of the subsidiaries over the same period (+4.7% at constant exchange rates(1)). Earnings from operations before depreciation and amortization In the first half of 2021, adjusted operating income before depreciation and amortization (EBITDA) for the Maroc Telecom Group reached MAD 9,160 million, down by 4.6% at constant exchange rates(1). The EBITDA decrease in Morocco is partially offset by EBITDA growth in the Moov Africa subsidiaries. The adjusted EBITDA margin remained at a high of 51.5%. 11 Maroc Telecom • Financial Report HY 2021 11 Change at constant exchange rates (1) -2.9% 4.6% 0.9 pt 4.4% 0.5 pt 5.8% 0.5 pt 78.3% 5.4 pt 22.7% 20.0% Earnings from operations For the first six months of 2021, adjusted consolidated earnings from operations (EBITA)(5) of the Maroc Telecom Group reached MAD 5,571 million, down by 4.5% (-4.4% at constant exchange rates(1)) showing a trend similar to that of EBITDA. The operating margin was 31.3%. Net Income - Group share At the end of June 2021, adjusted Group share of net income fell by 5.8% at constant exchange rates(1) to MAD 2,832 million. Investments Investments(2) excluding frequencies and licences amounted to MAD 2,115 million, up by 78.3% year on year at constant exchange rates(1). Focused mainly on strengthening infrastructures to support traffic and customer base growth, they represent 11.9% of the Group's revenues. Cash flow Adjusted net cash flow from operations (CFFO)(6) came to MAD 5,478 million, down by 22.8% from the same period in 2020 (-22.7% at constant exchange rates(1)), mainly due to the fall in EBITDA and the increase in investments. At the end of June 2021, consolidated Net Debt(7) of the Group was down by 20.1%, at MAD 14,908 million. It represents 0.8 time its annualised EBITDA(3). Appointments to the Management Board and to the Supervisory Board The Supervisory Board, meeting on Thursday 18 February 2021, noted the expiry of the Management Board members terms on 1 March 2021 and decided to renew the terms of office of Mr Abdeslam AHIZOUNE as Chairman of the Management Board and Messieurs Brahim BOUDAOUD, Hassan RACHAD, François VITTE and Abdelkader MAAMAR as members of the Management Board for a further two (2) years, i.e. until 1 March 2023. Moreover, at its meeting of 22 April 2021, the Supervisory Board co-opted two (2) new members: Mr Jassem Mohamed Bu Ataba ALZAABI, who replaced Mr Obaid Bin Humaid AL TAYER for the remainder of his term of office, i.e. until the end of the Ordinary General Meeting called to approve the financial statements for the financial year ending 31 December 2024; Mr Kamal SHEHADI, who replaced Mr Saleh AL ABDOOLI for the remaining duration of his term of office, i.e. until the end of the Ordinary General Meeting called to approve the financial statements for the financial year ending 31 December 2021. It should also be noted that Mr Jassem Mohamed Bu Ataba ALZAABI was also elected Vice-Chairman of the Supervisory Board on the same occasion. The Ordinary General Meeting of 30 April 2021 approved the co-optation of Mr Luis ENRIQUEZ as a member of the Supervisory Board. 12 Maroc Telecom • Financial Report HY 2021 12 2.1.1 MOROCCO (IFRS in MAD millions) Q2 2020 Q2 2021 Change H1 2020 H1 2021 Change Revenues 5,124 4,884 4.7% 10,524 9,774 7.1% Mobile 3,234 3,018 6.7% 6,779 5,985 11.7% Services 3,205 2,891 9.8% 6,637 5,766 13.1% Equipment 29 127 339.1% 142 218 54.0% Fixed-Line 2,408 2,332 3.1% 4,727 4,702 0.5% Of which Fixed Data* 894 928 3.8% 1,707 1,838 7.7% Elimination and other income 518 466 981 913 Adjusted EBITDA 3,008 2,718 9.7% 5,980 5,390 9.9% Margin (%) 58.7% 55.6% 3.1 pt 56.8% 55.1% 1.7 pt Adjusted EBITA 2,046 1,780 13.0% 4,037 3,524 12.7% Margin (%) 39.9% 36.4% 3.5 pt 38.4% 36.1% 2.3 pt CAPEX(2) Of which frequencies and licences CAPEX/revenues (excluding frequencies and licences) 281 0 5.5% 1,092 0 22.3% 288.5% 16.9 pt 564 0 5.4% 1,299 0 13.3% 130.4% 7.9 pt Adjusted CFFO 2,636 1,516 42.5% 4,256 2,737 35.7% Net debt 11,891 9,888 16.8% 11,891 9,888 16.8% Net debt/EBITDA(3) 0.9x 0,9x 0.9x 0,9x Fixed Data includes the Internet, TV on ADSL and Data services to companies. A calculation method has been changed for an element of the Fixed Data affecting the history Revenues in Morocco fell by 7.1% in the first half of 2021 to MAD 9,774 million. The Mobile business, particularly prepaid Data, continues to suffer from competition and the regulatory environment, partially offset by Fixed Data which is still booming up 7.7%. Adjusted operating income before depreciation and amortization (EBITDA) reached MAD 5,390 million, down by 9.9% from the first half of 2020. The adjusted EBITDA margin remains high at 55.1%. Adjusted earnings from operations (EBITA)(5) amounted to MAD 3,524 million, down 12.7% year on year due to the fall in EBITDA. The adjusted EBITA margin came to 36.1%. In the first six months of 2021, adjusted net cash flow from operations (CFFO)(6) in Morocco reached MAD 2,737 million, down by 35.7%, due to the EBITDA decrease and the acceleration in investments, which reached 13.3% of revenues. 13 Maroc Telecom • Financial Report HY 2021 13 2.1.1.1 Mobile Unit H1 2020 H1 2021 Change Customer base(8) (000) 19,572 19,633 0.3% Prepaid (000) 17,234 17,303 0.4% Postpaid (000) 2,338 2,329 0.4% Of which Internet 3G/4G+(9) ARPU(10) (000) (MAD/month) 11,764 55.1 10,979 48.8 6.7% 11.4% At 30 June 2021, the Mobile customer base(8) reached 19.6 million customers, up by 0.3% in one year driven by the prepaid customer base, which gained 1.7% over the second quarter. As a result of the combined effect of the fall in outgoing and incoming revenues, Mobile revenues lost 11.7% compared to the same period in 2020, reaching MAD 5,985 million. The decline in incoming revenues is mainly due to the decrease in national call terminations rates. The regulatory and competitive environment continues to weigh on outgoing services revenues, particularly in the prepaid data segment. The combined ARPU(10) was MAD 48.8 for the first six months of 2021, down by 11.4% compared with the same period in 2020. 2.1.1.2 Fixed-line and Internet Unit H1 2020 H1 2021 Change Fixed line (000) 1,979 1,999 1.0% High Speed Access(11) (000) 1,689 1,745 3.3% The Fixed-line customer base improved by 1.0% year-on-year and recorded nearly 2 million lines at the end of June 2021. The broadband customer base(11) grew by 3.3% to 1.7 million subscribers. Revenues from Fixed-line and Internet activities fell slightly by 0.5%. The 7.7% growth in Data revenues partially offset the decline in Voice. 14 Maroc Telecom • Financial Report HY 2021 14 2.1.2 INTERNATIONAL 2.1.2.1 Financial indicators (IFRS in MAD millions) Revenues Q2 2020 Q2 2021 Change 4,111 4,223 2.7% Change at constant exchange rates (1) 4.7% H1 2020 H1 2021 Change 8,318 8,515 2.4% Of which Mobile services 3,736 3,896 4.3% 6.2% 7,595 7,859 3.5% Adjusted EBITDA 1,800 1,882 4.5% 6.5% 3,623 3,771 4.1% Margin (%) 43.8% 44.6% 0.8 pt 0.8 pt 43.6% 44.3% 0.7 pt Adjusted EBITA 877 1,045 19.2% 21.5% 1,798 2,046 13.8% Margin (%) 21.3% 24.7% 3.4 pt 3.4 pt 21.6% 24.0% 2.4 pt CAPEX(2) 378 605 60.3% 61.1% 622 816 31.2% Of which frequencies and licences CAPEX/revenues (excluding frequencies and licences) Adjusted CFFO 0 9.2% 1,570 0 14.3% 1,281 5.1 pt 18.4% 5.0 pt 16.6% 0 7.5% 2,843 0 9.6% 2,741 2.1 pt 3.6% Net debt 8,206 5,986 27.1% 26.8% 8,206 5,986 27.1% Net debt/EBITDA(3) 1.1x 0.7x 1.1x 0.7x At the end of June 2021, the Group's international activities generated revenues of MAD 8,515 million, up by 2.4% (+2.5% at constant exchange rates(1)), thanks to the growth in Mobile Data (+15.4%) and Mobile Money services (+28.4%). In the first half of 2021, adjusted earnings from operations before depreciation and amortization (EBITDA) came to MAD 3,771 million, up by 4.1% (+4.2% at constant exchange rates(1)). The adjusted EBITDA margin amounted to 44.3%, i.e. a gain of 0.7 pt at constant exchange rates(1) due to the continuous improvement in the gross margin rate and control of operating expenses. Over the same period, adjusted earnings from operations (EBITA)(5) amounted to MAD 2,046 million, up by 13.8% (+14.1% at constant exchange rates(1)), thanks mainly to the increase in adjusted EBITDA and the decrease in depreciation and amortization charges. The adjusted EBITA margin reached 24.0%, up by 2.4 pt at constant exchange rates(1). Adjusted CFFO(6) from international activities was down by 3.4% at constant exchange rates(1) at MAD 2,741 million, mainly due to increased investments to upgrade infrastructure to support traffic and customer base growth. 15 Maroc Telecom • Financial Report HY 2021 15 Change at constant exchange rates (1) 2.5% 3.6% 4.2% 0.7 pt 14.1% 2.4 pt 31.2% 2.1 pt 3.4% 26.8% 2.1.2.2 Operational indicators Mobile Customer base(8) Mauritania Burkina Faso Gabon Mali Côte d’Ivoire Benin Togo Niger Central African Republic Chad Fixed Customer base Mauritania Burkina Faso Gabon Mali Fixed Broadband Customer base (11) Mauritania Burkina Faso Gabon Mali Unit H1 2020 (000) 44,721 2,400 8,930 1,413 7,909 9,231 4,339 3,108 2,979 184 4,227 (000) 330 58 75 23 175 (000) 126 18 14 20 75 16 H1 2021 Change 49,717 2,706 12.8% 9,954 11.5% 1,710 21.0% 9,341 18.1% 10,014 8.5% 4,893 12.8% 2,955 4.9% 3,078 3.3% 217 17.9% 4,849 14.7% 346 58 0.2% 76 1.3% 30 26.9% 183 4.7% 138 20 14.0% 15 7.6% 24 22.9% 78 4.6% Maroc Telecom • Financial Report HY 2021 16 Notes : (1) Constant MAD/Ouguiya/CFA Franc exchange rate. (2) Capital expenditure corresponds to acquisitions of property, plant and equipment and intangible assets recognised during the period. (3) The net debt/EBITDA ratio excludes the impact of IFRS 16. (4) Maroc Telecom consolidates in its financial statements Casanet and the Moov Africa subsidiaries in Mauritania, Burkina Faso, Gabon, Mali, Côte d’Ivoire, Benin, Togo, Niger, Central African Republic and Chad. (5) EBITA corresponds to operating profit before amortisation of intangible assets related to business combinations, impairment of goodwill and other intangible assets related to business combinations and other income and expenses related to financial investment transactions and transactions with shareholders (except when they are recognised directly in equity). (6) CFFO comprises the net cash flows from operating activities before taxes as presented in the cash flow statement, as well as dividends received from associates and non-consolidated equity interests. It also includes net capital expenditure, which corresponds to net cash outflows on acquisitions and disposals of property, plant and equipment and intangible assets. (7) Borrowings and other current and non-current liabilities less cash (and cash equivalents) including cash blocked for bank loans. (8) The active customer base consists of prepaid customers who have made or received a voice call (excluding calls from the public telecommunication network operator concerned or its Customer Relations Centres) or sent an SMS/MMS or who have used the Data services (excluding exchanges of technical data with the public telecommunication network operator concerned) in the past three months, and non-terminated postpaid customers. (9) The active customer base of the 3G and 4G+ Mobile Internet includes holders of a postpaid subscription contract (whether or not coupled with a voice offer) and holders of a prepaid subscription to the Internet service who have carried out at least one recharge during the past three months or whose credit is valid and who have used the service during this period. (10) ARPU (average revenues per user) is defined as revenues generated by incoming and outgoing calls and data services net of promotions, excluding roaming and equipment sales, divided by the average number of users in the period. This is the mixed ARPU of the prepaid and postpaid segments. (11) The broadband customer base includes ADSL, FTTH and leased connections and also includes CDMA in Mauritania, Burkina Faso and Mali. 17 Maroc Telecom • Financial Report HY 2021 17 Appendix 1: Transition from adjusted financial indicators to published financial indicators Adjusted EBITDA, adjusted EBITA, Group share of adjusted net income and adjusted CFFO are not strictly accounting measures and should be considered as additional information. They better illustrate the Group’s performance by excluding exceptional items. H1 2020 H1 2021 (in MAD millions) Morocco International Group Morocco International Adjusted EBITDA 5,980 3,623 9,603 5,390 3,771 Published EBITDA 5,980 3,623 9,603 5,390 3,771 Adjusted EBITA 4,037 1,798 5,836 3,524 2,046 Exceptional items: Restructuring costs 13 Published EBITA 4,037 1,798 5,836 3,524 2,033 Adjusted Net Income – Group share 3,006 Exceptional items: Restructuring costs Contribution to the COVID-19 fund 1,038 Published Net Income – Group share 1,969 Adjusted CFFO 4,256 2,843 7,099 2,737 2,741 Exceptional items: Payment of licence 107 107 25 Restructuring costs 13 ANRT fine 3,300 3,300 Published CFFO 956 2,736 3,692 2,737 2,703 Appendix 2: Impact of the IFRS 16 At the end of June 2021, the impacts of the application of IFRS 16 on the main consolidated aggregates of the Maroc Telecom Group were as follows: H1 2021 (in MAD millions) Morocco International Group Adjusted EBITDA 127 147 274 Adjusted EBITA 8 20 29 Adjusted net income – Group share 8 Adjusted CFFO 127 147 274 Net debt 789 655 1,444 18 Maroc Telecom • Financial Report HY 2021 18 Group 9,160 9,160 5,571 13 5,557 2,832 6 2,827 5,478 25 13 5,440 2.2 RELATED-PARTY TRANSACTIONS Under the terms of Article 95 et seq. of Moroccan Law No. 17-95 concerning Limited Liability Companies, as amended and supplemented by Law No. 20-05, Law No. 78-12 and Law No 20-19, any agreement between the Company and a member of the Management Board or of the Supervisory Board, or one of its shareholders directly or indirectly holding more than 5% of the Company's capital or voting rights, is subject to prior authorization by the Supervisory Board. The same applies to agreements in which any person referred to in the previous paragraph has an indirect interest or whereby any such person deals with the company through an intermediary. Also subject to the same authorization are agreements between the Company and an entity, if a member of the Company's Management Board or of the Supervisory Board is the owner, an indefinitely responsible associate, the manager, the director, the Chief Executive Officer, or a member of the Management Board or of the Supervisory Board, of the said entity. Accordingly, the regulated agreements signed in the first half of fiscal year 2021, and the agreements signed in previous years that continued in effect during the first half of fiscal year 2021, are presented below. These agreements are not, however, the only parent-subsidiary flows existing between Maroc Telecom and its subsidiaries. 2.2.1 REGULATED AGREEMENTS SIGNED IN THE FIRST HALF OF 2021 None. 2.2.2 AGREEMENTS CONCLUDED IN PREVIOUS FINANCIAL YEARS AND WHICH CONTINUED TO BE EXECUTED DURING THE FIRST HALF OF THE FINANCIAL YEAR 2021 Brand licensing agreements Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights connected with the “Moov” and “No Limit” trademarks belonging to the Etisalat Group as well as the Trademark Licensing Agreements associated with them for the subsidiaries cited above. Maroc Telecom is a majority shareholder of those entities, and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Technical support agreement Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016, with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights stemming from the Technical Assistance agreements by and between these companies and the Etisalat Group. Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Agreements for advances on current account Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016, with effect from January 1, 2016) and Atlantique Telecom Centrafrique. Maroc Telecom also acquired the Etisalat Group’s current accounts in these subsidiaries. 19 Maroc Telecom • Financial Report HY 2021 19 Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim BOUDAOUD is also a member of the joint management bodies. Technical services agreement with etisalat In May 2014, Maroc Telecom signed a Technical Services Agreement with Emirates Telecommunications Corporation (Etisalat) whereby the latter will provide to Maroc Telecom on request, directly or indirectly, technical support services, particularly in the following fields: digital media, insurance, financial rating. These services may be performed by expatriate personnel. Effective May 14, 2014, Etisalat became the reference shareholder of Maroc Telecom via SPT, and the members of the joint management bodies are Jassem Mohamed Bu Ataba Alzaabi, Mohammad Hadi AL HUSSAINI, Hatem DOWIDAR, Mohammed Saif AL SUWAIDI, Luis ENRIQUEZ and Kamal SHEHADI. Services agreement with Gabon Telecom In November 2016, Gabon Telecom signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Gabon Telecom and the member of the joint management bodies is Mr. Brahim BOUDAOUD. Services agreement with Sotelma In 2009, Sotelma signed an agreement with Maroc Telecom for the latter to provide it with technical support services. Maroc Telecom is the majority shareholder of Sotelma and the member of the joint management bodies is Mr. Abdelkader MAAMAR. Services agreement with Onatel In September 2007, Onatel signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Onatel. Services agreement with Mauritel In 2001, Mauritel SA signed an agreement with Maroc Telecom for the latter to provide it with work projects linked to services, to technical support and to the sale of equipment. Maroc Telecom is the majority shareholder of Mauritel SA and the member of the joint management bodies is Mr. Hassan RACHAD. 20 Maroc Telecom • Financial Report HY 2021 20 Agreement with Casanet Since fiscal year 2003, Maroc Telecom has entered into several agreements with its subsidiary Casanet, the purpose of which is, among other things, to maintain Maroc Telecom's Menara Internet portal in operational conditions, and to provide development and hosting services for Maroc Telecom's Mobile portal and Internet sites. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan RACHAD. Advance on current account – Casanet Maroc Telecom decided to transfer its business directory activity to its subsidiary Casanet. Accordingly, on December 4, 2007, the Supervisory Board authorized the Company to take on the necessary investment costs which would be financed by advances on a non-interest bearing current account. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan RACHAD. Agreement with the royal Moroccan Athletics Federation (Fédération Royale Marocaine d’Athlétisme / FRMA) The agreement between Maroc Telecom and FRMA, of which Mr. Abdeslam AHIZOUNE is also Chairman, expired in December 2018. At its meeting of December 7, 2018, the Supervisory Board renewed the agreement for a maximum period of three (3) years and a maximum amount of three million dirham (MAD 3,000,000) a year. Service agreement with MT Cash S.A. On July 22, 2020, Maroc Telecom's Supervisory Board authorized the conclusion of a service agreement with the subsidiary MT CASH S.A. Maroc Telecom is the majority shareholder of MT CASH and the joint management members are Messrs. Brahim BOUDAOUD, Hassan RACHAD, François VITTE and Abdelkader MAAMAR. 2.3 GROWTH OUTLOOK This section contains information regarding the Company’s objectives for fiscal-year 2021. The Company warns potential investors that these forward-looking statements are dependent on circumstances and events that are expected to occur in the future. These statements do not reflect historical Data and should not be considered as guarantees that the facts and Data mentioned will occur or that the objectives will be achieved. Because of their uncertain nature, these objectives may not be achieved, and the assumptions on which they are based may prove to be erroneous. Investors are encouraged to consider that some of the risks described in section 2.1 « Risks factors » the 2020 Universal Registration Document may affect the Company’s business and its ability to achieve its objectives. Based on recent market developments and provided that no new major exceptional event disrupts the group's business, Maroc Telecom maintains its outlook for 2021, on a like-for-like basis: Decrease in revenues; Decrease in EBITDA; CAPEX of maximum 15% of revenues, excluding frequencies and licences 21 Maroc Telecom • Financial Report HY 2021 21 22 Maroc Telecom • Financial Report HY 2021 22 3- FINANCIAL REPORT 3.1 CONSOLIDATED FINANCIAL DATA Maroc Telecom Group’s consolidated financial data is summarized in the following table. This selected financial data is drawn from the Group's consolidated financial statements prepared according to IFRS international standards (International Financial Reporting Standards), after a limited review by the statutory auditors : the firm Coopers Audit represented by Mr. Abdelaziz Almechatt and the firm Deloitte Maroc, represented by Mrs. Sakina Bensouda Korachi. CONSOLIDATED FINANCIAL DATA IN MOROCCAN DIRHAMS Balance sheet Assets (in millions of MAD) Noncurrent assets 12/31/2020 48,579 06/30/2021 46,577 Current assets 14,960 16,062 Total assets SHAREHOLDERS’ equity and liabilities (in millions of MAD) Share capital 63,540 12/31/2020 5,275 62,639 06/30/2021 5,275 Equity attributable to equity holders of the parents 12,721 11,813 Minority interests 3,968 3,662 Total shareholders' equity 16,688 15,476 Noncurrent liabilities 5,314 4,679 Current liabilities 41,538 42,484 Total shareholders' equity and liabilities 63,540 62,639 Income statement for the first-halves of 2021 et 2020 (In millions of MAD) Consolidates revenues Operating expenses Earnings from operations Earnings from continuing operations Earnings for the period Earnings attributable to equity holders of the parents Earnings per share (in MAD) Diluted earnings per share (in MAD) H1-2020 18,323 12,487 5,836 4,323 2,401 1,969 2.24 2.24 H1-2021 17,780 12,223 5,557 5,557 3,275 2,827 3.22 3.22 23 Maroc Telecom • Financial Report HY 2021 23 Scope of consolidation Mauritel Maroc Telecom holds 52% of the voting rights of Mauritel, the incumbent operator in Mauritania and operator of a fixed-line and Mobile telecommunications network, subsequent to the merger of Mauritel SA (fixed-line) and Mauritel Mobile. Mauritel S.A. is owned by the holding company Compagnie Mauritanienne de Communications (CMC), in which Maroc Telecom holds an 80% equity stake. Consequently, Maroc Telecom holds a 41.2% interest in Mauritania's incumbent operator. Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. Onatel On December 29, 2006, Maroc Telecom acquired 51% of the capital of the Burkinabe operator Onatel. The Group increases its stake in Onatel to 61% as of April 17, 2018. The subsidiary has been fully consolidated in Maroc Telecom's financial statements since January 1, 2007. Gabon Telecom On February 9, 2007, Maroc Telecom acquired 51% of the capital of Gabon Telecom. Gabon Telecom has been fully consolidated by Maroc Telecom since March 1, 2007. Gabon Telecom acquires, from Maroc Telecom, 100% of Atlantique Telecom Gabon capital. This was absorbed by Gabon Telecom on June 29, 2016. Sotelma On July 31, 2009, Maroc Telecom acquired a 51% stake in Mali’s incumbent operator, Sotelma. Sotelma has been fully consolidated by Maroc Telecom since August 1, 2009. Casanet Casanet is a Moroccan internet provider established in 1995. In 2008, it became a wholly-owned subsidiary of Maroc Telecom and expanded its field of operations by specializing in information engineering. Casanet has been fully consolidated by Maroc Telecom since January 1, 2011. Moov Africa Côte d'Ivoire On January 26, 2015, Maroc Telecom acquired an 85% stake in the capital of Ivoirian Mobile operator. Moov Africa Côte d’Ivoire has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Benin On January 26, 2015, Maroc Telecom acquired 100% of the capital of Benin's Mobile operator. Moov Africa Benin has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Togo On January 26, 2015, Maroc Telecom acquired a 95% stake in the capital of Togo's Mobile operator. Moov Africa Togo has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Niger On January 26, 2015, Maroc Telecom acquired 100% of the capital of Niger's Mobile operator. Moov Africa Niger has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. 24 Maroc Telecom • Financial Report HY 2021 24 Moov Africa Centrafrique On January 26, 2015, Maroc Telecom acquired 100% of the capital of the Central African Republic's Mobile operator. Moov Africa Centrafrique has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Moov Africa Chad On June 26, 2019, Maroc Telecom acquired 100% of the share capital of the Chadian operator Moov Africa Chad. Moov Africa Chad has been fully consolidated in Maroc Telecom's financial statements since July 1, 2019. Other nonconsolidated investments Investments whose significance in relation to the consolidated financial statements is not material or in which Maroc Telecom does not directly or indirectly exercise exclusive control, joint control or significant influence are not consolidated and are recorded under "Non-current financial assets". This is the case for MT Cash and MT Fly as well as minority interests held in RASCOM, Autoroutes du Maroc, Arabsat and other investments. At the end of June 2021, the MT Group is no longer a shareholder of Médi1 TV. The value of these shares has been derecognised. 25 Maroc Telecom • Financial Report HY 2021 25 3.2 INCOME STATEMENT AND FINANCIAL POSITION The following table sets out data regarding Maroc Telecom’s consolidated income statement for the first-halves of 2021 and 2020: (In millions of MAD) Revenues Cost of purchases Payroll costs Taxes and duties Other operating income and expenses Net depreciation, amortization and provisions Earnings from operations Other income and charges from ordinary activities Earnings from continuing operations Income from cash and cash equivalents Gross borrowings costs Net borrowing costs Other financial income (expense) Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities Other income and expenses Total comprehensive income for the period Net earnings Attributable to equity holders of the parents Minority interests Total comprehensive income for the period Attributable to equity holders of the parents Minority interests Note 7 6 H1-2020 18,323 -2,699 -1,464 -1,616 -5,949 -759 5,836 -1,513 4,323 7 -423 -416 -16 -432 -1,490 2,401 138 -2 2,537 2,401 1,969 432 2,537 2,062 475 H1-2021 17,780 -2,562 -1,524 -1,688 -2,640 -3,809 5,557 0 5,557 6 -397 -391 -65 -456 -1,826 3,275 -275 53 3,053 3,275 2,827 448 3,053 2,693 359 EARNINGS PER SHARE H1-2021 Net earnings - group share (in millions of MAD) 2,827 Numbers of shares at June 30 879,095,340 Earnings per share (in MAD) 3.22 Diluted earnings per share (in MAD) 3.22 * The amount shown under "Other income and expenses from ordinary activities" in 2020 corresponds to the Group's Covid19 donations. H1-2020 1,969 879,095,340 2.24 2.24 The analysis below presents the various items in Maroc Telecom's consolidated income statement and details their changes over the periods considered. 26 Maroc Telecom • Financial Report HY 2021 26 COMPARAISON OF THE FIRST-HALVES OF 2021 and 2020 Revenues The following table shows the breakdown of revenues for the first-halves of 2021 and 2020. (In millions of MAD) Morocco o/w Mobile services H1-2020 H1-2021 10,524 9,774 5,766 6,637 International o/w Mobile services 8,318 8,515 7,859 7,595 Eliminations Total consolidated revenues 518 18,323 509 17,780 At the end of June 2021, Maroc Telecom's consolidated revenues amounted to MAD17,780 million, down 3.0% due to the decrease in Mobile revenues in Morocco. Operating expenses The table below shows Maroc Telecom’s operating expenses for the first six-month periods of 2021 and 2020. (In millions of MAD) Revenues Cost of purchases % of revenues Payroll costs % of revenues Taxes and duties % of revenues Other operating income (expenses)* % of revenues Net depreciation, amortization, impairment and provisions** % of revenues Total operating expenses % of revenues * The amount for H1 2020 includes the cost of the ANRT's fine, which amounts to MAD3,300 million. ** The H1 2020 amount includes the reversal of the provision for the ANRT fine that was recognised in the MT Group's accounts in 2019. H1-2020 H1-2021 18,323 2,699 14.7% 1,464 8.0% 1,616 8.8% 5,949 32.5% 759 4.1% 12,487 17,780 2,562 14.4% 1,524 8.6% 1,688 9.5% 2,640 14.8% 3,809 21.4% 12,223 68.1% 68.7% Cost of purchases Between the first half of 2020 and the first half of 2021, the Group's purchases decreased by 5.1% due mainly to lower traffic. Personnel expenses In the first half of 2021, the Group's personnel expenses are up by 4.1% compared to the first half of 2020. This increase is partely linked to the voluntary departure plan of the Onatel subsidiary. 27 Maroc Telecom • Financial Report HY 2021 27 Taxes and duties Taxes and duties amounted to MAD1,688 million, up 4.4% compared to 2020. The increase affected international subsidiaries and was mainly due to higher contributions paid to regulatory authorities in certain countries. Other operating income and expenses Other operating income and expenses decreased from MAD 5,949 million in H1 2020 to MAD 2,640 million in H1 2021, 2020 including the impact of the ANRT fine in Morocco (MAD 3.3 billion). Operating profit The Group's consolidated operating profit at 30 June 2021 was 5,557, up 29% on the first half of 2020. Net financial income In the first half of 2021, the financial result is almost stable. However, the cost of net financial debt decreased by 25 million thanks to the debt control efforts made by the Group's entities. Tax expense The tax charge is down 7% on a like-for-like basis* compared to the first half of 2020 in line with the lower pre- tax profit in the first half of 2021. Net income At the end of June 2021, the Group recorded net income of MAD 3,275 million, up 36% compared to the first half of 2020, which was impacted by the Covid19 donation paid by the Group. Noncontrolling interests Minority interests, reflecting the rights of shareholders other than Maroc Telecom in the earnings of consolidated entities, amounted to MAD448 million in first-half 2021, compared with MAD432 million in first- half 2020. Net income (Group share) At the end of June 2021, the Group's share of net income amounted to MAD 2,827 million. Net earnings per share Earnings per share reached MAD 3.22 in the first half of 2021, compared with MAD 2.24 in the first half of 2020 (impacted by the Covid19 contribution), i.e. a 44% increase. Cash and cash equivalents The Group's main resource is the cash generated by its operations. Comparable basis means the cancellation of the impact of exceptional items in 2020, i.e. the ANRT fine and the Covid19 donation. 28 Maroc Telecom • Financial Report HY 2021 28 Cash flows The following table summarizes Maroc Telecom’s consolidated cash flow for the specific periods. (In millions of MAD) Net cash from operating activities (a) Net cash used in investing activities (b) Net cash used in financing activities (c) Foreign currency translation adjustments (d) Change in cash and cash equivalents (a)+(b)+(c)+(d) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period H1-2020 2,248 -2,397 894 42 788 H1-2021 6,279 -2,745 -3,680 -69 -215 1,483 2,690 2,271 2,475 Net cash flow from operating activities At June 30, 2021, net cash provided by operating activities amounted to MAD6,279 million, compared with MAD7,060 million on a comparable basis* at June 30, 2020, in line with the economic crisis. Net cash flow from investing activities Net cash used in investing activities increased as a result of the acceleration of CAPEX projects encouraged by the easing of containment measures. Net cash flow from financing activities At June 30, 2021, net cash flows from financing activities decreased by MAD 4,574 million due to payments of financial debts especially in Morocco. Tangible and intangible fixed assets The table below sets out fixed assets acquired by Maroc Telecom Group by geographical area in the relevant periods. (In millions of MAD) Morocco International Total H1-2020 H1-2021 564 1,299 622 816 1,186 2,115 Investments in Morocco Investments in Morocco recorded a 130% growth at the end of June 2021, from MAD 564 million to MAD 1,299 million, 2020 impacted by the restrictive measures related to Covid19 (Containment and closure of borders). In 2021, the pace of investment in Morocco is more sustained as the country's pandemic situation improves. Comparable basis means the cancellation of the impact of exceptional items in 2020, i.e. the ANRT fine and the Covid19 donation. 29 Maroc Telecom • Financial Report HY 2021 29 International investments Investments made by the Group's subsidiaries in the first half of 2021 increased by 31% compared to the first half of 2020. MT Group is continuing to deploy its international investment policy in order to achieve broader coverage and better quality of service. Financial resources In the first half of 2021, Maroc Telecom's net debt amounted to MAD14,908 million compared with MAD17,619 million at end-December 2020, down by 20%. (In millions of MAD) Outstanding debt and accrued interests (a) Cash*(b) Cash held for repayment of bank loans (c) Net debt (a) - (b) - (c) * Marketable securities are considered as cash equivalents when their investment period does not exceed three months 12/31/2020 06/30/2021 20,360 17,400 2,690 2,475 50 17 17,619 14,908 30 Maroc Telecom • Financial Report HY 2021 30 3.3 CONSOLIDATES FINANCIAL STATEMENTS AND NOTES Consolidated statement of financial position at June 30, 2021 and at December 31, 2020 ASSETS (in millions of MAD) Goodwill Other intangible assets Property, plant and equipment Right to use the asset Noncurrent financial assets Deferred tax assets Noncurrent assets Inventories Trade accounts receivable and other Short-term financial assets Cash and cash equivalents Assets available for sale Note 4 12/31/2020 06/30/2021 9,315 9,135 8,120 7,657 28,319 27,103 1,592 1,460 654 640 580 583 48,579 46,577 322 13,083 128 2,475 54 14,960 16,062 271 11,816 130 2,690 54 Current assets TOTAL ASSETS 63,540 62,639 SHAREHOLDERS’ EQUITY AND LIABILITIES (in millions of MAD) 12/31/2020 06/30/2021 Share capital Retained earnings Net earnings Equity attributable to equity holders of the parents Minority interests Total shareholders' equity Noncurrent provisions Borrowings and other long-term financial liabilities 4 5,275 5,275 2,023 3,712 5,423 2,827 12,721 11,813 3,968 3,662 16,688 15,476 521 520 4,748 4,114 45 45 Deferred tax liabilities Other noncurrent liabilities Noncurrent liabilities Trade accounts payable Current tax liabilities Current provisions Borrowings and other short-term financial liabilities Current liabilities 5,314 4,679 24,007 27,203 671 708 1,247 1,286 15,612 13,286 41,538 42,484 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 63,540 62,639 31 Maroc Telecom • Financial Report HY 2021 31 Statement of comprehensive income for the six-month period ended June 30, 2021 (In millions of MAD) Revenues Cost of purchases Payroll costs Taxes and duties Other operating income and expenses Net depreciation, amortization and provisions Earnings from operations Other income and charges from ordinary activities Earnings from continuing operations Income from cash and cash equivalents Gross borrowings costs Net borrowing costs Other financial income (expense) Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities Other income and expenses Total comprehensive income for the period Net earnings Attributable to equity holders of the parents Minority interests Total comprehensive income for the period Attributable to equity holders of the parents Minority interests Note 7 6 H1-2020 18,323 -2,699 -1,464 -1,616 -5,949 -759 5,836 -1,513 4,323 7 -423 -416 -16 -432 -1,490 2,401 138 -2 2,537 2,401 1,969 432 2,537 2,062 475 H1-2021 17,780 -2,562 -1,524 -1,688 -2,640 -3,809 5,557 0 5,557 6 -397 -391 -65 -456 -1,826 3,275 -275 53 3,053 3,275 2,827 448 3,053 2,693 359 EARNINGS PER SHARE Net earnings - group share (in millions of MAD) Numbers of shares at June 30 Earnings per share (in MAD) Diluted earnings per share (in MAD) H1-2020 1,969 879,095,340 2.24 2.24 H1-2021 2,827 879,095,340 3.22 3.22 Corresponds to the Group's Covid19 donations 32 Maroc Telecom • Financial Report HY 2021 32 Consolidated statement of cash flows for the first half of 2021 and 2020 (In millions of MAD) Earnings from operations Depreciations, depreciation and other adjustments Gross cash from operating activities Other changes in net working capital Net cash from operating activities before taxes Tax paid Net cash from operating activities (a) Purchase of PP&E and intangible assets Increase in financial assets Disposals of PP&E and intangible assets Decrease in financial assets Dividends received from nonconsolidated investments Net cash used in investing activities (b) Capital increase Dividends paid to shareholders Dividends paid by subsidiaries to their noncontrolling interests Changes in equity Borrowings and increase in other long-term financial liabilities Borrowings and increase in other long-term financial liabilities Changes in net current accounts Changes in current accounts receivable/financial creditors Net interests paid (Cash only) Other cash expenses (income) used in financing activities Changes in borrowings and other financial liabilities Net cash used in financing activities (d) Effect of foreign currency adjustments (g) Total cash flows (a+b+d+g) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Note 3 33 Maroc Telecom • Financial Report HY 2021 33 H1-2020 5,836 -759 5,077 -616 4,461 -2,213 2,248 -2,287 -157 6 41 0 -2,397 0 -431 -431 2,449 680 392 -52 1,326 894 42 788 1,483 2,271 H1-2021 5,557 3,806 9,364 -1,192 8,172 -1,893 6,279 -2,735 -24 3 1 11 -2,745 0 -330 -330 361 3,156 477 -78 -3,349 -3,680 -69 -215 2,690 2,475 Statement of changes in consolidated equity at June 30, 2021 and December 31, 2020 (in MAD million)Share capitalOther comprehensive incomeOther comprehensive incomeTotal Group shareNon controling interestTotal capitaux propresPosition at January 1, 2021 5,275 7,222 -428 12,069 3,934 16,003Total comprehensive income for the period1,969932,0624752,537Change in gains and losses recognized directly in equity and recyclable in profit or loss 959544138Gains and losses on translation959544138Change in gains and losses recognized directly in equity and recyclable in profit or loss -2-20-2Actuarial differences00 Revaluation differences00 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments-2-20-2 Capital increase00 Capital decrease00 Share-based compensation00 Change in interest shares without takeover/loss of control00 Change in interest shares with gain/loss of control00 Dividends-4,870-4,870-867-5,737 Treasury stock999Other adjustements 6605 Position at June 30, 2020 5,275 4,335 -335 9,275 3,542 12,817Total comprehensive income for the period3,454-53,4494233,872Change in gains and losses recognized directly in equity and recyclable in profit or loss 055-9-4 Revaluation differences55-9-4Change in gains and losses recognized directly in equity and recyclable in profit or loss -10-10-10Actuarial differences-1-1-1 Revaluation differences-11-11-11 Revaluation differences on hedging instruments0-2-2 Revaluation differences on equity instruments22-20 Capital increase000 Capital decrease00 Share-based compensation00 Change in ownership interest without gain/loss of control00 Change in ownership interest with gain/loss of control00Dividends0023Treasury stock-9-9-9Other adjustements 5505 Position at December 31, 2020 5,275 7,786 -340 12,721 3,968 16,688 Total comprehensive income for the period2,827-13426933593,053Change in gains and losses recognized directly in equity and recyclable in profit or loss 00 Revaluation differences-186-186-89-275Change in gains and losses recognized directly in equity and recyclable in profit or loss 00Actuarial differences00 Revaluation differences00 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments5353053 Capital increase00 Capital decrease00 Share-based compensation00 Change in ownership interest without gain/loss of control00 Change in ownership interest with gain/loss of control00Dividends-3,525-3525-665-4,190Treasury stock-8-8-8Other adjustements -68-68-68 Position at June 30, 2021 5,275 7,012 -474 11,813 3,662 15,476 34 Maroc Telecom • Financial Report HY 2021 34 At June 30, 2021, Maroc Telecom’s share capital comprised 879,095,340 ordinary shares. Ownership of the shares was as follows: SPT*: 53%; - Kingdom of Morocco: 22%; - Other: 25%. SPT is a Moroccan company controlled by Etisalat. 35 Maroc Telecom • Financial Report HY 2021 35 Note 1. Accounting principles and valuation methods The highlights of the semester are described on page 4 and 5 of this financial report. 1.1 HIGHLIGHTS The Group’s customer base grew by 7.5% to nearly 74 million customers; Almost stable consolidated revenues (-0.8% at constant exchange rates*) in the second quarter of 2021; Group EBITDA margin held at a high level of 51.5%; Strong performance of the Moov Africa subsidiaries, whose revenues increased by 4.7% at constant exchange rates* in the second quarter of 2021; Sustained growth in Fixed Line broadband in Morocco (+7.7%); Net income - Group share up +43.6% (-5.8% on a like-for-like basis and including adjustments); Acceleration of the Group’s investments, focused on strengthening Fixed and Mobile networks infrastructures and improving quality of service; Net debt down 20.0% at constant exchange rates* to the low level of 0.8x EBITDA. 1.2 ACCOUNTING PRINCIPLES AND VALUATION METHODS The accounting principles used to prepare the interim consolidated financial statements for the six months ended 30 June 2021 are identical to those used for the year ended 31 December 2020, in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union as of today. The interim consolidated financial statements at June 30, 2021 have been prepared in accordance with IAS 34 "Interim Financial Reporting", which permits the presentation of selected explanatory notes. These consolidated financial statements should be read in conjunction with the 2020 consolidated financial statements. The interim consolidated financial statements at June 30, 2021, together with the notes thereto, were approved by Maroc Telecom's Executive Board on July 16, 2021. At constant exchange rate MAD/Ouguiya/Franc CFA 36 Maroc Telecom • Financial Report HY 2021 36 Note 2. Scope of consolidation at June 30, 2021 and December 31, 2020 Company Maroc Telecom Avenue Annakhil Hay Riad Rabat-Maroc Legal form SA % Group interest 100% % Capital held 100% Consolidation method FC Compagnie Mauritanienne de Communication (CMC) SA 30 June 2021 31 december 2020 563, Avenue Roi Fayçal Nouakchott-Mauritanie Mauritel SA 30-juin-21 31-déc-20 Avenue Roi Fayçal Nouakchott-Mauritanie Onatel 30 June 2021 31 december 2020 705, AV. de la nation 01 BP10000 Ouagadougou – Burkina Faso Gabon Telecom 30 June 2021 31 december 2020 Immeuble 9 étages, BP 40 000 Libreville-Gabon Sotelma 30 June 2021 31 december 2020 SA SA SA SA 80% 80% 41% 41% 61% 61% 51% 51% 80% 80% 52% 52% 61% 61% 51% 51% FC FC FC FC FC FC FC FC 51% 51% 51% 51% FC FC ACI 2000 près du palais de sport BP-740 – Bamako, Mali Casanet 30 June 2021 31 december 2020 SA 100% 100% 100% 100% FC FC Imm Riad 1, RDC, Avenue Annakhil Hay Riad Rabat-Maroc Moov Africa Côte d'Ivoire 30 June 2021 31 december 2020 Plateau, Immeuble KARRAT, Avenue Botreau Roussel – Abidjan – Côte d’Ivoire Moov Africa Bénin 30 June 2021 31 december 2020 Ilot 553, quartier Zongo Ehuzu, zone résidentielle, avenue Jean Paul 2, immeuble Etisalat, Cotonou - Bénin Moov Africa Togo 30 June 2021 31 december 2020 Boulevard de la Paix, Route de l’Aviation, Immeuble Moov- Etisalat – Lomé - Togo Moov Africa Niger 30 June 2021 31 december 2020 720 Boulevard du 15 avril Zone Industrielle, BP 13 379, Niamey-Niger Moov Africa Centrafrique 30 June 2021 31 december 2020 Bangui, BP 2439, PK 0, Place de la République, Immeuble SOCIM, rez-de-chaussée, Bangui-Centrafrique Moov Africa Chad 30 June 2021 31 december 2020 N'Djamena, BP 6505, Avenue Charles DE GAULLE, N’Djamena-Chad SA SA SA SA SA SA 85% 85% 100% 100% 95% 95% 100% 100% 100% 100% 100% 100% 85% 85% 100% 100% 95% 95% 100% 100% 100% 100% 100% 100% FC FC FC FC FC FC FC FC FC FC FC FC 37 Maroc Telecom • Financial Report HY 2021 37 Note 3. Dividends (In millions of MAD) Dividends received from equity affiliates to their minority shareholder (a) Total (a) Dividends distributed by Maroc Telecom to its shareholders (b) Kingdom of Morocco Etisalat Others Total (b) Total dividends distributed (a) + (b) H1-2020 H1-2021 867 665 1,461 2,581 828 776 1,868 881 4,870 3,525 5,737 4,190 At June 30, 2021, Maroc Telecom had not yet paid any dividends, which totaled MAD3,525 million and were classified as current liabilities. Dividends paid by subsidiaries to their minority shareholders amounted to MAD665 million. Note 4. Borrowings and other financial liabilities at June 30, 2021 and December 31, 2020 (In millions of MAD) Borrowings due less than one year Rental obligation at +1 year Borrowings due more than one year Rental obligation at -1 year Facilities and overdrafts Borrowings and financial liabilities Cash Blocked cash Net debt 12/31/2020 3,553 3,056 1,195 1,058 2,352 2,403 444 386 12,816 10,498 20,360 17,400 2,690 2,475 50 17 14,908 17,619 06/30/2021 Maroc Telecom's net debt fell from MAD17,619 million at December 31, 2020 to MAD14,908 million at June 30, 2021. MAD14,908 million at June 30, 2021 due to the repayment of bank loans. 38 Maroc Telecom • Financial Report HY 2021 38 4.1. BREAKDOWN OF NET DEBT BY MATURITY Half year ended June 30, 2021 (In millions of MAD) Due less than 1 year 1 to 5 years Due more than 5 years TOTAL Borrowings 2,403 2,699 356 5,458 Rental obligation 386 797 261 1,444 Facilities and overdrafts 10,498 10,498 Borrowings and financial liabilities 13,286 3,497 617 17,400 Cash 2,475 2,475 Blocked cash 17 17 Net debt 10,794 3,497 617 14,908 Full December 31, 2020 (In millions of MAD) Due less than 1 year 1 to 5 years Due more than 5 years TOTAL Borrowings 2,352 3,129 424 5,905 Rental obligation 444 952 243 1,639 Facilities and overdrafts 12,816 12,816 Borrowings and financial liabilities 15,612 4,081 667 20,360 Cash 2,690 2,690 Blocked cash 50 50 Net debt 12,871 4,081 667 17,619 The breakdown by maturity is made on the basis of contractual maturities for debts and on the basis of the enforceable term for rental obligations. 4.2 BORROWING AND OTHER FINANCIAL LIABILITIES BY GEOGRAFICAL AREA (In millions of MAD) Morocco International Borrowings and other financial liabilities 12/31/2020 06/30/2021 11,888 10,041 8,471 7,359 20,360 17,400 39 Maroc Telecom • Financial Report HY 2021 39 Note 5. Restructuring expenses at June 30, 2021 and December 31, 2020 None. Note 6. Income tax payable for the first half of 2021 and 2020 (In millions of MAD) Income tax Deferred taxes Tax provisions Current tax Consolidated effective tax rate * H1-2020 H1-2021 1,495 1,840 5 13 1,490 1,826 38.3% 35.8% Income taxes / income before taxes The tax charge at 30 June 2021 was down 7% on a comparable basis* compared to the first half of 2020. This change is linked to the decrease in pre-tax earnings impacted by the health crisis and economic context. The effective tax rate was 35.8% in the first half of 2021. Note 7. Segment data for the first six-month periods of 2021 and 2020 Segment earnings by geographical area First half of 2021 (In millions MAD) Revenues Earnings from operations Net depreciation and impairment of assets Volantary redundancy plan Morocco International 9,774 8,515 3,524 2,033 2,004 1,804 13 Eliminations -509 Total 17,780 5,557 3,809 13 First half of 2020 (In millions MAD) Revenues Earnings from operations Net depreciation and impairment of assets** Volantary redundancy plan *Comparable basis means the cancellation of the impact of exceptional items in 2020, i.e. the ANRT fine and the Covid19 donation. Morocco International Eliminations -518 10,524 8,318 4,038 1,798 1,887 1,129 Total 18,323 5,836 759 ** Net provisions for H1 2020 in Morocco include the impact of the reversal of the ANRT fine provision that was recognised in the MT Group's accounts in 2019. 40 Maroc Telecom • Financial Report HY 2021 40 Note 8. Contractual commitments and contingent assets and liabilities 8.1. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS RECORDED IN THE BALANCE SHEET Half year ended June 30, 2021 (In millions of MAD) Total < 1 year 1 to 5 years > 5 years Long-term debts Capital lease obligations Operating leases * Irrevocable purchase obligations Other long-term commitments Total * Leases that do not fall within the scope of the new IFRS 16 standard. 4,114 - 32 32 - - 4,146 32 3,497 617 3,497 617 8.2. CONTINGENT LIABILITIES None. 8.3. OTHER COMMITMENT GIVEN AND RECEIVED IN THE COURSE OF ORDINARY BUSINESS (In millions of MAD) 12/31/2020 06/30/2021 Commitments given 6,272 5,692 Investment commitment 5,590 4,966 Downstream commitments and signature with banks 451 551 Operating and financing lease commitments 55 32 Satellite rental commitments 104 87 Other commitments 72 56 Network maintenance contracts with Ericsson 46 44 Commitments on operating expenses 26 12 Other commitments 0 0 Recovery of guarantees given by Etisalat on the financing of the Atlantic subsidiaries 0 0 Forward sale commitment 0 0 (In millions of MAD) 12/31/2020 06/30/2021 Commitments received 1,286 1,209 Guarantees and endorsements 1,286 1,209 Other commitments received Forward purchase commitment Commitment of the Moroccan State to contribute the assets of social works Investment agreement: exemption from customs duties on imports related to investments 41 Maroc Telecom • Financial Report HY 2021 41 Investment commitments have decreased in view of the level of investment realizations. Commitments by guarantee and signature with banks increased mainly due to documentary credits related to the acquisition of technical facilities and equipment and letters of credit related to ongoing projects. Note 9. Subsequent events None. Note 10. IFRS 16 10.1- ASSET-CLASS-BASED USAGE RIGHTS AT JUNE 30, 2021: (In millions MAD) Carrying value Asset entry Depreciation/Amortization Land Buildings Technical facilities Transportation equipment Office equipment Other assets 579 366 403 111 48 32 47 4 89 61 69 26 Total 1,460 131 246 10.2- IMPACT OF LEASE OBLIGATIONS : H1-2021 Interest expense Lease-related payments 41 349 10.3- OCCUPANCY EXPENSES OUTSIDE THE SCOPE OF IFRS 16 : H1-2021 Leases with term ≤12 months 193 Leases with low underlying asset value 1 Leases with variable payments Leases with no presumed control of occupancy right Total 193 42 Maroc Telecom • Financial Report HY 2021 42 3.4 STATUTORY FINANCIAL STATEMENTS PREVIOUSASSETSEXERCICE(In MAD thousand)GrossNETNET 12/31/2020CAPITALIZED COSTS (A)1,500,000450,0001,050,0001,200,000.Start-up costs0000.Deferred costs1,500,000450,0001,050,0001,200,000.Bond redemption premiums0000INTANGIBLE ASSETS (B)12,272,97110,196,3542,076,6172,080,595.Research and development costs0000.Patents, trademarks, and similar rights11,911,96110,125,9071,786,0541,885,946.Goodwill70,44770,4470119.Other intangible assets290,5630290,563194,531PROPERTY, PLANT, AND EQUIPMENT (C)72,902,60357,609,17515,293,42815,738,026.Land955,3830955,383955,383.Buildings8,165,8345,453,2532,712,5812,771,028.Technical plant, machinery, and equipment56,711,15147,242,8049,468,34810,367,432.Vehicles279,23792,242186,995195,441.Office equipment, furniture, and fittings4,970,2044,612,553357,650404,395.Other property, plant, and equipment11,048011,04811,048.Work in progress1,809,747208,3231,601,4241,033,300FINANCIAL ASSETS (D)12,800,22332,29812,767,92512,215,950.Long-term loans 871,3280871,328649,437.Other financial receivables4,19004,1904,084.Equity investments11,924,70532,29811,892,40611,562,429.Other investments and securities0000UNREALISED FOREIGN EXCHANGE LOSSES (E) 22,983022,9831,378.Decrease in long-term receivables22,983022,9831,378.Increase in long-term debt0000TOTAL I (A+B+C+D+E) 99,498,78068,287,82731,210,95331,235,949INVENTORIES (F)251,529109,745141,784100,865.Merchandise192,74695,94796,79846,893.Raw materials and supplies58,78413,79744,98653,971.Work in progress0000.Intermediary and residual goods0000.Finished goods0000CURRENT RECEIVABLES (G)17,288,0838,792,4668,495,6177,783,775.Trade payables, advances and deposits31,089031,08911,046.Accounts receivable and related accounts15,198,6278,469,1456,729,4826,271,041.Employees3,70203,7023,771.Tax receivable613,6430613,643560,205.Shareholders’ current accounts0000.Other receivables1,159,278323,322835,957912,969.Accruals281,7430281,74324,743MARKETABLE SECURITIES (H)131,4510131,451131,611UNREALIZED FOREIGN EXCHANGE LOSSES (I)(current items)62,740062,74035,510 TOTAL II (F+G+H+I) 17,733,8048,902,2118,831,5938,051,761CASH AND CASH EQUIVALENTS148,5870148,587554,212.Checks0000.Bank deposits145,8920145,892551,555.Petty cash2,69402,6942,657TOTAL III 148,5870148,587554,212TOTAL GENERAL I+II+III 117,381,17077,190,03840,191,13239,841,922Amortization and provisions At 06/30/2021 43 Maroc Telecom • Financial Report HY 2021 43 SHAREHOLDERS’ EQUITY AND LIABILITIESEXERCICEEXERCICE(In MAD thousand)NET 12/31/2020SHAREHOLDERS' EQUITY (A)14,114,83514,603,256 Share capital 5,274,5725,274,572 Less: capital subscribed and not paid-in00 Paid-in capital00 Additional paid-in capital00 Revaluation difference00 Statutory reserve527,457527,457 Other reserves5,276,0552,552,808 Retained earnings 00 Unallocated income 00 Net income of the year 3,036,7516,248,419QUASI-EQUITY (B)00 Investment subsidies00 Regulated provisions00DEBENTURE BONDS (C)6,8746,874 Debenture bonds00 Other long-term debt6,8746,874PROVISIONS (D)36,31414,710 Provisions for contingencies22,9831,378 Provisions for losses13,33213,332UNREALIZED FOREIGN EXCHANGE GAINS (E)2413,784 Increase in long-term receivables2413,784 Decrease in long-term debt00TOTAL I (A+B+C+D+E) 14,158,26414,628,624CURRENT LIABILITIES (F)15,680,81413,026,067 Accounts payable and related accounts 6,219,1166,700,916 Trade receivables, advances and down payments59,58882,047 Payroll costs955,5981,050,832 Social security contributions85,51385,582 Tax payable3,079,4152,912,001 Shareholders’ current accounts3,408,8431 Other payables211,942430,523 Accruals1,660,7991,764,165OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 1,090,8891,055,726UNREALIZED FOREIGN EXCHANGE GAINS (Current items) (H)85,65480,725Total II (F+G+H) 16,857,35714,162,517BANK OVERDRAFTS9,175,51111,050,780 Discounted bills00 Treasury loans00 Bank loans and overdrafts9,175,51111,050,780Total III 9,175,51111,050,780TOTAL GENERAL I+II+III40,191,13239,841,922 44 Maroc Telecom • Financial Report HY 2021 44 TOTAL OF THETOTAL AT(In MAD thousand)Specific to the yearPrevious exerciceYEAR06/30/2020I- OPERATING INCOME9,738,53709,738,53710,462,497Sales of goods190,6030190,603236,501Sales of manufactured goods and services rendered9,290,20309,290,2039,945,947Operating revenues9,480,80609,480,80610,182,448Change in inventories000Company-constructed assets 000Operating subsidies000Other operating income16,179016,17915,229Operating write-backs: expense transfers241,5520241,552264,819TOTAL I9,738,53709,738,53710,462,497II- OPERATING EXPENSES6,321,43806,321,4386,539,657Cost of goods sold317,8170317,817283,042Raw materials and supplies1,513,50301,513,5031,566,885Other external expenses1,250,54801,250,5481,277,213Taxes (except corporate income tax)130,3530130,353122,186Payroll, costs1,069,54601,069,5461,026,235Other operating expenses2,23302,2332,540Operating allowances for amortization1,675,14401,675,1441,750,998Operating allowances for provisions362,2940362,294510,558TOTAL II6,321,43806,321,4386,539,657III- OPERATING INCOME I-II3,417,10003,417,1003,922,839IV- FINANCIAL INCOME1,422,01601,422,0161,209,790Income from equity investments and other financial investments966,4900966,490942,932and other financial investments- Foreign exchange gains218,8930218,893133,477Interest and other financial income38,970038,97060,578Financial write - backs: expense transfers197,6640197,66472,803TOTAL IV1,422,01601,422,0161,209,790V- FINANCIAL EXPENSES399,1550399,155350,650Interest and loans 165,0650165,065168,188Foreign exchange losses137,3260137,326128,626Other financial expenses 11,041011,041824Financial allowances85,723085,72353,012TOTAL V399,1550399,155350,650VI- FINANCIAL INCOME IV - V1,022,86101,022,861859,140VII- ORDINARY INCOME III + VI 4,439,96104,439,9614,781,979VIII- EXTRAORDINARY INCOME 88,433088,4333,446,388Proceeds from disposal of fixed assets 2,08902,089116Subsidies received0000Write-backs of investment subsidies0000Other extraordinary income29,885029,88544,915Extraordinary write-backs: expense transfers 56,460056,4603,401,357TOTAL VIII88,433088,4333,446,388IX- EXTRAORDINARY EXPENSES 531,3450531,3455,023,128Net book value of disposed assets169,7520169,75290Subsidies granted 0000Other extraordinary expenses136,9400136,9404,901,907Regulated provisions 0000Extraordinary allowances for depreciation and provisions 224,6540224,654121,132TOTAL IX531,3450531,3455,023,128X- NON-CURRENT INCOME VIII - IX-442,9120-442,912-1,576,740XI- PRE-TAX INCOME VII + X3,997,04903,997,0493,205,239XII- CORPORATE INCOME TAX960,2990960,299724,511XIII- NET INCOME XI - XII3,036,75103,036,7512,480,728XIV- TOTAL REVENUES ( I+IV+VIII)11,248,987011,248,98715,118,674XV- TOTAL EXPENSES ( II+V+IX+XII)8,212,23608,212,23612,637,946XVI- NET INCOME (total income - total expenses)3,036,75103,036,7512,480,728OPERATIONS 45 Maroc Telecom • Financial Report HY 2021 45 The presentation guidelines and valuation methods used in preparing these documents comply with the rules and regulations in force. The table below summarizes the trends of the main financial indicators of Maroc Telecom over the last three halfs year: In MAD million H1 2019 H1 2020 H1 2021 Change 21/20 Revenues 10,323 10,182 9,481 6.9% Operating income 3,987 3,923 3,417 12.9% Financial income 982 859 1,023 19.1% Income tax expense 1,234 725 960 +32.5% Non-current income 25 1,577 443 +71.9% Net income 3,761 2,481 3,037 +22.4% Investments 820 508 1,245 145.2% Key elements of the income statement Revenues Maroc Telecom's revenues for the first half of 2021 amounted to MAD9.481 billion, down 6.9% compared to the first half of 2020. Operating income and net income Earnings from operations fell from MAD 3.923 billion to MAD 3.417 billion, down 12.9% compared to the first half of 2020. This variation is mainly due to the decrease in revenues. Financial income rose by 19.1% to MAD 1,023 million compared to MAD 859 million in the first half of 2020. This evolution is mainly due to the reversal of the provision for depreciation of Medi1 Sat shares. Non-current income for the first half of 2021 amounted to MAD -443 million compared with MAD -1,577 million for the first half of 2020. This change is mainly due to the recognition of the full amount of Itissalat Al-Maghrib's contribution to the Covid 19 special fund in the first half of 2020. This donation was spread as a deferred charge over several years at the end of 2020 in accordance with the provisions of Article 247 bis of the Amending Finance Act 2020. Thus, with the deferral of Itissalat Al-Maghrib's contribution to the Covid fund, non-current earnings at June 30, 2020 would amount to MAD -227 million on a comparable basis. With a pre-tax income of MAD 3,997 million and a corporate income tax of MAD 960 million, net income amounted to MAD 3,037 million, up 22.4% and down 11% on a comparable basis. Balance sheet At June 30, 2021, the balance sheet total reached MAD 40,191 million, marking an increase of 0.9% compared to the previous year. 46 Maroc Telecom • Financial Report HY 2021 46 Breakdown of assets (Assets in MAD million) NET 2019 2020 H1-2021 Non-valued fixed assets 1,200 1,050 Intangible assets 2,305 2,081 2,077 Property, plant and equipment 17,688 15,738 15,293 Long-term investments 13,422 12,216 12,768 Translation difference - loss 21 1 23 Total net non-current assets 33,436 31,236 31,211 Current assets 7,856 8,052 8,832 Cash assets 214 554 149 Total assets 41,505 39,842 40,191 Net fixed assets amounted to MAD 31,211 million at June 30, 2021, compared to MAD 31,236 million in the previous year. It represents 78% of total assets and decreased by 0.1% compared to 2020. Net intangible assets amounted to MAD 2,077 million in June 2021, compared to MAD 2,081 million in 2020. Net tangible assets decreased by 2.8% from MAD15,738 million in December 2020 to MAD15,293 million in June 2021. Net financial assets amounted to MAD12,768 million in June 2021, compared with MAD12,216 million in 2020 following the recapitalisation of subsidiaries. Current assets excluding investments (except for those relating to price adjustments) amounted to MAD8,832 million in June 2021, compared with MAD8,052 million in 2020, an increase of 9.7% mainly due to the recognition of dividends from subsidiaries whose payment due dates coincide with the second half of the year. Net cash and cash equivalents, including investments (except for those related to price adjustments), amounted to MAD -9,027 million at June 30, 2021, compared with MAD -10,497 million at December 31, 2020. 47 Maroc Telecom • Financial Report HY 2021 47 Change 21/20 12.5% 0.2% 2.8% 4.5% NS 0.1% 9.7% 73.2% 0.9% Liabilities and their components NET (Liabilities in MAD million) Change 21/20 2019 2020 H1-2021 Shareholders' Equity including net profit for the fiscal year Financial borrowings Long-term provisions for risks and losses Translation difference - profit Total permanent funds Current liabilities Cash liabilities Total liabilities 13,225 3,259 7 35 0 13,267 18,000 10,238 41,505 14,603 6,248 7 15 4 14,629 14,163 11,051 39,842 14,115 3,037 7 36 0 14,158 16,857 9,176 40,191 3.3% NS 0.0% - - -3.2% 19.0% -17.0% 0.9% Taking into account the profit for the period of MAD3,037 million and the allocation of a dividend of MAD3.5 billion, shareholders' equity at June 30, 2021 amounted to MAD14,115 million, compared with MAD14,603 million in 2020. At June 30, 2021, current liabilities amounted to MAD16,857 million, compared to MAD14,163 million in 2020, an increase of 19% mainly due to the recognition of dividends payable during the second half of the year. Cash and cash equivalents decreased by 17% to MAD9,176 million, compared with MAD11,051 million in 2020. 48 Maroc Telecom • Financial Report HY 2021 48 49 Maroc Telecom • Financial Report HY 2021 49 | Semestriel, 2021, Operator, MT | write me a financial report |
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| 1 FINANCIAL REPORT First Half of 2020 Maroc Telecom • Financial Report H1 2020 1 Preliminary remarks: This financial report and the condensed financial statements for the half year ended June 30th, 2020 were approved by the Management Board on July 16th, 2020, and reviewed by the Audit Committee at its meeting on July 17th, 2020. This report should be read in conjunction with the Management Board’s report for the year ended December 31, 2019 as published in Registration Document as filed with the Securities Regulator (AMF) on April 27, 2020 (“2019 universal registration document”). 2 Maroc Telecom • Financial Report H1 2020 2 CONTENTS HIGHLIGHTS 1. CERTIFICATIONS 1.1 Person responsible for the interim report 1.2 Certification of the interim report 1.3 Persons responsible for the audit of the financial statements 2. H1 ACTIVITY REPORT 2.1 Description of activities 2.2 Related-party transactions 2.3 Growth outlook 3. FINANCIAL REPORT 3.1 Consolidated financial Data 3.2 Income statement and financial position 3.3 Consolidated financial statements and notes 3.4 Statutory financial statements 3 Maroc Telecom • Financial Report H1 2020 3 7 7 7 11 20 23 25 28 32 43 Highlights January 2020 In Morocco, the ANRT decision on the referral from Wana on unbundling imposing financial penalty and injunctions. IAM complies with the terms of the decision within the deadlines. Maroc Telecom is launching the "All-in-One" *5 pass which adapts to customer use and habits and can be used to make domestic and international calls, send SMSs and connect to the Internet. Maroc Telecom is adding Snapchat and YouTube to the MT-Talk Data Pass. Maroc Telecom is making reductions of up to 50% on the Data tariff for segments 1A, 1B, Nomadis, Golf, 2 & 3. In Burkina Faso, the 2020 budget bill introduced an increase in the tax rate on Mobile revenues from 5% to 7% from January 1, 2020 including the revenue from Mobile Money in its basis of calculation. In Côte d’Ivoire, regulators decided to keep domestic Mobile call termination rates at 11 MAD ct/min from February 1, 2020 to December 31, 2020. In Gabon, the domestic Mobile call termination rate fell from 16 MAD ct/min in 2019 to 13 MAD ct/min from January 1, 2020. In Mali, from January 1, 2020, the domestic Mobile call termination rate fell to 5 MAD ct/min versus 12 MAD ct/min in 2019 with asymmetrical call termination rates (4 MAD ct/min to the Orange network, 5 MAD ct/min to the Sotelma network and a 50% bonus for the Atel call termination rate). In Togo, the domestic call termination rate fell to 16 MAD ct/min from January 1, 2020 from 33 MAD ct/min in 2019. In Chad, the domestic Mobile call termination rate fell to 24 MAD ct/min from January 1, 2020 vs. 41 MAD ct/min previously and will be removed completely from January 1, 2021. In Chad, removal of the excise duty of 18% on data revenue from January 1, 2020 and impact of this measure on retail-pricing. February 2020 In Morocco, Wana has withdrawn the unbundling petition brought before Rabat Commercial Court. Maroc Telecom includes Fixed-line and Internet products in the "Mon espace MT" (My MT space) web portal giving the customer an overview of its Mobile, Fixed-line and Internet lines in real time. March 2020 As part of measures to stem the spread of Coronavirus, Maroc Telecom is offering free access to all websites and remote teaching and training platforms put in place by the Education Ministry. Pupils, students and teachers were connected for free via the Maroc Telecom 3G and 4G Mobile Internet network. Launch of the SMS 1919 Covid 19 fundraising appeal. Maroc Telecom is opening the two-way LTE/4G roaming service with Group subsidiary Malitel: with IAM subscribers on the Malitel network and vice versa. In Gabon, operators have six months to comply with the new measures on identifying subscribers and two years in which to rectify any issues with minors. Failure to comply with the provisions of the ruling opens operators up to sanctions. 4 Maroc Telecom • Financial Report H1 2020 4 In Benin, the Council of Ministers has extended the scope of operations of the Société Béninoise d’Infrastructures Numérique (SBIN), turning it into a global operator, making it the third biggest Mobile operator in the Benin market. April 2020 Maroc Telecom is increasing the validity period of the 5DH and 10DH *5 "All-in-One" passes to 7 days instead of 1 and 3 days respectively. Addition of TikTok to enhance the MT-Talk Data Pass. Maroc Telecom is launching the 4G+ Internet Box offer for businesses, including more generous volumes of up to 90Go and more call time, up to 3 hours of international and domestic calls. Launch of the "5 hours for €5" and "10 hours for €10" offer from Orange France networks to IAM's Fixed- line and Mobile networks. Covid-19: BCEAO decision entered into force on April 3, 2020, aimed at promoting digital payments through a range of measures, including free domestic transfers, free bill payments and the removal of fees by payment merchants. May 2020 In Morocco, launch of an online store offering Mobile, Fixed-line and Internet subscriptions without needing to go in-store. In Togo, the payment of the last tranche of the license (extension to 4G) on May 28, 2020 amounting to 107 million MAD. June 2020 Maroc Telecom is overhauling its Corporate Fiber Optic offer, permanently reducing the 100M and 200 Mega tariffs and incorporating a Fixed-line which will now be double-play. In Benin, notification of a decree detailing the conditions for identifying the users of electronic communication services applicable to all operators. In Niger, adoption of a decree setting the minimum international call termination rate for calls to Niger at 3 MAD/min TTC. 5 Maroc Telecom • Financial Report H1 2020 5 1- CERTIFICATIONS 6 Maroc Telecom • Financial Report H1 2020 6 In this document, "Maroc Telecom" or “the Company” refers to the company Itissalat Al-Maghrib, and “the Group” refers to the group constituted by the Company and all of its directly and indirectly owned subsidiaries. 1.1 PERSON RESPONSIBLE FOR THE INTERIM REPORT Mr. Abdeslam Ahizoune Chairman of the Management Board 1.2 CERTIFICATION OF THE INTERIM REPORT I hereby attest, to my knowledge, that the condensed interim financial statements are established in accordance with applicable accounting standards and give a true and fair view of the income and financial position and results of the company and all of the consolidated companies, and that the interim management report gives a true and fair view of the significant events having occurred during the first six months of the year, and their impact on the condensed interim financial statements, the main related-party transactions as well as a description of the principal risks and uncertainties for the remaining six months of the year. Mr. Abdeslam Ahizoune Chairman of the Management Board 1.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deloitte Audit, represented by Mrs Sakina BENSOUDA KORACHI Boulevard Sidi Mohammed Ben Abdellah, Tour Ivoire III, 3ème étage, La Marina Casablanca, Maroc Mrs. Bensouda Korachi was first appointed by the general meeting of April 26, 2016, reappointed in 2018. Her current three years term, shall expire at the close of the ordinary shareholders’ meeting held to act on the financial statements for the year ending December 31, 2021. Mr. Abdelaziz ALMECHATT 83, avenue Hassan II – 20 100 Casablanca, Maroc First appointed in 1998 by the articles of association, his term of office was renewed at the general meeting of 29 April 2020 for a period of three financial years, i.e. until the end of the ordinary general meeting ruling on the accounts for the financial year ending 31 December 2022. 7 Maroc Telecom • Financial Report H1 2020 7 To the shareholders ITISSALAT AL MAGHRIB (IAM) S.A Avenue Annakhil, Rabat Maroc This is a free translation into English of the statutory auditor’s limited review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. LIMITED REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF ITISSALAT AL MAGHRIB (IAM) S.A PERIOD FROM 1st JANUARY TO 30th JUNE 2020 We have conducted a limited review of the interim consolidated financial situation of Itissalat Al Maghrib (IAM) S.A and its subsidiaries (Itissalat Al Maghrib Group) which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidation perimeter and a selection of explanatory information related to the period from 1st January to 30 June 2020. These interim consolidated financial statements show an amount of consolidated equity of MMAD 12.817 including a consolidated net profit of MMAD 2.401. These interim financial statements were closed by the Board of Directors on July 16th, 2020 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional standards applicable in Morocco. Those standards require that a limited review should be planned and executed in order to obtain a moderate assurance that the interim consolidated financial situation referred to in the preceding first paragraph are free from material misstatement. A limited review includes mainly making inquiries of the company’s staff and analytical review to financial data; thus, it provides a lower level if assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying consolidated financial situation, do not give a true and fair view of financial performance of the Group Itissalat Al Maghrib S.A. at 30 June 2020, and its financial position and assets according to International Accounting Standards IAS/IFRS, as adopted by the European Union. Casablanca, 17th July 2020 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 8 Maroc Telecom • Financial Report H1 2020 8 To Shareholders ITISSALAT AL MAGHRIB (IAM) S.A Annakhil Avenue, Rabat Morocco This is a free translation into English of our limited review report on the half-year individual financial statements issued in French and it is pro7vided solely for the convenience of English-speaking users. REPORT ON THE LIMITED REVIEW OF INDIVIDUAL FINANCIAL STATEMENTS of ITISSALAT AL MAGHRIB (IAM) S.A. PERIOD FROM JANUARY 1st TO JUNE 30th 2020 In application of provisions of the Dahir carrying Law No. 1-93-212 of 21 September 1993, as modified and completed, we have reviewed the interim financial statements of ITISSALAT AL MAGHRIB (IAM) S.A. which comprise the statement of financial position the statement of profit and loss related to the period from January 1st to June 30th, 2020. Those interim financial statements, which show a total equity of MAD 10.835.403 thousand including a net profit of MAD 2.480.728 thousand, are the responsibility of management of ITISSALAT AL MAGHRIB (IAM) S.A. These interim financial statements were closed by the Board of Directors on July 16th, 2020 in an evolutionary context of the health crisis of the Covid-19 epidemic, based on the information available at that date. We conducted our review in accordance with professional Standards applicable in Morocco related to limited review engagements. Those standards require that we plan and perform the review in order to obtain a moderate assurance that financial statements are free from material misstatement. A review includes mainly making inquiries of the company’s staff and analytical review of financial data; thus, it provides a lower level of assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying interim financial statements, do not present fairly the result of the period’s transactions of ITISSALAT AL MAGHRIB (IAM) S.A., the financial position and its assets as at June 30th, 2020, in accordance with Generally Accepted Accounting Principles in Morocco. Casablanca, July 17th, 2020 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 9 Maroc Telecom • Financial Report H1 2020 9 2- HALF YEAR ACTIVITY REPORT 10 Maroc Telecom • Financial Report H1 2020 10 2.1 DESCRIPTION OF ACTIVITIES Details of the financial indicator adjustments for "Morocco" and "International" are provided in Appendix 1. (IFRS in MAD million) Revenues Q2-2019 Q2-2020 8,895 9,014 Change Change on a like-for-like basis (1) -2.1% +1.3% 6M-2019 6M-2020 17,844 18,323 Change Change on a like-for-like basis (1) +2.7% +0.0% EBITDA 4,762 4,809 +1.0% +0.2% 9,409 9,603 +2.1% +1.4% Margin (%) 53.5% 53.3% 0.2 pt +1.2 pt 52.7% 52.4% 0.3 pt +0.7 pt Adjusted EBITA 2,960 2,922 1.3% 0.2% 5,862 5,836 0.5% +0.2% Margin (%) 33.3% 32.4% 0.9 pt +0.6 pt 32.9% 31.8% 1.0 pt +0.1 pt Group share of adjusted Net Income Margin (%) CAPEX(2) Of which frequencies & licenses CAPEX/revenues (excl.frequencies & licenses) Adjusted CFFO 1,441 16.2% 1,034 11.7% 1,410 15.6% 659 7.3% 2.2% 0.6 pt 36.3% 4.4 pt +1.5% +0.5 pt 47.0% 6.7 pt 3,022 16.9% 3,227 1,327 10.7% 3,006 16.4% 1,186 6.5% 0.5% 0.5 pt 63.3% 4.2 pt +1.5% +0.3 pt 65.4% 5.4 pt 2,936 4,206 +43.2% +43.4% 5,728 7,099 +23.9% +22.2% Net Debt Net Debt/EBITDA(3) 21,034 1,1x 18,659 0.9x 11.3% 9.0% 21,034 1.1x 18,659 0.9x 11.3% 9.0% Customer base The Group's customer bases continue to grow (up 9.1% year-on-year), reaching 68.4 million at the end of June 2020. This increase was due partly to the consolidation of Tigo Chad into the Group's scope since July 1, 2019. Revenues At the end of June 2020, the Maroc Telecom Group had revenues(4) of 18,323 million dirhams, up 2.7% (stable on a like-for-like basis(1)). This performance, amid a crisis, was mainly due to the growth of Data Mobile and Mobile Money services from International activities and the surge of the Fixed-line Data in Morocco. Earnings from operations before depreciation and amortization Maroc Telecom Group's EBITDA was 9,603 million dirhams at the end of June 2020, up 2.1% (up 1.4% on a like-for-like basis(1)), thanks to the 1.6 pt improvement (up 1.3 pt on a like-for-like basis(1)) in the gross margin. The EBITDA margin was 52.4%, up 0.7 pt on a like-for-like basis(1). Earnings from operations At the end of the first six months of 2020, the adjusted EBITA(5) of Maroc Telecom Group was 5,836 million dirhams, up 0.2% on a like-for-like basis(1). Group share of Net Income The Group share of adjusted Net Income was 3,006 million dirhams, up 1.5% on a like-for-like basis(1). 11 Maroc Telecom • Financial Report H1 2020 11 Investments Capital expenditures(2) excluding frequencies and licenses were down 37.6% year-on-year (down 43.6% on a like-for-like basis(1)), due to the adjustment of investments to the current environment. Cash-flow Adjusted cash flows from operations (CFFO)(6) was 7,099 million dirhams, up 23.9% (up 22.2% on a like-for- like basis(1)) due to higher EBITDA and Capex decrease. At the end of June 2020, the Group's consolidated net debt(7) decreased by 11.3% to 18,659 million dirhams. It represents 0.9x times its annual EBITDA(3). . COVID-19 pandemic The management of the health crisis by the Maroc Telecom Group was marked by rapid key decisions and the active mobilization of teams, including: The strengthening of hygiene, distancing measures and the use of teleworking (collaborative work tools with remote access are made available to employees); The promotion of digitization tools to encourage customers and partners to interact with the company via the various online services (orders, payment & service modification, bid submission, etc.); Control of the supply chain (commercial and technical) while meeting replenishment and customs clearance deadlines; Good management of business continuity, networks and information systems. However, the impact of the Covid-19 pandemic on the growth forecasts for the Moroccan economy are significant (5.2% contraction in 2020 forecast by Bank Al-Maghrib) with likely repercussions on the growth momentum of Maroc Telecom's activities. As part of the communal drive to manage the Covid-19 pandemic, some subsidiaries also participated in the collective effort with contributions to the funds set up by the authorities of each country. Highlights On June,1st 2020, Maroc Telecom launched its mobile payment solution through its subsidiary "MT Cash". The solution offers many financial services, comparable to those available to customers with bank accounts, which users can access safely and easily from a mobile phone. 12 Maroc Telecom • Financial Report H1 2020 12 2.1.1 MOROCCO (IFRS in MAD million) Q2-2019 Q2-2020 Change 6M-2019 6M-2020 Revenues 5,331 5,124 3.9% 10,713 10,524 Mobile 3,487 3,234 7.3% 6,959 6,779 Services 3,456 3,205 7.3% 6,794 6,637 Equipment 31 29 5.0% 165 142 Fixed-line 2,301 2,408 +4.6% 4,657 4,727 Of which Fixed-line Data* 765 911 +19.1% 1,538 1,740 Eliminations and other income 457 518 903 981 EBITDA 3,111 3,008 3.3% 6,136 5,980 Margin (%) 58.4% 58.7% +0.4 pt 57.3% 56.8% Adjusted EBITA 2,117 2,046 3.4% 4,170 4,037 Margin (%) CAPEX(2) Of which frequencies & licenses 39.7% 525 39.9% 281 +0.2 pt 46.5% 38.9% 877 38.4% 564 CAPEX/revenues (excl.frequencies & licenses) Adjusted CFFO 9.9% 2,026 5.5% 2,636 4.4 pt +30.1% 8.2% 3,818 5.4% 4,256 Net Debt Net Debt/EBITDA(3) 15,299 1.2x 11,891 0.9x 22.3% 15,299 1.2x 11,891 0.9x Fixed-line data includes Internet, ADSL TV and Data services to businesses At the end of June 2020, activities in Morocco generated revenues of 10,524 million dirhams, down 1.8% compared to the same period in 2019. This drop is explained by the decrease in Mobile revenue, which was adversely affected by the impact of the crisis, in particular on international incoming, outgoing prepaid and roaming activities. This decrease was mitigated by the increase in Mobile and Fixed-line Data. EBITDA for the same period was 5,980 million dirhams, down 2.5% compared to last year, due to lower revenue. The EBITDA margin established at the high level of 56.8%. Adjusted EBITA(5) was 4,037 million dirhams, down 3.2% year-on-year, mainly due to the decline in EBITDA. The adjusted EBITA margin was 38.4%. Adjusted cash flow from operations (CFFO)(6) in Morocco was up 11.5%. 2.1.1.1 Mobile Unit 6M-2019 6M-2020 Mobile Customer base (8) (000) 19,547 19,572 Prepaid (000) 17,364 17,234 Postpaid (000) 2,183 2,338 Of which 3G/4G+ Internet(9) (MAD/mois) 11,119 11,764 ARPU(10) 57.5 55.1 As of June 30, 2020, the Mobile customer base(8) was 19.6 million customers, up slightly by 0.1% year-on- year thanks to the increase in the postpaid customer base (up 7.1%). 13 Maroc Telecom • Financial Report H1 2020 13 Change 1.8% -2.6% -2.3% -13.9% +1.5% +13.2% 2.5% -0.5 pt -3.2% -0.6 pt -35.7% 2.8 pt +11.5% -22.3% Change +0.1% 0.7% +7.1% +5.8% 4.2% Mobile revenues was down 2.6%, to 6,779 million dirhams, due to the impact of the health crisis on international incoming, outgoing prepaid and roaming activities in particular. Combined ARPU(10) for the first six months of 2020 was 55.1 dirhams, down 4.2% year-on-year. 2.1.1.2 Fixed-line & Internet Unit 6M-2019 6M-2020 Fixed-lines (000) 1,851 1,979 Broadband access (11) (000) 1,529 1,689 At the end of June 2020, the Fixed-line customer base grew by 6.9% year-on-year, bringing the number of lines to nearly 2 million. The Broadband customer base increased by 10.5% to 1.7 million subscribers. The Fixed-line and Internet activities in Morocco recorded revenues of 4,727 million dirhams, up 1.5% compared to the same period in 2019, thanks to the Fixed-line Data surge. 14 Maroc Telecom • Financial Report H1 2020 14 Change +6.9% +10.5% 2.1.2 INTERNATIONAL 2.1.2.1 Financial indicators (IFRS in MAD million) Revenues Q2-2019 Q2-2020 Change 3,887 4,111 +5.8% Change on a like-for- like basis (1) -2.0% 6M-2019 6M-2020 7,824 8,318 Change +6.3% Change on a like-for-like basis (1) +0.1% Of which Mobile services EBITDA Margin (%) Adjusted EBITA Margin (%) CAPEX(2) Of which frequencies & licenses 3,537 1,652 42.5% 843 21.7% 508 3,736 1,800 43.8% 877 21.3% 378 +5.6% +9.0% +1.3 pt +4.0% 0.4 pt 25.7% 2.8% +6.8% +3.6 pt +8.0% +2.0 pt 47.3% 7,118 3,273 41.8% 1,692 21.6% 2,351 1,327 7,595 3,623 43.6% 1,798 21.6% 622 +6.7% +10.7% +1.7 pt +6.3% +0.0 pt 73.5% 0.2% +8.5% +3.4 pt +8.8% +1.7 pt -75.5% CAPEX/revenues (excluding frequencies & licenses) Adjusted CFFO Net Debt Net Debt/EBITDA(3) 13.3% 910 8,698 1.3x 9.2% 4.1 pt 1,570 +72.5% 8,206 5.7% 1.1x 8.1 pt +73.2% +0.3% 13.1% 1,909 8,698 1.3x 7.5% 2,843 8,206 1.1x 5.6 pt +48.9% 5.7% 7.3 pt +42.6% +0.3% In an economic context marked by the consequences of the Covid-19 crisis, the Group's international operations have shown so far resilience and posted revenues up 6.3% (+0.1% on a like-for-like basis(1)) compared to 2019. Growth in Data Mobile and Mobile Money services more than offset the decline in Voice revenues. In the first six months of 2020, EBITDA was 3,623 million dirhams, up 10.7% (up 8.5% on a like-for-like basis (1)). The EBITDA margin was 43.6%, up 1.7 pt (up 3.4 pt on a like-for-like basis(1)), thanks to the improvement in the gross margin and the decrease in operating costs. During the same period, adjusted EBITA(5) improved by 6.3% (up 8.8% on a like-for-like basis(1)) to 1,798 million dirhams, representing a stable adjusted EBITA margin of 21.6% (up 1.7 pt on a like-for-like basis(1)). Adjusted cash flow from operations (CFFO)(6) improved by 48.9% (+42.6% on a like-for-like basis(1)) to 2,843 million dirhams, primarily due to higher EBITDA and Capex decrease. 15 Maroc Telecom • Financial Report H1 2020 15 2.1.2.2 Operating indicators Mobile Customer base(8) Mauritania Burkina Faso Gabon Mali Côte d’Ivoire Bénin Togo Niger Central African Republic Chad Fixed lines Parc Mauritania Burkina Faso Gabon Mali Fixed lines Broadband Parc (10) Mauritania Burkina Faso Gabon Mali Unit (000) (000) (000) 16 6M-2019 6M-2020 39,372 2,389 8,020 1,648 7,483 8,899 4,362 3,608 2,810 153 - 44,721 2,400 8,930 1,413 7,909 9,231 4,339 3,108 2,979 184 4,227 322 57 77 22 167 330 58 75 23 175 114 11 15 18 71 126 18 14 20 75 Maroc Telecom • Financial Report H1 2020 16 Change +0.5% +11.3% -14.3% +5.7% +3.7% -0.5% -13.8% +6.0% +20.4% - +1.6% -2.6% +6.2% +4.7% +67.0% -5.4% +11.9% +5.5% Notes : (1) The like-for-like basis illustrates the effects of the consolidation of Tigo Tchad as if had effectively occurred on January 1, 2019 and a constant MAD/Ouguiya/CFA Franc exchange rate. (2) CAPEX corresponds to the acquisitions of non-current intangible assets and property, plant and equipment recognized during the period. (3) The net debt / EBITDA ratio excludes the impact of IFRS 16. (4) Maroc Telecom consolidates Mauritel, Onatel, Gabon Télécom, Sotelma, Casanet, AT Côte d’Ivoire, Etisalat Benin, AT Togo, AT Niger, AT Centrafrique, and Tigo Tchad in its accounts since July 1, 2019. (5) EBITA corresponds to operating income before the amortization of intangible assets related to business combinations, goodwill impairment and other intangible assets related to business combinations and other income and expenses related to financial investment operations and transactions with shareholders (unless they are directly recognized in shareholders’ equity). (6) CFFO includes the net cash flows from operations before tax, as presented in the cash flow statement, as well as dividends received from companies accounted for using the equity method and non-consolidated investments. It also includes net industrial investments, which correspond to net cash outflows related to acquisitions and disposals of non- current intangible assets and property, plant and equipment. (7) Loans and other current and non-current liabilities less cash and cash equivalents, including cash held in escrow for bank loans. (8) The active customer base consists of prepaid customers who have made or received a voice call (excluding ERPT or Call-Center calls) or received an SMS/MMS or used Data services (excluding ERPT services) during the past three months, and postpaid customers who have not terminated their agreements. (9) The active customer base for 3G and 4G+ Mobile Internet includes holders of a postpaid subscription agreement (with or without a voice offer) and holders of a prepaid Internet subscription agreement who have made at least one top- up during the past three months or whose top-up is still valid and who have used the service during that period. (10) ARPU is defined as revenues (generated by inbound and outbound calls and by data services) net of promotional offers, excluding roaming and equipment sales, divided by the average customer base for the period. In this instance, blended ARPU covers both the prepaid and postpaid segments. (11) The broadband customer base includes ADSL access, FTTH and leased lines as well as the CDMA customer base in Mauritania, Burkina Faso and Mali. 17 Maroc Telecom • Financial Report H1 2020 17 Appendix 1: Relationship between adjusted financial indicators and published financial indicators Adjusted EBITA, Adjusted Net Income, Group share of adjusted Net Income, and adjusted CFFO are not strictly accounting measures, and should be considered as additional information. They are a better indicator of the Group's performance as they exclude non-recurring items. H1-2019 H1-2020 (in MAD millions) Morocco International Group Morocco International Group Adjusted EBITA 4,170 1,692 5,862 4,037 1,798 5,836 Published EBITA 4,170 1,692 5,862 4,037 1,798 5 836 Group share of adjusted Net Income 3,022 3,006 Non-recurring items: Covid-19 contributions 1,038 Published Group share of adjusted Net Income 3,022 1,969 Adjusted CFFO 3,818 1,909 5,728 4,256 2,843 7,099 Non-recurring items: Payment of licenses 1,841 1,841 107 107 ANRT penalty 3,300 3,300 Published CFFO 3,818 68 3,887 956 2,736 3,692 The semester was marked by the disbursement of 3,300 million dirhams linked to the full payment of the ANRT penalty in Morocco as well as the payment of the last settlement of the license (extension to 4G) in Togo for an amount of 107 million dirhams. The first six months of 2019 included the payment of 1,841 million dirhams for licenses obtained in Burkina Faso, Mali, Côte d'Ivoire and Togo. 18 Maroc Telecom • Financial Report H1 2020 18 Appendix 2: Impact of the adoption of IFRS 16 As at end-June 2020, the impact IFRS 16 on Maroc Telecom’ key indicators are as follows: H1-2020 (in MAD million) Morocco International EBITDA +137 +138 Adjusted EBITA +23 +21 Group share of adjusted Net Income Adjusted CFFO +137 +138 Net Debt +881 +729 19 Maroc Telecom • Financial Report H1 2020 19 Group +275 +44 +0 +275 +1,610 2.2 RELATED-PARTY TRANSACTIONS Under the terms of Article 95 et seq. of Moroccan Law No. 17-95 concerning Limited Liability Companies, as amended and supplemented by Law No. 20-05, Law No. 78-12 and Law No 20-19, any agreement between the Company and a member of the Management Board or of the Supervisory Board, or one of its shareholders directly or indirectly holding more than 5% of the Company's capital or voting rights, is subject to prior authorization by the Supervisory Board. The same applies to agreements in which any person referred to in the previous paragraph has an indirect interest or whereby any such person deals with the company through an intermediary. Also subject to the same authorization are agreements between the Company and an entity, if a member of the Company's Management Board or of the Supervisory Board is the owner, an indefinitely responsible associate, the manager, the director, the Chief Executive Officer, or a member of the Management Board or of the Supervisory Board, of the said entity. Accordingly, the regulated agreements signed in the first half of fiscal year 2020, and the agreements signed in previous years that continued in effect during the first half of fiscal year 2020, are presented below. These agreements are not, however, the only parent-subsidiary flows existing between Maroc Telecom and its subsidiaries. 2.2.1 REGULATED AGREEMENTS SIGNED IN THE FIRST HALF OF 2020 None. 2.2.2 REGULATED AGREEMENTS SIGNED IN PREVIOUS YEARS STILL IN EFFECT IN 2020 Brand licensing agreements Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights connected with the “Moov” and “No Limit” trademarks belonging to the Etisalat Group as well as the Trademark Licensing Agreements associated with them for the subsidiaries cited above. Maroc Telecom is a majority shareholder of those entities, and for Gabon Telecom, Mr. Brahim Boudaoud is also a member of the joint management bodies. Technical support agreement Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights stemming from the Technical Assistance agreements by and between these companies and the Etisalat Group. Maroc Telecom is a majority shareholder of those entities, and for Gabon Telecom, Mr. Brahim Boudaoud is also a member of the joint management bodies. Agreements for advances on current account Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. Maroc Telecom also acquired the Etisalat Group’s current accounts in these subsidiaries. Maroc Telecom is a majority shareholder of those entities and for Gabon Telecom, Mr. Brahim Boudaoud is 20 Maroc Telecom • Financial Report H1 2020 20 also a member of the joint management bodies. Technical services agreement with Etisalat In May 2014, Maroc Telecom signed a Technical Services Agreement with Emirates Telecommunications Corporation (Etisalat) whereby the latter will provide to Maroc Telecom on request, directly or indirectly, technical support services, particularly in the following fields: digital media, insurance, financial rating. These services may be performed by expatriate personnel. Effective May 14, 2014, Etisalat became the reference shareholder of Maroc Telecom via SPT, and the members of the joint management bodies are Eissa Mohammad Al Suwaidi, Hatem Dowidar, Saleh Abdooli, Serkan Okandan, and Mohammad Hadi Al Hussaini. Services agreement with Gabon Telecom In November 2016, Gabon Telecom signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Gabon Telecom and the member of the joint management bodies is Mr. Brahim Boudaoud. Services agreement with Sotelma In 2009, Sotelma signed an agreement with Maroc Telecom for the latter to provide it with technical support services. Maroc Telecom is the majority shareholder of Sotelma and the member of the joint management bodies is Mr. Abdelkader Maamar. Services agreement with Onatel In September 2007, Onatel signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Onatel. Services agreement with Mauritel In 2001, Mauritel SA signed an agreement with Maroc Telecom for the latter to provide it with work projects linked to services, to technical support and to the sale of equipment. Maroc Telecom is the majority shareholder of Mauritel SA and the member of the joint management bodies is Mr. Hassan Rachad. 21 Maroc Telecom • Financial Report H1 2020 21 Agreement with Casanet Since fiscal year 2003, Maroc Telecom has signed several agreements with its subsidiary Casanet, for the purpose, among others, of maintaining Maroc Telecom's Menara Internet portal in operational condition, and providing development and hosting services for the Mobile portal of Maroc Telecom's websites. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan Rachad. Advance on Current Account – Casanet Maroc Telecom decided to transfer its business directory activity to its subsidiary Casanet. Accordingly, on December 4, 2007, the Supervisory Board authorized the Company to take on the necessary investment costs which would be financed by advances on a non-interest bearing current account. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan Rachad. Agreement with the Royal Moroccan Athletics Federation (Fédération Royale Marocaine d’Athlétisme / FRMA) The agreement between Maroc Telecom and FRMA, of which Mr. Abdeslam AHIZOUNE is also Chairman, expired in December 2018. The renewal of this agreement was authorized by the Supervisory Board on December 7, 2018 for a maximum period of three (3) years, for an amount of MAD3 million per year. 22 Maroc Telecom • Financial Report H1 2020 22 2.3 GROWTH OUTLOOK This section contains information regarding the Company’s objectives for fiscal-year 2020. The Company warns potential investors that these forward-looking statements are dependent on circumstances and events that are expected to occur in the future. These statements do not reflect historical Data and should not be considered as guarantees that the facts and Data mentioned will occur or that the objectives will be achieved. Because of their uncertain nature, these objectives may not be achieved, and the assumptions on which they are based may prove to be erroneous. Investors are encouraged to consider that some of the risks described in section 2.1 « Risk factors » the 2019 Universal Registration Document may affect the Company’s business and its ability to achieve its objectives. On the basis of the information available to date and due the uncertainties generated by the Covid-19 crisis, Maroc Telecom is revising its outlook for 2020 on a like-for-like basis and at constant exchange rates: Slight decrease in revenues; Slight decrease in EBITDA; CAPEX of approximately 10% of revenues, excluding frequencies and licenses. 23 Maroc Telecom • Financial Report H1 2020 23 3- FINANCIAL REPORT 24 Maroc Telecom • Financial Report H1 2020 24 3.1 CONSOLIDATED FINANCIAL DATA Maroc Telecom Group’s consolidated financial data is summarized in the following table. This selected financial data is drawn from the Group's consolidated financial statements prepared according to IFRS international standards (International Financial Reporting Standards), after a limited review by the statutory auditors the firm Coopers Audit represented by Mr. Abdelaziz Almechatt and the firm Deloitte Maroc, represented by Mrs. Sakina Bensouda Korachi. CONSOLIDATED FINANCIAL DATA IN MOROCCAN DIRHAMS Balance sheet Assets (in millions of MAD) Noncurrent assets 12/31/2019 51,485 06/30/2020 49,729 Current assets 13,365 15,835 Total assets SHAREHOLDERS’ equity and liabilities (in millions of MAD) Share capital 64,851 12/31/2019 5,275 65,564 06/30/2020 5,275 Equity attributable to equity holders of the parents Minority interests 12,069 3,934 9,275 3,542 Total shareholders' equity Noncurrent liabilities 16,003 4,939 12,817 5,692 Current liabilities 43,908 47,055 Total shareholders' equity and liabilities 64,851 65,564 Income statement for the first-halves of 2019 & 2020 (In millions of MAD) H1-2019 H1-2020 Consolidates revenues Operating expenses 17,844 11,982 18,323 12,487 Earnings from operations Earnings from continuing operations 5,862 5,857 5,836 4,323 Earnings for the period Earnings attributable to equity holders of the parents Earnings per share (in MAD) 3,485 3,022 3.44 2,401 1,969 2.24 Diluted earnings per share (in MAD) 3.44 2.24 25 Maroc Telecom • Financial Report H1 2020 25 Scope of consolidation Mauritel Maroc Telecom holds 52% of the voting rights of Mauritel, the incumbent operator in Mauritania and operator of a fixed-line and mobile telecommunications network, subsequent to the merger of Mauritel SA (fixed-line) and Mauritel Mobile. Mauritel S.A. is owned by the holding company Compagnie Mauritanienne de Communications (CMC), in which Maroc Telecom holds an 80% equity stake. Consequently, Maroc Telecom holds a 41.2% interest in Mauritania's incumbent operator. Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. Onatel On December 29, 2006, Maroc Telecom acquired 51% of the capital of the Burkinabe operator Onatel. The Group increases its stake in Onatel to 61% as of April 17, 2018. The subsidiary has been fully consolidated in Maroc Telecom's financial statements since January 1, 2007. Gabon Telecom On February 9, 2007, Maroc Telecom acquired 51% of the capital of Gabon Telecom. Gabon Telecom has been fully consolidated by Maroc Telecom since March 1, 2007. Gabon Telecom acquires, from Maroc Telecom, 100% of Atlantique Telecom Gabon capital. This was absorbed by Gabon Telecom on June 29, 2016. Sotelma On July 31, 2009, Maroc Telecom acquired a 51% stake in Mali’s incumbent operator, Sotelma. Sotelma has been fully consolidated by Maroc Telecom since August 1, 2009. Casanet Casanet is a Moroccan internet provider established in 1995. In 2008, it became a wholly-owned subsidiary of Maroc Telecom and expanded its field of operations by specializing in information engineering. Casanet has been fully consolidated by Maroc Telecom since January 1, 2011. Atlantique Telecom Côte d'Ivoire On January 26, 2015, Maroc Telecom acquired an 85% stake in the capital of Côte d’Ivoire's mobile operator. Atlantique Telecom Côte d’Ivoire has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Etisalat Benin On January 26, 2015, Maroc Telecom acquired 100% of the capital of Benin's mobile operator. Etisalat Benin has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Atlantique Telecom Togo On January 26, 2015, Maroc Telecom acquired a 95% stake in the capital of Togo's mobile operator. Atlantique Telecom Togo has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Atlantique Telecom Niger On January 26, 2015, Maroc Telecom acquired 100% of the capital of Niger's mobile operator. Atlantique Telecom Niger has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. 26 Maroc Telecom • Financial Report H1 2020 26 Atlantique Telecom Centrafrique On January 26, 2015, Maroc Telecom acquired 100% of the capital of the Central African Republic's mobile operator. Central African Republic Atlantique Telecom has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Tigo Chad On June 26, 2019, Maroc Telecom acquired 100% of the share capital of the Chadian operator Millicom Chad. Millicom Chad has been fully consolidated in Maroc Telecom's financial statements since July 1, 2019. Other nonconsolidated investments Investments whose significance in relation to the consolidated financial statements is not material or in which Maroc Telecom does not directly or indirectly exercise exclusive control, joint control or significant influence are not consolidated and are recorded under "Non-current financial assets". This is the case for MT Fly and MT Cash as well as minority interests held in Médi1 TV, RASCOM, Autoroute Maroc, Arabsat and other investments. 27 Maroc Telecom • Financial Report H1 2020 27 3.2 INCOME STATEMENT AND FINANCIAL POSITION The following table sets out data regarding Maroc Telecom’s consolidated income statement for the first-halves of 2020 and 2019: (In millions of MAD) Revenues Cost of purchases Note 7 H1-2019 17,844 -2,801 H1-2020 18,323 -2,699 Payroll costs 1,550 1,464 Taxes and duties 1,469 1,616 Other operating income and expenses 2,555 5,949 Net depreciation, amortization and provisions 3,607 759 Earnings from operations Other income and charges from ordinary activities 5,862 -5 5,836 -1,513 Earnings from continuing operations Income from cash and cash equivalents 5,857 1 4,323 7 Gross borrowings costs 322 423 Net borrowing costs Other financial income (expense) 321 -10 416 -16 Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities 6 331 -2,040 3,485 -59 432 -1,490 2,401 138 Other income and expenses 0 2 Total comprehensive income for the period 3,426 2,537 Net earnings Attributable to equity holders of the parents 3,485 3,022 2,401 1,969 Minority interests 463 432 Total comprehensive income for the period Attributable to equity holders of the parents 3,426 2,985 2,537 2,062 Minority interests 441 475 EARNINGS PER SHARE Net earnings - group share (in millions of MAD) H1-2019 3,022 H1-2020 1,969 Numbers of shares at June 30 879,095,340 879,095,340 Earnings per share (in MAD) 3.44 2.24 Diluted earnings per share (in MAD) 3.44 2.24 The analysis below presents the various items in Maroc Telecom's consolidated income statement and details their changes over the periods considered. 28 Maroc Telecom • Financial Report H1 2020 28 COMPARAISON OF THE FIRST-HALVES OF 2020 AND 2019 Revenues The following table shows the breakdown of revenues for the first-halves of 2020 and 2019. (In millions of MAD) Morocco H1-2019 H1-2020 10,713 10,524 International 7,824 8,318 Eliminations 693 518 Total consolidated revenues 17,844 18,323 The Maroc Telecom Group had a consolidated revenue of 18,323 million Moroccan dirhams at the end of June 2020, up 2.7% due to the addition of Millicom Chad’s revenue. Operating expenses The table below shows Maroc Telecom’s operating expenses for the first six-month periods of 2020 and 2019. (In millions of MAD) H1-2019 H1-2020 Revenues Cost of purchases 17,844 2,801 18,323 2,699 % 15.7% 14.7% Payroll costs 1,550 1,464 % 8.7% 8.0% Taxes and duties 1,469 1,616 % 8.2% 8.8% Other operating income (expenses) 2,555 5,949 % 14.3% 32.5% Net depreciation, amortization, impairment and provisions 3,607 759 % 20.2% 4.1% Total operating expenses 11,982 12,487 % 67.1% 68.1% Cost of purchases The Group's cost of purchases fell by 3.6% between the first half of 2019 and of 2020, due to a decrease in traffic and call terminations. Payroll costs Group payroll costs were down by 5.6% in the first half of 2020 compared with the first half of 2019. Taxes and duties Taxes were 1,616 million Moroccan dirhams, up by 10% compared to 2019. The increase primarily affected the subsidiaries and includes the impact of the new Millicom Chad subsidiary acquired in June 2019. 29 Maroc Telecom • Financial Report H1 2020 29 Operating incomes and expenses Other operating income and expenses increased from 2,555 million Moroccan dirhams in H1 2019 to 5,949 million Moroccan dirhams in H1 2020, due to the impact of the payment of the ANRT fine (3.3 billion MAD) which was provisioned for in the financial statements at December 31, 2019. Operating profit The Group's consolidated operating income as of June 30, 2020 was 5,836, virtually the same as the first half of 2019. Net financial income Net financial income decreased by 100 million dirhams in the first half of 2020 impacted by the cost of net financial debt, which increased in line with the rise in debt. Tax expense Income tax was down 27% as a result of the decrease in pre-tax income in the first half of 2020 which is attributable to the contribution made by the group to the COVID-19 fund. Net income In the context of the economic crisis caused by the COVID-19 pandemic, the Group recorded net income of 2,401 million Moroccan dirhams at the end of June 2020, down 31% compared to the first half of 2019, mainly due to the impact of the contribution to the COVID-19 solidarity fund. Noncontrolling interests Minority interests, reflecting the rights of shareholders other than Maroc Telecom in the profit/loss of consolidated entities, amounted to 432 million Moroccan dirhams in the first half of 2020 compared to 463 million Moroccan dirhams in the first half of 2019. Net income (Group share) At the end of June 2020, the Group share of net income was 1,969 million Moroccan dirhams. Net earnings per share Net earnings per share were 2.24 Moroccan dirhams in the first half of 2020 compared to 3.44 Moroccan dirhams in the first half of 2019, i.e. a decrease of 35% related to the decrease in the Group share of net income. Cash and cash equivalents The Group's main resource is the cash generated by its operations. 30 Maroc Telecom • Financial Report H1 2020 30 Cash flows The following table summarizes Maroc Telecom’s consolidated cash flow for the specific periods. (In millions of MAD) Net cash from operating activities (a) Net cash used in investing activities (b) Net cash used in financing activities (c) Foreign currency translation adjustments (d) Change in cash and cash equivalents (a)+(b)+(c)+(d) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period H1-2019 6 265 -5 263 -1 058 -10 -66 H1-2020 2 248 -2 397 894 42 788 1 700 1 483 1 634 2 271 Net cash flow from operating activities As of June 30, 2020, net cash generated by operations was 2,248 million Moroccan dirhams, compared to 6,265 million Moroccan dirhams as of June 30, 2019, i.e. a significant drop resulting from the payment of the ANRT’s penalty. Net cash flow from investing activities The net cash used for investing activities went down due to the COVID-19 health crisis and the implementation of containment measures. Net cash flow from financing activities As of June 30, 2020, net cash used for financing activities increased by 1,947 thanks to the Group's new credit lines. Tangible and intangible fixed assets The table below sets out fixed assets acquired by Maroc Telecom Group by geographical area in the relevant periods. (In millions of MAD) Morocco International Total H1-2019 877 2,351 3,228 H1-2020 564 622 1,186 Investments in Morocco Capital expenditures in Morocco dropped by 36% at the end of June 2020, from 877 million Moroccan dirhams to 564 million Moroccan dirhams. IAM opted for an optimization policy and prioritization of projects given the lockdown and the closing of borders. International investments Capital expenditures made by the Group's subsidiaries during the first half of 2020 dropped by 1,729 million Moroccan dirhams compared to the first half of 2019. Like IAM, the subsidiaries were forced to prioritize and optimize their capital expenditure choices given the current health crisis. 31 Maroc Telecom • Financial Report H1 2020 31 Financial resources In the first half of 2020, Maroc Telecom's net debt was 18,659 million Moroccan dirhams compared to 13,872 million Moroccan dirhams at the end of December 2019. (In millions of MAD) Outstanding debt and accrued interests (a) Cash*(b) Cash held for repayment of bank loans (c) Net debt (a) - (b) - (c) * Marketable securities are considered as cash equivalents when their investment period does not exceed three months 12/31/2019 06/30/2020 18,926 21,022 1,483 2,271 94 92 18,659 17,349 32 Maroc Telecom • Financial Report H1 2020 32 3.3 CONSOLIDATES FINANCIAL STATEMENTS AND NOTES Consolidated statement of financial position at June 30, 2020 and at December 31, 2019 ASSETS (in millions of MAD) Goodwill Other intangible assets Property, plant and equipment Right to use the asset Noncurrent financial assets Deferred tax assets Noncurrent assets Inventories Trade accounts receivable and other Short-term financial assets Cash and cash equivalents Assets available for sale Current assets TOTAL ASSETS SHAREHOLDERS’ EQUITY AND LIABILITIES (in millions of MAD) Share capital Retained earnings Net earnings Equity attributable to equity holders of the parents Minority interests Total shareholders' equity Noncurrent provisions Borrowings and other long-term financial liabilities Deferred tax liabilities Other noncurrent liabilities Noncurrent liabilities Trade accounts payable Current tax liabilities Current provisions Borrowings and other short-term financial liabilities Current liabilities TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES Note 4 4 12/31/2019 06/30/2020 9,201 9,306 8,808 8,393 31,037 29,349 1,630 1,654 470 619 339 409 51,485 49,729 321 304 11,380 13,069 128 137 1,483 2,271 54 54 13,365 15,835 64,851 65,564 12/31/2019 06/30/2020 5,275 5,275 4,069 2,031 2,726 1,969 12,069 9,275 3,934 3,542 16,003 12,817 504 573 4,178 4,886 258 233 4,939 5,692 23,794 28,958 733 519 4,634 1,441 14,748 16,137 43,908 47,055 64,851 65,564 33 Maroc Telecom • Financial Report H1 2020 33 Statement of comprehensive income for the six-month period ended June 30, 2020 (In millions of MAD) Revenues Cost of purchases Note 7 H1-2019 17,844 -2,801 Payroll costs 1,550 Taxes and duties 1,469 Other operating income and expenses 2,555 Net depreciation, amortization and provisions 3,607 Earnings from operations Other income and charges from ordinary activities 5,862 -5 Earnings from continuing operations Income from cash and cash equivalents 5,857 1 Gross borrowings costs 322 Net borrowing costs Other financial income (expense) 321 -10 Net financial income (expense) Income tax expense Net earnings Exchange gain or loss from foreign activities 6 331 -2,040 3,485 -59 Other income and expenses 0 Total comprehensive income for the period 3,426 Net earnings Attributable to equity holders of the parents 3,485 3,022 Minority interests 463 Total comprehensive income for the period Attributable to equity holders of the parents 3,426 2,985 Minority interests 441 EARNINGS PER SHARE Net earnings - group share (in millions of MAD) H1-2019 3,022 Numbers of shares at June 30 879,095,340 Earnings per share (in MAD) 3.44 Diluted earnings per share (in MAD) 3.44 34 Maroc Telecom • Financial Report H1 2020 34 H1-2020 18,323 -2,699 1,464 1,616 5,949 759 5,836 -1,513 4,323 7 423 416 -16 432 -1,490 2,401 138 2 2,537 2,401 1,969 432 2,537 2,062 475 H1-2020 1,969 879,095,340 2.24 2.24 Consolidated statement of cash flows for the first half of 2020 and 2019 (In millions of MAD)NoteH1-2019H1-2020Earnings from operations5,8625,836Depreciations, depreciation and other adjustments3,608-759Gross cash from operating activities9,4705,077Other changes in net working capital-1,335-616Net cash from operating activities before taxes8,1354,461Tax paid-1,870-2,213Net cash from operating activities (a)6,2652,248Purchase of PP&E and intangible assets-4,219-2,287Increase in financial assets-1,206-157Disposals of PP&E and intangible assets26Decrease in financial assets20241Dividends received from nonconsolidated investments-420Net cash used in investing activities (b)-5,263-2,397Capital increase0Dividends paid to shareholders3-5,7320Dividends paid by subsidiaries to their noncontrolling interests-465-431Changes in equity-6,197-431Borrowings and increase in other long-term financial liabilities1,9092,449Borrowings and increase in other long-term financial liabilities0Changes in net current accounts3,665-680Changes in current accounts receivable/financial creditors0Net interests paid (Cash only)-403-392Other cash expenses (income) used in financing activities-33-52Changes in borrowings and other financial liabilities5,1391,326Net cash used in financing activities (d)-1,058894Effect of foreign currency adjustments (g)-1042Total cash flows (a+b+d+g)-66788Cash and cash equivalents at beginning of period1,7001,483Cash and cash equivalents at end of period1,6342,271 35 Maroc Telecom • Financial Report H1 2020 35 Statement of changes in consolidated equity at June 30, 2020 and December 31, 2019 (in MAD million) Share capital Other comprehensive income Total Group share Non controling interest Total Position at January 1, 2019 Total comprehensive income for the period Change in gains and losses recognized directly in equity and recyclable in profit or loss Gains and losses on translation Revaluation differences Revaluation differences on hedging instruments Revaluation differences on equity instruments Change in gains and losses recognized directly in equity and recyclable in profit or loss Actuarial difference Actuarial gains and loses Capital reduction Share-based compensation Change in interest shares without takeover/loss of control Change in interest shares with gain/loss of control Dividends Treasury stock Other adjustements 5,275 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10,699 3,022 0 0 0 0 0 0 0 0 0 0 0 14 -6,003 -21 -191 306 -37 37 -37 0 0 0 0 0 0 0 0 0 0 0 0 0 15,668 2,985 37 -37 0 0 0 0 0 0 0 0 0 14 -6003 -21 -191 3,822 441 22 -22 0 0 0 0 0 0 0 0 0 0 -863 0 152 Position at June 30, 2019 Total comprehensive income for the period Change in gains and losses recognized directly in equity and recyclable in profit or loss Gains and losses on translation Revaluation differences Revaluation differences on hedging instruments Revaluation differences on equity instruments Change in gains and losses recognized directly in equity and recyclable in profit or loss Actuarial difference Capital increase Capital reduction Share-based compensation Change in interest shares without takeover/loss of control Change in interest shares with gain/loss of control Dividends Treasury stock Other adjustements 5,275 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7,520 297 0 0 0 0 0 0 0 0 0 0 0 0 0 6 -8 343 -85 109 -109 25 25 0 0 0 0 0 0 0 0 0 0 0 12,452 -381 109 -109 25 25 0 0 0 0 0 0 0 0 0 6 -8 3,552 370 57 -57 18 18 0 0 0 0 0 0 0 0 7 0 5 Position at December 31, 2019 Total comprehensive income for the period Change in gains and losses recognized directly in equity and recyclable in profit or loss Gains and losses on translation Revaluation differences Revaluation differences on hedging instruments Revaluation differences on equity instruments Changes in gains and losses recognised directly in equity and not recyclable in profit or loss Actuarial gains and losses Capital increase Capital reduction Share-based compensation Change in interest shares without takeover/loss of control Change in interest shares with gain/loss of control Dividends Treasury stock Other adjustements 5,275 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7,222 1,969 0 0 0 0 0 0 0 0 0 0 0 0 -4,870 9 6 428 93 95 95 -2 0 0 0 -2 0 0 0 0 0 0 0 0 12,069 2,062 95 95 -2 0 0 0 -2 0 0 0 0 0 -4,870 9 6 3,934 475 44 44 0 0 0 0 0 0 0 0 0 0 -867 0 0 Position at June 30, 2020 5,275 4,335 335 9,275 3,542 36 Maroc Telecom • Financial Report H1 2020 36 Total capitaux propres 19,490 3,426 59 -59 0 0 0 0 0 0 0 0 0 14 -6866 -21 -39 16,004 -11 167 -167 43 43 0 0 0 0 0 0 0 0 7 6 -3 16,003 2,537 138 138 -2 0 0 0 -2 0 0 0 0 0 -5,737 9 5 12,817 At June 30, 2020, Maroc Telecom’s share capital comprised 879,095,340 ordinary shares. Ownership of the shares was as follows: SPT*: 53%; - Kingdom of Morocco: 22%; - Other: 25%. SPT is a Moroccan company controlled by Etisalat. Note 1. Accounting principles and valuation methods The highlights of the semester are described on page 4 and 5 of this financial report. 1.1 HIGHLIGHTS 9% growth in the Group's overall customer base, which reached 68.4 million customers; Stable consolidated revenues thanks to International activities and Mobile and Fixed line Data in Morocco; Maintain of good profitability through optimized cost management: Consolidated EBITDA margin of 52.4%, up 0.7 pt on a like-for-like basis; Rapid adaptation of network resources and capacity to respond to market developments facing the Covid-19 crisis. 1.2 ACCOUNTING PRINCIPLES AND VALUATION METHODS The accounting principles used to prepare the interim consolidated financial statements for the six months ended 30 June 2019 are identical to those used for the year ended 31 December 2019, in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union as of today. The interim consolidated financial statements at June 30, 2019 have been prepared in accordance with IAS 34 "Interim Financial Reporting", which permits the presentation of selected explanatory notes. These consolidated financial statements should be read in conjunction with the 2019 consolidated financial statements. The interim consolidated financial statements at June 30, 2020, together with the notes thereto, were approved by Maroc Telecom's Executive Board on July 16, 2020. 1.3 MILLICOM CHAD GOODWILL New acquisition: Maroc Telecom finalized the acquisition of Millicom Chad in 2019. Maroc Telecom has a 100% interest in the capital of the new subsidiary. Millicom Chad has been fully consolidated since July 1, 2019. The subsidiary's goodwill valuation period ended on June 30, 2020. In compliance with the International standards, its definitive value was established as follows: (In millions MAD) Net equity as at 06/30/2020 Total acquisition price Goodwill 06/30/2020 375 1,175 800 37 Maroc Telecom • Financial Report H1 2020 37 Note 2. Scope of consolidation at June 30, 2020 and December 31, 2019 Company Legal form % Group interest % Capital held Maroc Telecom Avenue Annakhil Hay Riad Rabat-Maroc Compagnie Mauritanienne de Communication (CMC) 30 June 2019 31 December 2019 563, Avenue Roi Fayçal Nouakchott-Mauritanie Mauritel SA 30 June 2019 31 December 2019 Avenue Roi Fayçal Nouakchott-Mauritanie Onatel 30 June 2019 31 December 2019 705, AV. de la nation 01 BP10000 Ouagadougou – Burkina Faso Gabon Telecom 30 June 2019 31 December 2019 Immeuble 9 étages, BP 40 000 Libreville-Gabon Sotelma 30 June 2019 31 December 2019 Route de Koulikoro, quartier Hippodrome, BP 740,Bamako-Mali Casanet 30 June 2019 31 December 2019 Imm Riad 1, RDC, Avenue Annakhil Hay Riad Rabat-Maroc Atlantique Telecom Côte d'Ivoire 30 June 2019 31 December 2019 Abidjan-Plateau, Immeuble KARRAT, Avenue Botreau Roussel Etisalat Bénin 30 June 2019 31 December 2019 Cotonou, ilot 553, quartier Zongo Ehuzu, zone résidentielle, avenue Jean Paul 2, immeuble Etisalat Atlantique Telecom Togo 30 June 2019 31 December 2019 Boulevard de la Paix, Route de l’Aviation, Immeuble Moov-Etisalat - Lomé Atlantique Telecom Niger 30 June 2019 31 December 2019 720 Boulevard du 15 avril Zone Industrielle, BP 13 379, Niamey Atlantique Telecom Centrafrique 30 June 2019 31 December 2019 Bangui, BP 2439, PK 0, Place de la République, Immeuble SOCIM, rez-de-chaussée Millicom Tchad 30 June 2019 31 December 2019 N'Djamena, BP 6505, Avenue Charles DE GAULLE, Tchad SA SA SA SA SA SA SA SA SA SA SA SA 100% 80% 80% 41% 41% 61% 61% 51% 51% 51% 51% 100% 100% 85% 85% 100% 100% 95% 95% 100% 100% 100% 100% 100% 80% 80% 52% 52% 61% 61% 51% 51% 51% 51% 100% 100% 85% 85% 100% 100% 95% 95% 100% 100% 100% 100% SA 100% 100% 100% 100% 38 Maroc Telecom • Financial Report H1 2020 38 Consolidation method FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC FC Note 3. Dividends (In millions of MAD) Dividends received from equity affiliates to their minority shareholder (a) Total (a) Dividends distributed by Maroc Telecom to its shareholders (b) Kingdom of Morocco Etisalat Others H1-2019 863 0 1,801 3,182 1,019 H1-2020 867 0 1,461 2,581 828 Total (b) 6,003 4,870 Total dividends distributed (a) + (b) 6,866 5,737 At june 30, 2020, Maroc Telecom hasn’t paid any dividends. Their total amounts to 4,870 million Moroccan dirhams and they are categorized as current liabilities. The dividends distributed by the subsidiaries to their non-controlling shareholders amounted to 867 million Moroccan dirhams. Note 4. Borrowings and other financial liabilities at June 30, 2020 and December 31, 2019 (In millions of MAD) Borrowings due less than one year Rental obligation at +1 year Borrowings due more than one year Rental obligation at -1 year Facilities and overdrafts Borrowings and financial liabilities Cash Blocked cash Net debt 12/31/2019 06/30/2020 2,935 3,693 1,244 1,193 2,559 3,018 408 417 11,780 12,702 21,022 1,483 2,271 94 92 18,659 18,926 17,349 Maroc Telecom Group's net debt increased from 17,349 million Moroccan dirhams as of December 31, 2019 to 18,659 million Moroccan dirhams as of June 30, 2020. 39 Maroc Telecom • Financial Report H1 2020 39 4.1. BREAKDOWN OF NET DEBT BY MATURITY Half year ended June 30, 2020 (In millions of MAD) Due less than 1 year 1 to 5 years Due more than 5 years TOTAL Borrowings 3,018 3,248 444 6,711 Rental obligation 417 1,171 22 1,610 Facilities and overdrafts 12,702 12,702 Borrowings and financial liabilities 16,137 4,419 466 21,022 Cash 2,271 2,271 Blocked cash 92 92 Net debt 13,773 4,419 466 18,659 Full December 31, 2019 (In millions of MAD) Due less than 1 year 1 to 5 years Due more than 5 years TOTAL Borrowings 2,560 2,469 465 5,494 Rental obligation 408 1,151 93 1,652 Facilities and overdrafts 11,780 11,780 Borrowings and financial liabilities 14,748 3,620 558 18,926 Cash 1,483 1,483 Blocked cash 94 94 Net debt 13,171 3,620 558 17,349 The breakdown by maturity is based on the repayment terms and conditions of the borrowings. 4.2 BORROWING AND OTHER FINANCIAL LIABILITIES BY GEOGRAFICAL AREA (In millions of MAD) Morocco International Borrowings and other financial liabilities 12/31/2019 06/30/2020 11,305 10,727 7,621 10,295 18,926 21,022 Note 5. Restructuring expenses at June 30, 2020 and December 31, 2019 None 40 Maroc Telecom • Financial Report H1 2020 40 Note 6. Income tax payable for the first half of 2020 and 2019 (In millions of MAD) H1-2019 H1-2020 Income tax Deferred taxes 2,063 10 1,495 -5 Tax provisions 33 0 Current tax Consolidated effective tax rate * 2,040 36.9% 1,490 38.3% Income taxes / income before taxes Income tax as of June 30, 2020 decreased by 27% compared to the first half of 2019. The change is related to the evolution of operations and the current economic context. The effective tax rate was 38.3% for the first half of 2020. Note 7. Segment data for the first six-month periods of 2020 and 2019 Segment earnings by geographical area First half of 2020 (In millions MAD) Morocco International Eliminations Total Revenues 10,524 8,318 518 18,323 Earnings from operations 4,038 1,798 0 5,836 Net depreciation and impairment of assets Volantary redundancy plan 1,129 1,887 0 759 First half of 2019 (In millions MAD) Morocco International Eliminations Total Revenues 10,713 7,824 692 17,844 Earnings from operations 4,170 1,692 0 5,862 Net depreciation and impairment of assets Volantary redundancy plan 2,046 1,562 0 3,607 41 Maroc Telecom • Financial Report H1 2020 41 Note 8. Contractual commitments and contingent assets and liabilities 8.1. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS RECORDED IN THE BALANCE SHEET Half year ended June 30, 2020 (In millions of MAD) Total Due less than 1 year 1 to 5 years Due more than 5 years Long-term debts 4,886 4,442 444 Capital lease obligations Operating leases * 47 43 4 Irrevocable purchase obligations Other long-term commitments Total 4,933 43 4,446 444 Leases that do not fall within the scope of the new IFRS 16 standard 8.2. CONTINGENT LIABILITIES None. 42 Maroc Telecom • Financial Report H1 2020 42 8.3. OTHER COMMITMENT GIVEN AND RECEIVED IN THE COURSE OF ORDINARY BUSINESS (In millions of MAD) 12/31/2019 06/30/2020 Commitments given 8,453 7,912 Investment commitment 7,293 6,803 Downstream commitments and signature with banks 607 513 Operating and financing lease commitments 37 47 Satellite rental commitments 46 73 Other commitments 471 476 Network maintenance contracts with Ericsson 61 38 Commitments on operating expenses 410 438 Other commitments - Recovery of guarantees given by Etisalat on the financing of the Atlantic subsidiaries Forward sale commitment (In millions of MAD) Commitments received 12/31/2019 1,352 06/30/2020 1,297 Guarantees and endorsements 1,352 1,297 Other commitments received Forward purchase commitment Commitment of the Moroccan State to contribute the assets of social works Investment agreement: exemption from customs duties on imports related to investments 0 0 0 0 0 0 0 0 Note 9. Subsequent events None. Note 10. IFRS 16 10.1- ASSET-CLASS-BASED USAGE RIGHTS AT JUNE 30, 2020: (In millions MAD) Land Buildings Technical facilities Transportation equipment Office equipment Other assets Total Carrying value 676 400 424 153 1654 Asset entry 67 66 103 10 246 Depreciation/Amortization 84 -52 -70 -26 232 43 Maroc Telecom • Financial Report H1 2020 43 10.2- IMPACT OF LEASE OBLIGATIONS : H1-2020 Interest expense Lease-related payments 45 341 10.3- OCCUPANCY EXPENSES OUTSIDE THE SCOPE OF IFRS 16 : H1-2020 Leases with term ≤12 months 163 Leases with low underlying asset value 8 Leases with variable payments Leases with no presumed control of occupancy right Total 171 44 Maroc Telecom • Financial Report H1 2020 44 3.4 STATUTORY FINANCIAL STATEMENTS PREVIOUSASSETSEXERCICE(In MAD thousand)GrossNETNET 12/31/2018CAPITALIZED COSTS (A)0000.Start-up costs0000.Deferred costs0000.Bond redemption premiums0000INTANGIBLE ASSETS (B)12,591,50610,457,0112,134,4952,305,319.Research and development costs0000.Patents, trademarks, and similar rights12,302,55110,386,6121,915,9391,886,639.Goodwill70,71770,398319864.Other intangible assets218,2370218,237417,816PROPERTY, PLANT, AND EQUIPMENT (C)72,271,85455,675,76916,596,08417,688,321.Land955,3830955,383955,383.Buildings7,999,6675,205,7302,793,9372,806,147.Technical plant, machinery, and equipment56,808,01545,698,16311,109,85311,639,908.Vehicles276,01474,361201,652208,030.Office equipment, furniture, and fittings4,913,6014,491,687421,914432,710.Other property, plant, and equipment11,048011,04811,048.Work in progress1,308,126205,8281,102,2981,635,097FINANCIAL ASSETS (D)12,550,638179,07812,371,56013,421,598.Long-term loans 719,8420719,8421,779,880.Other financial receivables4,08404,0844,084.Equity investments11,826,712179,07811,647,63411,637,634.Other investments and securities0000UNREALISED FOREIGN EXCHANGE LOSSES (E) 2,30402,30421,017.Decrease in long-term receivables2,30402,30421,017.Increase in long-term debt0000TOTAL I (A+B+C+D+E) 97,416,30266,311,85831,104,44333,436,256INVENTORIES (F)281,572125,199156,373173,090.Merchandise180,41493,86186,552100,956.Raw materials and supplies101,15831,33869,82172,135.Work in progress0000.Intermediary and residual goods0000.Finished goods0000CURRENT RECEIVABLES (G)17,449,897,6998,456,245,9748,993,651,7247,500,719,650.Trade payables, advances and deposits10,714010,71411,112.Accounts receivable and related accounts14,650,0558,134,1276,515,9286,203,987.Employees8,28708,28714,402.Tax receivable822,8120822,812449,251.Shareholders’ current accounts0000.Other receivables1,734,288322,1191,412,169801,242.Accruals223,7420223,74220,725MARKETABLE SECURITIES (H)130,704,2170130,704,217129,921,571UNREALIZED FOREIGN EXCHANGE LOSSES (I)(current items)50,708,323050,708,32351,785,889 TOTAL II (F+G+H+I) 17,912,882,3918,581,445,0869,331,437,3057,855,517,232CASH AND CASH EQUIVALENTS248,051,2370248,051,237213,687,200.Checks-80-80.Bank deposits245,0780245,078211,289.Petty cash2,98102,9812,398TOTAL III 248,051,2370248,051,237213,687,200TOTAL GENERAL I+II+III 115,577,235,27474,893,303,31240,683,931,96241,505,460,526Amortization and provisions At 06/30/2020 45 Maroc Telecom • Financial Report H1 2020 45 SHAREHOLDERS’ EQUITY AND LIABILITIESEXERCICEEXERCICE(In MAD thousand)NET 12/31/2019SHAREHOLDERS' EQUITY (A)10,835,40313,224,863 Share capital (1)5,274,5725,274,572 Less: capital subscribed and not paid-in00 Paid-in capital00 Additional paid-in capital00 Revaluation difference00 Statutory reserve527,457879,095 Other reserves2,552,6463,811,903 Retained earnings (2)00 Unallocated income (2)00 Net income of the year (2)2,480,7283,259,293QUASI-EQUITY (B)00 Investment subsidies00 Regulated provisions00DEBENTURE BONDS (C)6,8746,874 Debenture bonds00 Other long-term debt6,8746,874PROVISIONS (D)16,70035,414 Provisions for contingencies2,30421,017 Provisions for losses14,39614,396UNREALIZED FOREIGN EXCHANGE GAINS (E)2,6400 Increase in long-term receivables2,6400 Decrease in long-term debt00TOTAL I (A+B+C+D+E) 10,861,61813,267,151CURRENT LIABILITIES (F)17,055,24513,213,682 Accounts payable and related accounts 5,994,4607,111,716 Trade receivables, advances and down payments92,49282,480 Payroll costs893,2191,059,639 Social security contributions84,87488,424 Tax payable3,076,3822,790,460 Shareholders’ current accounts4,651,0311 Other payables605,961470,581 Accruals1,656,8261,610,381OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 1,504,2604,747,496UNREALIZED FOREIGN EXCHANGE GAINS (Current items) (H)59,28738,685Total II (F+G+H) 18,618,79217,999,863BANK OVERDRAFTS11,203,52210,238,446 Discounted bills00 Treasury loans00 Bank loans and overdrafts11,203,52210,238,446Total III 11,203,52210,238,446TOTAL GENERAL I+II+III40,683,93241,505,461 At 06/30/2020 46 Maroc Telecom • Financial Report H1 2020 46 From 01/01/20 at 06/30/20TOTAL OF THETOTAL AT(In MAD thousand)Specific to the yearPrevious exerciceYEAR06/30/2020I- OPERATING INCOME10,462,497010,462,49710,650,916Sales of goods236,5010236,501196,347Sales of manufactured goods and services rendered9,945,94709,945,94710,126,948Operating revenues10,182,448010,182,44810,323,295Change in inventories000Company-constructed assets 000Operating subsidies000Other operating income15,229015,22914,752Operating write-backs: expense transfers264,8190264,819312,868TOTAL I10,462,497010,462,49710,650,916II- OPERATING EXPENSES6,539,65706,539,6576,663,665Cost of goods sold283,0420283,042312,880Raw materials and supplies1,566,88501,566,8851,684,618Other external expenses1,277,21301,277,2131,319,509Taxes (except corporate income tax)122,1860122,186102,004Payroll, costs1,026,23501,026,2351,108,845Other operating expenses2,54002,5402,540Operating allowances for amortization1,750,99801,750,9981,772,134Operating allowances for provisions510,5580510,558361,134TOTAL II6,539,65706,539,6576,663,665III- OPERATING INCOME I-II3,922,83903,922,8393,987,251IV- FINANCIAL INCOME1,209,79001,209,7901,274,507Income from equity investments and other financial investments942,9320942,932944,170and other financial investments- Foreign exchange gains133,4770133,477133,620Interest and other financial income60,578060,578113,229Financial write - backs: expense transfers72,803072,80383,488TOTAL IV1,209,79001,209,7901,274,507V- FINANCIAL EXPENSES350,6500350,650292,097Interest and loans 168,1880168,188116,121Foreign exchange losses128,6260128,626122,449Other financial expenses 8240824289Financial allowances53,012053,01253,239TOTAL V350,6500350,650292,097VI- FINANCIAL INCOME IV - V859,1400859,140982,411VII- ORDINARY INCOME III + VI 4,781,97904,781,9794,969,662VIII- EXTRAORDINARY INCOME 3,446,38803,446,388263,017Proceeds from disposal of fixed assets 11601161,143Subsidies received0000Write-backs of investment subsidies0000Other extraordinary income44,915044,915196,612Extraordinary write-backs: expense transfers 3,401,35703,401,35765,261TOTAL VIII3,446,38803,446,388263,017IX- EXTRAORDINARY EXPENSES 5,023,12805,023,128237,825Net book value of disposed assets9009023,283Subsidies granted 0000Other extraordinary expenses4,901,90704,901,907107,891Regulated provisions 0000Extraordinary allowances for depreciation and provisions 121,1320121,132106,651TOTAL IX5,023,12805,023,128237,825X- NON-CURRENT INCOME VIII - IX-1,576,7400-1,576,74025,191XI- PRE-TAX INCOME VII + X3,205,23903,205,2394,994,853XII- CORPORATE INCOME TAX724,5110724,5111,234,138XIII- NET INCOME XI - XII2,480,72802,480,7283,760,715XIV- TOTAL REVENUES ( I+IV+VIII)15,118,674015,118,67412,188,440XV- TOTAL EXPENSES ( II+V+IX+XII)12,637,946012,637,9468,427,725XVI- NET INCOME (total income - total expenses)2,480,72802,480,7283,760,715OPERATIONS 47 Maroc Telecom • Financial Report H1 2020 47 The presentation guidelines and valuation methods used in preparing these documents comply with the rules and regulations in force. The table below summarizes the trends of the main financial indicators of Maroc Telecom over the last three halfs year: In MAD million H1 2018 H1 2019 H1 2020 Change 20/19 Revenues 10 219 10 323 10 182 1,4% Operating income 3 546 3 987 3 923 1,6% Financial income 1 086 982 859 12,5% Income tax expense 1 119 1 234 725 41,3% Non-current income 100 25 1,577 Net income 3 613 3 761 2,481 34,0% Investments 1 317 820 508 38,1% Key elements of the income statement Revenues Maroc Telecom generated 10.182 billion Moroccan dirhams in revenue in 2020, down 1.4% on the first half of 2019. Operating income and net income Profit from operations fell from 3.987 billion Moroccan dirhams to 3.923 billion Moroccan dirhams, down 1.6% on the first half of 2019. This change is mainly due to the drop in revenue. Financial income was down 12.5% to 859 million Moroccan dirhams versus 982 million Moroccan dirhams in the first half of 2019. This change is mainly due to falling interest on loans to subsidiaries and the increase in interest expense. Non-recurring earnings for the first half of 2020 amounted to MAD-1,577 million compared with MAD25 million in the first half of 2019. This change is mainly due to IAM's contribution to Covid-19 fund. With pre-tax income of MAD3,205 million and corporate income tax of MAD725 million, net income amounted to MAD2,481 million, down 34%. Balance sheet At June 30, 2020, the total balance sheet reached 40,684 million Moroccan dirhams, down 2% on the previous accounting period. 48 Maroc Telecom • Financial Report H1 2020 48 Breakdown of assets (Assets in millions of Moroccan dirhams) 2018 NET 2019 H1 2020 Net intangible assets 2 340 2 305 2 134 Net property, plant and equipment 18 430 17 688 16 596 Net financial assets 12 506 13 422 12 372 Unrealized foreign exchange losses 19 21 2 Fixed assets 33 296 33 436 31 104 Current assets 7 678 7 856 9 331 Cash and cash equivalent - equity 398 214 248 Total assets 41 372 41 505 40 684 At June 30, 2020, net fixed assets stood at 31,104 million Moroccan dirhams, versus 33,436 million Moroccan dirhams in the previous accounting period. They represented 76% of total assets and were down 7% on 2019. Net intangible assets stood at 2,134 million Moroccan dirhams in June 2020, versus 2,305 million Moroccan dirhams in 2019. Net property, plant and equipment fell by 6.2%, from 17,688 million Moroccan dirhams in December 2019 to 16,596 million Moroccan dirhams in June 2020. Net long term investments stood at 12,372 million Moroccan dirhams in June 2020, versus 13,422 million Moroccan dirhams in 2019 following the repayment of loans by subsidiaries. Current assets excluding investment securities (not including those related to price regularization) amounted to 9,331 million Moroccan dirhams in June 2020, versus 7,856 million Moroccan dirhams in 2019, a 18.8% increase due mainly to the recognition of subsidiary dividends, the payment dates of which coincide with the second half of the year and to the liquidation balance of the corporate income tax. Net cash, including investment securities (not including those related to price regularization), stood at - 10,955 million Moroccan dirhams on June 30, 2020, versus -10,025 million Moroccan dirhams on December 31, 2019. 49 Maroc Telecom • Financial Report H1 2020 49 Change 20/19 7,4% 6,2% 7,8% 89,0% 7,0% 18,8% 16,1% 2,0% Liabilities and liability items (Liabilities in MAD millions) 2018 2019 NET H1 2020 Change 20/19 Net equity 15,969 13,225 10,835 18.1% o/w net income for the year 6,301 3,259 2,481 23.9% Financial debt 2,714 7 7 0.0% Provisions for risks and charges exceeding one year 34 35 17 52.8% Unrealized foreign exchange gains 0 0 3 Total permanent financing 18,716 13,267 10,862 18.1% Current liabilities 14,666 18,000 18,619 3.4% Cash and cash equivalent- liabilities 7,990 10,238 11,204 9.4% Total shareholders’ equity and liabilities 41,372 41,505 40,684 2.0% Taking into account earnings for the period of MAD2,481 million and the distribution of a dividend of MAD4.9 billion, net equity at June 30, 2020 amounted to MAD10,835 million, compared with MAD13,225 million in 2019. Cash and cash equivalents increased by 9.4% to MAD11,204 million, compared with MAD10,238 million in 2019. At June 30, 2020, current liabilities amounted to MAD18,619 million, compared with MAD18,000 million in 2019. 50 Maroc Telecom • Financial Report H1 2020 50 51 Maroc Telecom • Financial Report H1 2020 51 52 Maroc Telecom • Financial Report H1 2020 52 | Semestriel, 2020, Operator, MT | write me a financial report |
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| 1 FINANCIAL REPORT First Half of 2019 Maroc Telecom • Financial Report H1 2019 1 Preliminary remarks: This financial report and the condensed financial statements for the half year ended June 30th, 2019 were approved by the Management Board on July 16th, 2019. They were submitted to the Supervisory Board on July 19, 2019, after review by the Audit Committee at its meeting on July 19th, 2019. This report should be read in conjunction with the Management Board’s report for the year ended December 31, 2018 as published in Registration Document as filed with the Securities Regulator (AMF) on April 11, 2019 (“the 2018 Registration Document”). 2 Maroc Telecom • Financial Report H1 2019 2 CONTENTS HIGHLIGHTS 1. CERTIFICATIONS 1.1 Person responsible for the interim report 1.2 Certification of the interim report 1.3 Persons responsible for the audit of the financial statements 2. ACTIVITY REPORT 2.1 Description of activities 2.2 Related-party transactions 2.3 Growth outlook 3. FINANCIAL REPORT 3.1 Consolidated financial Data 3.2 Income statement and financial position 3.3 Consolidated financial statements and notes 3.4 Statutory financial statements 3 Maroc Telecom • Financial Report H1 2019 3 7 7 7 10 18 22 24 27 31 42 Highlights January 2019 Maroc Telecom launches the new "Switch" balance conversion service which offers Jawal customers the freedom and flexibility to convert their Voice credits to Data and vice versa according to their needs. In Ivory Coast and Mali, the domestic Mobile call termination rate falls to 7 CFA francs/min starting January 1, 2019. In Morocco, ANRT launched a study on the preparation of the General Guidelines Note by 2023. In Togo, specifications are signed for the 2G/3G/4G license. February 2019 In Morocco, enactment of Act No. 121.12, amending and supplementing Act 24-96, which establishes a general obligation to access and share infrastructure and an increase in the level of penalties. Maroc Telecom enhances its range of top-end Mobile Packages for the Business and Professional Mobile segment, introducing additional 4G+ Data volumes free of charge. As a result, the 35 hr Package now offers 15 GB of 4G+ Internet instead of 10 GB and the 50 hr Package offers 30 GB instead of 20 GB at the same price. Maroc Telecom further enhances the prepaid Mobile Internet offer and increases the validity period of the MAD 30 Internet Pass to 14 days. Maroc Telecom enhances the *4 international Pass and lowers the price of 22 destinations in Africa. Maroc Telecom enhances the *7 Roaming Pass, which includes voice, SMS and data, with new destinations: MT customers can now use their Roaming Pass in 30 countries instead of 6. In Mali, 7.5 billion CFA francs paid as the first installment of the 4G license acquired in 2018. In Mauritania, adoption of a decision to submit to the general authorization system, and the establishment and operation of Wireless Local Loop (WLL) networks with a view to providing only fixed and/or roaming services. In Burkina Faso, a decree adopted changing the terms and conditions for identifying subscribers and making the compliance deadline 3 months. March 2019 In Burkina Faso, a global Mobile license granted including 4G and involving the early renewal of 2G/3G licenses, for a period of 17 years, and a price of 80 billion CFA francs paid entirely by the subsidiary. Onatel proceeds with the commercial launch of its 4G service. In Ivory Coast, 10 billion CFA francs paid as the fourth and final installment of the global 4G license acquired in 2016. Signing of an agreement with Millicom to acquire their subsidiary Tigo Tchad. April 2019 In Mauritania, as part of the implementation of the resolution to remove roaming charges in the G5 Sahel countries, a decree is signed exempting calls originating in the countries of that region from the tax on incoming international traffic and the minimum international call termination limit. In Mali, 7 billion CFA francs paid as the second and final installment of the 4G license acquired in 2018. 4 Maroc Telecom • Financial Report H1 2019 4 May 2019 Maroc Telecom launches an exclusive Top-Up x12 offer, on an ongoing basis, for all Top-ups from MAD 10, via its "Mon Espace MT" web portal. In Mauritania, Mauritel responds to a call for tender for the acquisition of a 4G license, with the option of early renewal of 2G/3G licenses for 15 years. In Togo, 6.5 billion CFA francs paid as the second installment of the global license acquired in 2018. June 2019 Maroc Telecom launches a new Pro and Business plan that offers 30 hrs in addition to 15 GB of 4G+ Internet, starting from MAD 180 (incl tax) per month. Maroc Telecom launches an enhanced, unlimited domestic and international plan for MAD 399 including unlimited calls to domestic numbers, 100 hrs to international numbers, unlimited domestic and international SMS, and 35 GB Internet. In Burkina Faso, Mobile call termination rates fall from 15 to 12.5 CFA francs/min starting July 1, 2019. The Kingdom of Morocco sells 8% of the capital held, reducing its stake to 22% (operation finalized in July). 5 Maroc Telecom • Financial Report H1 2019 5 6 1- CERTIFICATIONS Maroc Telecom • Financial Report H1 2019 6 In this document, "Maroc Telecom" or “the Company” refers to the company Itissalat Al-Maghrib, and “the Group” refers to the group constituted by the Company and all of its directly and indirectly owned subsidiaries. 1.1 PERSON RESPONSIBLE FOR THE INTERIM REPORT Mr. Abdeslam Ahizoune Chairman of the Management Board 1.2 CERTIFICATION OF THE INTERIM REPORT I hereby attest, to my knowledge, that the condensed interim financial statements are established in accordance with applicable accounting standards and give a true and fair view of the income and financial position and results of the company and all of the consolidated companies, and that the interim management report gives a true and fair view of the significant events having occurred during the first six months of the year, and their impact on the condensed interim financial statements, the main related-party transactions. Mr. Abdeslam Ahizoune Chairman of the Management Board 1.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deloitte Audit, represented by Mrs Sakina BENSOUDA KORACHI Boulevard Sidi Mohammed Benabdellah, Bâtiment C Tour Ivoire 3, 3ème étage, La Marina Casablanca, Maroc Mrs. Bensouda Korachi was first appointed by the general meeting of April 26, 2016, reappointed in 2018. Her current three years term, shall expire at the close of the ordinary shareholders’ meeting held to act on the financial statements for the year ending December 31, 2021. Mr. Abdelaziz ALMECHATT 83, avenue Hassan II – 20 100 Casablanca, Maroc First appointed in 1998 by the bylaws and renewed in 2017, his current three-year term of office expires at the end of the ordinary general meeting called to approve the financial statements for the fiscal year ending December 31, 2019. 7 Maroc Telecom • Financial Report H1 2019 7 To the shareholders ITISSALAT AL MAGHRIB (IAM) S.A Avenue Annakhil, Rabat Maroc This is a free translation into English of the statutory auditor’s limited review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. LIMITED REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF ITISSALAT AL MAGHRIB (IAM) S.A PERIOD FROM 1st JANUARY TO 30th JUNE 2019 We have conducted a limited review of the interim consolidated financial statements of Itissalat Al Maghrib (IAM).S.A and its subsidiaries (Itissalat Al Maghrib Group) which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidation perimeter and a selection of explanatory information related to the period from 1st January to 30th, June 2019. These interim consolidated financial statements show an amount of consolidated equity of MMAD 16.004 including a consolidated net profit of MMAD 3.485. We conducted our review in accordance with professional standards applicable in Morocco. Those standards require that a limited review should be planned and executed in order to obtain a moderate assurance that the interim consolidated financial statements referred to in the preceding first paragraph, are free from material misstatement. A limited review includes mainly making inquiries of the company’s staff and analytical review to financial data; thus, it provides a lower level if assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying interim consolidated financial statements, do not give a true and fair view of financial performance of Itissalat Al Maghrib Group as at 30th June 2019, and its financial position and assets according to International Accounting Standards IAS/IFRS, as adopted by the European Union. Casablanca, 20th July 2019 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 8 Maroc Telecom • Financial Report H1 2019 8 To Shareholders ITISSALAT AL MAGHRIB (IAM) S.A Annakhil Avenue, Rabat Morocco This is a free translation into English of our limited review report on the half-year individual financial statements issued in French and it is pro7vided solely for the convenience of English-speaking users. REPORT ON THE LIMITED REVIEW OF INDIVIDUAL FINANCIAL STATEMENTS of ITISSALAT AL MAGHRIB (IAM) S.A. PERIOD FROM JANUARY 1st TO JUNE 30th 2019 In application of provisions of the Dahir carrying Law No. 1-93-212 of 21 September 1993, as modified and completed, We have reviewed the interim financial statements of ITISSALAT AL MAGHRIB (IAM) S.A. which comprise the statement of financial position the statement of profit and loss related to the period from January 1st to June 30th, 2019. Those interim financial statements, which show a total equity of MAD 13.726.285 thousands including a net profit of MAD 3.760.715 thousands, are the responsibility of management of ITISSALAT AL MAGHRIB (IAM) S.A. We conducted our review in accordance with professional Standards applicable in Morocco related to limited review engagements. Those standards require that we plan and perform the review in order to obtain a moderate assurance that financial statements are free from material misstatement. A review includes mainly making inquiries of the company’s staff and analytical review of financial data; thus, it provides a lower level of assurance than an audit. We have not conducted an audit, and accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the approved accompanying interim financial statements, do not present fairly the result of the period’s transactions of ITISSALAT AL MAGHRIB (IAM) S.A., the financial position and its assets as at June 30th, 2019, in accordance with Generally Accepted Accounting Principles in Morocco. Casablanca, July 20th, 2019 The Statutory Auditors Deloitte Audit Abdelaziz ALMECHATT Sakina BENSOUDA KORACHI Abdelaziz ALMECHATT Partner Partner 9 Maroc Telecom • Financial Report H1 2019 9 10 2- ACTIVITY REPORT Maroc Telecom • Financial Report H1 2019 10 2.1 DESCRIPTION OF ACTIVITIES Details of the financial indicator adjustments for "Morocco" and "International" are provided in Appendix 1. IFRS in MAD million H1-2018 H1-2019 Change Change like-for- like(1) Revenues 17,939 17,844 0.5% +0.8% EBITDA 8,860 9,409 +6.2% +5.1% Margin (%) 49.4% 52.7% +3.3 pt +2.1 pt Adjusted EBITA 5,540 5,862 +5.8% +6.4% Margin (%) 30.9% 32.9% +2.0 pt +1.7 pt Adjusted net income 3,468 3,485 +0.5% +1.5% Group share of published net income 2,991 3,022 +1.0% +1.8% Margin (%) 16.7% 16.9% +0.3 pt +0.2 pt CAPEX (2) 3,599 3,227 10.3% 8.2% Of which frequencies and licenses CAPEX/revenues (excluding frequencies and licenses) 480 17.4% 1,327 10.7% 6.7 pt 6.7 pt Adjusted CFFO 4,230 5,728 +35.4% +30.6% Net debt 17,129 21,034 +22.8% +16.3% Net debt/EBITDA(3) 1.0x 1.1x Customer base Maroc Telecom Group ended the half year with a total customer base of nearly 63 million subscribers, up 3.9% on the same period the previous year. This increase was originating both from the Mobile and Fixed-Line customer base in Morocco (up 3.2% and 3.6%, respectively) as well as from subsidiaries’ Mobile customer base (up 4.1%). Revenues At end-June 2019, Maroc Telecom Group's consolidated revenues(4) amounted to MAD 17,844 million, up 0.8% (at constant exchange rates), thanks to business growth in Morocco, which offset the adverse impact of the decline in Mobile call terminations rates and incoming international revenue in subsidiaries. Earnings from operations before depreciation and amortization Thanks to an active cost optimization policy, which reduced operating expenses, and to the favorable fall in Mobile call termination rates in subsidiaries, the Group’s earnings from operations before depreciation and 11 Maroc Telecom • Financial Report H1 2019 11 amortization (EBITDA) amounted to MAD 9,409 million, up 6.2% (+5.1% on a like-for-like basis(1)). The EBITDA margin improved by 2.1 points to the high level of 51.5% (on a like-for-like basis(1)). Earnings from operations At the end of June 2019, Maroc Telecom Group's adjusted consolidated earnings from operations (EBITA) (5) amounted to MAD 5,862 million, up 5.8% (+6.4% on a like-for-like basis(1)), supported by the rise in EBITDA. The EBITA margin rose 2.0 points (+1.7 pts on a like-for-like basis(1)) to 32.9%. Net Income and Group share of Net Income In the first half of 2019, adjusted Net Income amounted to MAD 3,485 million and Group share of adjusted Net Income was MAD 3,022 million, up 1.5% and 1.8%, respectively, on a like-for-like basis(1), supported by strong business performance in Morocco. Investments Excluding frequencies and licenses, the optimization of capital expenditures levels leads to a CAPEX/revenue ratio of 10.7%, in line with targets. Cash-flow Adjusted cash flow from operations (CFFO)(6) was MAD 5,728 million, up 35.4% (+30.6% on a like-for-like basis(1)) under the combined effects of higher EBITDA and optimization of investments. At the end of June 2019, Maroc Telecom Group's consolidated net debt(7) was MAD 21 billion, up 22.8% year- on-year, reflecting the license payments in subsidiaries, the acquisition of Tigo Chad, the payment of dividends to all Maroc Telecom Group shareholders and the impact of IFRS16. Excluding the impact of IFRS 16, the consolidated net debt is up 16.3%. Highlights As part of the implementation of the 2019 Budget Act, the Moroccan Government sold off 8% of the capital and voting rights in Itissalat Al-Maghrib in the form of blocks of shares on June 17, 2019 (6% of capital) and of a public offer sale closed on July 16, 2019 (2% of capital). After the completion of this transaction, the Kingdom of Morocco holds 22% of the capital and voting rights in Maroc Telecom. 12 Maroc Telecom • Financial Report H1 2019 12 2.1.1 MOROCCO IFRS in MAD million H1-2018 H1-2019 Change Change on like-for- like basis (1) Revenues 10,562 10,713 +1,4% Mobile 6,784 6,959 +2,6% Services 6,645 6,794 +2,2% Equipment 138 165 +19,0% Fixed-Line 4,665 4,657 0,2% Of which Fixed-Line Data* 1,472 1,538 +4,5% Eliminations and other income 887 903 EBITDA 5,542 6,136 +10.7% +9.0% Margin (%) 52.5% 57.3% +4.8 pt +3.9 pt Adjusted EBITA 3,679 4,170 +13.3% +13.2% Margin (%) CAPEX(2) Of which frequencies and licenses 34.8% 1 376 38.9% 877 +4.1 pt 36.3% +4.0 pt CAPEX/revenues (excluding frequencies and licenses) 13.0% 8.2% 4.8 pt Adjusted CFFO 3,186 3,818 +19.8% +16.7% Net Debt 14,119 15,299 +8.4% +2.4% Net debt/EBITDA(3) 1.3x 1.2x Fixed-line data includes Internet, ADSL TV and Data services to businesses Revenues from activities in Morocco continued to grow, to MAD 10,713 million (+1.4% from the same period of the previous year) thanks to the still-booming Mobile and Fixed-line Data business (+19.7% and +4.5% respectively). Earnings from operations before depreciation and amortization (EBITDA) in the first half of 2019 amounted to MAD 6,136 million, up 10.7% and +9.0% excluding the impact of the application of IFRS16. This performance reflects revenue growth as well as cost control. EBITDA margin improved by 3.9 points (on a like-for-like basis(1)). Adjusted earnings from operations (EBITA)(5) amounted to MAD 4,170 million, up 13.3% year-on-year (+13.2% on like-for-like basis(1)) mainly due to the rise in EBITDA. The adjusted EBITA margin therefore improved by 4.0 points (on a like-for-like basis(1)). In the first six months of 2019, adjusted cash flow from operations (CFFO)(6) amounted to MAD 3,818 million, up 19.8% (16.7% excluding the impact of IFRS 16), mainly thanks to the increase of EBITDA and the optimization of investments. 13 Maroc Telecom • Financial Report H1 2019 13 2.1.1.1 Mobile Unit H1-2018 H1-2019 Change Mobile Customer base (8) (000) 18,935 19,547 +3.2% Prepaid (000) 17,090 17,364 +1.6% Postpaid (000) 1,845 2,183 +18.3% Of which 3G/4G+ Internet(9) (MAD/mois) 10,084 11,119 +10.3% ARPU(10) 57.5 57.5 +0.1% At June 30, 2019, the Mobile customer base(8) was 19.5 million customers, up 3.2% year-on-year, driven by the growth of 18.3% in the postpaid base, and of 1.6% in the prepaid base. Mobile revenues amounted to MAD 6,959 million, up 2.6%. The 6.5% growth in outgoing revenues largely offset the decline in incoming revenues reflecting the international traffic decline. Blended ARPU(10) was MAD 57.5 for the first six months of 2019, unchanged from the same period the previous year. 2.1.1.2 Fixed-line & Internet Unit H1-2018 H1-2019 Change Fixed-lines (000) 1,787 1,851 +3.6% Broadband access (11) (000) 1,439 1,529 +6.2% The Fixed-line customer base is at 1.9 million lines, up 3.6% and the Broadband subscribers rise by 6.2% to 1.5 million lines. Revenues from Fixed-line and Internet activities posted a slight decrease of 0.2%, due to the decline in revenues from international transit, partly offset by the 4.5% increase in Fixed-line Data revenue. 14 Maroc Telecom • Financial Report H1 2019 14 2.1.2 INTERNATIONAL 2.1.2.1 Financial indicators IFRS in MAD million H1-2018 H1-2019 Change Change on a like-for- like basis (1) Revenues 8,146 7,824 4.0% 1.0% Of which Mobile Services 7,443 7,118 4.4% 1.4% EBITDA 3,318 3,273 1.4% 1.3% Margin (%) 40.7% 41.8% +1.1 pt 0.1 pt Adjusted EBITA 1,861 1,692 9.1% 7.0% Margin (%) 22.8% 21.6% 1.2 pt 1.4 pt CAPEX 2,223 2,351 +5.7% +9.2% Of which frequencies and licenses 480 1,327 CAPEX/revenues (excluding frequencies and licenses) 21.4% 13.1% 8.3 pt 8.3 pt Adjusted CFFO 1,044 1,909 +82.9% +73.0% Net Debt 6,583 8,698 +32.1% +27.9% Net debt/EBITDA(3) 1.0x 1.3x At the end of June 2019, the Group’s international activities recorded revenues of MAD 7,824 million, down 1.0% at constant exchange rates, mainly due to the decline in Mobile call terminations rates as well as the decrease in incoming international revenue facing indirect competition from OTTs’ services. Excluding the impact of the decline in call terminations rates, revenues from international activities are up 0.7% at constant exchange rates. Over the same period, earnings from operations before depreciation and amortization (EBITDA) amounted to MAD 3,273 million, down 1.4% (-1.3% like-for-like(1)) reflecting the combined impacts of the decline in revenues and the weight of taxes and regulatory fees, which represented 4.2% of EBITDA. EBITDA margin was stable (-0.1 pt on like-for-like basis(1)) from the same period of 2018. In the first half of 2019, adjusted earnings from operations (EBITA)(5) amounted to MAD 1,692 million, down 9.1% (-7.0% on like-for-like basis(1)), representing a margin of 21.6% (down 1.4 pt on a like-for-like basis(1)) from the same period the previous year. Adjusted cash flow from operations (CFFO)(6) in international activities increased by 82.9% (+73.0% on like- for-like basis(1)), to MAD 1,909 million, with capital expenditures at 13.1% of revenues, excluding frequencies and licenses. 15 Maroc Telecom • Financial Report H1 2019 15 2.1.2.2 Operating indicators Mobile Customer base (8) Mauritania Burkina Faso Gabon Mali Ivory Coast Benin Togo Niger Central African Republic Fixed-Line Customer base Mauritania Burkina Faso Gabon Mali Fixed-line broadband Customer base (11) Mauritania Burkina Faso Gabon Mali Unité (000) (000) (000) 16 H1-2018 H1-2019 37,818 39,372 2,160 2,389 7,526 8,020 1,648 1,648 8,360 7,483 8,167 8,899 4,385 4,362 3,151 3,608 2,273 2,810 147 153 310 322 53 57 77 77 22 22 159 167 111 114 13 11 14 15 17 18 66 71 Maroc Telecom • Financial Report H1 2019 16 Change +10.6% +6.6% 0.0% 10.5% +9.0% 0.5% +14.5% +23.6% +4.1% +7.5% 0.6% +1.2% +5.4% 21.3% +2.6% +4.2% +6.9% Notes : (1) "Like-for-like" refers to unchanged MAD/Ouguiya/ CFA Franc exchange rates and the neutralization of the impact of the application of IFRS 16 on EBITDA, adjusted EBITA, adjusted Net Income, Group share of adjusted Net Income, adjusted CFFO and Net debt. (2) CAPEX corresponds to purchases of tangible and intangible assets recognized for the period. (3) The ratio Net Debt/EBITDA excludes the impact of IFRS16 standard. (4) Maroc Telecom consolidates the following companies in its financial statements: Mauritel, Onatel, Gabon Telecom, Sotelma, Casanet, AT Côte d’Ivoire, Etisalat Benin, AT Togo, AT Niger, and AT Centrafrique. (5) EBITA corresponds to EBIT before the amortization of intangible assets acquired through business combinations, write-downs of goodwill and other intangible assets acquired through business combinations, and other income and expenses relating to financial investment transactions and transactions with shareholders (except when recognized directly in equity). (6) CFFO includes net cash flow from operations before tax, as set out in the cash flow statement, as well as the dividends received from companies booked at equity and non-consolidated equity investments. CFFO also includes net capital expenditure, which corresponds to net uses of cash for acquisitions and disposals of tangible and intangible assets. (7) Loans and other current and non-current liabilities less cash and cash equivalents, including cash held in escrow for bank loans. (8) The active customer base consists of prepaid customers who have made or received a voice call (excluding ERPT or Call-Center calls) or received an SMS/MMS or used Data services (excluding ERPT services) during the past three months, and postpaid customers who have not terminated their agreements. (9) The active customer base for 3G and 4G+ mobile Internet includes holders of a postpaid subscription agreement (with or without a voice offer) and holders of a prepaid Internet subscription agreement who have made at least one top-up during the past three months or whose top-up is still valid and who have used the service during that period. (10) ARPU is defined as revenues (generated by inbound and outbound calls and by data services) net of promotional offers, excluding roaming and equipment sales, divided by the average customer base for the period. In this instance, blended ARPU covers both the prepaid and postpaid segments. (11) The broadband customer base includes ADSL access and leased lines in Morocco, as well as the ADMA customer base in Mauritania, Burkina Faso and Mali. 17 Maroc Telecom • Financial Report H1 2019 17 Appendix 1: Relationship between adjusted financial indicators and published financial indicators Adjusted EBITA, Adjusted Net Income, Group share of adjusted Net Income, and adjusted CFFO are not strictly accounting measures, and should be considered as additional information. They are a better indicator of the Group's performance as they exclude non-recurring items. H1-2018 H1-2019 (in MAD millions) Morocco International Group Morocco International Group Adjusted EBITA 3,679 1,861 5,540 4,170 1,692 5,862 Non-recurring items: Restructuring costs 2 +11 +9 Published EBITA 3,677 1,872 5,549 4,170 1,692 5,862 Adjusted Net Income 3,468 3,485 Non-recurring items: Restructuring costs +10 Published Net Income 3,477 3,485 Adjusted Net Income – Group share 2,991 3,022 Non-recurring items: Restructuring costs +10 Published Net Income – Group share 3,001 3,022 Adjusted CFFO 3,186 1,044 4,230 3,818 1,909 5,728 Non-recurring items: Restructuring costs 2 2 License payments 274 274 1,841 1,841 Published CFFO 3,185 769 3,954 3,818 68 3,887 The first half of 2019 was marked by the payment of MAD 1,841 million for licenses in Burkina Faso, Mali, Togo and Côte d’Ivoire. The first half of 2018 was marked by the payment of MAD 274 million for licenses for subsidiaries in Gabon and Côte d’Ivoire. 18 Maroc Telecom • Financial Report H1 2019 18 Appendix 2: Impact of the adoption of IFRS 16 IFRS 16 is applied from January 1, 2019, and H1-2018 data represent the application of IAS 17. The like-for- like change excludes the impact of the application of IFRS 16 (+MAD 189 million on EBITDA, +MAD 15 million on adjusted EBITA, - MAD 10 million on adjusted Net Income, - MAD 10 million on Group share of adjusted Net Income, +MAD 254 million on adjusted CFFO and +MAD1 362 million in Net debt). As at end-June 2019, the impact of this standard on Maroc Telecom’ key indicators are as follows: H1- 2019 (in MAD million) Morocco International Group EBITDA +98 +91 +189 Adjusted EBITA +6 +9 +15 Adjusted Net Income 10 Group share of adjusted Net Income 10 Adjusted CFFO +101 +154 +254 Net Debt +844 +518 +1,362 19 Maroc Telecom • Financial Report H1 2019 19 2.2 RELATED-PARTY TRANSACTIONS Under the terms of Article 95 et seq. of Moroccan Law No. 17-95 concerning Limited Liability Companies, as amended and supplemented by Law No. 20-05, Law No. 78-12 and Law No 20-19, any agreement between the Company and a member of the Management Board or of the Supervisory Board, or one of its shareholders directly or indirectly holding more than 5% of the Company's capital or voting rights, is subject to prior authorization by the Supervisory Board. The same applies to agreements in which any person referred to in the previous paragraph has an indirect interest or whereby any such person deals with the company through an intermediary. Also subject to the same authorization are agreements between the Company and an entity, if a member of the Company's Management Board or of the Supervisory Board is the owner, an indefinitely responsible associate, the manager, the director, the Chief Executive Officer, or a member of the Management Board or of the Supervisory Board, of the said entity. Accordingly, the regulated agreements signed in the first half of fiscal year 2019, and the agreements signed in previous years that continued in effect during the first half of fiscal year 2019, are presented below. 2.2.1 REGULATED AGREEMENTS SIGNED IN THE FIRST HALF OF 2019 None. 2.2.2 REGULATED AGREEMENTS SIGNED IN PREVIOUS YEARS STILL IN EFFECT IN 2019 Brand licensing agreements Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights connected with the "Moov" and "No Limit" trademarks belonging to the Etisalat Group as well as the Trademark Licensing Agreements associated with them for the subsidiaries cited above. Maroc Telecom is the majority shareholder of these entities and, for Gabon Telecom, Mr. Boudaoud is also a member of the management bodies common to both parties. Technical support agreement Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. As a result, Maroc Telecom acquired the rights connected with the Technical Support Agreements signed between these companies and the Etisalat Group. Maroc Telecom is the majority shareholder of these entities and, for Gabon Telecom, Mr. Boudaoud is also a member of the management bodies common to both parties. Agreements for advances on current account Effective January 26, 2015, Maroc Telecom became the majority shareholder of Atlantique Telecom Côte d’Ivoire, Etisalat Bénin, Atlantique Telecom Togo, Atlantique Telecom Niger, Atlantique Telecom Gabon (an entity absorbed by Gabon Telecom on June 29, 2016 with effect from January 1, 2016) and Atlantique Telecom Centrafrique. Maroc Telecom also acquired the Etisalat Group's current accounts in these subsidiaries. Maroc Telecom is the majority shareholder of these entities and, for Gabon Telecom, Mr. Boudaoud is also a member of the management bodies common to both parties. 20 Maroc Telecom • Financial Report H1 2019 20 Technical services agreement with Etisalat In May 2014, Maroc Telecom signed a Technical Services Agreement with Emirates Telecommunications Corporation (Etisalat) whereby the latter will provide to Maroc Telecom on request, directly or indirectly, technical support services, particularly in the following fields: digital media, insurance, financial rating. These services may be performed by expatriate personnel. Effective May 14, 2014, Etisalat became the reference shareholder of Maroc Telecom via SPT, and the members of the joint management bodies are Eissa Mohammad Al Suwaidi, Hatem Dowidar, Saleh Abdooli, Serkan Okandan, and Mohammad Hadi Al Hussaini. Services agreement with Gabon Telecom In November 2016, Gabon Telecom signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Gabon Telecom and the member of the joint management bodies is Mr. Brahim Boudaoud. Services agreement with Sotelma In 2009, Sotelma signed an agreement with Maroc Telecom for the latter to provide it with technical support services. Maroc Telecom is the majority shareholder of Sotelma and the member of the joint management bodies is Mr. Abdelkader Maamar. Services agreement with Onatel In September 2007, Onatel signed an agreement with Maroc Telecom for the latter to provide it with services in the following fields: strategy and development, organization, networks, marketing, finance, purchasing, human resources, information systems, and compliance. These services are performed mainly by expatriate personnel. Maroc Telecom is the majority shareholder of Onatel. Services agreement with Mauritel In 2001, Mauritel SA signed an agreement with Maroc Telecom for the latter to provide it with work projects linked to services, to technical support and to the sale of equipment. Maroc Telecom is the majority shareholder of Mauritel SA and the member of the joint management bodies is Mr. Hassan Rachad. Agreement for the Acquisition and Financing of the Subsidiaries Acquired from Etisalat The agreement is for Maroc Telecom to pay the acquisition price in five interest-free installments and for Etisalat to grant a USD 200 million zero-rate loan which the company has reallocated to certain acquired subsidiaries. Etisalat is the reference shareholder of Maroc Telecom. The members of the joint management bodies for Etisalat are Eissa Mohammad Al Suwaidi, Mohammad Hadi Al Hussaini, Hatem Dowidar, Saleh Abdooli and Serkan Okandan. 21 Maroc Telecom • Financial Report H1 2019 21 Agreement with Casanet Since fiscal year 2003, Maroc Telecom has signed several agreements with its subsidiary Casanet, for the purpose, among others, of maintaining Maroc Telecom's Menara Internet portal in operational condition, and providing development and hosting services for the Mobile portal of Maroc Telecom's websites. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan Rachad. Advance on Current Account – Casanet Maroc Telecom decided to transfer its business directory activity to its subsidiary Casanet. Accordingly, on December 4, 2007, the Supervisory Board authorized the Company to take on the necessary investment costs which would be financed by advances on a non-interest bearing current account. Maroc Telecom is the majority shareholder of Casanet and the member of the joint management bodies is Mr. Hassan Rachad. Agreement with the Royal Moroccan Athletics Federation (Fédération Royale Marocaine d’Athlétisme / FRMA) The agreement linking Maroc Telecom and FRMA, of which Mr. Abdeslam AHIZOUNE is also Chairman, was renewed by the Supervisory Board on December 7, 2018 for a maximum term of three (3) years, for an amount of three (3) million dirhams per year. 22 Maroc Telecom • Financial Report H1 2019 22 2.3 GROWTH OUTLOOK This section contains information regarding the Company’s objectives for fiscal-year 2019. The Company warns potential investors that these forward-looking statements are dependent on circumstances and events that are expected to occur in the future. These statements do not reflect historical Data and should not be considered as guarantees that the facts and Data mentioned will occur or that the objectives will be achieved. Because of their uncertain nature, these objectives may not be achieved, and the assumptions on which they are based may prove to be erroneous. Investors are encouraged to consider that some of the risks described in section 2.1 « Risk factors » the 2018 Registration Document may affect the Company’s business and its ability to achieve its objectives. On the basis of the recent changes in the market, to the extent that no new major exceptional event impacts the Group's business, Maroc Telecom maintains its outlook for 2019, at constant scope and exchange rates and excluding IFRS16: Stable revenues; Stable EBITDA; CAPEX approximately 15% of revenues, excluding frequencies and licenses. 23 Maroc Telecom • Financial Report H1 2019 23 24 3- FINANCIAL REPORT Maroc Telecom • Financial Report H1 2019 24 3.1 CONSOLIDATED FINANCIAL DATA Maroc Telecom Group’s consolidated financial data is summarized in the following table. This selected financial data is drawn from the Group's consolidated financial statements prepared according to IFRS international standards (International Financial Reporting Standards), after a limited review by the statutory auditors Mr. Abdelaziz Almechatt and the firm Deloitte Maroc, represented by Mrs. Sakina Bensouda Korachi. CONSOLIDATED FINANCIAL DATA IN MOROCCAN DIRHAMS Income statement for the first-halves of 2018 & 2019 (In millions of MAD)H1-2018H1-2019Consolidates revenues 17,93917,844Operating expenses12,39011,982Earnings from operations5,5495,862Earnings from continuing operations5,5435,857Earnings for the period 3,4773,485Earnings attributable to equity holders of the parents 3,0013,022Earnings per share (in MAD)3.413.44Diluted earnings per share (in MAD)3.413.44 Balance sheet Assets (in millions of MAD) 12/31/201806/30/2019Noncurrent assets 48,05350,428Current assets 14,07814,719 Total assets 62,13165,147SHAREHOLDERS’ equity and liabilities (in millions of MAD) 12/31/201806/30/2019Share capital 5,2755,275Equity attributable to equity holders of the parents 15,66812,452Minority interests 3,8223,552Total shareholders' equity19,49016,004Noncurrent liabilities4,1854,709Current liabilities 38,45644,435Total shareholders' equity and liabilities62,13165,147 25 Maroc Telecom • Financial Report H1 2019 25 Scope of consolidation Mauritel Maroc Telecom holds 51.5% of the voting rights of Mauritel, the incumbent operator in Mauritania and operator of a fixed-line and mobile telecommunications network, subsequent to the merger of Mauritel SA (fixed-line) and Mauritel Mobile. Mauritel S.A. is owned by the holding company Compagnie Mauritanienne de Communications (CMC), in which Maroc Telecom holds an 80% equity stake. Consequently, Maroc Telecom holds a 41.2% interest in Mauritania's incumbent operator. Mauritel has been fully consolidated by Maroc Telecom since July 1, 2004. Onatel On December 29, 2006, Maroc Telecom acquired 51% of the capital of the Burkinabe operator Onatel. The Group increases its stake in Onatel to 61% as of April 17, 2018. The subsidiary has been fully consolidated in Maroc Telecom's financial statements since January 1, 2007. Gabon Telecom On February 9, 2007, Maroc Telecom acquired 51% of the capital of Gabon Telecom. Gabon Telecom has been fully consolidated by Maroc Telecom since March 1, 2007. Gabon Telecom acquires, from Maroc Telecom, 100% of Atlantique Telecom Gabon capital. This was absorbed by Gabon Telecom on June 29, 2016. Sotelma On July 31, 2009, Maroc Telecom acquired a 51% stake in Mali’s incumbent operator, Sotelma. Sotelma has been fully consolidated by Maroc Telecom since August 1, 2009. Casanet Casanet is a Moroccan internet provider established in 1995. In 2008, it became a wholly-owned subsidiary of Maroc Telecom and expanded its field of operations by specializing in information engineering. Casanet has been fully consolidated by Maroc Telecom since January 1, 2011. Atlantique Telecom Côte d'Ivoire On January 26, 2015, Maroc Telecom acquired an 85% stake in the capital of Côte d’Ivoire's mobile operator. Atlantique Telecom Côte d’Ivoire has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Etisalat Benin On January 26, 2015, Maroc Telecom acquired 100% of the capital of Benin's mobile operator. Etisalat Benin has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Atlantique Telecom Togo On January 26, 2015, Maroc Telecom acquired a 95% stake in the capital of Togo's mobile operator. Atlantique Telecom Togo has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Atlantique Telecom Niger On January 26, 2015, Maroc Telecom acquired 100% of the capital of Niger's mobile operator. Atlantique Telecom Niger has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. 26 Maroc Telecom • Financial Report H1 2019 26 Atlantique Telecom Centrafrique On January 26, 2015, Maroc Telecom acquired 100% of the capital of the Central African Republic's mobile operator. Atlantique Telecom RCA has been fully consolidated in the financial statements of Maroc Telecom since January 31, 2015. Prestige Telecom Côte d'Ivoire Prestige Telecom was deconsolidated from the Group's financial statements following the decision of the extraordinary general meeting held in April 2019 approving its liquidation. Tigo Chad Maroc Telecom finalized the purchase of 100% of the operator Tigo Tchad. As the change of control was approved by the Chadian authorities in July, this investment is recorded as "Non-current financial assets" as at 30 June 2019 and will be consolidated in the second half of the year. Other nonconsolidated investments Investments whose significance in relation to the consolidated financial statements is not material or in which Maroc Telecom does not directly or indirectly exercise exclusive control, joint control or significant influence are not consolidated and are recorded under "Non-current financial assets". This is the case for MT Fly as well as minority interests held in Médi1 TV, RASCOM, Autoroute Maroc, Arabsat and other investments. 27 Maroc Telecom • Financial Report H1 2019 27 3.2 INCOME STATEMENT AND FINANCIAL POSITION The following table sets out data regarding Maroc Telecom’s consolidated income statement for the first-halves of 2019 and 2018: (In millions of MAD)NoteH1-2018H1-2019Revenues717,93917,844Cost of purchases-2,983-2,801Payroll costs-1,579-1,550Taxes and duties-1,375-1,469Other operating income and expenses-2,977-2,555Net depreciation, amortization and provisions-3,475-3,607Earnings from operations5,5495,862Other income and charges from ordinary activities-6-5Earnings from continuing operations5,5435,857Income from cash and cash equivalents11Gross borrowings costs-231-322Net borrowing costs-230-321Other financial income (expense)20-10Net financial income (expense)-210-331Income tax expense6-1,856-2,040Net earnings3,4773,485Exchange gain or loss from foreign activities-113-59Other income and expenses-70Total comprehensive income for the period3,3583,426Net earnings3,4773,485Attributable to equity holders of the parents3,0013,022Minority interests476463Total comprehensive income for the period3,3583,426Attributable to equity holders of the parents2,9202,985Minority interests438441EARNINGS PER SHARE H1-2018H1-2019Net earnings - group share (in millions of MAD)3,0013,022Numbers of shares at June 30879,095,340879,095,340Earnings per share (in MAD)3.413.44Diluted earnings per share (in MAD)3.413.44 The analysis below presents the various items in Maroc Telecom's consolidated income statement and details their changes over the periods considered. 28 Maroc Telecom • Financial Report H1 2019 28 COMPARAISON OF THE FIRST-HALVES OF 2019 and 2018 Revenues The following table shows the breakdown of revenues for the first-halves of 2019 and 2018. (In millions of MAD) Morocco International Eliminations Total consolidated revenues H1-2018 H1-2019 10,562 10,713 8,146 7,824 -693 17,939 17,844 769 At the end of June 2019, Maroc Telecom group generated consolidated revenues of MAD17,844 million, up 0.8% (at constant exchange rates) thanks to the growth in Morocco, which compensates the negative impact of the decline in mobile termination rates and international incoming traffic in subsidiaries. Operating expenses The table below shows Maroc Telecom’s operating expenses for the first six-month periods of 2019 and 2018. (In millions of MAD)H1-2018H1-2019Revenues17,93917,844Cost of purchases2,9832,801%16.6%15.7%Payroll costs1,5791,550%8.8%8.7%Taxes and duties1,3751,469%7.7%8.2%Other operating income (expenses)2,9772,555%16.6%14.3%Net depreciation, amortization, impairment and provisions3,4753,607%19.4%20.2%Total operating expenses12,39011,982%69.1%67.1% Cost of purchases Between the first halves of 2018 and 2019, the Group's cost of purchases decreases from MAD2,983 millions to MAD2,801 millions, a decrease of 6.1%. Payroll costs Between the first halves of 2018 and 2019, the Group's personnel expenses decreased slightly by MAD29 millions. Taxes and duties Taxes and duties amounted to MAD1,469 millions. Between the first halves of 2018 and 2019, they increased by 6.8%. 29 Maroc Telecom • Financial Report H1 2019 29 Operating incomes and expenses Other operating income and expenses decreased by 14.2% between the first halves of 2018 and 2019. Operating profit The Group's consolidated operating income for the first half of 2019 amounted to MAD5,862 million, up 5.6% compared to the first half of 2018. Net financial income In the first half of 2019, financial income amounted to MAD -331 million, mainly composed of interest expenses of MAD -322 million. Tax expense Between the first halves of 2018 and 2019, the tax charge increased by 10%, which is explained by the increase in income. Net income At the end of June 2019, the net income is up by 0.2% compared to the first half of the previous year. Noncontrolling interests Minority interests, reflecting the interests of shareholders other than Maroc Telecom in the earnings of consolidated entities, amounted to MAD463 millions in the first half of 2019, compared with MAD476 millions in the first half of 2018. Net income (Group share) At the end of June 2019, net income Group share amounted to MAD3,022 millions, up 0.7% compared to the first half of the previous year. Net earnings per share Earnings per share amounted to MAD3.44 in the first half of 2019, compared with MAD3.41 in the first half of 2018, an increase of 0.7%, which remains correlated with the change in net income Group share. Cash and cash equivalents The Group's main resource is the cash generated by its operating activities. Cash flows The following table summarizes Maroc Telecom’s consolidated cash flow for the specific periods. (In millions of MAD)H1-2018H1-2019Net cash from operating activities (a)6,3386,265Net cash used in investing activities (b)-4,383-5,263Net cash used in financing activities (c)-2,333-1,058Foreign currency translation adjustments (d)47-10Change in cash and cash equivalents (a)+(b)+(c)+(d)-331-66Cash and cash equivalents at beginning of period 2,010 1,700 Cash and cash equivalents at end of period 1,678 1,634 30 Maroc Telecom • Financial Report H1 2019 30 Net cash flow from operating activities At June 30, 2019, the net cash provided by operating activities amounted to MAD6,265 millions, compared with MAD6,338 millions at June 30, 2018, a slight decrease of 1.2%. Net cash flow from investing activities Net cash used in investing activities decreased by MAD880 million at June 30, 2019. This decrease is due to the acquisition of the Tigo Chad subsidiary by Maroc Telecom and the acquisition of patents and brands in the subsidiaries. Net cash flow from financing activities At June 30, 2019, net cash used in financing activities improved by MAD1,275 millions compared to the first half of 2018. This variation is due to the new borrowing lines contracted by the subidiaries during the first half of 2019. Tangible and intangible fixed assets The table below sets out fixed assets acquired by Maroc Telecom Group by geographical area in the relevant periods. (In millions of MAD)H1-2018H1-2019Morocco 1,376 877 International 2,223 2,351 Total 3,599 3,228 Investments in Morocco Investments in Morocco decreased by 36% at the end of June 2019, from MAD1,376 millions to MAD877 millions. International investments Investments made by the Group's subsidiaries in the first half of 2019 increased by MAD128 millions compared to the first half of 2018, from MAD2,223 millions to MAD2,351 millions. This change is due to an investment in patents and trademarks. Financial resources In the first half of 2019, Maroc Telecom's net debt amounted to MAD21,034 millions compared with MAD13,872 millions at the end of December 2018. (In millions of MAD) 12/31/201806/30/2019Outstanding debt and accrued interests (a) 15,605 22,715 Cash*(b) 1,700 1,634 Cash held for repayment of bank loans (c) 34 47 Net debt (a) - (b) - (c) 13,872 21,034 Marketable securities are considered as cash equivalents when their investment period does not exceed three months 31 Maroc Telecom • Financial Report H1 2019 31 3.3 CONSOLIDATES FINANCIAL STATEMENTS AND NOTES Consolidated statement of financial position at June 30, 2019 and at December 31, 2018 ASSETS (in millions of MAD)Note12/31/201806/30/2019Goodwill 8 548 8 507 Other intangible assets 7 681 8 737 Property, plant and equipment 31 301 29 945 Right to use the asset 1 448 Noncurrent financial assets 299 1 510 Deferred tax assets 224 281 Noncurrent assets 48 053 50 428 Inventories 348 338 Trade accounts receivable and other 11 839 12 583 Short-term financial assets 138 111 Cash and cash equivalents4 1 700 1 634 Assets available for sale 54 54 Current assets 14 078 14 719 TOTAL ASSETS 62 131 65 147 SHAREHOLDERS’ EQUITY AND LIABILITIES (in millions of MAD) 12/31/201806/30/2019Share capital 5 275 5 275 Retained earnings 4 383 4 155 Net earnings 6 010 3 022 Equity attributable to equity holders of the parents 15 668 12 452 Minority interests 3 822 3 552 Total shareholders' equity 19 490 16 004 Noncurrent provisions 464 445 Borrowings and other long-term financial liabilities4 3 475 4 005 Deferred tax liabilities 246 258 Other noncurrent liabilitiesNoncurrent liabilities 4 185 4 709 Trade accounts payable 24 095 23 358 Current tax liabilities 906 1 102 Current provisions 1 325 1 265 Borrowings and other short-term financial liabilities 12 129 18 710 Current liabilities 38 456 44 435 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 62 131 65 147 32 Maroc Telecom • Financial Report H1 2019 32 Statement of comprehensive income for the six-month period ended June 30, 2019 (In millions of MAD)NoteH1-2018H1-2019Revenues717,93917,844Cost of purchases-2,983-2,801Payroll costs-1,579-1,550Taxes and duties-1,375-1,469Other operating income and expenses-2,977-2,555Net depreciation, amortization and provisions-3,475-3,607Earnings from operations5,5495,862Other income and charges from ordinary activities-6-5Earnings from continuing operations5,5435,857Income from cash and cash equivalents11Gross borrowings costs-231-322Net borrowing costs-230-321Other financial income (expense)20-10Net financial income (expense)-210-331Income tax expense6-1,856-2,040Net earnings3,4773,485Exchange gain or loss from foreign activities-113-59Other income and expenses-70Total comprehensive income for the period3,3583,426Net earnings3,4773,485Attributable to equity holders of the parents3,0013,022Minority interests476463Total comprehensive income for the period3,3583,426Attributable to equity holders of the parents2,9202,985Minority interests438441EARNINGS PER SHARE H1-2018H1-2019Net earnings - group share (in millions of MAD)3,0013,022Numbers of shares at June 30879,095,340879,095,340Earnings per share (in MAD)3.413.44Diluted earnings per share (in MAD)3.413.44 33 Maroc Telecom • Financial Report H1 2019 33 Consolidated statement of cash flows for the first half of 2018 and 2019 (In millions of MAD)NoteH1-2018H1-2019Earnings from operations5,5495,862Depreciations, depreciation and other adjustments3,4763,608Gross cash from operating activities9,0259,470Other changes in net working capital-1,117-1,335Net cash from operating activities before taxes7,9088,135Tax paid-1,571-1,870Net cash from operating activities (a)6,3386,265Purchase of PP&E and intangible assets-3,960-4,219Increase in financial assets-589-1,206Disposals of PP&E and intangible assets12Decrease in financial assets163202Dividends received from nonconsolidated investments1-42Net cash used in investing activities (b)-4,383-5,263Capital increaseDividends paid to shareholders3-5,534-5,732Dividends paid by subsidiaries to their noncontrolling interests-401-465Changes in equity-5,935-6,197Borrowings and increase in other long-term financial liabilities1,3151,909Borrowings and increase in other long-term financial liabilitiesChanges in net current accounts2,5713,665Changes in current accounts receivable/financial creditorsNet interests paid (Cash only)-269-403Other cash expenses (income) used in financing activities-15-33Changes in borrowings and other financial liabilities3,6025,139Net cash used in financing activities (d)-2,333-1,058Effect of foreign currency adjustments (g)47-10Total cash flows (a+b+d+g)-331-66Cash and cash equivalents at beginning of period2,0101,700Cash and cash equivalents at end of period1,6781,634 34 Maroc Telecom • Financial Report H1 2019 34 Statement of changes in consolidated equity at June 30, 2019 and December 31, 2018 (in MAD million)Share capitalOther comprehensive incomeTotal Group shareNon controling interestTotalTotal capitaux propresRestated position at January 1, 2018 5,275 10,710 -150 15,835 3,916 19,750Total comprehensive income for the period3,001-812,9204383,358Change in gains and losses recognized directly in equity and recyclable in profit or loss -74-74-38-113Gains and losses on translation-74-74-38-113 Revaluation differences-7-70-7 Revaluation differences on hedging instruments-7-7-7 Revaluation differences on equity instruments00Change in gains and losses recognized directly in equity and recyclable in profit or loss 00Actuarial difference00Actuarial gains and loses00 Capital reduction00 Share-based compensation00 Change in interest shares without takeover/loss of control-337-337-132-469 Change in interest shares with gain/loss of control00Dividends -5,696-5696-777-6473Treasury stock-17-17-17Other adjustements 0000 Restated position at June 30, 2018 5,275 7,661 -231 12,705 3,444 16,149Total comprehensive income for the period3,009-752,9344013,336Change in gains and losses recognized directly in equity and recyclable in profit or loss -80-80-46-126Gains and losses on translation-80-80-46-126 Revaluation differences66-51 Revaluation differences on hedging instruments2020-515 Revaluation differences on equity instruments00Change in gains and losses recognized directly in equity and recyclable in profit or loss 00Actuarial difference-14-14-14 Capital increase00 Capital reduction00 Share-based compensation00 Change in interest shares without takeover/loss of control-8-86-2 Change in interest shares with gain/loss of control00Dividends 0-30-30Treasury stock373737Other adjustements 000 Position at December 31, 2018 5,275 10,699 -306 15,668 3,821 19,490Total comprehensive income for the period3,022-372,9854413,426Change in gains and losses recognized directly in equity and recyclable in profit or loss -37-37-22-59Gains and losses on translation-37-37-22-59 Revaluation differences0000 Revaluation differences on hedging instruments00 Revaluation differences on equity instruments00Changes in gains and losses recognised directly in equity and not recyclable in profit or loss00 Actuarial gains and losses 000 Capital increase00 Capital reduction00 Share-based compensation00 Change in interest shares without takeover/loss of control00 Change in interest shares with gain/loss of control141414Dividends -6,003-6,003-863-6,866Treasury stock-21-21-21Other adjustements -191-191152-39 Position at June 30, 2019 5,275 7,520 -343 12,452 3,551 16,004 35 Maroc Telecom • Financial Report H1 2019 35 At June 30, 2019, Maroc Telecom’s share capital comprised 879,095,340 ordinary shares. Ownership of the shares was as follows: SPT*: 53%; - Kingdom of Morocco: 22%**; - Other: 25%. SPT is a Moroccan company controlled by Etisalat. ** The Moroccan State sold 8% of the capital and voting rights of Itissalat Al-Maghrib through a block sale on June 17, 2019 (6% of the capital) and a public offering closed on July 16, 2019 (2% of the capital). After completion of this transaction, the Kingdom of Morocco holds 22% of Maroc Telecom's share capital and voting rights. Note 1. Accounting principles and valuation methods The highlights of the semester are described on page 4 and 5 of this financial report. 1.1 HIGHLIGHTS Group's total customer base, close to 63 million subscribers, up 3.9%; Consolidated revenues up 0.8% (at constant exchange rates), thanks to the growth in Mobile Data revenue in Morocco (+19.7%) and in the subsidiaries (+24.6%); EBITDA up sharply (+5.1% on a like-for-like basis*), thanks to cost optimization; Group share of adjusted Net Income up 1.8% (on a like-for-like basis*1); Adjusted Consolidated Cash Flow From Operations up 30.6% on like-for-like basis*. 1.2 ACCOUNTING PRINCIPLES AND VALUATION METHODS The accounting principles used to prepare the interim consolidated financial statements for the six months ended 30 June 2019 are identical to those used for the year ended 31 December 2018, in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union as of today. The interim consolidated financial statements at June 30, 2018 have been prepared in accordance with IAS 34 "Interim Financial Reporting", which permits the presentation of selected explanatory notes. These consolidated financial statements should be read in conjunction with the 2018 consolidated financial statements. The interim consolidated financial statements at June 30, 2019, together with the notes thereto, were approved by Maroc Telecom's Executive Board on July 16, 2019. Application de la norme IFRS 16 On January 13, 2016, the IASB published IFRS 16 "Leases". Effective January 1, 2019, IFRS 16 replaces IAS 17 and also, for tenants, removes the previous distinction between operating and finance leases. Under IFRS 16, a lease is any contract that gives the tenant control of the use of an identified asset for a given period in exchange for consideration. All contracts that meet this definition have been included by the Group in the scope of the standard, with the exception of: Leases of intangible assets (licenses and software); Leases exempted by the standard and adopted by the Group. These are usually leases with a term of less than 12 months and/or leases of whose replacement value of the underlying asset is of low value. Leases whose residual term on transition date is less than 12 months in accordance with the transitional provisions in section "C10C1" are also exempt. Leases where the lessor has a substantial substitution right. 1* Like-for-like basis refers to unchanged MAD/Ouguiya/ CFA Franc exchange rates and the neutralization of the application of IFRS 16 36 Maroc Telecom • Financial Report H1 2019 36 Leases where the payment is variable. IFRS 16 requires an entity to set the term of the lease as a non-cancelable period, to which may be added an agreement for any time-extension that the tenant has reasonable certainty of exercising or, as the case may be, of not exercising without exceeding the execution period of the lease. The Group has used historical lease data to assess the options offered. After analyzing the leases of the various subsidiaries and regions, the Group has defined four main categories of use rights (land, buildings, technical facilities, transportation equipment). In accordance with IFRS 16, the Group uses IAS 16 rates and methods for depreciating use-right assets. The Group has opted for the marginal borrowing rate to discount financial debt flows, which is set by reference to the market and maturity. The recognition of leases in the balance sheet depends on the following factors: The reasonably certain term adopted for each lease. The fixed and variable components of contractual payment. It should be noted that the Group has opted for the option not to dissociate the contractual service charges from the lease. The marginal borrowing rate defined by the Group based on the term and region of each lease. The depreciation term applicable to each asset class. The Group has also deployed a dedicated IT solution to monitor leases and calculate the impact of IFRS 16. It should be noted that, in accordance with the transitional provisions of paragraph C10d, acquisition costs are not capitalized. The Group uses the simplified retrospective approach by recognizing the combined impact on shareholders' equity of the initial application of the IFRS norme at first adoption without adjusting comparative periods. 37 Maroc Telecom • Financial Report H1 2019 37 Note 2. Scope of consolidation at June 30, 2019 and December 31, 2018 CompanyLegal form% Group interest% Capital heldConsolidation methodMaroc TelecomSA100%100%FCAvenue Annakhil Hay Riad Rabat-MarocCompagnie Mauritanienne de Communication (CMC)SA30 June 201980%80%FC31 December 201880%80%FC563, Avenue Roi Fayçal Nouakchott-MauritanieMauritel SASA30 June 201941%52%FC31 December 201841%52%FCAvenue Roi Fayçal Nouakchott-MauritanieOnatelSA30 June 201961%61%FC31 December 201861%61%FC705, AV. de la nation 01 BP10000 Ouagadougou – Burkina FasoGabon TelecomSA30 June 201951%51%FC31 December 201851%51%FCImmeuble 9 étages, BP 40 000 Libreville-GabonSotelmaSA30 June 201951%51%FC31 December 201851%51%FCRoute de Koulikoro, quartier Hippodrome, BP 740,Bamako-MaliCasanetSA30 June 2019100%100%FC31 December 2018100%100%FCImm Riad 1, RDC, Avenue Annakhil Hay Riad Rabat-MarocAtlantique Telecom Côte d'IvoireSA30 June 201985%85%FC31 December 201885%85%FCAbidjan-Plateau, Immeuble KARRAT, Avenue Botreau RousselEtisalat BéninSA30 June 2019100%100%FC31 December 2018100%100%FCCotonou, ilot 553, quartier Zongo Ehuzu, zone résidentielle, avenue Jean Paul 2, immeuble EtisalatAtlantique Telecom TogoSA30 June 201995%95%FC31 December 201895%95%FCBoulevard de la Paix, Route de l’Aviation, Immeuble Moov-Etisalat - LoméAtlantique Telecom NigerSA30-juin-19100%100%FC31 December 2018100%100%FC720 Boulevard du 15 avril Zone Industrielle, BP 13 379, NiameyAtlantique Telecom CentrafriqueSA30 June 2019100%100%FC31 December 2018100%100%FCBangui, BP 2439, PK 0, Place de la République, Immeuble SOCIM, rez-de-chausséePrestige Telecom Côte d'IvoireSA30 June 20190%0%31 December 2018100%100%FCGrand Bassam Zone Franche VITIB Complexe IIAO, 01 BT 8592 Abidjan 38 Maroc Telecom • Financial Report H1 2019 38 Note 3. Dividends (In millions of MAD)H1-2018H1-2019Dividends received from equity affiliates to their minority shareholder (a)Total (a)777863Dividends paid by Maroc Telecom to its shareholders (b)Kingdom of Morocco1,7091,801Etisalat3,0193,182Others9671,019Total (b) 5,696 6,003 Total dividends paid (a) + (b) 6,473 6,866 The Ordinary General Meeting of 23 April 2019, ruling under the quorum and majority rules required for Ordinary General Meetings, decided to distribute a dividend of MAD6.83 for each of the shares comprising the share capital and entitled to it by virtue of their dividend entitlement date. The total amount of dividends paid by IAM to its shareholders was increased to MAD6,003 millions. Dividends distributed by subsidiaries to their minority shareholders amounted to MAD863 millions. Note 4. Borrowings and other financial liabilities at June 30, 2019 and December 31, 2018 (In millions of MAD)12/31/201806/30/2019Borrowings due less than one year 3,475 2,977 Rental obligation at +1 year 1,029 Borrowings due more than one year 2,743 3,966 Rental obligation at -1 year 5 333 Facilities and overdrafts 9,381 14,411 Borrowings and financial liabilitie 15,605 22,715 Cash 1,700 1,634 Blocked cash 34 47 Net debt 13,872 21,034 Maroc Telecom group's net debt increased from MAD13,872 millions at December 31, 2018 to MAD21,034 millions at June 30, 2019. This change is mainly explained by the distribution of dividends to shareholders of the Group's various entities and the impact of the application of IFRS16. As a reminder, net debt at the end of June 2018 amounted to MAD17,129 millions. 4.1. BREAKDOWN OF NET DEBT BY MATURITY Half year ended June 30, 2019 (In millions of MAD) Due less than 1 year1 to 5 yearsDue more than 5 years TOTAL Borrowings 3,966 2,977 6,942 Rental obligation 333 1,029 1,362 Facilities and overdrafts 14,411 14,411 Borrowings and financial liabilities 18,710 4,005 - 22,715 Cash 1,634 1,634 Blocked cash 47 47 Net debt 17,029 4,005 - 21,034 39 Maroc Telecom • Financial Report H1 2019 39 Full December 31, 2018 (In millions of MAD) Due less than 1 year1 to 5 yearsDue more than 5 years TOTAL Borrowings 2,748 3,433 43 6,223 Facilities and overdrafts 9,381 9,381 Borrowings and financial liabilities 12,129 3,433 43 15,605 Cash 1,700 1,700 Blocked cash 34 34 Net debt 10,396 3,433 43 13,872 The breakdown by maturity is based on the repayment terms and conditions of the borrowings. 4.2 BORROWING AND OTHER FINANCIAL LIABILITIES BY GEOGRAFICAL AREA (In millions of MAD) 12/31/201806/30/2019Morocco 10,427 15,794 International 5,177 6,921 Borrowings and other financial liabilities 15,605 22,715 Note 5. Restructuring expenses at June 30, 2019 and December 31, 2018 None Note 6. Income tax payable for the first half of 2019 and 2018 (In millions of MAD)H1-2018H1-2019Income tax 1,872 2,063 Deferred taxes-1510Tax provisions-1-33Current tax 1,856 2,040 Consolidated effective tax rate *34.8%36.9% Income taxes / income before taxes The tax charge at 30 June 2019 increased by 10% compared to the first half of 2018. This increase is explained by the change in the level of activity, mainly in Morocco. The effective tax rate was 36.9% in the first half of 2019. Note 7. Segment data for the first six-month periods of 2019 and 2018 Segment earnings by geographical area First half of 2019 (In millions MAD)MoroccoInternationalEliminationsTotalRevenues 10,713 7,824 -692 17,844 Earnings from operations 4,170 1,692 5,862 Net depreciation and impairment of assets 2,046 1,562 3,607 Volantary redundancy plan - 40 Maroc Telecom • Financial Report H1 2019 40 First half of 2018 (In millions MAD)MoroccoInternationalEliminationsTotalRevenues 10,592 8,311 -964 17,939 Earnings from operations 3,677 1,872 0 5,549 Net depreciation and impairment of assets 2,010 1,465 3,475 Volantary redundancy plan 2 2 Note 8. Contractual commitments and contingent assets and liabilities 8.1. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS RECORDED IN THE BALANCE SHEET Half year ended June 30, 2019 (In millions of MAD)TotalDue less than 1 year1 to 5 yearsDue more than 5 yearsLong-term debts 22,715 18,710 4,005 - Capital lease obligations - Operating leases * 63 50 13 Irrevocable purchase obligations - Other long-term commitments - Total 22,778 18,759 4,018 - Leases that do not fall within the scope of the new IFRS 16 standard 8.2. CONTINGENT LIABILITIES None. 41 Maroc Telecom • Financial Report H1 2019 41 8.3. OTHER COMMITMENT GIVEN AND RECEIVED IN THE COURSE OF ORDINARY BUSINESS (In millions of MAD)H1-2018H1-2019Commitments given 3,147 3,651 Investment commitment 1,499 1,653 Downstream commitments and signature with banks 1,030 1,417 Operating and financing lease commitments 154 63 Satellite rental commitments 34 34 Other commitments 427 483 Network maintenance contracts with Ericsson 82 55 Commitments on operating expenses 345 426 Other commitments 2 2 Recovery of guarantees given by Etisalat on the financing of the Atlantic subsidiaries 2 2 Forward sale commitment - - (In millions of MAD)H1-2018H1-2019Commitments received1,3271,209Guarantees and endorsements 1,327 1,209 Other commitments received00Forward purchase commitment00Commitment of the Moroccan State to contribute the assets of social works00Investment agreement: exemption from customs duties on imports related to investments00 Note 9. Subsequent events None. 42 Maroc Telecom • Financial Report H1 2019 42 Note 10. IFRS 16 10.1- ASSET-CLASS-BASED USAGE RIGHTS: (In millions MAD)Carrying valueAsset entry Depreciation/AmortizationLand668107-68Buildings28027-38Technical facilities351236-48Transportation equipment1500-20Office equipment000Other assets000Total1,448 1,117 -174 10.2- IMPACT OF LEASE OBLIGATIONS : H1-2019Interest expense30 Lease-related payments254 10.3- OCCUPANCY EXPENSES OUTSIDE THE SCOPE OF IFRS 16 : H1-2019Leases with term ≤12 months98Leases with low underlying asset value2Leases with variable payments0Leases with no presumed control of occupancy right0Total100 43 Maroc Telecom • Financial Report H1 2019 43 3.4 STATUTORY FINANCIAL STATEMENTS PREVIOUSASSETSEXERCICE(In MAD thousand)GrossNETNET 12/31/2018CAPITALIZED COSTS (A)0000.Start-up costs0000.Deferred costs0000.Bond redemption premiums0000INTANGIBLE ASSETS (B)12,177,60310,003,6872,173,9162,340,165.Research and development costs0000.Patents, trademarks, and similar rights11,831,0989,934,6821,896,4161,999,535.Goodwill70,71769,0051,7122,933.Other intangible assets275,7880275,788337,697PROPERTY, PLANT, AND EQUIPMENT (C)70,106,86452,503,70817,603,15618,430,398.Land955,3700955,370955,370.Buildings7,755,0574,956,1832,798,8752,828,809.Technical plant, machinery, and equipment54,097,64342,850,07911,247,56511,840,471.Vehicles273,25058,277214,972223,353.Office equipment, furniture, and fittings4,773,9554,339,608434,347462,427.Other property, plant, and equipment11,048011,04811,048.Work in progress2,240,540299,5621,940,9792,108,920FINANCIAL ASSETS (D)13,668,739183,55813,485,18112,506,455.Long-term loans 2,185,98802,185,9882,369,330.Other financial receivables4,04704,0474,223.Equity investments11,478,704183,55811,295,14610,132,903.Other investments and securities0000UNREALISED FOREIGN EXCHANGE LOSSES (E) 10,161010,16118,725.Decrease in long-term receivables10,161010,1616,294.Increase in long-term debt00012,432TOTAL I (A+B+C+D+E) 95,963,36762,690,95333,272,41433,295,745INVENTORIES (F)325,044134,320190,724218,209.Merchandise217,58985,480132,109158,775.Raw materials and supplies107,45548,84058,61559,434.Work in progress0000.Intermediary and residual goods0000.Finished goods0000CURRENT RECEIVABLES (G)16,734,134,5538,039,188,6428,694,945,9117,266,626,921.Trade payables, advances and deposits45,466045,46613,102.Accounts receivable and related accounts14,021,6917,753,7556,267,9375,818,969.Employees5,58005,5804,369.Tax receivable385,9470385,947385,359.Shareholders’ current accounts0000.Other receivables1,947,878285,4341,662,444689,817.Accruals327,5710327,571355,009MARKETABLE SECURITIES (H)129,263,7970129,263,797128,806,452UNREALIZED FOREIGN EXCHANGE LOSSES (I)(current items)43,077,798043,077,79864,762,719 TOTAL II (F+G+H+I) 17,231,520,4248,173,508,6699,058,011,7557,678,405,036CASH AND CASH EQUIVALENTS486,190,5460486,190,546397,735,267.Checks142,2190142,2190.Bank deposits340,8070340,807394,833.Petty cash3,16503,1652,903TOTAL III 486,190,5460486,190,546397,735,267TOTAL GENERAL I+II+III 113,681,077,84770,864,461,59542,816,616,25341,371,884,912Amortization and provisions At 06/30/2019 44 Maroc Telecom • Financial Report H1 2019 44 SHAREHOLDERS’ EQUITY AND LIABILITIESEXERCICEEXERCICE(In MAD thousand)NET 12/31/2018SHAREHOLDERS' EQUITY (A)13,726,28515,968,628 Share capital (1)5,274,5725,274,572 Less: capital subscribed and not paid-in00 Paid-in capital00 Additional paid-in capital00 Revaluation difference00 Statutory reserve879,095879,095 Other reserves3,811,9033,514,240 Retained earnings (2)00 Unallocated income (2)00 Net income of the year (2)3,760,7156,300,721QUASI-EQUITY (B)00 Investment subsidies00 Regulated provisions00DEBENTURE BONDS (C)1,985,6422,713,506 Debenture bonds00 Other long-term debt1,985,6422,713,506PROVISIONS (D)25,62534,190 Provisions for contingencies10,16118,725 Provisions for losses15,46515,465UNREALIZED FOREIGN EXCHANGE GAINS (E)2392 Increase in long-term receivables2392 Decrease in long-term debt00TOTAL I (A+B+C+D+E) 15,737,57618,716,416CURRENT LIABILITIES (F)12,673,53813,136,149 Accounts payable and related accounts 6,183,3336,874,507 Trade receivables, advances and down payments94,719140,135 Payroll costs873,9961,024,899 Social security contributions74,87776,358 Tax payable3,773,6723,042,619 Shareholders’ current accounts11 Other payables253,717489,036 Accruals1,419,2221,488,593OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 1,445,6661,495,110UNREALIZED FOREIGN EXCHANGE GAINS (Current items) (H)38,91734,519Total II (F+G+H) 14,158,12214,665,778BANK OVERDRAFTS12,920,9197,989,691 Discounted bills00 Treasury loans00 Bank loans and overdrafts12,920,9197,989,691Total III 12,920,9197,989,691TOTAL GENERAL I+II+III42,816,61641,371,885 At 06/30/2019 45 Maroc Telecom • Financial Report H1 2019 45 STATEMENT OF COMPREHENSIVE INCOME (EXCLUSIVE OF VAT)From 01/01/19 at 06/30/19TOTAL OF THETOTAL AT(In MAD thousand)Specific to the yearPrevious exerciceYEAR06/30/2019I- OPERATING INCOME10,650,91610,650,91610,539,667Sales of goods196,347196,347195,936Sales of manufactured goods and services rendered10,126,94810,126,94810,022,861Operating revenues10,323,29510,323,29510,218,796Change in inventories000Company-constructed assets 000Operating subsidies000Other operating income14,75214,75217,119Operating write-backs: expense transfers312,868312,868303,751TOTAL I10,650,91610,650,91610,539,667II- OPERATING EXPENSES6,663,6656,663,6656,993,916Cost of goods sold312,880312,880358,586Raw materials and supplies1,684,6181,684,6181,794,633Other external expenses1,319,5091,319,5091,382,580Taxes (except corporate income tax)102,004102,004113,921Payroll, costs1,108,8451,108,8451,111,433Other operating expenses2,5402,5402,540Operating allowances for amortization1,772,1341,772,1341,774,821Operating allowances for provisions361,134361,134455,402TOTAL II6,663,6656,663,6656,993,916III- OPERATING INCOME I-II3,987,2513,987,2513,545,750IV- FINANCIAL INCOME1,274,5071,274,5071,492,685Income from equity investments and other financial investments944,170944,1701,001,624and other financial investments- Foreign exchange gains133,620133,620243,056Interest and other financial income113,229113,229132,401Financial write - backs: expense transfers83,48883,488115,603TOTAL IV1,274,5071,274,5071,492,685V- FINANCIAL EXPENSES292,097292,097406,284Interest and loans 116,121116,121119,846Foreign exchange losses122,449122,449191,101Other financial expenses 289289922Financial allowances53,23953,23994,415TOTAL V292,097292,097406,284VI- FINANCIAL INCOME IV - V982,411982,4111,086,401VII- ORDINARY INCOME III + VI 4,969,6624,969,6624,632,151VIII- EXTRAORDINARY INCOME 263,017263,017201,328Proceeds from disposal of fixed assets 1,1431,1431,152Subsidies received000Write-backs of investment subsidies000Other extraordinary income196,612196,612126,988Extraordinary write-backs: expense transfers 65,26165,26173,188TOTAL VIII263,017263,017201,328IX- EXTRAORDINARY EXPENSES 237,825237,825101,009Net book value of disposed assets23,28323,2831,873Subsidies granted 000Other extraordinary expenses107,891107,8919,182Regulated provisions 000Extraordinary allowances for depreciation and provisions 106,651106,65189,954TOTAL IX237,825237,825101,009X- NON-CURRENT INCOME VIII - IX25,19125,191100,318XI- PRE-TAX INCOME VII + X4,994,8534,994,8534,732,470XII- CORPORATE INCOME TAX1,234,1381,234,1381,119,254XIII- NET INCOME XI - XII3,760,7153,760,7153,613,216XIV- TOTAL REVENUES ( I+IV+VIII)12,188,44012,188,44012,233,679XV- TOTAL EXPENSES ( II+V+IX+XII)8,427,7258,427,7258,620,463XVI- NET INCOME (total income - total expenses)3,760,7153,760,7153,613,216OPERATIONS 46 Maroc Telecom • Financial Report H1 2019 46 The presentation guidelines and valuation methods used in preparing these documents comply with the rules and regulations in force. The table below summarizes the trends of the main financial indicators of Maroc Telecom over the last three halfs year: In MAD million H1 2017 H1 2018 H1 2019 Change 19/18 Revenues 9,754 10,219 10,323 1.0% Operating income 3,319 3,546 3,987 12.5% Financial income 1,066 1,086 982 9.6% Income tax expense 1,019 1,119 1,234 10.3% Non-current income 59 100 25 74.9% Net income 3,307 3,613 3,761 4.1% Investments 1,717 1,317 820 37.7% Key elements of the income statement Revenues Maroc Telecom's revenues for the first half of 2019 amounted to MAD10.323 billion, up 1% compared to the first half of 2018. Operating income and net income Operating income increased from MAD3.546 billion to MAD3.987 billion, an increase of 12.5% compared to the first half of 2018. This improvement is mainly due to lower operating expenses. Financial income decreased by 9.6% to MAD982 millions from MAD1,086 millions in the first half of 2018. This change is mainly due to a slight decrease in income from subsidiaries (dividends and interest on shareholder loans). Non-current income for the first half of 2019 amounted to MAD25 millions compared with MAD100 millions in the first half of 2018. This variation is mainly due to the introduction, by the 2019 Finance Act, of a social solidarity contribution on profits. With pre-tax income of MAD4,995 millions and income tax of MAD1,234 millions, net income amounted to MAD3,761 millions, up 4.1%. 47 Maroc Telecom • Financial Report H1 2019 47 Balance sheet At June 30, 2019, the balance sheet total amounted to MAD42,817 millions, up 3.5% compared to the previous year. Breakdown of assets (Assets in millions of Moroccan dirhams) 2017 NET 2018 H1 2019 Capitalized costs 0 0 0 Net intangible assets 2,472 2,340 2,174 Net property, plant and equipment 19,368 18,430 17,603 Net financial assets 12,387 12,506 13,485 Unrealized foreign exchange losses 54 19 10 Fixed assets 34,281 33,296 33,272 Current assets 7,725 7,678 9,058 Cash and cash equivalent - equity 498 398 486 Total assets 42,503 41,372 42,817 Net fixed assets amounted to MAD33,272 millions at June 30, 2019, compared with MAD33,296 millions at the end of the previous year. It represents 78% of total assets and has decreased by 0.1% since 2018. Net intangible assets amounted to MAD2,174 millions in June 2019, compared with MAD2,340 millions in 2018. Net property, plant and equipment decreased by 4.5%, from MAD18,430 millions in December 2018 to MAD17,603 million in June 2019. Net financial assets amounted to MAD13,485 millions in June 2019, compared with MAD12,506 millions in 2018 following the acquisition of new investments. Current assets excluding investments (excluding those related to price stabilization) amounted to MAD9,058 millions in 2019, compared with MAD7,678 millions in 2018, an 18% increase mainly due to the recognition of dividends from subsidiaries whose payment due dates coincide with the second half of the year. Net cash and cash equivalents, including investments (excluding that relating to price adjustments), amounted to MAD12,435 million at June 30, 2019, compared with -MAD7,592 million at December 31, 2018. This increase in net cash flow is due to the cash flows generated during the year, which only partially offset the distribution of the ordinary dividend, the investment program for the period, the payment of the last tranche relating to the acquisition of the Alysse subsidiaries, as well as the acquisition of new investments. 48 Maroc Telecom • Financial Report H1 2019 48 Change 19/18 0.0% 7.1% 4.5% 7.8% 45.7% 0.1% 18.0% 22.2% 3.5% Liabilities and liability items (Liabilities in MAD millions) 2017 2018 NET H1 2019 Change 19/18 Net equity 15,364 15,969 13,726 14.0% o/w net income for the year 5,699 6,301 3,761 Financial debt 3,868 2,714 1,986 26.8% Provisions for risks and charges exceeding one year 70 34 26 25.1% Unrealized foreign exchange gains 36 0 0 74.6% Total permanent financing 19,338 18,716 15,738 15.9% Current liabilities 15,764 14,666 14,158 3.5% Cash and cash equivalent- liabilities 7,401 7,990 12,921 61.7% Total shareholders’ equity and liabilities 42,503 41,372 42,817 3.5% Taking into account the profit for the period of MAD3,761 millions and the distribution of a dividend of MAD6 billion, net equity at June 30, 2019 amounted to MAD13,726 millions, compared with MAD15,969 millions in 2018. Financing liabilities amounted to MAD1,986 million at June 30, 2019, compared with MAD2,714 millions at December 31, 2018. These debts mainly correspond to the MAD1,979 millions loan granted to Maroc Telecom by the Etisalat group to finance the investments of these subsidiaries. Cash and cash equivalents increased by 61.7% to MAD12,921 millions from MAD7,990 millions in 2018. 49 Maroc Telecom • Financial Report H1 2019 49 50 Maroc Telecom • Financial Report H1 2019 50 | Semestriel, 2019, Operator, MT | write me a financial report |
Semestriel | 2,024 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Healthcare
### Company:
SiemensHealthineers
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| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2024 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Results of operations Page 13 B.1 Consolidated statements of Page 29 C.1 Responsibility statement income Page 7 A.2 Net assets and financial position Page 14 B.2 Consolidated statements of comprehensive income Page 30 C.2 Review report Page 11 A.3 Outlook Page 15 B.3 Consolidated statements of Page 31 C.3 Notes and forward-looking financial position statements Page 12 Page 16 A.4 Risks and opportunities B.4 Consolidated statements of cash flows Page 17 B.5 Consolidated statements of changes in equity Page 18 B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s Half-Year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with Section 115 of the German Securities Trading Act. The Half-Year Financial Report should be read in conjunction with the Annual Report for fiscal year 2023. 2 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Results of operations A. Interim group management report A.1 Results of operations A.1.1 Revenue by segment and region (in millions of €)¹ First half 2024 First half 2023 %-Change Act. Siemens Healthineers 10,611 10,423 1.8% Therein: Imaging 5,748 5,654 1.7% Diagnostics 2,162 2,228 −3.0% Varian 1,821 1,704 6.9% Advanced Therapies 1,001 972 3.0% 1 Siemens Healthineers: revenue according to IFRS, segments: total adjusted revenue. 2 Year-over-year on a comparable basis, excluding effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations as well as currency translation and portfolio effects. Revenue by region (location of customer) First half First half %-Change (in millions of €) 2024 2023 Act. Europe, C.I.S., Africa, Middle East (EMEA) 3,604 3,316 8.7% Therein: Germany 533 493 8.1% Americas 4,326 4,197 3.1% Therein: United States 3,653 3,561 2.6% Asia Pacific Japan² 1,429 1,517 −5.8% China 1,252 1,392 −10.0% Siemens Healthineers 10,611 10,423 1.8% 1 Year-over-year on a comparable basis, excluding effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations as well as currency translation and portfolio effects. 2 Including India. Siemens Healthineers Revenue increased by 4.3% on a comparable basis compared to the prior-year period. Excluding revenue from rapid COVID-19 antigen tests which ended in the fourth quarter of fiscal year 2023, comparable growth was 5.0%. This was driven by very strong growth in the Varian segment, strong growth in the Advanced Therapies segment and moderate growth in the Imaging segment. The Diagnostics segment showed flat revenue development. Excluding the now-ended rapid antigen-test business, comparable revenue increased moderately for the Diagnostics segment. On a nominal basis, revenue increased by 1.8% to €10,611 million. Currency translation effects had a negative impact of around 3 percentage points on revenue growth. The equipment book-to- bill ratio was a very good 1.11 in the first half, slightly below the prior-year figure, which was also very good, at 1.17. 3 %-Change Comp.² 4.3% 3.9% −0.3% 8.9% 6.5% %-Change Comp.¹ 9.4% 8.1% 4.5% 4.5% 0.7% −4.5% 4.3% Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Results of operations Segments Adjusted revenue in Imaging rose by 3.9% on a comparable basis relative to the very strong prior-year period. Molecular Imaging and Magnetic Resonance in particular showed very strong growth. From a geographical perspective, comparable revenue growth was significant in EMEA and moderate in the Americas region. The region Asia Pacific Japan showed slight comparable revenue growth. In the China region, revenue decreased by a high single-digit percentage after very strong revenue development in the prior-year period. Temporarily delayed customer orders in the China region in preceding quarters had a negative effect on revenue in the first half of fiscal year 2024. On a nominal basis, adjusted revenue rose by 1.7% to €5,748 million. The Diagnostics segment showed flat revenue development with an adjusted revenue decline of 0.3% on a comparable basis. Excluding the rapid COVID-19 antigen test business, which no longer generated revenue in the first half of fiscal year 2024 (prior-year period: €67 million), adjusted revenue increased by 2.8%. While EMEA recorded strong growth and the Americas region posted slight comparable growth, revenue in the China region decreased moderately. Against the backdrop of sharp growth due to higher revenue from rapid COVID-19 antigen tests in the prior-year period, the Asia Pacific Japan region showed a low double-digit comparable revenue decline. On a nominal basis, adjusted revenue decreased by 3.0% to €2,162 million. Varian’s adjusted revenue increased by 8.9% on a comparable basis above the significant revenue growth in the prior-year period. From a geographical perspective, the Asia Pacific Japan region in particular recorded significant growth. While the Americas region reported very strong comparable revenue growth after significant revenue development in the prior-year period, comparable revenue in the China and EMEA regions showed strong growth. On a nominal basis, adjusted revenue rose by 6.9% to €1,821 million. Adjusted revenue at Advanced Therapies increased by 6.5% on a comparable basis. The Americas and Asia Pacific Japan regions recorded very strong growth and EMEA recorded strong comparable revenue growth. Against the backdrop of sharp revenue development in the prior-year period and due to temporarily delayed customer orders in preceding quarters, revenue in the China region decreased slightly on a comparable basis. On a nominal basis, adjusted revenue rose by 3.0% to €1,001 million. Regions In the EMEA region, revenue increased by 9.4% on a comparable basis. In particular, the Imaging segment showed significant growth. Advanced Therapies, Diagnostics and Varian achieved strong revenue development. Germany reported revenue growth of 8.1% on a comparable basis, mainly because of sharp growth in the Varian business and significant growth in Imaging. While Advanced Therapies showed moderate comparable revenue growth, a mid single-digit revenue decline at Diagnostics had the opposite effect. The Americas region and within it, the United States, each recorded comparable revenue growth of 4.5%, driven by very strong revenue developments in the Varian and Advanced Therapies segments. Imaging in the Americas region, as well as in the United States, achieved moderate growth, and Diagnostics recorded slight revenue growth on a comparable basis. In the Asia Pacific Japan region, revenue rose by 0.7% on a comparable basis. Excluding the now-ended rapid COVID-19 antigen test business, the region recorded moderate comparable revenue growth. The Varian segment contributed significant growth, Advanced Therapies achieved very strong growth and Imaging slight growth. Against sharp growth in the prior-year period driven by high contributions from rapid COVID-19 antigen tests, Diagnostics reported a low double-digit revenue decline on a comparable basis. Against the backdrop of very strong comparable revenue growth in the prior-year period, revenue in the China region declined by 4.5% on a comparable basis. This was mainly related to a high single-digit revenue decrease in the Imaging segment as well as to moderate and slight revenue declines in the Diagnostics and Advanced Therapies segments respectively. This was mainly due to the above mentioned temporarily delayed customer orders in preceding quarters. Varian in contrast achieved strong comparable revenue growth after an already very strong prior-year period. 4 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Results of operations A.1.2 Adjusted EBIT (Adjusted EBIT in millions of €, margin in %) First half 2024 Adjusted EBIT Siemens Healthineers 1,564 Therein: Imaging 1,131 Diagnostics 99 Varian 295 Advanced Therapies 153 Adjusted EBIT margin Siemens Healthineers 14.7% Therein: Imaging 19.7% Diagnostics 4.6% Varian 16.2% Advanced Therapies 15.3% 1 Comparable based on the definition of adjustments effective October 1, 2023. Siemens Healthineers In the first half of fiscal year 2024, adjusted EBIT increased by 8% from the prior-year period, to €1,564 million. The adjusted EBIT margin of 14.7% was above the prior-year level of 13.9%. The main reasons were cost reductions related to the transformation program of the Diagnostics business along with contributions from revenue growth. A temporary unfavorable business mix compared to the prior-year period, and now-ended contributions from the rapid COVID-19 antigen-test business, which ended in the fourth quarter of fiscal year 2023, had a slightly negative impact. Adjusted EBIT was affected by €34 million or around 4% higher research and development expenses. Adjusted for currency translation, research and development expenses rose strongly from the prior-year level. Research and development intensity was around 9% and on the level of the prior-year period. Adjusted EBIT was affected by €54 million or around 3% higher selling and general administrative expenses. Adjusted for currency translation, these expenses rose strongly compared to the prior-year level. Segments The adjusted EBIT margin of 19.7% in the Imaging segment was below the prior-year level due to a less favorable business mix year-on-year as well as lower absolute profit conversion from below average revenue growth. Adjusted EBIT decreased to €1,131 million. In Diagnostics, the adjusted EBIT margin of 4.6% was clearly above the prior-year level of -1.0%. This was mainly driven by cost reductions related to the transformation program of the Diagnostics business. Furthermore, there was a positive effect from the longer useful life of leased-out laboratory analyzers as well as from contributions from revenue conversion. In contrast, now- ended contributions from the rapid COVID-19 antigen-test business, which ended in the fourth quarter of fiscal year 2023, had a negative impact compared to the prior-year period. Adjusted EBIT rose to €99 million. The Varian segment’s adjusted EBIT margin of 16.2% was above the prior-year level of 14.5% due to very strong revenue growth. Adjusted EBIT increased to €295 million. The Advanced Therapies segment’s adjusted EBIT margin rose to 15.3%, above the prior-year level of 14.3%, driven by strong revenue growth. Compared to the prior-year period, negative currency effects were more than offset by positive effects from focusing the endovascular robotics solution exclusively on neurovascular interventions. Adjusted EBIT rose to €153 million. 5 First half 2023 1.449¹ 1.202¹ −23¹ 246 139 13.9%¹ 21.3%¹ −1.0%¹ 14.5% 14.3% Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Results of operations Reconciliation to net income (in millions of €) First half 2024 Adjusted EBIT 1,564 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −191 Transaction, integration, retention and carve-out costs −11 Gains and losses from divestments ‐ Severance charges −54 Expenses for other portfolio-related measures ‐ Other restructuring expenses −126 Total adjustments −381 EBIT 1,182 Financial income, net −99 Income before income taxes 1,084 Income tax expenses −221 Net income 863 1 Comparable based on the definition of adjustments effective October 1, 2023. 2 Including expenses for impairment of other intangible assets in the amount of €244 million. The line item amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments declined slightly to €191 million. Severance charges decreased by €12 million to €54 million and were comprised mainly of severance charges in connection with the transformation of the Diagnostics segment. In the first half of fiscal year 2024, there were no expenses for other portfolio-related measures. In the prior-year period, expenses for other portfolio-related measures of €329 million had a negative effect. This was due to focusing the endovascular robotics solution exclusively on neurovascular interventions in the Advanced Therapies segment. Other restructuring expenses rose to €126 million, which, as in the prior-year period, were mainly related to the transformation of the Diagnostics segment. Financial income, net decreased by €27 million to a negative €99 million. Higher interest expenses were partially offset by a positive change in the fair market valuation of an investment in a listed company. Income tax expenses increased by €118 million. The effective income tax rate was a low 20.4%, positively impacted by the disappearance of tax risks in the first half of fiscal year 2024, compared to a low 16.2% in the prior-year period. The prior-year period was particularly affected by the release of a tax provision. Both effects were in the mid double-digit millions of euros. As a result of the developments described above, net income increased by 62% to €863 million. Reconciliation to basic earnings per share (in €) First half 2024 Basic earnings per share 0.77 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments 0.17 Transaction, integration, retention and carve-out costs 0.01 Gains and losses from divestments 0.00 Severance charges 0.05 Expenses for other portfolio-related measures ‐ Other restructuring expenses 0.11 Transaction-related costs within financial income ‐ Tax effects on adjustments¹ −0.07 Adjusted basic earnings per share 1.04 1 Calculated based on the income tax rate of the respective reporting period. 2 Comparable based on the definition of adjustments effective October 1, 2023. Adjusted basic earnings per share for the first half of fiscal year 2024 was at €1.04 slightly above the prior-year level of €1.02. 6 First half 2023 1,449 ¹ −208 −16 ‐ −66 −329 ² −121 ¹ −740 ¹ 709 −72 637 −103 534 First half 2023 0.47 0.19 0.01 −0.00 0.06 0.29 0.11² ‐ −0.11² 1.02² Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Net assets and financial position A.2 Net assets and financial position A.2.1 Net assets and capital structure (in millions of €) Mar 31, 2024 Operating net working capital 4,841 Remaining current assets 1,301 Remaining non-current assets 31,168 Net debt (including pensions) −13,742 Remaining current liabilities −2,668 Remaining non-current liabilities −2,225 Total equity 18,676 Material developments in the first half of the current fiscal year within net assets and capital structure are described below. Operating net working capital (in millions of €) Mar 31, 2024 Trade and other receivables 4,280 Contract assets 1,670 Inventories 4,636 Trade payables −2,022 Contract liabilities −3,729 Receivables from and payables to the Siemens Group from operating activities 6 Operating net working capital 4,841 Operating net working capital increased by €243 million to €4,841 million, slightly above the level of the previous balance sheet date, despite negative effects from currency translation. This is mainly due to an increase of €342 million in inventories, attributed to a build-up in preparation for stronger business development in the second half of fiscal year 2024, mainly in the Imaging and Varian segments, as well as in connection with long-term sourcing of critical materials. The decrease in trade and other receivables by €211 million, partly due to currency translation, had an offsetting effect. Trade payables decreased by €181 million, particularly in the Imaging segment. Remaining current assets (in millions of €) Mar 31, 2024 Other current financial assets¹ 315 Current income tax assets 262 Other current assets 713 Remaining current receivables from the Siemens Group 11 Remaining current assets 1,301 1 Excluding fair value of forwards for hedging of foreign currency liabilities from financing activities. The increase of €186 million to €1,301 million in remaining current assets was due primarily to an increase in other current financial assets. This was influenced mainly by the change in the fair market valuation of an investment in a listed company for which an external investor has entered into a definitive agreement to acquire the company. Secondly, other current assets increased mainly due to accruals for advanced payments. 7 Sept 30, 2023 4,598 1,115 31,516 −13,667 −3,116 −2,313 18,133 Sept 30, 2023 4,492 1,629 4,294 −2,203 −3,627 12 4,598 Sept 30, 2023 224 244 645 2 1,115 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Net assets and financial position Remaining non-current assets (in millions of €) Mar 31, 2024 Goodwill 17,906 Other intangible assets 7,434 Property, plant and equipment 4,217 Investments accounted for using the equity method 32 Other financial assets¹ 529 Deferred tax assets 551 Other non-current assets 499 Remaining non-current assets 31,168 1 Excluding fair value of forwards for hedging of foreign currency liabilities from financing activities. Remaining non-current assets decreased by €348 million to €31,168 million. Therein, currency translation effects had a negative impact, particularly in the line items goodwill and other intangible assets. This was partly offset by an increase in deferred tax assets of €135 million to €551 million, mainly due to R&D expenses in the U.S., which were capitalized for tax purposes. Net debt (including pensions) (in millions of €) Mar 31, 2024 Cash and cash equivalents¹ −2,305 Current receivables from the Siemens Group from financing activities¹ −19 Non-current receivables from the Siemens Group from financing activities ‐ Current liabilities to the Siemens Group from financing activities 2,067 Non-current liabilities to the Siemens Group from financing activities 13,594 Fair value of forwards for hedging of foreign currency liabilities from financing activities −832 Short-term financial debt and current maturities of long-term financial debt 226 Long-term financial debt 444 Net debt 13,174 Provisions for pensions and similar obligations 568 Net debt (including pensions) 13,742 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. The line items cash and cash equivalents, and current receivables from and current liabilities to the Siemens Group from financing activities, particularly include, in addition to current loans, our cash pooling with the Siemens Group. Changes were attributable to income and expenditures from operations and to short-term investment or borrowing of liquidity. Together with the credit facilities, these line items collectively make up the Company’s funds available at short notice. As of the reporting date, net debt amounted to €13,174 million, €46 million above the level of September 30, 2023. Along with currency translation effects related to U.S. dollar loans, the changes in current and non-current liabilities to the Siemens Group from financing activities resulted particularly from the following activities: In the reporting period, two loans from the Siemens Group in a total amount of US$2.5 billion were repaid. In return, the Siemens Group provided the following additional loans: €0.5 billion, maturing in fiscal year 2025, • €0.5 billion, maturing in fiscal year 2028, • €0.6 billion, maturing in fiscal year 2029, • €0.5 billion, maturing in fiscal year 2030. Furthermore, the fair value of forward contracts for hedging of foreign currency liabilities from financing activities decreased by €428 million. These derivatives were entered into to hedge the foreign currency risks of loans denominated in U.S. dollars. As of March 31, 2024, the two multicurrency revolving credit facilities of up to a total of €4.5 billion granted by the Siemens Group were utilized in an amount of €1,013 million (September 30, 2023: €1,267 million). 8 Sept 30, 2023 18,118 7,726 4,210 35 530 416 480 31,516 Sept 30, 2023 −2,247 −16 −2 4,197 11,821 −1,260 198 437 13,128 539 13,667 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Net assets and financial position Remaining current liabilities (in millions of €) Mar 31, 2024 Other current financial liabilities¹ 228 Current provisions 402 Current income tax liabilities 371 Other current liabilities 1,651 Remaining current liabilities to the Siemens Group 16 Remaining current liabilities 2,668 1 Excluding fair value of forwards for hedging of foreign currency liabilities from financing activities. Remaining current liabilities declined by €448 million to €2,668 million, primarily due to the decrease of other current liabilities by €339 million. This is mainly a result of the pro-rata accumulation of performance-related remuneration components. In addition, current income tax liabilities decreased by €92 million, particularly in connection with the payment of income taxes from the prior fiscal year. Remaining non-current liabilities (in millions of €) Mar 31, 2024 Deferred tax liabilities 1,572 Non-current provisions 153 Other non-current financial liabilities¹ 33 Other non-current liabilities 467 Remaining non-current liabilities 2,225 1 Excluding fair value of forwards for hedging of foreign currency liabilities from financing activities. Remaining non-current liabilities declined by €88 million to €2,225 million. This was primarily because of a decline in deferred tax liabilities of €91 million due to increased netting opportunities of deferred tax assets and deferred tax liabilities. Total equity (in millions of €) Mar 31, 2024 Issued capital 1,128 Capital reserve 15,813 Retained earnings 2,206 Other components of equity −45 Treasury shares −468 Total equity attributable to shareholders of Siemens Healthineers AG 18,634 Non-controlling interests 42 Total equity 18,676 Equity increased by €543 million to €18,676 million. The increase in retained earnings of €825 million is mainly due to the net income of €863 million for the first half of fiscal year 2024. Furthermore, other components of equity decreased by €385 million, mainly as a result of currency translation differences. The increase in the cost of hedging reserve associated with foreign currency loans had an offsetting effect. To fulfill share-based payment programs based on shares of Siemens Healthineers AG, treasury shares were transferred to plan participants in the first half year of fiscal year 2024, while no treasury shares were repurchased due to the fully completed share buyback program in fiscal year 2023. Thus, treasury shares decreased by €139 million to €468 million. For further details regarding equity, please see Note 5 Equity in the notes to the half-year consolidated financial statements. 9 Sept 30, 2023 252 409 462 1,990 2 3,116 Sept 30, 2023 1,663 172 29 450 2,313 Sept 30, 2023 1,128 15,839 1,381 339 −607 18,081 52 18,133 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Net assets and financial position A.2.2 Cash flows (in millions of €) First half 2024 Net income 863 Change in operating net working capital −278 Other reconciling items to cash flows from operating activities 71 Cash flows from operating activities 656 Cash flows from investing activities −332 Cash flows from financing activities¹ −231 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. Operating activities Cash inflows from operating activities decreased by €188 million from the prior-year period to €656 million. The impact on cash flows from operating activities from the change in operating net working capital was €79 million less than in the prior-year period. This resulted largely from a lower increase in inventories and contract assets relative to the prior-year period. This was partly offset by a lower increase in contract liabilities and a stronger reduction of trade payables. The decrease of €596 million in other reconciling items to cash flows from operating activities was mainly related to lower depreciation. The prior-year period included an impairment in connection with the focusing of the endovascular robotics solution exclusively on vascular interventions in neurology, and the associated withdrawal from the endovascular cardiology business. Furthermore, payments for performance-related remuneration components, which were higher than in the prior-year period, had a negative impact on other reconciling items to cash flows from operating activities. Investing activities Cash outflows from investing activities declined by €70 million from the prior-year period to €332 million. This was mainly a result of lower payouts for additions to intangible assets and property, plant and equipment. Financing activities In the first half of fiscal year 2024, cash outflows from financing activities amounted to €231 million and were thus €98 million above the level of the prior-year period. This was mainly a result of two opposing effects. On the one hand, net inflows from the change in short-term financial debts and other financing activities provided by the Siemens Group were lower than in the prior- year period. On the other hand, there were no dividend payouts in the first half of fiscal year 2024, in contrast to the prior-year period, because the Annual Shareholders’ Meeting 2024 took place after the first half of the fiscal year. Free cash flow Siemens Healthineers reports free cash flow as a supplemental liquidity measure: (in millions of €) First half 2024 Cash flows from operating activities 656 Additions to intangible assets and property, plant and equipment −298 Free cash flow 358 10 First half 2023 534 −357 667 844 −402 −133 First half 2023 844 −405 439 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Outlook A.3 Outlook For fiscal year 2024, we continue to expect comparable revenue growth of between 4.5% and 6.5% over fiscal year 2023. Excluding revenue from rapid COVID-19 antigen tests, this corresponds to comparable revenue growth of between 5.0% and 7.0%. The expectation for adjusted basic earnings per share remains unchanged at between €2.10 and €2.30. The outlook is based on several assumptions. This includes the expectation that the current macroeconomic environment, including the interest rate level, will remain largely unchanged. Furthermore, the outlook is based on assumptions regarding revenue growth and the adjusted earnings development of our segments. These assumptions remain unchanged, with the exception of the Diagnostics segment, for which the adjusted EBIT margin guidance has been raised as follows: For the Diagnostics segment, we now expect an adjusted EBIT margin of between 4% and 6% (previously 2.5% to 4.5% in the 2023 Annual Report) with unchanged assumptions for comparable revenue growth (between 2% and 4% excluding the rapid COVID-19 antigen test business). In addition, the outlook is based on assumptions about exchange rate developments. Furthermore, this outlook excludes potential portfolio measures. In addition, the outlook is based on the assumption that developments related to the war in Ukraine and conflicts in the Middle East will not have a material impact on our business activities. The outlook is based on the number of shares outstanding at the end of fiscal year 2023. This outlook also excludes charges from legal, tax and regulatory issues and framework conditions. 11 Siemens Healthineers Half-Year Financial Report 2024 Interim group management report – Risks and opportunities A.4 Risks and opportunities In our annual report for fiscal year 2023 we described certain risks that could have a material adverse effect on our business objectives, net assets and financial position (including effects on assets, liabilities and cash flows), results of operations and reputation. In addition, we described our significant opportunities as well as the design of our risk management system. Besides the risks and opportunities that we presented in our annual report for fiscal year 2023, we identified a new opportunity that arises in connection with developments relating to sustainability. Favorable shifts in the political and regulatory landscape towards a carbon-neutral economy are encouraging our suppliers to invest in carbon-neutral solutions and our customers to establish and pursue greenhouse gas-reduction targets. In addition to minimizing CO2 emissions in our own operations, this increased attention on resource conservation could potentially ease the path to achieve sustainability goals along the value chain. Improving environmental performance is also a key consideration in product design and manufacturing at Siemens Healthineers. We are continuously improving the energy efficiency of our systems and working on holistic approaches to bundle our systems with service offerings, including digitalization, to support our customers in lowering their greenhouse gas emissions. Furthermore, we are building up sustainability-related consultancy skills and offerings to meet these evolving demands. These developments could give us an opportunity to generate additional revenue and profit. We have a solid foundation of existing circularity practices, where we potentially can accelerate the expansion in scope and impact, to help us with our sustainability efforts. The intensified reuse of returned materials can have benefits such as increased resilience against supply shortages, reduced dependency on raw material consumption and optimized cost in the end- to-end lifecycle of parts. The most significant risks currently include Economic, Political and Geopolitical Developments, Cybersecurity and Competitive Environment. Compared to the annual report 2023 the risk Competitive Environment increased slightly, as the global footprint of our Chinese competitor continues to expand. Besides measures that we have implemented already, we continue to monitor developments and make adjustments where necessary. Furthermore, our assessment of individual risks in the first half of the fiscal year 2024 did not change significantly. Additional risks and opportunities not known to us or that we currently consider immaterial could also affect our business operations. At present, no risks have been identified that in their known form either individually or in combination could endanger our ability to continue as a going concern. Chapter C.3 Notes and forward-looking statements should be noted. 12 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income (in millions of €, earnings per share in €) Revenue Cost of sales Gross profit Research and development expenses Selling and general administrative expenses Other operating income Other operating expenses Income from investments accounted for using the equity method, net Earnings before interest and taxes Interest income Interest expenses Other financial income, net Income before income taxes Income tax expenses Net income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG Basic earnings per share Diluted earnings per share 13 Note 7 8 First half 2024 10,611 −6,640 3,971 −938 −1,801 10 −58 −1 1,182 64 −218 55 1,084 −221 863 6 857 0.77 0.76 First half 2023 10,423 −6,943 3,480 −906 −1,784 11 −95 3 709 40 −111 ‐ 637 −103 534 8 526 0.47 0.47 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Net income Remeasurements of defined benefit plans Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges Therein: Income tax effects Cost/Income from hedging Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 14 First half 2024 863 −37 36 −37 −404 −5 2 24 −10 −386 −423 440 5 435 First half 2023 534 29 −6 29 −2,366 −33 17 334 −139 −2,066 −2,037 −1,503 7 −1,509 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Note Cash and cash equivalents¹ 2, 6 Trade and other receivables 6 Other current financial assets 6 Current receivables from the Siemens Group¹ 2, 6, 8 Contract assets Inventories Current income tax assets Other current assets Total current assets Goodwill Other intangible assets Property, plant and equipment 4 Investments accounted for using the equity method Other non-current financial assets 6 Non-current receivables from the Siemens Group 6, 8 Deferred tax assets Other non-current assets Total non-current assets Total assets Short-term financial debt and current maturities of long-term financial debt 6 Trade payables 6 Other current financial liabilities 6 Current liabilities to the Siemens Group 6, 8 Contract liabilities Current provisions Current income tax liabilities Other current liabilities Total current liabilities Long-term financial debt 6 Provisions for pensions and similar obligations Deferred tax liabilities Non-current provisions Other non-current financial liabilities 6 Other non-current liabilities Non-current liabilities to the Siemens Group 6, 8 Total non-current liabilities Total liabilities Issued capital Capital reserve Retained earnings Other components of equity Treasury shares Total equity attributable to shareholders of Siemens Healthineers AG 5 Non-controlling interests Total equity Total liabilities and equity 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. 15 Mar 31, 2024 2,305 4,280 335 44 1,670 4,636 262 713 14,246 17,906 7,434 4,217 32 1,457 ‐ 551 499 32,096 46,342 226 2,022 344 2,091 3,729 402 371 1,651 10,836 444 568 1,572 153 33 467 13,594 16,830 27,666 1,128 15,813 2,206 −45 −468 18,634 42 18,676 46,342 Sept 30, 2023 2,247 4,492 549 35 1,629 4,294 244 645 14,136 18,118 7,726 4,210 35 1,561 2 416 480 32,548 46,684 198 2,203 348 4,204 3,627 409 462 1,990 13,440 437 539 1,663 172 29 450 11,821 15,110 28,550 1,128 15,839 1,381 339 −607 18,081 52 18,133 46,684 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income/loss related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Receivables from and payables to the Siemens Group from operating activities Trade payables Contract liabilities Change in other assets and liabilities Additions to equipment leased to others in operating leases Income taxes paid Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Purchase of investments and financial assets for investment purposes Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Cash flows from investing activities Purchase of treasury shares Other transactions with owners Repayment of long-term debt (including current maturities of long-term debt) Change in short-term financial debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG Dividends paid to non-controlling interests Interest paid to the Siemens Group Other transactions/financing with the Siemens Group¹ ² Repayment of long-term debt (including current maturities of long-term debt) Change in short-term financial debt and other financing activities Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents¹ Change in cash and cash equivalents¹ Cash and cash equivalents at beginning of period¹ Cash and cash equivalents at end of period¹ 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. 2 From the beginning of fiscal year 2024 other transactions/financing with the Siemens Group are no longer presented on a net basis. 16 First half 2024 863 619 221 154 −25 101 −51 −374 152 7 −151 140 −422 −95 −512 1 29 656 −298 −3 −41 10 −332 ‐ −9 −97 15 −18 ‐ −16 −96 −20 9 −231 −35 59 2,247 2,305 First half 2023 534 916 103 71 76 −135 −150 −453 97 7 −91 232 145 −114 −417 1 22 844 −405 ‐ −5 8 −402 −43 −13 −98 −30 −12 −1,066 −14 −122 ‐ 1,265 −133 −140 169 2,117 2,286 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings Currency translation differences Reserve of equity instruments measured at fair value through other comprehensive income Cash flow hedges reserve Balance as of October 1, 2022 1,128 15,861 894 2,465 −30 141 Net income ‐ ‐ 526 ‐ ‐ ‐ Other comprehensive income, net of taxes ‐ ‐ 29 −2,365 ‐ −33 Dividends ‐ ‐ −1,066 ‐ ‐ ‐ Share-based payment ‐ −83 ‐ ‐ ‐ ‐ Purchase of treasury shares ‐ ‐ ‐ ‐ ‐ ‐ Reissuance of treasury shares ‐ 3 ‐ ‐ ‐ ‐ Other changes in equity ‐ ‐ 21 ‐ ‐ ‐ Balance as of March 31, 2023 1,128 15,781 405 100 −30 108 Balance as of October 1, 2023 1,128 15,839 1,381 404 −30 74 Net income ‐ ‐ 857 ‐ ‐ ‐ Other comprehensive income, net of taxes ‐ ‐ −37 −403 ‐ −5 Dividends ‐ ‐ ‐ ‐ ‐ ‐ Share-based payment ‐ −29 −2 ‐ ‐ ‐ Purchase of treasury shares ‐ ‐ ‐ ‐ ‐ ‐ Reissuance of treasury shares ‐ 3 ‐ ‐ ‐ ‐ Other changes in equity ‐ ‐ 7 ‐ ‐ ‐ Balance as of March 31, 2024 1,128 15,813 2,206 1 −30 68 17 Cost of hedging reserve −219 ‐ 334 ‐ ‐ ‐ ‐ ‐ 115 −108 ‐ 24 ‐ ‐ ‐ ‐ ‐ −84 Treasury shares at cost −405 ‐ ‐ ‐ ‐ −39 174 ‐ −270 −607 ‐ ‐ ‐ ‐ ‐ 139 ‐ −468 Total equity attributable to shareholders of Siemens Healthineers AG 19,836 526 −2,035 −1,066 −83 −39 177 21 17,337 18,081 857 −422 ‐ −31 ‐ 141 7 18,634 Non- controlling interests 16 8 −1 −14 ‐ ‐ ‐ 2 10 52 6 −1 −16 ‐ ‐ ‐ 1 42 Total equity 19,852 534 −2,037 −1,080 −83 −39 177 23 17,347 18,133 863 −423 −16 −31 ‐ 141 8 18,676 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation The condensed half-year consolidated financial statements as of March 31, 2024, present the operations of Siemens Healthineers AG and its subsidiaries (hereinafter, collectively, “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year consolidated financial statements were prepared and published in euros (€). Due to rounding, numbers may not add up precisely to the totals provided. The results achieved in the interim reporting period are not necessarily indicative of the development of future business performance. In connection with the war in Ukraine, there were no material adjustments to the carrying amounts of assets and liabilities in the first half of fiscal year 2024. Siemens Healthineers has no production sites in Ukraine or Russia. The business activities of the sales and service units could be negatively impacted by further escalation of the war, possible further sanctions, a further escalation of the Middle East conflict, and the exchange rate development of particular local currencies. Due to the volatile geopolitical situation, the potential impacts for the second half of fiscal year 2024 cannot be reliably estimated. The associated risks are monitored on an ongoing basis. For further information on disaggregation of revenue and on segment information, please see disclosures in the interim group management report. The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on April 30, 2024. 18 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 2 Accounting policies The accounting policies applied for the preparation of the half-year consolidated financial statements are substantially consistent with these accounting policies applied for the preparation of the consolidated financial statements for fiscal year 2023. New or revised international accounting standards in accordance with IFRS, that are mandatory for the first time in fiscal year 2024, had no material impact. As of October 1, 2023, the useful life of equipment from the Diagnostics segment that is leased to customers under operating leases was increased from seven to nine years to reflect the reassessed expected utility based on the latest knowledge of the actual and expected use of the equipment (please also see Note 4 Other intangible assets and property, plant and equipment). Income tax expenses are determined in interim reporting periods based on the current estimated annual effective tax rate of Siemens Healthineers for the full year. Adjustment due to the change in the composition of cash and cash equivalents In February 2024, the rating of Siemens AG was improved by Standards & Poor's. Subsequently, the classification of credit balances on cash-pooling accounts and short-term deposits of up to three months with the Siemens Group was reassessed. The items are now presented as cash and cash equivalents in the consolidated statements of financial position and consolidated statements of cash flows because they are held for the purpose of meeting short-term cash commitments and are readily convertible to a known amount of cash. Due to the high creditworthiness of the Siemens Group and the bank-like liquidity management of Siemens Corporate Treasury, the risk of changes in value is assessed to be insignificant. Comparative amounts were adjusted retrospectively. The following tables summarize the impacts on the consolidated statements of financial position and the consolidated statements of cash flow. Consolidated statements of financial position (in millions of €) Mar 31, 2024 Sept 30, 2023 (reported) Sept 30, 2023 (adjusted) Mar 31, 2023 (reported) Mar 31, 2023 (adjusted) Oct 1, 2022 (reported) Cash and Cash equivalents 2,305 1,642 2,247 1,370 2,286 1,436 Current receivables from the Siemens Group 44 640 35 936 20 819 Consolidated statements of cash flows (in millions of €) First half 2024 First half 2023 (reported) Cash and cash equivalents at beginning of period 2,247 1,436 Cash flows from operating activities 656 844 Cash flows from investing activities −332 −402 Cash flows from financing activities −231 −396 Effect of changes in exchange rates on cash and cash equivalents −35 −112 Cash and cash equivalents at end of period 2,305 1,370 Note 3 Income taxes In the first half of fiscal year 2024, the tax rate of 20.4%, positively impacted by the disappearance of tax risks, was higher than the tax rate for the first half of fiscal year 2023, which was due to a one-off effect 16.2%. Note 4 Other intangible assets and property, plant and equipment As of October 1, 2023, the useful life of equipment from the Diagnostics segment that is leased to customers under operating leases was increased from seven to nine years to reflect the reassessed expected utility based on the latest knowledge of the actual and expected use of the equipment. In the first half of fiscal year 2024 this resulted in lower depreciation expense of €36 million. 19 Oct 1, 2022 (adjusted) 2,117 138 First half 2023 (adjusted) 2,117 844 −402 −133 −140 2,286 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 5 Equity Capital reserve: In the first half of fiscal year 2024, expenses for share-based payment based on Siemens Healthineers AG shares led to an increase in the capital reserve of €64 million (first half of fiscal year 2023: €58 million). In connection with the settlement of the share-based payment awards, Siemens Healthineers AG shares, held as treasury shares, were transferred to employees at cost of €95 million (first half of fiscal year 2023: €135 million), leading to a decrease in the capital reserve of €92 million (first half of fiscal year 2023: €135 million) and in retained earnings of €2 million (first half of fiscal year 2023: €0 million). Treasury shares: In the first half of fiscal year 2024, Siemens Healthineers repurchased no shares (first half of fiscal year 2023: 815,072), because the share buyback program was fully completed in fiscal year 2023. 2,783,132 treasury shares were transferred to employees (first half of fiscal year 2023: 3,676,483). As of March 31, 2024, the number of treasury shares amounted to 9,428,754 (September 30, 2023: 12,211,886). Dividends: The Annual Shareholders’ Meeting on April 18, 2024, resolved to distribute a dividend of €1.063 million (€0.95 per share entitled to the dividend) for the expired fiscal year 2023. The dividend was paid on April 23, 2024. 20 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 6 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities: Carrying amounts as of Mar 31, 2024 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents AC 2,305 ‐ ‐ ‐ ‐ Trade receivables² AC 4,203 ‐ ‐ ‐ ‐ Receivables from finance leases³ n.a. ‐ ‐ ‐ ‐ 371 Receivables from the Siemens Group AC 44 ‐ ‐ ‐ ‐ Other financial assets² ‐ ‐ ‐ ‐ ‐ Derivatives included in hedge accounting n.a. ‐ ‐ 951 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 34 ‐ ‐ Equity instruments and fund shares measured at fair value through profit or loss FVtPL ‐ 67 12 108 ‐ Equity instruments measured at fair value through other comprehensive income FVtOCI ‐ ‐ ‐ 50 ‐ Debt instruments measured at fair value through profit or loss FVtPL ‐ ‐ ‐ 33 ‐ Other AC 243 ‐ ‐ ‐ ‐ Total financial assets 6,795 67 997 191 371 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 62 ‐ ‐ ‐ ‐ Trade payables AC 2,022 ‐ ‐ ‐ ‐ Lease liabilities⁵ n.a. ‐ ‐ ‐ ‐ 642 Liabilities to the Siemens Group⁴ AC 15,651 ‐ ‐ ‐ ‐ Other financial liabilities ‐ ‐ ‐ ‐ ‐ Derivatives included in hedge accounting n.a. ‐ ‐ 123 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 32 ‐ ‐ Contingent considerations from business combinations FVtPL ‐ ‐ ‐ 18 ‐ Liabilities from written put options on non-controlling interests n.a. ‐ ‐ ‐ ‐ 49 Other AC 155 ‐ ‐ ‐ ‐ Total financial liabilities 17,890 ‐ 155 18 691 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other non-current financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and non-current liabilities to the Siemens Group. 21 Total 2,305 4,203 371 44 ‐ 951 34 186 50 33 243 8,421 62 2,022 642 15,651 ‐ 123 32 18 49 155 18,753 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2023 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents⁶ AC 2,247 ‐ ‐ ‐ ‐ Trade receivables² AC 4,420 ‐ ‐ ‐ ‐ Receivables from finance leases³ n.a. ‐ ‐ ‐ ‐ 359 Receivables from the Siemens Group⁶ AC 37 ‐ ‐ ‐ ‐ Other financial assets² ‐ ‐ ‐ ‐ ‐ Derivatives included in hedge accounting n.a. ‐ ‐ 1,363 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 30 ‐ ‐ Equity instruments and fund shares measured at fair value through profit or loss FVtPL ‐ 11 11 110 ‐ Equity instruments measured at fair value through other comprehensive income FVtOCI ‐ ‐ ‐ 51 ‐ Debt instruments measured at fair value through profit or loss FVtPL ‐ ‐ ‐ 35 ‐ Other AC 213 ‐ ‐ ‐ ‐ Total financial assets 6,916 11 1,404 196 359 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 44 ‐ ‐ ‐ ‐ Trade payables AC 2,203 ‐ ‐ ‐ ‐ Lease liabilities⁵ n.a. ‐ ‐ ‐ ‐ 628 Liabilities to the Siemens Group⁴ AC 15,988 ‐ ‐ ‐ ‐ Other financial liabilities ‐ ‐ ‐ ‐ ‐ Derivatives included in hedge accounting n.a. ‐ ‐ 128 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 41 ‐ ‐ Contingent considerations from business combinations FVtPL ‐ ‐ ‐ 25 ‐ Liabilities from written put options on non-controlling interests n.a. ‐ ‐ ‐ ‐ 73 Other AC 110 ‐ ‐ ‐ ‐ Total financial liabilities 18,344 ‐ 170 25 701 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other non-current financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and non-current liabilities to the Siemens Group. 6 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. The carrying amount of liabilities to the Siemens Group from U.S. dollar-denominated long-term loans was €8,223 million as of March 31, 2024 (September 30, 2023: €8,391 million). The fair value of these liabilities, which is based on prices provided by price service agencies (level 2), amounted to €7,099 million (September 30, 2023: €6,888 million). The carrying amount of liabilities to the Siemens Group from euro-denominated long-term fixed-rate loans was €4,650 million as of March 31, 2024 (September 30, 2023: €2,550 million). The fair value of these liabilities amounted to €4,720 million (September 30, 2023: €2,524 million) and was estimated by discounting future cash flows using rates currently available for debt of similar terms and remaining maturities (level 2). The carrying amounts of the remaining financial assets and liabilities measured at amortized cost approximated their fair value. The fair values of forward exchange contracts and foreign exchange swaps were based on forward exchange rates (level 2). Except for publicly listed investments for which a quoted price in an active market exists (level 1), the fair values of venture capital investments were generally determined on the basis of prices from most recently executed financing rounds (level 3). The fair values of other equity instruments were generally derived from a discounted cash flow valuation (level 3). Expected cash flows are thereby subject to future market and business developments as well as price volatility. The discount rates applied consider respective risk-adjusted capital costs. The fair value measurement of fund shares was based on their net asset values (level 2). In the first half of fiscal year 2024, net gains from the measurement of equity instruments at fair value amounted to €63 million (in the first half of fiscal year 2023: net loss of €2 million). The gains were recognized in other financial income and 22 Total 2,247 4,420 359 37 ‐ 1,363 30 132 51 35 213 8,886 44 2,203 628 15,988 ‐ 128 41 25 73 110 19,239 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements resulted mainly from an investment in a listed company for which an external investor has entered into a definitive agreement to acquire the company. Debt instruments measured at fair value through profit or loss consisted mainly of bonds and loans related to the financing of proton therapy centers. Along with other debt investors, these funds were provided to various entities to finance the development, construction and operation of proton therapy centers in the United States. The repayment is either directly or indirectly linked to the commercial success of the centers. The fair values of the bonds and loans are based primarily on the individual creditworthiness of the debtor, taking into account the risk characteristics and operating performance of the financed project (level 3). Where appropriate, a probability weighted expected return model is used, utilizing management's assumptions of different outcomes such as the sale, refinancing or closure of the therapy center. Credit ratings are taken into account when adjusting the fair values for credit risks. Consequently, a better rating will generally result in an increased fair value of the loan receivable. As of March 31, 2024, the carrying amounts of financings provided by Siemens Healthineers and measured at fair value through profit or loss were €27 million (September 30, 2023: €26 million), while the total undiscounted amount, including accrued interest, amounted to €211 million (September 30, 2023: €207 million). The carrying amounts represent the maximum exposure to loss. Liabilities from written put options on non-controlling interests were measured at the present value of the exercise price of the options. The exercise price is generally derived from the proportionate enterprise value. The changes in the carrying amount of the financial assets and liabilities measured at fair value based on unobservable inputs (level 3) were as follows: Equity instruments Debt instruments measured at fair value through profit or loss Contingent considerations from business combinations First half First half First half (in millions of €) 2024 2023 2024 2023 2024 2023 Balance at beginning of first half year 161 159 35 53 25 4 Gains and losses recognized in profit or loss 7 1 −1 ‐ −2 ‐ Additions 3 22 ‐ 1 ‐ 5 Disposals and settlements −10 −8 ‐ −23 −4 −3 Currency translation differences −3 −17 −1 −3 ‐ −1 Balance at end of first half year 158 158 33 28 18 5 The following table shows the composition of Siemens Healthineers’ financial debt: (in millions of €) Mar 31, 2024 Sept 30, 2023 Short-term financial debt and current maturities of long-term financial debt 226 198 Therein: Loans from banks 61 31 Lease liabilities 164 166 Current liabilities to the Siemens Group from financing activities 2,067 4,197 Therein: Lease liabilities 13 13 Total current financial debt 2,293 4,395 Long-term financial debt 444 437 Therein: Loans from banks ‐ 10 Lease liabilities 443 426 Non-current liabilities to the Siemens Group from financing activities 13,594 11,821 Therein: Lease liabilities 22 23 Total non-current financial debt 14,038 12,258 Total financial debt 16,330 16,653 As of March 31, 2024, financing arrangements with Siemens AG consisted of a multicurrency revolving credit facility of up to €2.5 billion (September 30, 2023: €2.5 billion), which serves to finance net working capital and as a short-term credit facility, as 23 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements well as a multicurrency revolving credit facility of up to €2.0 billion (September 30, 2023: €2.0 billion) as a backup facility. As of the reporting date, an amount of €1,013 million (September 30, 2023: €1,267 million) was drawn from these credit facilities. In the reporting period, two loans from the Siemens Group in a total amount of US$2.5 billion were repaid. In return, the Siemens Group provided the following additional loans: €0.5 billion, maturing in fiscal year 2025 (contractual interest rate: 3.73%), • €0.5 billion, maturing in fiscal year 2028 (contractual interest rate: 2.96%), • €0.6 billion, maturing in fiscal year 2029 (contractual interest rate: 3.20%), • €0.5 billion, maturing in fiscal year 2030 (contractual interest rate: 3.21%). Current liabilities to the Siemens Group from financing activities primarily decreased due to the repayment and refinancing of the above-mentioned loans. The devaluation of the U.S. dollar against the Euro had a reducing effect on the liabilities to the Siemens Group from financing activities. 24 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 7 Segment information Adjusted external revenue¹ Inter- segment revenue Total adjusted revenue¹ Adjusted EBIT² Assets³ (in millions of €) First half 2024 2023 First half 2024 2023 First half 2024 2023 First half 2024 2023 Mar 31, 2024 Sept 30, 2023 Imaging 5,536 5,440 211 214 5,748 5,654 1,131 ‐ 1,202 5 9,140 8,983 Diagnostics 2,162 2,228 ‐ ‐ 2,162 2,228 99 ‐ −23 5 5,974 5,950 Varian 1,820 1,703 1 1 1,821 1,704 295 ‐ 246 ‐ 14,251 14,368 Advanced Therapies 999 968 2 4 1,001 972 153 ‐ 139 ‐ 1,913 1,862 Total segments 10,517 10,339 214 219 10,732 10,558 1,678 ‐ 1,564 5 31,277 31,163 Reconciliation to consolidated financial statements⁶ 94 83 −214 −219 −121 −136 −594 ‐ −927 5 15,064 15,521 Siemens Healthineers 10,611 10,423 ‐ ‐ 10,611 10,423 1,084 2 637 2 46,342 46,684 1 Siemens Healthineers: IFRS revenue. 2 Siemens Healthineers: Income before income taxes. 3 On segment level: net capital employed. 4 Including additions through business combinations, excluding goodwill. 5 Comparable based on the definition of adjustments effective October 1, 2023. 6 Including effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. 25 Free cash flow First half 2024 2023 859 990 −80 −90 158 8 83 85 1,021 994 −663 −555 358 439 Additions to other intangible assets and property, plant and equipment⁴ First half 2024 2023 115 118 181 263 51 16 8 11 354 409 216 246 570 655 Amortization, depreciation and impairments First half 2024 2023 85 99 184 193 20 17 8 258 297 567 322 349 619 916 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2023. From the beginning of fiscal year 2024, adjusted EBIT is additionally adjusted for other expenses in connection with restructuring measures within the meaning of IAS 37. Figures for first half of fiscal year 2023 are comparable based on the definition of adjustments effective October 1, 2023. Adjusted revenue Siemens Healthineers’ revenue included revenue from contracts with customers and income from leases. In the first half of fiscal year 2024, income from leases amounted to €130 million (first half of fiscal year 2023: €180 million). No revenue from rapid COVID-19 antigen tests in the Diagnostics segment were achieved in the first half of fiscal year 2024 (first half of fiscal year 2023: €67 million). For each of the segments, revenue results mainly from performance obligations satisfied at a point in time, especially in the case of the sale of goods, including reagents and consumables in the Diagnostics segment. However, the performance obligations related to maintenance contracts for equipment sold are generally satisfied over time with revenue recognized on a straight-line basis over this period. Adjusted EBIT (in millions of €) First half 2024 Total segments‘ adjusted EBIT 1,678 Centrally carried pension service and administration expenses 2 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −191 Transaction, integration, retention and carve-out costs −11 Gains and losses from divestments ‐ Severance charges −54 Expenses for other portfolio-related measures ‐ Other restructuring expenses −126 Financial income, net −99 Corporate items −128 Corporate treasury, Siemens Healthineers Real Estate¹, eliminations and other items 12 Total reconciliation to consolidated financial statements −594 Siemens Healthineers‘ income before income taxes 1,084 1 Siemens Healthineers Real Estate manages Siemens Healthineers’ entire real estate business portfolio, operates the properties and is responsible for building projects and for the purchase and sale of real estate. 2 Comparable based on the definition of adjustments effective October 1, 2023. 3 Including expenses for impairment of other intangible assets in the amount of €244 million. In the first half of fiscal year 2024, other restructuring expenses amounted to €126 million. This is mainly related to expenses in connection with the transformation of the Diagnostics business. In the prior year period, expenses for other portfolio-related measures were €329 million. This was due to the focusing of the endovascular robotics solution exclusively on interventional solutions in neurology and the associated withdrawal from the robotic-assisted endovascular cardiology business in the Advanced Therapies segment. In the first half of fiscal year 2024, there were no expenses for other portfolio-related measures. 26 First half 2023 1,564 2 1 −208 −16 ‐ −66 −329 3 −121 2 −72 −112 2 −5 −927 2 637 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Assets (in millions of €) Mar 31, 2024 Sept 30, 2023 Total segments‘ assets 31,277 31,163 Asset-based adjustments 6,340 6,383 Therein: Positive fair value of forwards for hedging of foreign currency liabilities from financing activities 962 1,399 Assets corporate treasury¹ 2,419 2,350 Assets Siemens Healthineers Real Estate 1,905 1,833 Receivables from the Siemens Group from non-operating activities¹ 30 20 Current income tax assets and deferred tax assets 814 661 Liability-based adjustments 8,724 9,137 Total reconciliation to consolidated financial statements 15,064 15,521 Siemens Healthineers‘ total assets 46,342 46,684 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. Free cash flow (in millions of €) First half 2024 First half 2023 Total segments‘ free cash flow 1,021 994 Tax-related cash flow −512 −417 Corporate items and other −150 −138 Total reconciliation to consolidated financial statements −663 −555 Siemens Healthineers‘ free cash flow 358 439 Note 8 Related party transactions The following presents the relationships Siemens Healthineers maintained with the Siemens Group, meaning Siemens AG and its subsidiaries. Transactions with the Siemens Group Sales of goods and services and other income Purchases of goods and services and other expenses (in millions of €) First half 2024 First half 2023 First half 2024 First half 2023 Siemens AG 2 1 122 127 Other Siemens Group entities 112 142 92 88 Total 114 143 214 214 In the first half of fiscal year 2024, Siemens Healthineers obtained support from the Siemens Group for central corporate services with a total value of €143 million (first half of fiscal year 2023: €139 million). In addition, there were leasing transactions with the Siemens Group and related benefit trusts that fund pension obligations, mainly for real estate. As of March 31, 2024, total lease liabilities amounted to €50 million (September 30, 2023: €53 million). In addition, the first half of fiscal 2024 included the acquisition of a Siemens Healthineers business from a Siemens Group entity in Algeria that had previously processed the business. The purchase price was €24 million. 27 Siemens Healthineers Half-Year Financial Report 2024 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Receivables from and liabilities to the Siemens Group Receivables from the Siemens Group¹ Liabilities to the Siemens Group (in millions of €) Mar 31, 2024 Sept 30, 2023 Mar 31, 2024 Sept 30, 2023 Siemens AG 4 2 3,367 3,358 Other Siemens Group entities 40 35 12,319 12,666 Total 44 37 15,686 16,024 1 Prior-year value includes retrospective adjustment due to the change in the composition of cash and cash equivalents. For further information, please refer to Note 2 Accounting policies. The liabilities to other Siemens Group entities decreased due to the repayment of two matured loans in the total amount of US$2.5 billion. This was offset by the following additional loans: €0.5 billion, maturing in fiscal year 2025, • €0.5 billion, maturing in fiscal year 2028, • • €0.6 billion, maturing in fiscal year 2029 and, €0.5 billion, maturing in fiscal year 2030. In the first half of fiscal year 2024, interest expenses from financing arrangements with Siemens AG amounted to €82 million (first half of fiscal year 2023: €38 million) and from financing arrangements with other Siemens Group entities amounted to €90 million (first half of fiscal year 2023: €54 million). These include positive effects from the hedging of exchange rate risks of U.S. dollar-denominated loans. As of March 30, 2024, the multicurrency revolving credit facilities in a total amount of €4.5 billion (September 30, 2023: €4.5 billion) were utilized in an amount of €1,013 million (September 30, 2023: €1.267 million). The liabilities to Siemens AG reduced respectively. Credit balances on cash-pooling accounts and short-term deposits of up to three months with the Siemens Group are shown as cash and cash equivalents and amounted to €962 million as of March 31, 2024 (September 30, 2023: €605 million). For further details, see Note 2 Accounting policies. Hedging with the Siemens Group As of March 31, 2024, other current and other non-current financial assets resulting from hedging activities with the Siemens Group as counterparty amounted to €968 million (September 30, 2023: €1,376 million). As of March 31, 2024, other current and other non-current financial liabilities from hedging activities amounted to €129 million (September 30, 2023: €139 million). 28 Siemens Healthineers Half-Year Financial Report 2024 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, April 30, 2024 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Darleen Caron Dr. Jochen Schmitz Elisabeth Staudinger-Leibrecht 29 Siemens Healthineers Half-Year Financial Report 2024 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the condensed half-year consolidated financial statements – comprising the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and selected explanatory notes – and the interim group management report of Siemens Healthineers AG, for the period from October 1, 2023 to March 31, 2024 which are part of the half-year financial report pursuant to § [Article] 115 WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation of the condensed half-year financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s executive directors. Our responsibility is to issue a review report on the condensed half-year consolidated financial statements and on the interim group management report based on our review. We conducted our review of the condensed half-year consolidated financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW) and supplementary compliance with the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed half-year consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. Based on our review, no matters have come to our attention that cause us to presume that the condensed half-year consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, April 30, 2024 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft sgd. Dr. Bernd Roese Wirtschaftsprüfer [German Public Auditor] sgd. Holger Lutz Wirtschaftsprüfer [German Public Auditor] 30 Siemens Healthineers Half-Year Financial Report 2024 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations, plans and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or developments, these statements are subject to a number of risks, uncertainties and factors, including, but not limited to those possibly described in the respective disclosures. Should one or more of these or other risks, uncertainties or factors (e.g. events of force majeure, including but not limited to unrest, acts of war, pandemics or acts of God) materialize, plans change or should underlying expectations not occur or assumptions prove incorrect, Siemens Healthineers' management actions, actual results, performance or achievements of Siemens Healthineers may (negatively or positively) vary materially from those described explicitly or implicitly in the forward- looking statement. This document includes supplemental financial measures that are or may be alternative performance measures not precisely defined in the applicable financial reporting framework. These supplemental financial measures may have limitations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets and financial position or results of operations as presented in accordance with the applicable financial reporting framework. Other companies that report or describe similarly titled alternative performance measures may calculate them differently, and therefore they may not be comparable to those included in this document. Please find further explanations regarding our (supplemental) financial measures in chapter “A.2 Financial performance system“ and in the Notes to consolidated financial statements, Note 30 “Segment information“ of the Annual Report 2023 of Siemens Healthineers. Due to rounding, individual numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. For technical reasons, there may be differences in formatting between the accounting records appearing in this document and those published pursuant to legal requirements. This document is a convenience English language translation of the German document. In case of discrepancies, the German language document is the sole authoritative and universally valid version. The information contained in this document is provided as of the date of this document and is subject to change without notice. In the event that the male form is used in this document, the information nevertheless refers to all persons (male, female, non- binary). 31 ___________________________________________ Siemens Healthineers AG Siemensstr. 3 91301 Forchheim, Germany siemens-healthineers.com Investor Relations Phone: +49 (9131) 84-3385 Email: ir.team@siemens-healthineers.com Press Email: press.team@siemens-healthineers.com © Siemens Healthineers AG, 2024 | Semestriel, 2024, Healthcare, SiemensHealthineers | write me a financial report |
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| T R O P E R R A E Y F L A H (3) The Group’s orderbook is the contract value of assignments acquired as of 30 June (Half Year reporting), and 31 December (Full Year reporting) but that is not yet accounted for as turnover because of non-completion. The orderbook also includes the Group’s share in the orderbook of joint ventures, but not of associates. (4) The reconciliation between the segment turnover and the turnover as per financial statements refers to the turnover of joint ventures. They are consolidated according to the proportionate method in the segment reporting but according to the equity consolidation method in the financial statements. 2 TABLE OF CONTENTS 04 HIGHLIGHTS Financial & non-financial key figures 4 Financial key figures by segment 5 Group performance Executive summary 6 6 Outlook 6 Financial figures 7 Operating segments 9 ESG progress Environmental 11 11 Social 11 Governance 11 12 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Income 12 Consolidated Statement of Comprehensive Income 13 Consolidated Statement of Financial Position 14 Condensed Consolidated Statement of Cash Flows 16 Consolidated Statement of Changes in Equity 17 Segment Reporting Description of operating segments 18 18 Financial information of operating segments 20 Shareholder Structure and Share Capital 22 Corporate Information 22 Earnings and Dividend per Share 23 General Policies and Changes in the current reporting period Basis of preparation 23 23 Seasonal nature of the business 24 Judgments and estimates 24 Risks and uncertainties 24 Changes in the consolidation scope 24 Foreign currencies 25 One time recognition of deferred income for the operational offshore wind farms resulting from the implementation of new legislation in Belgium Gain on the sale of ‘Groenewind’ amounts to 12 million euro HIGHLIGHTS PRELIMINARY REMARK This Half Year Report includes the interim condensed consolidated financial statements for DEME Group NV and its subsidiaries (together the DEME Group) that are prepared in accordance with the International Financial Reporting Standards (IFRS) as of 30 June 2023 and for the six-month period then ended. These interim financial statements have been prepared in accordance with IAS 34 interim financial reporting and should be read in conjunction with the Group’s Annual Report as of 31 December 2022. The Half Year Report includes the ‘Consolidated Statement of Financial Position and (Comprehensive) Income’, ‘Condensed Consolidated Statement of Cash Flows’, ‘Consolidated Statement of Changes in Equity’, ‘Segment Reporting’ and a selection of explanatory notes. Both the Group’s Half Year Report 2023 and the Annual Report 2022 are available in English and in Dutch and can be downloaded from the website www.deme-group.com. 26 Explanatory Notes to the Consolidated Financial Statements 26 Note (1) Turnover and orderbook 28 Note (2) Other operating income and expenses 28 Note (3) Current taxes and deferred taxes 29 Note (4) Intangible assets 29 Note (5) Goodwill 30 Note (6) Property, plant and equipment 31 Note (7) Right-of-use assets 32 Note (8) Inventories 32 Note (9) Trade and other operating receivables 32 Note (10) Assets held for sale 33 Note (11) Interest-bearing debt and net financial debt 35 Note (12) Financial risk management and financial derivatives 38 Note (13) Contingent assets and liabilities 39 Note (14) Rights and commitments not reflected in the balance sheet 39 Note (15) Related party disclosures 40 Note (16) Events after the reporting period 41 Management Declaration 42 Independent Auditor’s Report 43 Glossary and definition of alternative performance measures (3) The Group’s orderbook is the contract value of assignments acquired as of 30 June (Half Year reporting), and 31 December (Full Year reporting) but that is not yet accounted for as turnover because of non-completion. The orderbook also includes the Group’s share in the orderbook of joint ventures, but not of associates. (4) The reconciliation between the segment turnover and the turnover as per financial statements refers to the turnover of joint ventures. They are consolidated according to the proportionate method in the segment reporting but according to the equity consolidation method in the financial statements. 3 4 HIGHLIGHTS HIGHLIGHTS FINANCIAL & NON-FINANCIAL KEY FIGURES (Full Year (FY) and Half Year (1H) figures) 1H23 1H22 FINANCIAL KEY FIGURES (in millions of euro) Turnover 1,475.4 1,291.7 EBITDA 221.9 191.3 Depreciation and Impairment 164.8 151.2 EBIT 57.1 40.1 Net result from joint ventures and associates 2.7 7.1 Net result share of the Group 30.2 39.5 Orderbook 7,654.0 5,620.0 Shareholders' equity (excl. non-controlling interests) 1,805.6 1,639.9 Net financial debt 715.2 573.7 Total cash 309.4 675.2 Operating working capital 411.0 399.0 Balance sheet total 4,614.0 4,581.9 Investments 216.0 226.3 Earnings per share (in euro) 1.19 1.56 Dividend for the year per share (in euro) N/A N/A NON-FINANCIAL KEY FIGURES (in weeks) Fleet utilisation rate of Trailing Suction Hopper Dredgers 18.6 19.6 Fleet utilisation rate of Cutter Suction Dredgers 6.4 16.5 Fleet utilisation rate of Offshore equipment 17.1 18.1 All definitions for alternative performance measures (APMs) or acronyms used in this report are available in the Glossary. FY22 2,654.7 473.9 318.7 155.2 15.8 112.7 6,190.0 1,753.9 520.5 522.3 506.2 4,509.8 483.9 4.45 1.5 38.3 29.3 33.6 DEME HALF YEAR REPORT 2023 FINANCIAL KEY FIGURES BY SEGMENT (in millions of euro) (Full Year (FY) and Half Year (1H) figures) 1H23 Turnover 1,475.4 Offshore Energy 657.8 Dredging & Infra 716.2 Environmental 143.3 Concessions 2.6 Reconciliation 44.5 EBITDA 221.9 Offshore Energy 79.1 Dredging & Infra 102.1 Environmental 32.5 Concessions 6.8 Reconciliation 15.0 EBIT 57.1 Offshore Energy 20.0 Dredging & Infra 1.2 Environmental 27.6 Concessions 6.8 Reconciliation 17.5 Net result from joint ventures and associates 2.7 Offshore Energy 0.0 Dredging & Infra 0.2 Environmental 0.4 Concessions 18.3 Reconciliation 16.2 Orderbook 7,654.0 Offshore Energy 3,892.4 Dredging & Infra 3,436.0 Environmental 325.6 Concessions 1H22 1,291.7 471.5 746.5 90.7 0.2 17.2 191.3 100.3 94.6 12.2 6.9 8.9 40.1 52.8 7.5 8.2 7.0 6.4 7.1 0.0 0.0 0.4 3.2 3.5 5,620.0 2,608.1 2,702.6 309.3 5 FY22 2,654.7 957.8 1,524.3 206.3 2.2 35.9 473.9 221.9 254.9 25.0 12.7 15.2 155.2 117.1 44.9 16.5 12.7 10.6 15.8 0.0 0.1 0.5 9.3 5.9 6,190.0 3,260.9 2,615.7 313.4 6 HIGHLIGHTS GROUP PERFORMANCE EXECUTIVE SUMMARY The first half of 2023 for DEME was characterised by solid growth of the orderbook, turnover, and EBITDA, despite having several large-scale projects in the Offshore Energy segment in start-up phase. 3 million euro for the same period last year, an increase mainly related to more production (stronger wind) and part of the increase of electricity prices. The orderbook grew to nearly 7.7 billion euro, driven by new projects in all contracting segments, with each one reaching a record level, a strong testament to DEME's cogent positioning. Turnover grew from 1.3 billion euro in the first half of 2022 to almost 1.5 billion euro in the first half of 2023. Turnover in the Dredging & Infra segment decreased slightly (-4%), while turnover in the Offshore Energy and Environmental segments saw significant increases of 40% and 58% respectively. Offshore Energy is gradually converting its growing orderbook to turnover while continuing the operational execution of projects in the US and Taiwan as it expands geographically. Dredging & Infra delivered on a mix of projects globally including maintenance and capital dredging works and continued work on major infrastructural projects. Environmental continued its long- term projects in Belgium, France and the Netherlands. DEME achieved an EBITDA of 222 million euro, for an EBITDA margin of 15.0%, compared to 191 million euro and an EBITDA margin of 14.8% in the first half of 2022. The first-half EBITDA margin in Offshore Energy stood at 12%, lower than the previous year. The prior year had benefitted from a significant liquidated damage payment, while this year's margin was impacted by project start-ups and supply chain-related delays for certain clients. Dredging & Infra reported a higher EBITDA margin compared to the previous year, partially aided by project phasing and the settlement of variation orders on a number of projects, while the Environmental segment reported a record EBITDA margin of over 22%, helped by the impact of a sizeable settlement related to a completed project. Net profit was 30 million euro compared to 39 million euro a year ago, primarily due to negative exchange rate results. Capital expenditure was 216 million euro, compared to 226 million euro a year ago as DEME continued to invest in its future. Most of the capital expenditure was allocated to the expansion of DEME’s fleet capabilities, mainly in its Offshore Energy segment. Net financial debt amounted to 715 million euro compared to 574 million euro as of 30 June 2022 and 521 million euro as of 31 December last year. The increase reflects cyclical effects on working capital and cash flow generation during the first half in combination with a sustained high investment level. Net financial debt over EBITDA remained healthy at 1.4 (1). Total cash amounted to 309 million euro at the end of the semester compared to 522 million euro as of 31 December 2022. In July, DEME divested its offshore service operation vessel ‘Groenewind’ to Cyan Renewables. This transaction aligns with DEME’s focus on catalysing offshore wind initiatives and serving as pioneering enabler for operations rather than performing routine service and maintenance activities. The gain on disposal of 12 million euro is not included in the 1H23 results. OUTLOOK The following statements are forward looking, and actual results may differ materially. Building on the first half results, DEME reiterates its outlook for the year with management expecting turnover to be higher than 2022 and the EBITDA margin to be comparable to 2022. The associates in DEME’s Concession segment reported net results of 18 million euro in the first half compared to CapEx for the year is now anticipated to be around 425 million euro. (1) Net financial debt over EBITDA ratio is computed as total net financial debt (without subordinated and other loans) divided by EBITDA on a rolling 12 months basis. DEME HALF YEAR REPORT 2023 FINANCIAL FIGURES Orderbook Year-over-year comparison (in million euro) 1H23 FY22 1H22 1H23 vs 1H22 Group 7,654.0 6,190.0 5,620.0 +36% Orderbook by segment (in million euro) 1H23 FY22 1H22 1H23 vs 1H22 Offshore Energy 3,892.4 3,260.9 2,608.1 +49% Dredging & Infra 3,436.0 2,615.7 2,702.6 +27% Environmental 325.6 313.4 309.3 +5% DEME’s order backlog reached a new record level of 7,654 million euro, increasing 36% compared to the first half of 2022 and 24% compared to the end of last year. This increase was led by strong demand in all contracting segments, each of which attained all-time-high orderbooks as well. Noteworthy additions were the design and the construction of the Princess Elisabeth island in Belgium, work in the Middle East, and offshore wind projects in France and the US. Turnover Year-over-year comparison (in million euro) 1H23 1H22 1H21 1H23 vs 1H22 (in nominal value) Offshore Energy 657.8 471.5 352.4 +40% Dredging & Infra 716.2 746.5 668.3 4% Environmental 143.3 90.7 75.8 +58% Concessions 2.6 0.2 0.7 Total turnover of segments 1,519.9 1,308.9 1,097.2 +16% Reconciliation (2) 44.5 17.2 34.2 Total turnover as per financial statements 1,475.4 1,291.7 1,063.0 +14% Turnover of the Group grew 14% year-over-year. Environmental and Offshore Energy both had a strong first half of the year while Dredging & Infra saw turnover at a slightly lower level compared to a strong first half in 2022. From a geographical perspective, turnover has become more diversified with a lower contribution for Europe and significant turnover growth in the American region following strong order intake for offshore projects over the last year. Geographical breakdown (in % of total) 1H23 1H22 1H21 1H23 vs 1H22 (in nominal value) Europe 62% 73% 73% 2% Africa 7% 15% 20% 46% Asia 11% 8% 5% +52% America 19% 4% 1% +481% Middle East 1% 0% 0% +170% (2) The reconciliation between the segment turnover and the turnover as per financial statements refers to the turnover of joint ventures. They are consolidated according to the proportionate method in the segment reporting but according to the equity consolidation method in the financial statements. 7 8 HIGHLIGHTS Profitability Year-over-year comparison (in million euro) 1H23 1H22 1H21 1H23 vs 1H22 EBITDA 221.9 191.3 187.2 16% EBITDA margin 15.0% 14.8% 17.6% EBIT 57.1 40.1 46.2 +43% EBIT margin 3.9% 3.1% 4.4% Net profit 30.2 39.5 35.0 24% Net margin 2.0% 3.1% 3.3% EBITDA increased to 222 million euro (or 15.0% of sales) for the first half of 2023, up 16% compared to 191 million euro (or 14.8% of sales) for the first half of last year. Included in the H1 2022 EBITDA was 19 million euro of liquidated damages for the delayed delivery of 'Orion' (Offshore Energy segment) (3). The EBITDA margin improved in the Dredging & Infra segment but was impacted somewhat by project phasing and supply chain issues in the Offshore Energy segment. The Environmental segment reported an increase in its EBITDA margin reflecting successful project execution and the impact of a final agreement on a completed project in the Netherlands. EBIT amounted to 57 million euro, or 3.9% of sales, an increase of 43% compared to EBIT of 40 million euro, or 3.1% of sales for the first half of 2022. Depreciation and impairments were 165 million euro, compared to 151 million euro a year ago. The increase in depreciation costs in 2023 is mainly due to the investments in ‘Orion’, DEME’s offshore installation vessel which was added to the fleet in June 2022, and ‘Viking Neptun’, a cable laying vessel, added to the fleet at the start of 2023. The net profit for 2023 amounted to 30 million euro, which is 9 million euro lower compared to the first half of 2022 mainly as a result of negative exchange rate results. Earnings per share were 1.19 euro, compared to a 1.56 euro for the first half of 2022. Net financial debt and balance sheet (in million euro) 1H23 FY22 1H22 1H23 vs 1H22 Operating working capital 411.0 506.2 399.0 3% CapEx 216.0 483.9 226.3 5% Net financial debt 715.2 520.5 573.7 25% Total cash 309.4 522.3 675.2 54% The investments (4) in ‘intangible assets’ and ‘property, plant and equipment’ for the first half of 2023 amounted to 216 million euro compared to 226 million euro a year ago. Investment for the first half include capitalised maintenance investments in DEME’s fleet, as well as modification investments and conversions for ‘Sea Installer’ and ‘Yellowstone’, a fall pipe vessel, converted from a former bulk carrier. Not included is the investment in ‘Green Jade’, a new offshore wind installation vessel under construction in Taiwan by CDWE (5) and DEME. ‘Green Jade’ was inaugurated at the end of the first semester 2023 and has commenced first operations over the summer. Operating working capital amounted to -411 million euro as of 30 June 2023 compared to -506 million euro at the end of last year. The net financial debt was -715 million euro as of 30 June 2023 compared to -574 million euro at the end of the first half of 2022 and -521 million euro at the end of 2022. The increase in the debt position is mainly driven by the sustained high level of investments and cyclical effects on working capital and cash generation. Total cash amounted to 309 million euro, compared to 522 million euro at the end of last year. (3) Also H1 2021 included 15 million euro liquidated damages for ‘Spartacus’ (Dredging & Infra). (4) These Investments exclude investments in ‘financial fixed assets. (5) CDWE, a joint venture between CSBC, the largest shipbuilder in Taiwan, and DEME is consolidated under equity method. DEME HALF YEAR REPORT 2023 OPERATING SEGMENTS Please find below a description of the performance of DEME’s operating segments. Offshore Energy (in million euro) 1H23 1H22 1H21 1H23 vs 1H22 Orderbook 3,892.4 2,608.1 1,443.0 +49% Turnover 657.8 471.5 352.4 +40% EBITDA 79.1 100.3 45.9 21% EBITDA margin 12.0% 21.3% 13.0% Fleet utilisation rate (weeks) 17.1 18.1 16.7 The Offshore Energy segment increased its orderbook by 49% and grew turnover 40% year-over-year, fueled by a healthy backlog and solid project execution. During the first half of the year, in Europe, the segment installed monopile foundations for Vesterhav in the Danish North Sea, jackets and topsides for Hollandse Kust, and a substation for the Fécamp wind farm in France and laid cables for the Dogger Bank wind farm in the UK. In addition, the segment commenced operational activities in the US as planned with the initial installation of monopile foundations for the Vineyard Wind project, the first commercially scaled offshore wind farm in the US. The new installation vessel 'Orion' performed well, accomplishing "first steel in the water for the US". However, pending the resolution regarding DEME’s claims and variation orders with the client regarding supply chain and operational issues, DEME has recorded a loss for the project. Additionally a one-time project loss has been reported related to the Zhong Neng project in Taiwan, because alternative execution methods had to be devised during the project’s initiation. The vessel occupancy for the Offshore Energy segment was lower in the first half of 2023, mainly due to technical adjustments to the vessels in preparation for project execution in the US and upgrade works across the fleet. The Offshore Energy segment posted an EBITDA margin of 12%, compared to a strong EBITDA for the first semester a year ago, which included the settlement of liquidated damages for the delayed delivery of ‘Orion’. EBITDA for the first half of 2023 was impacted by project start-ups and takes into account the recorded losses on the projects in US and in Taiwan described above. The segment also decided to sell its service operation vessel ‘Groenewind’ to Cyan Renewables from Singapore. As the sale was only finalised in July, the gain on the sale will be recognised in the second semester results. This transaction aligns with DEME’s focus on catalysing and establishing the operations of offshore wind projects rather than routine service and maintenance activities. In non-renewables, the segment continued work on the Hinkley Nuclear power station in the UK deploying ‘Neptune’ and ‘Sea Challenger’. Early in the year DEME added a second large cable installation vessel, ‘Viking Neptun’, and a new installation vessel, ‘Green Jade’, was inaugurated at the end of the first semester. ‘Green Jade’ will be deployed over summer for the installation of jacket foundations for the Zhong Neng project in Taiwan. During the first semester, the Offshore Energy orderbook grew almost 50% with the addition of several new multi- year contract awards, including sizeable projects in Continental Europe and the US. Noteworthy project wins in 2023 include, in France, the Île d’Yeu and Noirmoutier offshore wind farm and the Dieppe Le Tréport offshore wind farm. The segment also officially announced the award to transport and install inter-array cables for the Empire Wind 1 and 2 offshore wind farm, its fourth contract in the US. Dredging & Infra (in million euro) 1H23 1H22 1H21 1H23 vs 1H22 Orderbook 3,436.0 2,702.6 3,046.0 +27% Turnover 716.2 746.5 668.3 4% EBITDA 102.1 94.6 158.8 +8% EBITDA margin 14.3% 12.7% 23.8% Fleet utilisation rate - TSHD (weeks) (6) Fleet utilisation rate - CSD (weeks) (7) 18.6 6.4 19.6 16.5 19.2 7.4 (6) TSHD: Trailing Suction Hopper Dredger. (7) CSD: Cutter Suction Dredger. 9 10 HIGHLIGHTS Dredging & Infra reported a turnover of 716 million euro year-to-date, 4% lower compared to a strong first half last year. Orderbook increased 27% compared to a year ago. The segment executed work on a container terminal in Colombo (Sri Lanka), a port expansion in Italy, a capital dredging project in Mexico and began work on the next phase of a project in Nigeria. In addition to maintenance contracts across Europe, work on terminals are ongoing in Gdansk (Poland) and Stade (Germany) as well as a capital dredging project in Egypt. The segment also continued work on large infra flagship projects in Europe including the first phase of the Fehmarnbelt Fixed Link project (Denmark), Port-La Nouvelle in France, the Blankenburg project and the New Lock Terneuzen in the Netherlands, and the Oosterweel Link Connexion project in Belgium. In the first semester, DEME won, as part of a consortium, a project to design and construct the Princess Elisabeth island. The Princess Elisabeth island is an artificial energy island that will be the first offshore energy hub in Europe’s future energy grid in the North Sea. Main construction will Environmental (in million euro) 1H23 Orderbook 325.6 Turnover 143.3 EBITDA 32.5 EBITDA margin 22.6% The Environmental segment accelerated its turnover and profit growth generating 143 million euro in turnover and a 22.6% EBITDA margin. The growth was fueled by projects deploying DEME treatment centres and on-site treatment solutions in Belgium (Blue Gate in Antwerp, Cokeries du Brabant), the Netherlands (GoWa en Ijburg), France (Condé Pommeroeul), the UK and Norway. Concessions (in million euro) 1H23 Net result from associates 18.3 The Concessions segment is involved in operational wind farms that are generating recurring income while working on the 2 gigawatt concession project in Scotland, in which DEME holds a 42.5% participation, and preparing for upcoming tenders in Belgium. For dredging & infrastructure, the segment continues to focus on projects both in the portfolio and under construction including Blankenburg (The Netherlands) and Port-La Nouvelle (France) while expanding the footprint in the port of Duqm (Oman). In the first half of 2023, the Concessions segment delivered a net result of 18.3 million euro, a notable increase from 3.2 million euro for the same period last year, partly driven by more production (stronger wind) (8) ISA: International Seabed Authority. 1H22 309.3 90.7 12.2 13.5% 1H22 3.2 start in 2024 and continue into 2026. In addition, the segment won contracts for the deployment of trailer and cutter capacity in Abu Dhabi and dredging works in Germany and Italy. In anticipation of an uplift of demand, DEME is seeing an increase in tender activity for major opportunities in Europe, Middle East and Africa. Vessel occupancy for Dredging & Infra reflected a stable utilisation for the hoppers and a softer occupancy for the cutters compared to previous years. In light of the projects at hand, vessel occupancy is projected to strengthen during the second half of the year, particularly for the cutter suction fleet. The EBITDA margin in the Dredging & Infra segment increased from 12.7% in the first half of 2022 to 14.3%, due to favorable project phasing and settlement of variation orders, partly offset by a relatively high level of planned maintenance works on the fleet. 1H21 1H23 vs 1H22 248.0 +5% 75.8 +58% 6.2 +166% 8.2% EBITDA increased from 12.2 million euro to 32.5 million euro or 22.6% of sales. The improvement in profitability reflects disciplined project management as well as the impact of a final agreement on a completed project in the Netherlands. Orderbook for Environmental grew mainly driven due to project wins in Belgium. As of 30 June 2023, the orderbook stood at 325 million euro, an increase of 5% compared to 309 million euro a year earlier. 1H21 1H23 vs 1H22 4.5 +472% and part of the increase of electricity prices and impacted by new legislation in Belgium. The long-term green hydrogen initiative achieved a significant milestone with DEME signing a Project Development Agreement with the government in Oman for the HYPORT Duqm project. DEME’s subsidiary Global Sea Mineral Resources NV (GSR) announced a strategic cooperation with Transocean Ltd. whereby Transocean has invested a non-controlling interest in GSR consisting of the contribution of an ultra-deepwater drilling vessel and cash. The ISA (8) council has not yet reached a decision about a regulatory framework for future seabed harvesting operations and has indicated that it is now aiming for the adoption of such framework by the 30th session of the International Seabed Authority in 2025. DEME HALF YEAR REPORT 2023 ESG PROGRESS ENVIRONMENTAL DEME continued to execute its ambitious strategy to promote the transition to clean energy worldwide during the first semester by contributing to the realisation of offshore wind farm projects in Europe (France, The Netherlands, Denmark and the UK), in Asia (Zhong Neng in Taiwan) and in the US (Vineyard Wind). In its Infra-activity, DEME is involved in the construction of the longest immersed road and rail tunnel in the world, the Fehmarnbelt Fixed Link project between Denmark and Germany. The tunnel will foster environmentally sustainable trade and tourism by reducing travel time and facilitating greener transport by the use of electric freight trains. ‘Viking Neptun’, a cable laying vessel, was added to DEME’s fleet during the first semester of 2023, while ‘Green Jade’, a new offshore installation vessel, was inaugurated end of June 2023 to join the fleet over summer. Both vessels are enhancing the sustainable operational capacity of DEME’s fleet as they are fully compliant with the latest emission standards and feature the latest environmental technology. ‘Viking Neptun’ carries a battery pack for best-in-class fuel efficiency and more sustainable operations. ‘Green Jade’ features fuel saving measures and innovations such as a waste heat recovery system. DEME's latest fallpipe vessel, 'Yellowstone', transformed from a bulk carrier, fully complies with the latest emission standards. It's set to become the sector's pioneering dual fuel fallpipe vessel, also prepared for (green) methanol. This innovation aligns with DEME's broader aim to achieve carbon neutrality by 2050. In addition, this ship has a hybrid power plant with a 1 MWh Li-ion battery, which will lead to comparable benefits as the hybrid 'Viking Neptun'. SOCIAL As part of DEME's commitment to safety, a dedicated Safety Stand Down Week took place in May. This initiative centered on addressing the most recent High Potential Incidents (HIPO - "what could go wrong?") and Lost Time Incidents (LTI's - "what did go wrong?"). Additionally, our ongoing Safety Success Stories campaign will gain further prominence during our upcoming Safety Moment Day at the close of the year. Safety Key Performance Indicators (KPI’s), including toolbox meeting participation, prompt incident reporting, timely closure of action items, observations, inspections, and incident investigation criteria, have consistently met or exceeded targets. Demonstrating our unwavering environmental commitment, we've witnessed an exceptional number of Green Initiatives emerging from both our vessels and projects and there were no major environmental incidents. The latest edition of the DEMEx program which focuses on disruptive and transformational innovation, had its final showcase event in June of this year. It was a powerful illustration of how firmly innovation and sustainability are embedded in the heart and minds of the DEME team and made it tangible in powerful initiatives. Out of the nine innovative ideas proposed in the final event, three were selected by a broad DEME audience to be further developed and launched. GOVERNANCE During the Annual General Meeting, held on 17 May 2023, the shareholders approved the appointment of Ms. Karena Cancilleri, as an independent director for four years. This brings the total number of female directors to three out of a total of ten members of the Board of Directors. With a career spanning over 25 years, Ms. Cancilleri has held senior leadership roles across diverse industries, including private equity, publicly listed, and family-owned companies. She possesses a master’s degree in Chemistry, along with an MBA. More information can be found in chapter 'Sustainability & QHSE' of the Group's Annual Report 2022. 11 12 HIGHLIGHTS HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in thousands of euro) (Half Year (1H) figures) Notes 1H23 REVENUES 1,489,041 Turnover (1) 1,475,383 Other operating income (2) 13,658 OPERATING EXPENSES 1,431,894 Raw materials, consumables, services and subcontracted work 951,287 Personnel expenses 296,419 Depreciation and amortisation expenses (4)/(6)/(7) 164,759 Impairment of property, plant and equipment and right-of-use assets (6)/(7) Impairment of goodwill and intangible assets (4)/(5) Other operating expenses (2) 19,429 OPERATING RESULT 57,147 FINANCIAL RESULT 12,668 Interest income 4,407 Interest expense 10,126 Realised/unrealised foreign currency translation effects 8,703 Other financial income and expenses 1,754 RESULT BEFORE TAXES 44,479 Current taxes and deferred taxes (3) 10,675 RESULT AFTER TAXES 33,804 Share of profit (loss) of joint ventures and associates 2,650 RESULT FOR THE PERIOD 36,454 Attributable to non-controlling interests 6,270 SHARE OF THE GROUP 30,184 Number of shares Earnings per share (basic and diluted) Section 'Share Capital' Section 'Share Capital' 25,314,482 1.19 1H22 1,323,870 1,291,688 32,182 1,283,814 851,567 271,783 151,248 9,216 40,056 4,329 1,976 4,140 9,563 3,070 44,385 9,765 34,620 7,146 41,766 2,297 39,469 25,314,482 1.56 DEME HALF YEAR REPORT 2023 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands of euro) (Half Year (1H) figures) 1H23 Result attributable to non-controlling interests 6,270 Share of the Group 30,184 RESULT FOR THE PERIOD 36,454 Other comprehensive income that may be reclassified to profit or loss in subsequent periods Changes in fair value related to hedging instruments 2,474 Share of other comprehensive income of joint-ventures and associates (**) 2,224 Changes in cumulative translation adjustment reserve 5,058 Other comprehensive income that cannot be reclassified to profit or loss in subsequent periods Remeasurement of net liabilities relating to defined benefit plans (*) Share of other comprehensive income of joint-ventures and associates (*) TOTAL OTHER COMPREHENSIVE INCOME 9,756 TOTAL COMPREHENSIVE INCOME 26,698 Attributable to non-controlling interests 5,753 SHARE OF THE GROUP 20,945 (*) The remeasurement of net liabilities relating to defined benefit plans is only done once a year for year-end closing purposes. The change in the actuarial assumptions of inflation rate and discount rate at 30 June 2023 compared to 31 December 2022 is not significant and the impact of the change on the net liabilities relating to defined benefit plans as recorded in the books of 31 December 2022, is considered to be immaterial. (**) Reference is made to the ‘Consolidated Statement of Changes in Equity’. The share of other comprehensive income of joint ventures and associates also relates to changes in fair value of hedging instruments. 13 1H22 2,297 39,469 41,766 28,995 35,576 2,767 (*) (*) 61,804 103,570 2,359 101,211 14 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of euro) (Full Year (FY) and Half Year (1H) figures) ASSETS Notes 1H23 NON-CURRENT ASSETS 3,159,834 Intangible assets (4) 23,473 Goodwill (5) 13,028 Property, plant and equipment (6) 2,567,133 Right-of-use assets (7) 112,692 Investments in joint ventures and associates 212,586 Other non-current financial assets 40,840 Non-current financial derivatives (12) 35,938 Interest rate swaps 35,724 Forex/fuel hedges 214 Other non-current assets 11,271 Deferred tax assets 142,873 CURRENT ASSETS 1,454,125 Inventories (8) 28,074 Contract assets 461,445 Trade and other operating receivables (9) 488,851 Current financial derivatives (12) 18,547 Interest rate swaps 17,496 Forex/fuel hedges 1,051 Assets held for sale (10) 33,628 Other current assets 114,142 Cash and cash equivalents (11) 309,438 TOTAL ASSETS 4,613,959 FY22 2,969,289 24,315 13,028 2,422,048 98,994 202,748 32,540 39,336 39,127 209 11,892 124,388 1,540,489 25,696 344,751 469,529 22,022 17,638 4,384 31,997 124,233 522,261 4,509,778 DEME HALF YEAR REPORT 2023 GROUP EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY Issued capital Share premium Retained earnings and other reserves Hedging reserve Remeasurement on retirement obligations Cumulative translation adjustment NON-CONTROLLING INTERESTS GROUP EQUITY NON-CURRENT LIABILITIES Retirement obligations Provisions Interest-bearing debt Non-current financial derivatives Interest rate swaps Forex/fuel hedges Other non-current financial liabilities Deferred tax liabilities CURRENT LIABILITIES Interest-bearing debt Current financial derivatives Interest rate swaps Forex/fuel hedges Provisions Contract liabilities Advances received Trade payables Remuneration and social debt Current income taxes Other current liabilities TOTAL LIABILITIES TOTAL GROUP EQUITY AND LIABILITIES Notes (11) (12) (11) (12) 1H23 1,805,609 33,194 475,989 1,279,173 65,311 37,458 10,600 48,463 1,854,072 926,134 60,689 45,821 705,446 35,035 35,035 11,350 67,793 1,833,753 319,156 31,410 31,410 4,717 318,755 95,378 793,977 89,074 70,110 111,176 2,759,887 4,613,959 15 FY22 1,753,947 33,194 475,989 1,218,272 70,020 37,458 6,070 22,318 1,776,265 1,015,460 60,523 42,985 789,904 53,661 53,661 1,238 67,149 1,718,053 252,870 31,579 31,579 4,714 323,300 72,539 777,705 98,793 66,571 89,982 2,733,513 4,509,778 16 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of euro) (Half Year (1H) figures) Notes 1H23 CASH AND CASH EQUIVALENTS, OPENING BALANCE 522,261 Operating result 57,147 Dividends from participations accounted for using the equity method 2,604 Reclassification of (income) loss from sales of property, plant and equipment and financial participations to cash flow from divestments 2,809 Interest received 4,407 Interest paid 10,113 Foreign currency translation effects and other financial income (costs) 6,949 Income taxes paid 41,976 NON-CASH ADJUSTMENTS 170,245 CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN WORKING CAPITAL 172,556 CHANGES IN WORKING CAPITAL 126,664 CASH FLOW FROM OPERATING ACTIVITIES 45,892 INVESTMENTS 230,848 Acquisition of intangible assets (4) 1,196 Acquisition of property, plant and equipment (6) 214,816 Cash (out) inflows on acquisition of subsidiaries Cash (out) inflows on acquisition of associates and joint ventures (**) 3,138 New borrowings given to joint ventures and associates (15) 11,698 Cash outflows of other financial assets DIVESTMENTS 22,975 Sale of intangible assets Sale of property, plant and equipment Cash (out) inflows on disposal of subsidiaries (6) Section 'Changes in consolidation scope' 9,699 9,377 Cash (out) inflows on disposal of associates and joint ventures 1,142 Repayment of borrowings given to joint ventures and associates (15) 2,566 Cash inflows of other financial assets 191 CASH FLOW (USED IN) / FROM INVESTING ACTIVITIES (*) 207,873 New interest-bearing debt (11) 90,000 Repayment of interest-bearing debt Gross dividend paid to the shareholders (11) Section 'Share Capital' 137,790 Gross dividend paid to non-controlling interests CASH FLOW (USED IN) / FROM FINANCIAL ACTIVITIES 47,790 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 209,771 Impact of exchange rate changes on cash and cash equivalents 3,052 CASH AND CASH EQUIVALENTS, ENDING BALANCE 309,438 (*) The amounts of cash flow from investments can differ from the amounts invested in the explanatory notes, due to non-cash corrections such as additions of the year that are not yet paid for (investments) as well as gain/losses realised on sale of property, plant and equipment (divestments). (**) Cash impact of the year from capital investments in joint ventures and associates for which reference is made to section ‘Financial information of operating segments’, line ‘Capital investments in joint ventures and associates’. 1H22 528,632 40,056 6,136 3,460 1,977 5,101 6,493 29,009 145,722 162,814 89,151 73,663 224,651 1,686 224,633 4,459 2,678 113 17,739 4,655 13,084 206,912 440,000 122,013 40,843 277,144 143,895 2,718 675,245 DEME HALF YEAR REPORT 2023 17 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 1H23 (in thousands of euro) Share capital and share premium Hedging reserve Remeasure- ment on retirement obligations Retained earnings and other reserves Cumulative translation adjustment Shareholders' equity Non- controlling interests Group equity Ending, 31 December 2022 509,183 70,020 37,458 1,218,272 6,070 1,753,947 22,318 1,776,265 Impact IFRS amendments Opening, 1 January 2023 509,183 70,020 37,458 1,218,272 6,070 1,753,947 22,318 1,776,265 Profit 30,184 30,184 6,270 36,454 Other comprehensive income 4,709 4,530 9,239 517 9,756 Total comprehensive income 4,709 30,184 4,530 20,945 5,753 26,698 Dividends to pay 37,972 37,972 37,972 Other 68,689 68,689 20,392 89,081 Ending, 30 June 2023 509,183 65,311 37,458 1,279,173 10,600 1,805,609 48,463 1,854,072 Share capital amounts to 33,194 thousand euro and share premium amounts to 475,989 thousand euro. After the partial demerger of CFE NV on 29 June 2022, a new holding company DEME Group NV replaced DEME NV and the equity components of this new parent company are now reflected in the DEME Group consolidated figures. The impact of this partial demerger is reflected in the line ‘Other’ as a transfer between retained earnings and other reserves and share capital and share premium in the ‘Consolidated Statement of Changes in Equity’ of H1 2022. The hedging reserve includes the fair value fluctuations of effective cash flow hedges, net from income taxes. The movement of the half year, -4.7 million euro, also includes the changes in the hedging reserve for joint ventures and associates (-2.2 million euro). Some joint ventures and associates, mainly in the DEME Concessions segment, finance significant assets such as infrastructure works, offshore wind farms or vessels and therefore hold interest rate swaps (IRS). In 2022, the general increase in market interest rates compared to the hedged interest rates had a positive impact on the hedging reserve which explained the positive movement of 64.6 million euro in H1 2022. Remeasurement on retirement obligations relates to the defined benefit plans (including the Belgian contribution-based plans which are considered to be defined benefit plans under IFRS) actuarial gains/losses (-) and asset limitation, after income taxes. Retained earnings and other reserves include the revaluation surplus, legal reserve, available reserves, untaxed reserves and retained earnings of the parent company, before result appropriation of the year, as well as the consolidation reserves. Reference is made to the section ‘Changes in the consolidation scope’ for more information on the amount 68.7 million on the line ‘Other’. Non-controlling interests totaling 48.5 million euro at 30 June 2023, are related to the Environmental segment for an amount of 24.6 million euro (FY 2022: 18.9 million euro), to the Dredging & Infra segment for an amount of 3.2 million euro (FY 2022: 2.8 million euro) and to the Concessions segment for an amount of 20.7 million euro (FY 2022: 0.6 million euro). The increase of 20.4 million euro in the line ‘Other’ is related to the step in of a partner in the company Global Sea Mineral Resources NV (GSR) within segment Concessions. Reference is made to the section ‘Changes in the consolidation scope’. 1H22 (in thousands of euro) Share capital and share premium Hedging reserve Remeasure- ment on retirement obligations Retained earnings and other reserves Cumulative translation adjustment Shareholders' equity Non- controlling interests Group equity Ending, 31 December 2021 36,755 25,872 41,283 1,618,824 8,881 1,579,543 19,696 1,599,239 Impact IFRS amendments Opening, 1 January 2022 36,755 25,872 41,283 1,618,824 8,881 1,579,543 19,696 1,599,239 Profit 39,469 39,469 2,297 41,766 Other comprehensive income 64,604 2,862 61,742 62 61,804 Total comprehensive income 64,604 39,469 2,862 101,211 2,359 103,570 Dividends paid 40,843 40,843 627 41,470 Other 472,428 472,428 3 3 Ending, 30 June 2022 509,183 38,732 41,283 1,145,022 11,743 1,639,911 21,425 1,661,336 18 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEGMENT REPORTING DESCRIPTION OF OPERATING SEGMENTS DEME has evolved into a global marine sustainable solutions provider organised around four distinct segments. For management purposes, the Group is organised into four business units based on its products and services. The four reportable segments are: OFFSHORE ENERGY This segment provides engineering and contracting services globally in the offshore renewables and oil & gas industry. Those activities are executed with specialised offshore vessels. In the offshore renewables, the Group is involved in the full Balance of Plant scope for offshore wind farms. This includes the engineering, procurement, construction and installation of foundations, turbines, inter-array cables, export cables and substations. The Group also offers operations and maintenance, logistics, repair and decommissioning as well as salvage services to the market. In the oil & gas industry, the Group performs landfalls and civil works, rock placement, heavy lift, umbilicals, as well as installation and decommissioning services. In addition to these main activities, the Group also provides specialised offshore services, including geoscience services and the installation of suction pile anchors and foundations. DREDGING & INFRA In this segment the Group performs a wide variety of dredging activities worldwide, including capital and maintenance dredging, land reclamation, soil improvement, port construction, coastal protection and beach nourishment works. These activities are executed with specialised dredging vessels and various types of auxiliary vessels and earth-moving equipment. The Group also provides contracting services for marine infrastructure projects. This includes the engineering, design and construction of complex marine structures such as jetties, port terminals, locks and weirs, infrastructural works such as bored and immersed tunnels, foundation and marine works for bridges or other constructions in a marine or fluvial environment, and civil works for harbour construction, dams and sea defences, canal construction, revetment, quay wall construction and shore protection. In addition, the Group is active in the marine aggregate business, which includes dredging, processing, storage and transport of aggregates. Finally, the Group provides maritime services for port terminals. aggregated level of subsidiaries with non-controlling interests of 25.1%. CONCESSIONS The Concessions segment, unlike the contracting segments, invests in and develops projects in wind, port infrastructure, green hydrogen and other special projects. It operates through participations in special purpose companies – greenfield and brownfield. Besides creating economic value on its projects and generating equity returns on its investments, it also aims to secure regular activities for the Group contracting activities in the EPC phases of its projects. Within its concessions activities, the Group holds also concessions of seabed areas which contain polymetallic nodules and develops a technology to collect and process these polymetallic nodules containing nickel, cobalt, manganese and copper from the deep ocean floor. Each of the four abovementioned segments has its own market, asset base and revenue model and is managed separately requiring different strategies. Dredging & Infra activities are complementary as the marine infrastructure works that DEME Infra undertakes are often combined with a dredging or land reclamation scope. The Offshore Energy segment is involved in and serves the offshore energy industry, both renewables and oil & gas sectors. The Environmental segment focuses on environmental solutions. The Concessions segment, unlike the contracting segments, invests in and develops projects in wind, port infrastructure, green hydrogen and other special projects. The segment reporting comprises financial information of these four segments that are separate operating segments. On a quarterly basis, separate operating results are prepared and reported to the Chief Operating decision maker, the DEME Executive Committee, as well as the Board of Directors. For the segment reporting, some activity lines, that are the lowest level of reportable activities within DEME, are aggregated. As such the activities of Combined Marine Terminal Operations Worldwide NV (CTOW) in the maritime services for port terminals and Deme Building Materials NV (DBM) in the marine aggregate business are aggregated in the Dredging & Infra segment. The works performed by Scaldis NV (salvage works) are aggregated in the Offshore Energy segment. ENVIRONMENTAL The Environmental segment focuses on innovative environmental solutions for soil remediation and brownfield redevelopment, environmental dredging and sediment treatment and water treatment. It is mainly active in the Benelux, France, as well as in other European countries on a project-by-project basis. An external partner participates in the Environmental segment. The segment can be considered as a material partly owned The reporting of the management accounts (reporting on operating results) is an integral part of the financial reporting. At any time, the consolidated management report can be reconciled with the consolidated financial statements, both resulting in the same IFRS net result of the year (as such one version of the truth). DEME HALF YEAR REPORT 2023 The Group’s company structure is mostly, but not completely, built around the different segments. It is possible that a company of the Group is executing projects in both the Dredging & Infra and Offshore Energy segment and also one project can trigger cost and income in different companies of the Group worldwide. The DEME operational and management structure however is aligned with the DEME operational segments as well as the management reporting that is based on a worldwide uniform analytical accounting system. The analytical result by company, that gives a breakdown by project and cost center, is the basis for the segment reporting that can always be reconciled with the income statement of the company. For projects in which two segments are involved (for instance an offshore contract with a dredging scope), the segments only report their own share in revenue and result. When one segment is working for another segment as a subcontractor or when a segment hires equipment to use on projects that is dedicated to another segment, this is remunerated at arm's length basis. Inter-segment revenues are included in the revenues of the segment performing the work, but are eliminated in the segment that is invoicing to the external customer. Currently intercompany sales for major projects are within the same segment (dredging and infrastructure works; offshore and salvage works) so there is no inter-segment revenue to report on separately. For each segment the turnover, EBITDA, depreciation and impairment cost and EBIT is reported. For the Concessions segment these measures of performance are only applicable to the subsidiaries (fully consolidated entities included in this segment). As the business of the Concessions segment is often resulting in a minority stake in participations, the operating result of these participations is reflected in the result from associates and joint ventures that is also segmented. The basis for the segment reporting is the management reporting system. Next to all activities done by our subsidiaries, the management report also includes the projects executed by joint ventures, showing the DEME’s share of revenues and expenses in the joint venture. This proportionate consolidation method whereby the Group accounts for the assets, liabilities, revenues and expenses according to its share in the joint venture, is not allowed under IFRS for joint ventures. Management however has to monitor the performance of the entire business, both executed in control as in a joint venture. In the segment reporting the joint ventures are consolidated according to the proportionate consolidation method and the intercompany transactions between the joint ventures and DEME subsidiaries are eliminated following the rules of proportionate consolidation. The total of the reported segment amounts is reconciled with the corresponding amounts in the DEME consolidated financial statements. The Share of the Group (IFRS net result) is not affected by the difference in consolidation method, only the presentation of the result of the year is different. As for the net result from joint ventures and associates and the carrying amount of joint ventures and associates, the reconciliation column includes the net result and carrying amount of joint ventures that are consolidated according to the equity method in the financial statements but according to the proportionate consolidation method in the segment reporting. DEME’s management reporting focuses on both the current and future (financial) performance and on the current and future assets deployed for the execution of projects. The financing activities and monitoring of our working capital is performed centrally at DEME group level, and therefore no segmented financial information is presented for those activities. The segmentation of DEME's fleet is done based upon the nature of the equipment dedicated to a specific segment. An overview of the DEME fleet per nature is attached in the Annual Report 2022. A geographical segmentation of the fleet is not applicable for DEME as its vessels are continuously working on different projects around the world. 19 20 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL INFORMATION OF OPERATING SEGMENTS 1H23 (in thousands of euro) Offshore Energy Dredging & Infra Environmental Concessions Total Segments Reconciliation Group Financial Statements Turnover 657,765 716,165 143,299 2,571 1,519,800 44,417 1,475,383 EBITDA 79,100 102,078 32,451 6,805 206,824 15,082 221,906 Depreciation and Impairment 59,100 103,297 4,867 44 167,308 2,549 164,759 EBIT 20,000 1,219 27,584 6,849 39,516 17,631 57,147 Financial result 13,884 1,216 12,668 RESULT BEFORE TAXES 25,632 18,847 44,479 Current taxes and deferred taxes 8,050 2,625 10,675 Net result from joint ventures and associates 232 362 18,343 18,937 16,287 2,650 RESULT FOR THE PERIOD 36,519 65 36,454 Attributable to non-controlling interests 6,335 65 6,270 SHARE OF THE GROUP 30,184 30,184 Net book value intangible assets Net book value property, plant and equipment and right-of-use assets 13,613 1,418,919 6,955 1,289,061 1 58,756 2,937 80,034 23,506 2,846,770 33 166,945 23,473 2,679,825 Carrying amount of joint ventures and associates 27 5,513 3,441 113,547 122,528 78,708 201,236 Booked as non-current asset 27 5,513 3,441 115,812 124,793 87,793 212,586 Booked as non-current financial liability (- is credit) 2,265 2,265 9,085 11,350 Acquisition of property, plant and equipment and right-of-use assets (*) 251,805 81,507 8,449 79,920 421,681 91,492 330,189 Capital investments in joint ventures and associates 2,637 2,637 891 3,528 (*) Acquisitions according to balance sheet (rollforward property, plant and equipment and right-of-use assets) and not according to cash flow statement. The financial information disclosed in the ‘Segment Reporting’ (using the proportionate consolidation method for joint ventures) is reconciled with the financial information as reported in the ‘Consolidated Statement of Financial Position’ and the ‘Consolidated Statement of Income’ (using the equity consolidation method as required under IAS 28) above. The impact of the different consolidation method for joint ventures is included in the ‘Reconciliation’ column. The proportionate (line-by-line) integrated amounts of joint ventures are deducted and replaced by the Group’s share in the result of the joint ventures. In addition, turnover of fully consolidated entities towards joint ventures (that is proportionally eliminated in the segment reporting), is added again to the turnover in the Group financial statements, as this turnover is not eliminated any longer when joint ventures are consolidated according to the equity method. Therefore the ratio between EBITDA/EBIT and turnover of the ‘Reconciliation’ column is not reflecting the ratio of the joint ventures itself. Associates are consolidated according to the equity method in both the segment reporting and the Group financial statements. The lines referring to ‘Net result of joint ventures and associates’ or ‘Capital investments in joint ventures and associates’ in the segment reporting only include associates, while the joint ventures are added in the reconciling items. DEME HALF YEAR REPORT 2023 21 1H22 (in thousands of euro) Offshore Energy Dredging & Infra Environmental Concessions Total Segments Reconciliation Group Financial Statements Turnover 471,478 746,507 90,735 189 1,308,909 17,221 1,291,688 EBITDA 100,347 94,611 12,219 6,927 200,250 8,946 191,304 Depreciation and Impairment 47,581 102,127 3,971 29 153,708 2,460 151,248 EBIT 52,766 7,516 8,248 6,956 46,542 6,486 40,056 Financial result 3,865 464 4,329 RESULT BEFORE TAXES 50,407 6,022 44,385 Current taxes and deferred taxes 12,072 2,307 9,765 Net result from joint ventures and associates 29 397 3,212 3,580 3,566 7,146 RESULT FOR THE PERIOD 41,915 149 41,766 Attributable to non-controlling interests 2,446 149 2,297 SHARE OF THE GROUP 39,469 39,469 FY22 (in thousands of euro) Offshore Energy Dredging & Infra Environmental Concessions Total Segments Reconciliation Group Financial Statements Net book value intangible assets 14,488 8,112 1 1,744 24,345 30 24,315 Net book value property, plant and equipment and right-of-use assets (**) 1,229,878 1,314,498 55,306 159 2,599,841 78,799 2,521,042 Carrying amount of joint ventures and associates 27 5,471 3,135 98,258 106,891 94,619 201,510 Booked as non-current asset 27 5,471 3,135 99,496 108,129 94,619 202,748 Booked as non-current financial liability (- is credit) 1,238 1,238 1,238 Acquisition of property, plant and equipment and right-of-use assets (*) 351,501 170,877 19,630 87 542,095 14,062 528,033 Capital investments in joint ventures and associates 18,771 18,771 3,893 22,664 (*) Acquisitions according to balance sheet (rollforward property, plant and equipment and right-of-use assets) and not according to cash flow statement. (**) In comparison with the DEME Annual Report 2022 an amount of 61 million euro is transferred from segment Dredging & Infra to Offshore Energy. 22 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SHAREHOLDER STRUCTURE AND SHARE CAPITAL At 30 June 2023, the shareholder structure of DEME Group NV is as follows: Ackermans & van Haaren NV 62.12% Vinci Construction SAS EURONEXT BRUSSELS 12.11% DEME GROUP NV DEME XBRU BE0974413453 25.77% 100% DEME NV Per 30 June 2023, the share capital of DEME Group NV amounts to 33,193,861 euro and is represented by 25,314,482 ordinary shares without nominal value. The owners of ordinary shares have the right to receive dividends and all shares are of the same class and are entitled to one vote per share in Shareholders’ General Meetings. Brussels-based civil engineering contractor CFE NV (XBRU BE0003883031), which is controlled (62.12%) by the Belgian investment Group Ackermans & van Haaren NV (XBRU BE0003764785). Both CFE NV and Ackermans & van Haaren NV are publicly listed companies on Euronext Brussels. DEME Group NV shares are listed on Euronext Brussels under the symbol “DEME” with ISIN code BE 0974413453. The first day of trading was 30 June 2022. DEME Group’s securities are only admitted to trading in Belgium. DEME Group NV is 100 % shareholder of DEME NV. Until 29 June 2022, DEME NV’s 100 % shareholder was the On 29 June 2022, CFE NV, transferred its 100 % stake in DEME NV to a new company, DEME Group NV, by means of a partial demerger and as such the DEME Group became listed as well. At the date of the demerger, the participation in DEME NV was the only asset of the company booked against equity. At the end of June 2023, the shareholders of DEME Group NV holding 5% or more of total voting rights for the shares they hold are: Ackermans & van Haaren NV 15,725,684 shares (or 62.12%) Begijnenvest, 113 B-2000 Antwerp (Belgium) VINCI Construction SAS 3,066,460 shares (or 12.11%) 1973, Boulevard de la Défense F-92757 Nanterre Cedex (France) CORPORATE INFORMATION DEME is a leading contractor in the fields of offshore energy, environmental remediation, dredging and marine infrastructure. DEME also engages in concessions activities in offshore wind, marine infrastructure, green hydrogen, and deep-sea mineral harvesting. The company can build on more than 145 years of experience and is a front runner in innovation and new technologies. DEME’s vision is to work towards a sustainable future by offering solutions for global challenges: a rising sea level, a growing population, the reduction of emissions, polluted rivers and soils and the scarcity of mineral resources. DEME can rely on about 5,000 highly skilled professionals and operates one of the largest and most technologically advanced fleets in the world. DEME Group NV as well as DEME NV are registered in Scheldedijk 30, Zwijndrecht in Belgium where also the head office is located. The companies are registered at the Chamber of Commerce in Antwerp, Belgium with number BE 0974413453 and BE 0400473705 respectively. The website of the Group is www.deme-group.com. This Half Year report is presented to the Board of Directors and authorised for publication on 22 August 2023. DEME HALF YEAR REPORT 2023 23 EARNINGS AND DIVIDEND PER SHARE (in thousands of euro) 1H23 1H22 Result for the period from continuing operations - Share of the Group 30,184 39,469 Result for the period - Share of the Group 30,184 39,469 Comprehensive income - Share of the Group 20,945 101,211 Number of ordinary shares at balance sheet date 25,314,482 25,314,482 Earnings per share, based on the number of ordinary shares at the end of the period (both basic and diluted) in euro: Earnings per share from continuing operations (Share of the Group) 1.19 1.56 Earnings per share (Share of the Group) 1.19 1.56 Comprehensive income (Share of the Group) per share 0.83 4.00 For FY 2022, the General Assembly of 17 May 2023 approved the distribution of a gross dividend of 1.5 euro (1.05 euro net) per share. This dividend was paid on 10 July 2023 for a total amount of 37.971.723 euro. GENERAL POLICIES AND CHANGES IN THE CURRENT REPORTING PERIOD BASIS OF PREPARATION The interim condensed consolidated financial statements for the six months ended 30 June 2023, have been prepared in accordance with IAS 34 interim financial reporting. Amendments to IAS 1 presentation of financial statements and IFRS practice statement 2: disclosure of accounting policies. As required by Amendments to IAS 1 presentation of financial statements and IFRS practice statement 2, a detailed review of DEME’s accounting policies will be done for year-end 2023 financials. The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. The Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. Amendments to IAS 8 accounting policies, changes in accounting estimates and errors: definition of accounting estimates Amendments to IAS 12 income taxes: deferred tax related to assets and liabilities arising from a single transaction The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s consolidated financial statements as of 31 December 2022. IFRS 17 insurance contracts Below amendments apply for the first time in 2023 and will have an impact on the Group’s consolidated financial statements as of 31 December 2023: The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 December 2022, except for the adoption of new standards effective as of 1 January 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IAS 12 income taxes: Pillar Two Model Rules International Tax Reform (subject to EU endorsement). The amendments include a temporary exception to the accounting and disclosing for deferred taxes related to Pillar Two in interim periods ending before 31 December 2023. The Group is currently assessing Pillar Two impacts and has applied the exception. Below amendments apply for the first time in 2023, but do not have an impact on the interim condensed consolidated financial statements of the Group: 24 HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEASONAL NATURE OF THE BUSINESS The Group operates in the fields of dredging, marine infrastructure, solutions for the offshore energy market and environmental works. Our projects are executed on different continents, in onshore and offshore locations. Seasonal patterns and weather conditions can impact our operations, but it’s more the timing of commencement and completion of our projects that can have an impact on the Group’s results and financial position at closing date. The following jointly controlled entity, within the Offshore Energy segment, was liquidated during H1 2023: Guangzhou Coscocs DEME New Energy Engineering Co. Ltd (China) (50%) The percentage of shareholding in the following subsidiaries changed during H1 2023: Global Sea Mineral Resources NV (GSR) (Belgium) and JUDGMENTS AND ESTIMATES While preparing the interim condensed consolidated financial statements, DEME management makes judgments, estimates and assumptions that affect the application of accounting principles and the recognised amounts under assets, liabilities, income and expense. Actual results may be different from these estimates and estimates may be revised if the circumstances on which they were based alter or if new information becomes available. However, the areas of policy judgment and the key sources for making estimates are consistent with those followed in the preparation of the Group’s consolidated financial statements as at and for the year ended 31 December 2022, with the exception of income tax expense. The Half Year income tax expense is calculated using the tax rate that would be applicable to the expected total annual earnings. its 100% affiliate Deeptech NV (Belgium), within segment Concessions, from 100% to 84.3% The Group has entered into a strategic cooperation with Transocean Ltd., a global leader in the offshore drilling industry. This cooperation brings together the leadership of GSR in ultra-deepwater mineral exploration and seafloor nodule collection technology with Transocean’s world-class offshore expertise and capabilities. As part of its investment, Transocean is contributing the deepwater drilling vessel ‘Ocean Rig Olympia’, valued at 85 million USD, for GSR’s ongoing exploration work. Next to that, a cash investment of 10 million USD (9.4 million euro) as well as engineering capacity is contributed. In return, Transocean is receiving a minority stake of 15.7%, including a board seat in GSR. RISKS AND UNCERTAINTIES This chapter should be read together with the section ‘Risk management & control processes’ in the Group’s Annual Report 2022. Reference is made to note (13) Contingent assets and liabilities of this Half Year report and to section 'Summary of Principal Accounting Policies' within the Financial Chapter of the Group's Annual Report 2022 for 'Disclosures related to 2022 Specific Topics'. To become fully operational, the entity needs to obtain a license to operate. GSR is in the process of obtaining such license and at the moment of issuance of this report, there is no indication that the license would not be granted. As the change in GSR’s ownership does not imply losing control, the transaction has been accounted for as an equity transaction with non-controlling interest (NCI), resulting in the following: in millions of euro CHANGES IN THE CONSOLIDATION SCOPE The following jointly controlled entities and associates were created during H1 2023: Jointly controlled entities: D&S Contractors NV (Belgium) (49.50%), within the Assets contributed in GSR Net assets attributable to NCI Increase in equity attributable to the parent Represented by 89.1 20.4 68.7 Dredging & Infra segment Increase in retained earnings 68.7 Associates: Infra Ron BV (Belgium) (25%), within the Concessions segment Terranova Hydrogen NV (Belgium) (8.32%), within the Environmental segment The name of the following subsidiaries and associates changed in H1 2023: DEME Reinsurance SA (Luxembourg) (former Safindi RE SA), within the Infra & Dredging segment Bowdun Offshore Wind Farm Ltd (UK) (E3) (former Thistle Wind Partners Cluaran Deas Ear Ltd), within the Concessions segment Ayre Offshore Wind Farm Ltd (UK) (NE2) (former Thistle Wind Partners Cluaran Ear Truath Ltd), within the Concessions segment DEME HALF YEAR REPORT 2023 FOREIGN CURRENCIES The Group’s consolidated financial statements are presented in euro, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. Financial statements of foreign entities with a functional currency not equal to the euro, are translated as follows: assets and liabilities are translated at the year-end rate income and expenses are translated at the average exchange rate for the year shareholders’ equity accounts are translated at historical exchange rates Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate). Foreign currency transactions are accounted for at exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date rate. Gains and losses resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owner of the Company are reclassified to profit or loss. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method. In case of a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are reattributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. Currency rates from foreign currency to EUR 30 June 2023 Closing rate Average rate 31 December 2022 Average Closing rate rate AED 0.2496 0.2522 0.2545 0.2576 AOA 0.0011 0.0017 0.0019 0.0021 AUD 0.6110 0.6225 0.6366 0.6570 BRL 0.1915 0.1828 0.1768 0.1835 CAD 0.6925 0.6870 0.6896 0.7268 CNY 0.1264 0.1331 0.1355 0.1408 EGP 0.0297 0.0312 0.0378 0.0498 GBP 1.1644 1.1440 1.1303 1.1717 HKD 0.1170 0.1182 0.1197 0.1208 INR 0.0112 0.0113 0.0113 0.0121 JPY 0.0064 0.0068 0.0071 0.0073 MXN 0.0536 0.0510 0.0480 0.0472 MYR 0.1965 0.2073 0.2124 0.2157 NGN 0.0012 0.0019 0.0021 0.0022 OMR 2.3825 2.4078 2.4289 2.4587 PGK 0.2498 0.2547 0.2584 0.2615 PHP 0.0166 0.0168 0.0168 0.0174 PLN 0.2258 0.2168 0.2135 0.2139 QAR 0.2517 0.2540 0.2549 0.2592 RUB 0.0105 0.0120 0.0129 0.0143 SGD 0.6780 0.6919 0.6974 0.6876 TWD 0.0294 0.0302 0.0306 0.0319 UAH 0.0251 0.0251 0.0253 0.0294 USD 0.9166 0.9261 0.9344 0.9462 UYU 0.0245 0.0239 0.0234 0.0230 ZAR 0.0487 0.0510 0.0550 0.0577 25 26 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – TURNOVER AND ORDERBOOK TURNOVER A split of the DEME turnover by nature, segment and geographical market can be found below. Turnover by nature (in thousands of euro) 1H23 Revenue from contracts with customers 1,466,089 Revenue from ancillary activities 9,294 Total turnover as per financial statements 1,475,383 Turnover by segment (in thousands of euro) 1H23 Offshore Energy 657,765 Dredging & Infra 716,165 Environmental 143,299 Concessions 2,571 Total turnover by segment 1,519,800 Reconciliation 44,417 Total turnover as per financial statements 1,475,383 The reconciliation between the segment turnover and the turnover in the ‘Consolidated Statement of Income’ refers to the turnover of joint ventures. They are consolidated according to the proportionate method in the segment reporting but according to the equity consolidation method (application of IAS 28) in the financial statements. Turnover by geographical market (in thousands of euro) 1H23 Belgium 210,783 Europe - EU 530,436 Europe - non EU 180,583 Africa 102,569 Asia & Oceania 87,964 America 278,967 Indian subcontinent 71,342 Middle East 12,739 Total turnover as per financial statements 1,475,383 A geographical market is determined as the area (location) where projects are realised and services are provided or the project location for offshore works. From a geographical perspective, turnover has become more diversified with a lower contribution for Europe and Africa, but with significant turnover growth in the American region following strong order intake for offshore projects over the last year. Similar to last year, there are no clients contributing more than 10% in the H1 2023 Group’s turnover. Because of the occasional nature and spread of the contracts, none of the DEME clients structurally qualify as a material client in relation to the total turnover of the Group. 1H22 1,286,284 5,404 1,291,688 1H22 471,478 746,507 90,735 189 1,308,909 17,221 1,291,688 1H22 168,396 654,928 121,505 189,477 75,906 47,998 28,785 4,693 1,291,688 DEME HALF YEAR REPORT 2023 ORDERBOOK The Group’s orderbook is the contract value of assignments acquired as of 30 June (Half Year reporting), and 31 December (Full Year reporting) but that is not yet accounted for as turnover because of non-completion. The orderbook also includes the Group’s share in the orderbook of joint ventures, but not of associates. Contracts are not included in the orderbook until the agreement with the client is signed. A letter of award is not sufficient to include the contract in the orderbook according to the Group’s policy. In addition, financial close must be reached when projects will be executed in ‘uncertain’ countries before including them in the orderbook. ‘Uncertain countries’ are identified at the discretion of the Executive Committee. Further on, experience shows that once an agreement has been reached, cancellations or substantial reductions in the scope or size of contracts are quite rare, but they do occur, certainly in markets that are under severe pressure. Orderbook by segment (in thousands of euro) 1H23 1H22 Offshore Energy 3,892,440 2,608,149 Dredging & Infra 3,436,020 2,702,590 Environmental 325,540 309,261 Concessions Total orderbook 7,654,000 5,620,000 The Group’s orderbook reached a record level of 7.7 billion euro, a 36% growth compared to H1 2022. This is once again a step-up compared to the 6.2 billion euro at the end of last year and the record level of 7.1 billion euro at the end of the first quarter of 2023. The increase was led by strong demand in all contracting segments, each of which attained all-time high orderbooks as well. Noteworthy additions were the design and the construction of the Princess Elisabeth Island in Belgium, work in the Middle East and offshore wind projects in France and the US. Orderbook by geographical market (in thousands of euro) 1H23 1H22 Europe - EU 3,921,780 2,746,792 Europe - non EU 876,145 735,888 Africa 508,014 406,506 Asia & Oceania 657,944 279,596 America 1,464,940 1,424,983 Indian subcontinent 8,987 19,810 Middle East 216,190 6,425 Total orderbook 7,654,000 5,620,000 Orderbook 1H23 split in time (in thousands of euro) 2H23 2024 2025 2026 Beyond Total orderbook 1,493,603 2,942,238 2,162,272 632,734 423,153 The execution of the orderbook depends on several factors, such as weather circumstances, soil and technical conditions, vessel availability and a lot of other factors. 27 FY22 3,260,909 2,615,713 313,378 6,190,000 FY22 2,467,294 898,747 306,325 752,385 1,692,695 68,033 4,521 6,190,000 Total 7,654,000 28 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – OTHER OPERATING INCOME AND EXPENSES OTHER OPERATING INCOME (in thousands of euro) 1H23 Gain on sale of property, plant and equipment 2,868 Gain on disposal of financial fixed assets Other operating income 10,790 Total other operating income 13,658 Per 30 June 2023 the amount of gain on sale of property, plant and equipment is mainly related to the sale of various equipment within the Dredging & Infra and Offshore Energy segment. In H1 2022 the amount is mainly related to the sale of the jack-up installation vessel ‘Thor’ (Offshore Energy segment). The other operating income of H1 2023 includes various insurance damage claims related to the equipment. The H1 2022 other operating income includes amongst others income for delay damages for an amount of 18.8 million euro related to the ‘Orion’. This income was a compensation for the incremental costs incurred as a result of the late delivery of the vessel. OTHER OPERATING EXPENSES (in thousands of euro) 1H23 Loss on sale of property, plant and equipment 59 Loss on disposal of financial fixed assets Movement in amounts written off inventories and trade receivables 196 Movement in retirement benefit obligations 166 Movement in provisions 2,839 Other operating expenses 16,561 Total other operating expenses 19,429 Movements in provisions mainly relate to the movements in warranty provisions. The decrease of amounts written off for inventories and trade receivables of prior year was partially caused by the final write- off of a customer receivable and the related bad debt allowance. The allowance recognized as a cost in prior years was reversed within amounts written off for trade receivables, whereas the write-off of the customer is booked as a service cost in the consolidated statement of income. The other movement in amounts written off for inventories and trade receivables is the reversal of the allowance for bad debtors that are no longer uncollectable. Other operating expenses mainly include various taxes, import and stamp duties. NOTE 3 – CURRENT TAXES AND DEFERRED TAXES The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of the income tax expense in the ‘Consolidated Statement of Income’ are: (in thousands of euro) 1H23 Current taxes 28,383 Deferred taxes relating to origination and reversal of temporary differences 17,708 Income tax expense recognised in Consolidated Statement of Income 10,675 1H22 5,079 27,103 32,182 1H22 7 3 5,256 115 2,865 11,482 9,216 1H22 16,415 6,650 9,765 DEME HALF YEAR REPORT 2023 NOTE 4 – INTANGIBLE ASSETS 1H23 (in thousands of euro) Development costs Concessions, patents, licences, etc. Other intangible assets Acquisition cost at 1 January 2023 5,840 34,408 13,588 Additions, including fixed assets, own production 1,193 4 Sales and disposals 104 21 Movements during the year Transfers from one heading to another Translation differences Additions through business combinations Changes in consolidation scope or method 9 At 30 June 2023 7,033 34,299 13,567 Cumulative amortisation and impairment at 1 January 2023 4,096 15,482 9,943 Amortisation of the year 1,476 498 Written down after sales and disposals 72 12 Movements during the year Transfers from one heading to another Translation differences Additions through business combinations Changes in consolidation scope or method 9 At 30 June 2023 4,096 16,877 10,453 Net book value FY22 1,744 18,926 3,645 Net book value 1H23 2,937 17,422 3,114 ‘Concessions, patents and licenses’ do not include indefinite useful lives intangible assets. The H1 2023 additions mainly relate to the capitalisation of development cost in the Concessions segment. Amortisation of the year is recognised under ‘depreciation and amortisation expenses’ in the ‘Consolidated Statement of Income’ for an amount of 2 million euro. Amortisation of development costs starts at the earliest on the date financial close of the related project is reached. The total net book value of 23.5 million euro at 30 June 2023, includes the intangible assets of the SPT Offshore Group (13.5 million euro) that are amortised over the economic lifetime of 10 years. SPT Offshore Holding BV and affiliates within the Offshore Energy segment was acquired by the Group at the end of 2020. NOTE 5 – GOODWILL (in thousands of euro) 1H23 Balance at 1 January 13,028 Movements during the year Acquisitions through business combinations Disposals Impairment losses Balance at 30 June (1H) / 31 December (FY) 13,028 IMPAIRMENT TESTING OF GOODWILL In accordance with IAS 36 impairment of assets, goodwill was tested for impairment at 31 December 2022. Within the DEME Group, goodwill is tested for impairment on an annual basis. The impairment tests are based on figures and insights of the third quarter of the annual reporting year. If there is an indication that the cash generating unit to which the goodwill is allocated could have suffered a loss of value, impairment testing is done more frequently. During H1 2023, there were no such indicators and no additional impairment tests were made. 29 Total 53,836 1,197 125 9 54,899 29,521 1,974 60 9 31,426 24,315 23,473 FY22 13,028 13,028 30 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – PROPERTY, PLANT AND EQUIPMENT 1H23 (in thousands of euro) Land and buildings Floating and other construction equipment Furniture and vehicles Other tangible assets Assets under construction Total property, plant and equipment Acquisition cost at 1 January 2023 119,923 4,694,683 20,564 7,256 223,042 5,065,468 Additions, including fixed assets, own production 642 114,906 1,353 183,446 300,347 Sales and disposals 4 16,943 919 3 17,869 Movements during the year Transfer to 'Assets held for Sale' Transfers from one heading to another 4,312 1,132 126,624 337 71 128,022 4,312 Translation differences 264 3,871 573 4,708 Acquisitions through business combinations Changes in consolidation scope or method At 30 June 2023 117,117 4,915,399 20,762 7,182 278,466 5,338,926 Cumulative depreciation and impairment at 1 January 2023 53,635 2,569,518 17,094 3,173 2,643,420 Depreciation charge of the year 2,722 143,877 1,085 211 147,895 Written down after sales and disposals 3 12,059 608 2 12,672 Transfer to 'Assets held for Sale' 2,682 2,682 Movements during the year Transfers from one heading to another Translation differences 238 81 3,523 81 407 4,168 Acquisitions through business combinations Changes in consolidation scope or method At 30 June 2023 53,434 2,697,732 17,245 3,382 2,771,793 Net book value FY22 66,288 2,125,165 3,470 4,083 223,042 2,422,048 Net book value 1H23 63,683 2,217,667 3,517 3,800 278,466 2,567,133 At 30 June 2023, the net book value of ‘Floating equipment’ as part of ‘Floating and other construction equipment’ contributes 97% to the total of this category. Other construction equipment within ‘Floating and other construction equipment’ consists amongst other of dry earth moving equipment, pipelines and equipment of DEME Infra. The DP2 jack-up installation vessels ‘Sea Installer’ and ‘Sea Challenger’ are currently undergoing an extensive upgrade, preparing them for offshore wind farm projects in the US and Japan. For both vessels, the crane’s lifting capacity will be increased from 900 tonnes to 1,600 tonnes and a wider beam and longer legs will enable the vessels to handle the next generation of mega wind turbines. The amount invested in the ‘Sea Installer’ is included in the additions in ‘Floating and other construction equipment’.The investment in the ‘Sea Challenger’ is carried out within a Japanese joint venture between DEME (49%) and partner Penta-Ocean Construction. The company will upgrade and take ownership of the ‘Sea Challenger’ in 2024 and reflag the vessel to the Japanese flag. As the joint venture is integrated according to equity method, the investment is not included in ‘Property, Plant and Equipment’ of the ‘Consolidated Statement of Financial Position’. DEME is however financing the vessel through capital and shareholders loan, booked as financial asset. In January 2022, DEME has entered into an agreement with the Norwegian shipping company Eidesvik to acquire the DP3 offshore installation vessel ‘Viking Neptun’. DEME has upgraded the vessel into a cable laying vessel and since the first quarter of 2023, DEME deploys the vessel on projects. The vessel was transferred from ‘Assets under construction’ to ‘Floating and other construction equipment’. In light of upgrading its fallpipe vessel fleet, DEME also invested in a new DP fallpipe vessel by purchasing and converting a bulk carrier. The vessel will be equipped with a central fallpipe system with a large inclined fallpipe in order to allow pre- and post- lay activities using rocks with larger diameters, close to subsea structures. This vessel named ‘Yellowstone’ will join the DEME fleet in H1 2024 and is still included in ‘Assets under construction’. In the beginning of 2023, Transocean, a global leader in the offshore drilling industry, has made a non-controlling investment for 15.7% in GSR (deep sea mining) through the contribution of a deepwater drilling vessel, and a cash investment. The ‘Ocean Rig Olympia’ is included within the additions and net book value of ‘Assets under construction’ but the addition of the year is a non-cash item. DEME HALF YEAR REPORT 2023 In 2020 CDWE, the Taiwanese joint venture between DEME (49.99%) and partner CSBC, ordered the offshore wind installation vessel ‘Green Jade’ in Taiwan. The floating heavy-duty crane and installation vessel with DP3 capacity in Taiwan is equipped with a high-tech crane with a lifting capacity of 4,000 tonnes. The vessel joined the fleet in July 2023 and in the third quarter of 2023 the vessel will be deployed in the thriving local offshore wind market. As the joint venture is integrated according to equity method, the new vessel will not be included in ‘Property, Plant and Equipment’. DEME however invested itself approximately 30 million euro in CDWE in 2020 and 13.3 million euro in 2021 as capital for the joint venture. No additional capital was invested by DEME in 2022 and 2023. The joint venture itself secured a long-term bank loan for further payment of the ‘Green Jade’ in the third quarter of 2023. In H1 2023, 0.4 million euro specific borrowing costs related to assets under construction were capitalised. In addition to the contribution in kind of the ‘Ocean Rig Olympia’, the additions within ‘Assets under construction’ mainly include the amounts invested in H1 2023 in the ‘Yellowstone’, the ‘Viking Neptun’, in some additional modifications for the ‘Orion’ and the investment in a new office building. At 30 June 2023, the commitments made for investments in the coming years amount to 101.9 million euro, mainly for the upgrades of the vessels ‘Yellowstone’, ‘Viking Neptun’, ‘Sea Installer’ and for some additional modifications to the ‘Orion’. The workshop in Zeebrugge, included in ‘Land and buildings’, with a net book value of 1.6 million euro, has been transferred to ‘Assets held for sale’ (note (10)). No impairment charges on ‘Property, Plant and Equipment’ were booked in H1 2023. The investments done in joint ventures such as the investment in the ‘Green Jade’ and the ‘Sea Challenger’ are not included in ‘Property, Plant and Equipment’ of the ‘Consolidated Statement of Financial Position’. However reference is made to the segment reporting of 30 June 2023 and 31 December 2022 where the amounts included in the ‘Reconciliation’ column on the lines ‘Net book value property, plant and equipment and right-of-use assets’ and ‘Acquisition of property, plant and equipment and right-of-use assets’ relate to joint ventures. NOTE 7 – RIGHT-OF-USE ASSETS 1H23 (in thousands of euro) Land and buildings Floating and other construction equipment Furniture and vehicles Acquisition cost at 1 January 2023 99,303 21,410 38,147 Additions, including fixed assets, own production 20,467 3,939 5,435 Sales and disposals 3,915 3,899 6,596 Movements during the year Transfers from one heading to another Translation differences 43 58 31 Acquisitions through business combinations Changes in consolidation scope or method At 30 June 2023 115,898 21,392 36,955 Cumulative depreciation and impairment at 1 January 2023 29,639 9,759 20,468 Depreciation charge of the year 7,282 3,491 4,116 Written down after sales and disposals 3,848 3,675 5,565 Movements during the year Transfers from one heading to another Translation differences 58 4 35 4 21 Acquisitions through business combinations Changes in consolidation scope or method At 30 June 2023 33,015 9,544 18,994 Net book value FY22 69,664 11,651 17,679 Net book value 1H23 82,883 11,848 17,961 The net carrying amount of right-of-use assets amounts to 112.7 million euro at 30 June 2023, compared to 99.0 million euro at the end of 2022. 31 Total Right-of- use assets 158,860 29,841 14,410 46 174,245 59,866 14,889 13,088 114 61,553 98,994 112,692 32 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 30 June 2023, the net book value of ‘Land and buildings’ can be split into 66.2 million euro land and 16.7 million euro buildings. The major increase in ‘Land and buildings’ in 2023 is related amongst others to the hire of additional land in Vlissingen. The category ‘Floating and other construction equipment’ includes amongst others support vessels and dry earth equipment. NOTE 8 – INVENTORIES (in thousands of euro) 1H23 Raw materials 4,048 Consumables 24,026 Total inventories 28,074 Movement of the year recorded in Statement of Income 2,378 Inventories can be split into Raw Materials and Consumables. Raw Materials are mainly related to ballast & dredged material and sand from the marine aggregate business within the segment “Dredging & Infra”. Consumables mainly consist out of fuel, auxiliary materials and spare parts. The movement of the year of consumables is impacted by the moment of refueling of the vessels and the fuel usage up till closing date. Also the start-up of projects and preparation of the fleet can impact this movement. No inventories are pledged as security for liabilities. NOTE 9 – TRADE AND OTHER OPERATING RECEIVABLES At 30 June 2023, the ‘Trade and other operating receivables’ amounts to 488,851 thousand euro, compared to 469,529 thousand euro at year-end 2022. The increase in ‘Trade and other operating receivables’ mainly relates to an increase in amounts due from joint ventures as well as an increase in current income tax receivables. The Group carries out a diversity of projects, all with different aspects regarding e.g. nature and scope, type of clients, type of contract and payment conditions and geographical location. A large part of the consolidated turnover is realised through public or semi-public sector customers. The level of counterparty risk is also limited by the large number of customers. The Group applies procedures to monitor its outstanding receivables and as such to limit the residual risk. Based upon both historical and current assessments, credit losses within the Group remain insignificant compared to the level of activity. NOTE 10 – ASSETS HELD FOR SALE (in thousands of euro) 1H23 Assets held for sale 33,628 According to IFRS 5 non-current assets held for sale and discontinued operations the following conditions must be met for an asset (or 'disposal group') to be classified as held for sale: - - - - - management is committed to a plan to sell the asset is available for immediate sale an active program to locate a buyer is initiated the sale is highly probable, within 12 months of classification as held for sale the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value actions required to complete the plan indicate that it is unlikely that the plan will be significantly changed or withdrawn Last year at 31 December 2022, DEME management was of the opinion that all of the conditions were fulfilled and that a sale within the next 12 months was highly probable for the vessel ‘Groenewind’ within the Offshore Energy segment. The net book value of the vessel was 32 million euro, which was the lower of the carrying amount and fair value at closing date. All of the above conditions remained the same as per 30 June 2023. Moreover, the vessel is sold in July 2023 resulting in a gain on disposal that will be included in ‘other operating income’ in H2 2023. Per 30 June 2023, DEME management is also of the opinion that all of the conditions have been fulfilled and a sale within the next 12 months is highly probable for the workshop in Zeebrugge. The net book value of the workshop amounts to 1.6 million euro. FY22 2,779 22,917 25,696 13,528 FY22 31,997 DEME HALF YEAR REPORT 2023 NOTE 11 – INTEREST-BEARING DEBT AND NET FINANCIAL DEBT NET FINANCIAL DEBT AS DEFINED BY THE GROUP (in thousands of euro / (-) is debit balance) Non-current Current 1H23 Total Non-current Current Subordinated loans 677 677 677 Lease liabilities 87,912 27,352 115,264 76,382 24,960 Credit institutions 615,503 201,804 817,307 711,441 227,910 Other long-term loans 1,354 1,354 1,404 Short-term credit facilities 90,000 90,000 Total interest-bearing debt 705,446 319,156 1,024,602 789,904 252,870 Short-term deposits 75,390 75,390 31,646 Cash at bank and in hand 234,048 234,048 490,615 Total cash and cash equivalents 309,438 309,438 522,261 Total net financial debt 705,446 9,718 715,164 789,904 269,391 To finance the DEME Group capital expenditure (vessels and other equipment), equity participations (e.g. by DEME Concessions) and acquisitions, DEME sources its funding mainly through term loan facilities, which are available for general corporate purposes as well as through asset-based loans. Currently, DEME Coordination Center NV, which serves as in-house bank financing the DEME-entities, has term loan facilities with eleven different commercial banks. Same as for the revolving credit facilities, the documentation is signed bilaterally (no club deal), catering for optimal financing conditions and maximum flexibility. The term loan facility documentation is identical for all banks, apart from the amount, tenor and commercial conditions. On 20 May 2022, DEME Coordination Center NV entered additionally into bilateral term loan facility agreements. These facilities were fully drawn on 15 June 2022. The financing package amounting to 440 million euro, is amortised over eight years (16 equal half-yearly capital instalments) and is based on the loan documentation that was used for previous transactions, updated to the new LMA-standard, including the sustainability KPI’s that were introduced in all term loan facility agreements in February 2022. The financial covenants applying to the new credit facilities are the same as in previous transactions. In line with DEME’s sustainability goals, the Group converted its long-term loans into sustainability-linked loans, totalling 739 million EUR per H1 2023. This major commitment highlights DEME’s vision to realise a sustainable future. The two metrics required by the loan-agreements are the worldwide LTIFR and the low carbon fuels. The total subordinated loan is contracted by entity Combined Marine Terminal Operations Worldwide NV (CTOW) and includes the part due to the partners in the company. As per contract modalities no fix instalments are due, therefore the loan is reported as long-term debt and will only be reported as short-term debt in the year before the maturity date. 33 FY22 Total 677 101,342 939,351 1,404 1,042,774 31,646 490,615 522,261 520,513 34 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DEBT MATURITY SCHEDULE OF TOTAL LONG-TERM FINANCIAL LIABILITIES 1H23 (in thousands of euro) More than 5 years Between 1 and 5 years Less than one year Subordinated loans 677 Lease liabilities 43,962 43,950 27,352 Credit institutions 112,413 503,090 201,804 Other long-term loans 1,354 Total long-term financial liabilities 156,375 549,071 229,156 FY22 (in thousands of euro) More than 5 years Between 1 and 5 years Less than one year Subordinated loans 677 Lease liabilities 35,315 41,067 24,960 Credit institutions 140,494 570,947 227,910 Other long-term loans 1,404 Total long-term financial liabilities 175,809 614,095 252,870 CASH FLOWS RELATED TO FINANCIAL LIABILITIES Total interest-bearing debt (in thousands of euro) 1H23 Balance at 1 January 1,042,774 Cash movements as per cash flow from financial activities 47,790 Movements during the year New interest-bearing debt Repayment of interest-bearing debt 90,000 137,790 Non-cash movements 29,618 Movements during the year Assumed in business combinations IFRS 16 leases Other 29,842 224 Balance at 30 June 1,024,602 CASH AND CASH EQUIVALENTS Cash and cash equivalents relate to cash and cash equivalents centralised at DEME’s internal bank, DEME Coordination Center NV, but also at operational subsidiaries and joint operations. Therefore, a portion of the consolidated cash and cash equivalents is not always immediately available as a result of transfer restrictions, joint control (in joint operations) or other legal restrictions. At 30 June 2023, the amount of cash available at DEME’s internal bank ready for use by the Group amounted to 48.8 million euro out of 309.4 million euro cash & cash equivalents. As such an amount of 260.6 million euro was not immediately available. At the end of 2022 the cash that was immediately available at DEME’s internal bank amounted to 313.9 million euro out of 522.3 million euro cash and cash equivalents. The cash not immediately available amounted to 208.4 million euro. CREDIT FACILITIES AND BANK TERM LOANS At 30 June 2023 and similar to last year, the Group has 125 million euro available but undrawn bank credit facilities. In addition, during H1 2023 the Group issued commercial paper for an amount of 90 million euro. DEME has the possibility to issue commercial paper for amounts up to 250 million euro in total, compared to 125 million euro last year. FINANCIAL COVENANTS Bilateral loans are subject to specific covenants. The same set of financial covenants as for the revolving credit facilities is applicable for the long-term loan facilities. At 30 June 2023 as well as at 31 December 2022 the Group complies with the solvency ratio (>25%), the debt/EBITDA ratio (<3), and the interest cover ratio (>3), that were agreed upon within the contractual terms of the loans received. The solvency ratio that should be higher than 25% is computed as shareholders’ equity less intangible assets and goodwill divided by the balance sheet total adjusted for intangible assets and deferred tax assets. The solvency ratio at 30 June 2023 equals 38.3 % (FY 2022: 38.1%). Total 677 115,264 817,307 1,354 934,602 Total 677 101,342 939,351 1,404 1,042,774 FY22 921,310 84,512 465,000 380,488 36,952 36,952 1,042,774 DEME HALF YEAR REPORT 2023 The debt/EBITDA ratio computed as total net financial debt (without subordinated and other loans) divided by EBITDA, should be lower than 3. The debt/EBITDA ratio at 30 June 2023 amounts to 1.41 (FY 2022: 1.09). The interest cover ratio computed as EBITDA divided by net financial interest charges (interest charges less interest income), should be higher than 3. The interest cover ratio at 30 June 2023 is 40.6 (FY 2022: 53.3). NOTE 12 – FINANCIAL RISK MANAGEMENT AND FINANCIAL DERIVATIVES The Group uses derivative financial instruments primarily to reduce fluctuations in interest rates, foreign exchange rates, prices of commodities and other market risks. Derivatives are designated exclusively as hedging instruments and not for trading or other speculative purposes. As of 30 June 2023, derivative financial instruments are measured at their fair value. The policy and procedures regarding financial risk management are identical to the ones described in depth in the Annual Report 2022. INTEREST RATE RISK Hedging instruments swap the variable interest rate into a fixed one as described in the tables below. Lease liabilities are not included. 1H23 Effective average interest rate before considering derivatives products (in thousands of euro) Fixed Rate Floating Rate Total Type of debts Amounts Quota Rate Amounts Quota Rate Amounts Quota Rate Credit institutions, subordinated loans & other loans 79,881 100.00% 1.87% 739,457 89.15% 4.42% 819,338 90.10% 4.17% Short-term credit facilities 90,000 10.85% 4.03% 90,000 9.90% 4.03% Total 79,881 100.00% 1.87% 829,457 100.00% 4.38% 909,338 100.00% 4.16% Effective average interest rate after considering derivatives products Fixed Rate Floating Rate Total Type of debts Amounts Quota Rate Amounts Quota Rate Amounts Quota Rate Credit institutions, subordinated loans & other loans 819,338 100.00% 1.61% 819,338 90.10% 1.61% Short-term credit facilities 90,000 100.00% 4.03% 90,000 9.90% 4.03% Total 819,338 100.00% 1.61% 90,000 100.00% 4.03% 909,338 100.00% 1.85% Except for the short-term credit facilities (commercial paper) of 90 million euro, the entire Group’s outstanding debt portfolio (short and long-term) has a fixed interest rate character, which limits the exposure of the Group to interest rate fluctuations. 35 36 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FY22 Effective average interest rate before considering derivatives products (in thousands of euro) Fixed Rate Floating Rate Total Type of debts Amounts Quota Rate Amounts Quota Rate Amounts Quota Rate Credit institutions, subordinated loans & other loans 98,572 100.00% 1.75% 842,860 100.00% 3.01% 941,432 100.00% 2.88% Short-term credit facilities 0.00% 0.00% 0.00% 0.00% Total 98,572 100.00% 1.75% 842,860 100.00% 3.01% 941,432 100.00% 2.88% Effective average interest rate after considering derivatives products Fixed Rate Floating Rate Total Type of debts Amounts Quota Rate Amounts Quota Rate Amounts Quota Rate Credit institutions, subordinated loans & other loans 941,432 100.00% 1.58% 0.00% 941,432 100.00% 1.58% Short-term credit facilities 0.00% 0.00% 0.00% 0.00% Total 941,432 100% 1.58% 0.00% 941,432 100.00% 1.58% LONG-TERM FINANCIAL DEBTS BY CURRENCY The outstanding financial debts (excluding lease debts which are mostly in euro) by currency are as follows: (in thousands of euro) 1H23 FY22 EUR 909,338 941,432 USD Other currencies Total long-term debts (*) 909,338 941,432 (*) Total Long-term debts also includes the current portion of the Long-term debts (note (11)). FAIR VALUES AND HIERARCHY The fair values are classified in three levels according to the valuation hierarchy of IFRS 13, depending on the type of input used for the valuation of financial instruments. Level 1 instruments are unadjusted quoted prices in active markets for identical assets and liabilities. No valuation model is used. In level 1, we find all financial assets (valued at fair value) with a public listing in an active market Level 2 instruments are prices quoted for similar assets and liabilities in active markets, or data based on or supported by observable market data. A valuation based on observable parameters such as discounted cashflow model, the comparison with another similar instrument, the determination of prices by third parties Level 3 instruments are non-observable data for determining the fair value of an asset or liability, e.g. some financial assets for which no public listing is available, loans and advances to customers, valued at amortised cost etc. Set out below is an overview of the carrying amounts of the Group’s financial instruments that are shown in the financial statements. All fair values mentioned in the table below relate to Level 2. During the reporting periods set out below, there were no transfers between any of the fair value measurement levels. DEME HALF YEAR REPORT 2023 1H23 (in thousands of euro) Non-current assets Other non-current financial assets Financial derivatives Other non-current assets Current assets Trade receivables and other operating receivables Financial derivatives Cash and cash equivalents Other current assets Non-current liabilities Interest-bearing debt Financial derivatives Other liabilities Current liabilities Interest-bearing debt Financial derivatives Advances received Trade payables Remuneration and social debt Current income taxes Other current liabilities Derivatives designated as hedging instrument 35,938 35,938 18,547 18,547 35,035 35,035 31,410 31,410 Assets & liabilities at amortised cost 52,111 40,840 11,271 912,431 488,851 309,438 114,142 716,796 705,446 11,350 1,478,871 319,156 95,378 793,977 89,074 70,110 111,176 Book value 88,049 40,840 35,938 11,271 930,978 488,851 18,547 309,438 114,142 751,831 705,446 35,035 11,350 1,510,281 319,156 31,410 95,378 793,977 89,074 70,110 111,176 Fair value measurement by level Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 37 Fair value 87,582 41,425 35,938 10,218 931,105 488,978 18,547 309,438 114,142 710,235 663,850 35,035 11,350 1,517,090 325,965 31,410 95,378 793,977 89,074 70,110 111,176 38 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FY22 (in thousands of euro) Derivatives designated as hedging instrument Assets & liabilities at amortised cost Book value Fair value measurement by level Non-current assets 39,336 44,432 83,768 Other non-current financial assets 32,540 32,540 Level 2 Financial derivatives 39,336 39,336 Level 2 Other non-current assets 11,892 11,892 Level 2 Current assets 22,022 1,116,023 1,138,045 Trade receivables and other operating receivables 469,529 469,529 Level 2 Financial derivatives 22,022 22,022 Level 2 Cash and cash equivalents 522,261 522,261 Level 2 Other current assets 124,233 124,233 Level 2 Non-current liabilities 53,661 791,142 844,803 Interest-bearing debt 789,904 789,904 Level 2 Financial derivatives 53,661 53,661 Level 2 Other liabilities 1,238 1,238 Level 2 Current liabilities 31,579 1,358,460 1,390,039 Interest-bearing debt 252,870 252,870 Level 2 Financial derivatives 31,579 31,579 Level 2 Advances received 72,539 72,539 Level 2 Trade payables 777,705 777,705 Level 2 Remuneration and social debt 98,793 98,793 Level 2 Current income taxes 66,571 66,571 Level 2 Other current liabilities 89,982 89,982 Level 2 The following methods and assumptions were used to estimate the fair values: Cash and cash equivalents, trade and other operating receivables, other current assets, trade payables, advances received, renumeration and social debts, current income taxes and other current liabilities approximate their carrying amounts because they have a short term maturity The fair value of interest-bearing debts is estimated by discounting future cash flows using the effective interest rates currently available for debt on similar terms, credit risk and remaining maturities; where the interest rate is variable (floating), the fair value is considered to be similar to the carrying amount. A similar approach is used for non-current financial assets The Group enters into financial derivative instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, fuel hedges and foreign exchange forward contracts. The models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves NOTE 13 – CONTINGENT ASSETS AND LIABILITIES These interim condensed consolidated financial statements should be read in conjunction with DEME’s Annual Report 2022. The contingent liabilities and contingent assets are materially unchanged from those described in note (23) within the Financial Chapter of the Annual Report 2022, except for the one described below. Since 2018, the Group has been involved in discussions with Rijkswaterstaat in the Netherlands related to the execution by one of its subsidiaries of the Juliana Canal widening project. Following intense discussions, a settlement (included in the H1 2023 result) has been reached with Rijkswaterstaat in the Netherlands whereby Rijkswaterstaat will pay De Vries & Van De Wiel Kust-en Oeverwerken BV and Rijkswaterstaat fully and finally releases De Vries & Van De Wiel Kust- en Oeverwerken BV from all and any liabilities in relation to the project. As such this matter can be closed. Fair value 83,092 33,002 39,336 10,754 1,138,193 469,677 22,022 522,261 124,233 798,295 743,396 53,661 1,238 1,400,149 262,980 31,579 72,539 777,705 98,793 66,571 89,982 DEME HALF YEAR REPORT 2023 NOTE 14 – RIGHTS AND COMMITMENTS NOT REFLECTED IN THE BALANCE SHEET (in thousands of euro) 1H23 COMMITMENTS GIVEN Amount of real guarantees, given or irrevocably promised by the enterprises included in the consolidation on their own assets, as security for debts and commitments, of enterprises included in the consolidation. Bank and insurance guarantees for commitments of enterprises included in the consolidation. 1,468,757 COMMITMENTS RECEIVED Bank guarantees received as security for commitments to enterprises included in the consolidation. 124,976 FUTURE OPERATIONAL OBLIGATIONS ENTERED INTO WITH SUPPLIERS In the Environmental segment DEME has the obligation to pay a fee for landfill volume reservation over the next 8 years for an estimated amount of 9.1 million euro. NOTE 15 – RELATED PARTY DISCLOSURES JOINT VENTURES AND ASSOCIATES The DEME Group structure and the list of joint ventures and associates is included in the Annual Report 2022. Changes in the Group structure are described above. Transactions with joint ventures and associates are realised in the normal course of business and at arm’s length. None of the related parties have entered into any other transactions with the Group that meet the requirements of IAS 24 related party disclosures. (in thousands of euro) 1H23 Assets related to joint ventures and associates Non-current financial assets 33,051 Trade and other operating receivables 69,553 Liabilities related to joint ventures and associates Trade and other current liabilities 36,970 (in thousands of euro) 1H23 Expenses and income related to joint ventures and associates (-) is cost and (+) is income Revenues 144,366 Operating expenses 5,844 Financial income and expenses 995 The non-current financial assets are the loans given to joint ventures and associates such as Japan Offshore Marine Ltd, Seamade NV, Rentel NV, Deeprock BV, Combined Marine Terminal Operations Marafi LLC, Bowdun Offshore Wind Farm Ltd (E3) and Ayre Offshore Wind Farm Ltd (NE2). For the movement of the year reference is made to the investing cash flow and the net of new borrowings and repayment of borrowings given to joint ventures and associates where (only) the cash movements of non-current financial assets are reflected. The revenue realised towards joint ventures and associates is mainly related to BAAK Blankenburg-Verbinding BV, CDWE Taiwan Ltd, SEMOP Port-La Nouvelle, DIAP-Daelim PTE Ltd, DIAP-SHAP Joint Venture Pte Ltd, K3-DEME BV, Rentel NV, C- Power NV, Bowdun Offshore Wind Farm Ltd (E3) and Ayre Offshore Wind Farm Ltd (NE2). 39 FY22 1,374,021 129,672 FY22 24,173 31,465 34,606 FY22 231,565 28,572 1,584 40 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SHAREHOLDERS AND FELLOW SUBSIDIARIES CFE NV, DEME’s previous 100% shareholder, is considered to be a fellow subsidiary. Both CFE NV and DEME Group NV have Ackermans & van Haaren as their main shareholder. Since 2001, DEME has a service agreement with Ackermans & van Haaren NV for services rendered. The service agreement covers specialised advice delivered by Ackermans & van Haaren NV. The service agreement is subject to indexation on a yearly basis. The remuneration due by DEME in H1 2023 upon the conditions of the contract amounts to 717 thousand euro (H1 2022: 662 thousand euro). Additionally, DEME invoiced 620 thousand euro to its shareholder and fellow subsidiaries mainly related to IT licences, tax and accounting consulting services (H1 2022: 95 thousand euro). Currently DEME is constructing a new office building. Execution of works is done by a subsidiary of CFE NV. At 30 June 2023 an amount of 7,617 thousand euro is recognised as ‘asset under construction’ (FY 2022: 6,221 thousand euro). KEY MANAGEMENT PERSONNEL DEME Group NV has a “one tier” governance structure consisting of a Board of Directors (as collegiate body). The Board of Directors is vested with the power to perform all acts that are necessary or useful for the realisation of the Company’s corporate object, except for those actions that are specifically reserved by law for the Shareholders’ Meeting. The Board of Directors has delegated the daily management of the Company to the CEO. The CEO is assisted in the exercise of its powers by the Executive Committee, which operates as an advisory committee (separate from the Board of Directors). The Executive Committee, chaired by the CEO, is responsible for discussing the general management of the Company. NOTE 16 – EVENTS AFTER THE REPORTING PERIOD As mentioned in note (10) ‘Assets held for sale’, the Group decided to sell its service operation vessel ‘Groenewind’ within Offshore Energy to Cyan Renewables. As the sale was only finalised in July 2023, the gain on disposal will be recognised in the H2 2023 results. There are no other significant changes to be reported that could have a significant impact on the Half Year condensed consolidated financial statements of the Group as of 30 June 2023. DEME HALF YEAR REPORT 2023 MANAGEMENT DECLARATION To our knowledge: the Half Year condensed consolidated financial statements, drafted in accordance with the applicable standards for annual accounts, present a true and fair view of the assets, financial situation and the results of DEME Group NV and the companies included in the consolidation the Half Year report provides a true and fair view of the main events and major transactions with related parties that took place in the first six months of the financial year and their effect on the Half Year condensed consolidated financial statements, as well as a description of the main risks and uncertainties for the remaining months of the financial year 29 August 2023 On behalf of the company L. Vandenbulcke Chief Executive Officer E. Verbraecken Chief Financial Officer 41 42 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT STATUTORY AUDITOR'S REPORT ON THE REVIEW OF THE HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DEME GROUP NV AS AT 30 JUNE 2023 AND FOR THE SIX-MONTH PERIOD THEN ENDED Introduction We have reviewed the accompanying ‘Consolidated Statement of Financial Position’ of DEME Group NV as at 30 June 2023, the ‘Consolidated Statement of Income’, the ‘Consolidated Statement of Comprehensive Income’, the ‘Consolidated Statement of Changes in Equity’ and the ‘Condensed Consolidated Statement of Cash Flows’ for the six-month period then ended, and notes (“the Half Year condensed consolidated financial statements”). The Board of Directors is responsible for the preparation and presentation of these Half Year condensed consolidated financial statements in accordance with IAS 34 interim financial reporting as adopted by the European Union. Our responsibility is to express a conclusion on these Half Year condensed consolidated financial statements based on our review. Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying Half Year condensed consolidated financial statements as at 30 June 2023 and for the six- month period then ended is not prepared, in all material respects, in accordance with IAS 34 interim financial reporting as adopted by the European Union. Diegem, 29 August 2023 EY Réviseurs d’Entreprises SRL/EY Bedrijfsrevisoren BV Statutory auditor represented by Patrick Rottiers* Partner *Acting on behalf of a BV/SRL Wim Van Gasse* Partner *Acting on behalf of a BV/SRL DEME HALF YEAR REPORT 2023 GLOSSARY AND DEFINITION OF ALTERNATIVE PERFORMANCE MEASURES - An activity line is the lowest level of internal operating segment to report on. Associated companies are those in which the Group has significant influence. The significant influence is the power to take part in the financial and operating policies of a company without having control or joint control over these policies. EBIT is the operating result or earnings before financial result and taxes and before our share in the result of joint ventures and associates. EBITDA is the sum of operating result (EBIT), depreciation, amortisation expenses and impairment of goodwill. ESG stands for Environmental, Social and Governance. Fleet utilisation rate is the weighted average operational occupation in weeks of the DEME fleet expressed over a given reporting period. It is calculated as a weighted average based upon internal rates of hire of the vessels. Investments/ Capital Expenditure (CapEx) is the amount paid for the acquisition of ‘intangible assets’ and ‘property, plant and equipment’. Reference is made to the consolidated cash flow from investing activities. A joint venture is a joint arrangement whereby the parties exerting joint control over the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Management Reporting: The management reporting of the Group is a quarterly internal reporting of the economic figures of the Group in which group companies jointly controlled by DEME are not consolidated by using the equity method (so in contradiction to the standards IFRS 10 and IFRS 11) but according to the proportionate method. As such turnover and result of projects executed in joint ventures are visible, closely followed up and reported within the Group. The presentation of the figures is also done by operational segment. Net financial debt (+ is cash, - is debt) is the sum of current and non-current interest-bearing debt (that includes lease liabilities) decreased with cash and cash equivalents. OCI (Other Comprehensive Income): Revenues, expenses, gains and losses that are excluded from net income on the income statement. Operating working capital (OWC) (+ is receivable, - is payable) is net working capital (current assets less current liabilities), excluding interest-bearing debt and cash & cash equivalents and financial derivatives related to interest rate swaps and including other non- current assets and non-current liabilities (if any) as well as non-current financial derivatives (assets and liabilities), except for those related to interest rate swaps. Orderbook: The Group’s orderbook is the contract value of assignments acquired as of 30 June (Half Year Reporting) and as of 31 December (Full Year Reporting) but that is not yet accounted for as turnover because of non-completion. The orderbook also includes the Group’s share in the orderbook of joint ventures, but not of associates. Contracts are not included in the orderbook until the agreement with the client is signed. A letter of award is not sufficient to include the contract in the orderbook according to the Group’s policy. In addition, financial close must be reached when projects will be executed in ‘uncertain’ countries before including them in the orderbook. ‘Uncertain countries’ are identified at the discretion of the Executive Committee. A segment is an aggregation of operating segments (activity lines) to report on. More information about the different DEME segments and their nature can be found in the chapter ‘Segment Reporting’ of this Half Year Report. 43 FORWARD-LOOKING STATEMENTS This report may contain forward- looking information. Forward-looking statements describe expectations, plans, strategies, goals, future events or intentions. The achievement of forward-looking statements contained in this report is subject to risks and uncertainties. Consequently, actual results or future events may differ materially from those expressed or implied by such forward-looking statements. Should known or unknown risks or uncertainties materialize, or should our assumptions prove inaccurate, actual results could vary materially from those anticipated. DEME undertakes no obligation to publicly update or revise any forward-looking statements. COMPILED AND COORDINATED BY DEME DEME Finance Department. In the event of any discrepancies between the English version of this document and a translated version, the English document is binding. www.deme-group.com | Semestriel, 2023, x, x | write me a financial report |
Semestriel | 2,023 | x | vallourec | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| 2023 Interim Financial Report Half-year ended June 30, 2023 1. 2. 3. 4. Summary STATEMENT BY THE PERSON RESPONSIBLE FOR THE INTERIM FINANCIAL REPORT HALF-YEAR ACTIVITY REPORT CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE VALLOUREC GROUP AS AT JUNE 30, 2023 STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION 3 4 13 46 STATEMENT BY THE PERSON RESPONSIBLE FOR THE INTERIM FINANCIAL REPORT 1 1 Statement by the person responsible for the interim financial report To the best of my knowledge, I certify that the condensed half-year financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, financial position and profits or loss of Vallourec and all consolidated companies, and that the half-year activity report attached presents a true and fair view of the significant events that occurred during the first six months of the financial year and of their impact on the half-year financial statements, of the main transactions between related parties and that it describes the main risks and uncertainties for the remaining six months of the financial year. Meudon, 27 July 2023 Philippe Guillemot Chairman of the Board of Directors & Chief Executive Officer 2023 Interim Financial Report Vallourec 3 2 HALF-YEAR ACTIVITY REPORT 2 Half-year activity report Vallourec Market environment 1. Oil & Gas Oil & Gas demand and supply balance is the main driver for growth in Vallourec’s customer capital expenditures According to the market report published by the IEA1 in June 2023, global oil demand has rebounded strongly since 2021 following an unprecedented decline in 2020 due to the Covid-19 pandemic. The rebound drove global oil demand to an average 99.8 mb/d over 2022, with a more significant increase in the second half of the year (100.6 mb/d in average). In 2023, global oil demand is expected to increase by 2.4 mb/d to 101.4 mb/d, mainly driven by China’s economy reopening as well as a global jet fuel consumption recovery. Total oil supply in 2022 (annual average of 99.9 mb/d) was close to the level recorded in 2019 (annual average of 100.6 mb/d), thanks to a gradual supply increase over the year to an average of 101.3 mb/d in the fourth quarter. In 2023, IEA forecasts global oil supply will reach 101.3 mb/d. Nevertheless, recent announcement from Saudi Arabia to reduce its production by a further 1 mb/d until end of August 2023 could lead to a downward revision for the full year. Oil prices Over the first half of 2023, WTI2 averaged USD 74.9/barrel compared to USD 101.7/ barrel in H1 2022, a decrease of nearly 26% which reflects market concerns around softening global economic activity as well as moderated expectations around the supply disruption related to the war between Russia and Ukraine. Following the same trend, Brent3 crude averaged USD 80.1/barrel over the first half 2023 (versus USD 104.9/barrel in H1 2022, a decrease of around 24% year on year. Oil & Gas market in the United States In the United States, the average rig count recovered steadily in 2021 and 2022 and stood at 779 on average in December 2022, increasing thus by 190 over the course of 2022. Since the beginning of 2023, the rig count has been decreasing to an average of 687 units in June. Over the first half of 2023, the average rig count (742 units) remains above the average level of H1 2022 (674 units). In the US, OCTG consumption per rig4 has been gradually increasing, averaging 625 tonnes per month over the first half of 2023 compared to 555 tonnes in H1 2022, a rise of 12.5% year-over-year. OCTG prices in the United States5 hit a low of USD 1,413/net ton in September 2020. Thereafter they rose sharply in 2022, with a peak at USD 4,117/net ton in October 2022, up from USD 2,957/net ton in January 2022. In 2023, US OCTG prices have been declining mainly due to a surge of imports and a normalization of distributors’ inventory levels. In June 2023, US OCTG prices stood at USD 3,215/net ton, a 19% decrease since the beginning of the year. Oil & Gas market in Brazil According to the IEA's June 2023 report, oil production in Brazil should reach an annual average of 3.3 mb/d in 2023, comparing to an annual average of 3.1 mb/d in 2022. IEA estimates point to higher production in the second half of 2023, of the order of 3.4 mb/d, compared with an average production of 3.3 mb/d in the first quarter, and an estimated average production of 3.2 mb/d in the second quarter of 2023. Oil & Gas market in EA-MEA regions In 2020, the rig count in international markets decreased materially from an average of 1,058 rigs in March 2020 to an average of 665 in December 2020. Since the end of 2020, there has been a gradual upturn in the rig count, which stood at an average of 900 units in December 2022 (in all, 59 units were added during the year). This upward trend accelerated over the first half of 2023 with an average of 967 units in June. In the Middle East Asia region, OCTG prices 6 decreased significantly due to the Covid pandemic and reached their trough at USD 1,312 per metric tonne in August 2020. OCTG prices thereafter began to rise again from the second half of 2021 and kept at the same trend in 2022, 1 IEA (International Energy Agency) – Oil Market Report – June 2023 2 WTI price: Bloomberg – data collected in July 2023 3 Brent price: Bloomberg – data collected in July 2023 4 Preston pipe & tube report – June 2023 5 Pipe Logix (Production Casing P110HC seamless / net tonne) – June 2023 6 Rystad (Jebel Ali Seamless - Premium connection - L80 CFR) – July 2023 4 Vallourec 2023 Interim Financial Report HALF-YEAR ACTIVITY REPORT reaching USD 2,300 per metric tonne at the end of December, an increase of 28% over the year. Over the first half of 2023, OCTG prices have increased to USD 2,500 per metric tonne in June. In Western Europe, OCTG prices 7 recovered a solid upward trend starting in 2021 and particularly in 2022 reaching USD 2,800 per metric tonne in December 2022 (a 61% increase since the beginning of the year) and USD 3,000 per metric tonne in June 2023. 2. Industry and other markets Demand for industrial applications is dependent on the growth or decline of industrial sectors such as automotive, construction or industrial manufacturing. Growth in these sectors is correlated with various factors, notably GDP growth. Europe (Germany) The ifo Business Climate Index has steadily risen following the impact of Covid-19 on the German economy, reaching a high of 101.1 in June 2021. In 2022, energy and commodity price inflation curbed the increase. In December 2022, the Business Climate Index stood at 88.6. Despite the modest recovery that took place during the first quarter of 2023, the business climate index deteriorated to 88.5 in June explained by companies’ worsening expectations, mainly in the manufacturing sector. Brazil GDP has grown by 3.02% in 2022 and by 3.45% over the first quarter of 2023 8. A broad-based recovery has been confirmed, fueled by industry, including Automotive. Agriculture continues to prove resilient and to play an important role in the Brazilian economy. The industrial tube market is also seeing upward momentum driven by a rise in demand and the impact of customer restocking. Significant events Commercial successes On January 19, 2023, Vallourec has secured important orders from LLOG Exploration Offshore, one of the U.S.’s largest privately- owned exploration and production companies, for the supply of 25,000 metric tons of line pipe for its upcoming landmark Salamanca deep-water development off the US coast of the Gulf of Mexico On January 24, 2023, Vallourec has signed a long-term agreement with Petrobras for OCTG (Oil Country Tubular Goods) solutions. The three-year agreement covers the supply of OCTG Premium products, associated accessories, and specialized physical and digital services, representing a volume of supply above 110,000 tonnes of products and accessories On June 21, 2023, Vallourec and Evonik Industries AG, a leading specialty chemical company, have recently signed a Memorandum of Understanding (MoU) for the development of tubular solutions for Carbon Capture, Utilization and Storage (CCUS). As part of the collaboration, the companies will work to develop an innovative, corrosion-resistant CO2 transportation technology for the CCUS industry and thereby address one of the key challenges of CO2 transportation and storage. On June 23, 2023, Vallourec announced the signature of a Memorandum of Understanding (MoU) with the Ministry of Investment of Saudi Arabia (MISA). The MoU provides for close support from MISA in the expansion of Vallourec's activities in Saudi Arabia, which includes increasing its local presence and deploying its latest innovations, in the fields of energy transition (CO2 Capture, Utilization and Storage, hydrogen storage and transport), additive manufacturing and the circular economy. Changes to Vallourec’s management team On January 31, 2023, as part of its "New Vallourec" plan, led by Philippe Guillemot, Chairman and Chief Executive Officer, the Group has developed a three-region organization (North America, South America, and Eastern Hemisphere) to simplify and optimize the operations. This new organization aims at making the Group more efficient and more agile, closer to its customers, and to enhance its industrial performance, through two export bases, Brazil, and Asia. This new organization has led to changes in its executive committee, effective February 1, 2023: - Laurent Dubedout was appointed Senior Vice-President, Business Line OCTG, Services and Accessories, Group & Eastern Hemisphere and joined the Executive Committee. - Jacky Massaglia was appointed Senior Vice-President Business Line Project Line Pipe and Process and joined the Executive Committee. - Philippe Carlier, who was SVP Technology and Industry, became SVP Group Industry and Eastern Hemisphere and remains a member of the Executive Committee. The Vallourec Executive Committee will have eleven members under the leadership of Philippe Guillemot, Chairman and CEO. On April 11, 2023, Vallourec announced that Sarah Dib has been appointed Group General Counsel. She succeeded Nathalie Joannes and joined the Executive Committee. 7 Rystad (North Sea Seamless (Premium) L80 CFR) – July 2023 8 Oxford Enonomics – June 2023 2023 Interim Financial Report Vallourec 2 5 2 HALF-YEAR ACTIVITY REPORT On May 2, 2023, Vallourec announced the appointment of Valeria Fernandes as Digital & Information Systems Director. She succeeded Naïla Giovanni and joined the Executive Committee. Mine On January 8, 2022, following exceptionally heavy rainfall in Minas Gerais State (Brazil), some material from the waste pile associated with the operations of Vallourec’s Pau Branco mine slid into a rainwater dam (the Lisa Dam) causing it to overflow, and resulting in the interruption of traffic on a nearby highway. There were no casualties and the structure of the dam was not affected. As a result of this incident, however, the operations of the mine were temporarily suspended. On May 4, 2022, Vallourec partially restarted operations, using an alternative waste pile. Under these conditions, volumes extracted in FY 2022 amounted to 4 million tonnes. On May 5, 2023, Vallourec obtained the necessary permissions from the state mining and environmental authorities for the full release of the Cachoeirinha waste pile. Production sold in Q1 2023 was 1.5 million tonnes and reached 1.9 million tonnes in Q2 2023. The Pau Branco mine returned to normal operations at the end of the second quarter of 2023 following the release of the Cachoeirinha waste pile. Production sold in the second half of 2023 is currently expected to be approximately 3.6 million tonnes, and production costs are expected to remain at the high end of the recent range. Vallourec is currently executing a plan to move its extraction activities to higher-margin reserves in its current property over the next few quarters. Vallourec management is currently engaging with state and national regulators to obtain the required production and environmental permits to drive this future EBITDA growth for the Group. New Vallourec plan updates The New Vallourec plan, announced in May 2022, remains fully on track. The plan aims to generate €230 million of recurring EBITDA uplift versus 2021 and an approximately €20 million capex reduction with the full impact starting in Q2 2024. These actions will contribute to making the Group cycle-proof and generating positive free cash flow9, before the change in working capital, even at the bottom of the cycle. The closure of sites in Europe is slightly ahead of schedule, and we expect rolling activities at our German operations to end in Q4 2023 at the latest. Employees at the planned closed sites to be closed in Europe began to leave the company in Q1 2023. The last wave of departures is expected in 2024, including those colleagues in Germany who are supporting the dismantling operation in that year. The Brazil capacity enhancement program, which is designed to expand the capabilities of our South America Tubes operations, is on-track. Transactions with related parties Transactions carried out with equity affiliates in first-half 2023 relate mainly to purchases of steel rods from HKM for an amount of €238 million, used for production at rolling mills in the Group’s European activities. Main risks and uncertainties for 2023 Vallourec does not expect any change to its risks, as set out in section 5.1 “Risk factors” of the 2022 Universal Registration Document (Document d’enregistrement universel) filed with the French financial markets authority (Autorité des marchés financiers – AMF) on April 17, 2023, under n° D.23-0293. The conflict in Ukraine and the sanctions against Russia are described in a specific paragraph of section 5.1 “Risk factors” of the Group’s 2022 Universal Registration Document. Furthermore, Vallourec has not identified any new risks that are not already addressed in the above section of the 2022 Universal Registration Document. 9 Free cash flow aligned with prior definition. 6 Vallourec 2023 Interim Financial Report HALF-YEAR ACTIVITY REPORT Consolidated Group results Income statement € million, unless notedFirst Half 2022First Half 2023ChangeRevenues2,0602,696636Cost of sales (a)(1,677)(1,816)(139)Industrial margin383880497(as a % of revenue)18.6%32.6%14.0 ppSelling, general and administrative expenses(183)(163)20(as a % of revenue)(8.9%)(6.0%)2.8ppOther5(23)(28)EBITDA205694489(as a % of revenue)10.0%25.7%15.8ppDepreciation of industrial assets(90)(85)5Amortization and other depreciation(23)(19)4Impairment of assets-(8)-Asset disposals, restructuring costs and non-recurring items(467)(68)399Operating income (loss)(375)515890Financial income (loss)(21)(70)(49)Pre-tax income (loss)(396)445841Income tax(51)(123)(72)Share in net income (loss) of equity affiliates(2)--Net income(449)321770Attributable to non-controlling interests165Net income, Group share(450)315765Basic earnings per share (€)(1.97)1.363.32Diluted earnings per share (€)(1.97)1.343.30Basic shares outstanding (millions)229232(3)Diluted shares outstanding (millions)229236(7)(a) Before depreciation and amortization. Tubes Sales Volume The diversity of the Group’s products and the absence of appropriate units of measurement, other than financial units, prevent the provision of meaningful information on sales volume. However, the following table provides a summary of quarterly output, which corresponds to the volumes produced and shipped from Vallourec rolling mills, expressed in metric tonnes of hot-rolled seamless tubes: in thousands of tonnes20222023ChangeQ13954319.2%Q2433396(8.6%)Total828827(0.1%) For the first half of 2023, Tubes volumes were stable compared to the first half of 2022, the decrease in Industry shipments was offset by higher Oil & Gas volumes. Mine Sales Volume in millions of tonnes20222023ChangeQ10.11.5nmQ21.01.990.0%Total1.13.4209.1% 2023 Interim Financial Report Vallourec 2 7 2 HALF-YEAR ACTIVITY REPORT For the first half of 2023, iron ore mine production sold amounted to 3.4 million tonnes and the Group expects production to reach approximately 3.6 million tonnes in H2 2023. The low result in H1 2022 was a consequence of the waste pile slippage incident at the beginning of 2022. Revenue CONSOLIDATED REVENUE For the first half of 2023, Vallourec recorded revenues of €2,696 million, up 31% year-on-year (+30% at constant exchange rates). The increase in Group revenues reflects: Stable volumes: the decrease in Industry shipments was offset by higher Oil & Gas volumes 26% price/mix effect 4% Mine and Forest 1% currency effect mainly related to weaker EUR/USD Tubes Revenues by Geographic Region € million, unless notedFirst Half2022First Half2023ChangeAt constant exchange rate (a)North America8051,32164.0%62.0%South America4024183.9%2.5%Middle East20426931.8%30.5%Europe334254(24.0%)(23.6%)Asia178127(28.3%)(26.1%)Rest of World7414899.3%100.3%Total Tubes1,9982,53727.0%26.1% (a) The change at constant exchange rates is defined as the change in revenue between two periods obtained by translating the revenue of consolidated subsidiaries whose functional currency is not the euro into euros at the average cumulative rate of the prior fiscal year. It does not include foreign currency impacts on sales entered by certain subsidiaries in currencies other than their functional currency. Rather, that impact is built into price/mix effects. Tubes Revenue by market Due to rounding, numbers presented throughout the following table may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. € million, unless notedFirst Half2022First Half2023ChangeAt constant exchange rate (a)Oil & Gas and Petrochemicals1,3492,06052.7%51.6%Industry527422(19.9%)(20.9%)Other12255(54.9%)(53.6%)Total Tubes1,9982,53727.0%26.1% (a) The change at constant exchange rates is defined as the change in revenue between two periods obtained by translating the revenue of consolidated subsidiaries whose functional currency is not the euro into euros at the average cumulative rate of the prior fiscal year. It does not include foreign currency impacts on sales entered into by certain subsidiaries in currencies other than their functional currency. Rather, that impact is built into price/mix effects. RESULTS ANALYSIS BY SEGMENT Tubes For the first half of 2023, Tubes revenues were up 27% due to higher pricing. Tubes EBITDA more than tripled to reach €609 million based on flattish volumes, coupled with a 27% increase in the average selling price per tonne. Mine and Forest Mine and Forest revenues for the first half of 2023 reached €186 million, compared to €92 million in H1 2022. For the first half of 2023, Mine and Forest EBITDA reached €98 million, leading to an EBITDA margin of 53%. 8 Vallourec 2023 Interim Financial Report HALF-YEAR ACTIVITY REPORT Revenue by quarter In € million 1st quarter 2nd quarter 2022 916 1,144 2023 1,338 1,358 % change year-on-year Volume effect +9% (8%) Forex translation effect +5% (2%) Price/mix +26% +27% Iron ore mine 6% 2% In the Second Quarter of 2023, Vallourec recorded revenues of €1,358 million, up 19% year-on-year (+21% at constant exchange rates). The increase in Group revenues reflects: • • • (8%) volume decrease mainly driven by lower deliveries in Industry in Europe 27% price/mix effect 2% Mine and Forest (2%) currency effect mainly related to stronger EUR/USD and EUR/BRL EBITDA For the first half of 2023, EBITDA increased by €489 million to reach €694 million compared to €205 million in H1 2022; the EBITDA margin reached 25.7% of revenues versus 10.0% in H1 2022. The following table shows the changes in the principal components of EBITDA in H1 2022 and H1 2023. € million, unless notedFirst Half 2022First Half 2023ChangeRevenues2,0602,696636Cost of sales (a)(1,677)(1,816)(139)Industrial margin383880497(as a % of revenue)18.6%32.6%14.0 ppSelling, general and administrative expenses(183)(163)20(as a % of revenue)(8.9%)(6.0%)2.8ppOther5(23)(28)EBITDA205694489(a) Before depreciation and amortization. Industrial margin Industrial margin is defined as the difference between revenue and cost of sales (excluding depreciation). Industrial margin increased significantly to €880 million, or 32.6% of revenues, versus €383 million or 18.6% of revenues in H1 2022. The positive contribution of the global Oil & Gas market, both in prices and volumes, was supplemented by a recovery in iron ore volumes. The following table shows the breakdown of cost of sales (excluding depreciation) in H1 2022 and H1 2023. € million, unless notedFirst Half 2022First Half 2023ChangeDirect cost of sales(123)(149)21.1%Cost of raw materials consumed(734)(704)(4.1%)Labor costs(334)(360)7.8%Other manufacturing costs (a)(538)(557)3.5%Change in non-raw materials inventories52(46)–Cost of sales (excluding depreciation)(1,677)(1,816)8.3%(a) “Other manufacturing costs” mainly include the costs of energy and consumables, and the costs of outsourcing, maintenance and provisions 2023 Interim Financial Report Vallourec 2 1st half 2,060 2,696 (0.1%) +1% +26% 4% 9 2 HALF-YEAR ACTIVITY REPORT Selling, general and administrative expenses Sales, general and administrative expenses (SG&A) amounted to €163 million, or 6.0% of revenue, versus €183 million and 8.9% of revenue in H1 2022. The following table shows the breakdown of SG&A expenses (excluding depreciation) in H1 2022 and in H1 2023. € million, unless notedFirst Half 2022First Half 2023ChangeResearch and development expenses (21)(13)(38.1%)Selling and market costs (33)(32)(3.0%)General and administrative expenses (129)(118)(8.5%)Selling, general and administrative expenses(183)(163)(10.9%) Personnel expenses Personnel expenses amounted to €461 million in H1 2023. The following table shows the breakdown of personnel costs. € million, unless notedFirst Half 2022First Half 2023ChangeWages and salaries (353)(352)(0.2%)Employee profit-sharing and bonuses (22)(22)0.0%Expenses related to share subscription and share purchase options and performance shares(3)(8)218.5%Social security costs(84)(80)(4.7%)Total(460)(461)0.2% Closing headcount of consolidated companies06/30/202212/31/202206/30/2023Change vs. 12/31/2022Managers2,8442,5042,7088.1%Technical and supervisory staff 2,0781,8841,9815.1%Production staff 11,16511,16211,077(0.8%)Total16,08715,55015,7661.4% Operating profit/(loss) In H1 2023, Operating income was positive at €515 million, while it was negative at (€375) million in H1 2022 resulting mainly from the provisions related to the adaptation measures (European social plans and associated fees) and, to a lesser extent, provisions for non-recurring costs related to the incident at the mine recorded in Q2 2022. Financial income/(loss) Financial income (loss) was negative at (€70) million, compared to (€21) million in H1 2022; net interest expenses in H1 2023 stood at (€54) million compared to (€45) million in H1 2022. The following table shows the breakdown of financial income/(loss). € million, unless notedFirst Half 2022First Half 2023ChangeFinancial income 37116.7%Interest expenses (48)(60)25.2%Net interest expenses (45)(54)19.1%Other financial income and expenses 20(11)–Financial restructuring costs–––Interest expenses on leases (4)(4)–Other discounting expenses 8(1)–Financial income/(loss) (21)(70)233.3% 10 Vallourec 2023 Interim Financial Report HALF-YEAR ACTIVITY REPORT Income tax expense Income tax amounted to (€123) million compared to (€51) million in H1 2022. Net income/(loss) This resulted in positive net income, Group share, of €315 million, representing a margin of 11.7%, compared to (€450) million in H1 2022. Liquidity and capital resources Cash Flow Results Analysis € million, unless notedFirst Half 2022First Half 2023ChangeEBITDA205694489Non-cash items in EBITDA(16)(8)8Financial cash out(38)(79)(41)Tax payments(38)(76)(38)Adjusted operating cash flow113531418Change in working capital(403)(44)359Gross capital expenditure(59)(119)(60)Adjusted free cash flow(349)368717Restructuring charges & non-recurring items(52)(106)(54)Asset disposals & other cash items (A)(29)736Total cash generation (B)(430)269699Non-cash adjustments to net debt(1)(7)(6)(Increase) decrease in net debt(431)262693Free cash flow, as previously defined (B-A)(401)262663 For the first half of 2023, adjusted operating cash flow significantly increased by €418 million to reach €531 million, mainly driven by higher EBITDA. For the first half of 2023, the operating working capital requirement increased by €44 million, versus a substantial increase of €403 million in H1 2022 Gross capital expenditure was €119 million over the first half of 2023 in comparison with €59 million in H1 2022. For the full year 2023, gross capital expenditure is expected to be around €220 million, including approximately €70 million of capital expenditures related to the transfer of Oil & Gas volumes from Germany to Brazil. For the first half of 2023, adjusted free cash flow stood at €368 million driven by improved EBITDA as well as efficient working capital management (compared to a negative (€349 million in H1 2022). For the first half of 2023, total cash generation amounted to €269 million, compared to a negative (€430) million in H1 2022. For the first half of 2023, free cash flow, as previously defined, was €262 million compared to (€401) million in H1 2022 2023 Interim Financial Report Vallourec 2 11 2 HALF-YEAR ACTIVITY REPORT Industrial capital expenditure excluding changes in scope (property, plant and equipment, intangible and biological assets) The capital expenditures in H1 2023 totaled €(119) million, an increase of €60 million versus H1 2022 that stood at €(59) million. The investments completed during H1 2023 aimed at improving efficiency of existing assets notably located in Brazil and Saudi Arabia. € million, unless notedFirst Half 2022First Half 2023North America Tubes(15)(15)South America Tubes(23)(82)Eastern Hemisphere Tubes(12)(9)Other(1)–Total Tubes(50)(106)Mine and Forest(7)(12)Holding companies and other(1)(1)Total Group(59)(119) Liquidity and Indebtedness The majority of bank financing has been put in place in Europe through Vallourec and, to a lesser extent, the subsidiaries in Brazil and the US. Market financing is arranged exclusively by Vallourec. As of June 30, 2023, the liquidity position was strong at €1.5 billion, with cash amounting to €855 million, availability on our revolving credit facility (RCF) of €462 million, and availability on an asset-backed loan (ABL) of €185 million10. The Group has no long-term debt repayments scheduled before June 2026. The following table shows the Group’s principal financial indebtedness. € million, unless noted12/31/202206/30/20238.500% Bonds due 20261,1351,1211.837% PGE due 2027220224ACC ACE (a)282332Other4347Total gross financial indebtedness1,6811,724Cash and cash equivalents552855Total net financial indebtedness1,130868 (a) Refers to ACC (Advances on Foreign Exchange Contract) and ACE (Advances on Export Shipment Documents) program in Brazil A change in control of Vallourec could trigger repayment of all or part of the debt, as decided by each participating bank. It is also stipulated that the entire debt will be immediately due and payable if the Group defaults on one of its debt obligations (cross default), or in case of a major event with consequences for the Group’s business or financial position and its ability to repay its debt. Equity Equity, Group share, totaled €2,026 million as at 30 June 2023, an increase of €383 million compared with €1,643 million as at 31 December 2022. This increase is mainly explained by: the Group’s positive net result recorded in H1 2023 for an amount of €315 million; a positive change in foreign currency translation reserve of €50 million. 10 $9 million letter of credit and other commitments issued as of June 30, 2023. 12 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 1. Vallourec Group interim condensed consolidated financial statements for the six months ended June 30, 2023 VALLOUREC GROUP CONSOLIDATED INCOME STATEMENT ................................................................................................... 15 3.1 STATEMENT OF COMPREHENSIVE INCOME ....................................................................................................................... 16 3.2 STATEMENT OF CASH FLOWS......................................................................................................................................... 17 3.3 VALLOUREC GROUP STATEMENT OF FINANCIAL POSITION ................................................................................................... 19 3.4 STATEMENT OF CHANGES IN EQUITY ............................................................................................................................... 21 3.5 3.6 STATEMENT OF CHANGES IN NON-CONTROLLING INTERESTS ................................................................................................ 22 Notes to the consolidated financial statements for the six months ended June 30, 2023 ............................................... 23 1. Accounting standards and basis for the preparation of the consolidated financial statements ...................... 23 1.1. Accounting standards ............................................................................................................................... 23 1.2. Measurement basis and presentation of the consolidated financial statements ................................... 23 1.3. Features specific to the preparation of interim financial statements ..................................................... 24 2. Key events during the period ............................................................................................................................ 24 2.1. Governance changes ................................................................................................................................ 24 2.2. Mine ......................................................................................................................................................... 25 3. Operating activities ........................................................................................................................................... 25 3.1. EBITDA ...................................................................................................................................................... 29 3.2. Depreciation and amortization ................................................................................................................ 29 3.3. Asset disposals, restructuring costs and non-recurring items ................................................................. 30 3.4. flows 30 Reconciliation of net additions to depreciation, amortization and provisions with the statement of cash 3.5. Reconciliation of working capital ............................................................................................................. 31 4. Income tax ........................................................................................................................................................ 32 5. Property, plant and equipment, intangible assets, goodwill and biological assets .......................................... 32 5.1. Impairment tests ...................................................................................................................................... 32 5.2. flows 33 Reconciliation of outflows related to acquisitions of non-current assets with the statement of cash 6. Related-party transactions................................................................................................................................ 33 7. Equity, share-based payments and earnings per share .................................................................................... 33 7.1. Equity attributable to owners of the parent ............................................................................................ 33 2023 Interim Financial Report Vallourec 3 13 3 8. 9. 10. 11. 12. 14 CONSOLIDATED INTERIM FINANCIAL STATEMENT 7.2. Share-based payments ............................................................................................................................ 34 7.3. Earnings per share ................................................................................................................................... 39 Financing and financial instruments ................................................................................................................. 40 8.1. Net debt ................................................................................................................................................... 40 8.2. Other financial liabilities .......................................................................................................................... 42 8.3. Financial instruments .............................................................................................................................. 42 Employee benefit obligations ........................................................................................................................... 44 Provisions for contingencies and charges and contingent liabilities ................................................................ 44 Scope of consolidation ..................................................................................................................................... 45 Subsequent events ........................................................................................................................................... 45 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 2.1 Vallourec Group consolidated income statement In € thousands Notes First-half 2022 First-half 2023 Revenue 2,060,279 2,695,735 Cost of sales(a) 3.1 (1,676,966) (1,815,975) Selling, general and administrative expenses(a) 3.1 (182,812) (162,819) Other 3.1 4,510 (23,083) EBITDA 3.1 205,011 693,858 Depreciation and amortization 3.2 (113,072) (104,073) Impairment of assets and goodwill (7,607) Asset disposals, restructuring costs and non-recurring items 3.3 (467,494) (67,896) Operating income (loss) (375,555) 514,282 Interest income 8.1.1 3,023 6,820 Interest expense 8.1.1 (47,920) (60,368) Net interest expense 8.1.1 (44,897) (53,548) Other financial income and expenses 8.1.1 23,889 (16,232) Net expense attributable to financial restructuring 8.1.1 Net financial income (loss) 8.1.1 (21,008) (69,780) Pre-tax income (loss) (396,563) 444,502 Income tax 4 (50,651) (122,944) Share in net income (loss) of equity-accounted companies (1,645) (200) Net income (loss) from continuing operations (448,859) 321,358 Net income from assets held for sale Net income (loss) (448,859) 321,358 Attributable to non-controlling interests 1,119 6,353 Group share (449,978) 315,005 Basic earnings (loss) per share 7.3 (2.0) 1.4 Diluted earnings (loss) per share 7.3 (2.0) 1.3 (a) Before depreciation and amortization. 2023 Interim Financial Report Vallourec 15 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 2.2 Statement of comprehensive income In € thousands Net income (loss) Other items of comprehensive income Actuarial gains and losses on post-employment benefits Tax attributable to actuarial gains and losses on post-employment benefits Items that will not be reclassified to profit or loss Translation differences on translating net assets of foreign operations Change in fair value of hedging instruments Tax attributable to the change in fair value of hedging instruments Items that may be reclassified subsequently to profit or loss Other comprehensive income (net of tax) Total comprehensive income (loss) Attributable to non-controlling interests Group share 16 Vallourec 2023 Interim Financial Report First-half 2022 (448,859) 35,186 2,257 37,443 321,049 (44,899) 1,279 277,429 314,872 (133,987) 5,293 (139,280) First-half 2023 321,358 (640) (57) (697) 50,705 17,124 (4,875) 62,954 62,257 383,615 6,650 376,965 CONSOLIDATED INTERIM FINANCIAL STATEMENT 2.3 Statement of cash flows In € thousands Notes First-half 2022 Net income (loss) (448,859) Net additions to depreciation, amortization and provisions 3.4 496,998 Unrealized gains and losses on changes in fair value (20,884) Capital gains and losses on disposals of non-current assets and equity interests 27,641 Share in net income (loss) of equity-accounted companies 1,645 Other cash flows from operating activities (542) Cash flow from operating activities after cost of net debt and taxes 55,999 Cost of net debt 8.1.1 44,897 Tax expense (including deferred taxes) 4 50,651 Cash flow from operating activities before cost of net debt and taxes 151,547 Interest paid (55,588) Tax paid (37,754) Interest received 2,943 Cash flow from operating activities 61,148 Change in operating working capital 3.5 (402,852) Net cash from (used in) operating activities (341,704) Acquisitions of property, plant and equipment, and intangible and biological assets 5.2 (59,007) Disposals of property, plant and equipment and intangible assets 2,848 Impact of acquisitions (changes in consolidation scope) (9,660) Impact of disposals (changes in consolidation scope) (1,121) Other cash flows from investing activities 1,153 Net cash used in investing activities (65,787) Increase or decrease in equity (706) Dividends paid to non-controlling interests 79 Proceeds from new borrowings 8.1.2 168,830 Repayments of borrowings 8.1.2 (21,593) Repayment of lease liabilities (10,638) Other cash flows from (used in) financing activities (10,134) Net cash from financing activities 125,838 Impact of changes in exchange rates 24,833 Impact of reclassification to assets held for sale and discontinued operations (1,297) Change in net cash (258,117) Opening net cash 615,949 Closing net cash 357,832 Change (258,117) The statement of cash flows has been prepared on the basis of cash and cash equivalents as detailed in Note 8.1, net of overdrafts and other short-term bank facilities with an initial maturity of less than three months. 2023 Interim Financial Report Vallourec 3 First-half 2023 321,358 63,826 576 527 200 (161) 386,326 53,548 122,944 562,818 (68,476) (76,085) 6,824 425,081 (44,408) 380,673 (119,168) 18,011 1,953 160 (99,044) (2,875) 41,242 445 (11,626) (672) 26,514 (4,088) (2) 304,053 546,788 850,841 304,053 17 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT Reconciliation of net cash in the statements of cash flows and financial position – June 30, 2023 In € thousands Notes Dec. 31, 2022 Change Cash and cash equivalents (1) 8.1 551,603 303,828 Short-term bank facilities (2) 8.1 4,815 (225) Net cash (3) = (1) – (2) 546,788 304,053 Reconciliation of net cash in the statements of cash flows and financial position – June 30, 2022 In € thousands Dec. 31, 2021 Change Cash and cash equivalents (1) 619,358 (254,067) Short-term bank facilities (2) 3,409 4,050 Net cash (3) = (1) – (2) 615,949 (258,117) 18 Vallourec 2023 Interim Financial Report June 30, 2023 855,431 4,590 850,841 June 30, 2022 365,291 7,459 357,832 CONSOLIDATED INTERIM FINANCIAL STATEMENT 2.4 Vallourec Group statement of financial position In € thousands Notes Dec. 31, 2022 June 30, 2023 Non-current assets Net intangible assets 36,820 46,950 Goodwill 39,600 42,044 Net property, plant and equipment 1,828,771 1,848,130 Biological assets 62,501 75,169 Investments in equity-accounted companies 15,969 15,552 Other non-current financial assets 8.3.1 82,474 82,715 Other non-current assets 8.3.1 105,573 98,924 Deferred taxes 237,725 253,840 Total non-current assets 2,409,433 2,463,323 Current assets Inventories 1,311,649 1,353,559 Trade and other receivables 824,462 802,495 Other current financial assets 8.3.1 40,783 52,068 Other current assets 8.3.1 210,536 255,451 Cash and cash equivalents 8.1 551,603 855,431 Total current assets 2,939,033 3,319,004 Assets held for sale and discontinued operations 9,414 7,352 Total assets 5,357,880 5,789,679 2023 Interim Financial Report Vallourec 3 19 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT In € thousands Equity Equity attributable to owners of the parent Non-controlling interests Total equity Non-current liabilities Loans and other borrowings Employee benefits Long-term provisions Deferred taxes Other non-current financial liabilities Other non-current liabilities Total non-current liabilities Current liabilities Overdrafts and other short-term bank facilities Short-term provisions Trade payables Other current financial liabilities Other current liabilities Total current liabilities Liabilities related to assets held for sale and discontinued operations Total equity and liabilities 20 Vallourec 2023 Interim Financial Report Notes 7.1 8.1 9 10 8.2 8.1 10 8.2 Dec. 31, 2022 1,643,252 42,356 1,685,608 1,367,194 104,709 246,143 51,836 50,622 50,746 1,871,250 314,127 354,725 786,918 55,279 286,163 1,797,212 3,810 5,357,880 June 30, 2023 2,025,888 48,410 2,074,298 1,357,215 95,233 260,463 79,824 46,773 45,237 1,884,745 366,706 318,586 788,155 45,781 305,790 1,825,018 5,618 5,789,679 2.5 Statement of changes in equity Share capital Additional paid-in capital Consolidated reserves Foreign currency translation reserve As at Dec. 31, 2021 4,579 3,951,529 (1,237,306) (978,649) Change in foreign currency translation reserve Financial instruments Actuarial gains and losses on retirement commitments Other comprehensive income Net income (loss) for first-half 2022 Total comprehensive income (loss) Appropriation of 2021 net income (loss) Share-based payments Changes in consolidation scope and other As at June 30, 2022 - - - - - - - - - 37,213 37,213 37,213 39,545 2,908 (4,051) 317,102 - - 317,102 - - 3,967 4,579 3,951,529 (1,161,691) (657,580) As at Dec. 31, 2022 4,636 3,951,472 (1,189,552) (751,355) Change in foreign currency translation reserve Financial instruments Actuarial gains and losses on retirement commitments Other comprehensive income Net income for first-half 2023 Total comprehensive income Appropriation of 2022 net income (loss) Capital increase Change in treasury shares Dividends paid Share-based payments Changes in consolidation scope and other As at June 30, 2023 75 - - - (75) - - - (691) (691) (691) (366,383) - (557) - 8,049 (5,322) 50,393 50,393 50,393 - - - - 2,944 4,711 3,951,397 (1,554,456) (698,018) CONSOLIDATED INTERIM FINANCIAL STATEMENT Revaluation reserve, net of tax Treasury shares Net income (loss) for the period Equity attributable to owners of the parent Non- controlling interests (15,785) (869) 39,545 1,763,044 44,663 (43,617) - (43,617) (43,617) - (43,617) - - - - 317,102 (43,617) 37,213 310,698 3,947 (3) 230 4,174 (449,978) (449,978) 1,119 (43,617) - - - - (449,978) (39,545) - (139,280) - 2,908 5,293 - - (84) (2,404) (59,402) (869) (449,978) 1,626,588 47,552 (5,009) (557) (366,383) 1,643,252 42,356 50,393 312 12,258 12,258 (9) (691) (6) 12,258 61,960 297 315,005 315,005 6,353 12,258 315,005 376,965 6,650 - - - - - 557 - - 366,383 - - - - - - - 8,049 (2,378) - - (2,685) - 2,089 7,249 315,005 2,025,888 48,410 2023 Interim Financial Report Vallourec 3 Total equity 1,807,707 321,049 (43,620) 37,443 314,872 (448,859) (133,987) - 2,908 (2,488) 1,674,140 1,685,608 50,705 12,249 (697) 62,257 321,358 383,615 - - (2,685) 8,049 (289) 2,074,298 21 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 2.6 Statement of changes in non-controlling interests In € thousands As at Dec. 31, 2021 Change in foreign currency translation reserve Financial instruments Actuarial gains and losses on retirement commitments Other comprehensive income Net income (loss) for first-half 2022 Total comprehensive income Appropriation of 2021 net income (loss) Dividends paid Changes in consolidation scope and other As at June 30, 2022 Consolidated reserves 48,281 - - 230 230 - 230 (8,108) - (2,152) 38,251 Foreign currency translation reserve 3,649 3,947 - - 3,947 - 3,947 - - (252) 7,344 Revaluation reserve, net of tax 841 - (3) - (3) - (3) - - - 838 As at Dec. 31, 2022 Change in foreign currency translation reserve Financial instruments Actuarial gains and losses on retirement commitments Other comprehensive income Net income for first-half 2023 Total comprehensive income Appropriation of 2022 net income (loss) Dividends paid Changes in consolidation scope and other As at June 30, 2023 33,293 - - (6) (6) - (6) 2,676 (2,685) 2,317 35,595 5,545 312 - - 312 - 312 - - (227) 5,630 842 - (9) - (9) - (9) - - (1) 832 22 Vallourec 2023 Interim Financial Report Net income (loss) for the period (8,108) - - - - 1,119 1,119 8,108 - - 1,119 2,676 - - - - 6,353 6,353 (2,676) - - 6,353 Non-controlling interests 44,663 3,947 (3) 230 4,174 1,119 5,293 - - (2,404) 47,552 42,356 312 (9) (6) 297 6,353 6,650 - (2,685) 2,089 48,410 CONSOLIDATED INTERIM FINANCIAL STATEMENT Notes to the consolidated financial statements for the six months ended June 30, 2023 All amounts are expressed in thousands of euros (€ thousands) unless otherwise stated. 1. Accounting standards and basis for the preparation of the consolidated financial statements 1.1. Accounting standards The interim condensed consolidated financial statements for the six months ended June 30, 2023 together with the explanatory notes were approved for issue by the Board of Directors of Vallourec on July 27, 2023. In application of Regulation No. 1606/2002 of the European Commission, which was adopted on July 19, 2002 for all listed companies in the European Union, the interim condensed consolidated financial statements for the six months ended June 30, 2023 were prepared in accordance with International Financial Reporting Standards (IFRS), based on the standards and interpretations applicable at that date. The accounting principles and valuation methods applied are identical to those used to prepare the 2022 consolidated financial statements, with the exception of any changes made pursuant to the application of the new standards and amendments mandatory for financial periods beginning on or after January 1, 2023. The interim consolidated financial statements were prepared in accordance with IAS 34 “Interim Financial Information”. The purpose of interim financial statements is to update shareholders and investors with relevant information about the significant events and transactions of the period in a selection of explanatory notes explaining the significant changes in the statement of financial position between December 31, 2022 and June 30, 2023, as well as the main transactions contributing to the Group’s results for first-half 2023. The interim financial statements do not comprise all of the information required for a complete set of annual financial statements, and should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2022, filed with the French securities regulator (Autorité des marchés financiers – AMF) on April 17, 2023 (available on the corporate website at www.vallourec.com). 1.1.1. New mandatory standards The new mandatory standards and amendments applicable to financial periods beginning on or after January 1, 2023 correspond to amendments to IAS 1 (Presentation of Consolidated Financial Statements) and IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors). These amendments have no impact on the Group’s consolidated financial statements. 1.1.2. New standards not early adopted The Group has not elected to early adopt any other standards or interpretations that are mandatory for financial periods beginning on or after January 1, 2023. 1.2. Measurement basis and presentation of the consolidated financial statements Estimates The preparation of interim financial statements may be based to a greater extent on estimates rather than on annual financial data when determining the value of assets and liabilities and assessing positive and negative developments at the closing date, and income and expenses for the period. The preparation of IFRS consolidated financial statements requires Vallourec’s management to use estimates and assumptions that affect the carrying amounts of certain assets and liabilities, income and expenses, as well as certain information in the explanatory notes. The main estimates and assumptions are identical to those described in the notes to the consolidated financial statements for the year ended December 31, 2022. The interim financial statements have been prepared according to the same accounting rules and methods as those used to prepare the annual consolidated financial statements, with the exception of any changes in method during the period. However, in accordance with IAS 34, for interim financial statements, certain measurements, unless otherwise indicated, may be based more on estimates rather than on annual financial data. The Group primarily reviewed the following estimates for the interim closing: the recoverable amount of property, plant and equipment, intangible assets and goodwill (see Note 5); 2023 Interim Financial Report Vallourec 3 23 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT provisions for disputes, onerous contracts, restructuring and contingent liabilities (see Note 10); deferred tax assets recognized on tax loss carryforwards (see Note 4). Judgment In addition to the use of estimates, the Group’s management uses judgment in determining the appropriate accounting treatment for certain activities and transactions, in particular when existing IFRSs and interpretations do not specifically address the accounting matters in question. In particular, the Group used judgment in assessing the nature of control. Translation of foreign currency The main exchange rates used (euro/currency) are as follows: USD GBP BRL CNY As at June 30, 2022 Average rate Closing rate As at June 30, 2023 Average rate Closing rate 1.09 1.04 1.08 1.09 0.84 0.86 0.88 0.86 5.56 5.42 5.48 5.28 7.04 6.96 7.49 7.90 1.3. Features specific to the preparation of interim financial statements Income tax The current and deferred tax charge is calculated at interim closings for each tax entity by applying the estimated average effective annual tax rate for the current year to taxable income for the period, excluding material non-recurring items. Any material non-recurring items for the period are recognized using their actual tax charge. Retirement benefits The cost of retirement benefits for interim periods is determined using actuarial assessments conducted at the end of the previous financial period. These assessments may be adjusted to take account of any significant curtailments, settlements or other non-recurring events during the period. In addition, the amounts recorded in the statement of financial position for defined benefit plans are adjusted to take account of changes in discount rates, the fair value of plan assets and actual service costs for the period. 2. Key events during the period 2.1. Governance changes On January 31, 2023, as part of its “New Vallourec” plan, led by Philippe Guillemot, Chairman and Chief Executive Officer, the Group introduced a three-region organization (North America, South America, and Eastern Hemisphere) to simplify and optimize its operations. The new organization aims at making the Group more efficient and more agile, and closer to its customers, and enhancing its industrial performance, through two export bases, Brazil and Asia. The new organization led to changes in the Executive Committee, effective February 1, 2023: Laurent Dubedout was appointed Senior Vice-President, OCTG Services and Accessories Business Line, Group and Eastern Hemisphere, and joined the Executive Committee. Jacky Massaglia was appointed Senior Vice-President, Business Line Project Line Pipe and Process, and joined the Executive Committee. Philippe Carlier, previously Senior Vice-President, Technology and Industry, is now Senior Vice-President, Industry, Group and Eastern Hemisphere, and remains a member of the Executive Committee. Following these changes, the Vallourec Executive Committee had 11 members under the leadership of Philippe Guillemot, Chairman and Chief Executive Officer. On April 11, 2023, Vallourec announced the appointment of Sarah Dib as Group General Counsel, replacing Nathalie Joannes. She has joined the Executive Committee. 24 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT On May 2, 2023, Vallourec announced the appointment of Valeria Fernandes as Chief Digital & Information Officer, replacing Naïla Giovanni. She has joined the Executive Committee. 2.2. Mine On January 8, 2022, following the exceptionally heavy rainfall in Minas Gerais State (Brazil), some material from a waste pile associated with the operations of Vallourec’s Pau Branco mine slid into a rainwater dam (the “Lisa Dam”), causing it to overflow and resulting in the interruption of traffic on a nearby highway. The structure of the dam was not affected, and there were no casualties. As a result of this incident, however, operations at the mine were temporarily suspended. On May 4, 2022, Vallourec partially restarted operations, after obtaining the approval of the mining authorities to resume activities using an alternative waste pile. Under these conditions, volumes extracted in 2022 amounted to approximately 4 million metric tons. On May 5, 2023, Vallourec obtained the necessary permissions from the Brazilian state mining and environmental authorities for the full release of the Cachoeirinha core waste pile. Volumes of iron ore sold totaled 1.5 million metric tons in first-quarter 2023 and 1.9 million metric tons in the second quarter of the year. 3. Operating activities The Vallourec Group is a world leader in premium tubular solutions, primarily for the Oil & Gas and Industry markets, and also operates the Pau Branco iron ore mine. Originally based in France and Germany, Vallourec now has frontline positions in the United States, Brazil, Europe, the Middle East and Asia. The Group provides a wide range of premium tubular solutions – high-performance solutions whose manufacturing requires significant technological and industrial expertise – in addition to related specialized services that provide customers with a comprehensive range of innovative solutions. Until the first half of 2022, Vallourec presented segment information based on three operating segments: “Seamless Tubes”, “Specialty Products”, and “Holding companies & Other”. During the second half of 2022, the new Executive Committee – which is the Group’s Chief Operating Decision Maker (CODM) – set up a new internal organization to implement the New Vallourec transformation plan and decided to separately monitor the performance and profitability of the “Mine & Forests” activity, previously included in the “Seamless Tubes” segment, in addition to the “Tubes” activity. Moreover, following the disposal of its Nuclear activities, Vallourec no longer operates in the Specialty Products sector. The new segments comply with the definition of operating segments identified and aggregated according to IFRS 8. Vallourec presents geographical information for the Tubes segment for Europe, North America, South America, Asia, the Middle East and the Rest of the World. The information reported for revenue is broken down by customer location and the breakdown for non-current assets is based on the location of the assets. The Group therefore presents its segment information based on the following operating segments: Tubes This segment covers all entities with production and marketing facilities dedicated to the Group’s main business, i.e., the production of hot- rolled seamless carbon and alloy steel tubes, both smooth and threaded, for the Oil & Gas industry. The activity is characterized by a highly integrated manufacturing process, from production of the steel and hot-rolling to the final stages, facilitating the production of articles that primarily address the Oil & Gas and Industry markets. The Tubes business is highly dependent on the level of investment undertaken by Oil & Gas companies in the exploration, production and development of oil and natural gas reserves. Decisions to allocate customer orders are managed centrally by a Group S&OP team, based on criteria such as available production capacity and margin optimization at Group level, while taking into account supply chain constraints (lead times required from customers) and required factory certifications. The CODM’s decisions on capital/resource allocation are made at this level and performance is monitored at this level based on various indicators, including EBITDA/metric ton, Days in Inventory (DII). Mine & Forests The iron ore mine and the forests (which supply charcoal to the blast furnace located in Jeceaba in the Brazilian state of Minas Gerais) now constitute a separate segment in the Group’s internal reporting. Surplus production that exceeds internal consumption is sold on the market. The profitability of this activity is strongly correlated with international iron ore market prices, in particular the Iron Ore CFR China index published by Platts. The following tables provide information on the revenue and results of each operating segment, as well as on assets, liabilities and capital expenditure for 2023. Information for 2022 has been restated in order to enable year-on-year comparisons. 2023 Interim Financial Report Vallourec 3 25 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT Results, assets and liabilities by operating segment AS AT JUNE 30, 2023 Tubes Mine & Forests INCOME STATEMENT Revenue (*) EBITDA Depreciation of industrial assets Impairment of assets and goodwill Asset disposals, restructuring costs and non-recurring items Operating income (loss) 2,537,263 609,119 (87,534) - (64,362) 457,223 185,503 97,859 (10,233) - 978 88,604 Unallocated income Unallocated expenses Pre-tax income Income tax Share in net income (loss) of equity- accounted companies Net income STATEMENT OF FINANCIAL POSITION Non-current assets Current assets Cash and cash equivalents 457,223 - - - 2,031,752 2,364,382 1,171,160 88,604 - - - 348,814 155,110 31,166 Assets held for sale and discontinued operations 7,352 TOTAL ASSETS 5,567,294 542,442 CASH FLOWS Investments in property, plant and equipment, intangible assets and biological assets 105,988 12,209 Non-Group revenue 2,513,050 132,495 (*) Sales to external customers. 26 Vallourec 2023 Interim Financial Report Holding companies & Other 96,792 (9,693) (6,306) (7,607) (4,099) (27,729) (27,729) - - - 82,757 400,875 1,099,981 1,583,613 971 50,190 Inter-segment transactions (123,823) (3,427) - - (413) (3,816) (3,816) - - - (456,794) (1,446,876) (1,903,670) Total 2,695,735 693,858 (104,073) (7,607) (67,896) 514,282 6,820 (76,600) 444,502 (122,944) (200) 321,358 2,463,323 2,463,573 855,431 7,352 5,789,679 119,168 2,695,735 CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 The table below presents the following information for the Group’s operating segments: - income statement data for the first half of 2022 statement of financial position data as at December 31, 2022 Tubes Mine & Forests Holding companies & Other Inter-segment transactions Total INCOME STATEMENT Revenue (*) EBITDA Depreciation of industrial assets 1,998,039 184,908 (97,264) 92,307 52,583 (7,141) 106,163 (30,067) (8,667) (136,230) (2,413) - 2,060,279 205,011 (113,072) Impairment of assets and goodwill Asset disposals, restructuring costs and non-recurring items Operating income (loss) Unallocated income Unallocated expenses Pre-tax income (loss) Income tax Share in net income (loss) of equity- accounted companies Net income (loss) STATEMENT OF FINANCIAL POSITION Non-current assets Current assets Cash and cash equivalents (371,558) (283,914) - - - - 1,986,130 2,296,588 820,314 (70,384) (24,942) - - - - 335,068 93,576 13,327 (25,552) (64,286) - - - - 88,235 142,582 777,773 (2,413) - - - - (145,316) (1,059,811) (467,494) (375,555) 3,023 (24,031) (396,563) (50,651) (1,645) (448,859) 2,409,433 2,387,430 551,603 Assets held for sale and discontinued operations TOTAL ASSETS 5,103,032 9,414 451,385 1,008,590 (1,205,127) 9,414 5,357,880 CASH FLOWS Investments in property, plant and equipment, intangible assets and biological assets 141,608 44,471 4,597 190,676 Non-Group revenue (*) Sales to external customers. 1,941,665 52,918 65,695 2,060,279 2023 Interim Financial Report Vallourec 27 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT Geographic areas The table below presents information on (i) revenue by geographic area (based on customer location) and (ii) non-current assets by geographic area. The main areas are North America (principally the United States), South America (principally Brazil) and Europe (European Economic Union). Revenue Non-current assets First-half 2022 First-half 2023 Dec 31, 2022 June 30, 2023 Europe North America South America Asia Middle East Rest of the world Total – Tubes Mine & Forests Holding companies & Other 334,076 805,476 402,295 177,679 204,304 74,209 1,998,039 92,307 253,947 1,320,952 417,790 127,436 269,256 147,882 2,537,263 185,503 87,942 957,508 764,092 99,456 76,290 842 1,986,130 335,068 73,252 910,329 886,479 92,269 68,808 615 2,031,752 348,814 106,163 96,792 88,235 82,757 Inter-segment transactions (136,230) (123,823) TOTAL 2,060,279 2,695,735 2,409,433 2,463,323 Revenue by business The following table shows the breakdown of the Group’s revenue by business in first-half 2022 and 2023: Revenue First-half 2022 First-half 2023 Oil & Gas Industry Other Total – Tubes Mine & Forests Holding companies & Other 1,177,308 526,501 294,230 1,998,039 92,307 106,163 1,885,103 421,631 230,529 2,537,263 185,503 96,792 Inter-segment transactions (136,230) (123,823) TOTAL 2,060,279 2,695,735 28 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 3.1. EBITDA EBITDA breaks down as follows: First-half 2022 First-half 2023 Revenue 2,060,279 2,695,735 Cost of sales (1,676,966) (1,815,975) of which direct cost of sales of which cost of raw materials consumed of which labor costs (122,666) (733,805) (334,185) (149,150) (703,813) (359,823) of which other manufacturing costs(a) (537,991) (556,964) of which change in non-raw-material inventories 51,681 (46,225) Selling, general and administrative expenses (182,812) (162,819) of which research and development costs of which selling and marketing costs of which general and administrative costs (20,612) (33,212) (128,988) (13,106) (32,413) (117,300) Other 4,510 (23,083) of which employee profit-sharing, bonuses and other of which other income and expenses (19,206) 23,716 (19,203) (3,880) Total gross operating expenses EBITDA (1,855,268) 205,011 (2,001,877) 693,858 (a) “Other manufacturing costs” mainly include energy and consumables, subcontracting and maintenance expenditure, and provisions. Personnel expenses Personnel expenses amounted to €461 million in first-half 2023, versus €460 million in first-half 2022. 3.2. Depreciation and amortization Depreciation and amortization breaks down as follows: First-half 2022 First-half 2023 Depreciation of industrial assets Depreciation of right-of-use assets Amortization of capitalized research and development costs Depreciation and amortization – contract and selling and marketing costs Depreciation and amortization – general and administrative costs Total depreciation and amortization (89,619) (8,753) (5,243) (602) (8,855) (113,072) (85,255) (11,458) (904) (484) (5,972) (104,073) 2023 Interim Financial Report Vallourec 29 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 3.3. Asset disposals, restructuring costs and non-recurring items First- half 2022 First half 2023 Reorganization measures (net of expenses and provisions) (357,235) (34,419) Gains and losses on disposals of non-current assets and other non-recurring items (110,259) (33,477) Total (467,494) (67,896) The Group continued its restructuring in the first half of 2023, which led to the recognition of €34 million in costs for reorganization measures (net of expenses and provisions). Non-recurring items for first-half 2023 mainly comprised restructuring costs. 3.4. Reconciliation of net additions to depreciation, amortization and provisions with the statement of cash flows Notes First-half 2022 First-half 2023 Depreciation and amortization 3.2 (113,072) (104,073) Impairment of assets and goodwill (7,607) Additions to provisions net of reversals included in EBITDA 1,655 8,157 Additions to provisions net of reversals included in asset disposals, restructuring costs and non-recurring items Additions to provisions net of reversals included in net financial income (loss) (387,280) 1,699 42,296 (2,599) Total (496,998) (63,826) Net depreciation, amortization and provisions recorded in the statement of cash flows 496,998 63,826 30 Vallourec 2023 Interim Financial Report 3.5. Reconciliation of working capital Changes in working capital during first-half 2023 were as follows: Gross amounts In € thousands Dec. 31, 2022 Translation difference Inventories 1,409,864 21,807 Trade receivables and supplier advances 838,121 5,420 Trade payables (786,918) 3,354 Working capital 1,461,067 30,581 Other receivables and payables (5,347) 445 Operating working capital 1,455,720 31,026 Impact of hedging instruments Total Change in operating working capital in the statement of cash flows CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 Change Reclassification and other Items held for sale June 30, 2023 39,684 (8,816) (0) 1,462,539 (42,947) 10,460 0 811,054 (1,900) (2,691) 0 (788,155) (5,163) (1,047) 0 1,485,438 40,570 (1,984) 0 33,684 35,407 (3,031) 0 1,519,122 9,001 44,408 (44,408) 2023 Interim Financial Report Vallourec 31 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 4. Income tax RECONCILIATION OF THEORETICAL AND EFFECTIVE TAX EXPENSE Current tax expense Deferred taxes Net expense (-), Net benefit (+) Consolidated net income (loss) Tax expense Pre-tax income (loss) Statutory tax rate applicable to the parent Theoretical tax Impact of main tax loss carryforwards Impact of permanent differences Other impacts Impact of differences in tax rates Net expense (-), Net benefit (+) Effective tax rate First-half 2022 (29,750) (20,901) (50,651) (447,214) (50,651) (396,563) 25.83% 102,432 (18,620) (56,574) (89,114) 11,225 (50,651) First-half 2023 (105,707) (17,237) (122,944) 321,558 (122,944) 444,502 25.83% (114,815) (19,779) (14,476) 3,589 22,537 (122,944) 13% 28% The 28% effective tax rate can be analyzed as follows: the impact of tax loss carryforwards and temporary differences mainly concerns the non-recognition of deferred tax assets (DTAs) during the period in France and Germany; differences in tax rates mainly reflect the diverse range of tax rates applied in the Group’s various countries (Germany 31.6%, United States 21%, Brazil 34.0%, China 25.0%, and Saudi Arabia 20%); permanent differences and other impacts notably reflect the add-back of financial expenses, non-deductible penalties and the provision set aside for the Group’s restructuring plans. 5. Property, plant and equipment, intangible assets, goodwill and biological assets 5.1. Impairment tests As at June 30, 2023, the Group’s analysis of its various cash-generating units (CGUs) did not identify any internal or external indications of impairment that would require it to perform an impairment test. The sales volume and value assumptions used as a basis for the CGUs’ future cash flows for the purposes of preparing the 2022 consolidated financial statements were not called into question for any of the three CGUs (Eastern Hemisphere Tubes, Vallourec do Brasil Tubes, Vallourec North America). 32 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 5.2. Reconciliation of outflows related to acquisitions of non-current assets with the statement of cash flows First-half 2022 First-half 2023 Acquisitions of intangible assets Acquisitions of property, plant and equipment Total capital expenditure Property, plant and equipment and intangible assets 442 47,726 48,168 Biological assets - 3,449 3,449 Property, plant and equipment and intangible assets 42 103,014 103,056 Biological assets - 5,090 5,090 Changes in liabilities on non-current assets and partner contributions Total Statement of cash flows: cash outflows for acquisitions of property, plant and equipment and intangible and biological assets: 7,390 55,558 59,007 3,449 11,022 114,078 119,168 5,090 6. Related-party transactions Related-party transactions mainly concern purchases of steel rounds from HKM, which are used as manufacturing raw materials by Vallourec Deutschland’s European rolling mills, amounting to €238.1 million during the first half of 2023. 7. Equity, share-based payments and earnings per share 7.1. Equity attributable to owners of the parent As at June 30, 2023, Vallourec’s share capital comprised 235,532,187 ordinary shares with a par value of €0.02 per share, all fully paid-up. Reserves and financial instruments Reserves for changes in the fair value of hedging instruments net of tax (revaluation reserves) arise primarily from two types of transaction: Effective currency hedges assigned to the order book and commercial tenders, for which changes in the currency impact at the reporting date are recognized in equity. Variable-rate borrowings for which interest rate swaps (fixed rate) have been contracted, and which are accounted for in accordance with the cash flow hedge method. Changes in the fair value of swaps attributable to fluctuations in interest rates are recognized in equity. Foreign currency translation reserve This reserve arises as a result of translating the equity of subsidiaries outside the eurozone into euros. The change in the reserve corresponds to fluctuations in exchange rates used to translate the equity and net income (loss) of these subsidiaries. Components of the reserve are only written back to income in the case of a partial or total disposal and loss of control of the foreign entity. USD GBP BRL CNY Other Total As at December 31, 2021 291,136 (11,747) (1,259,048) 29,801 (28,791) (978,649) Change 95,716 (1,191) 126,768 (4,348) 10,349 227,294 As at Dec. 31, 2022 386,852 (12,938) (1,132,280) 25,453 (18,442) (751,355) Change (27,874) 368 82,796 (9,965) 8,012 53,337 As at June 30, 2023 358,978 (12,570) (1,049,484) 15,488 (10,430) (698,018) 2023 Interim Financial Report Vallourec 33 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 7.2. Share-based payments Management Equity Plans The characteristics of plans set up prior to December 31, 2022 are described in the Group’s consolidated financial statements for the year ended December 31, 2022. During first-half 2023, the Group set up new Management Equity Plans (MEP) for some of the Group’s senior executives, corporate officers and employees. FEBRUARY 1, 2023 MEP Under the MEP set up on February 1, 2023, 199,584 free performance shares were awarded to Group employees and executive corporate officers. The award comprises preferred shares, broken down into three tranches. Characteristics of the plan The characteristics of the performance share plan are as follows: Valuation Tranche 2 Tranche 3 Tranche 4 Share price on the award date €13.48 €13.48 €13.48 €13.48 €13.48 €13.48 Vesting period(a) 30%: 1.35 years 70%: 3.41 years 30%: 1.69 years 70%: 3.41 years 30%: 2.10 years 70%: 3.41 years Holding period(a) 3.41 years 3.41 years 3.41 years 3.41 years 3.41 years 3.41 years Performance conditions(b) Yes Yes Yes Yes Yes Yes Volatility(c) 49.60% 49.60% 49.60% 49.60% 49.60% 49.60% Risk-free rate(d) 2.82% 2.82% 2.82% 2.82% 2.82% 2.82% Dividend rate(e) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Fair value of the share(f) €8.93 €8.93 €7.09 €7.09 €4.52 €4.52 Number of shares awarded 28,416 66,305 28,415 66,303 3,043 7,102 (a) The statutory vesting period is one year for all tranches. If Apollo still holds at least 5% of the capital at the end of a period of 3.41 years, the shares will be subject to a lock-up. During the lock-up period, they will be bought back from the beneficiaries in the event of their departure (excluding in the case of retirement, death or disability) only up to a maximum of 30% of their market value. In light of these rules, under IFRS 2, 30% of beneficiaries’ rights are considered as vesting at the end of the average vesting period (see performance conditions) and 70% at the end of the lock-up period, estimated at 3.41 years. (b) The tranche 2, 3 and 4 performance share rights will be exercisable for ordinary shares if the volume-weighted average Vallourec share price represents at least €16.19, €20.22 and €28.32 over 90 trading days in the 5-year period following the financial restructuring. The valuation models show average vesting periods of 1.35 years, 1.69 years and 2.10 years, respectively. (c) Volatility corresponds to historical volatility observed over a period corresponding to the life of the plans. (d) The risk-free rate used was determined based on the maturity of each of the tranches (the French Institute of Actuaries’ yield curve). (e) The expected dividend rates were determined based on analysts’ expectations (external information) and the Group’s dividend policy. (f) Following amendments to the applicable performance conditions voted at the May 25, 2023 Shareholders’ Meeting, the fair values of tranches 2, 3 and 4 were revised upwards, by adding €1.17, €1.03 and €0.78 respectively to their previous fair values. 34 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT MARCH 10, 2023 MEP Under the MEP set up on March 10, 2023, 327,562 free performance shares were awarded to executive corporate officers. The award comprises preferred shares, broken down into three tranches. Characteristics of the plan The characteristics of the performance share plan are as follows: Valuation Tranche 2 Tranche 3 Tranche 4 Share price on the award date €13.60 €13.60 €13.60 €13.60 €13.60 Vesting period(a) 30%: 1.33 years 70%: 3.31 years 30%: 1.67 years 70%: 3.31 years 30%: 2.01 years 70%: 3.31 years Holding period(a) 3.31 years 3.31 years 3.31 years 3.31 years 3.31 years Performance conditions(b) Yes Yes Yes Yes Yes Volatility(c) 49.90% 49.90% 49.90% 49.90% 49.90% Risk-free rate(d) 3.07% 3.07% 3.07% 3.07% 3.07% Dividend rate(e) 3.00% 3.00% 3.00% 3.00% 3.00% Fair value of the share(f) €9.01 €9.01 €7.25 €7.25 €4.42 44,859 104,672 44,859 104,672 8,550 Number of shares awarded (a) The statutory vesting period is one year for all tranches. If Apollo still holds at least 5% of the capital at the end of a period of 3.31 years, the shares will be subject to a lock-up. During the lock-up period, they will be bought back from the beneficiaries in the event of their departure (excluding in the case of retirement, death or disability) only up to a maximum of 30% of their market value. In light of these rules, under IFRS 2, 30% of beneficiaries’ rights are considered as vesting at the end of the average vesting period (see performance conditions) and 70% at the end of the lock-up period, estimated at 3.31 years. (b) The tranche 2, 3 and 4 performance share rights will be exercisable for ordinary shares if the volume-weighted average Vallourec share price represents at least €16.19, €20.22 and €28.32 over 90 trading days in the 5-year period following the financial restructuring. The valuation models show average vesting periods of 1.33 years, 1.67 years and 2.01 years, respectively. (c) Volatility corresponds to historical volatility observed over a period corresponding to the life of the plans. (d) The risk-free rate used was determined based on the maturity of each of the tranches (the French Institute of Actuaries’ yield curve). (e) The expected dividend rates were determined based on analysts’ expectations (external information) and the Group’s dividend policy. (f) Following amendments to the applicable performance conditions voted at the May 25, 2023 Shareholders’ Meeting, the fair values of tranches 2, 3 and 4 were revised upwards, by adding €1.17, €1.03 and €0.78 respectively to their previous fair values. 2023 Interim Financial Report Vallourec 3 €13.60 3.31 years Yes 49.90% 3.07% 3.00% €4.42 19,950 35 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT MARCH 13, 2023 MEP Under the MEP set up on March 13, 2023, 17,605 free performance shares were awarded to Group employees. The award comprises preferred shares, broken down into two tranches. Characteristics of the plan The characteristics of the performance share plan are as follows: Valuation Tranche 2 Tranche 3 Share price on the award date €13.47 €13.47 €13.47 €13.47 Vesting period(a) 30%: 1.32 years 70%: 3.30 years 30%: 1.64 years 70%: 3.30 years Holding period(a) 3.30 years 3.30 years 3.30 years 3.30 years Performance conditions(b) Yes Yes Yes Yes Volatility(c) 49.90% 49.90% 49.90% 49.90% Risk-free rate(d) 3.07% 3.07% 3.07% 3.07% Dividend rate(e) 3.00% 3.00% 3.00% 3.00% Fair value of the share(f) €8.73 €8.73 €6.95 €6.95 Number of shares awarded 2,641 6,162 2,641 6,161 (a) The statutory vesting period is one year for all tranches. If Apollo still holds at least 5% of the capital at the end of a period of 3.30 years, the shares will be subject to a lock- up. During the lock-up period, they will be bought back from the beneficiaries in the event of their departure (excluding in the case of retirement, death or disability) only up to a maximum of 30% of their market value. In light of these rules, under IFRS 2, 30% of beneficiaries’ rights are considered as vesting at the end of the average vesting period (see performance conditions) and 70% at the end of the lock-up period, estimated at 3.30 years. (b) The tranche 2 and 3 performance share rights will be exercisable for ordinary shares if the volume-weighted average Vallourec share price is at least €16.19 and €20.22 over 90 trading days in the 5-year period following the financial restructuring. The valuation models show average vesting periods of 1.32 years and 1.64 years respectively. (c) Volatility corresponds to historical volatility observed over a period corresponding to the life of the plans. (d) The risk-free rate used was determined based on the maturity of each of the tranches (the French Institute of Actuaries’ yield curve). (e) The expected dividend rates were determined based on analysts’ expectations (external information) and the Group’s dividend policy. (f) Following amendments to the applicable performance conditions voted at the May 25, 2023 Shareholders’ Meeting, the fair values of tranches 2, 3 and 4 were revised upwards, by adding €1.17, €1.03 and €0.78 respectively to their previous fair values. 36 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 MARCH 23, 2023 MEP Under the MEP set up on March 23, 2023, 37,037 free performance shares were awarded to Group employees. The award comprises preferred shares, broken down into two tranches. Characteristics of the plan The characteristics of the performance share plan are as follows: Valuation Tranche 2 Tranche 3 Share price on the award date €11.49 €11.49 €11.49 €11.49 Vesting period(a) 30%: 1.58 years 70%: 3.27 years 30%: 1.83 years 70%: 3.27 years Holding period(a) 3.27 years 3.27 years 3.27 years 3.27 years Performance conditions(b) Yes Yes Yes Yes Volatility(c) 50.30% 50.30% 50.30% 50.30% Risk-free rate(d) 3.07% 3.07% 3.07% 3.07% Dividend rate(e) 3.00% 3.00% 3.00% 3.00% Fair value of the share(f) €6.26 €6.26 €4.69 €4.69 Number of shares awarded 5,556 12,963 5,555 12,963 (a) The statutory vesting period is one year for all tranches. If Apollo still holds at least 5% of the capital at the end of a period of 3.27 years, the shares will be subject to a lock-up. During the lock-up period, they will be bought back from the beneficiaries in the event of their departure (excluding in the case of retirement, death or disability) only up to a maximum of 30% of their market value. In light of these rules, under IFRS 2, 30% of beneficiaries’ rights are considered as vesting at the end of the average vesting period (see performance conditions) and 70% at the end of the lock-up period, estimated at 3.27 years. (b) The tranche 2 and 3 performance share rights will be exercisable for ordinary shares if the volume-weighted average Vallourec share price is at least €16.19 and €20.22 over 90 trading days in the 5-year period following the financial restructuring. The valuation models show average vesting periods of 1.58 years and 1.83 years respectively. (c) Volatility corresponds to historical volatility observed over a period corresponding to the life of the plans. (d) The risk-free rate used was determined based on the maturity of each of the tranches (the French Institute of Actuaries’ yield curve). (e) The expected dividend rates were determined based on analysts’ expectations (external information) and the Group’s dividend policy. (f) Following amendments to the applicable performance conditions voted at the May 25, 2023 Shareholders’ Meeting, the fair values of tranches 2, 3 and 4 were revised upwards, by adding €1.17, €1.03 and €0.78 respectively to their previous fair values. 2023 Interim Financial Report Vallourec 37 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT JUNE 21, 2023 MEP Under the MEP set up on June 21, 2023, 108,526 free performance shares were awarded to Group employees. The award comprises preferred shares, broken down into two tranches. Characteristics of the plan The characteristics of the performance share plan are as follows: Valuation Tranche 2 Tranche 3 Share price on the award date €10.04 €10.04 €10.04 €10.04 Vesting period(a) 30%: 1.44 years 70%: 3.03 years 30%: 1.72 years 70%: 3.03 years Holding period(a) 3.03 years 3.03 years 3.03 years 3.03 years Performance conditions(b) Yes Yes Yes Yes Volatility(c) 48.00% 48.00% 48.00% 48.00% Risk-free rate(d) 2.81% 2.81% 2.81% 2.81% Dividend rate(e) 3.00% 3.00% 3.00% 3.00% Fair value of the share €5.26 €5.26 €3.86 €3.86 Number of shares awarded 16,279 37,984 16,279 37,984 (a) The statutory vesting period is one year for all tranches. If Apollo still holds at least 5% of the capital at the end of a period of 3.03 years, the shares will be subject to a lock-up. During the lock-up period, they will be bought back from the beneficiaries in the event of their departure (excluding in the case of retirement, death or disability) only up to a maximum of 30% of their market value. In light of these rules, under IFRS 2, 30% of beneficiaries’ rights are considered as vesting at the end of the average vesting period (see performance conditions) and 70% at the end of the lock-up period, estimated at 3.03 years. (b) The tranche 2 and 3 performance share rights will be exercisable for ordinary shares if the volume-weighted average Vallourec share price is at least €16.19 and €20.22 over 90 trading days in the 5-year period following the financial restructuring. The valuation models show average vesting periods of 1.44 years and 1.72 years respectively. (c) Volatility corresponds to historical volatility observed over a period corresponding to the life of the plans. (d) The risk-free rate used was determined based on the maturity of each of the tranches (the French Institute of Actuaries’ yield curve). (e) The expected dividend rates were determined based on analysts’ expectations (external information) and the Group’s dividend policy. The change in the number of shares not yet vested under the Management Equity Plans is as follows: In number of shares Ordinary shares Performance shares Number of shares not yet vested as at January 1, 2023 985,488 5,370,798 Shares delivered over the period (11,472) (3,743,088) Shares canceled (32,123) Shares awarded over the period 690,314 Number of shares not yet vested as at June 30, 2023 941,893 2,318,024 38 Vallourec 2023 Interim Financial Report CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 Stock option plans Change in number of unexpired options In number of options 2022 First-half 2023 Options outstanding as at January 1 254,288 295,174 Options exercised Options lapsed (8,776) (6,328) Options canceled (8,763) (5,972) Options distributed 58,425 Options outstanding at period-end 295,174 282,874 Of which exercisable options 18,745 16,296 Performance share plans For all of these plans, the change in the number of shares not yet vested is as follows: In number of shares 2022 First-half 2023 Number of shares not yet vested as at January 1 398,664 578,087 Shares delivered over the period (38,739) (41,215) Outperformance 9,447 Shares canceled (22,695) (64,170) Shares awarded over the period 231,410 Number of shares not yet vested at period-end 578,087 472,702 Vallourec sold 41,257 treasury shares in the first half of 2023. 7.3. Earnings per share Basic earnings per share amounted to €1.40 in first-half 2023, versus a basic loss per share of €2.00 reported in first-half 2022. Diluted earnings per share (taking into account the dilutive impact of stock options, performance shares, Management Equity Plans and share subscription warrants) amounted to €1.30 in first-half 2023, versus a diluted loss per share of €2.00 reported in first-half 2022. 2023 Interim Financial Report Vallourec 39 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 8. Financing and financial instruments 8.1. Net debt Dec. 31, 2022 Total Non-current Current Bonds 1,135,486 1,135,486 Bank borrowings 233,016 230,257 2,759 Other borrowings 308,004 1,451 306,553 Short-term bank facilities 4,815 4,815 Total current and non- current loans and borrowings 1,681,321 1,367,194 314,127 Marketable securities 299,822 299,822 Cash at bank and in hand 251,782 251,782 Cash and cash equivalents 551,603 551,603 Net debt 1,129,718 1,367,194 (237,476) The Group’s debt instruments break down as follows: In € millions Nominal amount Maturity Face rate Bond issue – June 2021(a) State-guaranteed loan – June 2021(b) Committed credit facility – June 2021 1,023 262 462 June 2026 June 2027 June 2026 8.500% 1.837% 5.000% TOTAL (a) Includes a redemption option for the borrower exercisable from June 30, 2023. (b) Presented at an effective interest rate of 1.837%, including the underwriting fee. 1,747 Commercial paper Vallourec SA did not issue any commercial paper during the first six months of 2023. 40 Vallourec 2023 Interim Financial Report Total 1,120,749 238,020 360,562 4,590 1,723,921 728,411 127,020 855,431 868,490 Effective rate 5.000% 6.000% 5.000% June 30, 2023 Non-current 1,120,749 235,477 989 1,357,215 1,357,215 Amount in the SOFP as at June 30, 2023 1,121 224 - 1,345 Current 2,543 359,573 4,590 366,706 728,411 127,020 855,431 (488,725) CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 8.1.1. Net financial income (loss) First-half 2022 First-half 2023 Interest income Income from marketable securities Proceeds from disposals of marketable securities Total Interest expense Net interest expense Other financial income and expenses Income from securities, loans and receivables Exchange (losses) and gains and impact of contango/backwardation Additions to provisions, net of reversals Other financial income and expenses Total Interest expenses on leases Other discounting expenses Financial expense on discounting pension obligations Financial income on discounting assets and liabilities Total Net financial income (loss) 3,320 (297) 3,023 (47,920) (44,897) 869 11,858 (33) 6,863 19,557 (4,082) 2,120 6,294 8,414 (21,008) 3,714 3,106 6,820 (60,368) (53,548) 223 (16,486) 4 4,791 (11,468) (4,205) (2,609) 2,050 (559) (69,780) 8.1.2. Reconciliation with financial liabilities in the statement of cash flows Dec. 31, 2022 Translation difference Proceeds from new borrowings Repayments of borrowings Financial restructuring Current/non- current reclassifications and other June 30, 2023 Non-current financial liabilities Current financial liabilities Financial liabilities (1) 1,681,321 1,367,194 314,127 67 30,168 30,235 673 39,408 40,081 (11,276) 11,721 445 557 (28,718) (28,161) 1,357,215 366,706 1,723,921 Impact of hedging instruments and other (2) 1,161 Total (1) + (2) Change in financial liabilities in the statement of cash flows 41,242 41,242 445 445 2023 Interim Financial Report Vallourec 41 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 8.2. Other financial liabilities Other financial liabilities consist primarily of lease liabilities and derivatives. Dec. 31, 2022 June 30, 2023 Total Non-current Current Total Non-current Lease liabilities 70,379 50,622 19,757 65,167 46,773 Call option on non-controlling interests Derivatives Total 35,522 105,901 50,622 35,522 55,279 27,387 92,554 46,773 8.3. Financial instruments 8.3.1. Financial assets and liabilities – accounting model and fair value hierarchy During first-half 2023, the Group did not make any material changes to the classification of financial instruments, and there were no significant transfers between different levels of the fair value hierarchy. The amounts recognized in the statement of financial position are based on the measurement methods used for each financial instrument. June 30, 2023 Amortized cost Fair value through profit or loss Fair value through other comprehensive income Fair value of hedging instruments Total Assets Trade and other receivables 759,083 759,083 Other current and non-current financial assets Other current and non-current assets Cash and cash equivalents 75,006 354,375 855,431 17,655 42,122 134,783 354,375 855,431 Total financial assets 1,188,464 855,431 17,655 42,122 2,103,672 Total non-financial assets 3,686,007 Total assets 5,789,679 Liabilities Borrowings Trade payables Other current and non-current financial liabilities Other current and non-current liabilities 1,723,921 788,155 65,167 351,027 - - - 27,387 1,723,921 788,155 92,554 351,027 Total financial liabilities 2,928,270 27,387 2,955,657 Total non-financial liabilities 2,834,022 Total liabilities 5,789,679 42 Vallourec 2023 Interim Financial Report Current 18,394 27,387 45,781 Fair value 759,083 134,783 354,375 855,431 2,103,672 3,686,007 5,789,679 1,616,274 788,155 92,554 351,027 2,848,010 2,834,022 5,682,032 CONSOLIDATED INTERIM FINANCIAL STATEMENT 3 8.3.2. Hedge accounting As at June 30, 2023, hedging instruments had a net positive fair value of €14.7 million, versus a net negative fair value of €1.8 million as at December 31, 2022. Accounting classification OCI reserves(1) June 30, 2023 Dec. 31, 2022 Currency forward contracts on commercial transactions Currency forward contracts on commercial transactions Currency forward contracts on financial transactions Hedging instruments set up in the context of employee share ownership plans Sub-total derivatives Cash flow hedge Fair value hedge Fair value hedge Fair value hedge 6,668 449 (4) 7,113 5,215 8,983 412 124 14,734 (1,454) (2,250) 1,573 342 (1,789) Of which derivatives – positive fair value Of which derivatives – negative fair value - 42,122 (27,388) 33,731 (35,522) Receivables (payables) used for commercial hedges Receivables (payables) used for commercial hedges Total Cash flow hedge Fair value hedge 10,011 17,124 5,621 6,390 26,745 (4,390) (785) (6,964) (1) Assets and liabilities presented in this table are offset: + = positive fair value, () = negative fair value. 8.3.3. Financial risk management The Group did not make any material changes to its financial risk management policy during the first half of 2023. For risks not listed below, please refer to the notes to the consolidated financial statements for the year ended December 31, 2022. Liquidity risk The Group’s financial resources include financing with banks and on the capital markets. The vast majority of bank financing was arranged in Europe through Vallourec SA, and to a lesser extent through the Group’s subsidiaries in Brazil. As part of its financial restructuring, Vallourec SA restructured all of its financial liabilities on June 30, 2021. The financial restructuring reduced gross debt by €1.7 billion and refinanced the residual debt by means of new debt instruments with a maturity of five years (or a maturity of less than five years that can be extended until June 30, 2027 at the initiative of the borrower). Vallourec SA’s €462 million credit facility is not subject to any securities or guarantees, and ranks pari passu with its State-guaranteed loans and bonds. Bond financing is arranged exclusively by Vallourec SA. 2023 Interim Financial Report Vallourec 43 3 CONSOLIDATED INTERIM FINANCIAL STATEMENT 9. Employee benefit obligations Employee benefit obligations decreased by €9.5 million during the period, primarily due to benefits paid by the employer. As at January 1 104,709 Current service cost 5,634 Benefits paid (employer) (16,350) Benefits paid (fund) (499) Change in actuarial gains and losses 641 Impact of changes in exchange rates 1,098 Reclassifications and other changes Total as at June 30 95,233 10. Provisions for contingencies and charges and contingent liabilities Dec. 31, 2022 June 30, 2023 Total Non-current Current Total Non-current Disputes and commercial commitments Backlog – losses on completion Reorganization and restructuring measures Tax risks (income tax, other levies, inspections, etc.) 13,230 49,673 421,840 11,691 8,601 548 160,676 11,681 4,629 49,125 261,164 10 17,166 45,013 401,762 12,439 12,488 115 165,282 12,430 Environmental provisions 24,888 24,188 700 26,778 26,078 Other 79,546 40,449 39,097 75,891 44,070 Total 600,868 246,143 354,725 579,049 260,463 As at January 1 161,558 92,632 68,926 600,868 246,143 Additions Utilizations Reversals of surplus provisions Impact of changes in exchange rates Other changes Liabilities related to assets held for sale and discontinued operations 558,812 (130,602) (2,558) 6,096 7,466 96 149,115 (21,053) 6,032 19,417 409,697 (109,549) (2,558) 64 (11,951) 96 67,289 (92,193) (11,856) 7,567 7,374 6,126 (5,416) (7,094) 5,135 15,569 Total as at June 30 600,868 246,143 354,725 579,049 260,463 44 Vallourec 2023 Interim Financial Report Current 4,678 44,898 236,480 9 700 31,821 318,586 354,725 61,163 (86,777) (4,762) 2,432 (8,195) 318,586 CONSOLIDATED INTERIM FINANCIAL STATEMENT Contingent liabilities The European rolling mills are mainly supplied with raw materials by European steel mills and in particular, as regards ordinary steels, by the Huckingen mill operated by Hüttenwerke Krupp Mannesmann (HKM), in which Vallourec Tubes holds a 20% stake in the capital. HKM produces steel rounds and slabs intended exclusively for its shareholders, who are committed to take or pay annually defined volumes. Vallourec terminated the cooperation and supply agreements with HKM at the end of 2021, effective December 31, 2028, at the end of the contractually agreed seven-year notice period. Vallourec has initiated several legal actions against HKM and its shareholders, including an antitrust arbitration concerning the interpretation and application of these agreements. Following the decision in 2022 to close its German operations by the end of 2023, Vallourec needs less volume for its own operations than it is entitled to. As a result, Vallourec is setting up alternative outlets for the excess steel supply, which it intends to take mainly in the form of slabs. These external steel sales should be at least profit neutral over the remaining period covered by the supply agreements but depending on market conditions which are difficult to forecast, periodical negative margins cannot be ruled out. This estimate will be regularly revised until the effective termination of the supply agreements. Circumstances in the first half of 2023 did not call into question the assumptions made at the December 31, 2022 closing date which led to these conclusions. 11. Scope of consolidation The changes in the scope of consolidation during the first half of 2023 were as follows: on January 1, 2023, Valinox Nucléaire Tubes Guangzhou was deconsolidated; on January 1, 2023, the consolidation method applied to Vallourec Umbilicals was changed from the equity method to full consolidation. 12. Subsequent events No significant events occurred after the end of the reporting period. 2023 Interim Financial Report Vallourec 3 45 4 STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION 4 Statutory Auditors’ Review Report on the 2022 Half-yearly Financial Information For the period from January 1st, 2023 to June 30th, 2023 This is a free translation into English of the Statutory Auditors’ review report on the 2023 half-year financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-year management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France To the Shareholders, In compliance with the assignment entrusted to us by your Shareholders’ Annual General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of VALLOUREC, for the period from January 1st, 2023 to June 30th, 2023, the verification of the information presented in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of half-year financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements have not been prepared, in all material respects, in accordance with IAS 34 “Interim Financial Reporting”, as adopted by the European Union. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. 46 Vallourec 2023 Interim Financial Report KPMG S.A. Alexandra SAASTAMOINEN STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION Paris-La Défense, July 27, 2023 The statutory auditors French original signed by Deloitte & Associés Véronique LAURENT 2023 Interim Financial Report Vallourec 4 47 REGISTERED OFFICE 12, rue de la Verrerie 92190 Meudon (France) 552 142 200 RCS Nanterre Tel: +33 (0)1 49 09 35 00 www.vallourec.com A French limited company (société anonyme) with a Board of Directors with share capital of €4,732,381.22 | Semestriel, 2023, x, vallourec | write me a financial report |
Semestriel | 2,018 | Technology | SAP | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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| January–June 2018 Half-Year Report Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Notes to the Consolidated Half-Year Financial Statements Supplementary Financial Information General Information Additional Information Half-Year Report January – June 2018 3 4 21 26 46 52 53 2 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Half-yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the consolidated half-year management report, consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 37w (2). This half-year financial report updates our consolidated financial statements 2017, presents significant events and transactions of the first half of 2018, and updates the forward-looking information contained in our Management Report 2017. This half-year financial report only includes half-year numbers, our quarterly numbers are available in the Quarterly Statement. Both the 2017 consolidated financial statements and the 2017 management report are part of our Integrated Report 2017, which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means the information has been subject neither to any audit nor to any review by an independent auditor. Half-Year Report January – June 2018 3 Consolidated Half-Year Management Report Strategy and Business Model We did not change our strategy or our business model in the first half of 2018. For a detailed description, see our Integrated Report 2017. Products, Research and Development, and Services known, loyal customers by securely identifying consumers across devices and channels, managing their permissions and consent, and turning data into unified customer profiles that are governed and analyzed from a central and secure environment. These solutions enable businesses to address many aspects of General Data Protection Regulation (GDPR) compliance without breaking the customer experience. SAP made several acquisitions in the first half of 2018 to focus on opportunities in the customer relationship management (CRM) market. We continued to innovate, simplifying product and services portfolios and delivering best-in-class solutions to lead customers on their journey to the intelligent enterprise. We launched SAP C/4HANA, a fourth-generation CRM system designed to completely reimagine customer service software. SAP C/4HANA consolidates existing CRM cloud solutions, enriching them with newly-acquired Callidus Software Inc. and Coresystems applications in an offering to help businesses win lifetime customers. – SAP Marketing Cloud now integrates with SAP Commerce Cloud and allows marketers to quickly address the needs of each individual customer. – SAP Sales Cloud combines the former SAP Hybris Cloud for Customer with SAP Hybris Revenue Cloud, and the recently-acquired Callidus solutions for configure-price- quote and sales performance management. – SAP Service Cloud focuses on field service and sales automation, bolstered by the SAP Customer Engagement Center solution and Service Core option (in SAP S/4HANA) and further strengthened by SAP's acquisition of Coresystems in June 2018. SAP Customer Experience Reinvents CRM SAP C/4HANA, a unified suite of cloud solutions to manage the customer experience, was announced in June 2018 at our customer conference SAPPHIRE NOW. It brings together cloud offerings previously on the market under the SAP Hybris brand, as well as offerings from Gigya, Callidus, and Coresystems. This is available in a simplified portfolio with consistent naming, a common user experience, integration model (through SAP Cloud Platform), and with embedded intelligence (through SAP Leonardo). With these changes, the portfolio and people behind SAP Hybris, Gigya, and Callidus became part of SAP Customer Experience. SAP C/4HANA consists of the following cloud solutions: – SAP Commerce Cloud evolved from the SAP Hybris flagship on-premise offering to its recent launch on Microsoft Azure. The solution allows customers to personalize the buying experience across all touchpoints. – SAP Customer Data Cloud from Gigya consists of three tightly integrated products – SAP Customer Consent, SAP Customer Profile, and SAP Customer Identity. With these solutions, businesses can turn unknown visitors into SAP SuccessFactors SAP continues to drive the role of HR in digital transformation with solutions such as SAP SuccessFactors Visa and Permits Management, simplifying the complex ways in which HR managers source international talent. Meanwhile, candidate relationship management capabilities of the SAP SuccessFactors Recruiting solution have been enhanced, to further enable organizations to nurture, attract, and hire top talent. In parallel, new advanced data protection and privacy capabilities have been added to the SAP SuccessFactors HCM suite, making it easier to comply with data protection and privacy laws – including the European Union’s General Data Protection Regulation (GDPR). SAP Fieldglass SAP Fieldglass launched SAP Fieldglass Digital Network, a new ecosystem network to help customers transform how they engage and manage an external workforce of freelancers, contingent workers, independent contractors, and other service providers. Additionally, machine learning- powered resume matching automatically reads and ranks candidate resumes based on role requirements, identifying the best-fit candidates and increasing efficiency and speed to hire. Half-Year Report January – June 2018 4 SAP Ariba SAP Ariba remains focused on providing customers with a deeper, more intelligent and ethical view into their spend and extending the value that its solutions can deliver into new markets and industries. The SAP Ariba Spend Analysis solution includes new microservices that use artificial intelligence (AI) and machine learning to reduce the time it takes to classify invoice data. The SAP Ariba Snap program provides scalable options for fast-growing midsize companies to implement SAP Ariba’s enterprise-class sourcing solutions. Manufacturing Network is delivered as part of the SAP Digital Manufacturing Cloud solution to help manufacturers and service providers collaborate across the manufacturing process. The SAP Sourcing Simulation and Optimization for Industries solution helps optimize direct material price re-negotiations with existing suppliers. SAP Ariba Strategic Sourcing Suite is a solution that delivers new retail industry capabilities. The SAP Ariba Supplier Risk solution provides new insights, in partnership with leading providers of sustainability and risk analytics and research – EcoVadis and Verisk Maplecroft – to help customers track more than 200 risk types. SAP Concur Further supporting the intelligent enterprise, new innovations from SAP Concur help businesses to leverage travel, expense, and invoice data to give instant, real-time, and actionable insights. SAP Concur travel, expense, and invoice technologies use machine learning, AI, and analytics so that customers can automate tasks and use intelligence to increase visibility, efficiency, control, and savings, and improve compliance, employee satisfaction, and user experience. The Concur Detect service works with the Concur Expense solution to uncover potential policy compliance violations. In conjunction with the Audit service from SAP Concur, it uses SAP Concur partner AppZen’s AI technology to analyze receipts, credit card transactions, and bookings. The Budget Web service from SAP Concur provides a holistic view of employee spend, making budgets across the organization visible. Concur Drive is a Web service that automatically captures distance and offers an alternative to self-reported mileage. Additionally, ExpenseIt from SAP Concur is a fully integrated value-added service for the SAP Concur mobile app – previously a separate mobile application called ExpenseIt Pro – that turns receipts into expense line items and sends them directly to Concur Expense. SAP Cloud Platform Our new consumption-based commercial model simplifies the configuration and use of SAP Cloud Platform services. A Half-Year Report January – June 2018 single provisioning cockpit enables customers to buy credits and activate services. Detailed analytics give a clear overview of cloud credit consumption, making it easier for customers to identify, procure, and monitor services for their applications. At SAPPHIRE NOW, we announced the general availability of blockchain as a service, which allows partners, customers, and developers to build business applications across different underlying blockchain technologies. Blockchain- extended solutions for IoT and digital supply chain are also now available. We also announced the general availability of SAP Conversational AI, our first bot development environment. This enables customers to develop enterprise chatbot solutions, such as for customer service or to address younger target audiences. SAP HANA Data Management Suite Launched during SAPPHIRE NOW as the foundation for the intelligent enterprise, SAP HANA Data Management Suite combines our SAP HANA and SAP Data Hub offerings in a seamless cloud service, offering a modern and open framework for data integration and data management. The suite will foster the development of data-driven applications for multi-cloud and hybrid environments. IoT and Digital Supply Chain In April, we introduced the SAP Digital Manufacturing Cloud solution. Through the industrial Internet of Things, the offering tightly integrates manufacturing with business operations, across the extended digital supply chain, serving manufacturers of varying sizes in discrete and process industries. The SAP S/4HANA Cloud solution for intelligent product design provides shared views of digital twin information (a digital twin is a digital model created to represent an asset or device) giving customers live insights on new products. This offering makes it possible to store, share, and review engineering documents with internal and external participants. Our SAP Predictive Engineering Insights solution replaces the need for physical inspections with ongoing, live digital inspection and analysis. It combines a standard engineering methodology for calculating forces, stresses, and fatigue based on sensor data, using a high-performance 3D engine to provide visualized engineering insights. SAP Analytics Cloud In May, we released Search-to-Insight natural-language query capabilities, making it easier for business users to extract 5 answers from data by using conversational phrases. We also released more than 130 new cloud data connectors. SAP Digital Business Services SAP Digital Business Services continues to help customers realize the intelligent enterprise and become best-run businesses. During 2018, we further simplified the portfolio services by producing a framework that groups SAP Digital Business Services offerings into three categories – premium success, project success, and continuous success. Premium Success SAP MaxAttention has been redesigned, with a holistic engagement model and comprehensive services portfolio to help turn customer ideas and concepts into value-based predictable outcomes. The new SAP MaxAttention offering delivers precise business and technical guidance and now features the following: – One service portfolio – provides coverage for all SAP solutions and deployments – One team – delivers a holistic engagement model and team with clear accountabilities – One commercial framework – offers services with predictable outcomes and flexible consumption Project Success Our Project Success services portfolio helps companies reap the benefits of SAP solutions faster and with lower risk. During implementation, customers can choose from an array of services that have been newly extended. While the SAP Integrated Report 2017 describes existing offerings – SAP Value Assurance and SAP Model Company – we have added even more services in this portfolio category, as follows: – SAP Innovation and Advisory Services enable us to guide customers through the innovation process, focusing on economic, social, and environmental impacts, and on creating new opportunities. With simplified SAP Leonardo Services offerings, we provide a fast path from idea to prototype, helping customers redesign their business models and processes. – SAP Advanced Deployment allows SAP to fully invest in a customer’s success by serving as primary implementation partner. Delivered through the proven SAP Activate innovation adoption framework and tailored to the customer’s specific transition scenario, SAP Advanced Deployment streamlines the implementation of a high- performing, sustainable digital core. Continuous Success Our support and success plans, embedded in all SAP cloud offerings and available for all on-premise installations, enable us to help customers succeed. Two of these plans – SAP Half-Year Report January – June 2018 Enterprise Support and SAP Preferred Success – have already been presented in the SAP Integrated Report 2017, and we have now added Next-Generation Support services. Next-Generation Support services bring more real-time support channels, automatic translation, a newly-piloted ‘ask an expert peer’ service, and our first machine learning pilot – ‘incident/solution matching’. Intelligent Tools and Platforms We also use intelligent tools and platforms to help customers implement SAP solutions faster and simpler. While several have already been described in the SAP Integrated Report 2017 – SAP Transformation Navigator, SAP Readiness Check, SAP Solution Manager, and SAP Innovation and Optimization Pathfinder, for example – we recently added the integration content advisor for the SAP Cloud Platform Integration service. This feature allows users to define, maintain, share, and deploy business-to-business (B2B) integration content and interfaces using machine-learning algorithms to significantly reduce build time and effort. 6 Acquisitions In the second quarter of 2018, SAP acquired Callidus Software Inc. and Coresystems AG – cloud-based customer relationship management (CRM) vendors. The acquisitions of Callidus and Coresystems complete SAP’s design of a new front office that extends beyond legacy CRM to an intelligent customer experience suite. For more information, see the Products, Research and Development section and Note (4). Employees and Social Performance Our people are key in supporting our customers to successfully drive their digital transformation. Therefore, we are fully committed to enabling our employees to grow their skills at every stage of their career at SAP. We are evolving our Human Resources (HR) Strategy to continuously drive great HR experiences for our people. The framework as outlined in the Employees and Social Investments section of our Integrated Report 2017 has not materially changed in the first half of 2018. An important factor in our long-term success is the creation of a workplace that attracts and retains the best talent in the market. At the end of the first half of 2018, the employee retention rate was still on a high level of 94.3% (compared to 94.7% at the end of the first half of 2017). The retention rate is calculated as per the new definition (see the Employees and Social Investments section in our Integrated Report 2017) and the prior-period number has been adjusted to align with this definition. We define retention as the ratio of the average number of employees minus the employees who voluntarily departed, to the average number of employees (all in full-time equivalents). Besides the aim to keep a high Employee Engagement Index for 2018, one of SAP’s overall non-financial goals is to foster a diverse workforce, specifically to increase the number of women in management. At the end of 2017, the Executive Board extended its commitment to further increase the percentage of women in management positions by 1pp each year with a target of 30% by the end of 2022. At the end of the first half of 2018, 25.8% of all management positions at SAP were held by women, compared to 25.0% at the end of June 2017 and 25.4% at the end of December 2017. On June 30, 2018, we had 93,846 full-time equivalent (FTE) employees worldwide (June 30, 2017: 87,114; December 31, 2017: 88,543). The increase in headcount of 5,303 FTEs comprises 3,279 coming from organic growth and 2,024 employees from acquisitions. The overall headcount numbers included 20,391 FTEs based in Germany (June 30, 2017: 19,375; December 31, 2017: 19,845), and 20,138 FTEs based in the United States (June 30, 2017: 18,368; December 31, 2017: 18,673). Half-Year Report January – June 2018 Environmental Performance: Energy and Emissions Over the past several years, we have worked to better understand the connections between our energy consumption, its related cost, and the resulting environmental impact. Today we measure and address our energy usage throughout SAP, as well as our greenhouse gas (GHG) emissions across our entire value chain. We have calculated that over the last three years, energy efficiency initiatives have contributed to a cumulative cost avoidance of €212 million compared to a business-as-usual extrapolation, €45.4 million of which were avoided this year. Our goal is to become carbon neutral by 2025. SAP’s GHG emissions for the first half of 2018 totaled 175 kilotons of CO2 compared to 155 kilotons in the first half of 2017. This increase is primarily due to an increase in our business flights in Q2 2018 compared to Q2 in 2017. To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. At the end of the first half of 2018, our GHG emissions (in tons) per employee was 3.7 (compared to 3.6 at the end of the first half of 2017) and our GHG emissions (in grams) per euro revenue was 14.7 (compared to 13.5 at the end of the first half of 2017) (rolling four quarters). In recognition of the exemplary actions SAP has taken to embed sustainability across its business worldwide, SAP was included in various ratings and rankings. In the first half of 2018, SAP was once again granted the best environmental, social, and governance (ESG) rating “AAA” by MSCI (Morgan Stanley Capital International). Financial Performance: Review and Analysis Economy and the Market Global Economic Trends During the first half of 2018, the global economy expanded due to supportive financial conditions. That is what the European Central Bank (ECB) reports in its June 2018 Economic Bulletin.1 However, according to the ECB, conditions tightened in some emerging countries, which is why last year’s ECB projections as described in our Integrated Report 2017 might not be entirely achievable. In the Europe, Middle East, and Africa (EMEA) region, the ECB finds a solid and broad-based economic expansion across countries and sectors in the euro area in the first half of 2018. According to the ECB, favorable financing conditions, rising corporate profitability, and solid demand fostered business investment in the euro area since the beginning of 2018. 7 However, increasing uncertainty and some temporary and supply-side factors at both the domestic and the global level caused a slight moderation, reflecting a pull-back from the very high levels of growth in 2017, says the ECB. As for the Americas region, economic growth in the United States slowed during the first months of 2018, states the ECB, as predicted in our Integrated Report 2017. This deceleration was due to a slow-down in consumer spending. At the same time, according to the ECB, labor market improvements and continuing monetary accommodation supported the economy in Brazil. According to the ECB, the Asia Pacific Japan (APJ) region in 2018 saw Japan’s gross domestic product (GDP) register the first quarter-on-quarter fall in two years, which was earlier than anticipated in our Integrated Report 2017. By contrast, China’s economy expanded at the same time at a robust pace, due to strong consumption, government support, and solid export performance. The IT Market In 2018, digital transformation is no longer an option, but a requirement for companies determined to remain relevant, says IDC (International Data Corporation), a U.S.-based market research firm.2 Thus, digital technologies and services such as cloud, Internet of Things (IoT), and cognitive technology have recently transformed entire organizations2 as had been predicted in our Integrated Report 2017. IDC reports that since the beginning of 2018, the number of enterprises solely using SaaS and cloud-enabled software has grown once more.2 By exiting the world of traditional on- premises software completely, these enterprises hope for faster innovation from technologies such as blockchain and new generations of artificial intelligence and analytics.2 Hence, according to IDC and in line with our Integrated Report 2017, software vendors in 2018 so far have scaled back their commitment to developing new functionality for their traditional on-premises software suites.2 Instead, they have focused on building consistent single-technology platforms for multiple cloud products or end-to-end cloud suites with common look and feel and other common features,2 says IDC. In particular, the adoption of IoT strategies, as described in the Integrated Report 2017, has continued in 2018: organizations around the world have striven for operational efficiencies or new offerings with the help of IoT, evolving from a product-based to a service-based business model3, states IDC. IoT platform vendors at the same time have created more value for their core products by adding complementary IoT products and services.3 IDC reports that since the beginning of 2018, ERP and enterprise application vendors have also made great strides with intelligent applications, utilizing curated data sets, advanced analytics, and Half-Year Report January – June 2018 machine learning4. IDC now calls this process the “evolution of intelligence” within ERP and enterprise applications.4 Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2018, Publication Date: June 28, 2018 (http://www.ecb.europa.eu/pub/pdf/ecbu/eb201804.en.pdf) (http://www.ecb.europa.eu/pub/pdf/ecbu/eb201708.en.pdf) 2) IDC Perspective: The DX World: SaaS and Cloud-Enabled Technology Bring Business Impact, Doc #US43759218, May 2018 3) IDC Market Forecast: Worldwide Internet of Things Software Platform Forecast, 2018–2022, Doc #US42635618, May 2018 4) IDC Market Perspective: Intelligent ERP and Intelligent Enterprise Applications Are Growing in Significance, Doc #US43704418, March 2018 Impact on SAP SAP continues to benefit from the consistent strategy enabling customers to become intelligent enterprises. On top of a solid first quarter in 2018, SAP had a very strong performance in Q2 in the EMEA region, with cloud and software revenue increasing 10% (IFRS) and 12% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was very strong and grew by 40% (IFRS) and 46% (non-IFRS at constant currencies), with Germany and the UK being highlights. In addition, SAP had strong double-digit software revenue growth in the UK and the Middle East, and Germany had another strong quarter with solid single-digit growth. The Company had a solid performance in the Americas region with a significant currency headwind. Cloud and software revenue decreased by 3% (IFRS) and increased by 8% (non- IFRS at constant currencies). Cloud subscriptions and support revenue increased by 24% (IFRS) and 35% (non-IFRS at constant currencies), with Brazil being a highlight. In the APJ region, SAP had a strong performance. Cloud and software revenue was up by 4% (IFRS) and grew by 11% (non- IFRS at constant currencies). Cloud subscriptions and support revenue was exceptional and grew by 42% (IFRS) and 52% (non-IFRS at constant currencies), with China and Japan being highlights. Australia, China, and India had impressive quarters in terms of software revenue and grew double-digit. 8 Key Figures – SAP Group in the First Half of 2018 (IFRS) € millions, unless otherwise stated Q1–Q2 2018 Q1–Q2 2017 ∆ Cloud subscriptions and support 2,283 1,837 446 Software licenses 1,621 1,781 –159 Software support 5,391 5,467 –76 Cloud and software 9,295 9,085 210 Total revenue 11,260 11,066 194 Operating expense –9,192 –9,467 276 Operating profit 2,069 1,599 470 Operating margin (in %) 18.4 14.5 3.9pp Profit after tax 1,428 1,197 231 Effective tax rate (in %) 29.3 24.1 5.2pp Earnings per share, basic (in €) 1.20 0.99 0.20 Bookings and Order Entry Cloud Bookings New cloud bookings increased 20% (28% at constant currencies) to €667 million (first half of 2017: €555 million). Software Order Entry The total number of completed transactions for on-premise software grew to 28.1 thousand (first half of 2017: 27.5 thousand). Of all our software orders received in the first half of 2018, 25% were attributable to deals worth more than €5 million (first half of 2017: 29%), while 45% were attributable to deals worth less than €1 million (first half of 2017: 42%). Operating Results (IFRS) Revenue Noteworthy is the successful cloud business in the first half of 2018. Our revenue from cloud subscriptions and support was €2,283 million (first half of 2017: €1,837 million), an increase of 24% compared to the same period in 2017, with the cloud revenue growth rates remaining on a high level. licenses and support. Share-based payment expenses decreased as well, by 21%. The reduction in share-based compensation expenses is mainly due to a lower increase in SAP’s share price in the first half of 2018 compared to the same period in 2017. In line with the decline of share-based payment expenses, personnel expenses remained stable despite the addition of more than 5,900 full-time employees compared to the prior-year period. Operating Profit and Operating Margin Operating profit increased 29% compared with the same period in the previous year to €2,069 million (first half of 2017: €1,599 million). This was mainly a result of the aforementioned expense decreases. Our operating margin increased by 3.9pp to 18.4% (first half of 2017: 14.5%). Profit After Tax and Earnings per Share Profit after tax was €1,428 million (first half of 2017: €1,197 million), an increase of 19%. Basic earnings per share was €1.20 (first half of 2017: €0.99), an increase of 21%. Software licenses revenue was €1,621 million (first half of 2017: €1,781 million), a decrease of 9% compared to the same period in 2017. Total revenue was €11,260 million (first half of 2017: €11,066 million), an increase of 2% compared to the same period in 2017. The effective tax rate was 29.3% (first half of 2017: 24.1%). The year-over-year increase in the effective tax rate mainly resulted from tax effects relating to intercompany financing, the application of hyperinflation accounting in Venezuela, valuation allowances on deferred tax assets, and changes in taxes for prior years which were partly compensated by changes in the regional allocation of income. Operating Expense Our operating expenses decreased by 3% to €9,192 million (first half of 2017: €9,467 million). The decrease was mainly driven by a reduction of restructuring expenses and lower cost of software Half-Year Report January – June 2018 ∆ in % 24 –9 –1 2 2 –3 29 NA 19 NA 21 9 Performance Against Outlook (Non-IFRS) In this section, all discussion of the contribution to target achievement is based exclusively on non-IFRS measures. In contrast, the discussion of operating results in the previous section refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information section. Guidance for 2018 (Non-IFRS) For our guidance based on non-IFRS numbers, see the Operational Targets for 2018 (Non-IFRS) section in this consolidated half-year management report. . Key Figures – SAP Group in the First Half of 2018 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Q1–Q2 2018 Q1–Q2 2017 ∆ in % ∆ in % (Constant Currency) Cloud subscriptions and support 2,299 1,837 25 36 Software licenses 1,621 1,781 –9 –4 Software support 5,391 5,467 –1 6 Cloud and software 9,311 9,085 2 10 Total revenue 11,276 11,067 2 10 Operating expense –8,401 –8,299 1 8 Operating profit 2,876 2,768 4 13 Operating margin (in %) 25.5 25.0 0.5pp 0.7pp Profit after tax 2,041 2,006 2 NA Effective tax rate (in %) 27.8 26.9 0.9pp NA Earnings per share, basic (in €) 1.71 1.67 3 NA Performance (Non-IFRS) Our revenue from cloud subscriptions and support (non- IFRS) was €2,299 million (first half of 2017: €1,837 million), an increase of 25% (36% at constant currencies) compared to the same period in 2017. Our cloud subscriptions and support margin decreased by 0.1pp to 63.4% (first half of 2017: 63.5%). development reflects ongoing investments into our cloud infrastructure and our aim to further improve the profitability of our on-premise software business. In total, operating expenses increased at a lower percentage rate as compared to 2017, which is mainly driven by our successful cost-saving initiatives and restructuring measures of prior years. Cloud and software revenue (non-IFRS) was €9,311 million (first half of 2017: €9,085 million), an increase of 2%. On a constant currency basis, the increase was 10%. This increase was mainly driven by strong cloud revenue growth as mentioned before. Software license revenue decreased by 4% at constant currencies. Total revenue (non-IFRS) was €11,276 million (first half of 2017: €11,067 million), an increase of 2%. On a constant currency basis, the increase was 10%. Operating expense (non-IFRS) was €8,401 million (first half of 2017: €8,299 million), an increase of 1%. On a constant currency basis, the increase was 8%. Cost of cloud subscriptions and support increased by 25%. In contrast, costs of software licenses and support dropped by 9%. This Operating profit (non-IFRS) was €2,876 million (first half of 2017: €2,768 million), an increase of 4%. On a constant currency basis, the increase was 13%. Operating margin (non-IFRS) was 25.5%, an increase of 0.5pp (first half of 2017: 25.0%). Operating margin (non- IFRS) on a constant currency basis was 25.8%, an increase of 0.7pp. Profit after tax (non-IFRS) was €2,041 million (first half of 2017: €2,006 million), an increase of 2%. Basic earnings per share (non-IFRS) was €1.71 (first half of 2017: €1.67), an increase of 3%. The effective tax rate (non-IFRS) was 27.8% (first half of 2017: 26.9%). The year-over-year increase in the effective tax Half-Year Report January – June 2018 10 rate mainly resulted from tax effects relating to intercompany financing, the application of hyperinflation accounting in Venezuela, valuation allowances on deferred tax assets, and changes in taxes for prior years which were partly compensated by changes in the regional allocation of income. Segment Performance Applications, Technology & Services Segment € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Cloud subscriptions and support revenue – IaaS2) Cloud subscriptions and support gross margin – IaaS2) (in %) Cloud subscriptions and support revenue Cloud subscriptions and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service The Applications, Technology & Services segment recorded strong growth in our cloud subscriptions and support revenue and solid growth in support revenue as well as in services revenue at constant currency basis. The SaaS/PaaS business in this segment grew by 36% at constant currency basis driven by an ongoing strong demand in our cloud solutions. The IaaS business even grew by 50% at constant currency basis year over year. Half-Year Report January – June 2018 Q1–Q2 2018 Q1–Q2 2017 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 847 911 671 26 36 59 60 62 –3pp –2pp 217 235 157 38 50 10 12 9 1pp 3pp 1,064 1,145 827 29 38 49 51 52 –3pp –2pp 9,480 10,171 9,483 0 7 72 72 72 –0pp –0pp 3,676 3,997 3,656 1 9 39 39 39 0pp 1pp As a result of our ongoing efforts to further improve our offerings and invest in our cloud infrastructure, our SaaS/PaaS gross margin showed a decline of 2pp at constant currencies compared to the first half of 2017. This could not be fully offset by the positive development of the IaaS gross margin. As a result, the overall cloud subscription and support gross margin dropped 3pp to 49%. 11 SAP Business Network Segment € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Cloud subscriptions and support revenue Cloud subscriptions and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) 1) Software as a Service/Platform as a Service In the first half of 2018, cloud subscriptions and support revenue growth was 20% and segment revenue growth was 19% at constant currencies. With approximately $2.4 trillion Customer Experience Segment € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Cloud subscriptions and support revenue Cloud subscriptions and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) 1) Software as a Service/Platform as a Service The new Customer Experience segment recorded strong growth in total revenue of 57% at constant currencies in the first half of 2018. The positive development was mainly influenced by the strong growth in Cloud subscriptions and support of 173% at constant currencies. The acquisition of Callidus and SAP’s cloud strategy result in an increasing cloud revenue share compared to software licenses and support revenue. Callidus contributed €48 million in Cloud subscriptions and support revenue to the total performance Half-Year Report January – June 2018 Q1–Q2 2018 Q1–Q2 2017 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 1,014 1,113 925 10 20 77 77 77 0pp 0pp 1,014 1,113 925 10 20 77 77 77 0pp 0pp 1,233 1,352 1,138 8 19 69 69 68 1pp 1pp 227 251 189 20 33 18 19 17 2pp 2pp in global commerce transacted annually in more than 180 countries, the SAP Business Network is the largest commerce platform in the world. Q1–Q2 2018 Q1–Q2 2017 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 216 231 84 >100 >100 73 74 65 8pp 9pp 216 231 84 >100 >100 73 74 65 8pp 9pp 385 409 261 47 57 79 80 78 2pp 2pp 31 34 –7 <-100 <-100 8 8 –3 11pp 11pp of the new segment since its acquisition in the second quarter of 2018. For more information about our segments, see the Notes to the Consolidated Half-Year Financial Statements, Note (14). 12 Reconciliation of Cloud Subscription Revenues and Margins € millions, unless otherwise stated Q1–Q2 2018 Q1–Q2 2017 ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency SAP Business Network segment 1,014 1,113 925 10 Cloud subscriptions and support revenue – SaaS/PaaS1) Other3) 1,068 1,142 755 41 Total 2,082 2,255 1,681 24 Cloud subscriptions and support revenue – IaaS2) 217 235 157 38 Cloud subscriptions and support revenue 2,299 2,490 1,837 25 SAP Business Network segment 77 77 77 0pp Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Other3) 61 60 58 3pp Total 69 69 69 0pp Cloud subscriptions and support gross margin – IaaS2) (in %) 10 12 9 1pp Cloud subscriptions and support gross margin (in %) 63 63 63 –0pp 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service 3) Other includes the Application, Technology & Services segment, the Customer Experience segment, and miscellaneous. The individual revenue and margin numbers for the Application, Technology & Services segment and the Customer Experience segment are disclosed on the previous pages. Half-Year Report January – June 2018 ∆ in % Constant Currency 20 51 34 50 36 0pp 2pp 0pp 3pp –0pp 13 Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2018 Net cash flows from operating activities 2,985 Capital expenditure –818 Free cash flow 2,167 Free cash flow (as a percentage of total revenue) 19 Free cash flow (as a percentage of profit after tax) 152 Days' sales outstanding (DSO, in days) 68 Group Liquidity Half-Year Report January – June 2018 Q1–Q2 2017 3,514 –610 2,903 26 243 72 ∆ –15% +34% –25% –7pp –91pp –4 The decrease in operating cash flow resulted mainly from higher payments for income taxes, insurance payments related to employees’ time credits, and share-based payments. The expansion of our data centers as well as consolidation of our cloud infrastructure and technology platforms underlying our cloud solution portfolio are a key component of our investments in 2018 and led to higher cash outflows in the first half of 2018. We calculate free cash flow as net cash flows from operating activities minus purchases of intangible assets and property, plant, and equipment without acquisitions (capital expenditure). DSO for receivables is defined as the average number of days from the raised invoice to the cash receipt from the customer. 14 Liquidity and Financial Position € millions 6/30/2018 12/31/2017 ∆ Cash and cash equivalents 4,515 4,011 +505 Current investments 173 774 –602 Group liquidity 4,688 4,785 –97 Financial debt –7,660 –6,264 –1,396 Net liquidity –2,972 –1,479 –1,493 Goodwill 23,377 21,267 +2,110 Total assets 45,481 42,506 +2,976 Total equity 25,857 25,540 +318 Equity ratio (total equity as a percentage of total assets) 57 60 –3pp Competitive Intangibles The resources that are the basis for our current as well as future success do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With €122 billion at the end of the first half of 2018, the market capitalization of our equity (based on all outstanding shares) is nearly five times higher than its carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization. SAP was recognized as the world’s 17th most valuable brand in the 2018 BrandZ Top 100 Most Valuable Global Brands ranking. The ranking estimates SAP’s brand value at US$55 billion, an increase of 22% in brand value for SAP year over year. Half-Year Report January – June 2018 Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early and to take the appropriate action as well as to mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2017 and our Annual Report on Form 20-F for 2017. In this section, we present relevant changes and new developments with regards to our risk factors. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see Note (11) in the Notes to the Consolidated Half-Year Financial Statements. Probability Impact Risk Level Evo- lution 1) Security Integrated Report 2017 unlikely business- critical medium → Half-Year likely Report 2018 business- critical high ↗ Data Protection and Privacy Integrated Report 2017 unlikely business- critical medium → Half-Year likely Report 2018 business- critical high ↗ 1) Evolution: Risk level compared with previous year. As we continue to grow both organically and through acquisitions, deliver a full portfolio of solutions via the cloud, and offer more mobile solutions to end users, we face a progressively more complex security environment while we rely upon a high-performing cyberspace. The complexity of this security environment is amplified due to the increasingly malicious global cybersecurity threat landscape in which we operate and the sophisticated techniques employed by threat actors targeting IT products and businesses. Cybersecurity attacks, as well as the exploitation of undetected security vulnerabilities in our products and infrastructure by external threat actors, could have a material adverse effect on our customers, our partners, our reputation and our business. As we continuously observe and investigate a globally increasing number of cyber threats, and given that we anticipate attacker techniques to continuously evolve in sophistication, we increase our estimate of the probability of occurrence of this Security Risk (referring to: A cybersecurity breach or economic espionage could have an adverse effect on our customers, our reputation, and our business; Integrated Report 2017 and Annual Report Form 20-F for 2017) to be likely and still cannot exclude the possibility that if this risk were to occur that it could have a business-critical impact on our operations, financial 15 position, profit and cash flows. We now classify this increased risk as a high risk. Both the German Federal Office for the Protection of the Constitution and security industry experts warn against a globally growing number of cybersecurity attacks aimed at obtaining or violating company data including personal data. Considering these warnings and the increasingly complex and stringent data protection and privacy regulatory environment in a progressive digitalization in which we operate, we updated the Data Protection and Privacy Risk (referring to: Non-compliance with applicable data protection and privacy laws or failure to adequately meet the requirements of SAP’s customers with respect to our products and services; Integrated Report 2017 and Annual Report Form 20-F for 2017). Specifically, we are subject to evolving regulations and new laws (such as the recently effective EU General Data Protection Regulation (GDPR), the China Cybersecurity Law, and the European Union’s proposed e-Privacy Regulation) globally regarding data protection and privacy. These regulations and other standards increasingly aimed at the use of personal information, such as for marketing purposes and the tracking of individuals’ online activities. Non-compliance with these increasingly complex and evolving regulations could lead to civil liabilities and significant fines as well as a loss of customers and damage to SAP’s reputation. As a result of this progressively more complex and stringent regulatory environment and the globally increasing number of hacker attacks we estimate the increased probability of occurrence of this risk to be likely and can still not exclude the possibility that if the risk were to occur, it could have a business- critical impact on our operations, financial position, profit, and cash flows. We now classify this increased risk as a high risk. We closely monitor the corresponding mitigations, as per the Risk Management and Risks chapter in our Integrated Report 2017 and Annual Report on Form 20-F for 2017, addressing the aforementioned Security Risk and Data Protection and Privacy Risk, and continuously enhance as required. Based on our aggregation approach, we subsequently see changes in the consolidated risk profile related to the percentages of all reported risks categorized as “high” or “medium” in our risk level matrix. The number of risks categorized as “high” now account for 26% (previously 17%) of all reported risks, while the risks categorized as “medium” now account for 43% (previously 52%). We do not believe that any of the risks we have identified in our Integrated Report 2017 and Annual Report on Form 20-F for 2017, and as outlined in the update above, jeopardize our ability to continue as a going concern. Other than as reflected in the update above, we do not see any relevant changes to our assessment of the risk factors since the Half-Year Report January – June 2018 issuing of the Integrated Report 2017 and Annual Report on Form 20-F for 2017. Expected Developments and Opportunities Future Trends in the Global Economy The near-term global economic outlook remains essentially solid and broad-based. This is what the European Central Bank (ECB) reports in its June 2018 Economic Bulletin1, corresponding with our Integrated Report 2017. However, over the medium term, it expects the positive momentum to slow down to below pre- crisis rates. In addition, the implementation of higher trade tariffs and the possibility of wider protectionism represent a key risk to global growth, says the ECB. Regarding the Europe, Middle East, and Africa (EMEA) region, the ECB confirms the projections cited in our Integrated Report 2017: It expects more moderate but still solid growth momentum in the euro area. In central and eastern Europe, it counts on a robust economic activity, supported by strong investment. According to the ECB, Russia is facing supportive factors such as rising oil prices, declining inflation, and improving business and consumer confidence. As for the Americas region, the ECB expects economic activity in the United States to rebound this year, due to improvement in investment and favorable financial conditions. In Brazil, the stabilization in commodity prices and terms of trade should be supportive while political uncertainty and financial conditions might weigh on demand, projects the ECB. In the Asia Pacific Japan (APJ) region, the EBC believes the effects of the Japanese fiscal stimulus might already fade this year, earlier than anticipated in our Integrated Report 2017. At the same time, China and other export-oriented Asian economies will benefit from the predicted global trade revival. However, the ECB expects China’s transition to a lower growth path to continue. 16 Economic Trends – Year-Over-Year GDP Growth % 2017 2018p World 3.8 3.9 Advanced economies 2.3 2.5 Emerging market and developing economies 4.8 4.9 Europe, the Middle East, and Africa (EMEA) Euro area 2.3 2.4 Germany 2.5 2.5 Emerging and developing Europe 5.8 4.3 Middle East, North Africa, Afghanistan, and Pakistan 2.6 3.4 Sub- Saharan Africa 2.8 3.4 Americas United States 2.3 2.9 Canada 3.0 2.1 Latin America and the Caribbean 1.3 2.0 Asia-Pacific-Japan (APJ) Japan 1.7 1.2 Emerging and developing Asia 6.5 6.5 China 6.9 6.6 p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2018, Cyclical Upswing, Structural Change (http://www.imf.org/en/publications/weo/issues/2018/03/20/~/media/Files/Public ations/WEO/2018/April/text.ashx?la=en), p. 32. The IT Market: Outlook for 2018 and Beyond One-third of new technology investments will be driven by digital transformation initiatives through the next few years, says IDC (International Data Corporation), a U.S.-based market research firm.4 Meanwhile, digital transformation itself will further accelerate toward SaaS and cloud-enabled ERP and enterprise applications4, according to IDC and in line with our Integrated Report 2017. By 2021, IDC expects at least 50% of global GDP to be digitized, with growth in every industry.5 It is only as a whole, says IDC, that the worldwide market for IT outsourcing services will decline at a five-year compound annual growth rate of 1.6% to $91.8 billion in 2022.6 This includes EMEA declining at 3.7% and the Americas declining at 2.0% (United States –3.3%), but Asia/Pacific growing at 2.1%.6 The most successful market segment, managed cloud services, will however outperform and gradually substitute traditional labor- centric service delivery models,6 says IDC, confirming our Integrated Report 2017. Half-Year Report January – June 2018 2019p 3.9 2.2 5.1 2.0 2.0 3.7 3.7 3.7 2.7 2.0 2.8 0.9 6.6 6.4 The ongoing enterprise transformation to the cloud will steadily increase and bring forward outsourcers and service providers,6 predicts IDC. Pure-play cloud service providers will aim at replacing “cloud first” by “cloud only” over the next years.2 However, even though managed cloud services benefit from lower costs over traditional service providers, they will also face downward price pressure in the medium term, says IDC.6 IDC expects, in unison with our Integrated Report 2017, that in order to meet this challenge, SaaS and cloud-enabled software vendors will release new functionalities such as Internet of Things (IoT), blockchain, analytics, mobile, and new generations of Artificial Intelligence (AI) at unprecedented speed.2 For the IoT software platform market, for example, IDC estimates $4.9 billion in revenue by 2022 at a compound annual growth rate of 36% (EMEA 40.0%, Americas 30.2%, Asia/Pacific 42.5%).3 With regards to AI, 60% of organizations will apply intelligent features in their ERP applications by 2019, says IDC.4 Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2018, Publication Date: June 28, 2018 (http://www.ecb.europa.eu/pub/pdf/ecbu/eb201804.en.pdf) (http://www.ecb.europa.eu/pub/pdf/ecbu/eb201708.en.pdf) 2) IDC Perspective: The DX World: SaaS and Cloud-Enabled Technology Bring Business Impact, Doc #US43759218, May 2018 3) IDC Market Forecast: Worldwide Internet of Things Software Platform Forecast, 2018–2022, Doc #US42635618, May 2018 4) IDC Market Perspective: Intelligent ERP and Intelligent Enterprise Applications Are Growing in Significance, Doc #US43704418, March 2018 5) IDC FutureScape: Worldwide IT Industry 2018 Predictions, #US43171317, Oct 2017 6) IDC Market Forecast: Worldwide and U.S. IT Outsourcing Services Forecast, 2018–2022: Continuing Shift to Managed Cloud Services, Doc #US42630018, April 2018 Impact on SAP Despite growing geopolitical uncertainties and trade war discussions, SAP expects to benefit further from the digitalization of the global economy. The strategy to enable customers to become intelligent enterprises continues to resonate well in the market, and our combination of technologies such as artificial intelligence, blockchain, and internet of things (IoT) around the digital core is unique. Very fast growth in the cloud and a strong adoption of our core solution SAP S/4 HANA shows that we are consistently expanding our reach. This is reflected in the raise of our 2018 outlook and 2020 ambition. In addition, and as projected in the Integrated Report 2017, the expansion of profitability shows our operational excellence and solid execution. On this basis, we consider ourselves well-prepared for the future and expect profitable growth beyond 2018 as well. Balanced in terms of regions as well as industries, we remain well-positioned with our product offering to offset individual fluctuations in the global economy and IT market. 17 SAP expects to outperform the global economy and the IT industry again in 2018 in terms of revenue growth. Operational Targets for 2018 (Non-IFRS) Revenue and Operating Profit Outlook Due to the strong momentum in SAP’s cloud business, the Company is raising its outlook for the full year 2018 as follows: – Non-IFRS cloud subscriptions and support revenue is now expected to be in a range of €5.050 billion to €5.200 billion at constant currencies (2017: €3.77 billion), up 34.0% to 38.0% at constant currencies. The previous range was €4.95 billion to €5.15 billion at constant currencies. – Non-IFRS cloud and software revenue is now expected to be in a range of €21.025 to €21.250 billion at constant currencies (2017: €19.55 billion), up 7.5% to 8.5% at constant currencies. The previous range was €20.85 billion to €21.25 billion at constant currencies. – Non-IFRS total revenue is now expected to be in a range of €24.975 billion to €25.300 billion at constant currencies (2017: €23.46 billion), up 6.0% to 7.5% at constant currencies. The previous range was €24.80 billion to €25.30 billion at constant currencies. – Non-IFRS operating profit is now expected to be in a range of €7.400 billion to €7.500 billion at constant currencies (2017: €6.77 billion), up 9.0% to 11.0% at constant currencies. The previous range was €7.35 billion to €7.50 billion at constant currencies. While SAP’s full-year 2018 business outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. See the table below for the currency impacts expected in Q3 and FY 2018. Expected Currency Impact Based on June 2018 Level for the Rest of the Year In percentage points Q3 FY Cloud subscriptions and support 1 to –1pp –4 to –6pp Cloud and software 1 to –1pp –2 to –4pp Operating profit 1 to –1pp –2 to –4pp We expect that non-IFRS total revenue will continue to depend largely on the revenue from both cloud and software. However, we expect cloud revenue to overtake software license revenue in 2018 and beyond. In 2018, we expect an increase in our operating margin. Half-Year Report January – June 2018 In 2018, we expect our organic headcount to increase at a similar pace as in 2017. Including acquisitions we expect to add headcount at a faster pace than in 2017. We continuously strive for profit expansion in all of our operating segments. The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. Non-IFRS Measures € millions Estimated Amounts for Full Year 2018 Q1–Q2 2018 Q1–Q2 2017 Revenue adjustments 30–60 16 0 Acquisition related charges 550–610 278 309 Share-based payment expenses 800–1,100 491 618 Restructuring 25–35 22 242 The company continues to expect a full-year 2018 effective tax rate (IFRS) of 27.0% to 28.0% (2017: 19.3%) and an effective tax rate (non-IFRS) of 27.0% to 28.0% (2017: 22.6%) but now expects to reach the upper end of these ranges. Impact of the New Accounting Standard IFRS 15 ‘Revenue from Contracts with Customers’ As of January 1, 2018, SAP changed several of its accounting policies to adopt IFRS 15 ‘Revenue from Contracts with Customers’. Under the IFRS 15 adoption method chosen by SAP, prior years are not restated to conform to the new policies. Consequently, the year-over-year growth of revenue and profit in 2018 will be impacted by the new policies. Unchanged from our Integrated Report 2017, the Company still expects the full year 2018 impact of the policy change on revenue, operating expenses and profit to be as follows: – Revenues are expected to experience a benefit of substantially less than €0.1 billion, with most of the difference resulting from exercises of customer software purchase options granted in prior years which result in software revenue. – Operating expenses are expected to benefit, in cost of sales and marketing, in the amount of approximately €0.2 billion from higher capitalization of sales commissions. Other policy changes will weigh on operating expenses with an additional cost of revenue of substantially less than €0.1 billion. 18 – The above-mentioned effects will result in a net positive impact on operating profit of approximately €0.2 billion. For more information about the adoption of IFRS 15, see Note (3) of the Notes to the Consolidated Half-Year Financial Statements. Goals for Liquidity, Finance, and Investments On June 30, 2018, we had negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2018 as well and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. In 2018, we anticipate operating cash flow to reach a level similar to 2017. Furthermore, we repaid U.S. private placements totaling US$150 million in June 2018 and intend to repay €400 million and €750 million in Eurobonds in August and November 2018, respectively. Our planned capital expenditures for 2018 and 2019, other than from business combinations, consist primarily of the construction activities described in the Assets (IFRS) section of our Integrated Report 2017. We expect investments from these activities of approximately €376 million in 2018 (an increase of approximately 16% compared to the previous year). The expansion of our data centers is an important aspect of our planned investments again for 2018 and 2019. In addition, we aim to extend our office space to cover currently anticipated future growth. In 2019, we expect investments of approximately €380 million. Premises on Which Our Outlook Is Based In preparing our outlook, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no further major acquisitions in 2018 and 2019. Medium-Term Prospects In this section, all numbers are based exclusively on non-IFRS measures. We expect to grow our more predictable revenue while steadily increasing operating profit. Our strategic objectives are focused primarily on our main financial and non-financial objectives: Half-Year Report January – June 2018 growth, profitability, customer loyalty, and employee engagement. SAP’s 2020 ambition reflects our consistent fast growth in the cloud, solid software momentum, and operating profit expansion. Our 2020 targets, last published at the beginning of 2018, have been updated, primarily to reflect the acquisition of Callidus Software Inc. and the changed currency environment. SAP now aims to achieve the following targets by 2020: – €8.2 billion to €8.7 billion in non-IFRS cloud subscriptions and support revenue (previously: €8.0 billion to €8.5 billion; 2017: €3.77 billion) – €28 billion to €29 billion in non-IFRS total revenue (unchanged; 2017: €23.46 billion) – €8.5 billion to €9.0 billion in non-IFRS operating profit (unchanged; 2017: €6.77 billion) The updated ambition is based on estimated average 2018 currencies, assuming the current foreign exchange environment prevails until year-end. The previous ambition was based on average 2017 currencies. Approximately, the change in currency assumptions negatively impacts the cloud subscriptions and support revenue ambition by -€0.35 billion, the total revenue ambition by -€1.0 billion and the operating profit ambition by -€0.4 billion. The midpoints of the updated 2020 total revenue and operating profit ranges imply an operating margin of 30.7%. Beyond 2020, SAP currently expects further increases of its operating margin. We continue to expect the share of more predictable revenue (defined as the total of cloud subscriptions and support revenue and software support revenue) to reach 70% to 75% in 2020 (2017: 63%). We continue to expect that, by 2020, our public cloud offerings will contribute approximately half of cloud subscription and support revenue, followed by our business network offerings. Both of these offerings we continue to expect to each generate, in 2020, cloud subscriptions and support revenues that are significantly higher than the cloud subscriptions and support revenue generated from our private cloud offerings. We continue to expect our revenue growth trajectory through 2020 to be driven by continued strong growth in the cloud and continued growth in our software support revenue. We continue to expect low to mid-single-digit declines in software revenue. This is all expected to result in high single-digit growth in cloud and software revenue through 2020. We also continue to strive to significantly improve, over the next few years, the profitability of our cloud business. Starting in 2018, we continue to expect to see the benefits from previous efficiency-based investments, and thus an increasing cloud gross margin. We continue to expect these profitability improvements to accelerate in the following years till 2020. 19 We expect that the individual gross margins of our different cloud operating models will increase at different rates over the next years to reach the following mid-term targets: – We continue to expect that, in 2020, the gross margin from our business network business will be higher than 80% (2017: 77%). – We continue to expect that, in 2020, the gross margin from our public cloud offerings to reach about 70% (2017: 57%), and to expand to about 80% over the course of the two years thereafter. – We continue to expect the gross margin for our private cloud offerings to reach about 40% by 2020 (2017: 6%). Therefore, we continue to expect our overall cloud gross margin to be approximately 71% by 2020 (2017: 62.2%). We also aim to further improve the profitability of our on- premise software business. We continue to expect the 2020 gross margin for our software licenses and support to be slightly higher than in 2017 (2017: 87.0%). In addition, we continue to expect our 2020 services gross margin to be slightly higher than in 2017 (2017: 23.5%). As we look to increase our profitability through 2020, we continue to expect our cost ratios (cost as a % of total revenue) to develop as follows through 2020, relative to 2017: Research and development is expected to remain stable. Sales and marketing as well as general and administration are expected to decline slightly. With regards to cash flow, starting in 2019 we continue to expect growth rates of our capital expenditures to massively decline from the 2017 and 2018 levels. We also continue to expect significant growth of free cashflow in 2019 and 2020, reflecting the increasing profitability of our business. Non-Financial Goals 2018 and Ambitions for 2020 In addition to our financial goals, we also focus on two non- financial 2020 targets: customer loyalty and employee engagement. These targets remain unchanged compared to what we disclosed in our Integrated Report 2017. For a detailed description of our Non-Financial Goals 2018 and ambitions for 2020, please see our Integrated Report 2017. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2017. Half-Year Report January – June 2018 20 Consolidated Half-Year Financial Statements – IFRS Consolidated Income Statements of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Q1–Q2 2018 Q1–Q2 2017 Cloud subscriptions and support 2,283 1,837 Software licenses 1,621 1,781 Software support 5,391 5,467 Software licenses and support 7,012 7,248 Cloud and software 9,295 9,085 Services 1,965 1,981 Total revenue 11,260 11,066 Cost of cloud subscriptions and support –941 –793 Cost of software licenses and support –1,001 –1,134 Cost of cloud and software –1,942 –1,927 Cost of services –1,600 –1,628 Total cost of revenue –3,542 –3,555 Gross profit 7,718 7,512 Research and development –1,761 –1,694 Sales and marketing –3,314 –3,415 General and administration –548 –569 Restructuring (5) –22 –242 Other operating income/expense, net –5 8 Total operating expenses –9,192 –9,467 Operating profit 2,069 1,599 Other non-operating income/expense, net –91 –10 Finance income 185 143 Finance costs –144 –156 Financial income, net 41 –13 Profit before tax 2,019 1,576 Income tax expense –591 –379 Profit after tax 1,428 1,197 Attributable to owners of parent 1,427 1,189 Attributable to non-controlling interests 0 7 Earnings per share, basic (in €)1) 1.20 0.99 Earnings per share, diluted (in €)1) 1.20 0.99 1) For the six months ended June 30, 2018 and 2017, the weighted average number of shares was 1,193 million (diluted 1,194 million) and 1,199 million (diluted: 1,199 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 ∆ in % 24 –9 –1 –3 2 –1 2 19 –12 1 –2 0 3 4 –3 –4 –91 <-100 –3 29 >100 30 –7 <-100 28 56 19 20 –93 21 21 21 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year € millions Q1–Q2 2018 Profit after tax 1,428 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 2 Income taxes relating to remeasurements on defined benefit pension plans –1 Remeasurements on defined benefit pension plans, net of tax 1 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 1 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax 557 Reclassification adjustments on exchange differences on translation, before tax 0 Exchange differences, before tax 557 Income taxes relating to exchange differences on translation 0 Exchange differences, net of tax 557 Gains (losses) on remeasuring available-for-sale financial assets, before tax 0 Reclassification adjustments on available-for-sale financial assets, before tax 0 Available-for-sale financial assets, before tax 0 Income taxes relating to available-for-sale financial assets 0 Available-for-sale financial assets, net of tax 0 Gains (losses) on cash flow hedges, before tax –12 Reclassification adjustments on cash flow hedges, before tax –19 Cash flow hedges, before tax –31 Income taxes relating to cash flow hedges 9 Cash flow hedges, net of tax –22 Other comprehensive income for items that will be reclassified to profit or loss, net of tax 536 Other comprehensive income, net of tax 537 Total comprehensive income 1,964 Attributable to owners of parent 1,964 Attributable to non-controlling interests 0 Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 Q1–Q2 2017 1,197 12 –2 10 10 –1,635 0 –1,635 –3 –1,637 107 –35 72 0 72 42 0 43 –11 31 –1,534 –1,524 –327 –334 7 22 Consolidated Statements of Financial Position of SAP Group (IFRS) as at 6/30/2018 and 12/31/2017 € millions Cash and cash equivalents Other financial assets Trade and other receivables (8) Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables (8) Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities (9) Other non-financial liabilities Provisions Contract liabilities / deferred income Total current liabilities Trade and other payables Tax liabilities Financial liabilities (9) Other non-financial liabilities Provisions Deferred tax liabilities Contract liabilities / deferred income Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity (10) Total equity and liabilities 1) Under the adoption methods we chose for IFRS 15 and IFRS 9, prior years are not restated to conform to the new policies. Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 2018 4,515 396 5,075 1,005 456 11,448 23,377 3,383 3,284 1,400 115 947 452 1,075 34,034 45,481 2018 1,175 531 1,469 3,283 113 4,867 11,437 119 513 6,537 408 269 289 52 8,187 19,624 1,229 543 24,739 883 –1,580 25,814 44 25,857 45,481 20171) 4,011 990 5,899 725 306 11,930 21,267 2,967 2,967 1,155 118 621 443 1,037 30,575 42,506 20171) 1,151 597 1,561 3,946 184 2,771 10,210 119 470 5,034 503 303 248 79 6,756 16,966 1,229 570 24,794 508 –1,591 25,509 31 25,540 42,506 23 Consolidated Statements of Changes in Equity of SAP Group (IFRS) € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Compo- nents of Equity Treasury Shares Total 12/31/2016 1,229 599 22,302 3,346 –1,099 26,376 Profit after tax 1,189 1,189 Other comprehensive income 10 –1,534 –1,524 Comprehensive income 1,199 –1,534 –335 Share-based payments –47 –47 Dividends –1,499 –1,499 Reissuance of treasury shares under share-based payments 13 8 22 Other changes 1 1 6/30/2017 1,229 565 22,004 1,812 –1,091 24,518 12/31/2017 1,229 570 24,794 508 –1,591 25,509 Adoption of IFRS 15 84 84 Adoption of IFRS 9 135 –160 –25 1/1/2018 1,229 570 25,013 347 –1,591 25,568 Profit after tax 1,427 1,427 Other comprehensive income 1 536 537 Comprehensive income 1,428 536 1,964 Share-based payments –40 –40 Dividends –1,671 –1,671 Reissuance of treasury shares under share-based payments 13 11 24 Shares to be issued 7 7 Hyperinflation Venezuela –39 –39 Changes in non-controlling interests 6/30/2018 1,229 543 24,739 883 –1,580 25,814 Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 Non- Controlling Interests 21 7 7 –23 1 7 31 31 0 0 –4 17 44 Total Equity 26,397 1,197 –1,524 –327 –47 –1,522 22 2 24,525 25,540 84 –25 25,598 1,428 537 1,964 –40 –1,675 24 7 –39 17 25,857 24 Consolidated Statements of Cash Flows of SAP Group (IFRS) € millions Q1–Q2 2018 Profit after tax 1,428 Adjustments to reconcile profit after tax to net cash flows from operating activities: Depreciation and amortization 635 Income tax expense 591 Financial income, net –41 Decrease/increase in sales and bad debt allowances on trade receivables –43 Other adjustments for non-cash items –13 Decrease/increase in trade and other receivables 1,409 Decrease/increase in other assets –395 Decrease/increase in trade payables, provisions, and other liabilities –917 Decrease/increase in contract liabilities/deferred income 1,240 Interest paid –101 Interest received 54 Income taxes paid, net of refunds –865 Net cash flows from operating activities 2,985 Business combinations, net of cash and cash equivalents acquired –1,995 Purchase of intangible assets or property, plant, and equipment –818 Proceeds from sales of intangible assets or property, plant, and equipment 32 Purchase of equity or debt instruments of other entities –526 Proceeds from sales of equity or debt instruments of other entities 1,079 Net cash flows from investing activities –2,228 Dividends paid –1,671 Dividends paid on non-controlling interests –4 Proceeds from borrowings 1,498 Repayments of borrowings –146 Net cash flows from financing activities –323 Effect of foreign currency rates on cash and cash equivalents 70 Net decrease/increase in cash and cash equivalents 504 Cash and cash equivalents at the beginning of the period 4,011 Cash and cash equivalents at the end of the period 4,515 Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 Q1–Q2 2017 1,197 642 379 13 –4 –28 303 –312 –634 2,722 –125 41 –680 3,514 –22 –610 47 –1,843 2,064 –365 –1,499 –23 18 –1,003 –2,506 –108 534 3,702 4,236 25 Notes to the Consolidated Half-Year Financial Statements (1) General Information About Consolidated Half-Year Financial Statements The accompanying condensed Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. The designation IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. (2) Scope of Consolidation The additions in the first half of 2018 relate to more than fifty entities added in connection with acquisitions and foundations. The disposals are mainly due to liquidations of legal entities. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (4) and our Integrated Report 2017. (3) Summary of Significant Accounting Policies (3a) New Accounting Standards Adopted in the Current Period As of January 1, 2018, SAP changed several of its accounting policies to adopt IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. IFRS 15 ‘Revenue from Contracts with Customers‘ Classes of Revenue We derive our revenue from fees charged to our customers for (a) the use of our hosted cloud offerings, (b) licenses to our on- premise software products, and (c) standardized and premium support services, consulting, customer-specific software development agreements, training, and other services. Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. Cloud and software revenue, as presented in our Consolidated Income Statements, is the sum of our cloud subscriptions and support revenue, our software licenses revenue, and our software support revenue. These unaudited condensed Consolidated Half-Year Financial Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2017, included in our Integrated Report 2017 and our Annual Report on Form 20-F for 2017. – Revenue from cloud subscriptions and support represents fees earned from providing customers with any of the following: Software as a Service (SaaS), that is, a right to use Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. software functionality (including standard functionalities and customer-specific developed cloud applications and extensions) in a cloud-based infrastructure hosted by SAP or third parties engaged by SAP, where the customer does not have the right to terminate the hosting contract and take possession of the software to either run it on the customer’s own IT infrastructure or to engage a third- party provider unrelated to SAP for hosting and managing the software; the item also includes transaction and agent Half-Year Report January – June 2018 26 fees for transactions that customers of our network- business execute on our cloud-based transaction platforms Platform as a Service (PaaS), that is, access to a cloud- based infrastructure to develop, run, and manage applications Infrastructure as a Service (IaaS), that is, hosting and related application management services for software hosted by SAP or third parties engaged by SAP, where the customer has the right to take possession of the software Additional premium cloud subscription support beyond the regular support that is embedded in the basic cloud subscription fees. – Software licenses revenue represents fees earned from the sale or license of software to customers for use on the customer’s premises, in other words, where the customer has the right to take possession of the software for installation on the customer’s premises or on hardware of third-party hosting providers unrelated to SAP (on-premise software). Software licenses revenue includes revenue from both the sale of our standard software products and customer-specific on-premise-software development agreements. – Software support revenue represents fees earned from providing customers with standardized support services which comprise unspecified future software updates, upgrades, and enhancements as well as technical product support services for on-premise software products. Services revenue primarily represents fees earned from professional consulting services, premium support services, training services, messaging services, and payment services in connection with our travel and expense management offerings. Policies and Judgment Identification of Contract We frequently enter into multiple contracts with the same customer that we treat, for accounting purposes, as one contract if the contracts are entered into at or near the same time and are economically interrelated. We do not combine contracts with closing days more than three months apart because we do not consider them being entered into near the same time. Judgment is required in evaluating whether two or more contracts are interrelated, which includes considerations as to whether they were negotiated as a package with a single commercial objective, whether the amount of consideration on one contract is dependent on the performance of the other contract, or if some or all goods in the contracts are a single performance obligation. New arrangements with existing customers can be either a new contract or the modification of prior contracts with the customer. Our respective judgment in making this Half-Year Report January – June 2018 determination considers whether there is a connection between the new arrangement and the pre-existing contracts, whether the goods and services under the new arrangement are highly interrelated with the goods and services sold under prior contracts, and how the goods and services under the new arrangement are priced. In determining whether a change in transaction price represents a contract modification or a change in variable consideration, we examine whether the change in price results from changing the contract or from applying unchanged existing contract provisions. Identification of Performance Obligations Our customer contracts often include various products and services. Typically, the products and services outlined in the “Classes of Revenue” section qualify as separate performance obligations and the portion of the contractual fee allocated to them is recognized separately. Judgement is required, however, in determining whether a good or service is considered a separate performance obligation. In particular for our professional services and implementation activities, judgement is required to evaluate if such services significantly integrate, customize, or modify the on-premise software or cloud service to which they relate. In this context we consider the nature of the services and their volume relative to the volume of the on- premise software or cloud service to which they relate. In general, the implementation services for our cloud services go beyond pure setup activities and qualify as separate performance obligations. Similarly, our on-premise implementation services and our custom development services typically qualify as separate performance obligations. Non- distinct goods and services are combined into one distinct bundle of goods and services (combined performance obligation). When selling goods or services, we frequently grant customers options to acquire additional goods or services (for example, renewals of renewable offerings, or additional volumes of purchased software). We apply judgment in determining whether such options provide a material right to the customer that it would not receive without entering into that contract (material right options). In this judgment, we consider whether the options entitle the customer to a discount that exceeds the discount granted for the respective goods or services sold together with the option. Determination of Transaction Price We apply judgement in determining the amount to which we expect to be entitled in exchange for transferring promised goods or services to a customer. This includes estimates as to whether and to what extent subsequent concessions or payments may be granted to customers and whether the customer is expected to pay the contractual fees. In this judgment, we consider our history both with the respective customer and more broadly. 27 Our typical cloud services do not provide the customer with a software license because the customer does not have the right to terminate the hosting contract and take possession of the software. Consequently, cloud fees that are based on transaction volumes are considered in the transaction price based on estimates rather than being accounted for as sales- based license royalties. Only very rarely do our contracts include significant financing components. We do not account for financing components if the period between when SAP transfers the promised goods or services to the customer and when the customer pays for those goods or services is one year or less. Allocation of Transaction Price We have established a hierarchy to identify the standalone selling prices (SSPs) that we use to allocate the transaction price of a customer contract to the performance obligations in the contract. – Where standalone selling prices for an offering are observable and reasonably consistent across customers (that is, not highly variable), our SSP estimates are derived from our respective pricing history. Typically, our standardized support offerings and our professional service offerings follow this approach. – Where sales prices for an offering are not directly observable or highly variable across customers, we use estimation techniques. For renewable offerings with highly variable pricing, these techniques consider the individual contract’s expected renewal price as far as this price is substantive. Typically, our cloud subscription offerings follow this approach. For non-renewable offerings, these estimations follow a cost-plus-margin approach. – For offerings that lack renewals and have highly variable pricing, we allocate the transaction price by applying a residual approach. We use this technique in particular for our standard on-premise software offerings. Judgment is required when estimating SSPs. To judge whether the historical pricing of our goods and services is highly variable, we have established thresholds of pricing variability. In judging whether contractual renewal prices are substantive, we have established floor prices that we use as SSPs whenever the contractual renewal prices are below these floor prices. In judging whether contracts are expected to renew at their contractual renewal prices, we rely on our respective renewal history. The SSPs of material right options depend on the probability of option exercise. In estimating these probabilities, we apply judgment considering historical exercise patterns. We review the stand-alone selling prices periodically or whenever facts and circumstances change to ensure the most objective input parameters available are used. Half-Year Report January – June 2018 Recognition of Revenue Cloud subscriptions and support revenue is recognized over time as the services are performed. Where our performance obligation is the grant of a right to continuously access and use a cloud offering for a certain term, revenue is recognized based on time elapsed and thus ratably over this term. Software revenue is recognized at a point in time or over time depending on whether we deliver standard software or customer-specific software: – Licenses of our standard on-premise software products are typically delivered by providing the customer with access to download the software, and the license period starts upon such grant of access. We recognize revenue for such on premise licenses at the point in time when the customer has access to and thus control over the software. In judging that our on-premise software offerings grant the customers a right to use rather than a right to access our intellectual property, we have considered the usefulness of our software without subsequent updates. – Our customer-specific on-premise-software development agreements typically Are for software developed for specific needs of individual customers and thus the developed software does not have an alternative use to us, and Provide us with an enforceable right to payment for performance completed to date For such development agreements, we recognize revenue over time as the software development progresses. Judgment is required in identifying an appropriate method to measure the progress towards complete satisfaction of such performance obligations. We typically measure progress of our development agreements based on the direct costs incurred to date in developing the software as a percentage of the total reasonably estimated direct costs to fully complete the development work. This method of measuring progress faithfully depicts the transfer of the development services to the customer, as substantially all of these costs are cost of the staff or third parties performing the development work. In estimating the total cost to fully complete the development work, we consider our history with similar projects. Support revenue is typically recognized based on time elapsed and thus ratably over the term of the support arrangement. Under our standardized support services, our performance obligation is to stand ready to provide technical product support and unspecified updates, upgrades, and enhancements on a when-and-if-available basis. Our customers simultaneously receive and consume the benefits of these support services as we perform. 28 Service revenue is typically recognized over time. Where we stand ready to provide the service (such as access to learning content), we recognize revenue based on time elapsed and thus ratably over the service period. Consumption-based services (such as separately identifiable consulting services and premium support services, messaging services, and class room training services) are recognized over time when the services are utilized, typically based on a percentage of completion- based method or ratably. When using the percentage-of- completion method, we typically measure the progress towards complete satisfaction in the same way and with the same reasoning and judgment as we do for customer-specific on- premise-software development agreements. We apply judgment in determining whether a service qualifies as a stand-ready service or as a consumption-based service. Revenue for combined performance obligations is recognized over the longest period of all promises in the combined performance obligation. Judgement is also required to determine whether revenue is to be recognized at a point in time or over time. For performance obligations satisfied over time, we need to measure the progress using the method that best reflects SAP’s performance. When using cost incurred as a measure of progress for recognizing revenue over time, we apply judgement in estimating the total cost to satisfy the performance obligation. All of the above mentioned judgments and estimates can significantly impact the timing and amount of revenue to be recognized. Contract Balances We recognize receivables for performance obligations satisfied over time gradually as the performance obligation is satisfied and in full once the invoice is due. Judgement is required in determining whether a right to consideration is unconditional and thus qualifies as a receivable. Contract liabilities primarily reflect invoices due or payments received in advance of revenue recognition. They are recognized as revenue upon transfer of control to the customers of the promised goods and services. Typically, we invoice fees for on-premise standard software upon contract closure and software delivery. Periodic fixed fees for cloud subscription services, software support services, and other multi-period agreements are typically invoiced yearly or quarterly in advance. Such fee prepayments account for the majority of our contract liability balance. Fees based on actual transaction volumes for cloud subscriptions and fees charged for non-periodical services are invoiced as the services are delivered. While payment terms and conditions vary by contract 1 “Impact of the policy change” means the difference between a measure determined under SAP’s new IFRS 15-based policies and the respective measure as it would stand had our previous accounting policies continued to apply. Half-Year Report January – June 2018 type and region, our terms typically include a requirement of payment within 30 to 60 days. Incremental Costs of Obtaining Customer Contracts The assets we recognize for the incremental costs of obtaining a customer contract primarily consist of sales commissions earned by our sales force. Typically, we either do not pay sales commissions for customer contract renewals or such commissions are not commensurate with the commissions paid for new contracts. Consequently, we amortize sales commissions paid for new contracts on a straight-line basis over the expected contract life including probable contract renewals. Judgement is required in estimating the contract lives. In this judgement, we consider our respective renewal history adjusted for indications that the renewal history is not fully indicative for future renewals. The amortization periods range from two to eight years depending on the type of the offering. Amortization of capitalized costs of obtaining customer contracts is included in sales and marketing expense. We expense incremental costs of obtaining a customer contract as incurred if we expect an amortization period of one year or less. Costs to Fulfill Customer Contracts Capitalized costs incurred to fulfill customer contracts mainly consist of direct costs for customer-specific cloud development contracts that are not in scope of other IFRSs. These costs are amortized after completion of the development on a straight- line basis over the expected life of the cloud subscription contract including expected renewals. Judgment is required in evaluating whether costs are direct or indirect and in estimating the contract lives. Based on our respective history, the amortization period is typically six years. Amortization of capitalized costs to fulfill customer-specific developed cloud applications and extensions contracts is included in cost of cloud subscription and support. Adoption of IFRS 15 Under the IFRS 15 adoption method chosen by SAP, prior years (including the prior-period numbers presented in the primary financial statements in this half-year report) are not restated to conform to the new policies. The impact of the policy change1 in the first half of 2018 was as follows: – Software licenses and support revenues experienced a benefit of €23 million, with most of the difference resulting from exercises of customer software purchase options granted in prior years which result in software revenue. 29 – Operating expenses benefitted, in cost of sales and marketing, in the amount of €83 million from higher capitalization of sales commissions net of higher amortization of amounts capitalized. – The abovementioned effects together with other insignificant effects resulted in a net positive impact on operating profit of approximately €98 million. – As at June 30, 2018, balance sheet items are affected by the application of IFRS 15 as compared to our pre-IFRS 15 accounting policies as follows: Non-current and current other non-financial assets were higher by €203 million and €40 million, respectively (January 1, 2018: higher by €132 million and €26 million, respectively) due to the higher capitalization of sales commissions. Trade and other receivables and contract liabilities were lower by €768 million and €684 million, respectively (January 1, 2018: higher by €560 million and €648 million, respectively), resulting from changes in the timing of and amounts recognized as contract balances. Provisions were lower by €17 million (January 1, 2018: lower by €25 million), reflecting lower provisions for onerous customer contracts. Intangible Assets were higher by €22 million (January 1, 2018: higher by €14 million), due to capitalization of costs for certain customer-specific on-premise software development arrangements. Please also refer to Note (3e) of our Integrated Report 2017 for further qualitative explanations of the changes in accounting policies as a result of the adoption of IFRS 15. IFRS 9 ‘Financial Instruments’ Policies and Judgment Trade Receivables and Contract Assets We apply the simplified impairment approach using a provision matrix for all trade receivables and contract assets to take into account any lifetime expected credit losses already at initial recognition. For the purpose of the provision matrix, customers are clustered into different risk classes, mainly based on market information such as the country risk assessment of their country of origin. Determining our expected credit loss allowance involves significant judgement. In this judgement, we primarily consider our historical experience with credit losses in the respective provision matrix risk class and current data on overdue receivables. Based on our analyses, historical default rates generally represent a reasonable approximation for future expected defaults. Besides historical data, our judgement considers reasonable and supportable forward-looking information (for example, changes in country risk ratings, or fluctuations in credit default swaps of countries of customers we do business with) for the development of the provision matrix. Half-Year Report January – June 2018 Outstanding receivables are continuously monitored locally to assess whether there is objective evidence that our trade receivables and contract assets are credit-impaired. Evidence that trade receivables and contract assets are credit-impaired include among others information about significant financial difficulty of the customer or non-adherence to a payment plan. In our Consolidated Income Statements, expenses from expected credit loss allowances from applying the provision matrix as well as from credit-impaired customer balances are included in other operating income/expense, net. Account balances are written off either partially or in full if we judge that the likelihood of recovery is remote, which might be evidenced, for example, when bankruptcy proceedings for a customer are finalized or when all enforcement efforts have been exhausted. Financial Assets Our financial assets comprise non-derivative financial assets such as cash and cash equivalents (highly liquid investments with original maturities of three months or less), loans and receivables, acquired equity and debt investments, and derivative financial instruments (derivatives) with positive fair values. As we do not designate financial assets as “at fair value through profit or loss”, we generally classify financial assets into the following categories: “at amortized cost (AC)”, “at fair value through other comprehensive income (FVOCI)”, and “at fair value through profit or loss (FVPL)”, depending on the contractual cash flows of and our business model for holding the respective asset. Financial assets having cash flow characteristics other than solely principal and interest such as derivatives not held within a hedging relationship, embedded derivatives if the host is not a financial asset, money-market and similar funds as well as equity investments are generally classified as FVPL, except for equity investments for which we take an investment-by- investment decision whether to classify as FVPL or FVOCI. Generally, all other financial assets with cash flows solely consisting of principal and interest are classified as AC because we follow a conservative investment approach, safeguarding our liquidity by ensuring the safety of principal investment amounts. For these financial assets, we apply considerable judgement by employing the general impairment approach as follows: – For bank balances and debt investments such as time deposits or commercial paper, we apply the low credit risk exception as it is our policy to only invest in high-quality assets of issuers with a minimum rating of at least investment grade to minimize the risk of credit losses. Thus, these assets are always allocated to stage 1 of the three- stage credit loss model and we record a loss allowance at an 30 amount equal to 12-month expected credit losses. This loss allowance is calculated based on our exposure at the respective reporting date, the loss given default for this exposure, and the maturity-adjusted credit default swap spread as a measure for the probability of default. Even though we only invest in assets with at least investment- grade rating, we also closely observe the development of credit default swap spreads as a measure of market participants’ assessments of the creditworthiness of a debtor, to evaluate probable significant increases in credit risk to timely react to changes should these manifest. Among other, we consider bank balances and debt investments to be in default when there is information about a counterparty’s financial difficulties or in case of a drastic increase of credit default swap spread of a counterparty for a prolonged time period while the overall market environment remains rather stable. Such financial assets are written off either partially or in full if the likelihood of recovery is considered remote, which might be evidenced, for example, by the bankruptcy of a counterparty of such financial assets. – Loans and other financial receivables are monitored based on borrower-specific internal and external information to decide whether there has been a significant increase in credit risk since initial recognition. We consider such assets to be in default if they are significantly beyond their past due date or when the borrower is unlikely to pay its obligation. A write off occurs when the likelihood of recovery is considered remote, for example when bankruptcy proceedings are finalized or when all enforcement efforts have been exhausted. Financial Liabilities Financial liabilities include trade and other payables, bank loans, issued bonds, private placements, other financial liabilities, derivatives, and embedded derivatives. Included in other financial liabilities are customer funding liabilities which are funds we draw from and make payments on behalf of our customers for customers’ employee expense reimbursements, related credit card payments, and vendor payments. We present these funds in cash and cash equivalents and record our obligation to make these expense reimbursements and payments on behalf of our customers as customer funding liabilities. As we do not designate financial liabilities as FVPL, we generally classify financial liabilities into the following categories: AC and FVPL in line with IFRS 9. Expenses and gains/losses on financial liabilities mainly consist of interest expense, which is recognized based on the effective interest method. Half-Year Report January – June 2018 Hedge Accounting We use derivatives to hedge foreign currency risk or interest rate risk and designate them as cash flow or fair value hedges if they qualify for hedge accounting under IFRS 9 which involves judgement. a) Cash Flow Hedge In general, we apply cash flow hedge accounting to the foreign currency risk of highly probable forecasted transactions and interest rate risk on variable rate financial liabilities. With regard to foreign currency risk, hedge accounting relates to the spot price and the intrinsic values of the derivatives designated and qualifying as cash flow hedges. Accordingly, the effective portion of these components determined on a present value basis is recorded in other comprehensive income. The forward and time element as well as foreign currency basis spreads excluded from the hedging relationship are recorded as cost of hedging in other comprehensive income. All other components of the derivative and the ineffective portion are immediately recognized in profit and loss. Amounts accumulated in other comprehensive income are reclassified to profit and loss in the same period when the hedged item affects profit and loss. b) Fair Value Hedge We apply fair value hedge accounting for certain of our fixed rate financial liabilities. c) Valuation and Testing of Effectiveness At inception of a designated hedge relationship, we document our risk management strategy and the economic relationship between the hedged item and hedging instrument. The effectiveness of the hedging relationship is tested by applying the critical terms match for our foreign currency hedges, as currencies, maturities, and the amounts are largely identical for the forecasted transactions and the spot element of the forward exchange rate contract or intrinsic value of the currency options, respectively. For interest rate swaps, effectiveness is tested using statistical methods in the form of a regression analysis, by which the validity and extent of the relationship between the change in value of the hedged items as the independent variable and the fair value change of the derivatives as the dependent variable is determined. Adoption of IFRS 9 As of January 1, 2018, SAP changed several of its accounting policies to adopt IFRS 9 ‘Financial Instruments’. Under the IFRS 9 adoption method chosen by SAP, prior years are not restated to conform to the new policies. The main impact of the policy change as of January 1, 2018, was as follows: 31 – Classification as FVPL of money-market and similar funds of €1.1 billion – Classification as FVPL of equity investments of €827 million – Classification as AC of debt investments of €39 million These policy changes resulted in the following main impacts on retained earnings as of January 1, 2018: – Trade receivables and opening retained earnings are lower by €25 million, resulting from the application of the expected credit loss model. – Other comprehensive income is lower and retained earnings higher by €157 million, resulting from the reclassification of amounts attributable to available-for-sale financial assets accumulated in other comprehensive income so far to opening retained earnings. (3b) New Accounting Standards Not Yet Adopted In the Notes to our Consolidated Financial Statements for 2017, we disclosed, for new accounting standards that have been issued but not yet been adopted by us, our expectations regarding the timing of and our approaches to adopt these standards and known or reasonably estimable information on the possible impact that the adoption will have on our financial statements. The following provides updates to these disclosures and should be read in conjunction with these disclosures: – On January 13, 2016, the IASB issued IFRS 16 ‘Leases’. We will adopt IFRS 16 as per its effective date of January 1, 2019, using the modified retrospective approach. Under this approach, the cumulative effect of initially applying the standard will be recognized as an adjustment to the opening balance of retained earnings on the date of initial application. The new standard will significantly impact especially the lease accounting by lessees as, in general, all leases need to be recognized on a company’s balance sheet (represented by right-of-use assets and lease liabilities). We plan to use practical expedients offered by the standard (such as short- term leases, low-value leases, and no separation of non-lease components of a contract). – We are in the process of developing our future IFRS 16 policies and adjusting the relevant business processes to adopt these new policies. We have established a project across SAP’s finance and business functions. This project covers the implementation of a new SAP-based lease accounting and reporting solution as well as the development of new lease accounting policies. In addition to this, we have established a global roll-out and training approach for the relevant stakeholders within the organization. – Due to the adoption of IFRS 16, we expect the total assets and total liabilities to increase, as right-of-use assets/lease liabilities will have to be recorded for those items that were previously “off balance sheet”; operating profit is also Half-Year Report January – June 2018 expected to increase, as a portion of the costs that were treated as rental expenses in the past will have to be presented as interest expense going forward. As the effects of applying IFRS 16 will depend on the lease agreements in effect at the time of adoption, the impact of IFRS 16 on our Consolidated Financial Statements cannot be estimated reliably. (3c) Foreign Currencies We apply hyperinflation accounting for our subsidiary in Venezuela, by restating the financial statements of this subsidiary for the current period to account for changes in the general purchasing power of the local currency based on relevant price indices at the reporting date. Most significantly impacted by this accounting are other non-operating income/expense (loss of €51 million), equity (retained earnings and other comprehensive income) (decrease of €26 million), and contract liabilities (increase of €70 million). The impact on our revenues and operating profit is immaterial. (4) Business Combinations In the first half of 2018, we concluded several business combinations, with the Callidus Software Inc. (“Callidus”) acquisition being the only material transaction. We acquire businesses in specific areas of strategic interest to us, particularly to broaden our product and service portfolio. The initial accounting for all of our business combinations in the first half of 2018 is incomplete because we are still obtaining the information necessary to identify and measure, for example, intangibles and tax-related assets and liabilities of the acquired businesses. Accordingly, the amounts recognized in our financial statements for these items are regarded as provisional as of June 30, 2018. The acquisition-related costs incurred for our business combinations in the first half of 2018 were recognized in general and administration expense. Prior-year acquisitions are described in the Consolidated Financial Statements in the Integrated Report 2017. Acquisition of Callidus We announced on January 30, 2018, that SAP and Callidus (NSDQ: CALD), a leading provider of customer relationship management (CRM) solutions, had entered into an agreement under which SAP would acquire Callidus. On April 5, 2018, following satisfaction of applicable regulatory and other approvals, we acquired 100% of the shares of Callidus. SAP paid US$36 per share, representing consideration transferred in cash of approximately US$2.4 billion. 32 Financial Impact as of the Acquisition Date € millions Callidus Consideration Transferred Cash paid 1,957 Liabilities incurred 47 Total consideration transferred 2,004 The liabilities incurred relate to the earned portion of unvested share-based payment awards. These liabilities were incurred by replacing, upon acquisition, equity-settled share-based payment awards held by employees of Callidus with cash-settled share- based payment awards, which are subject to forfeiture. The respective liabilities represent the portion of the replacement awards that relates to pre-acquisition services provided by the acquiree’s employees and were measured at the fair value determined under IFRS 2 as required by IFRS 3. The following table summarizes the preliminary values of identifiable assets acquired and liabilities assumed in connection with the acquisition of Callidus, as of the acquisition date. Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed € millions Callidus Contribution Cash and cash equivalents 63 Other financial assets 64 Trade and other receivables 32 Other non-financial assets 12 Property, plant, and equipment 26 Intangible assets 515 Thereof acquired technology 122 Thereof customer relationship and other intangibles 391 Thereof software and database licenses 4 Total identifiable assets 712 Trade and other payables 55 Current and deferred tax liabilities 50 Provisions and other non-financial liabilities 14 Contract liabilities/deferred income 56 Total identifiable liabilities 175 Total identifiable net assets 537 Goodwill 1,467 Total consideration transferred 2,004 In general, the goodwill arising from the acquisitions consists largely of the synergies and the know-how and technical skills of the acquired businesses’ workforces. Half-Year Report January – June 2018 Callidus goodwill is attributed to expected synergies from the acquisition, particularly in the following areas: – Cross-selling opportunities to existing SAP customers across all regions, using SAP’s sales organization – Combining Callidus products and SAP products to strengthen SAP’s intelligent customer experience suite of solutions – Improved profitability in Callidus sales and operations We intend to allocate the Callidus goodwill and intangibles to the newly established Customer Experience segment; additionally, we are in the process of completing the identification of the portion of goodwill previously assigned to the Applications, Technology & Services segment that is to be re-allocated to this new segment. For more information about our segments and about the changes in our segment structure, see Note (14). Impact of the Business Combination on Our Financial Statements The amounts of revenue and profit or loss of the Callidus business acquired in 2018 since the acquisition date included in the consolidated income statements for the reporting period are as follows: Impact on SAP’s Financials € millions Q1–Q2 2018 as Reported Contribution of Callidus Revenue 11,260 53 Profit after tax 1,428 –21 Had Callidus been consolidated as of January 1, 2018, our estimated pro forma revenue for the reporting period would have been €11,307 million, and pro forma profit after tax would have been €1,404 million. These amounts were calculated after applying the Company’s accounting policies and after adjusting the results for Callidus to reflect significant effects from, for example: – Additional depreciation and amortization that would have been charged assuming the fair value adjustment to property, plant, and equipment, and to intangible assets had been applied from January 1, 2018 – The impact of fair value adjustments on deferred revenue on a cumulative basis – The borrowing costs on the funding levels and debt/equity position of the Company after the business combination – Employee benefits, such as share-based compensation – Transaction expenses incurred as part of the acquisition – Related tax effects 33 These pro forma numbers have been prepared for comparative purposes only. The pro forma revenue and profit numbers are not necessarily indicative either of the results of operations that would have actually occurred had the acquisition been in effect at the beginning of the respective period or of future results. (5) Restructuring € millions Q1–Q2 2018 Q1–Q2 2017 Employee-related restructuring expenses 20 239 Onerous contract-related restructuring expenses 1 3 Restructuring expenses 22 242 If not presented separately, these expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2018 Q1–Q2 2017 Cost of cloud and software 3 105 Cost of services 8 110 Research and development 1 17 Sales and marketing 9 10 General and administration 0 0 Restructuring expenses 22 242 Number of Employees (in Full-Time Equivalents) Full-time equivalents EMEA Americas Cloud and software 6,128 4,113 Services 7,924 5,561 Research and development 11,866 5,534 Sales and marketing 9,791 9,621 General and administration 2,814 1,922 Infrastructure 1,976 902 SAP Group (6/30) 40,498 27,653 Thereof acquisitions1) 638 952 SAP Group (six months' end average) 39,722 27,025 1) Acquisitions closed between January 1 and June 30 of the respective year Half-Year Report January – June 2018 (6) Employee Benefits Expense and Headcount Employee Benefits Expense € millions Salaries Q1–Q2 2018 4,337 Q1–Q2 2017 4,275 Social security expenses 697 670 Share-based payment expenses 491 618 Pension expenses 175 169 Employee-related restructuring expenses 20 239 Termination benefits 21 25 Employee benefits expense 5,741 5,996 On June 30, 2018, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 93,846 employees is mainly due to the acquisition of Callidus as well as organic growth of full-time equivalents to cloud and software, services, research and development, as well as to sales and marketing. Due to reorganizations in 2017, employees were partially reallocated from cloud and software to services. Information as at June 30, 2018, is therefore not fully comparable to prior-year numbers. 6/30/2018 6/30/2017 APJ Total EMEA Americas APJ Total 5,051 15,291 7,994 3,811 4,880 16,686 5,370 18,855 5,281 4,789 4,752 14,821 8,681 26,081 10,831 5,122 8,270 24,223 4,962 24,374 9,030 9,044 4,778 22,851 1,096 5,832 2,708 1,824 1,039 5,572 534 3,413 1,650 845 466 2,961 25,694 93,846 37,494 25,435 24,184 87,114 434 2,024 4 13 0 17 25,219 91,965 36,998 25,234 23,778 86,011 34 The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Q1–Q2 2018 Q1–Q2 2017 Cost of cloud and software 46 68 Cost of services 80 81 Research and development 123 148 Sales and marketing 185 240 General and administration 57 81 Share-based payments 491 618 For more information about our share-based payments, see our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (27). (7) Income Taxes There have been no significant changes in contingent liabilities from income tax-related litigation and claims for which no provision has been recognized compared to Note (10) in our Consolidated Financial Statements for 2017, which is included in our Integrated Report 2017. Half-Year Report January – June 2018 (8) Trade and Other Receivables € millions Current Non- Current Trade receivables, net 5,009 7 Other receivables 66 109 Total 5,075 115 € millions Current Non- Current Trade receivables, net 5,809 1 Other receivables 90 116 Total 5,899 118 The carrying amounts of our trade receivables and related allowances were as follows: Carrying Amounts of Trade Receivables € millions 6/30/ 2018 Gross carrying amount 5,228 Allowances charged to revenue –110 Allowance for doubtful accounts charged to expense –102 Carrying amount trade receivables, net 5,016 6/30/2018 Total 5,016 175 5,191 12/31/2017 Total 5,810 207 6,017 12/31/ 2017 6,047 –163 –74 5,810 35 (9) Financial Liabilities € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities Half-Year Report January – June 2018 Nominal Volume Current Non- Current 1,150 5,500 0 993 17 0 1,167 6,493 NA NA NA NA Nominal Volume Current Non- Current 1,150 4,000 125 965 24 0 1,299 4,965 NA NA NA NA Carrying Amount Current Non- Current 1,150 5,488 0 1,021 17 0 1,167 6,509 67 16 236 12 1,469 6,537 Carrying Amount Current Non- Current 1,149 3,997 125 1,005 24 0 1,298 5,002 57 29 205 2 1,561 5,034 6/30/2018 Total 6,637 1,021 17 7,676 83 248 8,006 12/31/2017 Total 5,147 1,130 24 6,301 86 208 6,595 36 (10) Total Equity Number of Shares millions Issued Capital Treasury Shares 12/31/2016 1,228.5 –29.9 Reissuance under share-based payments 0 0.2 6/30/2017 1,228.5 –29.6 12/31/2017 1,228.5 –35.1 Reissuance under share-based payments 0 0.2 6/30/2018 1,228.5 –34.9 Other Components of Equity € millions Exchange Differences Available-for-Sale Financial Assets Cash Flow Hedges 12/31/2016 3,062 292 –9 Other comprehensive income –1,637 72 31 6/30/2017 1,425 364 23 12/31/2017 330 157 21 Adoption of IFRS 9 –158 –3 1/1/2018 330 0 18 Other comprehensive income1) 557 0 –22 6/30/2018 887 0 –4 1) The exchange differences in other comprehensive income include the effect from hyperinflation accounting for our subsidiary in Venezuela of €12 million. Half-Year Report January – June 2018 Total 3,346 –1,534 1,812 508 –160 347 536 883 37 (11) Litigation, Claims, and Legal Contingencies We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired, claims that relate to customers demanding indemnification for proceedings initiated against them based on their use of SAP software, and claims that relate to customers being dissatisfied with the products and services that we have delivered to them. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as of June 30, 2018, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as of June 30, 2018, are neither individually nor in the aggregate material to SAP. However, the outcome of litigation and claims is intrinsically subject to considerable uncertainty. Management’s view of the litigation may also change in the future. Actual outcomes of litigation and claims may differ from the assessments made by management in prior periods, which could result in a material impact on our business, financial position, profit, cash flows, or reputation. Most of the lawsuits and claims are of a very individual nature and claims are either not quantified by the claimants or claim amounts quantified are, based on historical evidence, not expected to be a good proxy for the expenditure that would be required to settle the case concerned. The specifics of the jurisdictions where most of the claims are located further impair the predictability of the outcome of the cases. Therefore, it is not practicable to reliably estimate the financial effect that these lawsuits and claims would have if SAP were to incur expenditure for these cases. Among the claims and lawsuits are the following classes (please refer to our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (18b) for further detail on these classes). Intellectual Property-Related Litigation and Claims There have been no significant changes to the amount of provisions recorded for intellectual property-related litigation and claims compared to the amounts disclosed in our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (18b). There have also been no significant changes in contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. For the individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2017, there is no significant development. Half-Year Report January – June 2018 Customer-Related Litigation and Claims There have been no significant changes to the amount of provisions recorded for customer-related litigation and claims compared to the amounts disclosed in our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (18b). There have also been no significant changes in contingent liabilities from customer-related litigation and claims for which no provision has been recognized. Tax-Related Litigation and Claims There have been no significant changes in contingent liabilities from non-income tax-related litigation and claims for which no provision has been recognized compared to Note (23) in our Consolidated Financial Statements for 2017, which is included in our Integrated Report 2017. For information about income tax-related litigation, see Note (7). Legal Contingencies In 2017, SAP received communications alleging conduct that may violate anti-bribery laws (including the U.S. Foreign Corrupt Practices Act (FCPA)). Further, we voluntarily self-disclosed potential export controls and economic sanctions violations. The investigations are ongoing and neither the outcome of the investigations nor the date when substantiated findings will be available is predictable at this point in time. SAP enhanced its anti-corruption compliance program as well as its export control compliance program throughout the last months. We continue to be fully committed to anti-bribery laws and export restriction controls and will continue full cooperation with all parties involved. As at June 30, 2018, no provisions have been recognized for these potential violations in our consolidated financial statements. It is currently also not practicable to estimate the financial effect of any contingent liabilities that may result from these potential violations. For a detailed description, please refer to our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (23). 38 (12) Other Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (24) to (26) to our Consolidated Financial Statements for 2017, which are included in our Integrated Report 2017. We do not disclose the fair value of our financial instruments as of June 30, 2018, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2017. The implementation of IFRS 9 led to the following main changes in the classification of financial assets in the first half year 2018 compared to December 31, 2017: – Change in classification of money-market and similar funds from amortized cost to FVPL (€1.0 billion) – Change in classification of equity investments from available-for-sale to FVPL (€1.0 million) – Change in classification of debt investments from available- for-sale to AC (€130 million) However, these classification changes did not have a material impact on the relation between carrying amounts and fair values since December 31, 2017. Transfers between levels of the fair value hierarchy During the first half year 2018, we transferred equity investments from Level 3 to Level 2 in the amount of €12 million (December 31, 2017: €100 million) due to initial public offerings of the respective investee. Transfers of equity investments from Level 2 to Level 1, which occurred because disposal restrictions lapsed and deducting a discount for such restriction was no longer necessary, were €9 million in the first half year 2018 (December 31, 2017: €360 million). Half-Year Report January – June 2018 (13) Share-Based Payments For a detailed description of our share-based payment plans, see Note (27) to our Consolidated Financial Statements for 2017, included in our Integrated Report 2017. Restricted Stock Unit Plan Including Move SAP Plan (RSU Plan) In the first half of 2018, we granted 7.8 million (first half of 2017: 7.3 million) share units to retain and motivate global executives and employees who make a significant sustained impact to our business success. Own SAP Plan (Own) The number of shares purchased by our employees under this plan was 2.6 million in the first half of 2018 (first half of 2017: 2.9 million). The plan enables employees to purchase shares with preferred conditions and build value by becoming an SAP shareholder. 39 (14) Segment and Geographic Information General Information SAP has four operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our business network activities, our customer experience solutions, or messaging services, or cover other areas of our business. The Applications, Technology & Services segment derives its revenues primarily from the sale of software licenses, subscriptions to cloud applications, and related services (mainly support services and various professional services and premium support services, as well as implementation services for our software products and education services on the use of our products). The SAP Business Network segment derives its revenues mainly from transaction fees charged for the use of SAP’s cloud-based collaborative business networks and from services relating to the SAP Business Network (including cloud applications, professional services, and education services). Within the SAP Business Network segment, we mainly market and sell the cloud offerings developed by SAP Ariba, SAP Fieldglass, and SAP Concur. On April 5, 2018, we acquired Callidus Software Inc. and changed the structure of the Applications, Technology & Services segment. The Callidus business was combined with our existing customer experience activities into a new business unit called ‘SAP Customer Experience’. This new unit, which qualifies as an operating segment (called ‘Customer Experience’), comprises on premise and cloud-based products that run front office functions across the customer experience. Support revenues related to our on premise customer experience solutions continue to be reported in the Applications, Technology & Services segment since we cannot split the total software support revenues into support services provided for different solutions. Further, the manner in which our mobile interconnection activities ‘Digital Interconnect’ are reported to our CODM has changed such that Digital Interconnect now qualifies as an operating segment. Due to its size, ‘Digital Interconnect’ does not qualify as a reportable segment. We have retrospectively adjusted our revenue and results for the Applications, Technology & Services segment to reflect these changes. Revenues and expenses of our operating but non- Half-Year Report January – June 2018 reportable segment are included in the reconciliation of segment revenue and results. 40 Applications, Technology & Services € millions, unless otherwise stated Cloud subscriptions and support – SaaS/PaaS1) Cloud subscriptions and support – IaaS2) Cloud subscriptions and support Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud subscriptions and support – SaaS/PaaS1) Cost of cloud subscriptions and support – IaaS2) Cost of cloud subscriptions and support Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service SAP Business Network € millions, unless otherwise stated Cloud subscriptions and support – SaaS/PaaS1) Cloud subscriptions and support – IaaS2) Cloud subscriptions and support Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud subscriptions and support – SaaS/PaaS1) Cost of cloud subscriptions and support – IaaS2) Cost of cloud subscriptions and support Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service Half-Year Report January – June 2018 Actual Currency 847 217 1,064 1,472 5,386 6,857 7,922 1,558 9,480 –348 –195 –543 –909 –1,453 –1,211 –2,663 6,816 –3,140 3,676 Actual Currency 1,014 0 1,014 0 8 8 1,022 210 1,233 –230 0 –230 –3 –233 –150 –383 850 –623 227 Q1–Q2 2018 Constant Currency 911 235 1,145 1,548 5,782 7,330 8,475 1,696 10,171 –361 –206 –567 –968 –1,534 –1,300 –2,834 7,338 –3,341 3,997 Q1–Q2 2018 Constant Currency 1,113 0 1,113 0 9 9 1,122 229 1,352 –252 0 –252 –4 –255 –163 –418 934 –683 251 Q1–Q2 2017 Actual Currency 671 157 827 1,596 5,457 7,053 7,880 1,603 9,483 –254 –142 –396 –970 –1,366 –1,267 –2,633 6,850 –3,194 3,656 Q1–Q2 2017 Actual Currency 925 0 925 0 11 11 936 202 1,138 –214 0 –214 –2 –215 –152 –367 771 –582 189 41 Customer Experience € millions, unless otherwise stated Cloud subscriptions and support – SaaS/PaaS1) Cloud subscriptions and support – IaaS2) Cloud subscriptions and support Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud subscriptions and support – SaaS/PaaS1) Cost of cloud subscriptions and support – IaaS2) Cost of cloud subscriptions and support Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service Information about assets and liabilities and additions to non- current assets by segment are not regularly provided to our Executive Board. Measurement and Presentation A detailed overview of our measurement bases and reconciling items in our reconciliation of segment revenue and results are presented in Note (28) to our Consolidated Financial Statements for 2017, which is included in our Integrated Report 2017. Half-Year Report January – June 2018 Q1–Q2 2018 Q1–Q2 2017 Actual Currency Constant Currency Actual Currency 216 231 84 0 0 0 216 231 84 149 157 175 0 0 0 149 158 175 366 388 259 20 21 2 385 409 261 –57 –60 –29 0 0 0 –57 –60 –29 –11 –11 –28 –68 –71 –57 –11 –12 0 –79 –83 –58 306 327 204 –275 –293 –211 31 34 –7 Revenues and expenses of our non-reportable segment are included in the reconciliation under the positions Other revenue and Other expenses, respectively. Certain activities are exclusively managed on corporate level, including finance, accounting, human resources, legal, and marketing. They are disclosed in the reconciliation under Other revenue and Other expenses, respectively. The segment information for prior periods has been restated to conform to the current year’s presentation. 42 Reconciliation of Segment Revenue and Results € millions Applications, Technology & Services SAP Business Network Customer Experience Total segment revenue for reportable segments Other revenue Adjustment for currency impact Adjustment of revenue under fair value accounting Total revenue Applications, Technology & Services SAP Business Network Customer Experience Total segment profit for reportable segments Other revenue Other expenses Adjustment for currency impact Operating profit (non-IFRS) at actual currency Adjustment for Revenue under fair value accounting Acquisition-related charges Share-based payment expenses Restructuring Operating profit Other non-operating income/expense, net Financial income, net Profit before tax Half-Year Report January – June 2018 Actual Currency 9,480 1,233 385 11,098 179 0 –16 11,260 3,676 227 31 3,934 179 –1,237 0 2,876 –16 –278 –491 –22 2,069 –91 41 2,019 Q1–Q2 2018 Constant Currency 10,171 1,352 409 11,933 189 –845 –16 11,260 3,997 251 34 4,282 189 –1,349 –246 2,876 –16 –278 –491 –22 2,069 –91 41 2,019 Q1–Q2 2017 Actual Currency 9,483 1,138 261 10,882 185 0 0 11,066 3,656 189 –7 3,838 185 –1,255 0 2,768 0 –309 –618 –242 1,599 –10 –13 1,576 43 Geographic Information The amounts for revenue by region in the following tables are based on the location of customers. Revenue by Region Cloud Subscriptions and Support Revenue by Region € millions Q1–Q2 2018 Q1–Q2 2017 EMEA 671 479 Americas 1,333 1,159 APJ 280 200 SAP Group 2,283 1,837 Cloud and Software Revenue by Region € millions Q1–Q2 2018 Q1–Q2 2017 EMEA 4,207 3,892 Americas 3,586 3,723 APJ 1,503 1,469 SAP Group 9,295 9,085 Total Revenue by Region € millions Q1–Q2 2018 Q1–Q2 2017 Germany 1,617 1,455 Rest of EMEA 3,445 3,250 EMEA 5,062 4,705 United States 3,573 3,688 Rest of Americas 851 911 Americas 4,424 4,599 Japan 443 450 Rest of APJ 1,331 1,313 APJ 1,774 1,763 SAP Group 11,260 11,066 Half-Year Report January – June 2018 Segment Revenue by Region Non-IFRS Q1–Q2 2018 Actual Currency € millions Applications, Technology & Services SAP Business Network Customer Experience Total Reportable Segments Region EMEA 4,673 222 170 5,065 Region Americas 3,263 881 164 4,308 Region APJ 1,544 130 51 1,725 Total segment revenue 9,480 1,233 385 11,098 (15) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (see our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (29)). We have relationships with certain of these entities in the ordinary course of business. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. For more information about related party transactions, see our Integrated Report 2017, Notes to the Consolidated Financial Statements section, Note (30). (16) Events After the Reporting Period No events that have occurred since June 30, 2018, have a material impact on the Company’s Consolidated Half-Year Financial Statements. Release of the Consolidated Half- Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements on July 18, 2018, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. 44 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 18, 2018 SAP SE Walldorf, Baden The Executive Board Bill McDermott Robert Enslin Adaire Fox-Martin Christian Klein Michael Kleinemeier Bernd Leukert Jennifer Morgan Luka Mucic Stefan Ries Half-Year Report January – June 2018 45 Supplementary Financial Information Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2017 Q2 2017 Q3 2017 Q4 2017 TY 2017 Revenues Cloud subscriptions and support (IFRS) 905 932 937 995 3,769 Cloud subscriptions and support (non-IFRS) 906 932 938 997 3,771 % change – yoy 34 29 22 21 26 % change constant currency – yoy 30 27 27 28 28 Software licenses (IFRS) 691 1,090 1,033 2,058 4,872 Software licenses (non-IFRS) 691 1,090 1,033 2,058 4,872 % change – yoy 13 5 0 –5 0 % change constant currency – yoy 10 4 3 –1 2 Software support (IFRS) 2,731 2,736 2,687 2,754 10,908 Software support (non-IFRS) 2,731 2,736 2,687 2,754 10,908 % change – yoy 7 5 1 0 3 % change constant currency – yoy 3 4 4 5 4 Software licenses and support (IFRS) 3,422 3,826 3,720 4,813 15,780 Software licenses and support (non-IFRS) 3,422 3,826 3,720 4,813 15,781 % change – yoy 8 5 1 –2 2 % change constant currency – yoy 5 4 4 2 4 Cloud and software (IFRS) 4,328 4,757 4,657 5,807 19,549 Cloud and software (non-IFRS) 4,328 4,758 4,658 5,809 19,552 % change – yoy 12 9 5 1 6 % change constant currency – yoy 9 8 8 6 8 Total revenue (IFRS) 5,285 5,782 5,590 6,805 23,461 Total revenue (non-IFRS) 5,285 5,782 5,590 6,807 23,464 % change – yoy 12 10 4 1 6 % change constant currency – yoy 8 9 8 6 8 Share of predictable revenue (IFRS, in %) 69 63 65 55 63 Share of predictable revenue (non-IFRS, in %) 69 63 65 55 63 Profits Operating profit (IFRS) 673 926 1,314 1,964 4,877 Operating profit (non-IFRS) 1,198 1,570 1,637 2,364 6,769 % change 8 4 0 0 2 % change constant currency 2 3 4 6 4 Profit after tax (IFRS) 530 666 993 1,867 4,056 Profit after tax (non-IFRS) 887 1,120 1,214 2,136 5,356 % change 16 14 11 17 15 Margins Cloud subscriptions and support gross margin (IFRS, in %) 57.7 56.0 54.8 55.4 56.0 Cloud subscriptions and support gross margin (non-IFRS, in %) 64.6 62.4 60.8 61.0 62.2 Software license and support gross margin (IFRS, in %) 83.3 85.3 86.2 87.8 85.8 Software license and support gross margin (non-IFRS, in %) 85.1 86.6 87.3 88.6 87.0 Cloud and software gross margin (IFRS, in %) 77.9 79.6 79.9 82.2 80.1 Cloud and software gross margin (non-IFRS, in %) 80.8 81.8 82.0 83.9 82.2 Gross margin (IFRS, in %) 66.7 69.0 70.1 73.2 69.9 Gross margin (non-IFRS, in %) 69.9 71.5 72.5 75.2 72.5 Half-Year Report January – June 2018 Q1 2018 1,070 1,072 18 31 625 625 –10 –2 2,656 2,656 –3 5 3,281 3,281 –4 4 4,351 4,353 1 9 5,261 5,262 0 9 71 71 1,025 1,235 3 14 708 868 –2 59.3 63.2 85.7 86.4 79.2 80.7 68.5 70.2 Q2 2018 1,213 1,227 32 40 996 996 –9 –5 2,735 2,735 0 7 3,731 3,731 –2 3 4,944 4,959 4 10 5,999 6,014 4 10 66 66 1,044 1,640 4 12 720 1,173 5 58.3 63.6 85.8 87.0 79.0 81.2 68.6 71.5 46 € millions, unless otherwise stated Q1 2017 Q2 2017 Q3 2017 Q4 2017 TY 2017 Q1 2018 Operating margin (IFRS, in %) 12.7 16.0 23.5 28.9 20.8 19.5 Operating margin (non-IFRS, in %) 22.7 27.2 29.3 34.7 28.9 23.5 AT&S segment – Cloud subscriptions and support gross margin (in %) 54 51 45 46 49 49 AT&S segment – Gross margin (in %) 71 73 74 77 74 71 AT&S segment – Segment margin (in %) 36 41 42 47 42 36 SAP BN segment – Cloud subscriptions and support gross margin (in %) 77 77 76 77 77 77 SAP BN segment – Gross margin (in %) 67 68 68 68 68 69 SAP BN segment – Segment margin (in %) 16 17 17 17 17 16 SAP CE Segment – Cloud subscriptions and support gross margin (in %) 68 63 54 63 62 73 SAP CE Segment – Gross margin (in %) 76 80 77 87 81 82 SAP CE Segment – Segment margin (in %) –15 7 13 33 14 8 Key Profit Ratios Effective tax rate (IFRS, in %) 20.6 26.6 28.6 9.4 19.3 28.5 Effective tax rate (non-IFRS, in %) 25.7 27.8 29.2 13.2 22.6 27.8 Earnings per share, basic (IFRS, in €) 0.43 0.56 0.82 1.55 3.36 0.59 Earnings per share, basic (non-IFRS, in €) 0.73 0.94 1.01 1.77 4.44 0.73 Order Entry New Cloud Bookings 215 340 302 591 1,448 245 Contract liabilities / deferred income (current) 6,215 4,898 3,531 2,771 2,771 5,041 Orders – Number of on-premise software deals (in transactions) 13,115 14,361 13,889 17,782 59,147 13,549 Share of orders greater than €5 million based on total software order entry volume (in %) 27 31 29 30 30 18 Share of orders smaller than €1 million based on total software order entry volume (in %) 46 40 41 37 40 50 Liquidity and Cash Flow Net cash flows from operating activities 2,872 642 611 920 5,045 2,578 Free cash flow 2,581 322 258 609 3,770 2,151 % of total revenue (IFRS) 49 6 5 9 16 41 % of profit after tax (IFRS) 487 48 26 33 93 304 Group liquidity, gross 7,345 4,927 4,960 4,785 4,785 8,270 Group debt –7,805 –6,716 –6,667 –6,264 –6,264 –7,723 Group liquidity, net Days' sales outstanding (DSO, in days)1) –460 72 –1,789 72 –1,706 72 –1,479 70 –1,479 70 546 68 Financial Position Cash and cash equivalents 5,937 4,236 4,220 4,011 4,011 7,598 Goodwill 23,091 21,949 21,353 21,267 21,267 20,854 Total assets 47,724 42,900 41,430 42,506 42,506 45,473 Equity ratio (total equity in % of total assets) 56 57 59 60 60 56 Non-Financials Number of employees (quarter end)2) 85,751 87,114 87,874 88,543 88,543 91,120 Employee retention (in %, rolling 12 months) 94.1 94.3 94.2 94.6 94.6 95.9 Women in management (in %, quarter end) 24.8 25.0 25.2 25.4 25.4 25.6 Greenhouse gas emissions (in kilotons) 100 55 80 90 325 100 1) Days’ sales outstanding measures the average number of days from the raised invoice to cash receipt from the customer. We calculate DSO by dividing the average invoiced trade receivables balance of the last 12 months by the average monthly cash receipt of the last 12 months. 2) In full-time equivalents. Due to rounding, numbers may not add up precisely . Half-Year Report January – June 2018 Q2 2018 17.4 27.3 49 73 41 77 69 20 74 78 8 30.0 27.8 0.60 0.98 421 4,867 14,538 29 41 407 16 0 2 4,688 –7,660 –2,972 68 4,515 23,377 45,481 57 93,846 94.3 25.8 75 47 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year € millions, unless otherwise stated IFRS Adj.1) Non- IFRS1) Currency Impact2) Q1–Q2 2018 Non-IFRS Constant Currency2) IFRS Q1–Q2 2017 Adj.1) Non- IFRS1) IFRS Revenue Numbers Cloud subscriptions and support 2,283 16 2,299 191 2,490 1,837 0 1,837 24 Software licenses 1,621 0 1,621 85 1,706 1,781 0 1,781 –9 Software support 5,391 0 5,391 400 5,791 5,467 0 5,467 –1 Software licenses and support 7,012 0 7,012 485 7,497 7,248 0 7,248 –3 Cloud and software 9,295 16 9,311 675 9,987 9,085 0 9,085 2 Services 1,965 0 1,965 169 2,134 1,981 0 1,981 –1 Total revenue 11,260 16 11,276 845 12,121 11,066 0 11,067 2 Operating Expense Numbers Cost of cloud subscriptions and support –941 100 –841 –793 122 –671 19 Cost of software licenses and support –1,001 71 –930 –1,134 110 –1,024 –12 Cost of cloud and software –1,942 171 –1,771 –1,927 232 –1,695 1 Cost of services –1,600 86 –1,514 –1,628 85 –1,543 –2 Total cost of revenue –3,542 257 –3,285 –3,555 317 –3,237 0 Gross profit 7,718 273 7,992 7,512 318 7,829 3 Research and development –1,761 127 –1,635 –1,694 153 –1,541 4 Sales and marketing –3,314 319 –2,995 –3,415 375 –3,041 –3 General and administration –548 67 –481 –569 82 –487 –4 Restructuring –22 22 0 –242 242 0 –91 Other operating income/expense, net –5 0 –5 8 0 8 <-100 Total operating expenses –9,192 791 –8,401 –599 –8,999 –9,467 1,168 –8,299 –3 Profit Numbers Operating profit 2,069 807 2,876 246 3,122 1,599 1,168 2,768 29 Other non-operating income/expense, net –91 0 –91 –10 0 –10 >100 Finance income 185 0 185 143 0 143 30 Finance costs –144 0 –144 –156 0 –156 –7 Financial income, net 41 0 41 –13 0 –13 <-100 Profit before tax 2,019 807 2,826 1,576 1,168 2,744 28 Income tax expense –591 –194 –785 –379 –359 –738 56 Profit after tax 1,428 613 2,041 1,197 810 2,006 19 Attributable to owners of parent 1,427 613 2,040 1,189 810 1,999 20 Attributable to non-controlling interests 0 0 0 7 0 7 –93 Key Ratios Operating margin (in %) 18.4 25.5 25.8 14.5 25.0 3.9pp Effective tax rate (in %)3) 29.3 27.8 24.1 26.9 5.2pp Earnings per share, basic (in €) 1.20 1.71 0.99 1.67 21 Half-Year Report January – June 2018 Non- IFRS1) 25 –9 –1 –3 2 –1 2 25 –9 4 –2 1 2 6 –2 –1 NA <-100 1 4 >100 30 –7 <-100 3 6 2 2 –93 0.5pp 0.9pp 3 ∆ in % Non-IFRS Constant Currency2) 36 –4 6 3 10 8 10 8 13 0.7pp 48 1) Adjustments in the revenue line items are for software support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges, share-based payment expenses, as well as restructuring expenses. 2) Constant currency revenue and operating income figures are calculated by translating revenue and operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see Explanation of Non-IFRS Measures. 3) The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2018 and 2017 mainly results from tax effects of acquisition-related charges and share-based payment expenses. Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 49 Explanation of Non-IFRS Adjustments – Half Year € millions Estimated Amounts for Full Year 2018 Operating profit (IFRS) Revenue adjustments 30–60 Adjustment for acquisition-related charges 550–610 Adjustment for share-based payment expenses 800–1,100 Adjustment for restructuring 25–35 Operating expense adjustments Operating profit adjustments Operating profit (non-IFRS) Non-IFRS-Adjustments by Functional Areas – Half Year € millions Q1–Q2 2018 IFRS Acqui- sition- Related SBP1) Restruc- turing Non-IFRS IFRS Acqui- sition- Related Cost of cloud and software –1,942 126 46 0 –1,771 –1,927 164 Cost of services –1,600 5 80 0 –1,514 –1,628 4 Research and development –1,761 3 123 0 –1,635 –1,694 5 Sales and marketing –3,314 134 185 0 –2,995 –3,415 135 General and administration –548 10 57 0 –481 –569 1 Restructuring –22 0 0 22 0 –242 0 Other operating income/expense, net –5 0 0 0 –5 8 0 Total operating expenses –9,192 278 491 22 –8,401 –9,467 309 1) Share-based payments Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 Q1–Q2 2018 Q1–Q2 2017 2,069 1,599 16 0 278 309 491 618 22 242 791 1,168 807 1,168 2,876 2,768 Q1–Q2 2017 SBP1) Restruc- turing Non- IFRS 68 0 –1,695 81 0 –1,543 148 0 –1,541 240 0 –3,041 81 0 –487 0 242 0 0 0 8 618 242 –8,299 50 Revenue by Region (IFRS and Non-IFRS) – Half Year € millions Q1–Q2 2018 Q1–Q2 2017 IFRS Adj.1) Non- IFRS1) Currency Impact2) Non-IFRS Constant Currency2) IFRS Adj.1) Non- IFRS1) IFRS Non- IFRS1) Cloud subscriptions and support revenue by region EMEA 671 0 671 26 697 479 0 479 40 40 Americas 1,333 16 1,349 140 1,488 1,159 0 1,159 15 16 APJ 280 0 280 25 304 200 0 200 40 40 Cloud subscriptions and support revenue 2,283 16 2,299 191 2,490 1,837 0 1,837 24 25 Cloud and software revenue by region EMEA 4,207 0 4,207 98 4,306 3,892 0 3,892 8 8 Americas 3,586 16 3,602 462 4,064 3,723 0 3,724 –4 –3 APJ 1,503 0 1,503 115 1,618 1,469 0 1,469 2 2 Cloud and software revenue 9,295 16 9,311 675 9,987 9,085 0 9,085 2 2 Total revenue by region Germany 1,617 0 1,617 2 1,619 1,455 0 1,455 11 11 Rest of EMEA 3,445 0 3,445 117 3,562 3,250 0 3,250 6 6 Total EMEA 5,062 0 5,062 120 5,182 4,705 0 4,705 8 8 United States 3,573 16 3,589 387 3,976 3,688 0 3,688 –3 –3 Rest of Americas 851 0 851 202 1,053 911 0 911 –7 –7 Total Americas 4,424 16 4,440 589 5,029 4,599 0 4,599 –4 –3 Japan 443 0 443 37 480 450 0 450 –1 –1 Rest of APJ 1,331 0 1,331 99 1,430 1,313 0 1,313 1 1 Total APJ 1,774 0 1,774 136 1,910 1,763 0 1,763 1 1 Total revenue 11,260 16 11,276 845 12,121 11,066 0 11,067 2 2 1) Adjustments in the revenue line items are for support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. 2) Constant currency revenue figures are calculated by translating revenue of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see Explanation of Non-IFRS Measures. Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2018 ∆ in % Non-IFRS Constant Currency2) 46 28 52 36 11 9 10 10 11 10 10 8 16 9 7 9 8 10 51 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there-mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management and Risks section, the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2017 and our Annual Report on Form 20-F for December 31, 2017, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, Half-Year Report January – June 2018 which speak only as of the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including International Data Corporation (IDC), the European Central Bank (ECB), and the International Monetary Fund (IMF). This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation on June 30, 2018, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non-IFRS measures, see our Web site www.sap.com/investors/sap-non- ifrs-measures. 52 Additional Information Financial Calendar October 18, 2018 Third-quarter 2018 earnings release, telephone conference January 29, 2019 Fourth-quarter and full-year 2018 preliminary earnings release, telephone conference May 15, 2019 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The tab “Financial Reports” contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) – SAP Annual Report on Form 20-F (IFRS, PDF) – SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Half-Year Report (IFRS, PDF) – XBRL version of the Consolidated Financial Statements and Notes – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. Half-Year Report January – June 2018 Addresses SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com The addresses of all our international subsidiaries and sales partners are available on our public Web site at www.sap.com/directory/main.html. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investor Imprint Overall responsibility: SAP SE Corporate Financial Reporting Published on July 19, 2018 Copyright Usage in Collateral © 2018 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. Please see www.sap.com/corporate- en/legal/copyright for additional trademark information and notices. 53 | Semestriel, 2018, Technology, SAP | write me a financial report |
Semestriel | 2,018 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Healthcare
### Company:
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| Half-year financial report | Siemens Healthineers P. 3 P. 19 P. 33 A.1 Business environment B.1 Consolidated Statements of C.1 Responsibility statement Income P. 5 P. 20 P. 34 A.2 Economic environment B.2 Consolidated Statements of Comprehensive Income C.2 Review report P. 6 P. 21 P. 35 A.3 Financial performance sys- B.3 Consolidated Statements of C.3 Notes and forward-looking tem Financial Position statements P. 7 P. 22 A.4 Results of operations B.4 Consolidated Statements of Cash Flows P. 9 P. 23 A.5 Asset positions B.5 Consolidated Statements of Changes in Equity P. 9 P. 24 A.6 Financial position B.6 Notes to Half-year Consoli- dated Financial Statements P. 10 A.7 Overall assessment of the economic position P. 11 A.8 Report on expected devel- opments P. 12 A.9 Report on material risks and opportunities P. 18 A.10 Related party transactions Introduction Siemens Healthineers AG’s Half-year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and comprises condensed Half-year Consolidated Financial Statements, an Inter- im Group Management Report and a Responsibility statement in accordance with §115 WpHG. The Half-year Consolidated Financial Statements are in accordance with International Financial Reporting Standards (“IFRS”) ap- plicable to interim financial reporting as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”). Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. 02 A.1 Business environment A.1.1 Organization and business description We are a medical technology company with activities in nu- merous countries around the world. Siemens Healthineers comprises Siemens Healthineers AG, a stock corporation under the laws of the Federal Republic of Germany, as the parent company and its subsidiaries. Siemens Healthineers AG has its registered seat in Munich, Germany, and is registered with the commercial register (Handelsregister) of the local court (Amtsgericht) of Munich, Germany, under docket number HRB 237558. Siemens Healthineers AG was founded and registered in the Commercial Register in December 2017. As of March 31, 2018, Siemens Healthineers had around 49 thousand employ- ees. Siemens Healthineers AG, whose fiscal year ends on Sep- tember 30 of each calendar year, operates as the holding company of Siemens Healthineers Group, also referred to as “Siemens Healthineers” or “Group”. The Group’s business is conducted by Siemens Healthcare GmbH and its direct and indirect subsidiaries as well as the direct and indirect subsidiar- ies of Siemens Healthineers Beteiligungen GmbH & Co. KG. Siemens Healthineers is a global provider of healthcare solu- tions and services with unique presence and scale in an attrac- tive market. With our three leading businesses and holistic system competence, we develop, manufacture and distribute a diverse range of market-leading and innovative imaging, diag- nostic and advanced therapies products and services to healthcare providers around the world. We also provide medi- cal technology and software solutions as well as clinical con- sulting services, supported by a complete set of training and service offerings. This comprehensive portfolio supports cus- tomers along the continuum of care – from prevention and early detection to diagnosis, treatment and follow-up care. Our business activities are to a certain extent resilient to short- term economic trends as large portions of our Revenue stems from recurring business. We are, however, dependent on regu- latory and public policy developments around the world. The global healthcare market served by Siemens Healthineers is transforming, putting healthcare providers under pressure for better outcomes at lower cost. Drivers of this transfor- mation include increasing societal resistance to healthcare costs, payers becoming more professional, a shift to value- based reimbursement, chronic disease burdens and rapid scientific progress. As a result, healthcare providers are consol- idating into networked structures, resulting in larger clinic and laboratory chains – often internationally – which act increas- ingly like large enterprises. Applying this industrial logic to the healthcare market can lead to systematic improvements in quality, while at the same time reducing costs. To capture these benefits, regulatory schemes around the world increas- ingly seek to shift healthcare incentive systems away from a basis in number of procedures to a basis in outcomes achieved. Half-year financial report | Siemens Healthineers Our business operations are divided into three segments: Imaging, Diagnostics and Advanced Therapies. Our Imaging segment is a leading global provider of imaging products and services. Our most important products within this segment are modalities comprising of magnetic reso- nance, computed tomography, x-ray systems, molecular imag- ing or ultrasound. Our Diagnostics segment is a leading global provider of diag- nostic products and services in laboratory, molecular and point of care diagnostics, including critical and chronical care which we provide to healthcare providers. Our Advanced Therapies segment is a leading global player in the production of highly-integrated products, solutions and services across multiple clinical fields, which we provide to therapy departments of healthcare providers. Our Advanced Therapies products facilitate minimally invasive treatment through the use of image-guided therapy, which have experi- enced growth in recent years in areas such as cardiology, in- terventional radiology, surgery and radiation oncology. Our most important products within this segment are the Angio systems and the Mobile C-arm. Within these three segments we provide comprehensive ser- vices along the entire customer value chain including consult- ing, design, maintenance, operational management, training and education services. Our services integrate such offerings as equipment performance management, clinical education and eLearning, asset management, managed departmental services, consulting, Digital Ecosystem and population health management. A.1.2 Developments due to the separation from Siemens Group Changes in corporate structure and separation from Siemens Group Our corporate structure has changed substantially in the first- half of the current fiscal year and the periods before in the context of the separation from Siemens AG and its subsidiaries (“Siemens Group”). In the wake of several country-specific carve-outs, Siemens Group’s healthcare-related activities, services and corporate support functions not held by separate, healthcare-dedicated legal entities were in the first step carved-out from Siemens AG and the relevant Siemens region- al companies and transferred to newly established or pre- existing healthcare-dedicated legal entities. In the second step, Siemens Healthineers AG registered in Munich, Germany, was established in a notarial foundation deed in December 2017, and several healthcare-related entities still held by Siemens AG or its direct and indirect subsidiaries were contributed against shares or sold and transferred to direct or indirect subsidiaries of Siemens Healthineers AG to further complete a stand-alone legal group structure. Dividends and domination and profit and loss transfer agreement Siemens Healthcare GmbH and Siemens AG were parties to a domination and profit and loss transfer agreement, which was consensually terminated by both parties with effect as of March 31, 2018. The Net income of Siemens Healthcare GmbH 03 according to the German GAAP financial statements for the six months ended March 31, 2018 is transferred to Siemens AG for the last time. Irrespective of the transfer of the Net income of Siemens Healthcare GmbH to Siemens AG for the six months ended March 31, 2018, it is intended that the amount of the fiscal year 2018 dividend to be paid by Siemens Healthineers AG in 2019 will be calculated based on Siemens Healthineers Net income in accordance with International Financial Reporting Standards (“IFRS”) generated during the entire period from October 1, 2017 until September 30, 2018, as if such profit transfer pursuant to the domination and profit and loss transfer agreement for the six months ended March 31, 2018 had not occurred. Capital measures As of March 31, 2018, the share capital of Siemens Healthi- neers AG amounts to €1.0 billion and is divided into 1,000,000,000 ordinary registered shares with no par value (auf den Namen lautende Stückaktien). The share capital has been fully paid up. Siemens Healthineers AG’s shares were created pursuant to the laws of Germany. Siemens Healthi- neers AG’s share capital has developed as follows: Siemens Healthineers AG was established with an original share capital of €50 thousand against contribution in cash. On February 2, 2018, the extraordinary shareholders’ meeting resolved to increase Siemens Healthineers AG’s share capital from €50 thousand to €1.0 billion by issuing 999,950,000 new shares. The consummation of the capital increase was registered with the commercial register of the local court in Munich, Germany, on February 9, 2018. On February 19, 2018, Siemens Healthineers AG’s extraordi- nary shareholders’ meeting resolved to create an authorized capital. The resolution was entered into the commercial regis- ter on February 27, 2018. Thereunder, the Managing Board is authorized, subject to the Supervisory Board’s prior consent, to increase Siemens Healthineers AG’s share capital on one or more occasions until February 18, 2023 by up to €500 million by issuing up to 500,000,000 new ordinary registered shares with no par value against cash and/or contributions in kind. On February 19, 2018, Siemens Healthineers AG’s extraordi- nary shareholders’ meeting resolved to create a conditional capital. Siemens Healthineers AG’s share capital is conditional- ly increased by up to €100 million by issuance of up to 100,000,000 new ordinary registered shares with no par val- ue. The conditional capital increase may only be implemented to grant shares when holders of bonds issued by Siemens Healthineers AG or a controlled entity until February 18, 2023 exercise conversion rights or warrants or conversion obliga- tions or warrants are fulfilled vis-à-vis such holders and insofar as other forms of fulfillment are not used. The Managing Board is authorized to issue bearer or registered bonds in an aggregate principal amount of up to €6.0 billion with conversion rights (convertible bonds) or with bearer or registered warrants attached (warrant bonds), or a combina- tion of these instruments, entitling the holders/creditors to subscribe to up to 100,000,000 new ordinary registered shares of Siemens Healthineers AG with no par value, representing a pro rata amount of up to €100 million of the share capital. The extraordinary shareholders’ meeting held on February 19, 2018 authorized the Managing Board to repurchase shares of Half-year financial report | Siemens Healthineers Siemens Healthineers AG until February 18, 2023 for every permissible purpose, up to a limit of 10% of its share capital as of the date of the resolution or as of the date on which the authorization is exercised if the latter value is lower. As of March 31, 2018, Siemens Healthineers AG does not hold any of its own shares, nor does a third party hold any shares on behalf of, or on the account of, Siemens Healthineers AG. Initial public offering (“IPO”) On March 16, 2018 Siemens Healthineers AG successfully performed its stock market debut with its shares trading for the first time on the Frankfurt Stock Exchange. On March 29, 2018, Siemens Healthineers AG share closed on the Frankfurt Stock Exchange at € 33.39, which was well above the place- ment price of € 28.00. In total, 150,000,000 existing ordinary registered shares (including over-allotments), representing a free float of 15%, were placed at the IPO by Siemens Group which received the resulting proceeds. Siemens Group holds a 85% stake in Siemens Healthineers AG following the IPO and will retain a majority stake in the long-term. Siemens Healthi- neers AG’s shares, trading under the ticker symbol SHL, are listed in the Regulated Market (Prime Standard) of the Frank- furt Stock Exchange. A.1.3 Research and development Our research and development (“R&D”) activities are ultimately geared towards developing innovative, sustainable solutions for our customers and simultaneously safeguarding our com- petitiveness. Consequently, we are focusing our R&D activities on a number of selected technologies and innovation fields. Siemens Healthineers’ R&D activities include the development of innovative product lines which use new technologies such as digitalization or artificial intelligence. This will, amongst other results, enable faster handling of medical information and can lead to more precise and personalized clinical deci- sions. It also promises added value: New computer algorithms can detect hidden patterns in the data and give physicians valuable support for diagnosis and therapy decisions. In addition to constantly innovating our portfolio, Siemens Healthineers continuously extends existing products and solu- tions. Our customers’ performance improves with systems such as the recently launched Atellica. This laboratory diagnos- tics platform transports samples ten times faster than previous systems and it is also more flexible. The services business is expanding beyond product related services by adding a digital services portfolio and increasing enterprise transformation services to help customers in their transition to outcome-focused care. A major step forward is the Digital Ecosystem platform which links healthcare provid- ers and solution providers to one another as well as brings together their data, applications and services. Users gain new insights through data analytics and use it to network with their peers. Our own R&D workforce operates globally in different R&D sites. The distribution of our development workforce across an internationally balanced network of sites enables us to better cater to the needs of local markets and gives us access to local talent pools, allowing us to hire the best people available for 04 the job. We supplement our internal capabilities through our relationships with strategic partners. In the six months ended March 31, 2018, we reported R&D expenses of €614 million, compared to €606 million in the six months ended March 31, 2017. The resulting R&D intensity, defined as the ratio of R&D expenses and Revenue, was 9.6% in the six months ended March 31, 2018, compared to the R&D intensity of 9.0% in the six months ended March 31, 2017. Additions to capitalized development expenses amounted to €61 million in the six months ended March 31, 2018, compared to €93 million in the six months ended March 31, 2017. Depreciation of capitalized development expenses amounted to €40 million in the six months ended March 31, 2018, compared to €28 million in the six months ended March 31, 2017. Half-year financial report | Siemens Healthineers A.2 Economic environment A.2.1 Worldwide economic environment The growth rate of the global economy started to diminish during the six months ended March 31, 2018. The expansion of world gross domestic product (“GDP”), which amounted to 3.0% in calendar year 2017 and was the strongest for the last five years, is still projected to rise to 3.1% in calendar year 2018 (based on market exchange rates). The global upswing was broad-based on a regional and structural basis. In both emerging markets and advanced countries, economic activity kept growing; whereas the growth in advanced countries started to stagnate. Uncertainties stemming mainly from (geo)political risks such as impending trade tariffs and further protectionist measures had limited effects on the global econ- omy. The partially estimated figures presented here are based on forecasts and statistics of the World Bank and the Interna- tional Monetary Fund (“IMF”). A.2.2 Market development In addition to the above mentioned global economic develop- ments, our addressable markets are shaped by four major trends. Our business is driven by various demographic trends including the growing and ageing global population. This increase poses major challenges to the global healthcare sys- tems and, at the same time, opportunities for us as the de- mand for cost efficient healthcare solutions is intensifying. The second trend relates to the economic development in emerg- ing countries that leads to improved access to healthcare. Due to a growing middle class, there continues to be significant investment in the expansion of private and public healthcare systems, driving overall growth. The third trend is the increase in chronic diseases which is being driven by an ageing popula- tion and environmental and lifestyle-related changes. The last global trend with considerable effect on our business devel- opment is the transformation of healthcare providers. Due to increasing cost pressure on the healthcare sector, new remu- neration models for healthcare services are being introduced. Digitalization and artificial intelligence are likely to be key enablers for healthcare providers as they increasingly focus more on enhancing the overall patient experience, under- pinned by better outcomes and overall reduction in cost of care. While demand for our products continues to grow, this trend was partially offset by price pressure on new purchases and increased utilization rates for installed systems. The develop- ment in the Imaging segment benefits from a wider range of applications and increasing patient access to imaging technol- ogy. The market for Diagnostics is expanding due to popula- tion and income growth in emerging markets and the rising importance of diagnostics in improving healthcare quality. Growth in the area of molecular diagnostics was particularly strong, driven by technological advances and a broader spec- trum of applications. For the healthcare industry as a whole, the trend towards consolidation continues. Competition among the leading companies is strong, especially with regard to price. 05 The Imaging market is benefiting from a paradigm shift to- wards precision medicine and increasing utilization of imaging devices in therapy, screening and intervention. These trends will continue to drive the demand for broader imaging ap- plicability and digitalization. Furthermore, as developments in artificial intelligence, big data and deep machine learning continue to direct the future of population health manage- ment, highly intelligent imaging systems will continue to be- come critical to the management and delivery of care. The global Imaging market in fiscal year 2016 was estimated to be €17.4 billion and is expected to grow at a compound annual growth rate (“CAGR”) of 3% from 2016 to 2021, with Asia- Pacific being the largest and fastest growing geographical region at a CAGR of 5% over the same time period. The global market is expected to be driven by sustainable underlying trends across imaging modalities and geographies. The Diagnostics market is fragmented with global players competing internationally across market segments, but also facing competition from several regional players and special- ized companies with niche technologies. The Diagnostics mar- ket is subject to a number of fundamental drivers that are expected to drive the Diagnostics industry going forward. Firstly, increased awareness of wellness testing along with a rise in non-communicable diseases is pushing a broader seg- ment of the population to engage in more regular prevention tests. Secondly, the increased demand from emerging markets supported by economic growth, the increase in addressable market and the expansion of universal health and primary care models in these emerging markets benefits our growth, also due to rising expenditures by governments in developing countries expanding the healthcare infrastructure to rural communities. Finally, the improvement of diagnostics tech- niques, potential for newer tests and an increased focus to- wards precision medicine are expected to drive incremental market expansion. The global Diagnostics market (including molecular services) amounted to approximately €31 billion in fiscal year 2016 with an expected CAGR of 6% from 2016 to 2021. The Advanced Therapies market is largely influenced by proce- dural developments. It is estimated that approximately half of the procedure growth is resulting in equipment growth. For example, open surgery as a standard procedure for operations is accompanied by long recovery time, high risk of complica- tions and high costs for hospitals. Driven by technological innovations in imaging, robotics, medical devices and IT, min- imally invasive procedures are emerging as the new standard as they counteract the disadvantages and result in, among other things, lower risks of complications, smaller scars, faster recovery time, less post-operation pain, shorter hospital stays and less incurred costs. Aside from this, new and complex procedures across all interventional clinical disciplines require complex technological devices supporting these procedures. The market for our Advanced Therapies products in fiscal year 2016 (excluding radiation oncology) was estimated to be €2.8 billion and is expected to grow at a CAGR of 4% from 2016 to 2021. Market growth is primarily driven by sustainable growth trends across clinical fields and particularly across minimally invasive procedures. Half-year financial report | Siemens Healthineers A.3 Financial performance system Key performance indicators (“KPIs”) Our primary measure for managing and controlling our Reve- nue growth is Comparable revenue growth, because it shows the development in our business net of currency translation effects, which arise from the external environment outside of our control, and portfolio effects, which involve business activ- ities which are either new to or no longer a part of our busi- ness. We use Profit margin as indicator for evaluating our operating performance. Profit is defined as Income before income taxes, Financing interest, certain pension costs and Amortization expenses of intangible assets acquired in business combina- tions. Profit margin is defined as Profit of Siemens Healthi- neers or of the respective segment, divided by its (Total) Reve- nue. For Siemens Healthineers Revenue is defined as consoli- dated Siemens Healthineers Revenue as reported in the Con- solidated Statements of Income. On a segment level Revenue is defined as Total revenue, including Siemens Healthineers’ Intersegment revenue. In the six months ended March 31, 2018, Siemens Healthineers incurred exceptional expenses for IPO charges, which are related to one-time external costs di- rectly linked to the offering and are shown in central items and severance charges related to costs in connection with person- nel restructuring programs. These charges were special items that did not reflect the underlying performance of the busi- ness and, therefore, adversely affected the comparability of the Profit. Therefore, we adjust Profit (as defined above) and the Profit margin figures for these one-time effects (“Adjusted profit” and “Adjusted profit margin”). For the calculation of Adjusted profit margin the same Revenue definitions as de- scribed above are applied. For the reporting period a reconcili- ation of Profit and Profit margin to Adjusted profit and Adjust- ed profit margin is depicted in the tables in chapter 4.2. In- come. Both KPIs, Comparable revenue growth and (Adjusted) Profit margin are measured and used for management, controlling and for the evaluation of the operating performance of each segment and of Siemens Healthineers in total. Dividend We intend to provide an attractive return to our shareholders. Therefore, we intend to propose a dividend whose distribution volume is within a dividend payout range of 50% to 60% of Net income, which we may adjust for this purpose to exclude selected exceptional non-cash effects. 06 A.4 Results of operations A.4.1 Revenue by region and segment Revenue decreased by €298 million, or 4%, from €6,723 mil- lion for the six months ended March 31, 2017 to €6,425 mil- lion for the six months ended March 31, 2018. On a compara- ble basis Revenue increased in the first half of fiscal year 2018 year by 3% driven by the Imaging and Advanced Therapies segments. Negative currency translation effects took seven percentage points from revenue growth; portfolio transactions had a min- imal effect on overall Revenue development year-over-year. Revenue by region (location of customer) First Half % Change (in millions of €) 2018 2017 Act. Comp. Europe, C.I.S., Africa, Middle East 2,098 2,067 2% 5% therein Germany 408 437 −7% −5% Americas 2,512 2,804 −10% 0% therein U.S. 2,104 2,372 −11% −1% Asia, Australia 1,815 1,851 −2% 5% therein China 815 730 12% 16% Siemens Healthineers 6,425 6,723 −4% 3% First Half % Change (in millions of €) 2018 2017 Act. Comp. Siemens Healthineers 6,425 6,723 −4% 3% therein Imaging 3,889 3,980 −2% 5% therein Diagnostics 1,899 2,057 −8% 0% therein Advanced Therapies 720 738 −2% 5% The strong Comparable revenue growth in the Europe, C.I.S, Africa, Middle East (“EMEA”) region was supported by all seg- ments including a very sharp increase in Advanced Therapies. In Germany, a slight growth in Diagnostics was offset by a sharp decline in Imaging. Half-year financial report | Siemens Healthineers In the Americas, Revenue growth was flat year-over-year on a comparable basis. A moderate increase in Imaging was offset by a decline in Diagnostics. Revenue in Asia, Australia was clearly up year-over-year on a comparable basis. Growth within the region was driven by the extraordinary performance in China, which grew across all segments, especially Imaging. The total demand for our products has increased which sup- ports our short- and mid-term growth aspirations. The Total revenue generated by our Imaging segment in- creased by 5% on a comparable basis, with contributions from all businesses. In particular, Magnetic Resonance (“MR”) showed significant growth based on its continued innovation leadership. Due to negative currency translation effects, Reve- nue as reported decreased by €91 million, or 2%, from €3,980 million for the six months ended March 31, 2017 to €3,889 million for the six months ended March 31, 2018. On a re- gional basis, all three regions contributed to comparable Reve- nue growth: Asia, Australia was driven by the fast growing market in China, while growth in the Americas was impacted by uncertainties related to healthcare reimbursement in the U.S. EMEA shows a mixed picture with some countries under pressure, e.g. Germany. The Comparable revenue growth generated by our Diagnostics segment remained flat in the first half fiscal year 2018. Due to negative currency translation effects Revenue as reported decreased by €158 million, or 8%, from €2,057 million for the six months ended March 31, 2017 to €1,899 million for the six months ended March 31, 2018. On a geographical basis, the solid growth in EMEA and Asia, Australia was offset by a de- crease in Americas. The Total revenue generated by our Advanced Therapies seg- ment decreased by €18 million, or 2%, from €738 million for the six months ended March 31, 2017 to €720 million for the six months ended March 31, 2018. On a comparable basis the revenue increased by 5%, driven by EMEA and China. This Revenue growth in Advanced Therapies has primarily been influenced by the structural shift from open surgeries to more minimally invasive procedures in which our products (and related services) play an integral role. 07 A.4.2 Income Reconciliation from Profit to Adjusted profit (margin) and Net income. First half (in millions of €) 2018 2017 Profit 980 1,177 therein Imaging 742 755 therein Diagnostics 224 275 therein Advanced Therapies 137 168 Severance charges and IPO costs 126 26 Adjusted profit 1,107 1,203 therein Imaging 756 763 therein Diagnostics 234 285 therein Advanced Therapies 139 169 Adjusted profit margin 17.2% 17.9% therein Imaging 19.4% 19.2% therein Diagnostics 12.3% 13.9% therein Advanced Therapies 19.3% 22.9% First half (in millions of €) 2018 2017 Profit 980 1,177 Financing interest −106 −140 PPA amortization −64 −77 Income tax expenses −192 −294 Net Income 618 666 Profit decreased by €197 million, or 16.7%, from €1,177 mil- lion for the six months ended March 31, 2017 to €980 million for the six months ended March 31, 2018. The decrease was primarily due to significant negative currency effects and IPO costs. In the six months ended March 31, 2018 we encoun- tered one-off effects due to the IPO costs as well as severance charges amounting to €126 million. Thereof, severance charg- es were €33 million (first half FY 2017: €26 million). Excluding severance charges and IPO costs the Adjusted profit was lower than in the prior year. The Adjusted profit margin decreased from 17.9% for the six months ended March 31, 2017 to 17.2% for the six months ended March 31, 2018. Research and development expenses increased by €8 million, or 1%, from €606 million for the six months ended March 31, 2017 to €614 million for the six months ended March 31, 2018. Selling and general administrative expenses decreased by €44 million, or 4%, from €1,109 million for the six months ended March 31, 2017 to €1,065 million for the six months ended March 31, 2018. The decrease was due primarily to positive currency translation effects; on a comparable basis the ex- penses increased modestly. Half-year financial report | Siemens Healthineers Financing interest decreased by €34 million, from €140 million for the six months ended March 31, 2017 to €106 million for the six months ended March 31, 2018. This decrease was due primarily to the repayment of loans during the legal reorgani- zation at their fair value resulting in a gain of €27 million. Income tax expenses decreased by €102 million, or 35%, from €294 million for the six months ended March 31, 2017 to €192 million for the six months ended March 31, 2018. The decrease was due primarily to the completion tax audits and a lower Income before Income taxes. Our effective income tax rate decreased from 31% in the six months ended March 31, 2017 to 24% in the six months ended March 31, 2018. Based on the effects stated above Net income decreased by €48 million, or 7%, from €666 million for the six months end- ed March 31, 2017 to €618 million for the six months ended March 31, 2018. Profit of total segments (i.e. the sum of profit for each of the segments excluding central items and reconciliation) de- creased by €95 million, or 8% from €1,198 million for the six months ended March 31, 2017 to €1,103 million for the six months ended March 31, 2018. The Profit generated by the Imaging segment was negatively impacted by currency effects and decreased by €13 million, or 2%, from €755 million for the six months ended March 31, 2017 to €742 million for the six months ended March 31, 2018. In the six months ended March 31, 2018, €14 million severance charges were excluded from Profit in order to obtain the Adjusted profit. This results in an Adjusted profit margin of 19.4%, which is slightly above prior year level, despite severe headwinds from currency effects. Overall, profitability in the six months ended March 31, 2018 is supported by strong Comparable revenue growth. The Profit generated by the Diagnostics segment decreased by €51 million, or 19%, from €275 million for the six months ended March 31, 2017 to €224 million for the six months ended March 31, 2018. In the six months ended March 31, 2018, €10 million severance charges were excluded from Profit in order to obtain the Adjusted profit and the Adjusted profit margin of 12.3% compared to 13.9% for the six months ended March 31, 2017. The decrease was due primarily to transition to Atellica Solution. The Profit generated by the Advanced Therapies segment decreased by €31 million, or 18%, from €168 million for the six months ended March 31, 2017 to €137 million for the six months ended March 31, 2018. In the six months ended March 31, 2018, €1 million severance charges were excluded from Profit in order to obtain the Adjusted profit and the Ad- justed profit margin of 19.3% compared to 22.9% for the six months ended March 31, 2017. The Adjusted profit resulted in €139 million compared to €169 million in the prior period. The decrease was due primarily to adverse currency effects and investments in our mid- and long-term plan for a significant portfolio evolution. 08 A.5 Asset positions Mar 31, Sep 30, % (in millions of €) 2018 2017 Change Current assets 6,890 7,794 −12% Non-current assets 11,937 13,319 −10% Total assets 18,828 21,113 −11% Our Total assets in the six months ended March 31, 2018 were influenced by negative currency translation effects driven by the development of the U.S. dollar. Current assets The bundling of the Siemens Healthineers AG’s cash manage- ment activities towards Siemens Group results in a balance sheet contraction impacting receivables and liabilities to Sie- mens Group. Receivables from Siemens Group decreased from €2,991 million as of September 30, 2017 to €1,687 million as of March 31, 2018. This effect was partly offset by an increase in operating work- ing capital, mainly in Inventories. This reflects investments into Atellica ramp-up and to secure supply capabilities. Non-current assets The non-current assets decreased by €1,382 million, or 10%, primarily driven by a decrease in Other receivables from Sie- mens Group from €1,365 million as of September 30, 2017 to €0 as of March 31, 2018, in the course of refinancing of Sie- mens Healthineers prior to the IPO. The Property, plant and equipment increased mainly related to equipment leased to Diagnostics’ customers, Advances to suppliers and construction in progress. Half-year financial report | Siemens Healthineers A.6 Financial position A.6.1 Capital structure Mar 31, Sep 30, % (in millions of €) 2018 2017 Change Current liabilities 5,498 10,110 −46% Non-current liabilities 5,531 7,714 −28% Equity 7,799 3,289 137% Total liabilities and equity 18,828 21,113 −11% Current liabilities The decrease of current liabilities was due primarily to the decline of Payables to Siemens Group from €5,795 million as of September 30, 2017 to €1,366 million as of March 31, 2018. Further details stated in chapter A.5 Assets positions. Non-current liabilities Non-current liabilities decreased mainly due to the decline of Other liabilities to Siemens Group from €5,167 million as of September 30, 2017 to €3,788 million as of March 31, 2018 as a result of the early repayment of U.S. dollar long-term loans. Provisions for pensions and similar obligations decreased as well from €1,732 million as of September 30, 2017 to €1,037 million as of March 31, 2018. In the second quarter of fiscal year 2018, Siemens Healthineers established a contractual trust arrangement (CTA) in Germany to finance its obligations related to defined benefit pension plans that had already been transferred from Siemens Group to Siemens Healthineers as part of the legal reorganization. During the interim reporting period Siemens Healthineers, received assets by way of a capi- tal contribution, recognized within capital reserves, from Sie- mens AG which were funded into the CTA and classify as plan assets. As of March 31, 2018 their fair value amounts to €758 million. Siemens Healthineers’ net defined benefit balance is reduced accordingly. Equity Equity increased from €3,289 million as of September 30, 2017 to €7,799 million as of March 31, 2018 due to the com- pletion of the legal reorganization in advance of the IPO and the Net income of the first half of fiscal year 2018. The increase was partly offset by profit transfer and dividends paid to Siemens Group. Debt and credit facilities Under a facilities agreement entered into between Siemens Group and Siemens Healthineers in the six months ended March 31, 2018, two credit facilities have been made available to Siemens Healthineers by Siemens AG. A multicurrency re- volving credit facility in an amount of up to €1.1 billion, avail- able until January 31, 2020, serves as a working capital and short-term loan facility. Of this credit facility a total of €0.6 billion were drawn as of March 31, 2018. Additionally, a mul- ticurrency revolving credit facility in an amount of €1.0 billion, 09 available until January 31, 2023, provides funding for back-up purposes. As of March 31, 2018 the back-up facility has not been drawn. In addition, existing term loans in an aggregate volume of up to approximately €3.5 billion equivalent (carrying amount) and a maturity ranging from 2021 to 2046 remain outstanding between Siemens Group companies and certain companies of Siemens Healthineers. Those loans are denominated predomi- nantly in U.S. dollar and are covered by separate agreements. In addition, local bank facilities are in place to cover funding needs of certain Siemens Healthineers entities to which Sie- mens Healthineers is not able to provide direct funding. A.6.2 Cash flows First half (in millions of €) 2018 Cash flows from: Operating activities 401 Investing activities −441 Financing activities 57 First half (in millions of €) 2018 Operating activities 401 Additions to intangible assets and property, plant and equipment −219 Free cash flow 183 Operating activities The cash provided by operating activities decreased by €361 million from €762 million in the six months ended March 31, 2017. This decrease was primarily due to a buildup of operat- ing working capital. This was mainly driven by the increase of Contract assets and Inventories, caused largely by Imaging and Advanced Therapies segments, an increase in operating leases to customers in Diagnostics segment and additional cash out for IPO costs. Investing activities Cash outflows used in investing activities increased by €245 million from €196 million in the six months ended March 31, 2017. This increase was primarily due to cash outflows related to Acquisitions of businesses, net of cash acquired, which increased from €6 million in the six months ended March 31, 2017 to €227 million in the six months ended March 31, 2018 and related primarily to our acquisitions of Epocal, Inc. and Fast Track Diagnostics S.à.r.l. Our investments are driven mainly by enhancing competitive- ness and innovation. Our capital expenditures comprise addi- tions to intangible assets, including capitalized development expenses for new platforms and a new integrated worldwide Enterprise Resource Planning (“ERP”) solution (SAP) as well as Property, plant and equipment and equipment replacements, Half-year financial report | Siemens Healthineers enhancements and extensions in the ordinary course of busi- ness as shown in our Consolidated Statements of Cash Flows. Our capital expenditures, including our ongoing investments, are funded by cash flows from operating activities, existing liquidity and partly by drawing on credit facilities agreed e.g. with Siemens Group. Additions to property, plant and equip- ment have grown faster than Revenue and have been princi- pally related to investments required to expand our manufac- turing and technical capabilities and facilities. For the fiscal year ending September 30, 2018, we have budgeted capital expenditures in an amount of approximately €0.5 billion. Focus areas of ongoing investing activities of our segments are: Imaging: Additions to property, plant and equipment in the first half of fiscal year 2018 mainly included the acquisition of new and specialized tooling, equipment and machinery, the expansion and reorganization of production facilities and processes as well as ongoing replacement purchases for ma- chinery and equipment within the ordinary course of business. The expected investments in Property, plant and equipment for the second half of fiscal year 2018 relate to the same topics as mentioned above. Diagnostics: Additions to property, plant and equipment have generally increased and have been principally related to in- vestments in the production facilities. While the intangible capital expenditures have decreased mainly due to the com- mercial launch of Atellica Solution in September 2017. The expansion of the Atellica assay menu and development of further products within the Atellica product family will remain a major investment in the remaining fiscal year 2018. Advanced Therapies: In the six months ended March 31, 2018, no major new investments were performed in this segment except for ongoing replacement purchases for machinery, specialized tools and equipment. We expect investments to remain mostly unchanged in remaining fiscal year 2018. Financing activities Cash flows provided by financing activities changed by €644 million from a cash outflow of €587 million in the six months ended March 31, 2017 to a cash inflow of €57 million in the six months ended March 31, 2018. This development was primarily due to Other transactions/financing with the Siemens Group resulting in a cash inflow of €386 million in the six months ended March 31, 2018 compared to a cash outflow of €280 million in the six months ended March 31, 2017 and was primarily related to capitalization measures in the context of the legal reorganization prior to the IPO. The development was partly offset by an increase in dividends paid to the Siemens Group from €188 million in the six months ended March 31, 2017 to €230 million in the six months ended March 31, 2018. Cash pooling As of March 31, 2018, we continue to participate in Siemens Group’s cash pooling arrangements, including investing excess short term liquidity with Siemens Group but currently expect to set up our own cash pooling structure in the medium term to (partially) replace the participation in Siemens Group’s cash pools. 10 A.7 Overall assessment of the economic position In the six months ended March 31, 2018, we founded the new parent company Siemens Healthineers AG, which serves as our new holding company. In the wake of the IPO, which was carried out successfully on March 16, 2018, we performed major changes to the organization and segmentation. In the six months ended March 31, 2018, we continued to grow as expected, especially our comparable Revenue growth as well as our Adjusted profit margin were on track with our forecasts. We reached significant milestones for the strategic development of Siemens Healthineers and initiated important measures to further strengthen our portfolio. Half-year financial report | Siemens Healthineers A.8 Report on expected develop- ments A.8.1 Worldwide economy Global economy growth will increase slightly in fiscal year 2018 compared to fiscal year 2017. Worldwide GDP is ex- pected to grow by 3.1% in calendar year 2018, which consti- tutes the highest growth rate since 2010. Emerging markets are forecasted to benefit from stronger global growth and rising commodity prices. The U.S. economy is anticipated to see moderate growth of 2.7% which is supported by tax reduc- tions and infrastructure projects. GDP growth is driven by consumer spending, which is supported by declining unem- ployment, rising incomes and household wealth. This devel- opment probably will be supported by strengthening markets in calendar year 2018. Interest rates are anticipated to contin- ue to gradually rise led by some central bank rates. The expan- sion in the Eurozone is expected to continue, with a GDP fore- cast of 2.2% after a prolonged period of stagnation and reces- sion. Supportive factors include continued monetary stimulus, reduced headwinds from fiscal policy and improving confi- dence of companies and households. GDP growth in China is expected to moderate further in calendar year 2018 to 6.6%, down from 6.8% in 2017. However, the near-term strength masks longer-term fragilities, especially very high debt levels. Also, the government has made only slow progress in reducing overcapacities. The forecasts presented here for GDP are based on forecasts and statistics published by the IMF and World Bank. A.8.2 Business development Market development In the remaining fiscal year 2018, market volume measured in euro is expected to be influenced by negative currency transla- tion effects. For fiscal year 2018, markets for Siemens Healthi- neers are expected to stay on a moderate growth path. Our markets continue to benefit from long-term trends such as growing and aging populations and from broader access to healthcare, but are restricted by public spending constraints and by consolidation of healthcare providers. On a geographic basis, we expect slight growth in the U.S., held back by con- tinued pressure to increase utilization of existing equipment, reduced reimbursement rates and policy uncertainty. For Eu- rope, we also expect slight growth, with equipment replace- ment and business with large customers such as hospital chains gaining further importance. For China, we expect mod- erate growth due to continuously growing government spend- ing on healthcare, promoting the private segment and ex- panding access on county level, pronounced effects of aging and growing incidence of chronic diseases, partly held back by governmental restrictions such as centralized tendering and regulatory oversight of large-scale equipment allocation and use. Governments in a number of countries show the intention to establish protectionist initiatives and policies which support local suppliers. We are exposed to currency translation effects, particularly involving the U.S. dollar and currencies of emerging markets, 11 such as the Chinese yuan. We expect volatility in global cur- rency markets to continue in the six months ending September 30, 2018. Siemens Healthineers is still a net exporter from the Eurozone to the rest of the world, which means that a weak euro is principally favorable for our business and a strong euro is principally unfavorable. We hedge currency risks in our ex- port business using derivative financial instruments. We ex- pect this measure to help us limit effects on income related to currency fluctuations in the second half of fiscal year 2018. Segment development The Imaging segment will primarily be driven by the most recent and planned launches of new products and platforms and sales of imaging products and services from our existing portfolio. We expect mid-single digit growth in the Imaging segment to achieve the fiscal year targets. The Diagnostics segment will benefit from new products and from fundamental drivers such as the increased demand from emerging markets, the expected rise in awareness of wellness testing as well as the improvement of diagnostics techniques, which altogether are expected to drive incremental market expansion. In the Diagnostics segment we expect modest growth to achieve the fiscal year targets. The Advanced Therapies segment is positively influenced by sustainable developments of the business environment in all addressed clinical areas, such as an increased complexity of interventional surgery as well as an increase in minimally invasive treatments. These market drivers expectedly will in- crease demand for products and solutions of the segment, supporting our growth expectations. We expect moderate growth in the segment Advanced Therapies to achieve the fiscal year targets. A.8.3 Overall assessment of the expected devel- opment We continue to expect Comparable Revenue growth to be in the range of 3% to 4% for the fiscal year ending September 30, 2018 compared to the fiscal year ended September 30, 2017. We expect our Adjusted profit margin for the fiscal year ending September 30, 2018 to be in the range of 17% to 18%. The actual development for Siemens Healthineers and its segments may vary, positively or negatively, from our outlook due to the risks and opportunities described below or if our expectations and assumptions do not materialize. Half-year financial report | Siemens Healthineers A.9 Report on material risks and opportunities A.9.1 Risks A.9.1.1 Risk management Our risk management policy stems from a philosophy of pur- suing sustainable growth and creating economic value while managing appropriate risks and opportunities and avoiding inappropriate risks. As risk management is an integral part of how we plan and execute our business strategies, our risk management policy is set by the Managing Board. Our organi- zational and accountability structure requires each of the re- spective managements of our Siemens Healthineers business, zones and Siemens Healthineers functions to implement risk management programs that are tailored to their specific busi- ness and responsibilities, while being consistent with the overall policy. We have implemented and coordinated a set of risk manage- ment and control systems which support us in the early phases of development that could jeopardize the continuity of our business. The most important of these systems include our enterprise wide processes for strategic planning and manage- ment reporting. Strategic planning is intended to support us in considering potential risks well in advance of major business decisions, while management reporting is intended to enable us to monitor such risks more closely as our business progress- es. Our internal auditors regularly review the adequacy and effectiveness of our risk management system. Accordingly, if deficiencies are detected, it is possible to adopt appropriate measures for their elimination. This coordination of processes and procedures is intended to help ensure that the Managing Board and the Supervisory Board are fully informed about significant risks in a timely manner. Risk management at Siemens Healthineers builds on a com- prehensive, interactive and management-oriented Enterprise Risk Management (“ERM”) approach that is integrated into the organization and that addresses both risks and opportunities. Our ERM approach is based on the globally accepted Commit- tee of Sponsoring Organizations of the Treadway Commission (“COSO”) ‘Enterprise Risk Management – Integrated Frame- work’ (2004) and is adapted to Siemens Healthineers require- ments. It additionally conforms to International Organization for Standardization (“ISO”) Standard 31000 (2009). Our ERM process aims for early identification and evaluation of, and response regarding, risks and opportunities that could materially affect the achievement of our strategic, operational, financial and compliance objectives. The time horizon covered by ERM is typically three years. Our ERM is based on a net risk approach, addressing risks and opportunities remaining after the execution of existing control measures. If risks have al- ready been considered in plans, budgets, forecasts or the fi- nancial statements (e. g. as a provision or risk contingency), they are supposed to be incorporated with their financial im- pact in the entity’s business objectives. As a consequence, only additional risks arising from the same subject (e. g. deviations from business objectives, different impact perspectives) should be considered for the ERM. In order to provide a comprehen- sive view on our business activities, risks and opportunities are 12 identified in a structured way combining elements of both top- down and bottom-up approaches. Reporting generally follows a quarterly cycle while this regular reporting process is com- plemented by an ad-hoc reporting process that aims to esca- late critical issues in a timely manner. Relevant risks and op- portunities are prioritized in terms of impact and likelihood, considering different perspectives, including business objec- tives, reputation and regulatory matters. The bottom-up iden- tification and prioritization process is supplemented by work- shops with the respective managements of the Siemens Healthineers business, zones and central functions. This top- down element ensures that potential new risks and opportuni- ties are discussed at the management level and are included in the subsequent reporting process, if found to be relevant. Reported risks and opportunities are analyzed regarding po- tential cumulative effects and are aggregated within and for each of the organizations mentioned above. Responsibilities are assigned for all relevant risks and opportu- nities, with the hierarchical level of responsibility depending on the significance of the respective risk or opportunity. In a first step, assuming responsibility for a specific risk or oppor- tunity involves choosing one of our general response strate- gies. Our general response strategies with respect to risks are avoidance, transfer, reduction or acceptance of the relevant risk. Our general response strategy with respect to opportuni- ties is to ‘seize’ the relevant opportunity. In a second step, responsibility for a risk or opportunity also involves the devel- opment, initiation and monitoring of appropriate response measures corresponding to the chosen response strategy in a timely manner. These response measures have to be specifical- ly tailored to allow for effective risk management. Accordingly, we have developed a variety of response measures with differ- ent characteristics. Below we describe the risks that could have a material adverse effect on our business, financial condition (including effects on assets, liabilities and cash flows), results of operations and reputation. The order in which the risks are presented in each of the four categories reflects the currently estimated relative exposure for Siemens Healthineers associated with these risks and thus provides an indication of the risks’ current im- portance to us. Additional risks not known to us or that we currently consider immaterial may also negatively impact our business objectives and operations. Unless otherwise stated, the risks described below relate to all of our segments. A.9.1.2 Strategic risks Increasing governmental protectionism Protectionist trade policies and changes in the political and regulatory environment in the markets in which we operate, such as import and export controls, tariffs and other trade barriers including debarment from certain markets and price or exchange controls, could affect our business in several national markets and could impact our business, financial position and results of operations; and may expose us to pen- alties, other sanctions and reputational damage. In particular the current protectionist developments enforced by the U.S. Government and looming punitive trade tariffs on different goods pose a threat to the open access of the North American markets, which are of great importance to our business. The imposition of import customs duties and non-refundable taxes Half-year financial report | Siemens Healthineers on foreign value add may result in the necessity to reduce transfer prices due to the inability to pass the taxes on to cus- tomers. In addition, the uncertainty of the legal environment in some regions could limit our ability to enforce our rights and subject us to increasing costs related to appropriate com- pliance programs. To counter these risks we closely observe the political situation and its indicators in order to identify critical cases with the objective to adapt our processes and business model to any changes due to protectionism and edu- cate the organization in respect to these changes. Competitive environment The worldwide markets for our products, solutions and ser- vices are highly competitive in terms of pricing, product and service quality, product development and introduction time, customer service, financing terms and shifts in market de- mands. We face strong existing competitors and also competi- tors from emerging markets, which may have a better cost structure. Next to these existing competitors there is a risk that new competitors enter in our markets. Such new competitors could be healthcare providers in the low-price segment or in niche markets, independent service organizations or global players who plan to expand their business portfolio. This might lead to price reductions or a loss of market share. We address this risk by monitoring the existing competitors and the known potential competitors as well as observing the market entry barriers and finally by information sharing with industrial as- sociations. Some sectors in which we operate are undergoing consolida- tion, which may result in stronger competition, a change in our relative market position, or unexpected price erosion. Furthermore, there is a risk of take-overs of crucial suppliers by competitors and a risk that competitors are increasingly offer- ing services for our installed base. We address these risks with various measures, for example benchmarking, strategic initia- tives, sales push initiatives, executing productivity measures and target cost projects, rightsizing of our footprint, out- sourcings, mergers and joint ventures, exporting from low- cost countries to price-sensitive markets, and optimizing our product portfolio. We continuously monitor and analyze com- petitive and market information in order to be able to antici- pate unfavorable changes in the competitive environment rather than merely reacting to such changes. Product mix shift We design, manufacture and sell a diverse portfolio of Imag- ing, Diagnostics and Advanced Therapies products, systems and services (including accessories and software products) to a wide range of healthcare providers. Many of our products, systems and services are at the cutting edge of existing tech- nologies and medical advances. Our products, systems, ser- vices and our enhancements thereof often have long devel- opment and government approval cycles, which require us, as a result, to accurately anticipate changes in the marketplace, in technology and in customer demands. On the one hand the development of new technologies and enhancing existing technologies may require significant investment in R&D, clini- cal trials and numerous country-specific regulatory approvals. On the other hand such cutting edge technology products typically have a higher Profit margin. However, the demand for standard and basic products, rendering lower margins, in- creased particularly in emerging markets. In case we fail to 13 adapt our product mix and production capabilities quick enough to changes in the marketplace, in technology and in customer demands for high-end, standard and basic products, especially in emerging markets, this could result in negative effects in our Profit. As a countermeasure we employ a close monitoring of the market development in order to better antic- ipate future developments, adapt our product roadmap to future demands and determine how to lower operating ex- penses to increase competitiveness for basic and standard products. Development and competitive position of products The markets in which our businesses operate experience rapid and significant changes due to the introduction of innovative and disruptive technologies. In the fields of digitalization, there are risks of new competitors, substitutions of existing products/solutions/services, niche players, new business mod- els and finally the risk that our competitors may have faster time-to-market strategies and introduce their digital products and solutions faster than we can. Our operating results de- pend to a significant extent on our technological leadership, our ability to anticipate and adapt to changes in our markets and to reduce the costs of producing our products. Introducing new products and technologies requires a significant commit- ment to R&D, which in return requires expenditure of consid- erable financial resources that may not always result in suc- cess. Our results of operations may suffer if we invest in tech- nologies that do not operate or may not be integrated as ex- pected, or that are not accepted in the marketplace as antici- pated, or if our products, solutions or systems are not intro- duced to the market in a timely manner, particularly compared to our competitors, or even become obsolete. We constantly apply for new patents and actively manage our intellectual property portfolio to secure our technological position. How- ever, our patents and other intellectual property may not pre- vent competitors from independently developing or selling products and services that are similar to or duplicates of ours. Economic, political and geopolitical conditions (macroe- conomic environment) We see a high level of uncertainty regarding the global eco- nomic outlook. Significant downside risks stem e. g. from an increasing trend towards populism and from the consequences of the Brexit negotiations. The U.K. exit process could heighten business and consumer uncertainty, reduce investment in the U.K., pose risks to financial markets and may increase the uncertainties about the future of the European Union (EU) in general. A further and massive loss of economic confidence and a prolonged period of reluctance in investment decisions and awarding of new orders would hit our businesses. We continuously monitor the exit process and established, for example, a task force coordinating our local and global mitiga- tion measures. Both global and regional investment climates could collapse due to political upheavals, further independ- ence debates within countries in the EU, or sustained success of protectionist, anti EU and anti-business parties and policy. Significant business risk stems from an abrupt weakening of Chinese economic growth. A rapid tightening of monetary policy by the U.S. Federal Reserve could cause a depreciation spiral among emerging market currencies. This could lead to a renewed emerging market crisis because debt levels of emerg- ing market enterprises have risen, making them dependent on Half-year financial report | Siemens Healthineers favorable global financial conditions to service debts denomi- nated in foreign currencies. Emerging market operations in- volve further various risks, including civil unrest, health con- cerns e.g. for employees, cultural differences such as employ- ment and business practices, volatility in gross domestic prod- uct, economic and governmental instability, the potential for nationalization of private assets and the imposition of ex- change controls. A terrorist mega-attack or a significant cyber- crime incident, or a series of such attacks or incidents in major economies, could depress economic activity globally and un- dermine consumer and business confidence. Further risks stem from geopolitical tensions (e. g. in Syria, Ukraine, Russia, Turkey and North Korea), and from an increasing vulnerability of the connected global economy to natural disasters. If the moderate recovery of macroeconomic growth stalls again and if we are not successful in adapting our production and cost structure to subsequent changes in conditions in the markets in which we operate, there can be no assurance that we will not experience adverse effects. For example, it may become more difficult for our customers to obtain financing. As a re- sult, they may modify, delay or cancel plans to purchase our products, solutions and services, or fail to follow through on purchases or contracts already executed. Furthermore, the prices for our products, solutions and services may decline, as a result of adverse market conditions, to a greater extent than we currently anticipate. Siemens Healthineers global setup with operations in almost all relevant economies, the variety of our products and services help us to absorb the impact of an adverse development in a single market. We also try to focus on and prioritize certain markets, services or products that will minimize the risks mentioned above. Moreover trans- actions in foreign currencies are hedged in order to mitigate exchange rate risks. A.9.1.3 Operational risks Quality problems and operational failures in our value chain processes Our value chain comprises all steps, from R&D to supply chain management, production, marketing, sales and services. Op- erational failures in our value chain processes could result in quality problems or potential product, labor safety, regulatory or environmental risks. From time to time, some of the prod- ucts we sell might have quality issues resulting from the de- sign or manufacture of these products or the commissioning of these products or the software integrated into them. But also problems arising from (single source) suppliers and part- ners for certain products and services, who often cannot be readily substituted, can lead to the above mentioned risks. This can lead to increased costs for the correction of such problems and also have guarantee or warranty claims as a consequence. Moreover this may also lead to claims from damage compen- sation and litigations. Our business is subject to regulatory authorities including the U.S. Food and Drug Administration (“FDA”) and the European Commission’s Health and Consumer Policy Department, which require us to make specific efforts to safeguard our product safety. If we are not able to comply with these requirements, our business and reputation may be ad- versely affected. We have established multiple measures for quality improvement and claim prevention. The increased use of quality management tools especially within sales and ser- 14 vices departments is improving visibility and enables us to strengthen our root cause and prevention processes. Breach of protected health information Our products and systems receive, generate and store signifi- cant and increasing volumes of personal and sensitive infor- mation and are therefore subject to stringent privacy and information security regulations with respect to, among other things, the use and disclosure of protected health information and the confidentiality, integrity and availability of such infor- mation. Next to the general regulatory requirements in regard to data protection the healthcare sector is subject to specific privacy directives with regard to a wide range of health infor- mation. This data protection legislation is comprehensive and complex particularly within the European Economic Area (“EEA”), Switzerland and the U.S. Despite security measures, it cannot be ruled out that the confidentiality of such data and information may be breached, as a result of failure to anony- mize shared health data, data leaks or otherwise, or that doubts may arise regarding the security of the data and infor- mation collected and managed by or for us. Breach of these regulations could lead to litigation costs, compensation pay- ments, penalties, black listing within certain markets or crimi- nal sanctions as well as result in a loss of reputation. The reali- zation of any of these risks could have an adverse effect on our business, financial condition and results of operations, reputa- tion or prospects. We address this risk by managing and im- proving our IT-security and the respective systems e.g. by ongoing analyses of IT-data security, reduction of vulnerable systems and by training our staff. A.9.1.4 Financial risks Market price risks We are exposed to fluctuations in exchange rates, especially between the U.S. dollar (and other currencies whose move- ments are positively correlated with the U.S. dollar) and the euro. As a result, the devaluation of the U.S. dollar against the euro can result in a material adverse effects on our Profit de- pending on our hedging program. Other material currencies from a foreign currency effect perspective include the Chinese yuan, Japanese yen, Korean won and the British pound. A strengthening of the euro may change our competitive posi- tion. We are also exposed to fluctuations in interest rates. Increasing market fluctuations may result in significant earn- ings and cash flow volatility risk for us. Our worldwide operat- ing business as well as our investment and financing activities are affected particularly by changes in foreign exchange rates and interest rates. In order to optimize the allocation of the financial resources across our segments and entities, as well as to achieve our objectives, we identify, analyze and manage the associated market risks. We seek to manage and control these risks pri- marily through our regular operating and financing activities, and use derivative financial instruments when deemed appro- priate. Liquidity and financing risk Our treasury and financing activities could face adverse depos- it and / or financing conditions from negative developments related to financial markets, such as (1) limited availability of Half-year financial report | Siemens Healthineers funds (particularly U.S. dollar funds) and hedging instruments; (2) an updated evaluation of our solvency, particularly from rating agencies; (3) impacts arising from more restrictive regu- lation of the financial sector, central bank policy, or financial instruments; (4) termination of the financing from Siemens AG or other Siemens Group entities or worsening financial situa- tion of our main financial provider Siemens AG. Widening credit spreads due to uncertainty and risk aversion in the fi- nancial markets might lead to adverse changes of fair values of our financial assets, in particular our derivative financial in- struments. Risks from pension obligations The funded status of our pension plans may be affected by changes in actuarial assumptions, including discount rates, as well as movements in financial markets or a change in the mix of assets in our investment portfolio. In order to comply with local pension regulations in selected foreign countries, we may face a risk of increasing cash outflows to reduce an underfund- ing of our pension plans in these countries. For further infor- mation about pension obligations, please see Note 15 – Provi- sions for pensions and similar obligations to the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. A.9.1.5 Compliance risks Cybersecurity Our business portfolio is dependent on digital technologies. We observe a global increase of IT security threats and higher levels of professionalism in Cybercrime, which pose a risk to the security of products, systems and networks and the confi- dentiality, availability and integrity of data. Similar to other large multinational companies, we are facing active cyber threats from sophisticated adversaries that are supported by organized crime and nation-states engaged in economic espi- onage or even sabotage. In order to cope with this risk, several national authorities like the FDA have set up rules for cyberse- curity measures to be integrated into healthcare equipment, software and services in order to reasonably ensure the bene- fits to patients outweigh the risks. Non-compliance with these rules could lead to compensation payments, penalties, black listing within certain markets as well as result in a loss of repu- tation. We minimize this risk by engaging in several measures, such as training of staff and device operators, comprehensive monitoring of our networks and systems by a cyber security operation center applying protective systems like firewalls and ongoing detection and removal of loopholes by a specialized workforce. Moreover, we implement these cyber security re- quirements within the development of new products and services and upgrade existing systems. Changes of regulations, laws and policies As a diversified medical technology company with global busi- nesses, we are exposed to various increasingly complex prod- uct and country related regulations, laws and policies influenc- ing our business activities and processes. Changes to the cur- rent regulations, increased regulatory requirements or in- creased regulatory enforcement activities could lead to un- foreseen expenses and negatively impact our financial state- ments as well as our time to market for certain products or product life cycles. Next to internal and external audits with 15 respect to compliance of laws and regulations, we monitor the political and regulatory landscape in all our key markets to anticipate potential problem areas with the aim to quickly adjust our business activities and processes to changed condi- tions. However, any changes of regulations, laws and policies can adversely affect our business activities and processes as well as our financial condition and results of operations. Violations of corruption or antitrust legislation or other violations of law Proceedings against us regarding allegations of corruption, of antitrust violations and of other violations of law may lead to criminal and civil fines as well as penalties, sanctions, injunc- tions against future conduct, profit disgorgements, disqualifi- cations from directly and indirectly engaging in certain types of business, the loss of business licenses or permits or other restrictions and legal consequences. These consequences could indirectly affect us if they relate to violations committed by one of our indirect sales channels or business partners. Accordingly, we may, among other things, be required to com- ply with potential obligations and liabilities arising in connec- tion with such investigations and proceedings, including po- tential tax penalties. A considerable part of our business activi- ties involve governments and companies with public share- holders. We also participate in a number of projects funded by government agencies and intergovernmental and suprana- tional organizations, such as multilateral development banks. Potential future investigations into allegations of corruption, antitrust violations or other violations of law could as well impair relationships with such business partners or could re- sult in the exclusion of public contracts. Such investigations may also adversely affect existing private business relation- ships and our ability to pursue potentially important strategic projects and transactions, such as strategic alliances, joint ventures or other business cooperations, or could result in the cancellation of certain of our existing contracts. Moreover, third parties, including our competitors, could initiate litigation claims. In addition, future developments in potential future investigations, such as responding to the requests of govern- mental authorities and cooperating with them, could divert management’s attention and resources from other issues fac- ing our business. Furthermore, we might be exposed to com- pliance risks in connection with recently acquired operations that are in the ongoing process of integration. Besides other measures like general antitrust trainings, Siemens Healthi- neers established a global compliance organization that con- ducts among others compliance risk mitigation processes such as compliance risk assessments, and which has been reviewed by external compliance experts. A.9.1.6 Assessment of the overall risk situation The most significant challenges have been mentioned first in each of the four categories strategic, operational, financial and compliance risks. The risks caused by quality problems and operational failures in our value chain processes, medical device cybersecurity and changes of regulations, laws and policies are the most significant risks we are currently exposed to. Our exposure for all remaining risks described above is on a constant lower level than the three major risks mentioned. At present, no risks have been identified that either individually or in combination could endanger our ability to continue as a going concern. Half-year financial report | Siemens Healthineers A.9.2 Opportunities Below we describe our most significant opportunities. Unless otherwise stated, the opportunities described below relate to all of our segments. The order in which the opportunities are presented reflects the currently estimated relative exposure for Siemens Healthineers associated with these opportunities and thus provides an indication of the opportunities’ current im- portance to us. The described opportunities are not necessarily the only ones we encounter. In addition, our assessment of opportunities is subject to change as Siemens Healthineers, our markets and technologies are constantly developing. It is also possible that opportunities we see today will never mate- rialize. New business models and services from digitalization Innovation is a central part of the entrepreneurial concept of Siemens Healthineers. We do this by investing significantly in R&D in order to develop innovative sustainable solutions for our customers in the area of digitalization and to simultane- ously safeguard our competitiveness. We are an innovative company and invent new technologies that we expect will meet future demands arising from the megatrends which are a growing and ageing global population, the economic devel- opment in emerging countries, the increase in chronic diseas- es and the transformation of healthcare providers. We try to generate additional volume and Profit from new and innova- tive digital products, services and solutions, including cyber security for our customers, preventive maintenance and data analytics amongst others. The future progress in digitalization will introduce a wide range of new digital solutions for ser- vices and products for our customers. For this purpose, we entered into alliances with developers and providers, who will seek for new revenue streams based on digitalization. This approach will allow us to strengthen our position along the value chain of digitalization and automation to provide new and more products and services and increase market penetra- tion. Achievement of synergies and cross selling We strive to further strengthen our cross selling activities of Diagnostics products, e.g. Laboratory Diagnostics, to our exist- ing Imaging and Advanced Therapies customers and therefore increase our win rate while at the same time reducing cus- tomer acquisition time and costs. International funding and national programs We expect that upcoming (inter)national funding from aid organizations such as the World Health Organization (“WHO”) or EU and governmental funding or subsidies will further in- crease in the near future. This will enlarge spending in private hospitals, particularly in central Europe, Middle East and Afri- ca. Leading to additional growth in these markets, especially for standard and basic products and services. Growth into adjacent markets Our activities currently concentrate on healthcare solutions and services in the human medicine sector. Our Healthcare specific and technological knowhow in this area could also be applied to other adjacent markets, such as veterinary medicine or further surgery specific equipment and services, leading to an increase in Revenue and supporting our overall growth. 16 Through sales initiatives and masterplans, we continuously strive to grow and expand our business in established markets, open up new markets for existing and new portfolio elements and strengthen our installed base in order to gain a higher market share and increased Profits. Licensing of our intellectual property Intellectual property rights, such as patents, for outdated technology or for discontinued products, could be licensed to third parties in order to generate further revenues and in- crease Profits. In this context, we are constantly analyzing our portfolio of intellectual property for unexploited licensing potential and simultaneously searching and negotiating with potential third party companies. A.9.3 Significant characteristics of the account- ing-related internal control and risk man- agement system The overarching objective of our accounting-related internal control and risk management system is to ensure that financial reporting is conducted in a proper manner, such that the Con- solidated Financial Statements and the (Interim) Management Report of Siemens Healthineers are prepared in accordance with all relevant regulations. Our ERM approach is based on COSO’s “Enterprise Risk Man- agement – Integrated Framework”. As one of the objectives of this framework is reliability of a company’s financial reporting, it includes an accounting-related perspective. Our accounting- related internal control system (“control system”) is based on the internationally recognized “Internal Control – Integrated Framework” also developed by COSO. The two systems are complementary. At the end of each fiscal year, our management performs an evaluation of the effectiveness of the implemented control system, both in design and operating effectiveness. We have a standardized procedure under which necessary controls are defined, documented in accordance with uniform standards, and tested regularly on their effectiveness. Nevertheless, there are inherent limitations on the effectiveness of any control system, and no system, including one determined to be effec- tive, may prevent or detect all misstatements. Our Consolidated Financial Statements are prepared on the basis of a conceptual framework which primarily consists of uniform Financial Reporting Guidelines and a chart of ac- counts, which are centrally issued by Siemens Group. Siemens Healthineers AG and other companies within Siemens Healthi- neers are required to prepare financial statements in accord- ance with German Commercial Code; the conceptual frame- work is complemented by mandatory regulations specific to the German Commercial Code. The need for adjustments in the conceptual framework due to regulatory changes is ana- lyzed on an ongoing basis. Accounting departments are in- formed quarterly about current topics and deadlines from an accounting and closing process perspective. The base data used in preparing our financial statements con- sists of the closing data reported by Siemens Healthineers AG and its subsidiaries. The preparation of the closing data of most of our entities is supported by an internal shared services organization. Since Siemens Healthineers is part of Siemens Half-year financial report | Siemens Healthineers Group and is included in its financial reporting, a close coordi- nation within the general closing process with Siemens Group reporting department is needed in order to ensure a Siemens Group wide consistent communication. Furthermore, other accounting activities, such as governance and monitoring related activities, are usually bundled on regional level. In particular cases, such as valuations relating to post- employment benefits, external experts are used. The reported closing data is used to prepare the financial statements in the consolidation system. The steps necessary to prepare the fi- nancial statements are subject to both manual and automated controls. Qualification of employees involved in the accounting process is ensured through appropriate selection processes and regular training. As a fundamental principle, based on materiality considerations, the “four eyes” principle applies and specific procedures must be adhered to for data authorization. Addi- tional control mechanisms include target-performance com- parisons and analyses of the composition of and changes in individual line items, both in the closing data submitted by reporting units and in the Consolidated Financial Statements. In line with our information security requirements, account- ing-related IT systems contain defined access rules protecting them from unauthorized access. On a quarterly basis, an inter- nal certification process is executed. Management of different levels of our organization, supported by confirmations of management of entities under their responsibility, confirms the accuracy of the financial data that has been reported to Siemens Healthineers headquarter and reports on the effec- tiveness of the related control systems. Our internal audit function systematically evaluates our finan- cial reporting integrity, the effectiveness of the control system and the risk management system, and the adherence to our compliance policies. In addition, the Audit Committee is inte- grated into our control system. In particular, it oversees the accounting and the accounting process and the effectiveness of the internal control system, the risk management system and the internal audit system. Furthermore, we have set up a Disclosure Committee which is responsible for reviewing cer- tain financial and non-financial information prior to publica- tion. Moreover, we have rules for accounting-related com- plaints. 17 A.10 Related party transactions Siemens Healthineers maintains business relations with Sie- mens Group and with associates of both Siemens Group and Siemens Healthineers. Siemens Group is a related party, as Siemens AG controls Siemens Healthineers. For further infor- mation about our related party transactions see Note 10 - Related party transactions in the Notes to Half-year Consoli- dated Financial Statements as of March 31, 2018. Half-year financial report | Siemens Healthineers 18 B.1 Consolidated Statements of Income (in millions of €, per share amounts in €) Revenue Cost of sales Gross profit Research and development expenses Selling and general administrative expenses Other operating income Other operating expenses Income/loss from investments accounted for using the equity method, net Interest income Interest expenses Other financial income/expenses, net Income before income taxes Income tax expenses Net income Attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG Basic earnings per share Diluted earnings per share Note 9 10 10 2 6 6 Q2 2018 3,226 −1,882 1,344 −309 −527 3 −89 1 27 −60 −2 389 −81 308 4 304 0.30 0.30 Half-year financial report | Siemens Healthineers Q2 First half First half 2017 2018 2017 3,396 6,425 6,723 −2,007 −3,752 −3,920 1,389 2,673 2,803 −312 −614 −606 −573 −1,065 −1,109 4 18 5 −5 −101 −9 1 4 4 2 31 6 −67 −130 −135 −6 1 439 809 960 −134 −192 −294 305 618 666 5 8 7 300 610 659 0.30 0.61 0.66 0.30 0.61 0.66 19 B.2 Consolidated Statements of Comprehensive Income Q2 (in millions of €) 2018 Net income 308 Remeasurements of defined benefit plans −8 therein: Income tax effects −14 Items that will not be reclassified to profit or loss −8 Currency translation differences 72 Derivative financial instruments −7 therein: Income tax effects 3 Items that may be reclassified subsequently to profit or loss 65 Other comprehensive income, net of income taxes 57 Total comprehensive income 365 Attributable to: Non-controlling interests 2 Shareholders of Siemens Healthineers AG 363 Half-year financial report | Siemens Healthineers Q2 First half First half 2017 2018 2017 305 618 666 39 −39 238 −19 −35 −102 39 −39 238 72 111 −124 13 −1 2 −6 −2 85 110 −122 124 71 116 429 689 782 9 5 8 420 684 774 20 Half-year financial report | Siemens Healthineers B.3 Consolidated Statements of Financial Position Mar 31, Sep 30, (in millions of €) Note 2018 2017 Assets Cash and cash equivalents 196 184 Trade and other receivables 2,311 2,308 Other current financial assets 74 57 Receivables from Siemens Group 10 1,687 2,991 Contract assets 458 294 Inventories 1,833 1,605 Current income tax assets 50 79 Other current assets 281 276 Total current assets 6,890 7,794 Goodwill 7,911 7,992 Other intangible assets 1,545 1,525 Property, plant and equipment 1,673 1,566 Investments accounted for using the equity method 34 33 Other financial assets 153 162 Other receivables from Siemens Group 10 1,365 Deferred tax assets 2 371 408 Other assets 251 268 Total non-current assets 11,937 13,319 Total assets 18,828 21,113 Liabilities and equity Short-term debt and current maturities of long-term debt 56 55 Trade payables 1,119 1,120 Other current financial liabilities 67 72 Payables to Siemens Group 10 1,366 5,795 Contract liabilities 1,480 1,406 Current provisions 275 290 Current income tax liabilities 137 122 Other current liabilities 997 1,250 Total current liabilities 5,498 10,110 Long-term debt 16 15 Provisions for pensions and similar obligations 4 1,037 1,732 Deferred tax liabilities 2 157 259 Provisions 150 153 Other financial liabilities 37 23 Other liabilities 346 365 Other liabilities to Siemens Group 10 3,788 5,167 Total non-current liabilities 5,531 7,714 Total liabilities 11,029 17,824 Issued capital 1,000 Capital reserve 11,169 Retained earnings/Net assets¹ −3,728 4,045 Other components of equity −651 −764 Total equity attributable to shareholders of Siemens Healthineers AG 7,790 3,281 Non-controlling interests 9 8 Total equity 5 7,799 3,289 Total liabilities and equity 18,828 21,113 1) As of September 30, 2017, Siemens Healthineers was not a legally separable subgroup for which consolidated financial statements had to be prepared according to IFRS 10. Therefore, as of September 30, 2017, Combined Financial Statements were prepared in which Net assets attributable to Siemens Group were presented. See Note 1 – Basis of presentation in the accompanying Notes. 21 B.4 Consolidated Statements of Cash Flows (in millions of €) Cash flows from operating activities Net income Adjustments to reconcile net income to cash flows from operating activities Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income related to investing activities Other income from investments Other non-cash expenses Change in operating net working capital Contract assets Inventories Trade and other receivables Trade payables Contract liabilities Change in other assets and liabilities Additions to assets leased to others in operating leases Income taxes paid Income taxes paid by Siemens Group on behalf of Siemens Healthineers Dividends received Interest received Cash flows from operating activities Cash flows from investing activities Additions to intangible assets and property, plant and equipment Acquisitions of businesses, net of cash acquired Disposal of investments, intangibles and property, plant and equipment Cash flows from investing activities Cash flows from financing activities Change in short-term debt and other financing activities Interest paid Dividends paid to Siemens Group Dividends paid to non-controlling interest holders Interest paid to Siemens Group Other transactions/financing with Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Half-year financial report | Siemens Healthineers First half First half 2018 2017 618 666 248 283 192 294 99 128 −1 −2 −4 38 32 −176 −91 −251 −169 108 96 31 25 71 132 −269 −312 −117 −106 −72 −50 −122 −171 1 1 6 8 401 762 −219 −193 −227 −6 4 3 −441 −196 2 9 −3 −2 −230 −188 −9 −2 −90 −124 386 −280 57 −587 −5 2 12 −19 184 206 196 187 22 Half-year financial report | Siemens Healthineers B.5 Consolidated Statements of Changes in Equity (in millions of €) Issued capital Capital reserve Retained earnings/ Net assets¹ Currency translation differences Derivative financial instruments Total equity attributable to share- holders of Siemens Healthi- neers AG Non- controlling interests Total equity Balance as of October 1, 2016 3,239 −767 2,472 33 2,505 Net income 659 659 7 666 Other comprehensive income 238 −125 2 115 1 116 Profit and loss transfer with Siemens Group −547 −547 −547 Dividends −188 −188 −2 −190 Other changes in equity 212 212 −42 170 Balance as of March 31, 2017 3,613 −892 2 2,723 −3 2,720 Balance as of October 1, 2017 4,045 −762 −2 3,281 8 3,289 Net income 610 610 8 618 Other comprehensive income −39 114 −1 74 −3 71 Profit and loss transfer with Siemens Group −778 −778 −778 Dividends −230 −230 −9 −239 Other changes in equity 4,833 4,833 5 4,838 Allocation of net assets according to legal structure 1,000 11,169 −12,169 Balance as of March 31, 2018 1,000 11,169 −3,728 −648 −3 7,790 9 7,799 1) As of September 30, 2017, Siemens Healthineers was not a legally separable subgroup for which consolidated financial statements had to be prepared according to IFRS 10. Therefore, as of September 30, 2017, Combined Financial Statements were prepared in which Net assets attributable to Siemens Group were presented. See Note 1 – Basis of presentation in the accompanying Notes. 23 B.6 Notes to Half-year Consoli- dated Financial Statements NOTE 1 – Basis of presentation First-time Consolidated Financial Statements of Sie- mens Healthineers AG On August 3, 2017, Siemens AG announced its plans to public- ly list Siemens Healthineers’ business in the form of an initial public offering (“IPO”). Siemens Healthineers’ business was separated from Siemens AG and its subsidiaries (“Siemens Group”) in two steps. In an initial preparatory step, activities that had not been conducted by separate companies have been transferred to separate legal entities. In a second step, Siemens Healthineers AG, registered in Munich, Germany, was established in a notarial foundation deed on December 1, 2017, and all companies comprising Siemens Healthineers’ business have been bundled under Siemens Healthineers AG and its direct and indirect subsidiaries (collectively referred to hereafter as “Siemens Healthineers”, “Company” or “Group”). The Group’s business is conducted by Siemens Healthcare GmbH and its direct and indirect subsidiaries as well as the direct and indirect subsidiaries of Siemens Healthineers Be- teiligungen GmbH & Co. KG. The interest in Siemens Healthcare GmbH and the sole limited partner interest as well as the shares of the general partner in Siemens Healthineers Beteiligungen GmbH & Co. KG were contributed to Siemens Healthineers AG by Siemens Group against issuance of new shares. The domination and profit and loss transfer agreement between Siemens AG and Siemens Healthcare GmbH was terminated by way of mutual termination agreement with effect as of March 31, 2018. Combined Financial Statements were prepared for Siemens Healthineers’ business in line with International Financial Re- porting Standards (“IFRS”) as adopted by the European Union (“EU”) for the fiscal years ended September 30, 2017, Septem- ber 30, 2016 and September 30, 2015, and for the interim reporting period from October 1, 2017 to December 31, 2017, in accordance with the requirements of International Account- ing Standard (“IAS”) 34, Interim Financial Reporting (collective- ly referred to hereafter as “Combined Financial Statements"). These Combined Financial Statements were published in the context of the IPO of Siemens Healthineers AG in a listing prospectus, which is available on Siemens Healthineers’ web- site. The legal reorganization of the Group was completed during the interim reporting period ended March 31, 2018. Until this completion, the net assets of Siemens Healthineers’ business were not controlled by Siemens Healthineers AG nor another legal entity within the Siemens Healthineers business in the meaning of IFRS 10, Consolidated Financial Statements, and the accounting principles as described in the Combined Finan- cial Statements have been applied. Half-year financial report | Siemens Healthineers The following chart provides a simplified overview of the cur- rent structure of the Group after completion of the legal reor- ganization (except as otherwise indicated, all shareholdings are 100%): As of March 31, 2018, the net assets of Siemens Healthineers’ business are controlled by Siemens Healthineers AG within the meaning of IFRS 10. Therefore, first-time Consolidated Finan- cial Statements have been prepared in accordance with the rules of IFRS 1, First-Time Adoption of International Financial Reporting Standards, for the interim reporting period ended March 31, 2018. As consolidated financial statements previously were not re- quired to be prepared for the combined Siemens Healthineers business, no reconciliation for the consolidated equity and for the consolidated total comprehensive income is required pur- suant to IFRS 1. The Company applied the predecessor accounting approach using the carrying amounts (including Goodwill) recognized in the IFRS Consolidated Financial Statements of Siemens AG, according to IFRS 1.18 in conjunction with IFRS 1.D16(a). No other exemptions permitted under IFRS 1 were used in the Consolidated Financial Statements presented here. Information on the condensed Half-year Consolidated Financial Statements Siemens Healthineers AG has prepared the condensed Half- year Consolidated Financial Statements as of and for the inter- im reporting period ended March 31, 2018 (“Half-year Con- solidated Financial Statements”) in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and as adopted by the EU, in particular in accordance with IAS 34. The Half-year Consolidated Financial Statements have been prepared and published in millions of euro (€ million). Round- ing differences may occur in respect of individual amounts or percentages. The comparative information presented in the Half-year Con- solidated Financial Statements is labelled as “consolidated” and derived from the presentation in the Combined Financial Statements. The Half-year Consolidated Financial Statements are unaudited and were authorized for issue on April 27, 2018 by the Manag- ing Board of Siemens Healthineers AG. 24 NOTE 2 – Significant accounting policies and critical accounting estimates The accounting principles applied in the preparation of the Half-year Consolidated Financial Statements are consistent with those used in the preparation of the Combined Financial Statements. Key accounting estimates and judgments Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on the results of operations, financial positions and cash flows of the Company. Critical accounting estimates could also involve estimates where Sie- mens Healthineers reasonably could have used a different estimate in the current accounting period. Siemens Healthi- neers cautions that future events often vary from forecasts and that estimates routinely require adjustment. Estimates and assumptions are reviewed on an on-going basis, and changes in estimates and assumptions are recognized in the period in which the changes occur and in future periods impacted by the changes. From October 1, 2017, the useful life of instruments leased to customers in an operating lease in the segment Diagnostics has been increased from five to seven years to reflect the up- dated expected utility of these assets to Siemens Healthineers. Basis of consolidation The Half-year Consolidated Financial Statements include the accounts of Siemens Healthineers AG and its subsidiaries over which the Company has control. Siemens Healthineers con- trols an investee if it has power over the investee. In addition, Siemens Healthineers is exposed to, or has rights to, variable returns from the involvement with the investee and Siemens Healthineers has the ability to use its power over the investee to affect the amount of Siemens Healthineers’ return. Earnings per share Earnings per share are presented for the first time in the Half- year Consolidated Financial Statements. Basic earnings per share are computed by dividing Net income attributable to the ordinary shareholders of Siemens Healthineers AG by the weighted average number of outstanding shares of Siemens Healthineers AG. Diluted earnings per share are calculated by assuming conversion or exercise of all potentially dilutive share-based payment plans. Earnings per share are also re- ported for the comparable period, assuming the same average number of shares for both the reporting period and the com- parable period. Income taxes In accordance with IAS 12, Income Taxes, current and deferred Income taxes are recognized for the purpose of the Half-year Consolidated Financial Statements taking into consideration local tax requirements. In interim periods, tax expense is based on the current estimated annual effective tax rate of Siemens Healthineers. In addition, tax expenses were adjusted by the Half-year financial report | Siemens Healthineers effects described below which resulted in an effective tax rate of 24% for the six months ended March 31, 2018. In the first half of fiscal year 2018, tax audits were completed in the U.S. and in Germany which resulted in a positive one- time effect during the interim reporting period. Until the completion of the legal reorganization of Siemens Healthineers, income taxes have been determined using the separate tax return approach under the assumption that the entities and operations of Siemens Healthineers constitute separate taxable entities. This assumption implies that current and deferred taxes for all companies and operations within Siemens Healthineers are calculated separately. The recovera- bility of deferred tax assets is also assessed on this basis. De- ferred tax assets from tax loss carryforwards were recognized to the extent that it is probable that they can be offset with future taxable income from the respective Siemens Healthi- neers’ entities. Tax receivables and liabilities as well as de- ferred tax assets on loss carryforwards of Siemens Healthi- neers’ entities and operations that did not constitute a sepa- rate tax payer in the reporting periods were treated as contri- butions or transfers from reserves by shareholders, and are not included in the comparable period. In December 2017, in the process of the U.S. tax reform the Tax Cuts and Jobs Act was enacted, entailing significant changes to U.S. income taxation. The reduced corporate in- come tax rate (“Federal Tax Rate”) from 35% to 21% and the revaluation of deferred taxes resulted in deferred income tax benefits of €48 million. Adopting the new territorial taxation system and the transition tax on retained foreign earnings led to current tax expenses of €21 million. In the first half of fiscal year 2018, the impacts reduced Siemens Healthineers’ effec- tive tax rate by three percentage points. The potential impacts are subject to estimates based on best information and inter- pretations currently available. Due to the complexity and the magnitude of new regulations Siemens Healthineers has not yet completed the assessment of the tax impacts. Additional tax adjustments may need to be made in subsequent periods as Siemens Healthineers or local tax authorities obtain more accurate information, e.g. through new clarification guidance, which might result in future tax expenses or benefits. Recently adopted accounting pronouncements In May 2014, the International Accounting Standards Board (“IASB”) issued IFRS 15, Revenue from Contracts with Custom- ers. According to the new standard, Revenue is recognized to depict the transfer of promised goods or services to a custom- er in an amount that reflects the consideration to which Sie- mens Healthineers expects to be entitled in exchange for those goods or services. Revenue is recognized when, or as, the customer obtains control of the goods or services. IFRS 15 supersedes IAS 11, Construction Contracts, and IAS 18, Reve- nue, as well as related interpretations. The standard is effec- tive for annual periods beginning on or after January 1, 2018; early application is permitted. The Company has adopted the standard for the fiscal year beginning as of October 1, 2017 retrospectively, i.e. the comparable period is presented in accordance with IFRS 15. The application of IFRS 15 as of October 1, 2017 and the prep- aration of the comparable period for fiscal year 2017 con- firmed that there are no significant impacts on Siemens 25 Healthineers’ Financial Statements. Net assets as of October 1, 2016 increased by €98 million. The increase mainly arises from an earlier recognition of variable consideration compo- nents and as transfer of control may occur before the transfer of significant risks and rewards for certain goods. According to IFRS 15, once either party to an existing contract (i.e. the customer or Siemens Healthineers) has performed, the contract is presented in the financial statements as a Con- tract asset or a Contract liability, depending on the relationship between Siemens Healthineers’ performance and the custom- er’s payment. Therefore, mainly two effects from IFRS 15 are reflected in the Consolidated Statements of Financial Position of Siemens Healthineers: An increase of net assets resulting from the earlier revenue recognition under IFRS 15. Reclassifications due to the newly introduced balance sheet line items Contract assets and Contract liabilities, such as the reclassification of advance payments received from the line item Inventories to the line item Contract liabilities or the reclassification of customer advances for service busi- ness from the line item Other current liabilities to the line item Contract liabilities. For further details, please see also Note 26 – Effects from the adoption of IFRS 15 to the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. NOTE 3 – Scope of consolidation The Half-year Consolidated Financial Statements as of March 31, 2018, include 122 fully consolidated companies. Additionally, eight associated companies and joint ventures are accounted for using the equity method in accordance with IAS 28, Investments in Associates and Joint Ventures. Businesses in accordance with IFRS 3, Business Combinations, that were transferred from Siemens Group to Siemens Healthineers during the legal reorganization have already been included in the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. Acquisition of Epocal On October 31, 2017, Siemens Healthineers successfully com- pleted the acquisition of all shares in Epocal, Inc. and selected assets (“Epocal”) from Alere Group, due to their divestment of this business in connection with the review by the Federal Trade Commission and the European Commission of Abbott Laboratories’ agreement to acquire Alere. Epocal develops and provides point-of-care blood diagnostic systems for healthcare enterprises and it allows Siemens Healthineers to complete its blood gas portfolio. The acquired business is integrated in the Diagnostics segment. The contractually agreed purchase price amounted to US$200 million (€172 million as of the acquisition date) and was paid in cash. The preliminary purchase price allocation as of the acquisition date resulted in Other intangible assets of €71 million, Proper- Half-year financial report | Siemens Healthineers ty, plant and equipment of €13 million, Other assets of €9 million, Deferred tax liabilities of €16 million and Other liabilities of €1 million. Other intangible assets mainly relate to technology of €47 million and customer-related intangible assets of €24 million. Goodwill of €96 million comprises in- tangible assets that are not separable such as employee know- how and expected synergy effects. Thereof, €35 million are expected to be deductible for tax purposes. The purchase price allocation is preliminary as the detailed analysis of the assets and liabilities has not yet been finalized. Acquisition of Fast Track Diagnostics (“FTD”) On December 19, 2017 Siemens Healthineers successfully completed the acquisition of all shares in Luxembourg-based FTD Investments S.à r.l. FTD provides globally a broad range of diagnostic tests, covering major disease groups. The acquired business is integrated in the Diagnostics segment and allows Siemens Healthineers to underscore its commitment to mo- lecular diagnostics. The estimated purchase price amounted to €80 million as of the acquisition date. The closing payment of €60 million was paid in cash. The preliminary difference of €20 million is sub- ject to post-closing adjustments. The preliminary purchase price allocation as of the acquisition date resulted in Other intangible assets of €27 million, Cash and cash equivalents of €6 million, Other receivables of €2 million and Deferred tax liabilities of €8 million. Goodwill of €53 million comprises intangible assets that are not separable such as employee know-how and expected synergy effects. The purchase price allocation is preliminary as the detailed analysis of the assets and liabilities has not yet been finalized. NOTE 4 – Provisions for pensions and similar obliga- tions In the second quarter of fiscal year 2018, the Group estab- lished a contractual trust arrangement (“CTA”) in Germany to finance its obligations related to defined benefit pension plans that had already been transferred from Siemens Group to Siemens Healthineers as part of the legal reorganization. Dur- ing the interim reporting period Siemens Healthineers re- ceived assets by way of a capital contribution, recognized within capital reserves, from Siemens AG which were funded into the CTA and classify as plan assets. As of March 31, 2018 their fair value amounts to €758 million. Siemens Healthi- neers’ net defined benefit balance is reduced accordingly. For further information about post-employments plans, please see Note 15 – Provisions for pensions and similar obligations to the Combined Financial Statements for the fiscal years end- ed September 30, 2017, September 30, 2016 and Septem- ber 30, 2015. NOTE 5 – Equity Siemens Healthineers AG was established in a notarial founda- tion deed on December 1, 2017 with a share capital of €50 thousand. On February 2, 2018, in the context of the legal reorganization of Siemens Healthineers, the extraordi- nary shareholders’ meeting resolved to increase Siemens Healthineers AG’s share capital from €50 thousand to 26 €1.0 billion by issuing 999,950,000 new shares against contri- butions in kind by Siemens Group. Value of contributions in kind exceeding the increase of share capital is accounted for in the Capital reserve and the Retained earnings as of March 31, 2018. In addition, contribution from the transfer of plan assets is comprised in the Capital reserve (please refer to Note 4 - Provisions for pensions and similar obligations). As of March 31, 2018, Siemens Healthineers AG’s issued capi- tal is divided into 1,000,000,000 registered shares with no par value and a notional value of €1.00 per share. The shares are fully paid in. At the shareholders’ meeting, each share has one vote and accounts for the shareholders’ proportionate share in Siemens Healthineers AG’s Net income. All shares confer the same rights and obligations. As of March 31, 2018, Siemens Healthineers AG does not hold any of its own shares, nor does a third party hold any shares of Siemens Healthineers AG on behalf of, or for the account of, Siemens Healthineers AG. The extraordinary shareholders’ meeting held on February 19, 2018 authorized the Managing Board to repurchase shares of the Siemens Healthineers AG until February 18, 2023 for every permissible purpose, up to a limit of 10% of its share capital as of the date of the resolution or as of the date on which the authorization is exercised if the latter value is lower. As of March 31, 2018, total authorized capital of Siemens Healthineers AG is €500 million, issuable on one or more occa- sions until February 18, 2023 by issuing up to 500,000,000 new ordinary registered shares with no par value against cash and/or contributions in kind. In addition, as of March 31, 2018, Siemens Healthineers AG’s conditional capital is €100 million or 100,000,000 shares. It can be used for serving convertible bonds or warrants under warrant bonds. The amount of the dividend to be paid for the fiscal year end- ing September 30, 2018, upon which the general sharehold- ers’ meeting will resolve in 2019, shall be calculated based on the Group’s Net income generated during the entire period from October 1, 2017 until September 30, 2018, as if no profit transfer pursuant to the domination and profit and loss trans- fer agreement between Siemens AG and Siemens Healthcare GmbH had occurred. The domination and profit and loss trans- fer agreement was terminated with effect as of March 31, 2018. Capital management The Group’s Equity consists of the Issued capital of Siemens Healthineers AG, Reserves, Other components of equity and the Equity attributable to non-controlling interests. In addition, financing is primarily provided by the Siemens Group through multicurrency revolving credit facilities and existing term loans. For further information about the financing with Sie- mens Group, please refer to Note 10 – Related party transac- tions. Other changes in equity During the periods presented in the Half-year Consolidated Financial Statements, the line item Other changes in equity as included in the Consolidated Statements of Changes in Equity mainly contains specifics in connection with the formation as well as the funding of the Group and the results from the application of the separate tax return approach. Half-year financial report | Siemens Healthineers NOTE 6 – Earnings per share Basic earnings per share are computed by dividing Net income attributable to the ordinary shareholders of Siemens Healthi- neers AG by the weighted average number of outstanding shares of Siemens Healthineers AG. For the interim reporting period ended March 31, 2018, 1,000,000,000 shares are the basis for calculating basic earnings per share. Additional 10,182 shares from dilutive share-based payment plans have to be considered when computing diluted earnings per share, as of March 31, 2018. Profit transfers according to the domi- nation and profit and loss transfer agreement between Sie- mens Healthcare GmbH and Siemens AG had no effect on the calculation of earnings per share. 27 Half-year financial report | Siemens Healthineers NOTE 7 – Financial instruments The following table discloses the carrying amounts of each category of financial assets and financial liabilities: Mar 31, 2018 Sep 30, 2017 (in millions of €) Category of financial assets and financial liabilities Measurement/ Fair value hierarchy Carrying amount Carrying amount Loans and receivables¹ LaR Amortized cost 2,475 2,468 Cash and cash equivalents n.a. 196 184 Derivatives designated in a hedge accounting relationship n.a. Level 2 2 4 Derivatives not designated in a hedge accounting relationship FAHfT Level 2 9 7 Available-for-sale financial assets² AfS At cost / Level 1 51 50 Receivables and other receivables from Siemens Group LaR Amortized cost 1,687 4,356 Financial assets 4,420 7,068 Financial liabilities measured at amortized cost³ FLaC Amortized cost 1,280 1,273 Derivatives designated in a hedge accounting relationship n.a. Level 2 6 6 Derivatives not designated in a hedge accounting relationship FLHfT Level 2 9 6 Payables and other liabilities to Siemens Group FLaC Amortized cost 5,154 10,962 Financial liabilities 6,449 12,248 Categories of financial assets and financial liabilities: LaR = Loans and receivables, FAHfT = Financial assets held-for-trading, AfS = Available-for-sale; FLaC = Financial liabilities measured at amortized cost; FLHfT = Financial liabilities held-for-trading 1) Reported in the following line items: Trade and other receivables, Other current financial assets, Other financial assets - except for separately disclosed derivative financial instruments and available-for-sale financial assets. The levels of the fair value hierarchy and its application to the financial assets and financial liabilities are described below: Level 1: quoted prices in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data. 2) Thereof equity instruments classified as available-for-sale, for which a fair value could not be reliably meas- ured and which are recognized at cost: €43 million (September 30, 2017: €42 million). In addition, the fair value (Level 1) of the remaining available-for-sales financial assets as of March 31, 2018 and September 30, 2017 amounts to €8 million and €8 million, respectively. 3) Reported in the following line items: Short-term debt and current maturities of long-term debt, Trade payables, Other current financial liabilities, Long-term debt, Other financial liabilities - except for separately disclosed derivative financial instruments. The carrying amount of Other liabilities to Siemens Group (residual term > one year) which relate to Siemens Healthi- neers’ business in the U.S. is €3,475 million and €5,052 million as of March 31, 2018 and September 30, 2017, respectively, while the fair values amount to €3,207 million and €4,883 million, respectively, which are based on prices provid- ed by price service agencies at the period-end date (Level 2). The decrease is mainly related to the repayment of U.S. dollar denominated loans provided by Siemens Group. For further information, please refer to Note 10 – Related party transac- tion. The fair values of the remaining long-term loans (residual term > one year) provided by Siemens Group to Siemens Healthineers approximate the carrying amount as the interest rates approximate market rates. For further information related to the fair values of financial assets and liabilities, please see Note 19 – Financial instru- ments and hedging activities to the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. 28 NOTE 8 – Segment information (in millions of €) Imaging Diagnostics Advanced Therapies Total segments Reconciliation to Consolidated Financial Statements Siemens Healthineers 1) Siemens Healthineers: Income before income taxes External revenue First half 2018 First half 2017 3,758 3,863 1,899 2,057 711 733 6,368 6,653 57 70 6,425 6,723 Intersegment revenue First half 2018 First half 2017 132 117 0 0 9 5 140 122 −140 −122 0 0 Total revenue First half 2018 First half 2017 3,889 3,980 1,899 2,057 720 738 6,508 6,775 −83 −52 6,425 6,723 Profit¹ First half 2018 742 224 137 1,103 −294 809 First half 2017 755 275 168 1,198 −238 960 Assets Mar 31, 2018 6,119 4,447 877 11,442 7,385 18,828 Sep 30, 2017 6,041 3,915 879 10,835 10,278 21,113 Free cash flow First half 2018 First half 2017 504 732 −108 40 108 130 504 902 −322 −333 183 569 Half-year financial report | Siemens Healthineers Additions to intangible assets and property, plant and equipment and Additions to assets leased to others in operating leases Amortization, deprecia- tion & impairments First half 2018 First half 2017 First half 2018 First half 2017 61 47 64 61 211 203 92 115 5 4 4 5 276 253 160 181 65 50 88 102 341 303 248 283 29 Accounting policies and segment measurement principles are the same as those described in Note 23 – Segment infor- mation to the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. Siemens Healthineers’ Revenue includes revenue from lease contracts in the amount of €70 million and €74 million in the six months ended March 31, 2018 and 2017, respectively. For each of the segments, Revenue mainly results from per- formance obligations satisfied at a point in time, especially resulting from the sale of products including consumables and reagents in the Diagnostics segment. The performance obligations related to maintenance contracts for products sold are generally satisfied over-time with reve- nue recognized on a straight-line basis. Reconciliation to Consolidated Financial Statements Profit First half (in millions of €) 2018 2017 Total segments 1,103 1,198 Centrally carried pension expense −30 −28 Amortization of intangible assets acquired in business combinations −64 −77 Eliminations, Corporate Treasury, Corporate items, other items −200 −133 Reconciliation to Consolidated Financial Statements −294 −238 Siemens Healthineers – Income before income taxes 809 960 In the six months ended March 31, 2018 and 2017, Corporate Treasury includes interest expense of €90 million and €125 million respectively, related to loans with Siemens Group. Assets Mar 31, Sep 30, (in millions of €) 2018 2017 Total segments 11,442 10,835 Assets pensions 22 24 Assets Real Estate 573 578 Asset-based adjustments Receivables from Siemens Group 1,687 4,356 Tax-related assets 633 485 Liability-based adjustments Payables and other liabilities to Siemens Group 5,154 10,962 Tax-related liabilities 490 487 Eliminations, Corporate Treasury, Corporate items, other items −1,174 −6,613 Reconciliation to Consolidated Financial Statements 7,385 10,278 Siemens Healthineers – Total assets 18,828 21,113 Half-year financial report | Siemens Healthineers Free cash flow First half (in millions of €) 2018 2017 Total segments 504 902 Central items −109 −105 Tax-related cash flows −195 −221 Other items −18 −7 Siemens Healthineers – Free cash flow 183 569 Remaining cash flows from investing activities¹ −222 −3 Cash flows from financing activities 57 −587 Effect of changes in exchange rates on cash and cash equivalents −5 2 Changes in cash and cash equivalents 12 −19 1) excluding additions to intangible assets and property, plant and equipment NOTE 9 – Information about geographies The following table discloses the revenue by location of cus- tomers: First half (in millions of €) 2018 2017 Europe, C.I.S., Africa, Middle East 2,098 2,067 Americas 2,512 2,804 Asia, Australia 1,815 1,851 Siemens Healthineers 6,425 6,723 thereof Germany 408 437 thereof foreign countries 6,017 6,286 therein U.S. 2,104 2,372 30 NOTE 10 – Related party transactions Siemens Healthineers maintains business relations with Sie- mens Group and with associates of both Siemens Group and Siemens Healthineers. The Siemens Group is a related party, as Siemens AG controls Siemens Healthineers. Transactions with Siemens Group Sales of goods and services and other income, as well as pur- chases of goods and services and other expenses from trans- actions with the Siemens Group in the six months ended March 31, 2018 and 2017 are presented in the following ta- ble: Sales of goods and services and other income Purchases of goods and services and other expenses First half First half (in millions of €) 2018 2017 2018 2017 Siemens AG 4 5 −206 −177 Other Siemens Group companies 145 114 −133 −142 Sales to and purchases from Siemens Group Supply and delivery agreements exist between Siemens Healthineers and Siemens Group. Siemens Healthineers is supplied by Siemens Group and delivers to Siemens Group goods and services on a case by case basis. Other expenses In the six months ended March 31, 2018, Siemens Healthi- neers received support for central corporate services, such as tax and legal, IT, corporate communications, human resources, accounting, financial services and treasury from Siemens Group in an amount of €259 million (€239 million in the six months ended March 31, 2017). Siemens Healthineers entered into a number of standardized transitional service agreements and largely standardized long- term service agreements with companies of the Siemens Group, as service providers, and companies of Siemens Healthineers, as service recipients. With respect to certain services, Siemens AG and Siemens Healthineers have agreed on a minimum service volume commitment based on ex- pected service volume requirements. As of March 31, 2018, the commitment amounts to €451 million. IPO costs On December 22, 2017, Siemens AG and Siemens Healthcare GmbH, as the holding company for major parts of Siemens Healthineers at that point in time, entered into an agreement pursuant to which Siemens AG agreed to provide certain ser- vices to Siemens Healthcare GmbH in order to support Sie- mens Healthineers in preparing the IPO. As consideration for the provision of the relevant services, Siemens Healthcare GmbH agreed to pay to Siemens AG a reasonable compensa- tion, covering, in particular, the fees payable to third parties instructed (such as, for example, underwriters, legal counsels or auditors) or costs otherwise arising in the context of the IPO. Half-year financial report | Siemens Healthineers In the six months ended March 31, 2018 expenses relating to the IPO in an amount of €94 million were incurred, therein €92 million were charged by Siemens Group to Siemens Healthcare GmbH. The expenses are included in the line item Other operating expenses in the Consolidated Statements of Income. Receivables from and payables to Siemens Group Siemens Healthineers’ receivables from and payables to Sie- mens Group are as follows: (in millions of €) Receivables Mar 31, 2018 Sep 30, Mar 31, 2018 2017 Payables Sep 30, 2017 Siemens AG 1,075 1,028 1,310 74 Other Siemens Group companies 613 3,327 3,844 10,888 Total 1,687 4,356 5,154 10,962 thereof from Siemens Credit Warehouse 1 175 from financing activities 1,650 4,163 4,113 10,040 from other items 36 18 1,041 922 Siemens Credit Warehouse In the past, Siemens Healthineers participated in the factoring program called “Siemens Credit Warehouse”. Siemens Healthi- neers transferred trade receivables to Siemens Group including all relevant collection risks, but was still responsible for the administration of the trade receivables. Due to the planned termination of the participation in the Siemens Group factor- ing program, the transfer of trade receivables from Siemens Healthineers to Siemens Group was stopped in December 2017. Financing Siemens Healthineers is included in Siemens Group’s cash pooling and cash management. Siemens Healthineers invests excess short-term liquidity and is granted overdraft facilities for financing its operating activities. The financing arrangements of Siemens Healthineers provided by Siemens AG consist of a multicurrency revolving credit facility in an amount of up to €1.1 billion to serve as a working capital and short-term loan facility, and a multicurrency revolv- ing credit facility in an amount of €1.0 billion which provides funding for back-up purposes. In addition, the Siemens Group provides term loans with vari- ous maturities and currencies. As of March 31, 2018, existing term loans are mainly denominated in U.S. dollar with approx- imately US$1.6 billion maturing until 2023 (September 30, 2017: US$3.3 billion), approximately US$1.7 billion maturing in 2026 (September 30, 2017: US$1.7 billion) and approxi- mately US$1.0 billion maturing in 2046 (September 30, 2017: US$1.0 billion). The decrease relates to the early repayment of several loans during the interim reporting period. In connec- tion with the legal reorganization of the Group those loans were repaid in an amount reflecting their fair value at the repayment date. Due to differences between the fair value and carrying amount of the loans these transactions resulted in a 31 gain of €27 million which is shown in the line item Interest income of the Consolidated Statements of Income. Other items On November 26, 2014, Siemens AG and Siemens Healthcare GmbH concluded a domination and profit and loss transfer agreement. The profit attributable to Siemens AG for the six months ended March 31, 2018 amounts to €778 million. The domination and profit and loss transfer agreement between Siemens AG and Siemens Healthcare GmbH was terminated by way of mutual termination agreement with effect as of March 31, 2018. Other material relationships with Siemens Group Hedging Siemens Healthineers’ hedging activities are performed mainly via Corporate Treasury of Siemens AG. The consideration is based on market rates. The related receivables and payables are mainly disclosed in the line items Other current financial assets and Other current financial liabilities in the Consolidated Statements of Financial Position. Collaterals, letters of support and guarantees In the past, Siemens Group issued guarantees for or on behalf of Siemens Healthineers in connection with the operating business of the Group. As of March 31, 2018, the guarantees issued by Siemens AG amount to €95 million (September 30, 2017: €96 million) while guarantees issued by other Siemens Group companies amount to €334 million (September 30, 2017: €350 million). In addition, Siemens AG provides letters of support in favor of banks and insurances, e.g. in connection with guarantee credit lines and overdraft facilities of the Group. As of March 31, 2018, the obligations secured by letters of support amount to €316 million (September 30, 2017: €298 million). Transactions with pension schemes and pension entities In some countries, mainly in the U.K. and U.S., Siemens Healthineers participates in Siemens Group pension plans and trusts. For further information, please refer to Note 15 – Provi- sions for pensions and similar obligations to the Combined Financial Statements for the fiscal years ended September 30, 2017, September 30, 2016 and September 30, 2015. Joint Ventures and Associates In the six months ended March 31, 2018, Siemens Healthi- neers purchased goods and services from Siemens Healthi- neers’ joint ventures and associates in an amount of €34 million (six months ended March 31, 2017: €34 million). Related individuals As of March 31, 2018, Siemens Healthineers is controlled by the ultimate parent, Siemens AG. Therefore, Siemens AG’s Managing Board and Supervisory Board are deemed key man- agement. Information related to Siemens AG’s Managing Board and Supervisory Board can be found in Siemens AG’s publicly available financial statements. Prior to the formal appointment of the current Managing Board of Siemens Healthineers AG on March 1, 2018 Siemens Healthineers was managed by the members of the Managing Half-year financial report | Siemens Healthineers Board of Siemens Healthcare GmbH which was defined as the key management of Siemens Healthineers who were respon- sible for the worldwide operating business of Siemens Healthineers, based on their function within Siemens Healthi- neers. A one-time IPO incentive will be granted, beside other em- ployees, to the members of the Managing Board of the Group. The amount of the IPO incentive depends on the success of the offering, on the performance of the Company’s share as well as the current and future performance of the Company. The IPO incentive will be granted as forfeitable stock commit- ments, in two tranches each with a three-year vesting period. The key management personnel further includes the Supervi- sory Board of Siemens Healthineers AG and the Supervisory Board of Siemens Healthcare GmbH which had the oversight over the Managing Board of Siemens Healthcare GmbH until its members have been appointed as the Managing Board of Siemens Healthineers AG. The Supervisory Board of Siemens Healthineers AG consists of nine members. All of the members are appointed by the shareholders’ meeting and represent the shareholders. Pursu- ant to German rules on co-determination (unternehmerische Mitbestimmung), Siemens Healthineers AG is not required to establish a co-determined supervisory board as Siemens Healthineers AG employs less than the relevant number of employees. In accordance with German co-determination rules, employees of other Group companies are not attributed to Siemens Healthineers AG. Siemens Healthineers AG’s fully owned-subsidiary Siemens Healthcare GmbH has a co-determined supervisory board (mitbestimmter Aufsichtsrat) with 16 members (equally split between shareholder representatives and employee repre- sentatives). 32 Half-year financial report | Siemens Healthineers C.1.Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Half-year Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Interim Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, April 27, 2018 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Dr. Jochen Schmitz Michael Reitermann 33 Half-year financial report | Siemens Healthineers C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements comprising the consolidated statements of income, compre- hensive income, financial position, cash flows and changes in equity, and notes to the half-year consolidated financial state- ments, and the interim group management report, of Siemens Healthineers AG, Munich for the period from October 1, 2017 to March 31, 2018, which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the half-year consolidated financial statements in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in ac- cordance with the requirements of the WpHG applicable to interim group management reports is the responsibility of the Com- pany’s management. Our responsibility is to issue a report on the half-year consolidated financial statements and the interim group management report based on our review. We conducted our review of the half-year consolidated financial statements and the interim group management report in ac- cordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW - Institute of Public Auditors in Germany) and in supplementary compliance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of company personnel and applying analyti- cal procedures and thus does not provide the assurance that we would obtain from an audit of financial statements. In accord- ance with our engagement, we have not performed a financial statement audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the half-year consolidated financial state- ments are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accord- ance with the provisions of the WpHG applicable to interim group management reports. Munich, April 27, 2018 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Tropschug Wirtschaftsprüferin Esche Wirtschaftsprüfer 34 Half-year financial report | Siemens Healthineers C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect,” “look forward to,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “project” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such state- ments are based on the current expectations and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. These are subject to a number of risks, uncertainties and factors, including, but not limited to those described in disclosures. Should one or more of these risks or uncertainties materialize, or should underlying expecta- tions not occur or assumptions prove incorrect, actual results, performance or achievements of Siemens Healthineers may (nega- tively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement. Sie- mens Healthineers neither intends, nor assumes any obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes – in the applicable financial reporting framework not clearly defined – supplemental financial measures that are or may be alternative performance measures (non-GAAP-measures). These supplemental financial measures should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets and financial positions or results of op- erations as presented in accordance with the applicable financial reporting framework in its Consolidated Financial Statements. Other companies that report or describe similarly titled alternative performance measures may calculate them differently. This document is an English language translation of the German document. In case of discrepancies, the German language doc- ument is the sole authoritative and universally valid version. For technical reasons, there may be differences between the accounting records appearing in this document and those published pursuant to legal requirements. Internet: siemens-healthineers.com Press: siemens-healthineers.com/press-room Investor Relations: corporate.siemens-healthineers.com/investor-relations Henkestr. 127 91052 Erlangen, Germany Phone: +49 9131 84-0 siemens-healthineers.com © Siemens Healthineers AG, 2018 35 | Semestriel, 2018, Healthcare, SiemensHealthineers | write me a financial report |
Semestriel | 2,017 | Technology | SAP | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Technology
### Company:
SAP
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| Impact Through Innovation Half-Year Report January – June 2017 Society Economy Environment Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Notes to the Consolidated Half-Year Financial Statements Supplementary Financial Information General Information Additional Information Half-Year Report January – June 2017 3 4 17 23 35 42 43 2 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Half-yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the consolidated half-year management report, consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 37w (2). This half-year financial report updates our consolidated financial statements 2016, presents significant events and transactions of the first half of 2017, and updates the forward-looking information contained in our Management Report 2016. This half-year financial report only includes half-year numbers, our quarterly numbers are available in the Quarterly Statement. Both the 2016 consolidated financial statements and the 2016 management report are part of our Integrated Report 2016, which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means the information has been subject neither to any audit nor to any review by an independent auditor. Half-Year Report January – June 2017 3 Consolidated Half-Year Management Report Strategy and Business Model We did not change our strategy or our business model in the first half of 2017. For a detailed description, see our Integrated Report 2016. Products, Research and Development, and Services In the first six months of 2017, we continued to innovate in every aspect of our customers’ businesses and launched several innovations to grow and win in the market. This chapter outlines the major enhancements we made to our software portfolio in the first half year 2017. For a detailed overall description, see the Products, Research & Development, and Services section in our Integrated Report 2016 (www.sapintegratedreport.com). SAP Leonardo empowers companies to digitally transform at scale with 1,350 solutions from more than 800 partners. This marketplace enables customers to discover, try, and buy solutions built on SAP Cloud Platform. IoT and Digital Supply Chain Our IoT & Digital Supply Chain solutions support the vision to “Intelligently Connect People, Things, and Businesses”. The goal is to enable our customers to achieve higher levels of automation and productivity, and to create new business models. SAP Internet of Things provides solutions to on- board, configure, and manage almost any kind of remote device, using a broad variety of protocols. Devices or other assets can also be represented and monitored as a digital model, otherwise known as a ‘Digital Twin’. SAP IoT services allow data to be processed either on the devices at the edge of your network, or on SAP Cloud Platform. SAP IoT in combination with 3D printing, advanced logistics, and our fully integrated digital supply chain solutions, enables on- demand manufacturing and streamlined supply chains, to deliver products to market more quickly and cost-effectively. SAP Connected Goods connects, monitors, and controls a large number of customer-facing mass market devices such as beverage coolers, coffee makers, vending machines, construction tools, or healthcare equipment. SAP Leonardo is a Digital Innovation System that was announced at SAPPHIRE NOW in May. It brings together SAP’s experience, deep process and industry knowledge with software capabilities such as IoT, Blockchain, Machine Learning, Big Data and Analytics on the SAP Cloud Platform. SAP Leonardo starts with a specific business problem, applies Design Thinking to define the desired solution, and then uses SAP Leonardo Innovation Services with rapid prototyping to quickly make that solution a reality. SAP Cloud Platform SAP Cloud Platform is an end-to-end digital multi-cloud enterprise platform running in SAP data centers as well as on Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform. It gives our customers the choice as to where their data resides, and the ability to massively scale. It is the underlying platform and technical foundation for SAP Leonardo. Beyond the service layer, it continues to offer many additional features with a focus on being an open platform. It makes use of open-source standards to provide support for more programming languages, as well as support for Hadoop and Spark for our Big Data Services, and providing a basis for seamless integration through the SAP API Business Hub. The SAP App Center went live in May 2017 Machine Learning The SAP Leonardo Machine Learning Foundation provides a variety of functional and business machine-learning services to make enterprise applications intelligent. We have many examples of these services being utilized across the SAP portfolio, and the number is growing rapidly. For example, SAP Cash Application deployed in SAP S/4HANA can accurately match payments to invoices, while SAP Resume Matching helps recruiters to match resumes with job positions. We also have stand-alone applications for specific use cases, such as SAP Brand Impact to accurately track brand exposure in videos and SAP Fraud Management to more accurately identify fraud in business. In addition, SAP Machine Learning services have also been made available to our customers and partners through the SAP API Business Hub. Blockchain SAP Cloud Platform blockchain services enable business application developers to build transactional applications. These applications are used by multiple participants and Half-Year Report January – June 2017 4 establish trust and transparency while streamlining business processes. SAP helps customers implement industry and line of business process extensions by leveraging blockchain capabilities integrated into SAP solutions. Advanced Analytics Business Intelligence systems are rapidly evolving, becoming more intelligent, with insights delivered in greater context, and with new ways to interact with the software, including spoken form. New features in our SAP Analytics Cloud solution are creating a new standard for working with data at the intersection of BI, planning, predictive and machine learning. Analytics Cloud Smart Insights, Guided Machine Discovery, and regression visualization support help both business and data scientist users understand driving factors and context. Mobile is a significant element in this version of SAP Analytics Cloud, allowing customers to consume analytics in a responsive, native mobile layout with support for collaboration and notifications. To provide customers with smooth transitions to the cloud, enhanced hybrid capabilities are available, including SAP Analytics Hub, which consolidates content from on-premise and cloud analytics solutions in a single portal. SAP HANA: Enabling Business with a Digital Data Foundation SAP HANA remains the foundation for digital transformation, and its in-memory database technology is the enabler for the digital business. The simplified SAP HANA architecture drives accelerated machine learning, with greater accuracy and faster learning cycles. SAP HANA continues to evolve with new innovations. For example, SAP HANA can now deliver earth observation analysis to drive greater spatial analytics. The SAP HANA Express Edition, a free version of SAP HANA designed to run on a laptop, has now been downloaded over 20,600 times. It is also available on the Google Marketplace, thus opening up the SAP HANA community to even more non-SAP developers. Applications SAP S/4HANA SAP S/4HANA Cloud, SAP’s public cloud ERP solution, which now includes Finance for Large Enterprises and Demand- Driven Manufacturing, is focused on delivering greater autonomy and intelligence to ERP by leveraging the next- generation of intelligent technologies. SAP S/4HANA Cloud is an ERP solution that offers a rich library of APIs that can be used to extend applications and to enable processes to run across different systems. Many SAP customers also like to work in a hybrid mode, where optimized core processes run on premise, and differentiating applications run in the cloud, for example on SAP Cloud Platform, while being seamlessly integrated back Half-Year Report January – June 2017 into the core. We provide customers with a road map to support their digital transformation journey. The SAP Transformation Navigator tool facilitates the customers’ move from their current landscape to one that is based on SAP S/4HANA – and has received excellent feedback from hundreds of mapping sessions. Innovating for LoBs and Industries Customer Engagement and Commerce (CEC) In March 2017, SAP extended its customer engagement and commerce cloud suite with the availability of the SAP Hybris Revenue Cloud solution. With this solution, customers can connect to SAP S/4HANA for a single view, providing flexible, simplified reporting and improved automation to better track and manage the health of customer relationships and their overall business. In early 2017, SAP strengthened its portfolio by acquiring Abakus. The combined power of Abakus and our SAP Hybris Marketing solution which enables chief marketing officers and chief financial officers to better understand the contributions and effectiveness of their digital marketing investments. Connecting Companies Through Business Networks In 2017, SAP Ariba unveiled and went live with innovations that help businesses achieve efficient, intelligent connections and frictionless transactions across the entire source-to- settle process. These innovations include the following: – Cognitive procurement applications – Leveraging SAP Leonardo and other machine learning technologies, the applications will bring intelligence from procurement data together with predictive insights to improve decision making across supplier management, contracts, and sourcing activities. – SAP Ariba Spot Buy – A digital marketplace for industrial goods and services that delivers a consumer-like shopping experience. – Guided buying – A contextual buying experience that automatically leads employees to the goods and services they need to do their jobs and execute purchases in compliance with company policies. – Open platform – Ariba Network offers an open technical interface (API) capability that allows partners to add functionality and extend solutions for all industries and business needs. In the first half of 2017, SAP Fieldglass made the following innovations available: – SAP Fieldglass Flex, a talent management system for external workers designed for the mid-market 5 – SAP Fieldglass Live Insights, a machine learning-powered industry benchmarking and simulation solution created in partnership with the SAP Data Network, which enables executives to benchmark, plan, predict, and simulate business scenarios using anonymized and aggregated data. Employees and Social Performance Our employees play a pivotal role in helping our customers succeed in the new digital economy. Our employees empower our customers to Run Simple and work more innovatively. At the same time, our employees enable SAP to fulfill its strategy to be the most innovative cloud company powered by SAP HANA. For a detailed description of our employee strategy, see the employees and social investments section in our Integrated Report 2016 (www.sapintegratedreport.com). An important factor in our long-term success is our ability to attract and retain talented employees. At the end of the first half year of 2017, the employee retention rate was 94.3% (compared to 92.6% at the end of the first half year of 2016). We define employee retention rate as the ratio between the average number of employees less voluntary employee departures (fluctuation) and the average number of employees (in full-time equivalents) in the last 12 months. One of SAP’s overall non-financial goals is fostering a diverse workforce, specifically increasing the number of women in management. At the end of the first half year of 2017, 25.0% of all management positions at SAP were held by women, compared to 24.1% at the end of June 2016. Thus SAP will reach its target to increase the share of women in management to 25% by the end of 2017. On June 30, 2017, we had 87,114 full-time equivalent (FTE) employees worldwide (June 30, 2016: 79,962; December 31, 2016: 84,183). Those headcount numbers included 19,375 FTEs based in Germany (June 30, 2016: 18,176), and 18,368 FTEs based in the United States (June 30, 2016: 16,780). Environmental Performance: Energy and Emissions Over the past several years, we have worked to better understand the connections between our energy consumption, its related cost, and the resulting environmental impact. Today we measure and address our energy usage throughout SAP, as well as our greenhouse gas (GHG) emissions across our entire value chain. We have calculated that over the last three years, energy efficiency initiatives have contributed to a cumulative cost avoidance of €148 million, compared to a business-as-usual extrapolation, €35 million of which were avoided this year. Half-Year Report January – June 2017 Our goal is to reduce the greenhouse gas emissions from our operations to levels of the year 2000 by 2020. We also recently announced the target to become carbon neutral by 2025. SAP’s GHG emissions for the first half year of 2017 totaled 155 kilotons of CO2 compared to 215 kilotons in the first half year of 2016. This decrease is primarily due to an increased purchase of CO2 offsets to compensate for a significant portion of our business flights, as well as an overall decrease in business flights. To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. At the end of the first half year of 2017, our GHG emissions (in tons) per employee was 3.6 (compared to 5.0 at the end of the first half year of 2016) and our GHG emissions (in grams) per euro revenue was 13.5 (compared to 18.8 at the end of the first half year of 2016) (rolling four quarters). In recognition of the exemplary actions SAP has taken to embed sustainability across its business worldwide, SAP has been included in various ratings and rankings. In the first half year of 2017, SAP has been awarded the exclusive 2017 Top Employer certification in Belgium, Canada, China, France, Israel, Italy, Mexico, Netherlands, Russia, Saudi Arabia, South Africa, Spain, Turkey, United Kingdom, and the United States. Furthermore, the Company has also been certified as a regional Top Employer in Europe, the Middle East, and North America. Organization and Changes in Management Steve Singh, the Executive Board member responsible for Business Networks and Applications, left SAP on April 30, 2017. The Supervisory Board decided to expand the responsibilities of the Executive Board members Robert Enslin and Bernd Leukert as of May 1, 2017. Further, the Supervisory Board appointed Adaire Fox-Martin and Jennifer Morgan to the Executive Board effective May 1, 2017. They assume global responsibility for SAP’s sales organization. 6 Financial Performance: Review and Analysis Economy and the Market Global Economic Trends In its latest economic bulletin, the European Central Bank (ECB) concludes that the global economy continued its positive momentum in the first half of 2017 despite an initial decline in global gross domestic product (GDP) in the first quarter. The ongoing economic recovery stimulated emerging market economies and boosted global trade, it finds. In the Europe, Middle East, and Africa (EMEA) region, euro area activity increased in the first half of the year. According to the analysts, this economic boom in the euro area was increasingly resilient and by midyear had broadened across sectors and countries. Consumer and investment spending was likewise strong in the Central and Eastern European countries, the ECB writes, with GDP growth even rebounding sharply in Russia. In the Americas region, GDP growth in the United States slowed, which the ECB attributes primarily to weaker consumer spending and a marked decline in inventory investment spending. Brazil, on the other hand, was able to rise out of its recession during the reporting period, it says. Looking at the Asia Pacific Japan (APJ) region, the ECB reports that while GDP growth in China waned despite optimistic short- term indicators, economic activity in India continued its upswing. The Japanese economy, meanwhile, continued to benefit from Japan’s low interest rate policy and expanded slightly, the ECB says. The IT Market According to Gartner, a market research firm, “The U.K. election and continuing Brexit uncertainty did shock the currency markets, and the British pound has declined; however, this did not translate into a disruption in the global IT market.” “Taking out the impact of exchange rate movements, the […] constant- currency growth for 2017 is unchanged at 3.3%.”2) “Enterprise software is the fastest-growing segment in 2017, with 5,5% growth in 2017”1), says Gartner. “Globally, the enterprise software market will grow by 8.6% in 2017, reaching $392 billion in constant dollars, an increase of 1.3% over the 1Q17 forecast.”2) “Overall, IT spending results vary greatly by region. The largest region for total IT spend in 2017 remains North America, with $1.21 trillion. However, the fastest-growing region is emerging Asia/Pacific, with 2017 constant-currency growth of 8.9% (revised up 0.9% from the 1Q17 update). The next-best region for growth is Greater China, with 2017 constant-currency growth Half-Year Report January – June 2017 of 5.1%, down 1.2% from 1Q17. The remaining regions are facing anemic growth rates between 3.9% and 0.3%.”2) The Western European IT market in the Europe, Middle-East, and Africa (EMEA) region, grew from 1.2% (2016) to 1.7% (2017) on a year-on-year basis, whereas the Eastern European IT market declined from 2.8% to 0.3% (see table in paragraph “Expected Developments and Opportunities”: “Trends in the IT Market – IT Spending Year-on-Year”, created by SAP based on Gartner Market Databook, 2Q17 Update). According to the same table, software spending grew significantly faster than all other submarkets throughout the region. The Americas region likewise recorded higher growth rates in IT spending than the previous year as can be seen in the table mentioned above. According to the same table, software spending even outperformed IT spending as a whole. In the Asia Pacific Japan (APJ) region, software spending grew much faster than all other submarkets in the IT industry as well, documented in the table mentioned above. Sources: 1) Gartner Forecast Analysis: IT Spending, Worldwide, 1Q17 Update, 16 May 2017. 2) Gartner Forecast Alert IT Spending, Worldwide, 2Q17 Update, 7 July 2017. The Gartner Report(s) described herein, (the “Gartner Report(s)”) represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Half-Year Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Impact on SAP SAP had a strong performance in the EMEA region with cloud and software revenue increasing 9% (IFRS). Cloud subscriptions and support revenue grew 48% (IFRS) with an especially strong quarter in Germany and Russia. SAP also had double-digit software revenue growth in Germany and MENA (Middle East and North Africa) and triple-digit software revenue growth in Russia. The Company had solid growth in the Americas region with cloud and software revenue growing by 8% (IFRS) and cloud subscriptions and support revenue increasing by 20% (IFRS). In North America, Canada had double-digit growth in software revenue. In Latin America Mexico and Chile were highlights with double-digit software revenue growth. In the APJ region, SAP had an exceptional performance in both cloud and software revenue and cloud subscriptions and support revenue. Cloud and software revenue was up 13% (IFRS) with cloud subscriptions and support revenue growing by 52% (IFRS). Greater China3 was very strong in cloud subscriptions and support revenue while Japan and Australia both had strong double-digit growth in software revenue. 7 Key Figures – SAP Group in the First Half Year of 2017 (IFRS) € millions, unless otherwise stated Q1–Q2 2017 Q1–Q2 2016 ∆ ∆ in % Cloud subscriptions and support 1,837 1,397 440 31 Software licenses 1,781 1,649 132 8 Software support 5,467 5,162 305 6 Cloud and software 9,085 8,208 876 11 Total revenue 11,066 9,964 1,102 11 Operating expense –9,467 –7,882 –1,585 20 Operating profit 1,599 2,082 –482 –23 Operating margin (in %) 14.5 20.9 –6.4pp NA Profit after tax 1,197 1,382 –186 –13 Effective tax rate (in %) 24.1 26.7 –2.7pp NA Earnings per share, basic (in €) 0.99 1.16 –0.17 –14 Deferred cloud subscriptions and support revenue (June 30) 1,293 1,003 290 29 Operating Results in the First Half Year of 2017 (IFRS) Orders The total number of completed transactions for on-premise software in the first half year of 2017 remained stable at 27.5 thousand (first half year of 2016: 27.4 thousand). The average value of software orders received for on-premise software increased 3% compared to the year before. Of all our software orders received in the first half year of 2017, 29% were attributable to deals worth more than €5 million (first half year of 2016: 25%), while 42% were attributable to deals worth less than €1 million (first half year of 2016: 42%). Operating Expense In the first half year of 2017, our operating expense increased by 20% to €9,467 million (first half year of 2016: €7,882 million). The increase in expenses was driven by an increase in share- based compensation expenses. The increase in share based compensation expenses reflects the strong increase in SAP's share price and high participation rates in SAP’s global employee share based-compensation programs. The increase in restructuring related expenses is caused by a newly launched restructuring program in the Digital Business Services (DBS) board area. Revenue Our revenue from cloud subscriptions and support was €1,837 million (first half year of 2016: €1,397 million), an increase of 31% compared to the same period in 2016, with the cloud revenue growth rates remaining stable on a high level. Operating Profit and Operating Margin In the first half year of 2017, mainly as a result of the aforementioned expense increases, operating profit decreased 23% compared with the same period in the previous year to €1,599 million (first half year of 2016: €2,082 million). Our operating margin decreased by 6.4 percentage points to 14.5% (first half year of 2016: 20.9%). In the first half year of 2017, software licenses revenue was €1,781 million (first half year of 2016: €1,649 million), an increase of 8% compared to the same period in 2016. Noteworthy is the successful software license business in both quarters with increases of 13% (first quarter of 2017) and 5% (second quarter of 2017). Profit After Tax and Earnings per Share In the first half year of 2017, profit after tax was €1,197 million (first half year of 2016: €1,382 million), a decrease of 13%. Basic earnings per share was €0.99 (first half year of 2016: €1.16), a decrease of 14%. Total revenue was €11,066 million (first half year of 2016: €9,964 million), an increase of 11% compared to the same period in 2016. The effective tax rate in the first half of 2017 was 24.1% (first half of 2016: 26.7%). The year-over-year decrease in the effective tax rate mainly resulted from changes in taxes for prior years and changes in the regional allocation of income. Half-Year Report January – June 2017 8 Performance Against Our Outlook for 2017 (Non-IFRS) In this section, all discussion of the contribution to target achievement is based exclusively on non-IFRS measures. However, the discussion of operating results refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information section. Guidance for 2017 (Non-IFRS) For our guidance based on non-IFRS numbers, see the Operational Targets for 2017 (non-IFRS) section in this consolidated half-year management report. . Key Figures – SAP Group in the First Half Year of 2017 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Cloud subscriptions and support Q1–Q2 2017 1,837 Q1–Q2 2016 1,399 ∆ in % 31 ∆ in % (Constant Currency) 28 Software licenses 1,781 1,651 8 6 Software support 5,467 5,163 6 4 Cloud and software 9,085 8,212 11 8 Total revenue 11,067 9,967 11 9 Operating expense –8,299 –7,348 13 11 Operating profit 2,768 2,620 6 3 Operating margin (in %) 25.0 26.3 –1.3pp –1.4pp Profit after tax 2,006 1,742 15 NA Effective tax rate (in %) 26.9 28.1 –1.3pp NA Earnings per share, basic (in €) 1.67 1.46 14 NA Performance in the First Half Year of 2017 (Non-IFRS) In the first half year of 2017, our revenue from cloud subscriptions and support (non-IFRS) was €1,837 million (first half year of 2016: €1,399 million), an increase of 31% (28% at constant currencies) compared to the same period in 2016. In the first half year 2017, our cloud subscriptions and support margin decreased by 1.8 percentage points to 63% (first half year of 2016: 65%). Operating expense (non-IFRS) in the first half year of 2017 was €8,299 million (first half year of 2016: €7,348 million), an increase of 13%. On a constant currency basis, the increase was 11%. This increase reflects ongoing investments into our cloud infrastructure to increase operational efficiency and performance. In addition, we have higher personnel expenses from adding over 7,000 full-time employees or a 9% increase compared to the prior year period, to drive organic innovation and strengthen the sales function. New cloud bookings increased 39% in the first half year of 2017 to €555 million (first half year of 2016: €400 million). Operating profit (non-IFRS) was €2,768 million (first half year of 2016: €2,620 million), an increase of 6%. On a constant currency basis, the increase was 3%. In the first half year of 2017, cloud and software revenue (non-IFRS) was €9,085 million (first half year of 2016: €8,212 million), an increase of 11%. On a constant currency basis, the increase was 8%. This increase was mainly driven by a strong on-premise software business in both quarters of 2017. Operating margin (non-IFRS) in the first half year of 2017 was 25.0%, a decrease of 1.3 percentage points (first half year of 2016: 26.3%). Operating margin (non-IFRS) on a constant currency basis was 24.9%, a decrease of 1.4 percentage points. Total revenue (non-IFRS) in the same period was €11,067 million (first half year of 2016: €9,967 million), an increase of 11%. On a constant currency basis, the increase was 9%. In the first half year of 2017, profit after tax (non-IFRS) was €2,006 million (first half year of 2016: €1,742 million), an increase of 15%. Basic earnings per share (non-IFRS) was €1.67 (first half year of 2016: €1.46), an increase of 14%. Half-Year Report January – June 2017 9 The effective tax rate (non-IFRS) in the first half of 2017 was 26.9% (first half of 2016: 28.1%). The year-over-year decrease in the effective tax rate mainly resulted from changes in taxes for prior years. Segment Information Applications, Technology & Services Segment € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Cloud subscriptions and support revenue – IaaS2) Cloud subscriptions and support gross margin – IaaS2) (in %) Cloud subscriptions and support revenue Cloud subscriptions and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service The Applications, Technology & Services segment recorded strong growth in our cloud subscriptions and support revenue and growth in software licenses and support revenue as well as in services revenue in the first half year of 2017. The SaaS/PaaS business in this segment grew by 35% at constant currency basis driven by an ongoing strong demand in our cloud solutions. The IaaS business even grew by 73% at constant currency basis year over year. As a result of our ongoing efforts to further improve our offerings and invest in our cloud infrastructure, our Half-Year Report January – June 2017 Q1–Q2 2017 Q1–Q2 2016 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 728 710 527 38 35 59 59 64 –5pp –4pp 158 155 89 76 73 10 10 –14 24pp 24pp 885 865 616 44 40 50 50 52 –2pp –2pp 9,772 9,566 8,973 9 7 71 71 71 –0pp –0pp 3,387 3,297 3,295 3 0 35 34 37 –2pp –2pp SaaS/PaaS gross margin showed a decline of 4 percentage points at constant currencies compared to the first half of 2016. This could not be fully offset by the positive development of the IaaS gross margin. The operative optimization and efficiency gains in our IaaS offerings led to a gross margin improvement of 24 percentage points. As a result, the overall cloud subscription and support gross margin dropped 2 percentage points to 50%. The services gross margin continued its upward trend which was driven by completion of previous investment projects. 10 SAP Business Network Segment € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) Cloud subscriptions and support revenue Cloud subscriptions and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service Our improved operational efficiency resulted in improved cloud subscriptions and support gross margin in the SAP Business Network segment. In the first half of 2017, segment revenue growth was 21% at constant currencies. Over the past 12 months, approximately 2.8 million connected companies traded nearly $1 trillion of commerce on the SAP Ariba network, more than 49 million end users processed travel and expenses effortlessly with Concur, and customers managed over 3.5 million contingent workers in more than 140 countries with the SAP Fieldglass platform. Reconciliation of Cloud Subscription Revenues and Margins € millions, unless otherwise stated Cloud subscriptions and support revenue – SaaS/PaaS1) SAP Business Network segment Other Total Cloud subscriptions and support revenue – IaaS2) Cloud subscriptions and support revenue Cloud subscriptions and support gross margin – SaaS/PaaS1) (in %) SAP Business Network segment Other Total Cloud subscriptions and support gross margin – IaaS2) (in %) Cloud subscriptions and support gross margin (in %) 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service Half-Year Report January – June 2017 Q1–Q2 2017 Q1–Q2 2016 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 925 899 761 22 18 77 77 76 1pp 1pp 925 899 761 22 18 77 77 76 1pp 1pp 1,138 1,107 919 24 21 68 68 67 0pp 0pp 189 181 160 18 13 17 16 17 –1pp –1pp At the beginning of 2017, we started to break down our cloud subscriptions and support revenue to provide transparency in our performance in the cloud delivery models. A reconciliation is provided for cloud revenues and cloud gross margins by delivery model from the amounts presented in the segment reporting to the group-wide amounts. For more information about our segments, see the Notes to the Consolidated Half-Year Financial Statements section, Note (15). Q1–Q2 2017 Actual Currency 925 Constant Currency 899 Q1–Q2 2016 Actual Currency 761 ∆ in % Actual Currency 22 ∆ in % Constant Currency 18 755 737 548 38 35 1,680 1,636 1,309 28 25 158 155 89 76 73 1,837 1,791 1,399 31 28 77 77 76 1pp 1pp 58 59 64 –5pp –5pp 69 69 71 –2pp –2pp 10 10 –14 24pp 24pp 63 64 65 –2pp –2pp 11 Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2017 Net cash flows from operating activities 3,514 Capital expenditure –610 Free cash flow 2,903 Free cash flow (as a percentage of total revenue) 26 Free cash flow (as a percentage of profit after tax) Days' sales outstanding (DSO, in days) 243 72 Group Liquidity Half-Year Report January – June 2017 Q1–Q2 2016 2,921 –406 2,516 25 182 73 ∆ +20% +51% +15% +1pp +61pp –1 €3,514 million was our highest-ever operating cash flow for the first half of a year. The increase resulted mainly from an improved working capital management, which is also reflected in a year-over-year decrease of DSO. Furthermore, we had reduced payments for restructuring plans and income tax. The expansion of our data centers as well as consolidation of our cloud infrastructure and technology platforms underlying our cloud solution portfolio are a key component of our investments in 2017 and led to higher cash outflows in the first half of 2017. We calculate free cash flow as net cash flows from operating activities minus purchases of intangible assets and property, plant, and equipment without acquisitions (capital expenditure). DSO for receivables is defined as the average number of days from the raised invoice to the cash receipt from the customer. 12 Liquidity and Financial Position € millions 30.6.2017 31.12.2016 ∆ Cash and cash equivalents 4,236 3,702 +534 Current investments 691 971 –279 Group liquidity 4,927 4,673 +254 Financial debt –6,716 –7,826 +1,109 Net liquidity –1,789 –3,153 +1,364 Goodwill 21,949 23,311 –1,362 Total assets 42,900 44,277 –1,376 Total equity 24,525 26,397 –1,872 Equity ratio (total equity as a percentage of total assets) 57 60 –2pp Competitive Intangibles The resources that are the basis for our current as well as future success do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE (based on all outstanding shares), which was €112 billion at the end of June 2017, with the carrying amount of our equity. The market capitalization of our equity is nearly five times higher than the carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization. SAP was recognized as the world’s 21nd most valuable brand in the 2017 BrandZ Top 100 Most Valuable Global Brands ranking. SAP’s brand value is now estimated at US$45 billion, an increase of 16% in brand value for SAP year over year. Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early and to take the appropriate action. For changes in our legal liability risks since our last Integrated Report, see Note (12) in the Notes to the Consolidated Half-Year Financial Statements. The other risk factors remain largely unchanged since 2016, and are discussed more fully in our Integrated Report 2016 and in our Annual Report on Form 20-F for 2016. We do not believe the risks we have identified jeopardize our ability to continue as a going concern. Half-Year Report January – June 2017 Expected Developments and Opportunities Future Trends in the Global Economy In its current report, the European Central Bank (ECB) predicts that the global economy will continue to accelerate in 2017 and 2018, yet still remain below its pre-crisis pace. It believes that advanced economies will see moderate expansion spurred on by continued accommodative monetary and fiscal policies, and that economic activity among commodity-exporting countries will strengthen slightly. Nevertheless, the global outlook might still be suffering from negative impacts of low commodity prices, the continued readjustment of the Chinese economy, as well as political and economic uncertainties in the United States. In the Europe, Middle-East, and Africa (EMEA) region, the ECB anticipates stronger-than-initially-projected growth thanks to better profitability of businesses and very low interest rates, which support investment activities in the euro-area. Furthermore, it expects the Central and Eastern European countries will continue to benefit from strong consumer and enterprise investment going forward. The experts further believe that Russia in particular will benefit and expect a growth in 2017 for the first time after the recession period. With regards to the Americas region, the ECB observes still high uncertainties about future political and economic development plans of the new administration in the United States. Brazil, meanwhile, will continue its economic recovery as the year progresses, though ongoing political uncertainties and fiscal consolidation needs could weigh on the medium-term outlook there. In the Asia Pacific Japan (APJ) region, the analysts expect the Chinese and Indian economies will continue expanding at a robust pace. Economic expansion is also expected to continue in Japan, but only on the level of the prior year. Supported by the country’s low interest rate policy, looser financial conditions, and a slight increase in exports the investment activities in Japan may improve, however the overall economic momentum in Japan is expected to remain weak. The ECB experts further estimate the Chinese GDP will slow down and that investment activities will decrease. This mainly caused by a reduction of capacity. 13 Economic Trends – Year-Over-Year GDP Growth % 2016e 2017p 2018p World 3.1 3.5 3.6 Advanced economies 1.7 2.0 2.0 Developing and emerging economies 4.1 4.5 4.8 Europe, the Middle East, and Africa (EMEA) Euro area 1.7 1.7 1.6 Germany 1.8 1.6 1.5 Central and Eastern Europe 3.0 3.0 3.3 Middle East and North Africa 3.9 2.6 3.4 Sub- Saharan Africa 1.4 2.6 3.5 Americas United States 1.6 2.3 2.5 Canada 1.4 1.9 2.0 Central and South America, Caribbean –0.1 1.1 2.0 Asia-Pacific-Japan (APJ) Japan 1.0 1.2 0.6 Asian developing economies 6.4 6.4 6.4 China 6.7 6.6 6.2 e = estimate; p = projection Source: International Monetary Fonds, World Economic Outlook April 2017, Gaining Momentum?, as of 18. April 2017 (http://www.imf.org/~/media/Files/Publications/WEO/2017/April/pdf/tex t.ashx?la=en), S. 20. IT Market: The Outlook Gartner, a market research firm, announced that “through 2021, we expect the [enterprise software] market to grow at an 8.5% CAGR in constant currency – […] an increase of 1.3% over the 1Q17 forecast.”2) According to Gartner, “public cloud will become one of the main deployment platforms because enterprises see it as an agile and cost-effective option for some workloads.”1) “Through 2021, the penetration of cloud automation and service support tools by North American organizations will reach 18% and 40%, respectively, driven by the need for more agile application release cycles that support digital business. As software applications allow more organizations to derive revenue from digital business channels, there will be a stronger need to automate and release new applications and functionality.”1) Within the Europe, Middle-East, and Africa (EMEA) region, the table below shows that IT spending in Western European countries is expected to grow 1.7% in 2017 and 2.3% in 2018, Half-Year Report January – June 2017 whereas Western European software spending will increase considerably by 7.2% (2017) and 7.5% (2018). According to the table below, IT spending in the Americas region is projected to expand by 3.9% (2017) and by 3.1% (2018) in Northern America and 1.3% (2017) and 2.3% (2018) in Latin America, software spending even considerably faster. IT spending in the Asia Pacific Japan (APJ) region is expected to expand by 3.7% (2017)/2.8% (2018) (Mature Asia/Pacific without Japan) and 8.9% (2017)/6.9% (2018) (Emerging Asia/Pacific without China) (see table below). IT spending in Greater China is expected to grow 5.1% in 2017 and 5.4% in 2018 (see table below). Software spending is expected to expand significantly faster throughout the region as can be seen from the table below. Sources: 1) Gartner Forecast Analysis: IT Spending, Worldwide, 1Q17 Update, 16 May 2017. 2) Gartner Forecast Alert IT Spending, Worldwide, 2Q17 Update, 7 July 2017. The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Half Year Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Trends in the IT Market – IT Spending Year-Over-Year % 2016e 2017p 2018p World Total IT 2.0 3.3 3.3 Software 6.5 8.6 8.6 Services 4.1 4.3 4.5 Western Europe Total IT 1.2 1.7 2.3 Software 5.9 7.2 7.5 Services 2.7 3.2 3.8 Eastern Europe Total IT 2.8 0.3 3.6 Software 9.1 11.3 11.1 Services 1.4 3.6 3.9 Eurasia Total IT 5.1 1.8 1.7 Software 5.0 9.2 9.9 Services –0.9 1.3 1.9 Middle East and North Africa Total IT 0.5 1.4 2.8 Software 7.9 12.1 11.5 Services 2.2 4.7 3.9 14 Sub-Saharan Africa Total IT 4.1 5.1 Software 10.6 12.7 Services 11.5 5.6 North America Total IT 2.4 3.9 Software 6.8 8.5 Services 5.7 5.2 Latin America Total IT 0.5 1.3 Software 8.0 10.6 Services 3.8 5.6 Mature Asia/Pacific (w/o Japan) Total IT –1.1 3.7 Software 7.6 11.2 Services 0.9 2.6 Emerging Asia/Pacific (w/o China) Total IT 5.0 8.9 Software 8.3 12.3 Services 7.7 9.6 Japan Total IT –0.5 2.0 Software 2.0 6.9 Services 1.3 1.9 Greater China (China/ Taiwan/ Hong Kong) Total IT 4.5 5.1 Software 7.9 11.4 Services 11.0 9.3 e = estimate, p = projection Table created by SAP based on Gartner Market Databook, 2Q17 Update - July 2017, Table 2-1 “Regional End-User Spending on IT Products and Services in Constant U.S. Dollars, 2015–2021 (Millions of Dollars)”. Impact on SAP SAP expects to outperform the global economy and the IT industry again in 2017 in terms of revenue growth. With continued strong results, we are validating our strategy of innovating across our core and cloud offerings, to help our customers become true digital enterprises. Our innovation cycle for SAP S/4HANA is well underway and the completeness of our vision in the cloud continues to distinguish SAP from both legacy players and providers of cloud-based point solutions. Half-Year Report January – June 2017 5.3 12.1 5.2 3.1 8.2 5.2 2.3 10.6 5.8 2.8 10.8 2.4 6.9 12.2 9.8 1.6 6.6 1.7 5.4 11.8 9.5 On this basis, we consider ourselves well-prepared for the future and expect profitable growth beyond 2017 as well. Balanced in terms of regions as well as industries, we remain well-positioned with our product offering to offset individual fluctuations in the global economy and IT market. A comparison of our business outlook with forecasts for the global economy and IT industry shows that we can be successful even in a tough economic environment and increased geopolitical uncertainty, and will further strengthen our position as the market leader of enterprise application software. Furthermore, we are able to generate growth that few other IT companies can match – in three aspects: in revenue from our core and cloud businesses, and in operating profit. Operational Targets for 2017 (Non-IFRS) Revenue and Operating Profit Outlook The Company is raising its outlook for the full year 2017: – Based on the continued strong momentum in SAP’s cloud business, the Company expects full year 2017 non-IFRS cloud subscriptions and support revenue to be in a range of €3.8 billion to €4.0 billion at constant currencies (2016: €2.99 billion). The upper end of this range represents a growth rate of 34% at constant currencies. – Due to increasing adoption of S/4HANA and our Digital Business Platform the Company now expects full year 2017 non-IFRS cloud & software revenue to increase by 6.5% to 8.5% at constant currencies (2016: €18.43 billion). – The Company now expects full year 2017 non-IFRS total revenue in a range of €23.3 billion to €23.7 billion at constant currencies (2016: €22.07 billion). – The Company expects full-year 2017 non-IFRS operating profit to be in a range of €6.8 billion to €7.0 billion at constant currencies (2016: €6.63 billion). While the Company's full-year 2017 business outlook is at constant currencies, actual currency reported figures are expected to continue to be impacted by exchange rate fluctuations. If exchange rates remain at the June 2017 average level for the rest of the year, we expect non-IFRS cloud and software revenue and non-IFRS operating profit growth rates to experience a currency headwind in a range of -2 to 0pp in Q3 2017 (-1 to +1pp for the full year 2017). We expect that non-IFRS total revenue will continue to depend largely on the revenue from cloud and software. However, the revenue growth we expect from this is below the outlook provided for non-IFRS cloud subscriptions and support revenue. We expect our software license revenue in 2017 to be at approximately the same level as in 2016. We continuously strive for profit expansion in all our reportable segments leading to a SAP Group profit expansion as outlined in the given 2017 outlook. For SAP’s managed-cloud offerings, we 15 expect a positive gross margin result in 2017 according to outlined long-term 2020 planning: The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. Non-IFRS Measures € millions Estimated Amounts for Full Year 2017 Q1–Q2 2017 Q1–Q2 2016 Revenue adjustments <20 0 4 Acquisition related charges 610 to 640 309 336 Share-based payment expenses 900 to 1,150 618 177 Restructuring1) 200 to 250 242 22 1) reflects our expectations for restructuring activities in our services and support business The Company expects a full-year 2017 effective tax rate (IFRS) of 26.0% to 27.0% (2016: 25.3%) and an effective tax rate (non- IFRS) of 27.0% to 28.0% (2016: 26.8%). Goals for Liquidity, Finance, and Investments On June 30, 2017, we had a negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2017 as well and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. In 2017, we expect a positive development of our operating cash flow. Furthermore, we repaid Eurobonds totaling €1 billion in April 2017 and intend to repay U.S. private placements totaling US$443 million in October and November 2017. After evaluating the expected cash flow development for the second half of 2017, and consistent with the company’s capital allocation priorities, SAP has decided on a share buyback of up to €500 million in 2017. The share buyback will start shortly and will be executed in several tranches. Our planned capital expenditures for 2017 and 2018, other than from business combinations, mainly comprise the construction activities described in the Assets (IFRS) section of our Integrated Report 2016. We expect investments from these activities of approximately €380 million in 2017 (an increase of 25% compared to the previous year), and approximately €350 Half-Year Report January – June 2017 million in 2018. These investments can be covered in full by operating cash flow. Premises on Which Our Outlook Is Based In preparing our outlook, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no major acquisitions in 2017 and 2018. Non-Financial Goals 2017 SAP has already achieved its objective of 25% women in management by the end of 2017. We have now extended our commitment to increase the percentage of women in management to 30% by the end of 2022. For a detailed description of our Non-Financial Goals 2017, see our Integrated Report 2016. Medium-Term Prospects We did not change our medium-term prospects in the first half of 2017. For a detailed description, see our Integrated Report 2016. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged since 2016, and are discussed more fully in our Integrated Report 2016. Events After the Reporting Period Media reports have raised questions surrounding contracts and third-party business practices in South Africa. SAP embodies an unwavering commitment to maintain the highest standards of integrity and transparency across its business. SAP has initiated an independent investigation spearheaded by a multinational law firm and overseen by Executive Board Member Adaire Fox- Martin to vigorously review contracts awarded by SAP South Africa. For further information about events after the reporting period, see the Notes to the Consolidated Half-Year Financial Statements section, Note (17). 16 Consolidated Half-Year Financial Statements – IFRS Half-Year Report January – June 2017 17 Consolidated Income Statements of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Q1–Q2 2017 Q1–Q2 2016 Cloud subscriptions and support 1,837 1,397 Software licenses 1,781 1,649 Software support 5,467 5,162 Software licenses and support 7,248 6,811 Cloud and software 9,085 8,208 Services 1,981 1,755 Total revenue 11,066 9,964 Cost of cloud subscriptions and support –793 –603 Cost of software licenses and support –1,134 –1,007 Cost of cloud and software –1,927 –1,610 Cost of services –1,628 –1,506 Total cost of revenue –3,555 –3,116 Gross profit 7,512 6,848 Research and development –1,694 –1,419 Sales and marketing –3,415 –2,865 General and administration –569 –460 Restructuring (5) –242 –22 Other operating income/expense, net 8 –1 Total operating expenses –9,467 –7,882 Operating profit 1,599 2,082 Other non-operating income/expense, net –10 –136 Finance income 143 73 Finance costs –156 –132 Financial income, net –13 –59 Profit before tax 1,576 1,887 Income tax expense –379 –504 Profit after tax 1,197 1,382 Attributable to owners of parent 1,189 1,388 Attributable to non-controlling interests 7 –5 Earnings per share, basic (in €)1) 0.99 1.16 Earnings per share, diluted (in €)1) 0.99 1.16 1) For the six months ended June 30, 2017 and 2016, the weighted average number of shares was 1,199 million (diluted 1,199 million) and 1,198 million (diluted: 1,199 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 ∆ in % 31 8 6 6 11 13 11 31 13 20 8 14 10 19 19 24 >100 <-100 20 –23 –93 94 18 –78 –16 –25 –13 –14 <-100 –14 –14 18 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half-Year € millions Q1–Q2 2017 Q1–Q2 2016 Profit after tax 1,197 1,382 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 12 3 Income tax relating to remeasurements on defined benefit pension plans –2 0 Remeasurements on defined benefit pension plans, net of tax 10 3 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 10 3 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax –1,635 –182 Reclassification adjustments on exchange differences on translation, before tax 0 –1 Exchange differences, before tax –1,635 –183 Income tax relating to exchange differences on translation –3 –26 Exchange differences, net of tax –1,637 –210 Gains (losses) on remeasuring available-for-sale financial assets, before tax 107 –132 Reclassification adjustments on available-for-sale financial assets, before tax –35 –14 Available-for-sale financial assets, before tax 72 –145 Income tax relating to available-for-sale financial assets 0 1 Available-for-sale financial assets, net of tax 72 –144 Gains (losses) on cash flow hedges, before tax 42 –19 Reclassification adjustments on cash flow hedges, before tax 0 –6 Cash flow hedges, before tax 43 –25 Income tax relating to cash flow hedges –11 7 Cash flow hedges, net of tax 31 –18 Other comprehensive income for items that will be reclassified to profit or loss, net of tax –1,534 –372 Other comprehensive income, net of tax –1,524 –369 Total comprehensive income –327 1,013 Attributable to owners of parent –334 1,019 Attributable to non-controlling interests 7 –5 Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 19 Consolidated Statements of Financial Position of SAP Group (IFRS) as at June 30, 2017 and December 31, 2016 € millions Cash and cash equivalents Other financial assets Trade and other receivables (8) Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables (8) Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities (9) Other non-financial liabilities Provisions Deferred income (10) Total current liabilities Trade and other payables Tax liabilities Financial liabilities (9) Other non-financial liabilities Provisions Deferred tax liabilities Deferred income (10) Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity (11) Total equity and liabilities Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 2017 4,236 868 5,408 751 375 11,638 21,949 3,273 2,719 1,497 117 557 441 710 31,263 42,900 2017 1,142 288 863 2,758 369 4,898 10,318 124 436 6,260 545 235 380 78 8,058 18,376 1,229 565 22,004 1,812 –1,091 24,518 7 24,525 42,900 2016 3,702 1,124 5,924 581 233 11,564 23,311 3,786 2,580 1,358 126 532 450 571 32,713 44,277 2016 1,281 316 1,813 3,699 183 2,383 9,674 127 365 6,481 461 217 411 143 8,205 17,880 1,229 599 22,302 3,346 –1,099 26,376 21 26,397 44,277 20 Consolidated Statements of Changes in Equity of SAP Group (IFRS) € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Compo- nents of Equity Treasury Shares Total January 1, 2016 1,229 558 20,044 2,561 –1,124 23,267 Profit after tax 1,388 1,388 Other comprehensive income 3 –372 –369 Comprehensive income 1,391 –372 1,019 Share-based payments 14 14 Dividends –1,378 –1,378 Reissuance of treasury shares under share-based payments 9 10 18 Other changes –2 –2 June 30, 2016 1,229 580 20,054 2,189 –1,114 22,938 January 1, 2017 1,229 599 22,302 3,346 –1,099 26,376 Profit after tax 1,189 1,189 Other comprehensive income 10 –1,534 –1,524 Comprehensive income 1,199 –1,534 –335 Share-based payments –47 –47 Dividends –1,499 –1,499 Reissuance of treasury shares under share-based payments 13 8 22 Other changes 1 1 June 30, 2017 1,229 565 22,004 1,812 –1,091 24,518 Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 Non- Controlling Interests 28 –5 –5 3 26 21 7 7 –23 1 7 Total Equity 23,295 1,382 –369 1,013 14 –1,378 18 1 22,963 26,397 1,197 –1,524 –327 –47 –1,522 22 2 24,525 21 Consolidated Statements of Cash Flows of SAP Group (IFRS) € millions Profit after tax Adjustments to reconcile profit after tax to net cash flows from operating activities: Depreciation and amortization Income tax expense Financial income, net Decrease/increase in sales and bad debt allowances on trade receivables Other adjustments for non-cash items Decrease/increase in trade and other receivables Decrease/increase in other assets Decrease/increase in trade payables, provisions, and other liabilities Decrease/increase in deferred income Interest paid Interest received Income tax paid, net of refunds Net cash flows from operating activities Business combinations, net of cash and cash equivalents acquired Purchase of intangible assets or property, plant, and equipment Proceeds from sales of intangible assets or property, plant, and equipment Purchase of equity or debt instruments of other entities Proceeds from sales of equity or debt instruments of other entities Net cash flows from investing activities Dividends paid Dividends paid on non-controlling interests Proceeds from reissuance of treasury shares Proceeds from borrowings Repayments of borrowings Transactions with non-controlling interests Net cash flows from financing activities Effect of foreign currency rates on cash and cash equivalents Net decrease/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 Q1–Q2 2017 Q1–Q2 2016 1,197 1,382 642 615 379 504 13 59 –4 60 –28 12 303 114 –312 –309 –634 –1,165 2,722 2,493 –125 –120 41 36 –680 –760 3,514 2,921 –22 –16 –610 –406 47 33 –1,843 –320 2,064 308 –365 –401 –1,499 –1,378 –23 0 0 15 18 1 –1,003 –544 0 3 –2,506 –1,902 –108 177 534 796 3,702 3,411 4,236 4,206 22 Notes to the Consolidated Half-Year Financial Statements (1) General Information About Consolidated Half-Year Financial Statements (2) Scope of Consolidation Our changes in the scope of consolidation in the first half of 2017 were not material to our Consolidated Financial Statements. The accompanying Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. The designation IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (4) and our Integrated Report 2016. (3) Summary of Significant Accounting Policies These Consolidated Half-Year Financial Statements were prepared based on the same accounting policies as those applied and described in the Consolidated Financial Statements as at December 31, 2016. Our significant accounting policies are summarized in the Notes to the Consolidated Financial Statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. In the Notes to our Consolidated Financial Statements for 2016, we disclosed, for new accounting standards that have been issued but not yet been adopted by us, our expectations regarding the timing of and our approaches to adopt these standards and known or reasonably estimable information on the possible impact that the adoption will have on our financial statements. The following provides updates to these disclosures and should be read in conjunction with these disclosures: Amounts reported in previous years have been reclassified as appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2016, included in our Integrated Report 2016 and our Annual Report on Form 20-F for 2016. Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. – IFRS 15 will be adopted with the effective date as of January 1, 2018. We intend to apply IFRS 15 retrospectively and recognize the cumulative effect of the initial application of the standard as an adjustment to the opening balance of retained earnings on the effective date. We plan to apply IFRS 15 retrospectively only to contracts that are not completed as at January 1, 2018. The application of this practical expedient will have an effect on the opening balance sheet under IFRS 15 as well as on the revenues recorded after the date of transition. We are still evaluating whether we will use the practical expedient related to contract modifications that happened before the date of initial application of IFRS 15. If we elect to apply this practical expedient, we would reflect the aggregate effect of all modifications when identifying Half-Year Report January – June 2017 23 performance obligations, determining the transaction price and allocating the transaction price. The comparison of our intended future IFRS 15-based accounting policies versus our current accounting policies has led to several potential policy differences, which we continue to evaluate as described in Note (3e) of our Consolidated Financial Statements for the financial year 2016. Based on our analysis to date, we tentatively do not expect a material impact of the adoption of IFRS 15 on our reported revenue. This estimate is based on several assumptions, including assumptions regarding the extent to which IFRS 15 influences our future business and go-to- market practices. Particularly this influence is difficult to predict. Under IFRS 15 we will capitalize higher amounts of cost to obtain a contract and will amortize these capitalized amounts over a longer period than under our current policies. Our analysis of the impact of this change is ongoing. Thus, the impact of this change on our expenses and on our Consolidated Statement of Financial Position is currently neither known nor reasonably estimable. We will continue with our process and further assess the IFRS 15 impacts during the second half of 2017. – We will adopt IFRS 9 per its effective date of January 1, 2018. We plan to use the exceptions from full retrospective application and thus recognize the effect of the initial application as an adjustment to the opening balance of retained earnings. Currently, we are in the process of finalizing the analysis of the contractual cash flow characteristics of all our debt investments, loans, and other financial receivables. Based on the current state of our analysis, we tentatively believe that we can continue the current classification for the majority of such financial assets and do, therefore, not expect a material impact from changes in classification and subsequent measurement. We have not yet made a final decision whether we classify our equity investments as fair value through other comprehensive income or fair value through profit or loss. Consequently, the possible impact of IFRS 9 on our accounting for our equity investments is currently neither known nor reasonably estimable. For trade receivables, we are in the process of analyzing our historical credit losses to come up with an initial provision matrix. For all other financial assets at amortized cost, we are currently estimating the impact of an expected credit loss allowance. Based on the current status of our analysis, we tentatively do not expect our impairment allowances for trade receivables and other financial assets to be materially different from what they are under our current accounting policies. For forward contracts designated in an effective hedging relationships, we have not yet decided whether we will treat the interest element as cost of hedging and record it in other comprehensive income. However, we tentatively do not Half-Year Report January – June 2017 believe that this decision will have a material impact on our Consolidated Financial Statements. – We currently plan to adopt IFRS 16 per its effective date of January 1, 2019, using the modified retrospective approach. We plan to use the practical expedients offered by the standard (short-term leases, low-value leases, and no separation of non-lease components of a contract). The impact on our Consolidated Financial Statements of applying IFRS 16 is currently neither known nor reasonably estimable as it depends on the lease agreements in effect at the time of adoption and on the results of our ongoing analysis of the impact of leases entered into in the past. (4) Business Combinations We did not complete any material acquisitions during the first half of 2017. 24 (5) Restructuring € millions Q1–Q2 2017 Q1–Q2 2016 Employee-related restructuring expenses 239 22 Onerous contract-related restructuring expenses 3 0 Restructuring expenses 242 22 The increase in restructuring related expenses is mainly caused by a newly launched restructuring program in the Digital Business Services (DBS) board area. If not presented separately, these expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2017 Q1–Q2 2016 Cost of cloud and software 105 2 Cost of services 110 5 Research and development 17 3 Sales and marketing 10 11 General and administration 0 1 Restructuring expenses 242 22 Number of Employees (in Full-Time Equivalents) Full-time equivalents EMEA Americas Cloud and software 7,994 3,811 Services 5,281 4,789 Research and development 10,831 5,122 Sales and marketing 9,030 9,044 General and administration 2,708 1,824 Infrastructure 1,650 845 SAP Group (June 30) 37,494 25,435 Thereof acquisitions 1) 4 13 SAP Group (six months' end average) 36,998 25,234 1) Acquisitions closed between January 1 and June 30 of the respective year Half-Year Report January – June 2017 (6) Employee Benefits Expense and Headcount Employee Benefits Expense € millions Q1–Q2 2017 Q1–Q2 2016 Salaries 4,275 3,765 Social security expenses 670 565 Share-based payment expenses 618 177 Pension expenses 169 148 Employee-related restructuring expenses 239 22 Termination benefits 25 14 Employee benefits expense 5,996 4,692 On June 30, 2017, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 87,114 employees is mainly due to organic growth of full-time equivalents to cloud and software, research and development as well as to sales and marketing. 30.6.2017 30.6.2016 APJ Total EMEA Americas APJ Total 4,880 16,686 6,214 4,054 5,084 15,352 4,752 14,821 6,443 4,006 3,738 14,187 8,270 24,223 9,927 4,501 7,382 21,810 4,778 22,851 8,109 8,350 4,202 20,661 1,039 5,572 2,542 1,677 990 5,208 466 2,961 1,530 772 443 2,745 24,184 87,114 34,764 23,359 21,838 79,962 0 17 25 25 0 50 23,778 86,011 34,284 22,861 21,416 78,561 25 The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Q1–Q2 2017 Q1–Q2 2016 Cost of cloud and software 68 22 Cost of services 81 24 Research and development 148 44 Sales and marketing 240 67 General and administration 81 20 Share-based payments 618 177 For more information about our share-based payments, see our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (27). (7) Income Tax There have been no significant changes in contingent liabilities from income tax-related litigation and claims for which no provision has been recognised compared to Note (10) in our Consolidated Financial Statements for 2016, which is included in our Integrated Report 2016. Half-Year Report January – June 2017 (8) Trade and Other Receivables € millions Current Non- Current Trade receivables, net 5,359 2 Other receivables 49 115 Total 5,408 117 € millions Current Non- Current Trade receivables, net 5,823 2 Other receivables 101 124 Total 5,924 126 The carrying amounts of our trade receivables and related allowances were as follows: Carrying Amounts of Trade Receivables € millions 30.6. 2017 Gross carrying amount 5,633 Sales allowances charged to revenue –199 Allowance for doubtful accounts charged to expense –73 Carrying amount trade receivables, net 5,361 30.6.2017 Total 5,361 164 5,525 31.12.2016 Total 5,825 225 6,050 31.12. 2016 6,114 –200 –89 5,825 26 (9) Financial Liabilities € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities (10) Deferred Income € millions Current thereof deferred revenue from cloud subscriptions and support Non-current Total Deferred Income Half-Year Report January – June 2017 30.6. 2017 4,898 1,293 78 4,976 31.12. 2016 2,383 1,271 143 2,526 Nominal Volume Current Non- Current 0 5,150 519 1,014 23 10 542 6,174 NA NA NA NA Nominal Volume Current Non- Current 1,000 5,150 420 1,240 16 0 1,435 6,390 NA NA NA NA Carrying Amount Current Non- Current 0 5,149 519 1,066 23 10 541 6,225 96 33 225 2 863 6,260 Carrying Amount Current Non- Current 996 5,151 418 1,298 16 0 1,430 6,450 152 43 231 –12 1,813 6,481 30.6.2017 Total 5,149 1,584 33 6,766 129 228 7,123 31.12.2016 Total 6,147 1,717 16 7,880 194 219 8,294 27 (11) Total Equity Number of Shares millions January 1, 2016 Reissuance under share-based payments June 30, 2016 January 1, 2017 Reissuance under share-based payments June 30, 2017 Other Components of Equity € millions January 1, 2016 Other comprehensive income June 30, 2016 January 1, 2017 Other comprehensive income June 30, 2017 Half-Year Report January – June 2017 Issued Capital Treasury Shares 1,228.5 –30.6 0 0.3 1,228.5 –30.3 1,228.5 –29.9 0 0.2 1,228.5 –29.6 Exchange Differences 2,223 –210 2,013 3,062 –1,637 1,425 Available-for-Sale Financial Assets 336 –144 192 292 72 364 Cash Flow Hedges 3 –18 –16 –9 31 23 Total 2,561 –372 2,189 3,346 –1,534 1,812 28 (12) Litigation and Claims We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired, claims that relate to customers demanding indemnification for proceedings initiated against them based on their use of SAP software, and claims that relate to customers being dissatisfied with the products and services that we have delivered to them. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as of June 30, 2017, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as of June 30, 2017, are neither individually nor in the aggregate material to SAP. However, the outcome of litigation and claims is intrinsically subject to considerable uncertainty. Management’s view of the litigation may also change in the future. Actual outcomes of litigation and claims may differ from the assessments made by management in prior periods, which could result in a material impact on our business, financial position, profit, cash flows, or reputation. Most of the lawsuits and claims are of a very individual nature and claims are either not quantified by the claimants or claim amounts quantified are, based on historical evidence, not expected to be a good proxy for the expenditure that would be required to settle the case concerned. The specifics of the jurisdictions where most of the claims are located further impair the predictability of the outcome of the cases. Therefore, it is not practicable to reliably estimate the financial effect that these lawsuits and claims would have if SAP were to incur expenditure for these cases. Among the claims and lawsuits are the following classes (please refer to our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (18b) for further detail on these classes): Intellectual Property-Related Litigation and Claims There have been no significant changes to the amount of provisions recorded for intellectual property-related litigation and claims compared to the amounts disclosed in our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (18b). There have also been no significant changes in contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. For the individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2016, there is no significant development. Half-Year Report January – June 2017 Customer-Related Litigation and Claims There have been no significant changes to the amount of provisions recorded for customer-related litigation and claims compared to the amounts disclosed in our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (18b). There have also been no significant changes in contingent liabilities from customer-related litigation and claims for which no provision has been recognized. Tax-Related Litigation and Claims There have been no significant changes in contingent liabilities from non-income tax-related litigation and claims for which no provision has been recognised compared to Note (23) in our Consolidated Financial Statements for 2016, which is included in our Integrated Report 2016. For information about income tax-related litigation, see Note (7). (13) Other Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (24) to (26) to our Consolidated Financial Statements for 2016, which are included in our Integrated Report 2016. We do not disclose the fair value of our financial instruments as of June 30, 2017, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2016. (14) Share-Based Payments For a detailed description of our share-based payment plans, see Note (27) to our Consolidated Financial Statements for 2016, included in our Integrated Report 2016. Restricted Stock Unit Plan Including Move SAP Plan (RSU Plan) In the first half of 2017, we granted 7.3 million (first half of 2016: 7.8 million) RSUs to retain and motivate global executives and employees who make a significant sustained impact to our business success. Own SAP Plan (Own) The number of shares purchased by our employees under this plan was 2.9 million in the first half of 2017. The plan enables employees to purchase shares with preferred conditions and build value by becoming an SAP shareholder. 29 (15) Segment and Geographic Information General Information SAP has three operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings. The Applications, Technology & Services segment and the SAP Business Network segment represent reportable segments. The segment that focuses on our small and medium- sized customers does not qualify as a reportable segment. Revenues and expenses of the non-reportable segment are included in the reconciliation of segment revenue and results. For general information for our reportable segments see Note (28) to our Consolidated Financial Statements for 2016, which is included in our Integrated Report 2016. On May 1, 2017, we changed the structure of our Executive Board which resulted in minor changes in our segment structure. In particular, the non-reportable segment comprising SAP’s healthcare strategy and solutions is no longer an operating segment, and its activities were included in the Applications, Technology & Services segment. We have retrospectively adjusted the revenue and results for the Applications, Technology & Services segment to reflect this change. Half-Year Report January – June 2017 30 Segment Revenue and Results € millions Applications, Technology & Services Q1–Q2 2017 Q1–Q2 2016 Actual Currency Constant Currency Actual Currency Cloud subscriptions and support – SaaS/PaaS1) 728 710 527 Cloud subscriptions and support – IaaS2) 158 155 89 Cloud subscriptions and support 885 865 616 Software licenses 1,731 1,706 1,616 Software support 5,410 5,289 5,112 Software licenses and support 7,141 6,995 6,728 Cloud and software 8,027 7,860 7,344 Services 1,745 1,706 1,630 Total segment revenue 9,772 9,566 8,973 Cost of cloud subscriptions and support – SaaS/PaaS1) –299 –290 –192 Cost of cloud subscriptions and support – IaaS2) –142 –140 –102 Cost of cloud subscriptions and support –441 –430 –294 Cost of software licenses and support –997 –979 –925 Cost of cloud and software –1,438 –1,409 –1,219 Cost of services –1,398 –1,372 –1,348 Total cost of revenue –2,836 –2,781 –2,567 Segment gross profit 6,936 6,785 6,406 Other segment expenses –3,549 –3,488 –3,111 Segment profit 3,387 3,297 3,295 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service Half-Year Report January – June 2017 SAP Business Network Q1–Q2 2017 Q1–Q2 2016 Actual Currency Constant Currency Actual Currency 925 899 761 0 0 0 925 899 761 0 0 0 11 11 14 11 11 14 936 910 776 202 198 143 1,138 1,107 919 –213 –208 –184 0 0 0 –213 –208 –184 –2 –2 0 –215 –209 –184 –152 –149 –116 –367 –358 –300 771 749 619 –582 –568 –459 189 181 160 Total Reportable Segments Q1–Q2 2017 Q1–Q2 2016 Actual Currency Constant Currency Actual Currency 1,653 1,609 1,288 158 155 89 1,810 1,764 1,377 1,731 1,706 1,616 5,421 5,299 5,126 7,152 7,006 6,742 8,963 8,770 8,119 1,947 1,904 1,773 10,910 10,673 9,892 –512 –498 –376 –142 –140 –102 –654 –638 –478 –998 –981 –925 –1,652 –1,618 –1,403 –1,550 –1,521 –1,464 –3,203 –3,139 –2,867 7,707 7,534 7,025 –4,131 –4,056 –3,570 3,576 3,478 3,455 31 Information about assets and liabilities and additions to non- current assets by segment are not regularly provided to our Executive Board. Measurement and Presentation A detailed overview of our measurement bases and reconciling items in our reconciliation of segment revenue and results are presented in Note (28) to our Consolidated Financial Statements for 2016, which is included in our Integrated Report 2016. Reconciliation of Segment Revenue and Results € millions Total segment revenue for reportable segments Other revenue Adjustment for currency impact Adjustment of revenue under fair value accounting Total revenue Total segment profit for reportable segments Other revenue Other expenses Adjustment for currency impact Adjustment for Revenue under fair value accounting Acquisition-related charges Share-based payment expenses Restructuring Operating profit Other non-operating income/expense, net Financial income, net Profit before tax Half-Year Report January – June 2017 In addition, revenues and expenses of our operating but non- reportable segment are included in the reconciliation under the position other revenue and other expenses, respectively. The segment information for prior periods has been restated to conform to the current year’s presentation. Q1–Q2 2017 Q1–Q2 2016 Actual Currency Constant Currency Actual Currency 10,910 10,673 9,892 157 155 75 0 239 0 0 0 –4 11,066 11,066 9,964 3,576 3,478 3,455 157 155 75 –966 –940 –911 0 75 0 0 0 –4 –309 –309 –336 –618 –618 –177 –242 –242 –22 1,599 1,599 2,082 –10 –10 –136 –13 –13 –59 1,576 1,576 1,887 32 Geographic Information The amounts for revenue by region in the following tables are based on the location of customers. Revenue by Region Cloud Subscriptions and Support Revenue by Region € millions Q1–Q2 2017 Q1–Q2 2016 EMEA 479 329 Americas 1,159 942 APJ 200 127 SAP Group 1,837 1,397 Cloud and Software Revenue by Region € millions Q1–Q2 2017 Q1–Q2 2016 EMEA 3,892 3,557 Americas 3,723 3,393 APJ 1,469 1,259 SAP Group 9,085 8,208 Total Revenue by Region € millions Q1–Q2 2017 Q1–Q2 2016 Germany 1,455 1,286 Rest of EMEA 3,250 3,030 EMEA 4,705 4,316 United States 3,688 3,344 Rest of Americas 911 798 Americas 4,599 4,142 Japan 450 369 Rest of APJ 1,313 1,137 APJ 1,763 1,506 SAP Group 11,066 9,964 (16) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (see our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (29)). We have relationships with certain of these entities in the ordinary course of business. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. Half-Year Report January – June 2017 For more information about related party transactions, see our Integrated Report 2016, Notes to the Consolidated Financial Statements section, Note (30). (17) Events After the Reporting Period After evaluating the expected cash flow development for the second half of 2017, and consistent with the company’s capital allocation priorities, SAP has decided on a share buyback of up to €500 million in 2017. The share buyback will start shortly and will be executed in several tranches. Release of the Consolidated Half-Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements on July 19, 2017, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. 33 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 19, 2017 SAP SE Walldorf, Baden The Executive Board Bill McDermott Robert Enslin Adaire Fox-Martin Michael Kleinemeier Bernd Leukert Jennifer Morgan Luka Mucic Stefan Ries Half-Year Report January – June 2017 34 Supplementary Financial Information Half-Year Report January – June 2017 35 Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2016 Q2 2016 Q3 2016 Revenues Cloud subscriptions and support (IFRS) 677 720 769 Cloud subscriptions and support (non-IFRS) 678 721 769 % change – yoy 33 30 28 % change constant currency – yoy 33 33 29 Software licenses (IFRS) 609 1,040 1,034 Software licenses (non-IFRS) 609 1,042 1,034 % change – yoy –13 6 2 % change constant currency – yoy –10 10 2 Software support (IFRS) 2,564 2,598 2,653 Software support (non-IFRS) 2,564 2,598 2,653 % change – yoy 5 3 6 % change constant currency – yoy 5 6 6 Software licenses and support (IFRS) 3,172 3,639 3,686 Software licenses and support (non-IFRS) 3,173 3,640 3,687 % change – yoy 1 4 5 % change constant currency – yoy 2 7 5 Cloud and software (IFRS) 3,850 4,359 4,455 Cloud and software (non-IFRS) 3,851 4,361 4,456 % change – yoy 5 7 8 % change constant currency – yoy 6 11 9 Total revenue (IFRS) 4,727 5,237 5,375 Total revenue (non-IFRS) 4,728 5,239 5,375 % change – yoy 5 5 8 % change constant currency – yoy 6 9 8 Share of predictable revenue (IFRS, in %) 69 63 64 Share of predictable revenue (non-IFRS, in %) 69 63 64 Profits Operating profit (IFRS) 813 1,269 1,103 Operating profit (non-IFRS) 1,104 1,516 1,638 % change 5 9 1 % change constant currency 4 11 1 Profit after tax (IFRS) 570 813 725 Profit after tax (non-IFRS) 763 979 1,089 % change 9 2 –7 Margins Cloud subscriptions and support gross margin (IFRS, in %) 57.0 56.6 56.3 Cloud subscriptions and support gross margin (non-IFRS, in %) 65.9 64.8 64.5 Software license and support gross margin (IFRS, in %) 84.2 86.1 85.4 Software license and support gross margin (non-IFRS, in %) 85.9 87.4 87.4 Cloud and software gross margin (IFRS, in %) 79.4 81.2 80.4 Cloud and software gross margin (non-IFRS, in %) 82.3 83.6 83.4 Gross margin (IFRS, in %) 66.9 70.4 69.3 Gross margin (non-IFRS, in %) 69.6 72.6 72.7 Operating margin (IFRS, in %) 17.2 24.2 20.5 Operating margin (non-IFRS, in %) 23.4 28.9 30.5 Half-Year Report January – June 2017 Q4 2016 827 827 31 29 2,177 2,177 1 0 2,756 2,756 6 5 4,933 4,934 4 3 5,760 5,761 7 6 6,724 6,724 6 5 53 53 1,950 2,375 4 2 1,526 1,826 9 54.8 62.7 87.1 88.4 82.4 84.7 73.0 75.5 29.0 35.3 TY 2016 2,993 2,995 30 31 4,860 4,862 1 1 10,571 10,572 5 6 15,431 15,434 3 4 18,424 18,428 7 8 22,062 22,067 6 7 61 61 5,135 6,633 4 4 3,634 4,658 3 56.1 64.4 85.9 87.4 81.0 83.7 70.2 72.9 23.3 30.1 Q1 2017 905 906 34 30 691 691 13 10 2,731 2,731 7 3 3,422 3,422 8 5 4,328 4,328 12 9 5,285 5,285 12 8 69 69 673 1,198 8 2 530 887 16 57.7 64.6 83.3 85.1 77.9 80.8 66.7 69.9 12.7 22.7 Q2 2017 932 932 29 27 1,090 1,090 5 4 2,736 2,736 5 4 3,826 3,826 5 4 4,757 4,758 9 8 5,782 5,782 10 9 63 63 926 1,570 4 3 666 1,120 14 56.0 62.4 85.3 86.6 79.6 81.8 69.0 71.5 16.0 27.2 36 € millions, unless otherwise stated Q1 2016 Q2 2016 Q3 2016 Q4 2016 TY 2016 Q1 2017 AT&S segment – Cloud subscriptions and support gross margin (in %) 54 51 51 48 50 52 AT&S segment – Gross margin (in %) 70 73 74 76 73 70 AT&S segment – Segment margin (in %) 34 39 40 45 40 32 SAP BN segment – Cloud subscriptions and support gross margin (in %) 75 76 77 75 76 77 SAP BN segment – Gross margin (in %) 67 68 68 66 67 68 SAP BN segment – Segment margin (in %) 17 18 20 16 18 16 Key Profit Ratios Effective tax rate (IFRS, in %) 23.3 28.9 28.4 22.3 25.3 20.6 Effective tax rate (non-IFRS, in %) 26.2 29.6 29.7 23.5 26.8 25.7 Earnings per share, basic (IFRS, in €) 0.48 0.68 0.61 1.27 3.04 0.43 Earnings per share, basic (non-IFRS, in €) 0.64 0.82 0.91 1.53 3.90 0.73 Order Entry New Cloud Bookings 145 255 265 483 1,147 215 Deferred cloud subscriptions and support revenue (IFRS, quarter end) 953 1,003 1,081 1,271 1,271 1,376 Orders – Number of on-premise software deals (in transactions) 12,884 14,468 13,048 16,891 57,291 13,115 Share of orders greater than € 5 million based on total software order entry volume (in %) 17 29 26 34 29 27 Share of orders smaller than € 1 million based on total software order entry volume (in %) 48 38 40 35 38 46 Liquidity and Cash Flow Net cash flows from operating activities 2,482 439 707 1,000 4,628 2,872 Free cash flow 2,313 202 446 665 3,627 2,581 % of total revenue (IFRS) 49 4 8 10 16 49 % of profit after tax (IFRS) 406 25 61 44 100 487 Group liquidity, gross 5,853 4,347 4,388 4,673 4,673 7,345 Group debt –9,080 –8,593 –8,134 –7,826 –7,826 –7,805 Group liquidity, net –3,227 –4,245 –3,746 –3,153 –3,153 –460 Days' sales outstanding (DSO, in days)1) 72 73 74 74 74 72 Financial Position Cash and cash equivalents 5,743 4,206 4,112 3,702 3,702 5,937 Goodwill 21,922 22,354 22,279 23,311 23,311 23,091 Total assets 42,884 41,788 41,604 44,277 44,277 47,724 Equity ratio (total equity in % of total assets) 53 55 57 60 60 56 Non-Financials Number of employees (quarter end)2) 78,230 79,962 82,426 84,183 84,183 85,751 Employee retention (in %, rolling 12 months) 92.0 92.6 93.4 93.7 93.7 94.1 Women in management (in %, quarter end) 23.6 24.1 24.3 24.5 24.5 24.8 Greenhouse gas emissions (in kilotons) 120 95 85 80 380 100 1) Days’ sales outstanding measures the length of time it takes to collect receivables. SAP calculates DSO by dividing the average invoiced accounts receivables balance of the last 12 months by the average monthly sales of the last 12 months. 2) In full-time equivalents Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 Q2 2017 49 72 37 77 68 17 26.6 27.8 0.56 0.94 340 1,293 14,361 31 40 642 322 6 48 4,927 –6,716 –1,789 72 4,236 21,949 42,900 57 87,114 94.3 25.0 55 37 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year € millions, unless otherwise stated Q1–Q2 2017 Q1–Q2 2016 IFRS Adj.1) Non- IFRS1) Currency Impact2) Non-IFRS Constant Currency2) IFRS Adj.1) Non- IFRS1) IFRS Revenue Numbers Cloud subscriptions and support 1,837 0 1,837 –47 1,791 1,397 1 1,399 31 Software licenses 1,781 0 1,781 –26 1,755 1,649 2 1,651 8 Software support 5,467 0 5,467 –123 5,345 5,162 0 5,163 6 Software licenses and support 7,248 0 7,248 –148 7,100 6,811 2 6,813 6 Cloud and software 9,085 0 9,085 –195 8,891 8,208 4 8,212 11 Services 1,981 0 1,981 –44 1,938 1,755 0 1,755 13 Total revenue 11,066 0 11,067 –239 10,828 9,964 4 9,967 11 Operating Expense Numbers Cost of cloud subscriptions and support –793 122 –671 –603 118 –485 31 Cost of software licenses and support –1,134 110 –1,024 –1,007 99 –908 13 Cost of cloud and software –1,927 232 –1,695 –1,610 217 –1,393 20 Cost of services –1,628 85 –1,543 –1,506 30 –1,476 8 Total cost of revenue –3,555 317 –3,237 –3,116 247 –2,869 14 Gross profit 7,512 318 7,829 6,848 250 7,098 10 Research and development –1,694 153 –1,541 –1,419 49 –1,370 19 Sales and marketing –3,415 375 –3,041 –2,865 191 –2,674 19 General and administration –569 82 –487 –460 27 –433 24 Restructuring –242 242 0 –22 22 0 >100 Other operating income/expense, net 8 0 8 –1 0 –1 <-100 Total operating expenses –9,467 1,168 –8,299 164 –8,135 –7,882 535 –7,348 20 Profit Numbers Operating profit 1,599 1,168 2,768 –75 2,693 2,082 538 2,620 –23 Other non-operating income/expense, net –10 0 –10 –136 0 –136 –93 Finance income 143 0 143 73 0 73 94 Finance costs –156 0 –156 –132 0 –132 18 Financial income, net –13 0 –13 –59 0 –59 –78 Profit before tax 1,576 1,168 2,744 1,887 538 2,425 –16 Income tax expense –379 –359 –738 –504 –178 –683 –25 Profit after tax 1,197 810 2,006 1,382 360 1,742 –13 Attributable to owners of parent 1,189 810 1,999 1,388 360 1,748 –14 Attributable to non-controlling interests 7 0 7 –5 0 –5 <-100 Key Ratios Operating margin (in %) 14.5 25.0 24.9 20.9 26.3 –6.4pp Effective tax rate (in %)3) 24.1 26.9 26.7 28.1 –2.7pp Earnings per share, basic (in €) 0.99 1.67 1.16 1.46 –14 Half-Year Report January – June 2017 Non- IFRS1) 31 8 6 6 11 13 11 38 13 22 5 13 10 12 14 13 NA <-100 13 6 –93 94 18 –78 13 8 15 14 <-100 –1.3pp –1.3pp 14 ∆ in % Non-IFRS Constant Currency2) 28 6 4 4 8 10 9 11 3 –1.4pp 38 1) Adjustments in the revenue line items are for software support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges, share-based payment expenses, as well as restructuring expenses. 2) Constant currency revenue and operating income figures are calculated by translating revenue and operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see our Web site www.sap.com/corporate- en/investors/newsandreports/reporting-framework.epx under “Non-IFRS Measures, Adjustments and Full-Year Estimates”. 3) The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2017 and 2016 mainly results from tax effects of acquisition-related charges and share-based payment expenses. Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 39 Explanation of Non-IFRS Adjustments – Half Year € millions Operating profit (IFRS) Revenue adjustments Adjustment for acquisition-related charges Adjustment for share-based payment expenses Adjustment for restructuring1) Operating expense adjustments Operating profit adjustments Operating profit (non-IFRS) 1) reflects our expectations for restructuring activities in our services and support business Due to rounding, numbers may not add up precisely. Non-IFRS-Adjustments by Functional Areas – Half Year € millions Q1–Q2 2017 IFRS Acqui- sition- Related SBP1) Restruc- turing Non- IFRS IFRS Cost of cloud and software –1,927 164 68 0 –1,695 –1,610 Cost of services –1,628 4 81 0 –1,543 –1,506 Research and development –1,694 5 148 0 –1,541 –1,419 Sales and marketing –3,415 135 240 0 –3,041 –2,865 General and administration –569 1 81 0 –487 –460 Restructuring –242 0 0 242 0 –22 Other operating income/expense, net 8 0 0 0 8 –1 Total operating expenses –9,467 309 618 242 –8,299 –7,882 1) Share-based payments Half-Year Report January – June 2017 Estimated Amounts for Full Year 2017 <20 610 to 640 900 to 1,150 200 to 250 Acqui- sition- Related 195 6 5 123 7 0 0 336 Q1–Q2 2017 Q1–Q2 2016 1,599 2,082 0 4 309 336 618 177 242 22 1,168 535 1,168 538 2,768 2,620 Q1–Q2 2016 SBP1) Restruc- turing Non- IFRS 22 0 –1,393 24 0 –1,476 44 0 –1,370 67 0 –2,674 20 0 –433 0 22 0 0 0 –1 177 22 –7,348 40 Revenue by Region (IFRS and Non-IFRS) – Half Year € millions Q1–Q2 2017 Q1–Q2 2016 IFRS Adj.1) Non- IFRS1) Currency Impact2) Non-IFRS Constant Currency2) IFRS Adj.1) Non- IFRS1) IFRS Non- IFRS1) Cloud subscriptions and support revenue by region EMEA 479 0 479 –1 478 329 0 329 46 45 Americas 1,159 0 1,159 –37 1,122 942 1 943 23 23 APJ 200 0 200 –9 191 127 0 127 58 58 Cloud subscriptions and support revenue 1,837 0 1,837 –47 1,791 1,397 1 1,399 31 31 Cloud and software revenue by region EMEA 3,892 0 3,892 –44 3,848 3,557 1 3,558 9 9 Americas 3,723 0 3,724 –111 3,613 3,393 3 3,396 10 10 APJ 1,469 0 1,469 –40 1,429 1,259 0 1,259 17 17 Cloud and software revenue 9,085 0 9,085 –195 8,891 8,208 4 8,212 11 11 Total revenue by region Germany 1,455 0 1,455 –2 1,453 1,286 0 1,286 13 13 Rest of EMEA 3,250 0 3,250 –48 3,202 3,030 0 3,031 7 7 Total EMEA 4,705 0 4,705 –50 4,655 4,316 1 4,317 9 9 United States 3,688 0 3,688 –101 3,587 3,344 3 3,347 10 10 Rest of Americas 911 0 911 –38 873 798 0 798 14 14 Total Americas 4,599 0 4,599 –139 4,460 4,142 3 4,145 11 11 Japan 450 0 450 –5 445 369 0 369 22 22 Rest of APJ 1,313 0 1,313 –45 1,268 1,137 0 1,137 15 15 Total APJ 1,763 0 1,763 –50 1,713 1,506 0 1,506 17 17 Total revenue 11,066 0 11,067 –239 10,828 9,964 4 9,967 11 11 1) Adjustments in the revenue line items are for support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. 2) Constant currency revenue figures are calculated by translating revenue of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see our Web site www.sap.com/corporate-en/investors/newsandreports/reporting-framework.epx under “Non-IFRS Measures and Estimates”. Due to rounding, numbers may not add up precisely. Half-Year Report January – June 2017 ∆ in % Non-IFRS Constant Currency2) 45 19 51 28 8 6 14 8 13 6 8 7 10 8 21 12 14 9 41 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there-mentioned sources. which speak only as of the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including Gartner, the European Central Bank (ECB); and the International Monetary Fund (IMF). This type of data represents only the estimates of Gartner, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as Gartner, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management and Risks section, the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our 2016 Integrated Report and our Annual Report on Form 20-F for December 31, 2016, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, All of the information in this report relates to the situation on June 30, 2017, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non-IFRS measures, see our Web site www.sap.com/investors/sap-non- ifrs-measures. Half-Year Report January – June 2017 42 Additional Information Financial Calendar Addresses October 19, 2017 Third-quarter 2017 earnings release, telephone conference January 30, 2018 Fourth-quarter and full-year 2017 preliminary earnings release, telephone conference May 17, 2018 Annual General Meeting of Shareholders, Mannheim, Germany SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official press release, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The tab “Financial Reports” contains the following publications: – The 2016 Integrated Report (IFRS, PDF, www.sapintegratedreport.com) The addresses of all our international subsidiaries and sales partners are available on our public Web site at www.sap.com/directory/main.html. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investor – The 2016 Annual Report on Form 20-F (IFRS, PDF) – The 2016 SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Half-Year Report (IFRS, PDF) – XBRL versions of the Integrated Report and the Half-Year Imprint Report – Quarterly Statements (IFRS, PDF) www.sap.com/corporate-en/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include an e-mail and text message news service, and a Twitter feed. Overall responsibility: SAP SE Corporate Financial Reporting Published on July 20, 2017 Copyright Usage in Collateral © 2017 SAP SE or an SAP affiliate company. All rights reserved. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. Please see www.sap.com/corporate- en/legal/copyright for additional trademark information and notices. Half-Year Report January – June 2017 43 | Semestriel, 2017, Technology, SAP | write me a financial report |
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| HALF-YEAR REPORT JANUARY – JUNE 2016 Reimagine Your Business Table of Contents Half-Year Report January – June 2016 Introductory Notes ..................................................................... 3 Half-Year Financial Report (unaudited) Consolidated Half-Year Management Report ......................... 4 Consolidated Half-Year Financial Statements – IFRS .......... 16 Responsibility Statement ....................................................... 30 Supplementary Financial Information (unaudited) Key Facts ................................................................................... 31 IFRS and Non-IFRS-Financial Data ......................................... 33 Additional Information General Information ................................................................. 36 Financial Calendar, Investor Services, Addresses, and Imprint ............................................................................... 37 SAP 2016 Half-Year Report 2 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Zwischenberichterstattung” (DRS 16). We prepared the financial data in the Half-Year Financial Report (Unaudited) section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information (Unaudited) section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the half-year management report, consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 37w (2). This half-year financial report updates our consolidated financial statements 2015, presents significant events and transactions of the first half of 2016, and updates the forward-looking information contained in our 2015 Management Report. This half-year financial report only includes half-year numbers, our quarterly numbers are available in the Quarterly Statement. Both the 2015 consolidated financial statements and the 2015 Management Report are part of our 2015 Integrated Report which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means the information has been subject neither to any audit nor to any review by an independent auditor. SAP 2016 Half-Year Report 3 Half-Year Financial Report (Unaudited) Consolidated Half-Year Management Report Strategy and Business Model We did not change our strategy or our business model in the first half of 2016. For a detailed description, see our 2015 Integrated Report and item 4 in the 2015 Annual Report on Form 20-F. Products, Research and Development, and Services In 2016 we continued to innovate in every aspect of our customers’ businesses and launched several innovations to grow and win in the market. This chapter outlines the major enhancements we made to our software portfolio in the first half-year 2016. For a detailed overall description, see the Products, Research & Development, and Services section in our 2015 Integrated Report (www.sapintegratedreport.com) and item 4 in our 2015 Annual Report on Form 20-F. by providing contextual advertising. The solution affords transparency, accuracy, and efficiency amid a rapidly- changing digital advertising landscape. Targeting the topic of health management, we launched the first version of SAP Health Engagement as a cloud-based information solution. SAP Health Engagement enables exchange within the entire care ecosystem, including doctors, researchers, and the individual. Customers can leverage real-world information in the treatment process, and anonymized data can be passed on to SAP Foundation for Health for further research and sharing within the ecosystem. Beyond applications, SAP HANA Cloud Platform is even industrial PaaS providers: In early 2016, attractive for Siemens AG released industry solution MindSphere - Siemens Cloud for Industry, on SAP HANA Cloud Platform. This solution industrial enterprises as an open infrastructure, allowing the creation of new digital services. its cloud for is targeted at Technology and Platform SAP HANA remains the key foundation of our product strategy and has been extended with several additional features, including an enhanced integration with data stored on Hadoop compute clusters that allows our customers to conduct richer and more advanced processing of Big Data. Furthermore, the new SAP HANA Graph Processing feature now enables our customers to make business decisions by helping them discover meaningful relationships and patterns in existing data. Making use of SAP HANA’s broad capabilities, we also evolved our strategic platform-as-a-service (PaaS) offering – SAP HANA Cloud Platform. In our spring release, we launched additional services: In support of open systems and open source software in the cloud, we delivered the beta edition of SAP HANA Cloud Platform, starter edition for Cloud Foundry services. As joint project between leading including SAP, Cloud Foundry technology companies intends to become the for cloud applications. These services, which are available through the SAP HANA Cloud Platform cockpit, enable developers to create new Foundry-based applications. industry standard and innovative Cloud In addition, our beta version of SAP API Business Hub provides easy access to different application programming interfaces of SAP HANA Cloud Platform and other business applications from SAP. Customers, partners, and developers are able to search the hub for available business services, publish new ones, and collaborate with each other to develop and exchange services. Moreover, we released several other solutions based on our SAP HANA Cloud Platform, including SAP Exchange Media (SAP XM) and SAP Health Engagement. Applications SAP S/4HANA: To help our customers run better in a digitized business world, we further focused on expanding our solution portfolio for SAP S/4HANA - with deployment possible either on premise or in the cloud. The latest releases of SAP S/4HANA especially target business processes for procurement, manufacturing, supply chain, sales as well as asset management to optimize the order-to-cash processes, streamline procure-to-pay, and improve project services. We also added two more industry solutions to our SAP S/4HANA portfolio: “SAP for Higher Education & Research” and “SAP for Defense & Security”. SAP S/4HANA Cloud now includes additional business performance monitoring, processes subcontracting, internal project management, and asset acquisition. In addition, we help marketing departments capture and analyze customer interactions from different communication channels and embrace features for external trigger-based campaign execution, newsletters, and campaigns. Our solution for professional services now also targets inter-company processes and project-based services. Customers get real-time information for better decision-making, accurate financial figures for projects and revenue recognition, as well as tools that enable more efficient deployment of workers and reduce time from project delivery to cash collection. for sales Finance: In our latest release of SAP S/4HANA Finance, we expanded the multi-currency concept for better financial analysis in international groups, included transfer pricing with group and profit center valuations for better management decisions, improved central reporting and process execution, and enhanced cash management and new solutions for trade finance. SAP XM is a next-generation, real-time advertising platform connecting advertisers and publishers to benefit consumers SAP 2016 Half-Year Report 4 Customer Engagement and Commerce (CEC): SAP Hybris continued to define the next generation of solutions for customer engagement and commerce, enabling businesses to simplify their front office and gain real-time customer insights to deliver one-on-one contextual engagement. The market momentum in the first half of 2016 was supported by the global ‘Beyond CRM’ campaign rollout last year. Our product innovations continued to drive growth across the entire customer engagement and commerce cloud portfolio. Notably, this included the launch of SAP Hybris as a Service on SAP HANA Cloud Platform, which offers customers, developers, and partners an extensible microservices architecture for building and extending CEC solutions. The innovations in our core portfolio solutions for commerce saw SAP Hybris emerge once again as the clear leader in Gartner’s newly positioned Digital Commerce magic quadrant. Human Capital Management (HCM): For our HCM solutions, including SAP SuccessFactors solutions, we launched a series of new features comprising continuous performance management frequent employee-manager dialogues, feedback, alignment, and communication. Additionally, a new team-view for managers provides a quick overview of direct reports and enables managers to take quick actions, such as place a phone call or send text messages. functionalities that support At our annual SAPPHIRE NOW conference, we announced plans to build new capabilities within our HCM Suite to help improve workplace diversity. We aim to help companies review job descriptions, performance reviews and similar HR processes for potential bias, and suggest changes to encourage fair treatment. Digital Assets and Internet of Things (IoT): Our IoT suite of solutions is steadily evolving and we delivered and enhanced standardized tools to facilitate simple and innovative processes in a digitized world. The exceptional combination of IoT capabilities and software solutions for manufacturing, transportation, warehouse, and supply chain management constitutes a unique selling proposition in the market. With SAP Asset Intelligence Network, our customers are able to collect, track, and trace equipment information in a repository. Operators can access up-to-date central from strategies, manuals, and more maintenance can Furthermore, manufacturers manufacturers. automatically receive asset usage and potential failure data from our SAP Predictive Maintenance and Service solution improves the visibility of machines at customer sites and helps to prevent machine failure and its consequences. Our SAP Vehicles Network offers companies secure, convenient end-to-end vehicle- centric and mobility-centric services – independent of devices or vehicles. operators. Additionally, Within the pioneering area of 3D printing, we started collaborating with the Inc. to transform the ad hoc world of industrial 3D printing into a seamless, on-demand manufacturing process from order placement through to manufacturing and delivery. This goal is realized by integrating extended supply chain solutions from SAP with UPS’s additive industrial manufacturing and logistics company UPS SAP 2016 Half-Year Report logistics network. We will enable companies to access on- demand manufacturing at the touch of button, creating new opportunities to streamline their supply chains and get products to market more quickly and cost-effectively. User Experience (UX) As user experience is essential for successful solutions, we further evolved our award-winning SAP Fiori design concept: SAP Fiori, cloud edition, is now generally available. It offers a new cloud-based simple deployment option for SAP Fiori on SAP HANA Cloud Platform and comes delivered with selected out-of-the-box SAP Fiori apps across multiple lines of business, covering the most frequent and common scenarios. Close partnerships with customers and other leading technology companies are key to providing best-in-class solutions: Catching wide media attention, we announced a strategic partnership together with Apple Inc. to build a SAP HANA Cloud Platform software development kit for iOS that will enable businesses, designers, and developers to quickly and efficiently build their own native iOS apps for iPhone and iPad. Business Networks In the area of Concur Travel & Expense – the world’s leading travel and expense management system – we announced integration between Ford SYNC AppLink and Concur Trace, instantly connects with car Concur’s mobile app that software to track, log, and expense business travel mileage for our customers and end users. Additionally, the TripLink solution was launched in Germany and France to extend the benefits of managed travel programs and enable customers to capture business travel spend, including bookings that are happening outside of their program today. We also announced new partnerships with Hertz and HRS Global Hotel Solutions. With these partnerships, the majority of the world’s car rental companies and a growing number of leading hotel content and service providers are part of the TripLink ecosystem, giving customers a transparent view of their spend. Besides this, we also released several new apps in the Concur App Center, where our customers can connect to apps improve spend management, reduce costs, and streamline processes. The App Center currently offers more than 130 apps supporting including tax validation, a wide range of compliance, expense management and travel, as well as invoice management. that leverage Concur data to functions, SAP Fieldglass – our solution for procuring and managing contingent workforce – was extended with new functionality to streamline the supplier registration process, significantly reducing supplier onboarding cycle time and improving the end-user experience. We also released the SAP Fieldglass Time Entry mobile app, providing a convenient, easy-to-use tool for employees to submit timesheets from mobile devices. In our SAP Ariba Business we launched a broad set of innovations associated with applications, network, and platform extensibility. This includes a new guided buying experience for source-to-pay customers to help users 5 procure goods and services in a self-service fashion, making it easy for them to follow the right process and find the right suppliers. Updated supplier management capabilities enable suppliers to manage their own information within a vendor master record in the cloud, and buyers can also better manage supplier risk at scale across a large supply base and actively monitor risks from external data sources. We also delivered enhanced invoice collaboration features aimed at increasing natural, in-context collaboration among invoice agents, business users, and suppliers for faster invoice reconciliation. Furthermore, the launch of the Direct Materials Sourcing capability coupled with updates to the Network collaborative supply chain solution improves SAP Ariba’s ability to penetrate the significant supply chain spend and customer base. Acquisitions During the first half of 2016, we did not complete any material acquisitions. Employees and Social Performance SAP’s long-term success is strongly influenced by the creativity, talent, and commitment of our people. Their ability to understand the needs of our customers and to innovate delivers sustainable value to our company, our customers, and society. Successful strategies to attract, retain, develop, and engage our employees, therefore, are critical to driving a culture of innovation, sustained growth, and profitability. An important factor for our long-term success is our ability to attract and retain talented employees. At the end of the first half year of 2016, the employee retention rate was 92.6% (compared to 92.6% at the end of the first half year of 2015). We define employee retention rate as the ratio between the average number of employees less voluntary employee departures (fluctuation) and the average number of employees (in full-time equivalents) in the last 12 months. One of SAP’s overall non-financial goals is fostering a diverse workforce, specifically increasing the number of women in management. At the end of the first half year of 2016, 24.1% of all management positions at SAP were held by women, compared to 22.9% at the end of June 2015. SAP has set a long-term target to in management to 25 % by the year 2017. increase the share of women On June 30, 2016, we had 79,962 full-time equivalent (FTE) employees worldwide (June 30, 2015: 74,497; December 31, 2015: 76,986). Those headcount numbers included 18,176 FTEs based in Germany (June 30, 2015: 17,787), and 16,780 FTEs based in the United States (June 30, 2015: 15,381). Environmental Performance: Energy and Emissions Over the past several years, we have worked to better energy understand consumption, resulting environmental impact. Today we measure and address our energy usage throughout SAP, as well as our greenhouse gas (GHG) emissions across our entire value chain. Between the beginning of 2008 and the first half year of 2016, we the connections between our related cost, and its the SAP 2016 Half-Year Report calculate that energy efficiency initiatives have contributed to a cumulative cost avoidance of €374 million, compared to a business-as-usual extrapolation, with €110 million avoided in the last three years and €60.6 million avoided in the last four quarters. Our goal is to reduce the greenhouse gas emissions from our operations to levels of the year 2000 by 2020. SAP’s GHG emissions for the first half year of 2016 totaled 215 kilotons of CO2 compared to 270 kilotons in the first half year of 2015. This decrease is primarily due to our purchase of CO2 offsets to compensate for some of our business flights. We also measure our emissions per employee and per euro of revenue, to gain insight into our efficiency as we grow. At the end of the first half year of 2016, our GHG emissions (in tons) per employee was 5.0 (compared to 6.9 at the end of the first half-year of 2015) and our GHG emissions (in grams) per euro revenue was 18.8 (compared to 26.8 at the end of the first half year of 2015) (rolling four quarters). In recognition of the exemplary actions SAP has taken to embed sustainability across its business worldwide, SAP has been included in various ratings and rankings. In 2016, SAP has again been listed in the 2016 Newsweek Green Rankings, created in partnership with Corporate Knights and HIP Investor. SAP UKI Ltd has been awarded the Top Employers United Kingdom 2016 certification for its strong leadership development initiatives with a robust compensation and benefits offering. Organization and Changes in Management The Supervisory Board of SAP SE appointed Stefan Ries and Steve Singh as members of the SAP Executive Board, effective April 1, 2016. Stefan Ries continued his role as Chief Human Resources Officer and also took on the role of SAP Labor Relations Director. Steve Singh continued to lead the SAP Business Networks group. In addition, Steve Singh took over responsibility for SAP’s ERP and front office solutions for small and medium sized business, SAP’s Connected Health strategy and solutions, and the new Data as a Service (DaaS) business. The Global Managing Board was dissolved on March 31, 2016. 6 Financial Performance: Review and Analysis Economy and the Market Global Economic Trends In its latest economic bulletin, the European Central Bank (ECB) reported that the global economy grew at a moderate but steady pace in the first half of 2016. Although spurred on by positive economic growth in the developed countries, progress continued to be dampened by subdued growth prospects in emerging markets, ECB concluded. In the Europe, Middle-East, and Africa (EMEA) region, the euro area economy continued to recover in the first half- year, according to the ECB. It attributes this in particular to stable domestic demand, as exports remained weak. Economic activity in European countries outside the euro area, however, slowed during the reporting period, ECB noted. Russia in particular continued to find itself in a deep recession. In the Americas region, growth declined slightly in the United States since the turn of the year, reported the ECB. In Brazil, acute political uncertainty perpetuated the sharp economic downturn there triggered the year before. In the Asia Pacific Japan (APJ) region, Japan's economy regained some momentum in the first six months of the year, the ECB said. China’s economy, however, again grew more slowly than in previous reporting periods. The IT Market According to Gartner, a market research firm, “worldwide IT spending is forecast to grow 1.5% in 2016 on a constant currency basis. However, currency rate changes will limit market growth to essentially flat.” ”Software is the best- performing segment, with 5.8% growth in 2016.”1) In the Europe, Middle-East, and Africa (EMEA) region, growth declined year over year in the Western European IT market from 3.6% to 0.2% and the Eastern Europe IT market declined from 11.4% to 3.3% (see table in paragraph “Expected Developments and Opportunities” “Trends in the IT Market – IT Spending Year-over-Year”, created by SAP on the basis of Gartner Market Databook 2Q16 Update). According to the same table, software spending grew significantly faster than all other submarkets throughout the region. The Americas region likewise recorded lower growth rates in IT spending than the previous year as can be seen in the table mentioned above. According to the same table, software spending nevertheless significantly outperformed IT spending as a whole. 2) In the Asia Pacific Japan (APJ) region, “smartphone adoption in Emerging Asia/Pacific was lower than Gartner expected in 2015, as prices did not decline enough to drive upgrades from utility feature phones to utility smartphones. This situation was due to currency issues that prevented vendors from following a more aggressive pricing strategy.”1) As a result, software spending grew faster than all other submarkets in this region as well, industry documented in the table mentioned above.2) in the IT SAP 2016 Half-Year Report Sources: 1) Gartner Market Databook, 2Q16 Update, 29 June 2016 2) Press release “GARTNER SAYS WORLDWIDE IT SPENDING IS FORECAST TO BE FLAT IN 2016, July 7, 2016, http://www.gartner.com/newsroom/id/3368517 The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Half Year Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Impact on SAP The EMEA region had a strong performance, successfully navigating through the post UK referendum uncertainty, with an increase in cloud and software revenue of 7% (IFRS) (non-IFRS at constant currencies). Cloud and 11% subscriptions and support revenue grew 38% (IFRS) and 41% (non-IFRS at constant currencies). The quarterly results were not impacted by the UK referendum. In EMEA, SAP had strong double-digit software licenses revenue growth in France, the Netherlands, Switzerland, across Southern Europe and again a solid performance in Germany. Russia and Germany had very strong double-digit growth in cloud subscriptions and support revenue. In the Americas region, the Company grew cloud and software revenue by 8% (IFRS) and 11% (non-IFRS at constant currencies) and cloud subscriptions and support revenue by 26% (IFRS) and 29% (non-IFRS at constant currencies). North America delivered a solid second quarter and is back on track with its half year performance. In Latin America, instability the political and macroeconomic continued. However, SAP had strong double-digit growth in software licenses revenue in Brazil and Mexico. In the APJ region cloud and software revenue was up 7% (IFRS) and 9% (non-IFRS at constant currencies), with cloud subscriptions and support revenue growing by 44% (IFRS) and 47% (non-IFRS at constant currencies). In APJ, SAP had strong double-digit software licenses revenue growth in China and India, whereas Japan had almost triple-digit growth. All three countries also had double-digit growth in cloud subscriptions and support revenue for the quarter. 7 Reclassification of Cost of Sales in the Income Statement From the second quarter of 2016, SAP has changed its accounting policy for the income statement classification of certain sales and marketing expenses related to our services offerings. As disclosed in Note (3b) to our 2015 financial statements, we previously classified sales expenses relating to our services offering that could not be clearly separated from providing the services offerings as cost of services. Under the ONE Service approach introduced in 2015, we combined premium support services and professional services under one comprehensive service offering. This combination triggered changes in our service go-to- in an market methodology and setup, resulting Key Figures – SAP Group in the First Half Year of 2016 (IFRS) € millions, unless otherwise stated Cloud subscriptions and support Software licenses Software support Cloud and software Total revenue Operating expense Operating profit Operating margin (in %) Profit after tax Effective tax rate (in %) Earnings per share, basic (in €) Deferred cloud subscriptions and support revenue (June 30) Operating Results in the First Half Year of 2016 (IFRS) Orders The total number of completed transactions for on-premise software in the first half year of 2016 increased 7% to 27,352 (first half year of 2015: 25,541). The average value of software orders received for on-premise software deals decreased 3% compared to the year before. Of all our software orders received in the first half year of 2016, 25% were attributable to deals worth more than €5 million (first half year of 2015: 23%), while 42% were attributable to deals worth less than €1 million (first half year of 2015: 44%). Revenue Our revenue from cloud subscriptions and support was €1,397 million (first half year of 2015: €1,056 million), an increase of 32% compared to the same period in 2015. In the first half year of 2016, software licenses revenue was €1,649 million (first half year of 2015: €1,675 million), a SAP 2016 Half-Year Report organizational separation of services sales and services delivery. As a result of these changes, we now classify all sales expenses to our services offering as Sales and Marketing expenses. We take the view that this policy information provides more reliable and more relevant because it classifies sales and marketing expenses consistently across our product and services portfolio. The new policy has been applied retrospectively to the prior period presented based on estimates. The effect on the first half year of 2016 is an increase in sales and marketing expenses and a respective decrease in cost of services of €179 million (IFRS) and € 176 million (non-IFRS); first half year of 2015: € 191 million (IFRS); € 185 million (non-IFRS). Q1–Q2 2016 Q1–Q2 2015 ∆ Δ in % 1,397 1,056 342 32 1,649 1,675 –26 –2 5,162 4,985 177 4 8,208 7,715 493 6 9,964 9,467 497 5 –7,882 –8,128 246 –3 2,082 1,339 743 56 20.9 14.1 6.8pp NA 1,382 882 500 57 26.7 20.9 5.83 NA 1.16 0.74 0.42 57 1,003 789 214 27 decrease of 2% compared to the same period in 2015. Notable is an extremely successful second quarter, with software license business across almost all geographies having substantially contributed to the software license revenue half-year result. Total revenue was €9,964 million (first half year of 2015: €9,467 million), an increase of 5% compared to the same period in 2015. Operating Expense In the first half year of 2016, our operating expense decreased by 3% to €7,882 million (first half year of 2015: €8,128 million). This decrease shows the successful transformation of SAP to a cost efficient cloud company and also results from the various restructuring measures in 2015. Operating Profit and Operating Margin In the first half year of 2016, operating profit increased 56% compared with the same period in the previous year to 8 €2,082 million (first half year of 2015: €1,339 million). Our operating margin increased by 6.8 percentage points to 20.9% (first half year of 2015: 14.1%). Mainly the operating expense cost reductions and the outstanding cloud subscription and support sales contributed to those extremely successful results. Profit After Tax and Earnings per Share In the first half year of 2016, profit after tax was €1,382 million (first half year of 2015: €882 million), an increase of 57%. Basic earnings per share was €1.16 (first half year of 2015: €0.74), an increase of 57%. Performance Against Our Outlook for 2016 (Non-IFRS) In this section, all discussion of the contribution to target achievement is based exclusively on non-IFRS measures. However, the discussion of operating results refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information (Unaudited) section. The effective tax rate in the first half of 2016 was 26.7% (first half of 2015: 20.9%). The year-over-year increase in the effective tax rate mainly resulted from changes in taxes for prior years and the increase in the profit before taxes. Guidance for 2016 (Non-IFRS) For our guidance based on non-IFRS numbers, see the Operational Targets for 2016 (non-IFRS) section in this interim management report. . Key Figures – SAP Group in the First Half Year of 2016 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Q1–Q2 2016 Q1–Q2 2015 ∆ in % Δ in % (Constant Currency) Cloud subscriptions and support 1,399 1,063 32 33 Software licenses 1,651 1,675 –1 2 Software support 5,163 4,985 4 5 Cloud and software 8,212 7,723 6 8 Total revenue 9,967 9,475 5 7 Operating expense –7,348 –7,024 5 7 Operating profit 2,620 2,451 7 8 Operating margin (in %) 26.3 25.9 0.4pp 0.1pp Profit after tax 1,742 1,657 5 NA Effective tax rate (in %) 28.1 25.6 2.5pp NA Earnings per share, basic (in €) 1.46 1.39 5 NA Performance in the First Half Year of 2016 (Non-IFRS) In the first half year of 2016, our revenue from cloud subscriptions and support (non-IFRS) was €1,399 million (first half year of 2015: €1,063 million), an increase of 32% (33% at constant currencies) compared to the same period in 2015. In the first half year 2016, our cloud subscriptions and support margin increased by 0.2 percentage points to 66% (first half year of 2015: 66%). New cloud bookings increased 26% in the first half year of 2016 to €400 million (first half year of 2015: €316 million). In the first half year of 2016, cloud and software revenue (non-IFRS) was €8,212 million (first half year of 2015: €7,723 million), an increase of 6%. On a constant currency basis, the increase was 8%. This increase was mainly driven by the large increase in on-premise software sales in the second quarter 2016, and from the growth of sales in the cloud subscriptions and support portfolio last quarters, which because of the in general ratable revenue recognition pattern over the contract term, becomes now in the more and more visibly reflected in our cloud and software revenue results. Total revenue (non-IFRS) in the same period was €9,967 million (first half year of 2015: €9,475 million), an increase of 5%. On a constant currency basis, the increase was 7%. Operating expense (non-IFRS) in the first half year of 2016 was €7,348 million (first half year of 2015: €7,024 million), an increase of 5%. On a constant currency basis, the increase was 7%. Operating profit (non-IFRS) was €2,620 million (first half year of 2015: €2,451 million), an increase of 7%. On a constant currency basis, the increase was 8%. Operating margin (non-IFRS) in the first half year of 2016 was 26.3%, an increase of 0.4 percentage points (first half year of 2015: 25.9%). Operating margin (non-IFRS) on a constant currency basis was 26.0%, an increase of 0.1 percentage points. In the first half year of 2016, profit after tax (non-IFRS) was €1,742 million (first half year of 2015: €1,657 million), an SAP 2016 Half-Year Report 9 increase of 5%. Basic earnings per share (non-IFRS) was €1.46 (first half year of 2015: €1.39), an increase of 5%. The effective tax rate (non-IFRS) in the first half of 2016 was 28.1% (first half of 2015: 25.6%). The year-over-year Segment Information Applications, Technology & Services Segment € millions Cloud subscriptions and support revenue Cloud subscription and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) In the first half year of 2016, Applications, Technology & Services segment revenue increased, mainly driven by strong growth in both cloud subscription and software support revenue. As a consequence of a continuous strong demand in the human capital management and SAP HANA Enterprise Cloud line of business, we saw a strong increase in cloud SAP Business Network Segment € millions Cloud subscriptions and support revenue Cloud subscription and support margin (in %) Segment revenue Gross margin (in %) Segment profit Segment margin (in %) Also in the SAP Business Network segment, our ongoing efforts to improve operational efficiency of our cloud business resulted in an improved cloud subscription and support profitability. In the first half year of 2016, segment revenue growth was 20% on a constant currency basis. Approximately 2.2 million connected companies trade over US $820 billion of commerce on the SAP Ariba network, more than 42 million end users process travel and expenses effortlessly with Concur and customers managed over 2.6 SAP 2016 Half-Year Report increase in the effective tax rate mainly resulted from changes in taxes for prior years. Q1–Q2 2016 Q1–Q2 2015 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 616 628 416 48 51 53 53 51 2pp 2pp 8,973 9,163 8,604 4 7 71 71 72 0pp 0pp 3,341 3,394 3,148 6 8 37 37 37 1pp 0pp subscription and support revenue in the Applications, Technology & Services segment. Our ongoing efforts to drive business transformation and improve operational efficiency of our cloud business resulted in an improved cloud subscription and support profitability, which is shown in the first half year of 2016 cloud subscription and support margin. Q1–Q2 2016 Q1–Q2 2015 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 761 766 634 20 21 76 76 75 1pp 1pp 919 925 768 20 20 67 67 68 0pp –1pp 157 152 130 21 17 17 16 17 0pp –1pp million flexible workers in approximately 130 countries with the SAP Fieldglass platform over the past 12 months. Network spend volume is the total value of purchase orders transacted on the SAP Ariba Network in the trailing 12 months. For more information about our segments, see the Notes to the Consolidated Half-Year Financial Statements section, Note (15). 10 Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2016 Q1–Q2 2015 Δ Net cash flows from operating activities 2,921 2,775 +5% Capital expenditure –406 –276 +47% Free cash flow 2,516 2,500 +1% Free cash flow (as a percentage of total revenue) 25 26 –1pp Free cash flow (as a percentage of profit after tax) 182 283 –101pp Days' sales outstanding (DSO, in days) 73 68 +5 €2,921 million was the highest ever operating cash flow for the first half of a year. The increase results mainly from revenue growth with higher profitability and a higher portion already realized earlier within the half year compared with the previous year. Changes in working capital mainly from the five-day increase year-over-year of DSO and higher bonus payments adversely impacted the operating cash flow. The expansion of our data centers is an important aspect of our led to higher capital expenditures in the first half of 2016. investments in 2016 and We calculate free cash flow as net cash flows from operating activities minus purchases of intangible assets and property, plant, and equipment without acquisitions (capital expenditure). DSO for receivables is defined as the average number of days from the raised invoice to the cash receipt from the customer. Group Liquidity € millions +2,921 406 +211 4,347 3,559 1,378 544 16 8,593 -4,245 Group Liquidity 31.12.2015 Operating Cash Flow Capital Expen- diture Dividends Repay- ment of Borro- wings Business Combi- nations Other Group Liquidity Financial Debt 30.06.2016 Net Liquidity SAP 2016 Half-Year Report Liquidity and Financial Position € millions 30.06.2016 31.12.2015 Δ Cash and cash equivalents 4,206 3,411 +795 Current investments 141 148 –7 Group liquidity 4,347 3,559 +788 Financial debt –8,593 –9,174 +581 Net liquidity –4,245 –5,615 +1,370 Goodwill 22,354 22,689 –335 Total assets 41,788 41,390 +398 Total equity 22,963 23,295 –331 Equity ratio (total equity as a percentage of total assets) 55 56 –1pp Competitive Intangibles The resources that are the basis for our current as well as future success do not appear on the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE (based on all outstanding shares), which was €80 billion at the end of June 2016, with the carrying amount of our equity. This means that the market capitalization of our equity is nearly four times higher than the carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization are. SAP was recognized as the world’s 22nd most valuable brand with the release of the 2016 BrandZ Top 100 Most Valuable Global Brands ranking. SAP’s brand value is now estimated at US$39 billion, an increase of 2% in brand value for SAP year over year. 11 Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early and to take the appropriate action. For changes in our legal liability risks since our last annual report, see Note (14) in the Notes to the Interim Financial Statements. The other largely risk unchanged since 2015, and are discussed more fully in our 2015 Integrated Report and in our Annual Report on Form 20-F for 2015. We do not believe the risks we have identified jeopardize our ability to continue as a going concern. factors remain Expected Developments and Opportunities Future Trends in the Global Economy In its most recent report, the European Central Bank (ECB) forecasts subdued growth in the world economy for the It believes that while advanced remainder of 2016. economies will be buoyed by interest rates and improving labor markets, emerging economies will be held back by uncertainty as a result of fallen commodity prices and waning growth in China and other emerging markets. According to the ECB, the impact of the referendum in the UK against a continued EU membership will also be a major source of uncertainty influencing the global economy’s development to the end of the year. low Looking at the Europe, Middle East, and Africa (EMEA) region, the ECB anticipates the euro area will grow at a steady, moderate pace in the coming months, though possibly at a lower rate than in the first half of the year. It believes that investment by enterprises benefiting from favorable borrowing conditions and improved earnings will be a key factor in this growth. In Central and Eastern Europe, the ECB believes that economic progress will remain stable but vary from country to country. Russia, it suggests, will likely benefit from increasing oil prices, rise out of its recession, and possibly even enjoy positive growth rates again. In the Americas region, ECB projects that strong job growth in the United States, coupled with an increase in real disposable income, will help the U.S. economy pick up again. Similarly, Brazil’s economy is expected to recover gradually from its deep recession – once commodity prices have stabilized. Turning to the Asia Pacific Japan (APJ) region, the ECB anticipates that the Japanese economy will grow at a restrained pace going forward, with positive developments in real wages and export demand such as increases the counterbalancing negative consolidation of domestic budgets. By contrast, the Chinese economy will continue to weaken in the medium term despite short-term government measures to stimulate the economy, ECB says. influences such as Economic Trends – Year-Over-Year GDP Growth % 2015e 2016p 2017p World 3.1 3.2 3.5 Advanced economies 1.9 1.9 2.0 SAP 2016 Half-Year Report % 2015e 2016p 2017p Developing and emerging economies 4.0 4.1 4.6 Europe, the Middle East, and Africa (EMEA) Euro area 1.6 1.5 1.6 Germany 1.5 1.5 1.6 Central and Eastern Europe 3.5 3.5 3.3 Middle East and North Africa 2.5 3.1 3.5 Sub- Saharan Africa 3.4 3.0 4.0 Americas United States 2.4 2.4 2.5 Canada 1.2 1.5 1.9 Central and South America, Caribbean –0.1 –0.5 1.5 Asia-Pacific-Japan (APJ) Japan 0.5 0.5 –0.1 Asian developing economies 6.6 6.4 6.3 China 6.9 6.5 6.2 e = estimate; p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2016, Too Slow for Too Long, as of April 16, 2016, p. 21 IT Market: The Outlook for 2016 Based on U.S. market research firm Gartner’s current analysis of the IT Spending, “worldwide IT Spending is forecast to be flat in 2016”3) and “unfortunately, spending will not fully recover by year-end.”2) But “global enterprise software pending is on pace to total US $332 billion, a 5.8% increase from 2015.”3) Based on U.S. market research firm Gartner’s current analysis of the IT spending, “worldwide IT spending is forecast to be flat in 2016, totaling US $3.41 trillion”3) and “unfortunately, spending will not fully recover by year-end.”2) Gartner data indicate software is the best- performing segment with software spending increasing by 7.0 % (see table below). “Global enterprise software spending is on pace to total US $332 billion, a 5.8% increase from 2015. North America is the dominant regional driving force behind this growth.”3) Regional Outlook Within the Europe, Middle-East, and Africa (EMEA) region, the table below shows that IT spending in Western European countries will grow by only 0.2 %, whereas Western European software spending will increase considerably by 5.9 %. “With the U.K.'s exit from the EU, there will likely be an erosion in business confidence and price increases which will IT impact U.K., Western Europe and worldwide spending.” “. …The ‘leave’ vote will quickly affect IT spending in the U.K. and in Europe, while other changes will take longer.” 3) According to the table below, IT spending in the Americas region will likewise expand only little in 2016 by 2.0 % in North America and decrease by 0.8 % in Latin America. The decrease in Latin America “can be attributed to declining 12 business confidence in some countries in the region — most particularly, in Brazil. The specific trend in the region is that organizations are heavily limiting investments in projects with is assumed to recover, eventually posting 2.7% growth in 2020. But Brazil's longer-term growth appears limited by complex taxation, as well as poor infrastructure.” 1) long payback periods.”1) “Longer term, Brazil regulation and IT spending in Asia/Pacific region is expected to expand 2.5% (Mature Asia/Pacific without Japan) and 4.8% (Emerging Asia/Pacific without China) in 2016 (see table below). For China, based on the report, Gartner “supposes China’s continuing economic slowdown will crimp China’s IT spending growth near term, but… a successful Chinese transition to a service economy will buoy longer-term spending growth.”1) IT spending in Greater China is expected to grow 2.2% in 2016 (see table below). Sources: 1) Forecast Analysis: IT Spending, Worldwide, 1Q16 Update, April 26, 2016 2) Gartner Market Databook, 2Q16 Update, June 29,2016 3) Press release “GARTNER SAYS WORLDWIDE IT SPENDING IS FORECAST TO BE FLAT IN 2016, July 7, 2016, http://www.gartner.com/newsroom/id/3368517 The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Half Year Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Trends in the IT Market – IT Spending Year-Over-Year % 2015e 2016p 2017p World Total IT 3.1 1.5 2.6 Software 9.1 7.0 7.1 Services 5.1 4.7 4.7 Western Europe Total IT 3.6 0.2 1.3 Software 9.6 5.9 6.0 Services 4.4 3.8 4.1 Eastern Europe Total IT 11.4 3.3 1.4 Software 10.8 8.9 8.8 Services 3.4 3.5 3.9 Eurasia Total IT 5.0 0.4 1.7 Software 14.1 6.0 7.7 Services 3.2 0.8 1.4 Middle East and North Africa Total IT 5.0 2.1 3.1 Software 11.4 9.7 9.9 Services 5.8 4.8 5.0 SAP 2016 Half-Year Report % 2015e 2016p 2017p Sub-Saharan Africa Total IT 5.1 3.4 5.0 Software 13.2 11.0 11.2 Services 5.2 5.2 5.2 North America Total IT 3.0 2.0 2.6 Software 8.2 7.1 6.9 Services 6.0 5.4 5.3 Latin America Total IT 0.3 0.8 1.5 Software 11.0 7.3 8.2 Services 6.9 7.2 7.3 Mature Asia/Pacific (w/o Japan) Total IT 2.8 2.5 3.2 Software 12.4 9.3 9.5 Services 4.4 4.8 4.2 Emerging Asia/Pacific (w/o China) Total IT 6.3 4.8 5.6 Software 11.4 10.7 11.1 Services 7.5 9.5 9.5 Japan Total IT 0.0 0.6 2.0 Software 7.4 5.2 5.5 Services 3.1 2.2 1.7 Greater China (China/ Taiwan/ Hong Kong) Total IT 4.4 2.2 4.7 Software 7.8 8.3 9.4 Services 5.7 6.9 7.1 e = estimate, p = projection Table created by SAP based on: Gartner Market Databook, 2Q16 Update, 29 June 2016, tab 2-1 “regional end-User Spending on IT Products and Services in Constant U.S. Dollars, 2014-2020 (Millions of Dollars).” Impact on SAP SAP expects to outperform the global economy and the IT industry again in 2016 in terms of revenue growth. The the macroeconomic environment is hard to predict since this is and political issue. UK comprises a small portion of SAP's overall revenue and operating profit. Therefore, the direct effect on SAP's business is expected to be moderate. future impact of the UK referendum on Our 2015 results validate our strategy of innovating across the core, the cloud, and business networks to help our customers become true digital enterprises. 13 Our innovation cycle for SAP S/4HANA is well underway and the completeness of our vision in the cloud has distinguished SAP from both legacy players and point solution providers. We are well-positioned for the future as reflected in the increase of our ambition for 2017 in the beginning of this year. We plan to continue to invest in countries in which we expect significant growth, helping us reach our ambitious 2016 outlook targets and medium-term aspirations for 2017 and 2020. We are confident we can achieve our medium-term targets the economic for 2017 and 2020, assuming industry develop as currently environment and IT forecasted. Balanced in terms of regions as well as industries, we are well-positioned with our solution offering to offset smaller in the global economy and IT market. that individual fluctuations A comparison of our business outlook with forecasts for the global economy and IT industry shows that we can be successful even in a tough economic environment and will further strengthen our position as the market leader of enterprise application software. Operational Targets for 2016 (Non-IFRS) Revenue and Operating Profit Outlook We reiterate the following 2016 outlook based on the solid execution in the first half year and a strong pipeline across all regions led by S/4HANA’s once in a generation innovation cycle: – Based on the continued strong momentum in SAP's cloud business, the company expects full-year 2016 non-IFRS cloud subscriptions and support revenue to be in a range of €2.95 billion to €3.05 billion at constant currencies (2015: €2.30 billion). The upper end of this range represents a growth rate of 33% at constant currencies. – SAP expects full-year 2016 non-IFRS cloud and software revenue to increase by 6% to 8% at constant currencies (2015: €17.23 billion). – SAP expects full-year 2016 non-IFRS operating profit to be in a range of €6.4 billion to €6.7 billion at constant currencies (2015: €6.35 billion). We expect to hire a similar number of employees this year as in 2015. While the company's full-year 2016 business outlook is at constant currencies, actual currency reported figures are expected to continue to be impacted by exchange rate fluctuations. If exchange rates remain at the end of June 2016 levels for the rest of the year, the company expects its non-IFRS cloud and software revenue growth rate as well as its non-IFRS operating profit growth rate to experience a currency impact in a range of -1 to +1 percentage points for the third quarter 2016 (-2 to 0 percentage points for the full year 2016). The above-mentioned indication for the expected currency exchange rate impact on actual currency reported figures SAP 2016 Half-Year Report replaces the earlier indication announced on May 18, 2016, at our SAPPHIRE NOW conference. We expect that non-IFRS total revenue will continue to depend largely on the revenue from cloud and software. Within cloud and software revenue, cloud subscription and support revenue will grow significantly faster than software and support revenue (non-IFRS). We expect the software license revenue in 2016 will be approximately at the same level as in 2015, with SAP gaining market share against our main on-premise license competitors. We expect that most of the total revenue growth (non-IFRS) will come from the Applications, Technology & Services segment. Nevertheless, we anticipate that our SAP Business Network segment will outpace the Applications, Technology & Services segment with a significantly higher total revenue growth rate at lower absolute revenue numbers. As such, we expect we will seize a huge market opportunity with continued strong mid-term and long-term growth potential. We continuously strive in both segments. The vast majority of the profit expansion comes from our Applications, Technology & Services segment. in the SAP Overall, operating profit growth Business Network segment than in the Applications, Technology & Services segment, but at significantly lower volume. for profit expansion is higher Across both segments, we expect our 2016 non-IFRS cloud subscriptions and support gross margin to be stable compared to 2015. For SAP’s private cloud offerings, we expect positive margins as of the second half of fiscal year 2016. Differences Between IFRS and Non-IFRS Measures As noted above, our guidance is based on non-IFRS measures at constant currencies. This section provides additional insight into the impact of our application of constant currency considerations and the items by which our IFRS measures and non-IFRS measures differ. The following table shows the estimates of the items that IFRS financial represent the differences between our measures and our non-IFRS financial measures. Non-IFRS Measures € millions Estimated Amounts for Full Year 20161) Q1–Q2 2016 Q1–Q2 2015 Revenue adjustments <20 4 8 Acquisition related charges4) 680 to 730 336 371 Share-based payment expenses2), 3) 560 to 610 177 314 Restructuring 30 to 50 22 418 1) All adjusting items are partly incurred in currencies other than the euro. Consequently, the amounts are subject to currency volatility. All estimates for 2016 provided in the table are at actual currency and are calculated based on certain assumptions regarding the developments of the different currency exchange rates. Depending on the future development of these exchange 14 rates, the total amounts for 2016 may differ significantly from the estimates provided in the table above. SAP’s outlook is based on constant currency figures. 2) Our share-based payment expenses are subject, among other factors, to share price volatility, anticipated achievement of financial KPIs (Key Performance Indicators), objectives, and fluctuations in SAP’s workforce. The estimates in the table above are based on certain assumptions regarding these factors. Depending on how these factors change in the future, the total expense for 2016 may differ significantly from these estimates. 3) The estimates provided above for share-based payments expenses include grants under existing programs. New share-based payments plans may make the total amounts for 2016 differ significantly from these estimates. 4) The estimates provided above for acquisition-related charges are based on the acquisitions made by SAP up to the publication of this document. Any subsequent acquisitions may cause the total amounts for 2016 to differ from these estimates. SAP expects a full-year 2016 effective tax rate (IFRS) of 27.0% to 28.0% and an effective tax rate (non-IFRS) of in comparison to the increase 28.0% to 29.0%. The previous outlook mainly results from tax effects relating to changes in foreign currency exchange rates in Venezuela and the fact that the execution of the originally planned consolidation of intellectual property rights held by SAP’s group company hybris AG at the level of SAP SE in Germany can no longer be achieved at this point of time. Goals for Liquidity, Finance, Investments, and Dividends On June 30, 2016, we had a negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating financing needs also in the second half of 2016 and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near-term and medium-term. We expect a positive development of our operating cash flow, which is also due to anticipated lower restructuring related payments. As planned, we redeemed a US$600 million U.S. private placement, which matured in June. Furthermore, we are planning to further repay our outstanding €1.25 billion bank loan. At the time of this report, we have no concrete plans for future share buybacks. Based on this planning, at this point in time we expect to noticeably reduce our net debt in the second half of 2016 and gradually return to a positive net liquidity in subsequent years. Excepting acquisitions, our planned capital expenditures for 2016 and 2017 can be covered in full by operating cash flow. They will mainly be spent on property improvements planned in Bangalore (India), Dubai (United Arab Emirates), Shanghai (China), New York City (United States), San Ramon (United States), Potsdam (Germany), Walldorf (Germany), Prague (Czech Republic), and Ra’anana (Israel). In addition, we plan to invest in two new data centers in the western United States. In total, we expect investments of approximately €530 million during the next two years. SAP 2016 Half-Year Report Premises on Which Our Outlook Is Based In preparing our outlook, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no effects from a major acquisition. Non-Financial Goals 2016 In addition to our financial goals, we also focus on two non- financial targets: employee engagement and customer loyalty. We believe it is essential that our employees are engaged, drive our success, and support our strategy. We remain committed to achieving an 82% employee engagement score in 2016 (2015: 81%). Further, our customers’ satisfaction with the solutions we offer is very important to us. We want our customers not only to be satisfied, but also to see us as a trusted partner for innovation. We measure this customer loyalty metric using the Customer Net Promoter Score (NPS). For 2016, we aim to achieve a Customer NPS of 25% (2015: 22.4%). Medium-Term Prospects We did not change our medium-term prospects in the first half of 2016. For a detailed description, see our 2015 Integrated Report and item 5 in the 2015 Annual Report on Form 20-F. Opportunities opportunity-management We structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged since 2015, and are discussed more fully in our 2015 Integrated Report. have comprehensive Events After the Reporting Period No events have occurred after June 30, 2016, which are of material significance for the Group’s assets, finances, and operating results . 15 Consolidated Half-Year Financial Statements – IFRS Consolidated Income Statements of SAP Group – Half-Year € millions, unless otherwise stated Notes Q1–Q2 2016 Q1–Q2 2015 Cloud subscriptions and support 1,397 1,056 Software licenses 1,649 1,675 Software support 5,162 4,985 Software licenses and support 6,811 6,660 Cloud and software 8,208 7,715 Services 1,755 1,751 Total revenue 9,964 9,467 Cost of cloud subscriptions and support –597 –465 Cost of software licenses and support –1,007 –1,103 Cost of cloud and software –1,604 –1,568 Cost of services –1,506 –1,465 Total cost of revenue –3,110 –3,034 Gross profit 6,854 6,433 Research and development –1,419 –1,393 Sales and marketing –2,871 –2,758 General and administration –460 –528 Restructuring (5) –22 –418 Other operating income/expense, net –1 3 Total operating expenses –7,882 –8,128 Operating profit 2,082 1,339 Other non-operating income/expense, net –136 –201 Finance income 73 87 Finance costs –132 –109 Financial income, net –59 –22 Profit before tax 1,887 1,115 Income tax expense –504 –233 Profit after tax 1,382 882 Attributable to owners of parent 1,388 885 Attributable to non-controlling interests –5 –3 Earnings per share, basic (in €)1) 1.16 0.74 Earnings per share, diluted (in €)1) 1.16 0.74 1) For the six months ended June 30, 2016 and 2015, the weighted average number of shares was 1,198 million (diluted 1,199 million) and 1,196 million (diluted: 1,198 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Δ in % 32 –2 4 2 6 0 5 28 –9 2 3 3 7 2 4 –13 –95 <-100 –3 56 –32 –16 21 >100 69 >100 57 57 74 57 57 16 Consolidated Statements of Comprehensive Income of SAP Group – Half-Year € millions Profit after tax Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax Income tax relating to remeasurements on defined benefit pension plans Remeasurements on defined benefit pension plans, net of tax Other comprehensive income for items that will not be reclassified to profit or loss, net of tax Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax Reclassification adjustments on exchange differences on translation, before tax Exchange differences on translation, before tax Income tax relating to exchange differences on translation Exchange differences, net of tax Gains (losses) on remeasuring available-for-sale financial assets, before tax Reclassification adjustments on available-for-sale financial assets, before tax Available-for-sale financial assets, before tax Income tax relating to available-for-sale financial assets Available-for-sale financial assets, net of tax Gains (losses) on cash flow hedges, before tax Reclassification adjustments on cash flow hedges, before tax Cash flow hedges, before tax Income tax relating to cash flow hedges Cash flow hedges, net of tax Other comprehensive income for items that will be reclassified to profit or loss, net of tax Other comprehensive income, net of tax Total comprehensive income Attributable to owners of parent Attributable to non-controlling interests Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Q1–Q2 2016 1,382 3 0 3 3 –182 –1 –183 –26 –210 –132 –14 –145 1 –144 –19 –6 –25 7 –18 –372 –369 1,013 1,019 –5 Q1–Q2 2015 882 1 –2 –1 –1 1,541 0 1,541 13 1,554 151 0 151 0 150 –75 62 –13 3 –10 1,695 1,693 2,575 2,578 –3 17 Consolidated Statements of Financial Position of SAP Group as at June 30, 2016 and December 31, 2015 € millions Cash and cash equivalents Other financial assets Trade and other receivables Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Deferred income Total current liabilities Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Deferred tax liabilities Deferred income Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity Total equity and liabilities Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Note (8) (8) (9) (10) (9) (10) (11) 2016 4,206 386 5,025 636 296 10,549 22,354 3,884 2,284 1,278 106 375 401 558 31,239 41,788 2016 1,047 268 323 2,274 191 4,470 8,574 94 417 8,705 300 201 426 106 10,250 18,824 1,229 580 20,054 2,189 –1,114 22,938 26 22,963 41,788 2015 3,411 351 5,275 468 235 9,739 22,689 4,280 2,192 1,336 87 332 282 453 31,651 41,390 2015 1,088 230 841 3,407 299 2,001 7,867 81 402 8,681 331 180 448 106 10,228 18,095 1,229 558 20,044 2,561 –1,124 23,267 28 23,295 41,390 18 Consolidated Statements of Changes in Equity of SAP Group € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Compo- nents of Equity Treasury Shares Total January 1, 2015 1,229 614 18,317 564 –1,224 19,499 Profit after tax 885 885 Other comprehensive income –1 1,695 1,693 Comprehensive income 884 1,695 2,578 Share-based payments –154 –154 Dividends –1,316 –1,316 Reissuance of treasury shares under share-based payments 72 91 164 Other changes –1 –1 June 30, 2015 1,229 533 17,883 2,258 –1,133 20,770 January 1, 2016 1,229 558 20,044 2,561 –1,124 23,267 Profit after tax 1,388 1,388 Other comprehensive income 3 –372 –369 Comprehensive income 1,391 –372 1,019 Share-based payments 14 14 Dividends –1,378 –1,378 Reissuance of treasury shares under share-based payments 9 10 18 Other changes –2 –2 June 30, 2016 1,229 580 20,054 2,189 –1,114 22,938 Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Non- Controlling Interests 34 –3 –3 31 28 –5 –5 3 26 Total Equity 19,534 882 1,693 2,575 –154 –1,316 164 –1 20,800 23,295 1,382 –369 1,013 14 –1,378 18 1 22,963 19 Consolidated Statements of Cash Flows of SAP Group € millions Profit after tax Adjustments to reconcile profit after taxes to net cash flows from operating activities: Depreciation and amortization Income tax expense Financial income, net Decrease/increase in sales and bad debt allowances on trade receivables Other adjustments for non-cash items Decrease/increase in trade and other receivables Decrease/increase in other assets Decrease/increase in trade payables, provisions, and other liabilities Decrease/increase in deferred income Interest paid Interest received Income taxes paid, net of refunds Net cash flows from operating activities Business combinations, net of cash and cash equivalents acquired Cash receipts from derivative financial instruments related to business combinations Total cash flows for business combinations, net of cash and cash equivalents acquired Purchase of intangible assets and property, plant, and equipment Proceeds from sales of intangible assets or property, plant, and equipment Purchase of equity or debt instruments of other entities Proceeds from sales of equity or debt instruments of other entities Net cash flows from investing activities Dividends paid Proceeds from reissuance of treasury shares Proceeds from borrowings Repayments of borrowings Transactions with non-controlling interests Net cash flows from financing activities Effect of foreign currency rates on cash and cash equivalents Net decrease/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Q1–Q2 2016 1,382 615 504 59 60 12 114 –309 –1,165 2,493 –120 36 –760 2,921 –16 0 –16 –406 33 –320 308 –401 –1,378 15 1 –544 3 –1,902 177 796 3,411 4,206 Q1–Q2 2015 882 646 233 22 14 –21 32 –156 –412 2,361 –90 40 –776 2,775 –10 266 256 –276 27 –1,099 868 –224 –1,316 24 1,745 –2,520 0 –2,067 111 595 3,328 3,923 20 Notes to the Consolidated Half-Year Financial Statements (1) General Information About Consolidated Half-Year Financial Statements The accompanying Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance International Accounting Standard (IAS) 34. The with designation IFRS issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRIC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. includes all standards Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Historically, our overall revenue tends to be highest in the fourth quarter. Half-year results are therefore not necessarily indicative of results for a full year. Amounts reported in previous years have been reclassified as appropriate to conform to the presentation in this half- year report. These unaudited condensed Consolidated Half-Year Financial Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2015, included in our 2015 Integrated Report and our 2015 Annual Report on Form 20- F. Due to rounding, numbers presented throughout these Half- Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. SAP 2016 Half-Year Report (2) Scope of Consolidation Our changes in the scope of consolidation in the first half of 2016 were not material to our Consolidated Financial Statements. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (4) and our 2015 Integrated Report. (3) Summary of Significant Accounting Policies These Consolidated Half-Year Financial Statements were prepared based on the same accounting policies as those applied and described in the Consolidated Financial Statements as at December 31, 2015. Our significant accounting policies are summarized in the Notes to the Consolidated Financial Statements. (4) Business Combinations We did not complete any material acquisitions during the first half of 2016. 21 (5) Restructuring € millions Q1–Q2 2016 Q1–Q2 2015 Employee-related restructuring expenses 22 417 Facility-related restructuring expenses 0 1 Restructuring expenses 22 418 If not presented separately, these expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2016 Q1–Q2 2015 Cost of cloud and software 2 60 Cost of services 5 145 Research and development 3 109 Sales and marketing 11 88 General and administration 1 16 Restructuring expenses 22 418 Number of Employees (in Full-Time Equivalents) Full-time equivalents EMEA Americas Cloud and software 6,214 4,054 Services 6,443 4,006 Research and development 9,927 4,501 Sales and marketing 8,109 8,350 General and administration 2,542 1,677 Infrastructure 1,530 772 SAP Group (June 30) 34,764 23,359 Thereof acquisitions 1) 25 25 SAP Group (average first half) 34,284 22,861 1) Acquisitions closed between January 1 and June 30 of the respective year. SAP 2016 Half-Year Report (6) Employee Benefits Expense and Headcount Employee Benefits Expense € millions Q1–Q2 2016 Q1–Q2 2015 Salaries 3,765 3,600 Social security expenses 565 554 Share-based payment expenses 177 314 Pension expenses 148 141 Employee-related restructuring expenses 22 417 Termination benefits 14 14 Employee benefits expense 4,692 5,042 On June 30, 2016, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 79,962 employees is mainly due to organic growth of full-time equivalents to research and development as well as sales and marketing. 30.6.2016 30.6.2015 APJ Total EMEA Americas APJ Total 5,084 15,352 5,899 3,805 4,915 14,619 3,738 14,187 6,673 3,806 3,193 13,672 7,382 21,810 9,247 3,994 6,148 19,389 4,202 20,661 7,703 7,497 3,797 18,997 990 5,208 2,461 1,661 1,017 5,139 443 2,745 1,483 811 387 2,681 21,838 79,962 33,467 21,574 19,456 74,497 0 50 0 0 0 0 21,416 78,561 33,469 21,740 19,171 74,381 22 The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Cost of cloud and software Q1–Q2 2016 22 Q1–Q2 2015 32 Cost of services 24 50 Research and development 44 80 Sales and marketing 67 102 General and administration 20 51 Share-based payments 177 314 For more information about our share-based payments, see our 2015 Integrated Report, Notes to the Consolidated Financial Statements section, Note (27). (7) Income Taxes We are subject to ongoing tax audits by domestic and foreign tax authorities. Currently, we are mainly in dispute with the German and only a few foreign tax authorities. The German dispute is in respect of intercompany financing matters and certain secured capital investments while the few foreign disputes are intercompany financing matters and license fee deductibility. In all cases, we expect that we will need to initiate litigation to prevail. For all of these matters, we have not recorded a provision as we believe that the tax authorities’ claims have no merit and that no adjustment is warranted. If, contrary to our view, the tax authorities were to prevail in their arguments before the court, we would expect to have an additional tax expense (including related interest expenses and penalties) of approximately €1,477 million in total. in respect of (9) Financial Liabilities € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities SAP 2016 Half-Year Report (8) Trade and Other Receivables € millions 30.06.2016 Current Non- Current Total Trade receivables, net 4,979 1 4,980 Other receivables 46 105 151 Total 5,025 106 5,131 € millions 31.12.2015 Current Non- Current Total Trade receivables, net 5,198 2 5,199 Other receivables 77 86 163 Total 5,275 87 5,362 The carrying amounts of our trade receivables and related allowances were as follows: Carrying Amounts of Trade Receivables € millions 30.06. 2016 31.12. 2015 Gross carrying amount 5,268 5,428 Sales allowances charged to revenue –207 –153 Allowance for doubtful accounts charged to expense –80 –75 Carrying amount trade receivables, net 4,980 5,199 30.06.2016 Nominal Volume Carrying Amount Current Non- Current Current Non- Current Total 0 5,750 0 5,749 5,749 0 1,576 0 1,676 1,676 16 1,250 16 1,247 1,263 17 8,576 16 8,672 8,688 NA NA 95 42 137 NA NA 212 –9 203 323 8,705 9,028 23 € millions Bonds Private placement transactions Bank loans Financial debt Derivatives Other financial liabilities Financial liabilities (10) Deferred Income € millions Current thereof deferred revenue from cloud subscriptions and support Non-current Total Deferred Income Other Components of Equity € millions January 1, 2015 Other comprehensive income June 30, 2015 January 1, 2016 Other comprehensive income June 30, 2016 SAP 2016 Half-Year Report 30.06. 2016 31.12. 2015 4,470 2,001 1,003 957 106 106 4,576 2,107 Exchange Differences 362 1,554 1,916 2,223 –210 2,013 Nominal Volume Carrying Amount Current Non- Current Current Non- Current 0 5,750 0 5,733 551 1,607 551 1,651 16 1,250 16 1,245 567 8,607 567 8,628 NA NA 70 58 NA NA 204 –5 841 8,681 (11) Total Equity Number of Shares millions Issued Capital January 1, 2015 1,228.5 Reissuance under share-based payments 0 June 30, 2015 1,228.5 January 1, 2016 1,228.5 Reissuance under share-based payments 0 June 30, 2016 1,228.5 Available-for-Sale Financial Assets Cash Flow Hedges 211 –8 150 –10 361 –18 336 3 –144 –18 192 –16 31.12.2015 Total 5,733 2,202 1,261 9,195 128 199 9,522 Treasury Shares –33.3 2.5 –30.8 –30.6 0.3 –30.3 Total 564 1,695 2,258 2,561 –372 2,189 24 (12) Litigation and Claims We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired, claims that relate to customers demanding indemnification for proceedings initiated against them based on their use of SAP software, and claims that relate to customers being dissatisfied with the products and services that we have delivered to them. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as of June 30, 2016, will neither individually nor in the aggregate have a material adverse effect on our flows. business, Consequently, the provisions recorded for these claims and lawsuits as of June 30, 2016, are neither individually nor in the aggregate material to SAP. financial position, profit, or cash However, the outcome of litigation and claims is intrinsically subject to considerable uncertainty. Management’s view of the litigation may also change in the future. Actual outcomes of litigation and claims may differ from the assessments made by management in prior periods, which could result in a material impact on our business, financial position, profit, cash flows, or reputation. Most of the lawsuits and claims are of a very individual nature and claims are either not quantified by the claimants or claim amounts quantified are, based on historical evidence, not expected to be a good proxy for the expenditure that would be required to settle the case concerned. The specifics of the jurisdictions where most of the claims are impair the predictability of the outcome of the cases. Therefore, it is not practicable to reliably estimate the financial effect that these lawsuits and claims would have if SAP were to incur expenditure for these cases. located further Among the claims and lawsuits are the following classes: Intellectual Property‐Related Litigation and Claims Intellectual property-related litigation and claims are cases in which third parties have threatened or initiated litigation claiming that SAP violates one or more intellectual property rights that they possess. Such intellectual property rights may include patents, copyrights, and other similar rights. There have been no significant changes to the amount of provisions intellectual property-related litigation and claims compared to the amounts disclosed in our 2015 Integrated Report, Notes to the Consolidated Financial Statements section, Note (18b). recorded for Contingent liabilities exist from intellectual property-related litigation and claims for which no provision has been recognized. There have been no significant changes in contingent liabilities since December 31, 2015. Individual cases of intellectual property-related litigation and claims are: In February 2010, United States-based TecSec, Inc. (TecSec) instituted legal proceedings in the United States against SAP (including its subsidiary Sybase) and many other defendants. TecSec alleged that SAP’s and Sybase’s products infringe one or more of the claims in five patents held by TecSec. In its complaint, TecSec seeks unspecified SAP 2016 Half-Year Report monetary damages and permanent injunctive relief. The lawsuit is proceeding but only with respect to one defendant. The trial for SAP (including its subsidiary Sybase) has not yet been scheduled – the lawsuit for SAP (including its subsidiary Sybase) remains stayed. In April 2010, SAP legal proceedings (a instituted declaratory judgment action) in the United States against Wellogix, Inc. and Wellogix Technology Licensing, LLC (Wellogix). The lawsuit seeks a declaratory judgment that five patents owned by Wellogix are invalid or not infringed by SAP. The trial has not yet been scheduled. The legal proceedings have been stayed pending the outcome of six reexaminations filed with the United States Patent and Trademark Office (USPTO). In September 2013, the USPTO issued a decision on four of the six reexaminations, invalidating every claim of each of the four patents. SAP is awaiting a decision on the two remaining reexamination requests. In response to SAP’s patent Declaratory Judgment action, Wellogix secret misappropriation claims against SAP (which had previously been raised and abandoned). The court granted SAP’s motion for an early dispositive decision on the trade secret claims; Wellogix appealed that decision and the appeal was rejected. In February 2015, SAP filed a declaratory judgment action in Frankfurt/Main, Germany, asking the German court to rule that SAP did not misappropriate any Wellogix trade secrets. has re-asserted trade Customer‐Related Litigation and Claims Customer-related litigation and claims include cases in which we indemnify our customers against liabilities arising from a claim that our products infringe a third party’s patent, trade secret, or other proprietary rights. copyright, Occasionally, consulting or software implementation projects in disputes with customers. Where customers are dissatisfied with the products and services in routine consulting that we have delivered to them contracts or development arrangements, we may grant functions or performance guarantees. result There have been no significant changes to the amount of litigation and provisions recorded for customer-related claims compared to the amounts disclosed in our 2015 Integrated Report, Notes to the Consolidated Financial Statements section, Note (18b). Contingent liabilities exist from customer-related litigation and claims for which no provision has been recognized. There have been no significant changes in contingent liabilities since December 31, 2015. Non-Income Tax-Related Litigation and Claims We are subject to ongoing audits by domestic and foreign tax authorities. Along with many other companies operating in Brazil, we are in various proceedings with Brazilian authorities regarding assessments and litigation intercompany royalty matters on non-income taxes on payments and intercompany services. The total potential amount in dispute related to these matters for all applicable years is approximately €96 million on June 30, 2016 (December 31, 2015: €75 million). We have not recorded a provision for these matters, as we believe that we will prevail. involved 25 For more information about income tax-related litigation see Note (7). (13) Other Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (24) to (26) to our Consolidated Financial Statements for 2015, which are included in our 2015 Integrated Report, and our 2015 Annual Report on Form 20-F. We do not disclose the fair value of our financial instruments as of June 30, 2016, as – for a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – for those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2015. (14) Share-Based Payments For a detailed description of our share-based payment plans, see Note (27) to our Consolidated Financial Statements for 2015, included in our 2015 Integrated Report. Restricted Stock Unit Plan Including Move SAP Plan (RSU Plan) In the first half of 2016, we granted 7.8 million RSUs to retain and motivate global executives and employees who make a significant sustained impact to our business success. (15) Segment and Geographic Information General Information SAP has two reportable segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker is our Applications, Technology & Services segment and the other is the SAP Business Network segment. These segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our business network activities or cover other areas of our business. (CODM). One The Applications, Technology & Services segment derives its revenue primarily from the sale of software licenses, subscriptions to our cloud applications, and related services (mainly support services and various professional services and premium support services, as well as implementation services for our software products and education services on the use of our products). The SAP Business Network segment derives its revenues mainly from transaction fees charged for the use of SAP’s cloud-based collaborative business networks and from services relating to the SAP Business Network (including cloud applications, professional services, and education services). Within the SAP Business Network segment, we SAP 2016 Half-Year Report mainly market and sell the cloud offerings developed by SAP Ariba, SAP Fieldglass, and Concur. On April 1, 2016, we changed the structure of the Applications, Technology & Services segment. The business area that focuses on small and medium-sized customers with our SAP Anywhere, SAP Business One, and SAP Business ByDesign solutions was removed from this segment, forming a new operating but non-reportable segment. We have retrospectively adjusted our revenue and results for the Applications, Technology & Services segment to reflect this change. In addition, we set up a further operating segment comprising SAP’s healthcare strategy and solutions which also does not qualify as a reportable segment. Revenues and expenses of both operating but non- reportable segments are included in the reconciliation of segment revenue and results. 26 Segment Revenue and Results € millions Applications, Technology & Services Q1–Q2 2016 Q1–Q2 2015 Actual Currency Constant Currency Actual Currency Cloud subscriptions and support 616 628 416 Software licenses 1,616 1,665 1,646 Software support 5,112 5,200 4,934 Software licenses and support 6,728 6,865 6,580 Cloud and software 7,344 7,493 6,997 Services 1,629 1,670 1,607 Total segment revenue 8,973 9,163 8,604 Cost of cloud subscriptions and support –290 –295 –206 Cost of software licenses and support –922 –938 –947 Cost of cloud and software –1,212 –1,234 –1,153 Cost of services –1,348 –1,389 –1,267 Total cost of revenue –2,560 –2,622 –2,420 Segment gross profit 6,413 6,541 6,184 Total segment expenses –3,072 –3,147 –3,036 Segment profit 3,341 3,394 3,148 Information about assets and liabilities and additions to non- current assets by segment are not regularly provided to our Executive Board. Measurement and Presentation A detailed overview of our measurement bases and reconciling items in our reconciliation of segment revenue and results are presented in Note (28) to our Consolidated SAP 2016 Half-Year Report SAP Business Network Total Reportable Segments Q1–Q2 2016 Q1–Q2 2015 Q1–Q2 2016 Q1–Q2 2015 Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency 761 766 634 1,377 1,394 1,051 0 0 0 1,616 1,665 1,646 14 14 17 5,126 5,214 4,951 14 14 16 6,742 6,879 6,597 776 780 651 8,119 8,273 7,647 143 145 117 1,772 1,815 1,724 919 925 768 9,892 10,088 9,371 –184 –186 –159 –474 –481 –365 0 0 0 –923 –939 –947 –184 –186 –159 –1,396 –1,420 –1,312 –116 –118 –88 –1,464 –1,507 –1,355 –300 –305 –248 –2,860 –2,927 –2,667 619 621 520 7,032 7,161 6,704 –462 –469 –390 –3,533 –3,616 –3,426 157 152 130 3,499 3,546 3,278 Financial Statements for 2015, which is included in our 2015 Integrated Report, and our 2015 Annual Report on Form 20- F. In addition, revenues and expenses of our new operating but non-reportable segments are included in the reconciliation under the position other revenue and other expenses, respectively. 27 Reconciliation of Segment Revenue and Results € millions Total segment revenue for reportable segments Other revenue Adjustment for currency impact Adjustment of revenue under fair value accounting Total revenue Total segment profit for reportable segments Other revenue Other expenses Adjustment for currency impact Adjustment for Revenue under fair value accounting Acquisition-related charges Share-based payment expenses Restructuring Operating profit Other non-operating income/expense, net Financial income, net Profit before tax Geographic Information The amounts for revenue by region in the following tables are based on the location of customers. Revenue by Region Cloud Subscriptions and Support Revenue by Region € millions Q1–Q2 2016 Q1–Q2 2015 EMEA 329 229 Americas 942 733 APJ 127 93 SAP Group 1,397 1,056 Cloud and Software Revenue by Region € millions Q1–Q2 2016 Q1–Q2 2015 EMEA 3,557 3,311 Americas 3,393 3,195 APJ 1,259 1,209 SAP Group 8,208 7,715 SAP 2016 Half-Year Report Actual Currency 9,892 76 0 –4 9,964 3,499 76 –954 0 –4 –336 –177 –22 2,082 –136 –59 1,887 Total Revenue by Region € millions Germany Rest of EMEA EMEA United States Rest of Americas Americas Japan Rest of APJ APJ SAP Group Q1–Q2 2016 Constant Currency 10,088 79 –200 –4 9,964 3,546 79 –982 –22 –4 –336 –177 –22 2,082 –136 –59 1,887 Q1–Q2 2016 1,286 3,030 4,316 3,344 798 4,142 369 1,137 1,506 9,964 Q1–Q2 2015 Actual Currency 9,371 103 0 –8 9,467 3,278 103 –931 0 –8 –371 –314 –418 1,339 –201 –22 1,115 Q1–Q2 2015 1,188 2,884 4,072 3,117 810 3,926 306 1,162 1,468 9,467 28 (16) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (see our 2015 Integrated Report, Notes to the Consolidated Financial Statements section, Note (29)). We have relationships with certain of these entities in the ordinary course of business whereby we buy and sell a wide variety of services and products at prices believed to be consistent with those negotiated at arm’s length between unrelated parties. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. For more information about related party transactions, see our 2015 Integrated Report, Notes to the Consolidated Financial Statements section, Note (30). SAP 2016 Half-Year Report (17) Events After the Reporting Period No events have occurred after June 30, 2016, which have a material impact on the Company’s consolidated financial statements. Release of the Half-Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements for the period ended June 30, 2016, on July 19, 2016, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. 29 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 19, 2016 SAP SE Walldorf, Baden The Executive Board Bill McDermott Robert Enslin Michael Kleinemeier Bernd Leukert Luka Mucic Gerhard Oswald Stefan Ries Steve Singh SAP 2016 Half-Year Report 30 Supplementary Financial Information (Unaudited) Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2015 Revenues Cloud subscriptions and support (IFRS) 503 Cloud subscriptions and support (non-IFRS) 509 % change – yoy 131 % change constant currency – yoy 95 Software licenses (IFRS) 696 Software licenses (non-IFRS) 696 % change – yoy 12 % change constant currency – yoy 1 Software support (IFRS) 2,454 Software support (non-IFRS) 2,454 % change – yoy 17 % change constant currency – yoy 7 Software licenses and support (IFRS) 3,150 Software licenses and support (non-IFRS) 3,150 % change – yoy 16 % change constant currency – yoy 5 Cloud and software (IFRS) 3,653 Cloud and software (non-IFRS) 3,659 % change – yoy 24 % change constant currency – yoy 12 Total revenue (IFRS) 4,497 Total revenue (non-IFRS) 4,502 % change – yoy 22 % change constant currency – yoy 10 Share of predictable revenue (IFRS, in %) 66 Share of predictable revenue (non-IFRS, in %) 66 Profits Operating profit (IFRS) 638 Operating profit (non-IFRS) 1,056 % change – yoy 15 % change constant currency – yoy –2 Profit after tax (IFRS) 413 Profit after tax (non-IFRS) 697 % change 5 Margins Cloud subscriptions and support gross margin (IFRS, in %) 55.3 Cloud subscriptions and support gross margin (non-IFRS, in %) 65.1 Software and support gross margin (IFRS, in %) 82.8 Software and support gross margin (non-IFRS, in %) 85.1 Cloud and software gross margin (IFRS, in %) 79.0 Cloud and software gross margin (non-IFRS, in %) 82.3 Gross margin (IFRS, in %) 66.8 Gross margin (non-IFRS, in %) 70.6 Operating margin (IFRS, in %) 14.2 Operating margin (non-IFRS, in %) 23.5 SAP 2016 Half-Year Report Q2 2015 552 555 129 92 979 979 2 –7 2,531 2,531 17 7 3,510 3,510 13 3 4,062 4,065 21 9 4,970 4,972 20 8 62 62 701 1,394 13 1 469 960 2 56.5 65.7 84.0 86.1 80.3 83.3 69.0 72.4 14.1 28.0 Q3 2015 599 600 116 90 1,014 1,015 7 4 2,509 2,509 12 6 3,523 3,524 11 6 4,122 4,124 19 12 4,985 4,987 17 10 62 62 1,214 1,616 19 15 895 1,173 16 57.9 68.8 85.0 86.7 81.1 84.1 70.7 73.6 24.3 32.4 Q4 2015 631 632 76 60 2,146 2,146 15 11 2,600 2,600 11 6 4,745 4,745 13 9 5,377 5,378 18 13 6,342 6,343 16 11 51 51 1,700 2,282 7 3 1,278 1,670 6 51.8 63.0 86.1 87.7 82.1 84.8 72.4 75.6 26.8 36.0 TY 2015 2,286 2,296 109 82 4,835 4,836 10 4 10,093 10,094 14 7 14,928 14,930 13 6 17,214 17,226 20 12 20,793 20,805 18 10 60 60 4,252 6,348 13 5 3,056 4,501 8 55.3 65.6 84.7 86.6 80.8 83.8 70.0 73.3 20.5 30.5 Q1 2016 677 678 33 33 609 609 –13 –10 2,564 2,564 5 5 3,172 3,173 1 2 3,850 3,851 5 6 4,727 4,728 5 6 69 69 813 1,104 5 4 570 763 9 57.5 66.3 84.2 85.9 79.5 82.4 67.0 69.7 17.2 23.4 Q2 2016 720 721 30 33 1,040 1,042 6 10 2,598 2,598 3 6 3,639 3,640 4 7 4,359 4,361 7 11 5,237 5,239 5 9 63 63 1,269 1,516 9 11 813 979 2 57.0 65.2 86.1 87.4 81.3 83.7 70.4 72.7 24.2 28.9 31 € millions, unless otherwise stated AT&S Segment1) – Cloud subscriptions and support gross margin (in %) AT&S Segment1) – Gross margin (in %) Q1 2015 50 71 Q2 2015 51 73 Q3 2015 56 74 Q4 2015 51 77 TY 2015 52 74 Q1 2016 54 70 AT&S Segment1) – Segment margin (in %) SAP BN Segment2) – Cloud subscriptions and support gross margin (in %) SAP BN Segment2) – Gross margin (in %) 34 75 68 39 75 68 43 77 71 46 72 65 41 75 68 34 75 67 SAP BN Segment2) – Segment margin (in %) 18 16 24 20 19 16 Key Profit Ratios Effective tax rate (IFRS, in %) 13.6 26.4 27.1 22.4 23.4 23.3 Effective tax rate (non-IFRS, in %) 22.3 27.8 28.0 25.1 26.1 26.2 Earnings per share, basic (IFRS, in €) 0.35 0.39 0.75 1.07 2.56 0.48 Earnings per share, basic (non-IFRS, in €) 0.58 0.80 0.98 1.40 3.77 0.64 Order Entry New Cloud Bookings 117 199 213 345 874 145 Deferred cloud subscriptions and support revenue (IFRS, quarter end) 793 789 782 957 957 953 Orders – Number of on-premise software deals (in transactions) 12,037 13,504 14,027 17,871 57,439 12,884 Share of software orders worth more than €5 million (in %) 23 24 24 31 27 17 Share of software orders worth less than €1 million (in %) 49 41 44 34 40 48 Liquidity and Cash Flow Net cash flows from operating activities 2,366 410 466 397 3,638 2,482 Purchase of intangible assets and property, plant, and equipment (without acquisitions) –139 –137 –148 –212 –636 –168 Free cash flow 2,227 273 317 184 3,001 2,313 % of total revenue (IFRS) 50 5 6 3 14 49 % of profit after tax (IFRS) 539 58 35 14 98 406 Group liquidity, gross 5,333 4,180 4,608 3,559 3,559 5,853 Group debt –10,524 –10,432 –10,428 –9,174 –9,174 –9,080 Group liquidity, net –5,191 –6,251 –5,820 –5,615 –5,615 –3,227 Days' sales outstanding (DSO, in days)3) 67 68 69 71 71 73 Financial Position Cash and cash equivalents 4,635 3,923 3,844 3,411 3,411 5,743 Goodwill 22,896 22,300 22,222 22,689 22,689 21,922 Total assets 43,753 41,088 40,649 41,390 41,390 42,884 Equity 22,117 20,801 21,540 23,295 23,295 22,920 Equity ratio (total equity in % of total assets) 51 51 53 56 56 53 Non-Financials Headcount (quarter end)4) 74,551 74,497 75,643 76,986 76,986 78,230 Employee retention (in %, rolling 12 months) 93.3 92.6 91.9 91.8 91.8 92.0 Women in management (in %, quarter end) 22.3 22.9 23.2 23.6 23.6 23.6 Greenhouse gas emissions (in kilotons) 145 125 110 75 455 120 1) Applications, Technology & Services Segment 2) SAP Business Network Segment 3) Days’ sales outstanding measures the length of time it takes to collect receivables. SAP calculates DSO by dividing the average invoiced accounts receivables balance of the last 12 months by the average monthly sales of the last 12 months. 4) In full-time equivalents Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Q2 2016 52 73 40 76 68 18 28.9 29.6 0.68 0.82 255 1,003 14,468 29 38 439 –237 202 4 25 4,347 –8,593 –4,245 73 4,206 22,354 41,788 22,963 55 79,962 92.6 24.1 95 32 Reconciliation from Non-IFRS Numbers to IFRS Numbers The following tables present a reconciliation from our non-IFRS numbers (including our non-IFRS at constant currency numbers) to the respective most comparable IFRS numbers. Note: Our non-IFRS numbers are not prepared under a comprehensive set of accounting rules or principles. € millions, unless otherwise stated Q1–Q2 2016 Q1–Q2 2015 IFRS Adj.1) Non- IFRS1) Currency Impact2) Non-IFRS Constant Currency2) IFRS Adj.1) Non- IFRS1) IFRS Non- IFRS1) Revenue Numbers Cloud subscriptions and support 1,397 1 1,399 17 1,415 1,056 8 1,063 32 32 Software licenses 1,649 2 1,651 51 1,702 1,675 0 1,675 –2 –1 Software support 5,162 0 5,163 88 5,251 4,985 0 4,985 4 4 Software licenses and support 6,811 2 6,813 139 6,953 6,660 0 6,660 2 2 Cloud and software 8,208 4 8,212 156 8,368 7,715 8 7,723 6 6 Services 1,755 0 1,755 43 1,799 1,751 0 1,751 0 0 Total revenue 9,964 4 9,967 200 10,167 9,467 8 9,475 5 5 Operating Expense Numbers Cost of cloud subscriptions and support –597 118 –479 –465 98 –368 28 30 Cost of software licenses and support –1,007 99 –908 –1,103 146 –957 –9 –5 Cost of cloud and software –1,604 217 –1,387 –1,568 244 –1,325 2 5 Cost of services –1,506 30 –1,476 –1,465 92 –1,373 3 7 Total cost of revenue –3,110 247 –2,864 –3,034 336 –2,698 3 6 Gross profit 6,854 250 7,104 6,433 344 6,777 7 5 Research and development –1,419 49 –1,370 –1,393 108 –1,285 2 7 Sales and marketing –2,871 191 –2,680 –2,758 190 –2,568 4 4 General and administration –460 27 –433 –528 52 –476 –13 –9 Restructuring –22 22 0 –418 418 0 –95 NA Other operating income/expense, net –1 0 –1 3 0 3 <-100 <-100 Total operating expenses –7,882 535 –7,348 –177 –7,525 –8,128 1,104 –7,024 –3 5 Profit Numbers Operating profit 2,082 538 2,620 22 2,642 1,339 1,112 2,451 56 7 Other non-operating income/expense, net –136 0 –136 –201 0 –201 –32 –32 Finance income 73 0 73 87 0 87 –16 –16 Finance costs –132 0 –132 –109 0 –109 21 21 Financial income, net –59 0 –59 –22 0 –22 >100 >100 Profit before tax 1,887 538 2,425 1,115 1,112 2,227 69 9 Income tax expense –504 –178 –683 –233 –338 –571 >100 20 Profit after tax 1,382 360 1,742 882 775 1,657 57 5 Attributable to owners of parent 1,388 360 1,748 885 775 1,660 57 5 Attributable to non-controlling interests –5 0 –5 –3 0 –3 74 74 Key Ratios Operating margin (in %) 20.9 26.3 26.0 14.1 25.9 6.8pp 0.4pp Effective tax rate (in %) 26.7 28.1 20.9 25.6 5.8pp 2.5pp Earnings per share, basic (in €) 1.16 1.46 0.74 1.39 57 5 SAP 2016 Half-Year Report Δ in % Non-IFRS Constant Currency2) 33 2 5 4 8 3 7 7 8 0.1pp 33 1) Adjustments in the revenue line items are for software support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges, share-based payment expenses, as well as restructuring expenses. 2) Constant currency revenue and operating income figures are calculated by translating revenue and operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see our Web site www.sap.com/corporate- en/investors/newsandreports/reporting-framework.epx under “Non-IFRS Measures and Estimates”. Due to rounding, numbers may not add up precisely. Explanation of Non-IFRS Adjustments € millions Estimated Amounts for Full Year 2016 Q1–Q2 2016 Q1–Q2 2015 Operating profit (IFRS) 2,082 1,339 Revenue adjustments <20 4 8 Adjustment for acquisition-related charges 680 to 730 336 371 Adjustment for share-based payment expenses 560 to 610 177 314 Adjustment for restructuring 30 to 50 22 418 Operating expense adjustments 535 1,104 Operating profit adjustments 538 1,112 Operating profit (non-IFRS) 2,620 2,451 Due to rounding, numbers may not add up precisely. Non-IFRS-Adjustments by Functional Areas € millions Q1–Q2 2016 Q1–Q2 2015 IFRS Acquisition- Related SBP1) Restruc- turing Non- IFRS IFRS Acquisition- Related SBP1) Restruc- turing Non- IFRS Cost of cloud and software –1,604 195 22 0 –1,387 –1,568 209 32 0 –1,325 Cost of services –1,506 6 24 0 –1,476 –1,465 41 50 0 –1,373 Research and development –1,419 5 44 0 –1,370 –1,393 31 80 0 –1,285 Sales and marketing –2,871 123 67 0 –2,680 –2,758 88 102 0 –2,568 General and administration –460 7 20 0 –433 –528 1 51 0 –476 Restructuring –22 0 0 22 0 –418 0 0 418 0 Other operating income/expense, net –1 0 0 0 –1 3 0 0 0 3 Total operating expenses –7,882 336 177 22 –7,348 –8,128 371 314 418 –7,024 1) Share-based payments SAP 2016 Half-Year Report 34 Revenue by Region The following tables present our IFRS and non-IFRS revenue by region based on customer location. The tables also present a reconciliation from our non-IFRS revenue (including our non-IFRS revenue at constant currency) to the respective most comparable IFRS revenue. Note: Our non-IFRS revenues are not prepared under a comprehensive set of accounting rules or principles. € millions Q1–Q2 2016 Q1–Q2 2015 IFRS Adj.1) Non- IFRS1) Currency Impact2) Non-IFRS Constant Currency2) IFRS Adj.1) Non- IFRS1) IFRS Non- IFRS1) Cloud subscriptions and support revenue by region EMEA 329 0 329 5 334 229 1 230 44 43 Americas 942 1 943 9 952 733 7 740 28 27 APJ 127 0 127 3 130 93 0 93 36 35 Cloud subscriptions and support revenue 1,397 1 1,399 17 1,415 1,056 8 1,063 32 32 Cloud and software revenue by region EMEA 3,557 1 3,558 96 3,654 3,311 1 3,312 7 7 Americas 3,393 3 3,396 34 3,429 3,195 7 3,202 6 6 APJ 1,259 0 1,259 26 1,285 1,209 0 1,209 4 4 Cloud and software revenue 8,208 4 8,212 156 8,368 7,715 8 7,723 6 6 Total revenue by region Germany 1,286 0 1,286 0 1,286 1,188 0 1,188 8 8 Rest of EMEA 3,030 0 3,031 113 3,144 2,884 1 2,885 5 5 Total EMEA 4,316 1 4,317 113 4,430 4,072 1 4,073 6 6 United States 3,344 3 3,347 9 3,356 3,117 6 3,123 7 7 Rest of Americas 798 0 798 44 842 810 0 810 –1 –1 Total Americas 4,142 3 4,145 53 4,198 3,926 7 3,933 5 5 Japan 369 0 369 –28 341 306 0 307 20 20 Rest of APJ 1,137 0 1,137 62 1,199 1,162 0 1,162 –2 –2 Total APJ 1,506 0 1,506 34 1,539 1,468 0 1,469 3 3 Total revenue 9,964 4 9,967 200 10,167 9,467 8 9,475 5 5 1) Adjustments in the revenue line items are for software support revenue, cloud subscriptions and support revenue, and other similarly recurring revenues that entities acquired by SAP would have recognized had they remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. 2) Constant currency revenue figures are calculated by translating revenue of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period. For a more detailed description of these adjustments and their limitations as well as our constant currency figures, see our Web site www.sap.com/corporate- en/investors/newsandreports/reporting-framework.epx under “Non-IFRS Measures and Estimates”. Due to rounding, numbers may not add up precisely. SAP 2016 Half-Year Report Δ in % Non-IFRS Constant Currency2) 45 29 39 33 10 7 6 8 8 9 9 7 4 7 11 3 5 7 34 General Information Forward-Looking Statements This half-year financial report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking in the U.S. Private Securities statements as defined Litigation Reform Act of 1995. We have based these forward- looking expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe the Risk Management and Risks section, respectively in the there- mentioned sources. statements on our current these risks and uncertainties in The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management the Expected Developments and and Risks section, Opportunities forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our 2015 Integrated Report and in section strategy 2015 Annual Report on Form 20-F for December 31, 2015, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date specified or the date of this report. Except where legally required, we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. “could,” “counting on,” intended to identify such section, and other Statistical Data This report includes statistical data about the IT industry and information global economic trends that comes from published by sources including Gartner, the European Central Bank (ECB); and the International Monetary Fund (IMF). This type of data represents only the estimates of Gartner, ECB, IMF or the other mentioned sources of industry data. SAP does not adopt or endorse any of the statistical information. In addition, although we believe that data from these sources is generally reliable, this type of data can be imprecise. We caution readers not to place undue reliance on this data. SAP 2016 Half-Year Report All of the information in this report relates to the situation on June 30, 2016, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year financial report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures the Supplementary Financial Information (Unaudited) section. For more information about non-IFRS measures, see our Web site www.sap.com/corporate- en/investors/newsandreports/reporting-framework.epx under “Non-IFRS Measures and Estimates.” to the respective IFRS measures in 34 Additional Information Financial Calendar October 21, 2016 Third-quarter 2016 earnings release, telephone conference January 24, 2017 Fourth-quarter and full-year 2016 preliminary earnings release, telephone conference May 10, 2017 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this interim report is available online at www.sap.com/investors, including the official press release, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The "Financial Reports" tab under “Financial News and Reports” contains the following publications: – The 2015 Integrated Report (IFRS, www.sapintegratedreport.com) – The 2015 Annual Report (IFRS, PDF) – The 2015 Annual Report 20-F (IFRS, PDF) – The 2015 SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Interim reports (IFRS, PDF) – XBRL versions of the Annual and Interim Reports You can also read SAP’s annual and interim reports on an iPad. The free and interactive app Publications is now available in the App Store. www.sap.com/corporate-en/investors is also the place to look for information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include our free SAP INVESTOR magazine (www.sap-investor.com), an e- mail and text message news service, and a Twitter feed. in-depth Print versions of the reports listed above can be ordered by phone, e-mail, or online. The SAP Integrated Report is only available online. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. SAP 2016 Half-Year Report Addresses SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com The addresses of all our international subsidiaries and sales partners are available on our public Web site at www.sap.com/directory/main.html. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investor Imprint Overall responsibility: SAP SE Corporate Financial Reporting Published on July 20, 2016 Copyright Usage in Collateral © 2016 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany see www.sap.com/corporate-en/legal/copyright for additional trademark information and notices. and other countries. Please 37 GROUP HEADQUARTERS SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany www.sap.com SAP 2016 Half-Year Report www.sap.com/investor 38 | Semestriel, 2016, Technology, SAP | write me a financial report |
Semestriel | 2,023 | x | atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| Half-Year Financial Report June 30, 2023 This Half-Year Financial Report is a translation into English of the official version of the Rapport Financier Semestriel which has been prepared in French for the semester ended June 30, 2023 filled with the AMF on July 31, 2023 and available on the AMF’s website (www.amf-france.org) and on the Company’s website (www.atos.net). Trusted Partner for your Digital Journey 1/50 Content 1. PERSON RESPONSIBLE ....................................................................................... 3 1.1. Responsibility statement for the Half-Year Financial Report ..................................................... 3 1.2. For the audit ............................................................................................................................. 3 2. ACTIVITY REPORT .............................................................................................. 4 2.1. Progress on the envisioned spin-off project .............................................................................. 4 2.2. Tech Foundations Analyst Day (June 7, 2023) .......................................................................... 4 2.3. Atos in the first half of 2023 ..................................................................................................... 6 2.4. Operational review ................................................................................................................... 9 2.4.1. Statutory to constant scope and exchange rates reconciliation ............................................... 9 2.4.2. Performance by Business ................................................................................................ 11 2.4.3. Performance by Regional Business Units ........................................................................... 12 2.4.4. Portfolio ........................................................................................................................ 13 2.4.5. Human ressources ......................................................................................................... 13 2.5. 2023 objectives ...................................................................................................................... 14 2.6. Risk Factors ............................................................................................................................ 15 2.7. Claims and litigations ............................................................................................................. 16 2.7.1. Tax claims ..................................................................................................................... 16 2.7.2. Commercial claims ......................................................................................................... 16 2.7.3. Labor claims .................................................................................................................. 17 2.7.4. Representation & Warranty claims .................................................................................... 17 2.7.5. Miscellaneous ................................................................................................................ 17 2.8. Related parties ....................................................................................................................... 17 FINANCIAL STATEMENTS .................................................................................. 18 3.1. Financial review ...................................................................................................................... 18 3.1.1. Income statement .......................................................................................................... 18 3.1.2. Free Cash Flow and net debt ........................................................................................... 21 3.1.3. Financial situation .......................................................................................................... 23 3.2. Interim condensed consolidated financial statements ............................................................ 24 Interim condensed consolidated income statement ............................................................. 24 3.2.1. Interim condensed consolidated statement of comprehensive income ................................... 25 3.2.2. Interim condensed consolidated statement of financial position............................................ 26 3.2.3. Interim condensed consolidated cash flow statement .......................................................... 27 3.2.4. 3.2.5. Interim consolidated statement of changes in shareholders’ equity ....................................... 28 3.2.6. Notes to the interim condensed consolidated financial statements ........................................ 29 3.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2023 ..................................................................................................... 47 4. APPENDICES ..................................................................................................... 49 4.1. Contacts .................................................................................................................................. 49 4.2. Financial calendar ................................................................................................................... 49 4.3. Full index ................................................................................................................................ 50 Trusted Partner for your Digital Journey 2/50 1. Person responsible 1.1. Responsibility statement for the Half-Year Financial Report I hereby declare that, to the best of my knowledge, the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report here attached presents a fair picture of significant events occurred during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, July 31, 2023 Nourdine Bihmane Chief Executive Officer 1.2. For the audit Appointment and term of offices Statutory auditors Grant Thornton - Samuel Clochard Appointed on: October 31, 1990, then renewed in October 24, 1995, on May 30, 2002, on June 12, 2008, on May 17, 2014, and on June 16, 2020 Term of office expires: at the end of the AGM voting on the 2025 financial statements Deloitte & Associés – Jean-François Viat Appointed on: December 16, 1993, renewed on February 24, 2000, on May 23, 2006, on May 30, 2012, and on May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements Trusted Partner for your Digital Journey 3/50 2. Activity Report 2.1. Progress on the envisioned spin-off project Completion of operational carve-out Atos announces the completion of its internal operational carve-out within a 12-month timeframe. This is a decisive step in the execution of Atos’ strategic transformation project. Primary local carve-outs and underlying separation activities have been successfully executed in all countries1. These include legal entity operationalization, and the transfer of employees, contracts, assets and liabilities to new legal entities where legal and regulatory laws allow. As a result, Tech Foundations and Eviden are now fully operational as separate entities within the Atos Group. Each entity has a distinct operating model, go-to-market strategy and a focused portfolio, enabling them to cater to specific customer needs. Atos has therefore completed the rollout of its new client-centric organization fostering innovation, performance and consistent value delivery to all of the Group’s stakeholders. €700 million divestment program fully secured and expanded by an additional €400 million On July 3rd, 2023, Atos announced it had entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct. This proposed transaction, combined with the other divestments already successfully closed or secured, would allow Atos to complete its non-core businesses divestment program of €700 million set during the Group's Capital Markets Day on June 14, 2022. This achievement highlights Atos' determination to swiftly execute this program, which streamlines the Group’s portfolio and contributes to the financing of its ongoing transformation. When devising its divestment program and refining the scope of its two future entities, the Group identified additional opportunities to rationalize its portfolio, which have already garnered expressions of interests. As a result, the divestment program is expanded by an additional €400 million. 2.2. Tech Foundations Analyst Day (June 7, 2023) On Wednesday June 7, 2023, at the occasion of the Analyst Day dedicated to Tech Foundations, the business highlighted its plan Refocus, Recover and Rebound and the progress made leading to the raising of its 2026 ambitions. A redefined portfolio addressing larger and growing markets Tech Foundations has redefined its core portfolio to better address key customer priorities and to strategically position itself to capitalize on market trends such as distributed workforce post-Covid, fast move to multi-cloud and hybrid configurations and heightened importance of sovereign cloud as well as artificial intelligence. Through the strategic redirection on its core offerings, Tech Foundations is pivoting towards a larger addressable market of approximately € 705 billion worldwide, which is 40% higher than what was considered at last year’s Atos Capital Markets Day on June 14, 2022. In particular, the redirection addresses an expanded technology advisory & customized services market, as well as new business areas in hybrid and multi-cloud infrastructure and digital business platforms. This larger total addressable market is expected to grow 3-5% per annum over 2022-2026 (CAGR). 1 Except for three countries representing 0.3% of Group revenue Trusted Partner for your Digital Journey 4/50 Specifically, Tech Foundations’ portfolio is evolving around four core businesses, totalling € 4.5 billion revenue in 2022: Hybrid and cloud infrastructure to manage, operate and modernize business-critical operations in the cloud continuum, seamlessly from edge to public and everywhere else in-between. This offering, with its new services, totalled €2.1 billion in revenue in 2022; Digital workplace, to provide end-to-end employee experience through digital collaboration and productivity tools, as well as intelligent customer care services. This offering totalled €1.2 billion in revenue in 2022; Technology advisory & customized services, which delivers tech advisory and technical professional services, including expanded solutions such as AI, data analytics, automation and IoT. This expanded offering totalled €0.9 billion in revenue in 2022; Digital business platforms, which encompass high-growth solutions such as generative AI, green IT, major events and more. This new offering totalled €0.3 billion in revenue in 2022. In parallel, Tech Foundations is actively reducing its exposure to non-core activities (BPO, hardware & software resale and UCC), which represented revenue of € 0.9 billion in 2022. Strong execution positioning Tech Foundations on a path for sustainable value creation Tech Foundations is implementing a comprehensive margin expansion aiming to reduce costs and improve operational efficiency. This transformational effort, unprecedented in the Group’s history, encompasses over 300 initiatives that have already yielded significant results, with a gross run-rate benefit of € 270 million delivered as of the end of Q1 2023. These achievements have been primarily driven by 900 headcount reductions in high-cost countries, pricing increases across more than 85 accounts, and addressing 66% of underperforming accounts revenue so far. As a result, Tech Foundations is on track to realize targeted gross benefits of € 1.2 billion from its transformation plan by 2026. In parallel, on the commercial side, Tech Foundations has stabilized its performance by gradually rebuilding a robust and more selective commercial pipeline, which has led to new logos and large deals wins, and an improved book-to-bill ratio quarter-over-quarter. With its actions currently in place, Tech Foundations aims to significantly accelerate its book-to-bill. Thanks to its strategic portfolio reshaping and the successful implementation of a comprehensive margin expansion plan, Tech Foundations has achieved notable milestones. In 2022, Tech Foundations stabilized its core portfolio revenue with organic growth of +1.2%, and turned its operating margin positive, three years ahead of its original plan. Upgrading mid-term ambitions In light of its recent outperformance and its long-term strategic vision, Tech Foundations is upgrading its 2026 ambitions: Revenue is expected to bottom out at c.€ 5 billion in 2024, as a combination of a 0-2% organic growth p.a. in core revenue and an ongoing managed decline in non-core activities. Tech Foundations’ revenue is then expected to resume a growth trajectory in 2026. Operating margin is expected to reach 6% to 8% in 2026. • Free cash flow before interest and tax is expected to turn positive in 2025 and reach over €250 million in 2026. In comparison with the previous plan, presented at last year’s Atos Capital Markets Day, and based on strong execution and financial performance so far, this upgraded plan aims to stabilize core revenue 2 years earlier, deliver 100 to 300 basis points higher operating margin in 2026 and a cumulative free cash flow before interest and tax higher by over € 300 million over the 2023-2026 period – this results from a higher operating margin as well as a total cost of the transformation plan being approximately 10% lower. Such costs are now estimated at € 780 million for the period 2022-2026 and ensure a payback period of less than two years. Trusted Partner for your Digital Journey 5/50 2.3. Atos in the first half of 2023 January Atos launched a new hybrid server, the BullSequana SH powered by 4th Gen Intel® Xeon® Scalable processors, and two new edge servers, the BullSequana EXR and the BullSequana EXD, to help businesses address AI and analytics challenges securely in the face of today’s vast data growth. All three servers are manufactured in Atos' factory in Angers. Atos entered into exclusive negotiations with Mitel for the sale of its Unified Communications & Collaboration business (Unify). This constitutes a new step in the implementation of the Atos divestment program as announced at the Group’s Capital Markets Day in June 2022. February Atos signed a contract with Madrid City Council, for which it plays a key role in updating and expanding the new Territorial Municipal Emergency Plan (PEMAM ‘Plan Territorial de Emergencia Municipal del Ayuntamiento de Madrid’) of the city. With the help of Atos, the City Council will ensure effective anticipating, forecasting, monitoring and response of emergency activity across the city. Atos won a contract with a total order value of over 20 million euros to build and install a new high- performance computer for the Max Planck Society, a world-leading science and technology research organization. Particularly demanding scientific projects, such as those in astrophysics, life science research, materials research, plasma physics, and AI will benefit from the high-performance capabilities of the new system. Atos has, for the 10th consecutive year, been included in S&P’s Global Sustainability Yearbook. For this 2023 edition Atos has received a Top 10% S&P Global ESG score in the IT Services industry. In the review of 7,800 companies globally, Atos is ranked as one of the most sustainable companies in the world and within the top 10% in its industry. The annual Sustainability Yearbook recognizes companies, grouped by industry, that have demonstrated strong corporate sustainability. Atos has received an indicative offer from Airbus to enter into a long-term strategic and technological agreement and to acquire a minority stake of 29.9% in Eviden. This proposal is consistent with Atos’ separation plan announced during the June 14, 2022, Capital Markets Day. Atos’ Board of Directors has decided to further engage with Airbus, conduct a due-diligence process and negotiate on mutually satisfactory terms on both a long-term strategic and technological partnership and the disposal of the 29.9% stake in Eviden. Atos does not intend to grant any exclusivity to Airbus, and no assurances can be made that the parties will successfully negotiate and enter into a definitive set of agreements. Atos published its 2022 annual results and announced that the Group returned to growth, at +1.3% at constant currency, and achieved all its financial objectives with a clear improvement in all KPIs in the second half of the year. In particular, Eviden started to accelerate its profitable growth and Tech Foundations delivered fast and tangible first results on its strategic roadmap, turning profitable three years ahead of plan. March Atos has been honored as a winner of a 2022 SEAL Business Sustainability Award, for its leadership, transparency, and commitment to sustainable business practices. The 2022 SEAL Organizational Impact Award recognizes overall corporate sustainability performance and represents the 50 most sustainable companies globally. Winners were selected by combining two premier ESG data sets - the CDP A-List ™ and the Corporate Sustainability Assessment (CSA, now part of S&P Global ESG Scores ™). Atos has been recognized for the fourth year in a row on the CDP’s prestigious Supplier Engagement Rating Leaderboard and has thus been recognized by CDP for its work to engage suppliers to reduce emissions, lower environmental risks and jointly tackle climate change. Only the top 8% of companies who disclosed information for the full climate questionnaire achieved a place on the CDP Supplier Engagement Leaderboard. Trusted Partner for your Digital Journey 6/50 Atos has been positioned as a Leader by Gartner in its 2023 Magic Quadrant for Outsourced Digital Workplace Services (ODWS), based on its Completeness of Vision and Ability to Execute. This is the seventh consecutive year that Atos has been named a Leader in a Gartner Magic Quadrant report related to outsourced digital workplace services. Atos is the only European company to be listed in the Leaders’ quadrant. Atos has provided an update regarding the ongoing strategic discussions with Airbus. Atos has taken note of Airbus’ decision to no longer pursue the discussions it initiated in February 2023, with respect to the potential acquisition of a minority stake of 29.9% in Eviden. Atos has confirmed it will, with Airbus, explore other options and pursue the work on the long term strategic and technological partnership between Airbus and Eviden which has the potential to create significant value for both companies, with a view of submitting these for consideration to its Board of Directors. April Atos announced that it has completed the sale of its Italian operations (“Atos Italia”) to Lutech S.p.A., an Italian provider of IT services and solutions, on March 31, with a 100% cash consideration. The completion of this transaction is a new milestone in the successful execution of Atos’ divestment plan, securing c.80% of the plan’s €700 million expected proceeds and demonstrating the Group’s ability to execute at pace. Eviden announced the evolution of its digital identity management products so that they will be ready for the post-quantum era by the end of the year. Eviden announced the opening of three cloud centers - in India (Bangalore and Pune) and Poland (Bydgoszcz) - to support customers worldwide at every stage of their cloud journey, from cloud migration and continuous optimization to accelerating innovation, all protected under the umbrella of cybersecurity. Atos announced that it has launched a campaign to test more than 150 critical IT applications dedicated to managing and broadcasting the Olympic and Paralympic Games Paris 2024. These tests are conducted by the Atos Integration Testing Lab (ITL) in Madrid, partnering with the International Olympic Committee (IOC), the Paris 2024 Organizing Committee for the Olympic and Paralympic Games (OCOG), international sports federations and technology partners across the board. The campaign aims to validate operations for various systems that are key to a successful Olympic and Paralympic Games Paris 2024. Atos announced its revenue for the first quarter of 2023. It recorded a robust +2.8% organic revenue growth in Q1 with both businesses delivering on their 2023 priorities. Eviden reported another solid quarter with high growth, well balanced between its synergetic Digital, Big Data and Cybersecurity activities. Tech Foundations continued to reshape its portfolio, confirming the earlier-than-anticipated stabilization of its core business while further reducing its exposure to non-strategic activities. May Eviden launched QaptivaTM its new Quantum Computing offering to enable real world application development and usage, using best-of-breed quantum computing technologies. With Qaptiva, Eviden enables its rich Software and Hardware partner ecosystem to use the Qaptiva Application development platform, offering corporate customers solutions to facilitate the development of tangible quantum applications, and run them in as-a-service or on premises modes. The Atos Board of Directors, upon the recommendation of the Nomination and Governance Committee chaired by Elizabeth Tinkham, has approved the following changes to its composition, in line with the needs identified and the strategy pursued, in particular in the areas of corporate governance, digital transformation of companies, especially in the financial sector, and digital strategies in the fields of security and defense: the renewal of the mandate of Caroline Ruellan and the appointment of two new independent Directors, Jean-Pierre Mustier and Laurent Collet-Billon, to be submitted to a vote of the shareholders at the Annual General Meeting. Eviden and the University of Edinburgh announced a three-year contract extension to increase the computing capacity of the BullSequana XH2000. This energy-efficient supercomputing system was delivered by Atos to facilitate the Extreme Scaling Service of DiRAC, allowing the UK science community to Trusted Partner for your Digital Journey 7/50 pursue cutting-edge research on a broad range of topics, from simulating the entire evolution of the universe to modelling the fundamental structure of matter. On May 25, 2023, the United States Second Circuit Court of Appeals vacated a decision by the United States District Court for the Southern District of New York, as part of Syntel’s ongoing litigation with Cognizant and its subsidiary TriZetto, finding Syntel, now part of Atos, liable for damages due to Syntel’s alleged trade secret misappropriation and copyright infringement. The case began in 2015, before Syntel’s acquisition by Atos in 2018. June Tech Foundations, the Atos business leading in managed services, focusing on hybrid cloud infrastructure, employee experience and technology services, held an Analyst Day to highlight its proven transformation plan, leading to a clear and accelerated path to value creation and upgraded 2026 ambitions. It announced: the redefining its portfolio around core activities and pivoting in industry-leading offerings with focus on higher growth segments and new go-to-market strategy; strong execution leading to improved outlook: revenue to bottom out in 2024 at c.€ 5 billion, with 0-2% core revenue growth and ongoing managed decline in non-core business; executing a comprehensive margin expansion plan, targeting €1.2 billion gross benefits by 2026 to bring operating margin to industry standard and over €300 million higher cumulative cash-flow for the next four years compared to original plan. Eviden announced AIsaac Cyber Mesh, a next generation of cybersecurity detection and response, reinforced by Amazon Web Services (AWS) Security Data Lake and powered by generative AI technologies. AIsaac Cyber Mesh offers an advanced end-to-end detection, response, and recovery solution, built on a cybersecurity mesh-enabled architecture using generative AI and predictive analytics. Eviden announced that GMV, leading provider of satellite control centers, has selected Eviden’s SkyMon solution for the new center being set up by Hisdesat, the Spanish Government satellite operator. SkyMon will monitor next-generation satellites from the “Spainsat NG” program, the most advanced satellites in Europe for defense and secure communications. Eviden announced that it was awarded a major $100M contract with NCMRWF, on behalf of the India Ministry of Earth Sciences, to build two new supercomputers dedicated to weather modelling and climate research for IITM and NCMRWF. Atos SE’s Combined Annual General Meeting of shareholders was held on 28 June at the Company's headquarters and chaired by Mr. Bertrand Meunier, Chairman of the Board of Directors. Atos’ shareholders approved all of the resolutions submitted by the Board of Directors and rejected all of the resolutions proposed by certain minority shareholders. July Atos Group announced that it has entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct SAS and its subsidiaries (“EcoAct”). With this potential transaction, Atos would secure its divestment program of non-core assets while engaging in a strategic partnership with Schneider Electric on decarbonization. The proposed transaction does not include Atos’ digital Net Zero Transformation practice (part of Eviden business), dedicated to supporting its customers in all industries to catalyze their decarbonization goals, which will be kept within the Atos Group. Trusted Partner for your Digital Journey 8/50 2.4. Operational review 2.4.1. Statutory to constant scope and exchange rates reconciliation Revenue was € 5,548 million in H1 2023, down -0.3% compared to H1 2022 on a reported basis and up 0.5% at constant currency. On an organic basis, revenue increased +2.3%. Operating margin reached € 212 million, representing 3.8% of revenue, an increase by c.+290 basis points at constant currency. In € million H1 2023 H1 2022 % change Statutory revenue 5,548 5,563 0.3% Exchange rates effect 45 Revenue at constant exchange rates 5,548 5,518 +0.5% Scope effect 92 Exchange rates effect on acquired/disposed perimeters 3 Revenue at constant scope and exchange rates 5,548 5,423 +2.3% Statutory operating margin 212 59 +258.6% Exchange rates effect 4 Operating margin at constant exchange rates 212 55 +285.8% Scope effect 5 Exchange rates effect on acquired/disposed perimeters 0 Operating margin at constant scope and exchange rates 212 50 +326.7% as % of revenue 3.8% 0.9% Scope effects (including exchange rates effect on acquired/disposed perimeters) amounted to €-95 million for revenue and €-5 million for operating margin. They mainly related to the exit of Russia in 2022, and in 2023 to the divesture of Italy, and to a lesser extent to the divestiture of EGSE and Sislog. Currency exchange rates effects negatively contributed to revenue for €-45 million and Operating margin for €-4 million. They mostly came from the depreciation of the Pound Sterling, the Argentine peso and the Turkish libra not compensated by the appreciation of the American dollar. Trusted Partner for your Digital Journey 9/50 The tables below present the effects on H1 2022 revenue and operating margin of acquisitions and disposals, internal transfers, reflecting the Group’s new geographic organization, and change in exchange rates. In € millionH1 2022 StatutoryInternal transfersExchange rates effects *H1 2022 at Constant Scope and CurrencyAmericas1,353 -8 1 1,346 Northern Europe and APAC1,625 6 -45 1,587 Central Europe1,258 0 8 1,266 Southern Europe1,198 2 0 1,200 Others & Global Structures129 0 -10 119 Total Group 5,563 0 -45 5,518 Scope effects-95Total Group 5,423 * At average Jun YTD exchange ratesRevenue H1 2022 In € millionH1 2022 StatutoryInternal transfersExchange rates effects *H1 2022 at Constant Scope and CurrencyAmericas73 -0 -2 71 Northern Europe and APAC28 1 -1 28 Central Europe-30 -0 -0 -30 Southern Europe40 -0 0 40 Others & Global Structures-52 -1 -1 -54 Total Group 59 0 -4 55 Scope effects-5Total Group 50 * At average Jun YTD exchange ratesOperating Margin H1 2022 Trusted Partner for your Digital Journey 10/50 2.4.2. Performance by Business In € millionH1 2023H1 2022VariationVar. atcst. curr.Var.organicH1 2023H1 2022H1 2023H1 2022Eviden Perimeter 2,625 2,539 +3.4%+4.3%+7.0% 138 89 5.3%3.5%Tech Foundations Perimeter 2,923 3,024 -3.3%-2.6%-1.6% 73 -30 2.5%-1.0%Total5,5485,563-0.3%+0.5%+2.3%21259 3.8%1.1%RevenueOperating marginOperating margin % Tech Foundations Perimeter: Tech Foundations’ core business revenue2 was broadly stable in H1 (-0.1% organic). The decline of Hybrid Cloud & Infrastructure continued to soften, while other core business lines posted moderate growth. Simultaneously, Tech Foundations remained committed to reducing non-core activities (BPO, hardware & software resale) as part of its ongoing portfolio reshaping efforts. UCC, in the process of being divested, grew its revenue in H1. As a result, Tech Foundations recorded a slight organic decrease of -1.6% in total revenue in H1 2023. Operating margin amounted to €73 million, or 2.5% of revenue, compared to -1.0% in H1 2022. Tech Foundations is making steady progress on its comprehensive margin expansion plan targeting €1.2 billion in gross benefits by 2026. As of June 2023, 32% of this target has already been achieved, translating into a € 230 million gross increment in operating margin in H1 2023 alone, partly offset by cost inflation, backfills and revenue decrease. This achievement was primarily driven by 900 headcount reductions in high-cost countries during H1, bringing the total to c. 1,600 since the plan’s inception. Eviden Perimeter: Eviden delivered +7.0% organic growth in H1 (+4.6% in Q2). Digital Security achieved strong growth, fueled by Eviden's leadership and innovation in cybersecurity. In June 2023, Eviden partnered with AWS to launch AIsaac Cyber Mesh, a cutting-edge cybersecurity detection and response solution powered by generative AI technologies. Advanced computing grew strongly, driven by HPC and high-end servers designed for artificial intelligence and machine learning. Despite some impacts from contract portfolio rationalization in H1 2023, Digital's organic growth improved significantly compared to the same period last year, driven by smart platforms and cloud transformation services, along with positive trends in the public sector in Europe. Operating margin was € 138 million, or 5.3% of revenue, a substantial increase compared to 3.5% in H1 2022. Despite continued cost inflation, Eviden demonstrated improvements across all activities, resulting from effective cost take-out actions, portfolio rationalization, and higher fixed costs absorption in Advanced Computing. 2 Excluding UCC, Italian operations, BPO and hardware and software resale Trusted Partner for your Digital Journey 11/50 2.4.3. Performance by Regional Business Units In € millionH1 2023H1 2022VariationVar. atcst. curr.Var.organicH1 2023H1 2022H1 2023H1 2022Americas 1,311 1,353 -3.1%-2.6%-2.6% 133 73 10.1%5.4%Northern Europe & APAC 1,584 1,625 -2.6%-0.2%-0.2% 63 28 4.0%1.7%Central Europe 1,297 1,258 +3.1%+2.4%+4.8%16-30 1.3%-2.4%Southern Europe 1,211 1,198 +1.1%+0.9%+6.8% 58 40 4.8%3.4%Others & Global Structures 145 129 +12.6%+21.4%+21.4%-58-52 NANATotal5,5485,563-0.3%+0.5%+2.3%21259 3.8%1.1%RevenueOperating marginOperating margin % Americas revenue decreased by -2.6% organically, resulting from the low level of order entry recorded in FY22, a trend that largely reversed, with a 164% book-to-bill in Q2 2023. The decline in Tech Foundations activities narrowed and was primarily attributable to a proactive reduction in underperforming contacts. Eviden’s activities remained robust despite an element of market slowdown, while numerous opportunities lie ahead in the cloud and security markets. Operating margin improved markedly to 10.1%, thanks to cost structure adaptation measures carried out in H2 2022. Northern Europe & APAC revenue was broadly stable year-on-year. Tech Foundations activities were slightly down due to the exit of a large BPO contract at the end of 2022, while the core business showed good resilience with the ramp-up of new contracts. Eviden’s activities were slightly up thanks to robust trends in Digital particularly in the public sector, while Advanced Computing contracted due to fluctuations in HPC and Lab-as-a-service revenue. Operating margin improved to 4.0% in H1 2023, thanks to management actions conducted in 2022 to improve delivery, reduce costs and increase pricing. Central Europe recorded a robust +4.8% organic growth (+2.4% at constant currency, primarily reflecting the exit of Russian operations in 2022). Eviden’s activities reported high growth across the board, partially offset by the decline of Tech Foundations’ activities driven by the reduction in value-added resale and a difficult infrastructure market in Germany. Operating margin turned positive at 1.3%, resulting from strong execution of Tech Foundations margin expansion plan, as well as higher margin on new business at Eviden. Southern Europe recorded a strong +6.8% organic growth. Growth was high at Eviden, driven by Advanced Computing with the delivery of a significant HPC contract in Spain, as well as Digital Security. Tech Foundations activities were flat as growth in Digital Workplace and Technology Advisory & Customized Services compensated for the deliberate reduction in value-added resale. Scope impacts represented - 5.9%, primarily reflecting the divestment of Italian operations in Q2 2023. As a result, revenue growth at constant currency was +0.9%. Operating margin improved to 4.8% thanks to renegotiation of underperforming contracts. Others and global structures encompass Middle East, Africa, Major Events as well as two cost centers: the Group’s global delivery centers and global structures. Revenue grew +21.4% organically supported by by double-digit growth in Africa and Middle East and Turkey. Operating margin, structurally negative, was stable. Trusted Partner for your Digital Journey 12/50 2.4.4. Portfolio 2.4.4.1. Order entry and book to bill Order entry was €5.1 billion in H1 2023, representing a book-to-bill ratio of 93% (compared with 87% in H1 2022). Book-to-bill improved markedly in Q2, to 112%, compared to 73% in Q1. In € millionQ1 2023Q2 2023H1 2023Q1 2023Q2 2023H1 2023Americas 428 1,069 1,497 65%164%114%Northern Europe & APAC 474 706 1,180 60%89%74%Central Europe 395 708 1,103 62%107%85%Southern Europe 722 536 1,258 109%97%104%Others & Global Structures 37 58 95 56%74%66%Total2,0563,0775,13373%112%93%* Order entry does not include debooking for the purpose of the computation of the Book-to-bill ratioOrder entry*Book to bill 2.4.4.2. Full backlog and full qualified pipeline At the end of June 2023, the full backlog was € 19.6 billion, down €-0.5 billion compared to December 2022 excluding the impact from divestments. It represented 1.8 years of revenue. The full qualified pipeline amounted to €6.9 billion at the end of June 2023, up €0.3 billion compared to December 2022 excluding the impact from divestments. It represented 7.6 months of revenue. 2.4.5. Human ressources Total headcount was 107,013 at the end of June 2023, down -3.4% compared to 110,797 at the end of December 2022 (-1.9% organically). In H1 2023, Atos hired 8,431 new employees (gross), effectively offsetting voluntary attrition, which stood at 18% at the end of June on a trailing twelve-month basis, and 15% in Q2 alone. The reduction in Group headcount was due to restructuring and performance-related terminations, resulting in 2,404 exits in H1. Additionally, the divestment of Atos Italia in Q2 2022 accounted for a reduction of 1,647 employees. Trusted Partner for your Digital Journey 13/50 2.5. 2023 objectives At the occasion of its half-year results announcement on July 28, 2023, Atos upgraded and precised its full- year objectives: In 2023, Group revenue organic growth is now expected between 0.0% and +2.0% (previously: -1.0% to +1.0%), with an acceleration of Eviden’s organic growth compared to 2022 and a managed reduction of Tech Foundations’ revenue resulting from portfolio reshaping. Group operating margin3 outlook remains unchanged, at 4% to 5%. Eviden’s operating margin is expected to increase compared to 2022, while Tech Foundations’ operating margin is expected in positive territories. Free cash flow for the full year is expected to remain broadly similar to that of H1. 3 At current perimeter, including UCC and EcoAct (transactions expected to close in H2 2023) Trusted Partner for your Digital Journey 14/50 2.6. Risk Factors Risk factor linked to the envisioned separation plan On June 14th, 2022, the Group announced the study of a project to separate into two independent companies, namely on one side the Group's Digital and Big Data and Cybersecurity activities (designated as the Eviden perimeter), and on the other side its outsourcing and infrastructure activities (designated as the Tech Foundations scope), which should allow each of them to follow its own trajectory. The prior internal reorganization required by the separation project was initiated at the start of 2023 with a view to completing the planned separation before the end of 2023 (for more details on the progress of the separation project, see section 2.1). The decision on the finalization of the envisaged separation project remains conditional and will be subject to the necessary processes, in particular the approval of the governance bodies and the shareholders. At this stage, many factors could have a negative impact on the timetable, the expected benefits, or the decision to ultimately proceed with all or part of the contemplated separation or even the terms of its completion, including, among others, the general economic and market conditions, changes in customer confidence, interactions with associates, creditors and other stakeholders, tax considerations, fluctuation in interest rates, specific market conditions in one or more of the business areas that should be separated and changes in the regulatory or legal environment. Nor can there be any guarantee that the expected benefits of the proposed separation will be achieved. An inability to realize all of the expected benefits of the proposed separation, as well as a delay encountered in the process, could have a negative effect on the turnover, the level of expenses, the results of operations and the cash flows generated by Atos or the companies resulting from the contemplated separation. Similarly, Atos cannot give any assurance as to the future stock market value that will result from this operation or as to the appetite of the financial markets for it. If, on the contrary, this separation project does not succeed or if its realization were to take significantly longer than expected, the legibility of the commercial positioning of the two parts of the Group could suffer, which could lead to deterioration of the relationship between the whole Group and its customers. On the other hand, part of the financing linked to this separation project could be called into question. This could lead to calling into question, at least partially, the transformation of the two parts of the Group to adapt them to their respective market environments while entailing the need to further rationalize the support functions and the organization of the Group to adapt them to the service of one Group rather than two, if applicable. The combination of all or some of these factors could have an adverse effect on the level of motivation of the Group's employees and lead to an overall decline in their performance as well as the departure of key personnel. All other risk factors are included in section 7.2 of the 2022 Universal Registration Document, it being specified that those related to the retention and acquisition of key people (sections 7.2.1.1 and 7.2.1.2) have become even more relevant to the study and the potential implementation of the separation project. In addition, with regard to these latter risks, it is specified that the related mitigation measures are amplified accordingly, in particular by means of appropriate retention systems. Trusted Partner for your Digital Journey 15/50 2.7. Claims and litigations The Atos Group is a global business operating in 69 countries. In many of the countries where the Group operates there are no claims, and in others there is only a very small number of claims or actions involving the Group. The current level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group as well as to the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2023 the Group has successfully put an end to several significant litigations through settlement agreements. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2023 to cover for the identified major claims and litigations, added up to €57.7 million (including tax and commercial claims but excluding labor claims). 2.7.1. Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Certain tax claims are in Brazil, where Atos is a defendant in a number of cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. The total provision for tax claims, as set forth in the consolidated financial statements as at June 30, 2023, was €25.6 million. The increase in the amount of the provisions is mainly due to the accrual of interests and foreign exchange. 2.7.2. Commercial claims There are a small number of commercial claims across the Group. Significant commercial cases have been closed this semester. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, notably a litigation inherited from Syntel. In October 2020, a jury found Syntel liable for trade secret misappropriation and copyright infringement and awarded Cognizant and TriZetto approximately $855 million in damages. Throughout the trial and in its post-trial motion, Syntel maintained that Cognizant and TriZetto had failed to meet their burden to show trade secret misappropriation and that their damages theories were improper as a matter of law. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $570 million punitive damages award was excessive and should be reduced to $285 million. TriZetto agreed to this reduction. The Court issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. On 25 May 2023, the United States Second Circuit Court vacated a decision issued by the United States District Court for the Southern District of New York, as part of Syntel’s ongoing litigation with Cognizant and its subsidiary TriZetto, which was finding Syntel, now part of Atos, liable for damages due to Syntel’s alleged trade secret misappropriation and copyright infringement. The Second Circuit Court remanded the case to the District Court for further consideration if any amount Trusted Partner for your Digital Journey 16/50 of damages are still appropriate. This practically means that the legal opinion issued by the Second Circuit (the Court of Appeal) clearly stated that the use of the avoided development costs methodology, which led to the initial $570m damages, was contrary to the law. The total provision for commercial claim risks, as set forth in the consolidated accounts closed as at June 30,2023, amounts to €32.1 million. 2.7.3. Labor claims There are close to 107,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of €5.6 million as set forth in the consolidated financial statements as at June 30, 2023. 2.7.4. Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. 2.7.5. Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, legal or arbitration proceedings, pending or potential, over the past 12 months, likely to have or having had significant consequences on the Company’s and the Group’s financial position or profitability. 2.8. Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). The related-party transactions are described in the Note 17 – Related party transactions on page 375 of the 2022 Universal Registration Document. Trusted Partner for your Digital Journey 17/50 3. Financial statements 3.1. Financial review 3.1.1. Income statement The Group reported a net loss (attributable to owners of the parent) of € 600 million for the half year ended June 30, 2023. The normalized net loss before unusual, abnormal and infrequent items (net of tax) for the period was € 113 million, representing -2.0% of Group revenue of the period. (in € million)6 months ended June 30, 2023% of revenue6 months ended June 30, 2022% of revenueOperating margin 2123.8%591.1%Other operating income (expense)-646-357Operating income (loss)-434-7.8%-298-5.4%Net financial income (expense)-103-129Tax charge -65-77Non-controlling interests 00Share of net profit (loss) of equity-accounted investments2-Net income (loss) – Attributable to owners of the parent-600-10.8%-503-9.1%Normalized net income (loss)* – Attributable to owners of the parent-113-2.0%-119-2.1%* The normalized net income (loss) is defined hereafter 3.1.1.1. Operating margin Operating margin represents the underlying operational performance of the on-going business and is analyzed in detail in the operational review. 3.1.1.2. Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 646 million in the first half of 2023. The following table presents this amount by nature: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Staff reorganization-430-73Rationalization and associated costs-30-33Integration and acquisition costs-4-18Amortization of intangible assets (PPA from acquisitions) -60-67Equity-based compensation-14-11Impairment of goodwill and other non-current assets-55-91Other items-53-64TOTAL-646-357 Trusted Partner for your Digital Journey 18/50 Staff reorganization amounted to € 430 million and reflected intensified workforce adaptation measures, in particular the extension of the German restructuring plan launched in December 2022, as well as one- off separation costs as the Group executed the majority of the legal carve-out plan over the semester. The € 30 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs of € 4 million mainly related to the cost of retention schemes, as well as the remaining integration activities on 2022 and 2021 acquisitions. In the first half of 2023, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises amounted to € 60 million, compared to € 67 million in the first half of 2022, and was mainly composed of: € 31 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 7 million related to the last year of SIS customer relationships amortization. The equity-based compensation expense amounted to € 14 million in the first half of 2023 compared to € 11 million in the first half of 2022. Impairment of goodwill and other non-current assets amounted to € 55 million and mostly related to the impairment of goodwill in North America as a result of the forthcoming exit from the joint arrangement with the State Street group. In the first half of 2023, other items were a net expense of € 53 million compared to € 64 million in the first half of 2022. In 2023, those exceptional items mainly included the effects of a vendor contract renegotiation, the net cost of pension and early retirement programs in Germany, the UK and France, and legal costs on major litigations. 3.1.1.3. Net financial expense Net financial expense amounted to € 103 million for the period (compared to € 129 million in the first half of 2022) and was composed of a net cost of financial debt of € 40 million and other financial costs of € 63 million. Net cost of financial debt increased from € 13 million in the first half of 2022 to € 40 million in the first half of 2023. This variation mainly resulted from interests on the additional portion of the multi-currency revolving credit facility, Term Loan A and Term Loan B drawn in the first half of 2023. The average expense rate of the Group was 2.35% on the average gross borrowings, compared to 0.70% in the first half of 2022. The average income rate on the average gross cash was 2.05% compared to 0.58% in the first half of 2022. Other financial items were a net loss of € 63 million compared to a net loss of € 116 million in the first half of 2022 and were mainly composed of: pension related financial expense of € 17 million compared to € 8 million for the first half of 2022. The increase is explained by the rise in the discount rates determined at the end of 2022; lease liability interest of € 12 million compared to € 9 million in the first half of 2022. This variation mainly resulted from the increase in discount rates; net foreign exchange loss (including hedges) of € 8 million compared to a loss of € 2 million in the first half of 2022, notably due to unhedged positions in South Africa. Trusted Partner for your Digital Journey 19/50 3.1.1.4. Corporate tax The tax charge for the first half of 2023 was € 65 million with a loss before tax of € 537 million. This charge included € 30 million of non-recurring items, mainly the tax cost of the carve-out operations executed in the first semester, and taxes withheld on internal dividend distributions. Due to the loss before tax of the period, the Effective Tax Rate (ETR) of the period is not meaningful. 3.1.1.5. Normalized net income The normalized net loss excluding unusual, abnormal and infrequent items (net of tax) was € 113 million, representing -2.0% of Group revenue for the period. (in € million)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss) - Attributable to owners of the parent-600-503Other operating income and expense, net of tax-486-294Net gain (loss) on financial instruments related to Worldline shares, net of tax--91Normalized net income (loss) - Attributable to owners of the parent -113-119 3.1.1.6. Half year Earning Per Share (in € million and shares)6 months ended June 30, 2023% of revenue6 months ended June 30, 2022% of revenueNet income (loss) – Attributable to owners of the parent [a]-600-10.8%-503-9.1%Impact of dilutive instruments - - Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-600-10.8%-503-9.1%Normalized net income (loss)– Attributable to owners of the parent [c]-113-2.0%-119-2.1%Impact of dilutive instruments - - Normalized net income (loss) restated of dilutive instruments- Attributable to owners of the parent [d]-113-2.0%-119-2.1%Weighted average number of shares [e] 110,681,896 110,623,880 Impact of dilutive instruments - - Diluted weighted average number of shares [f]110,681,896110,623,880(in €)Basic EPS (Earning Per Share) [a] / [e]-5.42-4.55Diluted EPS [b] / [f]-5.42-4.55Normalized basic EPS [c] / [e]-1.02-1.07Normalized diluted EPS [d] / [f]-1.02-1.07 Trusted Partner for your Digital Journey 20/50 3.1.2. Free Cash Flow and net debt The Group reported a net debt position of € 2,321 million at the end of June 2023 and a free cash flow of € -969 million for the first half of 2023. (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating Margin before Depreciation and Amortization (OMDA)487369Capital expenditures-110-123Lease payments-181-207Change in working capital requirement*-645-383Cash from operation (CFO)-450-344Tax paid-40-21Net cost of financial debt paid-40-13Reorganization in other operating income -247-63Rationalization & associated costs in other operating income -25-34Integration and acquisition costs in other operating income -2-16Other changes**-165-64Free Cash Flow (FCF)-969-555Net (acquisitions) disposals190-92Capital increase-01Share buy-back-3-2Dividends paid-31-2Change in net cash (debt)-812-649Opening net cash (debt)-1,450-1,226Change in net cash (debt)-812-649Foreign exchange rate fluctuation on net cash (debt) -5998Reclassification to assets held for sale--15Closing net cash (debt)-2,321-1,792* Change in working capital requirement excluding the working capital requirement change related to items reported in other operating income and expense.** "Other changes" include other operating income and expense with cash impact (excluding staff reorganization, rationalization and associated costs, integration and acquisition costs) and other financial items with cash impact, net long term financial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt. Free cash flow representing the change in net cash or net debt, excluding net (acquisitions) disposals, equity changes and dividends paid to shareholders, was € -969 million versus € -555 million in the first half of 2022. Cash From Operations (CFO) amounted to € -450 million compared to € -344 million in the first half of 2022, the evolution coming from the following items: OMDA, net of lease payments (€ +144 million); Capital expenditures (€ +13 million); Change in working capital requirement (€ -262 million). OMDA of € 487 million, representing an increase of € 118 million compared to June 2022, reached 8.8% of revenue compared to 6.6% of revenue in June 2022. The bridge from operating margin to OMDA was as follows: Trusted Partner for your Digital Journey 21/50 (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating margin21259 + Depreciation of fixed assets136135 + Depreciation of right of use157 192 + Net book value of assets sold/written off25+/- Net charge (release) of pension provisions-20-19+/- Net charge (release) of provisions0-2OMDA487369 Capital expenditures totaled € 110 million, representing 2.0% of revenue, 20 bps less than the same period last year, reflecting the actions from the Group to optimize capital expenditure as well as to move to less capital-intensive activities. The negative contribution from change in working capital requirement was € 645 million (compared to € -383 million in the first half of 2022). Besides the usual seasonality between semesters, the change in working capital requirement was affected by working capital normalization effects in the context of the separation process. The DSO increased by 3 days (from 41 days at the end of December 2022 to 44 days at the end of June 2023), while the DPO decreased by 9 days (from 85 days at the end of December 2022 to 76 days at the end of June 2023). The level of trade receivables sold with no recourse to banks with transfer of risks as defined by IFRS 9 decreased from € 862 million at the end of December 2022 to € 715 million at the end of June 2023. Cash out related to taxes paid increased by € 19 million and amounted to € 40 million in the first half of 2023. Cost of net debt increased to € 40 million as a result of the cost associated with the refinancing of the Group arising from the additional drawdown made on the term loans and the revolving credit facility over the semester. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 274 million compared to € 113 million in the first half of 2022. Cash paid for reorganization costs included € 236 million of restructuring and reskilling measures, as well as one-off separation costs as the Group executed the majority of the legal carve-out plan over the semester. Rationalization expense primarily resulted from the closure and consolidation of data centers, mainly in North America. Other changes amounted to € -165 million compared to € -64 million in the first half of 2022. They included in particular € 76 million of payments arising from past settlements with customers and vendors, and € 42 million of costs incurred on those onerous contracts for which the provision was recorded at the end of December 2021. As a result of the above impacts mainly driven by the change in the working capital requirement, the Group presented a Free Cash Flow (FCF) of € -969 million during the first half of 2023, compared to € -555 million in the first half of 2022. The net cash impact resulting from net (acquisitions) disposals amounted to € 190 million and mainly originated from the disposal of the Group Italian operations to Lutech on March 31, 2023. There was no capital increase in the first half of 2023 compared to a € 1 million capital increase in the first half of 2022. Share buy-back amounted to € 3 million during the first half of 2023 compared to € 2 million in the first half of 2022. Share buy-back programs relate to the delivery of performance shares to managers and aim at avoiding a dilution effect for the shareholders. No dividends were paid to Atos SE shareholders in the first half of 2023 and in the first half of 2022. The € 31 million cash out corresponded mainly to taxes withheld on internal dividend distributions. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented an increase in net debt of € 59 million mainly coming from the evolution of exchange rates of the US Dollar and British Pound against the Euro. As a result, the Group net debt position as of June 30, 2023 was € 2,321 million, compared to € 1,450 million as of December 31, 2022. Trusted Partner for your Digital Journey 22/50 3.1.3. Financial situation Bank covenant As at June 30, 2023, the multi-currency revolving credit facility was drawn for an amount of € 580 million, Term Loan A for € 1,500 million and Term Loan B for € 100 million and reimbursed for € 200 million. Even if, according to the documentation applicable to the multi-currency revolving credit facility, Term loan A and Term loan B, the ratio is tested only once a year at 31 December of each fiscal year, the Group remained within its borrowing covenant with a leverage ratio (net debt divided by a 12-month rolling OMDA, excluding IFRS 16 impacts) of 3.06 at the end of June 2023. The leverage ratio applicable to the financing package put in place in July 2022 amounts to 3.75. Liquidity The continuity of operations relies in particular on the liquidity of the Group, which is secured by the financing structure currently in place, and by an action plan that will be implemented in the next twelve months and that encompasses mainly additional disposals of assets but also cost reduction measures. The contemplated spin-off project remains conditional upon the implementation of a new financing for both Eviden and Tech Foundations. Trusted Partner for your Digital Journey 23/50 3.2. Interim condensed consolidated financial statements 3.2.1. Interim condensed consolidated income statement (in € million)Notes6 months ended June 30, 20236 months ended June 30, 2022Revenue Note 25,5485,563Personnel expenseNote 4.1-2,818-2,892Operating expenseNote 4.2-2,518-2,612Operating margin21259% of revenue3.8%1.1%Other operating income and expenseNote 5-646-357Operating income (loss)-434-298% of revenue-7.8%-5.4%Net cost of financial debtNote 6.1-40-13Other financial expenseNote 6.1-82-243Other financial incomeNote 6.119127Net financial income (expense)Note 6.1-103-129Net income (loss) before tax-537-427Tax chargeNote 7-65-77Share of net profit (loss) of equity-accounted investments20Net income (loss)-600-504Of which:▪ attributable to owners of the parent-600-503▪ non-controlling interests-0-0 (in € million and shares)Notes6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)- Attributable to owners of the parent-600-503Weighted average number of shares 110,681,896110,623,880Basic earnings per shareNote 11-5.42-4.55Diluted weighted average number of shares 110,681,896110,623,880Diluted earnings per shareNote 11-5.42-4.55 Trusted Partner for your Digital Journey 24/50 3.2.2. Interim condensed consolidated statement comprehensive income (in € million)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)-600-504Other comprehensive income-116352Change in fair value of cash flow hedge instruments136Exchange differences on translation of foreign operations-128349Deferred tax on items to be reclassified to profit or loss-0-215266Actuarial gains and losses on defined benefit plans18265Deferred tax on items not reclassified to profit or loss-31Total other comprehensive income (loss)-101618Total comprehensive income (loss) for the period-701115Of which:▪ attributable to owners of the parent-701115▪ non-controlling interests-0-0To be reclassified subsequently to profit or loss (recyclable)Not reclassified to profit or loss (non recyclable) Trusted Partner for your Digital Journey 25/50 of 3.2.3. Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2023December 31, 2022ASSETSGoodwillNote 85,1545,305Intangible assets760919Tangible assets385414Right-of-use assets786892Equity-accounted investments108Non-current financial assetsNote 6.3138171Non-current financial instruments113Deferred tax assets296294Total non-current assets7,5308,017Trade accounts and notes receivableNote 3.22,5732,603Current taxes10764Other current assetsNote 4.41,7011,485Current financial instruments2918Cash and cash equivalentsNote 6.22,6203,331Total current assets7,0297,501Assets held for saleNote 1758876TOTAL ASSETS15,31716,394(in € million)NotesJune 30, 2023December 31, 2022LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock111111Additional paid-in capital1,4991,499Consolidated retained earnings2,0913,195Net income (loss) attributable to the owners of the parent-600-1,012Equity attributable to the owners of the parent3,1013,793Non-controlling interests47Total shareholders’ equity3,1053,799Provisions for pensions and similar benefitsNote 9618639Non-current provisionsNote 10321496BorrowingsNote 6.42,4502,450Derivative liabilities113Deferred tax liabilities136148Non-current lease liabilitiesNote 6.4630704Other non-current liabilities31Total non-current liabilities4,1594,451Trade accounts and notes payableNote 4.31,9812,187Current taxes12063Current provisionsNote 10376245Current financial instruments711Current portion of borrowingsNote 6.42,6502,412Current lease liabilitiesNote 6.4270309Other current liabilitiesNote 4.52,2032,260Total current liabilities7,6087,487Liabilities related to assets held for saleNote 1445656TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY15,31716,394 Trusted Partner for your Digital Journey 26/50 3.2.4. Interim condensed consolidated cash flow statement (in € million)Notes6 months ended June 30, 20236 months ended June 30, 2022Net income (loss) before tax -537-427Depreciation of assetsNote 4.2136135Depreciation of right-of-useNote 4.2157192Net addition (release) to operating provisions-20-21Net addition (release) to financial provisions206Net addition (release) to other operating provisions-11-57Amortization of intangible assets (PPA from acquisitions)Note 56067Impairment of goodwill and other non current assetsNote 55591Losses (gains) on disposals of non current assets9112Net charge for equity-based compensation1411Unrealized losses (gains) on changes in fair value and other-2-24Net cost of financial debtNote 6.14013Interest on lease liabilityNote 6.1129Net cash from (used in) operating activities before change in working capital requirement and taxes-67107Tax paid-40-21Change in working capital requirement-512-341Net cash from (used in) operating activities-618-255Payment for tangible and intangible assets-110-123Proceeds from disposals of tangible and intangible assets12Net operating investments-110-121Amounts paid for acquisitions and long-term investments-21-280Cash and cash equivalents of companies purchased during the period-11Net proceeds from disposals of financial investments218219Cash and cash equivalents of companies sold during the period-12-Net long-term financial investments186-49Net cash from (used in) investing activities76-170Common stock issued01Purchase and sale of treasury stock-3-2Dividends paid*-28-Dividends paid to non-controlling interests-3-2Lease paymentsNote 6.4-181-207New borrowingsNote 6.41 7002 297Repayment of current and non-current borrowingsNote 6.4-1 440-1 642Net cost of financial debt paidNote 6.4-40-13Other flows related to financing activitiesNote 6.4-811Net cash from (used in) financing activities-75434Increase (decrease) in net cash and cash equivalents-6188Opening net cash and cash equivalents3 1903 239Increase (decrease) in net cash and cash equivalentsNote 6.4-6188Impact of exchange rate fluctuations on cash and cash equivalentsNote 6.4-5798Reclassification to assets held for saleNote 1--15Closing net cash and cash equivalentsNote 6.42 5153 330* corresponded to taxes withheld on internal dividend distributions Trusted Partner for your Digital Journey 27/50 3.2.5. Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period end(thousands)Common StockAdditional paid-in capitalConsolidated retained earningsNet income (loss)Totalattributable to the owners of the parentNon controlling interestsTotal shareholders' equityAt December 31, 2021110,7301111,4985,790-2,9624,43764,444▪ Common stock issued 3301-11▪ Appropriation of prior period net income (loss)-2,9622,962--▪ Dividends paid---2-2▪ Equity-based compensation999▪ Changes in treasury stock-2-2-2▪ Other00-4-3Transactions with owners3301-2,9542,9628-62▪ Net income (loss) --503-503-0-504▪ Other comprehensive income (loss)618618-0618Total comprehensive income (loss) for the period---618-503115-0115At June 30, 2022110,7631111,4993,454-5034,56004,561▪ Common stock issued 18811▪ Dividends paid-0-0-0▪ Equity-based compensation141414▪ Other1178Transactions with owners188--15-15721▪ Net income (loss)--509-5090-508▪ Other comprehensive income (loss)-274-274-0-274Total comprehensive income (loss) for the period----274-509-7820-782At December 31, 2022110,9511111,4993,195-1,0123,79373,799▪ Common stock issued ------▪ Appropriation of prior period net income (loss)-1,0121,012--▪ Dividends paid---3-3▪ Equity-based compensation111111▪ Changes in treasury stock-3-3-3▪ Other0000Transactions with owners----1,0031,0129-36▪ Net income (loss) --600-600-0-600▪ Other comprehensive income (loss)-101-1010-101Total comprehensive income (loss) for the period----101-600-701-0-701At June 30, 2023110,9511111,4992,091-6003,10143,105 Trusted Partner for your Digital Journey 28/50 3.2.6. Notes to the interim condensed consolidated financial statements These interim condensed consolidated financial statements were approved by the Board of Directors on July 27, 2023. 3.2.6.1. Basis of preparation All amounts are presented in millions of euros unless otherwise indicated. Certain totals may have rounding differences. Accounting framework The interim condensed consolidated financial statements of Atos (“the Group”) for the six-month period ended June 30, 2023, have been prepared in accordance with the international accounting standards endorsed by the European Union and whose application was mandatory as at June 30, 2023. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRS IC). The Group interim condensed consolidated financial statements for the six-month period ended June 30, 2023, have been prepared in accordance with IAS 34 - Interim Financial Reporting. This standard provides that interim condensed financial statements do not include all the information required under IFRS for the preparation of annual consolidated financial statements. These interim condensed consolidated financial statements must therefore be read in conjunction with the Group consolidated financial statements as at and for the year ended December 31, 2022. However selected explanatory notes are included to explain events and transactions that are significant to understand the changes in the Group financial position and performance since the latest annual consolidated financial statements. The accounting policies and measurement methods used to prepare these interim condensed consolidated financial statements are identical to those applied by the Group at December 31, 2022 and described in the notes to the consolidated financial statements for the year ended December 2022, except: new standards and interpretations mandatorily applicable presented in the paragraph below; the specific measurement methods of IAS 34 presented in the paragraph below. New standards and interpretations applicable from January 1, 2023 The following new standards, interpretations or amendments whose application was mandatory for the Group for the fiscal year beginning January 1, 2023 had no material impact on the interim condensed consolidated financial statements: Narrow scope amendments to IAS 1; Narrow scope amendments to IAS 8; Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction. Other standards The Group does not apply IFRS standards and interpretations that have not yet been approved by the European Union at the closing date. In addition, none of the new standards effective for annual periods beginning after January 1, 2023 and for which an earlier application is permitted have been applied by the Group. The potential impacts of these new pronouncements are currently being analyzed. Trusted Partner for your Digital Journey 29/50 Regarding the amendments to IAS 12 - International Tax Reform –Pillar Two Model Rules: In response to the “Pillar Two” international tax reform that aimed at introducing a minimum global tax rate of 15%, the IASB published amendments to IAS 12 on May 23, 2023, with immediate and retrospective effect. Under these amendments, entities shall notably not report any deferred tax assets and liabilities related to Pillar Two and shall disclose information about their potential exposure to any top-up taxes. As these amendments had not been adopted by the European Union as at June 30, 2023, the Group did not disclose any information regarding the impacts of Pillar Two. As at June 30, 2023, in accordance with IAS 8, the Group did not accounted for deferred income taxes in connection with Pillar Two in the interim condensed consolidated financial statements, given the difficulties involved in making the necessary estimates as well as the issues and uncertainties relating to the application of IAS 12 pending adoption of the amendments. The Group is currently assessing its exposure to top-up taxes. Use of estimates and judgments The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the interim condensed consolidated financial statements remain identical to those described in the latest annual report, except the specific measurement methods of IAS 34 regarding estimate of income tax expense (as described in Note 7) and pension plans and other long-term benefits valuations (as described in Note 9). Liquidity The continuity of operations relies in particular on the liquidity of the Group, which is secured by the financing structure currently in place, and by an action plan that will be implemented in the next twelve months and that encompasses mainly additional disposals of assets but also cost reduction measures. The contemplated spin-off project remains conditional upon the implementation of a new financing for both Eviden and Tech Foundations. Trusted Partner for your Digital Journey 30/50 3.2.6.2. Notes to the interim condensed consolidated financial statements Note 1 – Changes in the scope of consolidation Note 2 – Segment information Note 3 – Revenue, trade receivables, contract assets, contrat liabilities and contract costs Note 4 – Operating items Note 5 – Other operating income and expense Note 6 – Financial assets, liabilities and financial result Note 7 – Income tax Note 8 – Goodwill Note 9 – Pensions plans and other long-term benefits Note 10 – Provisions Note 11 - Shareholders’ equity Note 12 – Litigations Note 13 – Subsequent events Trusted Partner for your Digital Journey 31/50 32 34 35 36 38 40 42 42 44 45 45 45 46 Note 1 Changes in the scope of consolidation Completed and contemplated disposals Atos Italia S.p.A. On April 3, 2023, Atos announced that it had completed the sale of its Italian operations (“Atos Italia”) to Lutech S.p.A., an Italian provider of IT services and solutions, on March 31, with a 100% cash consideration. The transaction perimeter does not include the Italian EuroHPC business which will be kept within Atos, nor the Unified Communications & Collaboration's Italian operations, part of a separate divestment project. The disposal resulted in a € 17 million loss recorded as part of Other operating income and expense in the first half of 2023. Unified Communications & Collaboration business Atos announced in 2021 the contemplated disposal of the Unified Communications & Collaboration business and determined that this disposal group met the held for sale classification criteria at the end of September 2021. In accordance with IFRS 5, Atos considered the held for sale classification remained appropriate as at June 30, 2023 considering the signing of the transaction with Mitel and the expected closing of the transaction during the second semester of 2023. Unified Communications & Collaboration business is mainly reported in the RBU Centrale Europe. EcoAct On July 3, 2023, Atos announced that it had entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct SAS and its subsidiaries. The Group determined as at June 30, 2023 that this disposal group met the held for sale classification criteria considering the advanced stage of the negotiations and the expected closing of the transaction during the second semester of 2023. EcoAct is mainly reported in the RBU Southern Europe. State Street As a result of the forthcoming exit from the joint arrangement with the State Street group, the Group determined as at June 30, 2023 that the disposal group met the held for sale classification criteria considering the advanced stage of the discussions and the expected closing of the transaction during the second semester of 2023. State Street is reported in the RBU Americas. Trusted Partner for your Digital Journey 32/50 Major classes of assets and liabilities related to the disposal groups classified as held for sale can be presented as follows: (in € million)June 30, 2023December 31, 2022ASSETSGoodwill190346Intangible assets218156Tangible assets1112Right-of-use assets1729Non-current financial assets64Deferred tax assets4443Total non-current assets487589Trade accounts and notes receivable140172Current taxes1210Other current assets120105Total current assets271286TOTAL ASSETS758876(in € million)June 30, 2023December 31, 2022LIABILITIES Provisions for pensions and similar benefits117129Non-current provisions2028Deferred tax liabilities4239Non-current lease liabilities614Total non-current liabilities184210Trade accounts and notes payable112215Current taxes24Current provisions1015Current lease liabilities48Other current liabilities133203Total current liabilities260446TOTAL LIABILITIES445656 Other comprehensive income represented a cumulated net gain of € 13 million as at June 30, 2023. The measurement of those disposal groups at fair value less costs to sell resulted in a € 55 million impairment of goodwill and other non-current asset recorded as part of Other operating income and expense in the first half of 2023. Trusted Partner for your Digital Journey 33/50 Note 2 Segment information On June 14, 2022, Atos announced that it was studying a separation into two publicly listed companies: Eviden would bring together Atos Digital and Big Data and Security business lines; TFCo (Atos) would be composed of Atos Tech Foundations business line. The project remains conditional on general market conditions and would be subject to customary processes, including governance bodies and shareholders’ approval, but also to the financing of TFco and Eviden. Considering the stage of the project, Atos deemed that at June 30, 2023, Eviden did not meet the IFRS 5 criteria to be classified as held for sale and discontinued operations. The contemplated project does not have any consequence on the segment information for the consolidated financial statements at June 30, 2023. For IFRS 8 requirements, Regional Business Units are the disclosed operating segments as they are the key components reviewed by the chief operating decision maker. Regional Business Units are made of the following countries: AmericasArgentina,Brazil,Canada,Chile,Colombia,Guatemala,Mexico,Peru,theUnitedStatesofAmericaandUruguay.Northern Europe & APACAustralia,Belgium,China,Denmark,Estonia,Finland,HongKong,India,Ireland,Japan,Lithuania,Luxembourg,Malaysia,NewZealand,Norway,Philippines,Singapore,Sweden,Taiwan,Thailand,theNetherlands, the United Kingdom and South Korea.Central Europe Austria,BosniaandHerzegovina,Bulgaria,Croatia,CzechRepublic,Germany,Greece,Hungary,Poland,Israel, Romania, Serbia, Slovakia and Switzerland.Southern Europe Andorra, France, Italy, Portugal and Spain.Corporate and OtherAbuDhabi,Algeria,Benin,BurkinaFaso,Egypt,Gabon,IvoryCoast,Kenya,Lebanon,Madagascar,Mali,Mauritius,Morocco,Namibia,Qatar,Saudi-Arabia,Senegal,SouthAfrica,Tunisia,Turkey,UAEaswellasCorporate functions and Global Delivery Centers (GDC).Operating segments Each Business Line is represented in each RBU. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group revenue. Trusted Partner for your Digital Journey 34/50 The operating segment information was the following: (in € million)AmericasNorthern Europe & APACCentral EuropeSouthern EuropeCorporateand OtherElimination Total Group6 months ended June 30, 2023External revenue by segment1,3111,5841,2971,2111455,548% of Group revenue23.6%28.6%23.4%21.8%2.6%100.0%Inter-segment revenue518310764686-9910Total revenue 1,3631,6671,4041,275831-9915,548Segment operating margin 133631658-58212% of margin10.1%4.0%1.3%4.8%-40.3%3.8%Total segment assets as at June 30, 20233,8193,0091,2812,1341,29311,5376 months ended June 30, 2022External revenue by segment1,3531,6251,2581,1981295,563% of Group revenue24.3%29.2%22.6%21.5%2.3%100.0%Inter-segment revenue559210461670-9810Total revenue 1,4081,7171,3611,258799-9815,563Segment operating margin7328-3040-5259% of margin5.4%1.7%-2.4%3.4%-40.3%1.1%Total segment assets as at December 31, 20224,1342,9821,2672,1251,32111,829 The assets detailed above by segment are reconciled to total assets as follows: (in € million)June 30, 2023December 31, 2022Total segment assets11,537 11,829 Tax assets402 358 Cash and cash equivalents2,620 3,331 Assets held for sale758 876Total assets15,317 16,394 The revenue associated with Tech Foundations and Eviden perimeters can be broken down as follows: (in € million)Tech FoundationsperimeterEvidenperimeterTotal Group6 months ended June 30, 2023External revenue by perimeter2,9232,6255,548% of Group revenue 52.7%47.3%100.0%6 months ended June 30, 2022External revenue by perimeter3,0242,5395,563% of Group revenue 54.4%45.6%100.0% Note 3 Revenue, trade receivables, contract assets, contract liabilities and contract costs 3.1 – Disaggregation of revenue from contracts with customers Most of the revenue generated by the Group is recognized over time. The Group applies the “cost-to-cost” method to measure progress to completion for fixed price contracts. Most of the Big Data and Security activities revenue is recognized at a point in time when solutions are delivered except for High Performance Computer solutions when Atos is building a dedicated asset with no alternative use and has a right to payment arising from the contract or local regulation for costs incurred including a reasonable margin. In this specific case, revenue is recognized over time. Disaggregated revenue by Region and according to the Tech Foundations and Eviden perimeters is presented in Note 2. Trusted Partner for your Digital Journey 35/50 3.2 – Trade accounts and notes receivable, and contract liabilities (in € million)June 30, 2023December 31, 2022Contract assets1,160 1,168 Trade receivables1,390 1,413 Contract costs 94 101 Expected credit loss allowance-72 -79 Trade accounts and notes receivable2,573 2,603 Contract liabilities-853 -974 Net accounts receivable 1,720 1,629 Number of days’ sales outstanding (DSO)44 41 Contract assets, net of contract liabilities slightly increased compared to the positions at the end of December 2022, due to the consumption of advance payments received on the EuroHPC program, as well as major deferred revenues and advance payments reversing overtime, in Central Europe and Americas. The DSO ratio increased from 41 days to 44 days at June 30, 2023. As of June 30, 2023, € 715 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 862 million at the end of December 31, 2022). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2023. The € 715 million included € 77 million in the US where Atos only sold 95% of the right to cash flows and then derecognized 95% of the receivables. Note 4 Operating items 4.1 – Personnel expense (in € million)6 months ended June 30, 2023% Revenue6 months ended June 30, 2022% RevenueWages and salaries -2,27941.1%-2,34542.2%Social security charges-5269.5%-5259.4%Tax, training, profit-sharing-320.6%-410.7%Net (charge) release to provisions for staff expense-0.0%-0.0%Net (charge) release of pension provisions20-0.4%19-0.3%TOTAL-2,818 50.8%-2,892 52.0% Trusted Partner for your Digital Journey 36/50 4.2 – Non-personnel operating expense (in € million)6 months ended June 30, 2023% Revenue6 months ended June 30, 2022% RevenueSubcontracting costs direct-1,002 18.1%-1,064 19.1%Hardware and software purchase-522 9.4%-555 10.0%Maintenance costs-261 4.7%-286 5.1%Rent expense-5 0.1%-6 0.1%Telecom costs-98 1.8%-106 1.9%Travelling expense-33 0.6%-32 0.6%Professional fees -116 2.1%-108 1.9%Other expense-223 4.0%-180 3.2%Subtotal expense -2,258 40.7%-2,337 42.0%Depreciation of assets-136 2.4%-135 2.4%Depreciation of right-of-use-157 2.8%-192 3.5%Net (charge)/release to provisions4 -0.1%6 -0.1%Gains/(Losses) on disposal of assets-2 0.0%-4 0.1%Trade receivables write-off-4 0.1%-2 0.0%Capitalized production35 -0.6%52 -0.9%Subtotal other expense-260 4.7%-275 4.9%TOTAL-2,518 45.4%-2,612 47.0% Rent expense corresponds to short‑term lease contracts and low value assets. 4.3 – Trade accounts and notes payable (in € million)June 30, 2023December 31, 2022Trade accounts and notes payable1,9812,187Net advance payments-30-28Prepaid expense and advanced invoices-604-569TOTAL1,348 1,590 Number of days’ payable outstanding (DPO)76 85 4.4 – Other current assets (in € million)June 30, 2023December 31, 2022Inventories170 157 State - VAT receivables367 280 Prepaid expense and advanced invoices604 569 Other receivables & current assets530 452 Net advance payments30 28 TOTAL1,701 1,485 As of June 30, 2023, € 30 million of French R&D tax credit receivables (Crédit Impôt Recherche) were transferred to a bank with conditions of the transfer meeting IFRS 9 requirements for derecognition. Those receivables were therefore derecognized from the line item “Other current assets” in the statement of financial position as of June 30, 2023. Trusted Partner for your Digital Journey 37/50 4.5 – Other current liabilities (in € million)June 30, 2023December 31, 2022Employee-related liabilities536445 Social security and other employee welfare liabilities 159157 VAT payables393411 Contract liabilities853974 Other operating liabilities 261273 TOTAL2,2032,260 Employee-related liabilities included € 121 million of signed settlements with employees in connection with the German restructuring plans, compared to € 72 million in December 21, 2022. Note 5 Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 646 million in the first half of 2023. The following table presents this amount by nature: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Staff reorganization-430-73Rationalization and associated costs-30-33Integration and acquisition costs-4-18Amortization of intangible assets (PPA from acquisitions) -60-67Equity-based compensation-14-11Impairment of goodwill and other non-current assets-55-91Other items-53-64TOTAL-646-357 Staff reorganization amounted to € 430 million and reflected intensified workforce adaptation measures, in particular the extension of the German restructuring plan launched in December 2022, as well as one-off separation costs as the Group executed the majority of the legal carve-out plan over the semester. The € 30 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs of € 4 million mainly related to the cost of retention schemes, as well as the remaining integration activities on 2022 and 2021 acquisitions. In the first half of 2023, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises amounted to € 60 million, compared to € 67 million in the first half of 2022, and was mainly composed of: € 31 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 7 million related to the last year of SIS customer relationships amortization. The equity-based compensation expense amounted to € 14 million in the first half of 2023 compared to € 11 million in the first half of 2022. Impairment of goodwill and other non-current assets amounted to € 55 million and mostly related to the impairment of goodwill in North America as a result of the forthcoming exit from the joint arrangement with the State Street group. Trusted Partner for your Digital Journey 38/50 In the first half of 2023, other items were a net expense of € 53 million compared to € 64 million in the first half of 2022. In 2023, those exceptional items mainly included the effects of a vendor contract renegotiation, the net cost of pension and early retirement programs in Germany, the UK and France, and legal costs on major litigations. Equity-based compensation The € 14 million expense recorded within other operating income and expense relating to equity-based compensation (€ 11 million in the first half of 2022) was mainly related to performance share plans granted from 2020 until 2022. Equity-based compensation plans are detailed by year and by nature as follows: By year (in € million)6 months ended June 30, 20236 months ended June 30, 2022Plans 20230-Plans 202285Plans 202142Plans 202024Plans 2019-0TOTAL1411 By category of plans (in € million)6 months ended June 30, 20236 months ended June 30, 2022Performance share plans128Stock option plans--0Employee share purchase plans10Cash-settled incentive plans13TOTAL1411 Performance share plans In the first half of 2023, Atos implemented two new performance share plans, one of them having three vesting tranches: Board of directors meeting dateJune 28, 2023June 28, 2023June 28, 2023June 28, 2023Number of shares granted 581,750375,266375,285750,549Share price at grant date (€)13.113.113.113.1Vesting dateJune 28, 2026June 28, 2024June 28, 2025June 28, 2026Expected life (years)3123Expected dividend yield (%)0.670.670.670.67Fair value of the instrument (€)12.8413.0813.0812.822023 expense recognized (in € million)0000 Trusted Partner for your Digital Journey 39/50 Rules governing the performance share plans in the Group are as follows: To receive the shares, the grantee must generally be an employee or a corporate officer of the Group or a company employee related to Atos; Vesting is conditional upon both the continued employment and the achievement of performance criteria, financial and non-financial ones that vary according to the plan rules such as: o Internal financial performance criteria including Group revenue growth, Group Operating Margin and Group Free Cash Flow (FCF); o Internal and external social and environmental responsibility performance criteria; o An external stock market performance criterion; The vesting period varies according to the plan rules but never exceeds 3 years; The lock-up period varies according to the plan rules but never exceeds 2 years. Previous plans impacting the consolidated income statement of the first semester of 2023 were the following: Board of directors meeting dateMay 18, 2022May 18, 2022May 18, 2022May 18, 2022June 13, 2022Number of shares granted 309,560309,703619,352264,00039,000Share price at grant date (€)23.423.423.423.418.8Vesting dateMay, 18 2023May, 18 2024May, 18 2025May, 18 2025June, 18 2025Expected life (years)12333Expected dividend yield (%)1.741.741.741.741.74Fair value of the instrument (€)21.5621.1920.8219.2714.912023 expense recognized (in € million)21310Board of directors meeting dateJuly 24, 2020July 24, 2021Number of shares granted 870,630862,100Share price at grant date (€)75.041.2Vesting dateJuly 24, 2023July 24, 2024Expected life (years)33Expected dividend yield (%)2.072.09Fair value of the instrument (€)68.7439.672023 expense recognized (in € million)34 Note 6 Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 103 million for the period (compared to € 129 million in the first half of 2022) and was composed of a net cost of financial debt of € 40 million and other financial expense of € 63 million. Trusted Partner for your Digital Journey 40/50 Net cost of financial debt (in € million)6 months ended June 30, 20236 months ended June 30, 2022Interest income8421Interest expense-124-34Net cost of financial debt-40-13 In the first half of 2023, interests on cash pooling accounts represented an income of € 66 million and an expense of € 64 million (compared to € 10 million and € 12 million, respectively in the first half of 2022). Net cost of financial debt increased from € 13 million in the first half of 2022 to € 40 million in the first half of 2023. This variation mainly resulted from interests on the additional portion of the multi-currency revolving credit facility, Term Loan A and Term Loan B drawn in the first half of 2023. The average expense rate of the Group was 2.35% on the average gross borrowings compared to 0.70% in the first half of 2022. The average income rate on the average gross cash was 2.05% compared to 0.58% in the first half of 2022. Other financial income and expense (in € million)6 months ended June 30, 20236 months ended June 30, 2022Foreign exchange income (expense) -71Fair value gain (loss) on forward exchange contracts-1-2Net gain (loss) on financial instruments related to Worldline0-83Interest on lease liability-12-9Other income (expense) -43-22Other financial income and expense-63-116Of which:- other financial expense-82-243- other financial income19127 Other financial items were a net loss of € 63 million compared to a net loss of € 116 million in the first half of 2022 and were mainly composed of: pension related financial expense of € 17 million compared to € 8 million for the first half of 2022. The increase is explained by the rise in the discount rates determined at the end of 2022; lease liability interest of € 12 million compared to € 9 million in the first half of 2022. This variation mainly resulted from the increase in discount rates; net foreign exchange loss (including hedges) of € 8 million compared to a loss of € 2 million in the first half of 2022, notably due to unhedged positions in South Africa. 6.2 – Cash and cash equivalents (in € million)June 30, 2023December 31, 2022Cash in hand and short-term bank deposit2,5723,256 Money market funds 4775 TOTAL2,6203,331 Depending on market conditions and short-term cash flow expectations, Atos invests from time to time in Money Market Funds or bank deposits for a maturity period not exceeding three months. Trusted Partner for your Digital Journey 41/50 6.3 – Non-current financial assets (in € million)June 30, 2023December 31, 2022Pension prepayments2428Fair value of non-consolidated investments85Other*106138TOTAL138171* "Other" includes loans, deposits, guarantees and up-front and underwriting fees related to past acquisitions amortized over the duration of the debt instrument. Other also included the funding of the non-current portion of the 2021 German restructuring plan. 6.4 – Change in net debt over the period Change in net cash (debt) reconciles to the cash flow statement as follows: (In € million)BondsOptional exchan-geable bondBank loans and commercial papersOtherTotal borrowings excl. overdraftCash & cash equivalentsOverdraftTotal net cash and cash equivalentsShort-term financial assets (liabilities)*Net cash (debt)Lease liabilitiesAt January 1, 20232,2005001,980414,7223,331-1413,19081-1,4501,013Lease payments------181--181--181-181New borrowings--1,7001,7001,700-1,700---Repayment of borrowings---1,440--1,440-1,440--1,440---Net cost of financial debt paid------40--40--40-Other flows related to financing activities------81--8181--Other cash flow changes---1414-63256-576-2-592-Cash flows impacts--26014274-67456-61880-812-181Change in lease liabilities----------58Interest on lease liability----------12Impact of exchange rate fluctuations ----0-0-37-20-57-3-59-3Other changes ----0-0-37-20-57-3-5968At June 30, 20232,2005002,240554,9962,620-1042,515158-2,321900Non-current portion1,90050050-2,450-----2,450630Current portion300-2,190552,5462,620-1042,515158129270*Short-term financial assets and liabilities bearing interests with maturity of less than 12 months. New borrowings corresponded to the additional drawdown made on the term loans and the revolving credit facility in the period. Net cash and cash equivalents (in € million)June 30, 2023December 31, 2022Cash and cash equivalents2,6203,331Overdrafts-104-141Net cash and cash equivalents2,5153,190 Bank covenant As at June 30, 2023, the multi-currency revolving credit facility was drawn for an amount of € 580 million, Term Loan A for € 1,500 million and Term Loan B for € 100 million and reimbursed for € 200 million. Even if, according to the documentation applicable to the multi-currency revolving credit facility, Term loan A and Term loan B, the ratio is tested only once a year at 31 December of each fiscal year, the Group remained within its borrowing covenant with a leverage ratio (net debt divided by a 12-month rolling OMDA, excluding IFRS 16 impacts) of 3.06 at the end of June 2023. The leverage ratio applicable to the financing package put in place in July 2022 amounts to 3.75. Trusted Partner for your Digital Journey 42/50 Note 7 Income tax The income tax charge includes current and deferred tax expense. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is recognized based on management’s estimate of the effective tax rate for the whole financial year applied to the “net income before tax” of the interim period. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the whole year in the light of full-year earnings projections. The tax charge for the first half of 2023 was € 65 million with a loss before tax of € 537 million. This charge included € 30 million of non-recurring items, mainly the tax cost of the carve-out operations executed in the first semester, and taxes withheld on internal dividend distributions. Due to the loss before tax of the period, the Effective Tax Rate (ETR) of the period is not meaningful. Note 8 Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually by comparing its carrying amount to its recoverable amount at the closing date based on the 5-year mid-term plan, or more often whenever events or circumstances indicate that the carrying amount could not be recovered. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Goodwill is allocated to a Cash Generating Unit (CGU) or a group of CGUs for the purpose of impairment testing. Goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Goodwill is tested for impairment at the Regional Business Unit level as RBU are the lowest level at which the goodwill is monitored for internal management purposes. For the purpose of preparing the interim condensed consolidated financial statements, an impairment test is performed only if the Group has determined that indicators of impairment exist. Changes in carrying amounts can be presented as follows: (in € million)December 31, 2022ChangeExchange differences and otherReclassification to assets held for saleJune 30, 2023Gross value6,956-0-39-986,819Impairment loss-1,652-51-1452-1,665Carrying amount5,305-51-53-475,154(in € million)December 31, 2021ChangeExchange differences and otherReclassification to assets held for saleDecember 31, 2022Gross value6,761259139-2026,956Impairment loss-1,656-851080-1,652Carrying amount5,105174148-1225,305 As at June 30, 2023, the Group determined that no indicators of impairment existed. The impairment loss recorded over the first half of 2023 mainly related to the impairment of a portion of goodwill in Americas resulting from the forthcoming exit from the joint arrangement with the State Street group. Trusted Partner for your Digital Journey 43/50 Note 9 Pensions plans and other long-term benefits For the purpose of preparing the interim condensed consolidated financial statements, the liabilities and assets related to post-employment and other long-term employee defined benefits are calculated using the latest valuation at the previous financial year closing date. Adjustments of actuarial assumptions are performed on the largest pension plans of the Group only if significant fluctuations or one-time events have occurred during the six-month period. After the reclassification to liabilities related to assets held for sale, the net total amount recognized on the balance sheet in respect of pension plans was € 558 million compared to € 579 million at December 31, 2022. (in € million)June 30, 2023December 31, 2022Prepaid pension asset 2428Accrued liability – pension plans [A]-582-607Total Pension plan-558-579Accrued liability – other long-term employee benefits [B]-36-32Total accrued liability [a] + [b]-618-639 The French pension reform did not have any material impact on the interim condensed consolidated financial statement. At the end of June 2023, market yields on AA-rated corporate bonds across the Eurozone and the US were similar to those observed at the end of December 2022. As a result, the discount rates determined at the end of December 2022 were maintained. In the UK, the market yields further increased over the semester while they slightly decreased in Switzerland. Those changes were reflected in the discount rates determined at the end of June 2023. 6 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 2022Discount rate5.35%4.85%3.8%~4.0%3.8%~4.0%2.00%2.25%5.00%5.0%Salary increase2.9%2.9%2.5%~2.95%2.5%~2.95%2.25%2.25%nanaRPI: 3.30%RPI: 3.20%CPI: 2.65%CPI: 2.55%naUnited KingdomEurozoneSwitzerlandUSAInflation assumption2.2%na2.2%nana The fair value of plan assets for major schemes was remeasured as at June 30, 2023. The net impact of defined benefit plans on Group income statement could be summarized as follows: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating margin-28-29Other operating income and expense-4-1Financial result-17-8Total (expense) profit -48-38 The increase in the financial expense recognized in the first half of 2023 (€ 17 million compared to € 8 million for the first half of 2022) is explained by significant rises in the discount rates used for the actuarial valuations between December 31, 2021 and December 31, 2022. Trusted Partner for your Digital Journey 44/50 Note 10 Provisions (in € million)December 31, 2022AdditionRelease usedRelease unusedOther*Reclassification to liabilitiesrelated to assets held for saleJune 30, 2023CurrentNon- currentReorganization 116 180-99-1-021971952Rationalization 7 3-0-00-1047Project commitments 563 68-137-60311447165282Litigations and contingencies 55 11 -5-16-31431330Total provisions741262-241-78113698 376 321 * Other movements mainly consist of currency translation adjustments Additions in reorganization included mainly the extension of the German restructuring plan launched in December 2022. Additions to provisions for project commitments related to reassessments on onerous contracts, mainly in Northern Europe, while the release unused related to the favourable effects of a settlement with a customer in Germany and a reassessment on a vendor onerous contract. Note 11 Shareholders’ equity As at June 30, 2023, Atos SE issued share capital amounted to € 111 million, divided into 110,681,896 fully paid‑up common stock of € 1.00 par value each. Earnings (loss) per share (in € million and shares)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)– Attributable to owners of the parent [a]-600 -503 Impact of dilutive instruments --Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-600-503 Weighted average number of shares outstanding [c] 110,681,896 110,623,880 Impact of dilutive instruments [d] - - Diluted weighted average number of shares [e]=[c]+[d] 110,681,896 110,623,880 (in €)Basic Earning (loss) per Share [a] / [c]-5.42 -4.55 Diluted Earning (loss) per Share [b] / [e]-5.42-4.55 There are no dilutive instruments for the six-month period ended June 30, 2023. Note 12 Litigations TriZetto In 2015, Syntel initiated a lawsuit against the TriZetto Group and Cognizant Technology Solutions, stating claims for breach of contract, intentional interference with contractual relations and misappropriation of confidential information. In response to the complaint, TriZetto and Cognizant asserted various counterclaims, including claims against Syntel for copyright infringement and trade secret misappropriation. On October 27, 2020, a jury in the U.S. District Court for the Southern District of New York found Syntel, Trusted Partner for your Digital Journey 45/50 which was acquired by Atos in 2018, liable for trade secret misappropriation and copyright infringement and specified approximately $ 855 million in damages in favor of Cognizant and TriZetto, of which $ 570 million of punitive damages. On April 20, 2021, the United States District Court for the Southern District of New York granted in part the post-trial motion filed by Syntel. The Court reduced the jury’s $ 855 million damages award to $ 570 million and denied Cognizant and TriZetto’s request for an additional $ 75 million in pre-judgment interest. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $ 285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $ 570 million punitive damages award was excessive and should be reduced to $ 285 million. Trizetto agreed to this reduction. The Court also issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021 and briefing was completed on December 23, 2021. The oral argument in the Court of Appeals took place on September 19, 2022. On May 25, 2023, the United States Second Circuit Court of Appeals vacated the decision issued by the United States District Court for the Southern District of New York. In its decision, the Second Circuit held that the use of the avoided development costs methodology, underlying the initial $570m damages, was contrary to the law. The Second Circuit remanded the case to the District Court for further consideration if any amount of damages are still appropriate. Assuming the Second Circuit’s decision stands, the District Court will decide whether TriZetto is entitled to compensatory damages under New York trade-secret law; compensatory damages under copyright law; and punitive damages under New York trade-secret law (punitive damages are unavailable under copyright law). Consistent with the Second Circuit opinion, Atos maintains its assessment, as previously communicated, that the maximum amount of damages legally available to TriZetto is approximately $8.5m. Note 13 Subsequent events There is no significant subsequent event to report. Trusted Partner for your Digital Journey 46/50 3.3. Statutory auditors’ Review Report on the half- yearly financial information for the period from January 1 to June 30, 2023 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2023, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the interim management report on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 47/50 Paris-La Défense and Neuilly-sur-Seine, July 31, 2023 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton Membre français de Grant Thornton International Jean-François Viat Samuel Clochard Trusted Partner for your Digital Journey 48/50 4. Appendices 4.1. Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Thomas Guillois Head of Investor Relations Tel +33 6 21 34 36 62 thomas.guillois@atos.net Requests for information can also be sent by email to investors@atos.net 4.2. Financial calendar October 26, 2023 (Before Market Opening) Third quarter 2023 revenue Trusted Partner for your Digital Journey 49/50 4.3. Full index 1. PERSON RESPONSIBLE ......................................................................................... 3 1.1. Responsibility statement for the Half-Year Financial Report ...................................................... 3 1.2. For the audit .............................................................................................................................. 3 2. ACTIVITY REPORT ................................................................................................ 4 2.1. Progress on the envisioned spin-off project ............................................................................... 4 2.2. Tech Foundations Analyst Day (June 7, 2023) ........................................................................... 4 2.3. Atos in the first half of 2023 ...................................................................................................... 6 2.4. Operational review .................................................................................................................... 9 2.4.1. Statutory to constant scope and exchange rates reconciliation ................................................. 9 2.4.2. Performance by Business .................................................................................................. 11 2.4.3. Performance by Regional Business Units ............................................................................. 12 2.4.4. Portfolio .......................................................................................................................... 13 2.4.4.1. Order entry and book to bill ...................................................................................................... 13 2.4.4.2. Full backlog and full qualified pipeline ......................................................................................... 13 2.4.5. Human ressources ........................................................................................................... 13 2.5. 2023 objectives ....................................................................................................................... 14 2.6. Risk Factors ............................................................................................................................. 15 2.7. Claims and litigations .............................................................................................................. 16 2.7.1. Tax claims ...................................................................................................................... 16 2.7.2. Commercial claims ........................................................................................................... 16 2.7.3. Labor claims .................................................................................................................... 17 2.7.4. Representation & Warranty claims ..................................................................................... 17 2.7.5. Miscellaneous .................................................................................................................. 17 2.8. Related parties ........................................................................................................................ 17 FINANCIAL STATEMENTS ................................................................................... 18 3.1. Financial review ....................................................................................................................... 18 Income statement ............................................................................................................ 18 3.1.1.1. Operating margin ..................................................................................................................... 18 3.1.1.2. Other operating income and expense.......................................................................................... 18 3.1.1.3. Net financial expense ............................................................................................................... 19 3.1.1.4. Corporate tax .......................................................................................................................... 20 3.1.1.5. Normalized net income ............................................................................................................. 20 3.1.1.6. Half year Earning Per Share ...................................................................................................... 20 3.1.2. Free Cash Flow and net debt ............................................................................................. 21 3.1.3. Financial situation ............................................................................................................ 23 3.2. Interim condensed consolidated financial statements ............................................................. 24 Interim condensed consolidated income statement ............................................................... 24 3.2.1. Interim condensed consolidated statement of comprehensive income ..................................... 25 3.2.2. Interim condensed consolidated statement of financial position ............................................. 26 3.2.3. Interim condensed consolidated cash flow statement ............................................................ 27 3.2.4. 3.2.5. Interim consolidated statement of changes in shareholders’ equity......................................... 28 3.2.6. Notes to the interim condensed consolidated financial statements .......................................... 29 3.2.6.1. Basis of preparation ................................................................................................................. 29 3.2.6.2. Notes to the interim condensed consolidated financial statements .................................................. 31 3.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2023 ...................................................................................................... 47 4. APPENDICES ...................................................................................................... 49 4.1. Contacts................................................................................................................................... 49 4.2. Financial calendar .................................................................................................................... 49 4.3. Full index ................................................................................................................................. 50 Trusted Partner for your Digital Journey 50/50 | Semestriel, 2023, x, atos | write me a financial report |
Semestriel | 2,023 | Technology | SAP | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Technology
### Company:
SAP
### Response:
| SAP Half-Year Report 2023 SAP Half-Year Report 2023 Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Supplementary Financial Information General Information Additional Information 3 4 23 49 55 57 2/59 SAP Half-Year Report 2023 Introductory Notes This Half-Year Group Report meets the requirements of German Accounting Standard No. 16 “Half- yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This Half-Year Group Report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a Half-Year Financial Report, and comprises the consolidated Half-Year Management Report, condensed consolidated Half-Year Financial Statements, and the responsibility statement in accordance with the German Securities Trading Act, section 115 (2). This Half-Year Group Report updates our consolidated Financial Statements 2022, presents significant events and transactions of the first half of 2023, and updates the forward-looking information as well as significant non-financial key figures contained in our Management Report 2022. This Half-Year Financial Report only includes half-year numbers. Our quarterly numbers are available in the Quarterly Statements for the first and second quarter 2023. Both the 2022 consolidated Financial Statements and the 2022 Management Report are part of our Integrated Report 2022, which is available at www.sapintegratedreport.com. All of the information in this Half-Year Group Report is unaudited. This means that the information has been subject neither to any audit nor to any review by an independent auditor. Unless otherwise stated, all figures in this Half-Year Report are based on SAP Group results from continuing operations. For the results from discontinued operations, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1). 3/59 SAP Half-Year Report 2023 Consolidated Half-Year Management Report Strategy and Business Model SAP continues to execute on the strategy and business model as described in the SAP Integrated Report 2022 to “enable every organization and every industry to become a network of intelligent, sustainable enterprises.” Our Product Strategy SAP’s suite of applications allows enterprises to manage their resources, spend, employees, and customer relationships. SAP cloud ERP and SAP Business Technology Platform (SAP BTP) are keystones of SAP’s product portfolio. SAP BTP is the platform for SAP, our customers, and our ecosystem. Moreover, with our SAP Business AI portfolio, we are expanding our existing business artificial intelligence (AI) to include generative AI. The strategic pillars of SAP’s product strategy and their corresponding updates for the first half of 2023 are as follows: Cloud ERP SAP S/4HANA provides software capabilities mainly for finance, risk management, project management, procurement, manufacturing, supply chain management, asset management, and research and development. It also includes platform capabilities such as database (SAP HANA), data management, and lifecycle/solution management, as well as cloud ERP solutions. On February 8, 2023, SAP announced a partnership with Merck KGaA, Germany, to jointly drive sustainable business-practice innovation. The partnership is expected to further accelerate the migration of Merck KGaA’s operations to the cloud with RISE with SAP, a core element of which is SAP S/4HANA Cloud. In March 2023, we announced GROW with SAP, a new offering designed to help midmarket customers adopt cloud ERP for more speed, predictability, and continuous innovation. This comprehensive offering is built on SAP S/4HANA Cloud, public edition and SAP BTP. On April 26, 2023, SAP and HP Inc. announced an expansion of its strategic relationship as HP invested in the RISE with SAP solution to support its focus on driving digital transformation, portfolio optimization and operational efficiency. The software will provide a platform for combining hardware, software, and services to deliver flexible workforce solutions. SAP Business Technology Platform SAP BTP is a unified, business-centric, and open platform that enables customers and partners to build, integrate, and extend applications while gaining insights from business data in a cloud-native way. SAP BTP aims to bring together capabilities across application development, automation, data and analytics (including planning), integration, and AI into one platform. At the SAP Data Unleashed event held on March 8, 2023, SAP launched SAP Datasphere – an evolution of our SAP Data Warehouse Cloud solution that integrates key capabilities from SAP Data Intelligence Cloud. SAP Datasphere aims to provide a unified experience for data integration, data cataloging, semantic modeling, data warehousing, data federation, and data visualization. 4/59 SAP Half-Year Report 2023 SAP also announced strategic partnerships with data and AI companies – Databricks, Collibra, Confluent, and DataRobot – to enrich SAP Datasphere and allow organizations to create a unified data architecture that securely combines SAP software data and non-SAP data. In May 2023, SAP and Google Cloud announced an extensive expansion of their partnership through a comprehensive open-data offering. The offering aims to enable customers to build an end-to-end data cloud that brings data from across the enterprise landscape using the SAP Datasphere solution together with Google’s data cloud. SAP has also published reference architectures on how to use Generative AI in combination with SAP BTP. SAP Business AI SAP Business AI solutions are built into systems that power the most critical business processes, trained using extensive industry-specific data and deep process knowledge, and created using responsible and ethical AI practices (see also the Business Conduct section). In addition, SAP provides a generative AI layer to SAP BTP to best facilitate the integration of generative AI functionalities across the portfolio. SAP also aims to enable its partner ecosystem to build generative AI-infused innovations based on SAP BTP as well. At SAP Sapphire 2023, we announced a lineup of AI and generative AI capabilities that span across our solution portfolio. These are examples of what has been released: intelligent collections in SAP S/4HANA, intelligent slotting in SAP Extended Warehouse Management, line item matching in SAP Central Invoice Management, and SAP Intelligent Product Recommendation. On May 2, 2023, SAP and IBM announced that IBM Watson technology will be embedded into SAP solutions to provide new AI-driven insights and automation to help accelerate innovation and create more efficient and effective user experiences across the SAP application portfolio. On May 15, 2023, SAP announced the next step to its partnership with Microsoft – integrating SAP SuccessFactors solutions with Microsoft 365 Copilot and Copilot in Viva Learning as well as with Microsoft’s Azure OpenAI Service to access language models that analyze and generate natural language. Sustainable Management Solutions SAP offers sustainability solutions and services that aim to help customers drive sustainable practices not only inside their organization, but across the entire value chain. At SAP Sapphire 2023, we introduced solutions to enable transactional carbon accounting including the green ledger – a capability that connects carbon accounting data with financial data to better track and measure climate action initiatives. The green ledger will be embedded into SAP S/4HANA Cloud, with additional capabilities planned in new releases and will be available with RISE with SAP and GROW with SAP. Additional capabilities for transactional carbon accounting include a June 2023 update to SAP Sustainability Footprint Management. This solution calculates and manages the full range of corporate, value chain, and product-level greenhouse gas emissions in a single environment. Industry Solutions SAP’s industry cloud solutions provide the opportunity for SAP and our partners to extend SAP’s core with modular solutions addressing industry-specific functions built on SAP BTP. Human Capital Management SAP SuccessFactors solutions for human resources aim to empower organizations to create an agile and future-ready workforce in a rapidly changing workplace. The portfolio includes core HR and payroll, talent management, employee experience management, and people and workforce analytics. 5/59 SAP Half-Year Report 2023 Spend Management Intelligent spend management solutions from SAP aim to provide a more unified view of a customer’s spending to reduce costs, mitigate risks, improve collaboration, and make sure every spend decision is aligned with the business strategy. They cover direct and indirect spend, travel and expense, and external workforce management. SAP Ariba offerings combine industry-leading cloud-based applications to help companies discover and collaborate with a global network of partners. Business Network SAP Business Network is a cloud-based collaboration offering designed to enable companies to collaborate with trading partners for greater supply chain visibility. In May 2023, we introduced SAP Business Network for Industry to address the unique needs of various industries. SAP Business Network for Industry will have an initial focus on consumer products, life sciences, high tech, and industrial manufacturing industries. Business Process Management Our business process transformation solutions are designed to help our customers scan their operations to understand and improve their business process landscape. The portfolio includes SAP Signavio solutions and SAP Build Process Automation. In February 2023, we announced SAP Signavio Process Explorer, a solution designed to accelerate transformation projects by providing customers with access to best practice templates and industry standard processes derived from SAP’s five decades of experience. At SAP Sapphire 2023, we announced the availability of the new ‘plug and gain’ approach which aims to shorten SAP S/4HANA migration project preparation times from months to hours, reduce time to deploy, and simplify ongoing process optimization. We also announced new integrations for SAP Signavio Process Transformation Suite with SAP Ariba solutions, the SAP Cloud ALM tool, and SAP Build Process Automation. Customer Relationship Management and Customer Experience The SAP Customer Experience (SAP CX) portfolio aims to deliver a personalized view across customers and business partners, connecting the front and back office with solutions spanning from point-of-sale to manufacturing, logistics, customer experience, and returns management. SAP Business AI functionality in our SAP CX portfolio aims to help increase conversion rates and overall operational efficiency for sales, commerce, marketing, and services teams. Partners and Ecosystem SAP’s ecosystem consists of more than 20,000 partners worldwide in more than 140 countries. Partners can choose from a variety of SAP solutions to create their own unique SAP-qualified partner- packaged solution to provide small and midsize enterprises with fixed-scope packaged solutions. SAP expects the share of ecosystem-assisted cloud revenue to exceed 50% in the future. In May 2023, new partner software certification scenarios through SAP Integration and Certification Center (SAP ICC) to support the clean core initiative were announced at SAP Sapphire 2023. A clean core means the core system is not modified or customized and can easily be upgraded in the cloud. Services and Support At SAP Sapphire 2023, we announced new editions of our SAP Preferred Success plan. These editions are designed to deliver expanded capabilities for specific groups of SAP solutions and provide a personalized partnership for the lifetime of a customer's cloud solution. The new editions include SAP Preferred Success for SAP Commerce Cloud, expanded edition; SAP Preferred Success for HXM solutions from SAP, expanded edition; and SAP Preferred Success for SAP Business Technology Platform, expanded edition. 6/59 SAP Half-Year Report 2023 Business Conduct In accordance with our Global AI Ethics Policy, we continue to integrate AI into our solutions and evolve our software development process. We put this policy into place to help ensure that our AI systems and solutions are developed, deployed, and sold in line with the ethical standards laid out in our guiding principles. The policy also complements existing guiding principles regarding AI and will ensure that the use of AI at SAP is governed by clearly defined rules of ethics. Our Investments in Innovation Investment in R&D SAP’s strong commitment to R&D is reflected in our expenditures (see the graphic below). Research & Development (IFRS) € millions | change since previous half year 20% 14% 15% 8% 5% 2.114 2.210 2.522 2.910 3.138 Q1–Q2 2019 Q1–Q2 2020 Q1–Q2 2021 Q1–Q2 2022 Q1–Q2 2023 Due to the updated cost allocation policy described in Note (G.5), R&D figures for 2019 and 2020 have not been adjusted. Figures for 2019 and 2020 are based on continuing and discontinued operations. Therefore, they are only comparable to a limited extent. In the first half of 2023, our IFRS R&D ratio, reflecting R&D expenses as a portion of total revenue, remained constant at 21% year over year. Our non-IFRS R&D ratio decreased two percentage points (pp) to 18% (first half of 2022: 20%). At the end of the first half of 2023, our total full-time equivalent (FTE) headcount in development was 36,100 (first half of 2022: 34,185). Measured in FTEs, our R&D headcount was 34% of total headcount (first half of 2022: 33%). Competitive Intangibles Some of the resources that are the basis for our current as well as future success, such as our ability to innovate, software we developed ourselves, customer capital, our employees and their knowledge and skills, our ecosystem of partners, and the brands we have built up, do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With a market capitalization of €153.7 billion at the end of the first half of 2023, the market value of our equity (based on all issued shares) is more than three times higher than its carrying amount. Acquisitions and Divestitures On June 28, 2023, SAP announced that Silver Lake Management and its co-investors along with the Canada Pension Plan Investment Board (CPPIB) had completed the acquisition of all the issued and outstanding shares of Qualtrics International Inc. (“Qualtrics”), including all shares owned by SAP, at a purchase price of US$18.15 in cash per share. The process was initiated on January 26 followed by an announcement on March 13 that SAP had agreed to sell all of its shares of Qualtrics. For more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1). 7/59 SAP Half-Year Report 2023 On July 11, Sapphire Ventures announced that it is deepening its commitment to AI by investing more than US$1 billion in AI-powered enterprise technology startups, including those specializing in generative AI. The commitment builds on Sapphire Ventures’ history of investing in and scaling enterprise AI startups, and will focus on all areas of the emerging AI tech stack including foundation models, enablers and middleware, and next-gen AI applications. On July 18, SAP announced the next step in its commitment to deliver Business AI that is relevant, reliable, and responsible with strategic direct investments in three leading generative AI companies. The investments in Aleph Alpha, Anthropic and Cohere reinforce SAP’s open ecosystem approach to AI, leveraging the best technology to embed AI across SAP’s portfolio. They build on a series of AI partnerships and enterprise use cases announced in May and complement the above-mentioned commitment from Sapphire Ventures. Performance Management System Change in Calculation of Customer Net Promoter Score (NPS) In the first quarter of 2023, SAP adjusted the methodology used to calculate its Customer NPS. Designed to improve data and better align the sample with SAP’s business priorities, the adjusted methodology provides for the following exclusions of answered survey questionnaires: partially completed responses, respondents who self-report that they have no influence in purchasing decisions, and a restriction in the number of eligible responses from Concur customers to ensure a proportional and reasonable reflection based on revenue share. For more information about the calculation of the Customer NPS, see the Performance Management System section in our Management Report 2022. Change in Non-IFRS Expense Measures In the first quarter of 2023, we changed our non-IFRS expense measures. Going forward, we adjust our IFRS expense measures by excluding expenses for regulatory compliance matters associated with the provision for (potential) penalties and legal costs arising from certain ongoing governmental investigations into our business operations, which are described in our Notes to the Consolidated Financial Statements 2022, Note (G.3) under “Anti-Bribery Matters” and are limited to the scope of IAS 37. The adjustment of our non-IFRS definition for our expense measures also impacts our operating profit (non-IFRS), profit before tax (non-IFRS), profit after tax (non-IFRS), and our non-IFRS key ratios such as operating margin, effective tax rate, and earnings per share, basic. SAP believes that the changed non-IFRS definition for our expense measures is useful for investors, as the non-IFRS measures provide additional information that enables a comparison of year-over-year operating performance by eliminating the effects of regulatory compliance matters. Without being analyzed in conjunction with the corresponding IFRS measures, the non-IFRS measures based on the changed non-IFRS definition, besides other reasons, are not indicative of our present and future performance, as expenses ascribed to the regulatory compliance matters may include penalties and legal costs, all of which would impact the operating cash flows of the business. The exclusion of expenses associated with regulatory compliance matters does not affect Executive Board members’ compensation, i.e., those expenses measures are fully considered. For more information, such as the explanation, the usefulness, and the limitations of non-IFRS measures, see the Performance Management System section in our Management Report 2022. 8/59 SAP Half-Year Report 2023 Financial Performance: Review and Analysis Economy and the Market Global Economic Trends The global economy started stronger this year than in the fourth quarter of 2022, mainly driven by the services sector, states the European Central Bank (ECB) in its most recent Economic Bulletin1. This vigor was due to the reopening of the Chinese economy and the resilience of labor markets in the United States. Nevertheless, high inflation, tightening financial conditions, and geopolitical tensions were headwinds to global growth. In the EMEA region, according to the ECB, the euro area economy stagnated in the first half of 2023 due to a drop in private and public consumption despite lower energy prices, the easing of supply bottlenecks, a strong labor market, and a supportive fiscal policy. However, conditions in different sectors of the economy were uneven: manufacturing weakened, yet services proved resilient. The Americas region showed tighter financial and credit conditions, but labor markets were resilient particularly in the United States. Overall, real GDP decelerated in the first half of this year, finds the ECB. As for the APJ region, the consumption-led recovery in demand in China turned out stronger in the first quarter than the ECB had previously expected, as pandemic-related disruptions proved short- lived. However, the recovery faded in the second quarter and did not spill over from services to manufacturing. In Japan, real GDP grew in the first quarter of 2023, reflecting reopening dynamics. The IT Market “The digital world is here and with it comes a new wave of enterprise application spending poised to create differentiating value for organizations of all sizes globally,”2 says International Data Corporation (IDC), a U.S.-based market research firm. “Organizations […] need enterprise applications as they invest in their future,” but at the same time, “inflation, recession, and staffing/labor shortages [remain] concerns for customers’ technology strategies and budgets.”2 According to IDC, while “digital transformation continues for 49% of organizations, 51% of organizations consider themselves a digital business. For digital businesses, the investment continues; the emphasis is on using technology to compete and as a competitive advantage; continuously innovating with AI/ML, generative AI, IoT, and so forth; and relying more on an ecosystem of partners.”2 In this context, “organizations are still shifting from on-premises systems to hybrid, private, and public cloud.”2 Particularly, “improvements in overall efficiency are closely linked with IT as the means to facilitate improved energy and enterprise efficiency.”3 IDC states that such “technological innovations […] will be essential to lower costs and reduce carbon footprints.”3 Currently, “approximately 17% of European businesses are in the more advanced stages of implementing technology solutions to track sustainability-related KPIs. However, even these businesses are not fully ready to comply with the requirements of the forthcoming Scope 3 disclosures” based on the European Commission’s Corporate Sustainability Reporting Directive (CSRD).3 1 European Central Bank, Economic Bulletin, Issue 4/2023, Publication Date: June 29, 2023. 2 IDC Market Perspective: June 2023: Enterprise Application Spending Continues for the Foreseeable Future, Doc #US50665223, May 2023. 3 IDC Vendor Profile: Sustainability Index for Software Providers: SAP, Doc #EUR147190121, May 2023. Impact on SAP SAP had a strong first half of 2023. Despite ongoing macroeconomic uncertainties and elevated inflation rates, SAP continued to execute on its strategy and showed strong cloud and total revenue performance across all regions. At Sapphire in May, SAP announced an update of its 2025 financial mid-term ambition. The update mainly reflects the divestiture of Qualtrics, the anticipation of continuing rapid cloud revenue growth, and a great degree of resilience in SAP’s support business. 9/59 SAP Half-Year Report 2023 The advances in business AI represent a significant opportunity for SAP. Our SAP Business AI portfolio is expected to provide stronger economic growth, mainly through productivity increases. In addition, at SAP Sapphire in May, the Company showcased multiple AI use cases and partnerships. With that, SAP continues to broaden its ecosystem, increase customer value, and strive for leadership in this important market trend. Performance Against Our Outlook for 2023 In this section, all discussion of the contributions to target achievement is based either on IFRS or non-IFRS measures. Whether IFRS or non-IFRS measures are discussed is either explicitly stated in the header of the respective subsection, or the numbers are individually identified as either IFRS or non-IFRS measures. We present, discuss, and explain the reconciliation of IFRS measures to non-IFRS measures in the Supplementary Financial Information section. Outlook for 2023 (Non-IFRS) For our outlook based on non-IFRS numbers, see the Financial Targets and Prospects section in this consolidated Half-Year Management Report. Key Figures – SAP Group in the First Half of 2023 (IFRS and Non-IFRS) IFRS € millions, unless otherwise stated Q1–Q2 2023 Q1–Q2 2022 ∆ in % Q1–Q2 2023 Q1–Q2 2022 ∆ in % Current Cloud Backlog NA NA NA 11,537 9,543 21 Cloud 6,493 5,362 21 6,493 5,362 21 Software licenses 591 743 –20 591 743 –20 Software support 5,778 5,900 –2 5,778 5,900 –2 Cloud and software 12,863 12,005 7 12,863 12,005 7 Total revenue 14,995 13,980 7 14,995 13,980 7 Operating expenses –12,834 –11,449 12 –11,062 –10,626 4 Operating profit 2,161 2,531 –15 3,933 3,354 17 Operating margin (in %) 14.4 18.1 –3.7pp 26.2 24.0 2.2pp Profit after tax 3,890 835 >100 5,047 2,259 >100 Profit (loss) after tax from continuing operations 1,128 1,629 –31 2,502 2,269 10 Effective tax rate (in %) 36.3 29.0 7.3pp 29.4 27.2 2.1pp Earnings per share, basic (in €) 3.37 0.92 >100 4.41 1.96 >100 Earnings per share, basic (in €) from continuing operations 0.97 1.41 –31 2.15 1.96 10 Operating Performance (IFRS and Non-IFRS) Cloud and software revenue (IFRS) was €12,863 million (first half of 2022: €12,005 million), an increase of 7%. On a constant currency basis (non-IFRS), the increase was 8%. This increase was mainly driven by cloud revenue growth of 21%. Software licenses revenue (IFRS) decreased 20% (19% at constant currencies, non-IFRS) as more customers selected SAP’s cloud offerings such as RISE with SAP. Software support revenue (IFRS) was €5,778 million (first half of 2022: €5,900 million), a decrease of 2% (1% at constant currencies, non-IFRS). Our operating expenses (IFRS) increased 12% to €12,834 million (first half of 2022: €11,449 million), primarily from share-based payment expenses and restructuring expenses. Operating expenses (non- IFRS) increased 4% to €11,062 million (first half of 2022: €10,626 million) in line with revenue growth. Share-based payment expenses increased to €1,167 million (first half of 2022: €513 million), mainly due to an increase in the SAP share price of around €30 in the first half of 2023 (first half of 2022: drop Non-IFRS ∆ in % (constant currency) 25 22 –19 –1 8 8 4 20 2.7pp NA NA NA NA NA 10/59 SAP Half-Year Report 2023 in the SAP share price of around €40). For more information about share-based payment expenses, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.3). Most of the restructuring expenses, which increased to €257 million (first half of 2022: €119 million), relate to the targeted restructuring program in selected areas of the company that SAP announced and launched in the first quarter to further focus on its strategic growth areas and accelerated cloud transformation. The vast majority of projected expenses has already been recognized in the first half of 2023. For more information about restructuring, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). Compared with the same period in the previous year, our operating profit (IFRS) decreased €370 million to €2,161 million (first half of 2022: €2,531 million), a decrease of 15%. The described effects also apply to our non-IFRS operating profit and non-IFRS operating margin, except for the restructuring expenses and share-based payments. Profit After Tax and Earnings per Share (IFRS) Profit after tax from continuing operations (IFRS) was €1,128 million (first half of 2022: €1,629 million), a decrease of over 31% compared to the same period in 2022. Basic earnings per share (IFRS) was €0.97 (first half of 2022: €1.41), a decrease of 31%. The change in profit after tax from continuing operations (IFRS) and basic earnings per share from continuing operations (IFRS) is mainly due to the above-mentioned increase in shared based compensation expenses and restructuring expenses. Profit after tax from discontinued operations (IFRS) was €2,763 million (first half of 2022: -€794 million). The change is due to the divesture of Qualtrics and the corresponding disposal gain (IFRS) amounting to €3.2 billion in the first half of 2023. The effective tax rate (IFRS) was 36.3% (first half of 2022: 29.0%). The year-over-year increase mainly resulted from changes in non-deductible expenses and valuation allowances on deferred tax assets. Profit After Tax and Earnings per Share (Non-IFRS) Profit after tax from continuing operations (non-IFRS) was €2,502 million (first half of 2022: €2,269 million), an increase of 10%. Basic earnings per share (non-IFRS) was €2.15 (first half of 2022: €1.96), an increase of 10%. The change in profit after tax from continuing operations (non-IFRS) and basic earnings per share from continuing operations (non-IFRS) is mainly due to the above- mentioned increase of cloud revenue and improvements in cloud margin. Profit after tax from discontinued operations (non-IFRS) was €2,544 million (first half of 2022: -€10 million). The change is due to the divesture of Qualtrics and the corresponding disposal gain) amounting to €2.6 billion in the first half of 2023. The effective tax rate (non-IFRS) was 29.4% (first half of 2022: 27.2%). The year- over-year increase mainly resulted from changes in valuation allowances on deferred tax assets. Segment Information At the end of the first half of 2023, SAP had five operating segments: the Applications, Technology & Services segment, the Business Network segment, the Emarsys segment, the Sustainability segment, and the Taulia segment. Due to its size, the Applications, Technology & Services segment is a reportable segment whereas the other operating segments are non-reportable. At the end of the second quarter of 2023, we sold Qualtrics, formerly a reportable segment which derived its revenues mainly from the sale of experience management cloud solutions. For more information about our segment reporting and the changes in the composition of our segments in the first half of 2023, see the Notes to the Consolidated Half-Year Financial Statements, Notes (C.1) and (C.2). 11/59 SAP Half-Year Report 2023 Applications, Technology & Services € millions, unless otherwise stated (non-IFRS) Actual Currency Q1–Q2 2023 Constant Currency Q1–Q2 2022 Actual Currency ∆ in % Actual Currency Cloud revenue – SaaS1 4,546 4,575 3,717 22 Cloud revenue – PaaS2 1,003 1,009 694 45 Cloud revenue – IaaS3 391 394 475 –18 Cloud revenue 5,940 5,978 4,885 22 Cloud gross profit – SaaS1 3,144 3,176 2,561 23 Cloud gross profit – PaaS2 843 850 562 50 Cloud gross profit – IaaS3 146 149 174 –16 Cloud gross profit 4,134 4,176 3,297 25 Segment revenue 14,429 14,544 13,492 7 Segment gross margin (in %) 72.8 73.0 73.1 –0.3pp Segment profit (loss) 4,465 4,543 3,809 17 Segment margin (in %) 30.9 31.2 28.2 2.7pp 1 Software as a service: SaaS comprises all other offerings which are not shown as PaaS and IaaS. 2 Platform as a service: PaaS primarily includes SAP Business Technology Platform and SAP Signavio. 3 Infrastructure as a service: A major portion of IaaS comes from SAP HANA Enterprise Cloud. The Applications, Technology & Services segment recorded an increase in cloud revenue of 22% in the first half of 2023 (22% at constant currencies), supported by SAP Business Technology Platform as well as SAP S/4HANA, whose cloud revenue mainly occurred in the Applications, Technology & Services segment, and increased 76% to €1,539 million. At the same time, SAP S/4HANA current cloud backlog grew 65% and ended the first half of 2023 at €3,717 million. Cost of cloud for the Applications, Technology & Services segment increased 14% (13% at constant currencies), which overall caused the cloud gross margin to widen 2.1 pp (2.4 pp at constant currencies) to 69.6%. Thereof, PaaS grew 3.1pp (3.3pp at constant currencies), which resulted in a PaaS cloud gross margin of 84.1%. The SaaS cloud gross margin grew 0.3pp (0.5pp at constant currencies) and ended the first half of the year at 69.2%. Software support revenue decreased 2% (1% at constant currencies) compared to the prior year, ending the first half of the year 2023 at €5,777 million. Software licenses revenue decreased 20% (19% at constant currencies) to €591 million. As such, the segment achieved a total software licenses and support revenue of €6,369 million. Total segment revenue nevertheless rose by 7% (8% at constant currencies) and ended the first half of 2023 at €14,429 million. Overall, the share of more predictable revenue within the Applications, Technology & Services segment increased 1.3pp from 79.9% in the first half of 2022 to 81.2% in 2023. Cost of revenue increased 8% (8% at constant currencies) compared to the prior year, ending the first half of 2023 at €3,922 million. This development was mainly driven by an increase in cost of cloud. Segment profit increased 17% (19% at constant currencies) and ended the first half of 2023 at €4,465 million. The segment margin improved 2.7pp (3.0pp at constant currencies) to 30.9%. ∆ in % Constant Currency 23 45 –17 22 24 51 –14 27 8 –0.1pp 19 3.0pp 12/59 SAP Half-Year Report 2023 Reconciliation of Cloud Revenues and Gross Profit € millions, unless otherwise stated (non-IFRS) Q1–Q2 2023 Q1–Q2 2022 Actual Currency Currency Impact Constant Currency Actual Currency Actual Currency Cloud revenue – SaaS1 5,099 30 5,130 4,193 22 Cloud revenue – PaaS2 1,003 6 1,009 694 45 Cloud revenue – IaaS3 391 3 394 475 –18 Cloud revenue 6,493 39 6,532 5,362 21 Cloud gross profit – SaaS1 3,675 34 3,709 3,021 22 Cloud gross profit – PaaS2 843 7 850 562 50 Cloud gross profit – IaaS³ 146 3 149 174 –16 Cloud gross profit 4,664 45 4,709 3,758 24 1 Software as a service: SaaS comprises all other offerings which are not shown as PaaS and IaaS. 2 Platform as a service: PaaS primarily includes SAP Business Technology Platform and SAP Signavio. 3 Infrastructure as a service: A major portion of IaaS comes from SAP HANA Enterprise Cloud. 4 Constant currency period-over-period changes are calculated by comparing the current year’s non-IFRS constant currency numbers with the non-IFRS numbers of the previous year’s respective period. Due to rounding, numbers may not add up precisely. Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2023 Q1–Q2 2022 Net cash flows from operating activities – continuing operations 3,160 2,766 Capital expenditure –413 –408 Payments of lease liabilities –188 –209 Free cash flow 2,559 2,149 Free cash flow (as a percentage of total revenue) 17 15 Free cash flow (as a percentage of profit after tax) 227 132 The higher operating cash flow was mainly attributable to lower share-based payments (€229 million decrease year over year), lower payments for income taxes (€54 million decrease year over year), as well as lower net interest payments (€47 million decrease year over year). Group Liquidity € millions 2023* Net Debt 12/31/2022 (PY: 12/31/2021) Free Cash Flow –2,070 Net cash flows from operating activities – continuing operations 3,160 Capital Expenditure 2,559 –413 Lease Payments –188 Business Combinations 0 Dividends –2,395 Treasury shares 0 Net proceeds from Qualtrics sale 6,323 Other 237 Net Debt 6/30/2023 (PY: 6/30/2022) 4,180 Net debt as at 12/31/2022 includes continuing and discontinued operations, net debt as at 6/30/2023 only includes continuing operations. ∆ in % Constant Currency4 22 45 –17 22 23 51 –14 25 ∆ 14% 1% –10% 19% 2pp 95pp 2022 –1,563 2,766 –408 –209 –664 –2,865 –1,000 0 –103 –4,046 13/59 SAP Half-Year Report 2023 Liquidity and Financial Position € millions 6/30/2023 12/31/2022 Financial debt –10,146 –11,764 Cash and cash equivalents 14,142 9,008 Current time deposits and debt securities 184 686 Group liquidity 14,326 9,694 Net debt 4,180 –2,070 Goodwill 28,581 33,077 Total assets 69,719 72,159 Total equity 42,229 42,848 Equity ratio (total equity as a percentage of total assets) 61 59 In the first half of 2023, we repaid €1,600 million in Eurobonds. As at June 30, 2023, we had issued €930 million under our Commercial Paper (CP) program with short-term maturities. The increase in cash and cash equivalents includes a net inflow of 6,265 million from the sale of SAP’s stake in Qualtrics. ∆ +1,618 +5,134 –502 +4,632 +6,250 –4,495 –2,440 –619 +1pp 14/59 SAP Half-Year Report 2023 Employees People are the heart of our organization. SAP works to attract and keep the best talent by aiming for a highly engaged, diverse, and future-fit workforce equipped with the right skills, all while adapting to new market trends. For a detailed description of our People Strategy, see the Employees section in our Integrated Report 2022. With our Pledge to Flex working model, we have successfully laid the foundation for hybrid work at SAP. We have established a new market standard, offering flexibility for our workforce in accordance with business requirements and local legislation. Looking forward, we will focus on ensuring a mix between working in the office and working remotely. We have launched our global “I’m In” campaign. It promotes the value of being in the office on a regular basis as a standard element of effective and productive hybrid work – based on individual role, team set-up, and business requirements. In taking a holistic approach to hybrid work, we offer managers and employees a variety of comprehensive enablement assets complemented by further engagement formats on a local level. This approach allows our employees to thrive, while strengthening our employer attractiveness, productivity, and innovation. To compete in our dynamic industry, SAP needs to continuously adapt our skills. We do this by managing skill-based development for our workforce and ecosystem. SAP is establishing the scalable data foundation necessary for skill-based learning recommendations. This foundation helps us anticipate and react to market changes, by providing a unified, industry-standard skills taxonomy. Uniformity across internal and external scenarios that utilize skills taxonomies allows SAP to harness immense benefits from a shared language. This adds value for partners and customers and enables SAP to become a more adaptive enterprise. We have made great strides in this regard recently in our Sales, Presales, and Development areas. For example, with the help of an internally developed tool, our Sales organization identified over 60 key skills, relevant for 75% of quota carriers. They have demonstrated that quota carriers proficient in key skills related to selling generally have quota attainments 15% higher than those who are not proficient. SAP also offers a vast library of digital learning content across the SAP solution portfolio via the SAP Learning Web site, SAP Learning Hub, openSAP, and instructor-led training, so people can build and maintain their SAP software skills. We reached over 1 million external active learners in 2022 and 700,000 in the first half of 2023. Diversity in the workplace means celebrating our differences and acknowledging the unique contributions and perspectives we all bring to the Company. We aim to increase diversity in our workforce at all levels of SAP to reflect the spectrum of diversity in society, including visible diversity such as race, ethnicity, gender, and age, as well as invisible diversity such as neurodiversity, gender identity, and socio-economic background. At SAP, we are committed to fostering equality by achieving our ultimate goal of gender parity at all levels of the organization. We are making progress with our goals to increase women in the workforce1 and women in management2. In the first half of 2023, women comprised 35% of our workforce (first half of 2022: 34.7%; end of 2022: 35%) and hold 29.5% of all management positions at the Company (first half of 2022: 28.9%; end of 2022: 29.4%). We aim to increase the share of women in management to 30% by the end of 2023. To reach our ultimate goal of gender parity, we are building a leadership pipeline through our Women to Watch program piloted in the first half of 2023 with 262 participants. We are also encouraging an inclusive leadership mindset, recognizing and overcoming biases through our intentional inclusion workshops for leaders. Furthermore, women in management was integrated as one of the ESG (environment, social, governance) KPIs in a new sustainability-linked revolving credit facility and the long-term incentive compensation of the SAP Executive Board (effective 2024). For further ESG-related information, see the Energy and Emissions section. Looking at our people-related KPIs, the Employee Engagement Index comes in at 80%, a slight increase of 1pp compared to the score of 79% in October 2022, and no change compared to the full- year score published in our Integrated Report 2022. Just like at the end of 2022, our Leadership Trust Net Promoter Score remains at its all-time high of 72. And at 81%, the Business Health Culture Index remains as strong as at the end of 2022. At the end of the first half of 2023, SAP’s Employee Retention 15/59 SAP Half-Year Report 2023 Rate was still high at 96.2% (compared to 95.3% at the end of the first half of 2022 and 91.4% at the end of 2022). We define retention as the ratio of the average number of employees minus the number of employees who voluntarily departed, to the average number of employees (in full time equivalents, FTEs). On June 30, 2023, we had 105,328 FTEs worldwide (June 30, 2022: 104,988; December 31, 2022: 106,312). For a breakdown of headcount by function and geography, see the Notes to the Consolidated Half Year Financial Statements, Note (B.1). 1 We define “women in the workforce” as the share of women in the total workforce. 2 We define “women in management” as the share of women in management positions as compared to the total number of managers, expressed by the number of individuals and not FTEs. It includes three categories: 1) Managers managing teams: Refers to managing teams of at least one employee or vacant positions; 2) Managers managing managers: Refers to managing managers who manage teams; 3) Executive Board members. Energy and Emissions In the first half of 2023, we maintained our commitment to help rebuild a more resilient, restorative, and inclusive economy within the planetary boundaries – both as an enabler and exemplar. We strive towards achieving a world of zero waste, zero emissions, and zero inequality. To help our customers on this journey, we offer an expanded portfolio of sustainable business solutions. For more information, see the Our Product Strategy section in this consolidated Half-Year Management Report. In Q1 2023, we achieved SAP’s carbon neutrality target, meaning that our net carbon emissions reached 0 kilotons (kt) of CO2equivalents (CO2e) after decreasing to 85 kt at year end 2022. In Q2 2023, the emissions remained at 0 kt. This downward trend reflects our strategic three-fold approach of “avoid-reduce-compensate” where we aim to compensate only for those emissions which cannot yet be avoided. SAP’s amount of compensated emissions per FTE dropped from about 2 tons of CO2e (2018) to less than 1 ton of CO2e (2022). Having reached our carbon neutrality target, we are now focused on our next goal: becoming net zero along our entire value chain by 2030 in line with a 1.5°C future. In this regard, we aim to apply the demanding Corporate Net-Zero Standard set by the Science-Based Targets initiative (SBTi). In March 2023, we incorporated environmental, social, and governance (ESG) components into a new revolving credit facility for the first time. In line with our sustainable corporate strategy, we integrated ‘net zero’ alongside ‘women in management’ as components of our new sustainability-linked revolving credit facility of €3 billion. At the Annual General Meeting of Shareholders in May 2023, the shareholders approved the inclusion of the same two new ESG KPIs alongside financial metrics in the long-term incentive compensation of the SAP Executive Board starting 2024. SAP’s ESG efforts – along with its measures, initiatives, and targets – have been recognized by renowned sustainability ratings and ranking organizations: – In IDC's report "Sustainability Index for Software Providers”, SAP was placed in the top 3 of 23 assessed software vendors. – SAP upholds its prime status (B rating) and remains in the first decile rank of the Institutional Shareholder Services (ISS) ESG rating based on the July 2023 update. – SAP’s continuous sustainability leadership is reflected in its “A–” rating in CDP’s climate change assessment. In March 2023, SAP was again recognized as a CDP Supplier Engagement Leader. – We ranked 41st in Corporate Knights’ 2023 Global 100 Most Sustainable Corporations in the World. 16/59 SAP Half-Year Report 2023 Organization and Changes in Management On March 31, 2023, SAP announced that the Supervisory Board had extended the contracts of Executive Board members Julia White, Chief Marketing & Solutions Officer, and Scott Russell, who leads SAP’s Customer Success organization, for three years until 2027. Furthermore, Sabine Bendiek, Chief People & Operating Officer and Labor Relations Director, informed the Supervisory Board that she will not renew her contract which expires on December 31, 2023. Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early on, take the appropriate action, and mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2022 and our Annual Report on Form 20-F for 2022. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see the Notes to the Consolidated Half-Year Financial Statements, Note (G.1). Based on our aggregation approach and taking into consideration the mitigations implemented for all our risk factors and risks, as at June 30, 2023, we see no material change relative to our 2022 risk assessment or 2022 risk-bearing capacity. We do not believe that any of the risks we identified in our Integrated Report 2022 and Annual Report on Form 20-F for 2022, and as outlined herein, jeopardize our ability to continue as a going concern. Expected Developments and Opportunities Future Trends in the Global Economy The global growth and inflation outlook in the European Central Bank’s (ECB) current projections1 remains broadly unchanged, but with a small upward revision due to a recovery in demand in China. However, this outlook remains highly uncertain, with broader geopolitical tensions and renewed financial market tensions as downside risks and the strong labor market and increasing confidence as upside risks. The ECB expects inflation to remain high in the EMEA region at 5.4% in 2023 but to decrease thereafter because of lower commodity prices. The ECB has also lowered its economic growth projections for the euro area until 2025. However, it still expects economic growth to strengthen in the coming quarters as energy prices moderate, foreign demand strengthens, supply bottlenecks are resolved, and uncertainty continues to recede. As for the Americas region, the resilience of labor markets in the United States is underpinning consumer demand. The ECB projects U.S. economic activity to be driven mainly by the services sector, whereas manufacturing output could remain relatively subdued. In summary, the ECB expects real GDP in the United States to recover tepidly in the second half of 2023. In the APJ region, projects the ECB, recovery in China will presumably continue but could lose momentum if the rapid recovery of consumer spending after the reopening of the economy does not expand to manufacturing. In Japan, economic activity is likely to expand at a moderate pace, supported by pent-up demand and ongoing policy support. 17/59 SAP Half-Year Report 2023 Economic Trends GDP Growth Year Over Year % 2022 2023p World 3.4 2.8 Advanced Economies 2.7 1.3 Emerging Markets and Developing Economies 4.0 3.9 Regions (according to IMF taxonomy) Euro Area 3.5 0.8 Germany 1.8 0.1 Emerging and Developing Europe 0.8 1.2 Middle East and Central Asia 5.3 2.9 Sub-Saharan Africa 3.9 3.6 United States 2.1 1.6 Canada 3.4 1.5 Latin America and the Caribbean 4.0 1.6 Japan 1.1 1.3 Emerging and Developing Asia 4.4 5.3 China 3.0 5.2 p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2023, A Rocky Recovery (https://www.imf.org/- /media/Files/Publications/WEO/2023/April/English/text.ashx), p. 29. The IT Market: Outlook for 2023 and Beyond “In the digital world, organizations need to continue their investment in enterprise applications,”2 says International Data Corporation (IDC), a U.S.-based market research firm. It does not find this “a surprise considering organizations are hyperfocused on the macroeconomic headwinds of inflation, labor shortages, and the recession.”2 For IDC, “it is clear the digital world is increasing investments for SaaS software […], as on average, 31% of organizations are planning on replacing their current systems within 12 months, 11% in 12– 24 months, and 5% in 24–36 months.”2 However, “the deployment model is critical to buyers. Some will only move to a hybrid environment, while others are moving quickly to private or public cloud.”2 In particular, “technological innovations that generate improvements in overall energy efficiencies will be essential to lower costs and reduce carbon footprints.”3 Therefore, “demand for ESG data consolidation platforms will rise because the future enterprise will increasingly need digitalized and/or automated business processes, which will lead to a need for data integration platforms. ESG data must be consolidated in a centralized manner and be available for different types of data/KPI monitoring […]. Organizations that master ESG performance metrics monitoring in a holistic manner and integrate ESG insights into steering their strategy execution will gain a competitive advantage by moving beyond mere regulatory compliance to driving business benefits,”3 reports IDC. Particularly “in Europe, pressure is increasing to provide visibility into ESG KPIs and publicly disclose nonfinancial indicators. The European Commission’s forthcoming Corporate Sustainability Reporting Directive (CSRD) requires a large amount of specific new qualitative and quantitative information to be disclosed.”3 1 European Central Bank, Economic Bulletin, Issue 4/2023, Publication Date: June 29, 2023. 2 IDC Market Perspective: June 2023: Enterprise Application Spending Continues for the Foreseeable Future, Doc #US50665223, May 2023. 3 IDC Vendor Profile: Sustainability Index for Software Providers: SAP, Doc #EUR147190121, May 2023. 2024p 3.0 1.4 4.2 1.4 1.1 2.5 3.5 4.2 1.1 1.5 2.2 1.0 5.1 4.5 18/59 SAP Half-Year Report 2023 Impact on SAP Looking ahead, SAP’s cloud transformation is expected to drive further opportunities for our customers. Macroeconomic challenges such as inflation or supply chain disruptions as well as increasing global regulatory requirements are prompting many customers to reinvent how their businesses run to become more resilient and agile. Therefore, SAP is executing on its cloud-led strategy, which is driving accelerating cloud growth through both new business and cloud adoption by existing customers. Our broad solution portfolio, including our modular cloud ERP suite, SAP Business Technology Platform, our industry cloud, SAP Business Network, and our enhanced sustainability portfolio, helps create value not only for our customers but for our entire ecosystem. This strategy resonates with customers even in an increasingly challenging environment. As such, SAP is well positioned to capitalize on an expanding addressable market. Financial Targets and Prospects (Non-IFRS) Revenue and Operating Profit Targets and Prospects In April 2023, SAP revisited its 2023 outlook, confirmed its performance expectations underlying its January 2023 outlook for continuing operations, and reflected the anticipated divestiture of Qualtrics. Based hereon, SAP updated its revenue and operating profit outlook in July 2023 and now expects: – €14.0 billion to €14.2 billion in cloud revenue at constant currencies (2022: €11.43 billion), up 23% to 24% at constant currencies. The previous range as communicated in April 2023 was €14.0 billion to €14.4 billion at constant currencies, the initial range (including Qualtrics) was €15.3 billion to €15.7 billion at constant currencies. – €27.0 billion to €27.4 billion in cloud and software revenue at constant currencies (2022: €25.39 billion), up 6% to 8% at constant currencies. The previous range as communicated in April 2023 was €26.9 billion to €27.4 billion at constant currencies, the initial range (including Qualtrics) was €28.2 billion to €28.7 billion at constant currencies. – €8.65 billion to €8.95 billion in non-IFRS operating profit at constant currencies (2022: €7.99 billion), up 8% to 12% at constant currencies. The previous range as communicated in April 2023 was €8.6 billion to €8.9 billion at constant currencies, the initial range (including Qualtrics) was €8.8 billion to €9.1 billion at constant currencies. SAP continues to expect: – A share of more predictable revenue of approximately 82% (2022: 79%). It is defined as the total of cloud revenue and software support revenue divided by total revenue. The initial guidance (including Qualtrics) was approximately 83%. – A full-year effective tax rate (IFRS) of 28.0% to 32.0% (2022: 32.0%) and an effective tax rate (non- IFRS) of 26.0% to 28.0% (2022: 29.6%). Additionally, SAP continues to expect: – Current Cloud Backlog: A year-end growth rate similar to 2022, but at a larger scale – SAP S/4HANA cloud revenue: continued high growth in 2023 – Cloud gross margin: a steady increase in the years 2023 through 2025 to allow SAP to achieve its 2025 cloud gross profit ambition We continuously strive for profit expansion in all of our operating segments. While SAP’s full-year 2023 business outlook is at constant currencies, actual-currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. For the third-quarter and full-year 2023 expected currency impacts, see the table below: 19/59 SAP Half-Year Report 2023 Expected Currency Impact for the rest of the year based on June 2023 Level In percentage points Q3 FY Cloud −7pp to −5pp −4pp to −2pp Cloud and software −6pp to −4pp −3.5pp to −1.5pp Operating profit −6.5pp to −4.5pp −4.5pp to −2.5pp The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures: Non-IFRS Measures € millions Estimated Amounts for Full Year 2023 Q1–Q2 2023 Q1–Q2 2022 Acquisition-related charges 300–380 177 191 Share-based payment expenses 1,850–2,250 1,167 513 Restructuring 250–300 257 119 Regulatory compliance matters 170 170 Medium-Term Prospects SAP updated its medium-term ambitions on May 16, 2023. For 2025, SAP now expects: – Cloud revenue of more than €21.5 billion – Total revenue of more than €37.5 billion – Non-IFRS cloud gross profit of approximately €16.3 billion – Non-IFRS operating profit of approximately €11.5 billion – A share of more predictable revenue of approximately 86% – Free cash flow of approximately €7.5 billion Building Blocks of the Ambition 2025 Update Original Ambition 2025 (incl. Qualtrics) Estimated Impact of Qualtrics Divestiture Update for Continuing Operations Updated Ambition 2025 (excl. Qualtrics) CAGR 2022– 2025e* (continuing operations) Cloud revenue >€22.0bn –€2.0bn +€1.5bn >€21.5bn >23% Total revenue >€36.0bn –€2.3bn +€3.8bn >€37.5bn >8% Cloud gross profit (non-IFRS) ~€17.6bn –€1.8bn +€0.5bn ~€16.3bn ~27% Operating profit (non-IFRS) >€11.5bn –€0.5bn +€0.5bn ~€11.5bn ~13% expected The update demonstrates SAP’s strong cloud momentum and reflects the divestiture of Qualtrics. The €3.8 billion increase in our 2025 total revenue ambition is driven by an expected stronger cloud revenue growth, a higher degree of resilience in our support business, and a more favorable 2025 currency environment as compared to the original ambition published in October 2020. 20/59 SAP Half-Year Report 2023 Furthermore, SAP expects: – Cloud revenue growth to continue to benefit from conversions of support revenue to cloud revenue at average conversion factors of two to three times – PaaS revenue to grow at higher rates than SaaS revenue for the foreseeable future – Total revenue growth to accelerate beyond 2023 towards double-digit growth Goals for Liquidity, Finance, and Investments SAP believes that its liquid assets combined with its undrawn credit facilities are sufficient to meet its operating financing needs in the second half of 2023 as well, and, together with expected cash flows from operations, will support debt repayments and its currently planned capital expenditure requirements over the near and medium term. In 2023 and compared to 2022, SAP expects an increase in free cash flow of approximately €4.9 billion due to improvements in profitability and working capital, which are expected to be partially offset by higher tax payments and payouts for restructuring. Compared to what SAP disclosed in its Integrated Report 2022, SAP adjusted its expectations for FCF to approximately €4.9 billion in 2023 (formerly approximately €5.0 billion) and approximately €7.5 billion in 2025 (formerly approximately €8.0 billion). In addition to the repayment of €1.6 billion in Eurobonds in the first half of 2023, SAP intends to repay portions or the full amounts of the two fully drawn bilateral bank loans of €1.45 billion in the third quarter of 2023. SAP expects the ratio of net debt as at December 31, 2023, divided by the total of operating profit (IFRS) plus depreciation and amortization, to be negative due to the positive impact of the sales proceeds of Qualtrics. As such, SAP plans to start the new share repurchase program with a volume of up to €5.0 billion in the second half of 2023 and complete it in full by the end of 2025. SAP’s planned investment expenditures for 2023 and 2024, other than from business combinations, consist primarily of the purchase of IT infrastructure (such as data centers) and the construction of new buildings. Primarily driven by lower investment expenditures for IT, SAP now expects planned investment expenditures of slightly below €900 million for 2023, compared to the approximately €950 million disclosed in the Integrated Report 2022. For 2024, SAP expects capital expenditures to stay at a similar level as in 2023. Non-Financial Goals 2023 and Ambitions for 2025 In addition to our financial goals, we focus on three non-financial targets: customer loyalty, employee engagement, and carbon emissions. In 2023, SAP continues to expect: – A Customer Net Promoter Score of 8 to 12. The guidance is based on an adjusted methodology for 2023 to better reflect the business priorities of the company. The baseline for 2022, calculated using the new methodology, is 7. – An Employee Engagement Index to be in a range of 76% to 80% – Net carbon emissions of 0 kt, meaning the Company will be carbon neutral in its own operations For 2025 non-financial performance, SAP now expects to: – Steadily increase the Employee Engagement Index In addition, it continues to expect to: – Steadily increase the Customer Net Promoter Score – Maintain net carbon emissions in our own operations of 0 kt. In addition, SAP is committed to achieving net-zero along our value chain by 2030. 21/59 SAP Half-Year Report 2023 Premises on Which Our Outlook and Prospects Are Based In preparing our outlook and prospects, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2022. 22/59 SAP Half-Year Report 2023 Consolidated Half-Year Financial Statements – IFRS Primary Half-Year Financial Statements Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation .............................................................................................................. 29 Section A – Customers (A.1) Revenue .................................................................................................................................. 31 (A.2) Trade and Other Receivables .................................................................................................. 32 Section B – Employees (B.1) Employee Headcount .............................................................................................................. 33 (B.2) Employee Benefits Expenses .................................................................................................. 33 (B.3) Share-Based Payments ........................................................................................................... 34 (B.4) Restructuring ........................................................................................................................... 34 Section C – Financial Results (C.1) Results of Segments ................................................................................................................ 36 (C.2) Reconciliation of Segment Measures to Income Statement ..................................................... 37 (C.3) Financial Income, Net .............................................................................................................. 37 (C.4) Income Taxes .......................................................................................................................... 38 Section D – Invested Capital (D.1) Business Combinations and Divestitures ................................................................................. 39 (D.2) Goodwill .................................................................................................................................. 40 (D.3) Property, Plant, and Equipment .............................................................................................. 40 (D.4) Purchase Obligations .............................................................................................................. 41 Section E – Capital Structure, Financing and Liquidity (E.1) Total Equity ............................................................................................................................. 42 (E.2) Liquidity ................................................................................................................................... 43 Section F – Management of Financial Risk Factors (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments ...................................................................................................................................... 44 Section G – Other Disclosures (G.1) Other Litigation, Claims, and Legal Contingencies .................................................................. 45 (G.2) Related Party Transactions ..................................................................................................... 45 (G.3) Events After the Reporting Period ........................................................................................... 46 (G.4) Scope of Consolidation ........................................................................................................... 46 (G.5) Updated Cost Allocation Policy ............................................................................................... 46 234–28 29 31 33 36 39 42 44 45 23/59 SAP Half-Year Report 2023 Consolidated Income Statement of SAP Group (IFRS) – Half Year Q1–Q2 2023 € millions, unless otherwise stated Q1–Q2 2022 Cloud 6,493 5,362 Software licenses 591 743 Software support 5,778 5,900 Software licenses and support 6,369 6,643 Cloud and software 12,863 12,005 Services 2,132 1,974 Total revenue (A.1), (C.2) 14,995 13,980 Cost of cloud –1,897 –1,650 Cost of software licenses and support –687 –686 Cost of cloud and software –2,584 –2,336 Cost of services –1,718 –1,516 Total cost of revenue –4,301 –3,852 Gross profit 10,693 10,127 Research and development –3,138 –2,910 Sales and marketing –4,457 –3,842 General and administration –670 –610 Restructuring (B.4) –257 –119 Other operating income/expense, net –10 –115 Total operating expenses –12,834 –11,449 Operating profit (loss) 2,161 2,531 Other non-operating income/expense, net –103 –63 Finance income 369 520 Finance costs –656 –692 Financial income, net (C.3) –287 –173 Profit (loss) before tax from continuing operations (C.2) 1,771 2,295 Income tax expense –643 –666 Profit (loss) after tax from continuing operations 1,128 1,629 Attributable to owners of parent 1,135 1,657 Attributable to non-controlling interests –7 –28 Profit (loss) after tax from discontinued operations (D.1) 2,763 –794 Profit (loss) after tax2 3,890 835 Attributable to owners of parent2 3,933 1,074 Attributable to non-controlling interests2 –43 –239 Earnings per share, basic (in €)1 from continuing operations 0.97 1.41 Earnings per share, basic (in €)1, 2 3.37 0.92 Earnings per share, diluted (in €)1 from continuing operations 0.97 1.41 Earnings per share, diluted (in €)1, 2 3.34 0.91 1 For the six months ended June 30, 2023 and 2023, the weighted average number of shares was 1,168 million (diluted: 1,176 million) and 1,174 million (diluted: 1,174 million), respectively (treasury stock excluded). 2 From continuing and discontinued operations Due to rounding, numbers may not add up precisely. ∆ in % 21 –20 –2 –4 7 8 7 15 0 11 13 12 6 8 16 10 >100 –91 12 –15 64 –29 –5 66 –23 –3 –31 –31 –74 <-100 >100 >100 –82 –31 >100 –32 >100 24/59 SAP Half-Year Report 2023 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year € millions Q1–Q2 2023 Profit after tax 3,890 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 0 Income taxes relating to remeasurements on defined benefit pension plans 0 Remeasurements on defined benefit pension plans, net of tax 0 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 0 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax –755 Reclassification adjustments on exchange differences on translation, before tax –129 Exchange differences, before tax –884 Income taxes relating to exchange differences on translation 8 Exchange differences, net of tax –876 Gains (losses) on cash flow hedges/cost of hedging, before tax 45 Reclassification adjustments on cash flow hedges/cost of hedging, before tax –32 Cash flow hedges/cost of hedging, before tax 13 Income taxes relating to cash flow hedges/cost of hedging –4 Cash flow hedges/cost of hedging, net of tax 10 Other comprehensive income for items that will be reclassified to profit or loss, net of tax –866 Other comprehensive income, net of tax –866 Total comprehensive income1 3,024 Attributable to owners of parent1 3,233 Attributable to non-controlling interests1 –208 1 From continuing and discontinued operations Due to rounding, numbers may not add up precisely. Q1–Q2 2022 835 1 –2 –2 –2 3,513 0 3,513 –7 3,505 –11 46 35 –9 26 3,531 3,530 4,365 4,347 18 25/59 SAP Half-Year Report 2023 Consolidated Statement of Financial Position of SAP Group (IFRS) as at 6/30/2023 and 12/31/2022 € millions 2023 Cash and cash equivalents 14,142 Other financial assets 480 Trade and other receivables 5,594 Other non-financial assets (A.2) 2,371 Tax assets 403 Total current assets 22,990 Goodwill (D.2) 28,581 Intangible assets 2,259 Property, plant, and equipment (D.3) 4,361 Other financial assets 5,513 Trade and other receivables 121 Other non-financial assets (A.2) 3,397 Tax assets 315 Deferred tax assets 2,182 Total non-current assets 46,730 Total assets 69,719 € millions 2023 Trade and other payables 1,584 Tax liabilities 582 Financial liabilities (E.2) 3,068 Other non-financial liabilities 3,859 Provisions (B.4) 339 Contract liabilities 6,743 Total current liabilities 16,176 Trade and other payables 57 Tax liabilities 901 Financial liabilities (E.2) 9,169 Other non-financial liabilities 677 Provisions 336 Deferred tax liabilities 146 Contract liabilities 28 Total non-current liabilities 11,314 Total liabilities 27,490 Issued capital 1,229 Share premium 1,552 Retained earnings 40,225 Other components of equity 3,100 Treasury shares –4,159 Equity attributable to owners of parent 41,946 Non-controlling interests 283 Total equity (E.1) 42,229 Total equity and liabilities 69,719 1 According to IFRS 5, Consolidated Statements of Financial Position as of 12/31/2022 for our continuing operations is unchanged from what previously has been reported. Due to rounding, numbers may not add up precisely. 20221 9,008 853 6,236 2,139 287 18,522 33,077 3,835 4,934 5,626 169 3,580 323 2,095 53,638 72,159 20221 2,147 283 4,808 4,818 90 5,309 17,453 79 893 9,547 705 359 241 33 11,858 29,311 1,229 3,081 36,418 3,801 –4,341 40,186 2,662 42,848 72,159 26/59 SAP Half-Year Report 2023 Consolidated Statements of Changes in Equity of SAP Group (IFRS) Equity Attributable to Owners of Parent € millions Issued Capital Share Premium Retained Earnings Other Components of Equity Treasury Shares Total 12/31/2021 1,229 1,918 37,022 1,757 –3,072 38,853 Profit after tax 1,074 1,074 Other comprehensive income –2 3,275 3,273 Comprehensive income 1,073 3,275 4,347 Share-based payments 629 629 Dividends –2,865 –2,865 Purchase of treasury shares –1,000 –1,000 Transactions with non-controlling interests –83 –83 Other changes –37 –37 6/30/2022 1,229 2,547 35,109 5,031 –4,072 39,844 12/31/2022 1,229 3,081 36,418 3,801 –4,341 40,186 Profit after tax 3,933 3,933 Other comprehensive income 0 –701 –701 Comprehensive income 3,933 –701 3,233 Share-based payments 777 777 Dividends –2,395 –2,395 Reissuance of treasury shares under share-based payments Transactions with non-controlling interests –2,306 2,306 182 182 0 Other changes 0 –37 –37 6/30/2023 1,229 1,552 40,225 3,100 –4,159 41,946 Due to rounding, numbers may not add up precisely. Non- Controlling Interests 2,670 –239 257 18 181 –18 85 7 2,943 2,662 –43 –165 –208 111 –21 –2,261 0 283 Total Equity 41,523 835 3,530 4,365 810 –2,883 –1,000 1 –29 42,787 42,848 3,890 –866 3,024 888 –2,416 182 –2,261 –37 42,229 27/59 SAP Half-Year Report 2023 Consolidated Statement of Cash Flows of SAP Group (IFRS) € millions Q1–Q2 2023 Profit (loss) after tax 3,890 Adjustments to reconcile profit (loss) after tax to net cash flows from operating activities: (Profit) loss after tax from discontinued operations –2,763 Depreciation and amortization 714 Share-based payment expense 1,167 Income tax expense 643 Financial income, net 287 Decrease/increase in allowances on trade receivables 5 Other adjustments for non-cash items 76 Decrease/increase in trade and other receivables 396 Decrease/increase in other assets –600 Increase/decrease in trade payables, provisions, and other liabilities –896 Increase/decrease in contract liabilities 2,109 Share-based payments –697 Interest paid –244 Interest received 197 Income taxes paid, net of refunds –1,127 Net cash flows from operating activities – continuing operations 3,160 Net cash flows from operating activities – discontinued operations 80 Net cash flows from operating activities 3,240 Business combinations, net of cash and cash equivalents acquired 0 Cash flows from derivative financial instruments related to the sale of subsidiaries or businesses –91 Purchase of intangible assets or property, plant, and equipment –413 Proceeds from sales of intangible assets or property, plant, and equipment 43 Purchase of equity or debt instruments of other entities –220 Proceeds from sales of equity or debt instruments of other entities 722 Net cash flows from investing activities – continuing operations 41 Net cash flows from investing activities – discontinued operations 6,323 Net cash flows from investing activities 6,364 Dividends paid –2,395 Dividends paid on non-controlling interests –18 Purchase of treasury shares 0 Proceeds from borrowings 0 Repayments of borrowings –1,724 Payments of lease liabilities –188 Transactions with non-controlling interests 43 Net cash flows from financing activities – continuing operations –4,283 Net cash flows from financing activities – discontinued operations 24 Net cash flows from financing activities –4,259 Effect of foreign currency rates on cash and cash equivalents –212 Net decrease/increase in cash and cash equivalents 5,134 Cash and cash equivalents at the beginning of the period 9,008 Cash and cash equivalents at the end of the period 14,142 1 We no longer show cash flows linked to the supply chain financing (SCF) transactions from Taulia in investing/financing cash flow separately and therefore adjusted the comparative figures accordingly. Due to rounding, numbers may not add up precisely. Q1–Q2 20221 835 794 774 513 666 173 104 11 865 –600 –1,240 2,073 –927 –138 44 –1,181 2,766 –14 2,752 –664 0 –408 46 –2,256 4,005 723 –15 708 –2,865 –3 –1,000 38 –944 –209 0 –4,982 –209 –5,191 305 –1,427 8,898 7,472 28/59 SAP Half-Year Report 2023 Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation General Information About Consolidated Half-Year Financial Statements The registered seat of SAP SE is in Walldorf, Germany (Commercial Register of the Lower Court of Mannheim HRB 719915). The condensed Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. In this context, IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2022, included in our Integrated Report 2022 and our Annual Report on Form 20-F for 2022. Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. Amounts disclosed in our Consolidated Half-Year Financial Statements that are taken directly from our Consolidated Income Statements or our Consolidated Statements of Financial Position are marked by the symbols and , respectively. Accounting Policies, Management Judgments, and Sources of Estimation Uncertainty How We Present Our Accounting Policies, Judgments, and Estimates To ease the understanding of our financial statements, we present the accounting policies, judgments, and estimates on a given subject together with other disclosures related to the same subject in the Note that deals with this subject, and highlighted this disclosure with a light gray box and the symbol . We describe, however, only material changes of our accounting policies, judgments, and estimates in relation to our Consolidated Financial Statements for 2022. 29/59 SAP Half-Year Report 2023 New Accounting Standards Not Yet Adopted The IASB has issued amendments to standards such IAS 1 (Classification of Liabilities as Current or Non-current), that are relevant for SAP but not yet effective. We are currently in the process of finalizing the assessment of the impact on SAP, but do not expect material effects on our financial position or results of operations. 30/59 SAP Half-Year Report 2023 Section A – Customers This section discusses disclosures related to contracts with our customers. These consist of revenue breakdowns and information about our trade receivables. For more information, see our Consolidated Financial Statements for 2022, Section A – Customers. (A.1) Revenue Geographic Information The amounts for revenue by region in the following tables are based on the location of customers. Cloud Revenue by Region € millions Q1–Q2 2023 Q1–Q2 2022 EMEA 2,458 1,966 Americas 3,194 2,695 APJ 841 701 SAP Group 6,493 5,362 Cloud and Software Revenue by Region € millions Q1–Q2 2023 Q1–Q2 2022 EMEA 5,660 5,285 Americas 5,283 4,866 APJ 1,919 1,853 SAP Group 12,863 12,005 Total Revenue by Region € millions Q1–Q2 2023 Q1–Q2 2022 Germany 2,283 2,114 Rest of EMEA 4,338 4,049 EMEA 6,621 6,163 United States 4,974 4,566 Rest of Americas 1,233 1,136 Americas 6,207 5,702 Japan 616 602 Rest of APJ 1,550 1,513 APJ 2,166 2,115 SAP Group 14,995 13,980 For information about the breakdown of revenue by segment and segment revenue by region, see Note (C.1). For more information about our revenue accounting policies, see our Consolidated Financial Statements for 2022, Note (A.1). 31/59 SAP Half-Year Report 2023 (A.2) Trade and Other Receivables € millions Trade receivables, net Other receivables Total € millions Trade receivables, net Other receivables Total Current 5,243 351 5,594 Current 5,782 454 6,236 Non-Current 0 121 121 Non-Current 0 169 169 6/30/2023 Total 5,243 472 5,715 12/31/2022 Total 5,782 623 6,405 32/59 SAP Half-Year Report 2023 Section B – Employees This section provides financial insights into our employee benefit arrangements. It should be read in conjunction with the compensation disclosures for key management personnel in Note (G.5) in our Consolidated Financial Statements for 2022, as well as SAP’s Compensation Report. For more information, see our Consolidated Financial Statements for 2022, Section B – Employees. (B.1) Employee Headcount On June 30, 2023, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. Number of Employees (in Full-Time Equivalents) Full-time equivalents 6/30/2023 EMEA Americas APJ Total EMEA Americas APJ Cloud and software1 4,010 4,083 4,000 12,093 4,497 3,979 4,403 Services 7,993 5,000 5,476 18,469 8,193 5,061 5,811 Research and development1 17,910 5,872 12,318 36,100 17,075 5,730 11,379 Sales and marketing 11,778 10,121 5,303 27,202 11,454 10,649 5,347 General and administration 3,475 1,765 1,281 6,521 3,337 1,867 1,208 Infrastructure 2,800 1,284 859 4,943 2,774 1,350 874 SAP Group (6/30) 47,966 28,125 29,237 105,328 47,331 28,636 29,022 Thereof acquisitions 0 0 0 0 173 189 8 SAP Group (six months' end average) 47,917 28,127 29,337 105,380 46,834 28,650 28,991 1 Due to the updated cost allocation policy described in Note (G.5), headcount numbers for the comparative period were adjusted accordingly (B.2) Employee Benefits Expenses € millions Q1–Q2 2023 Salaries 5,915 Social security expenses 975 Share-based payment expenses 1,167 Pension expenses 235 Employee-related restructuring expenses 250 Termination benefits 22 Employee benefits expenses 8,565 6/30/2022 Total 12,879 19,065 34,185 27,450 6,411 4,997 104,988 370 104,475 Q1–Q2 2022 5,572 910 513 236 61 23 7,315 33/59 SAP Half-Year Report 2023 (B.3) Share-Based Payments The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Q1–Q2 2023 Q1–Q2 2022 Cost of cloud 47 19 Cost of software licenses and support 20 21 Cost of services 198 96 Research and development 371 162 Sales and marketing 435 171 General and administration 96 43 Share-based payment expenses 1,167 513 Thereof cash-settled share-based payments 473 –9 Thereof equity-settled share-based payments 694 522 Share-based payment expenses related to the Qualtrics plan are included in the results from discontinued operations (see Note (D.1)). Move SAP Plan and Grow SAP Plan In the first half of 2023, we granted 13.9 million (first half of 2022: 16.8 million) share units. This includes 12.4 million (first half of 2022: 14.3 million) share units which we intend to settle in shares. The dilutive effect of outstanding equity-settled share units is reflected in the calculation of earnings per share, diluted. Of the share units we intend to settle in cash, 0.8 million share units were granted in June 2023 under the Grow SAP plan (June 2022: 1.1 million). Own SAP Plan Under the Own SAP plan, employees can purchase, on a monthly basis, SAP shares without any required holding period. The number of shares purchased by our employees under this plan was 3.5 million in the first half of 2023 (first half of 2022: 4.6 million). For more information about our share-based payments and a detailed description of our share-based payment plans, see the Notes to the Consolidated Financial Statements for 2022, Note (B.3). (B.4) Restructuring € millions Q1–Q2 2023 Q1–Q2 2022 Employee-related restructuring expenses 250 61 Onerous contract-related restructuring expenses and restructuring related impairment losses 8 58 Restructuring expenses 257 119 Most of the restructuring expenses recognized in the first half of 2023 relate to the targeted restructuring program in selected areas of the company that SAP announced and launched in the first quarter to further focus on its strategic growth areas and accelerated cloud transformation. Restructuring expenses primarily include employee-related benefits such as severance payments. The restructuring costs presented in 2022 mainly include expenses related to the wind-down of business in Russia and Belarus. If not presented separately, these restructuring expenses would break down in our income statements as follows: 34/59 SAP Half-Year Report 2023 Restructuring Expenses by Functional Area € millions Cost of cloud Cost of software licenses and support Cost of services Research and development Sales and marketing General and administration Restructuring expenses Q1–Q2 2023 6 11 34 40 150 16 257 Q1–Q2 2022 –12 4 61 7 57 3 119 35/59 SAP Half-Year Report 2023 Section C – Financial Results This section provides insight into the financial results of SAP's reportable segments and of SAP overall, as far as not already covered by previous sections. This includes segment results and income taxes. For more information, see our Consolidated Financial Statements for 2022, Section C – Financial Results. (C.1) Results of Segments General Information SAP has five operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our network offerings (Business Network), our customer experience portfolio of Emarsys, our portfolio of sustainability-related solutions (Sustainability), our working capital management solutions (Taulia), or cover other areas of our business including support and services activities (Applications, Technology & Services). For more information about our segments, see the Notes to the Consolidated Financial Statements for 2022, Note (C.1). In the first quarter of 2023, the non-reportable SAP Signavio segment was dissolved and integrated into the Applications, Technology & Services segment. The segment information for comparative prior periods was restated to conform with the new segment composition. At the end of the second quarter of 2023, we sold Qualtrics, formerly a reportable segment which derived its revenues mainly from the sale of experience management cloud solutions. For more information related to the sale of Qualtrics, see Note (D.1). Applications, Technology & Services € millions, unless otherwise stated (non-IFRS) Actual Currency Q1–Q2 2023 Constant Currency Q1–Q2 2022 Actual Currency Cloud 5,940 5,978 4,885 Software licenses 591 601 743 Software support 5,777 5,831 5,900 Software licenses and support 6,369 6,432 6,643 Cloud and software 12,309 12,410 11,529 Services 2,124 2,139 1,967 Total segment revenue 14,429 14,544 13,492 Cost of cloud –1,806 –1,802 –1,589 Cost of software licenses and support –624 –624 –661 Cost of cloud and software –2,430 –2,426 –2,249 Cost of services –1,492 –1,503 –1,380 Total cost of revenue –3,922 –3,929 –3,629 Cloud gross profit 4,134 4,176 3,297 Segment gross profit 10,507 10,615 9,863 Other segment expenses –6,042 –6,072 –6,054 Segment profit (loss) 4,465 4,543 3,809 36/59 SAP Half-Year Report 2023 Segment Revenue by Region EMEA Americas APJ Total Segment Revenue € millions Actual Currency Q1–Q2 2023 Constant Currency Q1–Q2 2022 Actual Currency Q1–Q2 2023 Actual Currency Constant Currency Q1–Q2 2022 Actual Currency Actual Currency Q1–Q2 2023 Constant Currency Q1–Q2 2022 Actual Currency Actual Currency Q1–Q2 2023 Constant Currency Q1–Q2 2022 Actual Currency Applications, Technology & Services 6,448 6,492 6,017 5,874 5,837 5,415 2,107 2,216 2,060 14,429 14,544 13,492 (C.2) Reconciliation of Segment Measures to Income Statement Q1–Q2 2023 Q1–Q2 2022 € millions Actual Currency Constant Currency Actual Currency Applications, Technology & Services 14,429 14,544 13,492 Total segment revenue for the reportable segment 14,429 14,544 13,492 Other revenue 566 568 487 Adjustment for currency impact 0 117 0 Total revenue 14,995 15,229 13,980 Applications, Technology & Services 4,465 4,543 3,809 Total segment profit for the reportable segment 4,465 4,543 3,809 Other revenue 566 568 487 Other expenses –1,098 –1,081 –943 Adjustment for currency impact 0 –97 0 Adjustment for Acquisition-related charges –177 –177 –191 Share-based payment expenses –1,167 –1,167 –513 Restructuring –257 –257 –119 Adjustment for regulatory compliance matter expenses –170 –170 0 Operating profit 2,161 2,161 2,531 Other non-operating income/expense, net –103 –103 –63 Financial income, net –287 –287 –173 Profit before tax1 1,771 1,771 2,295 1 From continuing operations (C.3) Financial Income, Net In the first half of 2023, finance income mainly consisted of income from gains from disposals and fair value adjustments of equity securities totaling €186 million (first half of 2022: €463 million), and interest income from loans and receivables, other financial assets (cash, cash equivalents, and current investments) as well as from derivatives amounting to €190 million (first half of 2022: €65 million). In the first half of 2023, finance costs were primarily impacted by losses from disposals and fair value adjustments of equity securities amounting to €226 million (first half of 2022: €543 million), and interest expense on financial liabilities including lease liabilities as well as negative effects from derivatives amounting to €370 million (first half of 2022: €97 million). The increase in interest expenses in the first half of 2023 compared to the first half of 2022 is due to: – Our interest rate swaps through which we are exposed to variable interest rates, and 37/59 SAP Half-Year Report 2023 – A forward contract to hedge the USD purchase price from the Qualtrics sale against EUR-USD fluctuations. This forward contract matured on June 28, 2023, and we realized a loss of € 106 million in finance cost. For more information about our financial income, net, see the Notes to the Consolidated Financial Statements for 2022, Note (C.4). (C.4) Income Taxes We are subject to ongoing tax audits by domestic and foreign tax authorities. Currently, we are in dispute mainly with the German and only a few foreign tax authorities. The German dispute is in respect of certain secured capital investments, while the few foreign disputes are in respect of the deductibility of intercompany royalty payments and intercompany services. In all cases, we expect that a favorable outcome can only be achieved through litigation. For all of these matters, we have not recorded a provision as we believe that the tax authorities’ claims have no merit and that no adjustment is warranted. If, contrary to our view, the tax authorities were to prevail in their arguments before the court, we would expect to have an additional expense of approximately €1,837 million (2022: €1,571 million) in total (including related interest expenses and penalties of €1,013 million (2022: €857 million)). The contingent liabilities increased in 2023 mainly due to tax effects (including interest) for the current year as well as foreign currency exchange rate fluctuations. 38/59 SAP Half-Year Report 2023 Section D – Invested Capital This section highlights the non-current assets including investments that form the basis of our operating activities. Additions in invested capital include separate asset acquisitions or business combinations. For more information, see our Consolidated Financial Statements for 2022, Section D – Invested Capital. (D.1) Business Combinations and Divestitures Qualtrics Disposal On March 13, resulting from a process that was initiated on January 26, SAP announced it had agreed to sell all of its 423 million shares of Qualtrics International Inc. as part of the acquisition of Qualtrics by funds affiliated with Silver Lake as well as the Canada Pension Plan Investment Board. The sale closed on June 28, 2023, following satisfaction of customary closing conditions and regulatory approvals. At a purchase price of US$18.15 in cash per share, SAP’s stake was acquired for approximately US$7.7 billion. At the time Qualtrics was classified as a discontinued operation (following IFRS 5), there was no indication of an impairment (as the fair value less cost of disposal (calculated based on share prices) significantly exceeded the carrying amount). SAP will remain a close go-to-market and technology partner for Qualtrics. SAP’s financial results present Qualtrics as a discontinued operation (given the qualitative and quantitative significance for SAP), in accordance with IFRS 5 (the comparative figures have been adjusted accordingly). The Qualtrics disposal group was previously included in the Qualtrics reportable segment. The pre-tax disposal gain included into discontinued operations (€3.7 billion) was calculated by adjusting the purchase price less cost of disposal (€7.0 billion) for net assets leaving the SAP Group (-€5.8 billion, mostly goodwill (-€4.0 billion) and other intangible assets (-€1.3 billion)) and the corresponding non-controlling interests (€2.4 billion) and amounts of other comprehensive income (€0.1 billion). SAP incurred taxes amounting to €0.5 billion in connection with the transaction. The cash inflow resulting from the purchase price (€7.1 billion) was offset by cash and cash equivalents of €0.7 billion leaving the SAP Group. SAP continues to provide rental guarantees for certain offices used by Qualtrics. Qualtrics is obligated to indemnify SAP with respect to the guarantees. Additional financial information relating to Qualtrics is presented in the following tables (revenues and expenses are presented after consolidation of transactions between Qualtrics and SAP’s continuing operations): € billion, unless otherwise stated Q1–Q2 2023 Q1–Q2 2022 Consolidated Income Statements Cloud revenue 0.6 0.5 Total revenue 0.7 0.6 Cost of cloud –0.1 –0.1 Total cost of revenue –0.2 –0.2 Total operating expenses (including total cost of revenue) –1.2 –1.4 Disposal gain before tax 3.7 0.0 Operating profit 3.2 –0.8 39/59 SAP Half-Year Report 2023 € billion, unless otherwise stated Q1–Q2 2023 Q1–Q2 2022 Profit (loss) before tax 3.3 –0.8 Income tax expense1 –0.5 0.0 Profit (loss) after tax 2.8 –0.8 Attributable to owners of parent 2.8 –0.6 Earnings per share, basic (IFRS, in €)2 2.40 –0.50 Earnings per share, diluted (IFRS, in €)2 2.38 –0.50 Consolidated Statements of Cash Flow Net operating cash flow 0.1 –0.0 Net investing cash flow 6.3 –0.0 Net financing cash flow 0.0 –0.2 1 For 2023, €0.5 billion relates to the gain on sale of discontinued operations. 2 For the six months ended June 30, 2023 and 2022, the weighted average number of shares was 1,168 million (diluted: 1,176 million) and 1,174 million (diluted: 1,174 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. (D.2) Goodwill For goodwill, we have – through a qualitative and quantitative analysis – been continuously monitoring the existence of triggering events that would require an impairment test in the first half of 2023. The review of internal and external factors led us to conclude that no triggering events occurred since our annual goodwill impairment test in 2022. No impairment tests were performed in the first half of 2023. Due to the integration of the SAP Signavio segment into the Applications, Technology & Services segment at the beginning of 2023, the goodwill in the SAP Signavio segment was moved to this segment. Given the close proximity to the 2022 annual goodwill impairment test, no formal impairment test was performed on the reallocation date of the SAP Signavio segment. For more information, see Note (C.1). (D.3) Property, Plant, and Equipment Property, Plant, and Equipment (Summary) € millions 6/30/2023 12/31/2022 Property, plant, and equipment excluding leases 2,880 3,133 Right-of-use assets 1,481 1,801 Total 4,361 4,934 Additions Q1–Q2 2023 Q1–Q4 2022 Property, plant, and equipment excluding leases 288 700 Right-of-use assets 88 429 Total 376 1,129 40/59 SAP Half-Year Report 2023 (D.4) Purchase Obligations SAP purchased – under an existing deal that expires on December 31, 2028 – additional cloud infrastructure services amounting to approximately €0.4 billion from a hyperscaler. For more information about our purchase obligations, see the Notes to the Consolidated Financial Statements for 2022, Note (D.8). 41/59 SAP Half-Year Report 2023 Section E – Capital Structure, Financing and Liquidity This section provides information related to how SAP manages its capital structure. Our capital management is based on a high equity ratio, modest financial leverage, a well-balanced maturity profile, and deep debt capacity. For more information, see our Consolidated Financial Statements for 2022, Section E – Capital Structure, Financing, and Liquidity. (E.1) Total Equity Number of Shares millions Issued Capital Treasury Shares 12/31/2021 1,228.5 –48.9 Purchase 0 –10.0 6/30/2022 1,228.5 –58.9 12/31/2022 1,228.5 –61.4 Reissuance under share-based payments 0 2.6 6/30/2023 1,228.5 –58.8 In the first half of 2022, we bought back 10.0 million shares to support the transition of SAP’s share- based compensation programs to equity settlement. In the first half of 2023, we reissued 2.6 million treasury shares to service share-based payment awards under our Move SAP Plan. Other Components of Equity € millions Exchange Differences Cash Flow Hedges Total 12/31/2021 1,779 –22 1,757 Other comprehensive income 3,249 26 3,275 6/30/2022 5,028 4 5,031 12/31/2022 3,784 16 3,801 Other comprehensive income –711 10 –701 6/30/2023 3,074 26 3,100 42/59 SAP Half-Year Report 2023 (E.2) Liquidity € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities Nominal Volume Current Non-Current 0 7,376 0 389 930 0 1,450 0 2,380 7,765 NA NA NA NA Nominal Volume Current Non-Current 1,600 7,381 0 397 930 0 1,456 0 3,986 7,778 NA NA NA NA 6/30/2023 Carrying Amount Current Non-Current Total 0 6,580 6,580 0 395 395 926 0 926 1,450 0 1,450 2,376 6,975 9,352 322 1,424 1,745 370 770 1,140 3,068 9,169 12,237 77 76 76 12/31/2022 Carrying Amount Current Non-Current Total 1,600 6,556 8,155 0 405 405 928 0 928 1,456 0 1,456 3,983 6,960 10,943 349 1,791 2,140 475 795 1,270 4,808 9,547 14,354 83 73 76 43/59 SAP Half-Year Report 2023 Section F – Management of Financial Risk Factors This section discusses financial risk factors and risk management. In our half-year report, this includes the transfers between levels of the fair value hierarchy. For more information, particularly about our risk management related to foreign currency exchange rate risk, interest rate risk, equity price risk, credit risk, liquidity risk, and other financial risk factors, see our Consolidated Financial Statements for 2022, Section F – Management of Financial Risk Factors. (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (F.1) and (F.2) in the Consolidated Financial Statements for 2022. We do not disclose the fair value of our financial instruments as at June 30, 2023, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2022. 44/59 SAP Half-Year Report 2023 Section G – Other Disclosures This section provides additional disclosures on miscellaneous topics, including information pertaining to other litigation, claims, and legal contingencies, and related party transactions. For more information, see our Consolidated Financial Statements for 2022, Section G – Other Disclosures. (G.1) Other Litigation, Claims, and Legal Contingencies We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as at June 30, 2023, will neither individually nor in the aggregate have a material adverse effect on our business. Among the claims and lawsuits are the following classes (for more information about these classes, see the Notes to the Consolidated Financial Statements for 2022, Note (G.3)). Intellectual Property-Related Litigation and Claims For individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2022, there were no significant developments in the first half of 2023. The provisions recorded for intellectual property-related litigation and claims continue to be not material. There are also no material contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. Tax-Related Litigation There have been no significant changes in contingent liabilities from non-income tax-related litigation for which no provision has been recognized compared to our Consolidated Financial Statements for 2022, Note (G.3). For more information about income tax-related litigation, see Note (C.4). Anti-Bribery Matters SAP received communications alleging conduct that may violate anti-bribery laws in the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)) and other countries. Most of the investigations are ongoing and neither the final outcome of the investigations nor the date when substantiated definitive findings will be available is predictable at this point in time. There could be an unfavorable outcome in one or more of the ongoing investigations. Management’s current best estimate of possible outcome and financial effect is determined by reasonable judgement based on multiple factors. As a consequence, as at June 30, 2023, provisions for potential regulatory compliance matters totaling €170 million (December 31, 2022: €0 million) have been recognized in our Consolidated Half-Year Financial Statements. For more information, see the Notes to the Consolidated Financial Statements for 2022, Note (G.3). (G.2) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold or have held positions of significant responsibility with other entities (for more information, see the Notes to the Consolidated Financial Statements for 2022, Note (G.4)). We have relationships with certain of these entities in the ordinary course of business. 45/59 SAP Half-Year Report 2023 On May 11, 2023, the Annual General Meeting of Shareholders elected Punit Renjen to the Supervisory Board, as a successor to Gesche Joost who resigned with effect from that date. As of his election date, Punit Renjen became a related party. He has been designated as the successor to Supervisory Board chairperson Hasso Plattner whose term of office will expire with the Annual General Meeting of Shareholders in 2024. Executive Board Members Supervisory Board Members Companies Controlled by Supervisory Board Members Associated Entities € millions Q1–Q2 2023 Q1–Q2 2022 Q1–Q2 2023 Q1–Q2 2022 Q1–Q2 2023 Q1–Q2 2022 Q1–Q2 2023 Q1–Q2 2022 Products and services provided Products and services received NA NA NA NA 0 11 0 11 0 2 1 2 9 49 1 37 Sponsoring and other financial support provided NA NA NA NA 2 3 NA NA Outstanding balances on 6/30 (Vendors) NA NA 0 1 0 0 –2 –3 Outstanding balances on 6/30 (Customers) NA NA 0 0 0 0 1 4 Commitments on 6/30 NA NA 0 0 482 3 NA NA 1 Including services from employee representatives on the Supervisory Board in their capacity as employees of SAP 2 The longest of these commitments is five years. For more information about related party transactions, see the Notes to the Consolidated Financial Statements for 2022, Note (G.6). (G.3) Events After the Reporting Period Other than that, no events have occurred since June 30, 2023, that have a material impact on the Company’s Consolidated Half-Year Financial Statements. (G.4) Scope of Consolidation Entities Consolidated in the Financial Statements Total 12/31/2022 288 Additions 0 Disposals –52 6/30/2023 236 The disposals in the first half of 2023 relate mainly to the sale of SAP’s stake in Qualtrics. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (D.1) and our Integrated Report 2022. (G.5) Updated Cost Allocation Policy Starting January 1, 2023, all activities related to changes in the code of SAP’s cloud and on-premise solutions are treated as development-related activities. Some of those activities, specifically code corrections, were previously considered as support-related activities. SAP believes this update aligns SAP’s accounting policy with market standards and increases comparability to its peers. 46/59 SAP Half-Year Report 2023 In the first half of 2023, the update of our cost allocation policy led to an increase in our cloud gross profit by approximately €50 million, an increase in our software license and support gross profit by approximately €130 million, and an increase in our R&D expenses by approximately €180 million. For the full year 2023, the updated cost allocation policy is expected to decrease our cost of cloud by approximately €100 million and cost of support by approximately €300 million, while in consequence increase our R&D expense by approximately €400 million. Had SAP applied this accounting policy in 2022, its cost of cloud, cost of software licenses and support, and R&D expense would have been as follows: IFRS € millions Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Cost of cloud –817 –833 –902 –947 –3,499 –798 –806 –873 –915 Cost of software licenses and Research and support development expenses Due to rounding, numbers may not add up precisely. –347 –339 –341 –1,396 –1,514 –1,571 –358 –1,598 –1,384 –6,080 –334 –1,351 –316 –1,393 –319 –1,437 –334 –1,449 Release of the Consolidated Half-Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements on July 19, 2023, for submission to the Audit and Compliance Committee of the Supervisory Board and for subsequent issuance. Non-IFRS –3,391 –1,302 –5,629 47/59 SAP Half-Year Report 2023 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half- Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 19, 2023 SAP SE Walldorf, Baden The Executive Board Christian Klein Dominik Asam Sabine Bendiek Dr. Juergen Mueller Scott Russell Thomas Saueressig Julia White 48/59 SAP Half-Year Report 2023 Supplementary Financial Information Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2022 Q2 2022 Q3 2022 Q4 2022 TY 2022 Revenues Cloud 2,565 2,796 2,986 3,078 11,426 % change – yoy 29 32 36 29 31 % change constant currency – yoy 23 23 23 21 23 SAP S/4HANA Cloud 404 472 546 660 2,081 % change – yoy 78 84 98 101 91 % change constant currency – yoy 71 72 81 90 79 Software licenses 317 426 406 907 2,056 % change – yoy –34 –34 –38 –38 –37 % change constant currency – yoy –36 –38 –42 –39 –39 Software support 2,923 2,977 3,016 2,993 11,909 % change – yoy 4 5 5 3 4 % change constant currency – yoy 1 0 –2 –1 0 Software licenses and support 3,240 3,403 3,422 3,900 13,965 % change – yoy –1 –2 –3 –11 –5 % change constant currency – yoy –4 –7 –9 –14 –9 Cloud and software 5,806 6,199 6,408 6,978 25,391 % change – yoy 10 11 12 3 9 % change constant currency – yoy 6 4 3 –1 3 Total revenue 6,773 7,207 7,476 8,064 29,520 % change – yoy 10 11 13 5 10 % change constant currency – yoy 6 5 4 0 4 Share of more predictable revenue (in %) 81 80 80 75 79 Profits Operating profit (loss) (IFRS) 1,471 1,060 1,557 2,002 6,090 Operating profit (loss) (non-IFRS) 1,676 1,678 2,075 2,560 7,989 % change –3 –12 –1 3 –3 % change constant currency –6 –15 –8 1 –7 Profit (loss) after tax (IFRS) 1,016 613 839 600 3,068 Profit (loss) after tax (non-IFRS) 1,171 1,098 1,240 1,008 4,517 % change –29 –50 –42 –56 –45 Margins Cloud gross margin (IFRS, in %) 68.2 70.2 69.8 69.2 69.4 Cloud gross margin (non-IFRS, in %) 68.9 71.2 70.8 70.3 70.3 Software license and support gross margin (IFRS, in %) 89.3 90.1 90.0 90.8 90.1 Software license and support gross margin (non-IFRS, in %) 89.7 90.7 90.7 91.4 90.7 Cloud and software gross margin (IFRS, in %) 80.0 81.1 80.6 81.3 80.8 Cloud and software gross margin (non-IFRS, in %) 80.5 81.9 81.4 82.1 81.5 Gross margin (IFRS, in %) 72.2 72.7 72.8 73.4 72.8 Gross margin (non-IFRS, in %) 73.1 74.3 74.4 75.1 74.3 Operating margin (IFRS, in %) 21.7 14.7 20.8 24.8 20.6 Operating margin (non-IFRS, in %) 24.8 23.3 27.8 31.7 27.1 ATS segment – Segment gross margin (in %) 72.5 73.7 73.3 74.5 73.5 ATS segment – Segment margin in % 28.9 27.6 31.4 35.0 30.9 Key Profit Ratios Effective tax rate (IFRS, in %) 25.5 34.2 28.3 42.8 32.0 Effective tax rate (non-IFRS, in %) 25.4 29.1 26.6 37.2 29.6 Q1 2023 3,178 24 22 716 77 75 276 –13 –13 2,905 –1 –1 3,180 –2 –2 6,358 10 8 7,441 10 9 82 803 1,875 12 12 403 1,254 7 70.5 71.4 88.6 89.2 79.5 80.3 71.0 72.9 10.8 25.2 72.3 29.6 40.5 28.3 Q2 2023 3,316 19 22 823 74 79 316 –26 –24 2,873 –3 –1 3,189 –6 –4 6,505 5 8 7,554 5 8 82 1,358 2,058 23 28 724 1,249 14 71.1 72.2 90.1 90.5 80.3 81.2 71.6 73.8 18.0 27.2 73.3 32.3 33.8 30.4 49/59 SAP Half-Year Report 2023 € millions, unless otherwise stated Q1 2022 Q2 2022 Q3 2022 Q4 2022 TY 2022 Q1 2023 Earnings per share, basic (IFRS, in €) from continuing operations Earnings per share, basic (non-IFRS, in €) from continuing operations 0.87 1.00 0.54 0.95 0.75 1.10 0.63 0.98 2.80 4.03 0.35 1.08 Earnings per share, basic (IFRS, in €)4 0.63 0.29 0.57 0.46 1.95 0.41 Earnings per share, basic (non-IFRS, in €)4 1.00 0.96 1.12 1.00 4.08 1.27 Order Entry and current cloud backlog Current cloud backlog 8,937 9,543 10,334 11,024 11,024 11,148 % change – yoy 25 32 36 27 27 25 % change constant currency – yoy 21 23 24 24 24 25 SAP S/4HANA Current cloud backlog 1,925 2,258 2,662 3,171 3,171 3,418 % change – yoy 86 100 108 86 86 78 % change constant currency – yoy 79 87 90 82 82 79 Share of cloud orders greater than €5 million based on total cloud order entry volume (in %)3 Share of cloud orders smaller than €1 million based on total cloud order entry volume (in %)3 Share of on-premise orders greater than €5 million based on total software order entry volume (in %) Share of on-premise orders smaller than €1 million based on total software order entry volume (in %) Liquidity and Cash Flow 43 29 40 33 49 25 33 40 42 26 28 49 55 18 29 37 50 23 31 40 45 26 26 50 Net cash flows from operating activities 2,465 301 887 2,022 5,675 2,311 Capital expenditure –212 –196 –277 –193 –877 –257 Payments of lease liabilities –93 –116 –97 –103 –410 –99 Free cash flow 2,159 –10 513 1,726 4,388 1,955 % of total revenue 32 0 7 21 15 26 % of profit after tax (IFRS) 213 –2 61 288 143 485 Group liquidity 11,267 8,236 8,554 9,694 9,694 9,700 Financial debt (–) –12,171 –12,282 –12,282 –11,764 –11,764 –10,751 Net debt (–) –904 –4,046 –3,728 –2,070 –2,070 –1,050 Financial Position5 Cash and cash equivalents 8,927 7,472 7,316 9,008 9,008 8,766 Goodwill 32,140 33,879 35,664 33,077 33,077 28,563 Total assets 73,754 72,605 74,840 72,159 72,159 73,533 Contract liabilities (current) 7,630 6,883 5,487 5,309 5,309 7,547 Equity ratio (total equity in % of total assets) 58 59 62 59 59 58 Non-Financials Number of employees (quarter end)1 104,670 104,988 106,912 106,312 106,312 105,132 Employee retention (in %, rolling 12 months) 92.5 92.0 92.2 92.8 92.8 93.8 Women in management (in %, quarter end) 28.6 28.9 29.2 29.3 29.3 29.4 Net carbon emissions2 (in kilotons) 20 20 20 20 85 0 1 In full-time equivalents 2 In CO2 equivalents. SAP’s carbon emission numbers are rounded to the nearest 5 kt. Therefore, the rounded full-year totals may not precisely equal the sum of the rounded quarterly numbers. ³ To conform to refined calculation logic, prior quarters have been adjusted. 4 From continuing and discontinued operations. 5 According to IFRS 5, comparison quarters 2022 for our continuing operations is unchanged from what previously has been reported. Due to rounding, numbers may not add up precisely. Q2 2023 0.62 1.07 2.96 3.14 11,537 21 25 3,717 65 70 46 25 22 50 848 –156 –89 604 8 83 14,326 –10,146 4,180 14,142 28,581 69,719 6,743 61 105,328 95.1 29.5 0 50/59 SAP Half-Year Report 2023 Reconciliation of Non-IFRS Numbers to IFRS Numbers Reconciliation of Non-IFRS Revenue Q1–Q2 2023 Q1–Q2 2022 € millions, unless otherwise stated IFRS Currency Impact Non-IFRS Constant Currency IFRS IFRS Revenue Numbers Cloud 6,493 39 6,532 5,362 21 Software licenses 591 10 601 743 –20 Software support 5,778 54 5,832 5,900 –2 Software licenses and support 6,369 64 6,433 6,643 –4 Cloud and software 12,863 103 12,965 12,005 7 Services 2,132 15 2,147 1,974 8 Total revenue 14,995 117 15,112 13,980 7 1 Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the IFRS numbers of the previous year's respective period. Due to rounding, numbers may not add up precisely. Reconciliation of Non-IFRS Operating Expenses Q1–Q2 2023 Q1–Q2 2022 € millions, unless otherwise stated IFRS Adj. Non-IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non-IFRS IFRS Non-IFRS Operating Expense Numbers Cost of cloud –1,897 68 –1,829 –1,650 46 –1,604 15 14 Cost of software licenses and support –687 42 –645 –686 36 –650 0 –1 Cost of cloud and software –2,584 110 –2,474 –2,336 82 –2,254 11 10 Cost of services –1,718 199 –1,519 –1,516 97 –1,420 13 7 Total cost of revenue –4,301 309 –3,992 –3,852 179 –3,674 12 9 Gross profit 10,693 309 11,002 10,127 179 10,306 6 7 Research and development –3,138 374 –2,764 –2,910 167 –2,743 8 1 Sales and marketing –4,457 734 –3,723 –3,842 310 –3,532 16 5 General and administration –670 97 –573 –610 49 –561 10 2 Restructuring –257 257 0 –119 119 0 >100 NA Other operating income/expense, net –10 0 –10 –115 0 –115 –91 –91 Total operating expenses –12,834 1,772 –11,062 –20 –11,083 –11,449 823 –10,626 12 4 1 Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS numbers of the previous year's respective period. Due to rounding, numbers may not add up precisely. ∆ in % Non-IFRS Constant Currency1 22 –19 –1 –3 8 9 8 ∆ in % Non-IFRS Constant Currency1 4 51/59 SAP Half-Year Report 2023 Reconciliation of Non-IFRS Profit Figures, Income Tax, and Key Ratios Q1–Q2 2023 Q1–Q2 2022 ∆ in % € millions, unless otherwise stated IFRS Adj. Non- IFRS Curren cy Impact Non- IFRS Consta IFRS Adj. Non- IFRS IFRS Non- IFRS Non- IFRS Consta Profit Numbers Operating profit (loss) 2,161 1,772 3,933 97 nt Curren cy 4,029 2,531 823 3,354 –15 17 nt Currenc y1 20 Profit (loss) before tax from continuing operations 1,771 1,772 3,543 2,295 823 3,119 –23 14 Income tax expense –643 –397 –1,040 –666 –183 –850 –3 22 Profit (loss) after tax from continuing operations 1,128 1,375 2,502 1,629 640 2,269 –31 10 Attributable to owners of parent 1,135 1,373 2,508 1,657 638 2,295 –31 9 Attributable to non-controlling interests –7 2 –5 –28 2 –26 –74 –80 Profit (loss) after tax3 3,890 1,156 5,047 835 1,424 2,259 >100 >100 Attributable to owners of parent3 3,933 1,220 5,153 1,074 1,232 2,306 >100 >100 Attributable to non-controlling interests3 –43 –64 –107 –239 192 –47 –82 >100 Key Ratios Operating margin (in %) Effective tax rate (in %)2 14.4 36.3 26.2 29.4 26.7 18.1 29.0 – 3.7pp 27.2 7.3pp 2.1pp 24.0 2.2pp 2.7pp Earnings per share, basic (in €) from continuing operations 0.97 2.15 1.41 1.96 –31 10 Earnings per share, basic (in €)3 3.37 4.41 0.92 1.96 >100 >100 1 Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS numbers of the previous year's respective period. 2 The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2023 mainly resulted from tax effects of share-based payment expenses and restructuring expenses. The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2022 mainly resulted from tax effects of share- based payment expenses and acquisition-related charges. 3 From continuing and discontinued operations Due to rounding, numbers may not add up precisely. 52/59 SAP Half-Year Report 2023 Non-IFRS Adjustments Actuals and Estimates € millions Estimated Amounts for Full Year 2023 Operating profit (loss) (IFRS) Adjustment for acquisition-related charges 300–380 Adjustment for share-based payment expenses 1,850–2,250 Adjustment for restructuring 250–300 Adjustment for regulatory compliance matter expenses 170 Operating expense adjustments Operating profit (loss) (non-IFRS) Non-IFRS-Adjustments by Functional Areas Q1–Q2 2023 € millions IFRS Acqui- sition- related SBP1 Restruc- turing RCM² Non- IFRS IFRS Acqui- sition- related Cost of cloud –1,897 21 47 0 0 –1,829 –1,650 27 Cost of software licenses and support –687 22 20 0 0 –645 –686 15 Cost of services –1,718 0 198 0 0 –1,519 –1,516 0 Research and development –3,138 4 371 0 0 –2,764 –2,910 5 Sales and marketing –4,457 129 435 0 170 –3,723 –3,842 139 General and administration –670 1 96 0 0 –573 –610 6 Restructuring –257 0 0 257 0 0 –119 0 Other operating income/expense, net –10 0 0 0 0 –10 –115 0 Total operating expenses –12,834 177 1,167 257 170 –11,062 –11,449 191 1 Share-based payments 2 Regulatory Compliance Matters Due to rounding, numbers may not add up precisely. Reconciliation of Non-IFRS Profit After Tax for Discontinued Operations € billion, unless otherwise stated Profit (loss) after tax (IFRS) from discontinued operations Adjustment for acquisition related charges Adjustment for share-based payment expenses Adjustment for restructuring expenses Adjustment for tax impact of non-IFRS adjustments Profit (loss) after tax (non-IFRS) from discontinued operations Attributable to owners of parent Due to rounding, numbers may not add up precisely. Q1–Q2 2023 2,161 177 1,167 257 170 1,772 3,933 SBP1 Restruc- turing 19 0 21 0 96 0 162 0 171 0 43 0 0 119 0 0 513 119 Q1–Q2 2023 2.8 –0.8 0.4 0.0 0.2 2.5 2.6 Q1–Q2 2022 2,531 191 513 119 823 3,354 Q1–Q2 2022 RCM² Non- IFRS –1,604 –650 –1,420 –2,743 –3,532 –561 0 –115 –10,626 Q1–Q2 2022 –0.8 0.1 0.7 0.0 –0.0 –0.0 0.0 53/59 SAP Half-Year Report 2023 Revenue by Region (IFRS and Non-IFRS) Q1–Q2 2023 Q1–Q2 2022 € millions Actual Currency Currency Impact Constant Currency Actual Currency Actual Currency Cloud Revenue by Region EMEA 2,458 16 2,474 1,966 25 Americas 3,194 –19 3,176 2,695 19 APJ 841 42 883 701 20 Cloud revenue 6,493 39 6,532 5,362 21 Cloud and Software Revenue by Region EMEA 5,660 39 5,699 5,285 7 Americas 5,283 –33 5,250 4,866 9 APJ 1,919 97 2,016 1,853 4 Cloud and software revenue 12,863 103 12,965 12,005 7 Total Revenue by Region Germany 2,283 –1 2,282 2,114 8 Rest of EMEA 4,338 45 4,383 4,049 7 Total EMEA 6,621 44 6,666 6,163 7 United States 4,974 –47 4,927 4,566 9 Rest of Americas 1,233 9 1,242 1,136 9 Total Americas 6,207 –38 6,169 5,702 9 Japan 616 52 668 602 2 Rest of APJ 1,550 59 1,609 1,513 2 Total APJ 2,166 111 2,277 2,115 2 Total revenue 14,995 117 15,112 13,980 7 1 Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. Due to rounding, numbers may not add up precisely. ∆ in % Constant Currency1 26 18 26 22 8 8 9 8 8 8 8 8 9 8 11 6 8 8 54/59 SAP Half-Year Report 2023 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there- mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Performance Against Our Outlook 2023 section, the Risk Management and Risks section (including but not limited to statements in this section pertaining to the Russia/Ukraine crisis or cyber incidents), the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2022 and our Annual Report on Form 20-F for 2022, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). In addition, any delays in our structured exit from Russia and Belarus, or further adverse developments in Russia’s war against Ukraine, or cybersecurity or related incidents (for example, initiated by malware) impacting SAP could cause our actual results and performance to differ materially from any projections expressed in or implied by our forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as at the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including IDC, the ECB, and the IMF. This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation as at June 30, 2023, or the half year ended on that date unless otherwise stated. 55/59 SAP Half-Year Report 2023 Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non- IFRS measures, see our Web site http://www.sap.com/investors/sap-non-ifrs-measures. 56/59 SAP Half-Year Report 2023 Additional Information Financial Calendar October 19, 2023 Third-quarter 2023 earnings release, conference call for financial analysts and investors January 24, 2024 Fourth-quarter and full-year 2023 preliminary earnings release, conference call for financial analysts and investors May 15, 2024 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The “Financial Reports” tab contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) – SAP Annual Report on Form 20-F (IFRS, PDF) – SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Half-Year Report (IFRS, PDF) – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include our free SAP INVESTOR magazine for shareholders, an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. 57/59 SAP Half-Year Report 2023 Addresses SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com The addresses of all our international offices are available on our public Web site at www.sap.com/offices. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investors Imprint Overall responsibility: SAP SE Corporate Financial Reporting Published on July 20, 2023. The German version of this Half-Year Report can be found under www.sap.com/corporate/de/investors. Copyright Usage in Collateral © 2023 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. Please see https://www.sap.com/corporate/en/legal/copyright.htmlfor additional trademark information and notices. 58/59 Group Headquarters SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany www.sap.com www.sap.com/investor | Semestriel, 2023, Technology, SAP | write me a financial report |
Semestriel | 2,023 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Healthcare
### Company:
SiemensHealthineers
### Response:
| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2023 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Business principles Page 16 B.1 Consolidated statements of Page 31 C.1 Responsibility statement income Page 4 A.2 Market development Page 17 B.2 Consolidated statements of comprehensive income Page 32 C.2 Review report Page 5 A.3 Results of operations Page 18 B.3 Consolidated statements of Page 33 C.3 Notes and forward-looking financial position statements Page 9 Page 19 A.4 Net assets and financial position B.4 Consolidated statements of cash flows Page 14 Page 20 A.5 Outlook B.5 Consolidated statements of changes in equity Page 15 Page 21 A.6 Risks and opportunities B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s Half-Year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with Section 115 of the German Securities Trading Act. The Half-Year Financial Report should be read in conjunction with the Annual Report for fiscal year 2022. 2 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Business principles A. Interim group management report A.1 Business principles Changes in business description and organizational structure On October 1, 2022, the Cancer Therapy business (imaging for radiation therapy) was transferred from the Imaging segment to the Varian segment. At the same time the Proton Solutions business was reassigned to Central Items from the Varian segment, given that, in the future, the business will not be pursuing new sales of proton systems. The Proton Solutions business will concentrate on maintenance of equipment already ordered or already installed, thereby enhancing system reliability and stability, and providing a high level of service for existing customers and their proton centers. In the Advanced Therapies segment, the focus of robotic-assisted platforms will be for neurovascular interventions; platforms for cardiovascular interventions will no longer be offered. The remaining portfolio of our Advanced Therapies segment remains unchanged. Change in regional structure On October 1, 2022, the regional structure was changed to four regions (from three regions previously): “Europe, C.I.S., Africa, Middle East (EMEA)”, “Americas”, “Asia Pacific Japan” and China. Changes in health policy Legislative changes to healthcare policy were discussed in the United States in the fall of 2022. Given the divided U.S. Congress coupled with the upcoming 2024 presidential election, however, we do not expect any major U.S. healthcare legislation or new reimbursement policy changes this year. In the context of the COVID-19 pandemic, regulatory authorities have implemented targeted methods to get diagnostic products to market faster. Some of these include temporary regulatory changes for faster market approvals. In Europe, these have now been suspended until further notice for some products such as COVID-19 PCR and rapid antigen tests. Now that health policy initiatives in Germany no longer focus on COVID-19, we see increased discussion of political reform approaches in the field of digitization of healthcare as well as a shift towards more outpatient treatment and increased specialization in inpatient treatment. The German Ministry of Health initiated a legislative process to reform the financing and structure of inpatient hospital care in Germany and published a digital strategy, addressing a broad range of topics around digitalization of healthcare and thus, creating market opportunities. Changes to political and macroeconomics development In December 2022, the Chinese government ended its zero-COVID policy and strict lockdowns. With the normalization of business activities and medical operations, as well as government subsidy measures for hospitals, the recovery of China's medical technology market is expected to accelerate. 3 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Market development A.2 Market development Expected market developments in the Diagnostics, Varian and Advanced Therapies segments, as made for the financial year 2023 in the Annual Report 2022, have so far been realized. The expectations for fiscal year 2023 for the respective markets of these segments remain unchanged. The market for the Imaging segment has been more positive during the first months of this fiscal year than we expected at the end of last fiscal year. The high backlog of orders in the market from the last fiscal year and increased orders placed for diagnostic imaging equipment in the first months of the current fiscal year, have so far led to higher revenues for both equipment and product-related services. In addition, there is strong investment activity in the healthcare sector in Europe, for example in Spain. The zero-COVID strategy with strict exit restrictions was ended in China, and a special subsidy program was launched to finance medical equipment. Overall, access to hospitals reopened worldwide due to reduced COVID-19 impacts, and a recovery of strained supply chains began. Based on these factors, we expect the market of the Imaging segment to develop better in this financial year than we had estimated at the end of fiscal year 2022. The market is now expected to grow strongly. 4 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Results of operations A.3 Results of operations A.3.1 Revenue by segment and region (in millions of €)¹ First half 2023 First half 2022 %-Change Act. Siemens Healthineers 10,423 10,528 −1.0% Therein: Imaging³ 5,654 5,093 11.0% Diagnostics 2,228 3,214 −30.7% Varian³ 1,704 1,493 14.1% Advanced Therapies 972 893 8.8% 1 Siemens Healthineers: revenue according to IFRS, segments: total adjusted revenue. 2 Year-over-year on a comparable basis, excluding effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations as well as currency translation and portfolio effects. 3 Prior year figures comparable based on the organizational structure effective October 1, 2022. Revenue by region (location of customer)¹ (in millions of €) First half 2023 First half 2022 %-Change Act. Europe, C.I.S., Africa, Middle East (EMEA) 3,316 3,783 −12.4% Therein: Germany 493 893 −44.8% Americas 4,197 4,047 3.7% Therein: United States 3,561 3,506 1.6% Asia Pacific Japan³ 1,517 1,399 8.4% China 1,392 1,298 7.2% Siemens Healthineers 10,423 10,528 −1.0% 1 Regional reporting is based on 4 regions (previously 3 regions) starting fiscal year 2023: prior year figures comparable based on the new regional structure. 2 Year-over-year on a comparable basis, excluding currency translation and portfolio effects as well as effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. 3 Including India. Siemens Healthineers On a comparable basis, revenue decreased by 3.5% from the prior-year period. Excluding revenue from rapid COVID-19 antigen tests, comparable growth was 5.9%. This was driven by significant growth in the Varian segment and very strong growth in the Imaging and Advanced Therapies segments. In contrast, revenue declined in the Diagnostics segment. On a nominal basis, revenue decreased by 1.0% to €10,423 million. Currency translation effects had a positive impact on revenue growth of around 2 percentage points. The equipment book-to-bill ratio was a very good 1.17 in the first half, slightly below the excellent prior-year figure of 1.21. Segments Adjusted revenue in Imaging rose by 9.0% on a comparable basis. Magnetic Resonance reported significant growth, and Molecular Imaging recorded very strong growth. From a geographical perspective, comparable revenue growth was significant in Asia Pacific Japan and very strong in the China region and EMEA. The Americas region showed strong comparable revenue growth. On a nominal basis, adjusted revenue rose by 11.0% to €5,654 million. Adjusted revenue in Diagnostics declined by 32.1% on a comparable basis. Excluding the rapid COVID-19 antigen test business, adjusted revenue decreased by 4.4%. This was against the backdrop of tapering sales of other Covid-related tests and a moderate revenue decline in the China region, where fewer routine care tests were performed in the first quarter because of lockdowns and increased infection rates. The Asia Pacific Japan region recorded sharp growth due to higher revenue from rapid COVID-19 antigen tests. The mid-double-digit revenue decline in EMEA and the Americas was attributable mainly to a lower contribution from rapid COVID-19 antigen tests. On a nominal basis, adjusted revenue decreased by 30.7% to €2,228 million. This included revenue of €67 million from the sale of rapid COVID-19 antigen tests (prior year: €1,007 million). 5 %-Change Comp.² −3.5% 9.0% −32.1% 10.9% 7.5% %-Change Comp.² −12.5% −45.0% −4.1% −6.4% 12.0% 8.3% −3.5% Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Results of operations Varian’s adjusted revenue increased by 10.9% on a comparable basis. From a geographical perspective, comparable revenue growth was significant in the Americas and EMEA. While the China region showed very strong growth, Asia Pacific Japan recorded moderate growth. On a nominal basis, adjusted revenue rose by 14.1% to €1,704 million. Adjusted revenue at Advanced Therapies increased by 7.5% on a comparable basis. The China region recorded sharp comparable revenue growth; the Asia Pacific Japan and EMEA regions reported strong growth. The Americas region showed moderate comparable revenue growth. On a nominal basis, adjusted revenue rose by 8.8% to €972 million. Regions In EMEA, revenue decreased by 12.5% on a comparable basis. The reason was a mid-double-digit revenue decline at Diagnostics, mainly due to markedly lower demand for rapid COVID-19 antigen tests. Varian achieved significant growth, Imaging very strong growth and Advanced Therapies strong growth. Germany reported a revenue decline of 45.0% on a comparable basis, mainly because of lower revenue from the sale of rapid COVID-19 antigen tests in the Diagnostics segment. Varian recorded a low double-digit revenue decline, and Imaging a mid- single-digit decline. Advanced Therapies showed very strong comparable revenue growth. The revenue decline on a comparable basis of 4.1% in the Americas region respectively 6.4% in the United States was driven by a mid-double-digit revenue decrease in the Diagnostics segment – due mainly to lower revenue from rapid COVID-19 antigen tests. Varian reported significant growth, Imaging strong growth and Advanced Therapies moderate growth, both in the Americas region and respectively in the United States. In Asia Pacific Japan, revenue rose by 12.0% on a comparable basis. The Diagnostics segment contributed sharp growth due to higher revenue from rapid COVID-19 antigen tests. Imaging reported significant growth, Advanced Therapies strong growth and Varian moderate growth. The China region posted comparable revenue growth of 8.3%, driven by sharp growth in the Advanced Therapies segment as well as very strong growth in the Imaging and Varian segments. In the Diagnostics segment, adjusted revenue declined moderately on a comparable basis due to fewer routine care tests in the first quarter due to lockdowns and increased infection rates. 6 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Results of operations A.3.2 Adjusted EBIT (Adjusted EBIT in millions of €, margin in %) First half 2023 Adjusted EBIT Siemens Healthineers 1,328 Therein: Imaging¹ 1,199 Diagnostics −134 Varian¹ 246 Advanced Therapies 139 Adjusted EBIT margin Siemens Healthineers 12.7% Therein: Imaging 21.2% Diagnostics −6.0% Varian 14.5% Advanced Therapies 14.3% 1 Prior year figures comparable based on the organizational structure effective October 1, 2022. Siemens Healthineers In the first half of fiscal year 2023, adjusted EBIT decreased by 29% from the prior-year period to €1,328 million. The adjusted EBIT margin of 12.7% was below the prior-year level of 17.8%. The main reasons were a lower contribution from the rapid COVID-19 antigen testing business, costs for the transformation of the Diagnostics business, and cost increases, particularly for procurement and logistics. Currency effects had a slightly positive impact. Research and development expenses increased by €54 million, or around 6%. Adjusted for currency translation, research and development expenses rose moderately from the prior-year level. Research and development intensity was around 9% (prior-year period: around 8%). Selling and general administrative expenses increased by €155 million, or around 10%. Adjusted for currency translation, these expenses rose by a mid-single-digit percentage from the prior-year level. Segments As a result of its positive revenue development, the Imaging segment’s adjusted EBIT margin rose from the prior-year level to 21.2%. Cost increases, particularly for procurement and logistics, were mainly offset by positive currency effects. Adjusted EBIT rose to €1,199 million. In Diagnostics, the adjusted EBIT margin of -6.0% was clearly below the prior-year level of 18.2% – mainly driven by a decline in revenue from rapid COVID-19 antigen tests. Furthermore, the margin was negatively affected by transformation costs of €111 million, essentially comprising expenses connected with the derecognition of assets as a result of measures to optimize the cost efficiency of the existing product range as well as expenses connected with an agreement to realign our relationships with cooperation partners. Also, currency effects, the COVID-19 situation in China in the first quarter and cost increases, particularly for procurement and logistics, had a negative impact. Adjusted EBIT declined to a negative €134 million. The Varian segment’s adjusted EBIT margin of 14.5% was below the prior-year level of 16.9%. Negative effects included currency effects, cost increases, particularly for procurement and logistics, and a less favorable business and product mix. Significant revenue growth had a positive impact. Adjusted EBIT declined to €246 million. The Advanced Therapies segment’s adjusted EBIT margin rose to 14.3%, above the prior-year level of 13.1%, driven by very strong revenue growth. Positive currency effects outweighed cost increases, particularly for procurement and logistics. Adjusted EBIT rose to €139 million. 7 First half 2022 1,879 1,020 586 252 117 17.8% 20.0% 18.2% 16.9% 13.1% Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Results of operations Reconciliation to net income (in millions of €) First half 2023 Adjusted EBIT 1,328 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −208 Transaction, integration, retention and carve-out costs −16 Gains and losses from divestments ‐ Severance charges −66 Expenses for other portfolio-related measures −3291 Total adjustments −619 EBIT 709 Financial income, net −72 Income before income taxes 637 Income tax expenses −103 Net income 534 1 Including expenses for impairment of other intangible assets in the amount of €244 million. The line item amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments declined to €208 million. The prior-year period included higher effects in connection with the Varian acquisition. Severance charges increased by €26 million to €66 million, mainly comprising higher severance charges in the Proton Solutions business and the Diagnostics segment. Expenses for other portfolio-related measures were €329 million. This was due to the focusing of the endovascular robotics solution exclusively on neurovascular interventions, and the associated withdrawal from the robotic-assisted endovascular cardiology business, in the Advanced Therapies segment. Against the backdrop of a rise in interest rates, financial income, net decreased by €35 million to a negative €72 million, mainly because of higher interest expenses for loans in connection with the financing of the Varian acquisition. Income tax expenses decreased by €257 million. The effective income tax rate was low at 16.2% in the first half of fiscal year 2023, compared with 25.4% in the prior-year period. This was mainly due to the release of a tax provision in the mid- double-digit millions of euros in the first quarter. As a result of the developments described above, net income decreased by 49% to €534 million. Reconciliation to basic earnings per share (in €) First half 2023 Basic earnings per share 0.47 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments 0.19 Transaction, integration, retention and carve-out costs 0.01 Severance charges 0.06 Expenses for other portfolio-related measures 0.29 Transaction-related costs within financial income ‐ Tax effects on adjustments¹ −0.09 Adjusted basic earnings per share 0.93 1 Calculated based on the income tax rate of the respective reporting period. Compared with the percentage decline in net income noted above, adjusted basic earnings per share for the first half of fiscal year 2023 decreased by only 23% to €0.93 because the expenses for the withdrawal from the robotic-assisted endovascular cardiology business were herein adjusted as expenses for other portfolio-related measures. These expenses were the main reason for higher adjustments compared with the prior-year period. 8 First half 2022 1,879 −361 −26 1 −40 ‐ −426 1,452 −37 1,415 −360 1,055 First half 2022 0.93 0.32 0.02 0.04 ‐ ‐ −0.10 1.21 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Net assets and financial position A.4 Net assets and financial position A.4.1 Net assets and capital structure (in millions of €) Mar 31, 2023 Operating net working capital 3,780 Remaining current assets 1,039 Remaining non-current assets 30,985 Net debt (including pensions) −13,253 Remaining current liabilities −2,693 Remaining non-current liabilities −2,511 Total equity 17,347 Material developments in the first half of the current fiscal year within net assets and capital structure are described below. Operating net working capital (in millions of €) Mar 31, 2023 Trade and other receivables 3,903 Contract assets 1,477 Inventories 4,221 Trade payables −2,113 Contract liabilities −3,709 Receivables from and payables to the Siemens Group from operating activities 1 Operating net working capital 3,780 Operating net working capital increased by €129 million to €3,780 million, slightly above the level of the prior reporting date, despite in total negative currency translation effects. This resulted largely from an increase of €212 million in inventories, which was attributable to a build-up in preparation for stronger business development in the second half of fiscal year 2023, mainly in the Imaging, Varian and Advanced Therapies segments. The decrease in trade and other receivables is mainly due to currency translation effects. In addition, the balance as of the end of the prior fiscal year included major items of receivables in connection with business from COVID-19 rapid antigen tests in Japan, which were collected during the first half of the current fiscal year. Trade payables reduced due primarily to currency translation effects. Remaining current assets (in millions of €) Mar 31, 2023 Other current financial assets¹ 295 Current income tax assets 91 Other current assets 647 Remaining current receivables from the Siemens Group 5 Remaining current assets 1,039 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. The decline of €76 million in remaining current assets was due primarily to a decrease of €109 million in remaining current receivables from the Siemens Group. This related to the settlement of receivables in connection with the pre-initial public offering group taxation with the Siemens Group in the United States. The amounts resulted from expanded options for tax loss carry-backs due to the CARES Act, which were aimed at mitigating the financial impact of the COVID-19 pandemic in fiscal year 2020. 9 Sept 30, 2022 3,651 1,115 33,614 −12,717 −3,111 −2,701 19,852 Sept 30, 2022 4,287 1,412 4,009 −2,315 −3,749 8 3,651 Sept 30, 2022 308 73 619 114 1,115 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Net assets and financial position Remaining non-current assets (in millions of €) Mar 31, 2023 Goodwill 17,859 Other intangible assets 7,574 Property, plant and equipment 4,090 Investments accounted for using the equity method 34 Other financial assets¹ 483 Deferred tax assets 500 Other non-current assets 446 Remaining non-current assets 30,985 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Remaining non-current assets decreased by €2,629 million to €30,985 million. Therein, effects from currency translation had a negative impact, particularly in the line items goodwill and other intangible assets. In addition to currency translation effects, the decrease in other intangible assets was attributable to an impairment in connection with the focusing of the endovascular robotics solution exclusively on vascular interventions in neurology and the associated withdrawal from the endovascular cardiology business in the Advanced Therapies segment. Furthermore, there were derecognitions in connection with the transformation of the Diagnostics business. For further information, please refer to Note 4 Other intangible assets and property, plant and equipment in the notes to the half-year consolidated financial statements. Net debt (including pensions) (in millions of €) Mar 31, 2023 Cash and cash equivalents −1,370 Current receivables from the Siemens Group from financing activities −922 Non-current receivables from the Siemens Group from financing activities −3 Current liabilities to the Siemens Group from financing activities 5,024 Non-current liabilities to the Siemens Group from financing activities 10,686 Fair value of forwards for hedging of foreign currency liabilities from financing activities −1,384 Short-term financial debt and current maturities of long-term financial debt 203 Long-term financial debt 417 Net debt 12,651 Provisions for pensions and similar obligations 602 Net debt (including pensions) 13,253 Net debt The line items cash and cash equivalents, and current receivables from and current liabilities to the Siemens Group from financing activities, particularly include, in addition to current loans, the cash pooling with the Siemens Group. Changes were attributable to income and expenditures from operations and to short-term investment or borrowing of liquidity. Together with the credit facilities, these line items collectively make up the Company’s funds available at short notice. As of the reporting date, net debt amounted to €12,651 million, an increase of €602 million compared to September 30, 2022. Along with currency translation effects related to U.S. dollar loans, the changes in current and non-current liabilities to the Siemens Group from financing activities resulted particularly from the following activities: An outstanding loan granted by the Siemens Group in the amount of US$1.2 billion was repaid. • To partially refinance repayment of the aforementioned loan, the Siemens Group provided an additional fixed interest loan in the amount of €700 million, maturing in fiscal year 2030. Two loans granted by the Siemens Group, totaling US$2.5 billion and maturing in fiscal year 2024, were reclassified as short term. Furthermore, the fair value of forward contracts for hedging of foreign currency liabilities from financing activities decreased by €1,092 million. These derivatives were entered into to hedge the foreign currency risks of loans denominated in U.S. dollars. 10 Sept 30, 2022 19,061 8,712 4,273 32 517 575 444 33,614 Sept 30, 2022 −1,436 −690 −2 2,608 13,347 −2,476 234 464 12,049 668 12,717 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Net assets and financial position Pensions Provisions for pensions and similar obligations decreased by €66 million, mainly due to a positive development in the value of plan assets. Financing management During the course of the first half of fiscal year 2023, the two multicurrency revolving credit facilities granted by the Siemens Group were increased to up to €4.5 billion (September 30, 2022 €2.1 billion) and extended until January 31, 2026. As of March 31, 2023, the credit facilities were utilized in an amount of €1.496 million (September 30, 2022 €200 million). Remaining current liabilities (in millions of €) Mar 31, 2023 Other current financial liabilities¹ 246 Current provisions 349 Current income tax liabilities 560 Other current liabilities 1,538 Remaining current liabilities to the Siemens Group 1 Remaining current liabilities 2,693 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Remaining current liabilities declined by €418 million to €2,693 million, primarily due to the decrease of other current liabilities by €261 million. This is mainly a result of the pro-rata accumulation of performance-related remuneration components. Current financial liabilities decreased by €97 million, mainly due to the decline in negative market values of forward contracts for hedging of operational foreign currency risks. Remaining non-current liabilities (in millions of €) Mar 31, 2023 Deferred tax liabilities 1,729 Non-current provisions 222 Other non-current financial liabilities¹ 134 Other non-current liabilities 425 Remaining non-current liabilities 2,511 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Remaining non-current liabilities declined by €190 million to €2,511 million. This is mainly due to deferred tax liabilities, which decreased by a total of €380 million as a result of amortization and impairment of intangible assets, foreign currency effects and a change in U.S. taxation laws regarding direct tax deductibility of R&D expenses. The decrease was partly offset by the increase in other non-current financial liabilities, in particular due to the change in the negative fair value of forward contracts in connection with the foreign currency hedging of a loan within the Siemens Healthineers Group. Furthermore, non-current provisions increased in particular due to additional provisions for losses on onerous sales contracts due to the withdrawal from the endovascular cardiology business in the Advanced Therapies segment, as mentioned above. For further information refer to Note 5 Provisions in the notes to the half-year financial statements. 11 Sept 30, 2022 343 358 609 1,799 2 3,111 Sept 30, 2022 2,110 173 13 405 2,701 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Net assets and financial position Total equity (in millions of €) Mar 31, 2023 Issued capital 1,128 Capital reserve 15,781 Retained earnings 405 Other components of equity 293 Treasury shares −270 Total equity attributable to shareholders of Siemens Healthineers AG 17,337 Non-controlling interests 10 Total equity 17,347 Equity decreased by €2,504 million to €17,347 million. Retained earnings decreased by €489 million, mainly due to the payment of dividends amounting to €1,066 million. This was partly offset by net income of €534 million for the first half of fiscal year 2023. Furthermore, other components of equity decreased by €2,065 million, mainly as a result of currency translation differences. The increase in the cost of hedging reserve associated with foreign currency loans had a compensating effect. In order to fulfill share-based payment programs based on shares of Siemens Healthineers AG, more shares were transferred to plan participants in the first half year of fiscal year 2023, than treasury shares were repurchased. Thus, treasury shares decreased by €135 million to €270 million. For further details regarding equity, please see Note 6 Equity in the notes to the half-year consolidated financial statements. A.4.2 Cash flows (in millions of €) First half 2023 Net income 534 Change in operating net working capital −357 Other reconciling items to cash flows from operating activities 667 Cash flows from operating activities 844 Cash flows from investing activities −402 Cash flows from financing activities −396 Operating activities Compared with the prior-year period, cash inflows from operating activities decreased by €257 million to €844 million. The impact on cash flows from operating activities from the change in operating net working capital was €458 million greater than in the prior-year period. This resulted largely from a reduction of trade payables, particularly related to the rapid COVID-19 antigen test business. In the prior-year period, there was an increase in trade payables. This was partly offset by cash inflows from the reduction of receivables in the Diagnostics segments, as described above. The increase of €722 million in other reconciling items to cash flows from operating activities was mainly related to changes in other assets and liabilities. This was mostly due to payments for performance-related remuneration components, which were significantly lower than in the prior-year period. In addition, the prior-year period was affected by a special one-time payment. Investing activities Cash outflows from investing activities amounted to €402 million, slightly above the level of the prior period. 12 Sept 30, 2022 1,128 15,861 894 2,357 −405 19,836 16 19,852 First half 2022 1,055 101 −55 1,101 −383 −1,022 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Net assets and financial position Financing activities In the first half of fiscal year 2023, cash outflows from financing activities amounted to €396 million and were thus €626 million below the level of the prior-year period. This was mainly a result of an increased utilization of credit facilities provided by the Siemens Group, partly offset by a €111 million increase in dividend payouts, which totaled €1,066 million. Free cash flow Siemens Healthineers reports free cash flow as a supplemental liquidity measure: (in millions of €) First half 2023 Cash flows from operating activities 844 Additions to intangible assets and property, plant and equipment −405 Free cash flow 439 13 First half 2022 1,101 −382 719 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Outlook A.5 Outlook For fiscal year 2023, we continue to expect comparable revenue growth of between -1% and 1% compared with fiscal year 2022. Excluding revenue from rapid COVID-19 antigen tests, this corresponds to comparable revenue growth of between 6% and 8%. Adjusted basic earnings per share are still expected to be between €2.00 and €2.20. On the segment level, we make the following adjustments: For the Diagnostics segment, we now expect comparable revenue growth of between -26% and -23% (previously -21% to -19% in the annual report 2022). Excluding revenue from rapid COVID-19 antigen tests, this corresponds to comparable revenue growth of between -2% and 1% (previously 3% to 5% in the annual report 2022). We now expect an adjusted EBIT margin of between -4% and 0% (previously 0% to 3% in the annual report 2022). The outlook is still based on the assumption that we will generate only €100 million in revenue from rapid COVID-19 antigen tests and still includes negative impacts within adjusted EBIT of €100 million to €150 million in connection with the transformation of the Diagnostics business. For the Imaging, Varian, and Advanced Therapies segments, we confirm the targeted ranges as published in the annual report 2022. The outlook is based on several assumptions including the expectation that current and potential future measures to keep the COVID-19 pandemic under control will not negatively impact demand for our products and services. Regarding developments related to the war in Ukraine, we assume there will be no material adverse effect on our business activities. The outlook is also based on the current macroeconomic environment and current exchange-rate assumptions, and excludes potential portfolio activities. Exchange rates have significantly changed from the expectations underlying the outlook in the annual report 2022. From today’s perspective, this results in a negative effect of more than €0.10 on expected adjusted basic earnings per share for fiscal year 2023. The outlook is based on the number of outstanding shares at the end of fiscal year 2022. The outlook further excludes charges related to legal, tax, and regulatory matters and frameworks.. 14 Siemens Healthineers Half-Year Financial Report 2023 Interim group management report – Risks and opportunities A.6 Risks and opportunities In our annual report for fiscal year 2022 we described certain risks that could have a material adverse effect on our business objectives, net assets and financial position (including effects on assets, liabilities and cash flows), results of operations and reputation. In addition, we described our significant opportunities as well as the design of our risk management system. Beside the risks and opportunities that we presented in our annual report for fiscal year 2022 we report a new risk. The Transformation of the Diagnostics business might not fully reach the projected savings within the communicated timeline. This transformation program announced in November 2022 focuses on the optimization of the existing product range and footprint as well as other organizational and functional optimization in the Diagnostics segment. It carries an execution risk due to the complexity of the undertaking and an ambitious timeline. We rely on critical product launches to subsequently be able to reduce the total number of active platforms, thereby establishing a healthy product range and related optimized go-to-market approach. Launches of strategic magnitude carry an inherent technical and market risk. Product launches begin with a controlled roll-out phase, in order to identify and mitigate any potential risks early on. In addition, for right-sizing our organization and footprint we look to partner with our local codetermination councils to ensure a fast-paced transformation for our employees that is also as smooth as possible. Since this interaction is critical for the transformation’s success, initial timelines might be at risk when an extensive alignment is needed, especially in terms of varying local regulations. This is managed by our internal experts in collaboration with a specialized external consultancy. To counter the risks, we have established a comprehensive execution plan with dedicated KPIs. Respective workstreams with qualitative and quantitative targets are in place to manage all facets of the transformation. These are reviewed regularly by the management team and the Managing Board. Within the most significant risks, our own mitigation measures in combination with a general easing of the tensions within the industry supply chains have reduced the risks related to Supply Chain Management. Nonetheless, the risk of adverse effects remains and we continue to observe developments in order to quickly identify changes and make adjustments where necessary. Thus, the most significant risks now include Economic, Political and Geopolitical Developments, Cybersecurity and Regulatory Environment. Concerning the COVID-19 pandemic we no longer see any significant impact on our business due to recent developments and the lifting of restrictions almost worldwide. This relates to both risks and opportunities associated with COVID-19. Additional risks and opportunities not known to us or that we currently consider immaterial could also affect our business operations. At present, no risks have been identified that in their known form either individually or in combination with other risks could endanger our ability to continue as a going concern. Chapter C.3 Notes and forward-looking statements should be noted. 15 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income (in millions of €, earnings per share in €) Revenue Cost of sales Gross profit Research and development expenses Selling and general administrative expenses Other operating income Other operating expenses Income from investments accounted for using the equity method, net Earnings before interest and taxes Interest income Interest expenses Other financial income, net Income before income taxes Income tax expenses Net income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG Basic earnings per share Diluted earnings per share 16 Note 8 9 First half 2023 10,423 −6,943 3,480 −906 −1,784 11 −95 3 709 40 −111 ‐ 637 −103 534 8 526 0.47 0.47 First half 2022 10,528 −6,582 3,946 −852 −1,629 4 −18 2 1,452 20 −49 −8 1,415 −360 1,055 11 1,045 0.93 0.93 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Net income Remeasurements of defined benefit plans Therein: Income tax effects Remeasurements of equity instruments Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges Therein: Income tax effects Cost/Income from hedging Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 17 First half 2023 534 29 −6 ‐ ‐ 29 −2,366 −33 17 334 −139 −2,066 −2,037 −1,503 7 −1,509 First half 2022 1,055 101 −42 −1 −1 100 763 28 −14 −123 53 668 768 1,823 11 1,812 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Note Cash and cash equivalents 7 Trade and other receivables 7 Other current financial assets 7 Current receivables from the Siemens Group 7, 9 Contract assets Inventories Current income tax assets Other current assets Total current assets Goodwill Other intangible assets 4 Property, plant and equipment 4 Investments accounted for using the equity method Other non-current financial assets 7 Non-current receivables from the Siemens Group 7, 9 Deferred tax assets Other non-current assets Total non-current assets Total assets Short-term financial debt and current maturities of long-term financial debt 7 Trade payables 7 Other current financial liabilities 7 Current liabilities to the Siemens Group 7, 9 Contract liabilities Current provisions 5 Current income tax liabilities Other current liabilities Total current liabilities Long-term financial debt 7 Provisions for pensions and similar obligations Deferred tax liabilities Non-current provisions 5 Other non-current financial liabilities 7 Other non-current liabilities Non-current liabilities to the Siemens Group 7, 9 Total non-current liabilities Total liabilities Issued capital Capital reserve Retained earnings Other components of equity Treasury shares Total equity attributable to shareholders of Siemens Healthineers AG 6 Non-controlling interests Total equity Total liabilities and equity 18 Mar 31, 2023 1,370 3,903 381 936 1,477 4,221 91 647 13,027 17,859 7,574 4,090 34 1,781 3 500 446 32,286 45,312 203 2,113 246 5,031 3,709 349 560 1,538 13,749 417 602 1,729 222 134 425 10,686 14,216 27,965 1,128 15,781 405 293 −270 17,337 10 17,347 45,312 Sept 30, 2022 1,436 4,287 724 819 1,412 4,009 73 619 13,379 19,061 8,712 4,273 32 2,577 2 575 444 35,677 49,056 234 2,315 343 2,617 3,749 358 609 1,799 12,024 464 668 2,110 173 13 405 13,347 17,180 29,204 1,128 15,861 894 2,357 −405 19,836 16 19,852 49,056 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income/loss related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Receivables from and payables to the Siemens Group from operating activities Trade payables Contract liabilities Change in other assets and liabilities Additions to equipment leased to others in operating leases Income taxes paid Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Disposal of businesses, net of cash disposed Cash flows from investing activities Purchase of treasury shares Other transactions with owners Repayment of long-term debt (including current maturities of long-term debt) Change in short-term financial debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG Dividends paid to non-controlling interests Interest paid to the Siemens Group Other transactions/financing with the Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 19 First half 2023 534 916 103 71 76 −135 −150 −453 97 7 −91 232 145 −114 −417 1 22 844 −405 −5 8 ‐ −402 −43 −13 −98 −30 −12 −1,066 −14 −122 1,003 −396 −112 −66 1,436 1,370 First half 2022 1,055 669 360 29 6 54 −35 −373 −135 −13 277 380 −691 −129 −370 1 16 1,101 −382 −11 12 −2 −383 −84 1 −79 −2 −10 −955 −19 −106 232 −1,022 58 −246 1,322 1,076 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings Currency translation differences Reserve of equity instruments measured at fair value through other comprehensive income Cash flow hedges reserve Balance as of October 1, 2021 1,128 15,818 −300 −426 −29 −3 Net income ‐ ‐ 1,044 ‐ ‐ ‐ Other comprehensive income, net of taxes ‐ ‐ 101 763 −1 28 Dividends ‐ ‐ −955 ‐ ‐ ‐ Share-based payment ‐ −7 ‐ ‐ ‐ ‐ Purchase of treasury shares ‐ ‐ ‐ ‐ ‐ ‐ Reissuance of treasury shares ‐ 7 ‐ ‐ ‐ ‐ Other changes in equity ‐ ‐ −8 ‐ ‐ ‐ Balance as of March 31, 2022 1,128 15,818 −117 337 −30 25 Balance as of October 1, 2022 1,128 15,861 894 2,465 −30 141 Net income ‐ ‐ 526 ‐ ‐ ‐ Other comprehensive income, net of taxes ‐ ‐ 29 −2,365 ‐ −33 Dividends ‐ ‐ −1,066 ‐ ‐ ‐ Share-based payment ‐ −83 ‐ ‐ ‐ ‐ Purchase of treasury shares ‐ ‐ ‐ ‐ ‐ ‐ Reissuance of treasury shares ‐ 3 ‐ ‐ ‐ ‐ Other changes in equity ‐ ‐ 21 ‐ ‐ ‐ Balance as of March 31, 2023 1,128 15,781 405 100 −30 108 20 Cost of hedging reserve 89 ‐ −123 ‐ ‐ ‐ ‐ ‐ −35 −219 ‐ 334 ‐ ‐ ‐ ‐ ‐ 115 Treasury shares at cost −240 ‐ ‐ ‐ ‐ −70 99 ‐ −210 −405 ‐ ‐ ‐ ‐ −39 174 ‐ −270 Total equity attributable to shareholders of Siemens Healthineers AG 16,037 1,044 768 −955 −7 −70 106 −8 16,916 19,836 526 −2,035 −1,066 −83 −39 177 21 17,337 Non- controlling interests 18 11 ‐ −18 ‐ ‐ ‐ −3 8 16 8 −1 −14 ‐ ‐ ‐ 2 10 Total equity 16,055 1,055 768 −973 −7 −70 106 −11 16,924 19,852 534 −2,037 −1,080 −83 −39 177 23 17,347 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation The condensed half-year consolidated financial statements as of March 31, 2023, present the operations of Siemens Healthineers AG and its subsidiaries (hereinafter, collectively, “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year consolidated financial statements were prepared and published in euros (€). Due to rounding, numbers may not add up precisely to the totals provided. The results achieved in the interim reporting period are not necessarily indicative of the development of future business performance. The COVID-19 pandemic and associated significant uncertainties have been considered, where relevant, in accounting estimates and judgments. In the first half of fiscal year 2023, the COVID-19 pandemic did not lead to material adjustments of the carrying amounts of recognized assets and liabilities and there is currently no significant risk that the COVID-19 pandemic will lead to material adjustments in the second half of fiscal year 2023. In connection with the war in Ukraine, there were no material adjustments to the carrying amounts of assets and liabilities in the first half of fiscal year 2023. Siemens Healthineers has no production sites in Ukraine or Russia. The business activities of the sales and service units could be negatively impacted by further escalation of the war, possible further sanctions, or the exchange rate development of the respective local currencies. Due to the volatile geopolitical situation, the potential impacts for the second half of fiscal year 2023 cannot be reliably estimated. The associated risks are monitored on an ongoing basis. For further information on impacts from the COVID-19 pandemic, on the impacts of the war in Ukraine, on disaggregation of revenue and on segment information, please see disclosures in the interim group management report. The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on May 3, 2023. Note 2 Accounting policies The accounting policies applied for the preparation of the half-year consolidated financial statements are consistent with those accounting policies applied for the preparation of the consolidated financial statements for fiscal year 2022. Income tax expenses are determined in interim reporting periods on the basis of the current estimated annual effective tax rate of Siemens Healthineers for the full year. Note 3 Income taxes In the first half of fiscal year 2023, the tax rate of 16.2% was lower than the tax rate for the first half of fiscal year 2022, which was 25.4%. This was due in particular to the reversal of a tax provision in the mid double-digit million range. 21 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 4 Other intangible assets and property, plant and equipment In the first half of fiscal year 2023, an impairment loss was recognized in the amount of €260 million. Thereof, €244 million are allocated to other intangible assets and €16 million to property, plant and equipment. The impairment loss is mainly recognized in cost of sales and is for the cash-generating unit endovascular robotics solution. The cash-generating unit endovascular robotics solution is a product line within the segment Advanced Therapies, which develops and offers robotic-assisted platforms for coronary and neurovascular interventions. In the first half of fiscal year 2023, management decided to change business activities in a way to develop and offer robotic-assisted platforms only for neurovascular interventions in the future. At the end of first half of fiscal year 2023, an impairment test was performed for the cash-generating unit endovascular robotics solution. Major assets that amongst others are allocated to the cash-generating unit are intangible assets for technology and customer relations acquired upon the acquisition, along with property, plant and equipment. The recoverable amount of the cash- generating unit amounted to €−69 million and is its fair value less cost of disposal. The fair value less cost of disposal is derived from a discounted cash flow valuation (level 3). The duration of the discounted cash flow valuation is derived from the expected useful life of the major intangible assets. The impairment test was done under the assumptions that robotic-assisted platforms for neurovascular interventions are further developed and offered in the future, robotic-assisted platforms for coronary interventions are no longer developed and offered and that devices for coronary interventions that are installed at the customers site are mainly bought back. An after-tax discount rate of 10% (2022: 9%) was used. Furthermore, other intangible assets with an amount of €74 million have been derecognized in the first half of fiscal year 2023 because no future economic benefits are expected from their use or disposal. The derecognitions are in connection with the transformation of the Diagnostics business and are a result of measures to optimize the cost efficiency of the existing product range. Note 5 Provisions In the first half of fiscal year 2023, provisions for order-related losses and risks increased by €52 million to €154 million as of March 31, 2023 (September 30, 2022: €102 million), of which €109 million are non-current. The increase in provisions mainly resulted from additions in the amount of €57 million due to the decision to focus on the endovascular robotics solution exclusively on interventional solutions in neurology and the associated withdrawal from the robotic-assisted endovascular cardiology business in the Advanced Therapies segment. For further details, please refer to Note 4 Other intangible assets and property, plant and equipment. Note 6 Equity Capital reserve: In the first half of fiscal year 2023, expenses for share-based payment based on Siemens Healthineers AG shares led to an increase of the capital reserve by €58 million (first half of fiscal year 2022: €56 million). In connection with the settlement of the share-based payment awards, Siemens Healthineers AG shares, held as treasury shares, were transferred to employees at cost of €135 million (first half of fiscal year 2022: €63 million), leading to a decrease of the capital reserve by €135 million (first half of fiscal year 2022: €63 million). Treasury shares: In the first half of fiscal year 2023, Siemens Healthineers repurchased 815,072 (first half of fiscal year 2022: 1,126,679) shares utilizing the authorization granted by the Shareholders’ Meeting held on February 15, 2022, and transferred 3,676,483 (first half of fiscal year 2022: 2,072,061) treasury shares in conjunction with share-based payment plans. Dividends: In the second quarter of fiscal year 2023, the dividend payout was €0.95 per share entitled to the dividend. 22 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 7 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities: Carrying amounts as of Mar 31, 2023 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents AC 1,370 Trade receivables² AC 3,832 Receivables from finance leases³ n.a. 317 Receivables from the Siemens Group AC 938 Other financial assets² Derivatives included in hedge accounting n.a. 1,436 Derivatives not included in hedge accounting FVtPL 22 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 13 11 107 Equity instruments measured at fair value through other comprehensive income FVtOCI 50 Debt instruments measured at fair value through profit or loss FVtPL 1 28 Other AC 248 Total financial assets 6,389 13 1,470 185 317 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 50 Trade payables AC 2,113 Lease liabilities⁵ n.a. 607 Liabilities to the Siemens Group⁴ AC 15,679 Other financial liabilities Derivatives included in hedge accounting n.a. 153 Derivatives not included in hedge accounting FVtPL 35 Contingent considerations from business combinations FVtPL 5 Liabilities from written put options on non-controlling interests n.a. 65 Other AC 121 Total financial liabilities 17,964 189 5 672 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other non-current financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and non-current liabilities to the Siemens Group. 23 Total 1,370 3,832 317 938 1,436 22 131 50 29 248 8,374 50 2,113 607 15,679 153 35 5 65 121 18,831 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2022 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents AC 1,436 Trade receivables² AC 4,219 Receivables from finance leases³ n.a. 323 Receivables from the Siemens Group AC 822 Other financial assets² Derivatives included in hedge accounting n.a. 2,510 Derivatives not included in hedge accounting FVtPL 44 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 13 9 103 Equity instruments measured at fair value through other comprehensive income FVtOCI 56 Debt instruments measured at fair value through profit or loss FVtPL 1 53 Other AC 256 Total financial assets 6,733 13 2,564 212 323 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 86 Trade payables AC 2,315 Lease liabilities⁵ n.a. 649 Liabilities to the Siemens Group⁴ AC 15,927 Other financial liabilities Derivatives included in hedge accounting n.a. 94 Derivatives not included in hedge accounting FVtPL 36 Contingent considerations from business combinations FVtPL 4 Liabilities from written put options on non-controlling interests n.a. 99 Other AC 122 Total financial liabilities 18,450 130 4 749 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other non-current financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and non-current liabilities to the Siemens Group. The carrying amount of liabilities to the Siemens Group from U.S. dollar-denominated long-term loans was €8,174 million as of March 31, 2023 (September 30, 2022: €11,679 million). The fair value of these liabilities, which is based on prices provided by price service agencies (level 2), amounted to €7,058 million as of March 31, 2023 (September 30, 2022: €9,916 million). The carrying amounts of the remaining financial assets and liabilities measured at amortized cost approximated their fair value. The determination of the fair values of derivatives depended on the specific type of instrument. The fair values of forward exchange contracts and foreign exchange swaps were based on forward exchange rates (level 2). Options were generally valued based on market prices or based on option pricing models (level 2). Except for publicly listed investments for which a quoted price in an active market exists (level 1), the fair values of venture capital investments were generally determined on the basis of prices from most recently executed financing rounds (level 3). The fair values of other equity instruments were generally derived from a discounted cash flow valuation (level 3). Expected cash flows are thereby subject to future market and business developments as well as price volatility. The discount rates applied consider respective risk-adjusted capital costs. The fair value measurement of fund shares was based on their net asset values (level 2). Debt instruments measured at fair value through profit or loss consisted mainly of bonds and loans related to the financing of proton therapy centers. In this context, Siemens Healthineers, along with other debt investors, provided funds to various entities for the development, construction and operation of proton therapy centers, primarily in the United States. Repayment is linked either directly or indirectly to the commercial success of the respective centers. The fair values of the bonds are based on 24 Total 1,436 4,219 323 822 2,510 44 125 56 54 256 9,845 86 2,315 649 15,927 94 36 4 99 122 19,333 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements comparable bond issues, broker and dealer quotations for the same or similar investments, and other observable inputs such as yields, credit risks, default rates, and volatilities (level 2). The fair values of the loans are primarily based on the individual creditworthiness of the debtor, taking into account the risk characteristics and operating performance of the financed project (level 3). Where appropriate, a probability weighted expected return model is used, utilizing management’s assumptions of different outcomes such as the sale, refinancing or closure of the therapy center. Credit ratings are taken into account when adjusting the fair values for credit risks. Consequently, a better rating will generally result in an increased fair value of the loan receivable. As of March 31, 2023, the carrying amounts of financings provided by Siemens Healthineers and measured at fair value through profit or loss were €25 million (September 30, 2022: €27 million), while the total undiscounted amount, including accrued interest, amounted to €194 million (September 30, 2022: €205 million). In addition, the carrying amounts of trade receivables and contract assets related to the proton therapy centers amounted to €6 million (September 30, 2022: €9 million). The carrying amounts represent the maximum exposure to loss. Liabilities from written put options on non-controlling interests were measured at fair value, which is based on the present value of the exercise price of the options (level 3). The exercise price is generally derived from the proportionate enterprise value. The liabilities resulted mainly from written put options in connection with interests in ECG Management Consultants (hereinafter “ECG”). The enterprise value of ECG is calculated by an independent appraiser in accordance with a contractually agreed methodology and serves as a basis for the exercise price per share, which is determined at least once a year. The most significant unobservable input used to determine the fair value is financial information from the five-year business plan, which is mainly subject to expected business and market developments. In addition, weighted revenue and earnings multiples are considered. Changes resulting from the revaluation of liabilities from written put options were recognized in retained earnings. The changes in the carrying amount of the financial assets and liabilities measured at fair value based on unobservable inputs (level 3) were as follows: Equity instruments Debt instruments measured at fair value through profit or loss Contingent considerations from business combinations Liabilities from written put options on non- controlling interests First half First half First half First half (in millions of €) 2023 2022 2023 2022 2023 2022 2023 2022 Balance at beginning of fiscal year 159 130 53 42 4 27 99 72 Gains and losses recognized in profit or loss 1 ‐ ‐ ‐ ‐ ‐ ‐ ‐ Gains and losses recognized in equity ‐ ‐ ‐ ‐ ‐ ‐ −9 9 Additions 22 ‐ 1 ‐ 5 ‐ ‐ ‐ Disposals and settlements −8 ‐ −23 ‐ −3 −17 −25 ‐ Currency translation differences −17 5 −3 2 −1 −1 ‐ ‐ Other ‐ ‐ ‐ ‐ ‐ −2 ‐ ‐ Balance at end of fiscal year 158 135 28 44 5 7 65 81 25 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements The following table shows the composition of Siemens Healthineers’ financial debt: (in millions of €) Mar 31, 2023 Short-term financial debt and current maturities of long-term financial debt 203 Therein: Loans from banks 47 Lease liabilities 154 Current liabilities to the Siemens Group from financing activities 5,024 Therein: Lease liabilities 15 Total current financial debt 5,227 Long-term financial debt 417 Therein: Loans from banks ‐ Lease liabilities 415 Non-current liabilities to the Siemens Group from financing activities 10,686 Therein: Lease liabilities 23 Total non-current financial debt 11,103 Total financial debt 16,329 In the first half of fiscal year 2023, the credit facilities granted by Siemens AG were increased and extended until January 31, 2026. Consequently, as of March 31, 2023, the financing arrangements consisted of a multicurrency revolving credit facility of up to €2.5 billion (September 30, 2022: €1.1 billion), which serves to finance net working capital and as a short-term credit facility, as well as a multicurrency revolving credit facility of up to €2.0 billion (September 30, 2022: €1.0 billion) as a backup facility. As of the reporting date, an amount of €1,496 million (September 30, 2022: €200 million) was drawn from these credit facilities. Moreover, a loan from the Siemens Group in the amount of US$1.2 billion was repaid in the reporting period. For partial refinancing, Siemens AG provided an additional fixed interest loan in the amount of €0.7 billion, maturing in fiscal year 2030. Current liabilities to the Siemens Group from financing activities primarily increased due to the reclassification of two loans amounting to US$2.5 billion in total that will become due in March 2024. The devaluation of the U.S. dollar against the Euro had a reducing effect on the liabilities to the Siemens Group from financing activities. 26 Sept 30, 2022 234 67 166 2,608 16 2,842 464 15 446 13,347 22 13,811 16,654 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 8 Segment information Adjusted external revenue¹ Inter- segment revenue Total adjusted revenue¹ Adjusted EBIT² Assets³ (in millions of €) First half 2023 2022 First half 2023 2022 First half 2023 2022 First half 2023 2022 Mar 31, 2023 Sept 30, 2022 Imaging⁵ 5,440 4,908 214 185 5,654 5,093 1,199 1,020 8,430 8,802 Diagnostics 2,228 3,214 ‐ ‐ 2,228 3,214 −134 586 5,778 6,289 Varian⁵ 1,703 1,493 1 ‐ 1,704 1,493 246 252 14,261 15,043 Advanced Therapies 968 891 4 2 972 893 139 117 1,847 2,295 Total segments⁵ 10,339 10,506 219 187 10,558 10,693 1,449 1,975 30,316 32,431 Reconciliation to consolidated financial statements⁵, ⁶ 83 22 −219 −187 −136 −165 −812 −560 14,996 16,625 Siemens Healthineers 10,423 10,528 ‐ ‐ 10,423 10,528 637 1,415 45,312 49,056 1 Siemens Healthineers: IFRS revenue. 2 Siemens Healthineers: Income before income taxes. 3 On segment level: net capital employed. 4 Including additions through business combinations, excluding goodwill. 5 Prior year figures comparable based on the organizational structure effective October 1, 2022. 6 Including effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. 27 Free cash flow First half 2023 2022 990 818 −90 235 8 199 85 107 994 1,359 −555 −640 439 719 Additions to other intangible assets and property, plant and equipment⁴ First half 2023 2022 118 75 263 261 16 28 11 8 409 371 246 242 655 613 Amortization, depreciation and impairments First half 2023 2022 99 91 193 198 17 30 258 9 567 328 349 340 916 669 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2022. From the beginning of fiscal year 2023, Siemens Healthineers has a revised organizational structure. The Cancer Therapy business (imaging for radiation therapy) was transferred from the Imaging segment to the Varian segment. The Proton Solutions business was transferred from the Varian segment to Central Items given that, in the future, Siemens Healthineers will not be pursuing new sales of proton systems but will concentrate on maintenance of equipment already ordered or already installed, thereby enhancing system reliability and stability, and providing a high level of service for existing customers and their proton centers. Adjusted revenue Siemens Healthineers’ revenue included revenue from contracts with customers and income from leases. In the first half of fiscal year 2023, income from leases amounted to €180 million (first half of fiscal year 2022: €173 million). Revenue from rapid COVID-19 antigen tests in the Diagnostics segment amounted to €67 million in the first half of fiscal year 2023 (first half of fiscal year 2022: €1,007 million). For each of the segments, revenue results mainly from performance obligations satisfied at a point in time, especially in the case of the sale of goods, including reagents and consumables in the Diagnostics segment. However, the performance obligations related to maintenance contracts for equipment sold are generally satisfied over time with revenue recognized on a straight-line basis. Adjusted EBIT (in millions of €) First half 2023 Total segments‘ adjusted EBIT 1,449 Centrally carried pension service and administration expenses 1 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −208 Transaction, integration, retention and carve-out costs −16 Gains and losses from divestments ‐ Severance charges −66 Expenses for other portfolio-related measures −329 3 Financial income, net −72 Corporate items −117 Corporate treasury, Siemens Healthineers Real Estate¹, eliminations and other items −5 Total reconciliation to consolidated financial statements −812 Siemens Healthineers‘ income before income taxes 637 1 Siemens Healthineers Real Estate manages Siemens Healthineers’ entire real estate business portfolio, operates the properties and is responsible for building projects and for the purchase and sale of real estate. 2 Comparable based on the organizational structure effective October 1, 2022. 3 Including expenses for impairment of other intangible assets in the amount of €244 million. Expenses for other portfolio-related measures were €329 million. This was due to the focusing of the endovascular robotics solution exclusively on interventional solutions in neurology and the associated withdrawal from the robotic-assisted endovascular cardiology business in the Advanced Therapies segment. 28 First half 2022 1,975 2 −5 −361 −26 1 −40 ‐ −37 −94 2 3 −560 2 1,415 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Assets (in millions of €) Mar 31, 2023 Sept 30, 2022 Total segments‘ assets 30,316 32,431 1 Asset-based adjustments 6,332 7,584 1 Therein: Positive fair value of forwards for hedging of foreign currency liabilities from financing activities 1,427 2,484 1 Assets corporate treasury 1,472 1,537 Assets Siemens Healthineers Real Estate 1,814 1,870 Receivables from the Siemens Group from non-operating activities 930 807 Current income tax assets and deferred tax assets 591 649 Liability-based adjustments 8,665 9,041 1 Total reconciliation to consolidated financial statements 14,996 16,625 Siemens Healthineers‘ total assets 45,312 49,056 1 Comparable based on the organizational structure effective October 1, 2022. Free cash flow (in millions of €) First half 2023 First half 2022 Total segments‘ free cash flow 994 1,359 1 Tax-related cash flow −417 −370 1 Corporate items and other −138 −270 Total reconciliation to consolidated financial statements −555 −640 1 Siemens Healthineers‘ free cash flow 439 719 1 Comparable based on the organizational structure effective October 1, 2022. Note 9 Related party transactions The following presents the relationships Siemens Healthineers maintained with the Siemens Group, meaning Siemens AG and its subsidiaries. Transactions with the Siemens Group Sales of goods and services and other income and purchases of goods and services and other expenses from transactions with the Siemens Group are shown in the following table: Sales of goods and services and other income Purchases of goods and services and other expenses (in millions of €) First half 2023 First half 2022 First half 2023 First half 2022 Siemens AG 1 4 127 128 Other Siemens Group entities 142 142 88 94 Total 143 145 214 222 In the first half of fiscal year 2023, Siemens Healthineers obtained support from the Siemens Group for central corporate services with a total value of €139 million (first half of fiscal year 2022: €146 million). In addition, there were leasing transactions with the Siemens Group and related benefit trusts that fund pension obligations, mainly for real estate. As of March 31, 2023, total lease liabilities amounted to €56 million (September 30, 2022: €57 million). 29 Siemens Healthineers Half-Year Financial Report 2023 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Receivables from and liabilities to the Siemens Group Receivables from and liabilities to the Siemens Group were as follows: Receivables from the Siemens Group Liabilities to the Siemens Group (in millions of €) Mar 31, 2023 Sept 30, 2022 Mar 31, 2023 Sept 30, 2022 Siemens AG 581 289 3,631 1,320 Other Siemens Group entities 357 533 12,086 14,645 Total 938 822 15,717 15,964 During the reporting period, Siemens Healthineers was included in the cash pooling and cash management of the Siemens Group. In connection with the operating activities, Siemens Healthineers thereby invested excess liquidity in the short term and was granted overdraft facilities. In the first half of fiscal year 2023, the balance of receivables from and liabilities to the Siemens Group changed further, particularly, due to the dividend payout and the following financing activities: The liabilities to other Siemens Group entities decreased due to effects from foreign currency revaluation and the repayment of a matured loan in the amount of US$1.2 billion related to the financing of the acquisition of Varian. For partial refinancing, Siemens AG provided an additional loan in the amount of €0.7 billion, maturing in fiscal year 2030. In the first half of fiscal year 2023, both credit facilities granted by Siemens AG were increased and extended until January 31, 2026. As of March 31, 2023, there was thus a multicurrency revolving credit facility existed in an amount of up to €2.5 billion (September 30, 2022: €1.1 billion), which serves as financing of net working capital and as a short-term credit facility. Additionally, there was a multicurrency revolving credit facility in an amount of up to €2.0 billion (September 30, 2022: €1.0 billion) as a backup facility. In the first half of fiscal year 2023, interest expenses from financing arrangements with Siemens AG amounted to €38 million (first half of fiscal year 2022: €9 million) and from financing arrangements with other Siemens Group entities amounted to €54 million (first half of fiscal year 2022: €25 million). These include positive effects from the hedging of exchange rate risks of U.S. dollar-denominated loans. Hedging with the Siemens Group As of March 31, 2023, other current and other non-current financial assets resulting from hedging activities with the Siemens Group as counterparty amounted to €1,449 million (September 30, 2022: €2,518 million). As of March 31, 2023, other current and other non-current financial liabilities from hedging activities amounted to €169 million (September 30, 2022: €92 million). 30 Siemens Healthineers Half-Year Financial Report 2023 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, May 3, 2023 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Darleen Caron Dr. Jochen Schmitz Elisabeth Staudinger-Leibrecht 31 Siemens Healthineers Half-Year Financial Report 2023 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements of Siemens Healthineers AG, Munich, which comprise the consolidated statements of income, comprehensive income, financial position, cash flows and changes in equity, and notes to half-year consolidated financial statements, and the interim group management report for the period from October 1, 2022 to March 31, 2023 which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The Company’s management is responsible for the preparation of the half-year consolidated financial statements in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports. Our responsibility is to issue a report on the half-year consolidated financial statements and the interim group management report based on our review. We conducted our review of the half-year consolidated financial statements and of the interim group management report in compliance with German Generally Accepted Standards for the Review of Financial Statements promulgated by the Institut der Wirtschaftsprüfer (IDW - Institute of Public Auditors in Germany) and in supplementary compliance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of the Company’s employees and analytical assessments and therefore does not provide the assurance obtainable from an audit of financial statements. Since, in accordance with our engagement, we have not performed an audit of financial statements, we cannot issue an auditor’s report. Based on our review nothing has come to our attention that causes us to believe that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. Munich, May 3, 2023 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Keller Wirtschaftsprüfer [German Public Auditor] Dr. Eisele Wirtschaftsprüfer [German Public Auditor] 32 Siemens Healthineers Half-Year Financial Report 2023 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations, plans and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or developments, these statements are subject to various risks, uncertainties and factors, including but not limited to those possibly described in the respective disclosures. Should one or more of these or other risks, uncertainties or factors (e.g. events of force majeure, including but not limited to unrest, acts of war, pandemics or acts of God) materialize, plans change or should underlying expectations not occur or assumptions prove incorrect, Siemens Healthineers' management actions, actual results, performance or achievements of Siemens Healthineers may (negatively or positively) vary materially from those described explicitly or implicitly in the forward-looking statement. All forward-looking statements apply only as of the date when they were made and Siemens Healthineers neither intends nor assumes any obligation, unless required by law, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes supplemental financial measures that are or may be alternative performance measures not precisely defined in the applicable financial reporting framework (non-GAAP measures). These supplemental financial measures may have limitations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets, financial position and results of operations as presented in accordance with the applicable financial reporting framework. Other companies that report or describe similarly titled alternative performance measures may calculate them differently, and therefore they may not be comparable to those included in this document. For further explanations of our (supplemental) financial measures, please see chapter „A.2 Financial performance system“ and the Notes to consolidated financial statements, Note 29 „Segment information“ of the Annual Report 2022 of Siemens Healthineers. Due to rounding, individual numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. This document is an English language translation of the German document. In case of discrepancies, the German language document is the sole authoritative and universally valid version. For technical reasons, there may be differences in formatting between the accounting records appearing in this document and those published pursuant to legal requirements. In the event that the male form is used in this document, the information nevertheless refers to all persons (male, female, non- binary). 33 ___________________________________________ Siemens Healthineers AG Henkestr. 127 91052 Erlangen, Germany siemens-healthineers.com Investor Relations Phone: +49 (9131) 84-3385 Email: ir.team@siemens-healthineers.com corporate.siemens-healthineers.com/investor-relations Press Email: press.team@siemens-healthineers.com corporate.siemens-healthineers.com/press © Siemens Healthineers AG, 2023 | Semestriel, 2023, Healthcare, SiemensHealthineers | write me a financial report |
Semestriel | 2,022 | Technology | SAP | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| SAP Half-Year Report 2022 2/57 Integrated Report 2021 SAP Half-Year Report 2022 Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Supplementary Financial Information General Information Additional Information 3 4 22 48 54 56 SAP Half-Year Report 2022 Introductory Notes This Half-Year Group Report meets the requirements of German Accounting Standard No. 16 “Half- yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This Half-Year Group Report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a Half-Year Financial Report, and comprises the consolidated Half-Year Management Report, condensed consolidated Half-Year Financial Statements, and the responsibility statement in accordance with the German Securities Trading Act, section 115 (2). This Half-Year Group Report updates our consolidated Financial Statements 2021, presents significant events and transactions of the first half of 2022, and updates the forward-looking information as well as significant non-financial key figures contained in our Management Report 2021. This Half-Year Financial Report only includes half-year numbers. Our quarterly numbers are available in the Quarterly Statements for the first and second quarter 2022. Both the 2021 consolidated Financial Statements and the 2021 Management Report are part of our Integrated Report 2021, which is available at www.sapintegratedreport.com. All of the information in this Half-Year Group Report is unaudited. This means that the information has been subject neither to any audit nor to any review by an independent auditor. 3/57 4/57 Integrated Report 2021 SAP Half-Year Report 2022 Consolidated Half-Year Management Report Strategy & Business Model SAP continues to execute on the strategy and business model as described in the SAP Integrated Report 2021 to “REINVENT how the world runs as a network of intelligent, sustainable enterprises.” Our Product Strategy SAP has the technologies, products, footprint, and experience to combine four essential end-to-end business processes to create not just one intelligent enterprise, but a global ecosystem of intelligent enterprises. Those processes – Recruit to Retire, Source to Pay, Design to Operate, and Lead to Cash – are supported by our products. The most prominent building blocks of our product portfolio are SAP S/4 HANA Cloud, SAP SuccessFactors Human Experience Management (HXM) Suite, our Intelligent Spend Management program, SAP Customer Experience (CX) solutions, SAP Business Technology Platform (SAP BTP), industry cloud, SAP Business Network, our Business Process Intelligence (BPI) application portfolio, and our sustainability management solutions. Innovations in the first half of 2022 At our flagship conference SAP Sapphire, we announced four key areas of innovation: building resilient supply chains and business networks, enabling business process transformation, moving from talk to action on sustainability, and accelerating innovation with no-code and low-code application development, process automation, data, and artificial intelligence (AI). This section summarizes SAP’s product development and services innovation for the first half of 2022 and is intended to supplement the SAP Integrated Report 2021. SAP S/4HANA Cloud In May 2022, SAP S/4HANA Cloud was named a leader in both the Operational ERP and Manufacturing ERP Applications categories by the IDC MarketScape: Worldwide SaaS and Cloud- Enabled 2022 Vendor Assessments. At SAP Sapphire, SAP announced the launch of SAP Digital Manufacturing Cloud, a solution designed to help customers optimize manufacturing performance by integrating production execution, visibility, and analysis. Additionally, SAP and Apple have expanded their partnership and released a new suite of iOS applications designed to streamline the digital supply chain and equip workers with intuitive tools. Human Experience Management The SAP SuccessFactors Compensation solution features new reward and recognition capabilities including mass uploads, custom points, and multiple wallets. In addition, new mobile functionality aims to enable employees to navigate to and review details for online courses in the SAP SuccessFactors Learning solution, and to explore mentor programs in the SAP SuccessFactors Opportunity Marketplace solution. SAP Half-Year Report 2022 Intelligent Spend Management New product sourcing solutions from SAP that run natively on SAP S/4HANA are now available to help companies in the automotive and industrial machinery and components (IM&C) industries. These solutions aim to enable companies to collaborate more effectively with suppliers to plan and execute direct materials sourcing and procurement programs. Customer Experience SAP launched a new API-first, microservices-based SAP Service Cloud solution that aims to bring seamless end-user experiences and improved flexibility with built-in low-code/no-code tools. Furthermore, we continue to invest in our SAP Commerce Cloud solution, delivering on the following improvements and features in Release 2205: in-the-moment personalization capabilities, improved usability for business users, and extensibility features that allow businesses to deliver ‘commerce everywhere’ experiences. SAP Business Technology Platform SAP Business Technology Platform is a unified technology platform that brings together capabilities across application development, data and analytics, integration, and AI. This platform aims to help developers, business users, and our ecosystem store and manage data, derive insights, and build, extend, and integrate applications. SAP BTP also serves to optimize and automate business processes in and beyond SAP landscapes. Recent innovations include faster no-code application development capabilities and deeper integration with SAP applications through the SAP AppGyver tool, as well as new SAP Process Automation capabilities to further simplify how business users collaborate with developers to build and customize automations. Additionally, new AI-powered innovations enable customers to benefit from ready-to-use intelligence to transform core business processes. New, prebuilt industry content and APIs in SAP Integration Suite aim to help customers across all industries simplify integration between applications. SAP Business Network A new feature on SAP Business Network enables suppliers to complete a human rights self- assessment to demonstrate compliance with human rights due diligence laws, such as the German Supply Chain Act (Lieferkettensorgfaltspflichtengesetz). This law goes into effect in January 2023. Buyers on the network can search, find, and engage with suppliers that have shared their self- assessment. In March 2022, SAP acquired Taulia, a provider of working capital management solutions. With the addition of Taulia’s solutions, SAP S/4HANA Cloud and SAP Business Network can now provide end- to-end support for cash optimization and financing options for companies. For more information, see the Acquisitions section. Furthermore, an expanded partnership between SAP and the sustainability-ratings provider EcoVadis enables trading partners to add EcoVadis sustainability medals to their marketing profiles on the SAP Business Network. This allows buyers to assess trading partners and take immediate action as required to improve the sustainability of their value chains. Taulia has also partnered with EcoVadis to give SAP customers a way to create financial incentives for their suppliers to become ESG-rated. Business Process Intelligence In March 2022, SAP announced that the SAP Signavio brand will represent its portfolio of business process management solutions going forward. SAP also announced the general availability of journey to process analytics. This offering aims to give companies a better understanding of their end-to-end business processes by correlating experience data from Qualtrics user surveys with operational data from underlying IT systems. 5/57 6/57 Integrated Report 2021 SAP Half-Year Report 2022 Sustainable Business Solutions and Services SAP continues to innovate across key areas of enterprise sustainability management, carbon data exchange, and circular and regenerative business. SAP Cloud for Sustainable Enterprises, launched in January 2022, is a broad portfolio of solutions designed to enable companies to measure, manage, and optimize their sustainability performance based on a flexible implementation according to the customer’s unique sustainability requirements. Experience Management In the first half of 2022, Qualtrics launched XM Discover. This new set of products – deploying conversational analytics and natural language processing capabilities – aims to help organizations understand and respond to everything that is being communicated about them across every channel. Qualtrics and SAP also announced a new integration that brings the AI and machine learning capabilities of XM Discover into the SAP Service Cloud solution, whereby XM Discover analyzes all incoming feedback from structured and unstructured sources, such as agent notes, support conversations, chats, social media posts, and review sites. Services and Support SAP announced in April 2022 that it had simplified its cloud services and support portfolio by focusing on customer adoption and consumption. The portfolio is built for the cloud and designed to help customers realize value quickly, while achieving lasting success. The updated portfolio aims to offer customers new experiences, extensions, and services to address their individual needs and make it easier for them to engage with SAP. SAP’s well-established offerings including SAP MaxAttention, SAP Preferred Success, and SAP Enterprise Support, to name a few, will remain and continue to evolve. Business Conduct We rolled out a Global AI Ethics Policy in January 2022, as we continue to integrate AI into our solutions and evolve our software development process. This policy was put in place to help ensure that our AI systems and solutions are developed, deployed, and sold in line with the ethical standards laid out in our guiding principles. The policy also complements existing guiding principles regarding AI and will ensure that the use of AI at SAP is governed by clearly defined rules of ethics. Our Investments in Innovation Investment in R&D SAP’s strong commitment to R&D is reflected in our expenditures (see the graphic below). Research & Development (IFRS) € millions | change since previous half-year 20% 2,970 2,114 2,210 2,478 20% 1,761 5% 12% 4% Q1-Q2 2018 Q1-Q2 2019 Q1-Q2 2020 Q1-Q2 2021 Q1-Q2 2022 SAP Half-Year Report 2022 In the first half of 2022, our IFRS R&D ratio, reflecting R&D expenses as a portion of total operating expenses, increased one percentage point (pp) to 23% (first half of 2021: 22%). Our non-IFRS R&D ratio remained constant at 24% year over year. At the end of the first half of 2022, our total full-time equivalent (FTE) headcount in development was 32,945 (first half of 2021: 30,672). Measured in FTEs, our R&D headcount was 30% of total headcount (first half of 2021: 30%). Competitive Intangibles Some of the resources that are the basis for our current as well as future success, such as our ability to innovate, software we developed ourselves, customer capital, our employees and their knowledge and skills, our ecosystem of partners, and the brands we have built up, do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With a market capitalization of €106.8 billion at the end of the first half of 2022, the market value of our equity (based on all outstanding shares) is more than two times higher than its carrying amount. SAP was recognized as the world’s 31st most valuable brand in the 2022 BrandZ Global Top 100 Most Valuable Global Brands ranking (2021: 26). The ranking estimates SAP’s brand value at US$69 billion, unchanged from the prior year. Acquisitions On March 10, 2022, SAP announced that it had completed the acquisition of a majority stake of Taulia, a leading provider of working capital management solutions. Taulia further expands SAP’s business network capabilities and strengthens SAP’s solutions for the CFO office by providing working capital management cloud solutions. For more information, see the Notes to the Consolidated Half- Year Financial Statements, Note (D.1). Financial Performance: Review and Analysis Economy and the Market Global Economic Trends During the first half of 2022, global economic activity moderated, reports the European Central Bank (ECB) in its most recent Economic Bulletin.1 Thus, it has revised its earlier projections from the beginning of the year downward. In particular, the consequences of the war in Ukraine reach well beyond those countries and regions that are closely associated with Russia and Ukraine: it has disrupted trade and led to shortages of materials. Prices for energy, commodities, and food have increased strongly, causing inflation pressures to broaden and intensify. As for the pandemic, following a brief easing of the pandemic at the beginning of the year, monetary policy normalized in many countries and contributed to tighter financial conditions. Renewed pandemic restrictions in China, however, disrupted economic activity again, particularly in Asia, and put pressure on global supply chains. Commodity prices remain volatile and subject to supply risks. 7/57 8/57 Integrated Report 2021 SAP Half-Year Report 2022 The IT Market In the middle of 2022, “demand from enterprises and service providers for IT investments remains strong,” finds International Data Corporation (IDC), a U.S.-based market research firm.2 At the same time, “inflation is already having some impact on consumer IT markets” and “IT supply chain disruptions continue to heavily concern businesses.” According to IDC, “Broader geopolitical and societal issues, such as the war [in Ukraine], labor shortage, and the continuation of the pandemic are also cited as concerns by most companies.” In the first half of 2022, “software [was] still utilized as a direct driver of cost saving measures” and was “less susceptible to inflationary forces,” finds IDC. Therefore, currently, “demand is extremely strong” with “cloud as an operating and business model […] reshaping the fundamentals of the IT industry.” This is in accordance with IDC’s projections that we referred to in our Integrated Report 2021. However, IDC also points out that “IT services show signs of impact from wage expectations/labor costs.” Sources: 1 European Central Bank, Economic Bulletin, Issue 4/2022, publication date: June 23, 2022 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202204.en.pdf) 2 IDC Webinar, State of the Market: Inflation Impact on IT Spending and the Cloud, May 19, 2022 Impact on SAP In the first six months, SAP continued strong execution of its strategy. In particular, cloud and software revenue accelerated due to the strong performance of SaaS/PaaS solutions, with a return to growth in the Intelligent Spend category. Cloud revenue has now become the largest revenue stream. A further sign of the success of SAP’s strategy is the continued growth of current cloud backlog (CCB), exceeding the €10 billion mark for the first time. As expected, software licenses and support revenue experienced a further decrease as more customers move to SAP’s cloud subscription offerings. At the same time, SAP’s business was negatively impacted by the war in Ukraine and the decision to wind down its business operations in Russia and Belarus. In the first quarter, CCB was lower than expected due to the termination of existing cloud engagements from Russian cloud contracts, whereas in the second quarter, CCB reaccelerated again due to continued strong momentum in new cloud order intake outside the region. IFRS and non-IFRS operating profit declined in both the first and second quarter mainly due to reduced software licenses and support revenues and bad debt reserves recorded on trade receivables. As a result, non-IFRS operating profit was down 8% year over year in the first half year. IFRS operating profit was additionally affected by restructuring expenses mainly incurred due to severance payments to employees in Russia and Belarus and to impairments of assets. As at the end of the second quarter of 2022, SAP has absorbed the main impact of the exit from this market. Also, free cash flow for the first six months declined versus 2021. This is mainly attributable to the development of profitability and impacts from working capital due to SAP’s continuing transition to the cloud. SAP Half-Year Report 2022 Performance Against Our Outlook for 2022 In this section, all discussion of the contributions to target achievement is based either on IFRS or non-IFRS measures. Whether IFRS or non-IFRS measures are discussed is either explicitly stated in the header of the respective subsection, or the numbers are individually identified as either IFRS or non-IFRS measures. We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information section. Outlook for 2022 (Non-IFRS) For our outlook based on non-IFRS numbers, see the Financial Targets and Prospects section in this consolidated Half-Year Management report. Key Figures – SAP Group in the First Half of 2022 (IFRS and Non-IFRS) IFRS € millions, unless otherwise stated Q1–Q2 2022 Q1–Q2 2021 ∆ in % Q1–Q2 2022 Q1–Q2 2021 ∆ in % Current Cloud Backlog NA NA NA 10,403 7,766 34 Thereof SAP S/4HANA current cloud backlog NA NA NA 2,258 1,130 100 Cloud 5,876 4,421 33 5,876 4,421 33 Thereof SAP S/4HANA Cloud 876 485 81 876 485 81 Software licenses 743 1,133 –34 743 1,133 –34 Software support 5,900 5,624 5 5,900 5,624 5 Cloud and software 12,519 11,178 12 12,519 11,178 12 Total revenue 14,594 13,017 12 14,594 13,017 12 Operating expenses –12,868 –11,073 16 –11,236 –9,357 20 Operating profit 1,726 1,944 –11 3,358 3,660 –8 Operating margin (in %) 11.8 14.9 –3.1pp 23.0 28.1 –5.1pp Profit after tax 835 2,519 –67 2,259 3,934 –43 Effective tax rate (in %) 43.7 19.8 23.9pp 27.5 19.0 8.5pp Earnings per share, basic (in €) 0.92 2.03 –55 1.96 3.14 –37 Performance (IFRS and Non-IFRS) As at June 30, 2022, CCB (non-IFRS) was €10,403 million (first half of 2021: €7,766 million), an increase of 34% year over year (25% at constant currencies). Thereof, our SAP S/4HANA CCB (non- IFRS) was €2,258 million as at June 30, 2022, an increase of 100% year over year (87% at constant currencies). CCB (non-IFRS) decreased approximately €64 million as at June 30, 2022 due to the termination of existing cloud engagements in Russia and Belarus, dampening CCB growth by approximately 1pp at constant currencies. Our cloud revenue (IFRS) was €5,876 million (first half of 2021: €4,421 million), an increase of 33% (25% at constant currencies, non-IFRS) compared to the same period in 2021. Thereof, our SAP S/4HANA cloud revenue (IFRS) was €876 million (first half of 2021: €485 million), an increase of 81% (71% at constant currencies, non-IFRS). Our cloud gross margin (IFRS) increased 1.7pp to 69.0% (first half of 2021: 67.3%). Our cloud gross margin (non-IFRS) increased 1.2pp to 71.0% (first half of 2021: 69.8%). Non-IFRS ∆ in % constant currency 25 87 25 71 –38 0 6 6 13 –12 –4.8pp NA NA NA 9/57 10/57 Integrated Report 2021 SAP Half-Year Report 2022 Cloud and software revenue (IFRS) was €12,519 million (first half of 2021: €11,178 million), an increase of 12%. On a constant currency basis (non-IFRS), the increase was 6%. This increase was mainly driven by cloud revenue growth. Software licenses revenue (IFRS) decreased 34% (38% at constant currencies, non-IFRS) as more customers selected SAP’s cloud offerings such as RISE with SAP. Software support revenue (IFRS) was €5,900 million (first half of 2021: €5,624 million), an increase of 5% (flat at constant currencies, non-IFRS). Services revenue (IFRS) was €2,075 million (first half of 2021: €1,839 million), an increase of 13% (7% at constant currencies, non-IFRS). Total revenue (IFRS) was €14,594 million (first half of 2021: €13,017 million), an increase of 12% (6% at constant currencies, non-IFRS). Operating Expense (IFRS) Our operating expenses increased 16% to €12,868 million (first half of 2021: €11,073 million) mainly due to accelerated investments for example into research & development and sales and marketing to capture future growth opportunities and Russia exit costs. Cost of cloud increased 28%, also related to customers migrating from on premise to cloud, mainly to our RISE with SAP offerings. Additionally, we continued to invest in our next generation cloud delivery program. The cost of software licenses and support decreased 10%, mainly due to software revenue decline across all the regions. The cost of services increased 15%, as COVID-19-related travel restrictions were eased across the globe and personal customer visits and on-site trainings were possible again. In the first half of 2022, restructuring costs amounted to €119 million (first half of 2021: €164 million) mainly due to a new restructuring program we launched in the second quarter to further advance our structured exit from Russia and Belarus. The restructuring expenses mainly relate to severance payments to employees in Russia and Belarus and further impairments of assets, such as data center equipment, right-of-use assets for leased office buildings, and capitalized sales commissions. The increase of restructuring expenses versus prior expectations is due to the appreciation of the Russian ruble over the past quarter. For more information about restructuring, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). Share-based payment expenses decreased to €1,184 million (first half of 2021: €1,256 million), mainly due to the SAP share price drop. For more information about share-based payment expenses, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.3). Operating Expense (Non-IFRS) Operating expenses (non-IFRS) were €11,236 million (first half of 2021: €9,357 million), an increase of 20% (13% on a constant currency basis). The operating expenses (non-IFRS) were mainly impacted by the same effects as described above in the “Operating Expense (IFRS)” section, except for restructuring expenses and share-based payments. Operating Profit and Operating Margin (IFRS) Compared with the same period in the previous year, our operating profit decreased €219 million to €1,726 million (first half of 2021: €1,944 million), a decrease of 11%. This decrease was mainly driven by reduced software licenses and support revenues across predominately all regions as well as bad debt reserves recorded on trade receivables, mainly in Russia and Belarus. For more information about trade and other receivables, see the Notes to the Consolidated Half-Year Financial Statements, Note (A.2). Operating profit was also affected by restructuring expenses as described above in the “Operating Expense (IFRS)” section. The overall impact of the war in Ukraine on IFRS operating profit was approximately €350 million and lowered the IFRS operating profit growth by approximately 18pp. Our operating margin decreased 3.1pp to 11.8% (first half of 2021: 14.9%). SAP Half-Year Report 2022 Operating Profit and Operating Margin (Non-IFRS) Operating profit (non-IFRS) was €3,358 million (first half of 2021: €3,660 million), a decrease of 8%. On a constant currency basis, the decrease was 12%. The operating profit (non-IFRS) was negatively impacted by the same effects as described above in the “Operating Profit and Operating Margin (IFRS)” section, except for restructuring expenses. The overall impact of the war in Ukraine on operating profit (non-IFRS) was approximately €230 million and lowered the operating profit growth (non-IFRS) by approximately 6pp (approximately 5pp at constant currencies). Operating margin (non-IFRS) was 23.0%, a decrease of 5.1pp, or 4.8pp on a constant currency basis (first half of 2021: 28.1%). Profit After Tax and Earnings per Share (IFRS) Profit after tax was €835 million (first half of 2021: €2,519 million), a decrease of 67% compared to the same period in 2021. Basic earnings per share was €0.92 (first half of 2021: €2.03), a decrease of 55% mainly reflecting a contribution to financial income by Sapphire Ventures that was lower than over the same period in 2021 based on current market conditions. The effective tax rate was 43.7% (first half of 2021: 19.8%). The year-over-year increase mainly resulted from changes in tax-exempt income and nondeductible expenses. Furthermore, the prior year’s effective tax rate was positively impacted by a one-time change in deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries. Profit After Tax and Earnings per Share (Non-IFRS) Profit after tax (non-IFRS) was €2,259 million (first half of 2021: €3,934 million), a decrease of 43%. Basic earnings per share (non-IFRS) was €1.96 (first half of 2021: €3.14), a decrease of 37% mainly resulting from a contribution to financial income by Sapphire Ventures that was lower than over the same period in 2021 based on current market conditions. The effective tax rate (non-IFRS) was 27.5% (first half of 2021: 19.0%). The year-over-year increase mainly resulted from changes in tax-exempt income. Furthermore, the prior year’s effective tax rate was positively impacted by a one-time change in deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries. Reconciliation of Cloud Revenues and Margins Q1-Q2 2022 Q1-Q2 2021 € millions, unless otherwise stated IFRS Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Non- IFRS IFRS Non- IFRS Cloud revenue – SaaS1 4,644 4,644 –298 4,347 3,489 3,489 33 33 Cloud revenue – PaaS2 739 739 –37 703 493 493 50 50 Cloud revenue – IaaS3 492 492 –26 466 439 439 12 12 Cloud revenue 5,876 5,876 –361 5,515 4,421 4,421 33 33 Cloud gross margin – SaaS1 (in %) 72.0 74.4 74.2 69.7 72.6 2.3 pp 1.8 pp Cloud gross margin – PaaS2 (in %) 78.8 78.8 79.9 80.7 80.8 –1.9 pp –2.0 pp Cloud gross margin – IaaS3 (in %) 26.2 27.3 30.0 33.8 35.0 –7.6 pp –7.7 pp Cloud gross margin (in %) 69.0 71.0 71.2 67.3 69.8 1.7 pp 1.2 pp 1 Software as a service 2 Platform as a service 3 Infrastructure as a service 4 Constant currency period-over-period changes are calculated by comparing the current year’s non-IFRS constant currency numbers with the non-IFRS numbers of the previous year’s respective period. Due to rounding, numbers may not add up precisely. ∆ in % Non-IFRS Constant Currency4 25 43 6 25 1.6 pp –0.9 pp –5.0 pp 1.4 pp 11/57 Integrated Report 2021 SAP Half-Year Report 2022 Segment Information At the end of the first half of 2022, SAP had five operating segments: the Applications, Technology & Services segment, the Qualtrics segment, the Emarsys segment, the SAP Signavio segment, and the Taulia segment. Due to their size, however, Emarsys, SAP Signavio, and Taulia are non-reportable segments. For more information about our segment reporting and the changes in the composition of our segments in the first half of 2022, see the Notes to the Consolidated Half-Year Financial Statements, Notes (C.1) and (C.2). Applications, Technology & Services Q1–Q2 2022 Q1–Q2 2021 ∆ in % € millions, unless otherwise stated (non-IFRS) Actual Currency Constant Currency Actual Currency Actual Currency Cloud revenue 5,199 4,891 4,015 29 Cloud gross margin (in %) 68.7 69.1 67.9 0.7pp Segment revenue 13,804 13,113 12,519 10 Segment gross margin (in %) 72.4 72.5 73.4 –1.0pp Segment profit (loss) 4,149 3,986 4,523 –8 Segment margin (in %) 30.1 30.4 36.1 –6.1pp In the first half of 2022, the Applications, Technology & Services segment significantly increased its cloud revenue by 29.5% (21.8% at constant currencies), driven by a strong performance of SAP S/4HANA and SAP Business Technology Platform. At the same time, the cloud gross margin slightly increased 0.7pp (1.1pp at constant currencies). Software support revenue increased 4.9% (0.4% at constant currencies), whereas software licenses revenue decreased 34.6% (37.7% at constant currencies) to €740 million. Consequently, the Applications, Technology & Services segment achieved a total software licenses and support revenue of €6,640 million, declining 1.7% (5.9%at constant currencies). While total segment revenue increased 10.3% (4.7% at constant currencies) to €13,804 million, total segment expenses grew 20.8% to €9,655 million, leading to a decrease in the segment margin of 6.1pp (5.7pp at constant currencies) to 30.1%. Overall, the revenue share of more predictable revenue streams in this segment increased 3.4pp from 77.0% in the first half of 2021 to 80.4% in the first half of 2022. Qualtrics Q1–Q2 2022 Q1–Q2 2021 ∆ in % € millions, unless otherwise stated (non-IFRS) Actual Currency Constant Currency Actual Currency Actual Currency Cloud revenue 548 500 333 65 Cloud gross margin (in %) 89.1 89.0 92.3 –3.2pp Segment revenue 650 592 413 57 Segment gross margin (in %) 78.1 78.0 80.0 –1.8pp Segment profit (loss) 26 30 26 2 Segment margin (in %) 4.1 5.1 6.3 –2.2pp The Qualtrics segment, which comprises SAP’s experience management solutions, closed the first half of 2022 with strong growth in total segment revenue of 57.4% (43.3% at constant currencies). The positive development was mainly influenced by the strong cloud revenue growth of 64.6% (50.0% at 12/57 ∆ in % Constant Currency 22 1.1pp 5 –0.8pp –12 –5.7pp ∆ in % Constant Currency 50 –3.3pp 43 –2.0pp 17 –1.2pp Group Liquidity SAP Half-Year Report 2022 constant currencies) to €548 million. The cloud gross margin decreased 3.2pp (3.3pp at constant currencies) to 89.1%. Overall, the Qualtrics segment profit increased 1.5% (16.7% at constant currencies) to €26 million in the first half of 2022. The corresponding segment margin decreased 2.2pp (1.2pp at constant currencies) to 4.1%. Overall, the revenue share of more predictable revenue streams in this segment increased 3.7pp from 80.7% in the first half of 2021 to 84.4% in the first half of 2022. Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2022 Q1–Q2 2021 Net cash flows from operating activities 2,750 3,771 Capital expenditure –456 –344 Payments of lease liabilities –215 –176 Free cash flow 2,079 3,251 Free cash flow (as a percentage of total revenue) 14 25 Free cash flow (as a percentage of profit after tax) 249 129 The lower operating cash flow was mainly attributable to the development of profitability and changes in working capital due to SAP’s continuing move to the cloud as well as higher share-based payments (€140 million increase year over year), compensated by lower payments for income taxes (€62 million decrease year over year). ∆ –27% 33% 22% –36% –11 120 13/57 14/57 Integrated Report 2021 SAP Half-Year Report 2022 Liquidity and Financial Position € millions 6/30/2022 12/31/2021 Financial debt 12,282 13,094 Cash and cash equivalents 7,492 8,898 Current time deposits and debt securities 764 2,632 Group liquidity 8,256 11,530 Net debt 4,026 1,563 Goodwill 33,913 31,090 Total assets 75,575 71,169 Total equity 42,787 41,523 Equity ratio (total equity as a percentage of total assets) 57 58 In March 2022, we repaid €900 million in Eurobonds. As at June 30, 2022, we had issued €930 million under our Commercial Paper (CP) program with short-term maturities. ∆ –812 –1,406 –1,868 –3,274 +2,462 +2,823 +4,406 +1,263 –2pp SAP Half-Year Report 2022 Employees and Social Investments Globalization, demographic change, and increasing digitalization are constantly changing the way we work. At the same time, workers’ attitudes and expectations of their working environments and of their employer have shifted, and the competition for top talent has intensified. A new era in the way we work has begun. For a detailed description of our People Strategy, see the Employees and Social Investments section in our Integrated Report 2021. To remain successful in this new environment, retain the best staff, and attract new employees, SAP has rolled out Pledge to Flex, a hybrid working model that empowers employees to balance when, how, and where they work best, considering business requirements and local legislation. At the same time, the approach aims to foster easy and smooth collaboration, regardless of where our people are located. With this commitment, we continue to put focus on our employees’ health and well-being, complementing other initiatives specific to mental health and burnout. Further, we not only see great potential in upgrading our work environment but also in upskilling our employees as we accelerate to the cloud. Our SAP Learning organization partnered with the SAP Corporate Social Responsibility (SAP CSR) team to create Opportunity For All, providing scholarships to Ukrainian refugees and certifications to underrepresented youth in 2023. We will donate one scholarship for every 50,000 hours of internal learning completed and one certification voucher for every employee who completes 50 hours of learning in 2022. With over 1.6 million hours of learning completed to date, we are halfway towards our scholarship goal of 2.5 million hours. In late 2021, we also brought together our portfolio of well- established learning offerings and launched the SAP Learning Site training platform for learners in our ecosystem to cultivate and stay current on SAP skills. In May, we announced free access for all academic students to tailored learning resources and experiences in the “student zone” of SAP Learning Site. To support the growing need for accelerated app development by non-technical users, we also added additional free learning journeys, including an enhanced learning journey that prepares users for new certifications in low-code/no-code skills. We truly believe that our people are the heart of our organization. Therefore, in light of Russia’s ongoing and unjustified war against Ukraine, SAP has stepped up, over and above its responsibility as an employer. In this situation, safety and protection of our employees in the region is of utmost importance. For employees and their families who chose to leave Ukraine, SAP provided logistical support to try and make this incredibly difficult step as easy as possible. We also offered financial support for Ukrainian employees – whether they decided to stay or leave the country. Looking at our people-related KPIs, the Employee Engagement Index comes in at 81%, a slight decrease of 2pp compared to the 83% published in our Integrated Report 2021. Our Leadership Trust Net Promoter Score, meanwhile, reached a new all-time high of 71 in the first six months of 2022 (+4 points). Finally, the Business Health Culture Index remains strong at 81%. At the end of the first half of 2022, SAP’s Employee Retention Rate was still high at 91.6% (compared to 94.8% at the end of the first half of 2021 and 92.8% at the end of 2021). We define retention as the ratio of the average number of employees minus the employees who voluntarily departed, to the average number of employees (in full-time equivalents, FTEs). We also continue to foster an inclusive, bias-free workforce. The ratio of Women in Management continued its upward trend, reaching 28.8% at the end of the first half of 2022 compared to 27.9% at the end of June 2021 and 28.3% at the end of 2021. On June 30, 2022, we had 110,409 FTEs worldwide (June 30, 2021: 103,876; December 31, 2021: 107,415). For a breakdown of headcount by function and geography, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.1). 15/57 16/57 Integrated Report 2021 SAP Half-Year Report 2022 Energy and Emissions In the first half of 2022, we continued our commitment to help rebuild a more resilient, restorative, and inclusive economy within the planetary boundaries – both as an enabler and exemplar. To prevent further irreversible damage from climate change, we accelerated our commitment to net-zero and are now aiming to achieve net-zero along our value chain in line with a 1.5°C future in 2030 – 20 years earlier than originally targeted. Net-zero by 2030 is also one of the key pillars of our recently updated Global Environmental Policy which aims to promote nature-positive mechanisms and behaviors in our day-to-day operations, such as minimizing greenhouse gas emissions, reducing water consumption, eliminating electronic waste, accelerating innovations, and cultivating employee awareness. The transition to a circular economy remains central to our vision for a world of zero waste and plastic free oceans by 2030. We formed a Circular Economy partnership with the Ellen MacArthur Foundation to deliver regenerative business, and joined the Partnership for Carbon Transparency (PACT) under the leadership of the World Business Council for Sustainable Development to foster cross-industry transparency on greenhouse gas emissions and corporate climate accountability. Our continued journey towards planting 21 million trees by the end of 2025 is another invaluable cornerstone in maintaining the health and stability of our planet. In addition, we further strengthened and scaled our vital global sustainability ecosystem by adding new partnerships, such as with the Boston Consulting Group, Bearing Point, and EcoVadis. To help our customers achieve zero waste, zero emissions, and zero inequality, we offer a comprehensive portfolio of sustainable business solutions. For more information, see the Our Product Strategy section in this consolidated Half-Year Management Report. SAP’s carbon emissions for the first half of 2022 totaled 45 kilotons (kt), the same amount as in the first half of 2021. Even though we have continued our strategic avoid - reduce - compensate approach, the emission level has not decreased as expected due to a strong resurgence in business travel activities. To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. At the end of the first half of 2022, our carbon emissions (in tons) per employee was 1.0 (compared to 0.9 tons at the end of the first half of 2021), and our carbon emissions (in grams) per euro revenue was 3.6 (compared to 3.6 grams at the end of the first half of 2021) (rolling four quarters). SAP’s environmental, social, and governance (ESG) efforts – along with its measures, initiatives, and targets – have been recognized by the world’s most trusted business sustainability ratings and ranking organizations: – SAP received the top score in all three ESG quality dimensions by the Institutional Shareholder Services (ISS) ESG, upholding its prime status (B rating). As a result, SAP is among the top percentile. – SAP once again received the top score “A” in CDP’s climate change assessment and was recognized as a CDP Supplier Engagement Leader. – We ranked 55th in Corporate Knights’ Global 100 Most Sustainable Corporations in the World. – In Moody’s ESG Solutions assessment, SAP maintained the highest of four performance levels (“advanced”) and ranked 2nd of 83 in its sector, upholding SAP’s listing in the Euronext Vigeo indices Europe 120 and Eurozone 120. SAP Half-Year Report 2022 Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early on, take the appropriate action, and mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2021 and our Annual Report on Form 20-F for 2021. In this section, we present relevant changes and new developments with regards to our risk factors. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see the Notes to the Consolidated Half-Year Financial Statements, Note (G.1). Probability Impact Risk Level Global Economic & Political Environment Integrated Report 2021 Likely Major Medium Half-Year Report 2022 Likely Business-Critical High Cybersecurity and Security Integrated Report 2021 Likely Business-Critical High Half-Year Report 2022 Likely Business-Critical High Global Economic & Political Environment An increase in the risks aggregated under the Global Economic & Political risk factor was anticipated in the Integrated Report 2021. This has now materialized as a result of Russia’s invasion of Ukraine and SAP’s subsequent exit from the Russian and Belarus market and the continued global COVID-19 pandemic impacts. Both factors have fueled and are continuing to fuel increasing worldwide inflation. These, together with continued world-wide supply chain challenges, could lead to economic recession in certain countries, regions, or even globally. We have identified and partly completed certain additional mitigation steps. We have raised our estimate of the potential impact of this risk factor to business-critical. The probability of its occurrence remains likely. We cannot exclude the possibility that if these risks were to occur, they could have a business-critical impact on our operations, financial position, profit, and cash flows. We classify this risk factor as high. Cybersecurity and Security SAP continuously assesses cybersecurity risks and evaluates the security risks impacted by Russia's invasion of Ukraine specifically for SAP's gradual exit from Russia and Belarus. SAP recognizes the potential increase in cybersecurity threats following SAP's exit. SAP experienced increased cyberattacks against SAP's customers, suppliers and partners - including attacks on networks, devices, and cloud infrastructure that impact critical infrastructures - which could have an impact on SAP as a provider. Given the increasing frequency and severity of cyberattacks involving SAP, to its customers and suppliers, the potential impact of this risk factor remains business-critical with a probability of likely. Therefore, SAP continues to classify this as a high risk. Risk Management Assessment Based on our aggregation approach and taking into consideration the mitigations implemented for all our risk factors and risks, we subsequently see no material change relative to our 2022 risk assessment or 2022 risk-bearing capacity. We do not believe that any of the risks we identified in our Integrated Report 2021 and Annual Report on Form 20-F for 2021, and as outlined in the update above, jeopardize our ability to continue as a going concern. 17/57 18/57 Integrated Report 2021 SAP Half-Year Report 2022 Expected Developments and Opportunities Future Trends in the Global Economy There will be two key headwinds to worldwide economic activity in the near term, predicts the ECB in its latest Economic Bulletin1: the war in Ukraine and renewed pandemic containment measures in China. The ECB expects these factors to lead to a much weaker, though still positive growth for the remaining part of 2022. These headwinds are likely to result in supply chain disruptions, shortages of materials, and high prices for energy and commodities. However, the ECB expects the negative impacts to dissipate after 2022, enabling economic growth above historical-average rates in the medium term. Positive impact might result from the reopening of those sectors most affected by the pandemic, a strong labor market, and savings accumulated during the pandemic which serve as a buffer. However, inflation could remain elevated for some time, assumes the ECB. Therefore, it projects interest payments to increase and make the outlook more adverse. Inflation might decline only gradually over the coming years as energy costs could moderate, supply disruptions could ease after the pandemic, and monetary policy could normalize further. Economic Trends GDP Growth Year Over Year % 2021 2022p 2023p World 6.1 3.6 3.6 Advanced Economies 5.2 3.3 2.4 Emerging Markets and Developing Economies 6.8 3.8 4.4 Regions (according to IMF taxonomy) Euro Area 5.3 2.8 2.3 Germany 2.8 2.1 2.7 Emerging and Developing Europe 6.7 2.9 1.3 Middle East and Central Asia 5.7 4.6 3.7 Sub-Saharan Africa 4.5 3.8 4.0 United States 5.7 3.7 2.3 Canada 4.6 3.9 2.8 Latin America and the Caribbean 6.8 2.5 2.5 Japan 1.6 2.4 2.3 Emerging and Developing Asia 7.3 5.4 5.6 China 8.1 4.4 5.1 p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2022, War Sets Back the Global Recovery (https://www.imf.org/-/media/Files/Publications/WEO/2022/April/English/text.ashx), p. 25. SAP Half-Year Report 2022 The IT Market: Outlook for 2022 and Beyond For the remaining part of 2022, International Data Corporation (IDC), a U.S.-based market research firm2, expects that demand will continue to outstrip supply, but notes that “storms of disruption are influencing tech spend assumption for many businesses, with most expressing concerns regarding inflation.” At the same time, “supply is a […] constraint on short-term market growth, including for infrastructure investments.” Considering these determining factors, IDC says, “IT leaders around the world anticipate that general inflation and IT supply chain issues will alter cost assumptions” and they “are considering increasing their ICT budgets rather than delaying technology investments.” IDC predicts that in 2023, SaaS spending will supersede spending on traditional software licenses. Correspondingly, it believes the “whole cloud share of total IT spend” will grow from 40% in 2021 to 53% in 2025. Sources: 1 European Central Bank, Economic Bulletin, Issue 4/2022, publication date: June 23, 2022 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202204.en.pdf) 2 IDC Webinar, State of the Market: Inflation Impact on IT Spending and the Cloud, May 19, 2022 Impact on SAP SAP’s transformation to the cloud continues to drive opportunities for our customers. The ongoing macroeconomic uncertainties due to the war in Ukraine, recurring pandemic waves, and continued supply chain disruption are prompting many customers to reinvent how their businesses run to become more resilient and agile intelligent enterprises. Therefore, SAP is executing on its cloud-led strategy, which is driving accelerating cloud growth through both new business and cloud adoption by existing customers. Our broad solution portfolio, including our modular cloud ERP suite, SAP Business Technology Platform, our industry cloud, SAP Business Network, and our enhanced sustainability portfolio, helps to create unparalleled value not only for our customers but for our entire ecosystem. This strategy resonates with customers even in an increasingly challenging environment. With this, SAP is well positioned to capitalize on an expanding addressable market. Financial Targets and Prospects Revenue and Operating Profit Targets and Prospects (Non-IFRS) SAP is executing on its cloud-led strategy, which is driving accelerating cloud growth through both new business and cloud adoption by existing customers. The pace and scale of SAP’s cloud momentum places the Company well on track towards its mid-term ambition. For 2022, SAP now expects: – €7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2021: €8.23 billion), down 4% to 8% at constant currencies. The updated non-IFRS operating profit outlook range reflects the expected 2022 non-IFRS operating profit impact of approximately €350 million at constant currencies from the war in Ukraine and a potential continued marked decline of software licenses revenue. The previous range was €7.8 – 8.25 billion at constant currencies. Despite the expected total revenue impact of approximately €300 million at constant currencies of the war in Ukraine and a further accelerated move of our customers from upfront software licenses revenue to the cloud in the current macro-environment, SAP continues to expect for 2022: – €11.55 billion to €11.85 billion in cloud revenue at constant currencies (2021: €9.42 billion), up 23% to 26% at constant currencies. – €25.0 billion to €25.5 billion in cloud and software revenue at constant currencies (2021: €24.08 billion), up 4% to 6% at constant currencies. 19/57 20/57 Integrated Report 2021 SAP Half-Year Report 2022 – The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) to reach approximately 78% (2021: 75%). – Free cash flow above €4.5 billion (2021: €5.01 billion). – To achieve a year-end current cloud backlog growth rate similar to 2021. We continuously strive for profit expansion in all of our operating segments. While SAP’s full-year 2022 business outlook is at constant currencies, actual-currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. For the third-quarter and full-year 2022 expected currency impacts, see the table below. Expected Currency Impact Based on June 2022 Level In percentage points Q3 FY Cloud 8pp to 10pp 7pp to 9pp Cloud and software 5pp to 7pp 4pp to 6pp Operating profit 3.5pp to 5.5pp 2.5pp to 4.5pp The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. Non-IFRS Measures € millions Estimated Amounts for Full Year 2022 Q1–Q2 2022 Acquisition-related charges 620–720 328 Share-based payment expenses 2,500–2,700 1,184 Restructuring 130–150 119 SAP now expects a full-year 2022 effective tax rate (IFRS) of 34.0% to 38.0% (previously: 28.0% to 32.0%). The adjustment mainly results from an updated projection of non-deductible expenses and of the lower 2022 financial income contribution of Sapphire Ventures given current market conditions. As the updated non-deductible expenses are not included in non-IFRS, SAP continues to anticipate a full-year 2022 effective tax rate (non-IFRS) of 23.0% to 27.0% but now expects to be at the upper end of this range. Medium-Term Prospects SAP reiterates its mid-term ambition published in its Q3 2020 Quarterly Statement including the commitment of double-digit growth of operating profit in 2023. In light of its strong cloud momentum and most recent favorable currency exchange rates development, SAP expects to update its mid-term ambition in the upcoming quarters. The growth in cloud revenue is expected to be driven particularly by our SaaS/PaaS cloud business. In 2025, we expect cloud revenue contributions from: solutions in enterprise resource planning of more than €5.0 billion, solutions in spend management, human capital management, and SAP Business Technology Platform of more than €2.5 billion each, solutions in Customer Relationship Management of more than €1.0 billion, and SAP HANA Enterprise Cloud of more than €0.5 billion. For a detailed description of our medium-term prospects, see our Integrated Report 2021. Q1–Q2 2021 296 1,256 164 SAP Half-Year Report 2022 Goals for Liquidity, Finance, and Investments We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2022 as well, and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near and medium term. In the second half-year, we expect a more favorable cash flow development due to lower cash taxes and better profitability. We are therefore reiterating our free cash flow outlook for the year to more than €4.5 billion. Compared to what we disclosed in our Integrated Report 2021, we did not change our free cash flow expectations. In addition to the repayment of a €900 million Eurobond in the first quarter of 2022, we intend to repay a US$445 million U.S. private placement in the fourth quarter of 2022. As at June 30, 2022, scheduled debt repayments of around €3.5 billion until the end of 2023 are pending. The ratio of net debt as at December 31, 2022, of around €1.6 billion divided by the total of operating profit (IFRS) plus depreciation and amortization is expected at around 0.2. Our planned investment expenditures for 2022 and 2023, other than from business combinations, consist primarily of the purchase of IT infrastructure (such as data centers) and the construction of new buildings. Primarly driven by higher investment expenditures for IT, we now expect planned investment expenditures of slightly below €1 billion for 2022, compared to the approximately €850 million disclosed in our Integrated Report 2021. In 2023, capital expenditures are expected to return approximately to 2021 levels. Non-Financial Goals 2022 and Ambitions for 2025 In addition to our financial goals, we also focus on three non-financial targets: customer loyalty, employee engagement, and carbon emissions. SAP now expects the Employee Engagement Index to be in a range of 80% to 84% in 2022 (previously: 84% to 86%). In 2022, SAP continues to expect: – A Customer Net Promoter Score of 11 to 15 (2021: 10) – Net carbon emissions of 70 kt (2021: 110 kt) For a detailed description of our non-financial goals for 2022 and ambitions for 2025, see our Integrated Report 2021. Premises on Which Our Outlook and Prospects Are Based In preparing our outlook and prospects, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2021. 21/57 22/57 Integrated Report 2021 SAP Half-Year Report 2022 Consolidated Half-Year Financial Statements – IFRS Primary Half-Year Financial Statements ............................................................................................................ 23–27 Notes to the Half-Year Financial Statements (IN.1) Basis for Preparation .......................................................................................................................................... 28 (IN.2) Impact of the War in Ukraine ............................................................................................................................ 29 Section A – Customers 30 (A.1) Revenue ................................................................................................................................................................... 30 (A.2) Trade and Other Receivables ............................................................................................................................ 31 32 Section B – Employees (B.1) Employee Headcount .......................................................................................................................................... 32 (B.2) Employee Benefits Expenses............................................................................................................................. 32 (B.3) Share-Based Payments ....................................................................................................................................... 33 (B.4) Restructuring ........................................................................................................................................................... 34 35 Section C – Financial Results (C.1) Results of Segments ............................................................................................................................................ 35 (C.2) Reconciliation of Segment Measures to Income Statement .................................................................... 37 (C.3) Financial Income, Net .......................................................................................................................................... 38 (C.4) Income Taxes ......................................................................................................................................................... 38 39 Section D – Invested Capital (D.1) Business Combinations and Divestitures ....................................................................................................... 39 (D.2) Goodwill .................................................................................................................................................................. 40 (D.3) Property, Plant, and Equipment ........................................................................................................................ 41 42 Section E – Capital Structure, Financing, and Liquidity (E.1) Total Equity.............................................................................................................................................................. 42 (E.2) Liquidity .................................................................................................................................................................... 43 Section F – Management of Financial Risk Factors (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments ........................................................................................................................................................................ 44 45 Section G – Other Disclosures (G.1) Litigation, Claims, and Legal Contingencies .................................................................................................. 45 (G.2) Related Party Transactions ................................................................................................................................ 46 (G.3) Events After the Reporting Period .................................................................................................................... 46 (G.4) Scope of Consolidation ....................................................................................................................................... 46 28 44 SAP Half-Year Report 2022 Consolidated Income Statement of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Q1–Q2 2022 Cloud 5,876 Software licenses 743 Software support 5,900 Software licenses and support 6,643 Cloud and software 12,519 Services 2,075 Total revenue (A.1), (C.2) 14,594 Cost of cloud –1,822 Cost of software licenses and support –841 Cost of cloud and software –2,663 Cost of services –1,635 Total cost of revenue –4,298 Gross profit 10,296 Research and development –2,970 Sales and marketing –4,330 General and administration –1,034 Restructuring (B.4) –119 Other operating income/expense, net –118 Total operating expenses –12,868 Operating profit (loss) 1,726 Other non-operating income/expense, net –69 Finance income 521 Finance costs –695 Financial income, net (C.3) –174 Profit (loss) before tax (C.2) 1,483 Income tax expense –648 Profit (loss) after tax 835 Attributable to owners of parent 1,074 Attributable to non-controlling interests –239 Earnings per share, basic (in €)1 0.92 Earnings per share, diluted (in €)1 0.91 1 For the six months ended June 30, 2022 and 2021, the weighted average number of shares was 1,174 million (diluted: 1,174 million) and 1,180 million (diluted: 1,180 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. Q1–Q2 2021 4,421 1,133 5,624 6,757 11,178 1,839 13,017 –1,444 –939 –2,383 –1,447 –3,830 9,187 –2,478 –3,491 –1,098 –164 –12 –11,073 1,944 29 1,549 –381 1,168 3,141 –622 2,519 2,396 123 2.03 2.03 ∆ in % 33 –34 5 –2 12 13 12 26 –10 12 13 12 12 20 24 –6 –27 >100 16 –11 <-100 –66 82 <-100 –53 4 –67 –55 <-100 –55 –55 23/57 Integrated Report 2021 SAP Half-Year Report 2022 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year Q1–Q2 2021 € millions Q1–Q2 2022 Profit after tax 835 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 1 Income taxes relating to remeasurements on defined benefit pension plans –2 Remeasurements on defined benefit pension plans, net of tax –2 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax –2 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax 3,513 Reclassification adjustments on exchange differences on translation, before tax 0 Exchange differences, before tax 3,513 Income taxes relating to exchange differences on translation –7 Exchange differences, net of tax 3,505 Gains (losses) on cash flow hedges/cost of hedging, before tax –11 Reclassification adjustments on cash flow hedges/cost of hedging, before tax 46 Cash flow hedges/cost of hedging, before tax 35 Income taxes relating to cash flow hedges/cost of hedging –9 Cash flow hedges/cost of hedging, net of tax 26 Other comprehensive income for items that will be reclassified to profit or loss, net of tax 3,531 Other comprehensive income, net of tax 3,530 Total comprehensive income 4,365 Attributable to owners of parent 4,347 Attributable to non-controlling interests 18 Due to rounding, numbers may not add up precisely. 24/57 2,519 17 –3 13 13 1,043 17 1,061 –8 1,053 2 –6 –4 1 –4 1,049 1,063 3,581 3,496 85 SAP Half-Year Report 2022 Consolidated Statement of Financial Position of SAP Group (IFRS) as at 06/30/2022 and 12/31/2021 € millions Cash and cash equivalents Other financial assets Trade and other receivables Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Contract liabilities Total current liabilities Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Deferred tax liabilities Contract liabilities Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity Total equity and liabilities Due to rounding, numbers may not add up precisely. Notes (A.2) (D.2) (D.3) (A.2) (E.2) (B.4) (E.2) (E.1) 2022 7,492 987 8,674 2,112 856 20,121 33,913 4,295 4,996 6,920 113 3,010 307 1,901 55,454 75,575 2022 1,939 317 8,150 3,458 148 6,883 20,894 104 903 9,515 657 382 300 33 11,894 32,788 1,229 2,547 35,109 5,031 –4,072 39,844 2,943 42,787 75,575 2021 8,898 2,758 6,352 1,633 403 20,044 31,090 3,965 4,977 6,275 147 2,628 263 1,779 51,125 71,169 2021 1,580 304 4,528 5,203 89 4,431 16,136 122 827 11,042 860 355 291 13 13,510 29,645 1,229 1,918 37,022 1,756 –3,072 38,852 2,670 41,523 71,169 25/57 Integrated Report 2021 SAP Half-Year Report 2022 Consolidated Statements of Changes in Equity of SAP Group (IFRS) Equity Attributable to Owners of Parent € millions Issued Capital Share Premium Retained Earnings Other Components of Equity Treasury Shares 12/31/2020 1,229 545 32,026 –1,011 –3,072 Profit after tax 2,396 Other comprehensive income 13 1,087 Comprehensive income 2,409 1,087 –3,072 Share-based payments 741 Dividends –2,182 Transactions with non-controlling interests 888 Other changes –30 6/30/2021 1,229 1,287 33,111 76 –3,072 12/31/2021 1,229 1,918 37,022 1,756 –3,072 Profit after tax 1,074 Other comprehensive income –2 3,275 Comprehensive income 1,073 3,275 Share-based payments 629 Dividends –2,865 Purchase of treasury shares –1,000 Transactions with non-controlling interests –83 Other changes –37 6/30/2022 1,229 2,547 35,109 5,031 –4,072 Due to rounding, numbers may not add up precisely. 26/57 Total 29,717 2,396 1,100 3,496 741 –2,182 888 –30 32,630 38,852 1,074 3,273 4,347 629 –2,865 –1,000 –83 –37 39,844 Non- Controlling Interests 211 123 –38 85 143 –16 1,059 9 1,492 2,670 –239 257 18 181 –18 85 7 2,943 Total Equity 29,928 2,519 1,063 3,581 884 –2,198 1,947 –20 34,122 41,523 835 3,530 4,365 810 –2,883 –1,000 1 –29 42,787 SAP Half-Year Report 2022 Consolidated Statement of Cash Flows of SAP Group (IFRS) € millions Profit (loss) after tax Adjustments to reconcile profit (loss) after tax to net cash flows from operating activities: Depreciation and amortization Share-based payment expense Income tax expense Financial income, net Decrease/increase in allowances on trade receivables Other adjustments for non-cash items Decrease/increase in trade and other receivables Decrease/increase in other assets Increase/decrease in trade payables, provisions, and other liabilities Increase/decrease in contract liabilities Share-based payments Interest paid Interest received Income taxes paid, net of refunds Net cash flows from operating activities Business combinations, net of cash and cash equivalents acquired Purchase of intangible assets or property, plant, and equipment Proceeds from sales of intangible assets or property, plant, and equipment Purchase of equity or debt instruments of other entities Proceeds from sales of equity or debt instruments of other entities Cash flows from advances (supply chain financing)1 Net cash flows from investing activities Dividends paid Dividends paid on non-controlling interests Purchase of treasury shares Proceeds from changes in ownership interests in subsidiaries that do not result in the loss of control Payments for taxes related to net share settlement of equity awards Proceeds from borrowings Repayments of borrowings Payments of lease liabilities Cash flows with funders (supply chain financing)1 Net cash flows from financing activities Effect of foreign currency rates on cash and cash equivalents Net decrease/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 1 For more information, see Note (D.1). Due to rounding, numbers may not add up precisely. Q1–Q2 2022 835 933 1,184 648 174 108 7 865 –621 –1,312 2,133 –918 –140 45 –1,192 2,750 –627 –456 51 –2,256 4,005 –1,432 –715 –2,865 –3 –1,000 21 –224 38 –944 –215 1,409 –3,782 341 –1,406 8,898 7,492 Q1–Q2 2021 2,519 871 1,256 622 –1,168 –11 110 1,074 –229 –1,024 1,888 –779 –125 21 –1,254 3,771 –995 –344 40 –754 1,325 0 –728 –2,182 –16 0 1,847 0 1,600 –1,802 –176 0 –729 139 2,453 5,311 7,764 27/57 28/57 Integrated Report 2021 SAP Half-Year Report 2022 Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation General Information About Consolidated Half-Year Financial Statements The registered seat of SAP SE is in Walldorf, Germany (Commercial Register of the Lower Court of Mannheim HRB 719915). The condensed Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. In this context, IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2021, included in our Integrated Report 2021 and our Annual Report on Form 20-F for 2021. Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. Amounts disclosed in our Consolidated Half-Year Financial Statements that are taken directly from our Consolidated Income Statements or our Consolidated Statements of Financial Position are marked by the symbols and , respectively. SAP Half-Year Report 2022 Accounting Policies, Management Judgments, and Sources of Estimation Uncertainty How We Present Our Accounting Policies, Judgments, and Estimates To ease the understanding of our financial statements, we present the accounting policies, judgments, and estimates on a given subject together with other disclosures related to the same subject in the Note that deals with this subject, and highlighted this disclosure with a light gray box and the symbol . We describe, however, only material changes of our accounting policies, judgments, and estimates in relation to our Consolidated Financial Statements for 2021. New Accounting Standards Not Yet Adopted The IASB has issued amendments to standards such IAS 1 (Classification of Liabilities as Current or Non-current), that are relevant for SAP but not yet effective. We are currently in the process of finalizing the assessment of the impact on SAP, but do not expect material effects on our financial position or results of operations. (IN.2) Impact of the War in Ukraine In the first half of 2022, SAP’s business was negatively impacted by the war in Ukraine and SAP’s decision to wind down its business operations in Russia and Belarus. For more information about the impacts of the war in Ukraine and SAP’s exit from Russia and Belarus, see Note (A.2) concerning Trade and Other Receivables, Note (B.4) concerning Restructuring, and Note (D.2) concerning Goodwill. Other impacts due to this rapidly evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope. 29/57 30/57 Integrated Report 2021 SAP Half-Year Report 2022 Section A – Customers This section discusses disclosures related to contracts with our customers. These consist of revenue breakdowns and information about our trade receivables. For more information, see our Consolidated Financial Statements for 2021, Section A – Customers. (A.1) Revenue Geographic Information The amounts for revenue by region in the following tables are based on the location of customers. Cloud Revenue by Region € millions Q1–Q2 2022 Q1–Q2 2021 EMEA 2,036 1,547 Americas 3,094 2,291 APJ 746 582 SAP Group 5,876 4,421 Cloud and Software Revenue by Region € millions Q1–Q2 2022 Q1–Q2 2021 EMEA 5,355 5,050 Americas 5,265 4,336 APJ 1,899 1,792 SAP Group 12,519 11,178 Total Revenue by Region € millions Q1–Q2 2022 Q1–Q2 2021 Germany 2,129 1,957 Rest of EMEA 4,110 3,898 EMEA 6,239 5,855 United States 5,028 4,166 Rest of Americas 1,161 974 Americas 6,189 5,140 Japan 613 628 Rest of APJ 1,553 1,394 APJ 2,166 2,022 SAP Group 14,594 13,017 For information about the breakdown of revenue by segment and segment revenue by region, see Note (C.1). For more information about our revenue accounting policies, see our Consolidated Financial Statements for 2021, Note (A.1). SAP Half-Year Report 2022 (A.2) Trade and Other Receivables € millions Current Non-Current Trade receivables, net 5,287 1 Other receivables 3,387 112 Total 8,674 113 € millions Current Non-Current Trade receivables, net 5,887 1 Other receivables 465 146 Total 6,352 147 The impact of the war in Ukraine has significantly increased the credit risk on our trade receivables in Russia and Belarus and resulted in an additional expected credit loss of €101 million. The significant increase in other receivables is due to the Taulia acquisition and the consolidation of its supply chain financing related assets. For more information about the Taulia acquisition and the respective accounting, see Note (D.1). 6/30/2022 Total 5,288 3,499 8,787 12/31/2021 Total 5,888 611 6,499 31/57 Integrated Report 2021 SAP Half-Year Report 2022 Section B – Employees This section provides financial insights into our employee benefit arrangements. It should be read in conjunction with the compensation disclosures for key management personnel in Note (G.5) in our Consolidated Financial Statements for 2021, as well as SAP’s Compensation Report. For more information, see our Consolidated Financial Statements for 2021, Section B – Employees. (B.1) Employee Headcount On June 30, 2022, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. Number of Employees (in Full-Time Equivalents) Full-time equivalents 6/30/2022 EMEA Americas APJ Total EMEA Americas APJ Cloud and software 5,978 4,570 5,157 15,705 5,859 4,456 5,029 Services 8,304 5,516 5,864 19,684 8,264 5,627 6,102 Research and development 15,920 6,348 10,677 32,945 14,489 6,162 10,021 Sales and marketing 11,983 12,394 5,691 30,068 10,607 10,765 4,991 General and administration 3,423 2,271 1,252 6,945 3,452 2,184 1,187 Infrastructure 2,780 1,405 877 5,061 2,588 1,299 792 SAP Group (6/30) 48,388 32,504 29,518 110,409 45,261 30,493 28,123 Thereof acquisitions1 173 214 8 395 377 43 26 SAP Group (six months' end average) 47,842 32,354 29,456 109,652 44,741 30,332 28,021 1 Acquisitions closed between January 1 and June 30 of the respective year (B.2) Employee Benefits Expenses € millions Q1–Q2 2022 Salaries 5,925 Social security expenses 968 Share-based payment expenses 1,184 Pension expenses 252 Employee-related restructuring expenses 61 Termination benefits 23 Employee benefits expenses 8,412 32/57 6/30/2021 Total 15,345 19,993 30,672 26,363 6,823 4,679 103,876 446 103,094 Q1–Q2 2021 5,150 805 1,256 231 27 38 7,505 SAP Half-Year Report 2022 (B.3) Share-Based Payments The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Q1–Q2 2022 Q1–Q2 2021 Cost of cloud 31 28 Cost of software 30 34 Cost of services 122 129 Research and development 279 248 Sales and marketing 315 301 General and administration 408 516 Share-based payments 1,184 1,256 For more information about our share-based payments and a detailed description of our share-based payment plans, see the Notes to the Consolidated Financial Statements for 2021, Note (B.3). Restricted Stock Unit Plan Including Move SAP Plan and Grow SAP Plan (RSU Plan) Starting in 2022, most of the granted share units under the Move SAP plan will start vesting after a waiting period of six months and ratably thereafter for ten quarters. Under our previous policy, we serviced obligations arising from the plan with cash payments, but we have since decided to settle future share units predominantly in shares. In the first half of 2022, we granted 16.8 million (first half of 2021: 11.2 million) share units. This includes 14.3 million (first half of 2021: 0) share units which we intend to settle in shares. The dilutive effect of outstanding equity-settled share units is reflected in the calculation of earnings per share, diluted. For more information about our share buyback completed in the first half of 2022 to avoid dilution from the equity-settlement, see Note (E.1). Of the share units we intend to settle in cash, 1.1 million share units were granted in June 2022 under the Grow SAP plan (0.9 million in June 2021). Obligations from outstanding share units granted before 2022 under the Move SAP plan will continue to be settled in cash and the settlement methods of SAP’s other plans remain unchanged. Own SAP Plan (Own) Under the Own SAP plan, employees can purchase, on a monthly basis, SAP shares without any required holding period. As part of SAP’s 50th anniversary celebration, SAP's contribution was doubled from 40% to 80% from January to March 2022. The number of shares purchased by our employees under this plan was 4.6 million in the first half of 2022 (first half of 2021: 2.9 million). Qualtrics In the first half of 2022, 19.3 million equity-settled Qualtrics RSU awards were granted (first half of 2021: 67.1 million) to encourage and enable Qualtrics executives and employees to acquire an ownership interest in Qualtrics. 33/57 34/57 Integrated Report 2021 SAP Half-Year Report 2022 (B.4) Restructuring € millions Q1–Q2 2022 Q1–Q2 2021 Employee-related restructuring expenses –61 –27 Onerous contract-related restructuring expenses and restructuring related impairment losses –58 –137 Restructuring expenses –119 –164 Most of the restructuring expenses presented in the first half of 2022 relate to the announced wind- down of business in Russia and Belarus. Restructuring costs mainly comprise severance payments to employees, impairments of right-of-use assets for office buildings, impairments of data center equipment, and write-offs of capitalized sales commissions. For more information about the financial impact of the war in Ukraine, see Note (IN.2). For an estimate of the expected total restructuring costs in 2022, see the Financial Targets and Prospects section in SAP’s Consolidated Half-Year Management Report. If not presented separately, these restructuring expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2022 Q1–Q2 2021 Cost of cloud 12 –130 Cost of software licenses and support –4 –4 Cost of services –61 –15 Research and development –7 –11 Sales and marketing –57 –3 General and administration –3 –1 Restructuring expenses –119 –164 SAP Half-Year Report 2022 Section C – Financial Results This section provides insight into the financial results of SAP's reportable segments and of SAP overall, as far as not already covered by previous sections. This includes segment results and income taxes. For more information, see our Consolidated Financial Statements for 2021, Section C – Financial Results. (C.1) Results of Segments General Information SAP has five operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our experience management (Qualtrics) or working capital management solutions (Taulia), business process management offerings (SAP Signavio), or our customer experience portfolio of Emarsys, or cover other areas of our business including support and services activities (Applications, Technology & Services). For more information about our segments, see the Notes to the Consolidated Financial Statements for 2021, Note (C.1). The following changes to the composition of our operating segments occurred in the first half of 2022: – The acquisition of Taulia led to a new operating segment that is non-reportable due to its size. – The non-reportable Business Process Intelligence segment was renamed to SAP Signavio without changes in the composition of this segment. – The former Services segment was dissolved and integrated into the renamed Applications, Technology & Services segment. – Certain marketing costs that we primarily incur for product and solution-specific activities in the Applications, Technology & Services segment are now presented in the results of this segment and are no longer allocated to SAP’s corporate functions. The segment information for prior periods has been restated to conform with these changes to our segment composition. 35/57 Integrated Report 2021 SAP Half-Year Report 2022 Applications, Technology & Services € millions, unless otherwise stated (non-IFRS) Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) Qualtrics € millions, unless otherwise stated (non-IFRS) Cloud Cloud and software Services Total segment revenue Cost of cloud Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 36/57 Actual Currency 5,199 740 5,899 6,640 11,838 1,966 13,804 –1,629 –810 –2,438 –1,375 –3,814 9,991 –5,841 4,149 Actual Currency 548 548 102 650 –60 –60 –82 –142 508 –481 26 Q1–Q2 2022 Constant Currency 4,891 705 5,648 6,353 11,245 1,868 13,113 –1,512 –772 –2,285 –1,316 –3,600 9,512 –5,526 3,986 Q1–Q2 2022 Constant Currency 500 500 92 592 –55 –55 –76 –130 461 –431 30 Q1–Q2 2021 Actual Currency 4,015 1,132 5,623 6,755 10,769 1,749 12,519 –1,287 –832 –2,119 –1,214 –3,333 9,186 –4,663 4,523 Q1–Q2 2021 Actual Currency 333 333 80 413 –26 –26 –57 –83 330 –304 26 SAP Half-Year Report 2022 Segment Revenue by Region EMEA Americas APJ Total Segment Revenue € millions Q1–Q2 2022 Q1–Q2 2021 Q1–Q2 2022 Q1–Q2 2021 Q1–Q2 2022 Q1–Q2 2021 Q1–Q2 2022 Q1–Q2 2021 Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Applications, Technology & Services 6,057 5,948 5,741 5,653 5,132 4,814 2,094 2,032 1,964 13,804 13,113 12,519 Qualtrics 100 92 65 496 450 313 54 49 35 650 592 413 Total reportable segments 6,157 6,040 5,805 6,149 5,582 5,127 2,148 2,081 1,999 14,454 13,704 12,931 For a breakdown of revenue by region for the SAP Group, see Note (A.1). (C.2) Reconciliation of Segment Measures to Income Statement Q1–Q2 2022 Q1–Q2 2021 € millions Actual Currency Constant Currency Actual Currency Applications, Technology & Services 13,804 13,113 12,519 Qualtrics 650 592 413 Total segment revenue for reportable segments 14,454 13,704 12,931 Other revenue 140 135 85 Adjustment for currency impact 0 755 0 Total revenue 14,594 14,594 13,017 Applications, Technology & Services 4,149 3,986 4,523 Qualtrics 26 30 26 Total segment profit for reportable segments 4,176 4,017 4,549 Other revenue 140 135 85 Other expenses –958 –921 –974 Adjustment for currency impact 0 127 0 Adjustment for Acquisition-related charges –328 –328 –296 Share-based payment expenses –1,184 –1,184 –1,256 Restructuring –119 –119 –164 Operating profit 1,726 1,726 1,944 Other non-operating income/expense, net –69 –69 29 Financial income, net –174 –174 1,168 Profit before tax 1,483 1,483 3,141 37/57 38/57 Integrated Report 2021 SAP Half-Year Report 2022 (C.3) Financial Income, Net In the first half of 2022, finance income mainly consisted of gains from disposals and fair value adjustments of equity securities totaling €463 million (first half of 2021: €1,515 million) of Sapphire Ventures investments. In the first half of 2022, finance costs were primarily impacted by losses from disposals and fair value adjustments of equity securities amounting to €543 million (first half of 2021: €228 million) and were mainly due to Sapphire Ventures investments. For more information about our financial income, net, see the Notes to the Consolidated Financial Statements for 2021, Note (C.4). (C.4) Income Taxes We are subject to ongoing tax audits by domestic and foreign tax authorities. Currently, we are in dispute mainly with the German and only a few foreign tax authorities. The German dispute is in respect of certain secured capital investments, while the few foreign disputes are in respect of the deductibility of intercompany royalty payments and intercompany services. In all cases, we expect that a favorable outcome can only be achieved through litigation. For all of these matters, we have not recorded a provision as we believe that the tax authorities’ claims have no merit and that no adjustment is warranted. If, contrary to our view, the tax authorities were to prevail in their arguments before the court, we would expect to have an additional expense of approximately €1,562 million (2021: €1,283 million) in total (including related interest expenses and penalties of €844 million (2021: €677 million)). The contingent liabilities increased in 2022 mainly due to foreign currency exchange rate fluctuations. SAP Half-Year Report 2022 Section D – Invested Capital This section highlights the non-current assets including investments that form the basis of our operating activities. Additions in invested capital include separate asset acquisitions or business combinations. For more information, see our Consolidated Financial Statements for 2021, Section D – Invested Capital. (D.1) Business Combinations and Divestitures Taulia Acquisition On January 27, 2022, SAP announced its intent to acquire a majority stake of Taulia, a leading provider of working capital management solutions. The acquisition closed on March 9, 2022, following satisfaction of customary closing conditions and regulatory approvals; the operating results as well as assets and liabilities are reflected in our consolidated financial statements starting on that date. The acquisition is expected to further expand SAP’s business network capabilities and strengthen SAP’s solutions for the CFO office. Consideration transferred amounted to €0.7 billion. Taulia Acquisition: Recognized Assets and Liabilities € billions Intangible assets Supply chain financing related receivables Other identifiable assets Total identifiable assets Supply chain financing related liabilities Other identifiable liabilities Total identifiable liabilities Total identifiable net assets Goodwill Total consideration transferred The initial accounting for the Taulia business combination is incomplete because we are still obtaining the information necessary to identify and measure items such as tax-related assets and liabilities, as well as intangible assets of Taulia. Accordingly, the amounts recognized in our financial statements for these items are regarded provisional as at June 30, 2022. We are also still finalizing our accounting assessment of the supply chain financing transactions offered by Taulia. The supply chain financing related assets and liabilities are included in SAP’s consolidated “Trade and other receivables” as well as current “Financial liabilities” (June 30, 2022: approximately €2.9 billion each). In general, the funds received by Taulia from the banks participating in the financing transactions as investors are classified as “financing cash flow,” and the cash routed through Taulia upon settlement of the receivables subject to supply chain financing on the maturity date are classified as “investing cash flow.” In general, the goodwill arising from our acquisitions consists largely of the synergies and the know- how and skills of the acquired businesses’ workforces. 0.2 1.5 0.1 1.8 1.5 0.2 1.7 0.1 0.6 0.7 39/57 40/57 Integrated Report 2021 SAP Half-Year Report 2022 Taulia goodwill was attributed to expected synergies from the acquisition, particularly in the following areas: – Cross-selling to existing SAP customers across all regions, using SAP’s sales organization – Further expanding SAP’s business network capabilities and strengthening SAP’s solutions for the CFO office – Creating new offerings by combining Taulia products and SAP products – Improving profitability in Taulia sales and operations The allocation of the goodwill resulting from the Taulia acquisition to our operating segments depends on how our operating segments actually benefit from the synergies of the Taulia business combination. For more information, see Note (D.2). Impact of the Business Combination on Our Financial Statements The amounts of revenue and profit or loss of the Taulia business acquired in 2022 since the acquisition date were included in our Consolidated Income Statement for the first half of 2022 as follows: Taulia Acquisition: Impact on SAP’s Financials € millions Q1–Q2 2022 as Reported Contribution of Taulia Revenue 14,594 22 Profit after tax 835 16 Had Taulia been consolidated as at January 1, 2022, our revenue and profit after tax for the first half of 2022 would not have been materially different. (D.2) Goodwill For goodwill, we have – through a qualitative and quantitative analysis – been continuously monitoring the existence of triggering events that would require an impairment test in the first half of 2022. The review of internal and external factors led us to conclude that no triggering events occurred since our annual goodwill impairment test in 2021. No impairment tests were performed in the first half of 2022. In addition, we considered the potential impact of the war in Ukraine on our expected future performance. Based on our analysis, we do not expect major impacts on the future performance of the goodwill-carrying cash-generating units. The negative revenue impact and additional expenses due to the exit of operations in Russia and Belarus mainly affects our Application, Technology & Services segment. We believe that no reasonably possible effect of the exit of operations in Russia and Belarus on revenue and expenses would cause the carrying amount of our Application, Technology & Services segment to exceed the recoverable amount. For more information about the impact of the war in Ukraine, see Note (IN.2). Due to the integration of the Services segment into the former Applications, Technology & Support segment at the beginning of 2022 (renamed to Applications, Technology & Services segment), the goodwill in the Services segment was moved to this segment. Given the close proximity to the 2021 annual goodwill impairment test, no formal impairment test was performed on the reallocation date of the Services segment. For more information, see Note (C.1). SAP Half-Year Report 2022 The allocation of the goodwill resulting from the Clarabridge acquisition that closed in the fourth quarter of 2021 and the Taulia acquisition that closed in March 2022 to our operating segments depends on how our operating segments actually benefit from the synergies of the Clarabridge and Taulia business combinations. We have not yet completed the identification of those benefits. (D.3) Property, Plant, and Equipment Property, Plant, and Equipment (Summary) € millions 6/30/2022 12/31/2021 Property, plant, and equipment excluding leases 3,205 3,136 Right-of-use assets 1,791 1,841 Total 4,996 4,977 Additions 1/1/2022 to 6/30/2022 1/1/2021 to 12/31/2021 Property, plant, and equipment excluding leases 359 731 Right-of-use assets 143 336 Total 502 1,067 For more information about the impairment of assets in Russia, see Note (B.4). 41/57 42/57 Integrated Report 2021 SAP Half-Year Report 2022 Section E – Capital Structure, Financing and Liquidity This section provides information related to how SAP manages its capital structure. Our capital management is based on a high equity ratio, modest financial leverage, a well-balanced maturity profile, and deep debt capacity. For more information, see our Consolidated Financial Statements for 2021, Section E – Capital Structure, Financing, and Liquidity. (E.1) Total Equity Number of Shares millions Issued Capital Treasury Shares 12/31/2020 1,228.5 –48.9 6/30/2021 1,228.5 –48.9 12/31/2021 1,228.5 –48.9 Purchase 0 –10.0 6/30/2022 1,228.5 –58.9 We bought back 10,004,763 shares at an average price of €99.95 between February 1, 2022, and April 29, 2022, to support the transition of SAP’s share-based compensation programs to equity settlement. The 2022 share buyback program has thus been completed. Other Components of Equity € millions Exchange Differences Cash Flow Hedges Total 12/31/2020 –1,015 4 –1,011 Other comprehensive income 1,091 –4 1,087 6/30/2021 76 0 76 12/31/2021 1,779 –22 1,756 Other comprehensive income 3,249 26 3,275 6/30/2022 5,028 4 5,031 SAP Half-Year Report 2022 (E.2) Liquidity 6/30/2022 € millions Nominal Volume Carrying Amount Current Non-Current Current Non- Current Total Bonds 1,600 7,389 1,599 6,788 8,387 Private placement transactions 428 407 429 420 849 Commercial Paper 930 0 930 0 930 Bank loans 1,528 0 1,528 0 1,528 Financial debt 4,485 7,796 4,486 7,208 11,694 Lease liabilities NA NA 388 1,750 2,138 Other financial liabilities NA NA 3,276 557 3,833 Financial liabilities 8,150 9,515 17,665 Financial debt as % of financial liabilities 55 76 66 The significant increase in other financial liabilities is due to the Taulia acquisition and the consolidation of its supply chain financing related liabilities. For more information about the Taulia acquisition and the accounting, see Note (D.1). 12/31/2021 € millions Nominal Volume Carrying Amount Current Non-Current Current Non-Current Total Bonds 900 8,965 900 8,851 9,751 Private placement transactions 393 373 396 393 790 Commercial Paper 930 0 931 0 931 Bank loans 1,533 0 1,533 0 1,533 Financial debt 3,756 9,338 3,760 9,245 13,005 Lease liabilities NA NA 407 1,736 2,143 Other financial liabilities NA NA 361 61 422 Financial liabilities 4,528 11,042 15,570 Financial debt as % of financial liabilities 83 84 84 43/57 44/57 Integrated Report 2021 SAP Half-Year Report 2022 Section F – Management of Financial Risk Factors This section discusses financial risk factors and risk management. In our half-year report, this includes the transfers between levels of the fair value hierarchy. For more information, particularly about our risk management related to foreign currency exchange rate risk, interest rate risk, equity price risk, credit risk, liquidity risk, and other financial risk factors, see our Consolidated Financial Statements for 2021, Section F – Risk Management and Fair Value Disclosures. (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (F.1) and (F.2) in the Consolidated Financial Statements for 2021. We do not disclose the fair value of our financial instruments as at June 30, 2022, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2021. SAP Half-Year Report 2022 Section G – Other Disclosures This section provides additional disclosures on miscellaneous topics, including information pertaining to other litigation, claims, and legal contingencies, and related party transactions. For more information, see our Consolidated Financial Statements for 2021, Section G – Other Disclosures. (G.1) Other Litigation, Claims, and Legal Contingencies We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as at June 30, 2022, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as at June 30, 2022, are neither individually nor in the aggregate material to SAP. Among the claims and lawsuits are the following classes (for more information about these classes, see the Notes to the Consolidated Financial Statements for 2021, Note (G.3)): Intellectual Property-Related Litigation and Claims For individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2021, there were no significant developments in the first half of 2022. The provisions recorded for intellectual property-related litigation and claims continue to be not material. There are also no material contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. Tax-Related Litigation There have been no significant changes in contingent liabilities from non-income tax-related litigation for which no provision has been recognized compared to our Consolidated Financial Statements for 2021, Note (G.3). For more information about income tax-related litigation, see Note (C.4). Anti-Bribery Matters SAP received communications alleging conduct that may violate anti-bribery laws in the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)) and other countries. Most of the investigations are ongoing and neither the outcome of the investigations nor the date when substantiated findings will be available is predictable at this point in time. Although there could be an unfavorable outcome in one or more of the ongoing investigations, it is currently impossible to make an informed judgment about any possible financial impact. As a consequence, as at June 30, 2022, no provisions have been recognized for potential anti-bribery law violations in our Consolidated Half-Year Financial Statements. It is currently also not practicable to estimate the financial effect of any contingent liabilities that may result from these potential violations. For more information, see the Notes to the Consolidated Financial Statements for 2021, Note (G.3). 45/57 46/57 Integrated Report 2021 SAP Half-Year Report 2022 (G.2) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold or have held positions of significant responsibility with other entities (for more information, see the Notes to the Consolidated Financial Statements for 2021, Note (G.4)). We have relationships with certain of these entities in the ordinary course of business. On May 18, 2022, the Annual General Meeting of Shareholders elected Jennifer Xin-Zhe Li to the Supervisory Board, as a successor to Bernard Liautaud who resigned with effect from that date. She has thus become a related party. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. For more information about related party transactions, see the Notes to the Consolidated Financial Statements for 2021, Note (G.6). (G.3) Events After the Reporting Period In line with its cloud-led strategy, SAP extended an existing contract in early July 2022 and secured additional cloud infrastructure capabilities (worth approximately €1.5 billion) until 2028. In addition, on July 21, SAP announced another share buyback program of approximately €500 million. Repurchased shares will primarily be used to service awards granted under share-based compensation plans for employees. Other than that, no events that have occurred since June 30, 2022, have a material impact on the Company’s Consolidated Half-Year Financial Statements. (G.4) Scope of Consolidation 12/31/2021 Additions Disposals 6/30/2022 The additions in the first half of 2022 relate to legal entities added in connection with acquisitions and foundations. The disposals are mainly due to liquidations and mergers of legal entities. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (D.1) and our Integrated Report 2021. Release of the Consolidated Half-Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements on July 20, 2022, for submission to the Audit and Compliance Committee of the Supervisory Board and for subsequent issuance. Total 290 17 –10 297 SAP Half-Year Report 2022 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half- Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 20, 2022 SAP SE Walldorf, Baden The Executive Board Christian Klein Sabine Bendiek Luka Mucic Juergen Mueller Scott Russell Thomas Saueressig Julia White 47/57 Supplementary Financial Information Cloud Performance – Six Months ended June 30, 2022 IFRS € millions, unless otherwise stated Q1-Q2 2022 ∆ in % Q1-Q2 2022 ∆ in % Current Cloud Backlog Total2 NA NA 10,403 34 Thereof SAP S/4HANA2 NA NA 2,258 100 Cloud Revenue SaaS3 4,644 33 4,644 33 PaaS4 739 50 739 50 IaaS5 492 12 492 12 Total 5,876 33 5,876 33 Thereof SAP S/4HANA 876 81 876 81 Thereof Qualtrics 548 65 548 65 Cloud Gross Profit SaaS3 3,343 38 3,453 36 PaaS4 583 46 583 46 IaaS5 129 –13 134 –12 Total 4,054 36 4,170 35 Thereof Qualtrics 418 60 489 59 Cloud Gross Margin (in %) SaaS3 (in %) 72.0 2.3 pp 74.4 1.8 pp PaaS4 (in %) 78.8 –1.9 pp 78.8 –2.0 pp IaaS5 (in %) 26.2 –7.6 pp 27.3 –7.7 pp Total 69.0 1.7 pp 71.0 1.2 pp Thereof Qualtrics 76.3 –2.1pp 89.1 –3.2 pp 1 For a breakdown of the individual adjustments, see table „Non-IFRS Adjustments by Functional Areas” in this Quarterly Statement. 2 As this is an order entry metric, there is no matching IFRS equivalent. 3 Software as a service 4 Platform as a service 5 Infrastructure as a service Due to rounding, numbers may not add up precisely Non-IFRS1 ∆ in % constant currency 25 87 25 43 6 25 71 50 27 41 –9 27 45 1.6 pp –0.9 pp –5.0 pp 1.4 pp –3.3 pp SAP Half-Year Report 2022 Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2021 Q2 2021 Q3 2021 Revenues Cloud 2,145 2,276 2,386 % change – yoy 7 11 20 % change constant currency – yoy 13 17 20 SAP S/4HANA Cloud 227 257 276 % change – yoy 36 33 46 % change constant currency – yoy 43 39 46 Software licenses 483 650 657 % change – yoy 7 –16 –8 % change constant currency – yoy 11 –13 –8 Software support 2,801 2,823 2,867 % change – yoy –5 –2 1 % change constant currency – yoy 0 1 1 Software licenses and support 3,283 3,474 3,524 % change – yoy –3 –5 –1 % change constant currency – yoy 1 –2 –1 Cloud and software 5,428 5,750 5,910 % change – yoy 1 1 7 % change constant currency – yoy 6 5 6 Total revenue 6,348 6,669 6,845 % change – yoy –3 –1 5 % change constant currency – yoy 2 3 5 Share of more predictable revenue (in %) 78 76 77 Profits Operating profit (loss) (IFRS) 960 984 1,249 Operating profit (loss) (non-IFRS) 1,738 1,922 2,102 % change 17 –2 2 % change constant currency 24 3 2 Profit (loss) after tax (IFRS) 1,070 1,449 1,418 Profit (loss) after tax (non-IFRS) 1,720 2,214 2,129 % change 70 59 1 Margins Cloud gross margin (IFRS, in %) 67.2 67.5 67.0 Cloud gross margin (non-IFRS, in %) 69.5 70.0 69.4 Software license and support gross margin (IFRS, in %) 85.7 86.5 87.1 Software license and support gross margin (non-IFRS, in %) 86.3 87.3 87.8 Cloud and software gross margin (IFRS, in %) 78.4 79.0 79.0 Cloud and software gross margin (non-IFRS, in %) 79.7 80.5 80.4 Gross margin (IFRS, in %) 70.3 70.8 71.4 Gross margin (non-IFRS, in %) 72.3 73.4 73.6 Operating margin (IFRS, in %) 15.1 14.8 18.2 Operating margin (non-IFRS, in %) 27.4 28.8 30.7 ATS segment – Cloud gross margin (in %) 67.7 68.2 67.6 ATS segment – Segment gross margin (in %) 72.8 73.9 74.4 ATS segment – Segment margin in % 35.4 36.8 38.2 Qualtrics segment – Cloud gross margin (in %) 92.2 92.4 91.6 Qualtrics segment – Segment gross margin (in %) 79.5 80.3 80.7 Qualtrics segment – Segment margin (in %) 6.3 6.3 6.0 Q4 2021 2,611 28 24 329 65 61 1,458 –14 –17 2,920 3 1 4,379 –4 –6 6,990 6 3 7,981 6 3 69 1,463 2,468 –11 –12 1,440 2,274 12 66.6 69.0 87.9 88.5 79.9 81.2 73.0 75.1 18.3 30.9 66.8 74.8 36.9 90.2 78.1 1.6 TY 2021 9,418 17 19 1,090 46 47 3,248 –11 –11 11,412 –1 1 14,660 –3 –2 24,078 4 5 27,842 2 3 75 4,656 8,230 –1 1 5,376 8,337 28 67.0 69.5 86.9 87.6 79.1 80.5 71.5 73.7 16.7 29.6 67.6 74.0 36.8 91.5 79.6 4.8 Q1 2022 2,820 31 25 404 78 71 317 –34 –36 2,923 4 1 3,240 –1 –4 6,060 12 7 7,077 11 7 81 1,053 1,677 –4 –7 632 1,166 –32 68.2 70.0 87.0 87.5 78.2 79.4 70.3 72.0 14.9 23.7 67.8 71.8 30.7 89.6 78.9 3.1 Q2 2022 3,056 34 24 472 84 72 426 –34 –38 2,977 5 0 3,403 –2 –7 6,459 12 5 7,517 13 5 80 673 1,680 –13 –16 203 1,093 –51 69.8 71.9 87.7 88.5 79.2 80.6 70.7 73.1 8.9 22.4 69.5 72.9 29.5 88.6 77.5 5.1 49/57 Integrated Report 2021 SAP Half-Year Report 2022 € millions, unless otherwise stated Q1 2021 Key Profit Ratios Effective tax rate (IFRS, in %) 20.0 Effective tax rate (non-IFRS, in %) 18.7 Earnings per share, basic (IFRS, in €) 0.88 Earnings per share, basic (non-IFRS, in €) 1.40 Order Entry and current cloud backlog Current cloud backlog 7,628 % change – yoy 15 % change constant currency – yoy 19 SAP S/4HANA Current cloud backlog 1,036 % change – yoy 39 % change constant currency – yoy 43 Share of cloud orders greater than €5 million based on total cloud order entry volume (in %)3 25 Share of cloud orders smaller than €1 million based on total cloud order entry volume (in %)3 45 Share of orders greater than €5 million based on total software order entry volume (in %) 23 Share of orders smaller than €1 million based on total software order entry volume (in %) 42 Liquidity and Cash Flow Net cash flows from operating activities 3,085 Capital expenditure –153 Payments of lease liabilities –84 Free cash flow 2,848 % of total revenue 45 % of profit after tax (IFRS) 266 Group liquidity 11,573 Financial debt (–) –14,230 Net debt (–) –2,658 Financial Position Cash and cash equivalents 10,332 Goodwill 29,328 Total assets 66,477 Contract liabilities (current) 6,568 Equity ratio (total equity in % of total assets) 52 Non-Financials Number of employees (quarter end)1 103,142 Employee retention (in %, rolling 12 months) 95.4 Women in management (in %, quarter end) 27.6 Net carbon emissions2 (in kilotons) 30 1 In full-time equivalents. 2 In CO2 equivalents 3. To conform to refined calculation logic prior quarters have been adjusted Due to rounding, numbers may not add up precisely. 50/57 Q2 2021 19.7 19.2 1.15 1.75 7,766 17 20 1,130 45 48 29 38 22 43 686 –191 –92 403 6 28 8,548 –13,116 –4,568 7,764 29,020 63,075 5,958 54 103,876 94.8 27.9 20 Q3 2021 18.9 18.2 1.19 1.74 8,171 24 22 1,283 60 58 38 35 31 41 1,183 –202 –99 881 13 62 9,375 –12,994 –3,619 7,943 29,600 65,029 4,627 57 105,015 93.7 28.2 25 Q4 2021 26.4 23.2 1.23 1.85 9,447 32 26 1,707 84 76 45 27 24 36 1,269 –255 –98 916 11 64 11,530 –13,094 –1,563 8,898 31,090 71,169 4,431 58 107,415 92.8 28.3 35 TY 2021 21.5 20.0 4.46 6.73 9,447 32 26 1,707 84 76 41 28 25 39 6,223 –800 –374 5,049 18 94 11,530 –13,094 –1,563 8,898 31,090 71,169 4,431 58 107,415 92.8 28.3 110 Q1 2022 33.1 25.7 0.63 1.00 9,731 28 23 1,925 86 79 41 31 40 33 2,482 –221 –95 2,165 31 343 11,283 –12,171 –888 8,942 32,172 76,387 7,630 56 109,798 92.1 28.6 20 Q2 2022 62.2 29.3 0.29 0.96 10,403 34 25 2,258 100 87 48 28 33 40 268 –235 –120 –86 –1 –42 8,256 –12,282 –4,026 7,492 33,913 75,575 6,883 57 110,409 91.6 28.8 25 SAP Half-Year Report 2022 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year Q1–Q2 2022 Q1–Q2 2021 € millions, unless otherwise stated IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non- IFRS IFRS Non- IFRS Revenue Numbers Cloud 5,876 5,876 –361 5,515 4,421 4,421 33 33 Software licenses 743 743 –35 708 1,133 1,133 –34 –34 Software support 5,900 5,900 –251 5,649 5,624 5,624 5 5 Software licenses and support 6,643 6,643 –287 6,357 6,757 6,757 –2 –2 Cloud and software 12,519 12,519 –647 11,872 11,178 11,178 12 12 Services 2,075 2,075 –108 1,967 1,839 1,839 13 13 Total revenue 14,594 14,594 –755 13,839 13,017 13,017 12 12 Operating Expense Numbers Cost of cloud –1,822 116 –1,706 –1,444 108 –1,336 26 28 Cost of software licenses and support –841 45 –796 –939 50 –889 –10 –10 Cost of cloud and software –2,663 161 –2,502 –2,383 158 –2,225 12 12 Cost of services –1,635 133 –1,502 –1,447 139 –1,308 13 15 Total cost of revenue –4,298 294 –4,003 –3,830 297 –3,533 12 13 Gross profit 10,296 294 10,591 9,187 297 9,484 12 12 Research and development –2,970 284 –2,686 –2,478 251 –2,227 20 21 Sales and marketing –4,330 520 –3,810 –3,491 482 –3,009 24 27 General and administration –1,034 415 –619 –1,098 522 –576 –6 7 Restructuring –119 119 0 –164 164 0 –27 NA Other operating income/expense, net –118 0 –118 –12 0 –12 >100 >100 Total operating expenses –12,868 1,632 –11,236 628 –10,608 –11,073 1,715 –9,357 16 20 Profit Numbers Operating profit (loss) 1,726 1,632 3,358 –127 3,231 1,944 1,715 3,660 –11 –8 Other non-operating income/expense, net –69 0 –69 29 0 29 <-100 <-100 Finance income 521 0 521 1,549 0 1,549 –66 –66 Finance costs –695 0 –695 –381 0 –381 82 82 Financial income, net –174 0 –174 1,168 0 1,168 <-100 <-100 Profit (loss) before tax 1,483 1,632 3,115 3,141 1,715 4,856 –53 –36 Income tax expense –648 –208 –856 –622 –300 –922 4 –7 Profit (loss) after tax 835 1,424 2,259 2,519 1,415 3,934 –67 –43 Attributable to owners of parent 1,074 1,232 2,306 2,396 1,310 3,706 –55 –38 Attributable to non-controlling interests –239 192 –47 123 105 228 <-100 <-100 Key Ratios Operating margin (in %) 11.8 23.0 23.3 14.9 28.1 –3.1pp –5.1pp Effective tax rate (in %)2 43.7 27.5 19.8 19.0 23.9pp 8.5pp Earnings per share, basic (in €) 0.92 1.96 2.03 3.14 –55 –37 1 Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. 2 The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2022 and 2021 mainly resulted from tax effects of share-based payment expenses, acquisition-related charges and restructuring expenses. Due to rounding, numbers may not add up precisely. ∆ in % Non-IFRS Constant Currency1 25 –38 0 –6 6 7 6 13 –12 –4.8pp 51/57 Integrated Report 2021 SAP Half-Year Report 2022 Non-IFRS Adjustments Actuals and Estimates – Half Year € millions Operating profit (loss) (IFRS) Adjustment for acquisition-related charges Adjustment for share-based payment expenses Adjustment for restructuring Operating expense adjustments Operating profit (loss) (non-IFRS) Non-IFRS-Adjustments by Functional Areas – Half Year Q1–Q2 2022 € millions IFRS Acquisition- Related SBP1 Restruc- turing Non-IFRS Cost of cloud –1,822 85 31 0 –1,706 Cost of software licenses and support –841 15 30 0 –796 Cost of services –1,635 11 122 0 –1,502 Research and development –2,970 5 279 0 –2,686 Sales and marketing –4,330 205 315 0 –3,810 General and administration –1,034 7 408 0 –619 Restructuring –119 0 0 119 0 Other operating income/expense, net –118 0 0 0 –118 Total operating expenses –12,868 328 1,184 119 –11,236 1 Share-based payments Due to rounding, numbers may not add up precisely. 52/57 Estimated Amounts for Full Year 2022 620–720 2,500–2,700 130–150 IFRS Acquisition- Related –1,444 80 –939 16 –1,447 10 –2,478 3 –3,491 181 –1,098 6 –164 0 –12 0 –11,073 296 SBP1 28 34 129 248 301 516 0 0 1,256 Q1–Q2 2022 1,726 328 1,184 119 1,632 3,358 Restruc- turing 0 0 0 0 0 0 164 0 164 Q1–Q2 2021 1,944 296 1,256 164 1,715 3,660 Q1–Q2 2021 Non-IFRS –1,336 –889 –1,308 –2,227 –3,009 –576 0 –12 –9,357 SAP Half-Year Report 2022 Revenue by Region (IFRS and Non-IFRS) – Half Year Q1–Q2 2022 Q1–Q2 2021 € millions IFRS Non-IFRS Currency Impact Non-IFRS Constant Currency IFRS Non-IFRS IFRS Non-IFRS Cloud Revenue by Region EMEA 2,036 2,036 –57 1,979 1,547 1,547 32 32 Americas 3,094 3,094 –282 2,812 2,291 2,291 35 35 APJ 746 746 –22 724 582 582 28 28 Cloud revenue 5,876 5,876 –361 5,515 4,421 4,421 33 33 Cloud and Software Revenue by Region EMEA 5,355 5,355 –100 5,255 5,050 5,050 6 6 Americas 5,265 5,265 –488 4,777 4,336 4,336 21 21 APJ 1,899 1,899 –60 1,839 1,792 1,792 6 6 Cloud and software revenue 12,519 12,519 –647 11,872 11,178 11,178 12 12 Total Revenue by Region Germany 2,129 2,129 –3 2,126 1,957 1,957 9 9 Rest of EMEA 4,110 4,110 –114 3,997 3,898 3,898 5 5 Total EMEA 6,239 6,239 –117 6,123 5,855 5,855 7 7 United States 5,028 5,028 –456 4,571 4,166 4,166 21 21 Rest of Americas 1,161 1,161 –115 1,046 974 974 19 19 Total Americas 6,189 6,189 –571 5,617 5,140 5,140 20 20 Japan 613 613 19 632 628 628 –2 –2 Rest of APJ 1,553 1,553 –86 1,467 1,394 1,394 11 11 Total APJ 2,166 2,166 –67 2,099 2,022 2,022 7 7 Total revenue 14,594 14,594 –755 13,839 13,017 13,017 12 12 1 Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. Due to rounding, numbers may not add up precisely. ∆ in % Non-IFRS Constant Currency1 28 23 24 25 4 10 3 6 9 3 5 10 7 9 1 5 4 6 53/57 54/57 Integrated Report 2021 SAP Half-Year Report 2022 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there- mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Performance Against Our Outlook for 2022 section, the Risk Management and Risks section (including but not limited to statements in this section pertaining to the Russia/Ukraine crisis or cyber incidents), the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2021 and our Annual Report on Form 20-F for 2021, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). In addition, any delays in our structured exit from Russia and Belarus, or further adverse developments in Russia’s war against Ukraine, or cyber incidents impacting SAP could cause our actual results and performance to differ materially from any projections expressed in or implied by our forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as at the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including IDC, the ECB, and the IMF. This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation as at June 30, 2022, or the half year ended on that date unless otherwise stated. SAP Half-Year Report 2022 Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non- IFRS measures, see our Web site www.sap.com/investors/sap-non-ifrs-measures. 55/57 56/57 Integrated Report 2021 SAP Half-Year Report 2022 Additional Information Financial Calendar October 25, 2022 Third-quarter 2022 earnings release, conference call for financial analysts and investors January 26, 2023 Fourth-quarter and full-year 2022 preliminary earnings release, conference call for financial analysts and investors May 11, 2023 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The “Financial Reports” tab contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) – SAP Annual Report on Form 20-F (IFRS, PDF) – SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Half-Year Report (IFRS, PDF) – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include SAP INVESTOR, our free magazine for shareholders, an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. SAP Half-Year Report 2022 Addresses SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com The addresses of all our international subsidiaries and sales partners are available on our public Web site at www.sap.com/directory/main.html. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investor Imprint Overall responsibility: SAP SE Corporate Financial Reporting Published on July 21, 2022. The German version of this Half-Year Report can be found under https://www.sap.com/corporate/de/investors.html. Copyright Usage in Collateral © 2022 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. 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Semestriel | 2,022 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Healthcare
### Company:
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| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2022 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Market development Page 14 B.1 Consolidated statements of Page 29 C.1 Responsibility statement income Page 4 A.2 Results of operations Page 15 B.2 Consolidated statements of comprehensive income Page 30 C.2 Review report Page 8 A.3 Net assets and financial position Page 16 B.3 Consolidated statements of Page 31 C.3 Notes and forward-looking financial position statements Page 12 Page 17 A.4 Outlook B.4 Consolidated statements of cash flows Page 13 Page 18 A.5 Risks and opportunities B.5 Consolidated statements of changes in equity Page 19 B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s Half-Year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with Section 115 of the German Securities Trading Act. The Half-Year Financial Report should be read in conjunction with the Annual Report for fiscal year 2021. 2 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Market development A. Interim group management report Elisabeth Staudinger was appointed a member of the Managing Board of Siemens Healthineers AG, effective December 1, 2021. Dr. Christoph Zindel resigned from the Managing Board, effective March 31, 2022. A.1 Market development Compared with the estimates contained in the Annual Report 2021, market developments changed as follows: For the Imaging segment, the markets for major modalities such as magnetic resonance tomography and molecular imaging for nuclear medicine continued their recovery and exceeded our expectation by posting sharply higher growth compared to the estimates of the annual report 2021. On a geographic basis, the main growth drivers for the increase in the two imaging modalities mentioned above were the U.S. and European markets, along with the Chinese market in the case of molecular imaging. Our addressed markets for computer tomography and x-ray systems showed a stronger than expected decline compared to the first half of fiscal year 2021, which was characterized by high customer demand due to COVID-19. China was the main contributor to the decline, due mainly to lower demand for these modalities. The EMEA region was also affected by the decline in the market for X-ray systems and computed tomography. At the time the Annual Report 2021 was published, we could not predict the spread of new SARS-CoV-2 variants. This lack of predictability regarding the development of the pandemic and the resulting volatility in the Diagnostics markets means that market development in the first half of fiscal year 2022, compared with the market development anticipated in the Annual Report 2021, deviated in the following way. After demand for the tests for acute infection with SARS-CoV-2 increased, these markets grew sharply overall. Rapid COVID-19 antigen tests, which have been in demand mainly in developed markets such as Europe and U.S., represented the major share. The assessments for market developments in the Varian and Advanced Therapies segments contained in the Annual Report 2021 were realized in the reporting period. 3 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Results of operations A.2 Results of operations A.2.1 Revenue by segment and region (in millions of €)¹ First half 2022 First half 2021 %-Change Act. Siemens Healthineers 10,528 7,833 34% Therein: Imaging 5,146 4,687 10% Diagnostics 3,214 2,420 33% Varian 1,456 ‐ Advanced Therapies 893 820 9% 1 Siemens Healthineers: revenue according to IFRS, segments: total adjusted revenue. 2 Year-over-year on a comparable basis, excluding effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations as well as currency translation and portfolio effects. Revenue by region (location of customer) (in millions of €) First half 2022 First half 2021 %-Change Act. Europe, C.I.S., Africa, Middle East (EMEA) 3,783 2,929 29% Therein: Germany 893 652 37% Americas 4,047 2,686 51% Therein: United States 3,506 2,271 54% Asia, Australia 2,698 2,219 22% Therein: China 1,203 1,100 9% Siemens Healthineers 10,528 7,833 34% 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects as well as effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. Siemens Healthineers On a comparable basis, revenue increased by 13% compared to the prior-year period. Excluding rapid COVID-19 antigen tests, comparable growth was 4%. All segments contributed to the growth. The Diagnostics segment posted sharp growth, driven particularly by high demand for rapid COVID-19 antigen tests. On a nominal basis, revenue increased by 34% to €10,528 million. The positive impact from currency translation effects was around 4 percentage points on revenue growth, while the positive impact of portfolio effects was around 19 percentage points, mainly related to the Varian acquisition. Revenue in the first half was slightly negatively impacted by COVID-19 restrictions in China and by supply chain disruptions. The equipment book-to-bill ratio was at excellent 1.21 in the first half, clearly above the strong prior-year figure of 1.12. 4 %-Change Comp.² 13% 6% 29% 5% %-Change Comp.¹ 15% 29% 21% 23% −1% −9% 13% Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Results of operations Segments Adjusted revenue in Imaging rose by 6% on a comparable basis. Magnetic Resonance reported significant growth, while Computed Tomography and Molecular Imaging recorded very strong growth. From a geographic perspective, comparable revenue growth was significant in the Americas and strong in EMEA, whereas adjusted revenue was slightly down in Asia, Australia due to a significant decrease in China compared with a very strong prior-year period. On a nominal basis, adjusted revenue rose by 10% to €5,146 million. Adjusted revenue in Diagnostics rose by 29% on a comparable basis. Excluding rapid COVID-19 antigen tests, comparable growth was 2%. All regions contributed to the growth, in particular EMEA and the Americas with a sharp increase driven mainly by high demand for rapid COVID-19 antigen tests, which were sold primarily in Germany and the United States. Asia, Australia recorded moderate growth. On a nominal basis, adjusted revenue rose by 33% to €3,214 million. This includes revenue of €1,007 million from the sale of rapid COVID-19 antigen tests (prior year: €320 million). The Varian segment achieved adjusted revenue of €1,456 million, around half of it in the Americas region. Adjusted revenue of Advanced Therapies increased by 5% on a comparable basis. EMEA recorded significant growth and the Americas very strong comparable revenue growth. This was partly offset by a moderate decline in Asia, Australia compared with a strong prior-year period. On a nominal basis, adjusted revenue rose by 9% to €893 million. Regions In EMEA, revenue rose by 15% on a comparable basis. Diagnostics contributed sharp growth, Advanced Therapies significant growth and Imaging strong growth. Varian generated adjusted revenue of €421 million in EMEA. Germany reported sharp comparable revenue growth due to high demand for rapid COVID-19 antigen tests in the Diagnostics segment. A 21% increase in comparable revenue in the Americas was driven by sharp growth in the Diagnostics segment. Imaging contributed significant growth and Advanced Therapies very strong growth. Varian generated adjusted revenue of €630 million in the Americas. The United States posted sharp revenue growth on a comparable basis over a weak prior-year period, especially benefiting from high demand for rapid COVID-19 antigen tests in the Diagnostics segment. Siemens Healthineers rapid COVID-19 antigen tests were sold in the United States for the first time since January of 2022. Imaging posted significant growth and Advanced Therapies reported moderate growth. In Asia, Australia, revenue declined slightly on a comparable basis. Imaging recorded a slight decline and Advanced Therapies a moderate decline compared with the strong prior-year period. These declines were mostly offset by moderate growth in Diagnostics. Varian generated adjusted revenue of €405 million in Asia, Australia. China posted a very strong revenue decline on a comparable basis. This was primarily due to a significant decline in Imaging compared with a very strong prior-year period, which had benefited especially from high demand for computer tomographs and X-ray products during the COVID-19 pandemic. The Advanced Therapies segment recorded a moderate decline, whereas revenue in the Diagnostics segment increased slightly. 5 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Results of operations A.2.2 Adjusted EBIT (Adjusted EBIT in millions of €, margin in %) First half 2022 Adjusted EBIT Siemens Healthineers 1,879 Therein: Imaging 1,035 Diagnostics 586 Varian 212 Advanced Therapies 117 Adjusted EBIT margin Siemens Healthineers 17.8% Therein: Imaging 20.1% Diagnostics 18.2% Varian 14.5% Advanced Therapies 13.1% Siemens Healthineers In the first half of fiscal year 2022, adjusted EBIT increased by 34% from the prior-year period, supported by positive revenue development, especially from the rapid COVID-19 antigen testing business, and the earnings contribution from Varian. The adjusted EBIT margin was 17.8%, close to the prior-year level of 17.9%. Higher procurement and logistics costs as well as currency effects were negatively impacting the margin. Higher contributions from the antigen testing business had a positive effect. Expenses for performance-related remuneration components were lower than in the prior-year period in all segments. This effect was partially offset by a slight rebound in travel and marketing costs compared with the pandemic-related very low level in the prior-year period. Research and development (hereinafter “R&D”) expenses increased by €192 million, or around 29%. This includes €152 million from the Varian segment. Excluding Varian and adjusted for currency translation, R&D expenses rose slightly compared to the prior-year-level. R&D intensity was roughly 8%, as in the prior-year period. Selling and general administrative expenses increased by €511 million, or around 46%. Adjusted for currency translation, these expenses rose significantly compared to the prior-year-level, due partly to the inclusion of Varian. Segments The Imaging segment’s adjusted EBIT margin was 20.1%, below the prior-year level. This was due, in particular, to negative currency effects and higher procurement and logistics costs. Adjusted EBIT declined to €1,035 million. In Diagnostics, the adjusted EBIT margin of 18.2% was clearly above the prior-year level of 11.1%, driven by additional revenue from rapid COVID-19 antigen tests. Negative currency effects and higher procurement and logistics costs held back profitability. Adjusted EBIT increased to €586 million. The Varian segment’s adjusted EBIT margin was 14.5% based on adjusted EBIT of €212 million. High procurement and logistics costs had a negative impact. In Advanced Therapies, the adjusted EBIT margin of 13.1% was below the prior-year level of 16.5%. Margin development was negatively affected by currency effects, increased procurement and logistics costs, and higher expenses for further development of the Corindus business. Adjusted EBIT declined to €117 million. 6 First half 2021 1,404 1,041 268 136 17.9% 22.2% 11.1% 16.5% Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Results of operations Reconciliation to net income (in millions of €) First half 2022 Adjusted EBIT 1,879 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −361 Transaction, integration, retention and carve-out costs −26 Gains and losses from divestments 1 Severance charges −40 Total adjustments −426 EBIT 1,452 Financial income, net −37 Income before income taxes 1,415 Income tax expenses −360 Net income 1,055 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments increased to €361 million due to the acquisition of Varian. Financial income improved from the prior-year period by €19 million to negative €37 million. The prior-year period included expenses in connection with the acquisition of Varian. Income tax expenses increased by €22 million. The effective income tax rate was low at 25.4% in the first half of fiscal year 2022, compared to 27.6% in the prior-year period. This is due to a positive effect from the recognition of deferred tax assets. Based on the effects described above, net income increased by €170 million to €1,055 million. Reconciliation to basic earnings per share (in €) First half 2022 Basic earnings per share 0.93 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments 0.32 Transaction, integration, retention and carve-out costs 0.02 Gains and losses from divestments −0.00 Severance charges 0.04 Transaction-related costs within financial income ‐ Tax effects on adjustments¹ −0.10 Adjusted basic earnings per share 1.21 1 Calculated based on the income tax rate of the respective reporting period. Due to the developments described above, adjusted basic earnings per share grew by 32% to €1.21 in the first half of fiscal year 2022. The higher adjustments compared with the prior-year period included in particular expenses connected with the acquisition of Varian. 7 First half 2021 1,404 −66 −23 ‐ −37 −126 1,278 −56 1,223 −338 885 First half 2021 0.81 0.06 0.02 ‐ 0.03 0.03 −0.04 0.92 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Net assets and financial position A.3 Net assets and financial position A.3.1 Net assets and capital structure (in millions of €) Mar 31, 2022 Operating net working capital 3,162 Remaining current assets 943 Remaining non-current assets 31,387 Net debt (including pensions) −13,217 Remaining current liabilities −2,577 Remaining non-current liabilities −2,775 Total equity 16,924 1 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. Material developments in the first half of the current fiscal year within net assets and capital structure are described below. Operating net working capital (in millions of €) Mar 31, 2022 Trade and other receivables 3,941 Contract assets 1,174 Inventories 3,673 Trade payables −2,252 Contract liabilities −3,383 Receivables from and payables to the Siemens Group from operating activities 10 Operating net working capital 3,162 1 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. Operating net working capital declined by €48 million to €3,162 million, slightly below the level of the prior fiscal year. Trade and other receivables and inventories rose by €201 million and €494 million, respectively, due to the growth in business volume, in particular related to the additional business from rapid COVID-19 antigen tests. The significant increase in inventories served to ensure future delivery capability. Correspondingly, trade payables increased by €331 million. The contract liabilities increased by €483 million. Remaining current assets (in millions of €) Mar 31, 2022 Other current financial assets¹ 185 Current income tax assets 30 Other current assets 613 Remaining current receivables from the Siemens Group 115 Remaining current assets 943 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. 8 Sept 30, 2021¹ 3,210 822 30,652 −12,809 −3,135 −2,686 16,055 Sept 30, 2021¹ 3,740 1,116 3,179 −1,921 −2,901 −3 3,210 Sept 30, 2021 163 56 489 114 822 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Net assets and financial position Remaining non-current assets (in millions of €) Mar 31, 2022 Goodwill 17,875 Other intangible assets 8,117 Property, plant and equipment 3,911 Investments accounted for using the equity method 33 Other financial assets¹ 439 Deferred tax assets 528 Other assets 484 Remaining non-current assets 31,387 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. 2 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. Remaining non-current assets increased by €735 million to €31,387 million. Therein, effects from currency translation had a positive impact, especially in the line item Goodwill. The increase of property, plant and equipment by €199 million continued to be the result of investments in capacity expansions, primarily in Germany and China. Net debt (including pensions) (in millions of €) Mar 31, 2022 Cash and cash equivalents −1,076 Current receivables from the Siemens Group from financing activities −848 Receivables from the Siemens Group from financing activities −3 Current liabilities to the Siemens Group from financing activities 3,524 Liabilities to the Siemens Group from financing activities 11,078 Market value of forwards for hedging of foreign currency liabilities from financing activities −918 Short-term financial debt and current maturities of long-term financial debt 238 Long-term financial debt 442 Net debt 12,438 Provisions for pensions and similar obligations 779 Net debt (including pensions) 13,217 Net debt The line items cash and cash equivalents, and current receivables from and current liabilities to the Siemens Group from financing activities, include, in addition to current loans, in particular, the cash pooling with the Siemens Group. Changes were attributable to income and expenditures from operations and to short-term investment or borrowing of liquidity. Together with the credit facilities these line items, collectively make up the Company’s funds available at short notice. Net debt rose by €537 million to €12,438 million, mainly due to the decrease of the balance of current receivables from and liabilities to the Siemens Group from financing activities, among others, as a result of the dividend payout of €955 million in the first half of fiscal year 2022. Current liabilities to the Siemens Group from financing activities increased due to the reclassification of a loan amounting to US$1.2 billion due to mature in March, 2023, while liabilities to the Siemens Group from financing activities decreased accordingly. The strengthening of the U.S. dollar against the Euro led, in particular, to an increase of liabilities to the Siemens Group from financing activities, which, however, was largely offset by the rise in the market value of forwards for hedging of foreign currency liabilities from financing activities. The decrease of €246 million in cash and cash equivalents was due, on the one hand, to the investment of cash from Siemens Healthineers entities in China with the Siemens Group. On the other hand, the line item declined as a result of the repayment of an intra-group loan from a Varian company that is not yet integrated into the cash pooling. Both factors positively affected the balance of current receivables from and current liabilities to the Siemens Group from financing activities. 9 Sept 30, 2021² 17,456 8,074 3,712 33 436 481 460 30,652 Sept 30, 2021 −1,322 −594 ‐ 1,926 11,708 −498 225 457 11,901 908 12,809 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Net assets and financial position Pensions Provisions for pensions and similar obligations decreased by €129 million, mainly due to an increase in the underlying discount rate in countries with significant pension commitments. For additional information, please refer to Note 5 Provisions for pensions and similar obligations in the notes to the half-year consolidated financial statements. Financing management As of March 31, 2022, the two multicurrency revolving credit facilities of up to in total €2.1 billion (September 30, 2021: €2.1 billion) granted by the Siemens Group, were utilized in the total amount of €498 million (September 30, 2021: €311 million). Remaining current liabilities (in millions of €) Mar 31, 2022 Other current financial liabilities¹ 288 Current provisions 369 Current income tax liabilities 390 Other current liabilities 1,531 Remaining current liabilities to the Siemens Group ‐ Remaining current liabilities 2,577 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. 2 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. Remaining current liabilities declined by €558 million to €2,577 million, primarily due to the decrease of other current liabilities by €486 million. This is mainly a result of lower accruals for performance-related remuneration components and a special one- time payment to employees. Remaining non-current liabilities (in millions of €) Mar 31, 2022 Deferred tax liabilities 2,200 Provisions 133 Other financial liabilities¹ 17 Other liabilities 425 Remaining non-current liabilities 2,775 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Total equity (in millions of €) Mar 31, 2022 Issued capital 1,128 Capital reserve 15,818 Retained earnings −117 Other components of equity 298 Treasury shares −210 Total equity attributable to shareholders of Siemens Healthineers AG 16,916 Non-controlling interests 8 Total equity 16,924 1 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. Equity rose by €869 million to €16,924 million. This includes an increase of retained earnings by €183 million, mainly due to net income of €1,055 million for the first half of fiscal year 2022. The payment of dividends in an amount of €955 million had a reducing effect. Furthermore, the other components of equity increased by €667 million, mainly as a result of currency translation differences. This was partly offset by a decrease of the cost of hedging reserve associated with foreign currency loans. For further details regarding equity, please see Note 6 Equity in the notes to the half-year consolidated financial statements. 10 Sept 30, 2021² 263 386 468 2,016 1 3,135 Sept 30, 2021 2,082 150 19 435 2,686 Sept 30, 2021¹ 1,128 15,818 −300 −369 −240 16,037 18 16,055 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Net assets and financial position A.3.2 Cash flows (in millions of €) First half 2022 Net income 1,055 Change in operating net working capital 101 Other reconciling items to cash flows from operating activities −55 Cash flows from operating activities 1,101 Cash flows from investing activities −383 Cash flows from financing activities −1,022 Operating activities Despite higher net income, which, unlike the prior-year period, includes Varian, cash inflows from operating activities decreased by €215 million to €1,101 million. The decrease in other reconciling items to cash flows from operating activities of €433 million is, in particular, related to changes in other assets and liabilities. This mainly resulted from the fact that, in contrast to the prior-year period, non-cash expenses for performance-related remuneration components were significantly lower than the payouts, including a special one-time payment deferred in the prior year. The growth in business volume led to increases in all items of operating net working capital in the first half of fiscal year 2022, which largely offset each other. The change in operating net working capital resulted in a net release of funds of €101 million in cash flow from operating activities. Investing activities Cash outflows from investing activities increased by €56 million to €383 million. Compared to the prior-year period, this was due mainly to higher cash outflows for capacity expansions in Germany and China. Financing activities In the first half of the fiscal year 2022, cash outflows from financing activities amounted to €1,022 million and were thus on the level of the prior-year period. This includes, in particular, an increase of €98 million within dividend payouts totaling €955 million. Cash outflows for the purchase of treasury shares to fulfill share-based payment programs totaled €84 million, €78 million lower compared to the prior-year period. In the prior-year period, cash inflows from borrowings and from the capital increase to finance the acquisition of Varian was largely offset by cash outflows for the investment of these funds with the Siemens Group. Free cash flow Siemens Healthineers reports free cash flow as a supplemental liquidity measure: (in millions of €) First half 2022 Cash flows from operating activities 1,101 Additions to intangible assets and property, plant and equipment −382 Free cash flow 719 11 First half 2021 885 54 378 1,316 −328 −1,073 First half 2021 1,316 −289 1,027 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Outlook A.4 Outlook Expected market development Siemens Healthineers markets are influenced by various factors. The development of the pandemic and the occurrence of infection will depend on the evolution of vaccination rates, local COVID-19 regulations and potential new virus variants, among other factors. As market development remains characterized by volatility and rapid change, the customary and historic development patterns for Siemens Healthineers markets may be only partially suitable for forecasting purposes because of this unpredictability. Therefore, it is challenging to reliably estimate the impact of COVID-19 on our addressed markets and, thus, the expected development of these markets is challenging. It is anticipated that global economic growth will slow in the current year. However, the healthcare sector is more independent of the broader business cycle than other sectors. Essentially, the short-term development of our addressed markets will be influenced by shortages of intermediate goods (especially semiconductors) and raw materials, disruption to supply chains, and geopolitical unrest, mainly due to the war in Ukraine. Supply chain bottlenecks and geopolitical tensions could represent challenges for the markets and customers’ willingness to invest in new equipment. However, the actual effects on our addressed markets will become evident only in the months ahead. Compared with the estimates given in the annual report 2021, we expect the following changes in the second half of fiscal 2022: In the markets for our Imaging segment, we expect the strong recovery of the market for molecular imaging to continue and the sharp market growth to reach a higher level than in fiscal year 2021. For the Diagnostics’ markets, we expect a sharp decline in demand for tests for acute infection with the SARS-CoV pathogen. In particular, the markets for rapid COVID-19 antigen tests will experience a sharp decline. The market for Varian is likely to continue its recovery in the second half of fiscal year 2022, even though the effects of the pandemic are still ongoing. COVID-19-related delays and interruptions to treatment in 2020 and 2021 will likely have an impact on the success of treating cancer patients and their mortality in the years ahead. Future variants could further reinforce this trend. This could result in greater public investment in cancer treatment, as it could be observed for example in Spain. Growth in Advanced Therapies’ market is likely to exceed the pre-pandemic level in the second half of 2022. This development is being driven primarily by refocusing on issues other than COVID-19. For this reason, we are expecting a positive influence on the market from major tenders and public initiatives for treating stroke. Expected business development Due to the further increased demand for rapid COVID-19 antigen tests, we again raise our outlook for fiscal year 2022. We now expect comparable revenue growth between 5.5% and 7.5% from fiscal year 2021 (previously 3% to 5% in the outlook from the first quarter of fiscal year 2022 (hereinafter “Q1 2022”) and 0% to 2% in the annual report 2021). We expect adjusted basic earnings per share (adjusted for expenses for portfolio-related measures, and severance charges, net of tax) to be between €2.25 and €2.35 (previously €2.18 to €2.30 in the outlook from Q1 2022 and €2.08 to €2.20 in the annual report 2021). In fiscal year 2022, we now expect comparable revenue growth between 6% and 8% in the Imaging segment (previously 5% to 8% in the annual report 2021) and an adjusted EBIT margin between 21% and 22% (previously 22% to 23% in the annual report 2021). For the Diagnostics segment we now expect a mid-single digit comparable revenue growth (previously low-single digit negative in the outlook from Q1 2022 and mid-teens negative in the annual report 2021) and an adjusted EBIT margin in the low- to mid- teens (previously low-teens in the outlook from Q1 2022 and high-single digits in the annual report 2021) in fiscal year 2022. The outlook is now based on the assumption that the segment will generate around €1,300 million (previously around €700 million in the outlook from Q1 2022 and around €200 million in the annual report 2021) in revenue with rapid COVID-19 antigen tests. The expectations for the Varian segment and the Advanced Therapies segment remain unchanged. The outlook is based on several assumptions. These include the expectation that the main COVID-19 related restrictions in China will cease during the third quarter of the fiscal year and that beyond this, there will be no negative impact from measures to keep the COVID-19 pandemic globally under control. We expect that procurement and logistics costs will remain high in the second half of the fiscal year. It is assumed that developments related to the war in Ukraine will have no material adverse effect on our business activities. The outlook is also based on current exchange rate assumptions and excludes portfolio activities. Furthermore, it is based on the number of outstanding shares at the end of fiscal year 2021 and excludes charges related to legal, tax, and regulatory matters and frameworks. 12 Siemens Healthineers Half-Year Financial Report 2022 Interim group management report – Risks and opportunities A.5 Risks and opportunities In our annual report for fiscal year 2021 we described certain risks which could have a material adverse effect on our business situation, net asset and financial position (including effects on cash flows), results of operations and reputation. In addition, we described our significant opportunities as well as the design of our risk management system. During the reporting period, we identified no additional significant risks and opportunities besides those presented in our annual report for fiscal year 2021. Nevertheless, there continues to be an unstable political, regulatory and economic environment in certain countries. Geopolitical tensions and resulting conflicts significantly increased our existing risk from economic, political and geopolitical developments. Especially the war in Ukraine and its broad geopolitical and macroeconomic consequences might adversely impact our business considerably. In addition, there are increasing localization requirements and regulations being imposed or considered by several countries, partly triggered by the recent conflict. We see that more countries are implementing protectionist measures and starting efforts towards deglobalization and more economic independence. Such initiatives could worsen our competitive position by adversely affecting our business volume and market share as well as our cost position. In order to ensure business operations and reduce business impacts, we initiated measures such as setting up dedicated task forces and coordinating local response plans. However, due to the highly volatile situation and uncertainty the full extent of the worldwide effects and consequences cannot yet be anticipated. We continue to observe developments on an ongoing basis in order to quickly identify changes, evaluate potential impacts, assess risks and adjust our measures accordingly. The war in Ukraine currently mainly impacts our risk from economic, political and geopolitical developments but also has an influence on other risks such as supply chain management and compliance with laws for example due to tightened export regulations and sanctions imposed on Russia. Considering the aspects mentioned above, the most significant risks now are economic, political and geopolitical developments, cybersecurity and legal and regulatory environment. Additional risks and opportunities not known to us or that we currently consider immaterial could also affect our business operations. At present, no risks have been identified that in their known form either individually or in combination with other risks could endanger our ability to continue as a going concern. Chapter C.3 Notes and forward-looking statements should be noted. 13 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income (in millions of €, earnings per share in €) Revenue Cost of sales Gross profit Research and development expenses Selling and general administrative expenses Other operating income Other operating expenses Income from investments accounted for using the equity method, net Earnings before interest and taxes Interest income Interest expenses Other financial income, net Income before income taxes Income tax expenses Net income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG Basic earnings per share Diluted earnings per share 14 Note 8 9 First half 2022 10,528 −6,582 3,946 −852 −1,629 4 −18 2 1,452 20 −49 −8 1,415 −360 1,055 11 1,045 0.93 0.93 First half 2021 7,833 −4,761 3,073 −660 −1,118 2 −18 1 1,278 11 −35 −31 1,223 −338 885 10 875 0.81 0.81 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Note Net income Remeasurements of defined benefit plans 5 Therein: Income tax effects Remeasurements of equity instruments Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges Therein: Income tax effects Cost/Income from hedging Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 15 First half 2022 1,055 101 −42 −1 −1 100 763 28 −14 −123 53 668 768 1,823 11 1,812 First half 2021 885 89 −24 89 63 14 −9 −139 49 −62 27 912 11 901 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Note Mar 31, 2022 Sept 30, 2021 (adjusted)¹ Cash and cash equivalents 7 1,076 1,322 Trade and other receivables 7 3,941 3,740 Other current financial assets 7 274 169 Current receivables from the Siemens Group 7, 9 978 711 Contract assets 1,174 1,116 Inventories 3,673 3,179 Current income tax assets 30 56 Other current assets 613 489 Total current assets 11,759 10,782 Goodwill 3 17,875 17,456 Other intangible assets 8,117 8,074 Property, plant and equipment 3,911 3,712 Investments accounted for using the equity method 33 33 Other financial assets 7 1,268 928 Receivables from the Siemens Group 3 ‐ Deferred tax assets 528 481 Other assets 484 460 Total non-current assets 32,219 31,145 Total assets 43,978 41,927 Short-term financial debt and current maturities of long-term financial debt 7 238 225 Trade payables 7 2,252 1,921 Other current financial liabilities 7 288 263 Current liabilities to the Siemens Group 7, 9 3,529 1,932 Contract liabilities 3,383 2,901 Current provisions 369 386 Current income tax liabilities 390 468 Other current liabilities 1,531 2,016 Total current liabilities 11,979 10,113 Long-term financial debt 7 442 457 Provisions for pensions and similar obligations 5 779 908 Deferred tax liabilities 2,200 2,082 Provisions 133 150 Other financial liabilities 7 17 19 Other liabilities 425 435 Liabilities to the Siemens Group 7, 9 11,078 11,708 Total non-current liabilities 15,075 15,758 Total liabilities 27,053 25,871 Issued capital 1,128 1,128 Capital reserve 15,818 15,818 Retained earnings −117 −300 Other components of equity 298 −369 Treasury shares −210 −240 Total equity attributable to shareholders of Siemens Healthineers AG 6 16,916 16,037 Non-controlling interests 8 18 Total equity 16,924 16,055 Total liabilities and equity 43,978 41,927 1 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. For further information, please refer to Note 3 Acquisitions. 16 Sept 30, 2021 (reported) 1,322 3,740 169 711 1,159 3,179 56 489 10,824 17,512 8,211 3,712 33 928 ‐ 481 460 31,338 42,162 225 1,921 263 1,932 2,883 356 468 2,016 10,065 457 908 2,082 150 19 435 11,708 15,758 25,823 1,128 15,818 −300 −85 −240 16,321 18 16,339 42,162 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income/loss related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Receivables from and payables to the Siemens Group from operating activities Trade payables Contract liabilities Change in other assets and liabilities Additions to equipment leased to others in operating leases Income taxes paid Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Purchase of investments and financial assets for investment purposes Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Disposal of businesses, net of cash disposed Cash flows from investing activities Purchase of treasury shares Issuance of new shares Other transactions with owners Repayment of long-term debt (including current maturities of long-term debt) Change in short-term financial debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG Dividends paid to non-controlling interests Interest paid to the Siemens Group Other transactions/financing with the Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 17 First half 2022 1,055 669 360 29 6 54 −35 −373 −135 −13 277 380 −691 −129 −370 1 16 1,101 −382 ‐ −11 12 −2 −383 −84 ‐ 1 −79 −2 −10 −955 −19 −106 232 −1,022 58 −246 1,322 1,076 First half 2021 885 408 338 24 1 41 44 −74 −201 4 116 164 76 −125 −416 ‐ 31 1,316 −289 −6 −35 2 ‐ −328 −163 2,315 2 −61 4 −8 −856 −17 −62 −2,226 −1,073 −13 −97 656 559 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings Currency translation differences Reserve of equity instruments measured at fair value through other comprehensive income Cash flow hedges reserve Cost of hedging reserve Balance as of October 1, 2020 1,075 13,476 −1,276 −862 −33 37 117 Net income 875 Other comprehensive income, net of taxes 89 62 14 −139 Dividends −856 Share-based payment 23 Purchase of treasury shares Reissuance of treasury shares 3 Issuance of new shares 53 2,275 Other changes in equity −12 Balance as of March 31, 2021 1,128 15,777 −1,180 −800 −33 51 −22 Balance as of October 1, 2021¹ 1,128 15,818 −300 −426 −29 −3 89 Net income 1,044 Other comprehensive income, net of taxes 101 763 −1 28 −123 Dividends −955 Share-based payment −7 Purchase of treasury shares Reissuance of treasury shares 7 Other changes in equity −8 Balance as of March 31, 2022 1,128 15,818 −117 337 −30 25 −35 1 Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. For further information, please refer to Note 3 Acquisitions. 18 Treasury shares at cost −36 −161 38 −159 −240 −70 99 −210 Total equity attributable to shareholders of Siemens Healthineers AG 12,498 875 26 −856 23 −161 41 2,328 −12 14,762 16,037 1,044 768 −955 −7 −70 106 −8 16,916 Non- controlling interests 13 10 1 −17 1 8 18 11 −18 −3 8 Total equity 12,511 885 27 −873 23 −161 41 2,328 −11 14,770 16,055 1,055 768 −973 −7 −70 106 −11 16,924 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation The condensed half-year consolidated financial statements as of March 31, 2022, present the operations of Siemens Healthineers AG and its subsidiaries (hereinafter, collectively, “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year consolidated financial statements were prepared and published in euros (€). Due to rounding, numbers may not add up precisely to the totals provided. The results achieved in the interim reporting period are not necessarily indicative of the development of future business performance. The COVID-19 pandemic and associated significant uncertainties have been considered, where relevant, in accounting estimates and judgments. In the first half of fiscal year 2022, the COVID-19 pandemic did not lead to material adjustments of the carrying amounts of recognized assets and liabilities and there is currently no significant risk that the COVID- 19 pandemic will lead to material adjustments in the second half of fiscal year 2022. In connection with the war in Ukraine, there were no material adjustments to the carrying amounts of the assets and liabilities in the first half of fiscal year 2022. Siemens Healthineers neither has production sites in Ukraine nor Russia. The business activities of the sales and service units could be negatively impacted by further escalation of the war, possible further sanctions, or the exchange rate development of the respective local currencies. Due to the volatile geopolitical situation, the impacts for the second half of fiscal year 2022 cannot be reliably estimated. The associated risks are monitored on an ongoing basis. For further information on impacts from the COVID-19 pandemic, on the impacts of the war in Ukraine so far, on disaggregation of revenue and on segment information, please see disclosures in the interim group management report. The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on April 29, 2022. Note 2 Accounting policies The accounting policies applied for the preparation of the half-year consolidated financial statements are consistent with those accounting policies applied for the preparation of the consolidated financial statements for fiscal year 2021. Income tax expenses are determined in interim reporting periods on the basis of the current estimated annual effective tax rate of Siemens Healthineers for the overall year. 19 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 3 Acquisitions Acquisition of Varian On April 15, 2021, Siemens Healthineers acquired all shares in Varian Medical Systems, Inc. (hereinafter “Varian”). In the current fiscal year 2022, the purchase price allocation, which was still preliminary as of September 30, 2021, was reviewed and finalized in accordance with the requirements of IFRS 3, Business Combinations, within the one-year measurement period. Comparative information for the period between the acquisition transaction and the completion of the purchase price allocation in the second quarter of fiscal year 2022 has been presented retrospectively as if the purchase price allocation had already been completed at the acquisition date. The purchase price paid in cash amounted to US$16.4 billion (€13.9 billion as of the acquisition date). Siemens Healthineers redeemed financial liabilities of Varian amounting to US$50.1 million (€41.8 million as of the acquisition date), separately from the transaction. The following table presents the assets and liabilities of the preliminary and final purchase price allocation: (in millions of €) Final purchase price allocation Preliminary purchase price allocation Cash and cash equivalents 552 552 Trade and other receivables 581 579 Other current financial assets 93 95 Contract assets 98 141 Inventories 764 764 Other current assets 118 114 Goodwill 8,193 8,027 Other intangible assets 6,216 6,285 Property, plant and equipment 524 525 Miscellaneous assets 191 192 Total assets 17,330 17,273 Trade payables 232 231 Other current financial liabilities 83 80 Contract liabilities 731 713 Current provisions 105 75 Current income tax liabilities 183 181 Other current liabilities 274 273 Long-term financial debt 86 86 Deferred tax liabilities 1,571 1,566 Miscellaneous liabilities 206 209 Total liabilities 3,471 3,413 Non-controlling interests 6 6 Adjustments were made mainly to intangible assets and goodwill. This is mainly due to valuation effects resulting from the final allocation of intangible assets, including goodwill, to the currency areas. In addition, adjustments were made to contract assets, contract liabilities and current provisions in connection with the acquired project business in the field of proton therapy centers. 20 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 4 Income taxes In the first half of fiscal year 2022, the tax rate of 25.4% was lower than the tax rate for the first half of fiscal year 2021, which was 27.6%. This resulted mainly from a positive effect from the recognition of deferred tax assets for loss carryforwards and temporary differences in the amount of €46 million. Note 5 Provisions for pensions and similar obligations In the first half of fiscal year 2022, provisions for pensions and similar obligations decreased by €129 million to €779 million as of March 31, 2022 (September 30, 2021: €908 million). The change resulted mainly from a decrease of the defined benefit obligation due to an increase of the weighted-average discount rate from 1.7% as of September 30, 2021, to 2.4% as of March 31, 2022. This effect was partly offset by a negative development of plan assets. Note 6 Equity Resolutions of the Shareholders’ Meeting 2022 The Authorized Capital 2021 was canceled by resolution at the Shareholders’ Meeting on February 15, 2022. With this resolution, the Managing Board was simultaneously authorized by the Shareholders’ Meeting to increase the capital stock, with the approval of the Supervisory Board, on one or more occasions, in one total sum or in installments, during the period until February 14, 2027 by up to €564 million by issuing up to 564,000,000 new ordinary registered shares with no par value against contributions in cash and/or in kind (Authorized Capital 2022). Furthermore, the Managing Board was authorized to exclude the subscription rights of the shareholders with the approval of the Supervisory Board. The Conditional Capital 2021 and the authorization to issue convertible bonds or warrants under warrant bonds as of February 12, 2021 were canceled by resolution at the Shareholders’ Meeting on February 15, 2022. Simultaneously, the share capital was conditionally increased by up to €112.8 million (112,800,000 shares, Conditional Capital 2022) and the authorization of the Managing Board to issue convertible bonds and/or warrant bonds was renewed. The Conditional Capital 2022 serves to grant shares to holders or creditors of bonds issued by Siemens Healthineers AG or one of its affiliated companies until February 14, 2027. Furthermore, the Managing Board was authorized to exclude the subscription rights of the shareholders with the approval of the Supervisory Board. The authorization of February 12, 2021 to acquire and use treasury shares was canceled by resolution at the Shareholders’ Meeting on February 15, 2022. Simultaneously, the Managing Board was authorized to acquire treasury shares until February 14, 2027 for any permissible purpose in an aggregate amount of up to 10% of the capital stock existing at the time the resolution is adopted or, if this amount is lower, of the capital stock existing at the time the authorization is exercised. Further disclosures Authorized capital: As of March 31, 2022, the authorized capital of Siemens Healthineers AG was €564 million or 564,000,000 shares (September 30, 2021: €484.5 million or 484,500,000 shares) and the conditional capital of Siemens Healthineers AG was €112.8 million or 112,800,000 shares (September 30, 2021: €107.5 million or 107,500,000 shares). Treasury shares: In the first half of fiscal year 2022, Siemens Healthineers repurchased 1,126,679 (first half of fiscal year 2021: 4,067,889) shares utilizing the authorization granted by the Shareholders’ Meeting held on February 12, 2021, and transferred 2,072,061 (first half of fiscal year 2021: 971,827) treasury shares in conjunction with share-based payment plans. Dividends: In the second quarter of fiscal year 2022, the dividend payout was €0.85 per share entitled to the dividend. 21 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 7 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities: Carrying amounts as of Mar 31, 2022 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents AC 1,076 ‐ ‐ ‐ ‐ Trade receivables² AC 3,884 ‐ ‐ ‐ ‐ Receivables from finance leases³ n.a. ‐ ‐ ‐ ‐ 276 Current and non-current receivables from the Siemens Group AC 981 ‐ ‐ ‐ ‐ Other current and non-current financial assets² Derivatives included in hedge accounting n.a. ‐ ‐ 922 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 21 ‐ ‐ Equity instruments and fund shares measured at fair value through profit or loss FVtPL ‐ 28 6 86 ‐ Equity instruments measured at fair value through other comprehensive income FVtOCI ‐ ‐ ‐ 50 ‐ Debt instruments measured at fair value through profit or loss FVtPL ‐ ‐ 1 44 ‐ Other AC 166 ‐ ‐ ‐ ‐ Total financial assets 6,107 28 950 179 276 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 95 ‐ ‐ ‐ ‐ Trade payables AC 2,252 ‐ ‐ ‐ ‐ Lease liabilities⁵ n.a. ‐ ‐ ‐ ‐ 649 Current and non-current liabilities to the Siemens Group⁴ AC 14,542 ‐ ‐ ‐ ‐ Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. ‐ ‐ 65 ‐ ‐ Derivatives not included in hedge accounting FVtPL ‐ ‐ 32 ‐ ‐ Contingent considerations from business combinations FVtPL ‐ ‐ ‐ 7 ‐ Liabilities from written put options on non-controlling interests n.a. ‐ ‐ ‐ ‐ 81 Other AC 120 ‐ ‐ ‐ ‐ Total financial liabilities 17,010 ‐ 97 7 730 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and liabilities to the Siemens Group. 22 Total 1,076 3,884 276 981 922 21 120 50 45 166 7,540 95 2,252 649 14,542 65 32 7 81 120 17,844 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2021 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Cash and cash equivalents AC 1,322 Trade receivables² AC 3,687 Receivables from finance leases³ n.a. 265 Current receivables from the Siemens Group AC 711 Other current and non-current financial assets² Derivatives included in hedge accounting n.a. 502 Derivatives not included in hedge accounting FVtPL 20 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 40 4 83 Equity instruments measured at fair value through other comprehensive income FVtOCI 47 Debt instruments measured at fair value through profit or loss FVtPL 1 42 Other AC 146 Total financial assets 5,866 40 528 172 265 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 97 Trade payables AC 1,921 Lease liabilities⁵ n.a. 656 Current and non-current liabilities to the Siemens Group⁴ AC 13,569 Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. 45 Derivatives not included in hedge accounting FVtPL 14 Contingent considerations from business combinations FVtPL 27 Liabilities from written put options on non-controlling interests n.a. 72 Other AC 124 Total financial liabilities 15,710 ‐ 59 27 728 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and liabilities to the Siemens Group. The carrying amount of liabilities to the Siemens Group from U.S. dollar-denominated long-term loans was €10,925 million as of March 31, 2022 (September 30, 2021: €11,552 million). The fair value of these liabilities, which is based on prices provided by price service agencies (level 2), amounted to €10,332 million as of March 31, 2022 (September 30, 2021: €11,768 million). The carrying amounts of the remaining financial assets and liabilities measured at amortized cost approximated their fair value. The determination of the fair values of derivatives depended on the specific type of instrument. The fair values of forward exchange contracts and foreign exchange swaps were based on forward exchange rates (level 2). Options were generally valued based on market prices or based on option pricing models (level 2). 23 Total 1,322 3,687 265 711 502 20 127 47 43 146 6,871 97 1,921 656 13,569 45 14 27 72 124 16,525 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Except for publicly listed investments for which a quoted price in an active market exists (level 1), the fair values of venture capital investments were generally determined on the basis of prices from most recently executed financing rounds (level 3). The fair values of other equity instruments were generally derived from a discounted cash flow valuation (level 3). Expected cash flows are thereby subject to future market and business developments as well as price volatility. The discount rates applied consider respective risk-adjusted capital costs. The fair value measurement of fund shares was based on their net asset values (level 2). Debt instruments measured at fair value through profit or loss consisted mainly of bonds and loans related to the financing of proton therapy centers in the Varian segment. In this context, Siemens Healthineers, along with other debt investors, provided funds to various entities for the development, construction and operation of proton therapy centers, primarily in the United States. Repayment is linked either directly or indirectly to the commercial success of the respective centers. The fair values of the bonds are based on comparable bond issues, broker and dealer quotations for the same or similar investments in active markets, and other observable inputs such as yields, credit risks, default rates, and volatilities (level 2). The fair values of the loans are primarily based on parameters such as the individual creditworthiness of the debtor and the risk characteristics and operating performance of the financed project (level 3). Where appropriate, a probability weighted expected return model is used, utilizing management’s assumptions of different outcomes such as the sale, refinancing or closure of the therapy center. Credit ratings are taken into account when adjusting the fair values for credit risks. Consequently, a better rating will generally result in an increased fair value of the loan receivable. As of March 31, 2022, the carrying amounts of financings provided by Siemens Healthineers and measured at fair value through profit or loss were €23 million (September 30, 2021: €22 million), while the total undiscounted amount, including accrued interest, amounted to €173 million (September 30, 2021: €160 million). In addition, the carrying amounts of trade receivables and contract assets related to the proton therapy centers amounted to €11 million (September 30, 2021: €10 million). The carrying amounts represent the maximum exposure to loss. The fair values of contingent consideration from business combinations were derived from probability-weighted future payments, which mainly depend on the achievement of technical and commercial milestones as well as on the achievement of revenue targets during the earn-out period (level 3). If the estimated revenues or probabilities of completing certain milestones increase or decrease during the respective earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. Liabilities from written put options on non-controlling interests were measured at fair value, which is based on the present value of the exercise price of the options (level 3). The exercise price is generally derived from the proportionate enterprise value. The liabilities resulted mainly from written put options in connection with interests in ECG Management Consultants (hereinafter “ECG”). The enterprise value of ECG is calculated by an independent appraiser in accordance with a contractually agreed methodology and serves as a basis for the exercise price per share, which is determined at least once a year. The most significant unobservable input used to determine the fair value is financial information from the five-year business plan, which is mainly subject to expected business and market developments. In addition, weighted revenue and earnings multiples are considered. Changes resulting from the revaluation of liabilities from written put options were recognized in retained earnings. 24 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements The changes in the carrying amount of the financial assets and liabilities measured at fair value based on unobservable inputs (level 3) were as follows: Deal contingent forward Equity instruments Debt instruments measured at fair value through profit or loss Contingent considerations from business combinations Liabilities from written put options on non-controlling interests First half First half First half First half First half (in millions of €) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Balance at beginning of half year ‐ 25 130 53 42 ‐ 27 7 72 31 Gains and losses recognized in profit or loss ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Gains and losses recognized in equity ‐ −52 ‐ ‐ ‐ ‐ ‐ ‐ 9 1 Additions ‐ ‐ ‐ 6 ‐ ‐ ‐ ‐ ‐ ‐ Disposals and settlements ‐ ‐ ‐ ‐ ‐ ‐ −17 ‐ ‐ ‐ Currency translation differences ‐ ‐ 5 ‐ 2 ‐ −1 ‐ ‐ ‐ Other ‐ ‐ ‐ ‐ ‐ ‐ −2 ‐ ‐ ‐ Balance at end of half year ‐ −28 135 59 44 ‐ 7 7 81 32 The following table shows the composition of Siemens Healthineers’ financial debt: (in millions of €) Mar 31, 2022 Sept 30, 2021 Short-term financial debt and current maturities of long-term financial debt 238 225 Therein: Loans from banks 91 73 Lease liabilities 145 150 Current liabilities to the Siemens Group from financing activities 3,524 1,926 Therein: Lease liabilities 23 24 Total current financial debt 3,762 2,150 Long-term financial debt 442 457 Therein: Loans from banks ‐ 19 Lease liabilities 440 434 Liabilities to the Siemens Group from financing activities 11,078 11,708 Therein: Lease liabilities 42 47 Total non-current financial debt 11,520 12,164 Total financial debt 15,282 14,315 Current liabilities to the Siemens Group from financing activities increased due to the reclassification of a loan of US$1.2 billion due to its maturity on March 11, 2023. Liabilities to the Siemens Group from financing activities decreased accordingly. The strengthening of the U.S. dollar against the Euro led, in particular, to an increase of liabilities to the Siemens Group from financing activities. 25 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 8 Segment information Adjusted external revenue¹ Inter- segment revenue Total adjusted revenue¹ Adjusted EBIT² Assets³ Free cash flow Additions to other intangible assets and property, plant and equipment⁴ (in millions of €) First half 2022 First half 2021 First half 2022 First half 2021 First half 2022 First half 2021 First half 2022 First half 2021 Mar 31, 2022 Sept 30, 2021 First half 2022 First half 2021 First half 2022 First half 2021 Imaging 4,986 4,549 160 139 5,146 4,687 1,035 1,041 7,983 7,698 838 1,186 75 70 Diagnostics 3,214 2,420 ‐ ‐ 3,214 2,420 586 268 5,637 5,164 235 163 261 231 Varian 1,455 ‐ ‐ ‐ 1,456 ‐ 212 ‐ 14,688 14,504 120 ‐ 30 ‐ Advanced Therapies 891 818 2 2 893 820 117 136 2,024 1,991 107 112 8 8 Total segments 10,546 7,787 162 141 10,709 7,927 1,951 1,444 30,331 29,356 1,300 1,461 373 308 Reconciliation to consolidated financial statements⁵ −18 46 −162 −141 −181 −94 −535 −222 13,647 12,570 −580 −434 240 188 Siemens Healthineers 10,528 7,833 ‐ ‐ 10,528 7,833 1,415 1,223 43,978 41,927 719 1,027 613 497 1 Siemens Healthineers: IFRS revenue. 2 Siemens Healthineers: Income before income taxes. 3 On segment level: net capital employed. Values include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3 (Varian assets reported as of September 30, 2021: €14,788 million). For further information, please refer to Note 3 Acquisitions. 4 Including additions through business combinations, excluding goodwill. 5 Including effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. For further information, please refer to Note 3 Acquisitions. 26 Amortization, depreciation and impairments First half 2022 First half 2021 92 83 198 157 32 ‐ 9 9 330 249 338 158 669 408 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2021. Adjusted revenue Siemens Healthineers’ revenue included revenue from contracts with customers and income from leases. In the first half of fiscal year 2022, income from leases amounted to €173 million (first half of fiscal year 2021: €170 million). For each of the segments, revenue results mainly from performance obligations satisfied at a point in time, especially in the case of the sale of goods, including reagents and consumables in the Diagnostics segment. However, the performance obligations related to maintenance contracts for equipment sold are generally satisfied over time with revenue recognized on a straight-line basis. Adjusted EBIT (in millions of €) First half 2022 Total segments‘ adjusted EBIT 1,951 Centrally carried pension service and administration expenses −5 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −361 Transaction, integration, retention and carve-out costs −26 Gains and losses from divestments 1 Severance charges −40 Financial income, net −37 Corporate items −70 Corporate treasury, Siemens Healthineers Real Estate¹, eliminations and other items 3 Total reconciliation to consolidated financial statements −535 Siemens Healthineers‘ income before income taxes 1,415 1 Siemens Healthineers Real Estate manages Siemens Healthineers’ entire real estate business portfolio, operates the properties and is responsible for building projects and for the purchase and sale of real estate. Assets (in millions of €) Mar 31, 2022 Total segments‘ assets 30,331 Asset-based adjustments 5,335 Therein: Assets corporate treasury 1,162 Assets Siemens Healthineers Real Estate 1,634 Receivables from the Siemens Group from non-operating activities 966 Current income tax assets and deferred tax assets 558 Liability-based adjustments 8,312 Total reconciliation to consolidated financial statements 13,647 Siemens Healthineers‘ total assets 43,978 1 Values as of September 30, 2021 include retrospective adjustments from the purchase price allocation from the acquisition of Varian as of April 15, 2021 within the twelve-months measurement period according to IFRS 3. For further information, please refer to Note 3 Acquisitions. Free cash flow (in millions of €) First half 2022 Total segments‘ free cash flow 1,300 Tax-related cash flow −370 Corporate items and other −211 Total reconciliation to consolidated financial statements −580 Siemens Healthineers‘ free cash flow 719 27 First half 2021 1,444 −7 −66 −23 ‐ −37 −56 −36 3 −222 1,223 Sept 30, 2021¹ 29,356 4,551 1,408 1,402 708 537 8,019 12,570 41,927 First half 2021 1,461 −416 −18 −434 1,027 Siemens Healthineers Half-Year Financial Report 2022 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 9 Related party transactions The following presents the relationships Siemens Healthineers’ maintained with the Siemens Group, meaning Siemens AG and its subsidiaries. Transactions with the Siemens Group Sales of goods and services and other income and purchases of goods and services and other expenses from transactions with the Siemens Group are shown in the following table: Sales of goods and services and other income Purchases of goods and services and other expenses (in millions of €) First half 2022 First half 2021 First half 2022 First half 2021 Siemens AG 4 2 128 124 Other Siemens Group entities 142 135 94 127 Total 145 138 222 251 In the first half of fiscal year 2022, Siemens Healthineers obtained support from the Siemens Group for central corporate services with a total value of €146 million (first half of fiscal year 2021: €143 million). In addition, there were leasing transactions with the Siemens Group, mainly for real estate. As of March 31, 2022, total lease liabilities amounted to €65 million (September 30, 2021: €71 million). Receivables from and liabilities to the Siemens Group Receivables from and liabilities to the Siemens Group were as follows: Current receivables and receivables from the Siemens Group Current liabilities and liabilities to the Siemens Group (in millions of €) Mar 31, 2022 Sept 30, 2021 Mar 31, 2022 Sept 30, 2021 Siemens AG 285 1 1,634 1,160 Other Siemens Group entities 696 711 12,973 12,480 Total 981 711 14,607 13,640 During the reporting period, Siemens Healthineers was included in the cash pooling and cash management of the Siemens Group. In connection with the operating activities, thereby, Siemens Healthineers invested excess liquidity in the short term and was granted overdraft facilities. In the first half of fiscal year 2022, the balance of receivables from and liabilities to the Siemens Group changed further, in particular, due to the dividend payout. Furthermore, effects from foreign currency revaluation had an increasing impact. In the first half of fiscal year 2022, interest expenses from financing arrangements with Siemens AG amounted to €9 million (first half of fiscal year 2021: €8 million) and from financing arrangements with other Siemens Group entities to €25 million (first half of fiscal year 2021: €13 million). These included positive effects from the hedging of exchange rate risks of U.S. dollar- denominated loans. Hedging with the Siemens Group As of March 31, 2022, other current and other non-current financial assets resulting from hedging activities with the Siemens Group as counterparty amounted to €929 million (September 30, 2021: €506 million). As of March 31, 2022, other current and other non-current financial liabilities from hedging activities amounted to €70 million (September 30, 2021: €47 million). 28 Siemens Healthineers Half-Year Financial Report 2022 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, April 29, 2022 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Darleen Caron Dr. Jochen Schmitz Elisabeth Staudinger-Leibrecht 29 Siemens Healthineers Half-Year Financial Report 2022 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements of Siemens Healthineers AG, Munich, which comprise the consolidated statements of income, comprehensive income, financial position, cash flows and changes in equity, and notes to half-year consolidated financial statements, and the interim group management report for the period from October 1, 2021 to March 31, 2022 which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The Company’s management is responsible for the preparation of the half-year consolidated financial statements in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports. Our responsibility is to issue a report on the half-year consolidated financial statements and the interim group management report based on our review. We conducted our review of the half-year consolidated financial statements and of the interim group management report in compliance with German Generally Accepted Standards for the Review of Financial Statements promulgated by the Institut der Wirtschaftsprüfer (IDW - Institute of Public Auditors in Germany) and in supplementary compliance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of the Company’s employees and analytical assessments and therefore does not provide the assurance obtainable from an audit of financial statements. Since, in accordance with our engagement, we have not performed an audit of financial statements, we cannot issue an auditor’s report. Based on our review nothing has come to our attention that causes us to believe that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. Munich, April 29, 2022 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Keller Wirtschaftsprüfer [German Public Auditor] Dr. Eisele Wirtschaftsprüfer [German Public Auditor] 30 Siemens Healthineers Half-Year Financial Report 2022 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations, plans and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or developments, these statements are subject to various risks, uncertainties and factors, including but not limited to those possibly described in the respective disclosures. Should one or more of these or other risks, uncertainties or factors (e.g. events of force majeure, including but not limited to unrest or acts of war) materialize, plans change or should underlying expectations not occur or assumptions prove incorrect, Siemens Healthineers' management actions, actual results, performance or achievements of Siemens Healthineers may (negatively or positively) vary materially from those described explicitly or implicitly in the forward-looking statement. All forward-looking statements apply only as of the date when they were made and Siemens Healthineers neither intends nor assumes any obligation, unless required by law, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes supplemental financial measures that are or may be alternative performance measures not precisely defined in the applicable financial reporting framework (non-GAAP measures). These supplemental financial measures may have limitations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets, financial position and results of operations as presented in accordance with the applicable financial reporting framework. Other companies that report or describe similarly titled alternative performance measures may calculate them differently, and therefore they may not be comparable to those included in this document. For further explanations of our (supplemental) financial measures, please see chapter „A.2 Financial performance system“ and the Notes to consolidated financial statements, Note 29 „Segment information“ of the Annual Report 2021 of Siemens Healthineers. Due to rounding, individual numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. This document is an English language translation of the German document. In case of discrepancies, the German language document is the sole authoritative and universally valid version. For technical reasons, there may be differences in formatting between the accounting records appearing in this document and those published pursuant to legal requirements. In the event that the male form is used in this document, the information nevertheless refers to all persons (male, female, non- binary). 31 Siemens Healthineers AG Henkestr. 127 91052 Erlangen, Germany siemens-healthineers.com Investor Relations Phone: +49 (9131) 84-3385 Email: ir.team@siemens-healthineers.com corporate.siemens-healthineers.com/investor-relations Press Email: press.team@siemens-healthineers.com corporate.siemens-healthineers.com/press © Siemens Healthineers AG, 2022 | Semestriel, 2022, Healthcare, SiemensHealthineers | write me a financial report |
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| Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Supplementary Financial Information General Information Additional Information 2 3 4 18 41 47 48 SAP Half-Year Report 2021 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Half-yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the consolidated half-year management report, condensed consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 115 (2). This half-year group report updates our consolidated financial statements 2020, presents significant events and transactions of the first half of 2021, and updates the forward-looking information contained in our Management Report 2020. This half-year financial report only includes half-year numbers. Our quarterly numbers are available in the Quarterly Statements for the first and second quarter 2021. Both the 2020 consolidated financial statements and the 2020 management report are part of our Integrated Report 2020, which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means that the information has been subject neither to any audit nor to any review by an independent auditor. SAP Half-Year Report 2021 3 Consolidated Half-Year Management Report Strategy and Business Model Performance Management System SAP continues to execute on the strategy and business model as In the second quarter of 2021 and effective for the full year 2021, described in the SAP Integrated Report 2020. Subsidiaries, Acquisitions, and Divestitures we changed our non-IFRS definition. We no longer adjust our IFRS revenue measures by including the full amount of recurring revenue that is not recognized under IFRS due to fair value accounting for the contracts in effect at the time of the respective acquisitions. The adjustment amounts were immaterial for the first half of 2021. Qualtrics IPO Thus, our IFRS revenue is equal to our non-IFRS revenue at actual On January 28, 2021, Qualtrics International Inc. successfully issued 12% of its shares on the Nasdaq Stock Market (NASDAQ). The IPO-related cash inflow amounted to €1,847 million and the initial value of non-controlling interests in net assets was €909 million. currencies. Stated 2020 results are based on our 2020 non-IFRS definition. The adjustment of our non-IFRS definition also impacts our operating profit (non-IFRS), profit before tax (non-IFRS), profit after tax (non-IFRS), and our non-IFRS key ratios such as operating margin, effective tax rate, and earnings per share, basic. Acquisitions The acquisition of Signavio GmbH ("Signavio"), which closed on March 5, 2021, deepens SAP’s business process intelligence (BPI) capabilities, which represent the process layer within the SAP portfolio. Solutions from Signavio augment the spectrum of business process management solutions offered by SAP by adding process modeling, mining, and management capabilities. For more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1). Joint Ventures To better support our customers in the financial services industry (FSI), SAP agreed to create a joint venture together with German investment company Dediq GmbH, which will be called SAP Fioneer upon closing. The aim of this joint venture is to build agile solutions for FSI using SAP technologies as a basis, such as SAP HANA, SAP S/4HANA, SAP Business Technology Platform, and others. SAP will contribute certain FSI-centric software solutions into the FSI unit in exchange for a minority share in the new entity. The transaction is expected to close in September 2021. Products, Research & Development, and Services This section presents a snapshot of SAP product development and services innovation during the first half of 2021. Among the highlights were the launch and growth of RISE with SAP, our “business transformation as a service” cloud offering, and key themes of SAP’s flagship customer event, SAPPHIRE NOW. The conference’s themes included the expansion of the world’s largest business network, keeping sustainability at the center of SAP’s business model, and building on SAP Business Technology Platform (BTP) as the foundation to provide our customers with a single platform for integration and extensibility across the SAP portfolio and non-SAP solutions. The information in this section is intended to supplement the SAP Integrated Report 2020. Business Network Executing on the strategy of creating the world’s largest business For more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1). Sapphire Ventures SAP supports entrepreneurs that aspire to build industry-leading network, SAP Business Network brought together Ariba Network, SAP Logistics Network, and SAP Asset Intelligence Network, as announced at SAPPHIRE NOW in June. SAP Business Network aims to unify business processes across supplier collaboration, logistics coordination and traceability, and equipment usage and maintenance. businesses, through venture capital funds managed by Sapphire Ventures. In the second quarter, the Executive Board proposed and the Supervisory Board consented to the financing of a new Sapphire Ventures fund (“SAPPHIRE Ventures Fund VI”). SAP´s total volume committed for SAPPHIRE Ventures Fund VI is US$1.75 billion. SAP Business Network also launched the unified trading partner portal to give trading partners a holistic view of all their customer relationships and transactions on the network. 4 SAP Half-Year Report 2021 Experience Management In the first half of 2021, we launched the XM Operating System (XM/OS) – a single, secure, cloud-native platform that serves as the operating system for experience management (XM) solutions from SAP and Qualtrics. We delivered on several key Qualtrics CustomerXM offerings such as Customer Care Command Center, Relationship Health, and Digital Journey Optimization, with the aim of supporting a post-pandemic work environment. We also released several Qualtrics EmployeeXM solutions such as Spotlight Insights and Candidate Experience. Expanding our ecosystem, we established a key partnership with ServiceNow to combine the strengths of ServiceNow's digital workflows with Qualtrics' experience management technology. Intelligent Suite SAP S/4HANA In recognition of SAP’s commitment to its customers, SAP S/4HANA Cloud was positioned as a leader in the 2021 “Gartner Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises” in May 2021. Additionally, the number of SAP S/4HANA customers increased by approximately 1,000 in the first half of 2021, growing 17% year over year to more than 17,000 customers. RISE with SAP As announced during the SAPPHIRE NOW global keynote, human experience management (HXM) and procurement capabilities were added to RISE with SAP. Additionally, RISE with SAP transformation packages for industries, focusing on retail, consumer products, automotive, utilities, and industrial machinery and components (IM&C), were also announced at the event. Human Resources (HR) SAP SuccessFactors During the first half of 2021, we launched SAP Work Zone for HR and SAP SuccessFactors Time Tracking. These solutions aim to provide employees and organizations ways to optimize their day-to- day work needs. Procurement SAP Fieldglass We released SAP Fieldglass Assignment Management, a solution that aims to help manage contractors who perform ad hoc work under existing supplier agreements. SAP Half-Year Report 2021 Business Technology Platform Following our mission to deliver one platform for the intelligent enterprise, we introduced significant updates with respect to the SAP Business Technology Platform (SAP BTP) in the first half of 2021. We announced a free tier model for SAP BTP, available to SAP customers from July 1, 2021. To further increase flexibility, we introduced in addition the new Pay-As-You-Go model for SAP BTP, allowing customers to access services for SAP BTP without any up- front financial commitment. Beyond that, SAP launched SAP Learning, a learning site with content to upskill on SAP BTP accessible free of charge. Database and Data Management To enable customers to handle a growing amount of transactional and analytical data, SAP HANA Cloud database now supports adaptive server enterprise (ASE), ASE replication, and data lake support for SAP IQ software workloads. Analytics SAP Analytics Cloud now features a new model that aims to provide more flexibility, enhanced user experience, and enterprise- wide integration by combining the advantages of account-based and measure-based modeling, as well as improving performance and the integration with other SAP solutions. Application Development and Integration We released SAP BTP, Kubernetes environment for general availability. SAP BTP for the Kubernetes environment is based on the open-source project Kyma that allows developers to extend SAP solutions by using both microservice and serverless functions. We have also provided new content packages in SAP Workflow Management. Intelligent Technologies Continuing with our strategy to embed AI into the solution portfolio of SAP, new capabilities in SAP Intelligent Robotic Process Automation (SAP Intelligent RPA) were added. We aim to showcase these capabilities to our customers via SAP BTP. COVID-19 Response SAP SuccessFactors created a vaccination tracker portlet, available to all SAP SuccessFactors Employee Central customers at no cost. 5 Employees and Social Investments People are at the heart of our organization. By ensuring a highly engaged, diverse workforce equipped with the right skills, SAP aims to attract the best talent, build great products, and win the hearts of our customers. For a detailed description of our People Strategy, see the Employees and Social Investments section in our Integrated Report 2020. The COVID-19 pandemic continued to dominate the first half of 2021. Especially during these times, it is even more important to ensure a healthy work-life balance. For the first time, we held a ‘Global Mental Health Day’ in April, on which we gave all our employees around worldwide an additional day off to take time for themselves and their families. To assist in overcoming the pandemic, SAP continues to support the global fight against COVID- 19. We offered vaccination campaigns at our facilities and partner organizations for employees and their dependents where legally possible and where support is needed. Furthermore, SAP financially supports the UNICEF COVAX initiative, helping to ensure a faster distribution of vaccine to the poorest countries around the world. Influenced by the coronavirus pandemic, SAP’s approach for the ‘Future of Work’ has been moved to the top of our corporate agenda. As a tech company, SAP has long championed virtual, location-agnostic, and mobile ways of working. In June, we announced SAP’s ‘Pledge to Flex’, as our commitment to a trust- based and empowerment-based workplace aiming at maximum flexibility for where and how employees work. The aim is an optimal balance between working in the office and remotely, in alignment with role, business, and legal requirements. comprehensive engagement survey. Employee Engagement remained high and within our target range of 84% to 86%, coming in at 84% with a slight decrease of 2pp compared to the last survey in September 2020. Our Leadership Trust Net Promoter Score reached an all-time high score of 67 (+5pts). Finally, the Business Health Culture Index increased by 1pp since September 2020 to 81%, which is slightly above our target range of 78% to 80%. The target ranges for Employee Engagement and Business Health Culture remain unchanged compared to what we disclosed in our Integrated Report 2020. At the end of the first half of 2021, SAP’s Employee Retention rate was still at a high level of 94.8% (compared to 93.9% at the end of the first half of 2020 and 95.3% at the end of 2020). We define retention as the ratio of the average number of employees minus the employees who voluntarily departed, to the average number of employees (in full-time equivalents, FTEs). We also continue to foster an inclusive, bias-free workforce. The ratio of Women in Management continued its upward trend, reaching 27.9% at the end of the first half of 2021 compared to 27.3% at the end of June 2020 and 27.5% at the end of 2020. On June 30, 2021, we had 103,876 FTEs worldwide (June 30, 2020: 101,379; December 31, 2020: 102,430). For a breakdown of headcount by function and geography, see the Notes to the Consolidated Half-Year Financial Statements, Note (B1). 6 Energy and Emissions The first six months of 2021 were marked by the advancement of our commitment to help rebuild a more resilient, restorative, and inclusive economy within the planetary boundaries – both as an enabler and exemplar. To consider the impact of the COVID-19 pandemic on our business and to uphold our ambition, we decided to become carbon-neutral in our own operations by the end of 2023 – two years earlier than previously planned. This was initially announced in our Integrated Report 2020 and reflects our strong commitment to sustainable business operations. Furthermore, SAP acknowledges that strong partnerships are an invaluable asset in tackling climate change. This is why we became a founding member of the European Green Digital Coalition and joined the World Economic Forum Stakeholder Capitalism Coalition as well as the World Business Council for Sustainable Development (WBCSD), a global, CEO-led organization dedicated to accelerating the transition to a sustainable world. In addition, we launched Chasing Zero, a new platform that will feature executive thought leadership, best practices, and insights into a sustainability-related transformation of SAP and its global ecosystem to achieve zero emissions, zero waste, and zero inequality. The transition to a circular economy remains central to our vision for a world of zero waste and plastic free oceans by 2030. Consequently, we support stronger circular economy policies, such as World Wildlife Fund’s (WWF) OneSource Coalition and the Ellen MacArthur Foundation’s Extended Producer Responsibility (EPR) endorsement. The major milestone of the first half of 2021, however, was SAP’s Sustainability Summit in April, an event dedicated to unveiling opportunities for businesses to drive positive impact, reshape traditional business decision making, and explore proven practices and future solutions. We introduced SAP Product Footprint Management, a solution that helps customers assess product footprints across the entire product life cycle, and thus optimize the environmental impact of their products. Driving the transition towards a circular economy, our SAP Responsible Design and Production solution will help businesses keep track of public commitments and new regulations so that they can manage the operational costs associated with downstream processing and gain better visibility of material flows overall. These are two examples of SAP’s growing Sustainability Management solution portfolio that was announced in 2021 at the SAPPHIRE NOW conference. In 2018, SAP announced its intention to plant five million trees by 2025. To elevate our ambition to the next level, SAP pledges to plant 21 million trees by the end of 2025 – matching SAP’s Climate 21 program and strengthening our commitment to fight the most pressing challenge of the 21st century: climate change. SAP’s carbon emissions for the first half of 2021 totaled 45 kilotons (kt) compared to 90 kt in the first half of 2020.1) This low level is a continued, direct result of the ongoing COVID-19 pandemic. Since almost all business activities remain in a state of remote working models, major carbon-emitting activities such as corporate travel have settled at a minimum. To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. At the end of the first half of 2021, our carbon emissions (in tons) per employee was 0.9 (compared to 2.0 at the end of the first half of 2020), and our carbon emissions (in grams) per euro revenue was 3.6 (compared to 7.3 at the end of the first half of 2020) (rolling four quarters). SAP Half-Year Report 2021 SAP remained a constituent in multiple environmental, social, and governance (ESG) indices acknowledging SAP’s strong ESG performance: the Ethibel Sustainability Index (ESI) Excellence Europe and ESI Excellence Global, the FTSE4Good Index Series, and the Euronext Vigeo Eiris indices (Europe 120 and Eurozone 120). We were also ranked as the most sustainable software company in the Dow Jones Sustainability Indices for the fourteenth consecutive year. In addition, in the first half of 2021, SAP was once again recognized as an ESG leader by Morgan Stanley Capital International (MSCI) with the best rating of “AAA”, was ranked among Corporate Knights’ Global 100 Most Sustainable Corporations in the World, and received the top score “A” in CDP’s climate change assessment. 1) SAP’s carbon emission numbers are rounded to the nearest 5 kt. Therefore, the rounded half-year totals may not precisely equal the sum of the rounded quarterly numbers. SAP Half-Year Report 2021 Organization and Changes in Management On January 1, 2021, Sabine Bendiek became a member of the SAP Executive Board. She serves as chief people officer and labor relations director and leads the Human Resources organization. On July 1, 2021, Sabine Bendiek assumed additional responsibility when she became SAP’s chief people and operating officer. In January 2021, SAP announced that Julia White and Scott Russell had been appointed to the Executive Board. On February 1, 2021, Scott Russell took over the Customer Success organization from Adaire Fox-Martin, who departed the Executive Board at the end of January 2021 and left the Company at the end of June 2021. Julia White joined the Executive Board on March 1, 2021, taking up the newly created Board role of chief marketing and solutions officer. 7 Financial Performance: Review and Analysis Economy and the Market Global Economic Trends Global economic activity continued to recover at the beginning of the year despite the intensification of the pandemic, states the European Central Bank (ECB) in its most recent Economic Bulletin.1) Learning effects, resilient manufacturing output and foreign demand, as well as policy support, contained output losses. Services activity recovered strongly as soon as infection numbers declined. Advanced economies turned out more resilient than the ECB had expected. The slowdown in emerging market economies, by contrast, was more pronounced. As for the EMEA region, the euro area economy contracted in the first quarter of the year, but began to reopen as the pandemic situation improved, finds the ECB. Corporate investment in the EU declined slightly in the first quarter of 2021 because of supply-chain bottlenecks and tightening containment measures but rebounded in the second. In central and eastern European countries, the recovery slowed significantly during the first half of the year, whereas Russian economic activity increased slightly in the first quarter. In the Americas region, according to the ECB, the large fiscal stimulus approved by the new US government strengthened the recovery in the United States. In Brazil, economic activity continued to recover and came close to its pre-pandemic level despite a resurgence in new infections. Regarding the APJ region, the Japanese real GDP contracted particularly in the first quarter, says the ECB. The Chinese economy, on the other hand, showed a steady growth momentum in the second quarter, following weaker outturns in industrial production and retail sales in the first, with solid export growth throughout. The IT Market In the wake of the COVID-19 pandemic, resiliency has become a priority, according to International Data Corporation (IDC), a U.S.- based market research firm. During the last year and a half, organizations therefore invested widely in cloud-centric IT, security, remote work, and digital transformation. This enabled many businesses to maintain a level of operations previously impossible or they even offered new digital services.2) On the whole, cloud and cloud-centric operating models have by now become integral components of the modern IT environment in organizations of all sizes.3) However, while precipitously introducing cloud solutions, at least three out of four organizations incurred technical debt around design, integration, quality, and security reviews to be dealt with later.4) As to what cloud solution to choose, around three quarters of organizations prefer integrated suites instead of point solutions.5) More and more application vendors add options to their suites with which business users themselves can extend or fill in gaps within business processes whenever they need new functionality quickly and without external partners or in-house capabilities. Summarizing, IDC states that the pandemic has proven previous observations and accelerated new findings as to how organizations manage their digital transformation successfully: installing an intelligent core of data analytics, automation, and decision support, 8 and then surrounding it with a wide variety of applications and services including predictive analytics, AI, machine learning, blockchain, and Internet of Things.6) Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2021, Publication Date: June 24, 2021 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202104.en.pdf) 2) IDC Perspective: A Digital Resiliency Framework for the Future Enterprise, Doc #US47483421, February 2021 3) IDC FutureScape: Worldwide Cloud 2021 Predictions, Doc US46420120, December 2020 4) IDC Market Perspective: 2021: Enterprise Application Spending Heats Up, Doc US47086520, December 2020 5) IDC Market Perspective: The 4P Transformation of Enterprise Software: Spotlight on Enterprise Applications, Doc US47835021, June 2021 6) IDC Market Perspective: The Transformation of Enterprise Software: The 4Ps – Past, Present, and Future, Doc #EUR147592221, April 2021 Impact on SAP SAP had an excellent start into the fiscal year 2021. Our new RISE with SAP offering, announced in the first quarter as a response to our customers who were looking to move to the cloud faster for greater resiliency and agility, started strong, and new cloud business sharply accelerated across the portfolio. Software licenses also grew in the first quarter, mainly due to pandemic- related postponed IT investments. The overall performance was reflected in the highest order entry year-over-year growth rates seen in five years. Over the course of the second quarter business activity saw further signs of recovery. In particular, cloud revenue accelerated mainly driven by the continued strength of the SaaS/PaaS solutions outside the Intelligent Spend category paired with improved transactional revenue due, for example, to the easing of global travel restrictions. However, the Intelligent Spend category continues to be impacted more than other SaaS/PaaS solutions by the COVID-19 pandemic. Current cloud backlog growth accelerated further quarter on quarter. As more customers transition to the RISE with SAP subscription offering, software licenses revenue decreased as anticipated. SAP retained a disciplined approach to hiring and discretionary spend while capturing natural savings through less travel, lower facility-related costs, and virtual events. In addition, SAP continued to effectively serve existing and new customers mostly in a fully virtual set up. With the announcement of its ‘pledge to flex’, SAP is committed to a truly flexible remote operating model even beyond the pandemic. All of the above enabled SAP to operate effectively in the first six months and, in combination with the healthy topline performance, to improve non-IFRS operating profit despite the ongoing pandemic uncertainties, while IFRS operating profit decreased due to higher share-based compensation expenses. SAP Half-Year Report 2021 Key Figures – SAP Group in the First Half of 2021 (IFRS) € millions, unless otherwise stated Cloud Thereof SAP S/4HANA Cloud Software licenses Software support Cloud and software Total revenue Operating expenses Operating profit Operating margin (in %) Profit after tax Effective tax rate (in %) Earnings per share, basic (in €) Operating Results (IFRS) Revenue In the first half of 2021, total revenue was €13,017 million (first half of 2020: €13,264 million), a slight decrease of 2% compared to the same period in 2020. Our cloud revenue, however, increased by 9% to €4,421 million (first half of 2020: €4,055 million) compared to the same period in 2020. Thereof, our SAP S/4HANA cloud revenue was €485 million (first half of 2020: €360 million), increasing 34% compared to the same period in 2020. Software licenses revenue was €1,133 million in the first half of 2021 (first half of 2020: €1,224 million), a decrease of 7% compared to the same period in 2020 as more customers transition to SAP’s cloud solutions such as RISE with SAP. Operating Expense Our operating expenses increased 3% to €11,073 million (first half of 2020: €10,770 million). The increase was mainly driven by higher restructuring expenses and share-based compensation. In the first half of 2021, restructuring cost amounted to €164 million (first half of 2020: €13 million) mainly due to a restructuring program launched in the Global Cloud Services area. For more information about restructuring, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). Share-based payment expenses increased to €1,256 million (first half of 2020: €612 million). The increase was mainly caused by newly granted equity-settled Qualtrics RSUs. For more information about share-based payment expenses, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.3). Also noteworthy was a significant decrease in travel costs by 83% in the first half of 2021, which was mainly a direct effect of the travel restrictions imposed due to the COVID-19 pandemic. Furthermore, we had natural savings as a consequence of the COVID-19 pandemic situation, for example from lower facility-related costs and virtualized events. SAP Half-Year Report 2021 Q1–Q2 2021 Q1–Q2 2020 ∆ ∆ in % 4,421 4,055 366 9 485 360 124 34 1,133 1,224 –91 –7 5,624 5,826 –202 –3 11,178 11,106 72 1 13,017 13,264 –247 –2 –11,073 –10,770 –302 3 1,944 2,494 –550 –22 14.9 18.8 –3.9pp NA 2,519 1,697 822 48 19.8 30.6 –10.8pp NA 2.03 1.42 0.61 43 Operating Profit and Operating Margin Compared with the same period in the previous year, operating profit decreased by €550 million to €1,944 million (first half of 2020: €2,494 million). This was mainly a result of the aforementioned expense increases in restructuring and share-based payments. Our operating margin decreased by 3.9pp to 14.9% (first half of 2020: 18.8%). Finance Income, Net In the first half of 2021, finance income, net was €1,168 million (first half of 2020: €53 million) which is mainly due to the Sapphire Ventures portfolio. For more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (C.3). Profit After Tax and Earnings per Share Profit after tax was €2,519 million (first half of 2020: €1,697 million), an increase of 48% compared to the same period in 2020. Basic earnings per share was €2.03 (first half of 2020: €1.42), an increase of 43% mainly resulting from an outstanding contribution from Sapphire Ventures to our finance income and a lower effective tax rate. The effective tax rate was 19.8% (first half of 2020: 30.6%). The year-over-year decrease in the effective tax rate mainly resulted from tax effects relating to changes in tax exempt income and a one- time change in deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries which were partly compensated by tax effects relating to changes in non- deductible expenses. 9 Performance Against Our Outlook for 2021 (Non-IFRS) Information section. For more information about the changes made to the definition of non-IFRS measures, see the Performance Management System section. In this section, all discussion of the contributions to target achievement is based exclusively on non-IFRS measures. In contrast, the discussion of operating results in the previous section refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. Outlook for 2021 (Non-IFRS) For our outlook based on non-IFRS numbers, see the Financial Targets and Prospects for 2021 (Non-IFRS) section in this consolidated half-year management report. We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Key Figures – SAP Group in the First Half of 2021 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Q1–Q2 2021 Q1–Q2 2020 ∆ in % ∆ in % (constant currency) Current Cloud Backlog 7,766 6,638 17 20 Thereof SAP S/4HANA Current Cloud Backlog 1,130 780 45 48 Cloud 4,421 4,057 9 15 Thereof SAP S/4HANA Cloud 485 360 34 41 Software licenses 1,133 1,224 –7 –4 Software support 5,624 5,826 –3 0 Cloud and software 11,178 11,107 1 5 Total revenue 13,017 13,266 –2 3 Operating expenses –9,357 –9,820 –5 0 Operating profit 3,660 3,446 6 12 Operating margin (in %) 28.1 26.0 2.1pp 2.3pp Profit after tax 3,934 2,409 63 NA Effective tax rate (in %) 19.0 29.0 –10.1pp NA Earnings per share, basic (in €) 3.14 2.02 56 NA Performance (Non-IFRS) Starting 2021, SAP expanded its financial disclosure to provide investors with transparency on the transition of its core ERP business to the cloud. Specifically, the Company discloses current cloud backlog (CCB) and cloud revenue contributed by SAP S/4HANA Cloud, along with nominal and constant currencies year-over-year growth rates. As at June 30, 2021, CCB was €7,766 million, an increase of 17% year over year (20% at constant currencies). Thereof, our SAP S/4HANA CCB was €1,130 million as at June 30, an increase of 45% year over year (48% at constant currencies). Our cloud revenue (non-IFRS) was €4,421 million (first half of IFRS) decreased by 7% (4% at constant currencies) as more customers transition to SAP’s cloud solutions such as RISE with SAP. Software support revenue (non-IFRS) was €5,624 million (first half of 2020: €5,826 million), a decrease of 3% (flat at constant currencies). Services revenue (non-IFRS) was €1,839 million (first half of 2020: €2,159 million), a decrease of 15% year over year (11% at constant currencies). This decrease was primarily caused by the divestiture of SAP Digital Interconnect at the end of 2020. Total revenue (non-IFRS) was €13,017 million (first half of 2020: €13,266 million), a decrease of 2%. On a constant currency basis, total revenue (non-IFRS) increased by 3%. 2020: €4,057 million), an increase of 9% (15% at constant currencies) compared to the same period in 2020. Thereof, our SAP S/4HANA cloud revenue (non-IFRS) was €485 million (first half of 2020: €360 million), an increase of 34% (41% at constant currencies). Our cloud gross margin (non-IFRS) increased by 0.4pp to 69.8% (first half of 2020: 69.4%). Cloud and software revenue (non-IFRS) was €11,178 million (first half of 2020: €11,107 million), an increase of 1%. On a constant currency basis, the increase was 5%. This increase was mainly driven by cloud revenue growth. Software licenses revenue (non- Operating expenses (non-IFRS) were €9,357 million (first half of 2020: €9,820 million), a decrease of 5% (flat on a constant currency basis). Although cloud revenue (non-IFRS) rose by 9%, cost of cloud (non-IFRS) increased by only 8%. The cost of software licenses and support (non-IFRS) decreased by 6%. Also, SAP’s service business contributed positively to the overall profitability. The services gross margin (non-IFRS) increased by 4.4pp compared to the first half of 2020. This resulted mainly from a higher remote delivery share of the consulting services. 10 SAP Half-Year Report 2021 In total, operating expenses (non-IFRS) in the first half of 2021 declined by 5% compared to the first half of 2020. Within operating expenses, research and development cost showed the highest increase. IFRS) was €3.14 (first half of 2020: €2.02), an increase of 56% mainly resulting from an outstanding contribution from Sapphire Ventures to our finance income and a lower effective tax rate (non- IFRS). Operating profit (non-IFRS) was €3,660 million (first half of 2020: €3,446 million), an increase of 6%. On a constant currency basis, the increase was 12%. Operating margin (non-IFRS) was 28.1%, an increase of 2.1pp, or 2.3pp on a constant currency basis (first half of 2020: 26.0%). The effective tax rate (non-IFRS) was 19.0% (first half of 2020: 29.0%). The year-over-year decrease in the effective tax rate mainly resulted from tax effects relating to changes in tax exempt income and a one-time change in deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries. Profit after tax (non-IFRS) was €3,934 million (first half of 2020: €2,409 million), an increase of 63%. Basic earnings per share (non- Reconciliation of Cloud Revenues and Margins € millions, unless otherwise stated Q1–Q2 2021 Q1–Q2 2020 ∆ in % IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non- IFRS IFRS Non- IFRS Non-IFRS Constant Currency3) Intelligent Spend 1,352 0 1,352 92 1,444 1,411 0 1,411 –4 –4 2 Cloud revenue – SaaS/PaaS1) Other 2,630 0 2,630 137 2,767 2,223 2 2,225 18 18 24 Total 3,982 0 3,982 229 4,210 3,634 2 3,636 10 10 16 Cloud revenue – IaaS2) 439 0 439 26 465 421 0 421 4 4 11 Cloud revenue 4,421 0 4,421 255 4,675 4,055 2 4,057 9 9 15 Intelligent Spend 78.8 79.4 79.4 79.2 79.3 –0.4pp 0.0pp 0.1pp Cloud gross margin – SaaS/PaaS1) (in %) Other 67.0 70.6 70.6 64.3 69.8 2.7pp 0.8pp 0.7pp Total 71.0 73.6 73.6 70.1 73.5 0.9pp 0.1pp 0.1pp Cloud gross margin – IaaS2) (in %) 33.9 35.0 34.4 32.7 33.5 1.2pp 1.5pp 0.9pp Cloud gross margin (in %) 67.3 69.8 69.7 66.2 69.4 1.1pp 0.4pp 0.3pp 1) Software as a Service/Platform as a Service 2) Infrastructure as a Service 3) Constant currency period-over-period changes are calculated by comparing the current year’s non-IFRS constant currency numbers with the non-IFRS numbers of the previous year’s respective period. Due to rounding, numbers may not add up precisely. 11 SAP Half-Year Report 2021 Segment Information At the end of the first half of 2021, SAP had five operating segments: the Applications, Technology & Support segment, the Qualtrics segment, the Services segment, the Emarsys segment, and the Business Process Intelligence segment. Due to their size, however, Emarsys and Business Process Intelligence are non- reportable segments. Applications, Technology & Support € millions, unless otherwise stated (non-IFRS) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) In the first half of 2021, the Applications, Technology & Support segment increased its cloud revenue by 6% (12% at constant currencies). However, the cloud gross margin slightly decreased by 0.2pp (0.3pp at constant currencies). Software support revenue remained flat at constant currencies, whereas software licenses revenue decreased by 7% (4% at constant currencies) to €1,132 million. Consequently, the Applications, Technology & Support segment achieved a total software licenses and support Qualtrics € millions, unless otherwise stated (non-IFRS) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) The Qualtrics segment, which comprises SAP’s experience management solutions, closed the first half of 2021 with strong growth in total segment revenue of 25% (37% at constant currencies). The positive development was mainly influenced by the strong cloud revenue growth of 33% (45% at constant currencies) to €333 million. The cloud gross margin increased by 1.4pp (1.5pp at constant currencies) to 92.3%. 12 For more information about our segment reporting and the changes in the composition of our segments in the first half of 2021, see the Notes to the Consolidated Half-Year Financial Statements, Notes (C.1) and (C.2). Q1–Q2 2021 Q1–Q2 2020 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 4,024 4,247 3,802 6 12 68.9 68.8 69.1 –0.2pp –0.3pp 10,933 11,429 10,993 –1 4 79.2 79.1 79.4 –0.1pp –0.2pp 4,357 4,566 4,287 2 7 39.9 40.0 39.0 0.9pp 1.0pp revenue of €6,755 million, declining 4% (flat at constant currencies). While total segment revenue slightly decreased by 1% (4% increase at constant currencies) to €10,933 million, total segment expenses declined by 2% to €6,576 million, leading to an increase in the segment margin of 0.9pp (1.0pp at constant currencies) to 39.9%. Overall, the revenue share of more predictable revenue streams in this segment increased 0.7pp from 87.6% in the first half of 2020 to 88.2% in the first half of 2021. Q1–Q2 2021 Q1–Q2 2020 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 333 364 250 33 45 92.3 92.4 90.9 1.4pp 1.5pp 413 450 329 25 37 79.9 80.2 77.0 2.9pp 3.2pp 26 24 –14 <–100 <–100 6.3 5.4 –4.3 10.5pp 9.7pp Overall, the segment profit was €26 million in the first half of 2021 strongly accelerating compared to the same period in 2020 (2020: –€14 million). This resulted in a strong segment margin increase of 10.5pp (9.7pp at constant currencies) to 6.3%. The revenue share of more predictable revenue streams in this segment increased 4.7pp from 76.0% in the first half of 2020 to 80.8% in the first half of 2021. SAP Half-Year Report 2021 Services € millions, unless otherwise stated (non-IFRS) Services revenue Services gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) The Services segment comprising major parts of SAP’s services business, recorded services revenue of €1,595 million, representing a decline of 9% (5% at constant currencies). The respective cost of services, however, decreased at a higher rate during the same period by 15% (11% at constant currencies), leading to a 3.9pp increase in SAP Half-Year Report 2021 Q1–Q2 2021 Q1–Q2 2020 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 1,595 1,669 1,760 –9 –5 36.8 37.1 32.9 3.9pp 4.1pp 1,596 1,669 1,762 –9 –5 33.5 33.8 29.9 3.7pp 3.9pp 351 373 298 18 25 22.0 22.3 16.9 5.1pp 5.4pp the services gross margin (4.1pp at constant currencies). This margin improvement was primarily attributable to the higher remote delivery share of the consulting services. Overall, the segment profit and the segment margin benefitted from this development as well. 13 Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2021 Q1–Q2 2020 Net cash flows from operating activities 3,771 3,772 Capital expenditure –344 –497 Payments of lease liabilities –176 –156 Free cash flow 3,251 3,119 Free cash flow (as a percentage of total revenue) 25 24 Free cash flow (as a percentage of profit after tax) 129 184 Group Liquidity Liquidity and Financial Position € millions 6/30/2021 12/31/2020 Financial debt 13,116 13,283 Cash and cash equivalents 7,764 5,311 Current time deposits and debt securities 784 1,470 Group liquidity 8,548 6,781 Net debt 4,568 6,503 Goodwill 29,049 27,560 Total assets 63,095 58,472 Total equity 34,122 29,928 Equity ratio (total equity as a percentage of total assets) 54 51 14 ∆ 0% –31% +13% +4% +1pp –55pp ∆ –167 +2,453 –686 +1,768 –1,935 +1,488 +4,623 +4,194 +3pp The stable operating cash flow was influenced by lower share- based payments (€171 million decrease year over year) and lower restructuring payments (€151 million decrease year over year), compensated by higher payments for income taxes (€763 million increase year over year). In March 2021, SAP drew two short-term bank loans of €950 million and €500 million with tenors of one year. The loans can be repaid flexibly over time and bear interest at the Euribor reference rate plus 0.08% and 0.05%, respectively. In the same month, we repaid €500 million in Eurobonds. In June 2021, we repaid the outstanding €1,250 million of a term loan drawn in 2019 for the acquisition of Qualtrics. As at June 30, 2021, we had issued €1,080 million under our Commercial Paper (CP) program with short-term maturities. SAP Half-Year Report 2021 Competitive Intangibles The resources that are the basis for our current as well as future success do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With a market capitalization of €146.0 billion at the end of the first half of 2021, the market capitalization of our equity (based on all outstanding shares) is more than four times higher than its carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization. SAP was recognized as the world’s 26th most valuable brand in the 2021 BrandZ Global Top 100 Most Valuable Global Brands ranking (2020: 17). The ranking estimates SAP’s brand value at US$69 billion (2020: US$58 billion). Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early and to take the appropriate action as well as to mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2020 and our Annual Report on Form 20-F for 2020. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see the Notes to the Consolidated Half-Year Financial Statements, Note (G.1). We have determined that we do not have any material changes to our assessment of the risk factors since the release of the Integrated Report 2020 and Annual Report on Form 20-F for 2020. We do not believe the risks we have identified jeopardize our ability to continue as a going concern. Expected Developments and Opportunities Future Trends in the Global Economy The potential course of the pandemic continues to shape the near-term outlook for the global economy, projects the European Central Bank (ECB) in its current Economic Bulletin.1) In advanced economies, the swift roll-out of vaccinations holds the promise that the pandemic can be contained, economies can gradually re-open, and then recover rather quickly. This contrasts with the pandemic situation in some of the large emerging market economies, where economic activity could weaken further. In the EMEA region, the ECB expects economic activity in the euro area to accelerate in the second half of this year as further containment measures are lifted. A pick-up in consumer spending, strong global demand, and accommodative fiscal and monetary policies will lend crucial support to the recovery. Corporate investment could rebound strongly as well for the remainder of the year. Real GDP in the euro area will exceed its pre-crisis level as of the first quarter of 2022, projects the ECB. In central and eastern Europe, economic activity might gradually regain momentum. In Russia, stronger demand for oil, together with a rebound in consumption and investment, will probably support activity over the projection horizon. SAP Half-Year Report 2021 As for the Americas region, the ECB projects the large fiscal stimulus in the United States to strengthen the US recovery further, with some positive global spillovers. In Brazil, stronger foreign demand and private consumption could drive economic activity. Regarding the APJ region, the ECB expects recovery in Japan to resume more firmly later in the year. Stronger domestic demand following an easing of containment measures, as well as continued fiscal support and rebounding external demand should support the gradual but steady recovery. In China, economic activity will likely continue to grow at a steady pace over the projection horizon. Private consumption might become the main driver of Chinese economic activity might become. With regard to growth rates, the International Monetary Fund (IMF) projects the following economic trends for the mid-term horizon until the end of 2022: Economic Trends – GDP Growth Year-Over-Year % 2020 2021e 2022p World –3.3 6.0 4.4 Advanced Economies –4.7 5.1 3.6 Emerging Market and Developing Economies –2.2 6.7 5.0 Regions Euro Area –6.6 4.4 3.8 Germany –4.9 3.6 3.4 Emerging and Developing Europe –2.0 4.4 3.9 Middle East and Central Asia –2.9 3.7 3.8 Sub-Saharan Africa –1.9 3.4 4.0 United States –3.5 6.4 3.5 Canada –5.4 5.0 4.7 Latin America and the Caribbean –7.0 4.6 3.1 Japan –4.8 3.3 2.5 Emerging and Developing Asia –1.0 8.6 6.0 China 2.3 8.4 5.6 e = estimate, p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2021, Managing Divergent Recoveries (https://www.imf.org/- /media/Files/Publications/WEO/2021/April/English/text.ashx), p. 8. 15 The IT Market: Outlook for 2021 and Beyond With their COVID-19 takeaways, organizations will further invest in their digital resiliency and accelerate their efforts to adapt their existing business models into more digital and integrated businesses, says IDC.2) However, we anticipate that organizations will invest in digital capabilities not only to adapt to a crisis, but also to capitalize on changed conditions. According to IDC, the future enterprise will work in an ecosystem of vendors, customers, and partners with these roles becoming fluid.3) Future digital transformation will therefore require an ecosystem of partners that are reliable and provide differentiation.4) Over 55% of enterprises could thus have introduced cloud-centric collaboration tools by the end of 2021, says IDC.5) Future software architectures might also drive automation by embedding AI capabilities.6) IDC predicts, for example, that by 2023, 65% of organizations will invest in highly configurable AI-infused enterprise resource-planning applications to achieve greater autonomy in business operations.7) However, as many enterprises incurred technical debt during the pandemic, they should also require remediation work to streamline and fortify their technology stack.7) Enterprises will modernize over half of their existing applications by 2022, expects IDC, and mostly use turnkey cloud-native services.5) Overall, IDC predicts that the enterprise application market might grow from $224 billion in 2019 to $265.7 billion in 2024.7) Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2021, Publication Date: June 24, 2021 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202104.en.pdf) 2) IDC Perspective: A Digital Resiliency Framework for the Future Enterprise, Doc #US47483421, February 2021 3) IDC Market Perspective: The Transformation of Enterprise Software: The 4Ps – Past, Present, and Future, Doc #EUR147592221, April 2021 4) IDC Market Perspective: Enterprise Application Vendors Need an Ecosystem of Partners, Doc US47498021, March 2021 5) IDC FutureScape: Worldwide Cloud 2021 Predictions, Doc US46420120, December 2020 6) IDC Market Perspective: The 4P Transformation of Enterprise Software: Spotlight on Enterprise Applications, Doc US47835021, June 2021 7) IDC Market Perspective: 2021: Enterprise Application Spending Heats Up, Doc US47086520, December 2020 SAP plays a pivotal role in our customers’ digital transformation. The ongoing macroeconomic uncertainties due to the pandemic are prompting many customers to reinvent how their businesses run and become more resilient and agile intelligent enterprises. RISE with SAP is the perfect offering for our customers to transform their businesses, rethink their processes, adapt to the more digital and thus agile environment, and to accelerate their transition to the cloud. In addition, the move to the cloud enables businesses to adopt new technologies and innovations more quickly which will ultimately help our customers become more successful and competitive as well as weather any future crisis. Our broad solution portfolio, including our modular cloud ERP suite, our leading SAP Business Technology Platform, our industry cloud, SAP Business Network, and our new sustainability portfolio, creates unparalleled value not only for our customers but for our 16 entire ecosystem. This way, SAP ensures it remains at the forefront of recent market developments, thereby expanding its 2025 total addressable market by US$150 billionto US$600 billion, and thus emerging even stronger from the crisis. Financial Targets and Prospects Revenue and Operating Profit Targets and Prospects (Non-IFRS) SAP is raising its full-year 2021 outlook, reflecting the strong business performance which is expected to accelerate cloud revenue growth. The Company continues to expect a software licenses revenue decline for the full year as more customers turn to the RISE with SAP subscription offering for their mission-critical core processes. This outlook also continues to assume the COVID-19 pandemic will begin to recede as vaccine programs roll out globally, leading to further improvements in global demand in the second half of 2021. SAP now expects: – €9.3 billion to €9.5 billion in cloud revenue at constant currencies (2020: €8.09 billion), up 15% to 18% at constant currencies. The previous range was €9.2 billion to– €9.5 billion at constant currencies. – €23.6 billion to €24.0 billion in cloud and software revenue at constant currencies (2020: €23.23 billion), up 2% to 3% at constant currencies. The previous range was €23.4 billion to €23.8 billion at constant currencies. – €7.95 billion to €8.25 billion in operating profit at constant currencies (2020: €8.28 billion), flat to down 4% at constant currencies. The previous range was €7.8 billion to €8.2 billion at constant currencies. SAP continues to expect the share of more predictable revenue (defined as the total of cloud revenue and software support revenue) to reach approximately 75% (2020: 72%). SAP expects SAP S/4HANA cloud revenue growth to significantly accelerate in the second half of 2021. SAP’s services revenue was down double digits in the first half year 2021 but is expected to improve over the remainder of the year. While SAP’s full year 2021 business outlook is at constant currencies, actual-currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. For the third quarter and full year 2021 expected currency impacts, see the table below. Expected Currency Impact Based on June 2021 Level for the Rest of the Year In percentage points Q3 FY Cloud –3pp to –1pp –5pp to –3pp Cloud and software –2pp to 0pp –4pp to –2pp Operating profit –3pp to –1pp –4pp to –2pp We continuously strive for profit expansion in all of our operating segments. The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. SAP Half-Year Report 2021 Non-IFRS Measures € millions Estimated Amounts for Full Year 2021 Q1–Q2 2021 Q1–Q2 2020 Revenue adjustments NA 0 2 Acquisition-related charges 540–640 296 325 Share-based payment expenses 2,300–2,800 1,256 612 Restructuring 150–200 164 13 SAP now expects a full-year 2021 effective tax rate (IFRS) of 21.5% to 23.0% (previous outlook: 26.0% to 27.0%) and an effective tax rate (non-IFRS) of 20.0% to 21.5% (previous outlook: 22.5% to 23.5%). The decrease in comparison to the previous outlook mainly results from changes in tax exempt income. Medium-Term Prospects Our medium-term prospects remain unchanged: we continue to expect our cloud revenue to exceed €22 billion by 2025. This growth is expected to be driven particularly by our SaaS/PaaS cloud business whereas the share of our IaaS business is expected to decline by 2025. For a detailed description, see our Integrated Report 2020. Goals for Liquidity, Finance, and Investments On June 30, 2021, we had a net debt of €4.6 billion. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2021 as well, and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near and medium term. In 2021 and compared to 2020, we expect lower cash outflows for restructuring and share-based compensation (reduction by approximately €200 million, each), while tax payments are expected to increase by approximately €800 million to €1.0 billion. Taking these effects and moderately lower profit as well as adverse foreign exchange impacts into consideration, we did not change our operating cashflow and free cash flow expectations compared to what we disclosed in our Integrated Report 2020. In addition to the full repayment of the €1.25 billion Qualtrics- related acquisition term loan in the second quarter of 2021, we intend to partially or fully repay bilateral term loans with a total volume of €1.45 billion in the second half of 2021. As at June 30, 2021, scheduled debt repayments of around €4.5 billion until the end of 2023 are pending. The ratio of net debt as at December 31, 2021, of around €3.3 billion divided by the total of operating profit (IFRS) plus depreciation and amortization is expected at around 0.5. Our planned investment expenditures for 2021 and 2022, other than from business combinations, consist primarily of the purchase of IT infrastructure (data centers, etc.) and the construction of new buildings. Primarly driven by lower investment expenditures for IT infrastructure, we now expect to remain slightly below the planned investment expenditures of approximately €950 million for 2021, as disclosed in our Integrated Report 2020. In 2022, capital expenditures are expected to stay at a similar level as in 2021. SAP Half-Year Report 2021 Non-Financial Goals 2021 and Ambitions for 2025 In addition to our financial goals, we also focus on three non- financial targets: customer loyalty, employee engagement, and carbon emissions. As a result of the ongoing COVID-19 pandemic, as well as the introduction of a more flexible working model at SAP, the level of remote work will be higher than previously anticipated. As a consequence, SAP is lowering its 2021 carbon emissions outlook. It now expects carbon emissions in a range of 90 kt to 110 kt, assuming the high level of remote work continues. Previously, SAP expected 145 kt (2020: 135 kt). The outlook for customer loyalty and employee engagement remains unchanged compared to what we disclosed in our Integrated Report 2020. For a detailed description of our non-financial goals for 2021 and ambitions for 2025, see our Integrated Report 2020. Premises on Which Our Outlook and Prospects Are Based In preparing our outlook and prospects, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. Despite the ongoing COVID-19 pandemic, the opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2020. 17 Consolidated Half-Year Financial Statements – IFRS Primary Half-Year Financial Statements 19–23 Notes to the Half-Year Financial Statements 24 (IN.1) Basis for Preparation............................................................................................................................................................................ 24 (IN.2) Impact of COVID-19 Pandemic ........................................................................................................................................................... 24 Section A – Customers 25 (A.1) Revenue .................................................................................................................................................................................................. 25 (A.2) Trade and Other Receivables ............................................................................................................................................................... 25 Section B – Employees 26 (B.1) Employee Headcount ............................................................................................................................................................................ 26 (B.2) Employee Benefits Expenses ............................................................................................................................................................... 26 (B.3) Share-Based Payments ........................................................................................................................................................................ 26 (B.4) Restructuring..........................................................................................................................................................................................27 Section C – Financial Results 28 (C.1) Results of Segments.............................................................................................................................................................................. 28 (C.2) Reconciliation of Segment Measures to Income Statement .............................................................................................................. 31 (C.3) Financial Income, Net ........................................................................................................................................................................... 32 (C.4) Income Taxes ........................................................................................................................................................................................ 32 Section D – Invested Capital 33 (D.1) Business Combinations and Divestitures ............................................................................................................................................ 33 (D.2) Goodwill ................................................................................................................................................................................................. 34 (D.3) Property, Plant, and Equipment ........................................................................................................................................................... 34 Section E – Capital Structure, Financing, and Liquidity 35 (E.1) Total Equity ............................................................................................................................................................................................. 35 (E.2) Liquidity .................................................................................................................................................................................................. 36 Section F – Management of Financial Risk Factors 37 (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments ....................................37 Section G – Other Disclosures 38 (G.1) Litigation, Claims, and Legal Contingencies ........................................................................................................................................ 38 (G.2) Related Party Transactions .................................................................................................................................................................. 38 (G.3) Events After the Reporting Period ....................................................................................................................................................... 39 (G.4) Scope of Consolidation ......................................................................................................................................................................... 39 18 SAP Half-Year Report 2021 Consolidated Income Statement of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Q1–Q2 2021 Cloud 4,421 Software licenses 1,133 Software support 5,624 Software licenses and support 6,757 Cloud and software 11,178 Services 1,839 Total revenue (A.1), (C.2) 13,017 Cost of cloud –1,444 Cost of software licenses and support –939 Cost of cloud and software –2,383 Cost of services –1,447 Total cost of revenue –3,830 Gross profit 9,187 Research and development –2,478 Sales and marketing –3,491 General and administration –1,098 Restructuring (B.4) –164 Other operating income/expense, net –12 Total operating expenses –11,073 Operating profit (loss) 1,944 Other non-operating income/expense, net 29 Finance income 1,549 Finance costs –381 Financial income, net (C.3) 1,168 Profit (loss) before tax (C.2) 3,141 Income tax expense –622 Profit (loss) after tax 2,519 Attributable to owners of parent 2,396 Attributable to non-controlling interests 123 Earnings per share, basic (in €)1) 2.03 Earnings per share, diluted (in €)1) 2.03 1) For the six months ended June 30, 2021 and 2020, the weighted average number of shares was 1,180 million (diluted: 1,180 million) and 1,185 million (diluted: 1,185 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2021 Q1–Q2 2020 4,055 1,224 5,826 7,051 11,106 2,159 13,264 –1,370 –998 –2,368 –1,725 –4,094 9,171 –2,210 –3,684 –729 –13 –41 –10,770 2,494 –103 406 –354 53 2,444 –747 1,697 1,681 16 1.42 1.42 ∆ in % 9 –7 –3 –4 1 –15 –2 5 –6 1 –16 –6 0 12 –5 51 >100 –71 3 –22 <-100 >100 8 >100 29 –17 48 43 >100 43 43 19 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year € millions Q1–Q2 2021 Q1–Q2 2020 Profit after tax 2,519 1,697 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 17 4 Income taxes relating to remeasurements on defined benefit pension plans –3 –1 Remeasurements on defined benefit pension plans, net of tax 13 4 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 13 4 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax 1,043 –28 Reclassification adjustments on exchange differences on translation, before tax 17 0 Exchange differences, before tax 1,061 –28 Income taxes relating to exchange differences on translation –8 –1 Exchange differences, net of tax 1,053 –30 Gains (losses) on cash flow hedges/cost of hedging, before tax 2 10 Reclassification adjustments on cash flow hedges/cost of hedging, before tax –6 3 Cash flow hedges/cost of hedging, before tax –4 13 Income taxes relating to cash flow hedges/cost of hedging 1 –3 Cash flow hedges/cost of hedging, net of tax –4 9 Other comprehensive income for items that will be reclassified to profit or loss, net of tax 1,049 –20 Other comprehensive income, net of tax 1,063 –17 Total comprehensive income 3,581 1,680 Attributable to owners of parent 3,496 1,664 Attributable to non-controlling interests 85 16 Due to rounding, numbers may not add up precisely. 20 SAP Half-Year Report 2021 Consolidated Statement of Financial Position of SAP Group (IFRS) as at 6/30/2021 and 12/31/2020 € millions Cash and cash equivalents Other financial assets Trade and other receivables Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Contract liabilities Total current liabilities Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Deferred tax liabilities Contract liabilities Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity Total equity and liabilities Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2021 (A.2) (D.2) (D.3) (A.2) (E.2) (B.4) (E.2) (E.1) 2021 7,764 879 5,617 1,571 670 16,502 29,049 3,928 4,827 4,945 107 2,117 292 1,327 46,593 63,095 2021 1,076 315 4,262 3,448 86 6,175 15,362 115 766 11,372 675 388 257 38 13,611 28,973 1,229 1,287 33,111 76 –3,072 32,630 1,492 34,122 63,095 2020 5,311 1,635 6,593 1,321 210 15,069 27,560 3,784 5,041 3,512 137 1,926 271 1,173 43,402 58,472 2020 1,213 414 2,348 4,643 73 4,150 12,842 98 667 13,605 770 368 158 36 15,702 28,544 1,229 545 32,026 –1,011 –3,072 29,717 211 29,928 58,472 21 Consolidated Statements of Changes in Equity of SAP Group (IFRS) € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Components of Equity Treasury Shares Total 12/31/2019 1,229 545 28,783 1,770 –1,580 30,746 Profit after tax 1,681 1,681 Other comprehensive income 4 –20 –17 Comprehensive income 1,684 –20 1,664 Share-based payments 3 3 Dividends –1,864 –1,864 Purchase of treasury shares –1,492 –1,492 Hyperinflation –5 –5 Changes in non-controlling interests –69 –69 Other changes –1 –1 6/30/2020 1,229 548 28,529 1,749 –3,072 28,982 12/31/2020 1,229 545 32,026 –1,011 –3,072 29,717 Profit after tax 2,396 2,396 Other comprehensive income 13 1,087 1,100 Comprehensive income 2,409 1,087 3,496 Share-based payments 741 741 Dividends –2,182 –2,182 Transactions with non-controlling interests 888 888 Other changes –30 –30 6/30/2021 1,229 1,287 33,111 76 –3,072 32,630 Due to rounding, numbers may not add up precisely. 22 Non- Controlling Interests Total Equity 76 30,822 16 1,697 –17 16 1,680 3 –2 –1,866 –1,492 –5 –69 –1 –2 89 29,072 211 29,928 123 2,519 –38 1,063 85 3,581 143 884 –16 –2,198 1,059 1,947 9 –20 1,492 34,122 SAP Half-Year Report 2021 Consolidated Statement of Cash Flows of SAP Group (IFRS) € millions Profit (loss) after tax Adjustments to reconcile profit (loss) after tax to net cash flows from operating activities: Depreciation and amortization Share-based payment expense Income tax expense Financial income, net Decrease/increase in allowances on trade receivables Other adjustments for non-cash items Decrease/increase in trade and other receivables Decrease/increase in other assets Increase/decrease in trade payables, provisions, and other liabilities Increase/decrease in contract liabilities Share-based payments Interest paid Interest received Income taxes paid, net of refunds Net cash flows from operating activities Business combinations, net of cash and cash equivalents acquired Purchase of intangible assets or property, plant, and equipment Proceeds from sales of intangible assets or property, plant, and equipment Purchase of equity or debt instruments of other entities Proceeds from sales of equity or debt instruments of other entities Net cash flows from investing activities Dividends paid Dividends paid on non-controlling interests Purchase of treasury shares Proceeds from changes in ownership interests in subsidiaries that do not result in the loss of control Proceeds from borrowings Repayments of borrowings Payments of lease liabilities Net cash flows from financing activities Effect of foreign currency rates on cash and cash equivalents Net decrease/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2021 Q1–Q2 2021 2,519 871 1,256 622 –1,168 –11 110 1,074 –229 –1,024 1,888 –779 –125 21 –1,254 3,771 –995 –344 40 –754 1,325 –728 –2,182 –16 0 1,847 1,600 –1,802 –176 –729 139 2,453 5,311 7,764 Q1–Q2 2020 1,697 925 612 747 –53 47 –3 1,132 –404 –977 1,578 –949 –176 87 –491 3,772 –47 –497 39 –1,390 248 –1,647 –1,864 –2 –442 0 2,015 –832 –156 –1,281 46 890 5,314 6,205 23 Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation December 31, 2020, included in our Integrated Report 2020 and our Annual Report on Form 20-F for 2020. General Information About Consolidated Half- Year Financial Statements The registered seat of SAP SE is in Walldorf, Germany Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. (Commercial Register of the Lower Court of Mannheim HRB 719915). The accompanying condensed Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. In this context, IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Amounts disclosed in our Consolidated Half-Year Financial Statements that are taken directly from our Statements or our are marked by the symbols Consolidated Income Consolidated Statements of Financial Position , respectively. and Accounting Policies, Management Judgments, and Sources of Estimation Uncertainty How We Present Our Accounting Policies, Judgments, and Estimates To ease the understanding of our financial statements, we present the accounting policies, judgments, and estimates on a given subject together with other disclosures related to the same subject in the Note that deals with this subject and highlighted this disclosure with a light gray box and the symbol however, only material changes of our accounting policies, judgments, and estimates in relation to our Consolidated Financial Statements for 2020. . We describe, Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. The following table provides an overview of where our accounting policies, management judgments, and estimates are disclosed: Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial Note Accounting Policies, Judgments, and Estimates (IN.2) Impact of COVID-19 Pandemic Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended (C.1) Results of Segments (IN.2) Impact of COVID-19 Pandemic Management Judgments and Estimates Due to the COVID-19 Pandemic Management judgments and estimates can affect the amounts and reporting of assets and liabilities as at the reporting date, and the amounts of income and expense reported for the period. Due to the currently unforeseeable global consequences of the COVID-19 pandemic, these management judgments and estimates are subject to increased uncertainty. Actual amounts may differ from the management judgments and estimates; changes can have a material impact on the Interim Consolidated Financial Statements. All available information on the expected economic developments and country-specific governmental mitigation measures was included when updating the management judgments and estimates. This information was also included in the analysis of the recoverability and collectability of assets and receivables. As the pandemic continues to evolve, it is difficult to predict its duration and the magnitude of its impact on assets, liabilities, results of operations, and cash flows. We based financial-statement- related estimates and assumptions on existing knowledge and best information available, and applied a scenario that assumes the COVID-19 pandemic will begin to recede as vaccine programs roll out globally, leading to further improvements in global demand in the second half of 2021. For more information about the impact of the COVID-19 pandemic on our business, see the Financial Performance: Review and Analysis section in this consolidated half-year management report. For more information about the impact on goodwill, see Note (D.2). Further possible future effects on the measurement of individual assets and liabilities are continuously being analyzed. 24 SAP Half-Year Report 2021 Section A – Customers This section discusses disclosures related to contracts with our customers. These consist of revenue breakdowns and information about our trade receivables. For more information, see our Consolidated Financial Statements for 2020, Section A – Customers. Total Revenue by Region € millions Germany Q1–Q2 2021 1,957 Q1–Q2 2020 1,846 Rest of EMEA 3,898 3,862 (A.1) Revenue EMEA 5,855 5,708 United States 4,166 4,577 Geographic Information The amounts for revenue by region in the following tables are Rest of Americas 974 983 based on the location of customers. Americas 5,140 5,560 Cloud Revenue by Region Japan 628 641 Rest of APJ 1,394 1,356 € millions Q1–Q2 2021 Q1–Q2 2020 APJ 2,022 1,997 EMEA 1,547 1,277 SAP Group 13,017 13,264 Americas 2,291 2,275 APJ 582 502 For information about the breakdown of revenue by segment and SAP Group 4,421 4,055 segment revenue by region, see Note (C.1). For more information about our revenue accounting policies, see our Consolidated Financial Statements for 2020, Note (A.1). Cloud and Software Revenue by Region (A.2) Trade and Other Receivables € millions Q1–Q2 2021 Q1–Q2 2020 EMEA 5,050 4,840 € millions 6/30/2021 Americas APJ 4,336 1,792 4,545 1,720 Current Non- Current Total SAP Group 11,178 11,106 Trade receivables, net 5,289 12 5,301 Other receivables 328 95 423 Total 5,617 107 5,724 € millions 12/31/2020 Current Non- Current Total Trade receivables, net 6,199 33 6,232 Other receivables 395 103 498 Total 6,593 137 6,730 SAP Half-Year Report 2021 25 Section B – Employees This section provides financial insights into our employee benefit (B.1) Employee Headcount arrangements. It should be read in conjunction with the compensation disclosures for key management personnel in Note (G.5) in our Consolidated Financial Statements for 2020, as well as SAP’s Compensation Report. For more information, see our Consolidated Financial Statements for 2020, Section B – Employees. On June 30, 2021, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 103,876 employees was mainly due to organic growth of full-time equivalents, especially in research and development. Number of Employees (in Full-Time Equivalents) Full-time equivalents 6/30/2021 6/30/2020 EMEA Americas APJ Total EMEA Americas APJ Total Cloud and software 5,859 4,456 5,029 15,345 6,354 4,638 5,461 16,454 Services 8,264 5,627 6,102 19,993 8,278 6,067 5,992 20,337 Research and development 14,489 6,162 10,021 30,672 12,941 5,942 9,330 28,214 Sales and marketing 10,607 10,765 4,991 26,363 10,266 10,493 5,104 25,863 General and administration 3,452 2,184 1,187 6,823 3,208 2,215 1,233 6,656 Infrastructure 2,588 1,299 792 4,679 2,138 1,049 670 3,857 SAP Group (6/30) 45,261 30,493 28,123 103,876 43,184 30,404 27,791 101,379 Thereof acquisitions1) 377 43 26 446 0 0 0 0 SAP Group (six months' end average) 44,741 30,332 28,021 103,094 43,190 30,248 27,718 101,156 1) Acquisitions closed between January 1 and June 30 of the respective year (B.2) Employee Benefits Expenses (B.3) Share-Based Payments € millions Q1–Q2 2021 Q1–Q2 2020 The allocations of expenses for share-based payments to the various expense items are as follows: Salaries 5,150 5,225 Share-Based Payments Social security expenses 805 782 € millions Q1–Q2 2021 Q1–Q2 2020 Share-based payment expenses 1,256 612 Cost of cloud 28 22 Pension expenses 231 220 Cost of software 34 31 Employee-related restructuring expenses 27 12 Cost of services 129 94 Termination benefits 38 46 Research and development 248 159 Employee benefits expenses 7,505 6,897 Sales and marketing 301 197 General and administration 516 110 Share-based payments 1,256 612 For more information about our share-based payments and a detailed description of our share-based payment plans, see the Notes to the Consolidated Financial Statements for 2020, Note (B.3). 26 SAP Half-Year Report 2021 Restricted Stock Unit Plan Including Move SAP Plan and Grow SAP Plan (RSU Plan) In the first half of 2021, we granted 11.2 million (first half of 2020: 8.3 million) share units. This includes 0.9 million share units which we granted in June 2021 (0.8 million in June 2020) under the Grow SAP Plan. This fixed-term plan has broadly the same terms and conditions as the Move SAP Plan, recognizes all employees’ commitment to SAP’s success, and deepens their participation in our future company performance. Furthermore, 0.4 million share units are included in there which we granted in March 2021 under the COVID-19 Recognition Plan to thank all employees for their commitment, dedication, and resilience. Except for a six-month vesting, this one-time plan has broadly the same terms and conditions as the Move SAP Plan. Own SAP Plan (Own) The number of shares purchased by our employees under this plan was 2.9 million in the first half of 2021 (first half of 2020: 2.7 million). The plan enables employees to purchase shares at preferred conditions and build value by becoming an SAP shareholder. Qualtrics In the first half of 2021, 67.1 million equity-settled Qualtrics RSU (Retention Share Units) awards were granted to encourage and enable Qualtrics executives and employees to acquire an ownership interest in Qualtrics. Upon completion of a voluntary exchange offer for eligible Qualtrics employees in conjunction with the IPO on January 28, 2021, 5.4 million of Qualtrics rights and 1.3 million SAP RSU awards were exchanged into 12.8 million Qualtrics RSU awards. The terms and conditions of the voluntary exchange offer, including the exchange ratio, were designed to preserve the intrinsic value of the Qualtrics rights and SAP RSUs that were tendered. The modification date fair value of the Qualtrics RSU awards was US$30.00. SAP Half-Year Report 2021 (B.4) Restructuring € millions Q1–Q2 2021 Employee-related restructuring expenses –27 Onerous contract-related restructuring expenses and restructuring-related impairment losses –137 Restructuring expenses –164 To accelerate the modernization of our cloud infrastructure and to harmonize our platform structure, SAP launched a restructuring program in the Global Cloud Services area. The execution started in Q1 2021 and will continue until the end of 2022. Most of the restructuring expenses presented in the first half of 2021 were impairments of data centers and related assets. If not presented separately, these restructuring expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2021 Cost of cloud –130 Cost of software licenses and support –4 Cost of services –15 Research and development –11 Sales and marketing –3 General and administration –1 Restructuring expenses –164 Q1–Q2 2020 –12 0 –13 Q1–Q2 2020 0 –2 –5 –5 0 0 –13 27 Section C – Financial Results This section provides insight into the financial results of SAP's The following changes to the composition of our operating reportable segments and of SAP overall, as far as not already covered by previous sections. This includes segment results and income taxes. For more information, see our Consolidated Financial Statements for 2020, Section C – Financial Results. (C.1) Results of Segments segments occurred in the first half of 2021: – To further strengthen our cloud offerings and to support the new cloud strategy, the former Concur segment comprising SAP’s travel management solutions was dissolved and mainly integrated into the Applications, Technology & Support segment and the Services segment. General Information – The finance and legal functions of Qualtrics were reintegrated into the Qualtrics segment. SAP has five operating segments that are regularly reviewed by – The acquisition of Signavio led to a new operating segment our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our services activities, experience management solutions, business process transformation offerings, or our customer experience portfolio of Emarsys, or cover other areas of our business. For more information about our segments, see the Notes to the Consolidated Financial Statements for 2020, Note (C.1). called Business Process Intelligence. Due to its size, however, Business Process Intelligence is not a reportable segment. The segment information for prior periods has been restated to conform with these changes to our reportable segments. Segment Reporting Policies In the first half of 2021, we applied the following change to our segment accounting policies: As the result of the change to our non-IFRS definition, we no longer adjust our IFRS revenue measures. For more information about this changed definition, see the Performance Management System section in this consolidated half-year management report. For a detailed overview of our segment accounting policies, judgments, and sources for management reporting, see the Notes to the Consolidated Financial Statements for 2020, Note (C.1). 28 SAP Half-Year Report 2021 Applications, Technology & Support € millions, unless otherwise stated (non-IFRS) Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) Qualtrics € millions, unless otherwise stated (non-IFRS) Cloud Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) SAP Half-Year Report 2021 Actual Currency 4,024 1,132 5,623 6,755 10,779 154 10,933 –1,249 –819 –2,069 –203 –2,272 8,661 –4,304 4,357 Actual Currency 333 333 79 413 –26 0 –26 –57 –83 330 –304 26 Q1–Q2 2021 Constant Currency 4,247 1,171 5,852 7,023 11,270 160 11,429 –1,324 –850 –2,174 –211 –2,385 9,044 –4,478 4,566 Q1–Q2 2021 Constant Currency 364 364 87 450 –28 0 –28 –61 –89 361 –337 24 Q1–Q2 2020 Actual Currency 3,802 1,220 5,824 7,044 10,846 147 10,993 –1,173 –887 –2,060 –208 –2,268 8,725 –4,437 4,287 Q1–Q2 2020 Actual Currency 250 250 79 329 –23 0 –23 –53 –76 253 –267 –14 29 Services € millions, unless otherwise stated (non-IFRS) Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 30 Actual Currency 0 1,595 1,596 –42 –10 –53 –1,008 –1,060 535 –184 351 Q1–Q2 2021 Q1–Q2 2020 Constant Currency Actual Currency 0 2 1,669 1,760 1,669 1,762 –44 –39 –11 –16 –55 –56 –1,051 –1,180 –1,106 –1,236 564 526 –191 –228 373 298 SAP Half-Year Report 2021 Segment Revenue by Region € millions EMEA Americas APJ Q1–Q2 2021 Q1–Q2 2020 Q1–Q2 2021 Q1–Q2 2020 Q1–Q2 2021 Q1–Q2 2020 Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Applications, Technology & Support 5,029 5,091 4,857 4,128 4,489 4,408 1,776 1,850 1,728 Services 713 720 748 689 748 810 193 201 204 Qualtrics 65 70 47 313 342 256 35 38 26 Total reportable segments 5,807 5,881 5,652 5,130 5,579 5,474 2,003 2,089 1,958 For a breakdown of revenue by region for the SAP Group, see Note (A.1). (C.2) Reconciliation of Segment Measures to Income Statement € millions Actual Currency Applications, Technology & Support 10,933 Services 1,596 Qualtrics 413 Total segment revenue for reportable segments 12,941 Other revenue 76 Adjustment for currency impact 0 Adjustment of revenue under fair value accounting 0 Total revenue 13,017 Applications, Technology & Support 4,357 Services 351 Qualtrics 26 Total segment profit for reportable segments 4,734 Other revenue 76 Other expenses –1,150 Adjustment for currency impact 0 Adjustment for Revenue under fair value accounting 0 Acquisition-related charges –296 Share-based payment expenses –1,256 Restructuring –164 Operating profit 1,944 Other non-operating income/expense, net 29 Financial income, net 1,168 Profit before tax 3,141 SAP Half-Year Report 2021 Total Segment Revenue Q1–Q2 2021 Q1–Q2 2020 Actual Currency Constant Currency Actual Currency 10,933 11,429 10,993 1,596 1,669 1,762 413 450 329 12,941 13,549 13,084 Q1–Q2 2021 Q1–Q2 2020 Constant Currency Actual Currency 11,429 10,993 1,669 1,762 450 329 13,549 13,084 78 182 –610 0 0 –2 13,017 13,264 4,566 4,287 373 298 24 –14 4,963 4,571 78 182 –1,187 –1,308 6 0 0 –2 –296 –325 –1,256 –612 –164 –13 1,944 2,494 29 –103 1,168 53 3,141 2,444 31 (C.3) Financial Income, Net Finance income mainly consists of gains from disposal and fair value adjustments of equity securities totaling €1,515 million in the first half of 2021 (first half of 2020: €333 million) of Sapphire Ventures investments. Losses from disposal and fair value adjustments of equity securities totaling €228 million in the first half 2021 (first half of 2020: €159 million) make up the largest part of finance cost and are mainly due to Sapphire Ventures investments. For more information about our financial income, net, see the Notes to the Consolidated Financial Statements for 2020, Note (C.4). 32 (C.4) Income Taxes There have been no significant changes in contingent liabilities from income tax-related litigation for which no provision has been recognized compared to our Consolidated Financial Statements for 2020. For more information, see the Notes to the Consolidated Financial Statements for 2020 Note (C.5). SAP Half-Year Report 2021 Section D – Invested Capital This section highlights the non-current assets including investments that form the basis of our operating activities. Additions in invested capital include separate asset acquisitions or business combinations. For more information, see our Consolidated Financial Statements for 2020, Section D – Invested Capital. (D.1) Business Combinations and Divestitures by combining Signavio products and SAP products but is also expected to result in increased SAP S/4HANA sales. – Improved profitability in Signavio sales and operations The allocation of the goodwill resulting from the Signavio acquisition to our operating segments depends on how our operating segments actually benefit from the synergies of the Signavio business combination. For more information, see Note (D.2). Signavio Acquisition In January 2021, SAP announced it had entered into an Impact of the Business Combination on Our Financial Statements agreement to acquire Signavio GmbH (Berlin, Germany) (“Signavio”), a leader in the enterprise business process intelligence and process management space that enables companies to understand, improve, transform and manage all their business processes quickly and at scale. The amounts of revenue and profit or loss of the Signavio business acquired in 2021 since the acquisition date were included in our Consolidated Income Statement for the first half of 2021 as follows: The purchase price was €949 million. The transaction closed on Signavio Acquisition: Impact on SAP’s Financials March 5, 2021, following satisfaction of regulatory and other approvals; the operating results and assets and liabilities are reflected in our consolidated financial statements starting on that date. € millions Revenue Q1–Q2 2021 as Reported 13,017 Contribution of Signavio 16 Signavio Acquisition: Recognized Assets and Liabilities Profit after tax 2,519 –10 € millions Intangible assets 298 Had Signavio been consolidated as at January 1, 2021, our revenue and profit after tax for the first half of 2021 would not have been materially different. Other identifiable assets 36 2021 Divestitures Total identifiable assets 334 On April 13, 2021, SAP and investment company Dediq GmbH Other identifiable liabilities Total identifiable liabilities Total identifiable net assets Goodwill 120 120 214 735 (“Dediq”) announced that they had agreed to enter into a partnership in the area of financial services. SAP and Dediq will run a dedicated Financial Services Industry (FSI) unit, which will be jointly owned by the two companies and will be called “SAP Fioneer” after the transaction has closed. Total consideration transferred The initial accounting for the Signavio business combination is 949 SAP will contribute certain FSI-centric software solutions to the new unit (with SAP employees also transferring over on a voluntary basis) in exchange for a minority share in the new entity. incomplete because we are still obtaining the information necessary to identify and measure items such as tax-related assets and liabilities, as well as intangible assets of Signavio. Accordingly, the amounts recognized in our financial statements for these items are regarded provisional as at June 30, 2021. The transaction is expected to close in September 2021, following satisfaction of all closing conditions including regulatory approvals. Upon closing of the transaction, SAP and SAP Fioneer will execute transition service and go-to-market agreements, among others. In general, the goodwill arising from our acquisitions consists largely of the synergies and the know-how and skills of the acquired businesses’ workforces. Signavio goodwill was attributed to expected synergies from the acquisition, particularly in the following areas: – Cross-selling opportunities to existing SAP customers across all regions, using SAP’s sales organization – The acquisition of Signavio complements SAP's business process intelligence offerings and will help create new offerings SAP Half-Year Report 2021 33 (D.2) Goodwill For goodwill, we have – through a qualitative and quantitative analysis – been continuously monitoring the existence of triggering events that would require an impairment test in the first half of 2021. Considering the evolution of the COVID-19 pandemic, the review of internal and external factors led us to conclude that no triggering events occurred since our annual goodwill impairment test in 2020. No impairment tests were performed in the first half of 2021. The allocation of the goodwill resulting from the Signavio acquisition to our operating segments depends on how our operating segments actually benefit from the synergies of the Signavio business combination. We have not yet completed the identification of those benefits. 34 (D.3) Property, Plant, and Equipment Property, Plant, and Equipment (Summary) € millions 6/30/2021 12/31/2020 Property, plant, and equipment excluding leases 2,996 3,184 Right-of-use assets 1,831 1,857 Total 4,827 5,041 Additions 1/1/2021 to 6/30/2021 1/1/2020 to 12/31/2020 Property, plant, and equipment excluding leases 268 577 Right-of-use assets 158 429 Total 426 1,006 SAP Half-Year Report 2021 Section E – Capital Structure, Financing and Liquidity This section provides information related to how SAP manages its capital structure. Our capital management is based on a high equity ratio, modest financial leverage, a well-balanced maturity profile, and deep debt capacity. For more information, see our Consolidated Financial Statements for 2020, Section E – Capital Structure, Financing, and Liquidity. (E.1) Total Equity Number of Shares millions Issued Capital 12/31/2019 1,228.5 Purchase 0 6/30/2020 1,228.5 12/31/2020 1,228.5 6/30/2021 1,228.5 Other Components of Equity € millions Exchange Differences Cash Flow Hedges 12/31/2019 1,776 –6 Other comprehensive income –30 9 6/30/2020 1,746 4 12/31/2020 –1,015 4 Other comprehensive income 1,091 –4 6/30/2021 76 0 SAP Half-Year Report 2021 Treasury Shares –34.9 –14.1 –48.9 –48.9 –48.9 Total 1,770 –20 1,749 –1,011 1,087 76 35 (E.2) Liquidity € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities 36 Nominal Volume Current Non- Current 900 8,952 0 730 1,080 0 1,453 0 3,433 9,682 NA NA NA NA Nominal Volume Current Non- Current 500 9,844 0 707 930 0 52 1,250 1,482 11,801 NA NA NA NA 6/30/2021 Carrying Amount Current Non- Current Total 899 8,880 9,779 0 759 759 1,081 0 1,081 1,453 0 1,453 3,434 9,640 13,073 401 1,718 2,119 427 14 441 4,262 11,372 15,633 81 85 84 12/31/2020 Carrying Amount Current Non- Current Total 500 9,868 10,369 0 742 742 931 0 931 52 1,250 1,302 1,484 11,860 13,344 380 1,740 2,120 484 5 489 2,348 13,605 15,953 63 87 84 SAP Half-Year Report 2021 Section F – Risk Management and Fair Value Disclosures This section discusses financial risk factors and risk management. In our half-year report, this includes the transfers between levels of the fair value hierarchy. For more information, particularly about our risk management related to foreign currency exchange rate risk, interest rate risk, equity price risk, credit risk, liquidity risk, and other financial risk factors, see our Consolidated Financial Statements for 2020, Section F – Risk Management and Fair Value Disclosures. (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (F.1) and (F.2) in the Consolidated Financial Statements for 2020. We do not disclose the fair value of our financial instruments as at June 30, 2021, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2020. Transfers Between Levels of the Fair Value Hierarchy Transfers of equity investments from Level 2 to Level 1, which occurred because disposal restrictions lapsed and deducting a discount for such restriction was no longer necessary, were €441 million in the first half year of 2021 (December 31, 2020: €91 million). Transfers of equity investments from Level 3 to Level 2, which occurred due to initial public offerings of the respective investee, were €333 million in the first half year of 2021 (December 31, 2020: €201 million). SAP Half-Year Report 2021 37 Section G – Other Disclosures This section provides additional disclosures on miscellaneous topics, including information pertaining to other litigation, claims, and legal contingencies, and related party transactions. For more information, see our Consolidated Financial Statements for 2020, Section G – Other Disclosures. Consolidated Half-Year Financial Statements. It is currently also not practicable to estimate the financial effect of any contingent liabilities that may result from these potential violations. For more information, see the Notes to the Consolidated Financial Statements for 2020, Note (G.3). (G.1) Litigation, Claims, and Legal Contingencies We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as at June 30, 2021, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as at June 30, 2021, are neither individually nor in the aggregate material to SAP. Among the claims and lawsuits are the following classes (for more information about these classes, see the Notes to the Consolidated Financial Statements for 2020, Note (G.3)). SAP voluntarily self-disclosed potential export controls and economic sanctions violations to the U.S. Department of Justice (U.S. DOJ) and the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) in September 2017. At the same time, SAP provided notification to the U.S. Securities and Exchange Commission (SEC) and responded to an SEC comment letter on export restriction matters in October 2017. SAP also provided disclosure to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) based on the same alleged facts. Following comprehensive and exhaustive investigations, SAP entered into a non-prosecution agreement with U.S. DOJ and mutual settlement agreements with BIS and OFAC in April 2021. Among other things, the settlement agreements require SAP to conduct internal audits of its compliance with U.S. export control laws and regulations and produce audit reports for a period of three years. In addition, SAP paid non-material monetary penalties in May 2021. Intellectual Property-Related Litigation and Claims For individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2020, there were no significant developments in the first half of 2021. The provisions recorded for intellectual property-related There have been no significant changes to the amount of provisions recorded for export controls and economic sanctions violations compared to the amounts disclosed in Note (G.3) to the Consolidated Financial Statements for 2020. There have also been no significant changes in contingent liabilities with regards to export control matters for which no provision has been recognized. For more information, see the Notes to the Consolidated litigation and claims continue to be not material. There are also no material contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. Financial Statements for 2020, Note (G.3). (G.2) Related Party Transactions Tax-Related Litigation There have been no significant changes in contingent liabilities from non-income tax-related litigation for which no provision has been recognized compared to our Consolidated Financial Statements for 2020, Note (G.3). For more information about income tax-related litigation, see Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (for more information, see the Notes to the Consolidated Financial Statements for 2020, Note (G.5)). We have relationships with certain of these entities in the ordinary course of business. Note (C.4). On May 12, 2021, the Annual General Meeting of Shareholders Anti-Bribery and Export Control Matters SAP received communications alleging conduct that may violate anti-bribery laws in the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)) and other countries. The investigations are ongoing and neither the outcome of the investigations nor the date when substantiated findings will be available is predictable at this point in time. It is impossible at this point in time to determine whether the potential anti-bribery law violations represent present obligations of SAP and, if so, to reliably estimate the amount of these obligations. As a consequence, as at June 30, 2021, no provisions have been recognized for these potential anti-bribery violations in our elected Dr. Rouven Westphal to the Supervisory Board, as a successor to Dr. Pekka Ala-Pietilä who resigned with effect from that date. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. In April 2021, SAP and Dediq GmbH announced that they had entered into a partnership and will form a unit which will be jointly owned by the two companies. The new entity, SAP Fioneer, will be an associated entity of SAP. For more information, see Note (D.1). For more information about related party transactions, see the Notes to the Consolidated Financial Statements for 2020, Note (G.6). 38 SAP Half-Year Report 2021 (G.3) Events After the Reporting Period With effect from July 8, 2021, Panagiotis Bissiritsas, employee representative on the Supervisory Board, resigned from his seat and left the Company. He was succeeded on the Supervisory Board by his respective substitute, Manuela Asche-Holstein. (G.4) Scope of Consolidation 12/31/2020 Additions Disposals 6/30/2021 The additions in the first half of 2021 relate to legal entities added in connection with acquisitions and foundations. The disposals are mainly due to liquidations and mergers of legal entities. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (D.1) and our Integrated Report 2020. SAP Half-Year Report 2021 Total 269 23 –4 288 Release of the Consolidated Half-Year Financial Statements The Executive Board of SAP SE approved these consolidated half-year financial statements on July 20, 2021, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. 39 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 20, 2021 SAP SE Walldorf, Baden The Executive Board Christian Klein Sabine Bendiek Luka Mucic Juergen Mueller Scott Russell Thomas Saueressig Julia White 40 SAP Half-Year Report 2021 Supplementary Financial Information Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2020 Q2 2020 Q3 2020 Q4 2020 TY 2020 Revenues Cloud (IFRS) 2,011 2,044 1,984 2,041 8,080 Cloud (non-IFRS) 2,012 2,044 1,984 2,044 8,085 % change – yoy 27 19 10 7 15 % change constant currency – yoy 25 18 14 13 18 SAP S/4HANA Cloud (IFRS) 168 193 NA NA NA SAP S/4HANA Cloud (non-IFRS) 168 193 NA NA NA % change – yoy NA NA NA NA NA % change constant currency – yoy NA NA NA NA NA Software licenses (IFRS) 451 773 714 1,703 3,642 Software licenses (non-IFRS) 451 773 714 1,703 3,642 % change – yoy –31 –18 –23 –15 –20 % change constant currency – yoy –31 –18 –19 –11 –17 Software support (IFRS) 2,934 2,892 2,845 2,835 11,506 Software support (non-IFRS) 2,934 2,892 2,845 2,835 11,506 % change – yoy 3 1 –2 –4 0 % change constant currency – yoy 2 2 1 0 1 Software licenses and support (IFRS) 3,386 3,665 3,559 4,538 15,148 Software licenses and support (non-IFRS) 3,386 3,665 3,559 4,538 15,148 % change – yoy –3 –4 –7 –8 –6 % change constant currency – yoy –4 –3 –4 –4 –4 Cloud and software (IFRS) 5,397 5,709 5,544 6,579 23,228 Cloud and software (non-IFRS) 5,398 5,709 5,544 6,582 23,233 % change – yoy 6 3 –2 –4 1 % change constant currency – yoy 5 3 2 1 3 Total revenue (IFRS) 6,521 6,743 6,535 7,538 27,338 Total revenue (non-IFRS) 6,522 6,744 6,535 7,541 27,343 % change – yoy 7 1 –4 –6 –1 % change constant currency – yoy 5 1 0 –2 1 Share of more predictable revenue (IFRS, in %) 76 73 74 65 72 Share of more predictable revenue (non-IFRS, in %) 76 73 74 65 72 Profits Operating profit (loss) (IFRS) 1,210 1,284 1,473 2,657 6,623 Operating profit (loss) (non-IFRS) 1,482 1,964 2,069 2,772 8,287 % change 1 8 –1 –2 1 % change constant currency 0 7 4 3 4 Profit (loss) after tax (IFRS) 811 885 1,652 1,934 5,283 Profit (loss) after tax (non-IFRS) 1,015 1,395 2,098 2,026 6,534 % change –6 6 34 –7 6 Margins Cloud gross margin (IFRS, in %) 66.4 66.0 66.4 67.6 66.6 Cloud gross margin (non-IFRS, in %) 69.3 69.5 69.7 70.3 69.7 Software license and support gross margin (IFRS, in %) 85.2 86.4 86.7 88.2 86.7 Software license and support gross margin (non-IFRS, in %) 85.7 87.4 87.6 88.5 87.4 SAP Half-Year Report 2021 Q1 2021 2,145 2,145 7 13 227 227 36 43 483 483 7 11 2,801 2,801 –5 0 3,283 3,283 –3 1 5,428 5,428 1 6 6,348 6,348 –3 2 78 78 960 1,738 17 24 1,070 1,720 70 67.2 69.5 85.7 86.3 Q2 2021 2,276 2,276 11 17 257 257 33 39 650 650 –16 –13 2,823 2,823 –2 1 3,474 3,474 –5 –2 5,750 5,750 1 5 6,669 6,669 –1 3 76 76 984 1,922 –2 3 1,449 2,214 59 67.5 70.0 86.5 87.3 41 € millions, unless otherwise stated Cloud and software gross margin (IFRS, in %) Cloud and software gross margin (non-IFRS, in %) Gross margin (IFRS, in %) Gross margin (non-IFRS, in %) Operating margin (IFRS, in %) Operating margin (non-IFRS, in %) AT&S segment – Cloud gross margin (in %) AT&S segment – Segment gross margin (in %) AT&S segment – Segment margin (in %) Services segment – Services gross margin (in %) Services segment – Segment gross margin (in %) Services segment – Segment margin (in %) Qualtrics segment – Cloud gross margin (in %) Qualtrics segment – Segment gross margin (in %) Qualtrics segment – Segment margin (in %) Key Profit Ratios Effective tax rate (IFRS, in %) Effective tax rate (non-IFRS, in %) Earnings per share, basic (IFRS, in €) Earnings per share, basic (non-IFRS, in €) Order Entry and current cloud backlog Current cloud backlog % change – yoy % change constant currency – yoy SAP S/4HANA current cloud backlog % change – yoy % change constant currency – yoy Orders – number of cloud deals (in transactions) Share of cloud orders greater than €5 million based on total cloud order entry volume (in %) Share of cloud orders smaller than €1 million based on total cloud order entry volume (in %) Orders – number of on-premise software deals (in transactions) Share of orders greater than €5 million based on total software order entry volume (in %) Share of orders smaller than €1 million based on total software order entry volume (in %) Liquidity and Cash Flow Net cash flows from operating activities Capital expenditure Payments of lease liabilities Free cash flow % of total revenue (IFRS) % of profit after tax (IFRS) Group liquidity Financial debt (–) Net debt (–) Financial Position Cash and cash equivalents Goodwill 42 Q1 2020 78.2 79.6 68.3 69.8 18.6 22.7 69.1 78.6 35.6 30.1 26.6 14.6 90.8 75.4 –10.1 27.7 27.2 0.68 0.85 6,634 25 24 744 NA NA 3,145 28 37 10,517 24 42 2,984 –333 –72 2,580 40 318 7,872 –13,700 –5,827 7,816 29,731 Q2 2020 79.1 81.0 69.9 72.6 19.0 29.1 69.2 80.1 42.2 36.0 33.4 19.4 91.0 78.6 1.4 33.1 30.3 0.73 1.17 6,638 20 21 780 NA NA 3,844 28 36 9,175 34 38 788 –164 –84 540 8 61 7,401 –14,855 –7,454 6,205 29,214 Q3 2020 79.4 81.2 71.1 73.7 22.5 31.7 69.3 80.6 42.4 38.9 36.3 23.6 90.9 79.1 4.7 20.2 21.3 1.32 1.70 6,599 10 16 NA NA NA 4,044 28 37 11,006 30 37 1,321 –155 –115 1,052 16 64 7,760 –14,649 –6,889 7,434 28,184 Q4 2020 81.8 82.8 74.8 75.8 35.2 36.8 69.6 82.6 47.6 33.3 29.9 19.0 94.1 77.4 0.9 28.5 28.2 1.62 1.70 7,155 7 14 NA NA NA 6,137 31 32 14,918 29 32 2,100 –164 –107 1,829 24 95 6,781 –13,283 –6,503 5,311 27,560 TY 2020 Q1 2021 Q2 2021 79.7 78.4 79.0 81.2 79.7 80.5 71.2 70.3 70.8 73.1 72.3 73.4 24.2 15.1 14.8 30.3 27.4 28.8 69.3 68.7 69.2 80.6 78.9 79.5 42.2 39.1 40.6 34.5 36.6 37.0 31.4 32.9 34.1 19.0 21.4 22.6 91.8 92.2 92.4 77.6 79.5 80.3 –0.6 6.2 6.3 26.8 20.0 19.7 26.5 18.7 19.2 4.35 0.88 1.15 5.41 1.40 1.75 7,155 7,628 7,766 7 15 17 14 19 20 NA 1,036 1,130 NA 39 45 NA 43 48 17,166 4,132 5,064 29 27 34 34 39 32 45,616 9,687 10,033 30 23 22 36 42 43 7,194 3,085 686 –816 –153 –191 –378 –84 –92 6,000 2,848 403 22 45 6 114 266 28 6,781 11,573 8,548 –13,283 –14,230 –13,116 –6,503 –2,658 –4,568 5,311 10,332 7,764 27,560 29,374 29,049 SAP Half-Year Report 2021 € millions, unless otherwise stated Total assets Contract liabilities (current) Equity ratio (total equity in % of total assets) Non-Financials Number of employees (quarter end)1) Employee retention (in %, rolling 12 months) Women in management (in %, quarter end) Greenhouse gas emissions (in kilotons) 1) In full-time equivalents. Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2021 Q1 2020 62,947 6,726 49 101,150 93.3 26.8 65 Q2 2020 60,709 5,791 48 101,379 93.9 27.3 25 Q3 2020 59,278 4,237 50 101,450 94.8 27.3 25 Q4 2020 58,472 4,150 51 102,430 95.3 27.5 20 TY 2020 58,472 4,150 51 102,430 95.3 27.5 135 Q1 2021 66,495 6,800 52 103,142 95.4 27.6 30 Q2 2021 63,095 6,175 54 103,876 94.8 27.9 20 43 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year € millions, unless otherwise stated Q1–Q2 2021 Q1–Q2 2020 ∆ in % IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non- IFRS IFRS Non- IFRS Non-IFRS Constant Currency1) Revenue Numbers Cloud 4,421 0 4,421 255 4,675 4,055 2 4,057 9 9 15 Software licenses 1,133 0 1,133 39 1,172 1,224 0 1,224 –7 –7 –4 Software support 5,624 0 5,624 229 5,853 5,826 0 5,826 –3 –3 0 Software licenses and support 6,757 0 6,757 268 7,025 7,051 0 7,051 –4 –4 0 Cloud and software 11,178 0 11,178 523 11,700 11,106 2 11,107 1 1 5 Services 1,839 0 1,839 87 1,926 2,159 0 2,159 –15 –15 –11 Total revenue 13,017 0 13,017 610 13,627 13,264 2 13,266 –2 –2 3 Operating Expense Numbers Cost of cloud –1,444 108 –1,336 –1,370 128 –1,242 5 8 Cost of software licenses and support –939 50 –889 –998 53 –946 –6 –6 Cost of cloud and software –2,383 158 –2,225 –2,368 180 –2,188 1 2 Cost of services –1,447 139 –1,308 –1,725 95 –1,630 –16 –20 Total cost of revenue –3,830 297 –3,533 –4,094 276 –3,818 –6 –7 Gross profit 9,187 297 9,484 9,171 277 9,448 0 0 Research and development –2,478 251 –2,227 –2,210 163 –2,047 12 9 Sales and marketing –3,491 482 –3,009 –3,684 388 –3,296 –5 –9 General and administration –1,098 522 –576 –729 111 –618 51 –7 Restructuring –164 164 0 –13 13 0 >100 NA Other operating income/expense, net –12 0 –12 –41 0 –41 –71 –71 Total operating expenses –11,073 1,715 –9,357 –416 –9,773 –10,770 950 –9,820 3 –5 0 Profit Numbers Operating profit (loss) 1,944 1,715 3,660 194 3,854 2,494 952 3,446 –22 6 12 Other non-operating income/expense, net 29 0 29 –103 0 –103 <-100 <-100 Finance income 1,549 0 1,549 406 0 406 >100 >100 Finance costs –381 0 –381 –354 0 –354 8 8 Financial income, net 1,168 0 1,168 53 0 53 >100 >100 Profit (loss) before tax 3,141 1,715 4,856 2,444 952 3,396 29 43 Income tax expense –622 –300 –922 –747 –239 –986 –17 –6 Profit (loss) after tax 2,519 1,415 3,934 1,697 713 2,409 48 63 Attributable to owners of parent 2,396 1,310 3,706 1,681 713 2,393 43 55 Attributable to non-controlling interests 123 105 228 16 0 16 >100 >100 Key Ratios Operating margin (in %) 14.9 28.1 28.3 18.8 26.0 –3.9pp 2.1pp 2.3pp Effective tax rate (in %)2) 19.8 19.0 30.6 29.0 –10.8pp –10.1pp Earnings per share, basic (in €) 2.03 3.14 1.42 2.02 43 56 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. 2) The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2021 mainly resulted from tax effects of share-based payment expenses, acquisition-related charges, and restructuring expenses. The difference between our effective tax rate (IFRS) and effective tax rate (non- IFRS) in the first half of 2020 mainly resulted from tax effects of share-based payment expenses and acquisition-related charges. Due to rounding, numbers may not add up precisely. 44 SAP Half-Year Report 2021 Non-IFRS Adjustments Actuals and Estimates – Half Year € millions Operating profit (loss) (IFRS) Revenue adjustments Adjustment for acquisition-related charges Adjustment for share-based payment expenses Adjustment for restructuring Operating expense adjustments Operating profit (loss) adjustments Operating profit (loss) (non-IFRS) Non-IFRS-Adjustments by Functional Areas – Half Year € millions Q1–Q2 2021 IFRS Acqui- sition- Related SBP1) Restruc- turing Non-IFRS IFRS Cost of cloud –1,444 80 28 0 –1,336 –1,370 Cost of software licenses and support –939 16 34 0 –889 –998 Cost of services –1,447 10 129 0 –1,308 –1,725 Research and development –2,478 3 248 0 –2,227 –2,210 Sales and marketing –3,491 181 301 0 –3,009 –3,684 General and administration –1,098 6 516 0 –576 –729 Restructuring –164 0 0 164 0 –13 Other operating income/expense, net –12 0 0 0 –12 –41 Total operating expenses –11,073 296 1,256 164 –9,357 –10,770 1) Share-based payments Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2021 Estimated Amounts for Full Year 2021 NA 540–640 2,300–2,800 150–200 Acqui- sition- Related 106 22 2 4 191 1 0 0 325 SBP1 ) 22 31 94 159 197 110 0 0 612 Q1–Q2 2021 Q1–Q2 2020 1,944 2,494 0 2 296 325 1,256 612 164 13 1,715 950 1,715 952 3,660 3,446 Q1–Q2 2020 Restruc- turing Non-IFRS 0 –1,242 0 –946 0 –1,630 0 –2,047 0 –3,296 0 –618 13 0 0 –41 13 –9,820 45 Revenue by Region (IFRS and Non-IFRS) – Half Year € millions Q1–Q2 2021 Q1–Q2 2020 ∆ in % IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non-IFRS IFRS Non- IFRS Non-IFRS Constant Currency1) Cloud Revenue by Region EMEA 1,547 0 1,547 29 1,577 1,277 0 1,277 21 21 23 Americas 2,291 0 2,291 201 2,492 2,275 2 2,277 1 1 9 APJ 582 0 582 24 606 502 0 502 16 16 21 Cloud revenue 4,421 0 4,421 255 4,675 4,055 2 4,057 9 9 15 Cloud and Software Revenue by Region EMEA 5,050 0 5,050 66 5,115 4,840 0 4,840 4 4 6 Americas 4,336 0 4,336 381 4,717 4,545 2 4,547 –5 –5 4 APJ 1,792 0 1,792 76 1,868 1,720 0 1,720 4 4 9 Cloud and software revenue 11,178 0 11,178 523 11,700 11,106 2 11,107 1 1 5 Total Revenue by Region Germany 1,957 0 1,957 2 1,959 1,846 0 1,846 6 6 6 Rest of EMEA 3,898 0 3,898 71 3,969 3,862 0 3,862 1 1 3 Total EMEA 5,855 0 5,855 74 5,929 5,708 0 5,708 3 3 4 United States 4,166 0 4,166 377 4,543 4,577 2 4,578 –9 –9 –1 Rest of Americas 974 0 974 73 1,047 983 0 983 –1 –1 7 Total Americas 5,140 0 5,140 450 5,590 5,560 2 5,561 –8 –8 1 Japan 628 0 628 56 684 641 0 641 –2 –2 7 Rest of APJ 1,394 0 1,394 30 1,424 1,356 0 1,356 3 3 5 Total APJ 2,022 0 2,022 86 2,108 1,997 0 1,997 1 1 6 Total revenue 13,017 0 13,017 610 13,627 13,264 2 13,266 –2 –2 3 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. Due to rounding, numbers may not add up precisely. 46 SAP Half-Year Report 2021 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there-mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management and Risks section, the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2020 and our Annual Report on Form 20-F for 2020, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place SAP Half-Year Report 2021 undue reliance on these forward-looking statements, which speak only as of the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including IDC, the ECB, and the IMF. This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation as at June 30, 2021, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non-IFRS measures, see our Web site www.sap.com/investors/sap-non-ifrs- measures. 47 Additional Information Financial Calendar October 21, 2021 Third-quarter 2021 earnings release, conference call for financial analysts and investors January 27, 2022 Fourth-quarter and full-year 2021 preliminary earnings release, conference call for financial analysts and investors May 18, 2022 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The “Financial Reports” tab contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) SAP Annual Report on Form 20-F (IFRS, PDF) SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – – – Half-Year Report (IFRS, PDF) – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. Only a limited number of the Integrated Report was printed for the Annual General Meeting of Shareholders. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. 48 Addresses SAP SE Dietmar-Hopp-Allee 16 69190 Walldorf Germany Tel. +49 6227 7-47474 Fax +49 6227 7-57575 Internet www.sap.com E-mail info@sap.com The addresses of all our international subsidiaries and sales partners are available on our public Web site at www.sap.com/directory/main.html. Information About Content Investor Relations Tel. +49 6227 7-67336 Fax +49 6227 7-40805 E-mail investor@sap.com Twitter @SAPinvestor Internet www.sap.com/investor Imprint Overall responsibility: SAP SE Corporate Financial Reporting Published on July 21, 2021. The German version of this Half-Year Report can be found under https://www.sap.com/corporate/de/investors.html. Copyright Usage in Collateral © 2021 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. Please see https://www.sap.com/corporate/en/legal/copyright.html for additional trademark information and notices. SAP Half-Year Report 2021 | Semestriel, 2021, Technology, SAP | write me a financial report |
Semestriel | 2,021 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2021 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Business principles Page 13 B.1 Consolidated statements of income Page 28 C.1 Responsibility statement Page 4 A.2 Market development Page 14 B.2 Consolidated statements of comprehensive income Page 29 C.2 Review report Page 5 A.3 Results of operations Page 15 B.3 Consolidated statements of Page 30 C.3 Notes and forward-looking financial position statements Page 7 Page 16 A.4 Net assets and financial position B.4 Consolidated statements of cash flows Page 11 Page 17 A.5 Outlook B.5 Consolidated statements of changes in equity Page 12 Page 18 A.6 Risks and opportunities B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s Half-Year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with Section 115 of the German Securities Trading Act. The Half-Year Financial Report should be read in conjunction with the Annual Report for fiscal year 2020. 2 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Business principles A. Interim group management report A.1 Business principles Changes to Corporate Structure On April 15, 2021, Siemens Healthineers completed the acquisition of all shares in Varian Medical Systems, Inc. (hereinafter “Varian”) headquartered in Palo Alto, California, USA for about US$16.4 billion (€13.9 billion). To partially finance the acquisition, a second capital increase was carried out in the first half of fiscal 2021, which had the effect of reducing the stake in Siemens Healthineers held directly and indirectly by Siemens AG from around 79% (as of September 30, 2020) to just over 75%. Our business operations are divided into four segments from the date of the acquisition of Varian onwards: Imaging, Diagnostics, Varian and Advanced Therapies. In all these segments, we are a leading global provider. The Varian business segment provides innovative, multi-modality cancer care technologies as well as solutions, and services to oncology departments in hospitals and clinics globally. Its portfolio enables clinicians to perform new, innovative radiotherapy treatments. Varian’s Radiation Oncology business serves the end-to-end needs of customers with integrated equipment and digital solutions and applications that enable increased access to quality care as well as improved treatment planning and delivery. The Proton Solutions business utilizes conventional radiotherapy expertise to develop integrated proton solutions with optimized workflows to increase clinical utility and improve patient outcomes through increased radiation precision. Other offerings include technology-enabled services, clinical services and consulting capabilities, and innovative digital solutions and applications for managing treatment and therapy. High-quality imaging and digital solutions and applications enable image-guided, more precise cancer treatments. With a large and growing installed base, Varian generates recurring revenue from services and consumables. At the same time, Varian is expanding its range of consumables for interventional solutions. Synergies from the acquisition are mainly expected from broader regional coverage of the sales network, cross-selling opportunities into existing customer base and from expanded integrated service offerings (e.g. “Oncology-as-a-Service” program) and value partnerships, as well as joint product innovation. Cost synergies, resulting from the merger of the two businesses, are primarily due to back office adjustments and support processes, the delisting of Varian and joint procurement activities. There are multiple trends in Varian's segment market. Long-term global demand for radiation oncology benefits from an increase in early cancer diagnosis, demand for multi-modal precision care pathways, need for value-based care, and an aging population. The overall demand for radiation therapy will be driven by an increase in new cancer incidences, projected to grow to 30 million annually by 2040. Faster growth of new incidences in low- and middle-income countries, which lack adequate infrastructure and human capital to address this growing cancer burden accelerate the demand for radiation therapy as a cost-effective, high-quality cancer care modality. Technological advancements in equipment and digital solutions and applications that improve radiotherapy and radiosurgery precision to treat a broader range of cases, automate and optimize clinical tools, reduce treatment time, and increase patient throughput continue to drive global replacement demand. The shortage of trained clinical personnel in emerging markets, combined with focus on operational efficiencies, and cost reduction in developed markets drive demand for more automated products and services that can be integrated into clinical workflows to make treatments more rapid and cost- effective. Key players in the radiation oncology market are Elekta, Viewray, and Accuray. On February 1, 2021, Darleen Caron was appointed as board member and Chief Human Resources Officer. In consequence of her appointment, the Managing Board was extended from three to four members. Changes to Business Environment In the first half of fiscal year 2021, the COVID-19 pandemic continued to impact healthcare regulatory systems and processes. With the new presidential administration in the U.S. heavily focused on the COVID-19 crisis, other healthcare related legislative and regulatory activity have not been a top priority. We expect that trade challenges involving the United States and China will remain a topic in the medium term. The departure of the United Kingdom from the EU’s internal market has led to moderate disruptions of free trade in goods and services, with implications for customs duties, transportation and associated administrative burdens, and ultimately pricing. 3 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Market development A.2 Market development The COVID-19 pandemic put health systems under enormous strain. This development significantly impacted national economies worldwide, including our addressed markets. We evaluate the impact of the COVID-19 pandemic on our addressed markets on an ongoing basis. Compared to our assumptions in the 2020 annual report, market developments changed as follows: For our addressed Imaging markets, we saw a substantial increase in the first half of fiscal year 2021. Market declines in major modalities, e.g. magnetic resonance systems, were still recorded, though they were more than offset by significantly increased interest in equipment and solutions used to diagnose and monitor COVID-19 diseases, e.g. computed tomography systems, (mobile) X-ray systems and digital solutions such as telehealth. Compared to the estimates in the 2020 annual report, the market for routine tests in laboratory diagnostics, recovered slightly as a result of the increasing number of patients. Markets for laboratory diagnostic tests and point-of-care tests for patient monitoring related to COVID-19 and tests for the detection of SARS-CoV-2, including antigen rapid tests, increased very significantly. The market for molecular diagnostics also increased very substantially. Based on market information, this has led to significant growth in the addressable Diagnostics market in the first half of fiscal year 2021. China is one of our biggest markets and a major incremental growth driver. In the absence of further pandemic waves, the country returned to regular business activity in a relatively short time. Markets for our Imaging segment benefitted from government investment in modalities used to detect and prevent the spread of COVID-19. Since the number of elective procedures increased, the addressable market for our Advanced Therapies segment is recovering gradually as the Chinese economy returns to normal. The decline of the Diagnostic market (excluding molecular diagnostics) continued in the first half of fiscal year 2021 as tests in routine care and the Point-of-Care market decreased. Globally, many other countries have not yet achieved sustained progress with the COVID-19 pandemic response, and are still in forms of lockdown, amongst them major markets like the U.S., Germany and Japan. The length of lockdowns and the speed of achieving herd immunity through vaccination continue to determine how economies and our markets might be impacted. The U.S. remain the country with the highest number of COVID-19 infections and deaths. However, we expect the Imaging segment’s market to recover in the near term as it has grown slightly in recent quarters due to increased interest in equipment and solutions used to diagnose and monitor COVID-19, e.g. computed tomography systems and (mobile) x-ray. During this same period, markets for Advanced Therapies declined more slowly than expected in the annual report 2020, reflecting a slow decline in buying restraint. 4 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Results of operations A.3 Results of operations A.3.1 Revenue by segment and region (in millions of €)¹ 2021 First half 2020 Act. Siemens Healthineers 7,833 7,272 8% Therein: Imaging 4,687 4,530 3% Diagnostics 2,420 2,018 20% Advanced Therapies 820 825 −1% 1 Siemens Healthineers: revenue according to IFRS, segments: total adjusted revenue. 2 Year-over-year on a comparable basis, excluding effects in line with revaluation of contract liabilities from %-Change Comp.² 13% 8% 26% 4% Adjusted revenue in Diagnostics rose by 20% on a nominal basis to €2,420 million. On a comparable basis, adjusted revenue increased by 26%. All regions contributed to this growth. EMEA recorded sharp revenue growth, particularly supported by the high demand for rapid COVID-19 antigen tests, which were primarily distributed in Germany and with which the company generated revenue of overall €320 million. Asia, Australia recorded very strong growth compared to the prior-year period, which had already been negatively affected by the COVID-19 pandemic. The Americas also achieved strong comparable revenue growth. IFRS 3 purchase price allocations as well as currency translation and portfolio effects. Revenue by region (location of customer) (in millions of €) 2021 Europe, Commonwealth of Independent States, Africa, Middle East (EMEA) 2,929 First half 2020 2,312 Act. 27% %-Change Comp.¹ 30% Adjusted revenue in Advanced Therapies declined by 1% on a nominal basis to €820 million. On a comparable basis, adjusted revenue increased by 4%. EMEA and Asia, Australia reported significant comparable revenue growth, which was partly offset by a strong pandemic-related decline in the Americas compared to the strong prior-year period. Therein: Germany 652 411 59% 59% Americas 2,686 2,935 −8% 0% Regions Therein: United States 2,271 2,517 −10% Asia, Australia 2,219 2,025 10% Therein: China 1,100 923 19% Siemens Healthineers 7,833 7,272 8% 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects as well as effects in −2% 12% 21% 13% In EMEA, comparable revenue increased by 30%, which was driven by all segments, particularly by sharp growth in Diagnostics and Imaging. Germany reported a sharp comparable revenue increase, primarily due to the high demand for rapid COVID-19 antigen tests in the Diagnostics segment. Imaging also contributed with significant growth and Advanced Therapies with sharp growth. line with revaluation of contract liabilities from IFRS 3 purchase price allocations. Siemens Healthineers Revenue rose by 8% on a nominal basis to €7,833 million. On a comparable basis, revenue increased by 13% from the prior-year period, which had already been negatively affected by the COVID- 19 pandemic in all segments. All segments contributed to this revenue growth. The Diagnostics segment posted sharp growth, particularly supported by the high demand for rapid COVID-19 antigen tests. Currency translation effects had a negative effect of around 6 percentage points on revenue growth. Segments Adjusted revenue in Imaging rose by 3% on a nominal basis to €4,687 million. On a comparable basis, adjusted revenue increased by 8%. Computed Tomography reported sharp growth and X-Ray Products posted very strong growth because their systems are particularly used for diagnosis and monitoring of COVID-19 patients. From a geographic perspective, EMEA posted sharp and Asia, Australia recorded significant comparable revenue growth, whereas growth in the Americas slightly declined. In the Americas, revenue was flat on a comparable basis. A slight decline in Imaging and a very strong decrease in Advanced Therapies were offset by a strong development in Diagnostics. Revenue in the United States slightly declined on a comparable basis, affected by a moderate pandemic-related decline in Imaging and a strong pandemic-related decrease in Advanced Therapies, whereas Diagnostics recorded moderate growth. In Asia, Australia, comparable revenue increased by 12%. All segments contributed to this growth, with Imaging and Advanced Therapies posting significant growth and Diagnostics recording very strong growth. China showed sharp comparable revenue growth, especially driven by Imaging in particular by high demand for computer tomographs and x-ray products. Advanced Therapies also contributed with sharp growth and Diagnostics with strong growth. 5 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Results of operations A.3.2 Adjusted EBIT Segments (Adjusted EBIT in millions of €, margin in %) Adjusted EBIT Therein: Imaging 2021 1,404 1,041 First half 2020¹ 1,152 917 The Imaging segment’s adjusted EBIT margin increased from 20.2% in the prior-year period to 22.2%, mainly driven by higher revenues, while higher expenses for performance-related remuneration components and negative currency effects held back profitability. Diagnostics 268 97 Advanced Therapies Adjusted EBIT margin Therein: Imaging Diagnostics 136 17.9% 22.2% 11.1% 161 15.8% 20.2% 4.8% In Diagnostics, the adjusted EBIT margin of 11.1% was clearly above the prior-year level of 4.8%, mainly driven by additional volume from rapid COVID-19 antigen tests. The margin also benefited from positive currency effects, while higher expenses for performance-related remuneration components held back profitability. Advanced Therapies 16.5% 19.5% 1Prior-year figures adjusted in line with updated definition of adjusted EBIT. Reconciliation to net income: In Advanced Therapies, the adjusted EBIT margin of 16.5% was below the prior-year level of 19.5%. It was negatively affected by currency effects, a less favorable business mix, expenses for further development of the Corindus business and higher expenses for performance-related remuneration components. (in millions of €) 2021 First half 2020¹ Reconciliation to net income Adjusted EBIT Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments Transaction, integration, retention and carve-out costs Severance charges Total adjustments EBIT 1,404 −66 −23 −37 −126 1,278 1,152 −87 −19 −34 −140 1,011 The position amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments decreased to €66 million. In the first half of fiscal year 2021, no other effects from IFRS 3 purchase price allocation adjustments are included. Transaction and integration costs of €23 million were incurred mainly due to the acquisition of Varian. In the prior-year period, this position predominately included costs in connection to the acquisition of Corindus Vascular Robotics, Inc. (hereinafter “Corindus”). Financial income, net −56 −10 Income before income taxes 1,223 1,001 Income tax expenses Net income 1 Prior-year figures adjusted in line with updated definition of adjusted EBIT. −338 885 −282 719 Financial income declined from the prior-year period by €45 million to negative €56 million, mainly due to expenses in connection with the acquisition of Varian. The prior-year period included an interest income related to international tax procedures. Siemens Healthineers In the first half of fiscal year 2021, adjusted EBIT increased by 22% from the prior-year period, supported by a positive revenue development. The adjusted EBIT margin rose from 15.8% in the prior-year period to 17.9%, mainly due to a strong margin development in Diagnostics, which was primarily driven by high demand for rapid COVID-19 antigen tests. Higher expenses for performance-related remuneration components and slightly unfavorable currency effects held back profitability. Income tax expenses increased by €56 million. The effective income tax rate was at 27.6% in the first half of fiscal year 2021, compared to 28.2% in the prior-year period. Based on the effects described above, net income increased by €166 million to €885 million. Research and development expenses declined by €13 million, or around 2%. Adjusted for currency effects, they increased by 1%. Selling and general administrative expenses declined by €67 million, or around 6%, due to pandemic-related lower cost spending, such as reduced travel costs. Adjusted for currency effects, they decreased by around 1%. 6 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Net assets and financial position Reconciliation to basic earnings per share: A.4 Net assets and financial position A.4.1 Net assets and capital structure (in €) 2021 First half 2020¹ Basic earnings per share 0.81 0.71 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments 0.06 0.09 (in millions of €) Mar 31, 2021 Sept 30, 2020 Transaction, integration, retention and carve-out costs 0.02 0.02 Operating net working capital 2,538 2,550 Severance charges 0.03 0.03 Remaining current assets¹ 567 644 Transaction-related costs within financial income 0.03 ‐ Remaining non-current assets¹ 14,951 14,736 Tax effects on adjustments² −0.04 −0.04 Net debt (including pensions)¹ −296 −2,513 Adjusted basic earnings per share 0.92 0.81 Remaining current liabilities¹ −2,037 −1,936 Remaining non-current liabilities¹ −953 −969 1 Prior-year figures adjusted in line with updated definition of adjusted EBIT. 2 Calculated based on the income tax rate of the respective reporting period. Total equity 14,770 12,511 1 A change in the definition of net debt (described in paragraph net debt (including pensions)) led to a shift of amounts from remaining current and non-current assets and liabilities to net debt. The changes are indicated in footnotes. The prior-year amounts have been adjusted accordingly. Due to the developments described above, adjusted basic earnings per share grew by 13% to €0.92 in the first half of fiscal year 2021. Material developments in the current fiscal year within net assets and capital structure are described below. Operating net working capital (in millions of €) Mar 31, 2021 Sept 30, 2020 Trade and other receivables 2,794 2,568 Contract assets 787 818 Inventories 2,425 2,304 Trade payables −1,483 −1,356 Contract liabilities −1,981 −1,784 Receivables from and payables to the Siemens Group from operating activities −4 ‐ Operating net working capital 2,538 2,550 Operating net working capital remained stable, with a decrease of €12 million to €2,538 million. Trade and other receivables rose by €226 million, mainly due to increased business volume in the Diagnostics segment. In addition, inventories were up by €120 million. This increase was attributable to ensure the delivery capability in the second half of fiscal year 2021. This development was counterbalanced by increases of €197 million in contract liabilities and of €127 million in trade payables, both related mainly to an increased business volume. 7 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Net assets and financial position Remaining current assets (in millions of €) Mar 31, 2021 Sept 30, 2020 (in millions of €) Mar 31, 2021 Sept 30, 2020 Other current financial assets¹ 96 141 Cash and cash equivalents −559 −656 Current income tax assets 28 49 Current receivables from the Siemens Group from financing activities −14,544 −3,271 Other current assets 358 338 Remaining current receivables from the Siemens Group 85 116 Current liabilities to the Siemens Group from financing activities 2,624 2,040 Remaining current assets 567 644 Liabilities to the Siemens Group from financing activities 11,462 2,982 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Market value of forwards for hedging of foreign currency liabilities from financing activities −111 −92 Short-term financial debt and current maturities of long-term financial debt 223 167 Remaining non-current assets Long-term financial debt 265 314 Net debt −641 1,484 (in millions of €) Mar 31, 2021 Sept 30, 2020 Provisions for pensions and similar obligations 937 1,029 Goodwill 9,061 9,038 Net debt (including pensions) 296 2,513 Other intangible assets 1,882 1,912 Property, plant and equipment 2,885 2,774 Investments accounted for using the equity method Other financial assets¹ Deferred tax assets Other assets 37 290 459 339 37 261 419 295 Net debt Net debt decreased by €2,125 million to a net investment of €641 million, mainly due to the investment of the funds received from the capital increase, completed in March 2021, for financing the acquisition of Varian. Remaining non-current assets 14,951 14,736 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Remaining non-current assets increased by €215 million to €14,951 million. Property, plant and equipment was up by €111 million, partly due to ongoing real estate projects for capacity expansions in Germany and India. The line items cash and cash equivalents, and current receivables from and liabilities to the Siemens Group from financing activities, collectively make up the Company’s funds available at short notice. Changes in these items were attributable to income and expenditures from operations and to short-term investment or borrowing of liquidity. Net debt (including pensions) Siemens Healthineers changed the definition of net debt. Since fiscal year 2021, the market value of forwards for hedging of foreign currency liabilities from financing activities has been included in the key figure. This provides more relevant information with regards to the economic character of net debt, particularly in light of the increase in U.S. dollar-denominated debt due to the financing of the Varian acquisition. The dividend payment of €856 million reduced the balance of current receivables from and liabilities to the Siemens Group from financing activities. Current receivables from the Siemens Group from financing activities increased by €11,273 million, mainly due to the investment of the funds from financing transactions for the acquisition of Varian. As of March 31, 2021, short-term investment included funds from capital increases of €5.0 billion completed in September 2020 and March 2021. In addition, loans of US$10.0 billion granted by the Siemens Group in connection with the acquisition of Varian were included. These loans led to a corresponding increase in liabilities to the Siemens Group from financing activities. The decrease of €97 million in cash and cash equivalents resulted mainly from the investment of cash from Siemens Healthineers entities in China with the Siemens Group. At the same time, this led to an increase in current receivables from the Siemens Group from financing activities. 8 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Net assets and financial position Pensions Provisions for pensions and similar obligations decreased by €92 million mainly due to a favorable development of the plan assets and an increase in the discount rate in countries with significant pension commitments. Remaining non-current liabilities (in millions of €) Deferred tax liabilities Mar 31, 2021 467 Sept 30, 2020 470 Provisions 135 144 Financing management For the acquisition of Varian, the Siemens Group granted loans denominated in U.S. dollars and provided financing commitments to Siemens Healthineers. Further details, including maturities and interest rates of the loans, are described in Note 4 Financial instruments in the notes to the half-year consolidated financial statements. Other financial liabilities¹ 4 Other liabilities 348 Remaining non-current liabilities 953 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. 10 345 969 Total equity For further information regarding the purchase price of Varian and the use of additional financing provided by the Siemens Group at closing of the acquisition, please refer to Note 8 Subsequent events in the in the notes to the half-year consolidated financial statements. (in millions of €) Issued capital Capital reserve Mar 31, 2021 1,128 15,777 Sept 30, 2020 1,075 13,476 Retained earnings −1,180 −1,276 As of March 31, 2021, the multicurrency revolving credit facility of up to €1.1 billion (September 30, 2020: €1.1 billion) granted by the Siemens Group, which serves as short-term loan facility and to finance net working capital, was utilized in the amount of €448 million (September 30, 2020: €166 million). Other components of equity Treasury shares Total equity attributable to shareholders of Siemens Healthineers AG Non-controlling interests −804 −159 14,762 8 −741 −36 12,498 13 Total equity 14,770 12,511 Remaining current liabilities (in millions of €) Other current financial liabilities¹ Current provisions Current income tax liabilities Other current liabilities Mar 31, 2021 154 287 283 1,313 Sept 30, 2020 93 270 374 1,198 Equity rose by €2,259 million to €14,770 million, mainly as a result of a capital increase through issuing new shares of Siemens Healthineers AG for financing the Varian acquisition. Thus, issued capital increased by €53 million. In capital reserve, the issuance of new shares, including effects from transaction costs and taxes, led to an increase of €2,275 million. Remaining current liabilities 2,037 1,936 1 Excluding market value of forwards for hedging of foreign currency liabilities from financing activities. Remaining current liabilities increased by €102 million to €2,037 million. Therein, other current liabilities increased by €115 million, attributable primarily to a rise in accruals for personnel costs. In addition, other current financial liabilities grew by €61 million mainly due to changes in value of derivatives to hedge foreign currency risks in connection with operations. This was partly offset by a decrease of €91 million in current income tax liabilities, due mainly to a tax assessment for a prior year in Germany. Retained earnings increased by €96 million, mainly attributable to remeasurements of defined benefit plans. The increase of €875 million in net income attributable to shareholders of Siemens Healthineers AG was offset by paid dividends of €856 million. Other components of equity decreased by €63 million, mainly due to a decrease in cost of hedging reserve. This resulted preliminary from the market value of the derivatives for hedging the U.S. dollar-denominated loans for financing the Varian acquisition. Currency translation differences had an offsetting influence. Since the IPO (initial public offering) in fiscal year 2018, Siemens Healthineers has offered share-based payment programs based on Siemens Healthineers AG shares. Since fiscal year 2021, these programs have been increasingly fulfilled. The associated increased purchase of treasury shares reduced equity by €123 million. For further details regarding equity, especially the development of treasury shares, please see Note 3 Equity in the notes to the half- year consolidated financial statements. 9 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Net assets and financial position A.4.2 Cash flows Financing activities (in millions of €) Cash flows from: 2021 First half 2020 In the current fiscal year, cash outflows from financing activities amounted to €1,073 million, whereas in prior year there were cash inflows of €962 million. Operating activities 1,316 572 Investing activities −328 Financing activities −1,073 Operating activities Cash inflows from operating activities grew by €744 million to €1,316 million, chiefly due to positive net income development and improved cash conversion from operating activities. Therein, in particular, the following effects had an impact. −1,597 962 In the current fiscal year, an increase of €700 million in free cash flow was invested with the Siemens Group as part of the cash pooling, which led to a corresponding increase in cash outflows in the line item other transactions/financing with the Siemens Group. In addition, higher cash outflows resulted from a €96 million increased purchase of treasury shares for the above- mentioned fulfillment of share-based payment programs and from a €58 million increase in dividends paid to shareholders of Siemens Healthineers AG. In prior year, cash inflows resulted from borrowing a loan of €1.0 billion from the Siemens Group in connection with the acquisition of Corindus. Change in other assets and liabilities led to by €363 million increased release of funds. This mainly related to the payout and development of performance-related remuneration components. In operating net working capital, a reduced build-up of inventories compared to prior year improved cash flows from operating activities by €268 million. This development resulted from the increased build-up of inventories in prior year to ensure the delivery capability of all segments at the onset of COVID-19 pandemic. The rise in business volume led to increases in the remaining line items of operating net working capital, essentially offsetting each other. The financing transactions for the acquisition of Varian had no material net effect on cash flows from financing activities. Cash inflows of €2,315 million resulted from the issuance of new shares. The investment of the funds received with the Siemens Group resulted in cash outflows in the line item other transactions/financing with the Siemens Group in the corresponding amount. The impact of borrowing loans of US$10.0 billion from the Siemens Group in connection with the acquisition of Varian was reversed with its short-term investment with the Siemens Group. Free cash flow In addition, cash outflows from income taxes paid increased by €138 million, mainly due to tax payments for prior years in Germany. Siemens Healthineers reports free cash flow as a supplemental liquidity measure: Investing activities Cash flows from investing activities decreased by €1,269 million to cash outflows of €328 million. This was primarily the result of a €1,314 million decrease in cash outflows for acquisitions of businesses, net of cash acquired. In prior year, these outflows chiefly related to the acquisitions of Corindus and ECG Management Consultants. (in millions of €) Cash flows from operating activities Additions to intangible assets and property, plant and equipment Free cash flow 2021 1,316 −289 1,027 First half 2020 572 −245 327 10 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Outlook A.5 Outlook Expected market development Business development The COVID-19 pandemic remains volatile and dynamic, especially as long as further waves, the availability of vaccines, and respective government reactions and measures remain in discussion. Given this prolonged unpredictability, the usual and historic development patterns of Siemens Healthineers’ markets may not be appropriate as a basis for forecasting purposes this year. Therefore, at this point in time it is challenging to reliably estimate the impact of COVID-19 on our addressed markets and therefore the expected developments of these markets. The pandemic has exposed the fragility of healthcare systems and the need to invest in improving their resilience. Significant government funding is expected to become available in the EMEA region in the coming months, opening up new market opportunities. As a result of the very strong revenue development in the second quarter, ongoing pandemic-related demand and higher confidence in the normalization of the business development, as well as the closing of the Varian acquisition, we again raise our outlook for fiscal year 2021. We expect comparable revenue growth between 14% and 17% from fiscal year 2020 (previously 8% to 12% in the outlook from the first quarter of fiscal year 2021 (hereinafter “Q1 2021”) and 5% to 8% in the annual report 2020). We expect adjusted basic earnings per share (adjusted for expenses for portfolio-related measures, and severance charges, net of tax) to be between €1.90 and €2.05 (previously €1.63 to €1.82 in the outlook from Q1 2021; and €1.58 to €1.72 in the annual report 2020; comparable prior-year figure: €1.61). With the acquisition of Varian, radiation oncology is now part of the outlook. In radiation oncology, given the criticality of the modality, we expect improvement in the equipment market over our fiscal year 2021, assuming the impact of COVID-19 continues to decrease. In the Imaging segment, we expect comparable revenue growth of more than 8% in fiscal year 2021 (previously at least 7% in the outlook from Q1 2021 and at least 5% in the annual report 2020), hence above the previous year. We continue to expect an increase in adjusted EBIT margin of around 100 basis points compared to the prior year. Consistent with the estimates in the annual report 2020 and based on ongoing evaluations of the impact of the COVID-19 pandemic, the Imaging equipment market is expected to recover within fiscal year 2021. For the Advanced Therapies market we expect the first steps of market recovery in the second half of fiscal year 2021. Determining factors for future development of the diagnostics market include the pace of vaccination for SARS-CoV-2, the emergence of further virus variants as well as, future waves of COVID-19 infection on the one hand, and potential pent-up demand for routine care on the other hand and associated diagnostic tests. Globally, SARS-CoV-2 tests, and in particular COVID-19 antigen rapid tests, will drive strong growth in the diagnostics market in fiscal year 2021. Moreover, the demand for routine care testing is expected to recover in the second half of fiscal year 2021, leading to significant growth in this market. In the Diagnostics segment, we expect comparable revenue growth of more than 25% in fiscal year 2021 (previously at least mid-teens in the outlook from Q1 2021 and mid- to high-single digit in the annual report 2020). The outlook is based on the assumption that the segment will generate around €750 million revenue from rapid COVID-19 antigen tests (previously €300 million to €350 million in the outlook from Q1 2021 and at least €100 million in the annual report 2020). It is expected that the adjusted EBIT margin will recover to more than 10% (previously more than 7% in the outlook of Q1 2021 and more than 5% in the annual report 2020), clearly above the prior-year level. In the Varian segment, we expect adjusted revenue between €1.2 billion and €1.4 billion as well as an adjusted EBIT margin between 12% and 14% for the second half of fiscal year 2021. The revenue development of Varian is not reflected in the comparable revenue growth of Siemens Healthineers as portfolio effects are excluded in the first year after closing of the acquisition. In the Advanced Therapies segment, we expect comparable revenue growth of more than 7% in fiscal year 2021 (previously at least 6% in the outlook of Q1 2021 and at least 5% in the annual report 2020), hence above the prior-year level. We continue to expect the adjusted EBIT margin to develop well compared to the industry overall. 11 Siemens Healthineers Half-Year Financial Report 2021 Interim group management report – Risks and opportunities The outlook is based on the following assumptions: Given the current dynamic of the pandemic, we assume that pandemic- related demand will not persist to the same extent beyond the fiscal year 2021. Additionally, we expect higher demand in the core business of our segments compared to the previous outlook from Q1 2021 as well as revenue and earnings contributions from Varian Medical Systems, Inc. following the successfully completed closing of the acquisition in April 2021. Estimates for the revenue and margin range include uncertainties associated with Varian regarding the harmonization of accounting methods for revenue recognition. Due to the second capital increase in March 2021, the weighted average number of outstanding shares for the fiscal year 2021 increased to 1.1 billion. A.6 Risks and opportunities In our annual report for fiscal year 2020 we described certain risks which could have a material adverse effect on our business situation, net asset and financial position (including effects on cash flows), results of operations and reputation. In addition, we described our significant opportunities as well as the design of our risk management system. During the reporting period, we identified no further significant risks and opportunities besides those presented in our annual report for fiscal year 2020. The following assumptions of the previous outlook from Q1 2021 remain unchanged: The expectation that current and potential future measures to bring the COVID-19 pandemic under control will not negatively impact the demand for our products and services. The outlook is based on current exchange rate assumptions. In addition, it is assumed that there will be no material change in the valuation of share-based compensation programs that are tied to shares of Siemens AG. The outlook also excludes charges related to legal and regulatory matters. Varian remained responsible for managing its risks during the reporting period. With the closing of the acquisition in April 2021 the risk landscape of Varian will be evaluated and taken into account in our risk management process in the course of the second half of the fiscal year. Thus, Varian's risks will become part of Siemens Healthineers’ risk management and reporting. Based on the risks identified by Varian until closing of the acquisition and its preliminary analysis, we do not expect substantial changes to our existing risk structure. Risks which were related to the failure of the transaction are no longer applicable. Vaccination efforts around the world as well as improved preparedness and adaptation to the current situation reduced our risk from the COVID-19 pandemic in the reporting period. Nonetheless, the risk of considerable adverse effects remains high, and we continue to observe developments in order to quickly identify changes and make adjustments where necessary. Besides that, the risk associated with cybersecurity increased slightly, making it now our most significant risk, for example due to the increasing cyber-attacks on healthcare providers and the continued high number of employees working from home. Thus, the most significant risks compared to our 2020 annual report now include cybersecurity, the legal and regulatory environment and risks associated with pension obligations. Additional risks and opportunities not known to us or that we currently consider immaterial could also affect our business operations. At present, no risks have been identified that in their known form either individually or in combination with other risks could endanger our ability to continue as a going concern. Please take note of C.3 Notes and forward-looking statements. 12 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income First half (in millions of €, earnings per share in €) Note 2021 Revenue 7,833 Cost of sales −4,761 Gross profit 3,073 Research and development expenses −660 Selling and general administrative expenses −1,118 Other operating income 2 Other operating expenses −18 Income from investments accounted for using the equity method, net 1 Earnings before interest and taxes 1,278 Interest income 11 Interest expenses 7 −35 Other financial income, net −31 Income before income taxes 1,223 Income tax expenses −338 Net income 885 Thereof attributable to: Non-controlling interests 10 Shareholders of Siemens Healthineers AG 875 Basic earnings per share 0.81 Diluted earnings per share 0.81 13 First half 2020 7,272 −4,404 2,869 −673 −1,186 12 −13 3 1,011 37 −40 −7 1,001 −282 719 6 712 0.71 0.71 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Net income Remeasurements of defined benefit plans Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges Therein: Income tax effects Cost/Income from hedging Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 14 First half 2021 885 89 −24 89 63 14 −9 −139 49 −62 27 912 11 901 First half 2020 719 22 −24 22 −151 24 −8 112 −40 −15 7 726 5 721 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Cash and cash equivalents Trade and other receivables Other current financial assets Current receivables from the Siemens Group Contract assets Inventories Current income tax assets Other current assets Total current assets Goodwill Other intangible assets Property, plant and equipment Investments accounted for using the equity method Other financial assets Deferred tax assets Other assets Total non-current assets Total assets Short-term financial debt and current maturities of long-term financial debt Trade payables Other current financial liabilities Current liabilities to the Siemens Group Contract liabilities Current provisions Current income tax liabilities Other current liabilities Total current liabilities Long-term financial debt Provisions for pensions and similar obligations Deferred tax liabilities Provisions Other financial liabilities Other liabilities Liabilities to the Siemens Group Total non-current liabilities Total liabilities Issued capital Capital reserve Retained earnings Other components of equity Treasury shares Total equity attributable to shareholders of Siemens Healthineers AG Non-controlling interests Total equity Total liabilities and equity 15 Note 4 4 4 4, 7 4 4 4 4 4, 7 4 4 4, 7 3 Mar 31, 2021 559 2,794 101 14,632 787 2,425 28 358 21,685 9,061 1,882 2,885 37 429 459 339 15,091 36,776 223 1,483 154 2,632 1,981 287 283 1,313 8,356 265 937 467 135 38 348 11,462 13,650 22,006 1,128 15,777 −1,180 −804 −159 14,762 8 14,770 36,776 Sept 30, 2020 656 2,568 142 3,392 818 2,304 49 338 10,268 9,038 1,912 2,774 37 352 419 295 14,827 25,094 167 1,356 93 2,046 1,784 270 374 1,198 7,289 314 1,029 470 144 10 345 2,982 5,294 12,584 1,075 13,476 −1,276 −741 −36 12,498 13 12,511 25,094 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Receivables from and payables to the Siemens Group from operating activities Trade payables Contract liabilities Change in other assets and liabilities Additions to equipment leased to others in operating leases Income taxes paid Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Purchase of investments and financial assets for investment purposes Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Cash flows from investing activities Purchase of treasury shares Issuance of new shares Re-issuance of treasury shares (and other transactions with owners) Repayment of long-term debt (including current maturities of long-term debt) Change in short-term financial debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG Dividends paid to non-controlling interests Interest paid to the Siemens Group Other transactions/financing with the Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 16 First half 2021 885 408 338 24 1 41 44 −74 −201 4 116 164 76 −125 −416 ‐ 31 1,316 −289 −6 −35 2 −328 −163 2,315 2 −61 4 −8 −856 −17 −62 −2,226 −1,073 −13 −97 656 559 First half 2020 719 391 282 3 −1 74 62 −342 17 3 −15 70 −286 −142 −278 1 14 572 −245 −5 −1,349 2 −1,597 −67 ‐ ‐ −60 46 −8 −798 −15 −54 1,919 962 −12 −75 920 845 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings Currency translation differences Reserve of equity instruments measured at fair value through other comprehensive income Cash flow hedges reserve Balance as of October 1, 2019 1,000 10,801 −1,859 −95 −33 −24 Net income 712 Other comprehensive income, net of taxes 22 −150 24 Dividends −798 Share-based payment 21 Purchase of treasury shares Reissuance of treasury shares 1 −1 Other changes in equity −66 Balance as of March 31, 2020 1,000 10,823 −1,989 −245 −33 1 Balance as of October 1, 2020 1,075 13,476 −1,276 −862 −33 37 Net income 875 Other comprehensive income, net of taxes 89 62 14 Dividends −856 Share-based payment 23 Purchase of treasury shares Reissuance of treasury shares 3 Issuance of new shares 53 2,275 Other changes in equity −12 Balance as of March 31, 2021 1,128 15,777 −1,180 −800 −33 51 17 Cost of hedging reserve 3 112 115 117 −139 −22 Treasury shares at cost −24 −64 33 −55 −36 −161 38 −159 Total equity attributable to shareholders of Siemens Healthineers AG 9,769 712 8 −798 21 −64 33 −66 9,616 12,498 875 26 −856 23 −161 41 2,328 −12 14,762 Non- controlling interests 13 6 −1 −15 3 5 13 10 1 −17 1 8 Total equity 9,782 719 7 −814 21 −64 33 −63 9,621 12,511 885 27 −873 23 −161 41 2,328 −11 14,770 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation The condensed half-year consolidated financial statements as of March 31, 2021, present the operations of Siemens Healthineers AG and its subsidiaries (hereinafter, collectively, “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year consolidated financial statements were prepared and published in euros (€). Due to rounding, numbers may not add up precisely to the totals provided. Consolidated statements of cash flows: Siemens Healthineers added a new line to the presentation of the consolidated statements of cash flows to show repayments of lease liabilities, which are recognized under the right-of-use model, in the new line item repayment of long-term debt (including current maturities of long-term debt). This provides more relevant information with regard to the cash flow effects of leases, which are recognized under the right-of-use model. Previously, the repayments of lease liabilities were included in the line item change in short-term financial debt and other financing activities. The prior-year amounts have been reclassified accordingly for reasons of better comparability. Therefore, €60 million were reclassified from the line item change in short-term financial debt and other financing activities into the line item repayment of long-term debt (including current maturities of long-term debt). The results achieved in the interim reporting period are not necessarily indicative of the development of future business performance. The COVID-19 pandemic and associated significant uncertainties have been considered, where relevant, in accounting estimates and judgments. In the first half of fiscal year 2021, the COVID-19 pandemic did not lead to material adjustments of the carrying amounts of recognized assets and liabilities and there is currently no significant risk that the COVID- 19 pandemic will lead to material adjustments in the second half of fiscal year 2021. For further information on impacts from the COVID-19 pandemic, on disaggregation of revenue and on segment information, see disclosures in the interim group management report. The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on April 28, 2021. Note 2 Accounting policies The above-described change in presentation of the consolidated statements of cash flows did not result in a change of the underlying allocation of cash flows in the cash flows from operating activities, the cash flows from investing activities or the cash flows from financing activities. Note 3 Equity Resolutions of the Shareholders’ Meeting 2021 The Authorized Capital 2018 was canceled by resolution at the Shareholders’ Meeting on February 12, 2021. With this resolution, the Managing Board was simultaneously authorized by the Shareholders’ Meeting to increase the capital stock, with the approval of the Supervisory Board, on one or more occasions, in one total sum or in installments, during the period until February 11, 2026 by up to €537.5 million by issuing up to 537,500,000 new ordinary registered shares with no par value against contributions in cash and/or in kind (Authorized Capital 2021). Furthermore, the Managing Board was authorized to exclude the subscription rights of the shareholders with the approval of the Supervisory Board. The accounting policies applied for the preparation of the half- year consolidated financial statements are consistent with those accounting policies applied for the preparation of the consolidated financial statements for fiscal year 2020. Income tax expenses are determined in interim reporting periods on the basis of the current estimated annual effective tax rate of Siemens Healthineers for the overall year. Change in presentation Consolidated statements of financial position: Due to the increase in treasury shares, Siemens Healthineers decided in the first half of fiscal year 2021 to add an additional line to the presentation of the consolidated statements of financial position to show treasury shares separately, as this provides more relevant information with regard to the composition of equity. Treasury shares were included so far in the line item other components of equity. The prior-year amounts have been reclassified accordingly for reasons of better comparability, which resulted in a reclassification of €36 million from the line item other components of equity into the line item treasury shares. The Conditional Capital 2018 and the authorization to issue convertible bonds or warrants under warrant bonds as of February 19, 2018 were canceled by resolution at the Shareholders’ Meeting on February 12, 2021. Simultaneously, the share capital was conditionally increased by up to €107.5 million (107,500,000 shares, Conditional Capital 2021) and the authorization of the Managing Board to issue convertible bonds and/or warrant bonds was renewed. The Conditional Capital 2021 serves to grant shares to holders or creditors of bonds issued by Siemens Healthineers AG or one of its affiliated companies until February 11, 2026. Furthermore, the Managing Board was authorized to exclude the subscription rights of the shareholders with the approval of the Supervisory Board. 18 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements By resolution of the Shareholder’s Meeting on February 12, 2021, the authorization of February 19, 2018 to acquire and use treasury shares was canceled. Simultaneously, the Managing Board was authorized to acquire treasury shares until February 11, 2026 in an aggregate amount of up to 10% of the capital stock existing at the time the resolution is adopted or, if this amount is lower, of the capital stock existing at the time the authorization is exercised. Capital increase in March 2021 Authorized capital: As of March 31, 2021, the authorized capital of Siemens Healthineers AG was €484.5 million (September 30, 2020: €425 million) and its conditional capital was €107.5 million (September 30, 2020: €100 million). Capital reserve: In the first half of fiscal year 2021, changes in the capital reserve resulted mainly from the capital increase against cash contributions described above. Furthermore, effects from transaction costs related to the capital increase of €24 million were recognized. In March 2021, the Managing Board of Siemens Healthineers AG, with the approval of the Supervisory Board, resolved on a capital increase against cash contributions through partial utilization of the Authorized Capital 2021. The 53,000,000 new shares were placed with institutional investors under exclusion of subscription rights of already existing shareholders, at a placement price of €44.10 per share, by way of an accelerated book-building process, and carry dividend rights as from October 1, 2020. Treasury shares: In the first half of fiscal year 2021, Siemens Healthineers repurchased 4,067,889 (first half of fiscal year 2020: 1,550,474) shares utilizing the authorization granted by the extraordinary Shareholders’ Meeting held on February 19, 2018, and transferred 971,827 (first half of fiscal year 2020: 844,309) treasury shares in conjunction with share-based payment plans. Further disclosures Dividends: In the second quarter of fiscal year 2021, a dividend of €0.80 per share was paid. Issued capital: As of March 31, 2021, the issued capital of Siemens Healthineers AG was divided into 1,128,000,000 (September 30, 2020: 1,075,000,000) ordinary registered shares with no par value and a notional value of €1.00 per share. The shares are fully paid in. Each share has one vote and accounts for the shareholder’s proportionate share in the net income. All shares confer the same rights and obligations. 19 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 4 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities according to IFRS 9, Financial Instruments: Carrying amounts as of Mar 31, 2021 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Total Cash and cash equivalents AC 559 559 Trade receivables² AC 2,747 2,747 Receivables from finance leases³ n.a. 237 237 Current receivables from the Siemens Group AC 14,632 14,632 Other current and non-current financial assets² Derivatives included in hedge accounting n.a. 154 154 Derivatives not included in hedge accounting FVtPL 21 21 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 12 4 17 33 Equity instruments measured at fair value through other comprehensive income FVtOCI 42 42 Other AC 91 91 Total financial assets 18,029 12 179 59 237 18,516 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 112 112 Trade payables AC 1,483 1,483 Lease liabilities⁵ n.a. 457 457 Current and non-current liabilities to the Siemens Group⁴ AC 14,013 14,013 Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. 70 28 97 Derivatives not included in hedge accounting FVtPL 13 13 Contingent considerations from business combinations FVtPL 7 7 Liabilities from written put options on non-controlling interests n.a. 32 32 Other AC 42 42 Total financial liabilities 15,650 ‐ 83 35 489 16,256 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and liabilities to the Siemens Group. 20 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2020 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Total Cash and cash equivalents AC 656 656 Trade receivables² AC 2,520 2,520 Receivables from finance leases³ n.a. 210 210 Current receivables from the Siemens Group AC 3,392 3,392 Other current and non-current financial assets² Derivatives included in hedge accounting n.a. 129 25 154 Derivatives not included in hedge accounting FVtPL 21 21 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 13 9 11 33 Equity instruments measured at fair value through other comprehensive income FVtOCI 42 42 Other AC 81 81 Total financial assets 6,650 13 160 78 210 7,111 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 109 109 Trade payables AC 1,356 1,356 Lease liabilities⁵ n.a. 458 458 Current and non-current liabilities to the Siemens Group⁴ AC 4,942 4,942 Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. 5 5 Derivatives not included in hedge accounting FVtPL 17 17 Contingent considerations from business combinations FVtPL 7 7 Liabilities from written put options on non-controlling interests n.a. 31 31 Other AC 45 45 Total financial liabilities 6,452 21 7 489 6,969 1 AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 2 Excluding separately disclosed receivables from finance leases. 3 Reported in the line items trade and other receivables as well as other financial assets. 4 Excluding separately disclosed lease liabilities. 5 Reported in the line items short-term financial debt and current maturities of long-term financial debt, long-term financial debt, current liabilities to the Siemens Group and liabilities to the Siemens Group. The carrying amount of liabilities to the Siemens Group from U.S. dollar-denominated long-term loans was €11,408 million as of March 31, 2021 (September 30, 2020: €2,923 million). The fair value of these liabilities, which is based on prices provided by price service agencies (level 2), amounted to €11,376 million as of March 31, 2021 (September 30, 2020: €3,173 million). The carrying amounts of the remaining financial assets and liabilities measured at amortized cost approximated their fair value. exchange rates, interest curves and volatilities. In addition, the value of the contingency element was taken into account, which depended on expectations about the occurrence and the timing of the closing (level 3). As of March 31, 2021, closing was still deemed highly probable. In the first half of fiscal year 2021, the changes in the fair value of the deal contingent forward amounted to €–52 million and were recognized in the line item cash flow hedges within other comprehensive income. The determination of the fair values of derivatives depended on the specific type of instrument. The fair values of forward exchange contracts and foreign exchange swaps were based on forward exchange rates (level 2). Options were generally valued based on market prices or based on option pricing models (level 2). In connection with the acquisition of Varian Medical Systems, Inc. (hereinafter “Varian”), Siemens Healthineers entered into a deal contingent forward with a nominal amount of €7,500 million, which was linked to the actual closing of the acquisition. The fair value of this deal contingent forward was generally based on observable market data such as forward Except for publicly listed investments for which a quoted price in an active market exists (level 1), the fair values of equity instruments were derived primarily from a discounted cash flow valuation (level 3). Expected cash flows are subject to future market and business developments as well as price volatility. The discount rates applied take into account respective risk-adjusted capital costs. The fair value measurement of fund shares was based on their net asset values (level 2). The fair values of contingent considerations from business combinations were derived from probability-weighted future 21 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements payments, which mainly depend on the achievement of technical and commercial milestones as well as on the achievement of revenue targets during the earn-out period (level 3). If the estimated revenues or probabilities of completing certain milestones increase or decrease during the respective earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. The increase in financial debt resulted mainly from agreements to finance the purchase price and additional costs in connection with the acquisition of Varian (please also see Note 8 Subsequent events). In the first half of fiscal year 2021, the Siemens Group provided loans denominated in U.S. dollars with various maturities. As of March 31, 2021, the loan structure was as follows: Liabilities from written put options on non-controlling interests were measured at fair value, which is based on the present value of the exercise price of the options (level 3). The exercise price is generally derived from the proportionate enterprise value. In the first half of fiscal year 2020, liabilities increased mainly due to the addition of written put options amounting to €58 million in connection with the acquisition of ECG Management Consultants (hereinafter “ECG”). The enterprise value of ECG is calculated by an independent appraiser in accordance with a contractually agreed methodology and serves as a basis for the exercise price per share, which is determined at least once a year. The most significant unobservable input used to determine the fair value is financial information from the five-year business plan, which is mainly subject to expected business and market developments. In addition, weighted revenue and earnings multiples are considered. US$1.2 billion maturing in fiscal year 2023 (contractual interest rate: 0.6%), US$1.5 billion maturing in fiscal year 2024 (contractual interest rate: 0.8%), US$1.7 billion maturing in fiscal year 2026 (contractual interest rate: 1.4%), US$1.2 billion maturing in fiscal year 2028 (contractual interest rate: 1.9%), US$1.7 billion maturing in fiscal year 2031 (contractual interest rate: 2.3%), US$1.5 billion maturing in fiscal year 2041 (contractual interest rate: 3.0%), and US$1.0 billion maturing in fiscal year 2024 (variable interest rate). The following table shows the composition of Siemens Healthineers’ financial debt: (in millions of €) Mar 31, 2021 Sept 30, 2020 The resulting foreign currency risks were hedged by forward exchange contracts and by foreign exchange swaps. As a result, the loans were effectively converted into synthetic euro- denominated loans and actual interest expenses decreased due to positive forward elements of the forward exchange contracts and foreign exchange swaps. In total, the actual current volume- weighted average interest rate of the loans amounts to approximately 0.3%. Short-term financial debt and current maturities of long-term financial debt 223 167 Thereof: Loans from banks Lease liabilities Current liabilities to the Siemens Group from financing activities 111 112 2,624 60 107 2,040 As a result of those financing transactions, Siemens Healthineers held significant U.S. dollar-denominated cash-pooling receivables as of March 31, 2021. Thereof, receivables amounting to US$7.7 billion were designated as hedging instruments to hedge exchange rate risks resulting from the highly probable purchase price payment in U.S. dollars. Therein: Lease liabilities 26 27 Total current financial debt Long-term financial debt Thereof: Loans from banks Lease liabilities Liabilities to the Siemens Group from financing activities Therein: Lease liabilities Total non-current financial debt 2,847 265 ‐ 265 11,462 54 11,727 2,207 314 49 265 2,982 59 3,297 Furthermore, in fiscal year 2020, the Siemens Group provided a bridge facility to finance the purchase price and additional costs in connection with the acquisition of Varian. As of March 31, 2021, this financing commitment was not utilized by Siemens Healthineers and was canceled in full. The unused available commitment from the bridge facility was subject to a commitment fee. This fee and other fees were recognized in other financial income and amounted to €28 million in the first half of fiscal year 2021. In the first half of fiscal year 2021, the Siemens Group committed itself to provide Siemens Healthineers an additional financing of €1.1 billion in case of the closing of the acquisition of Varian. Total financial debt 14,574 5,503 22 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 5 Share-based payment In the first half of fiscal year 2021, Siemens Healthineers granted a total of 1,434,187 (first half of fiscal year 2020: 1,139,879) Siemens Healthineers’ stock awards to members of the Managing Board, members of senior management and other eligible employees. As in prior year, a portion of the Siemens Healthineers’ stock awards granted to members of senior management and other eligible employees continues to depend solely on fulfillment of the employee’s respective service condition. In addition, for the first time, Siemens Healthineers’ stock awards granted to members of the Managing Board, eligible members of senior management and other eligible employees are linked to the development of the total shareholder return as compared to two equally weighted external indices and to internal sustainability targets. 23 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 6 Segment information Adjusted external revenue¹ Intersegment revenue Total adjusted revenue¹ Adjusted EBIT² Assets³ (in millions of €) 2021 First half 2020 2021 First half 2020 2021 First half 2020 2021 First half 2020 Mar 31, 2021 Sept 30, 2020 Imaging 4,549 4,379 139 151 4,687 4,530 1,041 917 6,963 7,045 Diagnostics 2,420 2,018 ‐ ‐ 2,420 2,018 268 97 5,191 5,179 Advanced Therapies 818 823 2 2 820 825 136 161 1,973 1,934 Total segments 7,787 7,219 141 153 7,927 7,372 1,444 1,175 14,127 14,158 Reconciliation to consolidated financial statements⁴ 46 53 −141 −153 −94 −100 −222 −174 22,649 10,936 Siemens Healthineers 7,833 7,272 ‐ ‐ 7,833 7,272 1,223 1,001 36,776 25,094 1 Siemens Healthineers: IFRS revenue. 2 Siemens Healthineers: Income before income taxes. Adjusted EBIT first half 2020 on segment level adjusted in line with updated definition of adjusted EBIT. 3 On segment level: net capital employed. 4 Including effects in line with revaluation of contract liabilities from IFRS 3 purchase price allocations. 24 Free cash flow 2021 First half 2020 1,186 679 163 −122 112 44 1,461 601 −434 −274 1,027 327 Additions to other intangible assets and property, plant and equipment 2021 First half 2020 69 217 231 259 8 316 308 793 189 103 497 896 Amortization, depreciation and impairments 2021 First half 2020 83 79 157 128 9 9 249 217 158 175 408 391 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2020. Assets (in millions of €) Adjusted EBIT margin is used to manage the operating performance of our segments. Adjusted EBIT is the underlying earnings indicator and is defined as income before income taxes, interest income and expenses and other financial income, net, adjusted for the following items since fiscal year 2021: Total segments‘ assets Asset-based adjustments Therein: Assets corporate treasury Assets Siemens Healthineers Real Estate expenses for mergers, acquisitions, disposals and other Receivables from the Siemens Group from non-operating activities portfolio-related measures, in particular > amortization, depreciation and other effects from IFRS 3 Current income tax assets and deferred tax assets purchase price allocation adjustments, Liability-based adjustments > transaction, integration, retention and carve-out costs, > gains and losses from divestments, Total reconciliation to consolidated financial statements severance charges and • centrally carried pension service and administration expenses. Siemens Healthineers‘ total assets Adjusted revenue Free cash flow At the segment level, revenue is defined as total revenue and corresponds to the sum of external and intersegment revenue. Total adjusted revenue of the segments is additionally adjusted for effects in line with revaluation of contract liabilities from IFRS 3, Business Combinations, purchase price allocations. (in millions of €) Total segments‘ free cash flow Tax-related cash flow Corporate items and other Siemens Healthineers’ revenue included revenue from contracts with customers and income from leases. In the first half of fiscal year 2021, income from leases amounted to €170 million (first half of fiscal year 2020: €156 million). Total reconciliation to consolidated financial statements Siemens Healthineers‘ free cash flow For each of the segments, revenue results mainly from performance obligations satisfied at a point in time, especially in the case of the sale of goods, including reagents and consumables in the Diagnostics segment. However, the performance obligations related to maintenance contracts for equipment sold are generally satisfied over time with revenue recognized on a straight-line basis. Adjusted EBIT (in millions of €) 2021 First half 2020 Total segments‘ adjusted EBIT 1,444 1,175 Centrally carried pension service and administration expenses −7 −9 Amortization, depreciation and other effects from IFRS 3 purchase price allocation adjustments −66 −87 Transaction, integration, retention and carve-out costs −23 −19 Severance charges −37 −34 Financial income, net −56 −10 Corporate items −36 −26 Corporate treasury, Siemens Healthineers Real Estate, eliminations and other items 3 12 Total reconciliation to consolidated financial statements −222 −174 Siemens Healthineers‘ income before income taxes 1,223 1,001 25 Mar 31, 2021 14,127 16,945 644 1,022 14,629 487 5,704 22,649 36,776 2021 1,461 −416 −18 −434 1,027 Sept 30, 2020 14,158 5,770 739 945 3,387 468 5,167 10,936 25,094 First half 2020 601 −278 4 −274 327 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 7 Related party transactions The following presents the relationships Siemens Healthineers’ maintained with the Siemens Group, that is the Siemens AG and its subsidiaries. Transactions with the Siemens Group Siemens Healthineers was included in the cash pooling and cash management of the Siemens Group. Thereby, Siemens Healthineers invested excess liquidity in the short term and was granted overdraft facilities for financing its operating activities. In the first half of fiscal year 2021, receivables from and liabilities to the Siemens Group changed further, in particular, due to the dividend payout and in consequence of financing activities described below: Sales of goods and services and other income and purchases of goods and services and other expenses from transactions with the Siemens Group are shown in the following table: The liabilities to other Siemens Group entities increased mainly due to an additional financing of US$10.0 billion in total for the acquisition of Varian. Sales of goods and services and other income Purchases of goods and services and other expenses The receivables from the Siemens AG increased mainly due to the short-term investment of this additional financing and the short-term investment of liquid funds from the capital increase in March 2021. (in millions of €) 2021 First half 2020 2021 First half 2020 Siemens AG Other Siemens Group entities Total 2 135 138 2 161 163 124 127 251 125 110 235 Further, the Siemens Group provided an additional financing commitment in the amount of €1.1 billion. As of March 31, 2021, the bridge facility, provided by the Siemens Group for the acquisition of Varian, was fully canceled. In the first half of fiscal year 2021, Siemens Healthineers obtained support from the Siemens Group for central corporate services resulting in expenses of €116 million (first half of fiscal year 2020: €161 million). Further, there existed leasing transactions with the Siemens Group, mainly for real estate. As of March 31, 2021, total lease liabilities amounted to €81 million (September 30, 2020: €86 million). In the first half of fiscal year 2021, interest expenses from financing arrangements with the Siemens Group amounted to €21 million (first half of fiscal year 2020: €24 million). This included positive effects from the currency hedging of the U.S. dollar-denominated loans mentioned above and from a restructuring of non-current financial liabilities to the Siemens Group in fiscal year 2019. Further, in the first half of fiscal year 2021, expenses related to the bridge facility incurred in a total amount of €28 million. Receivables from and liabilities to the Siemens Group Receivables from and liabilities to the Siemens Group were as follows: For further information on the financing arrangements with the Siemens Group and resulting interest expenses and income, please refer to Note 4 Financial instruments. (in millions of €) Siemens AG Other Siemens Group entities Total Current receivables from the Siemens Group Current liabilities and liabilities to the Siemens Group Mar 31, 2021 Sept 30, Mar 31, 2021 2020 Sept 30, 2020 13,739 2,720 1,869 1,346 893 672 12,224 3,683 14,632 3,392 14,094 5,028 Hedging with the Siemens Group As of March 31, 2021, other current and other non-current financial assets resulting from hedging activities with the Siemens Group as counterparty amounted to €155 million (September 30, 2020: €154 million). This included other financial assets amounting to €56 million related to the hedging of the financing of the acquisition of Varian, which is denoted in foreign currency. As of March 31, 2021, other current and other non- current financial liabilities from hedging activities amounted to €103 million (September 30, 2020: €10 million). This included other current financial liabilities amounting to €28 million (September 30, 2020: other current financial assets in an amount of €25 million) related to a deal contingent forward, which was agreed with the Siemens Group to hedge the purchase price payment for the acquisition of Varian. 26 Siemens Healthineers Half-Year Financial Report 2021 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 8 Subsequent events On April 15, 2021, Siemens Healthineers completed the acquisition of all shares in Varian Medical Systems, Inc. (hereinafter “Varian”). Varian is a world leader in the field of cancer care, with innovative solutions especially in radiation oncology and related digital solutions and applications. Varian thus offers an ideal fit to Siemens Healthineers’ leading businesses in medical imaging, laboratory diagnostics and interventional procedures. Since closing of the acquisition, Varian constitutes a separate segment within Siemens Healthineers. to technologies for Varian’s oncology solutions. Goodwill will comprise intangible assets that are not separable such as employee know-how and expected synergy effects. Synergies from the acquisition are mainly expected from broader regional coverage of the sales network, cross-selling opportunities into existing customer base and from expanded integrated service offerings (e.g. “Oncology-as-a-Service” program) and value partnerships, as well as joint product innovation. Besides, cost synergies, resulting from the merger of the two businesses, are expected in the administrative field and related to procurement activities. The purchase price paid in cash amounted to US$16.4 billion (€13.9 billion as of the acquisition date). Due to the proximity of the closing of the acquisition to the date this report was authorized for issue, the preparation process of the purchase price allocation (including goodwill allocation to cash-generating units or groups of cash-generating units) according to IFRS 3, Business Combinations, is at a very early stage. It is expected that the major part of the purchase price will be allocated to intangible assets and goodwill. Resulting intangible assets will mainly relate In the first half of fiscal year 2021, the Siemens Group committed itself to provide an additional financing of €1.1 billion. This was utilized by Siemens Healthineers in the amount of €850 million with the closing of the acquisition. With the closing of the acquisition of Varian, the deal contingent forward entered into in fiscal year 2020 was settled on April 15, 2021, leading to expenses of €89 million in other financial income, net. 27 Siemens Healthineers Half-Year Financial Report 2021 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, April 28, 2021 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Darleen Caron Dr. Jochen Schmitz Dr. Christoph Zindel 28 Siemens Healthineers Half-Year Financial Report 2021 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements comprising the consolidated statements of income, comprehensive income, financial position, cash flows and changes in equity, and notes to half-year consolidated financial statements, and the interim group management report, of Siemens Healthineers Aktiengesellschaft, Munich for the period from October 1, 2020 to March 31, 2021 which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The Company’s management is responsible for the preparation of the half-year consolidated financial statements in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports. Our responsibility is to issue a report on the half-year consolidated financial statements and the interim group management report based on our review. Based on our review nothing has come to our attention that causes us to believe that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. Munich, April 28, 2021 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft We conducted our review of the half-year consolidated financial statements and the interim group management report in compliance with German Generally Accepted Standards for the Review of Financial Statements promulgated by the Institut der Wirtschaftsprüfer (IDW - Institute of Public Auditors in Germany) and in supplementary compliance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of the Company’s employees and analytical assessments and therefore does not provide the assurance obtainable from an audit of financial statements. Since, in accordance with our engagement, we have not performed an audit of financial statements, we cannot issue an auditor’s report. Keller Wirtschaftsprüfer [German Public Auditor] Dr. Eisele Wirtschaftsprüfer [German Public Auditor] 29 Siemens Healthineers Half-Year Financial Report 2021 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance, the expected financial impact of the acquisition of Varian (including cost and revenue synergies) and future events or developments involving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or developments, these statements are subject to various risks, uncertainties and factors, including but not limited to those described in the respective disclosures. Should one or more of these risks, uncertainties or factors materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results, performance or achievements of Siemens Healthineers may (negatively or positively) vary materially from those described explicitly or implicitly in the forward-looking statement. All forward-looking statements only speak as of the date when they were made and Siemens Healthineers neither intends nor assumes any obligation, unless required by law, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes – in the applicable financial reporting framework not clearly defined – supplemental financial measures that are or may be alternative performance measures (non-GAAP- measures). These supplemental financial measures may have limitations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets, financial position and results of operations as presented in accordance with the applicable financial reporting framework. Other companies that report or describe similarly titled alternative performance measures may calculate them differently, which may therefore not be comparable. Due to rounding, individual numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. This document is an English language translation of the German document. In case of discrepancies, the German language document is the sole authoritative and universally valid version. For technical reasons, there may be differences in formatting between the accounting records appearing in this document and those published pursuant to legal requirements. For reasons of better readability, the male form is predominantly chosen in this Half-Year Financial Report. The information refers nevertheless to persons of any gender. Siemens Healthineers AG Henkestr. 127 91052 Erlangen, Germany siemens-healthineers.com Investor Relations Phone: +49 (9131) 84-3385 Email: ir.team@siemens-healthineers.com corporate.siemens-healthineers.com/investor-relations Press Email: press.team@siemens-healthineers.com corporate.siemens-healthineers.com/press © Siemens Healthineers AG, 2021 30 | Semestriel, 2021, Healthcare, SiemensHealthineers | write me a financial report |
Semestriel | 2,020 | Technology | SAP | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Technology
### Company:
SAP
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| Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Supplementary Financial Information General Information Additional Information 2 3 4 18 41 47 48 SAP Half-Year Report 2020 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Half-yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the consolidated half-year management report, condensed consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 115 (2). This half-year group report updates our consolidated financial statements 2019, presents significant events and transactions of the first half of 2020, and updates the forward-looking information contained in our Management Report 2019. This half-year financial report only includes half-year numbers. Our quarterly numbers are available in the Quarterly Statement. Both the 2019 consolidated financial statements and the 2019 management report are part of our Integrated Report 2019, which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means that the information has been subject neither to any audit nor to any review by an independent auditor. SAP Half-Year Report 2020 3 Consolidated Half-Year Management Report Strategy and Business Model Despite the coronavirus pandemic (COVID-19 pandemic), our strategy and business model remained largely unchanged in the first half of 2020. For a detailed description, see our Integrated Report 2019. Nevertheless, to significantly accelerate the digital transformation, SAP is intensifying its activities in the areas of business process integration, innovation, and agility. We set this focus to ensure the success of SAP customers and work together to combat climate change offerings were made available to help curb the impact of global travel disruptions during the pandemic. As flight cancelations began to take hold, our TripIt and TripIt Pro services were offered for free for six months to individual travelers. Integration is a topic that SAP sees as crucial to the foundation of an intelligent enterprise. In the first half of 2020, we published SAP's integration plan in the cloud and made significant progress implementing planned integration qualities across organic and acquired SAP cloud offerings. Products, Research & Development, and Services Our industry cloud was another key focus area. In June 2020, we launched SAP’s industry cloud portfolio to provide customers with cloud-native, industry applications built by SAP and its partners on technologies in our Business Technology Platform. This section presents a snapshot of SAP product development and services innovation during the first half of 2020 and is intended to supplement the SAP Integrated Report 2019. The Climate 21 program defines and develops business and solution capabilities to support our customers on the journey to a low-carbon future. For more information, see the Energy and Emissions section in this consolidated half-year management report. Experience In the first half of 2020, we delivered 13 experience management (XM) offerings to help alleviate the business impact of the COVID-19 pandemic, including pulse check solutions – such as Qualtrics Remote Work Pulse, Qualtrics Healthcare Workforce Pulse, and Qualtrics Remote Educator Pulse – and the Qualtrics COVID-19 Prescreen and Routing solution, which aims to help health authorities automate initial screening for symptoms and distribute COVID-19 information to the public. In addition, within the Qualtrics EmployeeXM portfolio, we released the Return to Work Pulse offering to help enterprises make informed reopening decisions based on feedback from employees. SAP Services and Support Previously called SAP Digital Business Services, the SAP Services and Support organization comprises a team of more than 22,500 employees serving customers in 180 countries. Our portfolio of offerings is described in the SAP Integrated Report 2019. Intelligence Our release of SAP HANA Cloud across multiple cloud environments in March 2020 made SAP HANA available not only as an on-premise platform, but also as a service. Further innovation in the first half of 2020 resulted in several offerings to mitigate the social impact of COVID-19, including an emergency repatriation app, which SAP provided to the German Federal Foreign Office, and the Corona-Warn-App – developed with Deutsche Telekom and other partners – designed to help track coronavirus infections and break transmission chains in Germany. Operations In February 2020, SAP committed to maintaining SAP S/4HANA, our next-generation ERP suite, until the end of 2040. Over 800 SAP S/4HANA customers were added in the first half of 2020, boosting total adoption 22% year over year to more than 14,600 customers, of which more than 7,400 are live. In addition, we made the SAP Ariba Discovery solution available free of charge during the COVID-19 pandemic to help buyers source suppliers, goods, and services globally. Similarly, SAP Concur 4 SAP Half-Year Report 2020 Security, Data Protection, and Privacy Cloud solutions and services are becoming increasingly important to many companies' daily operations, particularly in light of the COVID-19 global pandemic. Accordingly, cybersecurity is becoming a larger priority for Information Technology (IT) security professionals around the world, as critical systems such as ERP, CRM, SCM, and other business tools are moving from on-prem environments to the cloud. SAP’s mission is to provide customers with trusted data to enable them to innovate with confidence on their path to an intelligent enterprise. SAP supports this journey by aligning people, procedures, and technology to protect business processes and data, limiting risk and helping to achieve regulatory compliance. Collaborating with developers, product managers, compliance, procurement, and partners, SAP’s committed and highly skilled security team embraces a security-minded culture and a privacy-by- design mindset. We review our cybersecurity infrastructure with the goal of safeguarding our critical information and assets, business operations, cloud offerings and portfolio presentation, and related infrastructure against disruption or poor performance. As part of that review, we identified that some of our cloud products did not meet one or more contractually agreed or statutory IT security standards. Specifically, the affected products are SAP Success Factors, SAP Concur, SAP Commissions (formerly CallidusCloud Commissions), SAP CPQ (formerly CallidusCloud CPQ) as well as the SAP Cloud for Customer solution (now part of the SAP Sales Cloud solution), SAP Cloud Platform, and the SAP Analytics Cloud solution. We have resolved the identified gaps for all of the named solutions as at the time of issuance of this report. Employees and Social Investments Our people are key in enabling our customers to successfully become intelligent enterprises. For this reason, we strive to understand the needs of today’s employee and how a 21st-century organization must evolve to keep attracting, retaining, and growing current and future talent. For a detailed description of our HR strategy, see the Employees and Social Investments section in our Integrated Report 2019. As for the entire global society and economy, COVID-19 was the dominant topic in the first half of 2020. Therefore, our main focus was on the health and safety of our people. We are committed to doing our part to prevent and contain the global spread of the virus, and have an active crisis management driven by our Global Pandemic Taskforce in close collaboration with global, regional, and local management teams. As a precaution, we have implemented measures that align with the recommendations issued by recognized health authorities such as the World Health Organization (WHO), and relevant local health authorities. Most of our people are currently working from home. We are able to ensure business continuity for our people and customers by extending our already existing IT technology and regulations. Frequent pulse checks of our employees help us understand how they experience their individual situation, and allow us to adjust our crisis management accordingly. Especially in times such as this, positive experiences across different HR touchpoints are key for our consumers, as candidates, employees, managers, executives, and alumni. For instance, we were able to virtualize the entire onboarding process of new hires by applying our own solutions and our own expertise. At the end of the SAP Half-Year Report 2020 first half of 2020, the employee retention rate was still at a high level of 93.9% (compared to 93.5% at the end of the first half of 2019 and 93.3% at the end of 2019). We define retention as the ratio of the average number of employees minus the employees who voluntarily departed, to the average number of employees (in full-time equivalents, or FTEs). In our May 2020 pulse survey complementing the annual engagement survey, our Employee Engagement intermediate score increased to 86% (+3pp compared to 2019 annual Employee Engagement score). We aim to keep our Employee Engagement Index between 84% and 86% for 2020. Besides this, we also continue to foster an inclusive, bias-free workforce. The ratio of women in management positions continued its upward trajectory, reaching 27.3% at the end of the first half of 2020 compared to 26.2% at the end of June 2019 and 26.4% at the end of 2019. On June 30, 2020, we had 101,379 FTEs worldwide (June 30, 2019: 98,332; December 31, 2019: 100,330). For a breakdown of headcount by function and geography, see the Notes to the Consolidated Half-Year Financial Statements, Note (B1). Energy and Emissions The first half of 2020 was marked by the advancement of several valuable NGO partnerships to support waste reduction and a circular economy. SAP’s inclusion in the World Economic Forum’s Global Plastic Action Partnership was highlighted at the Annual Meeting in Davos, with SAP’s commitment to create a cleaner ocean by 2030. SAP also joined the Ellen MacArthur Foundation, which aims to accelerate the transition to the circular economy. With solutions and tools such as Plastics Cloud, SAP can help companies produce products more responsibly and decrease waste by providing existing and live data of global supply chains and waste flows. We remain committed to helping rebuild a more resilient, restorative, and inclusive economy within the planetary boundaries – both as an enabler and exemplar. In June 2020, we launched the SAP Product Carbon Footprint Analytics application, helping customers understand their carbon footprint and providing a foundation for analyzing and optimizing greenhouse gas emissions. This is the first solution of the Climate 21 program, SAP’s major program to help customers achieve their climate-related objectives and prepare their operations for the emerging business reality where sustainability is a strategic and economic imperative. In a multi-year road map, SAP will work with co-innovation partners to embed sustainability metrics across SAP’s solution portfolio. Over the past several years, we calculated the costs that were avoided through emission reduction initiatives compared to a business-as-usual scenario. For this half year report, we have not published the cost avoidance number as we are currently working on re-evaluating our calculation approach for 2020. Our goal is to become carbon neutral by 2025. SAP’s carbon emissions for the first half of 2020 totaled 90 kilotons (kt) of CO2 compared to 185 kt in the first half of 2019. This strong decrease is a direct result of the exceptional COVID-19 situation. As almost all business activities were moved to remote working models, major CO2-emitting business activities such as business travels were reduced to a minimum. To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. During the first half of 2020, our carbon emissions (in tons) per employee was 2.0 (compared to 3.2 during the first half of 2019), and our carbon 5 emissions (in grams) per euro revenue was 7.3 (compared to 12.2 during the first half of 2019) (rolling four quarters). In recognition of the exemplary actions SAP has taken to embed sustainability across its business worldwide, SAP was included in various ratings and rankings and remains a constituent in multiple environmental, social, and governance (ESG) indices acknowledging SAP’s strong ESG performance: the Ethibel Sustainability Index (ESI) Excellence Europe and ESI Excellence Global, the FTSE4Good Index Series, and the Euronext Vigeo Eiris indices (Europe 120 and Eurozone 120). In addition, in the first half of 2020, SAP was once again recognized as an ESG leader by Morgan Stanley Capital International (MSCI) with the best rating of “AAA”. Organization and Changes in Management In February 2020, SAP Executive Board members Michael Kleinemeier and Stefan Ries agreed with the SAP Supervisory Board to leave the Company. Michael Kleinemeier’s last day was April 30, 2020, and Stefan Ries departed on May 31, 2020. After the departure of Michael Kleinemeier, most of the former SAP Digital Business Services organization teams were fully integrated into the Board areas Customer Success, led by Adaire Fox-Martin, and SAP Product Engineering, led by Thomas Saueressig. On April 20, 2020, Co-Chief Executive Officer (Co-CEO) Christian Klein became sole Chief Executive Officer. Co-CEO Jennifer Morgan mutually agreed with the SAP Supervisory Board to depart the Company effective April 30, 2020. Financial Performance: Review and Analysis Economy and the Market Global Economic Trends The COVID-19 pandemic has paralyzed the global economy, states the European Central Bank (ECB) in its June 2020 Economic Bulletin.1) Though a nascent recovery, led by large emerging market economies with signs of stabilization had been under way at the turn of the year, containment measures against the virus soon became a driving factor behind a sharp decline in worldwide economic activity. Falling commodity prices, tighter financial conditions, and substantial capital outflows aggravated the situation, particularly in emerging market economies. In the Europe, Middle East, and Africa (EMEA) region, the euro area economy experienced an unprecedented contraction in the first half of 2020. However, the ECB suggests that the gradual easing of the containment measures went along with a bottoming-out in May and tepid signs of improvement at the end of the second quarter. Many countries in Central and Eastern Europe and especially Russia likewise recorded negative growth in the first half of 2020. In the Americas region, the GDP declined significantly in the United States, and the pace of contraction even accelerated in the second quarter of 2020, finds the ECB. Economic activity deteriorated sharply in Brazil, as well. The Asia Pacific Japan (APJ) region saw Japan slip into a technical recession in the first half of the year, according to the ECB. Economic activity in that country had already declined at the end of 2019, and the COVID-19 outbreak led to further contractions. China, on the 6 other hand, was the first country to take sharp containment measures already in late January 2020, and showed first signs of recovery in the second quarter. The IT Market At the beginning of 2020, the IT market started ambitiously into another year of digital transformation2), yet the COVID-19 pandemic soon took over and led to significant spending cuts as IT buyers re- evaluated their plans and pivoted their strategies3). The U.S.-based market research firm International Data Corporation (IDC) describes this development in several current publications. According to IDC, by mid-2020, most firms had reduced their spending on IT infrastructure and end user equipment.4) However, technologies that helped companies adapt to the new business environment – namely mobility, cloud, AI, and collaborative tools and technologies – experienced an increase in spending in the first half of 2020 and seemed to lay the groundwork for longer-term strategic transformation, says IDC.3) Videoconferencing solutions, virtual workspaces, and remote access to support working from home as part of crisis response became spending priorities for many businesses.4) This growing demand somewhat mitigated the impact of COVID-19 on the IT market especially in EMEA where – in an IDC study in April – 48% of businesses cited no impact on SaaS spend.5) APJ saw some increases during the first half of 2020 as well, yet buyer intent dropped significantly in the United States, reports IDC in a further study.4) Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2020, Publication Date: June 18, 2020 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202004.en.pdf) 2) IDC CEO Priorities in Europe for 2020: Delivering Value in the Digital Economy, Doc #EUR 146190420 3) IDC Market Perspective: COVID-19: Quantifying the Impact on Industry, Doc #US46229820, April 2020 4) IDC COVID-19 Tech Index: Coronavirus Index Report, Doc #US46272920, May 2020 5) IDC Survey Spotlight: What will be the impact of COVID 19 on SaaS spend in 2020?, Doc #US46233119, April 2020 Impact on SAP Business activity in the first two months of the year was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the first quarter, a significant amount of new business was postponed. This was reflected, in particular, in the significant year- over-year decrease in software licenses revenue. Business activity gradually improved over the course of the second quarter. Software licenses revenue, while still below normal levels, recovered more than expected. In particular, the APJ region had a strong recovery in software licenses revenue. Cloud revenue in the second quarter was still impacted by lower pay-as-you-go tran- sactional revenue as a result of the COVID-19 crisis. Current cloud backlog remained strong with continued high demand for digital supply chain, e-commerce, cloud platform, and Qualtrics solutions. To ensure the Company’s financial flexibility, SAP slowed hiring, reduced discretionary spend, and cut costs naturally through less travel and virtual rather than physical events. In addition, SAP has quickly responded to the new environment by adopting a virtual sales and remote implementation strategy to effectively serve existing and acquire new customers. With this strategy, SAP continued to operate effectively in the first six months and, in combination with the solid topline performance despite the COVID- 19 pandemic, SAP’s prompt measures drove higher operating profit and operating margin. SAP Half-Year Report 2020 Key Figures – SAP Group in the First Half of 2020 (IFRS) € millions, unless otherwise stated Cloud Software licenses Software support Cloud and software Total revenue Operating expense Operating profit Operating margin (in %) Profit after tax Effective tax rate (in %) Earnings per share, basic (in €) Operating Results (IFRS) Revenue Total revenue was €13,264 million (first half of 2019: €12,722 million), an increase of 4% compared to the same period in 2019. The growth in revenue resulted primarily from an increase in SAP’s cloud business. Our cloud revenue was €4,055 million (first half of 2019: €3,247 million), an increase of 25% compared to the same period in 2019, with the cloud revenue growth rates remaining on a high level, despite the fact that cloud revenue was impacted by lower pay-as-you go transactional revenue as a result of the COVID-19 crisis. Due to the impact of the COVID-19 crisis, a significant amount of new business was postponed mainly in the first quarter. This is reflected, in particular, in the significant year-over-year decrease in software licenses revenue. However, business already began to recover gradually in the second quarter. Software licenses revenue was €1,224 million in the first half of 2020 (first half of 2019: €1,599 million), a decrease of 23% compared to the same period in 2019. Operating Expense Our operating expenses decreased by 10% to €10,770 million (first half of 2019: €12,031 million). The decrease was mainly driven by a significant reduction in restructuring expenses, and share- based compensation. Because of a company-wide restructuring program that SAP launched in 2019, restructuring expenses were €1,085 million in the first half of 2019. In the first half of 2020, restructuring cost amounted to €13 million. For more information about restructuring, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). Share-based payment expenses decreased to €612 million (first half of 2019: €1,114 million). For more information about share-based payment expenses, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.3). Noteworthy was also a significant decrease in travel costs by 57% in the first half of 2020, which was mainly a direct effect of the travel restrictions imposed due to the COVID-19 pandemic. Furthermore, there had been natural savings for example from lower facility- SAP Half-Year Report 2020 Q1–Q2 2020 Q1–Q2 2019 ∆ 4,055 3,247 807 1,224 1,599 –374 5,826 5,692 134 11,106 10,538 567 13,264 12,722 542 –10,770 –12,031 1,261 2,494 691 1,803 18.8 5.4 13.4pp 1,697 475 1,222 30.6 29.7 0.9pp 1.42 0.38 1.04 related costs and virtualized events. To protect profitability, SAP responded quickly to the COVID-19 crisis by slowing hiring and reducing discretionary spend. Personnel expenses declined by 1.2%. For more information about the impact of COVID-19, see Note (IN.2). Operating Profit and Operating Margin Compared with the same period in the previous year, operating profit increased by €1,803 million to €2,494 million (first half of 2019: €691 million). This was mainly a result of the aforementioned expense reductions. Our operating margin increased by 13.4pp to 18.8% (first half of 2019: 5.4%). Profit After Tax and Earnings per Share Profit after tax was €1,697 million (first half of 2019: €475 million). Basic earnings per share was €1.42 (first half of 2019: €0.38). The effective tax rate was 30.6% (first half of 2019: 29.7%). The year-over-year increase in the effective tax rate mainly resulted from tax effects relating to changes in non-deductible expenses and taxes for prior years. ∆ in % 25 –23 2 5 4 –10 >100 NA >100 NA >100 7 Performance Against Our Outlook (Non- IFRS) We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information section. In this section, all discussion of the contribution to target achievement is based exclusively on non-IFRS measures. In contrast, the discussion of operating results in the previous section refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. Outlook for 2020 (Non-IFRS) For our outlook based on non-IFRS numbers, see the Financial Targets and Prospects for 2020 (Non-IFRS) section in this consolidated half-year management report. Key Figures – SAP Group in the First Half of 2020 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Q1–Q2 2020 Q1–Q2 2019 ∆ in % ∆ in % (Constant Currency) Cloud 4,057 3,299 23 22 Software licenses 1,224 1,599 –23 –23 Software support 5,826 5,692 2 2 Cloud and software 11,107 10,589 5 4 Total revenue 13,266 12,773 4 3 Operating expense –9,820 –9,490 3 3 Operating profit 3,446 3,283 5 4 Operating margin (in %) 26.0 25.7 0.3pp 0.2pp Profit after tax 2,409 2,397 1 NA Effective tax rate (in %) 29.0 26.6 2.4pp NA Earnings per share, basic (in €) 2.02 1.99 1 NA Performance (Non-IFRS) Starting in 2020, we replaced the metric new cloud bookings by current cloud backlog (CCB) as a more meaningful indicator of our cloud go-to-market success, as it reflects new contracts closed as well as renewals of existing contracts. CCB is the contractually committed cloud revenue we expect to recognize over the upcoming 12 months. As at June 30, 2020, CCB was €6,655 million, an increase of 20% year over year. Our cloud revenue (non-IFRS) was €4,057 million (first half of to the first half of 2019. This is mainly the result of efficiency gains in our consulting and premium engagement business. In total, operating expenses (non-IFRS) in the first half of 2020 grew by 3% compared to the first half of 2019. Within operating expenses, research and development cost as well as general and administration cost showed the highest increase. Operating profit (non-IFRS) was €3,446 million (first half of 2019: €3,283 million), an increase of 5%. On a constant currency basis, the increase was 4%. 2019: €3,299 million), an increase of 23% (22% at constant currencies) compared to the same period in 2019. Our cloud margin increased by 2.3pp to 69.4% (first half of 2019: 67.1%). Operating margin (non-IFRS) was 26.0%, an increase of 0.3pp, or 0.2pp on a constant currency basis (first half of 2019: 25.7%). Profit after tax (non-IFRS) was €2,409 million (first half of 2019: Cloud and software revenue (non-IFRS) was €11,107 million (first half of 2019: €10,589 million), an increase of 5%. On a constant currency basis, the increase was 4%. This increase was mainly driven by cloud revenue growth. Software licenses revenue (non- IFRS) decreased by 23% at constant currencies. As mentioned above, the COVID-19 crisis contributed significantly to this decrease. Total revenue (non-IFRS) was €13,266 million (first half of 2019: €2,397 million), an increase of 1%. Basic earnings per share (non- IFRS) was €2.02 (first half of 2019: €1.99), an increase of 1%. The effective tax rate (non-IFRS) was 29.0% (first half of 2019: 26.6%). The year-over-year increase in the effective tax rate mainly resulted from tax effects relating to changes in non-deductible expenses and taxes for prior years. €12,773 million), an increase of 4%. On a constant currency basis, the increase was 3%. Operating expense (non-IFRS) was €9,820 million (first half of 2019: €9,490 million), an increase of 3% (3% on a constant currency basis). Although cloud revenue (non-IFRS) rose by 23%, cost of cloud (non-IFRS) increased by only 14%. The cost of software licenses and support (non-IFRS) decreased by 4%. Also, SAP’s service business contributed positively to the overall profitability. The services gross margin (non-IFRS) increased by 2.3pp compared Divestments In the second quarter of 2020, we signed a definitive agreement to sell our SAP Digital Interconnect business (for more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1)). 8 SAP Half-Year Report 2020 Segment Performance At the end of the first half of 2020, SAP had four reportable segments: the Applications, Technology & Support segment, the Services segment, the Concur segment, and the Qualtrics segment. Applications, Technology & Support € millions, unless otherwise stated (Non-IFRS) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) In the first half of 2020, the Applications, Technology & Support segment recorded strong growth in cloud revenue of 25% (24% at constant currencies). This led to an increase of the cloud gross margin of 3.0pp. Software support revenue increased slightly in the first half of 2020. It rose 2% to €5,824 million. However, software licenses revenue decreased by 23% to €1,220 million mainly due to the impact of the COVID-19 crisis. Consequently, the Applications, Services € millions, unless otherwise stated (Non-IFRS) Services revenue Services gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) The Services segment was introduced at the beginning of 2020, comprising major parts of SAP’s services business. In the first half of 2020, the segment recorded services revenue of €1,644 million, representing a slight decline of 1%. The respective cost of services, however, decreased at a higher rate during the same period by 9% (10% at constant currencies), leading to a 6.8pp increase in the SAP Half-Year Report 2020 For more information about our segment reporting and the changes in the composition of our reportable segments in the first half of 2020, see the Notes to the Consolidated Half-Year Financial Statements, Notes (C.1) and (C.2). Q1–Q2 2020 Q1–Q2 2019 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 3,112 3,087 2,482 25 24 64.8 64.8 61.8 3.0pp 3.0pp 10,301 10,253 9,923 4 3 79.2 79.2 79.2 0.0pp 0.0pp 4,159 4,131 3,978 5 4 40.4 40.3 40.1 0.3pp 0.2pp Technology & Support segment achieved a total software licenses and support revenue of €7,044 million. Total segment revenue grew 4% (3% at constant currencies) to €10,301 million, leading to a slight increase in the segment margin of 0.3pp (0.2pp at constant currencies). Overall, the revenue share of more predictable revenue streams in this segment increased 4.4pp from 82.3% in the first half of 2019 to 86.8% in the first half of 2020. Q1–Q2 2020 Q1–Q2 2019 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 1,644 1,630 1,654 –1 –1 30.0 29.5 23.2 6.8pp 6.3pp 1,646 1,632 1,656 –1 –1 26.6 26.1 19.5 7.1pp 6.6pp 207 196 85 >100 >100 12.6 12.0 5.2 7.4pp 6.8pp services gross margin (6.3pp at constant currencies). This margin improvement was primarily attributable to the positive development of SAP’s consulting and premium engagement business and savings due to an increased remote services delivery share and travel restrictions. Overall, the segment profit and the segment margin benefitted from this development as well. 9 Concur € millions, unless otherwise stated (Non-IFRS) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) Despite the challenging environment as a result of the COVID-19 pandemic, the Concur segment was able to increase cloud revenue in the first half of 2020 by 5% (3% at constant currencies). The cost of cloud declined during the same period by 13% (14% at constant currencies). The cloud gross margin improved 2.5pp (2.4pp at constant currencies) to 88.2%. The segment gross margin Qualtrics € millions, unless otherwise stated (Non-IFRS) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit (loss) Segment margin (in %) The Qualtrics segment, which comprises SAP’s experience management solutions, closed the first half of 2020 with a strong cloud revenue growth of 59% (55% at constant currencies). The cloud gross margin, however, declined slightly by 0.8pp (0.9pp at constant currencies). Total segment revenue grew 54% (50% at 10 Q1–Q2 2020 Q1–Q2 2019 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 690 675 654 5 3 88.2 88.2 85.7 2.5pp 2.4pp 807 791 770 5 3 79.5 79.4 77.2 2.3pp 2.2pp 297 289 279 7 4 36.8 36.5 36.2 0.6pp 0.3pp benefitted from this development as well and increased 2.3pp (2.2pp at constant currencies) to 79.5% (79.4% at constant currencies). Overall, the Concur segment ended the first half of 2020 with an operating profit of €297 million, representing an increase of 7% (4% at constant currencies). Q1–Q2 2020 Q1–Q2 2019 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 250 244 158 59 55 90.9 90.9 91.8 –0.8pp –0.9pp 329 321 214 54 50 77.0 76.9 80.5 –3.5pp –3.6pp –5 –4 14 <–100 <–100 –1.5 –1.2 6.6 –8.1pp –7.8pp constant currencies) to €329 million. As we continued to significantly invest in anticipation of the strong growth opportunities for our experience management solutions, the Qualtrics segment saw a decline in the segment margin of 8.1pp (7.8pp at constant currencies) and an operating loss of €5 million. SAP Half-Year Report 2020 Reconciliation of Cloud Revenues and Margins € millions, unless otherwise stated (Non-IFRS) Q1–Q2 2020 Q1–Q2 2019 ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Intelligent Spend3) 1,411 1,389 1,292 9 Thereof Concur segment 690 675 654 5 Cloud revenue – SaaS/PaaS1) Other4) 2,225 2,205 1,678 33 Total 3,636 3,594 2,970 22 Cloud revenue – IaaS2) 421 417 329 28 Cloud revenue 4,057 4,011 3,299 23 Intelligent Spend3) 79.3 79.2 77.9 1.4pp Thereof Concur segment 88.2 88.2 85.7 2.5pp Cloud gross margin – SaaS/PaaS1 ) (in %) Other4) 69.8 69.9 66.6 3.3pp Total 73.5 73.5 71.5 2.0pp Cloud gross margin – IaaS2) (in %) 33.5 33.2 27.1 6.5pp Cloud gross margin (in %) 69.4 69.3 67.1 2.3pp 1) Software as a service/platform as a service 2) Infrastructure as a service; completely included in the Applications, Technology & Support segment 3) Intelligent Spend includes the Concur segment and further Intelligent Spend offerings mainly included in the Applications, Technology & Support segment. 4) Other includes all other SaaS/PaaS offerings that do not belong to Intelligent Spend. The individual revenue and margin numbers for segments are disclosed on the previous pages. SAP Half-Year Report 2020 ∆ in % Constant Currency 7 3 31 21 27 22 1.3pp 2.4pp 3.3pp 2.0pp 6.1pp 2.2pp 11 Finances and Assets (IFRS) Cash Flow € millions Q1–Q2 2020 Q1–Q2 2019 Net cash flows from operating activities 3,772 2,679 Capital expenditure –497 –539 Payments of lease liabilities –156 –185 Free cash flow 3,119 1,956 Free cash flow (as a percentage of total revenue) 24 15 Free cash flow (as a percentage of profit after tax) 184 412 Days' sales outstanding (DSO, in days) 76 70 Group Liquidity Liquidity and Financial Position € millions 6/30/2020 12/31/2019 Financial debt 14,855 13,668 Cash and cash equivalents 6,205 5,314 Current time deposits and debt securities 1,196 67 Group liquidity 7,401 5,382 Net debt 7,454 8,286 Goodwill 29,214 29,159 Total assets 60,709 60,212 Total equity 29,072 30,822 Equity ratio (total equity as a percentage of total assets) 48 51 In May 2020, we issued €2,000 million in Eurobonds with maturities between three and nine years. ∆ +41% –8% –15% +59% +8pp –228pp 6 ∆ +1,187 +890 +1,128 +2,019 –831 +55 +497 –1,750 –3pp The increase in operating cash flow resulted mainly from lower payments for income taxes (€785 million decrease year over year), compensated by higher share-based payments (€117 million increase year over year). We calculate free cash flow as net cash flows from operating activities minus purchases of intangible assets and property, plant, and equipment without acquisitions (capital expenditure) and minus repayments of lease liabilities. DSO for receivables is defined as the average number of days from the raised invoice to the cash receipt from the customer (rolling 12 months). Competitive Intangibles The resources that are the basis for our current as well as future success do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With a market capitalization of €152.7 billion at the end of the first half of 2020, the market capitalization of our equity (based on all outstanding shares) is more than five times higher than its carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization. SAP was recognized as the world’s 17th most valuable brand in the 2020 BrandZ Global Top 100 Most Valuable Brands ranking. The ranking estimates SAP’s brand value at US$58 billion, unchanged year over year. Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early on, take the appropriate action, and mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2019 and our Annual Report on Form 20-F Probability Cloud Operations Integrated Report 2019 unlikely Half-Year Report 2020 likely 1) Trend: Risk level compared with previous year. Cloud Operations: We are committed to the safety of our customer data, and we take a variety of steps designed to prevent unauthorized access and intrusions. The world of IT security is constantly evolving, requiring us to periodically review and revise our processes to provide our customers with appropriate IT security. We review our cybersecurity infrastructure with the goal of safeguarding our critical information and assets, business operations, cloud offerings and portfolio presentation, and related infrastructure against disruption or poor performance. As part of that review, we identified that some of our cloud products did not meet one or more contractually agreed or statutory IT security standards. Specifically, the affected products are SAP Success Factors, SAP Concur, SAP Commissions (formerly CallidusCloud Commissions), and SAP CPQ (formerly CallidusCloud CPQ), as well as the SAP Cloud for Customer solution (now part of the SAP Sales Cloud solution), SAP Cloud Platform, and the SAP Analytics Cloud solution. Economic, Political, Social, and Regulatory Risks COVID-19 pandemic 1) Trend: Risk level compared with previous year. COVID-19 Pandemic: A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and spread across the globe, subsequently being classified as a pandemic by the WHO. While surfacing in almost all regions around the world, this outbreak prompted governments and businesses to introduce preventative measures to contain or mitigate further spreading, impacting the global economy with immediate effect. Repercussions included supply chain interruptions and an impact on production manufacturing and the borrowing of money, and were observed across innumerable industries, from tourism and leisure to the luxury goods industry. In addition, uncertainty and travel restrictions impacted businesses, jobs, and consumer confidence, which in turn led to a reduction in consumer spending. At the same time, businesses were confronted with higher costs resulting from measures introduced to mitigate the spread of infection, such as the extension of holiday periods, lengthy workforce absences due to sick leave, delays in people returning to work and additional health screenings; public sector investments, meanwhile, were redirected to health-related expenditures. Individual economies were the first to raise concerns related to observed recession indicators. SAP Half-Year Report 2020 for 2019. In this section, we present relevant changes and new developments with regards to our risk factors. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see the Notes to the Consolidated Half-Year Financial Statements, Note (G.1). Impact Risk Level Trend1) business-critical medium → business-critical high These findings were not identified in response to a security incident. Furthermore, we do not believe that any customer data was compromised as a result of these issues. We refer to our May 4, 2020, ad hoc notification for further details. In an effort to ensure that the affected products meet relevant terms and conditions, we updated the corresponding security-related terms and conditions. We have resolved the identified gaps for all of the named solutions as at the time of issuance of this report. We have raised our estimate of the probability of occurrence of this risk (as presented in the Integrated Report 2019 and Annual Report on Form 20-F for 2019) to likely, and cannot exclude the possibility that if this risk were to occur, it could have a business- critical impact on our operations, financial position, profit, and cash flows. We now classify this increased risk as a high risk. For more information, see the Security, Data Protection, and Privacy section in this consolidated half-year management report. Probability Impact Risk Level Trend1) likely business-critical high new We cannot predict the degree to which or over which period of time this outbreak and associated measures will impact our customers, our business, and our business operations with effects that could be material, leading to the following risks, among others: – Global recession, economic downturns, increased unemployment rates, or customers re-evaluating their business plans, priorities, and IT needs, with subsequent delays, shifts, or reductions in IT investments – Financially impacted customers struggling to meet contractual obligations – Increasingly complex digitalization requirements that challenge uninterrupted customer interaction and subsequent customer satisfaction – Limited availability of qualified implementation partners who are largely unaffected – Workforce mobility limitations resulting from government- or SAP-imposed travel restrictions – Workforce productivity impacts resulting from adaptation to new working models 13 – Business continuity challenges in our business-critical data centers and in our mission-critical support activities if sites and/or the workforce were to be contaminated and/or the workforce were not available due to travel limitations – Interruption in the maintenance of our cloud services infrastructure, or reduced reliability and adequacy of cloud service capacity – Decrease in software sales with subsequent impact on growth of our maintenance and services business – Delays in cash collection due to interrupted invoice processing and delayed execution of financial transactions – Increased costs in effectively managing the ramp-up of onsite operations Even though parts of the world economy are restarting, any one or more of these events could have a material adverse effect on our business, business operations, financial position, profit, and cash flows. SAP has established a global pandemic taskforce and is closely monitoring the situation, and developing and implementing necessary measures and actions designed to address and mitigate the described risks and adverse effects, such as: – Active and collaborative dialog with our customers to jointly evaluate options and opportunities as part of our long-term Customer First strategy – Ongoing review of payment models to address our customers’ current need for payment flexibility while ensuring our liquidity, leveraging finance partners as applicable – Strict adherence to applicable governmental advisories to foster compliance and health safeguarding – Alignment with governmental authorities to enable accessibility to our workforce during times of restricted citizen movement, and alignment with service providers to ensure consistent application of standards at co-location sites – Information, training courses, and guidance for our workforce as elements of our comprehensive transitional approach in an already digitalized technology landscape, with the majority of our workforce accustomed to remote working models – Expansion of health and well-being initiatives and offerings, including an Emergency Helpline – Switch to remote working protocols leveraging virtualized communication technologies, and the continued enhancement of working models that protect customers, partners, and workforce – Introduction of remote customer support models enabling administration via remote access for critical situations – Conducting clear team social distancing and workspace protocols for remaining onsite activities – Implementation of formal sanitization protocols at our premises – Implementation of enhanced methodologies for virtual sales and remote implementation – Creation and implementation of virtual event and conference experiences – Establishment of an ecosystem COVID-19 taskforce to focus on revising mission-critical partnering policies, and making those policies available to all partners through a dedicated resource center – Monitoring of cash collection rates along with the application of appropriate measures and subsequent adaption of financial planning – Strict internal cost discipline and conscious adaptation of workforce planning 14 We cannot exclude the possibility that if one or more of these risks were to occur, it could have a business-critical impact on our operations, financial position, profit, and cash flows. We estimate the probability of occurrence of this risk to be likely. This could exacerbate other risks presented in the Risk Management and Risks section of our Integrated Report 2019 and our Annual Report on Form 20-F for 2019 or cause a negative deviation from our financial and non-financial targets. We classify this risk as a high risk. Based on our aggregation approach, we subsequently see changes in the consolidated risk profile related to the percentages of all reported risks categorized as “high” or “medium” in our risk level matrix. The number of risks categorized as “high” now account for 35% (previously 27%) of all reported risks, while the risks categorized as “medium” now account for 39% (previously 45%). We do not believe that any of the risks we have identified in our Integrated Report 2019 and Annual Report on Form 20-F for 2019, and as outlined in the update above, jeopardize our ability to continue as a going concern. Other than as reflected in the update above, we do not see any relevant changes to our assessment of the risk factors since the publication of our Integrated Report 2019 and Annual Report on Form 20-F for 2019. Expected Developments and Opportunities Future Trends in the Global Economy At the end of the second quarter, many countries started easing containment measures against the COVID-19 pandemic. However, global economic activity will probably recover only gradually, projects the ECB in its most recent Economic Bulletin.1) Furthermore, the ECB projects that recovery might start in the third quarter and increase to a significant economic growth in 2021 and 2022. For emerging market economies in particular, the ECB expects a more subdued recovery than those seen after previous downturns. In the EMEA region, sizeable support from fiscal and monetary policy could help economic growth in the euro area to rebound in the second half of the year. In Central and Eastern Europe, however, economic activity will most likely remain weak throughout the year, predicts the ECB. As for the Americas region, domestic demand in the United States could recover through eased containment measures. Backed by strong economic policy support, this would support a gradual recovery in the second half of 2020, says the ECB. For the APJ region, the ECB projects that fiscal measures taken in Japan in the second quarter might provide stimulus to the economy from the third and fourth quarter onward. For China, the ECB sees weak external demand prospects, but anticipates a gradual upturn in domestic demand that could lead to progressive economic recovery in the second half of 2020. The International Monetary Fund (IMF) projects the following economic trends and growth rates for the mid-term horizon until the end of 2021: SAP Half-Year Report 2020 Economic Trends – Year-Over-Year GDP Growth % 2019 2020e World 2.9 –4.9 Advanced economies 1.7 –8.0 Emerging market and developing economies 3.7 –3.0 Regions Euro area 1.3 –10.2 Germany 0.6 –7.8 Emerging and developing Europe 2.1 –5.8 Middle East and Central Asia 1.0 –4.7 Sub- Saharan Africa 3.1 –3.2 United States 2.3 –8.0 Canada 1.7 –8.4 Latin America and the Caribbean 0.1 –9.4 Japan 0.7 –5.8 Emerging and developing Asia 5.5 –0.8 China 6.1 1.0 e = estimate, p = projection Source: International Monetary Fund (IMF), World Economic Outlook June 2020, A Crisis Like No Other (https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJ une2020) The IT Market: Outlook for 2020 and Beyond According to the U.S.-based market research firm IDC, the COVID-19 pandemic has caused a shift in expectations and priorities for the coming months: organizations still rate digital transformation as a top agenda item2), but they now focus on business resiliency through digital transformation, favouring technologies that allow them to automate and scale3). Thus, for example, nearly 50% of tech decision makers in a recent IDC poll indicated increasing demand for cloud computing in the second half of the year as a result of the pandemic3) – IaaS and SaaS featuring even more strongly than PaaS4). That is because, according to IDC, many businesses plan to accelerate digital transformation significantly to address the exponential increase in demand for remote worker services and greater agility.5) Nearly half of all tech decision makers in the same IDC poll also named expanding their customer engagement model to online or self- service as a top or high priority.3) As for IT services, a significant portion of European IT buyers expect to sustain or even increase spending to the end of 2020, says IDC.6) This sentiment seems to be particularly positive in Germany and Russia.6) In summary, however, compared with initial estimates in January of this year (3.6% growth in 2020), IDC’s spending predictions for the global IT market by mid-year have decreased to –1.6% in 2020, but currently show nearly the same predictions as in January for the subsequent years.7) SAP Half-Year Report 2020 2021p 5.4 4.8 5.9 6.0 5.4 4.3 3.3 3.4 4.5 4.9 3.7 2.4 7.4 8.2 Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2020, Publication Date: June 18, 2020 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb202004.en.pdf) 2) IDC CEO Priorities in Europe for 2020: Delivering Value in the Digital Economy, Doc #EUR 146190420 3) IDC Survey Spotlight: COVID-19 Brings New C-Suite Priorities, Doc #US46403520, May 2020 4) IDC COVID-19 Tech Index: Coronavirus Index Report, Doc #US46272920, May 2020 5) IDC Survey Spotlight: What will be the impact of COVID 19 on SaaS spend in 2020?, Doc #US46233119, April 2020 6) IDC Survey Spotlight: What is the Effect of COVID-19 on IT Services in Europe?, Doc #EUR146256120, April 2020 7) IDC Market Perspective: COVID-19: Quantifying the Impact on Industry, Doc #US46229820, April 2020 Impact on SAP The pandemic shifted priorities of our customers and accelerated transformational projects that will help increase their agility and resilience at the same time. In addition, the demand for and adoption of cloud services remains on a strong trajectory as corporations prefer fast implementation cycles and flexible scalability. SAP’s integrated suite approach, which is based on an open platform that allows customers and partners to adopt technologies such as blockchain, machine learning, Internet of Things, and robotic process automation, resonates well with the demand. We expect that our investments in strategic growth areas such as industry cloud, the Climate 21 program, and business networks will drive additional business momentum and position SAP as a thought leader for the priorities of the future. With our broad solution portfolio, unmatched industry and geographic diversification coupled with our strong base of more predictable revenue, we consider ourselves well prepared to not only weather the crisis but emerge even stronger. Financial Targets and Prospects (Non-IFRS) Revenue and Operating Profit Targets and Prospects On April 21, 2020, SAP updated its 2020 outlook to reflect the estimated impact of the COVID-19 crisis. SAP reiterated this revised outlook on July 8, 2020. It is based on the assumption of a gradually improving demand environment in the third and fourth quarter as economies reopen further and population lockdowns ease. SAP now expects: – Non-IFRS cloud revenue in a range of €8.3 billion to €8.7 billion at constant currencies (2019: €7.01 billion), up 18% to 24% at constant currencies (previously: €8.7 billion to €9.0 billion, up 24% to 28% at constant currencies). – Non-IFRS cloud and software revenue in a range of €23.4 billion to €24.0 billion at constant currencies (2019: €23.09 billion), up 1% to 4% at constant currencies (previously: €24.7 billion to €25.1 billion, up 7% to 9% at constant currencies). – Non-IFRS total revenue in a range of €27.8 billion to €28.5 billion at constant currencies (2019: €27.63 billion), up 1% to 3% at constant currencies (previously: €29.2 billion to €29.7 billion, up 6% to 8% at constant currencies). – Non-IFRS operating profit in a range of €8.1 billion to €8.7 billion at constant currencies (2019: €8.21 billion), down 1% to 6% at constant currencies (previously: €8.9 billion to €9.3 billion, up 8% to 13% at constant currencies). 15 – The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) to be approximately 72% (previously: approximately 70%). We expect the economic situation caused by the COVID-19 pandemic to impact our cloud gross margin performance. We now expect that, in 2020, the cloud gross margin of our SaaS/PaaS – Intelligent Spend revenue will be higher than 78% (previously: 80%; 2019: 78%). We continue to expect that, in 2020, the cloud gross margin of our other SaaS/PaaS revenue will reach approximately 70% (2019: 68%). We continue to expect the gross margin of our IaaS cloud revenue to be in a range of approximately 30% to 35% inin 2020 (2019: 29%). We now expect our cloud gross margin to be approximately 70% in 2020 (previously: 71%; 2019: 68%). We continue to expect the 2020 gross margin for our software licenses and support to remain at a similar level to 2019 (2019: 87%). In addition, we continue to expect our 2020 gross margin for services to remain at a similar level to 2019 (2019: 25%). As we look to increase our profitability through 2020, our cost ratios (cost as a percentage of total revenue) are continuously expected to develop as follows through 2020: Research and development is expected to remain at the current level; sales and marketing as well as general and administration are expected to decline slightly. Further, we continue to expect the segment profit to increase in all our reportable segments. While SAP’s full year 2020 business outlook is at constant currencies, actual-currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. For the Q3 and full year 2020 expected currency impacts, see the table below. Expected Currency Impact Based on June 2020 Level for the Rest of the Year In percentage points Q3 Q1 – Q4 Cloud 3pp to -1pp 1pp to +1pp Cloud and software 3pp to -1pp 2pp to 0pp Operating profit 2pp to 0pp 1pp to +1pp In the face of the COVID-19 pandemic, SAP expects approximately €600 million in expense savings through the reduction of discretionary spend in addition to natural savings in areas such as travel, facilities, events, and others. Though the growth in headcount is not as dynamic as in previous years, we intend to employ more people at the end of 2020 than in 2019. We continue to hire additional employees especially in our innovation divisions such as product development. We continuously strive for profit expansion in all of our operating segments. The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. 16 Non-IFRS Measures € millions Estimated Amounts for Full Year 2020 Q1–Q2 2020 Q1–Q2 2019 Revenue adjustments 0–30 2 51 Acquisition related charges 580–690 325 341 Share-based payment expenses 1,200–1,600 612 1,114 Restructuring 20–40 13 1,085 SAP now expects a full-year 2020 effective tax rate (IFRS) of 28.5% to 29.5% (previous outlook: 27.0% to 28.0%) and an effective tax rate (non-IFRS) of 27.5% to 28.5% (previous outlook: 26.5% to 27.5%). The increase in comparison to the previous outlook mainly results from changes in taxes for prior years. Medium-Term Prospects We did not change our medium-term prospects in the first half of 2020. We expect to hold a virtual Capital Markets Day in the fourth quarter 2020 to provide an update on our mid-term strategy. For a detailed description, see our Integrated Report 2019. Goals for Liquidity, Finance, and Investments On June 30, 2020, we had negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2020 as well, and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near and medium term. In 2020 and compared to 2019, we expect lower cash outflows for restructuring (reduction by approximately €600 million to €650 million) and tax payments (reduction by approximately €850 million to €950 million), while share-based compensation is expected to be on a roughly similar level. Considering all these effects, and despite the challenges imposed by COVID-19 and the reassessment of our cash flow expectations on April 21, 2020, we now expect an increase of operating cash flow to above €5.0 billion (previously approximately €5.0 billion) and free cash flow to increase to around €4.0 billion (previously approximately €3.5 billion) in 2020, compared to our operating cash flow of €3.5 billion and free cash flow of €2.3 billion in 2019. For 2023, we expect around €8.0 billion in free cash flow. In the second half of 2020, we intend to repay US$290 million in US Private Placements in November and €500 million in Eurobonds in December. In addition, we might repay portions of the Qualtrics- related €2.0 billion acquisition term loan. At the date of this report, scheduled debt repayments of around €6.2 billion until the end of 2023 are pending. The ratio of net debt as at December 31, 2020, of around €7.5 billion divided by the total of operating profit (IFRS) plus depreciation and amortization is expected at around 0.9. Our planned investment expenditures for 2020 and 2021, other than from business combinations, consist primarily of the purchase of IT infrastructure (data centers, etc.) and the construction of new buildings. Compared to the planned investment expenditures of approximately €1.1 billion for 2020, as disclosed in our Integrated Report 2019, we now expect total capital expenditures of SAP Half-Year Report 2020 approximately €0.9 billion for 2020 – thereof approximately €487 million for IT infrastructure (approximately €591 million in our Integrated Report 2019) and approximately €230 million for construction activities (approximately €235 million in our Integrated Report 2019). In 2021, capital expenditures are expected to stay at a similar level as in 2020, thereof €240 million for construction activities. Non-Financial Goals 2020 and Ambitions for 2023 In addition to our financial goals, we also focus on three non- financial targets for 2020: customer loyalty, employee engagement, and carbon emissions. As a result of the COVID-19 pandemic, we have experienced a significant decrease in our carbon emissions due to a reduction in CO2-intensive business activities. As a consequence, we have reduced our original carbon emissions target from 238 kt to 210 kt. The targets for customer loyalty and employee engagement remain unchanged compared to what we disclosed in our Integrated Report 2019. For a detailed description of our non- financial goals for 2020 and ambitions for 2023, see our Integrated Report 2019. SAP Half-Year Report 2020 Premises on Which Our Outlook and Prospects Are Based In preparing our outlook, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no major acquisitions in 2020 or 2021. Due to the current uncertainty regarding the duration and severity of the COVID-19 pandemic, SAP cannot predict whether our response to date or actions that we may take in the future will be effective in mitigating the impact on our business and results of operations. Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. Despite the COVID-19 pandemic, the opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2019. Nevertheless, the currently accelerated digital transformation, especially in purchasing processes, supply chains, and in the support of the home office situation, may create further opportunities. 17 Consolidated Half-Year Financial Statements – IFRS Primary Half-Year Financial Statements Notes to the Half-Year Financial Statements (IN.1) Basis for Preparation (IN.2) Impact of COVID-19 Section A – Customers (A.1) Revenue (A.2) Trade and Other Receivables Section B – Employees (B.1) Employee Headcount (B.2) Employee Benefits Expenses (B.3) Share-Based Payments (B.4) Restructuring Section C – Financial Results (C.1) Results of Segments (C.2) Reconciliation of Segment Measures to Income Statement (C.3) Financial Income, Net (C.4) Income Taxes Section D – Invested Capital (D.1) Business Combinations and Divestitures (D.2) Goodwill (D.3) Property, Plant, and Equipment Section E – Capital Structure, Financing, and Liquidity (E.1) Total Equity (E.2) Liquidity Section F – Management of Financial Risk Factors (F.1) Financial Risk Factors and Risk Management, and Fair Value Disclosures on Financial Instruments Section G – Other Disclosures (G.1) Litigation, Claims, and Legal Contingencies (G.2) Related Party Transactions (G.3) Events After the Reporting Period (G.4) Scope of Consolidation 18 19–23 24 24 25 26 26 26 27 27 27 28 28 29 29 32 33 33 34 34 34 34 35 35 36 37 37 38 38 38 38 39 SAP Half-Year Report 2020 Consolidated Income Statement of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Note Q1–Q2 2020 Q1–Q2 2019 Cloud 4,055 3,247 Software licenses 1,224 1,599 Software support 5,826 5,692 Software licenses and support 7,051 7,291 Cloud and software 11,106 10,538 Services 2,159 2,184 Total revenue (A.1), (C.2) 13,264 12,722 Cost of cloud –1,370 –1,237 Cost of software licenses and support –998 –1,069 Cost of cloud and software –2,368 –2,306 Cost of services –1,725 –1,845 Total cost of revenue –4,094 –4,151 Gross profit 9,171 8,571 Research and development –2,210 –2,114 Sales and marketing –3,684 –3,833 General and administration –729 –895 Restructuring (B.4) –13 –1,085 Other operating income/expense, net –41 48 Total operating expenses –10,770 –12,031 Operating profit (loss) 2,494 691 Other non-operating income/expense, net –103 –44 Finance income 406 286 Finance costs –354 –258 Financial income, net (C.3) 53 29 Profit (loss) before tax (C.2) 2,444 675 Income tax expense –747 –201 Profit (loss) after tax 1,697 475 Attributable to owners of parent 1,681 455 Attributable to non-controlling interests 16 20 Earnings per share, basic (in €)1) 1.42 0.38 Earnings per share, diluted (in €)1) 1.42 0.38 1) For the six months ended June 30, 2020 and 2019, the weighted average number of shares was 1,185 million (diluted: 1,185 million) and 1,194 million (diluted: 1,194 million), respectively (treasury stock excluded). Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2020 ∆ in % 25 –23 2 –3 5 –1 4 11 –7 3 –7 –1 7 5 –4 –19 –99 <-100 –10 >100 >100 42 37 84 >100 >100 >100 >100 –19 >100 >100 19 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year € millions Q1–Q2 2020 Q1–Q2 2019 Profit after tax 1,697 475 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 4 6 Income taxes relating to remeasurements on defined benefit pension plans –1 –5 Remeasurements on defined benefit pension plans, net of tax 4 1 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 4 1 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax –28 180 Reclassification adjustments on exchange differences on translation, before tax 0 0 Exchange differences, before tax –28 180 Income taxes relating to exchange differences on translation –1 0 Exchange differences, net of tax –30 180 Gains (losses) on cash flow hedges/cost of hedging, before tax 10 –8 Reclassification adjustments on cash flow hedges/cost of hedging, before tax 3 9 Cash flow hedges/cost of hedging, before tax 13 1 Income taxes relating to cash flow hedges/cost of hedging –3 0 Cash flow hedges/cost of hedging, net of tax 9 1 Other comprehensive income for items that will be reclassified to profit or loss, net of tax –20 181 Other comprehensive income, net of tax –17 181 Total comprehensive income 1,680 656 Attributable to owners of parent 1,664 636 Attributable to non-controlling interests 16 20 Due to rounding, numbers may not add up precisely. 20 SAP Half-Year Report 2020 Consolidated Statement of Financial Position of SAP Group (IFRS) as at 6/30/2020 and 12/31/2019 € millions Cash and cash equivalents Other financial assets Trade and other receivables Other non-financial assets Tax assets Total current assets Goodwill Intangible assets Property, plant, and equipment Other financial assets Trade and other receivables Other non-financial assets Tax assets Deferred tax assets Total non-current assets Total assets € millions Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Contract liabilities Total current liabilities Trade and other payables Tax liabilities Financial liabilities Other non-financial liabilities Provisions Deferred tax liabilities Contract liabilities Total non-current liabilities Total liabilities Issued capital Share premium Retained earnings Other components of equity Treasury shares Equity attributable to owners of parent Non-controlling interests Total equity Total equity and liabilities Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2020 Note (A.2) (D.2) (D.3) (A.2) (E.2) (B.4) (E.2) (E.1) 2020 6,205 1,419 6,584 1,359 476 16,043 29,214 4,158 5,272 2,595 91 1,777 313 1,246 44,666 60,709 2020 1,311 391 4,066 3,636 105 5,791 15,300 7 566 14,499 603 515 79 69 16,338 31,637 1,229 548 28,529 1,749 –3,072 28,982 89 29,072 60,709 2019 5,314 297 7,908 1,188 506 15,213 29,159 4,491 5,496 2,336 129 1,701 435 1,251 44,999 60,212 2019 1,581 255 3,273 4,818 268 4,266 14,462 8 538 12,923 814 478 79 89 14,929 29,390 1,229 545 28,783 1,770 –1,580 30,746 76 30,822 60,212 21 Consolidated Statements of Changes in Equity of SAP Group (IFRS) € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Components of Equity Treasury Shares Total 12/31/2018 1,229 543 27,407 1,234 –1,580 28,832 Adoption of IFRS 16 –71 –71 1/1/2019 1,229 543 27,336 1,234 –1,580 28,761 Profit after tax 455 455 Other comprehensive income 1 181 181 Comprehensive income 456 181 636 Share-based payments 3 3 Dividends –1,790 –1,790 Hyperinflation –30 –30 6/30/2019 1,229 545 25,970 1,415 –1,580 27,579 12/31/2019 1,229 545 28,783 1,770 –1,580 30,746 Profit after tax 1,681 1,681 Other comprehensive income 4 –20 –17 Comprehensive income 1,684 –20 1,664 Share-based payments 3 3 Dividends –1,864 –1,864 Purchase of treasury shares –1,492 –1,492 Hyperinflation –5 –5 Transactions with non-controlling interests –69 –69 Other changes –1 –1 6/30/2020 1,229 548 28,529 1,749 –3,072 28,982 Due to rounding, numbers may not add up precisely. 22 Non- Controlling Interests Total Equity 45 28,877 –71 45 28,807 20 475 181 20 656 3 –5 –1,795 –30 60 27,640 76 30,822 16 1,697 –17 16 1,680 3 –2 –1,866 –1,492 –5 –69 –1 –2 89 29,072 SAP Half-Year Report 2020 Consolidated Statement of Cash Flows of SAP Group (IFRS) € millions Profit (loss) after tax Adjustments to reconcile profit (loss) after tax to net cash flows from operating activities: Depreciation and amortization Share-based payment expense Income tax expense Financial income, net Decrease/increase in allowances on trade receivables Other adjustments for non-cash items Decrease/increase in trade and other receivables Decrease/increase in other assets Increase/decrease in trade payables, provisions, and other liabilities Increase/decrease in contract liabilities Share-based payments Interest paid Interest received Income taxes paid, net of refunds Net cash flows from operating activities Business combinations, net of cash and cash equivalents acquired Proceeds from sales of subsidiaries or other businesses Purchase of intangible assets or property, plant, and equipment Proceeds from sales of intangible assets or property, plant, and equipment Purchase of equity or debt instruments of other entities Proceeds from sales of equity or debt instruments of other entities Net cash flows from investing activities Dividends paid Dividends paid on non-controlling interests Purchase of treasury shares Proceeds from borrowings Repayments of borrowings Payments of lease liabilities Net cash flows from financing activities Effect of foreign currency rates on cash and cash equivalents Net decrease/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2020 Q1–Q2 2020 1,697 925 612 747 –53 47 –3 1,132 –404 –977 1,578 –949 –176 87 –491 3,772 –47 0 –497 39 –1,390 248 –1,647 –1,864 –2 –442 2,015 –832 –156 –1,281 46 890 5,314 6,205 Q1–Q2 2019 475 897 1,114 201 –29 –9 –55 354 –390 –2 2,363 –832 –176 45 –1,277 2,679 –6,147 61 –539 35 –579 469 –6,700 –1,790 –2 0 2,523 –29 –185 517 45 –3,459 8,627 5,168 23 Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation General Information About Consolidated Half- Year Financial Statements Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. The registered seat of SAP SE is in Walldorf, Germany (Commercial Register of the Lower Court of Mannheim HRB 719915). The accompanying condensed Consolidated Half-Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. In this context, IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. Our business activities are influenced by certain seasonal effects. Amounts disclosed in our Consolidated Half-Year Financial Statements that are taken directly from our Statements or our are marked by the symbols Consolidated Income Consolidated Statements of Financial Position , respectively. and Accounting Policies, Management Judgments, and Sources of Estimation Uncertainty How We Present Our Accounting Policies, Judgments, and Estimates To ease the understanding of our financial statements, we present the accounting policies, judgments, and estimates on a given subject together with other disclosures related to the same subject in the Note that deals with this subject. For easier identification of our accounting policies, judgments, and estimates, the respective disclosures are marked with the symbol framed by a light gray box. and We describe however, only material changes of our accounting policies, judgments, and estimates in relation to our Consolidated Financial Statements for 2019 in this report. Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. The following table provides an overview of where our accounting policies, management judgments, and estimates are disclosed: Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial Note (IN.2) Accounting Policies, Judgments, and Estimates Impact of COVID-19 Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2019, included in our Integrated Report 2019 and our Annual Report on Form 20-F for 2019. (A.1) (C.1) Revenue Results of Segments 24 SAP Half-Year Report 2020 (IN.2) Impact of COVID-19 Management Judgments and Estimates Due to the COVID-19 Pandemic Management judgments and estimates can affect the amounts and reporting of assets and liabilities as at the reporting date, and the amounts of income and expense reported for the period. Due to the currently unforeseeable global consequences of the COVID-19 pandemic, these management judgments and estimates are subject to increased uncertainty. Actual amounts may differ from the management judgments and estimates; changes can have a material impact on the Interim Consolidated Financial Statements. All available information on the expected economic developments and country-specific governmental mitigation measures was included when updating the management judgments and estimates. This information was also included in the analysis of the recoverability and collectability of assets and receivables. As the pandemic continues to evolve, it is difficult to predict its duration and the magnitude of its impact on assets, liabilities, results of operations, and cash flows. We based financial-statement-related estimates and assumptions on existing knowledge and best information available, and applied a scenario assuming the economic impact of the current COVID-19 situation is not of long-term duration – a view that is also supported by the gradual business recovery we experienced in the second quarter of 2020. For more information about the impact of the COVID-19 pandemic on our business, see the Financial Performance: Review and Analysis section and the Risk Management and Risk section in this consolidated half-year management report. For more information about the impact on goodwill, see Note (D.2). Further possible future effects on the measurement of individual assets and liabilities are currently being analyzed. SAP Half-Year Report 2020 25 Section A – Customers This section discusses disclosures related to contracts with our customers. These consist of revenue breakdowns and information about our trade receivables. For more information, see our Consolidated Financial Statements for 2019, Section A – Customers. Total Revenue by Region € millions Germany Q1–Q2 2020 1,846 Q1–Q2 2019 1,783 (A.1) Revenue Rest of EMEA 3,862 3,754 EMEA 5,708 5,537 Accounting Policy In the first half of 2020, there were no significant changes in our revenue accounting policies. The COVID-19 outbreak had no significant impact on estimates and judgments related to our revenue accounting policies in the first half of 2020. For more information about our revenue accounting policies, see our Consolidated Financial Statements for 2019, Note (A.1). United States Rest of Americas Americas Japan Rest of APJ 4,577 983 5,560 641 1,356 4,245 957 5,202 526 1,457 Geographic Information APJ 1,997 1,983 The amounts for revenue by region in the following tables are SAP Group 13,264 12,722 based on the location of customers. For information about the breakdown of revenue by segment and Cloud Revenue by Region segment revenue by region, see Note (C.1). € millions Q1–Q2 2020 Q1–Q2 2019 (A.2) Trade and Other Receivables EMEA 1,277 967 Americas 2,275 1,868 € millions 6/30/2020 APJ SAP Group 502 4,055 412 3,247 Current Non- Current Total Trade receivables, net 6,337 17 6,354 Cloud and Software Revenue by Region Other receivables 247 74 321 € millions Q1–Q2 2020 Q1–Q2 2019 Total 6,584 91 6,675 EMEA 4,840 4,629 € millions 12/31/2019 Americas APJ 4,545 1,720 4,230 1,680 Current Non- Current Total SAP Group 11,106 10,538 Trade receivables, net 7,561 21 7,582 Other receivables 346 108 454 Total 7,908 129 8,037 26 SAP Half-Year Report 2020 Section B – Employees This section provides financial insights into our employee benefit (B.1) Employee Headcount arrangements. It should be read in conjunction with the compensation disclosures for key management personnel in Note (G.5) in our Consolidated Financial Statements for 2019 as well as SAP’s Compensation Report. For more information, see our Consolidated Financial Statements for 2019, Section B – Employees. On June 30, 2020, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 101,379 employees was mainly due to organic growth of full-time equivalents in research and development as well as in the cloud function. Number of Employees (in Full-Time Equivalents) Full-time equivalents 6/30/2020 6/30/2019 EMEA Americas APJ Total EMEA Americas APJ Total Cloud and software 6,354 4,638 5,461 16,454 6,390 4,530 5,260 16,180 Services 8,278 6,067 5,992 20,337 8,302 5,766 5,772 19,839 Research and development 12,941 5,942 9,330 28,214 12,486 5,378 8,805 26,668 Sales and marketing 10,266 10,493 5,104 25,863 9,966 10,223 5,118 25,307 General and administration 3,208 2,215 1,233 6,656 3,120 2,064 1,239 6,424 Infrastructure 2,138 1,049 670 3,857 2,240 1,022 651 3,913 SAP Group (6/30) 43,184 30,404 27,791 101,379 42,504 28,983 26,844 98,332 Thereof acquisitions1) 0 0 0 0 338 1,638 137 2,113 SAP Group (six months' end average) 43,190 30,248 27,718 101,156 42,538 29,283 26,784 98,605 1) Acquisitions closed between January 1 and June 30 of the respective year (B.2) Employee Benefits Expenses Employee Benefits Expense € millions Q1–Q2 2020 Q1–Q2 2019 Salaries 5,225 4,853 Social security expenses 782 781 Share-based payment expenses 612 1,114 Pension expenses 220 193 Employee-related restructuring expenses 12 1,069 Termination benefits 46 29 Employee benefits expense 6,897 8,039 SAP Half-Year Report 2020 27 (B.3) Share-Based Payments The allocations of expenses for share-based payments to the various expense items are as follows: Share-Based Payments € millions Q1–Q2 2020 Q1–Q2 2019 Cost of cloud and software 53 81 Cost of services 94 144 Research and development 159 252 Sales and marketing 197 327 General and administration 110 311 Share-based payments 612 1,114 For more information about our share-based payments and a detailed description of our share-based payment plans, see our Consolidated Financial Statements for 2019, Note (B.3). Restricted Stock Unit Plan Including Move SAP Plan and Grow SAP Plan (RSU Plan) In the first half of 2020, we granted 8.3 million (first half of 2019: 8.2 million) share units. This includes 0.8 million share units which we granted in June 2020 under the new Grow SAP Plan. This fixed- term plan has broadly the same terms and conditions as the Move SAP Plan, recognizes all employees’ commitment to SAP’s success, and deepens their participation in our future company performance. Own SAP Plan (Own) The number of shares purchased by our employees under this plan was 2.7 million in the first half of 2020 (first half of 2019: 2.6 million). The plan enables employees to purchase shares at preferred conditions and build value by becoming an SAP shareholder. 28 (B.4) Restructuring € millions Q1–Q2 2020 Q1–Q2 2019 Employee-related restructuring expenses –12 –1,069 Onerous contract-related restructuring expenses and restructuring- related impairment losses 0 –16 Restructuring expenses –13 –1,085 In 2019, SAP launched a global restructuring program. The expenses presented in the first half of 2020 are mainly costs resulting from the revaluation and adjustment of provisions relating to this program. If not presented separately, these restructuring expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2020 Q1–Q2 2019 Cost of cloud and software –2 –127 Cost of services –5 –169 Research and development –5 –443 Sales and marketing 0 –281 General and administration 0 –64 Restructuring expenses –13 –1,085 SAP Half-Year Report 2020 Section C – Financial Results This section provides insight into the financial results of SAP's reportable segments and of SAP overall, as far as not already covered by previous sections. This includes segment results and income taxes. For more information, see our Consolidated Financial Statements for 2019, Section C – Financial Results. (C.1) Results of Segments General Information SAP has five operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our services activities, travel management offerings, experience management solutions, or communication offerings, or cover other areas of our business. For more information about our segments, see our Consolidated Financial Statements for 2019, Note (C.1). In the first half of 2020, the following changes to the composition of our operating segments occurred: – Bringing together services delivery and services sales functions, a new global services unit was established resulting in a new segment called Services segment. Most of the services business was formerly part of the Applications, Technology & Services segment. However, the services segment does not reflect the full services business, as other segments provide services as well. – As a result of the above-mentioned change, the former Applications, Technology & Services segment was renamed to Applications, Technology & Support segment. – Through the integration of Ariba and Fieldglass offerings as well as major parts of Concur engineering functions into the Applications, Technology & Support segment and into the newly established Services segment, the former Intelligent Spend Group segment only comprises the remaining Concur business going forward. The Intelligent Spend Group segment was therefore renamed to Concur segment. – The Qualtrics segment as well as the non-reportable Digital Interconnect segment remained unchanged. However, on May 5, 2020, SAP announced the sale of the Digital Interconnect business. The transaction is expected to close in the fourth quarter of 2020. For more information, see Note (D.1). The segment information for prior periods has been restated to conform with these changes to our reportable segments. Segment Reporting Policies In the first half of 2020, there were no significant changes in our segment accounting policies. For a detailed overview of our segment accounting policies, judgments, and sources for management reporting, see our Consolidated Financial Statements for 2019, Note (C.1). SAP Half-Year Report 2020 29 Applications, Technology & Support € millions Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) Services € millions Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 30 Actual Currency 3,112 1,220 5,824 7,044 10,156 145 10,301 –1,095 –887 –1,982 –156 –2,138 8,163 –4,004 4,159 Actual Currency 0 0 2 2 2 1,644 1,646 –37 –21 –57 –1,151 –1,208 438 –231 207 Q1–Q2 2020 Q1–Q2 2019 Constant Currency Actual Currency 3,087 2,482 1,225 1,590 5,798 5,689 7,023 7,280 10,110 9,761 144 162 10,253 9,923 –1,088 –948 –886 –932 –1,974 –1,880 –156 –179 –2,130 –2,059 8,124 7,864 –3,993 –3,886 4,131 3,978 Q1–Q2 2020 Q1–Q2 2019 Constant Currency Actual Currency 0 0 0 0 2 2 2 2 2 3 1,630 1,654 1,632 1,656 –37 –29 –21 –34 –58 –63 –1,149 –1,270 –1,206 –1,333 426 324 –230 –238 196 85 SAP Half-Year Report 2020 Concur € millions Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) Qualtrics € millions Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) SAP Half-Year Report 2020 Actual Currency 690 0 0 0 690 118 807 –81 0 –81 –84 –166 642 –344 297 Actual Currency 250 0 0 0 250 79 329 –23 0 –23 –53 –76 253 –258 –5 Q1–Q2 2020 Constant Currency 675 0 0 0 675 115 791 –80 0 –80 –83 –163 628 –339 289 Q1–Q2 2020 Constant Currency 244 0 0 0 244 77 321 –22 0 –22 –52 –74 247 –251 –4 Q1–Q2 2019 Actual Currency 654 0 0 0 654 115 770 –93 0 –93 –82 –176 594 –315 279 Q1–Q2 2019 Actual Currency 158 0 0 0 158 56 214 –13 0 –13 –29 –42 172 –158 14 31 Segment Revenue by Region € millions EMEA Americas Q1–Q2 2020 Q1–Q2 2019 Q1–Q2 2020 Q1–Q2 2019 Q1–Q2 2020 Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Applications, Technology & Support 4,755 4,756 4,617 3,890 3,844 3,693 1,655 1,653 Services 735 734 740 723 711 681 188 187 Concur 119 116 103 606 595 587 82 80 Qualtrics 47 46 29 256 250 170 26 25 Total reportable segments 5,657 5,652 5,488 5,476 5,401 5,131 1,951 1,944 For a breakdown of revenue by region for the SAP Group, see Note (A.1). (C.2) Reconciliation of Segment Measures to Income Statement € millions Applications, Technology & Support Services Concur Qualtrics Total segment revenue for reportable segments Other revenue Adjustment for currency impact Adjustment of revenue under fair value accounting Total revenue Applications, Technology & Support Services Concur Qualtrics Total segment profit for reportable segments Other revenue Other expenses Adjustment for currency impact Adjustment for Revenue under fair value accounting Acquisition-related charges Share-based payment expenses Restructuring Operating profit Other non-operating income/expense, net Financial income, net Profit before tax 32 APJ Q1–Q2 2019 Actual Currency 1,614 235 80 15 1,944 Actual Currency 10,301 1,646 807 329 13,084 182 0 –2 13,264 4,159 207 297 –5 4,658 182 –1,395 0 –2 –325 –612 –13 2,494 –103 53 2,444 Total Segment Revenue Q1–Q2 2020 Q1–Q2 2019 Actual Currency Constant Currency Actual Currency 10,301 10,253 9,923 1,646 1,632 1,656 807 791 770 329 321 214 13,084 12,997 12,563 Q1–Q2 2020 Q1–Q2 2019 Constant Currency Actual Currency 10,253 9,923 1,632 1,656 791 770 321 214 12,997 12,563 180 210 88 0 –2 –51 13,264 12,722 4,131 3,978 196 85 289 279 –4 14 4,611 4,356 180 210 –1,378 –1,283 33 0 –2 –51 –325 –341 –612 –1,114 –13 –1,085 2,494 691 –103 –44 53 29 2,444 675 SAP Half-Year Report 2020 (C.3) Financial Income, Net Finance income mainly consists of gains from disposal of equity securities and IFRS 9-related fair value adjustments totaling €333 million in the first half of 2020 (first half of 2019: €196 million). Included in the above 2020 amounts are several equity securities transactions, most notably the sales of Livongo Health, Inc.’s stock. Due to the significant share price increase in Livongo Health, Inc.’s stock, Sapphire Ventures Fund II, L.P. and other group entities sold a significant portion of their shareholdings in Livongo Health, Inc. This resulted in a gain of approximately €104 million from the share sales as well as the adjustment of the remaining shareholdings in the company. Finance costs mainly consist of losses from disposal or IFRS 9- related fair value adjustments of Sapphire Ventures investments totaling €159 million in the first half 2020 (first half of 2019: €27 million). For more information about our Financial Income, Net, see our Consolidated Financial Statements for 2019, Note (C.4). SAP Half-Year Report 2020 (C.4) Income Taxes We are subject to ongoing tax audits by domestic and foreign tax authorities. Currently, we are in dispute mainly with the German and only a few foreign tax authorities. The German dispute is in respect of certain secured capital investments, while the few foreign disputes are in respect of the deductibility of intercompany royalty payments and intercompany services. In all cases, we expect that a favorable outcome can only be achieved through litigation. For all of these matters, we have not recorded a provision as we believe that the tax authorities’ claims have no merit and that no adjustment is warranted. If, contrary to our view, the tax authorities were to prevail in their arguments before the court, we would expect to have an additional expense of approximately €1,133 million (2019: €2,013 million) in total (including related interest expenses and penalties of €596 million (2019: €982 million)). The contingent liabilities decreased in 2020 mainly due to changes in foreign currency exchange rates for our few foreign disputes and due to a German Federal Fiscal Court decision in a tax litigation on intercompany financing matters. 33 Section D – Invested Capital This section highlights the non-current assets including (D.2) Goodwill investments that form the basis of our operating activities. Additions in invested capital include separate asset acquisitions or business combinations. For more information, see our Consolidated Financial Statements for 2019, Section D – Invested Capital. For goodwill, we have – based on a qualitative and quantitative analysis – assessed the existence of triggering events that would require an impairment test in the first half of 2020. (D.1) Business Combinations and Divestitures We acquire businesses in specific areas of strategic interest to us, particularly to broaden our product and service portfolio. Prior-year acquisitions are described in our Consolidated Financial Statements for 2019. There were no business combinations in the first half of 2020. The review of internal and external factors (and the fact that the software industry is presumably being less strongly impacted than other industries, which was also further supported by a gradual recovery of the business in the second quarter of 2020) led us to conclude that, based on the information currently available, the COVID-19 impact on the cash generating units where goodwill was allocated to, is expected to be rather short-term, with SAP being able to materially catch up to pre-COVID-19 revenue growth and profit levels in the mid-term and long-term. Sale of SAP Digital Interconnect Thus, in the absence of triggering events, no impairment tests were performed in the first half of 2020. On May 5, 2020, SAP and Sinch AB, Stockholm, Sweden (hereafter “Sinch”), announced that they had entered into a definitive agreement for Sinch to acquire the SAP Digital Interconnect group. The business sold (which is a non-reportable segment to SAP) consists of several SAP subsidiaries as well as assets transferred from certain SAP entities. The purchase price amounts to €225 million (on a cash-free, debt-free basis). The transaction is expected to close in the fourth quarter of 2020 – following satisfaction of applicable regulatory and other approvals. Due to immateriality, we have not separately presented the business as a discontinued operation. (D.3) Property, Plant, and Equipment Property, Plant, and Equipment (Summary) € millions 6/30/2020 Property, plant, and equipment excluding leases 3,388 Right-of-use assets 1,884 12/31/2019 3,529 1,967 Total 5,272 5,496 34 SAP Half-Year Report 2020 Section E – Capital Structure, Financing and Liquidity This section provides information related to how SAP manages its capital structure. Our capital management is based on a high equity ratio, modest financial leverage, a well-balanced maturity profile, and deep debt capacity. For more information, see our Consolidated Financial Statements for 2019, Section E – Capital Structure, Financing, and Liquidity. (E.1) Total Equity Number of Shares Other Components of Equity millions 12/31/2018 Issued Capital Treasury Shares 1,228.5 –34.9 € millions Exchange Differences Cash Flow Hedges 6/30/2019 1,228.5 –34.9 12/31/2018 1,239 –5 Other comprehensive income1) 180 1 12/31/2019 1,228.5 –34.9 6/30/2019 1,419 –4 Purchase 0 –14.1 12/31/2019 1,776 –6 6/30/2020 1,228.5 –48.9 Other comprehensive income1) –30 9 We bought back 14,070,538 shares at an average price of 6/30/2020 1,746 4 €106.04 between February 20, 2020, and March 19, 2020. 1) The exchange differences in other comprehensive income include the effect from hyperinflation accounting for our subsidiaries in Venezuela and Argentina. SAP Half-Year Report 2020 Total 1,234 181 1,415 1,770 –20 1,749 35 (E.2) Liquidity € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities € millions Bonds Private placement transactions Commercial Paper Bank loans Financial debt Lease liabilities Other financial liabilities Financial liabilities Financial debt as % of financial liabilities For the first half of 2020, the current other financial liabilities include liabilities amounting to €1,050 million relating to the share buyback completed in the first six months of 2020. 36 Nominal Volume Current Non- Current 1,000 9,868 259 775 930 0 23 2,000 2,212 12,643 NA NA NA NA Nominal Volume Current Non- Current 1,150 8,367 258 772 1,100 0 21 2,000 2,529 11,139 NA NA NA NA 6/30/2020 Carrying Amount Current Non- Current Total 1,001 9,887 10,887 261 820 1,081 930 0 930 23 1,998 2,021 2,215 12,704 14,919 370 1,787 2,157 1,482 7 1,489 4,066 14,499 18,565 54 88 80 12/31/2019 Carrying Amount Current Non- Current Total 1,150 8,283 9,433 259 808 1,067 1,100 0 1,100 22 1,995 2,017 2,531 11,086 13,617 389 1,814 2,203 353 23 376 3,273 12,923 16,196 77 86 84 SAP Half-Year Report 2020 Section F – Risk Management and Fair Value Disclosures This section discusses financial risk factors and risk management. In our half-year report, this includes the transfers between levels of the fair value hierarchy. For more information, particularly about our risk management related to foreign currency exchange rate risk, interest rate risk, equity price risk, credit risk, liquidity risk, and other financial risk factors, see ourConsolidated Financial Statements for 2019, Section F – Risk Management and Fair Value Disclosures. (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (F.1) and (F.2) in our Consolidated Financial Statements for 2019. We do not disclose the fair value of our financial instruments as of June 30, 2020, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2019. Transfers Between Levels of the Fair Value Hierarchy Transfers of equity investments from Level 2 to Level 1, which occurred because disposal restrictions lapsed and deducting a discount for such restriction was no longer necessary, were €109 million in the first half year 2020 (December 31, 2019: €5 million). SAP Half-Year Report 2020 37 Section G – Other Disclosures This section provides additional disclosures on miscellaneous topics, including information pertaining to other litigation, claims, and legal contingencies, and related party transactions. For more information, see our Consolidated Financial Statements for 2019, Section G – Other Disclosures. (G.1) Litigation, Claims, and Legal Contingencies voluntarily self-disclosed potential export controls and economic sanctions violations. The investigations are ongoing and neither the outcome of the investigations nor the date when substantiated findings will be available is predictable at this point in time. SAP continues to enhance its anti-corruption compliance program as well as its export control compliance program. We continue to be fully committed to anti-bribery laws and export restriction controls and will continue full cooperation with all parties involved. It is impossible at this point in time to determine whether the We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as at June 30, 2020, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as at June 30, 2020, are neither individually nor in the aggregate material to SAP. potential anti-bribery law violations and the potential export restriction violations represent present obligations of SAP and, if so, to reliably estimate the amount of these obligations. As a consequence, as at June 30, 2020, no provisions have been recognized for these potential violations in our Consolidated Half- Year Financial Statements. It is currently also not practicable to estimate the financial effect of any contingent liabilities that may result from these potential violations. For more information, see our Consolidated Financial Statements for 2019, Note (G.3). Among the claims and lawsuits are the following classes (for more information about these classes, see our Consolidated Financial Statements for 2019, Note (G.3)). (G.2) Related Party Transactions Intellectual Property-Related Litigation and Claims There have been no significant changes to the amount of provisions recorded for intellectual property-related litigation and claims compared to the amounts disclosed in Note (G.3) in our Consolidated Financial Statements for 2019. There have also been no significant changes in contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (for more information, see our Consolidated Financial Statements for 2019, Note (G.5)). We have relationships with certain of these entities in the ordinary course of business. During the reporting period, we had no related party transactions that had a material effect on our business, financial position, or results in the reporting period. For more information about related party transactions, see our The legal proceedings instituted in 2010 by United States-based TecSec, Inc. against SAP (including its subsidiary Sybase) and many other defendants in the United States, in which TecSec sought unspecified monetary damages and permanent injunctive relief, were settled in 2020. Consolidated Financial Statements for 2019, Note (G.6) . (G.3) Events After the Reporting Period No events that have occurred since June 30, 2020, have a For the other individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2019, there were no significant developments in the first half of 2020. Tax-Related Litigation material impact on the Company’s Consolidated Half-Year Financial Statements. Release of the Consolidated Half-Year Financial Statements There have been no significant changes in contingent liabilities from non-income tax-related litigation for which no provision has been recognized compared to our Consolidated Financial Statements for 2019, Note (G.3). For more information about income tax-related litigation, see The Executive Board of SAP SE approved these consolidated half- year financial statements on July 22, 2020, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. Note (C.4). Anti-Bribery and Export Control Matters SAP received communications alleging conduct that may violate anti-bribery laws in the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)), and other countries. Further, we 38 SAP Half-Year Report 2020 (G.4) Scope of Consolidation 12/31/2019 Additions Disposals 6/30/2020 In the first half of 2020, there were no acquisitions or foundations of legal entities. The disposals are mainly due to liquidations and mergers of legal entities. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (D.1) and our Integrated Report 2019. SAP Half-Year Report 2020 Total 264 0 –3 261 39 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 22, 2020 SAP SE Walldorf, Baden The Executive Board Christian Klein Adaire Fox-Martin Luka Mucic Jürgen Müller Thomas Saueressig 40 SAP Half-Year Report 2020 Supplementary Financial Information Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2019 Q2 2019 Q3 2019 Q4 2019 TY 2019 Revenues Cloud (IFRS) 1,555 1,692 1,789 1,896 6,933 Cloud (non-IFRS) 1,581 1,717 1,807 1,907 7,013 % change – yoy 48 40 37 35 40 % change constant currency – yoy 41 35 33 32 35 Software licenses (IFRS) 650 948 932 2,002 4,533 Software licenses (non-IFRS) 650 948 932 2,002 4,533 % change – yoy 4 –5 –1 –4 –2 % change constant currency – yoy 1 –6 –4 –6 –5 Software support (IFRS) 2,838 2,854 2,907 2,948 11,547 Software support (non-IFRS) 2,838 2,854 2,907 2,948 11,548 % change – yoy 7 4 5 4 5 % change constant currency – yoy 4 2 3 2 3 Software licenses and support (IFRS) 3,489 3,802 3,839 4,950 16,080 Software licenses and support (non-IFRS) 3,489 3,802 3,840 4,950 16,080 % change – yoy 6 2 4 1 3 % change constant currency – yoy 3 0 1 –1 1 Cloud and software (IFRS) 5,044 5,495 5,629 6,846 23,012 Cloud and software (non-IFRS) 5,070 5,520 5,647 6,857 23,093 % change – yoy 16 11 13 8 12 % change constant currency – yoy 12 8 10 6 9 Total revenue (IFRS) 6,091 6,631 6,791 8,041 27,553 Total revenue (non-IFRS) 6,118 6,656 6,809 8,052 27,634 % change – yoy 16 11 13 8 12 % change constant currency – yoy 12 8 10 6 9 Share of more predictable revenue (IFRS, in %) 72 69 69 60 67 Share of more predictable revenue (non-IFRS, in %) 72 69 69 60 67 Profits Operating profit (loss) (IFRS) –136 827 1,679 2,102 4,473 Operating profit (loss) (non-IFRS) 1,467 1,816 2,086 2,839 8,208 % change 19 11 20 12 15 % change constant currency 13 8 15 9 11 Profit (loss) after tax (IFRS) –108 582 1,259 1,637 3,370 Profit (loss) after tax (non-IFRS) 1,080 1,317 1,564 2,190 6,152 % change 25 12 15 22 18 Margins Cloud gross margin (IFRS, in %) 61.2 62.6 64.5 65.1 63.5 Cloud gross margin (non-IFRS, in %) 66.2 67.9 69.0 69.5 68.2 Software license and support gross margin (IFRS, in %) 84.6 86.0 87.0 88.1 86.6 Software license and support gross margin (non-IFRS, in %) 85.7 87.1 87.6 88.8 87.4 Cloud and software gross margin (IFRS, in %) 77.4 78.8 79.9 81.7 79.6 Cloud and software gross margin (non-IFRS, in %) 79.6 81.1 81.7 83.4 81.6 Gross margin (IFRS, in %) 66.5 68.2 70.3 72.8 69.7 Gross margin (non-IFRS, in %) 69.5 71.4 72.3 75.2 72.3 SAP Half-Year Report 2020 Q1 2020 2,011 2,012 27 25 451 451 –31 –31 2,934 2,934 3 2 3,386 3,386 –3 –4 5,397 5,398 6 5 6,521 6,522 7 5 76 76 1,210 1,482 1 0 811 1,015 –6 66.4 69.3 85.2 85.7 78.2 79.6 68.3 69.8 Q2 2020 2,044 2,044 19 18 773 773 –18 –18 2,892 2,892 1 2 3,665 3,665 –4 –3 5,709 5,709 3 3 6,743 6,744 1 1 73 73 1,284 1,964 8 7 885 1,395 6 66.0 69.5 86.4 87.4 79.1 81.0 69.9 72.6 41 € millions, unless otherwise stated Operating margin (IFRS, in %) Operating margin (non-IFRS, in %) AT&S segment – Cloud gross margin (in %) AT&S segment – Segment gross margin (in %) AT&S segment – Segment margin (in %) Services segment – Services gross margin (in %) Services segment – Segment gross margin (in %) Services segment – Segment margin (in %) Concur segment – Cloud gross margin (in %) Concur segment – Segment gross margin (in %) Concur segment – Segment margin (in %) Qualtrics segment – Cloud gross margin (in %) Qualtrics segment – Segment gross margin (in %) Qualtrics segment – Segment margin (in %) Key Profit Ratios Effective tax rate (IFRS, in %) Effective tax rate (non-IFRS, in %) Earnings per share, basic (IFRS, in €) Earnings per share, basic (non-IFRS, in €) Order Entry and current cloud backlog Current cloud backlog % change – yoy % change constant currency – yoy Orders – number of cloud deals (in transactions) Share of cloud orders greater than €5 million based on total cloud order entry volume (in %) Share of cloud orders smaller than €1 million based on total cloud order entry volume (in %) Orders – number of on-premise software deals (in transactions) Share of orders greater than €5 million based on total software order entry volume (in %) Share of orders smaller than €1 million based on total software order entry volume (in %) Liquidity and Cash Flow Net cash flows from operating activities Capital expenditure Payments of lease liabilities Free cash flow % of total revenue (IFRS) % of profit after tax (IFRS) Group liquidity Financial debt (–) Net debt (–) Days sales outstanding (DSO, in days)1) Financial Position Cash and cash equivalents Goodwill Total assets Contract liabilities (current) Equity ratio (total equity in % of total assets) 42 Q1 2019 –2.2 24.0 61.1 78.4 37.0 21.3 17.1 3.3 84.9 76.8 36.4 91.4 81.4 7.9 23.2 26.1 –0.10 0.90 5,329 NA NA 2,961 26 39 12,229 28 42 2,802 –359 –78 2,365 39 –2,198 7,673 –13,866 –6,193 69 7,332 29,160 60,860 6,068 48 Q2 2019 12.5 27.3 62.4 80.0 43.0 25.0 21.8 6.9 86.5 77.5 36.0 92.0 79.9 5.6 28.6 27.0 0.48 1.09 5,526 NA NA 3,624 26 34 12,522 28 36 –122 –180 –106 –409 –6 –70 5,280 –13,833 –8,553 70 5,168 28,853 57,874 5,558 48 Q3 2019 24.7 30.6 63.1 80.4 44.8 31.2 28.3 15.9 86.9 77.9 39.8 91.4 78.6 3.2 26.1 25.8 1.04 1.30 NA NA NA 3,717 29 33 12,270 31 39 638 –164 –104 370 5 29 5,597 –13,874 –8,277 71 5,525 29,904 59,963 4,400 50 Q4 2019 26.1 35.3 63.1 82.9 48.4 29.1 25.8 12.3 88.7 80.6 40.5 90.1 74.9 –6.5 26.2 25.9 1.36 1.82 NA NA NA 5,377 35 28 15,563 35 31 178 –114 –115 –50 –1 –3 5,382 –13,668 –8,286 71 5,314 29,159 60,212 4,266 51 TY 2019 Q1 2020 Q2 2020 16.2 18.6 19.0 29.7 22.7 29.1 62.5 64.4 65.2 80.6 78.3 80.1 43.7 36.7 43.8 26.8 26.9 33.3 23.4 23.1 30.4 9.8 10.1 15.2 86.8 88.1 88.4 78.3 79.8 79.2 38.2 37.6 36.0 91.1 90.8 91.0 78.3 75.4 78.6 1.6 –7.5 4.3 26.7 27.7 33.1 26.2 27.2 30.3 2.78 0.68 0.73 5.11 0.85 1.17 NA 6,647 6,655 NA 25 20 NA 24 21 15,679 3,113 3,775 31 28 28 32 37 35 52,584 10,517 9,175 32 24 34 35 42 38 3,496 2,984 788 –817 –333 –164 –403 –72 –84 2,276 2,580 540 8 40 8 68 318 61 5,382 7,872 7,401 –13,668 –13,700 –14,855 –8,286 –5,827 –7,454 71 73 76 5,314 7,816 6,205 29,159 29,731 29,214 60,212 62,947 60,709 4,266 6,726 5,791 51 49 48 SAP Half-Year Report 2020 € millions, unless otherwise stated Q1 2019 Q2 2019 Q3 2019 Q4 2019 TY 2019 Q1 2020 Non-Financials Number of employees (quarter end)2) 98,659 98,332 99,710 100,330 100,330 101,150 Employee retention (in %, rolling 12 months) 93.8 93.5 93.3 93.3 93.3 93.3 Women in management (in %, quarter end) 26.0 26.2 26.3 26.4 26.4 26.8 Greenhouse gas emissions (in kilotons) 110 75 65 50 300 65 1) Days sales outstanding measures the average number of days from the raised invoice to cash receipt from the customer. We calculate DSO by dividing the average invoiced trade receivables balance of the last 12 months by the average monthly cash receipt of the last 12 months. 2) In full-time equivalents. Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2020 Q2 2020 101,379 93.9 27.3 25 43 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year € millions, unless otherwise stated IFRS Adj. Non- IFRS Currency Impact Q1–Q2 2020 Non-IFRS Constant Currency IFRS Q1–Q2 2019 Adj. Non- IFRS IFRS Non- IFRS ∆ in % Non-IFRS Constant Currency1) Revenue Numbers Cloud 4,055 2 4,057 –46 4,011 3,247 51 3,299 25 23 22 Software licenses 1,224 0 1,224 5 1,230 1,599 0 1,599 –23 –23 –23 Software support 5,826 0 5,826 –27 5,800 5,692 0 5,692 2 2 2 Software licenses and support 7,051 0 7,051 –21 7,029 7,291 0 7,291 –3 –3 –4 Cloud and software 11,106 2 11,107 –67 11,040 10,538 51 10,589 5 5 4 Services 2,159 0 2,159 –21 2,137 2,184 0 2,184 –1 –1 –2 Total revenue 13,264 2 13,266 –88 13,178 12,722 51 12,773 4 4 3 Operating Expense Numbers Cost of cloud –1,370 128 –1,242 –1,237 151 –1,086 11 14 Cost of software licenses and support –998 53 –946 –1,069 79 –990 –7 –4 Cost of cloud and software –2,368 180 –2,188 –2,306 231 –2,075 3 5 Cost of services –1,725 95 –1,630 –1,845 146 –1,699 –7 –4 Total cost of revenue –4,094 276 –3,818 –4,151 377 –3,774 –1 1 Gross profit 9,171 277 9,448 8,571 428 8,999 7 5 Research and development –2,210 163 –2,047 –2,114 257 –1,857 5 10 Sales and marketing –3,684 388 –3,296 –3,833 496 –3,337 –4 –1 General and administration –729 111 –618 –895 325 –570 –19 8 Restructuring –13 13 0 –1,085 1,085 0 –99 NA Other operating income/expense, net –41 0 –41 48 0 48 <-100 <-100 Total operating expenses –10,770 950 –9,820 55 –9,765 –12,031 2,540 –9,490 –10 3 3 Profit Numbers Operating profit (loss) 2,494 952 3,446 –33 3,413 691 2,592 3,283 >100 5 4 Other non-operating income/expense, net –103 0 –103 –44 0 –44 >100 >100 Finance income 406 0 406 286 0 286 42 42 Finance costs –354 0 –354 –258 0 –258 37 37 Financial income, net 53 0 53 29 0 29 84 84 Profit (loss) before tax 2,444 952 3,396 675 2,592 3,267 >100 4 Income tax expense –747 –239 –986 –201 –669 –870 >100 13 Profit (loss) after tax 1,697 713 2,409 475 1,923 2,397 >100 1 Attributable to owners of parent 1,681 713 2,393 455 1,923 2,378 >100 1 Attributable to non-controlling interests 16 0 16 20 0 20 –19 –19 Key Ratios Operating margin (in %) 18.8 26.0 25.9 5.4 25.7 13.4pp 0.3pp 0.2pp Effective tax rate (in %)2) 30.6 29.0 29.7 26.6 0.9pp 2.4pp Earnings per share, basic (in €) 1.42 2.02 0.38 1.99 >100 1 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. 2) The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2020 mainly resulted from tax effects of share-based payment expenses and acquisition-related charges. The difference between our effective tax rat e (IFRS) and effective tax rate (non-IFRS) in the first half of 2019 mainly resulted from tax effects of share-based payment expenses, restructuring expenses and acquisition-related charges. Due to rounding, numbers may not add up precisely. 44 SAP Half-Year Report 2020 Non-IFRS Adjustments Actuals and Estimates – Half Year € millions Operating profit (loss) (IFRS) Revenue adjustments Adjustment for acquisition-related charges Adjustment for share-based payment expenses Adjustment for restructuring Operating expense adjustments Operating profit (loss) adjustments Operating profit (loss) (non-IFRS) Non-IFRS-Adjustments by Functional Areas – Half Year € millions Q1–Q2 2020 IFRS Acqui- sition- Related SBP1) Restruc- turing Non-IFRS Cost of cloud and software –2,368 127 53 0 –2,188 Cost of services –1,725 2 94 0 –1,630 Research and development –2,210 4 159 0 –2,047 Sales and marketing –3,684 191 197 0 –3,296 General and administration –729 1 110 0 –618 Restructuring –13 0 0 13 0 Other operating income/expense, net –41 0 0 0 –41 Total operating expenses –10,770 325 612 13 –9,820 1) Share-based payments Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2020 Estimated Amounts for Full Year 2020 0–30 580–690 1,200–1,600 20–40 IFRS Acqui- sition- Related –2,306 150 –1,845 3 –2,114 5 –3,833 169 –895 14 –1,085 0 48 0 –12,031 341 Q1–Q2 2020 2,494 2 325 612 13 950 952 3,446 SBP1 ) Restruc- turing 81 0 144 0 252 0 327 0 311 0 0 1,085 0 0 1,114 1,085 Q1–Q2 2019 691 51 341 1,114 1,085 2,540 2,592 3,283 Q1–Q2 2019 Non-IFRS –2,075 –1,699 –1,857 –3,337 –570 0 48 –9,490 45 Revenue by Region (IFRS and Non-IFRS) – Half Year € millions Q1–Q2 2020 Q1–Q2 2019 ∆ in % IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non-IFRS IFRS Non- IFRS Non-IFRS Constant Currency1) Cloud Revenue by Region EMEA 1,277 0 1,277 –5 1,272 967 0 967 32 32 32 Americas 2,275 2 2,277 –38 2,239 1,868 51 1,919 22 19 17 APJ 502 0 502 –3 499 412 0 412 22 22 21 Cloud revenue 4,055 2 4,057 –46 4,011 3,247 51 3,299 25 23 22 Cloud and Software Revenue by Region EMEA 4,840 0 4,840 –2 4,838 4,629 0 4,629 5 5 5 Americas 4,545 2 4,547 –60 4,487 4,230 51 4,281 7 6 5 APJ 1,720 0 1,720 –5 1,715 1,680 0 1,680 2 2 2 Cloud and software revenue 11,106 2 11,107 –67 11,040 10,538 51 10,589 5 5 4 Total Revenue by Region Germany 1,846 0 1,846 –1 1,845 1,783 0 1,783 3 3 3 Rest of EMEA 3,862 0 3,862 –2 3,860 3,754 0 3,754 3 3 3 Total EMEA 5,708 0 5,708 –3 5,705 5,537 0 5,537 3 3 3 United States 4,577 2 4,578 –108 4,471 4,245 51 4,296 8 7 4 Rest of Americas 983 0 983 29 1,012 957 0 957 3 3 6 Total Americas 5,560 2 5,561 –79 5,483 5,202 51 5,253 7 6 4 Japan 641 0 641 –25 617 526 0 526 22 22 17 Rest of APJ 1,356 0 1,356 18 1,373 1,457 0 1,457 –7 –7 –6 Total APJ 1,997 0 1,997 –7 1,990 1,983 0 1,983 1 1 0 Total revenue 13,264 2 13,266 –88 13,178 12,722 51 12,773 4 4 3 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. Due to rounding, numbers may not add up precisely. 46 SAP Half-Year Report 2020 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there-mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management and Risks section, the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2019 and our Annual Report on Form 20-F for December 31, 2019, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to SAP Half-Year Report 2020 place undue reliance on these forward-looking statements, which speak only as of the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward- looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including IDC, the ECB, and the IMF. This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation as at June 30, 2020, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non-IFRS measures, see our Web site www.sap.com/investors/sap-non-ifrs- measures. 47 Additional Information Financial Calendar October 26, 2020 Third-quarter 2020 earnings release, conference call for financial analysts and investors January 29, 2021 Fourth-quarter and full-year 2020 preliminary earnings release, conference call for financial analysts and investors May 12, 2021 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The “Financial Reports” tab contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) SAP Annual Report on Form 20-F (IFRS, PDF) SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – – – Half-Year Report (IFRS, PDF) – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. Only a limited number of the Integrated Report was printed for the Annual General Meeting of Shareholders. 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Semestriel | 2,020 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2020 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Market development Page 10 B.1 Consolidated statements of income Page 24 C.1 Responsibility statement Page 4 A.2 Results of operations Page 11 B.2 Consolidated statements of comprehensive income Page 25 C.2 Review report Page 6 A.3 Net assets and financial position Page 12 B.3 Consolidated statements of Page 26 C.3 Notes and forward-looking financial position statements Page 8 A.4 Outlook Page 13 B.4 Consolidated statements of cash flows Page 9 A.5 Risks and opportunities Page 14 B.5 Consolidated statements of changes in equity Page 15 B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s Half-Year Financial Report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with Section 115 of the German Securities Trading Act. The Half-Year Financial Report should be read in conjunction with the Annual Report for fiscal year 2019. 2 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Market development A. Interim group management report A.1 Market development After the first confirmed appearance of SARS-CoV-2 in China at the end of 2019, the virus spread rapidly, resulting in the COVID-19 pandemic in the second quarter of fiscal year 2020. This development is expected to significantly impact economies worldwide. The situation is still volatile and dynamic, especially as long as the duration of the crisis and respective government reactions and measures, including effectiveness of bail-out- programs and changes to regulatory frameworks, are unclear. Therefore, at this point in time it is not possible to reliably quantify the impact on our addressed markets. We evaluate the impact of the COVID-19 pandemic on our addressed markets on an ongoing basis. China, being one of our biggest markets and major incremental growth driver, was the first country with a severe SARS-CoV-2 outbreak, leading to a complete shutdown of the country for more than two months. Given that China made rapid progress on fighting COVID-19 due to extensive intervention, it has ended its lockdown phase and is gradually restarting the economy, returning to regular business activity. A certain market recovery, after negative impacts in the second quarter of fiscal year 2020, is therefore possible for this fiscal year, however not necessarily at the previous growth levels. Compared to our assumptions in the 2019 annual report, we expect that market developments will change. Given that hospitals have been asked to free up capacities and resources for potential COVID-19 emergencies, routine and elective procedures are expected to further decrease. Overall it can be assumed that, depending on the further development and duration of the pandemic, investments in capital goods and other medical imaging equipment might be postponed to a later date or be canceled. Consequently, a slower recovery should build up more pent-up market demand. On the other hand, markets for medical devices used to fight COVID-19, could see a slight positive effect on fiscal year 2020 and fiscal year 2021 growth. For our addressed Imaging markets, market declines in major modalities, e.g. magnetic resonance systems, are likely. However, we expect an increased interest in equipment and solutions used to diagnose and treat COVID-19, e.g. computed tomography systems, x-ray systems, ultrasound devices and digital solutions, which might counterbalance or outweigh reduced demand for our other Imaging offerings. Within Diagnostics, markets for point-of-care tests to monitor patients and lab tests to detect SARS-CoV-2 and identify antibodies are expected to increase, while at the same time the demand for certain diagnostic reagents, particularly for routine tests, might be reduced as patient volume decreases. Moreover, we expect that the markets for Advanced Therapies will be negatively affected, due to the above mentioned further decrease of routine and elective procedures. Many countries globally have not achieved a similar COVID-19 pandemic status yet, and are still in forms of lockdown, amongst them our major markets other than China: U.S., Germany and Japan. The length of lockdowns is a determining factor of how economies and our markets might be impacted. After Europe was the focus of the COVID-19 pandemic in the middle of the second quarter of fiscal year 2020, the U.S. became the country suffering the most severely from SARS-CoV-2 infections and deaths. It is therefore expected that the U.S. market will see significant slowdowns due to COVID-19 pandemic, at least in the near-term. Overall, we expect market development in fiscal year 2020 to be more negative compared to what we expected towards the end of fiscal year 2019, with a not unlikely extension even to the next fiscal year. It is yet unclear whether a second wave of COVID-19 pandemic is to be feared. 3 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Results of operations A.2 Results of operations A.2.1 Revenue by segment and region (in millions of €) Siemens Healthineers Therein: Imaging 2020 7,272 4,530 First half 2019 6,807 4,157 Act. 7% 9% %-Change Comp.¹ 4% 6% Total revenue in Diagnostics increased nominally by 2% to €2,018 million. On a comparable basis, total revenue was on the level of the previous year. A moderate increase in the Americas was offset by a decline in Asia, Australia and EMEA. Effects of the COVID-19 pandemic lowered revenue growth in a percentage range of low single-digits. Diagnostics 2,018 1,982 2% 0% Advanced Therapies 825 747 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects. Revenue by region (location of customer) 10% 7% Advanced Therapies saw nominal growth in total revenue of 10% to €825 million. On a comparable basis, revenue increased by 7%, supported by all three regions chiefly including a significant increase in Asia, Australia and a very strong increase in the Americas. Effects of the COVID-19 pandemic lowered revenue growth in a percentage range of low to medium single-digits. First half %-Change (in millions of €) Europe, Commonwealth of Independent States, Africa, Middle East (EMEA) Therein: Germany Americas Therein: United States 2020 2,312 411 2,935 2,517 2019 2,174 422 2,729 2,314 Act. 6% −2% 8% 9% Comp.¹ 6% −2% 3% 3% Regions The strongly increased comparable revenue in EMEA was driven particularly by significant growth in Imaging and strong growth in Advanced Therapies, partly offset by a slight decline in Diagnostics. Germany reported a slight comparable revenue decline. Slight growth in Imaging was outweighed by a decline in Diagnostics and Advanced Therapies. Asia, Australia 2,025 1,903 6% 5% Therein: China 923 840 10% 9% Siemens Healthineers 7,272 6,807 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects. 7% 4% In the Americas comparable revenue growth increased moderately, primarily due to very strong growth in Advanced Therapies, in particular in the United States, and a moderate increase in Imaging and Diagnostics. Siemens Healthineers Revenue was nominally up by 7% to €7,272 million. On a comparable basis, revenue increased by 4%, due to very strong growth in Advanced Therapies and to strong growth in Imaging. Effects from the COVID-19 pandemic negatively affected comparable revenue growth by 2 percentage points. Comparable revenue growth was strong in Asia, Australia due to significant growth in Advanced Therapies and a very strong development in Imaging, partly offset by a clear decline in Diagnostics. China showed significant comparable revenue growth with Advanced Therapies in particular growing substantially. Currency translation effects gave revenue growth a 2-percentage- point boost. Compared to the prior fiscal year, portfolio transactions had slight effects on overall revenue development. Segments Imaging saw nominal growth in total revenue of 9% to €4,530 million. On a comparable basis, total revenue increased by 6%. In particular, X-Ray Products and Molecular Imaging showed very strong growth. Moreover, Computed Tomography and Magnetic Resonance contributed strongly to comparable growth. From a geographic perspective, comparable total revenue increased in all three regions with significant growth in EMEA, very strong growth in Asia, Australia and moderate growth in the Americas. Effects of COVID-19 pandemic, for example, such as delays in deliveries and installations, negatively affected revenue growth in a percentage range of low single-digits. 4 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Results of operations A.2.2 Income Segments (Adjusted EBIT in millions of €, margin in %) Adjusted EBIT 2020 1,143 First half 2019 1,165 Imaging’s adjusted EBIT margin was 20.2%, slightly below the prior year. Along with higher volumes, profitability also benefited from positive effects from currency translation; these factors were mainly outweighed by a less favorable business mix. Effects from COVID-19 pandemic on adjusted EBIT margin were insignificant. Therein: Imaging Diagnostics Advanced Therapies Adjusted EBIT margin Therein: 914 97 156 15.7% 849 193 146 17.1% In Diagnostics, adjusted EBIT margin of 4.8% was clearly below the prior-year level. This was caused mainly by higher ramp-up costs related to Atellica Solution and only minimal revenue growth. A counterbalancing factor was a higher capitalization of internally generated assets. Effects from COVID-19 pandemic on adjusted EBIT margin were insignificant. Imaging 20.2% 20.4% Diagnostics Advanced Therapies 4.8% 18.9% 9.7% 19.6% Despite dilutive effects from the acquisition of Corindus, Advanced Therapies’ adjusted EBIT margin was at 18.9%. It benefited from positive currency effects and higher volume. Effects from COVID-19 pandemic on adjusted EBIT margin were insignificant. Reconciliation to net income: Reconciliation to net income (in millions of €) Adjusted EBIT Amortization of intangible assets acquired in business combinations 2020 1,143 −87 First half 2019 1,165 −65 Due to the acquisition of ECG Management Consultants (hereinafter “ECG”) and Corindus, amortization of intangibles assets acquired in business combinations increased to €87 million. Additionally, acquisition-related transaction costs of €11 million were incurred, mainly through the takeover of Corindus. Acquisition-related transaction costs −11 ‐ Severance charges EBIT Financial income, net −34 1,011 −10 −24 1,076 −76 Financial income, net, improved by €66 million to negative €10 million. The increase resulted mainly from lower interest expenses, following a restructuring of debt in fiscal year 2019 and interest income related to international tax procedures. Income tax expenses −282 −274 Net income 719 725 Income tax expenses increased by €9 million. The effective income tax rate increased from 27.4% to 28.2%. For additional information to taxes please see Note 5 Income taxes in the notes to the half-year consolidated financial statements. Siemens Healthineers In the first half of fiscal year 2020, adjusted EBIT margin declined by 2% to 15.7%. The decline was mainly due to weak EBIT margin development in Diagnostics. This was offset by slightly positive currency effects in the first half of fiscal year 2020. Negative effects related to the COVID-19 pandemic were mainly offset by lower provisions for personnel costs. Based on the effects described above, net income declined by €7 million to €719 million. Reconciliation to basic earnings per share: Research and development expenses increased by €39 million, or 6%. Besides a continuous renewal of our portfolio and ongoing improvements of existing products and solutions, the increase is based on activities in the field of artificial intelligence. Currency translation effects had a slightly negative impact. (in €) Adjusted basic earnings per share Amortization of intangible assets acquired in business combinations 2020 0.81 −0.06 First half 2019 0.78 −0.05 Acquisition-related transaction costs −0.01 ‐ Selling and general administrative expenses grew by €114 million, or 11%. Among other factors, the increase is due to the implementation of the second phase of the Siemens Healthineers Strategy 2025, the so-called Upgrading phase, as well as to integration costs, in particular in Advanced Therapies due to the acquisition of Corindus Vascular Robotics, Inc. (hereinafter “Corindus“). In addition, currency translation effects had a slightly negative impact. Severance charges −0.02 Basic earnings per share 0.71 In the first half of fiscal year 2020, adjusted basic earnings per share grew by 3% to €0.81, based on the results described above. −0.02 0.72 5 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Net assets and financial position A.3 Net assets and financial position A.3.1 Net assets and capital structure (in millions of €) Short-term financial balance Mar 31, 2020 218 Sept 30, 2019 1,243 delivery capability of all segments, particularly in the context of recent economic developments due to COVID-19 pandemic. Inventories of finished goods also increased due to delays in transport and in delivery of products to customers. Operating net working capital 2,715 2,538 Remaining current assets Remaining current liabilities 668 −1,975 491 −2,097 Remaining current assets and liabilities Total non-current assets Total non-current liabilities Total equity 15,359 −7,363 9,621 13,650 −6,043 9,782 The growth in other current assets arose primarily from higher current income tax assets and an increase in other current financial assets basically due to changes in the value of derivatives. Material developments within net assets and capital structure are described below. Short-term financial balance Mar 31, Sept 30, (in millions of €) 2020 2019 Cash and cash equivalents 845 920 Receivables from Siemens Group 258 686 Remaining current liabilities declined predominantly due to other current liabilities, which decreased by €192 million to €1,044 million. This decline was attributable primarily to bonus payouts for the prior fiscal year. In addition, current income tax liabilities decreased by €86 million to €261 million. In contrast, short-term financial debt and current maturities of long-term financial debt increased by €172 million to €252 million mainly as a consequence of the first-time adoption of IFRS 16, Leases. For additional information regarding the first-time adoption of IFRS 16, please refer to Note 2 Accounting policies in the notes to the half-year consolidated financial statements. Payables to Siemens Group −885 −364 Short-term financial balance 218 1,243 Total non-current assets The short-term financial balance changes due to income and expenditures within the scope of operations. The reduction in short-term financial balance was caused mainly by the change in net receivables from and payables to Siemens Group. Despite cash inflows from operations, this figure decreased by €950 million to a net payable of €627 million, chiefly due to the dividend payment of €798 million. In addition, payments for the acquisition of ECG were made through the Siemens Group’s cash pooling. For further information to the payments made in connection with the acquisition, please refer to Note 3 Acquisitions in the notes to the half-year consolidated financial statements. Operating net working capital The increase in non-current assets resulted largely from a rise in goodwill by €871 million to €9,461 million and in other intangible assets by €458 million to €2,034 million. These developments were caused most notably by the acquisitions of Corindus and ECG. Currency translation effects had a counterbalancing impact on goodwill. For additional information to the acquisitions, please refer to Note 3 Acquisitions in the notes to the half-year consolidated financial statements. In addition, property, plant and equipment was up by €395 million, at €2,713 million, mainly because of the first-time adoption of IFRS 16. The increase in other financial assets by €173 million to €511 million resulted mainly from the change in value of hedging instruments for U.S. dollar loans to the Siemens Group. Mar 31, Sept 30, (in millions of €) Trade and other receivables Contract assets 2020 2,715 765 2019 2,779 839 A reduction arose from a reclassification of deferred tax assets to current income tax receivables due to a change in tax law in the U.S. Inventories 2,389 2,064 Trade payables −1,375 −1,403 Total non-current liabilities Contract liabilities −1,778 Operating net working capital 2,715 Operating net working capital rose by €177 million to €2,715 million despite counterbalancing currency translation effects. This resulted largely from an increase of €325 million in inventories, which was attributable to steps taken to ensure the −1,741 2,538 Higher non-current liabilities are primarily a consequence of an increase in other liabilities to Siemens Group by €1,025 million to €5,055 million. This increase was caused chiefly by a loan from the Siemens Group in connection with the acquisition of Corindus amounting to €1.0 billion and maturing end of fiscal year 2021. For additional information to financial debt, please refer to Note 7 Financial instruments in the notes to the half-year consolidated financial statements. 6 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Net assets and financial position In addition, long-term financial debt increased by €201 million to €263 million mainly due to the first-time adoption of IFRS 16. Deferred tax liabilities increased by €199 million to €574 million. Here, deferred tax liabilities recognized in the first-time consolidation of Corindus and ECG had an impact. A.3.2 Cash flows First half (in millions of €) 2020 2019 Cash flows from: Total equity Operating activities 572 465 Equity declined by €161 million primarily due to a decrease in retained earnings, mainly as a result of the following developments: Dividends of €798 million were paid. Besides, written put options on non-controlling interests of ECG reduced retained earnings by €66 million because as of March 31, 2020, the exercise of the options was assumed and treated as a transaction between shareholders. In contrast, net income attributable to shareholders of Siemens Healthineers AG of €712 million increased the retained earnings. Investing activities Financing activities (in millions of €) Cash flows from operating activities −1,597 962 2020 572 −291 71 First half 2019 465 Additions to intangible assets and property, plant and equipment −245 −285 For further details to equity, especially to the development of treasury shares, please see Note 6 Equity in the notes to the half- year consolidated financial statements. Free cash flow 327 179 Credit facilities The multicurrency revolving credit facility of up to €1.1 billion (September 30, 2019: €1.0 billion) granted by the Siemens Group, which serves as short-term loan facility and to finance net working capital, was extended until January 31, 2023. As of March 31, 2020, it was utilized in the amount of €0.8 billion (September 30, 2019: €0.0 billion). Operating activities Cash flows from operating activities grew by €107 million to €572 million. Thereby, the initial application of IFRS 16, Leases, resulted in an increase in reported cash flows from operating activities in the mid double-digit million range with a corresponding decrease in reported cash flows from financing activities. For additional information regarding the first-time adoption of IFRS 16, please refer to Note 2 Accounting policies in the notes to the half-year consolidated financial statements. Cash outflows for the described buildup of inventories rose by €114 million to €342 million. They were counterbalanced by higher cash inflows from asset reductions, including €86 million in contract assets and €68 million in trade and other receivables. In total, cash outflows from the buildup of operating net working capital remained level. Investing activities Cash flows from investing activities decreased by €1,306 million to a cash outflow of €1,597 million. This was primarily the result of cash outflows for acquisitions of businesses, net of cash acquired, of €1,349 million, chiefly related to the acquisitions of Corindus and ECG. 7 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Outlook Financing activities A.4 Outlook Cash flows from financing activities grew by €891 million to a cash inflow of €962 million. Cash inflows from other transactions/financing with Siemens Group increased by €1,066 million to €1,919 million largely due to a loan from the Siemens Group of €1.0 billion in connection with the acquisition of Corindus. Counterbalancing effects arose from higher cash outflow of €99 million related to dividends paid to shareholders of Siemens Healthineers AG. Due to the COVID-19 pandemic, the assumptions underlying our original forecast for fiscal year 2020 are to a large extent no longer applicable. This applies to both the segments and Siemens Healthineers. Accordingly, the growth targets we originally communicated for comparable revenue growth and adjusted EBIT of the segments and comparable revenue growth and adjusted basic earnings per share of Siemens Healthineers are no longer valid from today’s perspective, and are not likely to be achieved. The described shift due to the first-time application of IFRS 16 mainly led to €58 million higher cash outflows from a change in short-term debt and other financing activities. There are no reliable forecasts for the duration or intensity of the COVID-19 pandemic, or for the associated opportunities and risks. Consequently, from today’s point of view, it is not possible to make assumptions related to business development with certainty. For the time being, we will therefore not communicate any specific expectations regarding the development of Siemens Healthineers and its segments for fiscal year 2020. 8 Siemens Healthineers Half-Year Financial Report 2020 Interim group management report – Risks and opportunities A.5 Risks and opportunities In our annual report for fiscal year 2019 we described certain risks, which could have a material adverse effect on our business, net assets, financial position and results of operations and reputation. In addition, we described our most significant opportunities as well as the design of our risk management system. Considering the aspects mentioned above, the most significant risks compared to our 2019 annual report now include the impact of the COVID-19 pandemic, Cybersecurity and Changes in regulations, laws and policies. Beside the risks and opportunities that we presented in our annual report for fiscal year 2019 we identified the impact of the COVID-19 pandemic as a new significant risk during the reporting period. The highly volatile situation and its consequences might expose us to the risk of various negative impacts on our company. Some of the potential key impacts include harm to our employees’ health and safety, business interruptions in the form of loss of production due to partial or full closure of sites (such as from delivery delays, supply shortages, delivery limitations or local restrictions), disruption of our outbound logistics (such as from limited logistics capacities), delays in our time to market for certain products or product lifecycles, or changes in installation and service capacities. Other potential key impacts include, but are not limited to, revenue shortfalls for example due to investment shifts, reduced reagent demand in the Diagnostics business, shifts in public funding or financial difficulties of customers. Investment shifts could particularly affect medical imaging equipment. Furthermore, unforeseen expenses could adversely impact our financial position. In order to ensure business operations and reduce business impacts, we initiated a broad spectrum of measures. These include among others protecting our workforce (such as by travel restrictions, home office, staggered work times to enable social distancing, and provision of personal protective equipment), setting up dedicated task forces and a crisis management team led by the managing board, coordinating local response plans, ensuring close coordination with suppliers, securing logistic capacities. At the same time, we utilize, advance and expand our offerings, for example critical diagnostic tests (especially a laboratory-based total antibody test), computed tomography systems, and digital infrastructure solutions (such as remote scanning assistance) to support healthcare providers in treating COVID-19. We continue to observe developments including the easing of pandemic-related restrictions on an ongoing basis in order to quickly identify changes, evaluate potential impacts, assess risks and make adjustments where necessary. Additional risks and opportunities not known to us or that we currently consider immaterial could also affect our business operations. At present, no risks have been identified that in their known form either individually or in combination with other risks could endanger our ability to continue as a going concern. Please take note of C.3 Notes and forward-looking statements. 9 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income First half (in millions of €, earnings per share in €) Note 2020 Revenue 7,272 Cost of sales −4,404 Gross profit 2,869 Research and development expenses −673 Selling and general administrative expenses −1,186 Other operating income 12 Other operating expenses −13 Income from investments accounted for using the equity method, net 3 Earnings before interest and taxes 1,011 Interest income 4 37 Interest expenses 10 −40 Other financial income, net −7 Income before income taxes 1,001 Income tax expenses 5 −282 Net income 719 Thereof attributable to: Non-controlling interests 6 Shareholders of Siemens Healthineers AG 712 Basic earnings per share 0.71 Diluted earnings per share 0.71 10 First half 2019 6,807 −4,033 2,773 −634 −1,072 17 −10 1 1,076 13 −76 −13 999 −274 725 8 717 0.72 0.72 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Net income Remeasurements of defined benefit plans Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges Therein: Income tax effects Cost/Income from hedging Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 11 First half 2020 719 22 −24 22 −151 24 −8 112 −40 −15 7 726 5 721 First half 2019 725 −119 48 −119 194 −25 12 169 50 775 8 767 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Cash and cash equivalents Trade and other receivables Other current financial assets Receivables from Siemens Group Contract assets Inventories Current income tax assets Other current assets Total current assets Goodwill Other intangible assets Property, plant and equipment Investments accounted for using the equity method Other financial assets Deferred tax assets Other assets Total non-current assets Total assets Short-term financial debt and current maturities of long-term financial debt Trade payables Other current financial liabilities Payables to Siemens Group Contract liabilities Current provisions Current income tax liabilities Other current liabilities Total current liabilities Long-term financial debt Provisions for pensions and similar obligations Deferred tax liabilities Provisions Other financial liabilities Other liabilities Other liabilities to Siemens Group Total non-current liabilities Total liabilities Issued capital Capital reserve Retained earnings Other components of equity Total equity attributable to shareholders of Siemens Healthineers AG Non-controlling interests Total equity Total liabilities and equity 12 Note 7 7 7 7, 10 3 3 2 7 7 7 7 7, 10 7 7 7, 10 6 Mar 31, 2020 845 2,715 131 258 765 2,389 191 346 7,639 9,461 2,034 2,713 43 511 301 297 15,359 22,999 252 1,375 163 885 1,778 256 261 1,044 6,014 263 1,005 574 140 12 315 5,055 7,363 13,378 1,000 10,823 −1,989 −218 9,616 5 9,621 22,999 Sept 30, 2019 920 2,779 78 686 839 2,064 92 321 7,779 8,590 1,576 2,318 45 339 462 320 13,650 21,429 80 1,403 152 364 1,741 282 346 1,236 5,605 62 1,045 375 147 16 368 4,030 6,043 11,648 1,000 10,801 −1,859 −174 9,769 13 9,782 21,429 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Trade payables Contract liabilities Change in other assets and liabilities Additions to equipment leased to others in operating leases Income taxes paid Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Purchase of investments and financial assets for investment purposes Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Disposal of businesses, net of cash disposed Cash flows from investing activities Purchase of treasury shares Change in short-term financial debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG Dividends paid to non-controlling interests Interest paid to Siemens Group Other transactions/financing with Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 13 First half 2020 719 391 282 3 −1 74 62 −342 17 −13 76 −292 −142 −278 1 14 572 −245 −5 −1,349 2 −1,597 −67 −14 −8 −798 −15 −54 1,919 962 −12 −75 920 845 First half 2019 725 290 274 63 −3 13 −24 −228 −51 12 90 −309 −159 −239 1 11 465 −285 −3 −8 3 2 −291 −45 43 −2 −699 −15 −64 853 71 13 258 519 777 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings/ Net assets Currency translation differences Reserve of equity instruments measured at fair value through other comprehensive income Cash flow hedges reserve Cost of hedging reserve Treasury shares at cost Balance as of September 30, 2018 1,000 11,174 −3,019 −493 1 2 −10 Effect of retrospectively adopting IFRS 9, Financial Instruments 39 −35 Balance as of October 1, 2018 1,000 11,174 −2,980 −493 −34 2 −10 Net income 717 Other comprehensive income, net of taxes −119 194 −25 Dividends −699 Share-based payment 7 −2 Purchase of treasury shares −45 Reissuance of treasury shares 22 Other changes in equity −390 390 Balance as of March 31, 2019 1,000 10,791 −2,693 −299 −34 −23 −33 Balance as of October 1, 2019¹ 1,000 10,801 −1,859 −95 −33 −24 3 −24 Net income 712 Other comprehensive income, net of taxes 22 −150 24 112 Dividends −798 Share-based payment 21 Purchase of treasury shares −64 Reissuance of treasury shares 1 −1 33 Other changes in equity −66 Balance as of March 31, 2020 1,000 10,823 −1,989 −245 −33 1 115 −55 ¹ The balance as of September 30, 2019 corresponds to the balance as of October 1, 2019. The first-time adoption of IFRS 16, Leases, does not lead to a change in the reported amounts, please refer to Note 2 Accounting policies in the notes to the half-year consolidated financial statements. 14 Total equity attributable to shareholders of Siemens Healthineers AG 8,656 4 8,659 717 50 −699 5 −45 22 8,709 9,769 712 8 −798 21 −64 33 −66 9,616 Non- controlling interests 20 20 8 −15 13 13 6 −1 −15 3 5 Total equity 8,675 4 8,679 725 50 −714 5 −45 22 8,722 9,782 719 7 −814 21 −64 33 −63 9,621 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation Recently adopted accounting pronouncements The condensed half-year consolidated financial statements as of March 31, 2020, present the operations of Siemens Healthineers AG and its subsidiaries (hereinafter, collectively, “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year consolidated financial statements were prepared and published in millions of euros (€ million). The results achieved in the interim reporting period are not necessarily indicative of future results. The COVID-19 pandemic and associated significant uncertainties have been considered, where relevant, in accounting estimates and judgments. There is currently no significant risk that the COVID-19 pandemic will lead to material adjustments to the carrying amounts of recognized assets and liabilities in the second half of fiscal year 2020. For further information on impacts from the COVID-19 pandemic, on disaggregation of revenue and on segment information, see disclosures in the interim group management report. IFRS 16, Leases, was adopted for the first time as of October 1, 2019, by applying the modified retrospective approach (using practical and transitional expedients), that is, comparative figures for the preceding year were not adjusted. IFRS 16 introduced a single lessee accounting model (so-called right-of-use model) requiring lessees to recognize right-of-use assets and lease liabilities. The recognition exemptions for not applying the right- of-use model for leases with a term of twelve months or less or for low-value assets have been exercised. The majority of the transition effect was related to real estate leased by Siemens Healthineers. As of October 1, 2019, additional right-of-use assets of €435 million were recognized in property, plant and equipment, generally measured at the amount of the lease liability adjusted by any prepaid or accrued lease payments. In addition, the right-of-use asset was derecognized if the leased asset was subleased under a finance lease to customers. The transition to IFRS 16 had nearly no effect on retained earnings. For the first half of fiscal year 2020, the initial application resulted in an improvement in cash flows from operating activities in the mid double-digit million range with a corresponding deterioration in cash flows from financing activities and a corresponding increase in free cash flow. Future payment obligations under operating leases as of September 30, 2019 reconcile to the lease liability as of October 1, 2019, as follows: The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on April 29, 2020. (in millions of €) Future minimum lease payments from operating leases as of September 30, 2019 (gross) Note 2 Accounting policies Future minimum lease payments from finance leases as of September 30, 2019 (gross) The accounting policies applied for the preparation of the half- year consolidated financial statements are substantially consistent with those accounting policies applied for the preparation of the consolidated financial statements for fiscal year 2019, with the exception of accounting policies which are relevant or applicable for the first time in fiscal year 2020. Income tax expenses are determined in interim reporting periods on the basis of the current estimated annual effective tax rate of Siemens Healthineers for the overall year. Practical relief non-separation of lease components and non- lease components Recognition exemption for low value assets: Former finance leases which lead to off-balance reporting Others Future minimum lease payments from leases under the right-of- use model as of October 1, 2019 (gross) Discounted using incremental borrowing rates (weighted average incremental borrowing rate as of October 1, 2019: 1.9%) Lease liabilities as of October 1, 2019 (therein current: €132 million) Business combinations With the acquisition of ECG Management Consultants (hereinafter “ECG”), Siemens Healthineers became a writer of a put option on non-controlling interests. As such, Siemens Healthineers assesses whether the prerequisites for the transfer of present ownership interests are fulfilled at the balance sheet date. If Siemens Healthineers is not the beneficial owner of the shares underlying the put option, the exercise of the put option will be assumed at each balance sheet date and treated as a transaction between shareholders with the corresponding recognition of a purchase liability at the respective exercise price. The non-controlling interests participate in profits and losses during the reporting period. The lease liabilities as of October 1, 2019, amounting to €470 million exceeded by €438 million the lease liabilities from finance leases as of September 30, 2019, amounting to €32 million. 15 475 34 7 −19 −3 494 −24 470 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 3 Acquisitions Acquisition of ECG Acquisition of Corindus On October 29, 2019, Siemens Healthineers completed the acquisition of all shares in Corindus Vascular Robotics, Inc. (hereinafter “Corindus”). Corindus develops and provides robotic systems for minimally invasive endovascular procedures. By combining Siemens Healthineers’ cardiovascular and neuro- interventional therapy systems with Corindus’ innovative technology, Siemens Healthineers is able to drive optimization of procedures for image-based minimally invasive therapies. The business has been integrated into the Advanced Therapies segment. The purchase price amounted to US$1.1 billion (€1.0 billion as of the acquisition date) and was paid in cash. The preliminary purchase price allocation as of the acquisition date resulted in the following assets and liabilities: On November 1, 2019, Siemens Healthineers completed the acquisition of 75% of the ownership interest of ECG Management Consultants. ECG is a leading consulting company based in the United States specialized in healthcare and providing a comprehensive suite of advisory services for meeting the strategic, financial, operational and technology-related challenges facing healthcare providers today. The business is part of the Imaging segment and allows Siemens Healthineers to tap into adjacent growth markets. The purchase price paid in cash amounted to US$219 million (€196 million as of the acquisition date), including subsequent adjustments. In addition, financial liabilities of ECG amounting to US$143 million (€129 million as of the acquisition date) were redeemed by Siemens Healthineers. The preliminary purchase price allocation as of the acquisition date resulted in the following assets and liabilities: (in millions of €) (in millions of €) Cash and cash equivalents 13 Cash and cash equivalents Goodwill 763 Trade and other receivables Other intangible assets 306 Goodwill Miscellaneous assets 7 Other intangible assets Total assets 1,089 Deferred tax assets Other current financial liabilities 25 Miscellaneous assets Long-term financial debt 8 Total assets Deferred tax liabilities 48 Short-term financial debt Miscellaneous liabilities 11 Other current liabilities Total liabilities 92 Deferred tax liabilities Miscellaneous liabilities Total liabilities The goodwill of €763 million comprised intangible assets that were not separable, such as employee know-how and expected synergy effects. Synergies are mainly expected from offering Corindus’ products through the Siemens Healthineers’ sales network, and also from the combination of Corindus’ robotic systems with Siemens Healthineers’ therapy systems and solutions in the fields of digitalization and artificial intelligence. The intangible assets of €306 million contain especially acquired technologies. Non-controlling interests The goodwill of €189 million comprised intangible assets that were not separable, such as employee know-how and expected synergy effects. Some employees are affected by a non-compete agreement, which was classified as a separate transaction and recognized as an intangible asset measured at €19 million. The non-controlling interests of 25% were measured with the corresponding proportion of the amount of the acquired net assets. With the closing of the acquisition of Corindus, Siemens provided Siemens Healthineers with an additional financing of €1.0 billion in the first quarter of fiscal year 2020. The acquired business contributed revenue of €6 million and a net loss of €21 million to Siemens Healthineers for the period from the acquisition date to March 31, 2020, including earnings effects from purchase price allocation and integration costs. If Corindus had been included in the consolidated financial statements as of October 1, 2019, revenue and net income of the combined entity would have been €7,273 million and €715 million, respectively, in the first half of fiscal year 2020. For both acquisitions, the purchase price allocation is preliminary as the detailed analysis of the assets and liabilities has not yet been finalized. 16 25 34 189 112 20 17 397 132 33 22 11 197 3 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 4 Interest income Note 6 Equity In the first half of fiscal year 2020, interest on tax receivables in the amount of €18 million was recognized as interest income. This relates to tax benefits from international procedures on the avoidance of double taxation for the years 2002 to 2007. In the first half of fiscal year 2020, Siemens Healthineers repurchased 1,550,474 (first half of fiscal year 2019: 1,205,012) shares utilizing the authorization granted by the extraordinary Shareholders’ Meeting held on February 19, 2018, and transferred 844,309 (first half of fiscal year 2019: 584,698) treasury shares in conjunction with share-based payment plans. Note 5 Income taxes In the first half of fiscal year 2020, the tax rate of 28.2% was above the tax rate for the first half of fiscal year 2019, which was 27.4%. This resulted mainly from tax benefits of €29 million from international procedures on the avoidance of double taxation, which were recognized in the first half of fiscal year 2019. In the second quarter of fiscal year 2020, a dividend of €0.80 per share was paid. 17 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 7 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities: Carrying amounts as of Mar 31, 2020 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Total Cash and cash equivalents AC 845 ‐ ‐ ‐ ‐ 845 Trade receivables² AC 2,675 ‐ ‐ ‐ ‐ 2,675 Receivables from finance leases³ n.a. ‐ ‐ ‐ ‐ 195 195 Receivables from Siemens Group AC 258 ‐ ‐ ‐ ‐ 258 Other current and non-current financial assets² Derivatives included in hedge accounting n.a. ‐ ‐ 282 ‐ ‐ 282 Derivatives not included in hedge accounting FVtPL ‐ ‐ 54 ‐ ‐ 54 Equity instruments and fund shares measured at fair value through profit or loss FVtPL ‐ 4 8 11 ‐ 23 Equity instruments measured at fair value through other comprehensive income FVtOCI ‐ ‐ ‐ 44 ‐ 44 Other AC 84 ‐ ‐ ‐ ‐ 84 Total financial assets 3,862 4 344 55 195 4,460 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 146 ‐ ‐ ‐ ‐ 146 Trade payables AC 1,375 ‐ ‐ ‐ ‐ 1,375 Lease liabilities⁵ n.a. ‐ ‐ ‐ ‐ 448 448 Payables and other liabilities to Siemens Group⁴ AC 5,861 ‐ ‐ ‐ ‐ 5,861 Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. ‐ ‐ 21 ‐ ‐ 21 Derivatives not included in hedge accounting FVtPL ‐ ‐ 21 ‐ ‐ 21 Contingent consideration FVtPL ‐ ‐ ‐ 11 ‐ 11 Liabilities from written put options on non-controlling interests n.a. ‐ ‐ ‐ ‐ 75 75 Other AC 47 ‐ ‐ ‐ ‐ 47 Total financial liabilities 7,429 ‐ 42 11 523 8,005 ¹ AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. ³ Reported in the line items trade and other receivables as well as other financial assets. ⁴ Excluding separately disclosed lease liabilities. ⁵ Reported in the line items short-term financial debt and current maturities of long-term financial debt, long- term financial debt, payables to Siemens Group and other liabilities to Siemens Group. ² Excluding separately disclosed receivables from finance leases. 18 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2019 In scope of IFRS 9 (in millions of €) Category of financial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Level 1 Level 2 Level 3 Not in scope of IFRS 9 Total Cash and cash equivalents AC 920 920 Trade receivables² AC 2,744 2,744 Receivables from finance leases³ n.a. 179 179 Receivables from Siemens Group AC 686 686 Other current and non-current financial assets² Derivatives included in hedge accounting n.a. 113 113 Derivatives not included in hedge accounting FVtPL 16 16 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 7 8 7 22 Equity instruments measured at fair value through other comprehensive income FVtOCI 44 44 Other AC 77 77 Total financial assets 4,427 7 137 51 179 4,801 Short-term and current maturities of long-term financial debt as well as long-term financial debt⁴ AC 109 109 Trade payables AC 1,403 1,403 Obligations under finance leases⁵ n.a. 32 32 Payables and other liabilities to Siemens Group⁴ AC 4,394 4,394 Other current and non-current financial liabilities Derivatives included in hedge accounting n.a. 49 49 Derivatives not included in hedge accounting FVtPL 13 13 Contingent consideration FVtPL 27 27 Liabilities from written put options on non-controlling interests n.a. 17 17 Other AC 61 61 Total financial liabilities 5,967 62 27 49 6,105 ¹ AC = Financial Assets/Liabilities at Amortized Cost; FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. ³ Reported in the line items trade and other receivables as well as other financial assets. ⁴ Excluding separately disclosed obligations under finance leases. ⁵ Reported in the line items short-term financial debt and current maturities of long-term financial debt as well as long-term financial debt. ² Excluding separately disclosed receivables from finance leases. The carrying amount of other liabilities to Siemens Group from U.S. dollar denominated long-term loans was €3,907 million as of March 31, 2020 (September 30, 2019: €3,932 million). The fair value of these liabilities, which is based on prices provided by price service agencies (level 2), also amounted to €3,907 million as of March 31, 2020 (September 30, 2019: €3,928 million). The carrying amounts of the remaining financial assets and liabilities measured at amortized cost approximated their fair value. capital costs. The fair value measurement of fund shares was based on their net asset values (level 2). The fair values of contingent considerations were derived from probability-weighted future payments, which mainly depend on the achievement of technical and commercial milestones as well as on the achievement of sales targets (level 3). The determination of the fair values of derivatives depended on the specific type of instrument. The fair values of forward exchange contracts were based on forward exchange rates (level 2). Except for a publicly listed investment for which a quoted price in an active market exists (level 1), the fair values of equity instruments were derived primarily from a discounted cash flow valuation (level 3). Expected cash flows are subject to future market and business developments as well as price volatility. The discount rates applied take into account respective risk-adjusted Liabilities from written put options on non-controlling interests were measured at fair value, which is based on the present value of the exercise price of the options (level 3). The exercise price is generally derived from the proportionate enterprise value. The increase in liabilities resulted mainly from the addition of written put options amounting to €58 million in connection with the acquisition of ECG (please also see Note 3 Acquisitions). The enterprise value of ECG is calculated by an independent appraiser in accordance with a contractually agreed methodology and serves as a basis for the exercise price per share, which is determined at least once a year. The most significant unobservable input used to determine the fair value is financial 19 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements information from the five-year business plan, which is mainly subject to expected business and market developments. In addition, weighted revenue and earnings multiples are considered. The following table shows the composition of Siemens Healthineers’ financial debt: Mar 31, (in millions of €) 2020 Short-term financial debt and current maturities of long-term financial debt 252 Thereof: Loans from banks 146 Sept 30, 2019 80 70 Note 8 Share-based payment In the first half of fiscal year 2020, Siemens Healthineers again granted Siemens Healthineers’ stock awards to members of the Managing Board, members of senior management and other eligible employees. Beginning with the 2020 tranche, a portion of the Siemens Healthineers’ stock awards granted to members of senior management and other eligible employees is no longer linked to the development of the total shareholder return in comparison to that of established competitors during the vesting period, but depends solely on fulfillment of the employee’s respective service condition. These stock awards will vest pro rata over a period of one to four years, i.e. provided that a beneficiary remains in the company, one quarter of the stock awards granted will be fulfilled each year. In the first half of fiscal year 2020, a total of 1,139,879 Siemens Healthineers’ stock awards were granted. Lease liabilities¹ 106 10 Payables to Siemens Group from financing activities 879 359 Therein: Lease liabilities 24 ‐ Total current financial debt 1,131 439 Long-term financial debt 263 62 Thereof: Loans from banks 39 Lease liabilities¹ 263 22 Other liabilities to Siemens Group from financing activities 5,055 4,030 Therein: Lease liabilities 55 ‐ Total non-current financial debt 5,317 4,092 Total financial debt 6,449 4,531 ¹ Obligations under finance leases as of September 30, 2019. The increase in financial debt resulted mainly from a variable interest loan, amounting to €1.0 billion and maturing in fiscal year 2021, in connection with the acquisition of Corindus, the payment for the acquisition of ECG (please also see Note 3 Acquisitions) and from the first-time adoption of IFRS 16, Leases. 20 Note 9 Segment information External revenue First half (in millions of €) 2020 2019 Imaging 4,379 4,016 Diagnostics 2,018 1,982 Advanced Therapies 823 745 Total segments 7,219 6,742 Reconciliation to consolidated financial statements 53 64 Siemens Healthineers 7,272 6,807 ¹ Siemens Healthineers: Income before income taxes. ² First half 2019: On segment level adjusted according to the definition of the adjusted EBIT. Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Intersegment revenue Total revenue Adjusted EBIT¹ Assets First half First half First half Mar 31, Sept 30, 2020 2019 2020 2019 2020 2019 2020 2019 151 142 4,530 4,157 914 849 7,500 6,840 ‐ ‐ 2,018 1,982 97 193 5,398 5,499 2 2 825 747 156 146 2,134 997 153 144 7,372 6,886 1,166 1,188 15,032 13,336 −153 −144 −100 −80 −165 −189 7,967 8,093 ‐ ‐ 7,272 6,807 1,001 999 22,999 21,429 21 Free cash flow² First half 2020 2019 679 551 −122 −155 44 97 601 493 −274 −314 327 179 Additions to other intangible assets and property, plant and equipment First half 2020 2019 217 64 259 314 316 10 793 388 103 67 896 456 Amortization, depreciation and impairments First half 2020 2019 79 71 128 114 9 6 217 192 175 98 391 290 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2019. Starting in fiscal year 2020, adjusted EBIT margin is used to manage the operating performance of our segments. Adjusted EBIT is defined as income before income taxes, interest income and expenses and other financial income, net, adjusted for amortization of intangible assets acquired in business combinations, severance charges, acquisition-related transaction costs and centrally carried pension service and administration expenses. With the application of the adjusted EBIT margin as the new performance measure, the calculation of free cash flow changed accordingly, which means that the operating interest is no longer part of the segments’ free cash flow. Assets (in millions of €) Total segments‘ assets Asset-based adjustments Therein: Assets corporate treasury Assets Siemens Healthineers Real Estate Receivables from Siemens Group from financing activities Current income tax assets and deferred tax assets Liability-based adjustments Revenue Total reconciliation to consolidated financial statements Siemens Healthineers’ revenue included revenue from contracts with customers and revenue from leases. In the first half of fiscal year 2020, revenue from leases amounted to €156 million (first half of fiscal year 2019: €96 million). Siemens Healthineers‘ total assets Free cash flow1 For each of the segments, revenue results mainly from performance obligations satisfied at a point in time, especially in the case of the sale of goods, including reagents and consumables in the Diagnostics segment. However, the performance obligations related to maintenance contracts for equipment sold are generally satisfied over time with revenue recognized on a straight-line basis. (in millions of €) Total segments‘ free cash flow Tax-related cash flow Corporate items and other Total reconciliation to consolidated financial statements Siemens Healthineers’ free cash flow Adjusted EBIT ¹ First half 2019: On segment level adjusted according to the definition of the adjusted EBIT. First half (in millions of €) 2020 2019 Total segments‘ adjusted EBIT 1,166 1,188 Centrally carried pension service and administration expenses −9 −6 Amortization of intangible assets acquired in business combinations −87 −65 Acquisition-related transaction costs −11 ‐ Severance charges −34 −24 Financial income, net −10 −76 Corporate Items −26 −21 Corporate treasury, Siemens Healthineers Real Estate, eliminations and other items 12 3 Total reconciliation to consolidated financial statements −165 −189 Siemens Healthineers’ income before income taxes 1,001 999 22 Mar 31, 2020 15,032 2,962 ‐ 970 927 255 492 5,005 7,967 22,999 2020 601 −278 4 −274 327 Sept 30, 2019 13,336 2,768 ‐ 994 627 683 554 5,325 8,093 21,429 First half 2019 493 −239 −75 −314 179 Siemens Healthineers Half-Year Financial Report 2020 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 10 Related party transactions In the following, Siemens Healthineers’ relationships maintained with the Siemens Group, that is with Siemens AG and its subsidiaries, are presented. Transactions with the Siemens Group In connection with financing of operating activities through participation in the Siemens Group’s cash pooling and cash management, the balance of current receivables from and current payables to the Siemens Group decreased in the first half of fiscal year 2020. This development was caused mainly by the dividend payout and payments made in the context of the acquisition of ECG. Other liabilities to Siemens AG increased primarily due to an additional financing of €1.0 billion for the acquisition of Corindus. Sales of goods and services and other income and purchases of goods and services and other expenses from transactions with the Siemens Group are shown in the following table: In December 2019, a multicurrency revolving credit facility of up to €1.1 billion (September 30, 2019: €1.0 billion) granted by Siemens AG, which serves as a short-term loan facility and to finance net working capital, was extended until January 31, 2023. (in millions of €) Siemens AG Other Siemens Group entities Sales of goods and services and other income 2020 First half 2019 2 3 161 130 Purchases of goods and services and other expenses 2020 First half 2019 125 119 110 110 In the first half of fiscal year 2020, interest expenses from financing arrangements with the Siemens Group amounted to €24 million (first half of fiscal year 2019: €68 million). The decrease was primarily due to a restructuring of non-current financial liabilities to the Siemens Group in the second half of fiscal year 2019. Total 163 133 235 229 Hedging with the Siemens Group In the first half of fiscal year 2020, Siemens Healthineers received support from the Siemens Group for central corporate services resulting in expenses of €161 million (first half of fiscal year 2019: €168 million). Receivables from and payables to the Siemens Group As of March 31, 2020, other current and other non-current financial assets resulting from hedging activities with the Siemens Group as counterparty amounted to €290 million (September 30, 2019: €116 million). The increase resulted mainly from the change in value of hedging instruments for U.S. dollar loans existing at German entities. As of March 31, 2020, other current and other non-current financial liabilities from hedging activities amounted to €22 million (September 30, 2019: €45 million). Receivables from and payables to the Siemens Group were as follows: Receivables from Siemens Group Payables and other payables to Siemens Group (in millions of €) Mar 31, 2020 Sept 30, Mar 31, 2020 2019 Sept 30, 2019 Siemens AG 7 596 1,957 425 Other Siemens Group entities 250 91 3,982 3,969 Total 258 687 5,940 4,394 23 Siemens Healthineers Half-Year Financial Report 2020 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, April 29, 2020 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Dr. Jochen Schmitz Dr. Christoph Zindel 24 Siemens Healthineers Half-Year Financial Report 2020 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements comprising the consolidated statements of income, comprehensive income, financial position, cash flows and changes in equity, and notes to half-year consolidated financial statements, and the interim group management report, of Siemens Healthineers Aktiengesellschaft, Munich for the period from October 1, 2019 to March 31, 2020 which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The Company’s management is responsible for the preparation of the half-year consolidated financial statements in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports. Our responsibility is to issue a report on the half-year consolidated financial statements and the interim group management report based on our review. Based on our review nothing has come to our attention that causes us to believe that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. Munich, April 29, 2020 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft We conducted our review of the half-year consolidated financial statements and the interim group management report in compliance with German Generally Accepted Standards for the Review of Financial Statements promulgated by the Institut der Wirtschaftsprüfer (IDW - Institute of Public Auditors in Germany) and in supplementary compliance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of the Company’s employees and analytical assessments and therefore does not provide the assurance obtainable from an audit of financial statements. Since, in accordance with our engagement, we have not performed an audit of financial statements, we cannot issue an auditor’s report. Spannagl Wirtschaftsprüfer [German Public Auditor] Tropschug Wirtschaftsprüferin [German Public Auditor] 25 Siemens Healthineers Half-Year Financial Report 2020 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens Healthineers that may constitute forward- looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or developments, these statements are subject to various risks, uncertainties and factors, including but not limited to those described in the respective disclosures. Should one or more of these risks, uncertainties or factors materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results, performance or achievements of Siemens Healthineers may (negatively or positively) vary materially from those described explicitly or implicitly in the forward-looking statement. All forward-looking statements only speak as of the date when they were made and Siemens Healthineers neither intends nor assumes any obligation, unless required by law, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes, in the applicable financial reporting framework not clearly defined, supplemental financial measures that are or may be alternative performance measures (non-GAAP- measures). These supplemental financial measures may have limitations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets, financial position and results of operations as presented in accordance with the applicable financial reporting framework in its consolidated financial statements. Other companies that report or describe similarly titled alternative performance measures may calculate them differently, which may therefore not be comparable. Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. This document is an English language translation of the German document. In case of discrepancies, the German language document is the sole authoritative and universally valid version. For technical reasons, there may be differences in formatting between the accounting records appearing in this document and those published pursuant to legal requirements. For reasons of readability, the male form is predominantly chosen in this Half-Year Financial Report. The information refers nevertheless to persons of any gender. Internet: siemens-healthineers.com Press: siemens-healthineers.com/press-room Investor Relations: corporate.siemens-healthineers.com/investor-relations Siemens Healthineers AG Henkestr. 127 91052 Erlangen, Germany Phone: +49 9131 84-0 siemens-healthineers.com © Siemens Healthineers AG, 2020 26 | Semestriel, 2020, Healthcare, SiemensHealthineers | write me a financial report |
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| Table of Contents Introductory Notes Consolidated Half-Year Management Report Consolidated Half-Year Financial Statements – IFRS Notes to the Consolidated Half-Year Financial Statements Supplementary Financial Information General Information Additional Information 2 3 4 20 26 43 48 49 SAP Half-Year Report 2019 Introductory Notes This half-year group report meets the requirements of German Accounting Standard No. 16 “Half-yearly Financial Reporting” (GAS 16). We prepared the financial data in the Half-Year Report section for SAP SE and its subsidiaries in accordance with International Financial Reporting Standards (IFRS). In doing so, we observed the IFRS both as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). This does not apply to numbers expressly identified as non-IFRS. For additional IFRS and non-IFRS information, see the Supplementary Financial Information section. This half-year group report complies with the legal requirements in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) for a half-year financial report, and comprises the consolidated half-year management report, condensed consolidated half-year financial statements, and the responsibility statement in accordance with the German Securities Trading Act, section 115 (2). This half-year financial report updates our consolidated financial statements 2018, presents significant events and transactions of the first half of 2019, and updates the forward-looking information contained in our Management Report 2018. This half-year financial report only includes half-year numbers, our quarterly numbers are available in the Quarterly Statement. Both the 2018 consolidated financial statements and the 2018 management report are part of our Integrated Report 2018, which is available at www.sapintegratedreport.com. All of the information in this half-year group report is unaudited. This means the information has been subject neither to any audit nor to any review by an independent auditor. SAP Half-Year Report 2019 3 Consolidated Half-Year Management Report Strategy and Business Model SAP’s strategy is to be “The Experience Company powered by the Intelligent Enterprise.” This strategy represents an expansion of the Intelligent Enterprise to include a new category, called Experience Management. Experience Management focuses on obtaining and tapping into the value of outside-in customer, employee, product, and brand feedback in real time to continuously improve the experiences businesses deliver. For a detailed description, see our Integrated Report 2018. Intelligent Enterprise Framework Products, Research & Development, and Services Intelligent Suite Network and Spend Management Our integrated end-to-end portfolio enables an intelligent enterprise by offering business value, data-driven innovation, rich customer insights, and embedded intelligence. Our software, technologies, and services address the three core elements of the intelligent enterprise – digital platform, intelligent suite, and intelligent technologies – for the 25 industries we serve. In the first half of 2019, we focused on strengthening the already tight integration between our network and spend management solutions and the digital core, to deliver end-to-end value chain processing and help customers better manage the three primary categories of spending. In January 2019, SAP extended its portfolio with the acquisition SAP Ariba of Qualtrics International Inc. (Qualtrics). A market leader in the experience management (XM) software category, Qualtrics provides solutions that enable organizations to thrive in today’s experience economy. The acquisition allows us to combine experience data (X- data) from Qualtrics with operational data (O-data) from SAP to help businesses deliver exceptional customer, employee, product and brand experiences. This chapter presents a snapshot of innovation in SAP product development and services during the first half of 2019 and is intended to supplement the SAP Integrated Report 2018. We announced partnerships with Barclaycard Commercial Payments and American Express in 2019, establishing new payment and financing options on the SAP Ariba network. Further innovation in the first half of this year includes updates to the following solution extension: – SAP Process Mining by Celonis delivers enhanced procure-to- pay automation features. A procurement operations desk capability was launched to support shared service operators. In addition, new supply chain functionality was introduced to help advanced packaging and handling units better manage material shipments. 4 SAP Half-Year Report 2019 SAP Concur SAP Concur innovation in the first half of 2019 includes the following: – The Concur TripLink Web service is now connected with HRS, a global hotel solutions provider, enabling users to view corporate booking information through the Web and on mobile devices. – The TripIt from Concur Web service delivered shortcuts for Siri, the Apple iOS virtual assistant, so that detailed travel plans can be generated for users who have visual impairments or for those on the go. – The Expense Pay Global Web service introduced Western Union as a payment processing partner, opening up a pay solution for public sector customers in the United States. – The ExpenseIt mobile app employs machine learning and image recognition to capture receipts and enable real-time processing on the mobile device. – The Concur Invoice solution has similarly adopted machine learning capabilities, courtesy of SAP Leonardo technology, to deliver improved accuracy. SAP Fieldglass SAP Fieldglass Candidate Link is a new mobile application that enables recruiters to quickly learn about candidate availability, allowing candidates to track opportunities and respond from their mobile devices. The application features a virtual assistant, to give users a more interactive and conversational experience. People Engagement SAP SuccessFactors In the first half of 2019, we enriched the SAP SuccessFactors HCM Suite with three new solutions to unlock a new chapter of employee XM worldwide – SAP Qualtrics Employee Engagement, SAP Qualtrics Employee Lifecycle, and SAP Qualtrics Employee Benefits Optimizer. SAP also combined the power of X-data and O-data by joining forces with Thrive Global to launch the Thrive XM Index – a pioneering diagnostic tool that recognizes and measures companies that deliver a meaningful people experience, coupled with strong business performance. Digital Core SAP S/4HANA The SAP business suite supports the intelligent enterprise with emerging technologies to drive next-generation business practices. SAP S/4HANA innovation with machine learning in the first half of 2019 includes the following capabilities: – Intelligent Accruals Management provides automated conversion of purchase-order data into posted accruals, allowing customers to close their books faster. – Defect Code Proposal uses machine learning to help quality management technicians perform their daily checks faster, with increased data quality and automated defect categorization based on free-text entry. – Financial Journal Entry with Intelligent Robotic Process Automation is designed to collect, extract, and validate financial journal data from e-mails and make mass uploads to SAP S/4HANA. Manufacturing and Supply Chain In April 2019, we announced a partnership with Uber Technologies, Inc., an American multinational transportation SAP Half-Year Report 2019 network company, to help increase visibility and transparency for providers and consumers in the freight industry. By integrating Uber Freight app technology into the SAP Logistics Business Network – an offering built on SAP Cloud Platform and SAP HANA Data Management – SAP gives customers access to transportation rates from Uber’s digitally activated carrier network. Users can get real- time quotes and secure guaranteed freight capacity, greatly simplifying load management and execution. Customer Experience SAP C/4HANA A year since its launch, SAP C/4HANA, our customer experience suite, has proven to be a key growth driver for SAP. Innovation in the first half of 2019 includes the following: – Qualtrics capabilities have been integrated into the SAP C/4HANA suite – specifically within the commerce, marketing, sales, and service offerings. These capabilities enable an intelligent enterprise to gain live feedback, customer sentiment, and actionable insights at every step of the customer journey and deliver personalized customer experiences. For example, by utilizing Qualtrics, the SAP Commerce Cloud solution now helps intelligent enterprises to absorb customer feedback and make their Web sites and mobile apps easier to use. Online customers are then more likely to complete their purchases and less inclined to abandon shopping carts. – SAP C/4HANA Foundation is a technology layer designed to infuse SAP C/4HANA with openness and extensibility, enabling SAP customers to rapidly implement new business models, provide an engaging customer experience, and keep operational costs low. – The SAP Litmos and SAP Litmos, CX edition solutions delivered updates designed to develop sales and customer service mastery to our mobile-friendly, agile learning platform. Digital Platform SAP HANA SAP HANA remains an integral part of the digital platform at the heart of every intelligent enterprise. Innovation in this space in the first half of 2019 includes the delivery of the following: – Hexagonal grid clustering for spatial analytics is a way to process geospatial data, so that the user can visualize things such as escape routes that avoid hazards in emergency situations, or the optimal paths for utility pipelines that avoid restricted areas. With SAP HANA, developers can use a single SQL query to process millions of geo-coordinates in seconds and cluster them effectively. – Native storage extension is designed to support large SAP HANA installations at a lower total cost of ownership (TCO), by giving customers cost-effective storage for, and ready access to, vast reservoirs of data that are still needed in the enterprise, but seldom used, without fully loading that data into memory. In addition, SAP opened a new chapter in our 30-year collaboration with Intel, as SAP HANA was unveiled as the first database platform optimized for the new Intel Optane DC persistent memory technology. SAP Cloud Platform SAP Cloud Platform continues to evolve as a business technology platform, enabling customers to easily extend and integrate SAP software. Our multi-cloud strategy gives customers the freedom to 5 choose infrastructure from market-leading hyperscalers without getting locked in to a specific vendor. Innovation in the first half of 2019 includes the following: – SAP Cloud Platform Extension Factory allows customers and partners to create cloud-native software extensions for the intelligent enterprise. – SAP Cloud Platform enterprise trial offers customers a consumption-based account to explore the entire SAP Cloud Platform services portfolio. – SAP Cloud Platform Estimator makes it faster and easier for prospective customers to create customized cost estimates. In addition, the SAP Application Programming Interface (API) Business Hub now offers over 950 APIs, more than 1,800 Core Data Services (CDS) views, and over 1,200 integration artifacts, helping customers to significantly reduce their implementation and integration efforts. Intelligent Technologies SAP Analytics Cloud The SAP Analytics Cloud solution uses business intelligence (BI), planning, and predictive analytics to deliver capabilities such as simulation and automated discovery in BI, as well as storytelling and predicted forecasts in planning. SAP Analytics Cloud, analytics designer is a new capability that enables the development of customized analytic applications based on existing content, templates, or user stories. By making it easier for users to create new analytic applications, we can extend the capabilities of existing systems of record and further integrate analytics with transactional data. SAP Leonardo Artificial Intelligence In 2018, SAP acquired Contextor SAS, a France-based pioneer in the design of robotic process automation (RPA). This acquisition led to the delivery of SAP Intelligent Robotic Process Automation in the first half of 2019, enabling us to expand our SAP Leonardo Artificial Intelligence (AI) portfolio. SAP Intelligent Robotic Process Automation combines the potency of machine learning technology with the chatbot-building capacity of SAP Conversational AI (CAI) and our strengthened capabilities in RPA, tightly integrated into the SAP digital core. This offering gives customers a complete automation suite where software robots mimic humans by replacing manual clicks, interpret text-heavy communications, and make process suggestions to users. SAP Leonardo Internet of Things In March 2019, we released SAP Leonardo Internet of Things (IoT), a solution that connects people with processes and things. SAP gives customers the flexibility to choose the kind of connectivity, infrastructure, and device management solutions they want to use to bring their ‘thing’ data to SAP Leonardo IoT. SAP Leonardo IoT then correlates the customer’s ‘thing’ data – from sensors or telemetry, for example – with business data, to help the customer better assess what is physically happening in their business. SAP Digital Business Services SAP Digital Business Services comprises a team of more than 22,500 employees serving customers in 180 countries. Our focus is to enable an intelligent enterprise in the experience economy by being the trusted partner for our customers and the SAP ecosystem. To help SAP customers thrive, we provide tools and guidance across 6 three categories – continuous success, premium success, and project success. Continuous Success We work to expedite the customer’s time to value on SAP technology, delivering SAP Enterprise Support and SAP Preferred Success services tailored for on-premise, hybrid, and cloud implementations. Premium Success SAP MaxAttention was completely redesigned as New SAP MaxAttention in 2018 and enhancements continued into 2019. This revamped program helps customers turn ideas into value-based predictable outcomes with precise business and technical guidance – from innovation to operation. SAP ActiveAttention, on the other hand, is a premium-level engagement program, similar to New SAP MaxAttention, but designed for smaller businesses. Project Success During 2018 and 2019, we standardized our portfolio of services to ensure project success. Many of these offerings are described in the SAP Integrated Report 2018, and we strengthened this portfolio in 2019 by incorporating the well-established SAP Innovative Business Solutions, to help customers develop tailored, intelligent applications. Intelligent Tools Our range of intelligent tools helps customers accelerate the adoption of, and maximize investment from, their SAP solutions. Most of these tools are described in the SAP Integrated Report 2018, with the following added to our portfolio in 2019: – ABAP Test Cockpit enables customers to plan for efficient custom code adaptation, while simplifying the process to remove obsolete code. – SAP S/4HANA Migration Cockpit helps users move data from SAP or non-SAP systems and migrate from SAP ERP to SAP S/4HANA. SAP Half-Year Report 2019 Acquisitions In the first half of 2019, SAP acquired Qualtrics – a leading provider of experience management (XM) solutions. By combining Qualtrics products and SAP products, we aim to deliver an end-to- end experience and operational management system to our customers. For more information, see the Products, Research and Development section and Note (D.1) of the Notes to the Consolidated Half-Year Financial Statements. Employees and Social Investments Our people are key in enabling our customers to successfully become intelligent enterprises. For this reason, we strive to understand the needs of today’s employees and how a 21st-century organization must evolve to keep attracting, retaining, and growing current and future talent. For a detailed description of our HR strategy, see the Employees and Social Investments section in our Integrated Report 2018. We are passionate about developing deep and lasting relationships. It is all about experiences for our key stakeholders such as candidates, employees, managers, executives and alumni. At the end of the first half of 2019, the employee retention rate was still on a high level of 93.5% (compared to 94.3% at the end of the first half of 2018 and 93.9% at the end of the year 2018). We define retention as the ratio of the average number of employees minus the employees who voluntarily departed, to the average number of employees (in full-time equivalents or FTEs). Besides the aim to keep our high Employee Engagement Index between 84% and 86% also for 2019, one of SAP’s non-financial goals is to foster an inclusive, bias-free workforce. Specifically, the SAP Executive Board continues its commitment to increase the percentage of women in management positions by 1% each year with a target of 30% by year-end 2022. The ratio of women in management positions continued its upward trajectory and reached 26.2% at the end of the first half of 2019, compared to 25.8% at the end of June 2018 and 25.7% at the end of 2018. On June 30, 2019, we had 98,332 full-time equivalent (FTE) employees worldwide (June 30, 2018: 93,846; December 31, 2018: 96,498). For a breakdown of headcount by function and geography, see Note (B1) of the Notes to the Consolidated Half-Year Financial Statements. Energy and Emissions In June 2019, we published the latest version of our Global Environmental Policy, which illustrates SAP’s commitment towards protecting the environment. The policy now includes our new goal to phase out single-use plastic by 2020. Over the past several years, we have worked to better understand the connections between our energy consumption, its related cost, and the resulting environmental impact. Today, we measure and address our energy usage throughout SAP, as well as our greenhouse gas (GHG) emissions across our entire value chain. We have calculated that over the last three years, energy efficiency initiatives have contributed to a cumulative cost avoidance of €237.6 million compared to a business-as-usual extrapolation, €38.4 million of which have been avoided in 2019. Our goal is to become carbon neutral by 2025. SAP’s GHG emissions for the first half of 2019 totaled 185 kilotons of CO2 compared to 175 kilotons in the first half of 2018. This increase is primarily due to an increase in our business flights. SAP Half-Year Report 2019 To gain insight into our efficiency as we grow, we also measure our emissions per employee and per euro of revenue. During the first half of 2019, our GHG emissions (in tons) per employee was 3.2 (compared to 3.7 during the first half of 2018), and our GHG emissions (in grams) per euro revenue was 12.2 (compared to 14.7 during the first half of 2018) (rolling four quarters). In recognition of the exemplary actions SAP has taken to embed sustainability across its business worldwide, SAP was included in various ratings and rankings. In the first half of 2019, SAP was once again ranked in the Euronext Vigeo index: Europe 120, which lists companies achieving the most advanced environmental, social and governance (ESG) performances. SAP was also once again granted the best ESG rating “AAA” by MSCI (Morgan Stanley Capital International). Organization and Changes in Management SAP Executive Board member Bernd Leukert, who co-led the SAP Digital Business Services organization together with Michael Kleinemeier, left SAP at the end of March 2019. The Supervisory Board decided to extend the Executive Board contract of Michael Kleinemeier through 2020. In April 2019, Executive Board member Robert Enslin, who served as president of the Cloud Business Group, left SAP. Executive Board member Jennifer Morgan succeeded Robert Enslin as president of the Cloud Business Group, and Executive Board member Adaire Fox-Martin took over sole responsibility as president of the Board area Global Customer Operations. Financial Performance: Review and Analysis Economy and the Market Global Economic Trends The global economic growth momentum softened in the first half of 2019. According to the European Central Bank (ECB) in its most recent Economic Bulletin1), this was due to continued weakness in global manufacturing activity and in the service sector. The recent escalation of the trade dispute between the United States and China took its toll on the global economy as well. In the Europe, Middle East, and Africa (EMEA) region, the euro area economy performed better than expected in the first quarter of 2019, says the ECB. However, global headwinds led to weaker growth afterwards. This slowdown in the euro area also weighed on economic growth in central and eastern European countries. The Russian economy still had to operate under international sanctions. As for the Americas region, a partial federal government shutdown in the United States subdued domestic demand in that country at the beginning of the year, reports the ECB. The U.S. economy as a whole nevertheless grew more than expected in the first half of 2019. In Brazil, fiscal constraints and uncertainties about the implementation of a reform agenda weighed on investments since the beginning of the year. The Asia Pacific Japan (APJ) region, the ECB reports, showed that while the Japanese economy grew more than expected in the first quarter, underlying growth momentum remained muted. In China, meanwhile, economic growth decelerated gradually in spite of expansionary policy measures and a positive net trade contribution as imports decreased more than exports. 7 The IT Market By the middle of 2019, digital transformation had turned from a defensive concept for the sake of innovation into an offensive strategy for the sake of business, says International Data Corporation (IDC), a U.S.-based market research firm.2) This is in line with what was anticipated by IDC in our 2018 annual report. As of mid-2019, approximately one-quarter of the companies in an IDC maturity benchmark had reached one of the top two levels of digital maturity.2) Nearly 50% had an integrated, long-term strategy for digital transformation. According to IDC, this means that companies showed greater clarity about what the future enterprise will look like and what it will take to compete in redefined industries. Worldwide, adoption of the customized on-premise enterprise applications of the past few decades slowed further in the first half of 2019, while SaaS applications quickly became the new deployment model.3) According to IDC, more and more companies purposefully used technologies such as cloud, social, mobile, Internet of Things (IoT), blockchain, Big Data, analytics, and cognitive computing as innovation accelerators.2) IDC identifies this as a shift from experimentation to multiplied innovation, which we also described in earlier financial reports. In 2019, IDC explains, particular emphasis so far was on artificial intelligence and machine learning, which progressively automated tasks, activities, processes, and systems, and created human- machine learning networks.2) Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2019, Publication Date: June 20, 2019 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb201904.en.pdf) 2) IDC MaturityScape: The Future Enterprise 1.0, Doc #US43646819, April 2019 3) IDC Perspective: Digital Transformation Requires a New Way of Thinking: DX Use Cases, SaaS, Intelligent ERP and Associated Technologies, and Innovation at Scale, Doc #US45042219, May 2019 8 Impact on SAP SAP continues to benefit from the consistent strategy aimed at enabling customers to become intelligent enterprises. On top of a very strong first quarter in 2019, SAP had a solid second-quarter performance in the EMEA region, with cloud and software revenue increasing 9% (IFRS) and 8% (non-IFRS at constant currencies). Cloud revenue increased by 46% (IFRS) and 44% (non-IFRS at constant currencies), with Germany and Spain being highlights. In addition, SAP had strong software license revenue growth in Germany, France, and Italy. The Company had a strong performance in the Americas region as well. Cloud and software revenue increased by 15% (IFRS) and 10% (non-IFRS at constant currencies). Cloud revenue grew by 36% (IFRS) and 30% (non-IFRS at constant currencies), with the United States, Canada, and Brazil being highlights. In addition, the United States had a solid quarter and Canada had a strong quarter in software license revenue. In the APJ region, SAP had a solid performance despite trade- related macro headwinds. Cloud and software revenue was up by 8% (IFRS) and 6% (non-IFRS at constant currencies). Cloud revenue increased by 41% (IFRS) and 37% (non-IFRS at constant currencies), with Japan being a highlight. As for software license revenue, both Australia and India had a strong quarter. SAP Half-Year Report 2019 Key Figures – SAP Group in the First Half of 2019 (IFRS) € millions, unless otherwise stated Cloud Software licenses Software support Cloud and software Total revenue Operating expense Operating profit Operating margin (in %) Profit after tax Effective tax rate (in %) Earnings per share, basic (in €) Operating Results (IFRS) Revenue Noteworthy is the successful cloud business in the first half of 2019. Our cloud revenue was €3,247 million (first half of 2018: €2,283 million), an increase of 42% compared to the same period in 2018, with the cloud revenue growth rates remaining on a high level. Software licenses revenue was €1,599 million (first half of 2018: €1,621 million), a decrease of 1% compared to the same period in 2018. Total revenue was €12,722 million (first half of 2018: €11,260 million), an increase of 13% compared to the same period in 2018. Operating Expense Our operating expenses increased by 31% to €12,031 million (first half of 2018: €9,192 million). The increase was mainly driven by a significant rise in restructuring expenses, and share-based compensation. SAP launched a company-wide restructuring program in January 2019. In the first half of 2019, restructuring expenses were €1,085 million, an increase of €1,063 million compared to the first half of 2018 (€22 million). For more information about restructuring, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). Share-based payment expenses increased to €1,114 million (first half of 2018: €491 million). The rise in share-based compensation expenses is mainly due to a higher increase in SAP’s share price in the first half of 2019 compared to the same period in 2018, and due to additional share-based compensation expenses related to the acquisition of Qualtrics. Personnel expenses rose by 22% while the number of full- time employees increased by more than 6,600, an increase of 7% compared to the prior-year period. Operating Profit and Operating Margin Operating profit decreased by 67% compared with the same period in the previous year to €691 million (first half of 2018: €2,069 million). This was mainly a result of the aforementioned expense increases and the impact from business combinations (for more information, see the Business Combinations section in this consolidated half-year management report). Our operating margin decreased by 13.0pp to 5.4% (first half of 2018: 18.4%). SAP Half-Year Report 2019 Q1–Q2 2019 Q1–Q2 2018 ∆ ∆ in % 3,247 2,283 964 42 1,599 1,621 –22 –1 5,692 5,391 301 6 10,538 9,295 1,243 13 12,722 11,260 1,462 13 –12,031 –9,192 –2,839 31 691 2,069 –1,378 –67 5.4 18.4 –13.0pp NA 475 1,426 –951 –67 29.7 28.9 0.8pp NA 0.38 1.19 –0.81 –68 Profit After Tax and Earnings per Share Profit after tax was €475 million (first half of 2018: €1,426 million), a decrease of 67%. Basic earnings per share was €0.38 (first half of 2018: €1.19), a decrease of 68%. The effective tax rate was 29.7% (first half of 2018: 28.9%). The year-over-year increase in the effective tax rate mainly resulted from tax effects relating to almost unchanged non-deductible expenses on a lower profit before tax (IFRS) and changes in the regional allocation of income which were partly compensated by tax effects relating to changes in tax exempt income and taxes for prior years, as well as from the application of hyperinflation accounting. 9 Performance Against Outlook (Non- IFRS) We present, discuss, and explain the reconciliation from IFRS measures to non-IFRS measures in the Supplementary Financial Information section. In this section, all discussion of the contribution to target achievement is based exclusively on non-IFRS measures. In contrast, the discussion of operating results in the previous section refers to IFRS figures only, so those figures are not expressly identified as IFRS figures. Guidance for 2019 (Non-IFRS) For our guidance based on non-IFRS numbers, see the Financial Targets and Prospects for 2019 (Non-IFRS) section in this consolidated half-year management report. . Key Figures – SAP Group in the First Half of 2019 (Non-IFRS) Non-IFRS € millions, unless otherwise stated Q1–Q2 2019 Q1–Q2 2018 ∆ in % ∆ in % (Constant Currency) Cloud 3,299 2,299 43 37 Software licenses 1,599 1,621 –1 –3 Software support 5,692 5,391 6 3 Cloud and software 10,589 9,311 14 10 Total revenue 12,773 11,276 13 10 Operating expense –9,490 –8,401 13 10 Operating profit 3,283 2,876 14 10 Operating margin (in %) 25.7 25.5 0.2pp 0.0pp Profit after tax 2,397 2,039 18 NA Effective tax rate (in %) 26.6 27.5 –0.9pp NA Earnings per share, basic (in €) 1.99 1.71 17 NA Performance (Non-IFRS) New cloud bookings increased by 23% (19% at constant currencies) to €818 million (first half of 2018: €667 million). New cloud bookings excluding infrastructure as a service (IaaS) were up 31% (27% at constant currencies) as SAP focuses on higher-margin IaaS opportunities, in line with its strategy of closely partnering with the hyperscale IaaS providers. Our cloud revenue (non-IFRS) was €3,299 million (first half of development cost as well as by increased general and administration cost. Operating profit (non-IFRS) was €3,283 million (first half of 2018: €2,876 million), an increase of 14%. On a constant currency basis, the increase was 10%. Operating margin (non-IFRS) was 25.7%, an increase of 0.2pp (first half of 2018: 25.5%). Operating margin (non-IFRS) on a constant currency basis remained stable at 25.6 %. 2018: €2,299 million), an increase of 43% (37% at constant currencies) compared to the same period in 2018. Our cloud margin increased by 3.7pp to 67.1% (first half of 2018: 63.4%). Cloud and software revenue (non-IFRS) was €10,589 million Profit after tax (non-IFRS) was €2,397 million (first half of 2018: €2,039 million), an increase of 18%. Basic earnings per share (non-IFRS) was €1.99 (first half of 2018: €1.71), an increase of 17%. (first half of 2018: €9,311 million), an increase of 14%. On a constant currency basis, the increase was 10%. This increase was mainly driven by strong cloud revenue growth as mentioned before. Software licenses revenue decreased by 3% at constant currencies. The effective tax rate (non-IFRS) was 26.6% (first half of 2018: 27.5%). The year-over-year decrease in the effective tax rate mainly resulted from tax effects relating to changes in tax exempt income and taxes for prior years, as well as the application of hyperinflation accounting, which were partly compensated by changes in the regional allocation of income. Total revenue (non-IFRS) was €12,773 million (first half of 2018: €11,276 million), an increase of 13%. On a constant currency basis, the increase was 10%. Business Combinations Operating expense (non-IFRS) was €9,490 million (first half of 2018: €8,401 million), an increase of 13%. On a constant currency basis, the increase was 10%. Although cloud revenue rose by 43%, cost of cloud increased by only 29%. This illustrates the increasing profitability of our cloud business. Costs of software licenses and support increased moderately by 6%. In total, operating expenses in the first half of 2019 increased compared to the first half of 2018, driven by higher research and We acquired several businesses during 2018 and in the first half of 2019 which, since their acquisition date, have contributed to our consolidated income statement but not in the comparison period. The legal entities added by our significant acquisitions recognized the following: – Cloud revenue in the first half 2019 of €163 million (IFRS) and of €215 million (non-IFRS) 10 SAP Half-Year Report 2019 – Operating profit in the first half 2019 of –€429 million (IFRS) and €21 million (non-IFRS) For more information about the business combinations concluded in the first half of 2019, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.1). Divestments At the beginning of 2019, we sold one content as a service (CaaS) business to a third party. This sale generated the following: – A profit of €53 million in the first half of 2019, which is classified in our half-year 2019 consolidated income statement as other operating income – Incremental employee-related expenses of €7 million in the first half 2019, which are classified in our half-year 2019 consolidated income statement as cost of research and development. Applications, Technology & Services Segment € millions, unless otherwise stated (Non-IFRS) Cloud revenue – SaaS/PaaS1) Cloud gross margin – SaaS/PaaS1) (in %) Cloud revenue – IaaS2) Cloud gross margin – IaaS2) (in %) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit Segment margin (in %) 1) Software as a service/platform as a service 2) Infrastructure as a service The Applications, Technology & Services segment recorded strong growth in our cloud revenue and solid growth in support revenue as well as in services revenue at constant currency basis. The SaaS/PaaS business in this segment grew by 33% on a constant currency basis year over year, driven by an ongoing strong demand in our cloud solutions. The IaaS business even grew by 45% on a constant currency basis year over year. SAP Half-Year Report 2019 Additionally, SAP’s performance in the first half of 2019 but not in the comparison period was also impacted by the adoption of IFRS 16 (see the Notes to the Consolidated Half-Year Financial Statements, Note (D.3)) and by a change in our estimate of the expected useful lives of certain computer hardware (for more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.2).) Segment Performance At the end of the first half of 2019, SAP had three reportable segments: the Applications, Technology & Services segment, the Intelligent Spend Group segment, and the Customer and Experience Management segment. For more information about our segment reporting, see the Notes to the Consolidated Half-Year Financial Statements, Notes (C.1) and (C.2). Q1–Q2 2019 Q1–Q2 2018 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 1,163 1,125 849 37 33 62.4 62.5 58.9 3.5pp 3.7pp 327 315 217 51 45 26.9 26.1 10.3 16.6pp 15.8pp 1,490 1,440 1,066 40 35 54.6 54.6 49.0 5.6pp 5.6pp 10,375 10,104 9,529 9 6 71.3 71.3 72.0 –0.6pp –0.7pp 4,092 3,968 3,721 10 7 39.4 39.3 39.0 0.4pp 0.2pp As a result of our ongoing efforts in leveraging our cloud infrastructure, our SaaS/PaaS gross margin increased by 3.7pp at constant currencies. Our IaaS gross margin even increased by 15.8pp at constant currencies compared to the first half of 2018. As a result, the overall cloud gross margin improved by 5.6pp at constant currencies to 54.6%. 11 Intelligent Spend Group Segment € millions, unless otherwise stated (Non-IFRS) Cloud revenue – SaaS/PaaS1) Cloud gross margin – SaaS/PaaS1) (in %) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit Segment margin (in %) 1) Software as a service/platform as a service In the first half of 2019, cloud revenue growth was 21% and segment revenue growth was 18% at constant currencies. A positive cloud gross margin development of 0.6pp at constant currencies supported the segment margin increase of 1.6pp at Customer and Experience Management Segment € millions, unless otherwise stated (Non-IFRS) Cloud revenue – SaaS/PaaS1) Cloud gross margin – SaaS/PaaS1) (in %) Cloud revenue Cloud gross margin (in %) Segment revenue Segment gross margin (in %) Segment profit Segment margin (in %) 1) Software as a service/platform as a service The Customer and Experience Management segment recorded strong growth in total revenue of 88% at constant currencies in the first half of 2019. The positive development was mainly influenced by the strong growth in cloud revenue of 131% at constant currencies. We acquired several businesses during 2018 and in the first half of 2019 which, since their acquisition date, have contributed 12 Q1–Q2 2019 Q1–Q2 2018 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 1,293 1,229 1,014 28 21 78.1 78.0 77.4 0.8pp 0.6pp 1,293 1,229 1,014 28 21 78.1 78.0 77.4 0.8pp 0.6pp 1,526 1,451 1,233 24 18 69.5 69.3 69.0 0.5pp 0.3pp 314 293 229 37 28 20.6 20.2 18.5 2.0pp 1.6pp constant currencies compared to the first half of 2018. With approximately US$3.3 trillion in global commerce transacted annually in more than 180 countries, the Intelligent Spend Group is the largest commerce platform in the world. Q1–Q2 2019 Q1–Q2 2018 ∆ in % ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency 510 486 210 >100 >100 75.8 75.3 67.4 8.4pp 7.8pp 510 486 210 >100 >100 75.8 75.3 67.4 8.4pp 7.8pp 667 636 338 97 88 75.5 75.1 76.9 –1.4pp –1.8pp –10 –13 –5 78 >100 –1.5 –2.0 –1.6 0.2pp –0.4pp to our consolidated income statement but not in the comparison period. The legal entities added by our significant acquisitions recognized €215 million in cloud revenue and €24 million in operating profit within the segment in the first half of 2019. The acquisition of Callidus and Qualtrics in combination with SAP’s cloud strategy result in an increasing cloud revenue share compared to software licenses and support revenue. SAP Half-Year Report 2019 Reconciliation of Cloud Revenues and Margins € millions, unless otherwise stated Q1–Q2 2019 Q1–Q2 2018 ∆ in % Actual Currency Constant Currency Actual Currency Actual Currency Intelligent Spend Group segment 1,293 1,229 1,014 28 Cloud revenue – SaaS/PaaS1) Other3) 1,678 1,616 1,068 57 Total 2,971 2,845 2,082 43 Cloud revenue – IaaS2) 327 315 217 51 Cloud revenue 3,299 3,161 2,299 43 Intelligent Spend Group segment 78.1 78.0 77.4 0.8pp Cloud gross margin – SaaS/PaaS1) (in %) Other3) 66.4 66.3 61.0 5.4pp Total 71.5 71.4 69.0 2.5pp Cloud gross margin – IaaS2) (in %) 26.9 26.1 10.3 16.6pp Cloud gross margin (in %) 67.1 66.9 63.4 3.7pp 1) Software as a service/platform as a service 2) Infrastructure as a service 3) Other includes the Applications, Technology & Services segment, the Customer and Experience Management segment, and miscellaneous. The individual revenue and margin numbers for the Applications, Technology & Services segment and the Customer and Experience Management segment are disclosed on the previous pages. SAP Half-Year Report 2019 ∆ in % Constant Currency 21 51 37 45 37 0.6pp 5.3pp 2.4pp 15.8pp 3.4pp 13 Finances and Assets (IFRS) Cash Flow higher payments related to restructuring (€183 million increase year-over-year), and higher share-based payments (234 million increase year over year). € millions Q1–Q2 2019 Q1–Q2 2018 ∆ Instead of investing in the expansion of our data centers, there was a strong focus on improving capacity utilization in the first half of 2019, resulting in a decrease in capital expenditure. Net cash flows from operating activities Capital expenditure Payments of lease liabilities Free cash flow Free cash flow (as a percentage of total revenue) Free cash flow (as a percentage of profit after tax) Days sales outstanding (DSO, in days) 2,679 –539 –185 1,956 15 412 70 2,985 –818 0 2,167 19 152 68 –10% –34% –10% –4pp +260pp 2 To avoid an impact on free cash flow from the new lease accounting rules (IFRS 16), since January 1, 2019, we calculate free cash flow as net cash flows from operating activities minus purchases of intangible assets and property, plant, and equipment without acquisitions (capital expenditure) and minus repayments of lease liabilities. DSO for receivables is defined as the average number of days from the raised invoice to the cash receipt from the customer (rolling 12 months). The decrease in operating cash flow resulted mainly from higher payments for income taxes (€412 million increase year-over-year), Group Liquidity Group Liquidity Development € millions +2,523 +2,679 8,838 –539 –185 –6,147 5,280 Free Cash Flow 1,956 –1,790 –100 –13,833 –8,553 Group Liquidity 12/31/2018 Operating Cash Flow Capital Expen- diture Lease Payments Proceeds of Borro- wings Business Combi- nations Dividends Other Group Liquidity 6/30/2019 Financial Debt Net Liquidity 6/30/2019 Group Liquidity = cash and cash equivalent plus current time deposits and debt securities Other = mainly purchase and sales of equity or debt instruments of other entities, proceeds from sales of non-current assets, and effects of foreign currency rates on cash and cash equivalents Net Liquidity = group liquidity minus financial debt – for more information see our 2018 integrated report 14 SAP Half-Year Report 2019 Liquidity and Financial Position € millions 6/30/2019 12/31/2018 ∆ Cash and cash equivalents 5,168 8,627 –3,459 Current time deposits and debt securities 112 211 –99 Group liquidity 5,280 8,838 –3,558 Financial debt –13,833 –11,331 –2,502 Net liquidity –8,553 –2,493 –6,060 Goodwill 28,801 23,736 +5,065 Total assets 57,707 51,502 +6,206 Total equity 27,641 28,877 –1,236 Equity ratio (total equity as a percentage of total assets) 48 56 –8pp In the first half of 2019, our liquidity decreased due to the purchase price payment related to the acquisition of Qualtrics on January 23, 2019. Competitive Intangibles The resources that are the basis for our current as well as future success do not appear in the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE with the carrying amount of our equity. With €148.4 billion at the end of the first half of 2019, the market capitalization of our equity (based on all outstanding shares) is more than five times higher than its carrying amount. Some of the most important competitive intangibles that influence our market value include: customer capital, our employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization. SAP was recognized as the world’s 16th most valuable brand in the 2019 BrandZ Global Top 100 Most Valuable Brands ranking. The ranking estimates SAP’s brand value at US$58 billion, an increase of 4% in brand value for SAP year over year. SAP Half-Year Report 2019 Risk Management and Risks We have comprehensive risk-management structures in place that are intended to enable us to recognize and analyze risks early and to take the appropriate action as well as to mitigate any risks that materialize as presented in the Risk Management and Risks chapter in our Integrated Report 2018 and our Annual Report on Form 20-F for 2018. For changes in our Litigation, Claims, and Legal Contingencies since our last Integrated Report, see Note (G.1) in the Notes to the Consolidated Half-Year Financial Statements. We do not see any relevant changes to our assessment of the risk factors since the release of the Integrated Report 2018 and Annual Report on Form 20-F for 2018. We do not believe the risks we have identified jeopardize our ability to continue as a going concern. Expected Developments and Opportunities Future Trends in the Global Economy According to the European Central Bank’s (ECB) most recent Economic Bulletin1), global economic growth is projected to decelerate in the second half of 2019. This weakening may be due to political uncertainty, further trade tensions between the United States and China, and a rising threat of protectionism and vulnerabilities in emerging markets. However, recent policy measures are expected to provide some support from 2020 onward and stabilize the global economy at relatively low levels over the medium term. Regarding the Europe, Middle East, and Africa (EMEA) region, the ECB expects employment gains and increasing wages to underpin the resilience of the euro area economy after a weaker third quarter of 2019. In central and eastern Europe, growth is projected to moderate in the second half of the year and cool even further due to the slowdown in the euro area. The outlook for the Russian economy depends on developments in global oil markets and on fiscal and structural policies, and is expected to decelerate in the medium term. As for the Americas region, the ECB projects a sizeable procyclical fiscal stimulus in the United States which might provide impetus in the second half of the year. In Brazil, growth is expected to strengthen, supported by accommodative financial conditions. For the Asia Pacific Japan (APJ) region, the ECB predicts that economic activity in Japan will resume its path of moderate growth. A consumption tax hike is scheduled for October 2019 in Japan, which could provide a temporary boost over the summer months, but provide a negative impact thereafter. China is expected to continue its orderly transition to a more balanced, but weaker growth path that is less dependent on investment and exports. 15 Economic Trends – Year-Over-Year GDP Growth % 2018 2019p 2020p World 3.6 3.3 3.6 Advanced economies 2.2 1.8 1.7 Emerging market and developing economies 4.5 4.4 4.8 Europe, the Middle East, and Africa (EMEA) Euro area 1.8 1.3 1.5 Germany 1.5 0.8 1.4 Emerging and developing Europe 3.6 0.8 2.8 Middle East, North Africa, Afghanistan, and Pakistan 1.8 1.5 3.2 Sub-Saharan Africa 3.0 3.5 3.7 Americas United States 2.9 2.3 1.9 Canada 1.8 1.5 1.9 Latin America and the Caribbean 1.0 1.4 2.4 Asia Pacific Japan (APJ) Japan 0.8 1.0 0.5 Emerging and developing Asia 6.4 6.3 6.3 China 6.6 6.3 6.1 p = projection Source: International Monetary Fund (IMF), World Economic Outlook April 2019, Growth Slowdown, Precarious Recovery (https://www.imf.org/~/media/Files/Publications/WEO/2019/April/English/text.ashx ?la=en), p. 24. The IT Market: Outlook for 2019 and Beyond Technology and data are the “lifeblood” of the “digital enterprise of the future”, which International Data Corporation (IDC), a US- based market research firm, describes in one of its most recent publications.2) Characteristically, such a “digital enterprise of the future” according to IDC has built out and monetized its data, implemented platform-based revenue models, participates in the sharing economy, and optimizes contextualized offerings and dynamic pricing.2) As a result, it can scale operations and innovate much faster than traditional businesses. This is in line with our 2018 annual report outlook and with our continued strategy to help our customers become “Intelligent Enterprises.” According to IDC, global investment in digital transformation initiatives could almost double in the next five years.3) IDC thus expects US$6.1 trillion of direct investment in hardware, software, and services from 2019 to 2022, with a compound annual growth rate (CAGR) of 17.5% for the years 2017 through 2022 (compared to a 1.5% CAGR for non-digital transformation investments).4) IDC also forecasts that by 2020, 55% of organizations (46% in 2018) will have an integrated digital strategy with a single road map and enterprise-wide technology architecture, and that 30% of G2000 companies will spend at least 10% of their revenues to fuel their digital strategies.3) IDC further predicts that by 2022, 90% of all new applications will feature microservices architectures, and 35% of all production apps will be cloud-native.3) By 2023, 65% of G2000 organizations could have refreshed their core business systems and created completely new business processes. For this purpose, IDC reports, they are 16 likely to use cloud platforms and ubiquitous artificial intelligence based upon curated data sets, advanced analytics, and machine learning.3) Sources: 1) European Central Bank, Economic Bulletin, Issue 4/2019, Publication Date: June 20, 2019 (https://www.ecb.europa.eu/pub/pdf/ecbu/eb201904.en.pdf) 2) IDC MaturityScape: The Future Enterprise 1.0, Doc #US43646819, April 2019 3) IDC Perspective: Digital Transformation Requires a New Way of Thinking: DX Use Cases, SaaS, Intelligent ERP and Associated Technologies, and Innovation at Scale, Doc #US45042219, May 2019 4) IDC Perspective: Organizing the Organization for the Future Enterprise: Digital at Scale, Part 3: Executing Digital Transformation – Achieving Goals and Creating Capabilities, Doc #US45073418, April 2019 Impact on SAP Despite growing geopolitical uncertainties and trade war discussions, SAP expects to benefit further from the digitalization of the global economy. The strategy to enable customers to become intelligent enterprises continues to resonate well in the market, and our combination of technologies such as artificial intelligence, blockchain, and Internet of Things (IoT) around the digital core is unique. Very fast growth in the cloud and a strong adoption of our core solution SAP S/4 HANA shows that we are consistently expanding our reach and, with the acquisition of Qualtrics in January 2019, SAP has become the undisputed leader in the emerging, rapidly-growing Experience Management software category. In addition to the continued rapid revenue growth, our targeted significant expansion of profitability shows our commitment to operational excellence. All of the above is reflected in the raise of our 2019 outlook and 2020 and 2023 ambitions. On this basis, we consider ourselves well-prepared for the future and expect profitable growth in 2019 and beyond. Balanced in terms of regions as well as industries, we remain well-positioned with our product offering to offset individual fluctuations in the global economy and IT market. SAP expects to outperform the global economy and the IT industry again in 2019 in terms of revenue growth. Financial Targets and Prospects for 2019 (Non- IFRS) Revenue and Operating Profit Targets and Prospects for 2019 SAP has updated its 2019 outlook. This update reflects the results of the first quarter 2019 and the Company’s new initiatives to accelerate its operational excellence and value creation. SAP continues to expect: – Non-IFRS cloud revenue in a range of €6.7 billion to €7.0 billion at constant currencies (2018: €5.03 billion), up 33% to 39% at constant currencies. – Non-IFRS cloud and software revenue in a range of €22.4 billion to €22.7 billion at constant currencies (2018: €20.66 billion), up 8.5% to 10% at constant currencies. SAP now expects: – Non-IFRS operating profit in a range of €7.85 billion to €8.05 billion at constant currencies (2018: €7.16 billion), up 9.5% to 12.5% at constant currencies (previously: €7.7 billion to €8.0 billion, up 7.5% to 11.5% at constant currencies). SAP Half-Year Report 2019 While SAP’s full year 2019 business outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year. For the Q3 and full year 2019 expected currency impacts, see the table below. Expected Currency Impact Based on June 2019 Level for the Rest of the Year In percentage points Q3 Q1 – Q4 Cloud +2pp to +4pp +3pp to +5pp Cloud and software +1pp to +3pp +1pp to +3pp Operating profit +2pp to +4pp +1pp to +3pp In addition, SAP expects total revenues to increase strongly, at a rate lower than operating profit. The cloud and software revenue guidance above assumes a mid-single-digit decline in software license revenue. Considering our restructuring program, we expect a deceleration of our organic headcount growth for the full year 2019. Including our acquisitions, we expect our headcount to grow but at a lower rate than in 2018. We continuously strive for profit expansion in all of our operating segments. The following table shows the estimates of the items that represent the differences between our IFRS financial measures and our non-IFRS financial measures. Non-IFRS Measures € millions Estimated Amounts for Full Year 2019 Q1–Q2 2019 Q1–Q2 2018 Revenue adjustments 70–120 51 16 Acquisition- related charges 650–750 341 278 Share-based payment expenses 1,650–1,900 1,114 491 Restructuring 950–1,100 1,085 22 Due to an increase in share price, we have adjusted our guidance for total Share-based payment expenses. Share-based payment expenses are now projected to be between €1,650 million and €1,900 million for the full year 2019. Mainly due to an increase in the expected participation rate in the voluntary and early retirement programs in Germany, we have adjusted our guidance for total restructuring cost. Restructuring expenses are now projected to be between €950 million and €1,100 million for the full year. In the course of the whole restructuring program, we now expect more than 4,000 employees to leave SAP. Our prediction of €750 million to €850 million in annual cost savings as of 2020 remains unchanged. For more information about our restructuring program, see the Notes to the Consolidated Half-Year Financial Statements, Note (B.4). The Company continues to expect a full year 2019 effective tax rate (IFRS) of 26.5% to 27.5% (2018: 27.0%) and an effective tax rate (non-IFRS) of 26.0% to 27.0% (2018: 26.3%). SAP Half-Year Report 2019 Impact of the New Accounting Standard IFRS 16 ‘Leases’ As of January 1, 2019, SAP changed its accounting policies to adopt IFRS 16 ‘Leases’. Under the IFRS 16 adoption method chosen by SAP, prior years are not restated to conform to the new policies. Consequently, the year-over-year expenses and profit in 2019 will be impacted by the new policies. Unchanged from our Integrated Report 2018, the Company still expects the full year 2019 impact of the policy change on operating expenses and profit to be as follows: – The adoption of IFRS 16 is expected to have a favorable impact on operating profit in 2019, since a portion of the costs that were previously classified as rental expenses are classified as interest expense and thus recorded outside operating profit. Based on the SAP Group’s leases as of January 1, 2019 and the insights gained during the first half of the year, operating profit is expected to increase by substantially less than €0.1 billion. The actual impact on our profits depends not only on the lease agreements in effect at the time of adoption but also on new lease agreements entered into or terminated in 2019. – IFRS 16 also has an impact on how lease payments are presented in the cash flow statement. This will result in an increase in cash flow from operating activities and a decline in cash flow from financing activities. Cash flow from operating activities is expected to increase by approximately €0.3 billion to €0.4 billion. Cash flow from financing activities will decrease by the same amount. – As of January 1, 2019, we changed our free cash flow definition to avoid effects resulting from the adoption of IFRS 16. This change is described in the Cash Flow section in this Consolidated Half- Year Management Report. For more information about the adoption of IFRS 16, see the Notes to the Consolidated Half-Year Financial Statements, Notes (D.2) and (D.3). Medium Term Prospects In this section, all numbers are based exclusively on non-IFRS measures. We continue to expect to grow our more predictable revenue while steadily increasing operating profit. Our strategic objectives are focused primarily on our main financial and non-financial objectives: growth, profitability, customer loyalty, and employee engagement. In April 2019, SAP updated its 2020 ambition previously provided in January 2019. This update reflects SAP’s new initiatives to accelerate its operational excellence and value creation: In 2020, SAP continues to expect the following: – €8.6 billion to €9.1 billion in non-IFRS cloud revenue (2018: €5.03 billion) – €28.6 billion to €29.2 billion in non-IFRS total revenue (2018: €24.74 billion) – The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) in a range of 70% to 75% (2018: 65%) In 2020, SAP now expects the following: – €8.8 billion to €9.1 billion in non-IFRS operating profit (previously: €8.5 billion to €9.0 billion; 2018: €7.16 billion). The midpoints of the 2020 total revenue and operating profit ranges now imply an operating margin of 31.0%. We further continue to expect that, by 2020, our Intelligent Spend Group offerings will contribute slightly less than 40% and our other Software as a Service/Platform as a Service (SaaS/PaaS) 17 cloud offerings slightly more than 50% of cloud revenue. Both offerings are expected to each generate, in 2020, cloud revenues that are significantly higher than the cloud revenue generated from our Infrastructure as a service (IaaS) cloud offerings. We continue to expect our revenue growth trajectory through 2020 to be driven by continued strong growth in the cloud and continued growth in our software support revenue. We continue to expect mid-single digit declines in software revenue. This is all expected to result in high single-digit growth in cloud and software revenue through 2020. We also continue to strive to significantly improve, over the next few years, the profitability of our cloud business. In 2019, we continue to expect to see the benefits from previous efficiency- based investments, and thus an increasing cloud gross margin. We continue to expect these profitability improvements to accelerate in the following years. We continue to expect that the individual gross margins of our different cloud operating models will increase at different rates over the next years to reach the following mid-term targets. We continue to expect that, in 2020, the gross margin from our Intelligent Spend Group offerings will be higher than 80% (2018: 78%). We continue to expect that, in 2020, the gross margin from our other SaaS/PaaS offerings will reach approximately 70% (2018: 60%), and expand to about 80% over the course of the two years thereafter. We continue to expect that, in 2020, the gross margin from our IaaS offerings will reach between 30% and 35% (2018: 13%). We continue to expect the cloud gross margin to be approximately 71% by 2020. We continue to expect the 2020 gross margin for our software licenses and support to remain at a similar level to 2018 (2018: 87%). In addition, we continue to expect our 2020 services gross margin to be slightly higher than in 2018 (2018: 23%). As we look to increase our profitability through 2020, we continue to expect our cost ratios (cost as a percentage of total revenue) to develop as follows through 2020: Research and development is expected to remain close to current levels. Sales and marketing as well as general and administration are expected to decline slightly. In 2020 we do not expect significant restructuring expenses and acquisition related charges that are lower than in 2019. Therefore, we expect our IFRS operating profit to increase strongly in 2020 at a rate higher than the growth of our non-IFRS operating profit. In April 2019, we also updated the 2023 ambition, reflecting SAP’s new initiatives to accelerate its operational excellence and value creation. The update did not affect our revenue ambitions. For these, over the period from 2018 through 2023, SAP continues to expect to: – More than triple its non-IFRS cloud revenue (2018: €5.03 billion) – Grow to more than €35 billion in non-IFRS total revenue (2018: €24.74 billion) – Approach a share of more predictable revenue of 80% (2018: 65%) Over the same period, pursuant to the April 2019 ambition update, SAP now expects to: – Reach a non-IFRS cloud gross margin of 75% – Increase the non-IFRS operating margin by one percentage point per year on average, representing a total expansion of approximately 500 basis points SAP’s 2023 non-IFRS operating margin ambition replaced its former 2023 ambition of growing non-IFRS operating profit at a compound annual growth rate of 7.5% to 10% (2018: €16 billion). 18 Goals for Liquidity, Finance, and Investments On June 30, 2019, we had negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in the second half of 2019 as well, and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. In 2019, compared to 2018 we expect higher cash outflows for restructuring (approximately additional €550 million to €750 million), share-based payments (approximately additional €400 million more mainly due to Qualtrics and an increase in share price), and tax-related cash outflows (approximately additional €600 million). In contrast, we expect operating cash flow to benefit from the cash flow reclassification due to IFRS 16 by an amount of €300 million to €400 million. Considering all these effects, we expect operating cash flow in 2019 to come in slightly lower than 2018. Free cash flow (as redefined in response to IFRS 16) is expected to decrease moderately following the decrease of operating cash flow partly balanced by an expected decrease of capital expenditures. For 2020, we expect a significant year-over-year increase in both operating cash flow and free cash flow, mainly due to decreased cash outflows for restructuring and a profitable growth of our operating business. We intend to repay €750 million in Eurobonds in November 2019. In addition, we might repay portions of the Qualtrics related €2.5 billion acquisition term loan. In June 2019, we repaid a first tranche of a €50 million promotional loan with KfW and we intend to repay further tranches in the second half year. Our capital expenditures, other than from business combinations, consist primarily of the purchase of IT infrastructure (data centers, etc.) and the construction of new buildings. We have updated our expectations for capital expenditures for 2019 and 2020. For the full year 2019 we expect total capital expenditures of less than €1.2 billion, thereof approximately €605 million for IT Infrastructure and approximately €275 million from construction activities. The capital expenditures for 2020 are expected to stay at a similar level as in 2019, thereof €270 million from construction activities. Non-Financial Goals 2019 and Ambitions for 2020 In addition to our financial goals, we also focus on two non- financial 2020 targets: customer loyalty and employee engagement. These targets remain unchanged compared to what we disclosed in our Integrated Report 2018. For a detailed description of our non- financial goals 2019 and ambitions for 2020, see our Integrated Report 2018. Premises on Which Our Outlook and Prospects Are Based In preparing our outlook, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward. Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no further major acquisitions in 2019 or 2020. SAP Half-Year Report 2019 Opportunities We have comprehensive opportunity-management structures in place that are intended to enable us to recognize and analyze opportunities early and to take the appropriate action. The opportunities remain largely unchanged compared to what we disclosed in our Integrated Report 2018. SAP Half-Year Report 2019 19 Consolidated Half-Year Financial Statements – IFRS Primary Half-Year Financial Statements 20–24 25 Notes to the Half-Year Financial Statements (IN.1) Basis for Preparation ........................................................................................................................................................................... 25 26 Section A – Customers (A.1) Revenue .................................................................................................................................................................................................. 26 (A.2) Trade and Other Receivables ............................................................................................................................................................... 26 27 Section B – Employees (B.1) Employee Headcount ............................................................................................................................................................................ 27 (B.2) Employee Benefits Expenses ............................................................................................................................................................... 27 (B.3) Share-Based Payments ........................................................................................................................................................................ 27 (B.4) Restructuring ......................................................................................................................................................................................... 28 29 Section C – Financial Results (C.1) Results of Segments .............................................................................................................................................................................. 29 (C.2) Reconciliation of Segment Measures to Income Statement ............................................................................................................. 32 (C.3) Income Taxes ........................................................................................................................................................................................ 32 (C.4) Hyperinflation Accounting .................................................................................................................................................................... 32 33 Section D – Invested Capital (D.1) Business Combinations......................................................................................................................................................................... 33 (D.2) Property, Plant, and Equipment ........................................................................................................................................................... 34 (D.3) Adoption of IFRS 16 ............................................................................................................................................................................... 34 36 Section E – Capital Structure, Financing, and Liquidity (E.1) Total Equity ............................................................................................................................................................................................. 36 (E.2) Liquidity .................................................................................................................................................................................................. 37 38 Section F – Management of Financial Risk Factors (F.1) Financial Risk Factors and Risk Management, and Fair Value Disclosures on Financial Instruments ............................................ 38 39 Section G – Other Disclosures (G.1) Litigation, Claims, and Legal Contingencies ........................................................................................................................................ 39 (G.2) Related Party Transactions .................................................................................................................................................................. 39 (G.3) Events After the Reporting Period ....................................................................................................................................................... 39 (G.4) Scope of Consolidation ......................................................................................................................................................................... 40 20 SAP Half-Year Report 2019 Consolidated Income Statement of SAP Group (IFRS) – Half Year € millions, unless otherwise stated Notes Q1–Q2 2019 Q1–Q2 2018 Cloud2) 3,247 2,283 Software licenses 1,599 1,621 Software support 5,692 5,391 Software licenses and support 7,291 7,012 Cloud and software 10,538 9,295 Services 2,184 1,965 Total revenue (A.1), (C.2) 12,722 11,260 Cost of cloud2) –1,237 –941 Cost of software licenses and support –1,069 –1,001 Cost of cloud and software –2,306 –1,942 Cost of services –1,845 –1,600 Total cost of revenue –4,151 –3,542 Gross profit 8,571 7,718 Research and development –2,114 –1,761 Sales and marketing –3,833 –3,314 General and administration –895 –548 Restructuring (B.4) –1,085 –22 Other operating income/expense, net 48 –5 Total operating expenses –12,031 –9,192 Operating profit (loss) 691 2,069 Other non-operating income/expense, net –44 –91 Finance income 286 185 Finance costs –258 –157 Financial income, net 29 28 Profit (loss) before tax (C.2) 675 2,006 Income tax expense –201 –580 Profit (loss) after tax 475 1,426 Attributable to owners of parent 455 1,425 Attributable to non-controlling interests 20 0 Earnings per share, basic (in €)1) 0.38 1.19 Earnings per share, diluted (in €)1) 0.38 1.19 1) For the six months ended June 30, 2019 and 2018, the weighted average number of shares was 1,194 million (diluted 1,194 million) and 1,193 million (diluted: 1,194 million), respectively (treasury stock excluded). 2) In 2019, we renamed “cloud subscription and support” revenue and “cost of cloud subscription and support” to “cloud” revenue and “cost of cloud” without changing the content of these line items. Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2019 ∆ in % 42 –1 6 4 13 11 13 31 7 19 15 17 11 20 16 63 >100 <–100 31 –67 –51 55 64 3 –66 –65 –67 –68 >100 –68 –68 21 Consolidated Statements of Comprehensive Income of SAP Group (IFRS) – Half Year € millions Q1–Q2 2019 Q1–Q2 2018 Profit after tax 475 1,426 Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans, before tax 6 2 Income taxes relating to remeasurements on defined benefit pension plans –5 –1 Remeasurements on defined benefit pension plans, net of tax 1 1 Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 1 1 Items that will be reclassified subsequently to profit or loss Gains (losses) on exchange differences on translation, before tax 180 557 Reclassification adjustments on exchange differences on translation, before tax 0 0 Exchange differences, before tax 180 557 Income taxes relating to exchange differences on translation 0 0 Exchange differences, net of tax 180 557 Gains (losses) on cash flow hedges/cost of hedging, before tax –8 –12 Reclassification adjustments on cash flow hedges/cost of hedging, before tax 9 –19 Cash flow hedges/cost of hedging, before tax 1 –31 Income taxes relating to cash flow hedges/cost of hedging 0 9 Cash flow hedges/cost of hedging, net of tax 1 –22 Other comprehensive income for items that will be reclassified to profit or loss, net of tax 181 536 Other comprehensive income, net of tax 181 537 Total comprehensive income 656 1,962 Attributable to owners of parent 636 1,962 Attributable to non-controlling interests 20 0 Due to rounding, numbers may not add up precisely. 22 SAP Half-Year Report 2019 Consolidated Statement of Financial Position of SAP Group (IFRS) as at 6/30/2019 and 12/31/2018 € millions Notes 2019 Cash and cash equivalents 5,168 Other financial assets 402 Trade and other receivables 6,074 Other non-financial assets (A.2) 1,212 Tax assets 696 Total current assets 13,551 Goodwill 28,801 Intangible assets 4,730 Property, plant, and equipment (D.2) 5,405 Other financial assets 1,990 Trade and other receivables 142 Other non-financial assets (A.2) 1,406 Tax assets 379 Deferred tax assets 1,303 Total non-current assets 44,156 Total assets 57,707 € millions 2019 Trade and other payables 1,472 Tax liabilities 379 Financial liabilities (E.2) 2,183 Other non-financial liabilities 3,669 Provisions (B.4) 952 Contract liabilities 5,558 Total current liabilities 14,213 Trade and other payables 8 Tax liabilities 545 Financial liabilities (E.2) 14,067 Other non-financial liabilities 675 Provisions 337 Deferred tax liabilities 121 Contract liabilities 99 Total non-current liabilities 15,853 Total liabilities 30,066 Issued capital 1,229 Share premium 545 Retained earnings 25,972 Other components of equity 1,415 Treasury shares –1,580 Equity attributable to owners of parent 27,581 Non-controlling interests 60 Total equity (E.1) 27,641 Total equity and liabilities 57,707 1) Under the adoption method we chose for IFRS 16, prior years are not restated to conform to the new policies. See the Notes to the Consolidated Half-Year Financial Statements, Note (D.3). Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2019 20181) 8,627 448 6,362 889 293 16,620 23,736 3,227 3,553 1,536 118 1,301 397 1,014 34,881 51,502 20181) 1,491 611 1,125 4,120 110 3,028 10,486 129 495 10,553 501 270 102 88 12,138 22,624 1,229 543 27,407 1,234 –1,580 28,832 45 28,877 51,502 23 Consolidated Statements of Changes in Equity of SAP Group (IFRS) € millions Equity Attributable to Owners of Parent Issued Capital Share Premium Retained Earnings Other Compo- nents of Equity Treasury Shares Total 12/31/2017 1,229 570 24,769 508 –1,591 25,484 Adoption of IFRS 15 83 83 Adoption of IFRS 9 135 –160 –25 1/1/2018 1,229 570 24,987 347 –1,591 25,542 Profit after tax 1,425 1,425 Other comprehensive income 1 536 537 Comprehensive income 1,426 536 1,962 Share-based payments –40 –40 Dividends –1,671 –1,671 Reissuance of treasury shares under share-based payments 13 11 24 Shares to be issued 7 7 Hyperinflation –39 –39 Changes in non-controlling interests 6/30/2018 1,229 543 24,711 883 –1,580 25,786 12/31/2018 1,229 543 27,407 1,234 –1,580 28,832 Adoption of IFRS 16 –70 –70 1/1/2019 1,229 543 27,337 1,234 –1,580 28,762 Profit after tax 455 455 Other comprehensive income 1 181 181 Comprehensive income 456 181 636 Share-based payments 3 3 Dividends –1,790 –1,790 Hyperinflation –30 –30 6/30/2019 1,229 545 25,972 1,415 –1,580 27,581 Due to rounding, numbers may not add up precisely. 24 Non- Controlling Interests Total Equity 31 25,515 83 –25 31 25,572 0 1,426 537 0 1,962 –40 –4 –1,675 24 7 –39 17 17 44 25,829 45 28,877 –70 45 28,807 20 475 181 20 656 3 –5 –1,795 –30 60 27,641 SAP Half-Year Report 2019 Consolidated Statement of Cash Flows of SAP Group (IFRS) € millions Q1–Q2 2019 Q1–Q2 20181) Profit (loss) after tax 475 1,426 Adjustments to reconcile profit (loss) after tax to net cash flows from operating activities: Depreciation and amortization 897 635 Share-based payment expense 1,114 491 Income tax expense 201 580 Financial income, net –29 –28 Decrease/increase in allowances on trade receivables –9 –43 Other adjustments for non-cash items –55 4 Decrease/increase in trade and other receivables 354 1,409 Decrease/increase in other assets –390 –380 Increase/decrease in trade payables, provisions, and other liabilities –2 –842 Increase/decrease in contract liabilities 2,363 1,240 Share-based payments –832 –598 Interest paid –176 –101 Interest received 45 54 Income taxes paid, net of refunds –1,277 –865 Net cash flows from operating activities 2,679 2,985 Business combinations, net of cash and cash equivalents acquired –6,147 –1,995 Proceeds from sales of subsidiaries or other businesses 61 0 Purchase of intangible assets or property, plant, and equipment –539 –818 Proceeds from sales of intangible assets or property, plant, and equipment 35 32 Purchase of equity or debt instruments of other entities –579 –526 Proceeds from sales of equity or debt instruments of other entities 469 1,079 Net cash flows from investing activities –6,700 –2,228 Dividends paid –1,790 –1,671 Dividends paid on non-controlling interests –2 –4 Proceeds from borrowings 2,523 1,498 Repayments of borrowings –29 –146 Payments of lease liabilities –185 0 Net cash flows from financing activities 517 –323 Effect of foreign currency rates on cash and cash equivalents 45 70 Net decrease/increase in cash and cash equivalents –3,459 504 Cash and cash equivalents at the beginning of the period 8,627 4,011 Cash and cash equivalents at the end of the period 5,168 4,515 1) Under the adoption method we chose for IFRS 16, prior years are not restated to conform to the new policies. For more information, see the Notes to the Consolidated Half-Year Financial Statements, Note (D.3). Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2019 25 Notes to the Consolidated Half-Year Financial Statements (IN.1) Basis for Preparation General Information About Consolidated Half- Year Financial Statements The registered seat of SAP SE is in Walldorf, Germany Accounting Policies, Management Judgments and Sources of Estimation Uncertainty How We Present Our Accounting Policies, Judgments, and Estimates (Commercial Register of the Lower Court of Mannheim HRB 719915). The accompanying condensed Consolidated Half- Year Financial Statements of SAP SE and its subsidiaries (collectively, “we,” “us,” “our,” “SAP,” “Group,” and “Company”) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in particular in compliance with International Accounting Standard (IAS) 34. In this context, IFRS includes all standards issued by the International Accounting Standards Board (IASB) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC). The variances between the applicable IFRS standards as issued by the IASB and the standards as used by the European Union are not relevant to these financial statements. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with IFRS have been condensed or omitted. We believe that the disclosures made are adequate and that the information gives a true and fair view. To ease the understanding of our financial statements, we changed the presentation of the accounting policies, management judgments, and sources of estimation uncertainty (hereafter: accounting policies, judgments, and estimates) in our 2018 Consolidated Financial Statements. We presented the accounting policies, judgments, and estimates on a given subject together with other disclosures related to the same subject in the Note that dealt with this subject. For easier identification of our accounting policies, judgments, and estimates, the respective disclosures were marked and framed by a light gray box. with the symbol We continue this approach in this half-year report. We describe however, only material changes of our accounting policies, judgments, and estimates in relation to our 2018 Consolidated Financial Statements in this report. Changes of our accounting policies, judgments, and estimates that do not relate to a specific subject are presented in the following section. The following table provides an overview of where our accounting Our business activities are influenced by certain seasonal effects. policies, management judgments, and estimates are disclosed: Historically, our overall revenue tends to be highest in the fourth quarter. Interim results are therefore not necessarily indicative of results for a full year. Note Accounting Policies, Judgments, and Estimates Amounts reported in previous years have been reclassified if appropriate to conform to the presentation in this half-year report. These unaudited condensed Consolidated Half-Year Financial (IN.1) (A.1) Basis for Preparation Revenue Statements should be read in conjunction with SAP’s audited Consolidated IFRS Financial Statements for the Year Ended December 31, 2018, included in our Integrated Report 2018 and our Annual Report on Form 20-F for 2018. (D.2) (D.3) Property, Plant, and Equipment Adoption of IFRS 16 Due to rounding, numbers presented throughout these Consolidated Half-Year Financial Statements may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures. New Accounting Standards For information about the estimated financial impacts of the adoption of IFRS 16, see Notes (D.2) and (D.3.). Amounts disclosed in our Consolidated Half-Year Financial Statements that are taken directly from our Statements or our are marked by the symbols Consolidated Income Consolidated Statements of Financial Position , respectively. and 26 SAP Half-Year Report 2019 Section A – Customers This section discusses disclosures related to contracts with our customers. These consist of revenue breakdowns and information about our trade receivables. For more information, see the Notes to the 2018 Consolidated Financial Statements, Section A – Customers. Total Revenue by Region € millions Germany Q1–Q2 2019 1,783 Q1–Q2 2018 1,617 Rest of EMEA 3,754 3,445 (A.1) Revenue EMEA 5,537 5,062 In the first half of 2019, there were no significant changes in our United States 4,245 3,573 revenue accounting policies. For more information about our revenue accounting policies, see Note (A.1) to our 2018 Consolidated Financial Statements. Rest of Americas Americas 957 5,202 851 4,424 Japan 526 443 Geographic Information Rest of APJ 1,457 1,331 Accounting Policy APJ 1,983 1,774 The amounts for revenue by region in the following tables are based on the location of customers. SAP Group 12,722 11,260 Cloud Revenue by Region For information about the breakdown of revenue by segment and segment revenue by region, see Note (C.1). € millions Q1–Q2 2019 Q1–Q2 2018 EMEA 967 671 (A.2) Trade and Other Receivables Americas 1,868 1,333 APJ 412 280 € millions 6/30/2019 SAP Group 3,247 2,283 Current Non- Current Total Trade receivables, net 5,893 32 5,925 Cloud and Software Revenue by Region Other receivables 181 110 291 € millions Q1–Q2 2019 Q1–Q2 2018 Total 6,074 142 6,216 EMEA 4,629 4,207 Americas 4,230 3,586 € millions 12/31/2018 APJ 1,680 1,503 Current Non- Current Total SAP Group 10,538 9,295 Trade receivables, net 6,182 6 6,188 Other receivables 181 112 293 Total 6,363 118 6,480 SAP Half-Year Report 2019 27 Section B – Employees This section provides financial insights into our employee benefit (B.1) Employee Headcount arrangements. It should be read in conjunction with the compensation disclosures for key management personnel in Note (G.6) to our 2018 Consolidated Financial Statements as well as SAP’s Compensation Report. For more information regarding this topic, see the Notes to our 2018 Consolidated Financial Statements, Section B – Employees. On June 30, 2019, the breakdown of our full-time equivalent employee numbers by function and by region was as shown in the table below. The increase in headcount in the SAP Group to 98,332 employees is mainly due to the acquisition of Qualtrics as well as organic growth of full-time equivalents especially within the services function. Number of Employees (in Full-Time Equivalents) Full-time equivalents 6/30/2019 6/30/2018 EMEA Americas APJ Total EMEA Americas APJ Total Cloud and software 6,390 4,530 5,260 16,180 6,128 4,113 5,051 15,291 Services 8,302 5,766 5,772 19,839 7,924 5,561 5,370 18,855 Research and development 12,486 5,378 8,805 26,668 11,866 5,534 8,681 26,081 Sales and marketing 9,966 10,223 5,118 25,307 9,791 9,621 4,962 24,374 General and administration 3,120 2,064 1,239 6,424 2,814 1,922 1,096 5,832 Infrastructure 2,240 1,022 651 3,913 1,976 902 534 3,413 SAP Group (6/30) 42,504 28,983 26,844 98,332 40,498 27,653 25,694 93,846 Thereof acquisitions1) 338 1,638 137 2,113 638 952 434 2,024 SAP Group (six months' end average) 42,538 29,283 26,784 98,605 39,722 27,025 25,219 91,965 1) Acquisitions closed between January 1 and June 30 of the respective year (B.2) Employee Benefits Expenses (B.3) Share-Based Payments Employee Benefits Expense The allocations of expenses for share-based payments to the € millions Q1–Q2 2019 Q1–Q2 2018 various expense items are as follows: Salaries 4,853 4,337 Share-Based Payments € millions Q1–Q2 2019 Q1–Q2 2018 Social security expenses 781 697 Cost of cloud and software 81 46 Share-based payment expenses 1,114 491 Cost of services 144 80 Pension expenses 193 175 Research and development 252 123 Sales and marketing 327 185 Employee-related restructuring expenses 1,069 20 General and administration 311 57 Termination benefits 29 21 Share-based payments 1,114 491 Employee benefits expense 8,039 5,741 For more information about our share-based payments and a detailed description of our share-based payment plans, see Note (B.3) in our Notes to the 2018 Consolidated Financial Statements. Restricted Stock Unit Plan Including Move SAP Plan (RSU Plan) In the first half of 2019, we granted (including share units granted to Qualtrics employees) 8.2 million (first half of 2018: 7.8 million) 28 SAP Half-Year Report 2019 share units to retain and motivate global executives and employees, who make a significant sustained impact to our business success. Own SAP Plan (Own) The number of shares purchased by our employees under this plan was 2.6 million in the first half of 2019 (first half of 2018: 2.6 million). The plan enables employees to purchase shares at preferred conditions and build value by becoming an SAP shareholder. (B.4) Restructuring € millions Q1–Q2 2019 Q1–Q2 2018 Employee-related restructuring expenses –1,069 –20 Onerous contract-related restructuring expenses and restructuring- related impairment losses –16 –1 Restructuring expenses –1,085 –22 To further increase our focus on our key strategic growth areas, SAP launched a company-wide restructuring program to further simplify company structures and processes and to ensure that its organizational setup, skillsets, and resource allocation all continue to meet evolving customer demand. The main features of the restructuring plan were announced on January 29, 2019. Restructuring expenses are projected to be between €950 million and €1,100 million, the vast majority of which was already recognized in the first two quarters of 2019. In the first half of 2019, approximately 1,400 employees left the company under the plan. The cash outflow due to restructuring was €233 million. As at June 30, 2019, the restructuring provisions, which are almost exclusively presented in current provisions, amount to €868 million. Restructuring expenses primarily include employee benefits that result from severance payments for employee terminations. If not presented separately, these restructuring expenses would break down in our income statements as follows: Restructuring Expenses by Functional Area € millions Q1–Q2 2019 Q1–Q2 2018 Cost of cloud and software –127 –3 Cost of services –169 –8 Research and development –443 –1 Sales and marketing –281 –9 General and administration –64 0 Restructuring expenses –1,085 –22 SAP Half-Year Report 2019 29 Section C – Financial Results This section provides insight into the financial results of SAP's reportable segments and of SAP overall, as far as not already covered by previous sections. This includes segment results and income taxes. For more information, see the Notes to the 2018 Consolidated Financial Statements, Section C – Financial Results. (C.1) Results of Segments General Information SAP has four operating segments that are regularly reviewed by our Executive Board, which is responsible for assessing the performance of our Company and for making resource allocation decisions as our Chief Operating Decision Maker (CODM). The operating segments are largely organized and managed separately according to their product and service offerings, notably whether the products and services relate to our business network activities, customer and experience management solutions, or communication offerings, or cover other areas of our business. For more information about our segments, see Note (C.1) to our 2018 Consolidated Financial Statements. In the first half of 2019, the following changes to the composition of our operating segments occurred: – The former SAP Business Network segment was renamed to Intelligent Spend Group without any changes in the composition of this segment. – On January 23, 2019, we acquired Qualtrics and changed the structure of our former Customer Experience segment. The Qualtrics business was combined with our existing customer experience solutions into a new business unit called Customer and Experience Management. As a result, the former Customer Experience segment was renamed to Customer and Experience Management, and comprises on-premise and cloud-based products that run front-office functions across the customer experience and experience data. – In 2018, revenues for one individual offering were reflected in the former Customer Experience segment, and related research and development costs were part of the Applications, Technology & Services segment. Effective January 1, 2019, we changed this allocation in our management reporting and consequently, in our segment reporting: Revenues for this offering are now presented in the Applications, Technology & Services segment. – Further, we expanded the scope of our non-reportable Digital Interconnect segment. It now comprises complete communication channels, including our messaging services combined with newly added telephony, video chat, and routing (which were formerly part of the Applications, Technology & Services segment and the former Customer Experience segment). The segment information for prior periods has been restated to conform with these changes to our reportable segments. In the first half of 2019, there were no significant changes in our segment accounting policies. For a detailed overview of our segment accounting policies, judgments, and sources for management reporting, see Note (C.1) to our 2018 Consolidated Financial Statements. 30 SAP Half-Year Report 2019 Applications, Technology & Services € millions Cloud – SaaS/PaaS1) Cloud – IaaS2) Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud – SaaS/PaaS1) Cost of cloud – IaaS2) Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 1) Software as a service/platform as a service 2) Infrastructure as a service Intelligent Spend Group € millions Cloud – SaaS/PaaS1) Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud – SaaS/PaaS1) Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 1) Software as a service/platform as a service SAP Half-Year Report 2019 Actual Currency 1,163 327 1,490 1,491 5,684 7,174 8,665 1,710 10,375 –437 –239 –677 –955 –1,632 –1,341 –2,973 7,402 –3,311 4,092 Actual Currency 1,293 1,293 0 8 8 1,301 225 1,526 –283 –283 –4 –287 –179 –466 1,060 –746 314 Q1–Q2 2019 Constant Currency 1,125 315 1,440 1,460 5,541 7,001 8,441 1,663 10,104 –421 –233 –654 –933 –1,587 –1,312 –2,899 7,205 –3,237 3,968 Q1–Q2 2019 Constant Currency 1,229 1,229 0 8 7 1,237 214 1,451 –270 –270 –4 –274 –172 –446 1,005 –712 293 Q1–Q2 2018 Actual Currency 849 217 1,066 1,496 5,386 6,881 7,947 1,582 9,529 –349 –195 –544 –911 –1,455 –1,216 –2,671 6,858 –3,138 3,721 Q1–Q2 2018 Actual Currency 1,014 1,014 0 8 8 1,022 210 1,233 –229 –229 –3 –233 –150 –382 850 –622 229 31 Customer and Experience Management € millions Cloud – SaaS/PaaS1) Cloud Software licenses Software support Software licenses and support Cloud and software Services Total segment revenue Cost of cloud – SaaS/PaaS1) Cost of cloud Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Segment gross profit Other segment expenses Segment profit (loss) 1) Software as a service/platform as a service Segment Revenue by Region € millions Applications, Technology & Services Intelligent Spend Group Q1–Q2 2019 Q1–Q2 2018 Q1–Q2 2019 Q1–Q2 2018 Actual Currency Constant Currency Actual Currency Actual Currency Constant Currency Actual Currency EMEA 5,009 4,950 4,682 270 260 222 Americas 3,659 3,501 3,297 1,085 1,024 880 APJ 1,708 1,654 1,551 171 167 130 Total segment revenue 10,375 10,104 9,529 1,526 1,451 1,233 For a breakdown of revenue by region for the SAP Group, see Note (A.1). 32 Actual Currency 510 510 100 0 100 610 57 667 –123 –123 –10 –133 –30 –163 503 –513 –10 Customer and Experience Management Q1–Q2 2019 Q1–Q2 2018 Actual Currency Constant Currency Actual Currency 204 201 158 397 371 133 66 64 47 667 636 338 Q1–Q2 2019 Q1–Q2 2018 Constant Currency Actual Currency 486 210 486 210 97 125 0 0 97 125 583 335 53 3 636 338 –120 –68 –120 –68 –10 –10 –130 –79 –28 1 –158 –78 478 260 –490 –265 –13 –5 Total Reportable Segments Q1–Q2 2019 Q1–Q2 2018 Actual Currency Constant Currency Actual Currency 5,483 5,411 5,062 5,141 4,896 4,310 1,944 1,885 1,728 12,568 12,191 11,100 SAP Half-Year Report 2019 (C.2) Reconciliation of Segment Measures to Income Statement € millions Q1–Q2 2019 Q1–Q2 2018 Actual Currency Constant Currency Actual Currency Applications, Technology & Services 10,375 10,104 9,529 Intelligent Spend Group 1,526 1,451 1,233 Customer and Experience Management 667 636 338 Total segment revenue for reportable segments 12,568 12,191 11,100 Other revenue 205 197 177 Adjustment for currency impact 0 385 0 Adjustment of revenue under fair value accounting –51 –51 –16 Total revenue 12,722 12,722 11,260 Applications, Technology & Services 4,092 3,968 3,721 Intelligent Spend Group 314 293 229 Customer and Experience Management –10 –13 –5 Total segment profit for reportable segments 4,396 4,248 3,944 Other revenue 205 197 177 Other expenses –1,319 –1,280 –1,245 Adjustment for currency impact 0 117 0 Adjustment for Revenue under fair value accounting –51 –51 –16 Acquisition-related charges –341 –341 –278 Share-based payment expenses –1,114 –1,114 –491 Restructuring –1,085 –1,085 –22 Operating profit 691 691 2,069 Other non-operating income/expense, net –44 –44 –91 Financial income, net 29 29 28 Profit before tax 675 675 2,006 (C.3) Income Taxes (C.4) Hyperinflation Accounting There have been no significant changes in contingent liabilities from income tax-related litigation for which no provision has been recognized compared to Note (C.5) in our Consolidated Financial Statements for 2018, which is included in our Integrated Report 2018. We apply hyperinflation accounting for our subsidiaries in Venezuela and Argentina, by restating the financial statements of the respective subsidiaries for the current period to account for changes in the general purchasing power of the local currency based on relevant price indices at the reporting date. Most significantly impacted by this accounting are equity (retained earnings and other comprehensive income) (a decrease of €23 million versus a decrease of €26 million in the first half of 2018) and contract liabilities (an increase of €33 million versus an increase of €70 million in the first half of 2018). The impact on our revenues and operating profit is immaterial. SAP Half-Year Report 2019 33 Section D – Invested Capital This section highlights the non-current assets including investments that form the basis of our operating activities. Additions in invested capital include separate asset acquisitions or business combinations. Further, we disclose information about the adoption of IFRS 16. For more information, see our Notes to the 2018 Consolidated Financial Statements, Section D – Invested Capital. Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed € millions Cash and cash equivalents Qualtrics Contribution 127 (D.1) Business Combinations Other financial assets 1 Trade and other receivables 36 We acquire businesses in specific areas of strategic interest to us, particularly to broaden our product and service portfolio. Other non-financial assets 20 Prior-year acquisitions are described in our 2018 Consolidated Property, plant, and equipment 74 Financial Statements. Intangible assets 1,803 Acquisition of Qualtrics Thereof acquired technology 575 On January 23, 2019, we concluded the acquisition of Qualtrics, following satisfaction of applicable regulatory and other approvals (also see Note (G.9) of our 2018 Consolidated Financial Statements). Thereof customer relationship and other intangibles Thereof software and database licenses Total identifiable assets 1,226 2 2,061 Qualtrics is a leading provider of experience management (XM) solutions. By combining Qualtrics products and SAP products, we aim to deliver an end-to-end experience and operational management system to our customers. Trade and other payables Financial liabilities Current and deferred tax liabilities 85 54 267 We acquired 100% of the Qualtrics shares for approx. US$35 per Provisions and other non-financial liabilities 39 share, representing consideration transferred in cash of approximately US$7.1 billion. In addition to the cash payments, SAP will also incur liabilities and post-closing expenses relating to assumed share-based payment awards amounting to approximately US$0.9 billion. Contract liabilities Total identifiable liabilities Total identifiable net assets 127 572 1,489 Goodwill 4,960 The operating results and assets and liabilities of Qualtrics are reflected in our consolidated financial statements from January 23, 2019, onward. Total consideration transferred 6,449 Financial Impact as of the Acquisition Date € millions Cash paid Liabilities incurred Qualtrics Consideration Transferred 6,212 237 The initial accounting for the Qualtrics business combination is incomplete because we are still obtaining the information necessary to identify and measure, for example, intangibles and tax-related assets and liabilities (deferred taxes from investments in subsidiaries, unused tax losses). It is also not yet possible to provide final detailed information about each class of acquired receivables or contingent liabilities. Accordingly, the amounts recognized in our half-year financial statements for these items are provisional as of June 30, 2019. Total consideration transferred 6,449 The liabilities incurred relate to the earned portion of unvested share-based payment awards. These liabilities were incurred by replacing, upon acquisition, equity-settled share-based payment awards held by employees of Qualtrics with cash-settled share- based payment awards, which are subject to forfeiture. The respective liabilities represent the portion of the replacement awards that relates to pre-acquisition services provided by the acquiree’s employees and were measured at the fair value determined under IFRS 2 as required by IFRS 3. In general, the goodwill arising from our acquisitions consists largely of the synergies and the know-how and technical skills of the acquired businesses’ workforces. Qualtrics goodwill is attributed to expected synergies from the acquisition, particularly in the following areas: – Cross-selling opportunities to existing SAP customers across all regions, using SAP’s sales organization – Creating new offerings by combining Qualtrics products and SAP products to deliver an end-to-end experience and operational management system to the customers The following table summarizes the preliminary values of identifiable assets acquired and liabilities assumed in connection with the acquisition of Qualtrics, as of the acquisition date. – Improved profitability in Qualtrics sales and operations 34 SAP Half-Year Report 2019 The allocation of the goodwill resulting from the Qualtrics acquisition to our operating segments depends on how our operating segments actually benefit from the synergies of the Qualtrics business combination. We have not yet completed the identification of those benefits. For more information about our segments and about the changes in our segment structure, see Note (C.1). Impact of the Business Combination on Our Half-Year Financial Statements The amounts of revenue and profit or loss of the Qualtrics legal entities acquired in 2019 since the acquisition date included in the consolidated income statements for the reporting period are as follows: Impact on SAP’s Half-Year Financials € millions Q1–Q2 2019 as Reported Contribution of Qualtrics Revenue 12,722 165 Profit after tax 475 –301 Had Qualtrics been consolidated as of January 1, 2019, our revenue and profit after tax for the reporting period would not have been materially different. (D.2) Property, Plant, and Equipment Changed Estimates of Useful Lives At the beginning of 2019, we changed our estimate of the expected useful lives of certain computer hardware. This change from four to five years is still within the range of two to six years that was disclosed in the 2018 Integrated Report. This change reduces our actual and expected depreciation expense by: €49 million in the first half 2019 (thereof €35 million in cost of cloud) €93 million in the full year 2019 (thereof €71 million in cost of cloud) Property, Plant, and Equipment (Summary) € millions 6/30/2019 12/31/2018 Property, plant, and equipment excluding leases 3,575 3,553 Right-of-use assets 1,830 Total 5,405 3,553 SAP Half-Year Report 2019 (D.3) Adoption of IFRS 16 Accounting Policies, Judgments, and Estimates On January 1, 2019, we adopted IFRS 16 ‘Leases.’ Using the modified retrospective transition approach requires that the cumulative effect of initially applying the standard be recognized as an adjustment to the opening balance of retained earnings on the date of initial application. The prior-year figures were not adjusted. The new standard significantly impacts the lease accounting by lessees as, in general, all leases need to be recognized on the lessee’s balance sheet. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The nature of expenses related to those leases has now changed because we recognize depreciation expense for right-of-use assets and interest expense on lease liabilities. These changes apply to leases that had previously been classified as operating leases under IAS 17. We have used practical expedients offered by the standard (such as non- capitalization of short-term leases and low-value leases, and the use of hindsight when determining the lease term if the contract contains options to extend or terminate the lease). For measuring our right-of-use assets for pre-existing leases, we have applied the retrospective approach for our larger leases (primarily facility leases), while smaller leases were measured at an amount equal to the lease liability and adjusted by the amount of any prepaid or accrued lease payments existing immediately prior to the date of initial application. Upon IFRS 16 adoption, lease liabilities from pre-existing leases were discounted at the incremental borrowing rates as at January 1, 2019. The weighted average discount rate applied to the lease liabilities on January 1, 2019, was 2.5%. 35 Leases are shown as follows in the balance sheet as at June 30, 2019, and in the income statement for the first half of the year: Leases in the Balance Sheet € millions 6/30/2019 Right-of-use assets Right-of-use assets – land and buildings 1,525 Right-of-use assets – data centers 273 Right-of-use assets – cars and other 32 Total right-of-use assets 1,830 Non-current assets 44,156 Right-of-use assets as % of non-current assets 4 Lease Liabilities Current lease liabilities 358 Current financial liabilities 2,183 Current lease liabilities as % of current financial liabilities 16 Non-current lease liabilities 1,725 Non-current financial liabilities 14,067 Non-current lease liabilities as % of non-current financial liabilities 12 Leases in the Income Statement € millions Q1–Q2 2019 Lease expenses within operating profit Depreciation of right-of-use assets 179 Lease expenses within finance income, net Interest expense on lease liabilities 26 36 IFRS 16 also affects SAP’s cash flow statement for the first six months of 2019: operating cash flow increased by €185 million and cash flow from financing activities decreased by €185 million. For more information, see the Cash Flow section in the Consolidated Half-Year Management Report. The adjustments to the opening balances resulting from the initial application of IFRS 16 as at January 1, 2019, were as follows: – Property, plant, and equipment – increased by €1.9 billion – Deferred tax assets – increased by €0.4 billion – Trade and other payables – decreased by €0.1 billion – Financial liabilities – increased by €2.1 billion – Deferred tax liabilities – increased by €0.4 billion The net impact on retained earnings on January 1, 2019, was a decrease of €0.1 billion. SAP Half-Year Report 2019 Section E – Capital Structure, Financing and Liquidity This section provides information related to how SAP manages its capital structure. Our capital management is based on a high equity ratio, modest financial leverage, a well-balanced maturity profile, and deep debt capacity. For more information, see our Notes to the 2018 Consolidated Financial Statements, Section E – Capital Structure, Financing, and Liquidity. (E.1) Total Equity Number of Shares millions Issued Capital Treasury Shares 12/31/2017 1,228.5 –35.1 Reissuance under share-based payments 0 0.2 6/30/2018 1,228.5 –34.9 12/31/2018 1,228.5 –34.9 6/30/2019 1,228.5 –34.9 Other Components of Equity € millions Exchange Differences Cash Flow Hedges 1/1/2018 330 18 Other comprehensive income1) 557 –22 6/30/2018 887 –4 12/31/2018 1,239 –5 Other comprehensive income1) 180 1 6/30/2019 1,419 –4 1) The exchange differences in other comprehensive income include the effect from hyperinflation accounting for our subsidiaries in Venezuela and Argentina. SAP Half-Year Report 2019 Total 347 536 883 1,234 181 1,415 37 (E.2) Liquidity € millions Bonds Private placement transactions Bank loans Financial debt Financial liabilities Financial debt as % of financial liabilities € millions Bonds Private placement transactions Bank loans Financial debt Financial liabilities Financial debt as % of financial liabilities 38 Nominal Volume Current Non- Current 1,400 8,864 0 1,017 52 2,500 1,452 12,381 Nominal Volume Current Non- Current 750 9,512 0 1,011 9 49 759 10,572 6/30/2019 Carrying Amount Current Non- Current Total 1,404 8,801 10,205 0 1,056 1,056 52 2,493 2,545 1,456 12,350 13,806 2,183 14,067 16,250 67 88 85 12/31/2018 Carrying Amount Current Non- Current Total 759 9,445 10,204 0 1,041 1,041 9 49 58 768 10,536 11,303 1,125 10,553 11,678 68 100 97 SAP Half-Year Report 2019 Section F – Risk Management and Fair Value Disclosures This section discusses financial risk factors and risk management. In our half-year report, this includes the transfers between levels of the fair value hierarchy. For more information, particularly about our risk management related to foreign currency exchange rate risk, interest rate risk, equity price risk, credit risk, liquidity risk, and so on, see the Notes to the 2018 Consolidated Financial Statements, Section F – Risk Management and Fair Value Disclosures. (F.1) Financial Risk Factors, Financial Risk Management, and Fair Value Disclosures on Financial Instruments In the second quarter of 2019, the fair value estimate for SAP’s investment in Looker Data Sciences Inc. (Looker) was adjusted to reflect the estimated exit value based on Google LLC’s (Google) announcement on June 6, 2019, that Google had entered into a definitive agreement to acquire Looker. The closing of this transaction is subject to regulatory approvals. The adjustment resulted in gains recognized in finance income from financial assets at fair value through profit and loss of €45 million. The investment in Looker is held through our interest in Sapphire Ventures Fund II, L.P., a consolidated venture investment fund. A detailed overview of our other financial instruments, financial risk factors, the management of financial risks, and the determination of fair value as well as the classification of our other financial instruments into the fair value hierarchy of IFRS 13 are presented in Notes (F.1) and (F.2) in our 2018 Consolidated Financial Statements. We do not disclose the fair value of our financial instruments as of June 30, 2019, for the following reasons: – For a large number of our financial instruments, their carrying amounts are a reasonable approximation of their fair values, and – For those financial instruments where the carrying amount differs from fair value, there was no material change in the relation between carrying amount and fair value since December 31, 2018. SAP Half-Year Report 2019 39 Section G – Other Disclosures This section provides additional disclosures on miscellaneous topics, including information pertaining to other litigation, claims and legal contingencies, and related party transactions. For more information, see the Notes to the 2018 Consolidated Financial Statements, Section G – Other Disclosures. (G.1) Litigation, Claims, and Legal Contingencies We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired. We will continue to vigorously defend against all claims and lawsuits against us. We currently believe that resolving the claims and lawsuits pending as of June 30, 2019, will neither individually nor in the aggregate have a material adverse effect on our business, financial position, profit, or cash flows. Consequently, the provisions recorded for these claims and lawsuits as of June 30, 2019, are neither individually nor in the aggregate material to SAP. Among the claims and lawsuits are the following classes (for more information about these classes, see our Integrated Report 2018, Notes to the Consolidated Financial Statements, Note (G.4)). export restriction controls and will continue full cooperation with all parties involved. It is impossible at this point in time to determine whether the potential anti-bribery law violations and the potential export restriction violations represent present obligations of SAP and, if so, to reliably estimate the amount of these obligations. As a consequence, as at June 30, 2019, no provisions have been recognized for these potential violations in our consolidated financial statements. It is currently also not practicable to estimate the financial effect of any contingent liabilities that may result from these potential violations. For more information, see our Integrated Report 2018, Notes to the Consolidated Financial Statements, Note (G.4). (G.2) Related Party Transactions Certain Executive Board and Supervisory Board members of SAP SE currently hold (or have held within the last year) positions of significant responsibility with other entities (for more information, see our Integrated Report 2018, Notes to the Consolidated Financial Statements, Note (G.5)). We have relationships with certain of these entities in the ordinary course of business. During the reporting period, we had no related party transactions Intellectual Property-Related Litigation and Claims that had a material effect on our business, financial position, or results in the reporting period. There have been no significant changes to the amount of For more information about related party transactions, see our provisions recorded for intellectual property-related litigation and claims compared to the amounts disclosed in our Integrated Report 2018, Notes to the Consolidated Financial Statements, Note (G.4). There have also been no significant changes in contingent liabilities from intellectual property-related litigation and claims for which no provision has been recognized. Integrated Report 2018, Notes to the Consolidated Financial Statements, Note (G.7). (G.3) Events After the Reporting Period No events that have occurred since June 30, 2019, have a For the individual cases of intellectual property-related litigation and claims disclosed in our Integrated Report 2018, there were no significant developments in the first half of 2019. Tax-Related Litigation material impact on the Company’s Consolidated Half-Year Financial Statements. Release of the Consolidated Half-Year Financial Statements There have been no significant changes in contingent liabilities from non-income tax-related litigation for which no provision has been recognized compared to Note (G.4) in our Consolidated Financial Statements for 2018, which is included in our Integrated Report 2018. The Executive Board of SAP SE approved these consolidated half-year financial statements on July 17, 2019, for submission to the Audit Committee of the Supervisory Board and for subsequent issuance. For more information about income tax-related litigation, see Note (C.3). Anti-Bribery and Export Control Matters SAP received communications alleging conduct that may violate anti-bribery laws (including the U.S. Foreign Corrupt Practices Act (FCPA)) in Brazil, Indonesia, South Africa, and other countries. Further, we voluntarily self-disclosed potential export controls and economic sanctions violations. The investigations are ongoing and neither the outcome of the investigations nor the date when substantiated findings will be available is predictable at this point in time. SAP enhanced its anti-corruption compliance program as well as its export control compliance program throughout the last months. We continue to be fully committed to anti-bribery laws and 40 SAP Half-Year Report 2019 (G.4) Scope of Consolidation 12/31/2018 Additions Disposals 06/30/2019 The additions in the first half of 2019 relate to legal entities added in connection with acquisitions and foundations. The disposals are mainly due to liquidations and mergers of legal entities. For more information about our business combinations and the effect on our Consolidated Financial Statements, see Note (D.1) and our Integrated Report 2018. SAP Half-Year Report 2019 Total 265 19 –11 273 41 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the Consolidated Half-Year Financial Statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the SAP Group, and the Consolidated Half-Year Management Report of the SAP Group includes a fair review of the development and performance of the business and the position of the SAP Group, together with a description of the material opportunities and risks associated with the expected development of the SAP Group for the remaining months of the financial year. Walldorf, July 17, 2019 SAP SE Walldorf, Baden The Executive Board Bill McDermott Adaire Fox-Martin Christian Klein Michael Kleinemeier Jennifer Morgan Luka Mucic Jürgen Müller Stefan Ries 42 SAP Half-Year Report 2019 Supplementary Financial Information Financial and Non-Financial Key Facts (IFRS and Non-IFRS) € millions, unless otherwise stated Q1 2018 Q2 2018 Q3 2018 Q4 2018 TY 2018 Revenues Cloud (IFRS) 1,070 1,213 1,304 1,406 4,993 Cloud (non-IFRS) 1,072 1,227 1,315 1,413 5,027 % change – yoy 18 32 40 42 33 % change constant currency – yoy 31 40 41 40 38 Software licenses (IFRS) 625 996 937 2,089 4,647 Software licenses (non-IFRS) 625 996 937 2,089 4,647 % change – yoy –10 –9 –9 1 –5 % change constant currency – yoy –2 –5 –8 8 0 Software support (IFRS) 2,656 2,735 2,765 2,825 10,981 Software support (non-IFRS) 2,656 2,735 2,765 2,826 10,982 % change – yoy –3 0 3 3 1 % change constant currency – yoy 5 7 6 3 5 Software licenses and support (IFRS) 3,281 3,731 3,702 4,914 15,628 Software licenses and support (non-IFRS) 3,281 3,731 3,702 4,914 15,629 % change – yoy –4 –2 0 2 –1 % change constant currency – yoy 4 3 2 5 4 Cloud and software (IFRS) 4,351 4,944 5,007 6,320 20,622 Cloud and software (non-IFRS) 4,353 4,958 5,017 6,327 20,655 % change – yoy 1 4 8 9 6 % change constant currency – yoy 9 10 10 11 10 Total revenue (IFRS) 5,261 5,999 6,020 7,428 24,708 Total revenue (non-IFRS) 5,262 6,014 6,031 7,434 24,741 % change – yoy 0 4 8 9 5 % change constant currency – yoy 9 10 10 13 11 Share of more predictable revenue (IFRS, in %) 71 66 68 57 65 Share of more predictable revenue (non-IFRS, in %) 71 66 68 57 65 Profits Operating profit (loss) (IFRS) 1,025 1,044 1,236 2,399 5,703 Operating profit (loss) (non-IFRS) 1,235 1,640 1,742 2,545 7,163 % change – yoy 3 4 6 8 6 % change constant currency – yoy 14 12 11 8 10 Profit (loss) after tax (IFRS) 708 718 972 1,691 4,088 Profit (loss) after tax (non-IFRS) 868 1,171 1,358 1,802 5,199 % change – yoy –2 5 12 –16 –3 Margins Cloud gross margin (IFRS, in %) 59.3 58.3 58.6 58.2 58.6 Cloud gross margin (non-IFRS, in %) 63.2 63.6 63.5 62.1 63.1 Software license and support gross margin (IFRS, in %) 85.7 85.8 86.0 88.3 86.6 Software license and support gross margin (non-IFRS, in %) 86.4 87.0 87.1 88.7 87.4 Cloud and software gross margin (IFRS, in %) 79.2 79.0 78.9 81.6 79.8 Cloud and software gross margin (non-IFRS, in %) 80.7 81.2 80.9 82.8 81.5 Gross margin (IFRS, in %) 68.5 68.6 68.3 72.9 69.8 Gross margin (non-IFRS, in %) 70.2 71.5 71.0 74.0 71.8 Operating margin (IFRS, in %) 19.5 17.4 20.5 32.3 23.1 Operating margin (non-IFRS, in %) 23.5 27.3 28.9 34.2 29.0 AT&S segment – Cloud gross margin (in %) 49.1 48.8 48.1 46.9 48.2 AT&S segment – Segment gross margin (in %) 71.2 72.6 72.4 75.2 73.1 AT&S segment – Segment margin (in %) 36.5 41.3 41.8 46.8 42.1 SAP Half-Year Report 2019 Q1 2019 1,555 1,581 48 41 650 650 4 1 2,838 2,838 7 4 3,489 3,489 6 3 5,044 5,070 16 12 6,091 6,118 16 12 72 72 –136 1,467 19 13 –108 1,080 25 61.2 66.2 84.6 85.7 77.4 79.6 66.5 69.5 –2.2 24.0 53.2 70.1 36.3 Q2 2019 1,692 1,717 40 35 948 948 –5 –6 2,854 2,854 4 2 3,802 3,802 2 0 5,495 5,520 11 8 6,631 6,656 11 8 69 69 827 1,816 11 8 582 1,317 12 62.6 67.9 86.0 87.1 78.8 81.1 68.2 71.4 12.5 27.3 55.9 72.5 42.3 43 € millions, unless otherwise stated ISG segment – Cloud gross margin (in %) Q1 2018 77.4 Q2 2018 77.4 Q3 2018 78.4 Q4 2018 78.0 TY 2018 77.8 Q1 2019 78.0 Q2 2019 78.2 ISG segment – Segment gross margin (in %) 68.7 69.3 69.1 69.2 69.1 69.2 69.7 ISG segment – Segment margin (in %) 16.7 20.3 23.0 20.4 20.2 21.6 19.6 CXM segment – Cloud gross margin (in %) 65.4 68.7 67.6 63.1 66.2 74.9 76.6 CXM segment – Segment gross margin (in %) 75.9 77.5 75.1 79.9 77.6 75.5 75.5 CXM segment – Segment margin (in %) –6.5 1.7 5.6 24.6 9.7 –2.3 –0.8 Key Profit Ratios Effective tax rate (IFRS, in %) 28.3 29.5 24.1 26.9 27.0 23.2 28.6 Effective tax rate (non-IFRS, in %) 27.6 27.5 24.0 26.7 26.3 26.1 27.0 Earnings per share, basic (IFRS, in €) 0.59 0.60 0.81 1.41 3.42 –0.10 0.48 Earnings per share, basic (non-IFRS, in €) 0.73 0.98 1.14 1.51 4.35 0.90 1.09 Order Entry New cloud and software order entry 1,346 2,332 2,221 4,533 10,432 1,579 2,404 % change – yoy 1 8 11 15 11 17 3 % change constant currency – yoy 10 12 12 18 14 13 1 New cloud bookings 245 421 411 736 1,814 324 494 % change – yoy 14 24 36 25 25 32 17 % change constant currency – yoy 25 29 37 23 28 26 15 Orders – number of cloud deals (in transactions) 2,376 3,032 3,375 6,055 14,839 2,956 3,609 Share of cloud orders greater than €5 million based on total cloud order entry volume (in %) Share of cloud orders smaller than €1 million based on total cloud order entry volume (in %) 20 39 32 31 28 35 33 28 30 32 26 39 26 33 Orders – number of on-premise software deals (in transactions) 13,549 14,538 13,794 16,649 58,530 12,229 12,522 Share of orders greater than €5 million based on total software order entry volume (in %) Share of orders smaller than €1 million based on total software order entry volume (in %) 18 50 29 41 22 42 35 33 29 39 28 42 28 36 Liquidity and Cash Flow Net cash flows from operating activities 2,578 407 499 819 4,303 2,802 –122 Capital expenditure –427 –391 –328 –312 –1,458 –359 –180 Payments of lease liabilities NA NA NA NA NA –78 –106 Free cash flow 2,151 16 171 506 2,844 2,365 –409 % of total revenue (IFRS) 41 0 3 7 12 39 –6 % of profit after tax (IFRS) 304 2 18 30 70 –2,198 –70 Group liquidity, gross 8,270 4,688 4,738 8,838 8,838 7,673 5,280 Group debt –7,723 –7,660 –7,521 –11,331 –11,331 –13,866 –13,833 Group liquidity, net 546 –2,972 –2,784 –2,493 –2,493 –6,193 –8,553 Days sales outstanding (DSO, in days)1) 68 68 68 70 70 69 70 Financial Position Cash and cash equivalents 7,598 4,516 4,507 8,627 8,627 7,332 5,168 Goodwill 20,856 23,406 23,523 23,736 23,736 29,108 28,801 Total assets 45,463 45,491 45,631 51,502 51,502 60,693 57,707 Contract liabilities (current) 5,046 4,867 3,600 3,028 3,028 6,068 5,558 Equity ratio (total equity in % of total assets) 56 57 59 56 56 48 48 Non-Financials Number of employees (quarter end)2) 91,120 93,846 94,989 96,498 96,498 98,659 98,332 Employee retention (in %, rolling 12 months) 94.4 94.3 94.1 93.9 93.9 93.8 93.5 Women in management (in %, quarter end) 25.6 25.8 25.9 25.7 25.7 26.0 26.2 Greenhouse gas emissions (in kilotons) 100 75 65 70 310 110 75 1) Days sales outstanding measures the average number of days from the raised invoice to cash receipt from the customer. We calculate DSO by dividing the average invoiced trade receivables balance of the last 12 months by the average monthly cash receipt of the last 12 months. 2) In full-time equivalents. Due to rounding, numbers may not add up precisely. 44 SAP Half-Year Report 2019 Reconciliation from Non-IFRS Numbers to IFRS Numbers – Half Year € millions, unless otherwise stated Q1–Q2 2019 Q1–Q2 2018 IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non- IFRS IFRS Non- IFRS Revenue Numbers Cloud 3,247 51 3,299 –138 3,161 2,283 16 2,299 42 43 Software licenses 1,599 0 1,599 –33 1,565 1,621 0 1,621 –1 –1 Software support 5,692 0 5,692 –143 5,549 5,391 0 5,391 6 6 Software licenses and support 7,291 0 7,291 –177 7,114 7,012 0 7,012 4 4 Cloud and software 10,538 51 10,589 –315 10,274 9,295 16 9,311 13 14 Services 2,184 0 2,184 –70 2,114 1,965 0 1,965 11 11 Total revenue 12,722 51 12,773 –385 12,389 11,260 16 11,276 13 13 Operating Expense Numbers Cost of cloud –1,237 151 –1,086 –941 100 –841 31 29 Cost of software licenses and support –1,069 79 –990 –1,001 71 –930 7 6 Cost of cloud and software –2,306 231 –2,075 –1,942 171 –1,771 19 17 Cost of services –1,845 146 –1,699 –1,600 86 –1,514 15 12 Total cost of revenue –4,151 377 –3,774 –3,542 257 –3,285 17 15 Gross profit 8,571 428 8,999 7,718 273 7,992 11 13 Research and development –2,114 257 –1,857 –1,761 127 –1,635 20 14 Sales and marketing –3,833 496 –3,337 –3,314 319 –2,995 16 11 General and administration –895 325 –570 –548 67 –481 63 19 Restructuring –1,085 1,085 0 –22 22 0 >100 NA Other operating income/expense, net 48 0 48 –5 0 –5 <–100 <–100 Total operating expenses –12,031 2,540 –9,490 267 –9,223 –9,192 791 –8,401 31 13 Profit Numbers Operating profit (loss) 691 2,592 3,283 –117 3,166 2,069 807 2,876 –67 14 Other non-operating income/expense, net –44 0 –44 –91 0 –91 –51 –51 Finance income 286 0 286 185 0 185 55 55 Finance costs –258 0 –258 –157 0 –157 64 64 Financial income, net 29 0 29 28 0 28 3 3 Profit (loss) before tax 675 2,592 3,267 2,006 807 2,813 –66 16 Income tax expense –201 –669 –870 –580 –194 –774 –65 12 Profit (loss) after tax 475 1,923 2,397 1,426 613 2,039 –67 18 Attributable to owners of parent 455 1,923 2,378 1,425 613 2,038 –68 17 Attributable to non-controlling interests 20 0 20 0 0 0 >100 >100 Key Ratios Operating margin (in %) 5.4 25.7 25.6 18.4 25.5 –12.9pp 0.2pp Effective tax rate (in %)2) 29.7 26.6 28.9 27.5 0.8pp –0.9pp Earnings per share, basic (in €) 0.38 1.99 1.19 1.71 –68 17 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. 2) The difference between our effective tax rate (IFRS) and effective tax rate (non-IFRS) in the first half of 2019 mainly results from tax effects of share-based payment expenses, restructuring expenses and acquisition-related charges. Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2019 ∆ in % Non-IFRS Constant Currency1) 37 –3 3 1 10 8 10 10 10 0.0pp 45 Non-IFRS Adjustments Actuals and Estimates – Half Year € millions Operating profit (loss) (IFRS) Revenue adjustments Adjustment for acquisition-related charges Adjustment for share-based payment expenses Adjustment for restructuring Operating expense adjustments Operating profit (loss) adjustments Operating profit (loss) (non-IFRS) Non-IFRS-Adjustments by Functional Areas – Half Year € millions Q1–Q2 2019 IFRS Acqui- sition- Related SBP1) Restruc- turing Non-IFRS Cost of cloud and software –2,306 150 81 0 –2,075 Cost of services –1,845 3 144 0 –1,699 Research and development –2,114 5 252 0 –1,857 Sales and marketing –3,833 169 327 0 –3,337 General and administration –895 14 311 0 –570 Restructuring –1,085 0 0 1,085 0 Other operating income/expense, net 48 0 0 0 48 Total operating expenses –12,031 341 1,114 1,085 –9,490 1) Share-based payments Due to rounding, numbers may not add up precisely. 46 Estimated Amounts for Full Year 2019 70–120 650–750 1,650–1,900 950–1,100 IFRS Acqui- sition- Related –1,942 126 –1,600 5 –1,761 3 –3,314 134 –548 10 –22 0 –5 0 –9,192 278 Q1–Q2 2019 Q1–Q2 2018 691 2,069 51 16 341 278 1,114 491 1,085 22 2,540 791 2,592 807 3,283 2,876 Q1–Q2 2018 SBP1) Restruc- turing Non- IFRS 46 0 –1,771 80 0 –1,514 123 0 –1,635 185 0 –2,995 57 0 –481 0 22 0 0 0 –5 491 22 –8,401 SAP Half-Year Report 2019 Revenue by Region (IFRS and Non-IFRS) – Half Year € millions Q1–Q2 2019 Q1–Q2 2018 IFRS Adj. Non- IFRS Currency Impact Non-IFRS Constant Currency IFRS Adj. Non-IFRS IFRS Cloud Revenue by Region EMEA 967 0 967 –15 952 671 0 671 44 Americas 1,868 51 1,919 –112 1,807 1,333 16 1,349 40 APJ 412 0 412 –12 401 280 0 280 48 Cloud revenue 3,247 51 3,299 –138 3,161 2,283 16 2,299 42 Cloud and Software Revenue by Region EMEA 4,629 0 4,629 –26 4,603 4,207 0 4,207 10 Americas 4,230 51 4,281 –247 4,034 3,586 16 3,602 18 APJ 1,680 0 1,680 –42 1,637 1,503 0 1,503 12 Cloud and software revenue 10,538 51 10,589 –315 10,274 9,295 16 9,311 13 Total Revenue by Region Germany 1,783 0 1,783 –1 1,782 1,617 0 1,617 10 Rest of EMEA 3,754 0 3,754 –28 3,726 3,445 0 3,445 9 Total EMEA 5,537 0 5,537 –30 5,507 5,062 0 5,062 9 United States 4,245 51 4,296 –272 4,024 3,573 16 3,589 19 Rest of Americas 957 0 957 –33 925 851 0 851 12 Total Americas 5,202 51 5,253 –305 4,949 4,424 16 4,440 18 Japan 526 0 526 –28 497 443 0 443 19 Rest of APJ 1,457 0 1,457 –22 1,435 1,331 0 1,331 9 Total APJ 1,983 0 1,983 –50 1,933 1,774 0 1,774 12 Total revenue 12,722 51 12,773 –385 12,389 11,260 16 11,276 13 1) Constant-currency period-over-period changes are calculated by comparing the current year's non-IFRS constant-currency numbers with the non-IFRS number of the previous year's respective period. Due to rounding, numbers may not add up precisely. SAP Half-Year Report 2019 Non- IFRS 44 42 48 43 10 19 12 14 10 9 9 20 12 18 19 9 12 13 ∆ in % Non-IFRS Constant Currency1) 42 34 43 37 9 12 9 10 10 8 9 12 9 11 12 8 9 10 47 General Information Forward-Looking Statements This half-year report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks, many of which are beyond our control. If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. We describe these risks and uncertainties in the Risk Management and Risks section, respectively in the there-mentioned sources. The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” ”future trends,” “guidance,” “intend,” “may,” ”might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, the Risk Management and Risks section, the Expected Developments and Opportunities section, and other forward-looking information appearing in other parts of this half-year financial report. To fully consider the factors that could affect our future financial results, both our Integrated Report 2018 and our Annual Report on Form 20-F for December 31, 2018, should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, which 48 speak only as of the date specified or the date of this report. We undertake no obligation to publicly update or revise any forward- looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law. This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including International Data Corporation (IDC), the European Central Bank (ECB), and the International Monetary Fund (IMF). This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Management and Risks section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data. All of the information in this report relates to the situation as at June 30, 2019, or the half year ended on that date unless otherwise stated. Non-IFRS Financial Information This half-year report contains non-IFRS measures as well as financial data prepared in accordance with IFRS. We present and discuss the reconciliation of these non-IFRS measures to the respective IFRS measures in the Supplementary Financial Information section. For more information about non-IFRS measures, see our Web site www.sap.com/investors/sap-non-ifrs- measures. SAP Half-Year Report 2019 Additional Information Financial Calendar October 21, 2019 Third-quarter 2019 earnings release, telephone conference November 12, 2019 Special Capital Markets Day, New York January 28, 2020 Fourth-quarter and full-year 2019 preliminary earnings release, telephone conference May 20, 2020 Annual General Meeting of Shareholders, Mannheim, Germany Investor Services Additional information about this half-year report is available online at www.sap.com/investors, including the official quarterly statement, a presentation about the quarterly results, and a recording of the conference call for financial analysts. The “Financial Reports” tab contains the following publications: – SAP Integrated Report (IFRS, PDF, www.sapintegratedreport.com) – SAP Annual Report on Form 20-F (IFRS, PDF) – SAP SE Statutory Financial Statements and Review of Operations (HGB, German only, PDF) – Half-Year Report (IFRS, PDF) – Quarterly Statements (IFRS, PDF) www.sap.com/investors is also the place to look for in-depth information about stock, debt, and corporate governance; financial and event news; and various services designed to help investors find the information they need fast (see "Investor Services”). These include an e-mail and text message news service, and a Twitter feed. For sustainability reasons and faster distribution, SAP decided to refrain from printing reports. Only a limited number of the Excerpt from the Integrated Report was printed for the Annual General Meeting of Shareholders. You can reach us by phone at +49 6227 7-67336, send a fax to +49 6227 7-40805, or e-mail us at investor@sap.com. 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Semestriel | 2,019 | Healthcare | SiemensHealthineers | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Healthcare
### Company:
SiemensHealthineers
### Response:
| Siemens Healthineers Half-Year Financial Report First half of fiscal year 2019 siemens-healthineers.com Table of contents A. Interim group management report B. Half-year consolidated financial statements C. Additional information Page 3 A.1 Results of operations Page 9 B.1 Consolidated statements of income Page 22 C.1 Responsibility statement Page 4 A.2 Asset position Page 10 B.2 Consolidated statements of comprehensive income Page 23 C.2 Review report Page 5 A.3 Financial position Page 11 B.3 Consolidated statements of Page 24 C.3 Notes and forward-looking financial position statements Page 7 Page 12 A.4 B.4 Consolidated statements of Outlook cash flows Page 8 Page 13 A.5 Risks and opportunities B.5 Consolidated statements of changes in equity Page 14 B.6 Notes to half-year consolidated financial statements Introduction Siemens Healthineers AG’s half-year financial report complies with the applicable legal requirements of the German Securities Trading Act (“Wertpapierhandelsgesetz”) and comprises condensed half-year consolidated financial statements, an interim group management report and a responsibility statement in accordance with section 115 of the German Securities Trading Act. The half-year financial report should be read in conjunction with the annual report for fiscal year 2018. 2 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Results of operations A. Interim group management report A.1 Results of operations A.1.1 Revenue by segments and regions (in millions of €) Siemens Healthineers Therein: 2019 6,807 First half 2018 6,425 Act. 6% % Change Comp.¹ 4% Total revenue as reported by Advanced Therapies increased by 4% to €747 million; on a comparable basis modest revenue growth after a strong first half of fiscal year 2018; very strong comparable revenue growth in Asia and Australia as well as in EMEA, partly offset by a decrease in the Americas Imaging 4,157 3,889 7% 5% Diagnostics 1,982 1,899 4% 3% Regions Advanced Therapies 747 720 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects 4% 2% Solid comparable revenue growth in EMEA supported by all segments, including very strong increase in Advanced Therapies, strong increase in Imaging and slight increase in Diagnostics Revenue by customer location (in millions of €) 2019 First half 2018 Act. % Change Comp.¹ Solid comparable revenue growth in Germany; strong increase in Imaging and solid increase in Advanced Therapies partly off- set by a decline in Diagnostics Europe, Commonwealth of Indepen- dent States, Africa, Middle East (EMEA) Therein: Germany Americas Therein: United States 2,174 422 2,729 2,314 2,098 408 2,512 2,104 4% 3% 9% 10% 4% 3% 4% 4% Moderate comparable revenue growth in the Americas, includ- ing the United States, in particular due to very strong develop- ment in Imaging; partly offset by slight growth in Diagnostics and a decline in Advanced Therapies Asia, Australia 1,903 1,815 5% 4% Therein: China 840 815 Siemens Healthineers 6,807 6,425 1 Year-over-year on a comparable basis, excluding currency translation and portfolio effects 3% 6% 3% 4% Solid comparable revenue growth in Asia and Australia, in par- ticular due to very strong development in Diagnostics and Advanced Therapies; slight comparable revenue growth in Imaging; China in particular showed significant comparable revenue growth in Diagnostics and Advanced Therapies Siemens Healthineers Revenue increased nominally by 6% to €6,807 million; compa- rable revenue up by 4% supported by all segments, led by strong growth in Imaging Currency translation effects lifted revenue growth by 2 per- centage points; portfolio transactions had a minimal effect on revenue development year-over-year Segments Total revenue as reported by Imaging increased by 7% to €4,157 million; on a comparable basis strong revenue growth, especially given the strong first half of fiscal year 2018, particu- larly in computed tomography and molecular imaging and due to very strong growth in the Americas Total revenue as reported by Diagnostics increased by 4% to €1,982 million; on a comparable basis moderate revenue growth supported by all regions, especially due to a very strong growth in Asia and Australia 3 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Results of operations A.1.2 Income Segments (in millions of €) Profit Therein: Imaging 2019 1,148 837 First half 2018 980 742 Profit generated by Imaging increased by 13%, mainly due to higher revenue and the cost savings program; slightly positive currency effects; profit margin adjusted for severance charges of €15 million (first half of fiscal year 2018: €14 million) at 20.5% Diagnostics 195 224 Advanced Therapies Severance charges (and IPO costs in fiscal year 2018) Profit adjusted for severance charges, in fiscal year 2018 additionally for IPO costs 143 24 1,172 137 126 1,107 Profit generated by Diagnostics decreased by 13%; mainly due to negative currency effects and higher ramp-up costs for Atellica Solution, partly driven by complex installations; profit margin adjusted for severance charges of €3 million (first half of fiscal year 2018: €10 million) at 10.0% Therein: Imaging Diagnostics Advanced Therapies Profit margin adjusted for severance charges, in fiscal year 2018 additionally for IPO costs 852 198 147 17.2% 756 234 139 17.2% Profit generated by Advanced Therapies increased by 4%; in- crease mainly driven by higher revenue and the cost savings program; slightly positive currency effects; profit margin ad- justed for severance charges of €4 million (first half of fiscal year 2018: €1 million) at 19.6% Imaging 20.5% 19.4% Diagnostics 10.0% 12.3% Reconciliation to consolidated financial statements Advanced Therapies 19.6% 19.3% Financing interest decreased due to implementation of post- Reconciliation to consolidated financial statements: IPO capital structure; held back by significant currency effects related to financing of business in Turkey; first half of fiscal year 2018 included a gain of €27 million due to the early re- demption of loans in the course of the legal separation of Siemens Healthineers (in millions of €) Profit Financing interest 2019 1,148 −84 First half 2018 980 −106 Income tax expenses increased by €82 million; the effective in- come tax rate increased from 23.7% to 27.4%, for further infor- mation please see Note 4 Income taxes in the notes to the half- year consolidated financial statements Amortization of intangible assets acquired in business combinations Income tax expenses Net income −65 −274 725 −64 −192 618 Based on the effects described above, net income increased to €725 million, resulting in a 18% increase in basic earnings per share Siemens Healthineers Profit increased by 17% to €1,148 million, mainly driven by vol- ume effects and supported by the cost savings program, af- fected by negative currency effects; prior year was additionally impacted by centrally booked expenses of €94 million related to the initial public offering (IPO) Research and development expenses increased by €20 million, or 3%, mainly due to negative currency translation effects Selling and general administrative expenses increased slightly by €7 million, or 1%, due to negative currency translation ef- fects; on a comparable basis expenses below prior year Profit margin adjusted for severance charges of €24 million with 17.2% on prior year level; profit margin of prior year was adjusted for severance charges of €33 million and IPO costs 4 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Asset position A.2 Asset position Non-current assets (in millions of €) Current assets Non-current assets Total assets Mar 31, 2019 6,672 12,964 19,636 Sept 30, 2018 7,199 12,559 19,758 Increase in property, plant and equipment of €228 million to €2,147 million mainly related to the additions of equipment leased to customers in Diagnostics as well as advances to sup- pliers and construction in progress, primarily driven by invest- ments in China and the United States in Diagnostics Goodwill increased by €189 million to €8,365 million due to currency translation effects Current assets Cash and cash equivalents increased by €258 million to €777 million as of March 31, 2019, mainly driven by a shift be- tween the line items receivables from Siemens Group and cash and cash equivalents resulting from cash management activi- ties In connection with financing of the operating business activi- ties through participation in the Siemens Group’s cash pooling and cash management, receivables from Siemens Group de- creased from €1,396 million to €148 million, mainly driven by the dividend payout and the described shift between the line items receivables from Siemens Group and cash and cash equivalents Increase in inventories by €292 million to €2,121 million result- ing mainly from the Atellica Solution ramp-up and to ensure deliveries to prevent production and supply bottlenecks 5 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Financial position A.3 Financial position A.3.1 Capital structure A.3.2 Cash flows Mar 31, Sept 30, First half (in millions of €) 2019 2018 (in millions of €) 2019 2018 Current liabilities 5,102 5,303 Cash flows from: Non-current liabilities 5,812 5,780 Operating activities 465 401 Equity 8,722 8,675 Investing activities −291 −441 Total liabilities and equity 19,636 19,758 Financing activities 71 57 Current liabilities Payables to Siemens Group declined from €639 million to (in millions of €) 2019 First half 2018 €445 million due to the repayment of cash pooling balances by cause of positive cash flows Operating activities Additions to intangible assets and property, plant and equipment 465 −285 401 −219 Other current liabilities decreased from €1,223 million to Free cash flow 179 183 €1,020 million mainly due to bonus payouts for the prior fiscal year Non-current liabilities Provisions for pensions and similar obligations increased by Operating activities €164 million to €1,008 million; for further information please see Note 6 Provisions for pensions and similar obligations in the notes to the half-year consolidated financial statements Cash flows from operating activities increased by €64 million to €465 million, driven by positive net income development and stable cash conversion from operating activities Other liabilities to Siemens Group decreased by €93 million to €3,909 million despite negative currency translation effects, due to redemption of long-term liabilities Offsetting effects from cash outflows related to operating leas- ing contracts to customers, which increased by €42 million to €159 million, driven mainly by Diagnostics, and from income taxes paid, which increased by €45 million to €239 million Equity For the purpose of dividend distribution, €390 million was Investing activities transferred from the free capital reserve to retained earnings Retained earnings decreased mainly due to dividend distribu- tion to shareholders of Siemens Healthineers AG in the second quarter of fiscal year 2019 in the amount of €699 million Cash outflows from investing activities decreased by €150 mil- lion to €291 million, due primarily to high cash outflows in the first half of fiscal year 2018 related to acquisition of EPOCAL INC. and FAST TRACK DIAGNOSTICS LUXEMBOURG S.à r.l For further information please see Note 7 Equity in the notes to the half-year consolidated financial statements In Diagnostics, capital expenditure increased in intangible as- sets driven by development of further products related to Atellica Solution; in property, plant and equipment by construc- tion in progress in China and the United States Credit facilities As part of the changes in receivables from and payables to Siemens Group, the revolving multi-currency credit line con- cluded with the Siemens Group was utilized in the amount of €0.4 billion Volume of investment activities of Imaging and Advanced Therapies remained unchanged 6 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Outlook Financing activities A.4 Outlook Cash flows from financing activities increased by €14 million to a cash inflow of €71 million Cash outflow of €45 million from the buyback of 1,205,012 shares at an average share price of €37.34 Cash outflow of €699 million related to dividends paid to the shareholders of Siemens Healthineers AG in the second quarter of fiscal year 2019 We confirm our guidance for fiscal year 2019 and continue to ex- pect comparable revenue growth to be in the range of 4% to 5% compared to fiscal year 2018. We expect our profit margin (ad- justed for severance charges) for fiscal year 2019 to be in the range of 17.5% to 18.5%. Earnings per share are expected to be 20% to 30% above the level of fiscal year 2018. The outlook as- sumes that current foreign exchange rates continue for the re- mainder of fiscal year 2019. Cash inflows from other transactions/financing with Siemens Group increased by €467 million to €853 million, in connection with the developments in current assets mentioned above In fiscal year 2019, we continue to expect comparable revenue growth in the Imaging segment to stay within our midterm target range of 4% to 6% and profit margin (adjusted for severance charges) to increase to a level within our midterm target range of 20% to 22%. For the Advanced Therapies segment in fiscal year 2019, we con- tinue to expect comparable revenue growth to reach our midterm target range of 4% to 6%, as in fiscal year 2018. We still expect a profit margin (adjusted for severance charges) at prior-year level, which is close to the midterm target of 20% to 22%. For the Diagnostics segment, we continue to expect fiscal year 2019 comparable revenue growth to increase compared to the prior year, but come in below the midterm target range of 4% to 6%. Due to changed Atellica Solution ramp-up dynamics we now expect a profit margin (adjusted for severance charges) below the prior-year level. 7 Siemens Healthineers Half-Year Financial Report 2019 Interim group management report – Risks and opportunities A.5 Risks and opportunities In our annual report for fiscal year 2018 we described certain risks which could have a material adverse effect on our business, asset and financial position, results of operations and reputation. In ad- dition we described our most significant opportunities as well as the design of our risk management system. During the reporting period, we identified no further significant risks and opportunities besides those presented in our annual re- port for fiscal year 2018 and in this half-year financial report. Within the most significant risks, mitigating measures in our pro- cesses have, in our estimation, slightly reduced the risk from in- creasing governmental protectionism in the reporting period. Nonetheless, the risk of considerable adverse effects remains high and we continue to observe developments in order to quickly identify changes and make adjustments where necessary. Thus the most significant risks include cybersecurity, changes in regula- tions, laws and policies, and risks from pension obligations. Additional risks and opportunities not known to us or that we cur- rently consider immaterial could also affect our business opera- tions. At present, no risks have been identified that in their known form either individually or in combination with other risks could endanger our ability to continue as a going concern. Please take note of C.3 Notes and forward-looking statements. 8 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Consolidated statements of income B. Half-year consolidated financial statements B.1 Consolidated statements of income First half (in millions of €, earnings per share in €) Note 2019 Revenue 6,807 Cost of sales −4,033 Gross profit 2,773 Research and development expenses −634 Selling and general administrative expenses −1,072 Other operating income 17 Other operating expenses 11 −10 Income from investments accounted for using the equity method, net 1 Interest income 11 13 Interest expenses 11 −76 Other financial income, net −13 Income before income taxes 999 Income tax expenses 4 −274 Net income 725 Thereof attributable to: Non-controlling interests 8 Shareholders of Siemens Healthineers AG 717 Basic earnings per share 5 0.72 Diluted earnings per share 5 0.72 9 First half 2018 6,425 −3,752 2,673 −614 −1,065 18 −101 4 31 −130 −6 809 −192 618 8 610 0.61 0.61 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Consolidated statements of comprehensive income B.2 Consolidated statements of comprehensive income (in millions of €) Net income Remeasurements of defined benefit plans 6 Therein: Income tax effects Other comprehensive income that will not be reclassified to profit or loss Currency translation differences Cash flow hedges 8 Therein: Income tax effects Other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income, net of taxes Comprehensive income Thereof attributable to: Non-controlling interests Shareholders of Siemens Healthineers AG 10 Note First half 2019 725 −119 48 −119 194 −25 12 169 50 775 8 767 First half 2018 618 −39 −35 −39 111 −1 110 71 689 5 684 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Consolidated statements of financial position B.3 Consolidated statements of financial position (in millions of €) Cash and cash equivalents Trade and other receivables Other current financial assets Receivables from Siemens Group Contract assets Inventories Current income tax assets Other current assets Assets classified as held for sale Total current assets Goodwill Other intangible assets Property, plant and equipment Investments accounted for using the equity method Other financial assets Deferred tax assets Other assets Total non-current assets Total assets Short-term debt and current maturities of long-term debt Trade payables Other current financial liabilities Payables to Siemens Group Contract liabilities Current provisions Current income tax liabilities Other current liabilities Total current liabilities Long-term debt Provisions for pensions and similar obligations Deferred tax liabilities Provisions Other financial liabilities Other liabilities Other liabilities to Siemens Group Total non-current liabilities Total liabilities Issued capital Capital reserve Retained earnings Other components of equity Total equity attributable to shareholders of Siemens Healthineers AG Non-controlling interests Total equity Total liabilities and equity 11 Note 8 8 8 8, 11 3 8 8 8 8 8, 11 8 6 8 8, 11 7 Mar 31, 2019 777 2,528 66 148 634 2,121 66 326 6 6,672 8,365 1,560 2,147 46 196 365 285 12,964 19,636 105 1,320 119 445 1,649 280 164 1,020 5,102 17 1,008 352 150 28 348 3,909 5,812 10,914 1,000 10,791 −2,693 −389 8,709 13 8,722 19,636 Sept 30, 2018 519 2,419 77 1,396 600 1,829 56 303 ‐ 7,199 8,176 1,571 1,919 38 174 394 287 12,559 19,758 57 1,278 82 639 1,524 295 206 1,223 5,303 17 845 348 157 26 386 4,002 5,780 11,083 1,000 11,174 −3,019 −500 8,656 20 8,675 19,758 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Consolidated statements of cash flows B.4 Consolidated statements of cash flows (in millions of €) Net income Adjustments to reconcile net income to cash flows from operating activities: Amortization, depreciation and impairments Income tax expenses Interest income/expenses, net Income related to investing activities Other non-cash income/expenses, net Change in operating net working capital Contract assets Inventories Trade and other receivables Trade payables Contract liabilities Change in other assets and liabilities Additions to assets leased to others in operating leases Income taxes paid Income taxes paid by Siemens Group on behalf of Siemens Healthineers Dividends received Interest received Cash flows from operating activities Additions to intangible assets and property, plant and equipment Purchase of investments and financial assets for investment purposes Acquisitions of businesses, net of cash acquired Disposal of investments, intangible assets and property, plant and equipment Disposal of businesses, net of cash disposed Cash flows from investing activities Purchase of treasury shares Change in short-term debt and other financing activities Interest paid Dividends paid to shareholders of Siemens Healthineers AG¹ Dividends paid to non-controlling interests Interest paid to Siemens Group Other transactions/financing with Siemens Group Cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 1 Dividends to Siemens Group in fiscal year 2018. 12 First half 2019 725 290 274 63 −3 13 −24 −228 −51 12 90 −309 −159 −239 1 11 465 −285 −3 −8 3 2 −291 −45 43 −2 −699 −15 −64 853 71 13 258 519 777 First half 2018 618 248 192 99 −3 38 −176 −251 108 31 71 −269 −117 −72 −122 1 6 401 −219 −227 4 −441 2 −3 −230 −9 −90 386 57 −5 12 184 196 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Consolidated statements of changes in equity B.5 Consolidated statements of changes in equity Other components of equity (in millions of €) Issued capital Capital reserve Retained earnings/ Net assets¹ Currency translation differences Equity instruments measured at fair value through other comprehen- sive income² Cash flow hedges Treasury shares at cost Total equity attributable to shareholders of Siemens Healthineers AG³ Balance as of October 1, 2017 4,045 −762 −2 3,281 Net income 610 610 Other comprehensive income, net of taxes −39 114 −1 74 Profit and loss transfer with Siemens Group −778 −778 Dividends −230 −230 Other changes in equity 4,833 4,833 Allocation of net assets according to legal structure 1,000 11,169 −12,169 Balance as of March 31, 2018 1,000 11,169 −3,728 −648 −3 7,790 Balance as of September 30, 2018 1,000 11,174 −3,019 −493 1 2 −10 8,656 Effect of retrospectively adopting IFRS 9, Financial Instruments 39 −35 4 Balance as of October 1, 2018 1,000 11,174 −2,980 −493 −34 2 −10 8,659 Net income 717 717 Other comprehensive income, net of taxes −119 194 −25 50 Dividends −699 −699 Share-based payment 7 −2 5 Purchase of treasury shares −45 −45 Reissuance of treasury shares 22 22 Other changes in equity −390 390 Balance as of March 31, 2019 1,000 10,791 −2,693 −299 −34 −23 −33 8,709 1 As of October 1, 2017, Siemens Healthineers was not a legally separable subgroup for which consolidated financial statements had to be prepared according to IFRS 10, Consolidated Financial Statements. Therefore, combined financial statements were prepared in which net assets attributable to Siemens Group were presented. 2 Available-for-sale financial assets in fiscal year 2018. 3 Siemens Group as of October 1, 2017. 13 Non- controlling interests 8 8 −3 −9 5 9 20 20 8 −15 13 Total equity 3,289 618 71 −778 −239 4,838 7,799 8,675 4 8,679 725 50 −714 5 −45 22 8,722 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements B.6 Notes to half-year consolidated financial statements Note 1 Basis of presentation ously existing hedging relationships also met the hedge account- ing requirements under IFRS 9. The condensed half-year consolidated financial statements as of March 31, 2019, present the operations of Siemens Healthineers AG and its subsidiaries (collectively, the “Group” or “Siemens Healthineers”). The half-year consolidated financial statements were prepared in accordance with International Financial Report- ing Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU), in particular in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The half-year con- solidated financial statements were prepared and published in millions of euros (€ million). The results achieved in the interim reporting period are not neces- sarily indicative of future results. For further information on inven- tories, on disaggregation of revenue and on segment information, see disclosures in the interim group management report. The half-year consolidated financial statements are unaudited. They were authorized for issue by the Managing Board of Siemens Healthineers AG on April 26, 2019. Note 2 Accounting policies The accounting policies applied for the preparation of the half- year consolidated financial statements are substantially consistent with those applied for the preparation of the consolidated finan- cial statements for fiscal year 2018, with the exception where ac- counting pronouncements have been applied for the first time in fiscal year 2019. Income tax expenses are determined in interim reporting periods on the basis of current estimated annual effec- tive tax rate of Siemens Healthineers for the overall year. Transition effects from the first-time adoption of IFRS 9 were rec- ognized cumulatively in equity as of October 1, 2018. Equity in- creased in total by €4 million. Thereby, retained earnings in- creased by €39 million whereas other components of equity de- creased by €35 million. Recent accounting pronouncements, not yet adopted In January 2016, the IASB issued IFRS 16, Leases. IFRS 16 elimi- nates the current classification model for lessee’s lease contracts as either operating or finance leases. Instead, IFRS 16 introduces a single lessee accounting model requiring lessees to recognize right-of-use assets and lease liabilities for leases with a term of more than twelve months. This brings the previous off-balance leases on the balance sheet in a manner largely comparable to current finance lease accounting. IFRS 16 is effective for fiscal years beginning on or after January 1, 2019. Siemens Healthi- neers will adopt the standard for the fiscal year beginning as of October 1, 2019, by applying the modified retrospective ap- proach, that is, comparative figures for the preceding year would not be adjusted. Currently, it is expected that the majority of the transition effect relates to real estate leased by Siemens Healthi- neers. The effects of adopting IFRS 16 on the consolidated finan- cial statements are currently evaluated. A balance sheet extension in a low single-digit percentage area is expected as of October 1, 2019, (opening balance). When IFRS 16 is applied, expenses for current operating leases will be no longer recognized on a straight-line basis. Instead, depreciation expenses for the right-of- use assets and interest expenses as well as repayment of the lease liabilities will be recognized. This results in a deterioration in cash flows from financing activities and an improvement in cash flows from operating activities. Siemens Healthineers is currently assess- ing further impacts of adopting IFRS 16 on the consolidated finan- cial statements. It is intended to apply the practical expedients permitted by IFRS 16 to a large extent. Recently adopted accounting pronouncements IFRS 9, Financial Instruments, was adopted for the first time as of October 1, 2018. IFRS 9 introduces a single approach for the clas- sification and measurement of financial assets, provides a new im- pairment model and includes new provisions regarding hedge ac- counting. IFRS 9 was applied retrospectively with the exception of the new hedge accounting rules. Comparative prior-year informa- tion was not restated and continues to be presented in accor- dance with IAS 39, Financial Instruments: Recognition and Mea- surement. The new regulations of IFRS 9 had only very limited impacts. IFRS 9 changed the classification of financial assets mainly regard- ing the available-for-sale financial assets in accordance with IAS 39. Available-for-sale financial assets in accordance with IAS 39 were reclassified and measured at fair value through profit or loss (carrying amount as of October 1, 2018: €13 million) or at fair value through other comprehensive income (carrying amount as of October 1, 2018: €40 million) in accordance with IFRS 9. The new impairment model did not have any material effect on the amount of valuation allowances on debt instruments. All previ- 14 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 3 Assets classified as held for sale Note 6 Provisions for pensions and similar obligations The line item assets classified as held for sale related to the sale of assets in conjunction with the activities of development, manufac- turing and maintenance of mobile X-ray systems and related logis- tics activities. The closing of the disposition took place as of April 1, 2019. Note 4 Income taxes Provisions for pensions and similar obligations increased by €164 million in the first half of fiscal year 2019 and amounted to €1,008 million as of March 31, 2019 (September 30, 2018: €845 million). The increase resulted mainly from an increase of the defined benefit obligation due to a decrease of the weighted- average discount rate from 2.9% as of September 30, 2018, to 2.4% as of March 31, 2019. This effect was partly offset by a posi- tive performance of plan assets. In the first half of fiscal year 2019, benefits from international pro- cedures on the avoidance of double taxation of €29.2 million were recognized. This reduced the tax rate for the first half of fis- cal year 2019 by 2.9 percentage points, resulting in a tax rate of 27.4%. The tax rate for the first half of fiscal year 2018 of 23.7% was positively influenced by U.S. tax reform and by adjustments of current taxes from prior fiscal years. Note 7 Equity In the first half of fiscal year 2019, Siemens Healthineers repur- chased 1,205,012 shares utilizing the authorization granted by the extraordinary Shareholders’ Meeting held on February 19, 2018, and transferred 584,698 treasury shares in conjunction with share-based payment plans. Note 5 Earnings per share The basis for the calculation of basic earnings per share was the weighted average number of outstanding shares of Siemens Healthineers AG amounting to 999,151,069 shares for the first half of fiscal year 2019 (for the first half of fiscal year 2018: 1,000,000,000 shares). When computing diluted earnings per share, additional shares from dilutive share-based payment plans were considered, amounting to 630,981 shares (first half of fiscal year 2018: 10,182 shares). In the first quarter of fiscal year 2019, the Managing Board de- cided in the course of the appropriation of income to withdraw €390 million from the free capital reserve of Siemens Healthineers AG and transfer this amount to retained earnings for the purpose of dividend distribution. In the second quarter of fiscal year 2019, a dividend of €0.70 per share was paid. 15 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 8 Financial instruments The following tables show the carrying amounts and measurement details of each category of financial assets and liabilities: Carrying amounts as of Mar 31, 2019 Category of fi- nancial assets and liabilities (IFRS 9)¹ Measured at amortized cost Measured at fair value Amounts according to IAS 17 Total (in millions of €) Level 1 Level 2 Level 3 Cash and cash equivalents AC 777 777 Trade receivables² AC 2,495 2,495 Receivables from finance leases³ n.a. 151 151 Receivables from Siemens Group AC 148 148 Other current and non-current financial assets² Derivatives designated as hedging instruments n.a. 4 4 Derivatives not designated as hedging instruments FVtPL 10 10 Equity instruments and fund shares measured at fair value through profit or loss FVtPL 9 7 16 Equity instruments measured at fair value through other com- prehensive income FVtOCI 41 41 Other AC 73 73 Total financial assets 3,493 23 48 151 3,715 Short-term and current maturities of long-term debt as well as long- term debt⁴ AC 96 96 Trade payables AC 1,320 1,320 Obligations under finance leases⁵ n.a. 26 26 Payables and other liabilities to Siemens Group AC 4,354 4,354 Other current and non-current financial liabilities Derivatives designated as hedging instruments n.a. 38 38 Derivatives not designated as hedging instruments FVtPL 21 21 Contingent consideration FVtPL 38 38 Other AC 51 51 Total financial liabilities 5,821 59 38 26 5,944 1 AC = Financial Assets/Liabilities at Amortized Cost; 3 Reported in the line items trade and other receivables as well as other financial assets. FVtPL = Financial Assets/Liabilities at Fair Value through Profit or Loss; FVtOCI = Financial Assets at Fair Value through Other Comprehensive Income; n.a. = not applicable. 4 Excluding separately disclosed obligations under finance leases. 5 Reported in the line items short-term debt and current maturities of long-term debt as well as long- 2 Excluding separately disclosed receivables from finance leases. term debt. 16 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Carrying amounts as of Sept 30, 2018 Category of fi- nancial assets and liabilities (IAS 39)¹ Measured at amortized cost Measured at fair value Amounts according to IAS 17 Total (in millions of €) Level 1 Level 2 Level 3 Cash and cash equivalents n.a. 519 519 Trade receivables² LaR 2,388 2,388 Receivables from finance leases³ n.a. 139 139 Receivables from Siemens Group LaR 1,396 1,396 Other current and non-current financial assets² Derivatives designated as hedging instruments n.a. 15 15 Derivatives not designated as hedging instruments FAHfT 12 12 Available-for-sale financial assets AfS 38 9 47 Other LaR 69 69 Total financial assets 4,410 9 27 139 4,585 Short-term and current maturities of long-term debt as well as long- term debt⁴ FLaC 48 48 Trade payables FLaC 1,278 1,278 Obligations under finance leases⁵ n.a. 25 25 Payables and other liabilities to Siemens Group FLaC 4,640 4,640 Other current and non-current financial liabilities Derivatives designated as hedging instruments n.a. 11 11 Derivatives not designated as hedging instruments FLHfT 13 13 Other FLaC 84 84 Total financial liabilities 6,051 24 25 6,100 1 LaR = Loans and Receivables; 2 Excluding separately disclosed receivables from finance leases. FAHfT = Financial Assets Held-for-Trading; AfS = Available-for-Sale Financial Assets; FLaC = Financial Liabilities Measured at Amortized Cost; FLHfT = Financial Liabilities Held-for-Trading; n.a. = not applicable. 3 Reported in the line items trade and other receivables as well as other financial assets. 4 Excluding separately disclosed obligations under finance leases. 5 Reported in the line items long-term debt as well as short-term debt and current maturities of long- term debt. The carrying amounts of the items cash and cash equivalents, short-term and current maturities of long-term debt, trade payables, payables to Siemens Group as well as other current fi- nancial assets and other current financial liabilities measured at amortized cost approximated their fair value due to the short-term maturities of these instruments. bilities to Siemens Group approximated their fair value as the in- terest rates approximated market interest rates. The carrying amounts of obligations under finance leases as well as other non-current financial liabilities measured at amortized cost approximated their fair value, which is determined by dis- counting future cash flows using market rates. Trade receivables, receivables from finance leases, receivables from Siemens Group and other non-current financial assets mea- sured at amortized cost were evaluated based on various parame- ters, such as interest rates, specific country risks and individual creditworthiness of the debtors. Based on this evaluation, al- lowances for these items were recognized. The carrying amounts of the relevant items net of allowances approximated their fair values. The determination of the fair values of derivatives depended on the specific type of instrument. The fair values of forward ex- change contracts were based on forward exchange rates. Options were generally valued based on quoted market prices or based on option pricing models. In determining the fair values of deriva- tives, no compensating effects from underlying transactions were taken into consideration. The carrying amount of other liabilities to Siemens Group which related to U.S. dollar denominated long-term loans was €3,810 million as of March 31, 2019 (September 30, 2018: €3,698 million). The corresponding fair value, which is based on prices provided by price service agencies (level 2), amounted to €3,603 million as of March 31, 2019 (September 30, 2018: €3,358 million). The carrying amounts of the remaining other lia- Equity instruments measured at fair value through profit or loss and through other comprehensive income, respectively, are not publicly listed. Therefore, the fair values were generally derived from a discounted cash flow valuation (level 3). Expected cash flows are subject to future market and business developments as well as price volatility. The discount rates applied take into ac- count respective risk-adjusted capital costs. 17 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements The fair values of contingent purchase price liabilities were de- rived from probability-weighted future payments which mainly depend on the achievement of technical and commercial mile- stones as well as on the achievement of sales targets (level 3). The following table shows the composition of Siemens Healthi- neers’ debt: Mar 31, (in millions of €) 2019 Sept 30, 2018 Note 9 Share-based payment In the first half of fiscal year 2019, under the Share Matching pro- gram, members of senior management and other employees were again offered participation in the share matching plan, the monthly investment plan and the base share program. Whereas the plans of the previous fiscal year entitled the beneficiary to receive Siemens AG shares, the plans in the first half of fiscal year 2019 entitled the beneficiary for the first time to receive Siemens Healthineers AG shares. In the first half of fiscal year 2019, 143,487 shares were granted under the share matching plan and the base share program. Short-term debt and current maturities of long-term debt 105 57 Thereof: Loans from banks 96 48 Obligations under finance leases 9 9 Payables to Siemens Group from financing activities 439 632 Total current debt 544 689 Long-term debt 17 17 Thereof: Obligations under finance leases 17 17 Other liabilities to Siemens Group from financing activities 3,909 4,002 Total non-current debt 3,926 4,019 Total debt 4,470 4,707 18 Note 10 Segment information (in millions of €) Imaging Diagnostics Advanced Therapies Total segments Reconciliation to consolidated financial statements Siemens Healthineers 1 Siemens Healthineers: Income before income taxes. External revenue 2019 First half 2018 4,016 3,758 1,982 1,899 745 711 6,742 6,368 64 57 6,807 6,425 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Intersegment revenue Total revenue Profit¹ Assets 2019 First half 2018 2019 First half 2018 2019 First half 2018 Mar 31, 2019 Sept 30, 2018 142 132 4,157 3,889 837 742 6,679 6,258 ‐ ‐ 1,982 1,899 195 224 5,184 4,676 2 9 747 720 143 137 969 904 144 140 6,886 6,508 1,175 1,103 12,831 11,838 −144 −140 −80 −83 −175 −294 6,804 7,920 ‐ ‐ 6,807 6,425 999 809 19,636 19,758 19 Free cash flow 2019 First half 2018 555 504 −150 −108 97 108 502 504 −322 −322 179 183 Additions to other intangible assets and property, plant and equipment 2019 First half 2018 64 61 314 321 10 5 388 386 67 66 456 452 Amortization, deprecia- tion and impairments 2019 First half 2018 71 64 114 92 6 4 192 160 98 88 290 248 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Accounting policies for segment information are generally the same as those described in the annual report for fiscal year 2018. Assets Revenue (in millions of €) Total segments' assets Siemens Healthineers’ revenue included revenue from contracts with customers and revenue from lease contracts. In the first half of fiscal year 2019, revenue from lease contracts amounted to €96 million (first half of fiscal year 2018: €70 million). Asset-based adjustments Therein: Assets corporate treasury Assets Siemens Healthineers Real Estate For each of the segments, revenue mainly results from perfor- mance obligations satisfied at a point in time, especially in the case of the sale of products, including consumables and reagents in the Diagnostics segment. However, the performance obliga- tions related to maintenance contracts for products sold are gen- erally satisfied over time with revenue recognized on a straight- line basis. Receivables from Siemens Group from financing activities Current income tax assets and deferred tax assets Liability-based adjustments Total reconciliation to consolidated financial statements Siemens Healthineers' total assets Profit Free cash flow First half (in millions of €) 2019 2018 (in millions of €) Total segments‘ profit 1,175 1,103 Total segments‘ free cash flow Financing interest −84 −106 Tax-related cash flows Centrally carried pension service and administration expenses −6 −15 Corporate items and other Amortization of intangible assets acquired in busi- ness combinations −65 −64 Total reconciliation to consolidated financial statements Siemens Healthineers’ free cash flow Corporate items −22 −110 Corporate treasury, Siemens Healthineers Real Es- tate, eliminations and other items 1 1 Total reconciliation to consolidated financial statements −175 −294 Siemens Healthineers’ income before income taxes 999 809 20 Mar 31, 2019 12,831 1,885 836 595 140 431 4,920 6,804 19,636 2019 502 −239 −84 −322 179 Sept 30, 2018 11,838 2,943 586 611 1,391 450 4,977 7,920 19,758 First half 2018 504 −195 −127 −322 183 Siemens Healthineers Half-Year Financial Report 2019 Half-year consolidated financial statements – Notes to half-year consolidated financial statements Note 11 Related party transactions Siemens Healthineers maintained business relations with Siemens AG and its subsidiaries (collectively, the “Siemens Group”). Receivables from and payables to Siemens Group The receivables from and payables to Siemens Group were as fol- lows: Transactions with the Siemens Group Sales of goods and services and other income as well as purchases of goods and services and other expenses from transactions with the Siemens Group in the first half of fiscal years 2019 and 2018 were as follows: (in millions of €) Siemens AG Receivables Mar 31, 2019 Sept 30, Mar 31, 2019 2018 3 1,026 514 Payables Sept 30, 2018 869 Other companies of the Siemens Group 146 371 3,840 3,771 Sales of goods and services and other income Purchases of goods and services and other expenses Total 148 1,396 4,354 4,640 (in millions of €) 2019 First half 2018 2019 First half 2018 Siemens AG Other companies of the Siemens Group Total 3 130 133 4 145 149 119 110 229 206 133 339 In connection with financing of operating activities through par- ticipation in the Siemens Group’s cash pooling and cash manage- ment, receivables from Siemens Group decreased in the first half of fiscal year 2019. This development was caused mainly by the dividend payout and a shift between the line items receivables from Siemens Group and cash and cash equivalents resulting from cash management activities. Payables to Siemens AG decreased due to the repayment of loans. Siemens Healthineers received in the first half of fiscal year 2019 support from the Siemens Group for central corporate services resulting in expenses of €168 million (first half of fiscal year 2018: €259 million). In the context of the initial public offering (IPO) ser- vices amounting to €92 million were provided by the Siemens Group in the first half of fiscal year 2018. The IPO-related ex- penses are included in the line item other operating expenses of the consolidated statement of income. In the first half of fiscal year 2019, interest expenses from financ- ing arrangements with the Siemens Group amounted to €68 mil- lion (first half of fiscal year 2018: €113 million). The decrease was due primarily to the early partial redemption of loans in the course of the legal separation of Siemens Healthineers. In the first half of fiscal year 2018, the early redemption resulted in interest income in the amount of €27 million. 21 Siemens Healthineers Half-Year Financial Report 2019 Additional information – Responsibility statement C. Additional information C.1 Responsibility statement To the best of our knowledge, and in accordance with the applica- ble reporting principles for half-year financial reporting, the half- year consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the mate- rial opportunities and risks associated with the expected develop- ment of the Group for the remaining months of the financial year. Munich, April 26, 2019 Siemens Healthineers AG The Managing Board Dr. Bernhard Montag Dr. Jochen Schmitz Michael Reitermann 22 Siemens Healthineers Half-Year Financial Report 2019 Additional information – Review report C.2 Review report To Siemens Healthineers AG, Munich We have reviewed the half-year consolidated financial statements comprising the consolidated statements of income, comprehen- sive income, financial position, cash flows and changes in equity, and notes to half-year consolidated financial statements, and the interim group management report, of Siemens Healthineers AG, Munich for the period from October 1, 2018 to March 31, 2019 which are part of the half-year financial report pursuant to Sec. 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the half-year consolidated finan- cial statements in accordance with IFRS applicable to interim fi- nancial reporting as issued by the IASB and as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group man- agement reports is the responsibility of the Company’s manage- ment. Our responsibility is to issue a report on the half-year con- solidated financial statements and the interim group management report based on our review. Based on our review nothing has come to our attention that causes us to believe that the half-year consolidated financial state- ments are not prepared, in all material respects, in accordance with IFRS applicable to interim financial reporting as issued by the IASB and as adopted by the EU or that the interim group manage- ment report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group man- agement reports. Munich, April 26, 2019 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft We conducted our review of the half-year consolidated financial statements and the interim group management report in accor- dance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaft- sprüfer (IDW - Institute of Public Auditors in Germany) and in sup- plementary compliance with International Standard on Review En- gagements 2410, “Review of Interim Financial Information Per- formed by the Independent Auditor of the Entity”. Those stan- dards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assur- ance, that the half-year consolidated financial statements are not prepared, in all material respects, in accordance with IFRS applica- ble to interim financial reporting as issued by the IASB and as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the re- quirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of com- pany personnel and applying analytical procedures and thus does not provide the assurance that we would obtain from an audit of financial statements. In accordance with our engagement, we have not performed a financial statement audit and, accordingly, we do not express an audit opinion. Spannagl Wirtschaftsprüfer [German Public Auditor] Tropschug Wirtschaftsprüferin [German Public Auditor] 23 Siemens Healthineers Half-Year Financial Report 2019 Additional information – Notes and forward-looking statements C.3 Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments in- volving Siemens Healthineers that may constitute forward-looking statements. These statements may be identified by words such as “expect”, “forecast”, “anticipate”, “intend”, “plan”, “believe”, “seek”, “estimate”, “will”, “target” or words of similar meaning. We may also make forward-looking statements in other reports, in presen- tations, in material delivered to shareholders and in press re- leases. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations and certain assumptions of Siemens Healthineers’ management, of which many are beyond Siemens Healthineers’ control. As they relate to future events or develop- ments, these statements are subject to a number of risks, uncer- tainties and factors, including but not limited to those described in the respective disclosures. Should one or more of these risks, un- certainties or factors materialize, or should underlying expecta- tions not occur or assumptions prove incorrect, actual results, per- formance or achievements of Siemens Healthineers may (nega- tively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement. All for- ward-looking statements only speak as of the date when they were made and Siemens Healthineers neither intends nor as- sumes any obligation, unless required by law, to update or revise these forward-looking statements in light of developments which differ from those anticipated. This document includes – in the applicable financial reporting framework not clearly defined – supplemental financial measures that are or may be alternative performance measures (non-GAAP measures). These supplemental financial measures may have limi- tations as analytical tools and should not be viewed in isolation or as alternatives to measures of Siemens Healthineers’ net assets and financial positions or results of operations as presented in ac- cordance with the applicable financial reporting framework in its half-year consolidated financial statements and consolidated fi- nancial statements. Other companies that report or describe simi- larly titled alternative performance measures may calculate them differently, which may therefore not be comparable. Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures to which they refer. This document is an English language translation of the German document. In case of discrepancies, the German language docu- ment is the sole authoritative and universally valid version. For technical reasons, there may be differences in formatting be- tween this document and those published pursuant to legal re- quirements. Internet: siemens-healthineers.com Press: siemens-healthineers.com/press-room Investor Relations: corporate.siemens-healthineers.com/investor-relations Siemens Healthineers AG Henkestr. 127 91052 Erlangen, Germany Phone: +49 9131 84-0 siemens-healthineers.com © Siemens Healthineers AG, 2019 24 | Semestriel, 2019, Healthcare, SiemensHealthineers | write me a financial report |
Semestriel | 2,023 | Energy | TaqaMorocco | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TaqaMorocco
### Response:
| RAPPORT FINANCIER SEMESTRIEL 2023 TOUTE NOTRE ÉNERGIE POUR FAIRE BRILLER LE MAROC DE DEMAIN sommaire 04 Présentation de TAQA Morocco 04 Activité de la société durant le semestre écoulé 04 Évènements importants survenus depuis la date de clôture du semestre écoulé 05 Présentation des comptes semestriels 10 Comptes consolidés au 30 juin 2023 17 Comptes sociaux au 30 juin 2023 29 Liste des communiqués de presse 2 - TAQA MOROCCO - Rapport Financier Semestriel 2023 RÉSULTATS FINANCIERS AU 30 JUIN 2023 3 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 Présentation de TAQA MOROCCO TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. Une infrastructure industrielle de 6 Unités totalisant 2056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques à charbon de tailles équivalentes. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco fait partie du Groupe TAQA, opérateur énergétique au maillage mondial. TAQA Morocco contribue pour plus de 38% de la production nationale d’électricité avec uniquement 18% de la capacité installée du Royaume du Maroc et se positionne en opérateur énergétique de référence au Maroc en matière de savoir-faire et d’expertise métier. Un avantage compétitif pour se développer sur le mix énergétique. Acteur responsable, la RSE fait partie intégrante de l’ADN de TAQA Morocco. L’entreprise mène une politique active en matière d’engagement social et de développement durable que ce soit au niveau de la gestion responsable de ces Unités de production en matière de standards environnementaux, que sur le plan des actions citoyennes. Le Complexe thermique de Jorf Lasfar a non seulement anticipé les choix technologiques de ses équipements mais surtout mis en place un programme de gestion globale de l’environnement comprenant toute la chaîne de valeur depuis la qualité de sa matière première combustible jusqu’à la gestion de ses coproduits. Un modèle d’exploitation et d’écologie industrielle certifié selon la norme ISO 14001 depuis 2004. Activité de la société durant la période écoulée CONJONCTURE ÉCONOMIQUE Évolution de la parité USD/MAD La parité moyenne USD/MAD a connu une hausse de 9%, passant de 9,72 au 30 juin 2022 à 10,17 au 30 juin 2023. Évolution des prix du charbon Le cours d’achat moyen du charbon a enregistré une hausse, passant de $ 152,6 /tonne métrique au 30 juin 2022 à $ 155,7 /tonne métrique au 30 juin 2023, suite à l’évolution à la hausse des prix du charbon sur le marché international. ACTIVITÉ DE LA SOCIÉTÉ L’activité de la Centrale a été marquée par les principaux faits suivants : 5 Le niveau de disponibilité annuel global des Unités 1 à 6 de la Centrale a atteint au 30 juin 2023 un pourcentage de 94,9% contre 92,7% au 30 juin 2022 ; 5 La réalisation de la révision mineure planifiée de l’Unité 5 de 25 jours au cours du premier semestre 2023 en conformité avec le plan de maintenance. Évènements importants survenus depuis la date de clôture de la période écoulée Rien à signaler. 4 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 Présentation des comptes semestriels COMPTES SOCIAUX Compte de produits et charges En Mdh Frais de puissance Frais d'énergie Autres revenus juin-23 911 2 988 145 juin-22 906 2 475 137 Var. 23/22 Var. 23/22 en % 5 512 9 Chiffre d'Affaires Achats consommés de matières et fournitures Autres charges externes 4 044 3 160 98 3 518 2 645 83 526 515 14 14,9% Valeur Ajoutée Impôts et taxes Charges de personnel 786 24 103 790 23 104 4 0 -1 0,4% Excédent Brut d'Exploitation Autres produits d'exploitation Reprise d'exploitation, transfert de charges Autres charges d'exploitation Dotations d'exploitation 659 0 0 4 168 662 1 21 4 181 3 -1 -21 0 -13 0,5% Résultat d’exploitation 487 499 12 2,4% Produits financiers Gains de change Intérêts et autres produits financiers Reprises financières, transfert de charges 41 22 18 1 19 9 5 4 22 12 13 -3 Charges financières Charges d'intérêts Pertes de change Dotations financières 173 84 89 0 102 84 2 17 71 0 87 -17 Résultat financier Résultat courant Produits non courants Charges non courantes Résultat non courant Résultat avant impôt Impôt sur les sociétés Résultat net 132 355 0 46 -46 310 112 198 84 415 0 39 -39 376 136 240 48 -60 0 7 -6 -66 -24 -42 56,4% -14,4% -100,0% 18,1% 16,6% -17,6% 17,4% a) Analyse du résultat d’exploitation Au 30 juin 2023, le chiffre d’affaires s’élève à MMAD 4 044 contre MMAD 3 518 au 30 juin 2022. Cette évolution s’analyse comme suit : b Hausse des frais de puissance de 0,5% par rapport au 30 juin 2022 principalement expliquée par la bonne performance des Unités 1-4 tenant compte du plan de maintenance. b Augmentation des frais d’énergie de 20,7%, essentiellement due à l’évolution à la hausse du prix du charbon sur le marché international. Le résultat d’exploitation a enregistré une baisse de -2,4% par rapport au 30 juin 2022 principalement expliquée par l’évolution de l’indice de référence international du prix du charbon. 5 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 b) Analyse du résultat financier Au 30 juin 2023, le résultat financier s’élève à MMAD -132 contre MMAD -84 au 30 juin 2022. Cette évolution s’explique principalement par : b La baisse du résultat de change de MMAD 61, suite à l’évolution des cours de change USD/MAD et EUR/MAD, b La hausse des produits d’intérêts sur le placement des excédents de trésorerie de MMAD 13. c) Analyse du résultat non courant Le résultat non courant s’élève à MMAD -46 au 30 juin 2023 et comprend essentiellement la Contribution Sociale de Solidarité (CSS). Bilan En Mdh 2023 2022 Var 23/22 Var 23/22 en % ACTIF Actif immobilisé Immobilisations en non valeurs Immobilisations incorporelles Immobilisations corporelles Immobilisations financières 5 713 23 4 245 243 1 202 5 861 7 4 398 255 1 201 148 16 -153 -12 1 3% 100% -3% -5% 0% Actif circulant Stocks Créances de l’actif circulant Écarts de conversion - Actif Trésorerie - Actif Banques, TG et CP Titres et valeurs de placement 4 516 1 382 3 117 17 1 157 871 286 4 920 1 546 3 361 14 1 175 768 407 404 -163 -244 3 -18 103 -121 8% -11% -7% 24% -2% 13% -30% Total ACTIF 11 386 11 956 570 4,8% PASSIF Financement permanent Capitaux propres Dettes de financement Provisions durables pour risques et charges Dettes du passif circulant 7 551 4 096 3 428 28 3 786 8 304 4 723 3 554 28 2 960 754 -627 -126 0 825 9% -13% -4% 0% 28% Autres provisions pour risques et charges 3 4 1 28% Écarts de conversion - Passif (éléments circulants) 47 58 11 18% Trésorerie - Passif 0 630 630 100% Total PASSIF 11 386 11 956 570 4,8% 6 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 Le total bilan enregistre une baisse de -4,8 % qui s’analyse comme suit : b Baisse de l’actif immobilisé de MMAD 148 qui s’explique principalement par les dotations aux amortissements de la période pour MMAD 154 ; b Baisse de l’actif circulant de de MMAD 404 qui s’explique principalement par : b La baisse des créances clients pour un montant de MMAD 244 liée essentiellement à l’évolution des frais d’énergie suite à l’évolution des prix du charbon sur le marché international ; b La baisse des comptes de stock pour MMAD 163 (essentiellement le stock de charbon de MMAD 187 suite à un effet prix pour MMAD 209 compensé par un effet quantité pour MMAD 22) ; b Hausse de la trésorerie nette de MMAD 612 du fait de la baisse du fonds de roulement de MMAD 605 et la baisse du besoin en fonds de roulement de MMAD 1 218. Les principales variations enregistrées au niveau du bilan passif sont analysées ci-dessous : b Baisse des capitaux propres de MMAD 627 qui résulte de la constatation du résultat net au 30 juin 2023 pour un montant de MMAD 198 et des dividendes à distribuer au titre de l’exercice 2022 pour MMAD 826; b Baisse des dettes de financement de MMAD 126 qui s’explique par les remboursements de la période; b Hausse des dettes du passif circulant de MMAD 825 qui s’explique essentiellement par les dividendes à distribuer par TAQA Morocco pour MMAD 826. COMPTES CONSOLIDÉS Compte de produits et charges consolidé En Mdh Frais de puissance Frais d'énergie Autres revenus Chiffre d'affaires net Autres produits d'exploitation Reprises d'exploitation et transferts de charges Total produits d'exploitation Achats et autres charges externes Impôts et taxes Charges de personnel Autres charges d'exploitation Dotations aux amortissement et provisions Total charges d'exploitation Résultat d'exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices Résultat net consolidé dont Résultat net - Part du Groupe dont Intérêts minoritaires juin-23 2 171 5 019 258 7 448 0 0 7 448 5 499 24 141 4 402 6 070 1 379 -291 1 088 -103 985 379 606 458 147 juin-22 2 150 3 535 222 5 906 3 21 5 931 3 878 23 143 4 413 4 461 1 470 -205 1 264 -85 1 179 388 791 605 186 Var. 23/22 Var. 23/22 en % 1,0% 42,0% 16,3% 26,1% -96,0% -100,0% 25,6% 41,8% 2,6% -1,1% 100,0% -2,8% 36,1% -6,2% 41,5% -13,9% 21,3% -16,5% -2,4% -23,4% -24,3% -20,5% 22 1 484 36 1 542 -3 -21 1 518 1 621 1 -2 0 -11 1 609 -91 -85 -176 -18 -194 -9 -185 -147 -38 7 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 Le chiffre d’affaires consolidé s’élève au 30 juin 2023 à MMAD 7 448, contre MMAD 5 906 au 30 juin 2022, cette variation s’explique principalement par: b La bonne performance opérationnelle des Unités 1 à 6, tenant compte du plan de maintenance, b La réalisation de la révision majeure planifiée de l’Unité 5 de 25 jours au cours du premier trimestre 2023 en conformité avec le plan de maintenance, b L’augmentation des frais d’énergie de 42% consécutive à l’évolution du prix d’achat du charbon sur le marché international. Le résultat d’exploitation consolidé s’élève à MMAD 1 379 au 30 juin 2023 contre MMAD 1 470 au 30 juin 2022. Cette évolution est expliquée principalement par l’évolution de l’indice de référence international du prix du charbon. Le taux de marge opérationnelle s’établit à 18,5% au 30 juin 2023 contre 24,9% au 30 juin 2022. Le résultat financier a connu une dégradation de MMAD -85, passant de MMAD -205 au 30 juin 2022 à MMAD -291 au 30 juin 2023, expliquée essentiellement par la baisse du résultat de change consécutive à l’évolution des cours de change USD/MAD et EUR/MAD. Le taux de marge nette consolidé s’élève ainsi à 8,1% au 30 juin 2023 contre 13,4% au 30 juin 2022. Le résultat net part du Groupe s’élève ainsi à MMAD 458 au 30 juin 2023 contre MMAD 605 au 30 juin 2022. Bilan consolidé En MMAD juin-23 déc-22 Var. 23/22 Var. 23/22 en % ACTIF Actif immobilisé Immobilisations incorporelles Immobilisations corporelles Immobilisations financières Écart de conversion actif Actif circulant Stocks et en-cours Créances d'exploitation Créances diverses Trésorerie - actif dont titres et valeurs de placement Total ACTIF PASSIF Financement permanent Capitaux propres consolidés Capital Réserves consolidées Résultat net Part du Groupe Capitaux propres Part du Groupe Intérêts minoritaires Provisions pour risques et charges Dettes de financement Écart de conversion passif Passif circulant Dettes d'exploitation Autres dettes Trésorerie passif Total PASSIF 13 013 4 532 8 087 1 393 6 997 2 583 2 825 1 589 2 196 793 22 206 15 845 7 333 2 359 3 041 458 5 858 1 475 28 8 471 14 6 361 3 190 3 171 0 22 206 13 577 4 712 8 286 1 578 6 558 2 606 2 884 1 068 2 399 1 124 22 534 16 752 7 553 2 359 2 564 1 303 6 226 1 327 28 9 090 81 4 907 2 964 1 944 875 22 534 565 -181 -199 0 -185 439 -23 -59 522 -203 -331 -328 907 -220 0 477 -845 -368 147 0 -620 -67 1 454 226 1 228 -875 -328 4,2% -3,8% -2,4% -2,1% -32,0% 6,7% -0,9% -2,1% 48,9% -8,5% -29,5% -1,5% 5,4% -2,9% 0,0% 18,6% -64,8% -5,9% 11,1% 0,0% -6,8% -83,0% 29,6% 7,6% 63,2% 0,0% -1,5% 8 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Résultats financiers au 30 juin 2023 Les principales variations des agrégats consolidés sont présentées ci-après : b Baisse de l’actif immobilisé consolidé de MMAD 565 qui s’explique essentiellement par les investissements de la période pour MMAD 9, par la diminution de l’écart de conversion actif pour MMAD 187 ainsi que les dotations aux amortissements constatées au 30 juin 2023 pour MMAD 389 ; b Hausse des créances de l’actif circulant de MMAD 439, principalement due à la hausse enregistrée au niveau des créances diverses pour MMAD 522 imputable à la hausse de la créance d’IS et du crédit de TVA compensée par la baisse des créances d’exploitation pour MMAD 59 consécutive à la baisse du prix du charbon sur le marché international ; b Hausse de la trésorerie nette de MMAD 672 qui s’explique par la hausse du fonds de roulement consolidé de MMAD 342 conjuguée à la baisse du besoin en fonds de roulement consolidé pour un montant de MMAD 1 015 ; b Baisse des capitaux propres consolidés part du groupe de MMAD 368 qui s’explique essentiellement par la constatation du résultat net part du Groupe au 30 juin 2023 pour MMAD 458 ainsi que par les dividendes à distribuer par TAQA Morocco pour MMAD 826; b Baisse des dettes de financement de MMAD 620 qui s’explique principalement par les remboursements de la période. 9 - TAQA MOROCCO - Rapport Financier Semestriel 2023 COMPTES SEMESTRIELS CONSOLIDÉS AU 30 JUIN 2023 b Comptes consolidés b Rapports des Commissaires aux Comptes 10 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels consolidés au 30 juin 2023 BILAN ACTIF (en milliers de dirhams) ACTIF Immobilisations incorporelles Immobilisations corporelles Immobilisations financières Écarts de conversion - Actif ACTIF IMMOBILISÉ Stocks et en-cours Créances d’exploitation Créances diverses Titres et valeurs de placement Écarts de conversion - Actif Trésorerie actif ACTIF CIRCULANT TOTAL ACTIF BILAN PASSIF (en milliers de dirhams) PASSIF . Capital . Prime d'émission . Réserves consolidées . Résultat net Part du Groupe . Capitaux propres Part du Groupe . Intérêts minoritaires CAPITAUX PROPRES CONSOLIDÉS Provisions pour risques et charges Dettes de financement Écarts de conversion - Passif . Dettes d’exploitation . Autres dettes PASSIF CIRCULANT Trésorerie passif DETTES ET TRÉSORERIE PASSIF TOTAL PASSIF 11 - TAQA MOROCCO - Rapport Financier Semestriel 2023 30/06/2023 4 531 509 8 087 208 682 393 418 13 012 817 2 582 760 2 824 766 1 559 394 792 601 30 099 1 403 848 9 193 468 22 206 285 30/06/2023 2 358 854 1 164 805 1 876 630 458 069 5 858 358 1 474 791 7 333 149 27 539 8 470 619 13 783 8 511 941 3 189 866 3 171 329 6 361 195 14 873 136 22 206 285 31/12/2022 4 712 103 8 286 350 697 578 280 13 577 430 2 606 143 2 884 008 1 003 537 1 123 552 64 103 1 275 692 8 957 035 22 534 465 31/12/2022 2 358 854 1 164 805 1 399 515 1 302 719 6 225 893 1 327 324 7 553 216 27 539 9 090 168 81 160 9 198 867 2 963 874 1 943 508 4 907 382 875 000 14 981 249 22 534 465 Comptes semestriels consolidés au 30 juin 2023 COMPTE DE PRODUITS ET CHARGES CONSOLIDÉS (en milliers de dirhams) Chiffre d’affaires net Autres produits d’exploitation Reprises d'exploitation et transferts de charges Produits d’exploitation Achats et autres charges externes Impôts et taxes Charges de personnel Dotations aux amortissements et provisions Charges d’exploitation Résultat d’exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices Résultat net consolidé Résultat net Part du Groupe Intérêts minoritaires Résultat net consolidé Résultat net par action (en dirhams) TABLEAU DES FLUX DE TRÉSORERIE (en milliers de dirhams) Flux de trésorerie liés à l’activité Résultat net des sociétés intégrées Élimination des charges et produits sans incidence sur la trésorerie ou non liés à l'activité - Dotations d'exploitation et dotations non courantes - Variation des Impôts différés - Plus-values des cessions nettes d'impôt Variation du Besoin en Fonds de Roulement lié à l'activité Flux net de trésorerie généré par l'activité Acquisition des immobilisations Cessions d'immobilisations nettes d'impôts Incidence de variation de périmètre Flux net de trésorerie liés aux opérations d'investissement Flux de trésorerie liés aux opérations de financement Dividendes versés Augmentation de capital en numéraire Émission d'emprunts Remboursement d'emprunts Flux net de trésorerie liés aux opérations de financement Variation de trésorerie Trésorerie d'ouverture Trésorerie de clôture 12 - TAQA MOROCCO - Rapport Financier Semestriel 2023 30/06/2023 7 448 283 132 7 448 415 5 503 084 23 912 141 084 401 800 6 069 880 1 378 536 (290 569) 1 087 967 (103 334) 984 633 379 095 605 538 458 069 147 469 605 538 19,42 30/06/2023 605 538 0 0 401 761 26 936 0 149 329 1 183 564 (9 310) 15 0 (9 295) 0 0 0 0 (502 065) (502 065) 672 205 1 524 244 2 196 449 30/06/2022 5 906 242 3 338 21 302 5 930 882 3 882 127 23 299 142 630 413 284 4 461 340 1 469 542 (205 392) 1 264 149 (85 203) 1 178 947 388 304 790 643 605 096 185 547 790 643 25,65 30/06/2022 790 643 0 0 396 722 50 696 0 (783 013) 455 048 (97 520) 14 0 (97 506) 0 (185 300) 0 0 (515 968) (701 268) (343 727) 1 552 645 1 208 918 Comptes semestriels consolidés au 30 juin 2023 ÉTAT DES INFORMATIONS COMPLÉMENTAIRES (ETIC) CONSOLIDÉ AUX 30 JUIN 2023 ET 2022 PRINCIPES COMPTABLES ET MÉTHODES D’ÉVALUATION Les principales règles et méthodes du Groupe sont les suivantes : Principes et méthodes de consolidation Les principes et méthodes de consolidation utilisés par le Groupe TAQA Morocco sont conformes à la méthodologie adoptée par le Conseil National de Comptabilité pour l’établissement des comptes consolidés dans son avis n°5. Périmètre et méthodes de consolidation Les sociétés dans lesquelles le Groupe exerce directement ou indirectement un contrôle exclusif sont consolidées par intégration globale. Le contrôle exclusif est le pouvoir direct ou indirect, de diriger les politiques financières et opérationnelles d’une entreprise afin de tirer avantage de ses activités. Les sociétés dans lesquelles le Groupe exerce directement ou indirectement une influence notable sont consolidées par mise en équivalence. Les créances, dettes, produits et charges réciproques significatifs sont éliminés en totalité pour les entreprises intégrées globalement. Dates de clôture Les sociétés TAQA Morocco et TMGE clôturent au 30 juin et la société JLEC 5&6 au 31 mars. Méthodes d’évaluation Immobilisations incorporelles Les dépenses engagées dans le cadre des révisions majeures, effectuées tous les 8 ans selon un plan préétabli, sont immobilisées et amorties sur la même durée. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession. Droit de jouissance complémentaire constaté en 2001 TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession. Droit de jouissance complémentaire constaté en 2020 TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044. 13 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels consolidés au 30 juin 2023 Dans ce cadre, un droit de jouissance complémentaire de DH 1,5 milliard a été payé. Cet actif incorporel a été amorti sur la période restante de la concession. Frais d’obtention du financement Les dépenses engagées pour obtenir le financement ont été comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet À dater de la Mise en Place du Financement, la Société TAQA Morocco a comptabilisé en immobilisations incorporelles certaines dépenses payées durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession. Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée du contrat. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières, à l’exception de celles relatives aux dettes de financement libellées en Dollars américains et en Euros, qui font l’objet d’opérations de quasi- couverture de change résultant d’une position globale de change. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. Provisions pour risques et charges Au 30 juin 2023, les provisions pour risques et charges correspondent aux provisions pour engagements sociaux qui ont fait l’objet d’une évaluation actuarielle par un cabinet indépendant. Ces engagements sociaux concernent les gratuités en matière d’électricité dont bénéficie le personnel statutaire de TAQA Morocco. Retraitement des impôts Les impôts différés résultant des retraitements de consolidation sont calculés société par société. 14 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels consolidés au 30 juin 2023 Capitaux propres Part du Groupe L’évolution des capitaux propres consolidés part du Groupe s’analyse comme suit : En milliers de dirhams Capital Prime d'émission Réserves consolidées Résultat de l'exercice Situation à la clôture de l’exercice 2021 2 358 854 1 164 805 1 220 280 1 004 834 Affectation des résultats 179 235 1 004 834 Résultat net au 31 décembre 2021 1 302 719 Situation à la clôture de l’exercice 2022 2 358 854 1 164 805 1 399 515 1 302 719 Affectation des résultats 477 115 1 302 719 Résultat net au 30 juin 2023 458 069 Situation à la clôture de l’exercice 2023 2 358 854 1 164 805 1 876 630 458 069 Périmètre de consolidation Filiales % d'intérêt JUIN 2023 % contrôle Méthode % d'intérêt JUIN 2022 % contrôle TAQA MOROCCO 100 100 Globale 100 100 JLEC 5&6 66 66 Globale 66 66 TAQA MOROCCO GREEN ENERGY 100 100 Globale 15 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Capitaux propres consolidés 5 748 773 825 599 1 302 719 6 225 893 825 604 458 069 5 858 358 Méthode Globale Globale Comptes semestriels consolidés au 30 juin 2023 Deloitte Audit Boulevard Sidi Mohammed Benabdellah Tour Ivoire III, 3ème étage, Casablanca Marina Maroc Benjelloun Touimi Consulting Espace Bureaux Clarence 13, Rue Al Kasr Casablanca GROUPE TAQA MOROCCO ATTESTATION D’EXAMEN LIMITE DE LA SITUATION INTERMEDIAIRE CONSOLIDEE AU 30 JUIN 2023 Nous avons procédé à un examen limité de la situation intermédiaire consolidée de la Société TAQA Morocco S.A et sa filiale (Groupe TAQA Morocco) comprenant le bilan consolidé, le compte de produits et charges consolidé, le tableau des flux de trésorerie consolidés, le périmètre de consolidation ainsi que l’Etat des Informations Complémentaires consolidé (ETIC consolidé) au terme du semestre couvrant la période du 1er janvier au 30 juin 2023. Cette situation intermédiaire fait ressortir un montant de capitaux propres consolidés totalisant 7 333 149 milliers de dirhams, dont un bénéfice net consolidé de 605 538 milliers de dirhams. Nous avons effectué notre mission selon les Normes de la Profession au Maroc. Ces normes requièrent que l’examen limité soit planifié et réalisé en vue d’obtenir une assurance modérée que la situation intermédiaire consolidée cités au premier paragraphe ci-dessus ne comporte pas d’anomalie significative. Un examen limité comporte essentiellement des entretiens avec le personnel du Groupe et des vérifications analytiques appliquées aux données financières ; il fournit donc un niveau d’assurance moins élevé qu’un audit. Nous n’avons pas effectué un audit et, en conséquence, nous n’exprimons donc pas d’opinion d’audit. Sur la base de notre examen limité, nous n’avons pas relevé de faits qui nous laissent penser que la situation intermédiaire consolidée, ci-jointe, ne donne pas une image fidèle du résultat des opérations du semestre écoulé ainsi que de la situation financière et du patrimoine du Groupe arrêtés au 30 juin 2023, conformément aux normes comptables nationales en vigueur. Casablanca, le 19 septembre 2023 Les Commissaires aux Comptes Deloitte Audit Benjelloun Touimi Consulting Adnane FAOUZI Associé Abdelmajid BENJELLOUN TOUIMI Associé 16 - TAQA MOROCCO - Rapport Financier Semestriel 2023 COMPTES SEMESTRIELS SOCIAUX AU 30 JUIN 2023 b Comptes sociaux b Rapports des Commissaires aux Comptes 17 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 BILAN ACTIF Exercice comptable du : 01/01/2023 AU : 30/06/2023 (Montants en dhs) Brut Exercice Amortissements et provisions Net Exercice précédent Net É S I L I B O M M I F I T C A T N A L U C R I C F T C A E R E R O S É R T I Immobilisations en non valeur (A) Frais préliminaires Charges à répartir sur plusieurs exercices Primes de remboursement des obligations Immobilisations incorporelles (B) Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires Fonds commercial Autres immobilisations incorporelles Immobilisations corporelles (C) Terrains Constructions Installations techniques, matériel et outillage Matériel de transport Mobilier, matériels de bureau et aménagements divers Autres immobilisations corporelles Immobilisations corporelles en cours Immobilisations financières (D) Prêts immobilisés Autres créances financières Titres de participation Autres titres immobilisés Écarts de conversion (E) Diminution des créances immobilisées Augmentation des dettes financières TOTAL I (A+B+C+D+E) Stocks (F) Marchandises Matières et fournitures consommables Produits en cours Produits intermédiaires et produits résiduels Produits finis Créances de l’actif circulant (G) Fournisseurs débiteurs, avances & accomptes Clients et comptes rattachés Personnel État Comptes d’associés Autres débiteurs Comptes de régularisation actif Titres et valeurs de placement (H) Écarts de conversion-Actif (I) TOTAL II (F+G+H+I) Trésorerie - Actif Chèques et valeurs à encaisser Banques, T.G et C.P Caisses, Régies d’avances et accréditifs TOTAL III TOTAL GÉNÉRAL I + II + III 23 238 266,89 12 647 686,84 10 590 580,05 6 895 306,81 23 238 266,89 12 647 686,84 10 590 580,05 6 895 306,81 13 880 662 067,15 9 622 929 035,86 4 257 733 031,29 4 397 995 661,27 12 645 970 070,83 8 687 488 675,22 3 958 481 395,61 4 057 410 406,39 1 234 691 996,32 1 072 928 659,90 935 440 360,64 830 211 419,34 299 251 635,68 242 717 240,56 340 585 254,88 255 118 654,44 9 389 548,11 666 170 384,82 1 963 390,53 291 942 688,12 313 970,50 103 148 677,82 1 201 506 411,47 57 348,61 449 462,86 1 200 999 600,00 3 584 033,35 562 552 526,30 1 782 926,95 261 977 962,24 313 970,50 5 805 514,76 103 617 858,52 180 463,58 29 964 725,88 6 213 729,35 121 847 429,70 205 667,20 36 477 482,44 90 374 345,75 1 201 506 411,47 1 200 521 285,76 72 222,90 449 462,86 1 200 999 600,00 1 199 999 600,00 103 148 677,82 57 348,61 449 462,86 16 178 335 405,41 10 465 788 142,04 26 856 127,03 1 409 265 274,69 5 712 547 263,37 5 860 530 908,28 1 382 409 147,66 1 545 605 367,06 1 409 265 274,69 26 856 127,03 1 382 409 147,66 1 545 605 367,06 3 116 810 787,29 14 408 393,26 1 538 220 873,70 3 402 985,77 1 164 078 955,52 3 116 810 787,29 3 361 057 078,31 7 301 776,20 1 538 220 873,70 1 553 554 345,14 2 209 057,11 844 223 037,17 14 408 393,26 3 402 985,77 1 164 078 955,52 395 995 908,04 703 671,00 286 441 120,10 16 929 437,46 4 829 446 619,54 871 012 995,56 26 856 127,03 953 690 191,67 78 671,02 407 235 261,65 13 673 299,07 4 802 590 492,51 5 327 571 006,09 767 892 757,55 395 995 908,04 703 671,00 286 441 120,10 16 929 437,46 871 012 995,56 767 882 064,50 10 693,05 767 892 757,55 21 878 795 020,51 10 492 644 269,07 11 386 150 751,44 11 955 994 671,92 871 002 142,51 10 853,05 871 012 995,56 871 002 142,51 10 853,05 871 012 995,56 18 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 BILAN PASSIF Exercice comptable du : 01/01/2023 AU : 30/06/2023 (Montants en dhs) Exercice Exercice précédent Capitaux propres Capital social ou personnel (1) Moins : actionnaires, capital souscrit non appelé 2 358 854 200,00 2 358 854 200,00 2 358 854 200,00 2 358 854 200,00 Capital appelé dont versé T N E N A M R E P T N E M E C N A N I F T N A L U C R C F I S S A P Primes d’émission, de fusion, d’apport Ecarts de réévaluation Réserve légale Autres réserves Report à nouveau (2) Résultats nets en instance d’affectation (2) Résultat net de l’exercice (2) Total des capitaux propres (A) Capitaux propres assimilés (B) Subventions d’investissement Provisions réglementées Dettes de financement (C) Emprunts obligataires Autres dettes de financement Provisions durables pour risques et charges (D) Provisions pour risques Provisions pour charges Écarts de conversion (E) Augmentation des créances immobilisées Diminution des dettes de financement TOTAL I (A + B + C + D + E) Dettes du passif circulant (F) Fournisseurs et comptes rattachés Clients créditeurs, avances et acomptes Personnel Organismes sociaux État Comptes d’associés Autres créanciers Comptes de régularisation - passif Autres provisions pour risques et charges (G) Écarts de conversion Passif ( éléments circulants ) (H) TOTAL II ( F + G + H ) 1 164 804 710,00 235 885 420,00 138 013 489,09 198 110 532,13 4 095 668 351,22 3 427 515 558,30 2 249 999 640,00 1 177 515 918,30 27 538 690,00 27 538 690,00 7 550 722 599,52 3 785 608 391,60 1 737 201 098,79 37 488 810,53 24 177 083,73 7 972 663,08 385 618 663,47 3 400 000,00 1 568 714 116,45 21 035 955,55 2 642 889,83 47 176 870,49 3 835 428 151,92 1 164 804 710,00 235 885 420,00 23 786 468,91 939 825 990,18 4 723 156 789,09 3 553 711 962,58 2 324 999 700,00 1 228 712 262,58 27 538 690,00 27 538 690,00 8 304 407 441,67 2 960 237 100,90 1 838 530 631,32 23 909 982,09 61 858 860,08 7 952 958,44 258 207 034,09 3 401 697,19 743 115 746,45 23 260 191,24 3 652 821,69 57 697 307,66 3 021 614 763,48 630 000 000,00 Trésorerie - Passif Crédits d’escompte Crédits de trésorerie Banques TOTAL III TOTAL GÉNÉRAL ( I + II + III ) E R E R O S É R T I 11 386 150 751,44 630 000 000,00 630 000 000,00 11 955 994 671,92 (1) Capital personnel débiteur (2) Bénéficiaire (+), déficitaire (-) 19 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 COMPTE DE PRODUITS ET CHARGES (Hors Taxes) (Montants en dhs) Exercice du 1 janvier 2023 au 30 juin 2023 NATURE OPERATIONS Propres à l’exercice 1 Concernant les exercices précédents 2 TOTAUX DE L’EXERCICE 3= 1 + 2 TOTAUX DE L’EXERCICE PRÉCÉDENT 4 N O I T A T I O L P X E R E I C N A N I F T N A R U O C N O N PRODUITS D’EXPLOITATION Ventes de marchandises (en l’état) Ventes de biens et services produits Chiffre d’affaires Variation de stocks de produits ( + ou -) (1) Immobilisations produites par l’entreprise pour elle-même Subventions d’exploitation Autres produits d’exploitation Reprises d’exploitation : transfert de charges TOTAL I CHARGES D’EXPLOITATION Achats revendus (2) de marchandises Achats consommés (2) de matières et fournitures Autres charges externes Impôts et taxes Charges de personnel Autres charges d’exploitation Dotations d’exploitation TOTAL II RÉSULTAT D’EXPLOITATION ( I - II ) PRODUITS FINANCIERS Produits des titres de participation et autres titres immobilisés Gains de change Intérêts et autres produits financiers Reprises financières : transfert de charges TOTAL IV CHARGES FINANCIÈRES Charges d’intérêts Pertes de change Autres charges financières Dotations financières TOTAL V RÉSULTAT FINANCIER ( IV - V ) RÉSULTAT COURANT ( III + VI ) PRODUITS NON COURANTS Produits de cession d’immobilisations Subventions d’équilibre Reprises sur subventions d’investissement Autres produits non courants Reprises non courantes : transferts de charges TOTAL VIII CHARGES NON COURANTES Valeurs nettes d’amortissement des immobilisations cédées Subventions accordées Autres charges non courantes Dotations non courantes aux amortissements et aux provisions TOTAL IX RÉSULTAT NON COURANT ( VIII - IX ) X RÉSULTAT AVANT IMPÔT ( VII+ ou - X) XI IMPÔT SUR LES RESULTATS XII RÉSULTAT NET ( XI - XII ) XIII XIV TOTAL PRODUITS ( I + IV + VIII ) XV XVI RÉSULTAT NET (total produits - total charges) I II III IV V VI VII VIII IX TOTAL CHARGES ( II + V + IX + XII ) 4 044 103 383,16 4 044 103 383,16 132 413,94 4 044 235 797,10 3 160 233 584,55 97 577 094,89 23 625 170,88 103 359 651,37 4 000 000,00 168 405 063,64 3 557 200 565,33 21 786 982,76 18 166 966,31 1 042 172,48 40 996 121,55 83 836 309,10 88 955 587,61 4 707,39 172 796 604,10 45 604 018,09 4 044 103 383,16 3 518 381 446,29 4 044 103 383,16 3 518 381 446,29 736 876,98 21 301 725,66 4 044 235 797,10 3 540 420 048,93 132 413,94 3 160 233 584,55 2 645 225 607,47 83 318 067,54 23 136 609,99 104 306 551,64 4 000 000,00 181 280 075,78 3 557 200 565,33 3 041 266 912,42 499 153 136,51 97 577 094,89 23 625 170,88 103 359 651,37 4 000 000,00 168 405 063,64 487 035 231,77 21 786 982,76 18 166 966,31 1 042 172,48 40 996 121,55 9 189 206,48 4 911 867,90 4 475 640,01 18 576 714,39 83 836 309,10 88 955 587,61 83 680 171,90 1 809 172,72 4 707,39 172 796 604,10 -131 800 482,55 355 234 749,22 16 972 045,55 102 461 390,17 -83 884 675,78 415 268 460,73 472 828,51 472 828,51 45 604 018,09 39 786 651,23 39 786 651,23 -39 313 822,72 375 954 638,01 136 018 909,44 239 935 728,57 4 085 231 918,65 3 559 469 591,83 3 887 121 386,52 3 319 533 863,26 239 935 728,57 45 604 018,09 -45 604 018,09 309 630 731,13 111 520 199,00 198 110 532,13 198 110 532,13 (1) Variation de stocks : stock final – stock initial ; Augmentation (+) ; Diminution (-) (2) Achats revendus ou consommés : achats – variation de stock 20 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 ÉTAT DES SOLDES DE GESTION (E.S.G) I TABLEAU DE FORMATION DES RÉSULTATS (T.F.R) (Montants en dhs) 1 Ventes de marchandises (en l’état) 2 Achats revendus de marchandises I = MARGE BRUTE SUR VENTES EN L’ÉTAT + PRODUCTION DE L’ EXERCICE (3 + 4 + 5) II 3 4 Ventes de biens et services produits Variation de stocks de produits 5 Immobilisations produites par l’entreprise pour elle-même CONSOMMATIONS DE L’EXERCICE (6 + 7) III 6 Achats consommés de matières et fournitures 7 Autres charges externes IV = VALEUR AJOUTÉE (I + II + III) 8 + Subventions d’exploitation V 9 Impôts et taxes 10 Charges de personnel = EXCÉDENT BRUT D’EXPLOITATION (E.B.E) = OU INSUFFISANCE BRUTE D’EXPLOITATION (I.B.E) 11 + Autres produits d’exploitation 12 Autres charges d’exploitation 13 + Reprises d’exploitation : transfert de charges 14 Dotations d’exploitation VI = RÉSULTAT D’EXPLOITATION (+ ou -) VII + ou - RÉSULTAT FINANCIER VIII = RÉSULTAT COURANT (+ ou -) IX + ou - RÉSULTAT NON COURANT 15 IMPÔT SUR LES RÉSULTATS X = RÉSULTAT NET DE L’EXERCICE (+ ou -) II CAPACITÉ D’AUTOFINANCEMENT (C.A.F) - AUTOFINANCEMENT Résultat net de l’exercice 1 Bénéfice + Perte - 2 + Dotations d’exploitation (1) 3 + Dotations financières (1) 4 + Dotations non courantes (1) 5 Reprises d’exploitation (2) 6 Reprises financières (2) 7 Reprises non courantes (2) (3) 8 Produits de cession d’immobilisations 9 + Valeurs nettes d’amortissement des immobilisations cédées I CAPACITÉ D’AUTOFINANCEMENT (C.A.F) 10 Distribution de bénéfices II AUTOFINANCEMENT (1) à l’exclusion des dotations relatives aux actifs et passifs circulants et à la trésorerie (2) à l’exclusion des reprises relatives aux actifs circulants et à la trésorerie (3) Y compris reprises sur subventions d’investissement 21 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Exercice du 1 janvier 2023 au 30 juin 2023 EXERCICE EXERCICE PRÉCÉDENT 4 044 103 383,16 3 518 381 446,29 4 044 103 383,16 3 518 381 446,29 3 257 810 679,44 2 728 543 675,01 3 160 233 584,55 2 645 225 607,47 97 577 094,89 83 318 067,54 786 292 703,72 789 837 771,28 23 625 170,88 23 136 609,99 103 359 651,37 104 306 551,64 659 307 881,47 662 394 609,65 132 413,94 736 876,98 4 000 000,00 4 000 000,00 21 301 725,66 168 405 063,64 181 280 075,78 487 035 231,77 499 153 136,51 131 800 482,55 83 884 675,78 355 234 749,22 415 268 460,73 45 604 018,09 39 313 822,72 111 520 199,00 136 018 909,44 198 110 532,13 239 935 728,57 198 110 532,13 239 935 728,57 168 405 063,64 165 674 658,78 366 515 595,77 405 610 387,35 825 598 970,00 825 598 970,00 459 083 374,23 419 988 582,65 Comptes semestriels sociaux au 30 juin 2023 TABLEAU DE FINANCEMENT DE L’EXERCICE I Synthèse des masses du bilan (Montants en dhs) MASSES 1 Financement permanent Exercice N (A) 7 550 722 599,52 Exercice du 1 janvier 2023 au 30 juin 2023 Variation (A-B) Exercice N-1 (B) Emplois (C) 8 304 407 441,67 753 684 842,15 Ressources (D) 2 Moins Actif immobilisé 5 712 547 263,37 5 860 530 908,28 147 983 644,91 3 = FONDS DE ROULEMENT FONCTIONNEL (1-2) (A) 1 838 175 336,15 2 443 876 533,39 605 701 197,24 4 Actif circulant 4 802 590 492,51 5 327 571 006,09 524 980 513,58 5 Moins Passif circulant 3 835 428 151,92 3 021 587 230,25 813 840 921,67 6 = BESOINS DE FINANCEMENT GLOBAL (4-5) (B) 967 162 340,59 2 305 983 775,84 1 338 821 435,25 7 = TRÉSORERIE NETTE (Actif-Passif) (A-B) 871 012 995,56 137 892 757,55 733 120 238,01 II Emplois et Ressources EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES EMPLOIS RESSOURCES I. RESSOURCES STABLES DE L’EXERCICE (FLUX) AUTOFINANCEMENT (A) (459 083 374,23) 470 314 036,49 Capacité d’autofinancement 366 515 595,77 1 295 913 006,49 Distribution de bénéfices (825 598 970,00) (825 598 970,00) CESSIONS ET RÉDUCTIONS D’IMMOBILISATIONS (B) 14 874,29 28 551,77 Cessions d’immobilisations incorporelles Cessions d’immobilisations corporelles Cessions d’immobilisations financières Récupérations sur créances Immobilisées 14 874,29 28 551,77 AUGMENTATIONS DES CAPITAUX PROPRES ET ASSIMILÉS (C) Augmentations de capital, apports Subventions d’investissement AUGMENTATIONS DES DETTES DE FINANCEMENT (nettes de primes de remboursement) (D) TOTAL I. RESSOURCES STABLES (A+B+C+D) (459 068 499,94) 470 342 588,26 II. EMPLOIS STABLES DE L’EXERCICE (FLUX) ACQUISITIONS ET AUGMENTATIONS D’IMMOBILISATIONS (E) 20 436 293,02 222 474 513,00 Acquisitions d’immobilisations incorporelles 154 680 534,10 Acquisitions d’immobilisations corporelles 19 436 293,02 67 793 978,90 Acquisitions d’immobilisations financières 1 000 000,00 Augmentation des créances immobilisées REMBOURSEMENTS DES CAPITAUX PROPRES (F) REMBOURSEMENTS DES DETTES DE FINANCEMENT (G) 126 196 404,28 252 392 808,56 EMPLOIS EN NON VALEURS (H) TOTAL II. EMPLOIS STABLES (E+F+G+H) 146 632 697,30 474 867 321,56 III. VARIATION DU BESOIN DE FINANCEMENT GLOBAL (B.F.G) 1 338 821 435,25 3 698 720,46 IV. VARIATION DE LA TRÉSORERIE 733 120 238,01 8 223 453,76 TOTAL GÉNÉRAL 879 752 935,31 879 752 935,31 478 566 042,02 478 566 042,02 22 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 PRINCIPES ET MÉTHODES COMPTABLES Informations générales sur l’activité Historique La centrale thermique de Jorf Lasfar est située sur la côte atlantique du Maroc, adjacente au port de Jorf Lasfar, dans la province d’El Jadida. Le site est localisé à environ 127 Km au sud- ouest de Casablanca. La construction des unités 1 et 2 de la centrale thermique a été effectuée par GEC Alsthom pour le compte de l’Office National d’Electricité (ONE), et achevée en 1994. Chacune de ces unités, utilisant le charbon comme combustible, a une capacité de 330 MW. En octobre 1994, l’ONE a émis un appel d’offre international relatif à la concession de la centrale thermique de Jorf Lasfar pour une période de 30 années. Le Groupement formé par ABB Energy Ventures et CMS Generation (Le Consortium) a été retenu en février 1995. L’accord de principe établi entre l’ONE et le Consortium en avril 1996 a permis le démarrage des négociations des contrats afférents au projet (Project Agreements). Constitution et activité Dans le but de conclure officiellement et mettre en œuvre ces contrats, le Consortium a constitué, en date du 20 janvier 1997, une société marocaine en commandite par actions dénommée Jorf Lasfar Energy Company (JLEC), immatriculée au Registre de Commerce sous le Numéro 2145, ayant pour Identification Fiscale le Numéro 1021595 et enregistrée à la Patente sous le Numéro 42161753. Conformément à ses statuts, la société a pour objet de construire, exploiter, gérer et maintenir la centrale électrique de Jorf Lasfar, incluant le développement, le financement, l’équipement, la construction, le design, les tests, l’exploitation et la maintenance des deux nouvelles unités, qui sont quasiment similaires en taille et en technologie à celles déjà existantes. Dans le but d’assurer son approvisionnement en combustibles, la société développe, exploite et entretient les installations de déchargement, de transport et de stockage du charbon existantes au Port de Jorf Lasfar. Afin d’exercer ces activités, la société a reçu un droit de jouissance du site localisé au port de Jorf Lasfar, des unités existantes, des unités nouvelles, des installations de transport du charbon. Période de développement de l’activité Le 12 septembre 1997, date de la Mise en Place du Financement, tous les Contrats de Projet ont été signés, le Contrat d’Emprunt Groupe a été exécuté, et le premier déblocage de l’Emprunt Groupe a notamment servi au paiement du Droit de Jouissance à l’ONE. Par conséquent, JLEC a pris possession de la Centrale Thermique le 13 septembre 1997 et a commencé à vendre la capacité disponible et la production nette à l’ONE, conformément au Contrat de Fourniture d’Energie Electrique (PPA). Les conditions requises pour le financement du projet ont été complétées en novembre 1997. Période de construction des Unités 3 et 4 Les Unités 3 et 4 ont été respectivement mises en exploitation le 9 juin 2000 et le 2 février 2001, soit respectivement 33 mois et 40 mois à compter de la date de la Mise en Place du Financement. 23 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 Acquisition de JLEC par TAQA Le 2 mai 2007, Abu Dhabi National Energy Company (“TAQA”) a acheté CMS Generation, filiale de CMS Energy qui contrôle les actionnaires directs de JLEC (i) Jorf Lasfar Energiaktiebolag, (ii) Jorf Lasfar Power Energy AB and (iii) Jorf Lasfar Handelsbolag et les filiales du Groupe ABB (i) Tre Kronor Investment AB, (ii) AB Cythere 61 and (iii) AB Cythere 63. En conséquence de ces acquisitions, JLEC était directement et indirectement détenue par TAQA. Refinancement de la dette Le refinancement de la dette contractée en devises en 1997 auprès d’un consortium de bailleurs de fonds étrangers ainsi que la dette convertible en actions contractée auprès des actionnaires directs de JLEC, moyennant la contraction d’un crédit auprès d’un consortium de banques marocaines, comportant de deux tranches A et B d’une maturité long terme (une Tranche A d’un montant de 5.500.000,00 Dirhams et une Tranche B de 1.500.000,00 Dirhams), et de deux Tranches R (une facilité court terme sur un an) d’un montant de 200.000,00 Dirhams chacune, dont le contrat a été signé en date du 16 janvier 2009, tel que modifié par avenant en date du 27 mars 2009 et par avenant en date du 22 décembre 2009 et par avenant du 15 décembre 2010 et par avenant en date du 10 décembre 2012 et par avenant en date du 3 octobre 2014 et par avenant en date du 3 juillet 2015. Création de la filiale Jorf lasfar Energy Company 5&6 (JLEC 5&6) Le 22 décembre 2010, JLEC 5&6 a été créée pour porter le projet d’extension de la Centrale Thermique de Jorf Lasfar par la construction de deux nouvelles unités de 350MW brute chacune fonctionnant au charbon vapeur sur le site adjacent au site actuel de la centrale thermique de Jorf Lasfar. Les deux nouvelles unités de production d’électricité (Unités 5&6) sont d’une capacité de 700 MW (2 x 350 MW), portant la capacité totale de la centrale thermique de Jorf Lasfar à plus de 2000 MW. TAQA Morocco détient, au 31 décembre 2021, 66% des actions de JLEC 5&6. Les Unités 5&6 ont été mises en exploitation commerciale respectivement le 15 avril et le 7 juin 2014. Placement Privé et Introduction en Bourse En décembre 2013, une double augmentation de capital d’un montant global de DH 1.500.000.310 a été effectuée : Une première augmentation «Augmentation de Capital Pré-IPO » a été réservée à des investisseurs institutionnels (RMA Watanya, SCR et MCMA) suite à un Placement Privé qui s’est élevé à DH 499.999.805, dont 111.731.800 Dh à titre de nominal et 388.268.005 Dh à titre de prime d’émission. Les actions issues du Placement Privé ont été intégralement libérées et portent jouissance à compter du 1er janvier 2013 ; Une deuxième augmentation de capital «Augmentation de Capital IPO» a été réalisée auprès du Grand Public suite à l’introduction en bourse de JLEC pour un montant de DH 1.000.000.505, dont 223.463.800 Dh à titre de nominal et 776.536.705 Dh à titre de prime d’émission. Les actions issues de l’introduction en bourse ont intégralement été libérées et portent jouissance à compter du 1er janvier 2013. A l’issue de l’introduction en bourse précitée, Abu Dhabi National Energy Company PJSC (TAQA) détient désormais 85,79 % du capital de TAQA Morocco et la portion du capital restante soit 14,21% est détenue par les actionnaires ayant participé au Placement Privé et à l’introduction en bourse. 24 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 Changement de dénomination sociale et extension de l’objet social L’Assemblée Générale Ordinaire et Extraordinaire des Actionnaires de TAQA MOROCCO S.A. (ex Jorf Lasfar Energy Company) s’est réunie le 13 Octobre 2014 à, et a notamment approuvé : L’adoption de la nouvelle dénomination sociale « TAQA Morocco » ; L’extension de l’objet sociale de la société TAQA Morocco ; La modification corrélative des Statuts de la société TAQA Morocco. Extension du PPA des Unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. L’alignement des deux PPA 1 à 4 et 5&6 à 2044 permettra de consolider durablement la robustesse du business model de TAQA Morocco pour continuer à garantir une charge de base compétitive et contribuer à la sécurité énergétique du Royaume du Maroc. Emission d’un emprunt obligataire par placement privé TAQA Morocco a réalisé, le 7 septembre 2020, une émission obligataire par placement privé d’un montant de DH 2,7 milliards au taux fixe de 3,75% sur une maturité de 18 ans. L’objectif de cette émission est de permettre à la Société TAQA Morocco d’optimiser son coût d’endettement et de diversifier ses sources de financement pour accompagner la diversification du mix énergétique de TAQA Morocco au Maroc. Cette émission obligataire a servi au remboursement par anticipation, en date du 22 septembre 2020, de la dette bancaire contractée en 2019 pour un montant de DH 2,7 milliards. Principales méthodes d’évaluation spécifiques à l’entreprise Généralités Les états de synthèse de la société TAQA Morocco sont préparés conformément aux principes comptables généralement admis au Maroc, tels que prescrits dans le Code Général de Normalisation Comptable (CGNC). Durant la période de constitution et d’établissement de la Société (jusqu’à la date de la Mise en Place du Financement), toutes les dépenses ont été payées par le Groupement (ABB et CMS). Dès la Mise en Place du Financement, tous les frais de premier établissement et de constitution supportés par les sociétés apparentées ont été facturés à JLEC, et remboursés par la Société. Immobilisations en non valeur - Frais préliminaires Dès la date de la Mise en Place du Financement, la Société a immobilisé ses frais préliminaires, et les a amortis sur une durée ne dépassant pas cinq années. Les frais préliminaires comprennent les charges légales et administratives engagées pour constituer la société, ainsi que certaines dépenses supportées dans le but de préparer le démarrage de l’activité commerciale de la Société. Charges à répartir sur plusieurs exercices Les charges à répartir sur plusieurs exercices comportent des charges afférentes à des projets spécifiques qui ont fait l’objet d’un étalement sur 5 ans. 25 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 Immobilisations incorporelles - Frais d’obtention du financement Les dépenses engagées pour obtenir le financement sont comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société a comptabilisé en immobilisations incorporelles certaines dépenses payées par le Groupement durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif aux Unités 3 et 4 JLEC avait procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de JLEC avait été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif à la prorogation du PPA des Unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. Dans ce cadre, TAQA Morocco a procédé au paiement du droit de jouissance complémentaire pour un montant de DH 1,5 milliard qui a été immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). Autres immobilisations incorporelles Les autres immobilisations incorporelles comprennent les révisions mineures et majeures effectuées selon le plan de maintenance préétabli qui sont amorties sur 5 ans. Avant 2021, ces révisions étaient classé es parmi les charges à répartir. A compter du 1er janvier 2021, elles ont été reclassées parmi les autres immobilisations incorporelles. Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée de la concession. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. 26 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion actif ou passif. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. État des dérogations Dérogations aux principes comptables fondamentaux Néant. Dérogations aux méthodes d’évaluation Néant. Dérogations aux règles d’établissement et de présentation des états de synthèse Les gains et pertes de change provenant de la comptabilisation des achats de charbon et des règlements correspondants, effectués en Dollars américains et convertis en dirhams au cours du jour d’opération, sont enregistrés dans un sous- compte de la rubrique « Achats de charbon » intitulé « Différences sur achats de charbon en dollars », parmi les charges d’exploitation. Ce traitement particulier, sans impact sur le patrimoine et la situation financière de la Société, est justifié par le fait que ces différences sont liées aux règles de comptabilisation, et ne correspondent pas à des gains et pertes de change provenant de la conversion de dirhams en dollars. État des changements de méthodes Changements affectant les méthodes d’évaluation Néant. Changements affectant les règles de présentation Néant. 27 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Comptes semestriels sociaux au 30 juin 2023 Deloitte Audit Boulevard Sidi Mohammed Benabdellah Tour Ivoire III, 3ème étage, Casablanca Marina Maroc Benjelloun Touimi Consulting Espace Bureaux Clarence 13, Rue Al Kasr Casablanca GROUPE TAQA MOROCCO ATTESTATION D’EXAMEN LIMITE SUR LA SITUATION INTERMEDIAIRE DES COMPTES SOCIAUX AU 30 JUIN 2023 En application des dispositions du Dahir portant loi n° 1-93-212 du 21 septembre 1993, tel que modifié et complété, nous avons procédé à un examen limité de la situation intermédiaire de la Société TAQA Morocco S.A comprenant le bilan, le compte de produits et charges, l’état des soldes de gestion, le tableau de financement ainsi qu’un extrait de l’Etat des Informations Complémentaires (ETIC) relatifs à la période du 1er janvier au 30 juin 2023. Cette situation intermédiaire qui fait ressortir un montant de capitaux propres et assimilés totalisant 4 095 668 351,22 MAD, dont un bénéfice net de 198 110 532,13 MAD, relève de la responsabilité des organes de gestion de l’émetteur. Nous avons effectué notre mission selon les normes de la Profession au Maroc relatives aux missions d’examen limité. Ces normes requièrent que l’examen limité soit planifié et réalisé en vue d’obtenir une assurance modérée que la situation intermédiaire ne comporte pas d’anomalie significative. Un examen limité comporte essentiellement des entretiens avec le personnel de la société et des vérifications analytiques appliquées aux données financières ; il fournit donc un niveau d’assurance moins élevé qu’un audit. Nous n’avons pas effectué un audit et, en conséquence, nous n’exprimons donc pas d’opinion d’audit. Sur la base de notre examen limité, nous n’avons pas relevé de faits qui nous laissent penser que la situation intermédiaire, ci-jointe, ne donne pas une image fidèle du résultat des opérations du semestre écoulé ainsi que de la situation financière et du patrimoine de la société arrêtés au 30 juin 2023, conformément au référentiel comptable admis au Maroc. Casablanca, le 19 septembre 2023 Les Commissaires aux Comptes Deloitte Audit Benjelloun Touimi Consulting Adnane FAOUZI Associé Abdelmajid BENJELLOUN TOUIMI Associé 28 - TAQA MOROCCO - Rapport Financier Semestriel 2023 LISTE DES COMMUNIQUÉS DE PRESSE 29 - TAQA MOROCCO - Rapport Financier Semestriel 2023 Liste des communiqués de presse LISTE DES COMMUNIQUÉS DE PRESSE 24 février 2023 Communiqué relatif aux Résultats financiers au 31 décembre 2022 1 mars 2023 Communiqué relatif aux nominations au Conseil de Surveillance 21 avril 2023 Avis de convocation à l’AGO du 23 mai 2023 21 avril 2023 ommuniqué relatif au Rapport Financier Annuel 2022 12 mai 2023 Communiqué relatif aux indicateurs du 1er trimestre 2023 24 mai 2023 Communiqué post assemblée générale 29 août 2023 Communiqué relatif aux indicateurs du 2ème trimestre 2023 13 septembre 2023 Communiqué relatif à la levée de fonds de 6,6 milliards de dirhams pour reprofiler la dette 30 - TAQA MOROCCO - Rapport Financier Semestriel 2023 À propo de TAQA Morocco TAQA Morocco est le premier producteur privé d’électricité au Maroc. Créée en 1997, l’entreprise est le fruit de la volonté du Royaume du Maroc de renforcer son mix énergétique pour se doter des ressources nécessaires à son industrialisation et son essor économique. TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. Une infrastructure industrielle de 6 Unités totalisant 2 056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques de tailles équivalentes. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco contribue à près de 40% de la demande nationale d’électricité pour 19% de la capacité installée, et se positionne en opérateur énergétique de référence au Maroc en matière de savoir-faire et d’expertise métier. Filiale d’Abu Dhabi National Energy Company «TAQA» TAQA Morocco • Siège Social : Km 23, Route secondaire 301 Commune Moulay Abdellah - province d’El jadida - Centrale Thermique Jorf Lasfar - B.P.99 - Sidi Bouzid - El Jadida - Maroc Tél : +212 523 380 000 - Fax : +212 523 345 375 Contact : finance@taqamorocco.ma Retrouvez les comptes consolidés et sociaux de TAQA Morocco sur https://www.taqamorocco.ma/fr/investisseurs/communiques-et-comptes | Semestriel, 2023, Energy, TaqaMorocco | write me a financial report |
Semestriel | 2,022 | Energy | TaqaMorocco | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TaqaMorocco
### Response:
| TOUTE NOTRE ÉNERGIE POUR FAIRE BRILLER LE MAROC DE DEMAIN Rapport Financier Semestriel 2022 1 - TAQA MOROCCO - Rapport Financier Semestriel 2022 sommaire P3 Présentation de TAQA Morocco P4 Activité de la société durant le semestre écoulé P4 Évènements importants survenus depuis la date de clôture du semestre écoulé P5 Présentation des comptes semestriels P10 Comptes consolidés au 30 juin 2022 P17 Comptes sociaux au 30 juin 2022 P29 Liste des communiqués de presse 2 - TAQA MOROCCO - Rapport Financier Semestriel 2022 2 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 3 - TAQA MOROCCO - Rapport Financier Semestriel 2022 3 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 Présentation de TAQA MOROCCO TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. Une infrastructure industrielle de 6 Unités totalisant 2056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques à charbon de tailles équivalentes. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco fait partie du Groupe TAQA, opérateur énergétique au maillage mondial. TAQA Morocco contribue pour plus de 38% de la production nationale d’électricité avec uniquement 18% de la capacité installée du Royaume du Maroc et se positionne en opérateur énergétique de référence au Maroc en matière de savoir-faire et d’expertise métier. Un avantage compétitif pour se développer sur le mix énergétique. Acteur responsable, La RSE fait partie intégrante de l’ADN de TAQA Morocco. L’entreprise mène une politique active en matière d’engagement social et de développement durable que ce soit au niveau de la gestion responsable de ces Unités de production en matière de standards environnementaux, que sur le plan des actions citoyennes. Le Complexe thermique de Jorf Lasfar a non seulement anticipé les choix technologiques de ses équipements mais surtout mis en place un programme de gestion globale de l’environnement comprenant toute la chaîne de valeur depuis la qualité de sa matière première combustible jusqu’à la gestion de ses coproduits. Un modèle d’exploitation et d’écologie industrielle certifié selon la norme ISO 14001 depuis 2004. Activité de la société durant la période écoulée CONJONCTURE ÉCONOMIQUE Évolution de la parité USD/MAD La parité moyenne USD/MAD a connu une hausse de 9%, passant de 8,94 au 30 Juin 2021 à 9,72 au 30 Juin 2022. Évolution des prix du charbon Le cours d’achat moyen du charbon a enregistré une hausse significative, passant de $ 62 /tonne métrique au 30 Juin 2021 à $ 152,6 /tonne métrique au 30 Juin 2022, suite à l’évolution à la hausse des prix du charbon sur le marché international. ACTIVITÉ DE LA SOCIÉTÉ L’activité de la Centrale a été marquée par les principaux faits suivants : b Le niveau de disponibilité annuel global des Unités 1 à 6 de la Centrale a atteint au 30 Juin 2022 un pourcentage de 92,7% contre 89,4% au 30 Juin 2021 ; b La réalisation de la révision mineure planifiée de l’Unité 3 de 25 jours au cours du premier semestre 2022 en conformité avec le plan de maintenance. Évènements importants survenus depuis la date de clôture de la période écoulée Rien à signaler. 4 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 Présentation des comptes semestriels COMPTES CONSOLIDÉS Compte de produits et charges consolidé En Mdh Frais de puissance Frais d'énergie Autres revenus Chiffre d'affaires net Autres produits d'exploitation 2022 2 150 3 535 222 5 906 3 2021 1 735 1 548 182 3 465 3 Var. 21/22 Var. 21/22 en % 415 1 987 40 2 441 70,5% Reprises d'exploitation et transferts de charges 21 21 Total produits d'exploitation Achats et autres charges externes Impôts et taxes 5 931 3 878 23 3 468 1 824 23 2 463 2 054 71,0% Charges de personnel Autres charges d'exploitation Dotations aux amortissement et provisions Total charges d'exploitation Résultat d'exploitation Marge opérationnelle (Rex/CA) Résultat financier 143 4 413 4 461 1 470 24,9% -205 153 4 387 2 391 1 077 31,1% -234 11 1 26 2 070 393 29 86,6% 36,5% -619 pbs -12,2% Résultat courant Résultat non courant Résultat avant impôts Marge avant impôt (RAI/CA) Impôts sur les bénéfices Résultat net consolidé Marge nette (RN/CA) dont Résultat net - Part du Groupe dont Intérêts minoritaires 1 264 -85 1 179 20,0% 388 791 13,4% 605 186 842 -40 802 23,2% 256 547 15,8% 444 103 422 -45 377 133 244 162 82 50,1% 112,1% 46,9% -319 pbs 44,6% -239 pbs 36,4% 80,0% Le chiffre d’affaires consolidé s’élève au 30 Juin 2022 à MMAD 5 906, contre MMAD 3 465 au 30 Juin en 2021, cette variation s’explique principalement par : b la bonne performance opérationnelle des Unités 1 à 6, tenant compte du plan de maintenance, b La réalisation de la révision majeure planifiée de l’Unité 6 de 61 jours au cours du premier trimestre 2021 en conformité avec le plan de maintenance, b l’augmentation des frais d’énergie de 128% consécutive à l’évolution du prix d’achat du charbon sur le marché international. Le résultat d’exploitation consolidé s’élève à MMAD 1 470 au 30 Juin 2022 contre MMAD 1 077 au 30 Juin 2021. Cette évolution est expliquée principalement par la bonne performance des Unités 1 - 6, l’évolution du prix d’achat moyen du charbon par rapport à l’indice de référence API2 et par l’amélioration de l’efficience opérationnelle. Le taux de marge opérationnelle s’établit à 24,9% au 30 Juin 2022 contre 31,1% au 30 Juin 2021. Le résultat financier a connu une hausse de MMAD 29, passant de MMAD (234) au 30 Juin 2021 à MMAD (205) au 30 Juin 2022, expliquée essentiellement par la baisse des charges d’intérêt sur emprunts consécutive à la diminution de l’encours de la dette. Le taux de marge nette consolidé s’élève ainsi à 13,4% au 30 Juin 2022 contre 15,8% au 30 Juin 2021. Le résultat net part du Groupe s’élève ainsi à MMAD 605 au 30 Juin 2022 contre MMAD 444 au 30 Juin 2021. 5 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 Bilan consolidé En MMAD 2022 2021 Var. 21/22 Var. 21/22 en % ACTIF Actif immobilisé 13 567 13 738 171 1,2% Immobilisations incorporelles 4 827 4 934 106 Immobilisations corporelles 8 442 8 635 193 Immobilisations financières Écart de conversion actif Actif circulant 1 297 6 138 1 169 4 104 128 2 034 49,6% Stocks et en-cours 2 636 1 749 888 Créances d'exploitation 2 476 1 763 713 Créances diverses Trésorerie - actif 1 026 1 589 593 1 553 433 36 2,3% dont titres et valeurs de placement Total ACTIF 985 21 295 1 105 19 395 120 1 900 9,8% PASSIF Financement permanent 16 293 16 715 422 2,5% Capitaux propres consolidés 6 871 6 906 35 0,5% Capital 2 359 2 359 Réserves consolidées 2 564 2 385 179 Résultat net Part du Groupe Capitaux propres Part du Groupe 605 5 528 1 005 5 749 400 221 3,8% Intérêts minoritaires Provisions pour risques et charges Dettes de financement Écart de conversion passif Passif circulant 1 343 29 9 302 91 4 622 1 157 29 9 634 146 2 680 186 0 332 56 1 942 16,0% 0% 3,4% 38,1% 72,5% Dettes d'exploitation Autres dettes 2 220 2 402 1 288 1 392 932 1 010 Trésorerie passif Total PASSIF 380 21 295 0 19 395 380 1 900 100% 9,8% Les principales variations des agrégats consolidés sont présentées ci-après : b Baisse de l’actif immobilisé consolidé de MMAD 171 qui s’explique essentiellement par les investissements de la période pour MMAD 97, par l’impact de l’écart de conversion actif pour MMAD 128 ainsi que les dotations aux amortissements constatées au 30 Juin 2022 pour MMAD 397 ; b Hausse des créances de l’actif circulant de MMAD 2 034, principalement due à la hausse enregistrée au niveau des stocks pour MMAD 888, des créances d’exploitation pour MMAD 713 ainsi que des créances diverses pour MMAD 433; b Baisse de la trésorerie nette de MMAD 344 qui s’explique par la baisse du fonds de roulement consolidé de MMAD 252 conjuguée à la hausse du besoin en fonds de roulement consolidé pour un montant de MMAD 92 ; b Baisse des capitaux propres consolidés part du Groupe de MMAD 221 qui s’explique essentiellement par la constatation du résultat net part du Groupe au 30 Juin 2022 pour MMAD 605 ainsi que par les dividendes à distribuer par le Groupe TAQA Morocco pour MMAD 826 ; b Baisse des dettes de financement de MMAD 332 qui s’explique principalement par les remboursements de la période. 6 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 COMPTES SOCIAUX Compte de produits et charges En Mdh Frais de puissance Frais d'énergie Autres revenus Chiffre d'Affaires Achats consommés de matières et fournitures Autres charges externes Valeur Ajoutée Taux de valeur ajoutée (VA/CA) Impôts et taxes Charges de personnel Excédent Brut d'Exploitation Marge brute d'exploitation (EBE/CA) Autres produits d'exploitation Reprise d'exploitation, transfert de charges Autres charges d'exploitation Dotations d'exploitation Résultat d’exploitation Marge opérationnelle (REX/CA) Produits financiers Produits des titres de participation Gains de change Intérêts et autres produits financiers Reprises financières, transfert de charges Charges financières Charges d'intérêts Pertes de change Dotations financières Résultat financier Résultat courant Produits non courants Autres produits non courants Reprises non courantes, transfert de charges Charges non courantes Autres charges non courantes Dotations non courantes Résultat non courant Résultat avant impôt Impôt sur les sociétés Résultat net Marge Nette (RN/CA) juin-22 906 2 475 137 3 518 2 645 83 790 22,4% 23 104 662 18,8% 1 21 4 181 499 14,2% 19 9 5 4 102 84 2 17 -84 415 0 0 39 39 39 376 136 240 6,8% juin-21 805 1 089 120 2 013 1 184 69 760 37,7% 23 114 623 31,0% 3 0 4 179 443 22,0% 16 4 11 92 88 1 3 -76 367 30 30 39 39 9 358 109 250 12,4% 7 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Var. 22/21 Var. 22/21 en % 102 1 386 17 1 505 1 461 74,8% 14 30 3,9% -1530 pbs 0 -9 39 6,3% -1213 pbs 2 21 1 2 56 3 12,6% -784 pbs 19,3% 5 -6 4 11 -5 1 14 -8 48 -30 11,7% 10,2% 13,1% -100,0% 30 0 0 0,8% 30 18 27 -10 343,6% 4,9% 3,9% -558 pbs Résultats financiers au 30 juin 2022 a) Analyse du résultat d’exploitation Au 30 Juin 2022, le chiffre d’affaires s’élève à MMAD 3 518 contre MMAD 2 013 au 30 Juin 2021. Cette évolution s’analyse comme suit : b hausse des frais de puissance de 12,7% par rapport au 30 Juin 2021 principalement expliquée par la bonne performance des Unités 1-4 tenant compte du plan de maintenance, b augmentation des frais d’énergie de 127%, essentiellement due à l’évolution à la hausse du prix du charbon sur le marché international. Le résultat d’exploitation a enregistré une progression de 12,6% par rapport au 30 Juin 2021 principalement expliquée par la progression des frais de puissance. b) Analyse du résultat financier Au 30 Juin 2022, le résultat financier s’élève à MMAD (84) contre MMAD (76) au 30 Juin 2021. Cette baisse de MMAD 8 s’explique principalement par : b la baisse des charges d’intérêt de MMAD 5, principalement expliquée par la diminution de l’encours de la dette, b la diminution des produits d’intérêts sur le placement des excédents de trésorerie de MMAD 6, b la baisse du résultat de change de MMAD 6, suite à l’évolution des cours de change USD/MAD et EUR/MAD. c) Analyse du résultat non courant Le résultat non courant s’élève à MMAD (39) au 30 Juin 2022 et comprend principalement la Contribution Sociale de Solidarité (CSS). Bilan En Mdh 2.022 2.021 Var. 22/21 Var. 22/21 en % ACTIF Actif immobilisé 5 912 5 996 84 1,4% Immobilisations en non valeurs Immobilisations incorporelles 4 489 10 4 543 10 54 Immobilisations corporelles Immobilisations financières 223 1 201 242 1 201 19 Actif circulant Stocks 4 698 1 882 3 467 1 296 1 231 586 35,5% Créances de l’actif circulant 2 799 2 167 632 Ecarts de conversion - Actif 17 4 12 Trésorerie - Actif 753 763 10 1,3% Banques, TG et CP 185 146 39 Titres et valeurs de placement 568 617 49 Total ACTIF 11 364 10 226 1 138 11,1% 8 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Résultats financiers au 30 juin 2022 PASSIF Financement permanent Capitaux propres 7 732 4 023 8 444 4 609 712 586 Dettes de financement 3 680 3 806 126 Provisions durables pour risques et charges 29 29 Dettes du passif circulant 3 211 1 773 1 438 Autres provisions pour risques et charges 20 7 12 Écarts de conversion - Passif (éléments circulants) 21 2 19 Trésorerie - Passif 380 0 380 Total PASSIF 11 364 10 226 1 138 Le total bilan enregistre une hausse de 11,1% qui s’analyse comme suit : b Baisse de l’actif immobilisé de MMAD 84 qui s’explique principalement par les investissements du premier semestre 2022 pour MMAD 82 (essentiellement le coût immobilisé de la révision mineure de l’Unité 3) ainsi que par les dotations aux amortissements de la période pour MMAD 166 ; b Hausse de l’actif circulant de de MMAD 1 231 qui s’explique principalement par : b La hausse des créances clients pour un montant de MMAD 429 liée essentiellement à l’évolution des frais d’énergie suite à l’augmentation des prix du charbon sur le marché international ; b La hausse des comptes de stock pour MMAD 586 (essentiellement le stock de charbon pour MMAD 513 suite à un effet quantité et un effet prix) ; b La hausse des acomptes d’IS pour MMAD 113. b Baisse de la trésorerie nette de MMAD 390 du fait de la baisse du fonds de roulement de MMAD 628 et la baisse du besoin en fonds de roulement de MMAD 238. Les principales variations enregistrées au niveau du bilan passif sont analysées ci-dessous : b Baisse des capitaux propres de MMAD 586 qui résulte de la constatation du résultat net au 30 Juin 2022 pour MMAD 240 et de l’impact des dividendes à distribuer pour MMAD 826 ; b Baisse des dettes de financement de MMAD 126 qui s’explique par les remboursements de la période ; b Hausse des dettes du passif circulant de MMAD 1 438 qui s’analyse comme suit : b La hausse des dividendes à distribuer par TAQA Morocco pour MMAD 826. b La hausse des dettes fournisseurs de MMAD 531 (essentiellement les comptes de fournisseurs de charbon). 9 - TAQA MOROCCO - Rapport Financier Semestriel 2022 8,4% 81,1% 175,7% 943,1% 100% 11,1% Comptes Semestriels consolidés au 30 juin 2022 b Comptes consolidés b Rapports des Commissaires aux Comptes 10 - TAQA MOROCCO - Rapport Financier Semestriel 2022 10 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels consolidés au 30 juin 2022 COMPTES CONSOLIDÉS BILANS CONSOLIDÉS ACTIF . Immobilisations incorporelles . Immobilisations corporelles . Immobilisations financières . Écart de conversion actif ACTIF IMMOBILISÉ . Stocks et en-cours . Créances d’exploitation . Créances diverses . Titres et valeurs de placement . Écarts de conversion actif . Trésorerie actif ACTIF CIRCULANT Total Actif PASSIF . Capital . Prime d’émission . Réserves consolidées . Résultat net Part du Groupe . Capitaux propres Part du Groupe . Intérêts minoritaires CAPITAUX PROPRES CONSOLIDÉS Provisions pour risques et charges Dettes de financement Écart de conversion passif . Dettes d’exploitation . Autres dettes PASSIF CIRCULANT DETTES Trésorerie passif Total Passif 11 - TAQA MOROCCO - Rapport Financier Semestriel 2022 30/06/2022 4 827 376 8 442 072 711 297 320 13 567 479 2 636 319 2 475 995 995 913 985 158 29 956 603 760 7 727 101 21 294 581 30/06/2022 2 358 854 1 164 805 1 399 514 605 096 5 528 270 1 342 949 6 871 219 29 267 9 301 873 90 505 9 421 645 2 220 017 2 401 700 4 621 717 14 043 362 380 000 21 294 581 31/12/2021 4 933 576 8 635 074 725 168 853 13 738 229 1 748 683 1 762 562 584 395 1 105 295 8 556 447 349 5 656 842 19 395 071 31/12/2021 2 358 854 1 164 805 1 220 280 1 004 834 5 748 773 1 157 403 6 906 175 29 267 9 633 714 146 166 9 809 147 1 289 768 1 389 980 2 679 749 12 488 895 0 19 395 071 Comptes semestriels consolidés au 30 juin 2022 COMPTES DE PRODUITS ET CHARGES CONSOLIDÉS (en milliers de dirhams) PRODUITS Chiffre d’affaires net Autres produits d’exploitation Reprises d’exploitation et transferts de charges CHARGES Achats et autres charges externes Impôts et taxes Charges de personnel Dotations aux amortissements et provisions Résultat d’exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices Résultat net consolidé Résultat net Part du Groupe Intérêts minoritaires Résultat net consolidé TABLEAU DES FLUX DE TRESORERIE CONSOLIDÉ (en milliers de dirhams) Flux de trésorerie liés à l’activité Résultat net des sociétés intégrées Élimination des charges et produits sans incidence sur la trésorerie ou non liés à l’activité - Dotations d’exploitation et dotations non courantes - Variation des Impôts différés - Plus-values des cessions nettes d’impôt Variation du Besoin en Fonds de Roulement lié à l’activité Flux net de trésorerie généré par l’activité Flux de trésorerie liés aux opérations d’investissement Acquisition des immobilisations Cessions d’immobilisations nettes d’impôts Incidence de variation de périmètre Flux net de trésorerie liés aux opérations d’investissement Flux de trésorerie liés aux opérations de financement Dividendes versés Augmentation de capital en numéraire Émission d’emprunts Remboursement d’emprunts Flux net de trésorerie liés aux opérations de financement Variation de trésorerie Trésorerie d’ouverture Trésorerie de clôture 12 - TAQA MOROCCO - Rapport Financier Semestriel 2022 30/06/2022 5 906 242 3 339 21 302 5 930 883 3 882 127 23 299 142 630 413 284 4 461 341 1 469 542 (205 392) 1 264 149 (85 203) 1 178 947 388 304 790 643 605 096 185 547 790 643 30/06/2022 790.643 396 722 50.696 (783 013) 455 048 (97.520) 14 (97.506) (185 300) (515 968) (701 268) (343 727) 1 552 645 1 208 918 30/06/2021 3 464 855 2 956 3 467 811 1 827 773 23 278 153 347 386 911 2 391 310 1 076 502 (234 056) 842 446 (40 167) 802 278 255 619 546 660 443 557 103 103 546 660 30/06/2021 546.660 386.911 (27.162) 109.937 1.016.345 (175.624) 412 (175.212) (506.387) (506.387) 334 746 1 853 263 2 188 010 Comptes semestriels consolidés au 30 juin 2022 ÉTAT DES INFORMATIONS COMPLÉMENTAIRES (ETIC) CONSOLIDÉ AUX 30 JUIN 2022 ET 2021 1 PRINCIPES COMPTABLES ET MÉTHODES D’ÉVALUATION Les principales règles et méthodes du Groupe sont les suivantes : 1 1 Les principes et méthodes de consolidation utilisés par le Groupe TAQA Morocco sont conformes à la méthodologie adoptée par le Conseil National de Comptabilité pour l’établissement des comptes consolidés dans son avis n°5 Principes et méthodes de consolidation 1 1 1 Périmètre et méthodes de consolidation Les sociétés dans lesquelles le Groupe exerce directement ou indirectement un contrôle exclusif sont consolidées par intégration globale Le contrôle exclusif est le pouvoir direct ou indirect, de diriger les politiques financières et opérationnelles d’une entreprise afin de tirer avantage de ses activités Les sociétés dans lesquelles le Groupe exerce directement ou indirectement une influence notable sont consolidées par mise en équivalence Les créances, dettes, produits et charges réciproques significatifs sont éliminés en totalité pour les entreprises intégrées globalement 1 1 2 Dates de clôture Les Sociétés TAQA Morocco et JLEC 5&6 clôturent leurs comptes respectivement au 30 juin et au 31 mars 1 2 Méthodes d’évaluation 1 2 1 Immobilisations incorporelles Les dépenses engagées dans le cadre des révisions majeures, effectuées tous les 8 ans selon un plan préétabli, sont immobilisées et amorties sur la même durée Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2 Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession Droit de jouissance complémentaire constaté en 2001 TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours À compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités Ces actifs incorporels sont amortis sur la période restante de la concession 13 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels consolidés au 30 juin 2022 Droit de jouissance complémentaire constaté en 2020 TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044 Dans ce cadre, un droit de jouissance complémentaire de DH 1,5 milliard a été payé Cet actif incorporel a été amorti sur la période restante de la concession Frais d’obtention du financement Les dépenses engagées pour obtenir le financement ont été comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC Autres frais de développement du projet À dater de la Mise en Place du Financement, la Société TAQA Morocco a comptabilisé en immobilisations incorporelles certaines dépenses payées durant la période de développement du projet Ces frais immobilisés sont répartis sur la durée de la concession 1 2 2 Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée du contrat Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur Immobilisations corporelles 1 2 3 Stocks Les stocks sont évalués au coût d’achat Ce coût comprend le prix d’achat et les frais accessoires d’achat En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P E P S) 1 2 4 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières, à l’exception de celles relatives aux dettes de financement libellées en Dollars américains et en Euros, qui font l’objet d’opérations de quasi- couverture de change résultant d’une position globale de change Les gains de change latents ne sont pas constatés dans le compte de produits et charges 1 2 5 Provisions pour risques et charges Au 30 juin 2022, les provisions pour risques et charges correspondent aux provisions pour engagements sociaux qui ont fait l’objet d’une évaluation actuarielle par un cabinet indépendant Ces engagements sociaux concernent les gratuités en matière d’électricité dont bénéficie le personnel statutaire de TAQA Morocco 1 2 6 Retraitement des impôts Les impôts différés résultant des retraitements de consolidation sont calculés société par société 14 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels consolidés au 30 juin 2022 2 Capitaux propres part du Groupe L’évolution des capitaux propres consolidés part du Groupe s’analyse comme suit : TABLEAU DE VARIATION DES CAPITAUX PROPRES CONSOLIDÉ En milliers de dirhams Capital Prime d’émission Réserves consolidées Résultat de l’exercice Situation à la clôture de l’exercice 2020 Affectation des résultats 2 358 854 1 164 805 1 165 725 54 555 880 159 (880 159) Résultat net au 31 décembre 2021 1 004 834 Situation à la clôture de l’exercice 2021 Affectation des résultats 2 358 854 1 164 805 1 220 279 179 235 1 004 834 (1 004 834) Résultat net au 30 juin 2022 605 096 Situation au 30 juin 2022 2 358 854 1 164 805 1 399 515 605 096 3 Périmètre de consolidation JUIN 2022 JUIN 2021 Filiales % d’intérêt % contrôle Méthode % d’intérêt % contrôle TAQA MOROCCO 100 100 Globale 100 100 JLEC 5&6 66 66 Globale 66 66 15 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Capitaux propres consolidés 5 569 542 (825 604) 1 004 834 5 748 773 (825 599) 605 096 5 528 270 Méthode Globale Globale 16 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes Semestriels sociaux au 30 juin 2022 b Comptes sociaux b Rapports des Commissaires aux Comptes 17 - TAQA MOROCCO - Rapport Financier Semestriel 2022 17 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 BILAN ACTIF EXERCICE EXERCICE PRÉCÉDENT (Montants en dhs) Brut Amortissement et provisions Net Net Immobilisations en non valeur (A) Frais préliminaires Charges à répartir sur plusieurs exercices Primes de remboursement des obligations 17 238 266,89 17 238 266,89 8 604 964,97 8 604 964,97 8 633 301,92 8 633 301,92 10 342 960,18 10 342 960,18 E S Immobilisations incorporelles (B) Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires Fonds commercial Autres immobilisations incorporelles Immobilisations incorporelles diverses RM 13 800 537 857,76 12 645 970 070,83 787 335 139,30 367 232 647,63 9 320 022 341,83 8 486 448 877,09 628 780 261,70 204 793 203,04 4 480 515 515,93 4 543 374 517,63 4 159 521 193,74 4 260 709 923,17 158 554 877,60 162 439 444,59 162 169 175,98 120 495 418,48 I L I B O M M I F I T C A Immobilisations corporelles (C) Terrains Constructions Installations techniques, matériels et outillages Matériel de transport Mobilier, matériels de bureau et aménagements divers Autres immobilisations corporelles Immobilisations corporelles en cours 999 280 040,41 9 389 548,11 641 957 081,00 1 709 265,53 290 978 179,67 313 970,50 54 931 995,60 776 614 851,07 2 760 838,25 524 540 085,86 1 709 265,53 247 290 690,93 313 970,50 222 665 189,34 6 628 709,86 117 416 995,14 43 687 488,74 54 931 995,60 241 633 211,02 7 036 924,45 121 303 889,49 51 200 547,68 62 091 849,40 Immobilisations financières (D) Prêts immobilisés Autres créances financières Titres de participation Autres titres immobilisés 1 200 535 757,48 86 694,62 449 462,86 1 199 999 600,00 1 200 535 757,48 1 200 549 837,53 100 774,67 449 462,86 1 199 999 600,00 86 694,62 449 462,86 1 199 999 600,00 Écarts de conversion (E) Diminution des créances immobilisées Augmentation des dettes financières TOTAL I (A+B+C+D+E) Stocks (F) Marchandises Matières et fournitures consommables Produits en cours Produits intermédiaires et résiduels Produits finis 16 017 591 922,54 10 105 242 157,87 15 605 417,00 1 897 666 611,35 1 897 666 611,35 15 605 417,00 5 912 349 764,67 5 995 900 526,36 1 882 061 194,35 1 295 625 024,96 1 882 061 194,35 1 295 625 024,96 T N A L U C R I C F I T C A Créances de l’actif circulant (G) Fournisseurs débiteurs, avances & acomptes Clients et comptes rattachés Personnel État Compte d’associés Autres débiteurs Comptes de régularisation actif 2 799 414 650,75 8 321 361,59 1 473 205 549,97 2 459 549,76 756 449 006,51 557 694 283,63 1 284 899,29 2 799 414 650,75 2 166 919 950,41 8 321 361,59 9 487 591,95 1 473 205 549,97 2 459 549,76 756 449 006,51 1 044 422 815,83 1 264 145,88 553 290 407,94 557 694 283,63 1 284 899,29 557 694 283,63 760 705,18 Titres et valeurs de placement (H) 568 156 067,76 568 156 067,76 617 308 274,65 Écarts de conversion-Actif (I) (Eléments circulants) 16 972 169,55 16 972 169,55 4 475 764,01 TOTAL II (F+G+H+I) E Trésorerie-Actif R E R O S E R T I Chèques et valeurs à encaisser Banques et CCP Caisses, Régies d’avances et accréditifs 5 282 209 499,41 185 132 144,75 185 125 667,95 6 476,80 15 605 417,00 5 266 604 082,41 4 084 329 014,03 146 116 211,31 185 132 144,75 185 125 667,95 6 476,80 146 102 218,93 13 992,38 TOTAL III 185 132 144,75 185 132 144,75 146 116 211,31 TOTAL GÉNÉRAL (I+II+III) 21 484 933 566,70 10 120 847 574,87 11 364 085 991,83 10 226 345 751,70 18 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 BILAN PASSIF (Montants en dhs) EXERCICE EXERCICE PRÉCÉDENT Capitaux propres Capital social ou personnel (1) 2 358 854 200,00 2 358 854 200,00 Moins : actionnaires, capital souscrit non appelé Capital appelé dont versé Primes d’émission, de fusion, d’apport 1 164 804 710,00 1 164 804 710,00 Écarts de réevaluation Réserve légale 235 885 420,00 235 885 420,00 Autres réserves 23 786 468,91 11 301 456,23 T N E N A M R E P Report à nouveau (2) Résultats nets en instance d’affectation (2) Résultat net de l’exercice (2) 239 935 728,57 838 083 982,68 T N E M E C N A N Total des capitaux propres Capitaux propres assimilés Subventions d’investissement Provisions réglementées (A) (B) 4 023 266 527,48 4 608 929 768,91 I F Dettes de financement (C) 3 679 908 366,86 3 806 104 771,14 Emprunts obligataires 2 399 999 760,00 2 474 999 820,00 Autres dettes de financement 1 279 908 606,86 1 331 104 951,14 Provisions durables pour risques et charges (D) 29 267 253,00 29 267 253,00 Provisions pour risques Provisions pour charges 29 267 253,00 29 267 253,00 Écarts de conversion - Passif (E) Augmentation de créances immobilisées Diminution des dettes de financement TOTAL I ( A + B + C + D + E ) 7 732 442 147,34 8 444 301 793,05 Dettes du passif circulant (F) 3 210 769 696,76 1 772 891 407,67 Fournisseurs et comptes rattachés 1 522 083 157,76 990 706 620,53 Clients créditeurs , avances et acomptes 28 468 471,81 28 761 250,91 T N A L U C R Personnel Organismes sociaux État 23 200 780,30 6 436 392,91 236 757 437,73 53 898 087,46 8 197 762,30 200 753 984,11 I C F I Comptes d’associés 3 401 697,19 1 697,19 S S A P Autres créanciers Comptes de régularisation - passif 1 366 875 071,80 23 546 687,26 459 660 075,86 30 911 929,31 Autres provisions pour risques et charges (G) 19 610 351,99 7 113 946,45 Écarts de conversion - Passif ( éléments circulants ) (H) 21 263 795,74 2 038 604,53 TOTAL II ( F + G + H ) 3 251 643 844,49 1 782 043 958,65 TRÉSORERIE PASSIF E I R E R O S E R T Crédits d’escompte Crédits de trésorerie Banques de régularisation 380 000 000,00 0,00 TOTAL III 380 000 000,00 0,00 TOTAL GÉNÉRAL ( I + II + III ) 11 364 085 991,83 10 226 345 751,70 19 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 COMPTE DE PRODUITS ET CHARGES (Hors Taxes) (Montants en dhs) Exercice du 1er janvier 2022 au 30 juin 2022 NATURE OPÉRATIONS Propres à l’exercice 1 Concernant les exercices précédents 2 TOTAUX DE L’EXERCICE 3= 1 + 2 TOTAUX DE L’EXERCICE PRÉCÉDENT 4 N O I T A T I O L P X E I II Produits d’exploitation Ventes de marchandises (en l’état) Ventes de biens et services produits Chiffre d’affaires Variation de stocks de produits (+ ou -) (1) Immobilisations produites par l’entreprise pour elle- même Subventions d’exploitation Autres produits d’exploitation Reprises d’exploitation : transferts de charges TOTAL I Charges d’exploitation Achats revendus (2) de marchandises Achats consommés (2) de matières et fournitures Autres charges externes Impôts et taxes Charges de personnel Autres charges d’exploitation Dotations d’exploitation TOTAL II 3 518 381 446,29 736 876,98 21 301 725,66 3 540 420 048,93 2 645 225 607,47 83 318 067,54 23 136 609,99 104 306 551,64 4 000 000,00 181 280 075,78 3 041 266 912,42 3 518 381 446,29 2 013 341 899,66 736 876,98 21 301 725,66 2 956 287,35 3 540 420 048,93 2 016 298 187,01 1 184 034 002,98 69 367 082,18 23 121 244,04 113 506 799,86 3 500 000,00 179 364 109,43 3 041 266 912,42 1 572 893 238,49 443 404 948,52 2 645 225 607,47 83 318 067,54 23 136 609,99 104 306 551,64 4 000 000,00 181 280 075,78 III RÉSULTAT D’EXPLOITATION (I - II) IV Produits financiers 499 153 136,51 R E I C N A N I F V Produits des titres de participation et autres titres immobilisés Gains de change Intérêts et autres produits financiers Reprises financières : transferts de charges TOTAL IV Charges financières Charges d’intérêts Pertes de change Autres charges financières Dotations financières TOTAL V VI RÉSULTAT FINANCIER (IV - V) VII RÉSULTAT COURANT (III + VI) VIII PRODUITS NON COURANTS 9 189 206,48 4 911 867,90 4 475 640,01 18 576 714,39 83 680 171,90 1 809 172,72 16 972 045,55 102 461 390,17 9 189 206,48 4 911 867,90 4 475 640,01 18 576 714,39 83 680 171,90 1 809 172,72 16 972 045,55 102 461 390,17 -83 884 675,78 415 268 460,73 4 387 079,55 11 183 871,75 15 570 951,30 88 321 624,30 753 794,82 2 613 478,09 91 688 897,21 -76 117 945,91 367 287 002,61 T N A R U O C N O N Produits de cessions d’immobilisations Subventions d’équilibre Reprises sur subventions d’investissement Autres produits non courants Reprises non courantes : transferts de charges TOTAL VIII IX CHARGES NON COURANTES Valeurs nettes d’amortissement des immobilisations cédées Subventions accordées Autres charges non courantes Dotations non courantes aux amortissements et aux provisions TOTAL IX RÉSULTAT NON COURANT (VIII - IX) X XI RÉSULTAT AVANT IMPÔTS VII+ ou - X) XII IMPÔTS SUR LES RÉSULTATS XIII RÉSULTAT NET (XI - XII) XIV TOTAL PRODUITS (I + IV + VIII) XV TOTAL CHARGES (II + V + IX + XII) XVI RÉSULTAT NET (total produits - total charges) 472 828,51 472 828,51 39 786 651,23 39 786 651,23 298000 472 828,51 472 828,51 147 000,00 29 678 250,00 30 123 250,00 39 786 651,23 38 985 107,02 38 985 107,02 -8 861 857,02 358 425 145,59 108 694 913,16 249 730 232,43 3 559 469 591,83 2 061 992 388,31 3 319 533 863,26 1 812 262 155,88 249 730 232,43 39 786 651,23 -39 313 822,72 375 954 638,01 136 018 909,44 239 935 728,57 239 935 728,57 variation de stocks : stock final – stock initial : augmentation (+) : diminution (-) achats revendus ou consommés : achats – variation de stock 20 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 ÉTAT DES SOLDES DE GESTION (ESG) I TABLEAU DE FORMATION DES RÉSULTATS ( T F R ) (Montants en dhs) 1 Ventes de marchandises (en l’état) 2 Achats revendus de marchandises I = MARGE BRUTE SUR VENTES EN L’ÉTAT + PRODUCTION DE L’ EXERCICE : (3 + 4 + 5) II 3 4 Ventes de biens et services produits Variation de stocks de produits 5 Immobilisations produites par l’entreprise pour elle-même CONSOMMATIONS DE L’EXERCICE : (6 + 7) III 6 Achats consommés de matières et fournitures 7 Autres charges externes IV = VALEUR AJOUTÉE : (I + II + III) 8 + Subventions d’exploitation V 9 Impôts et taxes 10 Charges du personnel = EXCÉDENT BRUT D’EXPLOITATION (EBE) = OU INSUFFISANCE BRUTE D’EXPLOITATION (I B E) 11 + Autres produits d’exploitation 12 Autres charges d’exploitation 13 + Reprises d’exploitation : transferts de charges 14 Dotations d’exploitation VI = RÉSULTAT D’EXPLOITATION (+ ou -) VII + ou - RÉSULTAT FINANCIER VIII = RÉSULTAT COURANT (+ ou -) IX + ou - RÉSULTAT NON COURANT 15 IMPÔTS SUR LES RÉSULTATS X = RÉSULTAT NET DE L’EXERCICE ( + ou - ) II CAPACITÉ D’AUTOFINANCEMENT ( C A F ) - AUTOFINANCEMENT Résultat de l’exercice 1 Bénéfice Perte 2 + Dotations d’exploitation (1) 3 + Dotations financières (1) 4 + Dotations non courantes (1) 5 Reprises d’exploitation (2) 6 Reprises financières (2) 7 Reprises non courantes (2) (3) 8 Produits de cession d’immobilisations 9 + Valeurs nettes des amortissement des imm cédées I CAPACITÉ D’AUTOFINANCEMENT ( C A F ) 10 Distributions de bénéfices II AUTOFINANCEMENT 21 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Exercice du 1er janvier 2022 au 30 juin 2022 EXERCICE EXERCICE PRÉCÉDENT 3 518 381 446,29 2 013 341 899,66 3 518 381 446,29 2 013 341 899,66 2 728 543 675,01 1 253 401 085,16 2 645 225 607,47 1 184 034 002,98 83 318 067,54 69 367 082,18 789 837 771,28 759 940 814,50 23 136 609,99 23 121 244,04 104 306 551,64 113 506 799,86 662 394 609,65 623 312 770,60 736 876,98 2 956 287,35 4 000 000,00 3 500 000,00 21 301 725,66 181 280 075,78 179 364 109,43 499 153 136,51 443 404 948,52 83 884 675,78 76 117 945,91 415 268 460,73 367 287 002,61 39 313 822,72 8 861 857,02 136 018 909,44 108 694 913,16 239 935 728,57 249 730 232,43 239 935 728,57 249 730 232,43 165 674 658,78 179 364 109,43 25 851 518,00 25 851 518,00 298 000,00 405 610 387,35 428 796 341,86 825 598 970,00 825 598 970,00 419 988 582,65 396 802 628,14 Comptes semestriels sociaux au 30 juin 2022 TABLEAU DE FINANCEMENT DE L’EXERCICE I Synthèse des masses du bilan (Montants en dhs) MASSES Exercice (a) Exercice précédent (b) 1 Financement permanent 7 732 442 147,34 8 444 301 793,05 2 Moins actif immobilisé 5 912 349 764,67 5 995 900 526,36 3 = Fonds de roulement fonctionnel (1-2) (A) 1 820 092 382,67 2 448 401 266,69 4 Actif circulant 5 266 604 082,41 4 084 329 014,03 5 Moins passif circulant 3 251 643 844,49 1 782 043 958,65 6 = Besoins de financement global (4-5) (B) 2 014 960 237,92 2 302 285 055,38 7 = Trésorerie nette (actif-passif) (A - B) (194 867 855,25) 146 116 211,31 II Emplois et Ressources EXERCICE EMPLOIS RESSOURCES I. RESSOURCES STABLES DE L’EXERCICE AUTOFINANCEMENT (A) (419 988 582,65) Capacité d’autofinancement 405 610 387,35 Distribution de bénéfices (825 598 970,00) CESSIONS ET RÉDUCTIONS D’IMMOBILISATIONS (B) 14 080,05 Cession d’immobilisations incorporelles Cession d’immobilisations corporelles Cession d’immobilisations financières Récupérations sur créances immobilisées 14 080,05 AUGMENTATIONS DES CAPITAUX PROPRES ET ASSIMILES (C) Augmentations de capital, apports Subventions d’investissement AUGMENTATIONS DES DETTES DE FINANCEMENT (D) TOTAL I. DES RESSOURCES STABLES (A+B+C+D) (419 974 502,60) II. EMPLOIS STABLES DE L’EXERCICE ACQUISITIONS ET AUGMENTATIONS D’IMMOBILISATIONS (E) 82 137 977,14 Acquisition d’immobilisations incorporelles Acquisition d’immobilisations corporelles 82 137 977,14 Acquisition d’immobilisations financières Augmentation des créances immobilisées REMBOURSEMENTS DES CAPITAUX PROPRES (F) REMBOURSEMENTS DES DETTES DE FINANCEMENT (G) 126 196 404,28 EMPLOIS EN NON VALEURS (H) TOTAL II. EMPLOIS STABLES (E+F+G+H) 208 334 381,42 III. VARIATION DU BESOIN DE FINANCEMENT GLOBAL (BFG ) 287 324 817,46 IV. VARIATION DE LA TRÉSORERIE 340 984 066,56 TOTAL GÉNÉRAL 208 334 381,42 208 334 381,42 22 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Exercice du 1er janvier 2022 au 30 juin 2022 Variation (a-b) Emplois (c) Ressources (d) 711 859 645,71 83 550 761,69 628 308 884,02 1 182 275 068,38 1 469 599 885,84 287 324 817,46 340 984 066,56 EXERCICE PRÉCÉDENT EMPLOIS RESSOURCES 373 424 190,53 1 199 023 160,53 (825 598 970,00) 425 598,60 298 000,00 127 598,60 373 849 789,13 27 530 475,06 352 985,00 27 177 490,06 252 392 808,56 279 923 283,62 24 581 140,39 118 507 645,90 398 430 929,52 398 430 929,52 Comptes semestriels sociaux au 30 juin 2022 ÉTAT DES INFORMATIONS COMPLÉMENTAIRES AU 30 JUIN 2022 (ETIC) A PRINCIPES ET MÉTHODES COMPTABLES A.0 Informations générales sur l’activité A.0.1 Historique La centrale thermique de Jorf Lasfar est située sur la côte atlantique du Maroc, adjacente au port de Jorf Lasfar, dans la province d’El Jadida. Le site est localisé à environ 127 Km au sud-ouest de Casablanca. La construction des unités 1 et 2 de la centrale thermique a été effectuée par GEC Alsthom pour le compte de l’Office National d’Electricité (ONE), et achevée en 1994. Chacune de ces unités, utilisant le charbon comme combustible, a une capacité de 330 MW. En octobre 1994, l’ONE a émis un appel d’offre international relatif à la concession de la centrale thermique de Jorf Lasfar pour une période de 30 années. Le Groupement formé par ABB Energy Ventures et CMS Generation (Le Consortium) a été retenu en février 1995. L’accord de principe établi entre l’ONE et le Consortium en avril 1996 a permis le démarrage des négociations des contrats afférents au projet (Project Agreements). A.0.2 Constitution et activité Dans le but de conclure officiellement et mettre en œuvre ces contrats, le Consortium a constitué, en date du 20 janvier 1997, une société marocaine en commandite par actions dénommée Jorf Lasfar Energy Company (JLEC), immatriculée au Registre de Commerce sous le Numéro 2145, ayant pour Identification Fiscale le Numéro 1021595 et enregistrée à la Patente sous le Numéro 42161753. Conformément à ses statuts, la société a pour objet de construire, exploiter, gérer et maintenir la centrale électrique de Jorf Lasfar, incluant le développement, le financement, l’équipement, la construction, le design, les tests, l’exploitation et la maintenance des deux nouvelles unités, qui sont quasiment similaires en taille et en technologie à celles déjà existantes. Dans le but d’assurer son approvisionnement en combustibles, la société développe, exploite et entretient les installations de déchargement, de transport et de stockage du charbon existantes au Port de Jorf Lasfar. Afin d’exercer ces activités, la société a reçu un droit de jouissance du site localisé au port de Jorf Lasfar, des unités existantes, des unités nouvelles, des installations de transport du charbon. A.0.3 Période de développement de l’activité Le 12 septembre 1997, date de la Mise en Place du Financement, tous les Contrats de Projet ont été signés, le Contrat d’Emprunt Groupe a été exécuté, et le premier déblocage de l’Emprunt Groupe a notamment servi au paiement du Droit de Jouissance à l’ONE. Par conséquent, JLEC a pris possession de la Centrale Thermique le 13 septembre 1997 et a commencé à vendre la capacité disponible et la production nette à l’ONE, conformément au Contrat de Fourniture d’Energie Electrique (PPA). Les conditions requises pour le financement du projet ont été complétées en novembre 1997. 23 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 A.0.4 Période de construction des Unités 3 et 4 Les Unités 3 et 4 ont été respectivement mises en exploitation le 9 juin 2000 et le 2 février 2001, soit respectivement 33 mois et 40 mois à compter de la date de la Mise en Place du Financement. A.0.5 Acquisition de JLEC par TAQA Le 2 mai 2007, Abu Dhabi National Energy Company (“TAQA”) a acheté CMS Generation, filiale de CMS Energy qui contrôle les actionnaires directs de JLEC (i) Jorf Lasfar Energiaktiebolag, (ii) Jorf Lasfar Power Energy AB and (iii) Jorf Lasfar Handelsbolag et les filiales du Groupe ABB (i) Tre Kronor Investment AB, (ii) AB Cythere 61 and (iii) AB Cythere 63. En conséquence de ces acquisitions, JLEC était directement et indirectement détenue par TAQA. A.0.6 Refinancement de la dette Le refinancement de la dette contractée en devises en 1997 auprès d’un consortium de bailleurs de fonds étrangers ainsi que la dette convertible en actions contractée auprès des actionnaires directs de JLEC, moyennant la contraction d’un crédit auprès d’un consortium de banques marocaines, comportant de deux tranches A et B d’une maturité long terme (une Tranche A d’un montant de 5.500.000,00 Dirhams et une Tranche B de 1.500.000,00 Dirhams), et de deux Tranches R (une facilité court terme sur un an) d’un montant de 200.000,00 Dirhams chacune, dont le contrat a été signé en date du 16 janvier 2009, tel que modifié par avenant en date du 27 mars 2009 et par avenant en date du 22 décembre 2009 et par avenant du 15 décembre 2010 et par avenant en date du 10 décembre 2012 et par avenant en date du 3 octobre 2014 et par avenant en date du 3 juillet 2015. A.0.7 Création de la filiale Jorf lasfar Energy Company 5&6 (JLEC 5&6) Le 22 décembre 2010, JLEC 5&6 a été créée pour porter le projet d’extension de la Centrale Thermique de Jorf Lasfar par la construction de deux nouvelles unités de 350MW brute chacune fonctionnant au charbon vapeur sur le site adjacent au site actuel de la centrale thermique de Jorf Lasfar. Les deux nouvelles unités de production d’électricité (Unités 5&6) sont d’une capacité de 700 MW (2 x 350 MW), portant la capacité totale de la centrale thermique de Jorf Lasfar à plus de 2000 MW. TAQA Morocco détient, au 31 décembre 2021, 66% des actions de JLEC 5&6. Les Unités 5&6 ont été mises en exploitation commerciale respectivement le 15 avril et le 7 juin 2014. A.0.8 Placement Privé et Introduction en Bourse En décembre 2013, une double augmentation de capital d’un montant global de DH 1.500.000.310 a été effectuée : Une première augmentation « Augmentation de Capital Pré-IPO » a été réservée à des investisseurs institutionnels (RMA Watanya, SCR et MCMA) suite à un Placement Privé qui s’est élevé à DH 499.999.805, dont 111.731.800 Dh à titre de nominal et 388.268.005 Dh à titre de prime d’émission. Les actions issues du Placement Privé ont été intégralement libérées et portent jouissance à compter du 1er janvier 2013 ; Une deuxième augmentation de capital « Augmentation de Capital IPO » a été réalisée auprès du Grand Public suite à l’introduction en bourse de JLEC pour un montant de DH 1.000.000.505, dont 223.463.800 Dh à titre de nominal et 776.536.705 Dh à titre de prime d’émission. Les actions issues de l’introduction en bourse ont intégralement été libérées et portent jouissance à compter du 1er janvier 2013. 24 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 À l’issue de l’introduction en bourse précitée, Abu Dhabi National Energy Company PJSC (TAQA) détient désormais 85,79% du capital de TAQA Morocco et la portion du capital restante soit 14,21% est détenue par les actionnaires ayant participé au Placement Privé et à l’introduction en bourse. A.0.9 Changement de dénomination sociale et extension de l’objet social L’Assemblée Générale Ordinaire et Extraordinaire des Actionnaires de TAQA MOROCCO S.A. (ex Jorf Lasfar Energy Company) s’est réunie le 13 Octobre 2014 à, et a notamment approuvé : L’adoption de la nouvelle dénomination sociale « TAQA Morocco » ; L’extension de l’objet sociale de la société TAQA Morocco ; La modification corrélative des Statuts de la société TAQA Morocco. A.0.10 Extension du PPA des Unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. L’alignement des deux PPA 1 à 4 et 5&6 à 2044 permettra de consolider durablement la robustesse du business model de TAQA Morocco pour continuer à garantir une charge de base compétitive et contribuer à la sécurité énergétique du Royaume du Maroc. A.0.11 Émission d’un emprunt obligataire par placement privé TAQA Morocco a réalisé, le 7 septembre 2020, une émission obligataire par placement privé d’un montant de DH 2,7 milliards au taux fixe de 3,75% sur une maturité de 18 ans. L’objectif de cette émission est de permettre à la Société TAQA Morocco d’optimiser son coût d’endettement et de diversifier ses sources de financement pour accompagner la diversification du mix énergétique de TAQA Morocco au Maroc. Cette émission obligataire a servi au remboursement par anticipation, en date du 22 septembre 2020, de la dette bancaire contractée en 2019 pour un montant de DH 2,7 milliards. A.1 Principales méthodes d’évaluation spécifiques à l’entreprise A.1.1 Généralités Les états de synthèse de la société TAQA Morocco sont préparés conformément aux principes comptables généralement admis au Maroc, tels que prescrits dans le Code Général de Normalisation Comptable (CGNC). Durant la période de constitution et d’établissement de la Société (jusqu’à la date de la Mise en Place du Financement), toutes les dépenses ont été payées par le Groupement (ABB et CMS). Dès la Mise en Place du Financement, tous les frais de premier établissement et de constitution supportés par les sociétés apparentées ont été facturés à JLEC, et remboursés par la Société. A.1.2 Immobilisations en non valeur - Frais préliminaires Dès la date de la Mise en Place du Financement, la Société a immobilisé ses frais préliminaires, et les a amortis sur une durée ne dépassant pas cinq années. Les frais préliminaires comprennent les charges légales et administratives engagées pour constituer la société, ainsi que certaines dépenses supportées dans le but de préparer le démarrage de l’activité commerciale de la Société. 25 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 Charges à répartir sur plusieurs exercices Les charges à répartir sur plusieurs exercices comportent des charges afférentes à des projets spécifiques qui ont fait l’objet d’un étalement sur 5 ans. A.1.3 Immobilisations incorporelles - Frais d’obtention du financement Les dépenses engagées pour obtenir le financement sont comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet À dater de la Mise en Place du Financement, la Société a comptabilisé en immobilisations incorporelles certaines dépenses payées par le Groupement durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif aux Unités 3 et 4 Comme indiqué à la note A.0.4 ci-dessus, JLEC avait procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. À compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de JLEC avait été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif à la prorogation du PPA des Unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. Dans ce cadre, TAQA Morocco a procédé au paiement du droit de jouissance complémentaire pour un montant de DH 1,5 milliard qui a été immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). Autres immobilisations incorporelles Les autres immobilisations incorporelles comprennent les révisions mineures et majeures effectuées selon le plan de maintenance préétabli qui sont amorties sur 5 ans. Avant 2021, ces révisions étaient classées parmi les charges à répartir. À compter du 1er janvier 2021, elles ont été reclassées parmi les autres immobilisations incorporelles. 26 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Comptes semestriels sociaux au 30 juin 2022 A.1.4 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée de la concession. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. A.1.5 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). A.1.6 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion actif ou passif. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. A.2 État des dérogations A.2.1 Dérogations aux principes comptables fondamentaux Néant. A.2.2 Dérogations aux méthodes d’évaluation Néant. A.2.3 Dérogations aux règles d’établissement et de présentation des états de synthèse Les gains et pertes de change provenant de la comptabilisation des achats de charbon et des règlements correspondants, effectués en Dollars américains et convertis en dirhams au cours du jour d’opération, sont enregistrés dans un sous- compte de la rubrique « Achats de charbon » intitulé « Différences sur achats de charbon en dollars », parmi les charges d’exploitation. Ce traitement particulier, sans impact sur le patrimoine et la situation financière de la Société, est justifié par le fait que ces différences sont liées aux règles de comptabilisation, et ne correspondent pas à des gains et pertes de change provenant de la conversion de dirhams en dollars. A.3 État des changements de méthodes A.3.1 Changements affectant les méthodes d’évaluation Néant. A.3.2 Changements affectant les règles de présentation Néant. 27 - TAQA MOROCCO - Rapport Financier Semestriel 2022 28 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Liste des Communiqués de presse 29 - TAQA MOROCCO - Rapport Financier Semestriel 2022 29 - TAQA MOROCCO - Rapport Financier Semestriel 2022 Liste des communiqués de presse LISTE DES COMMUNIQUÉS DE PRESSE 07 janvier 2022 Communiqué relatif aux nominations au Directoire 24 février 2022 Communiqué relatif aux indicateurs du 4e trimestre 2021 18 mars 2022 Résultats financiers 2021 20 avril 2022 Communiqué relatif à l’attribution de 5 lots pour le développement des sites solaires 22 avril 2022 Avis de convocation à l’AGO du 24 mai 2022 29 avril 2022 Communiqué relatif au Rapport Financier Annuel 2021 12 mai 2022 Communiqué relatif aux indicateurs du 1er trimestre 2022 26 mai 2022 Communiqué post AGO du 24 mai 2022 06 juillet 2022 Communiqué relatif au remplacement d’un administrateur indépendant 25 août 2022 Communiqué relatif aux indicateurs du 2e trimestre 2022 30 - TAQA MOROCCO - Rapport Financier Semestriel 2022 TAQA Morocco Centrale Thermique Jorf Lasfar B.P.99 - Sidi Bouzid - El Jadida - Maroc Tél : +212 523 389 000 - Fax : +212 523 345 375 www.taqamorocco.ma 31 - TAQA MOROCCO - Rapport Financier Semestriel 2022 | Semestriel, 2022, Energy, TaqaMorocco | write me a financial report |
Semestriel | 2,021 | Energy | TaqaMorocco | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TaqaMorocco
### Response:
| R E I C N A N 1 2 0 2 N I I F U J TOUTE NOTRE ENERGIE POUR FAIRE BRILLER LE MAROC T R O P P A R 0 3 U A 2 2 E R I A M M O S P6 P6 P7 P7 P13 1 PRÉSENTATION DE TAQA MOROCCO 2 ACTIVITÉ DE LA SOCIÉTÉ DURANT LE SEMESTRE ÉCOULÉ 3 ÉVÉNEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLÔTURE DU SEMESTRE ÉCOULÉ 4 PRÉSENTATION DES COMPTES SEMESTRIELS 5 COMPTES CONSOLIDÉS ET SOCIAUX AU 30 JUIN 2021 3 3 4 Résultats financiers au 30 juin 2021 5 PRÉSENTATION 1 DE TAQA MOROCCO 3 4 TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. EVENEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLOTURE DU SEMESTRE ECOULE Une infrastructure industrielle de 6 Unités totalisant 2 056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques de taille équivalente. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco fait partie du Groupe TAQA, opérateur énergétique leader dans le top 10 du secteur des Utilities de la région EMEA. TAQA Morocco contribue pour plus de 38% de la demande Au 15 septembre 2021, nous n’avons connaissance d’aucun événement important qui nécessiterait un traitement comptable ou nationale d’électricité, soit une production équivalente à la consommation électrique de 15 millions de personnes, et se une mention dans les notes de la liasse publiable des états financiers. positionne en opérateur énergétique de référence au Maroc en matière de savoir-faire et d’expertise métier. Un avantage compétitif pour se développer sur le mix énergétique. PRESENTATION DES COMPTES AU 30 JUIN 2021 Acteur responsable, La RSE fait partie intégrante de la stratégie de TAQA Morocco. L’entreprise mène une politique active en matière d’engagement social et de développement durable tant au niveau de la gestion responsable de ces Unités de production qu’en matière de standards environnementaux et d’actions sociales. Le Complexe thermique de Jorf Lasfar a non seulement anticipé les choix technologiques de ses équipements mais surtout mis en place un programme de gestion globale de l’environnement intégrant toute la chaîne de valeur depuis la qualité de sa matière première combustible jusqu’à 4.1 Comptes sociaux la gestion de ses coproduits. Un modèle d’exploitation et d’écologie industrielle certifié selon la norme ISO 14001 depuis 4.1.1 Compte de produits et charges 2004 et labellisé RSE par la CGEM. TAQA Morocco a en outre massivement investi au Maroc depuis son démarrage en 1997 et joue un rôle économique En Mdh Juin-2021 Juin-2020 Var. 21/20 -104 -239 49 -294 -285 -28 20 Var. 21/20 en % important qui se mesure à la création d’emplois, sa contribution fiscale significative et son modèle de croissance inclusive Frais de puissance Frais d'énergie Autres revenus Chiffre d'Affaires Achats consommés de matières et fournitures Autres charges externes Valeur Ajoutée 805 1 089 120 2 013 1 184 69 760 37,7% 23 114 623 31,0% 3 0 4 179 443 22,0% 16 0 4 11 0 92 88 1 3 -76 908 1 329 70 2 307 1 469 98 740 32,1% 23 114 604 26,2% 0 9 4 188 421 18,2% 22 0 0 21 0 96 86 10 0 -74 avec le développement d’un écosystème local et national essaimé autour de son activité. 12,7% 2 ACTIVITE DE LA SOCIETE DURANT LE SEMESTRE ECOULE 2,6% 566 pbs Taux de valeur ajoutée (VA/CA) Impôts et taxes Charges de personnel Excédent Brut d'Exploitation 0 0 20 3,3% 480 pbs Marge brute d'exploitation (EBE/CA) 2.1 Conjoncture économique : Autres produits d'exploitation Reprise d'exploitation, transfert de charges Autres charges d'exploitation Dotations d'exploitation Résultat d’exploitation 3 -9 0 -8 22 a) Evolution de la parité USD/MAD La parité moyenne USD/MAD a connu une baisse de 8,6%, passant de 9,78 au 30 juin 2020 à 8,94 au 30 juin 2021. b) Evolution des prix du charbon 5,3% 377 pbs -28,6% Marge opérationnelle (REX/CA) Le cours d’achat moyen du charbon a enregistré une baisse, passant de $ 69/tonne métrique au 30 juin 2020 à $ 62/tonne Produits financiers Produits des titres de participation Gains de change Intérêts et autres produits financiers Reprises financières, transfert de charges Charges financières Charges d'intérêts Pertes de change Dotations financières Résultat financier 6 0 4 -10 0 -4 2 -9 3 -2 30 0 30 22 22 0 métrique au 30 juin 2021. Par ailleurs, l’indice du prix d’achat de charbon de référence API2 a connu une augmentation moyenne sur le marché international de 70% passant de $46/tonne à $78/tonne. 4,1% 2.2 Activité de la Société L’activité de la Centrale a été marquée par les principaux faits suivants : Le niveau de disponibilité des Unités 1 à 6 de la Centrale a atteint au 30 juin 2021 un pourcentage de 89,4% contre 97,3% 3,2% au 30 juin 2020 ; Résultat courant 367 347 5,7% La réalisation de la révision majeure planifiée de l’Unité 6 de 61 jours au cours du premier trimestre 2021 en conformité Produits non courants Autres produits non courants Reprises non courantes, transfert de charges Charges non courantes Autres charges non courantes Dotations non courantes 30 0 30 39 39 0 0 0 0 16 16 0 avec le plan de maintenance ; La réalisation d’une inspection de 7 jours de l’Unité 5 en janvier 2021 ; La réalisation des arrêts planifiés de 7 jours des Unités 2 et 3 conformément au plan de maintenance. 136,3% Résultat non courant 9 16 8 46,3% Résultat avant impôt 358 331 28 8,3% Impôt sur les sociétés 109 110 1 Résultat net 250 12,4% 221 9,6% 29 13,0% 283 pbs Marge Nette (RN/CA) 6 6 7 7 8 a) Analyse du résultat d’exploitation Le résultat d’exploitation a enregistré une progression de 5,3% par rapport au 30 juin 2020, soit une hausse de MMAD 22 qui s’explique principalement par : L’évolution du chiffre d’affaires par rapport au 30 juin 2020, La baisse des frais de puissance par rapport au 30 juin 2020 pour MMAD 104 qui s’explique principalement par la réalisation des arrêts planifiés de 7 jours des Unités 2 et 3, la baisse contractuelle des tarifs et de l’évolution du cours de change USD/MAD au cours du semestre, La diminution des frais d’énergie par rapport au 30 juin 2020 en conformité avec l’évolution du prix moyen d’achat du charbon. L’évolution favorable du prix d’achat du charbon sur le marché international avec un coût d’achat du charbon inférieur à l’indice du prix d’achat de charbon de référence API2, Les efforts continus d’optimisation des charges d’exploitation et de maintenance. b) Analyse du résultat financier La baisse du résultat financier de MMAD 2 est essentiellement due à la hausse des charges d’intérêts de MMAD 2 qui s’explique principalement par l’impact de la constatation des charges d’intérêts de la dette afférente au droit de jouissance complémentaire qui a fait l’objet d’un tirage en septembre 2020 pour un montant de 1.5 milliard de MAD ainsi que l’impact positif du reprofilage de la dette consortial auprès des banques marocaines par l’émission obligataire qui a eu pour effet de baisser le taux d’intérêt sur la dette de 4,80% à 3,75%. c) Analyse du résultat non courant : Le résultat non courant est en progression par rapport au 30 juin 2020 passant de -16 MDH à -9 MDH. Il se compose principalement de la contribution sociale de solidarité. 4.1.2 Bilan En Million MAD juin-21 déc-20 Var. 21/20 Var. 21/20 en % ACTIF Actif immobilisé 6 150 6 326 176 3% Immobilisations en non valeurs 194 241 47 Immobilisations incorporelles 4 507 4 608 101 Immobilisations corporelles 249 276 27 Immobilisations financières 1 201 1 201 0 Actif circulant 2 840 2 498 342 14% Stocks 985 885 100 Créances de l’actif circulant 1 851 1 609 242 Ecarts de conversion - Actif 4 3 1 Trésorerie - actif 1 123 1 011 112 11% Banques, TG et CP 16 28 12 Titres et valeurs de placement 1 107 983 124 Total ACTIF 10 113 9 835 278 3% PASSIF Financement permanent 7 979 8 681 702 8% Capitaux propres 4 021 4 596 576 Dettes de financement 3 932 4 058 126 Provisions durables pour risques et charges 26 26 0 Dettes du passif circulant 2 127 1 116 1 011 91% Autres provisions pour risques et charges 5 32 27 84% Ecarts de conversion - Passif (éléments circulants) 3 6 3 55% Trésorerie passif 0 0 0 0,0% Total PASSIF 10 113 9 835 278 3% Le total bilan enregistre une hausse de 3 % qui s’analyse comme suit : - Baisse de l’actif immobilisé de MMAD 176 qui s’explique principalement par les dotations aux amortissements au 30 juin 2021 pour MMAD 179 ainsi que par les investissements de la période pour MMAD 3 ; Hausse de l’actif circulant de MMAD 342 qui s’explique principalement par : La hausse des créances clients pour un montant de MMAD 103, essentiellement due à l’impact de la réalisation de la révision mineure de l’Unité 1 au cours du quatrième trimestre 2020. La hausse des comptes de stock pour MMAD 100 qui provient principalement de la hausse du stock de charbon. Ainsi que l’augmentation des créances vis-à-vis de l’Etat pour MMAD 141 (essentiellement les acomptes d’IS et les comptes de TVA récupérable). Hausse de la trésorerie nette de MMAD 112 qui s’explique par la baisse du fonds de roulement de MMAD 526 ainsi que par la diminution du besoin en fonds de roulement pour un montant de MMAD 638 ; Les principales variations enregistrées au niveau du bilan passif sont analysées ci-dessous : Baisse des capitaux propres de MMAD 576 qui résulte de la constatation du résultat net réalisé au 30 juin 2021 pour MMAD 250 et des dividendes distribués au titre de l’exercice 2020 pour MMAD 826 ; Baisse des dettes de financement de MMAD 126 due aux remboursements effectués au cours de la période ; Augmentation des dettes du passif circulant de MMAD 1 011 qui s’analyse comme suit : Constatation des dividendes à payer au titre de l’exercice 2020 pour MMAD 826, Comptabilisation de la dette au titre de l’IS au 30 juin 2021 pour MMAD 109, Hausse des dettes fournisseurs de MMAD 56 principalement liée à la hausse de la dette des fournisseurs de charbon. 9 10 4.2 Comptes consolidés 4.2.1 Compte de produits et charges consolidé En Million MAD juin-21 juin-20 Var. 21/20 Var. 21/20 en % Frais de puissance 1 761 1 915 153 Frais d'énergie 1 532 1 962 430 Autres revenus 172 139 32 Chiffre d'affaires net 3 465 4 016 552 14% Autres produits d'exploitation 3 0 3 Reprises d'exploitation et transferts de charges 0 9 9 Total produits d'exploitation 3 468 4 025 557 14% Achats et autres charges externes 1 824 2 350 526 Impôts et taxes 23 23 0 Charges de personnel 153 148 5 Autres charges d'exploitation 4 4 0 Dotations aux amortissement et provisions 387 400 13 Total charges d'exploitation 2 391 2 925 534 18% Résultat d'exploitation 1 077 1 100 24 2% Marge opérationnelle (Rex/CA) 31,1% 27,4% 368 pbs Résultat financier 234 258 24 9% Résultat courant 842 842 0 0% Résultat non courant 40 51 11 21% Résultat avant impôts 802 792 11 1% Impôts sur les bénéfices 256 256 1 0% Résultat net consolidé 547 535 11 2% Marge nette (RN/CA) 15,8% 13,3% 245 pbs dont Résultat net - Part du Groupe 444 428 15 4% dont Intérêts minoritaires 103 107 4 4% Le chiffre d’affaires consolidé s’élève au 30 juin 2021 à MMAD 3 465, contre MMAD 4 016 au 30 juin 2020, cette variation s’explique principalement par : La réalisation de la révision majeure planifiée de l’Unité 6 de 61 jours au cours du premier trimestre 2021 contre 70 jours initialement prévus au niveau du plan de maintenance, - La diminution des frais d’énergie consécutive à l’évolution du prix d’achat du charbon, - La bonne performance opérationnelle des Unités 1 à 6. L’évolution du résultat d’exploitation consolidé s’explique principalement par : la bonne performance opérationnelle des Unités 1-6, - l’évolution favorable du prix d’achat du charbon sur le marché international avec un coût d’achat du charbon inférieur au prix l’indice du prix d’achat de charbon de référence API2, - Les efforts continus d’optimisation des charges d’exploitation et de maintenance. Le taux de marge opérationnelle s’améliore à 31,1% au 30 juin 2021 contre 27,4% au 30 juin 2020. Le résultat financier a connu une amélioration de MMAD 24, expliquée essentiellement par la baisse des charges d’intérêts suite aux remboursements de la période et à l’optimisation du coût d’endettement suite à l’émission obligataire qui a eu pour effet de baisser le taux d’intérêt sur la dette de 4,80% à 3,75%. Le taux de marge nette consolidé est en progression passant de 13,3% au 30 juin 2020 à 15,8% au 30 juin 2021. Hausse du RNPG de 4%, passant de MMAD 428 au 30 juin 2020 à MMAD 444 au 30 juin 2021. 4.2.2 Bilan consolidé En Million MAD juin-21 déc-20 Var. 21/20 Var. 21/20 en % ACTIF Actif immobilisé 14 116 14 381 265 2% Immobilisations incorporelles 4 962 5 130 169 Immobilisations corporelles 8 980 9 023 43 Immobilisations financières 1 1 0 Ecart de conversion actif 174 228 54 Actif circulant 3 490 3 401 89 3% Stocks et en-cours 1 509 1 469 40 Créances d'exploitation 1 095 1 339 244 Créances diverses 886 593 293 Trésorerie - actif 2 188 1 853 335 18% dont titres et valeurs de placement 1 916 1 571 344 Total ACTIF 19 794 19 635 159 1% PASSIF Financement permanent 16 694 17 533 839 5% Capitaux propres consolidés 6 358 6 637 279 4% Capital 2 359 2 359 0 Réserves consolidées 2 385 2 331 55 Résultat net Part du Groupe 444 880 437 Capitaux propres Part du Groupe 5 187 5 570 382 7% Intérêts minoritaires 1 170 1 067 103 10% Provisions pour risques et charges 26 26 0 0% Dettes de financement 10 184 10 781 597 6% Ecart de conversion passif 126 89 37 42% Passif circulant 3 101 2 103 998 47% Dettes d'exploitation 841 758 84 Autres dettes 2 259 1 345 914 Trésorerie passif 0 0 0 0,0% Total PASSIF 19 794 19 635 159 1% Les principales variations des agrégats consolidés sont présentées ci-après : Diminution de l’actif immobilisé consolidé de MMAD 265 qui s’explique principalement par les dotations aux amortissements au 30 juin 2021 pour MMAD 387 ainsi que par les investissements de la période pour MMAD 176 ; - Hausse de la trésorerie nette de MMAD 335 qui s’explique par la baisse du fonds de roulement de MMAD 574 ainsi que par la diminution du besoin en fonds de roulement pour un montant de MMAD 909 ; - Diminution des capitaux propres part du groupe de 382 MMAD qui s’explique essentiellement par la constatation du résultat net part du groupe au 30 juin 2021 pour MMAD 444 ainsi que par la distribution des dividendes par le Groupe TAQA Morocco pour MMAD 826 ; - Baisse des dettes de financement de MMAD 597 due aux remboursements effectués au cours de la période ; - Augmentation des dettes du passif circulant de MMAD 998 expliquée essentiellement par la constatation des dividendes à payer au titre de l’exercice 2020 pour MMAD 826. 11 12 12 4.2.3 Tableau des flux de trésorerie consolidé En Million MAD 30/6/2021 30/6/2020 Variation Variation en % Flux net de trésorerie généré par l’activité (1) 1 016 716 300 42% Flux net de trésorerie liés aux opérations d’investissement (2) 175 1 721 1 546 90% Flux net de trésorerie liés aux opérations de financement (3) 506 465 42 9% Variation de trésorerie 335 1 470 1 804 (1) Progression du flux net de trésorerie généré par l’activité de MMAD 300 essentiellement expliquée par l’augmentation de la capacité d’autofinancement consolidée ainsi que la baisse du besoin en fonds de roulement par rapport au 30 juin 2020. (2) Baisse des flux de trésorerie liés aux opérations d’investissement de MMAD 1 546, principalement due au paiement, au 30 juin 2020, du droit de jouissance complémentaire afférent à l’extension du Contrat de Fourniture d’Energie Electrique des Unités 1 à 4 de 2027 à 2044. Les investissements consolidés au 30 juin 2021 comprennent principalement la révision majeure de l’Unité 6 ainsi que des projets de maintenance des Unités. (3) Les flux de trésorerie nets liés aux opérations de financement concernent les remboursements des emprunts contractés par TAQA Morocco et JLEC 5&6. COMPTES SEMESTRIELS CONSOLIDÉS ET SOCIAUX AU 30 JUIN 2021 13 14 14 TAQA MOROCCO RÉSULTATS AU 30 JUIN 2021 COMPTES CONSOLIDÉS BILAN CONSOLIDÉ (en milliers de dirhams) Notes 30/6/2021 ACTIF Immobilisations incorporelles 1.2.1 4 961 706 Immobilisations corporelles 1.2.2 8 979 987 Immobilisations financières 739 Ecart de conversion actif 174 055 ACTIF IMMOBILISÉ 14 116 487 Stocks et en-cours 1.2.3 1 508 738 Créances d’exploitation 1 095 041 Créances diverses 880 067 Titres et valeurs de placement 1 915 590 Ecarts de conversion actif 6 092 TRÉSORERIE ACTIF 272 420 ACTIF CIRCULANT 5 677 947 TOTAL ACTIF 19 794 434 PASSIF Capital 2 358 854 Prime d'émission 1 164 805 Réserves consolidées 1 220 279 Résultat net Part du Groupe 443 557 Capitaux propres Part du Groupe 5 187 495 I’ntérêts minoritaires 1 170 096 CAPITAUX PROPRES CONSOLIDÉS 6 357 592 Provisions pour risques et charges 1.2.5 25 852 Dettes de financement 10 183 910 Ecart de conversion passif 126 337 10 336 099 Dettes d’exploitation 841 485 Autres dettes 2 259 259 PASSIF CIRCULANT 3 100 744 Trésorerie passif 0 13 436 843 TOTAL PASSIF 19 794 434 31/12/2020 5 130 254 9 022 612 853 227 654 14 381 373 1 469 064 1 338 555 580 972 1 571 340 12 157 281 923 5 254 012 19 635 385 2 358 854 1 164 805 1 165 725 880 159 5 569 542 1 066 996 6 636 538 25 852 10 781 257 88 976 10 896 084 757 897 1 344 866 2 102 763 0 12 998 847 19 635 385 COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en milliers de dirhams) PRODUITS Chiffre d’affaires net Autres produits d’exploitation Reprises d'exploitation et transferts de charges TOTAL DES PRODUITS CHARGES Achats et autres charges externes Impôts et taxes Charges de personnel Autres charges d'exploitation Dotations aux amortissements et provisions TOTAL DES CHARGES Résultat d’exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices RÉSULTAT NET CONSOLIDÉ Résultat net Part du Groupe Intérêts minoritaires RÉSULTAT NET CONSOLIDÉ 30 juin 2021 3 464 855 2 956 0 3 467 811 1 827 773 23 278 153 347 0 386 911 2 391 310 1 076 502 234 056 842 446 40 167 802 278 255 619 546 660 443 557 103 103 546 660 30 juin 2020 4 016 362 717 8 162 4 025 241 2 353 400 23 383 148 304 0 399 968 2 925 055 1 100 186 257 738 842 449 50 708 791 741 256 333 535 408 428 493 106 915 535 408 15 15 16 16 TAQA MOROCCO RÉSULTATS AU 30 JUIN 2021 COMPTES CONSOLIDÉS TABLEAU DES FLUX DE TRÉSORERIE CONSOLIDÉS (en milliers de dirhams) 30 juin 2021 Flux de trésorerie liés à l'activité Résultat net des sociétés intégrées 546 660 Elimination des charges et produits sans incidence sur la trésorerie ou non liés à l'activité Dotations d'exploitation et dotations non courantes 386 911 Variation des Impôts différés 27 162 Plus-values des cessions nettes d'impôt 0 Variation du Besoin en Fonds de Roulement lié à l'activité 109 937 Flux net de trésorerie généré par l'activité 1 016 345 Flux de trésorerie liés aux opérations d'investissement Acquisition des immobilisations 175 624 Cessions d'immobilisations nettes d'impôts 412 Incidence de variation de périmètre 0 Flux net de trésorerie liés aux opérations d'investissement 175 212 Flux net de trésorerie liés aux opérations de financement Dividendes versés 0 Augmentation de capital en numéraire 0 Emission d'emprunts 0 Remboursement d'emprunts 506 387 Flux net de trésorerie liés aux opérations de financement 506 387 Variation de trésorerie 334 746 Trésorerie d'ouverture 1 853 263 Trésorerie de clôture 2 188 010 30 juin 2020 535 408 388 926 63 104 0 271 345 716 093 1 721 282 319 0 1 720 963 0 0 0 464 678 464 678 1 469 548 2 090 802 621 254 GROUPE TAQA MOROCCO, ETAT DES INFORMATIONS COMPLEMENTAIRES (ETIC) CONSOLIDE AUX 30 JUIN 2021 ET 2020 1• PRINCIPES COMPTABLES ET METHODES D’EVALUATION Les principales règles et méthodes du Groupe sont les suivantes : 1.1 Principes et méthodes de consolidation Les principes et méthodes de consolidation utilisés par le Groupe TAQA Morocco sont conformes à la méthodologie adoptée par le Conseil National de Comptabilité pour l’établissement des comptes consolidés dans son avis n°5. 1.1.1. Périmètre et méthodes de consolidation Les sociétés dans lesquelles le Groupe exerce directement ou indirectement un contrôle exclusif sont consolidées par intégration globale. Le contrôle exclusif est le pouvoir direct ou indirect, de diriger les politiques financières et opérationnelles d’une entreprise afin de tirer avantage de ses activités. Les sociétés dans lesquelles le Groupe exerce directement ou indirectement une influence notable sont consolidées par mise en équivalence. Les créances, dettes, produits et charges réciproques significatifs sont éliminés en totalité pour les entreprises intégrées globalement. 1.1.2. Dates de clôture Les Sociétés TAQA Morocco et JLEC 5&6 clôturent leurs comptes respectivement au 30 juin et au 31 mars. 1.2 Méthodes d’évaluation 1.2.1. Immobilisations incorporelles Les dépenses engagées dans le cadre des révisions majeures, effectuées tous les 8 ans selon un plan préétabli, sont immobilisées et amorties sur la même durée. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession. Droit de jouissance complémentaire constaté en 2001 TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession. Droit de jouissance complémentaire constaté en 2020 TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044. Dans ce cadre, un droit de jouissance complémentaire de DH 1,5 milliard a été payé. Cet actif incorporel a été amorti sur la période restante de la concession. Frais d’obtention du financement Les dépenses engagées pour obtenir le financement ont été comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société TAQA Morocco a comptabilisé en immobilisations incorporelles certaines dépenses payées durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession. 17 17 18 1.2.2 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée du contrat. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. 1.2.3 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). 1.2.4 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières, à l’exception de celles relatives aux dettes de financement libellées en Dollars américains et en Euros, qui font l’objet d’opérations de quasi- couverture de change résultant d’une position globale de change. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. 1.2.5 Provisions pour risques et charges Au 30 juin 2021, les provisions pour risques et charges correspondent aux provisions pour engagements sociaux qui ont fait l’objet d’une évaluation actuarielle par un cabinet indépendant. Ces engagements sociaux concernent les gratuités en matière d’électricité dont bénéficie le personnel statutaire de TAQA Morocco. 1.2.6 Retraitement des impôts Les impôts différés résultant des retraitements de consolidation sont calculés société par société. 2• CAPITAUX PROPRES PART DU GROUPE L’évolution des capitaux propres consolidés part du Groupe s’analyse comme suit : (en milliers de dirhams) ACTIF Capital Prime d'émission Réserves consolidées Résultat de l'exercice Capitaux propres consolidés Situation à la clôture de l'exercice 2019 2 358 854 1 164 805 960 987 1 054 189 5 538 835 Affectation des résultats 0 0 204 738 1 054 189 849 451 Résultat net au 31 décembre 2020 0 0 0 880 159 880 159 Situation à la clôture de l'exercice 2020 2 358 854 1 164 805 1 165 725 880 159 5 569 542 Affectation des résultats 0 0 54 555 880 159 825 604 Résultat net au 30 juin 2021 0 0 0 443 557 443 557 Situation au 30 juin 2021 2 358 854 1 164 805 1 220 279 443 557 5 187 495 3• PÉRIMÈTRE DE CONSOLIDATION FILIALES JUIN 2021 % d'intérêt % contrôle Méthode JUIN 2020 % d'intérêt % contrôle Méthode TAQA MOROCCO 100 100 Globale 100 100 Globale JLEC 5&6 66 66 Globale 66 66 Globale 19 20 20 TAQA MOROCCO RÉSULTATS AU 30 JUIN 2021 COMPTES SOCIAUX BILAN ACTIF (En dirhams) ACTIF Immobilisations en non valeur (A) • Frais préliminaires • Charges à répartir sur plusieurs exercices • Primes de remboursement des obligations Brut 462 448 975,32 462 448 975,32 Exercice comptable du : 01/01/2021 AU : 30/06/2021 EXERCICE PRECEDENT EXERCICE Net Amortissements et provisions 268 606 937,47 Net 193 842 037,85 241 132 538,61 268 606 937,47 193 842 037,85 241 132 538,61 É S L B O M M I I I F T C A I Immobilisations incorporelles (B) • Immobilisations en recherche et développement • Brevets, marques, droits et valeurs similaires • Fonds commercial • Autres immobilisations incorporelles Immobilisations corporelles (C) • Terrains • Constructions • Installations techniques, matériels et outillages • Matériel de transport • Mobilier, matériels de bureau et aménagements divers • Autres immobilisations corporelles • Immobilisations corporelles en cours Immobilisations financières (D) • Prêts immobilisés • Autres créances financières • Titres de participation • Autres titres immobilisés 13 403 016 374,98 12 615 681 235,68 787 335 139,30 968 281 014,27 9 389 548,11 618 590 071,84 1 709 265,53 286 563 225,10 313 970,50 51 714 933,19 1 200 563 536,51 114 473,65 449 462,86 1 199 999 600,00 8 896 229 206,82 8 274 737 447,41 621 491 759,41 719 134 465,38 1 937 643,15 484 907 379,83 1 692 209,49 230 283 262,41 313 970,50 4 506 787 168,16 4 340 943 788,27 165 843 379,89 249 146 548,89 7 451 904,96 133 682 692,01 17 056,04 56 279 962,69 0,00 51 714 933,19 1 200 563 536,51 114 473,65 449 462,86 1 199 999 600,00 4 608 032 112,53 4 438 574 434,26 169 457 678,27 276 477 005,48 7 860 119,55 150 233 365,89 37 222,25 65 062 930,12 0,00 53 283 367,67 1 200 677 436,13 228 373,27 449 462,86 1 199 999 600,00 T H T N A L U C R C F T C A I I Ecarts de conversion (E) • Diminution des créa nces immobilisées • Augmentation des dettes financières TOTAL I (A+B+C+D+E) Stocks (F) • Marchandises • Matières et fournitures consommables • Produits en cours • Produits intermédiaires et produits résiduels • Produits finis Créances de l'actif circulant (G) • Fournisseurs débiteurs, avances et acomptes • Clients et comptes rattachés • Personnel • Etat • Comptes d'associés • Autres débiteurs • Comptes de régularis. Atif Titres et valeurs de placement (H) Ecarts de conversion actif (I) (Eléments circulants) 16 034 309 901,08 1 004 947 546,60 1 004 947 546,60 1 851 248 069,50 9 119 856,26 741 469 453,66 1 119 956,84 637 462 085,33 461 995 264,55 81 452,86 1 107 289 424,36 3 583 162,83 9 883 970 609,67 20 076 770,00 20 076 770,00 6 150 339 291,41 984 870 776,60 984 870 776,60 1 851 248 069,50 9 119 856,26 741 469 453,66 1 119 956,84 637 462 085,33 461 995 264,55 81 452,86 1 107 289 424,36 3 583 162,83 6 326 319 092,75 885 352 290,06 885 352 290,06 1 609 331 778,63 10 024 832,66 638 399 976,87 1 859 195,52 495 963 784,39 461 995 264,55 1 088 724,64 983 473 216,24 2 925 996,60 E R E R O S É R T I TOTAL II (F+G+H+I) Trésorerie - Actif • Chèques et valeurs à encaisser • Banque, et C.C.P • Caisse, Régies d'avances et accréditifs TOTAL III TOTAL GENERAL I+ II + III 3 967 068 203,29 15 847 569,23 15 833 054,84 14 514,39 15 847 569,23 20 017 225 673,60 20 076 770,00 9 904 047 379,67 3 946 991 433,29 15 847 569,23 15 833 054,84 14 514,39 15 847 569,23 10 113 178 293,93 3 481 083 281,53 27 608 565,41 27 595 550,51 13 014,90 27 608 565,41 9 835 010 939,69 BILAN PASSIF PASSIF Capitaux propres • Capital social ou personnel (1) • moins : actionnaires, capital souscrit non appelé capital appelé dont versé….. • Primes d'émission de fusion, d'apport • Ecarts de réévaluation • Réserve légale • Autres réserves • Reports à nouveau (2) • Résultats net en instance d'affectation (2) • Résultat net de l'exercice (2) Total des capitaux propres (A) Capitaux propres assimilés (B) • Subventions d'investissement • Provisions réglementées Dettes de financements (C) • Emprunts obligataires • Autres dettes de financement Provisions durables pour risques et charges (D) • Provisions pour risques • Provisions pour charges Ecarts de conversion-passif (E) • Augmentation des créances immobilisées • Diminution des dettes de financement TOTAL I (A+B+C+D+E) Dettes du passif circulant (F) • Fournisseurs et comptes rattachés • Clients créditeurs, avances et acomptes • Personnel • Organismes sociaux • Etat • Comptes d'associés • Autres créanciers • Comptes de régularisation-passif Autres provisions pour risques et charges (G) Ecarts de conversion-passif (Eléments circulants) (H) TOTAL II (F+G+H) Trésorerie - Passif • Crédits d'escompte • Crédits de trésorerie • Banques de régularisation TOTAL III TOTAL GENERAL I+ II + III Exercice comptable du : 01/01/2021 AU : 30/06/2021 EXERCICE EXERCICE PRECEDENT 2 358 854 200,00 2 358 854 200,00 1 164 804 710,00 1 164 804 710,00 235 885 420,00 11 301 456,23 235 885 420,00 21 232 475,53 249 730 232,43 4 020 576 018,66 0,00 815 667 950,70 4 596 444 756,23 0,00 3 932 301 175,42 2 549 999 880,00 4 058 497 579,70 2 624 999 940,00 1 382 301 295,42 1 433 497 639,70 25 851 518,00 25 851 518,00 25 851 518,00 0,00 25 851 518,00 0,00 7 978 728 712,08 2 126 572 407,93 495 606 809,63 22 593 062,11 21 615 506,79 10 992 959,75 259 342 563,36 2 976 697,19 1 285 259 045,86 28 185 763,24 5 251 660,53 2 625 513,39 2 134 449 581,85 8 680 793 853,93 1 116 021 733,50 449 315 665,65 12 950 372,90 45 829 197,52 11 566 215,58 87 323 379,19 1 697,19 484 259 928,83 24 775 276,64 32 316 432,44 5 878 919,82 1 154 217 085,76 0,00 10 113 178 293,93 9 835 010 939,69 21 21 22 22 TAQA MOROCCO RÉSULTATS AU 30 JUIN 2021 COMPTES SOCIAUX COMPTE DE PRODUITS ET CHARGES (HORS TAXES) (En dirhams) Exercice comptable du : 01/01/2021 AU : 30/06/2021 OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 I • PRODUITS D'EXPLOITATION Ventes de marchandises (en l'état) Ventes de biens et services produits Chiffres d'affaires Variation de stocks de produits (±) 1 Immobilisations produites par l'entreprise pour elle-même Subvention d'exploitation Autres produits d'exploitation Reprises d'exploitation : transfert de charges 2 013 341 899,66 2 956 287,35 2 013 341 899,66 2 956 287,35 2 307 412 271,85 8 878 893,14 TOTAL I 2 016 298 187,01 2 016 298 187,01 2 316 291 164,99 II • CHARGES D'EXPLOITATION Achats revendus (2) de marchandises Achats consommés (2) de matières et fournitures Autres charges externes Impôts et taxes Charges de personnel Autres charges d'exploitation Dotations d'exploitation 1 184 034 002,98 69 367 082,18 23 121 244,04 113 506 799,86 3 500 000,00 179 364 109,43 1 184 034 002,98 69 367 082,18 23 121 244,04 113 506 799,86 3 500 000,00 179 364 109,43 1 469 473 382,34 97 508 125,69 23 217 684,73 113 704 461,71 3500000 187 788 867,33 TOTAL II III • RESULTAT D'EXPLOITATION (I-II) IV • PRODUITS FINANCIERS Produits des titres de participations et autres titres immobilisés Gains de change Intérêts et autres produits financiers Reprises financières; transferts de charges 1 572 893 238,49 4 387 079,55 11 183 871,75 1 572 893 238,49 443 404 948,52 4 387 079,55 11 183 871,75 1 895 192 521,80 421 098 643,19 432 038,55 21 384 394,42 TOTAL IV 15 570 951,30 15 570 951,30 21 816 432,97 V • CHARGES FINANCIERES Charges d'intérêts Pertes de change Autres charges financières Dotations financières 88 321 624,30 753 794,82 2 613 478,09 88 321 624,30 753 794,82 2 613 478,09 86 020 570,20 9 551 138,97 TOTAL V RESULTAT FINANCIER (IV-V) RESULTAT COURANT (III+VI) 91 688 897,21 91 688 897,21 -76 117 945,91 367 287 002,61 95 571 709,17 -73 755 276,20 347 343 366,99 Variation de stocks : stock final – stock initial : augmentation (+) : diminution (-) Achats revendus ou consommés : achats – variation de stock Compte de Produits et Charges (Hors Taxes) (suite) VII • RESULTAT COURANT (report) VIII • PRODUITS NON COURANTS Produits de cession d'immobilisations Subventions d'équilibre Reprises sur subventions d'investissement Autres produits non courants Reprises non courantes ; transferts de charge TOTAL VIII IX • CHARGES NON COURANTES Valeurs nettes d'amortissement des immobilisations cédées Subventions accordées Autres charges non courantes Dotations non courantes aux amortissements et aux provisions TOTAL IX X • RESULTAT NON COURANT (VIII-IX) XI • RESULTAT AVANT IMPOT (VII+X) XII • MPOT SUR LES RESULTATS XIII • RESULTAT NET (XI-XII) XIV • TOTAL PRODUITS (I+IV+VIII) XV • TOTAL CHARGES (II+V+IX+XII) XVI • RESULTAT NET (Total des produits - total des charges) Exercice comptable du : 01/01/2021 AU : 30/06/2021 OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 367 287 002,61 347 343 366,99 298 000,00 298 000,00 147 000,00 29 678 250,00 30 123 250,00 147 000,00 29 678 250,00 30 123 250,00 0,00 38 985 107,02 38 985 107,02 16 496 356,00 38 985 107,02 38 985 107,02 -8 861 857,02 358 425 145,59 108 694 913,16 249 730 232,43 2 061 992 388,31 1 812 262 155,88 249 730 232,43 16 496 356,00 -16 496 356,00 330 847 010,99 109 929 342,91 220 917 668,08 2 338 107 597,96 2 117 189 929,88 220 917 668,08 23 23 24 24 TAQA MOROCCO RÉSULTATS AU 30 JUIN 2021 COMPTES SOCIAUX ÉTAT DES SOLDES DE GESTION (E.S.G) (En dirhams) Exercice comptable du : 01/01/2021 AU : 30/06/2021 I – TABLEAU DE FORMATION DES RESULTATS (T.F.R) EXERCICE EXERCICE PRECEDENT 1 Ventes de marchandises (en l'état) 2 Achats revendus de marchandises I II 3 + MARGE BRUTE SUR VENTES EN L'ETAT PRODUCTION DE L'EXERCICE (3+4+5) Ventes de biens et services produits 0,00 2 013 341 899,66 2 013 341 899,66 0,00 2 307 412 271,85 2 307 412 271,85 4 Variation stocks de produits 5 Immobilisations produites par l'entreprise pour elle-même III 6 7 CONSOMMATIONS DE L'EXERCICE (6+7) Achats consommés de matière et fournitures Autres charges externes 1 253 401 085,16 1 184 034 002,98 69 367 082,18 1 566 981 508,03 1 469 473 382,34 97 508 125,69 IV VALEUR AJOUTEE ( I+II-III ) 759 940 814,50 740 430 763,82 8 + Subventions d'exploitation 0,00 0,00 V 9 Impôts et taxes 23 121 244,04 23 217 684,73 10 Charges de personnel 113 506 799,86 113 704 461,71 XI EXCÉDENT BRUT D'EXPLOITATION (EBE) 623 312 770,60 603 508 617,38 XII OU INSUFFISANCE BRUTE D'EXPLOITATION (IBE) 11 + Autres produits d'exploitation 2 956 287,35 0,00 12 Autres charges d'exploitation 3 500 000,00 3 500 000,00 13 + Reprises d'exploitation ; transfert de charges 0,00 8 878 893,14 14 Dotations d'exploitation 179 364 109,43 187 788 867,33 VI RÉSULTAT D'EXPLOITATION (+ OU -) 443 404 948,52 421 098 643,19 VII ± RÉSULTAT FINANCIER 76 117 945,91 73 755 276,20 VIII RÉSULTAT COURANT (+ OU - ) 367 287 002,61 347 343 366,99 IX ± RÉSULTAT NON COURANT 8 861 857,02 16 496 356,00 15 IMPOT SUR LES RESULTATS 108 694 913,16 109 929 342,91 X RÉSULTAT NET DE L'EXERCICE (+ OU - ) 249 730 232,43 220 917 668,08 II- CAPACITE D'AUTOFINANCEMENT (CAF) – AUTOFINANCEMENT Résultat net de l'exercice 1 Bénéfice + 249 730 232,43 220 917 668,08 Perte - 0,00 0,00 2 + Dotations d'exploitation (1) 179 364 109,43 176 086 045,09 3 + Dotations financière (1) 0,00 0,00 4 + Dotations non courantes (1) 25 851 518,00 23 936 856,00 5 Reprises d'exploitation (2) 0,00 0,00 6 Reprises financière (2) 0,00 0,00 7 Reprises non courantes (2) (3) 25 851 518,00 23 936 856,00 8 Produits de cession des immobilisations 298 000,00 0,00 9 + Valeurs nettes d'amortissement des immobilisations cédées 0,00 0,00 I CAPACITE D'AUTOFINANCEMENT (CAF) 428 796 341,86 397 003 713,17 10 Distribution de bénéfices 825 598 970,00 849 187 512,00 II Autofinancement -396 802 628,14 -452 183 798,83 TABLEAU DE FINANCEMENT (En dirhams) I. SYNTHESE DES MASSES DU BILAN 1 Financement permanent 2 Moins actif immobilisé 3 = FONDS DE ROULEMENT (A) FONCTIONNEL (1-2) 4 Actif circulant 5 Moins Passif circulant 6 = BESOINS DE FINANCEMENT (B) GLOBAL (4-5) 7 TRÉSORERIE NETTE (ACTIF -PASSIF) A - B II. EMPLOIS ET RESSOURCES I. RESSOURCES STABLES DE L'EXERCICE AUTOFINANCEMENT (A) Capacité d'autofinancement Distributions de bénéfices CESSIONS ET RÉDUCTIONS D'IMMOBILISATIONS (B) Cessions d'immobilisations incorporelles Cessions d'immobilisations corporelles Céssions d'immobilisations financières Récupérations sur créances immobilisées AUGMENTATIONS DES CAPITAUX PROPRES ET ASSIMILÉS (C) Augmentations de capital, apports Subvention d'investissement AUGMENTATION DES DETTES DE FINANCEMENT (D) (nettes de primes de remboursement) (A+B+C+D) II. EMPLOIS STABLES DE L'EXERCICE ACQUISITIONS ET AUGMENTATIONS D'IMMOBILISATIONS (E) Acquisitions d'immobilisations incorporelles Acquisitions d'immobilisations corporelles Acquisitions d'immobilisations financières Augmentation des créances immobilisées REMBOURSEMENT DES CAPITAUX PROPRES (F) REMBOURSEMENT DES DETTES DE FINANCEMENT (G) EMPLOIS EN NON VALEURS (H) TOTAL II. EMPLOIS STABLES (E+F+G+H) III. VARIATION DU BESOIN DE FINANCEMENT GLOBAL (B.F.G.) IV. VARIATION DE LA TRÉSORERIE TOTAL GÉNÉRAL Exercice comptable du : 01/01/2021 AU : 30/06/2021 VARIATION A-B EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES D 7 978 728 712,08 8 680 793 853,93 702 065 141,85 6 150 339 291,41 6 326 319 092,75 1 828 389 420,67 2 354 474 761,18 526 085 340,51 3 946 991 433,29 3 481 083 281,53 465 908 151,76 2 134 449 581,85 1 154 217 085,76 980 232 496,09 1 812 541 851,44 2 326 866 195,77 514 324 344,33 15 847 569,23 27 608 565,41 11 760 996,18 EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES EMPLOIS RESSOURCES (396 802 628,14) 349 731 795,04 428 796 341,86 1 198 919 307,04 (825 598 970,00) (849 187 512,00) 411 899,62 401 277,90 298 000,00 113 899,62 401 277,90 4 235 000 000,00 (396 390 728,52) 4 585 133 072,95 3 498 207,71 1 596 260 999,06 1 500 008 240,15 3 498 207,71 96 252 758,91 126 196 404,28 3 067 025 295,22 84 915 270,54 129 694 611,99 4 748 201 564,82 514 324 344,33 180 517 621,97 - 11 760 996,18 17 449 130,10 - 129 694 611,99 129 694 611,99 4 765 650 694,92 4 765 650 694,92 25 25 26 26 EXTRAIT DE L’ETAT DES INFORMATIONS COMPLEMENTAIRES AU 30 JUIN 2021 (ETIC) A• PRINCIPES ET METHODES COMPTABLES A.0 Informations générales sur l’activité A.0.1 Historique La centrale thermique de Jorf Lasfar est située sur la côte atlantique du Maroc, adjacente au port de Jorf Lasfar, dans la province d’El Jadida. Le site est localisé à environ 127 Km au sud-ouest de Casablanca. La construction des unités 1 et 2 de la centrale thermique a été effectuée par GEC Alsthom pour le compte de l’Office National d’Electricité (ONE), et achevée en 1994. Chacune de ces unités, utilisant le charbon comme combustible, a une capacité de 330 MW. En octobre 1994, l’ONE a émis un appel d’offre international relatif à la concession de la centrale thermique de Jorf Lasfar pour une période de 30 années. Le Groupement formé par ABB Energy Ventures et CMS Generation (Le Consortium) a été retenu en février 1995. L’accord de principe établi entre l’ONE et le Consortium en avril 1996 a permis le démarrage des négociations des contrats afférents au projet (Project Agreements). A.0.2 Constitution et activité Dans le but de conclure officiellement et mettre en œuvre ces contrats, le Consortium a constitué, en date du 20 janvier 1997, une société marocaine en commandite par actions dénommée Jorf Lasfar Energy Company (JLEC), immatriculée au Registre de Commerce sous le Numéro 2145, ayant pour Identification Fiscale le Numéro 1021595 et enregistrée à la Patente sous le Numéro 42161753. Conformément à ses statuts, la société a pour objet de construire, exploiter, gérer et maintenir la centrale électrique de Jorf Lasfar, incluant le développement, le financement, l’équipement, la construction, le design, les tests, l’exploitation et la maintenance des deux nouvelles unités, qui sont quasiment similaires en taille et en technologie à celles déjà existantes. Dans le but d’assurer son approvisionnement en combustibles, la société développe, exploite et entretient les installations de déchargement, de transport et de stockage du charbon existantes au Port de Jorf Lasfar. Afin d’exercer ces activités, la société a reçu un droit de jouissance du site localisé au port de Jorf Lasfar, des unités existantes, des unités nouvelles, des installations de transport du charbon. A.0.3 Période de développement de l’activité Le 12 septembre 1997, date de la Mise en Place du Financement, tous les Contrats de Projet ont été signés, le Contrat d’Emprunt Groupe a été exécuté, et le premier déblocage de l’Emprunt Groupe a notamment servi au paiement du Droit de Jouissance à l’ONE. Par conséquent, JLEC a pris possession de la Centrale Thermique le 13 septembre 1997 et a commencé à vendre la capacité disponible et la production nette à l’ONE, conformément au Contrat de Fourniture d’Energie Electrique (PPA). Les conditions requises pour le financement du projet ont été complétées en novembre 1997. A.0.4 Période de construction des Unités 3 et 4 Les Unités 3 et 4 ont été respectivement mises en exploitation le 9 juin 2000 et le 2 février 2001, soit respectivement 33 mois et 40 mois à compter de la date de la Mise en Place du Financement. A.0.5 Acquisition de JLEC par TAQA Le 2 mai 2007, Abu Dhabi National Energy Company (“TAQA”) a acheté CMS Generation, filiale de CMS Energy qui contrôle les actionnaires directs de JLEC (i) Jorf Lasfar Energiaktiebolag, (ii) Jorf Lasfar Power Energy AB and (iii) Jorf Lasfar Handelsbolag et les filiales du Groupe ABB (i) Tre Kronor Investment AB, (ii) AB Cythere 61 and (iii) AB Cythere 63. En conséquence de ces acquisitions, JLEC était directement et indirectement détenue par TAQA. A.0.6 Refinancement de la dette Le refinancement de la dette contractée en devises en 1997 auprès d’un consortium de bailleurs de fonds étrangers ainsi que la dette convertible en actions contractée auprès des actionnaires directs de JLEC, moyennant la contraction d’un crédit auprès d’un consortium de banques marocaines, comportant de deux tranches A et B d’une maturité long terme (une Tranche A d’un montant de 5.500.000,00 Dirhams et une Tranche B de 1.500.000,00 Dirhams), et de deux Tranches R (une facilité court terme sur un an) d’un montant de 200.000,00 Dirhams chacune, dont le contrat a été signé en date du 16 janvier 2009, tel que modifié par avenant en date du 27 mars 2009 et par avenant en date du 22 décembre 2009 et par avenant du 15 décembre 2010 et par avenant en date du 10 décembre 2012 et par avenant en date du 3 octobre 2014 et par avenant en date du 3 juillet 2015. A.0.7 Création de la filiale Jorf lasfar Energy Company 5&6 (JLEC 5&6) Le 22 décembre 2010, JLEC 5&6 a été créée pour porter le projet d’extension de la Centrale Thermique de Jorf Lasfar par la construction de deux nouvelles unités de 350MW brute chacune fonctionnant au charbon vapeur sur le site adjacent au site actuel de la centrale thermique de Jorf Lasfar. Les deux nouvelles unités de production d’électricité (Unités 5&6) sont d’une capacité de 700 MW (2 x 350 MW), portant la capacité totale de la centrale thermique de Jorf Lasfar à plus de 2000 MW. TAQA Morocco détient au 31 décembre 2020 66% des actions de JLEC 5&6. Les Unités 5&6 ont été mises en exploitation commerciale respectivement le 15 avril et le 7 juin 2014 A.0.8 Placement Privé et Introduction en Bourse En décembre 2013, une double augmentation de capital d’un montant global de DH 1.500.000.310 a été effectuée : Une première augmentation « Augmentation de Capital Pré-IPO » a été réservée à des investisseurs institutionnels (RMA Watanya, SCR et MCMA) suite à un Placement Privé qui s’est élevé à DH 499.999.805, dont 111.731.800 Dh à titre de nominal et 388.268.005 Dh à titre de prime d’émission. Les actions issues du Placement Privé ont été intégralement libérées et portent jouissance à compter du 1er janvier 2013 Une deuxième augmentation de capital « Augmentation de Capital IPO » a été réalisée auprès du Grand Public suite à l’introduction en bourse de JLEC pour un montant de DH 1.000.000.505, dont 223.463.800 Dh à titre de nominal et 776.536.705 Dh à titre de prime d’émission. Les actions issues de l’introduction en bourse ont intégralement été libérées et portent jouissance à compter du 1er janvier 2013 A l’issue de l’introduction en bourse précitée, Abu Dhabi National Energy Company PJSC (TAQA) détient désormais 85,79 % du capital de TAQA Morocco et la portion du capital restante soit 14,21% est détenue par les actionnaires ayant participé au Placement Privé et à l’introduction en bourse.. A.0.9 Changement de dénomination sociale et extension de l’objet social L’Assemblée Générale Ordinaire et Extraordinaire des Actionnaires de TAQA MOROCCO S.A. (ex Jorf Lasfar Energy Company) s’est réunie le 13 octobre 2014 à, et a notamment approuvé : L’adoption de la nouvelle dénomination sociale « TAQA Morocco » ; - L’extension de l’objet sociale de la société TAQA Morocco ; - La modification corrélative des Statuts de la société TAQA Morocco. A.0.10 Extension du PPA des unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. L’alignement des deux PPA 1 à 4 et 5&6 à 2044 permettra de consolider durablement la robustesse du business model de TAQA Morocco pour continuer à garantir une charge de base compétitive et contribuer à la sécurité énergétique du Royaume du Maroc. A.0.11 Emission d’un emprunt obligataire par placement privé TAQA Morocco a réalisé, le 7 septembre 2020, une émission obligataire par placement privé d’un montant de DH 2,7 milliards au taux fixe de 3,75% sur une maturité de 18 ans. L’objectif de cette émission est de permettre à la Société TAQA Morocco d’optimiser son coût d’endettement et de diversifier ses sources de financement pour accompagner la diversification du mix énergétique de TAQA Morocco au Maroc et en Afrique. Cette émission obligataire a servi au remboursement par anticipation, en date du 22 septembre 2020, de la dette bancaire contractée en 2019 pour un montant de DH 2,7 milliards. 27 27 28 28 A• 1 Principales méthodes d’évaluation spécifiques à l’entreprise A.1.1 Généralités Les états de synthèse de la société TAQA Morocco sont préparés conformément aux principes comptables généralement admis au Maroc, tels que prescrits dans le Code Général de Normalisation Comptable (CGNC). Durant la période de constitution et d’établissement de la Société (jusqu’à la date de la Mise en Place du Financement), toutes les dépenses ont été payées par le Groupement (ABB et CMS). Dès la Mise en Place du Financement, tous les frais de premier établissement et de constitution supportés par les sociétés apparentées ont été facturés à JLEC, et remboursés par la Société. A.1.2 Immobilisations en non valeur - Frais préliminaires Dès la date de la Mise en Place du Financement, la Société a immobilisé ses frais préliminaires, et les a amortis sur une durée ne dépassant pas cinq années. Les frais préliminaires comprennent les charges légales et administratives engagées pour constituer la société, ainsi que certaines dépenses supportées dans le but de préparer le démarrage de l’activité commerciale de la Société. Charges à répartir sur plusieurs exercices Les charges à répartir sur plusieurs exercices comportent : Les dépenses engagées dans le cadre des Révisions Majeures, effectuées tous les 8 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans ; Les dépenses engagées dans le cadre des Révisions Mineures, effectuées tous les 3 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans à compter du 1er janvier 2014. A.1.3 Immobilisations incorporelles - Frais d’obtention du financement Les dépenses engagées pour obtenir le financement sont comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société a comptabilisé en immobilisations incorporelles certaines dépenses payées par le Groupement durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif aux unités 3 et 4 Comme indiqué à la note A.0.4 ci-dessus, JLEC avait procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de JLEC avait été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession (soit jusqu’au 15 avril 2044). Droit de jouissance complémentaire relatif à la prorogation du PPA des Unités 1 à 4 L’ONEE et TAQA Morocco ont signé, le 24 janvier 2020, la prorogation du contrat de fourniture d’énergie électrique (PPA) des Unités 1 à 4. Dans ce cadre, TAQA Morocco a procédé au paiement du droit de jouissance complémentaire pour un montant de DH 1,5 milliard qui a été immobilisé en actif incorporel et amorti sur la durée de la concession (soit jusqu’au 15 avril 2044). A.1.4 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée de la concession. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. A.1.5 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). A.1.6 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion actif ou passif. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. A• 2 Etat des dérogations A.2.1 Dérogations aux principes comptables fondamentaux Néant A.2.2 Dérogations aux méthodes d’évaluation Néant A.2.3 Dérogations aux règles d’établissement et de présentation des états de synthèse Les gains et pertes de change provenant de la comptabilisation des achats de charbon et des règlements correspondants, effectués en Dollars américains et convertis en dirhams au cours du jour d’opération, sont enregistrés dans un sous- compte de la rubrique « Achats de charbon » intitulé « Différences sur achats de charbon en dollars », parmi les charges d’exploitation. Ce traitement particulier, sans impact sur le patrimoine et la situation financière de la Société, est justifié par le fait que ces différences sont liées aux règles de comptabilisation, et ne correspondent pas à des gains et pertes de change provenant de la conversion de dirhams en dollars. A• 3 Etat des changements de méthodes A.3.1 Changements affectant les méthodes d’évaluation Néant A.3.2 Changements affectant les règles de présentation Néant 29 29 ETAT: B-2 TABLEAU DES IMMOBILISATIONS AUTRES QUE FINANCIERES NATURE MONTANT BRUT DEBUT EXERCICE IMMOBILISATIONS EN NON-VALEURS 462 448 975,32 Frais préliminaires Charges à répartir sur plusieurs exercices 462 448 975,32 Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES 13 402 663 389,98 Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires 12 615 328 250,68 Fonds commercial Autres immobilisations incorporelles 787 335 139,30 Autres immobilisations incorporelles en cours IMMOBILISATIONS CORPORELLES 974 081 537,56 Terrains Constructions 9 389 548,11 Installations techniques, matériel et outillage 622 317 160,65 Matériel de transport 2 214 265,53 Mobilier, matériel de bureau et aménagements divers 286 563 225,10 Autres immobilisations corporelles 313 970,50 Immobilisations corporelles en cours 53 283 367,67 ETAT: B-2 bis TABLEAU DES AMORTISSEMENTS NATURE IMMOBILISATIONS EN NON-VALEURS Frais préliminaires Charges à répartir sur plusieurs exercices Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires Fonds commercial Autres immobilisations incorporelles IMMOBILISATIONS CORPORELLES Terrains Constructions Installations techniques, matériel et outillage Matériel de transport Mobilier, matériel de bureau et aménagements divers Autres immobilisations corporelles 30 30 OPERATIONS Acquisition Production par l'Entreprise pour elle-même 352 985,00 352 985,00 3 145 222,71 4 713 657,19 (1 568 434,48) Cumul début exercice 1 221 316 436,71 221 316 436,71 8 794 631 277,45 8 176 753 816,42 617 877 461,03 697 604 532,08 1 529 428,56 472 083 794,76 2 177 043,28 221 500 294,98 313 970,50 9 713 552 246,24 Exercice comptable du : 01/01/2021 AU : 30/06/2021 Virement Cession DIMINUTION Retrait Virement MONTANT BRUT FIN EXERCICE 462 448 975,32 462 448 975,32 13 403 016 374,98 12 615 681 235,68 787 335 139,30 8 945 746,00 968 281 014,27 9 389 548,11 8 440 746,00 618 590 071,84 505 000,00 1 709 265,53 286 563 225,10 313 970,50 51 714 933,19 Exercice comptable du : 01/01/2021 AU : 30/06/2021 Dotation de l'exercice 2 Amortissement sur immobilisat° sorties 3 Cumul d'amortissemt fin exercice 4=1+2-3 47 290 500,76 268 606 937,47 47 290 500,76 268 606 937,47 101 597 929,37 8 896 229 206,82 97 983 630,99 8 274 737 447,41 3 614 298,38 621 491 759,41 30 475 679,30 8 945 746,00 719 134 465,38 408 214,59 1 937 643,15 21 264 331,07 8 440 746,00 484 907 379,83 20 166,21 505 000,00 1 692 209,49 8 782 967,43 230 283 262,41 313 970,50 179 364 109,43 8 945 746,00 9 883 970 609,67 31 31 TAQA Morocco Centrale Thermique Jorf Lasfar B.P.99 - Sidi Bouzid - El Jadida - Maroc Tél : +212 523 380 000 - Fax : +212 523 345 375 www.taqamorocco.ma/esg/ | Semestriel, 2021, Energy, TaqaMorocco | write me a financial report |
Semestriel | 2,020 | Energy | TaqaMorocco | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TaqaMorocco
### Response:
| RAPPORT FINANCIER AU 30 JUIN 2020 2 2 Sommaire I • PRÉSENTATION DE TAQA MOROCCO II • ACTIVITÉ DE LA SOCIÉTÉ DURANT LE SEMESTRE ÉCOULÉ III • ÉVÉNEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLÔTURE DU SEMESTRE ÉCOULÉ IV • PRÉSENTATION DES COMPTES ANNUELS V • COMPTES CONSOLIDÉS ET SOCIAUX AU 30 JUIN 2020 06 06 07 07 12 3 3 4 Résultats financiers 2020 5 6 6 1. PRÉSENTATION DE TAQA MOROCCO TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. Une infrastructure industrielle de 6 Unités totalisant 2056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques charbon de tailles équivalentes. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco fait partie du Groupe TAQA, opérateur énergétique au maillage mondial. TAQA Morocco contribue pour plus de 41% de la production nationale d’électricité avec uniquement 18% de la capacité installée du Royaume du Maroc et se positionne en opérateur énergétique de référence au Maroc en matière de savoir-faire et d’expertise métier. Un avantage compétitif pour se développer sur le mix énergétique. Acteur responsable, La RSE fait partie intégrante de l’ADN de TAQA Morocco. L’entreprise mène une politique active en matière d’engagement social et de développement durable que ce soit au niveau de la gestion responsable de ces Unités de production en matière de standards environnementaux, que sur le plan des actions citoyennes. Le Complexe thermique de Jorf Lasfar a non seulement anticipé les choix technologiques de ses équipements mais surtout mis en place un programme de gestion globale de l’environnement comprenant toute la chaîne de valeur depuis la qualité de sa matière première combustible jusqu’à la gestion de ses coproduits. Un modèle d’exploitation et d’écologie industrielle certifié selon la norme ISO 14001 depuis 2004. 1I. ACTIVITÉ DE LA SOCIÉTÉ DURANT LE SEMESTRE ÉCOULÉ 2.1 Conjoncture économique : a) Evolution de la parité USD/MAD La parité moyenne USD/MAD a connu une légère progression de 1,6%, passant de 9,62 à 9,78 au 30 juin 2020. b) Evolution des prix du charbon Le cours d’achat moyen du charbon a enregistré une baisse significative, passant de $ 83/tonne métrique au 30 juin 2019 à $ 69/tonne métrique au 30 juin 2020, suite à l’évolution à la baisse des prix sur le marché international. 2.2 Activité de la Société L’activité de la Centrale a été marquée par les principaux faits suivants : Le niveau de disponibilité des Unités 1 à 4 de la Centrale a atteint au 30 juin 2020 un pourcentage de 97,3% contre 97% au 30 juin 2019 ; Le niveau de disponibilité des Unités 5 et 6 a atteint un pourcentage de 97,2% au 30 juin 2020 contre 94,4% au 30 juin 2019 ; La réalisation de la révision majeure planifiée de l’Unité 5 de 68 jours au cours du quatrième trimestre 2019 en conformité avec le plan de maintenance. En présence du Ministre de l’Economie et des Finances ainsi que du Ministre de l’Energie, des Mines et de l’Environnement, TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044 correspondant au terme du PPA de JLEC 5&6. L’alignement de ces deux contrats permettra de consolider durablement la robustesse du business model de TAQA Morocco pour continuer à garantir une charge de base compétitive et contribuer à la sécurité énergétique du Royaume du Maroc. 1II. ÉVÉNEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLOTURE DU SEMESTRE ÉCOULÉE TAQA Morocco a réalisé, le 7 septembre 2020, une émission obligataire par placement privé d’un montant de MAD 2,7 milliards. L’objectif de cette émission est de permettre à la Société TAQA Morocco d’optimiser son coût d’endettement et de diversifier ses sources de financement pour accompagner la diversification du mix énergétique de TAQA Morocco au Maroc et en Afrique. 1V. PRÉSENTATION DES COMPTES ANNUELS 4.1 Comptes sociaux 4.1.1 Compte de produits et charges COMPTE DE PRODUITS ET CHARGES (en milliers de dirhams) Juin 2020 Juin 2019 Variation Frais de puissance 908 300 928 452 20 152 Frais d'énergie 1 328 632 1 543 846 215 214 Autres revenus 70 480 169 378 98 898 Chiffre d'Affaires 2 307 412 2 641 676 334 264 Production 2 307 412 2 641 676 334 264 Achats consommés de matières et fournitures 1 469 473 1 773 088 303 614 Autres charges externes 97 508 76 518 20 990 Consommation de l'exercice 1 566 982 1 849 606 282 624 Impôts et taxes 23 218 23 218 1 Charges de personnel 113 704 98 237 15 467 Excédent Brut d'Exploitation 603 509 670 614 67 106 Autres produits d'exploitation 0 0 0 Reprise d'exploitation, transfert de charges 8 879 14 419 5 540 Autres charges d'exploitation 3 500 0 3 500 Dotations d'exploitation 187 789 310 953 123 164 Résultat d’exploitation 421 099 374 081 47 018 Produits financiers 21 816 25 883 4 066 Produits des titres de participation 0 0 0 Gains de change 432 1 283 851 Intérêts et autres produits financiers 21 384 23 408 2 024 Reprises financières 0 1 191 1 191 Charges financières 95 572 82 341 13 231 Charges d'intérêts 86 021 78 117 7 903 Pertes de change 9 551 4 224 5 327 Résultat financier 73 755 56 458 17 297 Résultat courant 347 343 317 622 29 721 Résultat non courant 16 496 16.232 264 Résultat avant impôt 330 847 301 391 29 456 Impôt sur les sociétés 109 929 102 591 7.338 Résultat net 220 918 198 799 22 119 Variation en % 12,7% 12,7% 15,3% 10,0% 12,6% 15,7% 16,1% 30,6% 9,4% 1,6% 9,8% 11,1% 7 7 8 a) Analyse du résultat d’exploitation Le résultat d’exploitation a enregistré une progression de 12,6% par rapport au 30 juin 2019 principalement due à : Une évolution du chiffre d’affaires qui s’explique comme suit : La baisse des frais de puissance par rapport au 30 juin 2019 pour MMAD 20 qui s’explique principalement par l’effet combiné de la baisse contractuelle des tarifs et de l’évolution favorable du cours de change USD/MAD au cours du semestre, La baisse des frais d’énergie par rapport au 30 juin 2019 en conformité avec la diminution du prix d’achat du charbon sur le marché international, La baisse des autres revenus de MMAD 99 est expliquée essentiellement par l’effet de la refacturation au premier semestre de 2019 de deux navires de charbon pour MMAD 89. Une baisse des dotations aux amortissements consécutive à la signature de l’extension du PPA des Unités 1-4. b) Analyse du résultat financier La baisse du résultat financier est essentiellement due à l’effet combiné de la hausse des charges d’intérêts de MMAD 8 suite au tirage de la dette afférente au paiement du droit de jouissance complémentaire relatif à l’extension du PPA des Unités 1 à 4, de la baisse du résultat de change de MMAD 6 ainsi qu’à la diminution des produits d’intérêts sur le placement des excédents de trésorerie de MMAD 2. c) Analyse du résultat non courant Le résultat non courant n’a pas connu de variation significative entre le 30 juin 2019 et le 30 juin 2020. Il se compose principalement de la Contribution Sociale de Solidarité pour un montant de MMAD 16. 4.1.2 Bilan BILAN (en milliers de dirhams) 30 juin 2020 31 décembre 2019 Variation Variation en % ACTIF Actif immobilisé 6 384 883 5 026 881 1 358 002 27,0% Immobilisations en non valeurs 194 510 228 448 33 938 Immobilisations incorporelles 4 709 509 3 297 469 1 412 039 Immobilisations corporelles 280 029 299 885 19 856 Immobilisations financières 1 200 835 1 201 079 244 Actif circulant 2 565 725 2 890 014 324 289 11,2% Stocks 1 031 025 1 011 175 19 850 Créances de l’actif circulant 1 533 726 1 876 655 342 929 Ecarts de conversion - Actif 975 2 184 1.209 Trésorerie - Actif 1 493 480 952 655 540 825 56,8% Total ACTIF 10 444 088 8 869 550 1 574 539 17,8% PASSIF Financement permanent 6 716 808 7 544 424 827 616 11,0% Capitaux propres 4 001 694 4 629 964 628 270 Dettes de financement 2 691 176 2 890 523 199 346 Provisions durables pour risques et charges 23 937 23 937 0 Dettes du passif circulant 2 220 147 1 319 934 900 213 68,2% Autres provisions pour risques et charges 2 638 2 638 0 0,0% Ecarts de conversion - Passif (éléments circulants) 4 495 2 553 1 941 76,0% Trésorerie - Passif 1 500 000 0 1 500 000 100,0% Total PASSIF 10 444 088 8 869 550 1 574 539 17,8% Le total bilan enregistre une hausse de 17,7 % qui s’analyse comme suit : Hausse de l’actif immobilisé de MMAD 1 358 qui s’explique principalement par les investissements de la période pour MMAD 1 534 (essentiellement le droit de jouissance complémentaire relatif à la prorogation du Contrat de Fourniture d’Énergie Électrique des Unités 1 à 4 de TAQA Morocco pour un montant de MMAD 1 500) ainsi que par les dotations aux amortissements au 30 juin 2020 pour MMAD 176; Baisse de l’actif circulant de MMAD 325 qui s’explique principalement par : L’encaissement en mars 2020 des dividendes distribués par JLEC 5&6 pour un montant de MMAD 330, • La baisse des créances clients pour un montant de MMAD 117 consécutive à la baisse des frais d’énergie au titre des mois de mai et juin 2020 suite à la baisse du prix d’achat du charbon, • L’augmentation des créances vis-à-vis de l’Etat pour MMAD 93 (essentiellement les comptes de TVA récupérable). Diminution de la trésorerie nette de MMAD 958 qui s’explique par : La baisse du fonds de roulement de MMAD 2 185 qui se justifie principalement par la constatation du droit de jouissance complémentaire pour un montant de MMAD 1 500 ainsi que la comptabilisation des dividendes à distribuer suivant les résolutions de l’Assemblée Générale du 24 juin 2020 pour un montant de MMAD 849, • La diminution du besoin en fonds de roulement pour un montant de MMAD 1 228, essentiellement due à la constatation des dividendes à payer au titre de l’exercice 2019 pour MMAD 849 ainsi qu’à l’encaissement des dividendes distribués par la filiale JLEC 5&6 en mars 2020 pour MMAD 330. Les principales variations enregistrées au niveau du bilan passif sont analysées ci-dessous : Baisse des capitaux propres de MMAD 628 qui résulte de la constatation du résultat net réalisé au 30 juin 2020 pour MMAD 221 et des dividendes distribués au titre de l’exercice 2019 pour MMAD 849 ; Baisse des dettes de financement de MMAD 200 due aux remboursements effectués au cours de la période ; Augmentation des dettes du passif circulant de MMAD 900 qui s’analyse comme suit : Constatation des dividendes à payer au titre de l’exercice 2019 pour MMAD 849, • Comptabilisation de la dette au titre de l’IS au 30 juin 2020 pour MMAD 110, • Baisse des dettes fournisseurs de MMAD 35 suite à l’effort de paiement des fournisseurs locaux. Augmentation de la trésorerie passif de MMAD 1 500 expliquée par le tirage de la dette à court terme afférente au droit de jouissance complémentaire relatif à l’extension du PPA des Unités 1 à 4 de TAQA Morocco. 9 10 4.2 Comptes consolidés 4.2.1 Compte de produits et charges consolidé COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en milliers de dirhams) Juin 2020 Juin 2019 Variation Variation en % Frais de puissance 1 914 683 2 094 438 179 754 Frais d'énergie 1 962 399 2 312 188 349 788 Autres revenus 139 279 105 374 33 906 Chiffre d'affaires net 4 016 362 4 511 999 495 637 11,0% Autres produits d'exploitation 0 0 0 Reprises d'exploitation et transferts de charges 8 879 14 419 5 540 Total produits d'exploitation 4 025 241 4 526 418 501 177 11,1% Achats et autres charges externes 2 349 900 2 642 422 292 522 Impôts et taxes 23 383 23 362 21 Charges de personnel 148 304 127 878 20 427 Autres charges d'exploitation 3 500 0 3 500 Dotations aux amortissement et provisions 399 968 489 841 89 873 Total charges d'exploitation 2 925 055 3.283 503 358 448 10,9% Résultat d'exploitation 1 100 186 1 242 915 142 729 11,5% Marge opérationnelle (Rex/CA) 27,4% 27,5% 16 pbs Résultat financier 257 738 257 338 400 0,2% Résultat courant 842 448 985 577 143 129 14,5% Résultat non courant 50 708 17 432 33 276 190,9% Résultat avant impôts 791 740 968 145 176 405 18,2% Impôts sur les bénéfices 256 333 309 588 53 255 17,2% Résultat net consolidé 535 408 658 557 123 149 18,7% Marge nette (RN/CA) 13,3% 14,6% 127 pbs dont Résultat net - Part du Groupe 428 493 507 229 78 736 15,5% dont Intérêts minoritaires 106 915 151 328 44 413 29,3% Le chiffre d’affaires consolidé s’élève au 30 juin 2020 à MMAD 4 016, contre MMAD 4 512 au 30 juin 2019, cette variation s’explique principalement par : la réalisation de la révision majeure planifiée de l’Unité 5 de 68 jours au cours du quatrième trimestre 2019 en conformité avec le plan de maintenance, - la diminution des frais d’énergie consécutive à l’évolution du prix d’achat du charbon sur le marché international, - la bonne performance opérationnelle des Unités 1 à 6. L’évolution du résultat d’exploitation consolidé s’explique principalement par : l’impact de la révision majeure de l’Unité 5, - et la baisse des dotations aux amortissements consécutive à la signature de l’extension du PPA des Unités 1-4. Le taux de marge opérationnelle est resté stable, s’établissant à 27,4% au 30 juin 2020 contre 27,5% au 30 juin 2019. La variation du résultat non courant s’explique principalement par la constatation de la contribution sociale de solidarité au niveau de la filiale JLEC 5&6 pour un montant de MMAD 34. Le taux de marge nette consolidé est passé ainsi de 14,6% au 30 juin 2019 à 13,3% au 30 juin 2020. Le RNPG est passé ainsi de MMAD 507 au 30 juin 2019 à MMAD 428 au 30 juin 2020, principalement suite à la diminution du résultat d’exploitation consolidé consécutive à la réalisation de la révision majeure de l’Unité 5. 4.2.2 Bilan consolidé (en milliers de dirhams) Juin 2020 Décembre 2019 Variation Variation en % ACTIF Actif immobilisé 14 865 962 13 436 348 1 429 615 10,6% Immobilisations incorporelles 5 189 569 3 679 968 1 509 602 Immobilisations corporelles 9 199 374 9 373 951 174 577 Immobilisations financières 1 011 1 330 319 Ecart de conversion actif 476 008 381 099 94 909 Actif circulant 4 189 187 4 102 102 87 086 2,1% Stocks et en-cours 1 579 216 1 525 923 53 293 Créances d'exploitation 1 655 888 1 916 501 260 612 Créances diverses 921 525 641 803 279 721 Ecarts de conversion actif 32 558 17 874 14 684 Trésorerie - actif 2 121 254 2 090 802 30 452 1,5% dont titres et valeurs de placement 1 781 122 1 659 237 121 885 Total ACTIF 21 176 404 19 629 252 1 547 152 7,9% PASSIF Financement permanent 16 416 294 16 978 336 562 042 3,3% Capitaux propres consolidés 6 266 117 6 580 229 314 112 4,8% Capital 2 358 854 2 358 854 0 Réserves consolidées 2 330 530 2 125 792 204 738 Résultat net Part du Groupe 428 493 1 054 189 625 696 Capitaux propres Part du Groupe 5 117 877 5 538 835 420 958 7,6% Intérêts minoritaires 1 148 240 1 041 394 106 846 10,3% Provisions pour risques et charges 23 937 23 937 0 0,0% Dettes de financement 10 126 240 10 374 170 247 930 2,4% Ecart de conversion passif 29 091 150 929 121 838 80,7% Passif circulant 3 231 019 2 499 987 731 032 29,2% Dettes d'exploitation 968 157 1 182 764 214 607 Autres dettes 2 262 862 1 317 223 945 639 Trésorerie passif 1 500 000 0 1 500 000 100,0% Total PASSIF 21 176 404 19 629 252 1 547 152 7,9% Les principales variations des agrégats consolidés sont présentées ci-après : Augmentation de l’actif immobilisé consolidé de MMAD 1 430 qui s’explique essentiellement par la constatation du droit de jouissance complémentaire relatif à l’extension du PPA des Unités 1-4 pour MMAD 1 500 ; Augmentation de la trésorerie actif de MMAD 30 ; Diminution des capitaux propres part du groupe de MMAD 421 qui s’explique essentiellement par la constatation du résultat net part du groupe au 30 juin 2020 pour MMAD 428 ainsi que par la distribution des dividendes par le Groupe TAQA Morocco pour MMAD 849 ; Baisse des dettes de financement de MMAD 465 due aux remboursements effectués au cours de la période ; Augmentation de la trésorerie passif de MMAD 1 500 expliquée par le tirage de la dette à court terme afférente au droit de jouissance complémentaire relatif à l’extension du PPA des Unités 1 à 4 de TAQA Morocco. 11 12 Comptes semestriels consolidés et sociaux au 30 Juin 2020 13 14 14 TAQA MOROCCO RÉSULTATS au 30 JUIN 2020 COMPTES CONSOLIDÉS BILAN CONSOLIDÉ (en milliers de dirhams) Notes 30 juin 2020 ACTIF Immobilisations incorporelles 1.2.1 5 189 569 Immobilisations corporelles 1.2.2 9 199 374 Immobilisations financières 1 011 Ecart de conversion actif 476 008 ACTIF IMMOBILISÉ 14 865 962 Stocks et en-cours 1.2.3 1 579 216 Créances d’exploitation 1 655 888 Créances diverses 921 525 Titres et valeurs de placement 1 781 122 Ecarts de conversion actif 32 558 ACTIF CIRCULANT 5 970 309 TRÉSORERIE ACTIF 340 132 TOTAL ACTIF 21 176 404 PASSIF Capital 2 358 854 Prime d'émission 1 164 805 Réserves consolidées 1 165 725 Résultat net Part du Groupe 428 493 Capitaux propres Part du Groupe 5 117 877 I’ntérêts minoritaires 1 148 240 CAPITAUX PROPRES CONSOLIDÉS 6 266 117 Provisions pour risques et charges 1.2.5 23 937 Dettes de financement 10 126 240 Ecart de conversion passif 29 091 10 179 268 Dettes d’exploitation 968 157 Autres dettes 2 262 862 PASSIF CIRCULANT 3 231 019 Trésorerie passif 1 500 000 14 910 287 TOTAL PASSIF 21 176 404 31 décembre 2019 3 679 968 9 373 951 1 330 381 099 13 436 348 1 525 923 1 916 501 641 803 1 659 237 17 874 5 761 338 431 566 19 629 252 2 358 854 1 164 805 960 987 1 054 189 5 538 835 1 041 394 6 580 229 23 937 10 374 170 150 929 10 549 036 1 182 764 1 317 223 2 499 987 0 13 049 023 19 629 252 COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en milliers de dirhams) PRODUITS Chiffre d’affaires net Autres produits d’exploitation Reprises d'exploitation et transferts de charges TOTAL DES PRODUITS CHARGES Achats et autres charges externes Impôts et taxes Charges de personnel Autres charges d'exploitation Dotations aux amortissements et provisions TOTAL DES CHARGES Résultat d’exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices RÉSULTAT NET CONSOLIDÉ Résultat net Part du Groupe Intérêts minoritaires RÉSULTAT NET CONSOLIDÉ 30 juin 2020 4 016 362 717 8 162 4 025 241 2 349 900 23 383 148 304 3 500 399 968 2 925 055 1 100 186 257 738 842 449 50 708 791 741 256 333 535 408 428 493 106 915 535 408 30 juin 2019 4 511 999 0 14 419 4 526 418 2 642 422 23 362 127 878 0 489 841 3 283 503 1 242 915 257 338 985 577 17 432 968 145 309 588 658 557 507 229 151 328 658 557 15 15 16 16 TAQA MOROCCO RÉSULTATS au 30 JUIN 2020 COMPTES CONSOLIDÉS TABLEAU DES FLUX DE TRÉSORERIE CONSOLIDÉS (en milliers de dirhams) 30 juin 2020 Flux de trésorerie liés à l'activité Résultat net des sociétés intégrées 535 408 Elimination des charges et produits sans incidence sur la trésorerie ou non liés à l'activité Dotations d'exploitation et dotations non courantes 388 926 Variation des Impôts différés 63 104 Plus-values des cessions nettes d'impôt 0 Variation du Besoin en Fonds de Roulement lié à l'activité 271 345 Flux net de trésorerie généré par l'activité 716 093 Flux de trésorerie liés aux opérations d'investissement Acquisition des immobilisations 1 721 282 Cessions d'immobilisations nettes d'impôts 319 Incidence de variation de périmètre 0 Flux net de trésorerie liés aux opérations d'investissement 1 720 963 Flux net de trésorerie liés aux opérations de financement Dividendes versés 0 Augmentation de capital en numéraire 0 Emission d'emprunts 0 Remboursement d'emprunts 464 678 Flux net de trésorerie liés aux opérations de financement 464 678 Variation de trésorerie 1 469 548 Trésorerie d'ouverture 2 090 802 Trésorerie de clôture 621 254 30 juin 2019 658 557 475 422 15 730 0 429 888 719 822 23 359 368 0 22 991 0 0 0 526 217 526 217 170 615 2 330 550 2 501 164 GROUPE TAQA MOROCCO, ÉTAT DES INFORMATIONS COMPLEMENTAIRES (ETIC) CONSOLIDE AUX 30 JUIN 2020 ET 2019 1• PRINCIPES COMPTABLES ET METHODES D’EVALUATION Les principales règles et méthodes du Groupe sont les suivantes : 1.1 Principes et méthodes de consolidation Les principes et méthodes de consolidation utilisés par le Groupe TAQA Morocco sont conformes à la méthodologie adoptée par le Conseil National de Comptabilité pour l’établissement des comptes consolidés dans son avis n°5. 1.1.1. Périmètre et méthodes de consolidation Les sociétés dans lesquelles le Groupe exerce directement ou indirectement un contrôle exclusif sont consolidées par intégration globale. Le contrôle exclusif est le pouvoir direct ou indirect, de diriger les politiques financières et opérationnelles d’une entreprise afin de tirer avantage de ses activités. Les sociétés dans lesquelles le Groupe exerce directement ou indirectement une influence notable sont consolidées par mise en équivalence. Les créances, dettes, produits et charges réciproques significatifs sont éliminés en totalité pour les entreprises intégrées globalement. 1.1.2.Dates de clôture Les Sociétés TAQA Morocco et JLEC 5&6 clôturent leurs comptes respectivement au 30 juin et au 31 mars. 1.2 Méthodes d’évaluation 1.2.1. Immobilisations incorporelles Les dépenses engagées dans le cadre des révisions majeures, effectuées tous les 8 ans selon un plan préétabli, sont immobilisées et amorties sur la même durée. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession. Droit de jouissance complémentaire constaté en 2001 TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession. Droit de jouissance complémentaire constaté en 2020 TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044. Dans ce cadre, un droit de jouissance complémentaire de DH 1,5 milliard a été payé. Cet actif incorporel a été amorti sur la période restante de la concession. Frais d’obtention du financement Les dépenses engagées pour obtenir le financement ont été comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société TAQA Morocco a comptabilisé en immobilisations incorporelles certaines dépenses payées durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession. 17 17 18 18 1.2.2 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée du contrat. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. 1.2.3 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). 1.2.4 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières, à l’exception de celles relatives aux dettes de financement libellées en Dollars américains et en Euros, qui font l’objet d’opérations de quasi- couverture de change résultant d’une position globale de change. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. 1.2.5 Provisions pour risques et charges Au 30 juin 2020, les provisions pour risques et charges correspondent aux provisions pour engagements sociaux qui ont fait l’objet d’une évaluation actuarielle par un cabinet indépendant. Ces engagements sociaux concernent les gratuités en matière d’électricité dont bénéficie le personnel statutaire de TAQA Morocco. 1.2.6 Retraitement des impôts Les impôts différés résultant des retraitements de consolidation sont calculés société par société. 2• CAPITAUX PROPRES PART DU GROUPE L’évolution des capitaux propres consolidés part du Groupe s’analyse comme suit : (en milliers de dirhams) ACTIF Capital Prime d'émission Réserves consolidées Résultat de l'exercice Capitaux propres consolidés Situation à la clôture de l'exercice 2018 2 358 854 1 135 409 885 203 1 048 725 5 428 192 Affectation des résultats 0 0 105 179 1 048 725 943 546 Résultat net au 31 décembre 2019 0 0 0 1 054 189 1 054 189 Situation à la clôture de l'exercice 2019 2 358 854 1 135 409 990 383 1 054 189 5 538 835 Affectation des résultats 0 0 204 738 1 054 189 849 451 Résultat net au 30 juin 2020 0 0 0 428 493 428 493 Situation au 30 juin 2020 2 358 854 1 135 409 1 195 121 428 493 5 117 877 3• PÉRIMÈTRE DE CONSOLIDATION FILIALES JUIN 2020 % d'intérêt % contrôle Méthode JUIN 2019 % d'intérêt % contrôle Méthode TAQA MOROCCO 100 100 Globale 100 100 Globale JLEC 5&6 66 66 Globale 66 66 Globale 19 19 20 20 TAQA MOROCCO RÉSULTATS au 30 JUIN 2020 COMPTES SOCIAUX BILAN ACTIF (En dirhams) ACTIF É S I L I B O M M I F I T C A Immobilisations en non valeur (A) • Frais préliminaires • Charges à répartir sur plusieurs exercices • Primes de remboursement des obligations Immobilisations incorporelles (B) • Immobilisations en recherche et développement • Brevets, marques, droits et valeurs similaires • Fonds commercial • Autres immobilisations incorporelles Immobilisations corporelles (C) • Terrains • Constructions • Installations techniques, matériels et outillages • Matériel de transport • Mobilier, matériels de bureau et aménagements divers • Autres immobilisations corporelles • Immobilisations corporelles en cours Immobilisations financières (D) • Prêts immobilisés • Autres créances financières • Titres de participation • Autres titres immobilisés Ecarts de conversion (E) • Diminution des créa nces immobilisées • Augmentation des dettes financières Brut 473 041 591,79 473 041 591,79 13 401 129 058,94 12 613 793 919,64 787 335 139,30 947 676 833,20 9 004 048,11 583 993 638,16 2 214 265,53 286 378 597,10 313 970,50 65 772 313,80 1 200 835 161,47 386 098,61 449 462,86 1 199 999 600,00 Exercice comptable du : 01/01/2020 AU : 30/06/2020 EXERCICE PRECEDENT Net EXERCICE Amortissements et provisions 278 531 659,28 Net 194 509 932,51 228 447 603,71 278 531 659,28 194 509 932,51 228 447 603,71 8 691 620 438,88 4 709 508 620,06 3 297 469 416,45 8 077 407 142,94 4 536 386 776,70 3 120 723 235,89 614 213 295,94 667 647 814,42 173 121 843,36 280 029 018,78 176 746 180,56 299 885 062,51 1 119 197,01 7 884 851,10 1 560 876,57 452 021 505,59 2 156 598,82 131 972 132,57 57 666,71 139 090 430,61 77 888,91 212 036 542,50 313 970,50 74 342 054,60 0,00 65 772 313,80 1 200 835 161,47 386 098,61 449 462,86 1 199 999 600,00 81 372 546,33 0,00 77 783 320,09 1 201 078 714,03 629 651,17 449 462,86 1 199 999 600,00 T H T N A L U C R C F I T C A I TOTAL I (A+B+C+D+E) Stocks (F) • Marchandises • Matières et fournitures consommables • Produits en cours • Produits intermédiaires et produits résiduels • Produits finis Créances de l'actif circulant (G) • Fournisseurs débiteurs, avances et acomptes • Clients et comptes rattachés • Personnel • Etat • Comptes d'associés • Autres débiteurs • Comptes de régularis. Atif Titres et valeurs de placement (H) Ecarts de conversion actif (I) (Eléments circulants) 16 022 682 645,40 1 042 727 595,61 1 042 727 595,61 1 533 725 526,43 10 950 346,80 882 628 637,58 1 578 530,76 637 818 011,28 750 000,01 1 478 335 562,80 975 005,92 9 637 799 912,58 11 702 822,24 11 702 822,24 6 384 882 732,82 1 031 024 773,37 1 031 024 773,37 1 533 725 526,43 10 950 346,80 882 628 637,58 1 578 530,76 637 818 011,28 750 000,01 1 478 335 562,80 975 005,92 5 026 880 796,70 1 011 174 919,30 1 011 174 919,30 1 876 654 755,82 10 726 392,17 999 892 903,76 1 303 611,67 534 735 230,69 329 996 617,53 942 495 255,02 2 184 414,29 E I R E R O S É R T TOTAL II (F+G+H+I) Trésorerie - Actif • Chèques et valeurs à encaisser • Banque, et C.C.P • Caisse, Régies d'avances et accréditifs TOTAL III TOTAL GENERAL I+ II + III 4 055 763 690,76 15 144 560,10 15 129 964,70 14 595,40 15 144 560,10 20 093 590 896,26 11 702 822,24 9 649 502 734,82 4 044 060 868,52 15 144 560,10 15 129 964,70 14 595,40 15 144 560,10 10 444 088 161,44 3 832 509 344,43 10 159 435,32 10 148 391,42 11 043,90 10 159 435,32 8 869 549 576,45 BILAN PASSIF PASSIF Capitaux propres • Capital social ou personnel (1) • moins : actionnaires, capital souscrit non appelé capital appelé dont versé….. • Primes d'émission de fusion, d'apport • Ecarts de réévaluation • Réserve légale • Autres réserves • Reports à nouveau (2) • Résultats net en instance d'affectation (2) • Résultat net de l'exercice (2) Total des capitaux propres (A) Capitaux propres assimilés (B) • Subventions d'investissement • Provisions réglementées Dettes de financements (C) • Emprunts obligataires • Autres dettes de financement Provisions durables pour risques et charges (D) • Provisions pour risques • Provisions pour charges Ecarts de conversion-passif (E) • Augmentation des créances immobilisées • Diminution des dettes de financement TOTAL I (A+B+C+D+E) Dettes du passif circulant (F) • Fournisseurs et comptes rattachés • Clients créditeurs, avances et acomptes • Personnel • Organismes sociaux • Etat • Comptes d'associés • Autres créanciers • Comptes de régularisation-passif Autres provisions pour risques et charges (G) Ecarts de conversion-passif (Eléments circulants) (H) TOTAL II (F+G+H) Trésorerie - Passif • Crédits d'escompte • Crédits de trésorerie • Banques de régularisation TOTAL III TOTAL GENERAL I+ II + III (1) capital personnel débiteur (2) bénéficiaire (+) déficitaire (-) Exercice comptable du : 01/01/2020 AU : 30/06/2020 EXERCICE EXERCICE PRECEDENT 2 358 854 200,00 2 358 854 200,00 1 164 804 710,00 1 164 804 710,00 235 885 420,00 21 232 475,53 235 885 420,00 129 505 051,42 220 917 668,08 4 001 694 473,61 0,00 740 914 936,11 4 629 964 317,53 0,00 2 691 176 471,05 2 890 522 876,23 2 691 176 471,05 2 890 522 876,23 23 936 856,00 23 936 856,00 23 936 856,00 0,00 23 936 856,00 0,00 6 716 807 800,66 2 220 147 454,27 553 670 019,48 40 092 060,63 19 708 528,33 11 838 415,73 221 893 691,08 3 501 697,19 1 366 626 144,07 2 816 897,76 2 638 182,44 4 494 724,07 2 227 280 360,78 7 544 424 049,76 1 319 934 017,87 588 704 823,11 38 716 112,01 35 479 155,91 10 813 807,17 128 603 084,04 1 697,19 517 438 632,07 176 706,37 2 638 182,44 2 553 326,38 1 325 125 526,69 1 500 000 000,00 1 500 000 000,00 10 444 088 161,44 8 869 549 576,45 21 21 22 22 TAQA MOROCCO RÉSULTATS au 30 JUIN 2020 COMPTES SOCIAUX COMPTE DE PRODUITS ET CHARGES (HORS TAXES) (En dirhams) Exercice comptable du : 01/01/2020 AU : 30/06/2020 OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 I • PRODUITS D'EXPLOITATION Ventes de marchandises (en l'état) Ventes de biens et services produits Chiffres d'affaires Variation de stocks de produits (±) 1 Immobilisations produites par l'entreprise pour elle-même Subvention d'exploitation Autres produits d'exploitation Reprises d'exploitation : transfert de charges 2 307 412 271,85 2 307 412 271,85 2 641 675 994,62 TOTAL I 8 878 893,14 2 316 291 164,99 8 878 893,14 2 316 291 164,99 14 418 797,69 2 656 094 792,31 II • CHARGES D'EXPLOITATION Achats revendus (2) de marchandises Achats consommés (2) de matières et fournitures Autres charges externes Impôts et taxes Charges de personnel Autres charges d'exploitation Dotations d'exploitation TOTAL II III • RESULTAT D'EXPLOITATION (I-II) IV • PRODUITS FINANCIERS Produits des titres de participations et autres titres immobilisés Gains de change Intérêts et autres produits financiers Reprises financières; transferts de charges TOTAL IV 1 469 473 382,34 97 508 125,69 23 217 684,73 113 704 461,71 3 500 000,00 187 788 867,33 1 895 192 521,80 432 038,55 21 384 394,42 21 816 432,97 1 469 473 382,34 97 508 125,69 23 217 684,73 113 704 461,71 3 500 000,00 187 788 867,33 1 895 192 521,80 421 098 643,19 432 038,55 21 384 394,42 21 816 432,97 1 773 087 669,69 76 518 119,69 23 218 390,84 98 237 469,88 310 952 537,41 2 282 014 187,51 374 080 604,80 1 283 351,02 23 408 089,58 1 191 361,52 25 882 802,12 V • CHARGES FINANCIERES Charges d'intérêts Pertes de change Autres charges financières Dotations financières 86 020 570,20 9 551 138,97 86 020 570,20 9 551 138,97 78 117 211,32 4 223 731,03 TOTAL V RESULTAT FINANCIER (IV-V) RESULTAT COURANT (III+VI) 95 571 709,17 95 571 709,17 -73 755 276,20 347 343 366,99 82 340 942,35 -56 458 140,23 317 622 464,57 Variation de stocks : stock final – stock initial : augmentation (+) : diminution (-) Achats revendus ou consommés : achats – variation de stock Compte de Produits et Charges (Hors Taxes) (suite) VII • RESULTAT COURANT (report) VIII • PRODUITS NON COURANTS Produits de cession d'immobilisations Subventions d'équilibre Reprises sur subventions d'investissement Autres produits non courants Reprises non courantes ; transferts de charge TOTAL VIII IX • CHARGES NON COURANTES Valeurs nettes d'amortissement des immobilisations cédées Subventions accordées Autres charges non courantes Dotations non courantes aux amortissements et aux provisions TOTAL IX X • RESULTAT NON COURANT (VIII-IX) XI • RESULTAT AVANT IMPOT (VII+X) XII • MPOT SUR LES RESULTATS XIII • RESULTAT NET (XI-XII) XIV • TOTAL PRODUITS (I+IV+VIII) XV • TOTAL CHARGES (II+V+IX+XII) XVI • RESULTAT NET (Total des produits - total des charges) Exercice comptable du : 01/01/2020 AU : 30/06/2020 OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 347 343 366,99 317 622 464,57 0,00 0,00 2 428 871,66 0,00 0,00 2 428 871,66 16 496 356,00 16 496 356,00 18 660 794,66 16 496 356,00 16 496 356,00 -16 496 356,00 330 847 010,99 109 929 342,91 220 917 668,08 2 338 107 597,96 2 117 189 929,88 220 917 668,08 18 660 794,66 -16 231 923,00 301 390 541,57 102 591 374,81 198 799 166,76 2 684 406 466,09 2 485 607 299,33 198 799 166,76 23 23 24 24 TAQA MOROCCO RÉSULTATS au 30 JUIN 2020 COMPTES SOCIAUX ÉTAT DES SOLDES DE GESTION (E.S.G) (En dirhams) Exercice comptable du : 01/01/2020 AU : 30/06/2020 I – TABLEAU DE FORMATION DES RESULTATS (T.F.R) EXERCICE EXERCICE PRECEDENT 1 Ventes de marchandises (en l'état) 2 Achats revendus de marchandises I II 3 + MARGE BRUTE SUR VENTES EN L'ETAT PRODUCTION DE L'EXERCICE (3+4+5) Ventes de biens et services produits 0,00 2 307 412 271,85 2 307 412 271,85 0,00 2 641 675 994,62 2 641 675 994,62 4 Variation stocks de produits 5 Immobilisations produites par l'entreprise pour elle-même III 6 7 CONSOMMATIONS DE L'EXERCICE (6+7) Achats consommés de matière et fournitures Autres charges externes 1 566 981 508,03 1 469 473 382,34 97 508 125,69 1 849 605 789,38 1 773 087 669,69 76 518 119,69 IV VALEUR AJOUTEE ( I+II-III ) 740 430 763,82 792 070 205,24 8 + Subventions d'exploitation 0,00 0,00 V 9 Impôts et taxes 23 217 684,73 23 218 390,84 10 Charges de personnel 113 704 461,71 98 237 469,88 XI EXCÉDENT BRUT D'EXPLOITATION (EBE) 603 508 617,38 670 614 344,52 XII OU INSUFFISANCE BRUTE D'EXPLOITATION (IBE) 11 + Autres produits d'exploitation 0,00 0,00 12 Autres charges d'exploitation 3 500 000,00 0,00 13 + Reprises d'exploitation ; transfert de charges 8 878 893,14 14 418 797,69 14 Dotations d'exploitation 187 788 867,33 310 952 537,41 VI RÉSULTAT D'EXPLOITATION (+ OU -) 421 098 643,19 374 080 604,80 VII ± RÉSULTAT FINANCIER 73 755 276,20 56 458 140,23 VIII RÉSULTAT COURANT (+ OU - ) 347 343 366,99 317 622 464,57 IX ± RÉSULTAT NON COURANT 16 496 356,00 16 231 923,00 15 IMPOT SUR LES RESULTATS 109 929 342,91 102 591 374,81 X RÉSULTAT NET DE L'EXERCICE (+ OU - ) 220 917 668,08 198 799 166,76 II- CAPACITE D'AUTOFINANCEMENT (CAF) – AUTOFINANCEMENT Résultat net de l'exercice 1 Bénéfice + 220 917 668,08 198 799 166,76 Perte - 0,00 0,00 2 + Dotations d'exploitation (1) 176 086 045,09 310 952 537,41 3 + Dotations financière (1) 0,00 0,00 4 + Dotations non courantes (1) 23 936 856,00 20 857 195,00 5 Reprises d'exploitation (2) 0,00 14 319 481,33 6 Reprises financière (2) 0,00 0,00 7 Reprises non courantes (2) (3) 23 936 856,00 20 857 195,00 8 Produits de cession des immobilisations 0,00 0,00 9 + Valeurs nettes d'amortissement des immobilisations cédées 0,00 0,00 I CAPACITE D'AUTOFINANCEMENT (CAF) 397 003 713,17 495 432 222,84 10 Distribution de bénéfices 849 187 512,00 943 541 680,00 II Autofinancement -452 183 798,83 -448 109 457,16 TABLEAU DE FINANCEMENT (En dirhams) Exercice comptable du : 01/01/2020 AU : 30/06/2020 I. SYNTHESE DES MASSES DU BILAN VARIATION A-B EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES D 1 Financement permanent 6 716 807 800,66 7 544 424 049,76 827 616 249,10 2 Moins actif immobilisé 6 384 882 732,82 5 026 880 796,70 1 358 001 936,12 3 = FONDS DE ROULEMENT (A) FONCTIONNEL (1-2) 331 925 067,84 2 517 543 253,06 2 185 618 185,22 4 Actif circulant 4 044 060 868,52 3 832 509 344,43 211 551 524,09 5 Moins Passif circulant 3 727 280 360,78 1 325 125 526,69 2 402 154 834,09 6 = BESOINS DE FINANCEMENT (B) GLOBAL (4-5) 316 780 507,74 2 507 383 817,74 2 190 603 310,00 7 TRÉSORERIE NETTE (ACTIF -PASSIF) A - B 15 144 560,10 10 159 435,32 4 985 124,78 II. EMPLOIS ET RESSOURCES EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES EMPLOIS RESSOURCES I. RESSOURCES STABLES DE L'EXERCICE AUTOFINANCEMENT (A) (452 183 798,83) 401 461 908,38 Capacité d'autofinancement 397 003 713,17 1 345 003 588,38 Distributions de bénéfices (849 187 512,00) (943 541 680,00) CESSIONS ET RÉDUCTIONS D'IMMOBILISATIONS (B) 243 552,56 646 343,37 Cessions d'immobilisations incorporelles Cessions d'immobilisations corporelles Céssions d'immobilisations financières Récupérations sur créances immobilisées 243 552,56 646 343,37 AUGMENTATIONS DES CAPITAUX PROPRES ET ASSIMILÉS (C) Augmentations de capital, apports Subvention d'investissement AUGMENTATION DES DETTES DE FINANCEMENT (D) (nettes de primes de remboursement) (A+B+C+D) (451 940 246,27) 402 108 251,75 II. EMPLOIS STABLES DE L'EXERCICE ACQUISITIONS ET AUGMENTATIONS D'IMMOBILISATIONS (E) 1 534 323 293,62 75 892 395,14 Acquisitions d'immobilisations incorporelles 1 500 000 000,00 155 110,47 Acquisitions d'immobilisations corporelles 34 323 293,62 75 737 284,67 Acquisitions d'immobilisations financières Augmentation des créances immobilisées REMBOURSEMENT DES CAPITAUX PROPRES (F) REMBOURSEMENT DES DETTES DE FINANCEMENT (G) 199 354 645,33 398 692 810,36 EMPLOIS EN NON VALEURS (H) TOTAL II. EMPLOIS STABLES (E+F+G+H) 1 733 677 938,95 474 585 205,50 III. VARIATION DU BESOIN DE FINANCEMENT GLOBAL (B.F.G.) 2 190 603 310,00 67 727 608,32 IV. VARIATION DE LA TRÉSORERIE 4 985 124,78 4 749 345,43 TOTAL GÉNÉRAL 1 738 663 063,73 1 738 663 063,73 474 585 205,50 474 585 205,50 25 25 26 26 EXTRAIT DE L’ETAT DES INFORMATIONS COMPLEMENTAIRES AU 30 JUIN 2020 (ETIC) A• PRINCIPES ET METHODES COMPTABLES A.0 Informations générales sur l’activité A.0.1 Historique La centrale thermique de Jorf Lasfar est située sur la côte atlantique du Maroc, adjacente au port de Jorf Lasfar, dans la province d’El Jadida. Le site est localisé à environ 127 Km au sud-ouest de Casablanca. La construction des unités 1 et 2 de la centrale thermique a été effectuée par GEC Alsthom pour le compte de l’Office National d’Electricité (ONE), et achevée en 1994. Chacune de ces unités, utilisant le charbon comme combustible, a une capacité de 330 MW. En octobre 1994, l’ONE a émis un appel d’offre international relatif à la concession de la centrale thermique de Jorf Lasfar pour une période de 30 années. Le Groupement formé par ABB Energy Ventures et CMS Generation (Le Consortium) a été retenu en février 1995. L’accord de principe établi entre l’ONE et le Consortium en avril 1996 a permis le démarrage des négociations des contrats afférents au projet (Project Agreements). A.0.2 Constitution et activité Dans le but de conclure officiellement et mettre en œuvre ces contrats, le Consortium a constitué, en date du 20 janvier 1997, une société marocaine en commandite par actions dénommée Jorf Lasfar Energy Company (JLEC), immatriculée au Registre de Commerce sous le Numéro 2145, ayant pour Identification Fiscale le Numéro 1021595 et enregistrée à la Patente sous le Numéro 42161753. Conformément à ses statuts, la société a pour objet de construire, exploiter, gérer et maintenir la centrale électrique de Jorf Lasfar, incluant le développement, le financement, l’équipement, la construction, le design, les tests, l’exploitation et la maintenance des deux nouvelles unités, qui sont quasiment similaires en taille et en technologie à celles déjà existantes. Dans le but d’assurer son approvisionnement en combustibles, la société développe, exploite et entretient les installations de déchargement, de transport et de stockage du charbon existantes au Port de Jorf Lasfar. Afin d’exercer ces activités, la société a reçu un droit de jouissance du site localisé au port de Jorf Lasfar, des unités existantes, des unités nouvelles, des installations de transport du charbon. Ce droit de jouissance s’étale sur toute la durée des contrats de concession, qui est de 30 ans à compter du 12 Septembre 1997, date de la Mise en Place du Financement. A.0.3 Période de développement de l’activité Le 12 septembre 1997, date de la Mise en Place du Financement, tous les Contrats de Projet ont été signés, le Contrat d’Emprunt Groupe a été exécuté, et le premier déblocage de l’Emprunt Groupe a notamment servi au paiement du Droit de Jouissance à l’ONE. Par conséquent, JLEC a pris possession de la Centrale Thermique le 13 septembre 1997 et a commencé à vendre la capacité disponible et la production nette à l’ONE, conformément au Contrat de Fourniture d’Energie Electrique. Les conditions requises pour le financement du projet ont été complétées en novembre 1997. A.0.4 Période de construction des Unités 3 et 4 Les Unités 3 et 4 ont été respectivement mises en exploitation le 9 juin 2000 et le 2 février 2001, soit respectivement 33 mois et 40 mois à compter de la date de la Mise en Place du Financement. A.0.5 Acquisition de JLEC par TAQA Le 2 mai 2007, Abu Dhabi National Energy Company (“TAQA”) a acheté CMS Generation, filiale de CMS Energy qui contrôle les actionnaires directs de JLEC (i) Jorf Lasfar Energiaktiebolag, (ii) Jorf Lasfar Power Energy AB and (iii) Jorf Lasfar Handelsbolag et les filiales du Groupe ABB (i) Tre Kronor Investment AB, (ii) AB Cythere 61 and (iii) AB Cythere 63. En conséquence de ces acquisitions, JLEC était directement et indirectement détenue par TAQA. A.0.6 Refinancement de la dette Le refinancement de la dette contractée en devises en 1997 auprès d’un consortium de bailleurs de fonds étrangers ainsi que la dette convertible en actions contractée auprès des actionnaires directs de JLEC, moyennant la contraction d’un crédit auprès d’un consortium de banques marocaines, comportant de deux tranches A et B d’une maturité long terme (une Tranche A d’un montant de 5.500.000,00 Dirhams et une Tranche B de 1 500 000,00 Dirhams), et de deux Tranches R (une facilité court terme sur un an) d’un montant de 200 000,00 Dirhams chacune, dont le contrat a été signé en date du 16 janvier 2009, tel que modifié par avenant en date du 27 mars 2009 et par avenant en date du 22 décembre 2009 et par avenant du 15 décembre 2010 et par avenant en date du 10 décembre 2012 et par avenant en date du 3 octobre 2014 et par avenant en date du 3 juillet 2015. A.0.7 Création de la filiale Jorf lasfar Energy Company 5&6 (JLEC 5&6) Le 22 décembre 2010, JLEC 5&6 a été créée pour porter le projet d’extension de la Centrale Thermique de Jorf Lasfar par la construction de deux nouvelles unités de 350MW brute chacune fonctionnant au charbon vapeur sur le site adjacent au site actuel de la centrale thermique de Jorf Lasfar. Les deux nouvelles unités de production d’électricité (Unités 5&6) sont d’une capacité de 700 MW (2 x 350 MW), portant la capacité totale de la centrale thermique de Jorf Lasfar à plus de 2000 MW. TAQA Morocco détient au 31 décembre 2016 66% des actions de JLEC 5&6. Les Unités 5&6 ont été mises en exploitation commerciale respectivement le 15 avril et le 7 juin 2014. A.0.8 Placement Privé et Introduction en Bourse En décembre 2013, une double augmentation de capital d’un montant global de DH 1 500 000 310 a été effectuée : Une première augmentation «Augmentation de Capital Pré-IPO » a été réservée à des investisseurs institutionnels (RMA Watanya, SCR et MCMA) suite à un Placement Privé qui s’est élevé à DH 499 999 805, dont DH 111 731 800 à titre de nominal et DH 388 268 005 à titre de prime d’émission. Les actions issues du Placement Privé ont été intégralement libérées et portent jouissance à compter du 1er janvier 2013 ; Une deuxième augmentation de capital «Augmentation de Capital IPO» a été réalisée auprès du Grand Public suite à l’introduction en bourse de JLEC pour un montant de DH 1.000.000.505, dont DH 223.463.800 à titre de nominal et DH 776 536 705 à titre de prime d’émission. Les actions issues de l’introduction en bourse ont intégralement été libérées et portent jouissance à compter du 1er janvier 2013. A l’issue de l’introduction en bourse précitée, Abu Dhabi National Energy Company PJSC (TAQA) détient désormais 85,79 % du capital de TAQA Morocco et la portion du capital restante soit 14,21% est détenue par les actionnaires ayant participé au Placement Privé et à l’introduction en bourse. A.0.9 Changement de dénomination sociale et extension de l’objet social L’Assemblée Générale Ordinaire et Extraordinaire des Actionnaires de TAQA MOROCCO S.A. (ex Jorf Lasfar Energy Company) s’est réunie le 13 Octobre 2014 à, et a notamment approuvé : L’adoption de la nouvelle dénomination sociale « TAQA Morocco » ; - L’extension de l’objet sociale de la société TAQA Morocco ; - La modification corrélative des Statuts de la société TAQA Morocco. A.0.10 Extension du Contrat de Fourniture d’Énergie Electrique TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044. 27 27 28 28 A• 1 Principales méthodes d’évaluation spécifiques à l’entreprise A.1.1 Généralités Les états de synthèse de la société TAQA Morocco sont préparés conformément aux principes comptables généralement admis au Maroc, tels que prescrits dans le Code Général de Normalisation Comptable (CGNC). Durant la période de constitution et d’établissement de la Société (jusqu’à la date de la Mise en Place du Financement), toutes les dépenses ont été payées par le Groupement (ABB et CMS). Dès la Mise en Place du Financement, tous les frais de premier établissement et de constitution supportés par les sociétés apparentées ont été facturés à JLEC, et remboursés par la Société. A.1.2 Immobilisations en non valeur - Frais préliminaires Dès la date de la Mise en Place du Financement, la Société a immobilisé ses frais préliminaires, et les a amortis sur une durée ne dépassant pas cinq années. Les frais préliminaires comprennent les charges légales et administratives engagées pour constituer la société, ainsi que certaines dépenses supportées dans le but de préparer le démarrage de l’activité commerciale de la Société. Charges à répartir sur plusieurs exercices Les charges à répartir sur plusieurs exercices comportent : Les dépenses engagées dans le cadre des Révisions Majeures, effectuées tous les 8 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans ; Les dépenses engagées dans le cadre des Révisions Mineures, effectuées tous les 3 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans à compter du 1er janvier 2014. A.1.3 Immobilisations incorporelles - Frais d’obtention du financement Les dépenses engagées pour obtenir le financement sont comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique des ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société a comptabilisé en immobilisations incorporelles certaines dépenses payées par le Groupement durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession, soit 30 ans à compter de la date de la Mise en Place du Financement. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession. Droit de jouissance complémentaire constaté en 2001 TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession. Droit de jouissance complémentaire constaté en 2020 TAQA Morocco et l’ONEE ont signé, le 24 janvier 2020, les amendements relatifs à l’extension du Contrat de Fourniture d’Energie Electrique (PPA) et du Contrat de Transfert de Droit de Jouissance (TPA) en vue d’étendre la période d’exploitation des Unités 1-4 jusqu’au 15 avril 2044. Dans ce cadre, un droit de jouissance complémentaire de DH 1,5 milliard a été payé. Cet actif incorporel a été amorti sur la période restante de la concession. A.1.4 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée de la concession. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. A.1.5 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). A.1.6 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion actif ou passif. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. A• 2 Etat des dérogations A.2.1 Dérogations aux principes comptables fondamentaux Néant A.2.2 Dérogations aux méthodes d’évaluation Néant A.2.3 Dérogations aux règles d’établissement et de présentation des états de synthèse Les gains et pertes de change provenant de la comptabilisation des achats de charbon et des règlements correspondants, effectués en Dollars américains et convertis en dirhams au cours du jour d’opération, sont enregistrés dans un sous-compte de la rubrique « Achats de charbon » intitulé « Différences sur achats de charbon en dollars », parmi les charges d’exploitation. Ce traitement particulier, sans impact sur le patrimoine et la situation financière de la Société, est justifié par le fait que ces différences sont liées aux règles de comptabilisation, et ne correspondent pas à des gains et pertes de change provenant de la conversion de dirhams en dollars. A• 3 Etat des changements de méthodes A.3.1 Changements affectant les méthodes d’évaluation Néant A.3.2 Changements affectant les règles de présentation Néant 2929 30 ETAT: B-2 TABLEAU DES IMMOBILISATIONS AUTRES QUE FINANCIERES NATURE MONTANT BRUT DEBUT EXERCICE Acquisition OPERATIONS Production par l'Entreprise pour elle-même IMMOBILISATIONS EN NON-VALEURS 460 872 897,84 Frais préliminaires Charges à répartir sur plusieurs exercices 460.872.897,84 Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES 11 888 239 131,67 1 500 008 240,15 Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires 11 100 903 992,37 1 500 008 240,15 Fonds commercial Autres immobilisations incorporelles 787 335 139,30 Autres immobilisations incorporelles en cours IMMOBILISATIONS CORPORELLES 938 403 920,65 34 323 293,62 Terrains Constructions 2 315 185,87 Installations techniques, matériel et outillage 571 805 739,82 6 317 259,98 Matériel de transport 2 214 265,53 Mobilier, matériel de bureau et aménagements divers 283 971 438,84 1 354 453,45 Autres immobilisations corporelles 313 970,50 Immobilisations corporelles en cours 77 783 320,09 26 651 580,19 ETAT: B-2 bis TABLEAU DES AMORTISSEMENTS NATURE Cumul début exercice 1 IMMOBILISATIONS EN NON-VALEURS 232 425 294,13 Frais préliminaires Charges à répartir sur plusieurs exercices 232 425 294,13 Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES 8 590 769 715,22 Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires 7 980 180 756,48 Fonds commercial Autres immobilisations incorporelles 610 588 958,74 IMMOBILISATIONS CORPORELLES 638 518 858,14 Terrains Constructions 754 309,30 Installations techniques, matériel et outillage 432 715 309,21 Matériel de transport 2 136 376,62 Mobilier, matériel de bureau et aménagements divers 202 598 892,51 Autres immobilisations corporelles 313 970,50 9 461 713 867,49 Exercice comptable du : 01/01/2020 AU : 30/06/2020 Virement Cession DIMINUTION Retrait Virement MONTANT BRUT FIN EXERCICE 12 168 693,95 473 041 591,79 12 168 693,95 473 041 591,79 12 881 687,12 13 401 129 058,94 12 881 687,12 12 613 793 919,64 787 335 139,30 13 612 205,41 38 662 586,48 947 676 833,20 6 688 862,24 9 004 048,11 5 870 638,36 583 993 638,16 2 214 265,53 1 052 704,81 286 378 597,10 313 970,50 38 662 586,48 65 772 313,80 Exercice comptable du : 01/01/2020 AU : 30/06/2020 Dotation de l'exercice 2 Amortissement sur immobilisat° sorties 3 Cumul d'amortissemt fin exercice 4=1+2-3 46 106 365,15 278 531 659,28 46 106 365,15 278 531 659,28 100 850 723,66 8 691 620 438,88 97 226 386,46 8 077 407 142,94 3 624 337,20 614 213 295,94 29 128 956,28 667 647 814,42 364 887,71 1 119 197,01 19 306 196,38 452 021 505,59 20 222,20 2 156 598,82 9 437 649,99 212 036 542,50 313 970,50 176 086 045,09 0,00 9 637 799 912,58 31 TAQA Morocco Centrale Thermique Jorf Lasfar B.P.99 - Sidi Bouzid - El Jadida - Maroc Tél : +212 523 380 000 - Fax : +212 523 345 375 www.taqamorocco.ma/esg/ | Semestriel, 2020, Energy, TaqaMorocco | write me a financial report |
Semestriel | 2,019 | Energy | TaqaMorocco | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TaqaMorocco
### Response:
| R a p p o r t F i n a n c i e r au 30 Juin 2019 1 22 Sommaire I • PRÉSENTATION DE TAQA MOROCCO II • ACTIVITÉ DE LA SOCIÉTÉ DURANT LE SEMESTRE ÉCOULÉ III • ÉVÉNEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLÔTURE DU SEMESTRE ÉCOULÉ IV • PRÉSENTATION DES COMPTES ANNUELS V • COMPTES SOCIAUX ET CONSOLIDÉS AU 30 JUIN 2019 06 06 06 07 12 33 4 Résultats financiers 2019 5 6 6 1. PRÉSENTATION DE TAQA MOROCCO TAQA Morocco opère la plus grande Centrale Thermique à charbon indépendante de la région Afrique et du Moyen-Orient. Une infrastructure industrielle de 6 Unités totalisant 2056 MW et classée dans le quartile supérieur des meilleures centrales électriques au monde suivant un benchmark mondial de Centrales thermiques de tailles équivalentes. Côtée à la Bourse de Casablanca depuis décembre 2013, TAQA Morocco fait partie du Groupe TAQA, opérateur énergétique au maillage mondial, une affiliation qui lui permet de se positionner en première ligne pour devenir un partenaire privilégié du gouvernement marocain dans le développement énergétique du Royaume et de l’Afrique. Acteur responsable, La RSE fait partie intégrante de l’ADN de TAQA Morocco. L’entreprise mène une politique active en matière d’engagement social et de développement durable que ce soit au niveau de la gestion responsable de ces Unités de production en matière de standards environnementaux, que sur le plan des actions citoyennes. La Centrale thermique de Jorf Lasfar a non seulement anticipé les choix technologiques de ses équipements mais surtout mis en place un programme de gestion globale de l’environnement comprenant toute la chaîne de valeur depuis la qualité de sa matière première combustible jusqu’à la gestion de ses coproduits. Un modèle d’exploitation et d’écologie industrielle certifié selon la norme ISO 14001 depuis 2004. 1I. ACTIVITÉ DE LA SOCIÉTÉ DURANT LE SEMESTRE ÉCOULÉ 2.1 Conjoncture économique : 2.2 Activité de la Société a) Evolution de la parité USD/MAD La parité moyenne USD/MAD a connu une hausse de 3,3 %, passant de 9,31 à 9,62 au 30 juin 2019. L’activité de la Centrale a été marquée par les principaux faits suivants : • Le niveau de disponibilité annuel des Unités 1 à 4 de la Centrale a atteint au 30 juin 2019 un pourcentage b) Evolution des prix du charbon Le cours d’achat moyen du charbon a enregistré une hausse, passant de $ 75/tonne métrique au 30 juin 2018 à $ 83/tonne métrique au 30 juin 2019, suite à l’évolution des prix sur le marché international. de 97% contre 92,5% au 30 juin 2018 ; • Le niveau de disponibilité des Unités 5 et 6 a atteint en 2018 un pourcentage de 94,4% au 30 juin 2019 contre 95,2% au 30 juin 2018 ; • La réalisation d’un arrêt planifié de 4 jours de l’Unité 5, • La réalisation d’un arrêt planifié de 5 jours de l’Unité 6. 1II. ÉVÉNEMENTS IMPORTANTS SURVENUS DEPUIS LA DATE DE CLOTURE DU SEMESTRE ÉCOULÉE Aucun évènement significatif n’est survenu depuis la date de clôture du premier semestre 2019. 1V. PRÉSENTATION DES COMPTES ANNUELS 4.1 Comptes sociaux 4.1.1 Compte de produits et charges COMPTE DE PRODUITS ET CHARGES (en millions de dirhams) Période comptable du : 01/01/2019 au 30/06/2019 30/06/2019 30/06/2018 Var. 2019/2018 Frais de puissance 929 908 2,3% Frais d'énergie 1 544 1 304 18,3% Autres revenus 169 52 225,1% Chiffre d'Affaires 2 642 2 265 16,6% Production 2 642 2 265 16,6% Achats consommés de matières et fournitures 1 773 1 386 27,9% Autres charges externes 77 71 7,8% Consommation de l'exercice 1 850 1 457 26,9% Valeur Ajoutée 792 807 1,9% Impôts et taxes 23 23 0,5% Charges de personnel 98 97 1,1% Excédent Brut d'Exploitation 671 687 2,4% Autres produits d'exploitation 0 0 0,0% Reprise d'exploitation, transfert de charges 14 21 29,7% Dotations d'exploitation 311 303 2,6% Résultat d’exploitation 374 405 7,5% Produits financiers 26 27 5,7% Produits des titres de participation 0 0 0,0% Gains de change 1 5 74,1% Intérêts et autres produits financiers 25 22 9,4% Charges financières 82 94 12,2% Charges d'intérêts 78 88 11,0% Pertes de change 4 3 32,3% Dotations financières 0 3 100,0% Résultat financier 56 66 14,9% Résultat courant 318 338 6,1% Résultat non courant 16 6 175,7% Résultat avant impôt 301 332 9,3% Impôt sur les sociétés 103 104 1,4% Résultat net 199 228 12,9% a) Analyse du résultat d’exploitation Le chiffre d’affaires a enregistré une progression de 16,6% par rapport au 30 juin 2018 qui s’analyse comme suit : L’évolution du résultat d’exploitation s’explique principalement par l’évolution défavorable de l’indice du marché API 2 par rapport au prix d’achat du charbon sur la période, compensée par l’efficience opérationnelle. hausse des frais de puissance par rapport au 30 juin 2018 (+ 2,3%) qui s’explique principalement par l’effet combiné de l’augmentation de la disponibilité ainsi que du cours de change USD/MAD, b) Analyse du résultat financier L’évolution du résultat financier est essentiellement due à la baisse des charges d’intérêt sur emprunt suite à la diminution de l’encours de la dette. hausse des frais d’énergie par rapport au 30 juin 2018 (+ 18%) qui s’explique essentiellement par l’évolution du prix du charbon sur le marché international, c) Analyse du résultat non courant - augmentation des autres revenus (+ MMAD 117), essentiellement due à la refacturation de deux navires de charbon pour MMAD 89. La baisse du résultat non courant se justifie essentiellement par la constatation de la Contribution Sociale de Solidarité pour un montant de MMAD 15,9. 7 7 8 Rapport financier au 30 Juin 2019 4.1.2 Bilan BILAN (en millions de dirhams) ACTIF Actif immobilisé Immobilisations en non valeurs Immobilisations incorporelles Immobilisations corporelles Immobilisations financières Actif circulant Stocks Créances de l’actif circulant Ecarts de conversion - Actif Trésorerie - Actif Total ACTIF PASSIF Financement permanent Capitaux propres Dettes de financement Provisions durables pour risques et charges Dettes du passif circulant Autres provisions pour risques et charges Ecarts de conversion - Passif (éléments circulants) Total PASSIF Le total bilan enregistre une hausse de 1 % qui s’analyse comme suit : Baisse de l’actif immobilisé de MMAD 274 qui s’explique principalement par les investissements de la période pour MMAD 23 ainsi par les dotations aux amortissements au 30 juin 2019 pour MMAD 297 ; Baisse de l’actif circulant de MMAD 196 qui s’explique principalement par l’effet combiné de l’encaissement en janvier 2019 des dividendes distribués par JLEC 5&6 pour un montant de MMAD 396, de la baisse des stocks pour un montant de MMAD 97 qui provient essentiellement du stock de charbon, de la hausse des créances vis-à-vis de l’Etat pour MMAD 111 (comptes de TVA récupérable) ainsi que l’augmentation des créances clients pour un montant de MMAD 209 qui se justifie principalement par la réalisation de la révision majeure de l’Unité 2 au cours du dernier trimestre 2018 ; Hausse de la trésorerie nette de MMAD 551 du fait de la baisse du fonds de roulement de MMAD 670 et la baisse du besoin en fonds de roulement de MMAD 1 221. 30/06/2019 30/06/2018 5 279 5 553 286 202 3 516 3 730 276 419 1 201 1 202 2 691 2 887 961 1 058 1 725 1 828 5 2 1 600 1 049 9 569 9 489 7 199 8 143 4 088 4 833 3 090 3 289 21 21 2 364 1 339 3 6 4 1 9 569 9 489 Les principales variations enregistrées au niveau du bilan passif sont analysées ci-dessous : Baisse des capitaux propres de MMAD 745 qui résulte de la constatation du résultat net réalisé au 30 juin 2019 de MMAD 199 et des dividendes distribués en 2019 pour MMAD 944 ; Baisse des dettes de financement de MMAD 199 due aux remboursements effectués au cours de la période ; Augmentation des dettes du passif circulant de MMAD 1 026 qui s’analyse comme suit : Constatation des dividendes à payer au titre de l’exercice 2018 pour MMAD 944, Comptabilisation de la dette au titre de l’IS au 30 juin 2019 pour MMAD 103. Rapport financier au 30 Juin 2019 4.2 Comptes consolidés 4.2.1 Compte de produits et charges consolidé COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en millions de dirhams) Frais de puissance Frais d'énergie Autres revenus Chiffre d’affaires net Reprises d'exploitation et transferts de charges Total produits d'exploitation Achats et autres charges externes Impôts et taxes Charges de personnel Dotations aux amortissements et provisions Total charges d'exploitation Résultat d’exploitation Marge opérationnelle (Rex/CA) Résultat financier Résultat courant Résultat non courant Résultat avant impôts Marge avant impôt (RAI/CA) Impôts sur les bénéfices Résultat net consolidé Marge nette (RN/CA) dont Résultat net - Part du Groupe dont Intérêts minoritaires Le chiffre d’affaires consolidé a enregistré une progression au 30 juin 2019 de 8,2% qui s’explique principalement par la bonne performance opérationnelle des Unités 1 à 6 ainsi que par l’augmentation des frais d’énergie de 17,5%, consécutive à l’évolution du prix d’achat du charbon sur le marché international. L’évolution du résultat d’exploitation consolidé s’explique principalement par l’évolution défavorable de l’indice du marché API 2 par rapport au prix d’achat du charbon sur la période et la légère augmentation des charges d’exploitation et de maintenance. Le taux de marge opérationnelle s’établit à 27,5% au 30 juin 2019 contre 31,5% au 30 juin 2018. L’ améli or at ion d u résultat financ i er s ’ ex p li que principalement par la baisse des charges d’intérêt sur emprunts suite aux remboursements de la période. 30/06/2019 30/06/2018 Var. 2019/2018 2 094 2 111 0,8% 2 312 1 968 17,5% 105 93 13,4% 4 512 4 172 8,2% 14 21 29,7% 4 526 4 192 8,0% 2 642 2 237 18,1% 23 23 0,6% 128 125 2,1% 490 492 0,4% 3 284 2 877 14,1% 1 243 1 316 5,5% 27,5% 31,5% 399 pbs 257 287 10,3% 986 1 029 4,2% 17 6 202,8% 968 1 023 5,4% 21,5% 24,5% 307 pbs 310 321 3,6% 659 702 6,2% 14,6% 16,8% 223 pbs 507 543 6,5% 151 159 5,1% Le résultat non courant comprend essentiellement la Contribution Sociale de Solidarité pour un montant de MMAD 15,9. Le taux de marge nette consolidé est passé de 16,8% au 30 juin 2018 à 14,6% au 30 juin 2019. Le résultat net part du groupe est passé de 543 MMAD à 507 MMAD au 30 juin 2019, suite à l’évolution du résultat d’exploitation ainsi que par l’amélioration du résultat financier. 9 10 Rapport financier au 30 Juin 2019 4.2.2 Bilan consolidé COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en millions de dirhams) ACTIF Actif immobilisé Immobilisations incorporelles Immobilisations corporelles Immobilisations financières Ecart de conversion actif Actif circulant Stocks et en-cours Créances d’exploitation Créances diverses Ecarts de conversion actif Trésorerie - actif dont titres et valeurs de placement Total ACTIF PASSIF Financement permanent Capitaux propres consolidés Capital Réserves consolidées Résultat net Part du Groupe Capitaux propres Part du Groupe Intérêts minoritaires Provisions pour risques et charges Dettes de financement Passif circulant Dettes d’exploitation Autres dettes Trésorerie passif Total PASSIF Les principales variations des agrégats consolidés sont présentées ci-après : Baisse de l’actif immobilisé consolidé qui s’explique essentiellement par les dotations aux amortissements de la période pour MMAD 495 ; Augmentation des créances de l’actif circulant principalement expliquée par les acomptes au titre de l’IS payés par la filiale JLEC 5&6 pour MMAD 229 ; Augmentation de la trésorerie nette de MMAD 171 qui s’explique par la baisse du fonds de roulement consolidé de MMAD 359 conjuguée à la diminution du besoin en fonds de roulement consolidé pour un montant de MMAD 529 ; 30/06/2019 31/12/2018 Var. 2019/2018 13 820 14 221 2,8% 3 947 4 069 3,0% 9 502 9 833 3,4% 2 2 18,6% 369 317 16,3% 4 142 3 849 7,6% 1 536 1 576 2,6% 1 650 1 678 1,7% 944 592 59,4% 12 2 479,9% 2 501 2 331 7,3% 2 004 1 880 6,6% 20 463 20 400 0,3% 17 130 17 889 4,2% 6 037 6 322 4,5% 2 359 2 359 0,0% 2 126 2 021 5,2% 507 1 049 51,6% 4 992 5 428 8,0% 1 045 894 16,9% 21 21 0,0% 11 072 11 546 4,1% 3 333 2 511 32,8% 1 033 1 176 12,1% 2 299 1 335 72,2% 0 0 0,0% 20 463 20 400 0,3% Diminution des capitaux propres consolidés de MMAD 285 qui s’explique essentiellement par le résultat net consolidé au 30 juin 2019 pour MMAD 659 ainsi que par la constatation de la distribution des dividendes par le Groupe TAQA Morocco pour MMAD 944 ; Baisse des dettes de financement de MMAD 475 qui résulte principalement des remboursements des emprunts effectués au cours de la période. 11 12 Comptes semestriels sociaux et consolidés au 30 Juin 2019 13 14 14 TAQA MOROCCO RÉSULTATS au 30 JUIN 2019 COMPTES CONSOLIDÉS BILAN CONSOLIDÉ (en milliers de dirhams) ACTIF Immobilisations incorporelles Immobilisations corporelles Immobilisations financières Ecart de conversion actif ACTIF IMMOBILISÉ Stocks et en-cours. Créances d’exploitation. Créances diverses. Titres et valeurs de placement. Ecarts de conversion actif. Trésorerie actif ACTIF CIRCULANT TOTAL ACTIF PASSIF Capital. Prime d'émission. Réserves consolidées. Résultat net Part du Groupe. Capitaux propres Part du Groupe. I’ntérêts minoritaires CAPITAUX PROPRES CONSOLIDÉS Provisions pour risques et charges Dettes de financement. Dettes d’exploitation. Autres dettes PASSIF CIRCULANT Trésorerie passif TOTAL PASSIF 30/06/2019 3 946 937 9 502 412 1 608 368 837 13 819 794 1 535 725 1 649 968 944 196 2 003 952 11 693 497 212 6 642 746 20 462 540 2 358 854 1 164 805 960 987 507 229 4 991 875 1 045 148 6 037 023 20 857 11 071 741 11 092 598 1 033 497 2 299 422 3 332 919 0 14 425 517 20 462 540 31/12/2018 4 068 807 9 832 618 1 976 317 141 14 220 542 1 576 124 1 678 260 592 267 1 880 298 2 017 450 252 6 179 218 20 399 760 2 358 854 1 164 805 855 807 1 048 725 5 428 192 893 822 6 322 014 20 857 11 546 262 11 567 119 1 175 640 1 334 987 2 510 627 0 14 077 746 20 399 760 COMPTE DE PRODUITS ET CHARGES CONSOLIDÉ (en milliers de dirhams) PRODUITS Chiffre d’affaires net Reprises d'exploitation et transferts de charges TOTAL DES PRODUITS CHARGES Achats et autres charges externes Impôts et taxes Charges de personnel Dotations aux amortissements et provisions TOTAL DES CHARGES Résultat d’exploitation Résultat financier Résultat courant Résultat non courant Résultat avant impôts Impôts sur les bénéfices Quote-part dans le résultat des sociétés mises en Equivalence Dotations nettes aux amortissements des écarts d'acquisition RÉSULTAT NET CONSOLIDÉ Résultat net Part du Groupe Intérêts minoritaires RÉSULTAT NET CONSOLIDÉ Période comptable du : 01/01/2019 au 30/06/2019 30/06/2019 31/12/2018 4 511 999 4 171 846 14 419 20 509 4 526 418 4 192 355 2 642 422 2 236 660 23 362 23 217 127 878 125 229 489 841 491 599 3 283 503 2 876 705 1 242 915 1 315 651 257 338 286 758 985 577 1 028 892 17 432 5 757 968 145 1 023 135 309 588 321 024 658 557 702 111 507 229 542 711 151 328 159 400 658 557 702 111 15 15 16 16 TAQA MOROCCO RÉSULTATS au 30 JUIN 2019 COMPTES CONSOLIDÉS TABLEAU DES FLUX DE TRÉSORERIE CONSOLIDÉS (en milliers de dirhams) Période comptable du : 01/01/2019 au 30/06/2019 30/06/2019 31/12/2018 Flux de trésorerie liés à l'activité Résultat net des sociétés intégrées 658 557 702 111 Elimination des charges et produits sans incidence sur la trésorerie ou non liés à l'activité Dotations d'exploitation et dotations non courantes 475 422 471 089 Variation des Impôts différés 15 730 1 962 Plus-values des cessions nettes d'impôt 0 0 Variation du Besoin en Fonds de Roulement lié à l'activité 429 888 453 899 Flux net de trésorerie généré par l'activité 719 822 721 263 Flux de trésorerie liés aux opérations d'investissement Acquisition des immobilisations 23 359 86 511 Cessions d'immobilisations nettes d'impôts 368 677 Incidence de variation de périmètre 0 0 Flux net de trésorerie liés aux opérations d'investissement 22 991 85 834 Flux net de trésorerie liés aux opérations de financement Dividendes versés 0 0 Augmentation de capital en numéraire 0 0 Emission d'emprunts 0 0 Remboursement d'emprunts 526 217 500 276 Flux net de trésorerie liés aux opérations de financement 526 217 500 276 Variation de trésorerie 170 615 135 152 Trésorerie d'ouverture 2 330 550 2 558 945 Trésorerie de clôture 2 501 164 2 694 098 GROUPE TAQA MOROCCO, ÉTAT DES INFORMATIONS COMPLEMENTAIRES (ETIC) CONSOLIDE AUX 30 JUIN 2019 ET 2018 1• PRINCIPES COMPTABLES ET METHODES D’EVALUATION Les principales règles et méthodes du Groupe sont les suivantes : Frais d’obtention du financement Les dépenses engagées pour obtenir le financement ont été comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique de ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. 1.1 Principes et méthodes de consolidation Les principes et méthodes de consolidation utilisés par le Groupe TAQA Morocco sont conformes à la méthodologie adoptée par le Conseil National de Comptabilité pour l’établissement des comptes consolidés dans son avis n°5. 1.1.1. Périmètre et méthodes de consolidation Les sociétés dans lesquelles le Groupe exerce directement ou indirectement un contrôle exclusif sont consolidées par intégration globale. Le contrôle exclusif est le pouvoir direct ou indirect, de diriger les politiques financières et opérationnelles d’une entreprise afin de tirer avantage de ses activités. Les sociétés dans lesquelles le Groupe exerce directement ou indirectement une influence notable sont consolidées par mise en équivalence. Les créances, dettes, produits et charges réciproques significatifs sont éliminés en totalité pour les entreprises intégrées globalement. 1.1.2.Dates de clôture Les Sociétés TAQA Morocco et JLEC 5&6 clôturent leurs comptes respectivement au 30 juin et au 31 mars. 1.2 Méthodes d’évaluation Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société TAQA Morocco a comptabilisé en immobilisations incorporelles certaines dépenses payées durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession, soit 30 ans à compter de la date de la Mise en Place du Financement. 1.2.2 Immobilisations corporelles Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée du contrat. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. 1.2.3 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés s elon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). 1.2.1. Immobilisations incorporelles Les dépenses engagées dans le cadre des révisions majeures, effectuées tous les 8 ans selon un plan préétabli, sont immobilisées et amorties sur la même durée. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC (devenue TAQA Morocco) son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession, soit 30 ans à compter de la date de la Mise en Place du Financement. 1.2.4 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières, à l’exception de celles relatives aux dettes de financement libellées en Dollars américains et en Euros, qui font l’objet d’opérations de quasi- couverture de change résultant d’une position globale de change. Droit de jouissance complémentaire TAQA Morocco a procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de TAQA Morocco a été étendu à ces nouvelles unités. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. 1.2.5 Provisions pour risques et charges Au 30 juin 2019, les provisions pour risques et charges correspondent aux provisions pour engagements sociaux qui ont fait l’objet d’une évaluation actuarielle par un cabinet indépendant. Ces engagements sociaux concernent les gratuités en matière d’électricité dont bénéficie le personnel statutaire de TAQA Morocco. Ces actifs incorporels sont amortis sur la période restante de la concession, soit 26 ans et 7 mois à compter de cette date. 1.2.6 Retraitement des impôts Les impôts différés résultant des retraitements de consolidation sont calculés société par société. 17 17 18 18 TAQA MOROCCO RÉSULTATS au 30 JUIN 2019 COMPTES CONSOLIDÉS 2• CAPITAUX PROPRES PART DU GROUPE TABLEAU DE VARIATION DES CAPITAUX PROPRES CONSOLIDÉ (PART DU GROUPE) (en milliers de dirhams) Période comptable du : 01/01/2019 au 30/06/2019 ACTIF Capital Prime d'émission Réserves consolidées Résultat de l'exercice Capitaux propres consolidés Situation à la clôture de l'exercice 2017 2 358 854 1 135 409 814 938 1 013 813 5 323 014 Affectation des résultats 0 0 70 266 1 013 813 943 547 Résultat net au 31 décembre 2018 0 0 0 1 048 725 1 048 725 Situation à la clôture de l'exercice 2018 2 358 854 1 135 409 885 203 1 048 725 5 428 192 Affectation des résultats 0 0 0 943 546 943 546 Résultat net au 30 juin 2019 0 0 0 507 229 507 229 Situation à la clôture de juin 2019 2 358 854 1 135 409 885 203 612 409 4 991 875 3• PÉRIMÈTRE DE CONSOLIDATION FILIALES JUIN 2019 % d'intérêt % contrôle Méthode JUIN 2018 % d'intérêt % contrôle Méthode TAQA MOROCCO 100 100 Globale 100 100 Globale JLEC 5&6 66 66 Globale 66 66 Globale GROUPE TAQA MOROCCO ATTESTATION D’EXAMEN LIMITE DE LA SITUATION INTERMEDIAIRE CONSOLIDEE ETABLIE AU 30 JUIN 2019 Nous avons procédé à un examen limité de la situation intermédiaire des comptes consolidés de la société TAQA Morocco S.A. et sa filiale (Groupe TAQA Morocco) comprenant le bilan consolidé, le compte de résultat consolidé, le périmètre de consolidation ainsi qu’une sélection de notes annexes au terme de la période du 1er janvier au 30 juin 2019. Cette situation intermédiaire fait ressortir un montant de capitaux propres consolidés totalisant KMAD 6.037.023 dont un bénéfice net consolidé de KMAD 658.557. Nous avons effectué notre examen limité selon les normes de la Profession au Maroc. Ces normes requièrent que l’examen limité soit planifié et réalisé en vue d’obtenir une assurance modérée que la situation provisoire ne comporte pas d’anomalie significative. Un examen limité comporte essentiellement des entretiens avec le personnel du Groupe et des vérifications analytiques appliquées aux données financières ; il fournit donc un niveau d’assurance moins élevé qu’un audit. Nous n’avons pas effectué un audit et, en conséquence, nous n’exprimons donc pas d’opinion d’audit. Sur la base de notre examen limité, nous n’avons pas relevé de faits qui nous laissent penser que les états consolidés, ci-joints, ne donnent pas une image fidèle du résultat des opérations du semestre écoulé ainsi que de la situation financière et du patrimoine du Groupe TAQA Morocco arrêtés au 30 juin 2019, conformément aux normes comptables nationales en vigueur. Casablanca, le 17 septembre 2019 Les Auditeurs Indépendants 19 19 20 20 TAQA MOROCCO RÉSULTATS au 30 JUIN 2019 COMPTES SOCIAUX BILAN ACTIF Période comptable du : 01/01/2019 au 30/06/2019 É S I L I B O M M I F I T C A EXERCICE ACTIF Amortissements et provisions 287 791 086,39 Brut Immobilisations en non valeur (A) • Frais préliminaires • Charges à répartir sur plusieurs exercices • Primes de remboursement des obligations Immobilisations incorporelles (B) • Immobilisations en recherche et développement • Brevets, marques, droits et valeurs similaires • Fonds commercial • Autres immobilisations incorporelles Immobilisations corporelles (C) • Terrains • Constructions • Installations techniques, matériels et outillages • Matériel de transport • Mobilier, matériels de bureau et aménagements divers • Autres immobilisations corporelles • Immobilisations corporelles en cours Immobilisations financières (D) • Prêts immobilisés • Autres créances financières • Titres de participation • Autres titres immobilisés Ecarts de conversion (E) • Diminution des créa nces immobilisées • Augmentation des dettes financières TOTAL I (A+B+C+D+E) 573 993 537,45 287 791 086,39 573 993 537,45 11 888 084 021,20 8 372 484 116,02 11 100 748 881,90 7 773 467 951,97 787 335 139,30 885 803 356,28 599 016 164,05 610 183 369,50 2 104 303,57 699 507,41 511 235 147,38 2 214 265,53 413 734 800,15 2 115 876,17 274 687 206,58 313 970,50 95 248 462,72 1 201 356 685,16 907 622,30 449 462,86 1 199 999 600,00 193 319 215,27 313 970,50 Réserves consolidées 286 202 451,06 286 202 451,06 3 515 599 905,18 3 327 280 929,93 188 318 975,25 275 619 986,78 1 404 796,16 97 500 347,23 98 389,36 81 367 991,31 0,00 95 248 462,72 1 201 356 685,16 907 622,30 449 462,86 1 199 999 600,00 EXERCICE PRECEDENT Net Net 286 202 451,06 201 769 911,30 286 202 451,06 201 769 911,30 3 515 599 905,18 3 730 322 180,46 3 327 280 929,93 3 530 619 097,39 188 318 975,25 275 619 986,78 199 703 083,07 418 826 587,04 1 404 796,16 1 456 971,20 97 500 347,23 98 389,36 107 305 497,19 118 555,57 81 367 991,31 0,00 95 248 462,72 1 201 356 685,16 907 622,30 449 462,86 1 199 999 600,00 86 051 374,56 0,00 223 894 188,52 1 201 725 057,40 1 275 994,54 449 462,86 1 199 999 600,00 T N A L U C R C I F I T C A 14 549 237 600,09 975 156 339,90 Stocks (F) • Marchandises • Matières et fournitures consommables • Produits en cours • Produits intermédiaires et produits résiduels • Produits finis • Créances de l'actif circulant (G) • Fournisseurs débiteurs, avances et acomptes • Clients et comptes rattachés • Personnel • Etat • Comptes d'associés • Autres débiteurs • Comptes de régularis. Atif • Titres et valeurs de placement (H) • Ecarts de conversion actif (I) (Eléments circulants) 975 156 339,90 1 725 256 076,94 13 508 302,57 1 079 226 587,32 833 455,75 618 123 418,56 13 564 312,74 1 572 685 205,55 4 567 025,03 9 270 458 571,91 14 319 481,33 14 319 481,33 5 278 779 028,18 960 836 858,57 960 836 858,57 1 725 256 076,94 13 508 302,57 1 079 226 587,32 833 455,75 618 123 418,56 13 564 312,74 1 572 685 205,55 4 567 025,03 5 278 779 028,18 960 836 858,57 960 836 858,57 1 725 256 076,94 13 508 302,57 1 079 226 587,32 833 455,75 618 123 418,56 13 564 312,74 1 572 685 205,55 4 567 025,03 5 552 643 736,20 1 057 745 044,17 1 057 745 044,17 1 827 852 252,45 37 686 238,49 869 725 411,28 842 939,47 507 206 097,17 395 995 941,04 16 395 625,00 1 033 796 150,16 1 826 377,29 TOTAL II (F+G+H+I) Trésorerie - Actif 4 277 664 647,42 26 928 230,34 14 319 481,33 4 263 345 166,09 26 928 230,34 4 263 345 166,09 26 928 230,34 3 921 219 824,07 14 908 780,75 E I R E R O S E R T Chèques et valeurs à encaisser Banque, et C.C.P Caisse, Régies d'avances et accréditifs TOTAL III TOTAL GENERAL I+ II + III 26 908 169,44 20 060,90 26 928 230,34 18 853 830 477,85 9 284 778 053,24 26 908 169,44 20 060,90 26 928 230,34 9 569 052 424,61 26 908 169,44 20 060,90 26 928 230,34 9 569 052 424,61 14 886 786,35 21 994,40 14 908 780,75 9 488 772 341,02 BILAN PASSIF Capitaux propres Capital social ou personnel (1) moins : actionnaires, capital souscrit non appelé capital appelé dont versé….. Primes d'émission de fusion, d'apport Ecarts de réévaluation Réserve légale Autres réserves Reports à nouveau (2) Résultats net en instance d'affectation (2) Résultat net de l'exercice (2) TOTAL DES CAPITAUX PROPRES (A) Capitaux propres assimilés (B) Subventions d'investissement Provisions réglementées Dettes de financements (C) Emprunts obligataires Autres dettes de financement Provisions durables pour risques et charges (D) Provisions pour risques Provisions pour charges Ecarts de conversion-passif (E) Augmentation des créances immobilisées Diminution des dettes de financement TOTAL I (A+B+C+D+E) Dettes du passif circulant (F) Fournisseurs et comptes rattachés Clients créditeurs, avances et acomptes Personnel Organismes sociaux Etat Comptes d'associés Autres créanciers Comptes de régularisation-passif Autres provisions pour risques et charges (G) Ecarts de conversion-passif (Eléments circulants) (H) TOTAL II (F+G+H) Trésorerie - Passif Crédits d'escompte Crédits de trésorerie Banques de régularisation TOTAL III TOTAL GÉNÉRAL I+ II + III (1) capital personnel débiteur (2) bénéficiaire (+) déficitaire (-) Période comptable du : 01/01/2019 au 30/06/2019 EXERCICE EXERCICE PRECEDENT 2 358 854 200,00 2 358 854 200,00 1 164 804 710,00 1 164 804 710,00 235 885 420,00 235 885 420,00 129 505 051,42 245 714 467,24 198 799 166,76 827 332 264,18 4 087 848 548,18 4 832 591 061,42 0,00 0,00 3 089 869 281,41 3 289 215 686,59 3 089 869 281,41 3 289 215 686,59 20 857 195,00 20 857 195,00 20 857 195,00 20 857 195,00 0,00 0,00 7 198 575 024,59 8 142 663 943,01 2 364 106 770,76 1 338 560 974,25 654 647 907,81 693 894 140,67 35 037 090,29 0,00 17 513 300,97 31 814 864,87 12 348 842,33 11 340 527,57 228 056 281,89 129 364 108,79 1 697,19 1 697,19 1 415 677 685,16 472 145 635,16 823 965,12 2 638 182,44 6 258 415,62 3 732 446,82 1 289 008,14 2 370 477 400,02 1 346 108 398,01 9 569 052 424,61 9 488 772 341,02 21 21 22 22 TAQA MOROCCO RÉSULTATS au 30 JUIN 2019 COMPTES SOCIAUX COMPTE DE PRODUITS ET CHARGES (HORS TAXES) Période comptable du : 01/01/2019 au 30/06/2019 OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 I• PRODUITS D'EXPLOITATION Ventes de marchandises (en l'état) Ventes de biens et services produits Chiffres d'affaires 2 641 675 994,62 2 641 675 994,62 2 264 681 896,94 Variation de stocks de produits (±) 1 Immobilisations produites par l'entreprise pour elle-même Subvention d'exploitation Autres produits d'exploitation Reprises d'exploitation : transfert de charges 14 418 797,69 14 418 797,69 20 509 425,10 TOTAL I 2 656 094 792,31 2 656 094 792,31 2 285 191 322,04 II• CHARGES D'EXPLOITATION Achats revendus (2) de marchandises Achats consommés (2) de matières et fournitures 1 773 087 669,69 1 773 087 669,69 1 386 360 550,84 Autres charges externes 76 518 119,69 76 518 119,69 70 952 814,08 Impôts et taxes 23 218 390,84 23 218 390,84 23 106 993,24 Charges de personnel 98 237 469,88 98 237 469,88 97 194 820,88 Autres charges d'exploitation Dotations d'exploitation 310 952 537,41 310 952 537,41 303 034 674,86 TOTAL II 2 282 014 187,51 2 282 014 187,51 1 880 649 853,90 III•RÉSULTAT D'EXPLOITATION (I-II) 374 080 604,80 404 541 468,14 IV• PRODUITS FINANCIERS Produits des titres de participations et autres titres immobilisés Gains de change 1 283 351,02 1 283 351,02 4 963 858,33 Intérêts et autres produits financiers 23 408 089,58 23 408 089,58 22 486 197,73 Reprises financières; transferts de charges 1 191 361,52 1 191 361,52 TOTAL IV 25 882 802,12 25 882 802,12 27 450 056,06 V• CHARGES FINANCIERES Charges d'intérêts 78 117 211,32 78 117 211,32 87 765 577,31 Pertes de change 4 223 731,03 4 223 731,03 3 191 722,35 Autres charges financières Dotations financières 2 827 041,95 TOTAL V 82 340 942,35 82 340 942,35 93 784 341,61 VI• RÉSULTAT FINANCIER (IV-V) 56 458 140,23 66 334 285,55 VII• RÉSULTAT COURANT (III+VI) 317 622 464,57 338 207 182,59 variation de stocks : stock final – stock initial : augmentation (+) : diminution (-) achats revendus ou consommés : achats – variation de stock COMPTE DE PRODUITS ET CHARGES (HORS TAXES) (SUITE) Période comptable du : 01/01/2019 au 30/06/2019 NATURE OPERATIONS Propres à l'exercice 1 Concernant les exercices précédents 2 Totaux de l'exercice 3 = 1 + 2 Totaux de l'exercice precedent 4 VII• RÉSULTAT COURANT (report) 317 622 464,57 338 207 182,59 VIII• PRODUITS NON COURANTS Produits de cession d'immobilisations Subventions d'équilibre Reprises sur subventions d'investissement Autres produits non courants Reprises non courantes ; transferts de charge 2 428 871,66 2 428 871,66 TOTAL VIII 2 428 871,66 2 428 871,66 0,00 IX• CHARGES NON COURANTES Valeurs nettes d'amortissement des immobilisations cédées Subventions accordées Autres charges non courantes 16 231 923,00 16 231 923,00 5 887 537,03 Dotations non courantes aux amortissements et aux provisions 2 428 871,66 2 428 871,66 TOTAL IX 18 660 794,66 18 660 794,66 5 887 537,03 X • RÉSULTAT NON COURANT (VIII-IX) 16 231 923,00 5 887 537,03 XI • RÉSULTAT AVANT IMPOT (VII+X) 301 390 541,57 332 319 645,56 XII • IMPOT SUR LES RESULTATS 102 591 374,81 104 029 202,63 XIII • RÉSULTAT NET (XI-XII) 198 799 166,76 228 290 442,93 XIV • TOTAL PRODUITS (I+IV+VIII) 2 684 406 466,09 2 312 641 378,10 XV • TOTAL CHARGES (II+V+IX+XII) 2 485 607 299,33 2 084 350 935,17 XVI • RÉSULTAT NET 198 799 166,76 228 290 442,93 (total des produits - total des charges) 23 23 24 24 ÉTAT DES SOLDES DE GESTION (E.S.G) I – TABLEAU DE FORMATION DES RESULTATS (T.F.R) 1 Ventes de marchandises (en l'état) 2 Achats revendus de marchandises I MARGE BRUTE SUR VENTES EN L'ETAT II + PRODUCTION DE L'EXERCICE (3+4+5) 3 Ventes de biens et services produits 4 Variation stocks de produits 5 Immobilisations produites par l'entreprise pour elle-même III CONSOMMATIONS DE L'EXERCICE (6+7) 6 Achats consommés de matière et fournitures 7 Autres charges externes IV VALEUR AJOUTEE ( I+II-III ) 8 + Subventions d'exploitation V 9 Impôts et taxes 10 Charges de personnel XI EXCÉDENT BRUT D'EXPLOITATION (EBE) XII OU INSUFFISANCE BRUTE D'EXPLOITATION (IBE) 11 + Autres produits d'exploitation 12 Autres charges d'exploitation 13 + Reprises d'exploitation ; transfert de charges 14 Dotations d'exploitation VI RÉSULTAT D'EXPLOITATION (+ OU -) VII ± RÉSULTAT FINANCIER VIII RÉSULTAT COURANT (+ OU - ) IX ± RÉSULTAT NON COURANT 15 IMPOT SUR LES RESULTATS X RÉSULTAT NET DE L'EXERCICE (+ OU - ) II- CAPACITE D'AUTOFINANCEMENT (CAF) – AUTOFINANCEMENT Résultat net de l'exercice 1 Bénéfice + Perte - 2 + Dotations d'exploitation (1) 3 + Dotations financière (1) 4 + Dotations non courantes (1) 5 Reprises d'exploitation (2) 6 Reprises financière (2) 7 Reprises non courantes (2) (3) 8 Produits de cession des immobilisations 9 + Valeurs nettes d'amortissement des immobilisations cédées I CAPACITE D'AUTOFINANCEMENT (CAF) 10 Distribution de bénéfices II Autofinancement Période comptable du : 01/01/2019 au 30/06/2019 EXERCICE EXERCICE PRECEDENT 0,00 0,00 2 641 675 994,62 2 264 681 896,94 2 641 675 994,62 2 264 681 896,94 1 849 605 789,38 1 457 313 364,92 1 773 087 669,69 1 386 360 550,84 76 518 119,69 70 952 814,08 792 070 205,24 807 368 532,02 0,00 0,00 23 218 390,84 23 106 993,24 98 237 469,88 97 194 820,88 670 614 344,52 687 066 717,90 0,00 0,00 0,00 0,00 14 418 797,69 20 509 425,10 310 952 537,41 303 034 674,86 374 080 604,80 404 541 468,14 56 458 140,23 66 334 285,55 317 622 464,57 338 207 182,59 16 231 923,00 5 887 537,03 102 591 374,81 104 029 202,63 198 799 166,76 228 290 442,93 198 799 166,76 228 290 442,93 0,00 0,00 296 633 056,08 288 615 877,17 0,00 0,00 20 857 195,00 19 227 389,00 0,00 6 503 334,10 0,00 0,00 20 857 195,00 19 227 389,00 0,00 0,00 0,00 0,00 495 432 222,84 510 402 986,00 943 541 680,00 943 541 680,00 448 109 457,16 433 138 694,00 TABLEAU DE FINANCEMENT I. SYNTHESE DES MASSES DU BILAN 1 Financement permanent 2 Moins actif immobilisé 3 = FONDS DE ROULEMENT (A) FONCTIONNEL (1-2) 4 Actif circulant 5 Moins Passif circulant 6 = BESOINS DE FINANCEMENT (B) GLOBAL (4-5) 7 TRÉSORERIE NETTE (ACTIF -PASSIF) A - B II. EMPLOIS ET RESSOURCES I. RESSOURCES STABLES DE L'EXERCICE AUTOFINANCEMENT (A) Capacité d'autofinancement Distributions de bénéfices CESSIONS ET RÉDUCTIONS D'IMMOBILISATIONS (B) Cessions d'immobilisations incorporelles Cessions d'immobilisations corporelles Céssions d'immobilisations financières Récupérations sur créances immobilisées AUGMENTATIONS DES CAPITAUX PROPRES ET ASSIMILÉS (C) Augmentations de capital, apports Subvention d'investissement AUGMENTATION DES DETTES DE FINANCEMENT (D) (nettes de primes de remboursement) (A+B+C+D) II. EMPLOIS STABLES DE L'EXERCICE ACQUISITIONS ET AUGMENTATIONS D'IMMOBILISATIONS (E) Acquisitions d'immobilisations incorporelles Acquisitions d'immobilisations corporelles Acquisitions d'immobilisations financières Augmentation des créances immobilisées REMBOURSEMENT DES CAPITAUX PROPRES (F) REMBOURSEMENT DES DETTES DE FINANCEMENT (G) EMPLOIS EN NON VALEURS (H) TOTAL II. EMPLOIS STABLES (E+F+G+H) III. VARIATION DU BESOIN DE FINANCEMENT GLOBAL (B.F.G.) IV. VARIATION DE LA TRÉSORERIE TOTAL GÉNÉRAL Période comptable du : 01/01/2019 au 30/06/2019 EXERCICE N EXERCICE N-1 VARIATION A-B EMPLOIS RESSOURCES D 7 198 575 024,59 8 142 663 943,01 944 088 918,42 5 278 779 028,18 5 552 643 736,20 273 864 708,02 1 919 795 996,41 2 590 020 206,81 670 224 210,40 4 263 345 166,09 3 921 219 824,07 342 125 342,02 2 370 477 400,02 1 346 108 398,01 1 024 369 002,01 1 892 867 766,07 2 575 111 426,06 682 243 659,99 26 928 230,34 14 908 780,75 12 019 449,59 EXERCICE N EXERCICE N-1 EMPLOIS RESSOURCES EMPLOIS RESSOURCES 448 109 457 16 457 216 502,90 495 432 222 84 1 400 758 182,90 943 541 680 00 943 541 680,00 368 372, 24 1 172 852,59 368 372 ,24 1 172 852,59 447 741 084,92 458 389 355,49 23 136 720,30 177 228 115,27 23 136 720,30 177 228 115,27 199 346 405,18 398 692 810,36 67 037 738,32 222 483 125,48 642 958 663,95 682 243 659,99 183.460.195,90 12 019 449,59 1 109 112,56 234 502 575,07 234 502 575,07 642 958 663,95 642 958 663,95 2525 26 26 EXTRAIT DE L’ETAT DES INFORMATIONS COMPLEMENTAIRES AU 30 JUIN 2019 (ETIC) A• PRINCIPES ET METHODES COMPTABLES 30 ans à compter du 12 Septembre 1997, date de la Mise en Place du Financement. A.0 Informations générales sur l’activité A.0.1 Historique A.0.3 Période de développement de l’activité La centrale thermique de Jorf Lasfar est située sur la côte atlantique du Maroc, adjacente au port de Jorf Lasfar, dans la province d’El Jadida. Le site est localisé à environ 127 Km au sud-ouest de Casablanca. La construction des unités 1 et 2 de la centrale thermique a été effectuée par GEC Alsthom pour le compte de l’Office National d’Electricité (ONE), et achevée en 1994. Chacune de ces unités, utilisant le charbon comme combustible, a une capacité de 330 MW. Le 12 septembre 1997, date de la Mise en Place du Financement, tous les Contrats de Projet ont été signés, le Contrat d’Emprunt Groupe a été exécuté, et le premier déblocage de l’Emprunt Groupe a notamment servi au paiement du Droit de Jouissance à l’ONE. Par conséquent, JLEC a pris possession de la Centrale Thermique le 13 septembre 1997 et a commencé à vendre la capacité disponible et la production nette à l’ONE, conformément au Contrat de Fourniture d’Energie Electrique. Les conditions requises pour le financement du projet ont été complétées en novembre 1997. En octobre 1994, l’ONE a émis un appel d’offre international relatif à la concession de la centrale thermique de Jorf Lasfar pour une période de 30 années. Le Groupement formé par ABB Energy Ventures et CMS Generation (Le Consortium) a été retenu en février 1995. A.0.4 Période de construction des Unités 3 et 4 Les Unités 3 et 4 ont été respectivement mises en exploitation le 9 juin 2000 et le 2 février 2001, soit respectivement 33 mois et 40 mois à compter de la date de la Mise en Place du Financement. L’accord de principe établi entre l’ONE et le Consortium en avril 1996 a permis le démarrage des négociations des contrats afférents au projet (Project Agreements). A.0.5 Acquisition de JLEC par TAQA A.0.2 Constitution et activité Dans le but de conclure officiellement et mettre en œuvre ces contrats, le Consortium a constitué, en date du 20 janvier 1997, une société marocaine en commandite par actions dénommée Jorf Lasfar Energy Company (JLEC), immatriculée au Registre de Commerce sous le Numéro 2145, ayant pour Identification Fiscale le Numéro 1021595 et enregistrée à la Patente sous le Numéro 42161753. Le 2 mai 2007, Abu Dhabi National Energy Company (“TAQA”) a acheté CMS Generation, filiale de CMS Energy qui contrôle les actionnaires directs de JLEC (i) Jorf Lasfar Energiaktiebolag, (ii) Jorf Lasfar Power Energy AB and (iii) Jorf Lasfar Handelsbolag et les filiales du Groupe ABB (i) Tre Kronor Investment AB, (ii) AB Cythere 61 and (iii) AB Cythere 63. En conséquence de ces acquisitions, JLEC était directement et indirectement détenue par TAQA. A.0.6 Refinancement de la dette Conformément à ses statuts, la société a pour objet de construire, exploiter, gérer et maintenir la centrale électrique de Jorf Lasfar, incluant le développement, le financement, l’équipement, la construction, le design, les tests, l’exploitation et la maintenance des deux nouvelles unités, qui sont quasiment similaires en taille et en technologie à celles déjà existantes. Dans le but d’assurer son approvisionnement en combustibles, la société développe, exploite et entretient les installations de déchargement, de transport et de stockage du charbon existantes au Port de Jorf Lasfar. Afin d’exercer ces activités, la société a reçu un droit de jouissance du site localisé au port de Jorf Lasfar, des unités existantes, des unités nouvelles, des installations de transport du charbon. Ce droit de jouissance s’étale sur toute la durée des contrats de concession, qui est de Le refinancement de la dette contractée en devises en 1997 auprès d’un consortium de bailleurs de fonds étrangers ainsi que la dette convertible en actions contractée auprès des actionnaires directs de JLEC, moyennant la contraction d’un crédit auprès d’un consortium de banques marocaines, comportant de deux tranches A et B d’une maturité long terme (une Tranche A d’un montant de 5.500.000,00 Dirhams et une Tranche B de 1.500.000,00 Dirhams), et de deux Tranches R (une facilité court terme sur un an) d’un montant de 200.000,00 Dirhams chacune, dont le contrat a été signé en date du 16 janvier 2009, tel que modifié par avenant en date du 27 mars 2009 et par avenant en date du 22 décembre 2009 et par avenant du 15 décembre 2010 et par avenant en date du 10 décembre 2012 et par avenant en date du 3 octobre 2014 et par avenant en date du 3 juillet 2015. A.0.7 Création de la filiale Jorf lasfar Energy Company 5&6 (JLEC 5&6) Le 22 décembre 2010, JLEC 5&6 a été créée pour porter le projet d’extension de la Centrale Thermique de Jorf Lasfar par la construction de deux nouvelles unités de 350MW brute chacune fonctionnant au charbon vapeur sur le site adjacent au site actuel de la centrale thermique de Jorf Lasfar. Les deux nouvelles unités de production d’électricité (Unités 5&6) sont d’une capacité de 700 MW (2 x 350 MW), portant la capacité totale de la centrale thermique de Jorf Lasfar à plus de 2000 MW. TAQA Morocco détient au 30 juin 2019, 66% des actions de JLEC 5&6. Les Unités 5&6 ont été mises en exploitation commerciale respectivement le 15 avril et le 7 juin 2014. A.0.8 Placement Privé et Introduction en Bourse En décembre 2013, une double augmentation de capital d’un montant global de DH 1.500.000.310 a été effectuée : Une première augmentation «Augmentation de Capital Pré-IPO » a été réservée à des investisseurs institutionnels (RMA Watanya, SCR et MCMA) suite à un Placement Privé qui s’est élevé à DH 499.999.805, dont 111.731.800 Dh à titre de nominal et 388.268.005 Dh à titre de prime d’émission. Les actions issues du Placement Privé ont été intégralement libérées et portent jouissance à compter du 1er janvier 2013 ; Une deuxième augmentation de capital «Augmentation de Capital IPO» a été réalisée auprès du Grand Public suite à l’introduction en bourse de JLEC pour un montant de DH 1.000.000.505, dont 223.463.800 Dh à titre de nominal et 776.536.705 Dh à titre de prime d’émission. Les actions issues de l’introduction en bourse ont intégralement été libérées et portent jouissance à compter du 1er janvier 2013. A l’issue de l’introduction en bourse précitée, Abu Dhabi National Energy Company PJSC (TAQA) détient désormais 85,79 % du capital de TAQA Morocco et la portion du capital restante soit 14,21% est détenue par les actionnaires ayant participé au Placement Privé et à l’introduction en bourse. A.0.9 Changement de dénomination sociale et extension de l’objet social L’Assemblée Générale Ordinaire et Extraordinaire des Actionnaires de TAQA MOROCCO S.A. (ex Jorf Lasfar Energy Company) s’est réunie le 13 Octobre 2014 à, et a notamment approuvé : L’adoption de la nouvelle dénomination sociale « TAQA Morocco » ; - L’extension de l’objet sociale de la société TAQA Morocco ; - La modification corrélative des Statuts de la société TAQA Morocco. A.1 Principales méthodes d’évaluation spécifiques à l’entreprise A.1.1 Généralités Les états de synthèse de la société TAQA Morocco sont préparés conformément aux principes comptables généralement admis au Maroc, tels que prescrits dans le Code Général de Normalisation Comptable (CGNC). Durant la période de constitution et d’établissement de la Société (jusqu’à la date de la Mise en Place du Financement), toutes les dépenses ont été payées par le Groupement (ABB et CMS). Dès la Mise en Place du Financement, tous les frais de premier établissement et de constitution supportés par les sociétés apparentées ont été facturés à JLEC, et remboursés par la Société. A.1.2 Immobilisations en non valeur Frais préliminaires Dès la date de la Mise en Place du Financement, la Société a immobilisé ses frais préliminaires, et les a amortis sur une durée ne dépassant pas cinq années. Les frais préliminaires comprennent les charges légales et administratives engagées pour constituer la société, ainsi que certaines dépenses supportées dans le but de préparer le démarrage de l’activité commerciale de la Société. Charges à répartir sur plusieurs exercices Les charges à répartir sur plusieurs exercices comportent : Les dépenses engagées dans le cadre des Révisions Majeures, effectuées tous les 8 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans ; Les dépenses engagées dans le cadre des Révisions Mineures, effectuées tous les 3 ans selon un plan préétabli, sont constatées en charges à répartir et amorties sur une durée de cinq ans à compter du 1er janvier 2014. A.1.3 Immobilisations incorporelles Frais d’obtention du financement Les dépenses engagées pour obtenir le financement sont comptabilisées en immobilisations incorporelles et amorties sur une durée de cinq années. L’amortissement périodique des ces frais est constaté en dotation d’exploitation conformément aux dispositions du CGNC. 27 27 28 28 Autres frais de développement du projet A dater de la Mise en Place du Financement, la Société a comptabilisé en immobilisations incorporelles certaines dépenses payées par le Groupement durant la période de développement du projet. Ces frais immobilisés sont répartis sur la durée de la concession, soit 30 ans à compter de la date de la Mise en Place du Financement. Droit de jouissance initial Conformément au Contrat de Transfert de Droit de Jouissance (Transfer of Possession Agreement, TPA) et en contrepartie du paiement du Prix du Transfert du Droit de Jouissance prévu par ce contrat, l’ONE a transféré à JLEC son « droit de jouissance » du Site et des unités 1 & 2. Ce droit de jouissance est immobilisé en actif incorporel et amorti sur la durée de la concession, soit 30 ans à compter e la date de la Mise en Place du Financement. Droit de jouissance complémentaire Comme indiqué à la note A.0.4 ci-dessus, JLEC avait procédé à la construction des Unités 3 et 4 durant une période respectivement de 33 mois et 40 mois, à compter de la date de la Mise en Place du Financement, ainsi qu’à d’autres investissements liés au Site. Durant cette période, les dépenses totales correspondantes, incluant les intérêts intercalaires, ont été comptabilisées en immobilisations corporelles en cours. A compter de la Mise en Exploitation de l’Unité 4, le 2 février 2001, le droit de jouissance de JLEC avait été étendu à ces nouvelles unités. Ces actifs incorporels sont amortis sur la période restante de la concession, soit 26 ans et 7 mois à compter de cette date. Ce poste comprend les actifs corporels dont la durée de vie estimée est inférieure à la durée de la concession. Ces immobilisations sont enregistrées à leur coût d’acquisition ou de production. Les amortissements sont calculés, selon le mode linéaire et les taux fiscaux en vigueur. A.1.5 Stocks Les stocks sont évalués au coût d’achat. Ce coût comprend le prix d’achat et les frais accessoires d’achat. En fin d’exercice, les stocks sont valorisés selon la méthode du Coût Moyen Pondéré (CMP), à l’exception des stocks de pièces de rechange qui sont valorisés au Premier Entrée Premier Sortie (P.E.P.S). A.1.6 Créances et dettes libellées en devises Les créances et dettes libellées en monnaies étrangères sont comptabilisées au cours de change prévalant à la date de la transaction. Ces créances et dettes sont converties au taux de clôture et réajustées par les comptes d’écarts de conversion actif ou passif. Les pertes latentes de change sont constatées dans le compte de produits et charges par le biais de provisions financières. Les gains de change latents ne sont pas constatés dans le compte de produits et charges. A.2 Etat des dérogations A.2.1 Dérogations aux principes comptables fondamentaux Néant. A.2.2 Dérogations aux méthodes d’évaluation Néant. A.2.3 Dérogations aux règles d’établissement et de présentation des états de synthèse Les gains et pertes de change provenant de la comptabilisation des achats de charbon et des règlements correspondants, effectués en Dollars américains et convertis en dirhams au cours du jour d’opération, sont enregistrés dans un sous-compte de la rubrique « Achats de charbon » intitulé « Différences sur achats de charbon en dollars », parmi les charges d’exploitation. Ce traitement particulier, sans impact sur le patrimoine et la situation financière de la Société, est justifié par le fait que ces différences sont liées aux règles de comptabilisation, et ne correspondent pas à des gains et pertes de change provenant de la conversion de dirhams en dollars. A.3 Etat des changements de méthodes A.3.1 Changements affectant les méthodes d’évaluation Néant. A.3.2 Changements affectant les règles de présentation Néant. ETAT: B-2 TABLEAU DES IMMOBILISATIONS AUTRES QUE FINANCIERES NATURE MONTANT BRUT DEBUT EXERCICE Acquisition OPERATIONS Production par l'Entreprise pour elle-même IMMOBILISATIONS EN NON-VALEURS 432.517.137,52 Frais préliminaires Charges à répartir sur plusieurs exercices 432.517.137,52 Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES 11.888.084.021,20 Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires 11.100.748.881,90 Fonds commercial Autres immobilisations incorporelles 787.335.139,30 Autres immobilisations incorporelles en cours IMMOBILISATIONS CORPORELLES 1.004.143.035,91 23.136.720,30 Terrains Constructions 2.104.303,57 Installations techniques, matériel et outillage 505.077.034,86 6.158.112,52 Matériel de transport 2.214.265,53 Mobilier, matériel de bureau et aménagements divers 270.539.272,93 4.147.933,65 Autres immobilisations corporelles 313.970,50 Immobilisations corporelles en cours 223.894.188,52 12.830.674,13 ETAT: B-2 bis TABLEAU DES AMORTISSEMENTS NATURE Cumul début exercice 1 IMMOBILISATIONS EN NON-VALEURS 230.747.226,22 Frais préliminaires Charges à répartir sur plusieurs exercices 230.747.226,22 Primes de remboursement des obligations IMMOBILISATIONS INCORPORELLES 8.157.761.840,74 Immobilisations en recherche et développement Brevets, marques, droits et valeurs similaires 7.570.129.784,51 Fonds commercial Autres immobilisations incorporelles 587.632.056,23 IMMOBILISATIONS CORPORELLES 585.316.448,87 Terrains Constructions 647.332,37 Installations techniques, matériel et outillage 397.771.537,67 Matériel de transport 2.095.709,96 Mobilier, matériel de bureau et aménagements divers 184.487.898,37 Autres immobilisations corporelles 313.970,50 Période comptable du : 01/01/2019 au 30/06/2019 Virement Cession DIMINUTION Retrait Virement MONTANT BRUT FIN EXERCICE 141.476.399,93 573.993.537,45 141.476.399,93 573.993.537,45 11.888.084.021,20 11.100.748.881,90 787.335.139,30 141.476.399,93 885.803.356,28 2.104.303,57 511.235.147,38 2.214.265,53 274.687.206,58 313.970,50 141.476.399,93 95.248.462,72 Période comptable du : 01/01/2019 au 30/06/2019 Dotation de l'exercice 2 Amortissement sur immobilisat° sorties 3 Cumul d'amortissemt fin exercice 4=1+2-3 57.043.860,17 287.791.086,39 57.043.860,17 287.791.086,39 214.722.275,28 8.372.484.116,02 203.338.167,46 7.773.467.951,97 11.384.107,82 599.016.164,05 24.866.920,63 610.183.369,50 52.175,04 699.507,41 15.963.262,48 413.734.800,15 20.166,21 2.115.876,17 8.831.316,90 193.319.215,27 313.970,50 2929 30 TAQA MOROCCO S.A. ATTESTATION D’EXAMEN LIMITE SUR LA SITUATION INTERMEDIAIRE DES COMPTES SOCIAUX AU 30 JUIN 2019 En application des dispositions du Dahir portant loi n° 212-93-1 du 21 septembre 1993, tel que modifié et complété, nous avons procédé à un examen limité de la situation intermédiaire de la société comprenant le bilan et le compte de produits et charges et une sélection de notes annexes relatifs à la période allant du 1er janvier au 30 juin 2019. Cette situation intermédiaire qui fait ressortir un montant de capitaux propres et assimilés totalisant MAD 4.087.848.548,18 dont un bénéfice net de MAD 198.799.166,76, relève de la responsabilité des organes de gestion de la société TAQA MOROCCO S.A. Nous avons effectué notre mission selon les normes de la profession au Maroc relatives aux missions d’examen limité. Ces normes requièrent que l’examen limité soit planifié et réalisé en vue d’obtenir une assurance modérée que la situation intermédiaire ne comporte pas d’anomalie significative. Un examen limité comporte essentiellement des entretiens avec le personnel de la société et des vérifications analytiques appliquées aux données financières; il fournit donc un niveau d’assurance moins élevé qu’un audit. Nous n’avons pas effectué un audit et, en conséquence, nous n’exprimons donc pas d’opinion d’audit. Sur la base de notre examen limité, nous n’avons pas relevé de faits qui nous laissent penser que la situation intermédiaire, ci-jointe, ne donne pas une image fidèle du résultat des opérations du semestre écoulé ainsi que de la situation financière et du patrimoine de la société arrêtés au 30 juin 2019, conformément au référentiel comptable admis au Maroc. Casablanca, le 17 septembre 2019 LES COMMISSAIRES AUX COMPTES 31 32 TAQA MOROCCO Société Anonyme à Directoire et à Conseil de Surveillance Capital social : 2.358.854.200 Dirhams Siège social : Centrale Thermique de Jorf Lasfar, Commune Moulay Abdellah, Route Régionale 301, PK 23, El Jadida Registre de Commerce d’El Jadida numéro 2145 Contact : finance@taqamorocco.ma | Semestriel, 2019, Energy, TaqaMorocco | write me a financial report |
Semestriel | 2,007 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
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| Financial report 1st half 2007 Content 1 Financial report - 1st half 2007 Key figures and consolidated accounts Group results Analysis of business segment results TOTAL S.A. accounts Summary and outlook Other information Main operating information by segment Adjustment items Net-debt-to-equity ratio Return on average capital employed (ROACE) Principal risks and uncertainties for the remaining six months of 2007 p. 3 p. 3 p. 4 p. 6 p. 10 p. 10 p. 11 p. 11 p. 12 p. 12 p. 13 p. 14 2 Consolidated financial statements Statutory auditor’s report (review of the consolidated financial statements) Consolidated statement of income Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in shareholders’ equity Notes to the consolidated financial statements Accounting policies Changes in the Group structure, main acquisitions and divestitures Adjustment items Shareholders’ equity Non-current financial debt Related parties Other risks and contingent liabilities Information by business segment Reconciliation between information by business segment and the consolidated statement of income p. 17 p. 17 p. 18 p. 20 p. 21 p. 23 p. 24 p. 24 p. 24 p. 24 p. 27 p. 27 p. 27 p. 27 p. 30 p. 38 Financial report - 1st half 2007 This is a free translation of the Chief Executive Officer’s certification given in French and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the consolidated financial statements for the first half 2007 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and the interim management report includes a fair review of the important events that have occurred during the first six months of the financial year, their impact condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year.” “The independent auditor’s report on their review of the above mentioned consolidated financial statements has been included in this half-year financial report.” Christophe de Margerie Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on August 6, 2007 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. TOTAL – Financial report - 1st half 2007 1 Abbreviations b: barrel cf: cubic feet /d: per day /y: per year €: euro $ and/or dollar: US dollar t: metric ton boe: barrel oil equivalent kboe/d: thousand boe/d kb/d: thousand barrel/d Btu: British thermal unit LNG: liquefied natural gas M: million B: billion TRCV: Topping Reforming Cracking Visbreaking. Refining margin indicator after variable costs of a theoretical average refinery located in Rotterdam which processes a variety of crude oil representing the average supply in the area to provide main products quoted in this same area. IFRS: International Financial Reporting Standards 2 TOTAL – Financial report - 1st half 2007 Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of France. The terms “Company” and “issuer” as used in this half-year financial report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. August 2007. Key figures and consolidated accounts 1 Financial report - 1st half 2007 Financial report - 1st half 2007 Key figures and consolidated accounts in millions of euros, except earnings per share and number of shares 1H07 1H06 1H07 vs 1H06 Sales Adjusted operating income from the business segments Adjusted net operating income from the business segments 76,137 11,485 6,029 79,012 13,360 6,609 4% -14% -9% Š Upstream Š Downstream Š Chemicals 4,053 1,463 513 4,791 1,437 381 15% +2% +35% Adjusted net income Adjusted fully-diluted earnings per share (euros) Fully-diluted weighted-average shares (millions) 6,092 2.67 2,279.7 6,737 2.89 2,329.4 10% -8% -2% Net income (Group share) 6,460 7,124 9% Investments Divestments (at selling price) Cash flow from operations Adjusted cash flow from operations 5,104 466 9,977 8,679 5,529 1,021 8,885 8,965 8% -54% +12% -3% (1) adjusted income (adjusted operating income, adjusted net operating income and adjusted net income) is defined as income using replacement cost, adjusted for special items and excluding TOTAL’s equity share of amortization of intangibles related to the Sanofi-Aventis merger; adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are listed on page 12. TOTAL – Financial report - 1st half 2007 3 1 Financial report - 1st half 2007 Group results Group results Operating income Net income Compared to the first half 2006, the oil market environment in the first half 2007 was marked by a 4% decrease in the Brent price to 63.2 $/b and a 60% decrease in the spot price for UK natural gas. The TRCV European refining margin indicator increased by 18% to 37.9 $/t. The market environment for petrochemicals was favorable in Europe despite the higher cost of raw materials. The euro/dollar exchange rate was 1.33 $/€ compared to 1.23 $/€ in the first half 2006. Adjusted net income decreased by 10% to 6,092 M€ from 6,737 M€ in the first half 2006. This excludes the after-tax inventory effect, special items, and the Group’s equity share of the amortization of intangibles related to the Sanofi-Aventis merger. The after-tax inventory effect had a positive impact on net income of 616 M€ in the first half 2007 and of 556 M€ in the first half 2006. In this context, adjusted operating income from the business segments was 11,485 M€, a decrease of 14% compared to the first half 2006. There were no special items affecting operating income in the first half 2007. Special items had a negative impact on operating income of 55 M€(2) in the first half 2006. Special items affecting net income had a negative impact of 100 M€ (2) in the first half 2007 and no impact in the first half 2006. The Group’s share of the amortization of intangibles related to the Sanofi-Aventis merger had a negative impact on net income of 148 M€ in the first half 2007 and 169 M€ in the first half 2006. Reported net income was 6,460 M€ compared to 7,124 M€ in the first half 2006. Adjusted net operating income from the business segments was 6,029 M€ compared to 6,609 M€ in the first half 2006, a decrease of 9%. The lower percentage decrease relative to the decrease in operating income is mainly due to the higher proportion of the lower-taxed Downstream and Chemicals segments in the results and, in the Upstream segment, the larger contribution of equity affiliates. Expressed in dollars, adjusted net operating income from the business segments decreased by 1%. The effective tax rate for the Group was 54% in the first half 2007 compared to 55% in the first half 2006. In the first half 2007, the Group bought back 14 million of its shares for 755 M€. The number of fully-diluted shares at June 30, 2007 was 2,278.6 million compared to 2,312.9 million at June 30, 2006. In July 2007 the Group bought back 3.09 million(3) of its shares for 190 M€. Adjusted fully-diluted earnings per share, based on 2,279.7 million fully-diluted weighted-average shares was 2.67 euros compared to 2.89 euros in the first half 2006, a decrease of 8%, which is a smaller decrease than shown for adjusted net income due to the accretive effect of the share buybacks. Expressed in dollars, adjusted fully-diluted earnings per share was 3.55, essentially unchanged from the level of the first half 2006. (2) calculations shown on page 12 (3) includes 2.39 million shares purchased to cover the program of restricted share grants for employees approved by the Board of Directors on July 17, 2007 4 TOTAL – Financial report - 1st half 2007 Investments – divestments Investments were 5,104 M€ compared to 5,529 M€ in the first half 2006. First half 2007 investments included 67 M€ of acquisitions mainly for new exploration acreage and permits in Nigeria, Canada, and Alaska. Divestments in the first half 2007 were 466 M€ compared to 1,021 M€ in the first half 2006, which included the sale of Canyon Express and the Aconcagua field in the Gulf of Mexico, certain Upstream assets in Norway, and targeted disposals in the Downstream and Specialty Chemicals. Expressed in dollars, first half 2007 investments were stable at approximately 6.8 billion. Net investments were 6.2 B$ compared to 5.5 B$ in the first half 2006. (4) calculations shown on page 12 Financial report - 1st half 2007 Group results Cash flow Cash flow from operations was 9,977 M€, an increase of 12% compared to the first half 2006. Adjusted cash flow from operations (cash flow from operations before changes in working capital at replacement cost) decreased by 3% to 8,679 M€. Net cash flow was 5,339 M€ compared to 4,377 M€ in the first half 2006. The net-debt-to-equity ratio was 26% at June 30, 2007 compared to 23% at March 31, 2007 and 30% at June 30, 2006(4), in line with the target range of the Group. TOTAL – Financial report - 1st half 2007 1 5 1 Financial report - 1st half 2007 Analysis of business segment results Analysis of business segment results Upstream Environment – liquids and gas price realizations* 1H07 1H06 Brent ($/b) Average liquids price ($/b) Average gas price ($/Mbtu) 63.2 60.2 5.32 65.7 62.4 5.96 consolidated subsidiaries, excluding fixed margin and buy-back contracts TOTAL’s average realized price for liquids moved in line with the change in the Brent price for the first half 2007 compared to the first half 2006. TOTAL’s average realized gas price decreased in the first half 2007 compared to the first half 2006 mainly due to a sharp decline in the spot price for natural gas in the UK. Production Hydrocarbon production 1H07 1H06 Combined production (kboe/d) 2,376 2,364 Š Liquids (kb/d) Š Gas (Mcf/d) 1,513 4,689 1,513 4,647 First half 2007 hydrocarbon production was 2,376 kboe/d compared to 2,364 kboe/d in the first half 2006, representing an increase of 0.5% that was mainly due to the following: Š +4% due to the ramp up of new fields partially offset by normal declines and production shutdowns, Š 1% due to an accident on the Nkossa platform in Congo and shutdowns in Nigerian delta because of security issues, Š 1.5% due to OPEC reductions, Š 1% due to changes in the portfolio. Excluding changes to the portfolio and OPEC reductions, the underlying production growth was close to 3% between the first half 2006 and first half 2007. 6 TOTAL – Financial report - 1st half 2007 1H07 vs 1H06 4% -4% -11% 1H07 vs 1H06 +1% +1% Financial report - 1st half 2007 Analysis of business segment results Results in millions of euros 1H07 1H06 Adjusted operating income* Adjusted net operating income* 8,815 4,053 10,977 4,791 Š Includes income from equity affiliates 377 298 Investments Divestments (at selling price) Cash flow Adjusted cash flow 4,098 364 7,647 5,977 4,290 855 7,202 6,680 detail of adjustment items shown in business segment information Adjusted net operating income for the Upstream segment decreased by 15% to 4,053 M€ in the first half 2007 from 4,791 M€ in the first half 2006. Expressed in dollars, the 0.5 B$ decrease in adjusted net operating income for the Upstream segment was mainly due to the following: Š +0.35 B$ due to the impact of growth and other elements, Š 0.4 B$ due to lower hydrocarbon prices, Š 0.25 B$ due to increased exploration, Š 0.2 B$ due to higher costs. The return on average capital employed (ROACE(5)) for the Upstream segment was 33% for the twelve months ended June 30, 2007 compared to 34% for the twelve months ended March 31, 2007 and 35% for the full year 2006. (5) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13 TOTAL – Financial report - 1st half 2007 1 1H07 vs 1H06 20% -15% +27% 4% -57% +6% -11% 7 1 Financial report - 1st half 2007 Analysis of business segment results Downstream Refinery throughput and utilization rates 1H07 1H06 Total refinery throughput (kb/d)* 2,386 2,429 Š France Š Rest of Europe* Š Rest of world 961 1,139 286 894 1,216 319 Utilization rates Š Based on crude only Š Based on crude and other feedstock 86% 88% 86% 90% includes share of Cepsa The lower refinery throughput and utilization rates were mainly due to heavy maintenance activity in the first half 2007, which included six of the eleven turnarounds scheduled for the year. The Port Arthur, Donges, Antwerp, Vlissingen and Flanders refineries had partial turnarounds while the Rome refinery had a full turnaround. The first half 2006 included a major turnaround at the Provence refinery and a 3-week shutdown of the Flandres refinery. Results in millions of euros (except European refining margin indicator) 1H07 1H06 European refining margin indicator – TRCV ($/t) Adjusted operating income* Adjusted net operating income* 37.9 1,977 1,463 32.0 1,892 1,437 Š Includes income from equity affiliates 138 142 Investments Divestments (at selling price) Cash flow Adjusted cash flow 645 50 3,337 2,038 689 63 2,185 1,918 detail of adjustment items shown in business segment information Adjusted net operating income for the Downstream segment in the first half 2007 was 1,463 M€ compared to 1,437 M€ in the first half 2006, an increase of 2%. Expressed in dollars, adjusted net operating income for the Downstream segment increased by 0.2 B$, reflecting mainly the positive effects of self-help programs, including productivity efforts in marketing and the contribution of the Normandy DHC. The ROACE(6) for the Downstream segment was 25% for the twelve months ended June 30, 2007 compared to 25% for the twelve months ended March 31, 2007 and 23% for the full year 2006. (6) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13 8 TOTAL – Financial report - 1st half 2007 1H07 vs 1H06 2% +7% -6% -10% 1H07 vs 1H06 +18% +4% +2% 3% 6% -21% +53% +6% Financial report - 1st half 2007 Analysis of business segment results Chemicals Results in millions of euros 1H07 1H06 Sales 10,065 9,654 Š Base chemicals Š Specialties 6,353 3,712 5,985 3,669 Adjusted operating income* Adjusted net operating income* 693 513 491 381 Š Base chemicals Š Specialties 299 217 163 212 Investments Divestments (at selling price) Cash flow Adjusted cash flow 346 48 361 631 500 95 (44) 560 detail of adjustment items shown in business segment information In the first half 2007, adjusted net operating income for the Chemicals segment was 513 M€ compared to 381 M€ in the first half 2006, an increase of 35%, reflecting essentially the benefit of a more favorable petrochemicals environment. Expressed in dollars, the increase was 0.2 B$. The ROACE(7) for the Chemicals segment was 14% for the twelve months ended June 30, 2007 compared to 14% for the twelve months ended March 31, 2007 and 13% for the full year 2006. (7) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13 TOTAL – Financial report - 1st half 2007 1 1H07 vs 1H06 +4% +6% +1% +41% +35% +83% +2% 31% -49% ns +13% 9 1 Financial report - 1st half 2007 TOTAL S.A. accounts TOTAL S.A. accounts The parent company, TOTAL S.A., reported net income of 2,804 M€ in the first half 2007 compared to 2,593 M€ in the first half 2006. Summary and outlook The ROACE for the twelve months ended June 30, 2007 was 25% for the Group and 28% for the business segments compared to 26% and 28% respectively for the twelve months ended March 31, 2007 and 26% and 29% respectively for the full year 2006. Although cost inflation continues to affect the industry, TOTAL is maintaining its investment discipline and its quality-driven approach to managing its projects and operations. TOTAL also continues to give high priority to safety and the preservation of the environment throughout its activities. The return on equity for the twelve months ended June 30, 2007 was 30%. The Group maintains its net-debt-to-equity ratio around 25% to 30%. These efforts, combined with steady progress on the development of new fields, continued exploration efforts and successful negotiations to secure major new projects with large national oil companies, strengthens the outlook for profitable growth for the coming years and for the very long term. TOTAL’s investment program is continuing in line with its 2007 target of 16 B$ (excluding acquisitions). Since the beginning of the third quarter 2007, oil prices have remained at very high levels, but refining margins have fallen sharply. 10 TOTAL – Financial report - 1st half 2007 Other information Main operating information by segment Upstream Combined liquids and gas production by region (kboe/d) Europe Africa North America Far East Middle East South America Rest of the world Total production Includes equity and non-consolidated affiliates Liquids production by region (kb/d) Europe Africa North America Far East Middle East South America Rest of the world Total production Includes equity and non-consolidated affiliates Gas production by region (Mcf/d) Europe Africa North America Far East Middle East South America Rest of the world Total production Includes equity and non-consolidated affiliates Downstream Refined products sales by region (kb/d)* Europe Africa Americas Rest of the world Total consolidated sales Trading (balancing and export sales) Total refined products sales includes equity share in Cepsa Financial report - 1st half 2007 Other information 1H07 1H06 695 790 24 251 380 225 11 743 717 10 251 406 230 7 2,376 325 2,364 338 1H07 1H06 344 675 16 29 324 116 9 368 630 1 29 354 124 7 1,513 272 1,513 286 1H07 1H06 1,901 591 39 1,244 296 602 16 2,035 463 47 1,235 281 584 2 4,689 284 4,647 275 1H07 1H06 2,244 283 208 141 2,279 263 317 139 2,876 922 3,798 2,998 822 3,820 TOTAL – Financial report - 1st half 2007 1 1H07 vs 1H06 6% +10% +140% - -6% -2% +57% +1% -4% 1H07 vs 1H06 7% +7% x16 - -8% -6% +29% -5% 1H07 vs 1H06 7% +28% -17% +1% +5% +3% x8 +1% +3% 1H07 vs 1H06 2% +8% -34% +1% 4% +12% -1% 11 1 Financial report - 1st half 2007 Other information Adjustment items Adjustments to operating income from the business segments in millions of euros Special items affecting operating income from the business segments Š Restructuring charges Š Impairments Š Other Pre-tax inventory effect: FIFO vs. replacement cost Total adjustments affecting operating income from the business segments Adjustments to net income (Group share) in millions of euros Special items affecting net income (Group share) Š Equity share of special items recorded by Sanofi-Aventis Š Gain on asset sales Š Restructuring charges Š Impairments Š Other Adjustment related to the Sanofi-Aventis merger* (share of amortization of intangible assets) After-tax inventory effect: FIFO vs. replacement cost Total adjustments to net income based on 13% participation in Sanofi-Aventis at 06/30/2006, and 06/30/2007 Net-debt-to-equity ratio in millions of euros Current borrowings Net current financial assets Non-current financial debt Hedging instruments of non-current debt Cash and cash equivalents Net debt Shareholders’ equity Estimated dividend payable* Minority interests Equity Net-debt-to-equity ratio as of 06/30/2007, based on a dividend of 1.87 €/share of 2.5 € of par value 12 TOTAL – Financial report - 1st half 2007 1H07 - - 893 893 1H07 (100) - - - (100) (148) 616 368 06/30/2007 9,809 (10,790) 15,045 (287) (2,858) 10,919 43,657 (2,110) 817 42,364 25.8% 1H06 (55) (23) - (32) 756 701 1H06 (33) 130 (59) - (38) (169) 556 387 06/30/2006 13,707 (10,651) 13,256 (588) (3,906) 11,818 40,272 (1,860) 783 39,195 30.2% Financial report - 1st half 2007 Other information Return on average capital employed For the twelve months ended June 30, 2007 in millions of euros Upstream Downstream Chemicals** Segments Adjusted net operating income Capital employed at 6/30/06* Capital employed at 6/30/07* ROACE 7,971 23,119 25,218 33.0% 2,810 11,335 11,204 24.9% 1,016 7,147 7,264 14.1% 11,797 41,601 43,686 27.7% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 113 M€ pre-tax at 6/30/06 and 146 M€ pre-tax at 6/30/07 at replacement cost (excluding after-tax inventory effect) For the twelve months ended March 31, 2007 in millions of euros Upstream Downstream Chemicals** Segments Adjusted net operating income Capital employed at 3/31/06* Capital employed at 3/31/07* ROACE 8,270 23,282 24,808 34.4% 2,842 11,296 11,442 25.0% 973 7,187 7,129 13.6% 12,085 41,765 43,379 28.4% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 122 M€ pre-tax at 3/31/06 and 153 M€ pre-tax at 3/31/07 and for the Arkema capital employed by 2,406 M€ at 3/31/2006 at replacement cost (excluding after-tax inventory effect) For the full year 2006 in millions of euros Upstream Downstream Chemicals** Segments Adjusted net operating income Capital employed at 12/31/05* Capital employed at 12/31/06* ROACE 8,709 23,522 25,543 35.5% 2,784 11,421 12,384 23.4% 884 6,885 6,920 12.8% 12,377 41,828 44,847 28.6% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 133 M€ pre-tax at 12/31/05 and 176 M€ pre-tax at 12/31/06 and for the Arkema capital employed by 2,235 M€ at 12/31/2005 at replacement cost (excluding after-tax inventory effect) TOTAL – Financial report - 1st half 2007 1 Group 12,584 49,798 52,645 24.6% Group 12,855 49,615 50,773 25.6% Group 13,162 49,341 52,263 25.9% 13 1 Financial report - 1st half 2007 Other information Principal risks and uncertainties for the remaining six months of 2007 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on April 5, 2007 under the reference D.07-0279. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2007 on page 27 of this First half 2007 financial report. 14 TOTAL – Financial report - 1st half 2007 Disclaimer This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. TOTAL does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group and its affiliates with the French Autorité des marchés financiers and the US Securities and Exchange Commission. The business segment information is presented in accordance with the Group internal reporting system used by the Management to measure performance and allocate resources internally. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain Financial report - 1st half 2007 Other information 1 transactions such as restructuring costs or assets disposals, which are not considered to be representative of normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to recur within following years. The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ results with those of its competitors, mainly North American. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the income statement is determined by the average price of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and replacement cost. In this framework, performance measures such as adjusted operating income, adjusted net operating income and adjusted net income are defined as incomes using replacement cost, adjusted for special items and excluding TOTAL’s equity share of the amortization of intangibles related to the Sanofi-Aventis merger. They are meant to facilitate the analysis of the financial performance and the comparison of income between periods. TOTAL – Financial report - 1st half 2007 15 16 TOTAL – Financial report - 1st half 2007 Consolidated financial statements Statutory auditor’s report 2 Consolidated financial statements Statutory auditor’s report (review of the consolidated financial statements) This is a free translation into English of the statutory auditor’s report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. For the six months ended June 30, 2007 Statutory auditor’s report on the half-yearly financial information 2007 To the Shareholders, In our capacity as statutory auditors and in accordance with the requirements of article L. 232-7 of the French Commercial Law (the Code de commerce), we hereby report to you on: Š the review of the accompanying condensed half-year consolidated financial statements of TOTAL S.A., for the period January 1 to June 30, 2007, Š the verification of information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Chief Executive Officer. Our role is to express a conclusion on these financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – the IFRS adopted by the European Union applicable to interim financial information. In accordance with professional standards applicable in France, we have also verified the information given in the half-year financial report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris-La Défense, August 1st, 2007 The statutory auditors French original signed by KPMG Audit Departement of KPMG S.A. ERNST & YOUNG Audit René Amirkhanian Gabriel Galet Philippe Diu TOTAL – Financial report - 1st half 2007 17 2 Consolidated financial statements Consolidated statement of income Consolidated statement of income TOTAL (unaudited) (in millions of euros)(1) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights Operating income Corporate Business segments* Total operating income Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) Consolidated net income Group share** Minority interests Earnings per share (euros) Fully-diluted earnings per share (euros)*** Adjusted operating income from business segments Adjusted net operating income from business segments ** Adjusted net income *** Adjusted fully-diluted earnings per share (euros) (1) Except for earnings per share 18 TOTAL – Financial report - 1st half 2007 1H07 76,137 (10,961) 65,176 (41,094) (8,791) (469) (2,665) (221) 12,378 12,157 156 (166) (877) 631 (246) 337 (141) (6,382) 918 6,633 6,633 6,460 173 2.86 2.83 11,485 6,029 6,092 2.67 1H06 79,012 (9,748) 69,264 (42,829) (9,922) (261) (2,443) (252) 14,061 13,809 333 (243) (715) 611 (104) 307 (120) (7,457) 820 7,345 8 7,353 7,124 229 3.08 3.06 13,360 6,609 6,737 2.89 Consolidated statement of income TOTAL (unaudited) (in millions of euros)(1) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights Operating income Corporate Business segments* Total operating income Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) Consolidated net income Group share** Minority interests Earnings per share (euros) Fully-diluted earnings per share (euros)*** Adjusted operating income from business segments Adjusted net operating income from business segments ** Adjusted net income *** Adjusted fully-diluted earnings per share (euros) (1) Except for earnings per share Consolidated financial statements Consolidated statement of income 2nd quarter 2007 1st quarter 2007 39,094 (5,595) 33,499 37,043 (5,366) 31,677 (21,385) (4,139) (255) (1,365) (19,709) (4,652) (214) (1,300) (120) 6,475 (101) 5,903 6,355 5,802 60 (102) 96 (64) (447) 337 (110) (430) 294 (136) 209 (74) (3,292) 449 128 (67) (3,090) 469 3,495 3,138 3,495 3,138 3,411 84 3,049 89 1.51 1.35 1.50 1.34 5,756 5,729 3,081 2,948 3,100 2,992 1.36 1.31 TOTAL – Financial report - 1st half 2007 2 2nd quarter 2006 40,909 (5,141) 35,768 (22,387) (5,172) (146) (1,212) (154) 7,005 6,851 72 (158) (387) 340 (47) 201 (69) (3,644) 376 3,582 3,582 3,441 141 1.49 1.48 6,672 3,369 3,361 1.45 19 2 Consolidated financial statements Consolidated balance sheet Consolidated balance sheet TOTAL (in millions of euros) ASSETS Non-current assets Intangible assets, net Property, plant and equipment, net Equity affiliates: investments and loans Other investments Hedging instruments of non-current financial debt Other non-current assets Total non-current assets Current assets Inventories, net Accounts receivable, net Prepaid expenses and other current assets Current financial assets Cash and cash equivalents Total current assets Total assets LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares Paid-in surplus and retained earnings Cumulative translation adjustment Treasury shares Total shareholders’ equity – Group share Minority interests Total shareholders’ equity Non-current liabilities Deferred income taxes Employee benefits Other non-current liabilities Total non-current liabilities Non-current financial debt Current liabilities Accounts payable Other creditors and accrued liabilities Current borrowings Other current financial liabilities Total current liabilities Total liabilities and shareholders’ equity 20 TOTAL – Financial report - 1st half 2007 June 30, 2007 (unaudited) 4,729 42,090 13,619 1,385 287 1,801 63,911 12,009 17,024 7,155 10,883 2,858 49,929 113,840 5,983 44,238 (1,885) (4,679) 43,657 817 44,474 7,442 2,814 6,359 16,615 15,045 14,418 13,386 9,809 93 37,706 113,840 March 31, 2007 (unaudited) 4,685 41,049 13,667 1,342 291 1,837 62,871 11,377 18,132 6,414 10,929 2,962 49,814 112,685 5,982 42,963 (1,716) (4,363) 42,866 868 43,734 7,118 2,841 6,360 16,319 13,836 14,972 14,188 9,625 11 38,796 112,685 December 31, 2006 4,705 40,576 13,331 1,250 486 2,088 62,436 11,746 17,393 7,247 3,908 2,493 42,787 105,223 6,064 41,460 (1,383) (5,820) 40,321 827 41,148 7,139 2,773 6,467 16,379 14,174 15,080 12,509 5,858 75 33,522 105,223 June 30, 2006 (unaudited) 4,658 38,920 12,702 1,656 588 2,186 60,710 12,215 17,715 6,632 10,855 3,906 51,323 112,033 6,179 41,279 (650) (6,536) 40,272 783 41,055 6,909 2,976 6,187 16,072 13,256 14,149 13,590 13,707 204 41,650 112,033 Consolidated financial statements Consolidated statement of cash flows Consolidated statement of cash flows TOTAL (unaudited) (in millions of euros) CASH FLOW FROM OPERATING ACTIVITIES 1H07 Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) Losses on sales of assets Undistributed affiliates equity earnings (Increase) Decrease in operating assets and liabilities Other changes, net 6,633 2,933 288 - (141) (329) 405 188 Cash flow from operating activities 9,977 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans (4,632) (20) (147) (305) Total expenditures Proceeds from sale of intangible assets and property, plant and equipment Proceeds from sale of subsidiaries, net of cash sold Proceeds from sale of non-current investments Repayment of non-current loans (5,104) 90 - 83 293 Total divestitures 466 Cash flow used in investing activities (4,638) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Š Parent company’s shareholders Š Treasury shares Š Minority shareholders 15 (568) - Cash dividends paid: Š Parent company’s shareholders Š Minority shareholders (2,262) (162) Net issuance (repayment) of non-current debt Increase (Decrease) in current borrowings Increase (Decrease) in current financial assets and liabilities Other changes, net 2,413 2,507 (6,968) - Cash flow used in financing activities (5,025) Net increase (decrease) in cash and cash equivalents Effect of exchange rates and changes in reporting entity Cash and cash equivalents at the beginning of the period 314 51 2,493 Cash and cash equivalents at the end of the period 2,858 The statement of cash flows for the 1st half 2006 includes the sub-group Arkema which has been spun-off on May 18, 2006. TOTAL – Financial report - 1st half 2007 2 1H06 7,353 2,843 177 (37) (333) (264) (836) (18) 8,885 (4,594) (80) (123) (732) (5,529) 309 - 89 623 1,021 (4,508) 478 (2,086) 13 (2,022) (230) 1,125 9,573 (10,696) - (3,845) 532 (944) 4,318 3,906 21 2 Consolidated financial statements Consolidated statement of cash flows Consolidated statement of cash flows TOTAL (unaudited) (in millions of euros) CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) Losses on sales of assets Undistributed affiliates equity earnings (Increase) Decrease in operating assets and liabilities Other changes, net Cash flow from operating activities CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from sale of intangible assets and property, plant and equipment Proceeds from sale of subsidiaries, net of cash sold Proceeds from sale of non-current investments Repayment of non-current loans Total divestitures Cash flow used in investing activities CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Š Parent company’s shareholders Š Treasury shares Š Minority shareholders Cash dividends paid: Š Parent company’s shareholders Š Minority shareholders Net issuance (repayment) of non-current debt Increase (Decrease) in current borrowings Increase (Decrease) in current financial assets and liabilities Other changes, net Cash flow used in financing activities Net increase (decrease) in cash and cash equivalents Effect of exchange rates and changes in reporting entity Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 22 TOTAL – Financial report - 1st half 2007 2nd quarter 2007 3,495 1,495 315 - (66) 1 (1,693) 42 3,589 (2,509) - (47) (134) (2,690) 18 - 64 140 222 (2,468) 10 (295) - (2,262) (133) 1,309 (135) 138 - (1,368) (247) 143 2,962 2,858 1st quarter 2007 3,138 1,438 (27) - (75) (330) 2,098 146 6,388 (2,123) (20) (100) (171) (2,414) 72 - 19 153 244 (2,170) 5 (273) - (29) 1,104 2,642 (7,106) - (3,657) 561 (92) 2,493 2,962 2nd quarter 2006 3,582 1,399 83 (37) (72) 111 (1,015) (5) 4,046 (2,433) (11) (64) (271) (2,779) 49 - 86 489 624 (2,155) 7 (968) 1 (2,012) (224) 395 1,369 (193) - (1,625) 266 (673) 4,313 3,906 Consolidated financial statements Consolidated statement of changes in shareholders’ equity 2 Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (Amounts in millions of euros) As of January 1, 2006 Common shares issued Number Amount 6,151 615,116,296 Paid-in surplus and retained earnings 37,504 Cumulative translation adjustment 1,421 Treasury shares Number Amount (4,431) (34,249,332) Shareholders’ equity 40,645 Minority interests Total equity 838 41,483 Net income for the first half Items recognized directly in equity Total excluding transactions with shareholders Four-for-one split of shares par value Spin-off of Arkema Cash dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Transactions with shareholders Cancellation of repurchased shares As of June 30, 2006 1,845,348,888 - - 11,496,072 - - - 1,856,844,960 - 2,471,961,256 - - - - - 28 - - - 28 - 6,179 7,124 193 7,317 - (2,045) (2,022) 445 - 4 76 (3,542) - 41,279 (1,862) (1,862) - (209) - - - - - (209) - (650) (102,747,996) - - - (42,000,000) 2,967,320 - (141,780,676) - (176,030,008) - - - - - - (2,193) 88 - (2,105) - (6,536) 7,124 (1,669) 5,455 - (2,254) (2,022) 473 (2,193) 92 76 (5,828) - 40,272 229 (46) 7,353 (1,715) 183 - (8) (230) - - - - (238) - 5,638 - (2,262) (2,252) 473 (2,193) 92 76 (6,066) - 783 41,055 Net income for the second half Items recognized directly in equity Total excluding transactions with shareholders Spin-off of Arkema Cash dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Transactions with shareholders Cancellation of repurchased shares As of December 31, 2006 - - 826,697 - - - 826,697 (47,020,000) 2,425,767,953 - - - - 2 - - - 2 (117) 6,064 4,644 (230) 4,414 (16) (1,977) 24 - (4) 81 (1,892) (2,341) 41,460 (733) (733) - - - - - - - - (1,383) - - - (36,220,684) 4,029,985 - (32,190,699) 47,020,000 (161,200,707) - - 16 - - (1,902) 144 - (1,742) 2,458 (5,820) 4,644 (963) 3,681 - (1,977) 26 (1,902) 140 81 (3,632) - 40,321 138 2 4,782 (961) 140 - (96) - - - - (96) - 3,821 - (2,073) 26 (1,902) 140 81 (3,728) - 827 41,148 Net income for the first half Items recognized directly in equity Total excluding transactions with shareholders Cash dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Transactions with shareholders Cancellation of repurchased shares As of June 30, 2007 - 549,873 - - - 549,873 (33,005,000) 2,393,312,826 - - - 1 - - - 1 (82) 5,983 6,460 108 6,568 (2,262) 14 - 28 82 (2,138) (1,652) 44,238 (502) (502) - - - - - - - (1,885) - - (14,000,000) 5,052,289 - (8,947,711) 33,005,000 (137,143,418) - - - - (755) 162 - (593) 1,734 (4,679) 6,460 (394) 6,066 (2,262) 15 (755) 190 82 (2,730) - 43,657 173 (21) 6,633 (415) 152 (162) - - - - (162) - 6,218 (2,424) 15 (755) 190 82 (2,892) - 817 44,474 (1) Treasury shares related to the stock option purchase plans TOTAL – Financial report - 1st half 2007 23 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) Notes to the consolidated financial statements (unaudited) 1) Accounting policies 2) Changes in the Group structure, main acquisitions and divestitures The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2007 have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2007 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2006 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union. The new accounting standards and amendments as adopted by the European Union and mandatory for the annual period beginning January 1, 2007, are described in the note 1X to the consolidated financial statements as of December 31, 2006 and have no material effect on the Group’s consolidated financial statements for the first six months of 2007. There were no major changes during the first six months of 2007. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. The preparation of financial statements in accordance with IFRS requires management to make estimates and apply assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. Management reviews these estimates and assumptions on a continuous basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the book value of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in some instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. Lastly, when a specific transaction is not dealt with in any standards or interpretations, management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: Š give a true and fair value of the Group’s financial position, financial performance and cash flows; (ii) Inventory valuation effect The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ results with those of its competitors, mainly North American. Š reflect the substance of transactions; Š are neutral; Š are prepared on a prudent basis; Š are complete in all material aspects. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the income statement is determined by the average price of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and replacement cost. The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities that have been measured at fair value. (iii) Portion of intangible assets amortization related to the Sanofi-Aventis merger 24 TOTAL – Financial report - 1st half 2007 Consolidated financial statements Notes to the consolidated financial statements (unaudited) The detail of the adjustment items is presented in the table below. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, and excluding TOTAL’s equity share of amortization of intangible assets related to the Sanofi-Aventis merger. ADJUSTMENTS TO OPERATING INCOME (in millions of euros) Upstream Downstream Chemicals Corporate 1st half 2007 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 730 - - - 163 - - - - - - Total 730 163 1st half 2006 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 664 - - - 92 (23) - (32) - - (11) Total 664 37 (11) 2nd quarter 2007 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 623 - - - 96 - - - - - - Total 623 96 2nd quarter 2006 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 291 - - - 92 (23) - (27) - - (11) Total 291 42 (11) TOTAL – Financial report - 1st half 2007 2 Total 893 - - - 893 756 (23) - (43) 690 719 - - - 719 383 (23) - (38) 322 25 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) ADJUSTMENTS TO NET INCOME, GROUP SHARE (in millions of euros) 1st half 2007 Inventory valuation effect TOTAL's equity share of special items recorded by Sanofi-Aventis TOTAL's equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 1st half 2006 Inventory valuation effect TOTAL's equity share of special items recorded by Sanofi-Aventis TOTAL's equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 2nd quarter 2007 Inventory valuation effect TOTAL's equity share of special items recorded by Sanofi-Aventis TOTAL's equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 2nd quarter 2006 Inventory valuation effect TOTAL's equity share of special items recorded by Sanofi-Aventis TOTAL's equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 26 TOTAL – Financial report - 1st half 2007 Upstream Downstream - - - - - - 507 - - - - - - 507 - - - - 130 - 493 - - - - - - 130 493 - - - - - - 418 - - - - - - 418 - - - - - - 214 - - - - - - 214 Chemicals 109 - - - - - - 109 63 - - (59) - - (31) (27) 65 - - - - - - 65 62 - - (44) - - (24) (6) Corporate - (148) - - - (100) (248) (33) (169) - - - (7) (209) - (72) - - - (100) (172) (35) (86) - - - (7) (128) Total 616 - (148) - - - (100) 368 556 (33) (169) (59) - 130 (38) 387 483 - (72) - - - (100) 311 276 (35) (86) (44) - - (31) 80 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2007, TOTAL S.A. held 36,812,150 of its own shares, representing 1.54% of its share capital, detailed as follows: Š 22,812,150 shares allocated to cover TOTAL share purchase option plans and restricted share grants for Group employees; Š 14,000,000 shares purchased during the first six months of 2007 for cancellation, pursuant to the authorization granted by the Shareholders’ meetings held on May 12, 2006 and on May 11, 2007. These 36,812,150 shares are deducted from the consolidated shareholders’ equity. TOTAL shares held by Group subsidiaries As of June 30, 2007, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.19% of its share capital, detailed as follow: Š 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; Š 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval). These 100,331,268 shares are deducted from the consolidated shareholders’ equity. Dividend The Shareholders’ Meeting of May 11, 2007 approved the payment of cash dividend of 1.87 euros per share for the fiscal year 2006. Taking into account an interim dividend of 0.87 euro per share paid on November 17, 2006, the remaining balance of 1 euro per share was paid on May 18, 2007. 5) Non-current financial debt The Group issued debenture loans through its subsidiary TOTAL Capital during the first six months of 2007: Š Debenture 4.125% 2007-2013 (300 million EUR) Š Debenture 5.5% 2007-2013 (200 million GBP) Š Debenture 2.625% 2007-2014 (400 million CHF) Š Debenture 5% 2007-2011 (100 million USD) Š Debenture 5% 2007-2012 (500 million USD) Consolidated financial statements Notes to the consolidated financial statements (unaudited) Š Debenture 4.7% 2007-2017 (300 million EUR) Š Debenture 6.5% 2007-2012 (100 million AUD) Š Debenture 5.5% 2007-2013 (50 million GBP) Š Debenture 4.875% 2007-2010 (50 million GBP) Š Debenture 5% 2007-2012 (300 million USD) Š Debenture 3.125% 2007-2015 (200 million CHF) Š Debenture 1.723% 2007-2014 (8,000 million JPY) The Group reimbursed debenture loans during the first six months of 2007: Š Debenture 4.74% 2002-2007 (75 million USD) Š Debenture 5.125% 2002-2007 (300 million USD) Š Debenture 3% 2002-2007 (600 million CHF) Š Debenture 3% 2002-2007 (400 million CHF) Š Debenture LIBOR USD 3 months + 0.060% 2002-2007 (50 million USD) Š Debenture LIBOR USD 3 months + 0.065% 2002-2007 (250 million USD) In the context of its active cash management, the Group may temporarily increase its non-current borrowings, particularly in the form of commercial paper. The non-current borrowings, the cash and cash equivalents and the current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally all the investments carried under the equity method and subsidiaries excluded from consolidation. There were no major changes concerning the main transactions with related parties during the first six months of 2007. 7) Other risks and contingent liabilities Antitrust investigations 1) Following investigations into certain commercial practices in the chemicals industry in the United States, certain chemicals subsidiaries of the Arkema group are involved in several civil liability lawsuits in the United States and Canada for violations of antitrust laws. TOTAL S.A. has been named in certain of these suits as the parent company. TOTAL – Financial report - 1st half 2007 2 27 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) In Europe, the European Commission commenced investigations in 2000, 2003 and 2004 into alleged anti- competitive practices involving certain products sold by Arkema(1). In January 2005, following one of these investigations, the European Commission fined Arkema 13.5 M€ and jointly fined Arkema and Elf Aquitaine 45 M€. Arkema and Elf Aquitaine have appealed these decisions to the Court of First Instance of the European Union method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, these guarantees will become void. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group companies for 10% of any amount that TOTAL S.A. or any Group companies are required to pay under any of the proceedings covered by these guarantees. The Commission notified Arkema, TOTAL S.A. and Elf Aquitaine of complaints concerning two other product lines in January and August 2005, respectively. Arkema has cooperated with the authorities in these procedures and investigations. As a result of these proceedings, in May 2006 the European Commission fined Arkema 78.7 M€ and 219.1 M€, respectively. Elf Aquitaine was held jointly and severally liable for, respectively, 65.1 M€ and 181.35 M€ of these fines while TOTAL S.A. was held jointly and severally liable, respectively, for 42 M€ and 140.4 M€. TOTAL S.A., Elf Aquitaine and Arkema have appealed these decisions to the Court of First Instance of the European Union. No facts have been alleged that would implicate TOTAL S.A. or Elf Aquitaine in the practices questioned in these proceedings and the fines received are based solely on their status as parent companies. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema and TOTAL S.A. and Elf Aquitaine. 2) As part of the agreement relating to the spin-off of Arkema, TOTAL S.A. or certain other Group companies agreed to grant Arkema guarantees for certain risks related to antitrust proceedings arising from events prior to the spin-off. 3) The Group has recorded provisions amounting to 138 M€ in its consolidated accounts as of June 30, 2007 to cover the risks mentioned above. 4) Moreover, as a result of investigations started by the European Commission in October 2002 concerning certain Refining & Marketing subsidiaries of the Group, Total Nederland N.V. and TOTAL S.A. received a statement of objections in October 2004. These proceedings resulting in Total Nederland N.V. being fined 20.25 M€ and in TOTAL S.A. being held jointly responsible for 13.5 M€ of this amount, although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Nederland N.V. have appealed this decision to the Court of First Instance of the European Union. In addition, in May 2007, Total France and TOTAL S.A. received a statement of objections regarding alleged antitrust practices regarding another product line of the Refining and Marketing branch. No facts have been alleged that implicate TOTAL S.A. in the practices under investigation. 5) Given the discretionary powers granted to the European Commission for determining fines, it is not currently possible to determine with certainty the outcome of these investigations and proceedings. TOTAL S.A. and Elf Aquitaine are contesting their liability and the method of determining these fines. Although it is not possible to predict the outcome of these proceedings, the Group believes that they will not have a material adverse effect on its financial condition or results. These guarantees cover, for a period of ten years, 90% of amounts paid by Arkema companies related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. Buncefield On December 11, 2005, several explosions followed by a major fire occurred at Buncefield, north of London, in an oil storage depot. This depot is operated by HOSL, a company in which the British subsidiary of TOTAL holds 60% and another oil group holds 40%. The guarantee covering antitrust violations in Europe applies to amounts that exceed a 176.5 M€ threshold. If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if the Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation The explosion injured 40 people, most of whom suffered slight injuries, and caused property damage to the depot and the buildings and homes located nearby. The HSE Investigation Board has indicated that the explosion was caused by the overflow of a tank at the depot. The final HSE report detailing the circumstances and the exact cause of the explosion is expected to be released before the end of 2007. At this stage, responsibility for the explosion has not yet been determined. (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A.. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. 28 TOTAL – Financial report - 1st half 2007 The Group is insured for damage to these facilities, operating losses and claims from third parties under its civil liability and believes that, based on the current information available, this accident should not have a significant impact on its financial position, cash flows or results. Venezuela On March 31, 2006, the Venezuelan government terminated all “operating contracts” signed in the 1990s and decided to transfer the management of fields concerned to new mixed companies to be created with the state-owned company PDVSA (Petróleos de Venezuela S.A.) as the majority owner. The Venezuelan government and the Group did not reach an agreement on the terms of the transfer of the Jusepin field under the initial timetable. However, subsequent negotiations led to a settlement, announced in March 2007, under which the Venezuelan government committed to indemnify the Group for $137.5 million. This indemnification was made during the second quarter 2007. The Venezuelan government has modified the legal and tax framework for the Sincor project several times. In May 2006, the hydrocarbons law was amended with immediate effect to establish a new extraction tax, calculated on the same basis as for royalties, and bringing the overall tax rate to 33.33%. In September 2006, the corporate income tax was modified to increase the rate on oil activities (excluding natural gas) to 50%. This new tax rate came into effect in 2007. The government has also expressed its intention to apply this law to the “Strategic Associations” which operate the extra-heavy oil projects in the Orinoco region. On January 18, 2007, the Venezuelan National Assembly approved a law granting, for an 18-month period, the Venezuelan president the power to govern by decree in various subjects, in particular regarding hydrocarbons. On February 26, 2007, the Venezuelan president signed a decree providing for the transformation of the Strategic Associations from the Faja region, including the Sincor project, into mixed companies Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 with the government having a minimum interest of 60%. The legislation further states that control of operations was to be transferred to the PDVSA companies no later than April 30, 2007 and set a four-month period (with an additional two months for submission to the National Assembly), from the date of the decree, for private companies to agree to the terms and conditions of their participation in the newly created mixed companies. On April 25, 2007, TOTAL signed an agreement, with the approval of the Ministry of People's Power for Energy and Oil, with PDVSA and Statoil. Under this agreement, effective as of May 1, 2007 the control of operations of the Sincor project was temporarily transferred to PDVSA in anticipation of the transformation of the association into a mixed company. On June 26, 2007, TOTAL signed a memorandum of understanding with PDVSA and Statoil, with the approval of the Ministry of People's Power for Energy and Oil, for the transformation of the Sincor association into a mixed company. Under the terms of the memorandum of understanding, TOTAL’s interest in the project will be reduced from 47% to 30.323%, PDVSA’s interest will be increased to 60% and Statoil will have a 9.677% interest. The agreement also sets out the indemnification that will be paid to TOTAL, which was negotiated based on the value of the assets. The terms and conditions of this transformation are to be submitted to the National Assembly for approval no later than August 26, 2007. In 2006, the Group received two corporation tax adjustment notices. The first concerned the company holding the Group’s interest in the Jusepin operating contract, for which the 2001-2004 examination was closed in the first half 2006, whereas the examination for 2005 is still under way. The second is related to the company which holds the Group’s interest in the Sincor project, for which the Group received a response from the tax authorities on May 23, 2007. The Group also received tax adjustment notices for the 2002-2003 and 2004-2005 periods during the first half 2007. A settlement for the periods from 2001 to 2005 has been reached, which does not have a material impact on the Group’s results. TOTAL – Financial report - 1st half 2007 29 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 8) Information by business segment 1st half 2007 (in millions of euros) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes 9,690 9,816 - 56,363 2,444 (10,961) 10,065 501 - Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 19,506 (8,872) (1,819) 47,846 (44,551) (588) 10,566 (9,467) (243) Operating income Equity in income (loss) of affiliates and other items Tax on net operating income 8,815 667 (5,429) 2,707 126 (856) 856 37 (271) Net operating income Net cost of net debt Minority interests 4,053 1,977 622 Net income from continuing operations Net income from discontinued operations Net income 1st half 2007 (adjustments)(*) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 730 163 Operating income(1) Equity in income (loss) of affiliates and other items(2) Tax on net operating income - - 730 24 (240) 163 - (54) Net operating income(1) Net cost of net debt Minority interests 514 109 Net income from continuing operations Net income from discontinued operations Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (1) Of which inventory valuation effect On operating income 730 163 On net operating income 514 109 (2) Of which equity share of amortization of intangible assets related to the Sanofi-Aventis merger 30 TOTAL – Financial report - 1st half 2007 Corporate 19 67 - 86 (292) (15) (221) 274 83 136 Corporate (248) - (248) (148) Intercompany (12,828) - (12,828) 12,828 - - Intercompany Total 76,137 - (10,961) 65,176 (50,354) (2,665) 12,157 1,104 (6,473) 6,788 (155) (173) 6,460 - 6,460 Total 893 893 (224) (294) 375 - (7) 368 - 368 1st half 2007 (adjusted) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income from continuing operations Adjusted net income from discontinued operations Adjusted net income 1st half 2007 Total expenditures Divestitures at selling price Cash flow from operating activities Consolidated financial statements Notes to the consolidated financial statements (unaudited) Upstream Downstream Chemicals Corporate Intercompany 9,690 9,816 - 56,363 2,444 (10,961) 10,065 501 - 19 67 - (12,828) - 19,506 (8,872) 47,846 (45,281) 10,566 (9,630) 86 (292) (12,828) 12,828 (1,819) (588) (243) (15) 8,815 667 (5,429) 1,977 102 (616) 693 37 (217) (221) 522 83 - - 4,053 1,463 513 384 Upstream Downstream Chemicals Corporate Intercompany 4,098 364 7,647 645 50 3,337 346 48 361 15 4 (1,368) TOTAL – Financial report - 1st half 2007 2 Total 76,137 - (10,961) 65,176 (51,247) (2,665) 11,264 1,328 (6,179) 6,413 (155) (166) 6,092 - 6,092 Total 5,104 466 9,977 31 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 1st half 2006 (in millions of euros) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes 11,138 10,839 - 58,208 2,591 (9,748) 9,654 595 - Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 21,977 (9,382) (1,618) 51,051 (47,952) (543) 10,249 (9,458) (263) Operating income Equity in income (loss) of affiliates and other items Tax on net operating income 10,977 635 (6,691) 2,556 149 (767) 528 (27) (128) Net operating income Net cost of net debt Minority interests 4,921 1,938 373 Net income from continuing operations Net income from discontinued operations Net income 1st half 2006 (adjustments)(*) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 664 37 Operating income(1) Equity in income (loss) of affiliates and other items(2) Tax on net operating income Net operating income(1) Net cost of net debt Minority interests 195 (65) 130 664 28 (191) 501 37 (50) 5 (8) Net income from continuing operations Net income from discontinued operations Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (1) Of which inventory valuation effect On operating income 664 92 On net operating income 501 63 (2) Of which equity share of amortization of intangible assets related to the Sanofi-Aventis merger 32 TOTAL – Financial report - 1st half 2007 Corporate 12 87 - 99 (332) (19) (252) 340 84 172 Corporate (11) (11) (203) 4 (210) (170) Intercompany (14,112) - (14,112) 14,112 - - Intercompany Total 79,012 - (9,748) 69,264 (53,012) (2,443) 13,809 1,097 (7,502) 7,404 (59) (229) 7,116 8 7,124 Total 690 690 (30) (247) 413 - (7) 406 (19) 387 1st half 2006 (adjusted) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income from continuing operations Adjusted net income from discontinued operations Adjusted net income 1st half 2006 Total expenditures Divestitures at selling price Cash flow from operating activities Consolidated financial statements Notes to the consolidated financial statements (unaudited) Upstream Downstream Chemicals Corporate Intercompany 11,138 10,839 - 58,208 2,591 (9,748) 9,654 595 - 12 87 - (14,112) - 21,977 (9,382) 51,051 (48,616) 10,249 (9,495) 99 (321) (14,112) 14,112 (1,618) (543) (263) (19) 10,977 440 (6,626) 1,892 121 (576) 491 23 (133) (241) 543 80 - - 4,791 1,437 381 382 Upstream Downstream Chemicals Corporate Intercompany 4,290 855 7,202 689 63 2,185 500 95 (44) 50 8 (458) TOTAL – Financial report - 1st half 2007 2 Total 79,012 - (9,748) 69,264 (53,702) (2,443) 13,119 1,127 (7,255) 6,991 (59) (222) 6,710 27 6,737 Total 5,529 1,021 8,885 33 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2007 (in millions of euros) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes 4,456 5,073 - 29,562 1,201 (5,595) 5,070 269 - Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 9,529 (4,148) (941) 25,168 (23,244) (297) 5,339 (4,812) (119) Operating income Equity in income (loss) of affiliates and other items Tax on net operating income 4,440 397 (2,745) 1,627 72 (519) 408 14 (123) Net operating income Net cost of net debt Minority interests 2,092 1,180 299 Net income from continuing operations Net income from discontinued operations Net income 2nd quarter 2007 (adjustments)(*) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 623 96 Operating income(1) Equity in income (loss) of affiliates and other items(2) Tax on net operating income - - 623 6 (204) 96 1 (32) Net operating income(1) Net cost of net debt Minority interests 425 65 Net income from continuing operations Net income from discontinued operations Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (1) Of which inventory valuation effect On operating income 623 96 On net operating income 425 65 (2) Of which equity share of amortization of intangible assets related to the Sanofi-Aventis merger 34 TOTAL – Financial report - 1st half 2007 Corporate 6 25 - 31 (143) (8) (120) 59 51 (10) Corporate (172) - (172) (72) Intercompany (6,568) - (6,568) 6,568 - - Intercompany Total 39,094 - (5,595) 33,499 (25,779) (1,365) 6,355 542 (3,336) 3,561 (66) (84) 3,411 - 3,411 Total 719 719 (165) (236) 318 - (7) 311 - 311 2nd quarter 2007 (adjusted) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income from continuing operations Adjusted net income from discontinued operations Adjusted net income 2nd quarter 2007 Total expenditures Divestitures at selling price Cash flow from operating activities Consolidated financial statements Notes to the consolidated financial statements (unaudited) Upstream Downstream Chemicals Corporate Intercompany 4,456 5,073 - 29,562 1,201 (5,595) 5,070 269 - 6 25 - (6,568) - 9,529 (4,148) 25,168 (23,867) 5,339 (4,908) 31 (143) (6,568) 6,568 (941) (297) (119) (8) 4,440 397 (2,745) 1,004 66 (315) 312 13 (91) (120) 231 51 - - 2,092 755 234 162 Upstream Downstream Chemicals Corporate Intercompany 2,109 191 3,312 401 28 1,432 173 1 254 7 2 (1,409) TOTAL – Financial report - 1st half 2007 2 Total 39,094 - (5,595) 33,499 (26,498) (1,365) 5,636 707 (3,100) 3,243 (66) (77) 3,100 - 3,100 Total 2,690 222 3,589 35 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2006 (in millions of euros) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes 5,424 5,439 - 30,516 1,256 (5,141) 4,965 443 - Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 10,863 (4,702) (785) 26,631 (25,021) (283) 5,408 (4,972) (134) Operating income Equity in income (loss) of affiliates and other items Tax on net operating income 5,376 252 (3,237) 1,327 75 (394) 302 (44) (73) Net operating income Net cost of net debt Minority interests 2,391 1,008 185 Net income from continuing operations Net income from discontinued operations Net income 2nd quarter 2006 (adjustments)(*) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights 291 42 Operating income(1) Equity in income (loss) of affiliates and other items(2) Tax on net operating income - - 291 10 (80) 42 (51) 3 Net operating income(1) Net cost of net debt Minority interests 221 (6) Net income from continuing operations Net income from discontinued operations Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (1) Of which inventory valuation effect On operating income 291 92 On net operating income 221 62 (2) Of which equity share of amortization of intangible assets related to the Sanofi-Aventis merger 36 TOTAL – Financial report - 1st half 2007 Corporate 4 44 - 48 (192) (10) (154) 139 31 16 Corporate (11) (11) (122) 4 (129) (87) Intercompany (7,182) - (7,182) 7,182 - - Intercompany Total 40,909 - (5,141) 35,768 (27,705) (1,212) 6,851 422 (3,673) 3,600 (18) (141) 3,441 - 3,441 Total 322 322 (163) (73) 86 - (6) 80 - 80 2nd quarter 2006 (adjusted) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and leasehold rights Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income from continuing operations Adjusted net income from discontinued operations Adjusted net income 2nd quarter 2006 Total expenditures Divestitures at selling price Cash flow from operating activities Consolidated financial statements Notes to the consolidated financial statements (unaudited) Upstream Downstream Chemicals Corporate Intercompany 5,424 5,439 - 30,516 1,256 (5,141) 4,965 443 - 4 44 - (7,182) - 10,863 (4,702) 26,631 (25,312) 5,408 (5,014) 48 (181) (7,182) 7,182 (785) (283) (134) (10) 5,376 252 (3,237) 1,036 65 (314) 260 7 (76) (143) 261 27 - - 2,391 787 191 145 Upstream Downstream Chemicals Corporate Intercompany 2,209 502 3,371 368 50 984 176 67 (7) 26 5 (302) TOTAL – Financial report - 1st half 2007 2 Total 40,909 - (5,141) 35,768 (28,027) (1,212) 6,529 585 (3,600) 3,514 (18) (135) 3,361 - 3,361 Total 2,779 624 4,046 37 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 9) Reconciliation between information by business segment and the consolidated statement of income 1st half 2007 (in millions of euros) Adjusted Adjustment items Sales Excise taxes Revenues from sales 76,137 (10,961) 65,176 - - Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights (41,987) (8,791) (469) (2,665) 893 - - - Operating income Corporate Business segments (221) 11,485 893 Total operating income Other income Other expense 11,264 156 (66) 893 - (100) Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt (877) 631 (246) - - Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) 337 (141) (6,088) 1,042 6,258 - - (294) (124) 375 - Consolidated net income Group share Minority interests 6,258 6,092 166 375 368 7 38 TOTAL – Financial report - 1st half 2007 Consolidated statement of income 76,137 (10,961) 65,176 (41,094) (8,791) (469) (2,665) (221) 12,378 12,157 156 (166) (877) 631 (246) 337 (141) (6,382) 918 6,633 - 6,633 6,460 173 1st half 2006 (in millions of euros) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights Operating income Corporate Business segments Total operating income Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) Consolidated net income Group share Minority interests Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Adjusted Adjustment items Consolidated statement of income 79,012 (9,748) 69,264 - - 79,012 (9,748) 69,264 (43,585) (9,856) (261) (2,443) 756 (66) - - (42,829) (9,922) (261) (2,443) (241) 13,360 (11) 701 (252) 14,061 13,119 139 (193) 690 194 (50) 13,809 333 (243) (715) 611 (104) - - (715) 611 (104) 307 (120) (7,210) 994 6,932 27 - (247) (174) 413 (19) 307 (120) (7,457) 820 7,345 8 6,959 6,737 222 394 387 7 7,353 7,124 229 TOTAL – Financial report - 1st half 2007 39 2 Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2007 (in millions of euros) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights Operating income Corporate Business segments Total operating income Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) Consolidated net income Group share Minority interests 40 TOTAL – Financial report - 1st half 2007 Adjusted 39,094 (5,595) 33,499 (22,104) (4,139) (255) (1,365) (120) 5,756 5,636 60 (2) (447) 337 (110) 209 (74) (3,056) 514 3,177 - 3,177 3,100 77 Adjustment items - - 719 - - - 719 719 - (100) - - - (236) (65) 318 - 318 311 7 Consolidated statement of income 39,094 (5,595) 33,499 (21,385) (4,139) (255) (1,365) (120) 6,475 6,355 60 (102) (447) 337 (110) 209 (74) (3,292) 449 3,495 - 3,495 3,411 84 2nd quarter 2006 (in millions of euros) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and leasehold rights Operating income Corporate Business segments Total operating income Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income from continuing operations (Group without Arkema) Consolidated net income from discontinued operations (Arkema) Consolidated net income Group share Minority interests Consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Adjusted Adjustment items Consolidated statement of income 40,909 (5,141) 35,768 - - 40,909 (5,141) 35,768 (22,770) (5,111) (146) (1,212) 383 (61) - - (22,387) (5,172) (146) (1,212) (143) 6,672 (11) 333 (154) 7,005 6,529 73 (108) 322 - (51) 6,851 72 (158) (387) 340 (47) - - (387) 340 (47) 201 (69) (3,571) 488 3,496 - - (73) (112) 86 - 201 (69) (3,644) 376 3,582 - 3,496 3,361 135 86 80 6 3,582 3,441 141 TOTAL – Financial report - 1st half 2007 41 . y e l l e n n o D R R / n a m r e b y Z l . L © | Semestriel, 2007, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,008 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| TOTP150-couv_FR_GB 30/07/08 11:45 Page 1 Financial report 1st half 2008 Content 1 Financial report - 1st half 2008 Key figures and consolidated accounts Group results Analysis of business segment results Cancellation of outstanding shares TOTAL S.A. accounts Summary and outlook Other information Main operating information by segment Adjustment items Investments — Divestments Net-debt-to-equity ratio Effective tax rate Return on average capital employed (ROACE) Principal risks and uncertainties for the remaining six months of 2008 p.3 p. 3 p. 4 p. 6 p. 10 p. 10 p. 10 p. 11 p. 11 p. 12 p. 12 p. 12 p. 13 p. 13 p. 14 2 Condensed consolidated financial statements Statutory auditor’s report (review of the consolidated financial statements) Consolidated statement of income Consolidated balance sheet Consolidated statement of cash flow Consolidated statement of changes in shareholders’ equity Notes to the consolidated financial statements Accounting policies Changes in the Group structure, main acquisitions and divestments Adjustment items Shareholders’ equity Non-current financial debt Related parties Other risks and contingent liabilities Information by business segment Reconciliation between information by business segment and the consolidated statement of income p.15 p. 15 p. 16 p. 18 p. 19 p. 21 p. 22 p. 22 p. 22 p. 22 p. 25 p. 25 p. 25 p. 26 p. 28 p. 36 Financial report – 1st half 2008 This is a free translation into English of the Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “ I certify, to the best of my knowledge, that the condensed consolidated financial statements for the first half 2008 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 3 to 14 herein includes a fair review of the important events that have occurred during the first six months of the financial year, their impact condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 15 of this half-year financial report.” Christophe de Margerie Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on August 1, 2008 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. TOTAL - Financial report - 1st half 2008 • 1 Abbreviations b: cf: /d: /y: €: $ and/or dollar: t: boe: kboe/d: kb/d: Btu: LNG: M: B: TRCV: barrel cubic feet per day per year euro US dollar metric ton barrel oil equivalent thousand boe/d thousand b/d British thermal unit liquefied natural gas million billion Topping Reforming Cracking Visbreaking. Refining margin indicator after variable costs of a theoretical average refinery located in Rotterdam which processes a variety of crude oil representing the average supply in the area to provide main products quoted in this same area. International Financial Reporting Standards IFRS: 2 (cid:129) TOTAL - Financial report - 1st half 2008 Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of France. The terms “Company” and “issuer” as used in this half-year financial report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. August 2008. Key figures and consolidated accounts 1 Financial report – 1st half 2008 Financial report – 1st half 2008 Key figures and consolidated accounts (1) in millions of euros except earnings per share and number of shares 1H08 1H07 1H08 vs 1H07 Sales Adjusted operating income from business segments Adjusted net operating income from business segments 92,413 14,905 6,956 76,137 11,485 6,029 +21% +30% +15% Š Upstream Š Downstream Š Chemicals 5,830 898 228 4,053 1,463 513 +44% -39% -56% Adjusted net income Adjusted fully-diluted earnings per share (euros) Fully-diluted weighted-average shares (millions) 6,977 3.10 2,253.4 6,092 2.67 2,279.7 +15% +16% -1% Net income (Group share) 8,334 6,460 +29% Investments Divestments Cash flow from operating activities Adjusted cash flow 5,511 924 7,238 9,129 5,104 466 9,977 8,679 +8% +98% -27% +5% expressed in millions of dollars (2) except earnings per share and number of shares 1H08 1H07 1H08 vs 1H07 Sales Adjusted operating income from business segments Adjusted net operating income from business segments 141,429 22,811 10,645 101,194 15,265 8,013 +40% +49% +33% Š Upstream Š Downstream Š Chemicals 8,922 1,374 349 5,387 1,944 682 +66% -29% -49% Adjusted net income Adjusted fully-diluted earnings per share (dollars) Fully-diluted weighted-average shares (millions) 10,678 4.74 2,253.4 8,097 3.55 2,279.7 +32% +33% -1% Net income (Group share) 12,754 8,586 +49% Investments Divestments Cash flow from operating activities Adjusted cash flow 8,434 1,414 11,077 13,971 6,784 619 13,260 11,535 +24% x2.3 -16% +21% (1) Adjusted income (adjusted operating income, adjusted net operating income and adjusted net income) is defined as income using replacement cost, adjusted for special items and excluding TOTAL’s equity share of amortization of intangibles related to the Sanofi-Aventis merger; adjusted cash flow is defined as cash flow from operating activities before changes in working capital at replacement cost; adjustment items are listed on page 12. (2) dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period: 1.5304 $/€ in the first half 2008 and 1.3291 $/€ in the first half 2007. TOTAL - Financial report - 1st half 2008 (cid:129) 3 Group results1 Financial report – 1st half 2008 Group results Operating income Net income Compared to the first half 2007, the first half 2008 oil environment was marked by a 72% increase in the average price of Brent to 109.0 $/b. The TRCV European refining margin indicator decreased by 15% to 32.4 $/t. The environment for TOTAL’s petrochemicals was unfavorable, mainly due to the sharp increase in the price of naphtha and the decrease in Atlantic Basin product demand. Adjusted net income increased by 15% to 6,977 M€ in the first half 2008 from 6,092 M€ in the first half 2007. This excludes the after-tax inventory effect, special items, and the Group’s equity share of the amortization of intangibles related to the Sanofi-Aventis merger. The euro-dollar exchange rate was 1.53 $/€ in the first half 2008 compared to 1.33 $/€ in the first half 2007. Š The after-tax inventory effect had a positive impact on net income of 1,428 M€ in the first half 2008 and 616 M€ in the first half 2007. In this context, the adjusted operating income from the business segments was 14,905 M€, an increase of 30% compared to the first half 2007(1). Š Special items had a positive impact on net income of 78 M€ in the first half 2008 and a negative impact on net income of 100 M€ in the first half 2007(2). The effective tax rate for the business segments was 59% in the first half 2008 compared to 54% in the first half 2007, essentially due to the Upstream segment’s larger contribution to the results. Adjusted net operating income from the business segments was 6,956 M€ compared to 6,029 M€ in the first half 2007, an increase of 15%. The smaller increase, compared to the percentage increase in operating income, is essentially due to the increase in the effective tax rate between the two periods. Š The Group’s share of the amortization of intangibles related to the Sanofi-Aventis merger had a negative impact on net income of 149 M€ in the first half 2008 and 148 M€ in the first half 2007. Net income (Group share) was 8,334 M€ compared to 6,460 M€ in the first half 2007. Expressed in dollars, adjusted net operating income from the business segments increased by 33%. During the first half 2008, the Group bought back 16 million of its shares for 818 M€. There were 2,252.5 million fully-diluted shares outstanding on June 30, 2008 compared to 2,278.6 million on June 30, 2007. The Group continued to buy back shares in July 2008, acquiring 2.1 million shares for 107 M€. Adjusted fully-diluted earnings per share, based on 2,253.4 million fully-diluted weighted-average shares rose to 3.10 euros compared to 2.67 euros in the first half 2007, an increase of 16%, which is greater than the increase in adjusted net income thanks to the share buyback. Expressed in dollars, adjusted fully-diluted earnings per share increased by 33% to 4.74 in the first half 2008 from 3.55 in the first half 2007. (1) (2) detail shown on page 12. there were no special items affecting operating income from the business segments in the first half of 2007 and first half of 2008. 4 (cid:129) TOTAL - Financial report - 1st half 2008 Financial report – 1st half 2008 Group results 1 Investments – divestments Cash Flow Investments, excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were 4.6 B€ (7.0 B$) in the first half 2008 compared to 4.8 B€ (6.4 B$) in the first half 2007. Cash flow from operating activities was 7,238 M€ in the first half 2008, a decrease of 27% compared to the first half 2007, mainly due to a significant increase in working capital requirements essentially linked to the sharp rise in hydrocarbon prices between the two periods. Acquisitions were 95 M€ in the first half 2008. Asset sales in the first half 2008 were 195 M€. Adjusted cash flow(2) was 9,129 M€, an increase of 5%. Expressed in dollars, adjusted cash flow was 14.0 B$, an increase of 21%. Net investments(1) were 7.0 B$ in the first half 2008. Net cash flow(3) was 2,651 M€ compared to 5,339 M€ in the first half 2007. Expressed in dollars, net cash flow was 4.1 B$ in the first half 2008. The net-debt-to-equity ratio was 25% on June 30, 2008 compared to 21% on March 31, 2008 and 26% on June 30, 2007(4), in line with the targets of the Group. (1) net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans. (2) adjusted cash flow = cash flow from operating activities at replacement cost before changes in working capital. (3) net cash flow = cash flow from operations + divestments – gross investments. (4) detail shown on page 12. TOTAL - Financial report - 1st half 2008 (cid:129) 5 1 Financial report – 1st half 2008 Analysis of business segment results Analysis of business segment results Upstream Environment – liquids and gas price realizations* 1H08 1H07 Brent ($/b) Average liquids price ($/b) Average gas price ($/Mbtu) Average hydrocarbons price ($/boe) 109.0 102.8 6.97 78.8 63.2 60.2 5.32 49.9 consolidated subsidiaries, excluding fixed margin and buy-back contracts TOTAL’s average realized liquids price increased in line with Brent by 71% for the first half 2008 compared to the first half 2007. The average realized price for TOTAL’s natural gas increased by 31% compared to the first half 2007. Production Hydrocarbon production 1H08 1H07 Combined production (kboe/d) Š Liquids (kb/d) Š Gas (Mcf/d) 2,389 1,491 4,880 2,376 1,513 4,689 In the first half 2008, hydrocarbon production was 2,389 kboe/d, an increase of 0.5% compared to the first half 2007, mainly as a result of: Š +3.5% of net growth, primarily from the start-ups and ramp-ups of major new fields, such as Dalia, Rosa and Dolphin, Š 1% for the shutdown of Elgin-Franklin for nearly a month following an incident in the amine column, Š +1% for the absence of OPEC reductions, Š 2.5% for the price effect(1), Š 0.5% for changes in the portfolio. (1) impact of changing hydrocarbon prices on entitlement volumes. 6 (cid:129) TOTAL - Financial report - 1st half 2008 1H08 vs 1H07 +72% +71% +31% +58% 1H08 vs 1H07 +1% -1% +4% Financial report – 1st half 2008 Analysis of business segment results 1 Results in millions of euros 1H08 1H07 1H08 vs 1H07 Adjusted operating income* Adjusted net operating income* 13,387 5,830 8,815 4,053 +52% +44% Š includes income from equity affiliates 599 377 +59% Investments Divestments Cash flow Adjusted cash flow 4,254 672 7,894 7,749 4,098 364 7,647 5,977 +4% +85% +3% +30% detail of adjustment items shown in business segment information. Adjusted net operating income for the Upstream segment in the first half 2008 was 5,830 M€ compared to 4,053 M€ in the first half 2007, an increase of 44%. Expressed in dollars, adjusted net operating income for the Upstream segment rose by 3.5 B$, an increase of 66% mainly due to the increase in hydrocarbon prices. The return on average capital employed (ROACE (1)) for the Upstream segment for the twelve months ended June 30, 2008 was 41%. For the twelve months ended March 31, 2008 it was 38% and for the full year 2007 it was 34%. (1) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. TOTAL - Financial report - 1st half 2008 (cid:129) 7 1 Financial report – 1st half 2008 Analysis of business segment results Downstream Refinery throughput and utilization rates* 1H08 1H07 Total refinery throughput (kb/d) 2,341 2,386 Š France Š Rest of Europe Š Rest of world 931 1,111 299 961 1,139 286 Utilization rates Š Based on crude only Š Based on crude and other feedstock 86% 90% 86% 88% includes share of CEPSA. First half 2008 refinery throughput decreased by 2% compared to first half 2007. Excluding the impact of the November 2007 sale of the Milford Haven refinery in the UK, refinery throughput increased by 1%. First half 2008 scheduled turnarounds resulted in a complete shutdown of the Leuna refinery and partial shutdowns of the Normandy, Port Arthur, Flanders and Grandpuits refineries. In the first half 2007, there were scheduled partial turnarounds at the Donges, Antwerp, Port Arthur, Vlissingen, and Flanders refineries and a full turnaround at the Rome refinery. The first half 2008 utilization rate based on crude throughput was 86%, stable compared to the first half 2007. The utilization rate based on the throughput of crude and other feedstock increased compared to the first half 2007. Results (in millions of euros except TRCV refining margins) 1H08 1H07 European refining margin indicator – TRCV ($/t) Adjusted operating income* Adjusted net operating income* Š includes income from equity affiliates 32.4 1,242 898 17 37.9 1,977 1,463 138 Investments Divestments Cash flow Adjusted cash flow 808 152 (223) 1,143 645 50 3,337 2,038 detail of adjustment items shown in business segment information. Adjusted net operating income for the Downstream segment was 898 M€ in the first half 2008, a decrease of 39% compared to the first half 2007. Expressed in dollars, adjusted net operating income from the Downstream segment decreased by 29% or 0.6 B$, reflecting generally the less favorable environment for refining and marketing. The ROACE(1) for the Downstream segment for the twelve months ended June 30, 2008 was 16%. For the twelve months ended March 31, 2008 it was 19% and for the full year 2007 it was 21%. (1) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. 8 (cid:129) TOTAL - Financial report - 1st half 2008 1H08 vs 1H07 2% 3% -2% +5% 1H08 vs 1H07 15% -37% -39% -88% +25% x3.0 na -44% Financial report – 1st half 2008 Analysis of business segment results 1 Chemicals in millions of euros 1H08 1H07 1H08 vs 1H07 Sales 10,707 10,065 +6% Š Base chemicals Š Specialties 7,052 3,655 6,353 3,712 +11% -2% Adjusted operating income * Adjusted net operating income * 276 228 693 513 60% -56% Š Base chemicals Š Specialties 38 195 299 217 87% -10% Investments Divestments Cash flow Adjusted cash flow 385 19 (33) 418 346 48 361 631 +11% -60% na -34% detail of adjustment items shown in business segment information. In the first half 2008, adjusted net operating income for the Chemicals segment was 228 M€ compared to 513 M€ in the first half 2007, a decrease of 56% resulting mainly from the weakness in the environment. Expressed in dollars, the decrease was 49%, or 0.3 B$. The ROACE(1) for the Chemicals segment for the twelve months ended June 30, 2008 was 8%. For the twelve months ended March 31, 2008 it was 10% and for the full year 2007 it was 12%. (1) calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. TOTAL - Financial report - 1st half 2008 (cid:129) 9 1 Financial report – 1st half 2008 Summary and outlook Cancellation of outstanding shares The Board of Directors met on July 31, 2008 and approved the cancellation of the 30,000,000 shares bought in 2007. The share capital has been adjusted to 5,926,006,207.50 euros represented by 2,370,402,483 shares with a par value of 2.5 €. TOTAL S.A. – parent company accounts Net income for TOTAL S.A., the parent company, was 3,083 M€ in the first half of 2008 compared to 2,804 M€ in the first half of 2007. Summary and outlook The ROACE for the twelve months ended June 30, 2008 was 25% for the Group and 29% for the business segments compared respectively to 26% and 28% for the twelve months ended March 31, 2008 and 24% and 27% for the full year 2007. the average level of the second quarter, but distillate margins are still attractive. Petrochemical margins continue to be hurt by high naphtha prices and weak demand in the Atlantic Basin. Return on equity for the twelve months ended June 30, 2008 was 30%. Moho Bilondo in offshore Congo and Jura in the UK North Sea are expected to ramp up gradually over the coming months. Production from Al Jurf in Libya is expected to be restored in the fourth quarter. In the first half 2008, implementation of the ambitious investment program progressed as planned. The Group maintains its net-debt-to-equity ratio within the 20-30% band. The Group plans to continue to adapt its refining and petrochemicals activities to new market trends, notably by improving the energy efficiency of its facilities, by responding to the growing demand for diesel and by managing its surplus of gasoline in Europe. Since the start of the third quarter 2008, oil prices have remained at high levels. European refining margins have retreated compared to With a solid portfolio of assets, TOTAL is well positioned to continue to benefit from this volatile but favorable oil market environment. 10 (cid:129) TOTAL - Financial report - 1st half 2008 Other information Operating information by segment first half 2008 Upstream COMBINED LIQUIDS AND GAS PRODUCTION BY REGION (KBOE/D) Europe Africa North America Far East Middle East South America Rest of world Total production Includes equity and non-consolidated affiliates LIQUIDS PRODUCTION BY REGION (KB/D) Europe Africa North America Far East Middle East South America Rest of world Total production Includes equity and non-consolidated affiliates GAS PRODUCTION BY REGION (MCF/D) Europe Africa North America Far East Middle East South America Rest of world Total production Includes equity and non-consolidated affiliates LIQUEFIED NATURAL GAS (LNG) LNG sales* (Mt)** * sales, Group share, excluding trading. ** 1 Mt/y = approx. 133 Mcf/d. Downstream REFINED PRODUCTS SALES BY REGION (KB/D)* Europe Africa Americas Rest of world Total consolidated sales Trading Total refined product sales * ** includes share of CEPSA. the method of calculating volumes for Port Arthur was changed effective in 2008 Financial report – 1st half 2008 Other information 1 1H08 1H07 1H08 vs 1H07 614 822 15 249 435 226 28 2,389 407 695 790 24 251 380 225 11 2,376 325 12% +4% -37% -1% +14% - x2.5 +1% +25% 1H08 vs 1H07 1H08 1H07 299 691 11 27 333 118 12 344 675 16 29 324 116 9 13% +2% -31% -7% +3% +2% +33% 1,491 353 1H08 1,513 272 1H07 1% +30% 1H08 vs 1H07 1,707 678 21 1,228 564 600 82 4,880 294 1,901 591 39 1,244 296 602 16 4,689 284 10% +15% -46% -1% x1.9 - x5.1 +4% +4% 1H08 vs 1H07 1H08 1H07 4.57 4.43 +3% 1H08 1H07 1H08 vs 1H07 2,071 280 188 144 2,244 283 120** 141 8% -1% +57% +2% 2,683 2,788** 4% 950 922 +3% 3,633 3,710** 2% TOTAL - Financial report - 1st half 2008 (cid:129) 11 Other information1 Financial report – 1st half 2008 Adjustment items Adjustments to operating income from the business segments in millions of euros 1H08 Special items affecting operating income from the business segments Š Restructuring charges Š Impairments Š Other - - Pre-tax inventory effect : FIFO vs. replacement cost 2,062 Total adjustments affecting operating income from the business segments 2,062 Adjustments to net income (Group share) in millions of euros 1H08 Special items affecting net income (Group share) 78 Š Equity share of special items recorded by Sanofi-Aventis Š Gain on asset sales Š Restructuring charges Š Impairments Š Other 147 (44) - (25) Adjustment related to the Sanofi-Aventis merger* (share of amortization of intangible assets) After-tax inventory effect : FIFO vs. replacement cost (149) 1,428 Total adjustments to net income 1,357 based on TOTAL’s share in Sanofi-Aventis of 13% at 6/30/2008 and 6/30/2007 Investments – Divestments in millions of euros 1H08 1H07 Investments excluding acquisitions* 4,589 4,796 Š Capitalized exploration Š Net investments in equity affiliates and non-consolidated companies 377 (410) 403 64 Acquisitions Asset sales Net investments** 95 195 4,587 67 173 4,638 ** net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans. includes net investments in equity affiliates and non-consolidated companies. Net-debt-to-equity ratio in millions of euros 6/30/2008 Current borrowings Net current financial assets Non-current financial debt Hedging instruments of non-current debt Cash and cash equivalents 4,795 (49) 14,777 (540) (7,245) Net debt 11,738 Shareholders equity Estimated dividend payable* Minority interests 48,273 (2,315) 855 Equity 46,813 Net-debt-to-equity ratio 25.1% * for 6/30/2008, based on a dividend of 2.07 €/share of 2.5 € of par value 12 (cid:129) TOTAL - Financial report - 1st half 2008 1H07 - - 893 893 1H07 (100) - - - (100) (148) 616 368 1H08 vs 1H07 4% 6% na +42% +13% -1% 6/30/2007 9,809 (10,790) 15,045 (287) (2,858) 10,919 43,657 (2,110) 817 42,364 25.8% Financial report – 1st half 2008 Other information 1 Effective tax rates Average tax rates* 1H08 1H07 Upstream Group 61.8% 58.6% 60.1% 54.0% tax on adjusted net operating income / (adjusted net operating income – income from affiliates, dividends received from investments, and impairments of acquisition goodwill + tax on adjusted net operating income). Return on average capital employed For the twelve months ended June 30, 2008 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income Capital employed at 6/30/2007* Capital employed at 6/30/2008* ROACE 10,626 25,218 26,676 41.0% 1,970 11,204 13,491 16.0% 562 7,264 7,394 7.7% 13,158 43,686 47,561 28.8% 13,810 52,645 56,107 25.4% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 146 M€ pre-tax at 6/30/2007 and 126 M€ pre-tax at 6/30/2008. at replacement cost (excluding after-tax inventory effect). For the twelve months ended March 31, 2008 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income Capital employed at 3/31/2007* Capital employed at 3/31/2008* ROACE 9,619 24,808 25,731 38.1% 2,138 11,442 11,415 18.7% 726 7,129 7,266 10.1% 12,483 43,379 44,412 28.4% 13,147 50,773 52,015 25.6% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 153 M€ pre-tax at 3/31/2007 and 129 M€ pre-tax at 3/31/2008. at replacement cost (excluding after-tax inventory effect). For the twelve months ended December 31, 2007 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income Capital employed at 12/31/2006* Capital employed at 12/31/2007* ROACE 8,849 25,543 27,062 33.6% 2,535 12,384 12,190 20.6% 847 6,920 7,033 12.1% 12,231 44,847 46,285 26.8% 12,881 52,263 54,158 24.2% ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 176 M€ pre-tax at 12/31/2006 and 134 M€ pre-tax at 12/31/2007. at replacement cost (excluding after-tax inventory effect). TOTAL - Financial report - 1st half 2008 (cid:129) 13 Other information1 Financial report – 1st half 2008 Principal risks and uncertainties for the remaining six months of 2008 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marches financiers (French Financial markets authority) on April 2, 2008 under the reference D. 08-0185. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2008 on page 26 of this first half 2008 financial report. Disclaimer This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. TOTAL does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group and its affiliates with the French Autorité des marchés financiers and the US Securities and Exchange Commission. Business segment information is presented in accordance with the Group internal reporting system used by the Chief operating decision maker to measure performance and allocate resources internally. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain transactions such as restructuring costs or assets disposals, which are not considered to be representative of normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to recur within following years. The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ results with those of its competitors, mainly North American. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the income statement is determined by the average price of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and replacement cost. In this framework, performance measures such as adjusted operating income, adjusted net operating income and adjusted net income are defined as incomes using replacement cost, adjusted for special items and excluding TOTAL’s equity share of the amortization of intangibles related to the Sanofi-Aventis merger. They are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Dollar amounts presented herein represent euro amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in dollars. 14 (cid:129) TOTAL - Financial report - 1st half 2008 Statutory auditor’s report (review of the consolidated financial statements) 2 Condensed consolidated financial statements – 1st half 2008 Condensed consolidated financial statements – 1st half 2008 Statutory auditor’s report (review of the consolidated financial statements) This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and constructed in accordance with, French law and professional auditing standards applicable in France. For the six-month period ended June 30, 2008 Statutory auditors’ review report on the half-year consolidated financial statements To the Shareholders, In our capacity as statutory auditors and in accordance with the requirements of articles L. 232-7 of the French Commercial Law (“Code de commerce”) and L.451-1-2 III of French Monetary and Financial Law (“Code Monétaire et Financier”), we hereby report to you on: Š the review of the accompanying condensed half-year consolidated financial statements of TOTAL S.A., for the six-month period ended June 30, 2008, Š the verification of information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Chief Executive Officer and are reviewed by the board of directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – the standard of the IFRS adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris-La Défense, July 31st, 2008 The statutory auditors French original report signed by KPMG audit A department of KPMG S.A. Ernst & Young Audit René Amirkhanian Jay Nirsimloo Gabriel Galet Philippe Diu TOTAL - Financial report - 1st half 2008 (cid:129) 15 2 Condensed consolidated financial statements – 1st half 2008 Consolidated statement of income Consolidated statement of income TOTAL (unaudited) (M€) (a) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income Group share* Minority interests Earnings per share (euros) Fully-diluted earnings per share (euros)** Adjusted net income ** Adjusted fully-diluted earnings per share (euros) (a) Except for earnings per share 16 (cid:129) TOTAL - Financial report - 1st half 2008 1st half 2008 92,413 (9,826) 82,587 (53,577) (9,271) (393) (2,678) 168 (169) (461) 242 (219) 345 (151) (9,148) 1,084 8,578 8,334 244 3.72 3.70 6,977 3.10 1st half 2007 76,137 (10,961) 65,176 (41,094) (8,791) (469) (2,665) 156 (166) (877) 631 (246) 337 (141) (6,382) 918 6,633 6,460 173 2.86 2.83 6,092 2.67 Condensed consolidated financial statements – 1st half 2008 Consolidated statement of income 2 Consolidated statement of income TOTAL (unaudited) (M€) (a) 2nd quarter 2008 1st quarter 2008 2nd quarter 2007 Sales Excise taxes Revenues from sales 48,200 (4,900) 43,300 44,213 (4,926) 39,287 39,094 (5,595) 33,499 Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense (27,958) (4,439) (203) (1,384) 15 (121) (25,619) (4,832) (190) (1,294) 153 (48) (21,385) (4,139) (255) (1,365) 60 (102) Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense (204) 113 (91) 229 (80) (257) 129 (128) 116 (71) (447) 337 (110) 209 (74) Income taxes (4,931) (4,217) (3,292) Equity in income (loss) of affiliates 538 546 449 Consolidated net income 4,875 3,703 3,495 Group share* Minority interests 4,732 143 3,602 101 3,411 84 Earnings per share (euros) 2.12 1.61 1.51 Fully-diluted earnings per share (euros)*** 2.10 1.60 1.50 Adjusted net income 3,723 3,254 3,100 ** Adjusted fully-diluted earnings per share (euros) 1.65 1.44 1.36 (a) Except for earnings per share. TOTAL - Financial report - 1st half 2008 (cid:129) 17 2 Condensed consolidated financial statements – 1st half 2008 Consolidated balance sheet Consolidated balance sheet TOTAL (M€) ASSETS June 30, 2008 (unaudited) Non-current assets Intangible assets, net Property, plant and equipment, net Equity affiliates: investments and loans Other investments Hedging instruments of non-current financial debt Other non-current assets 4,381 41,756 14,524 1,246 540 2,179 Total non-current assets 64,626 Current assets Inventories, net Accounts receivable, net Other current assets Current financial assets Cash and cash equivalents 17,185 21,856 9,644 223 7,245 Total current assets 56,153 Total assets 120,779 LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares Paid-in surplus and retained earnings Currency translation adjustment Treasury shares 6,003 55,024 (6,483) (6,271) Total shareholders’ equity – Group share 48,273 Minority interests 855 Total shareholders’ equity 49,128 Non-current liabilities Deferred income taxes Employee benefits Other non-current liabilities 7,748 2,533 6,567 Total non-current liabilities 16,848 Non-current financial debt 14,777 Current liabilities Accounts payable Other creditors and accrued liabilities Current borrowings Other current financial liabilities 19,297 15,760 4,795 174 Total current liabilities 40,026 Total liabilities and shareholders’ equity 120,779 18 (cid:129) TOTAL - Financial report - 1st half 2008 March 31, 2008 (unaudited) 4,374 40,436 15,039 1,215 651 2,066 63,781 13,892 18,664 8,261 403 8,341 49,561 113,342 5,990 52,376 (6,653) (5,963) 45,750 833 46,583 7,840 2,489 6,431 16,760 13,388 17,240 14,345 4,861 165 36,611 113,342 December 31, 2007 4,650 41,467 15,280 1,291 460 2,155 65,303 13,851 19,129 8,006 1,264 5,988 48,238 113,541 5,989 48,797 (4,396) (5,532) 44,858 842 45,700 7,933 2,527 6,843 17,303 14,876 18,183 12,806 4,613 60 35,662 113,541 June 30, 2007 (unaudited) 4,729 42,090 13,619 1,385 287 1,801 63,911 12,009 17,024 7,155 10,883 2,858 49,929 113,840 5,983 44,238 (1,885) (4,679) 43,657 817 44,474 7,442 2,814 6,359 16,615 15,045 14,418 13,386 9,809 93 37,706 113,840 Condensed consolidated financial statements – 1st half 2008 Consolidated statement of cash flows 2 Consolidated statement of cash flow TOTAL (unaudited) (M€) CASH FLOW FROM OPERATING ACTIVITIES 1st half 2008 1st half 2007 Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) Losses on disposals of assets Undistributed affiliates’ equity earnings (Increase) Decrease in operating assets and liabilities Other changes, net 8,578 2,887 43 - (168) (198) (3,953) 49 6,633 2,933 288 - (141) (329) 405 188 Cash flow from operating activities 7,238 9,977 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans (4,946) - (148) (417) (4,632) (20) (147) (305) Total expenditures Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans (5,511) 22 84 89 729 (5,104) 90 - 83 293 Total divestments 924 466 Cash flow used in investing activities (4,587) (4,638) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (Repayment) of shares: Š Parent company shareholders Š Treasury shares Š Minority shareholders 242 (711) (9) 15 (568) - Cash dividends paid to: Š Parent company shareholders Š Minority shareholders Net issuance (repayment) of non-current debt Increase (Decrease) in current borrowings Increase (Decrease) in current financial assets and liabilities Other changes, net (2,404) (128) 2,065 (832) 817 - (2,262) (162) 2,413 2,507 (6,968) - Cash flow used in financing activities (960) (5,025) Net increase (decrease) in cash and cash equivalents Effect of exchange rates and changes in scope of consolidation Cash and cash equivalents at the beginning of the period 1,691 (434) 5,988 314 51 2,493 Cash and cash equivalents at the end of the period 7,245 2,858 TOTAL - Financial report - 1st half 2008 (cid:129) 19 2 Condensed consolidated financial statements – 1st half 2008 Consolidated statement of cash flows Consolidated statement of cash flow TOTAL (unaudited) (M€) CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) Losses on disposals of assets Undistributed affiliates’ equity earnings (Increase) Decrease in operating assets and liabilities Other changes, net Cash flow from operating activities CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans Total divestments Cash flow used in investing activities CASH FLOW FROM (USED IN) FINANCING ACTIVITIES Issuance (Repayment) of shares: Š Parent company shareholders Š Treasury shares Š Minority shareholders Cash dividends paid to: Š Parent company shareholders Š Minority shareholders Net issuance (repayment) of non-current debt Increase (Decrease) in current borrowings Increase (Decrease) in current financial assets and liabilities Other changes, net Cash flow from (used in) financing activities Net increase (decrease) in cash and cash equivalents Effect of exchange rates and changes in scope of consolidation Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 20 (cid:129) TOTAL - Financial report - 1st half 2008 2nd quarter 2008 4,875 1,482 32 - (15) 104 (4,563) 7 1,922 (2,619) - (41) (208) (2,868) 16 84 20 606 726 (2,142) 233 (284) - (2,404) (127) 1,562 55 (18) - (983) (1,203) 107 8,341 7,245 1st quarter 2008 3,703 1,405 11 - (153) (302) 610 42 5,316 (2,327) - (107) (209) (2,643) 6 - 69 123 198 (2,445) 9 (427) (9) (1) 503 (887) 835 - 23 2,894 (541) 5,988 8,341 2nd quarter 2007 3,495 1,495 315 - (66) 1 (1,693) 42 3,589 (2,509) - (47) (134) (2,690) 18 - 64 140 222 (2,468) 10 (295) - (2,262) (133) 1,309 (135) 138 - (1,368) (247) 143 2,962 2,858 Condensed consolidated financial statements – 1st half 2008 Consolidated statement of changes in shareholders’ equity 2 Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (M€) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity Minority interests Total equity As of January 1, 2007 2,425,767,953 6,064 41,460 (1,383) (161,200,707) (5,820) 40,321 827 41,148 Net income for the first half Items recognized directly in equity Total excluding transactions with shareholders Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares (a) Share-based payments Transactions with shareholders Share cancellation As of June 30, 2007 - 549,873 - - - 549,873 (33,005,000) 2,393,312,826 - - - 1 - - - 1 (82) 5,983 6,460 108 6,568 (2,262) 14 - 28 82 (2,138) (1,652) 44,238 (502) (502) - - - - - - - (1,885) - - (14,000,000) 5,052,289 - (8,947,711) 33,005,000 (137,143,418) - - - - (755) 162 - (593) 1,734 (4,679) 6,460 (394) 6,066 (2,262) 15 (755) 190 82 (2,730) - 43,657 173 (21) 6,633 (415) 6,218 (2,424) 15 (755) 190 82 (162) (2,892) - 817 44,474 152 (162) - - - - Net income for the second half Items recognized directly in equity Total excluding transactions with shareholders Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares (a) Share-based payments Transactions with shareholders Share cancellation As of December 31, 2007 - 2,219,271 - - - 2,219,271 - 2,395,532,097 - - - 6 - - - 6 - 5,989 6,721 9 6,730 (2,248) 68 - (105) 114 (2,171) - 48,797 (2,511) (2,511) - - - - - - - (4,396) - - (18,387,355) 4,109,541 - (14,277,814) - (151,421,232) - - - - (1,032) 179 - (853) - (5,532) 6,721 (2,502) 4,219 (2,248) 74 (1,032) 74 114 (3,018) - 44,858 181 (90) 6,902 (2,592) 4,310 (2,314) 74 (1,032) 74 114 (66) (3,084) - 842 45,700 91 (66) - - - - Net income for the first half Items recognized directly in equity Total excluding transactions with shareholders Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares (a) Share-based payments Transactions with shareholders Share cancellation As of June 30, 2008 - 5,678,338 - - - 5,678,338 - 2,401,210,435 - - - 14 - - - 14 - 6,003 8,334 (43) 8,291 (2,404) 228 - 28 84 (2,064) - 55,024 (2,087) (2,087) - - - - - - - (6,483) - - (16,000,000) 2,679,805 - (13,320,195) - (164,741,427) - - - - (818) 79 - (739) - (6,271) 8,334 (2,130) 6,204 (2,404) 242 (818) 107 84 (2,789) - 48,273 244 (103) 8,578 (2,233) 6,345 (2,532) 242 (818) 107 84 (128) (2,917) - 855 49,128 141 (128) - - - - (a) Treasury shares related to the stock option purchase plans and restricted stock grants. TOTAL - Financial report - 1st half 2008 (cid:129) 21 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) Notes to the consolidated financial statements for the first six months of 2008 (unaudited) 1) Accounting policies 2) Changes in the Group structure, main acquisitions and divestments The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2008 have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2008 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2007 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). The new accounting standards and amendments mandatory for the annual period beginning January 1, 2008 are described in Note 1X to the consolidated financial statements as of December 31, 2007 and have no material effect on the Group’s consolidated financial statements for the first six months of 2008. There were no major changes during the first six months of 2008. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. The preparation of financial statements in accordance with IFRS requires management to make estimates and apply assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. Management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and postretirement benefits and the income tax computation. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in some instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect Lastly, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: The adjusted results of the Downstream and Chemical segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ performance with those of its competitors, mainly North American. Š give a true and fair view of the Group’s financial position, financial performance and cash flows; Š reflect the substance of transactions; Š are neutral; In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is determined by the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and the replacement cost. Š are prepared on a prudent basis; Š are complete in all material aspects. (iii) Portion of intangible assets amortization related to the Sanofi- Aventis merger Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at amortized cost. Financial assets and liabilities are usually measured at fair value. 22 (cid:129) TOTAL - Financial report - 1st half 2008 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, and excluding TOTAL’s equity share of amortization of intangible assets related to the Sanofi-Aventis merger. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME (M€) 2nd quarter 2008 Upstream Downstream Chemicals Corporate Total Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 1,457 - - - 230 - - - - - - 1,687 - - - Total 1,457 230 1,687 2nd quarter 2007 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 623 - - - 96 - - - - - - 719 - - - Total 623 96 719 1st half 2008 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 1,830 - - - 232 - - - - - - 2,062 - - - Total 1,830 232 2,062 1st half 2007 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 730 - - - 163 - - - - - - 893 - - - Total 730 163 893 TOTAL - Financial report - 1st half 2008 (cid:129) 23 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) ADJUSTMENTS TO NET INCOME (M€) 2nd quarter 2008 Inventory valuation effect TOTAL’s equity share of special items recorded by Sanofi-Aventis TOTAL’s equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (Losses) on disposals of assets Other items Total 2nd quarter 2007 Inventory valuation effect TOTAL’s equity share of special items recorded by Sanofi-Aventis TOTAL’s equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (Losses) on disposals of assets Other items Total 1st half 2008 Inventory valuation effect TOTAL’s equity share of special items recorded by Sanofi-Aventis TOTAL’s equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (Losses) on disposals of assets Other items Total 1st half 2007 Inventory valuation effect TOTAL’s equity share of special items recorded by Sanofi-Aventis TOTAL’s equity share of adjustments related to the Sanofi-Aventis merger Restructuring charges Asset impairment charges Gains (Losses) on disposals of assets Other items Total 24 (cid:129) TOTAL - Financial report - 1st half 2008 Upstream Downstream - - - - - - 1,001 - - (35) - - - 966 - - - - - - 418 - - - - - - 418 - - - - 130 - 130 1,274 - - (35) - - - 1,239 - - - - - - 507 - - - - - - 507 Chemicals 153 - - (9) - - (5) 139 65 - - - - - - 65 154 - - (9) - - (5) 140 109 - - - - - - 109 Corporate - (78) - - 2 (20) (96) - (72) - - - (100) (172) - (149) - - 17 (20) (152) - (148) - - - (100) (248) Total 1,154 - (78) (44) - 2 (25) 1,009 483 - (72) - - - (100) 311 1,428 - (149) (44) - 147 (25) 1,357 616 - (148) - - - (100) 368 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2008, TOTAL S.A. held 64,410,159 of its own shares, representing 2.68% of its share capital, detailed as follows: Š 18,410,159 shares allocated to covering TOTAL share purchase option plans and restricted shares plans for Group employees; Š 46,000,000 shares purchased during 2007 and the first six months of 2008 for cancellation, pursuant to the authorizations granted by the shareholders’ meetings held on May 12, 2006, May 11, 2007 and May 16, 2008. These 64,410,159 shares are deducted from the consolidated shareholders’ equity. TOTAL shares held by Group subsidiaries As of June 30, 2008, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.18% of its share capital, detailed as follows: Š 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; Š 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval). These 100,331,268 shares are deducted from the consolidated shareholders’ equity. Dividend The shareholders’ meeting of May 16, 2008 approved the payment of a cash dividend of € 2.07 per share for the fiscal year 2007. Taking into account an interim dividend of € 1 per share paid on November 16, 2007, the remaining balance of € 1.07 per share was paid on May 23, 2008. 5) Non-current financial debt The Group issued bonds through its subsidiary Total Capital during the first six months of 2008: Š Bond 2.375% 2008-2012 (225 million CHF) Š Bond 3.125% 2008-2015 (100 million CHF) Š Bond 4.875% 2008-2010 (50 million GBP) Š Bond 7.500% 2008-2013 (100 million AUD) Š Bond 3.875% 2008-2011 (50 million EUR) Š Bond 3.250% 2008-2012 (50 millions EUR) Š Bond 2.375% 2008-2012 (100 million CHF) Š Bond 3.125% 2008-2013 (200 million CHF) Š Bond 3.875% 2008-2011 (100 million EUR) Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Š Bond 4.625% 2008-2012 (50 million GBP) Š Bond 3.125% 2008-2018 (100 million CHF) Š Bond 7.500% 2008-2011 (150 million AUD) Š Bond 3.125% 2008-2015 (100 million CHF) Š Bond 4.000% 2008-2013 (300 million USD) Š Bond 4.125% 2008-2013 (200 million EUR) Š Bond 5.500% 2008-2013 (50 million GBP) Š Bond 6.000% 2008-2012 (500 million NOK) Š Bond 3.875% 2008-2011 (150 million EUR) Š Bond 7.500% 2008-2013 (100 million AUD) The Group reimbursed bonds during the first six months of 2008: Š Bond Pibor 3 months + 0.380% 1998-2008 (230 million FRF) Š Bond 5.000% 2003-2008 (100 million AUD) Š Bond 3.500% 2003-2008 (500 million EUR) Š Bond 4.250% 2003-2008 (100 million CAD) Š Bond 3.250% 2003-2008 (250 million USD) Š Bond 5.000% 2003-2008 (100 million AUD) Š Bond 3.500% 2003-2008 (100 million EUR) Š Bond 3.500% 2003-2008 (150 million EUR) Š Bond 3.250% 2004-2008 (50 million USD) Š Bond 3.250% 2004-2008 (50 million USD) Š Bond 3.250% 2004-2008 (100 million USD) Š Bond 2.000% 2003-2008 (300 million CHF) Š Bond 2.000% 2003-2008 (200 million CHF) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non consolidated investments. There were no major changes concerning the main transactions with related parties during the first six months of 2008. TOTAL - Financial report - 1st half 2008 (cid:129) 25 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 7) Other risks and contingent liabilities TOTAL is not currently aware of any event, litigation, risks or contingent liabilities that are likely to have a material impact on the assets and liabilities, results, financial position or operations of the Group. Antitrust investigations 1. Following investigations into certain commercial practices in the chemicals industry in the United States, certain chemicals subsidiaries of the Arkema group are involved in several civil liability lawsuits in the United States and Canada for violations of antitrust laws. TOTAL S.A. has been named in certain of these suits as the parent company. These guarantees cover, for a period of ten years having started in 2006, 90% of amounts paid by Arkema companies related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by American courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. The guarantee covering the risks related to anticompetition violations in Europe applies to amounts that rise above a 176.5 M€ threshold. In Europe, the European Commission commenced investigations in 2000, 2003 and 2004 into alleged anti- competitive practices involving certain products sold by Arkema(1). In January 2005, following one of these investigations, the European Commission fined Arkema 13.5 M€ and jointly fined Arkema and Elf Aquitaine 45 M€. Arkema and Elf Aquitaine have appealed these decisions to the Court of First Instance of the European Union If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, these guarantees will become void. The Commission notified Arkema, TOTAL S.A. and Elf Aquitaine of complaints concerning two other product lines in January and August 2005, respectively. Arkema has cooperated with the authorities in these procedures and investigations. As a result of these proceedings, in May 2006 the European Commission fined Arkema 78.7 M€ and 219.1 M€, respectively. Elf Aquitaine was held jointly and severally liable for, respectively, 65.1 M€ and 181.35 M€ of these fines while TOTAL S.A. was held jointly and severally liable, respectively, for 42 M€ and 140.4 M€. TOTAL S.A., Elf Aquitaine and Arkema have appealed these decisions to the Court of First Instance of the European Union. Arkema and Elf Aquitaine received a statement of objections from the European Commission in August 2007 concerning alleged anti-competitive practices related to another line of chemical products. As a result Arkema and Elf Aquitaine have been condemned jointly and severally to an amount of 22.7 M€ and individually to an amount of 20.43 M€ for Arkema and 15.89 M€ for Elf Aquitaine. Companies concerned have decided to appeal this decision to the European court. No facts have been alleged that would implicate TOTAL S.A. or Elf Aquitaine in the practices questioned in these proceedings and the fines received are based solely on their status as parent companies. In the same way, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group companies for 10% of any amount that TOTAL S.A. or any Group companies are required to pay under any of the proceedings covered by these guarantees. 3. The Group has recorded provisions amounting to 138 M€ in its consolidated accounts as of June 30, 2008 to cover the risks mentioned above. 4. Moreover, as a result of investigations started by the European Commission in October 2002 concerning certain Refining & Marketing subsidiaries of the Group, Total Nederland N.V. and TOTAL S.A. received a statement of objections in October 2004. These proceedings resulted, in September 2006, in Total Nederland N.V. being fined 20.25 M€ and in TOTAL S.A. being held jointly responsible for 13.5 M€ of this amount, although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Nederland N.V. have appealed this decision to the Court of First Instance of the European Union. In addition, in May 2007, Total France and TOTAL S.A. received a statement of objections regarding alleged antitrust practices regarding another product line of the Refining & Marketing branch. No facts have been alleged that implicate TOTAL S.A. in the practices under investigation as the Company has been included based solely on its status as the parent company. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema and TOTAL S.A. and Elf Aquitaine. 2. As part of the agreement relating to the spin-off of Arkema, TOTAL S.A. or certain other Group companies agreed to grant Arkema guarantees for certain risks related to antitrust proceedings arising from events prior to the spin-off. Given the discretionary powers granted to the European Commission for determining fines, it is not currently possible to determine with certainty the outcome of these investigations and proceedings. TOTAL S.A. and Elf Aquitaine are contesting their liability and the method of determining these fines. Although it is not possible to predict the outcome of these proceedings, the Group believes that they will not have a material adverse effect on its financial condition or results. (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A., which became an independent company after being spun-off from TOTAL S.A. in May 2006. 26 (cid:129) TOTAL - Financial report - 1st half 2008 Buncefield On December 11, 2005, several explosions, followed by a major fire, occurred at an oil storage depot at Buncefield, north of London. This depot is operated by Hertfordshire Oil Storage Limited (HOSL), a company in which the British subsidiary of TOTAL holds 60% and another oil group holds 40%. The explosion caused minor injuries to about 40 people and caused property damage to the depot and the buildings and homes located nearby. The official independent Investigation Board (supported by the HSE) has indicated that the explosion was caused by the overflow of a tank at the depot. The Board’s final report detailing the circumstances and the exact cause of the explosion has not been released yet. At this stage, responsibility for the explosion has not yet been determined. The civil court procedure, concerning claims which have not been settled so far, is expected to start in the fourth quarter 2008. The Group carries insurance for damage to its interests in these facilities, business interruption and civil liability claims from third parties, and believes that, based on the information currently available, this accident should not have a significant impact on its financial position, cash flows or results. Venezuela On February 26, 2007, the Venezuelan president signed a decree providing for the transformation of the Strategic Associations in the Faja region, including the Sincor project, into mixed companies with the government having an interest of at least 60%. The legislation further states that control of operations was to be transferred to PDVSA (Petróleos de Venezuela S.A.) no later than May 1, 2007 and set a four-month period (with an additional two months for submission to the National Assembly), from the date of the decree, for private companies to agree to the terms and conditions of their participation in the newly created mixed companies. Within this framework, TOTAL signed two agreements with PDVSA and Statoil, with the approval of the ministry in charge of energy and oil: Š on April 25, 2007 an agreement according to which the control of Sincor operations was transferred temporarily from May 1, 2007, to PDVSA; Š on June 26, 2007, heads of agreement providing for the transformation of the Sincor association into a mixed company. Pursuant to these heads of agreement, TOTAL’s interest in the project was to decrease from 47% to 30.323%, PDVSA’s interest was to increase from 38% to 60% and Statoil’s interest was to decrease from 15% to 9.677%. This agreement also provides for compensation to be awarded to TOTAL, with the amount to be negotiated based on the value of the assets. The conditions of this transformation were approved by the National Assembly in October 2007. The presidential decrees regarding the creation of the mixed company, PetroCedeño, and the transfer of the rights to conduct the principal activities were published in the Venezuelan official gazette in November 9, 2007 and January 10, 2008. The finalization of the transformation process occurred on February 8, 2008. Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 PetroCedeño (previously Sincor) has been accounted for under the equity method for 30.323% in the Group’s financial statements since December 31, 2007; special items related to this transformation into a mixed company were recorded in the first quarter 2008. Kazakhstan On January 14, 2008, members of NCSPSA (North Caspian Sea Production Sharing Agreement) and the Kazakh authorities signed a Memorandum of Understanding to end the dispute among them that began at the end of August 2007. The various agreements needed to implement this Memorandum and the supplemental Memorandum of Understanding signed on June 25, 2008 are being finalized. An update of the costs and timetable for the first phase of development has been submitted to the authorities. These Memorandums contemplate: Š a transfer of participating interest from foreign partners in favor of KMG (KazMunaiGas) that will lead to a decrease of TOTAL’s participation from 18.52% to 16.81% ; and Š a modification of economic terms in favor of the Republic of Kazakhstan through (i) the creation of a Priority Payment representing a percentage of oil sales depending on oil price, (ii) an increase of the production bonus and (iii) a decrease of the interest rate on recoverable capital expenditures depending on oil price. Budgetary approvals from the Kazakh authorities have been obtained to allow the project to continue without interruption. Erika In response to the decision handed down by the Paris Criminal Court on January 16, 2008, TOTAL S.A. has decided, on the one hand, to file an appeal against the decision and, on the other hand, to finally and irrevocably pay the amounts awarded by the court to those parties who request such payment. At the current stage of the proceedings, TOTAL S.A. believes that, based on a reasonable estimate of its liability, the case will not have a material impact on the Group’s financial situation or consolidated results. TOTAL - Financial report - 1st half 2008 (cid:129) 27 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 8) Information by business segment 1st half 2008 (M€) Upstream Downstream Chemicals Non-Group sales 11,935 69,770 10,707 Intersegment sales 13,980 3,050 706 Excise taxes (9,826) Revenues from sales 25,915 62,994 11,413 Operating expenses (10,697) (59,346) (10,648) Depreciation, depletion, and amortization of tangible assets and mineral interests (1,831) (576) (257) Operating income 13,387 3,072 508 Equity in income (loss) of affiliates and other items 904 (13) 3 Tax on net operating income (8,331) (898) (143) Net operating income 5,960 2,161 368 Net cost of net debt Minority interests Net income 1st half 2008 (adjustments*) (M€) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses 1,830 232 Depreciation, depletion, and amortization of tangible assets and mineral interests Operating income(a) 1,830 232 Equity in income (loss) of affiliates and other items(b) 130 15 (22) Tax on net operating income (582) (70) Net operating income(a) 130 1,263 140 Net cost of net debt Minority interests Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (a) Of which inventory valuation effect On operating income On net operating income - 1,830 1,298 232 154 (b) Of which equity share of amortization of intangible assets related to the Sanofi- Aventis merger 28 (cid:129) TOTAL - Financial report - 1st half 2008 Corporate 1 70 71 (356) (14) (299) 383 150 234 Corporate (152) (152) - (149) Intercompany (17,806) (17,806) 17,806 Intercompany Total 92,413 (9,826) 82,587 (63,241) (2,678) 16,668 1,277 (9,222) 8,723 (145) (244) 8,334 Total 2,062 2,062 (29) (652) 1,381 (24) 1,357 1st half 2008 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 1st half 2008 (M€) Total expenditures Total divestments Cash flow from operating activities Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Upstream Downstream Chemicals Corporate Intercompany Total 11,935 69,770 10,707 1 92,413 13,980 3,050 706 70 (17,806) (9,826) (9,826) 25,915 62,994 11,413 71 (17,806) 82,587 (10,697) (61,176) (10,880) (356) 17,806 (65,303) (1,831) (576) (257) (14) (2,678) 13,387 1,242 276 (299) 14,606 774 (28) 25 535 1,306 (8,331) (316) (73) 150 (8,570) 5,830 898 228 386 7,342 (145) (220) 6,977 Upstream Downstream Chemicals Corporate Intercompany Total 4,254 808 385 64 5,511 672 152 19 81 924 7,894 (223) (33) (400) 7,238 TOTAL - Financial report - 1st half 2008 (cid:129) 29 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 1st half 2007 (M€) Upstream Downstream Chemicals Non-Group sales 9,690 56,363 10,065 Intersegment sales 9,816 2,444 501 Excise taxes (10,961) Revenues from sales 19,506 47,846 10,566 Operating expenses (8,872) (44,551) (9,467) Depreciation, depletion, and amortization of tangible assets and mineral interests (1,819) (588) (243) Operating income 8,815 2,707 856 Equity in income (loss) of affiliates and other items 667 126 37 Tax on net operating income (5,429) (856) (271) Net operating income 4,053 1,977 622 Net cost of net debt Minority interests Net income 1st half 2007 (adjustments*) (M€) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses 730 163 Depreciation, depletion, and amortization of tangible assets and mineral interests Operating income(a) 730 163 Equity in income (loss) of affiliates and other items(b) 24 Tax on net operating income (240) (54) Net operating income(a) 514 109 Net cost of net debt Minority interests Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (a) Of which inventory valuation effect On operating income On net operating income - 730 514 163 109 (b) Of which equity share of amortization of intangible assets related to the Sanofi- Aventis merger 30 (cid:129) TOTAL - Financial report - 1st half 2008 Corporate 19 67 86 (292) (15) (221) 274 83 136 Corporate (248) (248) - (148) Intercompany (12,828) (12,828) 12,828 Intercompany Total 76,137 (10,961) 65,176 (50,354) (2,665) 12,157 1,104 (6,473) 6,788 (155) (173) 6,460 Total 893 893 (224) (294) 375 (7) 368 1st half 2007 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 1st half 2007 (M€) Total expenditures Total divestments Cash flow from operating activities Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Upstream Downstream Chemicals Corporate Intercompany Total 9,690 56,363 10,065 19 76,137 9,816 2,444 501 67 (12,828) (10,961) (10,961) 19,506 47,846 10,566 86 (12,828) 65,176 (8,872) (45,281) (9,630) (292) 12,828 (51,247) (1,819) (588) (243) (15) (2,665) 8,815 1,977 693 (221) 11,264 667 102 37 522 1,328 (5,429) (616) (217) 83 (6,179) 4,053 1,463 513 384 6,413 (155) (166) 6,092 Upstream Downstream Chemicals Corporate Intercompany Total 4,098 645 346 15 5,104 364 50 48 4 466 7,647 3,337 361 (1,368) 9,977 TOTAL - Financial report - 1st half 2008 (cid:129) 31 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2008 (M€) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes 5,739 7,862 - 36,990 1,497 (4,900) 5,478 449 - Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests 13,601 (5,679) (958) 33,587 (31,095) (291) 5,927 (5,491) (128) Operating income Equity in income (loss) of affiliates and other items Tax on net operating income 6,964 439 (4,304) 2,201 20 (651) 308 (11) (88) Net operating income Net cost of net debt Minority interests 3,099 1,570 209 Net income 2nd quarter 2008 (adjustments*) (M€) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests 1,457 230 Operating income(a) Equity in income (loss) of affiliates and other items(b) Tax on net operating income - - 1,457 (10) (464) 230 (22) (69) Net operating income(a) Net cost of net debt Minority interests 983 139 Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (a) Of which inventory valuation effect On operating income On net operating income - 1,457 1,018 230 153 (b) Of which equity share of amortization of intangible assets related to the Sanofi- Aventis merger 32 (cid:129) TOTAL - Financial report - 1st half 2008 Corporate (7) 37 - 30 (180) (7) (157) 133 78 54 Corporate (96) - (96) - (78) Intercompany (9,845) - (9,845) 9,845 - - Intercompany Total 48,200 - (4,900) 43,300 (32,600) (1,384) 9,316 581 (4,965) 4,932 (57) (143) 4,732 Total 1,687 1,687 (128) (533) 1,026 - (17) 1,009 2nd quarter 2008 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 2nd quarter 2008 (M€) Total expenditures Total divestments Cash flow from operating activities Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Upstream Downstream Chemicals Corporate Intercompany Total 5,739 7,862 - 36,990 1,497 (4,900) 5,478 449 - (7) 37 - (9,845) - 48,200 - (4,900) 13,601 (5,679) 33,587 (32,552) 5,927 (5,721) 30 (180) (9,845) 9,845 43,300 (34,287) (958) (291) (128) (7) (1,384) 6,964 439 (4,304) 744 30 (187) 78 11 (19) (157) 229 78 - - 7,629 709 (4,432) 3,099 587 70 150 3,906 (57) (126) 3,723 Upstream Downstream Chemicals Corporate Intercompany Total 2,076 565 3,643 514 128 (1,391) 221 12 169 57 21 (499) 2,868 726 1,922 TOTAL - Financial report - 1st half 2008 (cid:129) 33 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2007 (M€) Upstream Downstream Chemicals Non-Group sales 4,456 29,562 5,070 Intersegment sales 5,073 1,201 269 Excise taxes (5,595) Revenues from sales 9,529 25,168 5,339 Operating expenses (4,148) (23,244) (4,812) Depreciation, depletion, and amortization of tangible assets and mineral interests (941) (297) (119) Operating income 4,440 1,627 408 Equity in income (loss) of affiliates and other items 397 72 14 Tax on net operating income (2,745) (519) (123) Net operating income 2,092 1,180 299 Net cost of net debt Minority interests Net income 2nd quarter 2007 (adjustments*) (M€) Upstream Downstream Chemicals Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses 623 96 Depreciation, depletion, and amortization of tangible assets and mineral interests Operating income(a) 623 96 Equity in income (loss) of affiliates and other items(b) 6 1 Tax on net operating income (204) (32) Net operating income(a) 425 65 Net cost of net debt Minority interests Net income (*) Adjustments include special items, inventory valuation effect and equity share of amortization of intangible assets related to the Sanofi-Aventis merger (a) Of which inventory valuation effect On operating income On net operating income - 623 425 96 65 (b) Of which equity share of amortization of intangible assets related to the Sanofi- Aventis merger 34 (cid:129) TOTAL - Financial report - 1st half 2008 Corporate 6 25 31 (143) (8) (120) 59 51 (10) Corporate (172) (172) - (72) Intercompany (6,568) (6,568) 6,568 Intercompany Total 39,094 (5,595) 33,499 (25,779) (1,365) 6,355 542 (3,336) 3,561 (66) (84) 3,411 Total 719 719 (165) (236) 318 (7) 311 2nd quarter 2007 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion, and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 2nd quarter 2007 (M€) Total expenditures Total divestments Cash flow from operating activities Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 Upstream Downstream Chemicals Corporate Intercompany Total 4,456 29,562 5,070 6 39,094 5,073 1,201 269 25 (6,568) (5,595) (5,595) 9,529 25,168 5,339 31 (6,568) 33,499 (4,148) (23,867) (4,908) (143) 6,568 (26,498) (941) (297) (119) (8) (1,365) 4,440 1,004 312 (120) 5,636 397 66 13 231 707 (2,745) (315) (91) 51 (3,100) 2,092 755 234 162 3,243 (66) (77) 3,100 Upstream Downstream Chemicals Corporate Intercompany Total 2,109 401 173 7 2,690 191 28 1 2 222 3,312 1,432 254 (1,409) 3,589 TOTAL - Financial report - 1st half 2008 (cid:129) 35 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 9) Reconciliation between information by business segment and the consolidated statement of income 1st half 2008 (M€) Adjusted Adjustments Sales Excise taxes Revenues from sales 92,413 (9,826) 82,587 - - Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense (55,639) (9,271) (393) (2,678) 21 (74) 2,062 - - - 147 (95) Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense (461) 242 (219) 345 (151) - - - - Income taxes (8,496) (652) Equity in income (loss) of affiliates 1,165 (81) Consolidated net income Group share Minority interests 7,197 6,977 220 1,381 1,357 24 36 (cid:129) TOTAL - Financial report - 1st half 2008 Consolidated statement of income 92,413 (9,826) 82,587 (53,577) (9,271) (393) (2,678) 168 (169) (461) 242 (219) 345 (151) (9,148) 1,084 8,578 8,334 244 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 1st half 2007 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 76,137 (10,961) 65,176 - - 76,137 (10,961) 65,176 Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense (41,987) (8,791) (469) (2,665) 156 (66) 893 - - - - (100) (41,094) (8,791) (469) (2,665) 156 (166) Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense (877) 631 (246) 337 (141) - - - - (877) 631 (246) 337 (141) Income taxes (6,088) (294) (6,382) Equity in income (loss) of affiliates 1,042 (124) 918 Consolidated net income Group share Minority interests 6,258 6,092 166 375 368 7 6,633 6,460 173 TOTAL - Financial report - 1st half 2008 (cid:129) 37 2 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2nd quarter 2008 (M€) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense Income taxes Equity in income (loss) of affiliates Consolidated net income Group share Minority interests 38 (cid:129) TOTAL - Financial report - 1st half 2008 Adjusted 48,200 (4,900) 43,300 (29,645) (4,439) (203) (1,384) 13 (26) (204) 113 (91) 229 (80) (4,398) 573 3,849 3,723 126 Adjustments - - 1,687 - - - 2 (95) - - - - (533) (35) 1,026 1,009 17 Consolidated statement of income 48,200 (4,900) 43,300 (27,958) (4,439) (203) (1,384) 15 (121) (204) 113 (91) 229 (80) (4,931) 538 4,875 4,732 143 Condensed consolidated financial statements Notes to the consolidated financial statements (unaudited) 2 2nd quarter 2007 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 39,094 (5,595) 33,499 - - 39,094 (5,595) 33,499 Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion, and amortization of tangible assets and mineral interests Other income Other expense (22,104) (4,139) (255) (1,365) 60 (2) 719 - - - - (100) (21,385) (4,139) (255) (1,365) 60 (102) Financial interest on debt Financial income from marketable securities and cash equivalents Cost of net debt Other financial income Other financial expense (447) 337 (110) 209 (74) - - - - (447) 337 (110) 209 (74) Income taxes (3,056) (236) (3,292) Equity in income (loss) of affiliates 514 (65) 449 Consolidated net income Group share Minority interests 3,177 3,100 77 318 311 7 3,495 3,411 84 TOTAL - Financial report - 1st half 2008 (cid:129) 39 RR Donnelley - 01 53 45 19 00 TOTP150-couv_FR_GB 1/08/08 11:52 Page 2 z e a z n o G y r r e h T © l i | Semestriel, 2008, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,009 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| FINANCIAL REPORT 1st half 2009 Content 1 Financial report - 1st half 2009 Key figures Group results Analysis of business segment results Cancellation of shares TOTAL S.A. — parent company accounts Summary and outlook Other information Main operating information by segment Adjustment items Investments — Divestments Net-debt-to-equity ratio Effective tax rate Return on average capital employed (ROACE) Principal risks and uncertainties for the remaining six months of 2009 p. 3 p. 3 p. 4 p. 5 p. 9 p. 9 p. 9 p. 10 p. 10 p. 12 p. 12 p. 12 p. 13 p. 13 p. 14 2 Condensed consolidated financial statements Statutory auditor’s report (review of the consolidated financial statements) Consolidated statement of income Consolidated balance sheet Consolidated statement of cash flow Consolidated statement of changes in shareholders’ equity Consolidated statement of comprehensive income Notes to the consolidated financial statements Accounting policies Changes in the Group structure, main acquisitions and divestments Adjustment items Shareholders’ equity Non-current financial debt Related parties Other risks and contingent liabilities Information by business segment Reconciliation between information by business segment and the consolidated statement of income p. 15 p. 15 p. 16 p. 18 p. 19 p. 21 P. 22 p. 23 p. 23 p. 23 p. 23 p. 26 p. 27 p. 27 p. 27 p. 30 p. 38 FINANCIAL REPORT – 1ST HALF 2009 This is a free translation into English of the Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed consolidated financial statements for the first half 2009 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 3 to 14 herein includes a fair review of the important events that have occurred during the first six months of the financial year, their impact condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 15 of this half-year financial report.” Christophe de Margerie Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 31, 2009 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. TOTAL – Financial report – 1st half 2009 . 1 Abbreviations b: cf: /d: /y: €: $ and/or dollar: t: boe: kboe/d: kb/d: Btu: LNG: M: B: TRCV: IFRS: ROACE: barrel cubic feet per day per year euro US dollar metric ton barrel oil equivalent thousand boe/d thousand b/d British thermal unit liquefied natural gas million billion an aggregate margin for topping, reforming, cracking, visbreaking in Western Europe developed and used internally by TOTAL’s management as an indicator of refining margins. International Financial Reporting Standards Return on Capital Employed 2 . TOTAL – Financial report – 1st half 2009 Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of France. The terms “Company” and “issuer” as used in this half-year financial report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2009. 1st half 2009 1 FINANCIAL REPORT Financial report – 1st half 2009 Key figures1 in millions of euros except earnings per share and number of shares 1H09 1H08 1H09 vs 1H08 Sales Adjusted operating income from business segments 61,471 6,659 92,413 14,905 33% -55% Adjusted net operating income from business segments 3,728 6,956 46% Upstream 2,933 5,830 50% Downstream 756 898 16% Chemicals 39 228 83% Adjusted net income Adjusted fully-diluted earnings per share (euros) Fully-diluted weighted-average shares (millions) 3,834 1.72 2,235.5 6,977 3.10 2,253.4 45% -45% -1% Net income (Group share) 4,459 8,334 46% Investments2 Investments2 including net investments in equity affiliates and non-consolidated companies Divestments Cash flow from operations Adjusted cash flow from operations 6,569 6,415 1,330 5,933 6,609 5,511 4,684 924 7,238 9,129 +19% +37% +44% -18% -28% in millions of dollars3 except earnings per share and number of shares 1H09 1H08 1H09 vs 1H08 Sales Adjusted operating income from business segments Adjusted net operating income from business segments 81,929 8,875 4,969 141,429 22,811 10,645 42% -61% -53% Upstream 3,909 8,922 56% Downstream 1,008 1,374 27% Chemicals 52 349 85% Adjusted net income Adjusted fully-diluted earnings per share (dollars) Fully-diluted weighted-average shares (millions) 5,110 2.29 2,235.5 10,678 4.74 2,253.4 52% -52% -1% Net income (Group share) 5,943 12,754 53% Investments2 Investments2 including net investments in equity affiliates and non-consolidated companies Divestments Cash flow from operations Adjusted cash flow from operations 8,755 8,550 1,773 7,908 8,808 8,434 7,168 1,414 11,077 13,971 +4% +19% +25% -29% -37% 1 adjusted income (adjusted operating income, adjusted net operating income and adjusted net income) is defined as income using replacement cost, adjusted for special items affecting operating income and excluding Total’s equity share of adjustments and, from 2009, selected items related to Sanofi-Aventis; adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 12. 2 including acquisitions. 3 dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. TOTAL – Financial report – 1st half 2009 . 3 1 FINANCIAL REPORT 1st half 2009 Group results Group results Operating income Reported net income (Group share) was 4,459 M€ compared to 8,334 M€ in the first half 2008. Compared to the first half 2008, the first half 2009 oil environment was marked by a 53% fall in the price of Brent to 51.7 $/b. The TRCV European refining margin indicator decreased by 27% to 23.5 $/t. The environment for Total’s petrochemicals was unfavorable, mainly as a result of weak demand in the Atlantic basin. The Group did not buy back shares in the first half 2009. On June 30, 2009, there were 2,235.5 million fully-diluted shares compared to 2,252.5 million on June 30, 2008. The euro-dollar exchange rate was 1.33 $/€ compared to 1.53 $/€ in the first half 2008. Adjusted fully-diluted earnings per share, based on 2,235.5 million weighted-average shares was 1.72 euros compared to 3.10 euros in the first half 2008, a decrease of 45%. In this context, the adjusted operating income from the business segments was 6,659 M€, a decrease of 55% compared to the first half 20081. Expressed in dollars, adjusted fully-diluted earnings per share was 2.29 compared to 4.74 in the first half 2008, a decrease of 52%. The effective tax rate for the business segments was 54% in the first half 2009 compared to 59% in the first half 2008, reflecting mainly the lower tax rate in the Upstream. Investments – divestments3 Adjusted net operating income from the business segments was 3,728 M€ compared to 6,956 M€ in the first half 2008, a decrease of 46%. The smaller decrease, relative to the one in adjusted operating income, is essentially due to the lower effective tax rate between the two periods and a more limited decrease in the contribution from equity affiliates. Investments excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were 5.8 B€ (7.8 B$) in the first half 2009 compared to 4.6 B€ (7.0 B$) in the first half 2008. Acquisitions were 573 M€ in the first half 2009. Expressed in dollars, adjusted net operating income from the business segments fell by 53%. Asset sales in the first half 2009 were 1,140 M€, consisting essentially of Sanofi-Aventis shares. Net income Net investments4 were 7.0 B$ in the first half 2009, equal to the first half 2008. Adjusted net income decreased by 45% to 3,834 M€ in the first half 2009 from 6,977 M€ in the first half 2008. It excludes the after-tax inventory effect, special items, and the Group’s equity share of adjustments and selected items related to Sanofi-Aventis. Cash flow Cash flow from operating activities was 5,933 M€, a decrease of 18% compared to the first half 2008. The after-tax inventory effect had a positive impact on net income of 1,115 M€ in the first half 2009 compared to 1,428 M€ in the first half 2008. Adjusted cash flow5 was 6,609 M€, a decrease of 28%. Expressed in dollars, adjusted cash flow was 8.8 B$, a decrease of 37%. Special items had a negative impact on net income of 308 M€ in the first half 2009 compared to a positive impact of 78 M€ in the first half 20082. Net cash flow6 for the Group was 694 M€ compared to 2,651 M€ in the first half 2008. Expressed in dollars, net cash flow for the Group was 0.9 B$ in the first half 2009. The Group’s share of adjustments and selected items related to Sanofi-Aventis had a negative impact on net income of 182 M€ in the first half 2009. The adjustments related to Sanofi-Aventis were 149 M€ in the first half 2008. The net-debt-to-equity ratio was 24.7% on June 30, 2009 compared to 19.1% on March 31, 2009 and 25.1% on June 30, 20087, in line with the objectives of the Group. 1 special items affecting operating income from the business segments had a negative impact of 291 M€ in the 1st half 2009 and no impact in the 1st half 2008 2 detail shown on page 12. 3 detail shown on page 12. 4 net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + repayments by employees for loans related to stock purchase plans. 5 cash flow from operations at replacement cost before changes in working capital. 6 net cash flow = cash flow from operations + divestments – gross investments. 7 detail shown on page 12. 4 . TOTAL – Financial report – 1st half 2009 1 2 FINANCIAL REPORT – 1st half 2009 Analysis of business segment results Analysis of business segment results Upstream Environment – liquids and gas price realizations* 1H09 1H08 1H09 vs 1H08 Brent ($/b) 51.7 109.0 53% Average liquids price ($/b) 48.2 102.8 53% Average gas price ($/Mbtu) 5.36 6.97 23% Average hydrocarbons price ($/boe) 41.5 78.8 47% consolidated subsidiaries, excluding fixed margin and buy-back contracts. Total’s average realized liquids price decreased 53% in the first half 2009 compared to the same period in 2008, in line with the changes in the price of Brent. The average realized price for Total’s natural gas decreased by 23% in the first half 2009 compared to the first half 2008. Production Hydrocarbon production 1H09 1H08 1H09 vs 1H08 Combined production (kboe/d) 2,252 2,389 6% Liquids (kb/d) 1,370 1,491 8% Gas (Mcf/d) 4,821 4,880 1% In the first half 2009, hydrocarbon production was 2,252 kboe/d, a decrease of 5.7% compared to the first half 2008, mainly as a result of: +2.5% for the price effect1, 1.5% for disruptions in Nigeria related to security issues. 4% for OPEC reductions and lower gas demand, 2.5% for changes in the portfolio, mainly Venezuela and Libya, The contribution from ramp-ups and start-ups of new fields was offset by the natural decline on existing fields. 1 impact of changing hydrocarbons prices on entitlement volumes TOTAL – Financial report – 1st half 2009 . 5 1 FINANCIAL REPORT 1st half 2009 Analysis of business segment results Results in millions of euros 1H09 1H08 Adjusted operating income* Adjusted net operating income* 5,735 2,933 13,387 5,830 includes income from equity affiliates 403 599 Investments Divestments 4,914 234 4,254 672 Cash flow from operating activities Adjusted cash flow 4,521 5,229 7,894 7,749 detail of adjustment items shown in business segment information. Adjusted net operating income for the Upstream segment in the first half 2009 was 2,933 M€ compared to 5,830 M€ in the first half 2008, a decrease of 50%. The return on average capital employed (ROACE1) for the Upstream segment for the twelve months ended June 30, 2009 was 25% compared to 31% for the twelve months ended March 31, 2009 and 36% for the full year 2008. Expressed in dollars, adjusted net operating income for the Upstream segment fell to 3.9 B$, a decrease of 56%, essentially due to lower hydrocarbon prices. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. 6 . TOTAL – Financial report – 1st half 2009 1H09 vs 1H08 57% -50% 33% +16% -65% 43% -33% 1 2 FINANCIAL REPORT – 1st half 2009 Analysis of business segment results Downstream Refinery throughput and utilization rates* 1H09 1H08 1H09 vs 1H08 Total refinery throughput (kb/d) 2,205 2,341 6% France Rest of Europe Rest of world 910 1,055 240 931 1,111 299 2% -5% -20% Utilization rates Based on crude only Based on crude and other feedstock 80% 85% 86% 90% includes share of equity affiliate CEPSA. In the first half 2009, refinery throughput decreased by 6% compared to the first half 2008. In the first half 2008, there were scheduled turnaround at Leuna, Normandy and Grandpuits refineries. The first half 2009 was affected by scheduled refinery turnarounds at Donges, Antwerp, Lindsey and Vlissingen. Also, due to the economic conditions, certain refineries elected to reduce throughput. Increased turnarounds and voluntary throughput reductions in the first half 2009 reduced the utilization rate based on crude and other feedstocks to 85% from 90% in the first half 2008. Results in millions of euros except TRCV refining margins 1H09 1H08 1H09 vs 1H08 European refining margin indicator - TRCV ($/t) 23.5 32.4 27% Adjusted operating income* Adjusted net operating income* 932 756 1,242 898 25% -16% includes income from equity affiliates 61 17 x4 Investments Divestments 1,320 62 808 152 +63% -59% Cash flow from operating activities Adjusted cash flow 1,620 1,173 (223) 1,143 na +3% detail of adjustment items shown in business segment information. Adjusted net operating income for the Downstream segment in the first half 2009 was 756 M€, a decrease of 16% compared to the first half 2008. 27% compared to the first half 2008, reflecting essentially the less favorable refining environment. Expressed in dollars, adjusted net operating income for the Downstream segment was 1 B$ in the first half 2009, a decrease of The ROACE1 for the Downstream segment for the twelve months ended June 30, 2009 was 18% compared to 23% for the twelve months ended March 31, 2009 and 20% for the full year 2008. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. TOTAL – Financial report – 1st half 2009 . 7 1 FINANCIAL REPORT 1st half 2009 Analysis of business segment results Chemicals in millions of euros 1H09 1H08 Sales 6,902 10,707 Base chemicals Specialties 3,940 2,962 7,052 3,655 Adjusted operating income* Adjusted net operating income* (8) 39 276 228 Base chemicals Specialties (20) 74 38 195 Investments Divestments 294 14 385 19 Cash flow from operating activities 458 (33) Adjusted cash flow (20) 418 detail of adjustment items shown in business segment information. In the first half 2009, adjusted net operating income for the Chemicals segment was 39 M€ compared to 228 M€ in the first half 2008, a decrease of 83% that resulted from the economic recession, particularly as it affected Europe and North America. The ROACE1 for the Chemicals segment for the twelve months ended June 30, 2009 was 7% compared to 7% for the twelve months ended March 31, 2009 and 9% for the full year 2008. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 13. 8 . TOTAL – Financial report – 1st half 2009 1H09 vs 1H08 36% 44% -19% na -83% na -62% 24% -26% na na 1 2 FINANCIAL REPORT – 1st half 2009 Cancellation of shares Cancellation of shares At the July 30, 2009 meeting, the Board of Directors approved the cancellation of 24,800,000 shares bought in 2008, adjusting the share capital to 5,867,520,185 € based on 2,347,008,074 shares with a par value of 2.5 € per share. TOTAL S.A. – parent company accounts Net income for TOTAL S.A., the parent company, was 3,240 M€ in the first half of 2009 compared to 3,083 M€ in the first half of 2008. Summary and outlook The ROACE for the twelve months ended June 30, 2009 was 19% for the Group and 21% for the business segments compared respectively to 24% and 26% for the twelve months ended March 31, 2009 and 26% and 28% for the full year 2008. Since the start of the third quarter 2009, oil prices have remained above the average of the first six months. European refining margins are currently at very weak levels. Chemicals are continuing to suffer the effects of reduced demand in the Atlantic basin, but there are positive signs for demand in Asia. Return on equity for the twelve months ended June 30, 2009 was 23%. Total will pay the 2009 interim dividend of 1.14 € per share on November 18, 20091. The coming months should be marked by production ramp-ups at the Akpo field in Nigeria, Tahiti in the Gulf of Mexico, Tyrihans in Norway as well as the start-up of Yemen LNG in the third quarter then Qatargas II train B and Tombua Landana in Angola by the end of the year. The Group maintains its net-debt-to-equity ratio objective of 25-30% for year-end 2009. 1 the ex-dividend date for the 2009 interim dividend is November 13 and the payment date is November 18, 2009; for the ADR (NYSE :TOT) the ex-dividend date is November 9. TOTAL – Financial report – 1st half 2009 . 9 1 FINANCIAL REPORT 1st half 2009 Other information Other information Main operating information by segment Upstream COMBINED LIQUIDS AND GAS PRODUCTION BY REGION (KBOE/D) 1H09 1H08 Europe Africa North America Far East Middle East South America Rest of world 629 728 12 251 419 189 24 614 819* 15 249 435 230* 27* Total production 2,252 2,389 Includes equity and non-consolidated affiliates 346 407 restated to reclassify Total’s 48.83% share of CEPSA’s production in Colombia LIQUIDS PRODUCTION BY REGION (KB/D) 1H09 1H08 Europe Africa North America Far East Middle East South America Rest of world 297 618 10 34 312 86 13 299 687* 11 27 333 122* 12* Total production 1,370 1,491 Includes equity and non-consolidated affiliates 291 353 restated to reclassify Total’s 48.83% share of CEPSA’s production in Colombia GAS PRODUCTION BY REGION (MCF/D) 1H09 1H08 Europe Africa North America Far East Middle East South America Rest of world 1,811 566 9 1,219 591 567 58 1,707 678 21 1,228 564 600 82 Total production 4,821 4,880 Includes equity and non-consolidated affiliates 293 294 LIQUEFIED NATURAL GAS 1H09 1H08 LNG sales* (Mt) 4.22 4.48 sales, Group share, excluding trading; 1 Mt/y = approx. 133 Mcf/d; first half 2008 has been restated to reflect volume estimation for Bontang LNG in Indonesia based on the 2008 SEC coefficient 10 . TOTAL – Financial report – 1st half 2009 1H09 vs 1H08 +2% -11% -20% +1% -4% -18% -11% 6% 15% 1H09 vs 1H08 1% -10% -9% +26% -6% -30% +8% 8% 18% 1H09 vs 1H08 +6% -17% -57% -1% +5% -5% -29% 1% 1H09 vs 1H08 6% Downstream REFINED PRODUCTS SALES BY REGION (KB/D)* Europe Africa Americas Rest of world Total consolidated sales Trading Total refined product sales includes share of CEPSA 1 2 FINANCIAL REPORT – 1st half 2009 Other information 1H09 1H08 1H09 vs 1H08 2,076 275 175 138 2,071 280 188 144 -2% -7% -4% 2,664 2,683 1% 1,046 950 +10% 3,710 3,633 +2% TOTAL – Financial report – 1st half 2009 . 11 1 FINANCIAL REPORT 1st half 2009 Other information Adjustment items Adjustments to operating income from business segments in millions of euros 1H09 Special items affecting operating income from the business segments Restructuring charges Impairments Other Pre-tax inventory effect : FIFO vs. replacement cost (291) - (105) (186) 1,542 Total adjustments affecting operating income from the business segments 1,251 Adjustments to net income (Group share) in millions of euros 1H09 Special items affecting net income (Group share) (308) Gain on asset sales Restructuring charges Impairments Other 41 (105) (71) (173) Equity shares of adjustments and, from 2009, selected items related to Sanofi-Aventis* (182) After-tax inventory effect : FIFO vs. replacement cost 1,115 Total adjustments to net income 625 based on Total’s share in Sanofi-Aventis of 9.7% at 6/30/2009, 10.9% at 3/31/2009 and 13% at 6/30/2008 Investments – Divestments in millions of euros 1H09 1H08 Investments* excluding acquisitions 5,842 4,589 Capitalized exploration Net investments in equity affiliates and non-consolidated companies 382 248 377 (410) Acquisitions 573 95 Investments* including acquisitions 6,415 4,684 Asset sales 1,140 195 Net investments** 5,239 4,587 ** includes net investments in equity affiliates and non-consolidated companies. net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans. Net-debt-to-equity ratio in millions of euros 6/30/2009 3/31/2009 Current borrowings Net current financial assets Non-current financial debt Hedging instruments of non-current debt Cash and cash equivalents 7,916 (123) 19,640 (875) (14,299) 4,771 (80) 19,078 (934) (13,319) Net debt 12,259 9,516 Shareholders equity Estimated dividend payable* Minority interests 51,299 (2,541) 963 52,597 (3,812) 1,004 Equity 49,721 49,789 Net-debt-to-equity ratio 24.7% 19.1% * June 30, 2009 based on the hypothesis of an annual dividend of 2.28 €/share 12 . TOTAL – Financial report – 1st half 2009 1H08 - - - 2,062 2,062 1H08 78 147 (44) - (25) (149) 1,428 1,357 1H09 vs 1H08 +27% +1% na x6 +37% x6 +14% 6/30/2008 4,795 (49) 14,777 (540) (7,245) 11,738 48,273 (2,315) 855 46,813 25.1% 1 2 FINANCIAL REPORT – 1st half 2009 Other information Effective tax rates Effective tax rate* 1H09 1H08 Upstream 58.2% 61.8% Group 53.9% 58.6% tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates, dividends received from investments, and impairments of acquisition goodwill + tax on adjusted net operating income). Return on average capital employed For the twelve months ended June 30, 2009 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income 7,827 2,427 479 10,733 11,388 Capital employed at 6/30/2008* 26,676 13,491 7,394 47,561 56,107 Capital employed at 6/30/2009* 35,385 13,939 6,915 56,239 62,294 ROACE 25.2% 17.7% 6.7% 20.7% 19.2% at replacement cost (excluding after-tax inventory effect). ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 126 M€ pre-tax at 6/30/2008 For the twelve months ended March 31, 2009 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income 9,475 2,858 478 12,811 13,462 Capital employed at 3/31/2008* 25,731 11,415 7,266 44,412 52,015 Capital employed at 3/31/2009* 35,027 13,095 7,175 55,297 61,688 ROACE 31.2% 23.3% 6.6% 25.7% 23.7% at replacement cost (excluding after-tax inventory effect). ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 129 M€ pre-tax at 3/31/2008 For the twelve months ended December 31, 2008 in millions of euros Upstream Downstream Chemicals** Segments Group Adjusted net operating income 10,724 2,569 668 13,961 14,664 Capital employed at 12/31/2007* 27,062 12,190 7,033 46,285 54,158 Capital employed at 12/31/2008* 32,681 13,623 7,417 53,721 59,764 ROACE 35.9% 19.9% 9.2% 27.9% 25.7% at replacement cost (excluding after-tax inventory effect). ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 134 M€ pre-tax at 12/31/2007 and 256 M€ pre-tax at 12/31/2008 TOTAL – Financial report – 1st half 2009 . 13 1 FINANCIAL REPORT 1st half 2009 Other information Principal risks and uncertainties for the remaining six months of 2009 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marches financiers (French Financial markets authority) on April 3, 2009 under the reference D. 09-0195. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2009 on page 27 of this first half 2009 financial report. Disclaimer This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business, strategy and plans of Total. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Total does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group and its affiliates with the French Autorité des Marchés Financiers and the US Securities and Exchange Commission. 14 . TOTAL – Financial report – 1st half 2009 Business segment information is presented in accordance with the Group internal reporting system used by the Chief operating decision maker to measure performance and allocate resources internally. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain transactions such as restructuring costs or assets disposals, which are not considered to be representative of normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to recur within following years. The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ results with those of its competitors, mainly North American. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the income statement is determined by the average price of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and replacement cost. In this framework, performance measures such as adjusted operating income, adjusted net operating income and adjusted net income are defined as incomes using replacement cost, adjusted for special items and excluding Total’s equity share of the adjustments and, from 2009, selected items related to Sanofi-Aventis. They are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Dollar amounts presented herein represent euro amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in dollars. 1st half 2009 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Statutory auditor’s report (review of the consolidated financial statements) This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English- speaking readers. This report should be read in conjunction with, and constructed in accordance with, French law and professional auditing standards applicable in France. For the six-month period ended June 30, 2009 Statutory auditors’ review report on the half-year consolidated financial statements To the Shareholders, In our capacity as statutory auditors and in accordance with the requirements of article L.451-1-2 III of French Monetary and Financial Law (“Code Monétaire et Financier”), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of TOTAL S.A., for the six-month period ended June 30, 2009, the verification of information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of your Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – the standard of the IFRS adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris-La Défense, July 30, 2009 The statutory auditors French original report signed by KPMG audit A department of KPMG S.A. Ernst & Young Audit Jay Nirsimloo Partner Pascal Macioce Partner TOTAL – Financial report – 1st half 2009 . 15 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Consolidated statement of income Consolidated statement of income TOTAL (unaudited) (M€)(a) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt Other financial income Other financial expense Equity in income (loss) of affiliates Income taxes Consolidated net income Group share* Minority interests Earnings per share (€) Fully-diluted earnings per share (€)** Adjusted net income ** Adjusted fully-diluted earnings per share (€) (a) except for per share amounts. 16 . TOTAL – Financial report – 1st half 2009 1st half 2009 61,471 (9,429) 52,042 (31,528) (9,399) (331) (3,156) 121 (303) (311) 95 (216) 399 (163) 860 (3,779) 4,547 4,459 88 2.00 1.99 3,834 1.72 1st half 2008 92,413 (9,826) 82,587 (53,577) (9,271) (393) (2,678) 168 (169) (461) 242 (219) 345 (151) 1,084 (9,148) 8,578 8,334 244 3.72 3.70 6,977 3.10 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Consolidated statement of income Consolidated statement of income TOTAL (unaudited) (M€)(a) 2nd quarter 2009 1st quarter 2009 2nd quarter 2008 Sales Excise taxes Revenues from sales 31,430 (4,856) 26,574 30,041 (4,573) 25,468 48,200 (4,900) 43,300 Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (16,300) (4,724) (155) (1,636) 106 (216) (15,228) (4,675) (176) (1,520) 15 (87) (27,958) (4,439) (203) (1,384) 15 (121) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt Other financial income Other financial expense (140) 40 (100) 240 (82) (171) 55 (116) 159 (81) (204) 113 (91) 229 (80) Equity in income (loss) of affiliates 393 467 538 Income taxes (1,877) (1,902) (4,931) Consolidated net income 2,223 2,324 4,875 Group share* Minority interests 2,169 54 2,290 34 4,732 143 Earnings per share (€) Fully-diluted earnings per share (€)** 0.97 0.97 1.03 1.02 2.12 2.10 Adjusted net income ** Adjusted fully-diluted earnings per share (€) 1,721 0.77 2,113 0.95 3,723 1.65 (a) except for per share amounts. TOTAL – Financial report – 1st half 2009 . 17 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Consolidated balance sheet Consolidated balance sheet TOTAL (M€) June 30, 2009 (unaudited) March 31, 2009 (unaudited) December 31, 2008 ASSETS Non-current assets Intangible assets, net Property, plant and equipment, net Equity affiliates : investments and loans Other investments Hedging instruments of non-current financial debt Other non-current assets 5,955 48,762 14,075 1,211 875 3,095 5,904 48,773 15,093 1,192 934 3,244 5,341 46,142 14,668 1,165 892 3,044 Total non-current assets 73,973 75,140 71,252 Current assets Inventories, net Accounts receivable, net Other current assets Current financial assets Cash and cash equivalents 11,749 15,226 9,253 217 14,299 10,097 14,940 9,047 150 13,319 9,621 15,287 9,642 187 12,321 Total current assets 50,744 47,553 47,058 Total assets 124,717 122,693 118,310 LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares Paid-in surplus and retained earnings Currency translation adjustment Treasury shares 5,931 55,031 (4,656) (5,007) 5,931 55,198 (3,523) (5,009) 5,930 52,947 (4,876) (5,009) Total shareholders’ equity – Group Share 51,299 52,597 48,992 Minority interests 963 1,004 958 Total shareholders’ equity 52,262 53,601 49,950 Non-current liabilities Deferred income taxes Employee benefits Provisions and other non-current liabilities 8,561 2,006 8,087 8,478 2,035 8,391 7,973 2,011 7,858 Total non-current liabilities 18,654 18,904 17,842 Non-current financial debt 19,640 19,078 16,191 Current liabilities Accounts payable Other creditors and accrued liabilities Current borrowings Other current financial liabilities 14,036 12,115 7,916 94 13,894 12,375 4,771 70 14,815 11,632 7,722 158 Total current liabilities 34,161 31,110 34,327 Total Liabilities and shareholders’ equity 124,717 122,693 118,310 18 . TOTAL – Financial report – 1st half 2009 June 30, 2008 (unaudited) 4,381 41,756 14,524 1,246 540 2,179 64,626 17,185 21,856 9,644 223 7,245 56,153 120,779 6,003 55,024 (6,483) (6,271) 48,273 855 49,128 7,748 2,533 6,567 16,848 14,777 19,297 15,760 4,795 174 40,026 120,779 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Consolidated statement of cash flow Consolidated statement of cash flow TOTAL (unaudited) (M€) 1st half 2009 1st half 2008 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) losses on sales of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net 4,547 3,373 213 - (46) 2 (2,218) 62 8,578 2,887 43 - (168) (198) (3,953) 49 Cash flow from operating activities 5,933 7,238 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans (5,796) (156) (215) (402) (4,946) - (148) (417) Total expenditures (6,569) (5,511) Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans 115 - 1,025 190 22 84 89 729 Total divestments 1,330 924 Cash flow used in investing activities (5,239) (4,587) CASH FLOW (FROM)/USED FINANCING ACTIVITIES Issuance (repayment) of shares: - Parent company shareholders - Treasury shares - Minority shareholders Cash dividends paid: - Parent company shareholders - Minority shareholders Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities 14 2 - (2,541) (145) 4,854 (1,067) - 242 (711) (9) (2,404) (128) 2,065 (832) 817 Cash flow (from) / used financing activities 1,117 (960) Net increase (decrease) in cash and cash equivalents 1,811 1,691 Effect of exchange rates Cash and cash equivalents at the beginning of the period 167 12,321 (434) 5,988 Cash and cash equivalents at the end of the period 14,299 7,245 TOTAL – Financial report – 1st half 2009 . 19 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Consolidated statement of cash flow Consolidated statement of cash flow TOTAL (unaudited) (M€) 2nd quarter 2009 1st quarter 2009 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) losses on sales of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net 2,223 1,712 281 - (31) 81 (2,363) 36 2,324 1,661 (68) - (15) (79) 145 26 Cash flow from operating activities 1,939 3,994 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans (3,312) (109) (131) (82) (2,484) (47) (84) (320) Total expenditures (3,634) (2,935) Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans 55 - 726 77 60 - 299 113 Total divestments 858 472 Cash flow used in investing activities (2,776) (2,463) CASH FLOW (FROM)/USED FINANCING ACTIVITIES Issuance (repayment) of shares: - Parent company shareholders - Treasury shares - Minority shareholders Cash dividends paid: - Parent company shareholders - Minority shareholders Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities Cash flow (from) / used financing activities 5 2 - (2,541) (141) 2,010 2,350 - 1,685 9 - - (4) 2,844 (3,417) - (568) Net increase (decrease) in cash and cash equivalents 848 963 Effect of exchange rates Cash and cash equivalents at the beginning of the period 132 13,319 35 12,321 Cash and cash equivalents at the end of the period 14,299 13,319 20 . TOTAL – Financial report – 1st half 2009 2nd quarter 2008 4,875 1,482 32 - (15) 104 (4,563) 7 1,922 (2,619) - (41) (208) (2,868) 16 84 20 606 726 (2,142) 233 (284) - (2,404) (127) 1,562 55 (18) (983) (1,203) 107 8,341 7,245 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Consolidated statement of changes in shareholders’ equity Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (M€) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity Group Share Minority interests Total shareholders’ equity As of January 1, 2008 2,395,532,097 5,989 48,797 (4,396) (151,421,232) (5,532) 44,858 842 45,700 Net income for the first half Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Others operations with minority interests Share cancellation Transactions with shareholders - - - 5,678,338 - - - - - 5,678,338 - - - 14 - - - - - 14 8,334 (43) 8,291 (2,404) 228 - 28 84 - - (2,064) (2,087) (2,087) - - - - - - - - - - - - (16,000,000) 2,679,805 - - - (13,320,195) - - - - (818) 79 - - - (739) 8,334 (2,130) 6,204 (2,404) 242 (818) 107 84 - - (2,789) 244 (103) 141 (128) - - - - - - (128) 8,578 (2,233) 6,345 (2,532) 242 (818) 107 84 - - (2,917) As of June 30, 2008 2,401,210,435 6,003 55,024 (6,483) (164,741,427) (6,271) 48,273 855 49,128 Net income for the second half Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Others operations with minority interests Share cancellation Transactions with shareholders - - - 597,639 - - - - (30,000,000) (29,402,361) - - - 2 - - - - (75) (73) 2,256 (215) 2,041 (2,541) 18 - (99) 70 - (1,566) (4,118) 1,607 1,607 - - - - - - - - - - - - (11,600,000) 3,259,332 - - 30,000,000 21,659,332 - - - - (521) 142 - - 1,641 1,262 2,256 1,392 3,648 (2,541) 20 (521) 43 70 - - (2,929) 119 69 188 (85) - - - - - - (85) 2,375 1,461 3,836 (2,626) 20 (521) 43 70 - - (3,014) As of December 31, 2008 2,371,808,074 5,930 52,947 (4,876) (143,082,095) (5,009) 48,992 958 49,950 Net income for the first half Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Others operations with minority interests Share cancellation Transactions with shareholders - - - 565,886 - - - - - 565,886 - - - 1 - - - - - 1 4,459 96 4,555 (2,541) 13 - - 80 (23) - (2,471) 220 220 - - - - - - - - - - - - - 51,995 - - - 51,995 - - - - - 2 - - - 2 4,459 316 4,775 (2,541) 14 - 2 80 (23) - (2,468) 88 86 174 (145) - - - - (24) - (169) 4,547 402 4,949 (2,686) 14 - 2 80 (47) - (2,637) As of June 30, 2009 2,372,373,960 5,931 55,031 (4,656) (143,030,100) (5,007) 51,299 963 52,262 (1) Treasury shares related to the stock option purchase plans and restricted stock grants TOTAL – Financial report – 1st half 2009 . 21 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Consolidated statement of comprehensive income Consolidated statement of comprehensive income(a) TOTAL (unaudited) (M€) Net income OTHER COMPREHENSIVE INCOME Currency translation adjustment Available for sale financial assets Cash flow hedge Share of other comprehensive income of associates, net amount Other Tax effect Total other comprehensive income (net amount) Comprehensive income Group share - Minority interests (a) In accordance with revised IAS 1, applicable from January 1, 2009. 22 . TOTAL – Financial report – 1st half 2009 1st half 2009 4,547 246 39 58 93 (11) (23) 402 4,949 4,775 174 1st half 2008 8,578 (1,927) (43) - (270) (1) 8 (2,233) 6,345 6,204 141 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 1) Accounting policies reflect the substance of transactions; The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2009 have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2009 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2008 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). The new accounting standards and amendments mandatory for the annual period beginning January 1, 2009 are described in Note 1W to the consolidated financial statements as of December 31, 2008 and have no material effect on the Group’s consolidated financial statements for the first six months of 2009. Among these new standards or interpretations, it should be noted that the revised version of IAS 1 “Presentation of financial statements”, effective for annual periods beginning on or after January 1, 2009, resulted in the following: are neutral; are prepared on a prudent basis; are complete in all material aspects. Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at amortized cost. Financial assets and liabilities are usually measured at fair value. 2) Changes in the Group structure, main acquisitions and divestments presentation of the consolidated statement of comprehensive income; During the first six months of 2009, Total progressively sold 1.71% of Sanofi-Aventis’ share capital, thus reducing its interest to 9.67%. Sanofi-Aventis is accounted for by the equity method in Total’s consolidated financial statements. information on other comprehensive income presented in note 4 to the interim consolidated financial statements. 3) Adjustment items The preparation of financial statements in accordance with IFRS requires management to make estimates and apply assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. Management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These judgments and estimates are described in the notes to the consolidated financial statements as of December 31, 2008. Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (i) Special items Lastly, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: give a true and fair view of the Group’s financial position, financial performance and cash flows; Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in some instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. TOTAL – Financial report – 1st half 2009 . 23 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) (ii) Inventory valuation effect (iii) TOTAL’s equity share of adjustments and, from 2009, selected items related to Sanofi-Aventis The adjusted results of the Downstream and Chemicals segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and ensure the comparability of the segments’ performance with those of its competitors, mainly North American. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, and excluding TOTAL’s equity share of adjustments and, from 2009, selected items related to Sanofi- Aventis. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is determined by the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and the replacement cost. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME (M€) Upstream Downstream Chemicals Corporate 2nd quarter 2009 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 933 - (62) (81) 132 - (43) (2) - - - Total 790 87 2nd quarter 2008 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 1,457 - - - 230 - - - - - - Total 1,457 230 1st half 2009 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 1,278 - (62) (181) 264 - (43) (5) - - - Total 1,035 216 1st half 2008 Inventory valuation effect Restructuring charges Asset impairment charges Other items - - - 1,830 - - - 232 - - - - - - Total 1,830 232 24 . TOTAL – Financial report – 1st half 2009 Total 1,065 - (105) (83) 877 1,687 - - - 1,687 1,542 - (105) (186) 1,251 2,062 - - - 2,062 ADJUSTMENTS TO NET INCOME (M€) 2nd quarter 2009 Inventory valuation effect TOTAL’s equity share of adjustments and selected items related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 2nd quarter 2008 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 1st half 2009 Inventory valuation effect TOTAL’s equity share of adjustments and selected items related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 1st half 2008 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on sales of assets Other items Total 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Upstream Downstream Chemicals Corporate Total 697 91 788 - - - (18) (16) (41) - (60) (83) (30) - (1) (119) - - 28 - (119) (99) (71) 28 (79) (18) 580 (23) (91) 448 1,001 153 1,154 - - - - (35) - - - (9) - - (5) (78) - - 2 (20) (78) (44) - 2 (25) 966 139 (96) 1,009 944 171 1,115 - - - (39) (39) (16) (41) - (131) 756 (89) (30) - (3) 49 (182) - - 41 - (141) (182) (105) (71) 41 (173) 625 1,274 154 1,428 - - 130 - 130 (35) - - - 1,239 (9) - - (5) 140 (149) - - 17 (20) (152) (149) (44) - 147 (25) 1,357 TOTAL – Financial report – 1st half 2009 . 25 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 4) Shareholders’ equity TOTAL shares held by Group subsidiaries Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2009, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.23% of its share capital, detailed as follows: As of June 30, 2009, TOTAL S.A. held 42,698,832 of its own shares, representing 1.80% of its share capital, detailed as follows: 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; 17,898,832 shares allocated to covering TOTAL share purchase option plans and restricted shares plans for Group employees; 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval). 24,800,000 shares purchased during the first ten months of 2008 for cancellation, pursuant to the authorizations granted by the shareholders’ meetings held on May 11, 2007 and May 16, 2008. These 100,331,268 shares are deducted from the consolidated shareholders’ equity. These 42,698,832 shares are deducted from the consolidated shareholders’ equity. Dividend The shareholders’ meeting of May 15, 2009 approved the payment of a cash dividend of € 2.28 per share for the fiscal year 2008. Taking into account an interim dividend of € 1.14 per share paid on November 19, 2008, the remaining balance of € 1.14 per share was paid on May 22, 2009. The Board of Directors approved the 2009 interim dividend of € 1.14 per share at their July 30, 2009 meeting. Other Comprehensive Income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (M€) 1st half 2009 1st half 2008 Currency translation adjustment - unrealized gain/(loss) of the period - less gain/(loss) included in net income 247 1 246 (1,927) Available for sale financial assets - unrealized gain/(loss) of the period - less gain/(loss) included in net income 39 39 (43) Cash flow hedge - unrealized gain/(loss) of the period - less gain/(loss) included in net income 215 157 58 Share of other comprehensive income of equity affiliates, net amount 93 Other - unrealized gain/(loss) of the period - less gain/(loss) included in net income (11) (11) 15 Tax effect (23) Total other comprehensive income (net amount) 402 26 . TOTAL – Financial report – 1st half 2009 (1,927) (43) (270) (1) 8 (2,233) 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Tax effects relating to each component of other comprehensive income are as follows: 1st half 2009 1st half 2008 (M€) Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Currency translation adjustment 246 246 (1,927) (1,927) Available for sale financial assets 39 (4) 35 (43) 8 (35) Cash flow hedge 58 (19) 39 Share of other comprehensive income of associates, net amount 93 93 (270) (270) Other (11) (11) (1) (1) Total other comprehensive income 425 (23) 402 (2,241) 8 (2,233) 5) Non-current financial debt Bond 6.200% 1997-2009 (900 million FRF) The Group issued bonds through its subsidiary Total Capital during the first six months of 2009: Bond 3.500% 2003-2009 (500 million USD) Bond 6.250% 2003-2009 (100 million AUD) Bond 4.875% 2009-2019 (750 million EUR) Bond 3.500% 2004-2009 (50 million USD) Bond 2.500% 2009-2013 (350 million CHF) Bond 3.500% 2005-2009 (50 million USD) Bond 3.500% 2009-2014 (1,000 million EUR) Bond 3.240% 2009-2014 (396 million HKD) Bond 5.125% 2009-2024 (950 million EUR) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the financial statements are not necessarily representative of a longer-term position. Bond 3.500% 2009-2014 (150 million EUR) Bond 2.625% 2009-2014 (200 million CHF) 6) Related parties Bond 5.500% 2009-2013 (100 million AUD) Bond 4.000% 2009-2013 (100 million USD) The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning the main transactions with related parties during the first six months of 2009. Bond 2.375% 2009-2016 (150 million CHF) Bond 3.625% 2009-2015 (550 million EUR) 7) Other risks and contingent liabilities Bond 5.500% 2009-2013 (100 million AUD) Bond 4.250% 2009-2017 (200 million GBP) TOTAL is not currently aware of any event, litigation, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Bond 4.180% 2009-2019 (750 million HKD) Bond 4.250% 2009-2017 (100 million GBP) Antitrust investigations Bond 4.875% 2009-2019 (450 million EUR) The Group repaid bonds during the first six months of 2009: Bond 4.500% 1999-2009 (1,000 million EUR) 1. Following investigations into certain commercial practices in the chemicals industry in the United States, some subsidiaries of the Arkema(1) group are involved in civil liability lawsuits in the United States and Canada for violations of antitrust laws. TOTAL S.A. has been named in certain of these suits as the parent company. (1): Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. became an independent company after being spun-off from Total S.A. in May 2006. TOTAL – Financial report – 1st half 2009 . 27 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) In Europe, the European Commission commenced investigations in 2000, 2003 and 2004 into alleged anti-competitive practices involving certain products sold by Arkema. In January 2005, under one of these investigations, the European Commission fined Arkema 13.5 M€ and jointly fined Arkema and Elf Aquitaine 45 M€. Arkema and Elf Aquitaine have appealed these decisions to the Court of First Instance of the European Union. The Commission notified Arkema, TOTAL S.A. and Elf Aquitaine of complaints concerning two other product lines in January and August 2005, respectively. Arkema has cooperated with the authorities in these procedures and investigations. In May 2006, the European Commission fined Arkema 78.7 M€ and 219.1 M€, as a result of, respectively, each of these two proceedings. Elf Aquitaine was held jointly and severally liable for, respectively, 65.1 M€ and 181.35 M€ of these fines while TOTAL S.A. was held jointly and severally liable, respectively, for 42 M€ and 140.4 M€. TOTAL S.A., Arkema and Elf Aquitaine have appealed these decisions to the Court of First Instance of the European Union. proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. The guarantee covering the risks related to anticompetition violations in Europe applies to amounts above a 176.5 M€ threshold. If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, these guarantees will become void. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group company for 10% of any amount that TOTAL S.A. or any Group company are required to pay under any of the proceedings covered by these guarantees. Arkema and Elf Aquitaine received a statement of objections from the European Commission in August 2007 concerning alleged anti- competitive practices related to another line of chemical products. As a result, in June 2008, Arkema and Elf Aquitaine have been jointly and severally fined in an amount of 22.7 M€ and individually in an amount of 20.43 M€ for Arkema and 15.89 M€ for Elf Aquitaine. The companies concerned appealed this decision to the relevant European court. Arkema and Elf Aquitaine received a statement of objections from the European Commission in March 2009 concerning alleged anti- competitive practices related to another line of chemical products. As of today, the Commission has not rendered a decision. No facts have been alleged that would implicate TOTAL S.A. or Elf Aquitaine in the practices questioned in these proceedings, and the fines received are based solely on their status as parent companies. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema, as well as TOTAL S.A. and Elf Aquitaine. 3. The Group has recorded provisions amounting to 85 M€ in its consolidated financial statements as of June 30, 2009 to cover the risks mentioned above. 4. Moreover, as a result of investigations started by the European Commission in October 2002 concerning certain Refining & Marketing subsidiaries of the Group, Total Nederland N.V. and TOTAL S.A. received a statement of objections in October 2004. These proceedings resulted, in September 2006, in Total Nederland N.V. being fined 20.25 M€ and in TOTAL S.A. as its parent company being held jointly responsible for 13.5 M€ of this amount, although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Nederland N.V. have appealed this decision to the Court of First Instance of the European Union. In addition, in May 2007, Total France and TOTAL S.A. received a statement of objections regarding alleged antitrust practices concerning another product line of the Refining & Marketing division. These proceedings resulted, in October 2008, in Total France being fined 128.2 M€ and in TOTAL S.A., as its parent company, being held jointly responsible although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Raffinage Marketing (the new corporate name of Total France) have appealed this decision to the Court of First Instance of the European Union. 2. As part of the agreement relating to the spin-off of Arkema, TOTAL S.A. or certain other Group companies agreed to grant Arkema guarantees for certain risks related to antitrust proceedings arising from events prior to the spin-off. These guarantees cover, for a period of ten years that began in 2006, 90% of amounts paid by Arkema related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil Furthermore, in July 2009, the French antitrust Authority sent to TotalGaz and Total Raffinage Marketing a statement of objections regarding alleged antitrust practices concerning another product line of the Refining & Marketing division. 5. Given the discretionary powers granted to antitrust Authorities for determining fines, it is not currently possible to determine with certainty the ultimate outcome of these investigations and proceedings. TOTAL S.A. and Elf Aquitaine are contesting their liability and the method of determining these fines. Although it is not possible to predict the outcome of these proceedings, the Group believes that they will not have a material adverse effect on its financial condition or results. 28 . TOTAL – Financial report – 1st half 2009 Buncefield On December 11, 2005, several explosions, followed by a major fire, occurred at an oil storage depot at Buncefield, north of London. This depot is operated by Hertfordshire Oil Storage Limited (HOSL), a company in which the British subsidiary of TOTAL holds 60% and another oil group holds 40%. The explosion caused minor injuries to a number of people and caused property damage to the depot and the buildings and homes located nearby. The official Independent Investigation Board has indicated that the explosion was caused by the overflow of a tank at the depot. The Board’s final report was released on December 11, 2008. The civil procedure for claims, which have not yet been settled, took place between October and December 2008. The Court’s decision of March 20, 2009, declared the British subsidiary of TOTAL responsible for the accident and solely liable for indemnifying the victims. TOTAL’s British subsidiary has appealed this decision. The hearing of the appeal is expected to take place at the end of 2009 or during the first half 2010. The Group carries insurance for damage to its interests in these facilities, business interruption and civil liability claims from third parties, and believes that, based on the information currently available, on a reasonable estimate of its liability and on provisions recognized, this accident should not have a significant impact on the Group’s financial situation or consolidated results. On December 1, 2008, the Health and Safety Executive (HSE) and the Environment Agency (EA) issued a Notice of prosecution against five companies, including the British subsidiary of TOTAL. Court hearings took place in the second quarter 2009. The criminal trial is scheduled to start in the second quarter 2010. Erika Following the sinking in December 1999 of the Erika, a tanker that was transporting products belonging to one of the Group companies, the Tribunal de grande instance of Paris convicted TOTAL S.A. of marine pollution pursuant to a judgment issued on January 16, 2008, finding 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) that TOTAL S.A. was negligent in its vetting procedure for vessel selection. TOTAL S.A. was fined € 375,000. The court also ordered compensation to be paid to the victims of pollution from the Erika up to an aggregate amount of 192 M€, declaring TOTAL S.A. jointly and severally liable for such payments together with the Erika’s inspection and classification firm, the Erika’s owner and the Erika’s manager. TOTAL believes that the finding of negligence and the related conviction for marine pollution are without substance as a matter of fact and as a matter of law. TOTAL also considers that this verdict is contrary to the intended aim of enhancing maritime transport safety. TOTAL has appealed the verdict of January 16, 2008. In the meantime, it has nevertheless proposed to pay third parties who so request definitive compensation as determined by the court. As of today, thirty-six third parties have received compensation payments, representing an aggregate amount of 170.1 M€. The hearing of the appeal before the Court of Appeals of Paris is expected to begin in October 2009. At the current stage of the proceedings, TOTAL S.A. believes that, based on a reasonable estimate of its liability, the case will not have a material impact on the Group’s financial situation or consolidated results. Vlissingen refinery Total, the majority shareholder (55%) of the Vlissingen refinery, exercised its pre-emptive rights over the shares (45%) of this asset that were offered for sale by Dow Chemical. Concurrently, Lukoil submitted to TOTAL a binding purchase offer for these shares (45%). This operation is subject to clearance by the competent authorities. TOTAL – Financial report – 1st half 2009 . 29 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 8) Information by business segment 1st half 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales 7,874 46,686 6,902 9 Intersegment sales 7,349 1,646 276 79 (9,350) Excise taxes (9,429) Revenues from sales 15,223 38,903 7,178 88 (9,350) Operating expenses (7,367) (36,253) (6,635) (353) 9,350 Depreciation, depletion and amortization of tangible assets and mineral interests (2,121) (683) (335) (17) Operating income 5,735 1,967 208 (282) Equity in income (loss) of affiliates and other items 572 127 (121) 336 Tax on net operating income (3,413) (581) 1 143 Net operating income 2,894 1,513 88 197 Net cost of net debt Minority interests Net income 1st half 2009 (adjustments)(a) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses 1,097 259 Depreciation, depletion and amortization of tangible assets and mineral interests (62) (43) Operating income(b) 1,035 216 Equity in income (loss) of affiliates and other items(c) (39) 63 (138) (141) Tax on net operating income (341) (29) Net operating income(b) (39) 757 49 (141) Net cost of net debt Minority interests Net income (a) Adjustments include special items, inventory valuation effect and equity share of adjustments and selected items related to Sanofi-Aventis (b) Of which inventory valuation effect On operating income 1,278 264 On net operating income 945 171 (c) Of which equity share of adjustments and selected items related to Sanofi-Aventis (182) 30 . TOTAL – Financial report – 1st half 2009 Total 61,471 (9,429) 52,042 (41,258) (3,156) 7,628 914 (3,850) 4,692 (145) (88) 4,459 Total 1,356 (105) 1,251 (255) (370) 626 (1) 625 1st half 2009 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Ajusted net income 1st half 2009 (M€) Total expenditures Total divestments Cash flow from operating activities 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Upstream Downstream Chemicals Corporate Intercompany Total 7,874 46,686 6,902 9 61,471 7,349 1,646 276 79 (9,350) (9,429) (9,429) 15,223 38,903 7,178 88 (9,350) 52,042 (7,367) (37,350) (6,894) (353) 9,350 (42,614) (2,121) (621) (292) (17) (3,051) 5,735 932 (8) (282) 6,377 611 64 17 477 1,169 (3,413) (240) 30 143 (3,480) 2,933 756 39 338 4,066 (145) (87) 3,834 Upstream Downstream Chemicals Corporate Intercompany Total 4,914 1,320 294 41 6,569 234 62 14 1,020 1,330 4,521 1,620 458 (666) 5,933 TOTAL – Financial report – 1st half 2009 . 31 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 1st half 2008 (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales 11,935 69,770 10,707 1 Intersegment sales 13,980 3,050 706 70 (17,806) Excise taxes (9,826) Revenues from sales 25,915 62,994 11,413 71 (17,806) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (10,697) (1,831) (59,346) (576) (10,648) (257) (356) (14) 17,806 Operating income 13,387 3,072 508 (299) Equity in income (loss) of affiliates and other items 904 (13) 3 383 Tax on net operating income (8,331) (898) (143) 150 Net operating income 5,960 2,161 368 234 Net cost of net debt Minority interests Net income 1st half 2008 (adjustments)(a) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses 1,830 232 Depreciation, depletion and amortization of tangible assets and mineral interests Operating income(b) 1,830 232 Equity in income (loss) of affiliates and other items(c) 130 15 (22) (152) Tax on net operating income (582) (70) Net operating income(b) 130 1,263 140 (152) Net cost of net debt Minority interests Net income (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis (b) Of which inventory valuation effect On operating income 1,830 232 On net operating income 1,298 154 (c) Of which equity share of adjustments related to Sanofi-Aventis (149) 32 . TOTAL – Financial report – 1st half 2009 Total 92,413 (9,826) 82,587 (63,241) (2,678) 16,668 1,277 (9,222) 8,723 (145) (244) 8,334 Total 2,062 2,062 (29) (652) 1,381 (24) 1,357 1st half 2008 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 1st half 2008 (M€) Total expenditures Total divestments Cash flow from operating activities 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Upstream Downstream Chemicals Corporate Intercompany Total 11,935 69,770 10,707 1 92,413 13,980 3,050 706 70 (17,806) (9,826) (9,826) 25,915 62,994 11,413 71 (17,806) 82,587 (10,697) (61,176) (10,880) (356) 17,806 (65,303) (1,831) (576) (257) (14) (2,678) 13,387 1,242 276 (299) 14,606 774 (8,331) (28) (316) 25 (73) 535 150 - 1,306 (8,570) 5,830 898 228 386 7,342 (145) (220) 6,977 Upstream Downstream Chemicals Corporate Intercompany Total 4,254 672 7,894 808 152 (223) 385 19 (33) 64 81 (400) 5,511 924 7,238 TOTAL – Financial report – 1st half 2009 . 33 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 2nd quarter 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales 3,427 24,318 3,684 1 Intersegment sales 4,107 1,005 152 42 (5,306) Excise taxes (4,856) Revenues from sales 7,534 20,467 3,836 43 (5,306) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (3,635) (1,056) (19,154) (382) (3,498) (191) (198) (7) 5,306 Operating income 2,843 931 147 (162) Equity in income (loss) of affiliates and other items 329 85 (117) 144 Tax on net operating income (1,739) (278) 18 81 Net operating income 1,433 738 48 63 Net cost of net debt Minority interests Net income 2nd quarter 2009 (adjustments)(a) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests 852 (62) 130 (43) Operating income(b) 790 87 Equity in income (loss) of affiliates and other items(c) (18) 48 (119) (91) Tax on net operating income (256) 9 Net operating income(b) (18) 582 (23) (91) Net cost of net debt Minority interests Net income (a) Adjustments include special items, inventory valuation effect and equity share of adjustments and selected items related to Sanofi-Aventis (b) Of which inventory valuation effect On operating income 933 132 On net operating income 699 91 (c) Of which equity share of adjustments and selected items related to Sanofi-Aventis (119) 34 . TOTAL – Financial report – 1st half 2009 Total 31,430 (4,856) 26,574 (21,179) (1,636) 3,759 441 (1,918) 2,282 (59) (54) 2,169 Total 982 (105) 877 (180) (247) 450 (2) 448 2nd quarter 2009 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Adjusted net income 2nd quarter 2009 (M€) Total expenditures Total divestments Cash flow from operating activities 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Upstream Downstream Chemicals Corporate Intercompany Total 3,427 24,318 3,684 1 31,430 4,107 1,005 152 42 (5,306) (4,856) (4,856) 7,534 20,467 3,836 43 (5,306) 26,574 (3,635) (20,006) (3,628) (198) 5,306 (22,161) (1,056) (320) (148) (7) (1,531) 2,843 141 60 (162) 2,882 347 37 2 235 621 (1,739) (22) 9 81 (1,671) 1,451 156 71 154 1,832 (59) (52) 1,721 Upstream Downstream Chemicals Corporate Intercompany Total 2,664 825 115 30 3,634 105 26 8 719 858 1,943 (28) 280 (256) 1,939 TOTAL – Financial report – 1st half 2009 . 35 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 2nd quarter 2008 (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes 5,739 7,862 - 36,990 1,497 (4,900) 5,478 449 - (7) 37 - (9,845) - Revenues from sales 13,601 33,587 5,927 30 (9,845) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (5,679) (958) (31,095) (291) (5,491) (128) (180) (7) 9,845 Operating income 6,964 2,201 308 (157) Equity in income (loss) of affiliates and other items Tax on net operating income 439 (4,304) 20 (651) (11) (88) 133 78 - Net operating income 3,099 1,570 209 54 Net cost of net debt Minority interests Net income 2nd quarter 2008 (adjustments)(a) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests 1,457 230 Operating income(b) 1,457 230 Equity in income (loss) of affiliates and other items(c) Tax on net operating income - (10) (464) (22) (69) (96) - Net operating income(b) 983 139 (96) Net cost of net debt Minority interests Net income (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis (b) Of which inventory valuation effect On operating income 1,457 230 On net operating income 1,018 153 (c) Of which equity share of adjustments related to Sanofi-Aventis (78) 36 . TOTAL – Financial report – 1st half 2009 Total 48,200 - (4,900) 43,300 (32,600) (1,384) 9,316 581 (4,965) 4,932 (57) (143) 4,732 Total 1,687 1,687 (128) (533) 1,026 (17) 1,009 2nd quarter 2008 (adjusted) (M€) Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests Adjusted operating income Equity in income (loss) of affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Minority interests Ajusted net income 2nd quarter 2008 (M€) Total expenditures Total divestments Cash flow from operating activities 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) Upstream Downstream Chemicals Corporate Intercompany Total 5,739 7,862 - 36,990 1,497 (4,900) 5,478 449 - (7) 37 - (9,845) - 48,200 - (4,900) 13,601 33,587 5,927 30 (9,845) 43,300 (5,679) (32,552) (5,721) (180) 9,845 (34,287) (958) (291) (128) (7) (1,384) 6,964 744 78 (157) 7,629 439 (4,304) 30 (187) 11 (19) 229 78 - 709 (4,432) 3,099 587 70 150 3,906 (57) (126) 3,723 Upstream Downstream Chemicals Corporate Intercompany Total 2,076 565 3,643 514 128 (1,391) 221 12 169 57 21 (499) 2,868 726 1,922 TOTAL – Financial report – 1st half 2009 . 37 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 9) Reconciliation between information by business segment and the consolidated statement of income 1st half 2009 (M€) Adjusted Adjustments Sales Excise taxes Revenues from sales 61,471 (9,429) 52,042 - - Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (33,070) (9,213) (331) (3,051) 80 (113) 1,542 (186) - (105) 41 (190) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (311) 95 (216) - - Other financial income Other financial expense 399 (163) - Equity in income (loss) of affiliates 966 (106) Income taxes (3,409) (370) Consolidated net income 3,921 626 Group share Minority interests 3,834 87 625 1 1st half 2008 (M€) Adjusted Adjustments Sales Excise taxes Revenues from sales 92,413 (9,826) 82,587 - - Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (55,639) (9,271) (393) (2,678) 21 (74) 2,062 - - - 147 (95) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (461) 242 (219) - - Other financial income Other financial expense 345 (151) - Equity in income (loss) of affiliates 1,165 (81) Income taxes (8,496) (652) Consolidated net income 7,197 1,381 Group share Minority interests 6,977 220 1,357 24 38 . TOTAL – Financial report – 1st half 2009 Consolidated statement of income 61,471 (9,429) 52,042 (31,528) (9,399) (331) (3,156) 121 (303) (311) 95 (216) 399 (163) 860 (3,779) 4,547 4,459 88 Consolidated statement of income 92,413 (9,826) 82,587 (53,577) (9,271) (393) (2,678) 168 (169) (461) 242 (219) 345 (151) 1,084 (9,148) 8,578 8,334 244 1 2 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – 1st half 2009 Notes to the consolidated financial statements for the first six months of 2009 (unaudited) 2nd quarter 2009 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 31,430 (4,856) 26,574 - - 31,430 (4,856) 26,574 Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (17,365) (4,641) (155) (1,531) 78 (56) 1,065 (83) - (105) 28 (160) (16,300) (4,724) (155) (1,636) 106 (216) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (140) 40 (100) - - (140) 40 (100) Other financial income Other financial expense 240 (82) - 240 (82) Equity in income (loss) of affiliates 441 (48) 393 Income taxes (1,630) (247) (1,877) Consolidated net income 1,773 450 2,223 Group share Minority interests 1,721 52 448 2 2,169 54 2nd quarter 2008 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 48,200 (4,900) 43,300 - - 48,200 (4,900) 43,300 Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (29,645) (4,439) (203) (1,384) 13 (26) 1,687 - - - 2 (95) (27,958) (4,439) (203) (1,384) 15 (121) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (204) 113 (91) - - (204) 113 (91) Other financial income Other financial expense 229 (80) - 229 (80) Equity in income (loss) of affiliates 573 (35) 538 Income taxes (4,398) (533) (4,931) Consolidated net income 3,849 1,026 4,875 Group share Minority interests 3,723 126 1,009 17 4,732 143 TOTAL – Financial report – 1st half 2009 . 39 RR Donnelley - 01 53 45 19 00 GB_Couv_DocdeRef.indd 1 TOTAL S.A. Registered Offi ce: 2 place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,867,520,185.00 euros 542 051 180 RCS Nanterre www.total.com Standard: +33 (0)1 47 44 45 46 Financial Communication: +33 (0)1 47 44 24 02 North American Investor Relations: +1 (713) 483 5070 s e n a D l i . W z e a z n o G l . T : r e v o c t n o r f e h t o s o o h P t 1/04/09 15:42:46 | Semestriel, 2009, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,010 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| Financial report 2010 1st half 1 FINANCIAL REPORT - 1ST HALF 2010 Key figures Group results Analysis of business segment results TOTAL S.A.—parent company accounts Summary and outlook Other information Principal risks and uncertainties for the remaining six months of 2010 Disclaimer p. 3 p. 3 p. 4 p. 6 p. 10 p. 10 p. 11 p. 16 p. 16 2 CONSOLIDATED FINANCIAL STATEMENTS Statutory auditors’ report Consolidated statement of income Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of cash flow Consolidated statement of changes in shareholders’ equity Notes to the consolidated financial statements for the first six months of 2010 p. 17 p. 17 p. 18 p. 19 p. 22 p. 23 p. 25 p. 26 FINANCIAL REPORT – 1ST HALF 2010 This is a free translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed consolidated financial statements for the first half 2010 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 3 to 16 herein includes a fair review of the important events that have occurred during the first six months of the financial year, their impact on condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 17 of this half-year financial report which sets out the change in accounting policy regarding standard IAS 31 “Interests in Joint Ventures”.” Christophe de Margerie Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 30, 2010 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. TOTAL / i Abbreviations b cf /d /y € $ and/or dollar t boe kboe/d kb/d Btu M B ERMI IFRS LNG ROE ROACE barrel cubic feet per day per year euro U.S. dollar metric ton barrel of oil equivalent thousand boe/d thousand b/d British thermal unit million billion European Refining Margin Indicator. Refining margin indicator after variable costs for a theoretical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. International Financial Reporting Standards liquefied natural gas Return on Equity Return on Average Capital Employed TOTAL - Financial report – 1st half 2010 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,490 cf of gas* 1 b/d = approx. 50 t/y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3/y = approx. 0.1 Bcf/d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt/y of LNG = approx. 131 Mcf/d This ratio is based on the actual average equivalent energy content of TOTAL’s natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of, France. The terms “Company” and “issuer” as used in this Financial report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2010. FINANCIAL REPORT - 1ST HALF 2010 (cid:2) Key figures 1 in millions of euros except earnings per share and number of shares 1H10 1H09 Sales Adjusted operating income from business segments Adjusted net operating income from business segments 78,932 9,967 5,243 61,471 6,659 3,728 (cid:129) Upstream 4,174 2,933 (cid:129) Downstream 638 756 (cid:129) Chemicals 431 39 Adjusted net income Adjusted fully-diluted earnings per share (euros) Fully-diluted weighted-average shares (millions) 5,257 2.34 2,242.6 3,834 1.72 2,235.5 Net income (Group share) 5,714 4,459 Investments 2 Investments including net investments in equity affiliates and non-consolidated companies 2 Divestments Cash flow from operations Adjusted cash flow from operations 7,155 7,016 1,898 10,202 8,989 6,569 6,415 1,330 5,933 6,609 in millions of dollars 3 except earnings per share and number of shares 1H10 1H09 Sales Adjusted operating income from business segments Adjusted net operating income from business segments 104,727 13,224 6,956 81,929 8,875 4,969 (cid:129) Upstream 5,538 3,909 (cid:129) Downstream 846 1,008 (cid:129) Chemicals 572 52 Adjusted net income Adjusted fully-diluted earnings per share (dollars) Fully-diluted weighted-average shares (millions) 6,975 3.11 2,242.6 5,110 2.29 2,235.5 Net income (Group share) 7,581 5,943 Investments 2 Investments including net investments in equity affiliates and non-consolidated companies 2 Divestments Cash flow from operations Adjusted cash flow from operations 9,493 9,309 2,518 13,536 11,927 8,755 8,550 1,773 7,908 8,808 1 adjusted income (adjusted operating income, adjusted net operating income and adjusted net income) is defined as income using replacement cost, adjusted for special items and excluding Total’s equity share of adjustments related to Sanofi-Aventis; adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 13. 2 including acquisitions; detail shown page 14. 3 dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. 1 1H10 vs 1H09 +28% +50% +41% +42% 16% x11.1 +37% +36% — +28% +9% +9% +43% +72% +36% 1H10 vs 1H09 +28% +49% +40% +42% 16% x11.0 +36% +36% — +28% +8% +9% +42% +71% +35% TOTAL / 3 1 FINANCIAL REPORT Group results (cid:2) Group results (cid:3) Operating income o Special items had a positive impact on net income of 25 M€ in the first half 2010 and a negative impact on net income of 308 M€ in the first half 2009 2. Compared to the first half 2009, the average Brent price increased by 50% to 77.3 $/b. The average natural gas price, however, decreased by 8%. The ERMI European refining margin indicator was 30.4 $/t compared to 23.8 $/t in the first half 2009. The environment for the petrochemicals and specialty chemicals improved significantly. o The Group’s share of adjustment items related to Sanofi-Aventis had a negative impact on net income of 81 M€ in the first half 2010 and a negative impact on net income of 182 M€ in the first half 2009. Net income (Group share) was 5,714 M€ compared to 4,459 M€ in the first half 2009. The euro-dollar exchange rate was 1.33 $/€, stable compared to the first half 2009. In this context, the adjusted operating income from the business segments was 9,967 M€, an increase of 50% compared to the first half 2009 1. The effective tax rate for the business segments was 55% in the first half 2010 compared to 54% in the first half 2009. The Group did not buy back shares in the first half 2010. On June 30, 2010, there were 2,243.6 million fully-diluted shares compared to 2,235.5 on June 30, 2009. Adjusted fully-diluted earnings per share, based on 2,242.6 million weighted-average shares was 2.34 euros compared to 1.72 euros in the first half 2009, an increase of 36%. Adjusted net operating income from the business segments was 5,243 M€ compared to 3,728 M€ in the first half 2009, an increase of 41%. Expressed in dollars, adjusted fully-diluted earnings per share was 3.11 compared to 2.29 in the first half 2009, an increase of 36%. This increase is lower than that of the adjusted operating income from the business segments essentially due to changes in other financial income and expenses and the effective tax rate. Expressed in dollars, adjusted net operating income from the business segments increased by 40%. (cid:3) Investments – divestments 3 (cid:3) Net income Investments excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were 5.5 B€ (7.3 B$) in the first half 2010 compared to 5.8 B€ (7.8 B$) in the first half 2009. Adjusted net income increased by 37% to 5,257 M€ from 3,834 M€ in the first half 2009. Expressed in dollars, adjusted net income increased by 36%. Acquisitions were 1.5 B€ in the first half 2010, essentially comprised of the acquisition of assets in the Barnett Shale in the US and the Laggan Tormore project in the UK. This excludes the after-tax inventory effect, special items, and the Group’s equity share of adjustment items related to Sanofi-Aventis. Asset sales in the first half 2010 were 1.7 B€, essentially comprised of sales of Sanofi-Aventis shares and the sale of Mapa Spontex. o The after-tax inventory effect had a positive impact on net income of 513 M€ in the first half 2010 and a positive impact of 1,115 M€ in the first half 2009. Net investments 4 were 5.3 B€ (7.0 B$) in the first half 2010, compared to 5.2 B€ (7.0 B$) in the first half 2009. 1 special items affecting operating income from the business segments had a negative impact of 74 M€ in the 1st half 2010 and a negative impact of 291 M€ in the 1st half 2009. 2 detail shown on page 13. 3 detail shown on page 14. 4 net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans. 4 / TOTAL - Financial report - 1st half 2010 (cid:3) Cash flow Cash flow from operations was 10,202 M€, an increase of 72% compared to the first half 2009. Adjusted cash flow from operations 1 was 8,989 M€, an increase of 36%. Expressed in dollars, adjusted cash flow from operations was 11.9 B$, an increase of 35%. 1 cash flow from operations at replacement cost before changes in working capital. 2 net cash flow = cash flow from operations + divestments – gross investments. 3 detail shown on page 14. 1 Group results FINANCIAL REPORT The Group’s net cash flow 2 was 4,945 M€ compared to 694 M€ in the first half 2009. Expressed in dollars, net cash flow was 6.6 B$ in the first half 2010. The net-debt-to-equity ratio was 22.7% on June 30, 2010 compared to 21.5% on March 31, 2010 and 24.7% on June 30, 2009 3, in line with the Group’s objectives. 2 TOTAL / 5 1 FINANCIAL REPORT Analysis of business segment results (cid:2) Analysis of business segment results (cid:3) Upstream ‹ Environment – liquids and gas price realizations * 1H10 1H09 Brent ($/b) 77.3 51.7 Average liquids price ($/b) 74.5 48.2 Average gas price ($/Mbtu) 4.94 5.36 Average hydrocarbons price ($/boe) 55.2 41.5 consolidated subsidiaries, excluding fixed margin and buy-back contracts. ‹ Production Hydrocarbon production 1H10 1H09 Combined production (kboe/d) 2,393 2,252 (cid:129) Liquids (kb/d) 1,350 1,370 (cid:129) Gas (Mcf/d) 5,689 4,821 In the first half 2010, hydrocarbon production was 2,393 kboe/d, an increase of close to 6.5% compared to the first half 2009, essentially as a result of : o +6.5% for production ramp-ups on new fields, net of the normal decline, and a lower level of turnarounds, o +2% for lower OPEC reductions and an improvement in gas demand, o +1% for lower levels of disruptions in Nigeria related to security issues, o +0.5% for changes in the portfolio, o -3.5% for the price effect 1. For the first half 2010, the ramp-up on new projects, net of the normal decline and lower level of turnarounds, provided the Group’s production growth. 1 impact of changing hydrocarbon prices on entitlement volumes. 6 / TOTAL - Financial report - 1st half 2010 1H10 vs 1H09 +50% +55% 8% +33% 1H10 vs 1H09 +6% 1% +18% 1 Analysis of business segment results FINANCIAL REPORT ‹ Results in millions of euros 1H10 1H09 Adjusted operating income * 8,768 5,735 Adjusted net operating income * 4,174 2,933 (cid:129) includes income from equity affiliates 606 403 Investments 5,866 4,914 Divestments 261 234 Cash flow from operating activities 8,834 4,521 Adjusted cash flow 7,019 5,229 detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income for the Upstream segment in the first half 2010 was 4,174 M€ compared to 2,933 M€ in the first half 2009, an increase of 42%. Expressed in dollars, adjusted net operating income for the Upstream segment was 5.5 B$, an increase of 42% compared to the first half 2009, reflecting essentially the increase in both production and hydrocarbon prices. The return on average capital employed (ROACE 1) for the Upstream segment for the twelve months ended June 30, 2010 was 19% compared to 18% for the twelve months ended March 31, 2010 and the full year 2009. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 15. 2 1H10 vs 1H09 +53% +42% +50% +19% +12% +95% +34% TOTAL / 7 1 FINANCIAL REPORT Analysis of business segment results (cid:3) Downstream ‹ Refinery throughput and utilization rates * 1H10 1H09 Total refinery throughput (kb/d) 2,067 2,205 (cid:129) France 732 910 (cid:129) Rest of Europe 1,080 1,055 (cid:129) Rest of world 255 240 Utilization rates (cid:129) Based on crude only 75% 80% (cid:129) Based on crude and other feedstock 80% 85% includes share of CEPSA. In the first half 2010, refinery throughput decreased by 6% compared to the first half 2009, reflecting essentially the Dunkirk refinery and a distillation unit at the Normandy refinery being stopped. ‹ Results in millions of euros (except the ERMI refining margin indicator) 1H10 1H09 European refining margin indicator – ERMI ($/t) 30.4 23.8 Adjusted operating income * 740 932 Adjusted net operating income * 638 756 (cid:129) includes income from equity affiliates 58 61 Investments 1,018 1,320 Divestments 38 62 Cash flow from operating activities 1,496 1,620 Adjusted cash flow 1,097 1,173 detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Downstream segment was 638 M€ in the first half 2010, a decrease of 16% compared to the first half 2009. Expressed in dollars, adjusted net operating income for the Downstream segment was 846 M$, a decrease of 16% compared to the first half 2009 despite the improvement in refining margins. The decrease reflects essentially the less favorable conditions for supply optimization in the first half 2010. The ROACE 1 for the Downstream segment for the twelve months ended June 30, 2010 was 6% compared to 4% for the twelve months ended March 31, 2010 and 7% for the full year 2009. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 15. 8 / TOTAL - Financial report - 1st half 2010 1H10 vs 1H09 6% 20% +2% +6% 1H10 vs 1H09 +28% 21% 16% 5% 23% 39% 8% 6% 1 Analysis of business segment results FINANCIAL REPORT (cid:3) Chemicals in millions of euros 1H10 1H09 Sales 8,812 6,902 (cid:129) Base chemicals 5,326 3,940 (cid:129) Specialties 3,475 2,962 Adjusted operating income * 459 (8) Adjusted net operating income * 431 39 (cid:129) Base chemicals 193 (20) (cid:129) Specialties 241 74 Investments 238 294 Divestments 334 14 Cash flow from operating activities 387 458 Adjusted cash flow 646 (20) detail of adjustment items shown in the business segment information annex to financial statements. In the first half 2010, adjusted net operating income from the Chemicals segment was 431 M€ compared to 39 M€ in the first half 2009. The increase resulted from the improvement in market conditions in 2010 as well as from the cost reduction efforts implemented over the course of the past years and the effective positioning of the Group’s Specialty chemicals during the recovery from the crisis. The ROACE 1 of the Chemical segment for the twelve months ended June 30, 2010 was 9% compared to 6% for the twelve months ended March 31, 2010 and 4% for the full year 2009. 1 calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 15. 2 1H10 vs 1H09 +28% +35% +17% n/a x11.1 n/a x3.3 19% x23.9 16% n/a TOTAL / 9 1 FINANCIAL REPORT TOTAL S.A. – parent company accounts Summary and outlook (cid:2) TOTAL S.A. – parent company accounts Net income for TOTAL S.A., the parent company, was 2,941 M€ in the first half of 2010 compared to 3,240 M€ in the first half of 2009. (cid:2) Summary and outlook The ROACE for the Group for the twelve months ended June 30, 2010, was 14%, compared to 13% for the twelve months ended March 31, 2010 and the full year 2009. Return on equity for the twelve months ended June 30, 2010, was 17%. As of June 30, 2010, the Group’s equity interest in Sanofi-Aventis, following progressive sales of the shares, was 5.7%. Effective July 1, 2010, Sanofi-Aventis will no longer be accounted for as an equity affiliate but will instead be treated as a marketable security in the “Other investments” section of the balance sheet. In the second quarter 2010, Sanofi-Aventis contributed 141 M€ to adjusted net operating income and its portion of the adjustment items was a negative 40 M€. Total will pay a 2010 interim dividend of 1.14 € per share 1 on November 17, 2010 2. Investments excluding acquisitions for 2010 are expected to be in line with the 2010 budget level of 18 B$. Since the third quarter 2010 began, oil prices have traded around 75 $/b, but European refining margins have pulled back sharply from the second quarter level. The environment for the Chemicals has remained globally comparable to that of the second quarter. The Group maintains its net-debt-to-equity objective range of 25-30% for year-end 2010. 1 approved by the Board of Directors on July 29, 2010. 2 the ex-dividend date for the 2010 interim dividend is November 12, 2010; for the ADR (NYSE :TOT) the ex-dividend date is November 9, 2010. 10 / TOTAL - Financial report - 1st half 2010 (cid:2) Other information (cid:3) Operating information by segment in first half 2010 ‹ Upstream Combined liquids and gas production by region (kboe/d) Europe Africa Middle East North America South America Asia-Pacific CIS Total production Includes equity and non-consolidated affiliates Liquids production by region (kb/d) Europe Africa Middle East North America South America Asia-Pacific CIS Total production Includes equity and non-consolidated affiliates Other information 1 FINANCIAL REPORT 1H10 1H09 612 629 749 728 515 419 65 12 178 189 250 251 24 24 2,393 2,252 425 346 1H10 1H09 280 297 616 618 305 312 31 10 74 86 31 34 13 13 1,350 1,370 291 291 2 1H10 vs 1H09 3% +3% +23% x5.4 6% – – +6% +23% 1H10 vs 1H09 6% – 2% x3.1 14% 9% – 1% – TOTAL / 11 1 FINANCIAL REPORT Other information Gas production by region (Mcf/d) 1H10 Europe 1,814 Africa 675 Middle East 1,143 North America 190 South America 574 Asia-Pacific 1,234 CIS 59 Total production 5,689 Includes equity and non-consolidated affiliates 723 Liquefied natural gas 1H10 LNG sales * (Mt) 5.93 sales, Group share, excluding trading; 1 Mt/y = approx. 133 Mcf/d; 2009 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2009 SEC coefficient. ‹ Downstream Refined products sales by region (kb/d) * 1H10 Europe 1,915 Africa 294 Americas 131 Rest of world 154 Total consolidated sales 2,494 Trading 1,258 Total refined product sales 3,752 includes trading and share of CEPSA. 12 / TOTAL - Financial report - 1st half 2010 1H09 1,811 566 591 9 567 1,219 58 4,821 293 1H09 4.30 1H09 2,076 275 175 138 2,664 1,046 3,710 1H10 vs 1H09 – +19% +93% x21.1 +1% +1% +2% +18% x2.5 1H10 vs 1H09 +38% 1H10 vs 1H09 8% +7% 25% +12% 6% +20% +1% 1 2 Other information FINANCIAL REPORT (cid:3) Adjustment items ‹ Adjustments to operating income from business segments in millions of euros 1H10 1H09 Special items affecting operating income from the business segments (74) (291) (cid:129) Restructuring charges (cid:129) Impairments (cid:129) Other – (8) (66) – (105) (186) Pre-tax inventory effect : FIFO vs. replacement cost 700 1,542 Total adjustments affecting operating income from the business segments 626 1,251 ‹ Adjustments to net income (Group share) in millions of euros 1H10 1H09 Special items affecting net income (Group share) 25 (308) (cid:129) Gain on asset sales (cid:129) Restructuring charges (cid:129) Impairments (cid:129) Other 192 (10) (65) (92) 41 (105) (71) (173) Equity shares of adjustments related to Sanofi-Aventis * (81) (182) After-tax inventory effect : FIFO vs. replacement cost 513 1,115 Total adjustments to net income 457 625 based on Total’s share in Sanofi-Aventis of 5.7% on 6/30/2010, 6.2% on 3/31/2010 and 9.7% on 6/30/2009. (cid:3) Effective tax rates Effective tax rate * 1H10 1H09 Upstream Group 59.1% 58.2% 55.0% 53.9% tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates, dividends received from investments, and impairments of acquisition goodwill + tax on adjusted net operating income). TOTAL / 13 1 FINANCIAL REPORT Other information (cid:3) Investments – Divestments in millions of euros 1H10 1H09 Investments excluding acquisitions * (cid:129) Capitalized exploration (cid:129) Net investments in equity affiliates and non-consolidated companies Acquisitions Investments including acquisitions * Asset sales Net investments ** 5,494 420 281 1,522 7,016 1,723 5,257 5,842 382 248 573 6,415 1,140 5,239 expressed in millions of dollars *** 1H10 1H09 Investments excluding acquisitions * (cid:129) Capitalized exploration (cid:129) Net investments in equity affiliates and non-consolidated companies Acquisitions Investments including acquisitions * Asset sales Net investments ** 7,289 557 373 2,019 9,309 2,286 6,975 7,786 509 331 764 8,550 1,519 6,983 ** net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans. includes net investments in equity affiliates and non-consolidated companies. *** dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. (cid:3) Net-debt-to-equity ratio in millions of euros 6/30/2010 Current borrowings Net current financial assets Non-current financial debt Hedging instruments of non-current debt Cash and cash equivalents 8,521 (1,225) 22,813 (1,812) (14,832) Net debt 13,465 Shareholders’ equity Estimated dividend payable * Minority interests Equity ** 60,955 (2,547) 858 59,266 Net-debt-to-equity ratio 22.7% June 30, 2010 based on the hypothesis of an annual dividend of 2.28 €/share ** includes the 450 M€ impact in 2Q 2010 of the squeeze out of the Elf Aquitaine minority interest 14 / TOTAL - Financial report - 1st half 2010 1H10 vs 1H09 6% +10% +13% x2.7 +9% +51% – 1H10 vs 1H09 6% +9% +13% x2.6 +9% +50% – 6/30/2009 7,916 (123) 19,640 (875) (14,299) 12,259 51,299 (2,541) 963 49,721 24.7% 1 2 Other information FINANCIAL REPORT (cid:3) Return on average capital employed ‹ Twelve months ended June 30, 2010 in millions of euros Upstream Downstream Chemicals Segments Group Adjusted net operating income 7,623 835 664 9,122 9,652 Capital employed at 6/30/2009 * 35,385 13,939 6,915 56,239 62,294 Capital employed at 6/30/2010 * 43,908 16,010 7,286 67,204 72,042 ROACE 19.2% 5.6% 9.4% 14.8% 14.4% at replacement cost (excluding after-tax inventory effect). ‹ Twelve months ended March 31, 2010 in millions of euros Upstream Downstream Chemicals Segments Group Adjusted net operating income 6,871 508 461 7,840 8,399 Capital employed at 3/31/2009 * 35,027 13,095 7,175 55,297 61,688 Capital employed at 3/31/2010 * 39,925 15,634 7,412 62,971 67,099 ROACE 18.3% 3.5% 6.3% 13.3% 13.0% at replacement cost (excluding after-tax inventory effect). ‹ Full year 2009 in millions of euros Upstream Downstream Chemicals ** Segments Group Adjusted net operating income 6,382 953 272 7,607 8,226 Capital employed at 12/31/2008 * 32,681 13,623 7,417 53,721 59,764 Capital employed at 12/31/2009 * 37,397 15,299 6,898 59,594 64,451 ROACE 18.2% 6.6% 3.8% 13.4% 13.2% at replacement cost (excluding after-tax inventory effect). ** capital employed for Chemicals reduced for the Toulouse-AZF provision of 256 M€ pre-tax at 12/31/2008 TOTAL / 15 1 FINANCIAL REPORT Other information (cid:3) Principal risks and uncertainties for the remaining six months of 2010 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marches financiers (French Financial markets authority) on April 1,2010 under the reference D. 10-0200. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2010 on page 30 of this first half 2010 financial report. (cid:3) Disclaimer This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business, strategy and plans of Total. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Total does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group and its affiliates with the French Autorité des Marchés Financiers and the United States Securities and Exchange Commission. of normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to recur within following years. The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and the replacement cost. Business segment information is presented in accordance with the Group internal reporting system used by the Chief operating decision maker to measure performance and allocate resources internally. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain transactions such as restructuring costs or assets disposals, which are not considered to be representative In this framework, performance measures such as adjusted operating income, adjusted net operating income and adjusted net income are defined as incomes using replacement cost, adjusted for special items and excluding Total’s equity share of the adjustment items related to Sanofi-Aventis. They are meant to facilitate the analysis of the financial performance and the comparison of income between periods. 16 / TOTAL - Financial report - 1st half 2010 CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Statutory auditors’ report This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France. For the six-month period ended June 30, 2010 (cid:3) Statutory Auditors’ Review Report on the half-yearly consolidated financial statements To the Shareholders, In our capacity as statutory auditors and in accordance with Article L.451-1-2 III of the French monetary and financial law (“Code monétaire et financier”), we hereby report to you on: o the review of the accompanying condensed half-yearly consolidated financial statements of Total S.A. for the six-month period ended June 30, 2010, o the verification of information contained in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that these accompanying condensed half-yearly consolidated financial statements are not prepared in all material respects in accordance with IAS 34 - the standard of the IFRS as adopted by the European Union applicable to interim financial statements. Without qualifying the conclusion expressed above, we draw attention to note 1 to the condensed half-yearly consolidated financial statements which sets out the change in accounting policy regarding standard IAS 31 “Interests in Joint Ventures”. II. Specific verification We have also verified information given in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris-La Défense, July 29, 2010 The statutory auditors KPMG Audit A department of KPMG S.A. ERNST & YOUNG Audit Jay Nirsimloo Pascal Macioce 2 Laurent Vitse TOTAL / 17 2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of income (cid:2) Consolidated statement of income TOTAL (unaudited) (M€) (a) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt Other financial income Other financial expense Equity in income (loss) of affiliates Income taxes Consolidated net income Group share * Minority interests Earnings per share (€) Fully-diluted earnings per share (€) ** Adjusted net income ** Adjusted fully-diluted earnings per share (€) (a) Except for per share amounts. 18 / TOTAL - Financial report - 1st half 2010 1st half 2010 78,932 (9,444) 69,488 (45,630) (9,545) (507) (3,456) 274 (326) (213) 48 (165) 213 (190) 1,037 (5,347) 5,846 5,714 132 2.56 2.55 5,257 2.34 1st half 2009 61,471 (9,429) 52,042 (31,528) (9,399) (331) (3,156) 121 (303) (311) 95 (216) 399 (163) 860 (3,779) 4,547 4,459 88 2.00 1.99 3,834 1.72 1 2 Consolidated statement of comprehensive income CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Consolidated statement of comprehensive income TOTAL (unaudited) (M€) 1st half 2010 1st half 2009 Consolidated net income 5,846 4,547 Other comprehensive income Currency translation adjustment 4,996 246 Available for sale financial assets (52) 39 Cash flow hedge (51) 58 Share of other comprehensive income of associates, net amount 475 93 Other 3 (11) Tax effect 18 (23) Total other comprehensive income (net amount) 5,389 402 Comprehensive income 11,235 4,949 – Group share 11,044 4,775 – Minority interests 191 174 TOTAL / 19 2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of income (cid:2) Consolidated statement of income TOTAL (unaudited) (M€) (a) 2nd quarter 2010 Sales Excise taxes Revenues from sales 41,329 (5,002) 36,327 Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (23,929) (4,833) (292) (1,757) 114 (114) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (113) 24 (89) Other financial income Other financial expense 142 (95) Equity in income (loss) of affiliates 513 Income taxes (2,819) Consolidated net income 3,168 Group share * Minority interests 3,101 67 Earnings per share (€) Fully-diluted earnings per share (€) ** 1.39 1.38 Adjusted net income ** Adjusted fully-diluted earnings per share (€) 2,961 1.32 (a) Except for per share amounts. 20 / TOTAL - Financial report - 1st half 2010 1st quarter 2010 37,603 (4,442) 33,161 (21,701) (4,712) (215) (1,699) 160 (212) (100) 24 (76) 71 (95) 524 (2,528) 2,678 2,613 65 1.17 1.17 2,296 1.02 2nd quarter 2009 31,430 (4,856) 26,574 (16,300) (4,724) (155) (1,636) 106 (216) (140) 40 (100) 240 (82) 393 (1,877) 2,223 2,169 54 0.97 0.97 1,721 0.77 1 2 Consolidated statement of comprehensive income CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Consolidated statement of comprehensive income TOTAL (unaudited) (M€) 2nd quarter 2010 1st quarter 2010 2nd quarter 2009 Consolidated net income 3,168 2,678 2,223 Other comprehensive income Currency translation adjustment 3,149 1,847 (966) Available for sale financial assets (49) (3) 50 Cash flow hedge (75) 24 128 Share of other comprehensive income of associates, net amount 242 233 (66) Other 2 1 (25) Tax effect 26 (8) (48) Total other comprehensive income (net amount) 3,295 2,094 (927) Comprehensive income 6,463 4,772 1,296 – Group share 6,368 4,676 1,196 – Minority interests 95 96 100 TOTAL / 21 2 CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Consolidated balance sheet TOTAL (M€) ASSETS Non-current assets Intangible assets, net Property, plant and equipment, net Equity affiliates : investments and loans Other investments Hedging instruments of non-current financial debt Other non-current assets Total non-current assets Current assets Inventories, net Accounts receivable, net Other current assets Current financial assets Cash and cash equivalents Total current assets Total assets LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Total shareholders’ equity - Group Share Minority interests Total shareholders’ equity Non-current liabilities Deferred income taxes Employee benefits Provisions and other non-current liabilities Total non-current liabilities Non-current financial debt Current liabilities Accounts payable Other creditors and accrued liabilities Current borrowings Other current financial liabilities Total current liabilities Total liabilities and shareholders’ equity 22 / TOTAL - Financial report - 1st half 2010 Consolidated balance sheet June 30, 2010 (unaudited) March 31, 2010 (unaudited) 8,767 57,825 15,363 1,220 1,812 3,437 8,272 53,549 14,656 1,122 1,212 3,273 88,424 82,084 15,130 18,193 8,289 1,603 14,832 14,185 17,921 7,817 968 12,954 58,047 53,845 146,471 135,929 5,872 58,274 381 (3,572) 5,871 58,026 (3,010) (3,604) 60,955 57,283 858 1,083 61,813 58,366 10,328 2,181 9,418 9,486 2,127 9,015 21,927 20,628 22,813 19,727 17,557 13,462 8,521 378 16,367 13,687 6,840 314 39,918 37,208 146,471 135,929 December 31, 2009 7,514 51,590 13,624 1,162 1,025 3,081 77,996 13,867 15,719 8,198 311 11,662 49,757 127,753 5,871 55,372 (5,069) (3,622) 52,552 987 53,539 8,948 2,040 9,381 20,369 19,437 15,383 11,908 6,994 123 34,408 127,753 June 30, 2009 (unaudited) 5,955 48,762 14,075 1,211 875 3,095 73,973 11,749 15,226 9,253 217 14,299 50,744 124,717 5,931 55,031 (4,656) (5,007) 51,299 963 52,262 8,561 2,006 8,087 18,654 19,640 14,036 12,115 7,916 94 34,161 124,717 1 2 Consolidated statement of cash flow CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Consolidated statement of cash flow TOTAL (unaudited) (M€) 1st half 2010 1st half 2009 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) losses on sales of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net 5,846 3,867 294 – (172) (183) 513 37 4,547 3,373 213 – (46) 2 (2,218) 62 Cash flow from operating activities 10,202 5,933 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans Total divestments (6,422) – (313) (420) (7,155) 123 321 1,279 175 1,898 (5,796) (156) (215) (402) (6,569) 115 – 1,025 190 1,330 Cash flow used in investing activities (5,257) (5,239) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders – Treasury shares – Minority shareholders 11 49 – 14 2 – Dividends paid: – Parent company shareholders – Minority shareholders Other transactions with minority shareholders Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities (2,548) (82) (450) 2,042 376 (950) (2,541) (145) – 4,854 (1,067) – Cash flow used in financing activities (1,552) 1,117 Net increase (decrease) in cash and cash equivalents 3,393 1,811 Effect of exchange rates Cash and cash equivalents at the beginning of the period (223) 11,662 167 12,321 Cash and cash equivalents at the end of the period 14,832 14,299 TOTAL / 23 2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flow (cid:2) Consolidated statement of cash flow TOTAL (unaudited) (M€) 2nd quarter 2010 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion and amortization Non-current liabilities, valuation allowances and deferred taxes Impact of coverage of pension benefit plans (Gains) losses on sales of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net 3,168 1,996 239 – (24) 79 (522) 6 Cash flow from operating activities 4,942 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from disposal of intangible assets and property, plant and equipment Proceeds from disposal of subsidiaries, net of cash sold Proceeds from disposal of non-current investments Repayment of non-current loans Total divestments (2,958) – (244) (244) (3,446) 89 321 348 92 850 Cash flow used in investing activities (2,596) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders – Treasury shares – Minority shareholders 6 31 – Dividends paid: – Parent company shareholders – Minority shareholders Other transactions with minority shareholders Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities (2,548) (82) (450) 1,979 977 (453) Cash flow used in financing activities (540) Net increase (decrease) in cash and cash equivalents 1,806 Effect of exchange rates Cash and cash equivalents at the beginning of the period 72 12,954 Cash and cash equivalents at the end of the period 14,832 24 / TOTAL - Financial report - 1st half 2010 1st quarter 2010 2,678 1,871 55 – (148) (262) 1,035 31 5,260 (3,464) – (69) (176) (3,709) 34 – 931 83 1,048 (2,661) 5 18 – – – – 63 (601) (497) (1,012) 1,587 (295) 11,662 12,954 2nd quarter 2009 2,223 1,712 281 – (31) 81 (2,363) 36 1,939 (3,312) (109) (131) (82) (3,634) 55 – 726 77 858 (2,776) 5 2 – (2,541) (141) – 2,010 2,350 – 1,685 848 132 13,319 14,299 1 2 Consolidated statement of changes in shareholders’ equity CONSOLIDATED FINANCIAL STATEMENTS (cid:2) Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (M€) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity Group Share Minority interests Total shareholders’ equity As of January 1, 2009 2,371,808,074 5,930 52,947 (4,876) (143,082,095) (5,009) 48,992 958 49,950 Net income of the first half Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares (1) Share-based payments Other operations with minority interests Share cancellation Transactions with shareholders – – – – 565,886 – – – – – – – – – 1 – – – – – 4,459 96 4,555 (2,541) 13 – – 80 (23) – – 220 220 – – – – – – – – – – – – – 51,995 – – – – – – – – – 2 – – – 4,459 316 4,775 (2,541) 14 – 2 80 (23) – 88 86 174 (145) – – – – (24) – 4,547 402 4,949 (2,686) 14 – 2 80 (47) – 565,886 1 (2,471) – 51,995 2 (2,468) (169) (2,637) As of June 30, 2009 2,372,373,960 5,931 55,031 (4,656) (143,030,100) (5,007) 51,299 963 52,262 Net income from July 1 to December 31, 2009 Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Other operations with minority interests Share cancellation Transactions with shareholders – – – – 848,924 – – – – (24,800,000) – – – – 2 – – – – (62) 3,988 150 4,138 (2,545) 25 – (143) 26 – (1,160) – (413) (413) – – – – – – – – – – – – – 2,822,910 – – 24,800,000 – – – – – – 163 – – 1,222 3,988 (263) 3,725 (2,545) 27 – 20 26 – – 94 (26) 68 (44) – – – – – – 4,082 (289) 3,793 (2,589) 27 – 20 26 – – (23,951,076) (60) (3,797) – 27,622,910 1,385 (2,472) (44) (2,516) As of December 31, 2009 2,348,422,884 5,871 55,372 (5,069) (115,407,190) (3,622) 52,552 987 53,539 Net income of the first half Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(1) Share-based payments Other operations with minority interests Share cancellation Transactions with shareholders – – – – 306,577 – – – – – – – – – 1 – – – – – 5,714 (130) 5,584 (2,548) 10 – (1) 59 (202) – – 5,460 5,460 – – – – – (10) – – – – – – – 1,258,812 – – – – – – – – – 50 – – – 5,714 5,330 11,044 (2,548) 11 – 49 59 (212) – 132 59 191 (82) – – – – (238) – 5,846 5,389 11,235 (2,630) 11 – 49 59 (450) – 306,577 1 (2,682) (10) 1,258,812 50 (2,641) (320) (2,961) As of June 30, 2010 2,348,729,461 5,872 58,274 381 (114,148,378) (3,572) 60,955 858 61,813 (1) Treasury shares related to the stock option purchase plans and restricted stock grants TOTAL / 25 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 (cid:2) Notes to the consolidated financial statements for the first six months of 2010 (unaudited) 1) Accounting policies The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2010 have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2010 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2009 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). The new accounting standards and amendments mandatory for the annual period beginning January 1, 2010 are described in Note 1W to the consolidated financial statements as of December 31, 2009 and have no material effect on the Group’s consolidated financial statements for the first six months of 2010. Among these new standards or interpretations effective for annual periods beginning on or after January 1, 2010, the revised versions of IFRS 3 “Business Combinations” and IAS 27 “Consolidated and Separate Financial Statements” should be noted. These revised standards introduce new provisions regarding the accounting for business combinations. Their application is prospective. Lastly, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: o give a true and fair view of the Group’s financial position, financial performance and cash flows; o reflect the substance of transactions; o are neutral; o are prepared on a prudent basis; o are complete in all material aspects. Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at amortized cost. Financial assets and liabilities are usually measured at fair value. 2) Changes in the Group structure, main acquisitions and divestments In addition, as of January 1, 2010, jointly-controlled entities are consolidated under the equity method, as provided for in the alternative method of IAS 31 “Interests in Joint Ventures”. Until December 31, 2009, these entities were consolidated under the proportionate consolidation method. This change involves two entities and is not material. Public tender offer followed by a squeeze out for the shares issued by the company Elf Aquitaine The preparation of financial statements in accordance with IFRS requires management to make estimates and apply assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. Management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the consolidated financial statements as of December 31, 2009. On March 24, 2010, TOTAL S.A. filed a public tender offer followed by a squeeze out with the French Autorité des Marchés Financiers (AMF) in order to buy the 1,468,725 Elf Aquitaine shares that it did not already hold, representing 0.52% of Elf Aquitaine’s share capital and 0.27% of its voting rights, at a price of €305 per share (including the remaining 2009 dividend). On April 13, 2010, the French Autorité des marchés financiers (AMF) issued its clearance decision for this offer. The public tender offer was open from April 16 to April 29, 2010 inclusive. The Elf Aquitaine shares targeted by the offer which were not tendered to the offer have been transferred to TOTAL S.A. under the squeeze out upon payment to the shareholders equal to the offer price on the first trading day after the offer closing date, i.e. on April 30, 2010. On April 30, 2010, TOTAL S.A. announced that, following the squeeze out, it held 100% of Elf Aquitaine shares, with the transaction amounting to €450 million. 26 / TOTAL - Financial report - 1st half 2010 Notes to the consolidated financial statements for the first six months of 2010 In application of revised standard IAS 27 “Consolidated and Separate Financial Statements”, effective for annual periods beginning on or after January 1, 2010, transactions with minority interests are accounted for as equity transactions, i.e. in consolidated shareholder’s equity. As a consequence, following the squeeze out of the Elf Aquitaine shares by TOTAL S.A., the difference between the consideration paid and the book value of minority interests acquired was recognized directly as a decrease in equity. Sale of Mapa Spontex TOTAL closed on April 1, 2010 the sale of its consumer specialty chemicals business, Mapa Spontex, to U.S.-based Jarden Corporation for an enterprise value of €335 million. Sales of Sanofi-Aventis shares During the first six months of 2010, TOTAL progressively sold 1.66% of Sanofi-Aventis’ share capital, thus reducing its interest to 5.73%. Sanofi-Aventis is accounted for by the equity method in TOTAL’s Consolidated Financial Statements (see note 10 to the consolidated financial statements as of June 30, 2010). 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. 1 2 CONSOLIDATED FINANCIAL STATEMENTS Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in some instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Downstream and Chemicals segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and the replacement cost. (iii) TOTAL’s equity share of adjustment items reconciling “Business net income” and Net income attributable to equity holders of Sanofi-Aventis The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, and excluding TOTAL’s equity share of adjustment items related to Sanofi-Aventis. The detail of the adjustment items is presented in the table below. TOTAL / 27 2 CONSOLIDATED FINANCIAL STATEMENTS Adjustments to operating income (M€) 2nd quarter 2010 Inventory valuation effect Restructuring charges Asset impairment charges Other items Total 2nd quarter 2009 Inventory valuation effect Restructuring charges Asset impairment charges Other items Total 1st half 2010 Inventory valuation effect Restructuring charges Asset impairment charges Other items Total 1st half 2009 Inventory valuation effect Restructuring charges Asset impairment charges Other items Total Adjustments to net income group share (M€) 2nd quarter 2010 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items Total 2nd quarter 2009 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items Total 1st half 2010 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items Total 1st half 2009 Inventory valuation effect TOTAL’s equity share of adjustments related to Sanofi-Aventis Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items Total 28 / TOTAL - Financial report - 1st half 2010 Notes to the consolidated financial statements for the first six months of 2010 Upstream Downstream Chemicals Corporate – – – – 255 – – – (41) – (8) (16) – – – – – 255 (65) – – – – – 933 – (62) (81) 132 – (43) (2) – – – – – 790 87 – – – – – 635 – – (50) 65 – (8) (16) – – – – – 585 41 – – – – – 1,278 – (62) (181) 264 – (43) (5) – – – – – 1,035 216 – Upstream Downstream Chemicals Corporate – 194 (25) – – – – – (27) – – – – – – (10) (6) 29 (9) (40) – – 34 – (27) 194 (21) (6) – 697 91 – – – – – (18) – (16) (41) – (60) – (83) (30) – (1) (119) – – 28 – (18) 580 (23) (91) – 463 50 – – – (59) – (44) – – – – (39) – (10) (6) 29 (9) (81) – – 163 – (103) 424 54 82 – 944 171 – – – – – (39) – (16) (41) – (131) – (89) (30) – (3) (182) – – 41 – (39) 756 49 (141) Total 214 – (8) (16) 190 1,065 – (105) (83) 877 700 – (8) (66) 626 1,542 – (105) (186) 1,251 Total 169 (40) (10) (6) 63 (36) 140 788 (119) (99) (71) 28 (79) 448 513 (81) (10) (65) 192 (92) 457 1,115 (182) (105) (71) 41 (173) 625 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 4) Shareholders’ equity TOTAL shares held by Group subsidiaries Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2010, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.27% of its share capital, detailed as follows: As of June 30, 2010, TOTAL S.A. held 13,817,110 of its own shares, representing 0.59% of its share capital, detailed as follows: o 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; o 4,761,975 shares allocated to covering a TOTAL share purchase option plan for Group employees and executive officers; o 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval). o 5,799,020 shares allocated to TOTAL restricted shares plans for Group employees; and These 100,331,268 shares are deducted from the consolidated shareholders’ equity. o 3,256,115 shares intended to be allocated to new TOTAL share purchase option plans or to new restricted shares plans. Dividend These 13,817,110 shares are deducted from the consolidated shareholders’ equity. The shareholders’ meeting of May 21, 2010 approved the payment of a cash dividend of €2.28 per share for the fiscal year 2009. Taking into account an interim dividend of €1.14 per share paid on November 18, 2009, the remaining balance of €1.14 per share was paid on June 1, 2010. The Board of Directors approved the 2010 interim dividend of €1.14 per share at their July 29, 2010 meeting. Other Comprehensive Income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (M€) 1st half 2010 1st half 2009 Currency translation adjustment - unrealized gain/(loss) of the period - less gain/(loss) included in net income Available for sale financial assets - unrealized gain/(loss) of the period - less gain/(loss) included in net income Cash flow hedge - unrealized gain/(loss) of the period - less gain/(loss) included in net income Share of other comprehensive income of equity affiliates, net amount Other - unrealized gain/(loss) of the period - less gain/(loss) included in net income Tax effect 4,999 3 (3) 49 (347) (296) 3 – 4,996 (52) (51) 475 3 247 1 39 – 215 157 (11) – 246 39 58 93 (11) 18 (23) Total other comprehensive income, net amount 5,389 402 TOTAL / 29 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 Tax effects relating to each component of other comprehensive income are as follows: 1st half 2010 1st half 2009 (M€) Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Currency translation adjustment Available for sale financial assets Cash flow hedge Share of other comprehensive income of equity affiliates, net amount Other 4,996 (52) (51) 475 3 1 17 4,996 (51) (34) 475 3 246 39 58 93 (11) (4) (19) 246 35 39 93 (11) Total other comprehensive income 5,371 18 5,389 425 (23) 402 5) Non-current financial debt 6) Related parties The Group issued bonds through its subsidiary Total Capital during the first six months of 2010: o Bond 6.000% 2010-2015 (100 million AUD) The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning the main transactions with related parties during the first six months of 2010. o Bond 2.875% 2010-2015 (250 million USD) o Bond 6.000% 2010-2015 (100 million AUD) o Bond 3.000% 2010-2015 (1,250 million USD) o Bond 4.450% 2010-2020 (1,250 million USD) 7) Other risks and contingent liabilities The Group reimbursed bonds during the first six months of 2010: TOTAL is not currently aware of any event, litigation, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. o Bond 3.750% 2004-2010 (500 million EUR) o Bond 3.750% 2006-2010 (100 million EUR) ‹ Antitrust investigations o Bond 3.750% 2006-2010 (50 million EUR) o Bond 3.750% 2006-2010 (50 million EUR) o Bond 2.375% 2003-2010 (300 million CHF) o Bond 2.375% 2004-2010 (200 million CHF) o Bond 2.375% 2007-2010 (100 million CHF) 1. Following investigations into certain commercial practices in the chemicals industry in the United States, some subsidiaries of the Arkema(1) group have been involved in criminal investigations, closed as of today, and civil liability lawsuits in the United States for violations of antitrust laws. TOTAL S.A. has been named in certain of these suits as the parent company. In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. In Europe, the European Commission commenced investigations in 2000, 2003 and 2004 into alleged anti- competitive practices involving certain products sold by Arkema. In January 2005, under one of these investigations, the European Commission fined Arkema €13.5 million and jointly fined Arkema and Elf Aquitaine €45 million. The appeal from Arkema and Elf Aquitaine before the Court of First Instance of the European Union has been rejected on September 30, 2009. A recourse before the Court of Justice of the European Communities has been filed. (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from Total S.A. on May 12, 2006. 30 / TOTAL - Financial report - 1st half 2010 Notes to the consolidated financial statements for the first six months of 2010 The Commission notified Arkema, TOTAL S.A. and Elf Aquitaine of complaints concerning two other product lines in January and August 2005, respectively. Arkema has cooperated with the authorities in these procedures and investigations. In May 2006, the European Commission fined Arkema €78.7 million and €219.1 million, as a result of, respectively, each of these two proceedings. Elf Aquitaine was held jointly and severally liable for, respectively, €65.1 million and €181.35 million of these fines while TOTAL S.A. was held jointly and severally liable, respectively, for €42 million and €140.4 million. TOTAL S.A., Arkema and Elf Aquitaine have appealed these decisions to the Court of First Instance of the European Union. Arkema and Elf Aquitaine received a statement of objections from the European Commission in August 2007 concerning alleged anti-competitive practices related to another line of chemical products. As a result, in June 2008, Arkema and Elf Aquitaine have been jointly and severally fined in an amount of €22.7 million and individually in an amount of €20.43 million for Arkema and €15.89 million for Elf Aquitaine. The concerned companies appealed this decision to the relevant European court. Arkema and Elf Aquitaine received a statement of objections from the European Commission in March 2009 concerning alleged anti-competitive practices related to another line of chemical products. The decision has been rendered by the Commission in November 2009. The companies have been jointly and severally fined in an amount of €11 million and individually in an amount of €9.92 million for Arkema and €7.71 million for Elf Aquitaine. The concerned companies appealed this decision to the relevant European Court. No facts have been alleged that would implicate TOTAL S.A. or Elf Aquitaine in the practices questioned in these proceedings, and the fines received are based solely on their status as parent companies. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema, as well as TOTAL S.A. and Elf Aquitaine. 2. As part of the agreement relating to the spin-off of Arkema, TOTAL S.A. or certain other Group companies agreed to grant Arkema guarantees for certain risks related to antitrust proceedings arising from events prior to the spin-off. These guarantees cover, for a period of ten years that began in 2006, 90% of amounts paid by Arkema related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. 1 2 CONSOLIDATED FINANCIAL STATEMENTS The guarantee covering the risks related to anticompetition violations in Europe applies to amounts above a €176.5 million threshold. If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, these guarantees will become void. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group company for 10% of any amount that TOTAL S.A. or any Group company are required to pay under any of the proceedings covered by these guarantees. 3. The Group has recorded provisions amounting to €17 million in its consolidated financial statements as of June 30, 2010 to cover the risks mentioned above. 4. Moreover, as a result of investigations started by the European Commission in October 2002 concerning certain Refining & Marketing subsidiaries of the Group, Total Nederland N.V. and TOTAL S.A. received a statement of objections in October 2004. These proceedings resulted, in September 2006, in Total Nederland N.V. being fined €20.25 million and in TOTAL S.A. as its parent company being held jointly responsible for €13.5 million of this amount, although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Nederland N.V. have appealed this decision to the Court of First Instance of the European Union. In addition, in May 2007, Total France and TOTAL S.A. received a statement of objections regarding alleged antitrust practices concerning another product line of the Refining & Marketing division. These proceedings resulted, in October 2008, in Total France being fined €128.2 million and in TOTAL S.A., as its parent company, being held jointly responsible although no facts implicating TOTAL S.A. in the practices under investigation were alleged. TOTAL S.A. and Total Raffinage Marketing (the new corporate name of Total France) have appealed this decision to the Court of First Instance of the European Union. Furthermore, in July 2009, the French antitrust Authority sent to TotalGaz and Total Raffinage Marketing a statement of objections regarding alleged antitrust practices concerning another product line of the Refining & Marketing division. 5. Given the discretionary powers granted to antitrust Authorities for determining fines, it is not currently possible to determine with certainty the ultimate outcome of these investigations and proceedings. TOTAL S.A. and Elf Aquitaine are contesting their liability and the method of determining these fines. Although it is not possible to predict the outcome of these proceedings, the Group believes that they will not have a material adverse effect on its financial situation or consolidated results. TOTAL / 31 2 CONSOLIDATED FINANCIAL STATEMENTS ‹ Buncefield On December 11, 2005, several explosions, followed by a major fire, occurred at an oil storage depot at Buncefield, north of London. This depot is operated by Hertfordshire Oil Storage Limited (HOSL), a company in which the British subsidiary of TOTAL holds 60% and another oil group holds 40%. The explosion caused minor injuries to a number of people and caused property damage to the depot and the buildings and homes located nearby. The official Independent Investigation Board has indicated that the explosion was caused by the overflow of a tank at the depot. The Board’s final report was released on December 11, 2008. The civil procedure for claims, which had not yet been settled, took place between October and December 2008. The Court’s decision of March 20, 2009, declared the British subsidiary of TOTAL responsible for the accident and solely liable for indemnifying the victims. TOTAL’s British subsidiary has appealed this decision. The appeal trial took place in January 2010. The Court of Appeals, by a decision handed down on March 4, 2010, confirmed the prior judgment. The Supreme Court has partially authorized TOTAL’s British subsidiary to appeal this decision. With respect to civil liability the provision recorded in the Group’s consolidated financial statements as of June 30, 2010 amounts to €261 million after payments already completed. The Group carries insurance for damage to its interests in these facilities, business interruption and civil liability claims from third parties. The residual amount to be received from insurers amounts to €75 million as of June 30, 2010. The Group believes that, based on the information currently available, on a reasonable estimate of its liability and on provisions recognized, this accident should not have a significant impact on the Group’s financial situation or consolidated results. On December 1, 2008, the Health and Safety Executive (HSE) and the Environment Agency (EA) issued a Notice of prosecution against five companies, including the British subsidiary of TOTAL. By decision dated July 16, 2010, the judge fined TOTAL’s British subsidiary £3.6 million. The decision takes into account a number of elements that have mitigated the impact of the charges brought against the subsidiary. ‹ Erika Following the sinking in December 1999 of the Erika, a tanker that was transporting products belonging to one of the Group 32 / TOTAL - Financial report - 1st half 2010 Notes to the consolidated financial statements for the first six months of 2010 companies, the Tribunal de grande instance of Paris convicted TOTAL S.A. of marine pollution pursuant to a judgment issued on January 16, 2008, finding that TOTAL S.A. was negligent in its vetting procedure for vessel selection. TOTAL S.A. was fined €375,000. The court also ordered compensation to be paid to the victims of pollution from the Erika up to an aggregate amount of €192 million, declaring TOTAL S.A. jointly and severally liable for such payments together with the Erika’s inspection and classification firm, the Erika’s owner and the Erika’s manager. TOTAL has appealed the verdict of January 16, 2008. In the meantime, it has nevertheless proposed to pay third parties who so requested definitive compensation as determined by the court. Forty-one third parties have received compensation payments, representing an aggregate amount of €171.5 million. By decision dated March 30, 2010, the Court of Appeal upheld the lower court judgment pursuant to which TOTAL S.A. was convicted of marine pollution and fined the Company €375,000. TOTAL S.A. filed an appeal in the French Supreme Court (Cour de cassation) in this respect. The Erika’s inspection and classification firm, the ship’s owner and the ship’s manager were also convicted of marine pollution. On the other hand, the Court of Appeal ruled that TOTAL S.A. bears no civil liability according to the applicable international conventions. An appeal in the French Supreme Court (Cour de Cassation) regarding this decision was filed by the third parties still in the procedure. TOTAL S.A. considers, according to the information currently available to it, that this case will not have a material impact on the Group’s financial situation or consolidated results. ‹ Jubail refinery : commitments SAUDI ARAMCO TOTAL Refining and Petrochemical Company (SATORP), a company that is 62.5% owned by Saudi Aramco and 37.5% owned by TOTAL signed on June 24, 2010, the finance documents for $8.5 billion of senior project finance facilities that have been secured for the Jubail refinery. As part of this project financing, TOTAL S.A. and some of its subsidiaries have granted a group of guarantees that have been specifically approved by TOTAL’s Board of Directors. 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 8) Information by business segment 1st half 2010 (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes 9,115 11,019 – 60,998 2,475 (9,444) 8,812 507 – 7 87 – – (14,088) – 78,932 – (9,444) Revenues from sales 20,134 54,029 9,319 94 (14,088) 69,488 Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (8,818) (2,548) (52,081) (623) (8,553) (266) (318) (19) 14,088 – (55,682) (3,456) Operating income 8,768 1,325 500 (243) – 10,350 Equity in income (loss) of affiliates and other items Tax on net operating income 298 (4,995) 155 (414) 123 (138) 432 142 – – 1,008 (5,405) Net operating income 4,071 1,066 485 331 – 5,953 Net cost of net debt Minority interests (107) (132) Net income 5,714 1st half 2010 (adjustments) (a) (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests – – 585 – 49 (8) – – 634 (8) Operating income (b) – 585 41 – 626 Equity in income (loss) of affiliates and other items (c) Tax on net operating income (146) 43 41 (198) 22 (9) 84 (2) 1 (166) Net operating income (b) (103) 428 54 82 461 Net cost of net debt Minority interests – (4) Net income 457 (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis. (b) Of which inventory valuation effect On operating income On net operating income (c) Of which equity share of adjustments related to Sanofi-Aventis – – – 635 467 – 65 50 – – – (81) TOTAL / 33 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 1st half 2010 (adjusted) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes 9,115 11,019 – 60,998 2,475 (9,444) 8,812 507 – 7 87 – – (14,088) – Revenues from sales 20,134 54,029 9,319 94 (14,088) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (8,818) (2,548) (52,666) (623) (8,602) (258) (318) (19) 14,088 – Adjusted operating income 8,768 740 459 (243) – Equity in income (loss) of affiliates and other items Tax on net operating income 444 (5,038) 114 (216) 101 (129) 348 144 – – Adjusted net operating income 4,174 638 431 249 – Net cost of net debt Minority interests Ajusted net income 1st half 2010 (M€) Upstream Downstream Chemicals Corporate Intercompany Total expenditures Total divestments Cash flow from operating activities 5,866 261 8,834 1,018 38 1,496 238 334 387 33 1,265 (515) 34 / TOTAL - Financial report - 1st half 2010 Total 78,932 – (9,444) 69,488 (56,316) (3,448) 9,724 1,007 (5,239) 5,492 (107) (128) 5,257 Total 7,155 1,898 10,202 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 1st half 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes 7,874 7,349 – 46,686 1,646 (9,429) 6,902 276 – 9 79 – – (9,350) – 61,471 – (9,429) Revenues from sales 15,223 38,903 7,178 88 (9,350) 52,042 Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (7,367) (2,121) (36,253) (683) (6,635) (335) (353) (17) 9,350 – (41,258) (3,156) Operating income 5,735 1,967 208 (282) – 7,628 Equity in income (loss) of affiliates and other items Tax on net operating income 572 (3,413) 127 (581) (121) 1 336 143 – – 914 (3,850) Net operating income 2,894 1,513 88 197 – 4,692 Net cost of net debt Minority interests (145) (88) Net income 4,459 1st half 2009 (adjustments) (a) (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests – – 1,097 (62) 259 (43) – – 1,356 (105) Operating income (b) – 1,035 216 – 1,251 Equity in income (loss) of affiliates and other items (c) Tax on net operating income (39) – 63 (341) (138) (29) (141) – (255) (370) Net operating income (b) (39) 757 49 (141) 626 Net cost of net debt Minority interests – (1) Net income 625 (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis. (b) Of which inventory valuation effect On operating income On net operating income (c) Of which equity share of adjustments related to Sanofi-Aventis – – – 1,278 945 – 264 171 – – – (182) TOTAL / 35 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 1st half 2009 (adjusted) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes 7,874 7,349 – 46,686 1,646 (9,429) 6,902 276 – 9 79 – – (9,350) – Revenues from sales 15,223 38,903 7,178 88 (9,350) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (7,367) (2,121) (37,350) (621) (6,894) (292) (353) (17) 9,350 – Adjusted operating income 5,735 932 (8) (282) – Equity in income (loss) of affiliates and other items Tax on net operating income 611 (3,413) 64 (240) 17 30 477 143 – – Adjusted net operating income 2,933 756 39 338 – Net cost of net debt Minority interests Adjusted net income 1st half 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Total expenditures Total divestments Cash flow from operating activities 4,914 234 4,521 1,320 62 1,620 294 14 458 41 1,020 (666) 36 / TOTAL - Financial report - 1st half 2010 Total 61,471 – (9,429) 52,042 (42,614) (3,051) 6,377 1,169 (3,480) 4,066 (145) (87) 3,834 Total 6,569 1,330 5,933 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 2nd quarter 2010 (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes 4,546 5,717 – 32,190 1,394 (5,002) 4,589 270 – 4 45 – – (7,426) – 41,329 – (5,002) Revenues from sales 10,263 28,582 4,859 49 (7,426) 36,327 Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (4,364) (1,292) (27,460) (318) (4,483) (136) (173) (11) 7,426 – (29,054) (1,757) Operating income 4,607 804 240 (135) – 5,516 Equity in income (loss) of affiliates and other items Tax on net operating income 190 (2,621) 124 (250) 78 (65) 168 85 – – 560 (2,851) Net operating income 2,176 678 253 118 – 3,225 Net cost of net debt Minority interests (57) (67) Net income 3,101 2nd quarter 2010 (adjustments) (a) (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests – – 255 – (57) (8) – – 198 (8) Operating income (b) – 255 (65) – 190 Equity in income (loss) of affiliates and other items (c) Tax on net operating income (40) 13 25 (85) 18 26 (7) – (4) (46) Net operating income (b) (27) 195 (21) (7) 140 Net cost of net debt Minority interests – – Net income 140 (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis. (b) Of which inventory valuation effect On operating income On net operating income (c) Of which equity share of adjustments related to Sanofi-Aventis – – – 255 195 – (41) (25) – – – (40) TOTAL / 37 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 2nd quarter 2010 (adjusted) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes 4,546 5,717 – 32,190 1,394 (5,002) 4,589 270 – 4 45 – – (7,426) – Revenues from sales 10,263 28,582 4,859 49 (7,426) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (4,364) (1,292) (27,715) (318) (4,426) (128) (173) (11) 7,426 – Adjusted operating income 4,607 549 305 (135) – Equity in income (loss) of affiliates and other items Tax on net operating income 230 (2,634) 99 (165) 60 (91) 175 85 – – Adjusted net operating income 2,203 483 274 125 – Net cost of net debt Minority interests Ajusted net income 2nd quarter 2010 (M€) Upstream Downstream Chemicals Corporate Intercompany Total expenditures Total divestments Cash flow from operating activities 2,723 174 4,154 562 11 1,042 144 328 477 17 337 (731) 38 / TOTAL - Financial report - 1st half 2010 Total 41,329 – (5,002) 36,327 (29,252) (1,749) 5,326 564 (2,805) 3,085 (57) (67) 2,961 Total 3,446 850 4,942 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 2nd quarter 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes 3,427 4,107 – 24,318 1,005 (4,856) 3,684 152 – 1 42 – – (5,306) – 31,430 – (4,856) Revenues from sales 7,534 20,467 3,836 43 (5,306) 26,574 Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (3,635) (1,056) (19,154) (382) (3,498) (191) (198) (7) 5,306 – (21,179) (1,636) Operating income 2,843 931 147 (162) – 3,759 Equity in income (loss) of affiliates and other items Tax on net operating income 329 (1,739) 85 (278) (117) 18 144 81 – – 441 (1,918) Net operating income 1,433 738 48 63 – 2,282 Net cost of net debt Minority interests (59) (54) Net income 2,169 2nd quarter 2009 (adjustments) (a) (M€) Upstream Downstream Chemicals Corporate Intercompany Total Non-Group sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests – – 852 (62) 130 (43) – – 982 (105) Operating income (b) – 790 87 – 877 Equity in income (loss) of affiliates and other items (c) Tax on net operating income (18) – 48 (256) (119) 9 (91) – (180) (247) Net operating income (b) (18) 582 (23) (91) 450 Net cost of net debt Minority interests – (2) Net income 448 (a) Adjustments include special items, inventory valuation effect and equity share of adjustments related to Sanofi-Aventis. (b) Of which inventory valuation effect On operating income On net operating income (c) Of which equity share of adjustments related to Sanofi-Aventis – – – 933 699 – 132 91 – – – (119) TOTAL / 39 2 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the first six months of 2010 2nd quarter 2009 (adjusted) (M€) Upstream Downstream Chemicals Corporate Intercompany Non-Group sales Intersegment sales Excise taxes 3,427 4,107 – 24,318 1,005 (4,856) 3,684 152 – 1 42 – – (5,306) – Revenues from sales 7,534 20,467 3,836 43 (5,306) Operating expenses Depreciation, depletion and amortization of tangible assets and mineral interests (3,635) (1,056) (20,006) (320) (3,628) (148) (198) (7) 5,306 – Adjusted operating income 2,843 141 60 (162) – Equity in income (loss) of affiliates and other items Tax on net operating income 347 (1,739) 37 (22) 2 9 235 81 – – Adjusted net operating income 1,451 156 71 154 – Net cost of net debt Minority interests Adjusted net income 2nd quarter 2009 (M€) Upstream Downstream Chemicals Corporate Intercompany Total expenditures Total divestments Cash flow from operating activities 2,664 105 1,943 825 26 (28) 115 8 280 30 719 (256) 40 / TOTAL - Financial report - 1st half 2010 Total 31,430 – (4,856) 26,574 (22,161) (1,531) 2,882 621 (1,671) 1,832 (59) (52) 1,721 Total 3,634 858 1,939 1 2 Notes to the consolidated financial statements for the first six months of 2010 CONSOLIDATED FINANCIAL STATEMENTS 9) Reconciliation between information by business segment and the consolidated statement of income 1st half 2010 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 78,932 (9,444) 69,488 – – – 78,932 (9,444) 69,488 Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (46,330) (9,479) (507) (3,448) 80 (167) 700 (66) – (8) 194 (159) (45,630) (9,545) (507) (3,456) 274 (326) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (213) 48 (165) – – – (213) 48 (165) Other financial income Other financial expense 213 (190) – – 213 (190) Equity in income (loss) of affiliates 1,071 (34) 1,037 Income taxes (5,181) (166) (5,347) Consolidated net income 5,385 461 5,846 Group share Minority interests 5,257 128 457 4 5,714 132 1st half 2009 (M€) Adjusted Adjustments Consolidated statement of income Sales Excise taxes Revenues from sales 61,471 (9,429) 52,042 – – – 61,471 (9,429) 52,042 Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense (33,070) (9,213) (331) (3,051) 80 (113) 1,542 (186) – (105) 41 (190) (31,528) (9,399) (331) (3,156) 121 (303) Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt (311) 95 (216) – – – (311) 95 (216) Other financial income Other financial expense 399 (163) – – 399 (163) Equity in income (loss) of affiliates 966 (106) 860 Income taxes (3,409) (370) (3,779) Consolidated net income 3,921 626 4,547 Group share Minority interests 3,834 87 625 1 4,459 88 TOTAL / 41 2 CONSOLIDATED FINANCIAL STATEMENTS 2nd quarter 2010 (M€) Sales Excise taxes Revenues from sales Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt Other financial income Other financial expense Equity in income (loss) of affiliates Income taxes Consolidated net income Group share Minority interests 2nd quarter 2009 (M€) Sales Excise taxes Revenues from sales Purchases net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and amortization of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income from marketable securities & cash equivalents Cost of net debt Other financial income Other financial expense Equity in income (loss) of affiliates Income taxes Consolidated net income Group share Minority interests 42 / TOTAL - Financial report - 1st half 2010 Notes to the consolidated financial statements for the first six months of 2010 Adjusted Adjustments 41,329 (5,002) 36,327 – – – (24,143) (4,817) (292) (1,749) 52 (61) 214 (16) – (8) 62 (53) (113) 24 (89) – – – 142 (95) – – 526 (13) (2,773) (46) 3,028 140 2,961 67 140 – Adjusted Adjustments 31,430 (4,856) 26,574 – – – (17,365) (4,641) (155) (1,531) 78 (56) 1,065 (83) – (105) 28 (160) (140) 40 (100) – – – 240 (82) – – 441 (48) (1,630) (247) 1,773 450 1,721 52 448 2 Consolidated statement of income 41,329 (5,002) 36,327 (23,929) (4,833) (292) (1,757) 114 (114) (113) 24 (89) 142 (95) 513 (2,819) 3,168 3,101 67 Consolidated statement of income 31,430 (4,856) 26,574 (16,300) (4,724) (155) (1,636) 106 (216) (140) 40 (100) 240 (82) 393 (1,877) 2,223 2,169 54 Notes to the consolidated financial statements for the first six months of 2010 10) Post-closing events ‹ TOTAL signs an agreement to acquire UTS Corporation with its 20% interest in the Canadian Fort Hills project in view of reorganizing its oil sands portfolio Total E&P Canada Ltd., a TOTAL subsidiary, has signed an agreement with UTS Energy Corporation (UTS) to acquire UTS Corporation with its main asset, a 20% interest in the Fort Hills mining project in the Athabasca region of the Canadian province of Alberta. Under the terms of the agreement, UTS will transfer its assets, other than its Fort Hills interest, to a newly formed company and Total E&P Canada will pay a cash amount of 3.08 Canadian dollars (CAD) per share to acquire UTS. Taking into account the cash held by UTS and acquired by TOTAL (CAD 355 million, equivalent to CAD 0.73 per share) the cost of the acquisition for TOTAL amounts to approximately CAD 1.15 billion (ie CAD 2.35 per share). UTS’s Board of Directors has unanimously recommended the agreement. Under a Plan of Arrangement, UTS will recommend that its shareholders approve TOTAL’s acquisition of the company. UTS will publish the documents relating to the Plan of Arrangement shortly. The transaction is subject to regulatory approvals from the Canadian authorities and to the acceptance of the Plan of Arrangement by at least 66.67% of UTS’s shareholders attending a special shareholders meeting. The Fort Hills project is operated by Suncor Energy Inc. with a 60% interest, the remaining 20% held by Teck Resources Ltd. The most recent estimates put Fort Hills’ resources at around 3.4 billion barrels of bitumen, which will be recovered through open-pit mining. The project will be developed in two phases. The first phase of approximately 160,000 barrels per day has already obtained the necessary administrative approvals to launch the development in the near future. The earn-in costs owed to UTS by its Fort Hills partners (approximately CAD 704 million) will be transferred to TOTAL, which means that the net acquisition cost to TOTAL for approximately 680 million barrels of resources is CAD 0.65 per barrel. Parallel to this transaction, TOTAL is considering divesting some of its interest in the Joslyn mine, while retaining its role as operator, with the objective of an approximately 50% stake. 1 2 CONSOLIDATED FINANCIAL STATEMENTS ‹ Sale of interests in the Valhall and Hod fields TOTAL signed in April 2010 an agreement for the sale to BP of its interests in the Valhall (15.72%) and Hod (25%) fields, in the Norwegian North Sea, for an amount of $991 million. In June 2010, Hess exercised its right to pre-empt half of the interests sold. This transaction is subject to approval by relevant authorities. ‹ Loss of significant influence over Sanofi- Aventis As from July 1, 2010, given its reduced representation on the Board of Directors and the decrease in the percentage of voting rights, TOTAL considers that it ceases to have a significant influence over Sanofi-Aventis. The interest in Sanofi-Aventis will no longer be accounted for by the equity method but as a financial asset available for sale in the line “Other investments” of the balance sheet. This interest will therefore be measured at fair value, i.e. at the stock price. ‹ Repurposing project for the Flanders refinery On June 30, 2010, the Douai Court of Appeals ordered TOTAL to resume its refining activities at the Flanders refinery even though the procedure for the information and consultation of personnel representatives on the repurposing of the Flanders plant had been completed by June 24, 2010, and authorized TOTAL to proceed with the definitive shutdown of its refining operations at Dunkirk. After having examined the paradoxical legal situation thus created, TOTAL decided to appeal the decision of the Douai Court of Appeals. At the same time TOTAL asked the Nanterre Superior Court to rule that the procedure for the information and consultation of employee representatives respected all applicable legal provisions and allowed the company to continue implementing its repurposing project for the Flanders refinery. The hearing is set for September 17, 2010. The court’s findings shall be announced several weeks thereafter. At the current stage of procedures, no significant impact has been recorded in the Group’s consolidated financial statements for the first six months of 2010. TOTAL / 43 TOTAL S.A. Registered Office: 2 place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,871,057,210 euros 542 051 180 RCS Nanterre www.total.com Standard: +33 (0)1 47 44 45 46 Investor Relations: +33 (0)1 47 44 58 53 North American Investor Relations: +1 (713) 483 5070 r u o u D o c r a M f s e n a D m a l i i l l i W n e u o B k c i r t a P - s n e d A e r r e P l : s o t o h p r e v o C – . A S L A T O T . F E R B I : n g si e D - n a m r e b y Z t n e r u a L l a r o m a Z e p p h P - n e t e u N n a V m W i e s s u o R c r a M e l l e b a L e h c M i z e a z n o G y r r e h T - l i | Semestriel, 2010, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,011 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| Financial Report 1st half 2011 Contents 1. Financial Report - 1st half 2011 1. Key figures .......................................1 2. Group results ...................................2 2.1. Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.2. Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.3. Investments - divestments . . . . . . . . . . . . . . . . . . . . . . . .2 2.4. Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 3. Analysis of business segment results..............................................3 3.1. Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 3.2. Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 3.3. Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 4. TOTAL S.A. parent company accounts .........................................6 5. Summary and outlook .....................6 6. Other information.............................7 6.1. Operating information by segment in first half 2011 . . . .7 6.2. Adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 6.3. Effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 6.4. Investments - divestments . . . . . . . . . . . . . . . . . . . . . . . .9 6.5. Net-debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . .9 6.6. Return on average capital employed . . . . . . . . . . . . . . .10 7. Principal risks and uncertainties for the remaining six months of 2011.....11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the condensed half-yearly consolidated financial statements ....13 2. Consolidated statement of income...14 3. Consolidated statement of comprehensive income ..............15 4. Consolidated statement of income ..16 5. Consolidated statement of comprehensive income ..............17 6. Consolidated balance sheet...........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow ...................................20 9. Consolidated statement of changes in shareholders’ equity ...................21 10. Notes to the consolidated financial statements for the first six months of 2011 ........................22 1) Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 2) Changes in the Group structure, main acquisitions and divestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 3) Adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 4) Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 5) Financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 6) Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 7) Other risks and contingent liabilities . . . . . . . . . . . . . . .27 8) Business segment information . . . . . . . . . . . . . . . . . . . .30 9) Reconciliation between information by business segment and the consolidated statement of income . . .38 10) Changes in progress in the Group structure . . . . . . . . .40 11) Post-closing events . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Financial Report 1st half 2011 This is a free translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed consolidated financial statements for the first half 2011 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 1 to 11 herein includes a fair review of the important events that have occurred during the first six months of the financial year, their impact on condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 13 of this half-year financial report. Christophe de Margerie Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 29, 2011 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report - 1st half 2011. TOTAL i ii Abbreviations b: cf: /d: /y: €: $ and/or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe/d kboe/d: thousand barrel/d kb/d: British thermal unit Btu: million M: billion B: European Refining Margin Indicator. Refining margin indicator after ERMI: variable costs for a theoretical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. International Financial Reporting Standards liquefied natural gas Return on Equity Return on Average Capital Employed barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: TOTAL. Financial Report - 1st half 2011 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,490 cf of gas* 1 b/d = approx. 50 t/y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3/y = approx. 0.1 Bcf/d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt/y of LNG = approx. 131 Mcf/d This ratio is calculated based on the actual average equivalent energy content of TOTAL's natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Financial Report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of, France. The terms “Company” and “issuer” as used in this Financial Report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2011 Financial Report - 1st half 2011 1 Financial Report - 1st half 2011 1. Key figures(1) 1H11 (in millions of euros vs except earnings per share and number of shares) 1H11 1H10 1H10 Sales 91,038 78,932 +15% Adjusted operating income from business segments 12,265 9,967 +23% Adjusted net operating income from business segments 6,264 5,243 +19% – Upstream 5,306 4,174 +27% – Downstream 473 638 -26% – Chemicals 485 431 +13% Adjusted net income 5,898 5,257 +12% Adjusted fully-diluted earnings per share (euros) 2.62 2.34 +12% Fully-diluted weighted-average shares (millions) 2,252.3 2,242.6 - Net income (Group share) 6,672 5,714 +17% Investments(a) 13,253 7,155 +85% Divestments 2,001 1,898 +5% Net investments 11,252 5,257 x2.1 Cash flow from operations 10,778 10,202 +6% Adjusted cash flow from operations 9,620 8,989 +7% 1H11 (in millions of dollars(b) vs except earnings per share and number of shares) 1H11 1H10 1H10 Sales 127,745 104,727 +22% Adjusted operating income from business segments 17,210 13,224 +30% Adjusted net operating income from business segments 8,790 6,956 +26% – Upstream 7,445 5,538 +34% – Downstream 664 846 -22% – Chemicals 681 572 +19% Adjusted net income 8,276 6,975 +19% Adjusted fully-diluted earnings per share (dollars) 3.67 3.11 +18% Fully-diluted weighted-average shares (millions) 2,252.3 2,242.6 - Net income (Group share) 9,362 7,581 +23% Investments(a) 18,597 9,493 x 2.0 Divestments 2,808 2,518 +12% Net investments 15,789 6,975 x2.3 Cash flow from operations 15,124 13,536 +12% Adjusted cash flow from operations 13,499 11,927 +13% (a) Including acquisitions. (b) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. (1) Adjusted results (adjusted operating income, adjusted net operating income and adjusted net income) are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value from January 1, 2011, and, through June 30, 2010, excluding Total’s equity share of adjustments related to Sanofi. Adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 8. Financial Report - 1st half 2011. TOTAL 1 1 Financial Report - 1st half 2011 Group results 2. Group results 2.1. Operating income Net income (Group share) was 6,672 M€ compared to 5,714 M€ in the first half 2010. Compared to the first half 2010, the average Brent price increased by 44% to 111.1 $/b. The European refining margin indicator (ERMI) averaged 20.4 $/t compared to 30.4 $/t in the first half 2010. The environment for the petrochemicals and specialty chemicals remained generally favorable. The euro-dollar exchange rate averaged 1.40 $/€ compared to 1.33 $/€ in the first half 2010. Expressed in euros, the Brent price averaged 79.2 €/b, an increase of 36% compared to the second half 2010. The Group did not buy back shares in the first half 2011. On June 30, 2011, there were 2,258.3 million fully-diluted shares compared to 2,243.6 on June 30, 2010. Adjusted fully-diluted earnings per share, based on 2,252.3 million fully-diluted weighted-average shares, was €2.62 compared to €2.34 in the first half 2010, an increase of 12%. Expressed in dollars, adjusted fully-diluted earnings per share was $3.67 compared to $3.11 in the first half 2010, an increase of 18%. In this environment, the adjusted operating income from the business segments was 12,265 M€, an increase of 23% compared to the first half 2010(1). 2.3. Investments - divestments(3) The effective tax rate for the business segments was 56.9% in the first half 2011 compared to 55.4% in the first half 2010. Investments, excluding acquisitions and including changes in non-current loans, were 6.3 B€ (8.8 B$) in the first half 2011 compared to 5.5 B€ (7.3 B$) in the first half 2010. Adjusted net operating income from the business segments was 6,264 M€ compared to 5,243 M€ in the first half 2010, an increase of 19%. Expressed in dollars, adjusted net operating income from the business segments increased by 26%. 2.2. Net income Acquisitions were 6.5 B€ (9.2 B$) in the first half 2011, comprised essentially of the acquisition of interests in Fort Hills and Voyageur in Canada, an additional 7.5% interest in the GLNG project in Australia, a 12% stake in Novatek and 60% of SunPower. Asset sales in the first half 2011 were 1.5 B€ (2.2 B$), essentially comprised of sales of Sanofi shares, the Group’s interest in its Cameroon E&P subsidiary and part of the Joslyn project in Canada. Adjusted net income was 5,898 M€ in the first half 2011, an increase of 12% compared to the 5,257 M€ in the first half 2010. Expressed in dollars, adjusted net income increased by 19%. Net investments were 11.3 B€ (15.8 B$) in the first half 2011, compared to 5.3 B€ (7.0 B$) in the first half 2010. Effective July 1, 2010, the Group no longer accounts for its interest in Sanofi as an equity affiliate. In the first half 2011, the Group received dividend income of 115 M€ after taxes from Sanofi. In the first half 2010, the contribution to the Group’s adjusted net income from its interest in Sanofi was 290 M€. Adjusted net income excludes the after-tax inventory effect, special items and from January 1, 2011, the effect of changes in fair value(2): 2.4. Cash flow Cash flow from operations was 10,778 M€ in the first half 2011, an increase of 6% compared to the first half 2010. Adjusted cash flow from operations(4) was 9,620 M€, an increase of 7%. Expressed in dollars, adjusted cash flow from operations was 13.5 B$, an increase of 13%. – The after-tax inventory effect had a positive impact on net income of 872 M€ in the first half 2011 and a positive impact of 513 M€ in the first half 2010. The Group’s net cash flow(5) was a negative 474 M€ compared to a positive 4,945 M€ in the first half 2010. Expressed in dollars, the Group’s net cash flow was a negative 0.7 B$ in the first half 2011. – Changes in fair value had a positive impact on net income of 22 M€ in the first half 2011. The net-debt-to-equity ratio was 24.3% on June 30, 2011 compared to 22.7% on June 30, 2010(6), in line with the Group’s target range. – Special items had a negative impact on net income of 120 M€ in the first half 2011, comprised essentially of the increase in the deferred tax liability due to the change in UK taxes. Special items had a positive impact on net income of 25 M€ in the first half 2010. – In the first half 2010, the Group’s share of adjustment items related to Sanofi had a negative impact on net income of 81 M€. (1) Special items affecting operating income from the business segments had a negative impact of 63 M€ in the first half 2011 and a negative impact of 74 M€ in the first half 2010. (2) Adjustment items explained on page 8. (3) Detail shown on page 9. (4) Cash flow from operations at replacement cost before changes in working capital. (5) Net cash flow = cash flow from operations - net investments. (6) Detail shown on page 9. 2 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011 1 Analysis of business segment results 3. Analysis of business segment results 3.1. Upstream 3.1.1. Environment - liquids and gas price realizations(a) 1H11 vs 1H11 1H10 1H10 Brent ($/b) 111.1 77.3 +44% Average liquids price ($/b) 104.6 74.5 +40% Average gas price ($/Mbtu) 6.39 4.94 +29% Average hydrocarbons price ($/boe) 74.1 55.2 +34% (a) Consolidated subsidiaries, excluding fixed margin and buy-back contracts. 3.1.2. Production 1H11 vs Hydrocarbon production 1H11 1H10 1H10 Combined production (kboe/d) 2,341 2,393 -2% Liquids (kb/d) 1,245 1,350 -8% Gas (Mcf/d) 5,979 5,689 +5% In the first half 2011, hydrocarbon production was 2,341 kboe/d, a decrease of 2% compared to the first half 2010, essentially as a result of : – -1.5% for normal decline and scheduled maintenance, net of production ramp-ups on new projects, – +2% for changes in the portfolio, integrating net share of Novatek production and impact of various asset sales, – -2% for the price effect(1), – -2% for disruptions related to security conditions, mainly in Libya, – +1.5% for the end of OPEC reductions. 3.1.3. Results 1H11 vs (in millions of euros) 1H11 1H10 1H10 Adjusted operating income(a) 11,211 8,768 +28% Adjusted net operating income(a) 5,306 4,174 +27% includes income from equity affiliates 740 606 +22% Investments 12,100 5,866 x2.1 Divestments 1,256 261 x4.8 Cash flow from operating activities 10,248 8,834 +16% Adjusted cash flow 8,281 7,019 +18% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Upstream segment in the first half 2011 was 5,306 M€ compared to 4,174 M€ in the first half 2010, an increase of 27%. Expressed in dollars, adjusted net operating income from the Upstream segment was 7.4 B$, an increase of 34% compared to the first half 2010, reflecting essentially the increase in hydrocarbon prices. The return on average capital employed (ROACE(2)) for the Upstream segment was 21% for the twelve months ended June 30, 2011. It was 21% for the full year 2010. (1) Impact of changing hydrocarbon prices on entitlement volumes. (2) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2011. TOTAL 3 1 Financial Report - 1st half 2011 Analysis of business segment results 3.2. Downstream 3.2.1. Refinery throughput and utilization rates(a) 1H11 vs 1H11 1H10 1H10 Total refinery throughput (kb/d) 1,934 2,067 -6% – France 719 732 -2% – Rest of Europe 962 1,080 -11% – Rest of world 253 255 -1% Utilization rates(b) – Based on crude only 77% 75% - – Based on crude and other feedstock 82% 80% - (a) Includes share of CEPSA and, starting October 2010, of TotalErg. (b) Based on distillation capacity at the beginning of the year. In the first half 2011, refinery throughput decreased by 6% compared to the first half 2010, reflecting essentially the work at the Lindsey and Port Arthur refineries as well as the scheduled turnarounds in the second quarter. 3.2.2. Results 1H11 (in millions of euros vs except the ERMI refining margin indicator) 1H11 1H10 1H10 European refining margin indicator - ERMI ($/t) 20.4 30.4 -33% Adjusted operating income(a) 514 740 -31% Adjusted net operating income(a) 473 638 -26% includes income from equity affiliates 47 58 -19% Investments 726 1,018 -29% Divestments 51 38 +34% Cash flow from operating activities 1,165 1,496 -22% Adjusted cash flow 758 1,097 -31% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Downstream segment in the first half 2011 was 473 M€, a decrease of 26% compared to the first half 2010. Expressed in dollars, adjusted net operating income from the Downstream segment in the first half 2011 was 664 M$, a decrease of 22% compared to the first half 2010. This decrease reflects essentially the unfavorable market conditions for refining and the reduced capacity of European refining during the second quarter due to maintenance. The ROACE(1) for the Downstream segment was 6% for the twelve months ended June 30, 2011 and 8% for the full year 2010. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 4 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011 1 Analysis of business segment results 3.3. Chemicals 1H11 vs (in millions of euros) 1H11 1H10 1H10 Sales 10,396 8,812 +18% Base chemicals 6,719 5,326 +26% Specialties 3,677 3,475 +6% Adjusted operating income(a) 540 459 +18% Adjusted net operating income(a) 485 431 +13% Base chemicals 251 193 +30% Specialties 239 241 -1% Investments 380 238 +60% Divestments 26 334 -92% Cash flow from operating activities (6) 387 n/a Adjusted cash flow 625 646 -3% (a) Detail of adjustment items shown in the business segment information annex to financial statements. In the first half 2011, adjusted net operating income for the Chemicals segment was 485 M€ compared to 431 M€ in the first half 2010. The increase reflects essentially the progress made by the Base chemicals in a generally favorable environment with, in particular, an increased contribution from activities in Qatar. The ROACE(1) for the Chemicals segment was 12% for the twelve months ended June 30, 2011, stable compared to the full year 2010. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2011. TOTAL 5 1 Financial Report - 1st half 2011 TOTAL S.A. parent company accounts / Summary and outlook 4. TOTAL S.A. parent company accounts Net income for TOTAL S.A., the parent company, was 3,157 M€ in the first half 2011, compared to 2,941 M€ in the first half 2010. 5. Summary and outlook The ROACE(1) for the Group for the twelve months ended June 30, 2011, was 16%, stable compared the full year 2010. TOTAL announced that it would not seek a renewal of its Global Tax Consolidation status in France. Effective 2011, the Group will use the prevailing French tax law. Return on equity for the twelve months ended June 30, 2011, was 19%. In October 2010, TOTAL announced that starting in 2011 the interim dividend would be paid on a quarterly basis. For the interim dividend related to the second quarter 2011, the Board of Directors at its meeting on July 28, 2011, decided to pay on December 22, 2011(2) an interim dividend of 0.57 euros per share. Since the start of the third quarter 2011, the Brent price has continued to trade around 110 $/b but the environment for European refining has remained difficult. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. (2) Ex-dividend date will be December 19, 2011. 6 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011 1 Other information 6. Other information 6.1. Operating information by segment in first half 2011 6.1.1. Upstream 1H11 Combined liquids and gas production vs by region (kboe/d) 1H11 1H10 1H10 Europe 528 612 -14% Africa 659 749 -12% Middle East 576 515 +12% North America 67 65 +3% South America 188 178 +6% Asia-Pacific 241 250 -4% CIS 82 24 x3.4 Total production 2,341 2,393 -2% Includes equity and non-consolidated affiliates 552 425 +30% 1H11 Liquids production vs by region (kb/d) 1H11 1H10 1H10 Europe 251 280 -10% Africa 517 616 -16% Middle East 323 305 +6% North America 29 31 -6% South America 78 74 +5% Asia-Pacific 28 31 -10% CIS 19 13 +46% Total production 1,245 1,350 -8% Includes equity and non-consolidated affiliate 328 291 +13% 1H11 Gas production vs by region (Mcf/d) 1H11 1H10 1H10 Europe 1,512 1,814 -17% Africa 726 675 +8% Middle East 1,372 1,143 +20% North America 215 190 +13% South America 611 574 +6% Asia-Pacific 1,206 1,234 -2% CIS 337 59 x5.7 Total production 5,979 5,689 +5% Includes equity and non-consolidated affiliate 1,214 723 +68% 1H11 vs Liquefied natural gas 1H11 1H10 1H10 LNG sales(a) (Mt) 6.73 5.85 +15% (a) Sales, Group share, excluding trading; 2010 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2010 SEC coefficient. Financial Report - 1st half 2011. TOTAL 7 1 Financial Report - 1st half 2011 Other information 6.1.2. Downstream 1H11 Refined products sales vs by region (kb/d)(a) 1H11 1H10 1H10 Europe 1,910 1,915 - Africa 302 294 +3% Americas 103 131 -21% Rest of world 169 154 +10% Total consolidated sales 2,484 2,494 - Trading 1,264 1,258 - Total refined product sales 3,748 3,752 - (a) Includes share of CEPSA and, starting October 2010, of TotalErg. 6.2. Adjustment items 6.2.1. Adjustments to operating income from business segments (in millions of euros) 1H11 1H10 Special items affecting operating income from the business segments (63) (74) – Restructuring charges - - – Impairments - (8) – Other (63) (66) Pre-tax inventory effect: FIFO vs. replacement cost 1,269 700 Effect of changes in fair value 29 - Total adjustments affecting operating income from the business segments 1,235 626 6.2.2. Adjustments to net income (Group share) (in millions of euros) 1H11 1H10 Special items affecting net income (Group share) (120) 25 – Gain on asset sales 216 192 – Restructuring charges - (10) – Impairments (47) (65) – Other (289) (92) After-tax inventory effect: FIFO vs. replacement cost 872 513 Effect of changes in fair value 22 - Equity shares of adjustments related to Sanofi(a) - (81) Total adjustments to net income 774 457 (a) Based on TOTAL’s share in Sanofi of 5.7% at June 30, 2010. Effective July 1, 2010, Sanofi is no longer treated as an equity affiliate. 6.3. Effective tax rates Effective tax rate(a) 1H11 1H10 Upstream 59.5% 59.1% Group 57.5% 55.0% (a) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates, dividends received from investments, and impairments of acquisition goodwill + tax on adjusted net operating income). 8 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011 1 Other information 6.4. Investments - divestments 1H11 vs (in millions of euros) 1H11 1H10 1H10 Investments excluding acquisitions(a) 6,254 5,494 +14% Capitalized exploration 459 420 +9% Changes in non-current loans(b) 2 281 n/a Acquisitions 6,537 1,522 x 4.3 Investments including acquisitions(a) 12,791 7,016 +82% Asset sales 1,539 1,723 -11% Net investments(b) 11,252 5,257 x2.1 1H11 vs (expressed in millions of dollars(c)) 1H11 1H10 1H10 Investments excluding acquisitions(a) 8,776 7,289 +20% Capitalized exploration 644 557 +16% Changes in non-current loans(b) 3 373 n/a Acquisitions 9,173 2,019 x4.5 Investments including acquisitions(a) 17,948 9,309 x1.9 Asset sales 2,160 2,286 -6% Net investments(b) 15,789 6,975 x2.3 (a) Includes changes in non-current loans. (b) Includes net investments in equity affiliates and non-consolidated companies + net financing for employees related to stock purchase plans. (c) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. 6.5. Net-debt-to-equity ratio (in millions of euros) 6/30/2011 6/30/2010 Current borrowings 12,289 8,521 Net current financial assets (2,737) (1,225) Non-current financial debt 20,410 22,813 Hedging instruments of non-current debt (1,756) (1,812) Cash and cash equivalents (13,387) (14,832) Net debt 14,819 13,465 Shareholders’ equity 61,371 60,955 Estimated dividend payable (1,248) (2,547) Minority interests 934 858 Equity 61,057 59,266 Net-debt-to-equity ratio 24.3% 22.7% Financial Report - 1st half 2011. TOTAL 9 1 Financial Report - 1st half 2011 Other information 6.6. Return on average capital employed 6.6.1. Twelve months ended June 30, 2011 (in millions of euros) Upstream Downstream Chemicals Segments Group Adjusted net operating income 9,729 1,003 911 11,643 11,450 Capital employed at 6/30/2010(a) 43,908 16,010 7,286 67,204 72,042 Capital employed at 6/30/2011(a) 46,671 14,921 7,938 69,530 72,843 ROACE 21.5% 6.5% 12.0% 17.0% 15.8% (a) At replacement cost (excluding after-tax inventory effect). 6.6.2. Twelve months ended March 31, 2011 (in millions of euros) Upstream Downstream Chemicals Segments Group Adjusted net operating income 9,475 1,289 938 11,702 11,599 Capital employed at 3/31/2010(a) 39,925 15,634 7,412 62,971 67,099 Capital employed at 3/31/2011(a) 44,528 14,527 7,681 66,736 70,579 ROACE 22.4% 8.5% 12.4% 18.0% 16.8% (a) At replacement cost (excluding after-tax inventory effect). 6.6.3. Full year 2010 (in millions of euros) Upstream Downstream Chemicals Segments Group Adjusted net operating income 8,597 1,168 857 10,622 10,748 Capital employed at 12/31/2009(a) 37,397 15,299 6,898 59,594 64,451 Capital employed at 12/31/2010(a) 43,972 15,561 7,312 66,845 70,866 ROACE 21.1% 7.6% 12.1% 16.8% 15.9% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011 1 Principal risks and uncertainties for the remaining six months of 2011 7. Principal risks and uncertainties for the remaining six months of 2011 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 28, 2011. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2010 on page 27 of this first half 2011 financial report. Disclaimer This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. TOTAL does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group and its affiliates with the French Autorité des marchés financiers and the United States Securities and Exchange Commission. assets disposals, which are not considered to be representative of normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to recur within following years. The adjusted results of the Downstream and Chemical segments are also presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period. The inventory valuation effect is the difference between the results according to FIFO (First-In, First-Out) and the replacement cost. Business segment information is presented in accordance with the Group internal reporting system used by the Chief operating decision maker to measure performance and allocate resources internally. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain transactions such as restructuring costs or In this framework, performance measures such as adjusted operating income, adjusted net operating income and adjusted net income are defined as incomes using replacement cost, adjusted for special items and excluding TOTAL’s equity share of the adjustment items related to Sanofi. They are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Financial Report - 1st half 2011. TOTAL 11 12 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the condensed half-yearly consolidated financial statements This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France. For the six-month period ended June 30, 2011 To the Shareholders, Following our appointment as statutory auditors by your general meeting and in accordance with article L.451-1-2 III of the French Monetary and Financial Law (“Code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of Total S.A. for the six-month period ended June 30, 2011, – the verification of information contained in the half-yearly management report. These condensed half-yearly consolidated financial statements. These condensed half-yearly consolidated financial statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that these accompanying condensed half-yearly consolidated financial statements are not prepared in all material respects in accordance with IAS 34 - the standard of the IFRS as adopted by the European Union applicable to interim financial statements. II - Specific verification We have also verified information given in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris-La Défense, July 28, 2011 The statutory auditors French original signed by KPMG Audit A department of KPMG S.A. Jay Nirsimloo ERNST & YOUNG Audit Pascal Macioce Laurent Vitse Financial Report - 1st half 2011. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited) 1st half 1st half (in millions of euros)(a) 2011 2010 Sales 91,038 78,932 Excise taxes (8,971) (9,444) Revenues from sales 82,067 69,488 Purchases, net of inventory variation (55,641) (45,630) Other operating expenses (9,506) (9,545) Exploration costs (438) (507) Depreciation, depletion and amortization of tangible assets and mineral interests (3,217) (3,456) Other income 331 274 Other expense (197) (326) Financial interest on debt (295) (213) Financial income from marketable securities & cash equivalents 102 48 Cost of net debt (193) (165) Other financial income 410 213 Other financial expense (212) (190) Equity in income (loss) of affiliates 950 1,037 Income taxes (7,504) (5,347) Consolidated net income 6,850 5,846 Group share 6,672 5,714 Minority interests 178 132 Earnings per share (€) 2.98 2.56 Fully-diluted earnings per share (€) 2.96 2.55 (a) Except for per share amounts. 14 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited) 1st half 1st half (in millions of euros) 2011 2010 Consolidated net income 6,850 5,846 Consolidated net income Currency translation adjustment (2,644) 4,996 Available for sale financial assets 430 (52) Cash flow hedge (35) (51) Share of other comprehensive income of associates, net amount (103) 475 Other (2) 3 Tax effect (29) 18 Total other comprehensive income (net amount) (2,383) 5,389 Comprehensive income 4,467 11,235 Group share 4,356 11,044 Minority interests 111 191 Financial Report - 1st half 2011. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros)(a) 2011 2011 2010 Sales 45,009 46,029 41,329 Excise taxes (4,544) (4,427) (5,002) Revenues from sales 40,465 41,602 36,327 Purchases, net of inventory variation (28,386) (27,255) (23,929) Other operating expenses (4,804) (4,702) (4,833) Exploration costs (179) (259) (292) Depreciation, depletion and amortization of tangible assets and mineral interests (1,531) (1,686) (1,757) Other income 246 85 114 Other expense (138) (59) (114) Financial interest on debt (159) (136) (113) Financial income from marketable securities & cash equivalents 55 47 24 Cost of net debt (104) (89) (89) Other financial income 335 75 142 Other financial expense (104) (108) (95) Equity in income (loss) of affiliates 444 506 513 Income taxes (3,432) (4,072) (2,819) Consolidated net income 2,812 4,038 3,168 Group share 2,726 3,946 3,101 Minority interests 86 92 67 Earnings per share 1.21 1.76 1.39 Fully-diluted earnings per share (€) 1.21 1.75 1.38 (a) Except for per share amounts. 16 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros)(a) 2011 2011 2010 Consolidated net income 2,812 4,038 3,168 Consolidated net income Currency translation adjustment (666) (1,978) 3,149 Available for sale financial assets 315 115 (49) Cash flow hedge (11) (24) (75) Share of other comprehensive income of associates, net amount (16) (87) 242 Other (4) 2 2 Tax effect (35) 6 26 Total other comprehensive income (net amount) (417) (1,966) 3,295 Comprehensive income 2,395 2,072 6,463 Group share 2,326 2,030 6,368 Minority interests 69 42 95 Financial Report - 1st half 2011. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS 6/30/2011 3/31/2011 12/31/2010 6/30/2010 (in millions of euros) (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 8,961 9,211 8,917 8,767 Property, plant and equipment, net 55,323 54,955 54,964 57,825 Equity affiliates : investments and loans 11,054 8,143 11,516 15,363 Other investments 5,287 4,458 4,590 1,220 Hedging instruments of non-current financial debt 1,756 1,352 1,870 1,812 Other non-current assets 3,727 3,466 3,655 3,437 Total non-current assets 86,108 81,585 85,512 88,424 Current assets Inventories, net 15,950 15,516 15,600 15,130 Accounts receivable, net 18,267 19,758 18,159 18,193 Other current assets 8,474 8,766 7,483 8,289 Current financial assets 3,122 2,026 1,205 1,603 Cash and cash equivalents 13,387 17,327 14,489 14,832 Total current assets 59,200 63,393 56,936 58,047 Assets classified as held for sale 5,211 4,914 1,270 - Total assets 150,519 149,892 143,718 146,471 LIABILITIES & SHAREHOLDERS’ EQUITY 6/30/2011 3/31/2011 12/31/2010 6/30/2010 (in millions of euros) (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 5,903 5,878 5,874 5,872 Paid-in surplus and retained earnings 64,148 64,677 60,538 58,274 Currency translation adjustment (5,177) (4,517) (2,495) 381 Treasury shares (3,503) (3,503) (3,503) (3,572) Total shareholders’ equity - Group Share 61,371 62,535 60,414 60,955 Minority interests 934 898 857 858 Total shareholders’ equity 62,305 63,433 61,271 61,813 Non-current liabilities Deferred income taxes 9,619 10,204 9,947 10,328 Employee benefits 2,111 2,103 2,171 2,181 Provisions and other non-current liabilities 8,419 8,584 9,098 9,418 Total non-current liabilities 20,149 20,891 21,216 21,927 Non-current financial debt 20,410 20,215 20,783 22,813 Current liabilities Accounts payable 18,395 18,383 18,450 17,557 Other creditors and accrued liabilities 16,191 14,812 11,989 13,462 Current borrowings 12,289 11,674 9,653 8,521 Other current financial liabilities 385 317 159 378 Total current liabilities 47,260 45,186 40,251 39,918 Liabilities directly associated with the assets classified as held for sale 395 167 197 - Total liabilities and shareholders’ equity 150,519 149,892 143,718 146,471 18 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of euros) 2011 2010 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 6,850 5,846 Depreciation, depletion and amortization 3,529 3,867 Non-current liabilities, valuation allowances and deferred taxes 848 294 Impact of coverage of pension benefit plans - - (Gains) Losses on sales of assets (235) (172) Undistributed affiliates’ equity earnings (123) (183) (Increase) Decrease in working capital (111) 513 Other changes, net 20 37 Cash flow from operating activities 10,778 10,202 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (8,589) (6,422) Acquisitions of subsidiaries, net of cash acquired (979) - Investments in equity affiliates and other securities (3,221) (313) Increase in non-current loans (464) (420) Total expenditures (13,253) (7,155) Proceeds from disposal of intangible assets and property, plant and equipment 626 123 Proceeds from disposal of subsidiaries, net of cash sold 171 321 Proceeds from disposal of non-current investments 742 1,279 Repayment of non-current loans 462 175 Total divestments 2,001 1,898 Cash flow used in investing activities (11,252) (5,257) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 404 11 – Treasury shares - 49 – Minority shareholders - - Dividends paid: – Parent company shareholders (2,572) (2,548) – Minority shareholders (62) (82) Other transactions with minority shareholders 59 (450) Net issuance (repayment) of non-current debt 2,906 2,042 Increase (Decrease) in current borrowings 288 376 Increase (Decrease) in current financial assets and liabilities (1,634) (950) Cash flow used in financing activities (611) (1,552) Net increase (Decrease) in cash and cash equivalents (1,085) 3,393 Effect of exchange rates (17) (223) Cash and cash equivalents at the beginning of the period 14,489 11,662 Cash and cash equivalents at the end of the period 13,387 14,832 Financial Report - 1st half 2011. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros) 2011 2011 2010 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 2,812 4,038 3,168 Depreciation, depletion and amortization 1,641 1,888 1,996 Non-current liabilities, valuation allowances and deferred taxes 283 565 239 Impact of coverage of pension benefit plans - - - (Gains) losses on sales of assets (229) (6) (24) Undistributed affiliates’ equity earnings 59 (182) 79 (Increase) Decrease in working capital 476 (587) (522) Other changes, net 22 (2) 6 Cash flow from operating activities 5,064 5,714 4,942 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (3,215) (5,374) (2,958) Acquisitions of subsidiaries, net of cash acquired (979) - - Investments in equity affiliates and other securities (3,071) (150) (244) Increase in non-current loans (305) (159) (244) Total expenditures (7,570) (5,683) (3,446) Proceeds from disposal of intangible assets and property, plant and equipment 620 6 89 Proceeds from disposal of subsidiaries, net of cash sold 171 - 321 Proceeds from disposal of non-current investments 452 290 348 Repayment of non-current loans 95 367 92 Total divestments 1,338 663 850 Cash flow used in investing activities (6,232) (5,020) (2,596) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 354 50 6 – Treasury shares - - 31 – Minority shareholders - - - Dividends paid: – Parent company shareholders (2,572) - (2,548) – Minority shareholders (61) (1) (82) Other transactions with minority shareholders 59 - (450) Net issuance (repayment) of non-current debt 678 2,228 1,979 Increase (Decrease) in current borrowings (200) 488 977 Increase (Decrease) in current financial assets and liabilities (1,123) (511) (453) Cash flow used in financing activities (2,865) 2,254 (540) Net increase (Decrease) in cash and cash equivalents (4,033) 2,948 1,806 Effect of exchange rates 93 (110) 72 Cash and cash equivalents at the beginning of the period 17,327 14,489 12,954 Cash and cash equivalents at the end of the period 13,387 17,327 14,832 20 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL Common shares issued Paid-in surplus Currency Treasury shares Shareholders’ Minority Total (unaudited) and retained translation equity Group interests shareholders’ (in millions of euros) Number Amount eranings adjustment Number Amount Share equity As of January 1, 2010 2,348,422,884 5,871 55,372 (5,069) (115,407,190) (3,622) 52,552 987 53,539 Net income of the first half - - 5,714 - - - 5,714 132 5,846 Other comprehensive Income - - (130) 5,460 - - 5,330 59 5,389 Comprehensive Income - - 5,584 5,460 - - 11,044 191 11,235 Dividend - - (2,548) - - - (2,548) (82) (2,630) Issuance of common shares 306,577 1 10 - - - 11 - 11 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - (1) - 1,258,812 50 49 - 49 Share-based payments - - 59 - - - 59 - 59 Share cancellation - - - - - - - - - Other operations with minority interests - - (202) (10) - - (212) (238) (450) Other items - - - - - - - - - As of June 30, 2010 2,348,729,461 5,872 58,274 381 (114,148,378) (3,572) 60,955 858 61,813 Net income from July 1 to December 31, 2010 - - 4,857 - - - 4,857 104 4,961 Other comprehensive Income - - (86) (2,879) - - (2,965) (50) (3,015) Comprehensive Income - - 4,771 (2,879) - - 1,892 54 1,946 Dividend - - (2,550) - - - (2,550) (70) (2,620) Issuance of common shares 911,470 2 28 - - - 30 - 30 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - (69) - 1,660,699 69 - - - Share-based payments - - 81 - - - 81 - 81 Share cancellation - - - - - - - - - Other operations with minority interests - - 3 3 - - 6 15 21 Other items - - - - - - - - - As of December 31, 2010 2,349,640,931 5,874 60,538 (2,495) (112,487,679) (3,503) 60,414 857 61,271 Net income of the first half - - 6,672 - - - 6,672 178 6,850 Other comprehensive Income - - 368 (2,684) - - (2,316) (67) (2,383) Comprehensive Income - - 7,040 (2,684) - - 4,356 111 4,467 Dividend - - (3,888) - - - (3,888) (62) (3,950) Issuance of common shares 11,749,578 29 375 - - - 404 - 404 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - - - 3,804 - - - - Share-based payments - - 83 - - - 83 - 83 Share cancellation - - - - - - - - - Other operations with minority interests - - - 2 - - 2 57 59 Other items - - - - - - - (29) (29) As of June 30, 2011 2,361,390,509 5,903 64,148 (5,177) (112,483,875) (3,503) 61,371 934 62,305 (a) Treasury shares related to the stock option purchase plans and restricted stock grants. Financial Report - 1st half 2011. TOTAL 21 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 10. Notes to the consolidated financial statements for the first six months of 2011 (unaudited) 1) Accounting policies 1.1. Accounting policies applicable in 2011 apply accounting policies that will lead to relevant and reliable information, so that the financial statements: The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2011 are presented in euros and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2011 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2010 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). The new accounting standards and amendments mandatory for the annual period beginning January 1, 2011 are described in Note 1W to the consolidated financial statements as of December 31, 2010 and have no material effect on the Group’s consolidated financial statements for the first six months of 2011. – give a true and fair view of the Group’s financial position, financial performance and cash flows; – reflect the substance of transactions; – are neutral; – are prepared on a prudent basis; and – are complete in all material aspects. Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at amortized cost. Financial assets and liabilities are usually measured at fair value. 1.2. Accounting policies not yet applicable The preparation of financial statements in accordance with IFRS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. The management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the consolidated financial statements as of December 31, 2010. In May 2011, the IASB issued a package of standards on consolidation: standard IFRS 10 “Consolidated financial statements”, standard IFRS 11 “Joint arrangements”, standard IFRS 12 “Disclosure of interests in other entities”, revised standard IAS 27 “Separate financial statements” and revised standard IAS 28 “Investments in associates and joint ventures”. These standards are applicable for annual periods beginning on or after January 1, 2013. In June 2011, the IASB issued revised standard IAS 19 “Employee benefits”, which leads in particular to the full recognition of the net position in respect of employee benefits obligations (liabilities net of assets) in the balance sheet and the elimination of the corridor approach currently used by the Group. This standard is applicable for annual periods beginning on or after January 1, 2013. In addition, the IASB published in May 2011 standard IFRS 13 “Fair value measurement”, applicable for annual periods beginning on or after January 1, 2013, and in June 2011 revised standard IAS 1 “Presentation of financial statements”, applicable for annual periods beginning on or after July 1, 2012. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and The impact of the application of these standards is currently assessed by the Group. 22 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 2) Changes in the Group structure, main acquisitions and divestments Upstream – TOTAL finalized in March 2011 the acquisition from Santos of an additional 7.5% interest in Australia’s GLNG project. This increases TOTAL’s overall stake in the project to 27.5%. acquired a 60% stake in SunPower Corp., a U.S. company listed on Nasdaq with headquarters in San Jose (California), one of the most established players in the American solar industry. Shares of SunPower Corp. continue to be traded on the Nasdaq. The acquisition cost amounts to €200 million ($281 million) and mainly corresponds to the value of mineral interests that have been recognized as intangible assets on the face of the consolidated balance sheet for €203 million. – In March 2011, Total E&P Canada Ltd., a TOTAL subsidiary, and Suncor Energy Inc. (Suncor) have finalized a strategic oil sands alliance encompassing the Suncor-operated Fort Hills mining project, the TOTAL-operated Joslyn mining project and the Suncor-operated Voyageur upgrader project. All three assets are located in the Athabasca region of the province of Alberta, in Canada. TOTAL acquired 19.2% of Suncor’s interest in the Fort Hills project, increasing TOTAL’s overall interest in the project to 39.2%. Suncor, as operator, holds 40.8%. TOTAL also acquired a 49% stake in the Suncor-operated Voyageur upgrader project. For those two acquisitions, the Group paid €1,945 million (CAD 2,666 million) mainly representing the value of mineral interests for €445 million and the value of tangible assets for €1,473 million. As of completion date (June 21, 2011), the public offer has led, on the basis of acceptances received, to a cash settlement of $1,394 million (€974 million). As part of the transaction, various agreements were signed, including a financial guarantee agreement through which TOTAL guarantees up to $1 billion SunPower’s repayments obligations under letters of credit that would be issued during the next five years for the development of solar power plants and large roofs activities. Furthermore, after the closing of the offer, antitrust authorities of the European Commission have given their approval to the transaction on June 28, 2011; U.S. antitrust authorities had, on their side, given their approval to the transaction at the end of May 2011. The composition of SunPower’s Board of Directors has been modified (on July 1, 2011), with the appointment of six members representing TOTAL among eleven directors. Furthermore, TOTAL sold to Suncor 36.75% interest in the Joslyn project for €614 million (CAD 842 million), and received the cash payment in April 2011. The Group, as operator, retains a 38.25% interest in the project. As TOTAL took control of SunPower after the closing of the offer, at a date very close to the balance sheet date of June 30, 2011, the Group could not carry out the usual diligences on the accounts of acquired companies for their inclusion in the consolidated financial statements as of June 30, 2011. – TOTAL finalized in April 2011 the sale of its 75.8% interest in its upstream Cameroonian affiliate Total E&P Cameroun to Perenco, for an amount of €171 million ($244 million), net of cash sold. – TOTAL and the Russian company Novatek signed in March 2011 two Memorandums of Cooperation to develop the cooperation between TOTAL on one side, and Novatek and its main shareholders on the other side. As a result, acquired shares have been temporarily classified as “Other investments” on the face of the consolidated balance sheet for €974 million. The purchase price allocation, the measurement of goodwill, of assets acquired and liabilities assumed at acquisition date and of fair value adjustments determined temporarily will be presented in the second half of 2011. This cooperation is developed around two transactions: TOTAL took a 12.09% shareholding in Novatek. This transaction has been effective since April 1, 2011 and amounted to €2,901 million ($4,108 million). TOTAL considers that it has a significant influence through its representation on the Board of Directors of Novatek and its participation in the Yamal LNG project. Therefore, the interest in Novatek is accounted for by the equity method as from the second quarter 2011. The carrying amount of the main balance sheet indicators as they appear in the latest quarterly statements prepared under U.S. GAAP (before fair value adjustments and restatements to TOTAL’s standards) and published by SunPower Corp. (unaudited figures) as of March 31, 2011 is as follows: $ millions € millions Non current assets 1,661 1,169 Current assets 1,804 1,270 TOTAL will become the main international partner on the Yamal LNG project holding a 20% share, and Novatek will hold a 51% interest in the project. The signature of definitive agreements should occur during the third quarter of 2011. – After the all-cash tender of $23.25 per share launched on Total Assets 3,465 2,439 Equity 1,627 1,145 Non current liabilities 791 557 Current liabilities 1,047 737 April 28, 2011 and completed on June 21, 2011, TOTAL has Total Liabilities 3,465 2,439 Financial Report - 1st half 2011. TOTAL 23 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Downstream and Chemicals segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between 24 TOTAL. Financial Report - 1st half 2011 one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value As from January 1, 2011, the effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. (iv) Until June 30, 2010, TOTAL’s equity share of adjustment items reconciling “Business net income” to Net income attributable to equity holders of Sanofi The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value as from January 1, 2011 and excluding TOTAL’s equity share of adjustment items related to Sanofi until June 30, 2010. The detail of the adjustment items is presented in the table below. Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 ADJUSTMENTS TO OPERATING INCOME (in millions of euros) Upstream Downstream Chemicals Corporate Total 2nd quarter 2011 Inventory valuation effect - (72) (15) - (87) Effect of changes in fair value (55) - - - (55) Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (63) - - (63) Total (55) (135) (15) - (205) 2nd quarter 2010 Inventory valuation effect - 255 (41) - 214 Effect of changes in fair value - - - - - Restructuring charges - - - - - Asset impairment charges - - (8) - (8) Other items - - (16) - (16) Total - 255 (65) - 190 1st half 2011 Inventory valuation effect - 1,154 115 - 1,269 Effect of changes in fair value 29 - - - 29 Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (63) - - (63) Total 29 1,091 115 - 1,235 1st half 2010 Inventory valuation effect - 635 65 - 700 Effect of changes in fair value - - - - - Restructuring charges - - - - - Asset impairment charges - - (8) - (8) Other items - (50) (16) - (66) Total - 585 41 - 626 ADJUSTMENTS TO NET INCOME GROUP SHARE (in millions of euros) Upstream Downstream Chemicals Corporate Total 2nd quarter 2011 Inventory valuation effect - (57) (17) - (74) Effect of changes in fair value (41) - - - (41) TOTAL's equity share of adjustments related to Sanofi - - - - - Restructuring charges - - - - - Asset impairment charges (47) - - - (47) Gains (losses) on disposals of assets 164 - - 41 205 Other items - (45) (66) - (111) Total 76 (102) (83) 41 (68) 2nd quarter 2010 Inventory valuation effect - 194 (25) - 169 Effect of changes in fair value - - - - - TOTAL's equity share of adjustments related to Sanofi - - - (40) (40) Restructuring charges - - (10) - (10) Asset impairment charges - - (6) - (6) Gains (losses) on disposals of assets - - 29 34 63 Other items (27) - (9) - (36) Total (27) 194 (21) (6) 140 1st half 2011 Inventory valuation effect - 777 95 - 872 Effect of changes in fair value 22 - - - 22 TOTAL's equity share of adjustments related to Sanofi - - - - - Restructuring charges - - - - - Asset impairment charges (47) - - - (47) Gains (losses) on disposals of assets 164 - - 52 216 Other items (178) (45) (66) - (289) Total (39) 732 29 52 774 1st half 2010 Inventory valuation effect - 463 50 - 513 Effect of changes in fair value - - - - - TOTAL's equity share of adjustments related to Sanofi - - - (81) (81) Restructuring charges - - (10) - (10) Asset impairment charges (59) - (6) - (65) Gains (losses) on disposals of assets - - 29 163 192 Other items (44) (39) (9) - (92) Total (103) 424 54 82 457 In the first half of 2011, the heading “Other items” includes the impact of the change in taxation in the United Kingdom on the deferred tax liability for €(178) million. The House of Commons voted provisionally the increase of the Supplementary charge applicable to oil activities from 20% to 32%, pending a final vote of the Finance Act 2011. Financial Report - 1st half 2011. TOTAL 25 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 4) Shareholders’ equity A) Treasury shares – 98,307,596 shares held by subsidiaries of Elf Aquitaine (TOTAL shares held by TOTAL S.A.) (Financière Valorgest, Sogapar and Fingestval). As of June 30, 2011, TOTAL S.A. held 12,152,607 of its own shares, representing 0.51% of its share capital, detailed as follows: These 100,331,268 shares are deducted from the consolidated shareholders’ equity. – 6,009,532 shares allocated to TOTAL restricted shares plans for C) Dividend Group employees; and – 6,143,075 shares intended to be allocated to new TOTAL share purchase option plans or to new restricted shares plans. These 12,152,607 shares are deducted from the consolidated shareholders’ equity. The shareholders’ meeting of May 13, 2011 approved the payment of a cash dividend of €2.28 per share for the fiscal year 2010. Taking into account an interim dividend of €1.14 per share paid on November 17, 2010, the remaining balance of €1.14 per share was paid on May 26, 2011. B) Treasury shares (TOTAL shares held by Group subsidiaries) As of June 30, 2011, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.25% of its share capital, detailed as follows: The Board of Directors of October 28, 2010 decided to pay interim dividends on a quarterly basis beginning in fiscal year 2011. The Board of Directors of April 28, 2011 and the one of July 28, 2011 approved interim dividends of €0.57 per share for first quarter 2011 and €0.57 per share for second quarter 2011, that will be paid on September 22 and December 22, 2011 respectively. – 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly held by TOTAL S.A.; D) Other Comprehensive Income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of euros) 1st half 2011 1st half 2010 (2,644) 4,996 Currency translation adjustment 4,999 – Unrealized gain/(loss) of the period (2,633) – Less gain/(loss) included in net income 11 3 (52) Available for sale financial assets 430 – Unrealized gain/(loss) of the period 433 (3) – Less gain/(loss) included in net income 3 49 Cash flow hedge (35) – Unrealized gain/(loss) of the period 38 – Less gain/(loss) included in net income 73 (51) (347) (296) Share of other comprehensive income of equity affiliates, net amount (103) 475 Other (2) 3 – Unrealized gain/(loss) of the period (2) 3 - – Less gain/(loss) included in net income - Tax effect (29) 18 Total other comprehensive income, net amount (2,383) 5,389 Tax effects relating to each component of other comprehensive income are as follows: (in millions of euros) 1st half 2011 1st half 2010 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Currency translation adjustment (2,644) (2,644) 4,996 4,996 Available for sale financial assets 430 (41) 389 (52) 1 (51) Cash flow hedge (35) 12 (23) (51) 17 (34) Share of other comprehensive income of equity affiliates, net amount (103) (103) 475 475 Other (2) (2) 3 3 Total other comprehensive income (2,354) (29) (2,383) 5,371 18 5,389 26 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 5) Financial debt The Group issued bonds through its subsidiaries Total Capital and Total Capital Canada Ltd. during the first six months of 2011: − Bond 6.500% 2011-2016 (150 million AUD) − Bond 3.875% 2011-2018 (500 million GBP) − Bond 4.125% 2011-2021 (500 million USD) − Bond 1.625% 2011-2014 (750 million USD) − Bond Libor USD 3 months + 0.380% 2011-2014 (750 million USD) − Bond 5.750% 2011-2014 (100 million AUD) − Bond Libor USD 3 months + 0.09% 2011-2013 (1,000 million USD) The Group reimbursed bonds during the first six months of 2011: − Bond 5.750% 2005-2011 (100 million AUD) − Bond 4.000% 2005-2011 (100 million CAD) − Bond 5.750% 2004-2011 (100 million AUD) − Bond 7.500% 2008-2011 (150 million AUD) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2011. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Antitrust investigations – In the United States, investigations into certain commercial practices of some subsidiaries of the Arkema group have been closed since 2007; no charges have been brought against Arkema. Civil liability lawsuits, for which TOTAL S.A. has been named as the parent company, are about to be closed and are not expected to have a significant impact on the Group’s financial position. During the first half of 2011, the Group has not been fined pursuant to a Court ruling. The principal antitrust proceedings in which the Group’s companies are involved are described thereafter. Chemicals segment – As part of the spin-off of Arkema(1) in 2006, TOTAL S.A. or certain other Group companies agreed to grant Arkema guarantees for potential monetary consequences related to antitrust proceedings arising from events prior to the spin-off. These guarantees cover, for a period of ten years, 90% of amounts paid by Arkema related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. The guarantee related to anti-competition violations in Europe applies to amounts above a €176.5 million threshold. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group company for 10% of any amount that TOTAL S.A. or any Group company are required to pay under any of the proceedings covered by these guarantees. If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, these guarantees will become void. – In Europe, since 2006, the European Commission has fined companies of the Group in its configuration prior to the spin-off an overall amount of €385.47 million, of which Elf Aquitaine and/or TOTAL S.A. were held jointly liable for €280.17 million, Elf Aquitaine being personally fined €23.6 million for deterrence. These fines are entirely settled as of today. As a result, since the spin-off, the Group has paid the overall amount of €188.07 million(2), corresponding to 90% of the fines overall amount once the threshold provided for by the guarantee is deducted. The European Commission imposed these fines following investigations between 2000 and 2004 into commercial practices involving eight products sold by Arkema. Five of these investigations resulted in prosecutions from the European Commission for which Elf Aquitaine has been named as the parent company, and two of these investigations named TOTAL S.A. as the ultimate parent company of the Group. TOTAL S.A. and Elf Aquitaine are contesting their liability based solely on their status as parent companies and appealed for cancellation and reformation of the rulings that are still pending before the relevant EU court of appeals or supreme court of appeals. Within the framework of one of these proceedings, the General Court of the European Union, in a decision dated June 7, 2011, partially accepted Arkema’s appeal, reducing the fine pronounced against it by the amount of €105.79 million. On the same day, the General Court rejected the appeal lodged by TOTAL S.A. and Elf Aquitaine. Considering the latter remain liable for Arkema’s infringement, the European Commission (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. (2) This amount does not take into account a case that led to Arkema, prior to Arkema’s spin-off from TOTAL, and Elf Aquitaine being fined jointly €45 million and Arkema being fined €13.5 million. Financial Report - 1st half 2011. TOTAL 27 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 demanded the payment of €105.79 million (plus interest of €31.31 million). Elf Aquitaine paid these amounts in July 2011. Lodging an appeal is being considered. Besides, civil proceedings against Arkema and other groups of companies were initiated before German and Dutch courts by third parties for alleged damages pursuant to two of the above described legal proceedings engaged by the European Commission. TOTAL S.A. was summoned to serve notice of the dispute before the German court. At this point, the probability to have a favorable verdict and the financial impacts of these procedures are uncertain due to the number of legal difficulties they gave rise to, the lack of documented claims and the complex evaluation of the alleged damages. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema regarding events prior to the spin-off, as well as Elf Aquitaine and/or TOTAL S.A. based on their status as parent company. Within the framework of the legal proceedings described above, a €17 million reserve remains booked in the Group’s consolidated financial statements as of June 30, 2011. Downstream segment – Pursuant to a statement of objections received by Total Nederland N.V. and TOTAL S.A. (based on its status as parent company) from the European Commission, Total Nederland N.V. was fined in 2006 €20.25 million, which has been paid, and for which TOTAL S.A. was held jointly liable for €13.5 million. TOTAL S.A. appealed this decision before the relevant court and this appeal is still pending. In addition, pursuant to a statement of objections received by Total Raffinage Marketing (formerly Total France) and TOTAL S.A. from the European Commission regarding another product line of the Refining & Marketing division, Total Raffinage Marketing was fined €128.2 million in 2008, which has been paid, and for which TOTAL S.A. was held jointly liable based on its status as parent company. TOTAL S.A. also appealed this decision before the relevant court and this appeal is still pending. – Finally, TotalGaz and Total Raffinage Marketing received a statement of objections in July 2009 from the French Antitrust Authority (“Autorité de la concurrence française”) regarding alleged antitrust practices concerning another product line of the Refining & Marketing division. The case was dismissed by decision of the French antitrust authorities on December 17, 2010. Whatever the evolution of the investigations and proceedings described above, the Group believes that their outcome should not have a material adverse effect on the Group’s financial situation or consolidated results. Buncefield On December 11, 2005, several explosions, followed by a major fire, occurred at an oil storage depot at Buncefield, north of London. This depot was operated by Hertfordshire Oil Storage Limited (HOSL), a company in which TOTAL’s UK subsidiary holds 60% and another oil group holds 40%. The explosion caused injuries, most of which were minor injuries, to a number of people and caused property damage to the depot and 28 TOTAL. Financial Report - 1st half 2011 the buildings and homes located nearby. The official Independent Investigation Board has indicated that the explosion was caused by the overflow of a tank at the depot. The Board’s final report was released on December 11, 2008. The civil procedure for claims, which had not yet been settled, took place between October and December 2008. The Court’s decision of March 20, 2009, declared TOTAL’s UK subsidiary liable for the accident and solely liable for indemnifying the victims. The subsidiary appealed the decision. The appeal trial took place in January 2010. The Court of Appeals, by a decision handed down on March 4, 2010, confirmed the prior judgment. The Supreme Court of United Kingdom has partially authorized TOTAL’s UK subsidiary to contest the decision. TOTAL’s UK subsidiary finally decided to withdraw from this recourse due to settlement agreements reached in mid-February 2011. The Group carries insurance for damage to its interests in these facilities, business interruption and civil liability claims from third parties. The provision for the civil liability that appears in the Group’s consolidated financial statements as of June 30, 2011, stands at €96 million after taking into account the payments previously made. The Group believes that, based on the information currently available, on a reasonable estimate of its liability and on provisions recognized, this accident should not have a significant impact on the Group’s financial situation or consolidated results. In addition, on December 1, 2008, the Health and Safety Executive (HSE) and the Environment Agency (EA) issued a Notice of prosecution against five companies, including TOTAL’s UK subsidiary. By a judgment on July 16, 2010, the subsidiary was fined £3.6 million and paid it. The decision takes into account a number of elements that have mitigated the impact of the charges brought against it. Erika Following the sinking in December 1999 of the Erika, a tanker that was transporting products belonging to one of the Group companies, the “Tribunal de grande instance” of Paris convicted TOTAL S.A. of marine pollution pursuant to a judgment issued on January 16, 2008, finding that TOTAL S.A. was negligent in its vetting procedure for vessel selection, and ordering TOTAL S.A. to pay a fine of €375,000. The court also ordered compensation to be paid to those affected by the pollution from the Erika up to an aggregate amount of €192 million, declaring TOTAL S.A. jointly and severally liable for such payments together with the Erika’s inspection and classification firm, the Erika’s owner and the Erika’s manager. TOTAL has appealed the verdict of January 16, 2008. In the meantime, it nevertheless proposed to pay third parties who so requested definitive compensation as determined by the court. Forty-two third parties have been compensated for an aggregate amount of €171.5 million. By a decision dated March 30, 2010, the Court of Appeal of Paris upheld the lower court verdict pursuant to which TOTAL S.A. was convicted of marine pollution and fined €375,000. TOTAL appealed this decision to the French Supreme Court (“Cour de cassation”). However, the Court of Appeal ruled that TOTAL S.A. bears no civil liability according to the applicable international conventions and consequently ruled that TOTAL S.A. be not convicted. TOTAL S.A. believes that, based on the information currently available, the case should not have a significant impact on the Group’s financial situation or consolidated results. Blue Rapid and the Russian Olympic Committee - Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. Blue Rapid and the Russian Olympic Committee appealed this decision. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract’s termination. In connection with the same facts, and fifteen years after the termination of the exploration and production contract, a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation which were not even parties to the contract, have launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of U.S.$ 22.4 billion. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as to a matter of law or fact. The Group has lodged a criminal complaint to denounce the fraudulent claim which the Group believes it is a victim of and, has taken and reserved its rights to take other actions and measures to defend its interests. Iran In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran, by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with a consultant concerning a gas field in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. Investigations are still pending and the Company is cooperating with the SEC and the DoJ. In 2010, the Company opened talks with U.S. authorities, without any acknowledgement of facts, to consider an out-of-court settlement. Generally, out-of-court settlements with U.S. authorities include payment of fines and the obligation to improve internal compliance systems or other measures. In this same case, a judicial inquiry related to TOTAL was initiated in France in 2006. In 2007, the Company’s Chief Executive Officer was placed under formal investigation in relation to this inquiry, as the former President of the Middle East department of the Group’s Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 Exploration & Production division. The Company has not been notified of any significant developments in the proceedings since the formal investigation was launched. At this point, the Company cannot determine when these investigations will terminate, and cannot predict their results, or the outcome of the talks that have been initiated, or the costs of a potential out-of-court settlement. Resolving this case is not expected to have a significant impact on the Group’s financial situation or any impact on its future planned operations. Libya Having regard to the context in Libya, the Group’s production in Libya has been stopped since early March. The Group continues mitigating the consequences of such situation on its operations and projects in Libya. In addition, since February 2011, several embargo and sanction regimes have been imposed by the United Nations, as well as the EU and US authorities prohibiting certain financial and assets transactions with respect to a list of individuals and to various Libyan banks and other entities linked with the regime. TOTAL has taken all necessary steps not to contravene with these measures and believes that it does not carry out any activities in contravention of these measures. Lastly, in June 2011, the United States Securities and Exchange Commission (SEC) issued to certain oil companies - including, among others, TOTAL - a formal request for information related to their operations in Libya. TOTAL is cooperating with this non public investigation. Syria Since May 10, 2011, the European Union adopted measures prohibiting the supply of certain equipment to Syria, as well as prohibiting certain financial and asset transactions with respect to a list of named individuals and entities. These measures apply to European persons and to entities constituted under the laws of a EU Member State. TOTAL does not believe that its current business activities in Syria are in contravention of these measures. During the first half of 2011, the Group’s activities have not been significantly impacted by the deterioration of the security context in Syria. Yemen During the first half of 2011, the Group’s activities have not been significantly impacted by the deterioration of the security context in Yemen. Commitments In the Upstream, the Group has signed during the first half of 2011 guarantees in respect of construction contracts for an amount of about €2.9 billion. Financial Report - 1st half 2011. TOTAL 29 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 8) Business segment information 1st half 2011 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales 11,310 69,320 10,396 12 - 91,038 Intersegment sales 13,280 3,117 642 84 (17,123) - Excise taxes - (8,971) - - - (8,971) Revenues from sales 24,590 63,466 11,038 96 (17,123) 82,067 Operating expenses (11,010) (61,242) (10,142) (314) 17,123 (65,585) Depreciation, depletion and amortization of tangible assets and mineral interests (2,340) (619) (241) (17) - (3,217) Operating income 11,240 1,605 655 (235) - 13,265 Equity in income (loss) of affiliates and other items 816 96 100 270 - 1,282 Tax on net operating income (6,802) (471) (241) (53) - (7,567) Net operating income 5,254 1,230 514 (18) - 6,980 Net cost of net debt - - - - - (130) Minority interests - - - - - (178) Net income - - - - - 6,672 1st half 2011 (adjustments)(a) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales 29 - - - - 29 Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales 29 - - - - 29 Operating expenses - 1,091 115 - - 1,206 Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income(b) 29 1,091 115 - - 1,235 Equity in income (loss) of affiliates and other items 121 12 (12) 54 - 175 Tax on net operating income (202) (346) (74) (2) - (624) Net operating income(b) (52) 757 29 52 - 786 Net cost of net debt - - - - - - Minority interests - - - - - (12) Net income - - - - - 774 (a) Adjustments include special items, inventory valuation effect and, as from January 1st, 2011, the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Downstream Chemicals Corporate On operating income - 1,154 115 - - On net operating income - 802 95 - 30 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 1st half 2011 (adjusted) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros)(a) Non-Group sales 11,281 69,320 10,396 12 - 91,009 Intersegment sales 13,280 3,117 642 84 (17,123) - Excise taxes - (8,971) - - - (8,971) Revenues from sales 24,561 63,466 11,038 96 (17,123) 82,038 Operating expenses (11,010) (62,333) (10,257) (314) 17,123 (66,791) Depreciation, depletion and amortization of tangible assets and mineral interests (2,340) (619) (241) (17) - (3,217) Adjusted operating income 11,211 514 540 (235) - 12,030 Equity in income (loss) of affiliates and other items 695 84 112 216 - 1,107 Tax on net operating income (6,600) (125) (167) (51) - (6,943) Adjusted net operating income 5,306 473 485 (70) - 6,194 Net cost of net debt - - - - - (130) Minority interests - - - - - (166) Ajusted net income - - - - - 5,898 Adjusted fully-diluted earnings per share (€) - - - - - 2.62 (a) Except for per share amounts. 1st half 2011 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Total expenditures 12,100 726 380 47 - 13,253 Total divestments 1,256 51 26 668 - 2,001 Cash flow from operating activities 10,248 1,165 (6) (629) - 10,778 Financial Report - 1st half 2011. TOTAL 31 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 1st half 2010 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales 9,115 60,998 8,812 7 - 78,932 Intersegment sales 11,019 2,475 507 87 (14,088) - Excise taxes - (9,444) - - - (9,444) Revenues from sales 20,134 54,029 9,319 94 (14,088) 69,488 Operating expenses (8,818) (52,081) (8,553) (318) 14,088 (55,682) Depreciation, depletion and amortization of tangible assets and mineral interests (2,548) (623) (266) (19) - (3,456) Operating income 8,768 1,325 500 (243) - 10,350 Equity in income (loss) of affiliates and other items 298 155 123 432 - 1,008 Tax on net operating income (4,995) (414) (138) 142 - (5,405) Net operating income 4,071 1,066 485 331 - 5,953 Net cost of net debt - - - - - (107) Minority interests - - - - - (132) Net income - - - - - 5,714 1st half 2010 (adjustments)(a) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales - - - - - - Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales - - - - - Operating expenses - 585 49 - - 634 Depreciation, depletion and amortization of tangible assets and mineral interests - - (8) - - (8) Operating income(b) - 585 41 - - 626 Equity in income (loss) of affiliates and other items(c) (146) 41 22 84 - 1 Tax on net operating income 43 (198) (9) (2) - (166) Net operating income(b) (103) 428 54 82 - 461 Net cost of net debt - - - - - - Minority interests - - - - - (4) Net income - - - - - 457 (a) Adjustments include special items, inventory valuation effect and, until June 30, 2010, equity share of adjustments related to Sanofi. (b) Of which inventory valuation effect Upstream Downstream Chemicals Corporate On operating income - 635 65 - - On net operating income - 467 50 - (c) Of which equity share of adjustments related to Sanofi - - - (81) 32 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 1st half 2010 (adjusted) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros)(a) Non-Group sales 9,115 60,998 8,812 7 - 78,932 Intersegment sales 11,019 2,475 507 87 (14,088) - Excise taxes - (9,444) - - - (9,444) Revenues from sales 20,134 54,029 9,319 94 (14,088) 69,488 Operating expenses (8,818) (52,666) (8,602) (318) 14,088 (56,316) Depreciation, depletion and amortization of tangible assets and mineral interests (2,548) (623) (258) (19) - (3,448) Adjusted operating income 8,768 740 459 (243) - 9,724 Equity in income (loss) of affiliates and other items 444 114 101 348 - 1,007 Tax on net operating income (5,038) (216) (129) 144 - (5,239) Adjusted net operating income 4,174 638 431 249 - 5,492 Net cost of net debt - - - - - (107) Minority interests - - - - - (128) Ajusted net income - - - - - 5,257 Adjusted fully-diluted earnings per share (€) - - - - - 2.34 (a) Except for per share amounts. 1st half 2010 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Total expenditures 5,866 1,018 238 33 - 7,155 Total divestments 261 38 334 1,265 - 1,898 Cash flow from operating activities 8,834 1,496 387 (515) - 10,202 Financial Report - 1st half 2011. TOTAL 33 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 2nd quarter 2011 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales 5,166 34,551 5,291 1 - 45,009 Intersegment sales 6,341 1,535 345 43 (8,264) - Excise taxes - (4,544) - - - (4,544) Revenues from sales 11,507 31,542 5,636 44 (8,264) 40,465 Operating expenses (5,072) (31,149) (5,251) (161) 8,264 (33,369) Depreciation, depletion and amortization of tangible assets and mineral interests (1,100) (300) (122) (9) - (1,531) Operating income 5,335 93 263 (126) - 5,565 Equity in income (loss) of affiliates and other items 473 37 18 255 - 783 Tax on net operating income (3,275) (20) (117) (53) - (3,465) Net operating income 2,533 110 164 76 - 2,883 Net cost of net debt - - - - - (71) Minority interests - - - - - (86) Net income - - - - - 2,726 2nd quarter 2011 (adjustments)(a) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales (55) - - - - (55) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (55) - - - - (55) Operating expenses - (135) (15) - - (150) Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income(b) (55) (135) (15) - - (205) Equity in income (loss) of affiliates and other items 121 (2) (37) 43 - 125 Tax on net operating income 10 50 (31) (2) - 27 Net operating income(b) 76 (87) (83) 41 - (53) Net cost of net debt - - - - - - Minority interests - - - - - (15) Net income - - - - - (68) (a) Adjustments include special items, inventory valuation effect and, as from January 1st, 2011, the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Downstream Chemicals Corporate On operating income - (72) (15) - - On net operating income - (42) (17) - 34 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 2nd quarter 2011 (adjusted) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros)(a) Non-Group sales 5,221 34,551 5,291 1 - 45,064 Intersegment sales 6,341 1,535 345 43 (8,264) - Excise taxes - (4,544) - - - (4,544) Revenues from sales 11,562 31,542 5,636 44 (8,264) 40,520 Operating expenses (5,072) (31,014) (5,236) (161) 8,264 (33,219) Depreciation, depletion and amortization of tangible assets and mineral interests (1,100) (300) (122) (9) - (1,531) Adjusted operating income 5,390 228 278 (126) - 5,770 Equity in income (loss) of affiliates and other items 352 39 55 212 - 658 Tax on net operating income (3,285) (70) (86) (51) - (3,492) Adjusted net operating income 2,457 197 247 35 - 2,936 Net cost of net debt - - - - (71) Minority interests - - - - (71) Ajusted net income - - - - - 2,794 Adjusted fully-diluted earnings per share (€) - - - - - 1.24 (a) Except for per share amounts. 2nd quarter 2011 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Total expenditures 6,868 462 209 31 - 7,570 Total divestments 921 28 12 377 - 1,338 Cash flow from operating activities 5,605 7 138 (686) - 5,064 Financial Report - 1st half 2011. TOTAL 35 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 2nd quarter 2010 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales 4,546 32,190 4,589 4 - 41,329 Intersegment sales 5,717 1,394 270 45 (7,426) - Excise taxes - (5,002) - - - (5,002) Revenues from sales 10,263 28,582 4,859 49 (7,426) 36,327 Operating expenses (4,364) (27,460) (4,483) (173) 7,426 (29,054) Depreciation, depletion and amortization of tangible assets and mineral interests (1,292) (318) (136) (11) - (1,757) Operating income 4,607 804 240 (135) - 5,516 Equity in income (loss) of affiliates and other items 190 124 78 168 - 560 Tax on net operating income (2,621) (250) (65) 85 - (2,851) Net operating income 2,176 678 253 118 - 3,225 Net cost of net debt - - - - - (57) Minority interests - - - - - (67) Net income - - - - - 3,101 2nd quarter 2010 (adjustments)(a) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Non-Group sales - - - - - - Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales - - - - - - Operating expenses - 255 (57) - - 198 Depreciation, depletion and amortization of tangible assets and mineral interests - - (8) - - (8) Operating income(b) - 255 (65) - - 190 Equity in income (loss) of affiliates and other items(c) (40) 25 18 (7) - (4) Tax on net operating income 13 (85) 26 - - (46) Net operating income(b) (27) 195 (21) (7) - 140 Net cost of net debt - - - - - - Minority interests - - - - - - Net income - - - - - 140 (a) Adjustments include special items, inventory valuation effect and, until June 30, 2010, equity share of adjustments related to Sanofi. (b) Of which inventory valuation effect Upstream Downstream Chemicals Corporate On operating income - 255 (41) - - On net operating income - 195 (25) - (c) Of which equity share of adjustments related to Sanofi - - - (40) 36 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 2nd quarter 2010 (adjusted) Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros)(a) Non-Group sales 4,546 32,190 4,589 4 - 41,329 Intersegment sales 5,717 1,394 270 45 (7,426) - Excise taxes - (5,002) - - - (5,002) Revenues from sales 10,263 28,582 4,859 49 (7,426) 36,327 Operating expenses (4,364) (27,715) (4,426) (173) 7,426 (29,252) Depreciation, depletion and amortization of tangible assets and mineral interests (1,292) (318) (128) (11) - (1,749) Adjusted operating income 4,607 549 305 (135) - 5,326 Equity in income (loss) of affiliates and other items 230 99 60 175 - 564 Tax on net operating income (2,634) (165) (91) 85 - (2,805) Adjusted net operating income 2,203 483 274 125 - 3,085 Net cost of net debt - - - - - (57) Minority interests - - - - - (67) Ajusted net income - - - - - 2,961 Adjusted fully-diluted earnings per share (€) - - - - - 1.32 (a) Except for per share amounts. 2nd quarter 2010 Upstream Downstream Chemicals Corporate Intercompany Total (in millions of euros) Total expenditures 2,723 562 144 17 - 3,446 Total divestments 174 11 328 337 - 850 Cash flow from operating activities 4,154 1,042 477 (731) - 4,942 Financial Report - 1st half 2011. TOTAL 37 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 9) Reconciliation between information by business segment and the consolidated statement of income Adjusted Adjustments Consolidated 1st half 2011 statement (in millions of euros) of income Sales 91,009 29 91,038 Excise taxes (8,971) - (8,971) Revenues from sales 82,038 29 82,067 Purchases, net of inventory variation (56,910) 1,269 (55,641) Other operating expenses (9,443) (63) (9,506) Exploration costs (438) - (438) Depreciation, depletion and amortization of tangible assets and mineral interests (3,217) - (3,217) Other income 109 222 331 Other expense (129) (68) (197) Financial interest on debt (295) - (295) Financial income from marketable securities & cash equivalents 102 - 102 Cost of net debt (193) - (193) Other financial income 410 - 410 Other financial expense (212) - (212) Equity in income (loss) of affiliates 929 21 950 Income taxes (6,880) (624) (7,504) Consolidated net income 6,064 786 6,850 Group share 5,898 774 6,672 Minority interests 166 12 178 Adjusted Adjustments Consolidated 1st half 2010 statement (in millions of euros) of income Sales 78,932 - 78,932 Excise taxes (9,444) - (9,444) Revenues from sales 69,488 - 69,488 Purchases, net of inventory variation (46,330) 700 (45,630) Other operating expenses (9,479) (66) (9,545) Exploration costs (507) - (507) Depreciation, depletion and amortization of tangible assets and mineral interests (3,448) (8) (3,456) Other income 80 194 274 Other expense (167) (159) (326) Financial interest on debt (213) - (213) Financial income from marketable securities & cash equivalents 48 - 48 Cost of net debt (165) - (165) Other financial income 213 - 213 Other financial expense (190) - (190) Equity in income (loss) of affiliates 1,071 (34) 1,037 Income taxes (5,181) (166) (5,347) Consolidated net income 5,385 461 5,846 Group share 5,257 457 5,714 Minority interests 128 4 132 38 TOTAL. Financial Report - 1st half 2011 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2011 Adjusted Adjustments Consolidated 2nd quarter 2011 statement (in millions of euros) of income Sales 45,064 (55) 45,009 Excise taxes (4,544) - (4,544) Revenues from sales 40,520 (55) 40,465 Purchases, net of inventory variation (28,299) (87) (28,386) Other operating expenses (4,741) (63) (4,804) Exploration costs (179) - (179) Depreciation, depletion and amortization of tangible assets and mineral interests (1,531) - (1,531) Other income 35 211 246 Other expense (70) (68) (138) Financial interest on debt (159) - (159) Financial income from marketable securities & cash equivalents 55 - 55 Cost of net debt (104) - (104) Other financial income 335 - 335 Other financial expense (104) - (104) Equity in income (loss) of affiliates 462 (18) 444 Income taxes (3,459) 27 (3,432) Consolidated net income 2,865 (53) 2,812 Group share 2,794 (68) 2,726 Minority interests 71 15 86 Adjusted Adjustments Consolidated 2nd quarter 2010 statement (in millions of euros) of income Sales 41,329 - 41,329 Excise taxes (5,002) - (5,002) Revenues from sales 36,327 - 36,327 Purchases, net of inventory variation (24,143) 214 (23,929) Other operating expenses (4,817) (16) (4,833) Exploration costs (292) - (292) Depreciation, depletion and amortization of tangible assets and mineral interests (1,749) (8) (1,757) Other income 52 62 114 Other expense (61) (53) (114) Financial interest on debt (113) - (113) Financial income from marketable securities & cash equivalents 24 - 24 Cost of net debt (89) - (89) Other financial income 142 - 142 Other financial expense (95) - (95) Equity in income (loss) of affiliates 526 (13) 513 Income taxes (2,773) (46) (2,819) Consolidated net income 3,028 140 3,168 Group share 2,961 140 3,101 Minority interests 67 - 67 Financial Report - 1st half 2011. TOTAL 39 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2011 10) Changes in progress in the Group structure A) Upstream – TOTAL signed in March 2011 agreements for the acquisition in Uganda of a one-third interest in Blocks 1, 2 and 3A held by Tullow Oil plc for $1,467 million (amount as of January 1, 2010, to which will add costs of interim period). Following this acquisition, TOTAL becomes an equal partner with Tullow and CNOOC in the blocks, each with a one-third interest and each being an operator of one of the blocks. Subject to the decision of the Authorities, TOTAL will be the operator of Block 1. and terminated on July 22, 2011. In accordance with the agreement of February 15, 2011, TOTAL already tendered to IPIC on July 11 and 12, 2011 all of its equity interest in CEPSA, i.e. 130,668,240 CEPSA shares. Upon final completion of the transaction (settlement of the offer), TOTAL will receive an amount of approximately €3,659 million. As of June 30, 2011, CEPSA’s equity value is presented as “Assets classified as held for sale” on the face of the consolidated balance sheet for €2,885 million. – TOTAL announced in June 2011 the signing of an agreement with Silex Gas Norway AS, a wholly owned subsidiary of Allianz, to sell its entire stake in Gassled (6.4%) and related entities for a price of NOK 4.64 billion (approximately $870 million). The transaction is subject to approval by the relevant authorities. As of June 30, 2011, the assets and liabilities included in the transaction have been classified respectively as “Assets classified as held for sale” on the face of the consolidated balance sheet for €510 million and as “Liabilities directly associated with the assets classified as held for sale” on the face of the consolidated balance sheet for €324 million. – In the United Kingdom, TOTAL announced that it offered for sale its Marketing business, except for certain specialties, and the Lindsey refinery. In June 2011, a sale and purchase agreement has been signed to sell most of its Marketing assets in the United Kingdom, the Channel Islands and the Isle of Man to Rontec Investments LLP, a consortium led by Snax 24, one of the leading independent forecourt operators in the UK. This transaction is expected to be completed later in 2011. The sale process for TOTAL’s refining assets in the UK is ongoing. – TOTAL announced in July 2011 the acquisition of Esso Italiana’s interests respectively in the Gorgoglione concession (25% interest), which contains the Tempa Rossa field, and in two exploration licenses located in the same area (51.7% for each one). The acquisition increases TOTAL’s interest in the operated Tempa Rossa field to 75%, Shell holding the remaining 25%. The transfer of interests is subject to the approval of Italian authorities. As of June 30, 2011, assets and liabilities of the Marketing businesses included in the transaction and of the Refining business have been classified respectively as “Assets classified as held for sale” on the face of the consolidated balance sheet for €1,293 million and as “Liabilities directly associated with the assets classified as held for sale” on the face of the consolidated balance sheet for €3 million. B) Downstream C) Chemicals – TOTAL and International Petroleum Investment Company (a company wholly-owned by the Government of Abu Dhabi) have entered into an agreement on February 15, 2011 for the sale, to International Petroleum Investment Company (IPIC), of the 48.83% equity interest held by TOTAL in the share capital of CEPSA, to be completed within the framework of a public tender offer being launched by IPIC for all the CEPSA shares not yet held by IPIC, at a unit purchase price of €28 per CEPSA share. This public tender offer was approved by the Comisión Nacional del Mercado de Valores (CNMV) on July 6, 2011. The acceptance period of the offer, during which the shareholders of CEPSA may decide to tender their CEPSA shares to IPIC, started on July 8, 2011 – TOTAL announced in December 2010 a plan to sell its photocure and coatings resins businesses to Arkema for a €550 million enterprise value. This sale has been effective on July 1, 2011. As of June 30, 2011, assets and liabilities of the photocure and coatings resins businesses have been classified respectively as “Assets classified as held for sale” on the face of the consolidated balance sheet for €523 million and as “Liabilities directly associated with the assets classified as held for sale” on the face of the consolidated balance sheet for €68 million. The assets mainly include a goodwill for €80 million, tangible assets for €196 million and inventories for €160 million. 11) Post-closing events Since 1966, the Group has been taxed in accordance with the consolidated income tax treatment approved on a three-year renewable basis by the French Ministry of Economy, Finance and Industry. The approval for the period 2008-2010 expired on December 31, 2010. In July 2011, TOTAL S.A. decided not to ask for the renewal of this agreement. As a consequence, TOTAL S.A. is taxed in accordance with the common tax regime as from 2011. This change will be accounted for during the third quarter of 2011 and is not expected to have any significant accounting impacts on the consolidated balance sheet, statement of income and shareholders’ equity of the Group. 40 TOTAL. Financial Report - 1st half 2011 Financial Report - 1st half 2011. TOTAL 41 42 TOTAL. Financial Report - 1st half 2011 PEFC/10-31-2043 This brochure is printed on 100% recyclable and biodegradable coated paper, manufactured from ECF (Elemental Chlorine Free) bleached pulp in a European factory certified ISO 9001 (for its quality management), ISO 14001 (for its environmental management), CoC PEFC (for the use of paper from sustainably managed forests) and is EMAS-accredited (for its environmental performance). Cover photography: © Thierry Gonzalez Design and Production: Agence Marc Praquin see you on www.total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,874,102,327.50 euros 542 051 180 RCS Nanterre www.total.com Standard: +33 (0)1 47 44 45 46 Investor Relations: +33 (0)1 47 44 58 53 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2011, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,012 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
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| Financial Report 1st half 2012 Contents 1. Financial Report - 1st half 2012 1. Key figures .......................................1 2. Group results...................................2 2.1. Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.2. Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.3. Investments - divestments . . . . . . . . . . . . . . . . . . . . . . . .2 2.4. Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 3. Analysis of business segment results..............................................3 3.1. Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 3.2. Refining & Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 3.3. Supply & Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 4. TOTAL S.A. parent company accounts .........................................6 5. Highlights since the beginning of 2012............................................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment in first half 2012 . . .7 7.2. Adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 7.3. Effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 7.4. Investments - divestments . . . . . . . . . . . . . . . . . . . . . . . .9 7.5. Net-debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . .9 7.6. Return on average capital employed . . . . . . . . . . . . . .10 8. Principal risks and uncertainties for the remaining six months of 2012....11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the condensed half-yearly consolidated financial statements ..13 2. Consolidated statement of income ..14 3. Consolidated statement of comprehensive income..............15 4. Consolidated statement of income ..16 5. Consolidated statement of comprehensive income..............17 6. Consolidated balance sheet ..........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow ...................................20 9. Consolidated statement of changes in shareholders’ equity...................21 10. Notes to the consolidated financial statements for the first six months of 2012........................22 1) Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 2) Changes in the Group structure, main acquisitions and divestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 3) Adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 4) Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 5) Financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 6) Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 7) Other risks and contingent liabilities . . . . . . . . . . . . . . .26 8) Business segment information . . . . . . . . . . . . . . . . . . .31 9) Reconciliation of the information by business segment with consolidated financial statements . . . . . . . . . . . . .39 10) Changes in progress in the Group structure . . . . . . . . .41 11) Post-closing events . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Financial Report 1st half 2012 This is a free translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed consolidated financial statements for the first half 2012 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year, their impact on condensed set of financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 13 of this half-year financial report.” Christophe de Margerie Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 27, 2012 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report - 1st half 2012. TOTAL i ii Abbreviations b: cf: /d: /y: €: $ and/or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe/d kboe/d: thousand barrel/d kb/d: British thermal unit Btu: million M: billion B: European Refining Margin Indicator. Refining margin indicator after ERMI: variable costs for a theoretical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. International Financial Reporting Standards liquefied natural gas Return on Equity Return on Average Capital Employed barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: TOTAL. Financial Report - 1st half 2012 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,447 cf of gas* 1 b/d = approx. 50 t/y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3/y = approx. 0.1 Bcf/d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt/y of LNG = approx. 131 Mcf/d This ratio is calculated based on the actual average equivalent energy content of TOTAL's natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Financial Report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of, France. The terms “Company” and “issuer” as used in this Financial Report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2012 Financial Report - 1st half 2012 1 Financial Report - 1st half 2012 1. Key figures(1) 1H12 (in millions of euros vs except earnings per share and number of shares) 1H12 1H11 1H11 Sales 100,303 91,038 +10% Adjusted operating income from business segments 12,572 12,265 +3% Adjusted net operating income from business segments 6,381 6,264 +2% – Upstream 5,439 5,306 +3% – Refining & Chemicals 444 446 - – Supply & Marketing 498 512 -3% Adjusted net income 5,932 5,898 +1% Adjusted fully-diluted earnings per share (euros) 2.62 2.62 - Fully-diluted weighted-average shares (millions) 2,264 2,252 +1% Net income (Group share) 5,247 6,672 -21% Investments(a) 10,904 13,253 -18% Divestments 2,670 2,001 +33% Net investments 8,234 11,252 -27% Cash flow from operations 11,434 10,778 +6% Adjusted cash flow from operations 9,863 9,620 +3% 1H12 (in millions of dollars(b) vs except earnings per share and number of shares) 1H12 1H11 1H11 Sales 130,043 127,745 +2% Adjusted operating income from business segments 16,300 17,210 -5% Adjusted net operating income from business segments 8,273 8,790 -6% – Upstream 7,052 7,445 -5% – Refining & Chemicals 576 626 -8% – Supply & Marketing 646 718 -10% Adjusted net income 7,691 8,276 -7% Adjusted fully-diluted earnings per share (dollars) 3.40 3.67 -7% Fully-diluted weighted-average shares (millions) 2,264 2,252 +1% Net income (Group share) 6,803 9,362 -27% Investments(a) 14,137 18,597 -24% Divestments 3,462 2,808 +23% Net investments 10,675 15,789 -32% Cash flow from operations 14,824 15,124 -2% Adjusted cash flow from operations 12,787 13,499 -5% (a) Including acquisitions. (b) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value. Adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 8 and the inventory valuation effect is explained on page 11. Financial Report - 1st half 2012. TOTAL 1 1 Financial Report - 1st half 2012 Group results 2. Group results 2.1. Operating income Compared to the first half 2011, the average Brent price increased by 2% to 113.6 $/b. The European refining margin indicator (ERMI) averaged 29.5 $/t compared to 20.4 $/t in the first half 2011. The euro-dollar exchange rate averaged 1.30 $/€ compared to 1.40 $/€ in the first half 2011. Expressed in euros, the Brent price averaged 87.6 €/b, an increase of 11% compared to the first half 2011. light of recent progress in these discussions, TOTAL has provisioned 316 M€ in its accounts in the second quarter of 2012. Special items had a negative impact on net income of 120 M€ in the first half 2011. Net income (Group share) was 5,247 M€ compared to 6,672 M€ in the first half 2011. On June 30, 2012, there were 2,264 million fully-diluted shares compared to 2,258 on June 30, 2011. In this environment, the adjusted operating income from the business segments was 12,572 M€, an increase of 3% compared to the first half 2011(1). Adjusted fully-diluted earnings per share, based on 2,264 million fully-diluted weighted-average shares, was €2.62, stable compared to the first half 2011. The effective tax rate for the business segments was 57.8% in the first half 2012 compared to 56.9% in the first half 2011. Expressed in dollars, adjusted fully-diluted earnings per share was $3.40 compared to $3.67 in the first half 2011, a decrease of 7%. Adjusted net operating income from the business segments was 6,381 M€ compared to 6,264 M€ in the first half 2011, an increase of 2%. 2.3. Investments - divestments(3) Expressed in dollars, adjusted net operating income from the business segments decreased by 6%. This decrease essentially resulted from the decrease in Upstream results driven by a less favorable production mix. In particular, the Group estimates that the loss of production relating to Elgin represents a negative impact of 130 M$ on the net operating income of the Upstream segment in the second quarter 2012. Investments, excluding acquisitions and including changes in non-current loans, were 8.3 B€ (10.7 B$) in the first half 2012 compared to 6.3 B€ (8.8 B$) in the first half 2011. Acquisitions were 2.3 B€ (2.9 B$) in the first half 2012, comprised essentially of the acquisition of exploration and production interests in Uganda, an additional 1.1% stake in Novatek, an exploration license in Angola, the minority interest in Fina Antwerp Olefins and the carry in the Utica shale gas and condensates project in the US. 2.2. Net income Adjusted net income was 5,932 M€ in the first half 2012, an increase of 1% compared to 5,898 M€ in the first half 2011. Expressed in dollars, adjusted net income decreased by 7%. Asset sales in the first half 2012 were 2.3 B€ (3.0 B$), essentially comprised of sales of Sanofi shares, a stake in the Gassled pipeline in Norway, Upstream assets in France, and stakes in Composites One in the United States and Pec-Rhin in France. Adjusted net income excludes the after-tax inventory effect, special items and the effect of changes in fair value(2): Net investments were 8.2 B€ (10.7 B$) in the first half 2012, compared to 11.3 B€ (15.8 B$) in the first half 2011. – The after-tax inventory effect had a negative impact on net income of 369 M€ in the first half 2012 and a positive impact of 872 M€ in the first half 2011. – Changes in fair value had a negative impact on net income of 11 M€ in the first half 2012 and a positive impact of 22 M€ in the first half 2011. – Special items had a negative impact on net income of 305 M€ in the first half 2012. As previously indicated in its Registration Document, TOTAL has been cooperating with the United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ) in connection with an investigation concerning gas contracts awarded in Iran in the 1990s. TOTAL, the SEC and the DOJ have conducted discussions to resolve issues arising from the investigation. In 2.4. Cash flow Cash flow from operations was 11,434 M€ in the first half 2012, an increase of 6% compared to the first half 2011, essentially resulting from a change in working capital requirements. Adjusted cash flow(4) from operations was 9,863 M€, an increase of 3%. Expressed in dollars, adjusted cash flow from operations was 12.8 B$, a decrease of 5%. The Group’s net cash flow(5) was a positive 3,200 M€ compared to a negative 474 M€ in the first half 2011. Expressed in dollars, the Group’s net cash flow was a positive 4.1 B$ in the first half 2012. The net-debt-to-equity ratio was 21.5% on June 30, 2012, compared to 24.3% on June 30, 2011(6), in line with the Group’s target range. (1) Special items affecting operating income from the business segments had a negative impact of 66 M€ in the first half 2012 and a negative impact of 63 M€ in the first half 2011. (2) Adjustment items explained on page 8. (3) Detail shown on page 11. (4) Cash flow from operations at replacement cost before changes in working capital. (5) Net cash flow = cash flow from operations – net investments. (6) Detail shown on page 9. 2 TOTAL. Financial Report - 1st half 2012 Financial Report - 1st half 2012 1 Analysis of business segment results 3. Analysis of business segment results 3.1. Upstream 3.1.1. Environment - liquids and gas price realizations(a) 1H12 vs 1H12 1H11 1H11 Brent ($/b) 113.6 111.1 +2% Average liquids price ($/b) 108.3 104.6 +4% Average gas price ($/Mbtu) 7.10 6.39 +11% Average hydrocarbons price ($/boe) 79.0 74.1 +7% (a) Consolidated subsidiaries, excluding fixed margins. Effective first quarter 2012, over/under-lifting valued at market prices. 3.1.2. Production 1H12 vs Hydrocarbon production 1H12 1H11 1H11 Combined production (kboe/d) 2,317 2,341 -1% Liquids (kb/d) 1,224 1,245 -2% Gas (Mcf/d) 5,974 5,979 - In the first half 2012, hydrocarbon production was 2,317 kboe/d, a decrease of 1% compared to the first half 2011, essentially as a result of: – +3.5% for growth from new projects, – +2.5% for changes in the portfolio, integrating the share of Novatek production partially offset by the impact of the sale of CEPSA and the exploration-production subsidiary in Cameroon, – -3% for normal decline, partially offset by lower scheduled maintenance, – -2% for incidents in the UK North Sea and Nigeria, – -2% for disruptions related to security conditions in Yemen and the production shut-down in Syria, net of the positive effect of the return of production in Libya. 3.1.3. Results 1H12 vs (in millions of euros) 1H12 1H11 1H11 Adjusted operating income(a) 11,455 11,211 +2% Adjusted net operating income(a) 5,439 5,306 +3% includes income from equity affiliates 898 740 +21% Investments 9,646 12,100 -20% Divestments 993 1,256 -21% Cash flow from operating activities 10,883 9,425 (b) +15% Adjusted cash flow 8,663 8,281 +5% (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Reclassification of 823 M€ between Upstream and Holding segments relating to intra-Group operations having no impact on cash flow from operating activities. Adjusted net operating income from the Upstream segment in the first half 2012 was 5,439 M€ compared to 5,306 M€ in the first half 2011, an increase of 3%. Expressed in dollars, adjusted net operating income from the Upstream segment was 7,052 M$, a decrease of 5% compared to the first half 2011, explained principally by the decrease in certain downstream gas activities and a less favorable production mix. The return on average capital employed (ROACE(1)) for the Upstream segment was 20% for the twelve months ended June 30, 2012, stable compared to the ROACE calculated for the twelve months ended March 31, 2012, and for the full year 2011. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2012. TOTAL 3 1 Financial Report - 1st half 2012 Analysis of business segment results 3.2. Refining & Chemicals 3.2.1. Refinery throughput and utilization rates(a) 1H12 vs 1H12 1H11 1H11 Total refinery throughput (kb/d) 1,855 1,934 -4% – France 722 719 - – Rest of Europe 878 962 -9% – Rest of world 255 253 +1% Utilization rates(b) – Based on crude only 84% 77% – Based on crude and other feedstock 89% 82% (a) Includes share of CEPSA through July 31, 2011 and of TotalErg. Results for refineries in South Africa, French Antilles and Italy are reported in the Supply & Marketing segment. (b) Based on distillation capacity at the beginning of the year. In the first half 2012, despite improved utilization rates, refinery throughput decreased by 4% compared to the first half 2011, reflecting essentially scheduled turnarounds in the first half 2012 and the portfolio effect relating to the sale of the Group’s interest in CEPSA realized at the end of July 2011. 3.2.2. Results 1H12 (in millions of euros vs except the ERMI) 1H12 1H11 1H11 European refining margin indicator - ERMI ($/t) 29.5 20.4 +45% Adjusted operating income(a) 418 434 -4% Adjusted net operating income(a) 444 446 - contribution of specialty chemicals(b) 191 203 -6% Investments 930 863 +8% Divestments 148 29 x5.1 Cash flow from operating activities 589 1,238 -52% Adjusted cash flow 727 779 -7% (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Hutchinson, Bostik, Atotech; including coatings and photocure resins until they were sold in July 2011. Adjusted net operating income from the Refining & Chemicals segment in the first half 2012 was 444 M€, stable compared to the first half 2011. Expressed in dollars, adjusted net operating income was 576 M$, a decrease of 8% compared to the first half 2011. Although refining margins in Europe improved in the second quarter 2012, the results were also impacted by the sale of the Group’s interest in CEPSA at the end of July 2011 and a very difficult environment for petrochemicals in Europe in the first quarter 2012. The ROACE(1) for the Refining & Chemicals segment was 5% for the twelve months ended June 30, 2012, compared to 4% for the twelve months ended March 31, 2012, and 5% for the full year 2011. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 4 TOTAL. Financial Report - 1st half 2012 Financial Report - 1st half 2012 1 Analysis of business segment results 3.3. Supply & Marketing 3.3.1. Refined product sales 1H12 vs (in kb/d)(a) 1H12 1H11 1H11 Europe 1,189 1,561 -24% Rest of world 526 525 - Total Supply & Marketing sales 1,715 2,085 -18% (a) Excludes trading and bulk Refining sales, includes share of TotalErg and, through July 31, 2011, CEPSA. 3.3.2. Results 1S12 vs (in millions of euros) 1H12 1H11 1H11 Sales 42,431 41,242 +3% Adjusted operating income(a) 699 620 +13% Adjusted net operating income(a) 498 512 -3% Investments 297 243 +22% Divestments 54 48 +13% Cash flow from operating activties (403) (79) n/a Adjusted cash flow 681 605 +13% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Supply & Marketing segment was 498 M€ in the first half 2012, a decrease of 3% compared to the first half 2011. Expressed in dollars, the adjusted net operating income was 646 M$, a decrease of 10% compared to the first half 2011. The ROACE(1) for the Supply & Marketing segment was 16% for the twelve months ended June 30, 2012, compared to 17% for the twelve months ended March 31, 2012, and 18% for the full-year 2011. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2012. TOTAL 5 1 Financial Report - 1st half 2012 TOTAL S.A. parent company accounts / Highlights since the beginning of 2012 / Summary and outlook 4. TOTAL S.A. parent company accounts Net income for TOTAL S.A., the parent company, was 3,116 M€ in the first half 2012, compared to 3,157 M€ in the first half 2011. 5. Highlights since the beginning of 2012 – Restructuring Downstream-Chemicals: effective January 1, 2012, created the Refining & Chemicals segment and the Supply & Marketing segment. – Acquired exploration licenses in Yemen, Mauritania, Ivory Coast, Uruguay, Kenya, and Bulgaria. – Finalized the acquisition of 33.33% interest in exploration and – Launched the development of Ichthys LNG in Australia and production licenses in Uganda. increased stake to 30% in the project. – Total became operator of the Xerelete block in Brazil. – Start-up of Usan in Nigeria, Bongkot South in Thailand, Islay in the UK North Sea, and Halfaya in Iraq. – Entered a 50% joint venture for a pilot program to develop oil shale in Utah. – Launched the development of Hild in the Norwegian North Sea, and Ofon Phase 2 in offshore Nigeria. – Launched the expansion and modernization project for the Samsung-Total Petrochemicals facility in South Korea. – Launched new development phase of the Yucal Placer gas field in Venezuela and the development of Tempa Rossa in Italy. – Signed a memorandum of understanding for the development of an integrated refining-petrochemicals project in China. – Successful well intervention to stop the gas leak on the Elgin platform in the UK North Sea which occurred on March 25, 2012. – Divested TEPMA BV, a Group subsidiary that held producing assets and interests in two pipelines in Colombia. – Issued notice of commerciality for the Absheron gas discovery in Azerbaijan. – New gas and condensate discovery in the King Lear prospect – Divestment of a 51% interest in Composites One, a North American distributor for the composites manufacturing industry, and of a 50% interest in fertilizer producer Pec-Rhin. in the Norweigan North Sea. 6. Summary and outlook The ROACE(1) for the Group for the twelve months ended June 30, 2012, was 15% compared to 16% for the twelve months ended March 31, 2012, and for the full year 2011. precedes resumption of production, and its status will be followed closely. Safety and protection of the environment remain priorities during this process. Return on equity for the twelve months ended June 30, 2012, was 17.5%. In the Upstream segment, exploration activities for the quarter were focused on assessing recent discoveries and preparing for new exploration wells in several promising plays, notably in the Gulf of Mexico, Ivory Coast or the Norwegian North Sea. The upcoming start-ups in Angola, China and Kazakhstan will add to the projects already in production and build on our successes of the first half 2011. After successfully addressing the incident on the Elgin platform, the Group entered a phase of evaluation and assessment which Since the beginning of the third quarter, refining margins in Europe have been favorable. Refinery throughput during the second half of 2012 will be impacted by the scheduled turnaround of the Normandy refinery in early September. The Group will continue to optimize its portfolio across all business segments and to strengthen its competitiveness. The Board of Directors of Total approved a second quarter 2012 interim dividend of €0.59/share, an increase of 3.5% from the previous quarter. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 6 TOTAL. Financial Report - 1st half 2012 Financial Report - 1st half 2012 1 Other information 7. Other information 7.1. Operating information by segment for first half 2012 7.1.1. Upstream 1H12 Combined liquids and gas production vs by region (kboe/d) 1H12 1H11 1H11 Europe 464 528 -12% Africa 707 659 +7% Middle East 494 576 -14% North America 69 67 +3% South America 185 188 -2% Asia-Pacific 213 241 -12% CIS 185 82 x2,3 Total production 2,317 2,341 -1% Includes equity affiliates and non-consolidated affiliates 603 552 +9% 1H12 Liquids production vs by region (kb/d) 1H12 1H11 1H11 Europe 212 251 -16% Africa 570 517 +10% Middle East 305 323 -6% North America 25 29 -14% South America 61 78 -22% Asia-Pacific 25 28 -11% CIS 26 19 +37% Total production 1,224 1,245 -2% Includes equity affiliates and non-consolidated affiliates 305 328 -7% 1H12 Gas production vs by region (Mcf/d) 1H12 1H11 1H11 Europe 1,378 1,512 -9% Africa 702 726 -3% Middle East 1,029 1,372 -25% North America 249 215 +16% South America 711 611 +16% Asia-Pacific 1,046 1,206 -13% CIS 859 337 x2,5 Total production 5,974 5,979 - Includes equity affiliates and non-consolidated affiliates 1,609 1,214 +33% 1H12 vs Liquified natural gas 1H12 1H11 1H11 LNG sales(a) (Mt) 5.58 6.69 -17% (a) Sales, Group share, excluding trading; 2011 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2011 SEC coefficient. Financial Report - 1st half 2012. TOTAL 7 1 Financial Report - 1st half 2012 Other information 7.1.2. Downstream (Refining & Chemicals and Supply & Marketing) 1H12 Refined product sales vs by region (kb/d)(a) 1H12 1H11 1H11 Europe 2,064 2,387 -14% Africa 397 383 +4% Americas 475 521 -9% Rest of world 538 484 +11% Total consolidated sales 3,473 3,774 -8% Includes bulk sales 522 425 +23% Includes trading 1,236 1,264 -2% (a) Includes share of CEPSA through July 31, 2011, and of TotalErg. 7.2. Adjustment items 7.2.1. Adjustments to operating income from business segments (in millions of euros) 1H12 1H11 Special items affecting operting income from business segments (154) (63) – Restructuring charges (48) - – Impairments - - – Other (106) (63) Pre-tax inventory effect: FIFO vs. replacement cost (538) 1,269 Effect of changes in fair value (14) 29 Total adjustments affecting operating income (706) 1,235 7.2.2. Adjustments to net income (Group share) (in millions of euros) 1H12 1H11 Special items affecting operating income (Group share) (305) (120) – Gain on asset sales 153 216 – Restructuring charges (40) - – Impairments (38) (47) – Other (380) (289) After-tax inventory effect: FIFO vs. replacement cost (369) 872 Effect of changes in fair value (11) 22 Total adjustments affecting net income (685) 774 7.3. Effective tax rates Effective tax rate(a) 1H12 1H11 Upstream 60.5% 59.5% Group 58.6% 57.5% (a) Tax on adjusted net operating income/(adjusted net operating income – income from equity affiliates, dividends received from investments, and impairments of acquisition goodwill + tax on adjusted net operating income). 8 TOTAL. Financial Report - 1st half 2012 Financial Report - 1st half 2012 1 Other information 7.4. Investments - divestments 1H12 vs (in millions of euros) 1H12 1H11 1H11 Investments excluding acquisitions(a) 8,254 6,254 +32% Capitalized exploration 669 459 +46% Change in non-recurrent loans(b) 390 2 n / a Acquisitions 2,270 6,537 -65% Investments including acquisitions(a) 10,523 12,791 -18% Asset sales 2,289 1,539 +49% Net investments(b) 8,234 11,252 -27% 1H12 vs (in millions of dollars(c)) 1H12 1H11 1H11 Investments excluding acquisitions(a) 10,701 8,776 +22% Capitalized exploration 867 644 +35% Change in non-recurrent loans(b) 506 3 n / a Acquisitions 2,943 9,173 -68% Investments including acquisitions(a) 13,643 17,948 -24% Asset sales 2,968 2,160 +37% Net investments(b) 10,675 15,789 -32% (a) Includes changes in non-current loans. (b) Includes net investments in equity affiliates and non-consolidated companies + net financing for employee-related stock purchase plans. (c) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. 7.5. Net-debt-to-equity ratio (in millions of euros) 6/30/2012 6/30/2011 Current borrowings 10,642 12,289 Net current financial assets (1,552) (2,737) Non-current financial debt 23,260 20,410 Hedging instruments of non-current debt (1,886) (1,756) Cash and cash equivalents (14,998) (13,387) Net debt 15,466 14,819 Shareholders’ equity 72,103 61,371 Estimated dividend payable (1,299) (1,248) Minority interests 1,256 934 Equity 72,060 61,057 Net-debt-to-equity ratio 21.5% 24.3% Financial Report - 1st half 2012. TOTAL 9 1 Financial Report - 1st half 2012 Other information 7.6. Return on average capital employed 7.6.1. Twelve months ended June 30, 2012 Upstream Refining & Supply & Group (in millions of euros) Chemicals Marketing Adjusted net operating income 10,538 846 996 12,073 Capital employed at 6/30/2011(a) 46,671 16,672 6,187 72,843 Capital employed at 6/30/2012(a) 60,879 16,558 6,579 85,167 ROACE 19.6% 5.1% 15.6% 15.3% (a) At replacement cost (excluding after-tax inventory effect). 7.6.2. Twelve months ended March 31, 2012 Upstream Refining & Supply & Group (in millions of euros) Chemicals Marketing Adjusted net operating income 10,495 643 1,019 11,975 Capital employed at 3/31/2011(a) 44,528 16,369 5,839 70,579 Capital employed at 3/31/2012(a) 59,383 16,222 6,031 83,093 ROACE 20.2% 3.9% 17.2% 15.6% (a) At replacement cost (excluding after-tax inventory effect). 7.6.3. Full-year 2011 Upstream Refining & Supply & Group (in millions of euros) Chemicals Marketing Adjusted net operating income 10,405 848 1,010 12,045 Capital employed at 12/31/2010(a) 43,972 17,265 5,608 70,866 Capital employed at 12/31/2011(a) 58,939 15,883 5,391 81,066 ROACE 20.2% 5.1% 18.4% 15.9% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial Report - 1st half 2012 Financial Report - 1st half 2012 1 Principal risks and uncertainties for the remaining six months of 2012 8. Principal risks and uncertainties for the remaining six months of 2012 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industry, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 26, 2012. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2012 on pages 26 to 30 and 41 of this report. Information concerning the principal transactions with related parties since June 30, 2010, is provided in section 6 of the notes to the consolidated financial statements for the first six months of 2012, on page 26 of this report. Disclaimer This document may contain forward-looking statements, including within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company’s financial results is provided in documents filed by the Group with the French Autorité des marchés financiers and the U.S. Securities and Exchange Commission (“SEC”). (ii) Inventory valuation effect The adjusted results of the Downstream and Chemicals segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. As from January 1, 2011, the effect of changes in fair value presented as an adjustment item reflects for some transactions differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Dollar amounts presented herein represent euro amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in dollars. Financial Report - 1st half 2012. TOTAL 11 1 Financial Report - 1st half 2012 Principal risks and uncertainties for the remaining six months of 2012 Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this presentation, such as resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. 12 TOTAL. Financial Report - 1st half 2012 U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, place Jean Millier - La Défense 6 - 92078 Paris - La Défense Cedex, France, or at our Web site: www.total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s Web site: www.sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the condensed half-yearly consolidated financial statements This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France. For the six-month period ended June 30, 2012 To the Shareholders, Following our appointment as statutory auditors by your general meeting and in accordance with article L.451-1-2 III of the French Monetary and Financial Law (“Code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of Total S.A. for the six-month period ended June 30, 2012, – the verification of information contained in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that these accompanying condensed half-yearly consolidated financial statements are not prepared in all material respects in accordance with IAS 34 - the standard of the IFRS as adopted by the European Union applicable to interim financial statements. II - Specific verification We have also verified information given in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris La Défense, on July 26, 2012 The statutory auditors French original signed by: KPMG Audit A department of KPMG S.A. Jay Nirsimloo ERNST & YOUNG Audit Pascal Macioce Laurent Vitse Financial Report - 1st half 2012. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited) 1st half 1st half (in millions of euros)(a) 2012 2011 Sales 100,303 91,038 Excise taxes (8,952) (8,971) Revenues from sales 91,351 82,067 Purchases, net of inventory variation (64,335) (55,641) Other operating expenses (10,919) (9,506) Exploration costs (625) (438) Depreciation, depletion and amortization of tangible assets and mineral interests (3,866) (3,217) Other income 514 331 Other expense (547) (197) Financial interest on debt (357) (295) Financial income from marketable securities & cash equivalents 59 102 Cost of net debt (298) (193) Other financial income 294 410 Other financial expense (254) (212) Equity in net income (loss) of affiliates 977 950 Income taxes (7,006) (7,504) Consolidated net income 5,286 6,850 Group share 5,247 6,672 Non-controlling interests 39 178 Earnings per share (€) 2.33 2.98 Fully-diluted earnings per share (€) 2.32 2.96 (a) Except for per share amounts. 14 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited) 1st half 1st half (in millions of euros) 2012 2011 Consolidated net income 5,286 6,850 Other comprehensive income Currency translation adjustment 1,306 (2,644) Available for sale financial assets (159) 430 Cash flow hedge 3 (35) Share of other comprehensive income of associates, net amount 105 (103) Other (13) (2) Tax effect 35 (29) Total other comprehensive income (net amount) 1,277 (2,383) Comprehensive income 6,563 4,467 Group share 6,501 4,356 Non-controlling interests 62 111 Financial Report - 1st half 2012. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros)(a) 2012 2012 2011 Sales 49,135 51,168 45,009 Excise taxes (4,559) (4,393) (4,544) Revenues from sales 44,576 46,775 40,465 Purchases, net of inventory variation (32,294) (32,041) (28,386) Other operating expenses (5,827) (5,092) (4,804) Exploration costs (269) (356) (179) Depreciation, depletion and amortization of tangible assets and mineral interests (2,028) (1,838) (1,531) Other income 225 289 246 Other expense (451) (96) (138) Financial interest on debt (170) (187) (159) Financial income from marketable securities & cash equivalents 24 35 55 Cost of net debt (146) (152) (104) Other financial income 209 85 335 Other financial expense (118) (136) (104) Equity in net income (loss) of affiliates 436 541 444 Income taxes (2,701) (4,305) (3,432) Consolidated net income 1,612 3,674 2,812 Group share 1,585 3,662 2,726 Non-controlling interests 27 12 86 Earnings per share (€) 0.70 1.62 1.21 Fully-diluted earnings per share (€) 0.70 1.62 1.21 (a) Except for per share amounts. 16 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros) 2012 2012 2011 Consolidated net income 1,612 3,674 2,812 Other comprehensive income Currency translation adjustment 2,360 (1,054) (666) Available for sale financial assets (93) (66) 315 Cash flow hedge (67) 70 (11) Share of other comprehensive income of associates, net amount (57) 162 (16) Other (7) (6) (4) Tax effect 46 (11) (35) Total other comprehensive income (net amount) 2,182 (905) (417) Comprehensive income 3,794 2,769 2,395 Group share 3,718 2,783 2,326 Non-controlling interests 76 (14) 69 Financial Report - 1st half 2012. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS 6/30/2012 3/31/2012 12/31/2011 6/30/2011 (in millions of euros) (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 13,847 13,231 12,413 8,961 Property, plant and equipment, net 69,868 65,082 64,457 55,323 Equity affiliates : investments and loans 13,911 13,194 12,995 11,054 Other investments 2,222 2,958 3,674 5,287 Hedging instruments of non-current financial debt 1,886 1,882 1,976 1,756 Other non-current assets 4,850 4,494 4,871 3,727 Total non-current assets 106,584 100,841 100,386 86,108 Current assets Inventories, net 17,111 18,886 18,122 15,950 Accounts receivable, net 19,768 22,811 20,049 18,267 Other current assets 10,435 10,346 10,767 8,474 Current financial assets 1,723 1,471 700 3,122 Cash and cash equivalents 14,998 13,330 14,025 13,387 Total current assets 64,035 66,844 63,663 59,200 Assets classified as held for sale - - - 5,211 Total assets 170,619 167,685 164,049 150,519 LIABILITIES & SHAREHOLDERS’ EQUITY 6/30/2012 3/31/2012 12/31/2011 6/30/2011 (in millions of euros) (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 5,911 5,911 5,909 5,903 Paid-in surplus and retained earnings 69,181 70,281 66,506 64,148 Currency translation adjustment 401 (1,857) (988) (5,177) Treasury shares (3,390) (3,390) (3,390) (3,503) Total shareholders’ equity - Group Share 72,103 70,945 68,037 61,371 Non-controlling interests 1,256 1,275 1,352 934 Total shareholders’ equity 73,359 72,220 69,389 62,305 Non-current liabilities Deferred income taxes 12,380 12,179 12,260 9,619 Employee benefits 2,005 2,215 2,232 2,111 Provisions and other non-current liabilities 11,264 10,579 10,909 8,419 Non-current financial debt 23,260 22,428 22,557 20,410 Total non-current liabilities 48,909 47,401 47,958 40,559 Current liabilities Accounts payable 20,448 22,647 22,086 18,395 Other creditors and accrued liabilities 17,090 15,694 14,774 16,191 Current borrowings 10,642 9,574 9,675 12,289 Other current financial liabilities 171 149 167 385 Total current liabilities 48,351 48,064 46,702 47,260 Liabilities directly associated with the assets classified as held for sale - - - 395 Total liabilities and shareholders’ equity 170,619 167,685 164,049 150,519 18 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of euros) 2012 2011 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 5,286 6,850 Depreciation, depletion and amortization 4,267 3,529 Non-current liabilities, valuation allowances and deferred taxes 265 848 Impact of coverage of pension benefit plans (362) - (Gains) losses on sales of assets (446) (235) Undistributed affiliates' equity earnings 227 (123) (Increase) decrease in working capital 2,109 (111) Other changes, net 88 20 Cash flow from operating activities 11,434 10,778 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (9,355) (8,589) Acquisitions of subsidiaries, net of cash acquired (125) (979) Investments in equity affiliates and other securities (653) (3,221) Increase in non-current loans (771) (464) Total expenditures (10,904) (13,253) Proceeds from disposal of intangible assets and property, plant and equipment 662 626 Proceeds from disposal of subsidiaries, net of cash sold 34 171 Proceeds from disposal of non-current investments 1,593 742 Repayment of non-current loans 381 462 Total divestments 2,670 2,001 Cash flow used in investing activities (8,234) (11,252) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 31 404 – Treasury shares - - Dividends paid: – Parent company shareholders (2,570) (2,572) – Non-controlling interests (98) (62) Other transactions with non-controlling interests 1 59 Net issuance (repayment) of non-current debt 3,073 2,906 Increase (decrease) in current borrowings (1,794) 288 Increase (decrease) in current financial assets and liabilities (939) (1,634) Cash flow used in financing activities (2,296) (611) Net increase (decrease) in cash and cash equivalents 904 (1,085) Effect of exchange rates 69 (17) Cash and cash equivalents at the beginning of the period 14,025 14,489 Cash and cash equivalents at the end of the period 14,998 13,387 Financial Report - 1st half 2012. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros) 2012 2012 2011 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 1,612 3,674 2,812 Depreciation, depletion and amortization 2,164 2,103 1,641 Non-current liabilities, valuation allowances and deferred taxes (99) 364 283 Impact of coverage of pension benefit plans (362) - - (Gains) losses on sales of assets (165) (281) (229) Undistributed affiliates' equity earnings 193 34 59 (Increase) decrease in working capital 2,783 (674) 476 Other changes, net 41 47 22 Cash flow from operating activities 6,167 5,267 5,064 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (4,128) (5,227) (3,215) Acquisitions of subsidiaries, net of cash acquired (4) (121) (979) Investments in equity affiliates and other securities (455) (198) (3,071) Increase in non-current loans (377) (394) (305) Total expenditures (4,964) (5,940) (7,570) Proceeds from disposal of intangible assets and property, plant and equipment 95 567 620 Proceeds from disposal of subsidiaries, net of cash sold - 34 171 Proceeds from disposal of non-current investments 739 854 452 Repayment of non-current loans 146 235 95 Total divestments 980 1,690 1,338 Cash flow used in investing activities (3,984) (4,250) (6,232) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders - 31 354 – Treasury shares - - - Dividends paid: – Parent company shareholders (1,284) (1,286) (2,572) – Non-controlling interests (96) (2) (61) Other transactions with non-controlling interests 1 - 59 Net issuance (repayment) of non-current debt 1,409 1,664 678 Increase (decrease) in current borrowings (693) (1,101) (200) Increase (decrease) in current financial assets and liabilities (10) (929) (1,123) Cash flow used in financing activities (673) (1,623) (2,865) Net increase (decrease) in cash and cash equivalents 1,510 (606) (4,033) Effect of exchange rates 158 (89) 93 Cash and cash equivalents at the beginning of the period 13,330 14,025 17,327 Cash and cash equivalents at the end of the period 14,998 13,330 13,387 20 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL Common shares issued Paid-in surplus Currency Treasury shares Shareholders’ Non- Total (unaudited) and retained translation equity Group controlling shareholders’ (in millions of euros) Number Amount earnings adjustment Number Amount Share interests equity As of January 1, 2011 2,349,640,931 5,874 60,538 (2,495) (112,487,679) (3,503) 60,414 857 61,271 Net income of the first half - - 6,672 - - - 6,672 178 6,850 Other comprehensive Income - - 368 (2,684) - - (2,316) (67) (2,383) Comprehensive Income - - 7,040 (2,684) - - 4,356 111 4,467 Dividend - - (3,888) - - - (3,888) (62) (3,950) Issuance of common shares 11,749,578 29 375 - - - 404 - 404 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - - - 3,804 - - - - Share-based payments - - 83 - - - 83 - 83 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - - 2 - - 2 57 59 Other items - - - - - - - (29) (29) As of June 30, 2011 2,361,390,509 5,903 64,148 (5,177) (112,483,875) (3,503) 61,371 934 62,305 Net income from July 1 to December 31, 2011 - - 5,604 - - - 5,604 127 5,731 Other comprehensive Income - - (137) 4,088 - - 3,951 111 4,062 Comprehensive Income - - 5,467 4,088 - - 9,555 238 9,793 Dividend - - (2,569) - - - (2,569) (110) (2,679) Issuance of common shares 2,376,804 6 71 - - - 77 - 77 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - (113) - 2,929,702 113 - - - Share-based payments - - 78 - - - 78 - 78 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - (553) 101 - - (452) (180) (632) Other items - - (23) - - - (23) 470 447 As of December 31, 2011 2,363,767,313 5,909 66,506 (988) (109,554,173) (3,390) 68,037 1,352 69,389 Net income of the first half - - 5,247 - - - 5,247 39 5,286 Other comprehensive Income - - (128) 1,382 - - 1,254 23 1,277 Comprehensive Income - - 5,119 1,382 - - 6,501 62 6,563 Dividend - - (2,570) - - - (2,570) (98) (2,668) Issuance of common shares 779,653 2 29 - - - 31 - 31 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - - - 10,295 - - - - Share-based payments - - 74 - - - 74 - 74 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - 14 7 - - 21 (20) 1 Other items - - 9 - - - 9 (40) (31) As of June 30, 2012 2,364,546,966 5,911 69,181 401 (109,543,878) (3,390) 72,103 1,256 73,359 (a) Treasury shares related to the restricted stock grants. Financial Report - 1st half 2012. TOTAL 21 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 10. Notes to the consolidated financial statements for the first six months of 2012 (unaudited) 1) Accounting policies The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2012 are presented in Euros and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the consolidated financial statements as of June 30, 2012 do not differ significantly from those applied for the consolidated financial statements as of December 31, 2011 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post- retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the consolidated financial statements as of December 31, 2011. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: The preparation of financial statements in accordance with IFRS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. The management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, – give a true and fair view of the Group’s financial position, financial performance and cash flows; – reflect the substance of transactions; – are neutral; – are prepared on a prudent basis; and – are complete in all material aspects. Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at amortized cost. Financial assets and liabilities are usually measured at fair value. 2) Changes in the Group structure, main acquisitions and divestments Upstream – TOTAL finalized in February 2012 the acquisition in Uganda being an operator of one of the blocks. TOTAL is the operator of Block 1. of a one-third interest in Blocks 1, 2 and 3A held by Tullow Oil plc for €1,145 million ($1,484 million), entirely consisting of mineral interests. TOTAL has become an equal partner with Tullow and CNOOC in the blocks, each with a one-third interest and each – TOTAL finalized during the first half 2012 the acquisition of an additional 1.07% interest in Novatek for an amount of €324 million ($423 million), increasing TOTAL’s overall interest in Novatek to 15.16%. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In October 2011, the Group announced a plan of reorganization of its business segments Downstream and Chemicals. This reorganization has become effective as of January 1st, 2012 and the Group’s activities are now conducted through three business segments as follows: Until December 31, 2011, the Group’s activities were conducted through three business segments as follows: – an Upstream segment including the activities of the – the Upstream segment including the activities of the Exploration & Production division and the Gas & Power division; – the Downstream segment included activities of the Refining & Marketing division and the Trading & Shipping division; Exploration & Production division and the Gas & Power division; – a Refining & Chemicals segment that is a major production hub combining TOTAL’s refining, petrochemicals, fertilizers and specialty chemicals operations. This segment also includes Trading & Shipping activities; – the Chemicals segment included Base Chemicals and Specialties. – a Supply & Marketing segment that is dedicated to the global supply and marketing of petroleum products. 22 TOTAL. Financial Report - 1st half 2012 Furthermore, the Corporate segment includes the operating and financial activities of the holding companies (including the investment in Sanofi). Following this reorganization, information by business segment for comparative periods has been restated under the new organization effective as from January 1, 2012. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Supply & Marketing segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table below. Financial Report - 1st half 2012. TOTAL 23 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 ADJUSTMENTS TO OPERATING INCOME Upstream Refining & Supply & Corporate Total (in millions of euros) Chemicals Marketing 2nd quarter 2012 Inventory valuation effect - (1,238) (146) - (1,384) Effect of changes in fair value 11 - - - 11 Restructuring charges (48) - - - (48) Asset impairment charges - - - - - Other items (18) - - (23) (41) Total (55) (1,238) (146) (23) (1,462) 2nd quarter 2011 Inventory valuation effect - (121) 34 - (87) Effect of changes in fair value (55) - - - (55) Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (49) (14) - (63) Total (55) (170) 20 - (205) 1st half 2012 Inventory valuation effect - (455) (83) - (538) Effect of changes in fair value (14) - - - (14) Restructuring charges (48) - - - (48) Asset impairment charges - - - - - Other items (18) - - (88) (106) Total (80) (455) (83) (88) (706) 1st half 2011 Inventory valuation effect - 1,025 244 - 1,269 Effect of changes in fair value 29 - - - 29 Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (49) (14) - (63) Total 29 976 230 - 1,235 ADJUSTMENTS TO NET INCOME GROUP SHARE Upstream Refining & Supply & Corporate Total (in millions of euros) Chemicals Marketing 2nd quarter 2012 Inventory valuation effect - (877) (82) - (959) Effect of changes in fair value 9 - - - 9 Restructuring charges (32) - (8) - (40) Asset impairment charges - - - (18) (18) Gains (losses) on disposals of assets - - - 73 73 Other items (7) - - (331) (338) Total (30) (877) (90) (276) (1,273) 2nd quarter 2011 Inventory valuation effect - (86) 12 - (74) Effect of changes in fair value (41) - - - (41) Restructuring charges - - - - - Asset impairment charges (47) - - - (47) Gains (losses) on disposals of assets 164 - - 41 205 Other items - (99) (12) - (111) Total 76 (185) - 41 (68) 1st half 2012 Inventory valuation effect - (324) (45) - (369) Effect of changes in fair value (11) - - - (11) Restructuring charges (32) - (8) - (40) Asset impairment charges (20) - - (18) (38) Gains (losses) on disposals of assets - - - 153 153 Other items (7) - - (373) (380) Total (70) (324) (53) (238) (685) 1st half 2011 Inventory valuation effect - 722 150 - 872 Effect of changes in fair value 22 - - - 22 Restructuring charges - - - - - Asset impairment charges (47) - - - (47) Gains (losses) on disposals of assets 164 - - 52 216 Other items (178) (99) (12) - (289) Total (39) 623 138 52 774 24 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 4) Shareholders’ equity A) Treasury shares (TOTAL shares held by TOTAL S.A.) – 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval), 100% indirectly controlled by TOTAL S.A. As of June 30, 2012, TOTAL S.A. held 9,212,610 of its own shares, representing 0.39% of its share capital, detailed as follows: – 6,703,746 shares allocated to TOTAL restricted shares plans for Group employees; and – 2,508,864 shares intended to be allocated to new TOTAL share purchase option plans or to new restricted shares plans. These 9,212,610 shares are deducted from the consolidated shareholders’ equity. B) Treasury shares These 100,331,268 shares are deducted from the consolidated shareholders’ equity. C) Dividend The shareholders’ meeting on May 11, 2012 approved the payment of a cash dividend of €2.28 per share for the 2011 fiscal year. Taking into account three quarterly interim dividends of €0.57 per share that have already been paid on September 22, 2011, December 22, 2011 and March 22, 2012, the remaining balance of €0.57 per share was paid on June 21, 2012. (TOTAL shares held by Group subsidiaries) As of June 30, 2012, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.24% of its share capital, detailed as follows: – 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; A first quarterly dividend for the fiscal year 2012 of €0.57 per share, decided by the Board of Directors on April 26, 2012, will be paid on September 27, 2012 (the ex-dividend date will be September 24, 2012). A second quarterly dividend for the fiscal year 2012 of €0.59 per share, decided by the Board of Directors on July 26, 2012, will be paid on December 20, 2012 (the ex-dividend date will be December 17, 2012). D) Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: Tax effects relating to each component of other comprehensive income are as follows: (in millions of euros) 1st half 2012 1st half 2011 1,306 (2,644) Currency translation adjustment – unrealized gain/(loss) of the period 1,305 (2,633) – less gain/(loss) included in net income (1) 11 Available for sale financial assets (159) 430 – unrealized gain/(loss) of the period 61 433 – less gain/(loss) included in net income 220 3 Cash flow hedge 3 (35) – unrealized gain/(loss) of the period (35) 38 – less gain/(loss) included in net income (38) 73 Share of other comprehensive income of equity affiliates, net amount 105 (103) Other (13) (2) – unrealized gain/(loss) of the period (13) (2) - – less gain/(loss) included in net income - Tax effect 35 (29) Total other comprehensive income, net amount 1,277 (2,383) Tax effects relating to each component of other comprehensive income are as follows: (in millions of euros) 1st half 2012 1st half 2011 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Currency translation adjustment 1,306 1,306 (2,644) (2,644) Available for sale financial assets (159) 38 (121) 430 (41) 389 Cash flow hedge 3 (3) - (35) 12 (23) Share of other comprehensive income of equity affiliates, net amount 105 105 (103) (103) Other (13) (13) (2) (2) Total other comprehensive income 1,242 35 1,277 (2,354) (29) (2,383) Financial Report - 1st half 2012. TOTAL 25 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 5) Financial debt The Group issued bonds through its subsidiary Total Capital International during the first six months of 2012: − Bond 4.875% 2012-2017 (100 million AUD) − Bond 1.500% 2012-2017 (1,000 million USD) − Bond 2.875% 2012-2022 (1,000 million USD) − Bond 4.125% 2012-2017 (150 million AUD) − Bond 1.550% 2012-2017 (1,500 million USD) The Group reimbursed bonds during the first six months of 2012: − Bond 2.125% 2005-2012 (500 million CHF) − Bond 3.250% 2005-2012 (650 million EUR) − Bond 5.890% 2002-2012 (20 million USD) − Bond 4.125% 2006-2012 (200 million CAD) − Bond 5.625% 2006-2012 (100 million AUD) − Bond 4.625% 2005-2012 (450 million GBP) − Bond 5.000% 2007-2012 (900 million USD) − Bond 6.500% 2007-2012 (100 million AUD) − Bond 6.000% 2008-2012 (500 million NOK) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2012. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, this guarantee will become void. Antitrust investigations The principal antitrust proceedings in which the Group’s companies are involved are described thereafter. – In the United States, civil liability lawsuits, for which TOTAL S.A. has been named as the parent company, have been closed without significant impact on the Group’s financial position. – In Europe, since 2006, the European Commission has fined Refining & Chemicals – As part of the spin-off of Arkema(1) in 2006, TOTAL S.A. or certain other Group companies agreed to grant Arkema a guarantee for potential monetary consequences related to antitrust proceedings arising from events prior to the spin-off. companies of the Group in its configuration prior to the spin-off an overall amount of €385.47 million, of which Elf Aquitaine and/or TOTAL S.A. were held jointly liable for €280.17 million, Elf Aquitaine being personally fined €23.6 million for deterrence. These fines are entirely settled as of today. This guarantee covers, for a period of ten years from the date of the spin-off, 90% of amounts paid by Arkema related to (i) fines imposed by European authorities or European member-states for competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. The guarantee related to anti-competition violations in Europe applies to amounts above a €176.5 million threshold. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group company for 10% of any amount that TOTAL S.A. or any Group company are required to pay under any of the proceedings covered by this guarantee, in Europe. As a result, since the spin-off, the Group has paid the overall amount of €188.07 million(2), corresponding to 90% of the fines overall amount once the threshold provided for by the guarantee is deducted to which an amount of €31.31 million of interest has been added as explained hereinafter. The European Commission imposed these fines following investigations between 2000 and 2004 into commercial practices involving eight products sold by Arkema. Five of these investigations resulted in prosecutions from the European Commission for which Elf Aquitaine has been named as the parent company, and two of these investigations named TOTAL S.A. as the ultimate parent company of the Group. TOTAL S.A. and Elf Aquitaine have contested their liability based solely on their status as parent companies and appealed for cancellation and reformation of the rulings, some of them were rejected. If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, By the end of the 2012 second quarter, four of these proceedings are definitively closed for TOTAL S.A. and Elf Aquitaine as well as for Arkema, one remains pendant before the relevant EU court. (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. (2) This amount does not take into account a case that led to Arkema, prior to Arkema’s spin-off from TOTAL, and Elf Aquitaine being fined jointly €45 million and Arkema being fined €13.5 million. 26 TOTAL. Financial Report - 1st half 2012 With the exception of the €31.31 million of interest paid in 2011 in accordance with one of the decisions referred hereinabove, the evolution of the proceedings during the two 2012 first quarters did not modify the global amount assumed by the Group in execution of the guarantee. In addition, civil proceedings against Arkema and other groups of companies were initiated in 2009 and 2011, respectively, before the German and Dutch courts by third parties for alleged damages pursuant to two of the above mentioned legal proceedings. TOTAL S.A. was summoned to serve notice of the dispute before the German court. At this point, the probability of a favorable verdict and the financial impacts of these proceedings are uncertain due to the number of legal difficulties they give rise to, the lack of documented claims and evaluations of the alleged damages. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema regarding events prior to the spin-off, as well as Elf Aquitaine and/or TOTAL S.A. based on their status as parent company before the spin-off. Within the framework of all of the legal proceedings described above, a €17 million reserve remains booked in the Group’s consolidated financial statements as of June 30, 2012. Supply & Marketing – Pursuant to a statement of objections received by Total Nederland N.V. and TOTAL S.A. (based on its status as parent company) from the European Commission, Total Nederland N.V. was fined €20.25 million in 2006, for which TOTAL S.A. was held jointly liable for €13.5 million. TOTAL S.A. appealed this decision before the relevant court and this appeal is still pending. – In addition, pursuant to a statement of objections received by Total Raffinage Marketing (formerly Total France) and TOTAL S.A. from the European Commission regarding a product line of the Supply & Marketing segment, Total Raffinage Marketing was fined €128.2 million in 2008, which has been paid, and for which TOTAL S.A. was held jointly liable based on its status as parent company. TOTAL S.A. also appealed this decision before the relevant court and this appeal is still pending. – In addition, civil proceedings against TOTAL S.A and Total Raffinage Marketing and other companies were initiated before UK and Dutch courts by third parties for alleged damages in connection with the prosecutions brought by the European Commission. At this point, the probability to have a favorable verdict and the financial impacts of these procedures are uncertain due to the number of legal difficulties they gave rise to, the lack of documented claims and evaluations of the alleged damages. Within the framework of the legal proceedings described above, a €30 million reserve is booked in the Group’s consolidated financial statements as of June 30, 2012. Whatever the evolution of the proceedings described above, the Group believes that their outcome should not have a material adverse effect on the Group’s financial situation or consolidated results. Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 Grande Paroisse An explosion occurred at the Grande Paroisse industrial site in the city of Toulouse in France on September 21, 2001. Grande Paroisse, a former subsidiary of Atofina which became a subsidiary of Elf Aquitaine Fertilisants on December 31, 2004, as part of the reorganization of the Chemicals segment, was principally engaged in the production and sale of agricultural fertilizers. The explosion, which involved a stockpile of ammonium nitrate pellets, destroyed a portion of the site and caused the death of thirty-one people, including twenty-one workers at the site, and injured many others. The explosion also caused significant damage to certain property in part of the city of Toulouse. This plant has been closed and individual assistance packages have been provided for employees. The site has been rehabilitated. On December 14, 2006, Grande Paroisse signed, under the supervision of the city of Toulouse, the deed whereby it donated the former site of the AZF plant to the greater agglomeration of Toulouse (CAGT) and the Caisse des dépôts et consignations and its subsidiary ICADE. Under this deed, TOTAL S.A. guaranteed the site restoration obligations of Grande Paroisse and granted a €10 million endowment to the InNaBioSanté research foundation as part of the setting up of a cancer research center at the site by the city of Toulouse. Regarding the cause of the explosion, the hypothesis that the explosion was caused by Grande Paroisse through the accidental mixing of hundreds of kilos of a chlorine compound at a storage site for ammonium nitrate was discredited over the course of the investigation. As a result, proceedings against ten of the eleven Grande Paroisse employees charged during the criminal investigation conducted by the Toulouse Regional Court (Tribunal de grande instance) were dismissed and this dismissal was upheld on appeal. Nevertheless, the final experts’ report filed on May 11, 2006 has continued to focus on the hypothesis of a chemical accident, although this hypothesis has not been confirmed during the attempt to reconstruct the accident at the site. After having articulated several hypotheses, the experts no longer maintain that the accident was caused by pouring a large quantity of a chlorine compound over ammonium nitrate. Instead, the experts have retained a scenario where a container of chlorine compound sweepings was poured between a layer of wet ammonium nitrate covering the floor and a quantity of dry agricultural nitrate at a location not far from the principal storage site. This is claimed to have caused an explosion which then spread into the main storage site. Grande Paroisse was investigated based on this new hypothesis in 2006; Grande Paroisse is contesting this explanation, which it believes to be based on elements that are not factually accurate. All the requests for additional investigations that were submitted by Grande Paroisse, the former site manager and various plaintiffs were denied on appeal after the end of the criminal investigation procedure. On July 9, 2007, the investigating judge brought charges against Grande Paroisse and the former plant manager before the criminal chamber of the Court of Appeal of Toulouse. In late 2008, TOTAL S.A. and Mr. Thierry Desmarest were summoned to appear in Court pursuant to a request by a victims association. The trial for this case began on February 23, 2009, and lasted approximately four months. On November 19, 2009, the Toulouse Criminal Court acquitted both the former Plant Manager, and Grande Paroisse due to the lack of reliable evidence for the explosion. The Court also ruled that the summonses against TOTAL S.A. and Mr. Thierry Desmarest, Chairman and CEO at the time of the disaster, were inadmissible. Financial Report - 1st half 2012. TOTAL 27 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 Due to the presumption of civil liability that applied to Grande Paroisse, the Court declared Grande Paroisse civilly liable for the damages caused by the explosion to the victims in its capacity as custodian and operator of the plant. The Prosecutor’s office, together with certain third parties, has appealed the Toulouse Criminal Court verdict. In order to preserve its rights, Grande Paroisse lodged a cross-appeal with respect to civil charges. The appeal proceeding before the Court of Appeal of Toulouse was completed on March 16, 2012. The decision is expected on September 24, 2012. A compensation mechanism for victims was set up immediately following the explosion. €2.3 billion was paid for the compensation of claims and related expenses amounts. As of June 30, 2012, a €17 million reserve remains recorded in the Group’s consolidated balance sheet. Buncefield On December 11, 2005, several explosions, followed by a major fire, occurred at an oil storage depot at Buncefield, north of London. This depot was operated by Hertfordshire Oil Storage Limited (HOSL), a company in which TOTAL’s UK subsidiary holds 60% and another oil group holds 40%. The explosion caused injuries, most of which were minor injuries, to a number of people and caused property damage to the depot and the buildings and homes located nearby. The official Independent Investigation Board has indicated that the explosion was caused by the overflow of a tank at the depot. The Board’s final report was released on December 11, 2008. The civil procedure for claims, which had not yet been settled, took place between October and December 2008. The Court’s decision of March 20, 2009, declared TOTAL’s UK subsidiary liable for the accident and solely liable for indemnifying the victims. The subsidiary appealed the decision. The appeal trial took place in January 2010. The Court of Appeals, by a decision handed down on March 4, 2010, confirmed the prior judgment. The Supreme Court of United Kingdom has partially authorized TOTAL’s UK subsidiary to contest the decision. TOTAL’s UK subsidiary finally decided to withdraw from this recourse due to settlement agreements reached in mid-February 2011. The Group carries insurance for damage to its interests in these facilities, business interruption and civil liability claims from third parties. The provision for the civil liability that appears in the Group’s consolidated financial statements as of June 30, 2012, stands at €55 million after taking into account the payments previously made. The Group believes that, based on the information currently available, on a reasonable estimate of its liability and on provisions recognized, this accident should not have a significant impact on the Group’s financial situation or consolidated results. In addition, on December 1, 2008, the Health and Safety Executive (HSE) and the Environment Agency (EA) issued a Notice of prosecution against five companies, including TOTAL’s UK subsidiary. By a judgment on July 16, 2010, the subsidiary was fined £3.6 million and paid it. The decision takes into account a number of elements that have mitigated the impact of the charges brought against it. Erika Following the sinking in December 1999 of the Erika, a tanker that was transporting products belonging to one of the Group companies, the Tribunal de grande instance of Paris convicted TOTAL S.A. of marine pollution pursuant to a judgment issued on January 16, 2008, 28 TOTAL. Financial Report - 1st half 2012 finding that TOTAL S.A. was negligent in its vetting procedure for vessel selection, and ordering TOTAL S.A. to pay a fine of €375,000. The Court also ordered compensation to be paid to those affected by the pollution from the Erika up to an aggregate amount of €192 million, declaring TOTAL S.A. jointly and severally liable for such payments together with the Erika’s inspection and classification firm, the Erika’s owner and the Erika’s manager. TOTAL has appealed the verdict of January 16, 2008. In the meantime, it nevertheless proposed to pay third parties who so requested definitive and irrevocable compensation as determined by the Court. Forty-two third parties have been compensated for an aggregate amount of €171.5 million. By a decision dated March 30, 2010, the Cour d’appel de Paris upheld the lower Court verdict pursuant to which TOTAL S.A. was convicted of marine pollution and fined €375,000. However, the Court of Appeal ruled that TOTAL S.A. bears no civil liability according to the applicable international conventions and consequently ruled that TOTAL S.A. be not convicted. TOTAL challenged the criminal law-related of this decision before the French Supreme Court (Cour de cassation). The oral pleadings before the Cour de cassation took place on May 24, 2012. The decision of the Cour de cassation is expected on September 25, 2012. To facilitate the payment of damages awarded by the Court of Appeal in Paris to third parties against Erika’s controlling and classification firm, the ship-owner and the ship-manager, a global settlement agreement was signed late 2011 between these parties and TOTAL S.A. under the auspices of the IOPC Fund. Under this global settlement agreement, each party agreed to the withdrawal of all civil proceedings initiated against all other parties to the agreement. In connection with this settlement agreement, the Erika’s controlling and classification firm, proposed to pay third parties who so requested definitive and irrevocable compensation as determined by the Court of Appeal. TOTAL S.A. believes that, based on the information currently available, the case should not have a significant impact on the Group’s financial situation or consolidated results. Blue Rapid and the Russian Olympic Committee – Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. Blue Rapid and the Russian Olympic Committee appealed this decision. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract’s termination. Blue Rapid and the Russian Olympic Committee appealed this decision to the French Supreme Court. In connection with the same facts, and fifteen years after the termination of the exploration and production contract, a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation which were not even parties to the contract, have launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of $22.4 billion. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as to a matter of law or fact. The Group has lodged a criminal complaint to denounce the fraudulent claim which the Group believes it is a victim of and, has taken and reserved its rights to take other actions and measures to defend its interests. Iran In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations. Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt. During recent weeks, these discussions have accelerated and U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, TOTAL recorded a provision of €316 million in its June 30, 2012 accounts, reflecting the best estimate of potential costs associated with the resolution of these proceedings. In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations. Libya In June 2011, the United States Securities and Exchange Commission (SEC) issued to certain oil companies - including, among others, TOTAL - a formal request for information related to their operations in Libya. TOTAL is cooperating with this non public investigation. Oil-for-Food Program Several countries have launched investigations concerning possible violations related to the United Nations (UN) Oil-for-Food program in Iraq. Pursuant to a French criminal investigation, certain current or former Group employees were placed under formal criminal investigation for possible charges as accessories to the misappropriation of corporate assets and as accessories to the corruption of foreign public agents. The Chairman and Chief Executive Officer of the Company, formerly President of the Group’s Exploration & Production division, was also placed under formal investigation in October 2006. In 2007, the criminal investigation was closed and Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 the case was transferred to the Prosecutor’s office. In 2009, the Prosecutor’s office recommended to the investigating judge that the case against the Group’s current and former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. In early 2010, despite the recommendation of the Prosecutor’s office, a new investigating judge, having taken over the case, decided to indict TOTAL S.A. on bribery charges as well as complicity and influence peddling. The indictment was brought eight years after the beginning of the investigation without any new evidence being introduced. In October 2010, the Prosecutor’s office recommended to the investigating judge that the case against TOTAL S.A., the Group’s current and former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. However, by ordinance notified in early August 2011, the investigating judge on the matter decided to send the case to trial. The hearings are expected in the first quarter of 2013. The Company believes that its activities related to the Oil-for-Food program have been in compliance with this program, as organized by the UN in 1996. The Volcker report released by the independent investigating committee set up by the UN had discarded any bribery grievance within the framework of the Oil-For-Food program with respect to TOTAL. Italy As part of an investigation led by the Prosecutor of the Republic of the Potenza Court, Total Italia and certain Group’s employees are the subject of an investigation related to certain calls for tenders that Total Italia made for the preparation and development of an oil field. On February 16, 2009, as a preliminary measure before the proceedings go before the Court, the preliminary investigation judge of Potenza served notice to Total Italia of a decision that would suspend the concession for this field for one year. Total Italia has appealed the decision by the preliminary investigation judge before the Court of Appeal of Potenza. In a decision dated April 8, 2009, the Court reversed the suspension of the Gorgoglione concession and appointed for one year, i.e. until February 16, 2010, a judicial administrator to supervise the operations related to the development of the concession, allowing the Tempa Rossa project to continue. The criminal investigation was closed in the first half of 2010. In May 2012, the Judge of the preliminary hearing decided to dismiss the charges for some of the Goup’s employees and refer the case for trial for a reduced number of charges. The hearings are expected to start in the second semester of 2012. In 2010, Total Italia’s exploration and production operations were transferred to Total E&P Italia and refining and marketing operations were merged with those of Erg Petroli. Financial Report - 1st half 2012. TOTAL 29 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 Elgin Following a gas leak starting on March 25, 2012, from the G4 well on the platform of the Elgin field in the North Sea (United Kingdom), the production from the Elgin, Franklin and West Franklin fields was stopped and the site’s personnel was evacuated. No injuries to personnel have occurred, and the risk to the environment is expected to be relatively minor. TOTAL immediately launched its emergency response plan and mobilized crisis management teams. The Group also mobilized international well control experts. As from April 6, 2012, teams comprised of TOTAL experts and specialists engaged by the Group conducted numerous missions to the Elgin platform in order to prepare and implement the intervention plans for controlling the leak from the G4 well. On May 21, 2012, TOTAL confirmed, following five days of close monitoring, the success of the intervention conducted on May 15, 2012 to stop the gas leak of the G4 well. Injecting heavy mud into the G4 well allowed the regaining of control over the well. Since then, several inspection visits conducted on the wellhead platform have confirmed that the leak was completely stopped. Following the success of this intervention, a new phase of the intervention plan was launched with the objective of completing the permanent plugging and abandonment procedure of the G4 well. Since June 2012, the Elgin complex has been progressively re-manned and as of mid July 2012, the operation to permanently secure the G4 well by the introduction of cement plugs continues. In parallel, TOTAL and the British authorities are continuing their investigations to understand the reasons for the accident and determine the measures to be taken to allow the restart of production of the Elgin, Franklin and West Franklin fields in the best conditions. TOTAL is the operator of the Elgin, Franklin and West Franklin fields and holds an interest of 46.17% since the end of 2011 via the Elgin Franklin Oil & Gas (EFOG) company. As of June 30, 2012, TOTAL estimates the impact generated by the loss of production from these three fields (Group share) at $1.5 million (approximately €1.2 million) a day on the Group’s net operating income. Nigeria (OML 58) On April 3, 2012, TOTAL E&P Nigeria Ltd (TEPNG), a subsidiary of the Group, was informed about water and gas resurgence points observed in an uninhabited area close to its onshore gas production facilities on the OML 58 license. This event was the consequence of a technical incident that occurred March 20, 2012 on the Ibewa gas production site: a gas producing well (IBW16) was intersected during the drilling operations of a new well (OB127b), which resulted in gas flowing from the production well into intermediate geological layers. The Obite treatment gas plant was stopped and the other wells shut down and secured. In close collaboration with representatives of the local communities and the Nigerian authorities, all necessary means to ensure the protection of nearby communities and personnel and to limit the impact on the environment have been immediately mobilized. Very important technical means, as well as experts of the Group and specialized companies have also been mobilized on site to regain control of the well and stop the flow of gas. On May 18, 2012, TEPNG confirmed the success of the intervention conducted on the Ibewa 16 well to stop the gas leak. Cement plugs have been set to ensure the isolation of the reservoir. The activity 30 TOTAL. Financial Report - 1st half 2012 of the gas resurgences decreased in intensity immediately after this intervention, and stopped within a few days. TOTAL teams are still maintaining a regular monitoring of the water and air quality. A comprehensive review of the environmental impact is underway in liaison with the authorities. Since then, the Obite gas treatment plant was restarted and TEPNG is progressing the verifications and works necessary in order to restart the Ibewa gas production site. TOTAL E&P Nigeria Ltd operates the OML 58 license as part of the joint venture between TOTAL and the Nigerian National Petroleum Corporation, and holds a 40% stake in this permit. As of June 30, 2012, TOTAL estimates the impact generated by the loss of production resulting from this situation (Group share) at $0.2 million (approximately €0.15 million) a day on the Group’s net operating income. For these two events, in line with industry practice and local regulation, TOTAL has insurance policies in place. The actions taken to resolve the Elgin and OML 58 situations described above, led to the accounting of a €64 million charge in net operating income in the Group’s consolidated financial statements as of June 30, 2012. This amount will be reevaluated in light of future events. Yemen The Yemen LNG company (39.62%) underwent since March 30, 2012 three acts of sabotage on the 38 inch gas pipeline that links block 18 to the Balhaf facility on the Gulf of Aden. These acts of sabotage have led to short-term production stops of LNG. Prompt repairs permitted to limit the number of shipments canceled accordingly. The LNG plant produces at full capacity since the end of May 2012. Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 8) Business segment information 1st half 2012 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 12,094 45,688 42,431 90 - 100,303 Intersegment sales 15,985 22,289 453 93 (38,820) - Excise taxes - (1,678) (7,274) - - (8,952) Revenues from sales 28,079 66,299 35,610 183 (38,820) 91,351 Operating expenses (13,711) (65,703) (34,770) (515) 38,820 (75,879) Depreciation, depletion and amortization of tangible assets and mineral interests (2,993) (633) (224) (16) - (3,866) Operating income 11,375 (37) 616 (348) - 11,606 Equity in net income (loss) of affiliates and other items 886 115 22 (39) - 984 Tax on net operating income (6,908) 42 (207) (10) - (7,083) Net operating income 5,353 120 431 (397) - 5,507 Net cost of net debt - - - - - (221) Non-controlling interests - - - - - (39) Net income - - - - - 5,247 1st half 2012 (adjustments)(a) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales (14) - - - - (14) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (14) - - - - (14) Operating expenses (20) (455) (83) (88) - (646) Depreciation, depletion and amortization of tangible assets and mineral interests (46) - - - - (46) Operating income(b) (80) (455) (83) (88) - (706) Equity in net income (loss) of affiliates and other items (21) (17) (8) (134) - (180) Tax on net operating income 15 148 24 (16) - 171 Net operating income(b) (86) (324) (67) (238) - (715) Net cost of net debt - - - - - - Non-controlling interests - - - - - 30 Net income - - - - - (685) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Supply & Corporate Chemicals Marketing On operating income - (455) (83) - - On net operating income - (324) (59) - Financial Report - 1st half 2012. TOTAL 31 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 1st half 2012 (adjusted) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros)(a) Chemicals Marketing Non-Group sales 12,108 45,688 42,431 90 - 100,317 Intersegment sales 15,985 22,289 453 93 (38,820) - Excise taxes - (1,678) (7,274) - - (8,952) Revenues from sales 28,093 66,299 35,610 183 (38,820) 91,365 Operating expenses (13,691) (65,248) (34,687) (427) 38,820 (75,233) Depreciation, depletion and amortization of tangible assets and mineral interests (2,947) (633) (224) (16) - (3,820) Adjusted operating income 11,455 418 699 (260) - 12,312 Equity in net income (loss) of affiliates and other items 907 132 30 95 - 1,164 Tax on net operating income (6,923) (106) (231) 6 - (7,254) Adjusted net operating income 5,439 444 498 (159) - 6,222 Net cost of net debt - - - - - (221) Non-controlling interests - - - - - (69) Ajusted net income - - - - - 5,932 Adjusted fully-diluted earnings per share (€) - - - - - 2.62 (a) Except for per share amounts. 1st half 2012 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Total expenditures 9,646 930 297 31 - 10,904 Total divestments 993 148 54 1,475 - 2,670 Cash flow from operating activities 10,883 589 (403) 365 - 11,434 32 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 1st half 2011 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 11,310 38,474 41,242 12 - 91,038 Intersegment sales 13,280 21,008 397 84 (34,769) - Excise taxes - (981) (7,990) - - (8,971) Revenues from sales 24,590 58,501 33,649 96 (34,769) 82,067 Operating expenses (11,010) (56,458) (32,572) (314) 34,769 (65,585) Depreciation, depletion and amortization of tangible assets and mineral interests (2,340) (633) (227) (17) - (3,217) Operating income 11,240 1,410 850 (235) - 13,265 Equity in net income (loss) of affiliates and other items 816 112 84 270 - 1,282 Tax on net operating income (6,802) (453) (259) (53) - (7,567) Net operating income 5,254 1,069 675 (18) - 6,980 Net cost of net debt - - - - - (130) Non-controlling interests - - - - - (178) Net income - - - - - 6,672 1st half 2011 (adjustments)(a) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 29 - - - - 29 Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales 29 - - - - 29 Operating expenses - 976 230 - - 1,206 Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income(b) 29 976 230 - - 1,235 Equity in net income (loss) of affiliates and other items 121 (5) 5 54 - 175 Tax on net operating income (202) (348) (72) (2) - (624) Net operating income(b) (52) 623 163 52 - 786 Net cost of net debt - - - - - - Non-controlling interests - - - - - (12) Net income - - - - - 774 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Supply & Corporate Chemicals Marketing On operating income - 1,025 244 - - On net operating income - 722 175 - Financial Report - 1st half 2012. TOTAL 33 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 1st half 2011 (adjusted) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros)(a) Chemicals Marketing Non-Group sales 11,281 38,474 41,242 12 - 91,009 Intersegment sales 13,280 21,008 397 84 (34,769) - Excise taxes - (981) (7,990) - - (8,971) Revenues from sales 24,561 58,501 33,649 96 (34,769) 82,038 Operating expenses (11,010) (57,434) (32,802) (314) 34,769 (66,791) Depreciation, depletion and amortization of tangible assets and mineral interests (2,340) (633) (227) (17) - (3,217) Adjusted operating income 11,211 434 620 (235) - 12,030 Equity in net income (loss) of affiliates and other items 695 117 79 216 - 1,107 Tax on net operating income (6,600) (105) (187) (51) - (6,943) Adjusted net operating income 5,306 446 512 (70) - 6,194 Net cost of net debt (130) Non-controlling interests (166) Ajusted net income - - - - - 5,898 Adjusted fully-diluted earnings per share (€) - - - - - 2.62 (a) Except for per share amounts. 1st half 2011 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Total expenditures 12,100 863 243 47 - 13,253 Total divestments 1,256 29 48 668 - 2,001 Cash flow from operating activities 9,425(a) 1,238 (79) 194(a) - 10,778 (a) Reclassification of intercompany transactions between Upstream and Corporate for €823 million with no impact on the total of cash flow from operating activities. 34 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 2nd quarter 2012 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 5,476 22,592 21,020 47 - 49,135 Intersegment sales 7,751 10,474 222 48 (18,495) - Excise taxes - (874) (3,686) 1 - (4,559) Revenues from sales 13,227 32,192 17,556 96 (18,495) 44,576 Operating expenses (6,698) (32,646) (17,256) (285) 18,495 (38,390) Depreciation, depletion and amortization of tangible assets and mineral interests (1,586) (319) (116) (7) - (2,028) Operating income 4,943 (773) 184 (196) - 4,158 Equity in net income (loss) of affiliates and other items 421 23 13 (156) - 301 Tax on net operating income (2,910) 256 (63) (14) - (2,731) Net operating income 2,454 (494) 134 (366) - 1,728 Net cost of net debt - - - - - (116) Non-controlling interests - - - - - (27) Net income - - - - - 1,585 2nd quarter 2012 (adjustments)(a) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 11 - - - - 11 Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales 11 - - - - 11 Operating expenses (20) (1,238) (146) (23) - (1,427) Depreciation, depletion and amortization of tangible assets and mineral interests (46) - - - - (46) Operating income(b) (55) (1,238) (146) (23) - (1,462) Equity in net income (loss) of affiliates and other items - (40) (8) (244) - (292) Tax on net operating income 9 401 47 (9) - 448 Net operating income(b) (46) (877) (107) (276) - (1,306) Net cost of net debt - - - - - - Non-controlling interests - - - - - 33 Net income - - - - - (1,273) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Supply & Corporate Chemicals Marketing On operating income - (1,238) (146) - - On net operating income - (877) (99) - Financial Report - 1st half 2012. TOTAL 35 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 2nd quarter 2012 (adjusted) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros)(a) Chemicals Marketing Non-Group sales 5,465 22,592 21,020 47 - 49,124 Intersegment sales 7,751 10,474 222 48 (18,495) - Excise taxes - (874) (3,686) 1 - (4,559) Revenues from sales 13,216 32,192 17,556 96 (18,495) 44,565 Operating expenses (6,678) (31,408) (17,110) (262) 18,495 (36,963) Depreciation, depletion and amortization of tangible assets and mineral interests (1,540) (319) (116) (7) - (1,982) Adjusted operating income 4,998 465 330 (173) - 5,620 Equity in net income (loss) of affiliates and other items 421 63 21 88 - 593 Tax on net operating income (2,919) (145) (110) (5) - (3,179) Adjusted net operating income 2,500 383 241 (90) - 3,034 Net cost of net debt - - - - - (116) Non-controlling interests - - - - - (60) Ajusted net income - - - - - 2,858 Adjusted fully-diluted earnings per share (€) - - - - - 1.26 (a) Except for per share amounts. 2nd quarter 2012 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Total expenditures 4,278 501 161 24 - 4,964 Total divestments 234 7 20 719 - 980 Cash flow from operating activities 5,259 625 (101) 384 - 6,167 36 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 2nd quarter 2011 Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales 5,166 19,089 20,753 1 - 45,009 Intersegment sales 6,341 10,346 158 43 (16,888) - Excise taxes - (506) (4,038) - - (4,544) Revenues from sales 11,507 28,929 16,873 44 (16,888) 40,465 Operating expenses (5,072) (28,644) (16,380) (161) 16,888 (33,369) Depreciation, depletion and amortization of tangible assets and mineral interests (1,100) (310) (112) (9) - (1,531) Operating income 5,335 (25) 381 (126) - 5,565 Equity in net income (loss) of affiliates and other items 473 23 32 255 - 783 Tax on net operating income (3,275) (3) (134) (53) - (3,465) Net operating income 2,533 (5) 279 76 - 2,883 Net cost of net debt - - - - - (71) Non-controlling interests - - - - - (86) Net income - - - - - 2,726 2nd quarter 2011 (adjustments) (a) Upstream Refining & Supply & Corporate Intercompany Total (in millions of euros) Chemicals Marketing Non-Group sales (55) - - - - (55) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (55) - - - - (55) Operating expenses - (170) 20 - - (150) Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income(b) (55) (170) 20 - - (205) Equity in net income (loss) of affiliates and other items 121 (37) (2) 43 - 125 Tax on net operating income 10 22 (3) (2) - 27 Net operating income(b) 76 (185) 15 41 - (53) Net cost of net debt - - - - - - Non-controlling interests - - - - - (15) Net income - - - - - (68) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Supply & Corporate Chemicals Marketing On operating income - (121) 34 - - On net operating income - (86) 27 - Financial Report - 1st half 2012. TOTAL 37 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 2nd quarter 2011 (adjusted) Upstream Refining Supply Corporate Intercompany Total (in millions of euros)(a) Chemicals Marketing Non-Group sales 5,221 19,089 20,753 1 - 45,064 Intersegment sales 6,341 10,346 158 43 (16,888) - Excise taxes - (506) (4,038) - - (4,544) Revenues from sales 11,562 28,929 16,873 44 (16,888) 40,520 Operating expenses (5,072) (28,474) (16,400) (161) 16,888 (33,219) Depreciation, depletion and amortization of tangible assets and mineral interests (1,100) (310) (112) (9) - (1,531) Adjusted operating income 5,390 145 361 (126) - 5,770 Equity in net income (loss) of affiliates and other items 352 60 34 212 - 658 Tax on net operating income (3,285) (25) (131) (51) - (3,492) Adjusted net operating income 2,457 180 264 35 - 2,936 Net cost of net debt - - - - - (71) Non-controlling interests - - - - - (71) Ajusted net income - - - - - 2,794 Adjusted fully-diluted earnings per share (€) - - - - - 1.24 (a) Except for per share amounts. 2nd quarter 2011 Upstream Refining Supply Corporate Intercompany Total (in millions of euros) Chemicals Marketing Total expenditures 6,868 519 152 31 - 7,570 Total divestments 921 13 27 377 - 1,338 Cash flow from operating activities 4,782(a) 180 (35) 137(a) - 5,064 (a) Reclassification of intercompany transactions between Upstream and Corporate for €823 million with no impact on the total of cash flow from operating activities. 38 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 9) Reconciliation of the information by business segment with consolidated financial statements (a) Adjusted Adjustments Consolidated 1st half 2012 statement (in millions of euros) of income Sales 100,317 (14) 100,303 Excise taxes (8,952) - (8,952) Revenues from sales 91,365 (14) 91,351 Purchases net of inventory variation (63,797) (538) (64,335) Other operating expenses (10,811) (108) (10,919) Exploration costs (625) - (625) Depreciation, depletion and amortization of tangible assets and mineral interests (3,820) (46) (3,866) Other income 305 209 514 Other expense (200) (347) (547) Financial interest on debt (357) - (357) Financial income from marketable securities & cash equivalents 59 - 59 Cost of net debt (298) - (298) Other financial income 294 - 294 Other financial expense (254) - (254) Equity in net income (loss) of affiliates 1,019 (42) 977 Income taxes (7,177) 171 (7,006) Consolidated net income 6,001 (715) 5,286 Group share 5,932 (685) 5,247 Non-controlling interests 69 (30) 39 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (a) Adjusted Adjustments Consolidated 1st half 2011 statement (in millions of euros) of income Sales 91,009 29 91,038 Excise taxes (8,971) - (8,971) Revenues from sales 82,038 29 82,067 Purchases net of inventory variation (56,910) 1,269 (55,641) Other operating expenses (9,443) (63) (9,506) Exploration costs (438) - (438) Depreciation, depletion and amortization of tangible assets and mineral interests (3,217) - (3,217) Other income 109 222 331 Other expense (129) (68) (197) Financial interest on debt (295) - (295) Financial income from marketable securities & cash equivalents 102 - 102 Cost of net debt (193) - (193) Other financial income 410 - 410 Other financial expense (212) - (212) Equity in net income (loss) of affiliates 929 21 950 Income taxes (6,880) (624) (7,504) Consolidated net income 6,064 786 6,850 Group share 5,898 774 6,672 Non-controlling interests 166 12 178 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial Report - 1st half 2012. TOTAL 39 2 Consolidated Financial Statements Notes to the consolidated financial statements for the first six months of 2012 (a) Adjusted Adjustments Consolidated 2nd quarter 2012 statement (in millions of euros) of income Sales 49,124 11 49,135 Excise taxes (4,559) - (4,559) Revenues from sales 44,565 11 44,576 Purchases net of inventory variation (30,910) (1,384) (32,294) Other operating expenses (5,784) (43) (5,827) Exploration costs (269) - (269) Depreciation, depletion and amortization of tangible assets and mineral interests (1,982) (46) (2,028) Other income 126 99 225 Other expense (108) (343) (451) Financial interest on debt (170) - (170) Financial income from marketable securities & cash equivalents 24 - 24 Cost of net debt (146) - (146) Other financial income 209 - 209 Other financial expense (118) - (118) Equity in net income (loss) of affiliates 484 (48) 436 Income taxes (3,149) 448 (2,701) Consolidated net income 2,918 (1,306) 1,612 Group share 2,858 (1,273) 1,585 Non-controlling interests 60 (33) 27 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (a) Adjusted Adjustments Consolidated 2nd quarter 2011 statement (in millions of euros) of income Sales 45,064 (55) 45,009 Excise taxes (4,544) - (4,544) Revenues from sales 40,520 (55) 40,465 Purchases net of inventory variation (28,299) (87) (28,386) Other operating expenses (4,741) (63) (4,804) Exploration costs (179) - (179) Depreciation, depletion and amortization of tangible assets and mineral interests (1,531) - (1,531) Other income 35 211 246 Other expense (70) (68) (138) Financial interest on debt (159) - (159) Financial income from marketable securities & cash equivalents 55 - 55 Cost of net debt (104) - (104) Other financial income 335 - 335 Other financial expense (104) - (104) Equity in net income (loss) of affiliates 462 (18) 444 Income taxes (3,459) 27 (3,432) Consolidated net income 2,865 (53) 2,812 Group share 2,794 (68) 2,726 Non-controlling interests 71 15 86 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 40 TOTAL. Financial Report - 1st half 2012 Consolidated Financial Statements 2 Notes to the consolidated financial statements for the first six months of 2012 10) Changes in progress in the Group structure Upstream – TOTAL announced in February 2012 the signature of an agreement with Sinochem to sell its interests in the Cusiana field and in OAM and ODC pipelines. This transaction is subject to approval by the relevant authorities. – TOTAL announced in July 2012 that it has acquired an additional 6% interest in the Ichthys liquefied natural gas (LNG) project from its partner INPEX. TOTAL’s overall equity stake in the Ichthys LNG project will grow from 24% to 30%. The transaction remains subject to Australian Authorities approval. 11) Post-closing events Organization of gas and new energies activities Following the review of gas and new energies activities that began in November 2011 and the subsequent information and consultation process with employee representatives, two new activities were created, effective July 1, 2012: – The Gas & Power activity, part of the Upstream segment; – The New Energies activity, part of the Supply & Marketing segment. are subject to corporate income tax in France. The new tax is expected to be due on the dividend distributions the payment date of which occurs after the date of entry into force of the law. Based on the draft law and on amounts distributed currently, the impact of the additional tax to the corporate income tax is expected to be, for the Group, about €40 million for each interim dividend. This additional tax is not expected to be tax deductible for corporate income tax purpose. Tax reform - draft law in France In France, the draft corrective finance law for 2012 (“projet de loi de finances rectificative pour 2012”) the final adoption of which is scheduled for late July 2012, provides for the introduction of an exceptional tax on the value of oil inventory and an additional tax to the corporate income tax on dividend distributions. In addition, the draft corrective finance law for 2012 also provides to set up a 4% exceptional tax on the value of oil inventory. This tax is expected to be due by any person, except the French State, that owns volumes of certain types of petroleum products located in the territory of metropolitan France. This exceptional tax is expected to be due on October 1, 2012. In the current draft of the law filed with the French National Assembly (“Assemblée Nationale”) on July 4, 2012, a 3% additional tax to the corporate income tax would be due on the dividends distributed by French or foreign companies and organizations that Based on the draft law, the amount of the exceptional tax on the value of oil inventory paid by the Group is expected to be about €150 million. Financial Report - 1st half 2012. TOTAL 41 42 TOTAL. Financial Report - 1st half 2012 PEFC/10-31-2043 This brochure is printed on 100% recyclable and biodegradable coated paper, manufactured from ECF (Elemental Chlorine Free) bleached pulp in a European factory certified ISO 9001 (for its quality management), ISO 14001 (for its environmental management), CoC PEFC (for the use of paper from sustainably managed forests) and is EMAS-accredited (for its environmental performance). Cover photography: © Thierry Gonzalez Design and Production: Agence Marc Praquin see you on www.total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,912,835,657.50 euros 542 051 180 RCS Nanterre www.total.com Standard: +33 (0)1 47 44 45 46 Investor Relations: +33 (0)1 47 44 58 53 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2012, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,013 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
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| Financial Report 1st half 2013 Contents 1. Financial Report - 1st half 2013 1. Key figures.......................................1 2. Group results...................................2 2.1. Operating income ..............................................................2 2.2. Net income .........................................................................2 2.3. Investments - divestments ................................................2 2.4. Cash flow............................................................................2 3. Analysis of business segment results ...............................3 3.1. Upstream ............................................................................3 3.2. Refining & Chemicals ........................................................4 3.3. Marketing & Services.........................................................5 4. TOTAL S.A. parent company accounts .........................................6 5. Highlights since the beginning of 2013............................................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment for first half 2013......7 7.2. Adjustment items ...............................................................8 7.3. Effective tax rates ..............................................................8 7.4. Investments - divestments ................................................9 7.5. Net-debt-to-equity ratio ....................................................9 7.6. Return on average capital employed .............................10 8. Principal risks and uncertainties for the remaining six months of 2013..........................................11 9. Principal transactions with related parties ...........................................11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the 2013 condensed half-yearly Consolidated Financial Statements .13 2. Consolidated statement of income...14 3. Consolidated statement of comprehensive income..............15 4. Consolidated statement of income ...16 5. Consolidated statement of comprehensive income..............17 6. Consolidated balance sheet ..........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow ...................................20 9. Consolidated statement of changes in shareholders’ equity...................21 10. Notes to the Consolidated Financial Statements for the first six months of 2013 .........................22 Accounting policies .........................................................22 Changes in the Group structure, main acquisitions and divestments ................................23 Adjustment items .............................................................23 Shareholders’ equity........................................................25 Financial debt...................................................................26 Related parties.................................................................26 Other risks and contingent liabilities ..............................26 Information by business segment ..................................30 Reconciliation of the information by business segment with Consolidated Financial Statements ........38 10) Changes in progress in the Group structure..................40 1) 2) 3) 4) 5) 6) 7) 8) 9) Financial Report 1st half 2013 This is a free translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements for the first half 2013 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim management report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the half-year financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 13 of this half-year financial report and contains an observation regarding the mandatory application of the IAS 19 (revised) ‘Employee benefits’.” Christophe de Margerie Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 26, 2013 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report - 1st half 2013. TOTAL i ii Abbreviations b: cf: /d: /y: €: $ and/or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe/d kboe/d: thousand barrel/d kb/d: British thermal unit Btu: million M: billion B: European Refining Margin Indicator. Refining margin indicator after ERMI: variable costs for a theoretical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. International Financial Reporting Standards liquefied natural gas Return on Equity Return on Average Capital Employed barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: Financial Report - 1st half 2013. TOTAL Conversion table 1 boe = 1 barrel of crude oil = approx. 5,434 cf of gas* 1 b/d = approx. 50 t/y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3/y = approx. 0.1 Bcf/d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt/y of LNG = approx. 131 Mcf/d This ratio is calculated based on the actual average equivalent energy content of TOTAL’s natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Financial Report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of, France. The terms “Company” and “issuer” as used in this Financial Report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2013 Financial Report - 1st half 2013 1 Financial Report - 1st half 2013 1. Key figures(1) 1H13 (in millions of euros vs except earnings per share and number of shares) 1H13 1H12 1H12 Sales 95,103 100,303 -5% Adjusted operating income from business segments 10,863 12,486 -13% Adjusted net operating income from business segments 6,139 6,322 -3% – Upstream 4,791 5,562 -14% – Refining & Chemicals 753 442 +70% – Marketing & Services 595 318 +87% Adjusted net income 5,562 5,871 -5% Adjusted fully-diluted earnings per share (euros) 2.45 2.59 -6% Fully-diluted weighted-average shares (millions) 2,272 2,264 - Net income (Group share) 4,074 5,186 -21% Investments (a) 11,696 10,904 +7% Divestments 1,950 2,670 -27% Net investments 9,746 8,234 +18% Cash flow from operations 7,424 11,434 -35% Adjusted cash flow from operations 10,228 9,863 +4% 1H13 (in millions of dollars(b) vs except earnings per share and number of shares) 1H13 1H12 1H12 Sales 124,908 130,043 -4% Adjusted operating income from business segments 14,267 16,188 -12% Adjusted net operating income from business segments 8,063 8,196 -2% – Upstream 6,292 7,211 -13% – Refining & Chemicals 989 573 +73% – Marketing & Services 781 412 +90% Adjusted net income 7,305 7,612 -4% Adjusted fully-diluted earnings per share (dollars) 3.22 3.36 -4% Fully-diluted weighted-average shares (millions) 2,272 2,264 - Net income (Group share) 5,351 6,724 -20% Investments (a) 15,362 14,137 +9% Divestments 2,561 3,462 -26% Net investments 12,800 10,675 +20% Cash flow from operations 9,751 14,824 -34% Adjusted cash flow from operations 13,433 12,787 +5% (a) Including acquisitions. (b) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period : 1.3134 $/€ in 1H13 and 1.2965 $/€ in 1H12. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value. Adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 8 and the inventory valuation effect is explained on page 12. Financial Report - 1st half 2013. TOTAL 1 1 Financial Report - 1st half 2013 Group results of first half 2013 2. Group results of first half 2013 2.1. Operating income Net income (Group share) was 4,074 M€ compared to 5,186 M€ in the first half 2012. Compared to the first half 2012, the average Brent price decreased by 5% to 107.5 $/b in the first half 2013. The European refining margin indicator (ERMI) averaged 25.5 $/t compared to 29.5 $/t in the first half 2012, a decrease of 14%. During the same period, however, the Petrochemicals environment on balance improved in Europe and the United States. On June 30, 2013, there were 2,277 million fully-diluted shares compared to 2,264 million on June 30, 2012. Adjusted fully-diluted earnings per share, based on 2,272 million fully-diluted weighted-average shares, was €2.45, a decrease of 6% compared to the first half 2012. The euro-dollar exchange rate averaged 1.31 $/€ compared to 1.30 $/€ in the first half 2012. Expressed in dollars, adjusted fully-diluted earnings per share was $3.22 compared to $3.36 in the first half 2012, a decrease of 4%. In this environment, the adjusted operating income from the business segments was 10,863 M€, a decrease of 13% compared to the first half 2012(1). 2.3. Investments - divestments(3) The effective tax rate for the business segments was 55.9% in the first half 2013 compared to 58.0% in the first half 2012. Adjusted net operating income from the business segments was 6,139 M€ compared to 6,322 M€ in the first half 2012, a decrease of 3%. Expressed in dollars, adjusted net operating income from the business segments decreased by 2%. This decrease was mainly due to a decrease in Upstream results which was almost completely offset by an increased contribution from the Downstream. 2.2. Net income Investments, excluding acquisitions and including changes in non-current loans, were 9.8 B€ (12.9 B$) in the first half 2013, compared to 8.3 B€ (10.7 B$) in the first half 2012. Acquisitions were 1.4 B€ (1.9 B$) in the first half 2013, comprised mainly of the acquisition of an additional 6% interest in the Ichthys project in Australia, an additional 0.7% stake in Novatek(4), the carry agreement for the liquids-rich Utica gas project in the United States, and bonus payments for exploration permits. Asset sales in the first half 2013 were 1.5 B€ (1.9 B$)(5), comprised mainly of the sale of an interest in the Tempa Rossa field in Italy and all of the Group’s 49% interest in the Voyageur upgrader project in Canada. Adjusted net income was 5,562 M€ in the first half 2013, compared to 5,871 M€ in the first half 2012, a decrease of 5%. Expressed in dollars, adjusted net income decreased by 4%. Net investments were 9.7 B€ (12.8 B$) in the first half 2013, compared to 8.2 B€ (10.7 B$) in the first half 2012. Adjusted net income excludes the after-tax inventory effect, special items and the effect of changes in fair value(2): 2.4. Cash flow – The after-tax inventory effect had a negative impact on net income of 451 M€ in the first half 2013 and a negative impact of 369 M€ in the first half 2012. Cash flow from operations was 7,424 M€ in the first half 2013, a decrease of 35% compared to the first half 2012, mainly due to an unfavorable change in working capital. – Changes in fair value had a negative impact on net income of 23 M€ in the first half 2013 and a negative impact of 11 M€ in the first half 2012. Adjusted cash flow from operations(6) was 10,228 M€, an increase of 4%. Expressed in dollars, adjusted cash flow from operations was 13.4 B$, an increase of 5%. – Special items had a negative impact on net income of 1,014 M€ in the first half 2013, mainly due to a loss on the sale of the Group’s interest in the Voyageur upgrader project in Canada, which was partially offset by a gain on the sale of an Upstream asset in Italy. Special items had a negative impact on net income of 305 M€ in the first half 2012. The Group’s net cash flow(7) was negative 2,322 M€ in the first half 2013, compared to positive 3,200 M€ in the first half 2012. Expressed in dollars, the Group’s net cash flow was negative 3.0 B$ in the first half 2013. The net-debt-to-equity ratio was 27.6% on June 30, 2013, compared to 21.9% on June 30, 2012(8). (1) Special items affecting operating income from the business segments had a negative impact of 43 M€ in the first half 2013 and a negative impact of 66 M€ in the first half 2012. (2) Adjustment items explained on page 8. (3) Detail shown on page 9. (4) As of June 30, 2013, the Group owns 16% of the share capital of Novatek. (5) This amount does not include the sale of an interest in block 14 in Angola, which was reported in the cash flow statement of the first quarter 2013 as a transaction involving a non-controlling interest. (6) Cash flow from operations at replacement cost before changes in working capital. (7) Net cash flow = cash flow from operations - net investments. (8) Detail shown on page 9. 2 Financial Report - 1st half 2013. TOTAL Financial Report - 1st half 2013 1 Analysis of business segment results 3. Analysis of business segment results 3.1. Upstream Effective July 1, 2012, the Upstream Segment no longer includes the activities of New Energies, which are now reported with Marketing & Services. As a result, certain information has been restated according to the new organization. 3.1.1. Environment - liquids and gas price realizations(a) 1H13 vs 1H13 1H12 1H12 Brent ($/b) 107.5 113.6 -5% Average liquids price ($/b) 101.7 108.3 -6% Average gas price ($/Mbtu) 6.97 7.10 -2% Average hydrocarbons price ($/boe) 73.6 79.0 -7% (a) Consolidated subsidiaries, excluding fixed margins. 3.1.2. Production 1H13 vs Hydrocarbon production 1H13 1H12 1H12 Combined production (kboe/d) 2,306 2,317 - Liquids (kb/d) 1,176 1,224 -4% Gas (Mcf/d) 6,153 5,974 +3% In the first half 2013, hydrocarbon production was 2,306 kboe/d, stable compared to the first half 2012, essentially as a result of: – +3% for growth from new projects ; – -2% for normal decline and scheduled maintenance ; – -1% for incidents in 2012 in the UK North Sea and in Nigeria ; – overall, increased production relating to the improvement of security conditions in Yemen was offset by increased theft and acts of sabotage in Nigeria during the first half of 2013. 3.1.3. Results 1H13 vs (in millions of euros) 1H13 1H12 1H12 Adjusted operating income(a) 9,268 11,456 -19% Adjusted net operating income(a) 4,791 5,562 -14% includes income from equity affiliates 1,160 928 +25% Investments 10,311 9,533 +8% Divestments 1,655 982 +69% Cash flow from operating activities 6,278 11,064 -43% Adjusted cash flow 8,469 8,707 -3% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Upstream Segment in the first half 2013 was 4,791 M€ compared to 5,562 M€ in the first half 2012, a decrease of 14%. Expressed in dollars, adjusted net operating income from the Upstream Segment was 6,292 M$, a decrease of 13% compared to the first half 2012, explained principally by a decrease in average hydrocarbon prices and an increase in technical costs between the two periods. The Return on Average Capital Employed (ROACE(1)) for the Upstream Segment was 16% for the twelve months ended June 30, 2013, compared to 17% for the twelve months ended March 31, 2013, and 18% for the full year 2012. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2013. TOTAL 3 1 Financial Report - 1st half 2013 Analysis of business segment results 3.2. Refining & Chemicals 3.2.1. Refinery throughput and utilization rates(a) 1H13 vs 1H13 1H12 1H12 Total refinery throughput (kb/d) 1,769 1,855 -5% – France 678 722 -6% – Rest of Europe 824 878 -6% – Rest of world 267 255 +5% Utilization rates(b) – Based on crude only 83% 84% – Based on crude and other feedstock 86% 89% (a) Includes share of TotalErg. Results for refineries in South Africa, French Antilles and Italy are reported in the Marketing & Services segment. (b) Based on distillation capacity at the beginning of the year. In the first half 2013, refinery throughput decreased by 5% compared to the first half 2012, reflecting essentially scheduled turnarounds at the Antwerp and Normandy platforms in 2013, increased maintenance at Donges, as well as the closure of the Rome refinery at the end of the third quarter 2012. 3.2.2. Results 1H13 (in millions of euros vs except the ERMI) 1H13 1H12 1H12 European refining margin indicator – ERMI ($/t) 25.5 29.5 -14% Adjusted operating income(a) 767 415 +85% Adjusted net operating income(a) 753 442 +70% 203 191 +6% Investments 915 930 -2% Divestments 235 148 +59% Cash flow from operating activities 1,015 589 +72% Adjusted cash flow 1,135 727 +56% contribution of specialty chemicals(b) (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Hutchinson, Bostik, Atotech. Adjusted net operating income from the Refining & Chemicals Segment in the first half 2013 was 753 M€, an increase of 70% compared to the first half 2012. Expressed in dollars, adjusted net operating income was 989 M$, an increase of 73% compared to the first half 2012, even while refining margins were declining. This increase was mainly due to an improved petrochemicals environment and the initial benefits of the efficiencies and synergies program. The ROACE(1) for the Refining & Chemicals Segment was 11% for the twelve months ended June 30, 2013, compared to 10% for the twelve months ended March 31, 2013, and 9% for the full year 2012. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 4 Financial Report - 1st half 2013. TOTAL Financial Report - 1st half 2013 1 Analysis of business segment results 3.3. Marketing & Services Effective July 1, 2012, the Marketing & Services segment includes the activities of new Energies. As a result, certain information has been restated according to the new organization. 3.3.1. Refined product sales 1H13 vs (in kb/d)(a) 1H13 1H12 1H12 Europe 1,129 1,189 -5% Rest of world 620 526 +18% Total Marketing & Services sales 1,749 1,715 +2% (a) Excludes Trading and bulk Refining sales, includes share of TotalErg. Sales volumes for the first half 2013 increased by 2% compared to first half 2012, mainly due to growth outside Europe, particularly in the Americas, Africa and Asia. Sales volumes in Europe declined by 5%, notably due to lower sales volumes in Italy in connection with the closure of the Rome refinery. 3.3.2. Results 1H13 vs (in millions of euros) 1H13 1H12 1H12 Sales 41,560 43,371 -4% Adjusted operating income(a) 828 615 +35% Adjusted net operating income(a) 595 318 +87% contribution of New Energies (13) (175) na Investments 429 410 +5% Divestments 50 65 -23% Cash flow from operating activties 321 (584) na Adjusted cash flow 959 637 +51% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Marketing & Services segment was 595 M€ in the first half 2013, an increase of 87% compared to the first half 2012. This increase was mainly due to an improved contribution from New Energies (which was negative in first half 2012) and an overall improvement in the Marketing division, particularly in emerging markets. The ROACE(1) for the Marketing & Services segment was 14% for the twelve months ended June 30, 2013, compared to 13% for the twelve months ended March 31, 2013, and 12% for the full-year 2012. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2013. TOTAL 5 1 Financial Report - 1st half 2013 TOTAL S.A. parent company accounts / Highlights since the beginning of 2013 / Summary and outlook 4. TOTAL S.A. parent company accounts Net income for TOTAL S.A., the parent company, was 3,876 M€ in the first half 2013, compared to 3,116 M€ in the first half 2012. 5. Highlights since the beginning of 2013 – Launched the development of Moho Nord in the Republic of Congo. – Restarted production at Elgin-Franklin in the UK North Sea. – Signed a framework agreement with Qatar Petroleum International (QPI) whereby QPI will acquire a 15% stake in Total E&P Congo. – Start-up of Angola LNG, in which the Group has a 13.6% interest. – Launched the development of Egina in deep-offshore Nigeria. – Acquired an additional 6% interest in the Ichthys LNG project in Australia. – Encountered a horizon of high-quality oil on offshore Block CI-100 in Ivory Coast. – Sold the 49% stake in the Voyageur project in Canada, a 25% interest in the Tempa Rossa field in Italy, a 9.99% indirect interest in Block 14 offshore Angola, and the fertilizer business in Europe. – Expanded exploration acreage by obtaining 10 new exploration licenses in Brazil and permits in offshore Cyprus. – Launched a project to modernize the Antwerp refining and – Finalized the sale of a 25% interest in the Tempa Rossa field in Italy in the Upstream, the sale of a 9.99% indirect interest in Block 14 offshore Angola, and the sale of the fertilizer business in Europe. petrochemical platform. – Completed the modernization of the Port Arthur steam cracker in the United States to capitalize on competitively priced ethane. – Signed agreement with a consortium of buyers for the sale of TIGF, a natural gas transportation and storage affiliate in France. 6. Summary and outlook The ROACE(1) for the Group for the twelve months ended June 30, 2013, was 15% compared to 15% for the twelve months ended March 31, 2013, and 16% for the full year 2012. In the Downstream, the commissioning of the Satorp platform in Jubail should be completed by year-end. Together with its partner Saudi Aramco, Total should have one of the most modern and competitive refining and Petrochemicals platforms in the world. Return on Equity for the twelve months ended June 30, 2013, was 17%. The second half of 2013 will be highlighted by Total’s progress on executing its major projects. In the Upstream, following the recent start-up of Angola LNG, the Group should see first oil from the giant Kashagan project in Kazakhstan, as well as benefit from gas and liquids production from the extension of OML 58 in Nigeria. In addition, following the launch of two new deep-offshore projects in 2013, Moho Nord in Congo and Egina in Nigeria, the Group is studying the launch of two additional major projects before year-end: the long-plateau projects of Yamal LNG in Russia and the Fort Hills mining project in Canada. At the same time, the Group continues to optimize its portfolio through its asset sale program with, notably, the pending closings of the sale of TIGF in France and the sale of Block OML 138 in Nigeria. Based on agreements signed and in negotiation, the Group is confident in its ability to achieve its target of 15-20 B$ in asset sales during 2012-14. As approved by the Board of Directors on April 25, 2013, Total will pay a first quarter 2013 interim dividend of 0.59 €/share on September 27, 2013. At the end of September, the Group will present its strategy and outlook at its annual Investors Day, a part of which will be dedicated to CSR topics. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 6 Financial Report - 1st half 2013. TOTAL Financial Report - 1st half 2013 1 Other information 7. Other information 7.1. Operating information by segment for first half 2013 7.1.1. Upstream 1H13 Combined liquids and gas production vs by region (kboe/d) 1H13 1H12 1H12 Europe 388 464 -16% Africa 690 707 -2% Middle East 535 494 +8% North America 71 69 +3% South America 172 185 -7% Asia-Pacific 232 213 +9% CIS 218 185 +18% Total production 2,306 2,317 - Includes equity affiliates 679 603 +13% 1H13 Liquids production vs by region (kb/d) 1H13 1H12 1H12 Europe 160 212 -25% Africa 547 570 -4% Middle East 324 305 +6% North America 27 25 +8% South America 56 61 -8% Asia-Pacific 30 25 +20% CIS 32 26 +23% Total production 1,176 1,224 -4% Includes equity affiliates 324 305 +6% 1H13 Gas production vs by region (kb/d) 1H13 1H12 1H12 Europe 1,250 1,378 -9% Africa 724 702 +3% Middle East 1,135 1,029 +10% North America 246 249 -1% South America 643 711 -10% Asia-Pacific 1,136 1,046 +9% CIS 1,019 859 +19% Total production 6,153 5,974 +3% Includes equity affiliates 1,911 1,609 +19% 1H13 vs Liquified natural gas 1H13 1H12 1H12 LNG sales(a) (Mt) 5.76 5.77 - (a) Sales, Group share, excluding Trading; 2012 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2012 SEC coefficient. Financial Report - 1st half 2013. TOTAL 7 1 Financial Report - 1st half 2013 Other information 7.1.2. Downstream (Refining & Chemicals and Marketing & Services) 1H13 Refined product sales vs by region (kb/d)(a) 1H13 1H12 1H12 Europe 1,975 2,064 -4% Africa 445 397 +12% Americas 513 475 +8% Rest of world 513 538 -5% Total consolidated sales 3,446 3,473 -1% Includes bulk sales 528 522 +1% Includes Trading 1,169 1,236 -5% (a) Includes share of TotalErg. 7.2. Adjustment items 7.2.1. Adjustments to operating income from business segments (in millions of euros) 1H13 1H12 Special items affecting operating income from business segments (43) (154) – Restructuring charges (2) (48) – Impairments (4) - – Other (37) (106) Pre-tax inventory effect: FIFO vs. replacement cost (669) (538) Effect of changes in fair value (30) (14) Total adjustments affecting operating income (742) (706) 7.2.2. Adjustments to net income (Group share) (in millions of euros) 1H13 1H12 Special items affecting operating income (Group share) (1,014) (305) – Gain (loss) on asset sales (960) 153 – Restructuring charges (26) (40) – Impairments (3) (38) – Other (25) (380) After-tax inventory effect: FIFO vs. replacement cost (451) (369) Effect of changes in fair value (23) (11) Total adjustments affecting net income (1,488) (685) 7.3. Effective tax rates Effective tax rate(a) 1H13 1H12 Upstream 60.6% 59.9% Group 57.3% 58.8% (a) Tax on adjusted net operating income/(adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). 8 Financial Report - 1st half 2013. TOTAL Financial Report - 1st half 2013 1 Other information 7.4. Investments - divestments 1H13 vs (in millions of euros) 1H13 1H12 1H12 Investments excluding acquisitions(a) 9,793 8,254 +19% Capitalized exploration 759 669 +13% Change in non-current loans(b) 286 390 -27% Acquisitions 1,434 2,270 -37% Investments including acquisitions(a) 11,227 10,523 +7% Asset sales 1,481 2,289 -35% Net investments(b) 9,746 8,234 +18% 1H13 vs (in millions of dollars(c)) 1H13 1H12 1H12 Investments excluding acquisitions(a) 12,862 10,701 +20% Capitalized exploration 997 867 +15% Change in non-current loans(b) 376 506 -26% Acquisitions 1,883 2,943 -36% Investments including acquisitions(a) 14,746 13,643 +8% Asset sales 1,945 2,968 -34% Net investments(b) 12,800 10,675 +20% (a) Includes changes in non-current loans. (b) Includes net investments in equity affiliates and non-consolidated companies + net financing for employee-related stock purchase plans. (c) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period. 7.5. Net-debt-to-equity ratio (in millions of euros) 6/30/2013 6/30/2012 Current borrowings 10,030 10,642 Net current financial assets (465) (1,552) Non-current financial debt 775 - Net financial assets classified as held for sale 22,595 23,260 Hedging instruments of non-current debt (1,306) (1,886) Cash and cash equivalents (11,558) (14,998) Net debt 20,071 15,466 Shareholders’ equity 72,461 70,665 Estimated dividend payable (1,313) (1,299) Minority interests 1,701 1,256 Equity 72,849 70,622 Net-debt-to-equity ratio 27.6% 21.9% Financial Report - 1st half 2013. TOTAL 9 1 Financial Report - 1st half 2013 Other information 7.6. Return on average capital employed 7.6.1. Twelve months ended June 30, 2013 Upstream Refining & Marketing & Group (in millions of euros) Chemicals Services Adjusted net operating income 10,374 1,687 1,107 12,679 58,668 16,014 8,003 83,729 Capital employed at 6/30/2012(a) 69,644 15,998 7,511 90,858 Capital employed at 6/30/2013(a) ROACE 16.2% 10.5% 14.3% 14.5% (a) At replacement cost (excluding after-tax inventory effect). 7.6.2. Twelve months ended March 31, 2013 Upstream Refining & Marketing & Group (in millions of euros) Chemicals Services Adjusted net operating income 10,554 1,695 954 12,764 57,382 15,790 7,485 82,009 Capital employed at 3/31/2012(a) 67,187 17,096 7,503 90,694 Capital employed at 3/31/2013(a) ROACE 16.9% 10.3% 12.7% 14.8% (a) At replacement cost (excluding after-tax inventory effect). 7.6.3. Full-year 2012 Upstream Refining & Marketing & Group (in millions of euros) Chemicals Services Adjusted net operating income 11,145 1,376 830 12,927 56,910 15,454 6,852 79,976 Capital employed at 12/31/2011(a) 63,862 15,726 6,986 84,152 Capital employed at 12/31/2012(a) ROACE 18.5% 8.8% 12.0% 15.8% (a) At replacement cost (excluding after-tax inventory effect). 10 Financial Report - 1st half 2013. TOTAL Financial Report - 1st half 2013 1 Principal risks and uncertainties for the remaining six months of 2013 / Principal transactions with related parties 8. Principal risks and uncertainties for the remaining six months of 2013 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 28, 2013. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2013 on pages 26 to 29 and 40 of this report. 9. Principal transactions with related parties Information concerning the principal transactions with related parties since January 1, 2013, is provided in section 6 of the notes to the Consolidated Financial Statements for the first six months of 2013, on page 26 of this report. Financial Report - 1st half 2013. TOTAL 11 1 Financial Report - 1st half 2013 Principal transactions with related parties Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809/2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document filed by the Company with the French Autorité des Marchés Financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. 12 Financial Report - 1st half 2013. TOTAL (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the Statement of Income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects for some transactions differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Dollar amounts presented herein represent euro amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in dollars. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this presentation, such as resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, Place Jean Millier – Arche Nord Coupole/Regnault -92078 Paris-La Défense Cedex, France, or at our website: www.total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website: www.sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the 2013 condensed half-yearly consolidated financial statements This is a free translation into English of the statutory auditors’ review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France. Period from January 1 to June 30, 2013 To the Shareholders, Following our appointment as statutory auditors by your general meeting and in accordance with article L. 451-1-2 III of the French Monetary and Financial Law (“Code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of TOTAL S.A. for the period from January 1 to June 30, 2013, – the verification of information contained in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that these accompanying condensed half-yearly consolidated financial statements are not prepared in all material respects in accordance with IAS 34 – the standard of the IFRS as adopted by the European Union applicable to interim financial statements. Without qualifying the conclusion expressed above, we draw your attention to the mention in the note 1 to the interim condensed consolidated financial statements which sets out the accounting consequences resulting from the mandatory application of IAS 19 revised “Employee Benefits”. II - Specific verification We have also verified information given in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris La Défense, on July 25, 2013 French original signed by: The statutory auditors KPMG Audit Jay Nirsimloo. Associé ERNST & YOUNG Audit Pascal Macioce Laurent Vitse Associé Financial Report - 1st half 2013. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited) 1st half 1st half (in millions of euros)(a) 2013 2012 Sales 95,103 100,303 Excise taxes (8,665) (8,952) Revenues from sales 86,438 91,351 Purchases, net of inventory variation (60,874) (64,335) Other operating expenses (10,987) (11,007) Exploration costs (579) (625) Depreciation, depletion and amortization of tangible assets and mineral interests (4,101) (3,866) Other income 383 514 Other expense (1,626) (547) Financial interest on debt (351) (357) Financial income from marketable securities & cash equivalents 36 59 Cost of net debt (315) (298) Other financial income 260 294 Other financial expense (265) (254) Equity in net income (loss) of affiliates 1,327 977 Income taxes (5,498) (6,979) Consolidated net income 4,163 5,225 Group share 4,074 5,186 Non-controlling interests 89 39 Earnings per share (€) 1.80 2.30 Fully-diluted earnings per share (€) 1.79 2.29 (a) Except for per share amounts. 14 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited) 1st half 1st half (in millions of euros) 2013 2012 Consolidated net income 4,163 5,225 Other comprehensive income Actuarial gains and losses (19) (423) Tax effect 6 156 Items not potentially reclassifiable to profit and loss (13) (267) Currency translation adjustment (160) 1,289 Available for sale financial assets 2 (159) Cash flow hedge 72 3 Share of other comprehensive income of equity affiliates, net amount (336) 105 Other (8) (14) Tax effect (27) 35 Items potentially reclassifiable to profit and loss (457) 1,259 Total other comprehensive income (net amount) (470) 992 Comprehensive income 3,693 6,217 Group share 3,627 6,155 Non-controlling interests 66 62 Financial Report - 1st half 2013. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros)(a) 2013 2013 2012 Sales 46,973 48,130 49,135 Excise taxes (4,469) (4,196) (4,559) Revenues from sales 42,504 43,934 44,576 Purchases, net of inventory variation (30,344) (30,530) (32,294) Other operating expenses (5,635) (5,352) (5,927) Exploration costs (272) (307) (269) Depreciation, depletion and amortization of tangible assets and mineral interests (1,941) (2,160) (2,028) Other income 352 31 225 Other expense (94) (1,532) (451) Financial interest on debt (182) (169) (170) Financial income from marketable securities & cash equivalents 14 22 24 Cost of net debt (168) (147) (146) Other financial income 157 103 209 Other financial expense (137) (128) (118) Equity in net income (loss) of affiliates 609 718 436 Income taxes (2,456) (3,042) (2,668) Consolidated net income 2,575 1,588 1,545 Group share 2,537 1,537 1,518 Non-controlling interests 38 51 27 Earnings per share (€) 1.12 0.68 0.67 Fully-diluted earnings per share (€) 1.12 0.68 0.67 (a) Except for per share amounts. 16 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros) 2013 2013 2012 Consolidated net income 2,575 1,588 1,545 Other comprehensive income Actuarial gains and losses (188) 169 (422) Tax effect 72 (66) 158 Items not potentially reclassifiable to profit and loss (116) 103 (264) Currency translation adjustment (1,111) 951 2,337 Available for sale financial assets 6 (4) (93) Cash flow hedge 61 11 (67) Share of other comprehensive income of equity affiliates, net amount (430) 94 (57) Other - (8) (7) Tax effect (25) (2) 46 Items potentially reclassifiable to profit and loss (1,499) 1,042 2,159 Total other comprehensive income (net amount) (1,615) 1,145 1,895 Comprehensive income 960 2,733 3,440 Group share 978 2,649 3,363 Non-controlling interests (18) 84 77 Financial Report - 1st half 2013. TOTAL 17 2 Consolidated Financial Statements Consolidated Balance Sheet 6. Consolidated balance sheet TOTAL ASSETS 6/30/2013 3/31/2013 12/31/2012 6/30/2012 (in millions of euros) (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 13,322 13,552 12,858 13,847 Property, plant and equipment, net 71,397 70,680 69,332 69,868 Equity affiliates : investments and loans 14,555 15,139 13,759 13,911 Other investments 1,210 1,223 1,190 2,222 Hedging instruments of non-current financial debt 1,306 1,472 1,626 1,886 Deferred income taxes 2,842 2,568 2,279 1,758 Other non-current assets 2,914 2,846 2,663 2,535 Total non-current assets 107,546 107,480 103,707 106,027 Current assets Inventories, net 15,441 17,095 17,397 17,111 Accounts receivable, net 19,563 21,995 19,206 19,768 Other current assets 11,353 10,898 10,086 10,435 Current financial assets 510 624 1,562 1,723 Cash and cash equivalents 11,558 13,415 15,469 14,998 Assets classified as held for sale 3,902 4,555 3,797 - Total current assets 62,327 68,582 67,517 64,035 Total assets 169,873 176,062 171,224 170,062 LIABILITIES & SHAREHOLDERS’ EQUITY 6/30/2013 3/31/2013 12/31/2012 6/30/2012 (in millions of euros) (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 5,942 5,915 5,915 5,911 Paid-in surplus and retained earnings 71,785 71,751 70,116 67,776 Currency translation adjustment (1,924) (478) (1,504) 368 Treasury shares (3,342) (3,342) (3,342) (3,390) Total shareholders’ equity - Group Share 72,461 73,846 71,185 70,665 Non-controlling interests 1,701 1,785 1,280 1,256 Total shareholders’ equity 74,162 75,631 72,465 71,921 Non-current liabilities Deferred income taxes 12,800 12,877 12,132 11,860 Employee benefits 3,633 3,503 3,744 3,406 Provisions and other non-current liabilities 11,059 11,554 11,585 11,264 Non-current financial debt 22,595 22,875 22,274 23,260 Total non-current liabilities 50,087 50,809 49,735 49,790 Current liabilities Accounts payable 20,168 21,809 21,648 20,448 Other creditors and accrued liabilities 13,901 15,254 14,698 17,090 Current borrowings 10,030 10,739 11,016 10,642 Other current financial liabilities 45 89 176 171 Liabilities directly associated with the assets classified as held for sale 1,480 1,731 1,486 - Total current liabilities 45,624 49,622 49,024 48,351 Total liabilities and shareholders’ equity 169,873 176,062 171,224 170,062 18 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of euros) 2013 2012 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 4,163 5,225 Depreciation, depletion and amortization 4,420 4,267 Non-current liabilities, valuation allowances and deferred taxes (24) 326 Impact of coverage of pension benefit plans - (362) (Gains) losses on disposals of assets 1,147 (446) Undistributed affiliates’ equity earnings (283) 227 (Increase) decrease in working capital (2,135) 2,109 Other changes, net 136 88 Cash flow from operating activities 7,424 11,434 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (10,145) (9,355) Acquisitions of subsidiaries, net of cash acquired (16) (125) Investments in equity affiliates and other securities (780) (653) Increase in non-current loans (755) (771) Total expenditures (11,696) (10,904) Proceeds from disposals of intangible assets and property, plant and equipment 1,264 662 Proceeds from disposals of subsidiaries, net of cash sold 200 34 Proceeds from disposals of non-current investments 17 1,593 Repayment of non-current loans 469 381 Total divestments 1,950 2,670 Cash flow used in investing activities (9,746) (8,234) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 329 31 – Treasury shares - - Dividends paid: – Parent company shareholders (2,689) (2,570) – Non controlling interests (72) (98) Other transactions with non-controlling interests 354 1 Net issuance (repayment) of non-current debt 3,425 3,073 Increase (decrease) in current borrowings (3,930) (1,794) Increase (decrease) in current financial assets and liabilities 901 (939) Cash flow used in financing activities (1,682) (2,296) Net increase (decrease) in cash and cash equivalents (4,004) 904 Effect of exchange rates 93 69 Cash and cash equivalents at the beginning of the period 15,469 14,025 Cash and cash equivalents at the end of the period 11,558 14,998 Financial Report - 1st half 2013. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of euros) 2013 2013 2012 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 2,575 1,588 1,545 Depreciation, depletion and amortization 2,114 2,306 2,164 Non-current liabilities, valuation allowances and deferred taxes (101) 77 (32) Impact of coverage of pension benefit plans - - (362) (Gains) losses on disposals of assets (271) 1,418 (165) Undistributed affiliates’ equity earnings 70 (353) 193 (Increase) decrease in working capital (732) (1,403) 2,783 Other changes, net 51 85 41 Cash flow from operating activities 3,706 3,718 6,167 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (5,232) (4,913) (4,128) Acquisitions of subsidiaries, net of cash acquired - (16) (4) Investments in equity affiliates and other securities (198) (582) (455) Increase in non-current loans (282) (473) (377) Total expenditures (5,712) (5,984) (4,964) Proceeds from disposals of intangible assets and property, plant and equipment 844 420 95 Proceeds from disposals of subsidiaries, net of cash sold 200 - - Proceeds from disposals of non-current investments 17 - 739 Repayment of non-current loans 273 196 146 Total divestments 1,334 616 980 Cash flow used in investing activities (4,378) (5,368) (3,984) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 329 - - – Treasury shares - - - Dividends paid: – Parent company shareholders (1,356) (1,333) (1,284) – Non-controlling interests (70) (2) (96) Other transactions with non-controlling interests (3) 357 1 Net issuance (repayment) of non-current debt 575 2,850 1,409 Increase (decrease) in current borrowings (698) (3,232) (693) Increase (decrease) in current financial assets and liabilities 9 892 (10) Cash flow used in financing activities (1,214) (468) (673) Net increase (decrease) in cash and cash equivalents (1,886) (2,118) 1,510 Effect of exchange rates 29 64 158 Cash and cash equivalents at the beginning of the period 13,415 15,469 13,330 Cash and cash equivalents at the end of the period 11,558 13,415 14,998 20 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL Common shares issued Paid-in surplus Currency Treasury shares Shareholders’ Non- Total (unaudited) and retained translation equity Group controlling shareholders’ (in millions of euros) Number Amount earnings adjustment Number Amount Share interests equity As of January 1, 2012 2,363,767,313 5,909 65,430 (1,004) (109,554,173) (3,390) 66,945 1,352 68,297 Net income of the first half - - 5,186 - - - 5,186 39 5,225 Other comprehensive Income - - (396) 1,365 - - 969 23 992 Comprehensive Income - - 4,790 1,365 - - 6,155 62 6,217 Dividend - - (2,570) - - - (2,570) (98) (2,668) Issuance of common shares 779,653 2 29 - - - 31 - 31 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - - - 10,295 - - - - Share-based payments - - 74 - - - 74 - 74 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - 14 7 - - 21 (20) 1 Other items - - 9 - - - 9 (40) (31) As of June 30, 2012 2,364,546,966 5,911 67,776 368 (109,543,878) (3,390) 70,665 1,256 71,921 Net income from July,1 to December,31, 2012 - - 5,423 - - - 5,423 108 5,531 Other comprehensive Income - - (373) (1,871) - - (2,244) (63) (2,307) Comprehensive Income - - 5,050 (1,871) - - 3,179 45 3,224 Dividend - - (2,667) - - - (2,667) (6) (2,673) Issuance of common shares 1,386,180 4 (3) - - - 1 - 1 Purchase of treasury shares - - - - (1,800,000) (68) (68) - (68) Sale of treasury shares(a) - - (116) - 2,952,239 116 - - - Share-based payments - - 72 - - - 72 - 72 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - (3) (1) - - (4) 4 - Other items - - 7 - - - 7 (19) (12) As of December 31, 2012 2,365,933,146 5,915 70,116 (1,504) (108,391,639) (3,342) 71,185 1,280 72,465 Net income of the first half - - 4,074 - - - 4,074 89 4,163 Other comprehensive Income - - (28) (419) - - (447) (23) (470) Comprehensive Income - - 4,046 (419) - - 3,627 66 3,693 Dividend - - (2,685) - - - (2,685) (72) (2,757) Issuance of common shares 10,802,845 27 302 - - - 329 - 329 Purchase of treasury shares - - - - - - - - - Sale of treasury shares(a) - - - - 980 - - - - Share-based payments - - 74 - - - 74 - 74 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - (69) (1) - - (70) 424 354 Other items - - 1 - - - 1 3 4 As of June 30, 2013 2,376,735,991 5,942 71,785 (1,924) (108,390,659) (3,342) 72,461 1,701 74,162 (a) Treasury shares related to the restricted stock grants. Financial Report - 1st half 2013. TOTAL 21 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 10. Notes to the Consolidated Financial Statements for the first six months of 2013 (unaudited) 1) Accounting policies The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2013 are presented in Euros and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the Consolidated Financial Statements as of June 30, 2013 do not differ significantly from those applied for the Consolidated Financial Statements as of December 31, 2012 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board), with the exception of those texts or amendments that must be applied for periods beginning the January 1st, 2013 described in note 1X of the Notes to the Consolidated Financial Statements for the year ended December 31, 2012: – The revised standard IAS 19 “Employee benefits” applicable retrospectively from January 1st, 2013, led in particular to the full recognition of the net position in respect of employee benefits obligations (liabilities net of assets) in the balance sheet, to the elimination of the corridor approach previously used by the Group, the elimination of the depreciation of past services costs, and to the obligation to evaluate the expected return on plan assets on a normative basis (via the discount rate used to value the debt). – The application of standards IFRS 13 “Fair value measurement” and IAS 1 revised “Presentation of financial statements” did not have a material effect on the Group’s Consolidated Balance Sheet, Statement of Income and shareholder’s equity as of June 30, 2013. The preparation of financial statements in accordance with IFRS requires the executive management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. The executive management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2012. The application of this standard had an impact on January 1st, 2013 and as of June 30, 2012 (the first comparative period presented) of an increase in employee benefit provisions of €2.8 billion and €2.3 billion respectively, and a decrease in equity of €2.8 billion and €2.3 billion before tax (€1.7 billion and €1.4 billion after tax). The impact on the profit for 2012 is not significant. In accordance with the transitional rules of IAS 19 revised, the comparative periods were restated to take into account the retrospective application of the standard. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the executive management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements: – give a true and fair view of the Group’s financial position, financial performance and cash flows; – reflect the substance of transactions; – are neutral; – Application of standards on consolidation: IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint arrangements”, IFRS 12 “Disclosure of interests in other entities”, IAS 27 revised “Separate financial statements” and IAS 28 revised “Investments in associates and joint ventures”. The application of these standards did not have a material effect on the Group’s Consolidated Balance Sheet, income statement and shareholder’s equity as of June 30, 2013. – are prepared on a prudent basis; and – are complete in all material aspects. Pursuant to the accrual basis of accounting followed by the Group, the financial statements reflect the effects of transactions and other events when they occur. Assets and liabilities such as property, plant and equipment and intangible assets are usually measured at cost. Financial assets and liabilities are usually measured at fair value. 22 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 2) Changes in the Group structure, main acquisitions and divestments Upstream – In February 2013, TOTAL acquired an additional 6% interest in the Ichthys Liquefied Natural Gas (LNG) project from its partner INPEX. TOTAL’s overall equity stake in the Ichthys LNG project will increase from 24% to 30%. to US$506 million (€385 million). The mining development projects of Fort Hills and Joslyn continue according to the production evacuation logistics studies jointly conducted with Suncor. The sale entails a net loss of €1,247 million. – TOTAL finalized in June 2013 the sale of a 25% interest in the Tempa Rossa field in Italy to a subsidiary of Mitsui. – In February 2013, TOTAL sold a 9.99% indirect interest in Block 14 offshore Angola to INPEX. Refining & Chemicals – On March 27, 2013, TOTAL sold its 49% interest in the Voyageur upgrader project to Suncor. The transaction amounted – In June 2013, TOTAL sold its fertilizer businesses in Europe. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the Statement of Income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value Adjustment items include: (i) Special items The effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table below. Financial Report - 1st half 2013. TOTAL 23 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 ADJUSTMENTS TO OPERATING INCOME Upstream Refining & Marketing & Corporate Total (in millions of euros) Chemicals Services 2nd quarter 2013 Inventory valuation effect - (499) (82) - (581) Effect of changes in fair value (32) - - - (32) Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (37) - - (37) Total (32) (536) (82) - (650) 2nd quarter 2012 Inventory valuation effect - (1,238) (146) - (1,384) Effect of changes in fair value 11 - - - 11 Restructuring charges - - (48) - (48) Asset impairment charges - - - - - Other items (18) - - (23) (41) Total (7) (1,238) (194) (23) (1,462) 1st half 2013 Inventory valuation effect - (566) (103) - (669) Effect of changes in fair value (30) - - - (30) Restructuring charges - (2) - - (2) Asset impairment charges - (4) - - (4) Other items - (37) - - (37) Total (30) (609) (103) - (742) 1st half 2012 Inventory valuation effect - (455) (83) - (538) Effect of changes in fair value (14) - - - (14) Restructuring charges - - (48) - (48) Asset impairment charges - - - - - Other items (18) - - (88) (106) Total (32) (455) (131) (88) (706) ADJUSTMENTS TO NET INCOME GROUP SHARE Upstream Refining & Marketing & Corporate Total (in millions of euros) Chemicals Services 2nd quarter 2013 Inventory valuation effect - (351) (49) - (400) Effect of changes in fair value (24) - - - (24) Restructuring charges - - - - - Asset impairment charges - - - - - Gains (losses) on disposals of assets 328 (41) - - 287 Other items - (25) - - (25) Total 304 (417) (49) - (162) 2nd quarter 2012 Inventory valuation effect - (877) (82) - (959) Effect of changes in fair value 9 - - - 9 Restructuring charges - - (40) - (40) Asset impairment charges - - - (18) (18) Gains (losses) on disposals of assets - - - 73 73 Other items (7) - - (331) (338) Total 2 (877) (122) (276) (1,273) 1st half 2013 Inventory valuation effect - (385) (66) - (451) Effect of changes in fair value (23) - - - (23) Restructuring charges - (16) (10) - (26) Asset impairment charges - (3) - - (3) Gains (losses) on disposals of assets (919) (41) - - (960) Other items - (25) - - (25) Total (942) (470) (76) - (1,488) 1st half 2012 Inventory valuation effect - (324) (45) - (369) Effect of changes in fair value (11) - - - (11) Restructuring charges - - (40) - (40) Asset impairment charges - - (20) (18) (38) Gains (losses) on disposals of assets - - - 153 153 Other items (7) - - (373) (380) Total (18) (324) (105) (238) (685) 24 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 4) Shareholders’ equity A) Treasury shares – 98,307,596 shares held by subsidiaries of Elf Aquitaine (TOTAL shares held by TOTAL S.A.) As of June 30, 2013, TOTAL S.A. held 8,059,391 of its own shares, representing 0.34% of its share capital, detailed as follows: – 7,993,690 shares allocated to TOTAL restricted shares plans for (Financière Valorgest, Sogapar and Fingestval), 100% indirectly controlled by TOTAL S.A. These 100,331,268 shares are deducted from the consolidated shareholders’ equity. Group Employees; and C) Dividend – 65,701 shares intended to be allocated to new TOTAL share purchase option plans or to new restricted shares plans. These 8,059,391 shares are deducted from the consolidated shareholders’ equity. B) Treasury shares (TOTAL shares held by Group subsidiaries) The shareholders’ meeting on May 17, 2013 approved the payment of a cash dividend of €2.34 per share for the 2012 fiscal year. Taking into account the first quarterly dividend of €0.57 per share and the two following quarterly dividends of €0.59 per share that have already been paid on September 27, 2012, December 20, 2012, and March 21, 2013, the remaining balance of €0.59 per share was paid on June 27, 2013. As of June 30, 2013, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.22% of its share capital, detailed as follows: A first quarterly dividend for the fiscal year 2013 of €0.59 per share, decided by the Board of Directors on April 25, 2013, will be paid on September 27, 2013 (the ex-dividend date will be September 24, 2013). – 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; A second quarterly dividend for the fiscal year 2013 of €0.59 per share, decided by the Board of Directors on July 25, 2013, will be paid on December 19, 2013 (the ex-dividend date will be December 16, 2013). D) Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of euros) 1st half 2013 1st half 2012 Actuarial gains and losses (19) (423) Tax effect 6 156 Items not potentially reclassifiable to profit or loss (13) (267) Currency translation adjustment (160) 1,289 – unrealized gain/(loss) of the period (174) 1,288 – less gain/(loss) included in net income (14) (1) Available for sale financial assets 2 (159) – unrealized gain/(loss) of the period 2 61 – less gain/(loss) included in net income - 220 Cash flow hedge 72 3 – unrealized gain/(loss) of the period 14 (35) – less gain/(loss) included in net income (58) (38) Share of other comprehensive income of equity affiliates, net amount (336) 105 Other (8) (14) – unrealized gain/(loss) of the period (8) (14) – less gain/(loss) included in net income - - Tax effect (27) 35 Items potentially reclassifiable to profit or loss (457) 1,259 Total other comprehensive income, net amount (470) 992 Financial Report - 1st half 2013. TOTAL 25 2 26 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 Tax effects relating to each component of other comprehensive income are as follows: (in millions of euros) 1st half 2013 1st half 2012 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses (19) 6 (13) (423) 156 (267) Items not potentially reclassifiable to profit or loss (19) 6 (13) (423) 156 (267) Currency translation adjustment (160) (160) 1,289 1,289 Available for sale financial assets 2 1 3 (159) 38 (121) Cash flow hedge 72 (28) 44 3 (3) - Share of other comprehensive income of equity affiliates, net amount (336) (336) 105 105 Other (8) (8) (14) (14) Items potentially reclassifiable to profit or loss (430) (27) (457) 1 224 35 1 259 Total other comprehensive income (449) (21) (470) 801 191 992 5) Financial debt The Group issued bonds through its subsidiaries Total Capital International and Total Capital Canada during the first six months of 2013: − Bond 1.450% 2013-2018 (1,000 million USD) − Bond US Libor 3 months +38 bp 2013-2016 (1,000 million USD) − Bond 2.750% 2013-2023 (1,000 million USD) − Bond 0.750% 2013-2016 (250 million USD increase of an existing 2012-2016 Bond) The Group reimbursed bonds during the first six months of 2013: − Bond 4.125% 2007-2013 (600 million EUR) − Bond 5.500% 2007-2013 (350 million GBP) − Bond 7.500% 2008-2013 (200 million AUD) − Bond 4.500% 2003-2013 (30 million USD) − Bond 5.500% 2009-2013 (200 million AUD) − Bond 3.125% 2008-2013 (300 million CHF) − Bond Libor 3 month +9 bp 2011-2013 (1,000 million USD) − Bond 4.000% 2008-2013 (400 million USD) − Bond 4.000% 2013-2018 (150 million AUD) − Bond 2.125% 2013-2023 (250 million EUR increase of an 2012-2023 existing Bond) − Bond Euribor 3 months +31 bp 2013-2020 (300 million EUR) − Bond 2.500% 2013-2018 (600 million NOK) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non- consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2013. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Antitrust investigations Refining & Chemicals Segment As part of the spin-off of Arkema(1) in 2006, TOTAL S.A. or certain other Group companies agreed to grant Arkema a guarantee for potential monetary consequences related to antitrust proceedings arising from events prior to the spin-off. The principal antitrust proceedings in which the Group’s companies are involved are described thereafter. This guarantee covers, for a period of ten years from the date of the spin-off, 90% of amounts paid by Arkema related to (i) fines imposed by European authorities or European member-states for (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. Financial Report - 1st half 2013. TOTAL Notes to the Consolidated Financial Statements for the first six months of 2013 2 Consolidated Financial Statements competition law violations, (ii) fines imposed by U.S. courts or antitrust authorities for federal antitrust violations or violations of the competition laws of U.S. states, (iii) damages awarded in civil proceedings related to the government proceedings mentioned above, and (iv) certain costs related to these proceedings. The guarantee related to anti-competition violations in Europe applies to amounts above a €176.5 million threshold. On the other hand, the agreements provide that Arkema will indemnify TOTAL S.A. or any Group company for 10% of any amount that TOTAL S.A. or any Group company are required to pay under any of the proceedings covered by this guarantee, in Europe. Marketing & Services segment – Pursuant to a statement of objections received by Total Nederland N.V. and TOTAL S.A. (based on its status as parent company) from the European Commission, Total Nederland N.V. was fined €20.25 million in 2006, for which TOTAL S.A. was held jointly liable for €13.5 million. TOTAL S.A. lodged an appeal against this decision that was dismissed at the end of September 2012. The fine and interest were paid during the first quarter of 2013. – In addition, pursuant to a statement of objections received by If one or more individuals or legal entities, acting alone or together, directly or indirectly holds more than one-third of the voting rights of Arkema, or if Arkema transfers more than 50% of its assets (as calculated under the enterprise valuation method, as of the date of the transfer) to a third party or parties acting together, irrespective of the type or number of transfers, this guarantee will become void. Total Raffinage Marketing (formerly Total France) and TOTAL S.A. from the European Commission regarding a product line of the Marketing & Services segment, Total Raffinage Marketing was fined €128.2 million in 2008, which has been paid, and for which TOTAL S.A. was held jointly liable based on its status as parent company. The appeal against this decision lodged by the Group is still pending before the relevant European court. – In the United States, civil liability lawsuits, for which TOTAL S.A. has been named as the parent company, are closed without significant impact on the Group’s financial position. – In Europe, since 2006, the European Commission has fined companies of the Group in its configuration prior to the spin-off following five investigations launched by the European Commission between 2000 and 2004, four of which are closed, the fifth is on hold pending a decision following the appeal of Arkema and the concerned companies of the Group. – In addition, the civil proceedings against TOTAL S.A., Total Raffinage Marketing and other companies initiated before UK and Dutch courts by third parties for alleged damages in connection with the prosecutions brought by the European Commission are ongoing. At this point, the probability to have a favorable verdict and the financial impacts of these procedures remain uncertain due to the number of legal difficulties they gave rise to, the lack of documented claims and evaluations of the alleged damages. In financial terms, the fines imposed by the European Commission following the five investigations reach an overall amount of €385.47 million, entirely settled as of today. As a result, once the threshold provided for by the guarantee is deducted, the overall amount assumed and paid by the Group since the spin-off in accordance with the guarantee amounted to €188.07 million(1), to which an amount of €31.31 million of interest has been added. These amounts were not modified during the first half of 2013 financial year. – In addition, civil proceedings against Arkema and other groups of companies were initiated in 2009 and 2011, respectively, before German and Dutch courts by third parties for alleged damages pursuant to two of the above mentioned legal proceedings. TOTAL S.A. was summoned to serve notice of the dispute before the German court. These procedures were settled between the claimants and Arkema in early July 2013. Arkema began implementing compliance procedures in 2001 that are designed to prevent its employees from violating antitrust provisions. However, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema regarding events prior to the spin-off, as well as Elf Aquitaine and/or TOTAL S.A. based on their status as parent company. Within the framework of all of the legal proceedings described above, a €17 million reserve remains booked in the Group’s Consolidated Financial Statements as of June 30, 2013. Within the framework of the legal proceedings described above, a €6 million reserve remains booked in the Group’s Consolidated Financial Statements as of June 30, 2013. In early 2013, a civil proceeding was initiated against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil courts. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This procedure initiated by the plaintiff follows practices that had been sanctioned by the Italian competition authority in 2006. Given the multiple defendants engaged in these proceedings and the disproportionate nature of the alleged damages in view of the justifications provided, this proceeding is not expected to have a material effect on the Group’s financial situation, even if it is not possible at this stage to precisely determine the financial impact of the demand on the Group. Whatever the evolution of the proceedings described above, the Group believes that their outcome should not have a material adverse effect on the Group’s financial situation or consolidated results. Grande Paroisse An explosion occurred at the Grande Paroisse industrial site in the city of Toulouse in France on September 21, 2001. Grande Paroisse, a former subsidiary of Atofina which became a subsidiary of Elf Aquitaine Fertilisants on December 31, 2004, as part of the reorganization of the Chemicals Segment, was principally engaged in the production and sale of agricultural fertilizers. The explosion, which involved a stockpile of ammonium nitrate pellets, destroyed a portion of the site and caused the death of thirty-one people, including twenty-one workers at the site, and injured many others. The explosion also caused significant damage to certain property in part of the city of Toulouse. (1) This amount does not take into account a case that led to Arkema, prior to Arkema’s spin-off from TOTAL, and Elf Aquitaine being fined jointly €45 million and Arkema being fined €13.5 million. Financial Report - 1st half 2013. TOTAL 27 2 28 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 This plant has been closed and individual assistance packages have been provided for employees. The site has been rehabilitated. On December 14, 2006, Grande Paroisse signed, under the supervision of the city of Toulouse, the deed whereby it donated the former site of the AZF plant to the greater agglomeration of Toulouse (CAGT) and the Caisse des dépôts et consignations and its subsidiary ICADE. Under this deed, TOTAL S.A. guaranteed the site remediation obligations of Grande Paroisse and granted a €10 million endowment to the InNaBioSanté research foundation as part of the setting up of a cancer research center at the site by the city of Toulouse. After having articulated several hypotheses, the Court-appointed experts did not maintain in their final report filed on May 11, 2006, that the accident was caused by pouring a large quantity of a chlorine compound over ammonium nitrate. Instead, the experts have retained a scenario where a container of chlorine compound sweepings was poured between a layer of wet ammonium nitrate covering the floor and a quantity of dry agricultural nitrate at a location not far from the principal storage site. This is claimed to have caused an explosion which then spread into the main storage site. Grande Paroisse was investigated based on this new hypothesis in 2006; Grande Paroisse is contesting this explanation, which it believes to be based on elements that are not factually accurate. On July 9, 2007, the investigating magistrate brought charges against Grande Paroisse and the former Plant Manager before the criminal chamber of the Court of Appeal of Toulouse. In late 2008, TOTAL S.A. and Mr. Thierry Desmarest were summoned to appear in Court pursuant to a request by a victims association. On November 19, 2009, the Toulouse Criminal Court acquitted both the former Plant Manager, and Grande Paroisse due to the lack of reliable evidence for the explosion. The Court also ruled that the summonses against TOTAL S.A. and Mr. Thierry Desmarest, Chairman and CEO at the time of the disaster were inadmissible. Due to the presumption of civil liability that applied to Grande Paroisse, the Court declared Grande Paroisse civilly liable for the damages caused by the explosion to the victims in its capacity as custodian and operator of the plant. The Prosecutor’s office, together with certain third parties, has appealed the Toulouse Criminal Court verdict. In order to preserve its rights, Grande Paroisse lodged a cross-appeal with respect to civil charges. By its decision of September 24, 2012, the Court of Appeal of Toulouse (Cour d’appel de Toulouse) upheld the lower court verdict pursuant to which the summonses against TOTAL S.A. and Mr. Thierry Desmarest were determined to be inadmissible. This element of the decision has been appealed by certain third parties before the French Supreme Court (Cour de cassation). The Court of Appeal considered, however, that the explosion was the result of the chemical accident described by the court- appointed experts. Accordingly, it convicted the former Plant Manager and Grande Paroisse. This element of the decision has been appealed by the former Plant Manager and Grande Paroisse before the French Supreme Court (Cour de cassation), which has the effect of suspending their criminal sentences. A compensation mechanism for victims was set up immediately following the explosion. €2.3 billion was paid for the compensation of claims and related expenses amounts. A €15.6 million reserve remains booked in the Group’s Consolidated Financial Statements as of June 30, 2013. Financial Report - 1st half 2013. TOTAL Blue Rapid and the Russian Olympic Committee - Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. Blue Rapid and the Russian Olympic Committee appealed this decision. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract having lapsed. Blue Rapid and the Russian Olympic Committee appealed this decision to the French Supreme Court. In connection with the same facts, and fifteen years after the termination of the exploration and production contract, a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation that were not even parties to the contract, launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of U.S.$ 22.4 billion. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as a matter of law and fact. The Group has lodged a criminal complaint to denounce the fraudulent claim of which the Group believes it is a victim and, has taken and reserved its rights to take other actions and measures to defend its interests. Iran In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerned an agreement concluded by the Company with consultants concerning gas fields in Iran and aimed to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. In late May 2013, and after years of discussions, TOTAL reached settlements with the U.S. authorities (a Deferred Prosecution Agreement with the DoJ and a Cease and Desist Order with the SEC). These settlements, which put an end to these investigations, were concluded without admission of guilt and in exchange for TOTAL respecting a number of obligations, including the payment of a fine ($245.2 million) and a civil compensation ($153 million) that occurred during the second quarter of 2013. The reserve of $398.2 million that was booked in the financial statements as of June 30, 2012, has been fully released. By virtue of these settlements, TOTAL also accepted to appoint a French independent compliance monitor to review the Group’s compliance program and to recommend possible improvements. With respect to the same facts, TOTAL and its Chief Executive Officer, who was President of the Middle East at the time of the facts, were placed under formal investigation in France following a judicial inquiry initiated in 2006. In late May 2013, the Prosecutor’s office recommended that the case be sent to trial. The investigating magistrate has not yet issued his decision. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations. Libya In June 2011, the United States Securities and Exchange Commission (SEC) issued to certain oil companies – including, among others, TOTAL – a formal request for information related to their operations in Libya. In April 2013, the SEC notified TOTAL of the closure of the investigation while stating that it does not intend to take further action as far as TOTAL is concerned. Oil-for-Food Program Several countries have launched investigations concerning possible violations related to the United Nations (UN) Oil-for-Food Program in Iraq. Pursuant to a French criminal investigation, certain current or former Group Employees were placed under formal criminal investigation for possible charges as accessories to the misappropriation of Corporate assets and as accessories to the corruption of foreign public agents. The Chairman and Chief Executive Officer of the Company, formerly President of the Group’s Exploration & Production division, was also placed under formal investigation in October 2006. In 2007, the criminal investigation was closed and the case was transferred to the Prosecutor’s office. In 2009, the Prosecutor’s office recommended to the investigating magistrate that the case against the Group’s current and former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. In early 2010, despite the recommendation of the Prosecutor’s office, a new investigating magistrate, having taken over the case, decided to indict TOTAL S.A. on bribery charges as well as complicity and influence peddling. The indictment was brought eight years after the beginning of the investigation without any new evidence being introduced. In October 2010, the Prosecutor’s office recommended to the investigating magistrate that the case against TOTAL S.A., the Group’s former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. However, by ordinance notified in early August 2011, the investigating magistrate on the matter decided to send the case to trial. On July 8, 2013, TOTAL S.A., the Group’s former employees and TOTAL’s Chairman and Chief Executive Officer were cleared of all charges by the Criminal Court, which found that none of the offenses for which they had been prosecuted were established. On July 18, 2013, the Prosecutor’s office appealed the parts of the Criminal Court’s decision acquitting TOTAL S.A. and certain of the Group’s former employees. TOTAL’s Chairman and Chief Executive Officer’s acquittal issued on July 8, 2013 is irrevocable since the Prosecutor’s office did not appeal such part of the Criminal Court’s decision. Notes to the Consolidated Financial Statements for the first six months of 2013 2 Consolidated Financial Statements Italy As part of an investigation led by the Prosecutor of the Republic of the Potenza Court, Total Italia and certain Group Employees were the subject of an investigation related to certain calls for tenders that Total Italia made for the preparation and development of an oil field. On February 16, 2009, as a preliminary measure before the proceedings went before the Court, the preliminary investigation judge of Potenza served notice to Total Italia of a decision that would have suspended the concession for this field for one year. Total Italia appealed the decision by the preliminary investigation judge before the Court of Appeal of Potenza. In a decision dated April 8, 2009, the Court reversed the suspension of the concession and appointed for one year, i.e. until February 16, 2010, a judicial administrator to supervise the operations related to the development of the concession, allowing the Tempa Rossa project to continue. The criminal investigation was closed in the first half of 2010. In May 2012, the Judge of the preliminary hearing decided to dismiss the charges for some of the Group’s employees and refer the case for trial on a reduced number of charges. The trial started on September 26, 2012. In 2010, Total Italia’s exploration and production operations were transferred to Total E&P Italia and refining and marketing operations were merged with those of Erg Petroli. Rivunion On July 9, 2012, the Swiss Tribunal Fédéral (Switzerland’s Supreme Court) rendered its decision against Rivunion, a wholly-owned subsidiary of Elf Aquitaine, confirming a tax reassessment in the amount of CHF 171 million (excluding interest for late payment, yet to be calculated by the competent authorities). According to the Tribunal, Rivunion was held liable as tax collector of withholding taxes owed by the beneficiaries of taxable services. Rivunion, in liquidation since March 13, 2002 and unable to recover the amounts corresponding to the withholding taxes in restitution from said beneficiaries in order to meet its fiscal obligations, has been subject to insolvency proceedings since November 1, 2012. Nigeria In the second quarter 2013, TOTAL’s equity production in Nigeria was impacted by repeated oil theft and sabotage on oil and gas pipelines used to transport amongst others the Group’s production. Despite the completion of multiple repairs, production remained impacted at the end of June 2013, mainly from the onshore acreage of the joint venture in which TOTAL holds a 10% interest that is operated by the Shell Petroleum Development Company (SPDC). The Group estimates the impact on its Nigerian equity production to be about 35 kboe/d during second quarter 2013. Financial Report - 1st half 2013. TOTAL 29 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 8) Information by business segment 1st half 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales 10,233 43,178 41,560 132 - 95,103 Intersegment sales 13,854 19,721 914 78 (34,567) - Excise taxes - (1,665) (7,000) - - (8,665) Revenues from sales 24,087 61,234 35,474 210 (34,567) 86,438 Operating expenses (11,627) (60,480) (34,481) (419) 34,567 (72,440) Depreciation, depletion and amortization of tangible assets and mineral interests (3,222) (596) (268) (15) - (4,101) Operating income 9,238 158 725 (224) - 9,897 Equity in net income (loss) of affiliates and other items (72) 124 6 21 - 79 Tax on net operating income (5,317) 1 (215) (23) - (5,554) Net operating income 3,849 283 516 (226) - 4,422 Net cost of net debt - - - - - (259) Non-controlling interests - - - - - (89) Net income - - - - - 4,074 1st half 2013 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales (30) - - - - (30) Intersegment sales - - - - - Excise taxes - - - - - Revenues from sales (30) - - - - (30) Operating expenses - (605) (103) - - (708) Depreciation, depletion and amortization of tangible assets and mineral interests - (4) - - - (4) Operating income(b) (30) (609) (103) - - (742) Equity in net income (loss) of affiliates and other items (1,168) (42) (9) - - (1,219) Tax on net operating income 256 181 33 - - 470 Net operating income(b) (942) (470) (79) - - (1,491) Net cost of net debt - - - - - - Non-controlling interests - - - - - 3 Net income - - - - - (1,488) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services On operating income - (566) (103) - - On net operating income - (385) (69) - 30 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 1st half 2013 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros)(a) Chemicals Services Non-Group sales 10,263 43,178 41,560 132 - 95,133 Intersegment sales 13,854 19,721 914 78 (34,567) - Excise taxes - (1,665) (7,000) - - (8,665) Revenues from sales 24,117 61,234 35,474 210 (34,567) 86,468 Operating expenses (11,627) (59,875) (34,378) (419) 34,567 (71,732) Depreciation, depletion and amortization of tangible assets and mineral interests (3,222) (592) (268) (15) - (4,097) Adjusted operating income 9,268 767 828 (224) - 10,639 Equity in net income (loss) of affiliates and other items 1,096 166 15 21 - 1,298 Tax on net operating income (5,573) (180) (248) (23) - (6,024) Adjusted net operating income 4,791 753 595 (226) - 5,913 Net cost of net debt - - - - - (259) Non-controlling interests - - - - - (92) Ajusted net income - - - - - 5,562 Adjusted fully-diluted earnings per share (€) - - - - - 2.45 (a) Except for earnings per share. 1st half 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Total expenditures 10,311 915 429 41 - 11,696 Total divestments 1,655 235 50 10 - 1,950 Cash flow from operating activities 6,278 1,015 321 (190) - 7,424 Financial Report - 1st half 2013. TOTAL 31 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 1st half 2012 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales 11,154 45,688 43,371 90 - 100,303 Intersegment sales 15,985 22,289 453 93 (38,820) - Excise taxes - (1,678) (7,274) - - (8,952) Revenues from sales 27,139 66,299 36,550 183 (38,820) 91,351 Operating expenses (12,809) (65,706) (35,755) (517) 38,820 (75,967) Depreciation, depletion and amortization of tangible assets and mineral interests (2,906) (633) (311) (16) - (3,866) Operating income 11,424 (40) 484 (350) - 11,518 Equity in net income (loss) of affiliates and other items 991 115 (83) (39) - 984 Tax on net operating income (6,871) 43 (218) (10) - (7,056) Net operating income 5,544 118 183 (399) - 5,446 Net cost of net debt - - - - - (221) Non-controlling interests - - - - - (39) Net income - - - - - 5,186 1st half 2012 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales (14) - - - - (14) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (14) - - - - (14) Operating expenses (18) (455) (85) (88) - (646) Depreciation, depletion and amortization of tangible assets and mineral interests - - (46) - - (46) Operating income(b) (32) (455) (131) (88) - (706) Equity in net income (loss) of affiliates and other items - (17) (29) (134) - (180) Tax on net operating income 14 148 25 (16) - 171 Net operating income(b) (18) (324) (135) (238) - (715) Net cost of net debt - - - - - - Non-controlling interests - - - - - 30 Net income - - - - - (685) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect. Upstream Refining & Marketing & Corporate Chemicals services On operating income - (455) (83) - - On net operating income - (324) (59) - 32 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 1st half 2012 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros)(a) Chemicals Services Non-Group sales 11,168 45,688 43,371 90 - 100,317 Intersegment sales 15,985 22,289 453 93 (38,820) - Excise taxes - (1,678) (7,274) - - (8,952) Revenues from sales 27,153 66,299 36,550 183 (38,820) 91,365 Operating expenses (12,791) (65,251) (35,670) (429) 38,820 (75,321) Depreciation, depletion and amortization of tangible assets and mineral interests (2,906) (633) (265) (16) - (3,820) Adjusted operating income 11,456 415 615 (262) - 12,224 Equity in net income (loss) of affiliates and other items 991 132 (54) 95 - 1,164 Tax on net operating income (6,885) (105) (243) 6 - (7,227) Adjusted net operating income 5,562 442 318 (161) - 6,161 Net cost of net debt - - - - - (221) Non-controlling interests - - - - - (69) Ajusted net income - - - - - 5,871 Adjusted fully-diluted earnings per share (€) - - - - - 2.59 (a) Except for earnings per share. . 1st half 2012 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Total expenditures 9,533 930 410 31 - 10,904 Total divestments 982 148 65 1,475 - 2,670 Cash flow from operating activities 11,064 589 (584) 365 - 11,434 Financial Report - 1st half 2013. TOTAL 33 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 2nd quarter 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales 4,781 21,560 20,561 71 - 46,973 Intersegment sales 6,519 9,807 806 27 (17,159) - Excise taxes - (835) (3,634) - - (4,469) Revenues from sales 11,300 30,532 17,733 98 (17,159) 42,504 Operating expenses (5,512) (30,413) (17,273) (212) 17,159 (36,251) Depreciation, depletion and amortization of tangible assets and mineral interests (1,512) (298) (123) (8) - (1,941) Operating income 4,276 (179) 337 (122) - 4,312 Equity in net income (loss) of affiliates and other items 774 52 38 23 - 887 Tax on net operating income (2,421) 80 (100) (44) - (2,485) Net operating income 2,629 (47) 275 (143) - 2,714 Net cost of net debt - - - - - (139) Non-controlling interests - - - - - (38) Net income - - - - - 2,537 2nd quarter 2013 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales (32) - - - - (32) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (32) - - - - (32) Operating expenses - (536) (82) - - (618) Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income(b) (32) (536) (82) - - (650) Equity in net income (loss) of affiliates and other items 252 (32) 1 - - 221 Tax on net operating income 84 151 26 - - 261 Net operating income(b) 304 (417) (55) - - (168) Net cost of net debt - - - - - - Non-controlling interests - - - - - 6 Net income - - - - - (162) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect. Upstream Refining & Marketing & Corporate Chemicals services On operating income - (499) (82) - - On net operating income - (351) (55) - 34 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 2nd quarter 2013 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros)(a) Chemicals Services Non-Group sales 4,813 21,560 20,561 71 - 47,005 Intersegment sales 6,519 9,807 806 27 (17,159) - Excise taxes - (835) (3,634) - - (4,469) Revenues from sales 11,332 30,532 17,733 98 (17,159) 42,536 Operating expenses (5,512) (29,877) (17,191) (212) 17,159 (35,633) Depreciation, depletion and amortization of tangible assets and mineral interests (1,512) (298) (123) (8) - (1,941) Adjusted operating income 4,308 357 419 (122) - 4,962 Equity in net income (loss) of affiliates and other items 522 84 37 23 - 666 Tax on net operating income (2,505) (71) (126) (44) - (2,746) Adjusted net operating income 2,325 370 330 (143) - 2,882 Net cost of net debt - - - - - (139) Non-controlling interests - - - - - (44) Ajusted net income - - - - - 2,699 Adjusted fully-diluted earnings per share (€) - - - - - 1.19 (a) Except for earnings per share. 2nd quarter 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Total expenditures 5,056 382 242 32 - 5,712 Total divestments 1,112 208 12 2 - 1,334 Cash flow from operating activities 2,128 1,303 414 (139) - 3,706 Financial Report - 1st half 2013. TOTAL 35 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 2nd quarter 2012 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales 4,977 22,592 21,519 47 - 49,135 Intersegment sales 7,751 10,474 222 48 (18,495) - Excise taxes - (874) (3,686) 1 - (4,559) Revenues from sales 12,728 32,192 18,055 96 (18,495) 44,576 Operating expenses (6,274) (32,653) (17,768) (290) 18,495 (38,490) Depreciation, depletion and amortization of tangible assets and mineral interests (1,513) (319) (189) (7) - (2,028) Operating income 4,941 (780) 98 (201) - 4,058 Equity in net income (loss) of affiliates and other items 448 23 (14) (156) - 301 Tax on net operating income (2,882) 258 (62) (12) - (2,698) Net operating income 2,507 (499) 22 (369) - 1,661 Net cost of net debt - - - - - (116) Non-controlling interests - - - - - (27) Net income - - - - - 1,518 2nd quarter 2012 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Non-Group sales 11 - - - - 11 Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales 11 - - - - 11 Operating expenses (18) (1,238) (148) (23) - (1,427) Depreciation, depletion and amortization of tangible assets and mineral interests - - (46) - - (46) Operating income(b) (7) (1,238) (194) (23) - (1,462) Equity in net income (loss) of affiliates and other items - (40) (8) (244) - (292) Tax on net operating income 9 401 47 (9) - 448 Net operating income(b) 2 (877) (155) (276) - (1,306) Net cost of net debt - - - - - - Non-controlling interests - - - - - 33 Net income - - - - - (1,273) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services On operating income - (1,238) (146) - - On net operating income - (877) (99) - 36 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 2nd quarter 2012 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros)(a) Chemicals Services Non-Group sales 4,966 22,592 21,519 47 - 49,124 Intersegment sales 7,751 10,474 222 48 (18,495) - Excise taxes - (874) (3,686) 1 - (4,559) Revenues from sales 12,717 32,192 18,055 96 (18,495) 44,565 Operating expenses (6,256) (31,415) (17,620) (267) 18,495 (37,063) Depreciation, depletion and amortization of tangible assets and mineral interests (1,513) (319) (143) (7) - (1,982) Adjusted operating income 4,948 458 292 (178) - 5,520 Equity in net income (loss) of affiliates and other items 448 63 (6) 88 - 593 Tax on net operating income (2,891) (143) (109) (3) - (3,146) Adjusted net operating income 2,505 378 177 (93) - 2,967 Net cost of net debt - - - - - (116) Non-controlling interests - - - - - (60) Ajusted net income - - - - - 2,791 Adjusted fully-diluted earnings per share (€) - - - - - 1.23 (a) Except for earnings per share. 2nd quarter 2012 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of euros) Chemicals Services Total expenditures 4,227 501 212 24 - 4,964 Total divestments 234 7 20 719 - 980 Cash flow from operating activities 5,298 625 (140) 384 - 6,167 Financial Report - 1st half 2013. TOTAL 37 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 9) Reconciliation of the information by business segment with Consolidated Financial Statements Adjusted Adjustments(a) Consolidated 1st half 2013 Statement (in millions of euros) of income Sales 95,133 (30) 95,103 Excise taxes (8,665) - (8,665) Revenues from sales 86,468 (30) 86,438 Purchases net of inventory variation (60,205) (669) (60,874) Other operating expenses (10,948) (39) (10,987) Exploration costs (579) - (579) Depreciation, depletion and amortization of tangible assets and mineral interests (4,097) (4) (4,101) Other income 131 252 383 Other expense (174) (1,452) (1,626) Financial interest on debt (351) - (351) Financial income from marketable securities & cash equivalents 36 - 36 Cost of net debt (315) - (315) Other financial income 260 - 260 Other financial expense (265) - (265) Equity in net income (loss) of affiliates 1,346 (19) 1,327 Income taxes (5,968) 470 (5,498) Consolidated net income 5,654 (1,491) 4,163 Group share 5,562 (1,488) 4,074 Non-controlling interests 92 (3) 89 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 1st half 2012 statement (in millions of euros) of income Sales 100,317 (14) 100,303 Excise taxes (8,952) - (8,952) Revenues from sales 91,365 (14) 91,351 Purchases net of inventory variation (63,797) (538) (64,335) Other operating expenses (10,899) (108) (11,007) Exploration costs (625) - (625) Depreciation, depletion and amortization of tangible assets and mineral interests (3,820) (46) (3,866) Other income 305 209 514 Other expense (200) (347) (547) Financial interest on debt (357) - (357) Financial income from marketable securities & cash equivalents 59 - 59 Cost of net debt (298) - (298) Other financial income 294 - 294 Other financial expense (254) - (254) Equity in net income (loss) of affiliates 1,019 (42) 977 Income taxes (7,150) 171 (6,979) Consolidated net income 5,940 (715) 5,225 Group share 5,871 (685) 5,186 Non-controlling interests 69 (30) 39 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 38 Financial Report - 1st half 2013. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2013 Adjusted Adjustments(a) Consolidated 2nd quarter 2013 statement (in millions of euros) of income Sales 47,005 (32) 46,973 Excise taxes (4,469) - (4,469) Revenues from sales 42,536 (32) 42,504 Purchases net of inventory variation (29,763) (581) (30,344) Other operating expenses (5,598) (37) (5,635) Exploration costs (272) - (272) Depreciation, depletion and amortization of tangible assets and mineral interests (1,941) - (1,941) Other income 100 252 352 Other expense (77) (17) (94) Financial interest on debt (182) - (182) Financial income from marketable securities & cash equivalents 14 - 14 Cost of net debt (168) - (168) Other financial income 157 - 157 Other financial expense (137) - (137) Equity in net income (loss) of affiliates 623 (14) 609 Income taxes (2,717) 261 (2,456) Consolidated net income 2,743 (168) 2,575 Group share 2,699 (162) 2,537 Non-controlling interests 44 (6) 38 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 2nd quarter 2012 statement (in millions of euros) of income Sales 49,124 11 49,135 Excise taxes (4,559) - (4,559) Revenues from sales 44,565 11 44,576 Purchases net of inventory variation (30,910) (1,384) (32,294) Other operating expenses (5,884) (43) (5,927) Exploration costs (269) - (269) Depreciation, depletion and amortization of tangible assets and mineral interests (1,982) (46) (2,028) Other income 126 99 225 Other expense (108) (343) (451) Financial interest on debt (170) - (170) Financial income from marketable securities & cash equivalents 24 - 24 Cost of net debt (146) - (146) Other financial income 209 - 209 Other financial expense (118) - (118) Equity in net income (loss) of affiliates 484 (48) 436 Income taxes (3,116) 448 (2,668) Consolidated net income 2,851 (1,306) 1,545 Group share 2,791 (1,273) 1,518 Non-controlling interests 60 (33) 27 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial Report - 1st half 2013. TOTAL 39 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2013 10) Changes in progress in the Group structure Upstream – TOTAL signed in April 2013 an agreement for the sale of 100% of Transport et Infrastructures Gaz France (TIGF) with a consortium comprising Snam, EDF and GIC (Government of Singapore Investment Corporation). This transaction remains subject to the approval by the relevant authorities. At June 30, 2013 the assets and liabilities of the Company have been respectively classified in the Consolidated Balance Sheet in “assets classified as held for sale” for an amount of €1,450 million and “liabilities directly associated with the assets classified as held for sale” for an amount of €891 million. The assets and liabilities concerned mainly include tangible assets for an amount of €1,280 million and non-current financial debt for an amount of €808 million. The assets concerned mainly include tangible assets for an amount of €230 million. – TOTAL announced in November 2012 the finalization of an agreement for the sale in Nigeria of its 20% interest in Block OML 138 to a subsidiary of China Petrochemical Corporation (Sinopec). This transaction remains subject to the approval by the relevant authorities. At June 30, 2013 the assets and liabilities have been respectively classified in the Consolidated Balance Sheet in “assets classified as held for sale” for an amount of €1,786 million and “liabilities directly associated with the assets classified as held for sale” for an amount of €485 million. The assets concerned mainly include tangible assets for an amount of €1,404 million. – TOTAL has put up for sale its interest in the Upstream in Trinidad & Tobago. At June 30, 2013 the assets and liabilities have been respectively classified in the Consolidated Balance Sheet in “assets classified as held for sale” for an amount of €250 million and “liabilities directly associated with the assets classified as held for sale” for an amount of €104 million. – TOTAL has put up for sale its interest in Block 15/06 in Angola. At June 30, 2013 the assets have been respectively classified in the Consolidated Balance Sheet in “assets classified as held for sale” for an amount of €416 million. The assets concerned mainly include tangible assets for an amount of €342 million. 40 Financial Report - 1st half 2013. TOTAL PEFC/10-31-2043 This brochure is printed on 100% recyclable and biodegradable coated paper, manufactured from ECF (Elemental Chlorine Free) bleached pulp in a European factory certified ISO 9001 (for its quality management), ISO 14001 (for its environmental management), CoC PEFC (for the use of paper from sustainably managed forests) and is EMAS-accredited (for its environmental performance). Cover photography: © Michel Labelle Design and Production: Agence Marc Praquin 2 Consolidated Financial Statements Sous-chapitre… see you on www.total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,941,838,402.50 euros 542 051 180 RCS Nanterre www.total.com IV Financial Report - 1st half 2013. TOTAL Standard: +33 (0)1 47 44 45 46 Investor Relations: +33 (0)1 47 44 58 53 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2013, Energy, TotalEnergies | write me a financial report |
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| Financial Report - 1st half 2014 Contents 1. Financial Report - 1st half 2014 1. Key figures.......................................1 2. Group results of first half 2014 ........2 2.1. Net operating income from business segments ..............2 2.2. Net income (Group share) .................................................2 2.3. Investments – divestments................................................2 2.4. Cash flow............................................................................3 3. Analysis of business segment results ...............................3 3.1. Upstream ............................................................................3 3.2. Refining & Chemicals ........................................................4 3.3. Marketing & Services.........................................................5 4. TOTAL S.A. parent company accounts .........................................6 5. Highlights since the beginning of 2014............................................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment for first half 2014......7 7.2. Adjustment items ...............................................................8 7.3. Effective tax rates ..............................................................9 7.4. Investments – divestments................................................9 7.5. Net-debt-to-equity ratio ....................................................9 7.6. Return on average capital employed .............................10 8. Principal risks and uncertainties for the remaining six months of 2014..........................................11 9. Principal transactions with related parties ...........................................11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information 13 2. Consolidated statement of income ...14 3. Consolidated statement of comprehensive income..............15 4. Consolidated statement of income ...16 5. Consolidated statement of comprehensive income..............17 6. Consolidated balance sheet ..........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow ...................................20 9. Consolidated statement of changes in shareholders’ equity ....21 10. Notes to the Consolidated Financial Statements for the first six months of 2014........................22 1) 2) Accounting policies .........................................................22 Changes in the Group structure, main acquisitions and divestments ................................23 Adjustment items .............................................................23 Shareholders’ equity........................................................25 Financial debt...................................................................26 Related parties.................................................................26 Other risks and contingent liabilities ..............................26 Information by business segment ..................................30 Reconciliation of the information by business segment with Consolidated Financial Statements ........38 10) Changes in progress in the Group structure..................40 3) 4) 5) 6) 7) 8) 9) Financial Report 1st half 2014 This is a free translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements for the first half 2014 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim Management Report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the half-year financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The independent auditor’s report on their review of the above mentioned condensed consolidated financial statements is included on page 13 of this half-year financial report and contains an observation regarding a change in accounting methods related to the change in the presentation currency of the consolidated financial statements from the euro to the U.S. dollar.” Courbevoie, July 30, 2014 Christophe de Margerie Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 30, 2014 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report - 1st half 2014. TOTAL i ii Abbreviations b : cf : / d : / y: €: $ and / or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe / d kboe / d: thousand barrel / d kb / d: British thermal unit Btu: million M: billion B: European Refining Margin Indicator. Refining margin indicator after ERMI : variable costs for a theoretical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: International Financial Reporting Standards Liquefied Natural Gas Return on Equity Return on Average Capital Employed TOTAL. Financial Report - 1st half 2014 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,403 cf. of gas in 2013* 1 b / d = approx. 50 t / y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm³ / y = approx. 0.1 Bcf / d 1 m³ = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt / y of LNG = approx. 131 Mcf / d This ratio is calculated based on the actual average equivalent energy content of TOTAL’s natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Financial Report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of, France. The terms “Company” and “issuer” as used in this Financial Report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2014 Financial Report - 1st half 2014 1 Financial Report - 1st half 2014 (1) 1. Key figures (2) 1H14 (in millions of dollars vs except earnings per share and number of shares) 1H14 1H13 1H13 Sales 123,248 124,906 -1% Adjusted operating income from business segments 11,765 14,211 -17% Adjusted net operating income from business segments 7,523 8,031 -6% – Upstream 6,143 6,298 -2% – Refining & Chemicals 747 955 -22% – Marketing & Services 633 778 -19% Adjusted net income 6,478 7,279 -11% Adjusted fully-diluted earnings per share (dollars) 2.84 3.20 -11% Adjusted fully-diluted earnings per share (euro) (a) 2.07 2.44 -15% Fully-diluted weighted-average shares (millions) 2,279 2,272 - Net income (Group share) 6,439 5,312 +21% Investments (b) 14,588 15,363 -5% Divestments 2,471 2,563 -4% Net investments (c) 11,991 12,336 -3% Cash flow from operations 10,615 9,751 +9% Adjusted cash flow from operations 12,135 13,380 -9% (a) Euro amounts represent dollar amounts converted at the average €-$ exchange rate for the period: 1.3703 $ / € in 1H14 and 1.3134 $ / € in 1H13. (b) Including acquisitions. (c) Net investments = investments including acquisitions – asset sales – other transactions with non-controlling interests. (1) TOTAL changed the presentation currency of the Group’s Consolidated Financial Statements from the euro to the US dollar, effective January 1, 2014, to make its financial information more readable by better reflecting the performance of its activities, which are carried out mainly in US dollars. Comparative 2013 information has been restated. (2) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value. Adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 8 and the inventory valuation effect is explained on page 12. Financial Report - 1st half 2014. TOTAL 1 1 Financial Report - 1st half 2014 Group results of first half 2014 2. Group results of first half 2014 2.1. Net operating income from business segments In the first half 2014, the price of Brent averaged 108.9 $ / b compared to 107.5 $ / b in the first half 2013. The European refining margin indicator (ERMI) was 8.7 $ / t compared to 25.5 $ / t in the first half 2013. The effective tax rate (1) for the business segments was 52.5% in the first half 2014 compared to 56.0% in the first half 2013, reflecting mainly the benefit of tax allowances in the UK. Adjusted net operating income from the business segments was 7,523 M$ in the first half 2014 compared to 8,031 M$ in the first half 2013, a decrease of 6% that was mainly due to the weaker performance of the Downstream in a much weaker European refining environment. In the Upstream, adjusted net operating income was stable despite a high level of maintenance, notably thanks to a lower effective tax rate this half. 2.2. Net income (Group share) Adjusted net income was 6,478 M$ compared to 7,279 M$ in the first half 2013, a decrease of 11%. Net income (Group share) was 6,439 M$ compared to 5,312 M$ in the first half 2013. Adjusted net income excludes the after-tax inventory effect, the effect of changes in fair value and special items (2): – The after-tax inventory effect had a negative impact on net income of 57 M$ in the first half 2014 and a negative impact of 593 M$ in the first half 2013. The effective tax rate for the Group was 56.5% in the first half 2014 compared to 57.4% in the first half 2013. This change is mainly due to the benefit of tax allowances in the UK, and, since January 1, 2014, due to its fiscal situation in France, the Group is no longer recognizing the benefit of tax credits related to net operating losses in France. – Changes in fair value had a negative impact on net income of 8 M$ in the first half 2014 compared to a negative impact of 30 M$ in the first half 2013. – Special items (3) had a positive impact on net income of 26 M$ in the first half 2014, including mainly the gain on the sale (partial IPO) of an interest in Gaztransport & Technigaz (GTT) partially offset by the impairment of the Shtokman project in Russia. Special items had a negative impact on net income of 1,344 M$ in the first half 2013. On June 30, 2014, there were 2,284 million fully-diluted shares compared to 2,277 million shares on June 30, 2013. Adjusted fully-diluted earnings per share, based on 2,279 million fully-diluted weighted-average shares, was $2.84 compared to $3.20 in the first half 2013. Expressed in euro, adjusted fully-diluted earnings per share was €2.07, a decrease of 15%. 2.3. Investments – divestments (4) Investments, excluding acquisitions and including changes in non-current loans, were 12.4 B$ in the first half 2014, a decrease of 4% compared to 12.9 B$ in the first half 2013. Asset sales in the first half 2014 were 1,677 B$, essentially comprised of the sale of Block 15 / 06 in Angola and the sale (partial IPO) of an interest in Gaztransport & Technigaz (GTT). Acquisitions were 1,399 M$ in the first half 2014, essentially comprised of the acquisition of an interest in the Elk and Antelope discoveries in Papua New Guinea, the acquisition of additional Novatek (5) shares and the carry on the Utica gas and condensate field in the United States. Net investments (6) were 12.0 B$ in the first half 2014, compared to 12.3 B$ in the first half 2013. The sale of Usan was not completed with Sinopec. The Group is actively pursuing the sale process for this asset. (1) Defined as: (tax on adjusted net operating income) / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). (2) Detail shown on page 12. (3) Detail shown on page 8. (4) Detail shown on page 9. (5) The Group’s interst in Novatek was 18.0% at June 30, 2014. (6) Net investments = investments including acquisitions and changes in non-current loans – asset sales – other transactions with non-controlling interests. 2 TOTAL. Financial Report - 1st half 2014 Financial Report - 1st half 2014 1 Analysis of business segment results 2.4. Cash flow Cash flow from operations was 10,615 M$ in the first half 2014, an increase of 9% compared to the first half 2013. The Group’s net cash flow (2) was a negative 1,376 M$ compared to a negative 2,585 M$ in the first half 2013, reflecting essentially a decrease in investments and an increase in cash flow between the two periods. Adjusted cash flow from operations (1) was 12,135 M$, a decrease of 9% compared to the first half 2013. The net-debt-to-equity ratio was 27.1% on June 30, 2014 compared to 27.6% on June 30, 2013 (3). 3. Analysis of business segment results 3.1. Upstream 3.1.1. Environment – liquids and gas price realizations(a) 1H14 vs 1H14 1H13 1H13 Brent ($ / b) 108.9 107.5 +1% Average liquids price ($ / b) 102.5 101.7 +1% Average gas price ($ / Mbtu) 6.80 6.97 -2% Average hydrocarbon price ($ / boe) 73.2 73.6 -1% (a) Consolidated subsidiaries, excluding fixed margins. 3.1.2. Production 1H14 vs Hydrocarbon production 1H14 1H13 1H13 Combined production (kboe / d) 2,116 2,306 -8% Liquids (kb / d) 1,007 1,176 -14% Gas (Mcf / d) 6,066 6,153 -1% In the first half 2014, hydrocarbon production was 2,116 kboe / d, a decrease of 8% compared to the first half 2013, essentially due to the following: -5.5% for changes in the portfolio, essentially the expiration of the ADCO license in the United Arab Emirates, • -1% for security conditions in Libya and Nigeria, • -1.5% for the normal production decline and the high level of planned maintenance, partially offset by the ramp up on new projects. In the first half 2014, excluding the ADCO license, hydrocarbon production decreased by 3% compared to the first half 2013. (1) Cash flow from operations at replacement cost before changes in working capital. (2) Net cash flow = cash flow from operations – net investments (including other transactions with non-controlling interests). (3) Detail shown on page 9. Financial Report - 1st half 2014. TOTAL 3 1 Financial Report - 1st half 2014 Analysis of business segment results 3.1.3. Results 1H14 vs (in millions of dollars) 1H14 1H13 1H13 Adjusted operating income (a) 10,311 12,170 -15% Adjusted net operating income (a) 6,143 6,298 -2% includes income from equity affiliates 1,502 1,524 -1% Investments 13,310 13,544 -2% Divestments 2,367 2,174 +9% Cash flow from operations 8,616 8,245 +4% Adjusted cash flow from operations 9,974 11,123 -10% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Upstream segment in the first half 2014 was 6,143 M$ compared to 6,298 M$ in the first half 2013, a decrease of 2% reflecting essentially the lower production and higher costs due to the high level of planned maintenance, partially offset by the lower tax rate. The Return on Average Capital Employed (ROACE (1)) for the Upstream segment was 13% for the twelve months ended June 30, 2014, compared to 13% for the twelve months ended March 31, 2014, and 14% for the full-year 2013. 3.2. Refining & Chemicals 3.2.1. Refinery throughput and utilization rates (a) 1H14 vs 1H14 1H13 1H13 Total refinery throughput (kb / d) 1,662 1,769 -6% – France 626 678 -8% – Rest of Europe 741 824 -10% – Rest of world 295 267 +10% Utilization rates (b) – Based on crude only 72% 83% - – Based on crude and other feedstock 76% 86% - (a) Includes share of TotalErg. Results for refineries in South Africa, French Antilles and Italy are reported in the Marketing & Services segment. (b) Based on distillation capacity at the beginning of the year. In the first half 2014, refinery throughput decreased by 6% compared to the first half 2013, reflecting essentially the turnarounds at Grandpuits, Leuna and Vlissingen, as well as voluntary shutdowns in response to weak refining margins in Europe. 3.2.2. Results 1H14 vs (in millions of dollars except the ERMI) 1H14 1H13 1H13 European refining margin indicator – ERMI ($ / t) 8.7 25.5 -66% Adjusted operating income (a) 696 958 -27% Adjusted net operating income (a) 747 955 -22% contribution of Specialty chemicals (b) 313 265 +18% Investments 725 1,202 -40% Divestments 26 308 -92% Cash flow from operations 1,460 1,331 +10% Adjusted cash flow from operations 1,300 1,441 -10% (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Hutchinson, Bostik, Atotech. Adjusted net operating income from the Refining & Chemicals segment for the first half 2014 was 747 M$, a decrease of 22% compared to the first half 2013, reflecting essentially the strong deterioration of the European refining environment. The ROACE (1) for the Refining & Chemicals segment was 8% for the twelve months ended June 30, 2014, compared to 9% for the twelve months ended March 31, 2014, and 9% for the full-year 2013. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 4 TOTAL. Financial Report - 1st half 2014 Financial Report - 1st half 2014 1 Analysis of business segment results 3.3. Marketing & Services 3.3.1. Refined product sales 1H14 vs (sales in kb / d) (a) 1H14 1H13 1H13 Europe 1,080 1,129 -4% Rest of world 662 620 +7% Total Marketing & Services sales 1,742 1,749 - (a) Excludes Trading and bulk Refining sales, includes share of TotalErg. Sales volumes for the first half 2014 were stable compared to the first half 2013, due to the offsetting effects of a 4% decrease in European sales and net growth outside of Europe, particularly in the Americas and Middle East. 3.3.2. Results 1H14 vs (in millions of dollars) 1H14 1H13 1H13 Sales 54,683 54,583 - Adjusted operating income (a) 758 1,083 -30% Adjusted net operating income (a) 633 778 -19% contribution of New Energies 20 (17) na Investments 479 564 -15% Divestments 54 66 -18% Cash flow from operations 393 422 -7% Adjusted cash flow from operations 930 1,255 -26% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Marketing & Services segment in the first half 2014 was 633 M$, a decrease of 19% compared to the first half 2013, due to the impact of weather conditions on sales and a less favorable trend in European margins, partially offset by a global increase in the marketing of petroleum products in growing markets. The ROACE (1) for the Marketing & Services segment was 14% for the twelve months ended June 30, 2014, compared to 15% for the twelve months ended March 31, 2014, and 16% for the full-year 2013. (1) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. Financial Report - 1st half 2014. TOTAL 5 1 Financial Report - 1st half 2014 TOTAL S.A. parent company accounts / Highlights since the beginning of 2014 / Summary and outlook 4. TOTAL S.A. parent company accounts Net income for TOTAL S.A., the parent company, was 3,397 M€ in the first half 2014, compared to 3,876 M€ in the first half 2013. 5. Highlights since the beginning of 2014 (1) – Started up the deep-offshore CLOV oil field in Angola and the – Partial IPO of interest in Gaztransport & Technigaz (GTT). Itau Phase 2 gas and condensate field in Bolivia. – Closed the sale of the 15% interset in Angola Block 15 / 06. – Launched the developments of Kaombo in ultra-deep offshore Angola and Edradour in the West of Shetland area of the UK. – Announced the sales of of the Group’s interests in the Shah Deniz field in Azerbaijan and the coal mines in South Africa. – Discovered oil on Ivory Coast deep-offshore Block CI-514. – Announced agreements to sell Totalgaz and CCP Composites. – Acquired exploration permits for shale gas in the UK, and a 60% interest in the Glenlivet gas field in the West of Shetland area of the UK. – Signed an LNG Cooperation Agreement to strengthen the existing partnership between Total and CNOOC. – Completed the acquisition of an interest in the Elk and Antelope – Signed an agreement for long-term sales of LNG to Singapore. major gas discoveries in Papua New Guinea. 6. Summary and outlook The ROACE (2) for the Group for the twelve months ended June 30, 2014 was 12% compared to 12% for the twelve months ended March 31, 2014 and 13% for the full-year 2013. refining margins have improved compared to the very low levels in the first half, but remain very volatile. Return on Equity for the twelve months ended June 30, 2014, was 14%. Several asset sales have been announced this year, and, as they are closed, the program total will be well within the objective of 15-20 B$ for the 2012-14 period. In the Upstream, before the end of this year, CLOV should reach its production plateau of 160 kb / d and the Group should start up Laggan-Tormore and Ofon Phase 2. In exploration, results from high-potential wells currently drilling in Angola’s Kwanza basin, in South Africa and in Indonesia are expected in the coming months. In the downstream, all of the units at the Satorp refinery in Saudi Arabia are operational. Since the start of the third quarter, European In addition, all of the teams are involved in the finalization of the announced cost reduction plan, which will be presented at the Investors’ day on September 22, 2014. As approved by the Board of Directors on April 29, 2014, Total will pay a first quarter 2014 interim dividend of 0.61 € / share on September 26, 2014. (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. (2) Calculated based on adjusted net operating income and average capital employed, using replacement cost, as shown on page 10. 6 TOTAL. Financial Report - 1st half 2014 Financial Report - 1st half 2014 1 Other information 7. Other information 7.1. Operating information by segment for first half 2014 7.1.1. Upstream 1H14 Combined liquids and gas production vs by region (kboe / d) 1H14 1H13 1H13 Europe 361 388 -7% Africa 637 690 -8% Middle East 393 535 -27% North America 86 71 +21% South America 158 172 -8% Asia-Pacific 240 232 +3% CIS 241 218 +11% Total production 2,116 2,306 -8% Includes equity affiliates 563 679 -17% 1H14 Liquids production vs by region (kb / d) 1H14 1H13 1H13 Europe 165 160 +3% Africa 495 547 -10% Middle East 197 324 -39% North America 37 27 +37% South America 50 56 -11% Asia-Pacific 29 30 -3% CIS 34 32 +6% Total production 1,007 1,176 -14% Includes equity affiliates 202 324 -38% 1H14 Gas production vs by region (Mcf/d) 1H14 1H13 1H13 Europe 1,075 1,250 -14% Africa 729 724 +1% Middle East 1,073 1,135 -5% North America 276 246 +12% South America 605 643 -6% Asia-Pacific 1,194 1,136 +5% CIS 1,114 1,019 +9% Total production 6,066 6,153 -1% Includes equity affiliates 1,962 1,911 +3% 1H14 vs Liquified natural gas 1H14 1H13 1H13 LNG sales (a) (Mt) 6.05 5.82 +4% (a) Sales, Group share, excluding Trading; 2013 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2013 SEC coefficient. Financial Report - 1st half 2014. TOTAL 7 1 Financial Report - 1st half 2014 Other information 7.1.2. Downstream (Refining & Chemicals and Marketing & Services) 1H14 Refined product sales vs by region (kb / d) (a) 1H14 1H13 1H13 Europe (b) 2,011 2,077 -3% Africa 531 445 +19% Americas 559 513 +9% Rest of world 592 513 +15% Total consolidated sales 3,693 3,547 +4% Includes bulk sales 605 629 -4% Includes Trading 1,346 1,169 +15% (a) Includes share of TotalErg. (b) Restated historical amounts. 7.2. Adjustment items 7.2.1. Adjustments to operating income (in millions of dollars) 1H14 1H13 Special items affecting operating income from business segments (177) (56) – Restructuring charges - (2) – Impairments (40) (5) – Other (137) (49) Pre-tax inventory effect: FIFO vs. replacement cost (64) (878) Effect of changes in fair value (10) (39) Total adjustments affecting operating income (251) (973) 7.2.2. Adjustments to net income (Group share) (in millions of dollars) 1H14 1H13 Special items affecting operating income (Group share) 26 (1,344) – Gain (loss) on asset sales 599 (1,274) – Restructuring charges (5) (33) – Impairments (426) (4) – Other (142) (33) After-tax inventory effect: FIFO vs. replacement cost (57) (593) Effect of changes in fair value (8) (30) Total adjustments affecting net income (39) (1,967) 8 TOTAL. Financial Report - 1st half 2014 Financial Report - 1st half 2014 1 Other information 7.3. Effective tax rates Effective tax rate (a) 1H14 1H13 Upstream 56.3% 60.6% Group 56.5% 57.4% (a) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). 7.4. Investments – divestments 1H14 vs (in millions of dollars) 1H14 1H13 1H13 Investments excluding acquisitions 12,395 12,864 -4% Capitalized exploration 681 996 -32% Increase in non-current loans 1,336 991 +35% Repayment of non-current loans (794) (616) +29% Acquisitions 1,399 1,883 -26% Asset sales 1,677 1,947 -14% Other transactions with non-controlling interests 126 464 -73% Net investments (a) 11,991 12,336 -3% (a) Net investments = investments including acquisitions – asset sales – other transactions with non-controlling interests. 7.5. Net-debt-to-equity ratio (in millions of dollars) 6 / 30 / 2014 6 / 30 / 2013 Current borrowings 13,525 13,119 Net current financial assets (531) (609) Net financial assets classified as held for sale (62) 1,014 Non-current financial debt 39,433 29,557 Hedging instruments of non-current debt (1,973) (1,708) Cash and cash equivalents (22,166) (15,118) Net debt 28,226 26,255 Shareholders’ equity 102,872 94,790 Estimated dividend payable (1,894) (1,750) Non-controlling interests 3,344 2,225 Equity 104,322 95,265 Net-debt-to-equity ratio 27.1% 27.6% Financial Report - 1st half 2014. TOTAL 9 1 Financial Report - 1st half 2014 Other information 7.6. Return on average capital employed 7.6.1. Twelve months ended June 30, 2014 Upstream Refining & Marketing & Group (in millions of dollars) Chemicals Services Adjusted net operating income 12,295 1,649 1,409 14,431 Capital employed at 6 / 30 / 2013 (a) 91,097 20,924 9,838 118,852 Capital employed at 6 / 30 / 2014 (a) 103,572 19,265 10,324 129,967 ROACE 12.6% 8.2% 14.0% 11.6% (a) At replacement cost (excluding after-tax inventory effect). 7.6.2. Twelve months ended March 31, 2014 Upstream Refining & Marketing & Group (in millions of dollars) Chemicals Services Adjusted net operating income 12,285 1,766 1,483 14,863 Capital employed at 3 / 31 / 2013 (a) 86,034 21,860 9,610 116,094 Capital employed at 3 / 31 / 2014 (a) 97,924 18,516 10,314 126,068 ROACE 13.4% 8.7% 14.9% 12.3% (a) At replacement cost (excluding after-tax inventory effect). 7.6.3. Full-year 2013 Upstream Refining & Marketing & Group (in millions of dollars) Chemicals Services Adjusted net operating income 12,450 1,857 1,554 15,230 Capital employed at 12 / 31 / 2012 (a) 84,260 20,783 9,232 111,080 Capital employed at 12 / 31 / 2013 (a) 95,529 19,752 10,051 122,451 ROACE 13.8% 9.2% 16.1% 13.0% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial Report - 1st half 2014 Financial Report - 1st half 2014 1 Principal risks and uncertainties for the remaining six months of 2013 / Principal transactions with related parties 8. Principal risks and uncertainties for the remaining six months of 2014 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 27, 2014. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2014 on pages 26 to 29 and 40 of this report. 9. Principal transactions with related parties Information concerning the principal transactions with related parties since January 1, 2014, is provided in section 6 of the notes to the Consolidated Financial Statements for the first six months of 2014, on page 26 of this report. Financial Report - 1st half 2014. TOTAL 11 1 Financial Report - 1st half 2014 Principal transactions with related parties Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809 / 2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document filed by the Company with the French Autorité des marchés financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. These adjustment items include: (i) special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. 12 TOTAL. Financial Report - 1st half 2014 In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the Statement of Income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects for some transactions differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented herein represent dollar amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this presentation, such as resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File n° 1-10888, available from us at 2, Place Jean Millier – Arche Nord Coupole / Regnault – 92078 Paris-La Défense Cedex, France, or at our website: www.total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website: www.sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly Management Report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. Period from January 1 to June 30, 2014 To the Shareholders, In compliance with the assignment entrusted to us by your general meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (“Code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly Consolidated Financial Statements of TOTAL S.A., for the period from January 1 to June 30, 2014, – the verification of the information presented in the half-yearly Management Report. These condensed half-yearly Consolidated Financial Statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly Consolidated Financial Statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying the conclusion expressed above, we draw your attention to the mention in note 1 to the condensed half-yearly Consolidated Financial Statements which sets out a change in accounting methods related to the change in the presentation currency of the Consolidated Financial Statements from the euro to the U.S. dollar. II - Specific verification We have also verified the information presented in the half-yearly Management Report on the condensed half-yearly Consolidated Financial Statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly Consolidated Financial Statements. Paris La Défense, July 29, 2014 French original signed by: The statutory auditors KPMG Audit A division of KPMG S.A. Michel Piette Partner Valérie Besson Partner Laurent Miannay Partner ERNST & YOUNG Audit Yvon Salaün Partner Financial Report - 1st half 2014. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 1st half 1st half (in millions of dollars)(a) 2014 2013 Sales 123,248 124,906 Excise taxes (12,186) (11,380) Revenues from sales 111,062 113,526 Purchases, net of inventory variation (78,703) (79,950) Other operating expenses (14,593) (14,482) Exploration costs (920) (760) Depreciation, depletion and amortization of tangible assets and mineral interests (5,674) (5,387) Other income 1,196 504 Other expense (312) (2,141) Financial interest on debt (467) (461) Financial income from marketable securities & cash equivalents 50 46 Cost of net debt (417) (415) Other financial income 426 342 Other financial expense (349) (348) Equity in net income (loss) of affiliates 1,347 1,743 Income taxes (6,499) (7,204) Consolidated net income 6,564 5,428 Group share 6,439 5,312 Non-controlling interests 125 116 Earnings per share ($) 2.84 2.35 Fully-diluted earnings per share ($) 2.82 2.34 (a) Except for per share amounts. 14 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 1st half 1st half (in millions of dollars)(a) 2014 2013 Consolidated net income 6,564 5,428 Other comprehensive income Actuarial gains and losses (615) (25) Tax effect 211 8 Currency translation adjustment generated by the mother company (729) (599) Items not potentially reclassifiable to profit and loss (1,133) (616) Currency translation adjustment 548 (391) Available for sale financial assets (3) 3 Cash flow hedge 65 95 Share of other comprehensive income of equity affiliates, net amount (20) (494) Other (7) (12) Tax effect (18) (35) Items potentially reclassifiable to profit and loss 565 (834) Total other comprehensive income (net amount) (568) (1,450) Comprehensive income 5,996 3,978 – Group share 5,879 3,908 – Non-controlling interests 117 70 Financial Report - 1st half 2014. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 2nd quarter 1st quarter 2nd quarter (in millions of dollars)(a) 2014 2014 2013 Sales 62,561 60,687 61,345 Excise taxes (6,354) (5,832) (5,839) Revenues from sales 56,207 54,855 55,506 Purchases, net of inventory variation (40,371) (38,332) (39,631) Other operating expenses (7,229) (7,364) (7,288) Exploration costs (301) (619) (354) Depreciation, depletion and amortization of tangible assets and mineral interests (2,929) (2,745) (2,534) Other income 96 1,100 462 Other expense (163) (149) (120) Financial interest on debt (266) (201) (238) Financial income from marketable securities & cash equivalents 31 19 18 Cost of net debt (235) (182) (220) Other financial income 265 161 206 Other financial expense (183) (166) (179) Equity in net income (loss) of affiliates 874 473 794 Income taxes (2,902) (3,597) (3,229) Consolidated net income 3,129 3,435 3,413 Group share 3,104 3,335 3,364 Non-controlling interests 25 100 49 Earnings per share ($) 1.37 1.47 1.49 Fully-diluted earnings per share ($) 1.36 1.46 1.48 (a) Except for per share amounts. 16 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2014 2014 2013 Consolidated net income 3,129 3,435 3,413 Other comprehensive income Actuarial gains and losses (416) (199) (248) Tax effect 154 57 95 Currency translation adjustment generated by the mother company (732) 3 1,613 Items not potentially reclassifiable to profit and loss (994) (139) 1,460 Currency translation adjustment 512 36 (988) Available for sale financial assets (6) 3 8 Cash flow hedge 30 35 80 Share of other comprehensive income of equity affiliates, net amount 436 (456) (541) Other (4) (3) (1) Tax effect (5) (13) (32) Items potentially reclassifiable to profit and loss 963 (398) (1,474) Total other comprehensive income (net amount) (31) (537) (14) Comprehensive income 3,098 2,898 3,399 – Group share 3,078 2,801 3,368 – Non-controlling interests 20 97 31 Financial Report - 1st half 2014. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS (unaudited, 2013 data converted from the euro to the US Dollar) (in millions of dollars) 6/30/2014 3/31/2014 12/31/2013 6/30/2013 Non-current assets Intangible assets, net 18,995 18,899 18,395 17,424 Property, plant and equipment, net 108,468 106,377 104,480 93,387 Equity affiliates: investments and loans 21,256 19,951 20,417 19,037 Other investments 1,786 2,091 1,666 1,583 Hedging instruments of non-current financial debt 1,973 1,758 1,418 1,708 Deferred income taxes 2,842 2,933 3,838 3,704 Other non-current assets 4,263 4,265 4,406 3,813 Total non-current assets 159,583 156,274 154,620 140,656 Current assets Inventories, net 23,484 21,755 22,097 20,196 Accounts receivable, net 21,698 23,359 23,422 25,587 Other current assets 16,519 15,873 14,892 14,850 Current financial assets 1,003 872 739 668 Cash and cash equivalents 22,166 22,787 20,200 15,118 Assets classified as held for sale 4,317 2,472 3,253 5,104 Total current assets 89,187 87,118 84,603 81,523 Total assets 248,770 243,392 239,223 222,179 LIABILITIES & SHAREHOLDERS’ EQUITY (unaudited, 2013 data converted from the euro to the US Dollar) (in millions of dollars) 6/30/2014 3/31/2014 12/31/2013 6/30/2013 Shareholders’ equity Common shares 7,511 7,496 7,493 7,490 Paid-in surplus and retained earnings 101,100 101,568 98,254 94,637 Currency translation adjustment (1,436) (1,625) (1,203) (3,063) Treasury shares (4,303) (4,303) (4,303) (4,274) Total shareholders’ equity – Group Share 102,872 103,136 100,241 94,790 Non-controlling interests 3,344 3,248 3,138 2,225 Total shareholders’ equity 106,216 106,384 103,379 97,015 Non-current liabilities Deferred income taxes 16,397 17,045 17,850 16,736 Employee benefits 4,725 4,362 4,235 4,751 Provisions and other non-current liabilities 17,445 17,582 17,517 14,464 Non-current financial debt 39,433 37,506 34,574 29,557 Total non-current liabilities 78,000 76,495 74,176 65,508 Current liabilities Accounts payable 28,902 28,621 30,282 26,380 Other creditors and accrued liabilities 19,994 19,097 18,948 18,162 Current borrowings 13,525 11,676 11,193 13,119 Other current financial liabilities 472 350 381 59 Liabilities directly associated with the assets classified as held for sale 1,661 769 864 1,936 Total current liabilities 64,554 60,513 61,668 59,656 Total liabilities and shareholders’ equity 248,770 243,392 239,223 222,179 18 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 1st half 1st half (in millions of dollars) 2014 2013 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 6,564 5,428 Depreciation, depletion and amortization 6,261 5,805 Non-current liabilities, valuation allowances and deferred taxes 243 (49) Impact of coverage of pension benefit plans - - (Gains) losses on disposals of assets (1,040) 1,510 Undistributed affiliates’ equity earnings (114) (372) (Increase) decrease in working capital (1,456) (2,751) Other changes, net 157 180 Cash flow from operating activities 10,615 9,751 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (12,248) (13,325) Acquisitions of subsidiaries, net of cash acquired (414) (21) Investments in equity affiliates and other securities (590) (1,026) Increase in non-current loans (1,336) (991) Total expenditures (14,588) (15,363) Proceeds from disposals of intangible assets and property, plant and equipment 1,155 1,660 Proceeds from disposals of subsidiaries, net of cash sold - 264 Proceeds from disposals of non-current investments 522 23 Repayment of non-current loans 794 616 Total divestments 2,471 2,563 Cash flow used in investing activities (12,117) (12,800) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 337 432 – Treasury shares - - Dividends paid: – Parent company shareholders (3,736) (3,532) – Non-controlling interests (146) (94) Other transactions with non-controlling interests 126 464 Net issuance (repayment) of non-current debt 7,120 4,499 Increase (decrease) in current borrowings (211) (5,162) Increase (decrease) in current financial assets and liabilities (52) 1,184 Cash flow used in financing activities 3,438 (2,209) Net increase (decrease) in cash and cash equivalents 1,936 (5,258) Effect of exchange rates 30 (33) Cash and cash equivalents at the beginning of the period 20,200 20,409 Cash and cash equivalents at the end of the period 22,166 15,118 Financial Report - 1st half 2014. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited, 2013 data converted from the euro to the US Dollar) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2014 2014 2013 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 3,129 3,435 3,413 Depreciation, depletion and amortization 3,087 3,174 2,759 Non-current liabilities, valuation allowances and deferred taxes (156) 399 (108) Impact of coverage of pension benefit plans - - - (Gains) losses on disposals of assets (17) (1,023) (363) Undistributed affiliates’ equity earnings (125) 11 94 (Increase) decrease in working capital (771) (685) (1,025) Other changes, net 130 27 68 Cash flow from operating activities 5,277 5,338 4,838 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (6,800) (5,448) (6,836) Acquisitions of subsidiaries, net of cash acquired (414) - - Investments in equity affiliates and other securities (434) (156) (256) Increase in non-current loans (1,075) (261) (367) Total expenditures (8,723) (5,865) (7,459) Proceeds from disposals of intangible assets and property, plant and equipment 135 1,020 1,106 Proceeds from disposals of subsidiaries, net of cash sold - - 264 Proceeds from disposals of non-current investments 66 456 23 Repayment of non-current loans 430 364 357 Total divestments 631 1,840 1,750 Cash flow used in investing activities (8,092) (4,025) (5,709) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 304 33 432 – Treasury shares - - - Dividends paid: – Parent company shareholders (1,901) (1,835) (1,772) – Non-controlling interests (139) (7) (92) Other transactions with non-controlling interests 126 - (7) Net issuance (repayment) of non-current debt 2,931 4,189 734 Increase (decrease) in current borrowings 956 (1,167) (894) Increase (decrease) in current financial assets and liabilities 65 (117) 6 Cash flow used in financing activities 2,342 1,096 (1,593) Net increase (decrease) in cash and cash equivalents (473) 2,409 (2,464) Effect of exchange rates (148) 178 404 Cash and cash equivalents at the beginning of the period 22,787 20,200 17,178 Cash and cash equivalents at the end of the period 22,166 22,787 15,118 20 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL (unaudited, 2013 data converted Common shares issued Paid-in surplus Currency Treasury shares Shareholders’ Non- Total from the euro to the US Dollar) and retained translation equity Group controlling shareholders’ (in millions of dollars) Number Amount earnings adjustment Number Amount Share interests equity As of January 1, 2013 2,365,933,146 7,454 92,485 (1,696) (108,391,639) (4,274) 93,969 1,689 95,658 Net income of the first half 2013 - - 5,312 - - - 5,312 116 5,428 Other comprehensive Income - - (37) (1,367) - - (1,404) (46) (1,450) Comprehensive Income - - 5,275 (1,367) - - 3,908 70 3,978 Dividend - - (3,526) - - - (3,526) (94) (3,620) Issuance of common shares 10,802,845 36 396 - - - 432 - 432 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - - - 980 - - - - Share-based payments - - 97 - - - 97 - 97 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - (92) - - - (92) 556 464 Other items - - 2 - - - 2 4 6 As of June 30, 2013 2,376,735,991 7,490 94,637 (3,063) (108,390,659) (4,274) 94,790 2,225 97,015 Net income from July 1 to December 31, 2013 - - 5,916 - - - 5,916 177 6,093 Other comprehensive Income - - 510 1,859 - - 2,369 (10) 2,359 Comprehensive Income - - 6,426 1,859 - - 8,285 167 8,452 Dividend - - (3,590) - - - (3,590) (62) (3,652) Issuance of common shares 942,169 3 50 - - - 53 - 53 Purchase of treasury shares - - - - (4,414,200) (238) (238) - (238) Sale of treasury shares (a) - - (209) - 3,590,411 209 - - - Share-based payments - - 92 - - - 92 - 92 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - 841 1 - - 842 799 1,641 Other items - - 7 - - - 7 9 16 As of December 31, 2013 2,377,678,160 7,493 98,254 (1,203) (109,214,448) (4,303) 100,241 3,138 103,379 Net income of the first half 2014 - - 6,439 - - - 6,439 125 6,564 Other comprehensive Income - - (329) (231) - - (560) (8) (568) Comprehensive Income - - 6,110 (231) - - 5,879 117 5,996 Dividend - - (3,794) - - - (3,794) (146) (3,940) Issuance of common shares 5,192,417 18 319 - - - 337 - 337 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - - - 7,200 - - - - Share-based payments - - 82 - - - 82 - 82 Share cancellation - - - - - - - - - Other operations with non-controlling interests - - 128 (2) - - 126 183 309 Other items - - 1 - - - 1 52 53 As of June 30, 2014 2,382,870,577 7,511 101,100 (1,436) (109,207,248) (4,303) 102,872 3,344 106,216 (a) Treasury shares related to the restricted stock grants. Financial Report - 1st half 2014. TOTAL 21 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 10. Notes to the Consolidated Financial Statements for the first six months of 2014 (unaudited, 2013 data converted from the euro to the US Dollar) 1) Accounting policies The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2014 are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. indicates that the obligating event for the recognition of a liability is the activity described in the relevant legislation that triggers the payment of the levy. The comparative Consolidated Financial Statements have been restated accordingly. In order to make the financial information of TOTAL more readable by better reflecting the performance of its activities mainly carried out in U.S. dollars, TOTAL has changed, effective January 1, 2014, the presentation currency of the Group’s Consolidated Financial Statements from the euro to the US Dollar. The Statutory Financial Statements of TOTAL S.A., the parent company of the Group, remain prepared in euro. The dividend paid remains fixed in euro. Following this change in accounting policy, the comparative Consolidated Financial Statements are presented in U.S. dollars. Currency translation adjustments have been set to zero as of January 1, 2004, the date of transition to IFRS. Cumulative currency translation adjustments are presented as if the Group had used the US Dollar as the presentation currency of its Consolidated Financial Statements since that date. The accounting policies applied for the Consolidated Financial Statements as of June 30, 2014 do not differ significantly from those applied for the Consolidated Financial Statements as of December 31, 2013 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standard Board). New texts or amendments which were mandatory for the periods beginning on or after January 1, 2014 did not have a material impact on the Group’s Consolidated Financial Statements as of June 30, 2014, with the exception of interpretation IFRIC 21: – In May 2013, the IASB issued the interpretation IFRIC 21 “Levies”. This interpretation is applicable retrospectively for annual periods beginning on or after January 1, 2014. The text The impact on shareholders’ equity as of January 1, 2011, is +46 M$. The impact on the Statement of Income for 2011 and 2012 is not significant. Net income, Group share, for 2013 is increased by 24 M$ (1st quarter: -83 M$, 2nd quarter: +48 M$, 3rd quarter: +37 M$, 4th quarter: +22 M$). The preparation of financial statements in accordance with IFRS requires the executive management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. The management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2013. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 22 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 2) Changes in the Group structure, main acquisitions and divestments Upstream – TOTAL finalized in March 2014 the sale to Sonangol E&P of its interest in Block 15 / 06 in Angola. – TOTAL finalized in March 2014 the acquisition from InterOil Corporation of a 40.1% interest (before possible entry by the State) in Block PRL 15 containing the gas field Elk-Antelope in Papua New Guinea for an amount of 405 M$, paid on April 2, 2014. – On the February 27, 2014, TOTAL floated GazTransport et Technigaz S.A. (GTT), an engineering company specializing in the design of cryogenic membranes for the transport and storage of LNG. With this quotation on Euronext Paris, TOTAL has reduced its interest in the equity of the company from 30.0% to 10.4%. The listing was completed at a price of €46 per share, valuing 100% of the equity of the company on the issue date at 1.7 B€. This sale generated a gain on disposal of 599 M$ after tax. – TOTAL finalized during the first half of 2014 the acquisition of an additional 1.05% interest in Novatek for an amount of 355 M$, bringing TOTAL’s overall interest in Novatek to 18.0% as at June 30, 2014. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the Statement of Income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table of the next page. Financial Report - 1st half 2014. TOTAL 23 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 ADJUSTMENTS TO OPERATING INCOME Upstream Refining & Marketing & Corporate Total (in millions of dollars) Chemicals Services 2nd quarter 2014 Inventory valuation effect - 122 (5) - 117 Effect of changes in fair value (36) - - - (36) Restructuring charges - - - - - Asset impairment charges - (40) - - (40) Other items - - (22) - (22) Total (36) 82 (27) - 19 2nd quarter 2013 Inventory valuation effect - (655) (107) - (762) Effect of changes in fair value (42) - - - (42) Restructuring charges - - - - - Asset impairment charges - - - - - Other items - (49) - - (49) Total (42) (704) (107) - (853) 1st half 2014 Inventory valuation effect - (41) (23) - (64) Effect of changes in fair value (10) - - - (10) Restructuring charges - - - - - Asset impairment charges - (40) - - (40) Other items (115) - (22) - (137) Total (125) (81) (45) - (251) 1st half 2013 Inventory valuation effect - (743) (135) - (878) Effect of changes in fair value (39) - - - (39) Restructuring charges - (2) - - (2) Asset impairment charges - (5) - - (5) Other items - (49) - - (49) Total (39) (799) (135) - (973) ADJUSTMENTS TO NET INCOME GROUP SHARE Upstream Refining & Marketing & Corporate Total (in millions of dollars) Chemicals Services 2nd quarter 2014 Inventory valuation effect - 77 3 - 80 Effect of changes in fair value (29) - - - (29) Restructuring charges - (1) (4) - (5) Asset impairment charges - (76) - - (76) Gains (losses) on disposals of assets - - - - - Other items - - (17) - (17) Total (29) - (18) - (47) 2nd quarter 2013 Inventory valuation effect - (460) (65) - (525) Effect of changes in fair value (31) - - - (31) Restructuring charges - - - - - Asset impairment charges - - - - - Gains (losses) on disposals of assets 431 (59) - - 372 Other items - (33) - - (33) Total 400 (552) (65) - (217) 1st half 2014 Inventory valuation effect - (34) (23) - (57) Effect of changes in fair value (8) - - - (8) Restructuring charges - (1) (4) - (5) Asset impairment charges (350) (76) - - (426) Gains (losses) on disposals of assets 599 - - - 599 Other items (115) (10) (17) - (142) Total 126 (121) (44) - (39) 1st half 2013 Inventory valuation effect - (506) (87) - (593) Effect of changes in fair value (30) - - - (30) Restructuring charges - (20) (13) - (33) Asset impairment charges - (4) - - (4) Gains (losses) on disposals of assets (1,215) (59) - - (1,274) Other items - (33) - - (33) Total (1,245) (622) (100) - (1,967) 24 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 Extensive studies have confirmed a technical scheme to develop the Shtokman field in Russia, but at a too high cost that does not provide an acceptable profitability. The Group remains in contact with Gazprom to study other technical schemes that enhance the economics and to define an eventual future participation in the development of the field. In the meantime, the Group has decided to depreciate its investment of 350 M$ in this project. 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2014, TOTAL S.A. holds 8,875,980 of its own shares, representing 0.37% of its share capital, detailed as follows: – 8,757,120 shares allocated to TOTAL share grant plans for Group employees; and Dividend The shareholders’ meeting on May 16, 2014 approved the payment of a cash dividend of €2.38 per share for the 2013 fiscal year. Taking into account the three quarterly dividends of €0.59 per share that have already been paid on September 27, 2013, December 19, 2013, and March 27, 2014, the remaining balance of €0.61 per share was paid on June 5, 2014. – 118,860 shares intended to be allocated to new TOTAL share purchase option plans or to new share grant plans. These shares are deducted from the consolidated shareholders’ equity. A first quarterly dividend for the fiscal year 2014 of €0.61 per share, decided by the Board of Directors on April 29, 2014, will be paid on September 26, 2014 (the ex-dividend date will be September 23, 2014). Treasury shares (TOTAL shares held by Group subsidiaries) As of June 30, 2014, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.21% of its share capital, detailed as follows: A second quarterly dividend for the fiscal year 2014 of €0.61 per share, decided by the Board of Directors on July 29, 2014, will be paid on December 17, 2014 (the ex-dividend date will be December 15, 2014). Earnings per share in Euro – 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; – 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval), 100% indirectly controlled by TOTAL S.A. These 100,331,268 shares are deducted from the consolidated shareholders’ equity. Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro / USD exchange rate for the period, amounted to €1.00 per share for the 2nd quarter 2014 (€1.07 per share for the 1st quarter 2014 and €1.14 per share for the 2nd quarter 2013). Diluted earnings per share calculated using the same method amounted to €0.99 per share for the 2nd quarter 2014 (€1.07 per share for the 1st quarter 2014 and €1.12 per share for the 2nd quarter 2013). Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of dollars) 1st half 2014 1st half 2013 Actuarial gains and losses (615) (25) Tax effect 211 8 Currency translation adjustment generated by the mother company (729) (599) Items not potentially reclassifiable to profit or loss (1,133) (616) Currency translation adjustment 548 (391) – unrealized gain / (loss) of the period 549 (414) – less gain / (loss) included in net income 1 (23) Available for sale financial assets (3) 3 – unrealized gain / (loss) of the period (12) 3 – less gain / (loss) included in net income (9) - Cash flow hedge 65 95 – unrealized gain / (loss) of the period (17) 19 – less gain / (loss) included in net income (82) (76) Share of other comprehensive income of equity affiliates, net amount (20) (494) Other (7) (12) – unrealized gain / (loss) of the period (7) (12) – less gain / (loss) included in net income - - Tax effect (18) (35) Items potentially reclassifiable to profit or loss 565 (834) Total other comprehensive income, net amount (568) (1,450) Financial Report - 1st half 2014. TOTAL 25 2 26 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 Tax effects relating to each component of other comprehensive income are as follows: (in millions of dollars) 1st half 2014 1st half 2013 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses (615) 211 (404) (25) 8 (17) Currency translation adjustment generated by the mother company (729) - (729) (599) - (599) Items not potentially reclassifiable to profit or loss (1,344) 211 (1,133) (624) 8 (616) Currency translation adjustment 548 - 548 (391) - (391) Available for sale financial assets (3) 3 - 3 1 4 Cash flow hedge 65 (21) 44 95 (36) 59 Share of other comprehensive income of equity affiliates, net amount (20) - (20) (494) - (494) Other (7) - (7) (12) - (12) Items potentially reclassifiable to profit or loss 583 (18) 565 (799) (35) (834) Total other comprehensive income (761) 193 (568) (1,423) (27) (1,450) 5) Financial debt The Group issued bonds through its subsidiary Total Capital International, during the first six months of 2014: – Bond 1.000% 2014-2017 (500 million USD) – Bond 2.125% 2014-2019 (750 million USD) – Bond 3.750% 2014-2024 (1,250 million USD) – Bond 4.125% 2014-2019 (150 million AUD) – Bond US Libor 3 months +38 bp 2014-2019 (200 million USD) – Bond 3.000% 2014-2044 (100 million EUR) – Bond 2.500% 2014-2026 (850 million EUR) – Bond 2.500% 2014-2026 (250 million EUR) – Bond 2.100% 2014-2019 (1,000 million USD) – Bond US Libor 3 months +35 bp 2014-2019 (250 million USD) – Bond 2.750% 2014-2021 (1,000 million USD) – Bond 3.750% 2014-2019 (100 million AUD) The Group reimbursed bonds during the first six months of 2014: – Bond 1.625% 2011-2014 (750 million USD) – Bond US Libor 3 months +38 bp 2011-2014 (750 million USD) – Bond 5.750% 2011-2014 (100 million AUD) – Bond 3.500% 2009-2014 (1,000 million EUR) – Bond 3.240% 2009-2014 (396 million HKD) – Bond 3.500% 2009-2014 (150 million EUR) – Bond 1.723% 2007-2014 (8,000 million JPY) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non- consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2014. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Antitrust investigations The principal antitrust proceedings in which the Group’s companies are involved are described below. Financial Report - 1st half 2014. TOTAL Notes to the Consolidated Financial Statements for the first six months of 2014 2 Consolidated Financial Statements Refining & chemicals segment As part of the spin-off of Arkema(1) in 2006, TOTAL S.A. and certain other Group companies agreed to grant Arkema for a period of ten years a guarantee for potential monetary consequences related to antitrust proceedings arising from events prior to the spin-off. As of December 31, 2013, all public and civil proceedings covered by the guarantee were definitively resolved in Europe and in the United States. Despite the fact that Arkema has implemented since 2001 compliance procedures that are designed to prevent its employees from violating antitrust provisions, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema regarding events prior to the spin-off. Marketing & Services segment – Following the appeal lodged by the Group’s companies against the European Commission’s 2008 decision fining Total Marketing Services an amount of 128.2 M€, in relation to practices regarding a product line of the Marketing & Services segment, which the company had already paid, and concerning which TOTAL S.A. was declared jointly liable as the parent company, the relevant European court decided during the third quarter of 2013 to reduce the fine imposed on Total Marketing Services to 125.5 M€ without modifying the liability of TOTAL S.A. as parent company. Appeals have been lodged against this judgment. – In the Netherlands, a civil proceeding was initiated against TOTAL S.A., Total Marketing Services and other companies, by third parties alleging damages in connection with practices already sanctioned by the European Commission. At this stage, the plaintiffs have not communicated the amount of their claim. – Finally, in Italy, in 2013, a civil proceeding was initiated against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly 908 M€. This procedure follows practices that had been sanctioned by the Italian competition authority in 2006. The existence and the assessment of the alleged damages in this procedure involving multiple defendants are strongly contested. Whatever the evolution of the proceedings described above, the Group believes that their outcome should not have a material adverse effect on the Group’s financial situation or consolidated results. Grande Paroisse An explosion occurred at the Grande Paroisse industrial site in the city of Toulouse in France on September 21, 2001. Grande Paroisse, a former subsidiary of Atofina which became a subsidiary of Elf Aquitaine Fertilisants on December 31, 2004, as part of the reorganization of the chemicals segment, was principally engaged in the production and sale of agricultural fertilizers. The explosion, which involved a stockpile of ammonium nitrate pellets, destroyed a portion of the site and caused the death of thirty-one people, including twenty-one workers at the site, and injured many others. The explosion also caused significant damage to certain property in part of the city of Toulouse. This plant has been closed and individual assistance packages have been provided for employees. The site has been rehabilitated. On December 14, 2006, Grande Paroisse signed, under the supervision of the city of Toulouse, a deed whereby it donated the former site of the AZF plant to the greater agglomeration of Toulouse (CAGT) and the Caisse des dépôts et consignations and its subsidiary ICADE. Under this deed, TOTAL S.A. guaranteed the site remediation obligations of Grande Paroisse and granted a 10 M€ endowment to the InNaBioSanté research foundation as part of the setting up of a cancer research center at the site by the city of Toulouse. After having articulated several hypotheses, the Court-appointed experts did not maintain in their final report filed on May 11, 2006, that the accident was caused by pouring a large quantity of a chlorine compound over ammonium nitrate. Instead, the experts have retained a scenario where a container of chlorine compound sweepings was poured between a layer of wet ammonium nitrate covering the floor and a quantity of dry agricultural nitrate at a location not far from the principal storage site. This is claimed to have caused an explosion which then spread into the main storage site. Grande Paroisse was investigated based on this new hypothesis in 2006; Grande Paroisse is contesting this explanation, which it believes to be based on elements that are not factually accurate. On July 9, 2007, the investigating magistrate brought charges against Grande Paroisse and the former Plant Manager before the Toulouse Criminal Court. In late 2008, TOTAL S.A. and Mr. Thierry Desmarest, Chairman and CEO at the time of the event, were summoned to appear in Court pursuant to a request by a victims association. On November 19, 2009, the Toulouse Criminal Court acquitted both the former Plant Manager, and Grande Paroisse due to the lack of reliable evidence for the explosion. The Court also ruled that the summonses against TOTAL S.A. and Mr. Thierry Desmarest were inadmissible. Due to the presumption of civil liability that applied to Grande Paroisse, the Court declared Grande Paroisse civilly liable for the damages caused by the explosion to the victims in its capacity as custodian and operator of the plant. The Prosecutor’s office, together with certain third parties, appealed the Toulouse Criminal Court verdict. In order to preserve its rights, Grande Paroisse lodged a cross-appeal with respect to civil charges. By its decision of September 24, 2012, the Court of Appeal of Toulouse (Cour d’appel de Toulouse) upheld the lower court verdict pursuant to which the summonses against TOTAL S.A. and Mr. Thierry Desmarest were determined to be inadmissible. This element of the decision has been appealed by certain third parties before the French Supreme Court (Cour de cassation). The Court of Appeal considered, however, that the explosion was the result of the chemical accident described by the court-appointed experts. Accordingly, it convicted the former Plant Manager and Grande Paroisse. This element of the decision has been appealed by the former Plant Manager and Grande Paroisse before the French Supreme Court (Cour de cassation), which has the effect of suspending their criminal sentences. A compensation mechanism for victims was set up immediately following the explosion. 2.3 B€ was paid for the compensation of (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. Financial Report - 1st half 2014. TOTAL 27 2 28 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 claims and related expenses amounts. A 11.6 M€ reserve remains booked in the Group’s Consolidated Financial Statements as of June 30, 2014. Blue Rapid and the Russian Olympic Committee – Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. Blue Rapid and the Russian Olympic Committee appealed this decision. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract having lapsed. Blue Rapid and the Russian Olympic Committee appealed this decision to the French Supreme Court. In connection with the same facts, and fifteen years after the termination of the exploration and production contract, a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation that were not even parties to the contract, launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of 22.4 B$. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as a matter of law and fact. The Group has lodged a criminal complaint to denounce the fraudulent claim of which the Group believes it is a victim and, has taken and reserved its rights to take other actions and measures to defend its interests. Iran In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerned an agreement concluded by the Company with consultants concerning gas fields in Iran and aimed at verifying whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. In late May 2013, and after several years of discussions, TOTAL reached settlements with the U.S. authorities (a Deferred Prosecution Agreement with the DoJ and a Cease and Desist Order with the SEC). These settlements, which put an end to these investigations, were concluded without admission of guilt and in exchange for TOTAL respecting a number of obligations, including the payment of a fine (245.2 M$) and civil compensation (153 M$) that occurred during the second quarter of 2013. The reserve of 398.2 M$ that was booked in the financial statements as of June 30, 2012, has been fully released. By virtue of these settlements, TOTAL also accepted the appointment of a French independent compliance monitor to review the Group’s compliance program and to recommend possible improvements. Financial Report - 1st half 2014. TOTAL With respect to the same facts, TOTAL and its Chairman and Chief Executive Officer, who was President of the Middle East at the time of the facts, were placed under formal investigation in France following a judicial inquiry initiated in 2006. In late May 2013, the Prosecutor’s office recommended that the case be sent to trial. This position was reiterated by the Prosecutor’s office in June 2014.The investigating magistrate has not yet issued his decision. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences for its future planned operations. Oil-for-Food Program Several countries have launched investigations concerning possible violations related to the United Nations (UN) Oil-for-Food Program in Iraq. Pursuant to a French criminal investigation, certain current or former Group Employees were placed under formal criminal investigation for possible charges as accessories to the misappropriation of Corporate assets and as accessories to the corruption of foreign public agents. The Chairman and Chief Executive Officer of the Company, formerly President of the Group’s Exploration & Production division, was also placed under formal investigation in October 2006. In 2007, the criminal investigation was closed and the case was transferred to the Prosecutor’s office. In 2009, the Prosecutor’s office recommended to the investigating magistrate that the case against the Group’s current and former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. In early 2010, despite the recommendation of the Prosecutor’s office, a new investigating magistrate, having taken over the case, decided to indict TOTAL S.A. on bribery charges as well as complicity and influence peddling. The indictment was brought eight years after the beginning of the investigation without any new evidence being introduced. In October 2010, the Prosecutor’s office recommended to the investigating magistrate that the case against TOTAL S.A., the Group’s former employees and TOTAL’s Chairman and Chief Executive Officer not be pursued. However, by ordinance notified in early August 2011, the investigating magistrate on the matter decided to send the case to trial. On July 8, 2013, TOTAL S.A., the Group’s former employees and TOTAL’s Chairman and Chief Executive Officer were cleared of all charges by the Criminal Court, which found that none of the offenses for which they had been prosecuted were established. On July 18, 2013, the Prosecutor’s office appealed the parts of the Criminal Court’s decision acquitting TOTAL S.A. and certain of the Group’s former employees. TOTAL’s Chairman and Chief Executive Officer’s acquittal issued on July 8, 2013 is irrevocable since the Prosecutor’s office did not appeal this part of the Criminal Court’s decision. The appeal hearing is expected to start in October 2015. Italy As part of an investigation led by the Prosecutor of the Republic of the Potenza Court, Total Italia and certain Group Employees were the subjects of an investigation related to certain calls for tenders that Total Italia made for the preparation and development of an oil field. The criminal investigation was closed in the first half of 2010. In May 2012, the Judge of the preliminary hearing decided to dismiss the charges against some of the Group’s employees and to refer the case for trial for a reduced number of charges. The trial started in September 2012. Rivunion On July 9, 2012, the Swiss Tribunal Fédéral (Switzerland’s Supreme Court) rendered a decision against Rivunion, a wholly-owned subsidiary of Elf Aquitaine, confirming a tax reassessment in the amount of CHF 171 million (excluding interest for late payment). According to the Tribunal, Rivunion was held liable as tax collector for withholding taxes owed by the beneficiaries of taxable services. Rivunion, in liquidation since March 13, 2002, unable to recover the amounts corresponding to the withholding taxes in order to meet its fiscal obligations, has been subject to insolvency proceedings since November 1, 2012. On August 29, 2013, the Swiss federal tax administration lodged a claim as part of the insolvency proceedings of Rivunion, for an amount of CHF 284 million, including CHF 171 million of principal as well as interest for late payment. Total Gabon On February 14, 2014, Total Gabon received a tax re-assessment notice from the Ministère de l’Économie et de la Prospective of the Gabonese Republic accompanied by a partial tax collection notice, following the tax audit of Total Gabon in relation to the years 2008 to 2010. The amount referred to in the above tax re-assessment notice is 805 M$. The partial tax collection procedure was suspended on March 5, 2014 further to the action that Total Gabon engaged before the Tax Administration. Total Gabon disputes the grounds for the re-assessment and the associated amounts. Discussions with the competent authorities are continuing. Kashagan In Kazakhstan, the start-up of production of the Kashagan field, in which TOTAL holds an interest of 16.81%, occurred on September 11, 2013. Following the detection of a gas leak from the export pipeline, production was stopped on September 24, 2013. Production was resumed but then stopped again on October 9, 2013 after another leak was found. Pressure tests were performed Notes to the Consolidated Financial Statements for the first six months of 2014 2 Consolidated Financial Statements in a fully controlled environment revealing some other potential leaks / cracks. The production of the field was stopped and a thorough investigation was launched. Today a significant number of anomalies have been identified in the oil and gas export lines. As a consequence it has now been decided to replace both pipelines and an action plan for remedial works is currently being finalized. Best international oil and gas field practices under strict HSE requirements are integral at all times within the Venture to address, mitigate and remedy all problems prior to the restart of production. In addition, the Atyrau Region Environmental Department (“ARED”) launched against the consortium developing the Kashagan field a procedure alleging non-compliance with environmental legislation related to gas emissions (flaring). On March 7, 2014, ARED issued a claim for environmental damages of approximately 737 M$ (KZT 134 billion), of which TOTAL’s share would be approximately 124 M$ (KZT 22.5 billion). The Kashagan project’s consortium disputes these allegations. Russia On July 16, 2014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) adopted new economic sanctions involving various Russian entities in the financial and energy sectors, including Novatek (a Russian company listed on the Moscow Interbank Currency Exchange and the London Stock Exchange) and entities in which Novatek owns an interest of 50% or more. TOTAL is closely monitoring the situation and the sanctions imposed on Novatek. In addition, the Group is continuing to study the possible impacts of sanctions on its activities in Russia, in particular on the Yamal LNG project. As of June 30, 2014, the Group held through its subsidiary Total E&P Arctic Russia, an 18.0% interest in the share capital of Novatek. Novatek holds a 60% interest in Yamal LNG alongside TOTAL (20%) and CNPC (20%). Novatek also holds a 51% stake in ZOA Terneftegas, which holds the development and production license in the Termokarstovoye field, alongside TOTAL (49%). Financial Report - 1st half 2014. TOTAL 29 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 8) Information by business segment 1st half 2014 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 12,871 55,682 54,683 12 - 123,248 Intersegment sales 15,493 23,696 810 95 (40,094) - Excise taxes - (2,441) (9,745) - - (12,186) Revenues from sales 28,364 76,937 45,748 107 (40,094) 111,062 Operating expenses (13,688) (75,536) (44,655) (431) 40,094 (94,216) Depreciation, depletion and amortization of tangible assets and mineral interests (4,490) (786) (380) (18) - (5,674) Operating income 10,186 615 713 (342) - 11,172 Equity in net income (loss) of affiliates and other items 2,046 119 90 53 - 2,308 Tax on net operating income (5,963) (108) (208) (292) - (6,571) Net operating income 6,269 626 595 (581) - 6,909 Net cost of net debt - - - - - (345) Non-controlling interests - - - - - (125) Net income - - - - - 6,439 1st half 2014 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (10) - - - - (10) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (10) - - - - (10) Operating expenses (115) (41) (45) - - (201) Depreciation, depletion and amortization of tangible assets and mineral interests - (40) - - - (40) Operating income (b) (125) (81) (45) - - (251) Equity in net income (loss) of affiliates and other items 280 (40) (7) - - 233 Tax on net operating income (29) - 14 - - (15) Net operating income (b) 126 (121) (38) - - (33) Net cost of net debt - - - - - - Non-controlling interests - - - - - (6) Net income - - - - - (39) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services – on operating income - (41) (23) - – on net operating income - (34) (17) - 30 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 1st half 2014 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars)(a) Chemicals Services Non-Group sales 12,881 55,682 54,683 12 - 123,258 Intersegment sales 15,493 23,696 810 95 (40,094) - Excise taxes - (2,441) (9,745) - - (12,186) Revenues from sales 28,374 76,937 45,748 107 (40,094) 111,072 Operating expenses (13,573) (75,495) (44,610) (431) 40,094 (94,015) Depreciation, depletion and amortization of tangible assets and mineral interests (4,490) (746) (380) (18) - (5,634) Adjusted operating income 10,311 696 758 (342) - 11,423 Equity in net income (loss) of affiliates and other items 1,766 159 97 53 - 2,075 Tax on net operating income (5,934) (108) (222) (292) - (6,556) Adjusted net operating income 6,143 747 633 (581) - 6,942 Net cost of net debt - - - - - (345) Non-controlling interests - - - - - (119) Adjusted net income - - - - - 6,478 Adjusted fully-diluted earnings per share ($) - - - - - 2.84 (a) Except for earnings per share. 1st half 2014 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 13,310 725 479 74 - 14,588 Total divestments 2,367 26 54 24 - 2,471 Cash flow from operating activities 8,616 1,460 393 146 - 10,615 Financial Report - 1st half 2014. TOTAL 31 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 1st half 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 13,439 56,709 54,583 175 - 124,906 Intersegment sales 18,195 25,901 1,201 102 (45,399) - Excise taxes - (2,187) (9,193) - - (11,380) Revenues from sales 31,634 80,423 46,591 277 (45,399) 113,526 Operating expenses (15,271) (79,481) (45,291) (548) 45,399 (95,192) Depreciation, depletion and amortization of tangible assets and mineral interests (4,232) (783) (352) (20) - (5,387) Operating income 12,131 159 948 (291) - 12,947 Equity in net income (loss) of affiliates and other items (94) 157 8 29 - 100 Tax on net operating income (6,984) 17 (282) (28) - (7,277) Net operating income 5,053 333 674 (290) - 5,770 Net cost of net debt - - - - - (342) Non-controlling interests - - - - - (116) Net income - - - - - 5,312 1st half 2013 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (39) - - - - (39) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (39) - - - - (39) Operating expenses - (794) (135) - - (929) Depreciation, depletion and amortization of tangible assets and mineral interests - (5) - - - (5) Operating income (b) (39) (799) (135) - - (973) Equity in net income (loss) of affiliates and other items (1,544) (61) (13) - - (1,618) Tax on net operating income 338 238 44 - - 620 Net operating income (b) (1,245) (622) (104) - - (1,971) Net cost of net debt - - - - - - Non-controlling interests - - - - - 4 Net income - - - - - (1,967) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services – on operating income - (743) (135) - – on net operating income - (506) (91) - 32 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 1st half 2013 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars)(a) Chemicals Services Non-Group sales 13,478 56,709 54,583 175 - 124,945 Intersegment sales 18,195 25,901 1,201 102 (45,399) - Excise taxes - (2,187) (9,193) - - (11,380) Revenues from sales 31,673 80,423 46,591 277 (45,399) 113,565 Operating expenses (15,271) (78,687) (45,156) (548) 45,399 (94,263) Depreciation, depletion and amortization of tangible assets and mineral interests (4,232) (778) (352) (20) - (5,382) Adjusted operating income 12,170 958 1,083 (291) - 13,920 Equity in net income (loss) of affiliates and other items 1,450 218 21 29 - 1,718 Tax on net operating income (7,322) (221) (326) (28) - (7,897) Adjusted net operating income 6,298 955 778 (290) - 7,741 Net cost of net debt - - - - - (342) Non-controlling interests - - - - - (120) Adjusted net income - - - - - 7,279 Adjusted fully-diluted earnings per share ($) - - - - - 3.20 (a) Except for earnings per share. 1st half 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 13,544 1,202 564 53 - 15,363 Total divestments 2,174 308 66 15 - 2,563 Cash flow from operating activities 8,245 1,331 422 (247) - 9,751 Financial Report - 1st half 2014. TOTAL 33 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 2nd quarter 2014 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 6,205 28,143 28,213 - - 62,561 Intersegment sales 8,057 11,740 402 46 (20,245) - Excise taxes - (1,281) (5,073) - - (6,354) Revenues from sales 14,262 38,602 23,542 46 (20,245) 56,207 Operating expenses (7,174) (37,744) (22,966) (262) 20,245 (47,901) Depreciation, depletion and amortization of tangible assets and mineral interests (2,314) (408) (198) (9) - (2,929) Operating income 4,774 450 378 (225) - 5,377 Equity in net income (loss) of affiliates and other items 719 65 98 7 - 889 Tax on net operating income (2,471) (114) (128) (218) - (2,931) Net operating income 3,022 401 348 (436) - 3,335 Net cost of net debt - - - - - (206) Non-controlling interests - - - - - (25) Net income - - - - - 3,104 2nd quarter 2014 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (36) - - - - (36) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (36) - - - - (36) Operating expenses - 122 (27) - - 95 Depreciation, depletion and amortization of tangible assets and mineral interests - (40) - - - (40) Operating income (b) (36) 82 (27) - - 19 Equity in net income (loss) of affiliates and other items - (32) (7) - - (39) Tax on net operating income 7 (50) 10 - - (33) Net operating income (b) (29) - (24) - - (53) Net cost of net debt - - - - - - Non-controlling interests - - - - - 6 Net income - - - - - (47) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services – on operating income - 122 (5) - – on net operating income - 77 (3) - 34 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 2nd quarter 2014 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars)(a) Chemicals Services Non-Group sales 6,241 28,143 28,213 - - 62,597 Intersegment sales 8,057 11,740 402 46 (20,245) - Excise taxes - (1,281) (5,073) - - (6,354) Revenues from sales 14,298 38,602 23,542 46 (20,245) 56,243 Operating expenses (7,174) (37,866) (22,939) (262) 20,245 (47,996) Depreciation, depletion and amortization of tangible assets and mineral interests (2,314) (368) (198) (9) - (2,889) Adjusted operating income 4,810 368 405 (225) - 5,358 Equity in net income (loss) of affiliates and other items 719 97 105 7 - 928 Tax on net operating income (2,478) (64) (138) (218) - (2,898) Adjusted net operating income 3,051 401 372 (436) - 3,388 Net cost of net debt - - - - - (206) Non-controlling interests - - - - - (31) Adjusted net income - - - - - 3,151 Adjusted fully-diluted earnings per share ($) - - - - - 1.38 (a) Except for earnings per share. 2nd quarter 2014 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 7,999 475 203 46 - 8,723 Total divestments 568 15 28 20 - 631 Cash flow from operating activities 4,805 (133) 304 301 - 5,277 Financial Report - 1st half 2014. TOTAL 35 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 2nd quarter 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 6,240 28,160 26,851 94 - 61,345 Intersegment sales 8,508 12,809 1,058 35 (22,410) - Excise taxes - (1,091) (4,748) - - (5,839) Revenues from sales 14,748 39,878 23,161 129 (22,410) 55,506 Operating expenses (7,195) (39,672) (22,541) (275) 22,410 (47,273) Depreciation, depletion and amortization of tangible assets and mineral interests (1,974) (390) (160) (10) - (2,534) Operating income 5,579 (184) 460 (156) - 5,699 Equity in net income (loss) of affiliates and other items 1,022 62 51 28 - 1,163 Tax on net operating income (3,160) 88 (138) (57) - (3,267) Net operating income 3,441 (34) 373 (185) - 3,595 Net cost of net debt - - - - - (182) Non-controlling interests - - - - - (49) Net income - - - - - 3,364 2nd quarter 2013 (adjustments)(a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (42) - - - - (42) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (42) - - - - (42) Operating expenses - (704) (107) - - (811) Depreciation, depletion and amortization of tangible assets and mineral interests - - - - - - Operating income (b) (42) (704) (107) - - (853) Equity in net income (loss) of affiliates and other items 331 (48) - - - 283 Tax on net operating income 111 200 34 - - 345 Net operating income (b) 400 (552) (73) - - (225) Net cost of net debt - - - - - - Non-controlling interests - - - - - 8 Net income - - - - - (217) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals services – on operating income - (655) (107) - – on net operating income - (460) (73) - 36 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 2nd quarter 2013 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars)(a) Chemicals Services Non-Group sales 6,282 28,160 26,851 94 - 61,387 Intersegment sales 8,508 12,809 1,058 35 (22,410) - Excise taxes - (1,091) (4,748) - - (5,839) Revenues from sales 14,790 39,878 23,161 129 (22,410) 55,548 Operating expenses (7,195) (38,968) (22,434) (275) 22,410 (46,462) Depreciation, depletion and amortization of tangible assets and mineral interests (1,974) (390) (160) (10) - (2,534) Adjusted operating income 5,621 520 567 (156) - 6,552 Equity in net income (loss) of affiliates and other items 691 110 51 28 - 880 Tax on net operating income (3,271) (112) (172) (57) - (3,612) Adjusted net operating income 3,041 518 446 (185) - 3,820 Net cost of net debt (182) Non-controlling interests (57) Adjusted net income - - - - - 3,581 Adjusted fully-diluted earnings per share ($) - - - - - 1.57 (a) Except for earnings per share. 2nd quarter 2013 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 6,603 499 318 39 - 7,459 Total divestments 1,456 272 16 6 - 1,750 Cash flow from operating activities 2,764 1,713 542 (181) - 4,838 Financial Report - 1st half 2014. TOTAL 37 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 9) Reconciliation of the information by business segment with Consolidated Financial Statements Adjusted Adjustments(a) Consolidated 1st half 2014 Statement (in millions of dollars) of income Sales 123,258 (10) 123,248 Excise taxes (12,186) - (12,186) Revenues from sales 111,072 (10) 111,062 Purchases net of inventory variation (78,639) (64) (78,703) Other operating expenses (14,456) (137) (14,593) Exploration costs (920) - (920) Depreciation, depletion and amortization of tangible assets and mineral interests (5,634) (40) (5,674) Other income 548 648 1,196 Other expense (263) (49) (312) Financial interest on debt (467) - (467) Financial income from marketable securities & cash equivalents 50 - 50 Cost of net debt (417) - (417) Other financial income 426 - 426 Other financial expense (349) - (349) Equity in net income (loss) of affiliates 1,713 (366) 1,347 Income taxes (6,484) (15) (6,499) Consolidated net income 6,597 (33) 6,564 Group share 6,478 (39) 6,439 Non-controlling interests 119 6 125 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 1st half 2013 statement (in millions of dollars) of income Sales 124,945 (39) 124,906 Excise taxes (11,380) - (11,380) Revenues from sales 113,565 (39) 113,526 Purchases net of inventory variation (79,072) (878) (79,950) Other operating expenses (14,431) (51) (14,482) Exploration costs (760) - (760) Depreciation, depletion and amortization of tangible assets and mineral interests (5,382) (5) (5,387) Other income 173 331 504 Other expense (216) (1,925) (2,141) Financial interest on debt (461) - (461) Financial income from marketable securities & cash equivalents 46 - 46 Cost of net debt (415) - (415) Other financial income 342 - 342 Other financial expense (348) - (348) Equity in net income (loss) of affiliates 1,767 (24) 1,743 Income taxes (7,824) 620 (7,204) Consolidated net income 7,399 (1,971) 5,428 Group share 7,279 (1,967) 5,312 Non-controlling interests 120 (4) 116 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 38 Financial Report - 1st half 2014. TOTAL Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2014 Adjusted Adjustments(a) Consolidated 2nd quarter 2014 statement (in millions of dollars) of income Sales 62,597 (36) 62,561 Excise taxes (6,354) - (6,354) Revenues from sales 56,243 (36) 56,207 Purchases net of inventory variation (40,488) 117 (40,371) Other operating expenses (7,207) (22) (7,229) Exploration costs (301) - (301) Depreciation, depletion and amortization of tangible assets and mineral interests (2,889) (40) (2,929) Other income 96 - 96 Other expense (133) (30) (163) Financial interest on debt (266) - (266) Financial income from marketable securities & cash equivalents 31 - 31 Cost of net debt (235) - (235) Other financial income 265 - 265 Other financial expense (183) - (183) Equity in net income (loss) of affiliates 883 (9) 874 Income taxes (2,869) (33) (2,902) Consolidated net income 3,182 (53) 3,129 Group share 3,151 (47) 3,104 Non-controlling interests 31 (6) 25 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 2nd quarter 2013 statement (in millions of dollars) of income Sales 61,387 (42) 61,345 Excise taxes (5,839) - (5,839) Revenues from sales 55,548 (42) 55,506 Purchases net of inventory variation (38,869) (762) (39,631) Other operating expenses (7,239) (49) (7,288) Exploration costs (354) - (354) Depreciation, depletion and amortization of tangible assets and mineral interests (2,534) - (2,534) Other income 131 331 462 Other expense (89) (31) (120) Financial interest on debt (238) - (238) Financial income from marketable securities & cash equivalents 18 - 18 Cost of net debt (220) - (220) Other financial income 206 - 206 Other financial expense (179) - (179) Equity in net income (loss) of affiliates 811 (17) 794 Income taxes (3,574) 345 (3,229) Consolidated net income 3,638 (225) 3,413 Group share 3,581 (217) 3,364 Non-controlling interests 57 (8) 49 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial Report - 1st half 2014. TOTAL 39 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2014 10) Changes in progress in the Group structure Upstream – TOTAL announced in November 2012 an agreement for the sale in Nigeria of its 20% interest in Block OML 138 to a subsidiary of China Petrochemical Corporation (Sinopec). On July 17, 2014, Sinopec informed the Group of its decision to not complete the transaction. The Group is actively pursuing its divestment process. At June 30, 2014 the assets and liabilities have been respectively classified in the Consolidated balance sheet in “assets classified as held for sale” for an amount of 2,359 M$ and “liabilities directly associated with the assets classified as held for sale” for an amount of 912 M$. The assets concerned mainly include tangible assets for an amount of 2,102 M$. – TOTAL has signed in July 2014 an agreement with Exxaro Resources Ltd for the sale of its 100% stake in Total Coal South Africa, its coal-producing affiliate in South Africa. Completion of the sale is subject to approval by the relevant authorities. At June 30, 2014 the assets and liabilities have been respectively classified in the consolidated balance sheet in “assets classified as held for sale” for an amount of 481 M$ and “liabilities directly associated with the assets classified as held for sale” for an amount of 81 M$. The assets concerned mainly include tangible assets for an amount of 390 M$.” Marketing & Services – TOTAL announced in May 2014 the finalization of an agreement for the sale of its 10% interest in the Shah Deniz field and the South Caucasus Pipeline to TPAO, the Turkish state-owned exploration and production company. This transaction remains subject to the approval by the relevant authorities. At June 30, 2014 the assets and liabilities have been respectively classified in the Consolidated balance sheet in “assets classified as held for sale” for an amount of 1,097 M$ and “liabilities directly associated with the assets classified as held for sale” for an amount of 374 M$. The assets concerned mainly include tangible assets for an amount of 891 M$. – TOTAL announced in July 2014 that it had entered into exclusive negotiations with UGI Corporation, the parent company of Antargaz, having received a firm offer from the U.S. company to acquire 100% of the outstanding shares of Totalgaz, the Group’s Liquefied Petroleum Gas distributor in France. At June 30, 2014 the assets and liabilities have been respectively classified in the Consolidated balance sheet in “assets classified as held for sale” for an amount of 380 M$ and “liabilities directly associated with the assets classified as held for sale” for an amount of 294 M$. The assets and liabilities concerned mainly include tangible assets for an amount of 161 M$, trade receivables for an amount of 129 M$, deposits and guarantees received for an amount of 137 M$ and accounts payable for an amount of 83 M$. 40 Financial Report - 1st half 2014. TOTAL Cover photography: © Laurent Pascal Design and Production: Agence Marc Praquin see you on www.total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 5,945,861,837.50 euros 542 051 180 RCS Nanterre www.total.com Switchboard: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2014, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,015 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
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| Financial Report - 1st half 2015 Contents 1. Financial Report - 1st half 2015 1. Key figures.......................................1 2. Highlights since the beginning of 2015............................................2 3. Analysis of business segments ........2 3.1. Upstream ............................................................................2 3.2. Refining & Chemicals ........................................................3 3.3. Marketing & Services.........................................................4 4. Second quarter 2015 results ...........5 4.1. Net operating income from business segments ..............5 4.2. Net income – Group share ................................................5 4.3. Divestments – Acquisitions ...............................................5 4.4. Cash flow............................................................................5 5. TOTAL S.A., parent company accounts .........................................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment for first half 2015 .......7 7.2. Adjustment items ...............................................................8 7.3. 2015 sensitivities................................................................8 7.4. Investments – Divestments ...............................................9 7.5. Net-debt-to-equity ratio ....................................................9 7.6. Return on Average Capital Employed ............................10 8. Principal risks and uncertainties for the remaining six months of 2015........................11 9. Principal transactions with related parties ........................11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information ......13 2. Consolidated statement of income ...14 3. Consolidated statement of comprehensive income..............15 4. Consolidated statement of income ..16 5. Consolidated statement of comprehensive income..............17 6. Consolidated balance sheet ..........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow .20 9. Consolidated statement of changes in shareholders’ equity...................21 10. Notes to the Consolidated Financial Statements for the first six months of 2015........................22 Accounting policies .........................................................22 Changes in the Group structure, main acquisitions and divestments ..............................................................22 Adjustment items .............................................................23 Shareholders’ equity........................................................24 Financial debt...................................................................26 Related parties.................................................................26 Other risks and contingent liabilities ..............................26 Information by business segment ..................................30 Reconciliation of the information by business segment with Consolidated Financial Statements........................38 10) Changes in progress in the Group structure..................40 Post-closing and other events ........................................40 11) 1) 2) 3) 4) 5) 6) 7) 8) 9) Financial Report 1st half 2015 This translation is a non-binding translation into English of the Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements for the first half 2015 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim Management Report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the half-year financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditor’s report on the limited review of the above mentioned condensed Consolidated Financial Statements is included on page 13 of this half-year financial report.” Courbevoie, July 29, 2015 Patrick Pouyanné Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 29, 2015 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report - 1st half 2015. TOTAL i ii Abbreviations b: cf: /d: /y: €: $ and/or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe/d kboe/d: thousand barrel/d kb/d: British thermal unit Btu: million M: billion B: French Financial Markets Authority AMF: European Refining Margin Indicator. ERMI is an indicator intended to ERMI: represent the margin after variable costs for a hypothetical complex refinery located in Rotterdam in Northern Europe. The indicator margin may not be representative of the actual margins achieved by TOTAL in any period because of TOTAL’s particular refinery configurations, product mix effects or other company-specific operating conditions. International Financial Reporting Standards liquefied natural gas Return on Equity Return on Average Capital Employed United States Securities and Exchange Commission barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: SEC: TOTAL. Financial Report - 1st half 2015 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,400 cf of gas* in 2014. 1 b/d = approx. 50 t/y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3/y = approx. 0.1 Bcf/d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt/y of LNG = approx. 131 Mcf/d This ratio is calculated based on the actual average equivalent energy content of TOTAL's natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this Registration Document refer to TOTAL S.A. collectively with all of its direct and indirect consolidated subsidiaries located in, or outside of France. © TOTAL S.A. July 2015 Financial Report - 1st half 2015 1 Financial Report - 1st half 2015 1. Key figures (1) 1H15 (in millions of dollars, except effective tax rate, vs earnings per share and number of shares) 1H15 1H14 1H14 Sales 87,028 123,248 -29% Adjusted operating income from business segments 7,375 11,765 -37% Adjusted net operating income from business segments 6,114 7,523 -19% – Upstream 2,919 6,143 -52% – Refining & Chemicals 2,449 747 x3 – Marketing & Services 746 633 +18% Contribution of equity affiliates to adjusted net income 1,311 1,713 -23% Group effective tax rate (a) 39.1% 56.5% Adjusted net income 5,687 6,478 -12% Adjusted fully-diluted earnings per share (dollars) 2.47 2.84 -13% Adjusted fully-diluted earnings per share (euros) (b) 2.21 2.07 +7% Fully-diluted weighted-average shares (millions) 2,289 2,279 - Net income (Group share) 5,634 6,439 -13% Investments (c) 15,399 14,588 +6% Divestments 4,877 2,471 x2 Net investments (d) 10,441 11,991 -13% Cash flow from operations 9,119 10,615 -14% Adjusted cash flow from operations 9,952 12,135 -18% (a) Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments + tax on adjusted net operating income). (b) Average €-$ exchange rate: 1.1158 in the first half 2015. (c) Including acquisitions. (d) Net investments = investments including acquisitions - asset sales - other transactions with non-controlling interests. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes in fair value. Adjusted cash flow from operations is defined as cash flow from operations before changes in working capital at replacement cost; adjustment items are on page 8 and the inventory valuation effect is explained on page 12. Financial Report - 1st half 2015. TOTAL 1 1 Financial Report - 1st half 2015 Highlights since the beginning of 2015 2. Highlights since the beginning of 2015 (1) – Entered new ADCO concession in Abu Dhabi with 10% interest – Achieved the production milestone of 2 billion barrels from for 40-year duration, effective January 1, 2015 – Started production from Eldfisk II in the Norwegian North Sea Angola deep offshore Block 17 and first production from the Dalia Phase 1A project in Angola – Started production from West Franklin Phase 2 in the UK North Sea – Stopped flaring and started producing gas from the Ofon field – Announced plans for European refining: Total to adapt the Lindsey refinery, modernize the Donges refinery and convert the La Mède refinery to a bio-refinery in Nigeria – Started up the lubricants plant in Singapore – Started production on the Termokarstovoye gas field in Russia – Finalized the sales of Bostik, several onshore Blocks in Nigeria – Positive appraisal on the Elk-Antelope gas fields in Papua-New and Totalgaz Guinea – Sale of interests in assets in the West of Shetland area in the United Kingdom – Sale of the interest in the Schwedt refinery in Germany 3. Analysis of business segments 3.1. Upstream 3.1.1. Environment – liquids and gas price realizations (a) 1H15 vs 1H15 1H14 1H14 Brent ($ / b) 57.8 108.9 -47% Average liquids price ($ / b) 53.8 102.5 -48% Average gas price ($ / Mbtu) 5.03 6.80 -26% Average hydrocarbon price ($ / boe) 43.6 73.2 -40% (a) Consolidated subsidiaries, excluding fixed margins. 3.1.2. Production 1H15 vs Hydrocarbon production 1H15 1H14 1H14 Combined production (kboe / d) 2,347 2,116 +11% Liquids (kb / d) 1,227 1,007 +22% Gas (Mcf / d) 6,110 6,066 +1% In the first half 2015, hydrocarbon production was 2,347 kboe / d, an increase of 11% compared to the first half 2014, due to the following: -2% due to the shutdown of production in Yemen; +3% due to the price effect and better field performance, offsetting natural decline. +4% for new project start ups; +6% due to portfolio changes, mainly the addition of the new ADCO concession in the United Arab Emirates, partially offset by asset sales in the North Sea, Nigeria and Azerbaijan; (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. 2 TOTAL. Financial Report - 1st half 2015 Financial Report - 1st half 2015 1 Analysis of business segments 3.1.3. Results 1H15 vs (in millions of dollars, except effective tax rate) 1H15 1H14 1H14 Adjusted operating income 3,526 10,311 -66% Effective tax rate (a) 47.9% 56.3% Adjusted net operating income 2,919 6,143 -52% includes income from equity affiliates 992 1,502 -34% Investments 13,804 13,310 +4% Divestments 1,541 2,367 -35% Cash flow from operations 6,238 8,616 -28% Adjusted cash flow from operations 5,929 9,974 -41% (a) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). Adjusted net operating income from the Upstream Segment was 2,919 M$ in the first half 2015, a decrease of 52% compared to the first half 2014, essentially due to the decrease in the average realized price of hydrocarbons, partially offset by an increase in production, a material decrease in operating costs, and a lower effective tax rate, notably in Nigeria and in Congo. 3.2. Refining & Chemicals 3.2.1. Refinery throughput and utilization rates (a) 1H15 vs 1H15 1H14 1H14 Total refinery throughput (kb / d) 1,920 1,662 +16% – France 675 626 +8% – Rest of Europe 835 741 +13% – Rest of world 410 295 +39% Utlization rates (b) – Based on crude only 85% 72% – Based on crude and other feedstock 88% 76% (a) Includes share of TotalErg. Results for refineries in South Africa, the French Antilles and Italy are reported in the Marketing & Services segment. (b) Based on distillation capacity at the beginning of the year. Refinery throughput increased by 16% in the first half 2015 compared to the first half 2014. Refinery throughput increased in a more favorable environment, benefiting from the start up of SATORP and a lower level of maintenance in Europe. The good reliability of the sites enabled an increase in throughput to take advantage of attractive margins. Financial Report - 1st half 2015. TOTAL 3 1 Financial Report - 1st half 2015 Analysis of business segments 3.2.2. Results 1H15 vs (in millions of dollars except the ERMI) 1H15 1H14 1H14 European Refining Margin Indicator – ERMI ($ / t) 50.6 8.7 x6 Adjusted operating income (a) 2,939 696 x4 Adjusted net operating income (a) 2,449 747 x3 including Specialty Chemicals (b) 251 313 -20% Investments 899 725 +24% Divestments 2,640 26 na Cash flow from operations 2,014 1,460 +38% Adjusted cash flow from operations 2,946 1,300 x2 (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Hutchinson and Atotech, Bostik until February 2015. The European Refining Margin Indicator (ERMI) averaged a high level of 50.6 $ / t in the first half of 2015, due to strong product demand, particularly gasoline, and significant maintenance activity. Petrochemical margins were also higher, notably due to limited production capacity as a result of numerous shut downs in the industry. Adjusted net operating income from the Refining & Chemicals segment was 2,449 M$ for the first half 2015, more than three times higher than the first half 2014 in a favorable environment, demonstrating the segment’s ability to capture attractive first half 2015 margins by increasing throughput one year after voluntarily reducing throughput in the face of a difficult 2014 environment. Divestments included the refinancing of SATORP in Saudi Arabia. Following the successful start up of the refinery, one of the most competitive in the world, Total was able to refinance its shareholder loan under favorable conditions. 3.3. Marketing & Services 3.3.1. Petroleum product sales 1H15 vs (sales in kb / d) (a) 1H15 1H14 1H14 Total Marketing & Services sales 1,818 1,742 +4% Europe 1,091 1,080 +1% Rest of world 727 662 +10% (a) Excludes trading and bulk refining sales, includes share of TotalErg. Petroleum product sales were 4% higher in the first half 2015 compared to the first half 2014, in a more favorable market than last year, which was affected by an unusually mild winter. 3.3.2. Results 1H15 vs (in millions of dollars) 1H15 1H14 1H14 Sales 40,039 54,683 -27% Adjusted operating income (a) 910 758 +20% Adjusted net operating income (a) 746 633 +18% including New Energies (87) 20 na Investments 651 479 +36% Divestments 679 54 na Cash flow from operations 1,023 393 x3 Adjusted cash flow from operations 949 930 +2% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income from the Marketing & Services segment was 746 M$ in the first half 2015, an increase of 18% compared to the first half 2014. 4 TOTAL. Financial Report - 1st half 2015 Financial Report - 1st half 2015 1 Second quarter 2015 results 4. Group results 4.1. Net operating income from business segments Adjusted net operating income from the business segments was 6,114 M$ in the first half 2015, a decrease of 19% compared to the first half 2014, despite the 47% drop in the Brent price. The Group fully benefited from its cost reduction program, the resilience of the Upstream and the remarkable performance of the Downstream. The effective tax rate (1) for the business segments was 37.4% in the first half 2015 compared to 52.5% in the first half 2014, reflecting mainly the strong Downstream results, which are taxed at a lower rate. 4.2. Net income – Group share Adjusted net income was 5,687 M$ in the first half 2015 compared to 6,478 M$ in the first half 2014, a decrease of 12% in an environment where the Brent price dropped by 47%. In the first half 2015 total adjustments affecting net income (Group share) (3) were -53 M$ compared to -39 M$ in the first half 2014. Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value (2). The number of fully-diluted shares was 2,294 million on June 30, 2015, and 2,284 million on June 30, 2014. 4.3. Divestments – Acquisitions Asset sales were 3,472 M$ in the first half 2015, comprised mainly of the sales of Bostik, the Group’s interests in OML 18 and 29 in Nigeria and Totalgaz. Acquisitions were 2,777 M$ in the first half 2015, comprised mainly of the entry into the new ADCO concession in the United Arab Emirates and the carry on the Utica gas and condensate field in the United States. 4.4. Cash flow The Group’s net cash flow (4) was -1,322 M$ in the first half 2015 compared to -1,376 M$ in the first half 2014, an increase of 4%, showing good resistance to the 47% drop in the Brent price, mainly due to the resilience of the Upstream and the performance of the Downstream. The organic investments are in line with the objective of $23-24 billion for the year. (1) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). (2) Details shown on page 12. (3) Details shown on page 8. (4) Net cash flow = cash flow from operations – net investments (including other transactions with non-controlling interests). Financial Report - 1st half 2015. TOTAL 5 1 Financial Report - 1st half 2015 TOTAL S.A., parent company accounts / Summary and outlook 5. TOTAL S.A., parent company accounts The net income for the parent company, TOTAL S.A., was 3,438 M€ in the first half 2015 compared to 3,397 M€ in the first half 2014. 6. Summary and outlook After having recovered slightly in the second quarter, oil prices have fallen by about 10% since the beginning of July. In this context, the Group is focused on delivering its new project start ups and implementing cost reductions to sustainably reduce its breakeven and maximize cash flow. The rapid implementation of this industrial response to the weaker environment has already begun to bear fruit in the first half of the year, and it will also underpin the Group’s success in the second half and beyond. In the Upstream, the start-ups of Surmont Phase 2, GLNG and Laggan-Tormore are expected in the second half. Production is expected to increase by more than 8% this year despite the shutdown of Yemen LNG. In the Downstream, market conditions remained favorable at the start of the third quarter. The increase in demand, notably for gasoline, is positive for refining, without, however, eliminating the overcapacity in the market. Our teams are continuing to reduce costs and adapt the sites, making them resistant to unfavorable environments. Finally, after announcing the sales of interests in gas fields located in the West of Shetland area in the United Kingdom and in the Schwedt refinery in Germany for a combined amount of 1.2 billion dollars, TOTAL is pursuing discussions for the sale of several other assets. 6 TOTAL. Financial Report - 1st half 2015 Financial Report - 1st half 2015 1 Other information 7. Other information 7.1. Operating information by segment 7.1.1. Upstream 1H15 Combined liquids and gas production vs by region (kboe / d) 1H15 1H14 1H14 Europe 376 361 +4% Africa 675 637 +6% Middle East 508 393 +29% North America 103 86 +20% South America 155 158 -2% Asia-Pacific 256 240 +7% CIS 274 241 +14% Total production 2,347 2,116 +11% includes equity affiliates 560 563 -1% 1H15 Liquids production vs by region (kb / d) 1H15 1H14 1H14 Europe 160 165 -3% Africa 540 495 +9% Middle East 353 197 +79% North America 44 37 +19% South America 49 50 -2% Asia-Pacific 34 29 +17% CIS 47 34 +38% Total production 1,227 1,007 +22% includes equity affiliates 213 202 +5% 1H15 Gas production vs by region (Mcf/d) 1H15 1H14 1H14 Europe 1,175 1,075 +9% Africa 675 729 -7% Middle East 859 1,073 -20% North America 323 276 +17% South America 596 605 -1% Asia-Pacific 1,278 1,194 +7% CIS 1,204 1,114 +8% Total production 6,110 6,066 +1% includes equity affiliates 1,863 1,962 -5% 1H15 vs Liquified natural gas 1H15 1H14 1H14 LNG sales (a) (Mt) 5.11 6.11 -16% (a) Sales, Group share, excluding trading; 2014 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2014 SEC coefficient. Financial Report - 1st half 2015. TOTAL 7 1 Financial Report - 1st half 2015 Other information 7.1.2. Downstream (Refining & Chemicals and Marketing & Services) 1H15 Petroleum product sales vs by region (kb / d) (a) 1H15 1H14 1H14 Europe (b) 2,078 2,011 +3% Africa 660 531 +24% Americas 603 559 +8% Rest of world 649 592 +10% Total consolidated sales 3,990 3,693 +8% Includes bulk sales 630 605 +4% Includes Trading 1,542 1,346 +15% (a) Includes share of TotalErg. (b) Restated historical amounts. 7.2. Adjustment items 7.2.1. Adjustments to operating income (in millions of dollars) 1H15 1H14 Special items affecting operating income (1,851) (177) – Restructuring charges - - – Impairments (1,294) (40) – Other (557) (137) Pre-tax inventory effect: FIFO vs. replacement cost 478 (64) Effect of changes in fair value (6) (10) Total adjustments affecting operating income (1,379) (251) 7.2.2. Adjustments to net income (Group share) (in millions of dollars) 1H15 1H14 Special items affecting net income (Group share) (377) 26 – Gain (loss) on asset sales 1,329 599 – Restructuring charges (31) (5) – Impairments (1,354) (426) – Other (321) (142) After-tax inventory effect: FIFO vs. replacement cost 328 (57) Effect of changes in fair value (4) (8) Total adjustments affecting net income (53) (39) 7.3. 2015 sensitivities (a) Scenario Change Impact on Impact on adjusted adjusted operating net operating income income Dollar 1.30 $ / € -0.1 $/€ +0.7 B$ +0.2 B$ Brent 60 $ / b +10 $ / b +3.1 B$ +1.7 B$ European Refining Margin Indicator (ERMI) 25 $ / t +1 $ / t +0.08 B$ +0.05 B$ (a) Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. The impact of the $-€ sensitivity on operating income is attributable 60% to Exploration & Production. The impact of the $-€ sensitivity on adjusted net operating income is attributable 90% to Refining & Chemicals. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2015. Actual results could vary significantly from estimates based on the application of these sensitivities. 8 TOTAL. Financial Report - 1st half 2015 Financial Report - 1st half 2015 1 Other information 7.4. Investments – Divestments 1H15 vs (in millions of dollars) 1H15 1H14 1H14 Investments excluding acquisitions 11,217 12,395 -10% capitalized exploration 796 681 +17% increase in non-current loans 1,184 1,336 -11% repayment of non-current loans (1,405) (794) +77% Acquisitions 2,777 1,399 x2 Asset sales 3,472 1,677 x2 Other transactions with non-controlling interests 81 126 -36% Net investments (a) 10,441 11,991 -13% (a) Net investments = investments including acquisitions - asset sales - other transactions with non-controlling interests. 7.5. Net-debt-to-equity ratio (in millions of dollars) 6 / 30 / 2015 6 / 30 / 2014 Current borrowings 13,114 13,525 Net current financial assets (2,351) (531) Net financial assets classified as held for sale (16) (62) Non-current financial debt 43,363 39,433 Hedging instruments of non-current debt (1,157) (1,973) Cash and cash equivalents (27,322) (22,166) Net debt 25,631 28,226 Shareholders’ equity – Group share 97,244 102,872 Estimated dividend payable (1,561) (1,894) Non-controlling interests 3,104 3,344 Adjusted shareholders’ equity 98,787 104,322 Net-debt-to-equity ratio 25.9% 27.1% Financial Report - 1st half 2015. TOTAL 9 1 Financial Report - 1st half 2015 Other information 7.6. Return on Average Capital Employed 7.6.1. Twelve months ended June 30, 2015 Upstream Refining & Marketing Group (In millions of dollars) Chemicals & Services Adjusted net operating income 7,280 4,191 1,367 12,679 Capital employed at 6 / 30 / 2014 (a) 103,572 19,265 10,324 129,967 Capital employed at 6 / 30 / 2015 (a) 107,214 12,013 8,234 124,001 ROACE 6.9% 26.8% 14.7% 10.0% (a) At replacement cost (excluding after-tax inventory effect). 7.6.2. Twelve months ended March 31, 2015 Upstream Refining & Marketing Group (In millions of dollars) Chemicals & Services Adjusted net operating income 8,771 3,243 1,314 12,780 Capital employed at 3 / 31 / 2014 (a) 97,924 18,516 10,314 126,068 Capital employed at 3 / 31 / 2015 (a) 103,167 12,534 7,928 123,218 ROACE 8.7% 20.9% 14.4% 10.3% (a) At replacement cost (excluding after-tax inventory effect). 7.6.3. Twelve months ended December 31, 2014 Upstream Refining & Marketing Group (In millions of dollars) Chemicals & Services Adjusted net operating income 10,504 2,489 1,254 13,530 Capital employed at 12 / 31 / 2013 (a) 95,529 19,752 10,051 122,451 Capital employed at 12 / 31 / 2014 (a) 100,497 13,451 8,825 120,526 ROACE 10.7% 15.0% 13.3% 11.1% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial Report - 1st half 2015 Financial Report - 1st half 2015 1 Principal risks and uncertainties for the remaining six months of 2015 / Principal transactions with related parties 8. Principal risks and uncertainties for the remaining six months of 2015 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 26, 2015. These conditions are subject to change not only in the six months remaining in the financial year but also in the years to come. Additionally, a description of certain risks is included in the notes to the consolidated accounts for the first half of 2015 on pages 26 to 29 and 40 of this report. 9. Principal transactions with related parties Information concerning the principal transactions with related parties since January 1, 2015, is provided in section 6 of the notes to the Consolidated Financial Statements for the first six months of 2015, on page 26 of this report. Financial Report - 1st half 2015. TOTAL 11 1 Financial Report - 1st half 2015 Principal transactions with related parties Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809 / 2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document filed by the Company with the French Autorité des Marchés Financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. 12 TOTAL. Financial Report - 1st half 2015 (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects for some transactions differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented herein represent dollar amounts converted at the average euro-dollar exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this presentation, such as resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File n° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole / Regnault -92078 Paris-La Défense Cedex, France, or at our website: total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website: sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors' review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. Period from January 1 to June 30, 2015 To the Shareholders, In compliance with the assignment entrusted to us by your general meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (“code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly Consolidated Financial Statements of TOTAL S.A., for the period from January 1 to June 30, 2015; – the verification of the information presented in the half-yearly Management Report. These condensed half-yearly Consolidated Financial Statements are the responsibility of your Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly Consolidated Financial Statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the half-yearly Management Report on the condensed half-yearly Consolidated Financial Statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly Consolidated Financial Statements. Paris-La Défense, July 28, 2015 The statutory auditors French original signed by KPMG Audit ERNST & YOUNG Audit A division of KPMG S.A. Michel Piette Partner Valérie Besson Partner Yvon Salaün Partner Laurent Miannay Partner Financial Report - 1st half 2015. TOTAL 13 2 Consolidated Financial Statements Consolidated Financial Statements 2. Consolidated statement of income TOTAL 1st half 1st half (in millions of dollars)(a) 2015 2014 Sales 87,028 123,248 Excise taxes (10,796) (12,186) Revenues from sales 76,232 111,062 Purchases, net of inventory variation (50,557) (78,703) Other operating expenses (12,303) (14,593) Exploration costs (989) (920) Depreciation, depletion and amortization of tangible assets and mineral interests (6,703) (5,674) Other income 2,343 1,196 Other expense (838) (312) Financial interest on debt (493) (467) Financial income from marketable securities & cash equivalents 59 50 Cost of net debt (434) (417) Other financial income 397 426 Other financial expense (329) (349) Equity in net income (loss) of affiliates 1,275 1,347 Income taxes (2,573) (6,499) Consolidated net income 5,521 6,564 Group share 5,634 6,439 Non-controlling interests (113) 125 Earnings per share ($) 2.46 2.84 Fully-diluted earnings per share ($) 2.45 2.82 (a) Except for per share amounts. 14 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL 1st half 1st half (in millions of dollars) 2015 2014 Consolidated net income 5,521 6,564 Other comprehensive income Actuarial gains and losses 153 (615) Tax effect (117) 211 Currency translation adjustment generated by the parent company (5,229) (729) Items not potentially reclassifiable to profit and loss (5,193) (1,133) Currency translation adjustment 2,588 548 Available for sale financial assets (4) (3) Cash flow hedge (94) 65 Share of other comprehensive income of equity affiliates, net amount 841 (20) Other 1 (7) Tax effect 29 (18) Items potentially reclassifiable to profit and loss 3,361 565 Total other comprehensive income (net amount) (1,832) (568) Comprehensive income 3,689 5,996 Group share 3,833 5,879 Non-controlling interests (144) 117 Financial Report - 1st half 2015. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL 2nd quarter 1st quarter 2nd quarter (in millions of dollars)(a) 2015 2015 2014 Sales 44,715 42,313 62,561 Excise taxes (5,446) (5,350) (6,354) Revenues from sales 39,269 36,963 56,207 Purchases, net of inventory variation (b) (26,353) (24,204) (40,371) Other operating expenses (6,031) (6,272) (7,229) Exploration costs (352) (637) (301) Depreciation, depletion and amortization of tangible assets and mineral interests (2,831) (3,872) (2,929) Other income 722 1,621 96 Other expense (396) (442) (163) Financial interest on debt (231) (262) (266) Financial income from marketable securities & cash equivalents 28 31 31 Cost of net debt (203) (231) (235) Other financial income 255 142 265 Other financial expense (163) (166) (183) Equity in net income (loss) of affiliates 685 590 874 Income taxes (b) (1,589) (984) (2,902) Consolidated net income 3,013 2,508 3,129 Group share 2,971 2,663 3,104 Non-controlling interests 42 (155) 25 Earnings per share ($) 1.29 1.16 1.37 Fully-diluted earnings per share ($) 1.29 1.16 1.36 (a) Except for per share amounts. (b) During the second quarter of 2015, the Group revised the classification in the statement of income of certain taxes related to its participation in the ADCO concession, effective since January 1, 2015. These taxes are now accounted for as operating taxes and were therefore reclassified for $498 million from “Income taxes” to “Purchases, net of inventory variation” for the first quarter of 2015. This reclassification has no impact on net income. 16 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2015 2015 2014 Consolidated net income 3,013 2,508 3,129 Other comprehensive income Actuarial gains and losses 248 (95) (416) Tax effect (81) (36) 154 Currency translation adjustment generated by the parent company 2,963 (8,192) (732) Items not potentially reclassifiable to profit and loss 3,130 (8,323) (994) Currency translation adjustment (1,160) 3,748 512 Available for sale financial assets (12) 8 (6) Cash flow hedge 36 (130) 30 Share of other comprehensive income of equity affiliates, net amount (201) 1,042 436 Other (2) 3 (4) Tax effect (8) 37 (5) Items potentially reclassifiable to profit and loss (1,347) 4,708 963 Total other comprehensive income (net amount) 1,783 (3,615) (31) Comprehensive income 4,796 (1,107) 3,098 Group share 4,749 (916) 3,078 Non-controlling interests 47 (191) 20 Financial Report - 1st half 2015. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS (in millions of dollars) 6/30/2015 3/31/2015 12/31/2014 6/30/2014 (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 16,101 16,236 14,682 18,995 Property, plant and equipment, net 110,023 105,806 106,876 108,468 Equity affiliates: investments and loans 19,380 19,552 19,274 21,256 Other investments 1,248 1,325 1,399 1,786 Hedging instruments of non-current financial debt 1,157 1,275 1,319 1,973 Deferred income taxes 3,145 3,435 4,079 2,842 Other non-current assets 4,047 4,093 4,192 4,263 Total non-current assets 155,101 151,722 151,821 159,583 Current assets Inventories, net 17,373 15,393 15,196 23,484 Accounts receivable, net 14,415 15,458 15,704 21,698 Other current assets 15,072 14,576 15,702 16,519 Current financial assets 2,439 2,464 1,293 1,003 Cash and cash equivalents 27,322 25,051 25,181 22,166 Assets classified as held for sale 2,754 3,257 4,901 4,317 Total current assets 79,375 76,199 77,977 89,187 Total assets 234,476 227,921 229,798 248,770 LIABILITIES & SHAREHOLDERS’ EQUITY (in millions of dollars) 6/30/2015 3/31/2015 12/31/2014 6/30/2014 (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 7,549 7,519 7,518 7,511 Paid-in surplus and retained earnings 103,286 102,755 94,646 101,100 Currency translation adjustment (9,243) (10,830) (7,480) (1,436) Treasury shares (4,348) (4,348) (4,354) (4,303) Total shareholders’ equity – Group share 97,244 95,096 90,330 102,872 Non-controlling interests 3,104 3,024 3,201 3,344 Total shareholders’ equity 100,348 98,120 93,531 106,216 Non-current liabilities Deferred income taxes 13,458 13,557 14,810 16,397 Employee benefits 4,426 4,483 4,758 4,725 Provisions and other non-current liabilities 17,353 17,050 17,545 17,445 Non-current financial debt 43,363 41,827 45,481 39,433 Total non-current liabilities 78,600 76,917 82,594 78,000 Current liabilities Accounts payable 22,469 22,043 24,150 28,902 Other creditors and accrued liabilities 18,718 15,750 16,641 19,994 Current borrowings 13,114 13,604 10,942 13,525 Other current financial liabilities 88 202 180 472 Liabilities directly associated with the assets classified as held for sale 1,139 1,285 1,760 1,661 Total current liabilities 55,528 52,884 53,673 64,554 Total liabilities and shareholders’ equity 234,476 227,921 229,798 248,770 18 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of dollars) 2015 2014 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 5,521 6,564 Depreciation, depletion and amortization 7,537 6,261 Non-current liabilities, valuation allowances and deferred taxes (161) 243 Impact of coverage of pension benefit plans - - (Gains) losses on disposals of assets (1,816) (1,040) Undistributed affiliates’ equity earnings (289) (114) (Increase) decrease in working capital (1,311) (1,456) Other changes, net (362) 157 Cash flow from operating activities 9,119 10,615 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (13,947) (12,248) Acquisitions of subsidiaries, net of cash acquired (10) (414) Investments in equity affiliates and other securities (258) (590) Increase in non-current loans (1,184) (1,336) Total expenditures (15,399) (14,588) Proceeds from disposals of intangible assets and property, plant and equipment 1,180 1,155 Proceeds from disposals of subsidiaries, net of cash sold 2,161 - Proceeds from disposals of non-current investments 131 522 Repayment of non-current loans 1,405 794 Total divestments 4,877 2,471 Cash flow used in investing activities (10,522) (12,117) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 450 337 – Treasury shares - - Dividends paid: – Parent company shareholders (1,572) (3,736) – Non-controlling interests (72) (146) Issuance of perpetual subordinated notes 5,616 - Payments on perpetual subordinated notes - - Other transactions with non-controlling interests 81 126 Net issuance (repayment) of non-current debt 1,771 7,120 Increase (decrease) in current borrowings (89) (211) Increase (decrease) in current financial assets and liabilities (1,101) (52) Cash flow used in financing activities 5,084 3,438 Net increase (decrease) in cash and cash equivalents 3,681 1,936 Effect of exchange rates (1,540) 30 Cash and cash equivalents at the beginning of the period 25,181 20,200 Cash and cash equivalents at the end of the period 27,322 22,166 Financial Report - 1st half 2015. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2015 2015 2014 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 3,013 2,508 3,129 Depreciation, depletion and amortization 3,113 4,424 3,087 Non-current liabilities, valuation allowances and deferred taxes 285 (446) (156) Impact of coverage of pension benefit plans - - - (Gains) losses on disposals of assets (459) (1,357) (17) Undistributed affiliates’ equity earnings (221) (68) (125) (Increase) decrease in working capital (835) (476) (771) Other changes, net (164) (198) 130 Cash flow from operating activities 4,732 4,387 5,277 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (5,991) (7,956) (6,800) Acquisitions of subsidiaries, net of cash acquired (3) (7) (414) Investments in equity affiliates and other securities (205) (53) (434) Increase in non-current loans (391) (793) (1,075) Total expenditures (6,590) (8,809) (8,723) Proceeds from disposals of intangible assets and property, plant and equipment 221 959 135 Proceeds from disposals of subsidiaries, net of cash sold 403 1,758 - Proceeds from disposals of non-current investments 109 22 66 Repayment of non-current loans 1,160 245 430 Total divestments 1,893 2,984 631 Cash flow used in investing activities (4,697) (5,825) (8,092) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Parent company shareholders 438 12 304 – Treasury shares - - - Dividends paid: – Parent company shareholders (6) (1,566) (1,901) – Non-controlling interests (70) (2) (139) Issuance of perpetual subordinated notes - 5,616 - Payments on perpetual subordinated notes - - - Other transactions with non-controlling interests 81 - 126 Net issuance (repayment) of non-current debt 1,635 136 2,931 Increase (decrease) in current borrowings (512) 423 956 Increase (decrease) in current financial assets and liabilities (79) (1,022) 65 Cash flow used in financing activities 1,487 3,597 2,342 Net increase (decrease) in cash and cash equivalents 1,522 2,159 (473) Effect of exchange rates 749 (2,289) (148) Cash and cash equivalents at the beginning of the period 25,051 25,181 22,787 Cash and cash equivalents at the end of the period 27,322 25,051 22,166 20 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) Common shares issued Paid-in Currency Treasury shares Shareholders’ Non- Total surplus and translation equity - controlling shareholders’ Number Amount retained adjustment Number Amount Group share interests equity (in millions of dollars) earnings As of January 1, 2014 2,377,678,160 7,493 98,254 (1,203) (109,214,448) (4,303) 100,241 3,138 103,379 Net income of the first half 2014 - - 6,439 - - - 6,439 125 6,564 Other comprehensive Income - - (329) (231) - - (560) (8) (568) Comprehensive Income - - 6,110 (231) - - 5,879 117 5,996 Dividend - - (3,794) - - - (3,794) (146) (3,940) Issuance of common shares 5,192,417 18 319 - - - 337 - 337 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - - - 7,200 - - - - Share-based payments - - 82 - - - 82 - 82 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - - - - - - - - Other operations with non-controlling interests - - 128 (2) - - 126 183 309 Other items - - 1 - - - 1 52 53 As of June 30, 2014 2,382,870,577 7,511 101,100 (1,436) (109,207,248) (4,303) 102,872 3,344 106,216 Net income from July 1 to December 31, 2014 - - (2,195) - - - (2,195) (119) (2,314) Other comprehensive Income - - (578) (6,044) - - (6,622) (35) (6,657) Comprehensive Income - - (2,773) (6,044) - - (8,817) (154) (8,971) Dividend - - (3,584) - - - (3,584) (8) (3,592) Issuance of common shares 2,396,948 7 76 - - - 83 - 83 Purchase of treasury shares - - - - (4,386,300) (283) (283) - (283) Sale of treasury shares (a) - - (232) - 4,232,135 232 - - - Share-based payments - - 32 - - - 32 - 32 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - - - - - - - - Other operations with non-controlling interests - - 20 - - - 20 12 32 Other items - - 7 - - - 7 7 14 As of December 31, 2014 2,385,267,525 7,518 94,646 (7,480) (109,361,413) (4,354) 90,330 3,201 93,531 Net income of the first half 2015 - - 5,634 - - - 5,634 (113) 5,521 Other comprehensive Income - - (38) (1,763) - - (1,801) (31) (1,832) Comprehensive Income - - 5,596 (1,763) - - 3,833 (144) 3,689 Dividend - - (3,123) - - - (3,123) (72) (3,195) Issuance of common shares 11,092,565 31 419 - - - 450 - 450 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - (6) - 103,150 6 - - - Share-based payments - - 69 - - - 69 - 69 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - 5,616 - - - 5,616 - 5,616 Payments on perpetual subordinated notes - - (31) - - - (31) - (31) Other operations with non-controlling interests - - 21 - - - 21 57 Other items - - 79 - - - 79 62 78 141 As of June 30, 2015 2,396,360,090 7,549 103,286 (9,243) (109,258,263) (4,348) 97,244 3,104 100,348 (a) Treasury shares related to the restricted stock grants. Financial Report - 1st half 2015. TOTAL 21 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 10. Notes to the Consolidated Financial Statements for the first six months of 2015 (unaudited) 1) Accounting policies The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2015 are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the Consolidated Financial Statements as of June 30, 2015 do not differ significantly from those applied for the Consolidated Financial Statements as of December 31, 2014 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standards Board). New texts or amendments which were mandatory for the periods beginning on or after January 1, 2015 did not have a material impact on the Group’s Consolidated Financial Statements as of June 30, 2015. statements and reported income and expenses for the period. The management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the carrying amount of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply. These judgments and estimates relate principally to the application of the successful efforts method for the oil and gas accounting, the valuation of long-lived assets, the provisions for asset retirement obligations and environmental remediation, the pensions and post-retirement benefits and the income tax computation. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2014. The preparation of financial statements in accordance with IFRS requires the executive management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Group structure, main acquisitions and divestments Upstream Refining & Chemicals – In January 2015, TOTAL was granted a 10% interest in the new ADCO concession in Abu Dhabi (United Arab Emirates) for a duration of 40 years, effective January 1, 2015. – In February 2015, TOTAL sold its Bostik adhesives activity to Arkema for an amount of $1,746 million. Marketing & Services – TOTAL completed in March 2015 the sale of its entire stake in onshore Oil Mining Lease (OML) 29 to Aiteo Eastern E&P, a Nigerian company, for an amount of $569 million. – In May 2015, TOTAL sold 100% of Totalgaz, distributor of Liquefied Petroleum Gas (LPG) in France to the U.S. company UGI Corporation, the parent company of Antargaz. 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (i) Special items Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to 22 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME Upstream Refining & Marketing Corporate Total (in millions of dollars) Chemicals & Services 2nd quarter 2015 Inventory valuation effect - 199 51 - 250 Effect of changes in fair value (10) - - - (10) Restructuring charges - - - - - Asset impairment charges (194) (31) (23) - (248) Other items (150) (76) - - (226) Total (354) 92 28 - (234) 2nd quarter 2014 Inventory valuation effect - 122 (5) - 117 Effect of changes in fair value (36) - - - (36) Restructuring charges - - - - - Asset impairment charges - (40) - - (40) Other items - - (22) - (22) Total (36) 82 (27) - 19 1st half 2015 Inventory valuation effect - 434 44 - 478 Effect of changes in fair value (6) - - - (6) Restructuring charges - - - - - Asset impairment charges (1,240) (31) (23) - (1,294) Other items (440) (117) - - (557) Total (1,686) 286 21 - (1,379) 1st half 2014 Inventory valuation effect - (41) (23) - (64) Effect of changes in fair value (10) - - - (10) Restructuring charges - - - - - Asset impairment charges - (40) - - (40) Other items (115) - (22) - (137) Total (125) (81) (45) - (251) Financial Report - 1st half 2015. TOTAL 23 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 ADJUSTMENTS TO NET INCOME GROUP SHARE Upstream Refining & Marketing Corporate Total (in millions of dollars) Chemicals & Services 2nd quarter 2015 Inventory valuation effect - 138 36 - 174 Effect of changes in fair value (6) - - - (6) Restructuring charges - - - - - Asset impairment charges (194) (31) (20) - (245) Gains (losses) on disposals of assets (29) (4) 360 - 327 Other items (280) (82) (2) - (364) Total (509) 21 374 - (114) 2nd quarter 2014 Inventory valuation effect - 77 3 - 80 Effect of changes in fair value (29) - - - (29) Restructuring charges - (1) (4) - (5) Asset impairment charges - (76) - - (76) Gains (losses) on disposals of assets - - - - - Other items - - (17) - (17) Total (29) - (18) - (47) 1st half 2015 Inventory valuation effect - 288 40 - 328 Effect of changes in fair value (4) - - - (4) Restructuring charges - (26) (5) - (31) Asset impairment charges (1,286) (31) (37) - (1,354) Gains (losses) on disposals of assets 299 670 360 - 1,329 Other items (140) (135) (46) - (321) Total (1,131) 766 312 - (53) 1st half 2014 Inventory valuation effect - (34) (23) - (57) Effect of changes in fair value (8) - - - (8) Restructuring charges - (1) (4) - (5) Asset impairment charges (350) (76) - - (426) Gains (losses) on disposals of assets 599 - - - 599 Other items (115) (10) (17) - (142) Total 126 (121) (44) - (39) During the first half of 2015, the Group recognized impairment charges in the Upstream Segment. Due to a significant deterioration in the safety conditions during the first quarter, some of its assets have been impaired in Libya ($(757) million in operating income, $(661) million in net income, Group share) and in Yemen ($(107) million in operating income, $(93) million in net income, Group share). In addition, in an unfavorable economic environment the Group decided during the first half of 2015 to discontinue the development of certain assets, that have therefore been impaired. Finally, new negotiations with Exxaro Resources Ltd took place in July 2015 for the sale of TOTAL’s 100% stake in Total Coal South Africa, following which an impairment loss was recognized over the assets of this entity, which appear in “assets classified as held for sale” in the consolidated balance sheet. In the Upstream Segment, the heading “Other Items” includes charges for impaired assets in Yemen and Libya ($(440) million in operating income, $(378) million in net income, Group share), the impact of a litigation in Qatar ($(162) million in net income, Group share) and the impact of the UK tax changes on deferred tax, for an amount of $424 million. This follows the vote on the 2015 budget by Parliament, which included a decrease in the rate of the Supplementary Charge from 32% to 20%, with retroactive effect from January 1, 2015 and a decrease in the rate of Petroleum Revenue Tax from 50% to 35% as of January 1, 2016. The heading “Gains on disposals of assets” includes the impacts of the sales of Bostik, Totalgaz and OML 29 in Nigeria. 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) These shares were deducted from the consolidated shareholders’ equity. As of June 30, 2015, TOTAL S.A. held 8,926,995 of its own shares, representing 0.37% of its share capital, detailed as follows: TOTAL shares held by Group subsidiaries – 8,844,030 shares allocated to TOTAL share grant plans for Group employees; As of June 30, 2015, TOTAL S.A. held indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.19% detailed as follows: – 82,965 shares intended to be allocated to new TOTAL share purchase option plans or to new share grant plans. – 2,023,672 shares held by a consolidated subsidiary, Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; and 24 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 – 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval), 100% indirectly controlled by TOTAL S.A. A second interim dividend for the fiscal year 2015 of €0.61 per share, decided by the Board of Directors on July 28, 2015, would be paid on January 14, 2016 (the ex-dividend date will be December 21, 2015). These shares are deducted from the consolidated shareholders’ equity. Issuance of perpetual subordinated notes Dividend The Shareholders’ Meeting on May 29, 2015 approved the payment of a dividend of €2.44 per share for the 2014 fiscal year. Taking into account the three quarterly dividends of €0.61 per share that have already been paid on September 26 2014, December 17, 2014 and March 25, 2015, the remaining balance of €0.61 per share was paid on July 1, 2015. The Shareholders’ Meeting on May 29, 2015, approved the option for shareholders to receive the fourth quarter dividend in shares or in cash. The number of shares issued in lieu of the cash dividend will be based on the dividend amount divided by €42.02 per share, equal to 90% of the average Euronext Paris opening price of the shares for the 20 Trading days preceding the shareholders meeting reduced by the amount of the dividend remainder. On July 1, 2015, 18,609,466 shares have been issued at a price of €42.02 per share. Another resolution has been approved at the Shareholders’ Meeting on May 29, 2015, being that if one or more interim dividends are decided by the Board of Directors for the fiscal year 2015, then shareholders have the option to receive this or these interim dividends in shares or in cash. The Group issued notes through TOTAL S.A., during the first six months of 2015: – Deeply subordinated note 2.250% perpetual maturity callable after 6 years (2,500 million EUR); – Deeply subordinated note 2.625% perpetual maturity callable after 10 years (2,500 million EUR); Based on their characteristics and in compliance with the IAS 32 standard, these notes were recorded in equity. Earnings per share Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro / USD exchange rate for the period, amounted to 1.17 € per share for the 2nd quarter 2015 (1.03 € per share for the 1st quarter 2015 and 1.00 € per share for the 2nd quarter 2014). Diluted earnings per share calculated using the same method amounted to 1.17 € per share for the 2nd quarter 2015 (1.03 € per share for the 1st quarter 2015 and 0.99 € per share for the 2nd quarter 2014). A first interim dividend for the fiscal year 2015 of €0.61 per share, decided by the Board of Directors on April 27, 2015 would be paid on October 21, 2015 (the ex-dividend date will be September 28, 2015). Earnings per share includes the effects of the remuneration of perpetual subordinated notes. Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of dollars) 1st half 2015 1st half 2014 Actuarial gains and losses 153 (615) Tax effect (117) 211 Currency translation adjustment generated by the parent company (5,229) (729) Items not potentially reclassifiable to profit and loss (5,193) (1,133) Currency translation adjustment 2,588 548 – unrealized gain / (loss) of the period 3,044 549 – less gain / (loss) included in net income 456 1 Available for sale financial assets (4) (3) – unrealized gain / (loss) of the period 2 (12) – less gain / (loss) included in net income 6 (9) Cash flow hedge (94) 65 – unrealized gain / (loss) of the period (314) (17) – less gain / (loss) included in net income (220) (82) Share of other comprehensive income of equity affiliates, net amount 841 (20) Other 1 (7) – unrealized gain / (loss) of the period 1 (7) – less gain / (loss) included in net income - - Tax effect 29 (18) Items potentially reclassifiable to profit and loss 3,361 565 Total other comprehensive income, net amount (1,832) (568) Financial Report - 1st half 2015. TOTAL 25 2 26 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 Tax effects relating to each component of other comprehensive income are as follows: (in millions of dollars) 1st half 2015 1st half 2014 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 153 (117) 36 (615) 211 (404) Currency translation adjustment generated by the parent company (5,229) - (5,229) (729) - (729) Items not potentially reclassifiable to profit and loss (5,076) (117) (5,193) (1,344) 211 (1,133) Currency translation adjustment 2,588 - 2,588 548 - 548 Available for sale financial assets (4) - (4) (3) 3 - Cash flow hedge (94) 29 (65) 65 (21) 44 Share of other comprehensive income of equity affiliates, net amount 841 - 841 (20) - (20) Other 1 - 1 (7) - (7) Items potentially reclassifiable to profit and loss 3,332 29 3,361 583 (18) 565 Total other comprehensive income (1,744) (88) (1,832) (761) 193 (568) 5) Financial debt The Group issued bonds through its subsidiary Total Capital International, during the first six months of 2015: – Bond 0.500% 2015-2027 (200 million CHF) – Bond 2.250% 2015-2022 (250 million GBP) The Group reimbursed bonds during the first six months of 2015: – Bond 6.000% 2009-2015 (150 million AUD) – Bond 6.000% 2010-2015 (100 million AUD) – Bond 2.875% 2010-2015 (250 million USD) – Bond 6.000% 2010-2015 (100 million AUD) – Bond 6.000% 2010-2015 (100 million AUD) – Bond 3.625% 2009-2015 (550 million EUR) – Bond 3.000% 2010-2015 (1,250 million USD) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2015. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Antitrust investigations The principal antitrust proceedings in which the Group’s companies are involved are described below. Refining & Chemicals segment As part of the spin-off of Arkema (1) in 2006, TOTAL S.A. and certain other Group companies agreed to grant Arkema for a period of ten years a guarantee for potential monetary consequences related to antitrust proceedings arising from events prior to the spin-off. As of December 31, 2013, all public and civil proceedings covered by the guarantee were definitively resolved in Europe and in the United States. Despite the fact that Arkema has implemented since 2001 (1) Arkema is used in this section to designate those companies of the Arkema group whose ultimate parent company is Arkema S.A. Arkema became an independent company after being spun-off from TOTAL S.A. in May 2006. TOTAL. Financial Report - 1st half 2015 compliance procedures that are designed to prevent its employees from violating antitrust provisions, it is not possible to exclude the possibility that the relevant authorities could commence additional proceedings involving Arkema regarding events prior to the spin-off. Marketing & Services segment – Following the appeal lodged by the Group’s companies against the European Commission’s 2008 decision fining Total Marketing & Services an amount of €128.2 million in relation to practices regarding a product line of the Marketing & Services segment, which the company had already paid, and concerning which TOTAL S.A. was declared jointly liable as the parent company, the relevant European court decided during the third quarter of 2013 to reduce the fine imposed on Total Marketing & Services to €125.5 million without modifying the liability of TOTAL S.A. as parent company. Appeals have been lodged against this judgment. – In the Netherlands, a civil proceeding was initiated against TOTAL S.A., Total Marketing & Services and other companies by third parties alleging damages in connection with practices already sanctioned by the European Commission. At this stage, it appears this matter should not have material financial consequences for the concerned Group companies. – Finally, in Italy, in 2013, a civil proceeding was initiated against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This procedure follows practices that had been sanctioned by the Italian competition authority in 2006. The parties have exchanged preliminary deeds; the existence and the assessment of the alleged damages in this procedure involving multiple defendants remain strongly contested. Whatever the evolution of the proceedings described above, the Group believes that their outcome should not have a material adverse effect on the Group’s financial situation or consolidated results. Grande Paroisse An explosion occurred at the Grande Paroisse industrial site in the city of Toulouse in France on September 21, 2001. Grande Paroisse, a former subsidiary of Atofina which became a subsidiary of Elf Aquitaine Fertilisants on December 31, 2004, as part of the reorganization of the Chemicals Segment, was principally engaged in the production and sale of agricultural fertilizers. The explosion, which involved a stockpile of ammonium nitrate pellets, destroyed a portion of the site and caused the death of thirty-one people, including twenty-one workers at the site, and injured many others. The explosion also caused significant damage to certain property in part of the city of Toulouse. This plant has been closed and individual assistance packages have been provided for employees. The site has been rehabilitated. On December 14, 2006, Grande Paroisse signed, under the supervision of the city of Toulouse, a deed whereby it donated the former site of the AZF plant to the greater agglomeration of Toulouse (CAGT) and the Caisse des dépôts et consignations and its subsidiary ICADE. Under this deed, TOTAL S.A. guaranteed the site remediation obligations of Grande Paroisse and granted a €10 million endowment to the InNaBioSanté research foundation Notes to the Consolidated Financial Statements for the first six months of 2015 2 Consolidated Financial Statements as part of the setting up of a cancer research center at the site by the city of Toulouse. After having articulated several hypotheses, the Court-appointed experts did not maintain in their final report filed on May 11, 2006, that the accident was caused by pouring a large quantity of a chlorine compound over ammonium nitrate. Instead, the experts have retained a scenario where a container of chlorine compound sweepings was poured between a layer of wet ammonium nitrate covering the floor and a quantity of dry agricultural nitrate at a location not far from the principal storage site. This is claimed to have caused an explosion which then spread into the main storage site. Grande Paroisse was investigated based on this new hypothesis in 2006; Grande Paroisse is contesting this explanation, which it believes to be based on elements that are not factually accurate. On July 9, 2007, the investigating magistrate brought charges against Grande Paroisse and the former Plant Manager before the Toulouse Criminal Court. In late 2008, TOTAL S.A. and Mr. Thierry Desmarest, Chairman and CEO at the time of the event, were summoned to appear in Court pursuant to a request by a victims association. On November 19, 2009, the Toulouse Criminal Court acquitted both the former Plant Manager, and Grande Paroisse due to the lack of reliable evidence for the explosion. The Court also ruled that the summonses against TOTAL S.A. and Mr. Thierry Desmarest were inadmissible. Due to the presumption of civil liability that applied to Grande Paroisse, the Court declared Grande Paroisse civilly liable for the damages caused by the explosion to the victims in its capacity as custodian and operator of the plant. The Prosecutor’s office, together with certain third parties, appealed the Toulouse Criminal Court verdict. In order to preserve its rights, Grande Paroisse lodged a cross-appeal with respect to civil charges. By its decision of September 24, 2012, the Court of Appeal of Toulouse (Cour d’appel de Toulouse) upheld the lower court verdict pursuant to which the summonses against TOTAL S.A. and Mr. Thierry Desmarest were determined to be inadmissible. This element of the decision has been appealed by certain third parties before the French Supreme Court (Cour de cassation). The Court of Appeal considered, however, that the explosion was the result of the chemical accident described by the court- appointed experts. Accordingly, it convicted the former Plant Manager and Grande Paroisse. This element of the decision has been appealed by the former Plant Manager and Grande Paroisse before the French Supreme Court (Cour de cassation), which has the effect of suspending their criminal sentences. On January 13, 2015, the French Supreme Court (Cour de cassation) fully quashed the decision of September 24, 2012. The impugned decision is set aside and the parties find themselves in the position they were in before the decision was rendered. The case is referred back to the Court of Appeal of Paris for a new criminal trial. The trial date has not yet been set. A compensation mechanism for victims was set up immediately following the explosion. €2.3 billion was paid for the compensation of claims and related expenses amounts. A €8.3 million reserve remains booked in the Group’s Consolidated Financial Statements as of June 30, 2015. Financial Report - 1st half 2015. TOTAL 27 2 28 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 Blue Rapid and the Russian Olympic Committee – Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. Blue Rapid and the Russian Olympic Committee appealed this decision. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract having lapsed. Blue Rapid and the Russian Olympic Committee appealed this decision to the French Supreme Court. In connection with the same facts, and fifteen years after the aforementioned exploration and production contract was rendered null and void (“caduc”), a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation that were not even parties to the contract, launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of $22.4 billion. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as a matter of law and fact. The Group has lodged a criminal complaint to denounce the fraudulent claim of which the Group believes it is a victim and, has taken and reserved its rights to take other actions and measures to defend its interests. Iran In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerned an agreement concluded by the Company with consultants concerning gas fields in Iran and aimed at verifying whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. In late May 2013, and after several years of discussions, TOTAL reached settlements with the U.S. authorities (a Deferred Prosecution Agreement with the DoJ and a Cease and Desist Order with the SEC). These settlements, which put an end to these investigations, were concluded without admission of guilt and in exchange for TOTAL respecting a number of obligations, including the payment of a fine ($245.2 million) and civil compensation ($153 million) that occurred during the second quarter of 2013. The reserve of $398.2 million that was booked in the financial statements as of June 30, 2012, has been fully released. By virtue of these settlements, TOTAL also accepted the appointment of a French independent compliance monitor to review the Group’s compliance program and to recommend possible improvements. For more information, refer to the Registration Document for 2014, point 1.10.2. of chapter 5 (Prevention of corruption risks) and point 3.7. (Fair operating practices). TOTAL. Financial Report - 1st half 2015 With respect to the same facts, TOTAL and its late Chairman and Chief Executive Officer, who was President of the Middle East division at the time of the facts, were placed under formal investigation in France following a judicial inquiry initiated in 2006. In late May 2013, the Prosecutor’s office recommended that the case be sent to trial. This position was reiterated by the Prosecutor’s office in June 2014. By order notified in October 2014, the investigating magistrate decided to refer the case to trial. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences for its future planned operations. Oil-for-Food Program Several countries have launched investigations concerning possible violations related to the United Nations (UN) Oil-for-Food Program in Iraq. Pursuant to a French criminal investigation, certain current or former Group employees were placed under formal criminal investigation for possible charges as accessories to the misappropriation of Corporate assets and as accessories to the corruption of foreign public agents. In 2007, the criminal investigation was closed and the case was transferred to the Prosecutor’s office. In 2009, the Prosecutor’s office recommended to the investigating magistrate that the case against the Group’s current and former employees and TOTAL’s late Chairman and Chief Executive Officer, formerly President of the Group’s Exploration & Production division, not be pursued. In early 2010, despite the recommendation of the Prosecutor’s office, a new investigating magistrate, having taken over the case, decided to indict TOTAL S.A. on bribery charges as well as complicity and influence peddling. The indictment was brought eight years after the beginning of the investigation without any new evidence being introduced. In October 2010, the Prosecutor’s office recommended to the investigating magistrate that the case against TOTAL S.A., the Group’s former employees and TOTAL’s late Chairman and Chief Executive Officer not be pursued. However, by ordinance notified in early August 2011, the investigating magistrate on the matter decided to send the case to trial. On July 8, 2013, TOTAL S.A., the Group’s former employees and TOTAL’s late Chairman and Chief Executive Officer were cleared of all charges by the Criminal Court, which found that none of the offenses for which they had been prosecuted were established. On July 18, 2013, the Prosecutor’s office appealed the parts of the Criminal Court’s decision acquitting TOTAL S.A. and certain of the Group’s former employees. TOTAL’s late Chairman and Chief Executive Officer’s acquittal issued on July 8, 2013 was irrevocable since the Prosecutor’s office did not appeal this part of the Criminal Court’s decision. The appeal hearing is expected to start in October 2015. Italy As part of an investigation led by the Prosecutor of the Republic of the Potenza Court, Total Italia and certain Group employees were the subjects of an investigation related to certain calls for tenders that Total Italia made for the preparation and development of an oil field. The criminal investigation was closed in the first half of 2010. In May 2012, the Judge of the preliminary hearing decided to dismiss the charges against some of the Group’s employees and to refer the case for trial for a reduced number of charges. The trial started in September 2012. Rivunion On July 9, 2012, the Swiss Tribunal Fédéral (Switzerland’s Supreme Court) rendered a decision against Rivunion, a wholly-owned subsidiary of Elf Aquitaine, confirming a tax reassessment in the amount of CHF 171 million (excluding interest for late payment). According to the Tribunal, Rivunion was held liable as tax collector for withholding taxes owed by the beneficiaries of taxable services. Rivunion, in liquidation since March 13, 2002 and unable to recover the amounts corresponding to the withholding taxes in order to meet its fiscal obligations, has been subject to insolvency proceedings since November 1, 2012. On August 29, 2013, the Swiss federal tax administration lodged a claim as part of the insolvency proceedings of Rivunion, for an amount of CHF 284 million, including CHF 171 million of principal as well as interest for late payment. Rivunion’s insolvency proceedings was terminated on December 4, 2014 and the company was removed from the Geneva commercial register on December 11, 2014. Kashagan In Kazakhstan, the start-up of production of the Kashagan field, in which TOTAL holds an interest of 16.81%, occurred in September 2013 and was stopped following a gas leak from the export pipeline. After the identification of a significant number of anomalies in the oil and gas export lines, it was decided to replace both pipelines. The remedial work is being conducted according to best international oil and gas field practices and strict HSE requirements in order to address, mitigate and remedy all problems prior to the restart of production. On December 13, 2014, the Republic of Kazakhstan and the co-venturers of the consortium concluded an agreement and settled the disputes raised over the last several years concerning a number of operational, financial and environmental matters. Russia Since July 2014, members of the international community have adopted economic sanctions against certain Russian persons and entities, including various entities operating in the financial, energy and defense sectors, in response to the situation in Ukraine. Among other things, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has adopted economic sanctions targeting OAO Novatek, a Russian company listed on the Moscow Interbank Currency Exchange and the London Stock Exchange in which the Group held an 18.64% interest as of June 30, 2015 through its subsidiary Total E&P Holdings Russia, and entities in which OAO Novatek (individually or with other similarly targeted persons or entities collectively) owns an interest of at least 50%. The OFAC sanctions applicable to OAO Novatek prohibit U.S. persons from transacting in, providing financing for or otherwise dealing in debt issued after July 16, 2014 of greater than 90 days maturity, including OAO Yamal LNG, which is jointly-owned by OAO Novatek (60%), Total E&P Yamal (20%) and CNODC (20%), Notes to the Consolidated Financial Statements for the first six months of 2015 2 Consolidated Financial Statements a subsidiary of CNPC. Consequently, the use of the U.S. dollar for such financing is effectively prohibited. In order to comply with these sanctions, the financing plan for the Yamal LNG project is being reviewed, and the project’s partners are engaged in efforts to develop a financing plan in compliance with the applicable regulations. TOTAL continues to closely monitor the different international economic sanctions with respect to its activities in Russia. Within this framework, the Group filed the requests for prior authorizations required by EU restrictive measures concerning technical assistance, brokering services, financing and financial assistance related to certain technologies. The Treasury Department of the French Ministry of Finance, the competent authority on the subject, issued authorizations especially for the projects of Yamal LNG, Kharyaga and Termokarstovoye. The United States has also imposed export controls and restrictions relating to the export of certain goods, services, and technologies destined for projects located in Russia in the field of oil exploration, which, to date, do not affect TOTAL’s activities in Russia. In July 2015, TOTAL signed an agreement to transfer the exploration licenses it held in the Bazhenov play located in Western Siberia (tight oil) to OAO Lukoil. This agreement also sets out the conditions under which TOTAL and OAO Lukoil could potentially resume their joint activities in Russia. Djibouti Following the confirmation of their conviction by a final judgment of the facts regarding pollution that occurred in the port of Djibouti in 1997, Total Djibouti S.A. and Total Marketing Djibouti S.A. each received in September 2014 an order to pay €53.8 million to the Republic of Djibouti. The amounts were contested by the two companies which, unable to deal with the liability, in accordance with local law, filed declarations of insolvency with the court on October 7, 2014. With respect to Total Djibouti S.A., the insolvency proceeding comprised a recovery plan. Following a judgment delivered on November 18, 2014, the recovery plan proposed by Total Djibouti S.A. was rejected and the two companies were put into liquidation. Total Djibouti S.A., a subsidiary indirectly 100% owned of TOTAL S.A., fully holds the capital of Total Marketing Djibouti S.A. Yemen Due to further degradation of the safety conditions in the vicinity of Balhaf, the company Yemen LNG, in which the Group holds a stake of 39.62%, has decided to stop all LNG producing and exporting operations. The plant will remain in a preservation mode and no expatriate personnel remain on site. As a consequence of the current situation, Yemen LNG has declared Force Majeure to its various stakeholders. Financial Report - 1st half 2015. TOTAL 29 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 8) Information by business segment 1st half 2015 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales 9,723 37,257 40,039 9 - 87,028 Intersegment sales 9,305 14,350 495 108 (24,258) - Excise taxes - (1,940) (8,856) - - (10,796) Revenues from sales 19,028 49,667 31,678 117 (24,258) 76,232 Operating expenses (11,418) (45,899) (30,371) (419) 24,258 (63,849) Depreciation, depletion and amortization of tangible assets and mineral interests (5,770) (543) (376) (14) - (6,703) Operating income 1,840 3,225 931 (316) - 5,680 Equity in net income (loss) of affiliates and other items 1,088 869 423 468 - 2,848 Tax on net operating income (1,277) (879) (324) (175) - (2,655) Net operating income 1,651 3,215 1,030 (23) - 5,873 Net cost of net debt - - - - - (352) Non-controlling interests - - - - - 113 Net income - - - - - 5,634 1st half 2015 (adjustments)(a) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales (304) - - - - (304) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (304) - - - - (304) Operating expenses (142) 317 44 - - 219 Depreciation, depletion and amortization of tangible assets and mineral interests (1,240) (31) (23) - - (1,294) Operating income (b) (1,686) 286 21 - - (1,379) Equity in net income (loss) of affiliates and other items (55) 590 285 - - 820 Tax on net operating income 473 (110) (22) - - 341 Net operating income (b) (1,268) 766 284 - - (218) Net cost of net debt - - - - - - Non-controlling interests - - - - - 165 Net income - - - - - (53) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing Corporate Chemicals & services – On operating income - 434 44 - – On net operating income - 288 38 - 30 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 1st half 2015 (adjusted) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars)(a) Chemicals & Services Non-Group sales 10,027 37,257 40,039 9 - 87,332 Intersegment sales 9,305 14,350 495 108 (24,258) - Excise taxes - (1,940) (8,856) - - (10,796) Revenues from sales 19,332 49,667 31,678 117 (24,258) 76,536 Operating expenses (11,276) (46,216) (30,415) (419) 24,258 (64,068) Depreciation, depletion and amortization of tangible assets and mineral interests (4,530) (512) (353) (14) - (5,409) Adjusted operating income 3,526 2,939 910 (316) - 7,059 Equity in net income (loss) of affiliates and other items 1,143 279 138 468 - 2,028 Tax on net operating income (1,750) (769) (302) (175) - (2,996) Adjusted net operating income 2,919 2,449 746 (23) - 6,091 Net cost of net debt - - - - - (352) Non-controlling interests - - - - - (52) Adjusted net income - - - - - 5,687 Adjusted fully-diluted earnings per share ($) - - - - - 2.47 (a) Except for earnings per share. 1st half 2015 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Total expenditures 13,804 899 651 45 - 15,399 Total divestments 1,541 2,640 679 17 - 4,877 Cash flow from operating activities 6,238 2,014 1,023 (156) - 9,119 Financial Report - 1st half 2015. TOTAL 31 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 1st half 2014 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales 12,871 55,682 54,683 12 - 123,248 Intersegment sales 15,493 23,696 810 95 (40,094) - Excise taxes - (2,441) (9,745) - - (12,186) Revenues from sales 28,364 76,937 45,748 107 (40,094) 111,062 Operating expenses (13,688) (75,536) (44,655) (431) 40,094 (94,216) Depreciation, depletion and amortization of tangible assets and mineral interests (4,490) (786) (380) (18) - (5,674) Operating income 10,186 615 713 (342) - 11,172 Equity in net income (loss) of affiliates and other items 2,046 119 90 53 - 2,308 Tax on net operating income (5,963) (108) (208) (292) - (6,571) Net operating income 6,269 626 595 (581) - 6,909 Net cost of net debt - - - - - (345) Non-controlling interests - - - - - (125) Net income - - - - - 6,439 1st half 2014 (adjustments)(a) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales (10) - - - - (10) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (10) - - - - (10) Operating expenses (115) (41) (45) - - (201) Depreciation, depletion and amortization of tangible assets and mineral interests - (40) - - - (40) Operating income (b) (125) (81) (45) - - (251) Equity in net income (loss) of affiliates and other items 280 (40) (7) - - 233 Tax on net operating income (29) - 14 - - (15) Net operating income (b) 126 (121) (38) - - (33) Net cost of net debt - - - - - - Non-controlling interests - - - - - (6) Net income - - - - - (39) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing Corporate Chemicals & services – On operating income - (41) (23) - – On net operating income - (34) (17) - 32 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 1st half 2014 (adjusted) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars)(a) Chemicals & Services Non-Group sales 12,881 55,682 54,683 12 - 123,258 Intersegment sales 15,493 23,696 810 95 (40,094) - Excise taxes - (2,441) (9,745) - - (12,186) Revenues from sales 28,374 76,937 45,748 107 (40,094) 111,072 Operating expenses (13,573) (75,495) (44,610) (431) 40,094 (94,015) Depreciation, depletion and amortization of tangible assets and mineral interests (4,490) (746) (380) (18) - (5,634) Adjusted operating income 10,311 696 758 (342) - 11,423 Equity in net income (loss) of affiliates and other items 1,766 159 97 53 - 2,075 Tax on net operating income (5,934) (108) (222) (292) - (6,556) Adjusted net operating income 6,143 747 633 (581) - 6,942 Net cost of net debt - - - - - (345) Non-controlling interests - - - - - (119) Adjusted net income - - - - - 6,478 Adjusted fully-diluted earnings per share ($) - - - - - 2.84 (a) Except for earnings per share. 1st half 2014 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Total expenditures 13,310 725 479 74 - 14,588 Total divestments 2,367 26 54 24 - 2,471 Cash flow from operating activities 8,616 1,460 393 146 - 10,615 Financial Report - 1st half 2015. TOTAL 33 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 2nd quarter 2015 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales 4,498 19,793 20,419 5 - 44,715 Intersegment sales 4,921 7,383 223 56 (12,583) - Excise taxes - (1,007) (4,439) - - (5,446) Revenues from sales 9,419 26,169 16,203 61 (12,583) 39,269 Operating expenses (5,449) (24,182) (15,508) (180) 12,583 (32,736) Depreciation, depletion and amortization of tangible assets and mineral interests (2,329) (291) (202) (9) - (2,831) Operating income 1,641 1,696 493 (128) - 3,702 Equity in net income (loss) of affiliates and other items 319 107 503 174 - 1,103 Tax on net operating income (909) (433) (193) (93) - (1,628) Net operating income 1,051 1,370 803 (47) - 3,177 Net cost of net debt - - - - - (164) Non-controlling interests - - - - - (42) Net income - - - - - 2,971 2nd quarter 2015 (adjustments)(a) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales (158) - - - - (158) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (158) - - - - (158) Operating expenses (2) 123 51 - - 172 Depreciation, depletion and amortization of tangible assets and mineral interests (194) (31) (23) - - (248) Operating income (b) (354) 92 28 - - (234) Equity in net income (loss) of affiliates and other items (191) (71) 374 - - 112 Tax on net operating income 36 - (24) - - 12 Net operating income (b) (509) 21 378 - - (110) Net cost of net debt - - - - - - Non-controlling interests - - - - - (4) Net income - - - - - (114) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing Corporate Chemicals & services – On operating income - 199 51 - – On net operating income - 138 43 - 34 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 2nd quarter 2015 (adjusted) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars)(a) Chemicals & Services Non-Group sales 4,656 19,793 20,419 5 - 44,873 Intersegment sales 4,921 7,383 223 56 (12,583) - Excise taxes - (1,007) (4,439) - - (5,446) Revenues from sales 9,577 26,169 16,203 61 (12,583) 39,427 Operating expenses (5,447) (24,305) (15,559) (180) 12,583 (32,908) Depreciation, depletion and amortization of tangible assets and mineral interests (2,135) (260) (179) (9) - (2,583) Adjusted operating income 1,995 1,604 465 (128) - 3,936 Equity in net income (loss) of affiliates and other items 510 178 129 174 - 991 Tax on net operating income (945) (433) (169) (93) - (1,640) Adjusted net operating income 1,560 1,349 425 (47) - 3,287 Net cost of net debt - - - - - (164) Non-controlling interests - - - - - (38) Adjusted net income - - - - - 3,085 Adjusted fully-diluted earnings per share ($) - - - - - 1.34 (a) Except for earnings per share. 2nd quarter 2015 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Total expenditures 5,653 465 436 36 - 6,590 Total divestments 379 874 627 13 - 1,893 Cash flow from operating activities 2,713 1,700 379 (60) - 4,732 Financial Report - 1st half 2015. TOTAL 35 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 2nd quarter 2014 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales 6,205 28,143 28,213 - - 62,561 Intersegment sales 8,057 11,740 402 46 (20,245) - Excise taxes - (1,281) (5,073) - - (6,354) Revenues from sales 14,262 38,602 23,542 46 (20,245) 56,207 Operating expenses (7,174) (37,744) (22,966) (262) 20,245 (47,901) Depreciation, depletion and amortization of tangible assets and mineral interests (2,314) (408) (198) (9) - (2,929) Operating income 4,774 450 378 (225) - 5,377 Equity in net income (loss) of affiliates and other items 719 65 98 7 - 889 Tax on net operating income (2,471) (114) (128) (218) - (2,931) Net operating income 3,022 401 348 (436) - 3,335 Net cost of net debt - - - - - (206) Non-controlling interests - - - - - (25) Net income - - - - - 3,104 2nd quarter 2014 (adjustments)(a) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Non-Group sales (36) - - - - (36) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (36) - - - - (36) Operating expenses - 122 (27) - - 95 Depreciation, depletion and amortization of tangible assets and mineral interests - (40) - - - (40) Operating income (b) (36) 82 (27) - - 19 Equity in net income (loss) of affiliates and other items - (32) (7) - - (39) Tax on net operating income 7 (50) 10 - - (33) Net operating income (b) (29) - (24) - - (53) Net cost of net debt - - - - - - Non-controlling interests - - - - - 6 Net income - - - - - (47) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing Corporate Chemicals & services – On operating income - 122 (5) - – On net operating income - 77 (3) - 36 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 2nd quarter 2014 (adjusted) Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars)(a) Chemicals & Services Non-Group sales 6,241 28,143 28,213 - - 62,597 Intersegment sales 8,057 11,740 402 46 (20,245) - Excise taxes - (1,281) (5,073) - - (6,354) Revenues from sales 14,298 38,602 23,542 46 (20,245) 56,243 Operating expenses (7,174) (37,866) (22,939) (262) 20,245 (47,996) Depreciation, depletion and amortization of tangible assets and mineral interests (2,314) (368) (198) (9) - (2,889) Adjusted operating income 4,810 368 405 (225) - 5,358 Equity in net income (loss) of affiliates and other items 719 97 105 7 - 928 Tax on net operating income (2,478) (64) (138) (218) - (2,898) Adjusted net operating income 3,051 401 372 (436) - 3,388 Net cost of net debt - - - - - (206) Non-controlling interests - - - - - (31) Adjusted net income - - - - - 3,151 Adjusted fully-diluted earnings per share ($) - - - - - 1.38 (a) Except for earnings per share. 2nd quarter 2014 Upstream Refining & Marketing Corporate Intercompany Total (in millions of dollars) Chemicals & Services Total expenditures 7,999 475 203 46 - 8,723 Total divestments 568 15 28 20 - 631 Cash flow from operating activities 4,805 (133) 304 301 - 5,277 Financial Report - 1st half 2015. TOTAL 37 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 9) Reconciliation of the information by business segment with Consolidated Financial Statements Adjusted Adjustments(a) Consolidated 1st half 2015 Statement (in millions of dollars) of income Sales 87,332 (304) 87,028 Excise taxes (10,796) - (10,796) Revenues from sales 76,536 (304) 76,232 Purchases net of inventory variation (51,035) 478 (50,557) Other operating expenses (12,131) (172) (12,303) Exploration costs (902) (87) (989) Depreciation, depletion and amortization of tangible assets and mineral interests (5,409) (1,294) (6,703) Other income 884 1,459 2,343 Other expense (235) (603) (838) Financial interest on debt (493) - (493) Financial income from marketable securities & cash equivalents 59 - 59 Cost of net debt (434) - (434) Other financial income 397 - 397 Other financial expense (329) - (329) Equity in net income (loss) of affiliates 1,311 (36) 1,275 Income taxes (2,914) 341 (2,573) Consolidated net income 5,739 (218) 5,521 Group share 5,687 (53) 5,634 Non-controlling interests 52 (165) (113) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 1st half 2014 statement (in millions of dollars) of income Sales 123,258 (10) 123,248 Excise taxes (12,186) - (12,186) Revenues from sales 111,072 (10) 111,062 Purchases net of inventory variation (78,639) (64) (78,703) Other operating expenses (14,456) (137) (14,593) Exploration costs (920) - (920) Depreciation, depletion and amortization of tangible assets and mineral interests (5,634) (40) (5,674) Other income 548 648 1,196 Other expense (263) (49) (312) Financial interest on debt (467) - (467) Financial income from marketable securities & cash equivalents 50 - 50 Cost of net debt (417) - (417) Other financial income 426 - 426 Other financial expense (349) - (349) Equity in net income (loss) of affiliates 1,713 (366) 1,347 Income taxes (6,484) (15) (6,499) Consolidated net income 6,597 (33) 6,564 Group share 6,478 (39) 6,439 Non-controlling interests 119 6 125 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 38 TOTAL. Financial Report - 1st half 2015 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2015 Adjusted Adjustments(a) Consolidated 2nd quarter 2015 statement (in millions of dollars) of income Sales 44,873 (158) 44,715 Excise taxes (5,446) - (5,446) Revenues from sales 39,427 (158) 39,269 Purchases net of inventory variation (26,603) 250 (26,353) Other operating expenses (5,955) (76) (6,031) Exploration costs (350) (2) (352) Depreciation, depletion and amortization of tangible assets and mineral interests (2,583) (248) (2,831) Other income 358 364 722 Other expense (136) (260) (396) Financial interest on debt (231) - (231) Financial income from marketable securities & cash equivalents 28 - 28 Cost of net debt (203) - (203) Other financial income 255 - 255 Other financial expense (163) - (163) Equity in net income (loss) of affiliates 677 8 685 Income taxes (1,601) 12 (1,589) Consolidated net income 3,123 (110) 3,013 Group share 3,085 (114) 2,971 Non-controlling interests 38 4 42 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments(a) Consolidated 2nd quarter 2014 statement (in millions of dollars) of income Sales 62,597 (36) 62,561 Excise taxes (6,354) - (6,354) Revenues from sales 56,243 (36) 56,207 Purchases net of inventory variation (40,488) 117 (40,371) Other operating expenses (7,207) (22) (7,229) Exploration costs (301) - (301) Depreciation, depletion and amortization of tangible assets and mineral interests (2,889) (40) (2,929) Other income 96 - 96 Other expense (133) (30) (163) Financial interest on debt (266) - (266) Financial income from marketable securities & cash equivalents 31 - 31 Cost of net debt (235) - (235) Other financial income 265 - 265 Other financial expense (183) - (183) Equity in net income (loss) of affiliates 883 (9) 874 Income taxes (2,869) (33) (2,902) Consolidated net income 3,182 (53) 3,129 Group share 3,151 (47) 3,104 Non-controlling interests 31 (6) 25 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial Report - 1st half 2015. TOTAL 39 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2015 10) Changes in progress in the Group structure Upstream – TOTAL announced in November 2012 an agreement for the sale in Nigeria of its 20% interest in Block OML 138 to a subsidiary of China Petrochemical Corporation (Sinopec). On July 17, 2014, Sinopec informed the Group of its decision to not complete the transaction. The Group is actively pursuing its divestment process. At June 30, 2015 the assets and liabilities remain respectively classified in the consolidated balance sheet in “assets classified as held for sale” for an amount of $2,477 million and “liabilities directly associated with the assets classified as held for sale” for an amount of $1,083 million. The assets concerned mainly include tangible assets for an amount of $2,238 million. – TOTAL has signed in July 2014 an agreement with Exxaro Resources Ltd for the sale of its 100% stake in Total Coal South Africa, its coal-producing affiliate in South Africa. Completion of the sale is subject to approval by the relevant authorities. At June 30, 2015 the assets and liabilities remain respectively classified in the consolidated balance sheet in “assets classified as held for sale” for an amount of $277 million and “liabilities directly associated with the assets classified as held for sale” for an amount of $56 million. The assets concerned mainly include tangible assets for an amount of $209 million. 11) Post-closing and other events – In July 2015 new negotiations with Exxaro Resources Ltd took place in relation with the sale of TOTAL’s 100% stake in Total Coal South Africa. The accounting impacts of these new negotiations have been taken into account in the Group’s Consolidated Financial Statements at June 30, 2015. – On July 28, 2015, TOTAL signed an agreement to sell 20% of its interests in the Laggan, Tormore, Edradour and Glenlivet fields located in the West of Shetland area to SSE E&P Ltd. 40 TOTAL. Financial Report - 1st half 2015 Cover photography: © Patrick Sordoillet Design and Production: Agence Marc Praquin see you on total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 6,035,891,002.50 euros 542 051 180 RCS Nanterre total.com Switchboard: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2015, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,016 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| FIRST HALF 2016 financial report Contents 1. Financial Report – 1st half 2016 1. Key figures.......................................1 2. Highlights since the beginning of 2016............................................2 3. Analysis of business segments ........2 3.1. Upstream ............................................................................2 3.2. Refining & Chemicals.........................................................3 3.3. Marketing & Services .........................................................4 4. Group results ...................................5 4.1. Net operating income from business segments ..............5 4.2. Net income (Group share)..................................................5 4.3. Divestments – Acquisitions ...............................................5 4.4. Net cash flow .....................................................................5 4.5. Return on equity.................................................................5 5. TOTAL S.A., parent company accounts .........................................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment ...................................7 7.2. Adjustment items ...............................................................8 7.3. 2016 sensitivities................................................................8 7.4. Investments – Divestments ...............................................9 7.5. Net-debt-to-equity ratio ....................................................9 7.6. Return on equity.................................................................9 7.7. Return on average capital employed..............................10 8. Principal risks and uncertainties for the remaining six months of 2016 ..........................................11 9. Principal transactions with related parties ........................11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information.....................................13 2. Consolidated statement of income...14 3. Consolidated statement of comprehensive income ..............15 4. Consolidated statement of income...16 5. Consolidated statement of comprehensive income ..............17 6. Consolidated balance sheet...........18 7. Consolidated statement of cash flow .......................................19 8. Consolidated statement of cash flow .......................................20 9. Consolidated statement of changes in shareholders’ equity.....21 10. Notes to the Consolidated Financial Statements for the first six months of 2016............22 1) Accounting policies .........................................................22 2) Changes in the Group structure, main acquisitions and divestments ................................22 3) Adjustment items .............................................................23 4) Shareholders’ equity ........................................................24 5) Financial debt...................................................................26 6) Related parties .................................................................26 7) Other risks and contingent liabilities...............................26 8) Information by business segment...................................28 9) Reconciliation of the information by business segment with Consolidated Financial Statements.........36 10) Changes in progress in the Group structure ..................38 11) Post-closing and other events ........................................38 Financial Report 1st half 2016 This translation is a non-binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements for the first half 2016 have been prepared in accordance with the applicable set of accounting standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole, and that the interim Management Report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the half year financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditor’s report on the limited review of the above mentioned condensed Consolidated Financial Statements is included on page 13 of this half-year financial report.” Courbevoie, July 27, 2016 Patrick Pouyanné Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 28, 2016 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial Report – 1st half 2016. TOTAL i ii Abbreviations b: cf: / d: / y: €: $ and / or dollar: U.S. dollar metric ton t: barrel of oil equivalent boe: thousand boe / d kboe / d: thousand barrels / d kb / d: British thermal unit Btu: million M: billion B: European Refining Margin Indicator (ERMI) used by the Group is an ERMI: indicator intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. – The indicator margin may not be representative of the actual margins achieved by TOTAL in any period because of TOTAL’s particular refinery configurations, product mix effects or other company-specific operating conditions. International Financial Reporting Standards Liquefied Natural Gas Return on equity Return on Average Capital Employed barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: TOTAL. Financial Report – 1st half 2016 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,390 cf. of gas in 2015* 1 b / d = approx. 50 t / y 1 t = approx. 7.5 b (for a gravity of 37° API) 1 Bm3 / y = approx. 0.1 Bcf / d 1 m3 = approx. 35.3 cf 1 t of LNG = approx. 48 kcf of gas 1 Mt / y of LNG = approx. 131 Mcf / d This ratio is calculated based on the actual average equivalent energy content of TOTAL’s natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated entities located in, or outside of, France. The terms “Company” and “issuer” as used in this half-year financial report refer only to TOTAL S.A., the parent company of the Group. © TOTAL S.A. July 2016 Financial Report – 1st half 2016 1 Financial Report – 1st half 2016 1. Key figures (1) 1H16 (in millions of dollars, except effective tax rate, vs earnings per share and number of shares) 1H16 1H15 1H15 Sales 70,056 87,028 -20% Adjusted operating income from business segments (a) 3,749 7,375 -49% Adjusted net operating income from business segments 4,401 6,114 -28% – Upstream 1,625 2,919 -44% – Refining & Chemicals 2,146 2,449 -12% – Marketing & Services 630 746 -16% Contribution of equity affiliates to adjusted net income 1,296 1,311 -1% Group effective tax rate (a)(b) 22.3% 39.1% Adjusted net income 3,810 5,687 -33% Adjusted fully-diluted earnings per share (dollars) 1.58 2.47 -36% Adjusted fully-diluted earnings per share (euros) (c) 1.41 2.21 -36% Fully-diluted weighted-average shares (millions) 2,365 2,289 +3% Net income (Group share) 3,694 5,634 -34% Investments (d) 9,474 15,399 -38% Divestments 1,758 4,877 -64% Net investments (e) 7,713 10,441 -26% Organic investments (f) 8,674 11,217 -23% Operating cash flow before working capital changes (g) 7,708 9,952 -23% Cash flow from operations 4,763 9,119 -48% (a) 1Q15 data as republished in 2Q15 following the reclassification in the statement of income of certain taxes related to the participation in the ADCO concession. Details on adjustment items are shown in the business segments of the financial statements. (b) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). (c) Average €-$ exchange rate: 1.1292 in the second quarter 2016 and 1.1159 in the first half 2016. (d) Including acquisitions and increases in non-current loans. (e) Net investments = investments – divestments – repayment of non-current loans – other operations with non-controlling interests. (f) Organic investments = net investments excluding acquisitions, asset sales, and other operations with non-controlling interests. (g) Operating cash flow before working capital changes, previously referred to as adjusted cash flow from operations, is defined as cash flow from operating activities before changes in working capital at replacement cost. The inventory valuation effect is explained on page 12. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 8. Financial Report – 1st half 2016. TOTAL 1 1 Financial Report – 1st half 2016 Highlights since the beginning of 2016 / Analysis of business segments 2. Highlights since the beginning of 2016 (1) – Started production from Laggan-Tormore in the United Kingdom with production capacity of 90 thousand barrels of oil equivalent per day (kboe / d) – Acquired gas and electricity distributor Lampiris in Belgium – Acquired import terminals and retail network in Kenya, Uganda and Tanzania – Started production from Vega Pleyade in Argentina with – Acquired the main network of service stations in the Dominican production capacity of 70 kboe / d – Loading of first Angola LNG cargo following the plant restart – Signed long-term LNG sale and purchase agreements of around 1.9 million tons per year with Pertamina in Indonesia, ENN in China and Chugoku Electric in Japan – Obtained 30% interest in the giant Al-Shaheen field in Qatar for 25 years starting July 2017 – Finalized the sale of the FUKA gas pipeline network in the North Sea and announced the sale of a 20% interest and transfer of operatorship of the Kharyaga field in Russia to Zarubezhneft – Took control of Saft in the energy storage sector following a Republic and finalized the sale of the retail and distribution activities in Turkey – The new organizational structure includes the following appointments to the Executive Committee: Momar Nguer, President, Marketing & Services as of April 15, 2016; Namita Shah, Executive Vice President, People & Social Responsibility; Bernard Pinatel, President, Refining & Chemicals effective September 1, 2016. Philippe Sauquet becomes President, Gas, Renewables and Power and Executive Vice President, Strategy & Innovation. successful tender offer 3. Analysis of business segments 3.1. Upstream 3.1.1. Environment – liquids and gas price realizations (a) 1H16 vs 1H16 1H15 1H15 Brent ($ / b) 39.8 57.8 -31% Average liquids price ($/b) 36.8 53.8 -32% Average gas price ($/Mbtu) 3.44 5.03 -32% Average hydrocarbon price ($/boe) 29.6 43.6 -32% (a) Consolidated subsidiaries, excluding fixed margins. 3.1.2. Production 1H16 vs Hydrocarbon production 1H16 1H15 1H15 Combined production (kboe/d) 2,452 2,347 +4% Liquids (kb/d) 1,269 1,227 +3% Gas (Mcf/d) 6,453 6,110 +6% In the first half 2016, hydrocarbon production was 2,452 kboe/d, an increase of 4.5% compared to the first half 2015, due to the following: (cid:129) -2% due to the security situation in Nigeria and Yemen, and forest fires in Canada; (cid:129) +2% due to the PSC price effect and performance, net of normal (cid:129) +5% due to new project start ups and ramp ups, notably field decline. Laggan-Tormore, Vega Pleyade, Moho Phase 1b, Gladstone LNG and Termokarstovoye; (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. 2 TOTAL. Financial Report – 1st half 2016 Financial Report – 1st half 2016 1 Analysis of business segments 3.1.3. Results 1H16 vs (in millions of dollars, except effective tax rate) 1H16 1H15 1H15 Adjusted operating income (a) 722 3,526 -80% Effective tax rate (b) 0.8% 47.9% Adjusted net operating income (a) 1,625 2,919 -44% including income from equity affiliates 721 992 -27% Investments 7,776 13,804 -44% Divestments 1,363 1,541 -12% Organic investments 7,408 10,724 -31% Operating cash flow before working capital changes 4,112 5,929 -31% Cash flow from operations 3,096 6,238 -50% (a) 1Q15 data as republished in 2Q15 following the reclassification in the income statement of certain taxes related to the participation in the ADCO concession. Detail of adjustment items is shown in the business segment information annex to financial statements. (b) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). Operating cash flow before working capital changes moved in line with the average hydrocarbon price and captured the benefit from cost reductions and production growth. In the first half 2016, Upstream operating cash flow before working capital changes was 4,112 M$, a decrease of 31% compared to the first half 2015. Upstream adjusted net operating income was 1,625 M$ in the first half 2016, a decrease of 44% compared to the first half 2015, essentially due to the decrease in the average hydrocarbon price, partially offset by the increase in production, decrease in operating costs and lower exploration expenses and taxes. 3.2. Refining & Chemicals 3.2.1. Refinery throughput and utilization rates (a) 1H16 vs 1H16 1H15 1H15 Total refinery throughput (kb/d) 1,951 2,006 -3% – France 639 675 -5% – Rest of Europe 824 835 -1% – Rest of world 488 496 -2% Utlization rates (b) – Based on crude only 84% 85% – Based on crude and other feedstock 87% 88% (a) Includes share of TotalErg, as well as refineries in South Africa and the French Antilles that are reported in the Marketing & Services segment. The condensate splitters at Port Arthur and Daesan are also included and 2015 figures have been restated. (b) Based on distillation capacity at the beginning of the year. Refinery throughput decreased by 3% in the first half 2016 compared to the first half 2015; strong operational performance in the first quarter was offset by outages in the second quarter. 3.2.2. Results 1H16 vs (in millions of dollars, except the ERMI) 1H16 1H15 1H15 European refining margin indicator – ERMI ($/t) 35.1 50.6 -31% Adjusted operating income (a) 2,262 2,939 -23% Adjusted net operating income (a) 2,146 2,449 -12% including Specialty Chemicals (b) 266 251 +6% Investments 739 899 -18% Divestments 52 2,640 -98% Organic investments 689 (15) na Operating cash flow before working capital changes 2,457 2,946 -17% Cash flow from operations 1,139 2,014 -43% (a) Detail of adjustment items shown in the business segment information annex to financial statements. (b) Hutchinson and Atotech, Bostik until February 2015. Financial Report – 1st half 2016. TOTAL 3 1 Financial Report – 1st half 2016 Analysis of business segments The Group’s European refining margin indicator (ERMI) decreased by 31% compared to last year. The petrochemical environment remained favorable, supported by strong polymer demand. Refining & Chemicals adjusted net operating income was 2,146 M$ in the first half 2016, a decrease of 12% compared to the first half 2015, due to lower refining margins and more outages than in 2015. 3.3. Marketing & Services 3.3.1. Petroleum product sales 1H16 vs (sales in kb / d) (a) 1H16 1H15 1H15 Total Marketing & Services sales 1,775 1,818 -2% – Europe 1,068 1,091 -2% – Rest of world 707 727 -3% (a) Excludes Trading and bulk refining sales, includes share of TotalErg. In the first half 2016, refined product sales decreased by 2% compared to the first half 2015, mainly due to the sale of Totalgaz and the retail network in Turkey in 2015, partially offset by increased retail network sales and land-based lubricant sales. 3.3.2. Results 1H16 vs (in millions of dollars) 1H16 1H15 1H15 Sales 32,738 40,039 -18% Adjusted operating income (a) 765 910 -16% Adjusted net operating income (a) 630 746 -16% including New Energies (80) (87) na Investments 729 651 +12% Divestments 333 679 -51% Organic investments 549 467 +18% Operating cash flow before working capital changes 873 949 -8% Cash flow from operations 225 1,023 -78% (a) Detail of adjustment items shown in the business segment information annex to financial statements. Marketing & Services adjusted net operating income was 630 M$ in the first half 2016, a decrease of 16% compared to the first half 2015. The second quarter 2016 results, which increased by 50% compared to the first quarter 2016, reached a level similar to second quarter 2015 despite the asset sales over the past year. 4 TOTAL. Financial Report – 1st half 2016 Financial Report – 1st half 2016 1 Group results 4. Group results 4.1. Net operating income from business segments Adjusted net operating income from the business segments was 4,401 M$ in the first half 2016, a decrease of 28% compared to the first half 2015, mainly due to lower average hydrocarbon prices in the Upstream and lower refining margins. The effective tax rate (1) for the business segments was 21.9% in the first half 2016 compared to 37.4% in the first half 2015, mainly due to the lower effective tax rate in the Upstream. 4.2. Net income (Group share) Adjusted net income was 3,810 M$ in the first half 2016 compared to 5,687 M$ in the first half 2015, a decrease of 33%. the gain on the sale of the FUKA gas pipeline network in the North Sea in the first quarter and the impairment of assets that will not be developed. Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value (2). Total adjustments affecting net income (Group share) (3) were -116 M$ in the first half 2016, including mainly inventory effect, The number of fully-diluted shares was 2,401 million on June 30, 2016, and 2,294 million on June 30, 2015. 4.3. Divestments – Acquisitions Asset sales were 1,357 M$ in the first half 2016, comprised mainly of the sales of the retail network in Turkey and the FUKA gas pipeline network in the North Sea. Acquisitions were 399 M$ in the first half 2016, comprised mainly of the purchase of shares in Saft and the acquisition of the retail network in the Dominican Republic. 4.4. Net cash flow The Group’s net cash flow (4) was -5 M$ in the first half 2016 compared to -489 M$ in the first half 2015, despite the decrease in Brent price from 58 $/b to 40 $/b; operating cash flow before changes in working capital was 7.7 B$, around the same level as net investments, compared to 10.0 B$ and 10.4 B$ respectively in the first half 2015. 4.5. Return on equity Return on equity from July 1, 2015 to June 30, 2016 was 8.9% (5). (1) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments + tax on adjusted net operating income). (2) Details shown on page 12. (3) Details shown on page 8. (4) Net cash flow = operating cash flow before working capital changes – net investments (including other transactions with non-controlling interests). (5) Details shown on page 9. Financial Report – 1st half 2016. TOTAL 5 1 Financial Report – 1st half 2016 TOTAL S.A., parent company accounts / Summary and outlook 5. TOTAL S.A., parent company accounts Net income for TOTAL S.A., the parent company, was 1,142 M€ in the first half 2016 compared to 3,438 M€ in the first half 2015. In the first half 2015, a strong volume of dividends was paid by affiliates of TOTAL S.A. to the parent company. 6. Summary and outlook The financial performance of the Group over the first half 2016 demonstrates the strength of its integrated model across a range of volatile prices. The Group was resilient in a weak environment at the start of the year and fully captured the benefit of the rebound in prices during the second quarter. the Lindsey refinery and ending crude refining at La Mède refinery to convert it to a bio-refinery will be finalized in the second half of the year. The Group’s major integrated platforms are performing well and capturing the benefit of strong petrochemical margins which are supported by polymer demand. In the Upstream, the start up of Incahuasi in Bolivia and Kashagan in Kazakhstan are expected in the second half of the year, following the first-half start-ups of Laggan-Tormore in the United Kingdom, Vega Pleyade in Argentina, and Angola LNG. Production growth is projected to be 4% for the year as a whole after reaching 4.5% in the first half. In the Downstream, refining margins were lower at the beginning of the third quarter, due to high inventory levels. Reducing capacity at Total maintains strict discipline on costs and investments as part of its strategy to reduce the breakeven. In obtaining an interest in Al-Shaheen, it continues to add high quality, low cost assets to the portfolio. In addition, the Group continues to actively manage its portfolio by launching the sale process for Atotech, and confirms its objective to generate 2 B$ from net asset sales over the year. 6 TOTAL. Financial Report – 1st half 2016 Financial Report – 1st half 2016 1 Other information 7. Other information 7.1. Operating information by segment 7.1.1. Upstream (a) 1H16 Combined liquids and gas vs production by region (kboe/d) 1H16 1H15 1H15 Europe and Central Asia 779 649 +20% Africa 632 634 - Middle East and North Africa 518 549 -6% Americas 255 258 -1% Asia Pacific 268 256 +4% Total production 2,452 2,347 +4% Including equity affiliates 624 560 +11% 1H16 Liquids production vs by region (kb/d) 1H16 1H15 1H15 Europe and Central Asia 251 206 +21% Africa 515 518 -1% Middle East and North Africa 374 375 - Americas 99 93 +6% Asia Pacific 32 34 -7% Total production 1,269 1,227 +3% Including equity affiliates 253 213 +19% 1H16 Gas production vs by region (Mcf/d) 1H16 1H15 1H15 Europe and Central Asia 2,845 2,379 +20% Africa 579 578 - Middle East and North Africa 800 956 -16% Americas 870 919 -5% Asia Pacific 1,359 1,278 +6% Total production 6,453 6,110 +6% Including equity affiliates 1,983 1,863 +6% 1H16 vs Liquefied natural gas 1H16 1H15 1H15 LNG sales (b) (Mt) 5.39 5.21 +3% (a) The regional reporting has been changed to reflect the Company’s internal organization. Historical data is available at total.com (b) Sales, Group share, excluding Trading; 2015 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2015 SEC coefficient. Financial Report – 1st half 2016. TOTAL 7 1 Financial Report – 1st half 2016 Other information 7.1.2. Downstream (Refining & Chemicals and Marketing & Services) 1H16 Petroleum product sales vs by region (kb/d) (a) 1H16 1H15 1H15 Europe 2,330 2,078 +12% Africa 549 660 -17% Americas 564 603 -6% Rest of world 738 649 +14% Total consolidated sales 4,181 3,990 +5% Including bulk sales 708 630 +12% Including trading 1,698 1,542 +10% (a) Includes share of TotalErg. 7.2. Adjustment items 7.2.1. Adjustments to operating income (in millions of dollars) 1H16 1H15 Special items affecting operating income (1,097) (1,851) – Restructuring charges (19) - – Impairments (200) (1,294) – Other (878) (557) Pre-tax inventory effect: FIFO vs. replacement cost 352 478 Effect of changes in fair value (3) (6) Total adjustments affecting operating income (748) (1,379) 7.2.2. Adjustment to net income (Group share) (in millions of dollars) 1H16 1H15 Special items affecting net income (Group share) (336) (377) – Gain (loss) on asset sales 344 1,329 – Restructuring charges (4) (31) – Impairments (178) (1,354) – Other (498) (321) After-tax inventory effect: FIFO vs. replacement cost 222 328 Effect of changes in fair value (2) (4) Total adjustments affecting net income (116) (53) 7.3. 2016 sensitivities (a) Scenario Change Estimated Estimated impact on impact on ajusted net cash flow operating income Dollar 1.0 $ / € +0.1 $ per € -0.15 B$ -0.1 B$ Brent 50 $ / b -10 $ / b -2 B$ -2 B$ European refining margin indicator (ERMI) 35 $ / t -10 $ / t -0.5 B$ -0.6 B$ (a) Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2016. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is attributable 85% to Refining & Chemicals. 8 TOTAL. Financial Report – 1st half 2016 Financial Report – 1st half 2016 1 Other information 7.4. Investments – Divestments 1H16 vs (in millions of dollars) 1H16 1H15 1H15 Organic investments 8,674 11,217 -23% capitalized exploration 400 796 -50% increase in non-current loans 829 1,184 -30% repayment of non-current loans (401) (1,405) -71% Acquisitions 399 2,777 -86% Asset sales 1,357 3,472 -61% Other transactions with non-controlling interests 3 81 -96% Net investments 7,713 10,441 -26% 7.5. Net-debt-to-equity ratio (in millions of dollars) 6/30 / 2016 6/30/20 15 Current borrowings 13,789 13,114 Net current financial assets (1,628) (2,351) Net financial assets classified as held for sale (97) (16) Non-current financial debt 41,668 43,363 Hedging instruments of non-current debt (1,251) (1,157) Cash and cash equivalents (22,653) (27,322) Net debt 29,828 25,631 Shareholders’ equity – Group share 97,985 97,244 Estimated dividend payable (1,618) (1,561) Non-controlling interests 2,904 3,104 Adjusted shareholders’ equity 99,271 98,787 Net-debt-to-equity ratio 30.0% 25.9% 7.6. Return on equity 7/01/2015 4/01/2015 1/01/2015 to to to (in millions of dollars) 6/30/2016 3/31/2016 12/31/2015 Adjusted net income 8,817 9,742 10,698 Average adjusted shareholders’ equity 99,029 95,643 92,854 Return on equity (ROE) 8.9% 10.2% 11.5% Financial Report – 1st half 2016. TOTAL 9 1 Financial Report – 1st half 2016 Other information 7.7. Return on average capital employed 7.7.1. Twelve months ended June 30, 2016 Upstream Refining & Marketing Group (in millions of dollars) Chemicals & Services Adjusted net operating income 3,480 4,586 1,583 9,565 Capital employed at 6/30/2015 (a) 107,214 12,013 8,234 124,001 Capital employed at 6/30/2016 (a) 108,733 12,249 9,021 129,635 ROACE 3.2% 37.8% 18.3% 7.5% (a) At replacement cost (excluding after-tax inventory effect). 7.7.2. Twelve months ended March 31, 2016 Upstream Refining & Marketing Group (in millions of dollars) Chemicals & Services Adjusted net operating income 3,913 4,917 1,630 10,460 Capital employed at 3/31/2015 (a) 103,167 12,534 7,928 123,218 Capital employed at 3/31/2016 (a) 106,517 12,505 8,800 127,754 ROACE 3.7% 39.3% 19.5% 8.3% (a) At replacement cost (excluding after-tax inventory effect). 7.7.3. Twelve months ended December 31, 2015 Upstream Refining & Marketing Group (in millions of dollars) Chemicals & Services Adjusted net operating income 4,774 4,889 1,699 11,400 Capital employed at 12/31/2014 (a) 100,497 13,451 8,825 120,526 Capital employed at 12/31/2015 (a) 105,580 10,407 8,415 121,143 ROACE 4.6% 41.0% 19.7% 9.4% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial Report – 1st half 2016 Financial Report – 1st half 2016 1 Principal risks and uncertainties for the remaining six months of 2016 / Principal transactions with related parties 8. Principal risks and uncertainties for the remaining six months of 2016 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s 2015 Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 16, 2016. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the Consolidated Financial Statements for the first half of 2016 (pages 26 to 27 and 38 of this mid-year financial report). 9. Principal transactions with related parties Information concerning the principal transactions with related parties for the first six months of 2016 is provided in Note 6 to the Consolidated Financial Statements for the first half of 2016 (page 26 of this mid-year financial report). Financial Report – 1st half 2016. TOTAL 11 1 Financial Report – 1st half 2016 Principal transactions with related parties Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809 / 2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des marchés financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), Return on Average Capital Employed (ROACE) and net-debt-to-equity ratio. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. 12 TOTAL. Financial Report – 1st half 2016 (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File n° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole / Regnault – 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website www.sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly Management Report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. Period from January 1 to June 30, 2016 To the Shareholders, In compliance with the assignment entrusted to us by your general meeting and in accordance with the requirements of Article L. 451-1-2 III of the French Monetary and financial code (Code monétaire et financier), we hereby report to you on: – the review of the accompanying condensed half-yearly Consolidated Financial Statements of TOTAL S.A., for the period from January 1 to June 30, 2016, – the verification of the information presented in the half-yearly Management Report. These condensed half-yearly Consolidated Financial Statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I – Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly Consolidated Financial Statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. II – Specific verification We have also verified the information presented in the half-yearly Management Report on the condensed half-yearly Consolidated Financial Statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly Consolidated Financial Statements. Paris-La Défense, July 27, 2016 The statutory auditors French original signed by KPMG Audit ERNST & YOUNG Audit A division of KPMG S.A. Michel Piette Partner Valérie Besson Partner Yvon Salaün Partner Laurent Miannay Partner Financial Report – 1st half 2016. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited) 1st half 1st half (in millions of dollars) (a) 2016 2015 Sales 70,056 87,028 Excise taxes (10,823) (10,796) Revenues from sales 59,233 76,232 Purchases, net of inventory variation (38,187) (50,557) Other operating expenses (12,042) (12,303) Exploration costs (730) (989) Depreciation, depletion and impairment of tangible assets and mineral interests (5,648) (6,703) Other income 672 2,343 Other expense (203) (838) Financial interest on debt (541) (493) Financial income from marketable securities & cash equivalents 11 59 Cost of net debt (530) (434) Other financial income 503 397 Other financial expense (321) (329) Equity in net income (loss) of affiliates 1,274 1,275 Income taxes (282) (2,573) Consolidated net income 3,739 5,521 Group share 3,694 5,634 Non-controlling interests 45 (113) Earnings per share ($) 1.54 2.46 Fully-diluted earnings per share ($) 1.53 2.45 (a) Except for per share amounts. 14 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited) 1st half 1st half (in millions of dollars) 2016 2015 Consolidated net income 3,739 5,521 Other comprehensive income Actuarial gains and losses (213) 153 Tax effect 72 (117) Currency translation adjustment generated by the parent company 1,528 (5,229) Items not potentially reclassifiable to profit and loss 1,387 (5,193) Currency translation adjustment (1,355) 2,588 Available for sale financial assets (14) (4) Cash flow hedge 32 (94) Share of other comprehensive income of equity affiliates, net amount 354 841 Other 3 1 Tax effect (3) 29 Items potentially reclassifiable to profit and loss (983) 3,361 Total other comprehensive income (net amount) 404 (1,832) Comprehensive income 4,143 3,689 Group share 4,103 3,833 Non-controlling interests 40 (144) Financial Report – 1st half 2016. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) (a) 2016 2016 2015 Sales 37,215 32,841 44,715 Excise taxes (5,504) (5,319) (5,446) Revenues from sales 31,711 27,522 39,269 Purchases, net of inventory variation (20,548) (17,639) (26,353) Other operating expenses (5,906) (6,136) (6,031) Exploration costs (536) (194) (352) Depreciation, depletion and impairment of tangible assets and mineral interests (2,968) (2,680) (2,831) Other income 172 500 722 Other expense (133) (70) (396) Financial interest on debt (267) (274) (231) Financial income from marketable securities & cash equivalents 1 10 28 Cost of net debt (266) (264) (203) Other financial income 312 191 255 Other financial expense (166) (155) (163) Equity in net income (loss) of affiliates 776 498 685 Income taxes (330) 48 (1,589) Consolidated net income 2,118 1,621 3,013 Group share 2,088 1,606 2,971 Non-controlling interests 30 15 42 Earnings per share ($) 0.86 0.67 1.29 Fully-diluted earnings per share ($) 0.86 0.67 1.29 (a) Except for per share amounts. 16 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2016 2016 2015 Consolidated net income 2,118 1,621 3,013 Other comprehensive income Actuarial gains and losses (132) (81) 248 Tax effect 40 32 (81) Currency translation adjustment generated by the parent company (2,113) 3,641 2,963 Items not potentially reclassifiable to profit and loss (2,205) 3,592 3,130 Currency translation adjustment 589 (1,944) (1,160) Available for sale financial assets (4) (10) (12) Cash flow hedge (66) 98 36 Share of other comprehensive income of equity affiliates, net amount 355 (1) (201) Other - 3 (2) Tax effect 21 (24) (8) Items potentially reclassifiable to profit and loss 895 (1,878) (1,347) Total other comprehensive income (net amount) (1,310) 1,714 1,783 Comprehensive income 808 3,335 4,796 Group share 795 3,308 4,749 Non-controlling interests 13 27 47 Financial Report – 1st half 2016. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS (in millions of dollars) 6/30/2016 3/31/2016 12/31/2015 6/30/2015 (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 14,207 14,512 14,549 16,101 Property, plant and equipment, net 111,420 111,636 109,518 110,023 Equity affiliates: investments and loans 20,683 20,411 19,384 19,380 Other investments 1,411 1,413 1,241 1,248 Hedging instruments of non-current financial debt 1,251 1,236 1,219 1,157 Deferred income taxes 4,175 3,955 3,982 3,145 Other non-current assets 4,467 4,329 4,355 4,047 Total non-current assets 157,614 157,492 154,248 155,101 Current assets Inventories, net 15,021 13,887 13,116 17,373 Accounts receivable, net 11,933 12,220 10,629 14,415 Other current assets 14,850 15,827 15,843 15,072 Current financial assets 2,018 3,439 6,190 2,439 Cash and cash equivalents 22,653 20,570 23,269 27,322 Assets classified as held for sale 1,257 724 1,189 2,754 Total current assets 67,732 66,667 70,236 79,375 Total assets 225,346 224,159 224,484 234,476 LIABILITIES & SHAREHOLDERS’ EQUITY (in millions of dollars) 6/30/2016 3/31/2016 12/31/2015 6/30/2015 (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 7,846 7,709 7,670 7,549 Paid-in surplus and retained earnings 106,343 103,766 101,528 103,286 Currency translation adjustment (11,619) (10,447) (12,119) (9,243) Treasury shares (4,585) (4,585) (4,585) (4,348) Total shareholders’ equity – Group share 97,985 96,443 92,494 97,244 Non-controlling interests 2,904 2,960 2,915 3,104 Total shareholders’ equity 100,889 99,403 95,409 100,348 Non-current liabilities Deferred income taxes 11,345 11,766 12,360 13,458 Employee benefits 3,887 3,984 3,774 4,426 Provisions and other non-current liabilities 17,270 17,607 17,502 17,353 Non-current financial debt 41,668 43,138 44,464 43,363 Total non-current liabilities 74,170 76,495 78,100 78,600 Current liabilities Accounts payable 20,478 20,887 20,928 22,469 Other creditors and accrued liabilities 14,983 15,938 16,884 18,718 Current borrowings 13,789 10,858 12,488 13,114 Other current financial liabilities 390 208 171 88 Liabilities directly associated with the assets classified as held for sale 647 370 504 1,139 Total current liabilities 50,287 48,261 50,975 55,528 Total liabilities and shareholders’ equity 225,346 224,159 224,484 234,476 18 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of dollars) 2016 2015 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 3,739 5,521 Depreciation, depletion and impairment 6,096 7,537 Non-current liabilities, valuation allowances and deferred taxes (745) (161) Impact of coverage of pension benefit plans - - (Gains) losses on disposals of assets (415) (1,816) Undistributed affiliates’ equity earnings (516) (289) (Increase) decrease in working capital (3,297) (1,311) Other changes, net (99) (362) Cash flow from operating activities 4,763 9,119 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (8,240) (13,947) Acquisitions of subsidiaries, net of cash acquired (122) (10) Investments in equity affiliates and other securities (283) (258) Increase in non-current loans (829) (1,184) Total expenditures (9,474) (15,399) Proceeds from disposals of intangible assets and property, plant and equipment 992 1,180 Proceeds from disposals of subsidiaries, net of cash sold 270 2,161 Proceeds from disposals of non-current investments 95 131 Repayment of non-current loans 401 1,405 Total divestments 1,758 4,877 Cash flow used in investing activities (7,716) (10,522) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – parent company shareholders 4 450 – treasury shares - - Dividends paid: – parent company shareholders (2,127) (1,572) – non-controlling interests (75) (72) Issuance of perpetual subordinated notes 1,950 5,616 Payments on perpetual subordinated notes (133) - Other transactions with non-controlling interests 3 81 Net issuance (repayment) of non-current debt 554 1,771 Increase (decrease) in current borrowings (2,016) (89) Increase (decrease) in current financial assets and liabilities 4,145 (1,101) Cash flow used in financing activities 2,305 5,084 Net increase (decrease) in cash and cash equivalents (648) 3,681 Effect of exchange rates 32 (1,540) Cash and cash equivalents at the beginning of the period 23,269 25,181 Cash and cash equivalents at the end of the period 22,653 27,322 Financial Report – 1st half 2016. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2016 2016 2015 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 2,118 1,621 3,013 Depreciation, depletion and impairment 3,361 2,735 3,113 Non-current liabilities, valuation allowances and deferred taxes (477) (268) 285 Impact of coverage of pension benefit plans - - - (Gains) losses on disposals of assets (48) (367) (459) Undistributed affiliates’ equity earnings (280) (236) (221) (Increase) decrease in working capital (1,752) (1,545) (835) Other changes, net (40) (59) (164) Cash flow from operating activities 2,882 1,881 4,732 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (4,094) (4,146) (5,991) Acquisitions of subsidiaries, net of cash acquired 11 (133) (3) Investments in equity affiliates and other securities (226) (57) (205) Increase in non-current loans (257) (572) (391) Total expenditures (4,566) (4,908) (6,590) Proceeds from disposals of intangible assets and property, plant and equipment 200 792 221 Proceeds from disposals of subsidiaries, net of cash sold 270 - 403 Proceeds from disposals of non-current investments 2 93 109 Repayment of non-current loans 301 100 1,160 Total divestments 773 985 1,893 Cash flow used in investing activities (3,793) (3,923) (4,697) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – parent company shareholders 4 - 438 – treasury shares - - - Dividends paid: – parent company shareholders (1,173) (954) (6) – non-controlling interests (72) (3) (70) Issuance of perpetual subordinated notes 1,950 - - Payments on perpetual subordinated notes - (133) - Other transactions with non-controlling interests 3 - 81 Net issuance (repayment) of non-current debt 400 154 1,635 Increase (decrease) in current borrowings 1,011 (3,027) (512) Increase (decrease) in current financial assets and liabilities 1,399 2,746 (79) Cash flow used in financing activities 3,522 (1,217) 1,487 Net increase (decrease) in cash and cash equivalents 2,611 (3,259) 1,522 Effect of exchange rates (528) 560 749 Cash and cash equivalents at the beginning of the period 20,570 23,269 25,051 Cash and cash equivalents at the end of the period 22,653 20,570 27,322 20 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) Common shares issued Paid-in Currency Treasury shares Shareholders’ Non- Total surplus and translation equity – controlling shareholders’ Number Amount retained adjustment Number Amount Group share interests equity (in millions of dollars) earnings As of January 1, 2015 2,385,267,525 7,518 94,646 (7,480) (109,361,413) (4,354) 90,330 3,201 93,531 Net income of the first half 2015 - - 5,634 - - - 5,634 (113) 5,521 Other comprehensive Income - - (38) (1,763) - - (1,801) (31) (1,832) Comprehensive Income - - 5,596 (1,763) - - 3,833 (144) 3,689 Dividend - - (3,123) - - - (3,123) (72) (3,195) Issuance of common shares 11,092,565 31 419 - - - 450 - 450 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - (6) - 103,150 6 - - - Share-based payments - - 69 - - - 69 - 69 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - 5,616 - - - 5,616 - 5,616 Payments on perpetual subordinated notes - - (31) - - - (31) - (31) Other operations with non-controlling interests - - 21 - - - 21 57 78 Other items - - 79 - - - 79 62 141 As of June 30, 2015 2,396,360,090 7,549 103,286 (9,243) (109,258,263) (4,348) 97,244 3,104 100,348 Net income from July 1 to December 31, 2015 - - (547) - - - (547) (188) (735) Other comprehensive Income - - 223 (2,876) - - (2,653) (50) (2,703) Comprehensive Income - - (324) (2,876) - - (3,200) (238) (3,438) Dividend - - (3,180) - - - (3,180) (28) (3,208) Issuance of common shares 43,697,793 121 1,740 - - - 1,861 - 1,861 Purchase of treasury shares - - - - (4,711,935) (237) (237) - (237) Sale of treasury shares (a) - - - - 2,440 - - - - Share-based payments - - 32 - - - 32 - 32 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - (83) - - - (83) - (83) Other operations with non-controlling interests - - 2 - - - 2 7 9 Other items - - 55 - - - 55 70 125 As of December 31, 2015 2,440,057,883 7,670 101,528 (12,119) (113,967,758) (4,585) 92,494 2,915 95,409 Net income of the first half 2016 - - 3,694 - - - 3,694 45 3,739 Other comprehensive Income - - (91) 500 - - 409 (5) 404 Comprehensive Income - - 3,603 500 - - 4,103 40 4,143 Dividend - - (3,188) - - - (3,188) (75) (3,263) Issuance of common shares 63,204,391 176 2,490 - - - 2,666 - 2,666 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (a) - - - - 1,580 - - - - Share-based payments - - 52 - - - 52 - 52 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - 1,950 - - - 1,950 - 1,950 Payments on perpetual subordinated notes - - (77) - - - (77) - (77) Other operations with non-controlling interests - - (40) - - - (40) 6 Other items - - 25 - - - 25 18 (34) 43 As of June 30, 2016 2,503,262,274 7,846 106,343 (11,619) (113,966,178) (4,585) 97,985 2,904 100,889 (a) Treasury shares related to the restricted stock grants. Financial Report – 1st half 2016. TOTAL 21 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 10. Notes to the Consolidated Financial Statements for the first six months of 2016 (unaudited) 1) Accounting policies The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2016 are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting policies applied for the Consolidated Financial Statements as of June 30, 2016 do not differ significantly from those applied for the Consolidated Financial Statements as of December 31, 2015 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standards Board). New texts or amendments which were mandatory for the periods beginning on or after January 1, 2016 did not have a material impact on the Group’s Consolidated Financial Statements as of June 30, 2016. and consequently the final achievements could also be different from the amounts included in the Consolidated Financial Statements. These estimates, assumptions and judgments are regularly reviewed if circumstances change or as a result of new information or changes in the Group’s experience; they could therefore be significantly changed later. The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, the impairment of assets, the employee benefits, the asset retirement obligations and the income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2015. The preparation of financial statements in accordance with IFRS requires the executive management to make estimates, judgments and assumptions considered reasonable, which affect the Consolidated Financial Statements and their notes. Different estimates, assumptions and judgments could have significant impacts on the Consolidated Financial Statements and their notes Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Group structure, main acquisitions and divestments Upstream Marketing & Services – In March 2016, TOTAL finalized the sale to North Sea Midstream Partners of all its interests in the FUKA and SIRGE gas pipelines, and the St. Fergus gas terminal in the United Kingdom. – In June 2016, TOTAL has signed an agreement with Qatar Petroleum, granting the Group a 30% interest in the concession covering the offshore Al Shaheen oil field in Qatar for a period of 25 years beginning July 14, 2017. – In June 2016, Total and Lampiris, the third-largest supplier of natural gas and renewable power to the Belgium residential sector, have signed an agreement under which Total will acquire all of the shares in Lampiris. The agreement is subject to customary regulatory approvals. – In January 2016, TOTAL finalized the acquisition of a majority 70% interest in the leading Dominican fuel retailer. – In April 2016, TOTAL finalized the sale to Demirören Group of its service station network and commercial sales, supply and logistics assets located in Turkey. – In May 2016, TOTAL has acquired Gulf Africa Petroleum Corporation’s (GAPCO) assets in Kenya, Uganda and Tanzania. The transaction is subject to the authorities’ approval in the three countries. 22 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 3) Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment item reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. IFRS requires that Trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of Trading inventories based on forward prices. Furthermore, TOTAL, in its Trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME Upstream Refining & Marketing & Corporate Total (in millions of dollars) Chemicals Services 2nd quarter 2016 Inventory valuation effect - 516 118 - 634 Effect of changes in fair value (6) - - - (6) Restructuring charges (8) - - - (8) Asset impairment charges (200) - - - (200) Other items (350) (65) (10) - (425) Total (564) 451 108 - (5) 2nd quarter 2015 Inventory valuation effect - 199 51 - 250 Effect of changes in fair value (10) - - - (10) Restructuring charges - - - - - Asset impairment charges (194) (31) (23) - (248) Other items (150) (76) - - (226) Total (354) 92 28 - (234) 1st half 2016 Inventory valuation effect - 311 41 - 352 Effect of changes in fair value (3) - - - (3) Restructuring charges (19) - - - (19) Asset impairment charges (200) - - - (200) Other items (801) (67) (10) - (878) Total (1,023) 244 31 - (748) 1st half 2015 Inventory valuation effect - 434 44 - 478 Effect of changes in fair value (6) - - - (6) Restructuring charges - - - - - Asset impairment charges (1,240) (31) (23) - (1,294) Other items (440) (117) - - (557) Total (1,686) 286 21 - (1,379) Financial Report – 1st half 2016. TOTAL 23 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 ADJUSTMENTS TO NET INCOME, GROUP SHARE Upstream Refining & Marketing & Corporate Total (in millions of dollars) Chemicals Services 2nd quarter 2016 Inventory valuation effect - 330 75 - 405 Effect of changes in fair value (5) - - - (5) Restructuring charges (2) - - - (2) Asset impairment charges (129) - (49) - (178) Gains (losses) on disposals of assets - - (14) - (14) Other items (226) (52) (14) - (292) Total (362) 278 (2) - (86) 2nd quarter 2015 Inventory valuation effect - 138 36 - 174 Effect of changes in fair value (6) - - - (6) Restructuring charges - - - - - Asset impairment charges (194) (31) (20) - (245) Gains (losses) on disposals of assets (29) (4) 360 - 327 Other items (280) (82) (2) - (364) Total (509) 21 374 - (114) 1st half 2016 Inventory valuation effect - 197 25 - 222 Effect of changes in fair value (2) - - - (2) Restructuring charges (4) - - - (4) Asset impairment charges (129) - (49) - (178) Gains (losses) on disposals of assets 358 - (14) - 344 Other items (417) (56) (25) - (498) Total (194) 141 (63) - (116) 1st half 2015 Inventory valuation effect - 288 40 - 328 Effect of changes in fair value (4) - - - (4) Restructuring charges - (26) (5) - (31) Asset impairment charges (1,286) (31) (37) - (1,354) Gains (losses) on disposals of assets 299 670 360 - 1,329 Other items (140) (135) (46) - (321) Total (1,131) 766 312 - (53) In the second quarter of 2016, the headings “Other items” and “Asset impairment charges” include, in the Upstream segment, charges related to the cessation of the Group activities in Kurdistan ($(550) million in operating income, $(355) million in net income, Group share). 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) As of June 30, 2016, TOTAL S.A. holds 13,634,910 of its own shares, representing 0.54% of its share capital, detailed as follows: These shares are deducted from the consolidated shareholders’ equity. Dividend – 13,601,945 shares allocated to TOTAL share grant plans for Group employees; and – 32,965 shares intended to be allocated to new TOTAL share purchase option plans or to new share grant plans. These shares are deducted from the consolidated shareholders’ equity. TOTAL shares held by Group subsidiaries As of June 30, 2016, TOTAL S.A. holds indirectly through its subsidiaries 100,331,268 of its own shares, representing 4.01% of its share capital, detailed as follows: – 2,023,672 shares held by a consolidated subsidiary, The Shareholders’ Meeting on May 24, 2016 approved the payment of a dividend of €2.44 per share for the 2015 fiscal year. Taking into account the three quarterly dividends of €0.61 per share that have already been paid in shares or in cash on October 21, 2015, January 14, 2016, and April 12, 2016, the remaining balance of €0.61 per share was paid on June 23, 2016. The Shareholders’ Meeting on May 24, 2016, approved the option for shareholders to receive the fourth quarter dividend in shares or in cash. The number of shares issued in lieu of the cash dividend was based on the dividend amount divided by €38.26 per share, equal to 90% of the average Euronext Paris opening price of the shares for the 20 Trading days preceding the shareholders meeting reduced by the amount of the dividend remainder. On June 23, 2016, 24,372,848 shares were issued at a price of €38.26 per share. Total Nucléaire, 100% indirectly controlled by TOTAL S.A.; and – 98,307,596 shares held by subsidiaries of Elf Aquitaine (Financière Valorgest, Sogapar and Fingestval), 100% indirectly controlled by TOTAL S.A. Another resolution has been approved at the Shareholders’ Meeting on May 24, 2016, being that if one or more interim dividends are 24 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 decided by the Board of Directors for the fiscal year 2016, then shareholders have the option to receive this or these interim dividends in shares or in cash. Based on its characteristics and in compliance with the IAS 32 standard, this note was recorded in equity. A first interim dividend for the fiscal year 2016 of €0.61 per share, decided by the Board of Directors on April 26, 2016 would be paid on October 14, 2016 (the ex-dividend date will be September 27, 2016). A second interim dividend for the fiscal year 2016 of €0.61 per share, decided by the Board of Directors on July 27, 2016, would be paid on January 12, 2017 (the ex-dividend date will be December 21, 2016). Earnings per share in Euro Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro / USD exchange rate for the period, amounted to €0.77 per share for the 2nd quarter 2016 (€0.61 per share for the 1st quarter 2016 and €1.17 per share for the 2nd quarter 2015). Diluted earnings per share calculated using the same method amounted to €0.76 per share for the 2nd quarter 2016 (€0.61 per share for the 1st quarter 2016 and €1.17 per share for the 2nd quarter 2015). Issuance of perpetual subordinated notes During the first half year of 2016, the Group issued a perpetual deeply subordinated note 3.875% callable after 6 years on May 18, 2022 (1,750 million EUR). Earnings per share are calculated after the remuneration of perpetual subordinated notes. Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of dollars) 1st half 2016 1st half 2015 Actuarial gains and losses (213) 153 Tax effect 72 (117) Currency translation adjustment generated by the parent company 1,528 (5,229) Items not potentially reclassifiable to profit and loss 1,387 (5,193) Currency translation adjustment (1,355) 2,588 – Unrealized gain / (loss) of the period (1,233) 3,044 – Less gain / (loss) included in net income 122 456 Available for sale financial assets (14) (4) – Unrealized gain / (loss) of the period (14) 2 – Less gain / (loss) included in net income - 6 Cash flow hedge 32 (94) – Unrealized gain / (loss) of the period 34 (314) – Less gain / (loss) included in net income 2 (220) Share of other comprehensive income of equity affiliates, net amount 354 841 – Unrealized gain / (loss) of the period 372 841 – Less gain / (loss) included in net income 18 - Other 3 1 Tax effect (3) 29 Items potentially reclassifiable to profit and loss (983) 3,361 Total other comprehensive income, net amount 404 (1,832) Financial Report – 1st half 2016. TOTAL 25 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 Tax effects relating to each component of other comprehensive income are as follows: (in millions of dollars) 1st half 2016 1st half 2015 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses (213) 72 (141) 153 (117) 36 Currency translation adjustment generated by the parent company 1,528 - 1,528 (5,229) - (5,229) Items not potentially reclassifiable to profit and loss 1,315 72 1,387 (5,076) (117) (5,193) Currency translation adjustment (1,355) - (1,355) 2,588 - 2,588 Available for sale financial assets (14) 4 (10) (4) - (4) Cash flow hedge 32 (7) 25 (94) 29 (65) Share of other comprehensive income of equity affiliates, net amount 354 - 354 841 - 841 Other 3 - 3 1 - 1 Items potentially reclassifiable to profit and loss (980) (3) (983) 3,332 29 3,361 Total other comprehensive income 335 69 404 (1,744) (88) (1,832) 5) Financial debt The Group did not issue any bond, during the first six months of 2016. The Group reimbursed bonds during the first six months of 2016: – Bond 6.50% 2011-2016 (AUD 150 million) – Bond 2.30% 2010-2016 (USD 1,000 million) – Bond 0.75% 2012-2016 (USD 750 million) – Bond US Libor 3 months +38 bp 2013-2016 (USD 1,000 million) – Bond 2.375% 2006-2016 (CHF 500 million) – Bond 2.375% 2009-2016 (CHF 150 million) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of treasury bills and commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non- consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2016. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Alitalia In the Marketing & Services segment, a civil proceeding was initiated in Italy, in 2013, against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This proceeding follows practices that had been condemned by the Italian competition authority in 2006. The parties have exchanged preliminary findings. The existence and the assessment of the alleged damages in this procedure involving multiple defendants remain contested. Blue Rapid and the Russian Olympic Committee – Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract having lapsed. The judgment of the Court of Appeal of Paris is now final and binding following two decisions issued on February 18, 2016 by the French Supreme Court to put an end to this proceeding. 26 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 In connection with the same facts, and fifteen years after the aforementioned exploration and production contract was rendered null and void (“caduc”), a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation that were not even parties to the contract, launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of $22.4 billion. For the same reasons as those successfully adjudicated by Elf Aquitaine against Blue Rapid and the Russian Olympic Committee, the Group considers this claim to be unfounded as a matter of law and fact. The Group has lodged a criminal complaint to denounce the fraudulent claim of which the Group believes it is a victim and, has taken and reserved its rights to take other actions and measures to defend its interests. FERC The Office of Enforcement of the U.S. Federal Energy Regulatory Commission (FERC) began in 2015 an investigation in connection with the natural gas Trading activities of Total Gas & Power North America, Inc. (TGPNA), an American subsidiary of the Group. The investigation covered transactions made by TGPNA between June 2009 and June 2012 on the natural gas market. TGPNA received a Notice of Alleged Violations from FERC on September 21, 2015. On April 28, 2016, FERC issued an order to show cause to TGPNA and two of its former employees regarding the same facts. The economic sanctions initially adopted by the European Union in 2014 and subsequently extended do not materially affect TOTAL’s activities in Russia. TOTAL has been formally authorized to continue all of its activities in Russia (in the Kharyaga field as operator, and in the Termokarstovoye gas field and Yamal LNG project in which the Group holds interests) by the French government which is the competent authority for granting authorization under EU sanctions regime. TOTAL’s activities in Russia are also not materially affected by restrictive measures adopted by the United States in August 2015 imposing export controls and restrictions relating to the export of certain goods, services, and technologies destined for projects located in Russia in the field of oil exploration. With respect to the exploration project in the Bazhenov play (tight oil) in western Siberia, which has been suspended since 2014, TOTAL signed in July 2015 an agreement transferring the exploration licenses it held in the play to OAO Lukoil. This agreement also sets out the conditions under which TOTAL and OAO Lukoil could potentially resume their joint activities in Russia. TOTAL continues to monitor the different international economic sanctions with respect to its activities in Russia. In January 2016, TOTAL signed an agreement to sell 50% of its interest in the Kharyaga field and transfer the operatorship to Zarubezhneft. After the sale, which is expected to be completed in 2016, TOTAL’s interest in the Kharyaga field will be 20%. TGPNA has cooperated in the investigation with the U.S. authorities and contests the claims brought against it. Russia Since July 2014, the United States of America and the European community have adopted economic sanctions against certain Russian persons and entities, including various entities operating in the financial, energy and defense sectors, in response to the situation in Ukraine. Yemen Due to the further deterioration in the security situation in the vicinity of its Balhaf site, the company Yemen LNG, in which the Group holds a 39.62% stake, decided to stop its commercial LNG production and export activities. The plant is in a preservation mode and no expatriate personnel remain on site. As a consequence of this situation, Yemen LNG declared force majeure to its various stakeholders in early April 2015. Among other things, the United States has adopted economic sanctions targeting OAO Novatek (1) (“Novatek”), as well as entities in which Novatek (individually or with other similarly targeted persons or entities collectively) owns an interest of at least 50%, including OAO Yamal LNG (2) (“Yamal LNG”). These sanctions prohibit U.S. persons from transacting in, providing financing for or otherwise dealing in debt issued by these entities after July 16, 2014 of greater than 90 days maturity. Consequently, the use of the U.S. dollar for such financing, including for Yamal LNG, is effectively prohibited. As a result, the Yamal LNG project’s financing was finalized in June 2016 without the use of the U.S. dollar or the intervention of U.S. persons. It consists of funding in rubles from the Russian National Welfare Fund, loans in euros from Russian banks, and loans in euros and renminbi from Chinese banks. (1) A Russian company listed on stock exchanges in Moscow and London and in which the Group held an interest of 18.9% as of June 30, 2016. (2) A company jointly owned by Novatek (50.1%), Total E&P Yamal (20%), CNODC (20%), a subsidiary of China National Petroleum Corporation (“CNPC”) and Silk Road Fund (9.9%). Financial Report – 1st half 2016. TOTAL 27 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 8) Information by business segment 1st half 2016 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 6,810 30,505 32,738 3 - 70,056 Intersegment sales 7,421 9,688 340 151 (17,600) - Excise taxes - (1,885) (8,938) - - (10,823) Revenues from sales 14,231 38,308 24,140 154 (17,600) 59,233 Operating expenses (9,754) (35,303) (22,989) (513) 17,600 (50,959) Depreciation, depletion and impairment of tangible assets and mineral interests (4,778) (499) (355) (16) - (5,648) Operating income (301) 2,506 796 (375) - 2,626 Equity in net income (loss) of affiliates and other items 1,239 437 48 201 - 1,925 Tax on net operating income 493 (655) (270) 29 - (403) Net operating income 1,431 2,288 574 (145) - 4,148 Net cost of net debt (409) Non-controlling interests (45) Net income 3,694 1st half 2016 (adjustments) (a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (132) - - - - (132) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (132) - - - - (132) Operating expenses (691) 244 31 - - (416) Depreciation, depletion and impairment of tangible assets and mineral interests (200) - - - - (200) Operating income (b) (1,023) 244 31 - - (748) Equity in net income (loss) of affiliates and other items 329 (27) (79) - - 223 Tax on net operating income 500 (75) (8) - - 417 Net operating income (b) (194) 142 (56) - - (108) Net cost of net debt (11) Non-controlling interests 3 Net income (116) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals Services – on operating income - 311 41 - – on net operating income - 198 34 - 28 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 1st half 2016 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) (a) Chemicals Services Non-Group sales 6,942 30,505 32,738 3 - 70,188 Intersegment sales 7,421 9,688 340 151 (17,600) - Excise taxes - (1,885) (8,938) - - (10,823) Revenues from sales 14,363 38,308 24,140 154 (17,600) 59,365 Operating expenses (9,063) (35,547) (23,020) (513) 17,600 (50,543) Depreciation, depletion and impairment of tangible assets and mineral interests (4,578) (499) (355) (16) - (5,448) Adjusted operating income 722 2,262 765 (375) - 3,374 Equity in net income (loss) of affiliates and other items 910 464 127 201 - 1,702 Tax on net operating income (7) (580) (262) 29 - (820) Adjusted net operating income 1,625 2,146 630 (145) - 4,256 Net cost of net debt (398) Non-controlling interests (48) Adjusted net income 3,810 Adjusted fully-diluted earnings per share ($) 1.58 (a) Except for earnings per share. 1st half 2016 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 7,776 739 729 230 - 9,474 Total divestments 1,363 52 333 10 - 1,758 Cash flow from operating activities 3,096 1,139 225 303 - 4,763 Financial Report – 1st half 2016. TOTAL 29 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 1st half 2015 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 9,723 37,257 40,039 9 - 87,028 Intersegment sales 9,305 14,350 495 108 (24,258) - Excise taxes - (1,940) (8,856) - - (10,796) Revenues from sales 19,028 49,667 31,678 117 (24,258) 76,232 Operating expenses (11,418) (45,899) (30,371) (419) 24,258 (63,849) Depreciation, depletion and impairment of tangible assets and mineral interests (5,770) (543) (376) (14) - (6,703) Operating income 1,840 3,225 931 (316) - 5,680 Equity in net income (loss) of affiliates and other items 1,088 869 423 468 - 2,848 Tax on net operating income (1,277) (879) (324) (175) - (2,655) Net operating income 1,651 3,215 1,030 (23) - 5,873 Net cost of net debt (352) Non-controlling interests 113 Net income 5,634 1st half 2015 (adjustments) (a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (304) - - - - (304) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (304) - - - - (304) Operating expenses (142) 317 44 - - 219 Depreciation, depletion and impairment of tangible assets and mineral interests (1,240) (31) (23) - - (1,294) Operating income (b) (1,686) 286 21 - - (1,379) Equity in net income (loss) of affiliates and other items (55) 590 285 - - 820 Tax on net operating income 473 (110) (22) - - 341 Net operating income (b) (1,268) 766 284 - - (218) Net cost of net debt - Non-controlling interests 165 Net income (53) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals Services – on operating income - 434 44 - – on net operating income - 288 38 - 30 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 1st half 2015 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) (a) Chemicals Services Non-Group sales 10,027 37,257 40,039 9 - 87,332 Intersegment sales 9,305 14,350 495 108 (24,258) - Excise taxes - (1,940) (8,856) - - (10,796) Revenues from sales 19,332 49,667 31,678 117 (24,258) 76,536 Operating expenses (11,276) (46,216) (30,415) (419) 24,258 (64,068) Depreciation, depletion and impairment of tangible assets and mineral interests (4,530) (512) (353) (14) - (5,409) Adjusted operating income 3,526 2,939 910 (316) - 7,059 Equity in net income (loss) of affiliates and other items 1,143 279 138 468 - 2,028 Tax on net operating income (1,750) (769) (302) (175) - (2,996) Adjusted net operating income 2,919 2,449 746 (23) - 6,091 Net cost of net debt (352) Non-controlling interests (52) Adjusted net income 5,687 Adjusted fully-diluted earnings per share ($) 2.47 (a) Except for earnings per share. 1st half 2015 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 13,804 899 651 45 - 15,399 Total divestments 1,541 2,640 679 17 - 4,877 Cash flow from operating activities 6,238 2,014 1,023 (156) - 9,119 Financial Report – 1st half 2016. TOTAL 31 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 2nd quarter 2016 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 3,344 16,567 17,305 (1) - 37,215 Intersegment sales 4,159 5,540 208 81 (9,988) - Excise taxes - (924) (4,580) - - (5,504) Revenues from sales 7,503 21,183 12,933 80 (9,988) 31,711 Operating expenses (4,956) (19,521) (12,208) (293) 9,988 (26,990) Depreciation, depletion and impairment of tangible assets and mineral interests (2,531) (246) (183) (8) - (2,968) Operating income 16 1,416 542 (221) - 1,753 Equity in net income (loss) of affiliates and other items 569 260 34 98 - 961 Tax on net operating income 180 (379) (190) (8) - (397) Net operating income 765 1,297 386 (131) - 2,317 Net cost of net debt (199) Non-controlling interests (30) Net income 2,088 2nd quarter 2016 (adjustments) (a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (6) - - - - (6) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (6) - - - - (6) Operating expenses (358) 451 108 - - 201 Depreciation, depletion and impairment of tangible assets and mineral interests (200) - - - - (200) Operating income (b) (564) 451 108 - - (5) Equity in net income (loss) of affiliates and other items - (27) (62) - - (89) Tax on net operating income 202 (145) (38) - - 19 Net operating income (b) (362) 279 8 - - (75) Net cost of net debt (5) Non-controlling interests (6) Net income (86) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals Services – on operating income - 516 118 - – on net operating income - 331 84 - 32 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 2nd quarter 2016 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) (a) Chemicals Services Non-Group sales 3,350 16,567 17,305 (1) - 37,221 Intersegment sales 4,159 5,540 208 81 (9,988) - Excise taxes - (924) (4,580) - - (5,504) Revenues from sales 7,509 21,183 12,933 80 (9,988) 31,717 Operating expenses (4,598) (19,972) (12,316) (293) 9,988 (27,191) Depreciation, depletion and impairment of tangible assets and mineral interests (2,331) (246) (183) (8) - (2,768) Adjusted operating income 580 965 434 (221) - 1,758 Equity in net income (loss) of affiliates and other items 569 287 96 98 - 1,050 Tax on net operating income (22) (234) (152) (8) - (416) Adjusted net operating income 1,127 1,018 378 (131) - 2,392 Net cost of net debt (194) Non-controlling interests (24) Adjusted net income 2,174 Adjusted fully-diluted earnings per share ($) 0.90 (a) Except for earnings per share. 2nd quarter 2016 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 3,539 480 339 208 - 4,566 Total divestments 448 23 296 6 - 773 Cash flow from operating activities 983 1,560 (15) 354 - 2,882 Financial Report – 1st half 2016. TOTAL 33 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 2nd quarter 2015 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales 4,498 19,793 20,419 5 - 44,715 Intersegment sales 4,921 7,383 223 56 (12,583) - Excise taxes - (1,007) (4,439) - - (5,446) Revenues from sales 9,419 26,169 16,203 61 (12,583) 39,269 Operating expenses (5,449) (24,182) (15,508) (180) 12,583 (32,736) Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (291) (202) (9) - (2,831) Operating income 1,641 1,696 493 (128) - 3,702 Equity in net income (loss) of affiliates and other items 319 107 503 174 - 1,103 Tax on net operating income (909) (433) (193) (93) - (1,628) Net operating income 1,051 1,370 803 (47) - 3,177 Net cost of net debt (164) Non-controlling interests (42) Net income 2,971 2nd quarter 2015 (adjustments) (a) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Non-Group sales (158) - - - - (158) Intersegment sales - - - - - - Excise taxes - - - - - - Revenues from sales (158) - - - - (158) Operating expenses (2) 123 51 - - 172 Depreciation, depletion and impairment of tangible assets and mineral interests (194) (31) (23) - - (248) Operating income (b) (354) 92 28 - - (234) Equity in net income (loss) of affiliates and other items (191) (71) 374 - - 112 Tax on net operating income 36 - (24) - - 12 Net operating income (b) (509) 21 378 - - (110) Net cost of net debt - Non-controlling interests (4) Net income (114) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect Upstream Refining & Marketing & Corporate Chemicals Services – on operating income - 199 51 - – on net operating income - 138 43 - 34 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 2nd quarter 2015 (adjusted) Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) (a) Chemicals Services Non-Group sales 4,656 19,793 20,419 5 - 44,873 Intersegment sales 4,921 7,383 223 56 (12,583) - Excise taxes - (1,007) (4,439) - - (5,446) Revenues from sales 9,577 26,169 16,203 61 (12,583) 39,427 Operating expenses (5,447) (24,305) (15,559) (180) 12,583 (32,908) Depreciation, depletion and impairment of tangible assets and mineral interests (2,135) (260) (179) (9) - (2,583) Adjusted operating income 1,995 1,604 465 (128) - 3,936 Equity in net income (loss) of affiliates and other items 510 178 129 174 - 991 Tax on net operating income (945) (433) (169) (93) - (1,640) Adjusted net operating income 1,560 1,349 425 (47) - 3,287 Net cost of net debt (164) Non-controlling interests (38) Adjusted net income 3,085 Adjusted fully-diluted earnings per share ($) 1.34 (a) Except for earnings per share. 2nd quarter 2015 Upstream Refining & Marketing & Corporate Intercompany Total (in millions of dollars) Chemicals Services Total expenditures 5,653 465 436 36 - 6,590 Total divestments 379 874 627 13 - 1,893 Cash flow from operating activities 2,713 1,700 379 (60) - 4,732 Financial Report – 1st half 2016. TOTAL 35 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 9) Reconciliation of the information by business segment with Consolidated Financial Statements Adjusted Adjustments (a) Consolidated statement 1st half 2016 of income (in millions of dollars) Sales 70,188 (132) 70,056 Excise taxes (10,823) - (10,823) Revenues from sales 59,365 (132) 59,233 Purchases, net of inventory variation (38,487) 300 (38,187) Other operating expenses (11,676) (366) (12,042) Exploration costs (380) (350) (730) Depreciation, depletion and impairment of tangible assets and mineral interests (5,448) (200) (5,648) Other income 343 329 672 Other expense (119) (84) (203) Financial interest on debt (530) (11) (541) Financial income from marketable securities & cash equivalents 11 - 11 Cost of net debt (519) (11) (530) Other financial income 503 - 503 Other financial expense (321) - (321) Equity in net income (loss) of affiliates 1,296 (22) 1,274 Income taxes (699) 417 (282) Consolidated net income 3,858 (119) 3,739 Group share 3,810 (116) 3,694 Non-controlling interests 48 (3) 45 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments (a) Consolidated statement 1st half 2015 of income (in millions of dollars) Sales 87,332 (304) 87,028 Excise taxes (10,796) - (10,796) Revenues from sales 76,536 (304) 76,232 Purchases, net of inventory variation (51,035) 478 (50,557) Other operating expenses (12,131) (172) (12,303) Exploration costs (902) (87) (989) Depreciation, depletion and impairment of tangible assets and mineral interests (5,409) (1,294) (6,703) Other income 884 1,459 2,343 Other expense (235) (603) (838) Financial interest on debt (493) - (493) Financial income from marketable securities & cash equivalents 59 - 59 Cost of net debt (434) - (434) Other financial income 397 - 397 Other financial expense (329) - (329) Equity in net income (loss) of affiliates 1,311 (36) 1,275 Income taxes (2,914) 341 (2,573) Consolidated net income 5,739 (218) 5,521 Group share 5,687 (53) 5,634 Non-controlling interests 52 (165) (113) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 36 TOTAL. Financial Report – 1st half 2016 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2016 Adjusted Adjustments (a) Consolidated statement 2nd half 2016 of income (in millions of dollars) Sales 37,221 (6) 37,215 Excise taxes (5,504) - (5,504) Revenues from sales 31,717 (6) 31,711 Purchases, net of inventory variation (21,130) 582 (20,548) Other operating expenses (5,875) (31) (5,906) Exploration costs (186) (350) (536) Depreciation, depletion and impairment of tangible assets and mineral interests (2,768) (200) (2,968) Other income 172 - 172 Other expense (65) (68) (133) Financial interest on debt (262) (5) (267) Financial income from marketable securities & cash equivalents 1 - 1 Cost of net debt (261) (5) (266) Other financial income 312 - 312 Other financial expense (166) - (166) Equity in net income (loss) of affiliates 797 (21) 776 Income taxes (349) 19 (330) Consolidated net income 2,198 (80) 2,118 Group share 2,174 (86) 2,088 Non-controlling interests 24 6 30 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments (a) Consolidated statement 2nd half 2015 of income (in millions of dollars) Sales 44,873 (158) 44,715 Excise taxes (5,446) - (5,446) Revenues from sales 39,427 (158) 39,269 Purchases, net of inventory variation (26,603) 250 (26,353) Other operating expenses (5,955) (76) (6,031) Exploration costs (350) (2) (352) Depreciation, depletion and impairment of tangible assets and mineral interests (2,583) (248) (2,831) Other income 358 364 722 Other expense (136) (260) (396) Financial interest on debt (231) - (231) Financial income from marketable securities & cash equivalents 28 - 28 Cost of net debt (203) - (203) Other financial income 255 - 255 Other financial expense (163) - (163) Equity in net income (loss) of affiliates 677 8 685 Income taxes (1,601) 12 (1,589) Consolidated net income 3,123 (110) 3,013 Group share 3,085 (114) 2,971 Non-controlling interests 38 4 42 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial Report – 1st half 2016. TOTAL 37 2 38 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2016 10) Changes in progress in the Group structure Upstream Refining & Chemicals – TOTAL has signed in January 2016 an agreement for the transfer to Zarubezhneft of a 20% stake and the operatorship in Kharyaga, Russia. At June 30, 2016 the assets and liabilities remain respectively classified in the consolidated balance sheet in “assets classified as held for sale” for an amount of $245 million and “liabilities directly associated with the assets classified as held for sale” for an amount of $165 million. The assets and liabilities concerned mainly include tangible assets for an amount of $189 million and deferred tax liabilities for an amount of $92 million. – Following the sale offering of its electroplating activity Atotech in May 2016, the assets and liabilities have been respectively classified in the consolidated balance sheet in “assets classified as held for sale” for an amount of $1,012 million and “liabilities directly associated with the assets classified as held for sale” for an amount of $482 million at June 30, 2016. The assets and liabilities concerned mainly include tangible assets for an amount of $327 million, inventories for an amount of $182 million, receivables for an amount of $229 million, cash and cash equivalents for an amount of $98 million, non-current liabilities for an amount of $188 million, payables for an amount of $83 million and other creditors and accrued liabilities for an amount of $193 million. 11) Post-closing and other events – In May 2016, TOTAL and Saft Group announced that, following the signature of an agreement between the companies, TOTAL filed a friendly tender offer on all of the issued and outstanding shares in the capital of Saft with the French Financial Markets Authority (Autorité des marchés financiers (“AMF”)). The proposed offer targets all of Saft’s issued and outstanding shares at a price of €36.50 per share, ex-dividend of €0.85 per share, valuing Saft’s equity at €950 million. On July 18, 2016, the “AMF” published the results of the public tender offer, following which TOTAL holds 23,456,093 Saft Group shares representing 90.14% of the capital and voting rights of Saft Group. TOTAL. Financial Report – 1st half 2016 Design and Production: Agence Marc Praquin see you on total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Capital social : 6 257 823 152,50 euros 542 051 180 RCS Nanterre total.com Switchboard: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2016, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,017 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| FIRST HALF 2017 financial report Contents 1. Financial report 1. Key figures.......................................1 2. Highlights since the beginning of 2017 ...........................................2 3. Analysis of business segments ........2 3.1. Exploration & Production...................................................2 3.2. Gas, Renewables & Power ................................................3 3.3. Refining & Chemicals.........................................................3 3.4. Marketing & Services .........................................................4 4. Group results ...................................5 4.1. Net operating income from business segments ..............5 4.2. Net income (Group share)..................................................5 4.3. Adjusted fully-diluted earnings per share.........................5 4.4. Divestments – Acquisitions ...............................................5 4.5. Net cash flow .....................................................................5 4.6. Return on equity.................................................................5 5. TOTAL S.A., parent company accounts ..........................6 6. Summary and outlook .....................6 7. Other information.............................7 7.1. Operating information by segment ...................................7 7.2. Adjustments to net income (Group share) ........................8 7.3. 2017 sensitivities ...............................................................8 7.4. Investments – divestments................................................9 7.5. Net-debt-to-equity ratio ....................................................9 7.6. Return on equity.................................................................9 7.7. Return on average capital employed..............................10 8. Principal risks and uncertainties for the remaining six months of 2017..........................................11 9. Principal transactions with related parties ........................11 2. Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information .......................13 2. Consolidated statement of income 14 3. Consolidated statement of comprehensive income..................15 4. Consolidated statement of income 16 5. Consolidated statement of comprehensive income..................17 6. Consolidated balance sheet...........18 7. Consolidated statement of cash flow ...................................19 8. Consolidated statement of cash flow ...................................20 9. Consolidated statement of changes in shareholders’ equity.....21 10. Notes to the Consolidated Financial Statements for the first six months of 2017 ......22 1) Accounting policies .........................................................22 2) Changes in the Group structure ......................................22 3) Adjustment items .............................................................22 4) Shareholders’ equity ........................................................24 5) Financial debt...................................................................26 6) Related parties .................................................................26 7) Other risks and contingent liabilities...............................26 8) Information by business segment...................................28 9) Reconciliation of the information by business segment with Consolidated Financial Statements.........36 Financial report 1st half 2017 This translation is a non-binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements for the first half of 2017 have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and all the entities included in the consolidation, and that the half-year financial report on pages 1 to 12 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the half-year financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 13 of this half-year financial report.” Courbevoie, July 26, 2017 Patrick Pouyanné Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 27, 2017 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial report – 1st half 2017. TOTAL i ii Abbreviations b: cf: / d: / y: €: $ and / or dollar: U.S. dollar metric ton t: barrel of oil equivalent Boe: thousand boe / d kboe / d: thousand b / d kb / d: British thermal unit Btu: million M: billion B: The European Refining Margin Indicator (ERMI) is a Group indicator ERMI: intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. The indicator margin may not be representative of the actual margins achieved by the Group in any period because of TOTAL’s particular refinery configurations, product mix effects or other company-specific operating conditions. International Financial Reporting Standards liquefied natural gas return on equity return on average capital employed barrel cubic feet per day per year euro IFRS: LNG: ROE ROACE: TOTAL. Financial report – 1st half 2017 Conversion table 1 boe = 1 barrel of crude oil = approx. 5,403 cf of gas in 2016* 1 b / d = approx. 50 t / y 1 t of oil = approx. 7.5 b of oil (assuming a specific gravity of 37° API) 1 Bm³ / y = approx. 0.1 Bcf / d 1 m³ = approx. 35.3 cf 1 Mt of LNG = approx. 48 Mcf of gas 1 Mt / y of LNG = approx. 131 Mcf / d This ratio is calculated based on the actual average equivalent energy content of TOTAL’s natural gas reserves and is subject to change. Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Company” as used in this half-year financial report refers to TOTAL S.A., which is the parent company of the Group. © TOTAL S.A. July 2017 Financial report – 1st half 2017 1 Financial report 1. Key figures (1) 1H17 (in millions of dollars, except effective tax rate, vs earnings per share and number of shares) 1H17 1H16 1H16 Adjusted net operating income from business segments (a) 5,515 4,402 +25% – Exploration & Production 2,741 1,429 +92% – Gas, Renewables & Power 156 116 +34% – Refining & Chemicals 1,884 2,148 -12% – Marketing & Services 734 709 +4% Contribution of equity affiliates to adjusted net income 1,169 1,296 -10% Group effective tax rate (b) 29.9% 22.3% - Adjusted net income 5,032 3,810 +32% Adjusted fully-diluted earnings per share (dollars) (c) 1.98 1.58 +25% Adjusted fully-diluted earnings per share (euros) (d) 1.83 1.41 +29% Fully-diluted weighted-average shares (millions) 2,471 2,365 +5% Net income (Group share) 4,886 3,694 +32% Investments (e) 7,883 9,474 -17% Divestments (f) 3,258 1,758 +85% Net investments (g) 4,625 7,713 -40% Organic investments (h) 6,893 8,674 -21% Resource acquisitions 64 55 +16% Operating cash flow before working capital changes (i) 10,021 7,708 +30% Cash flow from operations 9,341 4,763 +96% (a) The new Gas, Renewables & Power segment reflects the Group’s ambition in low-carbon energies. It encompasses Downstream Gas activities previously integrated in the Upstream (now Exploration & Production) segment, New Energies activities (excluding biotechnologies) previously integrated in the Marketing & Services segment and a new Innovation & Energy Efficiency division. The Exploration & Production, Refining & Chemicals (which includes a new Biofuels division) and Marketing & Services segments have been restated accordingly. 2015 and 2016 historical data is available at total.com. (b) Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). (c) In accordance with IFRS norms, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the perpetual subordinated bond coupon. (d) Average €-$ exchange rate: 1.08302 in the first half 2017. (e) Including acquisitions and increases in non-current loans. (f) (g) Net investments = investments - divestments - repayment of non-current loans - other operations with non-controlling interests. (h) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (i) Operating cash flow before working capital changes, previously referred to as adjusted cash flow from operations, is defined as cash flow from operating activities before changes in Including divestments and reimbursements of non-current loans. working capital at replacement cost. The inventory valuation effect is explained on page 12. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 8. Financial report – 1st half 2017. TOTAL 1 1 Financial report – 1st half 2017 Highlights since the beginning of 2017 / Analysis of business segments 2. Highlights since the beginning of 2017 (1) – Signed final agreement sealing strategic alliance with Petrobras and Total’s entry into the Iara and Lapa concessions, as well as Downstream gas assets in Brazil – Investment of $1.7 billion to develop petrochemical activities in Texas through a new joint venture with Borealis and Nova, with Total holding a 50% interest – Signed contract for the development of phase 11 of the giant South Pars gas field in Iran – Signed comprehensive partnership agreement with Sonatrach in Algeria – Started up operations on the giant Al-Shaheen field in Qatar – Started up Moho Nord in the Congo and the Badamyar gas project in Myanmar – Investment of $450 million to increase the capacity of the Daesan integrated refining & petrochemicals platform in South Korea by 30%, a 50 / 50 joint venture between Total and Hanwha – Started up the first phase of the Antwerp platform upgrade project, with production of ethylene using ethane feedstock – Inaugurated the revamped Carling petrochemicals complex – Signed new LNG supply contract with JERA in Japan, the largest – Launched phase 3 of Halfaya in Iraq – Launched the first development phase of Vaca Muerta shale LNG buyer, and MoU with Pavilion Energy to supply LNG as bunker fuel in Singapore resources in Argentina and increased interest in Aguada Pichana Este license (27% to 41%) – Started up a solar power plant in Nanao in Japan and launched construction of a solar plant in Miyako – Obtained exploration permits in the deep offshore Gulf of Mexico, with three in Mexico and four in the United States close to the North Platte discovery, Mauritania, Senegal and Ireland (Porcupine basin) – Acquired PitPoint B.V., Europe’s third-largest provider of natural gas vehicle (NGV) fuels – Finalized the sale of Atotech for $3.2 billion – Announced sale of stakes in several mature fields in Gabon for – Increased stake to 50% in the Absheron license, currently under approximately $350 million development in Azerbaijan 3. Analysis of business segments 3.1. Exploration & Production 3.1.1. Environment – liquids and gas price realizations (a) 1H17 vs 1H17 1H16 1H16 Brent ($ / b) 51.7 39.8 +30% Average liquids price ($ / b) 47.1 36.8 +28% Average gas price ($ / Mbtu) 4.01 3.44 +17% Average hydrocarbon price ($ / boe) 36.7 29.6 +24% (a) Consolidated subsidiaries, excluding fixed margins. 3.1.2. Production 1H17 vs Hydrocarbon production 1H17 1H16 1H16 Combined production (kboe / d) 2,534 2,452 +3% Liquids (kb / d) 1,300 1,269 +2% Gas (Mcf / d) 6,696 6,453 +4% In the first half 2017, hydrocarbon production was 2,534 kboe / d, an increase of more than 3% compared to the first half 2016, due to the following: – +1% portfolio effect, mainly due to the acquisition of an additional 75% interest in the Barnett shale in the United States and asset sales in Russia and Norway; – +5% due to new project ramp-ups, notably Kashagan, Incahuasi, Surmont, Angola LNG, Moho Nord, and Laggan-Tormore; – +1% due to improved security conditions in Libya; – -4% due to natural field decline, the PSC price effect and OPEC quotas. (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. 2 TOTAL. Financial report – 1st half 2017 Financial report – 1st half 2017 1 Analysis of business segments 3.1.3. Results 1H17 vs (in millions of dollars, except effective tax rate) 1H17 1H16 1H16 Adjusted net operating income (a) 2,741 1,429 +92% Including income from equity affiliates 688 693 -1% Effective tax rate (b) 39.3% -6.1% Investments 6,084 7,768 -22% Divestments 245 1,264 -81% Organic investments 5,802 7,405 -22% Operating cash flow before working capital changes 6,279 4,073 +54% Cash flow from operations 5,000 2,696 +85% (a) Details on adjustment items are shown in the business segment information annex to financial statements. (b) Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). Operating cash flow before working capital changes in the first half 2017 was 6,279 M$, an increase of 54% compared to the same period a year ago, notably due to the ramp ups and strong performance of cash-accretive projects, such as Moho Nord in Congo, as well as the cost reduction programs. The segment was thus able to fully capture upside from higher oil and gas prices compared to the first half 2016. The Exploration & Production segment’s adjusted net operating income was 2,741 M$ in the first half 2017, an increase of 92% compared to the first half 2016, notably due to production growth, cost reduction, and the increase in oil and gas prices. 3.2. Gas, Renewables & Power 3.2.1. Results 1S17 vs (In millions of dollars) 1S17 1S16 1S16 Adjusted net operating income (a) 156 116 +34% Investments 392 242 +62% Divestments 27 104 -74% Organic investments 170 223 -24% Operating cash flow before working capital changes 130 (51) ns Cash flow from operations 11 (218) ns (a) Detail of adjustment items shown in the business segment information annex to financial statements. Adjusted net operating income for the Gas, Renewables & Power segment increased to 156 M$ in the first half 2017, notably due to the contribution of gas activities. 3.3. Refining & Chemicals 3.3.1. Refinery throughput and utilization rates (a) 1H17 vs 1H17 1H16 1H16 Total refinery throughput (kb / d) 1,796 1,951 -8% France 600 639 -6% Rest of Europe 742 824 -10% Rest of world 454 488 -7% Utlization rate based on crude only (b) 86% 84% - (a) Includes share of TotalErg, as well as refineries in the French Antilles and Africa that are reported in the Marketing & Services segment. (b) Based on distillation capacity at the beginning of the year. Refinery throughput decreased by 8% in the first half 2017 compared to the first half 2016, due in particular to the restructuring of European refining activities which are now in effect with the ending of crude oil refining at La Mede and a 50% capacity reduction at Lindsey. Financial report – 1st half 2017. TOTAL 3 1 Financial report – 1st half 2017 Analysis of business segments 3.3.2. Results 1H17 vs (in millions of dollars, except the ERMI) 1H17 1H16 1H16 European Refining Margin Indicator – ERMI ($ / t) 40.0 35.1 +14% Adjusted net operating income (a) 1,884 2,148 -12% Investments 667 741 -10% Divestments 2,760 52 x53.1 Organic investments 603 690 -13% Operating cash flow before working capital changes 2,386 2,458 -3% Cash flow from operations 3,737 1,142 x3.3 (a) Detail of adjustment items shown in the business segment information annex to financial statements. Refining margins remained at a good level in the first half 2017 and petrochemicals also continued to benefit from a favorable price environment. Refining & Chemicals adjusted net operating income was 1,884 M$ in the first half 2017, a decrease of 12% compared to the first half 2016 notably due to significant maintenance activities at major platforms. Operating cash flow before working capital changes was 2,386 M$ in the first half 2017, a 3% decrease compared to the first half 2016, despite significant maintenance programs. 3.4. Marketing & Services 3.4.1. Petroleum product sales 1H17 vs (sales in kb / d) (a) 1H17 1H16 1H16 Total Marketing & Services sales 1,744 1,775 -2% Europe 1,039 1,068 -3% Rest of world 705 707 - (a) Excludes trading and bulk refining sales, includes share of TotalErg Petroleum product sales decreased by 2% in the first half 2017 compared to the same period last year, notably due to the sale of the retail network in Turkey in 2016. 3.4.2. Results 1H17 vs (in millions of dollars) 1H17 1H16 1H16 Adjusted net operating income (a) 734 709 +4% Investments 697 502 +39% Divestments 218 330 -34% Organic investments 280 334 -16% Operating cash flow before working capital changes 1,013 962 +5% Cash flow from operations 542 841 -36% (a) Detail of adjustment items shown in the business segment information annex to financial statements. The Marketing & Services segment is growing and continues to fully capture the benefit of strong marketing margins. Adjusted net operating income increased by 4% to 734 M$ in the first half 2017 compared to the same period a year ago. 4 TOTAL. Financial report – 1st half 2017 Financial report – 1st half 2017 1 Group results 4. Group results 4.1. Net operating income from business segments Adjusted net operating income from the business segments was 5,515 M$ in the first half 2017, a 25% increase compared to the first half 2016, mainly due to the strong contribution from the Exploration & Production segment, which fully captured the benefit of project ramp-ups and higher prices. 4.2. Net income (Group share) Adjusted net income was 5,032 M$ in the first half 2017, an increase of 32% compared to the first half 2016. This very positive evolution is the result of ongoing efforts to reduce the breakeven and demonstrates the Group’s ability to capture upside from higher prices. Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value (1). Total adjustments affecting net income (2) were -146 M$ in the first half 2017, mainly due to the inventory effect, an impairment related to the Fort Hills project in Canada following the announced cost increase and the gain on the sale of Atotech. The Group effective tax rate was 29.9% in the first half 2017 compared to 22.3% in the first half 2016, mainly due to the increase in the effective tax rate for the Exploration & Production segment in a higher price environment 4.3. Adjusted fully-diluted earnings per share Adjusted earnings per share was 1.98 dollars in the first half 2017 compared to 1.58 dollars in the first half 2016, an increase of 25% calculated on the basis of 2,471 million fully-diluted weighted- average shares. The number of fully-diluted shares was 2,503 million on June 30, 2017. 4.4. Divestments – Acquisitions Asset sales were 2,918 M$ in the first half 2017, essentially comprised of the sale of Atotech and Société du Pipeline Méditerranée Rhône (SPMR). Acquisitions were 650 M$ in the first half 2017, comprised mainly of a 23% equity share in Tellurian, a retail and logistics network in East Africa, PitPoint B.V. and an additional interest in the Baudroie- Mérou license in Gabon. 4.5. Net cash flow The Group’s net cash flow (3) was 5,396 M$ in the first half 2017 compared to -5 M$ in the first half 2016, mainly due to the 2,313 M$ increase in operating cash flow before working capital changes, the sale of Atotech, and lower organic investments. 4.6. Return on equity Return on equity from July 1, 2016, to June 30, 2017, was 9.3% (4), an increase compared to last year. (1) Details shown on page 8. (2) Details shown on page 8 and in the annex to the financial statements. (3) Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests). (4) Details shown on page 9. Financial report – 1st half 2017. TOTAL 5 1 Financial report – 1st half 2017 TOTAL S.A., parent company accounts / Summary and outlook 5. TOTAL S.A., parent company accounts Net income for TOTAL S.A., the parent company, was 1,460 M€ in the first half 2017 compared to 1,142 M€ in the first half 2016. 6. Summary and outlook Oil prices remain volatile at the start of the third quarter in a context of ongoing high inventory levels. In this uncertain environment, the Group’s strong financial performance confirms the success of its strategy to reduce its breakeven point and grow its cash flow. platform will be affected by the finalization of the upgrade program, which should be completed by the end of the third quarter. In addition, maintenance activities are planned at Port Arthur in the United States. In the Upstream, annual production growth should be more than 4% in 2017, supported by the start-up in mid-July of operations on the Al-Shaheen field in Qatar and the continued ramp-up of new projects, notably Kashagan in Kazahkstan and Moho Nord in Congo. Start-ups of new projects will continue in the second half, mainly with Libra Pioneiro in Brazil and Edradour-Glenlivet in the United Kingdom. In the Downstream, refining margins (supported by cracks for fuel oil and gasoline) and petrochemical margins remain favorable at the start of the third quarter. Availability of the integrated Antwerp The Downstream generated 3.4 B$ of operating cash flow before working capital changes in the first half and is well positioned to achieve around 7 B$ for the full-year 2017. The Group is continuing to relentlessly pursue its efforts to reduce the cash breakeven. The good results of the cost reduction program allow the Group to confirm its objective of 3.5 B$ for 2017, and the decrease of production costs to 5.5 $ / boe in 2017 and then to 5 $ / boe in 2018. Organic investments for the year should be between 14-15 B$, which will allow the Group to sustain its growth. 6 TOTAL. Financial report – 1st half 2017 Financial report – 1st half 2017 1 Other information 7. Other information 7.1. Operating information by segment 7.1.1. Exploration & Production 1H17 Combined liquids and gas vs production by region (kboe/d) 1H17 1H16 1H16 Europe and Central Asia 776 779 - Africa 646 632 +2% Middle East and North Africa 524 518 +1% Americas 339 255 +33% Asia Pacific 249 268 -7% Total production 2,534 2,452 +3% Including equity affiliates 621 624 - 1H17 Liquids production vs by region (kb/d) 1H17 1H16 1H16 Europe and Central Asia 268 251 +7% Africa 495 515 -4% Middle East and North Africa 384 374 +3% Americas 126 99 +27% Asia Pacific 28 32 -13% Total production 1,300 1,269 +2% Including equity affiliates 254 253 +1% 1H17 Gas production vs by region (Mcf/d) 1H17 1H16 1H16 Europe and Central Asia 2,740 2,845 -4% Africa 696 579 +20% Middle East and North Africa 776 799 -3% Americas 1,197 871 +37% Asia Pacific 1,287 1,359 -5% Total production 6,696 6,453 +4% Including equity affiliates 1,921 1,983 -3% 1H17 vs Liquefied natural gas 1H17 1H16 1H16 LNG sales (a) (Mt) 5.62 5.50 +2% (a) Sales, Group share, excluding trading; 2016 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2016 SEC coefficient. Financial report – 1st half 2017. TOTAL 7 1 Financial report – 1st half 2017 Other information 7.1.2. Downstream (Refining & Chemicals and Marketing & Services) 1H17 Petroleum product sales vs by region (kb/d) (a) 1H17 1H16 1H16 Europe 2,144 2,330 -8% Africa 573 549 +4% Americas 612 564 +9% Rest of world 716 738 -3% Total consolidated sales 4,045 4,181 -3% Including bulk sales 577 708 -19% Including trading 1,724 1,698 +2% (a) Includes share of TotalErg. 7.2. Adjustments to net income (Group share) (in millions of dollars) 1H17 1H16 Special items affecting net income (Group share) 128 (336) – Gain (loss) on asset sales 2,264 344 – Restructuring charges (59) (4) – Impairments (1,750) (178) – Other (327) (498) After-tax inventory effect: FIFO vs. replacement cost (255) 222 Effect of changes in fair value (19) (2) Total adjustments affecting net income (146) (116) 7.3. 2017 sensitivities (a) Scenario Change Estimated Estimated impact on impact on ajusted net cash flow operating income Dollar 1.1 $ / € -0.1 $ per € +0.1 B$ ~0 B$ Brent 50 $ / b +10 $ / b +2 B$ +2.5 B$ European Refining Margin Indicator (ERMI) 35 $ / t +10 $ / t +0.5 B$ +0.6 B$ (a) Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2017. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. 8 TOTAL. Financial report – 1st half 2017 Financial report – 1st half 2017 1 Other information 7.4. Investments – divestments 1H17 vs (in millions of dollars) 1H17 1H16 1H16 Organic investments 6,893 8,674 -21% Capitalized exploration 277 400 -31% Increase in non-current loans 601 829 -28% Repayment of non-current loans (340) (401) -15% Acquisitions 650 399 +63% Asset sales 2,918 1,357 +115% Other transactions with non-controlling interests - 3 ns Net investments 4,625 7,713 -40% 7.5. Net-debt-to-equity ratio (in millions de dollars) 6 / 30 / 2017 3 / 31 / 2017 6/30/2016 Current borrowings 13,070 13,582 13,789 Net current financial assets (3,377) (3,694) (1,628) Net financial assets classified as held for sale (2) (2) (97) Non-current financial debt 41,548 42,017 41,668 Hedging instruments of non-current debt (558) (877) (1,251) Cash and cash equivalents (28,720) (27,526) (22,653) Net debt 21,961 23,500 29,828 Shareholders’ equity – Group share 107,188 103,831 97,985 Estimated dividend payable (1,762) (3,239) (1,618) Non-controlling interests 2,772 2,823 2,904 Adjusted shareholders’ equity 108,198 103,415 99,271 Net-debt-to-equity ratio 20.3% 22.7% 30.0% 7.6. Return on equity 7/01/2016 4/01/2016 1/01/2016 to to to (in millions of dollars) 6/30/2017 3/31/2017 12/31/2016 Adjusted net income 9,661 9,363 8,447 Average adjusted shareholders’ equity 103,734 99,784 96,929 Return on equity (ROE) 9.3% 9.4% 8.7% Financial report – 1st half 2017. TOTAL 9 1 Financial report – 1st half 2017 Other information 7.7. Return on average capital employed 7.7.1. Twelve months ended June 30, 2017 In millions of dollars Exploration Gas, Refining Marketing Group & Production Renewables & Chemicals & Services & Power Adjusted net operating income 4,529 479 3,931 1,584 10,609 Capital employed at 6 / 30 / 2016 (a) 107,405 4,622 12,249 5,789 129,635 Capital employed at 6 / 30 / 2017 (a) 108,618 5,363 10,957 6,937 130,831 ROACE 4.2% 9.6% 33.9% 24.9% 8.1% 7.7.2. Twelve months ended March 31, 2017 In millions of dollars Exploration Gas, Refining Marketing Group & Production Renewables & Chemicals & Services & Power Adjusted net operating income 4,213 427 4,088 1,571 10,245 Capital employed at 3 / 31 / 2016 (a) 104,826 4,669 12,555 5,836 127,754 Capital employed at 3 / 31 / 2017 (a) 106,937 5,036 11,130 6,331 128,810 ROACE 4.0% 8.8% 34.5% 25.8% 8.0% 7.7.3. Full-year 2016 In millions of dollars Exploration Gas, Refining Marketing Group & Production Renewables & Chemicals & Services & Power Adjusted net operating income 3,217 439 4,195 1,559 9,274 Capital employed at 12 / 31 / 2015 (a) 103,791 4,340 10,454 5,875 121,143 Capital employed at 12 / 31 / 2016 (a) 107,617 4,975 11,618 5,884 127,423 ROACE 3.0% 9.4% 38.0% 26.5% 7.5% (a) At replacement cost (excluding after-tax inventory effect). 10 TOTAL. Financial report – 1st half 2017 Financial report – 1st half 2017 1 Principal risks and uncertainties for the remaining six months of 2017 / Principal transactions with related parties 8. Principal risks and uncertainties for the remaining six months of 2017 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s 2016 Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 17, 2017. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2017 (pages 26 to 27 of this half-year financial report). 9. Principal transactions with related parties Information concerning the principal transactions with related parties for the first six months of 2017 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2017 (page 26 of this half-year financial report). Financial report – 1st half 2017. TOTAL 11 1 Financial report – 1st half 2017 Principal transactions with related parties Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809 / 2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, changes in regulations including environmental, currency fluctuations, as well as economic and political developments and changes in business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des marchés financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE) and net-debt-to-equity ratio. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. 12 TOTAL. Financial report – 1st half 2017 (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro- dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this half-year financial report, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole / Regnault – 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website: www.sec.gov. Consolidated Financial Statements 2 Consolidated Financial Statements 1. Statutory auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly Management Report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. Period from January 1 to June 30, 2017 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of Article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: – the review of the accompanying condensed half-yearly Consolidated Financial Statements of TOTAL S.A., for the period from January 1 to June 30, 2017, – the verification of the information presented in the half-yearly Management Report. These condensed half-yearly Consolidated Financial Statements are the responsibility of your Chairman and Chief Executive Officer and are reviewed by the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I – Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly Consolidated Financial Statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II – Specific verification We have also verified the information presented in the half-yearly Management Report on the condensed half-yearly Consolidated Financial Statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly Consolidated Financial Statements. Paris-La Défense, July 26, 2017 The statutory auditors French original signed by KPMG Audit ERNST & YOUNG Audit A division of KPMG S.A. Jacques-François Lethu Partner Eric Jacquet Partner Yvon Salaün Partner Laurent Miannay Partner Financial report – 1st half 2017. TOTAL 13 2 Consolidated Financial Statements Consolidated statement of income 2. Consolidated statement of income TOTAL (unaudited) 1st half 1st half (in millions of dollars) (a) 2017 2016 Sales 81,098 70,056 Excise taxes (10,523) (10,823) Revenues from sales 70,575 59,233 Purchases, net of inventory variation (47,385) (38,187) Other operating expenses (12,272) (12,042) Exploration costs (396) (730) Depreciation, depletion and impairment of tangible assets and mineral interests (7,377) (5,648) Other income 2,895 672 Other expense (397) (203) Financial interest on debt (676) (541) Financial income and expense from cash & cash equivalents (48) 11 Cost of net debt (724) (530) Other financial income 513 503 Other financial expense (319) (321) Equity in net income (loss) of affiliates 858 1,274 Income taxes (1,165) (282) Consolidated net income 4,806 3,739 Group share 4,886 3,694 Non-controlling interests (80) 45 Earnings per share ($) 1.93 1.54 Fully-diluted earnings per share ($) 1.92 1.53 (a) Except for per share amounts. 14 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 3. Consolidated statement of comprehensive income TOTAL (unaudited) 1st half 1st half (in millions of dollars) 2017 2016 Consolidated net income 4,806 3,739 Other comprehensive income Actuarial gains and losses 158 (213) Tax effect (53) 72 Currency translation adjustment generated by the parent company 5,464 1,528 Items not potentially reclassifiable to profit and loss 5,569 1,387 Currency translation adjustment (1,418) (1,355) Available for sale financial assets - (14) Cash flow hedge 34 32 Share of other comprehensive income of equity affiliates, net amount (463) 354 Other - 3 Tax effect (9) (3) Items potentially reclassifiable to profit and loss (1,856) (983) Total other comprehensive income (net amount) 3,713 404 Comprehensive income 8,519 4,143 Group share 8,581 4,103 Non-controlling interests (62) 40 Financial report – 1st half 2017. TOTAL 15 2 Consolidated Financial Statements Consolidated statement of income 4. Consolidated statement of income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) (a) 2017 2017 2016 Sales 39,915 41,183 37,215 Excise taxes (5,433) (5,090) (5,504) Revenues from sales 34,482 36,093 31,711 Purchases, net of inventory variation (23,398) (23,987) (20,548) Other operating expenses (6,106) (6,166) (5,906) Exploration costs (199) (197) (536) Depreciation, depletion and impairment of tangible assets and mineral interests (2,798) (4,579) (2,968) Other income 570 2,325 172 Other expense (106) (291) (133) Financial interest on debt (345) (331) (267) Financial income and expense from cash & cash equivalents (37) (11) 1 Cost of net debt (382) (342) (266) Other financial income 285 228 312 Other financial expense (159) (160) (166) Equity in net income (loss) of affiliates 310 548 776 Income taxes (472) (693) (330) Consolidated net income 2,027 2,779 2,118 Group share 2,037 2,849 2,088 Non-controlling interests (10) (70) 30 Earnings per share ($) 0.79 1.14 0.86 Fully-diluted earnings per share ($) 0.79 1.13 0.86 (a) Except for per share amounts. 16 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Consolidated statement of comprehensive income 5. Consolidated statement of comprehensive income TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2017 2017 2016 Consolidated net income 2,027 2,779 2,118 Other comprehensive income Actuarial gains and losses 32 126 (132) Tax effect (12) (41) 40 Currency translation adjustment generated by the parent company 4,524 940 (2,113) Items not potentially reclassifiable to profit and loss 4,544 1,025 (2,205) Currency translation adjustment (1,218) (200) 589 Available for sale financial assets 1 (1) (4) Cash flow hedge (79) 113 (66) Share of other comprehensive income of equity affiliates, net amount (794) 331 355 Other (3) 3 - Tax effect 30 (39) 21 Items potentially reclassifiable to profit and loss (2,063) 207 895 Total other comprehensive income (net amount) 2,481 1,232 (1,310) Comprehensive income 4,508 4,011 808 Group share 4,507 4,074 795 Non-controlling interests 1 (63) 13 Financial report – 1st half 2017. TOTAL 17 2 Consolidated Financial Statements Consolidated balance sheet 6. Consolidated balance sheet TOTAL ASSETS (in millions of dollars) 6/30/2017 3/31/2017 12/31/2016 6/30/2016 (unaudited) (unaudited) (unaudited) Non-current assets Intangible assets, net 14,119 14,048 15,362 14,207 Property, plant and equipment, net 112,659 111,100 111,971 111,420 Equity affiliates: investments and loans 21,705 21,638 20,576 20,683 Other investments 1,483 1,381 1,133 1,411 Non-current financial assets 558 877 908 1,251 Deferred income taxes 4,981 4,766 4,368 4,175 Other non-current assets 4,411 4,114 4,143 4,467 Total non-current assets 159,916 157,924 158,461 157,614 Current assets Inventories, net 14,273 14,985 15,247 15,021 Accounts receivable, net 12,923 12,235 12,213 11,933 Other current assets 14,034 13,955 14,835 14,850 Current financial assets 3,618 3,971 4,548 2,018 Cash and cash equivalents 28,720 27,526 24,597 22,653 Assets classified as held for sale 421 413 1,077 1,257 Total current assets 73,989 73,085 72,517 67,732 Total assets 233,905 231,009 230,978 225,346 LIABILITIES & SHAREHOLDERS’ EQUITY (in millions of dollars) 6/30/2017 3/31/2017 12/31/2016 6/30/2016 (unaudited) (unaudited) (unaudited) Shareholders’ equity Common shares 7,797 7,667 7,604 7,846 Paid-in surplus and retained earnings 110,305 109,583 105,547 106,343 Currency translation adjustment (10,314) (12,819) (13,871) (11,619) Treasury shares (600) (600) (600) (4,585) Total shareholders’ equity – Group share 107,188 103,831 98,680 97,985 Non-controlling interests 2,772 2,823 2,894 2,904 Total shareholders’ equity 109,960 106,654 101,574 100,889 Non-current liabilities Deferred income taxes 10,920 10,936 11,060 11,345 Employee benefits 4,127 3,711 3,746 3,887 Provisions and other non-current liabilities 16,924 16,714 16,846 17,270 Non-current financial debt 41,548 42,017 43,067 41,668 Total non-current liabilities 73,519 73,378 74,719 74,170 Current liabilities Accounts payable 21,914 21,633 23,227 20,478 Other creditors and accrued liabilities 14,862 15,151 16,720 14,983 Current borrowings 13,070 13,582 13,920 13,789 Other current financial liabilities 241 277 327 390 Liabilities directly associated with the assets classified as held for sale 339 334 491 647 Total current liabilities 50,426 50,977 54,685 50,287 Total liabilities & shareholders’ equity 233,905 231,009 230,978 225,346 18 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Consolidated statement of cash flow 7. Consolidated statement of cash flow TOTAL (unaudited) 1st half 1st half (in millions of dollars) 2017 2016 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 4,806 3,739 Depreciation, depletion, amortization and impairment 7,590 6,096 Non-current liabilities, valuation allowances and deferred taxes (247) (745) (Gains) losses on disposals of assets (2,383) (415) Undistributed affiliates’ equity earnings 206 (516) (Increase) decrease in working capital (322) (3,297) Other changes, net (309) (99) Cash flow from operating activities 9,341 4,763 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (6,001) (8,240) Acquisitions of subsidiaries, net of cash acquired (325) (122) Investments in equity affiliates and other securities (956) (283) Increase in non-current loans (601) (829) Total expenditures (7,883) (9,474) Proceeds from disposals of intangible assets and property, plant and equipment 80 992 Proceeds from disposals of subsidiaries, net of cash sold 2,696 270 Proceeds from disposals of non-current investments 142 95 Repayment of non-current loans 340 401 Total divestments 3,258 1,758 Cash flow used in investing activities (4,625) (7,716) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 421 4 – Treasury shares - - Dividends paid: – Parent company shareholders (2,000) (2,127) – Non-controlling interests (76) (75) Issuance of perpetual subordinated notes - 1,950 Payments on perpetual subordinated notes (219) (133) Other transactions with non-controlling interests - 3 Net issuance (repayment) of non-current debt 346 554 Increase (decrease) in current borrowings (2,580) (2,016) Increase (decrease) in current financial assets and liabilities 1,637 4,145 Cash flow used in financing activities (2,471) 2,305 Net increase (decrease) in cash and cash equivalents 2,245 (648) Effect of exchange rates 1,878 32 Cash and cash equivalents at the beginning of the period 24,597 23,269 Cash and cash equivalents at the end of the period 28,720 22,653 Financial report – 1st half 2017. TOTAL 19 2 Consolidated Financial Statements Consolidated statement of cash flow 8. Consolidated statement of cash flow TOTAL (unaudited) 2nd quarter 1st quarter 2nd quarter (in millions of dollars) 2017 2017 2016 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 2,027 2,779 2,118 Depreciation, depletion, amortization and impairment 2,930 4,660 3,361 Non-current liabilities, valuation allowances and deferred taxes (50) (197) (477) (Gains) losses on disposals of assets (151) (2,232) (48) Undistributed affiliates’ equity earnings 501 (295) (280) (Increase) decrease in working capital (268) (54) (1,752) Other changes, net (349) 40 (40) Cash flow from operating activities 4,640 4,701 2,882 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (3,323) (2,678) (4,094) Acquisitions of subsidiaries, net of cash acquired (6) (319) 11 Investments in equity affiliates and other securities (433) (523) (226) Increase in non-current loans (443) (158) (257) Total expenditures (4,205) (3,678) (4,566) Proceeds from disposals of intangible assets and property, plant and equipment 74 6 200 Proceeds from disposals of subsidiaries, net of cash sold - 2,696 270 Proceeds from disposals of non-current investments 133 9 2 Repayment of non-current loans 153 187 301 Total divestments 360 2,898 773 Cash flow used in investing activities (3,845) (780) (3,793) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 406 15 4 – Treasury shares - - - Dividends paid: – Parent company shareholders (1,462) (538) (1,173) – Non-controlling interests (61) (15) (72) Issuance of perpetual subordinated notes - - 1,950 Payments on perpetual subordinated notes (90) (129) - Other transactions with non-controlling interests - - 3 Net issuance (repayment) of non-current debt 290 56 400 Increase (decrease) in current borrowings (1,167) (1,413) 1,011 Increase (decrease) in current financial assets and liabilities 979 658 1,399 Cash flow used in financing activities (1,105) (1,366) 3,522 Net increase (decrease) in cash and cash equivalents (310) 2,555 2,611 Effect of exchange rates 1,504 374 (528) Cash and cash equivalents at the beginning of the period 27,526 24,597 20,570 Cash and cash equivalents at the end of the period 28,720 27,526 22,653 20 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Consolidated statement of changes in shareholders’ equity 9. Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) Common shares issued Paid-in Currency Treasury shares Shareholders’ Non- Total surplus and translation equity – controlling shareholders’ Number Amount retained adjustment Number Amount Group share interests equity (in millions of dollars) earnings As of January 1, 2016 2,440,057,883 7,670 101,528 (12,119) (113,967,758) (4,585) 92,494 2,915 95,409 Net income of the first half 2016 - - 3,694 - - - 3,694 45 3,739 Other comprehensive Income - - (91) 500 - - 409 (5) 404 Comprehensive Income - - 3,603 500 - - 4,103 40 4,143 Dividend - - (3,188) - - - (3,188) (75) (3,263) Issuance of common shares 63,204,391 176 2,490 - - - 2,666 - 2,666 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (1) - - - - 1,580 - - - - Share-based payments - - 52 - - - 52 - 52 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - 1,950 - - - 1,950 - 1,950 Payments on perpetual subordinated notes - - (77) - - - (77) - (77) Other operations with non-controlling interests - - (40) - - - (40) 6 (34) Other items - - 25 - - - 25 18 43 As of June 30, 2016 2,503,262,274 7,846 106,343 (11,619) (113,966,178) (4,585) 97,985 2,904 100,889 Net income from July 1 to December 31, 2016 - - 2,502 - - - 2,502 (35) 2,467 Other comprehensive Income - - (17) (2,252) - - (2,269) 6 (2,263) Comprehensive Income - - 2,485 (2,252) - - 233 (29) 204 Dividend - - (3,324) - - - (3,324) (18) (3,342) Issuance of common shares 27,434,856 75 1,063 - - - 1,138 - 1,138 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (1) - - (163) - 3,047,088 163 - - - Share-based payments - - 60 - - - 60 - 60 Share cancellation (100,331,268) (317) (3,505) - 100,331,268 3,822 - - - Issuance of perpetual subordinated notes - - 2,761 - - - 2,761 - 2,761 Payments on perpetual subordinated notes - - (126) - - - (126) - (126) Other operations with non-controlling interests - - (58) - - - (58) (49) (107) Other items - - 11 - - - 11 86 97 As of December 31, 2016 2,430,365,862 7,604 105,547 (13,871) (10,587,822) (600) 98,680 2,894 101,574 Net income of the first half 2017 - - 4,886 - - - 4,886 (80) 4,806 Other comprehensive Income - - 138 3,557 - - 3,695 18 3,713 Comprehensive Income - - 5,024 3,557 - - 8,581 (62) 8,519 Dividend - - (3,297) - - - (3,297) (76) (3,373) Issuance of common shares 71,170,026 193 3,103 - - - 3,296 - 3,296 Purchase of treasury shares - - - - - - - - - Sale of treasury shares (1) - - - - 4,000 - - - - Share-based payments - - 74 - - - 74 - 74 Share cancellation - - - - - - - - - Issuance of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - (142) - - - (142) - (142) Other operations with non-controlling interests - - (7) - - - (7) 7 Other items - - 3 - - - 3 9 12 As of June 30, 2017 2,501,535,888 7,797 110,305 (10,314) (10,583,822) (600) 107,188 2,772 109,960 (1) Treasury shares related to the restricted stock grants. Financial report – 1st half 2017. TOTAL 21 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 10. Notes to the Consolidated Financial Statements for the first six months of 2017 (unaudited) 1) Accounting policies The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2017 are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 ”Interim Financial Reporting”. management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. The accounting policies applied for the Consolidated Financial Statements as of June 30, 2017 do not differ significantly from those applied for the Consolidated Financial Statements as of December 31, 2016 which have been prepared on the basis of IFRS (International Financial Reporting Standards) as adopted by the European Union and IFRS as issued by the IASB (International Accounting Standards Board). New texts or amendments which were mandatory for the periods beginning on or after January 1, 2017 did not have a material impact on the Group’s Consolidated Financial Statements as of June 30, 2017. These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on-going basis by management and therefore could be revised as circumstances change or as a result of new information. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. As for accounting standards applicable for annual periods starting from January 1, 2018: – As indicated in the December 31, 2016 Notes to the Consolidated Financial Statements, the expected impacts of the application of standard IFRS 15 ”Revenue from Contracts with Customers” are not significant for the Group. – The impacts of the application of standard IFRS 9 ”Financial Instruments” are currently under review, especially for the impairment of financial assets. The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2017 requires the executive The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, the impairment of assets, the employee benefits, the asset retirement obligations and the income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2016. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Group structure 2.1) Main acquisitions and divestments Gas, Renewables & Power – In January, TOTAL acquired a 23% interest in the company Tellurian to develop an integrated gas project in the United States for an amount of $207 million. Refining & Chemicals – On January 31, 2017, TOTAL closed the sale of Atotech to the Carlyle Group for an amount of $3.2 billion. Marketing & Services – On March 28, 2017, TOTAL announced the closing of the 2.2) Divestment projects Exploration & Production – In February 2017, Total has signed an agreement for the sale of stakes and the transfer of operatorship in various mature assets in Gabon to Perenco. The transaction is subject to approval by the authorities. The assets and liabilities have been classified in the consolidated balance sheet respectively in “assets classified as held for sale” for an amount of $421 million (mainly tangible assets for an amount of $355 million) and “liabilities directly associated with the assets classified as held for sale” for an amount of $339 million at June 30, 2017. acquisition of the assets of Gulf Africa Petroleum Corporation in Kenya, Uganda and Tanzania. 3) Adjustment items Description of the business segments Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision- making body of the Group, namely the Executive Committee. 22 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 In order to implement its strategy Total has put in place a new organization fully effective since January 1, 2017, structured around four business segments following the creation of the Gas, Renewables & Power segment, alongside the Exploration & Production, Refining & Chemicals and Marketing & Services segments. Certain figures for the years 2015 and 2016 have been restated in order to reflect the new organization with four business segments. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. Adjustment items Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME (in millions of dollars) Exploration Gas, Refining & Marketing Corporate Total & Production Renewables Chemicals & Services & Power 2nd quarter 2017 Inventory valuation effect - - (372) (54) - (426) Effect of changes in fair value - (27) - - - (27) Restructuring charges (40) - - - - (40) Asset impairment charges (15) 1 - - - (14) Other items (77) (25) (39) (26) (64) (231) Total (132) (51) (411) (80) (64) (738) 2nd quarter 2016 Inventory valuation effect - - 516 118 - 634 Effect of changes in fair value - (6) - - - (6) Restructuring charges (8) - - - - (8) Asset impairment charges (200) - - - - (200) Other items (350) - (67) (8) - (425) Total (558) (6) 449 110 - (5) 1st half 2017 Inventory valuation effect - - (289) (69) - (358) Effect of changes in fair value - (27) - - - (27) Restructuring charges (40) - - - - (40) Asset impairment charges (1,869) (25) (50) - - (1,944) Other items (77) (114) (65) (26) (64) (346) Total (1,986) (166) (404) (95) (64) (2,715) 1st half 2016 Inventory valuation effect - - 311 41 - 352 Effect of changes in fair value - (3) - - - (3) Restructuring charges (19) - - - - (19) Asset impairment charges (200) - - - - (200) Other items (672) (129) (69) (8) - (878) Total (891) (132) 242 33 - (748) Financial report – 1st half 2017. TOTAL 23 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 ADJUSTMENTS TO NET INCOME, GROUP SHARE (in millions of dollars) Exploration Gas, Refining & Marketing Corporate Total & Production Renewables Chemicals & Services & Power 2nd quarter 2017 Inventory valuation effect - - (268) (42) - (310) Effect of changes in fair value - (19) - - - (19) Restructuring charges (12) (3) (39) - - (54) Asset impairment charges (27) (5) - - - (32) Gains (losses) on disposals of assets - - - 125 - 125 Other items (50) (11) (26) (18) (42) (147) Total (89) (38) (333) 65 (42) (437) 2nd quarter 2016 Inventory valuation effect - - 330 75 - 405 Effect of changes in fair value - (5) - - - (5) Restructuring charges (2) - - - - (2) Asset impairment charges (129) - (49) - - (178) Gains (losses) on disposals of assets - - - (14) - (14) Other items (226) (1) (54) (11) - (292) Total (357) (6) 227 50 - (86) 1st half 2017 Inventory valuation effect - - (210) (45) - (255) Effect of changes in fair value - (19) - - - (19) Restructuring charges (12) (8) (39) - - (59) Asset impairment charges (1,641) (59) (50) - - (1,750) Gains (losses) on disposals of assets - - 2,139 125 - 2,264 Other items (144) (78) (45) (18) (42) (327) Total (1,797) (164) 1,795 62 (42) (146) 1st half 2016 Inventory valuation effect - - 197 25 - 222 Effect of changes in fair value - (2) - - - (2) Restructuring charges (4) - - - - (4) Asset impairment charges (129) - (49) - - (178) Gains (losses) on disposals of assets 358 - - (14) - 344 Other items (314) (109) (59) (16) - (498) Total (89) (111) 89 (5) - (116) In the second quarter of 2017, the heading “Other items” includes a provision for future expenses related to an “agreement on the transition from work to retirement” signed by the social partners for an amount of $201 million in operating income and $132 million in net income, Group share. 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) Dividend As of June 30, 2017, TOTAL S.A. holds 10,583,822 of its own shares, representing 0.42% of its share capital, detailed as follows: – 10,551,887 shares allocated to TOTAL share grant plans for Group employees; and – 31,935 shares intended to be allocated to new TOTAL share The Annual Shareholders’ Meeting on May 26, 2017 approved the payment of a dividend of €2.45 per share for the 2016 fiscal year. Taking into account the three dividends of €0.61 per share that have already been paid on October 14, 2016, January 12, 2017 and April 6, 2017, the remaining balance of €0.62 per share was paid on June 22, 2017. purchase option plans or to new share grant plans. These shares are deducted from the consolidated shareholders’ equity. 24 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 The Annual Shareholders’ Meeting on May 26, 2017, approved that shareholders will be given the option to receive the 2016 final dividend in new shares or in cash. The share price of new shares has been set at 44,86€ per share. This price is equal to the average opening price of the shares on the Euronext Paris for the 20 trading days preceding the Annual Shareholders’ Meeting, reduced by the amount of the final dividend, with a 5% discount, rounded up to the nearest cent. On June 22, 2017, 17,801,936 shares have been issued at a price of 44,86€ per share. Another resolution has been approved at the Annual Shareholders’ Meeting on May 26, 2017, if one or more interim dividends are decided by the Board of Directors for the fiscal year 2017, then shareholders will be given the option to receive this or these interim dividends in new shares or in cash. A second 2017 interim dividend of €0.62 per share, decided by the Board of Directors on July 26, 2017, would be paid on January 11, 2018 (the ex-dividend date will be December 19, 2017). Earnings per share in euro Earnings per share in euro, calculated from the earnings per share in U.S. dollars converted at the average euro / USD exchange rate for the period, amounted to €0.71 per share for the 2nd quarter 2017 (€1.07 per share for the 1st quarter 2017 and €0.77 per share for the 2nd quarter 2016). Diluted earnings per share calculated using the same method amounted to €0.71 per share for the 2nd quarter 2017 (€1.06 per share for the 1st quarter 2017 and €0.76 per share for the 2nd quarter 2016). A first 2017 interim dividend of €0.62 per share, decided by the Board of Directors on April 26, 2017 would be paid on October 12, 2017 (the ex-dividend date will be September 25, 2017). Earnings per share are calculated after remuneration of perpetual subordinated notes. Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (in millions of dollars) 1st half 2017 1st half 2016 Actuarial gains and losses 158 (213) Tax effect (53) 72 Currency translation adjustment generated by the parent company 5,464 1,528 Items not potentially reclassifiable to profit and loss 5,569 1,387 Currency translation adjustment (1,418) (1,355) – unrealized gain / (loss) of the period (1,372) (1,233) – less gain / (loss) included in net income 46 122 Available for sale financial assets - (14) – unrealized gain / (loss) of the period - (14) – less gain / (loss) included in net income - - Cash flow hedge 34 32 – unrealized gain / (loss) of the period 164 34 – less gain / (loss) included in net income 130 2 Share of other comprehensive income of equity affiliates, net amount (463) 354 – unrealized gain / (loss) of the period (465) 372 – less gain / (loss) included in net income (2) 18 Other - 3 Tax effect (9) (3) Items potentially reclassifiable to profit and loss (1,856) (983) Total other comprehensive income, net amount 3,713 404 Financial report – 1st half 2017. TOTAL 25 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 Tax effects relating to each component of other comprehensive income are as follows: (in millions of dollars) 1st half 2017 1st half 2016 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 158 (53) 105 (213) 72 (141) Currency translation adjustment generated by the parent company 5,464 - 5,464 1,528 - 1,528 Items not potentially reclassifiable to profit and loss 5,622 (53) 5,569 1,315 72 1,387 Currency translation adjustment (1,418) - (1,418) (1,355) - (1,355) Available for sale financial assets - (1) (1) (14) 4 (10) Cash flow hedge 34 (8) 26 32 (7) 25 Share of other comprehensive income of equity affiliates, net amount (463) - (463) 354 - 354 Other - - - 3 - 3 Items potentially reclassifiable to profit and loss (1,847) (9) (1,856) (980) (3) (983) Total other comprehensive income 3,775 (62) 3,713 335 69 404 5) Financial debt The Group did not issue any bond during the first six months of 2017. The Group reimbursed bonds during the first six months of 2017: – Bond 4.875% 2012-2017 (AUD 100 million) – Bond 1.500% 2012-2017 (USD 1,000 million) – Bond 1.000% 2014-2017 (USD 500 million) – Bond 4.700% 2007-2017 (EUR 300 million) – Bond 4.125% 2012-2017 (AUD 150 million) – Bond 1.550% 2012-2017 (USD 1,500 million) In the context of its active cash management, the Group may temporarily increase its current borrowings, particularly in the form of commercial paper. The changes in current borrowings, cash and cash equivalents and current financial assets resulting from this cash management in the quarterly financial statements are not necessarily representative of a longer-term position. 6) Related parties The related parties are principally equity affiliates and non- consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2017. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Alitalia In the Marketing & Services segment, a civil proceeding was initiated in Italy, in 2013, against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This proceeding follows practices that had been condemned by the Italian competition authority in 2006. The parties have exchanged preliminary findings. The existence and the assessment of the alleged damages in this procedure involving multiple defendants remain contested. 26 TOTAL. Financial report – 1st half 2017 Blue Rapid and the Russian Olympic Committee – Russian regions and Interneft Blue Rapid, a Panamanian company, and the Russian Olympic Committee filed a claim for damages with the Paris Commercial Court against Elf Aquitaine, alleging a so-called non-completion by a former subsidiary of Elf Aquitaine of a contract related to an exploration and production project in Russia negotiated in the early 1990s. Elf Aquitaine believed this claim to be unfounded and opposed it. On January 12, 2009, the Commercial Court of Paris rejected Blue Rapid’s claim against Elf Aquitaine and found that the Russian Olympic Committee did not have standing in the matter. On June 30, 2011, the Court of Appeal of Paris dismissed as inadmissible the claim of Blue Rapid and the Russian Olympic Committee against Elf Aquitaine, notably on the grounds of the contract having lapsed. The judgment of the Court of Appeal of Paris is now final and binding following two decisions issued on February 18, 2016 by the French Supreme Court to put an end to this proceeding. In connection with the same facts, and fifteen years after the aforementioned exploration and production contract was rendered null and void (“caduc”), a Russian company, which was held not to be the contracting party to the contract, and two regions of the Russian Federation that were not even parties to the contract, launched an arbitration procedure against the aforementioned former subsidiary of Elf Aquitaine that was liquidated in 2005, claiming alleged damages of $22.4 billion. The arbitral tribunal issued its decision on June 19, 2017 and entirely dismissed this claim. Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 The Group has lodged a criminal complaint to denounce the fraudulent claim of which the Group believes it is a victim and, has taken and reserved its rights to take other actions and measures to defend its interests. FERC The Office of Enforcement of the U.S. Federal Energy Regulatory Commission (FERC) began in 2015 an investigation in connection with the natural gas trading activities in the United States of Total Gas & Power North America, Inc. (TGPNA), a U.S. subsidiary of the Group. The investigation covered transactions made by TGPNA between June 2009 and June 2012 on the natural gas market. TGPNA received a Notice of Alleged Violations from FERC on September 21, 2015. On April 28, 2016, FERC issued an order to show cause to TGPNA and two of its former employees, and to TOTAL S.A. and Total Gas & Power Ltd., regarding the same facts. TGPNA contests the claims brought against it. A class action has been launched to seek damages from these three companies and was dismissed by a judgment of the U.S. District court of New York issued on March 15, 2017. The claimants appealed this judgment. Yemen Due to the security conditions in the vicinity of Balhaf, Yemen LNG, in which the Group holds a stake of 39.62%, stopped its commercial production and export of LNG in April 2015, when it declared Force Majeure to its various stakeholders. The plant is in a preservation mode. Financial report – 1st half 2017. TOTAL 27 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 8) Information by business segment 1st half 2017 Exploration Gas, Refining & Marketing Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals & Services & Power Non-Group sales 4,171 5,868 35,921 35,129 9 - 81,098 Intersegment sales 10,666 583 12,362 443 195 (24,249) - Excise taxes - - (1,381) (9,142) - - (10,523) Revenues from sales 14,837 6,451 46,902 26,430 204 (24,249) 70,575 Operating expenses (7,234) (6,326) (44,796) (25,394) (552) 24,249 (60,053) Depreciation, depletion and impairment of tangible assets and mineral interests (6,412) (112) (532) (302) (19) - (7,377) Operating income 1,191 13 1,574 734 (367) - 3,145 Equity in net income (loss) of affiliates and other items 677 (32) 2,601 288 16 - 3,550 Tax on net operating income (951) (61) (498) (231) 385 - (1,356) Net operating income 917 (80) 3,677 791 34 - 5,339 Net cost of net debt (533) Non-controlling interests 80 Net income – group share 4,886 1st half 2017 Exploration Gas, Refining & Marketing Corporate Intercompany Total (adjustments) (a) & Production Renewables Chemicals & Services (in millions of dollars) & Power Non-Group sales - (27) - - - - (27) Intersegment sales - - - - - - - Excise taxes - - - - - - - Revenues from sales - (27) - - - - (27) Operating expenses (117) (114) (354) (95) (64) - (744) Depreciation, depletion and impairment of tangible assets and mineral interests (1,869) (25) (50) - - - (1,944) Operating income (b) (1,986) (166) (404) (95) (64) - (2,715) Equity in net income (loss) of affiliates and other items (214) (79) 2,156 126 - - 1,989 Tax on net operating income 376 9 41 26 22 - 474 Net operating income (b) (1,824) (236) 1,793 57 (42) - (252) Net cost of net debt - - - - - - (14) Non-controlling interests - - - - - - 120 Net income – group share - - - - - - (146) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - - (289) (69) - On net operating income - - (212) (50) - 28 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 1st half 2017 Exploration Gas, Refining & Marketing Corporate Intercompany Total (adjusted) & Production Renewables Chemicals & Services (in millions of dollars) (a) & Power Non-Group sales 4,171 5,895 35,921 35,129 9 - 81,125 Intersegment sales 10,666 583 12,362 443 195 (24,249) - Excise taxes - - (1,381) (9,142) - - (10,523) Revenues from sales 14,837 6,478 46,902 26,430 204 (24,249) 70,602 Operating expenses (7,117) (6,212) (44,442) (25,299) (488) 24,249 (59,309) Depreciation, depletion and impairment of tangible assets and mineral interests (4,543) (87) (482) (302) (19) - (5,433) Adjusted operating income 3,177 179 1,978 829 (303) - 5,860 Equity in net income (loss) of affiliates and other items 891 47 445 162 16 - 1,561 Tax on net operating income (1,327) (70) (539) (257) 363 - (1,830) Adjusted net operating income 2,741 156 1,884 734 76 - 5,591 Net cost of net debt (519) Non-controlling interests (40) Adjusted net income – group share 5,032 Adjusted fully-diluted earnings per share ($) 1.98 (a) Except for earnings per share. 1st half 2017 Exploration Gas, Refining & Marketing Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals & Services & Power Total expenditures 6,084 392 667 697 43 - 7,883 Total divestments 245 27 2,760 218 8 - 3,258 Cash flow from operating activities 5,000 11 3,737 542 51 - 9,341 Financial report – 1st half 2017. TOTAL 29 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 1st half 2016 Exploration Gas, Refining & Marketing Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals & Services & Power Non-Group sales 3,711 3,939 30,505 31,899 2 - 70,056 Intersegment sales 7,718 420 9,688 340 151 (18,317) - Excise taxes - - (1,885) (8,938) - - (10,823) Revenues from sales 11,429 4,359 38,308 23,301 153 (18,317) 59,233 Operating expenses (6,999) (4,392) (35,305) (22,068) (512) 18,317 (50,959) Depreciation, depletion and impairment of tangible assets and mineral interests (4,775) (62) (499) (296) (16) - (5,648) Operating income (345) (95) 2,504 937 (375) - 2,626 Equity in net income (loss) of affiliates and other items 1,170 114 389 51 201 - 1,925 Tax on net operating income 515 (16) (655) (275) 28 - (403) Net operating income 1,340 3 2,238 713 (146) - 4,148 Net cost of net debt (409) Non-controlling interests (45) Net income – group share 3,694 1st half 2016 Exploration Gas, Refining & Marketing Corporate Intercompany Total (adjustments) & Production Renewables Chemicals & Services (in millions of dollars) & Power Non-Group sales - (132) - - - - (132) Intersegment sales - - - - - - - Excise taxes - - - - - - - Revenues from sales - (132) - - - - (132) Operating expenses (691) - 242 33 - - (416) Depreciation, depletion and impairment of tangible assets and mineral interests (200) - - - - - (200) Operating income (b) (891) (132) 242 33 - - (748) Equity in net income (loss) of affiliates and other items 329 (8) (77) (21) - - 223 Tax on net operating income 473 27 (75) (8) - - 417 Net operating income (b) (89) (113) 90 4 - - (108) Net cost of net debt (11) Non-controlling interests 3 Net income – group share (116) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - - 311 41 On net operating income - - 198 34 30 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 1st half 2016 Exploration Gas, Refining & Marketing Corporate Intercompany Total (adjusted) & Production Renewables Chemicals & Services (in millions of dollars) (a) & Power Non-Group sales 3,711 4,071 30,505 31,899 2 - 70,188 Intersegment sales 7,718 420 9,688 340 151 (18,317) - Excise taxes - - (1,885) (8,938) - - (10,823) Revenues from sales 11,429 4,491 38,308 23,301 153 (18,317) 59,365 Operating expenses (6,308) (4,392) (35,547) (22,101) (512) 18,317 (50,543) Depreciation, depletion and impairment of tangible assets and mineral interests (4,575) (62) (499) (296) (16) - (5,448) Adjusted operating income 546 37 2,262 904 (375) - 3,374 Equity in net income (loss) of affiliates and other items 841 122 466 72 201 - 1,702 Tax on net operating income 42 (43) (580) (267) 28 - (820) Adjusted net operating income 1,429 116 2,148 709 (146) - 4,256 Net cost of net debt (398) Non-controlling interests (48) Adjusted net income – group share 3,810 Adjusted fully-diluted earnings per share ($) 1.58 (a) Except for earnings per share. 1st half 2016 Exploration Gas, Refining & Marketing Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals & Services & Power Total expenditures 7,768 242 741 502 221 - 9,474 Total divestments 1,264 104 52 330 8 - 1,758 Cash flow from operating activities 2,696 (218) 1,142 841 302 - 4,763 Financial report – 1st half 2017. TOTAL 31 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 2nd quarter 2017 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals Services & Power Non-Group sales 2,068 2,671 17,347 17,831 (2) - 39,915 Intersegment sales 5,118 274 6,016 169 90 (11,667) - Excise taxes - - (680) (4,753) - - (5,433) Revenues from sales 7,186 2,945 22,683 13,247 88 (11,667) 34,482 Operating expenses (3,547) (2,857) (21,918) (12,729) (319) 11,667 (29,703) Depreciation, depletion and impairment of tangible assets and mineral interests (2,344) (40) (245) (158) (11) - (2,798) Operating income 1,295 48 520 360 (242) - 1,981 Equity in net income (loss) of affiliates and other items 487 13 148 258 (6) - 900 Tax on net operating income (512) (24) (142) (123) 214 - (587) Net operating income 1,270 37 526 495 (34) - 2,294 Net cost of net debt (267) Non-controlling interests 10 Net income – group share 2,037 2nd quarter 2017 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (adjustments) (a) & Production Renewables Chemicals Services (in millions of dollars) & Power Non-Group sales - (27) - - - - (27) Intersegment sales - - - - - - - Excise taxes - - - - - - - Revenues from sales - (27) - - - - (27) Operating expenses (117) (25) (411) (80) (64) - (697) Depreciation, depletion and impairment of tangible assets and mineral interests (15) 1 - - - - (14) Operating income (b) (132) (51) (411) (80) (64) - (738) Equity in net income (loss) of affiliates and other items (4) (16) (53) 121 - - 48 Tax on net operating income 47 9 129 21 22 - 228 Net operating income (b) (89) (58) (335) 62 (42) - (462) Net cost of net debt (7) Non-controlling interests 32 Net income – group share (437) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect: On operating income - - (372) (54) - On net operating income - - (270) (45) - 32 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 2nd quarter 2017 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (adjusted) & Production Renewables Chemicals Services (in millions of dollars) (a) & Power Non-Group sales 2,068 2,698 17,347 17,831 (2) - 39,942 Intersegment sales 5,118 274 6,016 169 90 (11,667) - Excise taxes - - (680) (4,753) - - (5,433) Revenues from sales 7,186 2,972 22,683 13,247 88 (11,667) 34,509 Operating expenses (3,430) (2,832) (21,507) (12,649) (255) 11,667 (29,006) Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (41) (245) (158) (11) - (2,784) Adjusted operating income 1,427 99 931 440 (178) - 2,719 Equity in net income (loss) of affiliates and other items 491 29 201 137 (6) - 852 Tax on net operating income (559) (33) (271) (144) 192 - (815) Adjusted net operating income 1,359 95 861 433 8 - 2,756 Net cost of net debt (260) Non-controlling interests (22) Adjusted net income – group share 2,474 Adjusted fully-diluted earnings per share ($) 0.97 (a) Except for earnings per share. 2nd quarter 2017 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals Services & Power Total expenditures 3,448 77 401 258 21 - 4,205 Total divestments 132 23 20 182 3 - 360 Cash flow from operating activities 2,504 (114) 1,972 229 49 - 4,640 Financial report – 1st half 2017. TOTAL 33 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 2nd quarter 2016 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals Services & Power Non-Group sales 1,822 1,914 16,567 16,913 (1) - 37,215 Intersegment sales 4,340 194 5,540 208 81 (10,363) - Excise taxes - - (924) (4,580) - - (5,504) Revenues from sales 6,162 2,108 21,183 12,541 80 (10,363) 31,711 Operating expenses (3,692) (2,078) (19,523) (11,768) (292) 10,363 (26,990) Depreciation, depletion and impairment of tangible assets and mineral interests (2,529) (34) (246) (151) (8) - (2,968) Operating income (59) (4) 1,414 622 (220) - 1,753 Equity in net income (loss) of affiliates and other items 543 63 210 47 98 - 961 Tax on net operating income 202 (21) (378) (190) (10) - (397) Net operating income 686 38 1,246 479 (132) - 2,317 Net cost of net debt (199) Non-controlling interests (30) Net income – group share 2,088 2nd quarter 2016 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (adjustments) (a) & Production Renewables Chemicals Services (in millions of dollars) & Power Non-Group sales - (6) - - - - (6) Intersegment sales - - - - - - - Excise taxes - - - - - - - Revenues from sales - (6) - - - - (6) Operating expenses (358) - 449 110 - - 201 Depreciation, depletion and impairment of tangible assets and mineral interests (200) - - - - - (200) Operating income (b) (558) (6) 449 110 - - (5) Equity in net income (loss) of affiliates and other items - - (76) (13) - - (89) Tax on net operating income 201 1 (145) (38) - - 19 Net operating income (b) (357) (5) 228 59 - - (75) Net cost of net debt (5) Non-controlling interests (6) Net income – group share (86) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - - 516 118 - On net operating income - - 331 84 - 34 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 2nd quarter 2016 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (adjusted) & Production Renewables Chemicals Services (in millions of dollars) (a) & Power Non-Group sales 1,822 1,920 16,567 16,913 (1) - 37,221 Intersegment sales 4,340 194 5,540 208 81 (10,363) - Excise taxes - - (924) (4,580) - - (5,504) Revenues from sales 6,162 2,114 21,183 12,541 80 (10,363) 31,717 Operating expenses (3,334) (2,078) (19,972) (11,878) (292) 10,363 (27,191) Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (34) (246) (151) (8) - (2,768) Adjusted operating income 499 2 965 512 (220) - 1,758 Equity in net income (loss) of affiliates and other items 543 63 286 60 98 - 1,050 Tax on net operating income 1 (22) (233) (152) (10) - (416) Adjusted net operating income 1,043 43 1,018 420 (132) - 2,392 Net cost of net debt (194) Non-controlling interests (24) Adjusted net income – group share 2,174 Adjusted fully-diluted earnings per share ($) 0.90 (a) Except for earnings per share. 2nd quarter 2016 Exploration Gas, Refining & Marketing & Corporate Intercompany Total (in millions of dollars) & Production Renewables Chemicals Services & Power Total expenditures 3,533 95 480 251 207 - 4,566 Total divestments 446 6 23 294 4 - 773 Cash flow from operating activities 595 111 1,561 261 354 - 2,882 Financial report – 1st half 2017. TOTAL 35 2 Consolidated Financial Statements Notes to the Consolidated Financial Statements for the first six months of 2017 9) Reconciliation of the information by business segment with Consolidated Financial Statements Adjusted Adjustments (a) Consolidated statement 1st half 2017 of income (in millions of dollars) Sales 81,125 (27) 81,098 Excise taxes (10,523) - (10,523) Revenues from sales 70,602 (27) 70,575 Purchases, net of inventory variation (46,929) (456) (47,385) Other operating expenses (11,984) (288) (12,272) Exploration costs (396) - (396) Depreciation, depletion and impairment of tangible assets and mineral interests (5,433) (1,944) (7,377) Other income 314 2,581 2,895 Other expense (116) (281) (397) Financial interest on debt (662) (14) (676) Financial income and expense from cash & cash equivalents (48) - (48) Cost of net debt (710) (14) (724) Other financial income 513 - 513 Other financial expense (319) - (319) Equity in net income (loss) of affiliates 1,169 (311) 858 Income taxes (1,639) 474 (1,165) Consolidated net income 5,072 (266) 4,806 Group share 5,032 (146) 4,886 Non-controlling interests 40 (120) (80) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments (a) Consolidated statement 1st half 2016 of income (in millions of dollars) Sales 70,188 (132) 70,056 Excise taxes (10,823) - (10,823) Revenues from sales 59,365 (132) 59,233 Purchases, net of inventory variation (38,487) 300 (38,187) Other operating expenses (11,676) (366) (12,042) Exploration costs (380) (350) (730) Depreciation, depletion and impairment of tangible assets and mineral interests (5,448) (200) (5,648) Other income 343 329 672 Other expense (119) (84) (203) Financial interest on debt (530) (11) (541) Financial income and expense from cash & cash equivalents 11 - 11 Cost of net debt (519) (11) (530) Other financial income 503 - 503 Other financial expense (321) - (321) Equity in net income (loss) of affiliates 1,296 (22) 1,274 Income taxes (699) 417 (282) Consolidated net income 3,858 (119) 3,739 Group share 3,810 (116) 3,694 Non-controlling interests 48 (3) 45 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 36 TOTAL. Financial report – 1st half 2017 Consolidated Financial Statements 2 Notes to the Consolidated Financial Statements for the first six months of 2017 Adjusted Adjustments (a) Consolidated statement 2nd quarter 2017 of income (in millions of dollars) Sales 39,942 (27) 39,915 Excise taxes (5,433) - (5,433) Revenues from sales 34,509 (27) 34,482 Purchases, net of inventory variation (22,939) (459) (23,398) Other operating expenses (5,868) (238) (6,106) Exploration costs (199) - (199) Depreciation, depletion and impairment of tangible assets and mineral interests (2,784) (14) (2,798) Other income 206 364 570 Other expense (58) (48) (106) Financial interest on debt (338) (7) (345) Financial income and expense from cash & cash equivalents (37) - (37) Cost of net debt (375) (7) (382) Other financial income 285 - 285 Other financial expense (159) - (159) Equity in net income (loss) of affiliates 578 (268) 310 Income taxes (700) 228 (472) Consolidated net income 2,496 (469) 2,027 Group share 2,474 (437) 2,037 Non-controlling interests 22 (32) (10) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjusted Adjustments (a) Consolidated statement 2nd quarter 2016 of income (in millions of dollars) Sales 37,221 (6) 37,215 Excise taxes (5,504) - (5,504) Revenues from sales 31,717 (6) 31,711 Purchases, net of inventory variation (21,130) 582 (20,548) Other operating expenses (5,875) (31) (5,906) Exploration costs (186) (350) (536) Depreciation, depletion and impairment of tangible assets and mineral interests (2,768) (200) (2,968) Other income 172 - 172 Other expense (65) (68) (133) Financial interest on debt (262) (5) (267) Financial income and expense from cash & cash equivalents 1 - 1 Cost of net debt (261) (5) (266) Other financial income 312 - 312 Other financial expense (166) - (166) Equity in net income (loss) of affiliates 797 (21) 776 Income taxes (349) 19 (330) Consolidated net income 2,198 (80) 2,118 Group share 2,174 (86) 2,088 Non-controlling interests 24 6 30 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial report – 1st half 2017. TOTAL 37 38 TOTAL. Financial report – 1st half 2017 Design and Production: Agence Marc Praquin see you on total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 6,251,766,872.50 euros 542 051 180 RCS Nanterre total.com Switchboard: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2017, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,018 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| FINANCIAL REPORT FIRST HALF 2018 1 TABLE OF CONTENTS Half-year fi nancial report 1.1 Key fi gures 1.2 Highlights since the beginning of 2018 1.3 Analysis of business segments 1.3.1 Exploration & Production 1.3.2 Gas, Renewables & Power 1.3.3 Refi ning & Chemicals 1.3.4 Marketing & Services 1.4 Group results 1.4.1 Adjusted net operating income from business segments 1.4.2 Adjusted net income (Group share) 1.4.3 Adjusted fully-diluted earnings per share and share buyback 1.4.4 Divestments – acquisitions 1.4.5 Net cash fl ow 1.4.6 Profi tability 1.5 TOTAL S.A., parent company accounts 1.6 2018 Sensitivities 1.7 Summary and outlook 1.8 Other information 1.8.1 Operating information by segment 1.8.2 Adjustment items to net income (Group share) 1.8.3 Investments - Divestments 1.8.4 Cash fl ow 1.8.5 Gearing ratios 1.8.6 Return on average capital employed 1.9 Principal risks and uncertainties for the remaining six months of 2018 1.10 Major related parties’ transactions 3 4 4 4 5 5 6 7 7 7 7 7 7 8 8 9 9 10 10 11 11 12 12 12 13 13 2 Consolidated Financial Statements as of June 30, 2018 2.1 Statutory Auditors’ review report on the half-yearly fi nancial information 2.2 Consolidated statement of income - half-yearly 16 2.3 Consolidated statement of comprehensive income - half-yearly 2.4 Consolidated statement of income - quarterly 18 2.5 Consolidated statement of comprehensive income - quarterly 2.6 Consolidated balance sheet 2.7 Consolidated statement of cash fl ow 2.8 Consolidated statement of cash fl ow 2.9 Consolidated statement of changes in shareholders’ equity 2.10 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 1) Accounting policies 2) Changes in the Group structure 3) Adjustment items 4) Shareholders’ equity 5) Financial debt 6) Related parties 7) Other risks and contingent liabilities 8) Information by business segment 9) Reconciliation of the information by business segment with consolidated fi nancial statements 10) Post-closing and other events 15 17 19 20 21 22 23 24 24 25 26 28 30 30 30 31 37 38 Financial report half-year 2018 CERTIFICATION OF THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TOTAL S.A. (the Company) for the first half of 2018 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Company and all the entities included in the consolidation, and that the half-year financial report on pages 3 to 14 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 15 of this half-year financial report.” Courbevoie, July 25, 2018 Patrick Pouyanné Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 26, 2018 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. FINANCIAL REPORT HALF-YEAR 2018 1 2 Definitions The terms “TOTAL” and “Group” as used in this half-year financial report refer to TOTAL S.A. collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Company” as used in this half-year financial report refers to TOTAL S.A., which is the parent company of the Group. Abbreviations Units of measurement €: euro b = barrel(1) $ or dollar: U.S. dollar B = billion ADR: American depositary receipt (evidencing an ADS) boe = barrel of oil equivalent ADS: American depositary share (representing a share of a company) Btu = British thermal unit cf = cubic feet AMF: Autorité des marchés financiers (French Financial Markets Authority) CO2 eq = carbon dioxide equivalent API: American Petroleum Institute /d = per day DACF: debt adjusted cash flow . Cash flow from operating activities before changes in working capital at remplacement costs, without financial charges. GWh = gigawatt hour k = thousand km = kilometer ERMI: The European refining margin indicator (ERMI) is a Group indicator intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. The indicator margin may not be representative of the actual margins achieved by the Group in any period because of TOTAL’s particular refinery configurations, product mix effects or other company-specific operating conditions. m = meter m³ (cm) = cubic meter(1) M = million MW = megawatt MWp = megawatt peak (direct current) t = (Metric) ton TWh = terawatt hour W = watt FPSO: floating production, storage and offloading /y = per year GHG: greenhouse gas IFRS: International Financial Reporting Standards Conversion table LNG: liquefied natural gas 1 acre ≈ 0.405 hectares LPG: liquefied petroleum gas 1 b = 42 U.S. gallons ≈ 159 liters NGL: natural gas liquids 1 b/d of crude oil ≈ 50 t/y of crude oil NGV: natural gas vehicle 1 Bm³/y (1 Bcm) ≈ 0.1 Bcf/d ROE: return on equity 1 km ≈ 0.62 miles ROACE: return on average capital employed 1 m³ ≈ 35.3 cf SEC: United States Securities and Exchange Commission 1 Mt of LNG ≈ 48 Bcf of gas 1 Mt/y of LNG ≈ 131 Mcf/d of gas 1 t of oil ≈ 7.5 b of oil (assuming a specific gravity of 37° API) 1 boe = 1 b of crude oil ≈ 5,396 cf of gas in 2017(2) (5,403 cf in 2016 and 5,390 cf in 2015) (1) Liquid and gas volumes are reported at international standard metric conditions (15°C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of TOTAL’s natural gas reserves during the applicable periods, and is subject to change. The tabular conversion rate is applicable to TOTAL’s natural gas reserves on a Group-wide basis. FINANCIAL REPORT HALF-YEAR 2018 1 HALF- YEAR FINANCIAL REPORT 1.1 Key figures(a) (M$, except effective tax rate, earnings per share and number of shares) 1H18 1H17 1H18 vs 1H17 Adjusted net operating income from business segments 7,564 5,515 +37% – Exploration & Production 4,870 2,741 +78% – Gas, Renewables & Power 308 156 +97% – Refining & Chemicals 1,541 1,884 18% – Marketing & Services 845 734 +15% Contribution of equity affiliates to adjusted net income 1,403 1,169 +20% Group effective tax rate(b) 39.2% 29.9% Adjusted net income 6,437 5,032 +28% Adjusted fully-diluted earnings per share (dollars)(c) 2.41 1.98 +22% Adjusted fully-diluted earnings per share (euros)* 1.99 1.83 +9% Fully-diluted weighted-average shares (millions) 2,608 2,471 +6% NET INCOME (GROUP SHARE) 6,357 4,886 +30% Investments(d) 10,511 7,883 +33% Divestments(e) 3,859 3,258 +18% Net investments(f) 6,652 4,625 +44% Organic investments(g) 5,400 6,893 22% Resource acquisitions 3,807 64 n.s. Operating cash flow before working capital changes(h) 11,769 10,021 +17% Operating cash flow before working capital changes w/o financial charges (DACF)(i) 12,465 10,483 +19% Cash flow from operations 8,327 9,341 11% Average €/$ exchange rate: 1.1915 in the second quarter 2018 and 1.2104 in the first half 2018. (a) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 11. (b) Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). (c) In accordance with IFRS norms, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond. (d) Including acquisitions and increases in non-current loans. (e) Including divestments and reimbursements of non-current loans. (f) Net investments = investments - divestments - repayment of non-current loans - other operations with non-controlling interests. (g) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (h) Operating cash flow before working capital changes, previously referred to as adjusted cash flow from operations, is defined as cash flow from operating activities before changes in working capital at replacement cost. The inventory valuation effect is explained on page 14. The reconciliation table for different cash flow figures is on page 12. (i) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. FINANCIAL REPORT HALF-YEAR 2018 3 1 HALF-YEAR FINANCIAL REPORT Highlights since the beginning of 2018 1.2 Highlights since the beginning of 2018 (1) TOTAL became the second-largest North Sea operator with the Launched the Zinia 2 project on Block 17 in Angola. closing of the Maersk Oil acquisition. Finalized the acquisition of interests in the deep-offshore fields of Lapa and Iara in Brazil as part of the strategic alliance with Petrobras. Obtained interests in two new 40-year concessions for offshore fields Umm Shaif and Nasr (20%) and Lower Zakum (5%) in Abu Dhabi. Strengthened cooperation with Sonatrach in Algeria by extending license for the TFT gas field and launched engineering studies for petrochemical project at Arzew. Acquired exploration permits in prolific basins in Guyana and Mediterranean Sea offshore Lebanon. Created a petrochemical joint venture in the United States with Borealis and NOVA Chemicals. Acquired a 16.33% interest in the onshore Waha concession in Libya. Signed MOU with Saudi Aramco to build petrochemical complex at Jubail in Saudi Arabia. Strengthened the Group’s presence in the deep-offshore Gulf of Mexico with the major Ballymore discovery as well as acquiring from Cobalt increased interests in the Anchor discovery and North Platte to reach 32.5% and 60% respectively and exploration assets. Engie LNG acquisition closed July 13, 2018: TOTAL becomes world No. 2 in LNG. Acquired 25% of Clean Energy to accelerate use of natural gas for heavy-duty trucks in the United States. Expanding LNG as marine fuel in Singapore in the framework of cooperation with Pavillion. Finalized the sale of the Martin Linge field in Norway. Finalized acquisition of 73% of Direct Energie and launched Signed an agreement to sell interest in Dunkirk LNG terminal. mandatory public offer for remaining shares. Started production at the Timimoun gas field in Algeria and the Fort Expanded partnership with Novatek through the Arctic 2 LNG project in Russia. Expanded partnership with Novatek through the Arctic 2 LNG project in Russia. 1.3 Analysis of business segments 1.3.1 Exploration & Production 1.3.1.1 Environment – liquids and gas price realizations* 1H18 1H17 1H18 vs 1H17 Brent ($/b) 70.6 51.7 +37% Average liquids price ($/b) 65.3 47.1 +39% Average gas price ($/Mbtu) 4.61 4.01 +15% Average hydrocarbon price ($/boe) 50.9 36.7 +39% Consolidated subsidiaries, excluding fixed margins. 1.3.1.2 Production Hydrocarbon production 1H18 1H17 1H18 vs 1H17 Combined production (kboe/d) 2,710 2,534 +7% – Liquids (kb/d) 1,532 1,300 +18% – Gas (Mcf/d) 6,419 6,696 4% In the first half 2018, hydrocarbon production was 2,710 kboe/d, an increase of 7% compared to the first half 2017, due to: +7% due to new project start-ups and ramp-ups, notably Moho Nord, Yamal LNG, Edradour-Glenlivet, Kashagan, Fort Hills and Libra; +3% portfolio effect, mainly due to the integration of Al-Shaheen in Qatar, the Maersk Oil assets, Waha in Libya, and Lapa and Iara in Brazil, which were partially offset by the expiration of the Mahakam permit in Indonesia at the end of 2017; 3% due to heavier seasonal maintenance activity, the PSC price effect and natural field decline. (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. 4 FINANCIAL REPORT HALF-YEAR 2018 HALF-YEAR FINANCIAL REPORT Analysis of business segments 1.3.1.3 Results (M$, except effective tax rate) 1H18 1H17 1H18 vs 1H17 Adjusted net operating income(a) 4,870 2,741 +78% including income from equity affiliates 1,021 688 +48% Effective tax rate(b) 47.1% 39.3% Investments 8,851 6,084 +45% Divestments 2,751 245 x11.2 Organic investments 4,171 5,802 28% Operating cash flow before working capital changes(c) 9,380 6,916 +36% Cash flow from operations(c) 8,197 5,637 +45% (a) Details of adjustment items are shown in the business segment information notes to financial statements. (b) Tax on adjusted net operating income/(adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). (c) Excluding financial charges. Exploration & Production adjusted net operating income was $4,870 million in the first half 2018, an increase of 78% compared to the first half 2017. The Group benefited fully from the increase in hydrocarbon prices, thanks to higher production and lower costs, despite an increase in tax rates over the year to 47.1% in line with increasing hydrocarbon prices. Operating cash flow before working capital changes was $9.4 billion in the first half, an increase of 36%. Exploration & Production generated $5.2 billion of cash flow after organic investments in the first half 2018. 1.3.2 Gas, Renewables & Power 1.3.2.1 Results (M$) 1H18 1H17 1H18 vs 1H17 Adjusted net operating income(a) 308 156 +97% Investments 328 392 16% Divestments 483 27 x17.9 Organic investments 136 170 20% Operating cash flow before working capital changes(b) 226 159 +42% Cash flow from operations(b) (75) 40 n.s. (a) Detail of adjustment items shown in the business segment information notes to financial statements. (b) Excluding financial charges. Adjusted net operating income for Gas, Renewables & Power was $308 million in the first half 2018, thanks to an increased contribution from the gas business and better performance from new energies. 1.3.3 Refining & Chemicals 1.3.3.1 Refinery throughput and utilization rates(a) 1H18 1H17 1H18 vs 1H17 Total refinery throughput (kb/d) 1,784 1,796 1% – France 597 600 1% – Rest of Europe 708 742 5% – Rest of world 479 454 +6% Utlization rate based on crude only(b) 85% 86% (a) Includes share of TotalErg, and African refineries reported in the Marketing & Services segment. (b) Based on distillation capacity at the beginning of the year. Refinery throughput was stable in the first half 2018 compared to the first half 2017. Lower throughput in Europe linked to planned maintenance, notably at Antwerp, was offset by higher throughput in the rest of the world. FINANCIAL REPORT HALF-YEAR 2018 5 1 1 HALF-YEAR FINANCIAL REPORT Analysis of business segments 1.3.3.2 Results (M$, except the ERMI) 1H18 1H17 1H18 vs 1H17 European refining margin indicator - ERMI ($/t) 30.1 40.0 25% Adjusted net operating income(a) 1,541 1,884 18% Investments 736 667 +10% Divestments 349 2,760 87% Organic investments 694 603 +15% Operating cash flow before working capital changes(b) 1,938 2,378 19% Cash flow from operations(b) (110) 3,729 n.s. (a) Detail of adjustment items shown in the business segment information notes to financial statements. (b) Excluding financial charges. The Group’s European refining margin indicator (ERMI) decreased by 25% from a year ago to 30.1$/t for the first half 2018. Petrochemical margins continue to benefit from a favorable environment, notably in the United States and Asia-Middle East, but margins in Europe were lower compared to a year ago mainly due to an increase in feedstock prices. In this context, Refining & Chemicals adjusted net operating income was $1,541 million in the first half 2018, a decrease of 18% compared to the first half 2017 . 1.3.4 Marketing & Services 1.3.4.1 Petroleum product sales Sales (in kb/d*) 1H18 1H17 1H18 vs 1H17 Total Marketing & Services sales 1,800 1,744 +3% – Europe 997 1,039 4% – Rest of world 803 705 +14% Excludes trading and bulk refining sales, includes share of TotalErg. Petroleum product sales increased by 3% in the first half 2018 compared to the first half 2017, despite the sale of TotalErg in Italy, due to growth in the business, notably in Asia and Africa. 1.3.4.2 Results (M$) 1H18 1H17 1H18 vs 1H17 Adjusted net operating income(a) 845 734 +15% Investments 538 697 23% Divestments 273 218 +25% Organic investments 342 280 +22% Operating cash flow before working capital changes(b) 1,076 1,053 +2% Cash flow from operations(b) 781 582 +34% (a) Detail of adjustment items shown in the business segment information notes to financial statements. (b) Excluding financial charges. Adjusted net operating income for the Marketing & Services segment was $845 million in the first half 2018, a 15% increase compared to the first half 2017, due to volume growth in a context of favorable margins, notably in Africa. 6 FINANCIAL REPORT HALF-YEAR 2018 HALF-YEAR FINANCIAL REPORT Group results 1.4 Group results 1.4.1 Adjusted net operating income from business segments Adjusted net operating income from the business segments was $7,564 million in the first half 2018, a 37% increase compared to the first half 2017, essentially due to the strong performance of Exploration & Production, whose contribution increased by 78% compared to a year ago thanks to increasing production in a context of higher hydrocarbon prices and lower costs. 1.4.2 Adjusted net income (Group share) Adjusted net income was $6,437 million in the first half 2018, a 28% increase compared to the first half 2017, essentially due to 37% increase in the contribution of the segments, partially offset by higher net cost of net debt, mainly due to an increase in dollar interest rates. Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value(1). Total adjustments affecting net income(2) were -$80 million in the first half 2018. The effective tax rate for the Group was 39.2% in the first half 2018, compared to 29.9% in the first half 2017, due to the increase in the effective tax rate for Exploration & Production, in line with higher hydrocarbon prices, and the larger contribution of this segment to the Group’s results this quarter; 1.4.3 Adjusted fully-diluted earnings per share and share buyback Adjusted earnings per share increased by 22% to $2.41 in the first half 2018, calculated based on a weighted average of 2,608 million fully-diluted shares, from $1.98 in the first half 2017. On June 30, 2018, the number of fully-diluted shares was 2,644 million. for cancellation. The buyback is comprised of repurchasing shares issued as scrip dividend to eliminate dilution and additional shares to share with shareholders the benefit resulting from higher oil prices. 28.4 million shares were repurchased in the first half 2018, including additional shares for $589 million. Within the framework of the shareholder return policy announced in February 2018, the Group bought back shares in the first half 2018 1.4.4 Divestments – acquisitions Completed asset sales were $2,862 million in the first half 2018, comprised mainly of the high-cost Martin Linge field in Norway, an interest in Fort Hills in Canada, the marketing activities of TotalErg in Italy, SunPower’s sale of its interest in 8point3, and of the sale of the Bayport (US) polyethylene plant to the joint venture formed with Borealis and Nova in which TOTAL holds 50%. Completed acquisitions were $4,114 million in the first half 2018, comprised mainly of interests in the Iara and Lapa fields in Brazil, in two new 40-year concessions in offshore Abu Dhabi, in the Waha field in Libya, in offshore assets from Cobalt in the Gulf of Mexico, notably including 20% interest in the North Platte and Anchor discoveries, and of an interest in Clean Energy in the United States to expand into marketing natural gas for vehicles. 1.4.5 Net cash flow The Group’s net cash flow(3) was $5,117 million in the first half 2018 compared to $5,396 million in the first half 2017. Net investments increased by $2,027 million compared to the first half 2017 due to an increase in completed acquisitions, in line with the strategy of the Group to invest counter-cyclically in 2016-17. This well-timed investment effort was partially offset by a $1,748 million increase in operating cash flow before working capital changes. (1) Details shown on page 11 and in the notes to the financial statements. (2) Details shown on page 11. (3) Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests). FINANCIAL REPORT HALF-YEAR 2018 7 1 1 HALF-YEAR FINANCIAL REPORT TOTAL S.A 1.4.6 Profitability Return on equity for the twelve months ended June 30, 2018, was 10.9%, an increase compared to the same period a year ago. (M$) July 1, 2017 to June 30, 2018 April 1, 2017 to March 31, 2018 January 1, 2017 to December 31, 2017 Adjusted net income 12,299 11,150 10,762 Average adjusted shareholders’ equity 113,251 111,522 106,078 Return on equity (ROE) 10.9% 10.0% 10.1% Return on average capital employed was 10.1% for the twelve months ended June 30 , 2018, an increase compared to the same period a year ago. (M$) July 1, 2017 to June 30, 2018 April 1, 2017 to March 31, 2018 January 1, 2017 to December 31, 2017 Adjusted net operating income 13,748 12,428 11,958 Average capital employed 136,355 136,384 127,575 ROACE 10.1% 9.1% 9.4% 1.5 TOTAL S.A., parent company accounts Net income for TOTAL S.A., the parent company, was €4,079 million in the first half 2018, compared to €1,460 million in the first half 2017. 8 FINANCIAL REPORT HALF-YEAR 2018 HALF-YEAR FINANCIAL REPORT Summary and outlook 1.6 2018 Sensitivities (a) Scenario Change Estimated impact on adjusted net operating income Estimated impact on cash flow Dollar 1.2 $/€ +/-0.1 $ per € /+0.1 B$ ~0 B$ Brent 50 $/b +/-10 $/b(b) +/-2.3 B$ +/-2.8 B$ European refining margin indicator (ERMI) 35 $/t +/-10 $/t +/-0.5 B$ +/-0.6 B$ (a) Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2018. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $/ € sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. (b) Assumes constant liquids price differentials. 1.7 Summary and outlook Supported by inventory reductions and geopolitical tensions, Brent continued to trade at around 70 $/b at the start of the third quarter, despite the announced increase in production by OPEC. The Group, however, resolutely continues to implement programs to improve operational efficiency and to reduce its breakeven so as to remain profitable whatever the market context. The Upstream is well positioned to take advantage of the increase in oil prices thanks to production growth which should be above 7% in 2018. It will benefit in the coming months from the start-ups of Kaombo, Tempa Rossa, Ichthys and Egina, which are all strong cash flow generators, as well as ramping production up at recent start-ups like Yamal LNG, Fort Hills and Timimoun. Since the start of the third quarter, European refining margins have been around 35 $/t. While still favorable, petrochemical margins are lower in Europe compared to a year ago. The cost reduction program is on track to surpass the $4 billion objective for the year and reach $4.2 billion of cost saving over the 2014-18 period. The Group confirms that investments (organic and net acquisitions) should be between $16-17 billion in 2018. Conforming to the announced shareholder return policy, the Group will continue to buy back shares issued as scrip dividend to eliminate dilution. It will also continue to buy back additional shares for an amount of up to $5 billion over the period 2018-20. FINANCIAL REPORT HALF-YEAR 2018 9 1 1 HALF-YEAR FINANCIAL REPORT Other information 1.8 Other information 1.8.1 Operating information by segment 1.8.1.1 Exploration & Production Combined liquids and gas production by region (in kboe/d) 1H18 Europe and Central Asia 864 Africa 673 Middle East and North Africa 660 Americas 386 Asia Pacific 128 Total production 2,710 including equity affiliates 670 Liquids production by region (in kb/d) 1H18 Europe and Central Asia 315 Africa 507 Middle East and North Africa 520 Americas 177 Asia Pacific 12 Total production 1,532 including equity affiliates 268 Gas production by region (in Mcf/d) 1H18 Europe and Central Asia 2,954 Africa 815 Middle East and North Africa 774 Americas 1,175 Asia Pacific 701 Total production 6,419 including equity affiliates 2,141 Liquefied natural gas 1H18 LNG sales* (Mt) 4.97 Sales, Group share, excluding trading; 2017 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2017 SEC coefficient. 10 FINANCIAL REPORT HALF-YEAR 2018 1H17 776 646 524 339 249 2,534 621 1H17 268 495 384 126 28 1,300 254 1H17 2,740 696 776 1,197 1,287 6,696 1,921 1H17 5.66 1H18 vs 1H17 +11% +4% +26% +14% 49% +7% +8% 1H18 vs 1H17 +17% +2% +36% +41% 57% +18% +6% 1H18 vs 1H17 +8% +17% 2% 46% 4% +11% 1H18 vs 1H17 12% HALF-YEAR FINANCIAL REPORT Other information 1.8.1.2 Downstream (Refining & Chemicals and Marketing & Services) Petroleum product sales by region (in kb/d)(a) 1H18 1H17(b) 1H18 vs 1H17 Europe 1,922 2,078 7% Africa 703 587 +20% Americas 781 615 +27% Rest of world 662 765 14% TOTAL CONSOLIDATED SALES 4,068 4,045 +1% including bulk sales 563 577 2% including trading 1,705 1,724 1% (a) Includes share of TotalErg. (b) 2017 data restated. 1.8.2 Adjustment items to net income (Group share) (M$) 1H18 1H17 Special items affecting net income (Group share) (553) 128 – Gain (loss) on asset sales (103) 2,264 – Restructuring charges (67) (59) – Impairments (248) (1,750) – Other (135) (327) After-tax inventory effect: FIFO vs. replacement cost 472 (255) Effect of changes in fair value 1 (19) TOTAL ADJUSTMENTS AFFECTING NET INCOME (80) (146) 1.8.3 Investments - Divestments (M$) 1H18 1H17 1H18 vs 1H17 Organic investments 5,400 6,893 22% capitalized exploration 248 277 10% increase in non-current loans 311 601 48% repayment of non-current loans (997) (340) x2.9 Acquisitions 4,114 650 x6.3 Asset sales 2,862 2,918 2% Other transactions with non-controlling interests Net investments 6,652 4,625 +44% FINANCIAL REPORT HALF-YEAR 2018 11 1 1 HALF-YEAR FINANCIAL REPORT Other information 1.8.4 Cash flow (M$) Operating cash flow before working capital changes w/o financial charges (DACF) – Financial charges Operating cash flow before working capital changes (A) – (Increase) decrease in working capital – Inventory effect Cash flow from operations Organic investments (B) FREE CASH FLOW AFTER ORGANIC INVESTMENTS, W/O NET ASSET SALES (A - B) Net investments (C) NET CASH FLOW (A - C) 1.8.5 Gearing ratios (M$) Current borrowings Net current financial assets Net financial assets classified as held for sale Non-current financial debt Hedging instruments of non-current debt Cash and cash equivalents Net debt (A) Shareholders’ equity - Group share Non-controlling interests Shareholders’ equity (B) NET-DEBT-TO-EQUITY RATIO = A / B NET-DEBT-TO-CAPITAL RATIO = A / (A + B) 1.8.6 Return on average capital employed 1.8.6.1 Twelve months ended June 30, 2018 (M$) Exploration & Production Adjusted net operating income 8,114 Capital employed at 06/30/2017* 108,618 Capital employed at 06/30/2018* 118,715 ROACE 7.1% At replacement cost (excluding after-tax inventory effect). 12 FINANCIAL REPORT HALF-YEAR 2018 1H18 12,465 (696) 11,769 (4,078) 636 8,327 5,400 6,369 6,652 5,117 06/30/2018 15,659 (2,806) 0 38,362 (967) (26,475) 23,773 117,975 2,288 120,263 19.8% 16.5% Gas, Renewables & Power Refining & Chemicals 637 3,447 5,363 10,957 4,442 12,939 13.0% 28.9% 1H17 10,483 (462) 10,021 (322) (358) 9,341 6,893 3,128 4,625 5,396 03/31/2018 14,909 (1,920) 0 40,257 (1,154) (30,092) 22,000 121,187 2,499 123,686 17.8% 15.1% Marketing & Services 1,787 6,937 7,040 25.6% 1H18 vs 1H17 +19% +51% +17% n.s. n.s. 11% 22% x2 +44% 5% 06/30/2017 13,070 (3,377) (2) 41,548 (558) (28,720) 21,961 107,188 2,772 109,960 20.0% 16.6% Group 13,748 130,831 141,878 10.1% HALF-YEAR FINANCIAL REPORT Major related parties’ transactions 1.8.6.2 Twelve months ended March 31 , 2018 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Group Adjusted net operating income 6,786 539 3,487 1,742 12,428 Capital employed at 03/31/2017* 106,937 5,036 11,130 6,331 128,810 Capital employed at 03/31/2018* 119,035 5,237 13,428 7,409 143,957 ROACE 6.0% 10.5% 28.4% 25.4% 9.1% At replacement cost (excluding after-tax inventory effect). 1.8.6.3 Twelve months ended June 30, 2017 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Group Adjusted net operating income 4,529 479 3,931 1,584 10,609 Capital employed at 06/30/2016* 107,405 4,622 12,249 5,789 129,635 Capital employed at 06/30/2017* 108,618 5,363 10,957 6,937 130,831 ROACE 4.2% 9.6% 33.9% 24.9% 8.1% At replacement cost (excluding after-tax inventory effect). 1.9 Principal risks and uncertainties for the remaining six months of 2018 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s 2017 Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 16, 2018. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2018 (pages 30 and 31 of this half-year financial report). 1.10 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2018 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2018 (page 30 of this half-year financial report). FINANCIAL REPORT HALF-YEAR 2018 13 1 1 HALF-YEAR FINANCIAL REPORT Major related parties’ transactions Disclaimer This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809/2004. Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, changes in regulations including environmental and climate, currency fluctuations, as well as economic and political developments and changes in business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Group’s business, financial condition, including its operating income and cash flow, reputation or outlook is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des Marchés Financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE) and gearing ratio. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, 14 FINANCIAL REPORT HALF-YEAR 2018 may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last- In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this half-year financial report, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault – 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov. 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 2.1 Statutory Auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and it is provided solely for the convenience of English-speaking users. This report also includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance, with French law and professional standards applicable in France. Period from January 1 to June 30, 2018 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of Article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of TOTAL S.A., for the period from January 1 to June 30, 2018; the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the Chairman and CEO’s responsibility and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris-La Défense, July 25, 2018 The Statutory Auditors French original signed by KPMG Audit ERNST & YOUNG Audit A Division of KPMG S.A. Jacques-François Lethu Eric Jacquet Yvon Salaün Céline Eydieu-Boutté Partner Partner Partner Partner FINANCIAL REPORT HALF-YEAR 2018 15 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of income - half-yearly 2.2 Consolidated statement of income - half-yearly TOTAL (unaudited) (M$)(a) 1st half 2018 Sales 102,151 Excise taxes (12,757) Revenues from sales 89,394 Purchases, net of inventory variation (60,045) Other operating expenses (13,698) Exploration costs (362) Depreciation, depletion and impairment of tangible assets and mineral interests (6,351) Other income 775 Other expense (603) Financial interest on debt (868) Financial income and expense from cash & cash equivalents (95) Cost of net debt (963) Other financial income 561 Other financial expense (329) Net income (loss) from equity affiliates 1,587 Income taxes (3,683) CONSOLIDATED NET INCOME 6,283 Group share 6,357 Non-controlling interests (74) Earnings per share ($) 2.39 Fully-diluted earnings per share ($) 2.38 (a) Except for per share amounts. 16 FINANCIAL REPORT HALF-YEAR 2018 1st half 2017 81,098 (10,523) 70,575 (47,385) (12,272) (396) (7,377) 2,895 (397) (676) (48) (724) 513 (319) 858 (1,165) 4,806 4,886 (80) 1.93 1.92 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of comprehensive income - half-yearly 2.3 Consolidated statement of comprehensive income - half-yearly TOTAL (unaudited) (M$) 1st half 2018 1st half 2017 CONSOLIDATED NET INCOME 6,283 4,806 Other comprehensive income Actuarial gains and losses 67 158 Change in fair value of investments in equity instruments 5 Tax effect (18) (53) Currency translation adjustment generated by the parent company (2,630) 5,464 ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (2,576) 5,569 Currency translation adjustment 968 (1,418) Available for sale financial assets Cash flow hedge 255 34 Variation of foreign currency basis spread (27) Share of other comprehensive income of equity affiliates, net amount (132) (463) Other (2) Tax effect (75) (9) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 987 (1,856) TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) (1,589) 3,713 COMPREHENSIVE INCOME 4,694 8,519 Group share 4,806 8,581 Non-controlling interests (112) (62) FINANCIAL REPORT HALF-YEAR 2018 17 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of income - quarterly 2.4 Consolidated statement of income - quarterly TOTAL (unaudited) (M$)(a) 2nd quarter 2018 1st quarter 2018 Sales 52,540 49,611 Excise taxes (6,438) (6,319) Revenues from sales 46,102 43,292 Purchases, net of inventory variation (30,599) (29,446) Other operating expenses (6,761) (6,937) Exploration costs (158) (204) Depreciation, depletion and impairment of tangible assets and mineral interests (3,435) (2,916) Other income 252 523 Other expense (413) (190) Financial interest on debt (478) (390) Financial income and expense from cash & cash equivalents (54) (41) Cost of net debt (532) (431) Other financial income 321 240 Other financial expense (159) (170) Net income (loss) from equity affiliates 1,103 484 Income taxes (2,087) (1,596) CONSOLIDATED NET INCOME 3,634 2,649 Group share 3,721 2,636 Non-controlling interests (87) 13 Earnings per share ($) 1.38 1.00 Fully-diluted earnings per share ($) 1.38 0.99 (a) Except for earning per share . 18 FINANCIAL REPORT HALF-YEAR 2018 2nd quarter 2017 39,915 (5,433) 34,482 (23,398) (6,106) (199) (2,798) 570 (106) (345) (37) (382) 285 (159) 310 (472) 2,027 2,037 (10) 0.79 0.79 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of comprehensive income - quarterly 2.5 Consolidated statement of comprehensive income - quarterly TOTAL (unaudited) (M$) 2nd quarter 2018 1st quarter 2018 2nd quarter 2017 CONSOLIDATED NET INCOME 3,634 2,649 2,027 Other comprehensive income Actuarial gains and losses 42 25 32 Change in fair value of investments in equity instruments (2) 7 Tax effect (20) 2 (12) Currency translation adjustment generated by the parent company (4,761) 2,131 4,524 ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (4,741) 2,165 4,544 Currency translation adjustment 1,330 (362) (1,218) Available for sale financial assets 1 Cash flow hedge 77 178 (79) Variation of foreign currency basis spread 2 (29) Share of other comprehensive income of equity affiliates, net amount 36 (168) (794) Other (2) (3) Tax effect (27) (48) 30 ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,416 (429) (2,063) TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) (3,325) 1,736 2,481 COMPREHENSIVE INCOME 309 4,385 4,508 Group share 450 4,356 4,507 Non-controlling interests (141) 29 1 FINANCIAL REPORT HALF-YEAR 2018 19 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated balance sheet 2.6 Consolidated balance sheet TOTAL Assets (unaudited) (M$) June 30, 2018 (unaudited) Non-current assets Intangible assets, net 24,562 Property, plant and equipment, net 114,047 Equity affiliates: investments and loans 22,443 Other investments 1,396 Non-current financial assets 967 Deferred income taxes 5,348 Other non-current assets 3,384 TOTAL NON-CURRENT ASSETS 172,147 Current assets Inventories, net 18,392 Accounts receivable, net 16,974 Other current assets 14,408 Current financial assets 3,609 Cash and cash equivalents 26,475 Assets classified as held for sale TOTAL CURRENT ASSETS 79,858 TOTAL ASSETS 252,005 Liabilities & shareholders’ equity (unaudited) (M$) June 30, 2018 (unaudited) Shareholders’ equity Common shares 8,305 Paid-in surplus and retained earnings 121,896 Currency translation adjustment (9,764) Treasury shares (2,462) TOTAL SHAREHOLDERS’ EQUITY - GROUP SHARE 117,975 Non-controlling interests 2,288 TOTAL SHAREHOLDERS’ EQUITY 120,263 Non-current liabilities Deferred income taxes 11,969 Employee benefits 3,329 Provisions and other non-current liabilities 18,807 Non-current financial debt 38,362 TOTAL NON-CURRENT LIABILITIES 72,467 Current liabilities Accounts payable 25,021 Other creditors and accrued liabilities 17,792 Current borrowings 15,659 Other current financial liabilities 803 Liabilities directly associated with the assets classified as held for sale TOTAL CURRENT LIABILITIES 59,275 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 252,005 20 FINANCIAL REPORT HALF-YEAR 2018 March 31, 2018 (unaudited) December 31, 2017 24,502 14,587 116,181 109,397 22,332 22,103 1,710 1,727 1,154 679 5,519 5,206 3,633 3,984 175,031 157,683 17,006 16,520 17,774 14,893 14,824 14,210 2,289 3,393 30,092 33,185 2,747 81,985 84,948 257,016 242,631 March 31, 2018 (unaudited) December 31, 2017 8,207 7,882 120,559 112,040 (6,413) (7,908) (1,166) (458) 121,187 111,556 2,499 2,481 123,686 114,037 11,943 10,828 3,796 3,735 19,268 15,986 40,257 41,340 75,264 71,889 24,836 26,479 17,952 17,779 14,909 11,096 369 245 1,106 58,066 56,705 257,016 242,631 June 30, 2017 (unaudited) 14,119 112,659 21,705 1,483 558 4,981 4,411 159,916 14,273 12,923 14,034 3,618 28,720 421 73,989 233,905 June 30, 2017 (unaudited) 7,797 110,305 (10,314) (600) 107,188 2,772 109,960 10,920 4,127 16,924 41,548 73,519 21,914 14,862 13,070 241 339 50,426 233,905 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of cash fl ow 2.7 Consolidated statement of cash flow TOTAL (unaudited) (M$) 1st half 2018 1st half 2017 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 6,283 4,806 Depreciation, depletion, amortization and impairment 6,554 7,590 Non-current liabilities, valuation allowances and deferred taxes 149 (247) (Gains) losses on disposals of assets (273) (2,383) Undistributed affiliates’ equity earnings (557) 206 (Increase) decrease in working capital (4,078) (322) Other changes, net 249 (309) CASH FLOW FROM OPERATING ACTIVITIES 8,327 9,341 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (9,178) (6,001) Acquisitions of subsidiaries, net of cash acquired (714) (325) Investments in equity affiliates and other securities (308) (956) Increase in non-current loans (311) (601) Total expenditures (10,511) (7,883) Proceeds from disposals of intangible assets and property, plant and equipment 2,282 80 Proceeds from disposals of subsidiaries, net of cash sold (4) 2,696 Proceeds from disposals of non-current investments 584 142 Repayment of non-current loans 997 340 Total divestments 3,859 3,258 CASH FLOW USED IN INVESTING ACTIVITIES (6,652) (4,625) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 482 421 – Treasury shares (1,740) Dividends paid: – Parent company shareholders (4,208) (2,000) – Non-controlling interests (84) (76) Issuance of perpetual subordinated notes Payments on perpetual subordinated notes (266) (219) Other transactions with non-controlling interests Net issuance (repayment) of non-current debt (2,428) 346 Increase (decrease) in current borrowings 969 (2,580) Increase (decrease) in current financial assets and liabilities (624) 1,637 CASH FLOW USED IN FINANCING ACTIVITIES (7,899) (2,471) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,224) 2,245 Effect of exchange rates (486) 1,878 Cash and cash equivalents at the beginning of the period 33,185 24,597 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 26,475 28,720 FINANCIAL REPORT HALF-YEAR 2018 21 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of cash fl ow 2.8 Consolidated statement of cash flow TOTAL (unaudited) (M$) 2nd quarter 2018 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 3,634 Depreciation, depletion, amortization and impairment 3,508 Non-current liabilities, valuation allowances and deferred taxes 35 (Gains) losses on disposals of assets (148) Undistributed affiliates’ equity earnings (298) (Increase) decrease in working capital (856) Other changes, net 371 CASH FLOW FROM OPERATING ACTIVITIES 6,246 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (3,513) Acquisitions of subsidiaries, net of cash acquired 12 Investments in equity affiliates and other securities (146) Increase in non-current loans (140) Total expenditures (3,787) Proceeds from disposals of intangible assets and property, plant and equipment 304 Proceeds from disposals of subsidiaries, net of cash sold (7) Proceeds from disposals of non-current investments 396 Repayment of non-current loans 581 Total divestments 1,274 CASH FLOW USED IN INVESTING ACTIVITIES (2,513) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 473 – Treasury shares (1,182) Dividends paid: – Parent company shareholders (2,692) – Non-controlling interests (72) Issuance of perpetual subordinated notes Payments on perpetual subordinated notes (116) Other transactions with non-controlling interests Net issuance (repayment) of non-current debt 52 Increase (decrease) in current borrowings (738) Increase (decrease) in current financial assets and liabilities (1,779) CASH FLOW USED IN FINANCING ACTIVITIES (6,054) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,321) Effect of exchange rates (1,296) Cash and cash equivalents at the beginning of the period 30,092 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 26,475 22 FINANCIAL REPORT HALF-YEAR 2018 1st quarter 2018 2,649 3,046 114 (125) (259) (3,222) (122) 2,081 (5,665) (726) (162) (171) (6,724) 1,978 3 188 416 2,585 (4,139) 9 (558) (1,516) (12) (150) (2,480) 1,707 1,155 (1,845) (3,903) 810 33,185 30,092 2nd quarter 2017 2,027 2,930 (50) (151) 501 (268) (349) 4,640 (3,323) (6) (433) (443) (4,205) 74 133 153 360 (3,845) 406 (1,462) (61) (90) 290 (1,167) 979 (1,105) (310) 1,504 27,526 28,720 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Consolidated statement of changes in shareholders’ equity 2.9 Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (M$) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity - Group share Non- controlling interests Total shareholders’ equity AS OF JANUARY 1, 2017 Net income of the first half 2017 Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(a) Share-based payments Share cancellation Issuance of perpetual subordinated notes Payments on perpetual subordinated notes Other operations with non-controlling interests Other items AS OF JUNE 30, 2017 Net income from July 1 to December 31, 2017 Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(a) Share-based payments Share cancellation Issuance of perpetual subordinated notes Payments on perpetual subordinated notes Other operations with non-controlling interests Other items AS OF DECEMBER 31, 2017 Net income of the first half 2018 Other comprehensive Income Comprehensive Income Dividend Issuance of common shares Purchase of treasury shares Sale of treasury shares(a) Share-based payments Share cancellation Issuance of perpetual subordinated notes Payments on perpetual subordinated notes Other operations with non-controlling interests Other items AS OF JUNE 30, 2018 2,430,365,862 71,170,026 2,501,535,888 27,453,728 2,528,989,616 136,887,716 7,604 193 7,797 85 7,882 423 105,547 4,886 138 5,024 (3,297) 3,103 74 (142) (7) 3 110,305 3,745 580 4,325 (3,695) 1,328 (142) 77 (160) (1) 3 112,040 6,357 305 6,662 (4,070) 7,270 192 (13,871) (10,587,822) 3,557 3,557 4,000 (10,314) (10,583,822) 2,406 2,406 2,207,066 (7,908) (8,376,756) (1,856) (1,856) (33,056,514) 3,450 (600) (600) 142 (458) (2,004) 98,680 4,886 3,695 8,581 (3,297) 3,296 74 (142) (7) 3 107,188 3,745 2,986 6,731 (3,695) 1,413 77 (160) (1) 3 111,556 6,357 (1,551) 4,806 (4,070) 7,693 (2,004) 192 2,894 (80) 18 (62) (76) 7 9 2,772 (252) 26 (226) (65) (3) 3 2,481 (74) (38) (112) (84) 101,574 4,806 3,713 8,519 (3,373) 3,296 74 (142) 12 109,960 3,493 3,012 6,505 (3,760) 1,413 77 (160) (4) 6 114,037 6,283 (1,589) 4,694 (4,154) 7,693 (2,004) 192 (161) (161) (161) (4) (4) 4 (33) (33) (1) (34) 2,665,877,332 8,305 121,896 (9,764) (41,429,820) (2,462) 117,975 2,288 120,263 (a) Treasury shares related to the restricted stock grants. FINANCIAL REPORT HALF-YEAR 2018 23 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 2.10 Notes to the consolidated financial statements for the first six months of 2018 (unaudited) 1) Accounting policies The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). The application of the provisions of IFRS 9 “Financial Instruments” has no significant effect on the Group’s balance sheet, income statement and consolidated equity as of June 30, 2018. The interim consolidated financial statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30, 2018, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2018, requires the executive management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. The accounting principles applied for the consolidated financial statements at June 30, 2018, are consistent with those used for the financial statements at December 31, 2017, with the exception of those texts or amendments that must be applied for periods beginning January 1, 2018. These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on-going basis by the executive management and therefore could be revised as circumstances change or as a result of new information. First-time application of IFRS 15 “Revenue from Contracts with Customers” The Group applied IFRS 15 as of January 1, 2018, without restating comparative information from past periods. The cumulative effect of the first application of the standard, recognized in equity as at January 1, 2018, is non-material. The new standard does not lead to any material change in the accounting principles applied by the Group. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, the impairment of assets, the employee benefits, the asset retirement obligations and the income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2017. First time application of IFRS 9 “Financial Instruments” The Group applied IFRS 9 as of January 1, 2018 without restating comparative information from past periods. The impacts related to the first application of the standard, recognized in opening equity at January 1, 2018, are not material. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the executive management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. As regards the application of IFRS 16 “Leases” on January 1, 2019, the Group intends to: This standard has three components: classification and measurement of financial instruments, impairment of financial assets, and hedging transactions except macro hedging. The main changes induced by each component are the following: apply the simplified retrospective transition method, by accounting for the cumulative effect of the initial application of the standard at the date of first application, without restating the comparative periods; 1. the application of the “Classification and valuation of financial instruments” component led the Group to create a new non- recyclable component in its comprehensive income to record, from January 1, 2018, changes in the fair value of “Investments in equity instruments at the fair value through equity” previously classified as “Available-for-sale financial assets” under IAS 39; use the following simplification measures provided by the standard in the transitional provisions: – not apply the standard to contracts that the Group had not previously identified as containing a lease under IAS 17 and IFRIC 4, – not take into account leases whose term ends within 12 months 2. the application of the “Impairment of financial assets” component has no significant impact for the Group on January 1, 2018; 2. the application of the “Impairment of financial assets” component has no significant impact for the Group on January 1, 2018; 3. the application of the “Hedging transactions” component led the Group to recognize in a separate component of the comprehensive income the changes in the Foreign Currency Basis Spread identified in the hedging relationships qualifying as a fair value hedge. recognize each lease component of the lease as a separate lease, apart from non-lease components (services) of the lease. 24 FINANCIAL REPORT HALF-YEAR 2018 2) Changes in the Group structure 2.1 Main acquisitions and divestments Exploration & Production - On January 15, 2018, as part of the Strategic Alliance signed in March 2017, TOTAL announced the conclusion of transfer agreements from Petrobras to TOTAL: – 35% of the rights, as well as the role of operator in the Lapa field, – 22.5% of the rights of the Iara area. The amount of this transaction is $1.95 billion. The details of the acquisition are presented in Note 2.2 to the consolidated financial statements. On March 1, 2018, TOTAL finalized the acquisition of Marathon Oil Libya Limited which holds a 16.33% stake in the Waha Concessions in Libya. This transaction amounts to $451 million. The details of the acquisition are presented in Note 2.2 to the consolidated financial statements. On March 8, 2018, TOTAL announced the closing of the Maersk Oil acquisition signed on August 21, 2017. The integration of Maersk Oil, which holds a portfolio of high quality assets, largely complementary to those held by TOTAL, and mainly located in OECD countries, allows the Group to become the second largest operator in the North Sea. The details of the acquisition are presented in Note 2.2 to the consolidated financial statements. On March 15, 2018, TOTAL finalized the sale to Statoil of all of its interests in the Martin Linge field (51%) and the discovery of Garantiana (40%) on the Norwegian Continental Shelf. On March 18, 2018, TOTAL was awarded participating interests in two Offshore Concessions on Umm Shaif & Nasr (20%) and Lower Zakum (5%) in return for the payment of a global bonus of $1.45 billion. On April 11, 2018, TOTAL acquired several assets located in the Gulf of Mexico as part of the Cobalt International Energy company’s bankruptcy auction sale. Marketing & Services - In January 2018, the sale of the joint venture TotalErg (Erg 51%, TOTAL 49%) to the Italian company API was finalized. 2.2 Major business combinations In accordance with IFRS 3, TOTAL is assessing the fair value of identifiable acquired assets, liabilities and contingent liabilities on the basis of available information. This assessment will be finalised within 12 months following the acquisition date. Exploration & Production Transfer of rights in the Lapa and Iara concessions in Brazil On January 15, 2018 Petrobras transferred to TOTAL 35% of the rights of the Lapa field which was put in production in December 2016, with a 100,000 barrel per day capacity FPSO. Petrobras also transferred to TOTAL 22.5% of the rights of the Iara area. Production in Iara is expected to start in 2018 and 2019 depending on the fields. The acquisition cost amounts to $1,950 million. In the balance sheet as of June 30, 2018, the provisional fair value of identifiable acquired assets, liabilities and contingent liabilities amounts to $1,950 million. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 The provisional purchase price allocation is shown below: (M$) At the acquisition date Intangible assets 1,072 Tangible assets 1,662 Other assets and liabilities (119) Net debt (665) FAIR VALUE OF CONSIDERATION TRANSFERRED 1,950 Marathon Oil Lybia Limited On March 1, 2018, TOTAL finalized the acquisition of Marathon Oil Libya Limited which holds a 16.33% stake in the Waha Concessions in Libya. The acquisition cost amounts to $451 million. In the balance sheet as of June 30, 2018, the provisional fair value of identifiable acquired assets, liabilities and contingent liabilities amounts to $451 million. The provisional purchase price allocation is shown below: (M$) At the acquisition date Intangible assets 326 Tangible assets 192 Other assets and liabilities (91) Net debt 24 FAIR VALUE OF CONSIDERATION TRANSFERRED 451 Maersk Oil On March 8, 2018, TOTAL finalized the acquisition of Maersk Oil, following the signature of the “Share Transfer Agreement” on August 21, 2017. The Group acquired all the voting rights of Maersk Olie og Gas A/S (Maersk Oil), a wholly owned subsidiary of A.P. Møller – Mae rsk A/S (Maersk), for a purchase consideration of $5,741 million. This includes the fair value ($5,585 million) of 97,522,593 shares issued in exchange for all Maersk Oil shares, calculated using the market price of the company’s shares of €46.11 on the Euronext Paris Stock Exchange at its opening of business on March 8, 2018, and the amount of price adjustments ($156 million) paid on closing. In the balance sheet as of June 30, 2018, the provisional fair value of identifiable acquired assets, liabilities and contingent liabilities amounts to $3,113 million. The Group recognized a $2,628 million goodwill. The provisional purchase price allocation is shown below: (M$) At the acquisition date Goodwill 2,628 Intangible assets 4,227 Tangible assets 4,033 Other assets and liabilities (3,223) Including provision for site restitution (2,100) Including deferred tax (675) Net debt (1,924) FAIR VALUE OF CONSIDERATION TRANSFERRED 5,741 FINANCIAL REPORT HALF-YEAR 2018 25 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 3) Adjustment items Description of the business segments Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments. Sales prices between business segments approximate market prices. The organization of the Group’s activities is structured around the four followings segments: an Exploration & Production segment; a Gas, Renewables & Power segment including downstream Gas activities, New Energies activities (excluding biotechnologies) and Energy Efficiency division; a Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; a Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products; In addition the Corporate segment includes holdings operating and financial activities. Adjustment items Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, 26 FINANCIAL REPORT HALF-YEAR 2018 transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last- In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 The detail of the adjustment items is presented in the table below. Adjustments to operating income (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Total 2nd quarter 2018 Inventory valuation effect 569 134 703 Effect of changes in fair value 16 16 Restructuring charges Asset impairment charges (424) (424) Other items (97) (1) (98) TOTAL (97) (409) 569 134 197 2nd quarter 2017 Inventory valuation effect (372) (54) (426) Effect of changes in fair value (27) (27) Restructuring charges (40) (40) Asset impairment charges (15) 1 (14) Other items (77) (25) (39) (26) (64) (231) TOTAL (132) (51) (411) (80) (64) (738) 1st half 2018 Inventory valuation effect 531 105 636 Effect of changes in fair value 5 5 Restructuring charges (53) (53) Asset impairment charges (446) (446) Other items (97) (93) (9) (199) TOTAL (150) (534) 531 105 (9) (57) 1st half 2017 Inventory valuation effect (289) (69) (358) Effect of changes in fair value (27) (27) Restructuring charges (40) (40) Asset impairment charges (1,869) (25) (50) (1,944) Other items (77) (114) (65) (26) (64) (346) TOTAL (1,986) (166) (404) (95) (64) (2,715) FINANCIAL REPORT HALF-YEAR 2018 27 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 Adjustments to net income, Group share (M$) Exploration & Production 2nd quarter 2018 Inventory valuation effect Effect of changes in fair value Restructuring charges (44) Asset impairment charges Gains (losses) on disposals of assets (2) Other items (71) TOTAL (117) 2nd quarter 2017 Inventory valuation effect Effect of changes in fair value Restructuring charges (12) Asset impairment charges (27) Gains (losses) on disposals of assets Other items (50) TOTAL (89) 1st half 2018 Inventory valuation effect Effect of changes in fair value Restructuring charges (59) Asset impairment charges Gains (losses) on disposals of assets (103) Other items (51) TOTAL (213) 1st half 2017 Inventory valuation effect Effect of changes in fair value Restructuring charges (12) Asset impairment charges (1,641) Gains (losses) on disposals of assets Other items (144) TOTAL (1,797) 4) Shareholders’ equity Treasury shares (TOTAL shares held by TOTAL S.A.) In accordance with the February 2018 announcements regarding the shareholder return policy over 2018-2020, TOTAL S.A. started share buybacks. At June 30, 2018, TOTAL S.A. holds 41,429,820 of its own shares, representing 1.55% of its share capital, detailed as follows: 8,760,020 shares allocated to TOTAL share grant plans for Group employees; 69,759 shares intended to be allocated to new TOTAL share purchase option plans or to new share grant plans; 32,600,041 shares acquired and intended to be canceled out of which: – 9,820,488 shares definitively acquired during the first quarter and intended to be canceled, – 18,576,360 shares definitively acquired during the second quarter and intended to be canceled, – 4,203,193 shares corresponding to the portion not yet executed on June 30, 2018, of the share buyback for which the Group is contractually bound. These shares are deducted from the consolidated shareholders’ equity. 28 FINANCIAL REPORT HALF-YEAR 2018 Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Total 436 81 517 9 9 (2) (46) (236) (236) (2) (3) (74) (232) 436 81 168 (268) (42) (310) (19) (19) (3) (39) (54) (5) (32) 125 125 (11) (26) (18) (42) (147) (38) (333) 65 (42) (437) 412 60 472 1 1 (8) (67) (248) (248) (103) (58) (17) (9) (135) (313) 395 60 (9) (80) (210) (45) (255) (19) (19) (8) (39) (59) (59) (50) (1,750) 2,139 125 2,264 (78) (45) (18) (42) (327) (164) 1,795 62 (42) (146) Dividend The Annual Shareholders’ Meeting on June 1, 2018 approved the payment of a dividend of €2.48 per share for the 2017 fiscal year. Taking into account the three interim dividends of €0.62 per share that have been paid on October 12, 2017, January 11 and April 9, 2018, the remaining balance of €0.62 per share was paid on June 28, 2018. The Annual Shareholders’ Meeting on June 1, 2018 approved that shareholders will be given the option to receive the 2017 final dividend in new shares or in cash. The share price of new shares has been set at €52.03 per share. This price is equal to the average opening price on Euronext Paris for the twenty trading days preceding June 1, 2018, the date of the Annual Shareholders’ Meeting, reduced by the amount of the final dividend, without any discount. On June 28, 2018, 5,798,335 shares have been issued at a price of €52.03 per share. Another resolution has been approved at the Annual Shareholders’ Meeting on June 1, 2018, if one or more interim dividends are decided by the Board of Directors for the fiscal year 2018, then shareholders will be given the option to receive this or these interim dividends in new shares or in cash. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 The Board of Directors, during its April 25, 2018, meeting, decided to set the first interim dividend for the fiscal year 2018 at €0.64 per share. This interim dividend will be paid in cash or in shares on October 12, 2018 (the ex-dividend date will be September 25, 2018). The Board of Directors, during its July 25, 2018, meeting, decided to set the second interim dividend for the fiscal year 2018 at €0.64 per share. This interim dividend will be paid in cash or in shares on December 18, 2018 (the ex-dividend date will be January 10, 2019). Earnings per share in euro Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average euro/USD exchange rate for the period, amounted to €1.16 per share for the 2nd quarter 2018 (€0.81 per share for the 1st quarter 2018 and €0.71 per share for the 2nd quarter 2017). Diluted earnings per share calculated using the same method amounted to €1.16 per share for the 2nd quarter 2018 (€0.81 per share for the 1st quarter 2018 and €0.71 per share for the 2nd quarter 2017). Earnings per share are calculated after remuneration of perpetual subordinated notes. Other comprehensive income Detail of other comprehensive income showing items reclassified from equity to net income is presented in the table below: (M$) 1st half 2018 1st half 2017 Actuarial gains and losses 67 158 Change in fair value of investments in equity instruments 5 Tax effect (18) (53) Currency translation adjustment generated by the parent company (2,630) 5,464 SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (2,576) 5,569 Currency translation adjustment 968 (1,418) – Unrealized gain/(loss) of the period 1,078 (1,372) – Less gain/(loss) included in net income 110 46 Available for sale financial assets – Unrealized gain/(loss) of the period – Less gain/(loss) included in net income Cash flow hedge 255 34 – Unrealized gain/(loss) of the period 142 164 – Less gain/(loss) included in net income (113) 130 Variation of foreign currency basis spread (27) – Unrealized gain/(loss) of the period (27) – Less gain/(loss) included in net income Share of other comprehensive income of equity affiliates, net amount (132) (463) – Unrealized gain/(loss) of the period (93) (465) – Less gain/(loss) included in net income 39 (2) Other (2) Tax effect (75) (9) SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 987 (1,856) TOTAL OTHER COMPREHENSIVE INCOME, NET AMOUNT (1,589) 3,713 FINANCIAL REPORT HALF-YEAR 2018 29 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 Tax effects relating to each component of other comprehensive income are as follows: 1st half 2018 1st half 2017 (M$) Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 67 (18) 49 158 (53) 105 Change in fair value of investments in equity instruments 5 5 Currency translation adjustment generated by the parent company (2,630) (2,630) 5,464 5,464 SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (2,558) (18) (2,576) 5,622 (53) 5,569 Currency translation adjustment 968 968 (1,418) (1,418) Available for sale financial assets (1) (1) Cash flow hedge 255 (81) 174 34 (8) 26 Variation of foreign currency basis spread (27) 6 (21) Share of other comprehensive income of equity affiliates, net amount (132) (132) (463) (463) Other (2) (2) SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,062 (75) 987 (1,847) (9) (1,856) TOTAL OTHER COMPREHENSIVE INCOME (1,496) (93) (1,589) 3,775 (62) 3,713 5) Financial debt The Group has not issued any bond during the first six months of 2018. bond 2.500% issued in 2013 and maturing in June 2018 (NOK 600 million); The Group reimbursed bonds during the first six months of 2018: bond with floating rate coupon issued in 2014 and maturing in bond 1.450% issued in 2013 and maturing in January 2018 (USD 1,000 million); June 2018 (USD 135 million); bond 3.125% issued in several tranches between 2006/2008 and maturing in June 2018 (CHF 525 million). 6) Related parties The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2018. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. Alitalia In the Marketing & Services segment, a civil proceeding was initiated in Italy, in 2013, against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This proceeding follows practices that had been condemned by the Italian competition authority in 2006. The parties have exchanged preliminary findings and a request for an expert opinion has been approved by the court. The existence and the assessment of the alleged damages in this procedure involving multiple defendants remain contested. FERC The Office of Enforcement of the U.S. Federal Energy Regulatory Commission (FERC) began in 2015 an investigation in connection with the natural gas trading activities in the United States of Total Gas & Power North America, Inc. (TGPNA), a U.S. subsidiary of the Group. The investigation covered transactions made by TGPNA between June 2009 and June 2012 on the natural gas market. TGPNA received a Notice of Alleged Violations from FERC on September 21, 2015. On April 28, 2016, FERC issued an order to show cause to TGPNA and two of its former employees, and to TOTAL S.A. and Total Gas & Power Ltd., regarding the same facts. TGPNA contests the claims brought against it. A class action has been launched to seek damages from these three companies and was dismissed by a judgment of the U.S. District court of New York issued on March 15, 2017. The court of Appeal upheld this judgment. 30 FINANCIAL REPORT HALF-YEAR 2018 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 Yemen Due to the security conditions in the vicinity of Balhaf, Yemen LNG, in which the Group holds a stake of 39.62%, stopped its commercial production and export of LNG in April 2015, when it declared Force Majeure to its various stakeholders. The plant is in a preservation mode. 8) Information by business segment 1st half 2018 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 5,865 7,359 45,088 43,836 3 102,151 Intersegment sales 14,717 898 17,396 491 34 (33,536) Excise taxes (1,714) (11,043) (12,757) REVENUES FROM SALES 20,582 8,257 60,770 33,284 37 (33,536) 89,394 Operating expenses (8,979) (8,096) (58,248) (31,919) (399) 33,536 (74,105) Depreciation, depletion and impairment of tangible assets and mineral interests (4,834) (534) (617) (346) (20) (6,351) OPERATING INCOME 6,769 (373) 1,905 1,019 (382) 8,938 Net income (loss) from equity affiliates and other items 1,210 162 417 193 9 1,991 Tax on net operating income (3,322) (34) (383) (297) 181 (3,855) NET OPERATING INCOME 4,657 (245) 1,939 915 (192) 7,074 Net cost of net debt (791) Non-controlling interests 74 NET INCOME - GROUP SHARE 6,357 1st half 2018 (adjustments)(a) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 13 13 Intersegment sales Excise taxes REVENUES FROM SALES 13 13 Operating expenses (150) (101) 531 105 (9) 376 Depreciation, depletion and impairment of tangible assets and mineral interests (446) (446) OPERATING INCOME(b) (150) (534) 531 105 (9) (57) Net income (loss) from equity affiliates and other items (167) (15) 25 (157) Tax on net operating income 104 (4) (158) (35) (93) NET OPERATING INCOME(b) (213) (553) 398 70 (9) (307) Net cost of net debt (19) Non-controlling interests 246 NET INCOME - GROUP SHARE (80) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income - - 531 415 105 70 - FINANCIAL REPORT HALF-YEAR 2018 31 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 1st half 2018 (adjusted) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Non-Group sales 5,865 7,346 45,088 43,836 3 Intersegment sales 14,717 898 17,396 491 34 (33,536) Excise taxes (1,714) (11,043) REVENUES FROM SALES 20,582 8,244 60,770 33,284 37 (33,536) Operating expenses (8,829) (7,995) (58,779) (32,024) (390) 33,536 Depreciation, depletion and impairment of tangible assets and mineral interests (4,834) (88) (617) (346) (20) ADJUSTED OPERATING INCOME 6,919 161 1,374 914 (373) Net income (loss) from equity affiliates and other items 1,377 177 392 193 9 Tax on net operating income (3,426) (30) (225) (262) 181 ADJUSTED NET OPERATING INCOME 4,870 308 1,541 845 (183) Net cost of net debt Non-controlling interests ADJUSTED NET INCOME - GROUP SHARE 1st half 2018 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 8,851 328 736 538 58 Total divestments 2,751 483 349 273 3 Cash flow from operating activities* 8,197 (75) (110) 781 (466) As of January 1, 2018, for a better reflection of the operating performance of the segments, financial expenses were all transferred to the Corporate segment. 2017 comparative information have been restated. 1st half 2017 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Non-Group sales 4,171 5,868 35,921 35,129 9 Intersegment sales 10,666 583 12,362 443 195 (24,249) Excise taxes (1,381) (9,142) REVENUES FROM SALES 14,837 6,451 46,902 26,430 204 (24,249) Operating expenses (7,234) (6,326) (44,796) (25,394) (552) 24,249 Depreciation, depletion and impairment of tangible assets and mineral interests (6,412) (112) (532) (302) (19) OPERATING INCOME 1,191 13 1,574 734 (367) Net income (loss) from equity affiliates and other items 677 (32) 2,601 288 16 Tax on net operating income (951) (61) (498) (231) 385 NET OPERATING INCOME 917 (80) 3,677 791 34 Net cost of net debt Non-controlling interests NET INCOME - GROUP SHARE 32 FINANCIAL REPORT HALF-YEAR 2018 Total 102,138 (12,757) 89,381 (74,481) (5,905) 8,995 2,148 (3,762) 7,381 (772) (172) 6,437 Total 10,511 3,859 8,327 Total 81,098 (10,523) 70,575 (60,053) (7,377) 3,145 3,550 (1,356) 5,339 (533) 80 4,886 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 1st half 2017 (adjustments)(a) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales (27) (27) Intersegment sales Excise taxes REVENUES FROM SALES (27) (27) Operating expenses (117) (114) (354) (95) (64) (744) Depreciation, depletion and impairment of tangible assets and mineral interests (1,869) (25) (50) (1,944) OPERATING INCOME(b) (1,986) (166) (404) (95) (64) (2,715) Net income (loss) from equity affiliates and other items (214) (79) 2,156 126 1,989 Tax on net operating income 376 9 41 26 22 474 NET OPERATING INCOME(b) (1,824) (236) 1,793 57 (42) (252) Net cost of net debt (14) Non-controlling interests 120 NET INCOME - GROUP SHARE (146) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income - - (289) (212) (69) (50) - 1st half 2017 (adjusted) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 4,171 5,895 35,921 35,129 9 81,125 Intersegment sales 10,666 583 12,362 443 195 (24,249) Excise taxes (1,381) (9,142) (10,523) REVENUES FROM SALES 14,837 6,478 46,902 26,430 204 (24,249) 70,602 Operating expenses (7,117) (6,212) (44,442) (25,299) (488) 24,249 (59,309) Depreciation, depletion and impairment of tangible assets and mineral interests (4,543) (87) (482) (302) (19) (5,433) ADJUSTED OPERATING INCOME 3,177 179 1,978 829 (303) 5,860 Net income (loss) from equity affiliates and other items 891 47 445 162 16 1,561 Tax on net operating income (1,327) (70) (539) (257) 363 (1,830) ADJUSTED NET OPERATING INCOME 2,741 156 1,884 734 76 5,591 Net cost of net debt (519) Non-controlling interests (40) ADJUSTED NET INCOME - GROUP SHARE 5,032 1st half 2017 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Total expenditures 6,084 392 667 697 43 7,883 Total divestments 245 27 2,760 218 8 3,258 Cash flow from operating activities* 5,637 40 3,729 582 (647) 9,341 As of January 1, 2018, for a better reflection of the operating performance of the segments, financial expenses were all transferred to the Corporate segment. 2017 comparative information have been restated. FINANCIAL REPORT HALF-YEAR 2018 33 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 2nd quarter 2018 (M$) Exploration & Production Gas, Renewables & Power Non-Group sales 3,398 3,268 Intersegment sales 7,793 430 Excise taxes REVENUES FROM SALES 11,191 3,698 Operating expenses (4,934) (3,570) Depreciation, depletion and impairment of tangible assets and mineral interests (2,484) (464) OPERATING INCOME 3,773 (336) Net income (loss) from equity affiliates and other items 569 128 Tax on net operating income (1,772) (19) NET OPERATING INCOME 2,570 (227) Net cost of net debt Non-controlling interests NET INCOME - GROUP SHARE 2nd quarter 2018 (adjustments)(a) (M$) Exploration & Production Gas, Renewables & Power Non-Group sales 24 Intersegment sales Excise taxes REVENUES FROM SALES 24 Operating expenses (97) (9) Depreciation, depletion and impairment of tangible assets and mineral interests (424) OPERATING INCOME(b) (97) (409) Net income (loss) from equity affiliates and other items (66) (4) Tax on net operating income 46 (7) NET OPERATING INCOME(b) (117) (420) Net cost of net debt Non-controlling interests NET INCOME - GROUP SHARE (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income - - 34 FINANCIAL REPORT HALF-YEAR 2018 Refining & Chemicals 23,349 9,440 (867) 31,922 (30,369) (304) 1,249 289 (279) 1,259 Refining & Chemicals 569 569 46 (177) 438 569 438 Marketing & Services Corporate Intercompany 22,528 (3) 293 (63) (17,893) (5,571) 17,250 (66) (17,893) (16,416) (122) 17,893 (172) (11) 662 (199) 107 11 (194) 85 575 (103) Marketing & Services Corporate Intercompany 134 134 1 (38) 97 134 97 - Total 52,540 (6,438) 46,102 (37,518) (3,435) 5,149 1,104 (2,179) 4,074 (440) 87 3,721 Total 24 24 597 (424) 197 (23) (176) (2) (9) 179 168 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 2nd quarter 2018 (adjusted) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 3,398 3,244 23,349 22,528 (3) 52,516 Intersegment sales 7,793 430 9,440 293 (63) (17,893) Excise taxes (867) (5,571) (6,438) REVENUES FROM SALES 11,191 3,674 31,922 17,250 (66) (17,893) 46,078 Operating expenses (4,837) (3,561) (30,938) (16,550) (122) 17,893 (38,115) Depreciation, depletion and impairment of tangible assets and mineral interests (2,484) (40) (304) (172) (11) (3,011) ADJUSTED OPERATING INCOME 3,870 73 680 528 (199) 4,952 Net income (loss) from equity affiliates and other items 635 132 243 106 11 1,127 Tax on net operating income (1,818) (12) (102) (156) 85 (2,003) ADJUSTED NET OPERATING INCOME 2,687 193 821 478 (103) 4,076 Net cost of net debt (431) Non-controlling interests (92) ADJUSTED NET INCOME - GROUP SHARE 3,553 2nd quarter 2018 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Total expenditures 2,980 79 404 310 14 3,787 Total divestments 500 405 324 45 1,274 Cash flow from operating activities* 4,628 104 999 841 (326) 6,246 As of January 1, 2018, for a better reflection of the operating performance of the segments, financial expenses were all transferred to the Corporate segment. 2017 comparative information have been restated. 2nd quarter 2017 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 2,068 2,671 17,347 17,831 (2) 39,915 Intersegment sales 5,118 274 6,016 169 90 (11,667) Excise taxes (680) (4,753) (5,433) REVENUES FROM SALES 7,186 2,945 22,683 13,247 88 (11,667) 34,482 Operating expenses (3,547) (2,857) (21,918) (12,729) (319) 11,667 (29,703) Depreciation, depletion and impairment of tangible assets and mineral interests (2,344) (40) (245) (158) (11) (2,798) OPERATING INCOME 1,295 48 520 360 (242) 1,981 Net income (loss) from equity affiliates and other items 487 13 148 258 (6) 900 Tax on net operating income (512) (24) (142) (123) 214 (587) NET OPERATING INCOME 1,270 37 526 495 (34) 2,294 Net cost of net debt (267) Non-controlling interests 10 NET INCOME - GROUP SHARE 2,037 FINANCIAL REPORT HALF-YEAR 2018 35 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 2nd quarter 2017 (adjustments)(a) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Non-Group sales (27) Intersegment sales Excise taxes REVENUES FROM SALES (27) Operating expenses (117) (25) (411) (80) (64) Depreciation, depletion and impairment of tangible assets and mineral interests (15) 1 OPERATING INCOME(b) (132) (51) (411) (80) (64) Net income (loss) from equity affiliates and other items (4) (16) (53) 121 Tax on net operating income 47 9 129 21 22 NET OPERATING INCOME(b) (89) (58) (335) 62 (42) Net cost of net debt Non-controlling interests NET INCOME - GROUP SHARE (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income - - (372) (270) (54) (45) - 2nd quarter 2017 (adjusted) (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Non-Group sales 2,068 2,698 17,347 17,831 (2) Intersegment sales 5,118 274 6,016 169 90 (11,667) Excise taxes (680) (4,753) REVENUES FROM SALES 7,186 2,972 22,683 13,247 88 (11,667) Operating expenses (3,430) (2,832) (21,507) (12,649) (255) 11,667 Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (41) (245) (158) (11) ADJUSTED OPERATING INCOME 1,427 99 931 440 (178) Net income (loss) from equity affiliates and other items 491 29 201 137 (6) Tax on net operating income (559) (33) (271) (144) 192 ADJUSTED NET OPERATING INCOME 1,359 95 861 433 8 Net cost of net debt Non-controlling interests ADJUSTED NET INCOME - GROUP SHARE 2nd quarter 2017 (M$) Exploration & Production Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 3,448 77 401 258 21 Total divestments 132 23 20 182 3 Cash flow from operating activities* 2,836 (100) 1,967 251 (314) As of January 1, 2018, for a better reflection of the operating performance of the segments, financial expenses were all transferred to the Corporate segment. 2017 comparative information have been restated. 36 FINANCIAL REPORT HALF-YEAR 2018 Total (27) (27) (697) (14) (738) 48 228 (462) (7) 32 (437) Total 39,942 (5,433) 34,509 (29,006) (2,784) 2,719 852 (815) 2,756 (260) (22) 2,474 Total 4,205 360 4,640 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 9) Reconciliation of the information by business segment with consolidated financial statements 1st half 2018 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 102,138 13 102,151 Excise taxes (12,757) (12,757) Revenues from sales 89,381 13 89,394 Purchases net of inventory variation (60,623) 578 (60,045) Other operating expenses (13,496) (202) (13,698) Exploration costs (362) (362) Depreciation, depletion and impairment of tangible assets and mineral interests (5,905) (446) (6,351) Other income 628 147 775 Other expense (115) (488) (603) Financial interest on debt (849) (19) (868) Financial income and expense from cash & cash equivalents (95) (95) Cost of net debt (944) (19) (963) Other financial income 561 561 Other financial expense (329) (329) Net income (loss) from equity affiliates 1,403 184 1,587 Income taxes (3,590) (93) (3,683) CONSOLIDATED NET INCOME 6,609 (326) 6,283 Group share 6,437 (80) 6,357 Non-controlling interests 172 (246) (74) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 1st half 2017 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 81,125 (27) 81,098 Excise taxes (10,523) (10,523) Revenues from sales 70,602 (27) 70,575 Purchases net of inventory variation (46,929) (456) (47,385) Other operating expenses (11,984) (288) (12,272) Exploration costs (396) (396) Depreciation, depletion and impairment of tangible assets and mineral interests (5,433) (1,944) (7,377) Other income 314 2,581 2,895 Other expense (116) (281) (397) Financial interest on debt (662) (14) (676) Financial income and expense from cash & cash equivalents (48) (48) Cost of net debt (710) (14) (724) Other financial income 513 513 Other financial expense (319) (319) Net income (loss) from equity affiliates 1,169 (311) 858 Income taxes (1,639) 474 (1,165) CONSOLIDATED NET INCOME 5,072 (266) 4,806 Group share 5,032 (146) 4,886 Non-controlling interests 40 (120) (80) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. FINANCIAL REPORT HALF-YEAR 2018 37 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 Notes to the consolidated fi nancial statements for the fi rst six months of 2018 2nd quarter 2018 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 52,516 24 52,540 Excise taxes (6,438) (6,438) Revenues from sales 46,078 24 46,102 Purchases net of inventory variation (31,263) 664 (30,599) Other operating expenses (6,694) (67) (6,761) Exploration costs (158) (158) Depreciation, depletion and impairment of tangible assets and mineral interests (3,011) (424) (3,435) Other income 254 (2) 252 Other expense (55) (358) (413) Financial interest on debt (469) (9) (478) Financial income and expense from cash & cash equivalents (54) (54) Cost of net debt (523) (9) (532) Other financial income 321 321 Other financial expense (159) (159) Net income (loss) from equity affiliates 766 337 1,103 Income taxes (1,911) (176) (2,087) CONSOLIDATED NET INCOME 3,645 (11) 3,634 Group share 3,553 168 3,721 Non-controlling interests 92 (179) (87) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 2nd quarter 2017 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 39,942 (27) 39,915 Excise taxes (5,433) (5,433) Revenues from sales 34,509 (27) 34,482 Purchases net of inventory variation (22,939) (459) (23,398) Other operating expenses (5,868) (238) (6,106) Exploration costs (199) (199) Depreciation, depletion and impairment of tangible assets and mineral interests (2,784) (14) (2,798) Other income 206 364 570 Other expense (58) (48) (106) Financial interest on debt (338) (7) (345) Financial income and expense from cash & cash equivalents (37) (37) Cost of net debt (375) (7) (382) Other financial income 285 285 Other financial expense (159) (159) Net income (loss) from equity affiliates 578 (268) 310 Income taxes (700) 228 (472) CONSOLIDATED NET INCOME 2,496 (469) 2,027 Group share 2,474 (437) 2,037 Non-controlling interests 22 (32) (10) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 10) Post-closing and other events Gas, Renewables & Power - On July 6, 2018, TOTAL announced the closing of the acquisition of a 73.04% interest in Direct Energie for an estimated amount of €1.4 billion and on the same day filed a mandatory tender offer for the shares in Direct Energie not yet held by TOTAL. On July 13, 2018, TOTAL announced the closing of the acquisition of Engie’s portfolio of upstream liquefied natural gas (LNG) assets for an overall enterprise value of $1.5 billion. 38 FINANCIAL REPORT HALF-YEAR 2018 FINANCIAL REPORT HALF-YEAR 2018 39 40 FINANCIAL REPORT HALF-YEAR 2018 see you on total.com TOTAL S.A. Registered Office: 2, place Jean Millier - La Défense 6 92400 Courbevoie - France Share capital: 6,660,782,345 euros 542 051 180 RCS Nanterre total.com Reception: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2018, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,019 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
### Response:
| FINANCIAL REPORT FIRST HALF 2019 1 TABLE OF CONTENTS Certification of the person responsible for the half- year financial report........................................1 Glossary ..........................................................................2 Half year financial report 3 1.1 Key figures..............................................................3 1.2 Highlights since the beginning of 2019 ...................4 1.3 Key figures of environment and Group production ............................................4 1.3.1 Environment – liquids and gas price realizations, refining margins..............4 1.3.2 Production .................................................4 1.4 Analysis of business segments ...............................5 1.4.1 Exploration & Production (EP – redefined scope) ...............................5 1.4.2 Integrated Gas, Renewables & Power (iGRP) ........................................................5 1.4.3 Downstream (Refining & Chemicals business segment and Marketing & Services business segment) ...................6 1.5 Group results..........................................................7 Adjusted net operating income from business segments ............................7 1.5.1 1.5.2 Adjusted net income (Group share) ............7 1.5.3 Adjusted fully- diluted earnings per share....8 1.5.4 Asset sales – acquisitions ..........................8 1.5.5 Net cash flow.............................................8 1.5.6 Profitability .................................................8 1.6 TOTAL S.A. accounts .............................................9 1.7 2019 Sensitivities....................................................9 1.8 Summary and outlook ............................................9 1.9 Other information..................................................10 1.9.1 Operating information by segment ...........10 1.9.2 Adjustment items to net income (Group share)...........................................11 1.9.3 Investments – Divestments ......................11 1.9.4 Cash flow ................................................11 1.9.5 Gearing ratio ............................................12 1.9.6 Return on average capital employed........12 1.10 Principal risks and uncertainties for the remaining six months of 2019....................13 1.11 Major related parties’ transactions ........................13 2 Consolidated financial statements as of June 30, 2019 2.1 Statutory auditors’ review report on the half- yearly financial information...................15 2.2 Consolidated statement of income – half yearly ....16 2.3 Consolidated statement of comprehensive income – half yearly ..............................................17 2.4 Consolidated statement of income – quarterly ......18 2.5 Consolidated statement of comprehensive income – quarterly ...................19 2.6 Consolidated balance sheet .................................20 2.7 Consolidated statement of cash flow – half yearly ....21 2.8 Consolidated statement of cash flow – quarterly ....22 2.9 Consolidated statement of changes in shareholders’ equity..........................................23 2.10 Notes to the Consolidated Financial Statements for the first six months 2019 .................................24 Accounting policies..................................24 1) 2) Changes in the Group structure ...............24 3) Adjustment items.....................................25 4) Shareholders’ equity ................................27 5) Financial debt ..........................................30 6) Related parties.........................................30 7) Other risks and contingent liabilities .........30 8) Information by business segment.............31 9) Reconciliation of the information by business segment with Consolidated Financial Statements................................37 10) Post- closing.............................................38 15 FINANCIAL REPORT 1ST HALF 2019 CERTIFICATION OF THE PERSON RESPONSIBLE FOR THE HALF- YEAR FINANCIAL REPORT This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English- speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TOTAL S.A. (the Company) for the first half of 2019 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Company and all the entities included in the consolidation, and that the half- year financial report on pages 3 to 14 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above- mentioned condensed Consolidated Financial Statements is included on page 15 of this half- year financial report.” Courbevoie, July 24, 2019 Patrick Pouyanné Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half- year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 25, 2019 pursuant to paragraph III of Article L. 451- 1- 2 of the French Monetary and Financial Code. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 2 GLOSSARY The terms “TOTAL” and “Group” as used in this document refer to TOTAL S.A. collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Company” as used in this document exclusively refers to TOTAL S.A., which is the parent company of the Group. Abbreviations €: euro Units of measurement b = barrel (1) $ or dollar: U.S. dollar B = billion ADR: American depositary receipt (evidencing an ADS) boe = barrel of oil equivalent ADS: American depositary share (representing a share of a company) BTU = British thermal unit cf = cubic feet AMF: Autorité des marchés financiers (French Financial Markets Authority) CO2e = carbon dioxide equivalent API: American Petroleum Institute /d = per day CNG: compressed natural gas GWh = gigawatt hour DACF: debt adjusted cash flow k = thousand FLNG: floating liquefied natural gas km = kilometer FPSO: floating production, storage and offloading m = meter FSRU: floating storage and regasification unit m³ or cm = cubic meter (1) GHG: greenhouse gas M = million HSE: health, safety and the environment MW = megawatt IFRS: International Financial Reporting Standards MWp = megawatt peak (direct current) IPIECA: International Petroleum Industry Environmental Conservation Association t = (Metric) ton TWh = terawatt hour LNG: liquefied natural gas W = watt LPG: liquefied petroleum gas /y = per year NGL: natural gas liquids Conversion table NGV: natural gas vehicle 1 acre ≈ 0.405 hectare OML: oil mining license 1 b = 42 U.S. gallons ≈ 159 liters ROACE: return on average capital employed 1 b/d of crude oil ≈ 50 t/y of crude oil ROE: return on equity 1 Bm³/y (1 Bcm) ≈ 0.1 Bcf/d SEC: United States Securities and Exchange Commission 1 km ≈ 0.62 mile VCM: Variable cost margin, European refining. This indicator represents the average margin on variable costs realized by Total’s European refining business (equal to the difference between the sales of refined products realized by Total’s European refining and the crude purchases as well as associated variable costs, divided by refinery throughput in tonnes). The previous ERMI indicator was intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. 1 m³ ≈ 35.3 cf 1 Mt of LNG ≈ 48 Bcf of gas 1 Mt/y of LNG ≈ 131 Mcf/d of gas 1 t of oil ≈ 7.5 b of oil (assuming a specific gravity of 37° API) 1 boe = 1 b of crude oil ≈ 5,387 cf of gas in 2018 (2) (5,396 cf in 2017 and 5,403 cf in 2016) (1) Liquid and gas volumes are reported at international standard metric conditions (15°C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of TOTAL’s natural gas reserves during the applicable periods, and is subject to change. The tabular conversion rate is applicable to TOTAL’s natural gas reserves on a Group- wide basis. TOTAL Financial report first half 2019 [© Agence Marc Praquin] 1 HALF YEAR FINANCIAL REPORT 1.1 Key figures (1) (M$, except effective tax rate, earnings per share and number of shares) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income from business segments 7,002 7,564 - 7% Exploration & Production** 3,744 4,132 - 9% Integrated Gas, Renewables & Power** 1,021 1,046 - 2% Refining & Chemicals 1,471 1,541 - 5% Marketing & Services 766 845 - 9% Contribution of equity affiliates to adjusted net income 1,071 1,403 - 24% Group effective tax rate (2) 36.9% 39.2% Adjusted net income (Group share) 5,646 6,437 - 12% Adjusted fully- diluted earnings per share (dollars) (3) 2.07 2.41 - 14% Adjusted fully- diluted earnings per share (euros)* 1.84 1.99 - 8% Fully- diluted weighted- average shares (millions) 2,622 2,608 +1% NET INCOME (GROUP SHARE) 5,867 6,357 - 8% Organic investments (4) 5,811 5,400 +8% Net acquisitions (5) 709 1,252 - 43% Net investments (6) 6,520 6,652 - 2% Operating cash flow before working capital changes (7) 12,740 11,769 +8% Operating cash flow before working capital changes w/o financial charges (DACF) (8) 13,744 12,465 +10% Cash flow from operations 9,880 8,327 +19% 2019 data take into account the impact of the new rule IFRS16 “Leases”, effective January 1, 2019. * Average €- $ exchange rate: 1.1237 in the second quarter 2019 and 1.1298 in the first half 2019. ** 1H18 restated; historical data for 2017 and 2018 available on www.total.com. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 11. (2) Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). (3) In accordance with IFRS rules, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond (4) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (5) Net acquisitions = acquisitions - assets sales - other transactions with non-controlling interests (see page 11). (6) Net investments = Organic investments + net acquisitions (see page 11). (7) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, and effective second quarter 2019 including organic loan repayments from equity affiliates. The inventory valuation effect is explained on page 14. The reconciliation table for different cash flow figures is on page 11. (8) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 3 1 1 HALF YEAR FINANCIAL REPORT Highlights since the beginning of 2019. Key figures of environment and Group production 1.2 Highlights since the beginning of 2019 (1) — Signed agreement with Occidental to acquire the African assets — Agreed to invest in Tellurian- led Driftwood LNG project in the of Anadarko for 8.8 B$. U.S. and lift 2.5 Mt/y. — Finalized entry into Arctic LNG 2 project in Russia. — Signed gas agreement with Papua New Guinea for Papua — Signed 10- year contract to sell 0.7 Mt/y of LNG to private Chinese company Guanghui. LNG project. — Sold mature fields in the UK North Sea for 0.6 B$. — Started production at the Egina field in Nigeria. — Started production at Kaombo Sul in Angola. — Started production at Culzean in the UK North Sea. — Significant exploration discovery of Brulpadda offshore South Africa and a new discovery of Glengorm in UK North Sea. — Launched the second development phase for the giant Mero — Agreed with Toshiba to take over its LNG portfolio, including a 20- year 2.2 Mt/y tolling agreement for the third train at Freeport LNG in the United States. — Started up the biorefinery at La Mède in France. — Acquired Synova, a company specializing in plastics recycling. — Agreement with Saudi Aramco to develop a joint venture in distribution and acquire a network of 250 service stations in Saudi Arabia. field in Brazil. — Launched the third development phase of the Dunga field in — Started up second solar plant in Japan. — Agreement between Saft and the Chinese Tianneng Group to Kazakhstan. create a joint venture in Lithium- ion batteries. — Started production at Cameron LNG in the United States. 1.3 Key figures of environment and Group production 1.3.1 Environment – liquids and gas price realizations*, refining margins 1H19 1H18 1H19 vs 1H18 Brent ($/b) 66.0 70.6 - 7% Henry Hub ($/Mbtu) 2.7 2.8 - 5% NBP ($/Mbtu) 5.2 7.2 - 27% JKM ($/Mbtu) 5.8 9.1 - 37% Average price of liquids ($/b)* 61.2 64.7 - 5% Average price of gas ($/Mbtu)* 4.16 4.71 - 12% Variable cost margin – Refining Europe, VCM ($/t) 30.6 31.7 - 4% Consolidated subsidiaries. 1.3.2 Production* 1H19 1H18 1H19 vs 1H18 Hydrocarbon production (kboe/d) 2,951 2,710 +9% Oil (including bitumen) (kb/d) 1,416 1,349 +5% Gas (including condensates and associated NGL) (kboe/d) 1,535 1,361 +13% Hydrocarbon production (kboe/d) 2,951 2,710 +9% Liquids (kb/d) 1,627 1,532 +6% Gas (Mcf/d) 7,399 6,419 +15% Group production = EP production + iGRP production. Hydrocarbon production was 2,951 thousand barrels of oil equivalent per day (kboe/d) in first half 2019, an increase of 9% compared to last year, due to: — +1% due to portfolio effect, notably the integration of the Mærsk Oil assets; — - 3% due to the natural decline of the fields; — +12% related to the start- up and ramp- up of new projects, including Yamal LNG in Russia, Ichthys in Australia, Kaombo in Angola and Egina in Nigeria; — - 1% due to maintenance, notably in Nigeria. (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. 4 TOTAL Financial report first half 2019 [© Agence Marc Praquin] HALF YEAR FINANCIAL REPORT Analysis of business segments 1.4 Analysis of business segments 1.4.1 Exploration & Production (EP – redefined scope) 1.4.1.1 Production Hydrocarbon production 1H19 1H18 1H19 vs 1H18 EP (kboe/d) 2,413 2,367 +2% Liquids (kb/d) 1,557 1,495 +4% Gas (Mcf/d) 4,668 4,755 - 2% 1.4.1.2 Results (M$ except effective tax rate) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income* 3,744 4,132 - 9% including income from equity affiliates 452 555 - 19% Effective tax rate** 44.0% 47.5% Organic investments 3,953 3,583 +10% Net acquisitions 242 1,932 - 87% Net investments 4,195 5,515 - 24% Operating cash flow before working capital changes*** 9,128 8,721 +5% Cash flow from operations*** 7,704 7,796 - 1% Details on adjustment items are shown in the business segment information annex to financial statements. ** Tax on adjusted net operating income/(adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). *** Excluding financial charges, except those related to leases. Exploration & Production adjusted net operating income was 3,744 M$ in the first half 2019, a decrease of 9%, reflecting lower Brent and natural gas prices as well as the higher exploration expenses in the first quarter 2019. Operating cash flow before working capital changes, compared to last year, increased by 5% in the first half to 9.1 B$, driven by the start- up of strong cash generating fields. Exploration & Production generated cash flow after organic investments of 5.2 B$ in the first half 2019. 1.4.2 Integrated Gas, Renewables & Power (iGRP) 1.4.2.1 Production and liquefied natural gas (LNG) sales Hydrocarbon production 1H19 1H18 1H19 vs 1H18 iGRP (kboe/d) 538 343 +57% Liquids (kb/d) 70 37 +87% Gas (Mcf/d) 2,731 1,664 +64% Liquefied natural gas (Mt) 1H19 1H18 1H19 vs 1H18 Overall LNG sales 16.2 7.7 x2.1 incl. Sales from equity production* 7.9 5.0 +59% incl. Sales by Total from equity production and third party purchases 12.7 5.4 x2.4 The Group’s equity production may be sold by Total or by the joint ventures. The first half 2019 total LNG sales more than doubled compared to last year thanks to the start- up of Yamal LNG trains 2 and 3 in Russia, Ichthys in Australia, the first Cameron LNG train in the United States, and the acquisition of the portfolio of LNG contracts from Engie in 2018. The growth in condensate production compared to last year is essentially due to the start- up of condensate production from Ichthys in Australia in the third quarter 2018. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 5 1 1 HALF YEAR FINANCIAL REPORT Analysis of business segments 1.4.2.2 Results (M$) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income* 1,021 1,046 - 2% including income from equity affiliates 450 478 - 6% Organic investments 935 724 +29% Net acquisitions 559 (294) ns Net investments 1,494 430 x3.5 Operating cash flow before working capital changes** 1,479 885 +67% Cash flow from operations** 1,533 326 x4.7 Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Operating cash flow before working capital changes for the iGRP segment increased by 67% in the first half 2019, thanks notably to the ramp- ups of Ichthys in Australia and Yamal LNG in Russia as well as the doubling of total LNG sales. Adjusted net operating income was 1,021 M$ in the first half 2019, a decrease of 2% compared to last year, impacted by lower gas prices in Europe and Asia in particular and the amortization of new projects. 1.4.3 Downstream (Refining & Chemicals business segment and Marketing & Services business segment) 1.4.3.1 Results (M$) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income* 2,237 2,386 - 6% Organic investments 876 1,036 - 15% Net acquisitions (93) (384) ns Net investments 783 652 +20% Operating cash flow before working capital changes** 3,118 3,014 +3% Cash flow from operations** 1,963 671 x2.9 Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. 1.4.3.2 Refining & Chemicals 1.4.3.2.1 Refinery throughput and utilization rates* 1H19 1H18 1H19 vs 1H18 TOTAL REFINERY THROUGHPUT (KB/D) 1,729 1,783 - 3% France 520 597 - 13% Rest of Europe 751 708 +6% Rest of world 458 479 - 4% Utlization rate based on crude only** 83% 85% ** Based on distillation capacity at the beginning of the year. Includes refineries in Africa reported in the Marketing & Services segment. Refinery throughput volumes decreased by 3% in the first half 2019 year- on- year notably as a result of the shutdown at Grandpuit in France and the lower throughput at Leuna in Germany linked to contaminated crude from Russia. 1.4.3.2.2 Results (M$) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income* 1,471 1,541 - 5% Organic investments 593 694 - 15% Net acquisitions (182) (307) ns Net investments 411 387 +6% Operating cash flow before working capital changes** 1,910 1,938 - 1% Cash flow from operations** 1,120 (110) ns * Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. 6 TOTAL Financial report first half 2019 [© Agence Marc Praquin] HALF YEAR FINANCIAL REPORT Group results Adjusted net operating income for the Refining & Chemicals segment decreased by 5% year-on-year in the first half 2019 to 1,471 M$, notably due to the decrease in European refining variable cost margin (VCM) of 4%, as well as lower throughput volume. Operating cash flow before working capital changes was stable in the first half 2019 compared to the first half 2018. 1.4.3.3 Marketing & Services 1.4.3.3.1 Petroleum product sales Sales (kb/d*) 1H19 1H18 1H19 vs 1H18 Total Marketing & Services sales 1,848 1,800 +3% Europe 1,008 997 +1% Rest of world 840 803 +5% Excludes trading and bulk Refining sales. Sales of petroleum products increased by 3% in the first half 2019, due to the development of activities in the African and American regions, notably Mexico and Brazil. 1.4.3.3.2 Results (M$) 1H19 1H18 1H19 vs 1H18 Adjusted net operating income* 766 845 - 9% Organic investments 283 342 - 17% Net acquisitions 89 (77) ns Net investments 372 265 +40% Operating cash flow before working capital changes** 1,208 1,076 +12% Cash flow from operations** 843 781 +8% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Adjusted net operating income was 766 M$ in the first half 2019, down 9% year- on- year. Operating cash flow before working capital changes increased by 12% in the first half 2019 compared to the first half 2018. 1.5 Group results 1.5.1 Adjusted net operating income from business segments Adjusted net operating income from the business segments was 7,002 M$ in the first half 2019, down 7% compared to last year due to lower Brent and natural gas prices. 1.5.2 Adjusted net income (Group share) Adjusted net income (Group share) was 5,646 M$ in the first half 2019, down 12% compared to last year. This decrease reflects the decrease in the net operating income of the segments and the increase in the net cost of net debt compared to a year ago mainly due to the rise in U.S. dollar interest rates. Adjusted net income excludes the after- tax inventory effect, special items and the impact of effects of changes in fair value (1). Total net income adjustments (2) were 221 M$ in the first half 2019. The effective tax rate for the Group was 36.9% in the first half 2019, compared to 39.2% the first half 2018. (1) Adjustment items shown on page 11. (2) Details shown on page 11 and in the annex to the financial statements. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 7 1 1 HALF YEAR FINANCIAL REPORT Group results 1.5.3 Adjusted fully- diluted earnings per share Adjusted earnings per share was $2.07 in the first half 2019, a decrease of 14%, calculated on the basis of a weighted average of 2,622 million fully- diluted shares, compared to $2.41 in the first half 2018. In the context of the shareholder return policy announced in February 2018, the Group has continued to buy back shares, including: any dilution related to the exercise of this option: 16.1 million shares repurchased in the first half 2019; — the buyback of additional shares: 13.7 million shares repurchased in the first half 2019 for 0.76 B$ as part of the 5 B$ buyback program for 2018- 20. The number of fully- diluted shares was 2,619 million on June 30, 2019. — the buyback of shares issued in 2019 under the scrip dividend option (not renewed at the 2019 General Assembly) to cancel 1.5.4 Asset sales – acquisitions Asset sales were 575 M$ in the first half 2019, linked notably to the sale of the interest in the Wepec refinery in China and the sale of the Group’s interest in the Hazira terminal in India and polystyrene activities in China. Acquisitions were 1,284 M$ in the first half 2019, linked notably to the acquisition of Chevron’s interest in the Danish Underground Consortium in Denmark, the joint development with Saudi Aramco of a network of service stations in Saudi Arabia, the alliance with the Adani group in the natural gas and retail fuel network in India, the capital increase in Total Eren for its acquisition of Novenergia as well as the signing of the acquisition of a 10% stake in the Arctic LNG 2 project in Russia. 1.5.5 Net cash flow Net cash flow (1) for the Group was 6,220 M$ in the first half 2019, a 22% increase compared to last year due to higher operating cash flow before working capital changes and lower net acquisitions. 1.5.6 Profitability The return on equity was 11.1% for the twelve months ended June 30, 2019, an increase compared to the same period last year. July 1, 2018 April 1, 2018 July 1, 2017 (M$) June 30, 2019 March 31, 2019 June 30, 2018 Adjusted net income 13,125 13,810 12,299 Average adjusted shareholders’ equity 117,787 118,094 113,251 Return on equity (ROE) 11.1% 11.7% 10.9% The return on average capital employed was 10.4% for the twelve months ended June 30, 2019, an increase compared to the same period last year. July 1, 2018 April 1, 2018 July 1, 2017 (M$) June 30, 2019 March 31, 2019 June 30, 2018 Adjusted net operating income 15,087 15,697 13,748 Average capital employed at replacement cost 145,247 146,210 136,355 ROACE 10.4% 10.7% 10.1% (1) Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests). 8 TOTAL Financial report first half 2019 [© Agence Marc Praquin] HALF YEAR FINANCIAL REPORT TOTAL S.A. accounts. 2019 Sensitivities. Summary and outlook 1.6 TOTAL S.A. accounts Net income for TOTAL S.A., the parent company, was 6,282 million euros in the first half 2019, compared to 4,079 million euros a year ago. 1.7 2019 Sensitivities* Change Estimated impact Estimated impact on adjusted net on cash flow from operating income operations Dollar +/- 0.1 $ per € - /+ 0.1 B$ ~0 B$ Average liquids price** +/- 10 $/b +/- 2.7 B$ +/- 3.2 B$ Variable cost margin, European refining (VCM) +/- 10 $/t +/- 0.5 B$ +/- 0.6 B$ Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2019. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $- € sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. In a 60 $/b Brent environment. ** 1.8 Summary and outlook Since the start of the third quarter 2019, Brent has traded above $60/b in a context of renewed OPEC+ quotas and uncertainties about the evolution of production in Libya, Venezuela and Iran. The environment remains volatile, with uncertainty about hydrocarbon demand growth related to the outlook for global economic growth. The Group maintains its spending discipline in 2019 with an organic investment target of around 14 B$ and an average production cost of $5.5/boe. The organic pre- dividend cash flow breakeven will remain below $30/b. Production growth should exceed 9% in 2019, thanks to the ramp- up of projects started in 2018 and the start- ups in the first half 2019 of Kaombo Sul in Angola and Culzean in the UK North Sea, as well as the upcoming Johan Sverdrup in Norway and Iara 1 in Brazil. The Group will continue to take advantage of the favorable cost environment to sanction new projects, notably Arctic LNG 2 and Lapa 3. At the start of the third quarter, European refining margins, while still volatile, increased and the Downstream should benefit from restarting the Grandpuit refinery in France and the Leuna refinery in Germany. In this context, the Group is continuing to implement its shareholder return policy. The dividend in euro will be increased by 3.1% in 2019 representing a total increase of 6.5% since 2017, in line with the target increase of 10% over the period 2018- 2020. Total will buy back 1.5 B$ of shares in 2019 at $60/b as part of its 5 B$ share buyback program over the 2018- 2020 period. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 9 1 1 HALF YEAR FINANCIAL REPORT Other information 1.9 Other information 1.9.1 Operating information by segment 1.9.1.1 Group production (Exploration & Production + iGRP) Combined liquids and gas production by region (kboe/d) 1H19 1H18 1H19 vs 1H18 Europe and Central Asia 993 864 +15% Africa 691 673 +3% Middle East and North Africa 695 660 +5% Americas 365 386 - 5% Asia- Pacific 207 128 +62% Total production 2,951 2,710 +9% includes equity affiliates 730 670 +9% Liquids production by region (kb/d) 1H19 1H18 1H19 vs 1H18 Europe and Central Asia 340 315 +8% Africa 545 507 +7% Middle East and North Africa 534 520 +3% Americas 168 177 - 5% Asia- Pacific 40 12 x3.4 Total production 1,627 1,532 +6% includes equity affiliates 221 268 - 18% Gas production by region (Mcf/d) 1H19 1H18 1H19 vs 1H18 Europe and Central Asia 3,532 2,954 +20% Africa 748 815 - 8% Middle East and North Africa 885 774 +14% Americas 1,104 1,175 - 6% Asia- Pacific 1,130 701 +61% Total production 7,399 6,419 +15% includes equity affiliates 2,761 2,141 +29% 1.9.1.2 Downstream (Refining & Chemicals and Marketing & Services) Petroleum product sales by region (kb/d) 1H19 1H18 1H19 vs 1H18 Europe 2,020 1,922 +5% Africa 705 703 - Americas 842 781 +8% Rest of world 576 662 - 13% TOTAL CONSOLIDATED SALES 4,143 4,068 +2% Includes bulk sales 546 563 - 3% Includes trading 1,749 1,705 +3% 10 TOTAL Financial report first half 2019 [© Agence Marc Praquin] HALF YEAR FINANCIAL REPORT Other information 1.9.2 Adjustment items to net income (Group share) (M$) 1H19 1H18 Special items affecting net income (Group share) (70) (553) Gain (loss) on asset sales - (103) Restructuring charges (33) (67) Impairments (57) (248) Other 20 (135) After- tax inventory effect: FIFO vs replacement cost 360 472 Effect of changes in fair value (69) 1 TOTAL ADJUSTMENTS AFFECTING NET INCOME 221 (80) 1.9.3 Investments – Divestments (M$) 1H19 1H18 1H19 vs 1H18 Organic investments (A) 5,811 5,400 +8% capitalized exploration 417 248 +68% increase in non- current loans 500 311 +61% repayment of non- current loans, excluding organic loan repayment from equity affiliates* (388) (997) ns Acquisitions (B) 1,284 4,114 - 69% Asset sales (C) 575 2,862 - 80% Other transactions with non- controlling interests (D) - - ns NET INVESTMENTS (A + B – C – D) 6,520 6,652 - 2% Organic loan repayment from equity affiliates* (E) (99) ns CASH FLOW USED IN INVESTING ACTIVITIES (A + B – C + E) 6,421 6,652 - 3% Effective second quarter 2019, organic loan repayment from equity affiliates are defined as loan repayments from equity affiliates coming from their cash flow from operations. 1.9.4 Cash flow (M$) 1H19 1H18 1H19 vs 1H18 Operating cash flow before working capital changes w/o financial charges (DACF) 13,744 12,465 +10% Financial charges (1,004) (696) ns Operating cash flow before working capital changes (A) 12,740 11,769 +8% (Increase) decrease in working capital (3,287) (4,078) ns Inventory effect 526 636 - 17% Organic loan repayment from equity affiliates* (99) Cash flow from operations 9,880 8,327 +19% Organic investments (B) 5,811 5,400 +8% FREE CASH FLOW AFTER ORGANIC INVESTMENTS, W/O NET ASSET SALES (A – B) 6,929 6,369 +9% Net investments (C) 6,520 6,652 - 2% NET CASH FLOW (A – C) 6,220 5,117 +22% Effective second quarter 2019, organic loan repayment from equity affiliates are defined as loan repayments from equity affiliates coming from their cash flow from operations. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 11 1 1 HALF YEAR FINANCIAL REPORT Other information 1.9.5 Gearing ratio* (M$) 06/30/2019 03/31/2019 06/30/2018 Current borrowings 16,221 13,906 15,659 Net current financial assets (3,110) (2,722) (2,806) Net financial assets classified as held for sale - 227 - Non- current financial debt 45,394 44,396 38,362 Hedging instruments of non- current debt (771) (637) (967) Cash and cash equivalents (26,723) (25,432) (26,475) NET DEBT (A) 31,011 29,738 23,773 Shareholders’ equity – Group share 116,862 117,993 117,975 Non- controlling interests 2,362 2,365 2,288 SHAREHOLDERS’ EQUITY (B) 119,224 120,358 120,263 NET- DEBT- TO- CAPITAL RATIO = A/(A + B) 20.6% 19.8% 16.5% The net- debt- to- capital ratios on March 31, 2019 and June 30, 2019 include the impact of the new IFRS 16 rule, effective January 1, 2019. 1.9.6 Return on average capital employed 1.9.6.1 Twelve months ended June 30, 2019 Integrated Gas, Exploration Renewables Refining & Marketing & (M$) & Production & Power Chemicals Services Group Adjusted net operating income 8,159 2,394 3,309 1,573 15,087 Capital employed at 06/30/2018* 92,296 30,861 12,939 7,040 141,878 Capital employed at 06/30/2019* 90,633 37,290 12,300 8,535 148,617 ROACE 8.9% 7.0% 26.2% 20.2% 10.4% At replacement cost (excluding after- tax inventory effect). 1.9.6.2 Twelve months ended March 31, 2019 Integrated Gas, Exploration Renewables Refining & Marketing & (M$) & Production & Power Chemicals Services Group Adjusted net operating income 8,452 2,530 3,415 1,628 15,697 Capital employed at 03/31/2018* 93,276 30,996 13,428 7,409 143,957 Capital employed at 03/31/2019* 90,051 37,235 13,153 8,255 148,463 ROACE 9.2% 7.4% 25.7% 20.8% 10.7% At replacement cost (excluding after- tax inventory effect). 12 TOTAL Financial report first half 2019 [© Agence Marc Praquin] HALF YEAR FINANCIAL REPORT Principal risks and uncertainties for the remaining six months of 2019. Major related parties’ transactions 1.10 Principal risks and uncertainties for the remaining six months of 2019 The Group and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s 2018 Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 20, 2019. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2019 (page 30 of this half- year financial report). 1.11 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2019 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2019 (page 30 of this half- year financial report). [© Agence Marc Praquin] Financial report first half 2019 TOTAL 1 13 1 1 HALF YEAR FINANCIAL REPORT Major related parties’ transactions Disclaimer This document may contain forward- looking information on the Group (including objectives and trends), as well as forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809/2004. Such forward- looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, changes in regulations including environmental and climate, currency fluctuations, as well as economic and political developments and changes in business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward- looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Group’s business, financial condition, including its operating income and cash flow, reputation or outlook is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des marchés financiers and annual report on Form 20- F filed with the United States Securities and Exchange Commission (“SEC”). Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE), gearing ratio and operating cash flow before working capital changes. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. 14 TOTAL Financial report first half 2019 (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last- In, First- Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month- end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First- In, First- Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period- end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted- diluted earnings per share represent dollar amounts converted at the average euro- dollar (€- $) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20- F, File N° 1- 10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault – 92078 Paris- La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1- 800- SEC- 0330 or on the SEC’s website sec.gov. [© Agence Marc Praquin] 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 2.1 Statutory auditors’ review report on the half- yearly financial information This is a translation into English of the statutory auditors’ review report on the half- yearly financial information issued in French and it is provided solely for the convenience of English- speaking users. This report also includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance, with French law and professional standards applicable in France. PERIOD FROM JANUARY 1 TO JUNE 30, 2019 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of Article L. 451- 1- 2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: — the review of the accompanying condensed half- yearly Consolidated Financial Statements of TOTAL S.A., for the period from January 1 to June 30, 2019; — the verification of the information presented in the half- yearly management report. These condensed half- yearly Consolidated Financial Statements are the Chairman and Chief Executive Officer’s responsibility and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half- yearly Consolidated Financial Statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying the conclusion expressed above, we draw your attention to Note 1 to the condensed half-yearly consolidated financial statements which outlines the change in accounting method regarding the first- time application of IFRS 16 “Leases”. 2. Specific verification We have also verified the information presented in the half- yearly management report on the condensed half- yearly Consolidated Financial Statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half- yearly Consolidated Financial Statements. Paris- La Défense, July 24, 2019 The Statutory Auditors French original signed by KPMG Audit A Division of KPMG S.A. ERNST & YOUNG Audit Jacques- François Lethu Partner Eric Jacquet Partner Laurent Vitse Partner Céline Eydieu- Boutté Partner [© Agence Marc Praquin] Financial report first half 2019 TOTAL 15 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of income – half yearly 2.2 Consolidated statement of income – half yearly TOTAL (unaudited) (M$)(a) 1st half 2019 1st half 2018 Sales 102,447 102,151 Excise taxes (12,121) (12,757) Revenues from sales 90,326 89,394 Purchases, net of inventory variation (60,111) (60,045) Other operating expenses (13,803) (13,698) Exploration costs (458) (362) Depreciation, depletion and impairment of tangible assets and mineral interests (7,127) (6,351) Other income 568 775 Other expense (398) (603) Financial interest on debt (1,129) (868) Financial income and expense from cash & cash equivalents (70) (95) Cost of net debt (1,199) (963) Other financial income 486 561 Other financial expense (383) (329) Net income (loss) from equity affiliates 1,523 1,587 Income taxes (3,480) (3,683) CONSOLIDATED NET INCOME 5,944 6,283 Group share 5,867 6,357 Non- controlling interests 77 (74) Earnings per share ($) 2.17 2.39 Fully- diluted earnings per share ($) 2.16 2.38 (a) Except for per share amounts. 16 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of comprehensive income – half yearly 2.3 Consolidated statement of comprehensive income – half yearly TOTAL (unaudited) (M$) 1st half 2019 1st half 2018 CONSOLIDATED NET INCOME 5,944 6,283 Other comprehensive income Actuarial gains and losses (59) 67 Change in fair value of investments in equity instruments 107 5 Tax effect 14 (18) Currency translation adjustment generated by the parent company (474) (2,630) ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (412) (2,576) Currency translation adjustment 187 968 Cash flow hedge (373) 255 Variation of foreign currency basis spread 54 (27) Share of other comprehensive income of equity affiliates, net amount 253 (132) Other 2 (2) Tax effect 107 (75) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 230 987 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) (182) (1,589) Comprehensive income 5,762 4,694 Group share 5,637 4,806 Non- controlling interests 125 (112) [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 17 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of income – quarterly 2.4 Consolidated statement of income – quarterly TOTAL (unaudited) (M$)(a) 2nd quarter 2019 1st quarter 2019 2nd quarter 2018 Sales 51,242 51,205 52,540 Excise taxes (6,040) (6,081) (6,438) Revenues from sales 45,202 45,124 46,102 Purchases, net of inventory variation (30,390) (29,721) (30,599) Other operating expenses (7,078) (6,725) (6,761) Exploration costs (170) (288) (158) Depreciation, depletion and impairment of tangible assets and mineral interests (3,661) (3,466) (3,435) Other income 321 247 252 Other expense (189) (209) (413) Financial interest on debt (568) (561) (478) Financial income and expense from cash & cash equivalents (42) (28) (54) Cost of net debt (610) (589) (532) Other financial income 326 160 321 Other financial expense (188) (195) (159) Net income (loss) from equity affiliates 812 711 1,103 Income taxes (1,571) (1,909) (2,087) CONSOLIDATED NET INCOME 2,804 3,140 3,634 Group share 2,756 3,111 3,721 Non- controlling interests 48 29 (87) Earnings per share ($) 1.01 1.17 1.38 Fully- diluted earnings per share ($) 1.00 1.16 1.38 (a) Except for per share amounts. 18 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of comprehensive income – quarterly 2.5 Consolidated statement of comprehensive income – quarterly TOTAL (unaudited) (M$) 2nd quarter 2019 1st quarter 2019 2nd quarter 2018 CONSOLIDATED NET INCOME 2,804 3,140 3,634 Other comprehensive income Actuarial gains and losses (223) 164 42 Change in fair value of investments in equity instruments 74 33 (2) Tax effect 59 (45) (20) Currency translation adjustment generated by the parent company 1,057 (1,531) (4,761) ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 967 (1,379) (4,741) Currency translation adjustment (619) 806 1,330 Cash flow hedge (246) (127) 77 Variation of foreign currency basis spread 43 11 2 Share of other comprehensive income of equity affiliates, net amount (135) 388 36 Other 1 1 (2) Tax effect 69 38 (27) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (887) 1,117 1,416 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 80 (262) (3,325) Comprehensive income 2,884 2,878 309 Group share 2,797 2,840 450 Non- controlling interests 87 38 (141) [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 19 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated balance sheet 2.6 Consolidated balance sheet TOTAL (unaudited) June 30, 2019 March 31, 2019 June 30, 2018 (M$) (unaudited) (unaudited) December 31, 2018 (unaudited) ASSETS Non- current assets Intangible assets, net 29,229 28,727 28,922 24,562 Property, plant and equipment, net 118,063 117,881 113,324 114,047 Equity affiliates: investments and loans 26,473 25,996 23,444 22,443 Other investments 1,660 1,468 1,421 1,396 Non- current financial assets 771 637 680 967 Deferred income taxes 6,022 6,246 6,663 5,348 Other non- current assets 2,306 2,156 2,509 3,384 TOTAL NON- CURRENT ASSETS 184,524 183,111 176,963 172,147 Current assets Inventories, net 16,410 17,075 14,880 18,392 Accounts receivable, net 20,349 19,321 17,270 16,974 Other current assets 15,958 16,237 14,724 14,408 Current financial assets 3,536 3,373 3,654 3,609 Cash and cash equivalents 26,723 25,432 27,907 26,475 Assets classified as held for sale - 314 1,364 - TOTAL CURRENT ASSETS 82,976 81,752 79,799 79,858 TOTAL ASSETS 267,500 264,863 256,762 252,005 LIABILITIES & SHAREHOLDERS’ EQUITY (unaudited) June 30, 2019 March 31, 2019 June 30, 2018 (M$) (unaudited) (unaudited) December 31, 2018 (unaudited) Shareholders’ equity Common shares 8,301 8,231 8,227 8,305 Paid- in surplus and retained earnings 123,351 123,702 120,569 121,896 Currency translation adjustment (11,177) (11,606) (11,313) (9,764) Treasury shares (3,613) (2,334) (1,843) (2,462) TOTAL SHAREHOLDERS’ EQUITY – GROUP SHARE 116,862 117,993 115,640 117,975 Non- controlling interests 2,362 2,365 2,474 2,288 TOTAL SHAREHOLDERS’ EQUITY 119,224 120,358 118,114 120,263 Non- current liabilities Deferred income taxes 11,486 11,339 11,490 11,969 Employee benefits 3,375 3,150 3,363 3,329 Provisions and other non- current liabilities 21,629 21,020 21,432 18,807 Non- current financial debt 45,394 44,396 40,129 38,362 TOTAL NON- CURRENT LIABILITIES 81,884 79,905 76,414 72,467 Current liabilities Accounts payable 27,059 26,416 26,134 25,021 Other creditors and accrued liabilities 22,686 23,361 22,246 17,792 Current borrowings 16,221 13,906 13,306 15,659 Other current financial liabilities 426 651 478 803 Liabilities directly associated with the assets classified as held for sale - 266 70 - TOTAL CURRENT LIABILITIES 66,392 64,600 62,234 59,275 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 267,500 264,863 256,762 252,005 20 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of cash flow – half yearly 2.7 Consolidated statement of cash flow – half yearly TOTAL (unaudited) (M$) 1st half 2019 1st half 2018 Cash flow from operating activities Consolidated net income 5,944 6,283 Depreciation, depletion, amortization and impairment 7,535 6,554 Non- current liabilities, valuation allowances and deferred taxes 379 149 (Gains) losses on disposals of assets (364) (273) Undistributed affiliates’ equity earnings (474) (557) (Increase) decrease in working capital (3,287) (4,078) Other changes, net 147 249 CASH FLOW FROM OPERATING ACTIVITIES 9,880 8,327 Cash flow used in investing activities Intangible assets and property, plant and equipment additions (5,585) (9,178) Acquisitions of subsidiaries, net of cash acquired (208) (714) Investments in equity affiliates and other securities (1,190) (308) Increase in non- current loans (500) (311) Total expenditures (7,483) (10,511) Proceeds from disposals of intangible assets and property, plant and equipment 163 2,282 Proceeds from disposals of subsidiaries, net of cash sold 146 (4) Proceeds from disposals of non- current investments 266 584 Repayment of non- current loans 487 997 Total divestments 1,062 3,859 CASH FLOW USED IN INVESTING ACTIVITIES (6,421) (6,652) Cash flow used in financing activities Issuance (repayment) of shares: – parent company shareholders 450 482 – treasury shares (1,770) (1,740) Dividends paid: – parent company shareholders (4,765) (4,208) – non- controlling interests (93) (84) Net issuance (repayment) of perpetual subordinated notes - - Payments on perpetual subordinated notes (315) (266) Other transactions with non- controlling interests (150) - Net issuance (repayment) of non- current debt 3,581 (2,428) Increase (decrease) in current borrowings (1,489) 969 Increase (decrease) in current financial assets and liabilities (58) (624) CASH FLOW USED IN FINANCING ACTIVITIES (4,609) (7,899) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,150) (6,224) Effect of exchange rates (34) (486) Cash and cash equivalents at the beginning of the period 27,907 33,185 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 26,723 26,475 [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 21 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of cash flow – quarterly 2.8 Consolidated statement of cash flow – quarterly TOTAL (unaudited) (M$) 2nd quarter 2019 1st quarter 2019 2nd quarter 20 18 Cash flow from operating activities Consolidated net income 2,804 3,140 3,634 Depreciation, depletion, amortization and impairment 3,819 3,716 3,508 Non- current liabilities, valuation allowances and deferred taxes 239 140 35 (Gains) losses on disposals of assets (191) (173) (148) Undistributed affiliates’ equity earnings (168) (306) (298) (Increase) decrease in working capital (317) (2,970) (856) Other changes, net 65 82 371 CASH FLOW FROM OPERATING ACTIVITIES 6,251 3,629 6,246 Cash flow used in investing activities Intangible assets and property, plant and equipment additions (2,881) (2,704) (3,513) Acquisitions of subsidiaries, net of cash acquired (208) - 12 Investments in equity affiliates and other securities (437) (753) (146) Increase in non- current loans (370) (130) (140) Total expenditures (3,896) (3,587) (3,787) Proceeds from disposals of intangible assets and property, plant and equipment 155 8 304 Proceeds from disposals of subsidiaries, net of cash sold (1) 147 (7) Proceeds from disposals of non- current investments 58 208 396 Repayment of non- current loans 353 134 581 Total divestments 565 497 1,274 CASH FLOW USED IN INVESTING ACTIVITIES (3,331) (3,090) (2,513) Cash flow used in financing activities Issuance (repayment) of shares: – parent company shareholders 449 1 473 – treasury shares (1,279) (491) (1,182) Dividends paid: – parent company shareholders (2,935) (1,830) (2,692) – non- controlling interests (93) - (72) Net issuance (repayment) of perpetual subordinated notes - - - Payments on perpetual subordinated notes (175) (140) (116) Other transactions with non- controlling interests - (150) - Net issuance (repayment) of non- current debt 2,331 1,250 52 Increase (decrease) in current borrowings 37 (1,526) (738) Increase (decrease) in current financial assets and liabilities (164) 106 (1,779) CASH FLOW USED IN FINANCING ACTIVITIES (1,829) (2,780) (6,054) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,091 (2,241) (2,321) Effect of exchange rates 200 (234) (1,296) Cash and cash equivalents at the beginning of the period 25,432 27,907 30,092 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 26,723 25,432 26,475 22 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Consolidated statement of changes in shareholders’ equity 2.9 Consolidated statement of changes in shareholders’ equity TOTAL Common shares issued Paid-in Treasury shares Shareholders’ surplus and Currency equity – Non- Total (unaudited) retained translation Group controlling shareolders’ (M$) Number Amount earnings adjustment Number Amount share interests equity AS OF JANUARY 1, 2018 2,528,989,616 7,882 112,040 (7,908) (8,376,756) (458) 111,556 2,481 114,037 Net income of the first half 2018 - - 6,357 - - - 6,357 (74) 6,283 Other comprehensive Income - - 305 (1,856) - - (1,551) (38) (1,589) Comprehensive income - - 6,662 (1,856) - - 4,806 (112) 4,694 Dividend - - (4,070) - - - (4,070) (84) (4,154) Issuance of common shares 136,887,716 423 7,270 - - - 7,693 - 7,693 Purchase of treasury shares - - - - (33,056,514) (2,004) (2,004) - (2,004) Sale of treasury shares (a) - - - - 3,450 - - - - Share- based payments - - 192 - - - 192 - 192 Share cancellation - - - - - - - - - Net issuance (repayment) of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - (161) - - - (161) - (161) Other operations with non- controlling interests - - (4) - - - (4) 4 - Other items - - (33) - - - (33) (1) (34) AS OF JUNE 30, 2018 2,665,877,332 8,305 121,896 (9,764) (41,429,820) (2,462) 117,975 2,288 120,263 Net income of the second half 2018 - - 5,089 - - - 5,089 178 5,267 Other comprehensive Income - - (325) (1,549) - - (1,874) (31) (1,905) Comprehensive income - - 4,764 (1,549) - - 3,215 147 3,362 Dividend - - (3,811) - - - (3,811) (13) (3,824) Issuance of common shares 19,315,374 53 1,096 - - - 1,149 - 1,149 Purchase of treasury shares - - - - (39,709,967) (2,324) (2,324) - (2,324) Sale of treasury shares (a) - - (240) - 4,075,807 240 - - - Share- based payments - - 102 - - - 102 - 102 Share cancellation (44,590,699) (131) (2,572) - 44,590,699 2,703 - - - Net issuance (repayment) of perpetual subordinated notes - - - - - - - - - Payments on perpetual subordinated notes - - (154) - - - (154) - (154) Other operations with non- controlling interests - - (513) - - - (513) (103) (616) Other items - - 1 - - - 1 155 156 AS OF DECEMBER 31, 2018 2,640,602,007 8,227 120,569 (11,313) (32,473,281) (1,843) 115,640 2,474 118,114 Net income of the first half 2019 - - 5,867 - - - 5,867 77 5,944 Other comprehensive Income - - (366) 136 - - (230) 48 (182) Comprehensive income - - 5,501 136 - - 5,637 125 5,762 Dividend - - (3,875) - - - (3,875) (93) (3,968) Issuance of common shares 26,281,753 74 1,271 - - - 1,345 - 1,345 Purchase of treasury shares - - - - (32,331,446) (1,770) (1,770) - (1,770) Sale of treasury shares (a) - - - - 4,010 - - - - Share- based payments - - 103 - - - 103 - 103 Share cancellation - - - - - - - - - Net issuance (repayment) of perpetual subordinated notes - - (5) - - - (5) - (5) Payments on perpetual subordinated notes - - (207) - - - (207) - (207) Other operations with non- controlling interests - - - - - - - (150) (150) Other items - - (6) - - - (6) 6 - AS OF JUNE 30, 2019 2,666,883,760 8,301 123,351 (11,177) (64,800,717) (3,613) 116,862 2,362 119,224 (a) Treasury shares related to the restricted stock grants. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 23 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 2.10 Notes to the Consolidated Financial Statements for the first six months 2019 (unaudited) 1) Accounting policies The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). The interim Consolidated Financial Statements of TOTAL S.A. and its subsidiaries (the Group) as of June 30 2019, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. — applied the two exemptions of the standard on short- term leases and leases of low- value assets. In addition, the Group is currently analyzing the facts and circumstances and contractual terms of each lease agreement used in Joint Operations to determine whether the decision of the IFRS Interpretation Committee of March 2019 dealing with the recognition of lease liabilities in the context of unincorporated joint operations has an impact on its Consolidated Financial Statements. The accounting principles applied for the Consolidated Financial Statements at June 30, 2019, are consistent with those used for the financial statements at December 31, 2018, with the exception of standards or amendments that must be applied for periods beginning January 1, 2019. The impact of the application of this standard as at January 1, 2019 is $5,698 million on fixed assets, $(5,505) million on net debt and $(193) million on other assets and liabilities. The weighted average incremental borrowing rate at the transition date is 4.5%. The impact on fixed assets is broken down as follows: FIRST- TIME APPLICATION OF IFRS 16 “LEASES” (M$) As part of the first application of IFRS 16 “Leases” as of January 1, 2019, the Group: — applied the simplified retrospective transition method, accounting for the cumulative effect of the initial application of the standard at the date of first application, without restating the comparative periods; Right of use of buildings 2,278 Right of use of machinery, plant and equipment (including transportation equipment) 2,632 Other right of use 788 TOTAL 5,698 — used the following simplification measures provided by the standard in the transitional provisions: – exclusion of contracts that the Group had not previously identified as containing a lease under IAS 17 and IFRIC 4, – exclusion of leases whose term ends within 12 months of the date of first application; — recognized each lease component as a separate lease, separately from non- lease components of the lease (services); 2) Changes in the Group structure MAIN ACQUISITIONS AND DIVESTMENTS Integrated Gas, Renewables & Power — On March 4, 2019, TOTAL and Novatek signed a definitive agreement for the acquisition of a 10% direct interest by TOTAL in Arctic LNG 2, a major liquefied natural gas development led by Novatek on the Gydan Peninsula, Russia. Exploration & Production — On April 1, 2019, Total acquired all the share capital of Chevron Denmark Inc. which holds a 12% interest in the Danish Underground Consortium (DUC), a 12% interest in Licence 8/06, and a 7.5% interest in the Tyra West pipeline. The acquisition increased TOTAL’s operated share of DUC from 31.2% to 43.2%. — On March 15, 2019, TOTAL finalized the sale of 4% of its interest in the Ichthys liquefied natural gas (LNG) project in Australia to operating partner INPEX, reducing its interest in the project from 30% to 26%. 24 TOTAL Financial report first half 2019 [© Agence Marc Praquin] 3) Adjustment items DESCRIPTION OF THE BUSINESS SEGMENTS Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision- making body of the Group, namely the Executive Committee. The operational profit and assets are broken down by business segment prior to the consolidation and inter- segment adjustments. Sales prices between business segments approximate market prices. The profitable growth in the gas and low carbon electricity integrated value chains is one of the key axes of TOTAL’s strategy. In order to give more visibility to these businesses, a new reporting structure for the business segments’ financial information has been put in place, effective January 1, 2019. The organization of the Group’s activities is structured around the four followings segments: — an Exploration & Production segment; — an Integrated Gas, Renewables & Power segment comprising integrated gas (including LNG) and low carbon electricity businesses. It includes the upstream and midstream LNG activity that was previously reported in the EP segment; — a Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; — a Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products; In addition the Corporate segment includes holdings operating and financial activities. Certain figures for the years 2017 and 2018 have been restated in order to reflect the new organization. ADJUSTMENT ITEMS Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last- In, First- Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month- end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First- In, First- Out) and the replacement cost methods. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Furthermore, TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in the Group’s internal economic performance. IFRS precludes recognition of this fair value effect. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. Financial report first half 2019 TOTAL 2 25 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 The detail of the adjustment items is presented in the table below. Adjustments to operating income Integrated Gas, Exploration Renewables Refining Marketing (M$) & Production & Power & Chemicals & Services Corporate Total 2nd quarter 2019 Inventory valuation effect - - (6) (34) - (40) Effect of changes in fair value - (59) - - - (59) Restructuring charges - - - - - - Asset impairment charges (43) (11) (10) - - (64) Other items - (54) (37) - - (91) TOTAL (43) (124) (53) (34) - (254) 2nd quarter 2018 Inventory valuation effect - - 569 134 - 703 Effect of changes in fair value - 16 - - - 16 Restructuring charges - - - - - - Asset impairment charges - (424) - - - (424) Other items (97) (1) - - - (98) TOTAL (97) (409) 569 134 - 197 1st half 2019 Inventory valuation effect - - 486 40 - 526 Effect of changes in fair value - (86) - - - (86) Restructuring charges - - - - - - Asset impairment charges (43) (11) (10) - - (64) Other items - (112) (37) - - (149) TOTAL (43) (209) 439 40 - 227 1st half 2018 Inventory valuation effect - - 531 105 - 636 Effect of changes in fair value - 5 - - - 5 Restructuring charges (53) - - - - (53) Asset impairment charges - (446) - - - (446) Other items (97) (93) - - (9) (199) TOTAL (150) (534) 531 105 (9) (57) 26 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Adjustments to net income, Group share Integrated Gas, Exploration Renewables Refining Marketing (M$) & Production & Power & Chemicals & Services Corporate Total 2nd quarter 2019 Inventory valuation effect - - (3) (25) - (28) Effect of changes in fair value - (47) - - - (47) Restructuring charges - (14) (17) - - (31) Asset impairment charges (43) (6) (8) - - (57) Gains (losses) on disposals of assets - - - - - - Other items - 86 (48) (6) - 32 TOTAL (43) 19 (76) (31) - (131) 2nd quarter 2018 Inventory valuation effect - - 436 81 - 517 Effect of changes in fair value - 9 - - - 9 Restructuring charges (44) (2) - - - (46) Asset impairment charges - (236) - - - (236) Gains (losses) on disposals of assets (2) - - - - (2) Other items (71) (3) - - - (74) TOTAL (117) (232) 436 81 - 168 1st half 2019 Inventory valuation effect - - 341 19 - 360 Effect of changes in fair value - (69) - - - (69) Restructuring charges - (16) (17) - - (33) Asset impairment charges (43) (6) (8) - - (57) Gains (losses) on disposals of assets - - - - - - Other items - 74 (48) (6) - 20 TOTAL (43) (17) 268 13 - 221 1st half 2018 Inventory valuation effect - - 412 60 - 472 Effect of changes in fair value - 1 - - - 1 Restructuring charges (59) (8) - - - (67) Asset impairment charges - (248) - - - (248) Gains (losses) on disposals of assets (103) - - - - (103) Other items (34) (75) (17) - (9) (135) TOTAL (196) (330) 395 60 (9) (80) 4) Shareholders’ equity TREASURY SHARES (TOTAL SHARES HELD DIRECTLY BY TOTAL S.A.) In accordance with the February 2018 announcements regarding the shareholder in February 2019, TOTAL S.A. repurchases its own shares. return policy over 2018- 2020, confirmed As a result, as of June 30, 2019, TOTAL S.A. holds 64,800,717 TOTAL shares, representing 2.43% of its share capital, which are deducted from the consolidated shareholders’ equity and allocated as follows: TOTAL S.A. has also repurchased shares to be allocated to free share grant plans. SHARES TO BE CANCELLED (1) 57,130,510 Repurchased during Q4 2018 27,360,278 Repurchased during Q1 2019 7,374,542 Repurchased during Q2 2019 22,395,690 SHARES TO BE ALLOCATED AS PART OF FREE SHARE GRANT PLANS (2) 7,670,207 2016 Plan 4,683,986 2017 Plan 2,918,835 Other Plans 67,386 TREASURY SHARES TOTAL (1)+(2) 64,800,717 [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 27 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 DIVIDEND The Shareholders’ Meeting of May 29, 2019 approved the distribution of a dividend of €2.56 per share for the 2018 fiscal year and the payment of a balance of €0.64 per share to be distributed after the deduction of the three interim dividends of €0.64 per share that had already been paid. Given the decision made by the Board of Directors on February 6, 2019 not to propose to the Shareholders’ Meeting the renewal of the scrip dividend option beginning with the payment of the final 2018 dividend, the final 2018 dividend has been paid exclusively in cash. First Second Third Dividend 2018 interim interim interim Final Amount €0.64 €0.64 €0.64 €0.64 Declaration of distribution (1) September 19, December 12, March 13, May 29, 2018 2018 2019 2019 Ex- dividend date September 25, December 18, March 19, June 11, 2018 2018 2019 2019 Payment date October 12, January 10, April 5, June 13, 2018 2019 2019 2019 Scrip dividend option Yes Yes Yes No Issue price (2) €52.95 €48.27 €49.30 - Number of shares subscribed 18,783,197 1,212,767 14,864,169 - (1) Date on which the Board of Directors met and declared the distribution of the dividend. The declaration of distribution is decided by the shareholders for the final dividend. (2) The issue price of the new share is equal to the average Euronext Paris opening price of the TOTAL shares for the 20 trading days preceding the declaration of distribution, reduced by the amount of the dividend, without any discount. Moreover, the Board of Directors held on July 24, 2019, set the second interim dividend for the fiscal year 2019 at €0.66 per share. This interim dividend will be detached on January 6, 2020 and paid in cash on January 8, 2020. First Second Dividend 2019 interim interim Amount 0.66 € 0.66 € Set date April 25, 2019 July 24, 2019 Ex- dividend date September 27, January 6, 2019 2020 Payment date October 1st, January 8, 2019 2020 EARNINGS PER SHARE IN EURO PERPETUAL SUBORDINATED NOTES Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro/USD exchange rate for the period, amounted to €0.89 per share for the 2nd quarter 2019 (€1.03 per share for the 1st quarter 2019 and €1.16 per share for the 2nd quarter 2018). Diluted earnings per share calculated using the same method amounted to €0.89 per share for the 2nd quarter 2019 (€1.02 per share for the 1st quarter 2019 and €1.16 per share for the 2nd quarter 2018). The Group has issued perpetual subordinated notes in April 2019: — Perpetual subordinated notes 1.750% callable in 2024 (EUR 1,500 million). The Group has tendered perpetual subordinated in April 2019: — Perpetual subordinated notes 2.250% callable in 2021 (EUR 1,500 million). Earnings per share are calculated after remuneration of perpetual subordinated notes. 28 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 OTHER COMPREHENSIVE INCOME Detail of other comprehensive income is presented in the table below: (M$) 1st half 2019 1st half 2018 Actuarial gains and losses (59) 67 Change in fair value of investments in equity instruments 107 5 Tax effect 14 (18) Currency translation adjustment generated by the parent company (474) (2,630) SUB- TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (412) (2,576) Currency translation adjustment 187 968 – Unrealized gain/(loss) of the period 233 1,078 – Less gain/(loss) included in net income 46 110 Cash flow hedge (373) 255 – Unrealized gain/(loss) of the period (303) 142 – Less gain/(loss) included in net income 70 (113) Variation of foreign currency basis spread 54 (27) – Unrealized gain/(loss) of the period 25 (27) – Less gain/(loss) included in net income (29) - Share of other comprehensive income of equity affiliates, net amount 253 (132) – Unrealized gain/(loss) of the period 265 (93) – Less gain/(loss) included in net income 12 39 Other 2 (2) Tax effect 107 (75) SUB- TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 230 987 TOTAL OTHER COMPREHENSIVE INCOME, NET AMOUNT (182) (1,589) Tax effects relating to each component of other comprehensive income are as follows: 1st half 2019 1st half 2018 (M$) Pre- tax amount Tax effect Net amount Pre- tax amount Tax effect Net amount Actuarial gains and losses (59) 16 (43) 67 (18) 49 Change in fair value of investments in equity instruments 107 (2) 105 5 - 5 Currency translation adjustment generated by the parent company (474) - (474) (2,630) - (2,630) SUB- TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (426) 14 (412) (2,558) (18) (2,576) Currency translation adjustment 187 - 187 968 - 968 Cash flow hedge (373) 125 (248) 255 (81) 174 Variation of foreign currency basis spread 54 (18) 36 (27) 6 (21) Share of other comprehensive income of equity affiliates, net amount 253 - 253 (132) - (132) Other 2 - 2 (2) - (2) SUB- TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 123 107 230 1,062 (75) 987 TOTAL OTHER COMPREHENSIVE INCOME (303) 121 (182) (1,496) (93) (1,589) [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 29 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 5) Financial debt The Group has issued bonds during the first six months of 2019: — Bond 3.455% 2019- 2029 (USD 1,250 million); — Bond 1.660% 2019- 2026 (GBP 500 million); — Bond 0.696% 2019- 2028 (EUR 650 million); — Bond 1.535% 2019- 2039 (EUR 650 million); — Bond 0.166% 2019- 2029 (CHF 200 million). The Group reimbursed bonds during the first six months of 2019: — Bond 4.875% issued in 2009 and maturing in January 2019 (EUR 1,200 million); — Bond 2.125% issued in 2014 and maturing in January 2019 (USD 750 million); — Bond 4.125% issued in 2014 and maturing in March 2019 (AUD 150 million); 6) Related parties The related parties are principally equity affiliates and non- consolidated investments. In March 2019, the Group signed final agreements for the acquisition of a 10% direct interest in Arctic LNG 2 with Novatek, in which TOTAL 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group. FERC The Office of Enforcement of the U.S. Federal Energy Regulatory Commission (FERC) began in 2015 an investigation in connection with the natural gas trading activities in the United States of Total Gas & Power North America, Inc. (TGPNA), a U.S. subsidiary of the Group. The investigation covered transactions made by TGPNA between June 2009 and June 2012 on the natural gas market. TGPNA received a Notice of Alleged Violations from FERC on September 21, 2015. On April 28, 2016, FERC issued an order to show cause to TGPNA and two of its former employees, and to 30 TOTAL Financial report first half 2019 — Bond 4.180% issued in 2009 and maturing in June 2019 (HKD 750 million); — Bond 2.100% issued in 2014 and maturing in June 2019 (USD 1,000 million); — Bond USD 3- month Libor + 35 basis points issued in 2014 and maturing in June 2019 (USD 250 million); — Bond 3.750% issued in 2014 and maturing in June 2019 (AUD 100 million). The Group’s financial debt increased by $5,555 million following the first application of IFRS 16 as at January 1, 2019. Impact on net debt included a sub lease financial asset of $50 million and resulted in an increase of $5,505 million. holds an interest of 19.40%. For the period ending June 30, 2019, the Group recognized its share of the net income generated by this transaction in Novatek’s financial statements, except for the gain on disposal that has been eliminated. TOTAL S.A. and Total Gas & Power Ltd., regarding the same facts. TGPNA contests the claims brought against it. A class action launched to seek damages from these three companies, was dismissed by a judgment of the U.S. District Court of New York issued on March 15, 2017. The Court of Appeal upheld this judgment on May 4, 2018. YEMEN Due to the security conditions in the vicinity of Balhaf, Yemen LNG, in which the Group holds a stake of 39.62%, stopped its commercial production and export of LNG in April 2015, when it declared force majeure to its various stakeholders. The plant is in a preservation mode. [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 8) Information by business segment Integrated Gas, 1st half 2019 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 4,067 10,208 44,220 43,950 2 - 102,447 Intersegment sales 15,302 1,259 16,310 301 63 (33,235) - Excise taxes - - (1,537) (10,584) - - (12,121) REVENUES FROM SALES 19,369 11,467 58,993 33,667 65 (33,235) 90,326 Operating expenses (8,234) (10,287) (56,502) (32,178) (406) 33,235 (74,372) Depreciation, depletion and impairment of tangible assets and mineral interests (5,216) (643) (763) (470) (35) - (7,127) OPERATING INCOME 5,919 537 1,728 1,019 (376) - 8,827 Net income (loss) from equity affiliates and other items 367 1,041 260 101 27 - 1,796 Tax on net operating income (2,585) (623) (246) (334) 124 - (3,664) NET OPERATING INCOME 3,701 955 1,742 786 (225) - 6,959 Net cost of net debt (1,015) Non- controlling interests (77) NET INCOME – GROUP SHARE 5,867 Integrated Gas, 1st half 2019 (adjustments) (a) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales - (86) - - - - (86) Intersegment sales - - - - - - - Excise taxes - - - - - - - REVENUES FROM SALES - (86) - - - - (86) Operating expenses - (112) 449 40 - - 377 Depreciation, depletion and impairment of tangible assets and mineral interests (43) (11) (10) - - - (64) OPERATING INCOME (b) (43) (209) 439 40 - - 227 Net income (loss) from equity affiliates and other items - 413 (47) (7) - - 359 Tax on net operating income - (270) (121) (13) - - (404) NET OPERATING INCOME (b) (43) (66) 271 20 - - 182 Net cost of net debt (8) Non- controlling interests 47 NET INCOME – GROUP SHARE 221 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect: – on operating income - - 486 40 - – on net operating income - - 344 27 - [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 31 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Integrated Gas, 1st half 2019 (adjusted) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 4,067 10,294 44,220 43,950 2 - 102,533 Intersegment sales 15,302 1,259 16,310 301 63 (33,235) - Excise taxes - - (1,537) (10,584) - - (12,121) REVENUES FROM SALES 19,369 11,553 58,993 33,667 65 (33,235) 90,412 Operating expenses (8,234) (10,175) (56,951) (32,218) (406) 33,235 (74,749) Depreciation, depletion and impairment of tangible assets and mineral interests (5,173) (632) (753) (470) (35) - (7,063) ADJUSTED OPERATING INCOME 5,962 746 1,289 979 (376) - 8,600 Net income (loss) from equity affiliates and other items 367 628 307 108 27 - 1,437 Tax on net operating income (2,585) (353) (125) (321) 124 - (3,260) ADJUSTED NET OPERATING INCOME 3,744 1,021 1,471 766 (225) - 6,777 Net cost of net debt (1,007) Non- controlling interests (124) ADJUSTED NET INCOME – GROUP SHARE 5,646 Integrated Gas, 1st half 2019 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Total expenditures 4,282 1,975 648 527 51 - 7,483 Total divestments 89 574 239 157 3 - 1,062 Cash flow from operating activities 7,704 1,533 1,120 843 (1,320) - 9,880 Integrated Gas, 1st half 2018 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 5,337 7,887 45,088 43,836 3 - 102,151 Intersegment sales 14,423 961 17,396 491 34 (33,305) - Excise taxes - - (1,714) (11,043) - - (12,757) REVENUES FROM SALES 19,760 8,848 60,770 33,284 37 (33,305) 89,394 Operating expenses (8,721) (8,123) (58,248) (31,919) (399) 33,305 (74,105) Depreciation, depletion and impairment of tangible assets and mineral interests (4,561) (807) (617) (346) (20) - (6,351) OPERATING INCOME 6,478 (82) 1,905 1,019 (382) - 8,938 Net income (loss) from equity affiliates and other items 577 795 417 193 9 - 1,991 Tax on net operating income (3,119) (237) (383) (297) 181 - (3,855) NET OPERATING INCOME 3,936 476 1,939 915 (192) - 7,074 Net cost of net debt (791) Non- controlling interests 74 NET INCOME – GROUP SHARE 6,357 32 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Integrated Gas, 1st half 2018 (adjustments) (a) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales - 13 - - - - 13 Intersegment sales - - - - - - - Excise taxes - - - - - - - REVENUES FROM SALES - 13 - - - - 13 Operating expenses (150) (101) 531 105 (9) - 376 Depreciation, depletion and impairment of tangible assets and mineral interests - (446) - - - - (446) OPERATING INCOME (b) (150) (534) 531 105 (9) - (57) Net income (loss) from equity affiliates and other items (167) (15) 25 - - - (157) Tax on net operating income 121 (21) (158) (35) - - (93) NET OPERATING INCOME (b) (196) (570) 398 70 (9) - (307) Net cost of net debt (19) Non- controlling interests 246 NET INCOME – GROUP SHARE (80) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect: – on operating income - - 531 105 - – on net operating income - - 415 70 - Integrated Gas, 1st half 2018 (adjusted) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 5,337 7,874 45,088 43,836 3 - 102,138 Intersegment sales 14,423 961 17,396 491 34 (33,305) - Excise taxes - - (1,714) (11,043) - - (12,757) REVENUES FROM SALES 19,760 8,835 60,770 33,284 37 (33,305) 89,381 Operating expenses (8,571) (8,022) (58,779) (32,024) (390) 33,305 (74,481) Depreciation, depletion and impairment of tangible assets and mineral interests (4,561) (361) (617) (346) (20) - (5,905) ADJUSTED OPERATING INCOME 6,628 452 1,374 914 (373) - 8,995 Net income (loss) from equity affiliates and other items 744 810 392 193 9 - 2,148 Tax on net operating income (3,240) (216) (225) (262) 181 - (3,762) ADJUSTED NET OPERATING INCOME 4,132 1,046 1,541 845 (183) - 7,381 Net cost of net debt (772) Non- controlling interests (172) ADJUSTED NET INCOME – GROUP SHARE 6,437 Integrated Gas, 1st half 2018 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Total expenditures 8,157 1,022 736 538 58 - 10,511 Total divestments 2,642 592 349 273 3 - 3,859 Cash flow from operating activities 7,796 326 (110) 781 (466) - 8,327 [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 33 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Integrated Gas, 2nd quarter 2019 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 2,273 3,789 22,509 22,671 - - 51,242 Intersegment sales 7,586 632 8,293 139 36 (16,686) - Excise taxes - - (761) (5,279) - - (6,040) REVENUES FROM SALES 9,859 4,421 30,041 17,531 36 (16,686) 45,202 Operating expenses (4,205) (3,878) (29,168) (16,844) (229) 16,686 (37,638) Depreciation, depletion and impairment of tangible assets and mineral interests (2,687) (328) (389) (237) (20) - (3,661) OPERATING INCOME 2,967 215 484 450 (213) - 3,903 Net income (loss) from equity affiliates and other items 173 661 111 111 26 - 1,082 Tax on net operating income (1,161) (450) 46 (170) 64 - (1,671) NET OPERATING INCOME 1,979 426 641 391 (123) - 3,314 Net cost of net debt (510) Non- controlling interests (48) NET INCOME – GROUP SHARE 2,756 Integrated Gas, 2nd quarter 2019 (adjustments) (a) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales - (59) - - - - (59) Intersegment sales - - - - - - - Excise taxes - - - - - - - REVENUES FROM SALES - (59) - - - - (59) Operating expenses - (54) (43) (34) - - (131) Depreciation, depletion and impairment of tangible assets and mineral interests (43) (11) (10) - - - (64) OPERATING INCOME (b) (43) (124) (53) (34) - - (254) Net income (loss) from equity affiliates and other items - 407 (49) (7) - - 351 Tax on net operating income - (286) 28 9 - - (249) NET OPERATING INCOME (b) (43) (3) (74) (32) - - (152) Net cost of net debt (4) Non- controlling interests 25 NET INCOME – GROUP SHARE (131) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect: – on operating income - - (6) (34) - – on net operating income - - (1) (25) - 34 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Integrated Gas, 2nd quarter 2019 (adjusted) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 2,273 3,848 22,509 22,671 - - 51,301 Intersegment sales 7,586 632 8,293 139 36 (16,686) - Excise taxes - - (761) (5,279) - - (6,040) REVENUES FROM SALES 9,859 4,480 30,041 17,531 36 (16,686) 45,261 Operating expenses (4,205) (3,824) (29,125) (16,810) (229) 16,686 (37,507) Depreciation, depletion and impairment of tangible assets and mineral interests (2,644) (317) (379) (237) (20) - (3,597) ADJUSTED OPERATING INCOME 3,010 339 537 484 (213) - 4,157 Net income (loss) from equity affiliates and other items 173 254 160 118 26 - 731 Tax on net operating income (1,161) (164) 18 (179) 64 - (1,422) ADJUSTED NET OPERATING INCOME 2,022 429 715 423 (123) - 3,466 Net cost of net debt (506) Non- controlling interests (73) ADJUSTED NET INCOME – GROUP SHARE 2,887 Integrated Gas, 2nd quarter 2019 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Total expenditures 2,257 857 363 383 36 - 3,896 Total divestments 60 349 70 85 1 - 565 Cash flow from operating activities 3,768 641 1,658 611 (427) - 6,251 Integrated Gas, 2nd quarter 2018 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 3,119 3,547 23,349 22,528 (3) - 52,540 Intersegment sales 7,646 469 9,440 293 (63) (17,785) - Excise taxes - - (867) (5,571) - - (6,438) REVENUES FROM SALES 10,765 4,016 31,922 17,250 (66) (17,785) 46,102 Operating expenses (4,791) (3,605) (30,369) (16,416) (122) 17,785 (37,518) Depreciation, depletion and impairment of tangible assets and mineral interests (2,345) (603) (304) (172) (11) - (3,435) OPERATING INCOME 3,629 (192) 1,249 662 (199) - 5,149 Net income (loss) from equity affiliates and other items 256 441 289 107 11 - 1,104 Tax on net operating income (1,687) (104) (279) (194) 85 - (2,179) NET OPERATING INCOME 2,198 145 1,259 575 (103) - 4,074 Net cost of net debt (440) Non- controlling interests 87 NET INCOME – GROUP SHARE 3,721 [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 35 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Integrated Gas, 2nd quarter 2018 (adjustments) (a) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales - 24 - - - - 24 Intersegment sales - - - - - - - Excise taxes - - - - - - - REVENUES FROM SALES - 24 - - - - 24 Operating expenses (97) (9) 569 134 - - 597 Depreciation, depletion and impairment of tangible assets and mineral interests - (424) - - - - (424) OPERATING INCOME (b) (97) (409) 569 134 - - 197 Net income (loss) from equity affiliates and other items (66) (4) 46 1 - - (23) Tax on net operating income 46 (7) (177) (38) - - (176) NET OPERATING INCOME (b) (117) (420) 438 97 - - (2) Net cost of net debt (9) Non- controlling interests 179 NET INCOME – GROUP SHARE 168 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect: – on operating income - - 569 134 - – on net operating income - - 438 97 - Integrated Gas, 2nd quarter 2018 (adjusted) Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Non- Group sales 3,119 3,523 23,349 22,528 (3) - 52,516 Intersegment sales 7,646 469 9,440 293 (63) (17,785) - Excise taxes - - (867) (5,571) - - (6,438) REVENUES FROM SALES 10,765 3,992 31,922 17,250 (66) (17,785) 46,078 Operating expenses (4,694) (3,596) (30,938) (16,550) (122) 17,785 (38,115) Depreciation, depletion and impairment of tangible assets and mineral interests (2,345) (179) (304) (172) (11) - (3,011) ADJUSTED OPERATING INCOME 3,726 217 680 528 (199) - 4,952 Net income (loss) from equity affiliates and other items 322 445 243 106 11 - 1,127 Tax on net operating income (1,733) (97) (102) (156) 85 - (2,003) ADJUSTED NET OPERATING INCOME 2,315 565 821 478 (103) - 4,076 Net cost of net debt (431) Non- controlling interests (92) ADJUSTED NET INCOME – GROUP SHARE 3,553 Integrated Gas, 2nd quarter 2018 Exploration & Renewables Refining Marketing & (M$) Production & Power & Chemicals Services Corporate Intercompany Total Total expenditures 2,612 447 404 310 14 - 3,787 Total divestments 466 439 324 45 - - 1,274 Cash flow from operating activities 4,474 258 999 841 (326) - 6,246 36 TOTAL Financial report first half 2019 [© Agence Marc Praquin] CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 9) Reconciliation of the information by business segment with Consolidated Financial Statements Consolidated 1st half 2019 statement (M$) Adjusted Adjustments (a) of income Sales 102,533 (86) 102,447 Excise taxes (12,121) - (12,121) Revenues from sales 90,412 (86) 90,326 Purchases net of inventory variation (60,533) 422 (60,111) Other operating expenses (13,758) (45) (13,803) Exploration costs (458) - (458) Depreciation, depletion and impairment of tangible assets and mineral interests (7,063) (64) (7,127) Other income 453 115 568 Other expense (190) (208) (398) Financial interest on debt (1,121) (8) (1,129) Financial income and expense from cash & cash equivalents (70) - (70) Cost of net debt (1,191) (8) (1,199) Other financial income 486 - 486 Other financial expense (383) - (383) Net income (loss) from equity affiliates 1,071 452 1,523 Income taxes (3,076) (404) (3,480) CONSOLIDATED NET INCOME 5,770 174 5,944 Group share 5,646 221 5,867 Non- controlling interests 124 (47) 77 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Consolidated 1st half 2018 statement (M$) Adjusted Adjustments (a) of income Sales 102,138 13 102,151 Excise taxes (12,757) - (12,757) Revenues from sales 89,381 13 89,394 Purchases net of inventory variation (60,623) 578 (60,045) Other operating expenses (13,496) (202) (13,698) Exploration costs (362) - (362) Depreciation, depletion and impairment of tangible assets and mineral interests (5,905) (446) (6,351) Other income 628 147 775 Other expense (115) (488) (603) Financial interest on debt (849) (19) (868) Financial income and expense from cash & cash equivalents (95) - (95) Cost of net debt (944) (19) (963) Other financial income 561 - 561 Other financial expense (329) - (329) Net income (loss) from equity affiliates 1,403 184 1,587 Income taxes (3,590) (93) (3,683) CONSOLIDATED NET INCOME 6,609 (326) 6,283 Group share 6,437 (80) 6,357 Non- controlling interests 172 (246) (74) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. [© Agence Marc Praquin] Financial report first half 2019 TOTAL 2 37 2 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 Notes to the Consolidated Financial Statements for the first six months 2019 Consolidated 2nd quarter 2019 statement (M$) Adjusted Adjustments (a) of income Sales 51,301 (59) 51,242 Excise taxes (6,040) - (6,040) Revenues from sales 45,261 (59) 45,202 Purchases net of inventory variation (30,295) (95) (30,390) Other operating expenses (7,042) (36) (7,078) Exploration costs (170) - (170) Depreciation, depletion and impairment of tangible assets and mineral interests (3,597) (64) (3,661) Other income 253 68 321 Other expense (117) (72) (189) Financial interest on debt (564) (4) (568) Financial income and expense from cash & cash equivalents (42) - (42) Cost of net debt (606) (4) (610) Other financial income 326 - 326 Other financial expense (188) - (188) Net income (loss) from equity affiliates 457 355 812 Income taxes (1,322) (249) (1,571) CONSOLIDATED NET INCOME 2,960 (156) 2,804 Group share 2,887 (131) 2,756 Non- controlling interests 73 (25) 48 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Consolidated 2nd quarter 2018 statement (M$) Adjusted Adjustments (a) of income Sales 52,516 24 52,540 Excise taxes (6,438) - (6,438) Revenues from sales 46,078 24 46,102 Purchases net of inventory variation (31,263) 664 (30,599) Other operating expenses (6,694) (67) (6,761) Exploration costs (158) - (158) Depreciation, depletion and impairment of tangible assets and mineral interests (3,011) (424) (3,435) Other income 254 (2) 252 Other expense (55) (358) (413) Financial interest on debt (469) (9) (478) Financial income and expense from cash & cash equivalents (54) - (54) Cost of net debt (523) (9) (532) Other financial income 321 - 321 Other financial expense (159) - (159) Net income (loss) from equity affiliates 766 337 1,103 Income taxes (1,911) (176) (2,087) CONSOLIDATED NET INCOME 3,645 (11) 3,634 Group share 3,553 168 3,721 Non- controlling interests 92 (179) (87) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 10) Post- closing On July 10, 2019, TOTAL announced the signature of an agreement to divest several UK non- core assets to Petrogas NEO UK Ltd. The overall consideration for this deal amounts to 635 million dollars with an effective date of January 1, 2019. The transaction remains subject to approval from the relevant authorities and is expected to close in December 2019. 38 TOTAL Financial report first half 2019 [© Agence Marc Praquin] Design and production: Agence Marc Praquin see you on total.com TOTAL S.A. Registered Office: 2, place Jean Millier – La Défense 6 92400 Courbevoie – France Share capital: 6,666,815,700.00 euros 542 051 180 RCS Nanterre Reception: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2019, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,020 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
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| see you on total.com Financial report first half 2020 Table of contents Certification of the person responsible for the half-year financial report Glossary 1 Half-year financial report 1.1 Highlights since the beginning of 2020 1.2 Key figures from TOTAL Consolidated Financial Statements 1.3 Key figures of environment and Group production 1.3.1 Environment – liquids and gas price realizations, refining margins 1.3.2 Production 1.4 Analysis of business segments results 1.4.1 Integrated Gas, Renewables & Power (iGRP) 1.4.2 Exploration & Production 1.4.3 Downstream (Refining & Chemicals and Marketing & Services) 1.5 Group results 1.5.1 Adjusted net operating income from business segments 1.5.2 Adjusted net income (Group share) 1.5.3 Adjusted fully-diluted earnings per share 1.5.4 Acquisitions – asset sales 1.5.5 Net cash flow 1.5.6 Profitability 1.6 Total SE accounts 1.7 2020 Sensitivities 1.8 Summary and outlook 1.9 Other information 1.9.1 Operating information by segment 1.9.2 Adjustment items to net income (Group share) 1.9.3 Investments – Divestments 1.9.4 Cash-flow 1.9.5 Gearing ratio 1.9.6 Return on average capital employed 1.10 Principal risks and uncertainties for the remaining six months of 2020 1.11 Major related parties’ transactions 1 2 3 3 4 5 5 5 6 6 7 7 9 9 9 10 10 10 10 11 11 11 12 12 13 13 13 14 14 14 14 2 Consolidated Financial Statements as of June 30, 2020 2.1 Statutory auditors’ review report on the half-yearly financial information 2.2 Consolidated statement of income – half-yearly 2.3 Consolidated statement of comprehensive income – half-yearly 2.4 Consolidated statement of income – quarterly 2.5 Consolidated statement of comprehensive income – quarterly 2.6 Consolidated balance sheet 2.7 Consolidated statement of cash flow – half-yearly 2.8 Consolidated statement of cash flow – quarterly 2.9 Consolidated statement of changes in shareholders’ equity 2.10 Notes to the Consolidated Financial Statements as of June 30, 2020 (non audited) 1) Accounting policies 2) Changes in the Group structure 3) Business segment information 4) Shareholders’ equity 5) Financial debt 6) Related parties 7) Other risks and contingent liabilities 8) Post closing events 17 17 18 19 20 21 22 23 24 25 26 26 26 27 39 41 41 41 42 Financial Report 1st half 2020 Certification of the person responsible for the half-year financial report This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TOTAL SE (the Company) for the first half of 2020 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Company and all the entities included in the consolidation, and that the half-year financial report on pages 3 to 16 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 17 of this half-year financial report.” Courbevoie, July 29, 2020 Patrick Pouyanné Chairman and Chief Executive Officer The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 30, 2020 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code. Financial report first half 2020 TOTAL 1 2 Glossary The terms “TOTAL” and “Group” as used in this document refer to TOTAL SE collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Company” as used in this document exclusively refers to TOTAL SE, which is the parent company of the Group. Abbreviations Units of measurement €: euro b = barrel(1) $ or dollar: U.S. dollar B = billion boe = barrel of oil equivalent AMF: Autorité des marchés financiers (French Financial Markets Authority) BTU = British thermal unit DACF: FPSO: debt adjusted cash flow is defined as operating cash flow before working capital changes w/o financial charges floating production, storage and offloading cf = cubic feet CO2e = carbon dioxide equivalent /d = per day HSE: health, safety and the environment GW = gigawatt IFRS: International Financial Reporting Standards GWh = gigawatt hour LNG: liquefied natural gas k = thousand NGL: natural gas liquids km = kilometer ROE: return on equity m = meter ROACE: return on average capital employed m³ or cm = cubic meter(1) SEC: United States Securities and Exchange Commission M = million VCM: variable cost margin – Refining Europe MW = megawatt This indicator represents the average margin on variable costs realized by TOTAL’s European refining business. It is equal to the difference between the sales of refined products realized by TOTAL’s European refining and the crude purchases as well as associated variable costs, divided by refinery throughput in tons. t = (Metric) ton TWh = terawatt hour W = watt /y = per year The previous ERMI indicator was intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. Conversion table 1 acre ≈ 0.405 hectare 1 b = 42 U.S. gallons ≈ 159 liters 1 b/d of crude oil ≈ 50 t/y of crude oil 1 Bm³/y (1 Bcm) ≈ 0.1 Bcf/d 1 km ≈ 0.62 mile 1 m³ ≈ 35.3 cf 1 Mt of LNG ≈ 48 Bcf of gas 1 Mt/y of LNG ≈ 131 Mcf/d of gas 1 t of oil ≈ 7.5 b of oil (assuming a specific gravity of 37° API) 1 boe = 1 b of crude oil ≈ 5,395 cf of gas in 2019(2) (5,387 cf in 2018 and 5,396 cf in 2017) (1) Liquid and gas volumes are reported at international standard metric conditions (15°C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of TOTAL’s natural gas reserves during the applicable periods and is subject to change. The tabular conversion rate is applicable to TOTAL’s natural gas reserves on a Group-wide basis. TOTAL Financial report first half 2020 1 Half-year financial report 1.1 Highlights since the beginning of 2020(1) – New Climate Ambition to achieve carbon neutrality by 2050 – Joined the “Coalition for the Energy of the Future” with 10 major partners to accelerate the energy transition of transportation and logistics – Joined the “Getting to Zero Coalition” to contribute to the shipping industry’s decarbonization – Investment decision for the Northern Lights project in Norway for the transport and storage of CO2 – Signed the external financing agreement for the Mozambique LNG project for $14.9 billion, the largest project financing in Africa – Extension of the LNG supply contract with Sonatrach for 2 Mt/y – Agreement with SSE Renewables to acquire a 51% stake in the 1.140 MW offshore wind project in the Scottish North Sea – Acquisition of EDP’s portfolio of 2.5 million residential customers and two natural gas-fired combined-cycle power plants, with a combined capacity of nearly 850 megawatts – Acquisition of 50% of 2 GW gross capacity portfolio of solar power plants in India as part of a 50/50 JV with the Adani Group – Agreement to build a large-scale solar power plant (800 MWp) in Qatar – Entry into solar market in Spain with the acquisition of 2 GW portfolio of projects – Acquisition in France of Global Wind Power France, which holds a 1 GW gross capacity portfolio of projects – Entry into first floating offshore wind project in the UK – Launched in Dunkirk the largest battery power storage project (25 MW) for France’s power grid – Launched a pilot plant in Europe to start producing EV batteries from 2023 at the highest technological level in terms of energy performance – Started up the second FPSO on the deep-offshore Iara field in Brazil – Sale of the portfolio of mature and non-operated assets in Gabon – Counter-cyclical acquisition of Tullow’s interest in the Lake Albert project in Uganda – Discovery of Bashrush gas field in Egypt on North El Hammad permit – Third discovery (Kwaskwasi) on block 58 in Surinam – In Exploration, made two significant oil discoveries on Block 58 in Surinam plus a new condensate gas discovery in the UK North Sea – Sale of the Lindsey refinery in the United Kingdom – Asset sale program ongoing with disposal of downstream gas in France, Exploration & Production in Brunei, and Marketing in Sierra Leone and Liberia – Creation of a 50:50 JV with IndianOil to manufacture and market high-quality bitumen derivatives – Adoption by the Group of statutes to become a European Company (1) Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements. Financial report first half 2020 TOTAL 3 1 Key figures from TOTAL Consolidated Financial Statements Half-year financial report 1.2 Key figures from TOTAL Consolidated Financial Statements(1) In millions of dollars, except effective tax rate, earnings per share and number of shares 1H20 1H19 1H20 vs 1H19 Adjusted net operating income from business segments 3,121 7,002 55% Exploration & Production 494 3,744 87% Integrated Gas, Renewables & Power 1,239 1,021 +21% Refining & Chemicals 957 1,471 35% Marketing & Services 431 766 44% Contribution of equity affiliates to adjusted net income 669 1,071 38% Group effective tax rate(2) 24.3% 36.9% Adjusted net income (Group share) 1,907 5,646 66% Adjusted fully-diluted earnings per share (dollars)(3) 0.68 2.07 67% Adjusted fully-diluted earnings per share (euros)* 0.62 1.84 66% Fully-diluted weighted-average shares (millions) 2,598 2,622 1% Net income (Group share) (8,335) 5,867 ns Organic investments(4) 4,724 5,811 19% Net acquisitions(5) 1,823 709 x2.6 Net investments(6) 6,547 6,520 – Operating cash flow before working capital changes(7) 7,164 12,740 44% Operating cash flow before working capital changes w/o financial charges (DACF)(8) 8,175 13,744 41% Cash flow from operations 4,778 9,880 52% Data take into account the impact of the new rule IFRS16 “Leases”, effective January 1, 2019. Average €-$ exchange rate: 1.1020 in the first half 2020. (1) (2) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value. Adjustment items are on page 13. Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). In accordance with IFRS rules, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond. (3) (4) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (5) Net acquisitions = acquisitions – assets sales – other transactions with non-controlling interests (see page 13). (6) Net investments = Organic investments + net acquisitions (see page 13). (7) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, and effective second quarter 2019 including organic loan repayments from equity affiliates, and effective first quarter 2020 including capital gain from renewable projects sale. The inventory valuation effect is explained on page 15. The reconciliation table for different cash flow figures is on page 13. (8) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. 4 TOTAL Financial report first half 2020 Half-year financial report 1 Key figures of environment and Group production 1.3 Key figures of environment and Group production 1.3.1 Environment – liquids and gas price realizations, refining margins 1H20 1H19 1H20 vs 1H19 Brent ($/b) 40.1 66.0 39% Henry Hub ($/Mbtu) 1.8 2.7 33% NBP ($/Mbtu) 2.4 5.2 54% JKM ($/Mbtu) 2.9 5.8 50% Average price of liquids ($/b) Consolidated subsidiaries 33.8 61.2 45% Average price of gas ($/Mbtu) Consolidated subsidiaries 2.99 4.16 28% Average price of LNG ($/Mbtu) Consolidated subsidiaries and equity affiliates 5.42 6.42 16% Variable cost margin – Refining Europe, VCM ($/t) 21.0 30.6 31% 1.3.2 Production* 1H20 1H19 1H20 vs 1H19 Hydrocarbon production (kboe/d) 2,966 2,951 – Oil (including bitumen) (kb/d) 1,381 1,416 2% Gas (including condensates and associated NGL) (kboe/d) 1,584 1,535 +3% Hydrocarbon production (kboe/d) 2,966 2,951 – Liquids (kb/d) 1,626 1,627 – Gas (Mcf/d)** 7,302 7,238 +1% Group production = EP production + iGRP production. ** 1H19 data restated. Financial report first half 2020 TOTAL 5 1 6 Half-year financial report Analysis of business segments results 1.4 Analysis of business segments results 1.4.1 Integrated Gas, Renewables & Power (iGRP) 1.4.1.1 Liquefied natural gas (LNG) production and sales and low carbon electricity Hydrocarbon production for LNG 1H20 1H19 1H20 vs 1H19 iGRP (kboe/d) 536 538 – Liquids (kb/d) 69 70 – Gas (Mcf/d)* 2,541 2,570 1% 1H19 data restated. Liquefied Natural Gas in Mt 1H20 1H19 1H20 vs 1H19 Overall LNG sales 20.2 16.3 +24% incl. Sales from equity production* 9.0 7.8 +15% incl. Sales by Total from equity production and third party purchases 16.5 12.7 +30% The Group’s equity production may be sold by Total or by the joint ventures. Low carbon electricity 1H20 1H19 1H20 vs 1H19 Gross renewables installed capacity (GW)* 5.1 2.6 +97% Net low carbon power production (TWh)** 5.9 5.0 +16% Clients gas and power – BtB and BtC (Million)* 5.9 5.5 +7% Sales gas and power – BtB and BtC (TWh) 74.5 75.3 1% Capacity at end of period. ** Solar, wind, biogas, hydroelectric and CCGT plants. Hydrocarbon production for LNG was stable in the first half 2020 compared to last year. For the first half 2020, total LNG sales increased by 24% year-on-year due to an increase in trading activities and thanks to the ramp-up of Yamal LNG and Ichthys plus the start-up of the first two Cameron LNG trains in the US. Gross installed renewable power generation capacity rose to 5.1 GW at the end of the first half 2020, a strong 97% increase year-on-year, notably thanks to the acquisition in India of 50% of a portfolio of more than 2 GW from the Adani Group. The Group continues to implement its strategy to integrate along the gas and electricity chain in Europe and has seen the number of its gas and electricity customers grow during the first half 2020 to 5.9 million, a 7% increase compared to a year ago. Sales of gas and electricity decreased by 1%, impacted by lower demand linked to the lockdown in Europe. 1.4.1.2 Results In millions of dollars 1H20 1H19 1H20 vs 1H19 Adjusted net operating income* 1,239 1,021 +21% incl. income from equity affiliates 179 450 60% Organic investments 1,264 935 +35% Net acquisitions 1,570 559 x2.8 Net investments 2,834 1,494 +90% Operating cash flow before working capital changes** 1,407 1,479 5% Cash flow from operations** 900 1,533 41% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. In the first half 2020, adjusted net operating income for the iGRP segment was $1,239 million, an increase of 21% compared to last year, notably due to the strong 24% growth in LNG sales. TOTAL Financial report first half 2020 Half-year financial report 1 Analysis of business segments 1.4.2 Exploration & Production 1.4.2.1 Production Hydrocarbon production 1H20 1H19 1H20 vs 1H19 EP (kboe/d) 2,430 2,413 +1% Liquids (kb/d) 1,557 1,557 – Gas (Mcf/d) 4,761 4,668 +2% 1.4.2.2 Results In millions of dollars, except effective tax rate 1H20 1H19 1H20 vs 1H19 Adjusted net operating income* 494 3,744 87% incl. income from equity affiliates 438 452 3% Effective tax rate** 69.6% 44.0% Organic investments 2,684 3,953 32% Net acquisitions 305 242 +26% Net investments 2,989 4,195 29% Operating cash flow before working capital changes *** 4,386 9,128 52% Cash flow from operations *** 4,833 7,704 37% Details on adjustment items are shown in the business segment information annex to financial statements. ** Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). *** Excluding financial charges, except those related to leases. Exploration & Production adjusted net operating income fell to $494 million in the first half 2020 from $3,744 million in the first half 2019 due to the sharp drop in oil and gas prices. Operating cash flow before working capital changes was $4,386 million compared to $9,128 million in the first half 2019. 1.4.3 Downstream (Refining & Chemicals and Marketing & Services) 1.4.3.1 Results In millions of dollars 1H20 1H19 1H20 vs 1H19 Adjusted net operating income* 1,388 2,237 38% Organic investments 734 876 16% Net acquisitions (50) (93) ns Net investments 684 783 13% Operating cash flow before working capital changes ** 2,552 3,118 18% Cash flow from operations ** 317 1,963 84% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Financial report first half 2020 TOTAL 7 1 Analysis of business segments Half-year financial report 1.4.3.2 Refining & Chemicals 1.4.3.2.1 Refinery and petrochemicals throughput and utilization rates Refinery throughput and utilization rate* 1H20 1H19 1H20 vs 1H19 Total refinery throughput (kb/d) 1,347 1,729 22% France 230 520 56% Rest of Europe 676 751 10% Rest of world 441 458 4% Utilization rate based on crude only** 64% 83% ** Based on distillation capacity at the beginning of the year. Includes refineries in Africa reported in the Marketing & Services segment. Petrochemicals production and utilization rate 1H20 1H19 2T20 vs 2T19 Monomers* (kt) 2,778 2,386 +16% Polymers (kt) 2,395 2,424 1% Vapocracker utilization rate** 83% 75% Olefins. ** Based on olefins production from steamcrackers and their treatment capacity at the start of the year. Refinery throughput volumes decreased by 22% in the first half 2020, mainly due to prolonging the planned shutdown at Feyzin in France, the decision to not restart Grandpuits after a major turnaround given the drop in demand and the shutdown of the distillation unit at the Normandy platform following an incident at the end of 2019. Monomer production was up by 16% in the first half 2020 year-on-year. It was 2,386 kt in the first half 2019 mainly due to planned maintenance in 2019 on the steamcrackers at Daesan in South Korea and Port Arthur in the United States. Polymer production was stable in the first half 2020. 1.4.3.2.2 Results In millions of dollars 1H20 1H19 1H20 vs 1H19 Adjusted net operating income* 957 1,471 35% Organic investments 470 593 21% Net acquisitions (51) (182) ns Net investments 419 411 +2% Operating cash flow before working capital changes ** 1,670 1,910 13% Cash flow from operations ** (103) 1,120 ns Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. In the first half 2020, Refining & Chemicals adjusted net operating income was $1 billion, down 35% year-on-year, and operating cash flow before working capital changes decreased by 13% to $1.7 billion. This decrease was notably linked to the degraded refining margin environment in the first half and to the weak plant utilization rate of 64%, partially offset by resilient petrochemical margins and very good performance of the trading activities. 8 TOTAL Financial report first half 2020 Half-year financial report 1 Group results 1.4.3.3 Marketing & Services 1.4.3.3.1 Petroleum product sales Sales in kb/d* 1H20 1H19 1H20 vs 1H19 Total Marketing & Services sales 1,478 1,848 20% Europe 823 1,008 18% Rest of world 656 840 22% Excludes trading and bulk refining sales. Petroleum product sales volumes fell by 20% in the first half 2020 year-on-year notably due to the impact of the lockdown on demand. 1.4.3.3.2 Results In millions of dollars 1H20 1H19 1H20 vs 1H19 Adjusted net operating income* 431 766 44% Organic investments 264 283 7% Net acquisitions 1 89 99% Net investments 265 372 29% Operating cash flow before working capital changes ** 882 1,208 27% Cash flow from operations ** 420 843 50% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Adjusted net operating income decreased by 44% in the first half 2020 compared to last year due to the decrease in volumes. Operating cash flow before working capital changes was $882 million in the first half. 1.5 Group results 1.5.1 Adjusted net operating income from business segments Adjusted net operating income from the business segments was $3,121 million in the first half 2020, a decrease of 55% year-on-year due to lower Brent prices, natural gas prices and refining margins as well as the impact of the Covid-19 crisis on demand. 1.5.2 Adjusted net income (Group share) Adjusted net income (Group share) was $1,907 million in the first half 2020 compared to $5,646 million for the same period last year, due to lower Brent prices, natural gas prices and refining margins as well as the impact of the Covid-19 crisis on demand. Total net income adjustments(2) were $(10,242) million in the second half 2020, including $(8,101) million for impairments and $(1,508) million for the after-tax inventory effect linked to lower oil prices. Adjusted net income excludes the after-tax inventory effect, special items and the impact of effects of changes in fair value(1). The effective tax rate for the Group was 24.3% in the first half 2020, compared to 36.9% in the first half 2019. (1) Adjustment items shown on page 15. (2) Details shown on page 13 and in the appendix to the financial statements. Financial report first half 2020 TOTAL 9 1 10 Half-year financial report Group results 1.5.3 Adjusted fully-diluted earnings per share Adjusted fully-diluted earnings per share was $0.68 in the first half 2020, calculated on the basis of a weighted average of 2,598 million fully- diluted shares, compared to $2.07 in the same period last year. The number of fully-diluted shares was 2,605 million on June 30, 2020. 1.5.4 Acquisitions – asset sales Acquisitions were $2.5 billion in the first half 2020 comprised notably of finalizing the acquisition in India of 50% of a portfolio of installed solar activities from Adani Green Energy Limited, the acquisition of interests in Blocks 20 and 21 in Angola, the finalization of the acquisition of 37.4% of Adani Gas Limited in India and the payment for a second tranche linked to taking the 10% stake in the Arctic LNG 2 project in Russia. Asset sales were $678 million in the first half 2020, comprised notably of the sales of Block CA1 in Brunei, the Group’s interest in the Fos Cavaou regasification terminal in France, and 50% of a portfolio of solar and wind assets from Total Quadran in France. 1.5.5 Net cash flow Net cash flow(1) for the Group was $0.6 billion in the first half 2020 compared to $6.2 billion year-on-year due to the decrease in operating cash flow before working capital changes of $5.6 billion in the context of sharply lower oil and gas prices. 1.5.6 Profitability The return on equity was 7.5% for the twelve months ended June 30, 2020. In millions of dollars July 1, 2019 to June 30, 2020 April 1, 2019 to March 31, 2020 July 1, 2018 to June 30, 2019 Adjusted net income 8,214 11,079 13,125 Average adjusted shareholders' equity 109,448 113,607 117,787 Return on equity (ROE) 7.5% 9.8% 11.1% The return on average capital employed was 7% for the twelve months ended June 30, 2020. In millions of dollars July 1, 2019 to June 30, 2020 April 1, 2019 to March 31, 2020 July 1, 2018 to June 30, 2019 Adjusted net operating income 10,125 13,032 15,087 Average capital employed 145,621 150,418 145,247 ROACE 7.0% 8.7% 10.4% (1) Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests). TOTAL Financial report first half 2020 Half-year financial report 1 2020 Sensitivities 1.6 Total SE accounts Net income for Total SE, the parent company, was €4,710 million in the first half 2020 compared to €6,282 million a year ago. 1.7 2020 Sensitivities* Change Estimated impact on adjusted net operating income Estimated impact on cash flow from operations Dollar +/- 0.1 $ per € /+ 0.1 B$ ~0 B$ Average liquids price** +/- 10 $/b +/- 2.9 B$ +/- 3.3 B$ European gas price – NBP ($/Mbtu) +/- 1 $/Mbtu +/- 0.35 B$ +/- 0.35 B$ Variable cost margin, European refining (VCM) +/- 10 $/t +/- 0.5 B$ +/- 0.6 B$ Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2020. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. In a 60 $/b Brent environment. ** 1.8 Summary and outlook Oil prices strengthened since the beginning of June, reaching around 40 $/b, benefiting from strong compliance with the OPEC+ quotas and the decline of hydrocarbon production in the United States and Canada as well as a recovery in demand. The oil environment, however, remains volatile, given the uncertainty around the extent and speed of the global economic recovery post- Covid-19. Considering the implementation of the OPEC+ quotas and the situation in Libya, the Group now expects 2020 production to be between 2.9 Mboe/d and 2.95 Mboe/d, with a low point in the third quarter during the summer season. The ramp up of Iara’s second FPSO in Brazil will contribute to production growth in the last part of the year. In the Downstream, high inventory levels continue to weigh on refining margins and utilization rates. In Marketing, activity in Europe returned to 90% of its pre-crisis level since June and the Group anticipates that it will remain at a comparable level in the coming months. The Group demonstrates discipline in the implementation of its 2020 action plan: – Net investments below $14 billion, – Savings of $1 billion on operating costs compared to 2019. Total will continue to profitably grow in low carbon electricity, particularly in renewables, with close to $2 billion of investments in 2020. The Group’s priority is to generate a level of cash flow that allows it to continue to invest in profitable projects, to preserving an attractive shareholder return and to maintain a strong balance sheet. To this end, the Group’s teams are focused on the four priorities of HSE, operational excellence, cost reduction and cash flow generation. In LNG, Total anticipates significant deferred liftings in the third quarter and expects the decline in oil prices observed in the second quarter to have an impact on long-term LNG contract prices in the second half of the year. Financial report first half 2020 TOTAL 11 1 12 Half-year financial report Other information 1.9 Other information 1.9.1 Operating information by segment 1.9.1.1 Group production (Exploration & Production + iGRP) Combined liquids and gas production by region (kboe/d) Europe and Central Asia Africa Middle East and North Africa Americas Asia-Pacific Total production includes equity affiliates Liquids production by region (kb/d) Europe and Central Asia Africa Middle East and North Africa Americas Asia-Pacific Total production includes equity affiliates Gas production by region (Mcf/d) Europe and Central Asia Africa* Middle East and North Africa Americas Asia-Pacific* Total production* includes equity affiliates* 1H19 data restated. 1.9.1.2 Downstream (Refining & Chemicals and Marketing & Services) Petroleum product sales by region (kb/d) Europe Africa Americas Rest of world TOTAL CONSOLIDATED SALES incl. bulk sales incl. trading Petrochemicals production* (kt) Europe Americas Middle-East and Asia Olefins, polymers. TOTAL Financial report first half 2020 1H20 1,064 677 661 343 220 2,966 726 1H20 392 534 505 153 42 1,626 207 1H20 3,620 726 865 1,069 1,022 7,302 2,802 1H20 1,610 573 814 439 3,435 432 1,525 1H20 2,547 1,301 1,324 1H19 993 691 695 365 207 2,951 730 1H19 340 545 534 168 40 1,627 221 1H19 3,532 749 885 1,104 968 7,238 2,762 1H19 2,020 705 842 576 4,143 546 1,749 1H19 2,734 1,089 987 1H20 vs 1H19 +7% 2% 5% 6% +6% – – 1H20 vs 1H19 +15% 2% 5% 9% +5% – 6% 1H20 vs 1H19 +2% 3% 2% 3% +6% +1% +1% 1H20 vs 1H19 20% 19% 3% 24% 17% 21% 13% 1H20 vs 1H19 7% +19% +34% Half-year financial report 1 Other information 1.9.2 Adjustment items to net income (Group share) In millions of dollars 1H20 1H19 Special items affecting net income (Group share) (8,655) (70) Gain (loss) on asset sales – – Restructuring charges (100) (33) Impairments (8,101) (57) Other (454) 20 After-tax inventory effect: FIFO vs. replacement cost (1,508) 360 Effect of changes in fair value (79) (69) TOTAL ADJUSTMENTS AFFECTING NET INCOME (10,242) 221 1.9.3 Investments – Divestments In millions of dollars 1H20 1H19 1H20 vs 1H19 Organic investments (A) 4,724 5,811 19% incl. capitalized exploration 297 417 29% incl. increase in non-current loans 1,012 500 x2 incl. repayment of non-current loans, excluding organic loan repayment from equity affiliates* (175) (388) ns incl. change in debt from renewable projects (Group share) (152) – ns Acquisitions (B) 2,501 1,284 +95% Asset sales (C) 678 575 +18% change in debt from renewable projects (partner share) 83 – ns Other transactions with non-controlling interests (D) – – ns NET INVESTMENTS ( A + B - C - D ) 6,547 6,520 – Organic loan repayment from equity affiliates* (E) (34) (99) ns Change in debt from renewable projects financing ** (F) 235 – ns Capex linked to capitalized leasing contracts (G) 46 – ns CASH FLOW USED IN INVESTING ACTIVITIES ( A + B - C + E + F - G) 6,702 6,421 +4% ** Change in debt from renewable projects (Group share and partner share). Effective second quarter 2019, organic loan repayments from equity affiliates are defined as loan repayments from equity affiliates coming from their cash flow from operations. 1.9.4 Cash-flow In millions of dollars 1H20 1H19 1H20 vs 1H19 Operating cash flow before working capital changes w/o financials charges (DACF) 8,175 13,744 41% Financial charges (1,011) (1,004) ns Operating cash flow before working capital changes (A) 7,164 12,740 44% (Increase) decrease in working capital (453) (3,287) ns Inventory effect (1,838) 526 ns capital gain from renewable projects sale (61) – ns Organic loan repayment from equity affiliates (34) (99) ns Cash flow from operations 4,778 9,880 52% Organic investments (B) 4,724 5,811 19% FREE CASH FLOW AFTER ORGANIC INVESTMENTS, W/O NET ASSET SALES (A - B) 2,440 6,929 65% Net investments (C) 6,547 6,520 – NET CASH FLOW (A - C) 617 6,220 90% Financial report first half 2020 TOTAL 13 1 14 Half-year financial report Principal risks and uncertainties for the remaining six months of 2020 1.9.5 Gearing ratio* In millions of dollars 06/30/2020 03/31/2020 06/30/2019 Current borrowings 16,154 18,521 16,221 Net current financial assets (6,159) (6,412) (3,110) Net financial assets classified as held for sale – – – Non-current financial debt 61,540 48,896 45,394 Non-current financial assets (2,431) (1,133) (771) Cash and cash equivalents (29,727) (21,634) (26,723) NET DEBT (A) 39,377 38,238 31,011 of which leases 7,383 7,309 7,015 Shareholders’ equity – Group share 101,205 112,006 116,862 Non-controlling interests 2,334 2,428 2,362 SHAREHOLDERS' EQUITY (B) 103,539 114,434 119,224 NET-DEBT-TO-CAPITAL RATIO = A / (A + B) 27.6% 25.0% 20.6% NET-DEBT-TO-CAPITAL RATIO EXCLUDING LEASES 23.6% 21.3% 16.8% The net-debt-to-capital ratios include the impact of the new IFRS 16 rule, effective January 1, 2019. 1.9.6 Return on average capital employed 1.9.6.1 Twelve months ended June 30, 2020 In millions of dollars Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Group Adjusted net operating income 4,259 2,607 2,489 1,318 10,125 Capital employed at 06/30/2019* 90,633 37,290 12,300 8,535 148,617 Capital employed at 06/30/2020* 79,096 43,527 12,843 8,366 142,625 ROACE 5.0% 6.5% 19.8% 15.6% 7.0% 1.9.6.2 Twelve months ended March 31, 2020 In millions of dollars Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Group Adjusted net operating income 6,490 2,710 2,629 1,612 13,032 Capital employed at 03/31/2019* 90,051 37,235 13,153 8,255 148,463 Capital employed at 03/31/2020* 85,622 44,236 12,878 8,764 152,374 ROACE 7.4% 6.7% 20.2% 18.9% 8.7% At replacement cost (excluding after-tax inventory effect). 1.10 Principal risks and uncertainties for the remaining six months of 2020 The Group’s businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TOTAL’s 2019 Universal Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 20, 2020. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2020 (pages 41 of this half-year financial report). 1.11 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2020 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2020 (page 41 of this half-year financial report). TOTAL Financial report first half 2020 Half-year financial report 1 Major related parties’ transactions Disclaimer: This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business activities, and industrial strategy of TOTAL. This document may also contain statements regarding the perspectives, objectives and goals of the Group, including with respect to climate change and carbon neutrality (net zero emissions). An ambition expresses an outcome desired by the Group, it being specified that the means to be deployed do not depend solely on TOTAL. These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as “envisions”, “intends”, “anticipates”, “believes”, “considers”, “plans”, “expects”, “thinks”, “targets”, “aims” or similar terminology. Such forward-looking statements included in this document are based on economic data, estimates and assumptions prepared in a given economic, competitive and regulatory environment and considered to be reasonable by the Group as of the date of this document. These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives, objectives or goals announced will be achieved. They may prove to be inaccurate in the future, and may evolve or be modified with a significant difference between the actual results and those initially estimated, due to the uncertainties notably related to the economic, financial, competitive and regulatory environment, or due to the occurrence of risk factors, such as, notably, the price fluctuations in crude oil and natural gas, the evolution of the demand and price of petroleum products, the changes in production results and reserves estimates, the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations, changes in laws and regulations including those related to the environment and climate, currency fluctuations, as well as economic and political developments, changes in market conditions, loss of market share and changes in consumer preferences including those due to epidemics such as Covid-19. Additionally, certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE), gearing ratio and operating cash flow before working capital changes. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as «special items» are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Group’s business, financial condition, including its operating income and cash flow, reputation or outlook is provided in the most recent version of the Universal Registration Document which is filed by the Company with the French Autorité des Marchés Financiers and the annual report on Form 20-F/A filed with the United States Securities and Exchange Commission (“SEC”). (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect. Financial report first half 2020 TOTAL 15 1 16 Half-year financial report Major related parties’ transactions Furthermore, TOTAL enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. TOTAL Financial report first half 2020 Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20- F/A, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault – 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov. 2 Consolidated Financial Statements as of June 30, 2020 2.1 Statutory auditors’ review report on the half-yearly financial information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. Period from January 1 to June 30, 2020 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of Article L. 451-1-2 III of the French Monetary and Financial Code («Code monétaire et financier»), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of TOTAL SE, for the period from January 1 to June 30, 2020, – the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements were prepared under the Chairman and Chief Executive Officer’s responsibility on July 29, 2020, and are reviewed by your Board of Directors, on the basis of the information available at that date in the evolving context of the crisis related to Covid-19 and of difficulties in assessing its impact and future prospects. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review prepared on July 29, 2020. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris-La Défense, July 29, 2020 The Statutory Auditors French original signed by KPMG Audit Département de KPMG S.A. ERNST & YOUNG Audit Jacques-François Lethu Partner Eric Jacquet Partner Laurent Vitse Partner Céline Eydieu-Boutté Partner Financial report first half 2020 TOTAL 17 2 18 Consolidated Financial Statements as of June 30, 2020 Consolidated statement of income – half-yearly 2.2 Consolidated statement of income – half-yearly TOTAL (unaudited) (M$)(a) 1st half 2020 Sales 69,600 Excise taxes (9,461) Revenues from sales 60,139 Purchases, net of inventory variation (40,093) Other operating expenses (13,265) Exploration costs (254) Depreciation, depletion and impairment of tangible assets and mineral interests (15,228) Other income 942 Other expense (528) Financial interest on debt (1,099) Financial income and expense from cash & cash equivalents (105) Cost of net debt (1,204) Other financial income 607 Other financial expense (342) Net income (loss) from equity affiliates 285 Income taxes 521 CONSOLIDATED NET INCOME (8,420) Group share (8,335) Non-controlling interests (85) Earnings per share ($) (3.29) Fully-diluted earnings per share ($) (3.29) (a) Except for per share amounts. TOTAL Financial report first half 2020 1st half 2019 102,447 (12,121) 90,326 (60,111) (13,803) (458) (7,127) 568 (398) (1,129) (70) (1,199) 486 (383) 1,523 (3,480) 5,944 5,867 77 2.17 2.16 Consolidated Financial Statements as of June 30, 2020 2 Consolidated statement of comprehensive income – half-yearly 2.3 Consolidated statement of comprehensive income – half-yearly TOTAL (unaudited) (M$) 1st half 2020 1st half 2019 CONSOLIDATED NET INCOME (8,420) 5,944 Other comprehensive income Actuarial gains and losses (223) (59) Change in fair value of investments in equity instruments (74) 107 Tax effect 86 14 Currency translation adjustment generated by the parent company (196) (474) ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (407) (412) Currency translation adjustment (940) 187 Cash flow hedge (1,293) (373) Variation of foreign currency basis spread 70 54 Share of other comprehensive income of equity affiliates, net amount (927) 253 Other 3 2 Tax effect 367 107 ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (2,720) 230 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) (3,127) (182) Comprehensive income (11,547) 5,762 Group share (11,424) 5,637 Non-controlling interests (123) 125 Financial report first half 2020 TOTAL 19 2 Consolidated statement of income – quarterly Consolidated Financial Statements as of June 30, 2020 2.4 Consolidated statement of income – quarterly TOTAL (unaudited) (M$)(a) 2nd quarter 2020 1st quarter 2020 2nd quarter 2019 Sales 25,730 43,870 51,242 Excise taxes (4,168) (5,293) (6,040) Revenues from sales 21,562 38,577 45,202 Purchases, net of inventory variation (12,025) (28,068) (30,390) Other operating expenses (6,321) (6,944) (7,078) Exploration costs (114) (140) (170) Depreciation, depletion and impairment of tangible assets and mineral interests (11,593) (3,635) (3,661) Other income 362 580 321 Other expense (108) (420) (189) Financial interest on debt (530) (569) (568) Financial income and expense from cash & cash equivalents 50 (155) (42) Cost of net debt (480) (724) (610) Other financial income 419 188 326 Other financial expense (161) (181) (188) Net income (loss) from equity affiliates (447) 732 812 Income taxes 484 37 (1,571) CONSOLIDATED NET INCOME (8,422) 2 2,804 Group share (8,369) 34 2,756 Non-controlling interests (53) (32) 48 Earnings per share ($) (3.27) (0.01) 1.01 Fully-diluted earnings per share ($) (3.27) (0.01) 1.00 (a) Except for per share amounts. 20 TOTAL Financial report first half 2020 Consolidated Financial Statements as of June 30, 2020 2 Consolidated statement of comprehensive income – quarterly 2.5 Consolidated statement of comprehensive income – quarterly TOTAL (unaudited) (M$) 2nd quarter 2020 1st quarter 2020 2nd quarter 2019 CONSOLIDATED NET INCOME (8,422) 2 2,804 Other comprehensive income Actuarial gains and losses (356) 133 (223) Change in fair value of investments in equity instruments 90 (164) 74 Tax effect 101 (15) 59 Currency translation adjustment generated by the parent company 1,780 (1,976) 1,057 ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,615 (2,022) 967 Currency translation adjustment (919) (21) (619) Cash flow hedge 231 (1,524) (246) Variation of foreign currency basis spread 14 56 43 Share of other comprehensive income of equity affiliates, net amount 296 (1,223) (135) Other – 3 1 Tax effect (78) 445 69 ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (456) (2,264) (887) TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 1,159 (4,286) 80 Comprehensive income (7,263) (4,284) 2,884 Group share (7,253) (4,171) 2,797 Non-controlling interests (10) (113) 87 Financial report first half 2020 TOTAL 21 2 Consolidated balance sheet Consolidated Financial Statements as of June 30, 2020 2.6 Consolidated balance sheet TOTAL (M$) June 30, 2020 (unaudited) ASSETS Non-current assets Intangible assets, net 33,114 Property, plant and equipment, net 104,925 Equity affiliates: investments and loans 27,470 Other investments 1,627 Non-current financial assets 2,431 Deferred income taxes 7,257 Other non-current assets 2,539 TOTAL NON-CURRENT ASSETS 179,363 Current assets Inventories, net 12,688 Accounts receivable, net 13,481 Other current assets 17,155 Current financial assets 6,570 Cash and cash equivalents 29,727 Assets classified as held for sale 421 TOTAL CURRENT ASSETS 80,042 TOTAL ASSETS 259,405 LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares 8,159 Paid-in surplus and retained earnings 107,934 Currency translation adjustment (13,265) Treasury shares (1,623) TOTAL SHAREHOLDERS’ EQUITY – GROUP SHARE 101,205 Non-controlling interests 2,334 TOTAL SHAREHOLDERS’ EQUITY 103,539 Non-current liabilities Deferred income taxes 10,346 Employee benefits 3,612 Provisions and other non-current liabilities 19,487 Non-current financial debt 61,540 TOTAL NON-CURRENT LIABILITIES 94,985 Current liabilities Accounts payable 19,198 Other creditors and accrued liabilities 24,790 Current borrowings 16,154 Other current financial liabilities 411 Liabilities directly associated with the assets classified as held for sale 328 TOTAL CURRENT LIABILITIES 60,881 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 259,405 22 TOTAL Financial report first half 2020 March 31, 2020 (unaudited) December 31, 2019 32,823 33,178 113,254 116,408 26,998 27,122 1,660 1,778 1,133 912 6,694 6,216 2,537 2,415 185,099 188,029 11,556 17,132 18,029 18,488 19,429 17,013 7,016 3,992 21,634 27,352 421 1,288 78,085 85,265 263,184 273,294 8,123 8,123 119,935 121,170 (14,431) (11,503) (1,621) (1,012) 112,006 116,778 2,428 2,527 114,434 119,305 10,462 11,858 3,260 3,501 19,452 20,613 48,896 47,773 82,070 83,745 22,123 28,394 25,102 25,749 18,521 14,819 604 487 330 795 66,680 70,244 263,184 273,294 June 30, 2019 (unaudited) 29,229 118,063 26,473 1,660 771 6,022 2,306 184,524 16,410 20,349 15,958 3,536 26,723 – 82,976 267,500 8,301 123,351 (11,177) (3,613) 116,862 2,362 119,224 11,486 3,375 21,629 45,394 81,884 27,059 22,686 16,221 426 – 66,392 267,500 Consolidated Financial Statements as of June 30, 2020 2 Consolidated statement of cash flow – half-yearly 2.7 Consolidated statement of cash flow – half-yearly TOTAL (unaudited) (M$) 1st half 2020 1st half 2019 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income (8,420) 5,944 Depreciation, depletion, amortization and impairment 15,431 7,535 Non-current liabilities, valuation allowances and deferred taxes (1,457) 379 (Gains) losses on disposals of assets (340) (364) Undistributed affiliates’ equity earnings 391 (474) (Increase) decrease in working capital (453) (3,287) Other changes, net (374) 147 CASH FLOW FROM OPERATING ACTIVITIES 4,778 9,880 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (4,773) (5,585) Acquisitions of subsidiaries, net of cash acquired (188) (208) Investments in equity affiliates and other securities (1,670) (1,190) Increase in non-current loans (1,028) (500) Total expenditures (7,659) (7,483) Proceeds from disposals of intangible assets and property, plant and equipment 263 163 Proceeds from disposals of subsidiaries, net of cash sold 154 146 Proceeds from disposals of non-current investments 315 266 Repayment of non-current loans 225 487 Total divestments 957 1,062 CASH FLOW USED IN INVESTING ACTIVITIES (6,702) (6,421) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Parent company shareholders 374 450 Treasury shares (611) (1,770) Dividends paid: Parent company shareholders (3,810) (4,765) Non-controlling interests (76) (93) Net issuance (repayment) of perpetual subordinated notes – – Payments on perpetual subordinated notes (231) (315) Other transactions with non-controlling interests (70) (150) Net issuance (repayment) of non-current debt 15,472 3,581 Increase (decrease) in current borrowings (3,819) (1,489) Increase (decrease) in current financial assets and liabilities (2,546) (58) CASH FLOW FROM (USED IN) FINANCING ACTIVITIES 4,683 (4,609) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,759 (1,150) Effect of exchange rates (384) (34) Cash and cash equivalents at the beginning of the period 27,352 27,907 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 29,727 26,723 Financial report first half 2020 TOTAL 23 2 Consolidated statement of cash flow – quarterly Consolidated Financial Statements as of June 30, 2020 2.8 Consolidated statement of cash flow – quarterly TOTAL (unaudited) (M$) 2nd quarter 2020 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income (8,422) Depreciation, depletion, amortization and impairment 11,701 Non-current liabilities, valuation allowances and deferred taxes (796) (Gains) losses on disposals of assets (131) Undistributed affiliates’ equity earnings 978 (Increase) decrease in working capital 431 Other changes, net (282) CASH FLOW FROM OPERATING ACTIVITIES 3,479 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (2,409) Acquisitions of subsidiaries, net of cash acquired – Investments in equity affiliates and other securities (136) Increase in non-current loans (733) Total expenditures (3,278) Proceeds from disposals of intangible assets and property, plant and equipment 219 Proceeds from disposals of subsidiaries, net of cash sold 12 Proceeds from disposals of non-current investments 20 Repayment of non-current loans 99 Total divestments 350 CASH FLOW USED IN INVESTING ACTIVITIES (2,928) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Parent company shareholders 374 Treasury shares (2) Dividends paid: Parent company shareholders (1,928) Non-controlling interests (76) Net issuance (repayment) of perpetual subordinated notes – Payments on perpetual subordinated notes (134) Other transactions with non-controlling interests (22) Net issuance (repayment) of non-current debt 15,430 Increase (decrease) in current borrowings (6,604) Increase (decrease) in current financial assets and liabilities 449 CASH FLOW FROM (USED IN) FINANCING ACTIVITIES 7,487 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,038 Effect of exchange rates 55 Cash and cash equivalents at the beginning of the period 21,634 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 29,727 24 TOTAL Financial report first half 2020 1st quarter 2020 2 3,730 (661) (209) (587) (884) (92) 1,299 (2,364) (188) (1,534) (295) (4,381) 44 142 295 126 607 (3,774) – (609) (1,882) – – (97) (48) 42 2,785 (2,995) (2,804) (5,279) (439) 27,352 21,634 2nd quarter 2019 2,804 3,819 239 (191) (168) (317) 65 6,251 (2,881) (208) (437) (370) (3,896) 155 (1) 58 353 565 (3,331) 449 (1,279) (2,935) (93) – (175) – 2,331 37 (164) (1,829) 1,091 200 25,432 26,723 Consolidated Financial Statements as of June 30, 2020 2 Consolidated statement of changes in shareholders’ equity 2.9 Consolidated statement of changes in shareholders’ equity TOTAL (unaudited) (M$) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity – Group Share Non- controlling interests Total shareholders’ equity AS OF JANUARY 1, 2019 2,640,602,007 8,227 120,569 (11,313) (32,473,281) (1,843) 115,640 2,474 118,114 Net income of the first half 2019 – – 5,867 – – – 5,867 77 5,944 Other comprehensive income – – (366) 136 – – (230) 48 (182) Comprehensive Income – – 5,501 136 – – 5,637 125 5,762 Dividend – – (3,875) – – – (3,875) (93) (3,968) Issuance of common shares 26,281,753 74 1,271 – – – 1,345 – 1,345 Purchase of treasury shares – – – – (32,331,446) (1,770) (1,770) – (1,770) Sale of treasury shares (a) – – – – 4,010 – – – – Share-based payments – – 103 – – – 103 – 103 Share cancellation – – – – – – – – – Net issuance (repayment) of perpetual subordinated notes – – (5) – – – (5) – (5) Payments on perpetual subordinated notes – – (207) – – – (207) – (207) Other operations with non-controlling interests – – – – – – – (150) (150) Other items – – (6) – – – (6) 6 – AS OF JUNE 30, 2019 2,666,883,760 8,301 123,351 (11,177) (64,800,717) (3,613) 116,862 2,362 119,224 Net income of the second half 2019 – – 5,400 – – – 5,400 94 5,494 Other comprehensive income – – (293) (326) – – (619) 20 (599) Comprehensive Income – – 5,107 (326) – – 4,781 114 4,895 Dividend – – (3,855) – – – (3,855) (22) (3,877) Issuance of common shares 106,750 – (6) – – – (6) – (6) Purchase of treasury shares – – – – (20,057,890) (1,040) (1,040) – (1,040) Sale of treasury shares (a) – – (219) – 4,274,938 219 – – – Share-based payments – – 104 – – – 104 – 104 Share cancellation (65,109,435) (178) (3,244) – 65,109,435 3,422 – – – Net issuance (repayment) of perpetual subordinated notes – – 1 – – – 1 – 1 Payments on perpetual subordinated notes – – (146) – – – (146) – (146) Other operations with non-controlling interests – – 55 – – – 55 108 163 Other items – – 22 – – – 22 (35) (13) AS OF DECEMBER 31, 2019 2,601,881,075 8,123 121,170 (11,503) (15,474,234) (1,012) 116,778 2,527 119,305 Net income of the first half 2020 – – (8,335) – – – (8,335) (85) (8,420) Other comprehensive income – – (1,327) (1,762) – – (3,089) (38) (3,127) Comprehensive income – – (9,662) (1,762) – – (11,424) (123) (11,547) Dividend – – (3,799) – – – (3,799) (76) (3,875) Issuance of common shares 13,179,262 36 338 – – – 374 – 374 Purchase of treasury shares – – – – (13,236,044) (611) (611) – (611) Sale of treasury shares (a) – – – – 3,680 – – – – Share-based payments – – 96 – – – 96 – 96 Share cancellation – – – – – – – – – Net issuance (repayment) of perpetual subordinated notes – – – – – – – – – Payments on perpetual subordinated notes – – (143) – – – (143) – (143) Other operations with non-controlling interests – – (63) – – – (63) (7) (70) Other items – – (3) – – – (3) 13 10 AS OF JUNE 30, 2020 2,615,060,337 8,159 107,934 (13,265) (28,706,598) (1,623) 101,205 2,334 103,539 (a) Treasury shares related to the restricted stock grants. Financial report first half 2020 TOTAL 25 2 Notes to the Consolidated Financial Statements for the first six months 2020 Consolidated Financial Statements as of June 30, 2020 2.10 Notes to the Consolidated Financial Statements for the first six months 2020 1) Accounting policies The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). for the oil and gas activities, asset impairments, employee benefits, asset retirement obligations and income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2019. The interim consolidated financial statements of TOTAL SE and its subsidiaries (the Group) as of June 30, 2020, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The interim consolidated financial statements are impacted by the Covid-19 and oil crises described in note 7 Other risks and contingent liabilities. The Group has taken this environment into account in its estimates, notably those relating to inventory valuation, asset impairments, employee benefits and income taxes. The accounting principles applied for the consolidated financial statements at June 30, 2020, are consistent with those used for the financial statements at December 31, 2019, with the exception of standards or amendments that must be applied for periods beginning January 1, 2020. On January 1, 2020, the Group applied the amendments to IFRS9 and IFRS7 relating to the IBOR reform. The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform, and therefore maintain the hedge accounting qualification of interest rate derivatives. The Group is currently assessing the future impacts of these index changes. As of June 30, 2020, the Group has decided to revise the price assumptions used for its assets impairment tests. Based on these new assumptions, asset impairments were recorded during the period. In line with its new Climate Ambition announced on May 5, 2020, which aims at carbon neutrality, the Group has reviewed its oil assets that can be qualified as “stranded”, and therefore has decided to impair its oil sands assets in Canada. These impairments and revised assumptions are presented in note 3.4 Asset impairment. Moreover, the value of petroleum and petrochemical inventories that are measured, according to the FIFO (First-in, First-Out) method, deteriorated as a result of the significant decrease in prices during the quarter, especially in the Refining and Chemicals business segment. The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2020 requires the executive management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on-going basis by management and therefore could be revised as circumstances change or as a result of new information. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method 2) Changes in the Group structure 2.1) Main acquisitions and divestments Integrated Gas, Renewables & Power – On February 28, 2020, TOTAL finalized the acquisition of 37.4% interest in Adani Gas Limited, one of the four main distributors of city gas in India. To acquire 37.4% of equity shares of Adani Gas Limited, TOTAL launched a tender offer to public shareholders on October 14, 2019 that ended on January 14, 2020, then acquired the remaining shares from Adani on February 27 and 28, 2020. Exploration & Production – On March 31, 2020, TOTAL finalized the sale of its subsidiary Total E&P Deep Offshore Borneo BV which holds an 86.95% interest in Block CA1, located 100 kilometers off the coast of Brunei, to Shell. 2.2) Divestment projects Exploration & Production – In May 2020, TOTAL confirmed its commitment to completing the sale of its UK North Sea non-core assets, first announced in July 2019. TOTAL and Norway-based private equity investor HitecVision have successfully renegotiated the financial terms of the deal to respond to the current environment – while Petrogas is no longer part of the transaction. Subject to necessary approvals, the parties expect to complete the transaction by the third quarter of 2020. At June 30, 2020, the assets and liabilities have been respectively classified in the consolidated balance sheet in “asset classified as held for sale” for an amount of $421 million and “liabilities classified as held for sale” for an amount of $328 million. The concerned assets mainly include intangible and tangible assets. 26 TOTAL Financial report first half 2020 Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 3) Business segment information Description of the business segments Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL and which is reviewed by the main operational decision-making body of the Group, namely the Executive Committee. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments. Sales prices between business segments approximate market prices. The organization of the Group’s activities is structured around the four followings segments: – An Exploration & Production segment; – An Integrated Gas, Renewables & Power segment comprising integrated gas (including LNG) and low carbon electricity businesses. It includes the upstream and mid stream LNG activity; Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as «special items» are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. – A Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; – A Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In addition, the Corporate segment includes holdings operating and financial activities. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First- Out) and the replacement cost methods. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for some transactions differences between internal measure of performance used by TOTAL’s management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TOTAL, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in the Group’s internal economic performance. IFRS precludes recognition of this fair value effect. Furthermore, TOTAL enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. Financial report first half 2020 TOTAL 27 2 Notes to the Consolidated Financial Statements for the first six months 2020 Consolidated Financial Statements as of June 30, 2020 3.1) Information by business segment 1st half 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales 2,574 8,403 Intersegment sales 8,661 895 Excise taxes – – REVENUES FROM SALES 11,235 9,298 Operating expenses (6,048) (8,398) Depreciation, depletion and impairment of tangible assets and mineral interests (12,311) (1,616) OPERATING INCOME (7,124) (716) Net income (loss) from equity affiliates and other items 440 420 Tax on net operating income (56) 330 NET OPERATING INCOME (6,740) 34 Net cost of net debt Non-controlling interests NET INCOME – GROUP SHARE 1st half 2020 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales – (16) Intersegment sales – – Excise taxes – – REVENUES FROM SALES – (16) Operating expenses (37) (318) Depreciation, depletion and impairment of tangible assets and mineral interests (7,338) (953) OPERATING INCOME(b) (7,375) (1,287) Net income (loss) from equity affiliates and other items 71 (292) Tax on net operating income 70 374 NET OPERATING INCOME(b) (7,234) (1,205) Net cost of net debt Non-controlling interests NET INCOME – GROUP SHARE (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – 28 TOTAL Financial report first half 2020 Refining & Chemicals 27,956 9,051 (1,119) 35,888 (35,736) (788) (636) (92) 203 (525) Refining & Chemicals – – – – (1,637) – (1,637) (271) 426 (1,482) (1,604) (1,371) Marketing & Services 30,661 196 (8,342) 22,515 (21,730) (473) 312 32 (159) 185 Marketing & Services – – – – (341) – (341) (5) 100 (246) (234) (163) Corporate Intercompany 6 – 59 (18,862) – – 65 (18,862) (562) 18,862 (40) – (537) – 164 – 2 – (371) – Corporate Intercompany – – – – – – – – (91) – – – (91) – – – 12 – (79) – – – Total 69,600 – (9,461) 60,139 (53,612) (15,228) (8,701) 964 320 (7,417) (1,003) 85 (8,335) Total (16) – – (16) (2,424) (8,291) (10,731) (497) 982 (10,246) (68) 72 (10,242) Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 1st half 2020 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 2,574 8,419 27,956 30,661 6 – 69,616 Intersegment sales 8,661 895 9,051 196 59 (18,862) – Excise taxes – – (1,119) (8,342) – – (9,461) REVENUES FROM SALES 11,235 9,314 35,888 22,515 65 (18,862) 60,155 Operating expenses (6,011) (8,080) (34,099) (21,389) (471) 18,862 (51,188) Depreciation, depletion and impairment of tangible assets and mineral interests (4,973) (663) (788) (473) (40) – (6,937) ADJUSTED OPERATING INCOME 251 571 1,001 653 (446) – 2,030 Net income (loss) from equity affiliates and other items 369 712 179 37 164 – 1,461 Tax on net operating income (126) (44) (223) (259) (10) – (662) ADJUSTED NET OPERATING INCOME 494 1,239 957 431 (292) – 2,829 Net cost of net debt (935) Non-controlling interests 13 ADJUSTED NET INCOME – GROUP SHARE 1,907 1st half 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Total expenditures 3,265 3,461 533 334 66 7,659 Total divestments 325 433 101 72 26 957 Cash flow from operating activities 4,833 900 (103) 420 (1,272) 4,778 1st half 2019 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 4,067 10,208 44,220 43,950 2 – 102,447 Intersegment sales 15,302 1,259 16,310 301 63 (33,235) – Excise taxes – – (1,537) (10,584) – – (12,121) REVENUES FROM SALES 19,369 11,467 58,993 33,667 65 (33,235) 90,326 Operating expenses (8,234) (10,287) (56,502) (32,178) (406) 33,235 (74,372) Depreciation, depletion and impairment of tangible assets and mineral interests (5,216) (643) (763) (470) (35) – (7,127) OPERATING INCOME 5,919 537 1,728 1,019 (376) – 8,827 Net income (loss) from equity affiliates and other items 367 1,041 260 101 27 – 1,796 Tax on net operating income (2,585) (623) (246) (334) 124 – (3,664) Net operating income 3,701 955 1,742 786 (225) – 6,959 Net cost of net debt (1,015) Non-controlling interests (77) NET INCOME – GROUP SHARE 5,867 Financial report first half 2020 TOTAL 29 2 Notes to the Consolidated Financial Statements for the first six months 2020 Consolidated Financial Statements as of June 30, 2020 1st half 2019 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales – (86) Intersegment sales – – Excise taxes – – REVENUES FROM SALES – (86) Operating expenses – (112) Depreciation, depletion and impairment of tangible assets and mineral interests (43) (11) OPERATING INCOME(b) (43) (209) Net income (loss) from equity affiliates and other items – 413 Tax on net operating income – (270) NET OPERATING INCOME(b) (43) (66) Net cost of net debt Non-controlling interests NET INCOME – GROUP SHARE (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – 1st half 2019 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales 4,067 10,294 Intersegment sales 15,302 1,259 Excise taxes – – REVENUES FROM SALES 19,369 11,553 Operating expenses (8,234) (10,175) Depreciation, depletion and impairment of tangible assets and mineral interests (5,173) (632) ADJUSTED OPERATING INCOME 5,962 746 Net income (loss) from equity affiliates and other items 367 628 Tax on net operating income (2,585) (353) ADJUSTED NET OPERATING INCOME 3,744 1,021 Net cost of net debt Non-controlling interests ADJUSTED NET INCOME – GROUP SHARE 1st half 2019 (M$) Exploration & Production Integrated Gas, Renewables & Power Total expenditures 4,282 1,975 Total divestments 89 574 Cash flow from operating activities 7,704 1,533 30 TOTAL Financial report first half 2020 Refining & Chemicals – – – – 449 (10) 439 (47) (121) 271 486 344 Refining & Chemicals 44,220 16,310 (1,537) 58,993 (56,951) (753) 1,289 307 (125) 1,471 Refining & Chemicals 648 239 1,120 Marketing & Services – – – – 40 – 40 (7) (13) 20 40 27 Marketing & Services 43,950 301 (10,584) 33,667 (32,218) (470) 979 108 (321) 766 Marketing & Services 527 157 843 Corporate Intercompany – – – – – – – – – – – – – – – – – – – – – – Corporate Intercompany 2 – 63 (33,235) – – 65 (33,235) (406) 33,235 (35) – (376) – 27 – 124 – (225) – Corporate Intercompany 51 3 (1,320) Total (86) – – (86) 377 (64) 227 359 (404) 182 (8) 47 221 Total 102,533 – (12,121) 90,412 (74,749) (7,063) 8,600 1,437 (3,260) 6,777 (1,007) (124) 5,646 Total 7,483 1,062 9,880 Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 2nd quarter 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 992 3,313 9,433 11,986 6 – 25,730 Intersegment sales 3,097 301 2,956 107 31 (6,492) – Excise taxes – – (469) (3,699) – – (4,168) REVENUES FROM SALES 4,089 3,614 11,920 8,394 37 (6,492) 21,562 Operating expenses (2,405) (3,406) (10,895) (7,931) (315) 6,492 (18,460) Depreciation, depletion and impairment of tangible assets and mineral interests (9,667) (1,282) (393) (229) (22) – (11,593) OPERATING INCOME (7,983) (1,074) 632 234 (300) – (8,491) Net income (loss) from equity affiliates and other items 17 21 (35) 22 40 – 65 Tax on net operating income 398 322 (132) (127) (26) – 435 NET OPERATING INCOME (7,568) (731) 465 129 (286) – (7,991) Net cost of net debt (431) Non-controlling interests 53 NET INCOME – GROUP SHARE (8,369) 2nd quarter 2020 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales – (18) – – – – (18) Intersegment sales – – – – – – – Excise taxes – – – – – – – REVENUES FROM SALES – (18) – – – – (18) Operating expenses (27) (199) (48) 5 (36) – (305) Depreciation, depletion and impairment of tangible assets and mineral interests (7,338) (953) – – – – (8,291) OPERATING INCOME(b) (7,365) (1,170) (48) 5 (36) – (8,614) Net income (loss) from equity affiliates and other items (57) (217) (63) (5) – – (342) Tax on net operating income 63 330 1 – 12 – 406 NET OPERATING INCOME(b) (7,359) (1,057) (110) – (24) – (8,550) Net cost of net debt 33 Non-controlling interests 22 NET INCOME – GROUP SHARE (8,495) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – (26) (86) (16) (9) – – Financial report first half 2020 TOTAL 31 2 Notes to the Consolidated Financial Statements for the first six months 2020 Consolidated Financial Statements as of June 30, 2020 2nd quarter 2020 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales 992 3,331 Intersegment sales 3,097 301 Excise taxes – – Revenues from sales 4,089 3,632 Operating expenses (2,378) (3,207) Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (329) ADJUSTED OPERATING INCOME (618) 96 Net income (loss) from equity affiliates and other items 74 238 Tax on net operating income 335 (8) ADJUSTED NET OPERATING INCOME (209) 326 Net cost of net debt Non-controlling interests ADJUSTED NET INCOME – GROUP SHARE 2nd quarter 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Total expenditures 1,606 1,170 Total divestments 204 89 Cash flow from operating activities 910 1,389 2nd quarter 2019 (M$) Exploration & Production Integrated Gas, Renewables & Power Non-Group sales 2,273 3,789 Intersegment sales 7,586 632 Excise taxes – – REVENUES FROM SALES 9,859 4,421 Operating expenses (4,205) (3,878) Depreciation, depletion and impairment of tangible assets and mineral interests (2,687) (328) OPERATING INCOME 2,967 215 Net income (loss) from equity affiliates and other items 173 661 Tax on net operating income (1,161) (450) NET OPERATING INCOME 1,979 426 Net cost of net debt Non-controlling interests NET INCOME – GROUP SHARE 32 TOTAL Financial report first half 2020 Refining & Chemicals 9,433 2,956 (469) 11,920 (10,847) (393) 680 28 (133) 575 Refining & Chemicals 307 22 1,080 Refining & Chemicals 22,509 8,293 (761) 30,041 (29,168) (389) 484 111 46 641 Marketing & Services 11,986 107 (3,699) 8,394 (7,936) (229) 229 27 (127) 129 Marketing & Services 174 26 819 Marketing & Services 22,671 139 (5,279) 17,531 (16,844) (237) 450 111 (170) 391 Corporate Intercompany 6 – 31 (6,492) – – 37 (6,492) (279) 6,492 (22) – (264) – 40 – (38) – (262) – Corporate Intercompany 21 9 (719) Corporate Intercompany – – 36 (16,686) – – 36 (16,686) (229) 16,686 (20) – (213) – 26 – 64 – (123) – Total 25,748 – (4,168) 21,580 (18,155) (3,302) 123 407 29 559 (464) 31 126 Total 3,278 350 3,479 Total 51,242 – (6,040) 45,202 (37,638) (3,661) 3,903 1,082 (1,671) 3,314 (510) (48) 2,756 Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 2nd quarter 2019 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales – (59) – – – – (59) Intersegment sales – – – – – – – Excise taxes – – – – – – – REVENUES FROM SALES – (59) – – – – (59) Operating expenses – (54) (43) (34) – – (131) Depreciation, depletion and impairment of tangible assets and mineral interests (43) (11) (10) – – – (64) OPERATING INCOME(b) (43) (124) (53) (34) – – (254) Net income (loss) from equity affiliates and other items – 407 (49) (7) – – 351 Tax on net operating income – (286) 28 9 – – (249) NET OPERATING INCOME(b) (43) (3) (74) (32) – – (152) Net cost of net debt (4) Non-controlling interests 25 NET INCOME – GROUP SHARE (131) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – (6) (1) (34) (25) – – 2nd quarter 2019 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Non-Group sales 2,273 3,848 22,509 22,671 – – 51,301 Intersegment sales 7,586 632 8,293 139 36 (16,686) – Excise taxes – – (761) (5,279) – – (6,040) REVENUES FROM SALES 9,859 4,480 30,041 17,531 36 (16,686) 45,261 Operating expenses (4,205) (3,824) (29,125) (16,810) (229) 16,686 (37,507) Depreciation, depletion and impairment of tangible assets and mineral interests (2,644) (317) (379) (237) (20) – (3,597) ADJUSTED OPERATING INCOME 3,010 339 537 484 (213) – 4,157 Net income (loss) from equity affiliates and other items 173 254 160 118 26 – 731 Tax on net operating income (1,161) (164) 18 (179) 64 – (1,422) ADJUSTED NET OPERATING INCOME 2,022 429 715 423 (123) – 3,466 Net cost of net debt (506) Non-controlling interests (73) ADJUSTED NET INCOME – GROUP SHARE 2,887 2nd quarter 2019 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total Total expenditures 2,257 857 363 383 36 3,896 Total divestments 60 349 70 85 1 565 Cash flow from operating activities 3,768 641 1,658 611 (427) 6,251 Financial report first half 2020 TOTAL 33 2 34 Consolidated Financial Statements as of June 30, 2020 Notes to the Consolidated Financial Statements for the first six months 2020 3.2) Reconciliation of the information by business segment with consolidated financial statements 1st half 2020 (M$) Adjusted Adjustments(a) Sales 69,616 (16) Excise taxes (9,461) – Revenues from sales 60,155 (16) Purchases net of inventory variation (37,949) (2,144) Other operating expenses (12,985) (280) Exploration costs (254) – Depreciation, depletion and impairment of tangible assets and mineral interests (6,937) (8,291) Other income 820 122 Other expense (294) (234) Financial interest on debt (1,094) (5) Financial income and expense from cash & cash equivalents (13) (92) Cost of net debt (1,107) (97) Other financial income 607 – Other financial expense (341) (1) Net income (loss) from equity affiliates 669 (384) Income taxes (490) 1,011 CONSOLIDATED NET INCOME 1,894 (10,314) Group share 1,907 (10,242) Non-controlling interests (13) (72) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 1st half 2019 (M$) Adjusted Adjustments(a) Sales 102,533 (86) Excise taxes (12,121) – Revenues from sales 90,412 (86) Purchases net of inventory variation (60,533) 422 Other operating expenses (13,758) (45) Exploration costs (458) – Depreciation, depletion and impairment of tangible assets and mineral interests (7,063) (64) Other income 453 115 Other expense (190) (208) Financial interest on debt (1,121) (8) Financial income and expense from cash & cash equivalents (70) – Cost of net debt (1,191) (8) Other financial income 486 – Other financial expense (383) – Net income (loss) from equity affiliates 1,071 452 Income taxes (3,076) (404) CONSOLIDATED NET INCOME 5,770 174 Group share 5,646 221 Non-controlling interests 124 (47) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. TOTAL Financial report first half 2020 Consolidated statement of income 69,600 (9,461) 60,139 (40,093) (13,265) (254) (15,228) 942 (528) (1,099) (105) (1,204) 607 (342) 285 521 (8,420) (8,335) (85) Consolidated statement of income 102,447 (12,121) 90,326 (60,111) (13,803) (458) (7,127) 568 (398) (1,129) (70) (1,199) 486 (383) 1,523 (3,480) 5,944 5,867 77 Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 2nd quarter 2020 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 25,748 (18) 25,730 Excise taxes (4,168) – (4,168) Revenues from sales 21,580 (18) 21,562 Purchases net of inventory variation (11,842) (183) (12,025) Other operating expenses (6,199) (122) (6,321) Exploration costs (114) – (114) Depreciation, depletion and impairment of tangible assets and mineral interests (3,302) (8,291) (11,593) Other income 240 122 362 Other expense (103) (5) (108) Financial interest on debt (527) (3) (530) Financial income and expense from cash & cash equivalents (3) 53 50 Cost of net debt (530) 50 (480) Other financial income 419 – 419 Other financial expense (160) (1) (161) Net income (loss) from equity affiliates 11 (458) (447) Income taxes 95 389 484 CONSOLIDATED NET INCOME 95 (8,517) (8,422) Group share 126 (8,495) (8,369) Non-controlling interests (31) (22) (53) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 2nd quarter 2019 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 51,301 (59) 51,242 Excise taxes (6,040) – (6,040) Revenues from sales 45,261 (59) 45,202 Purchases net of inventory variation (30,295) (95) (30,390) Other operating expenses (7,042) (36) (7,078) Exploration costs (170) – (170) Depreciation, depletion and impairment of tangible assets and mineral interests (3,597) (64) (3,661) Other income 253 68 321 Other expense (117) (72) (189) Financial interest on debt (564) (4) (568) Financial income and expense from cash & cash equivalents (42) – (42) Cost of net debt (606) (4) (610) Other financial income 326 – 326 Other financial expense (188) – (188) Net income (loss) from equity affiliates 457 355 812 Income taxes (1,322) (249) (1,571) CONSOLIDATED NET INCOME 2,960 (156) 2,804 Group share 2,887 (131) 2,756 Non-controlling interests 73 (25) 48 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial report first half 2020 TOTAL 35 2 Notes to the Consolidated Financial Statements for the first six months 2020 Consolidated Financial Statements as of June 30, 2020 3.3) Adjustment items The detail of the adjustment items is presented in the table below. Adjustments to operating income (M$) 2nd quarter 2020 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Other items TOTAL 2nd quarter 2019 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Other items TOTAL 1st half 2020 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Other items TOTAL 1st half 2019 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Other items TOTAL 36 TOTAL Financial report first half 2020 Exploration & Production – – – (7,338) (27) (7,365) – – – (43) – (43) – – (10) (7,338) (27) (7,375) – – – (43) – (43) Integrated Gas, Renewables & Power – (100) (10) (953) (107) (1,170) – (59) – (11) (54) (124) – (98) (18) (953) (218) (1,287) – (86) – (11) (112) (209) Refining & Chemicals (26) – (7) – (15) (48) (6) – – (10) (37) (53) (1,604) – (7) – (26) (1,637) 486 – – (10) (37) 439 Marketing & Services (16) – – – 21 5 (34) – – – – (34) (234) – – – (107) (341) 40 – – – – 40 Corporate – – – – (36) (36) – – – – – – – – – – (91) (91) – – – – – – Total (42) (100) (17) (8,291) (164) (8,614) (40) (59) – (64) (91) (254) (1,838) (98) (35) (8,291) (469) (10,731) 526 (86) – (64) (149) 227 Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 Adjustments to net income, group share (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Total 2nd quarter 2020 Inventory valuation effect – – (83) (11) – (94) Effect of changes in fair value – (80) – – – (80) Restructuring charges – (10) (10) – – (20) Asset impairment charges (7,272) (829) – – – (8,101) Gains (losses) on disposals of assets – – – – – – Other items (77) (131) (14) 10 12 (200) TOTAL (7,349) (1,050) (107) (1) 12 (8,495) 2nd quarter 2019 Inventory valuation effect – – (3) (25) – (28) Effect of changes in fair value – (47) – – – (47) Restructuring charges – (14) (17) – – (31) Asset impairment charges (43) (6) (8) – – (57) Gains (losses) on disposals of assets – – – – – – Other items – 86 (48) (6) – 32 TOTAL (43) 19 (76) (31) – (131) 1st half 2020 Inventory valuation effect – – (1,364) (144) – (1,508) Effect of changes in fair value – (79) – – – (79) Restructuring charges (3) (22) (75) – – (100) Asset impairment charges (7,272) (829) – – – (8,101) Gains (losses) on disposals of assets – – – – – – Other items 51 (256) (36) (71) (142) (454) TOTAL (7,224) (1,186) (1,475) (215) (142) (10,242) 1st half 2019 Inventory valuation effect – – 341 19 – 360 Effect of changes in fair value – (69) – – – (69) Restructuring charges – (16) (17) – – (33) Asset impairment charges (43) (6) (8) – – (57) Gains (losses) on disposals of assets – – – – – – Other items – 74 (48) (6) – 20 TOTAL (43) (17) 268 13 – 221 3.4) Asset impairment Impairments relate to certain cash-generating units (CGUs) for which to impairment have been changes in operating conditions or the economic environment of the activities concerned. indicators of identified, due For the calculation of impairment tests of its assets, TOTAL set in 2019 a price scenario with a 2050 Brent price of 50$/b, in line with the “well below 2°C” scenario of the IEA. This scenario is described in the Universal Registration Document (note 3 of chapter 8). Given the drop of the oil price in 2020, TOTAL decided to revise the price assumptions over the next years and selected the following profile of the Brent price: 35$/b in 2020, 40$/b in 2021, 50$/b in 2022, 60$/b in 2023; gas prices have been adjusted accordingly. The average Brent prices over the period 2020-2050 thus stands at 56.8$2020/b. The future operational costs were determined by taking into account the existing technologies, the fluctuation of prices for petroleum services in line with market developments and the internal cost reduction programs effectively implemented. The future cash flows are estimated over a period consistent with the life of the assets of the CGUs. They are prepared post-tax and take into account specific risks related to the CGUs’ assets. They are discounted using a 7% post-tax discount rate, this rate being the weighted-average cost of capital estimated from historical market data. For the longer term, TOTAL maintains its analysis, that the weakness of investments in the hydrocarbon sector since 2015 accentuated by the health and economic crisis of 2020 will result by 2025 in insufficient worldwide production capacities and a rebound in prices. Beyond 2030, given technological developments, particularly in the transport sector, TOTAL anticipates oil demand will have reached its peak and Brent prices should tend toward the long-term price of 50$/b, in line with the EIA’s SDS scenario. The CGUs of the Exploration & Production segment are defined as oil and gas fields or groups of oil and gas fields with industrial assets enabling the production, treatment and evacuation of the oil and gas. For the first half-year 2020, impairments of assets were recognized over CGUs of the Exploration & Production segment for an impact of $(1,878) million in operating income and $(1,798) million in net income, Group share. Impairments recognized in 2020 mainly relate to Canadian oil sands assets. Financial report first half 2020 TOTAL 37 2 38 Consolidated Financial Statements as of June 30, 2020 Notes to the Consolidated Financial Statements for the first six months 2020 The CGUs of the Integrated Gas, Renewables & Power segment are subsidiaries or groups of subsidiaries organized by activity or geographical area, and by fields or groups of fields for upstream LNG activities. For the first half-year 2020, the Group recorded impairments on CGUs in the Integrated Gas, Renewables & Power segment for $(953) million in operating income and $(829) million in net income, Group share. Impairments recognized in 2020 relate to assets located in Australia. The CGUs of the Refining & Chemicals segment are defined as legal entities with operational activities for refining and petrochemicals activities. No significant impairment has been recorded for the CGUs of the Refining & Chemicals segment in the first half-year 2020. The CGUs of the Marketing & Services segment are subsidiaries or groups of subsidiaries organized by geographical area. No significant impairment has been recorded for the CGUs of the Marketing & Services segment in the first half year 2020. In addition, in line with its new Climate Ambition announced on May 5, 2020, which aims at carbon neutrality, TOTAL has reviewed its oil assets that can be qualified as stranded, meaning with reserves beyond 20 years and high production costs, whose overall reserves may therefore not be produced by 2050. The only projects identified in this category are the Canadian oil sands projects of Fort Hills and Surmont. For impairment calculations, TOTAL has decided to take into account only proven reserves on these assets – unlike general practice which considers so-called proven and probable reserves. This leads to an additional exceptional asset impairment of $(5,460) million in operating income and $(5,474) million in net income, Group share. Overall, asset impairments were recorded on the second quarter 2020 for an amount of $(8,291) million in operating income and $(8,101) million in net income, Group share, including $(6,988) million on Canadian oil sands assets alone. TOTAL Financial report first half 2020 These impairments were qualified as adjustment items of the operating income and net income, Group share. As for sensitivities of the Exploration & Production segment: – a decrease by one point in the discount rate would have a positive impact of approximately $0.2 billion on impairments recorded in operating income and $0.2 billion on impairments recorded in net income, Group share; – an increase by one point in the discount rate would have an additional negative impact of approximately $1.5 billion on impairments recorded in operating income and $1 billion on impairments recorded in net income, Group share; – a variation of (10)% of the oil and gas prices over the duration of the plan would have an additional negative impact of approximately $2.9 billion on impairments recorded this quarter in operating income and $1.7 billion on impairments recorded in net income, Group share. As for sensitivities of upstream LNG activities and CGUs including a material goodwill: – a decrease by one point in the discount rate would have a positive impact of approximately $0.6 billion on impairments recorded in operating income and $0.5 billion on impairments recorded in net income, Group share; – an increase by one point in the discount rate would have an additional negative impact of approximately $0.8 billion on impairments recorded in operating income and $0.6 billion on impairments recorded in net income, Group share; – a variation of (10)% of the oil and gas prices over the duration of the plan would have an additional negative impact of approximately $1.9 billion on impairments recorded this quarter in operating income and $1.5 billion on impairments recorded in net income, Group share. Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 4) Shareholders’ equity Treasury shares (TOTAL shares held directly by TOTAL SE) In accordance with the shareholder return policy over 2018-2020 implemented since February 2018, the Company repurchased its own shares until the announcement of the suspension of the share buyback program on March 23, 2020, in the context of the sharp decrease in the crude oil price. TOTAL SE has also repurchased shares to be allocated to free share grant plans. As of June 30, 2020, TOTAL SE directly holds 28,706,598 TOTAL shares, representing 1.10% of its share capital, which are deducted from the consolidated shareholders’ equity and allocated as follows: SHARES TO BE CANCELLED (1) 23,284,409 including shares repurchased during Q4 2019 11,051,144 including shares repurchased during Q1 2020 12,233,265 SHARES TO BE ALLOCATED AS PART OF FREE SHARE GRANT PLANS (2) 5,422,189 including the 2017 Plan 4,356,044 including the 2018 Plan 1,001,529 including shares intended to be allocated to new share purchase options plans or to new share performance plans 64,616 TOTAL TREASURY SHARES (1)+(2) 28,706,598 Dividend The Shareholders’ meeting of May 29, 2020 approved the distribution of a dividend of €2.68 per share for the 2019 fiscal year and the payment of a final dividend of €0.68 per share given the three interim dividends that had already been paid. The Board of directors of May 4, 2020 decided to offer the shareholders the option to receive the final 2019 dividend in cash or in new shares of the Company with a discount of 10%, each choice being exclusive of the other. Dividend 2019 First interim Second interim Third interim Final Amount €0.66 €0.66 €0.68 €0.68 Set date April 25, 2019 July 24, 2019 October 29, 2019 May 29, 2020 Ex-dividend date September 27, 2019 January 6, 2020 March 30, 2020 June 29, 2020 Payment date October 1, 2019 January 8, 2020 April 1, 2020 July 16, 2020 OPTION FOR THE SCRIP DIVIDEND Issue price – – – €28.80 (1) Number of shares subscribed – – – 38,063,688 (1) This price is equal to 90% of the average Euronext Paris opening prices of the TOTAL shares for the twenty trading days preceding the Shareholders’ Meeting of May 29, 2020, reduced by the amount of the final dividend and rounded up to the nearest cent. Furthermore, the Board of directors, during its July 29, 2020 meeting, set the second interim dividend for the fiscal year 2020 at €0.66 per share, equal to the first interim dividend. The ex-dividend date of this interim dividend will be on January 4, 2021 and it will be paid in cash exclusively on January 11, 2021. Dividend 2020 First interim Second interim Amount €0.66 €0.66 Set date May 4, 2020 July 29, 2020 Ex-dividend date September 25, 2020 January 4, 2021 Payment date October 2, 2020 January 11, 2021 Earnings per share in Euro Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro/USD exchange rate for the period, amounted to €(2.98) per share for the 2nd quarter 2020 (€(0.01) per share for the 1st quarter 2020 and €0.89 per share for the 2nd quarter 2019). Diluted earnings per share calculated using the same method amounted to €(2.98) per share for the 2nd quarter 2020 (€(0.01) per share for the 1st quarter 2020 and €0.89 per share for the 2nd quarter 2019). Earnings per share are calculated after remuneration of perpetual subordinated notes. Financial report first half 2020 TOTAL 39 2 40 Consolidated Financial Statements as of June 30, 2020 Notes to the Consolidated Financial Statements for the first six months 2020 Other comprehensive income Detail of other comprehensive income is presented in the table below: (M$) Actuarial gains and losses Change in fair value of investments in equity instruments Tax effect Currency translation adjustment generated by the parent company SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS Currency translation adjustment unrealized gain/(loss) of the period less gain/(loss) included in net income Cash flow hedge unrealized gain/(loss) of the period less gain/(loss) included in net income Variation of foreign currency basis spread unrealized gain/(loss) of the period less gain/(loss) included in net income Share of other comprehensive income of equity affiliates, net amount unrealized gain/(loss) of the period less gain/(loss) included in net income Other Tax effect SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS TOTAL OTHER COMPREHENSIVE INCOME, NET AMOUNT Tax effects relating to each component of other comprehensive income are as follows: 1st half 2020 (M$) Pre-tax amount Tax effect Actuarial gains and losses (223) 56 Change in fair value of investments in equity instruments (74) 30 Currency translation adjustment generated by the parent company (196) – SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (493) 86 Currency translation adjustment (940) – Cash flow hedge (1,293) 389 Variation of foreign currency basis spread 70 (22) Share of other comprehensive income of equity affiliates, net amount (927) – Other 3 – SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (3,087) 367 TOTAL OTHER COMPREHENSIVE INCOME (3,580) 453 TOTAL Financial report first half 2020 Net amount (167) (44) (196) (407) (940) (904) 48 (927) 3 (2,720) (3,127) Pre-tax amount (59) 107 (474) (426) 187 (373) 54 253 2 123 (303) 1st half 2020 (223) (74) 86 (196) (407) (940) (907) 33 (1,293) (1,317) (24) 70 42 (28) (927) (936) (9) 3 367 (2,720) (3,127) 1st half 2019 Tax effect 16 (2) – 14 – 125 (18) – – 107 121 1st half 2019 (59) 107 14 (474) (412) 187 233 46 (373) (303) 70 54 25 (29) 253 265 12 2 107 230 (182) Net amount (43) 105 (474) (412) 187 (248) 36 253 2 230 (182) Consolidated Financial Statements as of June 30, 2020 2 Notes to the Consolidated Financial Statements for the first six months 2020 5) Financial debt The Group has issued bonds during the first six months of 2020: – Bond 1.491% maturing in April 2027 (EUR 1,500 million); – Bond 1.994% maturing in April 2032 (EUR 1,500 million); – Bond 0.952% maturing in May 2031 (EUR 500 million); – Bond 1.618% maturing in May 2040 (EUR 1,000 million); – Bond 3.127% maturing in May 2050 (USD 2,500 million); – Bond 2.986% maturing in June 2041 (USD 800 million); – Bond 3.386% maturing in June 2060 (USD 800 million). The Group reimbursed bonds during the first six months of 2020: – Bond 4.750% issued in 2014 and maturing in January 2020 (NZD 100 million); – Bond 2.125% issued in 2014 and maturing in January 2020 (CAD 100 million); – Bond Euribor 3 months + 30 basis points issued in 2014 and maturing in March 2020 (EUR 1,000 million); – Bond Euribor 3 months + 31 basis points issued in 2013 and maturing in May 2020 (EUR 300 million); – Bond 4.450% issued in 2010 and maturing in June 2020 (USD 1,250 million). In April 2020, the Group has also put in place a new committed syndicated credit line with banking counterparties for an amount of USD 6,350 million and with a 12-month tenor (with the option to extend twice by a further 6 months at TOTAL’s hand). 6) Related parties The related parties are principally equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2020. 7) Other risks and contingent liabilities TOTAL is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the Group, other than those mentioned below. Health and oil crises During the second quarter, the Group faced exceptional circumstances: the COVID-19 health crisis with its impact on the global economy and the oil market crisis with Brent falling sharply to 30$/b on average, gas prices dropping to historic lows and refining margins collapsing due to weak demand. Oil prices strengthened since the beginning of June, reaching around 40$/b, benefiting from strong compliance with the OPEC+ quotas and the decline of hydrocarbon production in the United States and Canada as well as a recovery in demand. Considering the implementation of the OPEC+ quotas and the situation in Libya, the Group now expects 2020 production to be between 2.9 Mboe/d and 2.95 Mboe/d, with a low point in the third quarter during the summer season. The ramp up of Iara’s second FPSO in Brazil will contribute to production growth in the last part of the year. In the Downstream, high inventory levels continue to weigh on refining margins and utilization rates. In Marketing, activity in Europe returned to 90% of its pre-crisis level since June and the Group anticipates that it will remain at a comparable level in the coming months. The Group’s priority is to generate a level of cash flow that allows it to continue to invest in profitable projects, to preserve an attractive shareholder return and to maintain a strong balance sheet. To this end, the Group’s teams are focused on the four priorities of HSE, operational excellence, cost reduction and cash flow generation. Yemen The oil environment, however, remains volatile, given the uncertainty around the extent and speed of the global economic recovery post- Covid-19. The Group demonstrates discipline in the implementation of its 2020 action plan: – Net investments below $14 billion, – Savings of $1 billion on operating costs compared to 2019. In Yemen, the deterioration of security conditions in the vicinity of the Balhaf site caused the company Yemen LNG, in which the Group holds a stake of 39.62%, to stop its commercial production and export of LNG and to declare force majeure to its various stakeholders in 2015. The plant has been put in preservation mode. TOTAL will continue to profitably grow in low carbon electricity, particularly in renewables, with close to $2 billion of investments in 2020. In LNG, TOTAL anticipates significant deferred liftings in the third quarter and expects the decline in oil prices observed in the second quarter to have an impact on long-term LNG contract prices in the second half of the year. Financial report first half 2020 TOTAL 41 2 42 Consolidated Financial Statements as of June 30, 2020 Notes to the Consolidated Financial Statements for the first six months 2020 8) Post closing events There was no post closing event. TOTAL Financial report first half 2020 see you on total.com TOTAL SE Registered office: 2, place Jean Millier – La Défense 6 92400 Courbevoie – France Share capital: 6,632,810,062.50 euros 542 051 180 RCS Nanterre Reception: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)207 719 7962 North American Investor Relations: +1 (713) 483-5070 | Semestriel, 2020, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,021 | Energy | TotalEnergies | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Energy
### Company:
TotalEnergies
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| Financial report First half 2021 Table of contents Certification of the person responsible for the half-year financial report 1 Glossary 2 01 Half year financial report 3 02 Consolidated Financial Statements as of June 30, 2021 1.1 Highlights since the beginning of 2021 3 2.1 StatutoryAuditors’ReviewReportonthehalf-yearlyFinancialInformation21 1.2 KeyfiguresfromTotalEnergies’consolidatedfinancialstatements 5 2.2 Consolidatedstatementofincome–half-yearly 1.3 Keyfiguresofenvironment,greenhousegasemissionsandproduction 6 2.3 Consolidatedstatementofcomprehensiveincome–half-yearly 1.3.1 Environment–liquidsandgaspricerealizations,refiningmargins 6 2.4 Consolidatedstatementofincome–quarterly 1.3.2 Greenhousegasemissions 6 2.5 Consolidatedstatementofcomprehensiveincome–quarterly 1.3.3 Production 6 2.6 Consolidatedbalancesheet 1.4 Analysisofbusinesssegments 7 2.7 Consolidatedstatementofcashflow–half-yearly 1.4.1 IntegratedGas,Renewables&Power(iGRP) 7 2.8 Consolidatedstatementofcashflow–quarterly 1.4.2 Exploration-Production 8 2.9 Consolidatedstatementofchangesinshareholders’equity 1.5 1.4.3 Downstream(Refining&ChemicalsandMarketing&Services) TotalEnergiesresults 9 11 2.10 NotestotheConsolidatedFinancialStatementsforthefirst sixmonths2021 1.5.1 Adjustednetoperatingincomefrombusinesssegments 11 1) Accountingpolicies 1.5.2 Adjustednetincome(TotalEnergiesshare) 11 2) ChangesintheCompanystructure 1.5.3 Adjustedearningspershare 11 3) Businesssegmentinformation 1.5.4 Acquisitions–assetsales 11 4) Shareholders’equity 1.5.5 Netcashflow 11 5) Financialdebt 1.5.6 Profitability 11 6) Relatedparties 1.6 TotalEnergiesSEaccounts 12 7) Otherrisksandcontingentliabilities 1.7 2021Sensitivities 12 8) Subsequentevents 1.8 Summaryandoutlook 12 1.9 Otherinformation 13 1.9.1 Operatinginformationbysegment 13 1.9.2 Adjustmentitemstonetincome(TotalEnergiesshare) 15 1.9.3 ReconciliationofadjustedEBITDAwithconsolidated financialstatements 15 1.9.4 Investments–Divestments 16 1.9.5 Cash-flow 17 1.9.6 Gearingratio 17 1.9.7 Returnonaveragecapitalemployed 18 1.10 Principalrisksanduncertaintiesfortheremainingsixmonthsof2021 18 1.11 Majorrelatedparties’transactions 18 The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 30, 2021 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code 21 22 23 24 25 26 27 28 29 30 30 30 31 42 44 44 44 44 Financial report 1st half 2021 Certification of the person responsible for the half-year financial report This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TotalEnergies SE (the Corporation) for the first half of 2021 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Corporation and all the entities included in the consolidation, and that the half-year financial report on pages 3 to 20 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 21 of this half-year financial report.” Courbevoie, July 29, 2021 Patrick Pouyanné Chairman and Chief Executive Officer 1 2 Glossary The terms “TotalEnergies” and “TotalEnergies company” as used in this document refer to TotalEnergies SE collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Corporation” as used in this document exclusively refers to TotalEnergies SE, which is the parent company of TotalEnergies company. Abbreviations Units of measurement € : euro b = barrel(1) $ or dollar : US dollar b = billion ADR : American depositary receipt (evidencing an ADS) Bcm = billion of cubic meters ADS : American depositary share (representing a share of a company) boe = barrel of oil equivalent btu = British thermal unit AMF : API : Autorité des marchés financiers (French Financial Markets Authority) American Petroleum Institute cf = cubic feet CO2e = CO2 equivalent /d = per day CO2 : DACF : carbon dioxide debt adjusted cash flow is defined as operating cash flow before working capital changes without financial charges GtCO2 = billion of CO2 tons GW = gigawatt GWh = gigawatt hour EV : electric vehicle k = thousand FLNG : floating liquefied natural gas km = kilometer FPSO : floating production, storage and offloading m = meter FSRU : floating storage and regasification unit m³ = cubic meter(1) GHG : greenhouse gas M = million HSE : health, safety and the environment MW = megawatt IFRS : International Financial Reporting Standards PJ = petajoule IPIECA : International Petroleum Industry Environmental Conservation Association t = (Metric) ton toe = ton of oil equivalent LNG : liquefied natural gas TWh = terawatt hour LPG : liquefied petroleum gas W = watt NGL : natural gas liquids Wac = AC watt NGV : natural gas vehicle Wp = watt-peak or watt of peak power OML : oil mining lease /y = per year PPA : Power Purchase Agreement ROACE : return on average capital employed Conversion table ROE : return on equity 1 acre ≈ 0.405 hectares SEC : United States Securities and Exchange Commission 1 b = 42 gallons US ≈ 159 liters VCM : variable cost margin – Refining Europe 1 b/d of crude oil ≈ 50 t/y of crude oil This indicator represents the average margin on variable costs realized by TotalEnergies’ European refining busines. It is equal to the difference between the sales of refined products realized by TotalEnergies’ European refining and the crude purchases as well as associated variable costs, divided by refinery throughput in tons. 1 km ≈ 0.62 miles 1 m³ ≈ 35.3 cf 1 Mt de LNG ≈ 48 Bcf of gas 1 Mt/y of LNG ≈ 131 Mcf/d of gas 1 t of oil ≈ 7.5 b of oil (assuming a specific gravity of 37° API) 1 boe = 1 b of crude oil ≈ 5,399 cf of gas in 2020(2) (5,395 cf in 2019 and 5,387 cf in 2018) (1) Liquid and gas volumes are reported at international standard metric conditions (15°C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of TotalEnergies’ natural gas reserves during the applicable periods and is subject to change. The tabular conversion rate is applicable to TotalEnergies natural gas reserves on a Company-wide basis. Financial report – First half 2021 Half year financial report Highlights since the beginning of 2021 01 Half year financial report 1.1 Highlights since the beginning of 2021(1) Sustainability Renewables and Electricity Total transforms and becomes TotalEnergies, with a new visual identity TotalEnergies’ Board of Directors takes the initiative to submit a resolution on the Company’s ambition for sustainable development and energy transition toward carbon neutrality Acquired in India 20% of Adani Green Energy Limited (AGEL), the largest solar developer in the world Secured with Macquarie rights to seabed lease to jointly develop 1.5 GW offshore wind project in the UK Consistent with its climate policy, TotalEnergies withdraws from the American Petroleum Institute • Inauguration of L’Industreet, a campus for training young people in the industry profession, TotalEnergies’ flagship action for social responsibility in France • 3rd place globally and 1st place for the sector Oil and Gas in the BloombergNEF ranking on the alignment of corporate strategies with the United Nations’ Sustainable Development Goals TotalEnergies and Chevron decide to suspend distribution of dividends from gas transport company in Myanmar Acquired 4 GW portfolio of solar and energy storage projects in the US Farmed down 50% of two renewables portfolios in France representing close to 340 MW Acquired 23% stake in 640 MW offshore wind project under construction in Taiwan Acquisition by Adani Green Energy Ltd., in which TotalEnergies has a 20% stake, of a portfolio of 5 GW of renewable electricity generation capacity in operation and under construction in India that will contribute 1 GW to TotalEnergies’ target of 35 GW in 2025 Partnership with Novatek to reduce emissions from LNG production, develop large-scale carbon capture and storage, and study carbon-free hydrogen and ammonia projects Partnership with GHGSat for satellite-based Signed major green power sale agreement to Orange to develop 80 MW of solar farms in France • Signed contract with Merck & Co. for the sale of 90 GWh/y renewable electricity in Spain for 10 years monitoring of methane emissions at sea Sales contract for 50GWh/y over 15 years with Air Liquide in Belgium Partnered with Microsoft to support digital innovation and carbon neutrality goals Partnership with Amazon to supply (474 MW) renewable electricity in to Europe and the United States, and to accelerate TotalEnergies digital transformation its data centers (1) Certain transactions referred to in the highlights are subject to approval by authorities or to conditions as per the agreements. Financial report – First half 2021 01 3 01 4 Half year financial report Highlights since the beginning of 2021 LNG Declaration of force majeure on Mozambique LNG project considering the security situation in the northern Cabo Delgado Remobilization of the Papua LNG project with a view to final investment decision in 2023 Agreement with Novatek to acquire 10% of Arctic Transshipment LLC, which will operate two LNG transshipment terminals under construction in Russia Tolling agreement with GIP, for more than $750 million, for Gladstone LNG infrastructure in Australia Withdrew from the Driftwood LNG project and sold TotalEnergies’ stake in Tellurian Inc. Signed agreements with Shenergy Group for the supply of up to 1.4 Mt/y of LNG in China Signed contract with ArcelorMittal Nippon Steel for a 5-year supply of up to 0.5 Mt/y of LNG in India Obtained supplier license for marine bunker LNG in Singapore • Technical collaboration agreements with Siemens Energy and Technip Energies to develop low-carbon LNG technologies Upstream Signed definitive agreements enabling the launch of Tilenga and Kingfisher upstream oil projects and construction of East African Crude Oil Pipeline in Uganda and Tanzania Published societal and environmental studies relating to the Tilenga and EACOP projects in Uganda and Tanzania Started production of Zinia Phase 2, short-cycle development project on Block 17 in Angola Significant new discovery on the Sapakara South well in Suriname • Awarded two new conventional offshore exploration permits in Suriname with partner Qatar Petroleum Entry on Block 29 exploration permit in Angola as operator • Agreed to divest TotalEnergies 18% interest in the Sarsang block, in Iraqi Kurdistan Divested TotalEnergies’ interest in Petrocedeño to PDVSA in Venezuela which led to the recognition of an exceptional capital loss of $1.38 billion during the second quarter 2021 Downstream Started production of sustainable aviation biofuels in France and made, in partnership with Air France-KLM, Groupe ADP and Airbus, the first long-haul flight with sustainable air fuel (SAF) in France Obtained concession for the expansion of the public charging network for electric vehicles of the City of Amsterdam, with 2,200 new charging points Global partnership in the field of lubricants and electric mobility with Peugeot, Citroën, DS Automobiles, Opel and Vauxhall Partnership agreement with Uber to accelerate transition of VTC drivers to electric mobility in France Acquired 20% stake in Hysetco, a French company owning the world’s first fleet of hydrogen taxis, operated under the Hype brand, as well a s hydrogen charging stations Carbon sinks Investment to plant 40,000-hectare forest in Republic of Congo that will create a carbon sink to sequester more than 10 million tons of CO2 over 20 years • Creation of the joint-venture development of the Northern Lights CO2 sequestration project in the northern North Sea Financial report – First half 2021 Half year financial report Key figures from TotalEnergies’ consolidated financial statements 1.2 Key figures from TotalEnergies’ consolidated financial statements(1) In millions of dollars, except effective tax rate, earnings per share and number of shares 1S21 1S20 1S21 vs 1S20 Adjusted EBITDA(2) 16,837 10,583 +59% Adjusted net operating income from business segments 7,519 3,121 x2.4 Exploration & Production 4,188 494 x8.5 Integrated Gas, Renewables & Power 1,876 1,239 +51% Refining & Chemicals 754 957 21% Marketing & Services 701 431 +63% Contribution of equity affiliates to adjusted net income 1,260 669 +88% Effective tax rate(3) 34.4% 24.3% – Adjusted net income (TotalEnergies share) 6,466 1,907 x3.4 Adjusted fully-diluted earnings per share (dollars)(4) 2.38 0.68 x3.5 Adjusted fully-diluted earnings per share (euros)* 1.97 0.62 x3.2 Fully-diluted weighted-average shares (millions) 2,644 2,598 +2% Net income (TotalEnergies share) 5,550 (8,335) ns Organic investments(5) 5,181 4,724 +10% Net acquisitions(6) 1,986 1,823 +9% Net investments(7) 7,167 6,547 +9% Operating cash flow before working capital changes**(8) 11,718 7,409 +58% Operating cash flow before working capital changes w/o financial charges (DACF)(9) 12,511 8,420 +49% Cash flow from operations 13,149 4,778 x2.8 Average €-$ exchange rate: 1.2053 in the first half 2021. ** 1H20 data restated. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 15. (2) Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) corresponds to the adjusted earnings before depreciation, depletion and impairment of tangible and intangible assets and mineral interests, income tax expense and cost of net debt, i.e. all operating income and contribution of equity affiliates to net income. (3) Effective tax rate = (tax on adjusted net operating income) / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). (4) In accordance with IFRS rules, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond. (5) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (6) Net acquisitions = acquisitions – assets sales – other transactions with non-controlling interests (see page 16). (7) Net investments = organic investments + net acquisitions (see page 16). (8) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark-to-market effect of iGRP’s contracts and including capital gain from renewable projects sale (effective first quarter 2020). The inventory valuation effect is explained on page 19. The reconciliation table for different cash flow figures is on page 17. (9) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. Financial report – First half 2021 01 5 01 6 Half year financial report Key figures of environment, greenhouse gas emissions and production 1.3 Key figures of environment, greenhouse gas emissions and production 1.3.1 Environment – liquids and gas price realizations, refining margins 1S21 1S20 1S21 vs 1S20 Brent ($/b) 65.0 40.1 +62% Henry Hub ($/Mbtu) 2.9 1.8 +57% NBP ($/Mbtu) 7.7 2.4 x3.2 JKM ($/Mbtu) 10.0 2.9 x3.5 Average price of liquids ($/b) Consolidated subsidiaries 59.7 33.8 +77% Average price of gas ($/Mbtu) Consolidated subsidiaries 4.23 2.99 +41% Average price of LNG ($/Mbtu) Consolidated subsidiaries and equity affiliates 6.33 5.42 +17% Variable cost margin – Refining Europe, VCM ($/t) 7.6 21.0 64% 1.3.2 Greenhouse gas emissions(1) GHG emissions (MtCO2e) Scope 1+2 from operated oil & gas facilities(2) 1S21 15 Scope 3(3) 159 Scope 1+2+3 in Europe(4) 95 1.3.3 Production* Hydrocarbon production 1S21 1S20 1S21 vs 1S20 Hydrocarbon production (kboe/d) 2,805 2,966 5% Oil (including bitumen) (kb/d) 1,265 1,381 8% Gas (including condensates and associated NGL) (kboe/d) 1,540 1,584 3% Hydrocarbon production (kboe/d) 2,805 2,966 5% Liquids (kb/d) 1,486 1,626 9% Gas (Mcf/d) 7,208 7,302 1% Company production = E&P production + iGRP production Hydrocarbon production was 2,805 kboe/d in the first half 2021, a decrease of 5%, comprised of: • +2% due to the start-up and ramp-up of projects, including North Russkoye in Russia, Culzean in the United Kingdom, Johan Sverdrup in Norway and Iara in Brazil, -1% portfolio effect, notably asset sales in the United Kingdom and Block CA1 in Brunei, -2% due to planned maintenance and unplanned outages, notably in the United Kingdom, Australia, Norway and Nigeria, -1% due to the price effect, • -3% due to the natural decline of the fields. (1) The six greenhouse gases in the Kyoto protocol, namely CO2, CH4, N2O, HFCs, PFCs and SF6, with their respective GWP (Global Warming Potential) as described in the 2007 IPCC report. HFCs, PFCs and SF6 are virtually absent from the Company’s emissions or are considered as non-material, and are therefore not counted. (2) Scope 1+2 GHG emissions of operated oil & gas facilities are defined as the sum of direct emissions of greenhouse gases from sites or activities that are included in the scope of reporting (as defined in the Company’s 2020 Universal Registration Document) and indirect emissions attributable to brought-in energy (electricity, heat, steam), excluding purchased industrial gases (H2). They do not include facilities for power generation from renewable sources or natural gas, such as combined cycle natural gas power plants (CCGT) and sites with GHG emissions and activities of less than 30 kt CO2e/year. (3) Scope 3 GHG emissions are defined as the indirect emissions of greenhouse gases related to the use by customers of energy products sold for end-use, i.e. combustion of the products to obtain energy. A stoichiometric emission (oxidation of molecules to carbon dioxide) factor is applied to these sales to obtain an emission volume. The Company usually follows the oil & gas industry reporting guidelines published by IPIECA, which comply with the GHG Protocol methodologies. Only item 11 of Scope 3 (use of sold products), which is the most significant, is reported. (4) Scope 1+2+3 GHG emissions in Europe are defined as the sum of Scope 1+2 GHG emissions of facilities operated by the Company and indirect GHG emissions related to the use by customers of energy products sold for end-use (Scope 3) in the EU, Norway, United Kingdom and Switzerland. Financial report – First half 2021 Half year financial report Analysis of business segments 1.4 Analysis of business segments 1.4.1 Integrated Gas, Renewables & Power (iGRP) 1.4.1.1 Production and sales of Liquefied natural gas (LNG) and electricity Hydrocarbon production for LNG 1S21 1S20 1S21 vs 1S20 iGRP (kboe/d) 510 536 5% Liquids (kb/d) 58 69 17% Gas (Mcf/d) 2,470 2,541 3% Liquefied Natural Gas in Mt 1S21 1S20 1S21 vs 1S20 Overall LNG sales 20.4 20.2 +1% incl. Sales from equity production* 8.5 9.0 5% incl. Sales by TotalEnergies from equity production and third party purchases 16.7 16.5 +1% The Company’s equity production may be sold by TotalEnergies or by the joint ventures. Hydrocarbon production for LNG decreased year-on-year by 5% in the first half 2021, notably due to the shutdown of the Snøhvit LNG plant following a fire at the end of September 2020 and the planned maintenance shutdown in the second quarter 2021 on Ichthys LNG’s liquefaction trains in Australia. Total LNG sales were stable year-on-year in the first half 2021. Renewables & Electricity 1S21 1S20 1S21 vs 1S20 Portfolio of renewable power generation gross capacity (GW)(1)(2) 41.7 20.4 x2 o/w installed capacity 8.3 5.1 +63% o/w capacity in construction 5.4 2.9 +89% o/w capacity in development 28.0 12.4 x2.3 Gross renewables capacity with PPA (GW)(1)(2) 22.6 11.2 x2 Portfolio of renewable power generation net capacity (GW)(1)(2) 30.7 13.6 x2.3 o/w installed capacity 4.0 2.3 +76% o/w capacity in construction 3.1 1.1 x3 o/w capacity in development 23.6 10.3 x2.3 Net power production (TWh)(3) 9.8 5.9 +67% incl. Power production from renewables 3.2 1.8 +79% Clients power – BtB and BtC (Million)(2) 5.8 4.2 +38% Clients gas – BtB and BtC (Million)(2) 2.7 1.7 +58% Sales power – BtB and BtC (TWh) 28.8 23.6 +22% Sales gas – BtB and BtC (TWh) 56.8 50.9 +12% Proportional adjusted EBITDA Renewables and Electricity (M$)(4) 635 340 +87% incl. from renewables business 210 184 +14% Gross installed capacity of renewable electricity generation grew to 8.3 GW at the end of first semester 2021. Net electricity production was 9.8 TWh in the first half 2021, an increase of 67% year-on-year, notably due to strong growth in renewable electricity generation and the acquisition of four CCGT plants in France and Spain in the fourth quarter of 2020. Electricity and gas sales increased by 22% and 12% respectively in the first half 2021 compared to last year thanks to the growing number of customers, with TotalEnergies notably surpassing the 5 million customer mark (B2C and B2B) in France. TotalEnergies’ share of the EBITDA of the Renewables and Electricity activities was $635 million in the first half 2021, an increase of 87% over one year, driven by growing electricity production, particularly renewable electricity, and the number of gas and electricity customers. (1) Includes 20% of Adani Green Energy Ltd gross capacity effective first quarter 2021. (2) End of period data. (3) Solar, wind, biogas, hydroelectric and combined-cycle gas turbine (CCGT) plants. (4) TotalEnergies share (% interest) of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) in Renewables and Electricity affiliates, regardless of consolidation method. Financial report – First half 2021 01 7 01 8 Half year financial report Analysis of business segments 1.4.1.2 Results In millions of dollars 1S21 1S20 1S21 vs 1S20 Adjusted net operating income* 1,876 1,239 +51% including income from equity affiliates 620 179 x3.5 Organic investments 1,512 1,264 +20% Net acquisitions 2,059 1,570 +31% Net investments 3,571 2,834 +26% Operating cash flow before working capital changes** 1,963 1,652 +19% Cash flow from operations*** 1,347 900 +50% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial expenses, except those related to lease contracts, excluding the impact of contracts recognized at fair value for the sector and including capital gains on the sale of renewable projects. 1H20 data restated (see note 8 on page 5). *** Excluding financial charges, except those related to leases. Adjusted net operating income for the iGRP sector was 1,876 million in the first half 2021, an increase of 51% year-on-year, thanks to higher LNG prices, growing contribution from Renewables and Electricity as well as good performance by the trading activities in the first quarter 2021. Operating cash flow before working capital changes increased 19% year-on-year to $1,963 million in the first half 2021, in line with the rise in LNG prices and the growing contribution of Renewables and Electricity. 1.4.2 Exploration-Production 1.4.2.1 Production Hydrocarbon production 1S21 1S20 1S21 vs 1S20 EP (kboe/d) 2,295 2,430 6% Liquids (kb/d) 1,428 1,557 8% Gas (Mcf/d) 4,738 4,761 – 1.4.2.2 Results In millions of dollars, except effective tax rate 1S21 1S20 1S21 vs 1S20 Adjusted net operating income* 4,188 494 x8.5 including income from equity affiliates 549 438 +25% Effective tax rate** 39.5% 69.6% – Organic investments 2,838 2,684 +6% Net acquisitions 29 305 90% Net investments 2,867 2,989 4% Operating cash flow before working capital changes*** 8,086 4,386 +84% Cash flow from operations*** 8,571 4,833 +77% Details on adjustment items are shown in the business segment information annex to financial statements. ** Tax on adjusted net operating income/(adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). *** Excluding financial charges, except those related to leases. Adjusted net operating income for Exploration & Production was $4,188 million in the first half 2021, more than eight times higher in the first half 2020, thanks to the sharp rebound in oil and gas prices. Operating cash flow before working capital changes increased by 84% to $8,086 million in the first half 2021, in line with higher oil and gas prices. Financial report – First half 2021 Half year financial report Analysis of business segments 1.4.3 Downstream (Refining & Chemicals and Marketing & Services) 1.4.3.1 Results In millions of dollars 1S21 1S20 1S21 vs 1S20 Adjusted net operating income* 1,455 1,388 +5% Organic investments 803 734 +9% Net acquisitions (104) (50) ns Net investments 699 684 +2% Operating cash flow before working capital changes** 2,332 2,552 9% Cash flow from operations** 4,330 317 x13.7 Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. 1.4.3.2 Refining & Chemicals 1.4.3.2.1 Refinery and petrochemicals throughput and utilization rates Refinery throughput and utilization rate* 1S21 1S20 1S21 vs 1S20 Total refinery throughput (kb/d) 1,109 1,347 18% France 131 230 43% Rest of Europe 578 676 14% Rest of world 400 441 9% Utlization rate based on crude only** 58% 64% Includes refineries in Africa reported in the Marketing & Services segment. ** Based on distillation capacity at the beginning of the year, excluding Grandpuits (definitively shut down first quarter 2021) from 2021 and Lindsey refinery (divested) from second quarter 2021. Petrochemicals production and utilization rate 1S21 1S20 1S21 vs 1S20 Monomers* (kt) 2,829 2,778 +2% Polymers (kt) 2,377 2,395 1% Vapocracker utilization rate** 88% 83% Olefins. ** Based on olefins production from steamcrackers and their treatment capacity at the start of the year. Refinery throughput decreased 18% in the first half 2021 compared to the previous year, mainly due to the prolonged voluntary economic shutdown of the Donges refinery given the low European margins, the planned major shutdown of the Leuna refinery in Germany, the shutdown of the Grandpuits refinery in the first quarter 2021 for its conversion to a zero-oil platform, and the sale of the Lindsey refinery in the United Kingdom. The decrease was partially offset by the restart of the Feyzin refinery, in France, and the distillation unit at the Normandy platform, following a fire at the end of 2019. Monomer production increased slightly in the first half 2021 compared to a year ago thanks to the restart of the Feyzin refinery, in France, after a major shutdown in 2020. Polymer production also increased slightly in the first half 2021 compared to a year ago, despite the major shutdown in the second quarter 2021 of the Feluy plant in Belgium. Financial report – First half 2021 01 9 01 10 Half year financial report Analysis of business segments 1.4.3.2.2 Results In millions of dollars Adjusted net operating income* Organic investments Net acquisitions Net investments Operating cash flow before working capital changes** Cash flow from operations** Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Adjusted net operating income for the Refining-Chemicals segment decreased 21% year-on-year to $754 million in the first half of 2021, due to still-depressed European refining margins that reflect the recovery in oil prices and the continued weak product demand, notably for distillates, linked to the reduced air transport, and to the outperformance of trading activities in the first half 2020. The first half 2021 results nevertheless benefited from the very good performance of petrochemicals. 1.4.3.3 Marketing & Services 1.4.3.3.1 Petroleum product sales Sales in kb/d* Total Marketing & Services sales Europe Rest of world Excludes trading and bulk refining sales. In the first half 2021, petroleum products sales were stable overall year- on-year, as the slowdown in global activity due to the Covid-19 pandemic 1.4.3.3.2 Results In millions of dollars Adjusted net operating income* Organic investments Net acquisitions Net investments Operating cash flow before working capital changes** Cash flow from operations** Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. In first half 2021, adjusted net operating income was $701 million compared to $431 million a year earlier. This increase was mainly related to the increase in global sales volumes in a context of rising margins. 1S21 1S20 1S21 vs 1S20 754 957 21% 501 470 +7% (55) (51) ns 446 419 +6% 1,147 1,670 31% 3,228 (103) ns Operating cash flow before working capital changes decreased by 31% to 1,147 M$ in the first half 2021. Cash flow from operations increased to $3,228 million in the first half 2021 from $(103) million in the first half 2020, mainly due to a decrease in working capital requirements and a positive stock effect. 1S21 1S20 1S21 vs 1S20 1,458 1,478 1% 783 823 5% 674 656 +3% and the 50% decline in the aviation activity were offset by the global economic rebound seen in the second quarter of 2021. 1S21 1S20 1S21 vs 1S20 701 431 +63% 302 264 +14% (49) 1 ns 253 265 5% 1,185 882 +34% 1,102 420 x2.6 Operating cash flow before working capital changes was $1,185 million in the first half 2021. Financial report – First half 2021 Half year financial report TotalEnergies results 1.5 TotalEnergies results 1.5.1 Adjusted net operating income from business segments Adjusted net operating income for the sectors was $7,519 million in the first half 2021, compared to $3,121 million a year earlier, due to higher oil and gas prices. 1.5.2 Adjusted net income (TotalEnergies share) Adjusted net income (TotalEnergies share) was $6,466 million in the first half 2021 compared to $1,907 million a year earlier, due to the increase in oil and gas prices. Adjusted net income excludes the after-tax inventory effect, special items and impact of changes in fair value(1). mainly comprised of the effect of the sale of TotalEnergies’ participation in Petrocedeño to PDVSA in Venezuela for an amount of $(1,379) million, a $1,064 million positive inventory effect, restructuring charges related to voluntary departures in France and Belgium and an impairment related to end of the Qatargas 1 contract. Total net income adjustments(2) were $(916) million in the first half 2021, The effective tax rate for TotalEnergies was 34.4% in the first half 2021, compared to 24.3% in the first half 2020. 1.5.3 Adjusted earnings per share Adjusted fully-diluted earnings per share was $2.38 in the first half 2021, calculated based on 2,644 million weighted-average diluted shares, compared to $0.68 a year earlier. As of June 30, 2021, the number of fully-diluted shares was 2,654 million. 1.5.4 Acquisitions – asset sales Acquisitions were $2,870 million in the first half 2021 and included notably the acquisition, for $2 billion, of a 20% interest in the renewable projects developer in India, Adani Green Energy Limited, the 23% stake in a 640 MW offshore wind project in Taiwan, the Fonroche Biogas in France and Repsol’s interest in the Tin Fouyé Tabankort II field in Algeria. Asset sales were $884 million in the first half 2021 and included notably the sale in France of a 50% interest in a portfolio of renewable projects with a total capacity of 285 MW (100%), the sale of the 10% interest in onshore block OML 17 in Nigeria, a price supplement relating to the sale of Block CA1 in Brunei, the sale of the Lindsey refinery in the United Kingdom, the sale of TotalEnergies’ interest in the TBG pipeline in Brazil, the sale of shares in Clean Energy Fuels Corp, and the sale of its interest in Tellurian Inc. in the United States. 1.5.5 Net cash flow TotalEnergies’ net cash flow(3) was $4,551 million in the first half 2021 compared to $862 million a year earlier, which takes into account the $4.3 billion increase in operating cash flow before changes in working capital, partially offset by a $620 million increase in net investments to $7,167 million in the first half 2021. 1.5.6 Profitability The return on equity was 8.4% for the twelve months ended June 30, 2021. In millions of dollars July 1, 2020 June 30, 2021 April 1, 2020 March 31, 2021 July 1, 2019 June 30, 2020 Adjusted net income 8,786 5,330 8,214 Average adjusted shareholders' equity 105,066 109,135 109,448 Return on equity (ROE) 8.4% 4.9% 7.5% The return on average capital employed was 7.2% for the twelve months ended June 30, 2021. In millions of dollars July 1, 2020 June 30, 2021 April 1, 2020 March 31, 2021 July 1, 2019 June 30, 2020 Adjusted net operating income 10,252 6,915 10,125 Average capital employed 142,172 148,777 145,621 ROACE 7.2% 4.6% 7.0% (1) Adjustment items shown on page 19. (2) Details shown on page 15 and in the appendix to the financial statements (3) Net cash flow = cash flow - net investments (including other transactions with non-controlling interest). Financial report – First half 2021 01 11 01 12 Half year financial report TotalEnergies SE accounts 1.6 TotalEnergies SE accounts Net income for TotalEnergies SE, the parent company, was €4,568 million in the first half 2021 compared to €4,710 in the first half 2020. 1.7 2021 Sensitivities* Change Estimated impact on adjusted net operating income Estimated impact on cash flow from operations Dollar +/- 0,1 $ par € /+ 0,1 G$ ~0 G$ Average liquids price** +/- 10 $/b +/- 2,7 G$ +/- 3,2 G$ European gas price - NBP +/- 1 $/Mbtu +/- 0,3 G$ +/- 0,25 G$ Variable cost margin, European refining (VCM) +/- 10 $/t +/- 0,4 G$ +/- 0,5 G$ Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about TotalEnergies’ portfolio in 2021. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. ** In a 50 $/b Brent environment. 1.8 Summary and outlook In a context of rebounding global demand for petroleum products, OPEC+ quotas in the first half 2021 contributed to a rapid drawdown of crude oil inventories, which fell below the average of the past five years. The price of oil has remained above $60/b since the beginning of February 2021 and broke through $70/b at the end of June. Recent OPEC+ decisions reinforce its collective discipline to adapt supply step by step to the growth in demand. Given the outlook for OPEC+ quotas in the second half 2021, TotalEnergies anticipates its full-year 2021 hydrocarbon production to be around 2.85 Mboe/d. The start-up and ramp-up of new projects, including Zinia Phase 2 in Angola, North Russkoye in Russia and Iara in Brazil, will contribute to increased production in the second half 2021. TotalEnergies anticipates that the higher oil prices observed in the first half 2021 will have a positive impact on its average realized price of LNG for the coming six months, given the lag effect on price formulas. It is expected to be more than $7.5/Mbtu in the third quarter 2021. In addition, gas markets in Asia and Europe are benefiting from the strong growth in demand linked to the global economic recovery. TotalEnergies maintains discipline on expenses, with net investments expected to be between $12-13 billion in 2021, with half dedicated to future growth. For those growth investments, 50% will be dedicated to renewables and electricity. In an environment of hydrocarbon prices that would remain in the second half of the year at the level of the first half ($65/b for Brent, $8/Mbtu for gas in Europe) and European refining margins of $10- 15/t, TotalEnergies expects cash flow generation (DACF) of more than $25 billion in 2021 and a return on capital employed of more than 10%. In this favorable context, the Company confirms its priorities in terms of cash flow allocation: invest in profitable projects to implement TotalEnergies’ transformation strategy to a broad energy company, support the dividend through economic cycles, maintain a solid balance sheet and a minimum “A” long-term debt rating by sustainably anchoring the Company’s gearing below 20%, and share additional revenues with its shareholders through share buybacks in the event of high prices. Financial report – First half 2021 1.9 Other information 1.9.1 Operating information by segment 1.9.1.1 Company’s production (Exploration & Production + iGRP) Combined liquids and gas production by region (kboe/d) Europe and Central Asia Africa Middle East and North Africa Americas Asia-Pacific Total production includes equity affiliates Liquids production by region (kb/d) Europe and Central Asia Africa Middle East and North Africa Americas Asia-Pacific Total production includes equity affiliates Gas production by region (Mcf/d) Europe and Central Asia Africa Middle East and North Africa Americas Asia-Pacific Total production includes equity affiliates 1.9.1.2 Downstream (Refining & Chemicals and Marketing & Services) Petroleum product sales by region (kb/d) Europe* Africa Americas Rest of world Total consolidated sales Includes bulk sales* Includes trading Petrochemicals production* (kt) Europe Americas Middle East and Asia Olefins, polymers Financial report – First half 2021 1S21 1,018 542 652 377 216 2,805 740 1S21 363 407 500 181 35 1,486 207 1S21 3,523 686 845 1,098 1,056 7,208 2,875 1S21 1,540 665 785 493 3,483 368 1,658 1S21 2,512 1,235 1,459 Half year financial report Other information 1S20 1S21 vs 1S20 1,064 4% 677 20% 661 1% 343 +10% 220 2% 2,966 5% 726 +2% 1S20 1S21 vs 1S20 392 8% 534 24% 505 1% 153 +19% 42 17% 1,626 9% 207 – 1S20 1S21 vs 1S20 3,620 3% 726 6% 865 2% 1,069 +3% 1,022 +3% 7,302 1% 2,802 +3% 1S20 1S21 vs 1S20 1,610 4% 573 +16% 814 3% 439 +12% 3,435 +1% 432 15% 1,525 +9% 1S20 1S21 vs 1S20 2,547 1% 1,301 5% 1,324 +10% 01 13 01 14 Half year financial report Other information 1.9.1.3 Renewables Installed power generation gross capacity (GW)(1) (2) Solar France 0.5 Rest of Europe 0.1 Africa 0.1 Middle East 0.3 North America 0.8 South America 0.4 India 3.5 Asia-Pacific 0.7 Total 6.4 Power generation gross capacity from renewables in construction (GW)(1) (2) Solar France 0.3 Rest of Europe 0.1 Africa 0.0 Middle East 0.8 North America 0.3 South America 0.0 India 0.9 Asia-Pacific 0.5 Total 2.8 Power generation gross capacity from renewables in development (GW)(1) (2) Solar France 3.2 Rest of Europe 5.3 Africa 0.4 Middle East 0.1 North America 3.5 South America 0.6 India 6.2 Asia-Pacific 1.1 Total 20.3 (1) Dont 20% des capacités brutes de Adani Green Energy Ltd à partir du premier trimestre 2021. (2) Données à fin de période. Onshore Wind 0.5 1.0 0.0 0.0 0.0 0.1 0.1 0.0 1.8 Onshore Wind 0.1 0.1 0.0 0.0 0.0 0.2 0.2 0.0 0.6 Onshore Wind 0.8 0.3 0.1 0.0 0.2 1.0 0.1 0.0 2.5 1S21 Offshore Wind 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1S21 Offshore Wind 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.6 1.8 1S21 Offshore Wind 0.0 2.3 0.0 0.0 0.0 0.0 0.0 2.1 4.4 Other 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Other 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Other 0.0 0.0 0.2 0.0 0.7 0.0 0.0 0.0 0.8 Total 1.0 1.1 0.1 0.3 0.9 0.5 3.6 0.7 8.3 Total 0.5 1.3 0.0 0.8 0.3 0.2 1.1 1.1 5.4 Total 4.0 7.9 0.6 0.1 4.3 1.7 6.3 3.2 28.0 Financial report – First half 2021 Half year financial report Other information Gross renewables capacity covered by PPA at 06/30/2021 (GW) Solar In operation Onshore Wind Other Total Solar In construction Onshore Wind Offshore Wind Other Total Solar In development Onshore Wind Offshore Wind Other Total Europe 0.6 1.5 X 2.2 0.3 X 0.8 X 1.4 4.0 0.3 X X 4.3 Asia 4.5 X X 4.6 2.2 0.3 0.6 – 3.1 3.9 X – – 4.0 North America 0.8 X X 0.8 0.3 X – X 0.3 0.3 X – X 0.4 Rest of World 0.5 X X 0.7 X X – X X 0.4 X – X 0.7 Total 6.3 1.8 X 8.2 2.8 0.6 1.4 X 5.0 8.6 0.5 X 0.2 9.3 In operation In construction In development PPA average price at 06/30/2021 ($/MWh) Solar Onshore Wind Other Total Solar Onshore Wind Offshore Wind Other Total Solar Onshore Wind Offshore Wind Other Total Europe 239 120 X 154 68 X 61 X 64 42 73 X X 46 Asia 85 X X 84 47 56 187 – 77 40 X – – 40 North America 155 X X 158 26 X – X 31 31 X – X 49 Rest of World 82 X X 82 X X – X X 97 X – X 97 Total 107 112 X 108 48 66 106 X 70 43 79 X 145 45 1.9.2 Adjustment items to net income (TotalEnergies share) In millions of dollars 1S21 1S20 Special items affecting net income (TotalEnergies share) (1,930) (8,655) Gain (loss) on asset sales* (1,379) – Restructuring charges (271) (100) Impairments (193) (8,101) Other (87) (454) After-tax inventory effect : FIFO vs. replacement cost 1,064 (1,508) Effect of changes in fair value (50) (79) Total adjustments affecting net income (916) (10,242) Related to the effect of the sale of TotalEnergies’ participation in Petrocedeño to PDVSA in Venezuela. 1.9.3 Reconciliation of adjusted EBITDA with consolidated financial statements 1.9.3.1 Reconciliation of net income (TotalEnergies share) to adjusted EBITDA In millions of dollars 1S21 1S20 1S21 vs 1S20 Net income – TotalEnergies share 5,550 (8,335) ns Less: adjustment items to net income (TotalEnergies share) 916 10,242 91% Adjusted net income – TotalEnergies share 6,466 1,907 x3.4 Adjusted items Add: non-controlling interests 147 (13) ns Add: income taxes 2,931 490 x6 Add: depreciation, depletion and impairment of tangible assets and mineral interests 6,285 6,937 9% Add: amortization and impairment of intangible assets 197 155 +27% Add: financial interest on debt 967 1,094 12% Less: financial income and expense from cash & cash equivalents (156) 13 ns Adjusted EBITDA 16,837 10,583 +59% Financial report – First half 2021 01 15 01 16 Half year financial report Other information 1.9.3.2 Reconciliation of revenues from sales to adjusted EBITDA and net income (TotalEnergies share) In millions of dollars 1S21 Adjusted items Revenues from sales 80,310 Purchases, net of inventory variation (51,397) Other operating expenses (13,576) Exploration costs (290) Other income 554 Other expense, excluding amortization and impairment of intangible assets (137) Other financial income 374 Other financial expense (261) Net income (loss) from equity affiliates 1,260 Adjusted EBITDA 16,837 Adjusted items Less: depreciation, depletion and impairment of tangible assets and mineral interests (6,285) Less: amortization of intangible assets (197) Less: financial interest on debt (967) Add: financial income and expense from cash & cash equivalents 156 Less: income taxes (2,931) Less: non-controlling interests (147) Add: adjustment – TotalEnergies share (916) Net income – TotalEnergies share 5,550 1.9.4 Investments – Divestments In millions of dollars 1S21 Organic investments (a) 5,181 Capitalized exploration 488 Increase in non-current loans 672 Repayment of non-current loans, excluding organic loan repayment from equity affiliates (185) Change in debt from renewable projects (TotalEnergies share) (171) Acquisitions (b) 2,870 Asset sales (c) 884 Change in debt from renewable projects (partner share) 105 Other transactions with non-controlling interests (d) – Net investments (a + b - c - d) 7,167 Organic loan repayment from equity affiliates (e) (108) Change in debt from renewable projects financing* (f) 276 Capex linked to capitalized leasing contracts (g) 47 Cash flow used in investing activities (a + b - c + e + f - g) 7,288 Change in debt from renewable projects (TotalEnergies share and partner share). 1S20 60,155 (37,949) (12,985) (254) 820 (139) 607 (341) 669 10,583 (6,937) (155) (1,094) (13) (490) 13 (10,242) (8,335) 1S20 4,724 297 1,012 (175) (152) 2,501 678 83 – 6,547 (34) 235 46 6,702 1S21 vs 1S20 +34% ns ns ns 32% ns 38% ns +88% +59% ns ns ns ns ns ns ns ns 1S21 vs 1S20 +10% +64% 34% ns ns +15% +30% +27% ns +9% ns +17% +2% +9% Financial report – First half 2021 Half year financial report Other information 1.9.5 Cash-flow In millions of dollars 1S21 1S20 1S21 vs 1S20 Operating cash flow before working capital changes w/o financials charges (DACF) 12,511 8,420 +49% Financial charges (793) (1,011) ns Operating cash flow before working capital changes (a)* 11,718 7,409 +58% (Increase) decrease in working capital** 259 (698) ns Inventory effect 1,346 (1,838) ns Capital gain from renewable projects sale (66) (61) ns Organic loan repayment from equity affiliates (108) (34) ns Cash flow from operations 13,149 4,778 x2.8 Organic investments (b) 5,181 4,724 +10% Free cash flow after organic investments, w/o net asset sales (a - b) 6,537 2,685 x2.4 Net investments (c) 7,167 6,547 +9% Net cash flow (a - c) 4,551 862 x5.3 Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark-to-market effect of iGRP’s contracts and including capital gain from renewable projects sale (effective first quarter 2020). Historical data have been restated to cancel the impact of fair valuation of iGRP sector’s contracts. ** Changes in working capital are presented excluding the mark-to-market effect of iGRP’s contracts. 1.9.6 Gearing ratio In millions of dollars 30/06/2021 31/03/2021 30/06/2020 Current borrowings* 15,796 19,279 14,894 Other current financial liabilities 322 351 411 Current financial assets* (4,326) (4,492) (6,383) Net financial assets classified as held for sale – – – Non-current financial debt* 44,687 44,842 54,214 Non-current financial assets* (2,726) (2,669) (1,415) Cash and cash equivalents (28,643) (30,285) (29,727) Net debt (a) 25,109 27,026 31,994 Shareholders’ equity - TotalEnergies share 108,096 109,295 101,205 Non-controlling interests 2,480 2,390 2,334 Shareholders' equity (b) 110,576 111,685 103,539 Net-debt-to-capital ratio = a / (a+b) 18.5% 19.5% 23.6% Leases (c) 7,702 7,747 7,383 Net-debt-to-capital ratio including leases (a+c) / (a+b+c) 22.9% 23.7% 27.6% Excludes leases receivables and leases debts. Financial report – First half 2021 01 17 01 18 Half year financial report Other information 1.9.7 Return on average capital employed 1.9.7.1 Twelve months ended June 30, 2021 In millions of dollars Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Company Adjusted net operating income 2,415 6,057 836 1,494 10,252 Capital employed at 06/30/2020* 43,527 79,096 12,843 8,366 142,625 Capital employed at 06/30/2021* 49,831 76,013 9,285 8,439 141,720 ROACE 5.2% 7.8% 7.6% 17.8% 7.2% 1.9.7.2 Twelve months ended March 31, 2021 In millions of dollars Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Company Adjusted net operating income 1,850 3,635 900 1,206 6,915 Capital employed at 03/31/2020* 44,236 85,622 12,878 8,764 152,374 Capital employed at 03/31/2021* 48,423 78,170 10,403 8,198 145,180 ROACE 4.0% 4.4% 7.7% 14.2% 4.6% At replacement cost (excluding after-tax inventory effect). 1.10 Principal risks and uncertainties for the remaining six months of 2021 The Company and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such risk factors is provided in TotalEnergies’ 2021 Universal Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 31, 2021. These conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2021 (page 44 of this half-year financial report). 1.11 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2021 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2021 (page 44 of this half-year financial report). Financial report – First half 2021 Disclaimer: The entities in which TotalEnergies SE directly or indirectly owns a shareholding are separate and independent legal entities. The terms “TotalEnergies”, “TotalEnergies company” and “Company” used in this document are generic and used for convenience to designate TotalEnergies SE and the entities included in its scope of consolidation. Likewise, the words “we”, “us” and “our” may also be used to refer to these entities or their employees. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business activities and industrial strategy of TotalEnergies. This document may also contain statements regarding the perspectives, objectives, areas of improvement and goals of TotalEnergies, including with respect to climate change and carbon neutrality (net zero emissions). An ambition expresses an outcome desired by TotalEnergies, it being specified that the means to be deployed do not depend solely on TotalEnergies. These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as “envisions”, “intends”, “anticipates”, “believes”, “considers”, “plans”, “expects”, “thinks”, “targets”, “aims” or similar terminology. Such forward-looking statements included in this document are based on economic data, estimates and assumptions prepared in a given economic, competitive and regulatory environment and considered to be reasonable by TotalEnergies as of the date of this document. These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives, objectives or goals announced will be achieved. They may prove to be inaccurate in the future, and may evolve or be modified with a significant difference between the actual results and those initially estimated, due to the uncertainties notably related to the economic, financial, competitive and regulatory environment, or due to the occurrence of risk factors, such as, notably, the price fluctuations in crude oil and natural gas, the evolution of the demand and price of petroleum products, the changes in production results and reserves estimates, the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations, changes in laws and regulations including those related to the environment and climate, currency fluctuations, as well as economic and political developments, changes in market conditions, loss of market share and changes in consumer preferences, or pandemics such as the COVID-19 pandemic. Additionally, certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TotalEnergies nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. The information on risk factors that could have a significant adverse effect on TotalEnergies’ business, financial condition, including its operating income and cash flow, reputation, outlook or the value of financial instruments issued by TotalEnergies is provided in the most recent version of the Universal Registration Document which is filed by TotalEnergies SE with the French Autorité des Marchés Financiers and the annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). Financial report – First half 2021 Half year financial report Disclaimer Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE), gearing ratio, operating cash flow before working capital changes, the shareholder rate of return. These indicators are meant to facilitate the analysis of the financial performance of TotalEnergies and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of TotalEnergies. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TotalEnergies’ management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in TotalEnergies’ internal economic performance. IFRS precludes recognition of this fair value effect. 01 19 01 20 Half year financial report Disclaimer Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in the Form 20-F of TotalEnergies, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault - 92078 Paris-La Défense Cedex, France, or at our website totalenergies.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov. Financial report – First half 2021 02 Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Statutory Auditors’ Review Report on the half-yearly Financial Information Consolidated Financial Statements as of June 30, 2021 2.1 Statutory Auditors’ Review Report on the half-yearly Financial Information This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in TotalEnergies’ half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. For the period from January 1 to June 30, 2021 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (“Code monétaire et financier”), we hereby report to you on: • the review of the accompanying condensed half-yearly consolidated financial statements of TotalEnergies SE for the period from January 1 to June 30, 2021, the verification of the information presented in the half-yearly management report. Due to the global crisis related to the Covid-19 pandemic, the condensed half-yearly consolidated financial statements have been prepared and reviewed under specific conditions. Indeed, this crisis and the exceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies’ internal organization and the performance of our review procedures. These condensed half-yearly consolidated financial statements were prepared under the Chairman and Chief Executive Officer’s responsibility on July 28, 2021, and are reviewed by your Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I – Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II – Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris La Défense, July 28, 2021 The Statutory Auditors French original signed by KPMG Audit – A division de KPMG S.A. ERNST & YOUNG Audit Jacques-François Lethu Partner Eric Jacquet Partner Laurent Vitse Partner Céline Eydieu-Boutté Partner 02 21 02 22 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of income – half-yearly 2.2 Consolidated statement of income – half-yearly TotalEnergies (unaudited) (M$)(a) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and impairment of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income and expense from cash & cash equivalents Cost of net debt Other financial income Other financial expense Net income (loss) from equity affiliates Income taxes Consolidated net income TotalEnergies share Non-controlling interests Earnings per share ($) Fully-diluted earnings per share ($) (a) Except for per share amounts. 1st half 2021 90,786 (10,520) 80,266 (50,117) (13,597) (290) (6,446) 581 (957) (967) 172 (795) 374 (261) 201 (3,248) 5,711 5,550 161 2.04 2.03 1st half 2020 69,600 (9,461) 60,139 (40,093) (13,265) (254) (15,228) 942 (528) (1,099) (105) (1,204) 607 (342) 285 521 (8,420) (8,335) (85) (3.29) (3.29) Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of comprehensive income – half-yearly 2.3 Consolidated statement of comprehensive income – half-yearly TotalEnergies (unaudited) (M$) 1st half 2021 1st half 2020 Consolidated net income 5,711 (8,420) Other comprehensive income Actuarial gains and losses 449 (223) Change in fair value of investments in equity instruments 68 (74) Tax effect (154) 86 Currency translation adjustment generated by the parent company (2,934) (196) Items not potentially reclassifiable to profit and loss (2,571) (407) Currency translation adjustment 1,777 (940) Cash flow hedge 80 (1,293) Variation of foreign currency basis spread (4) 70 Share of other comprehensive income of equity affiliates, net amount 451 (927) Other – 3 Tax effect (57) 367 Items potentially reclassifiable to profit and loss 2,247 (2,720) Total other comprehensive income (net amount) (324) (3,127) Comprehensive income 5,387 (11,547) TotalEnergies share 5,212 (11,424) Non-controlling interests 175 (123) Financial report – First half 2021 02 23 02 24 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of income – quarterly 2.4 Consolidated statement of income – quarterly TotalEnergies (unaudited) (M$)(a) Sales Excise taxes Revenues from sales Purchases, net of inventory variation Other operating expenses Exploration costs Depreciation, depletion and impairment of tangible assets and mineral interests Other income Other expense Financial interest on debt Financial income and expense from cash & cash equivalents Cost of net debt Other financial income Other financial expense Net income (loss) from equity affiliates Income taxes Consolidated net income TotalEnergies share Non-controlling interests Earnings per share ($) Fully-diluted earnings per share ($) (a) Except for per share amounts. 2nd quarter 2021 47,049 (5,416) 41,633 (26,719) (6,717) (123) (3,121) 223 (298) (501) 77 (424) 265 (131) (680) (1,609) 2,299 2,206 93 0.80 0.80 1st quarter 2021 43,737 (5,104) 38,633 (23,398) (6,880) (167) (3,325) 358 (659) (466) 95 (371) 109 (130) 881 (1,639) 3,412 3,344 68 1.24 1.23 2nd quarter 2020 25,730 (4,168) 21,562 (12,025) (6,321) (114) (11,593) 362 (108) (530) 50 (480) 419 (161) (447) 484 (8,422) (8,369) (53) (3.27) (3.27) Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of comprehensive income – quarterly 2.5 Consolidated statement of comprehensive income – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2021 1st quarter 2021 2nd quarter 2020 Consolidated net income 2,299 3,412 (8,422) Other comprehensive income Actuarial gains and losses 449 – (356) Change in fair value of investments in equity instruments 56 12 90 Tax effect (142) (12) 101 Currency translation adjustment generated by the parent company 1,239 (4,173) 1,780 Items not potentially reclassifiable to profit and loss 1,602 (4,173) 1,615 Currency translation adjustment (746) 2,523 (919) Cash flow hedge (424) 504 231 Variation of foreign currency basis spread (4) – 14 Share of other comprehensive income of equity affiliates, net amount (18) 469 296 Other (1) 1 – Tax effect 100 (157) (78) Items potentially reclassifiable to profit and loss (1,093) 3,340 (456) Total other comprehensive income (net amount) 509 (833) 1,159 Comprehensive income 2,808 2,579 (7,263) TotalEnergies share 2,670 2,542 (7,253) Non-controlling interests 138 37 (10) Financial report – First half 2021 02 25 02 26 Consolidated Financial Statements as of June 30, 2021 Consolidated balance sheet 2.6 Consolidated balance sheet TotalEnergies (M$) ASSETS Non-current assets Intangible assets, net Property, plant and equipment, net Equity affiliates: investments and loans Other investments Non-current financial assets Deferred income taxes Other non-current assets Total non-current assets Current assets Inventories, net Accounts receivable, net Other current assets Current financial assets Cash and cash equivalents Assets classified as held for sale Total current assets Total assets LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Total shareholders’ equity – TotalEnergies share Non-controlling interests Total shareholders’ equity Non-current liabilities Deferred income taxes Employee benefits Provisions and other non-current liabilities Non-current financial debt Total non-current liabilities Current liabilities Accounts payable Other creditors and accrued liabilities Current borrowings Other current financial liabilities Liabilities directly associated with the assets classified as held for sale Total current liabilities Total liabilities & shareholders’ equity June 30, 2021 (unaudited) 33,359 106,791 29,712 2,247 3,778 6,578 2,800 185,265 19,162 17,192 17,585 4,404 28,643 456 87,442 272,707 8,224 110,967 (11,087) (8) 108,096 2,480 110,576 10,596 3,305 20,716 52,331 86,948 29,752 27,836 16,983 322 290 75,183 272,707 March 31, 2021 (unaudited) 33,239 106,859 30,727 2,062 3,700 6,619 2,638 185,844 16,192 17,532 14,304 4,605 30,285 396 83,314 269,158 8,193 112,676 (11,566) (8) 109,295 2,390 111,685 10,387 3,644 20,893 52,541 87,465 26,959 22,066 20,471 351 161 70,008 269,158 December 31, 2020 June 30, 2020 (unaudited) 33,528 33,114 108,335 104,925 27,976 27,470 2,007 1,627 4,781 2,431 7,016 7,257 2,810 2,539 186,453 179,363 14,730 12,688 14,068 13,481 13,428 17,155 4,630 6,570 31,268 29,727 1,555 421 79,679 80,042 266,132 259,405 8,267 8,159 107,078 107,934 (10,256) (13,265) (1,387) (1,623) 103,702 101,205 2,383 2,334 106,085 103,539 10,326 10,346 3,917 3,612 20,925 19,487 60,203 61,540 95,371 94,985 23,574 19,198 22,465 24,790 17,099 16,154 203 411 1,335 328 64,676 60,881 266,132 259,405 Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of cash flow – half-yearly 2.7 Consolidated statement of cash flow – half-yearly TotalEnergies (unaudited) (M$) 1st half 2021 1st half 2020 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 5,711 (8,420) Depreciation, depletion, amortization and impairment 6,760 15,431 Non-current liabilities, valuation allowances and deferred taxes 331 (1,457) (Gains) losses on disposals of assets (370) (340) Undistributed affiliates’ equity earnings 682 391 (Increase) decrease in working capital (150) (453) Other changes, net 185 (374) Cash flow from operating activities 13,149 4,778 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (5,085) (4,773) Acquisitions of subsidiaries, net of cash acquired (170) (188) Investments in equity affiliates and other securities (2,433) (1,670) Increase in non-current loans (680) (1,028) Total expenditures (8,368) (7,659) Proceeds from disposals of intangible assets and property, plant and equipment 271 263 Proceeds from disposals of subsidiaries, net of cash sold 229 154 Proceeds from disposals of non-current investments 279 315 Repayment of non-current loans 301 225 Total divestments 1,080 957 Cash flow used in investing activities (7,288) (6,702) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Parent company shareholders 381 374 Treasury shares (165) (611) Dividends paid: Parent company shareholders (4,184) (3,810) Non-controlling interests (63) (76) Net issuance (repayment) of perpetual subordinated notes 3,248 – Payments on perpetual subordinated notes (234) (231) Other transactions with non-controlling interests (55) (70) Net issuance (repayment) of non-current debt (839) 15,472 Increase (decrease) in current borrowings (6,031) (3,819) Increase (decrease) in current financial assets and liabilities (215) (2,546) Cash flow from (used in) financing activities (8,157) 4,683 Net increase (decrease) in cash and cash equivalents (2,296) 2,759 Effect of exchange rates (329) (384) Cash and cash equivalents at the beginning of the period 31,268 27,352 Cash and cash equivalents at the end of the period 28,643 29,727 Financial report – First half 2021 02 27 02 28 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of cash flow – quarterly 2.8 Consolidated statement of cash flow – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2021 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 2,299 Depreciation, depletion, amortization and impairment 3,287 Non-current liabilities, valuation allowances and deferred taxes 210 (Gains) losses on disposals of assets (85) Undistributed affiliates’ equity earnings 1,255 (Increase) decrease in working capital 669 Other changes, net (84) Cash flow from operating activities 7,551 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (2,675) Acquisitions of subsidiaries, net of cash acquired (170) Investments in equity affiliates and other securities (307) Increase in non-current loans (380) Total expenditures (3,532) Proceeds from disposals of intangible assets and property, plant and equipment 45 Proceeds from disposals of subsidiaries, net of cash sold – Proceeds from disposals of non-current investments 216 Repayment of non-current loans 167 Total divestments 428 Cash flow used in investing activities (3,104) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: Parent company shareholders 381 Treasury shares – Dividends paid: Parent company shareholders (2,094) Non-controlling interests (53) Net issuance (repayment) of perpetual subordinated notes – Payments on perpetual subordinated notes (147) Other transactions with non-controlling interests – Net issuance (repayment) of non-current debt 51 Increase (decrease) in current borrowings (4,369) Increase (decrease) in current financial assets and liabilities (67) Cash flow from (used in) financing activities (6,298) Net increase (decrease) in cash and cash equivalents (1,851) Effect of exchange rates 209 Cash and cash equivalents at the beginning of the period 30,285 Cash and cash equivalents at the end of the period 28,643 1st quarter 2021 3,412 3,473 121 (285) (573) (819) 269 5,598 (2,410) – (2,126) (300) (4,836) 226 229 63 134 652 (4,184) – (165) (2,090) (10) 3,248 (87) (55) (890) (1,662) (148) (1,859) (445) (538) 31,268 30,285 2nd quarter 2020 (8,422) 11,701 (796) (131) 978 431 (282) 3,479 (2,409) – (136) (733) (3,278) 219 12 20 99 350 (2,928) 374 (2) (1,928) (76) – (134) (22) 15,430 (6,604) 449 7,487 8,038 55 21,634 29,727 Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Consolidated statement of changes in shareholders’ equity 2.9 Consolidated statement of changes in shareholders’ equity TotalEnergies (unaudited) (M$) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Number Amount Shareholders’ equity – TotalEnergies Share Non- controlling interests Total shareholders’ equity As of January 1, 2020 2,601,881,075 8,123 121,170 (11,503) (15,474,234) (1,012) 116,778 2,527 119,305 Net income of the first half 2020 – – (8,335) – – – (8,335) (85) (8,420) Other comprehensive income – – (1,327) (1,762) – – (3,089) (38) (3,127) Comprehensive Income – – (9,662) (1,762) – – (11,424) (123) (11,547) Dividend – – (3,799) – – – (3,799) (76) (3,875) Issuance of common shares 13,179,262 36 338 – – – 374 – 374 Purchase of treasury shares – – – – (13,236,044) (611) (611) – (611) Sale of treasury shares(a) – – – – 3,680 – – – – Share-based payments – – 96 – – – 96 – 96 Share cancellation – – – – – – – – – Net issuance (repayment) of perpetual subordinated notes – – – – – – – – – Payments on perpetual subordinated notes – – (143) – – – (143) – (143) Other operations with non-controlling interests – – (63) – – – (63) (7) (70) Other items – – (3) – – – (3) 13 10 As of June 30, 2020 2,615,060,337 8,159 107,934 (13,265) (28,706,598) (1,623) 101,205 2,334 103,539 Net income of the second half 2020 – – 1,093 – – – 1,093 (9) 1,084 Other comprehensive income – – 1,006 3,013 – – 4,019 338 4,357 Comprehensive Income – – 2,099 3,013 – – 5,112 329 5,441 Dividend – – (4,100) – – – (4,100) (158) (4,258) Issuance of common shares 38,063,688 108 1,132 – – – 1,240 – 1,240 Purchase of treasury shares – – – – – – – – – Sale of treasury shares(a) – – (236) – 4,313,895 236 – – – Share-based payments – – 92 – – – 92 – 92 Share cancellation – – – – – – – – – Net issuance (repayment) of perpetual subordinated notes – – 331 – – – 331 – 331 Payments on perpetual subordinated notes – – (165) – – – (165) – (165) Other operations with non-controlling interests – – 2 (4) – – (2) (110) (112) Other items – – (11) – – – (11) (12) (23) As of December 31, 2020 2,653,124,025 8,267 107,078 (10,256) (24,392,703) (1,387) 103,702 2,383 106,085 Net income of the first half 2021 – – 5,550 – – – 5,550 161 5,711 Other comprehensive income – – 485 (823) – – (338) 14 (324) Comprehensive Income – – 6,035 (823) – – 5,212 175 5,387 Dividend – – (4,189) – – – (4,189) (63) (4,252) Issuance of common shares 10,589,713 31 350 – – – 381 – 381 Purchase of treasury shares – – – – (3,636,351) (165) (165) – (165) Sale of treasury shares(a) – – (216) – 4,570,220 216 – – – Share-based payments – – 61 – – – 61 – 61 Share cancellation (23,284,409) (74) (1,254) – 23,284,409 1,328 – – – Net issuance (repayment) of perpetual subordinated notes – – 3,254 – – – 3,254 – 3,254 Payments on perpetual subordinated notes – – (184) – – – (184) – (184) Other operations with non-controlling interests – – 26 (6) – – 20 (20) – Other items – – 6 (2) – – 4 5 9 As of June 30, 2021 2,640,429,329 8,224 110,967 (11,087) (174,425) (8) 108,096 2,480 110,576 (a) Treasury shares related to the performance share grants. Financial report – First half 2021 02 29 02 30 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 2.10 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 1) Accounting policies The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on-going basis by management and therefore could be revised as circumstances change or as a result of new information. The interim consolidated financial statements of TotalEnergies SE and its subsidiaries (the Company) as of June 30, 2021, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting principles applied for the consolidated financial statements at June 30, 2021, are consistent with those used for the financial statements at December 31, 2020. Since January 1, 2020, the Company has early adopted the amendments to IFRS 7 and IFRS 9 relating to the interest rate benchmark reform phase II. In particular, these amendments allow to maintain the hedge accounting qualification of interest rate derivatives. The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, asset impairments, employee benefits, asset retirement obligations and income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2020. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2021 requires the executive management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management of the Company applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Company structure 2.1) Main acquisitions and divestments Integrated Gas, Renewables & Power • In January 2021, TotalEnergies finalized the acquisition of a 20% minority interest in Adani Green Energy Limited (AGEL) from Adani Group. Adani Green Energy Limited (AGEL), a part of the Adani Group, has 14.6 GW of operating, under-construction and awarded renewable power projects catering to investment-grade counterparties. Raffinage-Chimie • In February 2021, TotalEnergies finalized the sale of Lindsey refinery and its associated logistic assets, as well as all the related rights and obligations, to the Prax Group. 2.2) Divestment projects Exploration-Production • TotalEnergies has initiated the sale process of its 30.323% interest in the share capital of Petrocedeño in Venezuela. As mentioned in Note 8 Subsequent Events, this process led to the execution on July 9, 2021 of a Share Purchase Agreement with PDVSA. As of June 30, 2021, the assets have been classified as “assets classified as held for sale” for a null value. These assets are the shares of Petrocedeño, as consolidated under the equity method and recorded at their sale price; this transaction triggering a loss of $1.38 billion in the financial statements of TotalEnergies. On July 30, 2020, TotalEnergies announced that its 58% owned affiliate Total Gabon has signed an agreement with Perenco to divest its interests in seven mature non-operated offshore fields, along with its interests and operatorship in the Cap Lopez oil terminal. The transaction remains subject to approval by the Gabonese authorities. As of June 30, 2021, the assets and liabilities have been respectively classified in the consolidated balance sheet as “assets classified as held for sale” for an amount of $398 million and “liabilities classified as held for sale” for an amount of $169 million. These assets mainly include tangible assets. Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 3) Business segment information Description of the business segments Adjustment items Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies and which is reviewed by the main operational decision- making body of the Company, namely the Executive Committee. Performance indicators excluding the adjustment items, such as adjusted operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. income, adjusted net operating The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments. Sales prices between business segments approximate market prices. The organization of the Company’s activities is structured around the four followings segments: • an Exploration & Production segment; • an Integrated Gas, Renewables & Power segment comprising integrated gas (including LNG) and low carbon electricity businesses. It includes the upstream and midstream LNG activity; Adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) The inventory valuation effect a Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. a Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products. In addition the Corporate segment includes holdings operating and financial activities. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost methods. (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for certain transactions differences between the internal measure of performance used by TotalEnergies’ management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in the Company’s internal economic performance. IFRS precludes recognition of this fair value effect. Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. Financial report – First half 2021 02 31 02 32 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 3.1) Information by business segment 1st half 2021 (M$) Exploration & Production Integrated Gas, Renewables & Power External sales 3,257 10,588 Intersegment sales 14,433 1,555 Excise taxes – – Revenues from sales 17,690 12,143 Operating expenses (7,352) (10,321) Depreciation, depletion and impairment of tangible assets and mineral interests (4,317) (762) Operating income 6,021 1,060 Net income (loss) from equity affiliates and other items (973) 682 Tax on net operating income (2,375) (157) Net operating income 2,673 1,585 Net cost of net debt Non-controlling interests Net income – TotalEnergies share 1st half 2021 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power External sales – (44) Intersegment sales – – Excise taxes – – Revenues from sales – (44) Operating expenses (23) (62) Depreciation, depletion and impairment of tangible assets and mineral interests – (148) Operating income(b) (23) (254) Net income (loss) from equity affiliates and other items (1,482) (96) Tax on net operating income (10) 59 Net operating income(b) (1,515) (291) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - On net operating income – – – – Refining & Chemicals 40,054 11,890 (630) 51,314 (48,579) (787) 1,948 211 (561) 1,598 Refining & Chemicals – – – – 1,131 (13) 1,118 28 (302) 844 1,140 937 Marketing & Services 36,880 186 (9,890) 27,176 (25,510) (526) 1,140 23 (352) 811 Marketing & Services – – – – 213 – 213 (43) (60) 110 206 148 Corporate 7 68 – 75 (374) (54) (353) (5) 54 (304) Corporate – – – – – – – (62) 2 (60) – – Intercompany Total – 90,786 (28,132) – – (10,520) (28,132) 80,266 28,132 (64,004) – (6,446) – 9,816 – (62) – (3,391) – 6,363 (652) (161) 5,550 Intercompany Total – (44) – – – – – (44) – 1,259 – (161) – 1,054 – (1,655) – (311) – (912) 10 (14) (916) Financial report – First half 2021 1st half 2021 (adjusted) (M$) External sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and impairment of tangible assets and mineral interests Adjusted operating income Net income (loss) from equity affiliates and other items Tax on net operating income Adjusted net operating income Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 1st half 2021 (M$) Total expenditures Total divestments Cash flow from operating activities 1st half 2020 (M$) External sales Intersegment sales Excise taxes Revenues from sales Operating expenses Depreciation, depletion and impairment of tangible assets and mineral interests Operating income Net income (loss) from equity affiliates and other items Tax on net operating income Net operating income Net cost of net debt Non-controlling interests Net income – TotalEnergies share Financial report – First half 2021 Exploration & Production 3,257 14,433 – 17,690 (7,329) (4,317) 6,044 509 (2,365) 4,188 Exploration & Production 3,195 374 8,571 Exploration & Production 2,574 8,661 – 11,235 (6,048) (12,311) (7,124) 440 (56) (6,740) Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany 10,632 40,054 36,880 7 – 1,555 11,890 186 68 (28,132) – (630) (9,890) – – 12,187 51,314 27,176 75 (28,132) (10,259) (49,710) (25,723) (374) 28,132 (614) (774) (526) (54) – 1,314 830 927 (353) – 778 183 66 57 – (216) (259) (292) 52 – 1,876 754 701 (244) – Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany 4,187 578 360 48 452 129 107 18 1,347 3,228 1,102 (1,099) Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany 8,403 27,956 30,661 6 – 895 9,051 196 59 (18,862) – (1,119) (8,342) – – 9,298 35,888 22,515 65 (18,862) (8,398) (35,736) (21,730) (562) 18,862 (1,616) (788) (473) (40) – (716) (636) 312 (537) – 420 (92) 32 164 – 330 203 (159) 2 – 34 (525) 185 (371) – Total 90,830 – (10,520) 80,310 (65,263) (6,285) 8,762 1,593 (3,080) 7,275 (662) (147) 6,466 Total 8,368 1,080 13,149 Total 69,600 – (9,461) 60,139 (53,612) (15,228) (8,701) 964 320 (7,417) (1,003) 85 (8,335) 02 33 02 34 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 1st half 2020 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power External sales – (16) Intersegment sales – – Excise taxes – – Revenues from sales – (16) Operating expenses (37) (318) Depreciation, depletion and impairment of tangible assets and mineral interests (7,338) (953) Operating income(b) (7,375) (1,287) Net income (loss) from equity affiliates and other items 71 (292) Tax on net operating income 70 374 Net operating income(b) (7,234) (1,205) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - On net operating income – – – – 1st half 2020 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power External sales 2,574 8,419 Intersegment sales 8,661 895 Excise taxes – – Revenues from sales 11,235 9,314 Operating expenses (6,011) (8,080) Depreciation, depletion and impairment of tangible assets and mineral interests (4,973) (663) Adjusted operating income 251 571 Net income (loss) from equity affiliates and other items 369 712 Tax on net operating income (126) (44) Adjusted net operating income 494 1,239 Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 1st half 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Total expenditures 3,265 3,461 Total divestments 325 433 Cash flow from operating activities 4,833 900 Refining & Chemicals – – – – (1,637) – (1,637) (271) 426 (1,482) (1,604) (1,371) Refining & Chemicals 27,956 9,051 (1,119) 35,888 (34,099) (788) 1,001 179 (223) 957 Refining & Chemicals 533 101 (103) Marketing & Services – – – – (341) – (341) (5) 100 (246) (234) (163) Marketing & Services 30,661 196 (8,342) 22,515 (21,389) (473) 653 37 (259) 431 Marketing & Services 334 72 420 Corporate – – – – (91) – (91) – 12 (79) – – Corporate 6 59 – 65 (471) (40) (446) 164 (10) (292) Corporate 66 26 (1,272) Intercompany Total – (16) – – – – – (16) – (2,424) – (8,291) – (10,731) – (497) – 982 – (10,246) (68) 72 (10,242) Intercompany Total – 69,616 (18,862) – – (9,461) (18,862) 60,155 18,862 (51,188) – (6,937) – 2,030 – 1,461 – (662) – 2,829 (935) 13 1,907 Intercompany Total 7,659 957 4,778 Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 2nd quarter 2021 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 1,743 5,086 20,853 19,367 – – Intersegment sales 7,855 744 6,369 108 39 (15,115) Excise taxes – – (225) (5,191) – – Revenues from sales 9,598 5,830 26,997 14,284 39 (15,115) Operating expenses (4,284) (5,103) (25,646) (13,434) (207) 15,115 Depreciation, depletion and impairment of tangible assets and mineral interests (2,134) (291) (396) (271) (29) – Operating income 3,180 436 955 579 (197) – Net income (loss) from equity affiliates and other items (1,243) 419 123 57 23 – Tax on net operating income (1,195) (56) (281) (176) 16 – Net operating income 742 799 797 460 (158) – Net cost of net debt Non-controlling interests Net income – TotalEnergies share 2nd quarter 2021 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales – (9) – – – – Intersegment sales – – – – – – Excise taxes – – – – – – Revenues from sales – (9) – – – – Operating expenses (23) (54) 386 71 – – Depreciation, depletion and impairment of tangible assets and mineral interests – (3) (13) – – – Operating income(b) (23) (66) 373 71 – – Net income (loss) from equity affiliates and other items (1,436) (47) 22 (8) (22) – Tax on net operating income (12) 21 (109) (20) – – Net operating income(b) (1,471) (92) 286 43 (22) – Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - On net operating income – – – – 394 331 69 50 – – Financial report – First half 2021 Total 47,049 – (5,416) 41,633 (33,559) (3,121) 4,953 (621) (1,692) 2,640 (341) (93) 2,206 Total (9) – – (9) 380 (16) 355 (1,491) (120) (1,256) 4 (5) (1,257) 02 35 02 36 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 2nd quarter 2021 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power External sales 1,743 5,095 Intersegment sales 7,855 744 Excise taxes – – Revenues from sales 9,598 5,839 Operating expenses (4,261) (5,049) Depreciation, depletion and impairment of tangible assets and mineral interests (2,134) (288) Adjusted operating income 3,203 502 Net income (loss) from equity affiliates and other items 193 466 Tax on net operating income (1,183) (77) Adjusted net operating income 2,213 891 Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 2nd quarter 2021 (M$) Exploration & Production Integrated Gas, Renewables & Power Total expenditures 1,830 1,167 Total divestments 63 310 Cash flow from operating activities 4,835 567 2nd quarter 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power External sales 992 3,313 Intersegment sales 3,097 301 Excise taxes – – Revenues from sales 4,089 3,614 Operating expenses (2,405) (3,406) Depreciation, depletion and impairment of tangible assets and mineral interests (9,667) (1,282) Operating income (7,983) (1,074) Net income (loss) from equity affiliates and other items 17 21 Tax on net operating income 398 322 Net operating income (7,568) (731) Net cost of net debt Non-controlling interests Net income – TotalEnergies share Refining & Chemicals 20,853 6,369 (225) 26,997 (26,032) (383) 582 101 (172) 511 Refining & Chemicals 291 13 2,232 Refining & Chemicals 9,433 2,956 (469) 11,920 (10,895) (393) 632 (35) (132) 465 Marketing & Services 19,367 108 (5,191) 14,284 (13,505) (271) 508 65 (156) 417 Marketing & Services 222 36 437 Marketing & Services 11,986 107 (3,699) 8,394 (7,931) (229) 234 22 (127) 129 Corporate – 39 – 39 (207) (29) (197) 45 16 (136) Corporate 22 6 (520) Corporate 6 31 – 37 (315) (22) (300) 40 (26) (286) Intercompany Total – 47,058 (15,115) – – (5,416) (15,115) 41,642 15,115 (33,939) – (3,105) – 4,598 – 870 – (1,572) – 3,896 (345) (88) 3,463 Intercompany Total 3,532 428 7,551 Intercompany Total – 25,730 (6,492) – – (4,168) (6,492) 21,562 6,492 (18,460) – (11,593) – (8,491) – 65 – 435 – (7,991) (431) 53 (8,369) Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 2nd quarter 2020 (adjustments)(a) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales – (18) – – – – Intersegment sales – – – – – – Excise taxes – – – – – – Revenues from sales – (18) – – – – Operating expenses (27) (199) (48) 5 (36) – Depreciation, depletion and impairment of tangible assets and mineral interests (7,338) (953) – – – – Operating income(b) (7,365) (1,170) (48) 5 (36) – Net income (loss) from equity affiliates and other items (57) (217) (63) (5) – – Tax on net operating income 63 330 1 – 12 – Net operating income(b) (7,359) (1,057) (110) – (24) – Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect On operating income - On net operating income – – – – (26) (86) (16) (9) – – 2nd quarter 2020 (adjusted) (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 992 3,331 9,433 11,986 6 – Intersegment sales 3,097 301 2,956 107 31 (6,492) Excise taxes – – (469) (3,699) – – Revenues from sales 4,089 3,632 11,920 8,394 37 (6,492) Operating expenses (2,378) (3,207) (10,847) (7,936) (279) 6,492 Depreciation, depletion and impairment of tangible assets and mineral interests (2,329) (329) (393) (229) (22) – Adjusted operating income (618) 96 680 229 (264) – Net income (loss) from equity affiliates and other items 74 238 28 27 40 – Tax on net operating income 335 (8) (133) (127) (38) – Adjusted net operating income (209) 326 575 129 (262) – Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 2nd quarter 2020 (M$) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 1,606 1,170 307 174 21 Total divestments 204 89 22 26 9 Cash flow from operating activities 910 1,389 1,080 819 (719) Financial report – First half 2021 Total (18) – – (18) (305) (8,291) (8,614) (342) 406 (8,550) 33 22 (8,495) Total 25,748 – (4,168) 21,580 (18,155) (3,302) 123 407 29 559 (464) 31 126 Total 3,278 350 3,479 02 37 02 38 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 3.2) Reconciliation of the information by business segment with consolidated financial statements 1st half 2021 (M$) Adjusted Sales 90,830 Excise taxes (10,520) Revenues from sales 80,310 Purchases net of inventory variation (51,397) Other operating expenses (13,576) Exploration costs (290) Depreciation, depletion and impairment of tangible assets and mineral interests (6,285) Other income 554 Other expense (334) Financial interest on debt (967) Financial income and expense from cash & cash equivalents 156 Cost of net debt (811) Other financial income 374 Other financial expense (261) Net income (loss) from equity affiliates 1,260 Income taxes (2,931) Consolidated net income 6,613 TotalEnergies share 6,466 Non-controlling interests 147 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 1st half 2020 (M$) Adjusted Sales 69,616 Excise taxes (9,461) Revenues from sales 60,155 Purchases net of inventory variation (37,949) Other operating expenses (12,985) Exploration costs (254) Depreciation, depletion and impairment of tangible assets and mineral interests (6,937) Other income 820 Other expense (294) Financial interest on debt (1,094) Financial income and expense from cash & cash equivalents (13) Cost of net debt (1,107) Other financial income 607 Other financial expense (341) Net income (loss) from equity affiliates 669 Income taxes (490) Consolidated net income 1,894 TotalEnergies share 1,907 Non-controlling interests (13) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Adjustments(a) (44) – (44) 1,280 (21) – (161) 27 (623) – 16 16 – – (1,059) (317) (902) (916) 14 Adjustments(a) (16) – (16) (2,144) (280) – (8,291) 122 (234) (5) (92) (97) – (1) (384) 1,011 (10,314) (10,242) (72) Consolidated statement of income 90,786 (10,520) 80,266 (50,117) (13,597) (290) (6,446) 581 (957) (967) 172 (795) 374 (261) 201 (3,248) 5,711 5,550 161 Consolidated statement of income 69,600 (9,461) 60,139 (40,093) (13,265) (254) (15,228) 942 (528) (1,099) (105) (1,204) 607 (342) 285 521 (8,420) (8,335) (85) Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 2nd quarter 2021 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 47,058 (9) 47,049 Excise taxes (5,416) – (5,416) Revenues from sales 41,642 (9) 41,633 Purchases net of inventory variation (27,108) 389 (26,719) Other operating expenses (6,708) (9) (6,717) Exploration costs (123) – (123) Depreciation, depletion and impairment of tangible assets and mineral interests (3,105) (16) (3,121) Other income 138 85 223 Other expense (142) (156) (298) Financial interest on debt (501) – (501) Financial income and expense from cash & cash equivalents 69 8 77 Cost of net debt (432) 8 (424) Other financial income 265 – 265 Other financial expense (131) – (131) Net income (loss) from equity affiliates 740 (1,420) (680) Income taxes (1,485) (124) (1,609) Consolidated net income 3,551 (1,252) 2,299 TotalEnergies share 3,463 (1,257) 2,206 Non-controlling interests 88 5 93 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 2nd quarter 2020 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 25,748 (18) 25,730 Excise taxes (4,168) – (4,168) Revenues from sales 21,580 (18) 21,562 Purchases net of inventory variation (11,842) (183) (12,025) Other operating expenses (6,199) (122) (6,321) Exploration costs (114) – (114) Depreciation, depletion and impairment of tangible assets and mineral interests (3,302) (8,291) (11,593) Other income 240 122 362 Other expense (103) (5) (108) Financial interest on debt (527) (3) (530) Financial income and expense from cash & cash equivalents (3) 53 50 Cost of net debt (530) 50 (480) Other financial income 419 – 419 Other financial expense (160) (1) (161) Net income (loss) from equity affiliates 11 (458) (447) Income taxes 95 389 484 Consolidated net income 95 (8,517) (8,422) TotalEnergies share 126 (8,495) (8,369) Non-controlling interests (31) (22) (53) (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Financial report – First half 2021 02 39 02 40 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 3.3) Adjustment items The detail of the adjustment items is presented in the table below. Adjustments to operating income (M$) Exploration & Production Integrated Gas, Renewables & Power 2nd quarter 2021 Inventory valuation effect – – Effect of changes in fair value – (49) Restructuring charges – (1) Asset impairment charges – (3) Other items (23) (13) TOTAL (23) (66) 2nd quarter 2020 Inventory valuation effect – – Effect of changes in fair value – (100) Restructuring charges – (10) Asset impairment charges (7,338) (953) Other items (27) (107) TOTAL (7,365) (1,170) 1st half 2021 Inventory valuation effect – – Effect of changes in fair value – (58) Restructuring charges – (10) Asset impairment charges – (148) Other items (23) (38) TOTAL (23) (254) 1st half 2020 Inventory valuation effect – – Effect of changes in fair value – (98) Restructuring charges (10) (18) Asset impairment charges (7,338) (953) Other items (27) (218) TOTAL (7,375) (1,287) Refining & Chemicals 394 – (8) (13) – 373 (26) – (7) – (15) (48) 1,140 – (8) (13) (1) 1,118 (1,604) – (7) – (26) (1,637) Marketing & Services 69 – – – 2 71 (16) – – – 21 5 206 – – – 7 213 (234) – – – (107) (341) Corporate Total – 463 – (49) – (9) – (16) – (34) – 355 – (42) – (100) – (17) – (8,291) (36) (164) (36) (8,614) – 1,346 – (58) – (18) – (161) – (55) – 1,054 – (1,838) – (98) – (35) – (8,291) (91) (469) (91) (10,731) Financial report – First half 2021 Adjustments to net income, TotalEnergies share (M$) 2nd quarter 2021 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items TOTAL Impact of the TotalEnergies’ interest sale of Petrocedeño to PDVSA. 2nd quarter 2020 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items TOTAL 1st half 2021 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items TOTAL Impact of the TotalEnergies’ interest sale of Petrocedeño to PDVSA. 1st half 2020 Inventory valuation effect Effect of changes in fair value Restructuring charges Asset impairment charges Gains (losses) on disposals of assets Other items TOTAL Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) Exploration & Production Integrated Gas, Renewables & Power Refining & Chemicals Marketing & Services Corporate – – 327 48 – – (44) – – – (44) (4) (32) (8) (22) – (36) (13) – – (1,379)* – – – – (44) (7) – 1 – (1,467) (91) 282 41 (22) – – (83) (11) – – (80) – – – – (10) (10) – – (7,272) (829) – – – – – – – – (77) (131) (14) 10 12 (7,349) (1,050) (107) (1) 12 – – 926 138 – – (50) – – – (85) (12) (71) (43) (60) – (180) (13) – – (1,379)* – – – – (41) (42) (9) 5 – (1,505) (284) 833 100 (60) – – (1,364) (144) – – (79) – – – (3) (22) (75) – – (7,272) (829) – – – – – – – – 51 (256) (36) (71) (142) (7,224) (1,186) (1,475) (215) (142) Total 375 (44) (110) (49) (1,379) (50) (1,257) (94) (80) (20) (8,101) – (200) (8,495) 1,064 (50) (271) (193) (1,379) (87) (916) (1,508) (79) (100) (8,101) – (454) (10,242) 02 41 02 42 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 4) Shareholders’ equity Treasury shares (TotalEnergies shares held directly by TotalEnergies SE) Shares to be allocated as part of performance share grant plans including the 2019 Plan 99,750 including other Plans 74,675 Total Treasury shares 174,425 Dividend The Shareholders’ meeting of May 28, 2021 approved the distribution of a dividend of €2.64 per share for the 2020 fiscal year and the payment of a final dividend of €0.66 per share given the three interim dividends that had already been paid. The dividend for the fiscal year 2020 was paid according to the following timetable: Dividend 2020 First interim Second interim Third interim Final Amount €0.66 €0.66 €0.66 €0.66 Set date May 4, 2020 July 29, 2020 October 29, 2020 May 28, 2021 Ex-dividend date September 25, 2020 January 4, 2021 March 25, 2021 June 24, 2021 Payment date October 2, 2020 January 11, 2021 April 1, 2021 July 1, 2021 Furthermore, on July 28, 2021 the Board of Directors decided to set the second interim dividend for the fiscal year 2021 at €0.66 per share, equal to the first interim dividend. This second interim dividend will be paid in cash on January 13, 2022 (the ex-dividend date will be January 3, 2022). Dividend 2021 First interim Second interim Amount €0.66 €0.66 Set date April 28, 2021 July 28, 2021 Ex-dividend date September 21, 2021 January 3, 2022 Payment date October 1, 2021 January 13, 2022 Earnings per share in Euro Perpetual subordinated notes Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro/USD exchange rate for the period, amounted to €0.66 per share for the 2nd quarter 2021 (€1.03 per share for the 1st quarter 2021 and €(2.98) per share for the 2nd quarter 2020). Diluted earnings per share calculated using the same method amounted to €0.66 per share for the 2nd quarter 2021 (€1.02 per share for the 1st quarter 2021 and €(2.98) per share for the 2nd quarter 2020). Earnings per share are calculated after remuneration of perpetual subordinated notes. The Company issued perpetual subordinated notes in January 2021: • Perpetual subordinated notes 1.625% callable in January 2028, or in anticipation in October 2027 (EUR 1,500 million); and Perpetual subordinated notes 2.125% callable in January 2033, or in anticipation in July 2032 (EUR 1,500 million). Following the two tender operations on perpetual subordinated notes 2.250% callable from February 2021 (carried out in April 2019 and September 2020 for EUR 1,500 million and EUR 703 million respectively), TotalEnergies SE fully reimbursed the residual nominal amount of this note at its first call date for an amount of EUR 297 million on February 26, 2021. Financial report – First half 2021 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) Other comprehensive income Detail of other comprehensive income is presented in the table below: (M$) 1st half 2021 1st half 2020 Actuarial gains and losses 449 (223) Change in fair value of investments in equity instruments 68 (74) Tax effect (154) 86 Currency translation adjustment generated by the parent company (2,934) (196) Sub-total items not potentially reclassifiable to profit and loss (2,571) (407) Currency translation adjustment 1,777 (940) Unrealized gain/(loss) of the period 1,898 (907) Less gain/(loss) included in net income 121 33 Cash flow hedge 80 (1,293) Unrealized gain/(loss) of the period (56) (1,317) Less gain/(loss) included in net income (136) (24) Variation of foreign currency basis spread (4) 70 Unrealized gain/(loss) of the period (29) 42 Less gain/(loss) included in net income (25) (28) Share of other comprehensive income of equity affiliates, net amount 451 (927) Unrealized gain/(loss) of the period 449 (936) Less gain/(loss) included in net income (2) (9) Other – 3 Tax effect (57) 367 Sub-total items potentially reclassifiable to profit and loss 2,247 (2,720) Total other comprehensive income, net amount (324) (3,127) Tax effects relating to each component of other comprehensive income are as follows: 1st half 2021 1st half 2020 (M$) Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 449 (141) 308 (223) 56 (167) Change in fair value of investments in equity instruments 68 (13) 55 (74) 30 (44) Currency translation adjustment generated by the parent company (2,934) – (2,934) (196) – (196) Sub-total items not potentially reclassifiable to profit and loss (2,417) (154) (2,571) (493) 86 (407) Currency translation adjustment 1,777 – 1,777 (940) – (940) Cash flow hedge 80 (55) 25 (1,293) 389 (904) Variation of foreign currency basis spread (4) (2) (6) 70 (22) 48 Share of other comprehensive income of equity affiliates, net amount 451 – 451 (927) – (927) Other – – – 3 – 3 Sub-total items potentially reclassifiable to profit and loss 2,304 (57) 2,247 (3,087) 367 (2,720) Total other comprehensive income (113) (211) (324) (3,580) 453 (3,127) Financial report – First half 2021 02 43 02 44 Consolidated Financial Statements as of June 30, 2021 Notes to the Consolidated Financial Statements for the first six months 2021 (unaudited) 5) Financial debt The Company has not issued any new senior bond during the first six months of 2021. The Company reimbursed two senior bonds during the first six months of 2021: • Bond 4.125% issued in 2011 and maturing in January 2021 (USD 500 million) • Bond 2.750% issued in 2014 and maturing in June 2021 (USD 1,000 million). On April 2, 2020, the Company put in place a committed syndicated credit line with banking counterparties for an initial amount of USD 6,350 million and with a 12-month tenor (with the option to extend its maturity twice by a further 6 months at TotalEnergies’ hand). On April 1, 2021, the Company reimbursed in full the balance of this committed syndicated credit line for an amount of USD 2,646 million. 6) Related parties The related parties are mainly equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2021. 7) Other risks and contingent liabilities TotalEnergies is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the assets and liabilities, results, financial position or operations of the TotalEnergies, other than those mentioned below. Yemen In Yemen, the deterioration of security conditions in the vicinity of the Balhaf site caused the company Yemen LNG, in which TotalEnergies holds a stake of 39.62%, to stop its commercial production and export of LNG and to declare force majeure to its various stakeholders in 2015. The plant has been put in preservation mode. Mozambique Considering the evolution of the security situation in the north of the Cabo Delgado province in Mozambique, TotalEnergies has confirmed on April 26, 2021 the withdrawal of all Mozambique LNG project personnel from the Afungi site. This situation led TotalEnergies, as operator of Mozambique LNG project, to declare force majeure. 8) Subsequent events On July 9, 2021, TotalEnergies executed a Share Purchase Agreement with PDVSA for the sale of its 30.323% interest in the share capital of Petrocedeño in Venezuela. The contractual conditions necessary to close this transaction are the approval of the Venezuelan Ministry of Petroleum (MINPET) and the approval of the Board of Directors of TotalEnergies SE. The Board of Directors of TotalEnergies SE approved this transaction on July 28, 2021. Financial report – First half 2021 TotalEnergies SE 2 place Jean-Millier 92400 Courbevoie - France Capital Social : 6 574 599 040,00 euros 542 051 180 RCS Nanterre Standard : +33 (0)1 47 44 45 46 Communication financière : +44 (0)207 719 7962 Relations actionnaires individuels : N° Vert 0 800 039 039 | Semestriel, 2021, Energy, TotalEnergies | write me a financial report |
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| Financial reportFirst half 2022 Table of contents Certification of the person responsible for the half-year financial report Glossary 3 4 2 Consolidated Financial Statements as of June 30, 2022 1 Half year financial report 1.1 1.2 1.3 Highlights since the beginning of 2022 Key figures from TotalEnergies’ consolidated financial statements Key figures of environment, greenhouse gas emissions and production 1.3.1 Environment – liquids and gas price realizations, refining margins 1.4 1.3.2 Greenhouse gas emissions 1.3.3 Production Analysis of business segments 1.4.1 Integrated Gas, Renewables & Power (iGRP) 1.4.2 Exploration-Production 1.4.3 Downstream (Refining & Chemicals and Marketing & Services) 1.5 TotalEnergies results 1.5.1 Adjusted net operating income from business segments 1.5.2 Adjusted net income (TotalEnergies share) 1.5.3 Adjusted earnings per share 1.5.4 Acquisitions – asset sales 1.5.5 Net cash flow 1.5.6 Profitability TotalEnergies SE accounts 2022 Sensitivities Summary and outlook 1.6 1.7 1.8 1.9 Other information 1.9.1 Results from Russian assets 1.9.2 Operating information by segment 1.9.3 Adjustment items to net income (TotalEnergies 5 6 8 9 9 9 10 10 10 11 13 15 15 15 15 15 15 15 16 16 16 17 17 17 20 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Statutory Auditors’ Review Report on the half-yearly Financial Information Consolidated statement of income – half-yearly Consolidated statement of comprehensive income – half-yearly Consolidated statement of income – quarterly Consolidated statement of comprehensive income – quarterly Consolidated balance sheet Consolidated statement of cash flow – half-yearly Consolidated statement of cash flow – quarterly Consolidated statement of changes in shareholders’ equity 2.10 Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 1) Basis of preparation of the consolidated financial statements Changes in the Company structure Business segment information Shareholders’ equity Financial debt Related parties Other risks and contingent liabilities Subsequent events 2) 3) 4) 5) 6) 7) 8) share) 1.9.4 Reconciliation of adjusted EBITDA with consolidated financial statements 20 1.9.5 Investments – Divestments 1.9.6 Cash-flow 1.9.7 Gearing ratio 1.9.8 Return on average capital employed 1.10 Principal risks and uncertainties for the remaining 21 22 22 23 23 six months of 2022 1.11 Major related parties’ transactions 1.12 Disclaimer 23 24 The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 29, 2022 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code 27 28 29 30 31 32 33 34 35 36 37 37 37 39 52 54 54 54 54 Financial report 1st half 2022 Certification of the person responsible for the half-year financial report This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TotalEnergies SE (the Corporation) for the first half of 2022 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Corporation and all the entities included in the consolidation, and that the half-year financial report on pages 5 to 25 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 28 of this half-year financial report.” Courbevoie, July 28, 2022 Patrick Pouyanné Chairman and Chief Executive Officer Glossary The terms “TotalEnergies” and “TotalEnergies company” as used in this document refer to TotalEnergies SE collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Corporation” as used in this document exclusively refers to TotalEnergies SE, which is the parent company of TotalEnergies company. Abbreviations € : euro Units of measurement b = barrel(1) $ or dollar : US dollar b = billion ADR : American depositary receipt (evidencing an ADS) Bcm = billion of cubic meters ADS : American depositary share (representing a share of a company) boe = barrel of oil equivalent btu = British thermal unit AMF : Autorité des marchés financiers (French Financial Markets Authority) cf = cubic feet API : American Petroleum Institute CO2e = CO2 equivalent CO2 : carbon dioxide /d = per day DACF : debt adjusted cash flow is defined as operating cash flow before working capital changes without financial charges GtCO2 = billion of CO2 tons GW = gigawatt EV : electric vehicle GWh = gigawatt hour FLNG : floating liquefied natural gas k = thousand FPSO : floating production, storage and offloading km = kilometer FSRU : floating storage and regasification unit m = meter GHG : greenhouse gas m³ = cubic meter(1) HSE : health, safety and the environment M = million IFRS : International Financial Reporting Standards MW = megawatt IPIECA : International Petroleum Industry Environmental Conservation Association PJ = petajoule t = (Metric) ton LNG : liquefied natural gas toe = ton of oil equivalent LPG : liquefied petroleum gas TWh = terawatt hour NGL : natural gas liquids W = watt NGV : natural gas vehicle Wac = AC watt OML : oil mining lease Wp = watt-peak or watt of peak power PPA : Power Purchase Agreement /y = per year ROACE : return on average capital employed ROE : SEC : return on equity United States Securities and Exchange Commission Conversion table 1 acre ≈ 0.405 hectares VCM : variable cost margin – Refining Europe 1 b = 42 gallons US ≈ 159 liters This indicator represents the average margin on variable costs realized by TotalEnergies’ European refining busines. It is equal to the difference between the sales of refined products realized by TotalEnergies’ European refining and the crude purchases as well as associated variable costs, divided by refinery throughput in tons. 1 b/d of crude oil ≈ 50 t/y of crude oil 1 km ≈ 0.62 miles 1 m³ ≈ 35.3 cf 1 Mt de LNG ≈ 48 Bcf of gas 1 Mt/y of LNG ≈ 131 Mcf/d of gas VE : véhicule électrique 1 t of oil ≈ 7.5 b of oil (assuming a specific gravity of 37° API) 1 boe = 1 b of crude oil ≈ 5,378 cf of gas in 2021(2) (5,399 cf in 2020 and 5,395 cf in 2019) (1) Liquid and gas volumes are reported at international standard metric conditions (15°C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of TotalEnergies’ natural gas reserves during the applicable periods and is subject to change. The tabular conversion rate is applicable to TotalEnergies natural gas reserves on a Company-wide basis. 1 Half year financial report 1.1 Highlights since the beginning of 2022 5 1.6 TotalEnergies SE accounts 16 1.2 Key figures from TotalEnergies’ consolidated financial statements 8 1.7 2022 Sensitivities 16 1.8 Summary and outlook 16 1.3 Key figures of environment, greenhouse gas emissions and production 9 1.9 Other information 17 1.3.1 Environment – liquids and gas price realizations, refining margins 9 1.9.1 Results from Russian assets 1.9.2 Operating information by segment 17 17 1.3.2 Greenhouse gas emissions 9 1.9.3 Adjustment items to net income (TotalEnergies share) 20 1.3.3 Production* 10 1.9.4 Reconciliation of adjusted EBITDA with consolidated 1.4 Analysis of business segments 10 1.9.5 financial statements Investments – Divestments 20 21 1.4.1 Integrated Gas, Renewables & Power (iGRP) 10 1.9.6 Cash-flow 22 1.4.2 Exploration-Production 11 1.9.7 Gearing ratio 22 1.4.3 Downstream (Refining & Chemicals and Marketing & 1.9.8 Return on average capital employed 23 Services) 13 1.10 Principal risks and uncertainties for the 1.5 TotalEnergies results 15 remaining six months of 2022 23 1.5.1 Adjusted net operating income from business segments 15 1.5.2 Adjusted net income (TotalEnergies share) 15 1.11 Major related parties’ transactions 23 1.5.3 Adjusted earnings per share 15 1.5.4 Acquisitions – asset sales 15 Disclaimer 24 1.5.5 Net cash flow 15 1.5.6 Profitability 15 Chapter 1 / Half year financial report / 1 1.1 Highlights since the beginning of 2022(1) Social and environmental responsibility – Statement of principles of conduct for managing its Russian activities – Publication Climate & 2022 Progress Report presenting the advances made on TotalEnergies' transformation strategy and the update of its climate ambition of the Sustainability – Implementation of the responsible withdrawal of TotalEnergies from Myanmar: transfer of the operatorship to PTTEP by ensuring a fair transition for key stakeholders, employees and communities – Climate Resolution 2022 approved by 89% of shareholders at the Annual General Meeting of May 25, 2022 – Publication of TotalEnergies' first tax transparency report – Solidarity measures taken by TotalEnergies in France aimed at reducing its customers' gas and fuel bills with a discount of 10 cts on each liter of fuel sold at its service stations and the implementation of a "gas cheque" of €100 for its gas customers in a precarious energy situation – Launched global campaign to detect and measure methane emissions by drone – Fuel price reduction programme until year-end for TotalEnergies’ service stations in France Renewables and Electricity – Acquisition of 50% of Clearway Energy Group, a major player in the United States, with 7.7 GW of solar and wind assets in operation and a portfolio of 25 GW in development – Solar: – Acquisition of SunPower's industrial and commercial solar business in the United States – Offshore wind: – Award of leases to develop offshore wind farms for 3 GW on the east coast of the United States, off New York and New Jersey, and 2 GW in Scotland with Green Investment Group (GIG) and RIDG – Partnership with KGHM in Poland to participate in the Polish government tender for the development of offshore wind projects – Obtained an offshore concession to develop a 1 GW offshore wind farm off the U.S. East Coast, off the coast of North Carolina – Creation of a joint venture with Eneos to develop onsite B2B solar distributed generation across Asia, with a target capacity of 2 GW in the next 5 years – Core Solar: acquisition of a 4 GW pipeline of projects in the United States – Launched TotalEnergies On, TotalEnergies’ start-up accelerator program dedicated to the electricity business, with the selection of the first 10 start-ups LNG – Acquired 6.25% stake in the North Field East LNG project in Qatar – Launched the FEED for the Cameron LNG extension project in the with a capacity of 32 Mt/y U.S. with a capacity of 6.75 Mt/y – Expansion of the strategic alliance with Sempra to develop the Vista Pacifico LNG project in Mexico and to co-develop several onshore and offshore renewable projects in North America – Launched the FEED for the upstream installations of the Papua LNG project in Papua New Guinea – Signed a 15-year contract for the sale of 600 kt/y of LNG with Hanwha Energy in South Korea Upstream – Withdrawal from the North Platte deep-water project in the Gulf of Mexico – Significant new oil and associated gas discovery at the Krabdagu-1 – Approved the development of the Ballymore field in the U.S. Gulf of Mexico for a planned 2025 start-up with 75 kb/d of production capacity well located on Block 58 in Suriname – 25-year license extension Blocks 404a and 208 in the Berkine Basin, – Significant discovery of light oil and associated gas on the Venus Algeria prospect located on Block 2913B in Namibia – Agreed to transfer to Zarubezhneft the 20% residual interest in the – Started production on the first 180 kb/d FPSO on the Mero field in Kharyaga oil field in Russia Brazil (1) Certain transactions referred to in the highlights are subject to approval by authorities or to conditions as per the agreements. 6-7 Downstream and new molecules – Started the ethane cracker in Port Arthur, USA – Hydrogen: acquired a 25% stake in Adani New Industries Limited (ANIL) for the production of green hydrogen in India – Sustainable aviation fuel: – Start of sustainable aviation fuel production at the Normandy platform, in France – Collaboration with Eneos to jointly conduct a feasibility study of a sustainable aviation fuel production unit with 300 kt/y capacity at their Negishi refinery in Japan Carbon sinks – $50 million contribution in the Tropical Asia Forest Fund 2 to invest in sustainable forestry projects in Southeast Asia – Start-up of the "3D" carbon capture industrial pilot at the ArcelorMittal site in Dunkirk – Circular economy: – Signature of an agreement with Honeywell to promote development of advanced plastic recycling in Europe – Commercial agreement with New Hope Energy for the production of polymers from recycled plastic in the United States – Acquired a 49% stake in Compagnie des Bois du Gabon to develop natural carbon sinks – Launched a CO2 capture project to decarbonize Cameron LNG's production in the U.S Chapter 1 / Half year financial report / Highlights since the beginning of 2022 the 1 1.2 Key figures from TotalEnergies’ consolidated financial statements(1) In millions of dollars, except effective tax rate, earnings per share and number of shares 1H22 1H21 Adjusted EBITDA(2) 36,161 16,837 Adjusted net operating income from business segments 19,958 7,519 Exploration & Production 9,734 4,188 Integrated Gas, Renewables & Power 5,606 1,876 Refining & Chemicals 3,880 754 Marketing & Services 738 701 Contribution of equity affiliates to adjusted net income 3,805 1,260 Effective tax rate(3) 39.0% 34.4% Adjusted net income (TotalEnergies share) 18,773 6,466 Adjusted fully-diluted earnings per share (dollars)(4) 7.14 2.38 Adjusted fully-diluted earnings per share (euros)* 6.53 1.97 Fully-diluted weighted-average shares (millions) 2,602 2,644 Net income (TotalEnergies share) 10,636 5,550 Organic investments(5) 4,800 5,181 Net acquisitions(6) 2,998 1,986 Net investments(7) 7,798 7,167 Operating cash flow before working capital changes(8) 24,859 11,718 Operating cash flow before working capital changes w/o financial charges (DACF)(9) 25,626 12,511 Cash flow from operations 23,901 13,149 Average €-$ exchange rate: 1.0934 in the first half 2022 and 1.2053 in the first half 2021. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 20. (2) Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) corresponds to the adjusted earnings before depreciation, depletion and impairment of tangible and intangible assets and mineral interests, income tax expense and cost of net debt, i.e., all operating income and contribution of equity affiliates to net income. (3) Effective tax rate = (tax on adjusted net operating income) / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). (4) In accordance with IFRS rules, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond (5) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (6) Net acquisitions = acquisitions – assets sales – other transactions with non-controlling interests (see page 21). (7) Net investments = organic investments + net acquisitions (see page 21). (8) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark- to-market effect of iGRP’s contracts and including capital gain from renewable projects sale. The inventory valuation effect is explained on page 24. The reconciliation table for different cash flow figures is on page 22. (9) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. 8-9 1H22 vs 1H21 x2.1 x2.7 x2.3 x3 x5.1 +5% x3 x2.9 x3 x3.3 2% +92% 7% +51% +9% x2.1 x2 +82% 1.3 Key figures of environment, greenhouse gas emissions and production 1.3.1 Environment – liquids and gas price realizations, refining margins 1H22 1H21 1H22 vs 1H21 Brent ($/b) 107.9 65.0 +66% Henry Hub ($/Mbtu) 6.1 2.9 x2.1 NBP ($/Mbtu) 27.2 7.7 x3.5 JKM ($/Mbtu) 29.1 10.0 x2.9 Average price of liquids ($/b) Consolidated subsidiaries 96.3 59.7 +61% Average price of gas ($/Mbtu) Consolidated subsidiaries 11.65 4.23 x2.8 Average price of LNG ($/Mbtu) Consolidated subsidiaries and equity affiliates 13.77 6.33 x2.2 Variable cost margin - Refining Europe, VCM ($/t)* 101.0 7.6 x13.3 This indicator represents TotalEnergies’ average margin on variable cost for refining in Europe (equal to the difference between TotalEnergies European refined product sales and crude oil purchases with associated variable costs divided by volumes refined in tons). The average LNG selling price was $13.77/Mbtu in the first half, more than double the prices over the same period in 2021, benefiting on a lagged basis from the increase in oil and gas indexes on long-term contracts as well as high spot gas prices over these periods. 1.3.2 Greenhouse gas emissions(1) GHG emissions (MtCO2e) 1H22 1H21 1H22 vs 1H21 Scope 1+2 from operated facilities(2) 19.3 17.8* +9% Scope 1+2 - equity share 27.4 Scope 3 Oil & Gas Worldwide(3) 192* 193* of which Scope 3 Oil Worldwide(4) 131* 137* 4% Scope 1+2+3 in Europe(5) 129* 121* +6% of which Scope 3 in Europe 117* 111* +6% Estimated 1H22 emissions. Equity share half year 2021 data is not available. Excluding Covid effect Methane emissions (ktCH4) 1H22 1H21 1H22 vs 1H21 Methane emissions from operated facilities 20 24 18% Methane emissions - equity share 24 Estimated 1H22 emissions. Equity share half year 2021 data is not available. The evolution of Scope 1+2 emissions from the operated facilities is the result of the high-capacity utilization of CCGTs and refineries in Europe, TotalEnergies responding by increasing energy output, thus contributing to energy security. (1) The six greenhouse gases in the Kyoto protocol, namely CO2, CH4, N2O, HFCs, PFCs and SF6, with their respective GWP (Global Warming Potential) as described in the 2007 IPCC report. HFCs, PFCs and SF6 are virtually absent from the Company’s emissions or are considered as non-material, and are therefore not counted. (2) Scope 1+2 GHG emissions of operated facilities are defined as the sum of direct emissions of greenhouse gases from sites or activities that are included in the scope of reporting (as defined in the Company’s 2021 Universal Registration Document) and indirect emissions attributable to brought-in energy (electricity, heat, steam), excluding purchased industrial gases (H2). (3) TotalEnergies reports Scope 3 GHG emissions, category 11, which correspond to indirect GHG emissions related to the use by customers of energy products, i.e., combustion of the products to obtain energy. The Company follows the oil & gas industry reporting guidelines published by IPIECA, which comply with the GHG Protocol methodologies. In order to avoid double counting, this methodology accounts for the largest volume in the oil and gas value chain, i.e., the higher of the two production volumes or sales to end customers. For TotalEnergies, in 2021 and 2022, the calculation of Scope 3 GHG emissions for the oil value chain considers oil products and biofuels sales (higher than production) and for the gas value chain, gas sales either as LNG or as part of direct sales to B2B/B2C customers (higher than or equivalent to marketable gas production). (4) Scope 3 GHG emissions, category 11, which correspond to indirect GHG emissions related to the sale of petroleum products (including biofuels). (5) Scope 1+2+3 GHG emissions in Europe are defined as the sum of Scope 1+2 GHG emissions of facilities operated by the Company and indirect GHG emissions related to the use by customers of energy products (Scope 3) in the EU, Norway, United Kingdom and Switzerland. Chapter 1 / Half year financial report / Key figures of environment, greenhouse gas emissions and production 1 1.3.3 Production* Hydrocarbon production 1H22 1H21 1H22 vs 1H21 Hydrocarbon production (kboe/d) 2,791 2,805 0.5% Oil (including bitumen) (kb/d) 1,287 1,265 +2% Gas (including condensates and associated NGL) (kboe/d) 1,504 1,540 2% Hydrocarbon production (kboe/d) 2,791 2,805 0.5% Liquids (kb/d) 1,505 1,486 +1% Gas (Mcf/d) 6,997 7,208 3% Company production = E&P production + iGRP production Hydrocarbon production was 2,791 kboe/d in the first half 2022, down slightly by 0.5% year-on-year, comprised of: – +2% due to the increase in production quotas of OPEC countries, – +2% due to the start-up and ramp-up of projects, including Clov Phase 2 and Zinia Phase 2 in Angola, and Iara in Brazil, – -2% portfolio effect, mainly related to the end of the Qatargas 1 operating license, – -1% due to security-related production cuts in Libya and Nigeria, – -1% due to the price effect, – -2.5% due to the natural decline of fields. – +2% due to a reduction in planned maintenance and unplanned downtime, 1.4 Analysis of business segments 1.4.1 Integrated Gas, Renewables & Power (iGRP) 1.4.1.1 PRODUCTION AND SALES OF LIQUEFIED NATURAL GAS (LNG) AND ELECTRICITY Hydrocarbon production for LNG 1H22 1H21 1H22 vs 1H21 iGRP (kboe/d) 477 510 6% Liquids (kb/d) 56 58 2% Gas (Mcf/d) 2,291 2,470 7% Liquefied Natural Gas in Mt 1H22 1H21 1H22 vs 1H21 Overall LNG sales 24.9 20.4 +22% incl. Sales from equity production* 8.6 8.5 incl. Sales by TotalEnergies from equity production and third party purchases 22.2 16.7 +33% The Company's equity production may be sold by Total Energies or by the joint ventures. Hydrocarbon production for LNG is down 6% year-on-year in the first half 2022, mainly due to the end of the Qatargas 1 contract and the decrease in supply to NLNG for security reasons in Nigeria. Production in Snøhvit, Norway, restarted in the second quarter. Total LNG sales are up year-on-year by 22% in the first half 2022, due to the increase in spot purchases to maximize the use of the Company's regasification capacity in Europe. 10-11 Renewables & Electricity 1H22 1H21 1H22 vs 1H21 Portfolio of renewable power generation gross capacity (GW)(1)(2) 50.7 41.7 +22% o/w installed capacity 11.6 8.3 +40% o/w capacity in construction 5.2 5.4 4% o/w capacity in development 33.9 28.0 +21% Gross renewables capacity with PPA (GW)(1)(2) 26.8 22.6 +19% Portfolio of renewable power generation net capacity (GW)(1)(2) 38.4 30.7 +25% o/w installed capacity 5.8 4.0 +46% o/w capacity in construction 3.7 3.1 +17% o/w capacity in development 28.9 23.6 +22% Net power production (TWh)(3) 15.2 9.8 +56% incl. Power production from renewables 4.7 3.2 +47% Clients power – BtB and BtC (Million)(2) 6.2 5.8 +6% Clients gas – BtB and BtC (Million)(2) 2.7 2.7 +1% Sales power – BtB and BtC (TWh) 28.6 28.8 Sales gas – BtB and BtC (TWh) 54.1 56.8 5% Proportional adjusted EBITDA Renewables and Electricity (M$)(4) 637 654* 3% incl. from renewables business 222 230* 4% 1H21 data corrected after taking into account AGEL’s result. (1) Includes 20% of Adani Green Energy Ltd’s gross capacity effective first quarter 2021. (2) End of period data. (3) Solar, wind, biogas, hydroelectric and combined-cycle gas turbine (CCGT) plants. (4) TotalEnergies share (% interest) of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) in Renewables & Electricity affiliates, regardless of consolidation method. Gross installed capacity of renewable electricity generation grew to 11.6 GW at the end of first half 2022. plants (CCGT) as well as growth in electricity generation from renewable sources. Net electricity production was 15.2 TWh in the first half 2022, an increase of 56% year-on-year, thanks to higher utilization rates of flexible power EBITDA from the Renewables & Electricity business reached $637 million in the first half 2022, down 3% year-on-year. 1.4.1.2 RESULTS In millions of dollars 1H22 1H21 1H22 vs 1H21 Adjusted net operating income* 5,606 1,876 x3 including adjusted income from equity affiliates 2,649 620 x4.3 Organic investments 599 1,512 60% Net acquisitions 583 2,059 72% Net investments 1,182 3,571 67% Operating cash flow before working capital changes** 4,945 1,963 x2.5 Cash flow from operations*** 4,285 1,347 x3.2 Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial expenses, except those related to lease contracts, excluding the impact of contracts recognized at fair value for the sector and including capital gains on the sale of renewable projects. *** Excluding financial charges, except those related to leases. Adjusted net operating income for the iGRP sector was $5,606 million in the first half 2022, tripling over one year, thanks to higher LNG prices, the performance of the gas, LNG and electricity trading activities and the growing contribution of the Renewables & Electricity businesses. Operating cash flow before working capital changes was 2.5 times higher over one year to $4,945 million in the first half 2022, for the same reasons. Chapter 1 / Half year financial report / Analysis of business segments 1 1.4.2 Exploration-Production 1.4.2.1 PRODUCTION Hydrocarbon production 1H22 1H21 1H22 vs 1H21 EP (kboe/d) 2,314 2,295 +1% Liquids (kb/d) 1,449 1,428 +1% Gas (Mcf/d) 4,706 4,738 1% 1.4.2.2 RESULTS In millions of dollars, except effective tax rate 1H22 1H21 1H22 vs 1H21 Adjusted net operating income* 9,734 4,188 x2.3 including adjusted income from equity affiliates 642 549 +17% Effective tax rate** 47.1% 39.5% Organic investments 3,299 2,838 +16% Net acquisitions 2,541 29 x87.6 Net investments 5,840 2,867 x2 Operating cash flow before working capital changes*** 14,686 8,086 +82% Cash flow from operations*** 14,536 8,571 +70% Details on adjustment items are shown in the business segment information annex to financial statements. ** Tax on adjusted net operating income/(adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). *** Excluding financial charges, except those related to leases. Adjusted net operating income for Exploration & Production was $9,734 million in the first half 2022, 2,3 times higher in the first half 2021, thanks to the sharp increase in oil and gas prices. Operating cash flow before working capital changes increased by 82% to $14,686 million in the first half 2022, in line with higher oil and gas prices. 12-13 1.4.3 Downstream (Refining & Chemicals and Marketing & Services) 1.4.3.1 RESULTS In millions of dollars 1H22 1H21 1H22 vs 1H21 Adjusted net operating income* 4,618 1,455 x3.2 Organic investments 878 803 +9% Net acquisitions (125) (104) ns Net investments 753 699 +8% Operating cash flow before working capital changes** 5,444 2,332 x2.3 Cash flow from operations** 6,111 4,330 +41% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. 1.4.3.2 REFINING & CHEMICALS 1.4.3.2.1 REFINERY AND PETROCHEMICALS THROUGHPUT AND UTILIZATION RATES Refinery throughput and utilization rate* 1H22 1H21 1H22 vs 1H21 Total refinery throughput (kb/d) 1,448 1,109 +31% France 324 131 x2.5 Rest of Europe 627 578 +8% Rest of world 497 400 +24% Utlization rate based on crude only** 81% 58% Includes refineries in Africa reported in the Marketing & Services segment. ** Based on distillation capacity at the beginning of the year, excluding Grandpuits (definitively shut down first quarter 2021) from 2021 and Lindsey refinery (divested) from second quarter 2021. Petrochemicals production and utilization rate 1H22 1H21 1H22 vs 1H21 Monomers* (kt) 2,611 2,829 8% Polymers (kt) 2,461 2,377 +4% Vapocracker utilization rate** 78% 88% Olefins. ** Based on olefins production from steamcrackers and their treatment capacity at the start of the year. Refinery throughput Increased by 31% in the first half 2022 over one year due to the recovery in demand, particularly in Europe and the United States, the restart of the Donges refinery in France and the Leuna refinery in Germany, which was scheduled for a major turnaround in the second quarter 2021, as well as the restart, in 2021, of the distillation unit of the Normandy refinery in France. Monomer production was down 8% in the first half 2022 year-on-year, mainly due to planned turnarounds at the Antwerp in Belgium and Feyzin in France as well as construction affecting sites in the U.S. Chapter 1 / Half year financial report / Analysis of business segments 1 1.4.3.2.2 RESULTS In millions of dollars 1H22 1H21 1H22 vs 1H21 Adjusted net operating income* 3,880 754 x5.1 Organic investments 510 501 +2% Net acquisitions (34) (55) ns Net investments 476 446 +7% Operating cash flow before working capital changes** 4,396 1,147 x3.8 Cash flow from operations** 4,633 3,228 +44% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. Adjusted net operating the Refining-Chemicals was exceptional: $3,880 million in the first half of 2022 compared to $754 million a year ago, due to higher refined volumes in response to the recovery in demand in Europe and the United States, very high margins on distillates and gasoline in the context of reduced imports of Russian income for petroleum products, as well as the outperformance of crude oil and petroleum product trading activities. Operating cash flow before working capital changes also increased sharply to to $4,396 million in the first half 2022. 1.4.3.3 MARKETING & SERVICES 1.4.3.3.1 PETROLEUM PRODUCT SALES Sales in kb/d* 1H22 1H21 1H22 vs 1H21 Total Marketing & Services sales 1,464 1,458 Europe 804 783 +3% Rest of world 661 674 2% Excludes trading and bulk refining sales. Sales of petroleum products were stable in the first half 2022 compared to the same periods last year, as the recovery in aviation and network activities worldwide offset the decline in sales to commercial and industrial customers, particularly in Europe. 1.4.3.3.2 RESULTS In millions of dollars 1H22 1H21 1H22 vs 1H21 Adjusted net operating income* 738 701 +5% Organic investments 368 302 +22% Net acquisitions (91) (49) ns Net investments 277 253 +9% Operating cash flow before working capital changes** 1,048 1,185 12% Cash flow from operations** 1,478 1,102 +34% Detail of adjustment items shown in the business segment information annex to financial statements. ** Excluding financial charges, except those related to leases. In first half 2022, adjusted net operating income was $738 million, up 5% year-on-year, thanks mainly to the recovery of the network and aviation activities.. Operating cash flow before working capital changes was down 12% year- on-year to $1,048 million in the first half 2022, mainly due to the fiscal effect of higher prices on the valuation of petroleum product inventories. 14-15 1.5 TotalEnergies results 1.5.1 Adjusted net operating income from business segments Adjusted net operating income for the sectors was $19,958 million in the first half 2022, compared to $7,519 million a year earlier, due to higher oil and gas prices, refining margins and the good performance of trading activities. 1.5.2 Adjusted net income (TotalEnergies share) Adjusted net income (TotalEnergies share) was $18,773 million in the first half 2022 compared to $6,466 million a year earlier, due to higher oil and gas prices, refining margins and the good performance of trading activities. Adjusted net income excludes the after-tax inventory effect, special items and impact of changes in fair value(1). the export of LNG technologies benefiting a Russian company on the execution ability of the Arctic LNG 2 project, TotalEnergies took an impairment of $4.1 billion in its accounts as of March 31 2022. TotalEnergies recorded in its accounts as of June 30 2022 a new $3.5 billion impairment charge related mainly to the potential impact of international sanctions on the value of its Novatek stake. Total net income adjustments(2) were $(8,137) million in the first half 2022. Taking into account notably the impact of new sanctions prohibiting The effective tax rate for TotalEnergies was 39.0% in the first half 2022, compared to 34.4% in the first half 2021. 1.5.3 Adjusted earnings per share Adjusted fully-diluted earnings per share was $7.14 in the first half 2022, calculated based on 2,602 million weighted-average diluted shares, compared to $2.38 a year earlier. As of June 30, 2022, the number of fully-diluted shares was 2,578 million. As part of its shareholder return policy, TotalEnergies repurchased 55.3 million shares for cancellation in the first half of 2022 for $3 billion. 1.5.4 Acquisitions – asset sales Acquisitions were $3,864 million in the first half 2022 and included notably the bonus paid to the State of Brazil and the payments to Petrobras related to the award of the Atapu and Sepia Production Sharing Contracts in Brazil, as well as the bonus related to the offshore wind concessions in New York Bight and North Carolina, in the United States. Asset sales were $866 million in the first half 2022 and included notably the partial sale of the Landivisiau power generation plant in France, a payment related to the sale of interests in the CA1 offshore block in Brunei and the sale by SunPower of its Enphase shares. 1.5.5 Net cash flow TotalEnergies’ net cash flow(3) was $17,061 million in the first half 2022 compared to $4,551 million a year earlier, which takes into account the $13.1 billion increase in operating cash flow before changes in working capital, partially offset by a $631 million increase in net investments to $7,798 million in the first half 2022. 1.5.6 Profitability The return on equity was 27.1% for the twelve months ended June 30, 2022. In millions of dollars July 1, 2021 June 30, 2022 April 1, 2021 March 31, 2022 July 1, 2020 June 30, 2021 Adjusted net income 30,716 24,382 8,786 Average adjusted shareholders' equity 113,333 111,794 105,066 Return on equity (ROE) 27.1% 21.8% 8.4% The return on average capital employed was 23.1% for the twelve months ended June 30, 2022. In millions of dollars July 1, 2021 June 30, 2022 April 1, 2021 March 31, 2022 July 1, 2020 June 30, 2021 Adjusted net operating income 32,177 25,803 10,252 Average capital employed 139,377 143,517 142,172 ROACE 23.1% 18.0% 7.2% (1) Adjustment items shown on page 24. (2) Details shown on page 20 and in the appendix to the financial statements. (3) Net cash flow = cash flow - net investments (including other transactions with non-controlling interest). Chapter 1 / Half year financial report / TotalEnergies results 1 1.6 TotalEnergies SE accounts Net income for TotalEnergies SE, the parent company, was €3,702 million in the first half 2022 compared to €4,568 in the first half 2021. 1.7 2022 Sensitivities* Change Estimated impact on adjusted net operating income Estimated impact on cash flow from operations Dollar +/- 0.1 $ per € /+ 0.1 B$ ~0 B$ Average liquids price** +/-10 $/b +/- 2.7 B$ +/- 3.2 B$ European gas price - NBP +/-10 $/Mbtu +/- 3.0 B$ +/- 3.0 B$ Variable cost margin, European refining (VCM) +/-10 $/t +/- 0.4 B$ +/- 0.5 B$ Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about TotalEnergies’ portfolio in 2022. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. ** In a 60 $/b Brent environment. 1.8 Summary and outlook Oil and gas prices, while volatile, have remained at high levels since the beginning of the third quarter. Due to the limited additional spare capacity of production and refining at the global level, market disruptions linked to the sanctions against Russia and the counter-sanctions implemented by Russia, the supply-demand balance of energy markets are expected to remain fragile and support prices, especially gas. In the oil markets however, the price of Brent retreated to a level close to $100/bbl in July, due to negative expectations on global growth, and therefore on oil demand, in response to high energy prices and inflation. more than $15/Mbtu in the third quarter of 2022. However, the Company's LNG operations will be affected by the outage of the Freeport LNG plant in the third quarter. Despite the approximately 40 kboe/d increase in planned maintenance in the third quarter compared to the second quarter, TotalEnergies expects production to be stable compared to the second quarter due to the contribution of new projects, notably in Brazil with the production ramp-up of Mero 1 and the entry into Sépia and Atapu. The Refining business aims to maintain a high utilization rate. Gas prices are expected to remain high, particularly in Europe where gas indices exceeded $50/Mbtu in early July for winter 2022-23 futures contracts, due to fears of a shutdown in pipeline exports from Russia to Europe. Local electricity markets are also impacted by gas prices. With nearly $8 billion in investments recorded at the end of June, TotalEnergies anticipates net investments of around $16 billion in 2022, 25% of which will be in Renewables & Electricity. The Company is mobilizing its human and financial resources to contribute to the diversification of Europe's gas supply by maximizing the use of its LNG regasification capacity. Given the evolution of oil and gas prices in recent months and the lag effect on pricing formulas, TotalEnergies anticipates that its average LNG selling price should be Given the strong cash flow generation and strong balance sheet, the Board of Directors has decided to prioritize countercyclical opportunities to accelerate the Company's transformation. The shareholder return policy is reinforced through dividend growth of 5% and the continuation of the share buyback program of $2 billion in the third quarter. 16-17 1.9 Other information 1.9.1 Results from Russian assets 1H22 2021 Adjusted net operating income Operating cash flow before working capital changes Adjusted net operating income Operating cash flow before working capital changes Russian Upstream Assets 1,727 1,144 2,092 1,613 Capital Employed by TotalEnergies in Russia as at June 30, 2022 was $8,760 million, after taking into account the $3,513 million impairment and the impact of the evolution of the ruble/dollar exchange rate between March 31, 2022 and June 30, 2022, which leads to a $2,066 million revaluation of Capital Employed on the balance sheet as at June 30, 2022. 1.9.2 Operating information by segment 1.9.2.1 COMPANY’S PRODUCTION (EXPLORATION & PRODUCTION + IGRP) Combined liquids and gas production by region (kboe/d) 1H22 1H21 1H22 vs 1H21 Europe and Central Asia 1,007 1,018 1% Africa 479 542 12% Middle East and North Africa 675 652 +3% Americas 403 377 +7% Asia-Pacific 227 216 +5% Total production 2,791 2,805 includes equity affiliates 702 740 5% Liquids production by region (kb/d) 1H22 1H21 1H22 vs 1H21 Europe and Central Asia 343 363 5% Africa 362 407 11% Middle East and North Africa 542 500 +8% Americas 216 181 +19% Asia-Pacific 42 35 +21% Total production 1,505 1,486 +1% includes equity affiliates 206 207 1% Gas production by region (Mcf/d) 1H22 1H21 1H22 vs 1H21 Europe and Central Asia 3,563 3,523 +1% Africa 594 686 13% Middle East and North Africa 734 845 13% Americas 1,052 1,098 4% Asia-Pacific 1,054 1,056 Total production 6,997 7,208 3% includes equity affiliates 2,673 2,875 7% Chapter 1 / Half year financial report / Other information 1 1.9.2.2 DOWNSTREAM (REFINING & CHEMICALS AND MARKETING & SERVICES) Petroleum product sales by region (kb/d) Europe Africa Americas Rest of world Total consolidated sales Includes bulk sales Includes trading Petrochemicals production* (kt) Europe Americas Middle East and Asia Olefins, polymers 18-19 1H22 1,724 747 849 618 3,939 409 2,065 1H22 2,282 1,240 1,549 1H21 1,540 665 785 493 3,483 368 1,658 1H21 2,512 1,235 1,459 1H22 vs 1H21 +12% +12% +8% +25% +13% +11% +25% 1H22 vs 1H21 9% +6% 1.9.2.3 RENEWABLES 1H22 Installed power generation gross capacity (GW)(1),(2) Solar Onshore Wind Offshore Wind France 0.7 0.5 0.0 Rest of Europe 0.2 1.1 0.0 Africa 0.1 0.0 0.0 Middle East 0.7 0.0 0.0 North America 1.1 0.0 0.0 South America 0.4 0.3 0.0 India 4.9 0.2 0.0 Asia-Pacific 1.2 0.0 0.1 Total 9.2 2.1 0.1 (1) Includes 20% of gross capacity of Adani Green Energy Ltd effective first quarter 2021. (2) End-of-period data. Power generation gross capacity from renewables in construction (GW)(1),(2) Solar Onshore Wind 1H22 Offshore Wind France 0.2 0.2 0.0 Rest of Europe 0.0 0.0 1.1 Africa 0.0 0.0 0.0 Middle East 0.4 0.0 0.0 North America 1.3 0.0 0.0 South America 0.0 0.0 0.0 India 0.9 0.3 0.0 Asia-Pacific 0.1 0.0 0.6 Total 2.8 0.5 1.7 (1) Includes 20% of gross capacity of Adani Green Energy Ltd effective first quarter 2021. (2) End-of-period data. Power generation gross capacity from renewables in development (GW)(1),(2) Solar Onshore Wind 1H22 Offshore Wind France 2.3 0.5 0.0 Rest of Europe 4.8 0.3 4.4 Africa 0.6 0.1 0.0 Middle East 1.8 0.0 0.0 North America 6.2 0.1 4.0 South America 0.6 0.0 0.0 India 3.9 0.1 0.0 Asia-Pacific 1.7 0.2 1.2 Total 21.7 1.3 9.6 (1) Includes 20% of gross capacity of Adani Green Energy Ltd effective first quarter 2021. (2) End-of-period data. Other 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 Other 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Other 0.0 0.1 0.1 0.0 0.8 0.2 0.0 0.1 1.3 Total 1.3 1.3 0.1 0.7 1.1 0.7 5.1 1.2 11.6 Total 0.4 1.1 0.0 0.4 1.3 0.0 1.2 0.7 5.2 Total 2.8 9.5 0.8 1.8 11.0 0.8 4.0 3.2 33.9 1H21 Solar Onshore Wind Offshore Wind Other Total 0.5 0.5 0.0 0.1 1.0 0.1 1.0 0.0 0.1 1.1 0.1 0.0 0.0 0.0 0.1 0.3 0.0 0.0 0.0 0.3 0.8 0.0 0.0 0.0 0.9 0.4 0.1 0.0 0.0 0.5 3.5 0.1 0.0 0.0 3.6 0.7 0.0 0.0 0.0 0.7 6.4 1.8 0.0 0.1 8.3 1H21 Solar Onshore Wind Offshore Wind Other Total 0.3 0.1 0.0 0.1 0.5 0.1 0.1 1.1 0.0 1.3 0.0 0.0 0.0 0.0 0.0 0.8 0.0 0.0 0.0 0.8 0.3 0.0 0.0 0.0 0.3 0.0 0.2 0.0 0.0 0.2 0.9 0.2 0.0 0.0 1.1 0.5 0.0 0.6 0.0 1.1 2.8 0.6 1.8 0.1 5.4 1H21 Solar Onshore Wind Offshore Wind Other Total 3.2 0.8 0.0 0.0 4.0 5.3 0.3 0.4 0.0 6.0 0.4 0.1 0.0 0.2 0.6 0.1 0.0 0.0 0.0 0.1 3.5 0.2 0.0 0.7 4.3 0.6 1.0 0.0 0.0 1.7 6.2 0.1 0.0 0.0 6.3 1.1 0.0 0.0 0.0 1.1 20.3 2.5 0.4 0.8 24.0 Chapter 1 / Half year financial report / Other information 1 Gross renewables capacity covered by PPA at 06/30/2022 (GW) Solar Onshor e Wind In operation Offshore Wind Other Total Solar In construction Onshore Wind Offshore Wind Other Total Solar In development Onshore Wind Offshore Wind Other Total Europe 0.9 1.6 0.0 X 2.6 X X 0.8 X 1.2 3.4 0.2 0.0 X 3.6 Asia 6.0 0.2 X X 6.4 0.9 0.3 0.6 0.0 1.8 4.3 X 0.0 X 4.5 North America 1.0 X 0.0 X 1.1 1.3 0.0 0.0 X 1.3 X X 0.0 X X Rest of World 1.2 0.3 0.0 X 1.5 0.4 0.0 0.0 X 0.5 1.9 0.0 0.0 0.3 2.2 Total 9.2 2.1 X X 11.5 2.8 0.5 1.4 X 4.8 9.7 0.3 0.0 0.5 10.5 X : not specified, capacity < 0.2 GW. In operation In construction In development PPA average price at 06/30/2022 ($/MWh) Solar Onshore Wind Offshore Wind Other Total Solar Onshore Wind Offshore Wind Other Total Solar Onshore Wind Offshore Wind Other Total Europe 201 115 X 145 X X 72 X 75 44 85 X 46 Asia 70 43 X X 70 55 51 254 115 39 X X 39 North America 121 X X 125 28 X 28 X X X X Rest of World 90 54 X 82 18 X 18 76 76 Total 90 100 X X 93 38 64 146 X 73 43 81 145 45 X : not specified, PPA relating to a capacity < 0.2 GW. 1.9.3 Adjustment items to net income (TotalEnergies share) In millions of dollars 1H22 1H21 Special items affecting net income (TotalEnergies share) (9,539) (1,930) Gain (loss) on asset sales (1,379) Restructuring charges (11) (271) Impairments (8,780) (193) Other (748) (87) After-tax inventory effect : FIFO vs. replacement cost 2,033 1,064 Effect of changes in fair value (631) (50) Total adjustments affecting net income (8,137) (916) 1.9.4 Reconciliation of adjusted EBITDA with consolidated financial statements 1.9.4.1 RECONCILIATION OF NET INCOME (TOTALENERGIES SHARE) TO ADJUSTED EBITDA In millions of dollars 1H22 1H21 1H22 vs 1H21 Net income – TotalEnergies share 10,636 5,550 +92% Less: adjustment items to net income (TotalEnergies share) 8,137 916 x8.9 Adjusted net income – TotalEnergies share 18,773 6,466 x2.9 Adjusted items Add: non-controlling interests 165 147 +12% Add: income taxes 9,998 2,931 x3.4 Add: depreciation, depletion and impairment of tangible assets and mineral interests 6,186 6,285 2% Add: amortization and impairment of intangible assets 194 197 2% Add: financial interest on debt 1034 967 +7% Less: financial income and expense from cash & cash equivalents (189) (156) ns Adjusted EBITDA 36,161 16,837 x2.1 20-21 1.9.4.2 RECONCILIATION OF REVENUES FROM SALES TO ADJUSTED EBITDA AND NET INCOME (TOTALENERGIES SHARE) In millions of dollars 1H22 1H21 1H22 vs 1H21 Adjusted items Revenues from sales 134,398 80,310 +67% Purchases, net of inventory variation (86,785) (51,397) ns Other operating expenses (15,029) (13,576) ns Exploration costs (253) (290) ns Other income 550 554 1% Other expense, excluding amortization and impairment of intangible assets (604) (137) ns Other financial income 350 374 6% Other financial expense (271) (261) ns Net income (loss) from equity affiliates 3,805 1,260 x3 Adjusted EBITDA 36,161 16,837 x2.1 Adjusted items Less: depreciation, depletion and impairment of tangible assets and mineral interests (6,186) (6,285) ns Less: amortization of intangible assets (194) (197) ns Less: financial interest on debt (1,034) (967) ns Add: financial income and expense from cash & cash equivalents 189 156 +21% Less: income taxes (9,998) (2,931) ns Less: non-controlling interests (165) (147) ns Add: adjustment – TotalEnergies share (8,137) (916) ns Net income – TotalEnergies share 10,636 5,550 +92% 1.9.5 Investments – Divestments In millions of dollars 1H22 1H21 1H22 vs 1H21 Organic investments (a) 4,800 5,181 7% Capitalized exploration 212 488 57% Increase in non-current loans 511 672 24% Repayment of non-current loans, excluding organic loan repayment from equity affiliates (609) (185) ns Change in debt from renewable projects (TotalEnergies share) (190) (171) ns Acquisitions (b) 3,864 2,870 +35% Asset sales (c) 866 884 2% Change in debt from renewable projects (partner share) 174 105 +66% Net acquisitions 2,998 1,986 +51% Net investments (a + b - c) 7,798 7,167 +9% Other transactions with non-controlling interests (d) ns Organic loan repayment from equity affiliates (e) (725) (108) ns Change in debt from renewable projects financing* (f) 364 276 +32% Capex linked to capitalized leasing contracts (g) 73 47 +55% Expenditures related to carbon credits (h) 4 ns Cash flow used in investing activities (a + b - c - d + e + f - g - h) 7,360 7,288 +1% Change in debt from renewable projects (TotalEnergies share and partner share). Chapter 1 / Half year financial report / Other information 1 1.9.6 Cash-flow In millions of dollars 1H22 1H21 Operating cash flow before working capital changes w/o financials charges (DACF) 25,626 12,511 Financial charges (767) (793) Operating cash flow before working capital changes (a)* 24,859 11,718 (Increase) decrease in working capital** (2,614) 259 Inventory effect 2,406 1,346 Capital gain from renewable projects sale (25) (66) Organic loan repayment from equity affiliates (725) (108) Cash flow from operations 23,901 13,149 Organic investments (b) 4,800 5,181 Free cash flow after organic investments, w/o net asset sales (a - b) 20,059 6,537 Net investments (c) 7,798 7,167 Net cash flow (a - c) 17,061 4,551 Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark-to-market effectof iGRP’s contracts and including capital gain from renewable projects sale. Historical data have been restated to cancel the impact of fair valuation of iGRP sector’s contracts. ** Changes in working capital are presented excluding the mark-to-market effect of iGRP’s contracts. 1.9.7 Gearing ratio In millions of dollars 30/06/2022 31/03/2022 Current borrowings* 14,589 16,759 Other current financial liabilities 401 502 Current financial assets*,** (7,697) (7,231) Net financial assets classified as held for sale (14) (38) Non-current financial debt* 39,233 38,924 Non-current financial assets* (692) (587) Cash and cash equivalents (32,848) (31,276) Net debt (a) 12,972 17,053 Shareholders’ equity - TotalEnergies share 116,688 116,480 Non-controlling interests 3,309 3,375 Shareholders' equity (b) 119,997 119,855 Net-debt-to-capital ratio = a / (a+b) 9.8% 12.5% Leases (c) 7,963 8,028 Net-debt-to-capital ratio including leases (a+c) / (a+b+c) 14.9% 17.3% Excludes leases receivables and leases debts. ** Including initial margins held as part of the Company's activities on organized markets. 22-23 1H22 vs 1H21 x2 ns x2.1 ns +79% ns ns +82% 7% x3.1 +9% x3.7 30/06/2021 15,795 322 (4,326) 44,687 (2,726) (28,643) 25,109 108,096 2,480 110,576 18.5% 7,702 22.9% 1.9.8 Return on average capital employed 1.9.8.1 TWELVE MONTHS ENDED JUNE 30, 2022 In millions of dollars Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Company Adjusted net operating income 9,973 15,985 5,035 1,655 32,177 Capital employed at 06/30/2021* 49,831 76,013 9,285 8,439 141,720 Capital employed at 06/30/2022* 54,174 70,248 7,958 7,475 137,035 ROACE 19.2% 21.9% 58.4% 20.8% 23.1% 1.9.8.2 TWELVE MONTHS ENDED MARCH 31, 2022 In millions of dollars Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Company Adjusted net operating income 8,309 13,479 2,786 1,606 25,803 Capital employed at 03/31/2021* 48,423 78,170 10,403 8,198 145,180 Capital employed at 03/31/2022* 54,740 71,518 8,847 7,751 141,853 ROACE 16.1% 18.0% 28.9% 20.1% 18.0% At replacement cost (excluding after-tax inventory effect). 1.10 Principal risks and uncertainties for the remaining six months of 2022 The Company and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such in TotalEnergies’ 2021 Universal Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 25, 2022. These risk factors is provided conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2022 (page 54 of this half-year financial report). 1.11 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2022 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2022 (page 54 of this half-year financial report). Chapter 1 / Half year financial report / Principal risks and uncertainties for the remaining six months of 2022 1 Disclaimer The terms “TotalEnergies”, “TotalEnergies company” and “Company” in this document are used to designate TotalEnergies SE and the consolidated entities directly or indirectly controlled by TotalEnergies SE. Likewise, the words “we”, “us” and “our” may also be used to refer to these entities or their employees. The entities in which TotalEnergies SE directly or indirectly owns a shareholding are separate and independent legal entities. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business activities and industrial strategy of TotalEnergies. This document may also contain statements regarding the perspectives, objectives, areas of improvement and goals of TotalEnergies, including with respect to climate change and carbon neutrality (net zero emissions). An ambition expresses an outcome desired by TotalEnergies, it being specified that the means to be deployed do not depend solely on TotalEnergies. These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as “envisions”, “intends”, “expects”, “thinks”, “targets”, “aims” or similar terminology. Such forward-looking statements included in this document are based on economic data, estimates and assumptions prepared in a given economic, competitive and regulatory environment and considered to be reasonable by TotalEnergies as of the date of this document. “anticipates”, “believes”, “considers”, “plans”, These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives, objectives or goals announced will be achieved. They may prove to be inaccurate in the future, and may evolve or be modified with a significant difference between the actual results and those initially estimated, due to the uncertainties notably related to the economic, financial, competitive and regulatory environment, or due to the occurrence of risk factors, such as, notably, the price fluctuations in crude oil and natural gas, the evolution of the demand and price of petroleum products, the changes in production results and reserves estimates, the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations, changes in laws and regulations including those related to the environment and climate, currency fluctuations, as well as economic and political developments, changes in market conditions, loss of market share and changes in consumer preferences, or pandemics such as the COVID-19 pandemic. Additionally, certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. Neither TotalEnergies SE nor any of its subsidiaries assumes any obligation information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. The information on risk factors that could have a significant adverse effect on TotalEnergies’ business, financial condition, including its operating income and cash flow, reputation, outlook or the value of financial instruments issued by TotalEnergies is provided in the most recent version of the Universal Registration Document which is filed by TotalEnergies SE with the French Autorité des Marchés Financiers and the annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). to update publicly any forward-looking 24-25 Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE), gearing ratio, operating cash flow before working capital changes, the shareholder rate of return. These indicators are meant to facilitate the analysis of the financial performance of TotalEnergies and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of TotalEnergies. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. infrequent or unusual. However, in certain (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of TotalEnergies’ principal competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TotalEnergies’ management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in TotalEnergies’ internal economic performance. IFRS precludes recognition of this fair value effect. Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in the Form 20-F of TotalEnergies SE, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault - 92078 Paris-La Défense Cedex, France, or at our website totalenergies.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov. Chapter 1 / Half year financial report / Disclaimer 1 26-27 2 Consolidated Financial Statements as of June 30, 2022 2.1 Statutory Auditors’ Review Report on the half-yearly Financial Information 28 2.8 Consolidated statement of cash flow – quarterly 2.2 Consolidated statement of income – half- 2.9 Consolidated statement of changes in yearly 29 shareholders’ equity 2.3 Consolidated statement of comprehensive 2.10 Notes to the Consolidated Financial income – half-yearly 30 Statements for the first six months 2022 (unaudited) 2.4 Consolidated statement of income – quarterly 31 1) Basis of preparation of the consolidated financial statements 2.5 Consolidated statement of comprehensive income – quarterly 32 2) Changes in the Company structure 3) Business segment information 4) Shareholders’ equity 2.6 Consolidated balance sheet 33 5) Financial debt 6) Related parties 2.7 Consolidated statement of cash flow – half-yearly 34 7) Other risks and contingent liabilities 8) Subsequent events 35 36 37 37 37 39 52 54 54 54 54 2 2.1 Statutory Auditors’ Review Report on the half-yearly Financial Information This is a free translation into English of the statutory auditors' review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. For the period from January 1st to June 30, 2022 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French monetary and financial code (“code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of TotalEnergies SE for the period from January 1st to June 30, 2022, – the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I – CONCLUSION ON THE FINANCIAL STATEMENTS We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. II – SPECIFIC VERIFICATION We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Neuilly-sur-Seine and Paris-La Défense, July 27, 2022 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit ERNST & YOUNG Audit Olivier Lotz Cécile Saint-Martin Laurent Vitse Stéphane Pédron Partner Partner Partner Partner 28-29 2.2 Consolidated statement of income – half-yearly TotalEnergies (unaudited) (M$)(a) 1st half 2022 1st half 2021 Sales 143,380 90,786 Excise taxes (8,985) (10,520) Revenues from sales 134,395 80,266 Purchases, net of inventory variation (85,091) (50,117) Other operating expenses (15,664) (13,597) Exploration costs (978) (290) Depreciation, depletion and impairment of tangible assets and mineral interests (6,781) (6,446) Other income 572 581 Other expense (3,595) (957) Financial interest on debt (1,034) (967) Financial income and expense from cash & cash equivalents 459 172 Cost of net debt (575) (795) Other financial income 434 374 Other financial expense (271) (261) Net income (loss) from equity affiliates (1,503) 201 Income taxes (10,088) (3,248) CONSOLIDATED NET INCOME 10,855 5,711 TotalEnergies share 10,636 5,550 Non-controlling interests 219 161 Earnings per share ($) 4.04 2.04 Fully-diluted earnings per share ($) 4.02 2.03 (a) Except for per share amounts. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Consolidated statement of income – half-yearly 2 2.3 Consolidated statement of comprehensive income – half-yearly TotalEnergies (unaudited) (M$) 1st half 2022 CONSOLIDATED NET INCOME 10,855 Other comprehensive income Actuarial gains and losses 204 Change in fair value of investments in equity instruments (17) Tax effect (42) Currency translation adjustment generated by the parent company (7,137) ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (6,992) Currency translation adjustment 3,535 Cash flow hedge 2,959 Variation of foreign currency basis spread 70 Share of other comprehensive income of equity affiliates, net amount 2,464 Other (1) Tax effect (1,059) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 7,968 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 976 COMPREHENSIVE INCOME 11,831 – TotalEnergies share 11,658 – Non-controlling interests 173 30-31 1st half 2021 5,711 449 68 (154) (2,934) (2,571) 1,777 80 (4) 451 (57) 2,247 (324) 5,387 5,212 175 2.4 Consolidated statement of income – quarterly TotalEnergies (unaudited) (M$)(a) 2nd quarter 2022 1st quarter 2022 2nd quarter 2021 Sales 74,774 68,606 47,049 Excise taxes (4,329) (4,656) (5,416) Revenues from sales 70,445 63,950 41,633 Purchases, net of inventory variation (45,443) (39,648) (26,719) Other operating expenses (8,041) (7,623) (6,717) Exploration costs (117) (861) (123) Depreciation, depletion and impairment of tangible assets and mineral interests (3,102) (3,679) (3,121) Other income 429 143 223 Other expense (1,305) (2,290) (298) Financial interest on debt (572) (462) (501) Financial income and expense from cash & cash equivalents 245 214 77 Cost of net debt (327) (248) (424) Other financial income 231 203 265 Other financial expense (136) (135) (131) Net income (loss) from equity affiliates (1,546) 43 (680) Income taxes (5,284) (4,804) (1,609) CONSOLIDATED NET INCOME 5,804 5,051 2,299 TotalEnergies share 5,692 4,944 2,206 Non-controlling interests 112 107 93 Earnings per share ($) 2.18 1.87 0.80 Fully-diluted earnings per share ($) 2.16 1.85 0.80 (a) Except for per share amounts. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Consolidated statement of income – quarterly 2 2.5 Consolidated statement of comprehensive income – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2022 1st quarter 2022 CONSOLIDATED NET INCOME 5,804 5,051 Other comprehensive income Actuarial gains and losses 204 Change in fair value of investments in equity instruments (20) 3 Tax effect (53) 11 Currency translation adjustment generated by the parent company (5,387) (1,750) ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS (5,256) (1,736) Currency translation adjustment 2,523 1,012 Cash flow hedge 3,222 (263) Variation of foreign currency basis spread 21 49 Share of other comprehensive income of equity affiliates, net amount 2,548 (84) Other (1) Tax effect (1,112) 53 ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 7,201 767 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 1,945 (969) COMPREHENSIVE INCOME 7,749 4,082 – TotalEnergies share 7,705 3,953 – Non-controlling interests 44 129 32-33 2nd quarter 2021 2,299 449 56 (142) 1,239 1,602 (746) (424) (4) (18) (1) 100 (1,093) 509 2,808 2,670 138 2.6 Consolidated balance sheet TotalEnergies (M$) June 30, 2022 (unaudited) March 31, 2022 (unaudited) December 31, 2021 June 30, 2021 (unaudited) ASSETS Non-current assets Intangible assets, net 37,020 32,504 32,484 33,359 Property, plant and equipment, net 101,454 104,450 106,559 106,791 Equity affiliates: investments and loans 28,210 29,334 31,053 29,712 Other investments 1,383 1,490 1,625 2,247 Non-current financial assets 1,612 1,490 2,404 3,778 Deferred income taxes 4,737 5,299 5,400 6,578 Other non-current assets 3,075 3,033 2,797 2,800 TOTAL NON-CURRENT ASSETS 177,491 177,600 182,322 185,265 Current assets Inventories, net 28,542 24,456 19,952 19,162 Accounts receivable, net 30,796 32,000 21,983 17,192 Other current assets 55,553 50,976 35,144 17,585 Current financial assets 7,863 7,415 12,315 4,404 Cash and cash equivalents 32,848 31,276 21,342 28,643 Assets classified as held for sale 313 856 400 456 TOTAL CURRENT ASSETS 155,915 146,979 111,136 87,442 TOTAL ASSETS 333,406 324,579 293,458 272,707 LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares 8,163 8,137 8,224 8,224 Paid-in surplus and retained earnings 125,554 123,008 117,849 110,967 Currency translation adjustment (14,019) (13,643) (12,671) (11,087) Treasury shares (3,010) (1,022) (1,666) (8) TOTAL SHAREHOLDERS’ EQUITY – TOTALENERGIES SHARE 116,688 116,480 111,736 108,096 Non-controlling interests 3,309 3,375 3,263 2,480 TOTAL SHAREHOLDERS’ EQUITY 119,997 119,855 114,999 110,576 Non-current liabilities Deferred income taxes 12,169 11,281 10,904 10,596 Employee benefits 2,341 2,610 2,672 3,305 Provisions and other non-current liabilities 23,373 21,649 20,269 20,716 Non-current financial debt 46,868 46,546 49,512 52,331 TOTAL NON-CURRENT LIABILITIES 84,751 82,086 83,357 86,948 Current liabilities Accounts payable 49,700 46,869 36,837 29,752 Other creditors and accrued liabilities 62,498 56,972 42,800 27,836 Current borrowings 16,003 18,252 15,035 16,983 Other current financial liabilities 401 502 372 322 Liabilities directly associated with the assets classified as held for sale 56 43 58 290 TOTAL CURRENT LIABILITIES 128,658 122,638 95,102 75,183 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 333,406 324,579 293,458 272,707 Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Consolidated balance sheet 2 2.7 Consolidated statement of cash flow – half-yearly TotalEnergies (unaudited) (M$) CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion, amortization and impairment Non-current liabilities, valuation allowances and deferred taxes (Gains) losses on disposals of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from disposals of intangible assets and property, plant and equipment Proceeds from disposals of subsidiaries, net of cash sold Proceeds from disposals of non-current investments Repayment of non-current loans Total divestments CASH FLOW USED IN INVESTING ACTIVITIES CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders – Treasury shares Dividends paid: – Parent company shareholders – Non-controlling interests Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes Other transactions with non-controlling interests Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities CASH FLOW FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Effect of exchange rates Cash and cash equivalents at the beginning of the period CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 34-35 1st half 2022 10,855 7,899 3,965 (178) 3,261 (2,425) 524 23,901 (8,607) (82) (225) (519) (9,433) 330 151 250 1,342 2,073 (7,360) 371 (3,164) (3,753) (119) (274) (5) 542 (2,046) 4,863 (3,585) 12,956 (1,450) 21,342 32,848 1st half 2021 5,711 6,760 331 (370) 682 (150) 185 13,149 (5,085) (170) (2,433) (680) (8,368) 271 229 279 301 1,080 (7,288) 381 (165) (4,184) (63) 3,248 (234) (55) (839) (6,031) (215) (8,157) (2,296) (329) 31,268 28,643 2.8 Consolidated statement of cash flow – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2022 1st quarter 2022 2nd quarter 2021 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 5,804 5,051 2,299 Depreciation, depletion, amortization and impairment 3,321 4,578 3,287 Non-current liabilities, valuation allowances and deferred taxes 1,427 2,538 210 (Gains) losses on disposals of assets (165) (13) (85) Undistributed affiliates’ equity earnings 2,999 262 1,255 (Increase) decrease in working capital 2,498 (4,923) 669 Other changes, net 400 124 (84) CASH FLOW FROM OPERATING ACTIVITIES 16,284 7,617 7,551 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (5,150) (3,457) (2,675) Acquisitions of subsidiaries, net of cash acquired (82) (170) Investments in equity affiliates and other securities (136) (89) (307) Increase in non-current loans (278) (241) (380) Total expenditures (5,646) (3,787) (3,532) Proceeds from disposals of intangible assets and property, plant and equipment 153 177 45 Proceeds from disposals of subsidiaries, net of cash sold 63 88 Proceeds from disposals of non-current investments 35 215 216 Repayment of non-current loans 413 929 167 Total divestments 664 1,409 428 CASH FLOW USED IN INVESTING ACTIVITIES (4,982) (2,378) (3,104) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 371 381 – Treasury shares (1,988) (1,176) Dividends paid: – Parent company shareholders (1,825) (1,928) (2,094) – Non-controlling interests (97) (22) (53) Net issuance (repayment) of perpetual subordinated notes (1,958) 1,958 Payments on perpetual subordinated notes (138) (136) (147) Other transactions with non-controlling interests (10) 5 Net issuance (repayment) of non-current debt 508 34 51 Increase (decrease) in current borrowings (2,703) 657 (4,369) Increase (decrease) in current financial assets and liabilities (731) 5,594 (67) CASH FLOW FROM (USED IN) FINANCING ACTIVITIES (8,571) 4,986 (6,298) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,731 10,225 (1,851) Effect of exchange rates (1,159) (291) 209 Cash and cash equivalents at the beginning of the period 31,276 21,342 30,285 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 32,848 31,276 28,643 Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Consolidated statement of cash flow – quarterly 2 2.9 Consolidated statement of changes in shareholders’ equity TotalEnergies (unaudited) (M$) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Shareholders’ equity – TotalEnergies Share Number Amount Non- controlling interests AS OF JANUARY 1, 2021 2,653,124,025 8,267 107,078 (10,256) (24,392,703) (1,387) 103,702 2,383 Net income of the first half 2021 5,550 5,550 161 Other comprehensive income 485 (823) (338) 14 Comprehensive Income 6,035 (823) 5,212 175 Dividend (4,189) (4,189) (63) Issuance of common shares 10,589,713 31 350 381 Purchase of treasury shares (3,636,351) (165) (165) Sale of treasury shares(a) (216) 4,570,220 216 Share-based payments 61 61 Share cancellation (23,284,409) (74) (1,254) 23,284,409 1,328 Net issuance (repayment) of perpetual subordinated notes 3,254 3,254 Payments on perpetual subordinated notes (184) (184) Other operations with non-controlling interests 26 (6) 20 (20) Other items 6 (2) 4 5 AS OF JUNE 30, 2021 2,640,429,329 8,224 110,967 (11,087) (174,425) (8) 108,096 2,480 Net income of the second half 2021 10,482 10,482 173 Other comprehensive income 506 (1,584) (1,078) (44) Comprehensive Income 10,988 (1,584) 9,404 129 Dividend (4,011) (4,011) (61) Issuance of common shares Purchase of treasury shares (33,669,654) (1,658) (1,658) Sale of treasury shares(a) 2,975 Share-based payments 82 82 Share cancellation Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes (184) (184) Other operations with non-controlling interests 4 4 709 Other items 3 3 6 AS OF DECEMBER 31, 2021 2,640,429,329 8,224 117,849 (12,671) (33,841,104) (1,666) 111,736 3,263 Net income of the first half 2022 10,636 10,636 219 Other comprehensive income 2,370 (1,348) 1,022 (46) Comprehensive Income 13,006 (1,348) 11,658 173 Dividend (3,803) (3,803) (119) Issuance of common shares 9,367,482 26 345 371 Purchase of treasury shares (58,458,536) (3,164) (3,164) Sale of treasury shares(a) (315) 6,168,197 315 Share-based payments 157 157 Share cancellation (30,665,526) (87) (1,418) 30,665,526 1,505 Net issuance (repayment) of perpetual subordinated notes (44) (44) Payments on perpetual subordinated notes (183) (183) Other operations with non-controlling interests 4 4 (9) Other items (44) (44) 1 AS OF JUNE 30, 2022 2,619,131,285 8,163 125,554 (14,019) (55,465,917) (3,010) 116,688 3,309 (a) Treasury shares related to the performance share grants. 36-37 Total shareholders’ equity 106,085 5,711 (324) 5,387 (4,252) 381 (165) 61 3,254 (184) 9 110,576 10,655 (1,122) 9,533 (4,072) (1,658) 82 (184) 713 9 114,999 10,855 976 11,831 (3,922) 371 (3,164) 157 (44) (183) (5) (43) 119,997 2.10 Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 1) Basis of preparation of the consolidated financial statements The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). The interim consolidated financial statements of TotalEnergies SE and its subsidiaries (the Company) as of June 30, 2022, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The accounting principles applied financial statements at June 30, 2022, are consistent with those used for the financial statements at December 31, 2021. Since January 1, 2020, the Company has early adopted the amendments to IFRS 7 and IFRS 9 relating to the interest rate benchmark reform phase II. In particular, these amendments allow to maintain the hedge accounting qualification of interest rate derivatives. for the consolidated The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2022 requires the General Management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on- going basis by General Management and therefore could be revised as circumstances change or as a result of new information. The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, asset impairments, employee benefits, asset retirement obligations and taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2021. income The interim consolidated financial statements are impacted by the Russian-Ukrainian conflict described in paragraph 7 Other risks and commitments. The Company has taken this environment into account in its estimates and recorded in its accounts as of March 31, 2022, an impairment of $(4,095) million, concerning notably Arctic LNG 2. As of June 30, 2022, TotalEnergies recorded in its accounts a new $(3,513) million impairment charge related mainly to the potential impact of international sanctions on the value of its Novatek stake. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the General Management of the Company applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Company structure 2.1) MAIN ACQUISITIONS AND DIVESTMENTS INTEGRATED GAS, RENEWABLES & POWER On February 28, 2022, TotalEnergies has successfully been named a winner of maritime lease area OCS-A 0538 by the BOEM (Bureau of Ocean Energy Management) in the New York Bight auction in United States. Located up to 47 nautical miles (87 kilometers) from the coast, the lease covers a 132 square miles (341 square kilometer) area that could accommodate a generation capacity of at least 3 GW, enough to provide power to about one million homes. The project is expected to come online by 2028. This bid for the development of an offshore wind farm off the U.S. East Coast was won for a consideration of $795 million (100%) by both TotalEnergies and EnBW. EXPLORATION & PRODUCTION – In January 2022, TotalEnergies has decided to initiate the contractual process of withdrawing from the Yadana field and from MGTC in Myanmar, both as operator and as shareholder, without any financial compensation for TotalEnergies. As a result, TotalEnergies registered an impairment of assets of $(201) million in operational result and of $(305) million in TotalEnergies’ share net result in the financial statements as of December 31, 2021. This withdrawal became effective on 20 July 2022. – In February 2022, TotalEnergies announced its decision not to sanction and so to withdraw from the North Platte deepwater project in the US Gulf of Mexico. The decision not to continue with the project was taken as TotalEnergies has better opportunities of allocation of its capital within its global portfolio. An impairment of the project’s assets has been recorded in the consolidated financial statements of the first quarter of 2022, for an amount of $(957) million in net income, TotalEnergies’ share. – In April 2022, TotalEnergies finalized the acquisition of the Atapu and Sepia pre-salt oil fields offered by Brazil’s National Agency of Petroleum, Natural Gas and Biofuels (ANP) in the Transfer of Rights (ToR) Surplus bidding round, that took place in December 2021. The details of the acquisition are presented in Note 2.2 to the consolidated financial statements. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 2 2.2) MAJOR BUSINESS COMBINATIONS EXPLORATION & PRODUCTION Transfer of rights in the Atapu and Sepia fields in Brazil On 26 April 2022, Petrobras transferred to TotalEnergies 22.5% of the rights of the pre-salt Atapu oil field. Production started in 2020 and has reached a plateau of 160,000 barrels per day with a first Floating, Production, Storage and Offloading unit (FPSO). A second FPSO is planned to be sanctioned, which would increase the overall oil production of the field to around 350,000 b/d. On 27 April 2022, Petrobras also transferred to TotalEnergies 28% of the rights of the pre-salt Sepia oil field. Production started in 2021 and is targeting a plateau of 180,000 barrels per day with a first Floating, Production, Storage and Offloading unit (FPSO). A second FPSO is planned to be sanctioned, which would increase the overall oil production of the field to around 350,000 b/d. In accordance with IFRS 3, TotalEnergies is assessing the fair value of identifiable acquired assets, liabilities and contingent liabilities on the basis of available information. This assessment will be finalised within 12 months following the acquisition date. 2.3) DIVESTMENT PROJECTS As of June 30, 2022, there is no material divestment project recorded in “assets held for sale”. 38-39 3) Business segment information DESCRIPTION OF THE BUSINESS SEGMENTS Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies and which is reviewed by the main operational decision-making body of the Company, namely the Executive Committee. The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments. – An Exploration & Production segment; Starting September 2021, it notably includes the carbon neutrality activity that was previously reported in the Integrated Gas, Renewables & Power segment; – A Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; Sales prices between business segments approximate market prices. – A Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products; The organization of the Company's activities is structured around the four followings segments: – An Integrated Gas, Renewables & Power segment comprising integrated gas (including LNG) and low carbon electricity businesses. It includes the upstream and midstream LNG activity; In addition the Corporate segment includes holdings operating and financial activities. ADJUSTMENT ITEMS Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for certain transactions differences between the internal measure of performance used by TotalEnergies’s management and the accounting for these transactions under IFRS. (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in the Company’s internal economic performance. IFRS precludes recognition of this fair value effect. Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. In the replacement cost method, which approximates the LIFO (Last- In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First- Out) and the replacement cost methods. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 2 3.1) INFORMATION BY BUSINESS SEGMENT 1st half 2022 (M$) Integrated Gas, Renewables & Power Exploration & Production External sales 22,575 4,672 Intersegment sales 3,360 27,623 Excise taxes Revenues from sales 25,935 32,295 Operating expenses (22,629) (11,468) Depreciation, depletion and impairment of tangible assets and mineral interests (648) (4,773) Operating income 2,658 16,054 Net income (loss) from equity affiliates and other items (1,677) (3,426) Tax on net operating income (554) (7,739) Net operating income 427 4,889 Net cost of net debt Non-controlling interests Net income – TotalEnergies share 1st half 2022 (adjustments)(a) (M$) Integrated Gas, Renewables & Power Exploration & Production External sales (3) Intersegment sales Excise taxes Revenues from sales (3) Operating expenses (723) (873) Depreciation, depletion and impairment of tangible assets and mineral interestst (14) (539) Operating income(b) (740) (1,412) Net income (loss) from equity affiliates and other items (4,497) (3,770) Tax on net operating income 58 337 Net operating income(b) (5,179) (4,845) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income 40-41 Refining & Chemicals 66,069 22,062 (378) 87,753 (80,653) (769) 6,331 505 (1,391) 5,445 Refining & Chemicals 1,722 1,722 169 (326) 1,565 1,722 1,597 Marketing & Services Corporate 50,056 8 983 133 (8,607) 42,432 141 (40,294) (850) (514) (77) 1,624 (786) 56 179 (521) 97 1,159 (510) Marketing & Services Corporate 641 (433) (33) (9) 608 (442) (7) 106 (180) 98 421 (238) 684 503 Intercompany (54,161) (54,161) 54,161 Intercompany Total 143,380 (8,985) 134,395 (101,733) (6,781) 25,881 (4,363) (10,108) 11,410 (555) (219) 10,636 Total (3) (3) 334 (595) (264) (7,999) (13) (8,276) 193 (54) (8,137) 1st half 2022 (adjusted) (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany External sales 22,578 4,672 66,069 50,056 8 Intersegment sales 3,360 27,623 22,062 983 133 (54,161) Excise taxes (378) (8,607) Revenues from sales 25,938 32,295 87,753 42,432 141 (54,161) Operating expenses (21,906) (10,595) (82,375) (40,935) (417) 54,161 Depreciation, depletion and impairment of tangible assets and mineral interests (634) (4,234) (769) (481) (68) Adjusted operating income 3,398 17,466 4,609 1,016 (344) Net income (loss) from equity affiliates and other items 2,820 344 336 63 73 Tax on net operating income (612) (8,076) (1,065) (341) (1) Adjusted net operating income 5,606 9,734 3,880 738 (272) Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 1st half 2022 (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 2,311 6,099 561 428 34 Total divestments 1,481 346 83 151 12 Cash flow from operating activities 4,285 14,536 4,633 1,478 (1,031) Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) Total 143,383 (8,985) 134,398 (102,067) (6,186) 26,145 3,636 (10,095) 19,686 (748) (165) 18,773 Total 9,433 2,073 23,901 2 1st half 2021 (M$) Integrated Gas, Renewables & Power Exploration & Production External sales 10,588 3,257 Intersegment sales 1,555 14,433 Excise taxes Revenues from sales 12,143 17,690 Operating expenses (10,321) (7,352) Depreciation, depletion and impairment of tangible assets and mineral interests (762) (4,317) Operating income 1,060 6,021 Net income (loss) from equity affiliates and other items 682 (973) Tax on net operating income (157) (2,375) Net operating income 1,585 2,673 Net cost of net debt Non-controlling interests Net income – TotalEnergies share 1st half 2021 (adjustments)(a) (M$) Integrated Gas, Renewables & Power Exploration & Production External sales (44) Intersegment sales Excise taxes Revenues from sales (44) Operating expenses (62) (23) Depreciation, depletion and impairment of tangible assets and mineral interests (148) Operating income(b) (254) (23) Net income (loss) from equity affiliates and other items (96) (1,482) Tax on net operating income 59 (10) Net operating income(b) (291) (1,515) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income 42-43 Refining & Chemicals 40,054 11,890 (630) 51,314 (48,579) (787) 1,948 211 (561) 1,598 Refining & Chemicals 1,131 (13) 1,118 28 (302) 844 1,140 937 Marketing & Services 36,880 186 (9,890) 27,176 (25,510) (526) 1,140 23 (352) 811 Marketing & Services 213 213 (43) (60) 110 206 148 Corporate 7 68 75 (374) (54) (353) (5) 54 (304) Corporate (62) 2 (60) Intercompany (28,132) (28,132) 28,132 Intercompany Total 90,786 (10,520) 80,266 (64,004) (6,446) 9,816 (62) (3,391) 6,363 (652) (161) 5,550 Total (44) (44) 1,259 (161) 1,054 (1,655) (311) (912) 10 (14) (916) 1st half 2021 (adjusted) (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany External sales 10,632 3,257 40,054 36,880 7 Intersegment sales 1,555 14,433 11,890 186 68 (28,132) Excise taxes (630) (9,890) Revenues from sales 12,187 17,690 51,314 27,176 75 (28,132) Operating expenses (10,259) (7,329) (49,710) (25,723) (374) 28,132 Depreciation, depletion and impairment of tangible assets and mineral interests (614) (4,317) (774) (526) (54) Adjusted operating income 1,314 6,044 830 927 (353) Net income (loss) from equity affiliates and other items 778 509 183 66 57 Tax on net operating income (216) (2,365) (259) (292) 52 Adjusted net operating income 1,876 4,188 754 701 (244) Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 1st half 2021 (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 4,187 3,195 578 360 48 Total divestments 452 374 129 107 18 Cash flow from operating activities 1,347 8,571 3,228 1,102 (1,099) Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) Total 90,830 (10,520) 80,310 (65,263) (6,285) 8,762 1,593 (3,080) 7,275 (662) (147) 6,466 Total 8,368 1,080 13,149 2 2nd quarter 2022 (M$) Integrated Gas, Renewables & Power Exploration & Production External sales 10,281 2,521 Intersegment sales 1,889 13,805 Excise taxes Revenues from sales 12,170 16,326 Operating expenses (10,997) (5,760) Depreciation, depletion and impairment of tangible assets and mineral interests (327) (2,112) Operating income 846 8,454 Net income (loss) from equity affiliates and other items 823 (3,668) Tax on net operating income (260) (3,876) Net operating income 1,409 910 Net cost of net debt Non-controlling interests Net income – TotalEnergies share 2nd quarter 2022 (adjustments)(a) (M$) Integrated Gas, Renewables & Power Exploration & Production External sales (15) Intersegment sales Excise taxes Revenues from sales (15) Operating expenses (606) (82) Depreciation, depletion and impairment of tangible assets and mineral interests (14) (46) Operating income(b) (635) (128) Net income (loss) from equity affiliates and other items (558) (3,756) Tax on net operating income 47 75 Net operating income(b) (1,146) (3,809) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income - - 44-45 Refining & Chemicals 35,061 12,785 (186) 47,660 (43,242) (389) 4,029 349 (866) 3,512 Refining & Chemicals 775 775 52 (75) 752 775 752 Marketing & Services 26,907 716 (4,143) 23,480 (22,310) (241) 929 98 (296) 731 Marketing & Services 373 (4) 369 (4) (100) 265 376 275 Corporate 4 70 74 (557) (33) (516) 71 (8) (453) Corporate (301) (301) 78 (223) - Intercompany (29,265) (29,265) 29,265 Intercompany Total 74,774 (4,329) 70,445 (53,601) (3,102) 13,742 (2,327) (5,306) 6,109 (305) (112) 5,692 Total (15) (15) 159 (64) 80 (4,266) 25 (4,161) 80 (23) (4,104) 2nd quarter 2022 (adjusted) (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany External sales 10,296 2,521 35,061 26,907 4 Intersegment sales 1,889 13,805 12,785 716 70 (29,265) Excise taxes (186) (4,143) Revenues from sales 12,185 16,326 47,660 23,480 74 (29,265) Operating expenses (10,391) (5,678) (44,017) (22,683) (256) 29,265 Depreciation, depletion and impairment of tangible assets and mineral interests (313) (2,066) (389) (237) (33) Adjusted operating income 1,481 8,582 3,254 560 (215) Net income (loss) from equity affiliates and other items 1,381 88 297 102 71 Tax on net operating income (307) (3,951) (791) (196) (86) Adjusted net operating income 2,555 4,719 2,760 466 (230) Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 2nd quarter 2022 (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 872 4,128 333 288 25 Total divestments 466 63 56 72 7 Cash flow from operating activities 3,970 8,768 3,526 580 (560) Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) Total 74,789 (4,329) 70,460 (53,760) (3,038) 13,662 1,939 (5,331) 10,270 (385) (89) 9,796 Total 5,646 664 16,284 2 2nd quarter 2021 (M$) Integrated Gas, Renewables & Power Exploration & Production External sales 5,086 1,743 Intersegment sales 744 7,855 Excise taxes Revenues from sales 5,830 9,598 Operating expenses (5,103) (4,284) Depreciation, depletion and impairment of tangible assets and mineral interests (291) (2,134) Operating income 436 3,180 Net income (loss) from equity affiliates and other items 419 (1,243) Tax on net operating income (56) (1,195) Net operating income 799 742 Net cost of net debt Non-controlling interests Net income – TotalEnergies share 2nd quarter 2021 (adjustments)(a) (M$) Integrated Gas, Renewables & Power Exploration & Production External sales (9) Intersegment sales Excise taxes Revenues from sales (9) Operating expenses (54) (23) Depreciation, depletion and impairment of tangible assets and mineral interests (3) Operating income (b) (66) (23) Net income (loss) from equity affiliates and other items (47) (1,436) Tax on net operating income 21 (12) Net operating income (b) (92) (1,471) Net cost of net debt Non-controlling interests Net income – TotalEnergies share (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income 46-47 Refining & Chemicals 20,853 6,369 (225) 26,997 (25,646) (396) 955 123 (281) 797 Refining & Chemicals 386 (13) 373 22 (109) 286 394 331 Marketing & Services 19,367 108 (5,191) 14,284 (13,434) (271) 579 57 (176) 460 Marketing & Services 71 71 (8) (20) 43 69 50 Corporate 39 39 (207) (29) (197) 23 16 (158) Corporate (22) (22) Intercompany (15,115) (15,115) 15,115 Intercompany Total 47,049 (5,416) 41,633 (33,559) (3,121) 4,953 (621) (1,692) 2,640 (341) (93) 2,206 Total (9) (9) 380 (16) 355 (1,491) (120) (1,256) 4 (5) (1,257) 2nd quarter 2021 (adjusted) (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany External sales 5,095 1,743 20,853 19,367 Intersegment sales 744 7,855 6,369 108 39 (15,115) Excise taxes (225) (5,191) Revenues from sales 5,839 9,598 26,997 14,284 39 (15,115) Operating expenses (5,049) (4,261) (26,032) (13,505) (207) 15,115 Depreciation, depletion and impairment of tangible assets and mineral interests (288) (2,134) (383) (271) (29) Adjusted operating income 502 3,203 582 508 (197) Net income (loss) from equity affiliates and other items 466 193 101 65 45 Tax on net operating income (77) (1,183) (172) (156) 16 Adjusted net operating income 891 2,213 511 417 (136) Net cost of net debt Non-controlling interests Adjusted net income – TotalEnergies share 2nd quarter 2021 (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 1,167 1,830 291 222 22 Total divestments 310 63 13 36 6 Cash flow from operating activities 567 4,835 2,232 437 (520) Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) Total 47,058 (5,416) 41,642 (33,939) (3,105) 4,598 870 (1,572) 3,896 (345) (88) 3,463 Total 3,532 428 7,551 2 3.2) RECONCILIATION OF THE INFORMATION BY BUSINESS SEGMENT WITH CONSOLIDATED FINANCIAL STATEMENTS 1st half 2022 (M$) Adjusted Adjustments(a) Sales 143,383 (3) Excise taxes (8,985) Revenues from sales 134,398 (3) Purchases net of inventory variation (86,785) 1,694 Other operating expenses (15,029) (635) Exploration costs (253) (725) Depreciation, depletion and impairment of tangible assets and mineral interests (6,186) (595) Other income 550 22 Other expense (798) (2,797) Financial interest on debt (1,034) Financial income and expense from cash & cash equivalents 189 270 Cost of net debt (845) 270 Other financial income 350 84 Other financial expense (271) Net income (loss) from equity affiliates 3,805 (5,308) Income taxes (9,998) (90) Consolidated net income 18,938 (8,083) TotalEnergies share 18,773 (8,137) Non-controlling interests 165 54 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 1st half 2021 (M$) Adjusted Adjustments(a) Sales 90,830 (44) Excise taxes (10,520) Revenues from sales 80,310 (44) Purchases net of inventory variation (51,397) 1,280 Other operating expenses (13,576) (21) Exploration costs (290) Depreciation, depletion and impairment of tangible assets and mineral interests (6,285) (161) Other income 554 27 Other expense (334) (623) Financial interest on debt (967) Financial income and expense from cash & cash equivalents 156 16 Cost of net debt (811) 16 Other financial income 374 Other financial expense (261) Net income (loss) from equity affiliates 1,260 (1,059) Income taxes (2,931) (317) Consolidated net income 6,613 (902) TotalEnergies share 6,466 (916) Non-controlling interests 147 14 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 48-49 Consolidated statement of income 143,380 (8,985) 134,395 (85,091) (15,664) (978) (6,781) 572 (3,595) (1,034) 459 (575) 434 (271) (1,503) (10,088) 10,855 10,636 219 Consolidated statement of income 90,786 (10,520) 80,266 (50,117) (13,597) (290) (6,446) 581 (957) (967) 172 (795) 374 (261) 201 (3,248) 5,711 5,550 161 2nd quarter 2022 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 74,789 (15) 74,774 Excise taxes (4,329) (4,329) Revenues from sales 70,460 (15) 70,445 Purchases net of inventory variation (46,023) 580 (45,443) Other operating expenses (7,620) (421) (8,041) Exploration costs (117) (117) Depreciation, depletion and impairment of tangible assets and mineral interests (3,038) (64) (3,102) Other income 429 429 Other expense (529) (776) (1,305) Financial interest on debt (572) (572) Financial income and expense from cash & cash equivalents 130 115 245 Cost of net debt (442) 115 (327) Other financial income 231 231 Other financial expense (136) (136) Net income (loss) from equity affiliates 1,944 (3,490) (1,546) Income taxes (5,274) (10) (5,284) Consolidated net income 9,885 (4,081) 5,804 TotalEnergies share 9,796 (4,104) 5,692 Non-controlling interests 89 23 112 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 2nd quarter 2021 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 47,058 (9) 47,049 Excise taxes (5,416) (5,416) Revenues from sales 41,642 (9) 41,633 Purchases net of inventory variation (27,108) 389 (26,719) Other operating expenses (6,708) (9) (6,717) Exploration costs (123) (123) Depreciation, depletion and impairment of tangible assets and mineral interests (3,105) (16) (3,121) Other income 138 85 223 Other expense (142) (156) (298) Financial interest on debt (501) (501) Financial income and expense from cash & cash equivalents 69 8 77 Cost of net debt (432) 8 (424) Other financial income 265 265 Other financial expense (131) (131) Net income (loss) from equity affiliates 740 (1,420) (680) Income taxes (1,485) (124) (1,609) Consolidated net income 3,551 (1,252) 2,299 TotalEnergies share 3,463 (1,257) 2,206 Non-controlling interests 88 5 93 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 2 3.3) ADJUSTMENT ITEMS The main adjustment items in the first half of 2022 are the following exceptional impairments and provisions related to the Russian-Ukrainian conflict: – In the first quarter, an impairment of $(4,095) million in net result concerning notably Arctic LNG 2. – In the second quarter, an impairment of $(3,513) million in net result related to the potential impact of international sanctions on the value of Novatek stake. The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate 2nd quarter 2022 Inventory valuation effect 775 376 Effect of changes in fair value (597) Restructuring charges (17) Asset impairment and provisions charges (18) (46) 4 Other items (3) (82) (11) (301) TOTAL (635) (128) 775 369 (301) 2nd quarter 2021 Inventory valuation effect 394 69 Effect of changes in fair value (49) Restructuring charges (1) (8) Asset impairment and provisions charges (3) (13) Other items (13) (23) 2 TOTAL (66) (23) 373 71 1st half 2022 Inventory valuation effect 1,722 684 Effect of changes in fair value (685) Restructuring charges (22) Asset impairment and provisions charges (18) (1,330) (65) (9) Other items (15) (82) (11) (433) TOTAL (740) (1,412) 1,722 608 (442) 1st half 2021 Inventory valuation effect 1,140 206 Effect of changes in fair value (58) Restructuring charges (10) (8) Asset impairment and provisions charges (148) (13) Other items (38) (23) (1) 7 TOTAL (254) (23) 1,118 213 50-51 Total 1,151 (597) (17) (60) (397) 80 463 (49) (9) (16) (34) 355 2,406 (685) (22) (1,422) (541) (264) 1,346 (58) (18) (161) (55) 1,054 ADJUSTMENTS TO NET INCOME, TOTALENERGIES SHARE (M$) Integrated Gas, Renewables & Power Exploration & Production Refining & Chemicals Marketing & Services Corporate 2nd quarter 2022 Inventory valuation effect 738 255 Effect of changes in fair value (551) Restructuring charges (8) Asset impairment and provisions charges (226) (3,493) Gains (losses) on disposals of assets Other items (352) (286) (8) (173) TOTAL (1,137) (3,779) 738 247 (173) 2nd quarter 2021 Inventory valuation effect 327 48 Effect of changes in fair value (44) Restructuring charges (4) (44) (32) (8) (22) Asset impairment and provisions charges (36) (13) Gains (losses) on disposals of assets (1 379)* Other items (7) (44) 1 TOTAL (91) (1,467) 282 41 (22) Impact of the TotalEnergies’ interest sale of Petrocedeño to PDVSA. 1st half 2022 Inventory valuation effect 1,573 460 Effect of changes in fair value (631) Restructuring charges (11) Asset impairment and provisions charges (4,174) (4,525) (72) (9) Gains (losses) on disposals of assets Other items (352) (272) (32) (8) (84) TOTAL (5,168) (4,797) 1,541 380 (93) 1st half 2021 Inventory valuation effect 926 138 Effect of changes in fair value (50) Restructuring charges (12) (85) (71) (43) (60) Asset impairment and provisions charges (180) (13) Gains (losses) on disposals of assets (1 379)* Other items (42) (41) (9) 5 TOTAL (284) (1,505) 833 100 (60) Impact of the TotalEnergies’ interest sale of Petrocedeño to PDVSA. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) Total 993 (551) (8) (3,719) (819) (4,104) 375 (44) (110) (49) (1,379) (50) (1,257) 2,033 (631) (11) (8,780) (748) (8,137) 1,064 (50) (271) (193) (1,379) (87) (916) 2 4) Shareholders’ equity TREASURY SHARES (TOTALENERGIES SHARES HELD DIRECTLY BY TOTALENERGIES SE) December 31, 2021 June 30, 2022 Number of treasury shares 33,841,104 55,465,917 Percentage of share capital 1.28% 2.12% of which shares acquired with the intention to cancel them 30,665,526 55,260,084 of which shares allocated to TotalEnergies share performance plans for Company employees 3,103,018 99,850 of which shares intended to be allocated to new share performance or purchase options plans 72,560 105,983 DIVIDEND The Shareholders’ meeting of May 25, 2022 approved the distribution of a dividend of 2.64 euros per share for the 2021 fiscal year and the payment of a final dividend of 0.66 euro per share given the three interim dividends that had already been paid. The dividend for fiscal year 2021 was paid according to the following timetable: Dividend 2021 First interim Second interim Third interim Final Amount € 0.66 € 0.66 € 0.66 € 0.66 Set date April 28, 2021 July 28, 2021 October 27, 2021 May 25, 2022 Ex-dividend date September 21, 2021 January 3, 2022 March 22, 2022 June 21, 2022 Payment date October 1, 2021 January 13, 2022 April 1, 2022 July 1, 2022 The Board of Directors of April 27, 2022 decided to increase interim dividends by 5% and consequently set the first interim dividend for the fiscal year 2022 at €0.69 per share. The ex-dividend date of this intermin dividend will be September 21, 2022 and it will be paid in cash on October 3, 2022. Furthermore, the Board of Directors of July 27, 2022 decided to set the amount of the second interim dividend for the 2022 fiscal year at 0.69 euro per share, i.e an amount equal to the aforementioned first interim dividend. The ex-dividend date of the second interim dividend will be January 2, 2023 and it will be paid in cash on January 12, 2023. Dividend 2022 First interim Second interim Amount € 0.69 € 0.69 Set date April 27, 2022 July 27, 2022 Ex-dividend date September 21, 2022 January 2, 2023 Payment date October 3, 2022 January 12, 2023 EARNINGS PER SHARE IN EURO Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro/USD exchange rate for the period, amounted to €2.03 per share for the 2nd quarter 2022 (€1.67 per share for the 1st quarter 2022 and €0.66 per share for the 2nd quarter 2021). Diluted earnings per share calculated using the same method amounted to €2.03 per share for the 2nd quarter 2022 (€1.65 per share for the 1st quarter 2022 and €0.66 per share for the 2nd quarter 2021). Earnings per share are calculated after remuneration of perpetual subordinated notes. PERPETUAL SUBORDINATED NOTES On January 17, 2022, TotalEnergies SE issued perpetual subordinated notes: – Perpetual subordinated notes 2.000% callable in April 2027, or in On May 18, 2022, TotalEnergies SE fully reimbursed the residual nominal amount of €1,750 million of its perpetual subordinated notes 3.875% issued in May 2016, on their first call date. anticipation in January 2027 (€1,000 million); and – Perpetual subordinated notes 3.250% callable in January 2037, or in anticipation in July 2036 (€750 million). 52-53 OTHER COMPREHENSIVE INCOME Detail of other comprehensive income is presented in the table below: (M$) 1st half 2022 1st half 2021 Actuarial gains and losses 204 449 Change in fair value of investments in equity instruments (17) 68 Tax effect (42) (154) Currency translation adjustment generated by the parent company (7,137) (2,934) Sub-total items not potentially reclassifiable to profit and loss (6,992) (2,571) Currency translation adjustment 3,535 1,777 – Unrealized gain/(loss) of the period 3,532 1,898 – Less gain/(loss) included in net income (3) 121 Cash flow hedge 2,959 80 – Unrealized gain/(loss) of the period 2,901 (56) – Less gain/(loss) included in net income (58) (136) Variation of foreign currency basis spread 70 (4) – Unrealized gain/(loss) of the period 49 (29) – Less gain/(loss) included in net income (21) (25) Share of other comprehensive income of equity affiliates, net amount 2,464 451 – Unrealized gain/(loss) of the period 2,427 449 – Less gain/(loss) included in net income (37) (2) Other (1) Tax effect (1,059) (57) Sub-total items potentially reclassifiable to profit and loss 7,968 2,247 Total other comprehensive income, net amount 976 (324) Tax effects relating to each component of other comprehensive income are as follows: (M$) 1st half 2022 1st half 2021 Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 204 (53) 151 449 (141) 308 Change in fair value of investments in equity instruments (17) 11 (6) 68 (13) 55 Currency translation adjustment generated by the parent company (7,137) (7,137) (2,934) (2,934) Sub-total items not potentially reclassifiable to profit and loss (6,950) (42) (6,992) (2,417) (154) (2,571) Currency translation adjustment 3,535 3,535 1,777 1,777 Cash flow hedge 2,959 (1,041) 1,918 80 (55) 25 Variation of foreign currency basis spread 70 (18) 52 (4) (2) (6) Share of other comprehensive income of equity affiliates, net amount 2,464 2,464 451 451 Other (1) (1) Sub-total items potentially reclassifiable to profit and loss 9,027 (1,059) 7,968 2,304 (57) 2,247 Total other comprehensive income 2,077 (1,101) 976 (113) (211) (324) Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 2 5) Financial debt The Company has not issued any new senior bond during the first six months of 2022. The Company reimbursed three senior bonds during the first six months of 2022: – Bond 2.875% issued by TotalEnergies Capital International in 2012 and maturing in February 2022 ($1,000 million) – Bond 1.125% issued by TotalEnergies Capital Canada in 2014 and maturing in March 2022 (€1,000 million) 6) Related parties The related parties are mainly equity affiliates and non-consolidated investments. There were no major changes concerning transactions with related parties during the first six months of 2022. 7) Other risks and contingent liabilities TotalEnergies is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the YEMEN In Yemen, the deterioration of security conditions in the vicinity of the Balhaf site caused the company Yemen LNG, in which TotalEnergies holds a stake of 39.62%, to stop its commercial production and export of MOZAMBIQUE Considering the evolution of the security situation in the north of the Cabo Delgado province in Mozambique, TotalEnergies has confirmed on April 26, 2021, the withdrawal of all Mozambique LNG project personnel from RUSSIAN-UKRAINIAN CONFLICT Since the month of February 2022, Russia's invasion of Ukraine led European and American authorities to adopt several sets of sanctions measures targeting Russian and Belarusian persons and entities, as well as the financial sector. TotalEnergies holds investments in this country in major LNG projects (Yamal LNG and Arctic LNG 2) both directly and through its holding in the company PAO Novatek, whose production and sale of LNG are not materially impacted by the sanctions adopted as of the date hereof. Depending on the developments of the Russian-Ukrainian conflict and the measures that the European and American authorities could be required to take, the activities of TotalEnergies in Russia could be affected in the future. TotalEnergies announced on March 1, 2022, that it condemned Russia's military aggression against Ukraine, and that sanctions will be implemented by the Company regardless of the consequences on its asset management. On March 22, 2022, TotalEnergies announced that, given the uncertainty created by the technological and financial sanctions on the ability to carry 54-55 Bond 2.250% issued by TotalEnergies Capital International in 2015 and maturing in June 2022 (£400 million). On March 4, 2022, the Company put in place a committed syndicated credit line with banks for an amount of $8,000 million and with a 12- month tenor (with the option to extend its maturity twice by a further 6 months at TotalEnergies SE’ hand). The impact of the Russian-Ukrainian conflict on transactions with related in paragraph 7 Other risks and parties commitments. in Russia is described assets and liabilities, results, financial position or operations of the TotalEnergies, other than those mentioned below. LNG and to declare force majeure to its various stakeholders in 2015. The plant has been put in preservation mode. the Afungi site. This situation led TotalEnergies, as operator of Mozambique LNG project, to declare force majeure. out the Arctic LNG 2 project currently under construction and their probable tightening with the worsening conflict, TotalEnergies SE had decided to no longer book proved reserves for the Arctic LNG 2 project. Since then, on April 8,2022, new sanctions have effectively been adopted by the European authorities, notably prohibiting export from European Union countries of goods and technology for use in the liquefaction of natural gas benefitting a Russian company. It appears that these new prohibitions constitute additional risks on the execution of the Arctic LNG 2 project. As a result, TotalEnergies recorded, in its accounts as of March 31, 2022, an impairment of $(4,095) million, concerning notably Arctic LNG 2. As of June 30, 2022, TotalEnergies recorded in its accounts a new $(3,513) million impairment charge related mainly to the potential impact of international sanctions on the value of its Novatek stake. In this context, indications of impairment were identified, and an impairment test to determine the value in use based on future cash flows was performed, taking into account assumptions reflecting the impact of sanctions on future cash flows. The table below presents the contribution of Russian assets to the key income and cash flow indicators: Russian Upstream Assets (M$) 2nd quarter 2022 1st quarter 2022 1st half 2022 Adjusted net operating income 707 1,021 1,727 Operating cash flow before working capital changes (1) 857 288 1,144 Capital Employed(2) by TotalEnergies in Russia as at June 30, 2022 was $8,760 million, after taking into account the $(3,513) million impairment and the impact of the evolution of the ruble/dollar exchange rate between March 31, 2022 and June 30, 2022, which leads to a $2,066 million revaluation of Capital Employed on the balance sheet as at June 30, 2022. 8) Subsequent events There are no post-balance sheet events that could have a material impact on the Company’s financial statements. (1) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark- to-market effect of iGRP’s contracts and including capital gain from renewable projects sales. (2) Capital Employed consists of non-current assets and working capital, at replacement cost, net of deferred income taxes and non-current liabilities. Chapter 2 / Consolidated Financial Statements as of June 30, 2022 / Notes to the Consolidated Financial Statements for the first six months 2022 (unaudited) 2021 2,092 1,613 TotalEnergies SE Registered office: 2, place Jean Millier – La Défense 6 92400 Courbevoie – France Reception: +33 (0)1 47 44 45 46 Investor Relations: +44 (0)1 47 44 46 46 North American Investor Relations: +1 (173) 483-5070 Share capital: €6,547,828,212.50 542 051 180 RCS Nanterre Financial report first half 2022 Published in July 2022 Produced by Acolad France | Semestriel, 2022, Energy, TotalEnergies | write me a financial report |
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| Financial report First half 2023 Table of contents Certification of the person responsible for the half-year financial report Glossary 1 Half year financial report 1.1 1.2 1.3 Highlights since the beginning of 2023 Key figures from TotalEnergies’ consolidated financial statements Key figures of environment, greenhouse gas emissions and production 1.3.1 Environment – liquids and gas price realizations, refining margins 1.4 1.3.2 Greenhouse gas emissions 1.3.3 Production Analysis of business segments 1.4.1 Exploration-Production 1.4.2 Integrated LNG 1.4.3 Integrated Power 1.4.4 Downstream (Refining & Chemicals and Marketing & Services) 1.5 TotalEnergies results 1.5.1 Adjusted net operating income from business segments 1.6 1.7 1.8 1.9 1.5.2 Adjusted net income (TotalEnergies share) 1.5.3 Adjusted earnings per share 1.5.4 Acquisitions – asset sales 1.5.5 Net cash flow 1.5.6 Profitability TotalEnergies SE accounts 2023 Sensitivities Outlook Other information 1.9.1 Operating information by segment 1.9.2 Adjustment items to net income (TotalEnergies 3 4 5 6 8 9 9 9 10 10 10 11 12 13 15 15 15 15 15 15 16 16 16 16 17 17 2 Consolidated Financial Statements as of June 30, 2023 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Statutory Auditors’ Review Report on the half-yearly Financial Information Consolidated statement of income – half-yearly Consolidated statement of comprehensive income – half-yearly Consolidated statement of income – quarterly Consolidated statement of comprehensive income – quarterly Consolidated balance sheet Consolidated statement of cash flow – half-yearly Consolidated statement of cash flow – quarterly Consolidated statement of changes in shareholders’ equity 2.10 Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 1) Basis of preparation of the consolidated financial statements Changes in the Company structure Business segment information Shareholders’ equity Financial debt Related parties Other risks and contingent liabilities Subsequent events 2) 3) 4) 5) 6) 7) 8) share) 19 1.9.3 Reconciliation of adjusted EBITDA with consolidated financial statements 1.10 1.9.4 Investments – Divestments 1.9.5 Cash-flow 1.9.6 Gearing ratio 1.9.7 Return on average capital employed Principal risks and uncertainties for the remaining six months of 2023 1.11 Major related parties’ transactions Disclaimer 19 20 20 21 21 22 22 23 The French language version of this Rapport financier semestriel (half-year financial report) was filed with the French Financial Markets Authority (Autorité des marchés financiers) on July 28, 2023 pursuant to paragraph III of Article L. 451-1-2 of the French Monetary and Financial Code 25 26 27 28 29 30 31 32 33 34 35 35 35 37 50 52 52 52 52 Financial report 1st half 2023 Certification of the person responsible for the half-year financial report This translation is a non binding translation into English of the Chairman and Chief Executive Officer’s certification issued in French, and is provided solely for the convenience of English-speaking readers. “I certify, to the best of my knowledge, that the condensed Consolidated Financial Statements of TotalEnergies SE (the Corporation) for the first half of 2023 have been prepared in accordance with the applicable set of accounting standards and give a fair view of the assets, liabilities, financial position and profit or loss of the Corporation and all the entities included in the consolidation, and that the half-year financial report on pages 5 to 24 herein includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements, major related parties transactions and the principal risks and uncertainties for the remaining six months of the financial year. The statutory auditors’ report on the limited review of the above-mentioned condensed Consolidated Financial Statements is included on page 26 of this half-year financial report.” Courbevoie, July 27, 2023 Patrick Pouyanné Chairman and Chief Executive Officer Glossary The terms “TotalEnergies” and “TotalEnergies company” as used in this document refer to TotalEnergies SE collectively with all of its direct and indirect consolidated companies located in or outside of France. The term “Corporation” as used in this document exclusively refers to TotalEnergies SE, which is the parent company of TotalEnergies company. ABBREVIATIONS €: $ or dollar: ADR: ADS: AMF: API: ATEX: CCS: CCUS: CNG: CO2: CO2e: CSR: DACF: ESG: EV: FLNG: FPSO: euro US dollar American depositary receipt (evidencing an ADS) American depositary share (representing a share of a company) Autorité des marchés financiers (French Financial Markets Authority) American Petroleum Institute explosive atmosphere carbon capture and storage carbon capture utilization and storage (refer to the definition of carbon capture and storage below) compressed natural gas carbon dioxide equivalent CO2 corporate and social responsibility debt adjusted cash flow (refer to the definition of operating cash flow before working capital changes without financial charges below) Environment, Social and Governance electric vehicle floating liquefied natural gas floating production, storage and offloading FSRU: GHG: HSE: IEA (SDS): IFRS: IPIECA: LNG: LPG: NGL: NGV : OML: PPA: ROACE: ROE: SDG: SEC: TCFD: VCM: WHRS: floating storage and regasification unit greenhouse gas health, safety and the environment International Energy Agency (Sustainable Development Scenario) International Financial Reporting Standards International Petroleum Industry Environmental Conservation Association liquefied natural gas liquefied petroleum gas natural gas liquids natural gas vehicle oil mining lease Power Purchase Agreement (refer to the definition below) return on average capital employed return on equity Sustainable development goal United States Securities and Exchange Commission task force on climate-related financial disclosures variable cost margin – Refining Europe Worldwide Human Resources Survey UNITS OF MEASUREMENT b = B = Bcm = boe = btu = cf = /d = Gt CO2 = GW = GWac = GWh = k = km = barrel(1) billion billion of cubic meters barrel of oil equivalent British thermal unit cubic feet per day billion of CO2 tons gigawatt AC gigawatt gigawatt hour thousand kilometer m = m³ = M = Mtpa = MW = PJ = t = toe= TWh = W = Wac = Wp = /y = meter cubic meter(1) million million ton per annum megawatt petajoule (Metric) ton ton of oil equivalent terawatt hour watt AC (alternating current) watt watt-peak or watt of peak power per year CONVERSION TABLE 1 acre ≈ 1 b = 1 b/d of crude oil ≈ 1 Bcm/y ≈ 1 km ≈ 0.405 hectares 42 US gallons ≈ 159 liters 50 t/y of crude oil 0.1 Bcf/d 0.62 miles 1 m³ ≈ 1 Mt of LNG ≈ 1 Mt/y of LNG ≈ 1 t of oil ≈ 1 boe = 1 b of crude oil ≈ 35.3 cf 48 Bcf of gas 131 Mcf/d of gas 7.5 b of oil (assuming a specific gravity of 37° API) 5,387 cf of gas in 2022(2) (5,378 cf in 2021 and 5,399 cf in 2020) (1) Liquid and gas volumes are reported at international standard metric conditions (15 °C and 1 atm). (2) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of natural gas reserves during the applicable periods and is subject to change. The tabular conversion rate is applicable to TotalEnergies’ natural gas reserves on a Company-wide basis. 1 Half year financial report 1.1 Highlights since the beginning of 2023 6 1.7 2023 Sensitivities 1.2 Key figures from TotalEnergies’ consolidated financial statements 8 1.8 1.9 Outlook Other information 1.3 1.3.1 1.3.2 1.3.3 1.4 1.4.1 1.4.2 1.4.3 1.4.4 1.5 Key figures of environment, greenhouse gas emissions and production Environment – liquids and gas price realizations, refining margins Greenhouse gas emissions Production Analysis of business segments Exploration-Production Integrated LNG Integrated Power Downstream (Refining & Chemicals and Marketing & Services) TotalEnergies results 9 9 9 10 10 10 11 12 13 15 1.9.1 1.9.2 1.9.3 1.9.4 1.9.5 1.9.6 1.9.7 1.10 Operating information by segment Adjustment items to net income (TotalEnergies share) Reconciliation of adjusted EBITDA with consolidated financial statements Investments – Divestments Cash-flow Gearing ratio Return on average capital employed Principal risks and uncertainties for the remaining six months of 2023 1.11 Major related parties’ transactions Disclaimer 1.5.1 1.5.2 1.5.3 1.5.4 1.5.5 1.5.6 1.6 Adjusted net operating income from business segments Adjusted net income (TotalEnergies share) Adjusted earnings per share Acquisitions – asset sales Net cash flow Profitability TotalEnergies SE accounts 15 15 15 15 15 16 16 16 16 17 17 19 19 20 20 21 21 22 22 23 1 1.1 Highlights since the beginning of 2023(1) Social and environmental responsibility – Publication of the Sustainability & Climate – 2023 Progress Report presenting the progress made on TotalEnergies’ transformation strategy and the update of its climate ambition – TotalEnergies ranked Number 2 in employee share ownership in Europe according to the report of the European Federation of Employee Share Ownership – TotalEnergies guarantees customers that its fuel price will not exceed 1.99 €/l in its stations in France Multi-energy strategy – Launch of GGIP in Iraq: major multi-energy project (access to low- cost, low-emission oil from the Ratawi field, gas gathering and treatment for electricity generation, 1 GW solar farm and sea water the sustainable development of natural favor of in treatment) resources in Basrah area – Partnership with SONATRACH to increase the production of the Tin Fouyé Tabankort fields, extend to 2024 2 Mt/y of LNG deliveries in France, and develop renewable energy projects in Algeria Upstream – Acquisition of CEPSA's upstream assets in the United Arab Emirates, representing a share of 50 kboe/d – Launch of the Lapa South-West project in Brazil – Exercise by ConocoPhillips of its preemption right on Surmont, following the announcement of the sale to Suncor of the entirety of the shares of TotalEnergies EP Canada Ltd – Production start-up of Absheron gas and condensate field, in – Signature of Production Sharing Contracts on Blocks 6 and 8, in Azerbaijan Suriname – Oil and gas discovery on the Ntokon well, located on OML 102 in – Signature of the Production Sharing Contract for the Agua Marinha Nigeria block, in Brazil – Renewal for 20 years of the OML130 license, in Nigeria Downstream – Sale to Alimentation Couche-Tard of retail networks in Germany and in Belgium and the Netherlands and 40%/60% partnership Luxembourg – Creation of a joint venture with Air Liquide to develop a network of more than 100 hydrogen stations for trucks in Europe – Award of $11 billion EPC contracts for the Amiral project, in Saudi – Agreement with waste recycling company Paprec to develop chemical Arabia plastic recycling projects in France – Realignment with INEOS of stakes in petrochemical assets in Eastern France Integrated LNG – Production start-up on Block 10 and signed a long-term LNG contract for 0.8 Mt/year in Oman – Launch of Papua LNG Integrated Engineering Studies in Papua New – Authorization by the installation of the floating LNG regasification terminal in Le Havre in France the French and European authorities for Guinea – Delivery of the first LNG cargo to the Dhamra LNG terminal in India – Commissioning of the floating LNG regasification terminal in Lubmin, Germany – Launch of the RGLNG project, in Texas: acquisition of a 16.67% stake in the JV in charge of developing the 17.5 Mt/y project, acquisition of a 17.5% stake in NextDecade, and signature of a 5.4 Mt/y offtake agreement for 20 years – Signing of LNG sale contracts to IOCL in India for 10 years and to ADNOC Gas for 3 years (1) Certain transactions referred to in the highlights are subject to approval by authorities or to conditions as per the agreements. 6-7 Integrated Power – Closing of the acquisition of a 34% interest in Casa dos Ventos, leading renewable developer in Brazil – Acquisition from Corio Generation a 50% interest (minus 10 shares) in the 600 MW Formosa 3 offshore wind project in Taiwan – Signature of renewable power purchase agreements with Sasol and Air Liquide in South Africa – Acquisition at 100% of Total Eren, a leading renewable electricity producer – Award of two maritime leases to develop two offshore wind farms for a total capacity of 3 GW in Germany Decarbonization & new molecules – Acquisition of PGB, Poland's leading biogas producer – Entry on two permits for the storage of CO2 in the North Sea, Denmark – Partnership with TES to develop a large-scale production unit for e- natural gas in the United States – Agreement with VNG to initiate the future supply of green hydrogen to the Leuna refinery, in Germany – SAF: doubling SAF production capacity to 285 kt per year at Grandpuits, in France – Favorable environmental impact assessment for 3 GW of solar projects in Spain – 25-year Power Purchase Agreement for 1 GW onshore wind farm with battery storage in Kazakhstan – Launch at Antwerp, in Belgium, of a 75 MWh battery energy storage project – Strategic Collaboration Agreement with Petronas, to develop renewable energy projects in the Asia Pacific region. Agreement to develop the 100 MW Pleasant Hills solar project in Australia – Biomethane: – Acquisition of 20% stake in the Finnish start-up Ductor – Signature with Saint-Gobain France of a 100 GWh sale agreement over 3 years – Construction in Grandpuits, in France, of a production unit with annual capacity of 80 GWh Chapter 1 / Half year financial report / Highlights since the beginning of 2023 1 1.2 Key figures from TotalEnergies’ consolidated financial statements(1) (in millions of dollars, except effective tax rate, earnings per share and number of shares) 1H23 1H22 1H23 vs 1H22 Adjusted EBITDA(2) 25,272 36,161 30% Adjusted net operating income from business segments 12,575 19,958 37% Exploration & Production 5,002 9,734 49% Integrated LNG 3,402 5,348 36% Integrated Power 820 258 x3.2 Refining & Chemicals 2,622 3,880 32% Marketing & Services 729 738 1% Contribution of equity affiliates to adjusted net income 1,741 3,805 54% Effective tax rate(3) 39.7% 39.0% Adjusted net income (TotalEnergies share) 11,497 18,773 39% Adjusted fully-diluted earnings per share (dollars)(4) 4.61 7.14 35% Adjusted fully-diluted earnings per share (euros)* 4.27 6.53 35% Fully-diluted weighted-average shares (millions) 2,460 2,602 5% Net income (TotalEnergies share) 9,645 10,636 9% Organic investments(5) 7,704 4,800 +60% Net acquisitions(6) 3,307 2,998 +10% Net investments(7) 11,011 7,798 +41% Operating cash flow before working capital changes(8) 18,106 24,859 27% Operating cash flow before working capital changes w/o financial charges (DACF)(9) 18,371 25,626 28% Cash flow from operations 15,033 23,901 37% Average €-$ exchange rate: 1.0807 in the first half 2023 and 1.0934 in the first half 2022. (1) Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 19. (2) Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) corresponds to the adjusted earnings before depreciation, depletion and impairment of tangible and intangible assets and mineral interests, income tax expense and cost of net debt, i.e., all operating income and contribution of equity affiliates to net income. (3) Effective tax rate = (tax on adjusted net operating income) / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income). In accordance with IFRS rules, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond (4) (5) Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests. (6) Net acquisitions = acquisitions – assets sales – other transactions with non-controlling interests (see page 20). (7) Net investments = organic investments + net acquisitions (see page 20). (8) Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark-to- market effect of Integrated LNG and Integrated Power contracts and including capital gain from renewable projects sale. The inventory valuation effect is explained on page 23. The reconciliation table for different cash flow figures is on page 20. (9) DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges. 8-9 1.3 Key figures of environment, greenhouse gas emissions and production 1.3.1 Environment – liquids and gas price realizations, refining margins 1H23 1H22 1H23 vs 1H22 Brent ($/b) 79.7 107.9 26% Henry Hub ($/Mbtu) 2.5 6.1 58% NBP ($/Mbtu) 13.3 27.2 51% JKM ($/Mbtu) 13.7 29.1 53% Average price of liquids ($/b) Consolidated subsidiaries 72.7 96.3 25% Average price of gas ($/Mbtu) Consolidated subsidiaries 7.48 11.65 36% Average price of LNG ($/Mbtu) Consolidated subsidiaries and equity affiliates 11.59 13.77 16% Variable cost margin - Refining Europe, VCM ($/t) 65.0 101.0 36% 1.3.2 Greenhouse gas emissions(1) Scope 1+2 emissions (MtCO2e) 1H23 1H22 Scope 1+2 from operated facilities (2) 18.2 19.3 of which Oil & Gas 15.5 16.0 of which CCGT 2.6 3.3 Scope 1+2 - equity share 25.3 27.4 Estimated 1H23 emissions. Methane emissions (ktCH4) 1H23 1H22 Methane emissions from operated facilities 18 20 Methane emissions - equity share 21 24 Estimated 1H23 emissions. Scope 3 emissions (MtCO2e) 1H23 1H22 Scope 3 from Oil, Biofuels and Gas Worldwide (3) est. 180 389.0 The lower Scope 1+2 emissions from the operated facilities is the result of the decrease in the use of gas-fired power plants in a context of lower demand in Europe and the continuous decline in flaring on Exploration & Production facilities. (1) The six greenhouse gases in the Kyoto protocol, namely CO2, CH4, N2O, HFCs, PFCs and SF6, with their respective GWP (Global Warming Potential) as described in the 2007 IPCC report. HFCs, PFCs and SF6 are virtually absent from the Company’s emissions or are considered as non-material, and are therefore not counted. (2) Scope 1+2 GHG emissions of operated facilities are defined as the sum of direct emissions of greenhouse gases from sites or activities that are included in the scope of reporting (as defined in the Company’s 2022 Universal Registration Document) and indirect emissions attributable to brought-in energy (electricity, heat, steam), excluding purchased industrial gases (H2). (3) TotalEnergies reports Scope 3 GHG emissions, category 11, which correspond to indirect GHG emissions related to the use by customers of energy products, i.e., combustion of the products to obtain energy. The Company follows the oil & gas industry reporting guidelines published by IPIECA, which comply with the GHG Protocol methodologies. In order to avoid double counting, this methodology accounts for the largest volume in the oil, biofuels and gas value chains, i.e., the higher of the two production volumes or sales to end customers. The highest point for each value chain for 2023 will be evaluated considering realizations over the full year, TotalEnergies providing half-year estimate. Chapter 1 / Half year financial report / Key figures of environment, greenhouse gas emissions and production 1 1.3.3 Production* Hydrocarbon production 1H23 1H22 1H23 vs 1H22 Hydrocarbon production (kboe/d) 2,498 2,791 10.5% Oil (including bitumen) (kb/d) 1,407 1,287 +9% Gas (including condensates and associated NGL) (kboe/d) 1,091 1,504 27% Hydrocarbon production (kboe/d) 2,498 2,791 10.5% Liquids (kb/d) 1,567 1,505 +4% Gas (Mcf/d) 5,017 6,997 28% Hydrocarbon production excluding Novatek (kboe/d) 2,498 2,460 +2% Company production = E&P production + Integrated LNG production. Hydrocarbon production was 2,498 thousand barrels of oil equivalent per day (kboe/d) in the first half of 2023, up 2% year-on-year (excluding Novatek), comprised of: – +4% due to projects start-ups and ramp-ups, including Mero 1 in Brazil, Ikike in Nigeria, Johan Sverdrup Phase 2 in Norway and Block 10 in Oman, – +1% price effect, – +1% due to the improvement of security conditions in Nigeria and Libya, – -1% portfolio effect, notably related to the end of the Bongkot operating licenses in Thailand, the exit from Termokarstovoye in Russia and the effective withdrawal from Myanmar, partially offset by the entry into the producing fields of Sepia and Atapu in Brazil and SARB and Umm Lulu in the United Arab Emirates, – -3% due to natural decline of the fields. 1.4 Analysis of business segments 1.4.1 Exploration-Production 1.4.1.1 PRODUCTION Hydrocarbon production 1H23 1H22 1H23 vs 1H22 EP (kboe/d) 2,047 2,314 12% Liquids (kb/d) 1,506 1,449 +4% Gas (Mcf/d) 2,895 4,706 38% EP excluding Novatek (kboe/d) 2,047 2,040 – 1.4.1.2 RESULTS (in millions of dollars, except effective tax rate) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 5,002 9,734 49% including adjusted income from equity affiliates 284 642 56% Effective tax rate** 53.9% 47.1% – Organic investments 4,558 3,299 +38% Net acquisitions 2,114 2,541 17% Net investments 6,672 5,840 +14% Operating cash flow before working capital changes*** 9,271 14,686 37% Cash flow from operations*** 8,583 14,536 41% ** Tax on adjusted net operating income/(adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income). Details on adjustment items are shown in the business segment information annex to financial statements. *** Excluding financial charges, except those related to leases. In the first half of 2023, adjusted net operating income and cash flow were $5,002 million and $9,271 million, down 47% and 35%, respectively, year-on- year (excluding Novatek), due to lower oil and gas prices and higher taxes, notably in the UK. 10-11 1.4.2 Integrated LNG 1.4.2.1 PRODUCTION AND SALES OF LIQUEFIED NATURAL GAS (LNG) Hydrocarbon production for LNG 1H23 1H22 1H23 vs 1H22 Integrated LNG (kboe/d) 451 477 6% Liquids (kb/d) 61 56 +7% Gas (Mcf/d) 2,122 2,291 7% Integrated LNG excluding Novatek (kboe/d) 451 419 +8% Liquefied Natural Gas in Mt 1H23 1H22 1H23 vs 1H22 Overall LNG sales 22.0 24.9 12% incl. Sales from equity production* 7.6 8.6 12% incl. Sales by TotalEnergies from equity production and third party purchases 19.9 22.2 10% The Company's equity production may be sold by Total Energies or by the joint ventures. Hydrocarbon production for LNG was up 8% year-on-year in the first half 2023 (excluding Novatek), due to the increased supply of NLNG following improved security conditions in Nigeria and the restart of Snøhvit in Norway during the second quarter 2022. LNG sales were down 12% year-on-year in the first half 2023, due to lower demand in Europe. 1.4.2.2 RESULTS (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 3,402 5,348 36% including adjusted income from equity affiliates 1,218 2,596 53% Organic investments 779 110 x7.1 Net acquisitions 964 (56) ns Net investments 1,743 54 x32.3 Operating cash flow before working capital changes** 3,882 4,604 16% Cash flow from operations*** 4,868 6,021 19% ** Excluding financial charges, except those related to lease contracts, excluding the impact of contracts recognized at fair value. *** Excluding financial charges, except those related to leases. Detail of adjustment items shown in the business segment information annex to financial statements. Integrated LNG adjusted net operating income was $3,402 million in the first half 2023, down 26% year-on-year (excluding Novatek), due to lower prices and LNG sales, as well as exceptional trading results in the first quarter 2022. Operating cash flow before working capital changes for Integrated LNG was $3,882 million in the first half 2023, down 16% year-on-year (excluding Novatek), due to lower LNG prices, partially offset by higher margins secured in 2022 on LNG cargoes to be delivered in 2023. Chapter 1 / Half year financial report / Analysis of business segments 1 1.4.3 Integrated Power 1.4.3.1 CAPACITIES, PRODUCTIONS, CLIENTS AND SALES Integrated Power 1H23 1H22 1H23 vs 1H22 PORTFOLIO OF RENEWABLE POWER GENERATION GROSS CAPACITY (GW)(1)(2) 74.7 50.7 47% o/w installed capacity 19.0 11.6 63% o/w capacity in construction 5.7 5.2 11% o/w capacity in development 50.0 33.9 47% PORTFOLIO OF RENEWABLE POWER GENERATION NET CAPACITY (GW)(2) 46.9 38.4 22% o/w installed capacity 8.9 5.8 53% o/w capacity in construction 3.9 3.7 7% o/w capacity in development 34.1 28.9 18% GAS-FIRED POWER GENERATION GROSS INSTALLED CAPACITY (GW)(2) 5.8 5.8 – GAS-FIRED POWER GENERATION NET INSTALLED CAPACITY (GW)(2) 4.3 4.3 – NET POWER PRODUCTION (TWH)(3) 16.6 15.2 9% incl. Power production from renewables 8.1 4.7 70% Clients power – BtB and BtC (Million)(2) 6.0 6.2 3% Clients gas – BtB and BtC (Million)(2) 2.8 2.7 1% Sales power – BtB and BtC (TWh) 27.0 28.6 6% Sales gas – BtB and BtC (TWh) 56.4 54.1 4% (1) Includes 20% of Adani Green Energy Ltd’s gross capacity effective first quarter 2021, 50% of Clearway Energy Group’s gross capacity effective third quarter 2022 and 49% of Casa dos Ventos’ gross capacity effective first quarter 2023. (2) End of period data. (3) Solar, wind, hydroelectric and combined-cycle gas turbine (CCGT) plants. Net electricity production was 16.6 TWh in the first half 2023, an increase of 9% year-on-year, as growing electricity generation from renwables is partially offset by lower generation from flexible capacity in a context of lower demand. Gross installed renewable power generation capacity was 19 GW at the end of the first half 2023, up by more than 7 GW year-on-year, including close to 4.5 GW from the acquisition of a 50% stake in Clearway Energy Group and the start-up of solar and wind projects in the US, 0.8 GW from the start-up of the Seagreen offshore wind project in the UK, 0.6 GW from the acquisition of an interest in the Casa dos Ventos portfolio of renewable projects in Brazil, and 0.4 GW from the start-up of the Al Kharsaah photovoltaic project in Qatar. 1.4.3.2 RESULTS (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 820 258 x3.2 including adjusted income from equity affiliates 79 53 +49% Organic investments 1,330 489 x2.7 Net acquisitions 477 639 25% Net investments 1,807 1,128 +60% Operating cash flow before working capital changes** 931 341 x2.7 Cash flow from operations*** 999 (1,736) ns ** Excluding financial charges, except those related to lease contracts, excluding the impact of contracts recognized at fair value for the sector and including capital gains on the sale of renewable projects. Detail of adjustment items shown in the business segment information annex to financial statements. *** Excluding financial charges, except those related to leases. Excluding margin calls, reported in the Integrated LNG segment since the implementation in 2022 of its centralized management. Adjusted net operating income for the Integrated Power sector was $820 million in the first half 2023, tripling over one year, due to the performance of its integrated electricity portfolio. Operating cash flow before working capital changes was 2.7 times higher over one year to $931 million in the first half 2023, for the same reasons. 12-13 1.4.4 Downstream (Refining & Chemicals and Marketing & Services) 1.4.4.1 RESULTS (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 3,351 4,618 27% Organic investments 976 878 +11% Net acquisitions (248) (125) ns Net investments 728 753 3% Operating cash flow before working capital changes** 4,274 5,444 21% Cash flow from operations** 1,064 6,111 83% ** Excluding financial charges, except those related to leases. Detail of adjustment items shown in the business segment information annex to financial statements. 1.4.4.2 REFINING & CHEMICALS 1.4.4.2.1 REFINERY AND PETROCHEMICALS THROUGHPUT AND UTILIZATION RATES Refinery throughput and utilization rate* 1H23 1H22 1H23 vs 1H22 Total refinery throughput (kb/d) 1,437 1,448 1% France 360 324 +11% Rest of Europe 598 627 5% Rest of world 479 497 4% Utlization rate based on crude only** 80% 81% – ** Based on distillation capacity at the beginning of the year. Includes refineries in Africa reported in the Marketing & Services segment. Petrochemicals production and utilization rate 1H23 1H22 1H23 vs 1H22 Monomers* (kt) 2,452 2,611 6% Polymers (kt) 2,074 2,461 16% Vapocracker utilization rate** 71% 78% Olefins. ** Based on olefins production from steamcrackers and their treatment capacity at the start of the year. Refinery throughput was down 1% year-on-year in the first half 2023, notably due to planned maintenance and unplanned shutdowns at the Antwerp refinery in Belgium, and logistical limitations linked to high inventory levels at the Normandy refinery in France, partially offset by the restart of the Donges refinery in France in the second quarter 2022. Polymer production was down 16% in the first half 2023 year-on-year, due to the slowdown in global demand. 1.4.4.2.2 RESULTS (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 2,622 3,880 32% Organic investments 652 510 +28% Net acquisitions (10) (34) ns Net investments 642 476 +35% Operating cash flow before working capital changes** 3,062 4,396 30% Cash flow from operations** 1,072 4,633 77% ** Excluding financial charges, except those related to leases. Detail of adjustment items shown in the business segment information annex to financial statements. Refining & Chemicals adjusted net operating income was $2,622 million in the first half 2023, down 32% year-on-year, reflecting lower refining margins in Europe impacted at the start of the period by Chinese exports and the quicker than anticipated reorganization of Russian flows following the European embargo, although supported at the end of the semester by higher gasoline exports to the US and lower diesel imports in Europe from China. Operating cash flow before working capital changes was $3,062 million in the first half 2023, down 30% respectively year-on-year as the first half 2022 benefited from exceptional conditions. Chapter 1 / Half year financial report / Analysis of business segments 1 1.4.4.3 MARKETING & SERVICES 1.4.4.3.1 PETROLEUM PRODUCT SALES Sales (in kb/d)* 1H23 1H22 1H23 vs 1H22 Total Marketing & Services sales 1,379 1,464 6% Europe 778 804 3% Rest of world 600 661 9% Excludes trading and bulk refining sales. Sales of petroleum products were down year-on-year by 6% in the first half 2023, as lower demand from commercial and industrial customers in Europe and the perimeter effect linked to the disposal of 50% of the fuel distribution business in Egypt were partially offset by the recovery in the aviation business. 1.4.4.3.2 RESULTS (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted net operating income* 729 738 1% Organic investments 324 368 12% Net acquisitions (238) (91) ns Net investments 86 277 69% Operating cash flow before working capital changes** 1,212 1,048 +16% Cash flow from operations** (8) 1,478 ns ** Excluding financial charges, except those related to leases. Detail of adjustment items shown in the business segment information annex to financial statements. Marketing & Services adjusted net operating income was $729 million in the first half 2023, slightly down year-on-year, in line with lower sales. Operating cash flow before working capital changes rose by 16% to $1,212 million in the first half 2023, as 2022 was negatively impacted by the tax effect of higher prices on the valuation of petroleum product inventories. 14-15 1.5 TotalEnergies results 1.5.1 Adjusted net operating income from business segments Adjusted net operating income for the sectors was $12,575 million in the first half 2023, compared to $19,958 million a year earlier, due to lower oil and gas prices and refining margins. 1.5.2 Adjusted net income (TotalEnergies share) Adjusted net income (TotalEnergies share) was $11,497 million in the first half 2023 compared to $18,773 million a year earlier, mainly due to lower oil and gas prices and refining margins. – ($0.5) billion related to impairments, notably on upstream assets in Kenya and the Yunlin offshore wind project in Taiwan, – ($0.5) billion effects of changes in fair value, and Adjusted net income excludes the after-tax inventory effect, special items and impact of changes in fair value(1). – ($0.2) billion related to the impacts of the European solidarity contribution and the inframarginal income contribution in France. Total net income adjustments(2) were ($1,852) million in the first half 2023, consisting mainly of: – ($0.8) billion inventory effect, The effective tax rate for TotalEnergies was 39.7% in the first half 2023, compared to 39.0% in the first half 2022, mainly as a result of the higher tax rate for Exploration & Production related notably to the Energy Profits Levy in the UK. 1.5.3 Adjusted earnings per share Adjusted fully-diluted earnings per share was $4.61 in the first half 2023, calculated based on 2,460 million weighted-average diluted shares, compared to $7.14 a year earlier. As of June 30, 2023, the number of fully-diluted shares was 2,443 million. As part of its shareholder return policy, TotalEnergies repurchased 65.0 million shares for cancellation in the first half 2023 for $4 billion. 1.5.4 Acquisitions – asset sales Acquisitions were $3,738 million in the first half 2023, mainly related to the acquisition of a 20% interest in the SARB and Umm Lulu concession in the United Arab Emirates, the acquisition of a 6.25% stake in the NFE and a 9.375% stake in the NFS LNG projects in Qatar, a 34% stake in a joint venture with Casa dos Ventos in Brazil, the renewal of the license OML 130 in Nigeria, and the acquisition of a 5.06% stake in NextDecade in line with the launch of RGLNG project in the US. Divestments were $431 million in the first half 2023, notably related to the sales of shares in Maxeon and of 50% of the Marketing & Services subsidiary in Egypt. 1.5.5 Net cash flow TotalEnergies’ net cash flow(3) was $7,095 million in the first half 2023, compared to $17,061 million a year earlier, reflecting the $6,753 million decrease in cash flow and the $3,213 million increase in net investments to $11,011 million in the first half 2023. In the first half 2023, cash flow from operations was $15,033 million compared to $18,106 million of operating cash flow before working capital changes, in working capital requirements, mainly due to the effects of lower prices on tax payables and the seasonality of payment of the gas and power marketing business. reflecting a $3.0 billion increase (1) Adjustment items shown on page 23. (2) Details shown on page 19 and in the appendix to the financial statements. (3) Net cash flow = cash flow - net investments (including other transactions with non-controlling interest). Chapter 1 / Half year financial report / TotalEnergies results 1 1.5.6 Profitability The return on equity was 25.2% for the twelve months ended June 30, 2023. (in millions of dollars) July 1, 2022 June 30, 2023 April 1, 2022 March 31, 2023 July 1, 2021 June 30, 2022 Adjusted net income 29,351 34,219 30,716 Average adjusted shareholders' equity 116,329 115,233 113,333 RETURN ON EQUITY (ROE) 25.2% 29.7% 27.1% The return on average capital employed(1) was 22.4% for the twelve months ended June 30, 2023. (in millions of dollars) July 1, 2022 June 30, 2023 April 1, 2022 March 31, 2023 July 1, 2021 June 30, 2022 Adjusted net operating income 30,776 35,712 32,177 Average capital employed 137,204 140,842 139,377 ROACE 22.4% 25.4% 23.1% 1.6 TotalEnergies SE accounts Net income for TotalEnergies SE, the parent company, was €7,040 million in the first half 2023 compared to €3,702 in the first half 2022. 1.7 2023 Sensitivities* Change Estimated impact on adjusted net operating income Estimated impact on cash flow from operations Dollar +/- 0.1 $ per € /+ 0.1 B$ ~0 B$ Average liquids price** +/-10 $/b +/- 2.5 B$ +/- 3.0 B$ European gas price - NBP / TTF +/-2 $/Mbtu +/- 0.4 B$ +/- 0.4 B$ Variable cost margin, European refining (VCM) +/-10 $/t +/- 0.4 B$ +/- 0.5 B$ ** Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about TotalEnergies’ portfolio in 2023. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals. In a 80 $/b Brent environment. 1.8 Outlook Oil prices have remained buoyant at around $75/b for several months now, supported by OPEC+ actions. Demand for petroleum products should be supported as the summer driving season is ongoing and the global recovery for air travel continues. European natural gas prices are currently around $10/Mbtu due to high inventories in Europe. Demand recovery in Asia and tension on supply capacities in Europe support forward prices above $15/Mbtu for the winter of 2023/2024. selling price should be between $9 and $10/Mbtu in the third quarter 2023. For the third quarter 2023, TotalEnergies anticipates hydrocarbon production of around 2.5 Mboe/d, notably supported by the start-up of Absheron field in Azerbaijan. The utilization rate in refineries should remain above 80%. The Company confirms 2023 guidance of net investments between $16 and $18 billion, including $5 billion in low-carbon energies Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, TotalEnergies anticipates that its average LNG (1) Return On Average Capital Employed (ROACE) is the ratio of Adjusted net operating income to Average capital employed between the beginning and the end of the period. 16-17 1.9 Other information 1.9.1 Operating information by segment 1.9.1.1 COMPANY’S PRODUCTION (EXPLORATION & PRODUCTION + INTEGRATED LNG) Combined liquids and gas production by region (kboe/d) 1H23 1H22 1H23 vs 1H22 Europe 559 933 40% Africa 488 479 +2% Middle East and North Africa 743 675 +10% Americas 442 403 +10% Asia-Pacific 266 301 12% Total production 2,498 2,791 10% includes equity affiliates 341 702 51% Liquids production by region (kb/d) 1H23 1H22 1H23 vs 1H22 Europe 231 283 18% Africa 365 362 +1% Middle East and North Africa 596 542 +10% Americas 266 216 +23% Asia-Pacific 109 102 +6% Total production 1,567 1,505 +4% includes equity affiliates 152 206 26% Gas production by region (Mcf/d) 1H23 1H22 1H23 vs 1H22 Europe 1,774 3,498 49% Africa 612 594 +3% Middle East and North Africa 803 734 +9% Americas 985 1,052 6% Asia-Pacific 843 1,119 25% Total production 5,017 6,997 28% includes equity affiliates 1,029 2,673 62% 1.9.1.2 DOWNSTREAM (REFINING & CHEMICALS AND MARKETING & SERVICES) Petroleum product sales by region (kb/d) 1H23 1H22 1H23 vs 1H22 Europe 1,655 1,724 4% Africa 633 747 15% Americas 883 849 +4% Rest of world 644 618 +4% Total consolidated sales 3,815 3,939 3% Includes bulk sales 405 409 1% Includes trading 2,031 2,065 2% Petrochemicals production* (kt) 1H23 1H22 1H23 vs 1H22 Europe 2,073 2,282 9% Americas 1,226 1,240 1% Middle East and Asia 1,228 1,549 21% Olefins, polymers. Chapter 1 / Half year financial report / Other information 1 1.9.1.3 RENEWABLES 1H23 Installed power generation gross capacity (GW)(1)(2) Solar Onshore Wind Offshore Wind Other Total Solar Onshore Wind France 0.8 0.6 0.0 0.1 1.6 0.7 0.5 Rest of Europe 0.2 1.1 0.8 0.0 2.1 0.2 1.1 Africa 0.1 0.0 0.0 0.0 0.2 0.1 0.0 Middle East 1.2 0.0 0.0 0.0 1.2 0.7 0.0 North America 3.5 2.1 0.0 0.1 5.6 1.1 0.0 South America 0.4 1.0 0.0 0.0 1.4 0.4 0.3 India 5.1 0.4 0.0 0.0 5.5 4.9 0.2 Asia-Pacific 1.4 0.0 0.1 0.0 1.5 1.2 0.0 TOTAL 12.5 5.2 1.0 0.3 19.0 9.2 2.1 (1) (2) End-of-period data. Includes 20% of the gross capacities of Adani Green Energy Limited, 50% of Clearway Energy Group and, from 1Q23, 49% of Casa dos Ventos. Power generation gross capacity from renewables in construction (GW)(1)(2) Solar Onshore Wind 1H23 Offshore Wind Other Total Solar Onshore Wind France 0.2 0.1 0.0 0.0 0.3 0.2 0.2 Rest of Europe 0.1 0.0 0.3 0.0 0.5 0.0 0.0 Africa 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Middle East 0.1 0.0 0.0 0.0 0.1 0.4 0.0 North America 2.8 0.1 0.0 0.5 3.4 1.3 0.0 South America 0.1 0.2 0.0 0.0 0.3 0.0 0.0 India 0.4 0.1 0.0 0.0 0.5 0.9 0.3 Asia-Pacific 0.0 0.0 0.5 0.0 0.6 0.1 0.0 TOTAL 3.8 0.5 0.9 0.6 5.7 2.8 0.5 (1) (2) End-of-period data. Includes 20% of the gross capacities of Adani Green Energy Limited, 50% of Clearway Energy Group and, from 1Q23, 49% of Casa dos Ventos. Power generation gross capacity from renewables in development (GW)(1)(2) Solar Onshore Wind 1H23 Offshore Wind Other Total Solar Onshore Wind France 1.0 0.6 0.0 0.0 1.6 2.3 0.5 Rest of Europe 5.4 0.4 4.4 0.1 10.3 4.8 0.3 Africa 0.6 0.3 0.0 0.1 1.0 0.6 0.1 Middle East 0.4 0.0 0.0 0.0 0.4 1.8 0.0 North America 9.0 3.2 4.1 5.1 21.3 6.2 0.1 South America 1.6 1.6 0.0 0.4 3.6 0.6 0.0 India 4.2 0.1 0.0 0.0 4.3 3.9 0.1 Asia-Pacific 3.2 0.4 2.9 0.9 7.5 1.7 0.2 TOTAL 25.5 6.6 11.4 6.5 50.0 21.7 1.3 (1) (2) End-of-period data. Includes 20% of the gross capacities of Adani Green Energy Limited, 50% of Clearway Energy Group and, from 1Q23, 49% of Casa dos Ventos. 18-19 1H22 Offshore Wind 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 1H22 Offshore Wind 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.6 1.7 1H22 Offshore Wind 0.0 4.4 0.0 0.0 4.0 0.0 0.0 1.2 9.6 Other 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 Other 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Other 0.0 0.1 0.1 0.0 0.8 0.2 0.0 0.1 1.3 Total 1.3 1.3 0.1 0.7 1.1 0.7 5.1 1.2 11.6 Total 0.4 1.1 0.0 0.4 1.3 0.0 1.2 0.7 5.2 Total 2.8 9.5 0.8 1.8 11.0 0.8 4.0 3.2 33.9 1.9.2 Adjustment items to net income (TotalEnergies share) (in millions of dollars) 1H23 1H22 Special items affecting net income (TotalEnergies share) (536) (9,539) Gain (loss) on asset sales 203 – Restructuring charges (5) (11) Impairments (529) (8,780) Other (205) (748) After-tax inventory effect : FIFO vs. replacement cost (771) 2,033 Effect of changes in fair value (545) (631) TOTAL ADJUSTMENTS AFFECTING NET INCOME (1,852) (8,137) 1.9.3 Reconciliation of adjusted EBITDA with consolidated financial statements 1.9.3.1 RECONCILIATION OF NET INCOME (TotalEnergies SHARE) TO ADJUSTED EBITDA (in millions of dollars) 1H23 1H22 1H23 vs 1H22 NET INCOME – TotalEnergies SHARE 9,645 10,636 9% Less: adjustment items to net income (TotalEnergies share) 1,852 8,137 77% ADJUSTED NET INCOME – TotalEnergies SHARE 11,497 18,773 39% Adjusted items Add: non-controlling interests 135 165 18% Add: income taxes 6,805 9,998 32% Add: depreciation, depletion and impairment of tangible assets and mineral interests 5,985 6,186 3% Add: amortization and impairment of intangible assets 191 194 2% Add: financial interest on debt 1,434 1,034 +39% Less: financial income and expense from cash & cash equivalents (775) (189) ns ADJUSTED EBITDA 25,272 36,161 30% 1.9.3.2 RECONCILIATION OF REVENUES FROM SALES TO ADJUSTED EBITDA AND NET INCOME (TotalEnergies SHARE) (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Adjusted items Revenues from sales 109,767 134,398 18% Purchases, net of inventory variation (70,858) (86,785) ns Other operating expenses (15,506) (15,029) ns Exploration costs (156) (253) ns Other income 193 550 65% Other expense, excluding amortization and impairment of intangible assets (202) (604) ns Other financial income 649 350 85% Other financial expense (356) (271) ns Net income (loss) from equity affiliates 1,741 3,805 54% ADJUSTED EBITDA 25,272 36,161 30% Adjusted items Less: depreciation, depletion and impairment of tangible assets and mineral interests (5,985) (6,186) ns Less: amortization of intangible assets (191) (194) ns Less: financial interest on debt (1,434) (1,034) ns Add: financial income and expense from cash & cash equivalents 775 189 x4.1 Less: income taxes (6,805) (9,998) ns Less: non-controlling interests (135) (165) ns Add: adjustment – TotalEnergies share (1,852) (8,137) ns NET INCOME – TotalEnergies SHARE 9,645 10,636 9% Chapter 1 / Half year financial report / Other information 1 1.9.4 Investments – Divestments (in millions of dollars) 1H23 1H22 1H23 vs 1H22 Organic investments (a) 7,704 4,800 +60% Capitalized exploration 533 212 x2.5 Increase in non-current loans 740 511 +45% Repayment of non-current loans, excluding organic loan repayment from equity affiliates (313) (609) ns Change in debt from renewable projects (TotalEnergies share) – (190) 100% Acquisitions (b) 3,738 3,864 3% Asset sales (c) 431 866 50% Change in debt from renewable projects (partner share) (38) 174 ns Net acquisitions 3,307 2,998 +10% NET INVESTMENTS (a + b - c) 11,011 7,798 +41% Other transactions with non-controlling interests (d) – – ns Organic loan repayment from equity affiliates (e) (12) (725) ns Change in debt from renewable projects financing* (f) (38) 364 ns Capex linked to capitalized leasing contracts (g) 124 73 +70% Expenditures related to carbon credits (h) 2 4 50% CASH FLOW USED IN INVESTING ACTIVITIES (a + b - c + d + e + f - g - h) 10,835 7,360 +47% Change in debt from renewable projects (TotalEnergies share and partner share). 1.9.5 Cash-flow (in millions of dollars) 1H23 1H22 1H23 vs 1H22 CASH FLOW FROM OPERATIONS 15,033 23,901 37% Less: (Increase) decrease in working capital** (2,269) (2,614) ns Less: Inventory effect (754) 2,406 ns Less: Capital gain from renewable projects sale (38) (25) ns Less: Organic loan repayment from equity affiliates (12) (725) ns OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES (a)* 18,106 24,859 27% Financial charges (265) (767) ns OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES W/O FINANCIALS CHARGES (DACF) 18,371 25,626 28% Organic investments (b) 7,704 4,800 +60% FREE CASH FLOW AFTER ORGANIC INVESTMENTS, W/O NET ASSET SALES (a - b) 10,402 20,059 48% Net investments (c) 11,011 7,798 +41% 58% NET CASH FLOW (a - c) * Operating cash flow before working capital changes, is defined as cash flow from operating activities before changes in working capital at replacement cost, excluding the mark- sale. of ** Changes in working capital are presented excluding the mark-to-market effect of Integrated LNG and Integrated Power sectors’ contracts. 20-21 1.9.6 Gearing ratio (in millions of dollars) 30/06/2023 31/03/2023 30/06/2022 Current borrowings(1) 13,980 16,280 14,589 Other current financial liabilities 443 597 401 Current financial assets (1)(2) (6,397) (7,223) (7,697) Net financial assets classified as held for sale(1) (41) (38) (14) Non-current financial debt(1) 33,387 34,820 39,233 Non-current financial assets(1) (1,264) (1,101) (692) Cash and cash equivalents (25,572) (27,985) (32,848) NET DEBT (a) 14,536 15,350 12,972 Shareholders’ equity - TotalEnergies share 113,682 115,581 116,688 Non-controlling interests 2,770 2,863 3,309 SHAREHOLDERS' EQUITY (b) 116,452 118,444 119,997 NET-DEBT-TO-CAPITAL RATIO = a / (a+b) 11.1% 11.5% 9.8% Leases (c) 8,090 8,131 7,963 Net-debt-to-capital ratio including leases (a+c) / (a+b+c) 16.3% 16.5% 14.9% (1) Excludes leases receivables and leases debts. (2) Including initial margins held as part of the Company's activities on organized markets. 1.9.7 Return on average capital employed(1) 1.9.7.1 TWELVE MONTHS ENDED JUNE 30, 2023 (in millions of dollars) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Company Adjusted net operating income 12,747 9,223 1,537 6,044 1,541 30,776 Capital employed at 06/30/2022* 70,248 41,606 12,568 7,958 7,475 137,035 Capital employed at 06/30/2023* 68,530 34,598 17,804 9,698 8,796 137,372 ROACE 18.4% 24.2% 10.1% 68.5% 18.9% 22.4% 1.9.7.2 TWELVE MONTHS ENDED MARCH 31, 2023 (in millions of dollars) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Company Adjusted net operating income 15,117 10,108 1,427 7,800 1,558 35,712 Capital employed at 03/31/2022* 71,518 44,803 9,937 8,847 7,751 141,853 Capital employed at 03/31/2023* 67,658 34,183 18,982 10,115 8,811 139,830 ROACE 21.7% 25.6% 9.9% 82.3% 18.8% 25.4% At replacement cost (excluding after-tax inventory effect). (1) Return On Average Capital Employed (ROACE) is the ratio of Adjusted net operating income to Average capital employed between the beginning and the end of the period. Chapter 1 / Half year financial report / Other information 1 1.10 Principal risks and uncertainties for the remaining six months of 2023 The Company and its businesses are subject to various risks relating to changing political, economic, monetary, legal, environmental, social, industrial, competitive, operating and financial conditions. A description of such in TotalEnergies’ 2022 Universal Registration Document filed with the Autorité des marchés financiers (French Financial Markets Authority) on March 24, 2023. These risk factors is provided conditions are subject to change not only in the six months remaining in the current financial year, but also in the years to come. Additionally, a description of certain risks is included in the Notes to the condensed Consolidated Financial Statements for the first half of 2023 (page 52 of this half-year financial report). 1.11 Major related parties’ transactions Information concerning the major related parties’ transactions for the first six months of 2022 is provided in Note 6 to the condensed Consolidated Financial Statements for the first half of 2023 (page 52 of this half-year financial report). 22-23 Disclaimer The terms “TotalEnergies”, “TotalEnergies company” and “Company” in this document are used to designate TotalEnergies SE and the consolidated entities directly or indirectly controlled by TotalEnergies SE. Likewise, the words “we”, “us” and “our” may also be used to refer to these entities or their employees. The entities in which TotalEnergies SE directly or indirectly owns a shareholding are separate and independent legal entities. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business activities and industrial strategy of TotalEnergies. This document may also contain statements regarding the perspectives, objectives, areas of improvement and goals of TotalEnergies, including with respect to climate change and carbon neutrality (net zero emissions). An ambition expresses an outcome desired by TotalEnergies, it being specified that the means to be deployed do not depend solely on TotalEnergies. These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as “envisions”, “intends”, “expects”, “thinks”, “targets”, “aims” or similar terminology. Such forward-looking statements included in this document are based on economic data, estimates and assumptions prepared in a given economic, competitive and regulatory environment and considered to be reasonable by TotalEnergies as of the date of this document. “anticipates”, “believes”, “considers”, “plans”, These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives, objectives or goals announced will be achieved. They may prove to be inaccurate in the future, and may evolve or be modified with a significant difference between the actual results and those initially estimated, due to the uncertainties notably related to the economic, financial, competitive and regulatory environment, or due to the occurrence of risk factors, such as, notably, the price fluctuations in crude oil and natural gas, the evolution of the demand and price of petroleum products, the changes in production results and reserves estimates, the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations, changes the environment and climate, currency fluctuations, as well as economic and political developments, changes in market conditions, loss of market share and changes in consumer preferences, or pandemics such as the COVID-19 pandemic. Additionally, certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto. in laws and regulations including those related Neither TotalEnergies SE nor any of its subsidiaries assumes any obligation information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. The information on risk factors that could have a significant adverse effect on TotalEnergies’ business, financial condition, including its operating income and cash flow, reputation, outlook or the value of financial instruments issued by TotalEnergies is provided in the most recent version of the Universal Registration Document which is filed by TotalEnergies SE with the French Autorité des Marchés Financiers and the annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”). to update publicly any forward-looking to Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE), gearing ratio, operating cash flow before working capital changes, the shareholder rate of return. These indicators are meant to facilitate the analysis of the financial performance of TotalEnergies and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of TotalEnergies. These adjustment items include: (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. (ii) Inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of TotalEnergies’ principal competitors. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost. (iii) Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TotalEnergies’ management and the accounting for these transactions under IFRS. IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in TotalEnergies’ internal economic performance. IFRS precludes recognition of this fair value effect. Chapter 1 / Half year financial report / Disclaimer 1 Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value. Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros. 24-25 Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in the Form 20-F of TotalEnergies SE, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault - 92078 Paris-La Défense Cedex, France, or at our website totalenergies.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov. 2 Consolidated Financial Statements as of June 30, 2023 2.1 Statutory Auditors’ Review Report on the half-yearly Financial Information 26 2.9 Consolidated statement of changes in shareholders’ equity 2.2 2.3 2.4 2.5 2.6 2.7 Consolidated statement of income – half-yearly Consolidated statement of comprehensive income – half-yearly Consolidated statement of income – quarterly Consolidated statement of comprehensive income – quarterly Consolidated balance sheet Consolidated statement of cash flow – half-yearly 27 28 29 30 31 32 2.10 1) 2) 3) 4) 5) 6) 7) 8) Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Basis of preparation of the consolidated financial statements Changes in the Company structure Business segment information Shareholders’ equity Financial debt Related parties Other risks and contingent liabilities Subsequent events 2.8 Consolidated statement of cash flow – quarterly 33 34 35 35 35 37 50 52 52 52 52 2 2.1 Statutory Auditors’ Review Report on the half-yearly Financial Information This is a free translation into English of the statutory auditors' review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. For the period from January 1st to June 30, 2023 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French monetary and financial code (“code monétaire et financier”), we hereby report to you on: – the review of the accompanying condensed half-yearly consolidated financial statements of TotalEnergies SE for the period from January 1st to June 30, 2023, – the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I – CONCLUSION ON THE FINANCIAL STATEMENTS We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. II – SPECIFIC VERIFICATION We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Neuilly-sur-Seine and Paris-La Défense, July 26, 2023 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit ERNST & YOUNG Audit Olivier Lotz Cécile Saint-Martin Laurent Vitse Stéphane Pédron Partner Partner Partner Partner 26-27 2.2 Consolidated statement of income – half-yearly TotalEnergies (unaudited) (M$)(a) 1st half 2023 1st half 2022 Sales 118,874 143,380 Excise taxes (9,107) (8,985) Revenues from sales 109,767 134,395 Purchases, net of inventory variation (72,215) (85,091) Other operating expenses (15,691) (15,664) Exploration costs (154) (978) Depreciation, depletion and impairment of tangible assets and mineral interests (6,168) (6,781) Other income 457 572 Other expense (666) (3,595) Financial interest on debt (1,434) (1,034) Financial income and expense from cash & cash equivalents 903 459 Cost of net debt (531) (575) Other financial income 671 434 Other financial expense (356) (271) Net income (loss) from equity affiliates 1,227 (1,503) Income taxes (6,558) (10,088) CONSOLIDATED NET INCOME 9,783 10,855 TotalEnergies share 9,645 10,636 Non-controlling interests 138 219 Earnings per share ($) 3.88 4.04 Fully-diluted earnings per share ($) 3.86 4.02 (a) Except for per share amounts. Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Consolidated statement of income – half-yearly 2 2.3 Consolidated statement of comprehensive income – half-yearly TotalEnergies (unaudited) (M$) 1st half 2023 CONSOLIDATED NET INCOME 9,783 Other comprehensive income Actuarial gains and losses 138 Change in fair value of investments in equity instruments 3 Tax effect (51) Currency translation adjustment generated by the parent company 1,409 ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,499 Currency translation adjustment (1,299) Cash flow hedge 1,891 Variation of foreign currency basis spread 8 Share of other comprehensive income of equity affiliates, net amount (95) Other (1) Tax effect (472) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 32 TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 1,531 COMPREHENSIVE INCOME 11,314 – TotalEnergies share 11,226 – Non-controlling interests 88 28-29 1st half 2022 10,855 204 (17) (42) (7,137) (6,992) 3,535 2,959 70 2,464 (1) (1,059) 7,968 976 11,831 11,658 173 2.4 Consolidated statement of income – quarterly TotalEnergies (unaudited) (M$)(a) 2nd quarter 2023 1st quarter 2023 2nd quarter 2022 Sales 56,271 62,603 74,774 Excise taxes (4,737) (4,370) (4,329) Revenues from sales 51,534 58,233 70,445 Purchases, net of inventory variation (33,864) (38,351) (45,443) Other operating expenses (7,906) (7,785) (8,041) Exploration costs (62) (92) (117) Depreciation, depletion and impairment of tangible assets and mineral interests (3,106) (3,062) (3,102) Other income 116 341 429 Other expense (366) (300) (1,305) Financial interest on debt (724) (710) (572) Financial income and expense from cash & cash equivalents 510 393 245 Cost of net debt (214) (317) (327) Other financial income 413 258 231 Other financial expense (173) (183) (136) Net income (loss) from equity affiliates 267 960 (1,546) Income taxes (2,487) (4,071) (5,284) CONSOLIDATED NET INCOME 4,152 5,631 5,804 TotalEnergies share 4,088 5,557 5,692 Non-controlling interests 64 74 112 Earnings per share ($) 1.65 2.23 2.18 Fully-diluted earnings per share ($) 1.64 2.21 2.16 (a) Except for per share amounts. Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Consolidated statement of income – quarterly 2 2.5 Consolidated statement of comprehensive income – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2023 1st quarter 2023 CONSOLIDATED NET INCOME 4,152 5,631 Other comprehensive income Actuarial gains and losses 135 3 Change in fair value of investments in equity instruments (1) 4 Tax effect (43) (8) Currency translation adjustment generated by the parent company (57) 1,466 ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 34 1,465 Currency translation adjustment (49) (1,250) Cash flow hedge 689 1,202 Variation of foreign currency basis spread 11 (3) Share of other comprehensive income of equity affiliates, net amount 3 (98) Other (4) 3 Tax effect (136) (336) ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 514 (482) TOTAL OTHER COMPREHENSIVE INCOME (NET AMOUNT) 548 983 COMPREHENSIVE INCOME 4,700 6,614 – TotalEnergies share 4,676 6,550 – Non-controlling interests 24 64 30-31 2nd quarter 2022 5,804 204 (20) (53) (5,387) (5,256) 2,523 3,222 21 2,548 (1) (1,112) 7,201 1,945 7,749 7,705 44 2.6 Consolidated balance sheet TotalEnergies (M$) June 30, 2023 (unaudited) March 31, 2023 (unaudited) December 31, 2022 June 30, 2022 (unaudited) ASSETS Non-current assets Intangible assets, net 31,717 33,234 31,931 37,020 Property, plant and equipment, net 104,174 107,499 107,101 101,454 Equity affiliates: investments and loans 30,425 29,997 27,889 28,210 Other investments 1,190 1,209 1,051 1,383 Non-current financial assets 2,494 2,357 2,731 1,612 Deferred income taxes 3,649 4,772 5,049 4,737 Other non-current assets 2,573 2,709 2,388 3,075 TOTAL NON-CURRENT ASSETS 176,222 181,777 178,140 177,491 Current assets Inventories, net 18,785 22,786 22,936 28,542 Accounts receivable, net 22,163 24,128 24,378 30,796 Other current assets 23,111 28,153 36,070 55,553 Current financial assets 6,725 7,535 8,746 7,863 Cash and cash equivalents 25,572 27,985 33,026 32,848 Assets classified as held for sale 8,441 668 568 313 TOTAL CURRENT ASSETS 104,797 111,255 125,724 155,915 TOTAL ASSETS 281,019 293,032 303,864 333,406 LIABILITIES & SHAREHOLDERS’ EQUITY Shareholders’ equity Common shares 7,850 7,828 8,163 8,163 Paid-in surplus and retained earnings 123,511 123,357 123,951 125,554 Currency translation adjustment (12,859) (12,784) (12,836) (14,019) Treasury shares (4,820) (2,820) (7,554) (3,010) TOTAL SHAREHOLDERS’ EQUITY – TotalEnergies SHARE 113,682 115,581 111,724 116,688 Non-controlling interests 2,770 2,863 2,846 3,309 TOTAL SHAREHOLDERS’ EQUITY 116,452 118,444 114,570 119,997 Non-current liabilities Deferred income taxes 11,237 11,300 11,021 12,169 Employee benefits 1,872 1,840 1,829 2,341 Provisions and other non-current liabilities 21,295 21,270 21,402 23,373 Non-current financial debt 40,427 42,915 45,264 46,868 TOTAL NON-CURRENT LIABILITIES 74,831 77,325 79,516 84,751 Current liabilities Accounts payable 32,853 36,037 41,346 49,700 Other creditors and accrued liabilities 38,609 42,578 52,275 62,498 Current borrowings 15,542 17,884 15,502 16,003 Other current financial liabilities 443 597 488 401 Liabilities directly associated with the assets classified as held for sale 2,289 167 167 56 TOTAL CURRENT LIABILITIES 89,736 97,263 109,778 128,658 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 281,019 293,032 303,864 333,406 Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Consolidated balance sheet 2 2.7 Consolidated statement of cash flow – half-yearly TotalEnergies (unaudited) (M$) CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income Depreciation, depletion, amortization and impairment Non-current liabilities, valuation allowances and deferred taxes (Gains) losses on disposals of assets Undistributed affiliates’ equity earnings (Increase) decrease in working capital Other changes, net CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions Acquisitions of subsidiaries, net of cash acquired Investments in equity affiliates and other securities Increase in non-current loans Total expenditures Proceeds from disposals of intangible assets and property, plant and equipment Proceeds from disposals of subsidiaries, net of cash sold Proceeds from disposals of non-current investments Repayment of non-current loans Total divestments CASH FLOW USED IN INVESTING ACTIVITIES CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders – Treasury shares Dividends paid: – Parent company shareholders – Non-controlling interests Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes Other transactions with non-controlling interests Net issuance (repayment) of non-current debt Increase (decrease) in current borrowings Increase (decrease) in current financial assets and liabilities CASH FLOW FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Effect of exchange rates Cash and cash equivalents at the beginning of the period CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 32-33 1st half 2023 9,783 6,382 395 (322) 34 (1,294) 55 15,033 (8,838) (155) (1,929) (755) (11,677) 99 221 182 340 842 (10,835) 383 (4,105) (3,686) (126) (1,081) (238) (99) 104 (5,385) 2,384 (11,849) (7,651) 197 33,026 25,572 1st half 2022 10,855 7,899 3,965 (178) 3,261 (2,425) 524 23,901 (8,607) (82) (225) (519) (9,433) 330 151 250 1,342 2,073 (7,360) 371 (3,164) (3,753) (119) – (274) (5) 542 (2,046) 4,863 (3,585) 12,956 (1,450) 21,342 32,848 2.8 Consolidated statement of cash flow – quarterly TotalEnergies (unaudited) (M$) 2nd quarter 2023 1st quarter 2023 2nd quarter 2022 CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 4,152 5,631 5,804 Depreciation, depletion, amortization and impairment 3,195 3,187 3,321 Non-current liabilities, valuation allowances and deferred taxes 81 314 1,427 (Gains) losses on disposals of assets (70) (252) (165) Undistributed affiliates’ equity earnings 383 (349) 2,999 (Increase) decrease in working capital 2,125 (3,419) 2,498 Other changes, net 34 21 400 CASH FLOW FROM OPERATING ACTIVITIES 9,900 5,133 16,284 CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property, plant and equipment additions (3,870) (4,968) (5,150) Acquisitions of subsidiaries, net of cash acquired (19) (136) (82) Investments in equity affiliates and other securities (522) (1,407) (136) Increase in non-current loans (366) (389) (278) Total expenditures (4,777) (6,900) (5,646) Proceeds from disposals of intangible assets and property, plant and equipment 31 68 153 Proceeds from disposals of subsidiaries, net of cash sold 38 183 63 Proceeds from disposals of non-current investments 133 49 35 Repayment of non-current loans 102 238 413 Total divestments 304 538 664 CASH FLOW USED IN INVESTING ACTIVITIES (4,473) (6,362) (4,982) CASH FLOW USED IN FINANCING ACTIVITIES Issuance (repayment) of shares: – Parent company shareholders 383 – 371 – Treasury shares (2,002) (2,103) (1,988) Dividends paid: – Parent company shareholders (1,842) (1,844) (1,825) – Non-controlling interests (105) (21) (97) Net issuance (repayment) of perpetual subordinated notes (1,081) – (1,958) Payments on perpetual subordinated notes (80) (158) (138) Other transactions with non-controlling interests (13) (86) (10) Net issuance (repayment) of non-current debt (14) 118 508 Increase (decrease) in current borrowings (4,111) (1,274) (2,703) Increase (decrease) in current financial assets and liabilities 990 1,394 (731) CASH FLOW FROM (USED IN) FINANCING ACTIVITIES (7,875) (3,974) (8,571) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,448) (5,203) 2,731 Effect of exchange rates 35 162 (1,159) Cash and cash equivalents at the beginning of the period 27,985 33,026 31,276 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 25,572 27,985 32,848 Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Consolidated statement of cash flow – quarterly 2 2.9 Consolidated statement of changes in shareholders’ equity TotalEnergies (unaudited) (M$) Common shares issued Number Amount Paid-in surplus and retained earnings Currency translation adjustment Treasury shares Shareholders’ equity – TotalEnergies Share Number Amount Non- controlling interests AS OF JANUARY 1, 2022 2,640,429,329 8,224 117,849 (12,671) (33,841,104) (1,666) 111,736 3,263 Net income of the first half 2022 – – 10,636 – – – 10,636 219 Other comprehensive income – – 2,370 (1,348) – – 1,022 (46) COMPREHENSIVE INCOME – – 13,006 (1,348) – – 11,658 173 Dividend – – (3,803) – – – (3,803) (119) Issuance of common shares 9,367,482 26 345 – – – 371 – Purchase of treasury shares – – – – (58,458,536) (3,164) (3,164) – Sale of treasury shares(a) – – (315) – 6,168,197 315 – – Share-based payments – – 157 – – – 157 – Share cancellation (30,665,526) (87) (1,418) – 30,665,526 1,505 – – Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes – – – – (44) (183) – – – – – – (44) (183) – – Other operations with non-controlling interests Other items – – – – 4 (44) – – – – – – 4 (44) (9) 1 AS OF JUNE 30, 2022 2,619,131,285 8,163 125,554 (14,019) (55,465,917) (3,010) 116,688 3,309 Net income of the second half 2022 – – 9,890 – – – 9,890 299 Other comprehensive income – – (5,303) 1,174 – – (4,129) 44 COMPREHENSIVE INCOME – – 4,587 1,174 – – 5,761 343 Dividend – – (6,186) – – – (6,186) (417) Issuance of common shares – – (1) – – – (1) – Purchase of treasury shares – – – – (81,749,207) (4,547) (4,547) – Sale of treasury shares(a) – – (3) – 27,457 3 – – Share-based payments – – 72 – – – 72 – Share cancellation – – – – – – – – Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes – – – – – (148) – – – – – – – (148) – – Other operations with non-controlling interests Other items – – – – 41 35 9 – – – – – 50 35 46 (435) AS OF DECEMBER 31, 2022 2,619,131,285 8,163 123,951 (12,836) (137,187,667) (7,554) 111,724 2,846 Net income of the first half 2023 – – 9,645 – – – 9,645 138 Other comprehensive income – – 1,576 5 – – 1,581 (50) COMPREHENSIVE INCOME – – 11,221 5 – – 11,226 88 Dividend – – (3,868) – – – (3,868) (126) Issuance of common shares 8,002,155 22 361 – – – 383 – Purchase of treasury shares – – – – (66,647,852) (4,705) (4,705) – Sale of treasury shares(a) – – (396) – 6,461,256 396 – – Share-based payments – – 172 – – – 172 – Share cancellation (128,869,261) (335) (6,708) – 128,869,261 7,043 – – Net issuance (repayment) of perpetual subordinated notes Payments on perpetual subordinated notes – – – – (1,107) (151) – – – – – – (1,107) (151) – – Other operations with non-controlling interests Other items – – – – 39 (3) (28) – – – – – 11 (3) (38) – AS OF JUNE 30, 2023 2,498,264,179 7,850 123,511 (12,859) (68,505,002) (4,820) 113,682 2,770 (a) Treasury shares related to the performance share grants. 34-35 Total shareholders’ equity 114,999 10,855 976 11,831 (3,922) 371 (3,164) – 157 – (44) (183) (5) (43) 119,997 10,189 (4,085) 6,104 (6,603) (1) (4,547) – 72 – – (148) 96 (400) 114,570 9,783 1,531 11,314 (3,994) 383 (4,705) – 172 – (1,107) (151) (27) (3) 116,452 2.10 Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 1) Basis of preparation of the consolidated financial statements The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board (IASB). The interim consolidated financial statements of TotalEnergies SE and its subsidiaries (the Company) as of June 30, 2023, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. financial The accounting principles applied statements at June 30, 2023, are consistent with those used for the financial statements at December 31, 2022. for the consolidated The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, asset impairments, employee benefits, asset retirement obligations and taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2022. income The consolidated financial statements as of December 31, 2022 were impacted by the Russian-Ukrainian conflict. The Russian assets were fully depreciated, except for those relating to Yamal LNG. As of June 30, 2023, in the absence of any new event, assessments and judgments taken into account in the valuation of assets remain in place. The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2023 requires the General Management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto. These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on- going basis by General Management and therefore could be revised as circumstances change or as a result of new information. Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto. Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the General Management of the Company applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality. 2) Changes in the Company structure 2.1) MAIN ACQUISITIONS AND DIVESTMENTS EXPLORATION & PRODUCTION In March 2023, TotalEnergies has signed an agreement with CEPSA to acquire CEPSA’s upstream assets in the United Arab Emirates with an effective date of January 1, 2023. The assets to be acquired are: – a 20% participating interest in the Satah Al Razboot (SARB), Umm Lulu, Bin Nasher and Al Bateel (SARB and Umm Lulu) offshore concession. – a 12.88% indirect interest in the Mubarraz concession held by Abu Dhabi Oil Company Ltd (ADOC), through the acquisition of 20% of Cosmo Abu Dhabi Energy Exploration & Production Co. Ltd (CEPAD), a company holding a 64.4% interest in ADOC. The Mubarraz concession is comprised of four producing offshore fields. The SARB and Umm Lulu concession includes two major offshore fields. ADNOC holds a 60% interest in this concession, alongside OMV (20%). The concession is operated by ADNOC Offshore. The SARB and Umm Lulu transaction was completed on March 15, 2023. The Mubarraz transaction was not completed following Cosmo’s decision to exercise its right of first refusal on the proposed transaction on April 21, 2023 in accordance with the terms of the agreements. INTEGRATED LNG On June 12, 2022, following the request for proposals in relation to partner selection for the North Field East (NFE) liquified natural gas project, TotalEnergies has been awarded, a 25% interest in a new joint venture (JV), alongside the national company QatarEnergy (75%). The new JV will hold a 25% interest in the 32 million tons per annum (Mtpa) NFE project, equivalent to one 8 Mtpa LNG train. The acquisition of the interest in this project was finalized in January 2023. INTEGRATED POWER On October 26, 2022, TotalEnergies and Casa dos Ventos (CDV), Brazil's leading renewable energy developer, announced the creation of a 34%(TTE)/66%(CDV) joint venture to jointly develop, build and operate the renewable portfolio of Casa Dos Ventos. This portfolio includes 700 MW of onshore wind capacity in operation, 1 GW of onshore wind under construction, 2.8 GW of onshore wind and 1.6 GW of solar projects under well advanced development (COD(1) within 5 years). Besides, the newly formed JV will have the right to acquire the current and new projects that are or will be developed by CDV as they reach execution stage. The transaction amounts to a payment of $0.5 billion and an earn-out of up to $30 million for the acquisition of a 34% stake in the JV. In addition, TotalEnergies will have the option to acquire an additional 15% equity share in 2027. The transaction was completed in January 2023. (1) Commercial Operation Date Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 2 2.2) MAJOR BUSINESS COMBINATIONS EXPLORATION & PRODUCTION Acquisition of participating interest in SARB and Umm Lulu offshore concession In accordance with IFRS 3 “Business combinations”, TotalEnergies is assessing the fair value of identifiable acquired assets, liabilities and contingent liabilities on the basis of available information. A preliminary purchase price allocation has been done in the second quarter following the acquisition, this assessment will be finalized within 12 months following the acquisition date. 2.3) DIVESTMENT PROJECTS EXPLORATION & PRODUCTION On April 27, 2023, TotalEnergies announced the signature of an agreement with Suncor Energy Inc. for the sale of the entirety of the shares of TotalEnergies EP Canada Ltd for a consideration including a 5.5 billion Canadian dollar cash payment at closing (about US$4.1 billion) and additional payments that could reach a maximum of 600 million Canadian dollar (about US$450 million) under specific conditions. The transaction was subject to the waiver of TotalEnergies EP Canada Ltd’s partners pre-emption rights and customary closing conditions, notably the required approval from public authorities. reach a maximum of 440 million Canadian dollar (about US$325 million) under specific conditions for its 50% non-operated interest in the Surmont asset and associated logistics commitments. Closing is expected in the second half year of 2023. Following the exercise by ConocoPhillips of its preemption right, TotalEnergies and Suncor are continuing discussions regarding the sale of TotalEnergies EP Canada Ltd shares, including the Fort Hills working interest and the associated logistics. On May 26, 2023 ConocoPhillips has notified TotalEnergies that it is exercising its preemption right to purchase the 50% interest in the Surmont asset held by TotalEnergies EP Canada Ltd. TotalEnergies will receive from ConocoPhillips a cash payment upon closing of 4.0 billion Canadian dollar (about US$3 billion) and additional payments that could As of June 30, 2023, the assets and liabilities have been respectively classified in the consolidated balance sheet as “assets classified as held for sale” for an amount of $5,435 million and “liabilities classified as held for sale” for an amount of $893 million. These assets mainly include tangible assets. MARKETING & SERVICES On March 16, 2023, TotalEnergies and Alimentation Couche-Tard have signed agreements covering TotalEnergies' retail networks in four European countries. As part of this agreement, TotalEnergies will join forces with Couche-Tard in Belgium and Luxembourg and transfer its networks in Germany and the Netherlands. This planned transaction, which is based on an enterprise value of 3.1 billion euros, is subject to the usual conditions for completion, including the consultation processes of employee representatives and securing of the mandatory authorizations from competition authorities. As of June 30, 2023, the assets and liabilities have been respectively classified in the consolidated balance sheet as “assets classified as held for sale” for an amount of $1,901 million and “liabilities classified as held for sale” for an amount of $1,227 million. These assets mainly include tangible assets. 36-37 3) Business segment information DESCRIPTION OF THE BUSINESS SEGMENTS Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies and which is reviewed by the main operational decision-making body of the Company, namely the Executive Committee. chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping; – A Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products; The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments. Sales prices between business segments approximate market prices. The profitable growth in the LNG and power integrated value chains are two of the key axes of TotalEnergies’s strategy. In order to give more visibility to these businesses, the Board of Directors has decided that from the first quarter 2023, Integrated LNG and Integrated Power results, previously grouped in the Integrated Gas, Renewables & Power (iGRP) segment, would be reported separately as two segments. In addition the Corporate segment includes holdings operating and financial activities. This new segment reporting has been prepared in accordance with IFRS 8 and according to the same principles as the internal reporting followed by the TotalEnergies's Executive Committee. For the Integrated LNG and Integrated Power segments, the principles for the preparation of this segment information are as follows: – The management of balance sheet positions (including margin calls) related to to centralized markets access for LNG, gas and power activities since 2022 has been fully included in the Integrated LNG segment. A new reporting structure for the business segments’ financial information has been put in place, effective January 1, 2023. It is based on the following five business segments: – Effects of changes in the fair value of gas and LNG positions are allocated to the operating income of Integrated LNG segment. – Effects of changes in the fair value of power positions are allocated to – An Exploration-Production segment; the operating income of Integrated Power segment. – An Integrated LNG segment covering LNG production and trading activities as well as biogas, hydrogen and gas trading activities; – An Integrated Power segment covering generation, storage, electricity Due to the change in the Company's internal organizational structure affecting the composition of the business segments, the segment reporting data for the years 2021 and 2022 has been restated. trading and B2B-B2C distribution of gas and electricity; – A Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty ADJUSTMENT ITEMS Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. Adjustment items include: (iii) Effect of changes in fair value The effect of changes in fair value presented as adjustment items reflects for certain transactions differences between the internal measure of performance used by TotalEnergies’s management and the accounting for these transactions under IFRS. (i) Special items Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years. IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices. TotalEnergies, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in the Company’s internal economic performance. IFRS precludes recognition of this fair value effect. (ii) The inventory valuation effect The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors. In the replacement cost method, which approximates the LIFO (Last- In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First- Out) and the replacement cost methods. Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence. The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value. Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 2 3.1) INFORMATION BY BUSINESS SEGMENT 1st half 2023 (M$) Exploration & Production Integrated LNG Integrated Power External sales 3,388 6,892 14,804 Intersegment sales 20,836 8,777 2,355 Excise taxes – – – REVENUES FROM SALES 24,224 15,669 17,159 Operating expenses (9,924) (13,242) (16,165) Depreciation, depletion and impairment of tangible assets and mineral interests (4,183) (565) (98) OPERATING INCOME 10,117 1,862 896 Net income (loss) from equity affiliates and other items 53 1,276 (320) Tax on net operating income (5,287) (342) (152) NET OPERATING INCOME 4,883 2,796 424 Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – 1st half 2023 (adjustments)(a) (M$) Exploration & Production Integrated LNG Integrated Power External sales – – – Intersegment sales – – – Excise taxes – – – REVENUES FROM SALES – – – Operating expenses (33) (700) 67 Depreciation, depletion and impairment (147) – – of tangible assets and mineral interests (180) (700) 67 OPERATING INCOME(b) (179) 12 (457) Tax on net operating income 240 82 (6) NET OPERATING INCOME(b) (119) (606) (396) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating incom – – – – – – 38-39 Refining & Chemicals 49,704 17,691 (415) 66,980 (63,934) (808) 2,238 55 (512) 1,781 – – – Refining & Chemicals – – – – (640) (36) (676) (96) (69) (841) – – – (607) (659) Marketing & Services 44,071 321 (8,692) 35,700 (34,459) (465) 776 307 (281) 802 – – – Marketing & Services – – – – (177) – (177) 217 33 73 – – – (147) (109) Corporate 15 121 – 136 (437) (49) (350) (38) 23 (365) – – – Corporate – – – – (57) – (57) 2 15 (40) – – – – – Intercompany – (50,101) – (50,101) 50,101 – – – – – – – – Intercompany – – – – – – – – – – – – – Total 118,874 – (9,107) 109,767 (88,060) (6,168) 15,539 1,333 (6,551) 10,321 (538) (138) 9,645 Total – – – – (1,540) (183) (1,723) (501) 295 (1,929) 80 (3) (1,852) 1st half 2023 (adjusted) (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 3,388 6,892 14,804 49,704 44,071 15 – Intersegment sales 20,836 8,777 2,355 17,691 321 121 (50,101) Excise taxes – – – (415) (8,692) – – REVENUES FROM SALES 24,224 15,669 17,159 66,980 35,700 136 (50,101) Operating expenses (9,891) (12,542) (16,232) (63,294) (34,282) (380) 50,101 Depreciation, depletion and impairment of tangible assets and mineral interests (4,036) (565) (98) (772) (465) (49) – ADJUSTED OPERATING INCOME 10,297 2,562 829 2,914 953 (293) – Net income (loss) from equity affiliates and other items 232 1,264 137 151 90 (40) – Tax on net operating income (5,527) (424) (146) (443) (314) 8 – ADJUSTED NET OPERATING INCOME 5,002 3,402 820 2,622 729 (325) – Net cost of net debt – – – – – – – Non-controlling interests – – – – – – – ADJUSTED NET INCOME – TotalEnergies SHARE – – – – – – – 1st half 2023 (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 6,621 1,821 2,041 714 415 65 – Total divestments 57 94 298 60 329 4 – Cash flow from operating activities 8,583 4,868 999 1,072 (8) (481) – Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Total 118,874 – (9,107) 109,767 (86,520) (5,985) 17,262 1,834 (6,846) 12,250 (618) (135) 11,497 Total 11,677 842 15,033 2 1st half 2022 (M$) Exploration & Production Integrated LNG Integrated Power External sales 4,672 9,408 13,167 Intersegment sales 27,623 7,438 1,009 Excise taxes – – – REVENUES FROM SALES 32,295 16,846 14,176 Operating expenses (11,468) (13,030) (14,686) Depreciation, depletion and impairment of tangible assets and mineral interests (4,773) (554) (94) OPERATING INCOME 16,054 3,262 (604) Net income (loss) from equity affiliates and other items (3,426) (1,869) 192 Tax on net operating income (7,739) (553) (1) NET OPERATING INCOME 4,889 840 (413) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – 1st half 2022 (adjustments)(a) (M$) Exploration & Production Integrated LNG Integrated Power External sales – (18) 15 Intersegment sales – – – Excise taxes – – – REVENUES FROM SALES – (18) 15 Operating expenses (873) 45 (768) Depreciation, depletion and impairment of tangible assets and mineral interests (539) (14) – OPERATING INCOME(b) (1,412) 13 (753) Net income (loss) from equity affiliates and other items (3,770) (4,508) 11 Tax on net operating income 337 (13) 71 NET OPERATING INCOME(b) (4,845) (4,508) (671) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – – – 40-41 Refining & Chemicals 66,069 22,062 (378) 87,753 (80,653) (769) 6,331 505 (1,391) 5,445 – – – Refining & Chemicals – – – – 1,722 – 1,722 169 (326) 1,565 – – – 1,722 1,597 Marketing & Services 50,056 983 (8,607) 42,432 (40,294) (514) 1,624 56 (521) 1,159 – – – Marketing & Services – – – – 641 (33) 608 (7) (180) 421 – – – 684 503 Corporate 8 133 – 141 (850) (77) (786) 179 97 (510) – – – Corporate – – – – (433) (9) (442) 106 98 (238) – – – – – Intercompany – (59,248) – (59,248) 59,248 – – – – – – – – Intercompany – – – – – – – – – – – – – Total 143,380 – (8,985) 134,395 (101,733) (6,781) 25,881 (4,363) (10,108) 11,410 (555) (219) 10,636 Total (3) – – (3) 334 (595) (264) (7,999) (13) (8,276) 193 (54) (8,137) 1st half 2022 (adjusted)(a) (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 4,672 9,426 13,152 66,069 50,056 8 – Intersegment sales 27,623 7,438 1,009 22,062 983 133 (59,248) Excise taxes – – – (378) (8,607) – – REVENUES FROM SALES 32,295 16,864 14,161 87,753 42,432 141 (59,248) Operating expenses (10,595) (13,075) (13,918) (82,375) (40,935) (417) 59,248 Depreciation, depletion and impairment of tangible assets and mineral interests (4,234) (540) (94) (769) (481) (68) – ADJUSTED OPERATING INCOME 17,466 3,249 149 4,609 1,016 (344) – Net income (loss) from equity affiliates and other items 344 2,639 181 336 63 73 – Tax on net operating income (8,076) (540) (72) (1,065) (341) (1) – ADJUSTED NET OPERATING INCOME 9,734 5,348 258 3,880 738 (272) – Net cost of net debt – – – – – – – Non-controlling interests – – – – – – – ADJUSTED NET INCOME – TotalEnergies SHARE – – – – – – – 1st half 2022 (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 6,099 575 1,736 561 428 34 – Total divestments 346 1,237 244 83 151 12 – Cash flow from operating activities 14,536 6,021 (1,736) 4,633 1,478 (1,031) – Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Total 143,383 – (8,985) 134,398 (102,067) (6,186) 26,145 3,636 (10,095) 19,686 (748) (165) 18,773 Total 9,433 2,073 23,901 2 2nd quarter 2023 (M$) Exploration & Production Integrated LNG Integrated Power External sales 1,434 2,020 6,249 Intersegment sales 10,108 2,778 670 Excise taxes – – – REVENUES FROM SALES 11,542 4,798 6,919 Operating expenses (5,162) (3,797) (6,334) Depreciation, depletion and impairment of tangible assets and mineral interests (2,117) (277) (51) OPERATING INCOME 4,263 724 534 Net income (loss) from equity affiliates and other items (15) 472 (250) Tax on net operating income (1,889) (137) (41) NET OPERATING INCOME 2,359 1,059 243 Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – 2nd quarter 2023 (adjustments)(a) (M$) Exploration & Production Integrated LNG Integrated Power External sales – 76 – Intersegment sales – – – Excise taxes – – – REVENUES FROM SALES – 76 – Operating expenses (25) (400) 137 Depreciation, depletion and impairment of tangible assets and mineral interests (147) – – OPERATING INCOME(b) (172) (324) 137 Net income (loss) from equity affiliates and other items (106) 16 (346) Tax on net operating income 288 37 2 NET OPERATING INCOME(b) 10 (271) (207) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – – – 42-43 Refining & Chemicals 24,849 8,630 (231) 33,248 (32,042) (394) 812 3 (187) 628 – – – Refining & Chemicals – – – – (216) – (216) (59) (101) (376) – – – (192) (332) Marketing & Services 21,712 201 (4,506) 17,407 (16,672) (241) 494 64 (162) 396 – – – Marketing & Services – – – – (76) – (76) – 23 (53) – – – (60) (45) Corporate 7 64 – 71 (276) (26) (231) (17) (40) (288) – – – Corporate – – – – (57) – (57) 2 15 (40) – – – – – Intercompany – (22,451) – (22,451) 22,451 – – – – – – – – Intercompany – – – – – – – – – – – – – Total 56,271 – (4,737) 51,534 (41,832) (3,106) 6,596 257 (2,456) 4,397 (245) (64) 4,088 Total 76 – – 76 (637) (147) (708) (493) 264 (937) 72 (3) (868) 2nd quarter 2023 (adjusted) (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 1,434 1,944 6,249 24,849 21,712 7 – Intersegment sales 10,108 2,778 670 8,630 201 64 (22,451) Excise taxes – – – (231) (4,506) – – REVENUES FROM SALES 11,542 4,722 6,919 33,248 17,407 71 (22,451) Operating expenses (5,137) (3,397) (6,471) (31,826) (16,596) (219) 22,451 Depreciation, depletion and impairment of tangible assets and mineral interests (1,970) (277) (51) (394) (241) (26) – ADJUSTED OPERATING INCOME 4,435 1,048 397 1,028 570 (174) – Net income (loss) from equity affiliates and other items 91 456 96 62 64 (19) – Tax on net operating income (2,177) (174) (43) (86) (185) (55) – ADJUSTED NET OPERATING INCOME 2,349 1,330 450 1,004 449 (248) – Net cost of net debt – – – – – – – Non-controlling interests – – – – – – – ADJUSTED NET INCOME – TotalEnergies SHARE – – – – – – – 2nd quarter 2023 (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 2,569 626 807 489 256 30 – Total divestments 26 45 149 52 28 4 – Cash flow from operating activities 4,047 1,332 2,284 1,923 665 (351) – Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Total 56,195 – (4,737) 51,458 (41,195) (2,959) 7,304 750 (2,720) 5,334 (317) (61) 4,956 Total 4,777 304 9,900 2 2nd quarter 2022 (M$) Exploration & Production Integrated LNG Integrated Power External sales 2,521 3,901 6,380 Intersegment sales 13,805 3,940 488 Excise taxes – – – REVENUES FROM SALES 16,326 7,841 6,868 Operating expenses (5,760) (6,144) (7,392) Depreciation, depletion and impairment of tangible assets and mineral interests (2,112) (276) (51) OPERATING INCOME 8,454 1,421 (575) Net income (loss) from equity affiliates and other items (3,668) 626 197 Tax on net operating income (3,876) (292) 32 NET OPERATING INCOME 910 1,755 (346) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – 2nd quarter 2022 (adjustments)(a) (M$) Exploration & Production Integrated LNG Integrated Power External sales – (15) – Intersegment sales – – – Excise taxes – – – REVENUES FROM SALES – (15) – Operating expenses (82) 152 (758) Depreciation, depletion and impairment of tangible assets and mineral interests (46) (14) – OPERATING INCOME (128) 123 (758) Net income (loss) from equity affiliates and other items (3,756) (560) 2 Tax on net operating income 75 (23) 70 NET OPERATING INCOME (3,809) (460) (686) Net cost of net debt – – – Non-controlling interests – – – NET INCOME – TotalEnergies SHARE – – – (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. (b) Of which inventory valuation effect – On operating income – On net operating income – – – – – – 44-45 Refining & Chemicals 35,061 12,785 (186) 47,660 (43,242) (389) 4,029 349 (866) 3,512 – – – Refining & Chemicals – – – – 775 – 775 52 (75) 752 – – – 775 752 Marketing & Services 26,907 716 (4,143) 23,480 (22,310) (241) 929 98 (296) 731 – – – Marketing & Services – – – – 373 (4) 369 (4) (100) 265 – – – 376 275 Corporate 4 70 – 74 (557) (33) (516) 71 (8) (453) – – – Corporate – – – – (301) – (301) – 78 (223) – – – – – Intercompany – (31,804) – (31,804) 31,804 – – – – – – – – Intercompany – – – – – – – – – – – – – Total 74,774 – (4,329) 70,445 (53,601) (3,102) 13,742 (2,327) (5,306) 6,109 (305) (112) 5,692 Total (15) – – (15) 159 (64) 80 (4,266) 25 (4,161) 80 (23) (4,104) 2nd quarter 2022 (adjusted) (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany External sales 2,521 3,916 6,380 35,061 26,907 4 – Intersegment sales 13,805 3,940 488 12,785 716 70 (31,804) Excise taxes – – – (186) (4,143) – – REVENUES FROM SALES 16,326 7,856 6,868 47,660 23,480 74 (31,804) Operating expenses (5,678) (6,296) (6,634) (44,017) (22,683) (256) 31,804 Depreciation, depletion and impairment of tangible assets and mineral interests (2,066) (262) (51) (389) (237) (33) – ADJUSTED OPERATING INCOME 8,582 1,298 183 3,254 560 (215) – Net income (loss) from equity affiliates and other items 88 1,186 195 297 102 71 – Tax on net operating income (3,951) (269) (38) (791) (196) (86) – ADJUSTED NET OPERATING INCOME 4,719 2,215 340 2,760 466 (230) – Net cost of net debt – – – – – – – Non-controlling interests – – – – – – – ADJUSTED NET INCOME – TotalEnergies SHARE – – – – – – – 2nd quarter 2022 (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate Intercompany Total expenditures 4,128 285 587 333 288 25 – Total divestments 63 393 73 56 72 7 – Cash flow from operating activities 8,768 3,802 168 3,526 580 (560) – Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Total 74,789 – (4,329) 70,460 (53,760) (3,038) 13,662 1,939 (5,331) 10,270 (385) (89) 9,796 Total 5,646 664 16,284 2 3.2) RECONCILIATION OF THE INFORMATION BY BUSINESS SEGMENT WITH CONSOLIDATED FINANCIAL STATEMENTS 1st half 2023 (M$) Adjusted Adjustments(a) Sales 118,874 – Excise taxes (9,107) – Revenues from sales 109,767 – Purchases net of inventory variation (70,858) (1,357) Other operating expenses (15,506) (185) Exploration costs (156) 2 Depreciation, depletion and impairment of tangible assets and mineral interests (5,985) (183) Other income 193 264 Other expense (393) (273) Financial interest on debt (1,434) – Financial income and expense from cash & cash equivalents 775 128 Cost of net debt (659) 128 Other financial income 649 22 Other financial expense (356) – Net income (loss) from equity affiliates 1,741 (514) Income taxes (6,805) 247 CONSOLIDATED NET INCOME 11,632 (1,849) TotalEnergies share 11,497 (1,852) Non-controlling interests 135 3 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 1st half 2022 (M$) Adjusted Adjustments(a) Sales 143,383 (3) Excise taxes (8,985) – Revenues from sales 134,398 (3) Purchases net of inventory variation (86,785) 1,694 Other operating expenses (15,029) (635) Exploration costs (253) (725) Depreciation, depletion and impairment of tangible assets and mineral interests (6,186) (595) Other income 550 22 Other expense (798) (2,797) Financial interest on debt (1,034) – Financial income and expense from cash & cash equivalents 189 270 Cost of net debt (845) 270 Other financial income 350 84 Other financial expense (271) – Net income (loss) from equity affiliates 3,805 (5,308) Income taxes (9,998) (90) CONSOLIDATED NET INCOME 18,938 (8,083) TotalEnergies share 18,773 (8,137) Non-controlling interests 165 54 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 46-47 Consolidated statement of income 118,874 (9,107) 109,767 (72,215) (15,691) (154) (6,168) 457 (666) (1,434) 903 (531) 671 (356) 1,227 (6,558) 9,783 9,645 138 Consolidated statement of income 143,380 (8,985) 134,395 (85,091) (15,664) (978) (6,781) 572 (3,595) (1,034) 459 (575) 434 (271) (1,503) (10,088) 10,855 10,636 219 2nd quarter 2023 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 56,195 76 56,271 Excise taxes (4,737) – (4,737) Revenues from sales 51,458 76 51,534 Purchases net of inventory variation (33,379) (485) (33,864) Other operating expenses (7,754) (152) (7,906) Exploration costs (62) – (62) Depreciation, depletion and impairment of tangible assets and mineral interests (2,959) (147) (3,106) Other income 116 – 116 Other expense (256) (110) (366) Financial interest on debt (724) – (724) Financial income and expense from cash & cash equivalents 402 108 510 Cost of net debt (322) 108 (214) Other financial income 401 12 413 Other financial expense (173) – (173) Net income (loss) from equity affiliates 662 (395) 267 Income taxes (2,715) 228 (2,487) CONSOLIDATED NET INCOME 5,017 (865) 4,152 TotalEnergies share 4,956 (868) 4,088 Non-controlling interests 61 3 64 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. 2nd quarter 2022 (M$) Adjusted Adjustments(a) Consolidated statement of income Sales 74,789 (15) 74,774 Excise taxes (4,329) – (4,329) Revenues from sales 70,460 (15) 70,445 Purchases net of inventory variation (46,023) 580 (45,443) Other operating expenses (7,620) (421) (8,041) Exploration costs (117) – (117) Depreciation, depletion and impairment of tangible assets and mineral interests (3,038) (64) (3,102) Other income 429 – 429 Other expense (529) (776) (1,305) Financial interest on debt (572) – (572) Financial income and expense from cash & cash equivalents 130 115 245 Cost of net debt (442) 115 (327) Other financial income 231 – 231 Other financial expense (136) – (136) Net income (loss) from equity affiliates 1,944 (3,490) (1,546) Income taxes (5,274) (10) (5,284) CONSOLIDATED NET INCOME 9,885 (4,081) 5,804 TotalEnergies share 9,796 (4,104) 5,692 Non-controlling interests 89 23 112 (a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value. Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 2 3.3) ADJUSTMENT ITEMS The detail of the adjustment items is presented in the table below. ADJUSTMENTS TO OPERATING INCOME (M$) Exploration & Production 2nd quarter 2023 Inventory valuation effect – Effect of changes in fair value – Restructuring charges – Asset impairment and provisions charges (155) Gains (losses) on disposals of assets – Other items (17) TOTAL (172) 2nd quarter 2022 Inventory valuation effect – Effect of changes in fair value – Restructuring charges – Asset impairment and provisions charges (46) Other items (82) TOTAL (128) 1st half 2023 Inventory valuation effect – Effect of changes in fair value – Restructuring charges – Asset impairment and provisions charges (155) Gains (losses) on disposals of assets – Other items (25) TOTAL (180) 1st half 2022 Inventory valuation effect – Effect of changes in fair value – Restructuring charges – Asset impairment and provisions charges (1,330) Other items (82) TOTAL (1,412) 48-49 Integrated LNG – (322) – – – (2) (324) – 141 – (18) – 123 – (698) – – – (2) (700) – 31 – (18) – 13 Integrated Power – 165 – – – (28) 137 – (738) (17) – (3) (758) – 95 – – – (28) 67 – (716) (22) – (15) (753) Refining & Chemicals (192) – – – – (24) (216) 775 – – – – 775 (607) – – (45) – (24) (676) 1,722 – – – – 1,722 Marketing & Services Corporate (60) – – – – – – – – – (16) (57) (76) (57) 376 – – – – – 4 – (11) (301) 369 (301) (147) – – – – – – – (14) – (16) (57) (177) (57) 684 – – – – – (65) (9) (11) (433) 608 (442) Total (252) (157) – (155) – (144) (708) 1,151 (597) (17) (60) (397) 80 (754) (603) – (200) (14) (152) (1,723) 2,406 (685) (22) (1,422) (541) (264) ADJUSTMENTS TO NET INCOME, TotalEnergies SHARE (M$) Exploration & Production Integrated LNG Integrated Power Refining & Chemicals Marketing & Services Corporate 2nd quarter 2023 Inventory valuation effect – – – (333) (47) – Effect of changes in fair value – (286) 175 – – – Restructuring charges – – (5) – – – Asset impairment and provisions charges (123) – (346) – – – Gains (losses) on disposals of assets – – – – – – Other items 188 15 (31) (44) (8) (23) TOTAL 65 (271) (207) (377) (55) (23) 2nd quarter 2022 Inventory valuation effect – – – 738 255 – Effect of changes in fair value – 118 (669) – – – Restructuring charges – – (8) – – – Asset impairment and provisions charges (3,493) (226) – – – – Gains (losses) on disposals of assets – – – – – – Other items (286) (352) – – (8) (173) TOTAL (3,779) (460) (677) 738 247 (173) 1st half 2023 Inventory valuation effect – – – (658) (113) – Effect of changes in fair value – (617) 72 – – – Restructuring charges – – (5) – – – Asset impairment and provisions charges (123) – (346) (60) – – Gains (losses) on disposals of assets – – – – 203 – Other items 103 11 (117) (122) (21) (59) TOTAL (20) (606) (396) (840) 69 (59) 1st half 2022 Inventory valuation effect – – – 1,573 460 – Effect of changes in fair value – 18 (649) – – – Restructuring charges – – (11) – – – Asset impairment and provisions charges (4,525) (4,174) – – (72) (9) Gains (losses) on disposals of assets – – – – – – Other items (272) (352) – (32) (8) (84) TOTAL (4,797) (4,508) (660) 1,541 380 (93) Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) Total (380) (111) (5) (469) – 97 (868) 993 (551) (8) (3,719) – (819) (4,104) (771) (545) (5) (529) 203 (205) (1,852) 2,033 (631) (11) (8,780) – (748) (8,137) 2 4) Shareholders’ equity TREASURY SHARES (TotalEnergies SHARES HELD DIRECTLY BY TotalEnergies SE) December 31, 2022 June 30, 2023 Number of treasury shares 137,187,667 68,505,002 Percentage of share capital 5.24% 2.74% of which shares acquired with the intention to cancel them 128,869,261 65,043,639 of which shares allocated to TotlaEnergies share performance plans for Company employees 8,231,365 3,362,143 of which shares intended to be allocated to new share performance or purchase options plans 87,041 99,220 DIVIDEND The Shareholder’s Meeting of May 26, 2023 approved the distribution of an ordinary dividend at €2.81 per share and confirmed the €1 per share exceptional dividend for the fiscal year 2022, i.e. a total amount of €3.81 per share. The final dividend (ordinary and exceptional) for fiscal year 2022 was paid according to the following timetable: Dividend 2022 First interim Special interim Second interim Third interim Final Amount €0.69 €1.00 €0.69 €0.69 €0.74 Set date April 27, 2022 October 26, 2022 July 27, 2022 October 26, 2022 May 26, 2023 Ex-dividend date September 21, 2022 December 6, 2022 January 2, 2023 March 22, 2023 June 21, 2023 Payment date October 3, 2022 December 16, 2022 January 12, 2023 April 3, 2023 July 3, 2023 The Board of Directors, during its April 26, 2023 meeting, set the first interim dividend for the fiscal year 2023 at €0.74 per share. The ex- dividend date of this intermin dividend will be September 20, 2023 and it will be paid in cash on October 2, 2023. Furthermore, the Board of Directors, during its July 26, 2023 meeting, set the second interim dividend for the fiscal year 2023 at €0.74 per share, i.e an amount equal to the aforementioned first interim dividend. The ex- dividend date of this intermin dividend will be January 2, 2024 and it will be paid in cash on January 12, 2024. Dividend 2023 First interim Second interim Amount €0.74 €0.74 Set date April 26, 2023 July 26, 2023 Ex-dividend date September 20, 2023 January 2, 2024 Payment date October 2, 2023 January 12, 2024 EARNINGS PER SHARE IN EURO Earnings per share in Euro, calculated from the earnings per share in U.S. dollars converted at the average Euro/USD exchange rate for the period, amounted to €1.51 per share for the 2nd quarter 2023 (€2.08 per share for the 1st quarter 2023 and €2.03 per share for the 2nd quarter 2022). Diluted earnings per share calculated using the same method amounted to €1.51 per share for the 2nd quarter 2023 (€2.06 per share for the 1st quarter 2023 and €2.03 per share for the 2nd quarter 2022). Earnings per share are calculated after remuneration of perpetual subordinated notes. PERPETUAL SUBORDINATED NOTES TotalEnergies SE has not issued any perpetual subordinated notes during the first six months of 2023. TotalEnergies SE fully reimbursed the nominal amount of €1,000 million of its perpetual subordinated notes 2.708% issued in October 2016, on their first call date, on May 5th, 2023. 50-51 OTHER COMPREHENSIVE INCOME Detail of other comprehensive income is presented in the table below: (M$) 1st half 2023 1st half 2022 Actuarial gains and losses 138 204 Change in fair value of investments in equity instruments 3 (17) Tax effect (51) (42) Currency translation adjustment generated by the parent company 1,409 (7,137) SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,499 (6,992) Currency translation adjustment (1,299) 3,535 Unrealized gain/(loss) of the period (1,381) 3,532 Less gain/(loss) included in net income (82) (3) Cash flow hedge 1,891 2,959 Unrealized gain/(loss) of the period 1,699 2,901 Less gain/(loss) included in net income (192) (58) Variation of foreign currency basis spread 8 70 Unrealized gain/(loss) of the period (8) 49 Less gain/(loss) included in net income (16) (21) Share of other comprehensive income of equity affiliates, net amount (95) 2,464 Unrealized gain/(loss) of the period (84) 2,427 Less gain/(loss) included in net income 11 (37) Other (1) (1) Tax effect (472) (1,059) SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 32 7,968 TOTAL OTHER COMPREHENSIVE INCOME, NET AMOUNT 1,531 976 Tax effects relating to each component of other comprehensive income are as follows: 1st half 2023 1st half 2022 (M$) Pre-tax amount Tax effect Net amount Pre-tax amount Tax effect Net amount Actuarial gains and losses 138 (50) 88 204 (53) 151 Change in fair value of investments in equity instruments 3 (1) 2 (17) 11 (6) Currency translation adjustment generated by the parent company 1,409 – 1,409 (7,137) – (7,137) SUB-TOTAL ITEMS NOT POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 1,550 (51) 1,499 (6,950) (42) (6,992) Currency translation adjustment (1,299) – (1,299) 3,535 – 3,535 Cash flow hedge 1,891 (470) 1,421 2,959 (1,041) 1,918 Variation of foreign currency basis spread 8 (2) 6 70 (18) 52 Share of other comprehensive income of equity affiliates, net amount (95) – (95) 2,464 – 2,464 Other (1) – (1) (1) – (1) SUB-TOTAL ITEMS POTENTIALLY RECLASSIFIABLE TO PROFIT AND LOSS 504 (472) 32 9,027 (1,059) 7,968 TOTAL OTHER COMPREHENSIVE INCOME 2,054 (523) 1,531 2,077 (1,101) 976 Chapter 2 / Consolidated Financial Statements as of June 30, 2023 / Notes to the Consolidated Financial Statements for the first six months 2023 (unaudited) 2 5) Financial debt The Company has not issued any new senior bond during the first six months of 2023. The Company reimbursed two senior bonds during the first six months of 2023: – Bond 2.700% issued by TotalEnergies Capital International in 2012 and maturing in January 2023 ($1,000 million); 6) Related parties The related parties are mainly equity affiliates and non-consolidated investments. 7) Other risks and contingent liabilities TotalEnergies is not currently aware of any exceptional event, dispute, risks or contingent liabilities that could have a material impact on the YEMEN In Yemen, the deterioration of security conditions in the vicinity of the Balhaf site caused the company Yemen LNG, in which TotalEnergies holds a stake of 39.62%, to stop its commercial production and export of MOZAMBIQUE Considering the evolution of the security situation in the north of the Cabo Delgado province in Mozambique, TotalEnergies has confirmed on April 26, 2021, the withdrawal of all Mozambique LNG project personnel from DISPUTES RELATING TO CLIMATE In France, the Corporation was summoned in January 2020 before Nanterre’s Court of Justice by certain associations and local communities in order to oblige the Company to complete its Vigilance Plan, by identifying in detail risks relating to a global warming above 1.5 °C, as well as indicating the expected amount of future greenhouse gas emissions related to the Company’s activities and its product utilization by third parties and in order to obtain an injunction ordering the Corporation to immediately cease exploration and exploitation of new oil or gas fields, to reduce its oil and gas production by 2030 and 2050, and to reduce its net direct and indirect CO2 emissions by 40% in 2040 compared with 2019. A new procedural law led to the transfer of these proceedings to the Paris judicial court in February 2022. This action was declared inadmissible on July 6, 2023, by the Paris judicial court. TotalEnergies considers that it has fulfilled its obligations under the French law on the vigilance duty. Several associations in France brought a civil action against TotalEnergies and TotalEnergies Gaz et Electricité France before the Paris judicial court, with the aim of proving that since May 2021 – after the change of name of TotalEnergies – the Company’s corporate communication and its publicity campaign contain environmental claims that are either false or misleading for the consumer. TotalEnergies considers that these accusations are unfounded. 8) Subsequent events On June 30, 2023, TotalEnergies held an interest of 33.86% in Total Eren Holding and an interest of 5.73% in Total Eren SA. On June 29, 2023, the Company exercised the option it had to acquire all the shares of these two companies, exercisable over a period of 3 months between April 1, 2023 and June 30, 2023. 52-53 – Bond 2.125% issued by TotalEnergies Capital International in 2012 (€500 million) and tapped in 2013 (€250 million) forming a single series (€750 million) and maturing in March 2023. In addition, the $8 billion credit line, put in place in March 2022, has not been extended and therefore ended in March 2023. There were no major changes concerning transactions with related parties during the first six months of 2023.. assets and liabilities, results, financial position or operations of the TotalEnergies, other than those mentioned below. LNG and to declare force majeure to its various stakeholders in 2015. The plant has been put in preservation mode. the Afungi site. This situation Mozambique LNG project, to declare force majeure. led TotalEnergies, as operator of In France, on July 4, 2023, nine shareholders (two companies and 7 individuals holding a small number of the Corporation's shares) brought an action against the Corporation before the Nanterre Commercial Court, seeking the annulment of resolution no. 3 passed by the Corporation's Annual Shareholders’ Meeting on May 26, 2023, recording the results for fiscal year 2022 and setting the amount of the dividend to be distributed for fiscal year 2022. The plaintiffs essentially allege an insufficient provision for impairment of the Company's assets in the financial statements for the fiscal year 2022, due to the insufficient consideration of future risks and costs related to the consequences of greenhouse gas emissions emitted by its customers (scope 3) and carbon cost assumptions presented as too low. The Corporation considers this action to be unfounded. In the United States, US subsidiaries of TotalEnergies (TotalEnergies EP USA, Inc. and TotalEnergies Marketing USA, Inc.) were summoned, amongst many companies and professional associations, in a number of "climate litigation" cases, seeking to establish legal liability for past greenhouse gas emissions, and to compensate plaintiff public authorities, in particular for adaptation costs. The Corporation was summoned, along with one of its subsidiaries, in one of these litigations. The Corporation and its subsidiaries consider that the courts lack jurisdiction, and have many arguments to put forward, and consider that the past and present behavior of the Corporation and its subsidiaries does not constitute a fault susceptible to give rise to liability. The acquisition of the shares was finalized on July 24, 2023 for a net investment of around 1.5 billion euros. TotalEnergies SE Registered office: 2, place Jean Millier – La Défense 6 92400 Courbevoie – France Reception: +33 (0)1 47 44 45 46 Investor Relations: +33 (0)1 47 44 46 46 Individual Shareholders Relations: 0800 039 039 from France +33 (0) 1 47 44 24 02 from other countries Share capital: €6,245,660,447.50 542 051 180 RCS Nanterre Financial Report first half 2023 Published in July 2023 Produced by Acolad France | Semestriel, 2023, Energy, TotalEnergies | write me a financial report |
Semestriel | 2,006 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
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| ADVANCE YOUR BUSINESS 2006 HALF-YEAR REPORT Atos Origin Half-Year Report 2006 1/70 CONTENTS 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2006 ........................... 4 2 CEO MESSAGE .............................................................................................................................. 6 3 THE IT SERVICES MARKET .......................................................................................................... 8 4 OPERATIONAL REVIEW.............................................................................................................. 12 5 ACTION PLAN............................................................................................................................... 21 6 HUMAN RESOURCES REVIEW................................................................................................... 26 7 FINANCIAL REVIEW .................................................................................................................... 29 8 HALF-YEAR FINANCIAL REPORT .............................................................................................. 33 9 SUPERVISORY BOARD............................................................................................................... 59 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE ............................................... 59 11 SHAREHOLDER RELATIONS ..................................................................................................... 63 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS .......................................................................................................... 64 13 GLOSSARY – DEFINITIONS ........................................................................................................ 65 14 CONTACTS ................................................................................................................................... 70 Atos Origin Half-Year Report 2006 2/70 Atos Origin We design, build and operate IT-enabled business processes. We integrate business and technology, globally. We focus on carefully chosen market sectors. We improve the effectiveness of our clients’ businesses. About Atos Origin Atos Origin is an international information technology services company. Its business is turning client vision into results through the application of consulting, systems integration and managed operations. The Company’s annual revenues are EUR 5.5 billion and it employs over 47,000 people in 40 countries. Atos Origin is the Worldwide Information Technology Partner for the Olympic Games and has a client base of international blue-chip companies across all sectors. Atos Origin is quoted on the Paris Eurolist Market and trades as Atos Origin, Atos Euronext Market Solutions, Atos Worldline and Atos Consulting. Atos Origin Half-Year Report 2006 3/70 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2006 (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 % Change Income Statement Revenue 2,696 2,725 1.1% Operating margin % of revenue Operating income % of revenue 139 5 .1% 59 2.2% 183 6.7% 196 7.2% 24% 70% Net income (Group share) % of revenue Normalised net income (Group share) (c) % of revenue 10 0.4% 86 3.2% 121 4.5% 112 4.1% 91% 23% Earnings per share (EPS) Basic EPS (a) Diluted EPS (b) Normalised basic EPS (a) (c) Normalised diluted EPS (b) (c) 0.15 0.15 1.28 1.27 1.81 1.79 1.68 1.66 91% 91% -24% 24% (in EUR million) 30 June 2006 31 December 2005 % Change Other Key Indicators Net debt to equity ratio Employees at period end 16% 47,761 9% 47,684 +0% (a) In euros, based on a weighted average number of shares. (b) In euros, based on a diluted weighted average number of shares. (c) Based on net income (Group share) before unusual, abnormal and infrequent items (net of tax). Atos Origin Half-Year Report 2006 4/70 6 months Revenue by service line 8% 50% 42% 6 months Revenue by geographical area 1% 3%2% 6% 6% 30% 11% 21% 20% 6 months Revenue by industry sector 9% 6% 27% 18% 20% 20% Atos Origin Half-Year Report 2006 Consulting Systems Integration Managed Operations France United Kingdom Benelux Germany and Central Europe Italy Spain Other EMEA Americas Asia Pacific Public Sector and Utilities Finance Manufacturing Telecom and Media CPG and Retail Others 5/70 2 CEO MESSAGE In July, the Group issued two important announcements, the Half Year revenues, including a downgrade of our previous guidance, and the acquisition of Banksys and Bank Card Company (BCC). The short-term miss in our guidance, concentrated in the United Kingdom, does not affect the Group’s capacity or determination to develop its business, particularly in its speciality businesses which are stock exchanges, payment systems and medical BPO, and win new contracts. In the Half Year Revenue announcement, we have had to lower our 2006 revenue growth and profitability targets due to delays in new business acquisition and a new estimate of costs to complete on a few contracts in the United Kingdom. The issues we have are well identified and limited in scope. To improve our results and deliver the new targets, a number of specific actions are being taken to strengthen the United Kingdom and generate more business. I am confident that the action plan will deliver the required results and I am pleased to say that for the rest of the Group progress is being made in line with expectations. As a listed company, we are obliged to inform our shareholders about any deviations in the financial forecasts, as this can influence the share price. As expected, the market reacted strongly to our announcement resulting in a considerable drop in our share price. However, it is important to understand that the size of the Group today allows us to experience these difficulties without jeopardizing the overall business. Atos Origin remains healthy and strong with profit margins that are above the market average. Group revenues for the first half of 2006 amounted to EUR 2,696 million, representing an organic increase of +2.9% compared with the same period last year on a constant scope and exchange rates basis, with a slight acceleration in the second quarter to +3.2%, as expected, after +2.7% in the first quarter. Nevertheless, the second quarter performance was lower than our initial target, due to slower than expected new businesses in the United Kingdom. In the rest of the world, revenue growth remains exactly in line with our expectations, up +6.0%. The first half operating margin was slightly above 5% due to the new estimate of costs to complete of several United Kingdom public sector legacy contracts, as mentioned above. The delay in the signature of several large contracts will have an effect on 2006 organic growth. While reducing our target, we still expect to see growth at around +3%. The other major impact in our accounts in this first half 2006 is an impairment charge of our Italian goodwill of EUR 60 million. As a result, our net income for the first half was reduced to EUR 10 million. Normalised net income before unusual items and normalised basic EPS reached EUR 86 million and 1.28 euros, respectively. Despite good new business wins this year, the Italian market is getting more and more difficult and profitability is deteriorating. As a result, we have taken the decision to implement a significant restructuring programme in the country to reduce costs and re-profile our portfolio of skills to better match our clients’ needs. The programme will be completed by the fourth quarter and the costs will be taken in the second half. We are convinced that this will enable us to generate growth and sustainable profitability in the future in Italy. The cash flow from operating activities before working capital reached EUR 189 million, or 7.0% of revenues in the first half 2006 compared with 5.8% in first half 2005. This performance is temporarily offset by an increase in working capital of around EUR 197 million in the period due to seasonal effects, as last year at the same period. After inclusion of other cash items, net debt at 30 June 2006 increased to EUR 326 million versus EUR 363 million at 30 June 2005. Atos Origin business in the United Kingdom has undergone a major change over the last few years, moving from a Consulting & Systems Integration organization to a fully-fledged “design, build and operate” organization. At the same time, it has established 4 service lines (Consulting, Systems Integration, Managed operations and BPO Medical services) capable of competing with the best. This dual positioning of “best-in-class” service line capability combined with an ability to aggregate the services into a “design, build and operate” proposition is key for the future. Atos Origin Half-Year Report 2006 6/70 The UK team has been focused on competing for several large deals, resolving and closing the difficult contracts and reorganising its sales organisation. Several specific commercial actions are being implemented to strengthen the commercial effort to reflect Atos Origin’s strong strategic position and operational capacity. This includes : (cid:131) Increasing the commercial capacity of the consulting operations with the recruitment of new Consulting partners by July 2007 to win new business and thereby improve the utilization rate, (cid:131) Reorganizing the UK Systems Integration sales teams, by focusing on one hand on large account management for large, end-to-end contracts at the United Kingdom level, and, on the other, pushing the dedicated sales teams down in to the business units in order to bring them closer to the business for more reactivity and speed to market, (cid:131) Rebalancing the public / private sector mix, currently at 62% and the mix of large to small and medium-sized deals. In the United Kingdom, we are confident that the action plan will deliver the desired results and generate a pick-up in activity. As we go into the second half, the pipe-line is strong and under- performing contracts have been cut, our sales organizations are being reorganised to accelerate growth in new business and there are some good opportunities nearing completion. In the last few months, we have been awarded preferred bidder status on contracts worth a total of EUR 900 million, including the NHS Scotland renewal and extension, two regions for the UK diagnostics centres, the Gateway contract, and NFUM. In the rest of the Group, progress is being made in line with expectations. In Europe, Atos Origin strategy is constant : the Group deploys a design, build and operate approach, with a balanced mix of consulting, systems integration and managed operations. The Group has strong client base with long-term relationships. We have also carved out some strong niche positions in Exchanges, Payments Systems and Medical BPO services that are all expected to generate higher growth as demand consolidates. The acquisition of Banksys and Bank Card Company (BCC) demonstrates our continuous commitment to expand our business and develop key areas of expertise such as the payments services. This new partnership will allow Banksys and BCC to play a key role in the current international market and it will allow Atos Origin to become a European leader in payment services. Banksys and BCC will become an integral part of Atos Worldline and together they will create substantial development synergies and will be able to respond to the challenges and opportunities presented by SEPA, the process of European standardization. The combined unaudited proforma 2005 revenues of the new Atos Worldline activities would have reached EUR 600 million. I am pleased that the four main shareholders of Banksys and BCC (Dexia, Fortis, ING, KBC) have expressed their confidence in our ability to further improve the already high service level and the future positioning in the European payment processing market by confirming their commercial relationship with the new entity for at least 5 years. The agreement was signed on 19 July 2006 and we aim to finalize the acquisition by the end of 2006, subject to approval by the European Competition Authorities. We are also awaiting an outcome on the potential merger between Euronext and the New York Stock Exchange as this could provide an exciting development opportunity for AEMS. Based on these healthy fundamentals, the Group is confident in its capacity to grow profitably in its key markets. Decisions taken in 2006 will prepare the Group for a rebound in 2007. Bernard Bourigeaud Atos Origin Half-Year Report 2006 7/70 3 THE IT SERVICES MARKET 3.1 MARKET 3.1.1 Market Conditions A recovering European economy will drive renewed growth across the IT Services market in the Eurozone. GDP growth is set to improve from 1.3% in 2005 to 2.0% in 2006. Business confidence is relatively high across Europe. By country, Germany is back on track. Spain remains upbeat, while Italy remains flat to depress. The situation is improving in the Netherlands and France. The United Kingdom still leads the pack in terms of its adoption of full outsourcing, adoption of BPO and offshore, according to Ovum. 43% of deals tracked by Forrester Research were in the United Kingdom. This represents the 9th consecutive quarter in which the United Kingdom has lead in number of outsourcing deals signed. Overall drivers in the market include Merger & Acquisitions at an all-time high and multi-nationals reporting record profits. At the micro level – MFID (Markets in Financial Instruments Directive), SEPA (Single Euro Payments Area), Compliance and cost reduction (to a lesser extent) are on the agenda. Many major contracts are up for renewal which is resulting in lower costs (therefore TCV) via offshoring. The number of deals in the market is increasing but contracts tend to be smaller in size. Second and third generation deals are becoming increasingly more business-driven and complex in scope due to a more sophisticated and experienced client. 3.1.2 Competitive environment The market supplier base currently consists of the global firms, multi-nationals, the locals and the pure play offshore firms. We feel that we play in the global arena as we have clients, contracts and follow the sun delivery capabilities spanning 40 countries. Results from the global ESPs have been mixed. Consolidation in the IT services market continues, as CSC and ACS have seemingly been taken off the market, and rumours on disposal of SBS persists. We are seeing targeted acquisitions and divestitures in certain geographic markets as several players have exited the Nordic markets, while LogicaCMG recently announced the acquisition of WM-Data. Getronics has exited several Central European markets. Accenture has made several targeted acquisitions recently supporting its BPO offering. We see offshore firms buying boutique consulting or firms in specific domains to gain footholds in local markets and then leveraging offshore delivery models with minimal, albeit higher profile onshore work. The one example of a larger deal involving a major Indian pure-play is the rumoured TCS deal with Vertex. TCS claims that it has the backlog and pipeline to justify the assimilation of the large number of UK based personnel. There has been limited high profile acquisitions in India where there are 3000 IT services firms operating. The highest profile deal is EDS buying a stake in Mphasis for USD 380 million. Valuations are still running a premium, risk of attrition is high and the recent Mumbai train bombing shows there is still some political risk. The stellar numbers continue to come from the offshore providers, namely the top five Indian firms TCS, Wipro, Infosys, Satyam and HCL. 3.1.3 Trends With many deals multi-sourced today, we feel that multiple deals within the client will eventually be managed by a prime or an aggregator. Clients do not always have the skill sets to manage multi- vendor relationships and need to develop these skills. We have extensive experience in the area developed through complex engagements, for example, the Olympic Games. We expect to compete for these roles with firms with less IT knowledge and more program management capabilities - firms such as Serco which has developed these skills managing large scale projects in the manufacturing sector. Atos Origin Half-Year Report 2006 8/70 A global delivery platform is now seen as fundamental and almost as a “me too” ability. It is included in almost every proposal we see. This is truly a global capability which includes on-site, onshore, near- shore and offshore. Successful firms must demonstrate this ability. According to Morgan Chambers, initial long lists for potential deals tend to include the global players along with the appropriate multi-nationals or locals depending on the scope. Most long lists now include offshore firms (sometimes as stalking horses). In the past, more second tier players would more likely round out the long list instead of the offshore firms. At the top end of the market, the major ESPs are bundling consulting services with outsourcing - this includes more BPO especially in the United Kingdom. All deals have global delivery models addressed in the solution and most clients prefer vendors which have an industry focus. Multi-process BPO deals are growing and include procure to pay, order to cash and even speed to market for new products/services. BPO has lead growth as BPO services appeared in 19% of deals up from 14% last quarter. Cost reduction is still a driver though not as much as in previous years. The key drivers of the outsourcing agenda continue to be to deliver flexibility, manage price variability, business process enablement and management of change / risk. End to end solutions – those solutions which span the enterprise - such as compliance and security are being targeted making business line owners and corporate finance more aware of integration and transparency issues. 3.1.4 Service lines Consulting In consulting, the general feeling in the market is that 2006 will not be as strong as 2005. There seemed to be some pent-up demand in 2005, not seen in 2006. Ovum's latest UK IT consulting forecast is for 2.7% growth. The growth prospects for the consulting market are generally pegged around 5% for 2006. Larger scale strategic UK government consulting deals have diminished - smaller tactical deals still happening – as spending has gone back to "normal" after several years of "excess" resulting in a slight downturn in UK government consulting. Attrition rates this year have peaked in the industry and slowed from mid to late last year. Rates seemed to have stabilized but not fallen. Computerwire has stated that billing rates have certainly stabilized and increased slightly (probably no more than 5 - 10%) in the last 18 months. We see the major offshore firms using consulting more as a defensive move to protect client positioning, to raise credibility at higher levels and to fend off perception of pure body-shopping. In short – we do not see a general trend for offshore firms to build on shore consulting as a separate service line to generate business. Overall, we do not believe that Indian firms are having a big impact in the consulting space at the moment, although they are recruiting. Clients are structuring longer term consulting deals in similar terms as IT outsourcing, in that the price and rates should decrease over time. Business consulting is more subject to procurement rules in the United Kingdom – GBP 1 million deals which used to fly under the radar and now even some GBP 100 thousand deals are being subject to formal procurement. Systems Integration Applications Outsourcing agenda is similar to IT outsourcing in that the market is looking for vendors to deliver flexibility, price variability, business process enablement and management of change/risk. The Application Management market is healthy but still accounts for less than 40% of the outsourcing market, according to Ovum. ADM (Application Development & Maintenance) deals are increasing to where it is a component to 23% of deals in the market, according to Forrester Research. We continue to see relatively strong demand for ERP projects and services. We continue to see ERP as a key application to drive efficiencies in the back office and continue to invest in these applications as they grow in scope to front office, supply chain and to industry expertise. Atos Origin Half-Year Report 2006 9/70 We were recently granted partnership status with SAP, for example, in the Manufacturing sector. We also are one of only five global hosting partners for SAP which allows clients to engage SAP in a different delivery model. With Oracle, we were selected to implement Oracle in the largest-ever deployment of Oracle Applications Solution in the French hospital sector. We have won several SAP industry awards and an Oracle award in the last few months. Ovum confirms that project services have become a growth driver - corporate investment is back in a number of countries (the Netherlands, Nordic, France). No “killer” application has emerged in the market. There continues to be a consolidation of applications towards SAP, legacy application transformation and overall efforts to lower TCO. We recently signed a global alliance with Microsoft to develop and market Atos Origin solutions based on a wide array of Microsoft products including Windows Vista, Office 2007 and Windows Server “Longhorn”. Offshore vendors are expanding services outside of application services R&D services and BPO and are investing more in near-shore and onsite delivery. These firms are working for positioning as credible business partners. European labour laws continue to be restrictive to certain vendors building global delivery models which can be restrictive to growth. Managed Operations Sales/Bids are becoming increasingly complex in terms of finance and business solution pushing the capabilities of the account teams – firms which invest in this area will be poised to take business going forward. Clients are looking for innovation –not only technology but also process, financial models and deal structure. We have shown the ability to develop flexible and innovative deal structures – Atos Euronext Market Solutions (AEMS) is an example. This activity is not normally client led. Many contract restructurings are currently in the market – revenue at risk for major providers – as a result of more knowledgeable and sophisticated clients than in previous rounds of deals. This trend creates both commodity price pressure but also opportunities for more business and sophisticated deals. Clients tend to resource and to manage deals more effectively. Of the 90 current deals in TPI’s pipeline – 18 of them are restructurings. We feel payment systems, going forward, are a major opportunity. We feel uniquely positioned in the market along with the accompany work in integration and integration. SEPA along with the chip and pin in the United Kingdom are the key drivers. Mega-deals have been less common in the market pipeline. Deals are smaller in TCV and are trending toward the truly multi-sourced model. The recent ING and the ABN AMRO deals along with the Renault deal are classic examples of multi-sourced deals. According to TPI, in the private sector, there were eight mega deals (2 in Europe – Unilever and BAE) in the first half of 2006 but there are only two mega deals in the pipeline for the balance of 2006. Price pressure, the competitive environment and the offshore hit prices in infrastructure activity, slowing down ITO growth. In spite of price erosion in pure ITO deals, there is some additional profitability potential in bringing more business impact to deals and the potential to offshore some aspects of the service. According to TPI, the financial services and public sectors have been the strongest for consulting spending in recent quarters. The Financial sector is still the hottest for outsourcing with manufacturing strong as well. Deals in the Retail Sector are increasing rapidly – Forrester Research. 3.1.5 Future The growth in the market appears to be slight to relatively flat. The best guesses in the market are that 5% growth will be hard to achieve (Ovum, TPI and Gartner). Atos Origin Half-Year Report 2006 10/70 However, going forward, we feel that we have both client intimacy and the global capabilities within end to end solutions almost unparalleled in Europe. We can demonstrate capabilities in supply chain (Actis - B2B), back office and front office along with the processes, applications and IT infrastructure which supports the enterprise. We leverage COEs (centres of excellence) and competency centres such as Atos Euronext Market Solutions (AEMS), Atos Worldline which are truly unique to the market. The key to our success is the ability to focus all of these capabilities across service lines and geographic boundaries to effectively deliver the business solution to the client. In addition, many analysts believe that the future involves multi-process BPO deals (although only 7% of deals today) which play well into our design, build and operate strategy. In short, Atos Origin is uniquely positioned to deploy sector based, end to end solutions over the entire client supply to demand value chain leveraging Atos Consulting, Systems Integration and Managed Operations using our global delivery platform. 3.2 MARKET SHARE AND COMPETITORS According to Gartner, Atos Origin is the fourth largest IT services company in Europe. IT service market share rankings in Western Europe were as follows: Ranking in Europe Competitors in Europe Western Europe Revenues 2005 (a) Western Europe Market share 1 2 IBM Accenture 10,408 5,829 8.0% 4.5% 3 Capgemini 5,443 4.2% 4 Atos Origin 5,045 3.9% 5 T-Systems 4,975 3.8% 6 EDS 4,703 3.6% 7 BT 4,258 3.3% 8 Computer Sciences Corporation (CSC) 3,353 2.6% 9 Siemens Business Services 3,011 2.3% 10 Fujitsu 2,811 2.2% Total market size Western Europe Source: Company Information – IT Services Europe Preliminary Market Share Gartner : May 2006 in USD with 1 USD = 0.80435 EUR 130,270 38.3% (a) In EUR million, based on Professional Services include Consulting Services (Consulting for Atos Origin), Development and Integration Services (Systems Integration for Atos Origin), IT Management (Managed Services for Atos Origin) and Process Management (On-line Services and BPO for Atos Origin), but excluding Product Support (Hardware and Software Maintenance and Support). According to Gartner, based on 2005 figures for external IT spending, Professional Services market shares in each main country were as follows: Country Market Size (in EUR million) Weight Atos Origin Market Share Atos Origin Ranking Market Leader United Kingdom 43,823 34% 2.7% 9 British Telecom Germany 27,897 21% 2.0% 8 T-Systems France 16,718 13% 9.1% 2 Capgemini Italy 9,585 7% 3.1% 7 IBM The Netherlands 8,812 7% 11.6% 1 Atos Origin Spain Other Europe 6,693 16,743 5% 13% 4.1% 1.2% 5 IBM Western Europe Source: Company Information – IT Services Europe Preliminary Market Share Gartner : May 2006 in USD with 1 USD = 0.80435 EUR 130,270 100% 3.9% 4 Atos Origin Half-Year Report 2006 11/70 4 OPERATIONAL REVIEW 4.1 OPERATING PERFORMANCE The underlying operating performance of the on-going business is presented within Operating Margin, while unusual, abnormal or infrequent income or expenses (other operating income/expenses) are separately itemised and presented below the operating margin, in line with the CNC recommendation of 27 October 2004, before arriving at operating income. (in EUR million) 6 months ended 30 June 2006 % margin 6 months ended 30 June 2005 % margin % change % organic change Revenue 2,696 2,725 1.1% +2.9% Operating margin 138.7 5.1% 183.1 6.7% 24% 24% Other operating income (expenses) (80.2) 13.1 Operating income 58.5 2.2% 196.3 7.2% 70% 59% (*) Organic growth at constant scope and exchange rates The Group achieved an operating margin of EUR 139 million (5.1% of revenue) in H1 2006, compared with EUR 183 million (6.7% of revenue) in H1 2005. The first half of the year suffered from the new estimate of the cost to complete on some loss-making government legacy contracts in systems integration in the United Kingdom, which were delivered in June and impacted the first half operating margin by EUR 25 million, 1 point. Excluding the specific costs to complete, the operating margin of the first half 2006 is in line with the Group’s financial target. Other operating income/expenses included an impairment charge of EUR 60 million, fully attributable to Italian goodwill, a charge of EUR 8 million for reorganisation and rationalisation, a stock option expense of EUR 6 million, EUR 13 million of other infrequent items, partly compensated by a net release of EUR 6 million for opening balance sheet provisions no longer needed, enabling the Group to report operating income of EUR 59 million for H1 2006. 4.2 REVENUE 4.2.1 Organic growth Revenues for the first half ended 30 June 2006 amounted to EUR 2,696 million, down 1% against EUR 2,725 million for the equivalent period last year. In the past 12 months, the Group has disposed of a number of businesses, which removed EUR 119 million from the comparative revenue base – mainly the Nordic business (EUR 88 million) sold in June 2005 and the Middle-East operations (EUR 26 million) sold at the beginning of 2006. Exchange rate movements resulted in a positive adjustment of 12 million euros on a comparable year- on-year basis, mainly from dollar-linked currencies and Brazilian real. After adjusting for disposals and at constant exchange rates, the H1 2005 revenue base was EUR 2,619 million. (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 % change Published revenues 2,696 2,725 1.1% Disposals (119) Exchange rate impact 12 Organic revenues (*) (*) Organic growth at constant scope and exchange rates 2,696 2,619 +2.9% Atos Origin Half-Year Report 2006 12/70 Revenues in H1 2006 represented an organic growth of +2.9%, of which +2.7 % in the first quarter, and a slight acceleration in the second quarter to +3.2%. (In EUR million) Quarter 1 2006 Quarter 2 2006 Half-year 1 2006 Revenue % published growth 1,342 -1,0% 1,354 -1,2% 2,696 -1,1% % organic growth (*) +2,7% +3,2% +2,9% (*) Organic growth at constant scope and exchange rates The second quarter performance was slightly lower than the Group’s objectives due to slower than expected new businesses and more staff allocated to fix the difficult contracts with no revenue recognition in the United Kingdom, as it will be explained further on. In the second quarter, revenues in the United Kingdom were down 4.6% on an organic basis, but it was better than in the first quarter (-10.8%). In the rest of the world, H1 organic revenue growth of 6% was exactly in line with budget. 4.2.2 Revenue by geographical area The revenue performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 % growth % organic growth (*) 2006 revenue breakdown France 809 731 +10.6% +10.6% 30% United Kingdom 541 588 7.9% 7.8% 20% The Netherlands 519 508 +2.1% +2.8% 19% Germany + Central Europe 289 273 +5.8% +5.8% 11% Rest of EMEA 375 467 19.8% +6.2% 14% Americas 98 93 +6.1% 3.1% 3% Asia – Pacific 65 65 1.0% 5.6% 2% Total (*) Organic growth at constant scope and exchange rates 2,696 2,725 1.1% +2.9% 100% In the United Kingdom, the organic decrease of 7.8% in H1 2006 is explained by both the end of contracts and exceptional volumes in H1 2005. The organic revenue decline is slowing as first quarter revenue was down 10.8% and second quarter decline was reduced to 4.6%. (cid:131) In managed services, as already explained last year, the end of the one-year, non-recurring and fully subcontracted call centre contract, which terminated in April 2005, had a negative impact of EUR 25 million over the 6 months period, representing almost 4.3% of organic revenue decrease in the United Kingdom. This will have no further ongoing impact in 2006. (cid:131) In managed services as well, as known by the market, the progressive winding down of the Metropolitan Police contract ending in May 2006, had an impact of EUR 22 million in H1 2006, representing another 3.7% organic revenue decrease in the United Kingdom. The full year impact is EUR 56 million, so a further EUR 34 million in H2 2006. (cid:131) In Medical BPO (part of Managed Operations), H1 2005 (mainly in Q1) was positively impacted by exceptional volumes of EUR 21 million approximately, ahead of the DTI (Depart of Trade & Industry) contract renewal in March 2005. This amount represents 3.6% organic revenue decrease in the United Kingdom. This will have no further ongoing impact in 2006. (cid:131) In consulting, the expected ramp down of a major contract with the MOD (Ministry of Defence) had an impact of EUR 18 million in H1, representing 3.1% organic revenue decrease in the United Kingdom, with a full year impact of EUR 40 million. As a result, there will be a further EUR 22 million impact in H2 2006. Atos Origin Half-Year Report 2006 13/70 Excluding these four specific factors, organic growth in the United Kingdom was +8.0% for the first half of 2006. This performance was achieved while United Kingdom operations in system integration had to allocate more resources than expected in the successful delivery of a few government legacy projects impacting revenue recognition on these contracts. The 2006 challenge in the United Kingdom was to progressively win new business to compensate the EUR 140 million expected shortfall in 2006 revenues of the four items mentioned above. Despite an excellent pipeline since the end of 2005, new business wins are behind schedule due to significant delays in certain medium and large contracts in which we are in active commercial process. As a result, significant projects of the 2006 pipeline have been pushed back to 2007. Revenues in France were +10.6% higher than last year, reflecting a strong performance in all businesses. Even excluding the effect of the new Euronext.Liffe contract, part of the extension of AEMS for which the incremental service work is delivered in the United Kingdom but recorded in France, the organic growth reached a good level of +6%. The limited organic revenue growth in The Netherlands of +2.8% results from good organic revenue growth in Consulting & Systems Integration, partly offset by a small organic growth in Managed Services. The 4.2% organic growth in Q2 was significantly higher than in Q1 at 1.4%. This was due to progressive fertilization and new business compensating for the traditional contractual sharing of savings at the beginning of the year with clients such as Philips, KPN, or Akzo Nobel. More new contracts are in the pipeline to execute our on-going strategy to widen our client base in the country. Revenues in Germany and Central Europe recorded 5.8% organic growth due to the flow of new contracts in the past twelve months, including E-Plus, Premiere or Symrise in H1 2006. In Germany, where annual revenues now exceed EUR 550 million, the pipeline is vigorous and will drive further operational efficiency and help the Group to win new business for the future. In the rest of EMEA, the Nordic and Middle East businesses were sold at the end of June 2005 and February 2006 respectively. Partnership alliance agreements have been signed with the purchasers of both operations, to provide extended support for Atos Origin clients in these regions. In this region, the Group is focussed primarily on Spain, Italy and Belgium. Organic growth was sustained at +6.2%. A +13% increase in Spain confirmed an encouraging trend, increasingly providing near-shore support for many of the Group’s major international clients and a good development in financial services and telecoms. In spite of the weak market conditions in Italy, organic growth was +4% in the period. As a result of focusing on larger contract bids, the Group has had some notable contract successes in Italy during 2005, including Piaggio and the Regione Sicilia, and recently in 2006 with a new project for Region Sicilia, Fiat, and new business with Telecom Italia. The Americas recorded a limited year-on-year organic revenue decrease of -3.1% in H1 2006. North America was stable in the period. Revenue declined in South America but the recovery is better than planned. The Group is focussing its resources in the region into Brazil, which is developing as an important global outsourcing centre with among others Telecom Italia, Philips, Procter and Gamble, Schlumberger, Rhodia, Symrise and Akzo Nobel. The Offshore Centre has initiated the certification process for CMMi Level 4 this year. The Asia-Pacific region recorded an organic decrease of -5.6% on a year on year basis resulting mainly from exceptional volume on sales of hardware in Q1 2005 linked to one new contract started last year. Nevertheless, Indian activity is up over 50%, principally from internal offshore revenue, as a result of the planned offshore capacity of the Group. Atos Origin Half-Year Report 2006 14/70 4.2.3 Revenue by service line The revenue performance by service line was as follows: (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 % growth % organic growth (*) 2006 revenue breakdown Consulting Systems Integration Managed Operations 206 1,131 1,359 227 1,134 1,364 9.0% -0.3% 0.4% 6.9% +3.4% +4.2% 8% 42% 50% Total (*) Organic growth at constant scope and exchange rates 2,696 2,725 1.1% +2.9% 100% In H1 2006, organic revenue decrease in Consulting was 6.9%, with revenues of EUR 206 million compared with EUR 222 million in H1 2005 on a constant scope basis. Consulting has continued to weaken in the second quarter (-12% versus -1% in Q1) entirely due to a shortfall in new business in the United Kingdom to replace the MOD ramp down. All other countries have again achieved positive organic growth (+7.7% excluding the United Kingdom in H1), with particular strength in France and Spain. In the United Kingdom, while continuing to provide operational transformation services to the MOD, this contract declined significantly in line with the phased contract plan in 2006. Despite active commercial activity, the volume in new business is not yet sufficient to compensate the MOD ramp down. Nevertheless the new management is positively transforming the United Kingdom consulting organisation from delivery focus to a more balanced commercial and execution practise and the utilisation rate has moved up progressively from 56% in March to 59% in June 2006. We think that with a stable staff base and more focus on pre sales and new offerings, the United Kingdom consulting practise has the capacity to generate growth in the future and is therefore in the process of recruiting new senior partners to drive new business activity. As far as the other countries are concerned, organic growth in the first half was double digit in France, and Spain, and good in the Netherlands. Revenues in Systems Integration were +3.4% higher organically in H1 2006, with revenues of EUR 1,131 million compared with EUR 1,094 million in H1 2005 on a constant scope basis. This service line has definitively returned to steady growth, with active new business. Growth in the period was due to better volumes, with prices remaining broadly stable. The organic growth of +3.4% in the first half, resulted from a strong Q1, up +6%, offset somewhat by a stable Q2, up only +1%, impacted by a reduced number of working days in the quarter due to the later than usual Easter holidays and the lack of revenue contribution in a few difficult contracts in United Kingdom. All countries, except the United Kingdom, performed in line with budget. In the United Kingdom, there were delivery delays in a few government legacy contracts. These did not generate revenue during the period, with an impact in turnover of around EUR 15 million, and at the same time did not allow us to free up the people fast enough to be transferred onto the available new business. Most of these contracts have been delivered on time at the end of June, but with an estimate of the costs to complete of EUR 25 million, in the operating margin in H1 in the United Kingdom . Excluding the United Kingdom, the rest of the Systems Integration operations continued to perform well in the first half, particularly in ERP and applications management and generated an organic growth of +6.3% in the first half. Atos Origin Half-Year Report 2006 15/70 Organic revenue growth in Managed Operations was +4.2%, with revenues of EUR 1,359 million compared with EUR 1,304 million in H1 2005 on a constant scope basis. The organic growth of +4.2% in the first half was boosted by Q2 organic growth of +8%, with strong performances in all countries, including a strong rebound in the United Kingdom, in line with expectations, after the exceptionally weak first quarter (+1%), thanks to continued fertilization and penetration of existing clients combined with a myriad of new medium-sized contract wins. Organic growth in H1 2006 resulted from positive +6% growth in IT outsourcing business, +6% increase in payment systems, partly offset by a 12% decrease in medical business process outsourcing, mainly due to the exceptional volume in H1 2005 with DTI in the United Kingdom. Excluding the one-year Call centre in 2005 and the progressive winding down of the Metropolitan Police contracts explained above, the IT outsourcing business would have grown 11% in the period, despite the traditional contractual sharing of savings with clients at the beginning of the year. This is due to the positive impact of the extension of Atos Euronext Market Solutions signed in July 2005 and strong fertilisation of existing clients and renewals. The +5% growth of Atos Worldline confirms the Group’s strategy to focus on reinforcing its presence on fast-growing high added-value payment card and internet processing businesses. Volumes are increasing and new offerings are being launched on the market. The Group believes that regulatory changes (SEPA - Single European Payments Area) will be one of the major challenges in the next few years for the European payment market and will provide tremendous opportunities for Atos Origin, and the recent acquisition of Banksys and BCC will reinforce the Group’s positioning in this area. As far the Medical BPO is concerned, excluding the lower level of volumes with DTI (as mentioned above) growth would have been +7%. The DWP contract renewed last year is executing its transformation phase and Atos Origin has good business growth in the occupational health sector. The Group is confident that new business development in the United Kingdom should enable growth again in 2007. 4.2.4 Order input The Book to bill ratio in H1 2006 was 93%, after 113% in Q1 and 73% in Q2. Excluding Business Process Outsourcing contracts, for which the main one was renewed last year for a long-term period, the book-to-bill ratio remained low in the first half at 96% (in comparison with last year at 116% in H1). The book-to-bill ratio (excluding the long-term BPO activities) declined in Q2 due to the lack of any large wins during the period as significant expected signatures have been push back to year-end, and despite a particularly active contract renewals program and business fertilisation during the period. The main signatures in renewals and new business in H1 were with clients such as : Symrise in Germany, Heijmans, Huntsman, Dutch Ministry of Defence, Mobistar, Wolters Kluwer and Nuon in Benelux, Hong Kong Government in China, EDF, SFR, Club Avantage, EADS and Airbus in France, Electrocomponents, WM Morrisons and South Wales Police in the United Kingdom, Caja Madrid in Spain, Maroc Telecom. Full order backlog has been maintained at EUR 7.2 billion at the end of June 2006, representing 1.4 years of revenues, despite the lack of significant deals signed. The full backlog is down on March. Delays in the signatures of several large, long-term government contracts, particularly in the United Kingdom, explain these trends. The Group expects the order in- take to pick up from Q3, as several large deals are in final stages of negotiation and others are in active commercial process. Most of these contracts will only start contributing significantly in 2007. As a result of these delays, the full qualified pipeline reached more than EUR 2.8 billion at the end of June 2006, an increase of 9% since the beginning of the year, and +44% in comparison with last year at the end of June. Atos Origin Half-Year Report 2006 16/70 4.2.5 Revenue by industry sector The revenue performance by industry sector was as follows: (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 % growth % organic growth (*) 2006 revenue breakdown Public Sector and Utilities Financial Services 714 549 722 473 +1.1% -13.9% +2.9% +19.5% 27% 20% Manufacturing 533 558 +4.7% +0.2% 20% Telecoms and Media 484 512 +5.8% +0.2% 18% CPG & Retail 250 265 +5.8% 5.3% 9% Transport 112 129 +15.5% 7.9% 4% Others 53 67 +24.5% 17.6% 2% Total (*) Organic growth at constant scope and exchange rates 2,696 2,725 +1.1% +2.9% 100% The Group is organised around four main industry sectors, which represent 85% of total revenues. The Group again strengthened its Public Sector and Utilities position (27% of total Group revenue, with a 3% organic increase) with French, Dutch and UK government ministries and in the healthcare sector, as well as with utilities companies. The Financial Services sector (20% of total Group revenue, with a 20% organic increase) benefited from new contracts such as the extension of Atos Euronext Market Solutions, and allocation by European banks of budgets to fund projects, such as Basel II, Sarbanes-Oxley, Solvency II and the move to IFRS accounting standards. Manufacturing (20% of total Group revenue), which includes the previous Discrete Manufacturing and Process Industries, was stable over the period benefiting from new contracts such as Renault, Shell or EADS, compensating an overall decrease in high-tech, which was directly linked to a decline in the Philips account year-on-year. Telecoms and Media represented 18% of total Group revenue, and was stable over the period, resulting from good fertilization with clients such as France Telecom – Orange and Vodafone and new business such as with Telecom Italia, offset by productivity savings with clients such as KPN. 4.3 OPERATING MARGIN AND MARGIN RATE 4.3.1 Operating margin performance (in EUR million) Revenue Operating margin 6 months ended 30 June 2006 2,696 138.7 6 months ended 30 June 2005 2,725 183.1 % growth 1.1% -24% Operating margin rate 5.1% 6.7% 1.6 points As far as seasonality is concerned, the start of the year is traditionally impacted by a contractual reduction in revenues on long-term contracts, where the Group has agreed in advance to share specific benefits with clients. There was also a global salary increase estimated to 2.5% in 2006, which had a negative impact of 1.3 points on the margin rate. In 2006, the initial operating margin target for the first half was expected to be below last year due to an expected lower 1st half organic growth run rate as compared with last year. This was due to be compensated by an aggressive ramp-up of organic growth in the second half, which is now not going to happen because of the situation in the United Kingdom. Atos Origin Half-Year Report 2006 17/70 The operating margin for the first half of 2006 is slightly above 5%, 1 point below our initial target, due to the new estimate of the costs to complete of a few contracts in the United Kingdom, which had an impact of EUR 25 million in the first half operating margin. Excluding the impact of these few contracts in the United Kingdom accounted in Q2 2006, operating margin improved by 2 points between Q1 and Q2 thanks to improvements in operational performance, in line with expectations. (in EUR million) Quarter 1 2006 % margin Quarter 2 2006 % margin Half-year 1 2006 % margin Revenue 1,342 1,354 2,696 Operating margin Costs to complete 68.4 5.1% 70.3 -25.0 5.2% -1.8% 138.7 -25.0 5.1% -0.9% Restated operating margin 68.4 5.1% 95.3 7.0% 163.7 6.1% 4.3.2 Operating costs (in EUR million) 6 months ended 30 June 2006 % of revenue 6 months ended 30 June 2005 % of revenue Change Revenue Personnel expenses Sub-contracting costs Purchases for selling and royalties Means of production Premises costs Travelling expenses Telecommunications Taxes, other than corporate income tax Other operating expenses Sub-total operating expenses Depreciation of fixed assets Net depreciation of current assets Net charge to provisions Sub-total depreciation and provisions Total operating expenses Operating margin 2,696 (1,510) (284) (153) (209) (115) (61) (58) (15) (74) (2,478) (88) 1 9 (79) (2,557) 139 56.0% -10.5% -5.7% -7.7% -4.3% -2.3% -2.2% -0.5% -2.7% -91.9% -3.3% 0.0% 0.3% -2.9% -94.9% 5.1% 2,725 (1,467) (298) (212) (197) (97) (61) (43) (13) (126) (2,515) (62) 3 32 (27) (2,542) 183 53.8% -10.9% -7.8% -7.2% -3.6% -2.2% -1.6% -0.5% -4.6% -92.3% -2.3% 0.1% 1.2% -1.0% -93.3% 6.7% 30 -43 +14 +60 -11 -18 15 -1 +52 +37 -26 -3 -23 -51 -15 -44 Operating expenses remain dominated by staff-related costs. Personnel expenses increased by 2 points of revenues over the period, due to the average salary increase of +2.5% in 2006, the average number of staff remaining globally stable. Subcontractor costs represented 10% of revenue, a decrease as a percentage of revenue as compared with H1 2005. In 2005, Atos Origin managed a higher number of subcontractors as a result of new outsourcing and application management contracts, which were in the transition and transformation phases, such as Renault, and that are progressively replaced by Atos Origin staff. Purchases for selling and royalties, comprising hardware and software, significantly decreased compared with last year, as a result of the strategic Group orientation to focus on sales on services in reducing pass-through revenues. This is also due to the structure of the contracts this half with a very different contract size mix of smaller accounts and strong fertilisation on the existing client base. Other operating expenses (around EUR 530 million), including means of production and premises, decreased by 1%, in line with the revenue change in the period. This should be optimized in the second half as a result of both active cost management and the introduction of more effective procurement management. Atos Origin Half-Year Report 2006 18/70 The global improvement of operating expenses in the period (EUR +37 million) has compensated the revenue decrease of 1% (EUR -30 million), but the depreciation of assets increased, as expected, on account of the level of capital expenditure last year. Elsewhere, the net release of provisions corresponding to the utilisation of provisions for loss-making contracts with the counterpart in operating costs, decreased over the period, as also expected. 4.3.3 Operating margin by service line The operating margin performance by service line was as follows: (in EUR million) 6 months ended 30 June 2006 (*) % margin 6 months ended 30 June 2005 (*) % margin % growth Consulting Systems Integration Managed Operations Corporate Total (*) Before allocation of central structure costs classified under Corporate 22.8 34.7 116.8 (35.6) 138.7 11.0% 3.1% 8.6% -1.3% 5.1% 33.9 65.7 113.6 (30.0) 183.1 14.9% 5.8% 8.3% -1.1% 6.7% 33% -47% +3% +19% -24% The operating margin decrease in Consulting of EUR 11 million is due entirely to the United Kingdom, where the revenue decreased by EUR 25 million (or -25%) in the period. Excluding the United Kingdom, the rest of the Group maintained the same good level of margin rate as last year. Operating efficiency was down due to the United Kingdom, which represents one third of the activity. The utilisation rate was 66% in June (against 68% in December but 65% in March), including 59% in the United Kingdom (66% in December and 56% in March). The expected efficiency decline in the United Kingdom was due to the ramp-down of the large MOD consulting contract, and the timing to re- allocate the dedicated productive staff on new contracts. In Systems Integration, the operating margin decrease of EUR 31 million (or EUR 29 million on a constant scope basis) is also mainly due to the United Kingdom, where the operating margin was both impacted by a revenue decrease of 12% in the period, and by the costs to complete on a few contracts accounted in Q2 2006 for EUR 25 million. Excluding the United Kingdom, the rest of the Group reached a 5.1% margin rate, in line with expectations. The budgeted improvement in productivity was expected to accelerate in H2, thanks to expected additional volume which would compensate the salary increase and the savings sharing with clients (mainly in applications management business), and to the extended action plan to reduce subcontractors. At 82% in June, utilisation rates were slightly better than the high level of December 2005 (81% as in March), and despite only 77% in the United Kingdom in June. The Group maintained a reasonable margin rate of 8.6% in Managed Operations, an increase compared with 8.3% in the first half of 2005. This was primarily due to scale efficiencies in France, the United Kingdom, Germany and Americas. It was also due to the good performance in the Atos Worldline business and the BPO Healthcare and despite new contract wins, initially at lower margin, essentially in the Netherlands. Nevertheless, the Group expects margins in this segment to improve again in the second half, as a result of its industrialisation plan which includes the rationalisation of premises and data centre capacity, global sourcing optimisation through the higher utilisation of near- shore and offshore resources, as well as the ramp-up of productivity management on new contracts. Corporate costs have increased year-on-year to 1.3% of total revenues, but are more in line with the level in H2 2005 of 1.4%. These costs include the Global structures for Consulting and Systems Integration and Managed Operations, which represent around 0.3% of total revenues, the corporate organisation representing 1% of total revenues, in line with the Group’s operating target. Atos Origin Half-Year Report 2006 19/70 4.3.4 Operating margin by geographical area The operating margin performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2006 (*) % margin 6 months ended 30 June 2005 (*) % margin % growth France United Kingdom The Netherlands Germany + Central Europe Rest of EMEA Americas Asia - Pacific Corporate Total (*) Before allocation of central structure costs classified under Corporate 52.7 27.4 53.6 18.5 13.5 5.0 3.7 (35.6) 138.7 6.5% 5.1% 10.3% 6.4% 3.6% 5.1% 5.7% -1.3% 5.1% 56.5 48.8 59.4 15.4 26.8 0.7 5.6 (30.0) 183.1 7.7% 8.3% 11.7% 5.6% 5.7% 0.7% 8.6% -1.1% 6.7% 7% -44% -10% +20% -50% +610% -35% +19% -24% All main Group countries and regions continued to generate a positive operating margin. The United Kingdom and France are not comparable year-on-year due to the change in scope and revenue and profit allocation per country resulting from the new AEMS (Atos Euronext Market Solutions) structure, started in July 2005, with the French margin being slightly deflated and the UK margin slightly inflated. Overall the AEMS operating margin is up. In France, all other activities generated slightly improved operating margins. In the United Kingdom, the operating margin is negatively impacted by EUR 25 million of new estimate of costs to complete on several contracts in systems integration and is positively impacted by the first profit contribution of the AEMS business extension. Excluding these two factors the UK operating margin has slightly increased in the semester due to improvements in productivity, mainly in managed operations. In the Netherlands, the operating margin comparison year on year has been influenced by specific pension costs related to negotiation engaged since two years and finalised last year and in the first semester this year. In 2005, the Netherlands operations benefited from a positive one-off plan amendment negotiation of pension plan, and the year 2006 will be impacted by a negative one-off negative charge linked to increase in the legal retirement age from 62 to 65 years. Excluding this effect, operating profit is stable at a high level. Germany and Central Europe continued to increase their operating margin and margin rate. This new improvement comes from the benefits of the flow of new contracts, the overall reorganization of the region and the building of a scale operation. The decline in the Rest of EMEA, was partly due to the disposal of the Nordic and Middle East operations. In Italy, revenues are growing due to new business but market conditions are tough and profitability is down but still positive, hence the restructuring programme. In Spain, we have been investing in the delocalisation of people to the South and moving towards more fixed price and recurring contracts. All other countries are growing their businesses profitably. After business disposals during the last two years, the operating margin of North and South America for continuing business rose by more than 4 points over the period. In Asia-Pacific, the deterioration of the operating margin was due to the ramp-up of the offshore capacity which is currently under-utilised. Atos Origin Half-Year Report 2006 20/70 5 ACTION PLAN Atos Origin is engaged in some significant transformational projects, which will contribute to sustain the profitability in the future while serving new offerings and benefits to our customers. Except the specific case of a few loss making contracts in United Kingdom and lower ramp up of large new deals in the backlog, the Group is executing its industrial plan both in United Kingdom or at Group level. 5.1 ACTION PLAN IN THE UNITED KINGDOM At the time of the Sema-Atos Origin merger, 2 years ago, the UK operations were structured on an industry sector organization with central sales and delivery responsibility being delegated to the service lines, dominated by Consulting and Systems Integration, compared to a relatively small Managed Operations activity. During the last two years, the UK business has been transformed into four service lines (Consulting, Systems Integration, Managed Services and Medical BPO) while reinforcing a unique ability to aggregate services in a design, build and run proposition. From an organizational point of view, Atos Origin performed in 2005 the following actions were taken: (cid:131) Move from industry line to service line organization with P&L responsibility and part of the sales forces (cid:131) Constitution of specialized business units in each of the service lines such as application management and technical solutions (ERP) or technical consulting in Systems Integration, server or desktop management in MS, to capitalize on knowledge capability and ensure cost optimization (cid:131) Replacement of the first line of operational management In 2006, the reorganization continued with the following actions: (cid:131) Sales reorganization and reinforcement During the last two years, the UK operations have faced a change significant renewal phase of their major long term contracts. This renewal phase is nearing its end, with an excellent success rate, with the notable exception of Metropolitan Police. The last large contract renewals should end by Q4 this year. At the same time, the UK operations are engaged in a number of new deals to diversify the customer base. Some of them are significant in size. In order to adequately balance the Service Line management and the ability to aggregate the design, build and run proposition without loosing commercial opportunities on large contracts, the UK sales force is being reorganized during 2006 as followed : (cid:131) Strategic accounts and complex or large multi-service line deals are managed centrally, in order to pull together all service lines into a single aggregated view for the clients. This has proven very efficient because we have been selected in the public sector as preferred bidder in some key renewals or new contracts and short listed in some new business development in the area of medical BPO business. These opportunities should come to contract by year end but with limited revenue impact for the current fiscal year. (cid:131) Dedicated sales are being pushed down to the service line. This is being done in 2 phases : Phase 1 was done on small accounts, generating some business fertilization in particular in managed services, Phase 2, will be completed by the end of Q3, systematically pushing down all the dedicated solution sales forces from central sales to the service lines, closer to the operations to improve available capacity utilisation. Atos Origin Half-Year Report 2006 21/70 (cid:131) Number of partners in the Consulting division is being increased Due to the large MOD Consulting contract execution, the UK Consulting partners were more focused in 2005 on delivery than selling. The new head of consulting has engaged an action plan to strengthen the commercial capacity of its UK Practice with : An infusion of new partners with client networks and relationships. The plan intends to increase the number of partners by the end of June 2007 with some already starting in Q3 and Q4 this year, Ensuring the current partner and associate partner population addresses the balance of delivery, administration and sales through adjustment of their short term objectives, Leverage best practice sales management processes to improve our lead to conversion ratio and tactical short term utilization targets. The objective is to increase the utilization rate from 59% currently to 65% by the end of June 2007. (cid:131) Rebalance of the commercial efforts in the System Integration division In the past, the UK Systems Integration was engaged in large legacy contracts with embedded application management contracts. As a result of the new organization put in place by business units in 2005, a new commercial strategy has been designed to reduce dependency on large legacy contracts which are big in size and risky in execution particularly in the Public Sector. In terms of business development, several actions have already been engaged : Since Q1 2006 the system integration is focusing on: Application management • ERP (SAP, Oracle) • Technical Consulting Started last year, commercial efforts are being made to strengthen the UK operations positioning in the private sector: the share has already increased from 35% to 38% of the UK Systems Integration revenues in H1 2006. In H2 2006 new end to end solutions across service lines will be launched to match with customer CIO priorities : • Security • Shared services and BPO • Compliance and advance from legacy (cid:131) Some specific marketing actions will be implemented to increase the visibility and the market awareness like: Exploit the Olympics as best case study - - - Improve delivery of the projects Exploit the Olympics as best case study - - - Improve delivery of the projects The UK operations will be affected in 2006 in systems integration by loss making contracts. The situation was limited to a few large government legacy projects. Despite the difficulties, the Group has delivered solutions to its customers and the relationship with its customers remains promising. The rest of the systems integration business is financially sound and generates a gross margin above the average of the service line. The Systems Integration operating model is changing to increase sales by engaging more the operations in business development, and to ensure tighter governance during delivery. Atos Origin Half-Year Report 2006 22/70 Advanced Solutions organized by markets will have the responsibility for growth and delivery on-time and on-budget. They will be the Income Statement owners across the various solutions for their markets, including professional services. UK delivery Centres are being/have been set up to optimize offshore availability and utilisation of core competencies. Global coordination for Systems Integration will continue to provide a supporting role. All these actions, both in terms of organization, commercial focus on large accounts, big bids and new end to end solutions, are planned to allow the United Kingdom to return to revenue growth in 2007 and raise the win rate on the strong pipeline. 5.2 GROUP ACTION PLAN Atos Origin has been engaged over the last year in some significant transformation projects that should provide strong opportunities for the future. (cid:131) Sales and account management The Group has built its organic growth over the last years through large contract signatures like KPN, Euronext, KarstadtQuelle, E plus, Renault. This demonstrates our customer’s recognition of the Atos Origin capability to deliver large contracts and to successfully integrate the employees coming from our customer base. It is essential, for a Group of our size, to continue to win large deals, to widen our large account customer base and to increase our market share of each of these clients IT spending. Atos Origin will therefore continue in 2006 and 2007 to recruit and promote high quality account managers to support this strategy. (cid:131) Portfolio management The global service lines have engaged significant efforts to design, with the regions, the best portfolio for the future. Some significant progress has been made in the last months: Consulting Atos Origin Consulting has 4 strong sets of solutions supported by Centres of Excellence in order to deliver impartial, objective advice, executable recommendations, and proven solutions that can generate outstanding business results in the following key areas: Business and IT strategy, Operational transformation, financial management solutions and people and change management. These offerings are permanently updated with lessons learned from latest assignments, and best practices are being shared across the Group. In Systems Integration there has been: Sector positioning in the telecom, public, manufacturing and heath care sectors, - - Focus on alliances and partnership with the world’s leading technology companies. Recent examples include the Maximize Manufacturing Together (MMT) with HP and SAP and Atos Workplace Solutions with Microsoft & Intel, Increased Sap visibility and the launch of the MMT (SAP manufacturing) initiative, Creation of the Atos Application management and Atos Enterprise application offerings, - Aggressive launch of global sourcing. Atos Origin Half-Year Report 2006 23/70 In Managed Services, the strong investments in industrialisation are allowing us to push new highly efficient offerings: Server consolidation, - Technical Consulting for transformational services, - AWS (Atos Workplace Solution) for automatised Desktop Services, - Comprehensive international homogeneous services based upon global delivery model for Server Supervision Services, Users Helpdesk Services, ERP, Outsourcing Services and Field Services. In Medical BPO in the United Kingdom : Atos Origin opened late 2005 the first walk-in centres, to enter the primary care activity, demonstrating the best mobilisation capability of the industry. The Group is bidding for the Diagnostic Centre outsourcing of the NHS. This capability is being pushed out of the hospitals (secondary care) into the more commoditized primary care world, and Atos Origin is short listed for 3 of the 7 regions (this the NpfIT of diagnostics). The Group is extending its reach in Occupational Health. In Atos Wordline, the acceleration of organic growth results from : Strong positioning into new sectors - Strong offering investment in the payment area with SEPA Compatible Solutions, - Strong internationalisation of the sales process. (cid:131) Industrialisation plan In order to generate further productivity, Atos Origin has initiated in 2006 some fundamental industrialization plans in delivery services and support functions. The related investments are heavy in 2006 and 2007 as total capital expenditure is expected to remain at the high end of the historic range of 3.5 – 4% of revenues. In Systems Integration In order to generate further productivity gains and reduce project slippage, AO has initiated in 2006 a significant industrialisation plan in SI. The quantitative objectives are to gain 2% points in Operating margin on fixed price contracts and Application Management, representing 76% of the SI business, of which half is to come from reduced project slippage and half from productivity improvements. Project control: A strong effort is dedicated into pushing best practice Group wide for efficient project control. Offshore: Systems Integration started (earlier than managed services) to offshore part of delivery. At the end of June 2006, 700 people produce projects offshore for the demand countries and we expect to increase the number of people to 1,000 by year end. The main offshore country is India; Spain and Morocco have started during the year. The Group plan is to double capacity next year. Industrialization platform for application management and development : in order to further increase efficiency in the qualification, testing and performance and acceptance phases of a project, systems integration is running a global project to implement common processes and tooling for these phases which will allow better tracking of KPIs and alert monitoring. This will reduce costs and improve project management execution and risk management. This will translate into more than 5000 SI staff certified CMMI- level 3 and above. Delocalization of competence centres: in some countries the delocalization to lower cost regions of the development resources is being studied so as to reduce the average cost, better manage the attrition rate while at the same time specializing these new regions by competence centres. This will have a further effect of improving the utilization rate and mark-up on projects. Atos Origin Half-Year Report 2006 24/70 In Managed Services Data centre consolidation and upgrade: During 2005 and 2006, following the integration of the KarstadtQuelle and Eplus contracts in Germany, the German data centres have been consolidated from approximately 10 to 3. This consolidation process will continue as and when existing capacities require upgrading or extending. In France and Holland there are two major data centre upgrades. Total data centre investment will be over EUR 20 million per annum spread over the four to five years with more than 60 data centres across the world reduced to 40. European mainframe consolidation: In 2006, the German mainframe consolidation has been implemented on the Essen site. At the same time, a new recovery centre is being built 5 (5 instead of 10) km away from the existing site in order to provide dual data centre capacity for the consolidation, over the next few years, of all the major European mainframe data centres. To optimize costs, the European data centre will provide twin data centres, state of the art IT infrastructure and facilities, hardware including maintenance and monitoring, Software and network management. This will improve productivity, service quality and competitiveness. A first country move will start in December 2006. The project investment in 2006 is estimated at EUR 11.5 million. Further investments will be required progressively as each consolidation occurs. ITIL-based offshore delivery model: the main objective is to move offshore certain defined services using an industrialized and cost effective, single delivery model. At the end of June, we had 200 staff and we should be close to 500 by the end of the year. The number is expected to double again next year. Services eligible for offshore have been defined and priority given to Service Desk management in 2006. Midrange management will be extended next year. Based on a multi- language global delivery approach, the global offshore delivery centres are based not only in India but also in Brazil, Malaysia, Morocco and Poland. This project is currently going live with the recruitment of 6 project managers to lead the implementation of the model in each supplier country. Tooling alignment: the main objective is to converge our country delivery approaches by rationalizing tools and implementing common standards. Benefits will be obtained from achieving economies of scale in basic components of our services, especially from offshore operations. The focus is on reducing from four to one global service management platform progressively harmonising server management and implementing a common network for Voice and services. . The Group is progressing in the migration implementation and the program is nearly complete. It will be further enhanced in the coming years. On site Service strategy: to define the capability per country and design a global/local industrial delivery partnership with providers for those countries or sub services not covered by Atos Origin (such as hardware maintenance). This will allow Atos Origin to design flexible cost on service management while offering at the same time a complete geographical coverage. This project should be ready to go live by end of 2006. Already one global service contract has been negotiated. Selection and negotiation of local or regional partners is due to start in Q4. In the support functions The support functions will also contribute to the enhancement of group productivity. The action plan aims to more efficiently support the operations and to transform the production mode of the functional services. The main projects are the following: In 2007, using the expertise of the Consulting practice, the Global function will launch shared service centres for accounting and HR. In terms of internal IT, all countries will operate with the same financial information system worldwide, including strict key contracts follow-up, pipeline and backlog management and the key CRM functionalities. The functionalities of the existing global HR system will also be significantly extended. Atos Origin Half-Year Report 2006 25/70 In terms of Human resources, the Group is focused on : Developing core competencies for the future either through specific training programs, university for project managers and high potential and leadership development, Reinforcing sales forces and account management with specific mentoring, recruitment of sales talents (such as UK partners) and reviewing sales incentive programs to boost growth. All these actions plans either specifically in United Kingdom or at Group level are fully supported by the management and will allow the Group to generate margin improvement in 2007. They all contribute to the transformation of the Group engaged in 2006 based on very solid fundamentals. 6 HUMAN RESOURCES REVIEW 6.1 CHANGE IN THE GROUP WORKFORCE Total staff employed was globally stable from 47,684 to 47,761 between 1 January 2006 and 30 June 2006. Headcount opening 47,684 Change in scope 436 Hiring (*) 4,617 Leavers (*) 3,731 Restructuring 373 Headcount at closing 47,761 (*) Permanent staff only, excluding temporary staff movements Changes in scope related to business disposals in the period, including the Middle-East operations (386 people) and Nolan Norton consulting business in the Netherlands (50 people). The level of recruitment has been sustained, particularly in the Consulting business (+14% on the opening staff basis), with gross hiring of 4,617 in the period, representing 10% of the workforce, in line with the level that the Group had last year. Leavers comprise voluntary permanent staff leavers, permanent staff who have been dismissed and those who have retired or were deceased. The number of leavers in H1 2006 was 3,731, higher than last year. Staff attrition rose in line with the business growth trend and increased to 11.7%, compared with 10.5% in 2005, which confirms the strength of the European market. A total of 373 employees left the business in H1 2006 under specific and localised re-organisation programmes as part of the business transformation following the merger with Sema Group. Atos Origin Half-Year Report 2006 26/70 6.2 STAFF MOVEMENTS BY SERVICE LINE AND COUNTRY Employees 30 June 2006 31 Dec. 2005 Change Average 1st half 2006 Average 1st half 2005 Change Consulting Systems Integration Managed Operations Corporate Total France United Kingdom The Netherlands Germany + Central Europe Other EMEA Americas Asia-Pacific Corporate Total 2,776 24,218 20,575 192 47,761 14,336 6,385 8,273 3,859 9,377 2,516 2,823 192 47,761 2,734 23,721 21,036 193 47,684 13,886 6,873 8,429 3,749 9,575 2,475 2,504 193 47,684 +2% +2% -2% -1% +0% +3% -7% -2% +3% -2% +2% +13% -1% +0% 2,740 23,988 20,724 190 47,642 14,158 6,689 8,314 3,841 9,286 2,494 2,671 190 47,642 2,613 22,927 21,334 194 47,068 12,812 6,669 8,502 3,615 10,423 2,673 2,180 194 47,068 +5% +5% -3% -2% +1% +11% +0% -2% +6% -11% -7% +23% -2% +1% The underlying stability in staff in the first half of 2006 was lower than the organic revenue increase in the period of 3% and should therefore lead to higher staff productivity for the second half of 2006. The level of subcontractors fell steadily during the first half of the year 2006. The proportion of internal productive staff to total staff represented 93.0% at the end of 2005, and 93.5% at the end of June 2006. As part of the development of the Group’s business model, it is one of the objectives to increase over medium term this ratio to 95% by accelerating the recruitment of offshore and near-shore resources, and continuing to replace onshore subcontractors inherited from large outsourcing deals by available internal inshore and offshore productive staff. The indirect staff ratio (indirect staff as a percentage of full-time equivalent staff, including subcontractors) has been maintained at an efficient level of 11.0% (compared with 11.2% at the end of December 2005). This level compares with 13.4% at the end of 2003 in Atos Origin before the acquisition of Sema Group. In the medium term, the Group wants to improve indirect staff efficiency and roles by developing shared services centres. 6.3 STAFF BY REGION AT 30 JUNE 2006 UK 6,400 Benelux 9,100 France 14,450 Central Europe 3,900 North America 750 Spain 5,550 Italy 2,800 Asia-Pacific 2,850 South America 1,800 Africa & Mediterranean countries 200 Total Employees 47,800 Atos Origin Half-Year Report 2006 27/70 6.4 EMPLOYEE AND MANAGEMENT SHAREHOLDING Up to 2005, Atos Origin had limited employee and management shareholdings, mainly through the stock option programme. Employee stock purchase plans were issued in 1998, 2000 and 2002. At June 2006, the ownership of the Group’s shares by employees relating to ownership plans such as mutual funds and corporate savings plans reached 0.3 millions of shares, or 0.5% of common stock. It is the intention of Management to implement new share owning schemes to increase over time the ownership of Atos Origin shares to 10% of issued share capital, motivating employees and management and aligning their objectives with those of external shareholders. At the Annual General Meeting hold on 23 May 2006, shareholders have approved : (cid:131) An extension of the current employee stock purchase plan allowing for the purchase of shares at a discount of up to 20% . (cid:131) A specific share purchase plan in which senior managers and the Management Board members may purchase shares in their own right and receive free “matching” shares that will vest in two or three years’ time if certain financial performance conditions are met by the Company. In 1998, Atos (pre-Origin) set up an employee stock purchase plan for its workforce in France, based on a corporate savings plan (PEE) managed through a fund invested 90% in Atos stock and frozen for five years. In 2000, the plan was extended to encompass employees of German and Spanish subsidiaries. An extension of this scheme enables Group employees to purchase Atos Origin stock (or shares in a fund invested in Atos Origin stock, in accordance with the relevant local legislation) from time-to-time at a 20% discount in relation to the current market price. 24 countries took part in the first issue of stock under this scheme in 2002. Since 1998, 312,831 new shares have been issued in relation to these plans. In the continuity of the May 2006 shareholders approval the Company intends to launch in the fourth quarter a new leveraged corporate savings plan based on Atos Origin shares issued through a dedicated share capital increase with a 20% discount. It should represents a maximum 2% shares dilution in 2006. The program should be further pursued in the next years with a limited maximum dilution of 1% per year. 6.5 STOCK OPTIONS It is the Group’s policy to grant an annual issue of stock subscription options to senior and middle managers. In accordance with the recommendation of the Remuneration Committee, the annual grant since 2005 corresponds to 1.75% of outstanding shares every year, with no more than 20% of such options being granted to the Management Board. During the first half of 2006, 1,147,990 new stock subscription options were granted (1,75% of the outstanding capital as of 31 December 2005), 494,140 stock subscription options were cancelled and 175,667 were exercised. At 30 June 2006, a total of 6,623,615 stock subscription options had been allotted to employees, representing approximately 9% of current common stock after dilution. Details of the allocations are set out in the investor information section later. Atos Origin Half-Year Report 2006 28/70 7 FINANCIAL REVIEW 7.1 INCOME STATEMENT The Group reported a net income (Group share) of EUR 10 million for the first half of 2006, which represents 0.4% of Group revenues in the period. (in EUR million) Operating margin 6 months ended 30 June 2006 138.7 % margin 5.1% 6 months ended 30 June 2005 183.1 % margin % growth 6.7% 24% Other operating income / expenses Operating income Net financial expense Tax charge Minority interests and associates Net income – Group share Normalised net income Group share (*) (80.2) 58.5 (5.4) (35.0) (7.7) 10.4 86.1 2.2% 0.4% 3.2% 13.1 196.3 (32.2) (39.1) (3.7) 121.3 112.4 7.2% 4.5% 4.1% 70% 91% -23% (*) Defined hereafter 7.1.1 Operating margin Operating margin represents the underlying operational performance of the on-going business and decreased by 24% in the period, as described earlier. 7.1.2 Operating income The main component of other operating income/expenses was an impairment charge of EUR 60 million, fully attributable to Italy. Despite reasonable growth in Italy, profitability was well below the Group average and is deteriorating due to the tough Italian environment. This, combined with higher sector risk premiums and lower sector estimates for perpetual growth since May/June, has led to the need for impairment charge of Italian goodwill. Other components included reorganisation and rationalisation charges of EUR 8 million, stock option expenses of EUR 6 million, EUR 13 million of other infrequent items partly compensated by a net release of provisions of EUR 6 million. As a result, the operating income for H1 2006 reached EUR 59 million, and represents 2.2% of total revenues in H1 2006 compared with 7.2% last year. 7.1.3 Net financial expense Net financial expense amounted to EUR 5 million in H1 2006, compared with EUR 32 million in the previous year, including a net cost of financial debt and non-operational financial costs. The net cost of financial debt was EUR 11 million, based on an average net debt of EUR 339 million during the period. The average cost of borrowing was 5.3% in H1 2006 before interests swaps (6.5% including them). The net cost of financial debt was covered 12 times by operating margin, compared with a requirement for not less than 4 times cover under the terms of the new facility. Non-operational financial costs were EUR 6 million credit mainly relating to exchange rate variation, and income linked to better terms on return on pensions plan assets. 7.1.4 Tax charge The tax charge for H1 2006 was EUR 35 million. The effective tax rate was 31.0% of pre-tax income before goodwill impairment. The charge is composed of EUR 30 million of income tax and EUR 5 million of deferred tax. Atos Origin Half-Year Report 2006 29/70 7.1.5 Minority interests Minority interests included shareholdings held by joint venture partners and other associates of the Group in the operations of Atos Euronext Market Solutions (50%) and Atos Worldline Processing Services in Germany (42%). The increase in H1 2006 is due to the extension of the Euronext contract from July 2005. 7.1.6 Normalised net income The Group share of net income before unusual, abnormal and infrequent items (net of tax) was EUR 86 million, 3.2% of total revenues. (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 Net income Group share 10.4 121.3 Restructuring and rationalisation (7.8) (36.1) Net charge/release of provision (5.6) 13.8 Capital gain (loss) (1.0) (0.9) Other operating income (expenses) basis (14.5) (23.2) Fee charge on syndicated loan (7.4) Sum of unusual items (14.5) (30.6) Sum of unusual items net of tax (10.0) (20.9) Other capital gain (loss) already net of tax 52.7 Impairment losses on long-term assets (60.0) (9.4) Depreciation of non current financial assets (6.6) Stock options (not deductible) (5.7) (6.9) Sum of other unusual items not taxable (65.7) 29.8 Normalised net income Group share 86.1 112.4 7.2 EARNINGS PER SHARE (in EUR million) 6 months ended 30 June 2006 % margin 6 months ended 30 June 2005 % margin % growth Net income – Group share 10.4 0.4% 121.3 4.5% 91% Normalised net income – Group share 86.1 3.2% 112.4 4.1% 23% Weighted average number of shares Diluted weighted average number of shares (*) Basic EPS 67,424,238 68,022,727 0.15 67,051,174 67,647,280 1.81 91% Diluted EPS 0.15 1.79 91% Normalised basic EPS 1.28 1.68 24% Normalised diluted EPS 1.27 1.66 24% (*) With dilution impact only Based on a weighted average of 67,424,238 shares in issue during the first half of 2006, earnings per share (Group share) were EUR 0.15, and on a diluted weighted average basis of 68,022,727 shares in the period, earnings per share (Group share) were EUR 0.15. Based on the normalised net income of EUR 86 million, the earnings per share (Group share) were EUR 1.28. Atos Origin Half-Year Report 2006 30/70 7.3 CASH FLOW AND NET DEBT The Group began the year with an opening net debt of EUR 180 million. The cash flow from operating activities reached EUR 189 million, or 7.0% of total revenues, including EUR 33 million of staff reorganisation and data centre rationalisation expenses, compared with 5.8% in H1 2005. This represents an improvement of +20% despite a lower operating margin than last year. It results from less restructuring expenses, less release for loss-making contracts, and more depreciation of fixed assets. This performance was temporarily impacted by an increase in working capital of around EUR 197 million in the period due to seasonal effects, as last year at the same period. The working capital position should improve sharply in the second half of the year, by the combination of a reduction in working capital as last year in H2 and higher cash flow from operations linked to a higher operating margin in H2. Net debt at the end of June was therefore largely unchanged compared with the end of June 2005, representing a gearing of 16%, and a leverage ratio (net debt / OMDA) of 0.74. (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 Cash from operating activities 188.9 157.2 Income tax paid (9.1) 1.2 Change in working capital (197.2) (105.7) Net cash from operating activities (17.4) 52.7 Capital expenditure (95.5) (81.0) Disposal of intangible and tangible assets 1.2 0.6 Net cash from current operations (111.7) (27.7) Other changes (25.2) 14.9 Net cash before financial investments (136.9) (12.6) Financial investments (15.4) (17.4) Disposal of financial assets 6.9 158.2 Net financial investments (8.5) 140.8 Net cash flow (145.5) 128.1 Opening net debt 180.5 491.6 Closing net debt 325.9 363.5 7.3.1 Change in working capital The negative change in working capital of EUR 197 million in H1 2006 is the result of both the negative seasonality factors, including annual bonus payments, and an increase in DSO ratio from 63 days in H2 2005 to 69 days in H1 2006, but 70 days in H1 2005. 7.3.2 Operating investments Capital expenditure amounted to EUR 95 million in H1 2006, representing 3.5% of Group revenues, which is in line with the medium-term guidance. The off-balance sheet commitments for operating leases on IT equipment have been reduced from EUR 146 million at the end of 2005 to EUR 127 million at the end of June 2006. Atos Origin Half-Year Report 2006 31/70 7.3.3 Other changes Other changes include common stock issues (EUR +7 million), reclassifications linked to derivative instruments and pensions (EUR +18 million), offset by financial interest paid (EUR -16 million), purchases of treasury stock (EUR -13 million) within the framework of the liquidity contract, profit- sharing amounts payable to French employees accounted as debt (EUR -8 million), negative translation differences (EUR -11 million) and dividends paid to minority shareholders of subsidiaries (EUR -2 million). 7.3.4 Net financial investments Net financial investments concern several instalments on past acquisitions (EUR 7 million) and equity investments (EUR 8 million). Disposal of financial assets concerns sales of limited businesses such as Nolan Norton, consulting business in the Netherlands. 7.3.5 Bank covenants The Group is substantially within its borrowing covenants, with a consolidated leverage ratio (net debt divided by OMDA) of 0.74 at the end of June 2006. The consolidated leverage ratio may not be greater than 2.5 times under the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 Covenants 2006 Operating margin 138.7 183.1 Depreciation of fixed assets 87.8 62.3 Operating net charge to provisions for current assets (0.5) (3.2) Operating net charge of provisions (6.9) (31.9) Net charge of provisions for pensions 2.6 6.4 OMDA 221.7 216.7 Closing net debt 325.9 363.5 Leverage ratio (Net debt divided by OMDA) 0.74 0.84 < 2.5 The consolidated Interest cover ratio (operating margin divided by the net cost of financial debt) was 12 times in H1 2006. It may not be less than 4 times throughout the term of the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 Covenants 2006 Operating margin Net cost of financial debt 138.7 (11.1) 183.1 (15.6) Coverage of Net cost of financial debt by Operating margin 12.5 11.7 > 4.0 Atos Origin Half-Year Report 2006 32/70 8 HALF-YEAR FINANCIAL REPORT 8.1 Statutory auditors’ report on the half-year condensed consolidated financial statements for the period ended 30 June 2006 8.2 8.2.1 Consolidated income statement Half-year condensed consolidated financial statements 8.2.2 Consolidated balance sheet 8.2.3 Consolidated cash flow statement 8.2.4 Consolidated statement of changes in shareholders’ equity 8.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2006 (cid:131) General information (cid:131) Basis of preparation and significant accounting policies (cid:131) Financial risk management (cid:131) Notes to the half-year condensed consolidated financial statements Atos Origin Half-Year Report 2006 33/70 8.1 STATUTORY AUDITORS’ REPORT ON HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2006 To be issued upon finalization of the French half-year report. 8.2 HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8.2.1 Consolidated income statement (in EUR million) Notes 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Revenue 2,695.8 2,725.4 5,458.9 Personnel expenses Note 3 (1,510.4) (1,467.4) (2,886.8) Operating expenses Note 4 (1,046.7) (1,074.9) (2,159.1) Operating margin 138.7 183.1 413.0 % of revenue 5.1% 6.7% 7.6% Other operating income and expenses Note 5 (80.2) 13.1 (25.2) Operating income 58.5 196.3 387.8 % of revenue 2.2% 7.2% 7.1% Net cost of financial debt (11.1) (15.6) (24.7) Other financial income and expenses 5.7 (16.6) (9.4) Net financial income Note 6 (5.4) (32.2) (34.1) Tax charge Note 7 (35.0) (39.1) (108.1) Share of net income from associates (0.1) 0.2 0.3 Net income 18.0 125.2 245.9 Of which: Group share 10.4 121.3 235.4 Minority interests Note 8 7.6 3.9 10.5 (in EUR and number of shares) Net income (Group share) per share Note 9 Weighted average number of shares 67,424,238 67,051,174 67,169,757 Basic earnings per share 0.15 1.81 3.50 Diluted weighted average number of shares 68,022,727 67,647,280 67,636,614 Diluted earnings per share 0.15 1.79 3.48 Atos Origin Half-Year Report 2006 34/70 8.2.2 Consolidated balance sheet (in EUR million) ASSETS Goodwill Intangible assets Tangible assets Non-current financial assets Deferred tax assets Total non-current assets Trade accounts and notes receivable Current taxes Other current assets Current financial instruments Cash and cash equivalents Total current assets Assets held for sale and discontinued operations TOTAL ASSETS (in EUR million) LIABILITIES AND SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Consolidated reserves Translation adjustments Net income for the period Shareholders’ equity – Group share Minority interests Total shareholders’ equity Provisions for pensions and similar benefits Non-current provisions Borrowings Deferred tax liabilities Non-current financial instruments Other non-current liabilities Total non-current liabilities Trade accounts and notes payable Current taxes Current provisions Current financial instruments Current portion of borrowings Other current liabilities Total current liabilities Liabilities held for sale and discontinued operations TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Atos Origin Half-Year Report 2006 Notes Note 10 Note 11 Note 16 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 14 Note 16 Note 15 Note 18 30 June 2006 2,092.6 79.0 332.7 67.1 261.8 2,833.2 1,557.6 55.4 271.9 1.1 270.9 2,156.9 4,990.1 30 June 2006 67.6 1,259.0 520.3 8.5 10.4 1,865.8 158.1 2,023.9 490.9 131.7 408.3 22.1 3.1 0.6 1,056.7 595.2 103.1 86.6 2.3 188.5 933.8 1,909.5 4,990.1 31 December 2005 2,172.4 74.9 323.5 33.9 265.6 2,870.3 1,563.0 52.4 237.6 0.9 533.5 2,387.4 36.2 5,293.9 31 December 2005 67.4 1,252.8 289.5 28.3 235.4 1,873.4 153.2 2,026.5 477.8 147.5 506.2 20.6 6.4 3.6 1,162.1 587.2 79.3 104.9 6.2 201.4 1,110.9 2,089.9 15.4 5,293.9 35/70 8.2.3 Consolidated cash flow statement (in EUR million) Notes (*) 6 months ended 30 June 2006 6 months ended 30 June 2005 Net income Group share 10.4 121.3 Depreciation of fixed assets 87.8 62.3 Net charge to operating provisions (4.8) (28.7) Net charge to financial provisions (6.8) 6.7 Net charge to other operating provisions 44.3 (27.7) (Gains) / losses on disposals of fixed assets 0.9 (59.6) Unrealized gains and losses on changes in fair value 9.4 Net charge for stock options and similar options 5.7 6.9 Minority interests and associates 7.7 3.7 Financial instruments (4.7) 6.3 Financial interests 13.5 17.6 Tax charge (including deferred tax) Cash from operating activities before change in working capital requirement, financial interests and taxes Taxes paid a b 35.0 188.9 (9.1) 39.1 157.2 1.2 Change in working capital requirement c (197.2) (105.7) Net cash from / (used in) operating activities (17.4) 52.7 Purchase of tangible and intangible assets d (95.5) (81.0) Proceeds from disposals of tangible and intangible assets e 1.2 0.6 Net operating Investment (94.3) (80.4) Amounts paid for acquisitions and long-term investments Cash and cash equivalents of companies purchased during the period Proceeds from disposals of financial investments f g h (15.4) 6.9 (22.4) 6.5 21.6 Cash and cash equivalents of companies sold during the period i (26.7) Net long-term investments (8.5) (21.0) Net cash from / (used in) investing activities (102.8) (101.4) Common stock issues j Common stock issues on the exercise of stock options k 6.5 9.4 Purchase and sale of treasury stock l (12.6) Dividends paid to minority shareholders of subsidiaries m (2.0) (1.4) New borrowings n 251.1 791.9 Repayment of long and medium-term borrowings o (363.0) (940.8) Net interest paid (including finance lease) p (12.0) (22.3) Net cash from / (used in) financing activities (131.9) (163.2) Increase / (decrease) in cash and cash equivalents q (252.1) (211.9) Opening cash and cash equivalents 533.5 465.5 Increase / (decrease) in cash and cash equivalents Impact of exchange rate fluctuations on cash and cash equivalents Closing cash and cash equivalents q (252.1) (10.5) 270.9 (211.9) 27.7 281.3 (*) For reconciliation to the change in net debt over the period and the cash flow by activity over the period presented in the notes. Atos Origin Half-Year Report 2006 12 months ended 31 December 2005 235.4 153.0 (67.0) 3.0 (39.6) (40.2) 13.9 10.2 11.8 28.3 108.1 416.9 (29.2) 27.4 415.2 (173.5) 11.0 (162.5) (38.2) 8.6 188.1 (30.6) 127.9 (34.6) 13.2 (5.0) 665.6 (979.6) (32.3) (338.0) 42.5 465.5 42.5 25.6 533.5 36/70 8.2.4 Consolidated statement of changes in shareholders’ equity (in EUR million) Number of shares at period-end (thousands) Common Stock Additional paid-in capital Consolidated reserves Translation adjustments Items recognized directly in equity Net income Group share Equity – Group share Minority interests At 31/1204 66,938 66.9 1,240.1 168.6 (2.8) 113.3 1,586.0 49.3 Common stock issued * Translation adjustments * Appropriation of prior period net income * Stock options * First time adoption of IAS 32/39 * Changes in fair value of financial instruments * Net income for the period * Other 301 0.3 9.1 113.3 6.9 2.8 50.1 (0.3) (12.5) (2.6) (113.3) 121.3 9.4 50.1 6.9 (9.7) (2.8) 121.3 (0.3) (1.2) 3.9 (0.3) 0.1 (0.1) (1.0) At 30/06/05 67,239 67.2 1,249.3 291.3 47.1 (15.1) 121.3 1,761.1 50.7 Common stock issued * Translation adjustments * Stock options * First time adoption of IAS 32/39 * Changes in fair value of financial instruments * Net income for the period * Other At 31/12/05 124 0.1 3.6 7.0 (4.4) (0.4) (18.2) (0.6) (0.1) 4.4 6.9 114.1 3.7 (18.2) 7.0 (0.1) 6.3 114.1 (0.5) 0.9 1.2 6.6 93.8 67,363 67.4 1,252.8 293.5 28.3 (3.8) 235.4 1,873.4 153.2 Common stock issued for cash * Translation adjustments * Appropriation of prior period net income * Stock options * Changes in treasury stock (1) * Changes in fair value of financial instruments * Net income for the period * Other At 30/06/06 176 0.2 6.2 235.4 5.7 (0.2) (19.8) (12.6) 2.5 (235.4) 10.4 6.4 (19.8) 0.0 5.7 (12.6) 2.5 10.4 (0.2) (0.7) 7.6 (2.0) 67,539 67.6 1,259.0 534.4 8.5 (13.9) 10.4 1,865.8 158.1 (1) Changes in treasury stock recorded as a deduction from shareholders’ equity are linked to the liquidity contract signed in February 2006 with Rothschild & Cie Banque. This contract is concluded for one year and is renewable by tacit agreement. Such agreement is compliant with the Code of Practice of the Association Française des Entreprises d'Investissement. At the end of June 2006, Atos Origin held 211 500 shares in relation to this contract for a net value of EUR 12.6 million. Atos Origin Half-Year Report 2006 TOTAL 1,635.3 9.4 49.8 6.9 (10.9) (2.8) 125.2 (1.1) 1,811.9 3.7 (17.3) 7.0 1.1 6.3 120.7 93.3 2,026.5 6.4 (20.5) 0.0 5.7 (12.6) 2.5 18.0 (2.2) 2,023.9 37/70 8.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2006 8.2.5.1 General information The half-year condensed consolidated financial statements of the Company for the six months ended 30 June 2006 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities. These interim condensed consolidated financial statements were presented by the Management Board to the Supervisory Board on 5 September 2006. 8.2.5.2 Basis of preparation and significant accounting policies Basis of preparation The interim condensed consolidated financial statements for the six months ended 30 June 2006 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financials statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2005. The Company follows positions issued by Syntec Informatique, representing major IT groups, for application of the existing International Financial Reporting Standards to specificities of the IT industry. Changes in accounting policies The accounting policies applied by the Group in the interim condensed consolidated financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2005, except for the adoption of the following changes in accounting policies and interpretations, mandatory for annual periods beginning on or after 1 January 2006: (cid:131) IFRIC 4, Determining whether an Arrangement contains a Lease, which requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. An assessment is made whether: (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the arrangement conveys a right to use the asset. Adoption of this interpretation has no material effect on the 2005 opening equity or on the June and December 2005 and June 2006 Group financial statements. (cid:131) IAS 19 (Amendment), Employee Benefits. This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. As the Group does not intend to change the accounting policy adopted for recognition of actuarial gains and losses, adoption of this amendment will only impact the format and extent of disclosures presented in the accounts. (cid:131) Other amendments (IAS 21 and IAS 39) are correctly applied in the Group and are not affecting significantly the Group results of operations or financial position. Accounting estimates and judgments The preparation of interim financial statements in accordance with IAS 34 requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses in the financial statements and disclosures of contingent assets and liabilities as of that date. Atos Origin Half-Year Report 2006 38/70 The estimates and assumptions that may result in a significant adjustment to the carrying amounts of assets and liabilities within the next annual financial statements are essentially related to: Impairment tests The Group tests at least annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated below. The recoverable amounts of cash generating units are determined based on value-in-use calculations. Revenue recognition and associated costs on long-term contracts Revenue recognition and associated costs, including forecast losses on completion are measured according to policy stated below. Total projected contract costs are based on various operational assumptions such as forecast volume or variance in the delivery costs and have a direct influence on the level of revenue and eventual forecast losses on completion that are recognised. Consolidation methods Subsidiaries Subsidiaries are entities controlled by the Group. Control is defined by the ability to govern the financial and operating policies generally, but not systematically, combined with a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible, the power to appoint the majority of the members of the governing bodies and the existence of veto rights are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate method. Operating and shareholders’ agreements are considered when assessing the joint control. Associates Associates are entities over which the Group has significant influence but not control or joint control, generally, but not systematically, accompanying a shareholding of between 20 and 50% of the voting rights. Investments in associates are accounted for by the equity method. Segment reporting The Group’s operational organisation is based on regions composed of geographical areas. The primary reporting segment corresponds to these geographical areas and the secondary reporting segment to the service lines. Presentation rules Current and non-current assets and liabilities Assets and liabilities classified as current are expected to be realised, used or settled during the normal cycle of operations, which can extend beyond 12 months following the period-end. All other assets and liabilities are classified as non-current. Current assets and liabilities, excluding the current portion of borrowings, financial receivables and provisions represent the Group’s working capital requirement. Assets and liabilities held for sale or discontinued operations Assets and liabilities held for sale or discontinued operations are presented on a separate line in the balance sheet. They are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and liabilities are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. Atos Origin Half-Year Report 2006 39/70 This condition is regarded as met only when the sale is highly probable and the assets and liabilities are available for immediate sale in their present condition. Should these assets and liabilities represent either a complete business line or a geographical segment, the profit or loss from these activities will be presented on a separate line of the income statement. Translation of financial statements denominated in foreign currencies The balance sheets of companies based outside the euro zone are translated at closing exchange rates. Income statement items are translated based on average exchange rate for the period. Balance sheet and income statement translation adjustments arising from a change in exchange rates are recognised as a separate component of equity under “Translation adjustments”. The Group does not consolidate any entity operating in a hyperinflationary economy. Translation of transactions denominated in foreign currencies Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement under the heading “Other financial income and expenses”, except where hedging accounting is applied as explained in the paragraph “Financial assets – Derivative financial instruments”. Business combination and goodwill A business combination may involve the purchase of another entity, the purchase of all the net assets of another entity or the purchase of some of the net assets of another entity that together form one or more businesses. Major services contracts involving staff and asset transfers that enable the Group to develop or improve significantly its competitive position within a business or a geographical sector are considered for business combination accounting. Goodwill represents the excess of the cost of a business combination, including transaction expenses, over the Group’s interest in the fair value of assets, liabilities and contingent liabilities acquired at the acquisition date. Goodwill is not amortised and is subject to an annual impairment test and in case of a trigger event to half-year impairment test. Goodwill is allocated to Cash Generating Units (CGU) for the purpose of impairment testing. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. CGUs correspond to geographical areas where the Group has operations. The recoverable value of a CGU is based on the higher of its fair value less costs to sell and its value in use determined using the discounted cash-flows method. When this value is less than its carrying amount, an impairment loss is recognised in the operating income. The impairment loss is first recorded as an adjustment of the carrying amount of the goodwill allocated to the CGU and the remainder of the loss, if any, is allocated to the other assets of the unit. Intangible assets Intangible assets consist primarily of software and user rights acquired by the Group as well as internally developed software costs, provided that the following conditions are satisfied: (cid:131) (cid:131) (cid:131) (cid:131) the costs can be attributed to the identified software and measured reliably, the technical feasibility of the software has been demonstrated, the Group has the intention and the capability to complete the software development and to use or sell it, and it is probable that future economic benefits will flow to the Group. Atos Origin Half-Year Report 2006 40/70 Software is amortised on a straight-line basis over its expected useful life, generally not exceeding five years, and related depreciation is recorded in operating expenses. In the case of Business Process Outsourcing (BPO) activities, the costs of adapting software previously developed by the Group for the specific requirements of a client are capitalised in intangible assets and amortised in operating expenses over the term of the contract. Tangible assets Tangible assets are recorded at acquisition cost, excluding any interest expenses. They are depreciated on a straight-line or reducing-balance basis over the following expected useful lives: (cid:131) Buildings (cid:131) Fixtures and fittings (cid:131) Computer hardware (cid:131) Vehicles (cid:131) Office furniture and equipment 20 years 5 to 10 years 3 to 5 years 4 years 5 to 10 years Leases Asset leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Assets acquired under finance lease are depreciated over the shorter of the assets’ useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Impairment of assets other than goodwill Assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Financial assets Financial assets are accounted for at trade date. Investments in non-consolidated companies The Group holds shares in companies without exercising significant influence or control. Investments in non-consolidated companies are treated as assets available for sale and recognised at their fair value. For listed shares, fair value corresponds to the share price at closing date. In the absence of an active market for the shares, the investments in non-consolidated companies are carried at historical cost. An impairment cost is recognised when there is objective evidence of a permanent impairment in value. The most common financial criteria used to determine fair value are equity and earnings outlooks. Gains and losses arising from variation in the fair value of available for sale assets are recognised as “items recognised directly in equity”. If there is evidence that an asset is permanently impaired, the cumulative loss is written off in the income statement under “Other financial income and expense”. Loans, trade accounts and notes receivable Loans are part of non-current financial assets. Loans, trade accounts and notes receivable are recorded initially at their fair value and subsequently at their amortised value. The nominal value represents usually the initial fair value for trade accounts and notes receivable. In case of deferred payment over one year, where the effect is significant on fair value, trade accounts and notes receivables are discounted. Where appropriate, a provision is raised on an individual basis to take likely recovery problems into account. Atos Origin Half-Year Report 2006 41/70 Effective from 1 January 2006, certain service arrangements might qualify for treatment as lease contracts if they convey a right to use an asset in return for payments included in the overall contract remuneration. If service arrangements contain a lease, the Group is considered to be the lessor regarding its customers. Where the lease transfers the risks and rewards of ownership of the asset to its customers, the Group recognises assets held under finance lease and presents them as “Trade accounts and notes receivable” for the part that will be settled within 12 months, and “Non-current financial assets” for the part beyond 12 months. Assets securitisation Assets securitisation programmes, in which the Group retains substantially all the risks and rewards of ownership of the transferred assets, do not qualify for de-recognition. A financial liability for the consideration received is recognised. The transferred assets and the financial liability are valued at their amortised costs. Derivative financial instruments Derivative instruments are recognised as financial assets or liabilities at their fair value. Any change in the fair value of these derivatives is recorded in the income statement as a financial income or expense, except when they are eligible for hedge accounting, whereupon: (cid:131) for fair value hedging of existing assets or liabilities, the hedged portion of an instrument is measured on the balance sheet at its fair value. Any change in fair value is recorded as a corresponding entry in the income statement, where it is offset simultaneously against changes in the fair value of hedging instruments. (cid:131) for cash flow hedging, the effective portion of the change in fair value of the hedging instrument is directly offset in shareholders’ equity as “items recognised directly in the equity”. The change in value of the ineffective portion is recognised in “Other financial income and expenses”. The amounts recorded in net equity are transferred to the income statement simultaneously to the recognition of the hedged items. Cash and cash equivalents Cash and cash equivalents include cash at bank, and money market securities that are convertible into cash at very short notice and are not exposed to any significant risk of impairment. Money market securities are recognised at their fair value. Changes in fair value are recorded in the income statement under “Other financial income and expenses”. Treasury stock Atos Origin shares held by the parent company are recorded at their acquired cost as a deduction from consolidated shareholders’ equity. In the event of a disposal, the gain or loss and the related tax impacts are recorded as a change in consolidated shareholders’ equity. Pensions and similar benefits Employee benefits are granted by the Group through defined contribution and defined benefit plans. Defined contribution costs are recognised in the income statement based on contributions paid or due in respect of the accounting period when the related services have been accomplished by beneficiaries. The valuation of Group commitments in respect of defined benefit plans is based on a single actuarial method known as the “projected unit credit method”. This method relies in particular on projections of future benefits to be paid to Group employees, by anticipating the effects of future salary increases. Its implementation further includes the formulation of specific assumptions, detailed in note 13, which are periodically updated, in close liaison with external actuaries used by the Group. Plan assets usually held in separate legal entities are measured at their fair value, determined at closing. Atos Origin Half-Year Report 2006 42/70 From one accounting period to the other, any difference between the projected and actual amounts of commitments in respect of pension plans and their related assets is cumulated at each benefit plan’s level to form actuarial differences. These actuarial differences may result either from changes in actuarial assumptions used, or from experience adjustments generated by actual developments differing, in the accounting period, from assumptions determined at the end of the previous accounting period. Group final option in terms of recognition method for actuarial differences has not been elected yet, since a new option has been introduced under IAS 19 to recognise these actuarial differences through equity. By application of the “corridor” method, the Group therefore continues to recognise in its profit and loss account only the portion of cumulated actuarial differences which is above a normative fluctuation margin of 10% of the greater, at closing, of plan commitments and their related assets. This portion is amortised over the remaining active life of the beneficiaries of each particular benefit plan. The measurement of pension commitments is highly sensitive to the evolution of long term interest rates on which the discount rate to be used has to be based. To better reflect this significant market evolution, the Group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans when significant rates evolution occur. Interest costs on obligations, net of expected returns on plans assets are recognised in other financial income. Provisions Provisions are recognised when the Group has a present legal, regulatory, contractual or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably quantified. Provisions are discounted when the time value effect is material. The provision revaluation at each accounting period results in a provision increase recognised in financial expenses. Borrowings Borrowings are recognised initially at fair value, net of debt issuance costs. Borrowings are subsequently stated at amortised costs. The calculation of the effective interest rate takes into account interest payments and the amortisation of the debt issuance costs. Debt issuance costs are amortised in financial expenses over the life of the loan. The residual value of issuance costs for loans repaid in advance is expensed in the year of repayment. Bank overdrafts are recorded in the current portion of borrowings. The Group does not capitalise borrowing costs as part of the costs of acquired assets. Minority interest purchase commitments Firm or conditional commitments under certain conditions to purchase minority interests are similar to a purchase of shares and are recorded in borrowings with an offsetting reduction of minority interests. When the cost of the purchase exceeds the amount of minority interests, the Group had chosen to recognise the balance as goodwill. Any further change in the fair value of the minority purchase commitment will also be recorded in goodwill. Revenue Recognition The Group provides information technology (IT) and business process outsourcing (BPO) services. Depending on the structure of the contract, revenue is recognised accordingly to the following principles : Revenue based on variable IT work units is recognised as the services are rendered. Atos Origin Half-Year Report 2006 43/70 Revenue from fixed price contracts such as Consulting and Systems Integration contracts, is recognised using the percentage-of-completion (POC) method. Under the POC method, revenue is recognised based on the costs incurred to date as a percentage of the total estimated costs to fulfil the contract. Revenue relating to these contracts is recorded in the Consolidated Balance Sheet under “Trade accounts and notes receivable” for services rendered in excess of billing, while billing exceeding services rendered is recorded as deferred income under “Other current liabilities”. Annual contractual revenue for long-term fixed price Managed Operations services is generally structured in a manner to reflect the cost completion over the contract term and is recognised based on this structure throughout the contract term. If circumstances arise, that change the original estimates of revenues, costs, or extent of progress toward completion, then revisions to the estimates are made. The company performs ongoing profitability analyses of its services contracts in order to determine whether the latest estimates of revenue, costs, profits, require updating. If, at any time, these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately through a provision for estimated losses on completion. Revenue is reported net of supplier costs when the Group is acting as an agent between the client and the supplier. Factors generally considered to determine whether the Group is a principal or an agent, are most notably whether it is the primary obligor to the client, it assumes credit and delivery risks, or it adds meaningful value to the supplier’s product or service. The Group enters into multiple-element arrangements, which may include combinations of different services. Revenue is recognized for the separate elements when they have been subject to separate negotiation, the contractor and customer have been able to accept or reject that part of the contract relating to each component, and, each component’s costs and revenues can be identified. A group of contracts is combined and treated as a single contract when that group of contracts is negotiated as a single package and the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin, and the contracts are performed concurrently or in a continuous sequence. Upfront payments to clients incurred at contract inception are recorded in “Other current assets” and spread on a straight-line basis as a reduction of revenue over the term of the contract. Transition costs Costs related to delivering Managed Operations services are generally expensed as incurred. However, certain transition costs incurred in the initial phases of outsourcing contracts can be deferred and expensed over the contract term, provided that they will be recovered. Capitalised transition costs are classified in “Trade accounts and notes receivable” of the Consolidated Balance Sheet and amortisation expense is recorded in operating expenses in the Consolidated Income Statements. In case the contract turns to be loss-making, capitalised transition costs are impaired for the related forecasted loss, before recognising an additional provision for estimated losses on completion when necessary. Other operating income and expenses “Other operating income and expenses” covers income or expense items that are unusual, abnormal or infrequent. They are presented below the operating margin in line with the CNC recommendation of 27 October 2004. Classification of restructuring costs in the income statement depends on the nature of the restructuring: (cid:131) Restructurings directly in relation with operations are classified within Operating Margin, (cid:131) Restructurings related to business combinations or qualified as large and unusual are classified in Operating Income. Atos Origin Half-Year Report 2006 44/70 When accounting for business combinations, the Group may record provisions for risks, litigation, etc. in the opening balance sheet for a period of 12 months beyond the business combination date. After the 12-month period, any unused provision arising from changes in circumstances are recorded through the Income Statement under “Other operating income and expenses”. “Other operating income and expenses” also include the annual charge for stock options, restructuring costs as defined above, major litigation, capital gains and losses on the disposal of tangible and intangible assets, and impairment losses on assets other than financial assets. Share-based payments Stocks options are granted to management and certain employees at regular intervals. These equity- settled share-based payments are measured at fair-value at the grant date using the binomial option- pricing model. Changes in the fair value of options after the grant date have no impact on the initial valuation. The fair value of share options is recognised in “Other operating income and expenses” on a straight-line basis over the period during which those rights vest, using the straight-line method, with the offsetting credit recognised directly in equity. In some tax jurisdictions, Group’s entities receive a tax deduction when stock options are exercised, based on the Group share price at the date of exercise. In those instances, a deferred tax asset is recorded for the difference between the tax base of the employee services received to date (being the future tax deduction allowed by local tax authorities) and the current carrying amount of this deduction, being nil by definition. Deferred tax assets are estimated based on the Group’s share price at each closing date, and are recorded in income tax provided that the amount of tax deduction does not exceed the amount of the related cumulative stock option expenses to date. The excess, if any, is recorded directly in the equity. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. Deferred tax is calculated wherever temporary differences occur between the tax base and the consolidated base of assets and liabilities, using the liability method. Deferred tax is valued using the enacted tax rate at the closing date that will be in force when the temporary differences reverse. Deferred tax assets and liabilities are netted off at the taxable entity level, when there is a legal right to offset. Deferred tax assets corresponding to temporary differences and tax losses carried forward are recognised when they are considered to be recoverable during their validity period, based on historical and forecast information. Deferred tax liabilities for taxable temporary differences relating to goodwill are recognised, to the extent they do not arise from the initial recognition of goodwill. Earnings per share Basic earnings per share is calculated by dividing the net income (Group share) by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income (Group share), adjusted for the financial cost (net of tax) of dilutive debt instruments, by the weighted average number of ordinary shares outstanding during the period, plus the average number of shares which, according to the share buyback method, would have been outstanding had all the issued dilutive instruments been converted (stock options and convertible debt). Atos Origin Half-Year Report 2006 45/70 The dilutive impact of each convertible instrument is determined in order to maximise the dilution of basic earnings per share. The dilutive impact of stock options is assessed based on the average price of Atos Origin shares over the period. 8.2.5.3 Financial risk management The Group’s activities expose it to a variety of financial risks including liquidity risk, cash flow interest rate risk, credit risk and currency risk. Financial risk management is carried out by the Global Treasury Department and involves minimising potential adverse effects on the Group’s financial performance. Liquidity risk Liquidity risk management involves maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities. Credit facilities are subject to financial covenants that are carefully followed by the Global Treasury Department. Cash flow interest rate risk Cash flow interest rate risk arises mainly from borrowings. The management of exposure to interest rate risk encompasses two types: (cid:131) A price risk on fixed-rate financial assets and liabilities. For example, by contracting a fixed-rate liability, the Group is exposed to potential opportunity losses should interest rates fall. A change in interest rates would impact the market value of fixed-rate financial assets and liabilities. However, this loss of opportunity would not impact financial income and expenses as reported in the Consolidated Income Statement and, as such, future net income of the Company up to maturity of these assets and liabilities. (cid:131) A cash-flow risk on floating-rate financial assets and liabilities should interest rates increase. The main objective of managing overall interest rate on the Group’s debt is to minimise the cost of debt and to protect the Group against fluctuation in interest rates by swapping to fixed rate a portion of the floating-rate financial debt. Authorised derivative instruments used to hedge the debt are swap contracts entered with leading financial institutions. Credit risk The Group has no significant concentrations of credit risk. The client selection process and related credit risk analysis is fully integrated within the global risk assessment project conducted throughout the life cycle of a project. Derivative counterparties and cash transactions are limited to high-credit quality financial institutions. Currency risk The Group’s financial performance is not materially influenced by fluctuations in exchange rate since a significant portion of the business takes place within the euro zone and costs and revenues are generally denominated in the same currency. The main residual exposures are primarily in UK pounds and US dollars. The Group has established a policy for managing foreign exchange positions resulting from commercial and financial transactions denominated in currencies different from the local currency of the relevant entity. According to this policy, any material exposure must be hedged as soon as it occurs. In order to hedge its foreign exchange rate exposure, the Group uses a variety of financial instruments, mainly forward contracts and foreign currency swaps. Price risk The Group has no material exposure to the price of equity securities, nor is it exposed to commodity price risks. Atos Origin Half-Year Report 2006 46/70 8.2.5.4 Notes to the half-year condensed consolidated financial statements Note 1 Change of scope of consolidation During the first semester of 2006, there has been no new business combination. Two disposals have been recorded : (cid:131) Beginning of 2006, the Group sold its activities located in the Middle-East area. These were mainly Systems Integration activities. (cid:131) In February 2006 , the Group sold Nolan, Norton & Co., a specific consulting business in the Netherlands, to its Management. The effects of the disposals are the following : (in EUR million) Disposals Reversal of net goodwill 1.9 Selling price 26.2 Profit on disposal 3.2 Cash and cash equivalent disposed _ To be received in followings years 22.9 Cash-in linked to the disposals of the year 3.3 Note 2 Segment information Primary reporting format – geographical segments The Group is organised on a worldwide basis into seven geographical segments. Geographical segments are made of the following countries: Geographic segments Countries (cid:131) France (cid:131) The Netherlands (cid:131) United Kingdom (cid:131) Germany and Central Europe (cid:131) Other European countries, Middle-East and Africa (cid:131) Americas (cid:131) Asia-Pacific France The Netherlands United Kingdom Germany, Switzerland, Poland, Austria Belgium, Luxembourg, Sweden, Norway, Italy, Spain, Portugal, Andorra, Greece, Turkey, Saudi Arabia, Dubai, Bahrain, Morocco, South Africa United States of America, Mexico, Argentina, Brazil, Chile, Peru, Colombia, Venezuela China, Taiwan, Japan, Malaysia, Singapore, Thailand, Indonesia, India Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Atos Origin Half-Year Report 2006 47/70 The geographical primary segment information for the period ended 30 June 2006 is as follows: (in EUR million) France United Kingdom The Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 809.1 541.4 518.6 289.2 374.6 98.3 64.7 % 30.0% 20.1% 19.2% 10.7% 13.9% 3.6% 2.4% Inter-segment revenue 23.2 57.8 14.7 7.8 19.6 5.7 15.2 14.9 Total revenue 832.3 599.2 533.3 296.9 394.2 103.9 79.9 14.9 Operating margin Operating margin before allocation of corporate costs % 52.7 6.5% 27.4 5.1% 53.6 10.3% 18.5 13.4 6.4% 3.6% 5.0 5.1% 3.7 5.7% (35.6) Allocation of corporate costs (8.6) (6.5) (6.7) (3.3) (6.5) (1.4) 4.7 28.2 % Operating margin after allocation of corporate costs % 1.1% 44.1 5.4% 1.2% 20.9 3.9% 1.3% 46.9 9.0% 1.2% -1.7% 15.2 6.9 5.2% 1.9% 1.4% 7.3% 3.6 8.4 3.7% 12.9% (7.3) Operating income Operating Income before allocation of corporate costs % 42.0 5.2% 30.1 5.6% 54.9 10.6% 18.2 (52.0)* 6.3% -13.9% 5.5 5.6% 3.7 5.7% (43.8) Profit before tax Income tax expense Net income (*) Including EUR 60 million impairment charge as detailed in note 10-Goodwill The geographical primary segment information for the period ended 30 June 2005 was as follows: (in EUR million) France United Kingdom The Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 730.8 587.7 508.0 273.3 467.3 92.7 65.3 0.4 % 26.8% 21.6% 18.6% 10.0% 17.1% 3.4% 2.4% Inter-segment revenue 26.1 22.4 18.3 8.1 20.6 5.9 11.3 18.7 Total revenue 756.9 610.1 526.3 281.3 487.9 98.5 76.6 19.2 Operating margin Operating margin before allocation of corporate costs % 56.5 7.7% 48.8 8.3% 59.4 11.7% 15.4 5.6% 26.8 5.7% 0.7 0.7% 5.6 8.6% (30.0) 1.1% Allocation of corporate costs (7.7) (6.9) (6.3) (3.1) (6.9) (1.2) 1.5 30.6 % Operating margin after allocation of corporate costs % 1.1% 48.8 6.7% 1.2% 41.9 7.1% 1.2% 53.1 10.5% 1.1% -1.5% 12.3 19.9 4.5% 4.3% 1.2% 2.3% (0.5) 7.1 0.5% 10.9% 0.5 Operating income Operating Income before allocation of corporate costs % 52.2 7.1% 47.6 8.1% 33.5 6.6% 16.8 6.1% 12.7 2.7% (0.3) 6.5 0.3% 10.0% 27.1 1.0% Profit before tax Income tax expense Net income Atos Origin Half-Year Report 2006 Eliminations Total Group 2,695.8 100.0% (158.9) (158.9) 2,695.8 138.7 5.1% 138.7 5.1% 58.5 2.2% 53.0 (35.0) 18.0 Eliminations Total Group 2,725.4 100.0% (131.4) (131.4) 2,725.4 183.1 6.7% 183.1 6.7% 196.3 7.2% 164.1 (39.1) 125.2 48/70 Secondary reporting format – Information by service line The secondary segment information for the year ended 30 June 2006 is as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 206.4 1,130.5 1,358.8 2,695.8 Operating margin before allocation of corporate costs 22.8 34.7 116.8 (35.6) 138.7 % margin 11.0% 3.1% 8.6% 1.3% 5.1% The secondary segment information for the period ended 30 June 2005 was as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 226.8 1,134.3 1,364.3 2,725.4 Operating margin before allocation of corporate costs 33.9 65.7 113.6 (30.0) 183.1 % margin 14.9% 5.8% 8.3% 1.1% 6.7% (1) Central structure costs unallocated by service line Note 3 Personnel expenses (In EUR million) 6 months ended 30 June 2006 % revenue 6 months ended 30 June 2005 % revenue 12 months ended 31 December 2005 % revenue Wages and salaries (1,159.1) 43.0% (1,112.1) 40.8% (2,226.1) 40.8% Social security charges (319.5) 11.8% (319.0) 11.7% (614.8) 11.3% Tax, training, profit-sharing Net charge to provisions for pensions Total (29.2) (2.6) (1,510.4) 1.1% 0.1% 56.0% (29.9) (6.4) (1,467.4) 1.1% 0.2% 53.8% (63.5) 17.6 (2,886.8) 1.1% 0.3% 52.9% Atos Origin Half-Year Report 2006 49/70 Note 4 Operating expenses (In EUR million) 6 months ended 30 June 2006 % revenue 6 months ended 30 June 2005 % revenue 12 months ended 31 December 2005 % revenue Purchase for selling and royalties Sub-contracting costs (152.8) (283.6) 5.7% 10.5% (212.3) (297.8) 7.8% 10.9% (336.1) (599.8) 6.2% 11.0% Premises costs (115.2) 4.3% (97.2) 3.6% (210.8) 3.9% Means of production (208.5) 7.7% (197.2) 7.2% (434.8) 7.9% Telecommunications (58.3) 2.2% (43.1) 1.6% (106.2) 1.9% Travelling expenses Taxes, other than corporate income tax Other operating expenses (61.3) (14.5) (73.8) 2.3% 0.5% 2.7% (61.3) (13.1) (125.5) 2.2% 0.5% 4.6% (123.8) (23.3) (220.7) 2.3% 0.4% 4.0% Sub-total expenses (968.0) 35.9% (1,047.6) 38.4% (2,055.4) 37.6% Depreciation of fixed assets Net depreciation of current assets Net charge to provisions Sub-total depreciation and provisions Total (87.8) 0.5 8.6 (78.7) (1,046.7) 3.3% 0.0% 0.3% 2.9% 38.8% (62.3) 3.2 31.8 (27.3) (1,074.9) 2.3% 0.1% 1.2% 1.0% 39.4% (153.0) 7.2 42.1 (103.7) (2,159.1) 2.8% 0.1% 0.8% 1.9% 39.5% Note 5 Other operating income and expenses (In EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Restructuring and rationalization (7.8) (36.1) (56.5) Net profit /(charge) relating to major litigations (12.1) (2.7) 3.6 Release of opening balance sheet provisions no longer needed 6.4 16.5 45.8 Capital gains and losses on disposal of assets (1.0) 51.8 40.2 Impairment losses on long-term assets (60.0) (9.4) (44.5) Stock options (5.7) (6.9) (13.9) Total (80.2) 13.1 (25.2) The 2006 restructuring and rationalization expense is lower than 2005 as the Sema acquisition restructuring programs are almost entirely done. The net charge relating to major litigations corresponds to extra-ordinary settlement and litigations with third parties, essentially in France and in the United Kingdom. The release of opening balance sheet provisions no longer needed mainly relates to positive settlement on tax related exposures. On 29 March 2006, the Group announced a stock option plan with an exercise price of EUR 59.99 under which 1,147,990 options were issued. The corresponding charge for the period is EUR 2.8 million out of a total charge of EUR 5.7 million over the period. The EUR 60.0 million impairment losses on long-term assets result from a review of the fair value of long-term assets as detailed in note 10- Goodwill. Atos Origin Half-Year Report 2006 50/70 Note 6 Net financial income Net cost of financial debt (In EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Net Interest expenses (11.3) (15.0) (22.8) Gain /(loss) on disposal of cash equivalents 2.4 2.0 3.6 Gain/(loss) on interest rate hedges of financial debt (2.2) (2.6) (5.5) Net cost of financial debt (11.1) (15.6) (24.7) The average net debt during the first half-year 2006 was EUR 339.4 million, with an average net cost of financial debt amounting 5.3% before interests swaps and to 6.5% after interests swaps. Other financial income and expenses (In EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Foreign exchange income and hedge-related 1.0 1.7 6.4 Other financial income 5.0 Financial income 6.0 1.7 6.4 Discounting financial expenses (0.3) (2.0) (3.3) Other financial expenses (16.3) (12.5) Financial expenses (0.3) (18.3) (15.8) Other financial income and expenses 5.7 (16.6) (9.4) The EUR 5 million of Other financial income mainly relates to pensions, and represents the positive difference between the interests cost and the expected return on plan assets compared with a negative difference of EUR 0.2 million for the first half-year 2005. The 2005 other financial expenses were strongly impacted by the depreciation of a non-current financial asset and by the impairment of the unamortised residual cost of the previous syndicated loan. Note 7 Tax Charge Current and deferred taxes (In EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Current taxes Deferred taxes (29.9) (5.1) (17.9) (21.2) (47.6) (60.5) Total (35.0) (39.1) (108.1) Atos Origin Half-Year Report 2006 51/70 Effective tax rate The difference between the French standard rate of tax and the effective rate is as follows : (In EUR million) 6 months ended 30 June 2006 6 months ended 30 June 2005 12 months ended 31 December 2005 Net income before tax French standard rate of tax Theoretical tax charge at French standard rate Impact of permanent differences Differences in foreign tax rates Impact of unrecognized tax assets Other Group tax charge Effective tax rate Effective tax rate before goodwill impairment 53.1 34.4% (18.3) (19.3) 9.1 1.6 (8.1) (35.0) 65.9% 31.0% 164.1 34.9% (57.3) 8.3 8.4 (8.4) 9.9 (39.1) 23.8% 22.5% 353.7 34.9% (123.6) (20.5) 26.0 19.4 (9.4) (108.1) 30.6% 27.1% The effective tax rate for the first half of 2006 is 65.9 %. Adjusted for Goodwill impairment (EUR 60.0 million), the effective tax rate for the group is 31.0%. This rate corresponds to the estimated effective tax rate for the year in accordance with IAS 34 on interim financial reporting. Note 8 Minority interests (In EUR million) 31 December 2005 Income Statement Others 30 June 2006 AEMS AWP GmbH Others 142.7 4.2 6.3 5.5 0.5 1.6 (0.7) - (2.0) 147.5 4.7 5.9 Total 153.2 7.6 (2.7) 158.1 Note 9 Earnings per share The dilutive instruments are composed of stock options which do not generate any restatement on the net income used for the diluted earnings per share calculation. Basic and diluted earnings per share are reconciled as follows : Net income - Group share [a] Weighted average number of shares outstanding [b] Impact of dilutive instruments [c] Diluted weighted average number of shares [d]=[c]+[b] Earnings per share in EUR [a]/[b] Diluted earnings per share in EUR [a]/[d] 6 months ended 30 June 2006 10.4 67,424,238 598,489 68,022,727 0.15 0.15 6 months ended 30 June 2005 121.3 67,051,174 596,106 67,647,280 1.81 1.79 12 months ended 31 December 2005 235.4 67,169,757 466,857 67,636,614 3.50 3.48 The total average number of stock options not exercised on first half of 2006 amounted to 6,639,482 shares, out of which only 598,489 have a dilutive effect on the earning per share. Atos Origin Half-Year Report 2006 52/70 Note 10 Goodwill (In EUR million) 31 December 2005 Acquisition/ depreciation Disposals Others Exchange rate fluctuations 30 June 2006 Gross value Impairment loss Carrying amount 2,218.4 (46.0) 2,172.4 0.1 (60.0) (59.9) (1.9) (1.9) (1.5) (1.5) (16.7) 0.2 (16.5) 2,198.4 (105.8) 2,092.6 Goodwill is allocated to the Group’s cash generating units (CGUs) by geographical segment. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial business plans approved by management, covering a three-year period. The difficult market conditions led to an update of the impairment test at Group level based on lower long term growth assumptions and higher discount rates. It led to a EUR 60 million impairment charge, fully attributable to Italy, where profitability is below the Group average and is deteriorating due to the tough Italian environment. The remaining goodwill for Italy amounts to EUR 10.4 million as of 30 June 2006. The discount rate used for the Italian test was 9.6% corresponding to a pre-tax discount rate of 17.6% compared to respectively 8.6% and 12.4% in 2005. Note 11 Trade accounts and notes receivable (In EUR million) 30 June 2006 31 December 2005 Gross value Provision for doubtful debts 1,588.7 (31.1) 1,596.9 (33.9) Net asset value Prepayments Deferred income and amounts due to customers 1,557.6 (23.3) (267.1) 1,563.0 (23.9) (342.5) Net accounts receivable 1,267.2 1,196.6 Number of days’ sales outstanding 69 63 Note 12 Cash and cash equivalent (In EUR million) 30 June 2006 31 December 2005 Cash in hand and short term bank deposit Money market funds 262.0 8.9 530.8 2.7 Total 270.9 533.5 Depending on market conditions and short-term cash flow expectation, Atos Origin may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 13 Pension The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and assimilated benefits is EUR 483.2 million. Group commitments are located predominantly in the United Kingdom (56% of Group total obligations), in the Netherlands (35%), and in Germany (4%). Atos Origin Half-Year Report 2006 53/70 The measurement of the related liabilities is highly sensitive to long term interest rates, on which the discount rate to be used under IAS 19 is based. Reference discount rates used end of 2005 were historically very low (4.75% in the United Kingdom and 4% in the Eurozone), and have significantly increased during the first half 2006 to 5.25% in the United Kingdom and 4.8% in the Eurozone. To better reflect this significant market evolution in its June accounts, the Group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans. As a consequence, unrecognised actuarial losses of EUR 150.8 million as at 31 December 2005 have been more than compensated by net actuarial gains generated trough the update of discount rates and fair value of assets. The net resulting position as at 30 June 2006 is an unrecognised gain of EUR 68.5 million. (In EUR million) 30 June 2006 31 December 2005 Amounts recognised in financial statements consist of : Prepaid pension asset - Post employment plans Accrued liability - Post employment plans Accrued liability - Other long term benefits Net amount recognised – Total 7.7 (465.6) (25.3) (483.2) 5.5 (462.8) (26.4) (483.7) Reconciliation of prepaid (accrued) Benefit cost Funded Status - post employment plans Funded Status - other long term benefit plans Unrecognised Actuarial (Gain) Loss Unrecognised Past Service Cost Any other amount not recognised (asset ceiling limitation, ...) (397.1) (25.3) (68.5) 8.4 (0.7) (616.1) (26.4) 150.8 8.5 (0.5) Prepaid (Accrued) Pension Cost (483.2) (483.7) Of which non-current financial assets 7.7 5.5 Reconciliation of net amount recognised Net amount recognised at beginning of year Net periodic pension cost – Post employment plans Benefits paid by employer - Post employment plans Employer contributions for - Post employment plans Business combinations / disposals Other (other long term benefit, exchange rate) Net amount recognised at end of year (483.7) (40.1) 5.4 31.3 - 3.9 (483.2) (522.2) (31.9) 7.0 61.8 8.6 (7.0) (483.7) Note 14 Provisions (In EUR million) 31 December 2005 Charge Release used Release unused Other (a) 30 June 2006 Current Non Current Reorganization Rationalization Project commitments Litigation and contingencies 131.7 Total provisions (a) Other movements mainly consist of the translation adjustment resulting from the translation of the provisions of the entities outside the Euro zone. (0.2) (1.7) (0.4) (0.4) 17.8 12.5 14.2 1.0 (26.5) (5.0) 30.7 44.2 17.8 38.1 65.8 3.0 56.3 (0.8) (9.5) (2.2) 56.3 10.7 (3.0) (11.1) 111.6 (2.1) 106.1 218.3 (14.1) (44.0) 28.9 252.4 (4.9) 86.6 25.6 106.1 Atos Origin Half-Year Report 2006 54/70 Movements on the provisions impact the income statement aggregates as follows : (In EUR million) Increase Release Used Release Unused Operating margin Other operating items Financial result Total Income Statement impact 15.5 12.8 0.6 28.9 (16.2) (27.7) (0.1) (44.0) (6.2) (7.6) (0.3) (14.1) Note 15 Borrowings (In EUR million) Current 30 June 2006 Non-Current Total Current 31 December 2005 Non-Current Total Finance leases (26.2) (24.7) (50.9) (27.1) (32.8) (59.9) Bank loans (6.1) (364.0) (370.1) (5.6) (450.5) (456.1) Securitization (144.2) (144.2) (140.7) (140.7) Other borrowings (12.0) (19.6) (31.6) (28.0) (22.8) (50.8) Total borrowings (188.5) (408.3) (596.8) (201.4) (506.2) (707.6) Tangible assets held under finance leases had a net carrying value of EUR 51.2 million. Non-current borrowings maturity (In EUR million) 1 to 2 year 2 to 3 year 3 to 4 year 4 to 5 year Over 5 years Total Finance leases Bank loans Other borrowings As at 30 June 2006 long -term debt As at 31 December 2005 long-term debt (15.2) (0.7) (3.7) (19.6) (29.7) (7.2) (0.6) (5.5) (13.3) (18.0) (1.6) (0.2) (3.8) (5.6) (11.2) (0.7) (360.5) (6.6) (367.8) (446.5) (0.0) (2.0) (0.0) (2.0) (0.8) (24.7) (364.0) (19.6) (408.3) (506.2) Change in net debt over the period 6 months ended 30 June 2006 (180.5) (251.1) 363.0 (252.1) 6 months ended 30 June 2005 (491.6) (791.9) 940.8 (211.9) 163.0 Notes (*) (In EUR million) Opening net debt New borrowings Repayment of long and medium-term borrowings Increase /(decrease) in cash and cash equivalents Short-term financial receivables Long and medium-term debt of companies purchased during the period Long and medium-term debt of companies sold during the period Impact of exchange rate fluctuations on net long and medium-term debt Other changes (**) Closing net debt (*) For reconciliation to the consolidated cash flow statement and the cash flow by activity below (**) Other changes include profit sharing amounts payable to French employees transferred to debt, IAS 32/39 impact and new finance lease over the period. n -o q r (1.5) s 0.3 t (10.8) 27.3 u 5.6 (325.9) 2.0 (363.5) Atos Origin Half-Year Report 2006 55/70 Cash flow by activity over the period (In EUR million) Notes (*) 6 months ended 30 June 2006 6 months ended 30 June 2005 Cash from operating activities Income tax paid Change in working capital requirement Net cash from operating activities Purchase of tangible and intangible assets Proceeds from disposals of tangible and intangible assets a b c d e 188.9 (9.1) (197.2) (17.4) (95.5) 1.2 157.2 1.2 (105.7) 52.7 (81.0) 0.6 Net cash from operations (111.7) (27.7) Other changes Net cash before financial investments j+k+l+m+p+t+u (25.2) (136.9) 14.9 (12.6) Financial Investments Proceeds from disposals of financial investments Net financial investments Net cash flow f+g+r h+i+s (15.4) 6.9 (8.5) (145.5) (17.4) 158.2 140.8 128.1 Opening net debt Closing net debt (*) For reconciliation to the consolidated cash flow statement (180.5) (325.9) (491.6) (363.5) Note 16 Fair value and characteristics of financial instruments 30 June 2006 31 December 2005 (In EUR million) Assets Liabilities Assets Liabilities Forward foreign exchange contracts 1.1 (2.3) 0.9 (6.2) Interest rate swaps (3.1) (6.4) Analysed as: Non-current (3.1) (6.4) Current 1.1 (2.3) 0.9 (6.2) Breakdown of the designation of the instruments per currency is as follows : 30 June 2006 31 December 2005 Instruments Fair Value Notional Fair Value Notional Cash Flow Hedge Interest rate Swaps (3.1) 413.0 (6.4) 273.0 Foreign exchange Forward contracts USD (0.7) 17.8 0.6 21.5 Fair Value Hedge – Trading Foreign exchange Forward contract USD (0.6) 34.7 (6.1) 94.3 Forward contract SEK 0.2 126.0 Forward contract GBP 0.1 1.7 (0.1) 3.7 The total EUR 413 million notional interest swaps include nine interest swaps starting on 30 June 2006 for a total amount of EUR 150 million, temporarily overlapping 5 existing interest swaps amounting to EUR 163 million which expired on 29 August 2006. Atos Origin Half-Year Report 2006 56/70 Note 17 Trade accounts and notes payable (In EUR million) Trade payables Amounts payable on tangible assets Total Note 18 Other current liabilities (In EUR million) Advances and down payments received on client orders Employee-related liabilities Social security and other employee welfare liabilities VAT payable Deferred income Other operating liabilities Total Note 19 Off-balance-sheet commitments Contractual commitments In EUR million 30 June 2006 Long-term borrowings (> 5 years) Finance leases 370.0 50.9 Recorded on the balance sheet 420.9 Operating leases: land, buildings, fittings 576.7 Operating leases : IT equipment 127.5 Operating leases: other fixed assets Non-cancellable purchase obligations (>5 years) 118.5 19.6 Commitments 842.3 Total 1,263.2 Commercial commitments (In EUR million) Performance guarantees Bank guarantees Pledges Total Atos Origin Half-Year Report 2006 30 June 2006 584.0 11.2 595.2 30 June 2006 23.3 263.7 186.4 157.0 201.5 101.9 933.8 Maturing Up to 1 year 1 to 5 years 6.1 26.2 362.0 24.7 32.3 386.7 107.3 360.7 53.9 73.6 29.1 89.4 13.1 6.4 203.4 530.1 235.7 916.8 30 June 2006 669.8 120.3 1.0 791.1 31 December 2005 579.6 7.6 587.2 31 December 2005 23.9 305.6 206.9 186.4 225.5 162.6 1,110.9 Over 5 years 31 Dec. 2005 1.9 0.0 456.1 59.9 1.9 516.0 108.7 587.3 0.0 146.0 0.0 114.9 0.1 28.4 108.8 876.6 110.7 1,392.6 31 December 2005 661.3 114.9 1.3 777.5 57/70 Note 20 Subsequent events Acquisition of Banksys and BCC Atos Origin, Banksys and Bank Card Company (BCC), as well as the four major shareholders of Banksys and BCC (Dexia, Fortis, ING, KBC), have announced the agreement of the acquisition of Banksys and BCC by Atos Origin. This new partnership will allow Banksys and BCC to play a key role in the current international market and it will allow the Group to become a European leader in payment services. The agreement was signed on Wednesday 19 July 2006 and the acquisition is expected to be finalized by the end of 2006, subject to approval by the European Competition Authorities. Banksys and BCC are currently owned by a consortium of Belgium Banks including Fortis, Dexia, KBC and ING. They have combined unaudited 2005 revenues of approximately EUR 300 million and employ 1,100 people. Announcement of the Italian restructuring programme Despite good new business wins this year, the Italian market is getting more and more difficult and profitability is deteriorating. As a result, the Group has taken the decision to implement a significant restructuring programme in the country to reduce the number of management layers, re-profile the skills portfolio and replace sub-contractors by employees. The programme will be completed by the fourth quarter and the costs will be taken in the second half. Atos Origin Half-Year Report 2006 58/70 9 SUPERVISORY BOARD Followings the ratification of the appointment of Vernon Sankey during the Annual Shareholders’ Meeting on 23 May 2006, the Supervisory Board is now composed of the following members : Name Function Date of appointment Committee member Term of offices (3) Number of shares held (4) Didier Cherpitel (1) Dominique Bazy (1) Diethart Breipohl (1) (2) Philippe Germond (1) Jan P. Oosterveld (2) Vernon Sankey (1) (2) Michel Soublin (1) Jean-François Theodore Chairman Member Member Member Member Member Member Member 2004 1997 2004 2003 2004 2005 2004 2000 (a),(b),(c),(d) (a) (b),(c) (b),(c),(d) (a) (b),(d) 2009 2009 2009 2009 2007 2007 2007 2009 1,000 20 10 50 10 500 500 10 1) Independent director 2) Foreign (non-French) national 3) Annual General Meeting to approve the fiscal year financial statements 4) Each member of the Supervisory Board must hold at least ten shares (a) Audit Committee (b) Investment Committee (c) Remuneration Committee (d) Nomination Committee 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 10.1 TRADING OF SHARES (EURONEXT) Number of shares traded Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA / SRD : 67,539,132 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes / Yes Atos Origin Half-Year Report 2006 59/70 10.2 COMMON STOCK 10.2.1 Common stock at 30 June 2006 At 30 June 2006, the Company’s issued common stock amounted to EUR 67.5 million, comprising 67,539,132 fully paid-up shares of EUR 1 par value each. Changes in the total number of issued shares of the Company during the half-year come all from exercise of 175,667 stock subscription options. Transactions Number of shares issued Common stock (in EUR million) Additional paid-in capital (in EUR million) Total (in EUR million) At 31 December 2005 67,363,465 67.4 1 252.8 1 320.2 Shares issued at 31 March 2006 144,022 0.1 5.3 5.4 Shares issued at 30 June 2006 31,645 0.0 0.9 1.0 Through exercise of stock options 175,667 0.2 6.2 6.4 At 30 June 2006 67,539,132 67.5 1 259.0 1 326.5 10.2.2 Share ownership structure Main shareholders There was no major change in share ownership during the first half of 2006. The free-float of the Company’s shares is almost 100% today. Disclosure of interests The Company has not been advised of any share movement in the first half of 2006. 10.2.3 Potential common stock During the period, 1,147,990 new stock subscription options were granted to employees (of which 230,000 options were issued to the six members of the Management Board), at a share price of EUR 59.99. This allotment is part of the 2006 annual grant to 1,248 Atos Origin employees in relation with the amount not utilized of the 8th resolution of the shareholders meeting held on 4 June 2004. This grant corresponds to 1.70% of actual common stock. This allocation is in line with the recommendation of the Remuneration Committee meeting held on March 2005 to grant annually 1.75% of the common stock, with no more than 20% of such options being granted to the Management Board. Number of stock subscription options at 31 December 2005 6,145,432 Stock subscription options granted in H1 2006 1,147,990 Stock subscription options exercised in H1 2006 175,667 Stock subscription options forfeited in H1 2006 20,140 Stock subscription options expired in H1 2006 474,000 Number of Stock subscription options at 30 June 2006 6,623,615 A total of 494,140 stock subscription options were cancelled and 175,667 were exercised during the six months. Atos Origin Half-Year Report 2006 60/70 Based on 67,539,132 shares in issue, the common stock of the Company could be increased by 6,623,615 new shares, representing 8.9% of the common stock after dilution. This can occur only through the exercise of stock subscription options granted to employees. In shares 30 June 2006 31 Dec. 2005 Change % dilution EUR million Number of shares outstanding 67,539,132 67,363,465 175,667 Stock subscription options 6,623,615 5,671,432 952,183 8.9% 402.6 Stock subscription warrants 474,000 474,000 Total Employees 6,623,615 6,145,432 478,183 8.9% 402.6 Total potential common stock 74,162,747 73,508,897 653,850 The exercise of all the options and warrants would have the effect of increasing total shareholders’ equity by EUR 403 million and common stock by EUR 6.6 million. Nevertheless, 28% of stock subscription options granted to employees have an exercise price that exceeds the stock market price at 30 June 2006 (EUR 51.15), and 11% that exceeds the stock market price at 31 August 2006 (EUR 40.99) Unused authorizations to issue shares and share equivalents Having regard to resolutions voted during the Annual Shareholders Meeting on 23 May 2006, the unused authorizations to issue shares and share equivalents are the following : Authorization (in EUR) Amount authorized Par value Amount utilized Par value Amount not utilized Par value Authorization expiry date EGM 04/06/2004 8th resolution Stock subscription options Sub-total stock options EGM 03/06/2005 13th resolution Common stock increase with preferential subscription rights 8,500,000 1,144,780 in 2005 1,147,990 in 2006 22,400,000 6,207,230 6,207,230 22,400,000 04/08/2007 03/08/2007 EGM 03/06/2005 15th resolution Common stock increase in payment for contributions in kind EGM 23/05/2006 11th resolution Common stock increase without preferential subscription rights (in deduction of the 22.4 million authorization) 6,716,075 6,716,075 6,716,075 6,716,075 03/08/2007 23/07/2008 EGM 23/05/2006 14th / 15th resolutions Common stock increase reserved for employees (in connection or not with an employee savings plan) 6,750,748 6,750,748 23/07/2008 23/11/2007 Sub-total common stock Total 35,866,823 42,074,053 The potential authorization to issue shares of 42 million of shares represents 62% of current issued common stock. Atos Origin Half-Year Report 2006 61/70 The following authorisation to cancel shares corresponds to 10% of the current issued common stock. Authorisation (in EUR) Amount authorised Par value Amount utilised Par value Amount not utilised Par value Authorisation expiry date EGM 23/05/2006 6th resolution Share cancellation 6,750,749 6,750,749 23/11/2007 Common stock 6,750,749 10.3 DIVIDENDS The AGM on 23 May 2006 approved the recommendation of the Supervisory Board not to pay a dividend this year. The Company has not paid any dividends in the last five years. The Group’s current policy is to reinvest all net profits generated, in order to maximize capital growth over the medium-long term. This policy is reviewed at regular intervals. 10.4 SHARE TRADING PERFORMANCE 10.4.1 Monthly and quarterly trading volumes Based on a closing share price of EUR 51.15 at the end of June 2006 and 67,539,132 shares in issue, the market capitalization of the Group at 30 June 2006 was EUR 3.5 billion. Source : Euronext High Low Closing (in EUR per share) Weighted average price Trading Volume (in thousands of shares) Trading Volume (in EUR thousands) 2006 January 64.4 55.8 61.0 60.2 12,100 728,341 February 62.5 58.1 58.5 60.7 7,302 442,974 March 1st Quarter April 62.2 65.2 56.3 57.2 61.2 59.5 60.0 61.4 9,443 28,845 8,657 566,783 1,738,098 531,629 May 59.9 51.7 53.7 56.0 9,631 538,977 June 2nd Quarter % of capital traded during the period : 84% 55.9 49.2 51.2 51.9 9,366 27,654 56,500 486,039 1,556,645 3,294,742 The daily average number of shares traded during the first 6 months of 2006 was 445,000, an increase of 15% compared with the first six months last year. The monthly average trading volume during the first 6 months of 2006 was EUR 549 million, an increase of 31% compared with the first six months last year. 10.4.2 Post closing event On 18 July 2006, the Group informed its shareholders that it was lowering its 2006 revenue growth objective to 3% and that the market consensus for the operating margin at 7.8% was too high, due to delays in new business and new estimate of costs to complete on a few contracts in the United Kingdom. As expected, the market reacted strongly to this announcement resulting in a -18% decline in Atos Origin share price from EUR 44.31 (17 July) to EUR 36.31 (18 July). Atos Origin Half-Year Report 2006 62/70 11 SHAREHOLDER RELATIONS 11.1 COMMUNICATION The Company aims to provide regular and clear information to all its shareholders, whether private individuals or institutions. We ensure the uniformity and transparency of information through the distribution of formal financial documents, the Company’s web site and personal meetings. 11.2 CONTACTS Institutional investors, financial analysts and individual shareholders may obtain information from: Virginia Jeanson Tel. : + 33 (0) 1 55 91 26 32 E-mail : virginia.jeanson@atosorigin.com Bertrand Labonde Tel. : + 33 (0) 1 55 91 24 45 E-mail : bertrand.labonde@atosorigin.com Or by sending requests for information to investors@atosorigin.com 11.3 SHAREHOLDER DOCUMENTATION In addition to the Half-Year Report, which is published in English and French, the following information is available to shareholders: An annual report Quarterly revenue and trading update announcements The Company’s informational website at www.atosorigin.com Regular press releases, available through the web site or via the AMF database Legal documents relating to the Company bylaws, minutes of Shareholder Meetings, Auditors’ reports, etc. may be viewed at the Company’s registered office (Legal Department) by prior appointment. 11.4 REGISTRAR The Company’s share registrar and paying agent is Société Générale. 11.5 FINANCIAL CALENDAR 2006 Calendar Tuesday, 31 October 2006 Third quarter revenue for 2006 Wednesday, 31 January 2007 Fourth quarter revenue for 2006 Atos Origin Half-Year Report 2006 63/70 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS 12.1 PERSON RESPONSIBLE FOR THE DOCUMENT Bernard Bourigeaud Chairman of the Management Board 12.2 PERSON RESPONSIBLE FOR THE ACCURACY OF THE DOCUMENT To the best of our knowledge, the information presented in this reference document fairly reflects the current situation and includes all information required by investors to assess the net asset position, activities, financial solvency, results and future prospects of the Company. We confirm that no information likely to have a material impact on the interpretation of these documents has been omitted. Bernard Bourigeaud Chairman of the Management Board 12.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deputy Auditors Grant Thornton Cabinet IGEC, 2, rue Washington, 75008 Paris Daniel Kurkdjian and Vincent Papazian Appointed on: 30 May 2002 for a term of 6 years Appointed on: 30 May 2002 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2007 financial statements Term of office expires: at the end of the AGM held to adopt the 2007 financial statements Deloitte & Associés Jean-Paul Picard and Jean-Marc Lumet Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly- sur-Seine Appointed on: 23 May 2006 for a term of 6 years Appointed on: 23 May 2006 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Atos Origin Half-Year Report 2006 64/70 13 GLOSSARY – DEFINITIONS Financial terms and Key Performance Indicators (cid:131) Current and non-current (cid:131) DSO (cid:131) EBITDA (cid:131) EPS (cid:131) Gearing (cid:131) Gross margin – Direct costs (cid:131) (cid:131) (cid:131) Leverage ratio (cid:131) Net debt (cid:131) Normalised EPS (cid:131) Normalised net income (cid:131) OMDA (cid:131) Operating income (cid:131) Operating margin (cid:131) Operational Capital Employed (cid:131) ROCE (Return Of Capital Employed) Indirect costs Interest cover ratio Business terms (cid:131) BPO (cid:131) CMM (cid:131) CRM (cid:131) ERP (cid:131) LAN (cid:131) MMS (cid:131) SCM (cid:131) WAN Atos Origin Half-Year Report 2006 Business Key Performance Indicators (cid:131) Attrition rate (cid:131) Backlog / Order cover (cid:131) Book-to-bill (cid:131) Direct and indirect staff (cid:131) External revenue (cid:131) Full Time Equivalent (FTE) (cid:131) Legal staff (cid:131) Order entry / bookings (cid:131) Organic revenue growth (cid:131) Permanent and temporary staff (cid:131) Pipeline (cid:131) Ratio S (cid:131) Subcontractors and interims (cid:131) TCV (Total Contract Value) (cid:131) Turnover (cid:131) Utilisation rate and non-utilisation rate Market terms (cid:131) Consensus (cid:131) Dilutive instruments (cid:131) Dividends (cid:131) Enterprise Value (EV) (cid:131) Free float (cid:131) Free float capitalisation (cid:131) Market capitalisation (cid:131) PEG (Price Earnings Growth) (cid:131) PER (Price Earnings Ratio) (cid:131) Volatility 65/70 13.1 FINANCIAL TERMS AND KEY PERFORMANCE INDICATORS USED IN THIS DOCUMENT Operating margin. Operating margin comprises operating income before stock option charges, capital gains or losses on the disposal of assets, reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigations and the release of opening balance sheet provisions no longer needed. Operating income. Operating income comprises net income before deferred and income taxes, net financial expenses, share of net income from associates and the results of discontinued operations. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). For Atos Origin, EBITDA is based on Operating margin less non-cash items and is referred to as OMDA (Operating Margin before Depreciation and Amortisation) OMDA (Operating Margin before Depreciation and Amortisation) is calculated as follows: Operating margin Less - Depreciation of fixed assets (as disclosed in the “Financial Report”) Less - Operating net charge of provisions (composed of net charge of provisions for current assets and net charge of provisions for contingencies and losses, both disclosed in the “Financial Report”) Less - Net charge of provisions for pensions (as disclosed in the “Financial Report”) Gross margin and Indirect costs. Gross margin is composed of revenues less the direct costs of goods sold. Direct costs relate to the generation of products and/or services delivered to customers, while indirect costs include all costs related to indirect staff (defined hereafter), which are not directly linked to the realisation of the revenue. The operating margin comprises gross margin less indirect costs. Normalised net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax. EPS (earnings per share). Basic EPS is the net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is the net income divided by the diluted weighted-average number of common shares for the period (number of shares outstanding + dilutive instruments with dilutive effect). Normalised EPS is based on normalised net income. Operational capital employed. Operational capital employed comprises net fixed assets and net working capital, but excludes goodwill and net assets held for sale. Current and non-current assets or liabilities. A current and non-current distinction is made between assets and liabilities on the balance sheet. Atos Origin has classified as current assets and liabilities those that Atos Origin expects to realise, use or settle during its normal cycle of operations, which can extend beyond 12 months following the period-end. Current assets and liabilities, excluding the current portion of borrowings and financial receivables, represent the Group’s working capital requirement. Net debt. Net debt comprises total borrowings (bonds, finance leases, short and long-term bank loans, securitisation and other borrowings), short-term financial assets and liabilities bearing interest with a maturity of less than 12 months, less cash and cash equivalents (transferable securities, cash at bank and in hand). DSO (Days’ sales outstanding). DSO is the amount of trade accounts receivables (including work in progress) expressed in days' revenue (on a last-in, first-out basis). The number of days is calculated in accordance with the Gregorian calendar. Gearing. The proportion, expressed as a percentage, of net debt to total shareholders’ equity (Group share and minority interests). Interest cover ratio. Operating margin divided by the net cost of financial debt, expressed as a multiple. Leverage ratio. Net debt divided by OMDA. ROCE (return on capital employed). ROCE is net income (Group share), before the net cost of financial debt (net of tax) and the depreciation of goodwill, divided by capital employed. Atos Origin Half-Year Report 2006 66/70 13.2 MARKET TERMS Consensus. Opinion that emerges from the financial community, in which financial analysts play a prominent role. Consensus can relate to earnings outlook (individual stock consensus) or to a group of companies in the same sector (market consensus). Dilutive instruments. Financial instruments such as bonds, warrants, stock subscription options, free shares, which could be converted into shares and have therefore a potential dilutive impact on common stock. Dividends. Cash or stock payments from a company's profits that are distributed to stockholders. Free float. Free float is the proportion of a Company’s share capital that is regularly traded on the stock exchange. It excludes shares in the six categories listed below (source Euronext): (cid:131) Shares held by Group companies Shares of the listed company held by companies that it controls within the meaning of Article 233/3 of the French Commercial Code. (cid:131) Shares held by founders Shares held directly or indirectly by the founders (individuals or family group) when these founders have managerial or supervisory influence (management positions, control by voting rights, influence that is a matter of public knowledge, etc.). (cid:131) Shares held by the State Interests held directly by the State, or by public sector or other companies which are themselves controlled by the State. (cid:131) Shares within the scope of a shareholders agreement Shares subject to a shareholders' agreement within the meaning of Article 233/10 and 11 of the French Commercial Code, and other than those held by founders or the State. (cid:131) Controlling interest (cid:131) Shares held by juridical persons (other than founders or the State) exercising control within the meaning of article 233/3 of the French Commercial Code. Interests considered stable Interests exceeding 5%, which have not declined by one percentage point or more, excluding the impact of dilution, in the three preceding years. This category also includes shareholders that, in addition to or in association with the link represented by share ownership, have recently entered into significant industrial or strategic agreements with the Company. Free-float capitalisation. The share price of a company multiplied by the number of free-float shares as defined above. Market capitalisation The share price of a company multiplied by the number of its shares in issue. Volatility. The variability of movements in a share price, measured by the standard deviation of the ratio of two successive prices. Enterprise Value (EV). Market capitalisation + debt. PER (Price Earnings Ratio). Market capitalisation divided by net income for a trailing (or forward) 12- month period. PEG (Price Earnings Growth). Price-earnings ratio divided by year-on-year earnings growth. Atos Origin Half-Year Report 2006 67/70 13.3 BUSINESS TERMS BPO (Business Process Outsourcing). Outsourcing of a business function or process, e.g. administrative functions such as accounting, HR management, call centres, etc. CMM (Capability Maturity Model). CMM is a method for evaluating and measuring the competence of the software development process in an organisation on a scale of 1 to 5. CMMI. Capability Maturity Model Integration. CRM (Customer Relationship Management). Managing customer relationships (after–sales service, purchasing advice, utilisation advice, customer loyalty) has become a strategic component of a company's successful operation. Not only does CRM facilitate efficiency, it also leads to higher sales by building customer loyalty. ERP (Enterprise Resource Planning). An ERP system is an integrated management software system built in modules, which is capable of integrating sales, manufacturing, purchasing, accounting and human resources systems into an enterprise-wide management information system. LAN (Local Area Network). A local network that connects a number of computers within a single building or unit. MMS (Multimedia Message Service). A message capable of carrying text, sounds, fixed or animated colour images, generally sent to a mobile phone. SCM (Supply Chain Management). A system designed to optimise the logistics chain, aimed at improving cost management and flexibility. WAN (Wide Area Network). A long–distance network that generally comprises several local networks and covers a large geographical area. 13.4 BUSINESS KPIS (KEY PERFORMANCE INDICATORS) 13.4.1 Revenue External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT, nil margin pass-through revenue). Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period. Order entry / bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. When an offer is won (contract signed), the total contract value is added to the backlog and the order entry is recognised. TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal. Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognised over their contract lives. Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success. Organic growth. Organic growth represents the % growth of a unit based on a constant scope and exchange rates basis. Atos Origin Half-Year Report 2006 68/70 13.4.2 Human resources Legal staff. The total number of employees under Atos Origin employment contracts at the end of the period. Legal staff includes those on long sickness or long absence, apprentices, trainees, and employees on maternity leave, but excludes subcontractors and interims. FTE (Full-time equivalent) staff). The total number of staff calculated using information from time sheets on the basis of working time divided by standard contractual workable time per employee. In general, a person working on a full time contract is considered as one FTE, whereas a person working on a part time contract would be less considered than one FTE. Calculations are based on contractual working time (excluding overtime and unpaid holidays) with potential workable time (in hours or days) = nominal time + overtime balance – unpaid vacation. For subcontractors and interims, potential workable hours are based on the number of hours billed by the supplier to Atos Origin. Subcontractors. External subcontractors are third-party suppliers. Outsourced activities (e.g. printing or call centre activities) and fixed price subcontracting are excluded from the recorded number of subcontractors or interims. Interims. Staff from an agency for temporary personnel. Interims are usually used to cover seasonal peaks or for situations requiring staff for a short period of time. Direct Staff. Direct staff include permanent staff and subcontractors, whose work is billable to a third party. Indirect staff. Indirect staff include permanent staff or subcontractors, who are not billable to clients. Indirect staff are not directly involved in the generation of products and/or services delivered to clients. Permanent staff. Permanent staff members have a contract for an unspecified period of time. Temporary staff. Temporary staff have a contract for a fixed or limited period of time. Ratio S . Measures the number of indirect staff as a percentage of total FTE staff, including both own staff and subcontractors. Staff turnover and attrition rate (for legal staff). Turnover and attrition rates measure the proportion of legal staff that has left the Company (voluntary and/or involuntary) in a defined period. Turnover measures the percentage of legal staff that has left the business in a defined period. Attrition measures the percentage of legal permanent staff that has voluntarily left the business in a defined period. Attrition rate is a ratio based on total voluntary leavers in the period on an annual basis divided by the average number of permanent staff in the period. Utilisation rate and non-utilisation rate. Utilisation rate + non-utilisation rate = 100% of workable time for direct FTE, which excludes legal vacations, long-term sickness, long-term sabbaticals and parental leave. Workable time is composed of billed time, inactivity that is billable but not billed (exceptional holidays, sickness, on the bench which is between two assignments, other inactivity as delegation), and non-billable time (pre-sales, training, management meetings, research and development and travel). Utilisation rate measures the proportion of workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is billed to customer. The ratio is expressed in percentage terms based on billed hours divided by workable hours excluding vacations. Non-utilisation rate measures the workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is not billed or is non-billable to clients. Atos Origin Half-Year Report 2006 69/70 14 CONTACTS Company Headquarters Belgium Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 712 3777 Atos Worldline France Tour Manhattan 5-6 place de l'Iris 92926 Paris La Defense Cedex Tel: +33 1 49 00 9000 France Tour Les Miroirs, - Bât C 18, avenue d’Alsace 92926 Paris La Defense Cedex Tel : +33 1 55 91 2000 Outsourcing Tour Horizon 64 Rue du 8 Mai 1945 92025 Nanterre Tel: +33 1 70 92 1340 Argentina Vedia 3892 P.B. C1430 DAL - Buenos Aires Tel: +54 11 4546 5500 Systems Integration Tour les Miroirs - Bât C 18, Avenue d'Alsace 92926 Paris La Defense Cedex Tel: +33 1 55 91 2000 Austria Technologiestraße 8 / Gebäude D A-1120 Wien Tel: +43 1 60543 0 Bahrain Floors 6 & 7, BNH Building Al-Seef District P. O. Box 2677 Manama Tel: +973 17 53 7080 Belgium Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 690 2800 Global Consulting & Systems Integration (Global C&SI) Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 712 3777 Atos Consulting 6-8 Boulevard Haussmann 75009 Paris Tel: +33 1 73 03 2000 Atos Euronext Market Solutions 6-8 Boulevard Haussmann F - 75009 Paris Phone: +33 1 73 03 0303 Germany Theodor-Althoff-Str. 47 D-45133 Essen Telefon: +49 (0) 20 14 3050 Atos Worldline GmbH Hahnstraße 25 D-60528 Frankfurt/Main Tel: +49 69 66566 0 Greece 18 Kifisias Avenue 151 25 Athens Tel +30 210 688 9016 Brazil Rua Itapaiuna 2434 - 2° andar - Santo Amaro São Paulo – SP CEP: 05707-001 Tel: +55 11 3779 2344 Hong Kong Suites 1701-8, Prudential Tower 21 Canton Road Tsimshatsui, Kowloon Tel: +852 2830 0000 Chile Av. Vitacura 2771, piso 10 Las Condes Santiago Tel: +56 2 462 2600 India SDF-IV, Units 126/127 SEEPZ, Andheri (east) Mumbai 400 096 Tel: +91 22 28 29 0743 China 5th Floor, Lido Commercial Center Jichang Road Beijing 100004 Tel: +86 10 6437 6668 Indonesia Wisma Kyoei Prince, #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta, 10220 Tel: +62 21 572 4373 France Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 2000 Atos Origin Half-Year Report 2006 Italy Via Riccardo Morandi, 32 00050 Roma Tel: +39 06 8307 4201 Piazza IV Novembre, 3 20124 Milano Tel: +39 2 66 7221 Viale Carlo Viola, 76 11026 Pont-Saint-Martin Tel : +39 1 25 81 0201 Japan 20/F Shinjuku Park Tower, 3-7-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 163-1020 Tel: +81 3 3344 6631 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel.: +352 31 36 37 1 Malaysia Suite F01, 1st Floor 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Darul Ehsan West Malaysia Tel: +60 3 8318 6100 Mexico Hegel 141, Piso 1 Col. Chapultepec Morales CP 11570 Tel: +52 55 5905 3303 Poland ul. Domaniewska 41 02-672 Warszawa (budynek Taurus) Tel: +48 22 606 1900 Morocco Rue Ahmed Balafrej, 3 10100 Souissi, Rabat Morocco Tel : +212 37 63 3641 Portugal Av. 5 de Outubro, 73 - C, 1 andar Edifício Goya, Escritório 4 1050-049 Lisboa Tel: +351 21 359 3150 Singapore 8 Temasek Boulevard #07-01 Suntec Tower Three Singapore 038988 Tel: +65 6333 8000 South Africa 204 Rivonia Road, Sandton Private Bag X136 Bryanston 2021 Tel: +27 11 895 2000 Spain Albarracín, 25 28037 Madrid Tel: +34 91 440 8800 Atos Consulting Albarracín, 27 28037 Madrid Tel: +34 91 214 9500 Switzerland Industriestrasse 19 8304 Wallisellen Tel: +41 1 877 6969 24, Avenue de Champel 1206 Genève Tel: +41 22 789 3700 Switzerland (Telecom) Binzmühlestrasse 95 8050 Zürich Switzerland Tel : +41 1 308 9510 Taiwan 9F, No 115 Sec 3 Ming Sheng E Road Taipei Tel: +886 2 2514 2500 Thailand 200 Moo 4, 25th Floor Jasmine International Tower Room No. 2502 Chaengwattana Road Pakkret Nonthaburi 11120 Tel: +66 2 582 0955 The Netherlands Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Atos Consulting Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Turkey ITU ARI Teknokent-2 Buyukdere Caddesi A Blok K.4 Maslak-Sisli 34398 Istanbul tel: +90 212 286 4666 United Kingdom 4 Triton Square Regent’s Place London NW1 3HG Phone: +44 20 7830 4444 USA 5599 San Felipe Suite 300 Houston TX, 77056 Tel: +1 713 513 3000 70/70 | Semestriel, 2006, IT, Atos | write me a financial report |
Semestriel | 2,007 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| TURNING CLIENT VISION INTO RESULTS ADVANCE WITH ATOS ORIGIN 2007 HALF-YEAR REPORT This document is a full free translation of the original French text. The original document has been filed with the Autorité des Marchés Financiers (AMF) on 28 August 2007, in accordance with article 212-13 of the AMF’s general regulations. After filing, this document as a Reference Document could be used to support a financial operation if accompanied by a prospectus duly approved by the AMF. Atos Origin Half-Year Report 2007 1/87 CONTENTS 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2007 ........................... 4 2 CEO MESSAGE .............................................................................................................................. 6 3 GROUP GOVERNANCE ................................................................................................................. 8 4 THE IT SERVICES MARKET ........................................................................................................ 10 5 OPERATIONAL REVIEW.............................................................................................................. 14 6 TRANSFORMATION PLAN .......................................................................................................... 25 7 HUMAN RESOURCES REVIEW................................................................................................... 39 8 FINANCIAL REVIEW .................................................................................................................... 42 9 HALF-YEAR FINANCIAL REPORT .............................................................................................. 46 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE ............................................... 73 11 SHAREHOLDER RELATIONS ..................................................................................................... 77 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS .......................................................................................................... 81 13 GLOSSARY – DEFINITIONS ........................................................................................................ 82 14 CONTACTS ................................................................................................................................... 87 Atos Origin Half-Year Report 2007 2/87 Atos Origin We design, build and operate IT-enabled business processes. We integrate business and technology, globally. We focus on carefully chosen market sectors. We improve the effectiveness of our clients’ businesses. About Atos Origin Atos Origin is an international information technology services company. Its business is turning client vision into results through the application of consulting, systems integration and managed operations. The Company’s annual revenues are EUR 5.4 billion and it employs over 50,000 people in 40 countries. Atos Origin is the Worldwide Information Technology Partner for the Olympic Games and has a client base of international blue-chip companies across all sectors. Atos Origin is quoted on the Paris Eurolist Market and trades as Atos Origin, Atos Euronext Market Solutions, Atos Worldline and Atos Consulting. Atos Origin Half-Year Report 2007 3/87 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2007 (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 (d) % Change Income Statement Revenue 2,890 2,696 +7.2% Operating margin % of revenue Operating income % of revenue 118 4.1% 108 3.7% 133 4.9% 59 2.2% 12% Net income (Group share) % of revenue Normalised net income (Group share) (c) % of revenue 57 2.0% 68 2.4% 10 0.4% 86 3.2% +450% 21% Earnings per share (EPS) Basic EPS (a) Diluted EPS (b) Normalised basic EPS (a) (c) Normalised diluted EPS (b) (c) 0.83 0.83 0.99 0.99 0.15 0.15 1.28 1.27 (in EUR million) 30 June 2007 31 December 2006 % Change Other Key Indicators Net debt to equity ratio Employees at period end 27% 50,310 20% 49,861 +1% (a) In euros, based on a weighted average number of shares. (b) In euros, based on a diluted weighted average number of shares. (c) Based on net income (Group share) before unusual, abnormal and infrequent items (net of tax). (d) June 2006 has been restated to be in line with December 2006 and June 2007 equity-based compensation classification in personnel expenses compared to classification in other operating income and expenses in June 2006. Atos Origin Half-Year Report 2007 4/87 6 months revenue by service line 7% 53% 40% 6 months revenue by geographical area 4% 2% 1% 5% 6% 31% 10% 18% 26% 6 months revenue by industry sector 6% 11% 27% 16% 22% 18% Atos Origin Half-Year Report 2007 5/87 Consulting Managed Operations Systems Integration France Benelux United Kingdom Germany and Central Europe Spain Italy Other EMEA Americas Asia-Pacific Public Sector and Utilities Finance Manufacturing Telecom and Media CPG and Retail Others (ie Transport) 2 CEO MESSAGE Dear Shareholders, On February 5 this year, and after analysis of our operations over the end of 2006, we announced the launch of our Transformation Program, named "3o3 Plan". The 3 objectives of this plan, over the next 3 years, are clearly described: o Accelerate our Organic growth o o Operate as a global company Increase our Operational efficiency The plan is articulated around 7 initiatives: Sales, Industrialization, Offshoring, Managed Services Global Factory, Support Functions, Talents and Purchasing, each contributing to the objectives we have set ourselves. After 5 months, all our project teams have made significant progress, and our plan is well underway. It is essential for Atos Origin to combine its core expertise and close customer relationships with better competitiveness on prices and services customised to specific business sectors. We have for example in the Sales initiative launched the Atos Origin University Sales & Markets, which will ultimately train the equivalent of the total Atos Origin sales force every year. This will allow us to strengthen our sales culture and push further cross selling within the organization. Furthermore, in the Managed Services Global Delivery initiative, mainframe consolidation is well underway to Essen, Germany, with our Italian operations now totally moved and the Dutch transfer already 50% completed. In Offshoring, we have implemented a change in governance model between the European and Offshore activities. This evolution has significantly increased the demand for offshore capabilities, exceeding our initial targets, leading us to increase our 2009 offshore targets to 8,000 staff. In February we also indicated that 2007 needs to be the year of a significant improvement for the Britsih and Italian operations, after a very disappointing performance in 2006, leading to overall not satisfactory results for the Group. At the half-year mark, I am pleased to say that significant progress has been made in the United Kingdom, after the arrival of Keith Wilman as the new country CEO. In Italy, where Arnaud Ruffat was appointed country CEO, the market conditions remain difficult and the effects of the restructuring plan we have led are still in front of us. However, the Company improved its operational performance in the second quarter of the year. During the first half of 2007, following the expressions of interest we had received, we explored strategic options with third parties to further the group’s development while enhancing shareholder value. On May 11th, at the end of the period set by the Group, no binding offer had been received and the Supervisory and Management Boards have unanimously concluded that it is in the best interest of all Group stakeholders to pursue and accelerate, on a stand-alone basis, the value-creating strategy announced in February this year. The Group has thus terminated all discussions with third parties and concentrates on the execution of the transformation plan in order to reach the 2009 objective. The first half of 2007 has also witnessed the evolution of our Management Team. The Management Board beyond myself is now composed of Philippe Germond, Deputy CEO and announced as my successor, Wilbert Kieboom and Eric Guilhou, respectively in charge of Operations and of the Global Functions, who both report to Philippe. This tightened Management Board is supported by a strengthened Executive Committee, the operational management body of the Group. We also have made good progress on our other priorities for 2007. In the Payments area, the integration between Atos Worldline and Banksys is well on track, and the overall performance has proven significantly better than planned. We will pursue the opportunities to expand this business. The organic growth both in the Systems Integration and in the Managed Operations activities is encouraging. The operating margin reached is in line with our expectations, combined with the implementation of the Transformation Plan which will start to provide soon its first benefits are good signs. I am confident that our solid backlog, the signatures of the first half of the year and the level of our qualified pipeline will allow us to reach the objective of top line growth of +8.5% in 2007. Atos Origin Half-Year Report 2007 6/87 On my request, Philippe Germond will be the Chairman of the Management Board starting 1 October 2007 and I will leave the Company on 31 December 2007 after 17 years in the Group during which I have served our clients, our employees, our shareholders and all other parts. The Management Board and the Executive Committee members are totally focused on transforming the Group and achieving our targets for 2007. This is the first step in the road to deliver our 2009 objective of doubling our operating margin and generate a strong free cash-flow in 2009. Bernard Bourigeaud Chairman of the Management Board & CEO Atos Origin Half-Year Report 2007 7/87 3 GROUP GOVERNANCE Atos Origin is incorporated in France as a "société anonyme" (Joint Stock Corporation) with a Management Board and a Supervisory Board. This two-tier structure separates management and supervision, helping achieve sound corporate governance. 3.1 THE MANAGEMENT BOARD The Management Board is currently composed of a Chief Executive Officer, a Deputy CEO and two other executives. The composition of the Management Board reflects a balanced range of business, financial, human resources, marketing and international experience which Atos Origin believes is essential for the continued success of a global IT services business. The Management Board is responsible for the general management of the Company’s business and meets as frequently as necessary in the Company’s interests. In the case of split decisions, the Chairman of the Management Board has the casting vote. The Management Board has broad powers to represent the Company in its dealings with third parties. Although each of the members of the Management Board has specific executive responsibilities, all of its members are collectively empowered to manage the Company’s business. Name Operational functions Transversal functions Bernard Bourigeaud Chairman of the Management Board and Chief Executive Officer M&A and relationship with large customers Philippe Germond Vice Chairman of the Management Board and Deputy CEO 303 Transformation Plan, Atos Worldline, AEMS, Major Events and the Olympics projects, Global Markets, Marketing, Communication and Public Relations, Investor and Industry Analyst Relations, Risk Management Eric Guilhou Senior Executive Vice President Global Functions Finance, Human Resources, Processes and IT, Purchasing, Legal and Internal Audit Wilbert Kieboom Senior Executive Vice President Operations Country operations, Service Lines (Consulting, Systems Integration and Managed Operations) and Sales The responsibilities of the Management Board were attributed on 11 June 2007. 3.2 THE EXECUTIVE COMMITTEE Since January 2007, as part of the transformation plan, a Group Executive Committee has been created to drive the operational performance of the Group. Its main tasks are to define and review business priorities, review Atos Origin operational performance and the execution of the 3O3 program on a monthly basis and define corrective action plans. It is a dedicated forum for operational management of the Group, the operational link between the Group and the Management Board, and it allows the Management Board to focus on developing the Group, including very high level customer relationships, negotiation of partnerships and alliances and development of specialised businesses. The Executive Committee increases exchanges and collaboration between operations, services lines, sales and support functions. The key members are the CEOs of the large countries and Atos Worldline, heads of Global Service Lines, head of Group Sales and Markets, and heads of Group functions. Atos Origin Half-Year Report 2007 8/87 3.3 THE SUPERVISORY BOARD The Supervisory Board is currently composed of six members from various backgrounds, including both commercial and manufacturing operations, and financial institutions. The Supervisory Board has written internal rules and responsibilities (“règlement intérieur”) that define the rules and responsibilities of the Supervisory Board and of its committees. The Supervisory Board adheres to a Charter that is described in more detail in the annual report. It delegates certain powers to the Management Board to ensure effective control of the Company. The Supervisory Board is now composed of the following members : Name Nationality Didier Cherpitel (Chairman) French French Dominique Bazy German Diethart Breipohl Dutch Jan P. Oosterveld British Vernon Sankey French Michel Soublin Age 62 55 67 62 57 61 Date of appointment 2004 1997 2005 2004 2005 2004 Committee member A,I,R,N A R,N I, R, N I A Term of offices (a) 2009 2009 2009 2007 2007 2007 A : Audit Committee I : Investment Committee R : Remuneration Committee N : Nomination Committee (a) General meeting of shareholders deciding on the accounts of the year. Atos Origin Half-Year Report 2007 9/87 4 THE IT SERVICES MARKET 4.1 MARKET 4.1.1 Market Conditions Consulting and Systems Integration have returned to positive growth, despite the world economy reportedly slowing for the second year in a row. Business restructuring, the optimisation of legacy systems, M&A activity and new EU regulations are driving slow, but steady, growth in consulting and project work. There is a strong focus on measurable value, and mature customers are being cautious, often preferring a step by step approach with multiple small projects, rather than signing one large deal for their transformation initiatives. The shortage of skills in key IT areas (eg: SOA, legacy systems) continues, particularly in main land Europe, and is a driver for nearshore and offshore delivery models. Outsourcing maintains similar growth as 2006 with the United Kingdom leading the pack in terms of deal sophistication, BPO and offshore adoption, followed by The Netherlands. Economic pressure in Germany is forcing organisations to look at outsourcing. An example is application outsourcing in the banking sector, however decisions can take longer and require more consensus building than in other parts of Europe. It still remains challenging for non-German service providers to enter the German market, and several high profile deals have led a number of commercial organisations to consider selling their own IT capabilities on the market. Recent decisions by large French organisations to undertake an often selective outsourcing strategy, coupled with a new focus on application outsourcing, signals growth in the French outsourcing market, and a cautious interest in global delivery models. The high rates of outsourcing deal re-negotiations seen in 2006 has slowed, but is followed by an increased focus on governance and sourcing strategy. Optimizing outsourcing effectiveness is becoming a high priority for many C- level executives, and a new growth area for outsourcing advisors. Private Equity interest in the IT services market has continued in 2007, but so far with no major European acquisitions. We are starting to see Private Equity exercising an influence on the scale and nature of IT outsourcing deals in company restructurings, as well as Private Equity acquiring IT market research and outsourcing advisory organisations. 4.1.2 Competitive environment For 2007 we expect the top ten IT service providers by revenue in Europe to remain the same as last year. However, 2007 started with mixed results from the leading global players. For example; after revenue decline in 2006 for CSC, they are now predicting 6%-7% organic growth for the coming financial year. T-Systems reported Q1 2007 revenues down 5.1% year-on-year, and Fujitsu Services reported revenues up by 4% on a comparable basis to year end 31 March 2007. EDS reported a 3% growth in the first quarter of 2007, down from 2006. LogicaCMG reported revenue up around 4% overall in Q1 but with a decline of 4% in the United Kingdom. Getronics also saw lower than expected performance in the United Kingdom, resulting in an overall decline in revenue in the first quarter. The US and European based service providers have been streamlining their operations, stressing a focus on business value and innovation, investing in capabilities and strengthening their offshore presence. For example; in June IBM announced its intent to acquire Telelogic, the Swedish headquartered Application Lifecycle vendor, Capgemini has acquired Kanbay. The stellar numbers continue to come from the off-shore providers, namely the top five Indian firms TCS, Wipro, Infosys, Satyam and HCL. Revenue growth of the three largest Indian players was around 40% for year end 31 March 2007. Operating margins were still above 20%. Overall Wipro grew by 38% slightly less than Infosys (+44%) and TCS (+41%) and its operating margin is somewhat smaller than Infosys (27.6%) and TCS (24.9%). In Europe, both Infosys and Wipro have the same level of revenues: around $800 million while TCS is much higher at $1.2 billion. The Indian companies are becoming more broad based and are competing not only in application services, but increasingly in IT infrastructure management, IT consulting and BPO. Atos Origin Half-Year Report 2007 10/87 Looking forward we expect to see consolidation, and M&A activity, amongst Eastern European service providers, which could eventually lead to new competition that will start to focus on the Western European market. Overall, competition continues to be intense, and the more mature customers are beginning to look for new sourcing models and ways of working with their service providers. 4.1.3 Trends In our 2006 annual report we identified six key trends that are re-shaping the IT services market today; 1) The Continuing Drive For Cost Reduction, 2) Industrialisation And The Emergence Of The IT Utility, 3) The Growth Agenda, 4) Increasing Globalisation,5 ) The Growth In Multi-sourcing And The Emergence Of The Aggregator, and 6)The Growth Of BPO. These underlying trends will continue through 2007 and into 2008 as outlined in the annual report. The speed at which these six trends play out in Europe, and around the world, will depend on the conditions and cultures in individual countries and industries. The Growth Of BPO is perhaps the most difficult to predict due the immature, fragmented and opportunistic nature of the market. One change we expect to emerge through 2007 however, is increasing barriers to entry in horizontal BPO, such as Finance and Accounting. The opportunity for service providers to start small and learn is diminishing rapidly as the demand for more comprehensive services is increasing. Increasing Globalisation combined with Industrialisation And The Emergence Of The IT Utility are the current trends most likely to have the biggest influence on the shape of the IT services market in the longer term. In particular, there is a growing desire to pay for access to technology and business outcome, not for use of technology. This in turn will drive new options and models that could cannibalize or eliminate existing markets. In addition to the six existing trends listed above, we expect to see a seventh trend starting to visibly impact the IT services market in 2007 and 2008; The Drive For Sustainability: Sustainability encompasses the financial, environmental and social responsibilities of enterprises and governments, and is sometimes called the “3Ps” – profit, people and planet. The 3Ps go beyond many traditional Corporate Social Responsibility (CSR) programs and have been most visible in areas of the business such as property and facilities management. However, we have already seen enterprises starting to push their 3Ps requirements through to their IT organizations and their IT services providers. In addition, there is a growing awareness that IT directly impacts the amount of CO2 emissions and can impact the reduction of CO2 emissions. Strong public and political interest will ensure that Corporate Sustainability – the 3Ps - becomes a major trend in the industry that will affect all suppliers, users and IT organizations 4.1.4 Service lines Consulting Market growth in Europe is estimated at 5% to 6% per year to 2010 (Source: Gartner Western Europe IT Services Market Database). Across industry sectors, business intelligence, security and architecture consulting (especially SOA) are key growth drivers. Other growth drivers tend to be industry specific. For example; RFID in CPG, manufacturing and logistics, MiFID in financial services. Overall a clear distinction is emerging between business consulting standalone and the growing area of “consulting led” IT services engagements – where service providers use consultants to build close relationships with clients and construct business focussed, results orientated engagements. Industry focussed consulting will increasingly become an integral part of winning and delivering systems integration and long term outsourcing deals. Atos Origin Half-Year Report 2007 11/87 Systems Integration The systems integration market shows steady growth driven by pursuit of value, legacy optimisation and regulatory changes. Market growth in Europe is estimated at 6% to 7% through to 2010 (Source: Gartner Western Europe IT Services Market Database), with application development approximately one third of the market. The application development and management market is healthy but prices are under continuous pressure. Testing is currently a niche growth area driven by the rate of business change, increased rigor required from regulatory requirements, a lack of customer capability, and cost. The testing market however is still evolving, and far from mature. Although project services in Europe are returning to positive growth, the market has changed from the last major growth wave. One major change is the intense focus on value and performance measures. Together with a recent increase in staff to meet short term skill needs, there is an underlying trend to fixed price, service level based, contracts by the more mature customers. Longer term, we expect the market to polarise with service providers needing to focus on either low cost functional services, or providing deeper, higher value services based on industry knowledge. The larger service providers could potentially do both. Managed Operations The IT infrastructure outsourcing and management services market is relatively mature, with analysts reporting the market share for the top ten providers remaining stagnant at 43% World wide and 57% in Europe. Growth in Europe is estimated at 8.1% to 2010 (Source: Gartner Western Europe IT Services Market Database). Datacenter outsourcing has the slowest predicted growth at 7.4% with network outsourcing showing the highest at 8.9%. While growth continues, per-unit prices will decline, putting pressure on service providers to reduce costs through increasing industrialization and offshore delivery. Cost reduction and skill shortages remain major drivers for outsourcing, however deals are becoming more complex and there is an increased interest in flexibility, supporting business change and aligning with business requirements. The decline in major outsourcing deals that has been reported by some analysts and advisors in the US, has not been reflected in Europe to the same extent. Average contract values and terms were up in 2006, but the long term trend will be down as the market slowly evolves from one of asset and management transfer to one of discreet services. Today contract terms are typically 3 to 5 years and average contract value less than 100M Euro. Multi-sourcing strategies are common and a recent Gartner survey showed over a third of organisations planning to increase their number of major service providers – the current average number is 3.9. Payment Services: The payment services business process outsourcing (BPO) market is extremely diverse, containing a combination of suppliers with a back-ground in various industry-specific processes, as well technology specialists and IT services providers. The market is stating to mature and we expect consolidation amongst service providers to continue. Growth is being driven by regulatory changes (eg: the Single European Payments Area), a proliferation of payment styles (eg: mobile payments), and security (eg: chip and pin in the United Kingdom, and the use of holograms). Atos Origin Half-Year Report 2007 12/87 4.2 MARKET SHARE AND COMPETITORS According to Gartner, Atos Origin is the sixth largest IT services company in Europe. IT service market share rankings in Western Europe were as follows: Ranking in Europe Competitors in Europe Western Europe Revenues 2006 (a) Western Europe Market share 1 2 3 4 5 6 7 8 IBM Capgemini Accenture T-Systems EDS Atos Origin BT LogicaCMG 10,581 6,270 5,865 5,211 5,086 5,044 4,459 3,550 8.0% 4.7% 4.4% 3.9% 3.8% 3.8% 3.4% 2.7% 9 Fujitsu 3,271 2.5% 10 Computer Sciences Corporation (CSC) 3,117 2.3% Total market size Western Europe Source: Company Information – IT Services Europe Preliminary Market Share Gartner : April 2007 in USD with 1 USD = 0.79716 EUR 132,782 39.5% (a) In EUR million, based on Professional Services include Consulting Services (Consulting for Atos Origin), Development and Integration Services (Systems Integration for Atos Origin), IT Management (Managed Services for Atos Origin) and Process Management (On-line Services and BPO for Atos Origin), but excluding Product Support (Hardware and Software Maintenance and Support). According to Gartner, based on 2006 figures for external IT spending, Professional Services market shares in each main country were as follows: Country Market Size (in EUR million) Weight Atos Origin Market Share Atos Origin Ranking Market Leader United Kingdom Germany France Italy The Netherlands Spain Other Europe 46,635 26,776 16,834 9,487 8,868 7,493 16,689 35% 20% 13% 7% 7% 6% 13% 2.2% 2.2% 9.9% 3.1% 11.9% 4.0% 0.7% 10 12 2 7 1 7 British Telecom T-systems Cap Gemini IBM Atos Origin INDRA Western Europe Source: Company Information – IT Services Europe Preliminary Market Share Gartner : April 2007 in USD with 1 USD = 0.79716 EUR 132,782 100% 3.8% 6 Atos Origin Half-Year Report 2007 13/87 5 OPERATIONAL REVIEW 5.1 OPERATING PERFORMANCE The underlying operating performance on the ongoing business is presented within operating margin, while unusual, abnormal or infrequent income or expenses (other operating income/expenses) are separately itemised and presented below the operating margin, in line with the CNC recommendation of 27 October 2004, before arriving at operating income. (in EUR million) 6 months ended 30 June 2007 % margin 6 months ended 30 June 2006 (*) % margin % change Revenue 2,890 2,696 7.2% Operating margin 117.7 4.1% 133.0 4.9% 12% Other operating income (expenses) (10.0) (74.5) Operating income (*) June 2006 has been restated to be in line with December 2006 and June 2007 equity-based compensation classification in personnel expenses compared to classification in other operating income and expenses in June 2006. (**) Organic growth at constant scope and exchange rates 107.7 3.7% 58.5 2.2% 84% The Group achieved an operating margin of EUR 117.7 million (4.1% of revenue) in H1 2007 compared with EUR 133.0 million (4.9% of revenue) in H1 2006. The details from operating margin to operating income are explained in the financial review, in the following chapter. 5.2 REVENUE 5.2.1 Organic growth Revenues for the first half ended 30 June 2007 amounted to EUR 2,890 million, up +7.2% against EUR 2,696 million for the equivalent period last year. In the past 12 months, the Group has disposed of a number of businesses, which removed EUR 10 million from the comparative revenue base – mainly Actis in Germany, Twinsoft in Spain and Chile. The companies Banksys and BCC acquired in December 2006 contributed for EUR 136 million in H1 2007. Other restated elements are composed of the impact of exchange rate variations for EUR 0.5 million and change of accounting method for EUR 3.7 million. After adjusting for disposals and at constant exchange rates, the H1 2006 revenue base was EUR 2,681 million. (in EUR million) 6 months ended 6 months ended % change 30 June 2007 30 June 2006 Published revenues 2,890 2,696 +7.2% Disposals (10) Acquisitions +136 Exchange rate impact and others (4) Organic revenues (*) (*) Organic growth at constant scope and exchange rates 2,754 2,681 +2.7% Atos Origin Half-Year Report 2007 14/87 % organic change (**) +2.7% Revenues in H1 2007 represented an organic growth of +2.7%, of which +2.5 % in the first quarter, and a slight acceleration in the second quarter to +2.9%. (In EUR million) Quarter 1 2007 Quarter 2 2007 Half-year 1 2007 Revenue % top line growth 1,435 +6.9% 1,455 +7.5% 2,890 +7.2% % organic growth (*) +2.5% +2.9% +2.7% (*) Organic growth at constant scope and exchange rates 5.2.2 Revenue per nature evolution (in EUR million) 6 months ended 30 June 2007 % Total 6 months ended 30 June 2006 % total % change % organic change (*) Sales of services Purchase for re-selling 2,792 98 97% 3% 2,537 158 94% 6% +10.1% -38.1% +6.0% 100% Total (*) Organic growth at constant scope and exchange rates 2,890 2,696 100% +7.2% +2.7% During the period, in line with the strategy to focus revenues on added-value and higher margin sales, sales of services represented 97% of total revenues, compared with 94% last year, and recorded a growth of +10.1% and +6.0% on an organic basis. 5.2.3 Revenue by geographical area The revenue performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 % growth % organic growth (*) 2007 revenue breakdown France United Kingdom The Netherlands Germany + Central Europe Rest of EMEA Americas 807 528 548 293 523 118 Asia – Pacific Total (*) Organic growth at constant scope and exchange rates 74 2,890 809 541 519 289 375 98 65 2,696 0.3% -2.3% +5.6% +1.2% +39.6% +20.2% +13.9% +7.2% +0.3% -4.2% +5.6% +3.2% +4.4% +29.7% +19.8% +2.7% 28% 18% 19% 10% 18% 4% 3% 100% The revenue organic growth performance by geography shows that all the geographic areas generated organic growth except the United Kingdom. The operations have been impacted in the United Kingdom and in Italy by a reorganization / restructuring program which has been implemented in the second half of 2006 in order to come back to profitability as soon as possible. The effect was a down-sizing of the operations and therefore the comparison basis between the first half 2007 and the corresponding period in 2006 is impacted by this down-sizing. In France, the revenue showed a slight organic growth of +0.3% composed of: (cid:190) (cid:190) Negative growth from France Consulting at -19.9%. (cid:190) Atos Worldline in France and France Managed Services grew respectively by +4.2% and +6.4% while Systems Integration is showing a very slight decrease 5.5% decrease in AEMS France; Atos Origin Half-Year Report 2007 15/87 The decrease by -19.9% in France Consulting represents EUR 6 million and comes mainly from the ramp-down of two contracts where the activity was high last year, one with an insurance company and the other one named Copernic with the French Ministry of Finance. This explains a decrease by EUR 4.5 million out of the EUR 6 million, the remaining amount comes from a shortage of staff mainly in the financial sector. A recruitment campaign has been launched in order to increase the number of hiring and the effect in revenue should be visible as soon as the second half of the year. Atos Euronext Market Solutions in France saw its revenue decreasing by -5.5% compared with last year where it benefited from one-off projects billed to Euronext for the transformation and the integration of the Euronext.Liffe IT platform. Systems Integration France saw its revenue decreasing by -0.5% although the key performance indicators show a solid utilization rate at 83% and an average daily rate which increased by more than 7% from January to June 2007. Despite an attrition rate in this activity at 10.6%, meaning below Group average, the main issue remains the level of resources. In Systems Integration, the first half of 2007 has been focused on actions in order to reach a proportion of 50% close-shore staff compared to total. This objective has been successfully achieved and a plan has been launched in Q2 07 to increase staff volumes by hiring during the second half of the year. The plan is organised around global actions on recruitment campaigns, specific actions on targeted staff and retention actions. Actions have been implemented as well in order to increase the off-shore demand to India with contracts such as Renault and for near-shore in Morocco with banking customers. Managed Services France, excluding Atos Euronext Market Solutions, is showing a growth of +6.4%. This includes ramp-ups which started at the beginning of the year and a good level of upselling business on existing clients. In the United Kingdom, revenue decreased by -4.2% organic mainly impacted by Consulting with -16.7% organic decrease and Managed Operations with -2.7%. In the meantime, the Systems Integration limited its negative organic growth to -1.7%. As already mentioned, the restructuring program implemented in the second half of 2006 and at the beginning of 2007 has downsized the operations and has an effect when comparing the period with the corresponding one of 2006. In Managed Operations, the end of Metropolitan Police incurred in June 2006 has negatively impacted the revenue growth in the first half of 2007. Excluding this impact, the United Kingdom Managed Operations organic growth was +8.4%. The contracts signed at the end of 2006 had a transition phase which is now nearly completed by the end of June 2007. These contracts did not provide in the first half 2007 the full service revenue due to the progressing transition period but, with the exception of NHS Diagnostics, will allow full service revenues as of the third quarter of 2007. On July 25th, the Department of Health has elected to terminate the NHS Diagnostics contracts which will slightly affect the expected growth in the second half of 2007 but partly compensated by incremental revenue with other contracts. The Netherlands continue to generate a good organic growth at +5.6% despite tough market conditions in Consulting. This activity was stable despite a high attrition rate which reflects tensions on labour market. These are the results of the positive effects over the second quarter of 2007 to compensate the high attrition by increasing the utilization rate which increased by nearly 10 points between January and June 2007. In Systems Integration, the organic growth is +6.3% and reflects a very active business despite a high attrition. The access to flexible subcontracting and the increase of offshore capacity has helped in generating the organic growth. In Managed Services, The Netherlands generated a +6.5% organic growth. On top of the ramp-up of new contracts with ING, Delta and Telegraaf signed at the end 2006, the organic growth was reached by up-selling business for existing customers such as Nuon and the ramp-up of contracts signed at the beginning of 2006 such as Heijmans. This performance was reached despite the regular decline of Atos Origin Half-Year Report 2007 16/87 clients such as Philips and KPN. On 18 July 2007, KPN and Atos Origin announced that they have signed Heads of Agreement and Letters of Intent redefining their relationship in The Netherlands in order to reflect the changes in KPN’s strategy. Atos Origin will continue to deliver most of the current services to KPN and the contracts will be extended with a minimum duration of 3 years. Atos Origin will transfer three of its six datacenter sites in the Netherlands back to KPN. The transfer is in line with Atos Origin’s datacenter strategy, aiming at consolidating its existing datacenters into high availability main sites in The Netherlands and other key countries. Atos Origin will continue to perform application maintenance and enhancement services for KPN on the current application portfolio and data centres services. KPN has selected Atos Origin as its sole System Integrator for Enterprise Application Integration and for Delivery Orchestration. In Germany Central Europe, the organic growth is +3.2%. After two years of integrating IT platforms for the two main customers KarstadtQuelle and E-Plus, Germany Central Europe is delivering strong benefits to these customers based on the long term contractual commitments. The consolidation of datacenters in Germany and the build-up of a strong application management platform allowed to make up-selling revenue on the existing customer base. This was particularly in Systems Integration which grew by +6.4%. This also allowed leveraging the infrastructure management in Germany to lead the European mainframe centers in Germany. In the rest of EMEA, the total growth is +39.6% and came mainly from Banksys integrated as of January 2007 and which contributed for EUR 136 million in the first six months of 2007. The organic growth is +4.4% as a mix between areas growing with double digits and Italy with a planned revenue decrease according to the restructuring plan which led to -5.5%. The growing are as are as follows: (cid:190) Spain with strong organic growth at +12.2% from a good development in financial services with banking institutions such as BBVA, Caja Madrid, Bankinter and La Caïxa and in public sector with Renfe National Railways, (cid:190) Mediterranean countries which grew organically at +46.3% and Africa at +97.9% with several new contracts mainly in the telecom sector with Digitel, Swisscom, Avea or Maroc Telecom. Some contracts with telecom operators have been transferred from Italy to Turkey, (cid:190) Belgium with +12.9% organic growth. In Italy, revenue decreased by -5.5% mainly as a consequence of severe actions to restructure the operations, from very small size contracts not renewed on the initiative of the Company, and a reorganization of the business units. Nevertheless, the revenue decline which was -9.5% in the first quarter, was limited to -1.4% in the second quarter in 2007. Despite a dynamic Telecom sector and extensions to new sectors signed with Regione Sicilia, the market environment is still difficult and the price pressure continues. Industry sector remains difficult particularly in Application Management and Enterprise Resource Planning. Since Q4 2006, the Italian operations performed a significant restructuring plan which is well advanced as of June 2007 with 310 staff notified, 80 in H2 2006 and 230 in 2007 in line with expectations. Among these people, 215 staff already left the Company at 30 June 2007. As a result, and thanks to more focused management control the utilization rate increased from 78% in January to 80% in June 2007. Americas organic growth was +29.7% and is particularly supported in South America by the effect of the Pan-American Games which will end in the course of the fourth quarter this year. Asia Pacific is back to a strong growth in 2007 with + 19.8% thanks to Systems Integration with +40.5%. The off-shore activity made in India and in Malaysia did not contribute to this strong growth since its associated revenues are recognised as internal revenue. Atos Origin Half-Year Report 2007 17/87 5.2.4 Revenue by service line The revenue performance by service line was as follows: (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 % growth % organic growth (*) 2007 revenue breakdown Consulting Systems Integration 189 1,168 Managed Operations Total (*) Organic growth at constant scope and exchange rates 1,533 2,890 206 1,131 1,359 2,696 8.4% +3.3% +12.8% +7.2% 6.5% +3.9% +3.1% +2.7% 7% 40% 53% 100% In H1 2007, organic revenue decrease in Consulting was 6.5%, with revenues of EUR 189 million compared with EUR 202 million in H1 2006 on a constant scope and exchange rates. Excluding the United Kingdom, where the strong decrease of -16.7% was expected due to the operational basis in the first months of 2006, the organic decrease was limited to -1.1%. The total performance of Consulting in H1 was affected by the ramp-down of contracts such as Ministry of Finance, an insurance company in France and Ministry of Defence in the United Kingdom which contributed more to the revenue in H1 2006. Excluding these three contracts, the revenue growth of Consulting was +1% in H1 2007 compared to H1 2006. The average direct internal staff expressed in number of full-time equivalents has decreased by 2% during the period from 2 293 to 2 238. At the same time the number of subcontracted FTEs has decreased by -16% from 306 to 259 particularly with the ramp-down of the Ministry of Defence contract in the United Kingdom. Therefore, the revenue per head has decreased -5% during the period. The attrition rate in Consulting reached 26.7% on an annual basis after a second half of 2006 at 25.3% which followed 22.2% in H1 2006. In the three major countries where the Group operates its consulting activities, there are significant tensions on the labour market making it difficult to attract and retain skilled consultants. The utilization rate was 62% in H1 2007 after having reached 66% in H2 2006 following 65% in H1 2006. The improvement in the United Kingdom by +4% between H2 2006 and H1 2007 was offset by a decrease of 1% in France and 4% in The Netherlands in the same period. In order to come back to the good performance of the last years, strong actions have been launched and are well underway at the same time in The Netherlands, France and the United Kingdom. In France, a new CEO has been hired externally and started to manage this activity in May 07. Recruitment campaigns have been reinforced in the three countries in order to increase the volume of staff and to come back to organic growth. In addition, the management is focusing with specific actions in order to retain best people and to decrease the level of attrition rate. The management is also focused on strong actions to increase the utilization rate and to come back to the good levels of the last years. As a consequence, the utilization rate already improved in France from 66% to 71% between Q1 07 and Q2 07, and from 58% to 62% from Q1 07 to Q2 07 in The Netherlands. Spain and Belgium continued to contribute increasingly to the revenue of Consulting with respectively EUR 28 million and EUR 8 million in the period. In both countries, the utilization rate reached 74% at the end of June 2007. Atos Origin Half-Year Report 2007 18/87 Revenues in Systems Integration were +3.9% higher organically in H1 2007, with revenues of EUR 1,168 million compared with EUR 1,124 million in H1 2006 on a constant scope basis. Excluding the United Kingdom and Italy which decreased organically by respectively -1.7% and -6.8%, the organic growth of the Group was +6.3%. The organic growth was driven by The Netherlands which continues to improve its business developed last year in this area, Iberia thanks to support for a few of the Group’s major international clients and good development in Financial Services and Public sector, South America with the positive impact of the Pan-American games, and Mediterranean Countries and Africa with several new contracts mainly in Telecom sector. The average direct internal staff has increased by +1.9% during the period from 20 795 to 21 197. In the meantime, the number of subcontractors increased by +11.4% from 1 698 to 1 892 in the same period, representing 8% of total productive staff. As a result, the revenue per head slightly increased by +0.6% in H1 07 compared to H1 06. The attrition rate in Systems Integration reached 15.9% on an annual basis after 14.7% in H2 2006 following 12.2% in H1 of last year. France and the United Kingdom were below Group average, in opposition to The Netherlands which suffered from an increase of attrition in the period. The utilization rate was 80% average in the first six month of 2007, close to the level of 81% in H1 and H2 of last year. Between January and June 2007, the utilization rate improved by 2 points in the Group with France and the United Kingdom both better by 1 point respectively at 83% and 78%. The organic revenue growth in Managed Operations was +3.1%, with revenues of EUR 1,533 million compared with EUR 1,355 million in the first six months of 2006 on a constant scope basis. Excluding the United Kingdom and Italy, organic growth reached +5.1% the United Kingdom organic growth in the period was -2.7% and Italy was -1.6%. The organic growth in the period of +3.1% resulted from positive +3.3% in IT Outsourcing business, +5.1% increase in payment systems offset by a -2.6% decrease in BPO mainly due to the delay in the start of the NHS Diagnostics contract. The increase of Managed Operations in H1 07 has been affected by the effects from the four large contracts ramp-down such as Metropolitan Police, KPN, Philips and Euronext and represented the equivalent of -4.7% organic decrease. On the opposite, the six new large contracts signed in 2006 meaning DCA, NFUM ING, Pan-American Games, Delta, and Telegraaf represented the equivalent of +5.4% growth while some of them were in the transition phase in the first half and therefore did not deliver full service revenue which will start to flow in Q3 2007. Such transition phase contracts are NHS Scotland completed in April 2007, NFUM completed in early July 2007, Gateway Portal with the portal completed in June 2007 and DCA completed for the first phase in June 2007 and full transition completion expected in September 2007. The organic growth of +3.1% in Managed Operations also came from the signatures made in 2007 and more up selling on existing customers. For Atos Worldline, revenue is higher than expected thanks to better volumes within Banksys, coming from a good trend of the Run and Build activity. Banksys contributed to Atos Worldline revenue by EUR 136 million in H1 2007. Atos Origin Half-Year Report 2007 19/87 5.2.5 Order input The Book to bill ratio in H1 2007 was 88% compared to 93% in H1 2006. On a 12 months period from 1 July 2006 to 30 June 2007, the book to bill ratio is 114% with an order entry at EUR 6 353 million. The main signatures in renewals and new business in H1 2007 were with clients such as: Alstom, EDF and LCH Clearnet in France, ING Nationale, Nuons, and Equens in The Netherlands, Incenti, Alcatel Lucent and E-Plus in Germany, Department for Environment Food and Rural Affairs, NHS Scotland, Euronext and Network Rail in the United Kingdom, Caja Madrid in Spain, BCC Vita in Italy and Tai Fook in Asia Pacific. At the end of June 2007, full order backlog increased to EUR 8.1 billion higher by EUR +0.9 billion compared to H1 06. This represents 1.4 years of revenue before impact of the NHS Diagnostics contracts termination. Full pipeline amounts to EUR 2.5 billion and is below H1 06 level by EUR 0.4 billion following signatures of large contracts that were made in H2 2006 for more than EUR 1.5 billion in the United Kingdom and The Netherlands. Compared to 31 December 2006, the full pipeline increased by EUR 0.4 billion. 5.2.6 Revenue by industry sector The revenue performance by industry sector was as follows: (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 % growth % organic growth (*) 2007 revenue breakdown Public Sector and Utilities Financial Services Manufacturing Telecoms and Media CPG & Retail Transport Others 771 645 528 454 310 111 71 714 549 533 483 250 112 54 +7.9% +17.5% -1.0% -6.0% +23.8% -0.4% +31.8% +7.3% +9.7% -2.1% -5.2% -6.0% -1.1% +38.8% 27% 22% 18% 16% 11% 4% 2% Total (*) Organic growth at constant scope and exchange rates 2,890 2,696 +7.2% +2.7% 100% The Group is organised in five main industry sectors, which represent 94% of total revenues. The Group again strengthened its Public Sector and Utilities position (27% of total Group revenue, with a +7.3% organic increase) with French, Dutch and British government ministries and in the healthcare sector, as well as with utilities companies. The first 6 months of 2007 benefited from the new contracts signed or renewed at the end of last year in the United Kingdom, as DCA or NHS Scotland, and Delta in utilities in The Netherlands. The Financial Services sector (22% of total Group revenue, with a +9.7% organic increase) benefited from Banksys and BCC integration, and new contracts as NFUM in the United Kingdom and ING in the Netherlands. Manufacturing (18% of total Group revenue), which includes the previous Discrete Manufacturing and Process Industries, slightly decreased over the period by -2.1% organically and benefited from new contracts in France, compensating an overall decrease in high-tech, which was directly linked to Philips account year-on-year. Telecoms and Media represented 16% of total Group revenue, and decreased over the period Atos Origin Half-Year Report 2007 20/87 (-5.2%), as a result of clients decline such as France Telecom – Orange and Vodafone and productivity savings share with clients like KPN. Good fertilization and new businesses like Telecom Italia mitigated the trend. Retail and CPG represented 11% of total Group revenue, and reached a strong increase over the period (+24%), due to Wordline linked to Banksys integration (mass market linked to acquiring business and terminals) with new clients as Delhaize in Belgium. Others increase organically over the same period of last year is +38.8% and mainly explained by the effect of Pan-American Games of Rio which will end in the course of Q3 07. Transport sector remained flat over the period. 5.3 OPERATING MARGIN AND MARGIN RATE 5.3.1 Operating margin performance The operating margin performance was as follows: (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 % growth Revenue Operating margin before 3 O 3 costs Operating margin rate 3 O 3 Transformation Plan costs Operating margin 2,890 129.3 4.5% (11.6) 117.7 2,696 133.0 4.9% 133.0 7.2% -2.8% -0.4 pt 12% Operating margin rate 4.1% 4.9% 0.8 pt As far as the seasonality is concerned, the start of the year is traditionally impacted by a contractual reduction in revenues on long term contracts where the Group has agreed in advance to share specific benefits with clients. There is also a global salary increase estimated at +3% in 2007 which took place at the beginning of the year and represented a negative impact of 1.6 point on the margin rate. The performance of the operating margin in the first half of 2007 was EUR 117.7 million representing 4.1% of revenues. The operating margin rate improved in Q2 07 compared to Q1 07 by more than one point, from 3.5% to 4.6%. (in EUR million) Quarter 1 2007 % margin Quarter 2 2007 % margin Half-year 1 2007 % margin Revenue 1,435 1,455 2,890 Operating margin 50.5 3.5% 67.2 4.6% 117.7 4.1% The operating margin is considered after equity-based compensations (stock options, management investment plan and long-term incentive plan) for an amount of EUR 4.9 million, after the recurring restructuring for an amount of EUR 5.5 million , and operating costs linked to the Transformation Plan for EUR 11.6 million. Atos Origin Half-Year Report 2007 21/87 5.3.2 Operating margin by service line The operating margin performance by service line was as follows: (in EUR million) 6 months ended 30 June 2007 (*) % margin 6 months ended 30 June 2006 (*) % margin % growth Consulting Systems Integration Managed Operations Corporate 11.5 39.4 104.4 (37.6) 6.1% 3.4% 6.8% 1.3% 25.6 35.9 105.6 (34.1) 12.4% 3.2% 7.8% 1.3% 55% 10% -1% 10% Total 117.7 4.1% 133.0 4.9% 12% (*) Corporate costs exclude Global Service Lines costs The operating margin at the end of June was EUR 117.7 million representing 4.1% of revenues. Despite a significant improvement in Systems Integration and the good performance of Managed Operations, the decline in Consulting associated with the EUR 8.1 million costs of Transformation impacting the Corporate ended in a reduction by 0.8 point compared to the 4.9% of H1 2006. The operating margin rate of 4.1% of revenue was helped by the profitability of the Managed Operations activities including the contribution from Banksys for the first time and the start of the NHS Scotland contracts during the first half of 2007. The Consulting activity had a decrease of its operating margin from EUR 25.6 million to EUR 11.5 million mainly coming from lower revenue due to ramp-downs in the Ministry of Defence contract in the United Kingdom, Ministry of Finance and an insurance company in France. The decrease by 4% of the direct staff was not enough to compensate the decrease in revenue. The improvement in Systems Integration comes mainly from the United Kingdom where the first half of 2006 was impacted by overruns on difficult contracts. The operating margin improved also in The Netherlands and in Germany Central Europe. As described below in geographical area analysis, the situation in Systems Integration was affected by a lower revenue base and by a lack of resources in France. In Managed Operations, the operating margin reached EUR 104.4 million in H1 2007 compared to EUR 105.6 in H1 2006 with very differentiated situations by geographical area as explained below. . Atos Origin Half-Year Report 2007 22/87 5.3.3 Operating margin by geographical area The operating margin performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2007 (*) % margin 6 months ended 30 June 2006 (*) % margin % growth France United Kingdom The Netherlands Germany + Central Europe Rest of EMEA Americas Asia - Pacific Corporate central 30.2 15.2 56.3 21.3 30.1 4.7 6.0 (37.6) 3.7% 2.9% 10.3% 7.3% 5.8% 4.0% 8.2% -1.3% 52.7 27.4 53.6 18.5 13.5 5.0 3.7 (34.1) 6.5% 5.1% 10.3% 6.4% 3.6% 5.1% 5.7% -1.3% 43% -45% 5% 15% 124% -5% 65% 10% 21% Global Service Lines costs (8.7) 0.3% (7.2) 0.3% 133.0 Total (*) Corporate central costs and Global service lines costs not allocated to the countries 117.7 4.1% 4.9% 12% In France, the operating margin for Consulting declined by EUR 2.1 million mainly resulting from the external revenue. The lack of business has generated more efforts in the pre-sales activity and a higher level of bench. The organization implemented in June 2007 with a new CEO appointed is focused on recruiting new partners, managers and senior consultants and on a strong sales action plan. A recruitment campaign has been launched in order to increase significantly the number of hiring in the second half of the year. Recent new deals signed particularly in the public sector will comfort the improvement in France in the second half of the year. In France Systems Integration, the operating margin in the first half of the year was EUR 9.8 million less than H1 2006, of which EUR 2.7 million are costs of Transformation for the industrialization plan. The remaining portion comes mainly from a slow start of the activity in January and February impacting operating margin by EUR 4.4 million and one working day less compared with 2006 having an impact of EUR 2.6 million. In parallel, net productivity improved with the industrialization plan and the certification of service centres. The improvement of the mark-up level remains one of the top-priority for 2007. A Human Resources plan has been announced and launched in May to re-skill and re-adapt the development staff in Paris and to transfer part of the workforce from Paris to Regions. The start of off-shoring to India and near- shoring to Morocco will also contribute to lower the average daily cost. In France Managed Services, operating margin decreased by EUR 3.4 million compared to H1 2006 of which EUR 0.6 million for transformation plan launched to improve productivity and to lower the cost base. The revenue growth coming from the start of new contracts which were still in a transition stage did not contribute yet to the operating margin. In the United Kingdom, the operating margin in Consulting has been impacted by the ramp-downs of the Ministry of Defence and the Department of Work and Pensions contracts where margin dropped respectively by EUR 2.1 million and EUR 1.4 million in H1 2007 compared to the same period last year. The rest of the decrease in the operating margin came from lower revenue following the restructuring plan implemented in the second half of 2006 which has down-sized the Consulting operation in the United Kingdom. In Systems Integration, when comparing H1 2007 to H1 2006, the operating margin increased by EUR 13 million mainly coming from a better situation in the large difficult contracts which were settled in 2007 with the exception of one. Atos Origin Half-Year Report 2007 23/87 In Managed Operations, operating margin was down compared to H1 2006 due to the ramp-down of the Metropolitan Police contract which ended in Q2 2006, a decrease of the volumes contracted with Department of Trade and Industry and the delay of the NHS Diagnostics contract. In The Netherlands, the operating margin increased by EUR 2.8 million. This improvement mainly came from Systems Integration where the operating margin increased by EUR 4 million thanks to a better mark-up, strong increase in productivity of maintenance and software development projects and from the increase of off-shoring. In Managed Operations, The Netherlands were able to maintain their operating margin despite the lower volumes with KPN and Philips and transition costs on new contracts. In Germany & Central Europe, the operating margin in H1 2007 increased by EUR 2.8 million compared to H1 2006. The improvement came from Systems Integration for EUR 1.5 million mainly from a better utilization rate which reached 82% in June 2007 and from margin improvement in Austria and in Poland respectively for EUR 0.5 million and EUR 0.3 million. In Managed Operations operating margin improved by EUR 1.3 million compared to H1 of last year thanks to costs savings in purchasing and synergies through optimization of datacenters. In the meantime, a contract started in 2006 provided a full effect in 2007 and compensated the long term commitments on price with large customers. In the rest of EMEA, the operating margin improved from EUR 13.5 million to EUR 30.1 million which is a mix of differentiated situations. Italy, following the restructuring plan and the down-size of the operations, in a still difficult market situation, had an operating loss of EUR -5.3 million. However, in May and June 2007 Italy was close to break-even which was encouraging for the second half of 2007. Spain improved its operating margin and reached EUR 8.6 million mainly thanks to a better situation in Systems Integration with a better focus on projects delivery and a decrease of the overruns. The performance of rest of EMEA has been boosted by the contribution of Banksys where the integration with Atos Worldline is well underway in order to increase the global profitability of Atos Worldline. In the Americas, the operating margin had a slight decrease due to a lower revenue in North America offset by the contribution of the Pan-American games. In Asia Pacific, the operating margin increased by EUR 2.3 million at EUR 6 million due to the strong increase of revenue in Systems Integration providing an additional EUR 2 million compared H1 2006. Atos Origin Half-Year Report 2007 24/87 6 TRANSFORMATION PLAN Focusing our Efforts and Driving Change A Transformation Plan has been launched with 3 objectives over 3 years to accelerate the organic growth, improve efficiency and operate as a global company. The financial targets are to double in absolute value the operating margin between 2006 and 2009 and to generate a strong corresponding free cash flow. The Transformation Plan is centred on 7 initiatives, divided into more than 70 projects and impacts all countries of Atos Origin. The 7 initiatives which are detailed below are the following: 1. Sales - Optimisation of Sales efficiency and increase organic growth, 2. 3. Offshoring - Targeting 20% in offshore and nearshore by end 2009 in Systems Integration, 4. Managed Operations Global Delivery - To ensure standardised, consolidated global delivery, Industrialisation - Through standardisation of processes and tools, 5. Talents – A strong Human Resources program to attract, develop and retain best people, 6. Finance, HR, and IT Support Functions - Stronger and more efficient key functions, 7. Purchasing - Global purchasing to reduce costs. Achievements H1 2007 During the first half of 2007, the Transformation Plan has already achieved a number of overall measurable results. These include: The opening of Atos University Sales & Markets with the objective to train and update the sales force and to define a career path The choice of common industrialization tools, processes and organization for all countries in Systems Integration The implementation of a new governance model in India with margin in the demand countries • The start of an aggressive recruitment campaign in India doubling the number of net joiners per month as of May 2007 The launch of a staff adaptation plan for 700 FTEs in France • The acceleration of consolidation of mainframe activities into one centre in Germany and the closing of such activities in Italy Data Centre consolidation. The closing of two data centres in the United Kingdom and in Germany, 3 others preparing to close The launch of specific global purchasing projects on 5 priority categories to provide quick wins The individual H1 achievements and future milestones for the seven project initiatives are detailed below. 6.1 SALES 6.1.1 Sales initiative objectives Increasing organic growth is the first objective of the 303 Program. Therefore, the Company has decided to increase the investment in Sales, mainly on the sales force and on the offerings. Within the objectives of the Transformation Plan, the aim of the Sales Initiative is to: Accelerate organic growth through: o The creation of a strong sales culture and increased competence and motivation of the sales force o Delivering more added value for the customer through the introduction of Global Markets and innovation as an additional dimension to countries and service lines o More cross-selling and up-selling of solutions and increased leverage of existing solutions through a group-wide push-approach Atos Origin Half-Year Report 2007 25/87 Increase operational efficiency by: o Homogenous and aligned sales organizations, processes, tools and governance rules to maximize efficiency between sales and delivery Improve ability to operate as a global company by presenting: o One single face to the customer o Consistent standards for both sales and delivery across the group 6.1.2 Sales initiative achievements During H1 2007, this initiative has delivered the following achievements: Reinforcing of Global Markets function – As clients increasingly expect their technology partners to be genuine business partners, rather than pure suppliers of technology services, an in-depth understanding of the clients’ business is vital. The Company has therefore decided to reinforce the Global Market function as a third dimension next to country organizations and Global Service Lines. From now on Global Markets will play a leading role in the design of the sales strategy and the development of international business. They will also fulfil operational functions such as: o Driving and maintaining key offers to clients (e.g. MMT - Maximising Manufacturing Together and NGIN - Next Generation Intelligent Networks). o Managing and updating the service portfolio in conjunction with the Service Lines. o Providing support for international and cross service lines bids. The setup to allow Global Markets perform these roles for the existing Global Markets (Financial Services, Telecom & Media, Manufacturing, Retail) has been launched with the objective to be completed in Q4 07. Increased efficiency of the sales cycle - A more homogenous sales organisation is being created, governed by the same rules and processes and supported by the same tools. This will allow the Company to create the best conditions for winning new clients, implement uniform account plans for existing national and multinational accounts, and align all players involved in sales trough coherent objectives. Furthermore, it will help Atos Origin present a more “global face” towards the customer who will in turn benefit from seeing and dealing with the same organisation, mode of operations and standards across the group. Establishment of the Atos Origin University for Sales and Markets – During H1 2007, the Company launched the Atos University Sales & Markets. This facility is crucial to the development of a strong and sustainable sales culture within the group. Its highly professional training program is targeted primarily at the sales force, but operational managers whose activity involves customer contact are equally entitled to benefit from this important training initiative. Building on three pillars - strategic selling skills, industry knowledge, and IT knowledge - Atos University Sales & Markets takes existing training initiatives, which typically focused on one country or service line community, to a new level and introduces new state-of-the- art training concepts and tailor-made courses. The one-week modules are highly interactive and extremely practical. In addition to classroom learning, participants work on projects that are very similar to real-life situations, and which they have to defend in front of a jury involving actual Atos Origin clients. The entire experience favours team spirit and creates beneficial opportunities for the exchange of experience and expertise, fostering a culture of networking on an international scale. After completion of a series of modules to a certain standard, the best performers are encouraged to further their training by applying for a Senior Executive Management Program. Atos Origin Half-Year Report 2007 26/87 o Sales Career Path - The Company has decided to allocate the sales force between profiles which are more “hunter” oriented and more “farmer” oriented. It is indeed vital for the Company to increase the number of sales people with a profile of “hunter” in order to open new logos. As far as account managers (“farmers”) are concerned, the Company wants to enhance the profile to include excellent sales and consultative skills and a strong understanding and experience of delivery. The company has therefore launched a career path, taking existing practices to a new level. By mapping this sales career path to the internal “Global Capability Model” of the Company, the sales executives will have a precise knowledge of their position in the organisation and any opportunities for careers outside of sales (in delivery, consulting etc.). This will allow finding the best match between the skill set of sales people and the customer portfolio, enabling Atos Origin to reassign sales staff as required more effectively in order to deliver increased profitable revenue growth. 6.1.3 Sales initiative next milestones The next major milestones for the Sales Initiative over H2 2007 are: Global Markets: o Launch of additional Global Markets (Healthcare, Public Sector, Energy and Utilities) with Global Market leaders in place for all 7 global markets (Q4 07). o Sales Change Management: By the end of 2007, uniform sales organisations, processes and account plans will be in place everywhere. This will be operational for 2008. Atos University Sales & Markets : The University expects to train 260 sales people by the end of 2007 and 750 in 2008. This will ramp up to the equivalent of the total sales force of the Company on a full-year basis in 2009. Sales Career Path: The full vision of the career opportunities for the entire sales force will be available at the start of Q4 07. This will allow the Company to optimise and reassign sales staff and achieve better and more effective productivity. 6.2 INDUSTRIALIZATION 6.2.1 Industrialization initiative objectives Within the objectives of the Transformation Plan, the aim of the Industrialisation Initiative is to: Accelerate organic growth through: o Freeing up of resources to fuel organic growth o Gaining higher competitiveness and increase the win-ratio Increase operational efficiency by: o Decreasing cost of delivery and project slippage by more than 1% of external revenue o Decreasing the number and severity of delivery accidents o Increasing engineering productivity per function point o Facilitating and enabling close-, near- and offshoring Improve ability to operate as a global company by: o Sharing of best practices o Enabling global delivery: same processes & same tools o Better measurement and benchmark of operational KPIs across geographies Industrialisation is also a very important enabler for close-near- and offshoring since it will bring standardized processes with transferable deliverables across all development centres. Atos Origin Half-Year Report 2007 27/87 6.2.2 Industrialization initiative achievements During H1 2007, this initiative has delivered the following achievements: The following projects have been launched: o Business Requirements o Software Production line o Test factory o Productivity Management o Project Management o Application Mining o Configuration Management The Business Requirements project aims at developing and managing requirements specifications of high quality (build-able and test-able), making the software engineering process more productive and predictable. A standard approach to requirement engineering provides a solid base for software development and maintenance and is also an important enabler for efficient off-shoring (clear Front-Office Back-Office. Finally, the resulting high quality requirements will contribute to a reduced test effort. The Software Production Line project covers the overall efficiency improvement of the whole software lifecycle by creating “software factories” in which application development and application maintenance are executed in an industrialized fashion operating at cost at CMM3 level to optimize development and maintenance. The other projects are related to “point solutions” covering one specific area of improvement where significant gains can be achieved. The implementation of a Testing Factory aims at industrialising the software testing process leading to a reduction of 20% of the testing effort, improved test quality and reduction of elapsed time through 24/7 testing capabilities. The main objective of the Productivity Management project is to make productivity measurable and provide a standardized method and tooling for estimation. Function Point Analysis (FPA) will be deployed as the standard for productivity measurement. The Project Management will improve the process and tooling to enable project managers to take business responsibility for their projects, which leads to lower overrun and less administrative work. Furthermore, the implementation of tooling for the multi project management/ resource management process will reduce administrative costs. Through the Application Mining project, better support will be provided to the application management community over the entire application lifecycle by: • Providing automatically standardized technical and documentation (reverse engineering). • Accelerating the providing of an application base line (time) and by improving estimate quality (money) in due diligences. Enhancing correctness of estimates by improving bug fixing in cases of significant modifications of existing code. Accelerating knowledge acquisition and sharing and therefore an optimal support of front office / back office delivery organizations, integration of new team members and an easier team mobility. Measuring quality of applications using health factors, i.e. maintainability, robustness, transferability, performance and security. The aim of the Configuration Management project is to implement best-in-class standards to manage all configuration items that are being used, built and maintained. The scope comprises all configuration items including documents for development projects and application management. Atos Origin Half-Year Report 2007 28/87 For each of the above mentioned projects, teams involving experts of all main countries designed blueprint solutions on the basis of best practices existing in the Group and recognised market standards. These blueprint solutions include processes, organisation, tooling and approach to people & change. Furthermore, a common strategy for the use of tooling based on a Shared Services Centre approach on a cost-per-seat basis was defined and agreed. This will optimize efficiency and ensure common processes and deliverables. Preparations for the Shared Service centre have meanwhile started and the centre is expected to go live in Q3 07. On 4 July 2007, the buy-in and commitment of all Systems Integration country managers on these solutions was achieved. Furthermore, a roadmap, with a step by step improvement path and clear and measurable milestones were defined. CMM3 certification has been accelerated in various countries. Recently, the 6th development centre in France has been certified CMM3. Various others in Europe will follow shortly. 6.2.3 Industrialization initiative next milestones The next major milestones for the Industrialisation Initiative are: Purchasing of tools completed: end of Q3 07 • Start of Country-Roll out: end of Q3 07 • Go-Live of the Shared Services Centre for tooling: end of Q3 07 6.3 OFFSHORING 6.3.1 Offshoring initiative objectives Within the objectives of the Transformation Plan, the aim of the Offshoring Initiative is to: Accelerate organic growth through: Enhanced competitiveness (lower blended rate) to increase the attractiveness of propositions and win new clients Access to a broader resource pool to better answer our clients’ needs • Higher growth through increased ability to recruit on- and offshore Increase operational efficiency by: Having "activities performed where they belong", offering right mix of price, customer proximity and skills Offshore and Industrialization working jointly, industrialization being a pre-requisite to offshore Improve ability to operate as a global company by: The compensation of resource shortage in Europe • Identical governance and standards of delivery of services, irrespective of where they are produced These objectives will be achieved by growing the amount of work delivered from Offshore and Nearshore locations from 6% in 2006 to 20% in 2009. The overall target mix for 2009 is: (cid:190) 40% of services provided onshore (cid:190) 40% of services provided close-shore (province) (cid:190) 20% of services provided near-and offshore locations (of which nearshore: 3%) Atos Origin Half-Year Report 2007 29/87 Systems Integration Managed Operations Target announced in February 6 100 4 500 1 600 Target announced in May 8 000 6 100 1 900 Offshoring in Atos Origin - Strengths and Differentiators The offshore presence of Atos Origin in Managed Operations is a strong differentiator. At the end of 2006, already more than 600 FTEs were working near / offshore for customers in Mumbai (servers), Kuala Lumpur (Desktops), Morocco (Desktops today, server management being implemented), and Poland. For Systems Integration, the pipeline is strong for French speaking nearshore in Morocco, especially in the Banking and Telecom sectors. In India, the country oriented organisation set up to meet local European requirements was very well received by customers thanks to a smooth handling of the language issue. Over 70% of the work is delivered on a fixed-price basis through Service Level Agreements. This represents a competitive advantage compared to pure Indian players 6.3.2 Offshoring initiative achievements During H1 2007, this initiative has delivered the following achievements: In order to balance its global sourcing capabilities, Atos Origin launched projects to strengthen existing offshore, nearshore and closeshore sites in the following locations: o India (offshore) o Brazil (offshore) o Morocco (nearshore) o Spain (nearshore + closeshore) o Italy (closeshore) o Germany (closeshore) Furthermore, the Company has initiated pilots in new offshore and nearshore centres in other locations Nevertheless, for the time being the main focus will remain on India. 1. India The Indian operations have been transformed into a shared service centre organisation working on cost-basis, and the other existing offshore locations are following the same path (Brazil and Morocco are next). Consequently, with margin remaining in the demand countries and a resulting strong price differential, a significant incentive has been created in European countries to move more work to offshore and nearshore centres. As a result, all countries have managed to achieve or even exceed their budget of the volumes (expressed in FTEs) to be offshored to India.In the U.S., 40% of the business is off-shore In Germany in particular, Atos Origin is taking strong and promising positions in offshoring (India already represents 10% of the SI workforce in Germany) despite an overall limited maturity of the German market with regard to offshoring. The recruitment process in India is well in place, producing approximately 100 net additions per month as of May 2007, and attrition has decreased slightly. The company has opened in Bangalore a secondary location besides Mumbai on the basis of a contract signed using 80 FTEs and is planning to leverage this presence up to Atos Origin Half-Year Report 2007 30/87 400 seats. Furthermore, the establishment of an Atos Origin campus in Pune is planned for 2008. For internal projects, such as the enhancement and support of the internal ERP system, India is also a key offshore location where all the technical and application maintenance has been already transferred. 2. Brazil In Brazil, the Company is already present in Sao Paolo (1,500 FTEs working mostly for subsidiaries of large European clients). The opening of service centre is planned for the beginning of Q3 07 in Curitiba, which is about 20% more cost competitive than Sao Paulo. The centre in Curitiba will serve both the domestic market (close shore) and work for other western countries (offshore). 3. Morocco Through the “Casanearshore” location initiated by the Government in Casablanca, Morocco has become a key nearshore country for the French market due in particular to a strong demand in the Financial Services and Telecommunications sector. The development of the Company’s nearshore centre in Morocco has gained speed and scale thanks to two factors: • The acceleration of the Managed Services (infrastructure) implementation: Atos Origin already provides desktop services and is extending to server management The signature of a strategic deal with a Financial Services institution The headcount targets for Morocco are the following: 50 full-time equivalents in 2007, 250 in 2008 and 400 in 2009 4. Armenia An initiative specializing on Mainframe technologies has been started in Armenia. For these legacy technologies, profiles have become costly and hard to find in traditional offshore locations. This approach has been initiated with a local partner with a target to be around 200 staff in 2009. 6.3.3 Offshoring next milestones The next major milestones for the Offshoring initiative are: Further acceleration of recruitment in India and preparation of the opening of a campus center in Pune Finalization of nearshore centre in Armenia (Q3 07) • Setting-up of governance model in Brazil in line with the model in India (Q3 07) • CMM3 Certification of nearshore centre in Brazil (Q3 07) 6.4 MANAGED OPERATIONS GLOBAL DELIVERY 6.4.1 Managed operations global delivery initiative objectives Within the objectives of the Transformation Plan, the aim of the Managed Operations Global Delivery Initiative is to: Accelerate organic growth through: • Enhanced competitiveness and flexibility to win more bids Improve cost structure and gain productivity to compensate for structural market price erosion Increase operational efficiency by: Protection and improvement of margin through: o Standardized, clarified offers and processes o Consolidated structures o Offshoring Atos Origin Half-Year Report 2007 31/87 o Optimized organization Improve ability to operate as a global company by: • Global Delivery model implemented across Managed Services Industrialization: unification and systematization of tools and processes 6.4.2 Managed operations global delivery initiative achievements Nine projects have been launched worldwide with a special focus on 4 key countries: France, Germany, The Netherlands, the United Kingdom. For all technical projects, the 3 year plan is now defined and their execution has started. Overall, this initiative will allow the Company to achieve annual savings of EUR 50 million on a full-year-basis. During H1, this initiative has delivered the following achievements: Mainframe Consolidation - For Europe, the Company has decided to consolidate all the IBM mainframe activities into one single mainframe centre located in Germany. The consolidation will contribute to increase the competitiveness of these activities. Furthermore, the Company has launched the creation of European competence centres which will result in staff decrease in the operations. The mainframe consolidation project is well advanced: o o 50% of clients in the Netherlands have already moved to Germany and the transfer of Italy has moved to Germany in June 2007, the remaining clients will be completed by October 2007, o The transfer of France and the United Kingdom has been initiated and will be finalized in the course of 2008. End-to-end Desktop Service Optimization - The on-site support activities are being optimized and made more cost-efficient through: o Self support tooling (fewer calls through voice servers and service portals) o Increased productivity and higher first-call resolution, resulting in less staff for the same number of calls Increase of the volumes processed in selected offshore countries (Poland, Malaysia, Morocco and Surinam) o Server Management Optimization - The objective of this project is to create a global service delivery architecture for Server Management that enables the achievement of best in class cost effectiveness through effective use of Human resources, Infrastructure, process, & tooling. In particular, the Managed Services teams use virtualization of servers and storage on demand, thus producing savings through productivity improvement and offshoring. Offshoring - Offshoring for Managed Services will develop from 600 staff (end of 2006) to 1,900 in 2009 in the Service Desk, Server Management and Monitoring activities in India, Malaysia, Poland and Morocco. Offshore sites have been assessed and action plans have been set up in order to guarantee their capability to increase their activity. Overstaffing - The plan to streamline the organisation has been launched during the first half of 2007 according to the initial plan. The target is to decrease the number of headcounts by 100 staff at the end of 2007. Indirect Organization - Actions have been taken to further reduce indirect staff where necessary. Data Centre Consolidation - The plan to optimise the data centre infrastructure has been launched and will result already in 2007 in a reduction of number of Data Centres by 5 (out of 37 existing currently in Europe already in 2007). The objective is to divide by two the number of Data Centres by the end of 2009. The plan is also to provide high-level twin Data Centres in each main country. Atos Origin Half-Year Report 2007 32/87 AOSN/AOVN Optimisation - The global service network will be optimised in order to provide a cost effective solution to the cross border activities for offshore and European competence centres. The objective is to share our global service network with our internal IT network. Service Management Improvement - The service management process and tooling will be harmonized over countries. It will mainly provide the required infrastructure for delivering the services globally and contribute to the operating margin improvement. 6.4.3 Managed operations global delivery initiative next milestones The next major milestones for the Managed Operations Global Delivery Initiative are: End 2007: o Mainframe transfer of the Netherlands finalised (in addition to Italy) o 5 Data Centres closed, o o 80% of the total overstaffing plan achieved o Cleanup of the organization achieved. Increase of offshore capacity by 400 to reach 1,000 staff Mid 2008: o New Global network operational (AOSN/AOVN) End 2008 o Mainframe consolidation: Transfer of France and the United Kingdom completed, Mainframe fully located in Germany. 6.5 TALENTS 6.5.1 Talents initiative objectives Within the objectives of the Transformation Plan, the aim of the Talents Initiative is to: Accelerate organic growth through: Developing of a pool of high performing employees to fill key positions, to prepare for changing business models and for a more global working environment. Increasing the ability to develop and retain the best talented people Increase operational efficiency through: Standardized and homogenous HR processes, tools and solutions to support Talent Management effectively and allow HR staff to focus on value added tasks Improve ability to operate as a global company through: Fostering global and international mindset through increased mobility Over the next three years, the aim of the initiative is to make talent management a competitive advantage in the market, to be able to attract, develop and retain the best talented employees for Atos Origin. The Transformation Program includes comprehensive investments in people to develop their competencies and skills in order to ensure the competitive advantage of the Company for the future. As Atos Origin develops its image as the employer of choice in the IT sector, the Company has to attract the best quality candidates to evolve into a highly-skilled, efficient, globally-minded organization. Furthermore, it needs to define challenging roles and career opportunities to keep people motivated, develop a truly global culture and to nurture the future leaders in the Company. Atos Origin Half-Year Report 2007 33/87 The talent pyramid incorporates the main focus of the Talent Management Initiative: Succession Planning HR Review & Talent Identification Development & Training Objectives Setting & Performance Management HRIS* Recruitment Employee Services HR Information System 6.5.2 Talents initiative achievements During H1, this initiative has delivered the following achievements: The company has started to improve the main processes related to talent development, focusing on three key projects: o The implementation of a new online Global Performance Management system for setting clear and measurable objectives for performance. o The strengthening of the Atos University with the continuation of the Global Leadership Development Program GOLD. o The implementation of a new international development program (RELAY) and increase of mobility across functions A very experienced dedicated talent manager has been assigned to fulfil these tasks. • Good progress has been made on the active management of individual development plan execution and the development and implementation of career paths. 6.5.3 Talents initiative next milestones The next major milestones for the Talent Initiative are: Annual Human Resources Review and Talent Identification: o The review by the Executive Committee of key positions and position jobholders in the organization and the identification of the pool of top talents. o Nomination of participants in the Global Leadership Development Program (GOLD) and participants in the International development program (RELAY) : (cid:190) From June 2007 to September 2007: Annual Human Resources Review and talent identification and validation. (cid:190) Q3 2007: Implementation of a mobility program called “RELAY”. Performance Management & the design and implementation of a new online Performance Management system for the Group in 2007 and the development and implementation of an online individual development plan in Q4 2007. Individual Development Plan: Training & Development: the implementation of specific training initiatives aimed at competency development and improvement for specific groups of professionals in the organization. Further development of career paths based on the existing competency framework; the Global Capability Model: o Implementation of the Project Management and Technical Architects training and career framework (Q4 2007) Implementation of a new version of GOLD (Q1 2008) o o Development and implementation of career paths (on-going) Succession Planning: to ensure that talent management initiatives result in actual consideration of talents for assignments and key positions within the Group. o Active management of individual development plan execution (on-going) Atos Origin Half-Year Report 2007 34/87 Development of a new Recruitment Strategy: The objective is to establish a new recruitment strategy based on business and market analyses. o Diagnostic of business requirements and market trends ( July 2007) Implementation of a single recruitment support system (2008) o 6.6 FINANCE, HUMAN RESOURCES AND IT INITIATIVE OBJECTIVES 6.6.1 Finance, human resources and IT initiative objectives Within the objectives of the Transformation Plan, the overall aim of the Finance, Human Resources and IT Initiative is to: Accelerate organic growth through: Improved ability to deliver high value added services : o Optimize profitability of organic growth o Enhance predictability o Ensure complete reliability of information Increase operational efficiency by: Accelerating and increasing the efficiency of support to business and employees: o Enhanced Finance efficiency and cost monitoring o Efficient HR systems with Employee and Management Self Services o Consolidation of back-office functions into Shared Services Centres Improve ability to operate as a global company by: Effective support for the design and implementation of the Group strategy. • Proactive monitoring of the evolution of service offering and pricing, customer profitability and the talent labour market. Helping Atos Origin to operate globally trough move from customized local solutions to single global applications. The specific focus of the Finance initiative is on: The implementation of a new financial organisation and governance where all the country CFOs report directly to the Group CFO. The standardisation of processes and systems. • The implementation of a Shared Services Centre. The specific focus of the HR Initiative is on: The personnel administration and Payroll Process for which costs have to be reduced and the service level to be improved The training process which requires: o a more global approach led jointly by HR and the operations o closer involvement of purchasing The recruitment process, for which a better balance between internal recruitment staff and external suppliers of hiring services has to be achieved The specific focus of the IT initiative is on: Achieving standardization, simplification and economies of scale of the IT function, thus improving support to the business, reinforcing control and achieving measurable margin impact. Developing the internal IT tools and infrastructure of Atos Origin as a showcase for its clients. • Reversing the current pattern of IT development to 70% central – 30% local. The transformation of IT Function is focused on 3 main projects: Establishing a governance model Organization, Customer Advisory Boards ). Establishing a governance model Organization, Customer Advisory Boards ). to better support Business objectives (Single Helping Service line & Support function defines target business processes and develops future ERP in line with Atos Origin future business model. Optimizing Infrastructure costs via common solutions deployed globally (Helpdesk, Hosting). Atos Origin Half-Year Report 2007 35/87 6.6.2 Finance, human resources and it initiative achievements Finance has delivered the following achievements: Implementation of a new Group controlling organization in order to reinforce the control of the operations and to better support the business Centralization of expert functions (Treasury, Tax and Internal Audit) in order to optimize the cost base and improve efficiency Streamlining of Group Financial processes in order to implement the foundations of the new Group ERP Human Resources have delivered the following achievements: The streamlining and reengineering of 4 main HR processes towards a common core- model interfaced with the countries: o Personal administration and payroll o Training o Recruitment o HR purchasing in coordination with the Purchasing initiative HR Function Efficiency improvements: o HR job mapping and function upskilling o Related change management actions (on-going) IT has delivered the following achievements: After the hiring of a new Group CIO who joined the Company in May 2007, Atos Origin has implemented an efficient and centralized Business Process and IT organization under a common management. To ensure continuous processes improvement, internal dedicated resources are in the process of being hired to design and maintain Atos Origin core processes. These resources will contribute to change the mindset of the Company in order to move to business processes stretching across organisational entities. 6.6.3 Finance, human resources and it initiative next milestones The next major milestones in Finance are: The improved core financial processes and associated IT system requirements will be delivered by the end of the year The business model for the implementation of a Shared Services Centre will be completed in October. The pilot and start of deployment will take place in 2008. The next major milestones in HR are: The streamlining and reengineering of Workforce management and planning (to be launched in 2008) Design, implementation and follow-up of the KPIs for the main functions and processes (End of design: 1 September 2007, go-live: Q1 2008). HR Function Efficiency Enhancement: The design, implementation and progressive roll- out of a Shared Services Organization for HR functions with little added value (Start in Q1 2008) Design, implementation and follow-up of the KPIs for the main functions and processes (End of design: 1 September 2007, go-live: Q1 2008). The next major milestones in IT are: The Company-wide process model and a supporting IT architecture will be established in 2008. Atos Origin Half-Year Report 2007 36/87 6.7 PURCHASING 6.7.1 Purchasing initiative objectives Within the objectives of the Transformation Plan, the aim of the Purchasing Initiative is to: Accelerate organic growth through: Early involvement of Purchasing in the pre-sales process in order to optimize the competitiveness of offers Implementation of a monitoring system to track & log savings in P&L Increase operational efficiency by: Margin improvement thanks to purchasing savings • Alignment of the information structures across countries • Ensuring that all purchases are covered by purchasing departments • Involving Purchasing in budget process Improve ability to operate as a global company by: Earlier and stronger involvement of purchasing in strategic decisions and in the specification process 6.7.2 Purchasing initiative achievements During H1, this initiative has delivered the following achievements: The company has implemented a more efficient organization characterized by: o Centralized purchasing teams under one management, facilitating group leverage and harmonized practices. o Full aggregation of company-wide purchasing power. o Effective information sharing and Category Management at group and local levels. o Improved efficiency with 100% control of external spend by purchasing organization (early and proactive involvement of purchasing, systematic validation and approval of Service Lines requests, all orders logged in procurement systems). Furthermore, the Company has decided to introduce new purchasing methods (e.g.: reverse auctions) and launched projects on five priority categories which represent approximately 20% of the total spend: o PCs and Servers o Subcontractors o Storage o Midrange Maintenance o Telecommunication Voice Other immediate actions have been identified either linked to global categories or to local country initiatives. The overall savings target for all these measures is EUR 59 million. Preliminary assessment has suggested a potential of more than EUR 10 million additional savings on the priority categories already in 2007. In order to achieve these savings, detailed action plans have been developed and agreed. On the categories below, the following progress has been made: Subcontractors: Netherlands: Request for Proposal launched in May, negotiations ongoing United Kingdom: Price negotiation with main supplier in June resulted in 11% price reduction France: Request for Proposal launched Telecommunications: Request for Quote launched group-wide for fixed and mobile phones Midrange maintenance: Request for Proposal launched PCs and Servers: Request for Information launched, e-RFP and e-auctions in July Atos Origin Half-Year Report 2007 37/87 6.7.3 Purchasing initiative next milestones The next major milestones for the Purchasing Initiative are: Recruitment of a new Corporate Purchasing Officer to join in H2 2007 • Subcontractors: Netherlands, France: finalize negotiations following the launch of a Request for Proposal. Telecommunications: Finalize negotiations for fixed and mobile following launch of RFP • Finalize roadmap for VoIP, effect of rollout expected in 2008. • PCs and Servers: Finalize negotiations following e-auction. Atos Origin Half-Year Report 2007 38/87 7 HUMAN RESOURCES REVIEW 7.1 CHANGE IN THE GROUP WORKFORCE 30 June 2007 30 June 2006 Headcount opening 49,841 47,684 Change in scope Hiring (*) Leavers (*) (201) 5,171 (3,990) Restructuring Headcount at closing (*) Permanent staff only, excluding temporary staff movements (511) 50,310 (436) 4,617 (3,731) (373) 47,761 Changes in scope related to business disposals in the period, including disposals of Actis in Germany (-158 people), Chile (-81 people) and Marben Product in France (-34 people) and acquisitions of Unimédecine (+73 people) for Atos Worldline. The level of recruitment has been sustained during the first half of the year with 5 171 which is higher than last year at the same period by +12% confirming the capacity of the Group to recruit people. Leavers comprise voluntary permanent staff leavers, permanent staff who have been dismissed and those who have retired. The number of leavers in H1 2007 was 3 990, 6% only higher than last year. Staff attrition rose in line with the business growth trend and increased to 14.8%, compared with 12.7% in 2006, which confirms some tension on the European labour market. A total of 511 employees left the business in H1 2007 under specific and localised re-organisation programs as part of the business transformation. These staff who left the Company were located in the United Kingdom, Italy and France. 7.2 STAFF MOVEMENTS BY SERVICE LINE AND COUNTRY Employees 30 June 2007 31 Dec. 2006 Change Average 1st half 2007 Average 1st half 2006 Consulting Systems Integration Managed Operations 2,625 24,514 22,936 2,698 24,836 22,132 2.7% -1.3% +3.6% 2,638 24,506 22,732 2,740 23,988 20,724 Corporate 235 181 +29.8% 199 190 Total 50,310 49,847 +0.9% 50,075 47,642 France United Kingdom The Netherlands Germany + Central Europe Other EMEA Americas Asia-Pacific 14,973 6,304 8,420 3,752 10,494 2,618 3,565 14,887 6,322 8,248 3,882 10,443 2,774 3,110 +0.6% -0.3% +2.1% -3.3% +0.5% -5.6% +14.6% 14,959 6,282 8,380 3,772 10,511 2,637 3,334 14,158 6,689 8,314 3,841 9,286 2,494 2,671 Corporate 184 181 +1.7% 199 190 Total 50,310 49,847 +0.9% 50,075 47,642 The average full-time equivalent internal and external productive staff grew from 44,233 in H1 2006 to 46,797 in H1 2007 representing an increase of +5.8% to be compared with a revenue increase of +7.2% and even an IT services growth of +10.1%. The highest area of staff growth both on staff movements and average staff is Asia Pacific and reflects the strategy of the Group to increase the offshore staff in countries such as India and Malaysia Atos Origin Half-Year Report 2007 39/87 Change 3.7% +2.2% +9.7% +4.7% +5.1% +5.7% -6.1% +0.8% -1.8% +13.2% +5.7% +24.8% +4.7% +5.1% In the meantime, the average full-time equivalent indirect staff increased from 5,540 to 5,758 . This represents an increase of +4% to be compared again with a revenue growth of +7.2% . This increase includes Banksys effect of 322 staff. Excluding Banksys the indirect FTEs decreased by 104 representing -1.8% while the revenue organic growth was +2.7%. This highlights the efforts engaged in 2007 to contain the evolution of indirect staff while not benefiting yet from the implementation the support function shared service center. 7.3 STAFF BY REGION AT 30 JUNE 2007 UK 6,300 Benelux 10,000 France 15,100 Central Europe 3,750 North America 750 Spain 5,850 Italy 2,700 Asia/Pacific 3,600 Africa 100 South America 1,850 Total Employees 50,300 end of June 2007 7.4 EMPLOYEE AND MANAGEMENT SHAREHOLDING In 2006, Management Board proposed to the Supervisory Board to change the employees and management shareholding structure by implementing a balanced employee stock purchase plan and management incentive and investment plans. This was presented and approved to the 2006 Annual General Shareholder meeting on 23 May 2006 and progressively implemented thereafter. In the third quarter of 2006, the Group launched the international stock employee purchase plan opened to 40 000 employees in 10 countries. 2% of common stocks were subscribed in late December 2006. Through a reserved increase of capital with 20% discount and leveraged scheme, 3,900 employees participated to this plan. It will be renewed in 2007 with a 1% capital increase. In March 2007, the Supervisory Board approved the launch of the Long Term Incentive plan (LTI) and Management Investment Plan (MIP) reserved to the top 400 managers of the Group. The LTI is a free share scheme which can represent between 25% and 50% of the annual variable salary at nominal value. The scheme is performance related as the vesting of the free shares is conditioned to presence in the Group during two years as well as Group financial performance reached. The financial indicator is the cumulated two years (fiscal years 2007 and 2008) operating cash flow before restructuring, less capital expenditure. Due to the occurrence of a specific process Atos Origin Half-Year Report 2007 40/87 with potential investors from March to May 2007, the implementation has been suspended until the end of the process which happened on 14 May 2007. The scheme was then implemented and has resulted to the grant of 168,658 performance free shares at a market value of EUR 43.98 to 372 managers. The LTI scheme is not dilutive to the shareholders as Atos Origin bought 214,500 shares on the market in May 2007 to match the engagement. The MIP is a retention plan reserved as well to the top 400 managers and is Atos Origin stock investment conditional. The top 400 managers were invited in June 2007 to buy Atos Origin shares and in counterpart to be granted of one free share for one bought share. The vesting over two years is conditioned to presence in the Group and not selling the personal investment in Atos Origin shares during that period. At the end of the subscription period, 168 managers invested in 217,110 Atos Origin shares and were granted equivalent 218,185 conditional free shares valued at a market value of EUR 45.64. This plan as well is not dilutive for the shareholders as the Group bought 225,500 shares on the market during June 2007 to match the engagement. After the vesting period of two years, these free shares of the LTI and the MIP are subject to a two years lock-up. These two new schemes replace the annual stock option plan with an equivalent income statement value but benefit to the shareholders as it is not dilutive whereas annual stock options plans were dilutive by 1.75% of common stock. Atos Origin Half-Year Report 2007 41/87 8 FINANCIAL REVIEW 8.1 INCOME STATEMENT The Group reported a net income (Group share) of EUR 57.3 million for the first six months of 2007, which represents 2.0% of Group revenues in the period. (in EUR million) 6 months ended 30 June 2007 % margin 6 months ended 30 June 2006 (a) % margin Operating margin 117.7 4.1% 133.0 4.9% Other operating income / expenses Operating income Net financial expense Tax charge Minority interests and associates Net income – Group share Normalised net income Group share (*) (10.0) 107.7 (7.3) (37.6) (5.5) 57.3 68.4 0.3% 3.7% 2.0% 2.4% (74.5) 58.5 (5.4) (35.0) (7.7) 10.4 86.1 2.8% 2.2% 0.4% 3.2% (*) Defined hereafter (a) June 2006 has been restated to be in line with December 2006 and June 2007 Equity-based compensation classification in personnel expenses compared to classification in other operating income and expenses in June 2006. 8.1.1 Operating margin Operating margin represents the underlying operational performance of the on-going business and 4.1% of total revenues of the period. 8.1.2 Operating income The main components of other operating income/expenses are reorganisation and rationalisation charges of EUR 29 million mainly in Italy and in the United Kingdom, and a net gain on disposal of assets of EUR 22 million, mainly related to the disposal of the Actis business in Germany. As a result, the operating income for the first six months 2007 reached EUR 107.7 million, and represents 3.7% of total revenues of the period. 8.1.3 Net financial expense Net financial expense amounted to EUR (7) million for the period, including a net cost of financial debt and non-operational financial costs. The net cost of financial debt was EUR (13) million, based on an average net debt of EUR 479 million during the period. The average cost of borrowing was 5.23% in the period before interests swaps (5.55% including them). The net cost of financial debt was covered 9 times by operating margin, compared with a requirement for not less than 4 times cover under the terms of the new facility. Non-operational financial costs were EUR 5 million credit mainly relating to better terms on return on pensions plan assets. 8.1.4 Tax charge The tax charge has been calculated by applying the full year expected effective tax rate, as per IAS 34 - Interim Financial reporting requirements. The Group effective tax rate is 37.5%. This high tax rate is impacted by Italy where the taxation is based on value added while the Italian operations provided an operating loss and restructuring costs. Excluding these effects, the effective tax rate is below 30%. On a long term basis, the expected effective tax rate is 32.5% on the current scope of the Group. Atos Origin Half-Year Report 2007 42/87 8.1.5 Minority interests Minority interests included shareholdings held by joint venture partners and other associates of the Group in the operations of Atos Euronext Market Solutions (50%) and Atos Worldline Processing Services in Germany (42%). 8.1.6 Normalised net income The Group share of net income before unusual, abnormal and infrequent items (net of tax) was EUR 68.4 million, 2.4% of total revenues. (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 Net income Group share 57.3 10.4 Restructuring and rationalisation (29.4) (7.8) Net charge/release of provision (2.2) (5.6) Capital gain (loss) 21.6 (1.0) Other operating income (expenses) basis (10.0) (14.5) Sum of unusual items net of tax (6.2) (10.0) Impairment losses on long-term assets (60.0) Stock options (not deductible) (4.9) (5.7) Sum of other unusual items not taxable (4.9) (65.7) Normalised net income Group share 68.4 86.1 8.2 EARNINGS PER SHARE (in EUR million) 6 months ended 30 June 2007 % margin 6 months ended 30 June 2006 % margin Net income – Group share 57.3 2.0% 10.4 0.4% Normalised net income – Group share 68.4 2.4% 86.1 3.2% Weighted average number of shares Diluted weighted average number of shares (*) Basic EPS 68,898,338 69,136,128 0.83 67,424,238 68,022,727 0.15 Diluted EPS 0.83 0.15 Normalised basic EPS 0.99 1.28 Normalised diluted EPS 0.99 1.27 (*) With dilution impact only Based on a weighted average of 68,898,338 shares in issue during the first half of 2007, earnings per share (Group share) were EUR 0.83, and on a diluted weighted average basis of 69,136,128 shares in the period, earnings per share (Group share) were EUR 0.83. Based on the normalised net income of EUR 68.4 million, the earnings per share (Group share) were EUR 0.99. 8.3 CASH FLOW AND NET DEBT The Group began the year with an opening net debt of EUR 360 million. The cash flow from operating activities reached EUR 144.8 million, or 5.0% of total revenues, including EUR 53.1 million of staff reorganisation and data centre rationalisation expenses. This performance was temporarily impacted by an increase in working capital of EUR 103.3 million in the period due to seasonal effects, as last year at the same period. Nevertheless, the seasonality impact has been twice lower than last year due to stronger cash management and change of bonus Atos Origin Half-Year Report 2007 43/87 structure to include quarterly targets on net debt. The working capital position should improve sharply in the second half of the year, by the combination of a reduction in working capital as last year in H2 and higher cash flow from operations linked to a higher operating margin in H2. (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 Cash from operating activities 144.8 188.9 Income tax paid (17.1) (9.1) Change in working capital (103.3) (197.2) Net cash from operating activities 24.4 (17.4) Capital expenditure (169.1) (95.5) Disposal of intangible and tangible assets 1.3 1.2 Net cash from current operations (143.4) (111.7) Other changes (27.8) (25.2) Net cash before financial investments (171.2) (136.9) Financial investments 2.9 (15.4) Disposal of financial assets 20.0 6.9 Net financial investments 22.9 (8.5) Net cash flow (148.3) (145.5) Opening net debt (360.3) (180.5) Closing net debt (508.6) (325.9) 8.3.1 Change in working capital The negative change in working capital of EUR 103.3 million over the period is the result of both the negative seasonality factors, including annual bonus payments, and an increase in DSO ratio from 68 days in December 2006 to 74 days end of June 2007. 8.3.2 Operating investments Capital expenditure amounted to EUR 169 million over the period, representing 5.8% of Group revenues, which is as anticipated higher than previous periods, due to strong investment for more than EUR 50 million related to new contracts signed at the end of last year in the Managed Operations activity, an amount of EUR 20 million for data centers consolidation, EUR 10 million coming from Banksys and the continuous efforts to replace capital expenditure financing from operating lease to own cash flow. This policy has been implemented in 2005, to get a better control of the life cycle of our industrial assets. As a result, the off-balance sheet commitments for operating leases on IT equipment have been reduced from EUR 97.2 million at the end of 2006 to EUR 76.3 million at the end of June 2007. 8.3.3 Other changes Other changes include mainly purchases of treasury stock (EUR 21 million) linked to the pre-financing of the Management Investment and Long-Term Incentive Plans, and financial interests paid EUR (7 million). 8.3.4 Net financial investments Net financial investments concern mainly a EUR 6.6 million positive price adjustment on Banksys acquisition, the acquisition of the Uni-Medecine Group (EUR 2.4 million) and remaining amount for new deposits. Disposal of financial assets concerns mainly the sale of the Actis business in Germany. Atos Origin Half-Year Report 2007 44/87 8.3.5 Bank covenants The Group is substantially within its borrowing covenants, with a consolidated leverage ratio (net debt divided by OMDA) of 1.3 at the end of June 2007. The consolidated leverage ratio may not be greater than 2.5 times under the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 Covenants 2007 Operating margin 117.7 133.0 Depreciation of fixed assets 101.5 87.8 Operating net charge/(release) to provisions for current assets Operating net charge/(release) to provisions for losses and contingencies Net charge/(release) of provisions for staff expenses 5.1 (9.6) (11.5) (0.5) (6.9) Net charge/(release) of provisions for pensions (8.7) 2.6 Net book value of assets sold 1.5 Equity-based compensation 4.9 5.7 OMDA 200.9 221.7 Closing net debt 508.6 325.9 Leverage ratio (Net debt divided by OMDA) 1.27 0.74 < 2.5 The consolidated Interest cover ratio (operating margin divided by the net cost of financial debt) was 9 times in the first half. It may not be less than 4 times throughout the term of the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 Covenants 2007 Operating margin Net cost of financial debt 117.7 (12.5) 133.0 (11.1) Coverage of Net cost of financial debt by Operating margin 9 12 > 4.0 8.4 MOTHER COMPANY RESULTS The result before tax of the mother company amounts to EUR (25) million for the first semester 2007, compared with EUR 173 million for the first semester 2006. Atos Origin Half-Year Report 2007 45/87 9 HALF-YEAR FINANCIAL REPORT 9.1 statements for the period ended 30 June 200 Statutory auditors’ report on the half-year condensed consolidated financial 9.2 9.2.1 Consolidated income statement Half-year condensed consolidated financial statements 9.2.2 Consolidated balance sheet 9.2.3 Consolidated cash flow statement 9.2.4 Consolidated statement of changes in shareholders’ equity 9.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2007 (cid:131) General information (cid:131) Basis of preparation and significant accounting policies (cid:131) Financial risk management (cid:131) Notes to the half-year condensed consolidated financial statements Atos Origin Half-Year Report 2007 46/87 9.1 STATUTORY AUDITORS’ REVIEW REPORT ON HALF-YEAR CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2007. To the Shareholders, In our capacity of statutory auditors and in accordance with the requirements of article L 232-7 of the French Commercial Law (the Code de Commerce), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of Atos Origin, for the period January 1 to June 30, 2007, the verification of information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34- standard of the IFRSs as adopted by the European Union applicable to Interim financial information. Without qualifying the conclusion expressed above, we draw attention to note 20 which sets out the subsequent events, in which Atos Origin describes the uncertainty with respect to the unilateral termination of a contract in UK that occurred subsequently to June 30, 2007. In accordance with professional standards applicable in France, we have also verified the information given in the interim half-year financial report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris and Neuilly-sur-Seine, August 28, 2007 The statutory auditors Grant Thornton Deloitte & Associés Membre français de Grant Thornton International Daniel Kurdjian Jean-Paul Picard Vincent Papazian Jean-Marc Lumet Atos Origin Half-Year Report 2007 47/87 9.2 HALF-YEAR CONDENSED FINANCIAL STATEMENTS 9.2.1 Consolidated income statement 6 months 6 months 12 months (in EUR million) Notes ended 30 June 2007 ended 30 June 2006 (a) ended 31 December 2006 Revenue 2,890.0 2,695.8 5,396.9 Personnel expenses Note 3 (1,601.1) (1,516.1) (2,995.9) Operating expenses Note 4 (1,171.2) (1,046.7) (2,154.3) Operating margin 117.7 133.0 246.7 % of revenue 4.1% 4.9% 4.6% Other operating income and expenses Note 5 (10.0) (74.5) (406.7) Operating income 107.7 58.5 (160.0) % of revenue 3.7% 2.2% 3% Net cost of financial debt (12.5) (11.1) (22.7) Other financial income and expenses 5.2 5.7 11.5 Net financial income Note 6 (7.3) (5.4) (11.2) Tax charge Note 7 (37.6) (35.0) (76.6) Share of net income from associates (0.0) (0.1) 0.1 Net income 62.8 18.0 (247.7) Of which: Group share 57.3 10.4 (264.4) Minority interests Note 8 5.5 7.6 16.7 (in EUR and number of shares) Net income - Group share per share Note 9 Weighted average number of shares 68,898,338 67,424,238 67,614,323 Basic earnings per share 0.83 0.15 (3.91) Diluted weighted average number of shares 69,136,128 68,022,727 67,614,323 Diluted earnings per share (a) June 2006 has been restated to be in line with December 2006 and June 2007 Equity-based compensation classification in personnel expenses compared to classification in other operating income and expenses in June 2006. 0.83 0.15 (3.91) Atos Origin Half-Year Report 2007 48/87 9.2.2 Consolidated balance sheet (in EUR million) ASSETS Goodwill Intangible assets Tangible assets Non-current financial assets Non-current financial instruments Deferred tax assets Total non-current assets Trade accounts and notes receivable Current taxes Other current assets Current financial instruments Cash and cash equivalents Total current assets TOTAL ASSETS (in EUR million) LIABILITIES AND SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Consolidated reserves Translation adjustments Net income for the period Shareholders’ equity – Group share Minority interests Total shareholders’ equity Provisions for pensions and similar benefits Non-current provisions Borrowings Deferred tax liabilities Non-current financial instruments Other non-current liabilities Total non-current liabilities Trade accounts and notes payable Current taxes Current provisions Current financial instruments Current portion of borrowings Other current liabilities Total current liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Atos Origin Half-Year Report 2007 49/87 Notes Note 10 Note 16 Note 11 Note 16 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 14 Note 16 Note 15 Note 18 30 June 2007 2,042.3 121.6 442.1 52.1 0.6 266.7 2,925.4 1,753.1 35.0 273.0 1.1 184.3 2,246.5 5,171.9 30 June 2007 69.0 1,306.8 264.9 27.1 57.3 1,725.1 169.1 1,894.2 446.2 117.8 463.7 53.0 - 1.1 1,081.8 669.3 86.9 103.4 1.9 229.2 1,105.2 2,195.9 5,171.9 31 December 2006 2,045.6 118.3 382.4 45.0 - 258.0 2,849.3 1,599.9 46.7 226.3 1.2 453.9 2,328 5,177.3 31 December 2006 68.9 1,304.2 536.6 29.6 (264.4) 1,674.9 165.5 1,840.4 458.6 131.9 589.2 54.9 1.2 0.5 1,236.3 609.1 69.6 132.1 1.9 225.0 1,062.9 2,100.6 5,177.3 9.2.3 Consolidated cash flow statement (in EUR million) Notes (*) 6 months ended 30 June 2007 6 months ended 30 June 2006 Net income Group share 57.3 10.4 Depreciation of fixed assets 101.5 87.8 Net charge to operating provisions (24.7) (4.8) Net charge to financial provisions (8.1) (6.8) Net charge to other operating provisions (13.9) 44.3 Impairment of long-term assets (Gains) / losses on disposals of fixed assets (23.0) 0.9 Net charge for equity-based compensation 4.9 5.7 Minority interests and associates 5.5 7.7 Financial instruments 0.3 (4.7) Financial interests 7.3 13.5 Tax charge (including deferred tax) Cash from operating activities before change in working capital requirement, financial interests and taxes Taxes paid a b 37.7 144.8 (17.1) 35.0 188.9 (9.1) Change in working capital requirement c (103.3) (197.2) Net cash from / (used in) operating activities 24.4 (17.4) Purchase of tangible and intangible assets d (169.1) (95.5) Proceeds from disposals of tangible and intangible assets e 1.3 1.2 Net operating Investments (167.8) (94.3) Amounts paid for acquisitions and long-term investments Cash and cash equivalents of companies purchased during the period Proceeds from disposals of financial investments f g h 2.7 0.2 25.2 (15.4) 6.9 Cash and cash equivalents of companies sold during the period i (5.3) Net long-term investments 22.8 (8.5) Net cash from / (used in) investing activities (145.0) (102.8) Common stock issues Common stock compensation Purchase and sale of treasury stock issues on the exercise of equity-based j k l 2.1 (20.6) 6.5 (12.6) Dividends paid to minority shareholders of subsidiaries m (2.1) (2.0) New borrowings** n 31.2 27.3 Repayment of long and medium-term borrowings** o (152.3) (139.2) Net interest paid (including finance leases) p (7.3) (12.0) Net cash from / (used in) financing activities (149.0) (131.9) Increase / (decrease) in cash and cash equivalents q (269.6) (252.1) Opening cash and cash equivalents 453.9 533.5 Increase / (decrease) in cash and cash equivalents Impact of exchange rate fluctuations on cash and cash equivalents Closing cash and cash equivalents q (269.6) 184.3 (252.1) (10.5) 270.9 (*) For reconciliation to the change in net debt over the period and the cash flow by activity over the period presented in the notes. (**) In 2006, flows related to securitization were netting to be consistent with the classification done in 2007 Atos Origin Half-Year Report 2007 50/87 12 months ended 31 December 2006 (264.4) 176.3 (2.0) (20.6) (25.1) 377.6 (11.7) 23.2 16.7 1.2 22.7 76.6 370.5 (39.3) (42.5) 288.7 (207.7) 2.1 (205.6) (345.2) 52.7 45.4 (2.7) (249.8) (455.4) 52.9 (14.6) (2.2) 287.9 (204.0) (22.4) 97.8 (68.9) 533.5 (68.9) (10.7) 453.9 9.2.4 Consolidated statement of changes in shareholders’ equity (in EUR million) Number of shares at period-end (thousands) Common Stock Additional paid-in capital Consolidated reserves Translation adjustments Items recognized directly in equity At 31/12/05 67,363 67.4 1,252.8 293.5 28.3 (3.8) Common stock issued * Translation adjustments * Appropriation of prior period net income * Stock options * First time adoption of IAS 32/39 * Changes in fair value of financial instruments * Net income for the period * Other 176 0.2 6.2 235.4 5.7 (19.8) (12.6) 2.5 (0.2) At 30/06/06 67,539 67.6 1,259.0 534.4 8.5 (13.9) Common stock issued * Translation adjustments * Appropriation of prior period net income * Stock options * First time adoption of IAS 32/39 * Changes in fair value of financial instruments * Net income for the period * Other At 31/12/06 1,342 1.3 45.2 (212.2) (20.3) 235.4 1.0 21,1 12.6 (0.2) 68,881 68.9 1,304.2 538.1 29.6 (1.5) Common stock issued for cash * Translation adjustments * Appropriation of prior period net income * Stock options * Changes in treasury stock net of tax * Changes in fair value of financial instruments * Net income for the period * Other At 30/06/07 103 0.1 2.6 (264.4) 4.9 (19.5) (2.5) 5.9 1.4 68,984 69.0 1,306.8 259.1 27.1 5.8 Atos Origin Half-Year Report 2007 51/87 Net income Group share 235.4 (235.4) 10.4 10.4 (274.8) (264.4) 264.4 57.3 57.3 Equity – Group share 1,873.4 6.4 (19.8) 0.0 5.7 (12.6) 2.5 10.4 (0.2) 1,865.8 46.5 21.1 23.2 (20.3) 12.6 (0.2) (274.8) 1.0 1,674.9 2.7 (2.5) 0.0 4.9 (13.6) 1.4 57.3 1,725.1 Minority interests 153.2 (0.7) 7.6 (2.0) 158.1 1.6 9.1 (3.3) 165.5 (0.2) 5.5 (1.7) 169.1 TOTAL 2,026.5 6.4 (20.5) 0.0 5.7 (12.6) 2.5 18.0 (2.2) 2,023.9 46.5 22.7 23.2 (20.3) 12.6 (0.2) (265.7) (2.2) 1,840.4 2.7 (2.7) 0.0 4.9 (13.6) 1.4 62.8 (1.7) 1,894.2 9.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2007 9.2.5.1 General information The half-year condensed consolidated financial statements of the Company for the six months ended 30 June 2007 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities. These interim condensed consolidated financial statements were presented by the Management Board to the Supervisory Board on 31 July 2007. 9.2.5.2 Basis of preparation and significant accounting policies Basis of preparation The interim condensed consolidated financial statements for the six months ended 30 June 2007 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financials statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2006. The Company follows positions issued by Syntec Informatique, representing major IT groups, for application of the existing International Financial Reporting Standards to specificities of the IT industry. Changes in accounting policies The accounting policies applied by the Group in the interim condensed consolidated financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2006. Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group’s accounting period beginning on or after January 1st, 2007: - - - - IFRS 7 Financial Instruments: disclosures IAS 1 (revised) Presentation of financial statements IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies, IFRIC 8 Scope of IFRS 2, IFRIC 9 Reassessment of Embedded Derivatives, IFRIC 10 Interim Financial Reporting and Impairment, The adoption of those new standards, interpretations and amendments has no material impact on the Group interim consolidated financial statements. The interim consolidated financial statements do not take into account: New standards, interpretations and amendments to existing standards not yet approved by the European Union. This notably concerns: o o o o IFRS 8 Operating Segments IAS 23 (revised) Borrowing Costs IFRIC 12 Service Concession Arrangements. IFRIC 13 Customers loyalty programmes Draft standards that are still at the exposure draft stage of the International Accounting Standards Board (IASB) Standards published by the IASB, adopted at the European level, but with an application date subsequent to June 30, 2007. This notably concerns: o IFRIC 11 Group and Treasury Share Transactions. At the date of this report the potential impact on the consolidated financial statements of application of this standard is not available. Atos Origin Half-Year Report 2007 52/87 Accounting estimates and judgments In line with IAS 34, the preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities. The estimates, assumptions and judgments that may result in a significant adjustment to the carrying amounts of assets and liabilities within the next financial statements are essentially related to: Impairment tests The Group tests at least annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated below. The recoverable amounts of cash generating units are determined based on value-in-use calculations. These calculations require the use of estimates. Revenue recognition and associated costs on long-term contracts Revenue recognition and associated costs, including forecast losses on completion are measured according to policy stated below. Total projected contract costs are based on various operational assumptions such as forecast volume or variance in the delivery costs and have a direct influence on the level of revenue and eventual forecast losses on completion that are recognised. Consolidation methods Subsidiaries Subsidiaries are entities controlled by the Group. Control is defined by the ability to govern the financial and operating policies generally, but not systematically, combined with a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible, the power to appoint the majority of the members of the governing bodies and the existence of veto rights are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate method. Operating and shareholders’ agreements are considered when assessing the joint control. Associates Associates are entities over which the Group has significant influence but not control or joint control, generally, but not systematically, accompanying a shareholding of between 20 and 50% of the voting rights. Investments in associates are accounted for by the equity method. Segment reporting The Group’s operational organisation is based on regions composed of geographical areas. The primary reporting segment corresponds to these geographical areas and the secondary reporting segment to the service lines. Presentation rules Current and non-current assets and liabilities Assets and liabilities classified as current are expected to be realised, used or settled during the normal cycle of operations, which can extend beyond 12 months following the period-end. All other assets and liabilities are classified as non-current. Current assets and liabilities, excluding the current portion of borrowings, financial receivables and provisions represent the Group’s working capital requirement. Assets and liabilities held for sale or discontinued operations Atos Origin Half-Year Report 2007 53/87 Assets and liabilities held for sale or discontinued operations are presented on a separate line in the balance sheet. They are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and liabilities are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets and liabilities are available for immediate sale in their present condition. Should these assets and liabilities represent either a complete business line or a geographical segment, the profit or loss from these activities will be presented on a separate line of the income statement. Translation of financial statements denominated in foreign currencies The balance sheets of companies based outside the euro zone are translated at closing exchange rates. Income statement items are translated based on average exchange rate for the period. Balance sheet and income statement translation adjustments arising from a change in exchange rates are recognised as a separate component of equity under “Translation adjustments”. The Group does not consolidate any entity operating in a hyperinflationary economy. Translation of transactions denominated in foreign currencies Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement under the heading “Other financial income and expenses”, except where hedging accounting is applied as explained in the paragraph “Financial assets – Derivative financial instruments ” Business combination and goodwill A business combination may involve the purchase of another entity, the purchase of all the net assets of another entity or the purchase of some of the net assets of another entity that together form one or more businesses. Major services contracts involving staff and asset transfers that enable the Group to develop or improve significantly its competitive position within a business or a geographical sector are considered for business combination accounting. Goodwill represents the excess of the cost of a business combination, including expenses directly attributable to the business combination, in accordance with IFRS3, over the Group’s interest in the fair value of assets, liabilities and contingent liabilities acquired at the acquisition date. Goodwill is not amortised and is subject to an impairment test performed at least annually or more often in case of a trigger event. Goodwill is allocated to Cash Generating Units (CGU) for the purpose of impairment testing. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. CGUs correspond to geographical areas where the Group has operations. The recoverable value of a CGU is based on the higher of its fair value less costs to sell and its value in use determined using the discounted cash-flows method. When this value is less than its carrying amount, an impairment loss is recognised in the operating income. The impairment loss is first recorded as an adjustment of the carrying amount of the goodwill allocated to the CGU and the remainder of the loss, if any, is allocated to the other long term assets of the unit. Intangible assets other than goodwill Intangible assets other than goodwill consist primarily of software and user rights acquired directly by the Group, software and customer relationships acquired in relation with a business combination as well as internally developed software, provided that the following conditions are satisfied: (cid:131) (cid:131) (cid:131) (cid:131) the costs can be attributed to the identified software and measured reliably, the technical feasibility of the software has been demonstrated, the Group has the intention and the capability to complete the software development and to use or sell it; and it is probable that future economic benefits will flow to the Group. Atos Origin Half-Year Report 2007 54/87 Once all these criteria are reached, the majority of software development costs have been already incurred and consequently, most of software developments costs are expensed when incurred. In specific Business Process Outsourcing (BPO) cases where developments and adapting software costs are engaged only once agreements with clients are signed, those costs are capitalised and amortised in operating expenses over the term of the contract. Intangible assets are amortised on a straight-line basis over their expected useful life, generally not exceeding five to seven years for software and ten years for customer relationships acquired in a business combination; their related depreciation are recorded in operating expenses. Tangible assets Tangible assets are recorded at acquisition cost, excluding any interest expenses. They are depreciated on a straight-line or reducing-balance basis over the following expected useful lives: Buildings 20 years Fixtures and fittings 5 to 10 years Computer hardware 3 to 5 years Vehicles 4 years Office furniture and equipment 5 to 10 years Leases Asset leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Assets acquired under finance lease are depreciated over the shorter of the assets’ useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Impairment of assets other than goodwill Assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Financial assets Financial assets are accounted for at trade date. Investments in non-consolidated companies The Group holds shares in companies without exercising significant influence or control. Investments in non-consolidated companies are treated as assets available for sale and recognised at their fair value. For listed shares, fair value corresponds to the share price at closing date. In the absence of an active market for the shares, the investments in non-consolidated companies are carried at historical cost. An impairment cost is recognised when there is objective evidence of a permanent impairment in value. The most common financial criteria used to determine fair value are equity and earnings outlooks. Gains and losses arising from variation in the fair value of available for sale assets are recognised as “items recognised directly in equity”. If there is evidence that an asset is permanently impaired, the cumulative loss is written off in the income statement under “other financial income and expense”. Loans, trade accounts and notes receivable Loans are part of non-current financial assets. Loans, trade accounts and notes receivable are recorded initially at their fair value and subsequently at their amortised value. The nominal value represents usually the initial fair value for trade accounts and notes receivable. In case of deferred payment over one year, Atos Origin Half-Year Report 2007 55/87 where the effect is significant on fair value, trade accounts and notes receivables are discounted. Where appropriate, a provision is raised on an individual basis to take likely recovery problems into account. Effective from 1 January 2006, certain service arrangements might qualify for treatment as lease contracts if they convey a right to use an asset in return for payments included in the overall contract remuneration. If service arrangements contain a lease, the Group is considered to be the lessor regarding its customers. Where the lease transfers the risks and rewards of ownership of the asset to its customers, the Group recognises assets held under finance lease and presents them as “Trade accounts and notes receivable” for the part that will be settled within 12 months, and “Non-current financial assets” for the part beyond 12 months. Assets securitisation Assets securitisation programmes, in which the Group retains substantially all the risks and rewards of ownership of the transferred assets, do not qualify for de-recognition. A financial liability for the consideration received is recognised. The transferred assets and the financial liability are valued at their amortised costs. Derivative financial instruments Derivative instruments are recognised as financial assets or liabilities at their fair value. Any change in the fair value of these derivatives is recorded in the income statement as a financial income or expense, except when they are eligible for hedge accounting, whereupon: (cid:131) for fair value hedging of existing assets or liabilities, the hedged portion of an instrument is measured on the balance sheet at its fair value. Any change in fair value is recorded as a corresponding entry in the income statement, where it is offset simultaneously against changes in the fair value of hedging instruments. (cid:131) for cash flow hedging, the effective portion of the change in fair value of the hedging instrument is directly offset in shareholders’ equity as “items recognized directly in the equity”. The change in value of the ineffective portion is recognised in “Other financial income and expenses”. The amounts recorded in net equity are transferred to the income statement simultaneously to the recognition of the hedged items. Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents include cash at bank and money market securities that are convertible into cash at very short notice and are not exposed to any significant risk of impairment. Money market securities are recognised at their fair value. Changes in fair value are recorded in the income statement under “Other financial income and expenses”. Treasury stock Atos Origin shares held by the parent company are recorded at their acquired cost as a deduction from consolidated shareholders’ equity. In the event of a disposal, the gain or loss and the related tax impacts are recorded as a change in consolidated shareholders’ equity. Pensions and similar benefits Employee benefits are granted by the Group through defined contribution and defined benefit plans. Defined contribution costs are recognised in the income statement based on contributions paid or due in respect of the accounting period when the related services have been accomplished by beneficiaries. The valuation of Group commitments in respect of defined benefit plans is based on a single actuarial method known as the “projected unit credit method”. This method relies in particular on projections of future benefits to be paid to Group employees, by anticipating the effects of future salary increases. Its Atos Origin Half-Year Report 2007 56/87 implementation further includes the formulation of specific assumptions, detailed in note 13, which are periodically updated, in close liaison with external actuaries used by the Group. Plan assets usually held in separate legal entities are measured at their fair value, determined at closing. From one accounting period to the other, any difference between the projected and actual amounts of commitments in respect of pension plans and their related assets is cumulated at each benefit plan’s level to form actuarial differences. These actuarial differences may result either from changes in actuarial assumptions used, or from experience adjustments generated by actual developments differing, in the accounting period, from assumptions determined at the end of the previous accounting period. Group final option in terms of recognition method for actuarial differences has not been elected yet, since a new option has been introduced under IAS 19 to recognise these actuarial differences through equity. By application of the “corridor” method, the Group therefore continues to recognise in its profit and loss account only the portion of cumulated actuarial differences which is above a normative fluctuation margin of 10% of the greater, at closing, of plan commitments and their related assets. This portion is amortised over the remaining active life of the beneficiaries of each particular benefit plan. The measurement of pension commitments is highly sensitive to the evolution of long term interest rates on which the discount rate to be used has to be based. To better reflect this significant market evolution, the group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans when significant rates evolution occur. Benefit plans costs are recognised in the Group’s operating income, except for interest costs on obligations, net of expected returns on plans assets, which are recognised in other financial income. Provisions Provisions are recognised when: (cid:131) (cid:131) the Group has a present legal, regulatory, contractual or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably quantified. Provisions are discounted when the time value effect is material. The provision revaluation at each accounting period results in a provision increase recognised in financial expenses. Borrowings Borrowings are recognised initially at fair value, net of debt issuance costs. Borrowings are subsequently stated at amortised costs. The calculation of the effective interest rate takes into account interest payments and the amortisation of the debt issuance costs. Debt issuance costs are amortised in financial expenses over the life of the loan. The residual value of issuance costs for loans repaid in advance is expensed in the year of repayment. Bank overdrafts are recorded in the current portion of borrowings. The Group does not capitalise borrowing costs as part of the costs of acquired assets. Minority interest purchase commitments Firm or conditional commitments under certain conditions to purchase minority interests are similar to a purchase of shares and are recorded in borrowings with an offsetting reduction of minority interests. When the cost of the purchase exceeds the amount of minority interests, the Group chooses to recognise the balance as goodwill. Any further change in the fair value of the minority purchase commitment will also be recorded in goodwill. Revenue Recognition Atos Origin Half-Year Report 2007 57/87 The Group provides information technology (IT) and business process outsourcing (BPO) services. Depending on the structure of the contract, revenue is recognised accordingly to the following principles: Revenue based on variable IT work units is recognised as the services are rendered. Where the outcome of fixed price contracts such as Consulting and Systems Integration contracts can be estimated reliably, revenue is recognised using the percentage-of-completion (POC) method. Under the POC method, revenue is recognised based on the costs incurred to date as a percentage of the total estimated costs to fulfil the contract. Revenue relating to these contracts is recorded in the Consolidated Balance Sheet under “Trade accounts and notes receivable” for services rendered in excess of billing, while billing exceeding services rendered is recorded as deferred income under “other current liabilities”. Where the outcome of a fixed price contract cannot be estimated reliably, contract revenue is recognised to the extent of contracts costs incurred that are likely to be recoverable. Revenue for long-term fixed price Managed Operations services is recognised when services are rendered. If circumstances arise, that change the original estimates of revenues, costs, or extent of progress toward completion, then revisions to the estimates are made. The company performs ongoing profitability analyses of its services contracts in order to determine whether the latest estimates of revenue, costs and profits, require updating. If, at any time, these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately through a provision for estimated losses on completion. Revenue is reported net of supplier costs when the Group is acting as an agent between the client and the supplier. Factors generally considered to determine whether the Group is a principal or an agent, are most notably whether it is the primary obligor to the client, it assumes credit and delivery risks, or it adds meaningful value to the supplier’s product or service. The Group enters into multiple-element arrangements, which may include combinations of different services. Revenue is recognised for the separate elements when they have been subject to separate negotiation, the contractor and customer have been able to accept or reject that part of the contract relating to each component, and, each component’s costs and revenues can be identified. A group of contracts is combined and treated as a single contract when that group of contracts is negotiated as a single package and the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin, and the contracts are performed concurrently or in a continuous sequence. Upfront payments to clients incurred at contract inception are recorded in “other current assets” and spread as a reduction of revenue over the term of the contract. Up-front payments received from clients at contract inception are recorded in other current liabilities and spread as an increase in revenue over the term of the contract. Transition costs Costs related to delivering Managed Operations services are generally expensed as incurred. However, certain transition costs incurred in the initial phases of outsourcing contracts can be deferred and expensed over the contract term, provided that they will be recovered. Capitalised transition costs are classified in “Trade accounts and notes receivable” of the Consolidated Balance Sheet and amortisation expense is recorded in operating expenses in the Consolidated Income Statements. In case the contract turns out to be loss-making, capitalised transition costs are impaired for the related forecasted loss, before recognising an additional provision for estimated losses on completion when necessary. Other operating income and expenses “Other operating income and expenses” covers income or expense items that are unusual, abnormal or infrequent. They are presented below the operating margin in line with the CNC (“Conseil National de la Comptabilité”) recommendation of 27 October 2004. Classification of restructuring charges in the income statement depends on the nature of the restructuring: (cid:131) Restructuring costs directly in relation with operations are classified within the Operating Margin; Atos Origin Half-Year Report 2007 58/87 (cid:131) Restructuring costs related to business combinations or qualified as unusual, infrequent and abnormal are classified in the Operating Income. When accounting for business combinations, the Group may record provisions for risks, litigation, etc. in the opening balance sheet for a period of 12 months beyond the business combination date. After the 12-month period, unused provisions arising from changes in circumstances are released through the Income Statement under “Other operating income and expenses”. “Other operating income and expenses” also include major litigations, and non-recurrent capital gains and losses on the disposal of tangible and intangible assets, significant impairment losses on assets other than financial assets, or any other item that is infrequent, unusual and abnormal. Equity-based compensation Stocks options are granted to management and certain employees at regular intervals. These equity-based compensation are measured at fair-value at the grant date using the binomial option-pricing model. Changes in the fair value of options after the grant date have no impact on the initial valuation. The fair value of share options is recognised in “Personnel expenses” on a straight-line basis over the period during which those rights vest, using the straight-line method, with the offsetting credit recognised directly in equity. In some tax jurisdictions, Group’s entities receive a tax deduction when stock options are exercised, based on the Group share price at the date of exercise. In those instances, a deferred tax asset is recorded for the difference between the tax base of the employee services received to date (being the future tax deduction allowed by local tax authorities) and the current carrying amount of this deduction, being nil by definition. Deferred tax assets are estimated based on the Group’s share price at each closing date, and are recorded in income tax provided that the amount of tax deduction does not exceed the amount of the related cumulative stock option expenses to date. The excess, if any, is recorded directly in the equity. Employee Share Purchase Plans offer employees the opportunity to invest in Group’s shares at a discounted price. Shares are subject to a 5-year lock-up period restriction. Fair values of such plans are measured taking into account: (cid:131) (cid:131) (cid:131) (cid:131) the exercise price based on the average opening share prices quoted over the 20 trading days preceding the date of grant, the 20% discount granted to employees the consideration of the 5-year lock-up restriction to the extent it affects the price that a knowledgeable, willing market participant would pay for that share the grant date: date on which the plan and its term and conditions, including the exercise price, is announced to employees. Fair values of such plans are fully recognised in “Personnel expenses” at the end of the subscription period. The Group has also granted to management and certain employees bonus shares plans. The fair value of those plans corresponds to the value of the shares at the grant date and takes into account the employee turnover during the vesting period as well as the value of the lock-up period restriction when applicable. Bonus share plans result in the recognition of a payroll expense spread over the rights vesting period. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. Deferred tax assets and liabilities are netted off at the taxable entity level, when there is a legal right to offset. Deferred tax assets corresponding to temporary differences and tax losses carried forward are recognised when they are considered to be recoverable during their validity period, based on historical and forecast information. Atos Origin Half-Year Report 2007 59/87 Deferred tax liabilities for taxable temporary differences relating to goodwill are recognised, to the extent they do not arise from the initial recognition of goodwill. Earnings per share Basic earnings per share is calculated by dividing the net income (Group share) by the weighted average number of ordinary shares outstanding during the period, after deduction of the weighted average number of treasury shares held by consolidated companies. Diluted earnings per share is calculated by dividing the net income (Group share), adjusted for the financial cost (net of tax) of dilutive debt instruments, by the weighted average number of ordinary shares outstanding during the period, plus the average number of shares which, according to the share buyback method, would have been outstanding had all the issued dilutive instruments been converted (stock options and convertible debt). The dilutive impact of each convertible instrument is determined in order to maximise the dilution of basic earnings per share. The dilutive impact of stock options is assessed based on the average price of Atos Origin shares over the period. 9.2.5.3 Notes to the half-year condensed consolidated financial statements Note 1 Change of scope of consolidation Acquisition: In February 2007, the Group announced the acquisition of Uni-Medecine Group, through its Atos Worldline subsidiary for an amount of EUR 2.4 million. The company was consolidated as of February 1, 2007 and represent EUR 0.6 million of revenue. Disposals: In February 2007, the Group has finalised the sale of its software activity B2B to Axway, a subsidiary of Sopra. This activity made EUR 15 million revenue in 2006 with 162 legal staff, and was consolidated until January 31, 2007. The Group also sold its activities in Chile early February. This activity made EUR 4.9 million revenue in 2006 with 81 legal staff. No trading activity was recognized in 2007. Note 2 Segment information Primary reporting format – geographical segments The Group is organised on a worldwide basis into seven geographical segments. Geographical segments are made of the following countries: Geographic segments Countries (cid:131) France (cid:131) The Netherlands (cid:131) United Kingdom (cid:131) Germany and Central Europe (cid:131) Other European countries, Middle-East and Africa (cid:131) Americas (cid:131) Asia-Pacific France The Netherlands United Kingdom Germany, Switzerland, Poland, Austria Italy, Spain, Portugal, Belgium, Luxembourg, Andorra, Greece, Turkey, Morocco, South Africa, Sweden United States of America, Mexico, Argentina, Brazil, Chile, Peru, Colombia China, Taiwan, Japan, Malaysia, Singapore, Thailand, Indonesia, India Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Atos Origin Half-Year Report 2007 60/87 The geographical primary segment information for the period ended 30 June 2007 is as follows: (in EUR million) France United Kingdom The Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 806.8 528.3 547.5 292.6 523.1 118.1 73.6 % 27.9% 18.3% 18.9% 10.1% 18.1% 4.1% 2.6% Inter-segment revenue 17.4 32.8 15.3 8.3 32.5 5.5 20.6 Total revenue 824.2 561.1 562.8 300.9 555.6 123.6 94.2 Operating margin before allocation of corporate costs % 30.2 1.0% 15.2 0.5% 56.4 1.9% 21.3 30.1 0.7% 1.0% 4.7 0.2% 6.1 0.2% (46.3) Allocation of corporate costs (15.8) (9.4) (11.7) (4.6) (3.2) (1.7) (1.2) 47.6 % Operating margin after allocation of corporate costs % 0.5% 14.4 0.5% 0.3% 5.8 0.2% 0.4% 44.6 1.5% 0.2% -0.1% 16.8 26.9 0.6% 0.9% 0.1% 3.0 0.1% 0.0% 4.9 0.2% 1.3 Operating Income before allocation of corporate costs % 31.0 1.1% 18.3 0.7% 56.6 2.0% 39.2 7.2 1.4% 0.3% 5.5 0.2% 6.0 0.2% (56.1) Profit before tax Income tax expense Net income (1) Central structure costs unallocated by geographical segment The geographical primary segment information for the period ended 30 June 2006 was as follows: (in EUR million) France United Kingdom The Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 809.1 541.4 518.6 289.2 374.6 98.3 64.7 % 30.0% 20.1% 19.2% 10.7% 13.9% 3.6% 2.4% Inter-segment revenue 23.2 57.8 14.7 7.8 19.6 5.7 15.2 Total revenue 832.3 599.2 533.3 296.9 394.2 103.9 79.9 Operating margin before allocation of corporate costs % 52.7 6.5% 27.4 5.1% 53.6 10.3% 18.5 6.4% 13.4 3.6% 5.0 5.1% 3.7 5.7% (41.3) Allocation of corporate costs (8.6) (6.5) (6.7) (3.3) (6.5) (1.4) 4.7 28.2 % Operating margin after allocation of corporate costs % 1.1% 44.1 5.4% 1.2% 20.9 3.9% 1.3% 46.9 9.0% 1.2% -1.7% 15.2 6.9 5.2% 1.9% 1.4% 7.3% 3.6 8.4 3.7% 12.9% (13.0) Operating Income before allocation of corporate costs (*) % 42.0 5.2% 30.1 5.6% 54.9 10.6% 18.2 (52.0)* 6.3% -13.9% 5.5 5.6% 3.7 5.7% (43.8) Profit before tax Income tax expense Net income (1) Central structure costs unallocated by geographical segment (*) Including EUR 60 million impairment charge Atos Origin Half-Year Report 2007 61/87 Eliminations Total Group 2,890.0 100.0% (132.4) (132.4) 2,890.0 117.7 4.1% 117.7 4.1% 107.7 3.7% 100.4 (37.6) 62.8 Eliminations Total Group 2,695.8 100.0% (144.0) (144.0) 2,695.8 133.0 4.9% 133.0 4.9% 58.5 2.2% 53.0 (35.0) 18.0 Secondary reporting format – Information by service line The secondary segment information for the year ended 30 June 2007 is as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 189.2 1,167.8 1,533.0 2,890.0 Operating margin before allocation of corporate costs 11.5 39.4 104.4 (37.6) 117.7 % margin 6.1% 3.4% 6.8% 1.3% 4.1% (1) Central structure costs unallocated by service line The secondary segment information for the period ended 30 June 2006 was as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 206.4 1,130.6 1,358.8 2,695.8 Operating margin before allocation of corporate costs 25.6 35.9 105.6 (34.1) 133.0 % margin 12.4% 3.2% 7.8% 1.3% 4.9% (1) Central structure costs unallocated by service line Note 3 Personnel expenses (In EUR million) 6 months ended 30 June 2007 % revenue 6 months ended 30 June 2006 (a) % revenue 12 months ended 31 December 2006 % revenue Wages and salaries (1,229.7) 42.6% (1,159.1) 43.0% (2,288.5) 42.4% Social security charges (357.5) 12.4% (319.5) 11.8% (647.8) 12.0% Tax, training, profit-sharing (29.2) 1.0% (29.2) 1.1% (62.3) 1,2% Equity-based compensation Net charge to provisions for staff expenses Net charge to provisions for pensions Total (4.9) 11.5 8.7 (1,601.1) 0.2% 0.4% 0.3% 55.4% (5.7) (2.6) (1,516.1) 0.2% 0.1% 56.0% (23.2) (11.3) 37.2 (2,995.9) 0.4% 0.2% 0.7% 55.5% (a) June 2006 has been restated to be in line with December 2006 and June 2007 Equity-based compensation classification in personnel expenses compared to classification in other operating income and expenses in June 2006. The EUR 4.9 million charge for Equity based compensation is made of EUR 4.4 million related to the stock option plans granted in previous years, and EUR 0.5 million related to the Management and Long-Term incentive plans implemented during the period as described below. “Long-term Incentive Plan” On May 17, 2007, the Group has set up a performance share plan called “long-tem incentive”. Under this plan, 168,658 shares were granted. The stock price at the grant date was EUR 43.98. The aim of this plan is to motivate employees and to reinforce the group’s capability to reach challenging financial targets, in line with Shareholder’s value creation. The vesting period is: - 2 years followed by a lock-up period of 2 years, or 4 years and no lock-up period. Atos Origin Half-Year Report 2007 62/87 Vesting conditions are subject to: - - the realization of Group financial objectives the realization of personal achievements a presence of the beneficiary in the Group throughout the vesting period. The number of shares obtained by the employees will vary in a 0 to 3 range depending on the level of performance reached. Under this plan, the Group has recognized a personnel cost amounting to EUR 367.7 thousand during the first semester of 2007. Expected cost for 2007 is EUR 1.8 million. Annualized cost is EUR 2.9 million. “Management Investment Plan” On June 18, 2007, the Group has set up a free share plan, whereby free shares are granted upon the acquisition of an equivalent number of shares. The aim of this plan is to promote employee ownership and retention. Under this plan, 218,185 shares were granted. The stock price at grant date was EUR 45.64. The vesting period is: - 2 years followed by a lock-up period of 2 years, or; 4 years and no lock-up period. Vesting conditions are subject to the presence in the Group and investment in Atos Origin shares throughout the vesting period. The initial investment is subject to a 2 year lock-up period. Under this plan, the Group has recognized a personnel cost amounting to EUR 161.8 thousand during the fist semester of 2007. Expected cost for 2007 is EUR 2.1 million. Annualized cost is EUR 3.9 million. Methodology used In accordance with the specific guidance issued by the CNC (Conseil National de la Comptabilité), the cost related to the MIP and LTI plans take into account the effect of the 2 years lock-up period restriction, whenever applicable, calculated based on the following parameters: Risk free interest rate: 4,47% • Credit spread: 1,00% • Borrowing-lending spread: 1,5% • Employee turnover ratio: 4% Atos Origin Half-Year Report 2007 63/87 Note 4 Operating expenses (In EUR million) 6 months ended 30 June 2007 % revenue 6 months ended 30 June 2006 % revenue 12 months ended 31 December 2006 % revenue Purchase for selling and royalties Sub-contracting costs (141.4) (357.7) 4.9% 12.4% (152.8) (283.6) 5.7% 10.5% (306.3) (561.5) 5.7% 10.4% Premises costs (123.5) 4.3% (115.2) 4.3% (223.0) 4.1% Means of production (206.8) 7.2% (208.5) 7.7% (397.3) 7.4% Telecommunications (56.9) 2.0% (58.3) 2.2% (114.4) 2.1% Travelling expenses Taxes, other than corporate income tax Other operating expenses (67.6) (8.0) (111.8) 2.3% 0.3% 3.9% (61.3) (14.5) (73.8) 2.3% 0.5% 2.7% (130.2) (30.6) (188.6) 2.4% 0.6% 3.5% Sub-total expenses (1,073.7) 37.2% (968.0) 35.9% (1,951.9) 36.1% Depreciation of fixed assets Net book value of assets sold/written off Net depreciation of current assets Net charge to provisions Sub-total depreciation and provisions Total (101.5) (0.5) (5.1) 9.6 (97.5) 3.5% 0.0% 0.2% 0.3% 3.4% (87.8) 0.5 8.6 (78.7) 3.3% 0.0% 0.3% 2.9% (176.3) (2.2) (3.2) (20.7) (202.4) 3.3% 0,0% 0.1% 0.4% 3.9% (1,171.2) 40.5% (1,046.7) 39.0% (2,154.3) 40.0% Note 5 Other operating income and expenses (In EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 12 months ended 31 December 2006 Restructuring and rationalization (29.4) (7.8) (31.2) Net profit /(charge) relating to major litigations (5.3) (12.1) (13.1) Release of opening balance sheet provisions no longer needed 3.1 6.4 13.7 Capital gains and losses on disposal of assets 21.6 (1.0) 1.5 Impairment losses on long-term assets (60.0) (377.6) Total (10.0) (74.5) (406.7) The net charge for restructuring and rationalisation primarily consist of plans in the United Kingdom and Italy incepted last year. As a result of the implementation of a new governance model, the Management Board has been tightened around Philippe Germond who has been appointed by the Supervisory Board as the identified successor of Bernard Bourigeaud as Group CEO. Considering this decision from the Supervisory Board, both Bernard Bourigeaud, Group CEO and Dominique Illien, Member of the Management Board have expressed their intention to leave the Company. This has been effective for Dominique Illien as of 1 June 2007 and will be effective for Bernard Bourigeaud as of 31 December 2007. As a consequence on the consolidated accounts of the first half of 2007, a charge was booked for respectively EUR 2.5 million and EUR 4.5 million within the restructuring costs. The net charge relating to major litigations corresponds to extra-ordinary settlement and litigations with third parties, essentially in France, in the United Kingdom and in Sweden. Atos Origin Half-Year Report 2007 64/87 The release of opening balance sheet provisions no longer needed mainly relates to positive settlement on tax related exposures. The capital gain on disposal of assets primarily relates to the sale of the Actis business in Germany. Note 6 Net financial income Net cost of financial debt (In EUR million) 6 months ended 30 June 2007 6 months ended 30 June 2006 12 months ended 31 December 2006 Net Interest expenses (15.1) (11.3) (24.2) Gain /(loss) on disposal of cash equivalents 1.8 2.4 4.4 Gain/(loss) on interest rate hedges of financial debt 0.8 (2.2) (2.9) Net cost of financial debt (12.5) (11.1) (22.7) The average net debt during the first six months 2007 was EUR 479 million, with an average net cost of financial debt amounting 5.23% before interests swaps and to 5.55% after interests swaps. Other financial income and expenses (In EUR million) 6 months ended 30 June 2007 6 months ended 30 June2006 12 months ended 31 December 2006 Foreign exchange (expenses)/ income and hedge-related (3.3) 1.0 (4.6) Other financial (expenses)/ income 8.6 5.0 16.8 Discounting financial expenses (0.1) (0.3) (0.7) Other financial income and expenses 5.2 5.7 11.5 The EUR 8.6 million of Other financial income mainly relates to pensions, and represents the positive difference between the interests cost and the expected return on plan assets. Note 7 Income tax expenses Interim period income tax is accrued based on the estimated average annual effective income tax rate of 37.5%, compared with 31.0% for the first half-year 2006 (adjusted for goodwill impairment). Note 8 Minority interests (In EUR million) 31 December 2006 2007 Income Others 30 June 2007 Atos Euronext Market solutions Atos Worldline Processing GmbH Others 156.0 3.8 5.7 2.9 0.6 2.0 (0.5) (1.4) 158.4 4.4 6.3 Total 165.5 5.5 (1.9) 169.1 Note 9 Earnings per share The dilutive instruments are composed of stock options which do not generate any restatement on the net income used for the diluted earnings per share calculation. Basic and diluted earnings per share are reconciled as follows: Atos Origin Half-Year Report 2007 65/87 Net income - Group share [a] Weighted average number of shares outstanding [b] Impact of dilutive instruments [c] Diluted weighted average number of shares [d]=[c]+[b] Earnings per share in EUR [a]/[b] Diluted earnings per share in EUR [a]/[d] 6 months ended 30 June 2007 57.3 68,898,338 237,791 69,136,128 0.83 0.83 6 months ended 30 June 2006 10.4 67,424,238 598,489 68,022,727 0.15 0.15 12 months ended 31 December 2006 (264.4) 67,614,323 0 67,614,323 (3.91) (3.91) The total average number of stock options not exercised on first half of 2007 amounted to 6,385,657 shares, out of which only 237,791 have a dilutive effect on the earning per share. Note 10 Goodwill (In EUR million) 31 December 2006 Acquisition/ depreciation Disposals Others Exchange rate fluctuations 30 June 2007 Gross value Impairment loss Carrying amount 2,466.3 (420.7) 2,045.6 2.4 - 2.4 - - (3.1) - (3.1) (1.9) (0.7) (2.6) 2,463.7 (421.4) 2,042.3 The EUR 2.4 million increase in the goodwill relates to the acquisition of Uni-Medecine Group. The EUR 3.1 million decrease in other movements primarily consists of adjustments to the Banksys opening balance sheet. Goodwill is allocated to the Group’s cash generating units (CGUs) by geographical segment. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial business plans approved by management, covering a three-year period. Note 11 Trade accounts and notes receivable (In EUR million) 30 June 2007 31 December 2006 Gross value Transition costs Provision for doubtful debts 1,755.4 33.8 (36.1) 1,612.60 22.9 (35.6) Net asset value Prepayments Deferred income and amounts due to customers 1,753.1 (26.2) (332.8) 1,599.9 (21.0) (271.5) Net accounts receivable 1,394.1 1,307.4 Number of days’ sales outstanding 74 68 Note 12 Cash and cash equivalent (In EUR million) 30 June 2007 31 December 2006 Cash in hand and short term bank deposit Money market funds 162.8 21.5 441.5 12.4 Total 184.3 453.9 Atos Origin Half-Year Report 2007 66/87 Depending on market conditions and short-term cash flow expectation, Atos Origin may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 13 Pension The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and assimilated benefits is EUR 427.6 million. Group commitments are located predominantly in the United Kingdom (56% of Group total obligations), in The Netherlands (35%), and in Germany (4%). The measurement of the related liabilities is highly sensitive to long term interest rates, on which the discount rate to be used under IAS 19 is based. Reference discount rates used have significantly increased during the first half 2007: from 5% and 4.55% at December 2006 to 5.75% and 5.25% at June 2007 in the United Kingdom and Eurozone respectively. By application of its accounting policies, and in order to better reflect this significant market evolution in its June accounts, the Group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans. As a consequence of the increase in discount rates and the good performance of equity assets held by its pension funds, the net financial situation of group pension plans has significantly improved over the first half 2007, the funded status of post employment plans moving from a deficit of EUR 476.9 millions at December 2006 to a deficit of EUR 144.3 millions at June 2007, including some pension plans being now in a surplus situation. Because of the corridor mechanism, the net provision shown on group balance sheet at 30 June 2007 does not fully reflect this improvement, most of the impact being reported as unrecognized gains for EUR 275.1 millions against net unrecognized losses of EUR 42.4 millions at 31 December 2006. (In EUR million) 30 June 2007 31 December 2006 Amounts recognised in financial statements consist of : Prepaid pension asset - Post employment plans Accrued liability - Post employment plans Accrued liability - Other long term benefits Net amount recognised – Total 18.6 (430.1) (16.1) (427.6) 12.2 (438.5) (20.1) (446.4) Reconciliation of prepaid (accrued) Benefit cost Funded Status - post employment plans Funded Status - other long term benefit plans Unrecognised Actuarial (Gain) Loss Unrecognised Past Service Cost Any other amount not recognised (asset ceiling limitation, ...) (144.3) (16.1) (275.1) 7.9 - (476.9) (20.1) 42.4 8.2 0 Prepaid (Accrued) Pension Cost (427.6) (446.4) Of which non-current financial assets 18.6 12.2 Reconciliation of net amount recognised Net amount recognised at beginning of year Net periodic pension cost – Post employment plans Employer contributions for - Post employment plans Benefits paid by employer – Post employment plans & other long term benefits Business combinations / disposals Other (other long term benefit, exchange rate) Net amount recognised at end of year (446.4) (24.9) 32.6 11.2 0 (0.1) (427.6) (483.7) (33.2) 67.2 17.0 (7.4) (6.3) (446.4) Atos Origin Half-Year Report 2007 67/87 In the first half of the year, the Group has engaged in the United Kingdom with the Trustees of its various pension arrangements in a process of redefinition of employee benefits. This process aims at securing and harmonizing employees pension entitlements while optimizing Group pension obligation. On 23 May 2006 the Annual General Meeting as approved through its 5th resolution the principle of a pension scheme for Management Board members. On 24 July 2007 the Supervisory Board has decided to implement the plan rules of that pension scheme for the Management Board and key Senior executives, by externalising the Group obligation through an insurance coverage with a reputable insurance carrier. The current estimate of the corresponding obligation does not exceed the amount already accrued for at the end of 2006. The plan will be fully implemented by the end of the year. Note 14 Provisions (In EUR million) 31 December 2006 Charge Release used Release unused Other (a) 30 June 2007 Current Non Current Reorganisations Rationalisations Project commitments Litigations and contingencies 117.8 Total provisions (a) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of 27.3 24.4 5.6 (1.0) (12.7) (2.9) (41.6) (6.3) 36.8 1.0 27.3 5.6 39.2 33.6 7.1 81.1 (11.3) 70.5 70.5 (5.5) (0.9) 11.9 99.0 110.1 (8.1) (2.3) (12.6) 56.8 (4.4) 221.2 (33.7) (61.5) 103.4 264.0 18.8 99.0 consolidation. Movements on the provisions impact the income statement aggregates as follows : (In EUR million) Charge Release Unused (b) Sub-total Release Used (c) 28.7 Operating margin 32.4 Other operating items - Financial result 0.4 Tax Total Income Statement impact 61.5 (b) « unused » means without costs in counterpart in the income statement and without cash outflow in the cash flow statement. (c) « used » means consumed in the period with costs in counterpart in the income statement and with cash outflow in the cash flow statement. (15.7) (40.5) (0.5) (0.1) (56.8) 8.2 21.3 0.3 3.9 33.7 (7.5) (19.2) (0.2) 3.8 (23.1) Atos Origin Half-Year Report 2007 68/87 Note 15 Borrowings (In EUR million) Current 30 June 2007 Non-Current Total Current 31 December 2006 Non-Current Total Finance leases (18.5) (11.5) (30.0) (23.0) (19.4) (42.4) Bank loans (1.5) (430.3) (431.8) (3.8) (550.6) (554.4) Securitization (159.0) (159.0) (160.8) (160.8) Other borrowings (50.2) (21.9) (72.1) (37.4) (19.2) (56.6) Total borrowings (229.2) (463.7) (692.9) (225.0) (589.2) (814.2) Tangible assets held under finance leases had a net carrying value of EUR 30.7 million. Non-current borrowings maturity (In EUR million) 1 to 2 year 2 to 3 year 3 to 4 year 4 to 5 year Over 5 years Total Finance leases Bank loans Other borrowings (8.1) (0.7) (5.3) (2.4) (0.4) (3.6) (1.0) (0.4) (6.1) (427.9) (6.9) (0.9) (11.5) (430.3) (21.9) As at 30 June 2007 long -term debt (14.1) (6.4) (7.5) (434.8) (0.9) (463.7) As at 31 December 2006 long-term debt (16.2) (9.4) (5.9) (556.6) (1.1) (589.2) Change in net debt over the period 6 months ended 30 June 2007 (360.3) (31.2) 152.3 (269.6) Notes (*) (In EUR million) Opening net debt New borrowings Repayment of long and medium-term borrowings Increase /(decrease) in cash and cash equivalents Long and medium-term debt of companies purchased during the period Long and medium-term debt of companies sold during the period Impact of exchange rate fluctuations on net long and medium-term debt Other changes (**) Closing net debt (*) For reconciliation to the consolidated cash flow statement and the cash flow by activity below (**) Other changes include profit sharing amounts payable to French employees transferred to debt, IAS 32/39 impact and new finance lease over the period. n -o q r n -o q r 0.1 t u 0.1 (508.6) 6 months ended 30 June 2006 (180.5) (27.3) 139.2 (252.1) (10.8) 5.6 (325.9) Atos Origin Half-Year Report 2007 69/87 Cash flow by activity over the period (In EUR million) Notes (*) 6 months ended 30 June 2007 6 months ended 30 June 2006 Cash from operating activities Income tax paid Change in working capital requirement Net cash from operating activities Purchase of tangible and intangible assets Proceeds from disposals of tangible and intangible assets a b c d e 144.8 (17.1) (103.3) 24.4 (169.1) 1.3 188.9 (9.1) (197.2) (17.4) (95.5) 1.2 Net cash from operations (143.4) (111.7) Other changes Net cash before financial investments j+k+l+m+p+t+u (27.8) (171.2) (25.2) (136.9) Financial Investments(**) Proceeds from disposals of financial investments Net financial investments Net cash flow f+g+r h+i+s 2.9 20.0 22.9 (148.3) (15.4) 6.9 (8.5) (145.5) Opening net debt Closing net debt (*) For reconciliation to the consolidated cash flow statement (**) Financial investments are positive due to the price adjustment on Banksys for EUR 6.6 million. (360.3) (508.6) (180.5) (325.9) Note 16 Fair value and characteristics of financial instruments 30 June 2007 31 December 2006 (In EUR million) Assets Liabilities Assets Liabilities Forward foreign exchange contracts 1.1 (1.9) 1.2 (1.9) Interest rate swaps 0.6 (1.2) Analysed as: Non-current Current 0.6 1.1 (1.9) 1.2 (1.2) (1.9) Breakdown of the designation of the instruments per currency is as follows: 30 June 2007 31 December 2006 Instruments Fair Value Notional Fair Value Notional Cash Flow Hedge Interest rate Swaps 0.6 250.0 (1.2) 250.0 Foreign exchange Forward contracts USD (0.7) 10.5 (0.7) 17.8 Forward contracts INR 0.3 15.5 Forward contracts other currency Fair Value Hedge – Trading Foreign exchange Forward contract USD 0.4 7.1 0.8 17.9 Forward contract GBP 0.0 5.7 (0.3) 11.1 Forward contract BRL/ZAR (0.7) 4.4 (0.4) 9.1 The net amount of cash flow hedge reserve at 30 June 2007 was EUR (0.3) million, with a variation of EUR 0.7 million net of tax over the period. Atos Origin Half-Year Report 2007 70/87 Note 17 Trade accounts and notes payable (In EUR million) Trade payables Amounts payable on tangible assets Total 30 June 2007 662.9 6.4 669.3 31 December 2006 595.7 13.4 609.1 Note 18 Other current liabilities (In EUR million) Advances and down payments received on client orders Employee-related liabilities Social security and other employee welfare liabilities VAT payable Deferred income Other operating liabilities Total 30 June 2007 26.2 302.3 208.2 149.9 263.2 155.4 1,105.2 31 December 2006 21.0 307.3 219.2 178.0 198.4 139.0 1,062.9 Note 19 Off-balance-sheet commitments Contractual commitments In EUR million Maturing 30 June 2007 Up to 1 year 1 to 5 years Over 5 years 31 Dec. 2006 Long-term borrowings (> 5 years) Finance leases 431.8 30.0 1.5 18.5 429.4 11.5 0.9 - 554.4 42.4 Recorded on the balance sheet 461.8 20.0 440.9 0.9 596.8 Operating leases: land, buildings, fittings 601.6 135.7 382.0 83.9 574.1 Operating leases : IT equipment 76.3 43.3 33.0 97.2 Operating leases: other fixed assets Non-cancellable purchase obligations (>5 years) Commitments 114.1 17.3 809.3 47.4 11.3 237.7 66.7 5.8 487.5 0.2 84.1 119.8 12.5 803.6 Total 1,271.1 257.7 928.4 85.0 1,400.4 Commercial commitments (In EUR million) Bank guarantees Pledges Total 30 June 2007 140.7 0.4 141.1 31 December 2006 135.7 1.0 136.7 For various large long term contracts, the Group provides performance or financial guarantees to its clients. These limited exposure guarantees amount to EUR 1,229.9 million as of 30 June 2007, compared with 1,198.3 million as of 31 December 2006. Note 20 Subsequent events (cid:190) On 25 July, 2007, the British Department of Health announced that planned diagnostics services that should have been operated by the Group in North West and South West regions will not proceed. On the date the termination letter was issued, Atos was within days of receiving official clearance to deliver services which were on schedule for commencement in late August. Following this termination, the Group will conduct the required procedures to mitigate its effects. As of the date of legal publication of the Group interim financial statements, an uncertainty remains with regards to the financial consequences of this situation. The Group is facing an unexpected situation that does not allow enough time to properly assess the recoverable value of the assets, due to their customizations and complexity. The same holds true for the prospective settlement regarding the Atos Origin Half-Year Report 2007 71/87 recovery of other expenditures on the project. Accordingly all the potential impacts will be recorded during the second semester. As of June 30, 2007, the net balance sheet position in Group books is: (In EUR million) Intangible assets Tangible assets Transition costs TOTAL NET ASSETS 30 June 2007 4.4 24.8 12.4 41.6 In addition to the balance sheet positions as of June 30, the Group is engaged into off-balance sheet commitments. This consists of both a parental guarantee for EUR 16.3 million, operating leases related to the numerous sites requested by the contracts and purchase commitments for which evaluation is underway. This position does not take into account any potential contingent asset nor liability associated to the stop of the contracts. The Group is working to achieve a mutually satisfactory financial closure to the contracts with the client. Furthermore, the Group is taking strong actions towards suppliers and potential assets buyers, so as to minimize the potential impacts, and recover part of the cash expensed during the first half of the year. (cid:190) On 1 August 2007, following 12 June announcement and in agreement with the Supervisory Board, Bernard Bourigeaud, Atos Origin Chairman of the Management Board and CEO, announced that as of 1 October 2007 Philippe Germond will become Chairman of the Management Board and CEO of the Group. Bernard Bourigeaud will remain in the Group until 31 December 2007 in order to ensure a smooth transition. Atos Origin Half-Year Report 2007 72/87 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 10.1 TRADING OF SHARES (EURONEXT) Number of shares traded Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA / SRD : 68,983,818 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes / Yes 10.2 COMMON STOCK 10.2.1 Common stock at 30 June 2007 At 30 June 2007, the Company’s issued common stock amounted to EUR 69.0 million, comprising 68,983,818 fully paid-up shares of EUR 1 par value each. Changes in the total number of issued shares of the Company during the half-year come all from exercise of 102,853 stock subscription options. Transactions Number of shares issued Common stock (in EUR million) Additional paid-in capital (in EUR million) Total (in EUR million) At 31 December 2006 68,880,965 68.9 1,384.3 1,453.2 Exercise of stock options 102,853 0.1 2.5 2.6 At 30 June 2007 68,983,818 69.0 1.386,8 1.455,8 10.2.2 Share ownership structure Main shareholders Principal changes in the ownership of the Company’s shares during the first half of 2007 have been as follows: In shares 30 June 2007 Shares % 31 December 2006 Shares % Centaurus 6,544,204 9.5% 6,544,204 9.5% Management Board 117,180 0.2% 121,598 0.2% Supervisory Board 2,040 0.0% 2,050 0.0% Total Directors 119,220 0.2% 123,648 0.2% Employees 1,492,972 2.2% 1,538,860 2.2% Treasury stock 705,293 1.0% 258,293 0.4% Public 60,122,129 87.2% 60,415,960 87.7% 68,983,818 100.00% Total The ownership of the Company’s shares by employees relates to ownership plans such as mutual funds and corporate savings plans. 68,880,965 100.0% Atos Origin Half-Year Report 2007 73/87 Disclosure of interests The Company has not been advised of any share movement in the first half of 2007. On 5 and 13 July 2007, the Company was advised of the following disclosure of interests: Deutsche Bank AG Date of statement 05/07/07 Shares 5,179,132 % interest (a) 7.51% % voting rights (b) 7.58% Deutsche Bank AG 13/07/07 508,911 0.74% 0.74% (a) On the basis of the capital at this date (b) On the basis of the capital excluding treasury stock at this date Following shareholders approval on 23 May 2006, a Long Term Incentive plan and a Management Investment Plan were approved to replace annual stock options plans and as described in section 7.4 Human Resources, the Management Board had the opportunity to benefit of such schemes. As far as LTI is concerned, and as described in the annual reports 2005 and 2006, and as per section 7.4 Human Resources, 168,658 performance free shares subject to presence and financial performance were granted to 372 managers of which 29,958 free shares to the Management Board members present on June 30th 2007. As far as MIP is concerned and as described in section 7.4 Human Resources, 217,110 retention free shares subject to presence and investment in Atos Origin shares during the two-year period were granted to 168 managers of which 31,968 free shares granted to the Management Board members based on their investment on equivalent number of Atos Origin shares. 10.2.3 Potential common stock Number of stock subscription options at 31 December 2006 6,445,741 Stock subscription options granted in H1 2007 Stock subscription options exercised in H1 2007 ( 102,853) Stock subscription options forfeited in H1 2007 (53,284) Stock subscription options expired in H1 2007 Number of stock subscription options at 30 June 2007 6,289,604 During the period no stock options were granted as annual stock options plans have been replaced by long term incentive and management incentive plan as described in section 7.4 Stock options can be granted for exceptional cases such as key recruitments and for specific retentions. A total of 53,284 stock subscription options were cancelled and 102,853 were exercised during the period Based on 68,983,818 shares in issue, the common stock of the Company could be increased by 6,289,604 new shares, representing 8.4% of the common stock after dilution. This can occur only through the exercise of stock subscription options granted to employees and stock subscription warrants, as detailed below. In shares 30 June 2007 31 Dec. 2006 Change % dilution EUR million Number of shares outstanding 68,983,818 68,880,965 102,853 Stock subscription options 6,289,604 6,445,741 156,137 8.4% 389.3 Total Employees 6,289,604 6,445,741 156,137 8.4% 389.3 Total potential common stock 75,273,422 75,326,706 53,284 The exercise of all the options would have the effect of increasing total shareholders’ equity by Atos Origin Half-Year Report 2007 74/87 EUR 389 Million and common stock by EUR 6.3 million. Nevertheless, 14% of stock subscription options granted to employees have an exercise price that exceeds the stock market price at 30 June 2007 (EUR 46.38). Unused authorizations to issue shares and share equivalents Having regard to resolutions voted during the Annual Shareholders Meeting on 23 May 2007, the unused authorizations to issue shares and share equivalents are the following: Authorisation (in EUR) Amount authorised Par value Amount utilised Par value Amount not utilised Par value Authorisation expiry date EGM 23/05/2007 9th resolution Stock subscription options EGM 23/05/2007 7th resolution Common stock increase with preferential subscription rights 3,440,000 20,664,000 3,440,000 20,664,000 23/07/2010 23/07/2009 EGM 23/05/2007 8th resolution Common stock increase in payment for contributions in kind 6,890,458 6,890,458 23/07/2009 EGM 23/05/2007 10th resolution Common stock increase reserved for employees 5,512,367 5,512,367 23/07/2009 EGM 23/05/2006 11th resolution Common stock increase without preferential Subscription rights (in deduction of the 20,6 million authorisation above) 6,716,075 6,716,075 23/07/2008 As a result, the potential authorization to issue shares is 36.5 million of shares and represents 53% of current issued common stock. The following authorisation to cancel shares corresponds to 10% of the issued common stock as of June 2005. Authorisation Amount authorised Amount utilised Amount not Utilised Authorisation (in EUR) Par value Par value Par value expiry date EGM 03/06/2005 6,716,075 6,716,075 EGM approving accounts as o f 31/12/2009 12th resolution Share cancellation Common stock 6,716,075 10.3 DIVIDENDS The AGM on 23 May 2007 approved the recommendation of the Supervisory Board not to pay a dividend related to 2006 results. The Company has not paid any dividends in the last five years. The Group’s current policy is reviewed at regular intervals. Atos Origin Half-Year Report 2007 75/87 10.4 SHARE TRADING PERFORMANCE 10.4.1 Monthly and quarterly trading volumes Based on a closing share price of EUR 46.38 at the end of June 2007 and 68,983,818 shares in issue, the market capitalization of the Group at 30 June 2007 was EUR 3.2 billion. Source : Euronext High Low Closing Weighted average price Trading Volume Trading Volume (in EUR per share) (in thousands of shares) (in EUR thousands) January February 47.0 46.2 42.5 39.5 42.9 40.9 44.8 43.8 10,640 15,958 476,436 698,857 March 1st Quarter 2007 April May 51.4 55.3 55.1 39.0 49.7 43.6 50.1 53.0 45.8 47.3 53.2 47.9 31,916 58,513 24,852 38,995 1,510,465 2,685,758 1,321,205 1,867,407 June 2nd Quarter 2007 47.0 44.1 46.4 45.7 15,743 79,590 719,647 3,908,259 % of capital traded during the period : 200% 138,103 6,594,017 The daily average number of shares traded during the first 6 months of 2007 was 1,100,000, which is +146% compared to H1 2006 (+71% compared to full-year 2006 average). The monthly average trading volume during the first 6 months of 2007 was EUR 1.1 billion, +100% higher than H1 2006 level (+70% compared to full-year 2006 average). 10.4.2 Post closing event On 5 July 2007, following the purchase of Atos Origin shares on the market, Deutsche Bank announced they exceeded the 5% threshold on 28 June 2007 and hold 7.51% of share capital and voting rights. On 13 July 2007, following the sale of Atos Origin shares, Deutsche Bank announced holding less than 5% of share capital with 0.74%. On 8 August 2007, following the purchase of Atos Origin shares on the market, Pardus Capital Management announced they exceeded the 5% threshold and hold 7.32% of share capital and voting rights. Atos Origin Half-Year Report 2007 76/87 11 SHAREHOLDER RELATIONS 11.1 COMMUNICATION The Company aims to provide regular and clear information to all its shareholders, whether private individuals or institutions. We ensure the uniformity and transparency of information through the distribution of formal financial documents, the Company’s web site and personal meetings. 11.2 CONTACTS Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Tel. : + 33 (0) 1 55 91 28 83 E-mail : gilles.arditti@atosorigin.com Or by sending requests for information to investors@atosorigin.com 11.3 SHAREHOLDER DOCUMENTATION In addition to the Half-Year Report, which is published in English and French, the following information is available to shareholders: An annual report Quarterly revenue and trading update announcements The Company’s informational website at www.atosorigin.com Regular press releases, available through the web site or via the AMF database Legal documents relating to the Company bylaws, minutes of Shareholder Meetings, Auditors’ reports, etc. may be viewed at the Company’s registered office (Legal Department) by prior appointment. 11.4 REGISTRAR The Company’s share registrar and paying agent is Société Générale. 11.5 FINANCIAL CALENDAR 2007 Calendar (cid:131) Thursday 15 November 2007 (cid:131) Third quarter revenue for 2007 (cid:131) Thursday, 31 January 2008 (cid:131) Fourth quarter revenue and full year results for 2007 Atos Origin Half-Year Report 2007 77/87 11.6 UPDATE OF DOCUMENTS ISSUED In accordance with Article 221-1-1 of the Autorité des Marchés Financiers (AMF) general regulations, the following list includes all financial information published or made available since 1 January 2006. This proposed list is part of the 2007 Half-Year Report as an update of the “Document de Référence” 2006 filed with the AMF on 6 April 2007 and registered under the number D07-302. This document is a full free translation of the original French text Document Date of issue Source Financial reports (cid:131) Half-year report 2007 (cid:131) Annual report 2006 (cid:131) Half-year report 2006 (cid:131) Annual report 2005 01/08/07-28/08/07 website Atos Origin / website AMF 28/02/07-06/04/07 website Atos Origin / website AMF 06/09/06-30/10/06 website Atos Origin / website AMF 08/03/06-15/05/06 website Atos Origin / website AMF Financial press releases (cid:131) Half year results 2007 (cid:131) Annual Results 2006 (cid:131) Half-year results 2006 (cid:131) Annual results 2005 01/08/07 28/02/07 06/09/06 08/03/06 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) First quarter revenue 2007 (cid:131) Fourth quarter revenue 2006 (cid:131) Third quarter revenue 2006 (cid:131) Second quarter revenue 2006 (cid:131) First quarter revenue 2006 (cid:131) Fourth quarter revenue 2005 14/05/07 05/02/07 31/10/06 18/07/06 28/04/06 31/01/06 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin Financial presentations (cid:131) Half-year 2007 results 01/08/07 (cid:131) Full-year 2006 results 28/02/07 (cid:131) Operational 2006 results and transformation plan 05/02/07 (cid:131) Half-year 2006 results 06/09/06 (cid:131) Full-year 2005 results 08/03/06 website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin Other financial communications (cid:131) Description of share buy back program (cid:131) Transaction declaration (cid:131) Employee shareholders plan (cid:131) Trading program of Company's shares 29/05/07 website Atos Origin / website AMF 22/05/07-18/06/07 website Atos Origin / website AMF website Atos Origin / website AMF 18/09/06 website Atos Origin / website AMF 08/03/06 - Shareholders' meetings (cid:131) Shareholders' meeting presentation 2006 (cid:131) Minutes of the AGM 2006 (full text of resolutions and results of vote) 23/05/07 23/05/07 website Atos Origin Company’s registered office (cid:131) Shareholders' meeting presentation 2005 (cid:131) Minutes of the AGM 2005 (full text of resolutions and results of vote) 23/05/06 23/05/06 website Atos Origin Company’s registered office Auditors reports (cid:131) Auditors’ review report on the first half-year financial information 2007 28/08/07 Company’s registered office / Commercial court / Document de Reference (cid:131) Auditors’ letter regarding the information given in the half-year report 2007 28/08/07 Company’s registered office Atos Origin Half-Year Report 2007 78/87 (cid:131) Auditors’ report on the consolidated financial statements 2006 (cid:131) Auditors’ report on the parent company financial statements 2006 (cid:131) Auditors’ special report on regulated agreements 2006 (cid:131) Auditors’ special report on the report prepared by the Chairman of the Supervisory Board 2006 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2006 (cid:131) Auditors’ letter regarding the information given in the half-year report 2006 (cid:131) Auditors’ review report on the first half-year financial information 2006 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2005 (cid:131) Auditors’ report on the consolidated financial statements 2005 (cid:131) Auditors’ report on the parent company financial statements 2005 (cid:131) Auditors' special report on regulated agreements 2005 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2005 Financial statements (cid:131) Condensated consolidated financial statements for the first half 2007 (cid:131) Consolidated financial statements 2006 (cid:131) Parent company financial statements 2006 (cid:131) Condensated consolidated financial statements for the first half 2006 (cid:131) Consolidated financial statements 2005 (cid:131) Parent company financial statements 2005 Declarations (cid:131) Auditors’ fees 2006 (cid:131) Declaration of share transfer made by board members of Atos Origin (cid:131) Auditors’ fees 2005 Atos Origin Half-Year Report 2007 79/87 06/04/07 06/04/07 06/04/07 06/04/07 06/04/07 30/10/06 19/09/06 12/05/06 07/03/06 07/03/06 07/03/06 07/03/06 01/08/2007 28/02/2007 28/02/2007 20/10/06 07/03/06 07/03/06 28/02/07 07/02/06-17/05/06 15/05/06 Company’s registered office/Commercial Court/Document de reference Company’s registered office/Commercial Court/Document de reference Company’s registered office/Commercial Court/Document de reference Company’s registered office/Commercial Court/Document de reference Company’s registered office Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Commercial court / Document de reference Company’s registered office / Commercial court / Document de reference Company’s registered office / Commercial court / Document de reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference website AMF / Document de Reference website AMF / Document de Reference website AMF / Document de Reference (cid:131) Disclosure of liquidity contract 27/02/06 website AMF Websites mentioned : (cid:131) Atos Origin www.atosorigin.com (cid:131) AMF www.amf-france.org > Décisions et informations financières > Communiqués des sociétés (cid:131) BALO www.journal-officiel.gouv.fr Atos Origin Half-Year Report 2007 80/87 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS 12.1 PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT AND ITS UPDATE Bernard Bourigeaud Chairman of the Management Board and Chief Executive Officer 12.2 PERSON RESPONSIBLE FOR THE ACCURACY OF THE REFERENCE DOCUMENT AND ITS UPDATE To the best of our knowledge, the information presented in this document as an update of the reference document fairly reflects the current situation and includes all information required by investors to assess the net asset position, activities, financial solvency, results and future prospects of the Company. We confirm that no information likely to have a material impact on the interpretation of these documents has been omitted. Bernard Bourigeaud Chairman of the Management Board 12.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deputy Auditors Grant Thornton Cabinet IGEC, 3, rue Léon Jost, 75017 Paris Daniel Kurkdjian and Vincent Papazian Appointed on: 30 May 2002 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2007 financial statements Appointed on: 30 May 2002 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2007 financial statements Deloitte & Associés Jean-Paul Picard and Jean-Marc Lumet Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly-sur-Seine Appointed on: 23 May 2006 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Appointed on: 23 May 2006 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Atos Origin Half-Year Report 2007 81/87 13 GLOSSARY – DEFINITIONS Financial terms and Key Performance Indicators (cid:131) Current and non-current (cid:131) DSO (cid:131) EBITDA (cid:131) EPS (cid:131) Gearing (cid:131) Gross margin – Direct costs (cid:131) (cid:131) (cid:131) Leverage ratio (cid:131) Net debt (cid:131) Adjusted EPS (cid:131) Adjusted net income (cid:131) OMDA (cid:131) Operating income (cid:131) Operating margin (cid:131) Operational Capital Employed (cid:131) ROCE (Return Of Capital Employed) Indirect costs Interest cover ratio Business terms (cid:131) BPO (cid:131) CMM (cid:131) CRM (cid:131) ERP (cid:131) LAN (cid:131) MMS (cid:131) SCM (cid:131) WAN Atos Origin Half-Year Report 2007 82/87 Business Key Performance Indicators (cid:131) Attrition rate (cid:131) Backlog / Order cover (cid:131) Book-to-bill (cid:131) Direct and indirect staff (cid:131) External revenue (cid:131) Full Time Equivalent (FTE) (cid:131) Legal staff (cid:131) Order entry / bookings (cid:131) Organic revenue growth (cid:131) Permanent and temporary staff (cid:131) Pipeline (cid:131) Ratio S (cid:131) Subcontractors and interims (cid:131) TCV (Total Contract Value) (cid:131) Turnover (cid:131) Utilization rate and non-utilization rate Market terms (cid:131) Consensus (cid:131) Dilutive instruments (cid:131) Dividends (cid:131) Enterprise Value (EV) (cid:131) Free float (cid:131) Free float capitalisation (cid:131) Market capitalisation (cid:131) PEG (Price Earnings Growth) (cid:131) PER (Price Earnings Ratio) (cid:131) Volatility 13.1 FINANCIAL TERMS AND KEY PERFORMANCE INDICATORS USED IN THIS DOCUMENT Operating margin. Operating margin comprises operating income before major capital gains or losses on the disposal of assets, major reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigations and the release of opening balance sheet provisions no longer needed. Operating income. Operating income comprises net income before deferred and income taxes, net financial expenses, share of net income from associates and the results of discontinued operations. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). For Atos Origin, EBITDA is based on Operating margin less non-cash items and is referred to as OMDA (Operating Margin before Depreciation and Amortisation) OMDA (Operating Margin before Depreciation and Amortisation) is calculated as follows: Operating margin Less - Depreciation of fixed assets (as disclosed in the “Financial Report”) Less - Operating net charge of provisions (composed of net charge of provisions for current assets and net charge of provisions for contingencies and losses, both disclosed in the “Financial Report”) Less - Net charge of provisions for pensions (as disclosed in the “Financial Report”) Less - Equity-base compensation Gross margin and Indirect costs. Gross margin is composed of revenues less the direct costs of goods sold. Direct costs relate to the generation of products and/or services delivered to customers, while indirect costs include all costs related to indirect staff (defined hereafter), which are not directly linked to the realisation of the revenue. The operating margin comprises gross margin less indirect costs. Adjusted net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax. EPS (earnings per share). Basic EPS is the net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is the net income divided by the diluted weighted-average number of common shares for the period (number of shares outstanding + dilutive instruments with dilutive effect). Adjusted EPS is based on adjusted net income. Operational capital employed. Operational capital employed comprises net fixed assets and net working capital, but excludes goodwill and net assets held for sale. Current and non-current assets or liabilities. A current and non-current distinction is made between assets and liabilities on the balance sheet. Atos Origin has classified as current assets and liabilities those that Atos Origin expects to realise, use or settle during its normal cycle of operations, which can extend beyond 12 months following the period-end. Current assets and liabilities, excluding the current portion of borrowings and financial receivables, represent the Group’s working capital requirement. Net debt. Net debt comprises total borrowings (bonds, finance leases, short and long-term bank loans, securitisation and other borrowings), short-term financial assets and liabilities bearing interest with a maturity of less than 12 months, less cash and cash equivalents (transferable securities, cash at bank and in hand). DSO (Days’ sales outstanding). DSO is the amount of trade accounts receivables (including work in progress) expressed in days' revenue (on a last-in, first-out basis). The number of days is calculated in accordance with the Gregorian calendar. Gearing. The proportion, expressed as a percentage, of net debt to total shareholders’ equity (Group share and minority interests). Interest cover ratio. Operating margin divided by the net cost of financial debt, expressed as a multiple. Leverage ratio. Net debt divided by OMDA. Atos Origin Half-Year Report 2007 83/87 ROCE (return on capital employed). ROCE is net income (Group share), before the net cost of financial debt (net of tax) and the depreciation of goodwill, divided by capital employed. . 13.2 MARKET TERMS Consensus. Opinion that emerges from the financial community, in which financial analysts play a prominent role. Consensus can relate to earnings outlook (individual stock consensus) or to a group of companies in the same sector (market consensus). Dilutive instruments. Financial instruments such as bonds, warrants, stock subscription options, free shares, which could be converted into shares and have therefore a potential dilutive impact on common stock. Dividends. Cash or stock payments from a company's profits that are distributed to stockholders. Free float. Free float is the proportion of a Company’s share capital that is regularly traded on the stock exchange. It excludes shares in the six categories listed below (source Euronext): (cid:131) Shares held by Group companies Shares of the listed company held by companies that it controls within the meaning of Article 233/3 of the French Commercial Code. (cid:131) Shares held by founders Shares held directly or indirectly by the founders (individuals or family group) when these founders have managerial or supervisory influence (management positions, control by voting rights, influence that is a matter of public knowledge, etc.). (cid:131) Shares held by the State Interests held directly by the State, or by public sector or other companies which are themselves controlled by the State. (cid:131) Shares within the scope of a shareholders agreement Shares subject to a shareholders' agreement within the meaning of Article 233/10 and 11 of the French Commercial Code, and other than those held by founders or the State. (cid:131) Controlling interest (cid:131) Shares held by juridical persons (other than founders or the State) exercising control within the meaning of article 233/3 of the French Commercial Code. Interests considered stable Interests exceeding 5%, which have not declined by one percentage point or more, excluding the impact of dilution, in the three preceding years. This category also includes shareholders that, in addition to or in association with the link represented by share ownership, have recently entered into significant industrial or strategic agreements with the Company. Free-float capitalisation. The share price of a company multiplied by the number of free-float shares as defined above. Market capitalisation The share price of a company multiplied by the number of its shares in issue. Volatility. The variability of movements in a share price, measured by the standard deviation of the ratio of two successive prices. Enterprise Value (EV). Market capitalisation + debt. PER (Price Earnings Ratio). Market capitalisation divided by net income for a trailing (or forward) 12- month period. PEG (Price Earnings Growth). Price-earnings ratio divided by year-on-year earnings growth. Atos Origin Half-Year Report 2007 84/87 13.3 BUSINESS TERMS BPO (Business Process Outsourcing). Outsourcing of a business function or process, e.g. administrative functions such as accounting, HR management, call centres, etc. CMM (Capability Maturity Model). CMM is a method for evaluating and measuring the competence of the software development process in an organisation on a scale of 1 to 5. CMMI. Capability Maturity Model Integration. CRM (Customer Relationship Management). Managing customer relationships (after–sales service, purchasing advice, utilization advice, customer loyalty) has become a strategic component of a company's successful operation. Not only does CRM facilitate efficiency, it also leads to higher sales by building customer loyalty. ERP (Enterprise Resource Planning). An ERP system is an integrated management software system built in modules, which is capable of integrating sales, manufacturing, purchasing, accounting and human resources systems into an enterprise-wide management information system. LAN (Local Area Network). A local network that connects a number of computers within a single building or unit. MMS (Multimedia Message Service). A message capable of carrying text, sounds, fixed or animated colour images, generally sent to a mobile phone. SCM (Supply Chain Management). A system designed to optimise the logistics chain, aimed at improving cost management and flexibility. WAN (Wide Area Network). A long–distance network that generally comprises several local networks and covers a large geographical area. 13.4 BUSINESS KPIS (KEY PERFORMANCE INDICATORS) 13.4.1 Revenue External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT, nil margin pass-through revenue). Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period. Order entry / bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. When an offer is won (contract signed), the total contract value is added to the backlog and the order entry is recognised. TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal. Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognised over their contract lives. Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success. Organic growth. Organic growth represents the % growth of a unit based on a constant scope and exchange rates basis. Atos Origin Half-Year Report 2007 85/87 13.4.2 Human resources Legal staff. The total number of employees under Atos Origin employment contracts at the end of the period. Legal staff includes those on long sickness or long absence, apprentices, trainees, and employees on maternity leave, but excludes subcontractors and interims. FTE (Full-time equivalent) staff). The total number of staff calculated using information from time sheets on the basis of working time divided by standard contractual workable time per employee. In general, a person working on a full time contract is considered as one FTE, whereas a person working on a part time contract would be less considered than one FTE. Calculations are based on contractual working time (excluding overtime and unpaid holidays) with potential workable time (in hours or days) = nominal time + overtime balance – unpaid vacation. For subcontractors and interims, potential workable hours are based on the number of hours billed by the supplier to Atos Origin. Subcontractors. External subcontractors are third-party suppliers. Outsourced activities (e.g. printing or call centre activities) and fixed price subcontracting are excluded from the recorded number of subcontractors or interims. Interims. Staff from an agency for temporary personnel. Interims are usually used to cover seasonal peaks or for situations requiring staff for a short period of time. Direct Staff. Direct staff include permanent staff and subcontractors, whose work is billable to a third party. Indirect staff. Indirect staff include permanent staff or subcontractors, who are not billable to clients. Indirect staff are not directly involved in the generation of products and/or services delivered to clients. Permanent staff. Permanent staff members have a contract for an unspecified period of time. Temporary staff. Temporary staff have a contract for a fixed or limited period of time. Ratio S . Measures the number of indirect staff as a percentage of total FTE staff, including both own staff and subcontractors. Staff turnover and attrition rate (for legal staff). Turnover and attrition rates measure the proportion of legal staff that has left the Company (voluntary and/or involuntary) in a defined period. Turnover measures the percentage of legal staff that has left the business in a defined period. Attrition measures the percentage of legal permanent staff that has voluntarily left the business in a defined period. Attrition rate is a ratio based on total voluntary leavers in the period on an annual basis divided by the average number of permanent staff in the period. Utilization rate and non-utilization rate. Utilization rate + non-utilization rate = 100% of workable time for direct FTE, which excludes legal vacations, long-term sickness, long-term sabbaticals and parental leave. Workable time is composed of billed time, inactivity that is billable but not billed (exceptional holidays, sickness, on the bench which is between two assignments, other inactivity as delegation), and non-billable time (pre-sales, training, management meetings, research and development and travel). Utilization rate measures the proportion of workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is billed to customer. The ratio is expressed in percentage terms based on billed hours divided by workable hours excluding vacations. Non-utilization rate measures the workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is not billed or is non-billable to clients. Atos Origin Half-Year Report 2007 86/87 14 CONTACTS Headquarters France Tour Les Miroirs – Bat C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tél. : +33 1 55 91 2000 Fax : + 33 1 55 91 2005 Belgique Da Vincilaan 5 B-1930 Zaventem Tél : +32 (0)2 712 37 77 Fax : +32 (0)2 712 37 78 Other Locations Systems Integration Tour les Miroirs - Bât C 18, Avenue d'Alsace 92926 Paris La Defense Cedex Tel: +33 1 55 91 2000 Atos Consulting 6-8 Boulevard Haussmann 75009 Paris Tel: +33 1 73 03 2000 Atos Euronext Market Solutions 6-8 Boulevard Haussmann F - 75009 Paris Phone: +33 1 73 03 0303 Argentina Vedia 3892 P.B. C1430 DAL - Buenos Aires Tel: +54 11 4546 5500 Germany Theodor-Althoff-Str. 47 D-45133 Essen Telefon: +49 (0) 20 14 3050 Austria Technologiestraße 8 / Gebäude D A-1120 Wien Tel: +43 1 60543 0 Atos Worldline GmbH Hahnstraße 25 D-60528 Frankfurt/Main Tel: +49 69 66566 0 Belgium Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 690 2800 Global Consulting & Systems Integration (Global C&SI) Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 712 3777 Greece 18 Kifisias Avenue 151 25 Athens Tel +30 210 688 9016 AO Meda Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tél. : +33 1 55 91 2000 Brazil Rua Itapaiuna 2434 - 2° andar - Santo Amaro São Paulo – SP CEP: 05707-001 Tel: +55 11 3779 2344 China 5th Floor, Lido Commercial Center Jichang Road Beijing 100004 Tel: +86 10 6437 6668 France Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 2000 Atos Worldline France Tour Manhattan 5-6 place de l'Iris 92926 Paris La Defense Cedex Tel: +33 1 49 00 9000 Outsourcing Tour Horizon 64 Rue du 8 Mai 1945 92025 Nanterre Tel: +33 1 70 92 1340 Hong Kong Suites 1701-8, Prudential Tower 21 Canton Road Tsimshatsui, Kowloon Tel: +852 2830 0000 India SDF-IV, Units 126/127 SEEPZ, Andheri (east) Mumbai 400 096 Tel: +91 22 28 29 0743 Indonesia Wisma Kyoei Prince, #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta, 10220 Tel: +62 21 572 4373 Italy Via Riccardo Morandi, 32 00050 Roma Tel: +39 06 8307 4201 Piazza IV Novembre, 3 20124 Milano Tel: +39 2 66 7221 Viale Carlo Viola, 76 11026 Pont-Saint-Martin Tel : +39 1 25 81 0201 Atos Origin Half-Year Report 2007 87/87 Japan 20/F Shinjuku Park Tower, 3-7-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 163-1020 Tel: +81 3 3344 6631 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel.: +352 31 36 37 1 Malaysia Suite F01, 1st Floor 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Darul Ehsan West Malaysia Tél. : +60 3 8318 6100 Mexico Hegel 141, Piso 1 Col. Chapultepec Morales CP 11570 Tel: +52 55 5905 3303 Poland ul. Domaniewska 41 02-672 Warszawa (budynek Taurus) Tel: +48 22 606 1900 Morocco Avenue Annakhil - Espace High tech Hall B – 5th floor HAYRYAD - Rabat Morocco Tel : +212 37 57 79 79 Portugal Av. 5 de Outubro, 73 - C, 1 andar Edifício Goya, Escritório 4 1050-049 Lisboa Tel: +351 21 359 3150 Singapore 8 Temasek Boulevard #07-01 Suntec Tower Three Singapore 038988 Tel: +65 6333 8000 South Africa 204 Rivonia Road, Sandton Private Bag X136 Bryanston 2021 Tel: +27 11 895 2000 Spain Albarracín, 25 28037 Madrid Tel: +34 91 440 8800 Atos Consulting Albarracín, 27 28037 Madrid Tel: +34 91 214 9500 Switzerland Industriestrasse 19 8304 Wallisellen Tel: +41 1 877 6969 24, Avenue de Champel 1206 Genève Tel: +41 22 789 3700 Switzerland (Telecom) Binzmühlestrasse 95 8050 Zürich Switzerland Tel : +41 1 308 9510 Taiwan 9F, No 115 Sec 3 Ming Sheng E Road Taipei Tel: +886 2 2514 2500 Thailand 200 Moo 4, 25th Floor Jasmine International Tower Room No. 2502 Chaengwattana Road Pakkret Nonthaburi 11120 Tel: +66 2 582 0955 The Netherlands Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Atos Consulting Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Turkey Kisikli Caddesi N°37 Aksel Is Merkezi 2 Kat Altunizade 34 662 Istanbul Tél. : +90 216 531 7383 United Kingdom 4 Triton Square Regent’s Place London NW1 3HG Phone: +44 20 7830 4444 USA 5599 San Felipe Suite 300 Houston TX, 77056 Tel: +1 713 513 3000 | Semestriel, 2007, IT, Atos | write me a financial report |
Semestriel | 2,008 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| TURNING CLIENT VISION INTO RESULTS INNOVATION DRIVES TRANSFORMATION 2008 HALF-YEAR REPORT This document is a full free translation of the original French text. The original document has been filed with the Autorité des Marchés Financiers (AMF) on 28 August 2008, in accordance with article 212-13 of the AMF’s general regulations. Atos Origin Half-Year Report 2008 1/93 CONTENTS 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2008 ........................... 4 2 CEO MESSAGE .............................................................................................................................. 6 3 GROUP GOVERNANCE ................................................................................................................. 8 4 THE IT SERVICES MARKET ........................................................................................................ 10 5 OPERATIONAL REVIEW.............................................................................................................. 14 6 TRANSFORMATION PLAN .......................................................................................................... 27 7 HUMAN RESOURCES REVIEW................................................................................................... 31 8 FINANCIAL REVIEW .................................................................................................................... 34 9 HALF-YEAR FINANCIAL REPORT .............................................................................................. 39 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE ............................................... 66 11 SHAREHOLDER RELATIONS ..................................................................................................... 71 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS .......................................................................................................... 75 13 MAIN PRESS RELEASES ISSUED DURING THE PERIOD ........................................................ 76 14 GLOSSARY – DEFINITIONS ........................................................................................................ 88 15 CONTACTS ................................................................................................................................... 93 Atos Origin Half-Year Report 2008 2/93 Atos Origin Our vision: Atos Origin’s vision is to be a leading IT services player focused on delivering business outcomes and delivering globally. Our mission: “Advance your business with Atos Origin.” Atos Origin’s mission is to advance the performance of our customers by offering innovative solutions that deliver measurable business value. Through developing long-term relationships with our clients we are better able to understand their strategic vision and help them to implement solutions that deliver improved efficiency and productivity gains. About Atos Origin Atos Origin is an international information technology services company. Its business is turning client vision into results through the application of consulting, systems integration and managed operations. The Company’s annual revenues are EUR 5.5 billion and it employs over 50,000 people in 40 countries. Atos Origin is the Worldwide Information Technology Partner for the Olympic Games and has a client base of international blue-chip companies across all sectors. Atos Origin is quoted on the Paris Eurolist Market and trades as Atos Origin, Atos Worldline and Atos Consulting. Atos Origin Half-Year Report 2008 3/93 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2008 (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 Income Statement Revenue 2,864 2,890 Operating margin % of revenue Operating income % of revenue 124.2 4.3% 191.0 6.7% 117.7 4.1% 107.7 3.7% Net income (Group share) % of revenue Normalised net income (Group share) (c) % of revenue 124.7 4.3% 76.2 2.7% 57.3 2.0% 63.5 2.2% Earnings per share (EPS) Basic EPS (a) Diluted EPS (b) Normalised basic EPS (a) (c) Normalised diluted EPS (b) (c) 1.79 1.79 1.09 1.09 0.83 0.83 0.92 0.92 (in units) 30 June 2008 31 December 2007 Other Key Indicators Net debt to equity ratio Employees at period end 27% 50,654 18% 51,704 (a) In euros, based on a weighted average number of shares. (b) In euros, based on a diluted weighted average number of shares. (c) Based on net income (Group share) before unusual, abnormal and infrequent items (net of tax). Atos Origin Half-Year Report 2008 4/93 % Change 0.9% +6% 0.3 pt +77% 3 pts +118% 2 pts +20% +0.5 pt +115% +115% +18% +18% % Change 2% 6 months revenue by service line 6% 53% 41% 6 months revenue by geographical area 3% 2% 3% 7% 31% 11% 18% 26% 6 months revenue by industry sector 8% 4% 25% 9% 15% 24% 15% Atos Origin Half-Year Report 2008 5/93 Consulting Managed Operations Systems Integration France Benelux United Kingdom Germany and Central Europe Spain Americas Asia-Pacific Other EMEA Public Sector Financial services Manufacturing Telecom & Media Retail Utilities Other 2 CEO MESSAGE What have been the key highlights during the first half of 2008 ? During the first semester of 2008, the Group accelerated revenue organic growth which reached +6.8% globally above the IT services market in Europe, and increased operating margin by +15% at constant scope and currency exchange rates at EUR 123 million representing 4.5% of revenue. This growth has been achieved by the scope of our services range which covers Consulting to Managed Operations, including Systems Integration. To come back to an organic growth above the market is one of the major objectives of the Transformation Plan which continues to develop according the timetable even if I have decided to accelerate several initiatives, in particular industrialization, offshoring and global delivery. Also during the first semester, our Group finalised the signature of several significant contracts, among others the major ones being NXP and Nuon in The Netherlands, Michelin, EDF, Government for the biometric passports and Total in France, Bank of China in China, Fenwal in the United Sates, several contracts in the public and private sectors in the United Kingdom, Neckermann in Germany and in banking in Spain. These signatures confirm, as I already indicated, our real capability to manage critical applications in requiring environment. For example, the Group has intensified its activity in China for the preparation, as the main IT provider, of the next Olympic Games which took place in Beijing from 8 to 24 August 2008. This semester, again, the sales momentum was confirmed: the order entries increase by +14% and the visibility of our revenue has been reinforced by an important number of signatures. During the first half of 2008, the order entry was signed with a higher added value and therefore with a higher average gross margin than in the past years. The Transformation Plan continued to progress on all the initiatives. In Offshoring / Nearshoring, staff increased by +20% compared to end of December 2007. Recruitments were mainly done on offshoring / nearshoring and closeshoring. The consolidation of mainframes is close to completion in France and additional local datacenters have been closed. In Industrialization, the roll-out of the standardised processes and tooling resulted in more than 3,300 users of the shared service centers. The Annual General Meeting of shareholders held on 12 June 2008, voted for a new Supervisory Board chaired by Jean-Philippe Thierry, CEO of AGF. This Board of eleven members includes the representation of the three main shareholders, with two members representing PAI Partners, one member representing Centaurus Capital and one member representing Pardus Capital. With a more difficult world economy and with volatile financial markets, the strong involvement of our 50,000 staff allowed the Group to continue its recovery and to accelerate its commercial development. What are your main priorities regarding the future of the Group ? My absolute priority is to pursue the mandatory transformation of the Group. In order to reach this priority, I will continue the development of cross-countries synergies and to offer the best solutions to our customers. In that context, the development of our resources in low costs countries, particularly in India, is a major challenge. At the same time, we operate on many countries and for some of them size is sub-critical. We are going to start a business review to assess the performance on return on capital employed in each country. In France, where we generate close to 30% of our revenue, profitability requires strong improvement, particularly in Systems Integration which represents the most important part of the activity. Atos Origin Half-Year Report 2008 6/93 I have recently implemented significant changes to simplify the organization and increase the operational efficiency in order to return, as soon as possible, to a level of profitability, which is more in line with our peers. In The Netherlands, where our revenue represents 19% of our activity, we have launched a significant costs savings plan to address any possible slowdown of the revenue growth in the future. We will to pursue the implementation of the distinctive offers in the payment services, in telecommunications, with SAP in banking and in manufacturing, and also in nuclear monitoring. These specific skills are generally developed in one country but should benefit the other entities of the Group; where there is a growing market. I would like to remind that our acquisition policy remains to increase our market share in the area of payment services, or to reinforce our skills for Systems Integration or Managed Operations in our major countries. At the beginning of the second semester 2008, I remain convinced that the high level of skills and the strong involvement of our staff warrant our customers’ continued confidence and will enhance the Group’s value for the benefit of all our shareholders. Philippe Germond CEO and Chairman of the Management Board Atos Origin Half-Year Report 2008 7/93 3 GROUP GOVERNANCE Atos Origin is incorporated in France as a "société anonyme" (Joint Stock Corporation) with a Management Board and a Supervisory Board. This two-tier structure separates management and supervision, helping achieve sound corporate governance. 3.1 THE MANAGEMENT BOARD The Management Board is currently composed of the Chief Executive Officer and two senior executive Vice-Presidents. The composition of the Management Board reflects a balanced range of business, financial, human resources, marketing and international experience which Atos Origin believes is essential for the continued success of a global IT services business. The Management Board is responsible for the general management of the Group’s business and meets as frequently as necessary. It reports to the Supervisory Board on a quarterly basis and on a case-by-case basis, according to the needs of the operations and meets with the Supervisory Board once a year for a full- day meeting dedicated to strategy, budget and business plans. Subject to the provisions of articles 19.3 and 19.4 of the by-laws, the Management Board has full power and authority to represent the Group in its dealings with third parties. Although each of the members of the Management Board has specific executive responsibilities, all of its members are collectively empowered to manage the Group’s business. In the case of split decisions, the Chairman of the Management Board has the casting vote. On 1 August 2008, the membership of the Management Board has been focused with Philippe Germond and Eric Guilhou further to the departure of Wilbert Kieboom and the end of his responsibilities as member of the Management Board. Philippe Germond, Chairman of the Management Board and CEO of Atos Origin, has taken over Wilbert Kieboom’s previous responsibilities. Specifically, he will ensure operational management of all countries and service lines. Name Operational functions Transversal functions Philippe Germond Chairman of the Management Board and Chief Executive Officer Country operations, Service Lines (Consulting, Systems Integration and Managed Operations) and Sales Eric Guilhou Senior Executive Vice President Global Functions Finance, Human Resources, Processes and IT, Purchasing, Legal and Internal Audit Since January 2007, as part of the transformation plan, a Group Executive Committee has been created to help the Management Board to drive the operational performance of the Group. Its main tasks are to define and review business priorities, review Atos Origin operational performance and the execution of the 3O3 program on a monthly basis and define corrective action plans. It is a dedicated forum for operational management of the Group, the operational link between the Group and the Management Board, and it allows the Management Board to focus on developing the Group, including very high level customer relationships, negotiation of partnerships and alliances and development of specialised businesses. The Executive Committee increases exchanges and collaboration between operations, services lines, sales and support functions. The key members are the CEOs of the large countries and Atos Worldline, heads of Global Service Lines, heads of Group Sales and Markets, and heads of Group functions. Atos Origin Half-Year Report 2008 8/93 3.2 THE SUPERVISORY BOARD The Supervisory Board is currently composed of eleven members who have a wide range of experience in terms of industrial, financial and general management, as a result of their background, education and executive positions held. The Supervisory Board has written internal rules (“règlement intérieur”) that define the rules and responsibilities of the Supervisory Board and of its committees. The Supervisory Board adheres to a Charter that is described in more detail in the annual report. In accordance with article L.225-68 of the Commercial Code, the Supervisory Board is in charge of controlling the Management Board and has no management powers. It also has certain specific powers described in articles 19.3 and 19.4 of the by-laws. The Supervisory Board is now composed of the following members: Name Jean-Philippe Thierry (Chairman) René Abate Behdad Alizadeh Benoit d’Angelin Jean-François Cirelli Michel Combes Bertrand Meunier Colette Neuville Michel Paris Vernon Sankey Michel Soublin Nationality French French U.S.A. French French French French French French British French Age 59 60 46 46 50 46 52 71 50 59 62 Date of appointment 2008 2008 2008 2008 2008 2008 2008 2008 2008 2005 2004 Committee member R, S R, S A, R, S N, S S N, R N A, S A, N A Term of offices (a) 2009 2012 2012 2012 2012 2012 2009 2012 2009 2012 2012 A : Audit Committee S : Strategic Committee R : Remuneration Committee N : Nomination Committee (a) General meeting of shareholders deciding on the accounts of the year. On 12 June 2008, the mandates of Mr Rene Abate, Mr Behdad Alizadeh, Mr Benoit d’Angelin, Mr Jean-François Cirelli, Mr Michel Combes, Mrs Colette Neuville, and the renewal of the mandates of Mr Vernon Sankey and Mr Michel Soublin were approved by shareholders and Mr Jean-Philippe Thierry was nominated by the Supervisory Board as Chairman of the Supervisory Board. On 3 July 2008, Mr Bertrand Meunier and Mr Michel Paris were nominated by the Supervisory Board as members of the Supervisory Board. Atos Origin Half-Year Report 2008 9/93 4 THE IT SERVICES MARKET 4.1 MARKET 4.1.1 Market Conditions We have seen little overall impact of the “credit crunch” on our IT services business in the first half of 2008. The current consensus is that Europe will be less affected than the US, seeing a slump rather than a prolonged recession. However, the European macro-economic conditions are tightening and industry analysts are grading their market growth predictions, but not massively. Overall IT services growth in Europe is currently predicted at around 5% per year to 2010. A tighter economic climate is likely to drive an increase in outsourcing. However, there is evidence that the decision making for some outsourcing initiatives has been delayed, but not stopped, due to business uncertainty. Analysts are predicting a good demand for consulting over the next 12 to 18 months driven by accelerating business change. Associated project work is being driven by business change and legacy modernisation. Testing has emerged as a rapidly evolving niche area with strong double digit growth. A decline in prices for implementation and integration work will continue to drive industrialisation and delivery from low cost centres. Despite market uncertainties, financial services will still hold some of the best opportunities in the commercial IT services sector, driven by regulatory factors, M&A, mid-sized companies wanting to re- structure, and BPO. The public sector, the other leading area for IT services in Europe, varies by country. Industry analysts are expecting a slowdown in the UK public sector due to government cost- efficiency targets and increasing budgetary pressures, but an increase in main land Europe. While in Germany the introduction of a national CIO should exert a positive impact on public IT services spending in the mid-term. 4.1.2 Trends In our 2007 annual report we identified seven key trends that are re-shaping the IT services market today; 1) The Continuing Drive For Cost Reduction, 2) Industrialisation And The Emergence Of The IT Utility, 3) The Growth Agenda, 4) Increasing Globalisation, 5 )The Growth In Multi-sourcing, 6) The Growth Of BPO, and we introduced 7) The Drive For Sustainability. These are deep, underlying trends that will continue to re-shape the IT services market. While media hype has exceeded real action during the first half of 2008, there has been a marked upturn in interest in “The Drive For Sustainability”. Drivers in the private sector have been cost reduction, stakeholder pressure, pending regulation and brand development. Interest has been stronger in Northern Europe than Southern Europe. Financial services and retail have joined the telecoms and utilities sectors that have been leading the way. In the public sector the European Commission issued a document focused on the role IT can play in tackling climate change issues. The document does not set binding requirements on governments or industry. The UK’s Climate Change Bill will set binding requirements however. The bill is due to be published in December 2008, and over time we expect to see similar legislation emerging in other European countries. Globalization and industrialization are well established market trends. Together they have had the biggest overall influence on the re-shaping of the IT services market. New services are beginning to move offshore, with higher-value activities, such as architecture and design work, business intelligence and data warehousing, being more commonly considered. We are seeing both Western and Indian service providers ultimately heading towards the same delivery model – a network of on-site, on-shore, near shore and offshore – with delivery centers in alternative locations around the world. Analysts are now starting to predict that labour-intensive service delivery, where increased demand results in increased workforce, will not be sustainable — even though it will continue while labour costs are low. The future success of global delivery networks will depend less on the availability of low-cost resources and more on the quality of skills, tools and methodologies. Atos Origin Half-Year Report 2008 10/93 In addition to enabling global delivery networks, industrialization is producing IT Utility, SaaS, and Business Process Utility services. Although relatively immature, these services are being delivered today, and analysts are predicting that 25% of IT services will be coming from such non-traditional models by 2012. The industrialization trend is being driven by IT companies in the enterprise, or corporate, market. Coming from the mass market (ie: the small business and consumer market) we also have the “Consumerization Of Services” trend. One result of this trend is the production of low cost, pay per hour, elemental IT services from companies such as Amazon and Google. While the consumerization of IT services has not yet had an impact on the IT services market we compete in, it is the next major trend to add to our list. 4.1.3 The competitive environment In our 2007 annual report we stated “For 2008, we would expect the top IT services providers by revenue to remain the same”. The proposed acquisition of EDS by HP will change that if the deal is finalized before year end. On paper it places HP-EDS as the second largest IT services company with 5.3% of Worldwide market share, behind IBM with 7.2% and ahead of Accenture with 2.8%. Throughout 2007 the US and European based service providers have been re-structuring, stressing a focus on business value and innovation, investing in capabilities through acquisitions and strengthening their offshore presence. We are seeing this continue in 2008. The big growth numbers have continued to come from the Indian off-shore providers, although the Indian IT services market is expected to slow in 2008. The leading ‘India-heritage’ providers are actively pursuing large deals, and are more prepared than ever to turn down business that does not fit the profile of work they are seeking. Those that have significant revenue from the US will turn to new areas, like APAC, to boost growth. Alliances continue to be an increasing feature of winning new and innovative business in 2008 – with IT service providers teaming up with industry specialists, technical specialists, or their direct competitors. For example; ING and Atos Origin have launched a joint offering of end-to-end services for back-office payment processing to banks and corporations within Europe. It is the first time that a bank and an IT services provider are partnering in this domain in Europe. Atos Origin has been awarded an SAP® Global Pinnacle Award in the area Outsourcing Hosting. SAP Pinnacle Awards are granted to leading SAP partners that have excelled in enhancing the customer experience by teaming with SAP to help customers address critical issues such as accelerating innovation and improving return on investment. Highly competitive, specialist offerings (innovative/good customer fit/good price) will be increasingly important to take market share, and to achieve above market growth rates. Consulting: Market growth in Europe is currently estimated at 3% to 4% in 2008/09, increasing to around 5% in 2009/10 (Source: Gartner Western Europe IT Services Market Database). A toughening economic climate will not spell an end to consulting and project prospects. Demand will continue in areas where IT service providers can help businesses become leaner, more agile and better at using their resources. The demand for business consulting will exceed the demand for pure IT consulting with the main drivers coming from M&A, regulation and reporting, business process improvement, and the need for companies to innovate. European buyers want to see a more proactive approach from suppliers around increasing both efficiency and effectiveness. IT service providers that have well developed business consulting capabilities, with industry knowledge, will be better placed to take advantage of the opportunities available. Industry focused consulting will increasingly become an integral part of winning and delivering systems integration and long term outsourcing deals. Atos Origin Half-Year Report 2008 11/93 Systems Integration: Market growth in Europe is estimated at 5% in 2008/09 and between 5% and 6% in 2009/10 (Source: Gartner Western Europe IT Services Market Database). There is a good demand for application development and management services, but prices are under continuous pressure. Other key drivers for systems integration work are legacy modernization, application upgrades (eg: SAP), business intelligence, corporate performance management and business transformation projects. Although project services in Europe are showing positive growth, buyers have been segmenting projects into smaller pieces and there is an intense focus on value and performance measures. Pressure on prices and shortage of skills will continue to drive the increased use of global delivery models. There is a gradual move away from time and materials arrangements, to contracts based on service levels and defined outcomes. Testing is a high growth niche area driven by the rate of business change, increased rigor required from regulatory requirements, a lack of customer capability, and cost. The testing market is still evolving with companies adopting everything from staff augmentation to the full outsourcing their testing functions in multi-year contracts. There is a growing demand for service providers to have industry knowledge, and testing services are expanding to include items such as checking compliance with regulatory requirements. Managed Services: Market growth in Europe for IT infrastructure services and outsourcing is estimated at between 4% and 5% for 2008/09 and 2009/10. The growth rates for business process services is between 9% and 10% for the same period (Source: Gartner Western Europe IT Services Market Database). In the first half of 2008 IT outsourcing has continued to be a stronger market in Europe than in the US, and we expect this to continue for the rest of 2008. Cost reduction and skill shortages remain major drivers for outsourcing. However, there is also a demand for service providers to have industry knowledge, to have flexibility and to bringing innovation while providing standardized global delivery model. The average contract size and duration (4 to 5 years) is down slightly from the same period in 2007. Multi-sourcing strategies remain common, and the growth in interest in sourcing management and governance continues. In spite of the overall maturity of the IT outsourcing market, new models are emerging. For example; Remote infrastructure management (RIM) and IT infrastructure virtualization are growing quickly, and the global delivery of IT infrastructure is evolving with pilot projects being used to test vendor capabilities. Transactions processing (Transaction processing applied internet processing). The card payment services business process outsourcing (BPO) market is extremely diverse, containing a combination of suppliers with a back-ground in various industry-specific processes, as well technology specialists and IT services providers. The market is starting to mature and we expect consolidation amongst service providers to continue. Growth is being driven by regulatory changes (eg: the Single European Payments Area), a proliferation of payment styles (eg: mobile and remote payments), and security (eg: chip and pin, 3D-secure, and the use of holograms). Remote payments has emerged a high growth area, and 3D-secure is an important trend in the search for security. CRM and internet processing are boosted by the development of telecom and inter- related services to payment, CRM and Atos Origin Half-Year Report 2008 12/93 4.2 MARKET SHARE AND COMPETITORS According to Gartner, Atos Origin is the fourth largest IT services company in Europe. IT service market share rankings in Western Europe were as follows: Ranking in Europe Competitors in Europe Western Europe Revenues 2007 in EUR million (a) Western Europe Market share 1 2 3 4 5 6 7 8 9 10 IBM Capgemini Accenture Atos Origin T-Systems EDS BT Siemens IT Solutions & Services Logica Computer Sciences Corporation (CSC) 11 216 6 832 6 794 5 449 5 210 4 819 4 608 3 979 3 776 3 249 7.7% 4.7% 4.7% 3.7% 3.6% 3.3% 3.2% 2.7% 2.6% 2.2% Total market size Western Europe 145 352 38.5% Sources: Company Information and IT Services 2007 Market Share Gartner : April 2008 in USD with 1 USD = 0.7299 EUR (a) In EUR million, based on Professional Services include Consulting Services (Consulting for Atos Origin), Development and Integration Services (Systems Integration for Atos Origin), IT Management (Managed Services for Atos Origin) and Process Management (On-line Services and BPO for Atos Origin), but excluding Product Support (Hardware and Software Maintenance and Support). According to Gartner, based on 2007 figures for external IT spending, Professional Services market shares in each main country were as follows: Country Market Size (in EUR million) Weight Atos Origin Atos Origin Market Share Ranking Market Leader United Kingdom Germany France Italy The Netherlands Spain Other Europe 49 666 24 408 18 585 10 130 9 514 8 647 24 402 34% 17% 13% 7% 7% 6% 17% 2,1% 2,0% 9,1% 2,6% 11,4% 3,8% 2,3% 9 8 2 7 1 5 British Telecom T-systems Cap Gemini IBM Atos Origin INDRA Western Europe 145 352 100% 3,7% 4 Sources: Company Information and IT Services 2007 Market Share Gartner : April 2008 in USD with 1 USD = 0.7299 EUR Atos Origin Half-Year Report 2008 13/93 5 OPERATIONAL REVIEW 5.1 OPERATING PERFORMANCE The underlying operating performance on the ongoing business is presented within operating margin, while unusual, abnormal or infrequent income or expenses (other operating income/expenses) are separately itemised and presented below the operating margin, in line with the CNC recommendation of 27 October 2004, before arriving at operating income. Statutory revenue achieved EUR 2,864 million during the first half of 2008, representing an organic growth of +6.4% at same scope and exchange rates. Excluding Italy sold in January 2008 and AEMS Exchange for which the disposal has been completed in the third quarter 2008, the revenue figures achieved EUR 2,745 million with an organic growth of +6.8% compared to the same period last year. (in EUR million) 6 months ended 30 June 2008 % margin 6 months ended 30 June 2007 % margin % change Revenue 2,864 2,890 0.9% Operating margin 124.2 4.3% 117.7 4.1% +5.5% Other operating income (expenses) 66.8 (10) Operating income (*) Organic growth at constant scope and exchange rates 191.0 6.7% 107.7 3.7% +77% The Group achieved an operating margin of EUR 124.2 million (4.3% of revenue) in H1 2008 compared with EUR 117.7 million (4.1% of revenue) in H1 2007. Excluding Italy and AEMS Exchange, operating margin stands at EUR 123.1 million representing 4.5% of revenues. The details from operating margin to operating income are explained in the financial review, in the following chapter. 5.2 REVENUE 5.2.1 Organic growth On Actual Scope which includes Italy for one month, and AEMS Stock Exchanges (disposal to NYSE Euronext completed in Q3 2008), external revenues for the first half of the year amounted to EUR 2,864 million, representing a decrease of 0.9% against EUR 2,890 million for the same period last year. On a constant exchange rates basis and excluding the disposals representing EUR 117.5 million (EUR 113.3 million for Italy and EUR 4.2 million for Actis in Germany and Marben in France), organic revenue increase reached +6.8% representing EUR +175 million over the period. In € Million 2008 2007 Δ% Exchange rates Disposals Statutory scope 2,864 2,890 0.9% (80) (117) Italy (1 mth in H1 08 / 6 mths in H1 07) (20) (134) 113 Revenue excluding Italy 2,844 2,756 +3.2% (80) (4) AEMS Exchange (99) (105) 4 Revenue excluding Italy and AEMS 2,745 2,651 +3.6% (76) (4) Atos Origin Half-Year Report 2008 14/93 % organic change +6.4% 2007 proforma 2,692 (21) 2,671 (101) 2,570 % organic growth +6.4% +6.5% +6.8% In January 2008, the Group has disposed its Italian operations to Engineering, which removed EUR -113 million from the comparative revenue base. Actis in Germany and Marben in France have been sold in 2007. Exchange rate movements resulted in a negative adjustment of EUR 80 million on a comparable year-on-year basis, mainly from British pound for EUR -72 million, and USD related currencies for EUR -8 million. On future scope which excludes Italy and AEMS Exchange sold to NYSE/Euronext in Q3 2008, the external revenue stands at EUR 2,745 million which represents an organic growth of +6.8% at constant scope and exchange rates (2.8 pts above market guidance). In conclusion, Atos Origin registered overall a firm organic revenue growth over the period, marked by double digit growth rates and above mid single digit rates in most of the countries, with the notable exception of the Netherlands. 5.2.2 Revenue per quarter evolution Revenues in H1 2008 based on future scope represented an organic growth of +6.8%, of which +5.9% in the first quarter, and an acceleration of more than one point in the second quarter to +7.7%. (In EUR million) Quarter 1 2008 Quarter 2 2008 Half-year 1 2008 Revenue % growth % organic growth (*) (*) Organic growth at constant scope and exchange rates 1,356 +3.0% +5.9% 1,389 +4.1% +7.7% 2,745 +3.6% +6.8% 5.2.3 Revenue per nature evolution The Group derives 97% of its revenues from Sales of services, which is -1 point compared with the first semester of 2007 without affecting the Services revenue compared to total Group revenue. The revenue share of purchase for re-selling is 3%, slightly up on last year resulting to a greater extent from an increase in Asia. (in EUR million) 6 months ended 30 June 2008 % Total 6 months ended 30 June 2007 % total % change Sales of services Purchase for re-selling 2,672 73 97.3% 2.7% 2,590 61 98% 2% +3.2% +20.5% Total future scope 2,745 100% 2,651 100% +3.6% Organically the Sales of services are moving upwards by EUR 163 million or +6.5%, whereas Purchase for re-selling is higher by EUR 12 million. Atos Origin Half-Year Report 2008 15/93 % organic change +6.5% +20.5% +6.8% 5.2.4 Revenue by geographical area The revenue performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 % growth % organic growth (*) 2008 revenue breakdown France United Kingdom The Netherlands Germany + Central Europe Rest of EMEA Americas 779 491 538 317 439 91 731 501 546 293 388 118 +6.6% -2.1% -1.4% +8.3% +13.1% -23.3% +7.0% +12.1% -1.4% +8.7% +13.9% -20.4% 28% 18% 20% 12% 16% 3% Asia – Pacific 90 74 +22.8% +33.4% 3% Total Group future scope 2,745 2,651 +3.6% +6.8% 100% Italy 20 134 85.4% 6.7% AEMS Exchange 99 105 5.9% 2.3% Total Group (*) Organic growth at constant scope and exchange rates 2,864 2,890 0.9% +6.4% The revenue organic growth performance by geography shows that all the geographic areas generated organic growth except The Netherlands and the Americas. All growing geographical areas have organic growth above +7% with double digits growth in the United Kingdom, rest of EMEA and Asia Pacific. In France, the revenue showed a solid organic growth of +7% (compared to +0.3% for the same period last year) composed of: (cid:190) +13% for Consulting (cid:190) (cid:190) +6% for Systems Integration +8% in Managed Operations of which +8% for Atos Wordline in France Consulting was back to a double digit growth as a result of the change of Management initiated in May 2007. The new Management focused the activity on IT consulting and pushed cross-selling with the main customers of Systems Integration and Managed Operations in France. Strong actions on sales portfolio have also been launched during the second half of 2007 with the Consulting units in The Netherlands and in the United Kingdom in order to improve sharing of knowledge between countries. The growth was mainly led by the financial services and industrial services sectors. The utilization rate grew from 68.5% to 69.3% between H1 2007 and H1 2008. From January to June 2008, the utilization rate increased by +11 points from 62% to 73%. Systems Integration France increased organically by +6%. This growth was mainly led by the telecom and industry sectors which both recorded a double digit performance. The utilization rate grew from 83.0% to 83.9% between H1 2007 and H1 2008. Managed Services revenue increased by +8% thanks to fertilization following the trend of the beginning of the year the effect of the GEFCO contract initiated in H2 2007 and professional services support to customers. Two new contracts started in May 2008, one in network management in the energy sector and another one in the utilities sector. Atos Wordline France had a +8% growth thanks to fertilization on existing clients and contracts mainly in the payments area and for the speed control. In the United Kingdom, revenue for the first half is at EUR 491 million generating an organic growth of +12.1% composed of: (cid:190) (cid:190) +11% for Systems Integration (cid:190) +19% in Managed Operations 19% in Consulting In Consulting, a new Management was appointed at the end of 2007 and with a new organization implemented, initiated actions both on sales and delivery. However no significant new clients were Atos Origin Half-Year Report 2008 16/93 won and a decline in the repeated business on the existing clients’ base mainly in the financial services division resulted in an organic decrease of -19% during of the first half of the year. Nevertheless, the organic decrease was -14% in Q2 2008 compared to -24% in Q1 2008. The new Management has the objective to concentrate on IT consulting and to expand the activity over a broader clients range. Indeed the client portfolio is still based on a few large customers mainly in the public sector. As per the actions implemented in the first half of 2008: (cid:190) Refocus Consulting on public sector and health where the unit has a good market knowledge and a brand recognition (cid:190) Move from general Consulting practice to expertise domains (cid:190) Re-assignment of resources to functional Consulting on ERP systems integration From January 2008 to June 2008, the utilization rate increased by 4 points with an average on the semester at 58.6% slightly down the 59.2% reached in H1 2007. Systems Integration United Kingdom gained momentum in the second quarter with +23% revenue organic growth in Q2 2008 and therefore reached +11% during the first half of the year. After several quarters of restructuring in this service line, the business is back to strong growth mainly on the SAP area. This will help actions in order to increase the utilization rate which reached 76.3% in H1 2008. Additional revenues have been generated with existing large customers such as Ministry of Defence, NHS Scotland, Department of Work and Pensions, British Energy and Premier Foods. In Managed Operations, the organic growth accelerated in Q2 2008 at +24% after a growth in Q1 2008 at +14%. As a result, the organic growth was +19% in the first half of the year. In Managed Services, the growth was led by the ramp-up of Highways Agency and additional projects with Ministry of Justice and NHS Scotland beyond the initial scope of the contacts signed in 2006 and 2007. Also fertilization on existing customers in government, health, transport and enterprise contributed to the growth. In Medical BPO, the ramp-up of extended scope of operation with the Department of Work and Pensions compensated the anticipated end of the contract with DTI. In The Netherlands, revenue slightly decreased by -1.4% compared with last year. The revenue was, as expected, affected by the effect from the re-insourcing of desktop services activities with KPN and the signature of the three-years outsourcing contract in July 2007. Excluding KPN, the revenue organic growth in The Netherlands was +4.6% in H1 2008 compared to last year. The revenue evolution was composed of: -7% in Consulting -0.8% for Systems Integration -0.5% in Managed Operations (cid:190) (cid:190) (cid:190) Consulting in H1 was down by -7% in organic. Sales were slightly below expectation in Retail and Public Sector while Financial sector performed well. The Consulting Management concentrates on IT Consulting initiatives and, following the Group strategy, pushes cross-selling with the most important customers in Systems Integration and Managed Operations. Also in line with the Group strategy, The Netherlands launched initiatives to increase synergies with the United Kingdom and France on one side, and assist Belgium and Germany respectively to develop and start Consulting business in these countries. The utilization rate remained stable between H1 2007 and H1 2008 at 60%. Systems Integration decreased very slightly by -0.8% compared to the same period last year mainly due to a delay at the beginning of the year in business volume resulting from a market shift from fixed price projects to more time & materials based projects. As a result, between H1 2007 and H1 2008, the utilization rates went down from 75.8% to 74.4%. Managed Operations revenue was also very slightly down with -0.5% organic compared to last year. This decrease came mainly from the KPN effect but also with some business volume delayed with customers such as NUON and ING on the delivery. On the opposite, the Group was able to sign additional contract with Achmea which contributed in H1 2008. Atos Origin Half-Year Report 2008 17/93 Central Europe revenue in the first semester reached at EUR 317 million, up +8.7% compared with last year. The growth is composed of: (cid:190) +23% for Systems Integration (cid:190) +1% in Managed Operations The service lines performance is differentiated with Systems Integration up +23% thanks to the new Dresdner Bank application Management contract, and Managed Services slightly increasing by +1% as the client base did not change compared to last year. In Managed Services, the contract with Thomas Cook was renewed and volumes were the same with Arcandor. In Atos Worldline, Germany booked a good level of payment processing business with clients such as Dresdner Bank and ING DiBa. In the rest of EMEA, Iberia revenue reached EUR 188 million, up +9.2% compared with last year. In Iberia, the growth was composed of: (cid:190) +11% in Consulting (cid:190) +5% for Systems Integration (cid:190) +27% in Managed Operations Consulting continued to develop and was up with new projects mainly in the Public sector. Systems Integration was up by +5% mainly coming from revenue generated by new contracts in the Telecom sector such as Vodafone (NGIN development for Greece and The Netherlands) and the Utilities sector. Managed Operations was up +27%. The revenue evolution came mainly from fertilization with the existing customer base and new logos were signed in On Line Services with Sabadell and Fincomsum. Belgium revenue was EUR 213 million with a strong +12% organic growth compared to the same period last year above the market growth both in Systems Integration and Managed Operations. In Consulting, good opportunities are expected to generate revenue during the second half of the year. For Atos Worldline in Belgium, solid revenue was reported coming from the roll-out of the new EMV standard for payment terminals. In addition, a development contract was signed with the Belgium police. In other countries from EMEA, revenue reached EUR 38 million. This region which is mainly Systems Integration in the Telecom sector was affected by a large project with the GSM operator AVEA in Turkey. The AVEA overrun project in the second quarter resulted in a cancellation of EUR 3.6 million revenue affecting also the operating margin. Greece grew thanks to services rendered to Vodafone and South Africa posted a good business level coming from additional activity with Mobile Telephone Networks South Africa. Americas revenue reached EUR 91 million with an organic decrease by -20% due to the end of the Panamerican Games in Brazil which accounted for EUR 28 million in the first half of 2007. South America revenue, excluding Panamerican Games, was up +10%. North America had a slight organic growth of +2% coming from a good performance with ERP business. Asia posted a significant EUR +23 million or +33% organic growth due to new business development mainly in China. Consulting practice was launched in Q4 2007 and revenue is deriving in China with ChemChina around ERP design. Systems Integration is benefiting from ChemChina and also Bank of China. Atos Origin Half-Year Report 2008 18/93 Managed Operations growth was helped by the purchase for re-selling in Thailand with the client CAT for an amount of EUR 8.0 million, the remainder is through Noble group in Hong Kong and fertilization on the Standard Chartered Bank contract. 5.2.5 Revenue by service line The revenue performance by service line was as follows: (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 % growth % organic growth (*) 2008 revenue breakdown Consulting 179 189 5.5% 1.6% 7% Systems Integration 1,116 1,069 +4.4% +7.5% 41% Managed Operations 1,450 1,392 +4.1% +7.4% 53% Total Group future scope 2,745 2,651 +3.6% +6.8% 100% Italy 20 134 85.4% 6.7% AEMS Exchange 99 105 5.9% 2.3% Total Group (*) Organic growth at constant scope and exchange rates 2,864 2,890 0.9% +6.4% In H1 2008, organic revenue decrease in Consulting was 1.6%, with total revenues of EUR 179 million compared with EUR 189 million in H1 2007 on a constant scope and exchange rates. Consulting continued to show a recovery trend. The organic decrease was -1.6% in H1 2008 and was flat in Q2 2008 after -3.3% in Q1 2008, -6.3% in Q4 2007 and -16.2% in Q3 2007. By country, Consulting division in France reached a +13% organic growth in H1 2008 while the United Kingdom and The Netherlands were still decreasing. The attrition rate in Consulting went down to 23.6% on an annual basis compared to 26.7% during the first half of 2007. In the three major countries where the Group operates its consulting activities i.e. France, United Kingdom and The Netherlands, there are significant tensions on the labour market making attraction and retention difficult on skilled consultants. The utilization rate was 63% in H1 2008 compared to 62% in H1 2007 and 62% in H2 2007. Strong actions to come back to the profitability reached in the last few years continued to be implemented with first improvement in France with a positive organic growth at +13% and a good sales momentum. The activity remains difficult in the United Kingdom with an organic decrease of 19%. In The Netherlands, revenue organic decrease reached 7%. The Consulting Management focuses the activity on IT consulting and pushes cross-selling with the main customers of Systems Integration and Managed Operations in each country. A programme of actions has also been launched during the second half of 2007 between the Consulting units in France, in The Netherlands and in the United Kingdom in order to reinforce the working together and to replicate best practices recognised in one country to the other ones. Spain and Belgium continued to contribute increasingly to the revenue of Consulting with respectively EUR 31 million and EUR 9 million in the period. In China, the ChemChina contract continued on the IT transformation Consulting and will provide Systems Integration business in the area of ERP. Revenues in Systems Integration were +7.5% higher organically in H1 2008, with total revenues of EUR 1,116 million compared with EUR 1,069 million in H1 2007 on a constant scope basis. Last year, reported organic growth in H1 2007 was +3.9%. Atos Origin Half-Year Report 2008 19/93 This performance was led by the United Kingdom, Germany, rest of EMEA and France with respectively +11%, +23%, +16% and +6%. The revenue growth was flat in The Netherlands despite a decrease by EUR 7 million with KPN, slightly decreased by EUR 2 million in mediterranean countries (cancellation of EUR 3.6 million revenue in Turkey on one telecom contract) and in South America the end of the Panamerican Games in Brazil resulted in a decrease of EUR 13 million for the Systems Integration part. The attrition rate in Systems Integration went down to 14.7% compared to 15.9% in H1 2007 and 15.8% for the total year 2007. The large countries such as France, The Netherlands, United Kingdom and Germany reached attrition rate below the Group average. The utilization rate was 80% average in the first six month of 2008, at the same level than H1 2007. The utilization rate improved in France by one point compared to the first semester of 2007 in opposition to the United Kingdom and The Netherlands where it decreased by one point compared to the same period last year. The organic revenue growth in Managed Operations was +7.4%, with total revenues of EUR 1,450 million compared with EUR 1,392 million in the first six months of 2007 on a constant scope basis. The organic growth in the period of +7.4% resulted from a positive +7.6% in IT Outsourcing business, +9.8% increase in payment systems and on the opposite a -3.9% decrease in BPO medical. This performance was led by France, the United Kingdom, Asia Pacific and rest of EMEA with respectively +8%, +19%, +46% and +13%. The Netherlands affected by the decrease of revenue with KPN by EUR 20 million had a stable revenue growth in the first half compared to same period last year. The growth was also flat in Germany due to some delays in the order entries, and Americas had the effect of the end of the Panamerican Games in Brazil for an amount of EUR 14 million compared to the first half of 2007. Atos Worldline continued to show a strong growth at +9.8% organically. All geographies (France, Belgium a nd Germany) contributed to this growth, particularly with revenue generated on the speed control activity in France and in the area of payment terminals in Belgium. Medical BPO in the United Kingdom declined by -3.9% due to the end of the execution of a medical assessment contract with DTI. All the assessments of this project having been achieved. Excluding the DTI effect, the medical BPO grew by +18% thanks to an extended scope with the Department of Work and Pensions (DWP) and contracts’ wins and renewals in Occupational Health enlarging the visibility of the entity. 5.2.6 Order input On the future scope, during the first half of 2008, the order entry achieved a level of EUR 2.7 billion, an increase by +17% compared to the first semester of 2007 at constant exchange rates. The book to bill ratio reached 98% compared to 89% for the same period last year. On a twelve months period from 1 July 2007 to 30 June 2008, the book to bill ratio reached 114% with an order entry of EUR 6.2 billion. The main signatures in renewals and new business were made with clients such as: NXP,and Achmea in The Netherlands, Neckermann and Wingas in Germany, NHS Scotland, Ministry of Justice, UK Home Office and DWP in the United Kingdom, EDF, Biometric Passports with French Ministry, Total in France, Telefonica, Caja Madrid in Spain, Petrobras in South America and SCB in Asia Pacific. At the end of June 2008, full order backlog represented EUR 7.5 billion at the same level than end of June 2007 despite EUR 0.3 billion adjustment done in order to reflect the foreign exchange rates evolution mainly in the United Kingdom. The figure for the full order backlog represented 1.4 year of revenue based on the future scope. Full pipeline (weighted) amounted to EUR 2.3 billion at the same level than June 2007 and up EUR 0.4 billion compared December 2007. Atos Origin Half-Year Report 2008 20/93 5.2.7 Revenue by industry sector The revenue performance by industry sector was as follows: (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 Growth % growth 2008 revenue breakdown Public Sector Financial Services Manufacturing Telecoms and Media Retail Utilities Others 692 589 427 415 270 238 114 719 521 422 418 258 243 69 27 68 5 -3 12 -5 45 94 3.8% +13.0% +1.1% -0.8% +4.7% -2.0% +64.9% +3.6% 25% 21% 16% 15% 10% 9% 4% Total 2,745 2,650 100% Italy AEMS Exchange 20 99 134 105 115 -6 85.4% -5.9% Total 2,864 2,890 26 0.9% The Group is organised in six main industry sectors, which represent 96% of total revenues. Public sector remained the main market served by the Group with 25% of total Group revenue. French, Dutch and British Ministries are the main customers together with the Health sector in the United Kingdom. Revenue had a positive organic growth excluding the exchange rate evolution in the United Kingdom and the end of the DTI contract in the medical BPO. The Financial services sector (21% of total Group revenue) with a +13% revenue increase benefited from new contracts such as Dresdner Bank in Germany, payments services for Atos Worldline in France and in Belgium, new projects for Consulting in France and banking systems integration in Spain. Manufacturing (16% of total Group revenue) which includes both Discrete Manufacturing and Process Industries had a slight +1% growth benefiting from new contracts with large customers in France and in The Netherlands whereas an overall decrease came in the high-tech due to customers such as Philips. Telecoms and Media represented 15% of total Group revenue, with a very slight decrease mainly due to the business activity with KPN in The Netherlands. Good fertilization and new businesses with other telecom operators mitigated the trend. Retail represented 10% of total Group revenue, with an increase of +5% coming essentially from Atos Worldline where the Banksys mass market linked to acquiring business and terminals continued to develop during the first half of 2008. Atos Origin Half-Year Report 2008 21/93 5.3 OPERATING MARGIN AND MARGIN RATE 5.3.1 Operating margin performance The operating margin performance was as follows: (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 % growth % organic growth Future scope Revenue Operating margin 2,745 123.1 2,651 110.6 +3.6% +11.3% +6.8% +15% Operating margin rate 4.5% 4.2% +0.3 pt +0.3 pt Statutory scope Revenue Operating margin 2,864 124.2 2,890 117.7 0.9% +5.5% +6.4% +6% Operating margin rate 4.3% 4.1% +0.3 pt +0 pt As far as the seasonality is concerned, the start of the year is traditionally impacted by a contractual reduction in revenues on long term contracts where the Group has agreed in advance to share specific benefits with clients. There is also a global salary increase estimated at +3.5% in 2008 which took place at the beginning of the year. On the future scope, the performance of the operating margin in the first half of 2008 was EUR 123.1 million representing 4.5% of revenues. The operating margin rate improved in Q2 08 compared to Q1 08 by more than one point, from 3.8% to 5.1%. Compared to H1 2007, the operating margin improved by +11%. This improvement was +15% at same scope and exchange rates, an improvement of +0.3 point compared to H1 2007. On the statutory scope, operating margin improved from 4.1% to 4.3%. (in EUR million) Quarter 1 2008 % margin Quarter 2 2008 % margin Half-year 1 2008 Revenue future scope 1,356 1,389 2,745 Operating margin future scope 51.9 3.8% 71.2 5.1% 123.1 Revenue 1,424 1,440 2,864 Operating margin 52.4 3.7% 71.8 5.0% 124.2 The operating margin is considered after equity-based compensations (stock options, management investment plan and long-term incentive plan) for an amount of EUR 6.1 million (compared to EUR 4.9 million in H1 2007) and Transformation Plan effect (net costs of savings) for EUR 7 million (compared to EUR 11 million in H1 2007). Excluding 3O3 costs, the operating margin increased from EUR 118 million to EUR 150 million representing an increase by +27% compared to the first half of 2007 at same scope and exchange rates.. Atos Origin Half-Year Report 2008 22/93 % margin 4.5% 4.3% 5.3.2 Operating margin by service line The operating margin at the end of June was EUR 124.2 million representing 4.3% of revenues and in its future scope presentation, the Group achieved a margin of EUR 123.1 million or 4.5% of the revenue. Consulting suffered from a lower revenue baseline and was down EUR -3.5 million compared with last year, with an improvement in France which did not offset lower profitability in the United Kingdom. Systems Integration is behind last year with EUR -1.9 million, facing losses in Turkey (rest of EMEA) and Thailand (Asia Pacific) which have been entailed by delivery issues on projects. Managed Operations had a margin improvement by EUR 18.7 million led by a better performance in the United Kingdom and for Atos Worldline. The corporate costs remained flat at EUR 38 million compared to last year representing -1.4% of revenue. (in EUR million) 6 months ended 30 June 2008 (*) % margin 6 months ended 30 June 2007 (*) % margin % growth Consulting Systems Integration Managed Operations Corporate 8.0 40.4 113.1 38.4 4.5% 3.6% 7.8% 1.4% 11.5 42.3 94.4 37.6 6.1% 4.0% 6.8% 1.4% 31% -4% +20% +2% Total Group future scope 123.1 4.5% 110.6 4.2% +11% Italy 1.1 5.5% 5.3 3.9% 79% AEMS Exchange 2.2 2.2% 12.3 11.7% 82% Total Group (*) Corporate costs exclude Global Service Lines costs 124.2 4.3% 117.7 4.1% +6% The Consulting activity had a decrease of operating margin by EUR 3.5 million compared to H1 2007, mainly coming from the United Kingdom. France increased its profitability by +1 point mainly coming from a better utilization rate. The Netherlands had a decrease of its profitability by -1 point mainly explained by a lower utilization rate especially in the Retail and CPG sectors. In the United Kingdom, where the main part of the revenue which derived from public sector with clients such as the International Funding Agency (IFA), the Ministry of Defence, and the Health sector was good, sales declined in the sub-critical financial services division.The costs reduction plan could not yet fully compensate the business decrease. Nevertheless, in the first half, the action plan implemented in the second half of 2007 allowed to reduce by more than half the negative operating margin with a break-even position reached in June 2008. In the rest of EMEA, Spain improved its operating margin rate by +3 points compared with last year mainly coming from higher maturity in the public sector practice from the Consulting unit. In Asia Pacific, the Consulting practice is increasing. The service line has been set up recently in China, supported by consultants coming in from The Netherlands and the United Kingdom. The unit won a large contract with ChemChina. Consulting in Asia Pacific is close to break-even. In Systems Integration the future scope margin for H1 2008 is EUR 40.4 million or 3.6% of revenue compared to EUR 42.3 million for the same period last year. In France, despite a revenue organic growth of +6%, the operating margin remained weak and was slightly positive. The incremental revenue generated has not been converted to profit, due to a necessary use of additional subcontractors and the basic issue of mark-up which has been addressed already in 2007 with full effect not yet included in the operating margin. The mark-up issue continues to be addressed in 2008. A change of the operational Management of the entity has been implemented in July 2008. In The Netherlands where competition remains tough, the systems integration unit lost 1 point of operating margin mainly coming from a higher utilization of subcontractors as a result of the labour tension on the IT market for a series of skilled profiles. Atos Origin Half-Year Report 2008 23/93 The United Kingdom is up by EUR +6.6 million compared to the same period last year. The margin stands at 6.5% which represents a significant increase compared with last year of +4.3 points. The United Kingdom had additional revenues on a handful of clients. Central Europe has almost doubled the margin in absolute terms compared with last year with EUR +3.8 million. This performance has been led by the Dresdner Bank application management contract. The service line had also a better performance in the Telecom sector. Iberia slightly improved its operating margin. The systems integration unit benefited from higher revenues and was able to manage the level of indirect costs. Belgium improved its operating margin by +0.2 point compared to last year despite a higher level of subcontractors to deliver the increased business volume. In the rest of EMEA, the second quarter of 2008 was difficult principally due to a one-time margin reduction in a telecommunications convergence billing by EUR -3.6 million on the prepaid system for the AVEA project. North America is showing a positive trend, especially in the ERP business of Systems Integration. South America is breakeven despite the termination of the Panamerican Games during the second half of 2007. In Asia Pacific, as already mentioned, delivery issues in Thailand in relation with the TOT project led to a one-time charge of EUR 3 million In Managed Operations, the future scope operating margin stands at EUR 113.1 million or 7.8% of revenue. This is EUR +18.7 million up on the same period of last year. The good performance was primarily led by Atos Worldline and the United Kingdom. The Netherlands were down compared to last year but this decrease was expected from the largest customers. France excluding Atos Worldline improved its operating margin by +2.2 points despite higher subcontractors’ costs. This improvement came from the effect of large contracts delivered during the second half of 2007 and higher revenues with the existing clients’ base. In The Netherlands, actions plan are in place to improve profitability on a certain number of projects. and recent contracts signed will allow to increase the activity and to compensate the KPN effect. In the United Kingdom, the first half had an operating margin higher by EUR 15.8 million at EUR 22.6 million representing an improvement by +5.3 points. This improvement came from higher revenues and the effect from the ramp-up of large contracts of H1 2007. Central Europe had an operating margin of EUR 18.8 million representing 10% of revenue. This margin was up compared to the same period last year despite price renegotiation with or no price increase with the largest customers. Strong actions are in process in order to generate purchasing savings. Iberia was slightly positive with EUR 1 million operating margin. In North America, the operating margin was also at EUR 1 million and in South America the operating margin was very slightly negative due to a delay in the data-center move in the first quarter. The end of the Panamerican Games had a EUR -0.7 million effect compared to H1 2007. In Asia Pacific, the operating margin was negative in the first half of 2008 mainly due to a delay in the transition phase for a large customer. A strong action plan is underway to come back positive as soon as possible. Atos Worldline had an improvement by +2 points operating margin compared to last year. The integration of Banksys has been well underway and contributed to the margin improvement. All the Atos Origin Half-Year Report 2008 24/93 countries had a better performance compared to H1 2007. This performance was helped by a +10% revenue organic growth in H1 2008 and a strong management of the costs base. 5.3.3 Operating margin by geographical area The margin and the trend per country were mixed. Globally the margin in the first semester was led by the United Kingdom, The Netherlands, Germany Central Europe and rest of EMEA. Atos Worldline contributed to the performance in France, Germany and rest of EMEA (Belgium). France Systems Integration and United Kingdom Consulting are two units on which the Management is focusing a strong attention in order to restore profitability as it was in the last few years. Strong actions plans are underway including simplification of the organization, efficiency of the operations, cross-selling and review of low margin contracts. In these two units, the Management has been changed recently. In all the large countries, due to a more difficult situation to hire the required skills, the evolution of business mix towards more staff intensive service to deliver projects won in the second half of 2007 and the first half of 2008 and despite +8% more recruitments than last year and a lower attrition rate , the Group had to increase significantly the level of subcontractors whereas the plan was to decrease it during the first half of 2008. As a result, the Company used approximately 1,000 additional subcontractors in H1 2008 compared to H1 2007 resulting in an estimated negative impact of EUR 9 million on the operating margin, representing 0.3% of revenue. The operating margin has been affected in H1 2008 by EUR 11 million to deliver projects; the main part being in two countries: Thailand with the TOT project and Turkey with the AVEA project in the telecom sectors. As a result, a one-time charge for these two projects had a negative effect of EUR -7 million in the semester representing 0.2% of revenue. The Company continued to develop the initiatives of the 3O3 plan in all the countries in order to transform the Group as a global organization able to provide revenue organic growth above the market and to increase the efficiency of the operations. For the total year 2008, the savings are expected to offset all the operating costs, but the timing resulted in EUR 7 million more costs then savings in H1 2008 affecting the operating margin by 0.2% of revenue. Therefore a EUR 14 million swing is expected between H1 and H2 this year on the operating margin from the transformation plan. The Global service line costs not allocated to the countries had an increase by EUR 4.4 million further to the ramp-up of the Transformation Plan and the trend already observed in H2 2007. This increase came from the implementation of the Global Market organization and the support provided by Global service lines to 3O3 actions such as Industrialization and Global Factory. As a result of the analytical review made in the section 5.3.2 “Operating Margin by service line” and the main comments herein above, the operating margin performance by geographical area was as follows: (in EUR million) 6 months ended 30 June 2008 (*) % margin 6 months ended 30 June 2007 (*) % margin % growth France United Kingdom The Netherlands Germany + Central Europe Rest of EMEA Americas Asia - Pacific Corporate central Global Service Lines costs Total Italy AEMS Exchange 34.1 30.3 46.1 26.1 41.5 1.3 -4.9 -38.4 -13.1 123.1 -1.1 2.2 4.4% 6.2% 8.6% 8.2% 9.4% 1.4% -5.4% -1.4% -0.5% 4.5% -5.5% 2.2% 23.8 10.8 55.3 21.3 34.9 4.7 6.0 -37.6 -8.7 110.6 -5.3 12.3 3.2% 2.2% 10.1% 7.3% 9.0% 4.0% 8.2% -1.4% -0.3% 4.2% -3.9% 11.7% +44% +181% -17% +23% +19% -73% -181% +2% +51% +11% -79% -82% Total Group (*) Corporate central costs and Global service lines costs not allocated to the countries 124.2 4.3% 117.7 4.1% +6% Atos Origin Half-Year Report 2008 25/93 As far as AEMS Exchange is concerned, revenues were down by 2.3% organically and the operating margin was severely reduced from EUR 12.3 million in H1 2007 to EUR 2.2 million in H1 2008 as a result of expected costs reduction from Euronext in the context of the carve out to the benefit of NYSE Euronext. The transaction signed with NYSE Euronext based on similar terms than those announced on 11 December 2007 has been completed during the third quarter of 2008. Atos Origin Half-Year Report 2008 26/93 6 TRANSFORMATION PLAN Focusing our Efforts and Driving Change A Transformation Plan has been launched with 3 objectives over 3 years to accelerate the organic growth, improve efficiency and operate as a global company. The financial targets are to significantly increase the operating margin between 2006 and 2009 under the assumption of cautious organic growth, and to generate a strong corresponding free cash flow. The Transformation Plan is centered on 7 initiatives, divided into more than 70 projects and it impacts all countries of Atos Origin. The 7 initiatives which are detailed below are the following: 6.1 SALES - OPTIMISATION OF SALES EFFICIENCY AND INCREASE ORGANIC GROWTH During the first half of 2008, the following achievements have been delivered: Atos University delivered 20 training modules in 5 main programs and trained more than 350 sales people from all geographies (i.e. more than 40% of the addressable sales force) within two training centers in Paris and Beijing. Special modules were developed on Distinctive Offerings (ECM, SAP move, Convergent Billing); Atos University Sales & Markets University forged a long-term partnership with Beijing International MBA at Pekin University (BiMBA), one of the leading business schools in China. Sales in Emerging Markets/Clients is Atos University Sales & Markets’ first overseas program; • Sales operations are, governed by the same rules, processes and performance indicators shared across the whole Sales organization. Industrialization of our Sales processes is moving forward: at the beginning of this year, a new CRM System implemented in France and Germany as a pilot to support the sales process. A roll-out plan has been designed for the main countries in the second half of 2008. 6.2 INDUSTRIALISATION - STANDARDISATION OF ORGANISATION PROCESSES AND TOOLS IN SYSTEM INTEGRATION During the first half of 2008, the following achievements have been delivered: Transition of the SI organisations in Germany and Spain into a SDMC (Software Development and Maintenance Center) based organisation involving more than 3,600 staff. Also new production lines for. Net and Java have been started in the United Kingdom. The SDMC model is now successfully deployed in The Netherlands, United Kingdom, Germany and Spain; Successful roll out of the standardised processes and tooling resulting in a significant increase from more than 3,300 users of the Shared Service Center ; Further implementation of standardised productivity measurement. This is now extended from projects into Application Maintenance. The central productivity database has meanwhile grown from zero at the beginning of the year to over 150 projects ; Significant growth of the Test Factories now providing facilities in FR, UK, NL, Spain, India and recently the start up in Brasil. In total, more than 1500 staff are now using the standardised test environment in the Shared Service Center ; Set up of a central scanning team in India using our off-shore capabilities for cost effective support of the Application Mining roll-out. This team has meanwhile obtained certification for their tool usage. Atos Origin Half-Year Report 2008 27/93 6.3 GLOBAL SOURCING - TARGETING 25% IN OFFSHORE AND NEARSHORE BY END 2009 IN SYSTEMS INTEGRATION In order to balance its global sourcing capabilities, Atos Origin launched projects to strengthen existing offshore, nearshore and closeshore sites in the following locations: o o Brazil (offshore + closeshore); o Morocco (nearshore); o Armenia (nearshore); o Spain (closeshore + nearshore); o Germany (closeshore); o Poland (nearshore); o Malaysia (offshore); o Suriname (offshore). India (offshore); Furthermore, the Group has initiated pilots in new offshore, nearshore and closeshore centers in other locations. Since the start of the program in 2007, the Group has more than doubled its staff organically in offshore. Since 2007, this initiative has delivered the following achievements: 1. Increase of offshore staff by 132 % from 1,300 FTEs (YE 06) to 2.770 FTEs (H1 08) India • Expanding the recruitment capacity, producing approximately 100 net additions on average per month since May 2007, with internal forecasted peak recruitment of 150 staff per month with additional external recruitment capacity; Increased seniority of staff to address specifics of European market; • Expansion of facilities and geographic presence in India a. Additional facility in Mumbai (700 seats); b. New location Pune; Campus with 3.000 seat capacity in 2009; c. New location Bangalore (400 seat capacity); d. Upgraded facilities in Kolkotta. Creation of SAP Technical Competence Center in Mumbai; • Creation of specialized Test Factory (see Industrialization) team; • Migration of projects to the shared service center (see Industrialization) in progress. 2. Brazil New facility opened in Curitiba, thereby extending the Group’s presence in Brazil from its current Sao Paolo location (currently, 1,500 FTEs working mostly for subsidiaries of large European clients), will be at 280 staff by YE 08; Curitiba, which is operating at about 20% less cost than Sao Paulo, the Group will address both the domestic market (closeshore) and the US (time zone) and Southern European market (offshore) and clients with a global presence in Latin America. 3. Morocco New facility in Casablanca opened, will be at 400 staff by YE09; • Extension of the existing desktop services to server management; • Good traction with French customer base, especially those with own presence in Morocco due to lower price, same time zone and availability of native French speaking staff; Headcount reaching 166 FTEs at the end of 2007, the target being above 600 in 2009. 4. Armenia Specialized center for mainframe and other legacy technologies, for which profiles are costly and hard to find in traditional offshore locations; Multilingual capabilities, providing good base for German speaking nearshore; • After focusing on German opportunities in ‘07 expansion to a global provider for all mainframe and legacy applications in August 2009. Atos Origin Half-Year Report 2008 28/93 5. Spain Implementation of dedicated delivery organization channeling demand into the closeshore centers in Valladolid and Sevilla and to the offshore center in Curitiba; CMMI certifications for Spain and Brazil achieved. In Managed Services, Global Sourcing will develop from 600 staff (end of 2006) to 1,900 in 2009 in the Service Desk, Server Management and Monitoring activities in India, Malaysia, Poland and Morocco. Offshore sites have been assessed and action plans have been set up in order to guarantee their capability to increase their activity. 6.4 MANAGED SERVICES GLOBAL FACTORY - TO ENSURE STANDARDISED, CONSOLIDATED GLOBAL DELIVERY During H1 2008, this initiative has delivered the following achievements: Mainframe Consolidation - In order to increase the competitiveness of the mainframe activity, the Group has decided to consolidate all the European mainframe activities into one single mainframe center located in Germany: Dutch and Italian mainframe activities transfers have been completed in 2007; • The transfer of France is well engaged. 75% of the French Mainframe activity is planned to be achieved by the end of 2008. The 25% remaining is planned early 2009; The United Kingdom transfer is currently being reassessed. End-to-end Desktop Service Optimization – In order to improve the efficiency of the different levels of support of the Desktop Services, the following actions have been launched: Implementation of ITIL processes; • Standardisation of Call Center solutions; • Implementation of Self-support tooling (resulting in fewer calls being processed), through voice servers and service portals; Improvement of global tooling (ticketing systems, asset management, reporting). Consequently: Increased productivity and higher first-call resolution, resulting in less staff for the same number of calls; Increase of the volumes processed in selected offshore/nearshore countries (Poland, Malaysia, Morocco, Spain and Surinam); Productivity and efficiency improvements are in line with the plan. The current actions are related to the implementation of global tooling. Server Management Optimization - In order to improve the productivity and efficiency of this activity the following actions have been launched: • Development of Server virtualization and Storage on demand solutions; • Ramp-up in the volumes processed in selected offshore countries (India, Poland and Morocco); The productivity improvements are in line with the plan. The recommendations concerning complementary improvements have been produced and the rollout plan is planned to start in the second half of the year. Implementation of a global service delivery architecture for Server Management; 6.5 TALENTS – A STRONG HUMAN RESOURCES PROGRAM TO ATTRACT, DEVELOP AND RETAIN BEST PEOPLE During H1 2008, this initiative has delivered the following achievements: Among the group of Talents identified through the 2007 review, 37 employees are now attending the 2008 Gold program that started in last April; Atos Origin Half-Year Report 2008 29/93 Relay Program to promote international mobility: 25 Talents on international assignments; • New process in place to fill vacant key positions with candidates coming from the Talent pool; • 2008/2009 People Review, Succession Plan & Talent identification has been launched in order to complete the 2007/2008 Talent pool. 6.6 FINANCE, HR, AND IT SUPPORT FUNCTIONS - STRONGER AND MORE EFFICIENT KEY FUNCTIONS, Finance has delivered the following achievements: The Group controlling organization is in place and has run the new Group Financial processes: budget, forecast, bid control; The Group treasury organization has been centralized in order to improve control on the Operations, particularly group treasury under responsibility of Group CFO is the key control of all significant capital expenditures, subsidiaries recapitalization and internal dividend; The Business model for the European Finance Shared Service Center has been designed and shared with the country managements. The offices based in Lodz (Poland) are in the process of being fitted to welcome the first team members. The building is expected to be fully operational at the end of August. The recruitment plan is on target. The transfer of the first back office (The Netherlands) will take place in September. Human Resources have delivered the following achievements: • Completion of the configuration of the new Recruitment Management System based on newly designed global recruitment process; indicators) Implementation of first HR Shared Service Centre in Spain; KPI’s (key performance implemented. for SSC performance measurement agreed and IT has delivered the following achievements: Completion and successful implementation of the SAP financial information system in the United Kingdom and Spain. The system covers now all European countries and the US i.e. 93% of Group Revenue; Implementation and run of a CRM pilot application in France and Germany with a roll-out plan for 2008; Full control and ownership of all internal IT costs; • Design of a Group AWS (Atos Workforce solution) project for harmonising and optimising desktop service management for all the Group. 6.7 PURCHASING During H1 2008, this initiative has delivered the following achievements by categories: EUR 34 million global or globally led purchase savings achieved in H1 2008 benefiting either on future capital expenditure optimisation and future income statement expenses reduction before volume growth; Management of software license transfers related to mainframe consolidation; • Deployment of a world wide software reseller; • New contract for internal PCs; • Hardware maintenance actions in several European countries; • Major consolidation contract of telecom services; • Consolidation of subcontracting suppliers; • New contracts for financial and HR services; • Global and national consolidated contracts in housing, travel etc… • Deployment of the real estate plan launched in the main countries. Atos Origin Half-Year Report 2008 30/93 7 HUMAN RESOURCES REVIEW 7.1 CHANGE IN THE GROUP WORKFORCE 30 June 2008 30 June 2007 Headcount opening 51,704 49,841 Change in scope Hiring (*) Leavers (*) Restructuring 2,443 5,590 -3,973 -223 201 5,171 -3,990 -511 50,655 Headcount at closing (*) Permanent staff only, excluding temporary staff movements 50,310 Changes in scope related to business disposals in the period, including disposals of Italy (-2 477 people), and transfer of Tempos in Spain (+29 people). The level of recruitment during the first half of the year reached 5,590 up by +8% compared to the level reached in H1 2007. The total hirings made in the semester represented 11% of the opening workforce compared to 10% last year with 13% in Consulting, 12% in Systems Integration and 10% in Managed Operations. Leavers comprise voluntary permanent staff leavers, permanent staff who have been dismissed and those who have retired. The total number of leavers during H1 2008 was 3,973 (including 751 dismissals); very slightly below the level reached in H1 2007. Staff attrition decreased by more than one point during the period at 13.6% compared to 14.8% in H1 2007; confirming again the reversing trend observed during the second semester for year 2007 which ended at 14.6% in December. A total of 223 employees left the Group in H1 2008 under specific and localised re-organisation programs as part of the business transformation. These staff who left the Company were located in the United Kingdom, France, The Netherlands and South America. 7.2 STAFF MOVEMENTS BY SERVICE LINE AND COUNTRY Employees 30 June 2008 31 December 2007 Change Average H1 2008 Average H1 2007 Consulting Systems Integration Managed Operations 2,683 24,396 23,330 2,632 25,573 23,244 +2% -5% +0% 2,662 24,044 22,934 2,638 24,506 22,732 Corporate 246 256 4% 228 199 Total 50,655 51,704 2% 49,869 50,075 France United Kingdom The Netherlands Germany + Central Europe Other EMEA Americas Asia-Pacific 15,380 6,356 8,322 4,199 8,658 2,941 4,553 15,529 6,179 8,398 4,076 8,186 2,630 3,973 1% +3% -1% +3% +6% +12% +15% 15,490 6,246 8,340 4,131 8,447 2,766 4,221 14,959 6,282 8,380 3,772 7,866 2,637 3,334 Corporate 246 256 4% 228 199 Total Group exl. Italy 50,655 49,227 +3% 49,869 47,429 Italy 2,477 2,645 Total 50,655 51,704 2% 49,869 50,075 Atos Origin Half-Year Report 2008 31/93 Change +1% -2% +1% +15% 0% +4% -1% -0% +10% +7% +5% +27% +15% +5% 0% At the end of June 2008, the full-time equivalent internal and external productive staff grew from 44,831 in H1 2007 to 47,924 in H1 2008 representing an increase of +6.9%. The highest area of staff growth is Asia Pacific with +15% increase reflecting the Group strategy to increase the offshore staff in countries such as India and Malaysia. In South America, the staff increase reached +16% compared to end of 2007 with the increase of offshore in Brazil. All together, at the end of June 2008, Group staff from low costs countries (India, Brazil, Morocco, Poland, China, Malaysia, South Africa, Armenia…) were almost 6,000 representing 11% of Group total staff. 7.3 STAFF BY REGION AT 30 JUNE 2008 United Kingdom 6,400 Benelux 10,200 North America 700 France 15,600 Germany & CE 4,200 Spain 6,300 Med. countries 200 Asia Pacific 4,600 Africa 300 South America 2,200 Total employees 50,700 end of June 2008 Atos Origin Half-Year Report 2008 32/93 7.4 EMPLOYEE AND MANAGEMENT SHAREHOLDING Further to the employee shareholder plan implemented in 2006 and according to the resolution presented and approved at the Annual General Meeting held on 23 May 2007, the Group has launched during the third quarter 2007 a new employee plan for more than 45,000 employees in 12 countries. One per cent of the share capital has been subscribed at the end of December 2007. The capital increase reserved to this plan with a 20% discount compared to the share market price, with the option of a leverage for the financing, led to the subscription by 1,884 employees. This operation will be renewed in six large countries in 2008 with a capital increase representing one per cent share capital reserved to the 2008 plan. In February and in March 2008, the Supervisory Board has renewed its approval for two plans with the possibility to get free shares reserved to the top 400 managers of the Group: the Long-Term Incentive plan (“LTI”) and the Management Investment Plan (“MIP”). 1. The LTI is a free share scheme. It is performance related as the vesting of the free shares is conditioned to presence in the Group during two years (or four years on the choice of the employee in some countries) and to the achievement of a financial objective by the Group during a two years period. The Supervisory Board decided to choose for the LTI plan of 2008 the following financial performance indicators: Operating Cash Capacity (OCC) which represents “OMDA-Net capital expenditure” for the fiscal years 2008 and 2009. The free shares acquired after the two years will be submitted to a lock up period of two years. For the LTI plan, 228,473 free shares (under the assumption of financial performance indicators reached at 100%) have been granted to a market price of EUR 32.87 on 18 March 2008 to 426 top managers. This plan is not dilutive for the shareholders as Atos Origin bought 192,000 shares on the stock market to match engagement, in addition to the shares bought for the LTI of 2007 and not attributed in 2007. 2. The MIP plan is a retention plan conditioned to the purchase of Atos Origin stocks. At the end of the subscription period, 165 top managers invested and bought 248,306 Atos Origin stocks and 248,306 shares were granted at a market price of EUR 38.69. The vesting of the free shares under the MIP plan is conditioned to presence in the Group during two years (four years at the choice of the employee in some countries) and not selling the personal investment in Atos Origin shares during that two years period. The free shares acquired after the two years will be submitted to a lock up period of two years. This plan as well is not dilutive for the shareholders as Atos Origin bought in May 2008 200,000 shares on the stock market to match engagement, in addition to the shares purchased for the MIP of 2007 and not attributed in 2007. Atos Origin Half-Year Report 2008 33/93 8 FINANCIAL REVIEW 8.1 INCOME STATEMENT The Group reported a net income (Group share) of EUR 124.7 million for the first six months of 2008, which represents 4.3% of Group revenues in the period. (in EUR million) 6 months ended 30 June 2008 % margin 6 months ended 30 June 2007 % margin Operating margin 124.2 4.3% 117.7 4.1% Other operating income / expenses Operating income Net financial expense Tax charge Minority interests and associates Net income – Group share Adjusted net income Group share (*) 66.8 191.0 (6.5) (56.4) (3.4) 124.7 76.2 2.3% 6.7% 4.3% 2.7% (10.0) 107.7 (7.3) (37.6) (5.5) 57.3 63.5 0.3% 3.7% 2.0% 2.2% (*) Defined hereafter 8.1.1 Operating margin Operating margin represents the underlying operational performance of the on-going business and 4.3% of total revenues of the period. 8.1.2 Operating income The major impact of the period in other operating income is UK pensions plan amendment (New Deal) for EUR 63.6 million. The finalisation of New Deal agreement through the signature of the « Deed of Amendment » by pension fund Trustees on March 31st has the following impacts: • cessation of future defined benefit accrual effective April 1st leading to a curtailment gain (reduction in liability) of EUR 3.5 million (GBP 2.7 million) ; removal of indexation on pension rights accumulated before 1997 following a one off increase of 5% in 2008, resulting in a reduction of liabilities of EUR 60.1 million (GBP 46.4 million). The remaining amount is primarily made of EUR 6.0 million net charge of restructuring and rationalisation, mainly in France as part of the 3o3 program, compensated by EUR 5.1 million received in connection with closure of the NHS Diagnostics contract. As a result, the operating income for the first six months 2008 reached EUR 191.0 million, and represents 6.7% of total revenues of the period. 8.1.3 Net financial expense Net financial expense amounted to EUR (6.5) million for the period, including a net cost of financial debt and non-operational financial costs. The net cost of financial debt was EUR (13.5) million. Based on an average net debt of EUR 489 million during the period, the average cost of borrowing was 5.84% before interests swaps (5.52% including them). The net cost of financial debt was covered 9 times by operating margin, compared with a requirement for not less than 4 times cover under the terms of the new facility. Non-operational financial costs were EUR 7.0 million credit mainly relating to better terms on return on pensions plan assets compared with discount rates applicable to pension liabilities. Atos Origin Half-Year Report 2008 34/93 8.1.4 Tax charge The tax charge has been calculated by applying the full year expected effective tax rate, as per IAS 34 Interim Financial Reporting requirements. The Group effective tax rate is 30.6%. Compared with last year this tax rate is lower due to the disposal of our activities in Italy early 2008, thus avoiding the taxation on Italian value added basis. On a long term basis, the expected effective tax rate is 30% on the current scope of the Group. 8.1.5 Minority interests Minority interests included shareholdings held by joint venture partners and other associates of the Group in the operations of Atos Euronext Market Solutions (50%) and Atos Worldline Processing Services in Germany (42%). 8.1.6 Adjusted net income The Group share of net income before unusual, abnormal and infrequent items (net of tax) was EUR 76.2 million, 2.7% of total revenues and up by +20% compared to the same period last year. (in EUR million) Net income - Group share 6 months ended 30 June 2008 124.7 6 months ended 30 June 2007 57.3 Restructuring and rationalisation (6.0) (29.4) Impairment losses and other 7.4 (5.3) Capital gains Release of opening balance sheet provisions no longer needed (*) Sum of unusual items 0.2 65.2 66.8 21.6 3.1 (10.0) Tax effect (18.3) 3.8 Sum of unusual items - net of tax 48.5 (6.2) Adjusted net income - Group share 76.2 63.5 (*) Including EUR 64 million of New Deal effect as explained in section 8.1.2 8.2 EARNINGS PER SHARE (in EUR million) 6 months ended 30 June 2008 % margin 6 months ended 30 June 2007 % margin Net income – Group share 124.7 4.3% 57.3 2.0% Adjusted net income – Group share 76.2 2.7% 63.5 2.2% Weighted average number of shares Diluted weighted average number of shares (*) Basic EPS 69,711,112 69,829,042 1.79 68,898,338 69,136,128 0.83 Diluted EPS 1.79 0.83 Adjusted basic EPS 1.09 0.92 Adjusted diluted EPS 1.09 0.92 (*) With dilution impact only Based on a weighted average of 69,711,112 shares in issue during the first half of 2008, earnings per share (Group share) were EUR 1.79, and on a diluted weighted average basis of 69,829,042 shares in the period, earnings per share (Group share) were EUR 1.79. Based on the adjusted net income of EUR 76.2 million, the earnings per share (Group share) were EUR 1.09. Atos Origin Half-Year Report 2008 35/93 8.3 CASH FLOW AND NET DEBT The Group began the year with an opening net debt of EUR 338 million. The net cash flow of the period amounts to EUR (176.2) million, compared with the negative cash flow of last year amounting to EUR (148.3) million. The main events of the period are: - an increase of the OMDA in association with the operating margin improvement, the cash impact of the UK pensions amendment (payment of EUR 66 million as part of the general agreement reached with the UK pension Board, the increase in working capital requirement by EUR 106 million in the period due to seasonal effects, a strong reduction of the capital expenditures, decreasing from 5.8% of the external revenue in the first six months 2007 to 4.9% for the same period in 2008, the cash received from the disposal of the Italian activities (EUR 37.8 million). As a consequence of the OMDA performance combined with the strong capital expenditure management, the O.C.C (Operating cash capacity) doubles in 2008 compared with the same period last year. (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 OMDA 211.0 200.9 Net capital expenditures (141.3) (168.8) OCC (Operating Cash Capacity) 69.7 32.1 Change in working capital requirement (105.7) (94.8) Taxes paid (26.2) (17.1) Net interest paid (including finance leases) (13.7) (12.5) Restructuring & rationalisation (42.8) (43.0) UK pensions “New Deal” (66.0) Net financial investments 38.8 22.9 Other changes (*) (30.3) (35.9) Net cash flow (176.2) (148.3) Opening net debt (338.0) (360.3) Closing net debt (514.2) (508.6) (*) Other changes include common stock issues, purchase of treasury stocks, dividends paid to minority shareholders of subsidiaries, translation differences, profit-sharing amounts payable to French employees transferred to debt, other operating income with cash impact (excluding restructuring & rationalisation and UK pensions “New Deal”) and other financial items with cash impact. Atos Origin Half-Year Report 2008 36/93 8.3.1 Change in working capital The negative change in working capital of EUR (105.7) million over the period is the result of both the negative seasonality factors, including annual bonus payments, and an increase in DSO ratio from 67 days in December 2007 to 73 days end of June 2008. This evolution is in line with the previous years and working capital requirement position should improve sharply in the second half of the year. 8.3.2 Operating investments During the first six months of 2007, net capital expenditures amounted to EUR 168.8 million and included strong investments for more than EUR 50 million related to new contracts in the Managed Operations activities. For the same period in 2008, net capital expenditures amounted to EUR 141.3 million over the period. Part of this amount is related to 3O3 for EUR 21.5 million which include EUR 14.5 million for mainframe consolidation and EUR 7.0 million of licenses for the SI industrialization – testing factory. The main countries contributing to the capital expenditures are Central Europe for EUR 21.3 million (of which EUR 14 million related to mainframe consolidation), UK for EUR 20.8 million (all relating to delivering services to customers), the Netherlands for EUR 21.1 million (of which EUR 12 million related to storage capacity and data center improvement) and AEMS for EUR 20 million, mainly related to the Exchange business to be disposed of. 8.3.3 Other changes Other changes include mainly purchases of treasury stock (EUR 14.5 million) linked to the pre- financing of the Management and Long-Term Incentive Plans and translation differences (EUR 14.2 million). 8.3.4 Net financial investments Net financial investments concern mainly the net cash impact of the disposal of the Italian activities for EUR 37.8 million. 8.3.5 Bank covenants The Group is substantially within its borrowing covenants, with a consolidated leverage ratio (net debt divided by OMDA) of 1.2 at the end of June 2008. The consolidated leverage ratio may not be greater than 2.5 times under the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 Operating margin 124.2 117.7 Depreciation of fixed assets 113.0 105.6 Net charge to operating provisions (35.2) (28.8) Net book value of assets sold/written off 2.9 1.5 Net charge for equity-based compensation 6.1 4.9 OMDA Closing net debt 211.0 (514.2) 200.9 (508.6) Leverage ratio 1.2 1.3 Atos Origin Half-Year Report 2008 37/93 The consolidated Interest cover ratio (operating margin divided by the net cost of financial debt) was 9 times in the first half. It may not be less than 4 times throughout the term of the new multi-currency revolving facility. (in EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 Covenants 2008 Operating margin Net cost of financial debt 124.2 (13.5) 117.7 (12.5) Coverage of Net cost of financial debt by Operating margin 9 9 > 4 8.4 8.5 PARENT COMPANY RESULTS The result before tax of the parent company amounts to EUR 33.0 million for the first semester 2008, compared with EUR (25.0) million for the first semester 2007. Atos Origin Half-Year Report 2008 38/93 9 HALF-YEAR FINANCIAL REPORT 9.1 statements for the period ended 30 June 2008 Statutory auditors’ report on the half-year condensed consolidated financial 9.2 9.2.1 Consolidated income statement Half-year condensed consolidated financial statements 9.2.2 Consolidated balance sheet 9.2.3 Consolidated cash flow statement 9.2.4 Consolidated statement of changes in shareholders’ equity 9.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2008 (cid:131) General information (cid:131) Basis of preparation and significant accounting policies (cid:131) Notes to the half-year condensed consolidated financial statements Atos Origin Half-Year Report 2008 39/93 9.1 STATUTORY AUDITORS’ REVIEW REPORT ON HALF-YEAR CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2008. This is a free translation into English of the statutory auditor’s review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of articles L. 232-7 of the French Commercial Law (“Code de Commerce”) and L. 451-1-2 III of the Monetary and Financial Code (“Code monétaire et financier”), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of Atos Origin, for the period January 1 to June 30, 2008, the verification of information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Management Board. Our role is to express a conclusion on these financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34- standard of the IFRSs as adopted by the European Union applicable to Interim financial information. We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris, July 29, 2008 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Jean-Paul Picard Jean-Pierre Colle Jean-Marc Lumet Vincent Frambourt Atos Origin Half-Year Report 2008 40/93 9.2 HALF-YEAR CONDENSED FINANCIAL STATEMENTS 9.2.1 Consolidated income statement (in EUR million) Notes Revenue Note 3 Personnel expenses Note 4 Operating expenses Note 5 Operating margin % of revenue Other operating income and expenses Note 6 Operating income % of revenue Net cost of financial debt Other financial income and expenses Net financial income Note 7 Tax charge Note 8 Share of net income from associates Net income Of which: Group share Minority interests Note 9 (in EUR and number of shares) Net income - Group share per share Note 10 Weighted average number of shares Basic earnings per share Diluted weighted average number of shares Diluted earnings per share Atos Origin Half-Year Report 2008 41/93 6 months ended 30 June 2008 2,863.7 (1,569.5) (1,170.0) 124.2 4.3% 66.8 191.0 6.7% (13.5) 7.0 (6.5) (56.4) 0.0 128.1 124.7 3.4 69,711,112 1.79 69,829,042 1.79 6 months ended 30 June 2007 2,890.0 (1,601.1) (1,171.2) 117.7 4.1% (10.0) 107.7 3.7% (12.5) 5.2 (7.3) (37.6) 0.0 62.8 57.3 5.5 68,898,338 0.83 69,136,128 0.83 12 months ended 31 December 2007 5,855.4 (3,166.9) (2,417.0) 271.5 4.6% (134.7) 136.8 2.3% (28.6) 14.6 (14.0) (59.9) 0.1 63.0 48.2 14.8 68,946,489 0.70 69,141,410 0.70 9.2.2 Consolidated balance sheet (in EUR million) ASSETS Goodwill Intangible assets Tangible assets Non-current financial assets Non-current financial instruments Deferred tax assets Total non-current assets Trade accounts and notes receivable Current taxes Other current assets Current financial instruments Cash and cash equivalents Total current assets Assets held for sale TOTAL ASSETS (in EUR million) SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Consolidated reserves Translation adjustments Net income for the period LIABILITIES AND Shareholders’ equity – Group share Minority interests Total shareholders’ equity Provisions for pensions and similar benefits Non-current provisions Borrowings Deferred tax liabilities Non current financial instruments Other non-current liabilities Total non-current liabilities Trade accounts and notes payable Current taxes Current provisions Current financial instruments Current portion of borrowings Other current liabilities Total current liabilities Liabilities associated with assets held for sale TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Atos Origin Half-Year Report 2008 42/93 Notes Note 11 Note 17 Note 12 Note 17 Note 13 Note 9 Note 14 Note 15 Note 16 Note 17 Note 18 Note 15 Note 17 Note 16 Note 19 30 June 2008 1,818.9 80.2 459.7 88.6 0.9 205.9 2,654.2 1,640.6 25.2 198.7 0.7 197.6 2,062.8 290.3 5,007.3 30 June 2008 69.7 1,329.6 281.2 (92.4) 124.7 1,712.8 167.9 1,880.7 237.6 97.6 512.5 73.8 0.8 1.0 923.3 616.2 56.4 74.3 4.4 199.3 1,139.0 2,089.6 113.7 5,007.3 31 Dec 2007 30 June 2007 1,867.8 74.9 437.0 70.9 - 247.0 2,697.6 1,459.8 13.7 176.4 1.1 348.0 1,999.0 468.5 2,042.3 121.6 442.1 52.1 0.6 266.7 2,925.4 1,753.1 35.0 273.0 1.1 184.3 2,246.5 - 5,165.1 5,171.9 31 Dec 2007 30 June 2007 69.7 1,329.5 271.3 (27.2) 48.2 69.0 1,306.8 264.9 27.1 57.3 1,691.5 172.9 1,864.4 394.5 101.3 443.7 68.5 - 1.2 1,009.2 566.1 44.0 125.2 1.3 242.3 1,066.9 2,045.8 245.7 5,165.1 1,725.1 169.1 1,894.2 446.2 117.8 463.7 53.0 - 1.1 1,081.8 669.3 86.9 103.4 1.9 229.2 1,105.2 2,195.9 - 5,171.9 9.2.3 Consolidated cash flow statement (in EUR million) Notes (*) 6 months ended 30 June 2008 6 months ended 30 June 2007 Net income Group share 124.7 57.3 Depreciation of fixed assets 5 113.0 105.6 Net charge to operating provisions (35.1) (28.8) Net charge to financial provisions (10.1) (8.1) Net charge to other operating provisions (168.1) (13.9) Impairment of long-term assets (Gains) / losses on disposals of fixed assets (0.5) (23.0) Net charge for equity-based compensation 4 6.1 4.9 Minority interests and associates 9 3.4 5.5 (Gains)/Losses on financial instruments 2.0 0.3 Financial interests 7 13.5 12.5 Tax charge (including deferred tax) Cash from operating activities before change in working capital requirement, financial interests and taxes Taxes paid 56.4 105.3 (26.2) 37.7 150.0 (17.1) Change in working capital requirement (105.7) (94.8) Net cash from / (used in) operating activities (26.6) 38.1 Purchase of tangible and intangible assets (139.6) (169.1) Proceeds from disposals of tangible and intangible assets 2.8 1.3 Net operating Investments (136.8) (167.8) Amounts paid for acquisitions and long-term investments Cash and cash equivalents of companies purchased during the period Proceeds from disposals of financial investments (3.2) 0.3 4.0 2.7 0.2 25.3 Cash and cash equivalents of companies sold during the period (11.2) (5.3) Net long-term investments (10.1) 22.8 Net cash from / (used in) investing activities (146.9) (145.0) Common stock issues Common stock compensation issues on the exercise of equity-based 0.1 2.1 Purchase and sale of treasury stock (14.5) (20.6) Dividends paid to minority shareholders of subsidiaries New borrowings (3.3) 166.4 (2.1) 22.8 Repayment of long and medium-term borrowings (93.0) (152.4) Net interest paid (including finance leases) (13.7) (12.5) Net cash from / (used in) financing activities 42.0 (162.7) Increase / (decrease) in cash and cash equivalents (131.5) (269.6) Opening cash and cash equivalents 348.0 453.9 Increase / (decrease) in cash and cash equivalents (131.5) (269.6) Impact of exchange rate fluctuations on cash and cash equivalents Closing cash and cash equivalents (18.9) 197.6 184.3 (*) For reconciliation to the change in net debt over the period and the cash flow by activity over the period presented in the notes. Atos Origin Half-Year Report 2008 43/93 12 months ended 31 December 2007 48.2 223.0 (18.0) (18.0) (8.6) 47.1 (31.9) 18.8 14.7 (0.7) 28.6 59.9 363.1 (48.3) 29.6 344.4 (322.7) 22.3 (300.4) (7.4) 0.2 28.0 (5.5) 15.3 (285.1) 26.1 (20.6) (3.4) 30.5 (162.5) (28.6) (158.5) (99.2) 453.9 (99.2) (6.7) 348.0 9.2.4 Consolidated statement of changes in shareholders’ equity (in EUR million) At 31/12/06 * Common stock issued * Translation adjustments * Appropriation of prior period net income * Equity-based compensation * Changes in treasury stock * Changes in fair value of financial instruments * Net income for the period * Other At 30/06/07 * Common stock issued * Translation adjustments * Appropriation of prior period net income * Equity-based compensation * Changes in treasury stock * Changes in fair value of financial instruments * Net income for the period * Other At 31/12/07 * Common stock issued * Translation adjustments * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Changes in fair value of financial instruments * Net income for the period * Other At 30/06/08 Number of shares at period-end (thousands) 68,881 103 68,984 726 69,710 5 Common Stock 68.9 0.1 69.0 0.7 69.7 Additional paid-in capital 1,304.2 2.6 1,306.8 22.7 1,329.5 0.1 Consolidated reserves 538.1 (264.4) 4.9 (19.5) 259.1 13.9 (1.1) 271.9 48.2 (27.9) 6.1 (14.5) Translation adjustments 29.6 (2.5) 27.1 (54.3) (27.2) (65.2) Items recognized directly in equity (1.5) 5.9 1.4 5.8 (5.9) (0.5) (0.6) (2.0) 69,715 69.7 1,329.6 283.8 (92.4) (2.6) Atos Origin Half-Year Report 2008 44/93 Net income Group share (264.4) 264.4 57.3 57.3 (9.1) 48.2 (48.2) 124.7 124.7 Equity – Group share 1,674.9 2.7 (2.5) 0.0 4.9 (13.6) 1.4 57.3 0.0 1,725.1 23.4 (54.3) 0.0 13.9 (7.0) (0.5) (9.1) 0.0 1,691.5 0.1 (65.2) 0.0 (27.9) 6.1 (14.5) (2.0) 124.7 0.0 1,712.8 Minority interests 165.5 (0.2) 5.5 (1.7) 169.1 (4.7) 9.3 (0.8) 172.9 (5.0) (3.7) 3.4 0.3 167.9 TOTAL 1,840.4 2.7 (2.7) 0.0 4.9 (13.6) 1.4 62.8 (1.7) 1,894.2 23.4 (59.0) 0.0 13.9 (7.0) (0.5) 0.2 (0.8) 1,864.4 0.1 (70.2) 0.0 (31.6) 6.1 (14.5) (2.0) 128.1 0.3 1,880.7 9.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2008 9.2.5.1 General information The half-year condensed consolidated financial statements of the Company for the six months ended 30 June 2008 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities. These interim condensed consolidated financial statements were presented by the Management Board to the Supervisory Board on 28 July 2008. 9.2.5.2 Basis of preparation and significant accounting policies Basis of preparation The interim condensed consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financials statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2007. Accounting policies applied by the Group conform to those standards and interpretations adopted by the European Union as at 30 June 2008. Those standards and interpretations can be found at : http://ec.europa.eu/internal_market/accounting/ias_fr.htm#adopted-commission Changes in accounting policies The accounting policies applied by the Group in the interim condensed consolidated financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2007. The accounting policies applied by the Group do not differ from standards and interpretations as adopted by the IASB. In effect, the only standards and interpretations not yet adopted by the European Union and applicable to periods starting on or after January 1st, 2008 are IFRIC 12 and IFRIC 14, which should have no material impact on the consolidated financial statements. No new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group’s accounting period beginning on or after January 1st, 2008, except for IFRIC 11 Group and Treasury Share Transactions, which had no impact on the group financial statements. The interim consolidated financial statements do not take into account: New standards, interpretations and amendments to existing standards not yet approved by the European Union. This notably concerns: o o o o o o o o o IAS 1 Presentation of financial statements (revised) IAS 32 and IAS 1 Amendments relating to “Puttable Financial Instruments and Obligations Arising on Liquidation” IAS 23 (revised) Borrowing Costs IFRS 2 Amendments relating to vesting conditions and cancellations IFRS 3 (revised) Business Combinations following the “Business Combinations phase II” project IAS 27 (revised) Consolidated and Separate Financial Statements following the “Business Combinations phase II” project IFRIC 12 Service Concession Arrangements. IFRIC 13 Customer Loyalty Programmes IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Atos Origin Half-Year Report 2008 45/93 Draft standards that are still at the exposure draft stage of the International Accounting Standards Board (IASB) Standards and interpretations published by the IASB, adopted at the European level, but with an application date subsequent to June 30, 2008 are limited to IFRS 8 Operating Segments. At the date of this report the potential impact on the consolidated financial statements of application of this standard is not available. Accounting estimates and judgments The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities. The estimates, assumptions and judgments that may result in a significant adjustment to the carrying amounts of assets and liabilities within the next financial statements are essentially related to: Impairment tests The Group tests at least annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated below. The recoverable amounts of cash generating units are determined based on value-in-use calculations. These calculations require the use of estimates. Revenue recognition and associated costs on long-term contracts Revenue recognition and associated costs, including forecast losses on completion are measured according to policy stated below. Total projected contract costs are based on various operational assumptions such as forecast volume or variance in the delivery costs and have a direct influence on the level of revenue and eventual forecast losses on completion that are recognised. Consolidation methods Subsidiaries Subsidiaries are entities controlled by the Group. Control is defined by the ability to govern the financial and operating policies generally, but not systematically, combined with a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible, the power to appoint the majority of the members of the governing bodies and the existence of veto rights are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate method. Operating and shareholders’ agreements are considered when assessing the joint control. Associates Associates are entities over which the Group has significant influence but not control or joint control, generally, but not systematically, accompanying a shareholding of between 20 and 50% of the voting rights. Investments in associates are accounted for by the equity method. Segment reporting The Group’s operational organisation is based on regions composed of geographical areas. The primary reporting segment corresponds to these geographical areas and the secondary reporting segment to the service lines. Atos Origin Half-Year Report 2008 46/93 Presentation rules Current and non-current assets and liabilities Assets and liabilities classified as current are expected to be realised, used or settled during the normal cycle of operations, which can extend beyond 12 months following the period-end. All other assets and liabilities are classified as non-current. Current assets and liabilities, excluding the current portion of borrowings, financial receivables and provisions represent the Group’s working capital requirement. Assets and liabilities held for sale or discontinued operations Assets and liabilities held for sale or discontinued operations are presented on separate lines in the balance sheet without restatements for previous periods. They are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and liabilities are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets and liabilities are available for immediate sale in their present condition. Should these assets and liabilities represent either a complete business line or a geographical segment, the profit or loss from these activities are presented on a separate line of the income statement. Translation of financial statements denominated in foreign currencies The balance sheets of companies based outside the euro zone are translated at closing exchange rates. Income statement items are translated based on average exchange rate for the period. Balance sheet and income statement translation adjustments arising from a change in exchange rates are recognised as a separate component of equity under “Translation adjustments”. The Group does not consolidate any entity operating in a hyperinflationary economy. Translation of transactions denominated in foreign currencies Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement under the heading “Other financial income and expenses”, except where hedge accounting is applied as explained in the paragraph “Financial assets – Derivative financial instruments ” Business combination and goodwill A business combination may involve the purchase of another entity, the purchase of all the net assets of another entity or the purchase of some of the net assets of another entity that together form one or more businesses. Major services contracts involving staff and asset transfers that enable the Group to develop or improve significantly its competitive position within a business or a geographical sector are considered for business combination accounting. Goodwill represents the excess of the cost of a business combination, including transaction expenses directly attributable to the business combination, in accordance with IFRS3, over the Group’s interest in the fair value of assets, liabilities and contingent liabilities acquired at the acquisition date. Goodwill is not amortised and is subject to an impairment test performed at least annually or more often in case of a trigger event. Goodwill is allocated to Cash Generating Units (CGU) for the purpose of impairment testing. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. CGUs correspond to geographical areas where the Group has operations. The recoverable value of a CGU is based on the higher of its fair value less costs to sell and its value in use determined using the discounted cash-flows method. When this value is less than its carrying amount, an impairment loss is recognised in the operating income. The impairment loss is first recorded as an adjustment of the carrying amount of the goodwill Atos Origin Half-Year Report 2008 47/93 allocated to the CGU and the remainder of the loss, if any, is allocated to the other long term assets of the unit. Intangible assets other than goodwill Intangible assets other than goodwill consist primarily of software and user rights acquired directly by the Group, software and customer relationships acquired in relation with a business combination as well as internally developed software, provided that the following conditions are satisfied: (cid:131) (cid:131) (cid:131) (cid:131) the costs can be attributed to the identified software and measured reliably, the technical feasibility of the software has been demonstrated, the Group has the intention and the capability to complete the software development and to use or sell it; and it is probable that future economic benefits will flow to the Group. Once all these criteria are reached, the majority of software development costs have been already incurred and consequently, most of software developments costs are expensed when incurred. In specific Business Process Outsourcing (BPO) cases where developments and adapting software costs are engaged only once agreements with clients are signed, those costs are capitalised and amortised in operating expenses over the term of the contract. Intangible assets are amortised on a straight-line basis over their expected useful life, generally not exceeding five to seven years for software and ten years for customer relationships acquired in a business combination; their related depreciation are recorded in operating expenses. Tangible assets Tangible assets are recorded at acquisition cost, excluding any interest expenses. They are depreciated on a straight-line or reducing-balance basis over the following expected useful lives: Buildings 20 years Fixtures and fittings 5 to 10 years Computer hardware 3 to 5 years Vehicles 4 years Office furniture and equipment 5 to 10 years Leases Asset leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Assets acquired under finance lease are depreciated over the shorter of the assets’ useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Impairment of assets other than goodwill Assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Financial assets Financial assets are accounted for at trade date. Atos Origin Half-Year Report 2008 48/93 Investments in non-consolidated companies The Group holds shares in companies without exercising significant influence or control. Investments in non-consolidated companies are treated as assets available for sale and recognised at their fair value. For listed shares, fair value corresponds to the share price at closing date. In the absence of an active market for the shares, the investments in non-consolidated companies are carried at historical cost. An impairment cost is recognised when there is objective evidence of a permanent impairment in value. The most common financial criteria used to determine fair value are equity and earnings outlooks. Gains and losses arising from variation in the fair value of available for sale assets are recognised as “items recognised directly in equity”. If there is evidence that an asset is permanently impaired, the cumulative loss is written off in the income statement under “other financial income and expense”. Loans, trade accounts and notes receivable Loans are part of non-current financial assets. Loans, trade accounts and notes receivable are recorded initially at their fair value and subsequently at their amortised value. The nominal value represents usually the initial fair value for trade accounts and notes receivable. In case of deferred payment over one year, where the effect is significant on fair value, trade accounts and notes receivables are discounted. Where appropriate, a provision is booked on an individual basis to take into account likely recovery problems. Effective from 1 January 2006, certain service arrangements might qualify for treatment as lease contracts if they convey a right to use an asset in return for payments included in the overall contract remuneration. If service arrangements contain a lease, the Group is considered to be the lessor regarding its customers. Where the lease transfers the risks and rewards of ownership of the asset to its customers, the Group recognises assets held under finance lease and presents them as “Trade accounts and notes receivable” for the part that will be settled within 12 months, and “Non-current financial assets” for the part beyond 12 months. Assets securitisation Assets securitisation programmes, in which the Group retains substantially all the risks and rewards of ownership of the transferred assets, do not qualify for de-recognition. A financial liability for the consideration received is recognised. The transferred assets and the financial liability are valued at their amortised costs. Derivative financial instruments Derivatives are recognised as financial assets or liabilities at their fair value. Any change in the fair value of these derivatives is recorded in the income statement as a financial income or expense, except when they are eligible for hedge accounting, whereupon: (cid:131) for fair value hedging of existing assets or liabilities, the hedged portion of an instrument is measured on the balance sheet at its fair value. Any change in fair value is recorded as a corresponding entry in the income statement, where it is offset simultaneously against changes in the fair value of hedging instruments. (cid:131) for cash flow hedging, the effective portion of the change in fair value of the hedging instrument is directly offset in shareholders’ equity as “items recognized directly in the equity”. The change in value of the ineffective portion is recognised in “Other financial income and expenses”. The amounts recorded in net equity are transferred to the income statement simultaneously to the recognition of the hedged items. Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents include cash at bank and money market securities that are convertible into cash at very short notice and are not exposed to any significant risk of impairment. Money market securities are recognised at their fair value. Changes in fair value are recorded in the income statement under “Other financial income and expenses”. Atos Origin Half-Year Report 2008 49/93 Treasury stock Atos Origin shares held by the parent company are recorded at their acquired cost as a deduction from consolidated shareholders’ equity. In the event of a disposal, the gain or loss and the related tax impacts are recorded as a change in consolidated shareholders’ equity. Pensions and similar benefits Employee benefits are granted by the Group through defined contribution and defined benefit plans. Defined contribution costs are recognised in the income statement based on contributions paid or due in respect of the accounting period when the related services have been accomplished by beneficiaries. The valuation of Group commitments in respect of defined benefit plans is based on a single actuarial method known as the “projected unit credit method”. This method relies in particular on projections of future benefits to be paid to Group employees, by anticipating the effects of future salary increases. Its implementation further includes the formulation of specific assumptions, detailed in note 14, which are periodically updated, in close liaison with external actuaries used by the Group. Plan assets usually held in separate legal entities are measured at their fair value, determined at closing. From one accounting period to the other, any difference between the projected and actual amounts of commitments in respect of pension plans and their related assets is cumulated at each benefit plan’s level to form actuarial differences. These actuarial differences may result either from changes in actuarial assumptions used, or from experience adjustments generated by actual developments differing, in the accounting period, from assumptions determined at the end of the previous accounting period. Group final option in terms of recognition method for actuarial differences has not been elected yet, since a new option has been introduced under IAS 19 to recognise these actuarial differences through equity. By application of the “corridor” method, the Group therefore continues to recognise in its profit and loss account only the portion of cumulated actuarial differences which is above a normative fluctuation margin of 10% of the greater, at closing, of plan commitments and their related assets. This portion is amortised over the remaining active life of the beneficiaries of each particular benefit plan. The measurement of pension commitments is highly sensitive to the evolution of long term interest rates on which the discount rate to be used has to be based. To better reflect this significant market evolution, the group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans when significant rates evolution occur. Benefit plans costs are recognised in the Group’s operating income, except for interest costs on obligations, net of expected returns on plans assets, which are recognised in other financial income. Provisions Provisions are recognised when: (cid:131) (cid:131) the Group has a present legal, regulatory, contractual or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably quantified. Provisions are discounted when the time value effect is material. The provision revaluation at each accounting period results in a provision increase recognised in financial expenses. Borrowings Borrowings are recognised initially at fair value, net of debt issuance costs. Borrowings are subsequently stated at amortised costs. The calculation of the effective interest rate takes into account interest payments and the amortisation of the debt issuance costs. Debt issuance costs are amortised in financial expenses over the life of the loan. The residual value of issuance costs for loans repaid in advance is expensed in the year of repayment. Atos Origin Half-Year Report 2008 50/93 Bank overdrafts are recorded in the current portion of borrowings. The Group does not capitalise borrowing costs as part of the costs of acquired assets. Commitments to purchase minority interest (puts) Firm or conditional commitments under certain conditions to purchase minority interests are similar to a purchase of shares and are recorded in borrowings with an offsetting reduction of minority interests. When the cost of the purchase exceeds the amount of minority interests, the Group chooses to recognise the balance as goodwill. Any further change in the fair value of the minority purchase commitment will also be recorded in goodwill. Revenue Recognition The Group provides information technology (IT) and business process outsourcing (BPO) services. Depending on the structure of the contract, revenue is recognised accordingly to the following principles: Revenue based on variable IT work units is recognised as the services are rendered. Where the outcome of fixed price contracts such as Consulting and Systems Integration contracts can be estimated reliably, revenue is recognised using the percentage-of-completion (POC) method. Under the POC method, revenue is recognised based on the costs incurred to date as a percentage of the total estimated costs to fulfil the contract. Revenue relating to these contracts is recorded in the Consolidated Balance Sheet under “Trade accounts and notes receivable” for services rendered in excess of billing, while billing exceeding services rendered is recorded as deferred income under “other current liabilities”. Where the outcome of a fixed price contract cannot be estimated reliably, contract revenue is recognised to the extent of contracts costs incurred that are likely to be recoverable. Revenue for long-term fixed price Managed Operations services is recognised when services are rendered. If circumstances arise that the original estimates of revenues, costs, or extent of progress toward completion change, then revisions to the estimates are made. The company performs ongoing profitability analyses of its services contracts in order to determine whether the latest estimates of revenue, costs and profits, require updating. If, at any time, these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately through a provision for estimated losses on completion. Revenue is reported net of supplier costs when the Group is acting as an agent between the client and the supplier. Factors generally considered to determine whether the Group is a principal or an agent, are most notably whether it is the primary obligor to the client, it assumes credit and delivery risks, or it adds meaningful value to the supplier’s product or service. The Group enters into multiple-element arrangements, which may include combinations of different services. Revenue is recognised for the separate elements when they have been subject to separate negotiation, the contractor and customer have been able to accept or reject that part of the contract relating to each component, and, each component’s costs and revenues can be identified. A group of contracts is combined and treated as a single contract when that group of contracts is negotiated as a single package and the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin, and the contracts are performed concurrently or in a continuous sequence. Upfront payments to clients incurred at contract inception are recorded in “other current assets” and spread as a reduction of revenue over the term of the contract. Up-front payments received from clients at contract inception are recorded in other current liabilities and spread as an increase in revenue over the term of the contract. Transition costs Costs related to delivering Managed Operations services are generally expensed as incurred. However, certain transition costs incurred in the initial phases of outsourcing contracts can be deferred and expensed over the contract term, provided that they will be recovered. Capitalised transition costs are classified in Atos Origin Half-Year Report 2008 51/93 “Trade accounts and notes receivable” of the Consolidated Balance Sheet and amortisation expense is recorded in operating expenses in the Consolidated Income Statements. In case the contract turns out to be loss-making, capitalised transition costs are impaired for the related forecasted loss, before recognising an additional provision for estimated losses on completion when necessary. Other operating income and expenses “Other operating income and expenses” covers income or expense items that are unusual, abnormal or infrequent. They are presented below the operating margin. Classification of restructuring provisions in the income statement depends on the nature of the restructuring: (cid:131) Restructurings directly in relation with operations are classified within the Operating Margin; (cid:131) Restructurings related to business combinations or qualified as unusual, infrequent and abnormal are classified in the Operating Income. When accounting for business combinations, the Group may record provisions for risks, litigation, etc. in the opening balance sheet for a period of 12 months beyond the business combination date. After the 12-month period, unused provisions arising from changes in circumstances are released through the Income Statement under “Other operating income and expenses”. “Other operating income and expenses” also include major litigations, and non-recurrent capital gains and losses on the disposal of tangible and intangible assets, significant impairment losses on assets other than financial assets, or any other item that is infrequent, unusual and abnormal. Equity-based compensation Stocks options are granted to management and certain employees at regular intervals. These equity-based compensation plans are measured at fair-value at the grant date using the binomial option-pricing model. Changes in the fair value of options after the grant date have no impact on the initial valuation. The fair value of share options is recognised in “Personnel expenses” on a straight-line basis over the period during which those rights vest, with the offsetting credit recognised directly in equity. In some tax jurisdictions, Group’s entities receive a tax deduction when stock options are exercised, based on the Group share price at the date of exercise. In those instances, a deferred tax asset is recorded for the difference between the tax base of the employee services received to date (being the future tax deduction allowed by local tax authorities) and the current carrying amount of this deduction, being nil by definition. Deferred tax assets are estimated based on the Group’s share price at each closing date, and are recorded in income tax provided that the amount of tax deduction does not exceed the amount of the related cumulative stock option expenses to date. The excess, if any, is recorded directly in the equity. Employee Share Purchase Plans offer employees the opportunity to invest in Group’s shares at a discounted price. Shares are subject to a 5-year lock-up period restriction. Fair values of such plans are measured taking into account: (cid:131) (cid:131) (cid:131) (cid:131) the exercise price based on the average opening share prices quoted over the 20 trading days preceding the date of grant, the 20% discount granted to employees the consideration of the 5-year lock-up restriction to the extent it affects the price that a knowledgeable, willing market participant would pay for that share the grant date: date on which the plan and its term and conditions, including the exercise price, is announced to employees. Fair values of such plans are fully recognised in “Personnel expenses” at the end of the subscription period. The Group has also granted to management and certain employees bonus shares plans. The fair value of those plans corresponds to the value of the shares at the grant date and takes into account the employee turnover during the vesting period as well as the value of the lock-up period restriction when applicable. Bonus share plans result in the recognition of a payroll expense spread over the rights vesting period. Atos Origin Half-Year Report 2008 52/93 Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. Deferred tax assets and liabilities are netted off at the taxable entity level, when there is a legal right to offset. Deferred tax assets corresponding to temporary differences and tax losses carried forward are recognised when they are considered to be recoverable during their validity period, based on historical and forecast information. Deferred tax liabilities for taxable temporary differences relating to goodwill are recognised, to the extent they do not arise from the initial recognition of goodwill. Earnings per share Basic earnings per share is calculated by dividing the net income (Group share) by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income (Group share), adjusted for the financial cost (net of tax) of dilutive debt instruments, by the weighted average number of ordinary shares outstanding during the period, plus the average number of shares which, according to the share buyback method, would have been outstanding had all the issued dilutive instruments been converted (stock options and convertible debt). The dilutive impact of each convertible instrument is determined in order to maximise the dilution of basic earnings per share. The dilutive impact of stock options is assessed based on the average price of Atos Origin shares over the period. 9.2.5.3 Notes to the half-year condensed consolidated financial statements Note 1 Change of scope of consolidation Acquisition: In February 2008, the Group announced the acquisition 97.25 % of Tempos 21, through its subsidiary Atos Origin SAE (Spanish entity) for an amount of EUR 0.2 million. The company was consolidated as of February 1, 2008, and represents EUR 2.1 million of revenue for a net loss of EUR -0.8 million over the period. Disposal: On January 30th 2008, the Group has finalised the sale of its activities in Italy to Engineering. This activity made EUR 19.6 million revenue for the month of January and a net loss of EUR -1.3 million. The latest estimate of the loss on the disposal is EUR 8.5 million. Therefore, a reversal of impairment has been recognized for EUR 1.4 million in “Other operating items”. Note 2 Assets and liabilities held for sale On 12 December 2007, the Group has announced an agreement in principle with NYSE Euronext for the latter to acquire the Group’s 50% stake in Atos Euronext Market Solutions (AEMS). The proceed of the sale shall exceed the carrying amount of the related net assets and, accordingly, no impairment loss was recognised on the reclassification of these operations as held for sale. Atos Origin Half-Year Report 2008 53/93 During the first 6 months 2008, this activity made EUR 99 million of revenue for 398 people (EUR 317.4 million revenue in 2007 of which EUR 105.1 million in the first half year). The reclassification impact on the closing balance sheet is EUR 290.3 million on the asset side and EUR 113.7 million on the liabilities. (in EUR million) AEMS 30 June 2008 Italy AEMS 31 Dec 2007 Assets and liabilities disclosed as held for sale Goodwill Intangible assets Tangible assets Financial assets Deferred tax assets Sub total Non Current Assets Current assets TOTAL ASSETS Deferred tax liabilities Pensions Provisions for contingencies and losses Current liabilities TOTAL LIABILITIES 128.2 35.7 29.3 3.3 12.3 208.8 81.5 290.3 7.5 2.8 6.3 97.1 113.7 128.2 35.7 29.3 3.3 12.3 208.8 81.5 290.3 7.5 2.8 6.3 97.1 113.7 0.1 0.1 0.1 - 0.3 157.4 157.7 0.1 28.2 10.9 89.8 129.0 128.2 38.5 25.3 3.4 13.6 209.0 101.8 310.8 7.7 2.6 7.2 99.2 116.7 128.2 38.6 25.4 3.5 13.6 209.3 259.2 468.5 7.8 30.8 18.1 189.0 245.7 The net cash or debt positions of AEMS have not been reclassified in assets held for sale as part of the Group intercompany cash pool. This represents a net cash position of EUR 120.2 million. On July 11th, 2008 the Group has signed a Master Agreement with NYSE Euronext materializing the commitments taken on December 11, 2007 when a memorandum of understanding was signed. The closing of the transaction is subject to a number of condition precedents, including a favourable opinion to be issued by the French Anti-trust Authority (DGCCRF).The position of the DGCCRF is expected to be communicated early August. Note 3 Segment information Primary reporting format – geographical segments The Group is organised on a worldwide basis into seven geographical segments. Geographical segments are made of the following countries: Geographic segments Countries (cid:131) France (cid:131) The Netherlands (cid:131) United Kingdom (cid:131) Germany and Central Europe (cid:131) Other European countries, Middle-East and Africa (cid:131) Americas (cid:131) Asia-Pacific France The Netherlands United Kingdom Germany, Switzerland, Poland, Austria Belgium, Luxembourg, Italy, Spain, Portugal, Andorra, Greece, Turkey, Morocco, South Africa, Sweden United States of America, Mexico, Argentina, Brazil, Chile, Peru, Colombia China, Taiwan, Japan, Malaysia, Singapore, Thailand, Indonesia, India Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Atos Origin Half-Year Report 2008 54/93 The geographical primary segment information for the period ended 30 June 2008 is as follows: (in EUR million) France United Kingdom Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 859.5 507.5 539.7 316.9 459.1 90.6 90.4 % 30.0% 17.7% 18.8% 11.1% 16.0% 3.2% 3.2% Inter-segment revenue 14.2 44.5 19.8 14.4 22.4 4.1 24.3 Total revenue 873.7 552.0 559.5 331.3 481.5 94.7 114.7 Operating margin before allocation of corporate costs % 33.9 3.9% 31.7 6.3% 46.9 8.7% 26.1 8.2% 40.8 8.9% 1.0 (4.9) 1.1% -5.4% (51.3) Allocation of corporate costs (17.7) (10.6) (12.7) (7.2) (5.1) (2.4) (2.3) 58.0 % Operating margin after allocation of corporate costs % 2.1% 16.2 1.9% 2.1% 21.1 4.2% 2.4% 34.2 6.3% 2.3% -1.1% 18.9 35.7 6.0% 7.8% 2.6% -2.5% (1.4) (7.2) 1.5% -8.0% 6.7 Operating Income before allocation of corporate costs (*) % 30.6 3.6% 100.5 19.8% 46.1 8.5% 25.8 8.1% 42.6 9.3% 1.0 (4.9) 1.2% -5.4% (50.7) Profit before tax Income tax expense Net income (1) Central structure costs unallocated by geographical aera The geographical primary segment information for the period ended 30 June 2007 was as follows: (in EUR million) France United Kingdom Netherlands Germany and Central Europe Other EMEA Americas Asia- Pacific Unallocated (1) Income statement External revenue by segment 806.8 528.3 547.5 292.6 523.1 118.1 73.6 % 27.9% 18.3% 18.9% 10.1% 18.1% 4.1% 2.6% Inter-segment revenue 17.4 32.8 15.3 8.3 32.5 5.5 20.6 Total revenue 824.2 561.1 562.8 300.9 555.6 123.6 94.2 Operating margin before allocation of corporate costs % 30.2 3.7% 15.2 2.9% 56.4 10.3% 21.3 30.1 7.3% 5.8% 4.7 4.0% 6.1 8.3% (46.3) Allocation of corporate costs (7.8) (5.5) (6.0) (3.2) (2.8) (1.6) (1.1) 28.0 % Operating margin after allocation of corporate costs % 1.0% 22.4 2.8% 1.0% 9.7 1.8% 1.1% 50.4 9.2% 1.1% -0.5% 18.1 27.3 6.2% 5.2% 1.4% 3.1 2.6% 1.5% 5.0 6.8% 18.3 Operating Income before allocation of corporate costs % 31.0 3.8% 18.3 3.5% 56.6 10.3% 39.2 7.2 13.4% 1.4% 5.5 4.7% 6.0 8.2% (56.1) Profit before tax Income tax expense Net income (1) Central structure costs unallocated by geographical segment Atos Origin Half-Year Report 2008 55/93 Eliminations Total Group 2,863.7 100.0% (143.7) (143.7) 2,863.7 124.2 4.3% 124.2 4.3% 191.0 6.7% 184.5 (56.4) 128.1 Eliminations Total Group 2,890.0 100.0% (132.4) (132.4) 2,890.0 117.7 4.1% 117.7 4.1% 107.7 3.7% 100.4 (37.6) 62.8 Secondary reporting format – Information by service line The secondary segment information for the period ended 30 June 2008 is as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 178.7 1,130.7 1,554.3 2,863.7 Operating margin before allocation of corporate costs 8.0 39.2 115.4 (38.4) 124.2 % margin 4.5% 3.5% 7.4% 4.3% (1) Central structure costs unallocated by service line The secondary segment information for the year ended 30 June 2007 was as follows: (in EUR million) Consulting Systems integration Managed operations Unallocated (1) Total Group External revenue 189.2 1,167.8 1,533.0 2,890.0 Operating margin before allocation of corporate costs 11.5 39.4 104.4 (37.6) 117.7 % margin 6.1% 3.4% 6.8% 4.1% (1) Central structure costs unallocated by service line Note 4 Personnel expenses (In EUR million) 6 months ended 30 June 2008 % revenue 6 months ended 30 June 2007 % revenue 12 months ended 31 December 2007 % revenue Wages and salaries (1,208.9) 42.2% (1,229.7) 42.6% (2,421.6) 41.4% Social security charges (342.1) 11.9% (357.5) 12.4% (696.5) 11.9% Tax, training, profit-sharing (34.0) 1.2% (29.2) 1.0% (60.8) 1.0% Equity-based compensation Net charge to provisions for staff expenses Difference between pensions contributions and net pension expense Total (6.1) 1.2 20.4 (1,569.5) 0.2% 0.0% 0.7% 54.8% (4.9) 11.5 8.7 (1,601.1) 0.2% 0.4% 0.3% 55.4% (17.5) 13.7 15.9 (3,166.9) 0.3% 0.2% 0.3% 54.1% Equity based compensation The EUR 6.1 million charge for Equity based compensation is made of EUR 4.2 million related to the Management and Long-Term Incentive plans implemented in 2008 and in 2007, and of EUR 1.9 million related to the stock option plans granted in 2008 and in previous years. 2008 « Long-Term Incentive » Plan On March 18, 2008, the Group has set up a performance share plan called “2008 long-tem incentive”, similar to the one already set up in 2007. Under this new plan, 228,442 shares were granted. The stock price at the grant date was EUR 32.87. The aim of this plan is to motivate employees and to reinforce the group’s capability to reach challenging financial targets, in line with Shareholder’s value creation. Atos Origin Half-Year Report 2008 56/93 The vesting period is: - 2 years followed by a lock-up period of 2 years, or 4 years and no lock-up period. Vesting conditions are subject to: - - the realization of Group financial objectives the realization of personal achievements a presence in the Group throughout the vesting period. The number of shares obtained by the employees will vary in a 0 to 3 range depending on the level of performance reached. Under this plan, the Group has recognized a personnel cost amounting to EUR 0.8 million during the first semester of 2008. Expected cost for 2008 is EUR 2.2 million. Annualized cost is EUR 2.8 million. 2008 “Management Incentive” Plan On May 15, 2008, the Group has set up a free share plan called “2008 Management incentive” plan, similar to the one already set up in 2007, whereby free shares are granted upon the acquisition of an equivalent number of shares. Under this new plan, 248,306 shares were granted. The stock price at grant date was EUR 38.69. The aim of this plan is to promote employee ownership and retention. The vesting period is: - 2 years followed by a lock-up period of 2 years, or; 4 years and no lock-up period. Vesting conditions are subject to the presence in the Group and investment in Atos Origin shares throughout the vesting period. The initial investment is subject to a 2 year lock-up period. Under this plan, the Group has recognized a personnel cost amounting to EUR 0.5 million during the first semester of 2008. Expected cost for 2008 is EUR 2.5 million. Annualized cost is EUR 4.0 million. Methodology used In accordance with the specific guidance issued by the CNC (Conseil National de la Comptabilité), the cost related to the 2008 MIP and 2008 LTI plans take into account the effect of the 2 years lock-up period restriction, whenever applicable, calculated based on the following parameters: Risk free interest rate: 5.1% • Credit spread: 1.00% • Borrowing-lending spread: 1.5% • Employee turnover ratio: 4% 2007 “Long-Term incentive” plan and “Management Incentive” Plan 2008 expense related to 2007 LTI and MIP plans has been updated taking into account the number of free shares void following the departure of some beneficiaries from the Group. Total expense related to free share plans is as follows: (In EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 12 months ended 31 December 2007 LTI 2008 MIP 2008 0.8 0.5 LTI 2007 MIP 2007 Total 0.9 2.0 4.2 0.3 0.2 0.5 1.8 2.0 3.8 Atos Origin Half-Year Report 2008 57/93 2008 Stock option plan In lieu of participation to the 2008 LTI and MIP plans, the Group has granted stock options to the Management Board members for a total of 190,000 options. These grants represent a total expense of EUR 1.8 million, of which EUR 0.4 million for the first semester of 2008. Those options are exercisable at a price equal to the average of the last 20 closing prices preceding the date of grant. The vesting period is gradual: options vest on successive portions over 2 years. An embargo period exists for as long as the laws and regulations applicable in the country of residence of the Employee or in the country of the Employing Company would create for Atos Origin or the Employing Company an Adverse Social Charges and Tax Effect in case of exercise of the options. Options are forfeited if the employee leaves the Group before the options vest, other than in exceptional circumstances. 10 March 2008 French plan Foreign plan Share price at grant date 33.32 33.32 Exercise price 34.7255 34.7255 Expected volatility 31.0% 33.0% Expected life 60 months 48 months Risk free rate 3.79% 3.74% Expected dividend yield 1% 1% Fair value of options granted 9.66 9.06 Note 5 Operating expenses (In EUR million) 6 months ended 30 June 2008 % revenue 6 months ended 30 June 2007 % revenue 12 months ended 31 December 2007 % revenue Purchase for selling and royalties Sub-contracting costs (95.2) (393.8) 3.3% 13.7% (141.4) (357.7) 4.9% 12.4% (241.7) (747.6) 4.1% 12.8% Premises costs (114.9) 4.0% (123.5) 4.3% (246.7) 4.2% Means of production (208.1) 7.3% (206.8) 7.2% (458.2) 7.8% Telecommunications (59.7) 2.1% (56.9) 2.0% (119.8) 2.0% Travelling expenses Taxes, other than corporate income tax Other operating expenses (79.4) (11.7) (104.9) 2.8% 0.4% 3.7% (67.6) (8.0) (110.8) 2.3% 0.3% 3.8% (141.0) (8.1) (208.4) 2.4% 0.1% 3.6% Sub-total expenses (1,067.7) 37.3% (1,072.7) 37.1% (2,171.5) 37.1% Depreciation of fixed assets Net booked value of assets sold/written off Net depreciation of current assets Net provisions Sub-total depreciation and provisions Total (charge)/release to (113.0) (2.9) 0.0 13.6 (102.3) 3.9% 0.1% 0.0% 0.5% 3.6% (105.6) (1.5) (1.0) 9.6 (98.5) 3.7% 0.0% 0.0% 0.3% 3.4% (223.0) (10.9) (2.0) (9.6) (245.5) 3.8% 0.2% 0.2% 4.2% (1,170.0) 40.9% (1,171.2) 40.5% (2,417.0) 41.3% Atos Origin Half-Year Report 2008 58/93 Note 6 Other operating income and expenses (In EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 12 months ended 31 December 2007 Restructuring and rationalization (6.0) (29.4) (97.7) Release of opening balance sheet provisions no longer needed 65.2 3.1 10.1 Capital gains and losses on disposal of assets 0.2 21.6 21.0 Impairment gains/(losses) on long-term assets and other 7.4 (5.3) (68.1) Total 66.8 (10.0) (134.7) The major impact of the period is UK pensions plan amendment impact for EUR 63.6 million. The finalisation of New Deal agreement through the signature of the « Deed of Amendment » by pension fund Trustees on March 31st has the following impacts: • cessation of future defined benefit accrual effective April 1st leading to a curtailment gain (reduction in liability) of EUR 3.5 million (GBP 2.7 million) ; removal of indexation on pension rights accumulated before 1997 following a one off increase of 5% in 2008, resulting in a reduction of liabilities of EUR 60.1 million (GBP 46.4 million). The net charge for restructuring and rationalisation primarily consist of 3o3 plans, mainly in France. The impairment gains and losses on long-term assets and other elements mainly relates to EUR 5.1 million received in connection with closure of the NHS Diagnostics contract and to a EUR 1.4 million positive adjustment on the loss booked end of 2007 for the disposal of the Italian operations, following the conclusion of the sale. Note 7 Net financial income Net cost of financial debt (In EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 12 months ended 31 December 2007 Net Interest expenses (14.6) (14.2) (28.9) Interest on obligations under finance leases (1.1) (0.9) (1.6) Gain /(loss) on disposal of cash equivalents 1.4 1.8 2.4 Gain/(loss) on interest rate hedges of financial debt 0.8 0.8 (0.5) Net cost of financial debt (13.5) (12.5) (28.6) The average net debt during the first six months 2008 was EUR 489 million, with an average net cost of financial debt amounting 5.84% before interests swaps and to 5.52% after interests swaps. Other financial income and expenses (In EUR million) 6 months ended 30 June 2008 6 months ended 30 June 2007 12 months ended 31 December 2007 Foreign exchange (expenses)/ income Foreign value gain/(loss) on forward contracts held for trading Other financial (expenses)/ income (3.0) 0.2 10.7 (3.2) (0.1) 8.6 (3.5) 0.1 17.9 Discounting financial expenses (0.9) (0.1) 0.1 Other financial income and expenses 7.0 5.2 14.6 Atos Origin Half-Year Report 2008 59/93 The EUR 10.7 million of Other financial income mainly relates to pensions, and represents the positive difference between the interests cost and the expected return on plan assets. Note 8 Income tax expenses Interim period income tax is accrued based on the estimated average annual effective income tax rate of 30.6%, compared with 37,5% for the first half-year 2007. This positive difference is mainly the consequence of the disposal of our Italian activities over the period. Note 9 Minority interests (In EUR million) 31 December 2007 2008 Income Others 30 June 2008 Atos Euronext Market solutions Atos Worldline Processing GmbH Others 163.0 5.7 4.2 1.6 1.2 0.6 (5.2) (2.3) (0.9) 159.4 4.6 3.9 Total 172.9 3.4 (8.4) 167.9 Note 10 Earnings per share The dilutive instruments are composed of stock options which do not generate any restatement on the net income used for the diluted earnings per share calculation. Basic and diluted earnings per share are reconciled as follows: Net income - Group share [a] Weighted average number of shares outstanding [b] Impact of dilutive instruments [c] Diluted weighted average number of shares [d]=[c]+[b] Earnings per share in EUR [a]/[b] Diluted earnings per share in EUR [a]/[d] 6 months ended 30 June 2008 124.7 69,711,112 117,930 69,829,042 1.79 1.79 6 months ended 30 June 2007 57.3 68,898,338 237,791 69,136,128 0.83 0.83 12 months ended 31 December 2007 48.2 68,946,489 194,921 69,141,410 0.70 0.70 The total average number of stock options not exercised on first half of 2008 amounted to 6,095,888 shares, out of which only 117,930 have a dilutive effect on the earning per share. Note 11 Goodwill (In EUR million) 31 December 2007 Acquisition/ depreciation Disposals Others Exchange rate fluctuations 30 June 2008 Gross value Impairment loss Sub Total Reclassified as held for sale Carrying amount 2,394.7 (398.7) 1,996.0 (128.2) 1,867.8 (0.9) (0.9) (0.9) (70.1) 22.1 (48.0) (48.0) 2,323.7 (376.6) 1,947.1 (128.2) 1,818.9 Goodwill is allocated to the Group’s cash generating units (CGUs) by geographical segment. The recoverable amount of a CGU is based on value-in-use calculations. These calculations use cash flow projections based on financial business plans approved by management, covering a three-year period. Atos Origin Half-Year Report 2008 60/93 Over the last 6 months, the balance sheet of the group has been significantly impacted by the decrease of the GBP value against EUR. The main consequence has been the reduction of the net goodwill by EUR 48.0 million since December 2007. During the first semester, the market interest rates have significantly increased, over the 0.5pts sensitivity analysis on the discount rates that was performed as at 31 December 2007. As a consequence, the Group has updated its impairment test on the sensible CGUs that were identified during the 2007 fiscal year. The outcome of this update is that no impairment needs to be recorded in the June 2008 accounts. Nevertheless, a further negative evolution of the financial markets might impair this position, which will be reviewed in details during the last quarter of 2008. Note 12 Trade accounts and notes receivable (In EUR million) Gross value Transition costs Provision for doubtful debts 30 June 2008 before reclassification 1,707.4 19.5 (25.5) Reclassification as held for sale (64.8) - 4.0 30 June 2008 1,642.6 19.5 (21.5) 31 December 2007 1,464.3 18.7 (23.2) Net asset value Prepayments Deferred customers Net accounts receivable income and amounts due to 1,701.4 (11.7) (383.7) 1,306.0 (60.8) (0.2) 23.9 (37.1) 1,640.6 (11.9) (359.8) 1,268.9 1,459.8 (7.1) (313.5) 1,139.2 Number of days’ sales outstanding 71 73 67 Note 13 Cash and cash equivalent (In EUR million) 30 June 2008 31 December 2007 Cash in hand and short-term bank deposit Money market funds 189.6 8.0 331.5 16.5 Total 197.6 348.0 Depending on market conditions and short-term cash flow expectation, Atos Origin may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 14 Pension The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and assimilated benefits is EUR 185.5 million in reduction by EUR 202 million compared with the beginning of the year. Group commitments are located predominantly in the United Kingdom (56% of Group total obligations), in the Netherlands (34%), and in Germany (3%). The measurement of the related liabilities is highly sensitive to long term interest rates, on which the discount rate to be used under IAS 19 is based. Reference discount rates used have significantly increased during the first half of 2008 : from 5,75% and 5,55% at December 2007 to 6,35% and 6,45% at 30 June 2008 in the United Kingdom and Eurozone respectively. By application of its accounting policies, and in order to better reflect this significant market evolution in its June accounts, the Group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans. Further to this, significant pension agreements have been finalized in the first half of 2008 in the UK and in Germany. Atos Origin Half-Year Report 2008 61/93 In the United Kingdom, a package of measures has been agreed with the Trustees of two pension schemes. These measures include the cessation of defined benefit pension accrual in the future, replaced by defined contribution arrangements, and the amendment of indexation clauses on past services. This resulted in a reduction of related pension obligations by EUR 63.6 million which was reported as a gain in other operating income. (The accounting principles of the Group would have led to report this gain in operating margin, but the particular materiality of this impact has called for its classification in other operating income). As part of this general agreement, the company also agreed to accelerate the funding of past deficits by injecting EUR 66.4 million into the respective schemes, as a one-off contribution. Both the cessation of defined benefit accrual, amendment to indexation clauses and payments into the schemes occurred on April 1st, 2008. The combined effect of these measures is to reduce accrued pension costs in respect of UK pension plans on Atos Origin consolidated balance sheet by EUR 130 million. In Germany, Atos Origin signed an important pension harmonization agreement with its works council in March 2008, based on which 45 different defined benefit plans will be harmonized into a single defined contribution scheme. The impact of this agreement is to reduce related defined benefit obligations by EUR 3.7 million, which was reported as a gain in operating margin. The disposal of Italian operations has further led to the deconsolidation of EUR 28.5 million of net pension liabilities. As a consequence of the above, and because of the increase in discount rates, the net financial situation of group pension plans has continued to improve over the first half of 2008, the funded status of post employment plans moving from a deficit of EUR 219.6 million at 31 December 2007 into a slightly positive situation of EUR 27.2 million. (In EUR million) 30 June 2008 31 December 2007 Amounts recognised in financial statements consist of : Prepaid pension asset - Post employment plans Accrued liability - Post employment plans Accrued liability - Other long term benefits Net amount recognised – Total 54.9 (222.3) (18.1) (185.5) 38.1 (405.9) (19.4) (387.2) Reconciliation of prepaid/(accrued) Benefit cost (all plans) Funded Status - post employment plans Funded Status - other long term benefit plans Unrecognised Actuarial (Gain) Loss Unrecognised Past Service Cost Any other amount not recognised (asset ceiling limitation, ...) 27.2 (17.9) (204.2) 9.4 - (219.6) (19.1) (159.9) 11.4 - Prepaid/(Accrued) Pension Cost (185.5) (387.2) Of which provision for pension and similar benefits (237.6) (394.5) Non-current financial assets 54.9 38.1 Of which provision reclassified as held for sale (2.8) (30.8) Reconciliation of net amount recognised Net amount recognised at beginning of year Reclassification Social Security & other empl. Welfare liabilities Net periodic pension cost – Post employment plans Employer contributions for - Post employment plans Benefits paid by employer – Post employment plans & other long term benefits Business combinations / disposals Other (other long term benefit, exchange rate) Net amount recognised at end of year (387.2) 62.4 91.1 5.8 28.5 13.9 (185.5) (446.4) (12.5) (31.7) 71.6 15.2 (5.7) 22.3 (387.2) Atos Origin Half-Year Report 2008 62/93 Note 15 Provisions (In EUR million) 31 December 2007 Charge Release used Release unused Other (a) 30 June 2008 Current Non Current Reorganisations Rationalisations Project commitments Litigations and contingencies Total provisions Reclassified held for sale Total excluding held sale for activities (a) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of 20.4 6.5 20.4 21.6 56.2 26.0 (3.0) (1.3) (3.0) (2.5) (36.1) (2.2) 6.3 1.6 53.7 (5.7) (24.0) (6.5) 17.6 72.3 53.7 (3.8) 82.5 (5.4) (4.8) 90.1 6.4 80.6 178.2 31.9 244.6 (66.1) (17.4) (14.8) as (6.3) (18.1) (6.3) 226.5 74.3 171.9 15.1 82.5 97.6 97.6 consolidation. Note 16 Borrowings (In EUR million) Current 30 June 2008 Non-Current Total Current 31 December 2007 Non-Current Total Finance leases 13.1 5.4 18.5 10.3 12.7 23.0 Bank loans 4.8 490.8 495.6 5.2 409.9 415.1 Securitisation 156.5 156.5 184.7 184.7 Other borrowings 24.9 16.3 41.2 42.1 21.2 63.2 Total borrowings 199.3 512.5 711.8 242.3 443.7 686.0 Tangible assets held under finance leases had a net carrying value of EUR 19.1 million. Non-current borrowings maturity (In EUR million) 1 to 2 year 2 to 3 year 3 to 4 year 4 to 5 year Over 5 years Total Finance leases Bank loans Other borrowings As at 30 June 2008 long -term debt As at 31 December 2007 long-term debt 3.7 0.1 2.9 6.7 15.5 1.4 0.1 4.4 5.9 6.7 0.3 488.5 4.8 493.6 6.3 0.3 4.2 4.5 414.5 1.8 1.8 0.6 5.4 490.8 16.3 512.5 443.7 Change in net debt over the period (In EUR million) Opening net debt New borrowings Repayment of long and medium-term borrowings Decrease in cash and cash equivalents Lease (change and net interest paid) Long and medium-term debt of companies sold during the period Impact of exchange rate fluctuations on net long and medium-term debt Profit-sharing amounts payable to French employees transferred to debt Closing net debt 6 months ended 30 June 2008 (338.0) (166.4) 93.0 (131.5) (2.0) 48.9 (14.2) (4.0) 6 months ended 30 June 2007 (360.3) (22.8) 152.4 (269.6) - 0.1 (8.4) (514.2) (508.6) Atos Origin Half-Year Report 2008 63/93 Note 17 Fair value and characteristics of financial instruments 30 June 2008 31 December 2007 (In EUR million) Assets Liabilities Assets Liabilities Forward foreign exchange contracts 1.1 5.2 1.1 1.3 Interest rate swaps 0.5 0.3 Analysed as: Non-current 0.9 0.8 0.3 Current 0.7 4.4 1.1 1.3 Breakdown of the designation of the instruments per currency is as follows: (In EUR million) 30 June 2008 31 December 2007 Instruments Fair Value Notional Fair Value Notional Cash Flow Hedge Interest rate Swaps 0.5 300.0 0.3 150.0 Foreign exchange Forward contracts USD (0.5) 11.1 (0.9) 7.0 Forward contracts INR (1.7) 16.9 17.6 Forward contracts other currency Fair Value Hedge – Trading Foreign exchange Forward contract USD 0.3 5.3 0.4 7.6 Forward contract GBP (0.4) 51.4 0.3 5.3 Forward contract INR (1.8) 14.8 0.0 0.5 Note 18 Trade accounts and notes payable (In EUR million) Trade payables Amounts payable on tangible assets Sub-total Reclassified as held for sale Total disclosed on the balance sheet 30 June 2008 643.5 15.2 658.7 (42.5) 616.2 31 December 2007 629.3 11.0 640.3 (74.2) 566.1 Note 19 Other current liabilities (In EUR million) Advances and down payments received on client orders Employee-related liabilities Social security and other employee welfare liabilities VAT payable Deferred income Other operating liabilities Sub-total Reclassified as held for sale Total disclosed on the balance sheet 30 June 2008 11.7 287.5 200.2 165.9 327.3 199.8 1,192.4 (53.4) 1,139.0 31 December 2007 7.6 339.6 205.1 186.4 289.0 140.7 1,168.4 (101.5) 1,066.9 Other operating liabilities include dividends payable for EUR 27.9 million as of 30 June 2008. Atos Origin Half-Year Report 2008 64/93 Note 20 Off-balance-sheet commitments Contractual commitments In EUR million Maturing 30 June 2008 Up to 1 year 1 to 5 years Over 5 years 31 Dec. 2007 Long-term borrowings (> 5 years) Finance leases 495.6 18.5 4.8 13.1 489.0 5.4 1.8 415.1 23.0 Recorded on the balance sheet 514.1 17.9 494.4 1.8 438.1 Operating leases: land, buildings, fittings 545.6 140.9 339.2 65.5 575.4 Operating leases : IT equipment 35.2 22.5 12.7 53.0 Operating leases: other fixed assets Non-cancellable purchase obligations (>5 years) Commitments 103.8 16.2 700.8 42.3 11.1 216.8 61.5 4.9 418.3 0.2 65.7 111.3 15.0 754.7 Total 1,214.9 234.7 912.7 67.5 1,192.8 Commercial commitments (In EUR million) Bank guarantees Pledges Total 30 June 2008 91.7 0.0 91.7 31 December 2007 119.0 0.1 119.1 For various large long term contracts, the Group provides performance or financial guarantees to its clients. These limited exposure guarantees amount to EUR 1,383.1 million as of 30 June 2008, compared with 1,492.8 million as of 31 December 2007. Note 21 Subsequent events On 11 July 2008, the Group has confirmed the commitments taken end of 2007 with NYSE Euronext concerning the sale of its 50% stake in Atos Euronext Market Solutions (AEMS) and a Master Agreement has been signed. The disposal of the AEMS business is now subject to the completion of a number of condition precedents and in particular to a favourable opinion to be issued by the French anti-trust authority (DGCCRF). The Group expects to be in a position to finalize the transaction during August 2008. According to the Master Agreement, the net proceed from the sale of the Group’s share in AEMS is EUR 268 million, before the application of price adjustment clauses. AEMS’s contribution to the Group’s cash position as at 30 June 2008 was EUR 120.2 million. Atos Origin Half-Year Report 2008 65/93 10 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 10.1 TRADING OF SHARES (EURONEXT) Number of shares traded Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA / SRD : 69,714,608 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes / Yes 10.2 COMMON STOCK 10.2.1 Common stock at 30 June 2008 At 30 June 2008, the Company’s issued common stock amounted to EUR 69.7 million, comprising 69,714,608 fully paid-up shares of EUR 1 par value each. Changes in the total number of issued shares of the Company during the half-year come all from exercise of 4,454 stock subscription options. Transactions Number of shares issued Common stock (in EUR million) Additional paid-in capital (in EUR million) Total (in EUR million) At 31 December 2007 69,710,154 69.7 1,409.6 1,479.3 Exercise of stock options 4,454 0.1 0.1 At 30 June 2008 69,714,608 69.7 1,409.7 1,479.4 10.2.2 Share ownership structure Main shareholders Principal changes in the ownership of the Company’s shares during the first half of 2008 have been as follows: 30 June 2008 31 December 2007 In shares Shares % Shares % PAI Partners Centaurus Capital Pardus Capital 12,471,006 7,644,713 7,000,005 17.9% 11.0% 10.0% 7,110,506 6,700,000 10.3% 9.7% Management Board 43,809 0.1% 43,809 0.1% Supervisory Board 4,701 0.0% 2,040 0.0% Total Directors 48,510 0.1% 45,849 0.1% Employees 2,124,628 3.1% 2,164,216 3.1% Treasury stock 1,097,293 1.5% 705,293 1.0% Public 39,328,453 56.4% 52,984,187 75.8% Total 69,714,608 100.0% 69,710,154 100.0% Atos Origin Half-Year Report 2008 66/93 The ownership of the Company’s shares by employees relates to ownership plans such as mutual funds and corporate savings plans. Disclosure of interests The Company has been advised of the following share movements in the first half of 2008. Centaurus Capital LP (upwards) Pardus Capital Management (upwards) Date of statement 11/01/2008 11/01/2008 Shares 7,410,506 7,000,000 % interest (a) 10.63% 10.04% % voting rights (b) 10.63% 10.04% Centaurus Capital LP (upwards) 09/04/2008 8,571,095 12.30% 12.30% Centaurus Capital LP (upwards) 09/05/2008 9,038,995 12.97% 12.97% Deutsche Bank (upwards) 12/05/2008 4,365,160 6.26% 6.26% Deutsche Bank (downwards) 28/05/2008 3,461,669 4.97% 4.97% Deutsche Bank (upwards) 03/06/2008 3,508,921 5.03% 5.03% PAI Partners (upwards) 19/06/2008 12,471,006 17.89% 17.89% Deutsche Bank (downwards) 19/06/2008 285,228 0.41% 0.41% Pardus Capital (downwards) 30/06/2008 7,000,000 10.04% 10.04% (a) On the basis of the capital at this date (b) On the basis of the capital excluding treasury stock at this date The Company has not received copies of any shareholders’ agreement for filing with the stock exchange authorities and, to the best of the Management Board’s knowledge, no actions de concert or similar agreements exist, except for the Action de Concert entered into by the funds Centaurus Capital (i.e. the fund Centaurus Alpha Master Fund Limited and the fund Green Way Managed Account Series Ltd (Portfolio E) and Pardus Capital (i.e. the fund Pardus Special Opportunities Master Fund L.P.))on 5 October 2007. The Action de Concert agreement was amended on 9 April 2008 following Lyxor Centaurus’ adherence, on 9 May 2008 following the adherence of certain employees of Pardus and on 30 June 2008 following the adherence of Pardus Investments. On 26 May 2008, Atos Origin, Centaurus Capital and Pardus Capital entered into an agreement which provides for, among others, that: Centaurus Capital and Pardus Capital reiterate that they have no intention to break up the Company, and confirm that they have all confidence in the professional skills of the Management Board members; the parties will support, recommend and vote in favor of a nine-member Supervisory Board structure at the 12 June 2008 shareholders’ meeting; any appointment decision (“cooptation”) of a new member at the Supevisory Board, taken until the next ordinary shareholders' meeting of the Company, which would bring the number of Supervisory Board members beyond nine, may only be taken by the Supervisory Board by a qualified majority of two thirds of members voting, present in person or by representative; any implementation by the Management Board of the delegation to increase common stock without preferential subscription rights (as approved by the shareholders' meeting of 12 June 2008 in resolution 16) will require a specific resolution from the Supervisory Board approved by a qualified majority of three quarters of members voting, present in person or by representative; in the event, within six months from 26 May 2008, of resignation, death, incapacity or other impossibility to assume its duties for a Supervisory Board member in office (or any of its successors), the party which proposed the defaulting Supervisory Board member shall propose a candidate whose professional and independence (as the case may be) credentials are similar to those of the defaulting Supervisory Board member. Such candidate shall be nominated (“coopté”) by the Supervisory Board. Atos Origin Half-Year Report 2008 67/93 the respective representatives of Centaurus Capital and Pardus Capital shall resign from the Supervisory Board of the Company within ten calendar days following the day where the stake of Centaurus Capital or Pardus Capital falls below 5% of the share capital of the Company, respectively. At the meeting of the Supervisory Board of the Company on 3 July 2008, PAI Partners’ representatives indicated that, if the participation of PAI Partners in the capital of Atos Origin falls below 15% due to a disposal, only one of its two representatives would remain on the Supervisory Board. Furthermore, if the participation of PAI Partners falls below 5%, PAI Partners would no longer be represented on the Supervisory Board. PAI Partners also reiterated at this meeting of the Supervisory Board that it was not acting in concert with anyone and that it intended to cooperate with the other members of the Supervisory Board in the common interest of all shareholders to maximise the Company’s value. 10.2.3 Potential common stock Number of stock subscription options at 31 December 2007 Stock subscription options granted in H1 2008 5,982,272 190,000 Stock subscription options exercised in H1 2008 (4,454) Stock subscription options forfeited in H1 2008 (26,772) Stock subscription options expired in H1 2008 (5,100) Number of stock subscription options at 30 June 2008 6,135,946 During the period 190,000 stock options were granted as management incentive plan for Management Board members. Stock options can also be granted for exceptional cases such as key recruitments and for specific retentions. A total of 31,872 stock subscription options were cancelled and 4,454 were exercised during the period. Based on 69,714,608 shares in issue, the common stock of the Company could be increased by 6,135,946 new shares, representing 8.08% of the common stock after dilution. This can occur only through the exercise of stock subscription options granted to employees, as detailed below. In shares 30 June 2008 31 Dec. 2007 Change % dilution EUR million Number of shares outstanding 69,714,608 69,710,154 4,454 Stock subscription options 6,135,946 5,982,272 153,674 8.1% 376.7 Total Employees 6,135,946 5,982,272 153,674 8.1% 376.7 Total potential common stock 75,850,554 75,692,426 158,128 The exercise of all the options would have the effect of increasing total shareholders’ equity by EUR 377 Million and common stock by EUR 6.1 million. Nevertheless, 10% of stock subscription options granted to employees have an exercise price that exceeds the stock market price at 30 June 2008 (EUR 35.17). Unused authorizations to issue shares and share equivalents Having regard to resolutions voted during the Annual Shareholders Meeting on 12 June 2008, the unused authorizations to issue shares and share equivalents are the following: Atos Origin Half-Year Report 2008 68/93 Authorisation (in EUR) Amount authorised Par value Amount utilised Par value Amount not utilised Par value Authorisation expiry date EGM 23/05/2007 9th resolution Stock subscription options EGM 23/05/2007 7th resolution Common stock increase with preferential subscription rights 3,440,000 20,664,000 25,000 in 2007 190,000 in 2008 3,225,000 20,664,000 23/07/2010 23/07/2009 EGM 23/05/2007 8th resolution Common stock increase in payment for contributions in kind 6,890,458 6,890,458 23/07/2009 EGM 12/06/2008 17th resolution Common stock increase reserved for employees 4,182,711 4,182,711 12/08/2010 EGM 12/06/2008 16th resolution Common stock increase without preferential Subscription rights (in deduction of the 20,6 million authorisation above) 10,456,728 10,456,728 12/08/2010 As a result, the potential authorization to issue shares is 35 million of shares and represents 50% of current issued common stock. The following authorisation to cancel shares corresponds to 10% of the issued common stock as of June 2005. Authorisation (in EUR) Amount authorised Par value Amount utilised Par value Amount not Utilised Par value Authorisation expiry date EGM 03/06/2005 6,716,075 6,716,075 EGM approving accounts as of 31/12/2009 12th resolution Share cancellation Common stock 6,716,075 10.3 DIVIDENDS On 14 February 2008, the Supervisory Board of Atos Origin decided to propose as a resolution at the Annual General Meeting for the first time of the history of the Group the distribution of a dividend for 2007 results for an amount of EUR 0.40 per share. This resolution was voted at the Annual Shareholder Meeting held on 12 June 2008. Atos Origin Half-Year Report 2008 69/93 10.4 SHARE TRADING PERFORMANCE 10.4.1 Monthly and quarterly trading volumes Based on a closing share price of EUR 35.17 at the end of June 2008 and 69,714,608 shares in issue, the market capitalization of the Group at 30 June 2008 was EUR 2.5 billion. Source : Euronext High Low Closing Weighted average price Trading Volume Trading Volume (in EUR per share) (in thousands of shares) (in EUR thousands) January February 35,4 37,5 28,7 32,6 33,2 35,8 31,4 34,8 25 261 14 088 793 364 490 624 March 1st Quarter 2008 April May 35,6 40,0 39,6 31,5 32,4 36,6 35,3 39,4 38.0 33,7 36,0 38,7 12 711 52 060 15 434 11 031 428 433 1 712 421 556 050 426 578 June 2nd Quarter 2008 40,5 33,8 35,2 37,4 11 974 38 439 448 012 1 430 640 % of capital traded during the period : 130% 90 499 3 143 061 The daily average number of shares traded during the first 6 months of 2008 was 718,245, which is lower by -34% compared to H1 2007 (-17% compared to full-year 2007 average). The monthly average trading volume during the first 6 months of 2008 was EUR 524 million, -52% lower than H1 2007 level (-36% compared to full-year 2007 average). Atos Origin Half-Year Report 2008 70/93 11 SHAREHOLDER RELATIONS 11.1 COMMUNICATION The Company aims to provide regular and clear information to all its shareholders, whether private individuals or institutions. We ensure the uniformity and transparency of information through the distribution of formal financial documents, the Company’s web site and personal meetings. 11.2 CONTACTS Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Tel. : + 33 (0) 1 55 91 28 83 E-mail : gilles.arditti@atosorigin.com Azzedine Hamaïli Tél: +33 (0)1 55 91 25 34 E-mail: azzedine.hamaili@atosorigin.com Or by sending requests for information to investors@atosorigin.com 11.3 SHAREHOLDER DOCUMENTATION In addition to the Half-Year Report, which is published in English and French, the following information is available to shareholders: An annual report Quarterly revenue and trading update announcements The Company’s informational website at www.atosorigin.com Regular press releases, available through the web site or via the AMF database Legal documents relating to the Company bylaws, minutes of Shareholder Meetings, Auditors’ reports, etc. may be viewed at the Company’s registered office (Legal Department) by prior appointment. 11.4 REGISTRAR The Company’s share registrar and paying agent is Société Générale. 11.5 FINANCIAL CALENDAR 2008 Calendar (cid:131) Friday, 31 October 2008 (cid:131) Third quarter revenue for 2008 (cid:131) Tuesday, 17 February 2009 (cid:131) Fourth quarter revenue and full year results for 2008 71 11.6 UPDATE OF DOCUMENTS ISSUED In accordance with Article 221-1-1 of the Autorité des Marchés Financiers (AMF) general regulations, the following list includes all financial information published or made available since 1 January 2006. This proposed list is part of the 2008 Half-Year Report as an update of the 2007 “Document de Référence” filed with the AMF on 9 April 2008 and registered under the number D08-218. This document is a full free translation of the original French text Document Date of issue Source Financial reports (cid:131) Half-year report 2008 (cid:131) Annual report 2007 (cid:131) Half-year report 2007 (cid:131) Annual report 2006 (cid:131) Half-year report 2006 (cid:131) Annual report 2005 29/07/08-28/08/08 website Atos Origin / website AMF 29/02/08-09/04/08 website Atos Origin / website AMF 01/08/07-28/08/07 website Atos Origin / website AMF 28/02/07-06/04/07 website Atos Origin / website AMF 06/09/06-30/10/06 website Atos Origin / website AMF 08/03/06-15/05/06 website Atos Origin / website AMF Financial press releases (cid:131) Half-year results 2008 (cid:131) Annual results 2007 (cid:131) Half-year results 2007 (cid:131) Annual results 2006 (cid:131) Half-year results 2006 (cid:131) Annual results 2005 29/07/08 15/02/08 01/08/07 28/02/07 06/09/06 08/03/06 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) First quarter revenue 2008 (cid:131) Fourth quarter revenue 2007 (cid:131) Third quarter revenue 2007 (cid:131) Second quarter revenue 2007 (cid:131) First quarter revenue 2007 30/04/08 31/01/08 15/11/07 01/08/07 14/05/07 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Fourth quarter revenue 2006 (cid:131) Third quarter revenue 2006 (cid:131) Second quarter revenue 2006 (cid:131) First quarter revenue 2006 (cid:131) Fourth quarter revenue 2005 05/02/07 31/10/06 18/07/06 28/04/06 31/01/06 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin Financial presentations (cid:131) Half-year 2008 results (cid:131) Full-year 2007 results (cid:131) Half-year 2007 results (cid:131) Operational 2006 results and transformation plan (cid:131) Full-year 2006 results (cid:131) Half-year 2006 results (cid:131) Full-year 2005 results 29/07/08 15/02/08 01/08/07 05/02/07 28/02/07 06/09/06 08/03/06 website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin Other financial communications (cid:131) Trading programme of Company's shares (cid:131) Description of trading programme of Company's shares 02/07/08 30/06/08 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Description of trading programme of Company's shares 30/05/07 website Atos Origin / website AMF (cid:131) Employee shareholders plan (cid:131) Trading programme of Company's shares 18/09/06 website Atos Origin / website AMF 08/03/06-31/05/06 website Atos Origin / website AMF Shareholders' meetings (cid:131) Shareholders' meeting presentation 2007 (cid:131) Shareholders' meeting presentation 2006 12/06/08 23/05/07 website Atos Origin website Atos Origin 72 Document (cid:131) Minutes of the 2007 AGM (full text of resolutions and results of vote) (cid:131) Minutes of the 2006 AGM (full text of resolutions and results of vote) (cid:131) Shareholders' meeting presentation 2005 (cid:131) Minutes of the 2005 AGM (full text of resolutions and results of vote) Financial statements (cid:131) Condensated consolidated financial statements for the first half 2008 (cid:131) Consolidated financial statements 2007 (cid:131) Parent company financial statements 2007 (cid:131) Condensated consolidated financial statements for the first half 2007 (cid:131) Consolidated financial statements 2006 (cid:131) Parent company financial statements 2006 (cid:131) Condensated consolidated financial statements for the first half 2006 (cid:131) Consolidated financial statements 2005 (cid:131) Parent company financial statements 2005 (cid:131) Auditors reports (cid:131) Auditors’ letter regarding the information given in the half-year report 2008 (cid:131) Auditors’ review report on the first half-year financial information 2008 (cid:131) Auditors’ report on the consolidated financial statements 2007 (cid:131) Auditors’ report on the parent company financial statements 2007 (cid:131) Auditors' special report on regulated agreements 2007 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2007 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2007 (cid:131) Auditors’ letter regarding the information given in the half-year report 2007 (cid:131) Auditors’ review report on the first half-year financial information 2007 (cid:131) Auditors’ report on the consolidated financial statements 2006 (cid:131) Auditors’ report on the parent company financial statements 2006 Date of issue 12/06/08 23/05/07 23/05/06 23/05/06 29/07/08-28/08/08 29/02/08 – 09/04/08 29/02/08 – 09/04/08 01/08/07 28/02/07 28/02/07 20/10/06 07/03/06 07/03/06 29/07/08 29/07/08 08/04/08 08/04/08 08/04/08 08/04/08 08/04/08 28/08/07 28/08/07 06/04/07 06/04/07 Source Company’s registered office Company’s registered office website Atos Origin Company’s registered office Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Company’s registered office Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference 73 Document Date of issue Source (cid:131) Auditors' special report on regulated agreements 2006 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2006 06/04/07 06/04/07 Company’s registered office / Document de Reference Company’s registered office / Document de Reference (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2006 06/04/07 Company’s registered office (cid:131) Auditors’ letter regarding the information given in the half-year report 2006 30/10/06 Company’s registered office (cid:131) Auditors’ review report on the first half-year financial information 2006 19/09/06 Company’s registered office / Commercial court / Document de Reference (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2005 12/05/06 Company’s registered office (cid:131) Auditors’ report on the consolidated financial statements 2005 (cid:131) Auditors’ report on the parent company financial statements 2005 (cid:131) Auditors' special report on regulated agreements 2005 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2005 07/03/06 07/03/06 07/03/06 07/03/06 Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Declarations (cid:131) Declaration of share transfer made by board members of Atos Origin 22/05/06-23/05/06- 7/06/06-26/06/07- 8/08/07-07/05/08- 15/05/08-16/05/08- 22/05/08-24/06/08 website AMF / Document de Reference (cid:131) Disclosure of liquidity contract 27/02/06 17/01/08 02/07/08 website AMF (cid:131) Auditors’ fees 2007 (cid:131) Auditors’ fees 2006 (cid:131) Auditors’ fees 2005 29/02/08 28/02/07 15/05/06 website AMF / Document de Reference website AMF / Document de Reference website AMF / Document de Reference Websites mentioned : (cid:131) Atos Origin www.atosorigin.com (cid:131) AMF www.amf-france.org > Décisions et informations financières > Communiqués des sociétés (cid:131) BALO www.journal-officiel.gouv.fr 74 12 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS 12.1 PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT AND ITS UPDATE Philippe Germond Chairman of the Management Board and Chief Executive Officer 12.2 PERSON RESPONSIBLE FOR THE ACCURACY OF THE REFERENCE DOCUMENT AND ITS UPDATE I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the update of the registration document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affects its import. I hereby declare that, to the best of my knowledge, the financial statements have been prepared under generally accepted accounting principles and give a true and fair view of the assets and liabilities, financial situation and results of all the companies within the consolidated group. I further declare that the Management Report gives a faithful picture of the information herein, e.g. material events occurring during the first six months of the financial year and their impact on the half-yearly accounts, a description of the prospects for the remaining six months of the year 2008. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the update of the registration document and examined the information in respect of the financial position and the historical accounts contained therein. Philippe Germond Chairman of the Management Board and Chief Executive Officer 12.3 PERSONS RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Deputy Auditors Grant Thornton Cabinet IGEC, 3, rue Léon Jost, 75017 Paris Jean Pierre Colle and Vincent Frambourt Appointed on: 12 June 2008 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Appointed on: 12 June 2008 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Deloitte & Associés Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly-sur-Seine Jean-Paul Picard and Jean-Marc Lumet Appointed on: 23 May 2006 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Appointed on: 23 May 2006 for a term of 6 Term of office expires: at the end of the AGM held to adopt the 2011 financial statements 75 13 MAIN PRESS RELEASES ISSUED DURING THE PERIOD (Press releases available on http://www.atosorigin.com/en-us/Investors/en-us/Financial_Press_Releases/default.htm) 13.1 ATOS ORIGIN FINALIZED THE DISPOSAL OF ITS ITALIAN OPERATIONS TO ENGINEERING (01/02/2008) Paris, 1 February 2008 - Atos Origin, an international IT services company, finalized the disposal of its Italian operations to Engineering following the agreement signed on December 11th 2007. The combination of the Italian operations of Engineering and Atos Origin creates an IT services leader in Italy. Atos Origin is glad to enter with this new leader into an Alliance Agreement allowing both companies to serve their Italian and International customers via the global capacity created by the Alliance. The transaction price is EUR 45 million which will positively impact Atos Origin’s cash flow for the same amount. Atos Origin Italy reached revenues of EUR 261 million in 2007 and had 2,500 staff at 31 December 2007. The disposal of the Italian activities will have an immediate positive effect on the Group’s operating margin and net income. Taking into account the deconsolidation of pension liabilities for EUR 28 million, the transaction corresponds to an enterprise value of EUR 73 million. 13.2 ANNOUNCEMENT OF 2007 ANNUAL RESULTS (15/02/2008) 2007 revenue organic growth, operating margin and net debt reduction ahead of objectives Atos Origin on track to improve its performance in 2008, thanks to the transformation plan and a strong commercial momentum Group revenue up +8.5% year-on-year, revenue organic growth at +4.3% • Strong improvement of the operating margin at EUR 272 million (4.6% of revenue) including EUR 44 million of operating costs for the 3o3 plan Adjusted net income of EUR 140 million, representing EUR 2.03 per share • Strong commercial momentum with numerous contract wins and a book to bill ratio of 106% • Net debt reduction to EUR 338 million • First proposed dividend ever at EUR 0.40 per share PARIS – 15 February 2008 – Atos Origin, one of the Europe’s leading IT services company, today announced full results for the year ended 31 December 2007. The Supervisory Board of Atos Origin convened in Paris on 14 February 2008 to examine and approve the accounts of the Group, for the year ended 31 December 2007. Philippe Germond, CEO of Atos Origin said: “In 2007, we have delivered on our committments. Our strong performance reflects the continued committment of our 50 000 employees as well as our clients’ satisfaction and trust in the Company. The transformation process launched through the 3o3 plan is progressing steadily and showing promising results. 2007 was a very active year: the implementation of the 3o3 transformation plan, the strengthening of the management team, the disposal of Italy, the agreement to sell our stake in Atos Euronext Market Solutions and for the first time a proposed dividend to the shareholders are only a few examples. The Group’s in-depth transformation coupled with our strong commercial momentum and backlog allows me to view 2008 with confidence and determination to succeed.” Revenue 76 As communicated on 31 January 2008, full-year 2007 Group revenue reached EUR 5 855 million at +8.5% year-on-year growth and +4.3% revenue growth at constant scope and exchange rates above the Company’s objective of +4.0%. This performance was achieved with an acceleration of the organic growth from +2.7% in the first semester to +5.9% in the second semester 2007 reflecting the full effect of the large contracts ramp- up in the United Kingdom for Managed Operations and an acceleration in most countries for Systems Integration. Operating performance The Group had an operating margin of EUR 272 million in 2007 representing 4.6% of total revenue above the EUR 247 million achieved last year. Excluding operating transformation costs for the 3o3 plan, the operating margin was EUR 316 million representing 5.4% of revenue compared to 4.6% in 2006. The performance was led by Managed Operations with an operating margin at EUR 274 million at 8.7% of revenue in 2007 compared to EUR 234 million in 2006 at 8.5% of revenue. This improvement was achieved thanks to the full effect in the second half of 2007 of new contracts signed in the United Kingdom last year and from the business mix change with higher contribution of the Atos Worldline activities, including Banksys. Significant operational transformation has been engaged in Managed Services in 2007 through the Global Factory initiative in areas such as mainframe and data centres consolidation, desktop services and server management optimization. In Systems Integration, the operating margin reached EUR 96 million at 4.1% of revenue compared to EUR 69 million representing 3.1% of revenue in 2006. This improvement derived from a tightened risk management control on projects, from volume increase, and from a lower loss in Italy. The Group invested in Industrialization and Offshoring 3o3 initiatives for EUR 16 million in 2007. The operating margin decreased in Consulting to EUR 18 million in 2007 compared to EUR 37 million in 2006: circa half of the decrease came from lower revenue due to ramp-downs of contracts in the United Kingdom and in France. The other half came from a lower utilization rate. Actions have been engaged during the second half to develop synergies with Systems Integration and Managed Operations on sales and delivery in order to restore both revenue growth and productivity. Corporate costs remained stable at EUR 92 million excluding 3o3 operating costs. The 3o3 operating expenses in Corporate amounted to EUR 24 million corresponding to the 3o3 plan build up for the support functions including sales. This will benefit in the future to the countries operations and the Global Service Lines. Net income The operating income reached EUR 137 million in 2007. The total net other operating expenses were EUR 135 million in 2007. The restructuring and rationalization costs were EUR 98 million. The other exceptional charges amounted to EUR 57 million related to the termination of the NHS Diagnostics contract and the disposal of Italy. Full-year 2007 net income was EUR 48 million compared to a net loss of EUR 264 million in 2006. The adjusted net income reached EUR 140 million increasing by +27% compared with last year and representing an adjusted earning per share of EUR 2.03. Net debt The net debt was reduced to EUR 338 million at the end of December 2007 compared to EUR 509 million at the end of June 2007 and EUR 360 million at the end of December 2006. This reduction was achieved thanks to a strong operating cash flow and a significant seasonal inflow of working capital in the second semester. This performance contributed to the financing of restructuring and rationalization for EUR 104 million and net capital expenditures at 5% of Group revenue. 77 Dividend The Supervisory Board decided to propose, for the first time, the payment of a dividend of EUR 0.40 per share at the forthcoming Annual General Meeting of Shareholders. This is a clear sign of confidence of the Group on its future. Atos Origin is determined to share value with its shareholders and to place them at the centre of its priorities. 2008 Objectives In 2008, the Group will continue to invest in Sales, Industrialization and Global Delivery through the 3o3 transformation plan and will accelerate the offshoring strategy. Investments will be done in distinctive offers in order to accelerate the organic growth. The Group has set the following objectives for 2008 on the new scope excluding Italy sold at 31 January 2008 and the future sale of Exchange operations from Atos Euronext Market Solutions which are expected to be transferred to NYSE Euronext during the third quarter of 2008: Achieve a revenue organic growth of +4% - From the 4.6% reached in 2007, to continue the improvement of the operating margin rate by +100 basis points Net debt reduction of EUR 100 million after dividends payment, cash out for the pensions in the UK and proceeds from disposals Italy and Exchange AEMS. Philippe Germond – CEO of Atos Origin said: “2008 will be a turning point for Atos Origin with the acceleration and the strengthening of the Transformation plan. We have now established the foundations that will allow us to improve competitiveness, and to increase substantially our profitability. More than ever, I am determined to develop the Group’s full potential and accelerate value creation”. 13.3 ANNOUNCEMENT OF FIRST QUARTER 2008 REVENUE (30/04/2008) 2008 first quarter revenue at EUR 1,424 million - Organic growth at +5.3 per cent Excluding 2008 disposals, Italy and AEMS Exchange, Q1 2008 revenue stands at EUR 1,356 million; a +5.9 per cent organic growth Order entries increased by +11 per cent compared to first quarter 2007 • Net debt reduced at EUR 304 million compared to EUR 411 million at 31 March 2007 PARIS – 30 April 2008 – Atos Origin, a leading IT services company, today announced 2008 first quarter revenue. Excluding Italy sold at 31 January 2008 and AEMS Exchange, disposal expected to be finalised in September 2008, first quarter revenue amounted to EUR 1,356 million representing an organic growth of +5.9 per cent. First quarter statutory revenue including one month of Italy and three months of AEMS Exchange was EUR 1,424 million, still a strong organic growth of +5.3 per cent. These figures reaffirm the encouraging trend observed since mid-2007 and confirm the positive momentum of the Transformation Plan. First quarter 2008 revenue: Philippe Germond – CEO of Atos Origin said: “This promising first quarter 2008 performance validates our Transformation Plan, which the Management Board started to implement during the second half of last year, and which is now producing tangible results both in revenue growth and orders intake. These figures highlight the competitiveness of the underlying business and the momentum that we are achieving. Following on from our much improved 2007 full year results, this quarter puts Atos Origin 78 firmly on the road to recovery and positions us well to meet our stated 2008 targets. The first quarter illustrates that Atos Origin is in a position to deliver shareholder value.” Q1 2008 Revenue performance by service line After organic growth of respectively +6.6 per cent and +5.3 per cent in Q3 and Q4 2007, Q1 2008 organic growth remained strong both on statutory scope with +5.3 per cent and, excluding Italy and AEMS Exchange, with +5.9 per cent. This performance is mainly due to good trends in Systems Integration which continues to improve quarter after quarter and record a solid +7.2 per cent organic growth in Q1 2008. Managed operations remain robust with +6.2 per cent organic growth benefiting from a solid +10.4 per cent organic growth for Atos Wordline after +5.1 per cent organic growth full year 2007, and from +5.6 per cent for Managed Services thanks to long term contracts ramp up. Consulting is improving, albeit still negative, the organic decrease was limited to -3.3 per cent compared to -6.3 per cent in Q4 2007 and -16.2 per cent in Q3 2007, showing a recovery trend. Q1 2008 Revenue performance by geographical area In France, Q1 2008 revenue was up by +7.5 per cent organic growth, at EUR 426 million, compared to the first quarter of 2007. Consulting grew by +10.8 per cent organic growth confirming the positive trend observed at the end of last year benefiting from strong actions from the new management team. Managed Operations achieved a +9 per cent organic growth with an increasing level of up-selling business with existing customers. The Systems Integration was up by +5.4 per cent mainly in the telecom and industry sectors. In the United Kingdom, organic growth was up +1.1 per cent in the first quarter 2008 affected by the performance of the AEMS Exchange business. Without this activity, expected to be transferred to NYSE Euronext in September 2008, the organic growth was +5.5 per cent. This performance was reached with a +14.3 per cent organic growth in Managed Operations confirming the full effect of the large contracts delivered last year. In Systems Integration, revenue organic growth was stable compared to last year and in Consulting the activity remained low, as expected, with new management needing a few months to implement all the necessary actions to achieve a full turnaround. In The Netherlands, as forecasted, revenue was stable at -0.7 per cent due to the re-insourcing by KPN of the desktop services contract and the implementation of the new three-year outsourcing contracts. Systems Integration was flat compared to last year and has implemented actions to recover a shortage of staff in the SAP environment. In Consulting, Financial services sector over-performed compensating lower sales in Public sector and Industry. In Germany and Central Europe, organic growth of +9.2 per cent was mainly driven by a strong performance in Systems Integration at +24 per cent organic growth thanks to the Dresdner Bank contract signed in 2007 and new business coming from existing customers in the telecom sector. Within Rest of EMEA, Iberia had a strong organic growth at +10.8 per cent with double digit growth in Consulting and in Managed Operations and Belux grew by +12 per cent organically; Mediterranean countries and Africa grew by +39 per cent with strong telecom business development. Asia Pacific posted a solid +36 per cent organic growth with new business development in China and with strong additional business from the Standard Chartered Bank in Hong Kong. As planned, Americas revenue decreased by EUR 12 million due to a base effect from the Panamerican Games in Brazil which contributed for the same amount in Q1 2007. Portfolio: confirmation of positive commercial momentum 79 During the first quarter of 2008, the total order entries reached EUR 1 432 million, a +11 per cent growth compared to the first quarter 2007. The Q1 2008 order intakes represented a book to bill ratio of 101 per cent compared to 90 per cent in Q1 2007. The Group won several key contracts in France including MMA insurance company and with a large French oil company, in the United Kingdom, Carbon Trust, Go North East as well as contracts in the Public sector were signed, in The Netherlands, Nuon, in North America, Fenwal and in China, Bank of China. Net debt The net debt was reduced to EUR 304 million at the end of March 2008 compared to EUR 338 million at the end of December 2007 and EUR 411 million at the end of March 2007. This performance was reached thanks to strong cash drive actions on working capital and the effect of the disposal of Italy for EUR 40 million. 2008 Objectives Excluding Italy, sold in January 2008, and AEMS Exchange expected to be transferred to NYSE Euronext in September 2008, the Group confirms its 2008 objectives as communicated on 15 February 2008: Revenue organic growth of +4% - Improvement of the operating margin to reach 5.6 per cent after operating costs of Transformation Plan compared to 4.6 per cent in 2007 Net debt reduction of EUR 100 million after dividends, cash out for the pensions in the UK and proceeds from disposals Italy and AEMS Exchange. 13.4 ANNUAL GENERAL MEETING HELD ON 22 MAY 2008 (22/05/2008) Paris – 22 May 2008, The shareholders of Atos Origin had been convened for a shareholders meeting to take place today, 22 may 2008, in order to deliberate on several resolutions, including the approval of the 2007 financial accounts and the nomination and re-appointment of members of the Supervisory Board. Before the meeting was legally in session, the attendance sheet having not being approved by the members of the board of the shareholders meeting, the final quorum not having been announced nor the resolutions put to the vote, the Chairman of the Supervisory Board of the FCPE "Atos Origin Stock Plan," which holds 2,015,150 shares representing 3% of the share capital, announced to all shareholders present that he would exercise these voting rights in opposition to the vote unanimously passed as a valid mandate by the FCPE Supervisory Board. This reversal was noted by all the official members of the shareholders meeting, including the two largest shareholders of Atos Origin, Centaurus Capital and Pardus Capital Management, based on extract of the minutes of the meeting of the Supervisory Board of FCPE. This situation was likely to deprive the employee shareholders of their rightful vote qt the Shareholders’ Meeting. In addition it could have resulted in legal challenges regarding the valid outcome of the votes cast at the Shareholders' Meeting, thus creating irrevocable harm to the interests of the shareholders, the company as a whole, its clients and its employees. As a result, the Management Board unanimously decided, with the agreement of the Shareholders' Meeting's ruling Chairman, to adjourn the meeting so that the FCPE’s shares could be voted in a legally valid manner and fully respect shareholder democracy. 80 The adjourned meeting will be reconvened at the earliest possible date which shall be announced shortly to all shareholders. 13.5 AGREEMENT WITH CENTAURUS CAPITAL AND PARDUS CAPITAL (28/05/2008) Paris, May 28, 2008 Atos Origin and its two largest shareholders, Centaurus Capital and Pardus Capital Management are pleased to announce that they have reached an agreement which they consider to be in the best interest of the Company, its employees, its clients, and all stakeholders. Pursuant to this agreement: All parties regret the incident which resulted in the adjournment of the shareholders’ meeting. Having resolved their past disagreement, they both reaffirm their mutual respect and common intention to work in the long term for the development of Atos Origin. In particular, Pardus Capital Management and Centaurus Capital reiterate that they have no intention to break up the Company, and confirm that they have all confidence in the professional skills of the Management Board members and the entire staff. Atos Origin, Centaurus Capital and Pardus Capital Management agree to support, recommend and vote in favor of a nine-member Supervisory Board structure, comprised of seven independent members and one representative for each of Pardus Capital Management and Centaurus Capital: o Jean-Philippe Thierry, Chairman of the Supervisory Board o René Abate o Behdad Alizadeh o Benoît d’Angelin o Jean François Cirelli o Michel Combes o Colette Neuville o Vernon Sankey o Michel Soublin This structure is expected to be submitted to shareholder approval at the upcoming AGM on June 12, 2008, where shareholders will be asked to vote on all members of the Supervisory Board, with Jean-Philippe Thierry subsequently appointed to the Supervisory Board and then elected as Chairman subject to other members being elected. All parties are delighted that Jean-Philippe Thierry, chairman and chief executive of French insurance group AGF and a member of the Allianz management board, has agreed to take this position to bring stability and support the development of the Company. Mr. Thierry is a prominent member of the European business community, Chairman of the Supervisory Board of Euler-Hermes and of the Mondial Assistance Group and also a director of PPR and Eurazeo (in a non-voting capacity). A Strategic committee will be created, the purpose of which will be to examine, in close cooperation with the Management Board, all investments and strategic options available to the Company in order to maximize shareholder value. In addition, Centaurus Capital and Pardus Capital Management have committed to vote in favor of all resolutions recommended by the Management Board at the upcoming general meeting of shareholders on June 12, 2008. Benoît d’Angelin and Behdad Alizadeh have undertaken to resign from the Supervisory Board within ten days if the stakes held respectively by Pardus Capital Management and Centaurus Capital fall below 5%. 81 Atos Origin’s Supervisory and Management Boards welcomed this agreement as a strong signal that all parties would now work constructively in the best interests of the Company. Philippe Germond stated: “I am convinced that this agreement and the undertakings made by all parties will send a strong signal of stability to our clients, employees and all stakeholders. This is excellent news from an operational standpoint as the Company is now free to fully focus on accelerating its development and building on the strong momentum observed in 2007 and Q1 2008. I look forward to working with the Supervisory Board on addressing the many opportunities for strengthening our European leadership which lie ahead of us”. Bernard Oppetit and Karim Samii said: “We believe there is tremendous potential for value creation in this Company, and we are confident that the strategic review undertaken at the initiative of this new Supervisory Board will point to the best ways to maximize value for all shareholders.” 13.6 ANNUAL GENERAL MEETING HELD ON 12 JUNE 2008 (12/06/2008) Paris 12 June 2008 Atos Origin’s Annual General Meeting was held today with a quorum of 61.02 %. The shareholders approved specifically the following resolutions: The company’s accounts and the consolidated accounts for 2007 were approved The distribution of a dividend of 0.40 euro for a total amount of 28 million euros was also voted through (to be paid in cash on 3 July 2008). This first ever dividend payment by Atos Origin reflects the good operational performance of the company in 2007 and its confidence in the outlook of the company. As per the agreement signed 28 May 2008 with Centaurus Capital and Pardus Capital Management, Didier Cherpitel, Diethart Breipohl and Dominique Bazy tendered their resignations at the end of the Annual General Meeting. Jan Oosterveld, whose mandate was up for renewal, did not wish to stand for reelection. The Supervisory Board now consists of nine members, of which seven are deemed to be independent. All mandates run for five years, expiring at the Annual General Meeting to be held in 2013. o René Abate o Behdad Alizadeh (Partner, Pardus Capital Management) o Benoît d’Angelin (Partner, Centaurus Capital) o Jean-François Cirelli o Michel Combes o Colette Neuville o Vernon Sankey o Michel Soublin The newly elected Supervisory Board held its first meeting right after the Annual General Meeting; it invited Jean-Philippe Thierry to join the board and subsequently appointed him chairman. The Supervisory Board confirmed its confidence in the Management Board. The Supervisory Board also put in place its different committees; remuneration, nomination, audit, strategic, and defined its calendar of activities. 82 13.7 SUPERVISORY BOARD OF ATOS ORIGIN HELD ON 3 JULY 2008 (04/07/2008) Paris, 4 July 2008 – The Supervisory Board of Atos Origin met on Thursday, July 3, 2008, in a meeting presided over by Mr. Jean-Philippe Thierry, in particular to examine the request by PAI partners to be represented on the Supervisory Board. This request followed the June 20, 2008 announcement that PAI partners had taken a participation of 18% in the capital of Atos Origin. The Board unanimously decided to appoint Mr. Bertrand Meunier and Mr. Michel Paris, representing PAI partners, as members of the Supervisory Board and as members of the Group committees. At the meeting of the Supervisory Board, PAI partners indicated that if its participation in the capital of Atos Origin falls below 15 % due to a disposal, only one of its two representatives would remain on the Supervisory Board. Furthermore, if its participation falls below 5 %, PAI partners would no longer be represented on the Supervisory Board. PAI partners also reiterated at the meeting of the Supervisory Board that it is not acting in concert with anyone and that it intends to cooperate with the other members of the Supervisory Board in the common interest of all shareholders to maximise the company’s value. Mr. Bertrand Meunier declared after the meeting of the Supervisory Board that : “The prompt and unanimous nomination to the Supervisory Board of Atos of our two representatives is a strong signal of the Board’s willingness to act in the interest of the shareholders. We fully support all of the efforts already taken by the new Board.” Mr. Jean-Philippe Thierry, President of the Supervisory Board, stated: “I am delighted, on behalf of the Supervisory Board, about the appointment of these two representatives of PAI partners and I am confident in the efficiency of their collaboration in the interest of the company, its employees, its customers and its shareholders.” The Supervisory Board will meet on the upcoming 28th of July to review the Group’s first half results, which will be published on the 29th of July 2008. 13.8 ANNOUNCEMENT OF 2008 FIRST HALF RESULTS (29/07/2008) SOLID 2008 FIRST HALF RESULTS Future scope revenue at EUR 2,745 million; Organic growth at +6.8 per cent, Q2 at +7.7 per cent Operating Margin at EUR 123 million, an increase by +11 per cent Order entries at EUR 2,694 million, up by +14 per cent Total revenue reached EUR 2,864 million; a +6.4 per cent organic growth • Net income at EUR 125 million; an increase by +118 per cent • Net debt at EUR 514 million Full year 2008 guidance increased for revenue organic growth above +5 per cent, operating margin rate and net debt objectives confirmed. PARIS – 29 July 2008 – Atos Origin, a leading IT services company, today announced its 2008 first half results. On the future scope excluding Italy sold at 31 January 2008 and AEMS Exchange, disposal expected to be finalised in third quarter 2008, first half revenue amounted to EUR 2,745 million representing an organic growth of +6.8 per cent. The revenue organic growth accelerated in Q2 2008 with +7.7 per cent after Q1 at +5.9 per cent. The operating margin reached EUR 123 million representing 4.5 per cent of revenue and an increase by +11 per cent compared to the first half of 2007 (+15 per cent increase at constant currency exchange rates). First half total revenue including one month of Italy and six months of AEMS Exchange was EUR 2,864 million, with an organic growth of +6.4 per cent. Operating margin was EUR 124 million; representing 4.3 per cent of revenue. 83 Philippe Germond – CEO of Atos Origin said: “During the first half of 2008, we benefited from our long term relationships with our customers providing them with innovative new services. We confirmed a strong commercial momentum with a double digit order entries growth and we clearly came back to a revenue organic growth above the IT services market. Therefore we have reached the first objective of our transformation plan and we continue to focus on the operational profitability improvement and the cash generation. Our 50,000 employees remain deeply involved in delivering value for our customers and, in turn, for our shareholders.” Revenue by service line After organic growth of +5.9 per cent in H2 2007, H1 2008 organic growth remained strong both on total revenue with +6.4 per cent and on the future scope with +6.8 per cent. This performance came mainly from both Systems Integration and Managed Operations. Systems Integration continued to improve quarter after quarter and recorded a solid +7.5 per cent organic growth in H1 2008. This performance was led by the United Kingdom (+11 per cent), Germany (+23 per cent) and rest of EMEA (+16 per cent). Managed operations achieved a +7.4 per cent organic growth benefiting from a robust +9.8 per cent organic growth for Atos Wordline compared to +5.0 per cent organic growth full year 2007, and from +6.6 per cent for the rest of the Managed Operations activities. This performance was led by France (+8 per cent), the United Kingdom (+19 per cent), Asia Pacific (+46 per cent) and rest of EMEA (+13 per cent). The Netherlands and Germany had stable revenue in the first half compared to the same period last year. Consulting continued to show a recovery trend. The organic decrease was -1.6 per cent in H1 2008 and was flat in Q2 2008 after -3.3 per cent in Q1 2008, -6.3 per cent in Q4 2007 and -16.2 per cent in Q3 2007. Consulting in France reached a +13 per cent organic growth in H1 2008 while the United Kingdom and The Netherlands were still decreasing. Revenue by geographical area All geographies showed a solid organic growth above +7 per cent with two exceptions: The Netherlands with an organic decrease by -1.4 per cent are still affected by KPN in H1 which as expected represented a negative 6 points effect. In the Americas, the one-off 2007 Panamerican games in Brazil had an effect of EUR 28 million in 2008 whereas the total revenue decrease for the Americas was EUR -23 million. Operating performance In H1 2008, on the future scope, the operating margin reached EUR 123 million at 4.5 per cent of revenue compared to EUR 111 million in H1 2007 (EUR 107 million at constant exchange rates in H1 2007). The improvement mainly came from the United Kingdom achieving 6.2 per cent operating margin compared to 2.2 per cent in H1 2007 and from Atos Wordline increasing its operating margin by +2 points. France, Germany and rest of EMEA had also margin improvement. Asia Pacific was affected by an overrun project in Thailand for EUR 3 million and also EMEA for an amount of EUR 3.6 million in Turkey. In The Netherlands, the operating margin, as expected, was affected by the KPN ramp-down which has not been fully compensated by the ramp-up of new contracts. Operating income and net income The operating income was EUR 191 million after rationalization and reorganization for EUR 6 million mainly in France, and a EUR 64 million positive impact coming from the United Kingdom pensions 84 plan amendment following the agreement reached with the two major United Kingdom pension trustee Boards. Net financial expenses amounted to EUR 7 million, tax charge was EUR 56 million, representing an effective tax rate of 30.6 per cent and minority interests of EUR 3 million. As a result, the net income Group share was EUR 125 million compared with EUR 57 million in H1 2007. Net debt The net debt was EUR 514 million at the end of June 2008 compared to EUR 338 million at the end of December 2007 and EUR 509 million at the end of June 2007. This amount includes the cash out made in Q2 2008 related to the United Kingdom pensions plan amendment (EUR -66 million) and the cash in coming from the sale of Italy in Q1 2008 (EUR 38 million). . As anticipated, the level of capital expenditure was EUR 141 million including EUR 20 million for Atos Euronext Market Solutions and EUR 21 million for investments on the 3O3 Transformation Plan. Strong actions have been pursued to reduce change in working capital. The seasonal increase in the first half of the year was limited to EUR 106 million. Portfolio: confirmation of a strong commercial momentum Based on the future scope, the total order entry reached EUR 2,694 million during the first half of 2008, +14 per cent growth compared to the first half 2007 (+17 per cent at constant exchange rates) with +11 per cent in Q1 and +17 per cent growth in Q2. The H1 2008 order entry represented a book to bill ratio of 98 per cent compared to 89 per cent in H1 2007. During the last twelve months period, the book to bill ratio was 114 per cent. In H1 2008, the order entry was signed with more added value and therefore with a higher average gross margin than in the past years. During the second quarter of 2008, the Group won several key contracts including ERDF/EDF, and Biometric Passports for the Government in France, NXP and Nuon in the Netherlands, major contracts in the public and private sectors in the United Kingdom, Neckermann in Germany, two major contracts in the banking in Spain, as well as Bank of China in China. 3O3 Transformation Plan The Transformation Plan continued to progress on all the initiatives. In Offshoring / Nearshoring, staff increased by +20% compared to end of December 2007. Recruitments made by the Group were mainly done on offshoring / nearshoring and closeshoring. The consolidation of mainframes is close to completion in France and additional local datacenters have been closed. In Industrialization, the roll-out of the standardised processes and tooling resulted in more than 3,300 users of the shared service centers. The operating costs of the transformation plan were EUR 27 million during H1 2008 compared to EUR 11 million in H1 2007 according to the ramp-up of the plan which started to deliver savings for an amount of EUR 20 million in H1 2008. 85 2008 Objectives Excluding Italy sold in January 2008, and AEMS Exchange to be transferred to NYSE Euronext in Q3 2008, the 2008 objectives for the Group are the following: Revenue organic above +5 per cent (increase compared to initial guidance of +4 per cent) Improvement of the operating margin to reach 5.6 per cent after operating costs of Transformation Plan compared to 4.6 per cent in 2007 Net debt reduction of EUR 100 million compared to December 2007 after dividends, cash out for the pensions in the UK and proceeds from disposals Italy and AEMS Exchange 13.9 FOCUSED MANAGEMENT BOARD MEMBERSHIP FOR ATOS ORIGIN (01/08/2008) Paris, 1 August 2008 - Atos Origin announces the departure of Wilbert Kieboom and consequently the end of his responsibilities as Management Board member. The Group would like to thank Wilbert Kieboom for his contribution over the last eight years. Wilbert Kieboom has expressed his desire, in alignment with the Group, to pursue other career interests. Philippe Germond, Chairman of the Management Board and CEO of Atos Origin, will take over with immediate effect Wilbert Kieboom’s previous responsibilities. Specifically, he will ensure operational management of all countries and service lines. Wilbert Kieboom will therefore not be replaced in the Management Board that will henceforth be composed of Philippe Germond and Eric Guilhou. Atos Origin is continuing to grow and improve its performance, with significant contracts being signed. The new organisation structure will allow the Chairman of the Management Board, along with Eric Guilhou, to lead the operations of the Group, for the successful development of Atos Origin. Jean-Philippe Thierry, Chairman of the Supervisory Board, declares “I am convinced the focused take advantage of such concentrated operational Management Board will successfully responsibilities.” 13.10 ATOS ORIGIN AND NYSE EURONEXT COMPLETE TRANSACTION ON AEMS JOINT VENTUR (06/08/2008) NYSE Euronext acquires Management and Sales of its European Trading Platforms - Atos Origin acquires AEMS Clearing & Settlement and Capital Markets Businesses New York and Paris, August 6, 2008 – Atos Origin (Euronext Paris: ATO), a leading IT services company, and NYSE Euronext (NYSE Euronext: NYX), the world’s leading exchange group, announced the completion of their transaction in which NYSE Euronext acquires the 50% stake in Atos Euronext Market Solutions (AEMS) owned by Atos Origin, and Atos Origin acquires AEMS’s third-party Clearing and Settlement and Capital Markets businesses. This agreement was previously announced in December 2007. As a result of this transaction, NYSE Euronext acquires ownership of the NSC cash trading and LIFFE CONNECT® derivatives trading platform technology and all of the management and development services surrounding these platforms as well as AEMS’s third-party exchange technology business. The closing of this acquisition completes the insourcing of NYSE Euronext’s European technology operations and enables the full integration of AEMS’s third-party exchange business into NYSE Euronext Advanced Trading Solutions. 86 The transactions have resulted in a payment of €282 million (US $445 million), subject to adjustments, from NYSE Euronext to Atos Origin and of €14 million (US $21 million) from Atos Origin to AEMS. Through the transactions, NYSE Euronext acquired the cash balance carried by AEMS at the closing. Such balance was approximately €113 million ($178 million) at 30 June 2008. Philippe Germond, Chief Executive Officer of Atos Origin said, "This transaction is beneficial for both parties. After having provided quality technology services to NYSE Euronext for more than 10 years, and having been its partner in its international development, Atos Origin is now contributing by this new move to the future development of one of its longstanding customers. I am happy this successful relationship will now be continued through a preferred supplier arrangement. “I am also very confident the strong competencies of the AEMS Clearing & Settlement and Capital Market teams will contribute to the development of Atos Origin and to our strategy of delivering Business Outcome, especially for our financial services customers. “Furthermore, this transaction provides Atos Origin with an increased financial flexibility to invest in its strategic development priorities, such as payments and offshore, and consolidate its current activity portfolio focusing on creating value for our shareholders." Jean-François Théodore, Deputy Chief Executive of NYSE Euronext said, “On behalf of the company, I welcome the AEMS team into the NYSE Euronext family. AEMS expands our portfolio of sophisticated technological solutions and expertise for the benefit of our customers and our own technology mission. This transaction further consolidates our position as a global leader in providing ultra-fast trading functionality and connectivity to financial services firms and exchanges around the world.” This agreement follows the successful longstanding relationship between Atos Origin and Euronext, and allows the two companies to focus on their core businesses, given recent trends in their respective industries. 87 14 GLOSSARY – DEFINITIONS Financial terms and Key Performance Indicators (cid:131) Current and non-current (cid:131) DSO (cid:131) EBITDA (cid:131) EPS (cid:131) Gearing (cid:131) Gross margin – Direct costs (cid:131) (cid:131) (cid:131) Leverage ratio (cid:131) Net debt (cid:131) Adjusted EPS (cid:131) Adjusted net income (cid:131) OMDA (cid:131) Operating income (cid:131) Operating margin (cid:131) Operational Capital Employed (cid:131) ROCE (Return Of Capital Employed) Indirect costs Interest cover ratio Business terms (cid:131) BPO (cid:131) CMM (cid:131) CRM (cid:131) ERP (cid:131) LAN (cid:131) MMS (cid:131) SCM (cid:131) WAN Business Key Performance Indicators (cid:131) Attrition rate (cid:131) Backlog / Order cover (cid:131) Book-to-bill (cid:131) Direct and indirect staff (cid:131) External revenue (cid:131) Full Time Equivalent (FTE) (cid:131) Legal staff (cid:131) Order entry / bookings (cid:131) Organic revenue growth (cid:131) Permanent and temporary staff (cid:131) Pipeline (cid:131) Ratio S (cid:131) Subcontractors and interims (cid:131) TCV (Total Contract Value) (cid:131) Turnover (cid:131) Utilization rate and non-utilization rate Market terms (cid:131) Consensus (cid:131) Dilutive instruments (cid:131) Dividends (cid:131) Enterprise Value (EV) (cid:131) Free float (cid:131) Free float capitalisation (cid:131) Market capitalisation (cid:131) PEG (Price Earnings Growth) (cid:131) PER (Price Earnings Ratio) (cid:131) Volatility 88 14.1 FINANCIAL TERMS AND KEY PERFORMANCE INDICATORS USED IN THIS DOCUMENT Operating margin. Operating margin comprises operating income before major capital gains or losses on the disposal of assets, major reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigations and the release of opening balance sheet provisions no longer needed. Operating income. Operating income comprises net income before deferred and income taxes, net financial expenses, share of net income from associates and the results of discontinued operations. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). For Atos Origin, EBITDA is based on Operating margin less non-cash items and is referred to as OMDA (Operating Margin before Depreciation and Amortisation) OMDA (Operating Margin before Depreciation and Amortisation) is calculated as follows: Operating margin Less - Depreciation of fixed assets (as disclosed in the “Financial Report”) Less - Operating net charge of provisions (composed of net charge of provisions for current assets and net charge of provisions for contingencies and losses, both disclosed in the “Financial Report”) Less - Net charge of provisions for pensions (as disclosed in the “Financial Report”) Less - Equity-base compensation Gross margin and Indirect costs. Gross margin is composed of revenues less the direct costs of goods sold. Direct costs relate to the generation of products and/or services delivered to customers, while indirect costs include all costs related to indirect staff (defined hereafter), which are not directly linked to the realisation of the revenue. The operating margin comprises gross margin less indirect costs. Adjusted net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax. EPS (earnings per share). Basic EPS is the net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is the net income divided by the diluted weighted-average number of common shares for the period (number of shares outstanding + dilutive instruments with dilutive effect). Adjusted EPS is based on adjusted net income. Operational capital employed. Operational capital employed comprises net fixed assets and net working capital, but excludes goodwill and net assets held for sale. Current and non-current assets or liabilities. A current and non-current distinction is made between assets and liabilities on the balance sheet. Atos Origin has classified as current assets and liabilities those that Atos Origin expects to realise, use or settle during its normal cycle of operations, which can extend beyond 12 months following the period-end. Current assets and liabilities, excluding the current portion of borrowings and financial receivables, represent the Group’s working capital requirement. Net debt. Net debt comprises total borrowings (bonds, finance leases, short and long-term bank loans, securitisation and other borrowings), short-term financial assets and liabilities bearing interest with a maturity of less than 12 months, less cash and cash equivalents (transferable securities, cash at bank and in hand). DSO (Days’ sales outstanding). DSO is the amount of trade accounts receivables (including work in progress) expressed in days' revenue (on a last-in, first-out basis). The number of days is calculated in accordance with the Gregorian calendar. Gearing. The proportion, expressed as a percentage, of net debt to total shareholders’ equity (Group share and minority interests). Interest cover ratio. Operating margin divided by the net cost of financial debt, expressed as a multiple. Leverage ratio. Net debt divided by OMDA. 89 ROCE (return on capital employed). ROCE is net income (Group share), before the net cost of financial debt (net of tax) and the depreciation of goodwill, divided by capital employed. . 14.2 MARKET TERMS Consensus. Opinion that emerges from the financial community, in which financial analysts play a prominent role. Consensus can relate to earnings outlook (individual stock consensus) or to a group of companies in the same sector (market consensus). Dilutive instruments. Financial instruments such as bonds, warrants, stock subscription options, free shares, which could be converted into shares and have therefore a potential dilutive impact on common stock. Dividends. Cash or stock payments from a company's profits that are distributed to stockholders. Free float. Free float is the proportion of a Company’s share capital that is regularly traded on the stock exchange. It excludes shares in the six categories listed below (source Euronext): (cid:131) Shares held by Group companies Shares of the listed company held by companies that it controls within the meaning of Article 233/3 of the French Commercial Code. (cid:131) Shares held by founders Shares held directly or indirectly by the founders (individuals or family group) when these founders have managerial or supervisory influence (management positions, control by voting rights, influence that is a matter of public knowledge, etc.). (cid:131) Shares held by the State Interests held directly by the State, or by public sector or other companies which are themselves controlled by the State. (cid:131) Shares within the scope of a shareholders agreement Shares subject to a shareholders' agreement within the meaning of Article 233/10 and 11 of the French Commercial Code, and other than those held by founders or the State. (cid:131) Controlling interest (cid:131) Shares held by juridical persons (other than founders or the State) exercising control within the meaning of article 233/3 of the French Commercial Code. Interests considered stable Interests exceeding 5%, which have not declined by one percentage point or more, excluding the impact of dilution, in the three preceding years. This category also includes shareholders that, in addition to or in association with the link represented by share ownership, have recently entered into significant industrial or strategic agreements with the Company. Free-float capitalisation. The share price of a company multiplied by the number of free-float shares as defined above. Market capitalisation The share price of a company multiplied by the number of its shares in issue. Volatility. The variability of movements in a share price, measured by the standard deviation of the ratio of two successive prices. Enterprise Value (EV). Market capitalisation + debt. PER (Price Earnings Ratio). Market capitalisation divided by net income for a trailing (or forward) 12- month period. PEG (Price Earnings Growth). Price-earnings ratio divided by year-on-year earnings growth. 90 14.3 BUSINESS TERMS BPO (Business Process Outsourcing). Outsourcing of a business function or process, e.g. administrative functions such as accounting, HR management, call centres, etc. CMM (Capability Maturity Model). CMM is a method for evaluating and measuring the competence of the software development process in an organisation on a scale of 1 to 5. CMMI. Capability Maturity Model Integration. CRM (Customer Relationship Management). Managing customer relationships (after–sales service, purchasing advice, utilization advice, customer loyalty) has become a strategic component of a company's successful operation. Not only does CRM facilitate efficiency, it also leads to higher sales by building customer loyalty. ERP (Enterprise Resource Planning). An ERP system is an integrated management software system built in modules, which is capable of integrating sales, manufacturing, purchasing, accounting and human resources systems into an enterprise-wide management information system. LAN (Local Area Network). A local network that connects a number of computers within a single building or unit. MMS (Multimedia Message Service). A message capable of carrying text, sounds, fixed or animated colour images, generally sent to a mobile phone. SCM (Supply Chain Management). A system designed to optimise the logistics chain, aimed at improving cost management and flexibility. WAN (Wide Area Network). A long–distance network that generally comprises several local networks and covers a large geographical area. 14.4 BUSINESS KPIS (KEY PERFORMANCE INDICATORS) 14.4.1 Revenue External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT, nil margin pass-through revenue). Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period. Order entry / bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. When an offer is won (contract signed), the total contract value is added to the backlog and the order entry is recognised. TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal. Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognised over their contract lives. Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success. Organic growth. Organic growth represents the % growth of a unit based on a constant scope and exchange rates basis. 91 14.4.2 Human resources Legal staff. The total number of employees under Atos Origin employment contracts at the end of the period. Legal staff includes those on long sickness or long absence, apprentices, trainees, and employees on maternity leave, but excludes subcontractors and interims. FTE (Full-time equivalent staff). The total number of staff calculated using information from time sheets on the basis of working time divided by standard contractual workable time per employee. In general, a person working on a full time contract is considered as one FTE, whereas a person working on a part time contract would be less considered than one FTE. Calculations are based on contractual working time (excluding overtime and unpaid holidays) with potential workable time (in hours or days) = nominal time + overtime balance – unpaid vacation. For subcontractors and interims, potential workable hours are based on the number of hours billed by the supplier to Atos Origin. Subcontractors. External subcontractors are third-party suppliers. Outsourced activities (e.g. printing or call centre activities) and fixed price subcontracting are excluded from the recorded number of subcontractors or interims. Interims. Staff from an agency for temporary personnel. Interims are usually used to cover seasonal peaks or for situations requiring staff for a short period of time. Direct Staff. Direct staff include permanent staff and subcontractors, whose work is billable to a third party. Indirect staff. Indirect staff include permanent staff or subcontractors, who are not billable to clients. Indirect staff are not directly involved in the generation of products and/or services delivered to clients. Permanent staff. Permanent staff members have a contract for an unspecified period of time. Temporary staff. Temporary staff have a contract for a fixed or limited period of time. Ratio S . Measures the number of indirect staff as a percentage of total FTE staff, including both own staff and subcontractors. Staff turnover and attrition rate (for legal staff). Turnover and attrition rates measure the proportion of legal staff that has left the Company (voluntary and/or involuntary) in a defined period. Turnover measures the percentage of legal staff that has left the business in a defined period. Attrition measures the percentage of legal permanent staff that has voluntarily left the business in a defined period. Attrition rate is a ratio based on total voluntary leavers in the period on an annual basis divided by the average number of permanent staff in the period. Utilization rate and non-utilization rate. Utilization rate + non-utilization rate = 100% of workable time for direct FTE, which excludes legal vacations, long-term sickness, long-term sabbaticals and parental leave. Workable time is composed of billed time, inactivity that is billable but not billed (exceptional holidays, sickness, on the bench which is between two assignments, other inactivity as delegation), and non-billable time (pre-sales, training, management meetings, research and development and travel). Utilization rate measures the proportion of workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is billed to customer. The ratio is expressed in percentage terms based on billed hours divided by workable hours excluding vacations. Non-utilization rate measures the workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is not billed or is non-billable to clients. 92 15 CONTACTS Headquarters France Tour Les Miroirs – Bat C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tél. : +33 1 55 91 2000 Fax : + 33 1 55 91 2005 Belgique Da Vincilaan 5 B-1930 Zaventem Tél : +32 (0)2 712 37 77 Fax : +32 (0)2 712 37 78 Other Locations Argentina Vedia 3892 P.B. C1430 DAL - Buenos Aires Tel: +54 11 4546 5500 Austria Technologiestraße 8 / Gebäude D A-1120 Wien Tel: +43 1 60543 0 Belgium Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 690 2800 Global Consulting & Systems Integration (Global C&SI) Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 712 3777 Brazil Rua Itapaiuna 2434 - 2° andar - Santo Amaro São Paulo – SP CEP: 05707-001 Tel: +55 11 3779 2344 China 5th Floor, Lido Commercial Center Jichang Road Beijing 100004 Tel: +86 10 6437 6668 France Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 2000 Atos Worldline France Tour Manhattan 5-6 place de l'Iris 92926 Paris La Defense Cedex Tel: +33 1 49 00 9000 Outsourcing Tour Horizon 64 Rue du 8 Mai 1945 92025 Nanterre Tel: +33 1 70 92 1340 Systems Integration Tour les Miroirs - Bât C 18, Avenue d'Alsace 92926 Paris La Defense Cedex Tel: +33 1 55 91 2000 Atos Consulting 6-8 Boulevard Haussmann 75009 Paris Tel: +33 1 73 03 2000 Atos Euronext Market Solutions 6-8 Boulevard Haussmann F - 75009 Paris Phone: +33 1 73 03 0303 Germany Theodor-Althoff-Str. 47 D-45133 Essen Telefon: +49 (0) 20 14 3050 Atos Worldline GmbH Hahnstraße 25 D-60528 Frankfurt/Main Tel: +49 69 66566 0 Greece 18 Kifisias Avenue 151 25 Athens Tel +30 210 688 9016 AO Meda Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tél. : +33 1 55 91 2000 Hong Kong Suites 1701-8, Prudential Tower 21 Canton Road Tsimshatsui, Kowloon Tel: +852 2830 0000 India SDF-IV, Units 126/127 SEEPZ, Andheri (east) Mumbai 400 096 Tel: +91 22 28 29 0743 Indonesia Wisma Kyoei Prince, #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta, 10220 Tel: +62 21 572 4373 Japan 20/F Shinjuku Park Tower, 3-7-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 163-1020 Tel: +81 3 3344 6631 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel.: +352 31 36 37 1 Malaysia Suite F01, 1st Floor 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Darul Ehsan West Malaysia Tél. : +60 3 8318 6100 Mexico Hegel 141, Piso 1 Col. Chapultepec Morales CP 11570 Tel: +52 55 5905 3303 Poland ul. Domaniewska 41 02-672 Warszawa (budynek Taurus) Tel: +48 22 606 1900 Morocco Avenue Annakhil - Espace High tech Hall B – 5th floor HAYRYAD - Rabat Morocco Tel : +212 37 57 79 79 Portugal Av. 5 de Outubro, 73 - C, 1 andar Edifício Goya, Escritório 4 1050-049 Lisboa Tel: +351 21 359 3150 Singapore 8 Temasek Boulevard #07-01 Suntec Tower Three Singapore 038988 Tel: +65 6333 8000 South Africa 204 Rivonia Road, Sandton Private Bag X136 Bryanston 2021 Tel: +27 11 895 2000 Spain Albarracín, 25 28037 Madrid Tel: +34 91 440 8800 Atos Consulting Albarracín, 27 28037 Madrid Tel: +34 91 214 9500 Switzerland Industriestrasse 19 8304 Wallisellen Tel: +41 1 877 6969 24, Avenue de Champel 1206 Genève Tel: +41 22 789 3700 Switzerland (Telecom) Binzmühlestrasse 95 8050 Zürich Switzerland Tel : +41 1 308 9510 Taiwan 9F, No 115 Sec 3 Ming Sheng E Road Taipei Tel: +886 2 2514 2500 Thailand 200 Moo 4, 25th Floor Jasmine International Tower Room No. 2502 Chaengwattana Road Pakkret Nonthaburi 11120 Tel: +66 2 582 0955 The Netherlands Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Atos Consulting Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Turkey Kisikli Caddesi N°37 Aksel Is Merkezi 2 Kat Altunizade 34 662 Istanbul Tél. : +90 216 531 7383 United Kingdom 4 Triton Square Regent’s Place London NW1 3HG Phone: +44 20 7830 4444 USA 5599 San Felipe Suite 300 Houston TX, 77056 Tel: +1 713 513 3000 93 | Semestriel, 2008, IT, Atos | write me a financial report |
Semestriel | 2,009 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
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| TURNING CLIENT VISION INTO RESULTS DELIVERING EXCELLENCE 2009 HALF-YEAR REPORT This document is a full free translation of the original French text. The original document has been filed with the Autorité des Marchés Financiers (AMF) on 31 July 2009, in accordance with article 212-13 of the AMF’s general regulations. Atos Origin Half-Year Report 2009 1/75 CONTENTS 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2009 ........................... 3 2 CHAIRMAN AND CEO MESSAGE ................................................................................................. 5 3 GROUP GOVERNANCE ................................................................................................................. 7 4 THE IT SERVICES MARKET .......................................................................................................... 9 5 OPERATIONAL REVIEW.............................................................................................................. 13 6 TOP PROGRAM............................................................................................................................ 26 7 FINANCIAL REVIEW .................................................................................................................... 30 8 HALF-YEAR FINANCIAL REPORT .............................................................................................. 34 9 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE ............................................... 55 10 SHAREHOLDER RELATIONS ..................................................................................................... 59 11 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS .......................................................................................................... 64 12 PRESS RELEASE FOR THE 2009 FIRST HALF RESULTS ........................................................ 66 13 GLOSSARY – DEFINITIONS ........................................................................................................ 70 14 LOCATIONS.................................................................................................................................. 75 Atos Origin Half-Year Report 2009 2/75 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2009 (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 Income Statement Revenue at 2009 scope and exchange 2,589 2,652 Changes in perimeter Impact from exchange rates 154 58 Statutory revenue 2,589 2,864 Operating margin % of revenue 118.0 4.6% 124.2 4.3% Operating income % of revenue 42.2 1.7% 191.0 6.7% Net income (Group share) % of revenue Normalised net income (Group share) (c) % of revenue 18.0 0.7% 73.7 2.8% 124.7 4.3% 74.5 2.6% Earnings per share (EPS) Basic EPS (a) Diluted EPS (b) Normalised basic EPS (a) (c) Normalised diluted EPS (b) (c) 0.26 0.26 1.06 1.06 1.76 1.76 1.07 1.07 (in units) 30 June 2009 30 June 2008 Other Key Indicators Net debt to equity ratio Employees at period end 20% 49,407 27% 50,655 (a) In euros, based on a weighted average number of shares. (b) In euros, based on a diluted weighted average number of shares. (c) Based on net income (Group share) before unusual, abnormal and infrequent items (net of tax). Atos Origin Half-Year Report 2009 3/75 % Change 2.4% 9.6% In millions of euros 5% 3% H1 2009 17% 37% Systems Integration Sys 974 Managed Services Man 974 High Tech Transactional Services Hig 434 Consulting Con 133 Medical BPO Med 74 38% 2 589 8% 5% 23% H1 2009 France Fra 575 11% Benelux Ben 517 United Kingdom Uni 446 Atos Worldline Ato 416 16% 20% Germany Central Europe / EMA Ge rm an 283 17% Iberia / South America Ibe 210 Rest of the World Res 141 2 589 10% 4% H1 2009 27% Public sector Pub 713 Financial Services Fin 551 10% Telecom & media Tele 364 14% Manufacturing Energy & Utilities Man En er gy 363 258 21% Retail Ret 246 14% Others Oth 94 2 589 Global Business Units include France (France and French subsidiary in Morocco), United Kingdom, Benelux (The Netherlands, Belgium and Luxembourg), Atos Worldline (French, German and Belgium subsidiaries), GCEMA (Germany Central Europe with Austria, Poland, and Mediterranean countries and Africa which include South Africa, Greece, Turkey and Switzerland), Iberia / South America (Spain, Portugal, Argentina, Brazil and Columbia), and Rest of the World (Asia Pacific including China, Hong Kong, Singapore, Malaysia, Indonesia, Taiwan, Japan as well as North America, India, Major Events and Middle East with Dubai). Atos Origin Half-Year Report 2009 4/75 2 CHAIRMAN AND CEO MESSAGE Dear Shareholders, After more than six months leading your company, I am glad to report that half year performance is in line with the commitments that I made to you. In a particular difficult economic environment, the Group revenue for the first half of this year was EUR 2589 million representing, as expected, a slight organic decline of 2.4%. High Tech Transactional Services (predominantly Atos Worldline) has once again demonstrated growth as has the recurring business of Managed Services. Growth in these areas has allowed your Company to maintain momentum and has compensated for a more pronounced decline in the cyclical businesses of Consulting and System Integration, which have been more affected by the slowdown of the economy. During the first half of this year, your Group has signed many new deals including SFR in France, Royal Liver in the UK, ING and NXP in the Netherlands. It has also extended major contracts including the high profile partnership with the International Olympic Committee to include the Winter Games to be held in Sochi (Russia) in 2014 and the Summer Games in 2016. In a tough market where we face strong price pressure, we have mobilised our sales force and adapted our offerings to better focus on the needs of our clients. This has enabled us to increase order entries and our backlog. Operating margin was EUR 118 million during the first half of 2009. In line with my commitment we maintained our operating margin compared to the first half of 2008 at 4.6% despite the insolvency of the German retailer Group Arcandor, one of our largest clients. Finally, the net debt at the end of June 2009 was EUR 328 million with a cash consumption of EUR 24 million. Excluding one-off items, this is much lower than the EUR 148 million reported for the first half of last year The TOP Program, which was launched on December 1st last year with the objective to return the Group’s operating margin to that of our best competitors, contributed significantly to the strong performance in the first half of 2009. In the short term, the TOP Program has enabled us to significantly reducing internal operating costs while further improving the quality of services to our clients. I am very confident in our capability to further accelerate improvement in our operating margin during the second half of 2009 and subsequent years. Further improving the skills and employability of our employees has been a key focus. We have doubled our investment in training and further strengthened our internal processes to make it easier for our employees to move between countries and services lines. These measures have enabled us to reduce the number of external subcontractors in the Group by more than 1400 since the beginning of the year while maintaining our utilisation rates. During the first half of this year, I also decided to launch several initiatives to prepare the Group for the “post crisis” world and its future development. Our first measure is to build new and stronger relationships with graduates through the “Talents 2009” initiative. This aims to strengthen our programs for trainees and to develop models that enable new employees to combine work and studies. We have also committed that a minimum number of new recruits will be joining the workplace for the first time. Our second measure is to position your Group at the centre of technological innovation. With this in mind we have created a Scientific Committee that brings together 50 of the most brilliant engineers in the Group and who are recognised by their peers. This new scientific community will help us to better anticipate technological change and deliver increased value to our clients. Finally, because I am fully aware of the importance of sustainability, the third initiative launched during the first half of this year was the “Green IT growth” project. This is focused on developing more sustainable IT systems and services that will enable our clients to reduce their carbon footprint and become more sustainable organisations. Atos Origin Half-Year Report 2009 5/75 Leading our innovation efforts and our technological progress, Atos Worldline, has for a number of years managed its development on a model that focuses on strength and efficiency in delivery while aligning revenue to its clients success. Today, Atos Worldline is only present in France, Belgium and Germany. It delivers high tech transactional services in the area of electronic payments, and e- services. There is significant potential to further grow this business by extending these services and this successful business model into the other markets where the Group has a strong presence. This project will be at the heart of the profitable growth strategy for the Group in the next few years. The strong commercial dynamics, the improvement in operating margin, despite the Arcandor effect, and the solid performance in cash management demonstrate the involvement and commitment of the Group’s employees. These achievements are essential to continue to secure the confidence and trust of our clients and therefore to allow Atos Origin to pursue its profitable development. I am proud of the work and the performance realised by our teams during this first half of this year and I am fully confident in our capability to achieve the objectives that we commit to each semester. This is the reason why I confirm our commitments for the full year 2009. Thierry Breton – Chairman and CEO Atos Origin Half-Year Report 2009 6/75 3 GROUP GOVERNANCE Atos Origin is incorporated in France as a "société anonyme" (Joint Stock Corporation) with a Board of Directors elected by the shareholders of the Company at the Ordinary and Extraordinary shareholders meeting held on 10 February 2009. 3.1 THE GROUP TOP MANAGEMENT The Group Top Management is composed of a Chairman and Chief Executive Officer and two Senior Executive Vice-Presidents. Name Operational functions Transversal functions Thierry Breton Chairman and Chief Executive Officer Charles Dehelly Gilles Grapinet Senior Executive Vice President Global Operations Senior Executive Vice President Global Functions Global Systems Integration & Managed Operations, TOP Program, Global Purchasing, Group Business Units Global functions, Global Sales & Markets, Group Innovation Business Dvpt & Strategy (GIBS), Global Consulting and Atos Worldline 3.2 THE EXECUTIVE COMMITTEE The Group Executive Committee has been implemented to drive the operational performance of the Group. Its main tasks are to support the Top Management in defining business priorities, reviewing operational performance, executing the TOP (Total Operational Performance) Program on a weekly basis and setting major action plans. It is a dedicated Committee for the operational management of the Group. The Executive Committee facilitates exchange and collaboration between the Global Business Units, the Global Services Lines, Global Sales & Markets and Global Functions. In addition to the top Management members, the Executive Committee comprises the heads of the Global Business Units, the heads of the Global Service Lines, the head of Global Sales and Markets, the Group CFO and the Group HR. 3.3 THE BOARD OF DIRECTORS Following the Ordinary and Extraordinary Shareholders Meeting held on 10 February 2009, the shareholders approved the transformation of the Company with a new mode of governance and the establishment of a Board of Directors. The newly elected Board of Directors unanimously appointed Thierry Breton as Chairman and CEO of Atos Origin. In addition, the Board of Directors appointed Jean-Paul Béchat as Chairman of the Audit Committee and Behdad Alizadeh as Chairman of the Nomination and Remuneration Committee. Atos Origin Half-Year Report 2009 7/75 The members of the Board of Directors are: Name Nationality Age Date of appointment French René Abate American Behdad Alizadeh French Nicolas Bazire French Jean-Paul Béchat French Thierry Breton British Jean Fleming French Dominique Mégret French Bertrand Meunier French Michel Paris Italian Pasquale Pistorio Vernon Sankey British Jean-Philippe Thierry French 60 47 51 66 53 40 61 52 51 72 59 60 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 A: Audit Committee; N&R: Nomination and Remuneration Committee (*) General meeting of shareholders deciding on the accounts of the year. Atos Origin Half-Year Report 2009 8/75 Committee member N&R N&R A N&R A A A N&R Term of offices (*) 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 Number of actions held 1,000 1,000 1,000 1,000 5,000 238 1,000 1,000 1,000 1,000 1,000 1,500 4 THE IT SERVICES MARKET 4.1 MARKET 4.1.1 Market Conditions European macro-economic conditions are tightening and “uncertainty” remains the operative theme when trying to evaluate IT services business in 2009. Europe has entered in recession, and IT services performance in Europe has regularly been revised down by industry analysts since end 2008. This recession impairs economic activity in 2009, leading to a slowdown in IT spending. IT services in Europe may decline by 3% in 2009. Because the financial crisis is global, the recession scenario should hit all regions at the same time, but European countries have contrasted speeds of adaptation to the crisis, Netherlands and Spain reacting more quickly, and Service Line exposures are very different among the nature and duration of IT services provided to clients. In a severe downturn, outsourcing is affected the least. These services represent multi-year contracts that often provide the IT that runs businesses, but customers will however be looking for increased efficiency and flexibility from their deals. While a tighter economic climate is likely to drive an increase in outsourcing, decision making for some outsourcing initiatives is first delayed due to business uncertainty, creating a pause in outsourcing activity but this will subsequently lead to increased usage of outsourcing. We expect the growth of “e-services” in the public sector to continue, with the Web increasingly being used to facilitate interaction with the citizen and drive efficiencies. In the recession, Consulting and System Integration are suffering the most, as they are more discretionary spending you can limit to costs for a certain period of time, but opportunities will continue in areas where IT service providers can help businesses to become leaner, more agile and better at using their resources. New opportunities will present themselves for solutions to requirements created by the current financial crisis, including opportunities created by government intervention and regulation. 4.1.2 Trends Among our TOP 7 key trends that are re-shaping the IT services market, we removed the Growth Agenda due to the current context and we adapted slightly the list as we believe the now major ones to be: 1) The Continuing Drive For Cost Reduction, 2) Industrialisation and Lean 3) The Emergence Of The IT Utility, that is now developing under the accepted name of Cloud Computing and SaaS, 4) Increasing Globalisation, 5) The Growth In Multi-sourcing, 6) The Growth Of BPO, 7) The Drive For Sustainability expanding beyond Green IT These are deep, underlying trends that will continue to re-shape the IT services market, although the pace of change may be moderated by the changing economic climate. For example, business uncertainty is likely to increase demand for utility or on-demand services. In H1 numerous providers have announced their plan of developing Cloud services and after US, this is reaching Europe, Asia being still behind. Although still maturing, these services are being delivered today, and analysts are predicting that 25% of IT services will be coming from such non-traditional models by 2012. Increased demands for cost reduction may reduce multi-sourcing as deals are re-negotiated and suppliers consolidated. The rapid growth in globalisation may slow if countries become more protectionnist. While media hype exceeded real action early 2008, we saw a marked upturn in 2009 in interest in “The Drive For Sustainability”. Drivers in the private sector have been mostly cost reduction and pending regulation (Green IT), stakeholder pressure, and brand development. Governance Risk and Compliance (GRC) offerings are becoming popular. They expand to the public to comply with the overall agenda of serving in a better environment. Tough economic conditions may accelerate this trend in 2009 as enterprises look for further cost reduction opportunities. Atos Origin Half-Year Report 2009 9/75 Globalisation, multi-sourcing and industrialisation are well established market trends. Together they have had the largest overall influence on the re-shaping of the IT services market over recent years. Driven by these trends, we are seeing both Western and Indian service providers ultimately heading towards the same delivery model – a network of on-site, on-shore, near shore and offshore – with delivery centers, or delivery partners, in alternative locations around the world. Some analysts are now predicting that labour-intensive service delivery, where increased demand results in increased workforce, will not be sustainable — even though it will continue while labour costs are low. The future success of global delivery networks will depend less on the availability of low-cost resources and more on the quality of skills, tools, methodologies and alliances. Whilst Total Contract Value (TCV) has been reducing, customers have also been demanding more sophisticated value propositions, for example, increased flexibility through pay for use pricing and key performance indicators based on business outcomes. This has been coupled with more deals being scoped to cover the IT support of end-to-end processes, integrating consulting, systems integration and managed operation capabilities. The industrialisation trend is being driven by IT companies in the enterprise, or corporate market. Coming from the mass market (i.e.: the small business and consumer market), we also have the “Consumerisation Of Services” trend. One example of this trend was the production of low cost, pay per hour, elemental IT services from companies such as Amazon and Google, that has entered in a second phase, targeting mid markets by Cloud based offerings and SaaS. Large Software vendors have clearly indicated they would offer their software based on these principles which will request from IT services player to adapt themselves to support this move. While the consumerisation of IT services has not yet had an impact on the IT services market we compete in, we believe this should happen in a near future. 4.1.3 The competitive environment The acquisition of EDS by HP has changed the Top 10 ranking. Based on 2008 revenue HP-EDS is now the third largest IT services company in Europe with 4.7% of market share, behind IBM with 8% and Accenture with 4.8%. This puts Atos Origin in fifth place with 3.6% market share, behind Cap Gemini, second in the Netherlands with the acquisition of Getronics PinkRoccade Business Application Services. We expect more consolidation to continue in 2009. The European IT services market will continue to be intensely competitive in 2009, with US and European IT services providers restructuring and re-focusing to maintain competitiveness. There will be an increased focus on specialisation and vertical industry capability. If significant business uncertainty continues then enterprises will increasingly seek to reduce risk by turning to service providers they trust in. In this environment, service providers that actively manage trust, at both customer and market level, will develop a competitive advantage over those that do not. The growth numbers for the Indian IT service providers has slowed but they are still extremely active. We anticipate a further slowdown, but still expect them to be leading the growth numbers in 2009. We expect their increased focus on Europe and Asia Pacific to continue. While the market share of the leading ‘India-heritage’ providers is still relatively small in Europe, they are actively pursuing large deals, and are increasing capacity and capability through acquisitions. The economic climate is likely to accelerate these acquisition plans. There is an increased focus on specialisation and acquiring industry vertical knowledge and capability. This is not only by the leading IT services providers but also by the major software vendors such as SAP and Oracle. Alliances will continue to be an increasing feature of winning new and innovative business – with IT service providers teaming up with industry specialists, technical specialists, or their direct competitors. Atos Origin Half-Year Report 2009 10/75 Highly competitive, specialist offerings (innovative/good customer fit/good price) will be increasingly important to gain market share, and maintain growth over the next couple of years. Consulting: Consulting is arguably the most vulnerable of the three service lines to cut back on spending. Most of the analysts expect now a decrease in 2009. However, a toughening economic climate will not spell the end of consulting and project prospects. Demand will continue in areas where IT service providers can help businesses to become leaner, more agile and better at using their resources. The demand for business consulting is expected to exceed the demand for pure IT consulting with the main drivers coming from: Cost cutting projects; • M&A; • Regulation and reporting; • Business process improvement; • The need for companies to innovate. Industry focused consulting is increasingly becoming an integral part of winning and delivering systems integration and long term outsourcing deals. We expect European buyers to want to see a more proactive approach from suppliers around increasing both efficiency and effectiveness. IT service providers who have well developed business consulting capabilities, with industry knowledge, will be the best placed to take advantage of the opportunities available. Systems Integration: Although demand for application development and management services is still solid, the two other segments of Systems Integration, professional services and projects are suffering: prices are under continuous pressure and deals are likely to be smaller. Key drivers for systems integration work will include project enabling to reduce cost or improving business efficiency, including Business intelligence, Corporate performance management, and compliance to regulation. Buyers are likely to be segmenting remaining projects into smaller pieces and there will continue to be an intense focus on value and performance measures. Pressure on prices and shortage of skills will continue to drive the increased use of global delivery models. The testing market is still evolving with companies adopting everything from staff increase to the full outsourcing of their testing functions in multi-year contracts. Overall there is a growing demand for service providers to have industry knowledge, and consulting led Systems Integration engagements will increase. Managed Services: Outsourcing tends to grow when the economy is weak. However, outsourcing growth stalls in times of uncertainty. Overall, 2009 and 2010 are expected to be good years for IT Outsourcing and BPO in Europe, although decision cycles are likely to be on-hold for some, and many buyers will be looking for faster ROI and increased flexibility. Re-negotiation of existing contracts, to cut costs and increase flexibility, may provide opportunities for consolidating scope. Notable trends seen in 2008 and confirmed in H1 2009 included: More growth coming from “add on” business with existing customers; • An increase in Remote Infrastructure Management (RIM); • An increase in offshore IT Outsourcing; • Customers ROI expectations for “Green IT” initiatives 15%-20% - the same as for IT Outsourcing; Growth in IT BPO – high tech transactions High Tech Transactional Services: Payment and e-services markets are extremely diverse, containing a combination of suppliers with a background in various industry-specific processes, as well as technology specialists and IT services providers. The market is starting to mature and we expect consolidation amongst service providers to continue. Atos Origin Half-Year Report 2009 11/75 Growth is mainly driven by Regulatory changes (eg: SEPA in the payment area), a proliferation of payment styles (eg: mobile and remote payments), Security (eg: chip and pin, 3D-secure, and the use of holograms). 4.2 MARKET SHARE AND COMPETITORS According to Gartner, based on 2008 figures, Atos Origin is the fifth largest IT services company in Europe. IT service market share rankings in Western Europe were as follows: Ranking in Europe Competitors in Europe Western Europe Revenues 2008 in EUR million Western Europe Market share 1 2 3 4 5 6 7 8 9 10 IBM Accenture Hewlett-Packard EDS Cap Gemini Atos Origin T Systems British Telecom Siemens IT Solutions & Services Logica Computer Sciences Corporation (CSC) 11,606 6,975 6,858 6,845 5,222 4,541 4,417 3,831 3,747 3,204 8.0% 4.8% 4.7% 4.7% 3.6% 3.1% 3.0% 2.6% 2.6% 2.2% Total market size Western Europe 145,156 39.4% Source: Company Information – IT Services 2008 Market Share Gartner: May 2009 in USD with 1 USD = 0.6833 EUR (a) In EUR million, based on Professional Services include Consulting Services (Consulting for Atos Origin), Development and Integration Services (Systems Integration for Atos Origin), IT Management (Managed Services for Atos Origin) and Process Management (On-line Services and BPO for Atos Origin), but exclude Product Support (Hardware and Software Maintenance and Support). According to Gartner, based on 2008 figures for external IT spending, Professional Services market shares in each main country were as follows: Country Market Size Weight Atos Origin Atos Origin Market (in EUR million) Market Share Ranking Leader United Kingdom Central Europe France Italy & Greece Netherlands & Belgium Iberia (Spain & Portugal) Other Europe 47,482 30,398 19,134 8,987 14,311 10,065 14,779 33% 21% 13% 6% 10% 7% 10% 2.0% 2.1% 8.3% 0.4% 11.4% 3.6% 1.4% 9 7 2 - 1 5 British Telecom T-systems Cap Gemini IBM Cap Gemini Indra Western Europe 145,156 100% 3.6% 5 Source: Company Information – IT Services 2008 Market Share Gartner: May 2009 in USD with 1 USD = 0.6833 EUR Atos Origin Half-Year Report 2009 12/75 5 OPERATIONAL REVIEW 5.1 OPERATING PERFORMANCE (STATUTORY) The underlying operating performance on the ongoing business is presented within operating margin, while unusual, abnormal and infrequent income or expenses (other operating income/expenses) are separately itemised and presented below the operating margin, in line with the CNC recommendation of 27 October 2004, before arriving at operating income. Statutory revenue achieved EUR 2,589 million during the first half of 2009, representing a statutory decrease of -9.6%. (in EUR million) 6 months ended 30 June 2009 % margin 6 months ended 30 June 2008 % margin % change Revenue excl. Italy and AEMS Exchange 2,589 2,743 5.6% Italy 20 AEMS Exchange 101 Statutory revenue 2,589 2,864 9.6% Oper. margin excl. Italy and AEMS Exchange 118.0 4.6% 122.2 4.5% 3.5% Italy 1.1 AEMS Exchange 3.0 Statutory Operating Margin 118.0 4.6% 124.2 4.3% 5.0% Other operating income (expenses) (75.8) 66.8 Operating income 42.2 1.7% 191.0 6.7% During the first half 2009, the Group achieved an operating margin of EUR 118.0 million (4.6% of revenue compared with 4.3% last year). The details from operating margin to operating income are explained in the financial review, in the following chapter. Atos Origin Half-Year Report 2009 13/75 5.2 REVENUE 5.2.1 Organic growth External revenues for the first half of the year amounted to EUR 2,589 million, representing a decrease of -9.6% against statutory revenue of EUR 2,864 million for the same period last year. On a constant exchange rates basis which represents a negative impact of EUR 58 million and excluding the disposals which represented EUR 154 million for the same period last year, organic revenue decrease reached -2.4% or EUR -62 million over the period. In EUR Million 6 months ended 30 June 2009 6 months ended 30 June 2008 Δ% Statutory revenue 2,589 2,864 9.6% Italy (20) AEMS Exchange (101) Statutory Revenue excluding Italy and AEMS Exchange 2,589 2,743 5.6% Other disposals (detailed below) (33) Impact from exchange rates (58) Revenue at constant scope and exchange rates 2,589 2,652 2.4% The disposals made by the Group accounted for EUR 154 million revenue in H1 2008 and were composed of: (cid:190) Italy disposed to Engineering in January 2008 which removed EUR 20 million from the comparative revenue base; (cid:190) AEMS Exchange disposed to NYSE Euronext in July 2008 with a revenue of EUR 101 million for the first six months in 2008; (cid:190) Technical Automation in The Netherlands disposed at the end of 2008 with a revenue of EUR 11 million; (cid:190) Mexico disposed at the end of 2008 with a revenue of EUR 5 million in H1 2008; (cid:190) Thailand disposed end of 2008 with a revenue of EUR 15 million in H1 2008; (cid:190) AB Consulting which represented a revenue of EUR 2 million last year. Exchange rates movement resulted in a negative adjustment of EUR -58 million on a comparable year-on-year basis, mainly from British pound for EUR -67 million, EUR +10 million for Asian currencies, EUR +6 million for USD related currencies and EUR – 4 million regarding South America currencies. The organic decrease of revenue by -2.4% is in line with the full year 2009 revenue guidance provided by the Group to the market. 5.2.2 Revenue per quarter evolution Revenues in H1 2009 represented an organic decrease of -2.4%, of which -0.6% in the first quarter, and -4.0% in the second quarter of 2009 (In EUR million) Quarter 1 2009 Quarter 2 2009 Half-year 2009 Revenue 1,294 1,295 2,589 % organic growth (*) (*) Organic growth at 2009 scope and exchange rates 0.6% 4.0% 2.4% Atos Origin Half-Year Report 2009 14/75 5.2.3 Revenue per nature evolution The Group derives 97% of its revenue from Sales of services, at same level than last year. The revenue from purchase for re-selling was flat in absolute value compared to the same period last year. (in EUR million) 6 months ended 30 June 2009 % Total 6 months ended 30 June 2008 % total % organic growth (*) Sales of services Purchase for re-selling 2,513 76 97% 3% 2,572 80 97% 3% 2.3% -4.7% Total revenue (*) Organic growth at 2009 scope and exchange rates 2,589 100% 2,652 100% 2.4% The revenue from purchase for re-selling slightly decreased in absolute value compare to the same period last year. 5.2.4 Revenue by Global Business Unit The revenue performance by Global Business Unit (GBU) was as follows: (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 % growth (*) 2009 revenue breakdown France 575 586 1.9% 22% Benelux 517 585 11.6% 20% United Kingdom 446 419 +6.4% 17% Atos Worldline 416 394 +5.7% 16% Germany & Central Europe / EMA 283 299 5.2% 11% Iberia / South America 210 226 6.9% 8% Rest of the world 141 143 1.5% 5% Revenue at constant scope and exchange rates 2,589 2,652 2.4% 100% Italy 20 AEMS Exchange 101 Other disposals 33 Impact from exchange rates 58 Total revenue (*) Organic growth at 2009 scope and exchange rates 2,589 2,864 Revenue by GBU for the first half of 2009 varied significantly: (cid:190) The United Kingdom and Atos Worldline reported an organic growth above respectively of +6% and +5%; (cid:190) France and Rest of the World reported a decline of less than -2%; (cid:190) Germany Central Europe / EMA and Iberia / South America reported a decline respectively of -5.2% and -6.9%; (cid:190) Benelux had a decline of more than -11%. In France, Consulting was down by EUR 8.6 million compared to the same period last year mainly due to fewer projects in the financial services sector with also a continuous price pressure which led to a lower average daily rate. In the meantime, revenue derived from the public sector remained flat, both in volume and in price. Systems Integration revenue was down -5% in comparison to last year due to lower revenues from the automotive sector, while activity in both the public and telecom sectors remained stable. The utilisation Atos Origin Half-Year Report 2009 15/75 rate remained strong at 83% flat compared to the first half of 2008. The average daily rate had a very limited -1% decline compared to last year. In Managed Operations, revenue increased by more than +7% thanks to the ramp up of new contracts in the energy and utilities sectors. In the Benelux, Consulting revenue suffered from price pressure and a weak market demand particularly in the financial services and in the manufacturing sectors. The Group reacted by cutting costs and reducing staff in order to secure the operational profitability. However, for the first half of this year, costs savings were not sufficient to compensate the level of revenue decrease. In Systems Integration, revenue in The Netherlands was directly impacted both by a lower demand and strong price pressure particularly for time & materials practice which represents two third of Systems Integration revenue. Thanks to a strong management, the utilisation rate was stabilised at 73% compared to 74% in H1 2008. However, the average daily rate decreased by 4% compared to the same period last year. As a result, total Systems Integration revenue in the Benelux decreased by -19.1% compared to H1 last year. In Managed Operations, revenue in The Netherlands had a slight decrease of -2.2% due to the postponement or cancellation of some projects in the financial services and public sector. In Belgium, revenue was almost flat due to more change requests from customers as well as the signature of an outsourcing deal with a large chemical company. In the United Kingdom, Consulting business line decreased by EUR 7 million due to less assignments in the public sector. The utilisation rate was affected by a lower level of revenue made with the existing customers in the public sector such as NHS. Systems Integration slightly decreased by -2.9% due to a decline in revenue from private sector customers particularly in the SAP area. Public sector remained strong thanks to incremental service projects with UK Civil Department, Government Gateway and in the health sector. Strong management of resources materialised in an increase of utilisation rate of +3 points reaching 79%. In Managed Services, revenue increased by EUR 37 million representing +21.2% for the first half. This was due to contracts with large customers in the public sector including the Ministry of Justice, the UK Border and Immigration Authority, NHS Scotland and the Train Operating companies (TOCS) in transportation. Finally, Medical BPO grew by +2.3% mainly explained by higher revenue with the Department of Work and Pensions (DWP) as a result of increasing number of medical assessments carried out under the frame of the Employment and Support Allowance (ESA). For Atos Worldline, revenue was up +5.7%. France posted a solid +19.1% growth with varied situations: (cid:190) Additional revenue for speed control and biometric passports contracts; (cid:190) Increasing recurring revenue in the bank and finance unit in payment and in e-services; (cid:190) a more difficult situation in the retail/industry and telecom sectors. Germany achieved a +5.7% revenue growth with increasing revenue in card management and merchant processing areas. For Belgium, credit and debit cards businesses were stable whereas sales of terminals slightly decreased taking into consideration a high basis of comparison in H1 last year (sales of terminals with the new standard EMV in Benelux). Atos Worldline Financial Markets was down by -7.8% as expected. The Group is investing in new offerings to come back to growth as of 2011 as presented during the Investor Day held on 12 June 2009 in Brussels. Atos Origin Half-Year Report 2009 16/75 In Germany Central Europe / EMA, Systems Integration reported a decrease in revenues of -6.5% mainly caused by a lower demand in the retail and manufacturing sectors and in particular in the automotive industry. This was partly countered by growth in the finance and telecom sectors. Managed Operations was negatively impacted by the financial situation of its customer Arcandor which filed for insolvency. Managed Operations revenue decreased by -3.9% during the first half of 2009. Iberia / South America had to face the economic environment in Spain. Revenue in Systems Integration which represented more than 60% of the total was down by 11.9% mainly in the finance and telecoms sectors where the GBU experienced both price pressure and a strong reduction of time and material projects. On the opposite, Managed Operations reported organic growth of +9.3% thanks to the strong increase of its High Tech Transactional Services activity. Rest of the World reported revenue almost flat at EUR 141 million. Managed Operations compensated in Asia and in North America the decrease of the cyclical businesses. In Asia, total revenue slightly decreased by 3.3%. Managed Services revenue was up +9.5% with higher volumes made in Hong Kong with Standard Chartered Bank and Manulife. In Systems Integration, revenue decreased by EUR 3 million mainly in time & material activity whereas payment activities were slightly up. In North America, external revenue decreased organically by -4.4%. Managed Services revenue reported an organic growth of 13.2% thanks to new contracts with City for Wayne and Baker Hughes compensating a drop of revenue with the customer Stanley, and the Systems Integration activity which suffered at the beginning of the year from a slowdown in market demand. 5.2.5 Revenue by service line The revenue performance by service line was as follows: (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 % organic growth (*) 2009 revenue breakdown Consulting Systems Integration Managed Operations Managed Services High Technology Transaction Services Medical BPO 133 974 1,482 974 434 74 172 1,074 1,406 927 407 72 22.6% -9.3% +5.4% +5.1% +6.6% +2.3% 5% 38% 57% 38% 17% 3% Revenue at constant scope and exchange rates 2,589 2,652 2.4% 100% Italy AEMS Exchange Other disposals Impact from exchange rates 20 101 33 58 Total Group (*) Organic growth at 2009 scope and exchange rates 2,589 2,864 Consulting business line continued to decrease during the second quarter 2009. Revenue was EUR 133 million in the first half, representing an organic decrease of -22.6% compared to H1 2008. As announced by the Group last April, tough market conditions have pursued since the beginning of the year and large customers have delayed decisions on investment. Systems Integration revenue reached EUR 974 million in the first half 2009, representing an organic decrease of -9.3%. This business line was impacted by a strong decrease in Benelux (-19.1%) and in Iberia / South America (-11.9%) both affected a tough economic environment materialising in price pressure and weak demand. Besides, the decrease was more limited in the United Kingdom (-2.9%), in France (-5.4%) and in Germany Central Europe / EMA (-6.5%). The breakdown of total revenue of Atos Origin Half-Year Report 2009 17/75 Systems Integration as of end of June 2009 was as follows: one third in Application Management, one third in Project Services and one third in Professional Services. In Managed Operations, revenue was EUR 1,482 million, representing an organic growth of +5.4%. Managed Services increased by +5.1% with EUR 974 million, High Tech Transactional Services (formerly On-Line Services) reached a revenue growth of +6.6% at EUR 434 million and Medical BPO increased by +2.3% with EUR 74 million. 5.2.6 Order input During the first half of 2009, total order entries reached EUR 2.9 billion, up by +10% compared to the first semester 2008 (+12% at constant exchange rates). The book to bill ratio reached 112% compared to 98% for the same period last year. During the second quarter of the year, the Group renewed existing contracts and signed new ones. In France, a new signature was concluded with SFR and contracts with Rhodia, Bouygues Telecom, SFR and BNP Paribas have been renewed within Managed Operations. The Benelux won new signatures with the tax authorities of The Netherlands, Ahold, ING and NXP and renewed its contracts with Philips, KPN and DSM in Managed Operations. In the United Kingdom, the Group won new projects in the public sector (Ministry of Justice, NHS Scotland) as well as in the finance (Royal Lever) and in the energy sectors. Atos Worldline renewed its existing contracts with Postbank and Exxon. In addition, the Group won a new project in Germany with E-Plus. In Asia, the outsourcing contract with Standard Chartered Bank was renewed and the order for the Youth Olympic Games in Singapore in 2010 was signed. The International Olympic Committee chose again Atos Origin for the management of the IT for the Olympic Games to be held in 2014 and in 2016. As of 30 June 2009, the full backlog amounted to EUR 7.5 billion representing 1.5 year of revenue and up organically by +3% compared to the level reached in June last year. The full qualified pipeline was EUR 2.6 billion up by EUR 400 million compared to 30 June 2008. 5.2.7 Revenue by industry sector The revenue performance by industry sector was as follows: (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 Growth % organic growth (*) Public Services Financial Services Manufacturing Telecoms and Media Energy and Utilities Retail Other 713 551 363 364 258 246 94 644 580 416 399 237 270 106 69 -29 -53 -35 20 -24 -11 +10.6% -5.0% -12.7% -8.7% +8.6% -8.8% -10.6% Revenue at constant scope and exchange rates 2,589 2,652 62 2.4% Italy AEMS Exchange Other disposals Impact from exchange rates 20 101 33 58 Total (*) Organic growth at 2009 scope and exchange rates 2,589 2,864 The Group is organised in six main industry sectors, which represent 96% of total revenues. Public sector remained the main market served by the Group with 28% of total Group revenue. French, Dutch and British Ministries are the main customers together with the Health sector in the Atos Origin Half-Year Report 2009 18/75 2009 revenue breakdown 28% 21% 14% 14% 10% 10% 4% 100% United Kingdom. Public sector had a strong organic growth of +10.6%. The Group benefited from both ramp up of contracts in France (speed control and biometric passports) and in the United Kingdom (Ministry of Justice, NHS Scotland). The Financial services sector (21% of total Group revenue) had a revenue organic decrease of -5% following tougher market conditions particularly in The Netherlands and in Spain. The lower revenue made with the finance sector was especially linked to the declining demand in Consulting and in Systems Integration. Manufacturing (14% of total Group revenue) which includes both Discrete Manufacturing and Process Industries had a revenue decrease of -12.7% due to difficult economic environment mainly in the automotive industry. Telecoms and Media represented 14% of total Group revenue, with a decrease of -8.7% facing tough business conditions in Spain and mainly price pressure from top accounts in France and in The Netherlands. Energy and Utilities represented 10% of total Group revenue and reported a solid organic growth of +8.6% thanks to new outsourcing contracts in France and in the United Kingdom. Retail represented 10% of total Group revenue, with a decrease of -8.8% coming essentially from the reduction of revenue from Arcandor. Other represented 4% of total revenue with a revenue organic decrease of 10.6%. 5.3 OPERATING MARGIN AND MARGIN RATE 5.3.1 Operating margin performance The operating margin performance was as follows: (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 % growth Statutory revenue 2,589 2,864 9.6% Italy AEMS Exchange Other disposals Exchange rates (20) (101) (33) (58) Revenue at constant scope and exchange rates 2,589 2,652 2.4% Statutory Operating Margin Operating Margin% 118.0 4.6% 124.2 4.3% Italy AEMS Exchange Other disposals Exchange rate 1.1 (3.0) 3.3 (3.7) Operating Margin at constant scope and exchange rates 118.0 121.8 Operating Margin% 4.6% 4.6% As far as the seasonality is concerned, the start of the year is traditionally impacted by a contractual reduction in revenues on long term contracts where the Group has agreed in advance to share specific benefits with clients. Group Operating margin for the first half of 2009 was EUR 118.0 million representing 4.6% of revenue. By quarter, the operating margin rate improved in Q2 09 compared to Q1 09 by more than 200 basis points, from 3.5% to 5.6% of revenue. This performance was achieved despite a one off charge Atos Origin Half-Year Report 2009 19/75 booked in Q2 09 for doubtful debt from Arcandor for a total amount of EUR 14 million, which represented an effect of 50 basis points on the first semester Operating Margin. (in EUR million) Quarter 1 2009 % margin Quarter 2 2009 % margin Half-year 1 2009 % margin Revenue 1,294 1,295 2,589 Operating margin 45.5 3.5% 72.5 5.6% 118.0 4.6% The operating margin is considered after equity-based compensations for an amount of EUR 6.6 million (compared to EUR 6.8 million in H1 2008), Global Delivery Lines costs of EUR 14.3 million (compared to EUR 13.1 million in H1 08) and including Global functions costs of EUR 27.4 million (vs EUR 31.6 million in H1 2008). 5.3.2 Operating margin by Global Business Unit The operating margin performance by Global Business Unit was as follows: (in EUR million) 6 months ended 30 June 2009 (*) % margin 6 months ended 30 June 2008 (*) % margin France Benelux United Kingdom Atos Worldline Germany & Central Europe / EMA Iberia / South America Rest of the world Corporate central (*) 20.2 34.4 36.5 61.2 4.1 2.7 7.2 (33.9) 3.5% 6.7% 8.2% 14.7% 1.4% 1.3% 5.1% -1.3% 13.5 47.6 26.2 56.7 18.4 9.5 1.4 (38.4) 2.3% 8.1% 6.3% 14.4% 6.1% 4.2% 1.0% -1.4% Global Service Lines costs (*) (14.3) 0.6% (13.1) 0.5% Oper. Margin at constant scope and exchange rates 118.0 4.6% 121.8 4.6% Italy AEMS Exchange Other disposals (1.1) 3.0 (3.3) Impact from exchange rates 3.7 Total Group (*) Corporate central costs and Global service lines costs not allocated to the countries 118.0 4.6% 124.2 4.3% During the first half 2009, the Operating Margin was EUR 118 million, representing 4.6% of revenue at the same level than the first semester 2008. In a very difficult economic environment, the Group has been able to improve its operational profitability, excluding the effect from Arcandor, by 50 basis points compared to the first semester 2008. This performance was achieved thanks to an increased operating margin in France where Systems Integration reached 2.1% compared to 0.2% in H1 last year, Atos Worldline even improving its operational profitability, the United Kingdom in all services lines, and the turnaround of Rest of the World. The performance of these four GBUs coupled with a strong reduction of Corporate central costs managed to compensate the low operating margin of Germany Central Europe / EMA affected by the Arcandor insolvency as well as the reduced margin of Benelux and Iberia / South America both affected by price pressure and volume decline. In France, (cid:190) Consulting operating margin was affected by the decline of revenue. Nevertheless with a strict control of the costs base together with a decrease of staff and then a Atos Origin Half-Year Report 2009 20/75 (cid:190) reduction of the average daily cost, public sector & industry services presented positive results increasing compared to last year. Consulting in banking and in insurance was affected by a lower average daily rate. In Systems Integration, the operating margin progressed by EUR +5.9 million and reached 2.1% operating margin rate. This increase came mainly from a complete reorganisation of the business units with less layers of middle management. In addition, a strict control of hirings regarding direct staff and a freeze of indirect staff contributed to the margin improvement. Despite price pressure, the average daily rate was almost flat. A satisfactory utilisation rate at 83.5% combined with a more efficient project management compensated less business in the automotive industry. The acceleration of TOP Program should allow operating margin rate in Systems Integration in France to improve continuously in the future. (cid:190) Managed Services in France improved its profitability by almost 60 basis points to reach 5.7% of revenue. This performance was mainly fed by revenue growth and a drastic management of the subcontractors. In the Benelux, the operating margin reached EUR 34.4 million representing 6.7% of revenue below the 8.1% for the same period last year. (cid:190) Consulting operating margin was directly impacted by the decline in market demand and a lower average daily rate. Action plans to save costs mainly in direct expenses were not yet sufficient to compensate a lower gross margin. In Systems Integration, lower revenue and tariff pressure were partly offset by actions on costs and operating margin rate was finally close to 8% of revenue for the first half of 2009. In Managed Services, the operating margin progressed by EUR 5.2 million compared to last year while revenue decreased by EUR 6.5 million. This performance was driven by drastic actions on costs and restructuring. (cid:190) (cid:190) In the United Kingdom, (cid:190) (cid:190) (cid:190) (cid:190) In Consulting the operating margin increased by EUR 2.8 million from EUR -2.1 million in H1 2008 to EUR 0.7 million in H1 2009 thanks to strong actions on the costs base with restructuring. In Systems Integration, operating margin improved by EUR 3.6 million to achieve a 9.4% operating margin rate. The utilisation rate improved by +3 points to 79.4% in the first semester 2009. Increased revenue in public sector benefited to the operating margin. The first effects from restructuring initiated in the last quarter of last year also contributed to the margin increase. In Managed Services, the operating margin reported an increase of EUR 1 million (at same exchange rates) coming from a higher service revenue baseline and tight costs control on both personnel and non-personnel expenses reinforced by the TOP Program. In medical BPO, operating margin rate reached 11.4% with an improvement by EUR 3 million (at same exchange rates) compared to last year. Higher volumes within the Department of Work and Pensions (DWP) contract for medical services and productivity earnings contributed to this performance. The GBU Atos Worldline maintained a double digits operating profitability of 14.7% of revenue. The operating margin increased by EUR 4.5 million. (cid:190) This performance was mainly led by Germany in the payment area with a strong costs control combined with a revenue growth of +5.7%. (cid:190) Atos Worldline Financial Markets posted a slight positive operating margin compared to a loss last year. In the three countries where Atos Worldline operates (France, Germany, Belgium), the GBU made a tight management of resources with less internal staff as well as less external subcontractors compared to H1 2008 which contributed to the operating margin improvement. The GBU Germany Central Europe / EMA reported an operating margin of EUR 4.1 million severely affected in Germany by the write-down of the Arcandor invoices issued prior to the insolvency and unpaid at the time of the filing. This represented an amount of EUR 14 million. In Germany, Atos Origin Half-Year Report 2009 21/75 (cid:190) Operating margin for Systems Integration increased by EUR 1.2 million (excluding Arcandor effect). Margin improved in the application management area with some customers’ add-on requests. In Managed Services, the Arcandor effect could not be compensated by costs reductions, at least not in a short period of time as a lot of expenses are fixed costs. (cid:190) In EMA, (cid:190) Operating margin was back to profit at EUR 2.7 million representing 6.6% of revenue (cid:190) compared -3.7% last year. H1 2008 was affected by overruns in Turkey. In the other countries, situation remains stable in more difficult economic environment mainly in the telecommunications sector in Greece and in South Africa. In the GBU Iberia / South America, (cid:190) (cid:190) (cid:190) Iberia was affected by the strong slowdown of the Spanish economy. Severe tariffs pressure impacted Systems Integration business line even if utilisation rate remained stable at 85%. In Managed Services in Spain, operating margin was impacted by the ramp-up of the contract with Telefonica. In South America, while Systems Integration was able to maintain a positive operating margin with tough market conditions, Managed Services suffered mainly in Brazil where resizing and tight costs control actions are progressing. The GBU for Rest of the World, operating margin reached EUR 7.2 million representing 5.1% of revenue compared to EUR 1.4 million for the same period last year. (cid:190) In Asia, the operating margin improved by EUR 2 million excluding the change of scope effect resulting from the disposal of Thailand at the end of last year; (cid:190) Systems Integration Asia increased its operational profitability mainly in the payment area (cid:190) (cid:190) with licences sales around the “Cardink” offer; In Managed Services Asia, even if the margin improved by EUR 0.8 million compared to last year, the profitability still has to progress much faster. In North America, the operating margin has been maintained at almost 4% of revenue despite a very challenging market. This stabilisation was made thanks to costs savings in Managed Services combined with restructuring and the move of the second datacenter. Corporate Global Functions costs (excluding Global Delivery lines) have been reduced by 12% at EUR 33.9 million compared to EUR 38.4 million for the first semester 2008. This reduction came from a complete reenginering of the global functions of the Group. Global Service Lines costs (Global Delivery and Global Factory) remained almost flat. 5.3.3 Operating margin by service line Consulting business line suffered from a lower revenue baseline with an operating margin at 1.4% of revenue. Systems Integration improved its performance by +50 basis points at 4.5% compared to the first semester last year despite revenue slowdown from lower utilisation and pricing pressure. Managed Operations which include Managed Services, High Tech Transactional Services and Medical BPO maintained its profitability above 7% at 7.2% of revenue (vs 7.8% in H1 2008). This performance was mainly led by High Technology Transaction Processing and Medical BPO both at double digit operating margin rate with respectively 14.4% and 11.4% of revenue. Managed Services decreased to 3.6% of revenue. Atos Origin Half-Year Report 2009 22/75 (in EUR million) 6 months ended 30 June 2009 (*) % margin 6 months ended 30 June 2008 (*) Consulting Systems Integration Managed Operations Managed Services High Technology Transactions Processing Medical BPO 1.9 43.9 106.1 35.2 62.5 8.4 1.4% 4.5% 7.2% 3.6% 14.4% 11.4% 7.9 42.6 109.8 47.1 57.2 5.4 Corporate (33.9) 1.3% (38.4) Oper. Margin at constant scope and exchange rates 118.0 4.6% 121.8 Italy AEMS Exchange Other disposals (1.1) 3.0 (3.3) Impact from exchange rates 3.7 Total Group (*) Corporate costs exclude Global Service Lines costs 118.0 4.6% 124.2 5.4 HUMAN RESOURCES REVIEW 5.4.1 Change in the Group workforce 2009 2008 Headcount opening Change in scope Hiring (*) Leavers (*) Restructuring Headcount at closing 30 June (*) Permanent staff only, excluding temporary staff movements 50,975 -139 +2,007 -2,074 -1,362 49,407 51,704 -2,443 +5,590 -3,222 -974 50,655 Changes in scope of the first semester 2009 included Technical Automation in The Netherlands (-215 people) and AB Consulting in Sweden (-21 people) and the acquisition of Covics in China which brought in +93 people. The level of recruitment during the first half of the year reached +2,007 staff significantly reduced by -64% compared to the level reached during the first semester last year. By quarter the recruitments were +1,222 in Q1 09 and +785 in Q2 09 respectively down by -53% and -73% compared to the same period last year. The significant change in the rhythm of recruitment illustrates the strong monitoring of human resources set by the Group in order to adapt the cost structure to the economic downturn. Leavers comprise voluntary permanent staff leavers, permanent staff who have retired. The total number of leavers during H1 2009 was 2,465. Staff attrition decreased significantly from 13.6% in H1 2008 to 7.5% as of 30 June 2009. A total of 1,362 employees (including 391 individual dismissals), compared to 974 in H1 2008, left the Group during the first half 2009 under specific and localised re-organisation programs as part of the business transformation. These employees who left the Company were mainly located in the GBUs Benelux, France, United Kingdom and Iberia & South America. Atos Origin Half-Year Report 2009 23/75 % margin 4.6% 4.0% 7.8% 5.1% 14.1% 7.5% 1.4% 4.6% 4.5% 5.4.2 Staff movements by Service Line and Global Business Units Employees 30 June 2009 31 December 2008 Change Average H1 2009 Average H1 2008 Consulting Systems Integration Managed Operations Managed Services High Tech Trans. Processing Medical BPO Corporate Total excluding AEMS Exchange AEMS Exchange Total France Benelux United Kingdom Atos Worldline Germany Central Europe & EMA Iberia / South America Rest of the World Finance Shared service center Corporate (*) Total excluding AEMS Exchange AEMS Exchange Total 2,314 23,014 23,736 16,574 5,351 1,810 344 49,407 49,407 12,495 8,312 6,312 4,821 3,787 7,776 5,560 145 199 49,407 2,667 24,402 23,615 16,610 5,325 1,680 291 50,975 50,975 12,737 9,038 6,313 4,847 3,838 8,298 5,613 57 234 50,975 13% -6% +1% -0% +0% +8% +18% -3% 3% -2% -8% -0% -1% -1% -6% -1% +248% -15% -3% 2,441 23,640 23,744 16,704 5,287 1,752 301 50,125 50,125 12,604 8,625 6,283 4,842 3,812 8,081 5,577 101 200 50,125 2,662 24,044 22,504 15,914 4,995 1,535 228 49,439 430 49,869 12,606 9,064 6,087 4,577 3,718 7,947 5,212 29 200 49,439 430 49,869 49,407 50,975 3% 50,125 (*) Corporate includes General Management, Group Support Functions and Global Service Lines As of 30 June 2009, Group total staff were 49,407 decreasing by -3% compared to end of last year. The major decrease in the number of staff came from the GBUs Benelux and Iberia / South America. United Kingdom, Atos Worldline and Germany Central Europe / EMA almost maintained the same level of employees. During the first semester 2009, the Group Finance shared service center based in Lodz (Poland) has been ramped-up significantly due to the transfer of the finance back-office activities of Germany, Belux, France and United Kingdom. These progresses have been made accordingly to the T12 project within the TOP Program. Corporate headcount have been reduced by 15% since the end of 2008. The strict control of hirings coupled with a reorganisation of the Group delivery units have led to a reduction in internal productive legal staff by 3% (-1 174 legal staff) reached 44 196 at the end of June 2009. Indirect headcount have been reduced from 5 605 at the end of December 2008 to 5 211 at the end of June 2009 representing a decrease of 7% equivalent to almost 400 staff. Consulting legal staff have been reduced by 353 people (-13%) reaching 2314 at the end of June 2009. The most important decrease came from Systems Integration where the legal staff were reduced by 1 388 (-6%) reaching 23 014 at the end of June 2009. Nevertheless, this reduction remained lower than the decline in revenue (volume and price pressure). Through combined actions of re-skilling and bench optimisation, Managed Operations legal staff has only increased by 120 employees reaching 23 736 at the end of June 2009 while delivering an organic growth +5.4%. As far as subcontractors are concerned, the Group has adopted a policy of strong reduction of non- critical subcontractors which allowed reducing the total number from 3 933 at the end of 2008 to 2 517 which represented a decrease by more than 1 400 staff (-36%). This reduction is already higher than the target of 1 000 staff for the full year. Atos Origin Half-Year Report 2009 24/75 Change 8% -2% +6% +5% +6% +14% +32% +1% -100% +1% -0% -5% +3% +6% +3% +2% +7% +248% +0% +1% +1% 5.4.3 Staff by region as of 30 June 2009 UK 6,300 France 15,700 North America 700 Spain 6,100 South America 1,900 Atos Origin Half-Year Report 2009 25/75 Benelux 9,400 Germany & CE 4,100 Med. countries 300 Africa 200 Total employees 49,400 end of June 2009 Asia Pacific 4,700 6 TOP PROGRAM The Total Operational Performance (TOP) Program was launched in December 2008. It aims at accelerating improvement in the operational and financial performance of the Company while improving our services and delivering increased value to our clients. The TOP Program is composed of 21 projects, all of which support one or more of the objectives below: Delivering greater value to our clients • Creating a responsible and sustainable organisation • Improving financial performance The twenty-one TOP projects are: (cid:190) T1 aims at improving the performance of Atos Consulting. This is both in terms of how Atos Consulting operates as a global consulting business and how it works with the rest of the organisation, specifically with Systems Integration. (cid:190) T2 is focused on Systems Integration competitiveness. It aims to ensure that Atos Origin improves its competitiveness by delivering better value services to clients through increased off-shoring and consistent use of standard, global processes and tools. (cid:190) T3 aims to build on our expertise and credibility in the market place as a leading SAP integrator in order to become the market leader. (cid:190) T4 aims to implement lean techniques to increase productivity and efficiency of our service desks and call centres worldwide, so that Atos Origin can increase its competitive advantage while maintaining the high standards expected by the Group’s clients. (cid:190) T5 aims to build Global Service Centers, further strengthen the Group’s offshore capabilities and optimise its technology and purchasing power in order to deliver better value services to the clients. (cid:190) T6 aims to increase the service of on-site IT support teams through lean techniques. (cid:190) T7 has the objective to ensure that Atos Worldline remains the market leader in payment processing by extending and improving its national capabilities focused on Belgium, France and Germany with the implementation of three global payment platforms. (cid:190) T8 aims to optimise non–IT spend through implementing new policies, making specification changes and renegotiating with our suppliers, while ensuring there is no negative impact on our own business or the delivery to our clients. (cid:190) T9 aims to ensure that we are making optimal use of our office space by reducing overcapacity at some sites and increasing capacity at others. (cid:190) T10 has the objective that we have the structure and processes in place to win more international deals, like those already won with Schlumberger, Michelin and Philips. (cid:190) T11 is to ensure that invoices are issued on-time for the services delivered. As part of this project, the T11 team has also launched a review of referral fees to ensure the Company continues to get the best value deal. (cid:190) T12 is to set up the Finance Shared Service Centre in Poland to support France, Germany, The Netherlands, Spain and the UK. The transfer to Poland is completed for The Netherlands, Belgium, Germany and United Kingdom. (cid:190) T13 aims to transform the HR function and reduce the administrative tasks so the HR team can focus on areas more valuable to the business such as people development, talent management, international mobility and career progression. (cid:190) T14 is led by the Chief Lean Officer of the Group who is responsible for the deployment of lean techniques across the organisation. The aim of T14 is to optimise the efficiency of the G&A functions. (cid:190) T15 corresponds to the rolling-out of standard tools across the organisation to replace older, non-global versions. (cid:190) T16 aims at adapting the Group resources to new offers and processes (cid:190) T17 aims to ensure that Atos Origin becomes a more responsible and sustainable player in the IT services sector. (cid:190) T18 is focused on the optimisation of the working capital. (cid:190) T19 to reduce the level of capital expenditure at Group level. (cid:190) T20 aims at reducing pensions exposure and optimise tax. Atos Origin Half-Year Report 2009 26/75 (cid:190) T21 is focused on the improvement of the Group overall sales performance through strategic investment in pre-sales. The TOP program is focused on four areas: Increasing process efficiency in term of costs and quality; Improving performance management and measurement; • • Empowering employees to deliver added value to our clients • Standardising the organisational structure across all business lines and GBUs H1 2009 Achievements Globally, the TOP Program had a positive effect on the Group operating margin in the first half of 2009 of around 50 basis points. Consequently, the Group is confident that the acceleration of the TOP Program will increase its impact on operating profitability during the second semester of 2009 through a further reduction of the total cost base. Reduction in the cost base during the first half of 2009 of non-personnel expenses: travel expenses (annual basis EUR 130 million) were down by 23% in the first half of 2009 compared to H1 last year; rent and lease expenses (annual basis EUR 240 million) dropped by 17% since H1 last year external expenses (annual basis EUR 110 million) such as insurance, marketing and communication, professional fees dropped by 22%. The strong actions initiated during the first half 2009 should convert into savings by the second half of this year for the following expenses: maintenance costs (annual basis EUR 260 million), company cars (annual basis EUR 80 million) and telecommunication (annual basis EUR 120 million). Delivering greater value to our clients As a service provider, our mission is to deliver the best possible service to our customers, at the most competitive price. The current financial climate compels us more than ever to deliver more for less. To increase our efficiency and deliver more competitively priced services to our clients, through the TOP program, we are focused on: • Boosting off-shoring • Investing strategically Implementing a Lean Program across the Group Lean Lean is a proven methodology that has been used for a long time in the manufacturing industry and more recently in the service industry. It looks in details at the way in which work is completed today, including the order of tasks and the processes followed to identify where there is waste, variability and inflexibility that is reducing our overall efficiency. Seven of the 21 TOP projects are focused on Lean Management and together they are expected to deliver cost savings of EUR 40 million in 2009 and EUR 100 million in 2010. The Group estimates that 20% to 30% of these savings will contribute to an improvement in the operating margin. By applying Lean techniques, we can optimise the use of our resources by removing barriers to efficiency that add no value to our clients or our own business, such as cumbersome administrative procedures. By reviewing how we work today we can identify incidences of: Waste - tasks are completed or procedures followed that add no value • Variability - the time to complete similar tasks varies significantly due to lack of standard processes Inflexibility - we don’t always meet demand because we can’t ramp our services up or down fast enough Atos Origin Half-Year Report 2009 27/75 Once we have identified where improvements can be made in a given unit, we work with its members to develop and implement simple and effective solutions. Our objective is that by mid 2010 we will have used Lean techniques across almost half of our business to significantly improve our operational performance. We have already started deploying Lean for our Service Desks, Infrastructure Support and Administrative functions in Scotland, Poland and the Netherlands, resulting in improved quality of service, reduced delivery cost, and increased team morale. To support this program and to ensure a smooth transition, we will be running e-trainings across the business to explain more about Lean and how it will impact and improve our daily tasks. We are also launching training courses in the Atos University for 300 future Lean experts: Lean Navigator: a change agent, who transforms one site at a time, staying onsite over a period of 2 to 3 months. A Navigator typically focuses on one aspect of lean (e.g. performance management, tooling, reduction of variability) and works under the guidance of a lean Skipper • Lean Skipper: a lean expert, who leads a team of lean Navigators on a site. In addition to the technical aspects of Lean, a Skipper is a trained change manager. Lean Commodore: a site manager who has been trained in Lean techniques and is responsible for implementing Lean on his/her site and preserving a continuous improvement culture Lean Programs are underway or completed at our Global Service Desks and our infrastructure services - Eindhoven in the Netherlands; Livingston in Scotland; Bydgoczsz in Poland; Crewe in the UK; France for Atos Worldline and Tenerife. Boosting Offshoring In today’s market, offshoring is mandatory to ensure that our costs drop faster than market prices and we stay competitive and focused on excellent delivery. For contract renewals and new client wins, off- shoring is a prerequisite, where we need to demonstrate innovation, market knowledge and competitive pricing. Managed Operations – plan to increase significantly the size of our teams in offshore locations by 2010. The program is underway with the transfer of server management and monitoring services progressing well to our four key offshore locations for Managed Operations: India, Malaysia, Morocco and Poland. In parallel to transferring services offshore, we are also running training schemes to re- skill our onshore staff for other onshore job opportunities. Systems Integration – today a minimum of 70% of systems integration projects and 80% of applications work will be delivered off-shore. 5 Step plan to accelerate off-shoring while improving efficiency, service quality and profitability: 1. Speed up roll-out of the Service Delivery Platform – standardise processes and tools worldwide, so that we can off-shore quickly and efficiently 2. Move to the factory approach – create a catalogue of services at pre-defined tariffs that guarantee delivery and make it easier for Global Business Units to price solutions for their clients. This will replace the previous system where fees were calculated on a pro rata basis. 3. Standardise transition processes from on-shore to off-shore – manage the transfer of existing long-term business cost effectively and without any disruption to service 4. Define principles for new operating model in India – benefit from economies of scale and deliver improved service by reorganising the Indian operations by technologies and / or business domains rather than countries. For example, there will be teams focused on the test factory, SAP upgrades and applications, java and .net development, in addition to focus service lines for applications management. 5. Develop sales collateral – help the sales and account teams more effectively sell off-shore with all new deals and to transfer more services off-shore. Investing strategically To ensure that Atos Worldline remains the market leader in payment processing, one of the TOP projects, T7, is focused on ensuring that we are one of the first to deliver a European payments platform. The project will extend and improve its national capabilities focused on Belgium, France and Germany with three global payment platforms. Atos Origin Half-Year Report 2009 28/75 Increasingly our retail customers are asking for global payment solutions so that they can benefit from economies of scale and standardise payment processes across their organisations. Today Atos Worldline is processing over two billion payment transactions each year. With the global platforms, we expect to be able to double this within the next few years by growing our business both in our existing markets – Belgium, France and Germany – and in the other markets where Atos Origin has a strong presence.” The three central payment platforms are for clearing, acceptance and acquiring. They have been designed to enable our international customers today and tomorrow address their business challenges including compliance, fraud and cost reduction. The platforms are multi-lingual, multi-currency and easily adaptable in order to comply with new regulations, such as SEPA, as they come into effect. Creating a responsible and sustainable organisation Atos Origin is committed to implement sustainable best practices throughout its organisation and in its business and the Group is focused on helping our clients maximise the opportunities sustainability provides them and accompanying them on their journey toward environmental excellence. The TOP 17 team in charge of sustainability has launched a number of initiatives including: Reporting our sustainability achievements, from this year, in line with the Global Reporting Initiative (GRI) - the world’s de facto standard in sustainability reporting, created in 1997 in partnership with United Nations, and today used by all best in class companies, Improving our environmental performance and reducing our carbon footprint by a minimum of 5% by 2011, through the reduction of energy consumption in our offices and data centers and by achieving ISO 14001 certification across our business, Demonstrating our expertise through thought leadership programs and active participation in leading industry events and analyst briefings, Engaging all of you in the program to increase awareness and support. The TOP 13 team responsible for transforming HR has launched: The first global e-learning program - It extends the Atos University beyond sales to provide all employees with access to the best available training and the opportunity to further develop their skills both professionally and personally. Employees can choose among over 3,000 different courses including ‘SAP Business Objects’, ‘Java Programming’, ‘Oracle Database’, ‘Project Management Essentials’,‘ and English language’ . Delivering financial excellence All of the 21 projects focus on delivering financial and operational excellence through the initiatives already discussed. In addition, there are a number of projects that are contributing directly to an improvement in financial performance: T8: optimise non–IT spend through demand management, new policies, specification changes and renegotiation with our suppliers, while ensuring there is no negative impact on our own business or the delivery to our clients. T11: Revenue protection • T18: optimise capital expenditure • T19: increase our cash flow this year by ensuring that we improve payment terms and collect payment from our clients on time while negotiating the best deals with our suppliers. As far as Group main vendors ranking is concerned, the first one represented 3.5% of total spend for the first half 2009 (vs 3.2% for full year 2008), the five first suppliers represented 11.9% (vs 11.2% in 2008) and the ten first suppliers represented 16.3% (vs 15.5% in 2008). T20: Reduce costs associated with pensions, insurance, benefits and tax without exposing the Company to any increased risk. Atos Origin Half-Year Report 2009 29/75 7 FINANCIAL REVIEW 7.1 INCOME STATEMENT The Group reported a net income (Group share) of EUR 18.0 million for the half year 2009, which represents 0.7% of Group revenues of the period. (in EUR million) 6 months ended 30 June 2009 % margin 6 months ended 30 June 2008 % margin Operating margin 118.0 4.6% 124.2 4.3% Other operating income / (expenses) Operating income Net financial income / (expenses) Tax charge Minority interests and associates Net income – Group share Adjusted net income – Group share (*) (*) Defined hereafter (75.8) 42.2 (14.4) (7.6) (2.2) 18.0 73.7 2.9% 1.7% 0.7% 2.8% 66.8 191.0 (6.5) (56.4) (3.4) 124.7 76.2 2.3% 6.7% 4.3% 2.7% 7.1.1 Operating margin Operating margin represents the underlying operational performance of the on-going business and represents 4.6% of total revenues of the period. 7.1.2 Operating income The other operating charge include mainly restructuring charge for EUR 57.4 million and rationalization charge for EUR 17.4 million. The major GBUs contributing to these charges are Benelux for EUR (31.2) million, Ibéria and South America for EUR (12.6) million, France for EUR (10.0) million and the United Kingdom for EUR (7.9) million. Last year, the major impact of the period in other operating income was UK pensions plan amendment (New Deal) resulting in a gain of EUR 63.6 million. 7.1.3 Net financial expense Net financial expense amounted to EUR (14.4) million for the period, including a net cost of financial debt and non-operational financial costs. The net cost of financial debt was an expense for EUR 6.5 million. Based on an average net debt of EUR 368.6 million during the period, the average cost of borrowing was 3.5%. The net cost of financial debt was covered 18 times by operating margin, compared with a requirement for not less than 4 times cover under the terms of the Group syndicated loan. Non-operational financial costs amounted to EUR 7.9 million, a EUR 14.9 million increase over June 2008. This deterioration was mainly due to comparatively lower pension income on returns on pension plan assets versus interest rate applicable to pension liabilities. 7.1.4 Tax charge The tax charge has been calculated by applying the full year expected effective tax rate, as per IAS 34 Interim Financial Reporting requirements. The Group effective tax rate is 27.3%. 7.1.5 Minority interests Minority interests include shareholdings held by joint venture partners and other associates of the Group in the operations of Atos Worldline Processing Services in Germany (42%). Atos Origin Half-Year Report 2009 30/75 7.1.6 Adjusted net income The Group share of net income before unusual, abnormal and infrequent items (net of tax) was EUR 73.7 million, 2.8% of total revenues. (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 (constant scope) (**) Net income - Group share 18.0 123.0 Restructuring and rationalisation (74.8) (6.0) Pensions (*) 1.4 63.6 Release of opening balance sheet provisions no longer needed 0.1 1.6 Capital gains / (losses) (1.6) 0.2 Impairment losses & Other (0.9) 7.4 Sum of unusual items (75.8) 66.8 Tax effect 20.1 (18.3) Sum of unusual items - net of tax (55.7) 48.5 Adjusted net income - Group share 73.7 74.5 (*) : in 2008, UK pensions plan amendment (New Deal) (**): constant scope and exchange rate for operating margin only 7.2 EARNINGS PER SHARE (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 (constant scope) (*) Net income – Group share 18.0 123.0 Adjusted net income – Group share 73.7 74.5 (In EUR) Basic EPS 0.26 1.76 Diluted EPS 0.26 1.76 Adjusted basic EPS 1.06 1.07 Adjusted diluted EPS (*): constant scope and exchange rate for operating margin only 1.06 1.07 Based on a weighted average of 69,717,453 shares in issue during the first half of 2009, the adjusted basic and diluted EPS were EUR 1.06, almost stable compared to last year. Atos Origin Half-Year Report 2009 31/75 7.3 CASH FLOW AND NET DEBT The Group began the year with an opening net debt of EUR 304.0 million. At the end of June, it reached EUR 327.6 million. The main elements affecting the Group’s cash flow from operation in 2009 are the following: - an OMDA at EUR 214.7 million, representing 8.3% of revenue (7.4% in June 2008), a strong reduction of the capital expenditures, decreasing to 4.1% of the external revenue (4.8% in June 2008) materializing the objective of the Group to reduce its capital intensity, the increase in working capital requirement by EUR 38.3 million in the period compared to EUR 105.7 million in the first half of 2008. Negative seasonal effect, usually observed during the first semester, has been sharply reduced in 2009 as the result of T18 program, and, the restructuring and rationalization cash outflow in the period for EUR 69.5 million. (in EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 OMDA 214.7 211.0 Net capital expenditures (106.6) (138.8) Change in working capital requirement (38.3) (105.7) Cash from operations 69.8 (33.5) Taxes paid (10.7) (26.2) Net cost of financial debt paid (6.3) (13.7) Restructuring & rationalisation in other operating income (69.5) (42.8) UK pensions plan amendment (66.0) Net financial investments (6.6) 38.8 Dividends paid (3.6) (3.3) Purchase and sale of treasury stock 1.6 (14.5) Other changes (*) 1.7 (15.0) Net cash flow (23.6) (176.2) Opening net debt (304.0) (338.0) Closing net debt (327.6) (514.2) (*) Other changes include common stock issues, translation differences, profit-sharing amounts payable to French employees transferred to debt, disposal of operational assets, other operating income with cash impact (excluding restructuring & rationalisation and UK pensions “New Deal”) and other financial items with cash impact. 7.3.1 Operating investments During the first six months of 2009, net capital expenditures amounted to EUR 106.6 million: purchases represent EUR 109.0 million, main countries contributing to these investments are Worldline for EUR 29.3 million (Speed control project for EUR 7 million, Data Centers improvement for EUR 7 million), the United Kingdom for EUR 18.9 million (70% client dedicated, mainly on Government contracts), The Netherlands for EUR 17.8 million (half of it on Storage capacity increase), Central Europe for EUR 15.7 million (of which Storage project for EUR 2.5 million). Out of the EUR 8.1 million in Asia, EUR 6.5 million are funded upfront as per contractual arrangements with customers; proceeds from disposal of assets (EUR 2.4 million) mostly come from Heijmans contract that was terminated in 2008 in The Netherlands (EUR 2.0 million). 7.3.2 Change in working capital The negative change in working capital of EUR 38.3 million over the period is the result of both the negative seasonality factors, including annual bonus payments, and a slight increase in DSO ratio Atos Origin Half-Year Report 2009 32/75 from 63 days in December 2008 to 64 days end of June 2009. DSO has improved by 9 days compared to June 2008 (73 days). This evolution is the result of the strong actions carried out by Atos Origin to reduce seasonality of the working capital and accelerate client collection (T18). 7.3.3 Bank covenants The Group is substantially within its borrowing covenants, with a consolidated leverage ratio (net debt divided by OMDA) of 0.8 at the end of June 2009. It may not be more than 2.5 times throughout the term of the Group syndicated loan. The consolidated interest cover ratio (operating margin divided by the net cost of financial debt) was more than 18 times in the first half of 2009. It may not be less than 4 times throughout the term of the Group syndicated loan. 7.4 PARENT COMPANY RESULTS The profit before tax of the parent company amounts to EUR 116.9 million for the end of June 2009, compared with EUR 33.0 million for the first semester 2008. Atos Origin Half-Year Report 2009 33/75 8 HALF-YEAR FINANCIAL REPORT 8.1 statements for the period ended 30 June 2009 Statutory auditors’ report on the half-year condensed consolidated financial 8.2 8.2.1 Consolidated income statement Half-year condensed consolidated financial statements 8.2.2 Consolidated balance sheet 8.2.3 Consolidated cash flow statement 8.2.4 Consolidated statement of changes in shareholders’ equity 8.2.5 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2009 (cid:131) General information (cid:131) Basis of preparation and significant accounting policies (cid:131) Notes to the half-year condensed consolidated financial statements Atos Origin Half-Year Report 2009 34/75 8.1 STATUTORY AUDITORS’ REVIEW REPORT ON HALF-YEAR CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2009. This is a free translation into English of the statutory auditor’s review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (“Code monétaire et financier”), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Atos Origin, for the period January 1 to June 30, 2009, the verification of information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors, and have been prepared in the current economic and financial crisis, which is characterized by a clear difficulty in apprehending future outlook which already prevailed for the year ended December 31, 2008. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusions on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – the standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our conclusion expressed above, we draw your attention on the matters set out in: the note 2 “Segment information” to the condensed half-year consolidated financial statements regarding the first application of IFRS 8, the note 9 “Goodwill” which presents the results of the impairment tests performed by the Group, on the goodwill of certain cash generating units as of June 30, 2009. 2. Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris and Neuilly-sur-Seine, July 31, 2009 The Statutory Auditors, Grant Thornton Deloitte & Associés French member of Grant Thornton International Jean-Pierre Colle Vincent Frambourt Jean-Paul Picard Jean-Marc Lumet Atos Origin Half-Year Report 2009 35/75 8.2 HALF-YEAR CONDENSED FINANCIAL STATEMENTS 8.2.1 Interim consolidated income statement (in EUR million) Notes 6 months ended 30 June 2009 Revenue Note 2 2,589.3 Personnel expenses Note 3 (1,479.3) Operating expenses Note 4 (992.0) Operating margin 118.0 % of revenue 4.6% Other operating income and expenses Note 5 (75.8) Operating income 42.2 % of revenue 1.7% Net cost of financial debt (6.5) Other financial income and expenses (7.9) Net financial income Note 6 (14.4) Tax charge Note 7 (7.6) Share of net income from associates Net income 20.2 Of which: Group share 18.0 Minority interests Note 12 2.2 (in EUR and number of shares) Net income - Group share per share Weighted average number of shares Basic earnings per share Diluted weighted average number of shares Diluted earnings per share Note 8 69,717,453 0.26 69,717,453 0.26 8.2.2 Interim consolidated statement of comprehensive income (in EUR million) 6 months ended 30 June 2009 Profit for the period 20.2 Other comprehensive income Cash flow hedging : Current period gains / (losses) 5.0 Reclassification to profit or loss (0.5) Income tax relating to cash flow hedging (1.4) Exchange differences on translation of foreign operations 57.9 Total Other comprehensive income 61.0 Total comprehensive income for the period 81.2 Of which: Group share 79.0 Minority interests 2.2 Atos Origin Half-Year Report 2009 36/75 6 months ended 30 June 2008 2,863.7 (1,569.5) (1,170.0) 124.2 4.3% 66.8 191.0 6.7% (13.5) 7.0 (6.5) (56.4) 128.1 124.7 3.4 69,711,112 1.79 69,829,042 1.79 6 months ended 30 June 2008 128.1 (1.4) (0.6) (70.2) (72.2) 55.9 57.5 (1.6) 12 months ended 31 December 2008 5,623.5 (3,063.6) (2,293.5) 266.4 4.7% (166.0) 100.4 1.8% (28.7) 5.9 (22.8) (48.1) (0.1) 29.4 22.6 6.8 69,712,178 0.32 69,786,457 0.32 12 months ended 31 December 2008 29.4 (5.6) (1.0) 1.7 (150.2) (155.1) (125.7) (132.2) 6.5 8.2.3 Interim consolidated statement of financial position (in EUR million) Notes ASSETS Goodwill Intangible assets Tangible assets Non-current financial assets Non-current financial instruments Deferred tax assets Total non-current assets Trade accounts and notes receivable Current taxes Other current assets Current financial instruments Cash and cash equivalents Total current assets Assets held for sale Note 9 Note 16 Note 10 Note 16 Note 11 TOTAL ASSETS (in EUR million) LIABILITIES AND SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Consolidated reserves Translation adjustments Net income for the period Shareholders’ equity – Group share Minority interests Total shareholders’ equity Provisions for pensions and similar benefits Non-current provisions Borrowings Deferred tax liabilities Non current financial instruments Other non-current liabilities Total non-current liabilities Trade accounts and notes payable Current taxes Current provisions Current financial instruments Current portion of borrowings Other current liabilities Total current liabilities Liabilities associated with assets held for sale Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 14 Note 16 Note 15 Note 18 Total liabilities and shareholders’ equity Atos Origin Half-Year Report 2009 37/75 30 June 2009 1,564.4 80.5 441.7 78.0 1.4 211.4 2,377.4 1,392.9 32.3 206.6 0.9 164.8 1,797.5 - 4,174.9 30 June 2009 69.7 1,329.7 321.7 (119.2) 18.0 1,619.9 9.6 1,629.5 224.3 105.0 262.4 58.2 3.7 1.1 654.7 517.9 49.2 84.3 1.0 230.0 1,008.3 1,890.7 - 4,174.9 31 December 2008 1,511.1 77.5 454.3 68.5 - 208.4 2,319.8 1,418.0 25.4 177.7 0.7 286.1 1,907.9 - 4,227.7 31 December 2008 69.7 1,329.7 286.5 (177.1) 22.6 1,531.4 11.0 1,542.4 221.5 99.8 313.5 69.8 6.1 1.4 712.1 516.8 41.2 96.2 3.0 276.6 1,039.4 1,973.2 - 4,227.7 30 June 2008 1,818.9 80.2 459.7 88.6 0.9 205.9 2,654.2 1,640.6 25.2 198.7 0.7 197.6 2,062.8 290.3 5,007.3 30 June 2008 69.7 1,329.6 281.2 (92.4) 124.7 1,712.8 167.9 1,880.7 237.6 97.6 512.5 73.8 0.8 1.0 923.3 616.2 56.4 74.3 4.4 199.3 1,139.0 2,089.6 113.7 5,007.3 8.2.4 Interim consolidated cash flow statement (in EUR million) Profit before tax Depreciation of fixed assets Net charge / (release) to operating provisions Net charge / (release) to financial provisions Net charge / (release) to other operating provisions Impairment of long-term assets Losses / (gains) on disposals of fixed assets Net charge for equity-based compensation (Gains)/Losses on financial instruments Net cost of financial debt Cash from operating activities before change in working capital requirement, financial interests and taxes Taxes paid Change in working capital requirement Net cash from / (used in) operating activities Payment for tangible and intangible assets Proceeds from disposals of tangible and intangible assets Net operating Investments Amounts paid for acquisitions and long-term investments Cash and cash equivalents of companies purchased during the period Proceeds from disposals of financial investments Cash and cash equivalents of companies sold during the period Net long-term investments Net cash from / (used in) investing activities Common stock issues on the exercise of equity-based compensation Purchase and sale of treasury stock Dividends paid to parent company shareholders Dividends paid to minority shareholders of subsidiaries New borrowings New Finance lease Repayment of long and medium-term borrowings Net cost of financial debt paid Other flow related to financing activities Net cash from / (used in) financing activities Increase / (decrease) in net cash and cash equivalents Opening net cash and cash equivalents Increase/ (decrease) in net cash and cash equivalents Impact of exchange rate fluctuations on cash and cash equivalents Closing net cash and cash equivalents Atos Origin Half-Year Report 2009 38/75 Notes Note 6 Note 6 Note 15 Note 15 Note 15 Note 15 Note 15 6 months ended 30 June 2009 27.8 111.9 (25.7) 6.9 3.7 2.6 7.9 (1.2) 6.5 140.4 (10.7) (38.3) 91.4 (109.1) 2.5 (106.6) (7.1) 1.3 0.8 (1.6) (6.6) (113.2) 1.6 (3.6) 9.4 4.5 (74.7) (6.3) (26.3) (95.4) (117.2) 261.9 (117.2) 10.8 155.5 6 months ended 30 June 2008 184.5 113.0 (35.1) (10.1) (168.1) (0.5) 6.1 2.0 13.5 105.3 (26.2) (105.7) (26.6) (141.6) 2.8 (138.8) (3.2) 0.3 4.0 (11.2) (10.1) (148.9) 0.1 (14.5) (3.3) 128.8 2.0 (31.5) (13.7) (23.9) 44.0 (131.5) 348.0 (131.5) (18.9) 197.6 12 months ended 31 December 2008 77.6 241.3 (48.4) (17.8) (85.0) 226.4 (140.9) 14.6 1.5 28.7 298.0 (50.4) (86.2) 161.4 (260.9) 27.0 (233.9) (7.5) 0.3 291.6 (145.4) 139.0 (94.9) 0.2 (14.9) (27.8) (4.1) 98.6 1.3 (163.2) (28.9) 17.8 (121.0) (54.5) 348.0 (54.5) (31.6) 261.9 8.2.5 Interim consolidated statement of changes in shareholders’ equity (in EUR million) At 1 January 2008 * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Other Transactions with owners Number of shares at period-end (thousands) 69,710 5 Common Stock 69.7 Additional paid-in capital 1,329.5 0.1 Consolidated reserves 271.9 48.2 (27.8) 6.1 (14.5) Translation adjust- ments (27.2) Items recognized directly in equity (0.6) Net income Group share 48.2 (48.2) 0.1 12.0 (48.2) Net income for the period * Other Comprehensive income Total comprehensive income for the period At 30 June 2008 * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Other Transactions with owners 69,715 2 69.7 1,329.6 0.1 283.9 8.5 (0.4) (65.2) (65.2) (92.4) (2.0) (2.0) (2.6) 124.7 124.7 124.7 0.1 8.1 Net income for the period * Other Comprehensive income Total comprehensive income for the period At 31 December 2008 * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Other Transactions with owners 69,717 69.7 1,329.7 292.0 22.6 7.9 1.6 (84.7) (84.7) (177.1) (2.9) (2.9) (5.5) (102.1) (102.1) 22.6 (22.6) 32.1 (22.6) Net income for the period * Other Comprehensive income Total comprehensive income for the period 57.9 57.9 3.1 3.1 18.0 18.0 At 30 June 2009 69,717 69.7 1,329.7 324.1 (119.2) (2.4) 18.0 Atos Origin Half-Year Report 2009 39/75 Equity – Group share 1,691.5 0.1 (27.8) 6.1 (14.5) (36.1) 124.7 (67.2) 57.5 1,712.9 0.1 8.5 (0.4) 8.2 (102.1) (87.6) (189.7) 1,531.4 7.9 1.6 9.5 18.0 61.0 79.0 1,619.9 Minority interests TOTAL 172.9 1,864.4 0.1 (3.7) (31.5) 6.1 (14.5) 0.3 (3.4) 0.3 (39.5) 3.4 128.1 (5.0) (72.2) (1.6) 55.9 167.9 1,880.8 0.1 (0.4) (0.4) 8.5 (0.4) (164.6) (165.0) (164.6) (156.8) 3.4 (98.7) 4.7 (82.9) 8.1 (181.6) 11.0 1,542.4 (3.6) (3.6) 7.9 1.6 (3.6) 5.9 2.2 22.2 61.0 2.2 81.2 9.6 1,629.5 8.2.6 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2009 8.2.6.1 Basis of preparation and significant accounting policies The 2009 interim consolidated financial statements have been prepared in accordance with the recognition and measurement principles set out in International Financial Reporting Standards (IFRS). The international standards comprise the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The accounting principles are in line with those applied by the Group in preparing its consolidated financial statements at 31 December 2008. Such accounting principles are available in the Group’s 2008 Reference Document. The interim condensed consolidated financial statements for the six months ended 30 June 2009 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2008. Accounting policies applied by the Group conform to those standards and interpretations adopted by the European Union as at 30 June 2009. Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias_fr.htm#adopted-commission The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after 1 January 2009: IAS 1 (revised) - Presentation of financial statements; IAS 23 (revised) - Borrowing Costs; IAS 32 - Amendments relating to “Puttable Financial Instruments and Obligations Arising on Liquidation”; IFRS 2 - Amendments relating to vesting conditions and cancellations; IFRS 8 - Operating Segments; IFRIC 11 - Group and Treasury Share transactions; IFRIC 13 - Customer Loyalty Programmes; IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; o o o o o o o o o Amendments to various IFRS statements, following the IFRS improvement program of May 2008 (excluding IFRS 5). IFRIC 14 had been adopted by anticipation by the Group in 2008. The effect of IFRS 8 is disclosed in note 2. As required by IAS 1, the Group is now presenting a Statement of Comprehensive Income. The impact of the other changes on the Group’s Financial Statements is limited. The interim consolidated financial statements do not take into account: Standards and interpretations published by the IASB, adopted at the European level, but with an application date subsequent to 30 June 2009: o o o o o IAS 27 (revised) - Consolidated and Separate Financial Statements following the “Business Combinations phase II” project; IFRS 3 (revised) - Business Combinations following the “Business Combinations phase II” project; IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations (amendment following the May 2008 IFRS improvement program); IFRIC 12 - Service Concession Arrangements; IFRIC 16 - Hedges of a Net Investment in a Foreign Operation. New standards, interpretations and amendments to existing standards not yet approved by the European Union. This notably concerns: (cid:131) Amendments to: o o IAS 39 and IFRIC 9 - Embedded derivatives; IFRS 7 - Financial Instruments: Disclosures; Atos Origin Half-Year Report 2009 40/75 o o Amendments to various IFRS statements, following the IFRS improvement program of IAS 39 - Recognition and Measurement Eligible Hedged Items; April 2009. (cid:131) New interpretations: o o o IFRIC 15 - Agreements for the Construction of Real Estate; IFRIC 17 - Disclosure of Non-cash Assets to Owners; IFRIC 18 - Transfers of assets from customers (prospective application). Draft standards that are still at the exposure draft stage of the International Accounting Standards Board (IASB) At the date of this report the potential impact on the consolidated financial statements of the application of those standards and interpretations is not available. In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: - - significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; lost of a major client. Pensions and similar benefits The measurement of pension commitments is highly sensitive to the evolution of long term interest rates on which the discount rate to be used has to be based. To better reflect this significant market evolution, the Group has elected to request interim actuarial updates of the measurement of the pension liabilities, and related assets, of its main pension plans when significant rates evolution occurs. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. 8.2.6.2 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation Since 1st January 2009, there has been no significant change of scope. Note 2 Segment information The Group applies IFRS 8 for the first time as at 30 June 2009, the adoption of IFRS 8 has changed the presentation of operating segments compared to the operating segments as defined by IAS 14. The main change that occurred when compared to previous years is the reporting of the Worldline activities as an operating segment. According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss on the following page. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for Atos Origin Half-Year Report 2009 41/75 allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. The internal management reporting is designed on two axes: Service Lines and Global Business Units. Global Business Units has been determined by the Group as key by the chief operating decision maker. As a result and for IFRS 8 requirements, the Group discloses Global Business Units as operating segments. A GBU is defined as a geographical area or the aggregation of several geographical areas - except for the Worldline activities - which contains one or several countries, without taking into consideration the activities exercised into each country. Each GBU are managed by dedicated members of the Executive Committee. The measurement policies that the Group uses for segments reporting under IFRS 8 are the same as those used in its financial statements. Corporate entities are not presented as an operating segment. Therefore, their financial statements are used as a reconciling item in the table below. Corporate assets which are not directly attributable to the business activities of any operating segments are not allocated to a segment, which primarily applies to the Group’s headquarters. Shared assets such as the European mainframe are allocated to the GBU where physically located whereas used by several GBUs. The requirements of IFRS 8 are applied retrospectively and comparatives figures restated. The Group operates in seven main Global Business Units as detailed below: Operating segments Activities (cid:131) France – Morocco (cid:131) Benelux (cid:131) United Kingdom (cid:131) Worldline (cid:131) GCEMA (cid:131) ISAM (cid:131) Rest of the World Consulting, systems integration and managed services in France and Morocco Consulting, systems integration and managed services in The Netherlands and Belux Consulting, systems integration, managed services and business process outsourcing in the United Kingdom and Sweden Electronic payments and transactions in France, Belgium and Germany Systems integration and managed services in Germany, Switzerland, Poland, Austria, Greece, Turkey and South Africa Consulting, systems integration and managed services in Spain, Portugal, Andorra, Argentina, Brazil, Chile and Colombia Consulting, systems integration and managed services in United States of America, Mexico, China, Taiwan, Japan, Malaysia, Singapore, Thailand, Indonesia, India, Italy and Atos Euronext Market Solutions (AEMS) activities Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Atos Origin Half-Year Report 2009 42/75 The operating segment information for the periods is as follows: (in EUR million) France Morocco Benelux United Kingdom Worldline GCEMA ISAM Rest of the World Total Operating segments Global Delivery Lines 6 months ended 30 June 2009 External revenue by segment % 575.0 517.2 445.8 22.2% 20.0% 17.2% 416.3 283.5 210.2 141.0 2,589.0 16.1% 10.9% 8.1% 5.4% 100% Inter-segment revenue 34.9 15.3 3.3 5.6 21.3 3.8 37.3 121.5 Total revenue 609.9 532.5 449.1 421.9 304.8 214.0 178.3 2,710.5 0.0 Segment operating margin % 20.2 3.5% 34.4 6.7% 36.5 8.2% 61.2 14.7% 4.1 2.7 7.2 166.3 1.4% 1.3% 5.1% 6.4% (14.3) Total segment assets 697.8 655.7 766.6 647.8 378.5 327.8 252.7 3,726.9 6 months ended 30 June 2008 External revenue by segment % 586.0 596.5 488.6 20.5% 20.8% 17.1% 394.0 300.9 229.8 267.9 2,863.7 13.8% 10.5% 8.0% 9.3% 100% Inter-segment revenue 28.8 20.0 5.4 10.7 14.9 5.1 28.2 113.1 Total revenue 614.8 616.5 494.0 404.7 315.8 234.9 296.1 2,976.8 0.0 Segment operating margin % 13.5 2.3% 48.5 8.1% 30.7 6.3% 56.7 14.4% 17.8 9.4 (1.0) 175.6 5.9% 4.1% -0.3% 6.1% (13.0) Total segment assets 932.2 757.0 856.0 619.4 434.5 420.0 515.5 4,534.6 12 months ended 31 December 2008 External revenue by segment % 1,170.8 1,175.4 950.2 20.8% 20.9% 16.9% 813.8 610.3 453.6 449.4 5,623.5 14.5% 10.8% 8.1% 8.0% 100% Inter-segment revenue 54.3 40.3 9.0 32.0 34.3 8.9 68.6 247.4 Total revenue 1,225.1 1,215.7 959.2 845.8 644.6 462.5 518.0 5,870.9 0.0 Segment operating margin % 25.4 2.2% 95.7 8.1% 69.5 7.3% 123.3 15.2% 30.3 17.2 11.8 373.2 5.0% 3.8% 2.6% 6.6% (24.1) Total segment assets 712.7 664.7 673.3 630.6 398.8 338.3 250.1 3,668.4 The reportable assets are reconciled to total assets as follows: (in EUR million) 6 months ended 30 June 2009 12 months ended 31 December 2008 Total segment assets 3,766.4 3,707.8 Tax Assets 243.7 233.8 Cash & Cash Equivalents 164.8 286.1 Total assets 4,174.9 4,227.7 Atos Origin Half-Year Report 2009 43/75 Other Corporate Elimination 0.3 (121.5) 0.3 (121.5) (34.0) 39.5 (113.1) 0.0 (113.1) (38.4) 44.1 1.3 (248.7) 1.3 (248.7) (82.7) 39.3 6 months ended 30 June 2008 4,578.7 231.0 197.6 5,007.3 Total Group 2,589.3 100% 0.0 2,589.3 118.0 4.6% 3,766.4 2,863.7 100% 0.0 2,863.7 124.2 4.3% 4,578.7 5,623.5 100% 0.0 5,623.5 266.4 4.7% 3,707.8 Note 3 Personnel expenses (In EUR million) 6 months ended 30 June 2009 % revenue 6 months ended 30 June 2008 % revenue 12 months ended 31 Dec 2008 % revenue Wages and salaries(*) (1,142.2) 44.1% (1,208.9) 42.2% (2,359.2) 42.0% Social security charges (335.4) 13.0% (342.1) 11.9% (667.6) 11.9% Tax, training, profit-sharing (24.2) 0.9% (34.0) 1.2% (66.0) 1.2% Equity-based compensation Net charge to provisions for staff expenses Difference between pensions contributions and net pension expense(**) Total (6.9) 1.6 27.8 (1,479.3) 0.3% 0.1% 1.1% 57.1% (6.1) 1.2 20.4 (1,569.5) 0.2% 0.0% 0.7% 54.8% (13.7) 0.4 42.5 (3,063.6) 0.2% 0.0% 0.8% 54.4% (*) of which EUR 0.6 million for restructuring in 2009 compared to EUR 3.9 million in 2008. (**) difference between total cash contributions made to the pensions funds and the net pension expense under IAS 19. Equity based compensation The EUR 6.9 million charge recorded within operating margin for equity based compensation (EUR 6.1 million during the first half of 2008) is made of: EUR 3.9 million related to the Management and Long-Term Incentive plans (“MIP” and “LTI” plans) implemented in 2008 and in 2007, and EUR 3.0 million related to the stock option plans granted in 2009 and in previous years. Free share plans No new free share plan was set up during the first half of 2009 and LTI 2008 plan has been interrupted at the end of the first year (at 66% payout) and replaced by a stock options plan (see below). 2009 expense related to former LTI and MIP plans has been updated taking into account the number of free shares void following the departure of some beneficiaries from the Group. Total expense in operating margin related to free share plans during the semester is as follows: (In EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 LTI 2008 MIP 2008 LTI 2007 MIP 2007 Total 0.8 2.2 - 0.9 3.9 0.8 0.5 0.9 2.0 4.2 Stock option plans The Group recognized a total expense of EUR 3.0 million on stock options (EUR 1.9 million during the first half of 2008). The 2009 expense comprises EUR 1.8 million related to plans granted in previous years and EUR 1.2 million related to the plan launched in March 2009. Stock option plan – 26 March 2009 grant The Board of Directors has decided on 26 March 2009 to propose to the beneficiaries of the LTI 2008 plan to interrupt the plan as at 31 December 2008 (subject to their formal approval) and to Atos Origin Half-Year Report 2009 44/75 replace the free shares thereby cancelled by stock options to be granted in two separate plans in March and July 2009. Consequently, the Group has granted stock options for a total of 1,850,000 options on 26 March 2009 to members of the Executive Committee and some other key managers. This grant represents a total expense of EUR 8.7 million, of which EUR 1.2 million in the first half of 2009. Expected expense for 2009 is EUR 3.7 million. The vesting period is gradual: options vest on successive equal portions over 3 years. Each of these portions has a different exercise price: (cid:131) EUR 20.64 for the first portion (vested in July 2010) (cid:131) EUR 24.57 for the second portion (vested in July 2011) (cid:131) EUR 29.49 for the third portion (vested in July 2012) The vesting of stock options related to portions 2 and 3 is subject to the realization of Group internal performance conditions. The assumption used for the computation of related costs is a 100% realisation of the performance conditions. Options are forfeited if the employee leaves the Group before the options vest, other than in exceptional circumstances. Equity-based compensation has been determined based on the following hypothesis: 26 March 2009 Share price at grant date 20.7 Exercise price 20.64/24.57/29.49 Expected volatility 30.1% Expected life 60 months Risk free rate 2.826% Expected dividend yield 1% except 0% for 2009 Fair value of options granted 6.6/4.9/3.8 Expected volatility was determined in 2009 based on the smoothed historical volatility of the Group’s share price observed over a period consistent with the expected life of the option. Because of the atypical volatility observed recently on equity markets, this smoothing technique has been used as suggested by IFRS 2, and has led to the elimination, in the calculation of the annualized historical volatility, of daily variations greater than 5%. The expected life used in the model has been adjusted based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Atos Origin Half-Year Report 2009 45/75 Note 4 Operating expenses (In EUR million) 6 months ended 30 June 2009 % revenue 6 months ended 30 June 2008 % revenue 12 months ended 31 December 2008 % revenue Purchase for selling and royalties (115.3) 4.5% (95.2) 3.3% (168.0) 3.0% Sub-contracting costs (269.0) 10.4% (393.8) 13.7% (759.8) 13.5% Premises costs (106.7) 4.1% (114.9) 4.0% (226.1) 4.0% Means of production (182.0) 7.0% (208.1) 7.3% (413.8) 7.3% Telecommunications (48.5) 1.9% (59.7) 2.1% (104.3) 1.9% Travelling expenses Taxes, other than corporate income tax Other operating expenses (56.8) (11.1) (83.4) 2.2% 0.4% 3.2% (79.4) (11.7) (104.9) 2.8% 0.4% 3.7% (148.4) (22.9) (210.6) 2.6% 0.4% 3.7% Sub-total expenses (872.8) 33.7% (1,067.7) 37.3% (2,053.9) 36.5% Depreciation of fixed assets Net booked value of assets sold/written off Net / depreciation/provision Sub-total depreciation and provisions Total release (charge) of (111.9) (3.5) (3.8) (119.2) (992.0) 4.3% 0.1% 0.1% 4.6% 38.3% (113.0) (2.9) 13.6 (102.3) (1,170.0) 3.9% 0.1% 0.5% 3.6% 40.9% (241.3) (3.8) 5.5 (239.6) (2,293.5) 4.2% 0.1% 0.1% 4.3% 40.8% Note 5 Other operating income and expenses (In EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 12 months ended 31 December 2008 Restructuring and rationalization (74.8) (6.0) (102.9) Pensions 1.4 63.6 17.4 Release of opening balance sheet provisions no longer needed 0.1 1.6 9.8 Capital gains and losses on disposal of assets (1.6) 0.2 142.5 Impairment gains/(losses) on long-term assets and other (0.9) 7.4 (232.8) Total (75.8) 66.8 (166.0) The other operating charge include mainly restructuring charge for EUR 57.4 million and rationalization charge for EUR 17.4 million. The major GBUs contributing to these charges are Benelux for EUR (31.2) million, Ibéria and South America for EUR (12.6) million, France for EUR (10.0) million and the United Kingdom for EUR (7.9) million. Last year, the major impact of the period in other operating income was UK pensions plan amendment (New Deal) resulting in a gain of EUR 63.6 million. The German subsidiary of the Group has announced on 23 June 2009 a restructuring plan concerning 267 employees. On 24 July 2009, the management of Atos Origin GmbH has informed the German workers’ council that the assumptions underlying this plan were no longer sustainable due to the fact that it was designed prior to the bankruptcy of Arcandor and that it was not taking into account potential new commercial development. Therefore, the plan announced on 23 June 2009 has to be entirely reassessed. Consequently, the Group has not recognized any expense regarding this plan as at 30 June 2009. Atos Origin Half-Year Report 2009 46/75 Note 6 Net financial income Net cost of financial debt (In EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 12 months ended 31 December 2008 Net Interest expenses (6.9) (14.6) (31.2) Interest on obligations under finance leases (0.2) (1.1) (1.0) Gain /(loss) on disposal of cash equivalents 0.6 1.4 2.5 Gain/(loss) on interest rate hedges of financial debt 0.8 1.0 Net cost of financial debt (6.5) (13.5) (28.7) The average net debt during the first six months 2009 was EUR 368.6 million, with an average net cost of financial debt amounting 3.5%. During the first semester, the Group did not enter into interest swap transactions on its financial debt. Other financial income and expenses (In EUR million) 6 months ended 30 June 2009 6 months ended 30 June 2008 12 months ended 31 December 2008 Foreign exchange (expenses)/ income Foreign value gain/(loss) on forward contracts held for trading Discounting financial expenses 0.7 0.8 (0.3) (3.0) 0.2 (0.9) (4.1) (1.8) (1.4) Other income / (expenses) (9.1) 10.7 13.2 Other financial income and expenses (7.9) 7.0 5.9 The EUR 9.1 million of other expenses mainly relate to pensions (EUR 6.6 million), and represents the difference between the interests cost and the expected return on plan assets. The expected return on plan assets decreased because of lower expected yields and a lower asset base. Please refer to Note 13 Pensions for further explanation. Note 7 Income tax expenses Interim period income tax is accrued based on the estimated average annual effective income tax rate of 27.3%. Note 8 Earnings per share The dilutive instruments are composed of stock options which do not generate any restatement on the net income used for the diluted earnings per share calculation. Basic and diluted earnings per share are reconciled as follows: Net income - Group share [a] Weighted average number of shares outstanding [b] Impact of dilutive instruments [c] Diluted weighted average number of shares [d]=[c]+[b] Earnings per share in EUR [a]/[b] Diluted earnings per share in EUR [a]/[d] 30 June 2009 18.0 69,717,453 69,717,453 0.26 0.26 30 June 2008 124.7 69,711,112 117,930 69,829,042 1.79 1.79 31 December 2008 22.6 69,712,178 74,279 69,786,457 0.32 0.32 Atos Origin Half-Year Report 2009 47/75 The total average number of stock options not exercised on first half of 2009 amounted to 8,363,364 shares, out of which no shares have a dilutive effect on the earning per share. Note 9 Goodwill (In EUR million) 31 December 2008 Acquisition/ depreciation Disposals Others Exchange rate fluctuations 30 June 2009 Gross value Impairment loss Total 1,995.7 (484.6) 1,511.1 3.2 - 3.2 (1.4) 1.1 (0.3) - - 78.6 (28.2) 50.4 2,076.1 (511.7) 1,564.4 Goodwill are allocated to cash generating units (CGUs) that are then part of one of the operating segments disclosed in Note 2 as per IFRS 8 requirements. The adoption of IFRS 8 in replacement of IAS 14 as of 1 January 2009 did not trigger any reallocation of goodwill between CGUs. Impairment tests for interim financial reporting are based on the same methodology than at year-end but are limited to CGUs for which an event occurred triggering a need of re-measurement of their fair value. During the semester, the Group’s operations in certain geographies have been impacted by a deteriorating economic environment (The Netherlands, Spain and France) or by the default of a major client (Arcandor in Germany). Consequently, the Group has updated its impairment tests for these CGUs. The outcome of this update is that no impairment needs to be recorded in the June 2009 accounts. Nevertheless, a further negative evolution of the economic environment might impair this position, which will be reviewed in details during the last quarter of 2009. Over the last six months, the balance sheet of the Group has been significantly impacted by the decrease of the GBP value against EUR. The main consequence has been the increase of the net goodwill by EUR 47.0 million since December 2008. Impact of the bankruptcy of Arcandor Group on the Germany cash generating unit : In June 2009, the German operations of the Group have been impacted by the bankruptcy of their main client, the retail and travel Group Arcandor, formerly known as Karstadt-Quelle. This bankruptcy filing concerns in particular: - - the retail business (supermarkets and department stores) : Karstadt; the catalog and internet sales’ business Quelle and Primondo; the in-house IT subsidiary Itellium. Thomas Cook, 52.8% of which is owned by Arcandor and already disentangled businesses - in particular Neckermann are not in the scope of this bankruptcy. The Group recorded a provision for bad debt amounting to EUR 14.4 million, which represents 95% of the value of the accounts receivable as at bankruptcy date. Arcandor is currently being administrated by a provisional Insolvency Administrator who is responsible for building a plan that would allow maintaining the Arcandor Group as an independent entity and for presenting it to the different stakeholders in the fall of 2009. According to the agreements signed between Atos Origin and the Administrator, services rendered by the Group since the insolvency are being paid in advance. In the absence of decision taken by the Administrator yet, the Group considered that the current IT services provided will continue under the frame of the existing contract. Atos Origin Half-Year Report 2009 48/75 Consequently, apart from the depreciation of trade receivables mentioned above, the Group did not record any other asset depreciation in the first half of 2009. This position will be re-examined for the 2009 full year closing according to the development of the situation of Arcandor. Within the Group German operations, approximately 500 FTEs (full time equivalents) are delivering services to Arcandor (260 for Karstadt, 240 for Quelle). Net book value of assets dedicated to this client is approximately EUR 16.0 million. Arcandor revenue and related margin are included in the GCE (Germany – Central Europe) cash generating unit. The GCE goodwill amounts to EUR 105.2 million as at 30 June 2009. Note 10 Trade accounts and notes receivable (In EUR million) 30 June 2009 31 December 2008 Gross value Transition costs Provision for doubtful debts 1,402.6 30.8 (40.5) 1,420.9 24.4 (27.3) Net asset value Prepayments Deferred income and upfront payments received Net accounts receivable 1,392.9 (8.3) (317.9) 1,066.7 1,418.0 (14.0) (259.0) 1,145.0 Number of days’ sales outstanding 64 63 Note 11 Cash and cash equivalent (In EUR million) 30 June 2009 31 December 2008 Cash in hand and short-term bank deposit Money market funds 163.0 1.8 285.8 0.3 Total 164.8 286.1 Depending on market conditions and short-term cash flow expectation, Atos Origin may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 12 Minority interests (In EUR million) 31 December 2008 2009 Income Dividends 30 June 2009 Atos Worldline Processing GmbH Others 6.6 4.4 2.2 (3.6) 5.2 4.4 Total 11.0 2.2 (3.6) 9.6 Note 13 Pension The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and assimilated benefits is EUR 169.6 million. As no significant variations have been observed over the semester in respect of discount rates to be used under IAS 19 to value pension obligations, the Group has not triggered any actuarial re- measurement of its pension liabilities at 30 June 2009. Accounting entries have been based on projections from 31 December 2008 actuarial valuations, adjusted for actual benefits or contribution payments and impacts of material restructuring actions. Atos Origin Half-Year Report 2009 49/75 The development of pension provisions over the half year is therefore as follows: (In EUR million) 30 June 2009 31 December 2008 Amounts recognised in financial statements consist of : Prepaid pension asset – post employment plans 54.7 36.5 Accrued liability – post employment plans (224.3) (221.5) Net amount recognised – Total (169.6) (185.0) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In EUR million) 30 June 2009 30 June 2008 31 December 2008 Operating margin Other operating items (11.7) 1.4 (10.1) 63.6 (23.3) 16.8 Financial result (6.6) 8.9 20.1 Total (expense)/profit (16.9) 62.4 13.6 Other operating items The EUR 1.4 million other operating items correspond mostly to restructuring actions in The Netherlands, which reduce future pension obligations and result in a net gain in the period. Financial result The impact of pension plans on Group financial result corresponds to the difference between the interest cost on pension obligations and the expected return on pension plans’ assets, calculated based on the fair value of assets at the previous valuation date and a long term return assumption per asset class. This difference has been negative by EUR 6.6 million in the first half of 2009, compared to a positive impact to financial result of EUR 8.9 million in the first half of 2008 and of EUR 20.1 million in full year 2008. This evolution is: firstly due to the fact that asset values at 31 December 2008 (used for the determination of financial return recorded in June 2009 profit and loss account) were impacted by the financial crisis and thus lower than 30 June 2008 and 31 December 2007 values (used for the determination of the December 2008 and June 2008 financial returns in the profit and loss account), and secondly, long term return assumptions used by the Group at 31 December 2008 have been lowered, which added to the base impact in the June 2009 financial profit and loss account. As a result, the expected return income has been significantly reduced while interest costs, on the other hand, remained comparable period to period. Opening and closing positions reconcile as follows: (In EUR million) 30 June 2009 31 December 2008 Net amount recognised at beginning of period Reclassification other current liabilities (185.0) - (387.2) 2.1 Net periodic pension cost – post employment plans (16.9) 13.6 Benefits paid / Employer Contributions 39.5 126.1 Business combinations/disposals 29.2 Other (7.2) 31.2 Net amount recognised at end of period (169.6) (185.0) Atos Origin Half-Year Report 2009 50/75 Further to this, Atos Origin has finalized a 5 year recovery plan with its Dutch Pension Fund, an independent legal entity managing the assets segregated from the company’s assets to secure the provision of future pensions as requested by legislation. Previous contractual agreement committed Atos Origin to ensure a permanent 110% funding of local pension obligations, as appreciated under local solvency rules. Under the agreement signed on 15 July 2009, the 110% clause is suspended for 5 years, and Atos Origin has committed to the following recovery payments: contributions (currently shared 55%-45% between Atos Origin and its employees) will be increased from 23% to 26% between 2010 and 2013 (additional cost for Atos Origin will be between EUR 3.5 to 6.5 million per year depending on the part born by employees ); three cash injections of EUR 10.0 million will be made by Atos Origin in 2011, 2012 and 2013; Atos Origin will grant a loan to the Pension Fund in three instalments of EUR 7.5 million each, payable in 2011, 2012 and 2013, its reimbursement being subordinated to a recovery of the funding ratio of the Pension Fund. If the funding ratio was to fall below a trajectory leading to a 105% funding ratio at 31 December 2013, these payments would be increased up to a maximum of EUR 9.0 million per year between 2010 and 2013. Similarly, these payments (except EUR 15.0 million of cash injections) can be reduced if the funding ratio follows a trajectory leading to a funding ratio above 117.5% at 31 December 2013. Atos Origin has also reinforced its collaboration with the Dutch Pension Fund in terms of investment monitoring and strategy. This increased collaboration has already resulted in a significant reduction of the problematic assets held by the Dutch Pension Fund, in respect of which an immediate recognition of EUR 30.9 million of actuarial losses was recorded at 31 December 2008. In particular, more than 80% of the hedge funds have been successfully redeemed in the first half of 2009, for a total value of EUR 128.6 million, significantly higher than the expected residual value of EUR 74.3 million as estimated after 31 December 2008 depreciations. Remaining problematic assets represent less than 10% of the total portfolio of the Dutch Pension Fund at 30 June 2009. Atos Origin has decided to continue to monitor the situation throughout 2009 before revisiting its 2008 depreciations. In the United Kingdom, Atos Origin has continued its risk reduction plan through further equity disposals in June and July 2009, and investments in corporate bonds. Note 14 Provisions (In EUR million) 31 December 2008 Charge Release used Release unused Other (a) 30 June 2009 Current Reorganisations Rationalisations Project commitments Litigations and contingencies Total provisions 105.0 (a) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of (7.3) 7.2 (32.9) (4.3) (4.0) (3.0) 31.6 17.5 40.4 38.8 53.0 21.4 40.4 8.3 35.6 5.4 35.6 38.0 2.4 (4.8) (5.4) 4.0 74.5 (3,4) (13.5) 3.8 83.6 (15,8) 6.3 189.3 (55.5) 58,3 196.0 84.3 consolidation. Claim from one former Management Board Member On 24 June 2009, the Group was notified of a claim filed by counsel to Mr. Philippe Germond with the Commercial Court of Nanterre. Mr. Germond alleges that his mandate was wrongfully terminated, which would, in his opinion, trigger a right to payment of an indemnity amounting to EUR 3.9 million. As already disclosed in the 2008 Reference Document, the Supervisory Board decided on 11 December 2008 to reject Mr. Germond’s request to an indemnity after an in depth assessment of the Atos Origin Half-Year Report 2009 51/75 Non Current 30.5 74.5 situation and based on legal opinions obtained from external counsels. Accordingly, no provision has been accrued in the Group’s 2009 accounts. Note 15 Borrowings (In EUR million) Current 30 June 2009 Non-Current Total Current 31 December 2008 Non-Current Total Finance leases 4.3 2.6 6.9 7.6 3.3 10.9 Bank loans 2.0 244.8 246.8 4.5 294.8 299.3 Securitisation 176.6 176.6 198.7 198 .7 Other borrowings 47.1 15.0 62.1 65.8 15.4 81.2 Total borrowings 230.0 262.4 492.4 276.6 313.5 590.1 Tangible assets held under finance leases had a net carrying value of EUR 10.1 million. Non-current borrowings maturity (In EUR million) 1 to 2 year 2 to 3 year 3 to 4 year 4 to 5 year Over 5 year Total Finance leases Bank loans Other borrowings As at 30 June 2009 long-term debt As at 31 December 2008 long-term debt 1.5 0.1 4.3 5.9 5.8 0.5 240.3 4.7 245.5 5.1 0.2 0.5 3.5 4.2 295.2 0.2 0.5 2.5 3.2 4.0 0.2 3.4 3.6 3.4 2.6 244.8 15.0 262.4 313.5 As at 30 June 2009, there is no financial instruments on borrowings. Change in net debt over the period (In EUR million) Opening net debt New borrowings 6 months ended 30 June 2009 304.0 9.4 6 months ended 30 June 2008 338.0 128.8 Repayment of long and medium-term borrowings (74.7) (31.5) Variance in cash and cash equivalents 117.2 131.5 New finance lease 4.5 2.0 Long and medium-term debt of companies sold during the period (48.9) Impact of exchange rate fluctuations on net long and medium-term debt (6.5) 14.2 Profit-sharing amounts payable to French employees transferred to debt 4.0 Other flow related to financing activities (26.3) (23.9) Closing net debt 327.6 514.2 Net cash and cash equivalents (In EUR million) 30 June 2009 31 December 2008 Cash and cash equivalents Overdrafts 164.8 (9.3) 286.1 (24.2) Total net cash and cash equivalents 155.5 261.9 Atos Origin Half-Year Report 2009 52/75 Note 16 Fair value and characteristics of financial instruments 30 June 2009 31 December 2008 (In EUR million) Assets Liabilities Assets Liabilities Forward foreign exchange contracts 2.3 (4.7) 1.7 (9.1) Interest rate swaps Analysed as: Non-current 1.4 (3.7) 1.0 (6.1) Current 0.9 (1.0) 0.7 (3.0) The fair value of financial instruments is provided by banking counterparties. Breakdown of the designation of the instruments per currency is as follows: (in EUR million) Instruments 30 June 2009 Fair value Notional 31 December 2008 Fair value Notional Cash flow hedge Interest rate : Swaps Foreign exchange Forward contracts USD 0.6 48.9 (1.3) 35.0 Option contracts USD 0.3 10.9 1.4 16.7 Forward contracts CAD 0.3 9.2 (0.2) 11.8 Forward contracts GBP (2.0) 30.1 (5.7) 24.0 Option contracts GBP 0.5 16.0 0.3 13.3 Forward contracts INR (2.6) 54.5 (1.9) 38.6 Forward contracts PLN 0.1 6.8 Forward contracts CNY 0.4 7.6 Trading Foreign exchange Forward contracts USD 0.0 0.3 0.0 1.9 Note 17 Trade accounts and notes payable (In EUR million) 30 June 2009 31 December 2008 Trade payables Amounts payable on tangible assets Total disclosed on the balance sheet 508.6 9.3 517.9 500.8 16.0 516.8 Trade accounts and notes payable are expected to be paid within one year. Note 18 Other current liabilities (In EUR million) 30 June 2009 31 December 2008 Advances and down payments received on client orders Employee-related liabilities Social security and other employee welfare liabilities VAT payable Deferred income Other operating liabilities Total disclosed on the balance sheet 8.3 271.1 184.9 153.7 288.5 101.8 1,008.3 14.0 302.7 206.8 177.8 227.8 110.3 1,039.4 Other operating liabilities are expected to be settled within one year, expected for deferred income that is released over the particular arrangement of the corresponding contract. Atos Origin Half-Year Report 2009 53/75 Note 19 Off-balance-sheet commitments Contractual commitments (In EUR million) Maturing 30 June 2009 Up to 1 year 1 to 5 years Over 5 years 31 Dec. 2008 Bank loans 246.8 2.0 241.4 3.4 299.3 Finance leases 6.9 4.3 2.4 0.2 10.9 Recorded on the balance sheet 253.7 6.3 243.8 3.6 310.2 Operating leases: land, buildings, fittings 494.2 141.5 290.9 61.8 461.3 Operating leases : IT equipment 15.7 11.3 4.4 23.0 Operating leases: other fixed assets 119.9 46.2 73.7 125.1 Non-cancellable purchase obligations (>5 years) 21.5 20.5 1.0 21.2 Commitments 651.3 219.5 370.0 61.8 630.6 Total 905.0 225.8 613.8 65.4 940.8 Commercial commitments (In EUR million) Bank guarantees Performance guarantees Pledges Total 30 June 2009 80.7 1,338.0 - 1,418.7 31 December 2008 85.8 1,232.7 - 1,318.5 For various large long term contracts, the Group provides performance or financial guarantees to its clients. These limited exposure guarantees amount to EUR 1,338.0 million as at 30 June 2009, compared with 1,232.7 million as at 31 December 2008. Note 20 Subsequent events No significant event has occured since 30 June 2009. Atos Origin Half-Year Report 2009 54/75 9 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 9.1 TRADING OF SHARES (EURONEXT) Number of shares traded Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA / SRD : 69,717,453 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes / Yes 9.2 COMMON STOCK 9.2.1 Common stock at 30 June 2009 At 30 June 2009, the Company’s issued common stock amounted to EUR 69.7 million, comprising 69,717,453 fully paid-up shares of EUR 1 par value each. There has been no change in the Company’s issued common stock since 31 December 2008. Transactions Number of shares issued Common stock (in EUR million) Additional paid-in capital (in EUR million) Total (in EUR million) At 31 December 2008 69,717,453 69.7 1,409.7 1,479.5 At 30 June 2009 69,717,453 69.7 1,409.7 1,479.5 9.2.2 Share ownership structure Main shareholders Principal changes in the ownership of the Company’s shares during the first half of 2009 have been as follows: In shares 30 June 2009 Shares % 31 December 2008 Shares % PAI Partners Centaurus Capital 15,765,838 1,332,140 22.6 1.9 15,765,838 3,492,119 22.6 5.0 Pardus Capital 7,000,004 10.0 7,000,004 10.0 Management Board 0.0 33,785 0.0 Supervisory Board 0.0 10,721 0.0 Board of Directors 15,738 0.1 Total Directors 15,738 0.1 44,506 0.1 Employees 2,088,329 3.0 2,119,700 3.0 Treasury stock 948,188 1.4 1,111,293 1.6 Public 42,567,216 61.0 40,183,993 57.7 Total 69,717,453 100.0 69,717,453 100.0 Atos Origin Half-Year Report 2009 55/75 The ownership of the Company’s shares by employees relates to ownership plans such as mutual funds and corporate savings plans. The management of these shares is made through the Group mutual fund. Disclosure of interests The Company has been advised of the following share movements in the first half of 2009. Centaurus Capital LP (downwards) Centaurus Capital LP (downwards) Centaurus Capital LP (downwards) Centaurus Capital LP (downwards) Centaurus Capital LP (downwards) Date of statement 06/01/2009 31/03/2009 9/04/2009 22/04/2009 21/05/2009 Shares 3,493,119 3,459,358 2,785,604 1,982,296 1,332,140 % interest (a) 5.01% 4.96% 3.99% 2.84% 1.91% % voting rights (b) 5.01% 4.93% 3.99% 2.84% 1.91% (a) On the basis of the capital at this date (b) On the basis of the capital excluding treasury stock at this date The Company has not received notice of any shareholder agreements for filing with the stock exchange authorities and, to the best knowledge of the Group Management, neither other concerted action (“Action de Concert”), nor shareholder agreements or similar agreements exist. To the knowledge of the Group, there is no other agreement which may have a material effect on the share capital of the Group. 9.2.3 Potential common stock Number of stock subscription options at 31 December 2008 Stock subscription options granted in H1 2009 7,153,540 1,835,000 Stock subscription options exercised in H1 2009 Stock subscription options forfeited in H1 2009 (11,148) Stock subscription options expired in H1 2009 (13,000) Number of stock subscription options at 30 June 2009 8,964,392 During the first half-year 2009, 1,835,000 stock options were granted to the Executive Committee members and some other key managers. Stock options can also be granted for exceptional cases such as key recruitments. The Group has in parallel signed a derogative participation plan on 2009 accounts, which shall be paid in 2010, applicable to at least 90% of the employees of the French subsidiaries of the Company Atos Origin SA. On the first half-year 2009, a total of 24,148 stock subscription options were cancelled and none were exercised. Based on 69,717,453 shares in issue, the common stock of the Company could be increased by 8,964,392 new shares, representing 11.4% of the common stock after dilution. This can occur only through the exercise of stock subscription options granted to employees, as detailed below. 30 June 31 December Change % dilution EUR million In shares 2009 2008 Number of shares outstanding 69,717,453 69,717,453 0 Stock subscription options 8,964,392 7,153,540 1,810,852 11.4% 349.5 Total Employees = potential dilution 8,964,392 7,153,540 1,810,852 11.4% 349.5 Total potential common stock 78,681,845 76,870,993 1,810,852 Atos Origin Half-Year Report 2009 56/75 The exercise of all the options would have the effect of increasing total shareholders’ equity by EUR 350 million and common stock by EUR 9.0 million. Nevertheless, 80% of stock subscription options granted to employees have an exercise price that exceeds the stock market price at 30 June 2009 (EUR 24.155). Unused authorisations to issue shares and share equivalents Following the resolutions voted during the Annual Shareholders Meeting of May 26, 2009, the unused authorisations to issue shares and share equivalents are the following: Authorisation (in EUR) Amount authorised Nominal value Amount utilised Nominal value Amount not utilised Nominal value Authorisation expiry date EGM 26/05/2009 11th resolution Capital increase with preferential subscription rights (*) EGM 26/05/2009 12th resolution Capital increase without preferential subscription rights (*) 20,915,236 10,000,000 20,915,236 10,000,000 26/07/2011 26/07/2011 EGM 26/05/2009 14th resolution Capital increase in the event of a public exchange offer (*) EGM 26/05/2009 15th resolution Capital increase in payment for contributions in kind (*) EGM 26/05/2009 17th resolution Capital increase Through the incorporation of reserves, profits or premiums 10,000,000 6,971,745 1,573,698,000 10,000,000 6,971,745 1,573,698,000 26/07/2011 26/07/2011 26/07/2011 EGM 26/05/2009 18th resolution Capital increase reserved for employees 4,183,047 4,183,047 26/07/2011 EGM 26/05/2009 19th resolution Stock subscription options 2,091,523 2,091,523 26/07/2012 (*) up to the total aggregate limit amount of 20,915,236 euros for the cumulated authorisations from the 11th to the 15th resolutions. The total number of potential shares to be issued, authorised is of 1,598,796,283 Atos Origin Half-Year Report 2009 57/75 The following authorisation to cancel shares corresponds to 10% of the issued common stock as of June 2005. Authorisation (in EUR) Amount authorised Nominal value Amount utilised Nominal value Amount not Utilised Nominal value Authorisation expiry date EGM 03/06/2005 6,716,075 6,716,075 EGM approving accounts as of 31/12/2009 12th resolution Share cancellation Capital 6,716,075 9.3 DIVIDENDS During the Annual General Meeting held on 26 May 2009, the shareholders approved the resolution proposed by the Board of Directors not to pay a dividend in 2009 on the 2008 results. 9.4 SHARE TRADING PERFORMANCE 9.4.1 Monthly and quarterly trading volumes Based on a closing share price of EUR 24.16 at the end of June 2009 and 69,717,453 shares in issue, the market capitalisation of the Group at 30 June 2009 was EUR 1.7 billion. Source : Euronext High Low Closing Weighted average price Trading Volume Trading Volume (in EUR per share) (in thousands of shares) (in EUR thousands) January February 20.1 21.5 16.5 18.1 18.6 19.3 18.1 20.0 5,247 5,618 94,715 112,148 March 1st Quarter 2009 April May 21.5 24.4 26.9 17.1 19.2 20.3 19.3 23.5 23.6 19.5 22.5 23.8 4,898 15,763 6,481 8,255 95,653 302,515 145,518 196,548 June 2nd Quarter 2009 26.3 22.4 24.2 24.1 7,856 22,592 189,703 531,769 % of capital traded during the period : 55% 38,355 834,284 The daily average number of shares traded during the first 6 months of 2009 was 300,533, which is behind the level recorded in H1 2008 by -58% (-46% compared to full-year 2008 average). The monthly average trading volume during the first 6 months of 2009 was EUR 139 million, -73% lower than H1 2008 level (-65% compared to full-year 2008 average). Atos Origin Half-Year Report 2009 58/75 10 SHAREHOLDER RELATIONS 10.1 COMMUNICATION The Company aims to provide regular and clear information to all its shareholders, whether private individuals or institutions. We ensure the uniformity and transparency of information through the distribution of formal financial documents, the Company’s web site and personal meetings. 10.2 CONTACTS Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Tel. : + 33 (0) 1 55 91 28 83 E-mail : gilles.arditti@atosorigin.com Azzedine Hamaïli Tél: +33 (0)1 55 91 25 34 E-mail: azzedine.hamaili@atosorigin.com Or by sending requests for information to investors@atosorigin.com 10.3 SHAREHOLDER DOCUMENTATION In addition to the Half-Year Report, which is published in English and French, the following information is available to shareholders: An annual report Quarterly revenue and trading update announcements The Company’s informational website at www.atosorigin.com Regular press releases, available through the web site or via the AMF database Legal documents relating to the Company bylaws, minutes of Shareholder Meetings, Auditors’ reports, etc. may be viewed at the Company’s registered office (Legal Department) by prior appointment. 10.4 REGISTRAR The Company’s share registrar and paying agent is Société Générale. 10.5 FINANCIAL CALENDAR 2009 Calendar (cid:131) Friday, 16 October 2009 (cid:131) Third quarter revenue for 2009 (cid:131) Wednesday, 17 February 2010 (cid:131) Fourth quarter revenue and full year results for 2009 Atos Origin Half-Year Report 2009 59/75 10.6 UPDATE OF DOCUMENTS ISSUED In accordance with Article 221-1-1 of the Autorité des Marchés Financiers (AMF) general regulations, the following list includes all financial information published or made available since 1 January 2006. This proposed list is part of the 2009 Half-Year Report as an update of the 2008 “Document de Référence” filed with the AMF on 9 April 2009 and registered under the number D09-251. This document is a full free translation of the original French text Document Date of issue Source Financial reports (cid:131) Half-year report 2009 31/07/09 website Atos Origin / website AMF (cid:131) Annual report 2008 (cid:131) Half-year report 2008 09/04/09 29/07/08-28/08/08 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual report 2007 (cid:131) Half-year report 2007 29/02/08-09/04/08 01/08/07-28/08/07 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual report 2006 (cid:131) Half-year report 2006 28/02/07-06/04/07 06/09/06-30/10/06 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual report 2005 08/03/06-15/05/06 website Atos Origin / website AMF Financial press releases (cid:131) Half-year results 2009 29/07/09 website Atos Origin / website AMF (cid:131) Annual results 2008 (cid:131) Half-year results 2008 18/02/09 29/07/08 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual results 2007 (cid:131) Half-year results 2007 15/02/08 01/08/07 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual results 2006 (cid:131) Half-year results 2006 28/02/07 06/09/06 website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Annual results 2005 08/03/06 website Atos Origin / website AMF (cid:131) First quarter revenue 2009 (cid:131) Fourth quarter revenue 2008 (cid:131) Third quarter revenue 2008 (cid:131) First quarter revenue 2008 (cid:131) Fourth quarter revenue 2007 (cid:131) Third quarter revenue 2007 (cid:131) Second quarter revenue 2007 (cid:131) First quarter revenue 2007 15/04/09 05/02/09 31/10/08 30/04/08 31/01/08 15/11/07 01/08/07 14/05/07 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF (cid:131) Fourth quarter revenue 2006 (cid:131) Third quarter revenue 2006 (cid:131) Second quarter revenue 2006 (cid:131) First quarter revenue 2006 (cid:131) Fourth quarter revenue 2005 05/02/07 31/10/06 18/07/06 28/04/06 31/01/06 website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin Financial presentations (cid:131) Half-year 2009 results (cid:131) Full-year 2008 results (cid:131) Half-year 2008 results (cid:131) Full-year 2007 results (cid:131) Half-year 2007 results (cid:131) Operational 2006 results and transformation plan (cid:131) Full-year 2006 results (cid:131) Half-year 2006 results (cid:131) Full-year 2005 results 29/07/09 18/02/09 29/07/08 15/02/08 01/08/07 05/02/07 28/02/07 06/09/06 08/03/06 website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin Atos Origin Half-Year Report 2009 60/75 Document Date of issue Other financial communications (cid:131) Trading programme of Company's shares 02/07/08 (cid:131) Description of trading programme of Company's shares 30/06/08 (cid:131) Description of trading programme of Company's shares 30/05/07 (cid:131) Employee shareholders plan 18/09/06 (cid:131) Trading programme of Company's shares 08/03/06 Shareholders' meetings (cid:131) Shareholders' meeting presentation 2008 (cid:131) Shareholders' meeting presentation 2007 (cid:131) Shareholders' meeting presentation 2006 (cid:131) Shareholders' meeting presentation 2005 26/05/09 12/06/08 23/05/07 23/05/06 (cid:131) Minutes of the 2008 AGM (full text of resolutions and results of vote) 26/05/09 (cid:131) Minutes of the 2007 AGM (full text of resolutions and results of vote) 12/06/08 (cid:131) Minutes of the 2006 AGM (full text of resolutions and results of vote) 23/05/07 (cid:131) Minutes of the 2005 AGM (full text of resolutions and results of vote) 23/05/06 Financial statements (cid:131) Condensated consolidated financial statements for the first half 2009 31/07/09 (cid:131) Consolidated financial statements 2008 18/02/09-09/04/09 (cid:131) Parent company financial statements 2008 18/02/09-09/04/09 (cid:131) Condensated consolidated financial statements for the first half 2008 29/07/08-28/08/08 (cid:131) Consolidated financial statements 2007 29/02/08 – 09/04/08 (cid:131) Parent company financial statements 2007 29/02/08 – 09/04/08 (cid:131) Condensated consolidated financial statements for the first half 2007 01/08/07 (cid:131) Consolidated financial statements 2006 28/02/07 (cid:131) Parent company financial statements 2006 28/02/07 (cid:131) Condensated consolidated financial statements for the first half 2006 20/10/06 (cid:131) Consolidated financial statements 2005 07/03/06 (cid:131) Parent company financial statements 2005 07/03/06 Atos Origin Half-Year Report 2009 61/75 Source website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin / website AMF website Atos Origin website Atos Origin website Atos Origin website Atos Origin Company’s registered office Company’s registered office Company’s registered office Company’s registered office Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Half-year report Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Document Date of issue Auditors reports (cid:131) Auditors’ review report on the first half-year financial information 2009 29/07/09 (cid:131) Auditors’ letter regarding the information given in the half-year report 2009 29/07/09 (cid:131) Auditors’ report on the consolidated financial statements 2008 08/04/09 (cid:131) Auditors’ report on the parent company financial statements 2008 08/04/09 (cid:131) Auditors' special report on regulated agreements 2008 08/04/09 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2008 08/04/09 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2008 08/04/09 (cid:131) Auditors’ letter regarding the information given in the half-year report 2008 29/07/08 (cid:131) Auditors’ review report on the first half-year financial information 2008 29/07/08 (cid:131) Auditors’ report on the consolidated financial statements 2007 08/04/08 (cid:131) Auditors’ report on the parent company financial statements 2007 08/04/08 (cid:131) Auditors' special report on regulated agreements 2007 08/04/08 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2007 08/04/08 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2007 08/04/08 (cid:131) Auditors’ letter regarding the information given in the half-year report 2007 28/08/07 (cid:131) Auditors’ review report on the first half-year financial information 2007 28/08/07 (cid:131) Auditors’ report on the consolidated financial statements 2006 06/04/07 (cid:131) Auditors’ report on the parent company financial statements 2006 06/04/07 (cid:131) Auditors' special report on regulated agreements 2006 06/04/07 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2006 06/04/07 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2006 06/04/07 (cid:131) Auditors’ letter regarding the information given in the half-year report 2006 30/10/06 (cid:131) Auditors’ review report on the first half-year financial information 2006 19/09/06 (cid:131) Auditors’ letter regarding the information given in the Document de Reference 2005 12/05/06 Atos Origin Half-Year Report 2009 62/75 Source Company’s registered office / Commercial court / Document de Reference Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Company’s registered office Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Company’s registered office Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Company’s registered office Company’s registered office Company’s registered office / Commercial court / Document de Reference Company’s registered office Document Date of issue Source (cid:131) Auditors’ report on the consolidated financial statements 2005 07/03/06 (cid:131) Auditors’ report on the parent company financial statements 2005 07/03/06 (cid:131) Auditors' special report on regulated agreements 2005 07/03/06 (cid:131) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2005 07/03/06 Company’s registered office / Commercial court / Document de Reference Company’s registered office / Commercial court / Document de Reference Company’s registered office / Document de Reference Company’s registered office / Document de Reference Declarations (cid:131) Declaration of share transfer made by Board members of Atos Origin 22/05/06-23/05/06- 7/06/06-26/06/07- 8/08/07-07/05/08- 15/05/08-16/05/08- 22/05/08-24/06/08- 08/09/08-12/09/08 website AMF / Document de Reference (cid:131) Disclosure of liquidity contract 27/02/06 17/01/08 09/01/09 website AMF (cid:131) Auditors’ fees 2008 (cid:131) Auditors’ fees 2007 (cid:131) Auditors’ fees 2006 (cid:131) Auditors’ fees 2005 09/04/09 29/02/08-09/04/08 28/02/07 15/05/06 website AMF / Document de Reference website AMF / Document de Reference website AMF / Document de Reference website AMF / Document de Reference Websites mentioned : (cid:131) Atos Origin www.atosorigin.com (cid:131) AMF www.amf-france.org > Décisions et informations financières > Communiqués des sociétés (cid:131) BALO www.journal-officiel.gouv.fr Atos Origin Half-Year Report 2009 63/75 11 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS 11.1 PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT AND ITS UPDATE Thierry Breton Chairman and Chief Executive Officer 11.2 PERSON RESPONSIBLE FOR THE ACCURACY OF THE REFERENCE DOCUMENT AND ITS UPDATE This is a free translation into English of the Statement on the half year consolidated financial statements issued in French and is provided solely for the convenience of English speaking readers. I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the update of the registration document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affects its import. I hereby declare that, to the best of my knowledge, the condensed 2009 half-year financial statements have been prepared under generally accepted accounting principles and give a true and fair view of the assets and liabilities, financial situation and results of all the companies within the consolidated group. I further declare that the Management Report gives a faithful picture of the information herein, e.g. material events occurring during the first six months of the 2009 financial year and their impact on the half-yearly accounts, a description of the principal risks and uncertainties for the remaining six months of the year 2009. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the update of the registration document and examined the information in respect of the financial position and the historical accounts contained therein. The report of the Statutory Auditors related to the Consolidated Financial Statements of 2008 shown at page 83 of the Reference Document n°09-251 filed to the AMF on 9 April 2009, contained the following observation: “Without qualifying our opinion, we draw your attention to the matter set out in the Note “Goodwill” to the consolidated financial statements regarding the impairment charge on goodwill recorded as of 31 December 2008”. The reports of the Statutory Auditors related to the Annual Financial Statements of 2008 were shown at page 161 of the Reference Document. These report includes an information related to the change of accounting method in order to apply as of 1 January 2008, the rule n°2008-15 from the CRC (Comité de la Règlementation Comptable) related to the stock options plans. The reports of the Statutory Auditors related to the Consolidated Financial Statements of 2006 shown at page 68 of the Reference Document n°07-302 filed to the AMF on 6 April 2007,contained the following observation: “Without qualifying our opinion, we draw your attention to the note “Goodwill” of the notes to the consolidated financial statements concerning the impairment charge on goodwill recorded as of 31 December 2006”. Thierry Breton Chairman and Chief Executive Officer Atos Origin Half-Year Report 2009 64/75 11.3 RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Substitute Auditors Grant Thornton Jean-Pierre Colle and Vincent Frambourt Cabinet IGEC, 3, rue Léon Jost, 75017 Paris Appointed on: 12 June 2008 for a term of 6 years Appointed on: 12 June 2008 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Deloitte & Associés Jean-Paul Picard and Jean-Marc Lumet Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly- sur-Seine Appointed on: 23 May 2006 for a term of 6 years Appointed on: 23 May 2006 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Term of office expires: at the end of the AGM held to adopt the 2011 financial statements Atos Origin Half-Year Report 2009 65/75 12 PRESS RELEASE FOR THE 2009 FIRST HALF RESULTS Revenue of EUR 2,589 million; Operating Margin of EUR 118 million representing 4.6 per cent of revenue thanks to the first positive effects of the TOP Program Order entries up by +10 per cent to EUR 2,903 million Book to bill ratio of 112 per cent • Full backlog at EUR 7.5 billion representing 1.5 year of revenue; up +3 per cent • Group share adjusted net income of EUR 74 million; • Net debt of EUR 328 million compared to EUR 514 million end of June 2008 Full year guidance is confirmed: slight decrease in revenue, improvement in operating margin of 50 to 100 basis points compared to 2008 and positive cash flow. PARIS – 29 July 2009 – Today, Atos Origin, an international IT services company, announced revenue of EUR 2,589 million for the first half of 2009 representing a slight organic decline of - 2.4 per cent. Operating margin reached EUR 118 million representing 4.6 per cent of revenue. This performance was achieved despite a charge of EUR 14 million following the insolvency of the customer Arcandor. Excluding this provision, the operating margin increased by 50 basis points compared to the first half of 2008. Thierry Breton, Chairman and CEO of Atos Origin said: « During the first half of 2009, the Group implemented strong measures to address the deterioration in the economic environment in order to control its cost base and to improve its operational profitability. The implementation of the TOP Program contributed directly to the improvement of the operating margin by circa 50 basis points. The TOP Program will continue to accelerate in the second half of 2009 which means the Group is confirming its guidance that there will be an improvement in operating margin of 50 to 100 basis points this year. » Revenue by Service Line Consulting revenue continued to decrease during the second quarter of 2009. Revenue was EUR 133 million in the first half, representing an organic decrease of -22.6 per cent compared to H1 2008. As announced by the Group last April, tough market conditions have persisted since the beginning of the year and large customers have delayed investment and purchasing decisions. Systems Integration revenue reached EUR 974 million in the first half of 2009, representing an organic decline of -9.3 per cent. This business line was impacted by a decline in the Benelux (-19.1 per cent) where demand dropped significantly and in Iberia / South America (-11.9 per cent) where the economic environment was particularly tough. However, the decline was more limited in the United Kingdom (-2.9 per cent), in France (-5.4 per cent) and in Germany Central Europe / EMA (-6.5 per cent). In Managed Operations, revenue was EUR 1,482 million, representing an organic growth of +5.4 per cent. Managed services increased by +5.1 per cent to EUR 974 million, High Tech Transactional Services (formerly On-Line Services) increased by +6.6 per cent to EUR 434 million and Medical BPO increased by +2.3 per cent to EUR 74 million. Atos Origin Half-Year Report 2009 66/75 Revenue by Global Business Unit (GBU) Consistent with the IFRS 8 rule, the Group presents the geographical segmentation in line with the operational management, i.e. by Group Business Unit (GBU). Revenue by GBU for the first half of 2009 varied significantly: (cid:190) The United Kingdom and Atos Worldline reported an organic growth respectively of +6 per cent and +5 per cent; (cid:190) France and Rest of the World reported a decline of less than -2 per cent; (cid:190) Germany Central Europe / EMA and Iberia / South America reported a decline respectively of -5.2 per cent and -6.9 per cent; (cid:190) Benelux reported a decline of more than -11 per cent. Operating performance During the first half of 2009, the Operating Margin was EUR 118 million, representing 4.6 per cent of revenue, the same as in the first semester of 2008. In a very difficult economic environment, the Group, excluding the effect from Arcandor’s insolvency, has improved its operational profitability by 50 basis points compared to the first half of 2008. This performance was achieved with an increased operating margin in: The United Kingdom in all the service lines (8.2 per cent of revenue compared to 6.3 per cent in first semester 2008); France, where the operating margin rose from 2.3 per cent to 3.5 per cent mainly due to the increase for Systems Integration from 0.2 per cent in the first half of 2008 to 2.1 per cent for the first half of 2009; Rest of the World with a profitability from 1.0 per cent to 5.1 per cent. This improvement was countered by a lower operating margin in the Benelux due to a strong decrease of revenue in Systems Integration and in Consulting and also by the EUR 14 million charge in Germany Central Europe following Arcandor insolvency which negatively impacted by 50 basis points the Group operating margin for the first half of 2009. Atos Worldline improved its profitability to 14.7 per cent while Iberia / South America reported operating margin of 1.3 per cent compared to 4.2 per cent last year. Corporate central costs (excluding Global Delivery Lines) have been reduced by 12 per cent to EUR 33.9 million compared to EUR 38.4 million for the first half for 2008. Operating income and net income Operating income was EUR 42 million after EUR 75 million charge for reorganisation and rationalisation predominantly in Europe. Financial result was a charge of EUR 14 million, total tax charge was EUR 8 million representing an effective tax rate of 27.3 per cent and minority interests amounted to EUR 2 million. Therefore, the net income Group share reached EUR 18 million compared to EUR 125 million for the first half of 2008 which benefited from the effect of the UK Pension Plan amendment (EUR 64 million) and low restructuring charge (EUR 6 million). Adjusted net income (before unusual, abnormal and infrequent items net of tax) totalled EUR 74 million at the same level as the first half of 2008. Net debt Group net debt as of 30 June 2009 reached EUR 328 million compared to EUR 304 million as of 31 December 2008 and EUR 514 million as of 30 June 2008. This amount includes EUR 70 million cash out for reorganisation and rationalisation. During the first half of 2009, capital expenditures totalled Atos Origin Half-Year Report 2009 67/75 EUR 107 million representing 4.1 per cent of revenue, a reduction compared to EUR 139 million for the first half of 2008 at 4.8 per cent of revenue. Within the TOP Program, strong actions have been taken to reduce the working capital, particularly for the collection of receivables where the DSO has been reduced by 9 days compared to 30 June 2008. Therefore, the seasonal increase of working capital during the first half of the year has been minimised. Globally, the increase of the net debt has been reduced to EUR 24 million during the first half of 2009 compared to EUR 148 million for the first half of 2008 (excluding disposal of Italy and the pension plans in the United Kingdom). Human resources Total number of Group employees declined from 50,975 as of 31 December 2008 to 49,407 as of 30 June 2009. New hirings were reduced by half between the first and second quarter of this year. 2,000 new employees were recruited during the first half of 2009 compared to 5,590 in first half of 2008. The attrition rate has dropped significantly from 13.6 per cent in the first half of 2008 to 7.5 per cent in the first half of 2009. Dismissals and restructuring impacted more than 1,300 staff, in line with the full year expectations of the Group. Finally, in light of the economic environment, management of Group human resources has been focused on targeted programs aimed at maintaining and renewing critical skills, particularly for young recently graduated engineers. The number of subcontractors has been reduced by more than 1,400 staff, representing a drop of 36 per cent compared to the end of 2008. This reduction is already higher than the objective of 1,000 for the full year. Commercial activity Total order entries totalled EUR 2,903 million, up by +10 per cent compared to the level of the first half of 2008 (+12 per cent at same scope and exchange rates). The book to bill ratio for the first half of 2009 reached 112 per cent compared to 98 per cent for the same period last year. During the second quarter of the year, the Group renewed existing contracts and signed new ones. In France, a new signature was concluded with SFR and contracts with Rhodia, Bouygues Telecom, and BNP Paribas have been renewed within Managed Services. In the Benelux, new contracts were signed with the tax authorities in The Netherlands, Ahold, ING and NXP while some Managed Services contracts with its two most important customers and with DSM were renewed. In the United Kingdom, the Group won new projects in the public sector (Ministry of Justice and NHS Scotland) as well as in the finance and in the energy sectors. Atos Worldline renewed its existing contracts with Postbank and Exxon. In Germany, the Group won a new project with E-Plus. In Asia the outsourcing contract with Standard Chartered Bank was renewed and the order for the Youth Olympic Games in Singapore in 2010 was signed. The International Olympic Committee extended its contract with Atos Origin to include the 2014 and 2016 Olympic Games. As of 30 June 2009, the full backlog totalled EUR 7.5 billion representing 1.5 year of revenue and up +3 per cent compared to 30 June 2008. The full qualified pipeline was EUR 2.6 billion up by EUR 400 million compared to 30 June 2008. TOP Program The TOP Program implemented in December 2008 already produced first positive effects during the first half of 2009. Consequently, the Group is confident that the acceleration of the TOP Program will increase its impact on operating profitability during the second semester of 2009 through a further reduction of the total cost base. Atos Origin Half-Year Report 2009 68/75 During the first half of 2009, travel expenses (annual basis EUR 130 million) were down by 23 per cent compared to the same period last year, rent and lease expenses (annual basis EUR 240 million) dropped by 17 per cent below H1 last year, external expenses (annual basis EUR 110 million) such as insurance, marketing and communication, professional fees dropped by 22 per cent. The strong actions initiated during the first half 2009 should convert into savings as soon as the second half of this year for the following expenses: costs for maintenance (annual basis EUR 260 million), company cars (annual basis EUR 80 million) and telecommunication (annual basis EUR 120 million). Globally, the TOP Program had a positive effect on the Group operating margin in the first half of 2009 of 50 basis points. Group Organisation The new organisation defined early February this year has been implemented during the first semester. This organisation aims at internally reorganizing the Corporate functions and Group processes in order to reposition and reinforce the authority of Global Functions and implement the necessary leverage to monitor the transformation of Atos Origin into a full integrated Group. During the first half of 2009, several key people were hired or appointed as part of the renewal of the Top Management team of Atos Origin: (cid:190) Paul Bray, leading Global SAP, (cid:190) Francis Delacourt, in charge of Strategic International Accounts and Deals, (cid:190) Marc-Henri Desportes, in charge of Global Innovation, Business Development and Strategy; (cid:190) Eric Grall, Head of Global Managed Services; (cid:190) Philippe Mareine, General Secretary; (cid:190) Francis Meston, Head of Global Systems Integration; (cid:190) Hervé Payan, Head of Global Consulting and entity Global Sales and Markets; 2009 objectives After six months of activity, the Group confirms its full year guidance: slight decrease in revenue, improvement in operating margin of 50 to 100 basis points compared to 2008, and positive cash flow. Atos Origin Half-Year Report 2009 69/75 13 GLOSSARY – DEFINITIONS Financial terms and Key Performance Indicators (cid:131) Current and non-current (cid:131) DSO (cid:131) EBITDA (cid:131) EPS (cid:131) Gearing (cid:131) Gross margin – Direct costs (cid:131) (cid:131) (cid:131) Leverage ratio (cid:131) Net debt (cid:131) Adjusted EPS (cid:131) Adjusted net income (cid:131) OMDA (cid:131) Operating income (cid:131) Operating margin (cid:131) Operational Capital Employed (cid:131) ROCE (Return Of Capital Employed) Indirect costs Interest cover ratio Business terms (cid:131) BPO (cid:131) CMM (cid:131) CRM (cid:131) ERP (cid:131) LAN (cid:131) MMS (cid:131) SCM (cid:131) WAN Atos Origin Half-Year Report 2009 70/75 Business Key Performance Indicators (cid:131) Attrition rate (cid:131) Backlog / Order cover (cid:131) Book-to-bill (cid:131) Direct and indirect staff (cid:131) External revenue (cid:131) Full Time Equivalent (FTE) (cid:131) Legal staff (cid:131) Order entry / bookings (cid:131) Organic revenue growth (cid:131) Permanent and temporary staff (cid:131) Pipeline (cid:131) Ratio S (cid:131) Subcontractors and interims (cid:131) TCV (Total Contract Value) (cid:131) Turnover (cid:131) Utilisation rate and non-utilisation rate Market terms (cid:131) Consensus (cid:131) Dilutive instruments (cid:131) Dividends (cid:131) Enterprise Value (EV) (cid:131) Free float (cid:131) Free float capitalisation (cid:131) Market capitalisation (cid:131) PEG (Price Earnings Growth) (cid:131) PER (Price Earnings Ratio) (cid:131) Volatility 13.1 FINANCIAL TERMS AND KEY PERFORMANCE INDICATORS USED IN THIS DOCUMENT Operating margin. Operating margin comprises operating income before equity-based compensations, major capital gains or losses on the disposal of assets, major reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigations and the release of opening balance sheet provisions no longer needed. Operating income. Operating income comprises net income before deferred and income taxes, net financial expenses, share of net income from associates and the results of discontinued operations. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). For Atos Origin, EBITDA is based on Operating margin less non-cash items and is referred to as OMDA (Operating Margin before Depreciation and Amortisation) OMDA (Operating Margin before Depreciation and Amortisation) is calculated as follows: Operating margin Less - Depreciation of fixed assets (as disclosed in the “Financial Report”) Less - Operating net charge of provisions (composed of net charge of provisions for current assets and net charge of provisions for contingencies and losses, both disclosed in the “Financial Report”) Less - Net charge of provisions for pensions (as disclosed in the “Financial Report”) Gross margin and Indirect costs. Gross margin is composed of revenues less the direct costs of goods sold. Direct costs relate to the generation of products and/or services delivered to customers, while indirect costs include all costs related to indirect staff (defined hereafter), which are not directly linked to the realisation of the revenue. The operating margin comprises gross margin less indirect costs. Adjusted net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax. EPS (earnings per share). Basic EPS is the net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is the net income divided by the diluted weighted-average number of common shares for the period (number of shares outstanding + dilutive instruments with dilutive effect). Adjusted EPS is based on adjusted net income. Operational capital employed. Operational capital employed comprises net fixed assets and net working capital, but excludes goodwill and net assets held for sale. Current and non-current assets or liabilities. A current and non-current distinction is made between assets and liabilities on the balance sheet. Atos Origin has classified as current assets and liabilities those that Atos Origin expects to realise, use or settle during its normal cycle of operations, which can extend beyond 12 months following the period-end. Current assets and liabilities, excluding the current portion of borrowings and financial receivables, represent the Group’s working capital requirement. Net debt. Net debt comprises total borrowings (bonds, finance leases, short and long-term bank loans, securitisation and other borrowings), short-term financial assets and liabilities bearing interest with a maturity of less than 12 months, less cash and cash equivalents (transferable securities, cash at bank and in hand). DSO (Days’ sales outstanding). DSO is the amount of trade accounts receivables (including work in progress) expressed in days' revenue (on a last-in, first-out basis). The number of days is calculated in accordance with the Gregorian calendar. Gearing. The proportion, expressed as a percentage, of net debt to total shareholders’ equity (Group share and minority interests). Interest cover ratio. Operating margin divided by the net cost of financial debt, expressed as a multiple. Leverage ratio. Net debt divided by OMDA. ROCE (return on capital employed). ROCE is net income (Group share), before the net cost of financial debt (net of tax) and the depreciation of goodwill, divided by capital employed. Atos Origin Half-Year Report 2009 71/75 . 13.2 MARKET TERMS Consensus. Opinion that emerges from the financial community, in which financial analysts play a prominent role. Consensus can relate to earnings outlook (individual stock consensus) or to a group of companies in the same sector (market consensus). Dilutive instruments. Financial instruments such as bonds, warrants, stock subscription options, free shares, which could be converted into shares and have therefore a potential dilutive impact on common stock. Dividends. Cash or stock payments from a company's profits that are distributed to stockholders. Free float. Free float is the proportion of a Company’s share capital that is regularly traded on the stock exchange. It excludes shares in the six categories listed below (source Euronext): (cid:131) Shares held by Group companies Shares of the listed company held by companies that it controls within the meaning of Article 233/3 of the French Commercial Code. (cid:131) Shares held by founders Shares held directly or indirectly by the founders (individuals or family group) when these founders have managerial or supervisory influence (management positions, control by voting rights, influence that is a matter of public knowledge, etc.). (cid:131) Shares held by the State Interests held directly by the State, or by public sector or other companies which are themselves controlled by the State. (cid:131) Shares within the scope of a shareholders agreement Shares subject to a shareholders' agreement within the meaning of Article 233/10 and 11 of the French Commercial Code, and other than those held by founders or the State. (cid:131) Controlling interest (cid:131) Shares held by juridical persons (other than founders or the State) exercising control within the meaning of article 233/3 of the French Commercial Code. Interests considered stable Interests exceeding 5%, which have not declined by one percentage point or more, excluding the impact of dilution, in the three preceding years. This category also includes shareholders that, in addition to or in association with the link represented by share ownership, have recently entered into significant industrial or strategic agreements with the Company. Free-float capitalisation. The share price of a company multiplied by the number of free-float shares as defined above. Market capitalisation The share price of a company multiplied by the number of its shares in issue. Volatility. The variability of movements in a share price, measured by the standard deviation of the ratio of two successive prices. Enterprise Value (EV). Market capitalisation + debt. PER (Price Earnings Ratio). Market capitalisation divided by net income for a trailing (or forward) 12- month period. PEG (Price Earnings Growth). Price-earnings ratio divided by year-on-year earnings growth. Atos Origin Half-Year Report 2009 72/75 13.3 BUSINESS TERMS BPO (Business Process Outsourcing). Outsourcing of a business function or process, e.g. administrative functions such as accounting, HR management, call centres, etc. CMM (Capability Maturity Model). CMM is a method for evaluating and measuring the competence of the software development process in an organisation on a scale of 1 to 5. CMMI. Capability Maturity Model Integration. CRM (Customer Relationship Management). Managing customer relationships (after–sales service, purchasing advice, utilisation advice, customer loyalty) has become a strategic component of a company's successful operation. Not only does CRM facilitate efficiency, it also leads to higher sales by building customer loyalty. ERP (Enterprise Resource Planning). An ERP system is an integrated management software system built in modules, which is capable of integrating sales, manufacturing, purchasing, accounting and human resources systems into an enterprise-wide management information system. LAN (Local Area Network). A local network that connects a number of computers within a single building or unit. MMS (Multimedia Message Service). A message capable of carrying text, sounds, fixed or animated colour images, generally sent to a mobile phone. SCM (Supply Chain Management). A system designed to optimise the logistics chain, aimed at improving cost management and flexibility. WAN (Wide Area Network). A long–distance network that generally comprises several local networks and covers a large geographical area. 13.4 BUSINESS KPIS (KEY PERFORMANCE INDICATORS) 13.4.1 Revenue External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT, nil margin pass-through revenue). Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period. Order entry / bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. When an offer is won (contract signed), the total contract value is added to the backlog and the order entry is recognised. TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal. Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognised over their contract lives. Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success. Organic growth. Organic growth represents the% growth of a unit based on a constant scope and exchange rates basis. Atos Origin Half-Year Report 2009 73/75 13.4.2 Human resources Legal staff. The total number of employees under Atos Origin employment contracts at the end of the period. Legal staff includes those on long sickness or long absence, apprentices, trainees, and employees on maternity leave, but excludes subcontractors and interims. FTE (Full-time equivalent staff). The total number of staff calculated using information from time sheets on the basis of working time divided by standard contractual workable time per employee. In general, a person working on a full time contract is considered as one FTE, whereas a person working on a part time contract would be less considered than one FTE. Calculations are based on contractual working time (excluding overtime and unpaid holidays) with potential workable time (in hours or days) = nominal time + overtime balance – unpaid vacation. For subcontractors and interims, potential workable hours are based on the number of hours billed by the supplier to Atos Origin. Subcontractors. External subcontractors are third-party suppliers. Outsourced activities (e.g. printing or call centre activities) and fixed price subcontracting are excluded from the recorded number of subcontractors or interims. Interims. Staff from an agency for temporary personnel. Interims are usually used to cover seasonal peaks or for situations requiring staff for a short period of time. Direct Staff. Direct staff include permanent staff and subcontractors, whose work is billable to a third party. Indirect staff. Indirect staff include permanent staff or subcontractors, who are not billable to clients. Indirect staff are not directly involved in the generation of products and/or services delivered to clients. Permanent staff. Permanent staff members have a contract for an unspecified period of time. Temporary staff. Temporary staff have a contract for a fixed or limited period of time. Ratio S . Measures the number of indirect staff as a percentage of total FTE staff, including both own staff and subcontractors. Staff turnover and attrition rate (for legal staff). Turnover and attrition rates measure the proportion of legal staff that has left the Company (voluntary and/or involuntary) in a defined period. Turnover measures the percentage of legal staff that has left the business in a defined period. Attrition measures the percentage of legal permanent staff that has voluntarily left the business in a defined period. Attrition rate is a ratio based on total voluntary leavers in the period on an annual basis divided by the average number of permanent staff in the period. Utilisation rate and non-utilisation rate. Utilisation rate + non-utilisation rate = 100% of workable time for direct FTE, which excludes legal vacations, long-term sickness, long-term sabbaticals and parental leave. Workable time is composed of billed time, inactivity that is billable but not billed (exceptional holidays, sickness, on the bench which is between two assignments, other inactivity as delegation), and non-billable time (pre-sales, training, management meetings, research and development and travel). Utilisation rate measures the proportion of workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is billed to customer. The ratio is expressed in percentage terms based on billed hours divided by workable hours excluding vacations. Non-utilisation rate measures the workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is not billed or is non-billable to clients. Atos Origin Half-Year Report 2009 74/75 14 LOCATIONS Austria Technologiestraße 8 / Gebäude D A-1120 Wien Tel: +43 1 60543 0 Systems Integration Tour les Miroirs - Bât C 18, Avenue d'Alsace 92926 Paris La Defense Cedex Tel: +33 1 55 91 2000 Belgium Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 690 2800 Atos Consulting Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 2000 Global Consulting & Systems Integration (Global C&SI) Da Vincilaan 5 B-1930 Zaventem Tel: +32 2 712 3777 Germany Theodor-Althoff-Str. 47 D-45133 Essen Telefon: +49 (0) 20 14 3050 Atos Worldline Belgium Chaussée de Haecht 1442 Haachtsesteenweg 1130 Brussels Phone: +32 (0)2 727 61 11 Fax: +32 (0)2 727 67 67 Atos Worldline GmbH Hahnstraße 25 D-60528 Frankfurt/Main Tel: +49 69 66566 0 Greece 18 Kifisias Avenue 151 25 Athens Tel +30 210 688 9016 Brazil Rua Itapaiuna 2434 - 2° andar - Santo Amaro São Paulo – SP CEP: 05707-001 Tel: +55 11 3779 2344 Hong Kong Suites 1701-8, Prudential Tower 21 Canton Road Tsimshatsui, Kowloon Tel: +852 2830 0000 China 5th Floor, Lido Commercial Center Jichang Road Beijing 100004 Tel: +86 10 6437 6668 India SDF-IV, Units 126/127 SEEPZ, Andheri (east) Mumbai 400 096 Tel: +91 22 28 29 0743 France Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 2000 Indonesia Wisma Kyoei Prince, #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta, 10220 Tel: +62 21 572 4373 Atos Worldline France Tour Manhattan 5-6 place de l'Iris 92926 Paris La Defense Cedex Tel: +33 1 49 00 9000 Japan 20/F Shinjuku Park Tower, 3-7-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 163-1020 Tel: +81 3 3344 6631 Outsourcing Tour Horizon 64 Rue du 8 Mai 1945 92025 Nanterre Tel: +33 1 70 92 1340 Atos Origin Half-Year Report 2009 75/75 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel.: +352 31 36 37 1 Malaysia Suite F01, 1st Floor 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Darul Ehsan West Malaysia Tél.: +60 3 8318 6100 Morocco Avenue Annakhil - Espace High tech Hall B – 5th floor HAYRYAD - Rabat Morocco Tel: +212 37 57 79 79 Poland ul. Domaniewska 41 02-672 Warszawa (budynek Taurus) Tel: +48 22 606 1900 Portugal Av. 5 de Outubro, 73 - C, 1 andar Edifício Goya, Escritório 4 1050-049 Lisboa Tel: +351 21 359 3150 Singapore 8 Temasek Boulevard #07-01 Suntec Tower Three Singapore 038988 Tel: +65 6333 8000 South Africa 204 Rivonia Road, Sandton Private Bag X136 Bryanston 2021 Tel: +27 11 895 2000 Spain Albarracín, 25 28037 Madrid Tel: +34 91 440 8800 Atos Consulting Albarracín, 27 28037 Madrid Tel: +34 91 214 9500 Switzerland Industriestrasse 19 8304 Wallisellen Tel: +41 1 877 6969 24, Avenue de Champel 1206 Genève Tel: +41 22 789 3700 Switzerland (Telecom) Binzmühlestrasse 95 8050 Zürich Switzerland Tel: +41 1 308 9510 Taiwan 9F, No 115 Sec 3 Ming Sheng E Road Taipei Tel: +886 2 2514 2500 The Netherlands Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Atos Consulting Papendorpseweg 93 3528 BJ Utrecht Tel: +31 30 299 4444 Turkey Kisikli Caddesi N°37 Aksel Is Merkezi 2 Kat Altunizade 34 662 Istanbul Tél.: +90 216 531 7383 United Kingdom 4 Triton Square Regent’s Place London NW1 3HG Phone: +44 20 7830 4444 USA 5599 San Felipe Suite 300 Houston TX, 77056 Tel: +1 713 513 3000 | Semestriel, 2009, IT, Atos | write me a financial report |
Semestriel | 2,010 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| TURNING CLIENT VISION INTO RESULTS 2010 HALF-YEAR REPORT This document is a full free translation of the original French text. The original document has been filed with the Autorité des Marchés Financiers (AMF) on 30 July 2010, in accordance with article 212-13 of the AMF’s general regulations. Page 1 of 95 CONTENTS FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2010 ........................... 3 1 CEO MESSAGE .............................................................................................................................. 5 2 GROUP GOVERNANCE ................................................................................................................. 6 3 THE IT SERVICES MARKET .......................................................................................................... 8 4 OPERATIONAL REVIEW.............................................................................................................. 24 5 TOP PROGRAM (TOTAL OPERATIONAL PERFORMANCE) .................................................... 37 6 FINANCIAL REVIEW .................................................................................................................... 42 7 HALF-YEAR FINANCIAL REPORT .............................................................................................. 47 8 9 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE ............................................... 72 10 SHAREHOLDER RELATIONS ..................................................................................................... 76 11 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS .......................................................................................................... 81 12 PRESS RELEASE FOR THE 2010 FIRST HALF RESULTS ........................................................ 84 13 GLOSSARY – DEFINITIONS ........................................................................................................ 89 LOCATIONS.................................................................................................................................. 95 14 Page 2 of 95 1 FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 JUNE 2010 (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 (*) % Change Income Statement Statutory revenue 2,494 2,589 3.7% Impact from exchange rates 26 Revenue at 2010 scope and exchange rate 2,494 2,615 4.6% Operating margin % of revenue 150.1 6.0% 118.3 4.6% Operating income % of revenue 95.9 3.8% 42.5 1.6% Net income (Group share) % of revenue Normalised net income (Group share) (c) % of revenue 60.0 2.4% 98.3 3.9% 18.2 0.7% 73.9 2.9% Earnings per share (EPS) Basic EPS (a) Diluted EPS (b) Adjusted basic EPS (a) (c) Adjusted diluted EPS (b) (c) 0.87 0.85 1.42 1.35 0.27 1.27 1.08 1.08 30 June 30 June (in units) 2010 2009 Other Key Indicators Net debt to equity ratio (Gearing) Employees at period end (*) Does include the impact on Operating Margin from the change in accounting policies for the calculation of pensions 7% 48,188 20% 49,407 (a) In euros, based on a weighted average number of shares. (b) In euros, based on a diluted weighted average number of shares. (c) Based on net income (Group share) before unusual, abnormal and infrequent items (net of tax). Page 3 of 95 REVENUE BREAKDOWN BY SERVICE LINES, GBUS AND MARKET VERTICALS Consulting 4% Medical BPO 3% H1 2010 HTTS 20% Managed Serv. 37% Managed Serv. Systems Integration HTTS 903 902 499 Systems Integration 36% Consulting Medical BPO 110 80 2,494 Spain 6% Other countries 8% France 23% France H1 2010 573 Germany / CEMA 10% Benelux UK 459 442 Atos Worldline 420 Atos Worldline 17% UK 18% Benelux 18% Germany / CEMA Spain Other countries 241 158 201 2,494 Energy & Utilities 11% Public sector 23% H1 2010 Public sector 585 Manuf. / Retail / Trans. 27% Financial services Telecom & Media Manuf. / Retail / Trans. 562 388 690 Telecom & Media 16% Financial services 23% Energy & Utilities 269 2,494 (in EUR million) Global Business Units include France, United Kingdom, Benelux (The Netherlands, Belgium and Luxembourg), Atos Worldline (French, German and Belgium subsidiaries), GCEMA (Germany Central Europe with Austria, Poland, and Mediterranean countries and Africa which include South Africa, Greece, Turkey and Switzerland), Spain and Other countries (South America including Argentina, Brazil and Columbia, Asia Pacific including China, Hong Kong, Singapore, Malaysia, Indonesia, Taiwan, and Japan, as well as North America, India, Major Events, Morocco and Middle East with Dubai). Page 4 of 95 2 CEO MESSAGE Dear Shareholders, Mid way through the three-year recovery plan I announced at the end of 2008, I am glad to report that once again this semester our Group has delivered a performance in line with its commitments. Our profitability reached 6.0% (5.7% excluding the impact of the new French tax regulations) representing a strong improvement of 110 basis points compared to the first half of 2009. Our Group is therefore on track to improve its operating margin by at least 250 basis points between 2008 and 2011 according to its objective. The net debt has decreased by EUR 20 million taking into account EUR 54 million cash outflow in order to acquire the company Shere in the United Kingdom and the minority interests of the German subsidiary of Atos Worldline, to further develop transaction based services. This performance was achieved thanks to the rigorous implementation of the Total Operational Performance (TOP) program regarding cost optimization, off shoring, cash management and Lean productivity. In what is a still difficult economic environment, and in line with our anticipations, our revenue decline was limited to 4.6% in the first half. Our services in emerging countries performed very well, but we are still enduring the effects of the crisis in several geographies and service lines. Therefore, we reinforced several initiatives to prepare the Group for the post crisis economic environment, which enabled us to increase order entries and our backlog. The 5 new TOP Programs on sales aim to build a world-class sales organization by developing strategic and proactive selling – especially for our new innovative offerings (Cloud, Green IT…) -. The Global Atos Market Alignment (GAMA) reorganization has started to be implemented and emphasis has been put on innovation. In this respect, we presented a suite of Smart Mobility services; we launched Atos WorldGrid in order to regroup all our Smart Energy and Utilities activities in one single entity. New innovative solutions will be developed regarding Enterprise Content Management (ECM) and Social Computing. High Tech Transactional Services (HTTS) deployment is a key engine of our development. Our HTTS initiatives have grown up in several countries beyond the Atos Worldline core geographies. Dedicated teams have been trained in our main geographies, generating new leads and business opportunities thanks to the Atos Worldline support. During the past 6 months we have moved forward to transform Atos Origin into a truly socially responsible company. We published our first corporate responsibility report certified according to the Global Reporting Initiative (GRI) standards. We also signed the UN Global Compact regarding human rights, labour, environment and anti-corruption principles. During the next 6 months we will pursue our ambition to be recognized as one of the best companies to work for, by anticipating new and sustainable ways of working. This is the objective of the Well Being at Work program. Our new Atos Campus in Bezons near Paris is a tangible proof of progresses in theses domains. Overall the Group performance allows Atos Origin to pursue its international development, building on its core assets but also by taking advantage of acquisitions opportunities. I am proud of the work and the performance realized by our teams during the first half of this year, and I am confident in our capability to achieve our objectives for the full year 2010. Thierry BRETON, Chairman and Chief Executive Officer Page 5 of 95 3 GROUP GOVERNANCE Since 10 February 2009, Atos Origin has been incorporated in France as a ”Société Anonyme” (Joint Stock Corporation) with a Board of Directors. Since then, Thierry Breton has been its Chairman and Chief Executive Officer. The change from a Supervisory Board and a Management Board structure to a system with a Board of Directors and Chairman and Chief Executive Officer has simplified and unified the Company’s governance so as to adapt it to its current challenges. 3.1 THE GROUP TOP MANAGEMENT The Group Top Management is composed of a Chairman and Chief Executive Officer and two Senior Executive Vice-Presidents. Name Operational functions Transversal functions Thierry Breton Chairman and Chief Executive Officer Charles Dehelly Senior Executive Vice President Global Operations Global Systems Integration & Managed Services, Program, Global Purchasing, Group Business Units (*) TOP Gilles Grapinet Senior Executive Vice President Global Functions functions, Global Sales & Support International Markets, Customers Innovation (SICs), Group Business Dvpt & Strategy (GIBS), Global Consulting and Hi-Tech Transactional Services Strategic (*) Excluding Atos Worldline and Atos WorldGrid that are under the responsibility of Gilles Grapinet 3.2 THE EXECUTIVE COMMITTEE The purpose of the Executive Committee is to manage the operational performance of the Group. Its main areas of competence are to assist the Top Management in defining priorities and monitoring operational performance, the enforcement of the TOP Program (Total Operational Performance) and the implementation of action plans. It is an entity dedicated to the operational management of the Group. The mission of the Executive Committee is to improve interaction and cooperation between the Global Business Units, the Global Service Lines, Global Sales & Market and Global Functions. The Executive Committee is composed of members of the Top Management as well as managers from the Global Units, the Global Services Lines, the Chief Financial Officer, the Head of Human Resources, the Head of Global Sales & Markets, the Head of Global Strategic International Customers, the Head of Group Innovation Business Development & Strategy and the Group General Secretary. 3.3 THE BOARD OF DIRECTORS Following the Ordinary and Extraordinary Shareholders Meeting held on 27 May 2010, the shareholders approved the appointment of Ms. Aminata Niane as new member of the Board of Directors and it also confirmed the nomination of Ms.Colette Neuville as Censor. Page 6 of 95 The members of the Board of Directors are: Name Nationality Age Date of appointment Committee member Term of offices (*) Number of actions held French René Abate American Behdad Alizadeh French Nicolas Bazire French Jean-Paul Béchat French Thierry Breton British Ms. Jean Fleming French Bertrand Meunier Senegalese Ms. Aminata Niane French Michel Paris Italian Pasquale Pistorio Vernon Sankey British Jean-Philippe Thierry French Lionel Zinsou - Derlin French and 61 48 52 67 54 41 53 53 52 73 60 61 55 2009 2009 2009 2009 2009 2009 2009 2010 2009 2009 2009 2009 2010 N&R N&R A N&R A A A N&R 2011 2011 2011 2011 2011 2011 2011 2012 2011 2011 2011 2011 2011 1,000 1,000 1,000 1,000 5,000 640 1,000 (**) 1,000 1,000 1,000 1,500 1 000 Beninese Censor Ms. Colette Neuville French 73 2010 2010 500 A: Audit Committee; N&R: Nomination and Remuneration Committee (*) General meeting of shareholders deciding on the accounts of the year (**) Ms. Aminata Niane having been appointed during the Shareholders Meeting hold on 27 May 2010 will have, according to the by-laws, three months upon his appointment to purchase 1,000 shares a minima. Page 7 of 95 4 THE IT SERVICES MARKET 4.1 MARKET SHARES AND COMPETITORS 4.1.1 Global picture of the IT services Market Classical IT European Market After the tough conditions of 2009, the European IT services market will continue to be intensely competitive in 2010, with US and European IT services providers restructuring and re-focusing to maintain competitiveness. There will be an increased focus on specialisation and vertical industry capability. If significant business uncertainty continues then enterprises will increasingly seek to reduce risk by turning to service providers they trust. In this environment, service providers that actively manage quality of service will develop a competitive advantage over those that do not. As mentioned earlier, new entrants are now entering the traditional infrastructure service markets with very packaged offers, providing mail, storage, targeting first mid size markets before moving up in the value chain. Salesforce.com continues to meet a fantastic success with more than 30% of market share in the cloud CRM offering sphere. Alliances will continue to be an increasing feature of winning new and innovative business – with IT service providers teaming up with industry specialists, technical specialists, or their direct competitors. Highly competitive, specialist offerings (innovative/good customer fit/good price) will be increasingly important to increase market shares, and maintain growth over the next couple of years. Payments activity SEPA implementation Nowadays, there’s no denying it is much more complex to process a payment between two states of the Euro zone rather than within the same country. This situation has resulted from the partitioning of national banking activities, and more specifically regarding legal and technical aspects. In order to fix this unsatisfying situation, the European Commission has launched the set up of a new legal framework called the SEPA: Single European Payments Area. This projects aims at creating a European standard for payments, so that anywhere within the zone, Direct Debits, Card or transfer payments can be treated with the same pace, same safety and same billing conditions than a domestic transaction, by offering European citizens common deposit payment means. The Banking industry has defined the Core SEPA schemes for transfer payments and Direct Debit. The one regarding transfers has been successfully launched in January 2008. As from November 2009, banks have gradually implemented SEPA Direct Debit services. For card transactions, the SEPA framework has been agreed and is in the process of being implemented by banks, card schemes and card processors. New trends on the Payment Market Electronic payments enjoy a fantastic growth, facilitated by a higher penetration of home computing New channels are quickly adopted, smartphones, PC, new payments devices, • Cross border transactions were limited in the past both in term of numbers and value; as travel and tourism further develop, int’l transactions across countries are growing very quickly; Last but not least, comparable to the mobile phone prepaid success, prepaid payments are becoming very popular (giftcard...). The dynamics of the payment market are basically around two phenomenons, the polarisation of the industry on selected elements of the value chain, and the intensification of the fierce already competition that was existing only in the past on few markets. Page 8 of 95 The overall landscape is evolving too: HSBC launched an initiative in 2008 to provide worldwide payment services to UK vendors and Internet merchant; Ingenico announced the acquisition of Easycash in the fourth quarter of 2009, and in November a possible cooperation of Equens with CEDICAM (Credit Agricole) was announced. 4.1.2 Western Europe ranking According to Gartner, Atos Origin was at the end of 2009 the fifth largest IT services company in Western Europe, with a market share of 3.4%. IT services market share ranking was as follows: In M€ 2009 Revenue Market Share (% ) 12,000 10,853 10,000 8,000 6,573 6,112 6,050 6,000 4,733 4,000 4,117 3,971 3,858 3,449 3,364 3,162 3,007 2,000 7.8% 4.7% 4.4% 4.3% 3.4% 3.0% 2.8% 2.8% 2.5% 2.4% 2.3% 2.2% 1,630 1,490 1.2% 1.1% ,0 I B a p g e m i ni P E c c e n t u r e A to s O rigin T - S y ste s B ritis h T ele c o ujit s u gic a S ie e n s a pita G r o S te ria Tiet o n at o r Sources: Companies, Gartner IT Services Worldwide Market Share study 2007-2009, August 2010 for Professional Services in Western Europe. Exchange rate considered: USD 1 = EUR 0.7196 in 2009 In EUR million, Professional Services include Consulting Services (Consulting for Atos Origin), Development and Integration Services (Systems Integration for Atos Origin), IT Management (Managed Services for Atos Origin) and Process Management (On-line Services and BPO for Atos Origin), but excluding Product Support (Hardware and Software Maintenance and Support). Page 9 of 95 8% 7% 6% 5% 4% 3% 2% 1% 0% 4.2 MARKET TRENDS IT services market is changing quickly and an overall acceleration of the speed of change is taking place. Here under is the summary of the key trends that the Company believes will result in a progressive re-shaping of the market, both on the supply side, with players like Atos Origin, and on the demand side, which concerns the customers or sometimes, customers of customers. 4.2.1 Supply The growth in multi-sourcing and offshore Large players have increased their low cost delivery capabilities and large Indian players have made significant entries on Continental Europe. The Group is seeing both Western and Indian service providers ultimately heading towards the same delivery model – a network of on-site, on-shore, near shore and offshore – with delivery centers, or delivery partners, in alternative locations around the world. Some analysts are nevertheless predicting that a service solely based on a low cost workforce business model will not ensure clients’ satisfaction. The success of global delivery networks will rather depend less on the availability of low-cost resources and more on the quality of skills, tools, methodologies and alliances. The growth numbers for the ‘Indian-heritage’ IT service providers was over 25% per annum in last three years has slowed but they are still extremely active. After 2009 challenges, namely for those having a strong customer base in the US, manufacturing or banking, the Company anticipates a further slowdown, but still expect them to be leading the growth numbers in 2010. Atos Origin expects their increased focus on Europe and Asia Pacific to continue. While the market share of the leading ‘India- heritage’ providers is still limited in Europe, they are actively pursuing international deals, and may consider extending their growing capacity and capability through targeted acquisitions on small companies. Increasing drive for cost effectiveness (industrialisation and Lean techniques) Most of the IT services companies have launched strong programs aiming at decreasing their cost of operations, on one hand by simplifying their operation and reducing indirect non productive workforce, on the other hand by moving to get more with less, i.e. using latest technologies and tooling to become more efficient (automation in infrastructure management, software based solutions to develop code and collect demand from customer with streamlined processes. Lean techniques, developed first in manufacturing industries, or Six sigma, are now promoted throughout the IT services market, mostly in the managed operation sphere, but more and more in the Systems Integration activities. Cloud services (Cloud computing and SaaS) IT services are either the sources or the enablers of the growing number of innovation happening on the markets. Section 16 of the 2009 annual report covers the most innovative events, from the increasing importance given from what is used in the private life, communities, social networks, and blogs, up to what is widely used in enterprise. The Group forecasts that the growing adoption of Cloud Computing will be one of the most relevant trends for the IT industry in 2010. The arrival of Google and Amazon from the mass market to the enterprise illustrates this disruptive change. This evolution is part of the overall “Cloud computing” phenomenon that is now shaping up. After a year 2009, when numerous North American providers have announced their plans of developing Cloud services, players aim at reaching Europe, where they start to prepare marketing actions. Gartner1 describes Cloud Service characteristics as “a style of computing where scalable and elastic IT- related capabilities are provided 'as a service' to external customers using Internet Technologies”. For Atos Origin, a Cloud Service is any service delivered to its clients over the Internet on a pay- per-use basis. 1 Gartner: Worldwide leading IT research and advisory company Page 10 of 95 Cloud Services is a continuum of existing services, and can be further classified in four functional layers, in which layer ‘1’ describes pure business functions, and layer ‘4’ describes IT infrastructure services: 1. Business Process as a Service – service examples include helpdesk, CRM, and card management; 2. Software as a Service – service examples include SAP applications, SalesForce.com and Microsoft BPOS; 3. Platform as a Service – service examples such as middleware, including database and transaction processing platforms, on-demand development environments and Google applications; 4. Infrastructure as a Service – service examples include Amazon infrastructure, and typically provide processing, storage and networking on-demand and the Operating System. Although still maturing, these services are being delivered today, and analysts are predicting that 25% of IT services will be coming from such non-traditional models by 2012. Atos Origin believes that pay-per-uses, highly flexible and shared solutions offered by Cloud Computing, are perfectly aligned with clients’ current needs and will therefore have a very strong impact on the IT market in the coming years. Atos Origin already has a solid track record in developing and delivering Cloud Services, especially through its Atos Worldline subsidiary, and has decided at the beginning of 2010 to develop new solutions designed to help its client to take the opportunity of the Cloud. With the launch of Atos Sphere™ solutions in January, the company has formed a new combination of its Consulting, Hi-Tech Transactional Services, Systems Integration and Managed Services solutions to deliver a complete package of offerings to deal with this new challenge: Consulting support to understand what is at stake in their specific situation, design a roadmap and manage their Cloud program, a range of Cloud infrastructure services hosted in Atos Origin’s own datacenters and taking onboard all security features recognized as a key asset of Atos Origin, offering clients the choice between “Private” and “Public” Cloud, a range of functional services, now affordable for SMEs, including advanced SAP testing services, Data Migration services, Product Lifecycle Management services, etc. Atos Origin is committed to enhance continuously its Atos Sphere solutions to fulfil its vision of becoming a Cloud Enabler for its clients, offering them the integrated access to its own cloud services, but also to the widest range of available Cloud services, in a secure and managed way, consistent with its habit of providing top professional quality of service to the most demanding industries. Positioning and communication on innovation Regarding the increasing number of IT solutions on the market, companies have launched initiatives in order to clarify their positioning, and Atos Origin has been actively involved in this communication shift. After the announcement in June 2009 of the HTTS program, which aims at rolling Atos Worldline portfolio out - through the geographies of Atos Origin, the Group established in 2010 a marketing plan in order to renew its solutions and meet clients need for innovation. In this context, the Chief Executing Officer, Thierry Breton, has set up a calendar on a quarterly basis, to communicate each time a major solution is launched. Over the first semester, AtosSphere, Ambition Carbon Free, Atos WorldGrid as well as Smart Mobility solutions have been launched. On the second Half, the Group will present its Social Computing solutions. This alternate communication between financial release and communication on innovative offers highlights the focus given to the content of those new solutions and the policy of the Group to differentiate from peers. Page 11 of 95 4.2.2 Demand Decrease cost of IT through Outsourcing Globalisation, multi-sourcing and industrialisation are well established market trends. Together they have had the biggest overall influence on the re-shaping of the IT services market over recent years. Customers are demanding more sophisticated value propositions with short payback periods. They look for increased flexibility, such as pay for use pricing and key performance indicators based on business outcomes. This has been coupled with more deals being scoped to cover the IT support of end to end processes, Consulting, Systems Integration and Managed Services capabilities. Growth of demand for BPO The initial strong growth of BPO has been fuelled with enterprises outsourcing basic processes, HR, accounting, first in US and UK, but progressively in Continental Europe, asking for labour arbitrage for the clerk work to be added to the traditional value proposition of IT outsourcing. The Group sees now two other waves increasing the demand for BPO: Enterprises widening the scope of the non core processes up to procurement, finance, CRM, and then to business industry specific processes, such as claim management in the insurance, billing in telecom, etc. Public organizations, facing ageing civil servants, looking as well to externalize the classic non core processes. The Group believes this emerging trend to grow in the coming years. Content Management and collaboration One of the most visible trends in the IT industry in recent times has been the explosive growth of digital information. Most of the customers are reporting a doubling of their enterprise data every 18 months to 2 years. In the coming years, Atos Origin expects this growth trend to continue and even accelerate requiring additional effort and services to be utilized to both secure as well as store this data. Information volume is expected to grow tenfold over the next five years, but our ability to read and assimilate it will not. Users clearly need a way to extract relevant information quickly and easily out of this increasing amount of data – much of which is non-essential. It is commonly accepted that by 2013, more than 25% of the content that information workers see in a day will consist of pictures, video, audio or hybrids of the three plus text. Growing demands for incorporating rich information assets such as digital images and video into enterprise or institutional applications will push strategy, technology and infrastructure requirements forward for cost-effective management However, additionally, and more importantly, a parallel trend is developing to manage and leverage this growing volume of information: to increase worker productivity through greater collaboration; • to respond more effectively to compliancy mandates through intelligent archiving and legal discovery technologies; to improve enterprise agility through streamlining business processes and • to enhance significantly corporate decision making by deploying an enterprise wide information strategy. This will require a more intense scrutiny of existing enterprise information and content management systems and will necessitate new approaches being deployed from the strategic to the architectural level in order to combine both companies structured and unstructured information into one holistic entity. Atos Origin which has had a long and successful history deploying Enterprise Content Management for its customers wants to be in the forefront of this new trend in order to help its customers to gain the competitive advantages that effective managing and leveraging their information can deliver. Page 12 of 95 The drive for sustainability expanding beyond Green IT While media hype already led to real action in 2008, Atos Origin saw an even stronger marked upturn in 2009 in interest in “The Drive for Sustainability”. Drivers in the private sector have been mostly cost reduction and pending regulation (Green IT), stakeholder pressure, and brand development. Governance Risk and Compliance (GRC) offerings are becoming popular. They expand to the public sector too, both to comply with the overall agenda of serving in a better environment, less energy consumption, etc., but also due to higher expectations expressed by citizens. The Group has developed a scientific and technological expertise to minimize its own operations’ impact on the environment (Green for IT) and, through its IT solutions, to help its clients optimize their environmental efficiency (IT for Green). In 2010 Atos Origin is the first IT services company to have reported globally its sustainability achievements regarding 2009, according to the Global Reporting Initiative (GRI), which are the worldwide de facto standards in sustainability reporting. In this respect it has measured its own carbon footprint and reported to the Carbon Disclosure Project. To go even further, in France, Atos Origin has carried out a Carbon Audit in partnership with ADEME & O2 France to evaluate the global carbon footprint of its Aubervilliers datacenter. This assessment can be considered as a groundbreaking initiative in our ICT market. With its Ambition Carbon Free solutions launched in January 2010, Atos Origin is focused on accompanying its clients on their journey toward environmental excellence. The program is designed to harness the IT transformation which consists in integrating energy efficiency best practices and minimizing carbon impact which includes Carbon neutral solutions. Ambition Carbon Free offerings include: Transformation services and solutions including sustainability Maturity Assessment (sustainability roadmap), operational measurement systems (Intelligent Sustainability), Change Management Program (Sustainable Cultural Behaviours), Digital Company (Sustainable Working Environment), Business Transformation (Green Procurement, Green Supply-chain and Green Manufacturing), in order to provide the best balance between performance and Green efficiency; IT Green Transformation Projects include application portfolio rationalization, workplace energy efficiency, Green infrastructure transformation using the new technologies of virtualization, Green data centers where applications are hosted in an environmentally-friendly way. To further decrease the carbon emitted by the hosting applications, Atos Origin has concluded a partnership with Schneider Electric in order to implement the best Green performing cooling technologies in its data centers. Through these various solutions, the IT Carbon footprint of Atos Origin clients can be dramatically abated; In addition, for the first time in 2010, Atos Origin proposes to its customers to offset the remaining IT CO2 emissions, through a partnership with a trusty offsetting organization. More specifically, Atos Sphere will be providing Cloud solutions with zero carbon footprints. The Offsetting initiative will be part of a Carbon Footprint Abatement Programs with the principal objective of shrinking the CO2 emissions. Many of the technological solutions proposed in our portfolio have been deployed in Vancouver to minimize the Winter Olympic Games’ carbon footprint. As a result Atos Origin was awarded a “Sustainability Star” by the Vancouver Organizing Committee in December 2009. These Green offers, as well as the Atos Origin sustainability achievements, are also mentioned in the section 18 of the 2009 Reference Document (on Corporate Social Responsibility) and are detailed in the Corporate Responsibility Report that Atos Origin edited for the first time this year. Page 13 of 95 4.3 IT SERVICES MARKET BY ACTIVITY 4.3.1 2010 Forecasts from Gartner – Worldwide leading IT research and advisory company According to its study published over the Second Quarter 2010, the research advisory company Gartner expects a market growth between 1 and 2 percent for the European IT sector in 2010: Spending growth rate (in %) (In EUR million) 2008 2009 2010 2009 vs. 2008 2010 vs. 2009 Consulting Development and Integration Outsourcing - BPO Western Europe in total 19,056 54,733 75,818 149,607 17,101 49,541 72,803 139,445 17,491 50,334 74,110 141,935 10.3% -9.5% -4.0% -6.8% +2.3% +1.6% +1.8% +1.8% Source: Gartner, IT Services Worldwide Forecast 2000-2014 updated in 2Q 2010 – Western Europe, for Professional services only. Exchange rates used: 1 USD=0.7196 in 2009 and 1 USD = 0.7334 in 2010. Professional services include consulting, development and integration services, IT management (Managed Services for Atos Origin) and process management (On-line Services and BPO for Atos Origin), but exclude product support (hardware and software maintenance and support). 4.3.2 Focus by activity Consulting Companies are continuously transforming their business models, processes, organization and IT to address new markets and create competitive advantage. Increasingly, Technologies are a key component of these transformations whether enabling or driving them. Companies do not move at the same speed for a variety of reasons. The issue for companies is to identify and adopt relevant technologies faster than the competition and, more importantly, to quickly change their business models, processes and the behaviours of their employees, customers and partners, to reap the full benefits of the new technologies. Challenge for Late Majority technology adopters is to implement new technologies faster while early majority technology adopters’ challenge is to change behaviours, business models and processes deeper and faster. The Consulting market faced tough conditions in 2009. It started already in H2 2008 as large enterprises started to slowdown their discretionary spending to face the crisis; the banking sector, traditionally the largest, was the most difficult market in 2009. This strong diminution of the demand resulted in a severe decline of the market in Europe but depending geographies and markets: North Europe and Spain being the most seriously impacted; • Public bodies and enterprises have focused this year most of their IT spending in consolidation and projects, enabling them to cross the downturn at best, helping them either to decrease cost of operations by aligning their organization to react quicker, or undertaking some regulatory/or compliance works that were mandatory. Consulting in procurement therefore has been a protected area, as purchase departments had to cut their spending. Clients’ expectations regarding Consulting Services are changing; the market is driven to a new Consulting business model, in which customers will increasingly: make no longer difference between business and technology Consulting, as changes in business models and processes are increasingly driven by technology adoption; expect a commitment on measurable criteria, through end-to-end transformation services, rather than independent advisory services; contract on the basis of institutional capabilities rather than personal relationship; • buy global offerings built on the back of tangible assets like tools and methodologies, rather than local expertise; expect providers to be paid as a percentage of delivered benefits. Page 14 of 95 Atos Origin’s expect Consulting to benefit from two major shifts in 2010: business consultancy becoming process oriented; • slowdown of strong pressure coming from the market in 2010 vs. 2009. Atos Consulting aims at creating competitive advantage by anticipating Clients’ expectations from Consulting Services, mostly by better leveraging Atos Origin assets and better aligning with Atos Origin other Service Lines. In this respect, three major initiatives were launched in 2009 and will continue over 2010: Align portfolio of clients (Atos Origin top accounts), in order to increase value to customers by delivering end-to-end Transformation services, reinforce the intimacy with clients, beyond the CIO to business leaders, and increase the pro-activity and share of wallet with the top accounts through improved consultative-selling. Align portfolio of offerings: i) move from local capabilities to structured offerings that can be sold consistently on a global basis: this is a major driver of growth as well as a driver of profitability improvement, ii) to align the Consulting offering portfolio with the global offering portfolio of Atos Origin in order to ensure a full continuum of services. As a result, for all major Systems Integration, Infrastructures services, BPO or HTTS offering, a Consulting solution is being defined. For example, on Cloud computing, Atos Consulting is delivering Cloud opportunity assessment, and on sustainability, proposes Green IT consulting, Intelligent sustainability, Enterprise sustainability assessment (current carbon footprint and CO2 reduction action plan). Align capabilities, to ensure Atos Consulting be the practice that sets Atos Origin apart when it comes to deliver IT-enabled process innovation and Transformation projects: this building first- tools and class process methodologies. innovation and Transformation capabilities based on proven Systems Integration The Systems Integration market faced adverse market conditions during the course of 2009. A lot of enterprises across many industries had to cope with significant and sudden revenues decrease. While they did aggressively cut their expenses, their IT budget was significantly revised down and particularly discrete expenses such professional services. Thus numerous IT projects were postponed or cancelled and sometimes even stopped. Strong pressure on tariffs has been met by Systems Integration players, some contracts having to be renegotiated to meet customer demand for lower TCO2. According to analysts, the Systems Integration market declined in the range of 5% in 2009 with even larger decrease in several core Atos Origin markets such as the Netherlands and Iberia. Nevertheless, Atos Origin remains convinced that the Systems Integration market will continue to enjoy steady and significant mid and long term growth in the future. Growth will be driven both by an increase in technology usage and the addressable market. Technology usage and thus requirement for Systems Integration services will be boosted by spread of communities and Web 2.0, context aware computing, mobility, machine to machine security and identity management. Addressable market size will be boosted by many factors including increase penetration of outsourcing in continental Europe, enhance reliance of public sector, health care domain as well as utilities on IT service providers as well as a boost of demand in BRIC countries (Brazil, Russia, India, China). The development of cloud computing will in addition even boost further the addressable market as it will open the SMBs (Small and Medium Business) market to systems integrators. Managed Services Market growth in Europe for IT management services has been estimated at exceeding 4% in 2009 by the research and advisory company Gartner. 2 TCO: Total Cost of Ownership Page 15 of 95 Outsourcing tends to grow when the economy is weak. However, outsourcing growth stalls in times of uncertainty. Overall, 2009 and next year 2010 are expected to be good years for IT Outsourcing and BPO in Europe, although decision cycles are likely to be on-hold for some, and many buyers will be looking for faster ROI and increased flexibility. Re-negotiation of existing contracts, to cut costs and increase flexibility, may provide opportunities for consolidating scope and increasing the length of contracts. These expectations the Group highlighted in the last 2009 Annual Report proved to be true, with limited number of new large deals, numerous renegotiations and extensions of scope. Notable trends during 2009 and 2010 included: More growth coming from “add on” business with existing customers – protecting the existing customer base will still be critical in 2010; A significant growth of migration to virtual environments, as a way to offer flexibility & reduce costs; An increase in offshore IT outsourcing; • Environmental exigency development, with energy effectiveness or similar references in most bids. The growth in interest in sourcing management and governance continued. The Group expects these trends to continue in 2010. Overall, cost reduction and skill shortages remain major drivers for outsourcing. However, there is also a demand for service providers to have industry knowledge, to have flexibility and to bring innovation. In a difficult economical environment, request for “one stop shop” services to transform and operate all or part of an Information System is expected to continue its observed growth. As clients ask for innovation, industry domain expertise will be paramount to selecting the right outsourcing partner. Some analysts believe the outsourcing market will soon fragment into players focused on domain expertise. 4.4 TRENDS AND POSITIONING OF THE GROUP BY VERTICAL MARKET Thanks to the GAMA program, Atos Origin will be more and more developing aligned offerings based on strong industry focus and comprehensive Go to Markets, together with a coordinated management of the business. This section summarizes its key positions and areas of development. Among the different verticals, the Energy and Utilities, and more particularly the nuclear sector and Green energies, the Public Sector, lead to rely on IT services to generate savings, as well as Financial Services thanks to the dynamism of Retail Banking, should benefit from the market environment. In this respect, Atos Origin seems to have a good positioning, as in 2009 71% of the Group revenue was achieved in these three verticals. 4.4.1 Public Sector & Health Trends 2009 has been a stable, but turbulent year for Public organizations: Central Government was challenged to support the Financial institutions; • Focus on core activities is leading to smaller administrations and drive for innovation; • Plans for major budget reductions are developed which will lead to new business models. We live in a steadily changing world, and the public sector has to meet the challenges resulting from these changes. The proper functioning of the public sector depends on whether new demands can be met early enough and on whether changes made are sufficient. Complexity is the main challenge facing modern public organisations. The role of the European Union is getting more visible and more important. The Lisbon Treaty provides content and is divided into five points, with a New European Parliament: Page 16 of 95 better equipped for today's challenges • having more powers in shaping Europe • tighter hold on EU's purse strings • greater say on who runs the EU • stronger voice for Europe's citizens This increasing importance of Europe will significantly impact IT systems of domestic public organizations. Atos Origin positioning on the Public Services & Health Market Atos Origin gets 27% of its Group revenues from Public organizations (Central Government, Local Government, Healthcare, Education and Defence). In Europe Atos Origin has a strong footprint in the Public Services Market with a good mix of Consulting, Systems Integration (professional services, projects and management) and Managed Services. The emphasis on the countries is slightly different, but gives a good position to leverage. In Central Government, Atos Origin focuses mostly on infrastructure and application outsourcing and is a major provider of IT services for ministries in France, Spain, the UK and The Netherlands. In Local Government, Atos Origin focuses mostly on all e-government related subjects. The solution developed by Atos Consulting is used in many municipalities and provides citizens an easy way to handle rules and legislation and communicate with the local government. In Education, Atos Origin focuses on the implementation and management of Student Information Systems and introduced the term 'Olympic Learning'. In Defence, Atos Origin follows the 'Defence way of working' (joint and combined) and focuses on NATO related topics as Network Enabled Capabilities and Security. In Healthcare, Atos Origin focuses on BPO, Shared Service Centres and Effective Management of the support processes. Way forward As the Public organizations are facing major budget reductions and therefore have to focus on their primary tasks, Atos Origin aims at increasing its outsourcing business, proposing services to allow government to save costs, mainly based on its actual position, and on its ability to leverage its solutions in the support processes by recognizing and using the influence of the EU. The specific vertical areas of expertise which will benefit in reaching this goal are: Citizen management with the e-government solution (e-suite); • Public Private Partnership; • Governance and Risk Control for ministries and healthcare organizations; • BPO for subjects as: tax assessment, granting licenses, granting social benefits. 4.4.2 Energy & Utilities Trends 2009 still was characterized by various forms and levels of utility market deregulation. Some common trends can be drawn regarding challenges faced by utility companies in all geographies: A strong focus on customer service satisfaction and customer relationship management, • Impacts on the industry of regulatory pressure, • Regulations in the area of customer service levels, asset performance and country specific regulations. The emergence of new ways of producing energy from solar power through to photovoltaic and wind turbines, together with the ”smarter” consumption of electricity through initiatives like electric cars and energy efficient homes, will drive major change in the market. These developments will force transport operators and distribution electricity networks to adapt their infrastructure and related IT management Page 17 of 95 systems such as the smart grid and command control systems. The key focus will be the energy used and produced by consumers and the impact of that on the overall networks. Furthermore, oil and gas suppliers are shifting to more remote and unstable locations. At the same time various issues are affecting the industry: High fuel and labour costs; • Environmental pressures; • Volatile political scenarios; • Supply security concerns and increasing demand from developing economies. All this is expected to produce a sustained focus on operational efficiency and on managing performance to improve productivity in the Energy & Utilities industry. However, this has to be done in an environment of growing competition and price instability. Consumers have to focus on better managing personal costs because of sustained high energy prices. Large consumers are looking for access to the wholesale grids to services to manage the risks associated with variable energy costs. Atos Origin positioning in the Energy & Utilities Market In mainland Europe, Atos Origin has a market share of 11% and is ranked 6th IT services provider to the Energy & Utilities Market, as more than 10% of Group revenues are coming from these industries and Atos Origin is a major partner to most large and well established Energy & Utilities companies like EDF, GDF/Suez, Schlumberger, Endesa, Repsol, Total, Nuon, Vattenfall, Petrobras, Shell … With more than 2,000 skilled Energy & Utilities experts in dedicated global Centers of Excellence, Atos Origin offers global solutions that cover the entire value chain. Utility suppliers are facing an unprecedented and permanent change in the way they interact with their customer in the production, transport, storage and delivery of energy or water. Atos Origin is at the forefront of the technologies which sustain demand reduction, modernization of transport & distribution networks to significantly reduce their costs, as long as real time control of their utility assets in order to follow consumer demand. As the Group is convinced that Smart Energy solutions are key to a sustainable growth as well as critical for economic competition in the energy sector, in March 2010 was announced its new innovative offering including solutions for smart utilities and energy, enabling energy efficiencies and carbon savings. Beyond this offer, the Group announced its willingness to create “Atos WorldGrid”, an international subsidiary focused on these challenging subjects. This entity will capitalize on over twenty years of expertise, Intellectual Property Rights assets and international success which already bring tangible leadership recognition: Atos Origin is the sole large IT supplier to provide IT nuclear digital control systems, • Atos Origin is the sole large IT supplier to provide over 20 years in Service Support on nuclear plant digital control systems or State Grid management systems, Atos Origin is the first prime contractor for the biggest program of smart meters deployment as of today. Three examples of the latest developments of Atos Origin in the Energy and Utility sectors are the followings: Atos Origin is the first IT services company to manage such a large scale implementation of smart meters in Europe - targeting 35 million meters being installed for French Distribution System Operator ERDF. The smart meter solutions developed by Atos Origin help Smart Utilities to meet three goals: lower costs; improved delivery and more efficient services to home and business users and a reduction of energy usage by regulating the network. At the beginning of March, ERDF started the operation of its new IT platform of its Linky project. • Atos Origin will deliver to China Nuclear Power Engineering Corporation (CNPE) four non- classified state of the art digital control systems and a full scope simulation system for extensive operator training and plant operations engineering. Under the subcontract to Invensys Systems Inc. for the Fuqing Nuclear Plant in Fujian Province and the Fang Jiashan Nuclear Plant in Zhejiang Province, the systems will be based on ADACS™ (Advanced Data Acquisition & Page 18 of 95 Control System). The Atos Origin platform is designed to satisfy specific nuclear power industry requirements including functions aimed at improving the safety, reliability and efficiency of nuclear power plants operations. Atos Origin is delivering an innovative Real Time system to control & manage a gas pipe for Wingas, a major German gas transporter. For the first time a unique system will gather the commercial, physical dispatching and capability to adapt quickly to the changing regulations rules. This provides the operator a unique advantage, operating cost reduction and process optimization, thanks to real time status of its pipe and of the contract status". Way forward Since the expected IT spending growth in the Energy & Utilities market is one of the highest among all Markets, and based on the excellent position that Atos Origin has at a large number of leading, International customers, ambition for 2010 is to outgrow the market. Atos WorldGrid French subsidiary should be set up at the end of July 2010, and the revenue of the worldwide activities including smart energy production, distribution and transport, and utilities control system are forecasted to generate over 150 million euros in 2010. 4.4.3 Financial services Trends In 2009, crisis has seriously damaged the Financial Industry: credit demand and availability in the private sector has fallen sharply compared to 2008; • credit write-down has exceeded USD 3,000 million on a global basis; • market value of financial institutions has fallen by USD 5,000 million. While the cost of risks has increased, regulators are creating more prescriptive regulation on Financial Institution transparency, customer demands and the need to product innovate are putting more pressure on margins, reflected for example by the rising number of price comparison Websites. Emergence of mobile banking and implementation of Single Euro Payments Area (SEPA) and MiFID are cutting down barrier to entry for new competitors. As a result, Financial Institutions are focusing their investments to improve risk management and compliance, improve customer relationship and loyalty, better integrate their past acquisitions and local operations, streamline and consolidate their back-office operations and modernize their core IT systems both in Banking and Insurance. Atos Origin positioning on the Financial Services Market In Europe, Atos Origin is the first outsourcing provider and eighth largest IT service provider to Financials Services Market. With 8,000 experts in Financial Services processes and technologies, Atos Origin gets 22% of its Group revenues from Financial Institutions in the Banking and Insurance sub- markets. For Financial Institutions, Atos Origin manages mission critical systems, such as: RTGS platforms and 255 million cleared position yearly; • 477,000 payment terminals and 2.0 billion acquiring transactions every year; • clearing and settlement for the major European equity and derivatives markets; • systems handling EUR 400 billion in investment assets. In Banking, Atos Origin focuses mostly on Retail Banking and Corporate & Investment Banking and is a major provider of IT services to European leading banks like BNPParibas, ING, Standard Chartered Bank, Crédit Agricole, Commerzbank, Société Générale, Banco Santander, Dexia, La Banque Postale, LCH Clearnet … In Insurance the Group has reinforced its positions with major customers like Achmea, Manulife, Mass Mutual, UVIT, NFUM, Capita and Willis. Beyond outsourcing, Atos Origin provides end-to-end value-added services that successfully deliver innovation, complex transformational change and business outcomes through in areas such as: Target Operating Model design, solution implementation and integration for key business processes functions: Page 19 of 95 e-Customer Services in Banking & insurance, card payment services, information security, and operate services for business processes, IT applications and platforms. Way Forward As Financial Institutions are still minimizing their IT investments, Atos Origin aims at a development based on the one hand on horizontal expertise in IT outsourcing and on the other hand on five vertical areas of expertise targeted to deliver innovative solutions that address the business challenges of its clients: customer management: differentiation, retaining and growing the customer base with Online Services for Banking and insurance, and Multi-channel platform; operational excellence: setting new standards in cost/income through use of leading core banking and core insurance systems, coupled with Lean business processes; risk and compliance: enhancing transparency and achieving compliance with more robust Enterprise Risk Management, meeting Solvency II regulation, improve controls through more effective Enterprise Content Management and information security; Business Process Outsourcing: to enhance customer service and deliver cost savings in non-core processes, such as: card payments, credit collection, insurance back-office processing Financial infrastructure and solutions: enhance business efficiency with robust and scalable solutions such as clearing & settlement, asset management, brokerage back-office solutions. 4.4.4 Telecommunications Trends 2009 has been a difficult year for Telecommunications Service Providers, and the Group has identified four major trends: mobile usage did further increase in 2009 driving the need for further network capacity extensions; the Average Revenue Per User (ARPU) remains flat. Increased focus on value-added services to compensate the continuing decline in voice revenues; further consolidation of Telecommunication Service Providers; • globalization of operations (massification) for reducing production costs. Flat ARPU while constantly increasing demand in network capacity are putting pressure on margins. Besides, more and more applications (incl. telecommunication application like voice communication) are moving to Internet-based delivery models. That raises the expectation that the underlying basic connectivity as well as communication infrastructure becomes more reliable as well as it enables anytime and everywhere availability of data services. The differentiating levers of a telecommunication service provider do increasingly move out of the core network capabilities into end-user devices/applications with this trend towards ‘IP based communication’. The emergence of wholesale business models and respective technical solutions for basic connectivity as well as basic/’no frill’ telecommunication services are cutting down the barrier to entry for new competitors. As a result, Telecommunications Service Providers are focusing their investments on network capacity extensions as well as the deployment of next generation network components that allows them to effectively differentiate themselves in the future as well as to streamline and consolidate their operations (especially across countries). Atos Origin positioning on the Telecommunication and Media Market In Western Europe, Atos Origin is one of the Top 3 outsourcing services provider and within the Top 5 largest IT service provider to the Telecommunications Service Provider Market. With more than 4,000 experts in the processes and technologies of Telecommunications Service Providers, Atos Origin gets around 14% of its Group revenues from Telecom operators. In Telecommunication, Atos Origin focuses mostly on GSM and Fix lines telecommunication service providers and is a major provider of IT services to European leading companies like France Telecom, Vodafone and KPN. Page 20 of 95 Beyond outsourcing, Atos Origin provides Telecommunication Service Providers with value-added Systems Integration services like OSS deployments (e.g. next generation intelligent network as well as online charging system deployments), BSS deployments (e.g. provisioning and postpaid billing deployments) as well as corporate application deployments (e.g. ERP, CRM and HR systems). Atos Origin has a particular focus on BPO services for Telecommunications Service Providers where it for instance provides cost effective and efficient solutions for Business Processes like Voucher or Mailbox Management. In April 2010, Atos Origin appointed Bruno Fabre as Executive Vice President for this vertical. He is more specifically responsible for developing and implementing the strategy to strengthen and grow Atos Origin’s positioning in this market. Way forward As Telecommunication Service Providers (especially in Western Europe) are still minimizing their IT investments, Atos Origin aims to accompany the market thanks to its horizontal expertise like IT outsourcing and three vertical areas of expertise: operational excellence around core processing streams like Billing and CRM; • deployment excellence for next generation OSS, BSS and CRM application stacks; • Business Process Outsourcing for standardized Business Processes. 4.4.5 Manufacturing, Retail & Transportation Trends Following the Banking sector, Manufacturing, Retail & Transportations were hardest hit by the 2009 economic crisis. Fuelled by the collapse of consumer demand, production and global supply chains were heavily impacted, with many coming to a complete halt. Especially manufacturing companies were focused on survival, aggressively reducing not only investments but also fixed costs, wherever possible. At the same time, many companies leveraged the 2009 period to sharpen their capabilities in sustainability, operational efficiency and customer intimacy. Even in the scenario of a rebound of the economy at the end of 2010, Manufacturers, Retailers and Transportation companies will continue to do ‘more with less’, capitalizing on innovation and on efficiencies gained in the downturn as the fuel for growth and sustainability in the upturn. The fundamental business objectives of profitability and growth will prevail. Focus on cost control, cash management, maintenance of customer loyalty and compliance will broaden again to include a renewed focus on revenue growth and market share. Manufacturers will begin to invest and innovate with discretionary focus on winning new customers, developing new markets, products and services while raising the bar on quality and sustainability. Atos Origin positioning on the Manufacturing, Retail & Transportation (MRT) Market Atos Origin revenues from the Manufacturing (Automotive, Aerospace, High-Tech, Chemicals, Pharma and Consumer Packaged Goods), Retail (including wholesale) and Transportation sectors combined, account for 25% of overall revenue. In terms of IT Services market potential, the combination of these sectors represent the largest global market, however its growth rate is quite moderate. Embracing these economic and environmental challenges, Atos Origin supported its Manufacturing, Retail and Transportation customers in achieving their business objectives, from survival, to cost reduction, to improved operational excellence and increased customer loyalty: delivering rapid-fire business value assessments to identify, develop and prioritize initiatives to deliver immediate business value; providing innovative Sourcing Solutions to enable customers reduce and eliminate fixed costs and capital expenditures, transforming them into SLA based pay-as-you-go services; enabling customers to sharpen expertise, capabilities and planning in core disciplines of Global Supply Chain Management, Production & Operational Excellence, Product & Service Innovation and Customer Loyalty & Brand Equity. Page 21 of 95 To maintain and extend Atos Origin’s leadership position in MRT, 2009 was leveraged to sharpen its expertise in key areas and sources of business value: Sustainability: jointly with IDC3, the company published a study “The Business Case for Environmental Excellence is Real”, and Expanded its portfolio for Manufacturers, Retailers and Transportation companies; Manufacturing Execution Systems (MES): Atos Origin established in March a Center of Excellence, patented M4MES, a proprietary business value delivery methodology, and gained International recognition for thought leadership and expertise; Product Lifecycle Management (PLM): a Global partnership was signed with PTC in June, a Center of Excellence established in October, On-demand PLM Services launched in December; • Supply Chain Management: domain expertise and proprietary solutions for logistics and warehouse management were further developed; Customer Loyalty & Brand Equity: global sourcing services (HTTS and Web 2.0) for customer loyalty, and branding programs for Manufacturers, Retailers and Transportation customers were expanded on the third quarter. Way Forward In 2010, Atos Origin, with its unique skilled professionals in Manufacturing, Retail and Transportation systems and operations will continue to serve its world-class clientele including (but not limited to): Adidas, Ahold, Air France/KLM, Akzo Nobel, Alstom, Amadeus, ASML, Auchan, Canon, Paccar/DAF, DSM, EADS, Johnson Controls, L'Oreal, Lufthansa, LVMH, Michelin, NXP, Océ, Philips, PPR, Procter & Gamble, PSA, Renault-Nissan, Rhodia, Safran, and Sanofi-Aventis. As well, the company will seek to maintain and extend its leadership in its core selected industries. 3 IDC: International Data Corporation, advisory and research group Page 22 of 95 4.5 IT SERVICES MARKET BY GEOGRAPHY 4.5.1 Positioning in the European IT Services market environment According to Gartner latest study (*), the market shares and respective position of the Group in the main geographies were as follows: Market size Atos Origin (In EUR million) 2008 2009 Weight (2009) Market shares Ranking Market Leader United Kingdom 49,273 44,838 32% 2.3% 9 British Telecom Central Europe 31,120 29,300 21% 2.7% 7 T-Systems France 19,553 18,588 13% 8.1% 2 Capgemini Benelux 15,263 14,349 10% 12.6% 3 Capgemini Spain 8,435 8,102 6% 3.9% 6 IBM Nordics 15,044 13,960 10% TietoEnator Rest of Western Europe Western Europe in total (*) Source : IT Services Worldwide Market Share 2000-2014, Gartner 2Q 2010 on Western Europe and for Professional services only. Exchange rate considered: USD 1 = EUR 0.7196 in 2009 11,980 149,607 11,325 139,445 8% 100% 3.4% 5 IBM United Kingdom includes Ireland, Central Europe is composed of Germany, Switzerland and Austria, Benelux includes The Netherlands and Belgium, and Nordics is composed of Sweden, Norway, Finland and Denmark. 4.5.2 Identified competitors in Western Europe COUNTRIES COMPETITORS United Kingdom British Telecom, Capita, HP-EDS, Fujitsu, IBM, Capgemini, Accenture, CSC, Logica Central Europe France Benelux Spain Source: IT Services Worldwide Market Share 2000-2014, Gartner, 2Q 2010 T-Systems, Siemens, IBM, HP, Accenture Capgemini, IBM, Logica, Accenture, France Telecom, Sopra, Steria Capgemini, IBM, Getronics, Logica, Ordina, HP, Accenture, KPN IBM, Telefonica, Accenture, Fujitsu, Indra Page 23 of 95 5 OPERATIONAL REVIEW 5.1 OPERATING PERFORMANCE (STATUTORY) The underlying operating performance on the ongoing business is presented within Operating Margin, while unusual, abnormal and infrequent income or expenses (other operating income /expenses) are separately itemised and presented below the Operating Margin, in line with the CNC (Conseil National de la Comptabilité) recommendation n°2009-R-03 (iss ued on 2 July 2009), regarding the financial statements presentation. Statutory revenue achieved EUR 2,494 million during the first half of 2010, representing a statutory decrease of -3.7%. (in EUR million) 6 months ended 30 June 2010 % Margin 6 months ended 30 June 2009 (*) % Margin % change Statutory revenue 2,494 2,589 3.7% Statutory Operating Margin 150.1 6.0% 118.0 4.6% +26.9% Other operating income (expenses) (54.2) (75.8) Operating income (*) Does not include the EUR 0.3 million impact from the change in accounting policies for the calculation of pensions 95.9 3.8% 42.2 1.6% During the first half 2010, the Group achieved an Operating Margin of EUR 150.1 million (6.0% of revenue), taking into account the new business tax (CVAE) in France. Without this regulatory impact, the operating margin was EUR 141 million, representing 5.7 per cent of revenue, compared to 4.6 per cent reached in the first half of 2009, an increase of 110 bp. The details from Operating Margin to operating income are explained in the financial review, in the following chapter. Page 24 of 95 5.2 REVENUE 5.2.1 Organic growth External revenue for the first half of the year amounted to EUR 2,494 million, representing a decrease of -3.7% against statutory revenue of EUR 2,589 million for the same period last year. Excluding exchange rates positive impact of EUR 26 million, organic revenue decrease reached -4.6% or EUR -121 million over the period. (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 % change Statutory revenue 2,494 2,589 3.7% Exchange rates impacts 26 Revenue at constant scope and exchange rates 2,494 2,615 4.6% Exchange rates movement resulted in a positive effect of EUR +26 million on a comparable year-on- year basis, almost half of it coming from British pound for EUR 12 million, EUR 7 million coming from the Brazilian Real currency, EUR 3 million from South African Rand, and the remaining EUR 4 million derive from various other countries. 5.2.2 Revenue per quarter evolution Revenues in H1 2010 represented an organic decrease of -4.6%, of which -5.5% in the first quarter, and -3.8% in the second quarter of 2010. (In EUR million) Revenue % statutory top line growth % organic growth (*) (*) Organic growth at 2010 scope and exchange rates Quarter 1 2010 1,231 -4.9% -5.5% Quarter 2 2010 1,264 -2.4% -3.8% Half-year 2010 2,494 -3.7% -4.6% As the cyclical activities recovery is shaping up, the decline over the second quarter has been lower than the one observed over the first three months of the year. 5.2.3 Revenue by Global Business Unit The revenue performance by Global Business Unit (GBU) was as follows: (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 % growth (*) 2010 revenue breakdown France 573 573 +0.1% 23% Benelux 459 517 11.2% 18% United Kingdom 442 458 3.6% 18% Atos Worldline 420 416 +0.9% 17% Germany / CEMA 241 288 16.3% 10% Spain 158 175 9.5% 6% Other countries 200 188 +6.7% 8% Revenue at constant scope and exchange rates (*) Organic growth at 2010 scope and exchange rates 2,494 2,615 4.6% 100% Page 25 of 95 Revenue by GBU was as follows: (cid:1) Revenue in France was flat thanks to improvements in Systems Integration and in Consulting; (cid:1) Revenue in Benelux was down by -11 per cent due to a decline in sales from cyclical (cid:1) activities. However, this decline was limited to -9 per cent in the second quarter; In the United Kingdom, revenue decrease was limited to -4 per cent thanks to HTTS and Medical BPO which partially compensated for the decline in cyclical activities; (cid:1) Atos Worldline grew by +1 per cent despite a decline in Financial Markets; (cid:1) Germany / CEMA revenue was down by -16 per cent, of which -11 per cent was due to less revenue from Arcandor, as expected in Group anticipations; (cid:1) Revenue in Spain was down by -9 per cent in an economical environment which remained tough; (cid:1) Other Countries which include mainly Asia and America reported an organic growth of +7 per cent thanks to the strong development of the Group in Asia. The revenue from the Vancouver Winter Olympic Games also contributed to the growth of this segment. In France, Consulting revenue increased organically by +7.6 per cent at EUR 20 million, mainly due to additional projects in the Public and in the Financial sectors. Price pressure which led to a lower average daily rate in 2009, continued in the first half of 2010, but due to strong actions from the management, the utilisation rate significantly improved to 75 per cent compared with 62 per cent for the first half of 2009. Key contracts have been won in the Financial sector with Banque Postale and Swiss Life, in the Public sector with Ministry of Finance and SNCF, and in the Industry with EADS. In Systems Integration, revenue increased to EUR 324 million by +2.6 per cent compared to last year, with an acceleration in the second quarter of the year at 4.4 per cent organic growth compared to 0.9 per cent in the first quarter. Revenue grew in Energy and Utilities and stabilized in the automotive industry, after a downward last year. Public Sector and Telecom sectors revenue decreased respectively with French Ministries and France Telecom. Average daily rate remained stable in the first half 2010, compared to the first half 2009. Utilisation rate was maintained at a level above 83 per cent, as it was already the case in the first half of 2009. In Managed Services, revenue in the first half of 2010 was down by -3.6 per cent to EUR 223 million, due to a lower level of cross-selling on the existing contracts. Expected orders have been postponed, therefore there was no significant ramp-up on new projects to generate additional volumes over the first part of 2010. In the Benelux, cyclical activities, Consulting and Systems Integration, decreased by -18 per cent to EUR 201 million, as they continued to suffer from lower demand of large customers, in the Telecom and in the Financial verticals. In Consulting, the market demand in general was weak with a lack of substantial business projects, affecting more particularly Finance, Manufacturing. In Consulting, thanks to a tight management the utilisation rate reached 61 per cent versus 58 per cent in the first half 2009. In Systems Integration the market demand remained weak mainly in the Telecom, in Finance and in Manufacturing. The Group continued to reskill its workforce, and succeeded in increasing the utilisation rate at 74 per cent compared to 73 in the first half of 2009. In Managed Services, revenue declined by -5.6 per cent at EUR 257 million, mainly coming from Professional Services due to delays in transition projects following postponements on customers’ decisions. On the rest of Managed Services, revenue is generated by long term recurring contracts and was almost stable. Main reductions were in the Telecoms with KPN, in the Utilities with Nuon and in the Finance with ING. On the opposite revenue increased with NXP and with UVIT. In the United Kingdom, Consulting activity reached EUR 25 million, decreasing by -9.3 per cent, however with an increase by +1.1 per cent in the second quarter compared to -18.7 per cent in the first quarter of 2010. The decline came from fewer assignments in the Public Sector following the Government decision to reduce its spending in the Consulting area. In the private sector, grew with customers such as Credit Suisse, Fiserv or Lloyds TSB. The Group kept its focus on strong workforce management as the utilisation rate improved to 54 per cent compared to 51 per cent in the first half of 2009. Page 26 of 95 Systems Integration decreased by -11.7 per cent at EUR 107 million after a weak first quarter due to lower volumes. In the second quarter, the sequential growth compared to the first quarter was +8% with additional revenue both in the public and in the private sector. Strong management of resources materialised to a further increase of the utilisation rate at 79.5% slightly above of the level of the first half of 2009 which was 79.4%. In Managed Services, revenue reached EUR 190 million with a decrease contained at -5.8% mainly coming from less purchase for reselling. The sequential growth in the second quarter was +8% compared to the first quarter. HTTS reached EUR 40 million, an organic increase by +27% coming both from new contracts such as Capita, and from a higher number of transactions. HTTS is already benefiting from the roll out of Atos Worldline offerings to its large customers’ base, and more particularly insurance companies, Highways Agency, Train Operating Companies. Finally in Medical BPO revenue was EUR 80 million with an organic growth of +5.1%, coming from additional volumes of medical assessments. Atos Worldline reported a revenue of EUR 420 million with an organic growth of 0.9%. The growth reached +2.3% excluding the Euroclear contract in Financial Market which ended in the second half of 2009. This growth was fuelled by a significant increase of number of transactions in Payment services, particularly in Belgium, and Germany. Revenue in France was impaired by an unfavourable comparison basis due to the speed control device deployment and the ramp-up of biometric passports in the first half of 2009. This effect was not yet compensated by the additional revenue deriving from the newly signed Health Personal File contract (Dossier Medical Personnalisé). In Germany / CEMA, revenue decreased by -16.3 per cent, representing EUR- 47 million. Arcandor revenue decreased from EUR 64 million in the first half of 2009 to EUR 32 million, a drop of EUR 32 million as anticipated by the Group. Overall, the Arcandor revenue ramp-down represented a EUR -11 per cent decline out of the -16 per cent decrease of the GBU. Systems Integration reached EUR 120 million declining by -15% due to a lower demand in Industry and in Retail. The Arcandor ramp down affected also Systems Integration and the Retail sector was also impacted by less revenue with Neckermann. The Group pursued its policy of re skilling staff and restructuring when re skilling was not possible. As a result, in this adverse situation, the utilisation rate reached 76% slightly above the level of 75% reported for the first half of 2009. In Managed Services, revenue reached EUR 121 million with a decrease of -17.6% coming from the Retail sector. The revenue was affected by the strong decrease of revenue with Arcandor. The first half of the year was impacted by almost no revenue made with Primondo Quelle, the Arcandor mail order business, which has been liquidated in the fourth quarter of 2009. Excluding the Arcandor ramp down effect, Germany revenue slightly decreased by -4 per cent. Revenue was affected by the Telecom vertical in most of the CEMA countries, South Africa excluded. In Spain, the difficult market conditions pursued throughout the first half of 2010. As a result, revenue decreased by -9% at EUR 158 million. While Consulting activities were particularly affected with -22% decline at EUR 23 million due to a freeze of projects mainly in the private sector, the decrease was contained in Systems Integration at -4% with a revenue reported at EUR 105 million. Price pressure continued in all sectors, but more particularly in Public Sector and Telecoms. The tight workforce management allowed maintaining the utilisation rate at a high level reaching 87% compared to 85% for the first half of 2009. Managed Services were impacted by a ramp down with Telefonica and revenue decreased to EUR 17 million compared to EUR 20 million for the first semester of 2009. Finally, HTTS activities reached EUR 13 million in the loyalty cards processing businesses. Page 27 of 95 In “Other Countries”, revenue reached EUR 200 million representing an organic growth of +6.7 per cent. Asia including India reported revenue at EUR 99 million, a +12 per cent organic growth thanks to increasing revenue in Managed Services deriving from a contract with a major financial institution which has been renegotiated at the end of 2009. Sales related to the Singapore Youth Olympic Games also contributed to the growth in Asia. In the Americas the situation was more difficult mainly in Systems Integration, in North America with the ramp down of some Application Management contracts in Manufacturing sector, and in South America where the demand remained low with customers in the Telecoms and in the Energy sectors. In the unit Major Events, all the projects related to the Vancouver Olympic and Paralympic Games were successfully delivered and contributed to the revenue growth of the GBU. 5.2.4 Revenue by Service Line The revenue performance by Service Line was as follows: (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 % growth (*) 2010 revenue breakdown Managed Services Systems Integration Hi-Tech Transactional Services Consulting Medical BPO Revenue at constant scope and exchange rates (*) Organic growth at 2010 scope and exchange rates 903 902 499 110 80 2,494 963 955 488 132 76 2,615 6.2% -5.6% +2.2% -17.0% +5.1% -4.6% 36% 36% 20% 4% 3% 100% In Managed Services, the revenue for the first half of 2010 was EUR 903 million, representing 36 per cent of total revenue. This activity declined by -6 per cent, coming equally from the expected decline in revenue from the German client Arcandor and from less cross selling with existing clients, particularly in the Netherlands and in France, partially compensated by strong volumes in Asia. Systems Integration revenue was EUR 902 million, representing 36 per cent of total revenue, and an organic decline of -6 per cent. This activity had decreased by -11 per cent in 2009, as a result of the combined effects of lower demand and price pressure, especially in the Benelux and in Spain. During the first quarter of 2010, the decline was -9 per cent, and has been limited to -2 per cent in the second quarter, thanks to an organic growth of +4 per cent in France. In the Netherlands, price has stabilised in the Time and Material activity and therefore, revenue decline was -9 per cent in the second quarter compared to -24 per cent in the first quarter. The Hi-Tech Transactional Services activity reported a revenue of EUR 499 million, representing 20 per cent of the Group revenue and up by +2 per cent organically. After a +0.6 per cent growth in the first quarter, HTTS increased by +3.8 per cent in the second quarter. Over the first half of 2010, the Payment business which represents two thirds of total HTTS revenue increased by +4 per cent, while electronic services (e-CS) were almost flat. At the same time, revenue related to financial markets dropped by -8 per cent, due to the investments in new offerings. Consulting reported a revenue of EUR 110 million and an organic decline of -17 per cent. In line with Group expectations, tough market conditions persisted during the first half of 2010. The book to bill ratio was at 125 per cent, an indication that this business line will stabilise over the coming quarters. Medical BPO revenue was EUR 80 million up by +5 per cent organically thanks to increasing volumes. This activity is processed entirely in the United Kingdom and through several multi year contracts for services including occupational health. Page 28 of 95 5.2.5 Revenue by industry sector The revenue performance by industry sector was as follows: (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 % growth 2010 revenue breakdown Public & Health Financial Services Telecoms, Media & Serv. Manufacturing, Retail & Transp. Energy and Utilities 585 562 388 691 269 599 556 449 746 265 2.3% +1.1% -13.6% -7.4% +1.5% 23% 23% 16% 28% 11% Revenue at constant scope and exchange rates (*) Organic growth at 2010 scope and exchange rates 2,494 2,615 4.6% 100% The Group is organised in five main industry sectors, which total 100 per cent of Group revenue. Public Sector posted a EUR 585 million revenue, which represented 23 per cent of total. The main contributors of the vertical include French Ministries, French Social and Health institution, the UK Department for Work and Pensions, and UK Department of Justice. The vertical posted a -2.3 per cent organic decline of which majority came from less business with French Ministries and in the UK with the Ministry of Justice. The Financial services sector reported a EUR 562 million revenue representing 23 per cent of total Group revenue. This sector had a revenue organic growth of +1.0 per cent thanks to increased revenue with the vertical main accounts such as BNP Paribas in France, UVIT in the Netherlands, SCB in Asia and Royal Liver in the United Kingdom. Telecoms, Media and Services reported revenue at EUR 388 million weighted for 16 per cent of total Group revenue, and showed a -13.6 per cent decline over the semester. Business was tough in Systems Integration with Telecoms operators increasing price pressure. Main customers contributing to the decrease of the revenue in this sector were KPN in the Netherlands and France Telecom in France. Manufacturing, Retail and Transportations’ revenue reached EUR 691 million representing 28 per cent of total Group revenue. This sector posted a -7.4 per cent decline, more than half of the decrease coming from Arcandor customer in Germany. Business has stabilised with clients such as Renault or Rhodia in France, and growth was generated with OCE in the Netherlands, SNCF in France or Highways Agency in the United Kingdom. In addition to Arcandor, revenue mainly declined with small and medium sized accounts. Energy and Utilities, representing 11 per cent of total Group, reported a revenue of EUR 269 million representing an organic growth of +1.5%. This industry is showing signs of recovery and Atos Origin is well positioned to benefit from its expertise in this sector. The recent signings with EDF in France and with CNNC in China for the IT monitoring of nuclear plants clearly show the interest from clients regarding the Smart Grid offerings. The Group decided the creation of Atos WorldGrid, a dedicated subsidiary to Smart Energy and Utilities in order to accelerate the growth of this market in the coming quarters. Page 29 of 95 5.2.6 Order input Group order entries totalled EUR 2,844 million in the first half of 2010. The book to bill ratio was 114 per cent, above the level of 112 per cent reached in the first half of 2009. During the second quarter of 2010, the Group reached a 100 per cent book to bill ratio, signed new contracts and renewed existing ones, particularly in Energy and Utilities and Financial Services markets. France signed a contract with Veolia in Managed Services and renewed Systems Integration projects with EDF. In Germany, the Group renewed its contract with E-Plus. In Benelux, multi year contracts have been renewed with an Oil & Gas leading Services Company and with KPN, while new contracts have been signed with Philips and with Schiphol Telematics. In the United Kingdom, new orders have been signed in the Public Sector, and in the Private Sector with Whitbread and Britvic, respectively leaders in the United Kingdom in hospitality and in non alcoholic beverage. Atos Worldline has renewed its contracts with Mercedes Benz Bank and Orange Voice, and has signed a new contract with Altadis. Atos Worldline has also renewed its contracts with the German saving banks Landesbank Berlin, Landesbank Bad Württemberg and Bayern Card Services. In Spain, the contract in Financial Services for a large savings bank has been renewed and a new contract has been won in the Public Sector with the Agencia de Informatica. In the United States, a new contract has been signed with the Federal Home Loan Bank - Seattle (credit provider to Banks), and a contract with a major Oil & Gas leading services company has been renewed. The roll out of the HTTS Group initiative in the priority geographies has started in the first half of 2010 and is on schedule. The primary focus was on generating sales leads and strengthening the pipeline with the aim of closing significant new deals in the second half of 2010. At the end of June 2010, the un-weighted pipeline in HTTS, excluding additional very large opportunities, was in the range of EUR 350 to 400 million for The Netherlands, the United Kingdom, Spain, China and Germany. The creation of a new international subsidiary – Atos WorldGrid – is also on schedule and will be formally in place at the end of July in France, and in the third quarter for Spain and China. Atos WorldGrid brings together the strong portfolio of solutions and the deep industry knowledge of Atos Origin in Smart Energy and Utilities. At 30 June 2010, full backlog was EUR 7.3 billion representing 1.4 year of revenue, an increase of +5 per cent compared to 31 December 2009. The full qualified pipeline on 30 June 2010 was EUR 2.6 billion at the same level as one year ago. 5.3 OPERATING MARGIN 5.3.1 Operating Margin performance The Operating Margin performance was as follows: (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 (*) % growth Statutory Operating Margin Operating Margin % Exchange rates 150.1 6.0% 118.0 4.6% 1.0 +27% +140 bp Operating Margin at constant scope and exchange rates 150.1 119.0 +26% Operating Margin % (*) Does not include the EUR 0.3 million impact from the change in accounting policies for the calculation of pensions 6.0% 4.6% +140 bp As far as the seasonality is concerned, the start of the year is traditionally impacted by a contractual reduction in revenue on long term contracts in which the Group has agreed in advance to share specific benefits with clients. Group Operating Margin for the first half of 2010 was EUR 150.1 million representing 6.0 per cent of revenue. By quarter, the Operating Margin rate improved in Q2 2010 compared to Q1 2010, from 4.1 Page 30 of 95 per cent to 7.9 per cent of revenue. This performance was achieved thanks to the savings deriving from the TOP Program and strong workforce management. Moreover, the second quarter OM includes the reclassification of part of the new French Business Tax (Cotisation sur la Valeur Ajoutée des Enterprises - CVAE) for a total of EUR 9.1 million. This tax was previously recorded in Operating Margin, and is now classified in the Income Tax, following the directive of the French accounting regulator (CNCC). Excluding this reclassification, Operating Margin for the semester would have reached 5.7 per cent (plus 110 basis points), and the second quarter OM would have been 7.1 per cent. The benefits from the TOP Program on the Operating Margin have continued during the first half of 2010 resulting in a further reduction of the cost base. The most important reductions during the first half of 2010 compared to the first half of 2009 derived from maintenance costs which dropped by -17 per cent (full year 2009 cost was EUR 257 million) and on company cars for which costs reduced by -17 per cent (2009 cost basis was EUR 93 million). At the same time, rental cost of premises was down by -4 per cent. The current move of the Paris offices to the Campus in Bezons will generate additional savings during the next 12 months. (in EUR million) Quarter 1 2010 % Margin Quarter 2 2010 % Margin Half-year 1 2010 % Margin Revenue Operating Margin 1,231 50.9 4.1% 1,264 99.2 7.9% 2,494 150.1 6.0% 5.3.2 Operating Margin by Global Business Unit The Operating Margin performance by Global Business Unit was as follows: (in EUR million) 6 months ended 30 June 2010 (*) % Margin 6 months ended 30 June 2009 (*) % Margin % growth France Benelux United Kingdom Atos Worldline Germany / CEMA Spain Other countries Corporate central (*) 17.6 42.8 36.2 69.7 10.9 (9.3) 21.5 (31.4) 3.1% 9.3% 8.2% 16.6% 4.5% -5.9% 10.8% -1.3% Global Service Lines (*) Oper. Margin at constant scope and exchange rates (*) Corporate central costs and Global service lines costs not allocated to the countries (8.1) 0.3% 150.1 6.0% 22.1 34.4 37.5 61.2 4.2 5.0 2.9 (33.9) (14.4) 119.0 3.9% 6.7% 8.2% 14.7% 1.5% 2.9% 1.6% -1.3% 0.5% 20% 24% -3% 14% 158% -286% 641% +7% +26% 20% 24% -3% 14% 158% -286% 641% +7% +44% In an economic environment which remained difficult and despite a decline in revenue, the Group improved its operating profitability by pursuing the roll out of the TOP Program in line with its three year plan. In France, the improvement of the Operating Margin continued in Systems Integration. The situation in Managed Services was more difficult due to a lack of cross-selling additional revenue, which usually generates a higher level of margin. As a result, the improvement of Consulting and System Integration profitability was wiped out, and the GBU Operating Margin declined by 80 basis points. Without the effect of the CVAE tax reclassification, the Operating Margin in France would have been 2 per cent. In the Benelux, the Operating Margin strongly increased from EUR 34 million (6.7 per cent) to EUR 43 million (i.e. 9.3 per cent), growing by 260 basis points, despite a reduction of revenue of EUR 58 million (-11 per cent). This very strong performance, mainly coming from Managed Services derived from three major items: Page 31 of 95 (cid:1) Savings generated by the TOP Program, (cid:1) less hiring due to successful redeployment of resources freed up by the Lean processes implementation, (cid:1) strong reduction in indirect cost structure. In the United Kingdom, Operating Margin remained stable at 8.2 per cent despite a decline in revenue of EUR 16 million (-3.6 per cent). This performance was achieved thanks to the reassignment of resources to growing activities as well as further improvement of the cost base. Atos Worldline managed to increase its profitability from 14.7 per cent to 16.6 per cent despite the cost of the commercial efforts to deploy its offerings in the first wave of HTTS geographies (UK, Netherlands, Spain and Asia). This performance derived from higher volumes of transaction in the Payment Services, combined with a strict control of overheads. Germany / CEMA restored its Operating Margin at 4.5 per cent compared to 1.5 per cent for the same period in 2009, with a strong improvement of Managed Services profitability and despite lower revenue coming from the Arcandor Group. “Other Countries” posted the largest margin improvement in the first half 2010, from 1.6 per cent over the first semester 2009 to 10.8 per cent this semester, a step-up of EUR 18 million. Three major items fuelled this performance: (cid:1) the renegotiation of large Managed Services contracts in Asia combined with a decrease of datacenters cost base, (cid:1) a strong improvement in Systems Integration contract management in Asia due to a new (cid:1) management team, the successful deployment of the Group new Global Delivery Model implemented in Asia in 2009. These improvements in Operating Margin countered the negative margin of EUR -9 million in Spain due to an overall tough economic environment (price pressure and volumes reductions), slippage in some specific fixed-price contracts, and insufficient adjustment of cost base. The effects of the current restructuring program and the change of top management in the first half of this year should lead to improved performance in the second half of 2010. The costs of Global Functions (Global Service Lines and Corporate Central) benefited from the effects of the TOP Program and the implementation of Lean Management and Added Value Analysis (AVA). They are almost down by 20 per cent to EUR 39 million for the first half of 2010, i.e. a reduction of EUR 9 million, of which EUR 2 million come from equity-based compensation. 5.3.3 Operating Margin by Service Line (in EUR million) 6 months ended 30 June 2010 % Margin 6 months ended 30 June 2009 % Margin % growth Managed Services Systems Integration Hi-Tech Transactional Services Consulting Medical BPO Corporate central (*) Operating Margin at constant scope and exchange rates (*) Corporate central costs exclude Global Service Lines costs allocated to the Service Lines 63.3 7.0% 3.7% 33.2 79.6 15.9% -2.8% (3.1) 8.4 10.6% -1.3% 33.2 3.4% 3.9% 37.7 71.8 14.7% 1.6 1.2% 8.6 11.3% -1.3% (31.4) (33.9) 150.1 6.0% 119.0 4.6% 91% -12% 11% -293% -2% +7% +26% Managed Services reported a strong margin improvement at EUR 63 million representing 7 per cent Operating Margin. The Margin increase was reached thanks to the implementation of a new Delivery Page 32 of 95 Model and the acceleration of the TOP Program. This performance was achieved despite a revenue decreasing by -6 per cent. The main improvements came from: (cid:1) Germany / CEMA where the revenue drop coming from Arcandor was absorbed by strong actions on costs including restructuring. In June 2009, the group booked a EUR 14 million provision for bad debt. The GBU improved its Operating Margin by EUR 16 million this year; (cid:1) Benelux, benefiting from the TOP Program including Lean management and non personal costs savings, allowing a margin improvement by EUR 10 million while revenue decreased by EUR 15 million; In “Other countries”, South America benefited from resizing and tight cost control actions which led to EUR 3 million margin increase, while in Asia the EUR 8 million margin improvement came from the implementation of a new Delivery Model but also from a better pricing on large contracts; (cid:1) (cid:1) United Kingdom where Operating Margin remained stable in absolute value absorbing (cid:1) EUR 12 million less revenue thanks to a reduction of the cost base; In France however, Operating Margin fell to a slightly positive level, due to a lack of cross selling revenue which usually generates a higher level of margin. Systems Integration, in the context of a revenue decrease by -6 per cent, has contained its Operating Margin at 3.7 per cent compared to 3.9 per cent in the first half of 2009. In absolute value the Operating Margin declined to EUR 33 million versus EUR 38 million last year. Two entities contributed to the margin decrease: (cid:1) Germany / CEMA which dropped from a positive margin at EUR 9 million to a negative one at EUR -1 million. To face a reduction of the activity, the management has set up cost savings measures which have not materialised yet. Over the second half of 2010, the GBU should also benefit from an appropriate workforce optimization. (cid:1) Spain where the Operating Margin was negative at EUR -5 million compared to a positive one at EUR 4 million one year ago. Price pressure continued to erode margins, and the entity had to face projects’ overruns. These negative effects have been partially offset by actions on revenue and costs allowing Operating Margin improvement in Asia, in France and on the central costs of Global Systems Integration. Operating Margin was maintained in the Netherlands and in the United Kingdom. Hi-Tech Transactional Services improved its Operating Margin both in absolute value at EUR 80 million compared to EUR 72 million one year ago, and also its profitability at 15.9 per cent versus 14.7 per cent one year ago. As the Group is currently investing in order to roll out the Atos Worldline offerings in its other geographies, the margin improvement came from Atos Worldline, and more particularly from Payments, where profitability benefited from growing volumes. In its three geographies, France, Belgium and Germany, Atos Worldline has accelerated TOP projects which led to productivity gains and margin improvement compared to last year. In Consulting, the Operating Margin has improved in France at 5.3 per cent of revenue further to the revenue increase. In Benelux, thanks to a tight workforce management which led to an increase of the utilisation rate, the Operating Margin slightly improved despite the strong revenue decrease already mentioned above. If the Operating Margin slightly decreased in the United Kingdom, the main effect came from Spain where the Operating Margin dropped at the same level than the revenue decrease. As a result, the Consulting Service Line reported a negative Operating Margin at EUR -3 million compared to a positive Margin last year of EUR 2 million. Medical BPO has maintained its Operating Margin during the first half of 2010 at a double digit level. In this activity, volumes growth has been offset by price decrease Page 33 of 95 5.4 HUMAN RESOURCES REVIEW 5.4.1 Change in the Group workforce Employees First Half 2010 First Half 2009 Change Headcount opening Change in scope Hiring (*) Leavers (*) Restructuring 49,036 (130) 2,487 (2,146) (1,059) 50,975 (139) 2,007 (2,074) (1,362) (1,939) 9 480 (72) 303 Headcount at closing 30 June (*) Permanent staff only, excluding temporary staff movements 48,188 49,407 (1,219) Total number of Group employees declined slightly from 49,036 at the end of December 2009 to 48,188 at the end of June 2010. The number of direct staff has stabilised since April 2010, while indirect staff are still being reduced in the context of the Added Value Analysis process implementation in each country. Almost 2,500 engineers were recruited in the first half of 2010 of which 1,500 were recruited in the second quarter. Half of the new joiners are in the emerging markets of Asia and South America as well as Morocco. The attrition rate slightly increased to 8.8 per cent compared to 7.5 per cent in June 2009. The number of dismissals and restructuring was 1,200 employees, in line with the Group expectations. The number of external subcontractors was 2,337 almost stable for the last 12 months. This figure was in line with the current Group policy, around 5 per cent of total staff. The cost of external subcontractors was down by -13 per cent (circa EUR 40 million) in the first half of 2010 compared to the same period in 2009. Finally, the Group pursued its efforts to reskill internal staff and to encourage mobility in line with the policy implemented at the beginning of 2009. As a result, people on the bench have been reduced to 834 employees compared to 1,044 one year ago which already represented a significant improvement. Page 34 of 95 5.4.2 Staff movements by Service Line and Global Business Units Employees 30 June 2010 31 Dec. 2009 Change Consulting Systems Integration Managed Services Hi-Tech Transactional Services Medical BPO Corporate (*) 1,919 21,949 16,131 5,896 1,931 215 2,070 22,647 16,305 5,771 1,879 214 Shared service Center (Poland) Total 147 48,188 150 49,036 France Benelux United Kingdom Atos Worldline Germany / CEMA Spain Other countries Corporate Shared service Center (Poland) Total 11,583 7,230 6,399 4,817 3,628 5,527 8,642 215 147 48,188 11,954 7,750 6,269 4,804 3,746 5,668 8,481 214 150 49,036 (*) Corporate includes General Management, and Group Support Functions As of 30 June 2010, total staff reached 48,188 decreasing by -2 per cent compared to the end of last year. The major decrease in the number of staff came from the GBUs Benelux, Germany CEMA, France and Spain. Atos Worldline almost maintained their headcounts. Asia and the United Kingdom slightly increased their workforce by 2 per cent in order to deliver new projects. By Service Line, the Group restructured in the cyclical activities with the departure of staff which were either low performer or unable to be reskilled in order to join projects for customers. Page 35 of 95 7% -3% -1% 2% 3% 0% 2% -2% 3% -7% 2% 0% -3% -2% 2% 0% -2% -2% 5.4.3 Staff breakdown by regions as of 30 June 2010 UK UK 6,400 6,400 Benelux Benelux 8,350 8,350 France France 14,670 14,670 Germany & CE Germany & CE 4,200 4,200 North America North America 645 645 Spain Spain 5,680 5,680 Med. countries Med. countries 740 740 South America South America 1,760 1,760 Africa Africa 160 160 Total employees: 48,188 at Total employees: 48,188 at the end of June 2010 the end of June 2010 Page 36 of 95 Asia Pacific Asia Pacific 5,580 5,580 6 TOP PROGRAM (TOTAL OPERATIONAL PERFORMANCE) 6.1 LEAN MANAGEMENT 6.1.1 Definition and ambition Since the inception of the TOP Program, Atos Origin has adopted the principles of Lean management, which enable the Company to leverage the skills and creativity of its staff to pursue simultaneously three goals: operating more efficiently, improving quality of service, and enhancing Well Being at Work. This disruptive approach has been initially applied to Global Service Desks and Infrastructure Services then introduced to all other service areas, from Application Management to Onsite Support Services. Results observed are similar in all areas, with a rate of capture comprised between three and nine months. The continued use of Lean management across all the operations of the Group will therefore provide a competitive advantage to strengthen operations, develop customer loyalty through increased service quality, attract and retain top talent. The program is deployed across all countries where the Group operates and is seen as a powerful lever to industrialize working practices. This has led the Group to accelerate the rollout of Lean management: from the end of 2009 when about 3,000 direct staff was operating under Lean management principles, an additional 2,000 direct staff have been put under Lean management in the first half 2010. The ambition is to reach about 9,000 direct staff under Lean management by the end of 2010 and to continue the acceleration in 2011. To support this ambition, the Group has invested in building a group of 150 full-time Lean experts who are performing Lean transformations, one site at a time. In addition, the Lean Academy ensures methodological training and support of these experts, as well as the top 3,600 managers who have been trained into the Lean Mindset. 6.1.2 Lean case studies Improving Application Management (Systems Integration) In 2009 and 2010 the Company successfully completed several Lean transformation projects in its Application Management operations. One of these early projects was in Bordeaux, France. It tackled the mission-critical third-party maintenance application projects, followed by build-type Systems Integration projects focused on SAP. Embracing Lean management requires participation by the largest amount of people working on a site. For this reason all developers, project leaders, project directors and the director of the service center became actively involved in the Lean process. It was up to each team to define its own bottom-up action plan based on the Lean diagnostic findings. This approach has reinforced a continuous improvement and problem ownership mentality in each team. In addition to increasing work efficiency, piloting the Lean methods and processes at the Bordeaux site has led to improved client satisfaction. For Philippe Thomieres, the SAP Service Center in Bordeaux “is now a real showcase of our activities which impresses clients visiting the Center. Today, and even more for the future, it is the ‘Lean SAP by Atos Origin’ methodologies which will allow us to compete on the market alongside with the other big players.“ Improving Onsite Support In early 2010, the Company completed several pilots in Germany, France and Belgium in its Onsite Support operations. The aim of these pilots was to see how the Company can maintain or increase Page 37 of 95 service quality while radically increasing efficiency at each location. Applying Lean management on distributed field service environments involves a complexity level in comparison to site-based Lean projects, such as the optimization of interactions between service desks and site-based teams, and improving physical team setup relative to the customers’ geographical coverage. Following these pilots, Atos Origin has implemented a number of changes including new standardized work practices that significantly reduce the time per onsite intervention and improve the customer experience, strengthened the information flow with onshore and offshore service desks to increase resolution rate, thus reducing onsite support workload. In parallel, each onsite team has implemented visual management and communication norms that develop team cohesion and reactivity to customer needs. 6.1.3 Sustainability of impact In parallel to driving 70 Lean transformation projects, the Group has developed a robust set of mechanisms to sustain the impact of Lean management and embed continuous improvement into the Atos Origin culture. These include Lean sustainability audits, a community of site managers having undergone Lean transformations (Lean Commodores), and extended linkages with HR on workforce management aspects. This essential mission ensures that staff made available through efficiency gains is reskilled as needed, then positioned on new contracts or as replacement to subcontractors, in order to minimize restructuring costs while building positive momentum in the staff. The Group is also enhancing its change management effort to enhance staff support to the transformation, motivate teams and boost its Well Being at Work efforts. 6.2 ACCOUNT DEVELOPMENT METHODOLOGY 6.2.1 Top Sales 2 program: progress on implementation TOP SALES 2 aims at growing our existing accounts by +4% per annum from 2011. The objective is to identify growth opportunities on all existing accounts and define action plans to deliver targeted growth. This initiative is leveraging three major growth drivers: (cid:1) growing international accounts outside of domestic market, leveraging our intimacy with our customers’ business and our relationship with their corporate headquarters, (cid:1) systematically selling all relevant offering portfolio to all accounts to increase cross- fertilization, (cid:1) identifying new growth opportunities by analyzing customers’ business issues and key performance improvement initiatives. This initiative includes four major actions: (cid:1) define a global account planning methodology, (cid:1) implement in all GBUs, a new role, called Sales navigator, to facilitate the account planning process, (cid:1) roll-out account planning methodology to 250 accounts through a series of workshops involving all countries relevant for the account, (cid:1) build and roll-out a global Client Satisfaction Survey methodology, which is perceived as an additional way of identifying growth opportunities with our customers. In the first half of 2010, a global Client Satisfaction Survey methodology has been defined and rolled- out on more than 50 accounts and a global account planning methodology has been defined and roll- out on more than 80 accounts. On the accounts that have been addressed, opportunities have been identified to grow these accounts by more than 4%. This growth is coming for about 35% on international development of accounts, 20% Page 38 of 95 selling high value added offerings like HTTS and Atos WorldGrid, 45% further developing Consulting, SI and MO on account domestic markets. An additional 170 accounts will be addressed over H2 to cover close to 100% of our revenues. 6.2.2 Top Sales 1 program: progress on implementation (cid:1) As part of the TOP Sales initiatives, TOP Sales 1 (TS1) aims at aligning sales skills with our growth plan). In Q4 2009, a global Sales Training Curriculum has been developed jointly between HR and Sales, aligning the training need to the sales plan and focusing on areas of growth of Atos Origin: portfolio of offerings, off-shore, and accounts development. (cid:1) At the end of 2009, an ambitious training plan for 2010 has been built and approved by the Executive Committee of Atos Origin, targeting 1,700 people across the board from our Sales Community, providing common culture and increasing efficiency in cross border sales. (cid:1) In H1 2010, 3,000 days of training have been invested on five core training programs: Sales Effectiveness (common Sales Methodology), Win Workshop (Atos best practice in opportunity management), Global Sourcing Selling, Offerings and Proactive Sales Mindset (new account development methodology). (cid:1) In H2 and for 2011 onward, in addition to the sustainable 5 core programs, Sales Training investments will be focused on enhanced sales training programs, providing our sales people additional skills to support our customers CXOs in their core businesses. Working in cooperation with the Atos University, the TOP Sales 1 program will endure outcomes for our clients and for Atos through the Atos Sales Academy. The Sales Academy incorporated the new Sales Training Programs developed in H1 to its comprehensive portfolio of training programs. The Atos Sales Academy meets the needs of sales specialists and others involved in the sales process at all levels across the entire Atos Origin Group. 6.2.3 Proactive Sales Mindset The core principle of Proactive Sales Mindset is to move Atos from a supplier to a trusted advisor of our customers and focus on value for them in order to build a solid three-year sales plan with identified opportunities together with our customers. In H1, the PSM training program has been built by the TOP Sales 1 initiative in order to train our sales teams to this new approach to account planning with a new creative and ambitious mindset. 400 sales people (Account Sales Executives, Account Executives, Account Partners) are being trained in total, across 10 geographies in Europe, US, Lat. Am. and Asia, through more than 30 training sessions. PSM training program is concerned with teaching participants how to make the revenue required for growth, to think with the end in mind, and to anticipate anything that may prevent that revenue from being realized. Over the one-day program, participants consider the components of an account plan and what an account strategy could be, as well as how to implement an account plan successfully. Via case studies, participants learn how to gain an understanding of the client and its situation, the outlook and forecasting ambition, and how to write an effective account strategy. Proactive Sales Mindset applies to the all accounts of Atos. Every account is important and managed by an Account Executive. Account teams have been trained to Proactive Sales Mindset all along H1 2010. By developing this new mindset, account teams of Atos will ensure that any service delivered to our customers are fully aligned with their core business interest, relying on solutions chosen among the best capabilities within Atos. Developing sales in a win-win approach, PSM will support revenue growth for both our customers and Atos. This is a cultural change for Atos and our customers are already testifying their satisfaction Page 39 of 95 6.3 BOOSTING OFF SHORING In today’s market, off-shoring is mandatory to ensure that costs drop faster than market prices and Atos Origin stays competitive and focused on excellent delivery. For contract renewals and new client wins, off-shoring is a prerequisite, mostly in markets under strong Globalization, such as telecommunication, manufacturing, finance, where Atos Origin needs to demonstrate innovation, market knowledge and competitive pricing. Through the TOP Program, with its Global Delivery Lines in Managed Services and System Integration, the Group strongly increased in 2009 the size of the teams in off-shore locations. This effort has been continued over H1 2010 and will further expand. Managed Services Off-shoring in this Service Line has been achieved by transferring server management and monitoring services progressing well to the four key offshore locations for Managed Services: India, Malaysia, Morocco and Poland. In parallel to transferring services offshore, Atos Origin is also running training schemes to re-skill its onshore staff for other onshore job opportunities. Systems Integration A plan build in five steps has accelerated off-shoring while improving efficiency, service quality and profitability: 1. Speed up roll-out of the Service Delivery Platform – standardize processes and tools worldwide, so that the Company can off-shore quickly and efficiently; 2. Move to the factory approach – create a catalogue of services at pre-defined tariffs that guarantee delivery and make it easier for Global Business Units to price solutions for their clients. This will replace the previous system where fees were calculated on a pro rata basis; 3. Standardize transition processes from on-shore to off-shore – manage the transfer of existing long-term business cost effectively and without any disruption to service; 4. Define principles for new operating model in India – benefit from economies of scale and deliver improved service by reorganizing the Indian operations by technologies and/or business domains. For example, there will be teams focussed on the test factory, SAP upgrades and applications, java and.net development, in addition to focus service lines for applications management; 5. Develop sales collateral – help the sales and account teams more effectively to master and manage the offer of off-shore in all new deals. At the end of the first half of 2010, Atos Origin has now 14 production lines around various technologies up and running in India. HTTS program HTTS and Atos Worldline are increasing their offshore capabilities to support strong portfolio development at the most competitive cost. A significant part of its payment solutions is now executed from India. Strong attention is paid as well at developing centers having similar language capabilities as the Demand Countries: (cid:1) Morocco To meet the increasing demand from its French clients to deliver more services off-shore by French speaking technology experts, the Company has further improved and strengthened its off- shore center in Morocco. In September 2009, the Company moved into a brand new, purpose built, technology Campus, “Casa Near-shore”, located close to Casablanca; increased the size of the Group Systems Integration team and its Managed Operations team to serve clients. In 2010, the Group is applying the same approach than the one implanted in India. (cid:1) Argentina To meet as well demand from Spain, the Group has decided to strengthen its SI offshore capabilities in Argentina, as banks and large international Group headquartered in Spain are looking at developing their operations in South America. Page 40 of 95 6.4 WELL BEING AT WORK At the end of 2009, Atos Origin launched its “Well Being at Work” program at Group level. This is part of the Group’s transformation plan with the objective of imagining a new way of working, intensively using new technologies while matching the social expectations of our employees and the “Y generation” so as to be recognised as one of the best companies to work for by 2012. Early 2010, seven new programs have been launched and a “Well Being at Work” council has been implemented with the aim to think out of the box and: (cid:1) (cid:1) define the future work relationships with the company (cid:1) challenge the Group’s Scientific Community for innovation (cid:1) be visionary in our customers’ expectations imagine a new way of working The Group has developed an approach that covers all aspects of the future workplace, from implementing efficiency through management processes, delivering specific tools for remote working, and covering training, talent management as well as enabling new levels of collaboration and flexible working. The first deliverables of this program concern the new Group’s Campus and Headquarters in Bezons. In this new building as well as in its other locations, the Group has worked on making optimal use of its office space. 6.5 SUPPORTING INNOVATION 6.5.1 Globalising the Payment Platforms In 2009, Atos Worldline processed almost three billion payment transactions in its domestic markets - Belgium, France and Germany. In order to strengthen its position and to prepare for the SEPA market, Atos Worldline initiated the strategic IT Globalisation Program which in 2009 was incorporated into the TOP Program. It aims to deliver the first truly pan-European payment processing platforms for Acceptance, Acquiring, Issuing and Clearing and Settlement. These global payment processing platforms are designed and developed to meet the requirements of its international customers for cross-border processing, front and back office, including full regulatory compliance and fraud management. With its global platforms, the Group aims at significantly increasing the number of processed transactions in the coming years, by growing the business in its existing markets – Belgium, France and Germany – and by expanding the business into other markets where Atos Origin has a strong presence. 6.5.2 Rewarding and investing in innovation Atos Origin is at the forefront of the world’s leading technology projects in the Energy, Public Sector, Telecom and Financial Services market. Through the TOP Program, the Company has used a systematic approach to identify these projects to ensure that they are recognised both internally and externally. It has also enabled the Company to benefit from subsidies granted for innovation in R&D. This together with the improved cash flow has meant Atos Origin has been able to further invest in Research and Development. Page 41 of 95 7 FINANCIAL REVIEW 7.1 INCOME STATEMENT The Group reported a net income (Group share) of EUR 60.0 million for the half year 2010, which represents 2.4% of Group revenues of the period. (in EUR million) 6 months ended 30 June 2010 % margin 6 months ended 30 June 2009 % margin Operating margin Other operating income / (expenses) Operating income Net financial income / (expenses) Tax charge Non-controlling interests and associates Net income – Group share 150.1 (54.2) 95.9 (10.0) (23.8) (2.1) 60.0 6.0% 3.8% 118.3 (75.8) 42.5 (14.4) (7.7) (2.2) 18.2 4.6% 1.6% 2.4% 0.7% Adjusted net income – Group share (*) 98.3 3.9% 73.9 2.9% (*) Defined hereafter 7.1.1 Operating margin Operating margin represents 6.0% of total revenues of the period, taking into account the new French business tax the “Cotisation sur la Valeur Ajoutée des Entreprises” (CVAE) recorded in income tax. Without this regulatory impact, the operating margin was EUR 141.0 million (5.7% of revenue to be compared with 4.6% last year). 7.1.2 Operating income Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represent a net expense of EUR 54.2 million in June 2010. The following table analyses this amount by nature and destination: (in EUR million) Group transformation costs Other non recurring items Total Staff restructuring Paris offices rationalisation Other locations rationalisation Goodwill impairment Release of OBS provision and others Total (19.2) (14.2) (1.1) - - (34.5) 3.1 - 1.8 (25.0) 0.4 (19.7) (16.1) (14.2) 0.7 (25.0) 0.4 (54.2) Group transformation costs (EUR 34.5 million expenses) The EUR 19.2 million staff restructuring expense is the consequence of both the Group workforce adaptation to the effects of the economic recession and the non recurring cost induced by the TOP Programs aimed at improving Group efficiency and productivity. The combination of these two actions affected mainly The Netherlands (EUR 6.0 million), Iberia (EUR 5.0 million) and France (EUR 3.7 million). The expense related to the Paris offices rationalisation program corresponds mainly to: The rent of the new building for which fittings and fixtures were still under construction in the first semester 2010 for EUR 8.8 million. This rent expense will not be cashed out in 2010 as the landlord granted a two year rental exemption starting in 2010; The settlement with the landlord of the building “Les Miroirs” for EUR 20.0 million in exchange of an early termination of the lease agreement in the third quarter of 2010. Given that EUR 17.0 million of this cost was already covered by the provision booked in 2009, this transaction leads to an additional charge of EUR 3.0 million in operating income; Page 42 of 95 Furthermore, the activities located in the Suresnes’ building will be transferred to Bezons. This decision that has been formally announced to the Workers’ Representatives, triggered the booking of an additional provision of EUR 4.9 million. Other non-recurring items (EUR 19.7 million expense) Other non-recurring items mostly comprised the impairment expense of EUR 25.0 million recorded on Iberia cash generating unit following a deteriorating economic environment in Spain. 7.1.3 Net financial expense Net financial expense amounted to EUR 10.0 million for the period. This expense includes: - the net cost of financial debt, and, non-operational financial costs. The net cost of financial debt was an expense for EUR 8.5 million compared to EUR 6.5 million in June 2009. The EUR 8.5 million comes from an average gross borrowing of EUR 564.2 million offset by the level of average gross cash and cash equivalents of EUR 430.0 million. Part of the available cash and cash equivalents is related to the convertible bond proceeds (OCEANE). The average financial costs of gross borrowing was 3.19% (this percentage is negatively impacted by the 6.68% effective interest rate calculated under IFRS for the OCEANE, taking into account the value of the conversion options) and the average income of the gross cash was 0.31%. During the period, the average net debt has decreased from EUR 368.6 million in June 2009 to EUR 134.2 million in June 2010. The net cost of financial debt was covered 18 times by operating margin, compared with a requirement of not less than 4 times cover under the terms of the Group syndicated loan. Non-operational financial costs amounted to EUR 1.5 million compared to EUR 7.9 million in June 2009. This improvement was mainly due to pension figure which represents the difference between the interests cost and the expected return on plan assets. The expected return on plan assets increased because of improved asset base at previous year end following the reversal of previous depreciations. 7.1.4 Tax charge The tax charge for the first half of the year is EUR 23.8 million based on a profit before tax of EUR 85.9 million. This results in an Effective Tax Rate (ETR) of 27.7%, deriving from the normalised ETR of 34.8% calculated on full year basis, subsequently adjusted for the tax impact of discrete items. The normalised ETR of 34.8% includes the “Cotisation sur la Valeur Ajoutée des Entreprises” (CVAE) and the tax impact of the impairment of EUR 25.0 million in Spain. The tax charge of June 2010 includes a CVAE for a gross amount of EUR 9.1 million. On a midterm basis, the expected effective tax rate is 29%-30%, including the booking of the CVAE in income tax. 7.1.5 Non controlling interests Non controlling interests include shareholdings held by joint venture partners and other associates of the Group. They are located mainly in Atos Worldline Processing services in Germany (42%) until the 24 June 2010, date of acquisition of these non controlling interests. Page 43 of 95 7.1.6 Adjusted net income The net income - Group share before unusual, abnormal and infrequent items (net of tax) was EUR 98.3 million, 3.9% of total revenues. (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 Net income - Group share 60.0 18.2 Reorganisation and rationalisation Pensions Release of opening balance sheet provisions no longer needed Capital gains / (losses) Impairment losses & Other Sum of unusual items (29.6) 0.4 2.1 (1.7) (25.4) (54.2) 15.9 (74.8) 1.4 0.1 (1.6) (0.9) (75.8) 20.1 Tax effect Sum of unusual items - net of tax (38.3) (55.7) Adjusted net income - Group share 98.3 73.9 7.2 EARNINGS PER SHARE (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 Net income – Group share Net income restated of dilutive instruments – Group share Adjusted net income – Group share Adjusted net income restated of dilutive instruments – Group share 60.0 64.4 98.3 102.7 18.2 18.2 73.9 73.9 (In EUR) Basic EPS Diluted EPS Adjusted basic EPS Adjusted diluted EPS 0.87 0.85 1.42 1.35 0.27 0.27 1.08 1.08 The dilutive effects on the number of shares were the convertible bonds for 5,414,771 shares and the stock options for 1,243,306 options. The impact of the restatement of dilutive instruments on the net income is EUR 4.4 million net of tax and derives from the interest expenses on the convertible bonds. Based on a diluted weighted average of 75,823,157 shares in issue during the first half of 2010, the adjusted basic and diluted EPS were respectively EUR 1.42 and EUR 1.35. Page 44 of 95 7.3 CASH FLOW AND NET DEBT The Group began the year with an opening net debt of EUR 139.4 million. At the end of June, it reached EUR 119.1 million. The main elements affecting the Group’s net cash flow in June 2010 are the following: - - an OMDA at EUR 240.2 million, representing 9.6% of revenue (8.3% in June 2009), a strong reduction of the capital expenditures, decreasing to 2.9% of the external revenue (4.1% in June 2009) materializing the objective of the Group to reduce its capital intensity, the positive change in working capital requirement for EUR 1.2 million in the period, the net financial investments for EUR 54.0 million. This amount related mainly to : o o the acquisition of Shere Ltd for EUR 19.7 million net of cash in March 2010, a market leading and innovative provider of integrated self-service, web and desktop systems delivering services to the UK rail and hospitality markets, and, the acquisition of non controlling interests of Atos Worldline Processing services in Germany (42%) for EUR 35.0 million on 24 June 2010, an equivalent reorganisation and rationalization cash outflow in the period for EUR 69.4 million compared to June 2009 (EUR 69.5 million). (in EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 OMDA Net capital expenditures Change in working capital requirement Cash from operations Taxes paid Net cost of financial debt paid excl. Convertible bonds Net interests of convertible bonds Reorganisation in other operating income Rationalisation in other operating income Net financial investments Dividends paid Purchase and sale of treasury stock Other changes (*) Net cash flow 240.2 (72.8) 1.2 168.6 (27.3) (2.9) (5.6) (47.0) (22.4) (54.0) (4.3) 1.4 13.8 20.3 214.7 (106.6) (38.3) 69.8 (10.7) (6.3) - (62.1) (7.4) (6.6) (3.6) 1.6 1.7 (23.6) Opening net debt (139.4) (304.0) Closing net debt (119.1) (327.6) (*) Other changes include common stock issues, translation differences, profit-sharing amounts payable to French employees transferred to debt, disposal of operational assets, other operating income with cash impact (excluding reorganisation & rationalisation) and other financial items with cash impact. 7.3.1 Operating investments During the first six months of 2010, net capital expenditures amounted to EUR 72.8 million. The purchases represent EUR 81.7 million. The main Global Business Units contributing to these investments are: the United Kingdom for EUR 15.6 million, of which EUR 6.0 million for the acquisition of intellectual property rights and EUR 6.0 million of IT equipment related to various customer contracts; Atos Worldline for EUR 11.6 million; - The Netherlands for EUR 8.8 million, of which EUR 4.2 million being servers and PC dedicated to clients and the rest mainly for storage and network equipment EUR 4.0 million and; France for EUR 8.4 million (out of which EUR 5.5 million dedicated to clients and EUR 1.1 million for shared infrastructures). Proceeds from disposal of assets EUR 8.9 million mostly come from the disposal of mainframes in Germany. Page 45 of 95 7.3.2 Change in working capital The positive change in working capital is EUR 1.2 million over the period. In 2009, the Group has implemented a half year scheme for bonuses, instead of a yearly scheme in the previous years. Consequently, the change in working capital for the first semester of 2009 includes the payment of full 2008 bonuses, whereas the change in working capital for the first semester of 2010 includes only the payment of bonuses related to the second semester of 2009. Moreover, DSO has improved by 6 days at 58 days at the end of June 2010 compared to 64 days in June 2009. This evolution was the result of the strong actions carried out by Atos Origin to reduce seasonality of the working capital and accelerate client collection (T18). 7.3.3 Bank covenants The Group is substantially within its borrowing covenants, with a consolidated leverage ratio (net debt divided by OMDA) of 0.2 at the end of June 2010. It may not be more than 2.5 times throughout the term of the Group syndicated loan. The consolidated interest cover ratio (operating margin divided by the net cost of financial debt) was more than 18 times in the first half of 2010. It may not be less than 4 times throughout the term of the Group syndicated loan. 7.4 PARENT COMPANY RESULTS The profit before tax of the parent company amounts to EUR 92.1 million for the end of June 2010, compared with EUR 116.9 million for the first semester 2009. Page 46 of 95 8 HALF-YEAR FINANCIAL REPORT 8.1 STATUTORY AUDITORS’ REVIEW REPORT ON HALF-YEAR CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2010 This is a free translation into English of the statutory auditor’s review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (“Code Monétaire et financier”), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Atos Origin, for the period January 1 to June 30, 2010, the verification of information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusions on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – the standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our conclusion expressed above, we draw your attention on the matters set out in: the note “Basis of preparation and significant accounting policies ” to the condensed half-year consolidated financial statements regarding the change in accounting policy regarding actuarial gain and losses of pensions, the note 9 “Goodwill” which presents the results of the impairment tests performed by the Group, on the goodwill of certain cash generating units as of June 30, 2010. Page 47 of 95 2. Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris and Neuilly-sur-Seine, July 29, 2010 The Statutory Auditors, Deloitte & Associés Grant Thornton French member of Grant Thornton International Tristan Guerlain Christophe Patrier Jean-Pierre Colle Vincent Frambourt Page 48 of 95 8.2 HALF-YEAR CONDENSED FINANCIAL STATEMENTS 8.2.1 Interim consolidated income statement (in EUR million) Notes Revenue Personnel expenses Operating expenses Operating margin % of revenue Note 2 Note 3 Note 4 Other operating income and expenses Operating income % of revenue Note 5 Net cost of financial debt Other financial expenses Other financial income Net financial income Profit before tax Note 6 Tax charge Note 7 Net income Of which: Group share - Non controlling interests Note 13 (in EUR and number of shares) Net income - Group share per share Weighted average number of shares Basic earnings per share Diluted weighted average number of shares Diluted earnings per share Note 8 Page 49 of 95 6 months ended 30 June 2010 2,494.2 (1,434.8) (909.3) 150.1 6.0% (54.2) 95.9 3.8% (8.5) (24.4) 22.9 (10.0) 85.9 (23.8) 62.1 60.0 2.1 69,165,080 0.87 75,823,157 0.85 6 months ended 30 June 2009 2,589.3 (1,471.8) (999.2) 118.3 4.6% (75.8) 42.5 1.6% (6.5) (20.8) 12.9 (14.4) 28.1 (7.7) 20.4 18.2 2.2 68,620,160 0.27 68,620,160 0.27 12 months ended 31 December 2009 5,127.0 (2,862.3) (1,974.1) 290.6 5.7% (259.3) 31.3 0.6% (13.5) (31.9) 21.0 (24.4) 6.9 1.1 8.0 3.9 4.1 68,772,224 0.06 74,420,585 0.06 8.2.2 Interim consolidated statement of comprehensive income (in EUR million) 6 months ended 30 June 2010 Profit for the period 62.1 Other comprehensive income Cash flow hedging : Current period gains / (losses) - Reclassification to profit or loss Income tax relating to cash flow hedging 2.3 (0.6) (0.1) Acturial gains and losses generated in the period (47.6) Exchange differences on translation of foreign operations 78.4 Total Other comprehensive income Total comprehensive income for the period Of which: 32.4 94.5 Group share - Non controlling interests 92.3 2.2 Page 50 of 95 6 months ended 30 June 2009 20.4 5.0 (0.5) (1.4) 55.2 58.3 78.7 76.5 2.2 12 months ended 31 December 2009 8.0 2.9 2.5 (1.2) (29.5) 25.2 (0.1) 7.9 3.4 4.5 8.2.3 Interim consolidated statement of financial position (in EUR million) Notes ASSETS Goodwill Intangible assets Tangible assets Non-current financial assets Non-current financial instruments Deferred tax assets Total non-current assets Trade accounts and notes receivable Current taxes Other current assets Current financial instruments Cash and cash equivalents Total current assets TOTAL ASSETS Note 9 Note 10 Note 17 Note 11 Note 17 Note 12 (in EUR million) LIABILITIES AND SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Consolidated reserves Translation adjustments Net income for the period Shareholders’ equity – Group share Non controlling interests Total shareholders’ equity Note 13 Provisions for pensions and similar benefits Non-current provisions Borrowings Deferred tax liabilities Non current financial instruments Other non-current liabilities Note 14 Note 15 Note 16 Note 17 Total non-current liabilities Trade accounts and notes payable Current taxes Current provisions Current financial instruments Current portion of borrowings Other current liabilities Total current liabilities Total liabilities and shareholders’ equity Note 18 Note 15 Note 17 Note 16 Note 19 Page 51 of 95 30 June 2010 1,556.4 76.6 394.9 147.7 0.2 286.4 2,462.2 1,345.4 8.0 207.3 7.6 430.9 1,999.2 4,461.4 30 June 2010 69.7 1,330.2 236.5 (75.0) 60.0 1,621.4 3.5 1,624.9 422.9 113.9 506.7 62.7 1.7 13.3 1,121.2 528.1 38.4 99.2 4.6 43.3 1,001.7 1,715.3 4,461.4 31 December 2009 1,507.6 68.9 407.4 220.0 1.1 249.0 2,454.0 1,281.3 26.3 164.4 3.8 534.7 2,010.5 4,464.5 31 December 2009 69.7 1,329.7 300.9 (153.4) 3.9 1,550.8 11.0 1,561.8 437.1 126.6 483.4 63.0 4.3 1.1 1,115.5 475.3 28.3 135.2 1.2 190.7 956.5 1,787.2 4,464.5 30 June 2009 1,564.4 80.5 441.7 63.0 1.4 227.3 2,378.3 1,392.9 32.3 206.6 0.9 164.8 1,797.5 4,175.8 30 June 2009 69.7 1,329.7 286.9 (123.4) 18.2 1,581.1 10.1 1,591.2 261.9 105.0 262.4 59.8 3.7 1.1 693.9 517.9 49.2 84.3 1.0 230.0 1,008.3 1,890.7 4,175.8 8.2.4 Interim consolidated cash flow statement (in EUR million) Notes Profit before tax Depreciation of fixed assets Net charge / (release) to operating provisions Net charge / (release) to financial provisions Net charge / (release) to other operating provisions Impairment of long-term assets Net accrual to other operating expenses Losses / (gains) on disposals of fixed assets Net charge for equity-based compensation (Gains)/Losses on financial instruments Net cost of financial debt Cash from operating activities before change in financial interests and working capital requirement, taxes Taxes paid Change in working capital requirement Net cash from / (used in) operating activities Note 4 Note 6 Payment for tangible and intangible assets Proceeds from disposals of tangible and intangible assets Net operating Investments Amounts paid for acquisitions and long-term investments Cash and cash equivalents of companies purchased during the period Proceeds from disposals of financial investments Cash and cash equivalents of companies sold during the period Net long-term investments Net cash from / (used in) investing activities Common stock issues on the exercise of equity-based compensation Portion of convertible bonds : - in equity Note 16 in financial liability Note 16 Purchase and sale of treasury stock Dividends paid to minority shareholders of subsidiaries New borrowings New Finance lease Repayment of long and medium-term borrowings Net cost of financial debt paid Other flow related to financing activities Net cash from / (used in) financing activities Increase / equivalents (decrease) in net cash and cash Note 16 Note 16 Note 16 Note 16 Opening net cash and cash equivalents Note 16 Increase/ (decrease) in net cash and cash equivalents Impact of exchange rate fluctuations on cash and cash equivalents Closing net cash and cash equivalents Note 16 Page 52 of 95 6 months ended 30 June 2010 85.9 101.6 (26.8) 5.6 (63.7) 25.0 22.6 2.4 5.6 (0.2) 8.5 166.5 (27.3) 1.2 140.4 (81.7) 8.9 (72.8) (59.3) 1.1 4.2 (54.0) (126.8) 0.5 1.4 (4.3) 25.4 0.1 (24.8) (2.9) (141.0) (145.6) (132.0) 532.9 (132.0) 429.7 6 months ended 30 June 2009 28.1 111.9 (26.0) 6.9 3.7 - - 2.6 7.9 (1.2) 6.5 140.4 (10.7) (38.3) 91.4 (109.1) 2.5 (106.6) (7.1) 1.3 0.8 (1.6) (6.6) (113.2) 1.6 (3.6) 9.4 4.5 (74.7) (6.3) (26.3) (95.4) 261.9 1.6 (3.6) 9.4 4.5 (74.7) (6.3) (26.3) (95.4) 261.9 (117.2) (117.2) 10.8 155.5 12 months ended 31 December 2009 6.9 222.0 (34.5) 7.2 83.5 31.1 - 5.7 15.1 (2.2) 13.5 348.3 (39.5) 34.6 343.4 (204.8) 7.3 (197.5) (17.0) 1.2 3.3 (1.6) (14.1) (211.6) 0.1 47.8 200.7 5.7 (4.3) 33.0 2.3 (79.2) (13.3) (52.8) 140.0 271.8 261.9 271.8 (0.8) 532.9 8.2.5 Interim consolidated statement of changes in shareholders’ equity (in EUR million) Number of shares at period-end Common Stock Additional paid-in capital Consolidated reserves Translation adjustments Items recognized directly in equity (thousands) At 1 January 2009 Changes in accounting principles at 1 January 2009 At 1 January 2009 after Changes in accounting principles * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Other Transactions with owners 69,717 69,717 69.7 69.7 1,329.7 1,329.7 292.0 (58.2) 233.8 46.0 7.9 1.6 (177.1) (1.5) (178.6) (5.5) (5.5) 55.5 Net income for the period * Other Comprehensive income Total comprehensive income for the period At 30 June 2009 * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Equity portion of compound instrument * Other Transactions with owners 69,717 3 3 69.7 1,329.7 289.3 7.2 4.1 31.3 0.2 42.8 55.2 55.2 (123.4) 3.1 3.1 (2.4) Net income for the period * Other Comprehensive income Total comprehensive income for the period At 31 December 2009 * Common stock issued * Appropriation of prior period net income * Dividends * Equity-based compensation * Changes in treasury stock * Equity portion of compound instrument * Other Transactions with owners 69,720 21 21 69.7 0.0 1,329.7 0.5 0.5 (29.9) (29.9) 302.2 3.9 5.6 1.4 (29.2) (18.3) (30.0) (30.0) (153.4) 1.1 1.1 (1.3) Net income for the period * Other Comprehensive income Total comprehensive income for the period (47.7) (47.7) 78.4 78.4 1.6 1.6 At 30 June 2010 69,741 69.7 1,330.2 236.2 (75.0) 0.3 Page 53 of 95 Net income - Group share 22.6 23.4 46.0 (46.0) (46.0) 18.2 18.2 18.2 (14.3) (14.3) 3.9 (3.9) (3.9) 60.0 60.0 60.0 Equity - Group share 1,531.4 (36.3) 1,495.1 - - 7.9 1.6 - 9.5 18.2 58.3 76.5 1,581.1 - - - 7.2 4.1 31.3 0.2 42.8 (14.3) (58.8) (73.1) 1,550.8 0.5 - - 5.6 1.4 - (29.2) (21.7) 60.0 32.3 92.3 1,621.4 Non controlling interests 11.0 0.5 11.5 (3.6) (3.6) 2.2 2.2 10.1 (1.4) (1.4) 1.9 0.4 2.3 11.0 (3.9) (5.8) (9.7) 2.1 0.1 2.2 3.5 TOTAL 1,542.4 (35.8) 1,506.6 - (3.6) 7.9 1.6 - 5.9 20.4 58.3 78.7 1,591.2 - - (1.4) 7.2 4.1 31.3 0.2 41.4 (12.4) (58.4) (70.8) 1,561.8 0.5 - (3.9) 5.6 1.4 - (35.0) (31.4) 62.1 32.4 94.5 1,624.9 8.2.6 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2010 8.2.6.1 Basis of preparation The 2010 interim consolidated financial statements have been prepared in accordance with the recognition and measurement principles set out in International Financial Reporting Standards (IFRS). The international standards comprise the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the 31 December 2009 financial statements and disclosed in the Group’s 2009 Reference Document, except for the impact of the adoption of the Standards and Interpretations described below: • Pensions accounting principles: the Group has decided to abandon the so called “corridor” method to use the recognition of actuarial gains and losses through the other comprehensive income proposed by paragraph 93 A-D of IAS 19 (for more details on these changes, refer to the appropriate sections in this paragraph); The effect of IFRS 3 (revised) – Business combinations and IAS 27 (revised) - Consolidated and Separate Financial Statements. The interim consolidated financial statements for the six months ended 30 June 2010 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2009. Accounting policies applied by the Group conform to those standards and interpretations adopted by the European Union as at 30 June 2010. Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias/index_en.htm The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after 1 January 2010: o o o o o IAS 27 (revised) - Consolidated and Separate Financial Statements following the “Business Combinations phase II” project; IFRS 3 (revised) - Business Combinations following the “Business Combinations phase II” project; IAS 39 - Recognition and Measurement Eligible Hedged Items; IFRS 2 - Group Cash-settled Share-based Payment Transactions; IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations (amendment following the May 2008 IFRS improvement program); o Amendments to various IFRS statements, following the IFRS improvement program o o o o o of April 2009; IFRIC 12 Service Concessions Arrangements; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 16 Hedges of a Net Investment in a Foreign Operation; IFRIC 17 Distributions of Non-cash Assets to Owners; IFRIC 18 Transfers of Assets from Customers. The changes in accounting policies induced by the application of IFRS 3 (revised) and IAS 27 (revised) are described hereafter in this section. The impact of the other changes on the Group’s Financial Statements is limited. The interim consolidated financial statements do not take into account: Standards and interpretations published by the IASB, adopted at the European level, but with an application date subsequent to 30 June 2010: Amendment to IAS 32 Classification of Rights Issues New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: • IAS 24 Related Party Disclosure; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; Page 54 of 95 Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement; • Amendments to various IFRS statements, following the IFRS improvement program of 2010; IFRS 9 Financial Instruments (IAS 39 Phase I). Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB) At the date of this report, the potential impact on the consolidated financial statements of the application of those standards and interpretations is not available. 8.2.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: - - - significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The Group has decided to abandon the so called “corridor” method and has opted for the recognition of actuarial gains and losses through the other comprehensive income, as proposed by paragraph 93 A-D of IAS 19. Before 1 January 2010, Atos Origin was using the “corridor option” to recognize actuarial gains and losses generated on the measurement of pension assets and liabilities (paragraph 95 of IAS 19). Under this approach, only the portion of cumulated actuarial gains and losses exceeding a “corridor” of 10% of the greater of plan commitments or their related assets was recognized in the profit and loss account (operating margin). This portion was amortized over the remaining active life of the beneficiaries of each particular benefit plan. Since 1 January 2010, Atos Origin has elected to use the alternative option (paragraph 93 A-D of IAS 19), under which all actuarial gains and losses generated in the period are recognized in other comprehensive income. As a result, as from 30 June 2010 and going forward, the net pension liability presented on the Group balance will be reflecting the difference between the valuation of pension commitments and related assets, plus or minus any unrecognized past service costs. In accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, this change in accounting policies has been applied retrospectively to all reporting periods presented as if this new accounting policy had always been applied. Page 55 of 95 The tables below summarize the impact of this change in accounting principle on the Income Statement and Balance Sheet of the Group at 30 June 2009 and at 31 December 2009: Income statement (in EUR million) 12 months ended 31 December 2009 6 months ended 30 June 2009 Personnel expenses Operating margin 0.6 0.6 0.3 0.3 Other operating income and expenses Operating income Tax charge Net income Of which: (38.9) (38.3) 10.5 (27.8) 0.3 (0.1) 0.2 Group share - Non-controlling interests (27.8) - 0.2 - Statement of financial position (in EUR million) 31 December 2009 30 June 2009 ASSETS Non-current financial assets Deferred tax assets Total non-current assets 82.4 41.0 123.4 (15.0) 15.9 0.9 TOTAL ASSETS 123.4 0.9 (in EUR million) 31 December 2009 30 June 2009 LIABILITIES AND SHAREHOLDERS’ EQUITY Consolidated reserves Translation adjustments Net income for the period Shareholders’ equity – Group share Non-controlling interests Total shareholders’ equity Provisions for pensions and similar benefits Deferred tax liabilities Total non-current liabilities (64.7) (0.7) (27.8) (93.2) 0.9 (92.3) 214.0 1.7 215.7 (34.9) (4.2) 0.2 (38.9) 0.6 (38.3) 37.6 1.6 39.2 Total liabilities and shareholders’ equity 123.4 0.9 The remeasurement principle for pension liabilities and assets at interim periods is unchanged, i.e. actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS 19, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. Page 56 of 95 Business combination and subsequent changes in the Group ownership interest As from January 2010, the Group has adopted the revised version of IFRS 3 (Business combinations) and IAS 27 (Consolidated and Separate Financial Statements). Revised IFRS 3 introduces a number of changes in the accounting of business combinations that can impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a controlled subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. The changes apply prospectively for combinations (including step acquisition transactions) on or after January 1, 2010. Additionally, the new rules regarding the accounting for additional purchases of non- controlling interests and sales of interests in a controlled subsidiary and the treatment of realizable deferred taxes subsequent to acquisition date are effective for transactions occurring after January 1, 2010 (even if the related original business combination was prior to that date). The main changes introduced by these new accounting principles are described hereafter. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets. • For business combinations that occurred before 1 January 2010, a contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. • For business combinations that occurred on or after 1 January 2010, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any non-controlling interest held previously by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional acquisition changes the status of the control from significant influence/joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss recognized through net income (consequently also resulting in a change in the previously recognized amount of goodwill). Purchase of non-controlling interests and sale of interests in a controlled subsidiary Purchase of non-controlling interests and sale transactions of interests in a controlled subsidiary that do not change the status of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Page 57 of 95 Non-controlling interests purchase commitments Firm or conditional commitments under certain conditions to purchase non-controlling interests are similar to a purchase of shares and are recorded in borrowings with an offsetting reduction of non- controlling interests. For puts existing before 1 January 2010, when the cost of the purchase exceeds the amount of non- controlling interests, the Group chooses to recognize the balance as goodwill. Any further change in the fair value of the non-controlling interests purchase commitment will also be recorded in goodwill. For puts granted after 1 January 2010, when the cost of the purchase exceeds the amount of non- controlling interests, the Group chooses to recognize the balance in equity (Group share). Any further change in the fair value of the non-controlling interests purchase commitment will also be recorded in equity (Group share). Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. Page 58 of 95 8.2.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation Since 1st January 2010, there has been no significant change of scope. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. The chief operating decision maker decided to change the operating segments in 2010 compared to 2009. The changes are the following: Operating segments in 2009 France - Morocco ISAM RoW Country France Morocco Spain, Portugal and Andorra Argentina, Brazil, Chile and Colombia United States and Mexico China, Japan, Taiwan, Malaysia, Singapore, Thailand, Indonesia India Operating segments in 2010 France Other Iberia Other countries Other countries The requirements of IFRS 8 are applied retrospectively and comparatives figures restated. The Group operates in seven main Global Business Units as detailed below: Operating segments Activities (cid:2) France (cid:2) Benelux (cid:2) United Kingdom (cid:2) Worldline (cid:2) GCEMA (cid:2) Iberia (cid:2) Other countries Consulting, systems technology transactional services in France Consulting, systems technology transactional services in The Netherlands and Belux integration, managed services, business Consulting, systems process outsourcing and high technology transactional services in the United Kingdom and Sweden High technology transactional services in France, Belgium and Germany Systems technology transactional services in Germany, Switzerland, Poland, Austria, Greece, Turkey and South Africa Consulting, systems technology transactional services in Spain, Portugal and Andorra Consulting, systems integration, managed services and high technology transactional services in China, Taiwan, Japan, Malaysia, Singapore, Thailand, Indonesia, United States of America, Mexico, India, Morocco, Dubai, Argentina, Brazil, Chile and Colombia integration, managed services and high integration, managed services and high integration, managed services and high integration, managed services and high Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The operating segment information for the periods is as follows: Page 59 of 95 (in EUR million) 6 months ended 30 June 2010 External revenue by segment % Inter-segment revenue Total revenue Segment operating margin % Total segment assets 6 months ended 30 June 2009 External revenue by segment % Inter-segment revenue Total revenue Segment operating margin % Total segment assets 12 months ended 31 December 2009 External revenue by segment % Inter-segment revenue Total revenue Segment operating margin % Total segment assets France 573.0 23.0% 25.3 598.3 17.6 3.1% 712.2 572.4 22.1% 35.3 607.7 22.1 3.9% 686.8 1,125.7 22.0% 65.3 1,191.0 47.1 4.2% 660.0 Benelux 459.3 18.4% 14.8 474.1 42.8 9.3% 748.0 517.2 20.0% 15.3 532.5 34.3 6.6% 639.1 996.9 19.4% 30.1 1,027.0 84.0 8.4% 777.6 United Kingdom 441.7 17.7% 2.5 444.2 36.2 8.2% 747.6 445.8 17.2% 3.3 449.1 36.9 8.3% 766.6 901.9 17.6% 6.1 908.0 83.0 9.2% 688.7 Worldline 420.2 16.8% 5.5 425.7 69.7 16.6% 593.5 416.3 16.1% 5.6 421.9 61.2 14.7% 648.9 843.9 16.5% 11.1 855.0 133.1 15.8% 599.4 GCEMA 241.3 9.7% 23.0 264.3 10.9 4.5% 327.3 283.5 10.9% 21.3 304.8 4.0 1.4% 378.5 566.9 11.1% 42.8 609.7 21.5 3.8% 349.2 Page 60 of 95 Iberia 158.1 6.3% 2.9 161.0 (9.3) -5.9% 232.0 174.6 6.7% 3.0 177.6 4.9 2.8% 274.8 334.3 6.5% 5.8 340.1 11.6 3.5% 246.7 Other countries 200.4 8.0% 52.6 253.0 21.7 10.8% 318.2 179.2 6.9% 41.4 220.6 3.1 1.7% 317.4 355.4 6.9% 76.8 432.2 6.8 1.9% 294.5 Total Operating 2,494.0 100.0% 126.6 2,620.6 189.6 7.6% 3,678.8 2,589.0 100.0% 125.2 2,714.2 166.5 6.4% 3,712.1 5,125.0 100.0% 238.0 5,363.0 387.1 7.6% 3,616.1 Global Delivery (8.1) (14.2) 1.0 1.0 (26.4) Other Corporate 0.2 0.2 (31.4) 57.3 0.3 0.0% 0.3 (34.0) 39.3 1.0 1.0 (70.1) 38.4 Elimination (126.6) (126.6) (125.2) (125.2) (238.0) (238.0) Total Group 2,494.2 100.0% 2,494.2 150.1 6.0% 3,736.1 2,589.3 100.0% 0.0 2,589.3 118.3 4.6% 3,751.4 5,127.0 100.0% 0.0 5,127.0 290.6 5.7% 3,654.5 The reportable assets are reconciled to total assets as follows: (in EUR million) 30 June 2010 31 December 2009 30 June 2009 Total segment assets Tax Assets Cash & Cash Equivalents 3,736.1 294.4 430.9 3,654.5 275.3 534.7 3,751.4 259.6 164.8 Total assets 4,461.4 4,464.5 4,175.8 Note 3 Personnel expenses (In EUR million) 6 months ended 30 June 2010 % revenue 6 months ended 30 June 2009 % revenue 12 months ended 31 Dec 2009 % revenue Wages and salaries (*) Social security charges Tax, training, profit-sharing (1,107.0) (328.7) (26.2) 44.4% 13.2% 1.1% (1,138.8) (331.9) (23.8) 44.0% 12.8% 0.9% (2,188.4) (661.0) (49.0) 42.7% 12.9% 1.0% Equity-based compensation (5.5) 0.2% (6.9) 0.3% (14.0) 0.3% Net charge to provisions for staff expenses (1.1) 0.0% 1.6 0.1% 1.3 0.0% Difference between pensions contributions and net pension expense (**) 33.7 1.4% 28.0 1.1% 48.8 1.0% Total (1,434.8) 57.5% (1,471.8) 56.8% (2,862.3) 55.8% (*) of which no impact for restructuring in June 2010 compared to EUR 0.6 million in June 2009 (**) difference between total cash contributions made to the pensions funds and the net pension expense under IAS19 Equity based compensation The EUR 5.5 million charge recorded within operating margin for equity based compensation (EUR 6.9 million during the first half of 2009) is made of: EUR 1.4 million related to the Management and Long-Term Incentive plans (“MIP” and “LTI” plans) implemented in 2008 and in 2007, and EUR 4.1 million related to the stock option plans granted in 2009 and in previous years. Free share plans No new free share plan was set up during the first half of 2010. 2010 expense related to former LTI and MIP plans has been updated taking into account the number of free shares void following the departure of some beneficiaries from the Group. Total expense in operating margin related to free share plans during the semester is as follows: Page 61 of 95 (In EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 LTI 2008 MIP 2008 0.2 0.8 0.8 2.2 LTI 2007 MIP 2007 Total 0.2 0.2 1.4 0.9 3.9 Stock option plans The Group recognized a total expense of EUR 4.1 million on stock options (EUR 3.0 million during the first half of 2009). The 2010 expense comprises EUR 0.7 million related to the plan granted in December 2008 and EUR 3.4 million related to the three plans launched in 2009. Total expense in operating margin related to stock option plans granted in 2009 during the semester is as follows: (In EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 26 March 2009 3 July 2009 4 September 2009 Total 1.3 1.6 0.5 3.4 1.2 - - 1.2 Note 4 Operating expenses (In EUR million) 6 months ended 30 June 2010 % revenue 6 months ended 30 June 2009 % revenue 12 months ended 31 December 2009 % revenue Subcontracting costs direct Purchase hardware and software Maintenance costs Rent & Lease expenses Telecom costs Travelling expenses Company cars Professional fees Taxes & Similar expenses Others expenses Subtotal expenses Depreciation of fixed assets Net charge to provisions Gains / (Losses) on Disp of Assets Trade Receivables write-off Capitalized Production Subtotal other expenses Total (264.0) (96.4) (108.6) (100.1) (62.1) (57.6) (39.3) (47.5) 1.3 (40.4) (814.7) (101.6) (5.7) (0.9) (0.9) 14.5 (94.6) (909.3) 10.6% 3.9% 4.4% 4.0% 2.5% 2.3% 1.6% 1.9% -0.1% 1.6% 32.7% 4.1% 0.2% 0.0% 0.0% -0.6% 3.8% 36.5% (296.7) (84.2) (130.8) (104.5) (54.4) (55.4) (46.9) (77.7) (15.6) (22.2) (888.4) (111.9) (3.3) (1.0) (4.8) 10.2 (110.8) (999.2) 11.5% 3.3% 5.1% 4.0% 2.1% 2.1% 1.8% 3.0% 0.6% 0.9% 34.3% 4.3% 0.1% 0.0% 0.2% -0.4% 4.3% 38.6% (574.8) (169.2) (256.9) (211.3) (111.2) (114.3) (92.8) (148.6) (27.8) (44.8) (1,751.7) (222.0) (15.5) (2.0) (6.5) 23.6 (222.4) (1,974.1) 11.2% 3.3% 5.0% 4.1% 2.2% 2.2% 1.8% 2.9% 0.5% 0.9% 34.2% 4.3% 0.3% 0.0% 0.1% -0.5% 4.3% 38.5% Page 62 of 95 Note 5 Other operating income and expenses (In EUR million) Reorganisation Rationalization Pensions Release of opening balance sheet provisions no longer needed Capital gains and losses on disposal of assets Impairment gains/(losses) on long-term assets and other Total 6 months ended 30 June 2010 (16.1) (13.5) 0.4 2.1 (1.7) (25.4) (54.2) 6 months ended 30 June 2009 (57.4) (17.4) 1.4 0.1 (1.6) (0.9) (75.8) 12 months ended 31 December 2009 (140.6) (86.3) 1.3 13.4 (15.3) (31.8) (259.3) Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represent a net expense of EUR 54.2 million in June 2010. The following table analyses this amount by nature and destination: (in EUR million) Group transformation costs Other non recurring items Total Staff restructuring Paris offices rationalisation Other locations rationalisation Goodwill impairment Release of OBS provision and others Total (19.2) (14.2) (1.1) - - (34.5) 3.1 - 1.8 (25.0) 0.4 (19.7) (16.1) (14.2) 0.7 (25.0) 0.4 (54.2) Group transformation costs (EUR 34.5 million expenses) The EUR 19.2 million staff restructuring expense is the consequence of both the Group workforce adaptation to the effects of the economic recession and the non recurring cost induced by the TOP Programs aimed at improving Group efficiency and productivity. The combination of these two actions affected mainly The Netherlands (EUR 6.0 million), Iberia (EUR 5.0 million) and France (EUR 3.7 million). The expense related to the Paris offices rationalisation program corresponds mainly to: The rent of the new building for which fittings and fixtures were still under construction in the first semester 2010 for EUR 8.8 million. This rent expense will not be cashed out in 2010 as the landlord granted a two year rental exemption starting in 2010; The settlement with the landlord of the building “Les Miroirs” for EUR 20.0 million in exchange of an early termination of the lease agreement in the third quarter of 2010. Given that EUR 17.0 million of this cost was already covered by the provision booked in 2009, this transaction leads to an additional charge of EUR 3.0 million in operating income; Furthermore, the activities located in the Suresnes’ building will be transferred to Bezons. This decision that has been formally announced to the Workers’ Representatives, triggered the booking of an additional provision of EUR 4.9 million. Other non-recurring items (EUR 19.7 million expenses) Other non-recurring items mostly comprised the impairment expense of EUR 25.0 million recorded on Iberia cash generating unit following a deteriorating economic environment in Spain. Page 63 of 95 Note 6 Net financial income Net cost of financial debt (In EUR million) Net Interest expenses Interest on obligations under finance leases Gain /(loss) on disposal of cash equivalents Gain/(loss) on interest rate hedges of financial debt Net cost of financial debt 6 months ended 30 June 2010 (8.9) (0.1) 0.5 - (8.5) 6 months ended 30 June 2009 (6.9) (0.2) 0.6 - (6.5) 12 months ended 31 December 2009 (13.9) (0.4) 0.8 - (13.5) The net cost of financial debt was an expense for EUR 8.5 million compared to EUR 6.5 million in June 2009. The EUR 8.5 million comes from an average gross borrowing of EUR 564.2 million offset by the level of average gross cash and cash equivalents of EUR 430.0 million. Part of the available cash and cash equivalents is related to the convertible bonds (OCEANE). The average financial costs of gross borrowing was 3.19% (this percentage is negatively impacted by the 6.68% effective interest rate calculated under IFRS for the OCEANE, taking into account the value of the conversion options) and the average income of the gross cash was 0.31%. During the period, the average net debt has decreased from EUR 368.6 million in June 2009 to EUR 134.2 million in June 2010. The net cost of financial debt was covered 18 times by operating margin, compared with a requirement for not less than 4 times cover under the terms of the Group syndicated loan. Other financial income and expenses (In EUR million) Foreign exchange (expenses)/ income Fair value gain/(loss) on forward contracts held for trading Discounting financial expenses Other income / (expenses) Other financial income and expenses Of which: 6 months ended 30 June 2010 (1.1) 5.4 (0.3) (5.5) (1.5) 6 months ended 30 June 2009 0.7 0.8 (0.3) (9.1) (7.9) 12 months ended 31 December 2009 (1.9) 1.6 (0.5) (10.1) (10.9) other financial expenses - other financial income (24.4) 22.9 (20.8) 12.9 (31.9) 21.0 The EUR 1.5 million of other expenses mainly relate to gains on forward contracts held for trading (EUR +5.4 million), exchange rate impacts (EUR -1.1 million) and pensions (EUR -5.1 million). The pension figure represents the difference between the interests cost and the expected return on plan assets. The expected return on plan assets increased because of improved asset base at previous year end following the reversal of previous depreciations. Please refer to Note 14 Pension for further explanation. Page 64 of 95 Note 7 Income tax expenses The Effective Tax Rate (ETR) for the semester is 27.7%, deriving from the normalised ETR of 34.8% calculated on full year basis, subsequently adjusted for the tax impact of discrete items. The normalised ETR of 34.8% includes the “Cotisation sur la Valeur Ajoutée des Entreprises” (CVAE) and the tax impact of the impairment of EUR 25.0 million in Spain. The tax charge of June 2010 includes a CVAE for a gross amount of EUR 9.1 million. Note 8 Earnings per share Basic and diluted earnings per share are reconciled in the table below. Potential dilutive instruments comprise stock options and convertible bonds (equivalent to 5,414,771 shares). The convertible bonds are the only ones generating a restatement of net income used for the diluted EPS calculation. The restatement corresponds to the interest expenses relating to the liability component net of tax (EUR 4.4 million). The average number of stock options not exercised on first half of 2010 amounted to 10,284,117 shares, out of which 1,243,306 have a dilutive effect on earnings per share. Basic and diluted earnings per share are reconciled as follows: (In EUR million) 6 months ended 30 June 2010 6 months ended 30 June 2009 12 months ended 31 December 2009 Net income - Group share [a] Net income restated of dilutive instruments - Group share [b] Weighted average number of shares outstanding [c] Impact of dilutive instruments [d] Diluted weighted average number of shares [e]=[c]+[d] Earnings per share in EUR [a]/[c] Diluted earnings per share in EUR [b]/[e] 60.0 64.4 69,165,080 6,658,077 75,823,157 0.87 0.85 18.2 18.2 68,620,160 - 68,620,160 0.27 0.27 3.9 4.7 68,772,224 5,648,361 74,420,585 0.06 0.06 Note 9 Goodwill (In EUR million) Gross value Impairment loss Total 31 December 2009 2,038.2 (530.6) 1,507.6 Acquisition/ depreciation 14.0 (25.0) (11.0) Disposals - - Others - - Exchange rate fluctuations 83.9 (24.1) 59.8 30 June 2010 2,136.1 (579.7) 1,556.4 Goodwill are allocated to cash generating units (CGUs) that are then part of one of the operating segments disclosed in Note 2 as per IFRS 8 requirements. Impairment tests for interim financial reporting have been limited to: CGUs for which an event occurred during the semester giving an indication that their assets may be impaired, other “sensitive” CGUs at year end 2009, for which the recoverable amount of assets was close to their carrying values. During the semester, the Group’s operations in Spain have been impacted by a deteriorating economic environment. Following an assessment of the recoverable value of the Iberia cash generating unit, the Group has recorded an impairment charge of EUR 25.0 million. The Group has also performed impairment tests for the two other “sensitive” CGUs (Germany and South America). As a result, no further impairment charge needs to be recorded in the June 2010 accounts. Page 65 of 95 The increase of the gross value of goodwill is due to the acquisition of Shere Ltd, a market leading and innovative provider of integrated self-service, web and desktop systems delivering services to the UK rail and hospitality markets. Over the first six months of 2010, the balance sheet of the Group has been significantly impacted by the effect of foreign exchange rates variations, specifically the GBP. The main consequence has been the increase of the net goodwill by EUR 41.0 million since December 2009. Note 10 Non-current financial assets 31 December 2009 196.9 23.1 220.0 (*) "Other" includes Loans, Deposits, Guarantees, investments in associates accounted for under the equity method and non consolidated investments. (In EUR million) 30 June 2010 124.1 23.6 147.7 Pension prepayments Other (*) Total Note 11 Trade accounts and notes receivable (In EUR million) 30 June 2010 31 December 2009 Gross value Transition costs Provision for doubtful debts Net asset value Prepayments Deferred income and upfront payments received Net accounts receivable Number of days’ sales outstanding 1,353.8 42.9 (51.3) 1,345.4 (7.7) (293.5) 1,044.2 58.0 1,298.5 36.0 (53.2) 1,281.3 (11.0) (292.8) 977.5 57.0 Note 12 Cash and cash equivalent (In EUR million) 30 June 2010 31 December 2009 Cash in hand and short-term bank deposit Money market funds Total 293.6 137.3 430.9 429.0 105.7 534.7 Depending on market conditions and short-term cash flow expectation, Atos Origin may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 13 Non-controlling interests (In EUR million) Atos Worldline Processing GmbH 31 December 2009 7.9 2010 Income 1.6 Dividends (3.7) Other (5.8) 30 June 2010 Others Total 3.1 11.0 0.5 2.1 (0.2) (3.9) 0.1 (5.7) 3.5 3.5 The other movement for Atos Worldline Processing services in Germany is due to the acquisition of these non-controlling interests on 24 June 2010. Page 66 of 95 The dividends for EUR 3.9 million were cashed out in June 2010. Note 14 Pension The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is EUR 298.8 million. The measurement of the liabilities is highly sensitive to long term interest rates, on which the discount rate to be used under IAS19 is based. Reference discount rates for the Euro-zone have significantly dropped from 5.20% per December 2009 to 4.35% per June 2010. In line with Group accounting principles, the liabilities of major pension plans denominated in this currency have been re-measured, while liabilities of major plans denominated in GBP have not been re-measured as market interest rates in that currency were more stable. The Group has adopted a new accounting policy, abandoning the corridor method per 1 January 2010. In line with IAS19 paragraphs 93A-93D all actuarial gains and losses and eventual asset ceiling impacts will now be recognised via Other Comprehensive Income. Numbers below reflect this new accounting policy. A more comprehensive overview of the impact of this change in accounting policies can be found in “Significant accounting policies” section of this report. Accounting entries of plans that were not re-measured have been based on projections from 31 December 2009 actuarial valuations, adjusted for actual benefit or contribution payments. The development of pension provisions over the half year is therefore as follows: (In EUR million) 30 June 2010 31 December 2009 Amounts recognised in financial statements consist of : Prepaid pension asset – post employment plans Accrued liability – post employment and other long term benefits Net amount recognised – Total 124.1 (422.9) (298.8) 196.9 (437.1) (240.2) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In EUR million) Operating margin Other operating items Financial result Total (expense)/profit 6 months ended 30 June 2010 (10.2) (0.1) (5.1) (15.4) 6 months ended 30 June 2009 (11.4) 1.4 (6.6) (16.6) 12 months ended 31 December 2009 (23.9) (0.9) (7.4) (32.2) In the Netherlands, the agreed recovery plan was approved by the local regulator (DNB). The realized recovery to date is in line with the projected recovery. In Germany, further harmonization of the pension plans and the closing of a jubilee plan have lead to curtailment gains of EUR 0.3 million and EUR 0.9 million respectively. Page 67 of 95 Opening and closing positions reconcile as follows: (In EUR million) Net amount recognised at beginning of period Reclassification other current liabilities Net periodic pension cost – post employment plans and other long term benefits plans Benefits paid / Employer Contributions Amounts recognised in Other Comprenensive Income Other Net amount recognised at end of period 30 June 2010 (240.2) - (15.4) 44.3 (64.5) (23.0) (298.8) 31 December 2009 (233.8) (2.1) (32.9) 75.5 (45.2) (1.7) (240.2) Note 15 Provisions (In EUR million) 31 December 2009 Charge Release used Release unused Other (a) 30 June 2010 Current Non Current Reorganisations Rationalisations Project commitments Litigations and contingencies 70.9 94.7 23.2 73.0 7.3 4.0 16.1 6.9 (34.0) (22.1) (1.8) (3.0) (7.1) (11.3) (3.2) (7.4) 0.1 3.2 0.9 2.7 37.2 68.5 35.2 72.2 37.2 26.8 35.2 41.7 - 72.2 Total provisions 261.8 34.3 (60.9) (29.0) 6.9 213.1 99.2 113.9 (a) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of consolidation. Release of unused provisions in operating margin amounted to EUR 7.0 million during the first half of 2010 compared to EUR 8.3 million during the first half of 2009. Note 16 Borrowings 30 June 2010 31 December 2009 (In EUR million) Finance leases Bank loans Securitisation Convertible bonds Other borrowings Current 1.7 0.2 9.5 3.1 28.8 Non- Current 0.3 288.8 - 203.2 14.4 Total 2.0 289.0 9.5 206.3 43.2 Current 2.9 0.3 145.0 1.1 41.4 Non- Current 0.5 268.3 - 199.6 15.0 Total 3.4 268.6 145.0 200.7 56.4 Total borrowings 43.3 506.7 550.0 190.7 483.4 674.1 Tangible assets held under finance leases had a net carrying value of EUR 1.5 million. Page 68 of 95 Non-current borrowings maturity (In EUR million) 2011 2012 2013 Bonds Finance leases Bank loans Other borrowings 0.3 1.2 4.7 - 280.8 3.4 - 0.8 2.5 As at 30 June 2010 long-term debt 6.2 284.2 3.3 Bonds - Financial fees and discounting effect As at 30 June 2010 long-term debt excluding bonds - Financial fees and discounting effect 6.2 284.2 3.3 As at 30 June 2010, there are no financial instruments on borrowings. Change in net debt over the period (In EUR million) Opening net debt New borrowings Convertible bonds Repayment of long and medium-term borrowings Variance in net cash and cash equivalents New finance lease Long and medium-term debt of companies sold during the period Impact of exchange rate fluctuations on net long and medium-term debt Profit-sharing amounts payable to French employees transferred to debt Other flow related to financing activities Closing net debt Net cash and cash equivalents (In EUR million) Cash and cash equivalents Overdrafts Total net cash and cash equivalents Page 69 of 95 2014 - 0.7 3.8 4.5 4.5 >2015 250.0 - 5.3 255.3 (46.8) 208.5 30 June 2010 139.4 25.4 5.6 (24.8) 132.0 0.1 - (22.9) 5.3 (141.0) 119.1 30 June 2010 430.9 (1.2) 429.7 Total 250.0 0.3 288.8 14.4 553.5 (46.8) 506.7 30 June 2009 304.0 9.4 - (74.7) 117.2 4.5 - (6.5) - (26.3) 327.6 31 December 2009 534.7 (1.8) 532.9 Note 17 Fair value and characteristics of financial instruments (In EUR million) 30 June 2010 Assets Liabilities Forward foreign exchange contracts Analysed as: 7.8 (6.3) Non-current Current 0.2 7.6 (1.7) (4.6) The fair value of financial instruments is provided by banking counterparties. Breakdown of the designation of the instruments per currency is as follows: (in EUR million) Instruments 30 June 2010 Fair value Notional Cash flow hedge Foreign exchange Forward contracts USD Option contracts USD Forward contracts CAD Forward contracts GBP Option contracts GBP Forward contracts INR Forward contracts PLN Forward contracts CNY Forward contracts JPY (2.9) 0.0 - (0.9) 0.3 2.7 0.0 (0.3) (0.2) 48.3 0.3 - 33.2 12.8 51.1 7.1 4.1 3.5 Trading Foreign exchange Forward contracts USD Option contracts USD Forward contracts INR Forward contracts GBP (1.1) 0.9 2.7 0.4 13.8 5.8 11.9 6.1 Note 18 Trade accounts and notes payable (In EUR million) Trade payables Amounts payable on tangible assets Total Trade accounts and notes payable are expected to be paid within one year. Page 70 of 95 31 December 2009 Assets Liabilities 4.9 (5.5) 1.1 3.8 (4.3) (1.2) 31 December 2009 Fair value Notional 0.9 0.2 0.7 (3.1) 0.3 (1.1) 0.6 0.4 - 25.4 0.9 5.7 21.8 14.4 45.4 9.3 5.6 - 0.2 - 0.3 - 8.7 - 12.7 - 30 June 2010 525.3 2.8 528.1 31 December 2009 472.0 3.3 475.3 Note 19 Other current liabilities (In EUR million) Advances and down payments received on client orders Employee-related liabilities Social security and other employee welfare liabilities VAT payable Deferred income Other operating liabilities Total 30 June 2010 7.7 313.4 140.2 159.2 249.2 132.0 1,001.7 31 December 2009 11.0 246.8 177.5 159.0 244.1 118.1 956.5 Other operating liabilities are expected to be settled within one year, expected for deferred income that is released over the particular arrangement of the corresponding contract. Note 20 Off-balance-sheet commitments Contractual commitments (In EUR million) Convertible Bonds Bank loans Finance leases Recorded on the balance sheet Operating leases: land, buildings, fittings Operating leases : IT equipment Operating leases: other fixed assets Non-cancellable purchase obligations (>5 years) Commitments Total 30 June 2010 206.3 289.1 2.0 497.4 419.2 12.0 74.9 17.4 523.5 1,020.9 Maturing Up to 1 year 3.1 0.2 1.7 5.0 109.9 7.5 35.0 16.6 169.0 174.0 1 to 5 years - 283.6 0.3 283.9 250.3 4.5 39.9 0.8 295.5 579.4 Over 5 years 203.2 5.3 - 208.5 59.0 - 59.0 267.5 31 December 2009 200.7 268.6 3.4 472.7 423.3 10.2 89.8 16.1 539.4 1,012.1 Commercial commitments (In EUR million) Bank guarantees Performance guarantees Pledges Total 30 June 2010 61.2 1,321.1 0.2 1,382.5 31 December 2009 64.1 1,182.3 0.2 1,246.6 For various large long term contracts, the Group provides performance or financial guarantees to its clients. These limited exposure guarantees amount to EUR 1,321.1 million as at 30 June 2010, compared with 1,182.3 million as at 31 December 2009. Note 21 Subsequent events No significant event occurred since 30 June 2010. Page 71 of 95 9 COMMON STOCK EVOLUTION AND SHARE PERFORMANCE Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 9.1 TRADING OF SHARES (EURONEXT) Number of shares traded Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA / SRD : 69,741,238 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes / Yes 9.2 COMMON STOCK 9.2.1 Common stock at 30 June 2010 At 30 June 2010, the Company’s issued common stock amounted to EUR 69.7 million, comprising 69,741,238 fully paid-up shares of EUR 1 par value each. Except the issuing of 20,776 new shares which resulted from the exercise of stock subscription options, there has been no change in the Company’s issued common stock since 31 December 2009. Transactions Number of shares issued Common stock (in EUR million) Additional paid-in capital (in EUR million) Total (in EUR million) At 31 December 2009 69,720,462 69.7 1,409.8 1,479.5 Exercise of stock options 20,776 0.0 0.5 0.5 At 30 June 2010 69,741,238 69.7 1,410.3 1,480.0 9.2.2 Share ownership structure Main shareholders Principal changes in the ownership of the Company’s shares during the first half of 2010 have been as follows: In shares 30 June 2010 Shares % 31 December 2009 Shares % Financière Daunou 17 (PAI Partners) 17,442,839 25.0 15,765,838 22.6 Pardus Investments Sarl 5,964,424 8.6 7,000,004 10.0 FMR Llc (Fidelity Investments) 3,498,744 5.0 Centaurus Capital NS NS 1,332,140 1.9 Board of Directors 16,640 0.0 14,938 0.0 Total Directors 16,640 0.0 14,938 0.0 Employees 2,178,253 3.1 2,279,112 3.3 Treasury stock 294,551 1.4 652,152 0.9 Public 40,345,787 61.0 42,676,278 61.2 Total 69,741,238 100.0 69,720,462 100.0 Page 72 of 95 The ownership of the Company’s shares by employees relates to ownership plans such as mutual funds and corporate savings plans. The management of these shares is made through the Group mutual fund. Disclosure of interests The Company has been advised of the following share movements in the first half of 2010: Date of statement Shares % interest % voting rights (a) (b) FMR Llc (Fidelity Investments) (upwards) Financière Daunou 17 (upwards) Financière Daunou 17 (upwards) Pardus Investments Sarl (downwards) Financière Daunou 17 (upwards) 15/01/2010 04/05/2010 21/05/2010 01/06/2010 17/06/2010 3,498,744 16,075,538 16,868,969 5,964,424 17,442,839 5.0% 23.2% 24.2% 8.6% 25.0% 5.0% 23.2% 24.2% 8.6% 25.0% Movements since 30 June 2010 Pardus Investments Sarl (downwards) Pardus Investments Sarl (downwards) 08/07/2010 20/07/2010 4,928,848 3,893,272 7.1% 5.6% 7.1% 5.6% (a) On the basis of the capital at the date of statement mentioned (b) On the basis of the capital excluding treasury stock at this date The Company has not received notice of any shareholder agreements for filing with the stock exchange authorities and, to the best knowledge of the Group Management, neither other concerted action (“Action de Concert”), nor shareholder agreements or similar agreements exist. To the knowledge of the Group, there is no other agreement which may have a material effect on the share capital of the Group. 9.2.3 Potential common stock Number of stock subscription options at 31 December 2009 10,310,776 Stock subscription options granted in H1 2010 0 Stock subscription options exercised in H1 2010 (20 776) Stock subscription options forfeited in H1 2010 (149,736) Stock subscription options expired in H1 2010 (6,000) Number of stock subscription options at 30 June 2010 10,134,264 During the first half-year 2010, no stock options were granted. The Group had in parallel signed a derogative participation plan on 2009 accounts, paid in 2010, applicable to at least 90% of the employees of the French subsidiaries of the Company Atos Origin SA. On the first half-year 2010, a total of 155,736 stock subscription options were cancelled and 20,776 were exercised. Page 73 of 95 Based on 69,741,238 shares in issue, the common stock of the Company could be increased by 10,134,264 new shares, representing 12.7% of the common stock after dilution. This can occur only through the exercise of stock subscription options granted to employees, as detailed below. In shares 30 June 2010 31 December 2009 Change % dilution EUR million Number of shares outstanding 69,741,238 69,720,462 20,776 Stock subscription options 10,134,264 10,310,776 (176,512) 12.7% 440.5 Total Employees = potential dilution 10,134,264 10,310,776 (176,512) 12.7% 440.5 Total potential common stock 79,875,502 80,031,238 (155,736) The exercise of all the options would have the effect of increasing total shareholders’ equity by EUR 440.5 million and common stock by EUR 10.1 million. Nevertheless, 57% of stock subscription options granted to employees have an exercise price that exceeds the stock market price at 30 June 2010 (EUR 33.17). Unused authorisations to issue shares and share equivalents Following the resolutions voted during the Annual Shareholders Meeting of May 27, 2010, the unused authorisations to issue shares and share equivalents are the following: Authorisation (in EUR) Amount authorised Amount utilised Nominal value Nominal value Amount not utilised Nominal value Authorisation expiry date EGM 27/05/2010 10th resolution Capital increase with preferential subscription rights (*) EGM 27/05/2010 11th resolution Capital increase without preferential subscription rights (*) 20,000,000 10,500,000 20,000,000 10,500,000 26/07/2012 26/07/2012 EGM 27/05/2010 13th resolution Capital increase in the event of a public exchange offer (*) EGM 27/05/2010 14th resolution Capital increase in payment for contributions in kind (*) EGM 27/05/2010 16th resolution Capital increase to the benefit of the employees 10,500,000 6,973,071 1,394,614 10,500,000 6,973,071 1,394,614 26/07/2012 26/07/2012 26/07/2012 (*) up to the total aggregate limit amount of EUR 20,000,000 for the cumulated authorizations from the 10th to the 14th resolutions. The total number of authorised potential shares to be issued is of 21,394,614. Page 74 of 95 The following authorisation to cancel shares corresponds to 10% of the issued common stock as of May 2010. Authorisation (in EUR) Amount authorised Nominal value Amount utilised Nominal value Amount not Utilised Nominal value Authorisation expiry date EGM 27/05/2010 9th resolution Share cancellation 6,973,071 6,973,071 26/11/2011 Capital 6,973,071 9.3 DIVIDENDS During the Annual General Meeting held on 27 May 2010, the shareholders approved the resolution proposed by the Board of Directors not to pay a dividend in 2010 on the 2009 results. 9.4 SHARE TRADING PERFORMANCE 9.4.1 Monthly and quarterly trading volumes Based on a closing share price of EUR 33.17 at the end of June 2010 and 69,741,238 shares in issue, the market capitalisation of the Group at 30 June 2010 was EUR 2.3 billion. Source : Euronext High Low Closing Weighted average price Trading Volume Trading Volume (in EUR per share) (in thousands of shares) (in EUR thousands) January February March 36.63 35.80 38.43 31.71 30.84 34.37 33.75 34.23 37.18 34.92 33.42 36.63 6,055 5,341 7,350 211,450 178,490 269,220 1st Quarter 2010 April May June 40.72 39.70 38.34 36.61 34.17 32.30 38.34 36.25 33.17 38.79 36.60 35.87 18,746 5,923 8,317 6,225 659,160 229,770 304,370 223,320 2nd Quarter 2010 20,465 757,460 % of capital traded during the period : 56% 39,211 1,416,620 The daily average number of shares traded during the first 6 months of 2010 was 307,232 which is close to the average level recorded in H1 2009 (+2%) and to the level of full-year 2009 (-1%). The monthly average trading volume during the first half of 2009 was EUR 236 million, 70% higher than H1 2009 level (+29% compared to full-year 2009 average). Page 75 of 95 10 SHAREHOLDER RELATIONS 10.1 COMMUNICATION The Company aims to provide regular and clear information to all its shareholders, whether private individuals or institutions. We ensure the uniformity and transparency of information through the distribution of formal financial documents, the Company’s web site and personal meetings. 10.2 CONTACTS Institutional investors, financial analysts and individual shareholders may obtain information: from Gilles Arditti, Group Senior Vice President Investor Relations: Tel. : + 33 (0) 1 55 91 28 83 E-mail : gilles.arditti@atosorigin.com or by sending requests for information to: investors@atosorigin.com 10.3 SHAREHOLDER DOCUMENTATION In addition to the Half-Year Report, which is published in English and French, the following information is available to shareholders: An annual report -Quarterly revenue and trading update announcements -The Company’s informational website at www.atosorigin.com -Regular press releases, available through the web site or via the AMF database Legal documents relating to the Company bylaws, minutes of Shareholder Meetings, Auditors’ reports, etc. may be viewed at the Company’s registered office (Legal Department) by prior appointment. 10.4 REGISTRAR The Company’s share registrar and paying agent is Société Générale. 10.5 FINANCIAL CALENDAR 2010 Calendar (cid:2) (cid:2) 13 October 2010 16 February 2011 (cid:1) 2010 Third quarter revenue (cid:1) 2010 Annual results Page 76 of 95 10.6 UPDATE OF DOCUMENTS ISSUED In accordance with Article 221-1-1 of the Autorité des Marchés Financiers (AMF) general regulations, the following list includes all financial information published or made available since 1 January 2007. This document is a full free translation of the original French text Document Date of issue Source Financial reports (cid:2) Half-year report 2010 30/07/09 website Atos Origin/website AMF (cid:2) Annual report 2009 (cid:2) Half-year report 2009 01/04/10 31/07/09 website Atos Origin/website AMF website Atos Origin/website AMF (cid:2) Annual report 2008 (cid:2) Half-year report 2008 09/04/09 website Atos Origin/website AMF 29/07/08-28/08/08 website Atos Origin/website AMF (cid:2) Annual report 2007 (cid:2) Half-year report 2007 29/02/08-09/04/08 website Atos Origin/website AMF 01/08/07-28/08/07 website Atos Origin/website AMF (cid:2) Annual report 2006 28/02/07-06/04/07 website Atos Origin/website AMF Financial press releases (cid:2) Half-year results 2010 (cid:2) Annual results 2009 (cid:2) Half-year results 2009 28/07/10 17/02/10 29/07/09 website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF (cid:2) Annual results 2008 (cid:2) Half-year results 2008 18/02/09 29/07/08 website Atos Origin/website AMF website Atos Origin/website AMF (cid:2) Annual results 2007 (cid:2) Half-year results 2007 15/02/08 01/08/07 website Atos Origin/website AMF website Atos Origin/website AMF (cid:2) Annual results 2006 28/02/07 website Atos Origin/website AMF (cid:2) First quarter revenue 2010 (cid:2) Third quarter revenue 2009 (cid:2) First quarter revenue 2009 (cid:2) Fourth quarter revenue 2008 (cid:2) Third quarter revenue 2008 (cid:2) Second quarter revenue 2008 (cid:2) First quarter revenue 2008 (cid:2) Fourth quarter revenue 2007 (cid:2) Third quarter revenue 2007 (cid:2) Second quarter revenue 2007 (cid:2) First quarter revenue 2007 (cid:2) Fourth quarter revenue 2006 14/04/10 16/10/09 15/04/09 05/02/09 31/10/08 29/07/08 30/04/08 31/01/08 15/11/07 01/08/07 14/05/07 05/02/07 website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF Financial presentations (cid:2) Half-year 2010 results 28/07/10 (cid:2) Full-year 2009 results 17/02/10 (cid:2) Half-year 2009 results 29/07/09 (cid:2) Full-year 2008 results 18/02/09 (cid:2) Half-year 2008 results 29/07/08 (cid:2) Full-year 2007 results 15/02/08 (cid:2) Half-year 2007 results 01/08/07 (cid:2) Operational 2006 results and transformation plan 05/02/07 (cid:2) Full-year 2006 results 28/02/07 website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin website Atos Origin Other financial communications (cid:2) Offering by Atos Origin of bonds convertible into and/or exchangeable for new or existing shares 21/10/09 – 23/10/09 website Atos Origin/website AMF Page 77 of 95 Document (OCEANE) (cid:2) Description of trading programme of Company's shares (cid:2) Description of trading programme of Company's shares (cid:2) Description of trading programme of Company's shares Shareholders' meetings (cid:2) Shareholders' meeting presentation 2009 (cid:2) Shareholders' meeting presentation 2008 (cid:2) Shareholders' meeting presentation 2007 (cid:2) Shareholders' meeting presentation 2006 (cid:2) Minutes of the 2009 AGM (full text of resolutions and results of vote) (cid:2) Minutes of the 2008 AGM (full text of resolutions and results of vote) (cid:2) Minutes of the 2007 AGM (full text of resolutions and results of vote) (cid:2) Minutes of the 2006 AGM (full text of resolutions and results of vote) Financial statements (cid:2) Condensed consolidated financial statements for the first half 2010 (cid:2) Consolidated financial statements 2009 (cid:2) Parent company financial statements 2009 (cid:2) Condensed consolidated financial statements for the first half 2009 (cid:2) Consolidated financial statements 2008 (cid:2) Parent company financial statements 2008 (cid:2) Condensed consolidated financial statements for the first half 2008 (cid:2) Consolidated financial statements 2007 (cid:2) Parent company financial statements 2007 (cid:2) Condensed consolidated financial statements for the first half 2007 (cid:2) Consolidated financial statements 2006 (cid:2) Parent company financial statements 2006 Auditors reports Date of issue 25/06/09 03/07/08 30/05/07 27/05/10 26/05/09 12/06/08 23/05/07 27/05/10 26/05/09 12/06/08 23/05/07 29/07/10 17/02/10-01/04/10 01/04/10 31/07/09 18/02/09-09/04/09 09/04/09 29/07/08-28/08/08 29/02/08-09/04/08 29/02/08-09/04/08 01/08/07-28/08/07 28/02/07 28/02/07 Page 78 of 95 Source website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin/website AMF website Atos Origin website Atos Origin website Atos Origin website Atos Origin Company’s registered office Company’s registered office Company’s registered office Company’s registered office Company’s registered office/Commercial court/Half-year report Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Half-year report Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Half-year report Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Half-year report Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Document (cid:2) Auditors’ letter regarding the information given in the half-year report 2010 (cid:2) Auditors’ review report on financial information 2010 the first half-year Date of issue 29/07/10 29/07/10 (cid:2) Auditors’ report on the consolidated financial statements 2009 01/04/10 (cid:2) Auditors’ report on the parent company financial statements 2009 01/04/10 (cid:2) Auditors' special report on regulated agreements 2009 01/04/10 (cid:2) Auditors' special report on the report prepared by the Chairman of the Board of Directors 2009 (cid:2) Auditors’ letter regarding the information given in the Document de Reference 2009 01/04/10 01/04/10 (cid:2) Auditors’ letter regarding the information given in the half-year report 2009 (cid:2) Auditors’ review report on financial information 2009 the first half-year 31/07/09 31/07/09 (cid:2) Auditors’ report on the consolidated financial statements 2008 08/04/09 (cid:2) Auditors’ report on the parent company financial statements 2008 08/04/09 (cid:2) Auditors' special report on regulated agreements 2008 08/04/09 (cid:2) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2008 (cid:2) Auditors’ letter regarding the information given in the Document de Reference 2008 08/04/09 08/04/09 (cid:2) Auditors’ letter regarding the information given in the half-year report 2008 (cid:2) Auditors’ review report on financial information 2008 the first half-year 29/07/08 29/07/08 (cid:2) Auditors’ report on the consolidated financial statements 2007 08/04/08 (cid:2) Auditors’ report on the parent company financial statements 2007 08/04/08 (cid:2) Auditors' special report on regulated agreements 2007 08/04/08 (cid:2) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2007 (cid:2) Auditors’ letter regarding the information given in 08/04/08 the Document de Reference 2007 08/04/08 (cid:2) Auditors’ letter regarding the information given in the half-year report 2007 (cid:2) Auditors’ review report on financial information 2007 the first half-year 28/08/07 28/08/07 (cid:2) Auditors’ report on the consolidated financial statements 2006 06/04/07 (cid:2) Auditors’ report on the parent company financial statements 2006 06/04/07 (cid:2) Auditors' special report on regulated agreements 06/04/07 Page 79 of 95 Source Company’s registered office Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Document de Reference Company’s registered office/Document de Reference Company’s registered office Company’s registered office Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Document de Reference Company’s registered office/Document de Reference Company’s registered office Company’s registered office Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Document de Reference Company’s registered office/Document de Reference Company’s registered office Company’s registered office Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Commercial court/Document de Reference Company’s registered office/Document Document Date of issue Source 2006 (cid:2) Auditors' special report on the report prepared by the Chairman of the Supervisory Board 2006 (cid:2) Auditors’ letter regarding the information given in the Document de Reference 2006 06/04/07 06/04/07 de Reference Company’s registered office/Document de Reference Company’s registered office Declarations (cid:2) Declaration of share transfer made by Members of the Management Board and of the Supervisory Board of Atos Origin (cid:2) Declaration of share transfer made by Board of Directors of Atos Origin 26/06/07-08/08/07- 07/05/08-15/05/08- 16/05/08-22/05/08- 24/06/08-13/08/08- 27/08/08-09/09/08- 18/09/08-22/09/08- 23/09/08-26/09/08- 22/12/08 19/03/09-27/03/09- 18/05/09-22/02/10 website AMF/Document de Reference website AMF/Document de Reference (cid:2) Disclosure of liquidity contract (cid:2) Liquidity contract – Half-Year declaration 11/06/07-07/01/08- 02/07/08-18/06/09- 09/06/10 05/01/07- 03/07/07- 17/01/08- 03/07/08- 09/01/09- 07/07/09- 05/01/10- 02/07/10 website AMF website AMF/Document de Reference (cid:2) Auditors’ fees 2009 (cid:2) Auditors’ fees 2008 (cid:2) Auditors’ fees 2007 (cid:2) Auditors’ fees 2006 01/04/10 website AMF/Document de Reference website AMF/Document de Reference 09/04/09 29/02/08-09/04/08 website AMF/Document de Reference 28/02/07-06/04/07 website AMF/Document de Reference Websites mentioned: (cid:2) Atos Origin www.atosorigin.com (cid:2) AMF www.amf-france.org > Décisions et informations financières > Communiqués des sociétés (cid:2) BALO www.journal-officiel.gouv.fr Page 80 of 95 11 PERSONS RESPONSIBLE FOR THE DOCUMENT AND THE AUDIT OF THE FINANCIAL STATEMENTS 11.1 PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT AND ITS UPDATE Thierry BRETON, Chairman and Chief Executive Officer 11.2 PERSON RESPONSIBLE FOR THE ACCURACY OF THE REFERENCE DOCUMENT AND ITS UPDATE I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the update of the registration document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the condensed 2010 half-year financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the Management Report here attached gives a faithful picture of the information herein, e.g. material events occurring during the first six months of the 2010 financial year and their impact on the half-yearly accounts, a description of the principal risks and uncertainties for the remaining six months of the year 2010. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the update of the registration document and examined the information in respect of the financial position and the accounts contained herein. The half-year condensed consolidated financial statements for the period ended 30 June 2010 presented in the update of the registration document have been subject to a report from the Statutory Auditors shown in page 47 and 48. Without qualifying their opinion, the Statutory Auditors, in their report on the condensed consolidated financial statements, drew the attention to the matter set out in the note “Basis of preparation and significant accounting policies ” to the condensed half-year consolidated financial statements regarding the change in accounting policy regarding actuarial gain and losses of pensions, and in the note “Goodwill” which presents the results of the impairment tests performed by the Group, on the goodwill of certain cash generating units as of June 30, 2010. The Consolidated and the Annual Financial Statements for the year ended 31 December 2009 presented in the Reference Document filed with the AMF on 1 April 2010 under number D.10-0199 have been subject to a report from the Statutory Auditors shown respectively from page 109 to 111 and from page 192 to 193 of that document. Without qualifying their opinion, the Statutory Auditors, in their report on the Consolidated Financial Statements, drew the attention to the matter set out in the note “Basis of preparation and significant accounting policies” of the consolidated financial statements regarding the application of new standards and interpretations from 1 January 2009. The Consolidated and the Annual Financial Statements for the year ended 31 December 2008 presented in the Reference Document filed with the AMF on 9 April 2009 under number D.09-251 have been subject to a report from the Statutory Auditors shown respectively from pages 85 to 86 and from page 166 to 167 of that document. Without qualifying their opinion, the Statutory Auditors, in their report on the Consolidated Financial Statements, drew the attention to the matter set out in the note “Goodwill” to the consolidated financial statements regarding the impairment charge on goodwill recorded as of 31 December 2008. Page 81 of 95 Without qualifying their opinion, the Statutory Auditors, in their report on the Annual Financial Statements, drew the attention to the change in accounting principles regarding the application as from 1st January 2008 of Regulation n°2008-15 of the Comité de la Réglementation Comptable on stock options plans and free share plans. Thierry BRETON, Chairman and CEO Paris - La Défense, 29 July 2010 Page 82 of 95 11.3 RESPONSIBLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Substitute Auditors Grant Thornton Cabinet IGEC, 3, rue Léon Jost, 75017 Paris Jean-Pierre Colle and Vincent Frambourt • Appointed on 12 June 2008 for a term of 6 years • Term of office expires: at the end of the Annual General Meeting held to adopt the 2013 financial statements Appointed on 12 June 2008 for a term of 6 years • Term of office expires: at the end of the Annual General Meeting held to adopt the 2013 financial statements Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly- sur-Seine Appointed on 12 June 2008 for a term of 6 years • Term of office expires: at the end of the Annual General Meeting held to adopt the 2013 financial statements Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly- sur-Seine Appointed on 23 May 2006 for a term of 6 years • Term of office expires: at the end of the Annual General Meeting held to adopt the 2011 financial statements Appointed on 23 May 2006 for a term of 6 years • Term of office expires: at the end of the Annual General Meeting held to adopt the 2011 financial statements Page 83 of 95 12 PRESS RELEASE FOR THE 2010 FIRST HALF RESULTS FIRST HALF 2010 RESULTS (cid:1) Revenue: EUR 2,494 million; organic variation -4.6 per cent, (cid:1) Operating Margin: o reported at EUR 150 million representing 6.0 per cent of revenue with the new regulation on French business tax o on a comparable base, EUR 141 million; 5.7 per cent to be compared to 4.6 per cent in the first half of 2009 thanks to the ramp up of the TOP Program, (cid:1) Book to bill ratio: 114 per cent, (cid:1) Net debt: EUR 119 million compared to EUR 328 million at end of June 2009, (cid:1) Net Income Group Share: EUR 60 million versus 18 million for the first half of 2009. Full year 2010 objectives confirmed PARIS – 28 July 2010 – Atos Origin, an international IT services company, today announced its results for the first half of 2010. Revenue was EUR 2,494 million, representing an organic variation of -4.6 per cent in line with the full year expectations. Operating margin was EUR 150 million, representing 6.0 per cent of revenue. This performance was achieved thanks to the continued roll-out of the TOP Program, in line with the three-year plan announced at the end of 2008. Thierry Breton, Chairman and CEO of Atos Origin said: “In the first half of 2010, the Group succeeded in raising its operating margin by 110 basis points compared to the first half of 2009, while limiting the revenue variation to -4.6 per cent. These results allow the Group to confirm its annual guidance and show that Atos Origin is on track to improve its operating margin by at least +250 basis points between 2008 and 2011. In addition to the roll out of the TOP Program, in the first half of 2010 we focussed our efforts on preparing the Group and particularly the sales force for a better economic environment. In terms of innovation we launched new offerings in the areas of Smart Energy and Hi-Tech Transactional Services (HTTS) including Smart Mobility services.” Revenue by Service Line In Managed Services, the revenue for the first half of 2010 was EUR 903 million, representing 36 per cent of total revenue. This activity declined by -6 per cent organically, coming equally from the expected decline in revenue from the German client Arcandor and from less cross selling with existing clients, particularly in The Netherlands and in France, partially compensated by strong volumes in Asia. Systems Integration revenue was EUR 902 million, representing 36 per cent of total revenue, and an organic decline of -6 per cent. This activity had decreased by -11 per cent in 2009, as a result of lower demand and price pressure, especially in the Benelux and in Spain. During the first quarter of 2010, the decline was -9 per cent, and has been limited to -2 per cent in the second quarter, thanks to an organic growth of +4 per cent in France. In the Netherlands, price has stabilised in the Time and Material activity and therefore, revenue decline was -9 per cent in the second quarter compared to -24 per cent in the first quarter. The Hi-Tech Transactional Services activity reported revenue of EUR 499 million representing 20 per cent of the Group revenue and up by +2 per cent organically. After +0.6 per cent growth in the first quarter, HTTS increased by +3.8 per cent in the second quarter. Over the first half, the Payment Page 84 of 95 business which represents two thirds of total HTTS revenue, increased by +4 per cent, while electronic services (e-CS) were almost flat. At the same time, revenue related to financial markets dropped by -8 per cent, due to the investments in new offerings. Consulting reported revenue of EUR 110 million and an organic decline of -17 per cent. In line with Group expectations, tough market conditions persisted during the first half of 2010. The book to bill ratio was 125 per cent, an indication that this business line will stabilise over the coming quarters. BPO Medical revenue was EUR 80 million up by +5 per cent organically thanks to increasing volumes. This activity is processed entirely in the United Kingdom through several multi year contracts. Revenue by Global Business Unit (GBU) Consistent with IFRS 8, the Group presents the geographical segmentation in line with the operational management, i.e. by Global Business Unit (GBU). (cid:1) Revenue in France was flat thanks to improvements in Systems Integration and in Consulting; (cid:1) Revenue in Benelux was down by -11 per cent due to a decline in sales from cyclical (cid:1) activities. However, this decline was limited to -9 per cent in the second quarter; In the United Kingdom, revenue decrease was limited to -4 per cent thanks to HTTS and BPO Medical which partially compensated for the decline in cyclical activities; (cid:1) Atos Worldline grew by +1 per cent despite a decline in Financial Markets; (cid:1) Revenue in Spain was down by -9 per cent in an economical environment which remained tough; (cid:1) Germany CEMA revenue was down by -16 per cent, of which -11 per cent was due to less revenue from Arcandor, as expected in Group anticipations; (cid:1) Other Countries which include mainly Asia and America reported an organic growth of +7 per cent thanks to the strong development of the Group in Asia. The revenue from the Vancouver Winter Olympic Games also contributed to the growth of this segment. Operating performance During the first half of 2010, the Group achieved an Operating Margin of EUR 150 million (6.0 per cent of revenue), taking into account the new business tax (CVAE) in France. Without this regulatory impact, the operating margin was EUR 141 million, representing 5.7 per cent of revenue, compared to 4.6 per cent reached in the first half of 2009, an increase of 110 basis points. In an economic environment which remained difficult and despite a decline in revenue, the Group improved its operating profitability by pursuing the roll out of the TOP Program in line with its three year plan. The improvement of the operating margin in the first half of 2010 mainly came from: (cid:1) The Benelux, where the operating margin strongly increased from 6.7 per cent to 9.3 per cent at EUR 43 million, in the first half of 2010, thanks to a strong improvement in Managed Services, benefiting more particularly from the implementation of Lean processes within the TOP Program; (cid:1) Germany / CEMA where operating margin was restored at 4.5 per cent compared to 1.5 per cent for the same period in 2009. Managed Services improved strongly its profitability despite lower revenue coming from Arcandor group; (cid:1) Atos Worldline where operating margin increased from 14.7 per cent to 16.6 per cent benefiting from higher volumes of transactions in the Payment services combined with a strict control of overheads; (cid:1) The United Kingdom where operating margin remained stable at 8.2 per cent despite a decline in revenue; this performance was achieved thanks to the reassignment of resources to growing activities as well as further improvement of the cost base; (cid:1) The “Other Countries” entity, where the operating margin significantly increased from 1.6 per cent to 10.8 per cent of revenue, due to the improvements achieved by the Page 85 of 95 Global Delivery Model implemented in Asia in 2009 both for Managed Services and Systems Integration. These improvements in Operating Margin countered the negative margin of EUR -9 million in Spain due to an overall tough economic environment (price pressure and volumes reductions), slippage in some specific fixed-price contracts, and insufficient adjustment of cost base. The effects of the current restructuring program and the change of top management in the first half of this year should lead to improved performance in the second half 2010. In France, the improvement of the operating margin continued in Systems Integration. The situation in Managed Services was more difficult due to a lack of cross-selling additional revenue which usually generates a higher level of margin. As a result, the operating margin declined by 80 basis points. The cost of Global Functions (Global Service Lines and Corporate Central) benefited from the effects of the TOP Program and the implementation of Lean Management and Added Value Analysis (AVA). The cost were down by 20 per cent to EUR 39 million for the first half of 2010, i.e. a reduction of EUR 9 million, of which EUR 2 million come from equity-based compensation. Operating income and Net Income Operating income was EUR 96 million after EUR 30 million expenses for reorganisation and rationalisation. Taking into account the evolution of the current situation in Spain and more particularly its subsidiary, the Group booked a depreciation of goodwill for EUR 25 million. Financial result was a charge of EUR 10 million, total tax charge was EUR 24 million and minority interests amounted to EUR 2 million. Therefore, the net income Group share reached EUR 60 million compared to EUR 18 million for the first half of 2009. Adjusted net income (before unusual, abnormal and infrequent items net of tax) reached EUR 98 million representing an increase of +33 per cent compared to EUR 74 million reached in the first half of 2009. Net debt Group net debt as of 30 June 2010 was EUR 119 million compared to EUR 328 million on 30 June 2009 and EUR 139 million on 31 December 2009. This amount takes into account the EUR 54 million cash outflow made during the first half of 2010 in order to acquire the company Shere in the United Kingdom and the minority interests of Atos Worldline Processing, the German subsidiary of Atos Worldline. In addition to the increase of the OMDA by EUR 25 million at EUR 240 million, the significant improvement of the operating cash flow came from the actions led by the Group within the TOP Program. As a result the working capital has been improved with a DSO reduced by 6 days, and Capital Expenditure was EUR 73 million representing 2.9 per cent of revenue compared to EUR 107 million in the first half of 2009. As expected, the staff restructuring represented EUR 47 million cash out mainly in Germany due to the Arcandor effect and in The Netherlands. Rationalisation of offices represented EUR 22 million related to the closure of offices. Human Resources Total number of Group employees declined slightly from 49,036 at the end of December 2009 to 48,188 at the end of June 2010. The number of direct staff has stabilised since April 2010, while Page 86 of 95 indirect staff are still being reduced in the context of the Added Value Analysis process implementation in each country. Almost 2,500 engineers were recruited in the first half of 2010 of which 1,500 were recruited in the second quarter. Half of the new joiners are located in the emerging markets of Asia and South America as well as Morocco. The attrition rate slightly increased to 8.8 per cent compared to 7.5 per cent in June 2009. The number of dismissals and restructuring was 1,200 employees, in line with the Group expectations. The number of external subcontractors was 2,337 almost stable for the last twelve months. This figure was in line with the current Group policy, around 5 per cent of total staff. The cost of external subcontractors was down by -13 per cent (circa EUR 40 million) in the first half of 2010 compared to the same period in 2009. Finally, the Group pursued its efforts to re skill internal staff and to encourage mobility in line with the policy implemented at the beginning of 2009. As a result, the bench has been reduced to 834 employees compared to 1,044 one year ago which already represented a significant improvement. Commercial activity Group order entries totalled EUR 2,844 million in the first half of 2010. The book to bill ratio was 114 per cent, above the level of 112 per cent reached in the first half of 2009. During the second quarter of 2010, the Group reached a 100 per cent book to bill ratio, signed new contracts and renewed existing ones, particularly in Energy and Utilities and Financial Services markets. France signed a contract with Veolia in Managed Services and renewed Systems Integration projects with EDF. In Germany, the Group renewed its contract with E-Plus. In Benelux, multi year contracts have been renewed with an Oil & Gas leading Services Company and with KPN, while new contracts have been signed with Philips and with Schiphol Telematics. In the United Kingdom, new orders have been signed in the Public Sector, and in the Private Sector with Whitbread and Britvic, respectively leaders in the United Kingdom in hospitality and in non alcoholic beverage. Atos Worldline has renewed its contracts with Mercedes Benz Bank and Orange Voice, and has signed a new contract with Altadis. Atos Worldline has also renewed its contracts with the German saving banks Landesbank Berlin, Landesbank Bad Württemberg and Bayern Card Services. In Spain, the contract in Financial Services for a large savings bank has been renewed and a new contract has been won in the Public Sector with the Agencia de Informatica. In the United States, a new contract has been signed with the Federal Home Loan Bank - Seattle (credit provider to Banks), and a contract with a major Oil & Gas leading services company has been renewed. The roll out of the HTTS Group initiative in the priority geographies has started in the first half of 2010 and is on schedule. The primary focus was on generating sales leads and strengthening the pipeline with the aim of closing significant new deals in the second half of 2010. At the end of June 2010, the un-weighted pipeline in HTTS, excluding additional very large opportunities, was in the range of EUR 350 to 400 million for The Netherlands, the United Kingdom, Spain, China and Germany. The creation of a new international subsidiary – Atos WorldGrid – is also on schedule and will be formally in place at the end of July in France, and in the third quarter for Spain and China. Atos WorldGrid brings together the strong portfolio of solutions and the deep industry knowledge of Atos Origin in Smart Energy and Utilities. At 30 June 2010, full backlog was EUR 7.3 billion representing 1.4 year of revenue, an increase of +5 per cent compared to 31 December 2009. The full qualified pipeline on 30 June 2010 was EUR 2.6 billion at the same level as one year ago. Page 87 of 95 TOP Program Globally, the TOP Program strongly contributed to the increase of the operating margin in the first half of 2010. The TOP Program implemented in December 2008 already generated positive effects in 2009. In addition to the twenty initial transformation projects which focussed on cost reduction and on cash flow generation, the Group launched twelve new initiatives at the beginning of 2010. Five of them are focussed on improving of the sales (TOP sales) and the remaining seven are focussed on “Well being at Work” which is related to talents’ management. The benefits from the TOP Program on the operating margin have continued during the first half of 2010 resulting in a further reduction of the cost base. The most important reductions during the first half of 2010 compared to the first half of 2009 derived from maintenance costs which dropped by -17 per cent (full year 2009 cost was EUR 257 million) and on company cars for which costs reduced by - 17 per cent (2009 cost basis was EUR 93 million). At the same time, rental cost of premises was down by -5 per cent. The current move of the Paris offices to the Campus in Bezons will generate additional savings during the next twelve months. Finally, the implementation of Lean management in order to increase the operational performance, the quality of services rendered to customers and the involvement of staff, continues its ramp up with 4,900 staff at the end of June 2010 compared to 2,800 staff at the end of December 2009 and a year end estimate of 9,000 staff using these techniques daily. 2010 Objectives After six months of activity, the Group confirms its objectives for 2010 as communicated to the market during the 2009 Annual Results presentation on 17 February 2010. Priorities of the Group in 2010 will be again to maintain and further improve the skills of its staff, to improve operating margin and cash generation as per its three-year plan. Operating margin As part of its 2008-2011 plan to improve its profitability, the Group confirms its ambition to increase its operating margin by +50 to +100 basis points in 2010. Cash Flow The Group has the objective to confirm the improvement achieved in 2009 by generating a net operational cash flow in the same range in 2010. Revenue Due to the Arcandor bankruptcy, the Group expects in 2010 a slight revenue organic decrease, however at a lesser extent than the one achieved in 2009. Page 88 of 95 13 GLOSSARY – DEFINITIONS Financial terms and Key Performance Indicators Business Key Performance Indicators (cid:2) Current and non-current assets or liabilities (cid:2) DSO (cid:2) EBITDA (cid:2) EPS (cid:2) Gearing (cid:2) Gross margin – Direct costs (cid:2) (cid:2) (cid:2) Leverage ratio (cid:2) Net debt (cid:2) Adjusted EPS (cid:2) Adjusted net income (cid:2) OMDA (cid:2) Operating income (cid:2) Operating margin (cid:2) Operational Capital Employed (cid:2) ROCE (Return Of Capital Employed) Indirect costs Interest cover ratio (cid:2) Attrition rate (cid:2) Backlog / Order cover (cid:2) Book-to-bill (cid:2) Direct and indirect FTE (cid:2) External revenue (cid:2) Full Time Equivalent (FTE) (cid:2) Legal staff (cid:2) Order entry / bookings (cid:2) Organic growth (cid:2) Permanent and temporary staff (cid:2) Pipeline (cid:2) Ratio S (cid:2) Subcontractors and interims (cid:2) TCV (Total Contract Value) (cid:2) Turnover (cid:2) Utilisation rate and non-utilisation rate Business terms Market terms (cid:2) BPO (cid:2) CMM (cid:2) CRM (cid:2) ERP (cid:2) LAN (cid:2) MMS (cid:2) SCM (cid:2) SEPA (cid:2) WAN • CMMI • ITO (cid:2) Consensus (cid:2) Dilutive instruments (cid:2) Dividends (cid:2) Enterprise Value (EV) (cid:2) Free float (cid:2) Free float capitalisation (cid:2) Market capitalisation (cid:2) PEG (Price Earnings Growth) (cid:2) PER (Price Earnings Ratio) (cid:2) Volatility Page 89 of 95 13.1 FINANCIAL TERMS AND KEY PERFORMANCE INDICATORS USED IN THIS DOCUMENT Operating margin. Operating margin comprises operating income before major capital gains or losses on the disposal of assets, major reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigations and the release of opening balance sheet provisions no longer needed. Operating income. Operating income comprises net income before deferred and income taxes, net financial expenses, share of net income from associates and the results of discontinued operations. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). For Atos Origin, EBITDA is based on Operating margin less non-cash items and is referred to as OMDA (Operating Margin before Depreciation and Amortisation) OMDA (Operating Margin before Depreciation and Amortisation) is calculated as follows: Operating margin Less - Depreciation of fixed assets (as disclosed in the “Financial Report”) Less - Operating net charge of provisions (composed of net charge of provisions for current assets and net charge of provisions for contingencies and losses, both disclosed in the “Financial Report”) Less - Net charge of provisions for pensions (as disclosed in the “Financial Report”) Less - Equity-base compensation Gross margin and Indirect costs. Gross margin is composed of revenues less the direct costs of goods and services sold. Direct costs relate to the generation of products and/or services delivered to customers, while indirect costs include all costs related to indirect staff (defined hereafter), which are not directly linked to the realisation of the revenue. The operating margin comprises gross margin less indirect costs. Adjusted net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax. EPS (earnings per share). Basic EPS is the net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is the net income divided by the diluted weighted-average number of common shares for the period (number of shares outstanding + dilutive instruments with dilutive effect). Adjusted EPS is based on adjusted net income. Operational capital employed. Operational capital employed comprises net fixed assets and net working capital, but excludes goodwill and net assets held for sale. Current and non-current assets or liabilities. A current and non-current distinction is made between assets and liabilities on the balance sheet. Atos Origin has classified as current assets and liabilities those that Atos Origin expects to realise, use or settle during its normal cycle of operations, which can extend beyond 12 months following the period-end. Current assets and liabilities, excluding the current portion of borrowings and financial receivables, represent the Group’s working capital requirement. Net debt. Net debt comprises total borrowings (bonds, finance leases, short and long-term bank loans, securitisation and other borrowings), short-term financial assets and liabilities bearing interest with a maturity of less than 12 months, less cash and cash equivalents (transferable securities, cash at bank and in hand). DSO (Days’ Sales Outstanding). DSO is the amount of trade accounts receivables (including work in progress) expressed in days' revenue (on a last-in, first-out basis). The number of days is calculated in accordance with the Gregorian calendar. Gearing. The proportion, expressed as a percentage, of net debt to total shareholders’ equity (Group share and minority interests). Interest cover ratio. Operating margin divided by the net cost of financial debt, expressed as a multiple. Leverage ratio. Net debt divided by OMDA. ROCE (return on capital employed). ROCE is net income (Group share), before the net cost of financial debt (net of tax) and the depreciation of goodwill, divided by capital employed. Page 90 of 95 13.2 MARKET TERMS Consensus. Opinion that emerges from the financial community, in which financial analysts play a prominent role. Consensus can relate to earnings outlook (individual stock consensus) or to a group of companies in the same sector (market consensus). Dilutive instruments. Financial instruments such as bonds, warrants, stock subscription options, free shares, which could be converted into shares and have therefore a potential dilutive impact on common stock. Dividends. Cash or stock payments from a company's profits that are distributed to stockholders. Free float. Free float is the proportion of a Company’s share capital that is regularly traded on the stock exchange. It excludes shares in the six categories listed below (source Euronext): (cid:2) Shares held by Group companies Shares of the listed company held by companies that it controls within the meaning of Article 233/3 of the French Commercial Code. (cid:2) Shares held by founders Shares held directly or indirectly by the founders (individuals or family group) when these founders have managerial or supervisory influence (management positions, control by voting rights, influence that is a matter of public knowledge, etc.). (cid:2) Shares held by the State Interests held directly by the State, or by public sector or other companies which are themselves controlled by the State. (cid:2) Shares within the scope of a shareholders agreement Shares subject to a shareholders' agreement within the meaning of Article 233/10 and 11 of the French Commercial Code, and other than those held by founders or the State. (cid:2) Controlling interest (cid:2) Shares held by juridical persons (other than founders or the State) exercising control within the meaning of article 233/3 of the French Commercial Code. Interests considered stable Interests exceeding 5%, which have not declined by one percentage point or more, excluding the impact of dilution, in the three preceding years. This category also includes shareholders that, in addition to or in association with the link represented by share ownership, have recently entered into significant industrial or strategic agreements with the Group. Free-float capitalisation. The share price of a company multiplied by the number of free-float shares as defined above. Market capitalisation The share price of a company multiplied by the number of its shares in issue. Volatility. The variability of movements in a share price, measured by the standard deviation of the ratio of two successive prices. Enterprise Value (EV). Market capitalisation + debt. PER (Price Earnings Ratio). Market capitalisation divided by net income for a trailing (or forward) 12- month period. PEG (Price Earnings Growth). Price-earnings ratio divided by year-on-year earnings growth. Page 91 of 95 13.3 BUSINESS TERMS BPO (Business Process Outsourcing). Outsourcing of a business function or process, e.g. administrative functions such as accounting, HR management, call centers, etc. CMM (Capability Maturity Model). CMM is a method for evaluating and measuring the competence of the software development process in an organisation on a scale of 1 to 5. CMMI. Capability Maturity Model Integration. CRM (Customer Relationship Management). Managing customer relationships (after–sales service, purchasing advice, utilisation advice, customer loyalty) has become a strategic component of a company's successful operation. Not only does CRM facilitate efficiency, it also leads to higher sales by building customer loyalty. ERP (Enterprise Resource Planning). An ERP system is an integrated management software system built in modules, which is capable of integrating sales, manufacturing, purchasing, accounting and human resources systems into an enterprise-wide management information system. ITO (Information Technology Outsourcing). Refers to the process of subcontracting part or total of IT management to a third-party. LAN (Local Area Network). A local network that connects a number of computers within a single building or unit. MMS (Multimedia Message Service). A message capable of carrying text, sounds, fixed or animated colour images, generally sent to a mobile phone. SCM (Supply Chain Management). A system designed to optimise the logistics chain, aimed at improving cost management and flexibility. SEPA (Single Euro Paiement Area). Regulating initiative from European countries involving the creation of a specific zone where all transactions will be considerered as domestic in terms of billing (no longer cross- border electronic payments surcharge). WAN (Wide Area Network). A long–distance network that generally comprises several local networks and covers a large geographical area. 13.4 BUSINESS KPIS (KEY PERFORMANCE INDICATORS) 13.4.1 Revenue External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT and internal revenue). External revenue includes sales of services and purchase for reselling (hardware and software), but excludes sales when the Group is acting as a mere agent between the client and the supplier. Order Entry/ Bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. Application to the 3 main types of contracts: (cid:2) Contracts with firm orders When an offer is won (contract signed), the total contract value of the firm order is added to the backlog and the order entry is recognized. (cid:2) Contracts based on volume When the contract is signed, the total contract value added to the backlog corresponds to the total value of the contract defined in the contract business plan. (cid:2) Framework agreement When a framework agreement without guaranteed workload or amount of revenue is signed, the total contract value recognized in the backlog corresponds to 70% of the total expected revenues over the life of the framework agreement in case Atos Origin has exclusivity, or, if Atos Origin does not have exclusivity, 80% of the total expected revenues of the agreement over a 12 months period, divided by the number of retained suppliers. Page 92 of 95 (cid:2) Any adjustment on previous order entry is recognized in backlog. Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period. TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal. Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognized over their contract lives. For a defined period, closing backlog = opening backlog + order entry (recognized over the period) – external revenue (recognized over the period). Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success. Organic growth. Organic growth represents the % growth of a unit based on a constant scope (restated of significant acquisitions and disposals) and exchange rates basis (previous period being restated using current period foreign exchange rates). 13.4.2 Human resources Legal staff. The total number of employees under Atos Origin employment contracts at the end of the period. Legal staff includes those on long sickness or long absence, apprentices, trainees, and employees on maternity leave, but excludes subcontractors and interims. FTE (Full-time equivalent) staff. The total number of staff calculated using information from time sheets on the basis of working time divided by standard contractual workable time per employee. In general, a person working on a full time contract is considered as one FTE, whereas a person working on a part time contract would be considered less than one FTE. Calculations are based on contractual working time (excluding overtime and unpaid holidays) with potential workable time (in hours or days) = nominal time + overtime balance – unpaid vacation. For subcontractors and interims, potential workable hours are based on the number of hours billed by the supplier to Atos Origin. Subcontractors. External subcontractors are third-party suppliers. Outsourced activities (direct activities such as printing or call center activities, or indirect activities e.g. shared services centers) and fixed price subcontracting are excluded from the recorded number of subcontractors or interims. Interims. Staff from an agency for temporary personnel. Interims are usually used to cover seasonal peaks or for situations requiring staff for a short period of time. Direct FTE. Direct FTE include permanent staff and subcontractors, whose work is billable to a third party. Indirect FTE. Indirect FTE include permanent staff or subcontractors, who are not billable to clients. Indirect FTE are not directly involved in the generation of products and/or services delivered to clients. Permanent staff. Permanent staff members have a contract for an unspecified period of time. Temporary staff. Temporary staff have a contract for a fixed or limited period of time. Ratio S. Measures the number of indirect FTE as a percentage of total FTE staff, including both own staff and subcontractors. Staff turnover and attrition rate (for legal staff). Turnover and attrition rates measure the proportion of legal staff that has left the Group (voluntary and/or involuntary) in a defined period. Turnover measures the percentage of legal staff that has left the business in a defined period. Page 93 of 95 Attrition measures the percentage of legal permanent staff that has voluntarily left the business in a defined period. Attrition rate is a ratio based on total voluntary leavers in the period on an annual basis divided by the average number of permanent staff in the period. Utilisation rate and non-utilisation rate. Utilisation rate + non-utilisation rate = 100% of workable time for direct FTE, which excludes legal vacations, long-term sickness, long-term sabbaticals and parental leave. Workable time is composed of billed time, inactivity that is billable but not billed (exceptional holidays, sickness, on the bench which is between two assignments, other inactivity as delegation), and non-billable time (pre-sales, training, management meetings, research and development and travel). Utilisation rate measures the proportion of workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is billed to customer. The ratio is expressed in percentage terms based on billed hours divided by workable hours excluding vacations. Non-utilisation rate measures the workable time (hours or days) of direct FTE (own staff excluding subcontractors) that is not billed or is non-billable to clients. Page 94 of 95 14 LOCATIONS Argentina Vedia 3892 P.B. C1430 DAL - Buenos Aires Tel: +54 11 6315 8800 Austria Technologiestraße 8/ Gebäude D A-1120 Wien Tel: +43 1 605430 Belgium Da Vincilaan 5 B-1935 Zaventem Tel: +32 2 690 28 00 Global Consulting & Systems Integration (Global C&SI) Da Vincilaan 5 B-1935 Zaventem Tel: +32 2 690 28 00 Atos Worldline Belgium Chaussée de Haecht 1442 Haachtsesteenweg 1130 Brussels Tel: +32 (0)2 727 61 11 Brazil Avenida Maria Coelho Aguiar, 215 - Bloco E - 5º andar Cep: 05804-900 - Jardim São Luis - São Paulo – SP Tel: +55 11 2183-2344 Rua da Candelária, 65 - 22º andar Cep. 20091-906 – Centro- Rio de Janeiro - RJ Tel: +55 21 3265-9200 China 5th Floor, Lido Commercial Center Jichang Road Beijing 100004 Tel: +86 10 6437 6668 France Headquarters Tour les Miroirs - Bât C 18, avenue d'Alsace 92926 Paris La Défense Cedex Tel: +33 1 55 91 20 00 Atos Worldline France Tour Manhattan 5-6 place de l'Iris 92926 Paris La Défense Cedex Tel: +33 1 49 00 90 00 Japan 20/F Shinjuku Park Tower, 3-7-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 163-1020 Tel: +81 3 3344 6631 Managed Services Tour Horizon 64, rue du 8 Mai 1945 92025 Nanterre Tel: +33 1 46 14 50 00 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel.: +352 31 36 37 1 Systems Integration Tour les Miroirs - Bât C 18, Avenue d'Alsace 92926 Paris La Defense Cedex Tel: +33 1 55 91 20 00 Malaysia Suite F01, 1st Floor 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Darul Ehsan Malaysia Tel.: +60 3 8318 6100 Atos Consulting Tour Manhattan 5-6 place de l'Iris 92926 Paris La Défense Cedex Poland ul. Domaniewska 41 02-672 Warszawa (budynek Taurus) Tel: +48 22 606 1900 Germany Theodor-Althoff-Str. 47 D-45133 Essen Tel: +49 (0) 20 14 3050 Atos Worldline Germany Hahnstraße 25 D-60528 Frankfurt/Main Tel: +49 (0) 69 66 5710 Morocco Avenue Annakhil – Espace High Tech Hall B – 5ème étage Hay Ryad Rabat Tel: +212 (0)5 37 57 79 79 Greece 18 Kifisias Avenue 151 25 Athens Tel +30 210 688 9016 Nearshore Park – Shore 7 1100, boulevard El Qods – Quartier Sidi Maârouf Casablanca Tel: +212 (0)5 29 04 45 29 Hong Kong Exchange Tower, 33 Wang Chiu Road Kowloon Bay, Kowloon, Hong Kong Singapore 620A Toa Payoh Lorong 1 TP4 Level 5 Singapore 319762 Tel: +65 6496 3888 India SDF-IV, Units 126/127 SEEPZ, Andheri (east) Mumbai 400 096 Tel: +91 22 28 29 0743 South Africa 204 Rivonia Road, Sandton Private Bag X136 Bryanston 2021 Tel: +27 11 895 2000 Indonesia Wisma Kyoei Prince, #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta, 10220 Tel: +62 21 572 4373 Page 95 of 95 Spain Albarracín, 25 28037 Madrid Tel: +34 91 440 8800 Atos Consulting Albarracín, 27 28037 Madrid Tel: +34 91 214 9500 Switzerland Industriestrasse 19 8304 Wallisellen Tel: +41 44 877 6969 Taiwan 5F, No.100, Sec.3, Min-Sheng E.Road, Taipei, Taiwan, R.O.C. Tel: +886 - 2 - 2514 2500 The Netherlands Papendorpseweg 93 3528 BJ Utrecht Tel: +31 (0) 88 265 5555 Atos Consulting Papendorpseweg 93 3528 BJ Utrecht Tel: +31 (0) 88 265 5555 Turkey Kisikli Caddesi N°37 Aksel Is Merkezi 2 Kat Altunizade 34 662 Istanbul Tél: +90 216 531 7383 United Kingdom 1 Triton Square Regent’s Place London NW1 3HG Tel: +44 20 7830 4444 USA 5599 San Felipe Suite 300 Houston TX, 77056 Tel: +1 713 513 3000 | Semestriel, 2010, IT, Atos | write me a financial report |
Semestriel | 2,011 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| SECOND UPDATE OF THE 2010 REFERENCE DOCUMENT (Half -yearly 2011 financial report included) This document is a full free translation of the original French text. This update of the 2010 Reference Document has been filed with the Autorité des Marchés Financiers (AMF) on 29 July 2011 pursuant to article 212-13 of the AMF’s general regulations. It complements the Reference Document filed with the AMF on 1st April 2011 under number D.11-0210 and its update filed with the AMF on 8 June 2011 under number D.11-0210-A01. This Reference Document and its update may be used to support a financial operation if accompanied by a prospectus duly approved by the AMF. This document has been prepared by the issuer and it engages the responsibility of its signatories. Copies of this update of the Reference Document are available, free of charge, at Atos, at the following address: River Ouest, 80 Quai Voltaire, 95870 Bezons. This update of the Reference Document is also available on the website of the Autorité des marchés financiers (www.amf- france.org) and on the company’s website (www.atos.net). 1 / 49 CONTENTS 1. Financial highlights ........................................................................................................................... 4 1.1 Consolidated income statement .............................................................................................. 4 1.2 Revenue profile........................................................................................................................ 5 2. Half year operational review ............................................................................................................. 6 2.1 First half 2011 highlights .......................................................................................................... 6 2.2 Performance by Service Line .................................................................................................. 6 2.3 Performance by Global Business Unit (GBU) ......................................................................... 8 2.4 Performance by industry sector ............................................................................................. 10 2.5 Commercial activity................................................................................................................ 11 2.6 Human Resources ................................................................................................................. 11 3. Creation of a IT leader .................................................................................................................... 12 3.1 Deal structure reminder ......................................................................................................... 12 3.2 Partnership for innovation and business growth ................................................................... 13 3.3 Atos – already operational for further margin improvement .................................................. 13 3.4 Atos – a new brand ................................................................................................................ 13 3.5 Transactions with related parties ........................................................................................... 14 3.6 Main risks and uncertainties for the second half 2011 .......................................................... 14 4. Outlook for the second half 2011 ................................................................................................... 16 4.1 Operating margin ................................................................................................................... 16 4.2 Revenue ................................................................................................................................ 16 4.3 Free cash flow ....................................................................................................................... 16 5. Capital evolution ............................................................................................................................. 17 5.1 Basic data .............................................................................................................................. 17 5.2 Free-float evolution ................................................................................................................ 18 5.3 Stock ownership evolution ..................................................................................................... 18 6. Financial review .............................................................................................................................. 19 6.1 Income statement .................................................................................................................. 19 6.2 Earnings per share ................................................................................................................ 22 6.3 Cash flow and net debt .......................................................................................................... 23 6.4 Parent company results ......................................................................................................... 24 7. Half-year condensed consolidated financial statements ................................................................ 25 7.1 Interim consolidated income statement ................................................................................. 25 7.2 Interim consolidated statement of comprehensive income ................................................... 26 7.3 Interim consolidated statement of financial position .............................................................. 27 7.4 Interim consolidated cash flow statement ............................................................................. 28 7.5 Interim consolidated statement of changes in shareholders’ equity ...................................... 29 8. Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2011 ....................................................................................................................................................... 30 Basis of preparation ............................................................................................................... 30 8. Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2011 ....................................................................................................................................................... 30 8.1 8.2 Significant accounting policies ............................................................................................... 31 Notes to the half-year condensed consolidated financial statements ................................... 32 9. Declaration by the person responsible for the update of the reference document ........................ 45 2 / 49 10. Statutory Auditors’ review report on first half-year financial information for the period ended 30 June 2011 .............................................................................................................................................. 46 Appendix ..................................................................................................................................... 47 11.1 Forthcoming events ............................................................................................................... 47 11.2 Disclaimers ............................................................................................................................ 47 11.3 About Atos ............................................................................................................................. 47 11.4 Investor Relations contact ..................................................................................................... 47 12. Full Index .................................................................................................................................... 48 3 / 49 1. FINANCIAL HIGHLIGHTS 1.1 Consolidated income statement (in EUR million)Notes6 months ended 30 June 20116 months ended 30 June 201012 months ended 31 December 2010Revenue Note 22,476.42,494.25,020.6Personnel expensesNote 3(1,399.5)(1,434.8)(2,809.5)Operating expensesNote 4(910.7)(909.3)(1,873.7)Operating margin166.2150.1337.4% of revenue6.7%6.0%6.7%Other operating income and expensesNote 5(5.8)(54.2)(137.3)Operating income160.495.9200.1% of revenue6.5%3.8%4.0%Net cost of financial debt(8.5)(8.5)(17.8)Other financial expenses(21.4)(24.4)(35.1)Other financial income7.322.928.8Net financial incomeNote 6(22.6)(10.0)(24.1)Net income before tax137.885.9176.0Tax chargeNote 7(38.9)(23.8)(57.8)Gain/(Losses)frominvestmentsaccounted for using the equity method, net(0.3)--Net income98.662.1118.2Of which:- Attributable to owners of the parent99.660.0116.1- Non controlling interests(1.0)2.12.1(in EUR and number of shares)Netincome-Attributabletoordinaryequity holders of the parentNote 8Weighted average number of shares 69,691,78869,165,08069,334,351Basic earnings per share1.430.871.67Dilutedweightedaveragenumberofshares 76,733,48275,823,15775,949,131Diluted earnings per share1.360.851.64 4 / 49 1.2 Revenue profile 37%35%21%4%3% In EUR millionH1 2011H1 2010Managed Services906901Systems Integration874897HTTS524508Consulting91109Medical BPO8180GROUP2,4762,495(*) Constant scope and exchange rates.In EUR millionH1 2011H1 2010France557573United Kingdom458444Benelux441459Worldline435420GCEMA240242Spain155158Other countries191198GROUP2,4762,495(*) Constant scope and exchange rates.In EUR millionH1 2011H1 2010Manufacturing, Retail & Transportation693691Public Sector & Health585587Financial Services567561Telecoms & Media379389Energy & Utilities 252269GROUP2,4762,495(*) Constant scope and exchange rates. 28%24%23%15%10% 22%18%18%18%10%6%8% 5 / 49 2. HALF YEAR OPERATIONAL REVIEW 2.1 First half 2011 highlights Thanks to the TOP transformation Program, which is now in its third year, operating margin was EUR 166 million, representing 6.7 per cent of revenue compared to 6.0 per cent in the first half of 2010. The operating margin increased by +11 per cent in the first half of 2011. Revenue was EUR 2,476 million, representing -0.7 per cent. Net Income Group share stood at EUR 100 million, up +66 per cent compared to the first half of 2010. In EUR MillionH1 2011H1 2010% growthRevenue 2,4762,494-0.7%Exchange rates impact1.0Revenue at constant exchange rates2,4762,495-0.7%Operating margin166.2150.110.7%Exchange rates impact-0.5Operating margin at constant exchange rates166.2149.611.0% 2.2 Performance by Service Line In EUR MillionH1 2011H1 2010% growthH1 2011H1 2010H1 2011H1 2010Managed Services906901+0.6%62.962.7+6.9%+7.0%Systems Integration874897-2.6%42.231.7+4.8%+3.5%HTTS524508+3.3%80.280.4+15.3%+15.8%Consulting91109-16.9%2.6-2.2+2.8%-2.0%Medical BPO8180+0.9%8.68.5+10.6%+10.6%Corporate Central (*)-30.2-31.4-1.2%-1.3%Total Group2,4762,495-0.7%166.2149.6+6.7%+6.0%(*) Corporate Central excludes Global Delivery Lines costs allocated to service linesRevenueOperating MarginOperating Margin % In Managed Services, operating margin was EUR 63 million, stable compared to the first half of 2010, and representing 6.9 per cent of revenue. This level of profitability was maintained thanks to the industrialization of the activity through Global Delivery Lines. Profitability in France, Spain and Other Countries improved. In Benelux, profitability remained above 10 per cent. Revenue was EUR 906 million, up +0.6 per cent compared to the first half of 2010. In the UK, revenue grew +6.6 per cent as a result of new orders in the public sector, following the end of the moratorium with the UK Cabinet Office. Revenue in Other Countries, mainly Asia and the Americas, grew +5.9 per cent while in France and Benelux it was down by around -2 per cent. In Systems Integration, operating margin was EUR 42 million, an improvement of +130 basis points compared to the first half of 2010 and representing 4.8 per cent of revenue. As planned, operating margin in Germany/CEMA and Spain returned to positive compared to the first half of 2010, to represent respectively 3.5 and 0.6 per cent of revenue. Profitability increased in France to 5.0 per cent of revenue and remained strong in the UK at 8.0 per cent. The operating margin rate in the Benelux declined to 4.0 per cent, where the economic environment continued to be tough with high price pressure. In order to improve profitability in Systems Integration, the Group continued to apply strict criteria for gross margin to new deals, especially in France and the UK. As a result, revenue in Systems Integration declined by -2.6 per cent. 6 / 49 Revenue increased in Germany, led by the Telecom & Media market with new projects. Revenue was down in CEMA, mainly due to the telecom market in South Africa. In Spain revenue remained stable after the strong decline in 2010. In Benelux, revenue decline was stabilized at -0.9 per cent. In Hi-Tech Transactional Services (HTTS), the operating margin rate was 15.3 per cent of revenue compared to 15.8 per cent in the first half of 2010. The Group continued to invest in new countries for this Service Line such as the Netherlands, the UK, Spain and Asia, in order to build the sales and delivery infrastructure to leverage the existing Atos customer base in these countries. The Service Line continued also to invest heavily in project development. Revenue reached EUR 524 million, up +3.3 per cent compared to the first half of 2010. Growth came from payment services which posted +6.3 per cent growth and from e-Services which grew +4.4 per cent. However, Financial Markets revenue reached EUR 45 million, down -18 per cent, still affected by delays due to software developments to implement new offerings for the investment banks. In Consulting, operating margin returned to positive at 2.8 per cent after a loss in the first half of 2010. The improvement was led by France, which reported a double digit operating margin rate, and by Spain where there was a return to almost break even. Revenue reached EUR 91 million, a decline of -16.9 per cent compared to the first half of 2010. Most of the decline came from the Netherlands where the new management appointed at the beginning of this year continued to focus on operational efficiency, on new offerings, and on workforce management to increase the utilization rate. In Medical BPO, operating margin remained flat at EUR 8.6 million, representing more than 10 per cent rate. Revenue slightly increased to EUR 81 million, due to higher volumes with its large customers. 7 / 49 2.3 Performance by Global Business Unit (GBU) In EUR MillionH1 2011H1 2010% growthH1 2011H1 2010H1 2011H1 2010France 557573-2.9%20.417.6+3.7%+3.1%United Kingdom458444+3.0%34.336.4+7.5%+8.2%Benelux441459-4.1%33.242.8+7.5%+9.3%Atos Worldline435420+3.4%69.369.7+15.9%+16.6%Germany/CEMA240242-0.8%12.910.9+5.4%+4.5%Spain155158-1.9%1.3-9.3+0.8%-5.9%Other countries191198-3.2%22.520.9+11.7%+10.5%GDL costs (*)2.6-8.1+0.1%-0.3%Corporate Central (*)-30.2-31.4-1.2%-1.3%Total Group2,4762,495-0.7%166.2149.6+6.7%+6.0%(*) Corporate Central and Global Delivery Lines costs not allocated to the Group Business UnitsRevenueOperating MarginOperating Margin % Operating margin in France was EUR 20 million, representing 3.7 per cent of revenue, an improvement of +50 basis points. The improvement mainly came from Systems Integration, which was at 5.0 per cent rate compared to 4.2 per cent in the first half of 2010. As already mentioned, the Group has applied in France strict criteria on new deals to ensure margin improvement. Revenue was EUR 557 million, down -2.9 per cent compared to the first half of 2010. The decline mainly came from lower volumes in Systems Integration in Energy & Utilities, and in Managed Services in Financial Services. Energy & Utilities continued to grow strongly in Managed Services. A new CEO for the GBU France will join the Group on October 1st 2011, with the objective to enhance profitable growth. In Benelux, where economic conditions continue to be tough, especially for cyclical activities, operating margin was EUR 33 million compared to EUR 43 million in the first half of 2010. Most of the decline came from Systems Integration where continued price pressure and declining volumes, most particularly in Professional Services, directly affected the operating margin. Managed Services maintained its operating margin rate at almost 11 per cent of revenue. Revenue reached EUR 441 million, down -4.1 per cent compared to the first half of 2010. Most of the decline came from Consulting where the new management is implementing strong actions to stabilize the business. For Systems Integration, the decline has stabilized at -0.9 per cent and Managed Services slightly declined to -2.1 per cent. In the United Kingdom, operating margin was EUR 34 million representing 7.5 per cent of revenue. The margin was almost stable for each Service Line. Revenue reached EUR 458 million, up +3.0 per cent compared to the first half of 2010. The increase mainly came from Managed Services, up +6.6 per cent and HTTS, up +7.0 per cent, reflecting the orders which materialized in the Public Sector for these two activities. A slight growth in Medical BPO came from higher volumes in medical services delivered on behalf of major customers. In Systems Integration, revenue was down -1.5 per cent, mainly in the public sector. Atos Worldline operating margin was EUR 69 million, representing 15.9 per cent of revenue, compared to 16.6 per cent in the first half of 2010. Revenue grew +3.4 per cent to EUR 435 million. Revenue in electronic payments was up +7.3 per cent due to higher volumes, e-Services was up +4.0 per cent with the ramp up of the Electronic tickets (Efine) contract in France. As already mentioned, the activity in Financial Markets strongly declined by –22.0 per cent. In Germany/CEMA, operating margin increased to EUR 13 million, representing 5.4 per cent of revenue, with an improvement both in Germany and in CEMA. The increase came from Systems Integration in Germany which benefited from higher revenue and the positive effect of the TOP Program, both in Lean management and off-shoring. 8 / 49 Revenue reached EUR 240 million, representing a decline of -0.8 per cent. Revenue in Germany had a solid growth of +4.6 per cent to EUR 198 million. Revenue in CEMA declined by -20.5 per cent due to the resizing of this geography in anticipation of the acquisition of SIS. Spain returned as planned to a positive operating margin even though the economic environment remained difficult. This improvement came from the reinforcement in management of fixed price projects, and the adjustment of the cost base, including staff restructuring. Revenue reached EUR 155 million, down -1.9 per cent compared to the first half of 2010 and shows signs of stabilization. More particularly, Systems Integration, representing 73 per cent of total revenue, returned to a slight growth of +0,4 per cent, despite price pressure continuing in sectors such as Telecom and Energy & Utilities. In Other Countries, operating margin was EUR 22 million, representing 11.7 per cent compared to 10.5 per cent in the first half of 2010. The improvement came both from Asia and Americas, mainly in Managed Services with the roll-out of the global delivery model and a reduction of indirect costs. Revenue reached EUR 191 million, down -3.2 per cent compared to the first half of 2010 which benefited from additional revenues from the Winter Olympic Games of Vancouver and the Asian Games. Revenue increased in South America in Systems Integration with new projects in the Telecom sector. Corporate Central costs continued to decrease, benefiting from the effect of Lean Management and the Added Value Analysis (AVA). The cost of Global Functions (Global Delivery Lines and Corporate Central), totalled EUR 28 million compared to EUR 39 million for the first half of 2010. Global Delivery Lines central costs are recharged to the GBU as of the second half of 2010, which explains the change between the first half of 2011 and the first half of 2010. 9 / 49 2.4 Performance by industry sector The Group is organized in the five industry sectors described hereunder: Manufacturing, Retail & Transportation is the first market with 28 per cent of Group total revenue. This sector stands at EUR 693 million for the first semester of 2011, which is almost stable compared to last year at the same period. Revenue from the Top 10 accounts reached EUR 201 million representing 29 per cent of the sector. The performance of these accounts is stable compared to the first half of 2010. Main customers are Philips in the Netherlands, Renault and Peugeot in France. Public Sector & Health is now the second market with 24 per cent of revenue very close to the Financial Services market. This sector stands at EUR 585 million for the first half of 2011, which is roughly stable compared to the first half of 2010. Revenue from the Top 10 accounts reached EUR 320 million representing 55 per cent of the sector. Financial Services represents 23 per cent of revenue. This sector stands at EUR 567 million in progress of +1.2 per cent compared to the first half of 2010. Revenue from the Top 10 accounts reached EUR 297 million representing 52 per cent of the sector. The performance of these accounts represents a +8.3 per cent growth compared to last year. Main customers are BNP Paribas in France and Atos Wordline, ING in Netherland and Atos Wordline, Achmea in Netherland and Standard Chartered Bank in Asia. Telecoms & Media represented 15 per cent of total Group revenue. This sector stands at EUR 379 million, which was a decrease of -2.3 per cent compared to the first half of 2010. This sector is the most concentrated with revenue coming from the Top 10 accounts reaching EUR 275 million and representing 73 per cent of the sector. Main customers are KPN, France Telecom, Vodafone and SFR in Telecoms submarket and the International Olympic Committee (IOC) in Services. Energy & Utilities’ revenue amounted to 10 per cent of Group revenue. This sector stands at EUR 252 million showing a decrease of -6.2 per cent compared to the first half of 2010. Revenue from the Top 10 accounts reached EUR 177 million representing 70 per cent of the sector The performance of these accounts represents a decrease of -6.4 per cent compared to previous year mainly due to Delta, Nuon and Schlumberger. Main customers in this sector are EDF, GDF, Schlumberger and Total. 10 / 49 2.5 Commercial activity The Group order entries for the first half of 2011 totalled EUR 2,497 million, representing a book to bill ratio of 101 per cent. Book to bill was 103 per cent for cyclical activities (Consulting and Systems Integration) and 99 per cent for recurring businesses (Managed Services, HTTS and Medical BPO). New contracts and renewals were signed during the second quarter of 2011. More particularly, we have completed the signature of new Managed Services contracts in both public and private sector in the United-Kingdom and in the banking sector in Germany. We have renewed our contracts with Achmea in the Netherlands and with Redcats in France. Important deals have also been signed in Systems Integration in France, and in the HTTS area we signed several deals outside the Atos Worldline scope, according to our strategy of rolling out these offerings on new geographies by leveraging our customer base. This was the case with Axa and France Telecom in France, and with Iberia in Spain. At the end of the first half of 2011, the full backlog was EUR 7,5 billion representing 1.5 years of revenue, flat compared to 31 December 2010, and up +3.3 per cent compared to 30 June 2010. The full qualified pipeline at 30 June 2011 was EUR 2.7 billion, flat compared to 31 December 2010 and up +6.5 per cent compared to 30 June 2010. 2.6 Human Resources The total number of Group employees was 47,826 at the end of June 2011, slightly down compared to 48,278 at the end of December 2010. The number of direct employees was almost flat over the first half of 2011 with a total of 43,438 at the end of June 2011. The number of indirect staff continued to decrease to 4,388 (9.2 per cent of total staff), down -3 per cent compared to 4,522 (9.4 per cent of total staff) at the end of December 2010. 3,105 employees were recruited, up +25 per cent compared to the first half of 2010. During the first half of the year, attrition remained under control at 11 per cent. As planned, dismissals and restructuring concerned 902 staff. Staff increased in the United Kingdom, principally driven by the start of a new Medical BPO contract. Staff decreased in the Netherlands and in Spain in order to align the level of staff with revenue, and in France as a result of the actions to improve productivity. Staff in the emerging countries totalled 7,820 at the end of June 2011, representing 16 per cent of total staff, with a majority located in India. 11 / 49 3. CREATION OF A IT LEADER The Atos Extraordinary Shareholders Meeting held on 1 July 2011 approved the acquisition of Siemens IT Solutions and Services. The Shareholders have in particular voted in favour of the following resolutions: Approval of the contribution by Siemens to Atos of Siemens IT Solutions and Services. As consideration for the contribution, Siemens has received shares of Atos representing 15 per cent of the share capital of Atos as well as bonds convertible into new or existing shares of Atos representing a nominal amount of 250 million Euros, and a cash payment of 176.6 million Euros. Dr. Roland Busch, Member of the Managing Board of Siemens AG, has been appointed member of the Board of Directors of Atos. He will be a member of the Audit Committee. The change of company name from Atos Origin to Atos. The deal creates a new company with proforma 2010 annual revenues of EUR 8.7 billion and 78,500 employees across 42 countries. Ranked in the top ten global IT services providers; number five in managed services worldwide and the number one European player in Europe, the new company is a powerful combination of two highly complementary organizations. Together as Atos, they create a leader in foundation and business critical IT services that will accelerate growth. In managed services, the acquisition of Siemens IT Solutions and Services more than doubles the capability and capacity of Atos to position it as one the leaders in cloud computing with 30 major data centres, 900,000 SAP users and management of more than 90,000 servers globally. The deal reinforces the commitment of Atos to innovation and accelerates its strategy to further grow its business in transactional services. Through joint go-to-market plans and joint investment programs with Siemens, Atos will have more opportunity to extend its successful Atos Worldline business to new markets, geographies and clients. 3.1 Deal structure reminder 3.1.1 Contributor Siemens Beteiligungen Inland GmbH ("Siemens Inland"), a wholly owned subsidiary of Siemens AG. 3.1.2 Assets contributed The contribution consists of one share of Siemens IT Solutions and Services GmbH representing 100% of the share capital and voting rights of this company. The company's portfolio ranges from consulting, software development and deployment to systems integration and the comprehensive management of IT infrastructures and applications. The clients of the company are comprised of Siemens on the one hand and external clients, on the other hand. 3.1.3 Value of the Contribution EUR 814 million, subject to adjustments, as described in section A.2.1.1.2 of the Prospectus issued on 8 June 2011. 3.1.4 Additional payment as part of the direct transfers Atos agreed to make an extra payment of EUR 26.4 million to Siemens’ subsidiaries for the direct transfer of certain assets located in China, the United Arab Emirates, Turkey and in Austria (see section A.2.1.1.1 (b) “Direct transfers” of the Prospectus issued on 8 June 2011). 12 / 49 3.1.5 Consideration for the Contribution In consideration for the Contribution, Siemens Inland received: 12,5 million new ordinary shares in Atos, fully paid-up, with a par value of one euro each, issued by Atos pursuant to a share capital increase and bearing dividend entitlement as from the completion date of the Contribution, on 1 July 2011. EUR 400,2 million as a cash payment. 3.1.6 Settlement of Cash Payment and Issuance of Bonds On the completion date of the Contribution, Atos issued 5,4 million bonds convertible and/or exchangeable into new or existing shares, with an aggregate nominal value of EUR 250 million to Siemens Inland at a subscription price of EUR 250 million. This subscription price was set-off against the cash payment owed by Atos to Siemens Inland in consideration for the Contribution, leaving an amount of EUR 150,2 million, paid in cash by Atos to Siemens Inland on the completion date of the Contribution. 3.2 Partnership for innovation and business growth The relationship between Atos and Siemens has three dimensions. Siemens today becomes an Atos shareholder with a 15% stake and the biggest Atos client. In addition the two companies have formed a strategic global partnership to jointly develop new IT products and solutions for which both parties are committed to investing 50 million Euros each. This strategic partnership will enable collaboration on large bids and joint R&D efforts in key markets to strengthen innovation and secure new business opportunities across all markets. 3.3 Atos – already operational for further margin improvement Following the success of the six month integration program, which was set up to select the best practices from both companies, to identify the new portfolio and to align core operating processes, Atos is today operating as one company with a newly appointed executive committee. TOP² Program was immediately initiated and follows the successful TOP Program launched in December 2008. TOP² consisting of more than 20 sub-program, will focus on increasing the profitability of the new company by optimizing the synergies of the company, both in terms of indirect costs (AVA, office locations, procurement, expenses,...) and direct costs (industrialization, lean,...). Extensive integration activities conducted pre closing confirmed all the expectations in terms of cost savings and synergies. As planned, the amount of EUR 250 million to cover the 1,750 indirect staffs restructuring has been booked by Siemens in the SIS accounts. The social process is engaged and staff restructuring for G&A functions is well underway following the first added value analysis (AVA) implemented in Germany, North America and the UK. Departures are expected in Germany including Headquarters between September 2011 and the second half of 2012, and in the other countries in line with the efficiency improvement plan. 3.4 Atos – a new brand The brand “AtoS” has been created to strengthen market positioning and highlight the Company’s commitment to its clients and its corporate values – accountability, trust, operational competitiveness, service to clients, innovation, social well being and excellence. The Group continues to focus on its WellBeing@Work ambition, one of its most important programs. The priorities are: the working environment, recognition and reward of key talents, corporate responsibility and communication with stakeholders. In this regard, GRI (Global Reporting Initiative) granted Atos an A+ ranking. In addition, the Group has launched its “zero internal email” initiative and three countries (Brazil, UK, India) have entered the “Great Place to Work” competition. 13 / 49 3.5 Transactions with related parties No material transactions took place in the first half 2011. 3.6 Main risks and uncertainties for the second half 2011 The company conducted a review of risks that could have a material adverse effect on its business, its financial situation or its results (or on its ability to achieve its objectives). The risks set forth below complement those presented in the Reference Document of Atos relating to the fiscal year ended 31 December 2010 filed on 1st April 2011 with the Autorité des Marchés Financiers (AMF) under number D.11-0210 and its update filed with the AMF on 8 June 2011. 3.6.1 Atos may not achieve the expected synergies of the Transaction If Atos does not achieve the expected synergies of the acquisition, the profits of the acquisition will be lower than planned, and the operating profit and the financial situation will in turn be affected. Atos may not succeed in achieving the potential synergies for multiple reasons, in particular the difficulties with the integration process or the materialization of risks linked to the IT services activity. 3.6.2 Risk of dependency vis-a-vis certain customers The acquisition is directly related to the conclusion between Atos and Siemens of a managed operations and systems integration agreement for a duration of seven years and an amount of EUR 5.5 billion. Siemens therefore became the largest customer of Atos and represents an important source of revenue for Atos. This new commercial relationship therefore reveals a new risk of dependency vis-a-vis Siemens. 3.6.3 The completion of the acquisition has a material effect on the shareholder structure of Atos Following the acquisition, Siemens holds an interest of approximately 15 % and becomes the second largest shareholder of Atos. Siemens is in a position to influence the strategy of Atos. 3.6.4 The completion of the acquisition could affect the share price of Atos Given the importance of the transaction, the price of the Atos shares could be adversely affected. 3.6.5 Operational difficulties with integration could arise The integration of Atos and the SIS Group is a considerable challenge in terms of business management, in particular as regards the size and the scope of the activities acquired. No assurance can be given as to the fact that the expected advantages of this integration will materialize in accordance with forecasts or within the planned time periods, nor that they will materialize effectively, nor even that the acquisition will not harm the activities of Atos. The success of the acquisition depends upon the collaboration of the teams in order to determine and to implement a global strategy for the new group and upon the proper integration of commercial and technical teams. Atos may encounter difficulties or delays in the implementation of complementary activities linked to the acquisition and may not achieve the expected development goals. The new group may suffer loss of customers or difficulties in converging technical platforms, which could have a material adverse effect on Atos, its activity, financial situation, results, prospects, as well as on the price of Atos shares. The profitability of the acquisition depends upon the necessity, for the new group, to identify and implement as quickly as possible the complementarities between the Atos activities and the contributed activities. Poor management of this constraint could entail a drop in activity and in profitability for the new group. 14 / 49 The new group set up a structure specifically to pilot the integration of the contributed activities within the Atos Group, covering all commercial aspects, research and development, applied development, human resources, finances and information systems. 3.6.6 Atos has not conducted a complete due diligence exercise prior to the acquisition. Consequently, Atos may have to face unknown liabilities likely to have a material adverse effect on Atos Atos has only used the information provided by Siemens, including accounting and financial information, and has not verified the reliability of the information regarding the SIS Group given in the Prospectus relating to the acquisition of SIS. Atos has not conducted a complete due diligence exercise nor did it hold in-depth discussions with management or auditors of the SIS Group prior to the fixing of the terms of the acquisition. Contacts with the management of Siemens have allowed Atos to obtain supplementary clarification but it cannot ensure information made available. Consequently, following completion of the acquisition, Atos may have to face liabilities of which it has no knowledge to date and which could have an adverse impact on the activities, the financial situation, the profits and/or the prospects of the group as well as on the share price of Atos. the quality and the completeness of documents and 15 / 49 4. OUTLOOK FOR THE SECOND HALF 2011 The following objectives relate to the year 2011 which includes 12 months of Atos and 6 months of SIS acquired on 1st July 2011. 4.1 Operating margin Further to the integration plan launched during the first half which is ahead of schedule, the Group increases its full year guidance to 6.2 per cent operating margin rate. 4.2 Revenue As planned, the business reviews with the new GBUs were completed in July. The Group confirms the range of EUR 6.8 to 6.9 billion communicated in the contribution document issued on 8 June 2011, under the assumption that all transactional scope is transferred on 1st July 2011. New entities such as China, Turkey, Russia and others were not transferred at the date of closing on 1st July and will be contributed not earlier than the fourth quarter, lowering 2011 revenue by circa EUR 50 million. Therefore, considering the mid-point of the range, the Group targets a statutory revenue for 2011 around EUR 6.8 billion. 4.3 Free cash flow The Group confirms the guidance for the free cash flow* representing an increase of 20 per cent compared to the level reached by Atos stand alone in 2010, leading to around EUR 170 million. (*) A working capital required by the new conditions of collection on the Siemens IT contract will be created progressively during the second half of 2011. The estimated amount is EUR 125 million and has been paid by Siemens on 1st July 2011. 16 / 49 5. CAPITAL EVOLUTION 5.1 Basic data Atos Origin shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. 5.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA/SRD : 69,976,601 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext ATO Reuters ATOS.PA AFP ATO Thomson Finance ATO FR Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services 17 / 49 5.2 Free-float evolution The free-float of the Group shares exclude stakes exceeding 5% of the issued capital of the Group, namely the main shareholder, Financière Daunou 17 (PAI Partners) owning 25,0% of the Group share capital on 30 June 2011 and 21.2% on 1st of July, following the new ordinary shares issuance, as described in Note 19 “Subsequent events” in section 8.3 “Notes to the half-year condensed consolidated financial statements”. Siemens, owning 15.1% of the Group share capital is excluded from the free-float from the 1st of July 2011. Any other shareholder owns or disclosed to own more than 5% of the issued capital of the Group. Stakes owned by the employees and the management and treasury stock are excluded from the free-float. Shares%Shares%Shares%Financière Daunou 17 17,442,839 21.2%17,442,83925.0%17,442,83925.0%Siemens 12,483,153 15.1%Board of Directors 14,640 0.0%14,6400.0% 14,640 0.0%Employees 2,375,751 2.9%2,375,7513.4%2,523,6053.6%Treasury stock 202,370 0.2%202,3700.3%253,5510.4%Free-float 49,941,001 60.6%49,941,00171.3%49,679,44271.0%Total 82,459,754 100.0% 69,976,601 100.0% 69,914,077 100.0%1st July 201130 June 201131 December 2010 5.3 Stock ownership evolution Principal changes in the ownership of the Group’s shares during the first half of 2011 have been as follows: Shares%Shares%Shares%Financière Daunou 17 17,442,839 21.2%17,442,83925.0%17,442,83925.0%Siemens 12,483,153 15.1%Pardus 1,321,600 1.6%1,321,6001.9%1,821,8692.6%FMR Llc 3,498,744 4.2%3,498,7445.0%3,498,7445.0%Board of Directors 14,640 0.0%14,6400.0% 14,640 0.0%Employees 2,375,751 2.9%2,375,7513.4%2,523,6053.6%Treasury stock 202,370 0.2%202,3700.3%253,5510.4%Public 45,120,657 54.7%45,120,65764.5%44,358,82963.4%Total 82,459,754 100.0%69,976, 601100.0%69,914, 077100.0%Registered shares 14,167,866 17.2%1,684,7132.4%1,403,0262.0%Bearer shares 68,291,888 82.8%68,291,88897.6%68,511,05198.0%Total 82,459,754100.0%69,976,601100.0%69,914,077100.0%30 June 201131 December 20101st July 2011 18 / 49 6. FINANCIAL REVIEW 6.1 Income statement The Group reported a net income (Attributable to owners of the parent) of EUR 99.6 million for the half year 2011, which represents 4.0% of Group revenues of the period. The normalised net income before unusual, abnormal and infrequent items (net of tax) for the period was EUR 101.5 million, representing 4.1% of Group revenues of the period, in increase by + 3.2% compared with last year. (in EUR million)6 months ended 30 June 2011% Margin6 months ended 30 June 2010% MarginOperating margin 166.26.7%150.16.0%Other operating income / (expenses)(5.8)(54.2)Net financial income / (expenses)(22.6)(10.0)Tax charge (38.9)(23.8)Non controlling interests and associates1.0(2.1)Netincome–Attributabletoownersoftheparent99.64.0%60.02.4%Normalisednetincome–Attributabletoowners of the parent (*)101.54.1%98.33.9%(*) Defined hereafter3.8%Operating income160.46.5%95.9 6.1.1 Operating margin Income and expenses are presented in the Consolidated Income Statement by nature to reflect the specificities of the Group’s business more accurately. Under the line item presenting revenues, ordinary operating expenses are broken down into staff expenses and operating expenses. These two captions together are deducted from revenues to obtain operating margin, one of the main Group business performance indicators. Operating margin represents the underlying operational performance of the on-going business and is explained in the operational review. 6.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of EUR 5.8 million in June 2011, mainly composed of restructuring expenses for EUR 24.1 million, Siemens IT Solutions and Services integration costs for EUR 16.3 million and a profit linked to pensions for EUR 32.4 million. Atos recognised a profit of EUR 32.4 million in other operating income in respect of the change in future pension indexation references for two of its principal pension plans in the UK. Going forward, a significant proportion of UK pensions will be indexed based on Consumer Price Index (CPI) instead of Retail Price Index (RPI), which was previously used. As CPI is expected to provide less pension revaluation than RPI in the long term, estimations of pension liabilities have been reduced accordingly. The change was communicated to members of the two plans in the first semester 2011. The main GBUs contributing to other operating income and expenses are United Kingdom for EUR +32.3 million, Corporate for EUR -16.0 million, France for EUR -7.8 million, Spain for EUR -7.9 million and Netherlands for EUR -3.4 million. In June 2010, an impairment expense of EUR 25.0 million had been recorded on Iberia cash generating unit following a deteriorating economic environment in Spain. 19 / 49 6.1.3 Net financial expense Net financial expense amounted to EUR 22.6 million for the period (compared to EUR 10.0 million in 2010) and is composed of: Net cost of financial debt amounted to EUR 8.5 million for the period at the same level as last year, coming from the evolution of net interest expenses which are made up of the following elements: o The average gross borrowing which was EUR 297.1 million bearing an average interest rate of 2.91%, o The convertible bonds OCEANE which outstanding average amount was EUR 213.6 million bearing an effective interest rate of 6.68% computed in accordance with IFRS, and o The average net cash which was EUR 350.8 million generating a financial income at an average interest rate of 0.20%. Non-operational financial costs amounted to EUR 14.1 million compared to EUR 1.5 million in June 2010 and were mainly composed of pension financial related costs (EUR 5.9 million), foreign exchange expense of EUR 4.5 million (EUR 1.1 million in June 2010) and a hedging loss for EUR 2.1 million compared to a profit of EUR 5.4 million in June 2010. 6.1.4 Corporate tax The tax charge per June 2011 is EUR 38.9 million including CVAE (Cotisation sur la Valeur Ajoutée des Entreprises) with a profit before tax of EUR 137.8 million, resulting in an Effective Tax Rate (ETR) of 28.2% by applying the normalised full year ETR of 31.4%, subsequently adjusted for the tax impact of discrete items. The calculation of the normalised ETR includes all the entities of the Atos Group prior to the acquisition of Siemens IT Solutions and Services on July 1st. 6.1.5 Non controlling interests Non controlling interests include shareholdings held by joint venture partners and other associates of the Group and amounted to EUR -1.0 million in the first half 2011. In June 2010, they were mainly located in Atos Worldline Processing services in Germany (42%) until the 24 June 2010, date of acquisition of these non controlling interests. 20 / 49 6.1.6 Normalised net income The normalised net income excluding unusual, abnormal and infrequent items (net of tax) is EUR 101.5 million, increasing by +3.2% compared with last year. (in EUR million) 6 months ended 30 June 20116 months ended 30 June 2010Net income - Attributable to owners of the parent99.660.0Other operating income and expenses(5.8)(54.2)Tax effect on other operating income and expenses(0.6)12.8Other unusual items on tax4.53.1Total unusual items – net of tax(1.9)(38.3)Normalised net income - Attributable to owners of the parent 101.598.3 21 / 49 6.2 Earnings per share (in EUR million)6 months ended 30 June 2011% Margin6 months ended 30 June 2010% MarginNetincome–Attributabletoownersoftheparent [a]99.64.0%60.02.4%Restatement4.54.4Netincomerestatedofdilutiveinstruments-Attributabletoownersofthe parent [b]104.14.2%64.42.6%Normalisednetincome–Attributabletoowners of the parent [c]101.54.1%98.33.9%Restatement4.54.4Normalised net income restated of dilutive instruments-Attributabletoownersofthe parent [d]106.04.3%102.74.1%Average number of shares outstanding [e] 69,691,788 69,165,080 Impact of dilutive instruments 7,041,694 6,658,077 Diluted average number of shares [f] 76,733,482 75,823,157 (In EUR)Basic EPS [a] / [e]1.430.87Diluted EPS [b] / [f]1.360.85Normalised basic EPS [c] / [e]1.461.42Normalised diluted EPS [d] / [f]1.381.35 Potential dilutive instruments comprise stock subscription (equivalent to 1,626,923 options) and convertible bonds (equivalent to 5,414,771 shares). The convertible bonds are the only financial instruments which generate a restatement of net income used for the diluted EPS calculation. The restatement corresponds to the interest expenses relating to the liability component of this instrument net of deferred tax (EUR 4.5 million). Normalised basic and diluted EPS reach respectively EUR 1.46 (EUR 1.42 in June 2010) and EUR 1.38 (EUR 1.35 in June 2010) and grow over the period respectively by +2.8% and +2.2%. 22 / 49 6.3 Cash flow and net debt The Group net debt stands at EUR 91.0 million at the end of June 2011, thus representing a improvement in net cash flow of EUR 28.1 million compared with EUR 119.1 million of net debt at the end of June 2010. (in EUR million)6 months ended 30 June 20116 months ended 30 June 2010Operating Margin before Depreciation and Amortisation (OMDA)241.0240.2Net capital expenditures(72.3)(72.8)Change in working capital requirement51.71.2Cash from operation (CFO)220.4168.6Taxes paid(21.9)(27.3)Net cost of financial debt paid(8.5)(8.5)Reorganisation in other operating income (34.7)(47.0)Rationalisation in other operating income (20.1)(22.4)Net financial investments (*)(8.6)1.7Dividends paid to non controlling interests-(4.3)Purchase and sale of treasury stock and common stock issues1.51.9Other changes (**)(45.0)13.3Free Cash Flow83.176.0Net material (acquisitions) / disposals-(55.7)Dividends paid to owners of the parent(34.9)-Change in net debt (cash)48.220.3Opening net debt139.2139.4Closing net debt91.0119.1(**) "Other changes" include translation differences, profit-sharing amounts payable to French employees transferred to debt, disposal of operational assets, other operating income with cash impact (including integration costs and excluding reorganisation and rationalisation) and other financial items with cash impact.(*) Long term deposits, and acquisitions / disposals with a price not exceeding 0,15% of Group revenue Cash from Operations (CFO) stands at EUR 220.4 million and increased by EUR 51.8 million compared to last year. This increase was due to the further improvement of working capital for EUR 50.5 million in a context of stabilization of the net capital expenditure. OMDA was at EUR 241.0 million, at the same level as the first half of 2010, representing 9.7% of revenues against 9.6% in June 2010. OMDA in June 2010 benefited from the disposal of a mainframe in Germany for EUR 10.0 million. The positive change in working capital requirement of EUR 51.7 million (higher than last year by EUR 50.5 million) is the result of another year of tight monitoring of the outstanding receivables in a context of delayed payment from large customers and more particularly in the Public Sector. As a result, the DSO ratio slightly increased from 58 days in June 2010 to 61 days at the end of June 2011. In the meantime, the DPO ratio increased to 86 days. Capital expenditures remain stable compared to the first half 2010 at EUR 72.3 million representing 2.9% of revenue. As part of the TOP Program, the investments of the Group have been continuously monitored through a reinforced selection and optimization. Cash out related to taxes paid reached EUR 21.9 million, decreasing by EUR 5.4 million compared with last year. The cost of financial debt paid (including convertible bond) is stable for the period. Cash outflow linked to reorganisation and rationalisation costs represented EUR 54.8 million, in line with the plan of the period. 23 / 49 Net financial investments related to a loan to the Dutch pension fund for EUR 3.9 million and the contribution to the incorporation of joint ventures: Buyster with French mobile telco operators for Atos Worldline France for EUR 2.6 million, and ZTE, a leading ERP provider in China for EUR 4.3 million. Other changes of EUR -45.0 million mainly correspond to: Other operating expenses excluding reorganisation and rationalisation mainly composed of : the integration costs of the acquisition of the IT services division of Siemens on July 1st 2011 for EUR 16.3 million, and o a recovery payment to Dutch pension plan (EUR 3.6 million); The negative exchange rate effect on net debt (EUR 9.4 million); Miscellaneous financial expenses (EUR 9.5 million); and Profit-sharing amounts payable to French employees transferred to debt (EUR -5.8 million). As a result, the free cash flow (FCF) generated during the first half 2011 was EUR 83.1 million Following the resolution approved by the shareholders during the Annual General Meeting held on June 1st 2011, the Group paid a dividend of EUR 34.9 million to its shareholders. 6.4 Parent company results The profit before tax of the parent company amounts to EUR 27.8 million for the end of June 2011, compared with EUR 92.1 million for the first semester 2010. 24 / 49 7. HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7.1 Interim consolidated income statement (in EUR million)Notes6 months ended 30 June 20116 months ended 30 June 201012 months ended 31 December 2010Revenue Note 22,476.42,494.25,020.6Personnel expensesNote 3(1,399.5)(1,434.8)(2,809.5)Operating expensesNote 4(910.7)(909.3)(1,873.7)Operating margin166.2150.1337.4% of revenue6.7%6.0%6.7%Other operating income and expensesNote 5(5.8)(54.2)(137.3)Operating income160.495.9200.1% of revenue6.5%3.8%4.0%Net cost of financial debt(8.5)(8.5)(17.8)Other financial expenses(21.4)(24.4)(35.1)Other financial income7.322.928.8Net financial incomeNote 6(22.6)(10.0)(24.1)Net income before tax137.885.9176.0Tax chargeNote 7(38.9)(23.8)(57.8)Gain/(Losses)frominvestmentsaccounted for using the equity method, net(0.3)--Net income98.662.1118.2Of which:- Attributable to owners of the parent99.660.0116.1- Non controlling interests(1.0)2.12.1(in EUR and number of shares)Netincome-Attributabletoordinaryequity holders of the parentNote 8Weighted average number of shares 69,691,78869,165,08069,334,351Basic earnings per share1.430.871.67Dilutedweightedaveragenumberofshares 76,733,48275,823,15775,949,131Diluted earnings per share1.360.851.64 25 / 49 7.2 Interim consolidated statement of comprehensive income (in EUR million)6 months ended 30 June 20116 months ended 30 June 201012 months ended 31 December 2010Net income 98.662.1118.2Other comprehensive incomeCash flow hedging 3.81.71.116.4(47.6)(105.5)(39.4)78.451.6(7.8)(0.1)23.6Total other comprehensive income(27.0)32.4(29.2)Total comprehensive income for the period71.694.589.0Of which:- Attributable to owners of the parent72.892.386.4- Non controlling interests(1.2)2.22.6Exchange differences on translation of foreign operationsDeferred tax on items recognised directly on equityActuarial gains and losses generated in the period on defined benefit plan 26 / 49 7.3 Interim consolidated statement of financial position (in EUR million)Notes30 June 201131 December 201030 June 2010ASSETSGoodwillNote 91,578.11,609.91,556.4Intangible assets83.776.076.6Tangible assets367.5396.4394.9Non-current financial assetsNote 10255.0230.5147.7Non-current financial instruments0.80.30.2Deferred tax assets308.9321.8286.4Total non-current assets2,594.02,634.92,462.2Trade accounts and notes receivablesNote 111,293.71,232.31,345.4Current taxes12.213.08.0Other current assets223.9174.6207.3Current financial instruments2.62.17.6Cash and cash equivalentsNote 12596.7422.2430.9Total current assets2,129.11,844.21,999.2Total assets4,723.14,479.14,461.4(in EUR million)30 June 201131 December 201030 June 2010LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock69.969.969.7Additional paid-in capital1,335.41,333.91,330.2Consolidated retained earnings306.6208.4236.5Translation adjustments(141.6)(102.2)(75.0)Netincomeattributabletotheownersofthe parent99.6116.160.0Equityattributabletotheownersoftheparent1,669.91,626.11,621.4Non controlling interests4.25.43.5Total shareholders’ equity1,674.11,631.51,624.9ProvisionsforpensionsandsimilarbenefitsNote 13433.7501.0422.9Non-current provisionsNote 1464.496.2113.9BorrowingsNote 15502.9508.6506.7Deferred tax liabilities108.298.562.7Non-current financial instruments0.91.51.7Other non-current liabilities13.813.713.3Total non-current liabilities1,123.91,219.51,121.2Trade accounts and notes payablesNote 16604.4498.7528.1Current taxes41.132.638.4Current provisionsNote 1484.4105.099.2Current financial instruments2.71.94.6Current portion of borrowingsNote 15184.852.743.3Other current liabilitiesNote 171,007.7937.21,001.7Total current liabilities1,925.11,628.11,715.3Totalliabilitiesandshareholders’equity4,723.14,479.14,461.4 27 / 49 7.4 Interim consolidated cash flow statement (in EUR million)Notes6 months ended 30 June 20116 months ended 30 June 201012 months ended31 December 2010Profit before tax137.885.9176.0Depreciation of assetsNote 496.7101.6213.7Net charge / (release) to operating provisions(27.1)(26.8)(41.5)Net charge / (release) to financial provisions2.95.67.6Net charge / (release) to other operating provisions(69.1)(63.7)(85.3)Impairment of long – term assets-25.025.0Net accrual to other operating expenses-22.6 - Losses / (gains) on disposals of fixed assets-2.43.9Net charge for equity-based compensation4.45.611.6Losses / (gains) on financial instruments2.4(0.2)0.5Net cost of financial debtNote 68.58.517.8Cash from operating activities before change in working capital requirement, financial interest and taxes156.5166.5329.3Taxes paid(21.9)(27.3)(61.5)Change in working capital requirement51.71.253.2Net cash from/ (used in) operating activities186.3140.4321.0Payment for tangible and intangible assets(73.3)(81.7)(186.8)Proceeds from disposals of tangible and intangible assets1.08.910.6Net operating investments(72.3)(72.8)(176.2)Amounts paid for acquisitions and long-term investments (15.1)(24.3)(109.2)Cash and cash equivalents of companies purchased during the period-1.11.8Proceeds from disposals of financial investments6.54.25.5Cash and cash equivalents of companies sold during the period- - (0.1)Net long-term investments(8.6)(19.0)(102.0)Net cash from/ (used in) investing activities (80.9)(91.8)(278.2)Common stock issues on the exercise of equity-based compensation1.50.54.4Purchase and sale of treasury stock-1.42.9Dividends paid to owners of the parent(34.9)--Dividends paid to non controlling interest-(4.3)(4.5)Payment for acquisition of non controlling interests-(35.0)(35.0)New borrowingsNote 155.825.445.7New finance leaseNote 150.30.10.5Repayment of long and medium-term borrowingsNote 15(20.9)(24.8)(48.6)Net cost of financial debt paid(7.2)(2.9)(5.1)Other flows related to financing activitiesNote 15140.9(141.0)(139.9)Net cash from/ (used in) financing activities85.5(180.6)(179.7)Increase/ (decrease) in net cash and cash 190.9(132.0)(136.9)Opening net cash and cash equivalents416.5532.9532.9Increase/ (decrease) in net cash and cash equivalentsNote 15190.9(132.0)(136.9)Impact of exchange rate fluctuations on cash and cash equivalents(13.6)28.820.5Closing net cash and cash equivalentsNote 15593.9429.7416.5 28 / 49 7.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At 1 January 201069,72069.71,329.7302.2(153.4)(1.3)3.91,550.811.01,561.8* Common stock issued 210.50.50.5* Appropriation of prior period net income3.9(3.9) - - * Dividends paid to non-controlling interests - (3.9)(3.9)* Equity-based compensation5.65.65.6* Changes in treasury stock1.41.41.4* Other(29.2)(29.2)(5.8)(35.0)Transactions with owners210.00.5(18.3) - - (3.9)(21.7)(9.7)(31.4)* Net income 60.060.02.162.1* Other Comprehensive income(47.7)78.41.632.30.132.4Total comprehensive income for the period(47.7)78.41.660.092.32.294.5At 30 June 201069,74169.71,330.2236.2(75.0)0.360.01,621.43.51,624.9* Common stock issued 1730.23.73.93.9* Equity-based compensation6.06.06.0* Changes in treasury stock1.51.51.5* Other(0.8)(0.8)1.50.7Transactions with owners1730.23.76.7 - - - 10.61.512.1* Net income 56.156.156.1* Other Comprehensive income(33.8)(27.2)(1.0)(62.0)0.4(61.6)Total comprehensive income for the period(33.8)(27.2)(1.0)56.1(5.9)0.4(5.5)At 31 December 201069,91469.91,333.9209.1(102.2)(0.7)116.11,626.15.41,631.5* Common stock issued 630.01.51.51.5* Appropriation of prior period net income116.1(116.1) - - * Dividends paid to non-controlling interests(34.9)(34.9)(34.9)* Equity-based compensation4.44.44.4Transactions with owners630.01.585.6 - - (116.1)(29.0) - (29.0)* Net income 99.699.6(1.0)98.6* Other Comprehensive income9.7(39.4)2.9(26.8)(0.2)(27.0)Total comprehensive income for the period9.7(39.4)2.999.672.8(1.2)71.6At 30 June 201169,97769.91,335.4304.4(141.6)2.299.61,669.94.21,674.1 (in EUR million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests 29 / 49 8. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2011 8.1 Basis of preparation The 2011 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at 30 June 2011. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias/index_en.htm The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the 31 December 2010 financial statements and disclosed in the Group’s 2010 Reference Document. The interim consolidated financial statements for the six months ended 30 June 2011 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2010. The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after 1 January 2011: Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for First-time adopters; IAS 24 (revised) - Related Party Disclosures; Amendments to IAS 32 - Classification of Rights Issues; Amendments to various IFRS statements contained in the Annual Improvements to IFRS, following the IFRS improvement program of May 2010; IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments; Amendment to IFRIC 14 – Prepayments of a Minimum Funding Requirement. The impact of the other changes on the Group’s Financial Statements is limited. 30 / 49 The interim consolidated financial statements do not take into account: Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB) New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: o o Amendments to IFRS 1 - Severe Hyperinflation; o Amendments to IFRS 7 - Disclosures : Transfers of Financial Assets; o Amendments to IAS 12 - Deferred Taxes : Recovery of Underlying Assets; o o o o o o o Amendments to IAS 1 – Presentation of Items of Other Comprehensive Income; o Amendments to IAS 19 – Employee Benefits. IFRS 9 - Financial Instruments (replacement of IAS 39); IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IFRS 13 - Fair Value Measurement; IAS 27 (revised) - Separate Financial Statements; IAS 28 (revised) - Investments in Associates and Joint Ventures; The potential impact of these standards, amendments and interpretations on the consolidated financial statements is currently being assessed. 8.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: 8.2.1 Impairment of assets Goodwill and assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. 8.2.2 Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS 19, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. 8.2.3 Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. 31 / 49 8.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation Since 1st January 2011, there has been no significant change of scope. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. The Group operates in seven main Global Business Units as detailed below: Operating segments Activities France Benelux United Kingdom Worldline GCEMA Iberia Other countries Consulting, systems integration, managed services and Hi- Technology Transactional Services (including electronic payments and transactions) in France integration, managed services and Hi- Consulting, systems Technology Transactional Services (including electronic payments and transactions) in The Netherlands and Belux Consulting, systems integration, managed services, business process outsourcing and Hi-Technology Transactional Services (including electronic payments and transactions) in the United Kingdom Electronic payments and transactions in France, Belgium, Germany and India integration, managed services and Hi-Technology Systems Transactional Services (including electronic payments and transactions) in Germany, Switzerland, Poland, Austria, Greece, Turkey and South Africa Consulting, systems integration, managed services and Hi- Technology Transactional Services (including electronic payments and transactions) in Spain and Andorra integration, managed services and Hi- Consulting, systems Technology Transactional Services (including electronic payments and transactions) in China, Taiwan, Japan, Malaysia, Singapore, Indonesia, United States of America, India, Morocco, Dubai, Egypt, United Arab Emirates, Argentina, Brazil, Chile and Colombia Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from transactions with each external customer amount to less than 10 per cent of the Group’s revenue. 32 / 49 The operating segment information for the periods is as follows: External revenue by segment556.6440.6458.0434.7239.9155.0191.62,476.42,476.4%22.5%17.8%18.5%17.6%9.7%6.3%7.7%100.0%100.0%Inter-segment revenue25.117.93.64.826.62.153.0133.1(133.1) - Total revenue 581.7458.5461.6439.5266.5157.1244.62,609.5 - -(133.1)2,476.4Segment operating margin 20.433.234.369.312.91.322.4193.82.6(30.2)166.2%3.7%7.5%7.5%15.9%5.4%0.8%11.7%7.8%6.7%Total segment assets 710.1 801.7 723.2 712.3 305.8 212.0 269.0 3,734.1 71.2 3,805.3 External revenue by segment573.0459.3441.7420.2241.3158.1200.42,494.00.22,494.2%23.0%18.4%17.7%16.8%9.7%6.3%8.0%100.0%100.0%Inter-segment revenue25.314.82.55.523.02.952.6126.6(126.6) - Total revenue 598.3474.1444.2425.7264.3161.0253.02,620.60.2(126.6)2,494.2Segment operating margin 17.642.836.269.710.9(9.3)21.7189.6(8.1)(31.4)150.1%3.1%9.3%8.2%16.6%4.5%-5.9%10.8%7.6%6.0%Total segment assets712.2748.0747.6593.5327.3232.0318.23,678.857.33,736.1 12 months ended 31 December 2010 (in EUR million)Total Group External revenue by segment1,131.9937.7904.1866.7474.7299.6405.15,019.80.85,020.6%22.5%18.7%18.0%17.3%9.5%6.0%8.1%100.0%100.0%Inter-segment revenue52.829.86.711.747.64.8101.5254.9(254.9) - Total revenue 1,184.7967.5910.8878.4522.3304.4506.65,274.7 - 0.8(254.9)5,020.6Segment operating margin 44.792.477.1150.510.3(10.0)51.5416.5(16.3)(62.8)337.4%3.9%9.9%8.5%17.4%2.2%-3.3%12.7%8.3%6.7%Total segment assets 670.2 782.2 700.7 700.3 315.6 206.6 283.5 3,659.1 63.0 3,722.1 6 months ended 30 June 2010 France BeneluxUnited KingdomWorldlineGCEMASpainOther countriesTotal Operating segmentsGlobal Delivery LinesOther CorporateElimination6 months ended 30 June 2011 33 / 49 The reportable assets are reconciled to total assets as follows: Total segment assets3,805.33,722.13,736.1Tax Assets321.1334.8294.4Cash & Cash Equivalents596.7422.2430.9Total Assets4,723.14,479.14,461.46 months ended30 June 201012 months ended31 December 2010(in EUR million)6 months ended 30 June 2011 Note 3 Personnel expenses (In EUR million)6 months ended 30 June 2011% Revenue6 months ended 30 June 2010% RevenueWages and salaries (1,081.8)43.7%(1,107.0)44.4%Social security charges(315.3)12.7%(328.7)13.2%Tax, training, profit-sharing(24.4)1.0%(26.2)1.1%Equity-based compensation(4.4)0.2%(5.5)0.2%Net (charge) /release to provisions for staff expenses0.80.0%(1.1)0.0%Difference between pension contributions and net pension expense (*)25.6-1.0%33.7-1.4%Total(1,399.5)56.5%(1,434.8)57.5%(*) difference between total cash contributions made to the pensions funds and the net pension expense under IAS19 Equity based compensation The EUR 4.4 million charge recorded within operating margin for equity based compensation (EUR 5.5 million during the first half of 2010) is made of: EUR 0.3 million related to the Management and Long-Term Incentive plans (“MIP” and “LTI” plans) implemented in 2008 and in 2007, and EUR 4.1 million related to the stock options granted in previous years. Free share plans No new free share plan was set up during the first half of 2011. 2011 expense related to former LTI and MIP plans has been updated taking into account the number of free shares void following the departure of some beneficiaries from the Group. Total expense in operating margin related to free share plans during the semester is as follows: (In EUR million)6 months ended 30 June 20116 months ended 30 June 2010LTI 20080.10.2MIP 20080.10.8LTI 20070.10.2MIP 2007-0.2Total0.31.4 34 / 49 Stock option plans The Group recognised a total expense of EUR 4.1 million on stock options (EUR 4.1 million during the first half of 2010). Total expense in operating margin related to all stock option plans during the semester is as follows: (In EUR million)6 months ended 30 June 20116 months ended 30 June 201023 December 20080.30.726 March 20090.91.33 July 20090.91.64 September 20090.30.531 December 20101.7-Total4.14.1 Note 4 Operating expenses (In EUR million)6 months ended 30 June 2011% Revenue6 months ended 30 June 2010% RevenueSubcontracting costs direct(270.4)10.9%(264.0)10.6%Purchase hardware and software(114.5)4.6%(96.4)3.9%Maintenance costs(113.7)4.6%(108.6)4.4%Rent & Lease expenses(91.3)3.7%(100.1)4.0%Telecom costs(56.6)2.3%(62.1)2.5%Travelling expenses(55.7)2.2%(57.6)2.3%Company cars(39.2)1.6%(39.3)1.6%Professional fees (51.4)2.1%(47.5)1.9%Taxes & Similar expenses1.8-0.1%1.3-0.1%Others expenses(42.9)1.7%(40.4)1.6%Subtotal expenses (833.9)33.7%(814.7)32.7%Depreciation of fixed assets(96.7)3.9%(101.6)4.1%Net (charge) / release to provisions9.6-0.4%(5.7)0.2%Gains / (Losses) on Disp of Assets--(0.9)0.0%Trade Receivables write-off(2.2)0.1%(0.9)0.0%Capitalized Production12.5-0.5%14.5-0.6%Subtotal other expenses(76.8)3.1%(94.6)3.8%Total(910.7)36.8%(909.3)36.5% 35 / 49 Note 5 Other operating income and expenses (In EUR million)6 months ended 30 June 20116 months ended 30 June 2010Staff reorganisation(24.1)(16.1)Premises offices rationalisation1.8(13.5)Goodwill impairment - (25.0)Pensions 33.0 0.4Integration costs(16.3)-Other Items(0.2)-Total(5.8)(54.2) Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of EUR 5.8 million in June 2011, mainly composed of restructuring expenses for EUR 24.1 million, Siemens IT Solutions and Services integration costs for EUR 16.3 million and a profit linked to pensions for EUR 32.4 million in the United Kingdom. Atos recognised a profit of EUR 32.4 million in other operating income in respect of the change in future pension indexation references for two of its principal pension plans in the UK. Going forward, a significant proportion of UK pensions will be indexed based on Consumer Price Index (CPI) instead of Retail Price Index (RPI), which was previously used. As CPI is expected to provide less pension revaluation than RPI in the long term, estimations of pension liabilities have been reduced accordingly. The change was communicated to members of the two plans in the first semester 2011. The main GBUs contributing to other operating income and expenses are United Kingdom for EUR +32.3 million, Corporate for EUR -16.0 million, France for EUR -7.8 million, Spain for EUR -7.9 million and Netherlands for EUR -3.4 million. In June 2010, an impairment expense of EUR 25.0 million had been recorded on Iberia cash generating unit following a deteriorating economic environment in Spain. Note 6 Net financial income Net cost of financial debt (In EUR million)6 months ended 30 June 20116 months ended 30 June 2010Net interest expenses(9.3)(8.9)Interest on obligations under finance leases-(0.1)Gain/(loss) on disposal of cash equivalents0.80.5Net cost of financial debt(8.5)(8.5) 36 / 49 Other financial income and expenses (In EUR million)6 months ended 30 June 20116 months ended 30 June 2010Foreign exchange expense(4.5)(1.1)Fair value gain/(loss) on forward exchange contracts held for trading(2.1)5.4Discounting financial expenses(0.1)(0.3)Other income / (expenses) (7.4)(5.5)Other financial income and expenses(14.1)(1.5)Of which:- other financial expenses(21.4)(24.4)- other financial income7.322.9 Net financial expense amounted to EUR 22.6 million for the period (compared to EUR 10.0 million in 2010) and is composed of: Net cost of financial debt amounted to EUR 8.5 million for the period at the same level as last year, coming from the evolution of net interest expenses which are made up of the following elements: o The average gross borrowing which was EUR 297.1 million bearing an average interest rate of 2.91%, o The convertible bonds OCEANE which outstanding average amount was EUR 213.6 million bearing an effective interest rate of 6.68% computed in accordance with IFRS, and o The average net cash which was EUR 350.8 million generating a financial income at an average interest rate of 0.20%. Non-operational financial costs amounted to EUR 14.1 million compared to EUR 1.5 million in June 2010 and were mainly composed of pension financial related costs (EUR 5.9 million), foreign exchange expense of EUR 4.5 million (EUR 1.1 million in June 2010) and a hedging loss for EUR 2.1 million compared to a profit of EUR 5.4 million in June 2010. The net cost of financial debt was covered 19 times by operating margin, which met the requirement defined under the terms of Group syndicated loan contract: operating margin amount should be higher than four times the net cost of financial debt. Note 7 Income tax expenses The tax charge per June 2011 is EUR 38.9 million with a profit before tax of EUR 137.8 million, resulting in an Effective Tax Rate (ETR) of 28.2% by applying the full year normalised ETR of 31.4%, subsequently adjusted for the tax impact of discrete items. The calculation of the normalised ETR includes all the entities of the Atos Group prior to the acquisition of Siemens IT Solutions and Services on July 1st. Note 8 Earnings per share Basic and diluted earnings per share are reconciled in the table below. Potential dilutive instruments comprise stock subscription (equivalent to 1,626,923 options) and convertible bonds (equivalent to 5,414,771 shares). The convertible bonds are the only financial instruments which generate a restatement of net income used for the diluted EPS calculation. The restatement corresponds to the interest expenses relating to the liability component of this instrument net of deferred tax (EUR 4.5 million). The average number of stock options not exercised in June 2011 amounted to 9,405,793 shares. 37 / 49 (In EUR million and shares)6 months ended 30 June 20116 months ended 30 June 2010Net income - Attributable to owners of the parent [a]99.660.0Restatement4.54.4Net income restated of dilutive instruments - Attributable to owners of the parent [b]104.164.4Average number of shares outstanding [c] 69,691,788 69,165,080 Impact of dilutive instruments [d] 7,041,694 6,658,077 Diluted average number of shares [e]=[c]+[d] 76,733,482 75,823,157 Earnings per share in EUR [a]/[c]1.430.87Diluted earnings per share in EUR [b]/[e]1.360.85 Since July 1st, due to the acquisition of Siemens IT Solutions and Services, Atos issued: 12,483,153 new ordinary shares in Atos, fully paid-up, with a par value of one (1) euro each, and 5,382,131 bonds convertible and/or exchangeable into new or existing shares, with an aggregate nominal value of EUR 250.0 million to Siemens Inland at a subscription price of EUR 250.0 million. This transaction occurred subsequently to the closing and has a dilutive impact on the earnings per share calculation. Note 9 Goodwill (In EUR million)31 December 2010Acquisitions / DepreciationsOthersExchange rate fluctuations30 June 2011Gross value2,187.50.4-(41.7)2,146.2Impairment loss(577.6)--9.5(568.1)Carrying amount1,609.90.4 - (32.2)1,578.1 Goodwill are allocated to cash generating units (CGUs) that are then part of one of the operating segments disclosed in Note 2 as per IFRS 8 requirements. Impairment tests for interim financial reporting have been limited to: CGUs for which an event occurred during the semester giving an indication that their assets may be impaired, other “sensitive” CGUs at the end of June 2011, for which the recoverable amount of assets was close to their carrying values. During the semester, no impairment test was required. Over the first six months of 2011, the balance sheet of the Group has been significantly impacted by the effect of foreign exchange rates variations, specifically the GBP. The main consequence of the GBP variation has been the decrease of the net goodwill by EUR 18.7 million since December 2010. 38 / 49 Note 10 Non-current financial assets (In EUR million)30 June 201131 December 2010Pension prepayments220.8203.6Other (*)34.226.9Total255.0230.5 (*) "Other" includes loans, deposits, guarantees, investments in associates accounted for under the equity method and non consolidated investments. Note 11 Trade accounts and notes receivable (In EUR million)30 June 201131 December 2010Gross value1,323.21,259.6Transition costs25.325.9Provision for doubtful debts(54.8)(53.2)Net asset value1,293.71,232.3Prepayments(10.1)(6.4)Deferred income and upfront payments received(279.1)(262.9)Net accounts receivable 1,004.5963.0Number of days’ sales outstanding (DSO)6149 Note 12 Cash and cash equivalent (In EUR million)30 June 201131 December 2010Cash in hand and short-term bank deposit516.8342.4Money market funds 79.979.8Total596.7422.2 Depending on market conditions and short-term cash flow expectation, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 13 Pensions The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is EUR 212.9 million. The measurement of the liabilities is highly sensitive to long term interest rates, on which the discount rate to be used under IAS19 is based. Since reference discount rates for the Euro-zone and the UK have not moved significantly since 31 December 2010 plan liabilities have not been remeasured per end of June. Atos recognised a profit of EUR 32.4 million in other operating income in respect of the change in future pension indexation references for two of its principal pension plans in the UK. Going forward, a significant proportion of UK pensions will be indexed based on Consumer Price Index (CPI) instead of Retail Price Index (RPI), which was previously used. As CPI is expected to provide less pension revaluation than RPI in the long term, estimations of pension liabilities have been reduced accordingly. The change was communicated to members of the two plans in the first semester 2011. 39 / 49 In Belgium, the post retirement medical plan was closed leading to a settlement gain of EUR 2.3 million recorded in operating margin. Accounting entries for all other plans have been based on projections from 31 December 2010 actuarial valuations, adjusted for actual benefit or contribution payments. The change in pension provisions over the half year is therefore as follows: (In EUR million)30 June201131 December 2010Amounts recognised in financial statements consist of :Prepaid pension asset – post employment plans220,8203,6Accrued liability – post employment and other long term benefits(433,7)(501,0)Net amount recognised – Total(212,9)(297,4) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In EUR million)6 months ended 30 June 20116 months ended 30 June 201031 December 2010Operating margin(11.3)(10.2)(25.8)Other operating items33.0(0.1)0.4Financial result(5.9)(5.1)(6.4)Total (expense)/profit15.8(15.4)(31.8) Opening and closing positions reconcile as follows: (In EUR million)30 June201131 December 2010Net amount recognised at beginning of period(297,4)(240,2)Reclassification other current liabilities(0,2)(0,7)Net periodic pension cost – post employment plans and other long term benefits plans15,8(31,8)Benefits paid / Employer Contributions40,196,4Amounts recognised in Other Comprenensive Income16,4(105,7)Other 12,4(15,4)Net amount recognised at end of period(212,9)(297,4) Note 14 Provisions (In EUR million)31 December 2010ChargeRelease usedRelease unusedOther (*)30 June 2011CurrentNon- currentReorganisation35.69.4(19.0)(1.8)(0.1)24.124.1-Rationalisation65.00.2(19.2)(3.8)(0.4)41.824.017.8Project commitments24.65.9(5.4)(4.2)(0.5)20.520.5-Litigations and contingencies76.06.8(9.8)(8.4)(2.2)62.415.846.6Total provisions201.222.3(53.4)(18.2)(3.2)148.884.464.4 (*) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of consolidation. 40 / 49 Note 15 Borrowings CurrentNon-currentTotalCurrentNon-currentTotalFinance leases0.70.71.40.90.91.8Bank loans0.1281.4281.50.2286.6286.8Securitisation147.6 - 147.69.6 - 9.6Convertible bonds6.2207.4213.66.3206.7213.0Other borrowings30.213.443.635.714.450.1Total borrowings184.8502.9687.752.7508.6561.3 (In EUR million)30 June 201131 December 2010 Tangible assets held under finance leases had a net carrying value of EUR 1.4 million. Borrowings maturity (In EUR million)20122013201420152016>2016TotalBonds6.2---250.0-256.2Finance leases0.70.30.20.1--1.3Bank loans--271.0---271.0Other borrowings177.94.23.04.54.77.5201.8Bonds - Financial fees and discounting effect---- (42.6)- (42.6)As at 30 June 2011 long-term debt excluding bonds - financial fees and discounting effect184.84.5274.24.6212.17.5687.7As at 30 June 2011 long-term debt730.37.54.5274.24.6254.7184.8 As at 30 June 2010, there are no financial instruments on borrowings. Change in net debt over the period (In EUR million)30 June201131 December2010Opening net debt 139.2139.45.845.70.712.2(20.9)(48.6)(190.9)136.90.30.5-4.010.1(16.3)5.85.3Other flows140.9(139.9)Closing net debt 91.0139.2New borrowingsConvertible bondsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debtProfit-sharing amounts payable to French employees transferred to debtNew finance leases Long and medium-term debt of companies acquired during the period Net cash and cash equivalents (In EUR million)30 June201131 December2010596.7422.2(2.8)(5.7)Total net cash and cash equivalents593.9416.5OverdraftsCash and cash equivalents 41 / 49 During the interim period, a dividend of EUR 0,50 was paid to the shareholders. Note 16 Trade accounts and notes payable (In EUR million)30 June 201131 December 2010Trade payables600.4496.1Amounts payable on tangible assets4.02.6Total604.4498.7Number of days’ payable outstanding (DPO)8669 Trade accounts and notes payable are expected to be paid within one year. Note 17 Other current liabilities (In EUR million)30 June 201131 December 2010Advances and down payments received on client orders10.16.4Employee-related liabilities297.3278.3Social security and other employee welfare liabilities147.7139.3VAT payable179.7166.7Deferred income239.2217.3Other operating liabilities133.7129.2Total1,007.7937.2 Other operating liabilities are expected to be settled within one year, except for deferred income that is released in accordance with the particular arrangements of each contract. Note 18 Off-balance-sheet commitments Contractual commitments Up to 1 year1 to 5 yearsOver 5 yearsConvertible Bonds213.76.2207.4-213.0Bank loans290.60.1283.07.5286.8Finance leases1.30.60.7-1.8Recorded on the balance sheet505.67.0491.17.5501.6Operating leases: land, buildings, fittings608.492.2316.4199.8392.4Operating leases: IT equipment9.94.85.1-9.3Operating leases: other fixed assets66.632.034.6-66.8Non-cancellable purchase obligations (> 5 years) 20.620.50.1-15.9Commitments705.4149.5356.1199.8484.4Total1,211.0156.5847.2207.3986.0Financial commitments received (Syndicated Loan)920.0-920.0 - 920.0Total received920.0-920.0 - 920.0(In EUR million)Maturing30 June 201131 December2010 42 / 49 Commercial commitments (In EUR million)30 June 201131 December 2010Bank guarantees62.667.2 - Operational - Performance37.739.5 - Operational - Bid12.812.0 - Operational - Advance Payment10.514.6 - Financial or Other1.61.1Parental guarantees1,366.71,325.9 - Operational - Performance1,321.01,267.4 - Operational - Other Business Orientated45.758.5 - Financial or Other - - Pledges0.10.5Total1,429.41,393.6 For various large long term contracts, the Group provides parental or financial guarantees to its clients. These limited exposure guarantees amounted to EUR 1,429.4 million as at 30 June 2011, compared with 1,393.6 million as at 31 December 2010. Note 19 Subsequent events Atos Extraordinary Shareholders Meeting held on July 1st 2011 approved the acquisition of Siemens IT Solutions and Services by 99.99%, date of the acquisition. The Atos Extraordinary Shareholders Meeting has in particular approved the following resolutions: Approval of the contribution by Siemens to Atos of Siemens IT Solutions and Services. As consideration for the contribution, Siemens has received : o Approval of the contribution by Siemens to Atos of Siemens IT Solutions and Services. As consideration for the contribution, Siemens has received : 12,5 million new ordinary shares in Atos (15% of the share capital of Atos), fully paid- up, with a par value of one euro each, issued by Atos pursuant to a share capital increase and bearing dividend entitlement as from the completion date of the Contribution, on July 1st 2011, 5,4 million bonds convertible into new or existing shares of Atos representing a nominal amount of EUR 250.0 million, and a cash payment of EUR 176.6 million. o Dr. Roland Busch, Member of the Managing Board of Siemens AG, has been appointed member of the Board of Directors of Atos. The change of company name from Atos Origin to Atos. With a reference stock market price of EUR 33.18 used for the valuation of the share capital increase in the prospectus, the consideration of the contribution based on the three components mentioned above amounted to EUR 840.8 million. With a July 1st share price of EUR 38.65 used for the valuation of the share capital increase, the consideration of the contribution based on the three components mentioned above amounted to EUR 909.0 million. The deal creates a new company with proforma 2010, from January to December, annual revenues of EUR 8.7 billion and 78,500 employees across 42 countries. Ranked in the top ten global IT services providers, number five in managed services worldwide and the number one European player in Europe, the new company is a powerful combination of two highly complementary organizations. Together as Atos, they create a leader in foundation and business critical IT services that will accelerate growth. 43 / 49 In managed services, the acquisition of Siemens IT Solutions and Services more than doubles the capability and capacity of Atos to position it as one of the leaders in cloud computing with 30 major data centres, 900,000 SAP users and management of more than 90,000 servers globally. The deal reinforces the commitment of Atos to innovation and accelerates its strategy to further grow its business in transactional services. Through joint go-to-market plans and joint investment programs with Siemens, Atos will have more opportunity to extend its successful Atos Worldline business to new markets, geographies and clients. The two groups have entered into a commercial agreement for management and systems integration services with a value of EUR 5.5 billion and a term of seven years. By entering into an alliance, Atos and Siemens have also entered into a strategic partnership relating to innovation, providing in particular for the implementation of a cooperation policy that will allow an integrated and complementary solutions offering at the time of significant bids and an investment program of EUR 100.0 million in research and development. Atos is not in a position to disclose in this note all the information required by IFRS 3R. This is notably due to the absence of finalized financial statements for Siemens IT Solutions and Services as at 30 June 2011. Note 20 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on 26 July 2011. 44 / 49 9. DECLARATION BY THE PERSON RESPONSIBLE FOR THE UPDATE OF THE REFERENCE DOCUMENT I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the update of the Reference Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2011 half-year condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the Management Report here attached gives a faithful picture of the information herein, e.g. material events occurring during the first six months of the 2011 financial year and their impact on the half-yearly accounts, a description of the principal risks and uncertainties for the remaining six months of the year 2011. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the update of the Reference Document and examined the information in respect of the financial position and the accounts contained herein. Thierry BRETON Chairman and CEO Bezons, le 29 juillet 2011 45 / 49 10. STATUTORY AUDITORS’ REVIEW REPORT ON FIRST HALF-YEAR FINANCIAL INFORMATION FOR THE PERIOD ENDED 30 JUNE 2011 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meeting and in accordance with the requirements of article L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying (condensed) half-year consolidated financial statements of Atos S.A., for the period January 1 to June 30, 2011, the verification of the information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris, 27 July 2011 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Tristan Guerlain Christophe Patrier Jean-Pierre Colle Vincent Frambourt 46 / 49 11. APPENDIX 11.1 Forthcoming events 25 October 2011 Third quarter 2011 revenue 11.2 Disclaimers The half-year condensed financial statements were subject to a limited review by the statutory auditors. Group Business Units include France, United-Kingdom, Benelux (The Netherlands, Belgium and Luxembourg), Atos Worldline (French, German, Belgian and Indian subsidiaries), GCEMA (Germany, Central Europe with Austria, Poland, and Mediterranean countries and Africa which include South Africa, Greece, Turkey and Switzerland), Spain, and Other countries (South America including Argentina, Brazil, Chile, and Columbia, Asia Pacific including China, Taiwan, Malaysia, Singapore, Indonesia, and Japan, Middle East with United Arab Emirates and Dubai, North America with United States of America, as well as Major Events, India, Egypt, and Morocco). Revenue organic growth is presented at constant scope and exchange rates. The document contains further forward-looking statements that involve risks and uncertainties concerning the Group's expected growth and profitability in the future. Actual events or results may differ from those described in this document due to a number of risks and uncertainties that are described within the 2010 Reference Document filed with the Autorité des Marchés Financiers (AMF) on 1 April 2011 under the registration number: D11-0210 and its update filed on 8 June 2011. 11.3 About Atos Atos is an international information technology services company with annual 2010 proforma revenues of EUR 8.7 billion and 78,500 employees in 42 countries. Serving a global client base, it delivers hi- tech transactional services, consulting and technology services, systems integration and managed services. With its deep technology expertise and industry knowledge, it works with clients across the following market sectors: Manufacturing, Retail & Services, Financial Services, Energy & Utilities, Telecoms, Media & Technology, Public, Health & Transport. Atos is focused on business technology that powers progress and helps organizations to create their firm of the future. It is the Worldwide Information Technology Partner for the Olympic Games and is quoted on the Paris Eurolist Market. Atos operates under the brands Atos, Atos Consulting and Technology Services, Atos Worldline and Atos WorldGrid. For more information, visit: atos.net 11.4 Investor Relations contact Gilles Arditti Group Senior Vice-President Investor Relations and Financial Communication +33 (0) 1 73 26 00 66 gilles.arditti@atos.net 47 / 49 12. FULL INDEX 1. Financial highlights ........................................................................................................................... 4 1.1 Consolidated income statement .............................................................................................. 4 1.2 Revenue profile ....................................................................................................................... 5 2. Half year operational review ............................................................................................................. 6 2.1 First half 2011 highlights .......................................................................................................... 6 2.2 Performance by Service Line .................................................................................................. 6 2.3 Performance by Global Business Unit (GBU) ......................................................................... 8 2.4 Performance by industry sector ............................................................................................. 10 2.5 Commercial activity ............................................................................................................... 11 2.6 Human Resources ................................................................................................................. 11 3. Creation of a IT leader.................................................................................................................... 12 3.1 Deal structure reminder ......................................................................................................... 12 3.1.1 Contributor ......................................................................................................................... 12 3.1.2 Assets contributed ............................................................................................................. 12 3.1.3 Value of the Contribution ................................................................................................... 12 3.1.4 Additional payment as part of the direct transfers ............................................................. 12 3.1.5 Consideration for the Contribution ..................................................................................... 13 3.1.6 Settlement of Cash Payment and Issuance of Bonds ....................................................... 13 3.2 Partnership for innovation and business growth ................................................................... 13 3.3 Atos – already operational for further margin improvement .................................................. 13 3.4 Atos – a new brand ................................................................................................................ 13 3.5 Transactions with related parties ........................................................................................... 14 3.6 Main risks and uncertainties for the second half 2011 .......................................................... 14 3.6.1 Atos may not achieve the expected synergies of the Transaction ................................... 14 3.6.2 Risk of dependency vis-a-vis certain customers ............................................................... 14 3.6.3 The completion of the acquisition has a material effect on the shareholder structure of ........................................................................................................................................... 14 Atos 3.6.4 The completion of the acquisition could affect the share price of Atos ............................. 14 3.6.5 Operational difficulties with integration could arise ........................................................... 14 3.6.6 Atos has not conducted a complete due diligence exercise prior to the acquisition. Consequently, Atos may have to face unknown liabilities likely to have a material adverse effect on Atos ........................................................................................................................................... 15 4. Outlook for the second half 2011 ................................................................................................... 16 4.1 Operating margin ................................................................................................................... 16 4.2 Revenue ................................................................................................................................ 16 4.3 Free cash flow ....................................................................................................................... 16 5. Capital evolution ............................................................................................................................. 17 5.1 Basic data .............................................................................................................................. 17 5.1.1 Information on stock .......................................................................................................... 17 48 / 49 5.2 Free-float evolution ................................................................................................................ 18 5.3 Stock ownership evolution ..................................................................................................... 18 6. Financial review .............................................................................................................................. 19 6.1 Income statement .................................................................................................................. 19 6.1.1 Operating margin ............................................................................................................... 19 6.1.2 Other operating income and expenses ............................................................................. 19 6.1.3 Net financial expense ........................................................................................................ 20 6.1.4 Corporate tax ..................................................................................................................... 20 6.1.5 Non controlling interests .................................................................................................... 20 6.1.6 Normalised net income ...................................................................................................... 21 6.2 Earnings per share ................................................................................................................ 22 6.3 Cash flow and net debt .......................................................................................................... 23 6.4 Parent company results ......................................................................................................... 24 7. Half-year condensed consolidated financial statements ................................................................ 25 7.1 Interim consolidated income statement ................................................................................. 25 7.2 Interim consolidated statement of comprehensive income ................................................... 26 7.3 Interim consolidated statement of financial position .............................................................. 27 7.4 Interim consolidated cash flow statement ............................................................................. 28 7.5 Interim consolidated statement of changes in shareholders’ equity...................................... 29 8. Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2011 ....................................................................................................................................................... 30 8.1 8. Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2011 ....................................................................................................................................................... 30 Basis of preparation ............................................................................................................... 30 Significant accounting policies............................................................................................... 31 8.2.1 Impairment of assets ......................................................................................................... 31 8.2.2 Pensions and similar benefits ............................................................................................ 31 8.2.3 Corporate income tax ........................................................................................................ 31 8.3 Notes to the half-year condensed consolidated financial statements ................................... 32 9. Declaration by the person responsible for the update of the reference document ........................ 45 10. Statutory Auditors’ review report on first half-year financial information for the period ended 30 June 2011 .............................................................................................................................................. 46 Appendix ..................................................................................................................................... 47 11.1 Forthcoming events ............................................................................................................... 47 11.2 Disclaimers ............................................................................................................................ 47 11.3 About Atos ............................................................................................................................. 47 11.4 Investor Relations contact ..................................................................................................... 47 12. Full Index .................................................................................................................................... 48 49 / 49 | Semestriel, 2011, IT, Atos | write me a financial report |
Semestriel | 2,012 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
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| Update of the 2011 Reference Document (Including the half-yearly financial report) This document is a full free translation of the original French text. This update of the 2011 Reference Document has been filed with the Autorité des Marchés Financiers (AMF) on 2nd August 2012 pursuant to article 212-13 of the AMF’s general regulations. It complements the Reference Document filed with the AMF on 5th April 2012 under number D.12-0288. This Reference Document and its update may be used to support a financial operation if accompanied by a prospectus duly approved by the AMF. This document has been prepared by the issuer and it engages the responsibility of its signatories. This update of the Reference Document is available on the website of the Autorité des marchés financiers (www.amf-france.org) and on the company’s website (www.atos.net). 1 CONTENTS Contents .................................................................................................................... 2 A Persons responsible ................................................................................................ 3 A.1 For the update of the Reference Document ......................................................... 3 A.2 Certificate from the person responsible for the update of the Reference Document .. 3 A.3 For the audit ................................................................................................... 4 B Atos in the first semester 2012 ................................................................................ 5 B.1 Income statement ........................................................................................... 5 B.2 Key achievements ........................................................................................... 6 C Financials .............................................................................................................. 9 C.1 Operational review .......................................................................................... 9 C.2 Financial review ............................................................................................ 30 C.3 Interim condensed financial statements ........................................................... 37 D Statutory Auditors’ review on first half-year financial information for the period ended 30 June 2012 ................................................................................................................. 63 E Common stock evolution ........................................................................................ 65 E.1 Basic data .................................................................................................... 65 E.2 Common stock as of 30 June 2012 .................................................................. 66 E.3 Dividend policy ............................................................................................. 69 E.4 Shareholder Documentation ........................................................................... 70 E.5 Financial calendar .......................................................................................... 70 E.6 Contacts ...................................................................................................... 70 E.7 Update of Document issued ............................................................................ 71 F Corporate governance ........................................................................................... 72 F.1 Board of Directors ......................................................................................... 72 F.2 Executive management of the company ........................................................... 72 G Claims and litigation .............................................................................................. 73 G.1 Tax and Social Contribution claims .................................................................. 73 G.2 Commercial claims ........................................................................................ 73 G.3 Labour claims ............................................................................................... 74 G.4 Representation & Warranty claims ................................................................... 74 G.5 Miscellaneous ............................................................................................... 74 H Appendix ............................................................................................................. 75 H.1 Locations and contacts ................................................................................... 75 H.2 Full index ..................................................................................................... 78 2 A PERSONS RESPONSIBLE A.1 For the update of the Reference Document Thierry Breton CEO and Chairman, Atos A.2 Certificate from the person responsible for the update of the Reference Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the update of the Reference Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2012 half-year condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the Management Report here attached gives a faithful picture of the information herein, e.g. material events occurring during the first six months of the 2012 financial year and their impact on the half-yearly accounts, a description of the principal risks and uncertainties for the remaining six months of the year 2012. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the update of the Reference Document and examined the information in respect of the financial position and the accounts contained herein. Thierry Breton CEO and Chairman, Atos Bezons, 2nd August 2012 3 A.3 For the audit Appointment and term of offices Statutory Auditors Grant Thornton Vincent Frambourt Appointed on: 12 June 2008 for a term of Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Deloitte & Associés Christophe Patrier Appointed on: 30 May 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements Substitute Auditors Cabinet IGEC, 3, rue Léon Jost, 75017 Paris Appointed on: 12 June 2008 for a term of 6 years Appointed on: 12 June 2008 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Cabinet B.E.A.S., 7/9, Villa Houssay 92200 Neuilly-sur-Seine Appointed on: 30 May 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements 4 B ATOS IN THE FIRST SEMESTER 2012 B.1 Income statement (in EUR million)Notes6 months ended 30 June 20126 months ended 30 June 2011Revenue Note 24,366.02,476.4Personnel expensesNote 3(2,273.7)(1,399.5)Operating expensesNote 4(1,843.5)(910.7)Operating margin248.8166.2% of revenue5.7%6.7%OtheroperatingincomeandexpensesNote 5(78.4)(5.8)Operating income170.4160.4% of revenue3.9%6.5%Net cost of financial debt(16.5)(8.5)Other financial expenses(26.9)(21.4)Other financial income23.77.3Net financial incomeNote 6(19.7)(22.6)Net income before tax150.7137.8Tax chargeNote 7(47.7)(38.9)Shareofnetprofit/(loss)ofassociates1.7(0.3)Net income104.798.6Of which:- attributable to owners of the 101.899.6- non-controlling interestsNote 82.9(1.0)(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 9Weightedaveragenumberofshares 83,454,76469,691,788Basic earnings per share1.221.43Dilutedweightedaveragenumberof shares 95,906,73576,733,482Diluted earnings per share1.141.36 5 (in EUR million)Notes6 months ended 30 June 20126 months ended 30 June 2011Revenue Note 24,366.02,476.4Personnel expensesNote 3(2,273.7)(1,399.5)Operating expensesNote 4(1,843.5)(910.7)Operating margin248.8166.2% of revenue5.7%6.7%OtheroperatingincomeandexpensesNote 5(78.4)(5.8)Operating income170.4160.4% of revenue3.9%6.5%Net cost of financial debt(16.5)(8.5)Other financial expenses(26.9)(21.4)Other financial income23.77.3Net financial incomeNote 6(19.7)(22.6)Net income before tax150.7137.8Tax chargeNote 7(47.7)(38.9)Shareofnetprofit/(loss)ofassociates1.7(0.3)Net income104.798.6Of which:- attributable to owners of the 101.899.6- non-controlling interestsNote 82.9(1.0)(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 9Weightedaveragenumberofshares 83,454,76469,691,788Basic earnings per share1.221.43Dilutedweightedaveragenumberof shares 95,906,73576,733,482Diluted earnings per share1.141.36 B.2 Key achievements On 9 January 2012, Atos announced the acquisition of a 50 percent stake, with an option for Atos to acquire the full company of MSL Group, provider of real-time results and information systems for major sports events. MSL Group annual revenues are around 15 million Euros. Together the two entities - MSL Group and Atos Major Events - created within Atos, a leader in the Sports and Major Events IT industry with about 500 specialized business technologists integrating teams of up to 5000 IT experts to support major events. The deal seals a long term relationship that started with the Barcelona 1992 Summer Olympics. Both MSL Group and Atos Major Events have long term experience in the sports and other events IT industry and offer highly complementary services. Together they will have the expertise and portfolio of services to support medium and large sporting events worldwide from the Tennis Master Series through to the Olympic Games. On 23 February 2012, Atos announced its 2011 annual results. 2011 was the first year of the integration of Siemens IT Solutions and Services (SIS). Revenue, which includes 6 months revenue from SIS acquired on July 1st, 2011, was EUR 6,812 million, representing +0.3 percent organic growth compared to 2010 revenue at constant scope and exchange rates. Organic growth was +2.2 percent in the fourth quarter. Book-to-bill ratio was 103 percent in 2011 with a strong increase in the fourth quarter at 113 percent. Operating margin was EUR 422.4 million, representing 6.2 percent of revenue compared to 4.3 percent in 2010 at constant scope and exchange rates. The Group generated in 2011 EUR 194 million of free cash flow, leading to a net debt of EUR 142 million at the end of 2011. Net income Group share stood at EUR 182 million compared to EUR 116 million in 2010. On 29 February 2012, Atos and Huawei, a leading global information and communications technology (ICT) solutions provider, jointly announced that they formed a partnership in order to address the growing global telecom market and targeting telecom operators that operate on a worldwide level. Huawei offers solutions - software and hardware – and in particular Next Generation BSS which is the core of the partnership. Together the companies offer solutions and services for operators that need to enhance or replace their legacy IT landscape with a NGBSS or want to invest in a Mobile Virtual Network Enabling (MVNE) platform for their wholesale business. With the products and services from Huawei, Atos will be able to help customers to bring them the latest technology that will help to shorten time to market, bringing new and innovative services and reducing operational costs. On 25 April 2012, Atos announced its revenue for the first quarter of 2012. It was EUR 2,163 million, representing organic growth of +2.4 percent compared to the first quarter of 2011. Net cash stood positive at EUR 34 million at the end of March 2012. On 21 May 2012, Atos announced that it has been awarded a five-year IT outsourcing contract worth £140 million by the Shared Services Alliance (SSA), a collaborative procurement initiative within the Nuclear Decommissioning Authority (NDA). The NDA is a non departmental public body reporting into the Department of Energy and Climate Change. It is responsible for decommissioning and the clean-up of the UK's civil nuclear waste in a safe, secure and cost-effective way. The SSA was set up in 2009 to ensure all members could achieve the best value for money by aggregating demand for common services, including IT. This new contract is the first IT contract to be awarded by the SSA and covers all IT services for four members, namely Sellafield, Magnox, National Nuclear Laboratories and Low Level Waste Repository. It is a multi-service contract, comprising 18 service towers networking, desktops, applications and hosting services, as well as Service Integration and Management (SIAM). Under the contract, Atos will consolidate and modernise the existing infrastructure to further improve service for more than 18,000 end users located at more than 30 separate 6 locations. These improvements will deliver savings of more than 30 percent over 5 years to the four businesses that have collaborated under the Nuclear Decommissioning Authority’s (NDA’s) Shared Services Alliance for their IT outsourced services. On 30 May 2012 was held the Annual Shareholders’ Meeting chaired by Atos Chairman and CEO, Thierry Breton. All resolutions submitted by the Board of Directors have been approved by a large majority. In particular, the shareholders approved with a majority of 99.70 percent, the change of status from a SA (French société anonyme) to a SE (Societas Europaea). The dividend payment of €0.50 per share and the option for payment of the dividend in either shares or cash was also approved. Shareholders approved all term of office renewals and appointment of all directors as proposed. At the Board of Directors meeting held after the Annual General Meeting, it was decided to renew the term for Thierry Breton’s tenure as Chairman and CEO for the duration of his mandate; to renew the mandate of the Reference Director, Pasquale Pistorio; and to confirm the composition of the Audit Committee and of the Nomination and Remuneration Committee. On 11 June 2012, Atos announced the acquisition of Quality Equipment, a player in electronic payments in the Netherlands in particular in the catering, vending and parking sectors. The acquisition followed a fruitful 15-year partnership with Quality Equipment, during which Atos benefited from continuous high-quality payment services and appreciated the wide payment services portfolio it offered to its customers. The company will be integrated into Atos Worldline, Atos core expertise in Hi-Tech Transactional Services (HTTS) and electronic payments. Quality Equipment produces systems for payment, identification, access management and is an all-in-one supplier of PIN terminals for various applications. The company employs 70 people and realized an annual growth rate of 20 percent in 2011 compared to the previous year. Main goals of this acquisition: Reinforce the roll out of Atos Global Payment strategy by value added services to its current acquiring and terminals portfolio in the Benelux, increase its sales force and expertise and offer innovative services to merchants. Grow market shares for terminal activity as well as acquiring business. Become the leader in terms of terminals and merchants services in the Netherlands with an end-to-end coverage Build a European competence centre for value added services for merchants. On 28 June 2012, Atos announced that the option for the payment of the dividend in shares was widely chosen by Atos’ shareholders: 65.0 percent of the rights were exercised in favor of a payment in shares. This high rate of dividend distribution in shares resulted in an increase of EUR 27.1 million in the equity of Atos and in the issuance of 676,014 new shares (representing an increase by approximately 0.81 percent of the share capital and of the voting rights), delivered and admitted for trading on NYSE Euronext Paris since 2 July 2012. On 27 July 2012, Atos announced its results for the first semester of 2012. Revenue was EUR 4,366 million, up +76.3 percent compared to the first half of 2011 on published revenues, representing an organic growth (constant scope and exchange rates) of +1.4 percent. The four largest GBUs are Germany with 19.2 percent of total revenue, the UK at 18.6 percent, Benelux and France at 11 percent. Book to bill ratio was 113 percent thanks to a strong commercial activity and major bookings in Managed Services. The book to bill ratio for the Group was 120 percent excluding Siemens, for which the outsourcing and application 7 management elements of the Global IT contract were booked in the backlog in July 2011. Operating margin was EUR 248.8 million, representing 5.7 percent of revenue compared to 3.7 percent in the first half pro forma figures of 2011 at constant scope and exchange rates. The Group generated in the first semester of 2012 EUR 129 million of free cash flow, leading to a net cash position of EUR 101 million at the end of June 2012. Net cash position before acquisitions, disposals and equity from minority interest was EUR 149 million. Net income Group share stood at EUR 102 million compared to EUR 100 million in the first half 2011 which included a one-off result before tax on pensions new indexation in the UK for EUR 32 million. On 27 July 2012, Atos announced it has signed with McGraw-Hill, a leading global financial information and education company, a multi-year IT contract supporting the transition of McGraw-Hill from one, multi-sector company into two, independent companies, McGraw-Hill Financial and McGraw-Hill Education. Under the contract, Atos will provide strategic IT management consulting, deliver service transition, operation and ongoing operational improvements for McGraw-Hill’s 6 service towers: data center, service desk, end user computing, network, product and solution engineering and cross functional services. It will also optimize McGraw-Hill’s existing infrastructure, to improve service for more than 30,000 end users across 40 global locations. 8 C FINANCIALS C.1 Operational review C.1.1 Executive Summary In EUR millionH1 2012H1 2011% growthStatutory revenue4,3662,476+76.3%Scope impact1,768Exchange rates impact63Revenue at constant scope and exchange rates4,3664,307+1.4%Operating margin248.8166.2+49.7%Scope impact-9.4Exchange rates impact1.9Operating margin at constant scope and exchange rates248.8158.7+56.8% Revenue was EUR 4,366 million, up +76.3 percent compared to the first half of 2011 on published revenues, representing an organic growth (constant scope and exchange rates) of +1.4 percent. The four largest GBUs are Germany with 19.2 percent of total revenue, the UK at 18.6 percent, Benelux and France at 11 percent. Book to bill ratio was 113 percent thanks to a strong commercial activity and major bookings in Managed Services. The book to bill ratio for the Group was 120 percent excluding Siemens, for which the outsourcing and application management elements of the Global IT contract were booked in the backlog in July 2011. Operating margin was EUR 248.8 million, representing 5.7 percent of revenue compared to 3.7 percent in the first half pro forma figures of 2011 at constant scope and exchange rates. The Group generated in the first semester of 2012 EUR 129 million of free cash flow, leading to a net cash position of EUR 101 million at the end of June 2012. Net cash position before acquisitions, disposals and equity from minority interest was EUR 149 million. Net income Group share stood at EUR 102 million compared to EUR 100 million in the first half 2011 which included a one-off result before tax on pensions new indexation in the UK for EUR 32 million. The total number of Group employees was 75,329 at the end of June 2012. The number of direct employees was 68,576 at the end of June 2012, representing 91.0 percent of the total headcount, compared to 89.5 percent at the end of December 2011. During the first semester of 2012, 6,000 new employees were recruited while attrition remained almost stable at around 10 percent. Staff in the emerging countries represented almost 25 percent of total staff at the end of June 2012, with 40 percent of them located in India. At the end of June, the number of external subcontractors was 7,640 compared to 8,500 at the end of 2011. 9 During the first half of 2012, the Group has proceeded the transfer of deferred assets from SIS and the acquisition of several companies positioned in niche markets: Russia, transferred from Siemens e-utile, an Italian leader in smart energy solutions, 51 percent transferred from Siemens and acquisition of the remaining 49 percent blueKiwi, a social workplace software company located in France MSL, a specialist in major events located in Spain Quality Equipment, a Dutch player in electronic payments At the end of June 2012, Atos sold its 49 percent stake in the Belgian joint venture SiNSYS to its majority shareholder, the Italian payment processor SIA. 10 C.1.2 Revenue profile evolution 46%25%22%7% 19%19%11%11%11%6%6%5%4%8% In EUR millionH1 2012H1 2011*Managed Services2,0261,967Systems Integration1,0671,087HTTS & Specialized Businesses967936Consulting & Technology Services307316Total Group4,3664,307* constant scope and exchange ratesIn EUR millionH1 2012H1 2011*Germany840791United-Kingdom & Ireland812761Benelux493524France500514Atos Worldline457454Central & Eastern Europe269272North America275254North & South West Europe202205Iberia165173Other BUs353360Total Group4,3664,307* constant scope and exchange ratesIn EUR millionH1 2012H1 2011*Manufacturing, Retail & Services1,4471,374Public sector, Healthcare & Transport1,1631,118Financial Services838850Telecoms, Media & Technology608643Energy & Utilities310322Total Group4,3664,307* constant scope and exchange rates 33%27%19%14%7% In the first half of 2012, 77 percent of the revenue base was generated by multi-year contracts, increasing by +2 points compared to full year 2011, deriving from multi-year outsourcing contracts (47 percent of total revenue), Application Management contracts (8 percent included in Systems Integration) and Hi-Tech Transactional Services & Specialized Businesses (22 percent of total revenue). 11 C.1.3 Performance by Service Line In EUR millionH1 2012H1 2011*% growthH1 2012H1 2011*H1 2012H1 2011*Managed Services2,0261,967+3.0%146.266.07.2%3.4%Systems Integration1,0671,087-1.9%41.232.73.9%3.0%HTTS & Specialized Businesses967936+3.2%105.896.710.9%10.3%Consulting & Technology Services307316-2.8%11.623.53.8%7.4%Corporate costs**-56.1-60.3-1.3%-1.4%Total Group4,3664,307+1.4%248.8158.75.7%3.7%* Constant scope and exchange rates** Corporate costs exclude Global delivery Lines costs allocated to the Service LinesOperating Margin %RevenueOperating Margin C.1.3.1 Managed Services In EUR millionH1 2012H1 2011% organic growthRevenue2,0261,967+3.0%Operating margin146.266.0Operating margin rate %7.2%3.4% Managed Services revenue was EUR 2,026 million, up +3.0 percent compared to the first half of 2011. Growth was driven by several geographies including Germany (+7.5 percent), North America (+6.6 percent), and Central & Eastern Europe (+6.1 percent). While the UK posted a slight growth, revenue in France and Benelux declined respectively by -3.4 and -2.2 percent. Despite tough market conditions, Iberia posted a +5.2 percent growth. Following the acquisition of SIS, Managed Services grew by signing multi-year contracts with new customers, both in the second half of 2011 and in the first half of 2012. Operating margin was EUR 146.2 million, representing 7.2 percent of revenue, a strong increase compared to 3.4 percent in the first half of 2011. The improvement in profitability came as a result of the restructuring on the SIS scope and the industrialization of the activity through Global Delivery Lines. Main operating margin increases came from Germany, North America, Central & Eastern Europe and North & South West Europe. C.1.3.2 Systems Integration In EUR millionH1 2012H1 2011% organic growthRevenue1,0671,087-1.9%Operating margin41.232.7Operating margin rate %3.9%3.0% In Systems Integration, revenue slightly declined as expected by -1.9 percent compared to the first half of 2011 at EUR 1,067 million. The decrease resulted from a lower anticipated second quarter due to less number of days compared to the same period last year in the main European countries, particularly in France, and to continued tough market conditions in the Netherlands and in Spain. The activity remained solid in the UK and in North America thanks to a strong commercial activity and new contracts. 12 Operating margin was EUR 41.2 million, representing 3.9 percent of revenue compared to 3.0 percent in the first half of 2011. Utilization rates during the first half of 2012 were 77 percent, compared to 78 percent in 2011. Strong improvement was achieved as part of the TOP² transformation Program in North & South Western Europe, in North America and in Central & Eastern Europe as well as in “Other Business Units”. Profitability also increased in the Netherlands and in Iberia thanks to continued tight monitoring of costs and remained strong in the United Kingdom & Ireland at 9.5 percent. While profitability slightly improved in Germany at 4.6 percent, the performance was impacted by France due to an insufficient utilization rate. C.1.3.3 Hi-Tech Transactional Services & Specialized Businesses (HTTS & SB) In EUR millionH1 2012H1 2011% organic growthRevenue967936+3.2%Operating margin105.896.7Operating margin rate %10.9%10.3% Hi-Tech Transactional Services & Specialized Businesses (HTTS & SB) revenue represented 22 percent of the Group at EUR 967 million, up +3.2 percent year-on-year. HTTS business grew by +4.4 percent at EUR 597 million, mainly driven by e-CS revenues, which were up +12 percent. The focus to increase HTTS business outside Atos Worldline countries resulted in +20 percent growth in the UK at EUR 87 million and +17 percent in Latin America at EUR 20 million. Other Specialized Businesses grew slightly by +1.3 percent to EUR 370 million; BPO activities (Financial and Medical) offset less business in Smart Energy and Civil & National Security. Operating margin was 10.9 percent of revenue, an improvement compared to 10.3 percent in the first half of 2011. HTTS reported 15.0 percent operating margin in the first semester of 2012 compared to 14.3 percent on the same period last year. C.1.3.4 Consulting & Technology Services In EUR millionH1 2012H1 2011% organic growthRevenue307316-2.8%Operating margin11.623.5Operating margin rate %3.8%7.4% Consulting & Technology Services represent 7 percent of the Group, and revenue was EUR 307 million, down -2.8 percent compared to the first half of 2011. Part of the decline resulted from less working days in the main European countries compared to the same period last year. The increased activity in Consulting, in the UK (+16 percent), and in Technology Services in France (+5 percent), partially offset the decline of the Service Line in Benelux (- 9 percent) and in Iberia (-11 percent). Operating margin decreased to EUR 11.6 million, representing 3.8 percent of revenue compared to 7.4 percent in the first semester of 2011. In Consulting, utilization rate was 72 percent compared to 70 percent in 2011 and stable at 84 percent for Technology Services. While the UK posted an improved operating margin at 6.0 percent of revenue, market conditions including price pressure led to profitability being down in the Netherlands and in Iberia. 13 C.1.4 Performance by Business Units (GBU/SBU) In EUR millionH1 2012H1 2011*% growthH1 2012H1 2011*H1 2012H1 2011*Germany840791+6.2%65.624.77.8%3.1%United-Kingdom & Ireland812761+6.7%55.745.76.9%6.0%France500514-2.7%0.519.30.1%3.8%Benelux493524-6.0%33.636.96.8%7.0%Atos Worldline457454+0.8%78.675.017.2%16.5%North America275254+8.6%23.3-1.48.5%-0.6%Central & Eastern Europe269272-0.9%26.810.410.0%3.8%North & South West Europe202205-1.4%13.2-8.76.5%-4.2%Iberia165173-5.0%2.51.61.5%0.9%Other BUs353360-1.9%18.119.75.1%5.5%Global structures**-69.1-64.5-1.6%-1.5%Total Group4,3664,307+1.4%248.8158.75.7%3.7%* Constant scope and exchange ratesOperating Margin %RevenueOperating Margin** Global structures include the Global delivery Lines costs not allocated to the Group Business Unit and the Corporates costs In the first half of 2012, the Group’s revenue growth was led by: A strong performance in Germany, UK & Ireland, North America, and eCS activities for Atos Worldline. Operating margin significantly improved compared to pro forma H1 2011 mainly in Germany, North America, Central & Eastern Europe, North & South Western Europe. This improved performance was due notably to the delivery of TOP² Program and synergies, the platforms transformation activities for Siemens and the restructuring plan on the former SIS scope. C.1.4.1 Germany In EUR millionH1 2012H1 2011% organic growthRevenue840791+6.2%Operating margin65.624.7Operatin margin rate %7.8%3.1% In Germany, revenue was EUR 840 million, up +6.2 percent. The growth was mainly led by Managed Services (+7.5 percent) through new business with large customers such as Bayer, ThyssenKrupp and Volkswagen. Existing clients such as BASF and Siemens also contributed to the growth of the Service Line. In Systems Integration, revenue grew by +2.1 percent, mainly in the Public and Manufacturing sector. Operating margin strongly increased to EUR 65.6 million, representing 7.8 percent of revenue. The improved performance was achieved thanks to the sound and timely execution of the integration plan and as mentioned above, a strong activity in the platforms transformation for Siemens. 14 C.1.4.2 United Kingdom & Ireland In EUR millionH1 2012H1 2011% organic growthRevenue812761+6.7%Operating margin55.745.7Operatin margin rate %6.9%6.0% In the United Kingdom & Ireland, revenue was EUR 812 million, up +6.7 percent compared to the first half of 2011. With 35 percent of the GBU revenue, HTTS & SB grew +15.1 percent thanks to higher project revenue and volumes, notably in the Transport sector for HTTS, and in Financial and Medical BPO. Managed Services posted a slight growth and Systems Integration was up +5.3 percent. Operating margin was EUR 55.7 million representing 6.9 percent of revenue, with a strong performance in the profitability of HTTS & Specialized Businesses. C.1.4.3 France In EUR millionH1 2012H1 2011% organic growthRevenue500514-2.7%Operating margin0.519.3Operatin margin rate %0.1%3.8% Revenue in France was EUR 500 million, representing an organic decline of - 2.7 percent year-on-year. Cyclical activities (Systems Integration and Consulting & Technology Services) posted a slowdown in the second quarter affected by 3 less working days, but also by a lack of new business in car manufacturing and with mobile phone operators. In Managed Services, new contracts contributed to revenue in Energy although that did not offset lower volumes in Financial Services and car manufacturing. Operating margin was EUR 0.5 million. A transformation program has been launched by the new management team in the first semester of 2012 to return the GBU to profitable growth and to restore a sustainable operating margin leveraging global programs like Wellbeing@work or eXpand. The effect of the first actions will start to materialize in the second half of 2012 and will continue in 2013. 15 C.1.4.4 Benelux In EUR millionH1 2012H1 2011% organic growthRevenue493524-6.0%Operating margin33.636.9Operatin margin rate %6.8%7.0% In Benelux, revenue in the first semester was EUR 493 million, down -6.0 percent. Difficult market conditions with large customers in most of the sectors, materialized in price pressure and lower volumes. As a result, cyclical activities continued to be affected. In Managed Services, the activity was much more resilient, down -2.2 percent, thanks to large customers in the Netherlands in Financial Services and Energy, and new clients in Belgium. As previously mentioned, the GBU remained focused on margin protection with a very strong workforce management program. As a result, operating margin was EUR 33.6 million, representing a solid 6.8 percent of revenue, compared to 7.0 percent in the first half of 2011. C.1.4.5 Atos Worldline In EUR millionH1 2012H1 2011% organic growthRevenue457454+0.8%Operating margin78.675.0Operatin margin rate %17.2%16.5% Revenue for Atos Worldline was EUR 457 million up +0.8 percent year-on-year. In payments, higher volumes in France, Belgium and Germany compensated for less hardware revenue. +4.9 percent growth in eCS compensated for the phase-out of one processing contract that was re-insourced in Germany. Operating margin was EUR 78.6 million, representing 17.2 percent of revenue, compared to 16.5 percent for the same period last year. This improvement came from France which benefited from the top line growth and also performed actions to reduce the cost base. A solid commercial activity during this semester led to strong 110 percent book to bill. 16 C.1.4.6 North America In EUR millionH1 2012H1 2011% organic growthRevenue275254+8.6%Operating margin23.3-1.4Operatin margin rate %8.5%-0.6% In North America revenue was EUR 275 million, up +8.6 percent. Managed Services revenue was up +6.6 percent thanks to increased business with large manufacturing companies. Systems Integration reported solid growth thanks to an increase of business in Financial Services. Operating margin was EUR 23.3 million, representing 8.5 percent of revenue. The increase in revenue in Managed Services and in Systems Integration, the effect of the restructuring completed in the first semester of 2011 on the SIS scope and the reduction of indirect costs achieved as part of the TOP² Program all contributed to the increase in operating margin. C.1.4.7 Central & Eastern Europe In EUR millionH1 2012H1 2011% organic growthRevenue269272-0.9%Operating margin26.810.4Operatin margin rate %10.0%3.8% In Central & Eastern Europe (CEE) revenue was EUR 269 million, down -0.9 percent. Managed Services grew by +6.1 percent thanks to higher volumes in several countries including Turkey and Czech Republic while Systems Integration was impacted by less hardware resale and discretionary spend in the Public sector in several countries. Operating margin was EUR 26.8 million at 10.0 percent of revenue compared to 3.8 percent in the first half of 2011. Most of the improvement came from the successful implementation of the integration and synergies program in all countries and higher volumes. C.1.4.8 North & South West Europe In EUR millionH1 2012H1 2011% organic growthRevenue202205-1.4%Operating margin13.2-8.7Operatin margin rate %6.5%-4.2% In North & South West Europe (N&SWE) revenue was EUR 202 million, down -1.4 percent year-on-year. Systems Integration posted a strong growth thanks to a high level of delivery in the “Toll Collection” contract in Switzerland and a major SAP implementation in Finland. Managed Services reported a solid +4.0 percent growth with the ramp-up of new contracts in Finland and in Denmark in the Manufacturing sector. The GBU had less hardware revenue in the Civil & National Security business both in Switzerland and in Italy. 17 The effect of the staff restructuring performed in the first half of 2011 combined with the adjustment of the cost base through the TOP² Program and strong improvement in the management of fixed price projects led to an operating margin of 6.5 percent at EUR 13.2 million compared to a loss in the same period of 2011. C.1.4.9 Iberia In EUR millionH1 2012H1 2011% organic growthRevenue165173-5.0%Operating margin2.51.6Operatin margin rate %1.5%0.9% In Iberia, revenue was EUR 165 million, down -5.0 percent. While Managed Services grew +5.2 percent thanks to a good level of fertilization, the decline in Systems Integration, Consulting & Technology Services, and Specialized Businesses was concentrated in the Public Sector and in Financial Services, both sectors affected by budget restrictions and postponed investment decisions in the current economic environment. HTTS grew +13.7 percent thanks to higher transaction volumes in the loyalty card and messaging platform businesses. Operating margin was positive at EUR 2.5 million representing 1.5 percent of revenue slightly up compared to the same period last year. C.1.4.10 Other Business Units In EUR millionH1 2012H1 2011% organic growthRevenue353360-1.9%Operating margin18.119.7Operatin margin rate %5.1%5.5% Major Events Revenue in the first half of 2012 increased by EUR +5 million compared to the same period of last year, reflecting the increasing activity around the London Olympic Games. Asia Pacific Revenue was down by -11 percent, coming mainly from Managed Services impacted mainly in Hong Kong and Japan, whereas Australia and China were showing an increase by EUR +1.8 million and EUR +1.6 million. Organic decrease was mainly caused by the end of the Manulife contract and a slowdown of service and resale revenue from a large bank in Hong Kong. Less purchase for resale in Taiwan impacted revenue. Thanks to a good performance in Australia and Hong Kong, external revenue in Systems Integration increased. Operating margin decreased by EUR -1.7 million. Margin drop in Hong Kong was mainly due to fewer volumes in banking, and the effect of the termination of the Manulife contract, which had also an impact in Japan. Philippines was up thanks to the optimization of the Manila factory (Managed Services). Operating margin in Thailand progressed thanks to the 18 successful collection of receivables. Finally, Singapore and China contributed to the operating margin. Latin America Revenue, amounting to EUR 100 million in the first half of 2012, increased by EUR +6 million or +5.9 percent year on year. Technology Services posted a decline, primarily due to assignments not renewed. Systems Integration was up +10 percent due to new contracts with Claro, Embraer, and BASF. Managed Services grew +10.6 percent over last year based on a strong increase in Manufacturing, Retails & Services HTTS grew during the first half of the year, driven by a strong performance in the Public Sector, Healthcare & Transport and with Salta. Latin America’s Operating Margin in the first half of 2012 was at 5.2 percent of revenue, increasing compared to last year, despite a decline in Technology Services due to a drop of revenue with Petrobras. The better performance in Systems Integration mainly came from margin catch-up compare to 2011 in the Telecoms, Media & Technology sector. HTTS improve its profitability during the first half of 2012 thanks to better project management for several customer entities such as Farmalink, Cordoba and Misiones. South Africa, India, Morocco, UAE In South Africa, revenue was slightly down year on year. India was hampered by a strong 2011 comparative basis with the completion of major projects (HPCL, Sulzer) in Systems Integration, that have not been replaced by new business so far. Performance was up in Managed Services with NSN and SEN. In Morocco, the revenue remained close to last year. The main client is Maroc Telecom. Revenue was lifted in UAE, thanks to a high level of hardware resale in Qatar, coupled with good performance in Telecoms, Media & Technology. India operating margin was up at the end of the semester, mainly in Systems Integration, due to higher internal revenue coming from demanding GBU’s. The UAE business showed an upturn, becoming profitable, thanks to the margin fall-through of the hardware resale in Qatar. Atos Worldgrid Atos Worldgrid posted a revenue retreating by EUR -8.1 million, mainly due to France with the strong ramp down in three contracts as explained above, slightly compensated by higher level of resale in the nuclear area. Spain and Germany maintained their level of revenue compared to last year and China registered a decrease mainly due to delayed milestones in some projects. In Italy, e-utile was stable to last year with +0.7 percent. Atos Worldgrid operating margin decreased compared to last year, which mainly occurred in France, linked to the ramp down of contracts. But the strong action plans implemented and the various renegotiations held with customers resulted in signed settlements and fixed issues at the end of the semester. 19 C.1.4.11 Global structure costs As a result of the centralization of Global Delivery Lines, Global structure costs posted EUR 69.1 million compared to EUR 64.5 million in the first half of 2011. The main reduction in SG&A costs were in the GBUs. Global Delivery Lines Global Delivery Lines costs (Global Delivery and Global Factory) increased by EUR 8.9 million. The prime reason was the centralization of resources for the global delivery lines. Half of the increase was related to the set-up the “HTTS & Specialized Businesses” Global Service Line. Corporate Global Functions The Global Functions’ costs contracted by -12 percent, representing EUR 6.7 million in the first semester. This decrease primarily came from synergies materializing following the SIS integration. The cost of Global Functions benefited as well from the full effects of the TOP program and the implementation of the Activity Value Analysis (AVA) program, in all the corporate functions. Conversely, during the last 12 months the group has strongly reinforced the Sales Global Market Functions in order to accelerate sales growth with required more dedicated and specialized skills. Equity based compensation Equity based compensation costs (stock options, long term incentive plans, management investment plan, and employee purchase plan) increased by EUR 2.5 million in the first half. 20 C.1.5 Revenue by market Looking at the Market sectors, the organic growth materialized primarily in Manufacturing, Retail & Services with EUR +73 million, and Public, Health & Transportation with EUR +30 million in HTTS & Specialized Businesses. C.1.5.1 Manufacturing, Retail & Services Manufacturing, Retail, & Services is the first market with 33 percent of Group total revenue. Revenue increased by +5.3 percent to reach EUR 1,447 million in H1 2012. This performance is in line with the strategy of the group to develop Managed Services activities primarily in the Manufacturing sector following the acquisition of SIS. Revenue increased in Germany by +18.6 percent, thanks to the strong contribution from Siemens. This is tied to transition and platforms transformation activities as part of the IT service contract between Atos and Siemens. Three other GBUs significantly increased their revenue: North America, North & South Western Europe and Central & Eastern Europe. France revenue decreased by -3.8 percent due to lower business on major contracts in Retail or car Manufacturing not offset by fertilization and new projects such as EADS. Revenue in the United Kingdom slightly increased. Revenue in Benelux decreased, affected by volume decline with customers such as Philips, linked to a scope reduction, and NXP ramp down. Revenue from the Top 30 accounts reached EUR 910 million representing 63 percent of the sector. Main Customers are Siemens and DSK / RAG in Germany, Renault and EADS in France, Philips in the Netherlands. C.1.5.2 Public sector, Healthcare & Transports Public sector, Healthcare & Transports is the second market with 27 percent of revenue. This sector stood at EUR 1,163 million for the first semester, up by +4.0 percent. In the United Kingdom, the Group had a +8.5 percent growth with increased revenue with its largest Public & Health customers such as Health England and Department of Work and Pensions, as well as with Transportation customers. Central & Eastern Europe had a decrease of -12.2 percent due loss of contracts in Slovakia with the Central Office of labor and the Ministry of Transport and lower contract performance in Austria. Atos Worldline grew by +20.1 percent, driven by additional volumes in France. Revenue in Middle East increased thanks to a one-off contract with the customer SIDRA. Despite the context of reduction of public spending, Benelux and France showed a slight organic growth of respectively +1.2 percent and +0.1 percent. Top 30 accounts revenue accounted for 59 percent of Public, Health & Transport sector and represented revenue of EUR 680 million. Main customers are the UK Ministry of Justice, the Department of Work & Pensions, the UK Border Agency, the European Union Institutions and the French Ministry of Ecology. 21 C.1.5.3 Financial Services The Financial Services sector representing 19 percent of total Group revenue. This sector stood at EUR 838 million for the semester, down by -1.5 percent in organic growth. UK revenue increased by +6.2 percent thanks to additional volumes with NS&I. North America posted a first semester growth of +36.7 percent, thanks to high level of activity both with Banks and Insurers. France revenue decreased by -5.8 percent or EUR -5 million mainly linked to a lack of new business or the end of one contract with one bank customer. Benelux showed an organic decrease of -6.5 percent primarily due to price pressure and cost cutting programs on Achmea contract. Revenue in Germany dropped as a result of the termination of the application management contract with Commerzbank in June 2011. Revenue in APAC decreased due to the impact of Manulife loss while the activity with a large bank in Hong Kong slowed down. Revenue from the Top 30 accounts reached EUR 590 million representing 70 percent of the sector. Main customers are ING and Achmea in the Netherlands, BNP Paribas in France, National Savings & Investments (NS&I) in the UK and Deutsche Bank in Germany. C.1.5.4 Telecoms & Media Telecoms & Media represented 14 percent of total Group revenue. This sector stood at EUR 609 million, which was a decline of -5.3 percent compared to H1 2011. Benelux showed an organic decrease of -5.0 percent mainly linked to investment in projects frozen by one large customer. In France, revenue has decreased by -9.3 percent mainly due to contract ramp down with mobile phone operators and in the Media sector. Revenue in Germany dropped mainly due to Nokia Siemens Networks. This sector is the most concentrated with revenue from the Top 30 accounts representing 90 percent of the sector. Main customers are BBC in UK, KPN in the Netherlands and in Germany, Nokia Siemens Networks in Germany, France Telecom Orange in France and Telecom Italia. C.1.5.5 Energy & Utilities The Energy & Utilities sector amounted to 7 percent of Group revenue. This sector stood at EUR 310 million, a decrease of -3.8 percent compared to H1 2011. The market had to face with two main items: Atos Worldgrid in France was mainly impacted by a renegotiation with a major customer leading to a change of scope. Benelux was affected by the ramp down of the contract with the customer Nuon. On the opposite, the activity in Energy and Utilities grew in GBUs such as the UK thanks to the EDF Energy contract and France with EDF in Managed Services. Revenue from the Top 30 accounts reached EUR 257 million representing 83 percent of the sector. Main customers in this sector are EDF, GDF, Schlumberger and Total in France, and A2A in North & South Western Europe. 22 C.1.6 Portfolio C.1.6.1 Order entry and book to bill Order entry amounted to EUR 2,638 million during the last quarter to reach a total semester amount of EUR 4,949 million, reaching to a book to bill ratio at 113 percent. Order Entry by Service Line was as follows: In EUR millionQ1Q2H1 2012Managed Services1,1771,5282,705Systems Integration5394771,016HTTS & Specialized Businesses424484908Consulting & Technology Services171150320Total Group2,3112,6384,949 Book to Bill by Service Line was as follows: in %Q1Q2H1 2012Cyclical activities102%92%97%Recurring Businesses109%132%121%Total Group107%120%113% During the first half of the year, Consulting & Technology Services achieved a 104 percent book to bill ratio. A contract in TS with GasTerra has been renewed (E&U / Benelux). For the first semester, Managed Services reached a strong 134 percent book to bill. This performance is mainly due to the signature of the large contracts and primarily Mc Graw Hill (TMT / mainly North America), Atos first German bank customers (FS / Germany), EDF (E&U in France and UK), part of the new contract with Nuclear Decommissioning Agency (PHT / UK), Department of health (PHT / UK). Systems Integration activities reached 95 percent book to bill, facing a more difficult market environment in Q2 than in Q1. The main contracts signed or renewed during the first semester were: KPN (TMT / Benelux), Karstadt (MRS / Germany), Dah Sing (FS / APAC), ENI (E&U / N&SWE), part of the Nuclear Decommissioning Agency new contract (PHT / UK). HTTS & Specialized Businesses achieved a 94 percent book to bill. This performance was made of 107 percent for HTTS mainly with the renewal of the Banque de France contract (MRS / France), the signature of new contracts with Renault Nissan (MRS / France) and Orange (TMT / France), and with the fertilization on the contract Capita Life and Pension (FS / UK). BPO stood at 33 percent, the major contracts were renewed in previous year. Finally, the other Specialized Businesses units stood at 116 percent with the renewal of the contract with EnBW Group (E&U). 23 Order Entry by Market was as follows: In EUR millionQ1Q2H1 2012Manufacturing, Retail & Services7146641,378Public Sector, Healthcare & Transport5097091,217Financial Services485465950Telecom, Media & Technology259681940Energy & Utilities344120464Total Group2,3112,6384,949 Book to Bill by Market was as follows: in %Q1Q2H1 2012Manufacturing, Retail & Services99%91%95%Public Sector, Healthcare & Transport89%120%105%Financial Services116%111%113%Telecom, Media & Technology86%222%154%Energy & Utilities226%76%150%Total Group107%120%113% All markets (including Manufacturing Retail & Services without Siemens) reached a book to bill ratio above 105 percent for the semester. This performance was led by a high level of order entry in TMT (book to bill at 154 percent mainly thanks to the McGraw-Hill contract) and in E&U (book to bill at 150 percent mainly thanks to contracts in the UK with EDF Energy and the Nuclear Decommissioning Agency). C.1.6.2 Full backlog The full backlog stood at EUR 14,918 million at the end of June 2012, which represents 1.7 year of revenue, stable compared to the December 2011, but slightly higher than same period one year ago (+0.2 years of revenue). In value the full backlog increased by EUR +484 million since the beginning of the year (+3.4 percent), mostly in Managed Services thanks to the signature of a major contract with McGraw-Hill. This new contract is mainly located in North America. Full Backlog by service line was as follows: In EUR billionJune 2012Dec. 2011 CSnumber of yearManaged Services9.59.02.4Systems Integration2.12.20.9HTTS & Specialized Businesses3.03.01.6Consulting & Technology Services0.30.30.5Total Group14.914.41.7Full backlog evolution 24 Full Backlog by Market was as follows: In EUR billionJune 2012number of yearManufacturing, Retail & Services5.22.8Public Sector, Healthcare & Transport3.91.7Financial Services2.81.6Telecom, Media & Technology2.11.7Energy & Utilities0.91.4Total Group14.91.7Full backlog evolution C.1.6.3 Full qualified pipeline The full qualified pipeline stood at EUR 5,322 million at the end of June 2012 which represents 7.3 months of revenue. Compared to the same period one year ago, it represents a slight increase of +0.7 month of revenue. In value, the full qualified pipeline slightly decreased by -1 percent (or EUR -58 million) compared to the level recorded at the end of last year on a constant scope and exchange rate basis, further to the signature of large opportunities which transformed the backlog. Full Weighted Pipeline by service line was as follows: In EUR billionJune 2012Dec. 2011 CSnumber of monthsManaged Services2.42.77.2Systems Integration1.61.48.6HTTS & Specialized Businesses1.11.17Consulting & Technology Services0.20.24.4Total Group5.35.47.3Full pipeline evolution Full Weighted Pipeline by Market was as follows: In EUR billionJune 2012nber of monthsManufacturing, Retail & Services1.610.3Public Sector, Healthcare & Transport1.58.0Financial Services1.07.4Telecom, Media & Technology0.76.2Energy & Utilities0.510.0Total Group5.37.3Full pipeline evolution 25 Evolution of pipeline during the twelve months was as follow (at historical FX rates): 1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,000Jun-11Aug-11Oct-11Dec-11Feb-12Apr-12Jun-12QualifiedPipeline value Deals below EUR 50 million Deals between EUR 50 - 100 million Deals above EUR 100 million At the end of June 2012, deals above EUR 100 million represented 14 percent of the qualified pipeline and deals between EUR 50 million and EUR 100 million represented 13 percent of the total qualified pipeline. This is in line with the split of deals that we had in the pipe at the end of December 2011, despite the signatures during this first semester of large deals such as McGraw Hill in North America or NDA in the UK or our first bank customer in Germany. C.1.7 Human Resources The total number of employees was 75,329 at the end of June 2012 compared to 73,969 at the end of December 2011, representing an increase of +1,360 people over the period. Excluding the contribution of entities entering the scope in 2012, the total number of staff was stable but included a decrease of Indirect headcount of -426 (within the context of AVA implementation and on-going restructuring plan mainly dedicated to former SIS support functions and middle management), offset by an increase of +839 in the direct workforce. The level of Indirect headcounts decreased by -6 percent over the first semester, after -11 percent for the full year 2011. The number of direct employees at the end of June 2012 was 68,576, representing 91 percent of the total headcount, compared to 89.5 percent at the end of 2011 and 90.5 percent at the end of March 2012. 26 C.1.7.1 Headcount evolution Detailed headcount movements during the first six months of the year were the following: HeadcountsOpening Jan-12Closing June-12Change%Germany7,4387,606168+2.3%France9,7639,572-191-2.0%United-Kingdom & Ireland8,9559,673718+8.0%Benelux62716129-142-2.3%Atos Worldline5,1255,302177+3.5%Central & Eastern Europe425753831126+26.5%North America3,5403,60969+1.9%North & South West Europe14171406-11-0.8%Iberia4,6314,575-56-1.2%Other BUs1478115267486+3.3%Global Structures50544+8.0%Direct66,22868,5762,348+3.5%Indirect7,7416,752-989-12.8%Total Group73,96975,3291,360+1.8% Changes in scope The changes in scope in the first half of 2012 related to the impact of the acquisitions of SIS related deferred assets (e-utile, Russia), MSL, Bluekiwi and Quality Equipment. Hiring The volume of recruitment reached +5,497 in direct workforce, primarily in Managed Services (+2,725) and then Systems Integration (+1,486). On a yearly basis, this level of recruitment represented 16 percent of the adjusted opening workforce. Leavers Leavers comprise voluntary permanent staff leavers, as permanent staff who have been dismissed are classified under “dismissed”. The total number of leavers in the first half of 2012 was 3,879 of which 3,506 in the direct workforce. Staff attrition decreased by -1.1 point during the period at 10.7 percent for the first six months of 2012 compared to 11.8 percent for the full year 2011. Attrition rate was decreasing in all geographies during the semester, dropping to around 7 percent in the large European countries and remaining at around 22 percent in the emerging countries such as India, Latin America or Asia. 27 Restructuring & Dismissals Restructuring efforts were mainly concentrated in Germany, France Benelux and Central & Eastern Europe, reflecting both the impact of the SIS integration (Germany, CEE) and the ongoing resizing plans to cope with difficult business context in France and Benelux. As a result of the headcount reorganization program following the SIS integration, circa 680 employees left the Group during the first six months of the year. C.1.7.2 External Subcontractors The number of direct subcontractors, at a level of 8,484 at the end of 2011 following the integration of SIS, decreased to 7,641 at the end of the first half 2012. Direct External subcontractors 8,6048,7638,4848,2828,9708,0778,2517,5927,6411,0002,0003,0004,0005,0006,0007,0008,0009,00010,00011,000 This level of subcontractors represented 10 percent of productive FTE at the end of June 2012, compared to a level of 11 percent at the end of 2011 (and 5.4 percent at the end of 2010 for the former Atos scope only). This level, derived mainly from the SIS scope, is carefully monitored by the Group whose objective is to maintain the number of non-critical subcontractors. 28 C.1.8 2012 objectives After a satisfactory first half, the Group is in a position to confirm all its objectives for 2012 as stated in the February 23rd, 2012 release, i.e.: Revenue In the current economic environment, the Group expects a slight revenue organic growth compared to pro forma 12 months 2011. Operating margin Thanks to the continued integration of SIS and the roll out of the TOP² Program, the Group has the objective to improve its operating margin rate to 6.5 percent of revenue compared to 4.8 percent for pro forma 12 months 2011. Free cash flow The Group has the ambition to achieve a free cash flow of around EUR 250 million. The improvement compared to 2011 statutory is expected from the increase in operating margin and a tougher control on capital expenditure and working capital. Earnings per share (EPS) The Group forecasts EPS (adjusted, non-diluted) in line with the +50 percent increase targeted for 2013 compared to 2011 statutory. 29 C.2 Financial review C.2.1 Income statement The Group reported a net income (attributable to owners of the parent) of EUR 101.8 million for the half year 2012, which represents 2.3% of Group revenues of the period. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was EUR 155.7 million, representing 3.6% of Group revenues of the period, in increase by + 53.4% compared with last year. (in EUR million)6 months ended 30 June 2012% Margin6 months ended 30 June 2011% MarginOperating margin 248.85.7%166.26.7%Other operating income / (expenses)(78.4)(5.8)Net financial income / (expenses)(19.7)(22.6)Tax charge (47.7)(38.9)Non-controlling interests and associates(1.2)0.7Netincome–Attributabletoownersof the parent101.82.3%99.64.0%Normalizednetincome–Attributabletoownersoftheparent(*)155.73.6%101.54.1%(*) Defined hereafter.6.5%Operating income170.43.9%160.4 C.2.1.1 Operating margin Income and expenses are presented in the Consolidated Income Statement by nature to reflect the specificities of the Group’s business more accurately. Under the line item presenting revenues, ordinary operating expenses are broken down into staff expenses and operating expenses. These two captions together are deducted from revenues to obtain operating margin, one of the main Group business performance indicators. Operating margin represents the underlying operational performance of the on-going business and is explained in the operational review. 30 C.2.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of EUR 78.4 million in the first half of 2012. The following table presents this amount by nature and destination: (In EUR million)6 months ended 30 June 20126 months ended 30 June 2011Staff reorganization(27.6)(24.1)Rationalization and associated costs(8.1)1.8Integration costs(28.4)(16.3)Customer relationships amortization (PPA) *(20.2)-Change in UK pension indexation - 33.0Other items5.9(0.2)Total(78.4)(5.8)* Purchase Price Allocation. The EUR 27.6 million staff reorganization expense was the consequence of both the Group workforce adaptation to the effects of the economic recession and the non-recurring costs induced by the TOP Programs aimed at improving Group efficiency and productivity. The EUR 8.1 million rationalization and associated costs primarily resulted from office premises rationalization and datacenters consolidation mainly in Latin America for EUR 3.6 million, N&SWE for EUR 1.4 million and Asia Pacific for EUR 1.1 million. The costs of integration resulting from the acquisition of Siemens IT Solutions and Services (SIS) for EUR 28.4 million consisted of IT infrastructure carve out and homogenization of tools and processes. C.2.1.3 Net financial expense Net financial expense amounted to EUR 19.7 million for the period (compared with EUR 22.6 million last year) and was composed of a net cost of financial debt of EUR 16.5 million and non-operational financial costs of EUR 3.2 million. Non-operational financial costs amounted to EUR 3.2 million compared to EUR 14.1 million in June 2011 and mainly consisted of pension financial related costs (EUR 2.5 million compared to EUR 5.9 million in 2011). These costs represented the difference between the interest costs and the expected return on plan assets. Please refer to the Note 14 Pensions for further explanations. C.2.1.4 Corporate tax The tax charge per June 2012 is EUR 47.7 million including CVAE (Cotisation sur la Valeur Ajoutée des Entreprises) with a profit before tax of EUR 150.7 million, resulting in an Effective Tax Rate (ETR) of 31.6% by applying the normalized ETR full year of 30.2%, subsequently adjusted for the tax impact of discrete items. 31 C.2.1.5 Non controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. They were mostly located in Austria for EUR 3.0 million of profit for the period. C.2.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) is EUR 155.7 million, increasing by +53.4% compared with last year. (in EUR million) 6 months ended 30 June 20126 months ended 30 June 2011Net income - Attributable to owners of the parent101.899.6Other operating income and expenses(78.4)(5.8)Tax effect on other operating income and expenses25.6(0.6)Other unusual items on tax(1.1)4.5Total unusual items – Net of tax(53.9)(1.9)Normalized net income - Attributable to owners of the parent 155.7101.5 C.2.2 Earnings per share (in EUR million)6 months ended 30 June 2012% Margin6 months ended 30 June 2011% MarginNetincome–Attributabletoownersof the parent [a]101.82.3%99.64.0%Impact of dilutive instruments 7.94.5Netincomerestatedofdilutiveinstruments-Attributabletoownersof the parent [b]109.72.5%104.14.2%Normalizednetincome–Attributabletoownersoftheparent[c]155.73.6%101.54.1%Impact of dilutive instruments 7.94.5Normalizednetincomerestatedofdilutive instruments - Attributable to owners of the parent [d]163.63.7%106.04.3%Average number of shares [e] 83,454,764 69,691,788 Impact of dilutive instruments 12,451,971 7,041,694 Diluted average number of shares [f] 95,906,735 76,733,482 (In EUR)Basic EPS [a] / [e]1.221.43Diluted EPS [b] / [f]1.141.36Normalized basic EPS [c] / [e]1.871.46Normalized diluted EPS [d] / [f]1.711.38 Potential dilutive instruments comprised stock subscription (equivalent to 1,655,069 options) and convertible bonds (equivalent to 10,796,902 shares of which 5,414,771 issued in 2009 32 and 5,382,131 issued in 2011). The convertible bonds are the only instruments that generate a restatement of net income used for the diluted EPS calculation. The EUR 7.9 million restatements corresponded to the interest expenses relating to the liability component net of deferred tax (EUR 4.7 million issued in 2009 and EUR 3.2 million issued in 2011). Normalized basic and diluted EPS reached respectively EUR 1.87 (EUR 1.46 in June 2011) and EUR 1.71 (EUR 1.38 in June 2011) and increase over the period by respectively +28% and +24%. Normalized diluted EPS factored the issuance of the 2011 new convertible bonds. The adjusted non-diluted EPS presented here below constitutes a key indicator used by the Group to measure the efficiency of its management and to communicate on its performance. (in EUR million) 6 months ended 30 June 20126 months ended 30 June 2011Net income - Attributable to owners of the parent101.899.6Staff reorganization(27.6)(24.1)Rationalization and associated costs(8.1)1.8Customer relationships amortization (PPA) *(20.2)-Subtotal(55.9)(22.3)Tax effect with effective tax rate 17.76.3Total adjusments – Net of tax(38.2)(16.0)Adjusted net income - Attributable to owners of the parent 140.1115.6Average number of shares 83,454,76469,691,788Adjusted non-diluted EPS1.681.66* Purchase Price Allocation. 33 C.2.3 Cash flow and net debt The Group net debt stands at a net cash positive of EUR -100.6 million at the end of June 2012, thus representing an improvement in net cash flow of EUR 191.6 million. (in EUR million)6 months ended 30 June 20126 months ended 30 June 2011Operating Margin before Depreciation and Amortization (OMDA)345.4241.0Net capital expenditures(131.0)(72.3)Change in working capital requirement58.451.7Cash from operation (CFO)272.8220.4Taxes paid(30.8)(21.9)Net cost of financial debt paid(16.5)(8.5)Reorganization in other operating income (25.4)(34.7)Rationalization & associated costs in other operating income (24.9)(20.1)Integration and acquisition costs(28.5)(16.3)Net financial investments (*)(4.9)(8.6)Profit sharing amounts payable transferred to debt(2.5)(5.8)Other changes (**)(9.9)(21.4)Free Cash Flow129.483.1Net (acquisitions) / disposals103.0-Capital increase / (decrease)10.0-Dividends paid to owners of the parent-(34.9)Change in net debt (cash)242.448.2Opening net debt141.8139.2Closing net debt /(cash)(100.6)91.0(**) "Other changes" include translation differences, disposal of operational assets, other operating income with cash impact (excluding reorganization, rationalization and associated costs, integration costs and acquisition costs), dividends paid to non-controlling interests, sale treasury stock & common stock issues and other financial items with cash impact.(*) Net Long term financial investments excluding acquisitions and disposals. Free cash flow represented by the change in net cash or net debt, excluding equity changes, dividends paid to shareholders and net acquisitions and disposals, reached EUR 129.4 million compared with EUR 83.1 million during the six months ended 30 June 2011. Cash from Operations (CFO) amounted to EUR 272.8 million and increased by EUR 52.4 million compared to last year. This increase resulted from the evolution of the following items: OMDA (EUR +104.4 million), Higher net capital expenditures (EUR -58.7 million), Change in working capital requirement (EUR +6.7 million). 34 OMDA of EUR 345.4 million, representing an increase of EUR +104.4 million compared to June 2011, reached 7.9% of revenues against 9.7% of revenues in June 2011. This growth in OMDA derived from the operating margin improvement. (in EUR million)6 months ended 30 June 20126 months ended 30 June 2011Operating margin248.8166.2 + Depreciation of fixed assets174.996.7 + Net book value of assets sold / written off5.30.8 + Charge for equity-based compensation7.04.4+/- Net charge / (release) of pension provisions(22.9)(25.6)+/- Net charge / (release) of provisions excluding release provisions from SiS combination(8.3)(1.5) - Release of provisions from SiS combination(59.4)-OMDA345.4241.0 The amount of EUR 59.4 million of release of provisions from SIS combination corresponded to losses incurred on projects, litigations and assets brought by SIS at completion date. The net capital expenditures amounted to EUR 131.0 million or 3.0% of revenue slightly above the level of the first half of 2011 at 2.9%. The positive change in working capital was EUR 58.4 million (higher than last year by EUR +6.7 million). The DSO ratio changed from 61 days at the end of June 2011 to 53 days at the end of June 2012. In the meantime, the DPO varied from 86 days last year to 72 days as of June 2012. Cash out related to taxes paid reached EUR 30.8 million higher than last year by EUR 8.9 million. The cost of net debt of EUR 16.5 million (including convertible bond) increased by EUR 8.0 million compared to the first half of 2011. This was mainly led by a higher cost of gross debt which was impacted by: Increase of EUR +397.9 million in the amount of average gross debt (EUR 948.2 million compared to EUR 550.3 million in the first half of 2011); The effective cost of the new convertible bond OCEANE attributed to Siemens. This was partially offset by a better remuneration of the Group average at 1.35% compared to 0.20% in the first half 2011. Cash outflow linked to reorganization and rationalization and associated costs represented EUR 50.3 million, in line with the plan of the period. Miscellaneous Net financial investments amounted to EUR 4.9 million. Other changes of EUR 9.9 million mainly corresponded to: Other operating expenses excluding reorganization, rationalization and associated costs, integration costs and acquisition costs amounted to an expense of EUR 17.9 million mainly composed of an exceptional recovery payment to the Dutch pension plan (for EUR 17.1 million);and Sale of treasury stock and issuance of common stock for (EUR 9.8 million). 35 As a result, the Group free cash flow (FCF) generated during the first half 2012 was EUR 129.4 million. The Group has decided to exclude all acquisitions and disposals from the Group free cash flow and not only the significant ones, as it was previously the case. Non “Significant” was defined by the rule “which price is below 0.15 % of Group External Revenue”. The objective of such a change is to provide a more adequate assessment of the Group operational performance as well as to align the Free Cash Flow definition on the market position and main competitors. This change has no effect on the Group free cash flow reported in 2011. The net debt EUR 103.0 million and resulted from the following transactions: impact resulting from net acquisitions/disposals represented Regarding the acquisition of Siemens IT Solutions and Services: o Purchase price adjustment resulting from the final settlement agreed by the parties in February 2012 for EUR +160.8 million; and o The EUR -38.0 million deferred assets or acquisitions including EUR -22.7 million of net debt (of which e-utile amounted for EUR -34.1 million); The acquisition of 50 per cent of the shares of MSL Technology S.L. for EUR -10.6 million (including EUR +0.4 million of cash) to create a leader in Sports and Major Events IT industry; The acquisition of blueKiwi for EUR -10.5 million (including EUR -1.1 million of net debt); The acquisition of Quality Equipment B.V. for EUR -10.2 million (including EUR -0.7 million of net debt), a Dutch electronic payment player; The disposal of the 49 per cent share held in the Belgium joint venture Sinsys for EUR +11.5 million (including EUR +0.3 million of cash). The capital increase of EUR 10.0 million was subscribed by our partner in Canopy Cloud Limited, a company dedicated to cloud computing. C.2.4 Parent company results The profit before tax of the parent company amounts to EUR 21.6 million for the end of June 2012, compared with EUR 27.8 million for the first semester 2011. 36 C.3 Interim condensed financial statements C.3.1 Interim consolidated income statement (in EUR million)Notes6 months ended 30 June 20126 months ended 30 June 2011Revenue Note 24,366.02,476.4Personnel expensesNote 3(2,273.7)(1,399.5)Operating expensesNote 4(1,843.5)(910.7)Operating margin248.8166.2% of revenue5.7%6.7%OtheroperatingincomeandexpensesNote 5(78.4)(5.8)Operating income170.4160.4% of revenue3.9%6.5%Net cost of financial debt(16.5)(8.5)Other financial expenses(26.9)(21.4)Other financial income23.77.3Net financial incomeNote 6(19.7)(22.6)Net income before tax150.7137.8Tax chargeNote 7(47.7)(38.9)Shareofnetprofit/(loss)ofassociates1.7(0.3)Net income104.798.6Of which:- attributable to owners of the 101.899.6- non-controlling interestsNote 82.9(1.0)(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 9Weightedaveragenumberofshares 83,454,76469,691,788Basic earnings per share1.221.43Dilutedweightedaveragenumberof shares 95,906,73576,733,482Diluted earnings per share1.141.36 37 C.3.2 Interim consolidated statement of comprehensive income (in EUR million)6 months ended 30 June 20126 months ended 30 June 2011Net income 104.798.6Other comprehensive income:Cash flow hedging (2.0)3.8(173.4)16.424.8(39.4)36.6(7.8)Total other comprehensive income(114.0)(27.0)Total comprehensive income for the period(9.3)71.6Of which:- attributable to owners of the parent(12.1)72.8- non-controlling interests2.8(1.2)ExchangedifferencesontranslationofforeignoperationsDeferred tax on items recognized directly on equityActuarial gains and losses generated in the period on defined benefit plan 38 C.3.3 Interim consolidated statement of financial position (in EUR million)Notes30 June 201231 December 2011 restated *31 December 2011published30 June 2011ASSETSGoodwillNote 101,965.81,917.61,982.21,578.1Intangible assets465.6466.7472.183.7Tangible assets683.1696.9680.2367.5Non-current financial assetsNote 11470.4681.9580.3255.0Non-current financial instruments-0.10.10.8Deferred tax assets436.4352.7381.3308.9Total non-current assets4,021.34,115.94,096.22,594.0Trade accounts and notes receivablesNote 122,012.61,924.51,928.31,293.7Current taxes28.917.517.512.2Other current assets534.0552.0557.2223.9Current financial instruments3.01.11.12.6Cash and cash equivalentsNote 131,045.0766.8766.8596.7Total current assets3,623.53,261.93,270.92,129.1Total assets7,644.87,377.87,367.14,723.1(in EUR million)Notes30 June 201231 December 2011 restated *31 December 2011published30 June 2011LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock84.683.683.669.9Additional paid-in capital1,802.21,766.51,766.51,335.4Consolidated retained earnings408.0397.9403.9306.6Translation adjustments(82.3)(107.1)(112.7)(141.6)Netincomeattributabletotheowners of the parent101.8184.0181.699.6Equityattributabletotheownersof the parent2,314.32,324.92,322.91,669.9Non-controlling interests31.16.06.04.2Total shareholders’ equity2,345.42,330.92,328.91,674.1ProvisionsforpensionsandsimilarbenefitsNote 14661.9571.8571.8433.7Non-current provisionsNote 15148.5167.8162.364.4BorrowingsNote 16766.3734.5734.5502.9Deferred tax liabilities277.4237.7244.6108.2Non-current financial instruments6.25.65.60.9Other non-current liabilities11.411.811.813.8Total non-current liabilities1,871.71,729.21,730.61,123.9Trade accounts and notes Note 171,054.2925.6927.2604.4Current taxes107.776.176.441.1Current provisionsNote 15380.2523.0509.784.4Current financial instruments8.56.26.22.7Current portion of borrowingsNote 16178.1174.1174.1184.8Other current liabilitiesNote 181,699.01,612.71,614.01,007.7Total current liabilities3,427.73,317.73,307.61,925.1Total liabilities and shareholders’ equity7,644.87,377.87,367.14,723.1*TheconsolidatedstatementoffinancialpositionasofDecember31st,2011isrestatedinordertoreflecttheimpactsofthechangesinthepurchasepriceallocationrelatedtothebusinesscombinationwithSiemensITSolutionsandServices described in note1 Changes of scope of consolidation - business combination. 39 C.3.4 Interim consolidated cash flow statement (in EUR million)Notes6 months ended 30 June 20126 months ended 30 June 2011Profit before tax150.7137.8Depreciation of assetsNote 4174.996.7Net charge / (release) to operating provisions(90.5)(27.1)Net charge / (release) to financial provisions3.42.9Net charge / (release) to other operating provisions(35.3)(69.1)Customer relationships amortization (PPA)20.2-Losses / (gains) on disposals of fixed assets(1.8)-Net charge for equity-based compensation7.04.4Losses / (gains) on financial instruments(0.3)2.4Net cost of financial debtNote 616.58.5Cash from operating activities before change in working capital requirement, financial interest and taxes244.8156.5Taxes paid(30.8)(21.9)Change in working capital requirement58.451.7Net cash from/ (used in) operating activities272.4186.3Payment for tangible and intangible assets(155.3)(73.3)Proceeds from disposals of tangible and intangible assets24.31.0Net operating investments(131.0)(72.3)Amounts paid / received for acquisitions and long-term investments 114.7(15.1)Cash and cash equivalents of companies purchased during the period0.1-Proceeds from disposals of financial investments12.86.5Cash and cash equivalents of companies sold during the period(0.4) - Net long-term investments127.2(8.6)Net cash from/ (used in) investing activities (3.8)(80.9)Common stock issues on the exercise of equity-based compensation9.81.5Dividends paid to owners of the parent-(34.9)New borrowingsNote 1627.55.8New finance leaseNote 160.80.3Repayment of long and medium-term borrowingsNote 16(33.0)(20.9)Net cost of financial debt paid(12.7)(7.2)Other flows related to financing activities7.8140.9Net cash from/ (used in) financing activities0.285.5Increase/ (decrease) in net cash and cash equivalents268.8190.9Opening net cash and cash equivalents722.8416.5Increase/ (decrease) in net cash and cash equivalentsNote 16268.8190.9Impact of exchange rate fluctuations on cash and cash equivalents3.2(13.6)Closing net cash and cash equivalentsNote 16994.8593.8 40 C.3.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At 1 January 201169,91469.91,333.9209.1(102.2)(0.7)116.11,626.15.41,631.5* Common stock issued 630.01.51.51.5* Appropriation of prior period net income116.1(116.1) - - * Dividends paid to non-controlling interests(34.9)(34.9)(34.9)* Equity-based compensation4.44.44.4Transactions with owners630.01.585.6 - - (116.1)(29.0) - (29.0)* Net income 99.699.6(1.0)98.6* Other Comprehensive income9.7(39.4)2.9(26.8)(0.2)(27.0)Total comprehensive income for the period9.7(39.4)2.999.672.8(1.2)71.6At 30 June 201169,97769.91,335.4304.4(141.6)2.299.61,669.94.21,674.1* Common stock issued 13,59013.7431.1444.8444.8* Equity-based compensation6.16.16.1* Changes in treasury stock0.20.2(2.4)(2.2)* Equity portion of compound instrument 20.820.820.8* Other72.272.22.374.5Transactions with owners13,59013.7431.199.3 - - - 544.1(0.1)544.0* Net income 82.082.02.284.2* Other Comprehensive income6.828.9(8.8)26.9(0.3)26.6Total comprehensive income for the period6.828.9(8.8)82.0108.91.9110.8At 31 December 201183,56783.61,766.5410.5(112.7)(6.6)181.62,322.96.02,328.9Changes in SIS business combination at 1 January 2012(6.0)5.62.42.0-2.0At 1 January 2012 restated83,56783.61,766.5404.5(107.1)(6.6)184.02,324.96.02,330.9* Common stock issued 1,0281.035.736.711.348.0* Appropriation of prior period net income184.0(184.0) - - * Dividends paid to shareholders(41.9)(41.9)(41.9)* Equity-based compensation7.07.07.0* Other(0.3)(0.3)11.010.7Transactions with owners1,0281.035.7148.8 - - (184.0)1.522.323.8* Net income 101.8101.82.9104.7* Other Comprehensive income(138.7)24.8(113.9)(0.1)(114.0)Total comprehensive income for the period(138.7)24.8 - 101.8(12.1)2.8(9.3)At 30 June 201284,59584.61,802.2414.6(82.3)(6.6)101.82,314.331.12,345.4 (in EUR million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests 41 C.3.6 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2012 C.3.6.1 Basis of preparation The 2012 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at 30 June 2012. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias/index_en.htm The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the 31 December 2011 financial statements and disclosed in the Group’s 2011 Reference Document. The interim consolidated financial statements for the six months ended 30 June 2012 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2011. The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after 1 January 2012: Amendments to IAS 1 – Presentation of Items of Other Comprehensive Income; Amendments to IAS 19 – Employee Benefits. The impact of the other changes in standards and interpretations on the Group’s Financial Statements is limited. The interim consolidated financial statements do not take into account: Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB). 42 New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: o o Amendments to IFRS 1 - Severe Hyperinflation; o Amendments to IFRS 7 - Disclosures : Transfers of Financial Assets; o Amendments to IAS 12 - Deferred Taxes : Recovery of Underlying Assets; o o o o o o o o Amendment to IFRS 1 – Government loans. IFRS 9 - Financial Instruments (replacement of IAS 39); IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IFRS 13 - Fair Value Measurement; IAS 27 (revised) - Separate Financial Statements; IAS 28 (revised) - Investments in Associates and Joint Ventures; IFRIC 20 - Stripping Costs in the production Phase of a surface Mine; The potential impact of these standards, amendments and interpretations on the interim condensed consolidated financial statements is currently being assessed. C.3.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant changes in the discount rate to be used under IAS 19, and limited to the Group’s most significant pension plans. For less significant plans, actuarial projections are used. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecast current and deferred tax expense for the year in the light of full-year earnings projections. 43 C.3.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation Business combination As of July 1st, 2011, Atos acquired from Siemens 100% of Siemens IT Solutions and Services, European based leading IT services provider which offers IT expertise and delivers industry focused end-to-end IT solutions. The deal has created a new company ranked in the top ten global IT services providers, the new company is a powerful combination of two highly complementary organizations in matters of geography, business and industry. Following this acquisition, Siemens became the largest customer of Atos. The following summarizes the major classes of consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the acquisition. Consideration transferred (in EUR million)AmountInitial consideration paid in cash176.6Price adjustments (145.4)Convertible bonds issued to Siemens 250.0Atos' shares issued to Siemens482.4Total consideration transferred 763.6 Convertible bonds Siemens has received EUR 5.4 million bonds convertible into new or existing shares of Atos representing a nominal amount of EUR 250.0 million. Atos Shares As part of the transaction Atos also issued EUR 12.5 million new ordinary shares in Atos representing 15% of the share capital of Atos, fully paid-up, with a par value of one euro. The fair value of ordinary shares issued was based on the listed share price of the Company at July 1st, 2011 of EUR 38.65. Price adjustments A Price adjustment of EUR 160.8 million in favor of Atos resulting from the application of the deal terms have been agreed by the parties in February 2012 and was settled in cash in the first quarter of 2012. In addition, additional consideration for EUR 15.4 million had to be transferred in 2012 for assets and liabilities for which acquisition was deferred for regulatory or contractual reasons. Those price adjustments include EUR 30.0 million of contingent consideration corresponding to doubtful receivables and loss making contract provision which would be reimbursed to Siemens in the unlikely situation where such losses would not occur. 44 Indemnification in respect of representations and warranties given by Siemens Save for certain exceptions, Siemens has undertaken to indemnify Atos for any individual loss suffered as a result of the breach or inaccuracy of the representations and warranties given, up to a cap of EUR 100.0 million and subject to customary limitations including with respect to thresholds and time limits. Indemnification of Atos for certain specific risks In addition to and irrespective of the representations and warranties given to Atos, as mentioned above, Siemens has agreed to indemnify Atos in respect of certain risks and/or costs, including those specifically described hereafter. Siemens activities outside the scope of the SIS business Siemens has agreed to indemnify Atos for all costs or risks relating to the activities of Siemens which are not part of the SIS Business acquired by Atos. Identified contracts at risk – Projects risks Siemens has agreed to compensate, subject to certain limitations, Atos for certain risks and losses incurred in respect of four specific commercial contracts entered into by SIS. Risks arising from other commercial contracts Siemens has agreed to partially indemnify Atos, subject to certain limitations, in respect of (i) commercial contracts entered into by SIS that are terminated by a customer as a result of a change of control of SIS following the contribution or the implementation of the carve-out as well as (ii) certain commercial contracts that are considered at risk of generating losses and are identified within a period of two years following the closing date as either not having been or not having been properly accounted for in the determination of the cash adjustment agreed on February 23rd, 2012. Siemens' residual liability in respect of this indemnity is capped at EUR 119.4 million. Certain commercial disputes Siemens has also given a specific indemnity for the costs to be incurred in respect of certain ongoing commercial disputes of SIS. 45 Identifiable assets acquired and liabilities assumed at the date of acquisition (in EUR million) Initial assets acquired and liability assumed Deferred assets and liabilities Other Adjustment Assets acquired and liabilty assumed at the end of the measurement period Intangible assets396.511.2(5.4)402.3Tangible assets309.416.716.7342.8Non-current financial assets4.5--4.5Deferred tax assets138.80.5(27.8)111.5Other non current assets--98.998.9Total non-current assets849.228.582.5960.1Trade accounts and notes receivables741.543.1(3.8)780.7Current taxes14.50.3-14.9Other current assets412.91.7(5.2)409.4Current financial instruments31.8--31.8Cash and cash equivalents248.93.0-251.9Total current assets1,449.648.1(9.0)1,488.7Total assets (A)2,298.876.573.52,448.8Provision for pensions and similar benefits78.84.2-83.0Provisions621.92.218.8642.9Non-current portion of borrowings0.715.7-16.4Deferred tax liabilities165.80.7(6.9)159.5Other non-current liabilities26.1--26.1Total non-current assets893.322.811.9928.0Trade accounts and notes payables387.719.1(1.6)405.2Current taxes5.40.3(0.3)5.4Current financial instruments0.3--0.3Current portion of borrowings42.210.0-52.2Other current liabilities595.110.8(1.3)604.6Current liabilities1,030.740.2(3.2)1,067.7Total liabilities (B)1,924.062.98.81,995.7Fairvalueofidentifiablenetassets(A)-(B)374.813.664.7453.1 The valuation of assets acquired and liability assumed at their fair value has resulted in the recognition of new intangible assets, EUR 333.3 million of customer relationships and backlog determined by an independent expert, and the re-measurement of tangible assets and liabilities. This amount is being amortized on a straight line basis over a period of 8.75 years for the major part, generating an annual charge of EUR 38.2 million. Therefore, a charge of EUR 19.1 million was recorded for the first half of 2012. 46 Goodwill Goodwill recognized as a result of the acquisition is detailed as follows: (in EUR million)AmountTotal consideration transferred763.6Fair value of identifiable net assets453.1Goodwill310.5 The residual goodwill is attributable mainly to the balanced geographical position, Siemens IT Solutions and Services’ highly skilled workforce and some know-how. It also reflects the synergies expected to be achieved from integrating into the Group. Goodwill arising from this acquisition is not tax deductible. Net cash outflow on acquisition of subsidiaries Part of the consideration transferred has been paid in cash and amounted to EUR 176.6 million. On July 1st, 2011, at the end of the transaction, the net cash and cash equivalents brought by SIS were EUR 361.0 million. This amount includes an EUR 155.0 million amount reflected in the acquisition price in order to compensate for the negative impact of the new payment term applied to former SIS contracts with the Siemens Group (from zero to 45 days) from July 1st, 2011. Consequently, the net impact of the net cash and cash equivalents of the acquisition of SIS is a positive result of EUR 29.4 million. Other acquisitions The Group has invested EUR 29.9 million into the acquisition of controlling interests in the three following companies: blueKiwi, a social workplace software company located in France; MSL Technology S.L. in Spain, a provider of real-time results and information systems for major sports events; Quality Equipment B.V., a Dutch player in electronic payments. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. 47 Following the acquisition of SIS, the chief operating maker decided to reorganize as per the operating segments detailed here below: Operating segments Activities Germany Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline and Atos Worldgrid) in Germany. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline and Atos Worldgrid) in France. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses in Ireland and the United Kingdom. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline) in Belux and The Netherlands. Hi-Tech Transactional Services & Specialized Businesses in Belgium, China, France, Germany, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand and The Netherlands. Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses in Austria, Bulgaria, Croatia, Czech Republic, Poland, Romania, Serbia, Slovakia, Turkey and Russia. Systems Integration, Managed Services in Canada and United States of America. Systems Integration, Managed Services and Hi-Tech in Transactional Services & Specialized Businesses Denmark, Finland & Baltics, Greece, Italy, Sweden and Switzerland. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldgrid) in Andorra, Portugal and Spain. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline) in Argentina, Australia, Brazil, Chile, China, Colombia, Egypt, Hong-Kong, India, Indonesia, Japan, Malaysia, Mexico, Morocco, Philippines, Singapore, South Africa, Taiwan, Thailand, UAE, and also Atos Worldgrid (China, France, Germany, Italy and Spain) and Major Events activities. France United Kingdom & Ireland Benelux Atos Worldline India, Central Europe & Eastern North America North & South Western Europe Iberia Other Countries Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from each external contract amounted to less than 10 per cent of the Group’s revenue. 48 The changes compared to 2011 segments organisation are the following: Operating segments in 2011 Bridge Operating segments in 2012 Germany Atos Worldgrid Germany Other countries The change in internal management reporting is applied retrospectively and comparative figures are restated. 49 The operating segment information for the periods is as follows: GermanyFranceUnited Kingdom and IrelandBeneluxAtos WorldlineCentral and Eastern EuropeNorth AmericaNorth and South West EuropeIberiaOther countriesTotal Operating segmentsGlobal Delivery LinesOther CorporateEliminationExternal revenue by 839.5499.9812.2492.6457.1269.3275.4202.4164.8352.84,366.0-4,366.0%19.2%11.5%18.6%11.3%10.5%6.2%6.3%4.6%3.8%8.1%100.0%100.0%Inter-segment revenue69.845.614.733.512.448.17.06.25.396.2338.8-8.0(346.8) - Total revenue 909.3545.5826.9526.1469.5317.4282.4208.6170.1449.04,704.8 - 8.0(346.8)4,366.0Segment operating margin 65.60.555.633.678.626.823.313.22.519.1318.8-(70.0)248.8%7.8%0.1%6.8%6.8%17.2%10.0%8.5%6.5%1.5%5.4%7.3%5.7%Total segment assets 1,003.3 624.0 1,078.6 941.8 707.7 340.9 225.0 301.9 202.2 557.7 5,983.1 151.4 6,134.5 External revenue by segment198.0505.3458.0440.6434.725.340.310.3149.4214.52,476.4-2,476.4%8.0%20.4%18.5%17.8%17.6%1.0%1.6%0.4%6.0%8.7%100.0%100.0%Inter-segment revenue21.340.03.617.94.88.11.71.93.253.5156.0(156.0) - Total revenue 219.3545.3461.6458.5439.533.442.012.2152.6268.02,632.4-(156.0)2,476.4Segment operating margin 11.418.334.333.269.31.93.51.9(0.1)20.1193.82.6(30.2)166.2%5.8%3.6%7.5%7.5%15.9%7.5%8.7%18.4%-0.1%9.4%7.8%6.7%Total segment assets230.7652.6723.2801.7712.324.927.739.8202.6318.63,734.171.23,805.36 months ended 30 June 2011 (in EUR million)Total Group6 months ended 30 June 2012 50 The reportable assets are reconciled to total assets as follows: Total segment assets6,134.53,805.3Current & deferred tax Assets465.3321.1Cash & Cash Equivalents1,045.0596.7Total Assets7,644.84,723.16 months ended30 June 2011(in EUR million)6 months ended 30 June 2012 Note 3 Personnel expenses (In EUR million)6 months ended 30 June 2012% Revenue6 months ended 30 June 2011% RevenueWages and salaries (1,777.6)40.7%(1,081.8)43.7%Social security charges(479.1)11.0%(315.3)12.7%Tax, training, profit-sharing(34.2)0.8%(24.4)1.0%Equity-based compensation(7.0)0.2%(4.4)0.2%Net (charge) /release to provisions for staff expenses1.30.0%0.80.0%Difference between pension contributions and net pension expense (*)22.9-0.5%25.6-1.0%Total(2,273.7)52.1%(1,399.5)56.5%(*) Difference between total cash contributions made to the pension funds and the net pension expense under IAS19. Equity based compensation The EUR 7.0 million charges recorded within operating margin for equity based compensation (EUR 4.4 million during the first half of 2011) is made of: EUR 5.6 million related to the share grant plans which had set-up in December 2011 and March 2012, EUR 1.2 million related to the stock options granted in previous years, and EUR 0.2 million related to the Management and Long-Term Incentive plans (“MIP” and “LTI” plans) implemented in 2008 and in 2007. Free share plans On March 29th, 2012, the Group has set-up a new plan for which EUR 0.1 million has been recorded in the financial statements of the period. Stock option plans The Group recognized a total expense of EUR 1.2 million on stock options (EUR 4.1 million during the first half of 2011). 51 The total expense in operating margin related to all stock option plans during the semester is as follows: (In EUR million)6 months ended 30 June 20126 months ended 30 June 201123 December 20080.10.326 March 20090.30.93 July 20090.30.94 September 20090.10.331 December 20100.41.7Total1.24.1 Note 4 Operating expenses (In EUR million)6 months ended 30 June 2012% Revenue6 months ended 30 June 2011% RevenueSubcontracting costs direct(676.3)15.5%(270.4)10.9%Purchase hardware and software(220.7)5.1%(114.5)4.6%Maintenance costs(198.8)4.6%(113.7)4.6%Rent & Lease expenses(146.6)3.4%(91.3)3.7%Telecom costs(146.3)3.4%(56.6)2.3%Travelling expenses(97.6)2.2%(55.7)2.2%Company cars(49.8)1.1%(39.2)1.6%Professional fees (113.8)2.6%(51.4)2.1%Taxes & Similar expenses(16.7)0.4%1.8-0.1%Others expenses(70.7)1.6%(42.9)1.7%Subtotal expenses (1,737.3)39.8%(833.9)33.7%Depreciation of fixed assets(174.9)4.0%(96.7)3.9%Net (charge) / release to provisions66.3-1.5%9.6-0.4%Gains / (Losses) on disposal of assets(1.8)0.0%--Trade Receivables write-off(8.6)0.2%(2.2)0.1%Capitalized Production12.8-0.3%12.5-0.5%Subtotal other expenses(106.2)2.4%(76.8)3.1%Total(1,843.5)42.2%(910.7)36.8% 52 Note 5 Other operating income and expenses (In EUR million)6 months ended 30 June 20126 months ended 30 June 2011Staff reorganization(27.6)(24.1)Rationalization and associated costs(8.1)1.8Integration costs(28.4)(16.3)Customer relationships amortization (PPA) *(20.2)-Change in UK pension indexation - 33.0Other items5.9(0.2)Total(78.4)(5.8)* Purchase Price Allocation. The EUR 27.6 million staff reorganization expense was the consequence of both the Group workforce adaptation to the effects of the economic recession and the non-recurring costs induced by the TOP Programs aimed at improving Group efficiency and productivity. The EUR 8.1 million rationalization and associated costs primarily resulted from office premises rationalization and datacenters consolidation mainly in Latin America for EUR 3.6 million, N&SWE for EUR 1.4 million and Asia Pacific for EUR 1.1 million. The integration costs resulting from the acquisition of Siemens IT Solutions and Services (SIS) for EUR 28.4 million consisted of costs of IT infrastructure carve out and homogenization of tools and processes. Note 6 Net financial income Net cost of financial debt (In EUR million)6 months ended 30 June 20126 months ended 30 June 2011Net interest expenses(15.5)(9.3)Interest on obligations under finance leases(0.6)-Gain/(loss) on disposal of cash equivalents0.70.8Gain/(loss) on interest rate hedges of financial debt (1.1)-Net cost of financial debt(16.5)(8.5) 53 Other financial income and expenses (In EUR million)6 months ended 30 June 20126 months ended 30 June 2011Foreign exchange income / (expenses) 2.0(4.5)Fair value gain/(loss) on forward exchange contracts held for trading(1.1)(2.1)Discounting financial income / (expenses) (0.1)(0.1)Other income / (expenses) (4.0)(7.4)Other financial income and expenses(3.2)(14.1)Of which:- other financial expenses(26.9)(21.4)- other financial income23.77.3 Net financial expense amounted to EUR 19.7 million for the period (compared with EUR 22.6 million last year) and was composed of a net cost of financial debt of EUR 16.5 million and non-operational financial costs of EUR 3.2 million. Non-operational financial costs amounted to EUR 3.2 million compared to EUR 14.1 million in June 2011 and mainly consisted of pension financial related costs (EUR 2.5 million compared to EUR 5.9 million in 2011). These costs represented the difference between the interest costs and the expected return on plan assets Please refer to the Note 14 Pensions for further explanations. Note 7 Income tax expenses The tax charge per June 2012 is EUR 47.7 million with a profit before tax of EUR 150.7 million, resulting in an Effective Tax Rate (ETR) of 31.6% by applying the normalized ETR full year of 30.2%, subsequently adjusted for the tax impact of discrete items. Note 8 Non-controlling interests (In EUR million)31 December 2011Published2012Income Scope ChangesOther30 June 2012Canopy Cloud Limited--10.0-10.0Arbeitsmarketservice BetriebsgmBH & Co KG2.23.0-(0.1)5.1MSL Technology S.L.-(0.3)11.0-10.7Diamis1.5---1.5Yunano--1.3-1.3Atos Pty Ltd1.1(0.2)--0.9Other1.20.4--1.6Total6.02.922.3(0.1)31.1 54 Note 9 Earnings per share Potential dilutive instruments comprised stock subscription (equivalent to 1,655,069 options) and convertible bonds (equivalent to 10,796,902 shares of which 5,414,771 issued in 2009 and 5,382,131 issued in 2011). The convertible bonds are the only instruments that generate a restatement of net income used for the diluted EPS calculation. The EUR 7.9 million restatements corresponded to the interest expenses relating to the liability component net of deferred tax (EUR 4.7 million issued in 2009 and EUR 3.2 million issued in 2011). The average number of stock options not exercised in June 2012 amounted to 8,439,621 shares. (In EUR million and shares)6 months ended 30 June 20126 months ended 30 June 2011Net income - Attributable to owners of the parent [a]101.899.6Impact of dilutive instruments 7.94.5Net income restated of dilutive instruments - Attributable to owners of the parent [b]109.7104.1Average number of shares outstanding [c] 83,454,764 69,691,788 Impact of dilutive instruments [d] 12,451,971 7,041,694 Diluted average number of shares [e]=[c]+[d] 95,906,735 76,733,482 Earnings per share in EUR [a]/[c]1.221.43Diluted earnings per share in EUR [b]/[e]1.141.36 Note 10 Goodwill (In EUR million)31 December 2011Published31 December 2011 RestatedDisposals DepreciationsImpact of business combi-nationExchange rate fluctuations30 June 2012Gross value2,564.42,499.8-29.726.92,556.4Impairment loss(582.2)(582.2)(0.4)-(8.0)(590.6)Carrying amount1,982.21,917.6(0.4)29.718.91,965.8 Goodwill are allocated to cash generating units (CGUs) that are then part of one of the operating segments disclosed in Note 2 as per IFRS 8 requirements. Impairment tests for interim financial reporting have been limited to: CGUs for which an event occurred during the semester giving an indication that their assets may be impaired, other “sensitive” CGUs at the end of June 2012, for which the recoverable amount of assets was close to their carrying values. During the semester, no impairment test was required. 55 Note 11 Non-current financial assets (In EUR million)30 June 201231 December 201131 December 2011RestatedPublishedPension prepayments413.5473.8372.2Other (*)56.9208.1208.1Total470.4681.9580.3 (*) "Other" include loans, deposits, guarantees, investments in associates accounted for under the equity method and non consolidated investments. The EUR 151.2 million variation of “Other” mainly comes from the purchase price adjustments resulting from the application of the deal terms with Siemens which have been agreed by the parties in February 2012 for EUR 160.8 million. Note 12 Trade accounts and notes receivable (In EUR million)30 June 201231 December 201131 December 2011RestatedPublishedGross value2,097.52,010.52,013.4Transition costs19.121.121.1Provision for doubtful debts(104.0)(107.1)(106.3)Net asset value2,012.61,924.51,928.3Prepayments(55.1)(26.3)(26.3)Deferred income and upfront payments received(502.9)(391.1)(391.8)Net accounts receivable 1,454.61,507.11,510.2Number of days’ sales outstanding (DSO)535454 Note 13 Cash and cash equivalents (In EUR million)30 June 201231 December 2011PublishedCash in hand and short-term bank deposit766.2678.2Money market funds 278.888.6Total1,045.0766.8 Depending on market conditions and short-term cash flow expectation, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. 56 Note 14 Pensions The net total amount recognized in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is EUR 248.4 million. The measurement of the liabilities is highly sensitive to long term interest rates, which are the basis of the discount rate to be used under IAS19. Since reference discount rates for the Euro-zone and Switzerland have decreased significantly since December 31st, 2011 plan liabilities and plan assets for major plans in these regions have been remeasured per June 30th, 2012, using the following discount rates. Euro zone United Kingdom 3.40 – 4.15% 4.70% (unchanged since December 31st, 2011) The remeasurement led to an actuarial loss of EUR 173.4 million which is recorded in other comprehensive income. During the first half of 2012, in the UK, the bulk transfer from the Siemens pension fund to the Atos 2011 pension scheme was finalized. Negotiations with Trustees and Siemens around transfer conditions were finalized in February 2012. Employee consultations took place in April 2012, based on which 87% of former SIS employees did not object to the transfer of their past service liabilities. Actual transfer payments were made on June 1st, 2012 to the Atos 2011 pension fund. As a result per June 30th, 2012, the plan liabilities increased with GBP 228.6 million (EUR 284.8 million) and the plan assets with GBP 315.7 million (EUR 393.4 million). Corresponding numbers per June 30th, 2011 are: plan liabilities GBP 211.7 million (EUR 234.6 million) and plan assets GBP 300.7 million (EUR 333.2 million). Balance sheet, and profit loss ending per December 31st, 2011 have been restated to reflect the impact of this bulk transfer. The development of pension provisions over the half year is therefore as follows: (In EUR million)30 June201231 December 201131 December 2011RestatedPublishedAmountsrecognizedinfinancialstatementsconsist of :Prepaid pension asset – post employment plans413.5473.8372.2Accruedliability–postemploymentandotherlong term benefits(661.9)(571.8)(571.8)Net amount recognized – Total(248.4)(98.0)(199.6) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In EUR million)6 months ended 30 June 20126 months ended 30 June 2011Operating margin(34.7)(11.3)Other operating items-33.0Financial result(2.5)(5.9)Total (expense)/profit(37.2)15.8 57 Opening and closing positions reconcile as follows: (In EUR million)30 June201231 December 201131 December 2011RestatedPublishedNet amount recognized at the beginning of period(98.0)(297.4)(297.4)Reclassification other current liabilities(0.7)(1.9)(1.9)Net periodic pension cost – post employment plans and other long term benefits plans(33.2)30.627.3Benefits paid / Employer Contributions70.393.193.1Business combinations(7.8)19.6(79.1)Amounts recognized in Other Comprenensive Income(173.4)45.653.9Other (5.6)12.44.5Net amount recognized at the end of period(248.4)(98.0)(199.6) Note 15 Provisions (In EUR million)31 December 2011Published31 December 2011RestatedChargeRelease usedRelease unusedBusinessCombi-nationOther (*)30 June 2012CurrentNon- currentReorganization258.1258.215.9(98.1)(0.7)--175.3175.3-Rationalization75.470.83.1(15.6)(3.6)-1.656.326.429.9Project commitments232.4230.125.3(65.3)(15.1)0.92.6178.5178.5-Litigations and contingencies106.1131.711.8(17.7)(5.4)1.3(3.1)118.6-118.6Total provisions672.0690.856.1(196.7)(24.8)2.21.1528.7380.2148.5(*) Other movements mainly consist of the currency translation adjustments. Note 16 Borrowings CurrentNon-currentTotalCurrentNon-currentTotalFinance leases5.49.715.10.50.71.2Bank loans5.5306.6312.10.4283.5283.9Securitization69.9 - 69.969.8-69.8Convertible bonds10.0437.7447.78.1435.8443.9Other borrowings87.312.399.695.314.5109.8Total borrowings178.1766.3944.4174.1734.5908.6 (In EUR million)30 June 201231 December 2011 Published Tangible assets held under finance leases had a net carrying value of EUR 13.7 million. 58 Non-current borrowings maturity (In EUR million)2014201520162017>2017TotalFinance leases5.13.31.00.3-9.7Bank loans (0.8) (0.7)299.71.17.3306.6Convertible bonds--437.7--437.7Other borrowings2.53.54.71.6-12.3As at 30 June 2012 long-term debt766.37.36.86.1743.13.0 In November 2011, the Group has hedged the interest rate exposure on the used portion of the credit facility for an amount of EUR 280.0 million. The instruments used were Swap rates maturing in November 2015. Change in net debt over the period (In EUR million)30 June201231 December2011PublishedOpening net debt 141.8139.227.518.93.9230.9(33.0)(19.2)(268.8)(318.5)0.80.20.4-28.49.5(1.5)13.22.57.7Other flows related to financing activities(2.6)59.9Closing net debt (100.6)141.8New borrowingsConvertible bondsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debtProfit-sharing amounts payable to French employees transferred to debtNew finance leases Long and medium-term debt of companies sold during the periodLong and medium-term debt of companies acquired during the period Net cash and cash equivalents (In EUR million)30 June201231 December2011Published1,045.0766.8(50.2)(44.0)Total net cash and cash equivalents994.8722.8OverdraftsCash and cash equivalents 59 Note 17 Trade accounts and notes payable (In EUR million)30 June 201231 December 201131 December 2011RestatedPublishedTrade payables and notes payable1,046.1923.1924.7Amounts payable on tangible assets8.12.52.5Trade payables and notes payable1,054.2925.6927.2Net advance payments(46.6)(56.2)(56.2)Prepaid expenses(192.8)(131.0)(131.0)Net accounts payable814.8738.4740.0Number of days’ payable outstanding (DPO)725858 Trade accounts and notes payable are expected to be paid within one year. Note 18 Other current liabilities (In EUR million)30 June 201231 December 201131 December 2011RestatedPublishedAdvances and down payments received on client orders55.126.326.3Employee-related liabilities572.9577.3577.7Social security and other employee welfare liabilities201.9190.3190.7VAT payable233.4287.9287.9Deferred income432.7333.3333.3Other operating liabilities203.0197.6198.1Total1,699.01,612.71,614.0 Other operating liabilities are expected to be settled within one year, expected for deferred income that is released over the particular arrangement of the corresponding contract. 60 Note 19 Off-balance-sheet commitments Contractual commitments The table below illustrates the minimum lease payments for firm obligations and commitments over the coming years. Amounts indicated under the long-term borrowings and finance leases are posted on the Group balance sheet. Up to 1 year1 to 5 yearsOver 5 yearsConvertible Bonds447.710.0437.7-443.9Bank loans312.15.5299.37.3283.8Finance leases15.15.49.7-1.4Recorded on the balance 774.920.9746.77.3729.1Operating leases: land, buildings, fittings833.6175.2442.5215.9818.1Operating leases: IT equipment15.47.48.0-13.7Operating leases: other fixed assets98.538.360.2-87.7Non-cancellable purchase obligations (> 5 years) 100.281.518.30.484.4Commitments1,047.7302.4529.0216.31,003.9Total1,822.6323.31,275.7223.61,733.0Financial commitments received (Syndicated Loan)920.0-920.0-920.0Total received920.0-920.0 - 920.0(In EUR million)Maturing30 June 201231 December2011Published The received financial commitments refer exclusively to the non-utilized part of the EUR 1.2 billion revolving facility. Commercial commitments (In EUR million)30 June 201231 December2011PublishedBank guarantees176.5179.5 - Operational - Performance121.1132.0 - Operational - Bid9.413.7 - Operational - Advance Payment43.829.7 - Financial or Other2.24.1Parental guarantees3,217.52,917.6 - Operational - Performance3,183.22,909.9 - Other34.37.7Pledges0.80.7Total3,394.83,097.8 For various large long term contracts, the Group provides parental or financial guarantees to its clients. These limited exposure guarantees amounted to EUR 3,394.8 million as at June 30th, 2012, compared with 3,097.8 million as at December 31st, 2011. 61 Atos received guarantees from Siemens following the acquisition of Siemens IT Solutions and Services in July 1st, 2011, described in Note1 Changes of scope of consolidation - Business combination. Other commitments usually described in this note of the annual report have not varied significantly compared to December 2011. Note 20 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 26th, 2012. 62 D STATUTORY AUDITORS’ REVIEW ON FIRST HALF-YEAR FINANCIAL INFORMATION FOR THE PERIOD ENDED 30 JUNE 2012 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Atos S.A., for the period from January 1 to June 30, 2012, the verification of the information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. 63 II- Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris, 27 July 2012 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Christophe Patrier Vincent Frambourt 64 E COMMON STOCK EVOLUTION E.1 Basic data Atos shares are traded on the Paris Eurolist Market under Euroclear code 5173 ISIN FR0000051732. They were first listed in Paris in 1995. The shares are not listed on any other stock exchange and Atos Origin SA is the only listed company in the Group. E.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA/SRD : 84,594,954 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Eurolist segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext AFP ATO ATO Reuters Thomson Finance ATO FR ATOS.PA Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services The shares are also components of the following indices: Index Type Code ISIN Market Place Eurolist (segment 1) Euronext CAC 70 Euronext 100 SBF 80 SBF 120 SBF 250 CAC IT20 CAC IT DJ Euro Stoxx Techno CAC Technology CAC Software & Computer Services Sustainable Development: ASPI Eurozone, FTSE4Good, Europa EMP 100 Europa CAP 100, ECPI Ethical Index Euro Paris-Amsterdam-Brussels-Lisbon Global Europe Global Europe Paris-Amsterdam-Brussels-Lisbon Global Europe FR0003502079 Paris-Amsterdam-Brussels-Lisbon Global Global Global Sector Sector Sector Sector Sector FR0003999473 Paris PX8 FR0003999481 Paris PX4 FR0003999499 Paris PX5 QS0010989091 Paris CIT20 FR0003501980 Paris PXT EUR000965854 QS0011017827 Paris 1 FR0000051732 Paris Germany-Xetra SX8E 65 E.2 Common stock as of 30 June 2012 At 30 June 2012, the Group’s issued common stock amounted to EUR 84,594,954, comprising 84,594,954 fully paid-up shares of EUR 1.00 par value each. E.2.1 Changes in common stock over last five years Year Change in common stock Date New shares Total number of shares Comm on stock Additional paid in capital (in EUR million) 2007 Exercise of stock options 31/03/2007 23,624 68,904,589 0.0 0.6 Exercise of stock options 30/06/2007 79,229 68,983,818 0.1 2 Exercise of stock options 30/09/2007 21,753 69,005,571 0.0 0.5 Stock purchase plan 20/12/2007 693,439 69,699,010 0.7 21.9 Exercise of stock options 31/12/2007 11,144 69,710,154 0.0 0.3 2008 Exercise of stock options 31/03/2008 1,708 69,711,862 0.0 0 Exercise of stock options 30/06/2008 2,746 69,714,608 0.0 0.1 Exercise of stock options 31/12/2008 2,845 69,717,453 0.0 0.1 2009 Exercise of stock options 31/12/2009 3,009 69,720,462 0.0 0.1 2010 Exercise of stock options 31/03/2010 10,250 69,730,712 0.0 0.3 Exercise of stock options 30/06/2010 10,526 69,741,238 0.0 0.2 Exercise of stock options 30/09/2010 72,870 69,814,108 0.1 1.5 Exercise of stock options 31/12/2010 99,969 69,914,077 0.1 2.2 2011 Exercise of stock options 31/03/2011 62,524 69,976,601 0.1 1.4 SIS Acquisition 07/01/2011 12,483,153 82,459,754 12.5 401.7 Exercise of stock options 10/04/2011 128,716 82,588,470 0.1 2.9 Capital employees Exercise of stock options increase for 14/12/2011 30/12/2011 950,468 27,830 82,538,938 83,566,768 1.0 0.0 25.9 0.7 2012 Exercise of stock options 02/04/2012 180,732 83,747,500 0.1 4.4 Exercise of warrants 30/05/2012 30,093 83,777,593 0.0 1.1 Payment of dividends in shares 29/06/2012 676,014 84,453,607 0.7 26.5 Exercise of stock options 29/06/2012 141,347 84,594,954 0.1 3.9 66 New common stock 68.9 69.0 69.0 69.7 69.7 69.7 69.7 69.7 69.7 69.7 69.7 69.8 69.9 70.0 82.5 82.6 82.5 83.6 83.7 83.8 84.5 84.6 E.2.2 Free Float evolution The free-float of the Atos shares excludes stakes exceeding 5% of the issued capital of the Group, namely the two main shareholders, Financière Daunou 17 (PAI Partners) owning 21.11% of the Group share capital on 30 June 2012, and Siemens Beteiligungen Inland GmbH (Siemens) owning a participation of 14.76% of the capital which it committed to keeping until 30 June 2016. No other reference shareholder has announced its will to maintain a strategic participation in the Group’s capital. Stakes owned by the employees and the management are also excluded from the free float. As of 30 June 2012 Shares % of capital % of voting rights Treasury stock 137,193 0.2% PAI Partners 17,855,541 21.1% 21.1% Siemens 12,483,153 14.8% 14.8% Board of Directors 16,240 0.0% 0.0% Employees 1,234,856 1.5% 1.5% Free float 52,867,971 62.5% 62.6% Total 84,594,954 100.00% 100.00% E.2.3 Treasury stock and liquidity contract The 23rd resolution of the Shareholders’ meeting of 30 May 2012 granted, in favour of the Board of Directors, for a period of eighteen (18) months, an authorization to purchase the Company’s shares pursuant to the implementation of a repurchase program. The purchases could be carried out by virtue of any allocation permitted by law, with the aims of this share repurchase program being in particular: to maintain them or subsequently use them for payment or exchange within the context of possible external growth operations, in observance of the market practices accepted by the AMF, it being specified that the maximum amount of shares acquired by the Company to this end shall not exceed 5% of the share capital. to ensure liquidity and lead the market of the Company’s shares within the context of a liquidity contract concluded with an investment service provider in complete independence, in observance of the professional conduct charter accepted by the AMF, to attribute or sell these to the representatives or employees of the Company and/or companies which are affiliated to the Company, under the conditions and according to the procedures established by the legal and regulatory provisions applicable notably within the context (i) of the participation in the benefits of expansion of the company, (ii) of the share option regime established by articles L. 225-179 and sq. of the French commercial Code, (iii) of the free share issuance regime established by articles L. 225- 197-1 to L. 225-197-3 of the French commercial Code and (iv) of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the conditions established by market authorities and during periods when the Board of Directors or person acting as its representative so decides, 67 to tender these at the time of exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other form of attribution of the shares of the Company, as well as to carry out all hedging operations with regard to the issuance of such securities, under the conditions established by market authorities and during periods when the Board of Directors or person acting as its representative so decides, or to cancel them as a whole or in part through a reduction of the share capital by way of application of the 23rd resolution of the Shareholders’ meeting of 30 May 2012. The purchase of shares may not exceed a maximum number of shares representing 10% of the share capital of the company at any moment in time. Considering the percentage owned (149,693 shares), the number of shares which can be purchased is 8,228,066 shares, i.e. 9,82% of the share capital as of 30 May 2012. On 30 May 2012, Atos SA held 149,693 treasury shares, i.e. 0,18% of the capital: Number of shares Allocation 12,500 . AMAFI liquidity agreement 137,193 . Grant to employees and officers of the Company The maximum purchase price may not exceed 65.10 euros per share; the maximum amount of the funds assigned to the repurchase program shall thus be 545,196,225 Euros. The Board of Directors may nevertheless adjust the aforementioned purchase price in the vent of incorporation of premiums, reserves or profits, giving rise either to an increase of the nominal value of the shares or to the creation and attribution of free shares, as well as in the vent of division of the nominal value of the share or regrouping of the shares to take account of the effect of these operations on the value of the share. This authorization revoked, with immediate effect, for the unused part, the authorization given to the Board of Directors by the fourth resolution of the Ordinary and Extraordinary General Meeting of 1st June 2011. Atos entrusted to Rothschild & Cie Banque the implementation of a liquidity contract through an agreement dated 13 February 2006, for a one-year duration with automatic renewal, in conformity with the ethics charter of the AMAFI approved by the instruction of the Commission des Opérations de Bourse (COB) dated 10 April 2001. For the implementation of the contract, EUR 15 million were allocated to the liquidity account. On 1st July 2012, an amendment to the liquidity contract of 13 February 2006 was established, by which Atos SA decided an additional cash contribution amounting to EUR 10 million in order to enable Rothschild & Cie Banque to ensure consistent performance of its transactions pursuant to this contract. 68 E.3 Dividend policy The Shareholders’ Ordinary Meeting approved the proposal by the Board of Directors to pay a 2011 dividend of 0.50 euro per share in 2012, as well as the option for the payment of the dividends in shares. During the past three fiscal periods, Atos Origin has paid the following dividends: Fiscal period Dividend paid per share (in EUR) 2011 € 0.50 2010 € 0.50 2009 E.3.1 Recent development The Annual Shareholders’ Meeting of Atos was held on 30 May 2012, chaired by its Chairman and CEO, Thierry Breton. All resolutions submitted by the Board of Directors have been approved by a large majority. The shareholders approved notably, with a majority of 99.70%, the change of status from a SA (French société anonyme) to a SE (Societas Europaea). This transformation will be effective as from the registration of the Company as a SE with the Registry of Trade and Companies of Pontoise which shall occur after the negotiations on employees involvement. In addition, the General Meeting approved the dividend payment of EUR 0.50 per share and the option for payment of the dividend in either shares or cash. Shareholders could opt for payment in shares between 6 June and 20 June 2012 inclusive. The issue price of new shares pursuant to exercise of the option of payment in shares was fixed at EUR 40.17. The dividend was paid in cash or shares as from 2 July 2012. The option for the payment of the dividend in shares was widely chosen by Atos’ shareholders: 65.0% of the rights were exercised in favour of a payment in shares. This high rate of dividend distribution in shares resulted in an increase of EUR 27.1 million in the equity of Atos. This transaction resulted in the issuance of 676,014 new shares (representing an increase by approximately 0.81% of the share capital and of the voting rights), delivered and admitted for trading on NYSE Euronext Paris on 2 July 2012. The shares issued in this manner will carry dividend rights as from 1st January 2012 and are of the same class and equivalent to the ordinary shares of the Company already listed on NYSE Euronext Paris. The dividend resulting from the option for the payment in cash represented a total amount of EUR 14.7 million. It was also paid on 2 July 2012. 69 E.4 Shareholder Documentation In addition to the Reference Document, which is published in English and French, the following information is available to shareholders: A half year report Quarterly revenue and trading update announcements The Group’s informational website at www.atos.net; and Regular press releases, available through the web site or via the AMF database E.5 Financial calendar 25 October 2012 2012 Third quarter revenue E.6 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti, Group Senior Vice-President Investor Relations and financial communication, Tel: +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Requests for information can also be sent by email to investors@atos.net 70 E.7 Update of Document issued This document is a full free translation of the original French text. The following list includes all financial information published or made available since 1 January 2012. Websites mentioned: Atos AMF www.atos.net www.amf-france.org > Décisions et informations financières Communiqués des sociétés BALO www.journal-officiel.gouv.fr Document Date of issue Source Financial press releases Liquidity contract amendment 01/08/12 Website Atos/ website AMF First half 2012 results 27/07/12 Website Atos/ website AMF Success of the dividend distribution in shares • First quarter 2012 revenue 28/06/12 25/04/12 Website Atos/ website AMF Website Atos/ website AMF Mise à disposition du Document de Référence 2011 • Annual results 2011 05/04/12 23/02/12 Website Atos/ website AMF Website Atos/ website AMF Atos, EMC and VMware to form an open cloud computing strategic alliance 15/02/12 Website Atos/ website AMF Financial presentations Half-year results 2011 27/07/10 Website Atos Forum Pan-Europe - CA Cheuvreux 23/05/10 Website Atos First quarter revenue 2011 25/04/10 Website Atos Annual results 2011 23/02/12 Website Atos 71 F CORPORATE GOVERNANCE F.1 Board of Directors The Annual General Meeting of Atos’ shareholders held on 30 May 2012 approved all term of office renewals and appointment of all directors as proposed. At the Board of Directors meeting held after the Annual General Meeting, it was decided to renew the mandate of the Reference Director, Pasquale Pistorio and to confirm the composition of the Audit Committee and of the Nomination and Remuneration Committee. As of the date of this update of the reference document, the Board of Directors, comprised of 13 persons including 8 independent directors, was the following: Name of the Director Thierry BRETON René ABATE* Nicolas BAZIRE* Jean-Paul BECHAT* Roland BUSCH Mrs Jean FLEMING Bertrand MEUNIER* Mrs Colette NEUVILLE* Mrs Aminata NIANE* Michel PARIS Pasquale PISTORIO* Vernon SANKEY* Lionel ZINSOU-DERLIN * Independant Director Date of first appointment or latest renewal 30 May 2012 30 May 2012 30 May 2012 30 May 2012 1st July 2011 26 May 2009 30 May 2012 30 May 2012 27 May 2010 30 May 2012 30 May 2012 30 May 2012 30 May 2012 Date of the expiry of the mandate AGM 2015 AGM 2013 AGM 2014 AGM 2015 AGM 2014 AGM 2013 AGM 2015 AGM 2014 AGM 2013 AGM 2014 AGM 2015 AGM 2013 AGM 2014 F.2 Executive management of the company The Board of Directors, meeting after the Shareholders’ General Meeting of 30 May 2012, decided to renew the term for Thierry Breton’s tenure as Chairman and CEO for the duration of his mandate as Director. 72 G CLAIMS AND LITIGATION The Atos Group is a global business operating in some 48 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made against the Group. Having regards to the Group’s size and revenue, the level of claims is kept low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues and claims. All potential and active claims are carefully monitored, reported and managed in an appropriate manner. During the first half of 2012 some significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of 30 June 2012, to cover for the identified claims and litigations, added up to EUR 105.28 million (including tax and social contribution claims but excluding labour claims). G.1 Tax and Social Contribution claims The Group is involved in a number of routine tax & social contribution claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. There are a number of the tax & social contribution claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a tax (Stamp Duty) re-imbursement of an amount over EUR 9 million. The total provision for tax & social contribution claims, as inscribed in the consolidated accounts closed as at 30 June 2012, was EUR 30.58 million. G.2 Commercial claims There is a small number of commercial claims across the Group. Some claims were made in 2006 by a company for services allegedly supplied to the Group in the past. After a thorough investigation, the Group concluded that the claims were not legitimate. These claims were thus rejected, no payment was made by the Group and, consequently, several judicial proceedings were made. These proceedings are still pending before the courts. There were a number of significant on-going commercial cases in various jurisdictions that the group acquired through the acquisition of Siemens IT Solutions and Services. Most of these cases involve claims on behalf of the group and some of them have already been successfully resolved. The total provision for commercial claim risks, as inscribed in the consolidated accounts 73 closed as at 30 June 2012, was EUR 74.70 million. G.3 Labour claims There are nearly 74,000 employees in the Group and relatively few labour claims. In most jurisdictions there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are usually of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in France, Brazil and the UK, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. There are 35 claims against the Group which exceed EUR 200,000. The provision for these claims, as inscribed in the consolidated accounts closed as at 30 June 2012, was EUR 5.65 million. G.4 Representation & Warranty claims To the knowledge of the Company, no company of the Group is a party to a representation & warranty claim arising out of an acquisition or a disposition. G.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past twelve months on the Company’s and the Group’s financial situation or profitability. 74 H APPENDIX H.1 Locations and contacts Atos is present in main cities to support our customers. The addresse. phone and fax numbers of our main offices can be found on the Locations page on our website www.atos.net. Details of current job opportunities can be found in our Careers pages. An email address for general questions and comments about our Internet site can be found at the bottom of the page. H.1.1 Headquarters River Ouest 80 Quai Voltaire 95870 BEZONS - France H.1.2 Corporate Functions Finance Michel-Alain Proch +33 1 73 26 00 31 Human Resources Jean-Marie Simon +33 1 73 26 00 32 Talents & Communication Marc Meyer +33 1 73 26 00 26 Sales and Marketing support Hervé Payan +33 1 73 26 01 73 Group Innovation. Business Development & Strategy Bruno Vaffier (acting) +33 1 73 26 02 07 Legal & compliance Alexandre Menais +33 1 73 26 42 15 Internal IT Tarek Moustafa +33 1 73 26 01 84 Global Purchasing Enguerrand de Pontevès +33 1 73 26 01 46 Internal Audit Daniel Milard +33 1 73 26 00 91 75 H.1.3 Global organization Service Lines Global Consulting & Technology Services Arnaud Ruffat +33 1 73 26 01 91 Global Systems Integration Francis Meston +33 1 73 26 01 97 Global Managed Services Eric Grall +33 1 73 26 01 20 HTTS & Specialized Businesses Marc-Henri Desportes +33 1 73 26 00 29 Specialized Business Units Atos Worldline Christophe Duquenne +33 3 20 60 76 53 Atos Worldgrid Jérôme de Parscau +33 4 76 61 86 24 Global Market Manufacturing, Retail & Services Robert Goegele +49 636 55 300 Public Sector, Healthcare & Transport Ingo Juraske +49 29 28 149 Financial Services Ljiljana Mitic +49 636 30 857 Telecom, Media & Technology Bruno Fabre +33 1 73 26 88 83 Energy & Utilities Francis Delacourt +33 1 73 26 24 10 76 H.1.4 Implantations Argentina Vedia 3892 P.B. C1430 DAL - Buenos Aires Tel: +54 11 6315 8800 Austria Atos IT Solutions and Services GmbH Siemensstrasse 92 A-1210 Vienna Tel : +43 (0) 51707-0 China Building B. No.7.Wangjing ZhongHuan Nanlu. Chaoyang District. Beijing 100102. China Tel: (86) 10 69115888 Colombia Cra. 65 No. 11-83 Bogota Tel.: + 57 (1) 425 3477 Belgium Da Vincilaan 5 B-1935 Zaventem Tel: +32 2 690 28 00 Global Consulting and Systems Integration Da Vincilaan 5 B-1935 Zaventem Tel: +32 2 690 28 00 Atos Worldline Belgium Chaussée de Haecht 1442 Haachtsesteenweg 1130 Brussels Tel: +32 (0)2 727 61 11 Brazil Rua Werner Siemens.111 Lapa 05069-900 Sao Paulo Tel: +55 11 3550 2000 Rua da Candelária. 65 - 22º andar Cep. 20091-906 – Centro- Rio de Janeiro – RJ Tel: +55 21 3265-9200 Bulgaria 2 Kukush str.1309 Sofia Tel: +359 (0)2-8115 300 Fax: +359 (0)2-8115 310 Chile Av. Providencia 1760 Fl. 17 - Of. 1702 7500498 Santiago de Chile Tel.: +56 (2) 477 1313 Russia 1 Kozhevnichesky per. 6 115114. Moscow. Tel: +7 495 737 2599. 737 2700 Fax: +7 495 737 2702. 7372742 Serbia Pariske komune 22 11070 Beograd Tel : +381 11 3012-200 Fax: +381 11 3012-250 Singapore 620A Toa Payoh Lorong 1 TP4 Level 5 Singapore 319762 Tel: +65 6496 3888 Slovakia Einsteinova 11 851 01 Bratislava Tel: +421 (2) 5968-6622 Fax: +421 (2) 5968-5414 South Africa Head Office Woodlands Office Park. Ground Floor Building 32 Woodlands Drive. Woodmead. Johannesburg Tel: +27 87 310 2867 Germany Otto-Hahn-Ring 6 81379 München Tel.: +49 89 636 02Atos USA 101 Merritt 7 Norwalk, CT 06851 - North America Tel.: +203 642 2300 Worldline GmbH Hahnstraße 25 D-60528 Frankfurt/Main Tél : +49 (0) 69 66 5710 Hong Kong Unit 3B & 05-01 18/F Exchange Tower 33 Wang Chiu Road Kowloon Bay. Kowloon F +852 2886.5293 India Atos IT Solutions and Services Pvt. Ltd. 3rd Floor. Block B. Salarpuria Infozone No.39. 41. 42. Keonics Electronics City Hosur Road. Bangalore- 560 100 India Tel.: +91 80 67111100 Atos India Pvt. Ltd. Prism Towers. "A" wing. 6th Floor. Mindspace Off Link Road. Goregaon West. Mumbai -400 062. India Tel : +91-22-66452500 Atos Worldline India 701. Interface 11 Malad (W) Mumbai 400 064 – India Tel.: +91 22 40 42 40 00 Indonesia Wisma Kyoei Prince. #1707 Jalan Jenderal Sudirman Kav. 3 Jakarta. 10220 Tel : +62 21 572 4373 Italy Via Vipiteno. 4 20128 Milano Italia Tel.: +39 02 2431 Japan 20/F Shinjuku Park Tower. 3-7-1 Nishi-shinjuku. Shinjuku- ku. Tokyo 163-1020 Tel : +81 3 3344 6631 Luxembourg Rue Nicolas Bové 2a 1253 Luxembourg Tel : +352 31 36 37 77 Malaysia 1st Floor. 2310 Century Square Jalan Usahawan 63000 Cyberjaya Selangor Tel : +60 3 2084.5418 Mexico Poniente 116 No.590 D.F. 2300 Mexico Tel.: + 52 55 5328 2000 Morocco Avenue Annakhil – Espace High Tech Hall B – 5ème étage Hay Ryad Rabat Tel : +212 (0)5 37 57 79 79 Casablanca Nearshore Park – Shore 7 1100. boulevard El Qods – Quartier Sidi Maârouf Casablanca Tel : +212 (0)5 29 04 45 Philippines Address 23/F Cyber One Building 11 Eastwood Ave.. Bagumbayan. Quezon City Philippines 1110 Tel: +63 2 982 9600 Tel.: + 202 26 70 88 06 Poland Atos IT Services Sp. z o.o. Wołoska 5 (Taurus building) 02-675 Warszawa. Poland Tel. +48 22 444 6500 Fax: +48 22 444 6501 Portugal Rua Irmãos Siemens. 1 2720-093 Amadora Portugal Tel.: +351 21 417 8760 Romania Strada Preciziei. nr. 24. Corp H3 Bucharest 062204 Tel: +40 (21) 3058603 Fax: +40 (21) 3038990 H.2 Full index Contents .................................................................................................................... 2 A Persons responsible ................................................................................................ 3 A.1 For the update of the Reference Document ......................................................... 3 A.2 Certificate from the person responsible for the update of the Reference Document .. 3 A.3 For the audit ................................................................................................... 4 B Atos in the first semester 2012 ................................................................................ 5 B.1 Income statement ........................................................................................... 5 B.2 Key achievements ........................................................................................... 6 C Financials .............................................................................................................. 9 C.1 Operational review .......................................................................................... 9 C.1.1 Executive Summary................................................................................... 9 C.1.2 Revenue profile evolution ......................................................................... 11 C.1.3 Performance by Service Line ..................................................................... 12 C.1.3.1 Managed Services ............................................................................. 12 C.1.3.2 Systems Integration .......................................................................... 12 C.1.3.3 Hi-Tech Transactional Services & Specialized Businesses (HTTS & SB) ..... 13 C.1.3.4 Consulting & Technology Services ....................................................... 13 C.1.4 Performance by Business Units (GBU/SBU) ................................................. 14 C.1.4.1 Germany .......................................................................................... 14 C.1.4.2 United Kingdom & Ireland .................................................................. 15 C.1.4.3 France ............................................................................................. 15 C.1.4.4 Benelux ........................................................................................... 16 C.1.4.5 Atos Worldline .................................................................................. 16 C.1.4.6 North America .................................................................................. 17 C.1.4.7 Central & Eastern Europe ................................................................... 17 C.1.4.8 North & South West Europe ................................................................ 17 C.1.4.9 Iberia .............................................................................................. 18 C.1.4.10 Other Business Units ......................................................................... 18 C.1.4.11 Global structure costs ........................................................................ 20 C.1.5 Revenue by market ................................................................................. 21 C.1.5.1 Manufacturing, Retail & Services ......................................................... 21 C.1.5.2 Public sector, Healthcare & Transports ................................................. 21 C.1.5.3 Financial Services.............................................................................. 22 C.1.5.4 Telecoms & Media ............................................................................. 22 C.1.5.5 Energy & Utilities .............................................................................. 22 C.1.6 Portfolio ................................................................................................. 23 C.1.6.1 Order entry and book to bill................................................................ 23 78 C.1.6.2 Full backlog ...................................................................................... 24 C.1.6.3 Full qualified pipeline ......................................................................... 25 C.1.7 Human Resources ................................................................................... 26 C.1.7.1 Headcount evolution .......................................................................... 27 C.1.7.2 External Subcontractors ..................................................................... 28 C.1.8 2012 objectives ...................................................................................... 29 C.2 Financial review ............................................................................................ 30 C.2.1 Income statement ................................................................................... 30 C.2.1.1 Operating margin .............................................................................. 30 C.2.1.2 Other operating income and expenses ................................................. 31 C.2.1.3 Net financial expense ........................................................................ 31 C.2.1.4 Corporate tax ................................................................................... 31 C.2.1.5 Non controlling interests .................................................................... 32 C.2.1.6 Normalized net income ...................................................................... 32 C.2.2 Earnings per share .................................................................................. 32 C.2.3 Cash flow and net debt ............................................................................ 34 C.2.4 Parent company results............................................................................ 36 C.3 Interim condensed financial statements ........................................................... 37 C.3.1 Interim consolidated income statement ...................................................... 37 C.3.2 Interim consolidated statement of comprehensive income ............................ 38 C.3.3 Interim consolidated statement of financial position..................................... 39 C.3.4 Interim consolidated cash flow statement ................................................... 40 C.3.5 Interim consolidated statement of changes in shareholders’ equity ................ 41 C.3.6 Notes to the half-year condensed consolidated financial statements for the period ended 30 June 2012 ................................................................................... 42 C.3.6.1 Basis of preparation .......................................................................... 42 C.3.6.2 Significant accounting policies ............................................................ 43 C.3.6.3 Notes to the half-year condensed consolidated financial statements ........ 44 D Statutory Auditors’ review on first half-year financial information for the period ended 30 June 2012 ................................................................................................................. 63 E Common stock evolution ........................................................................................ 65 E.1 Basic data .................................................................................................... 65 E.1.1 Information on stock ............................................................................... 65 E.2 Common stock as of 30 June 2012 .................................................................. 66 E.2.1 Changes in common stock over last five years ............................................ 66 E.2.2 Free Float evolution ................................................................................. 67 E.2.3 Treasury stock and liquidity contract ......................................................... 67 E.3 Dividend policy ............................................................................................. 69 E.3.1 Recent development ................................................................................ 69 79 E.4 Shareholder Documentation ........................................................................... 70 E.5 Financial calendar .......................................................................................... 70 E.6 Contacts ...................................................................................................... 70 E.7 Update of Document issued ............................................................................ 71 F Corporate governance ........................................................................................... 72 F.1 Board of Directors ......................................................................................... 72 F.2 Executive management of the company ........................................................... 72 G Claims and litigation .............................................................................................. 73 G.1 Tax and Social Contribution claims .................................................................. 73 G.2 Commercial claims ........................................................................................ 73 G.3 Labour claims ............................................................................................... 74 G.4 Representation & Warranty claims ................................................................... 74 G.5 Miscellaneous ............................................................................................... 74 H Appendix ............................................................................................................. 75 H.1 Locations and contacts ................................................................................... 75 H.1.1 Headquarters .......................................................................................... 75 H.1.2 Corporate Functions ................................................................................ 75 H.1.3 Global organization.................................................................................. 76 H.1.4 Implantations ......................................................................................... 77 H.2 Full index ..................................................................................................... 78 80 | Semestriel, 2012, IT, Atos | write me a financial report |
Semestriel | 2,013 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| Update of the 2012 Registration Document Including the half year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original French document has been filed with the Autorité des Marchés Financiers (AMF) on July 31st, 2013, in accordance with article 212-13 of the AMF’s general regulations. It complements the 2012 Registration Document filed with the AMF on April 3rd, 2013 under number D.13- 0271. This document has been issued by the Company and commits its signatories. This update of the Reference Document is available on the website of the AMF (www.amf-france.org) and on the company’s website (www.atos.net). CONTENTS Contents ...................................................................................................................................... 2 A Persons responsible ................................................................................................................ 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit................................................................................................................... 4 B Atos in the first semester of 2013 ............................................................................................. 5 B.1 Interim consolidated income statement .............................................................................. 5 B.2 Key achievements ........................................................................................................... 6 C Financials .............................................................................................................................. 9 C.1 Operational review .......................................................................................................... 9 C.2 2013 objectives ............................................................................................................ 31 C.3 Financial review ............................................................................................................ 32 C.4 Interim condensed consolidated financial statements ......................................................... 39 C.5 Statutory Auditors’ review report on the half-year financial information for the period ended June 30th, 2013 ....................................................................................................................... 56 D Corporate Governance .......................................................................................................... 57 D.1 Office renewals and appointment of directors.................................................................... 57 D.2 Composition of the Board of Directors .............................................................................. 58 D.3 Performance shares allocation plan.................................................................................. 58 E Common stock evolution and performance ............................................................................... 61 E.1 Basic data .................................................................................................................... 61 E.2 Dividend policy ............................................................................................................. 62 E.3 Financial calendar ......................................................................................................... 62 E.4 Contacts ...................................................................................................................... 62 E.5 Common stock .............................................................................................................. 63 F Claims and litigation ............................................................................................................. 68 F.1 Tax and Social Contribution claims .................................................................................. 68 F.2 Commercial claims ........................................................................................................ 68 F.3 Labour claims ............................................................................................................... 69 F.4 Representation & Warranty claims ................................................................................... 69 F.5 Miscellaneous ............................................................................................................... 69 Full index ................................................................................................................................... 70 A PERSONS RESPONSIBLE A.1 For the Update of the Registration Document Thierry Breton CEO and Chairman, Atos A.2 For the accuracy of the Update of the Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the Update of the 2012 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2013 half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the management report (here attached) gives a fair description of the material events, results and financial position of the Company and all the other companies included in the scope of consolidation, occurring during the first six months of the 2013 financial year, as well as a description of the main risks and contingencies with which the Company may be confronted for the remaining six months of the year 2013. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the Update of the 2012 Registration Document and examined the information in respect of the financial position and the accounts contained herein. Thierry Breton CEO and Chairman, Atos Bezons, July 31st, 2013 A.3 For the audit Appointment and term of offices Statutory Auditors Grant Thornton Victor Amselem Appointed on: June 12th, 2008 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Deloitte & Associés Appointed on: May 30th, 2012 for a Christophe Patrier term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements Substitute Auditors Cabinet IGEC Appointed on: June 12th, 2008 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2013 financial statements Cabinet B.E.A.S. Appointed on: May 30th, 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements B ATOS IN THE FIRST SEMESTER OF 2013 B.1 Interim consolidated income statement (in EUR million)Notes6 months ended 30 June20136 months ended 30 June201212 months ended 31 December 2012Revenue Note 24,290.04,366.08,844.3Personnel expensesNote 3(2,277.2)(2,273.7)(4,502.2)Operating expensesNote 4(1,733.8)(1,843.5)(3,762.1)Operating margin279.0248.8580.0% of revenue6.5%5.7%6.6%OtheroperatingincomeandexpensesNote 5(87.4)(78.4)(198.6)Operating income191.6170.4381.4% of revenue4.5%3.9%4.3%Net cost of financial debt(17.4)(16.5)(34.2)Other financial expenses(26.7)(26.9)(54.7)Other financial income21.623.737.1Net financial incomeNote 6(22.5)(19.7)(51.8)Net income before tax169.1150.7329.6Tax chargeNote 7(53.4)(47.7)(102.9)Shareofnetprofit/(loss)ofassociates(0.8)1.71.3Net income114.9104.7228.0Of which:-attributabletoownersoftheparent116.3101.8223.8- non-controlling interests(1.4)2.94.2(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 8Weightedaveragenumberofshares 85,741,35083,454,76484,066,299Basic earnings per share1.361.222.66Dilutedweightedaveragenumberof shares 98,590,70095,906,73596,696,049Diluted earnings per share1.261.142.48 (in EUR million)Notes6 months ended 30 June20136 months ended 30 June201212 months ended 31 December 2012Revenue Note 24,290.04,366.08,844.3Personnel expensesNote 3(2,277.2)(2,273.7)(4,502.2)Operating expensesNote 4(1,733.8)(1,843.5)(3,762.1)Operating margin279.0248.8580.0% of revenue6.5%5.7%6.6%OtheroperatingincomeandexpensesNote 5(87.4)(78.4)(198.6)Operating income191.6170.4381.4% of revenue4.5%3.9%4.3%Net cost of financial debt(17.4)(16.5)(34.2)Other financial expenses(26.7)(26.9)(54.7)Other financial income21.623.737.1Net financial incomeNote 6(22.5)(19.7)(51.8)Net income before tax169.1150.7329.6Tax chargeNote 7(53.4)(47.7)(102.9)Shareofnetprofit/(loss)ofassociates(0.8)1.71.3Net income114.9104.7228.0Of which:-attributabletoownersoftheparent116.3101.8223.8- non-controlling interests(1.4)2.94.2(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 8Weightedaveragenumberofshares 85,741,35083,454,76484,066,299Basic earnings per share1.361.222.66Dilutedweightedaveragenumberof shares 98,590,70095,906,73596,696,049Diluted earnings per share1.261.142.48 B.2 Key achievements February 5th Atos has been chosen by T-Mobile Austria for the delivery and integration of its Next Generation Intelligent Network. This new platform set up a foundation for the quick and cheap implementation of innovative applications. Atos delivers telecom operators with turnkey systems, in association with the leading software vendors on the market. In T-Mobile Austria, Atos uses OpenCloud Telecom Application Server, global partner of Atos since 2006. The scope of the project awarded to Atos includes from functional specifications and hardware installation to rollout and support in operation. February 13th Atos has been selected by France Télévisions, the leading French broadcasting group, to take over operation of the IT infrastructures of the group’s five channels, with a performance guarantee, and to assist it for three years in its transformation into a single company with pooled resources. France Télévisions has decided to entrust its IT infrastructure to a single service provider that will consolidate the existing systems. Atos has been selected to handle the supervision, administration, operation and maintenance of the TV group’s infrastructure and information production applications and services. February 21st Atos announced its 2012 annual results. Strong commercial activity throughout the year, led to a record order entry at EUR 10 billion, representing a book to bill ratio at 113 percent thanks to major bookings in Managed Services and in BPO, and at the end of the year in Systems Integration. Revenue was EUR 8,844 million, up +29.8 percent compared to 2011 on published revenues, representing an organic growth of +0.8 percent. Operating margin was EUR 580.0 million, representing 6.6 percent of revenue compared to 4.8 percent in pro forma figures of 2011. The Group generated in 2012 EUR 259 million of free cash flow. Net cash position was EUR 232 million at the end of 2012. Net income Group share stood at EUR 224 million compared to EUR 182 million in 2011 statutory. February 21st The Group announced the decision to carve-out Atos payment and merchant transactional activities around Atos Worldline and specific transactional businesses. The carve-out will reveal this new entity as worldwide player and European leader in the payment space with a more integrated and efficient management of operations. It will provide the strategic and financial flexibility to expand its product offerings across the entire transaction value chain including alliances and partnerships. This will result in reaffirming this new entity’s leading position in the payment sector, which is also enhanced by the ability to leverage on the large and strong Atos customer base and geographical presence. Grouping all payment activities within a single defined perimeter with specific reporting will also enable increased internal and external transparency on this business performance while strengthening the operational performance of the new entity. February 28th Atos Worldline announced major developments in its Sips e-payment platform. This payment solution is number one on the European market with over 400 million transactions processed in 2012. The new generation of the solution facilitates and enhances the cross-channel buying journey for the end customer, and optimizes payment collection and strengthens anti-fraud measures for the merchant. The platform is being transformed, with the announcement of wide-ranging changes to improve the buying journey, simplify use of the platform to enhance the cross-channel customer experience with distance purchasing and in-store collection, optimize payment collection by the merchant and strengthen anti- fraud measures. March 7th Atos Worldline changes the game in the growing market for connected vehicles by launching its product range for connected vehicles. Using its cloud and pay-per-use expertise, vehicle drivers will be offered new services combining mobility and telematics. Atos Worldline is the partner of choice for players in the connected vehicle market, including manufacturers and large fleet operators, to assist them with the incorporation of mobility services, mass use of collected data (or "Big Data") as well as their position with regard to consumer electronics (smartphones and tablets). The service platform, or Connected Vehicle Platform (CVP), enables scalability so that new B2C and B2B services may be quickly brought to market; it flexibly integrates content and service suppliers as well as different on-board systems, allowing our customers to generate new sources of income with an attractive economic model. Three global players have signed up with Atos Worldline, since 2012, to supply and operate B2C and B2B services for over one million vehicles, of all kinds, connected worldwide. These services will be operational in 2013. March 20th Atos Worldline, has been awarded the 2013 Innovative Payments Trophy in the "e-commerce products" category at the PayForum trade fair for its innovative eGo™ solution. Developed by Atos Worldline, this new technology will revolutionise the way a wide range of digital services and payments are handled. No cards, cheques or cash are needed: just your finger. Your skin sets the transaction in motion, ensuring secure user authentication. eGo™ is an extremely practical solution which does not compromise security. It provides an initial identity verification procedure and remains entirely under the control of its holder. April 25th Atos announced its revenue for the first quarter of 2013. Revenue was EUR 2,117 million, representing an organic evolution of -1.2 percent compared to the first quarter of 2012. Order entry was EUR 1,987 million leading to a book to bill ratio of 94 percent. Net cash stood at EUR 258 million at the end of March 2013. May 8th Canopy, an Atos company powered by EMC and VMware, is a market-leading one-stop shop for Cloud services. One year after the creation of this company it reveals its strengthened solution portfolio. The new solutions respond to an industry shift to a more flexible and cost effective model for organizations Canopy unveils its latest Cloud solutions to meet shift in customer needs by helping CIOs Deliver on the promise of Cloud with pragmatic tools. May 14th Atos has been awarded a five-year IT outsourcing contract by Darty, one of Europe’s largest electrical retailers. Darty France, a member of Darty PLC Group, sought to combine its IT hosting, operations and service continuity activities in a single service provider. The leader in the household appliances market has selected Atos to develop and rationalise its multi-technology IT infrastructure to achieve a perfect fit with its business strategy and to ensure maximum quality of service on a day-to-day basis. May 21st Atos announced the following Executive Committee changes: Jean-Marie Simon is appointed Executive Vice President France, replacing Laurent Kocher who is leaving the Group. Patrick Adiba is appointed Executive Vice President Human Resources, replacing Jean Marie Simon. Patrick will continue to manage the Major Events (MEV) business unit. Ivan Lozano is appointed Executive Vice President Iberia, replacing Patrick Adiba. May 27th KBC/CBC and Atos Worldline conclude a sales & marketing alliance in card payments using smartphones and tablets for retailers in Belgium. KBC and CBC are offering retailers on the Belgian market the possibility of receiving credit card payments while on the move through a smartphone or tablet. This is the first benefit to flow from the “Sales and Marketing Alliance”, an open contract signed between Atos Worldline and KBC and CBC. Both parties are working closely together to constantly enhance the products on offer to retailers and adjust them to current market needs. May 29th Atos held its Annual Shareholders’ Meeting chaired by Atos Chairman and CEO, Mr. Thierry Breton. All resolutions submitted by the Board of Directors have been approved by a large majority. In particular, the shareholders approved the dividend payment of EUR 0.60 per share and the option for payment of the dividend in either shares or cash. The Shareholders’ Meeting also renewed the term of office of Directors Ms. Aminata Niane (Senegalese citizen) and Mr. Vernon Sankey (British citizen), and appointed new Director Ms. Lynn Paine, Senior Associate Dean of Harvard Business School (American citizen), and proceeded with the election of Ms. Jean Fleming (British citizen) as Director representing the employee shareholders. June 10th Thierry Breton, Atos Chairman and CEO and Boo-Keun Yoon, CEO and President of Consumer Electronics Division at Samsung Electronics celebrated the conclusion of a strategic partnership in Seoul to jointly develop and market advanced IT solutions for BtoB markets. Building on Atos’ industry leading integration capabilities and Samsung’s innovative technology, the joint offering will include end-to-end retail, digital signage, connected vehicle, end user computing, printing and mobile solutions. For Atos, the cooperation supports its vision of the next IT revolution that will transform the way enterprises leverage and consume IT. Big Data, Mobility and Cloud services represent significant opportunities for customers. The cooperation will allow Atos to offer its clients cutting edge solutions and services that benefit from the most advanced consumer trends. The combined strength of both companies will allow them to carve out a unique value proposition by combining innovative consumer technology with promising enterprise computing applications and technology such as the mobility, display, big data and security. Leveraging its worldwide infrastructure and proven know-how in IT services, Atos will integrate and deliver solutions that will help customers in retail, banking, automotive and public services realize the benefits of Samsung’s innovative technology. June 21st Atos wins a major outsourcing contract with Veolia Environnement and becomes its IT partner in France to support its transformation by deploying a cluster of services shared between all of the Group divisions. Atos is taking charge of operating the French IT infrastructures and applications from its service centres for the next 5 years. The service deployment and branch integration methodology proposed by Atos enables the total contract performance duration to be reduced to 12 months. Atos was selected by Veolia Environnement to rationalise and mutualise its infrastructures (more than 3,000 servers), all the while supplying state-of-the-art application management services (around 150 applications). C FINANCIALS C.1 Operational review C.1.1 Executive Summary External revenue in the first half of 2013 stood at EUR 4,290 million representing an organic variation of -0.6 percent or EUR -26 million, with a decline of -1.2 percent in the first quarter of the year and a stable second quarter. As a result of the decision to carve-out the payment activities, the adaptation of the Atos organization led to the following changes: The GBU North & South West Europe (N&SWE) was split with i) Nordic countries transferred to “Benelux & The Nordics” and ii) Switzerland and Italy joined “Central & Eastern Europe” (CEE). This decision of reducing the number of GBUs reflected the objective to optimize the operational efficiency and to decrease indirect costs. The entity AWFM (Atos Worldline Financial Markets), which was already under the new France Management was transferred to the GBU France. This was in line with the carve-out of Atos Payment activities. In terms of Service Line, AWFM is part of Systems Integration. The entity Atos Worldgrid is managed and reported as a global business within the Systems Integration Service Line. As such, Atos Worldgrid local entities (France, Italy, Spain, Germany and APAC) are reported in the corresponding GBUs. Also in order to increase efficiency, Global Markets E&U (Energy & Utilities) and TMT (Telecoms, Media & Technology) were merged within “Telco, Media & Utilities” (TM&U). These organizational changes have been reflected into the Business Unit, Service Line, and Global Market reporting both in the first semester of 2013 and 2012 for comparative purposes. Hi-Tech Transactional Services & Specialized Businesses (HTTS & SB) which represented 20 percent of the Group grew by +1.4 percent compared to the first half of 2012. HTTS business by itself grew by +5.6 percent. Representing 47 percent of the Group, Managed Services revenue was stable thanks to the contribution of new large contracts such as McGraw-Hill in the US, Nuclear Decommissioning Authority and EDF Energy in the UK or PostNord in Benelux & The Nordics. This was offset by the comparison basis effect with Siemens and the Neckermann insolvency in Germany, and a lower activity in France. Representing 26 percent of the total Group revenue in the first semester, Systems Integration declined by -0.8 percent year-on-year. Revenue growth in Germany coming from the new contract with NSN and in the UK from one specific project in the media sector was offset by a decline in France. Finally, Consulting & Technology Services represented 7 percent of the Group and was down by -8.5 percent, impacted by declining volumes, more particularly in France and in the Netherlands. By Geography, the revenue performance was mostly driven by North America (+14.6 percent) and the United-Kingdom (+6.0 percent), thanks to the contribution of the new large contracts and also by the continued increase of Atos Worldline (+3.9 percent) which accelerated in the second quarter at +5.1 percent compared to +2.6 percent in the first quarter. Germany was almost flat excluding the base effect from the Siemens transition contract invoiced in H1 2012. Benelux & The Nordics limited its decline at -3.1 percent while Iberia still suffers from the current economic environment. The activity in France, after a particularly tough first quarter, also impacted by less working days, did not improve with volumes still declining year-on-year. The Group concentrated on operating margin increase which materialized mainly in Managed Services (+95 basis points) and in Systems Integration (+160 basis points). Overall, operating margin was up +15 percent compared to the same period last year. The improvement came mainly from France, Benelux & The Nordics, the UK, and the US. Total order entry reached EUR 4,557 million, representing a book to bill ratio of 106 percent. Order entry in the first semester included renewal of large contracts such as NS&I in the UK, E-Plus, and a large German Bank in Germany. New contracts were also signed, among others: Veolia and EDF Transport in France, ACT in the US, Asian martial arts games in Ashkhabad, a multinational document management corporation in the UK. Excluding the Siemens account, for which a significant portion of the seven year outsourcing and application management contracts was recorded as opening backlog in July 2011, the book to bill reached 111 percent in the first semester of 2013. At the end of the first semester of 2013, the full backlog amounted to EUR 15,548 million or 1.8 year of revenue, representing an increase of EUR 258 million compared to December 31st, 2012 at constant scope and exchange rates. The full qualified pipeline at the end of June 2013 remained steady at EUR 5.0 billion compared to EUR 5.3 billion at the end of 2012 (at constant exchange rates), which included the large NS&I contract renewed in May 2013. The carve-out process of Atos payment and merchant transactional activities was completed at the end of the first semester and Worldline is operational since July 1st, 2013, combining in one entity the payment and transaction activities of Atos. With 2012 pro forma revenues of EUR 1,068 million, Worldline operates under its own brand in 17 countries with a global reach and offices across Asia and Latin America. Worldline employs over 7,100 employees worldwide. In the first semester 2013, Worldline revenue reached EUR 548 million, up +5.4 percent year-on-year. Operating margin was EUR 80.0 million, representing 14.6 percent of revenue and an increase of +40 basis points compared to the first half of 2012. Free cash flow was EUR 62 million compared to EUR 50 million in the first semester of 2012. The Atos Group total number of employees was 77,105 at the end of June 2013, reflecting a net increase of +688 people over the first semester of 2013. This increase comprised of a large decrease in indirect staff (-6 percent) in line with the indirect costs reduction plan. As a result, the number of direct employees represented 92.1 percent of the total headcount, compared to 91.5 percent at the end of 2012. C.1.1 Statutory to constant scope and exchange rates reconciliation In EUR millionH1 2013H1 2012% growthStatutory revenue4,2904,366-1.7%Scope impact-5Exchange rates impact-45Revenue at constant scope and exchange rates4,2904,316-0.6%Operating margin279.0248.8+12.2%Scope impact-2.2Exchange rates impact-2.9Operating margin at constant scope and exchange rates279.0243.6+14.5% C.1.1.1 Revenue Revenue in the first semester of 2013 amounted to EUR 4,290 million, representing an organic change of -0.6 percent compared to revenue at constant scope and exchange rates of EUR 4,316 million in the first half of 2012. The following schedule is presenting the impact on H1 2012 revenue of exchange rates, impact of the acquisitions and disposals, and internal transfers reflecting the Group’s new organization. H1 2012 statutoryInternal transferScope impactExchange rates impactH1 2012 former organizationAtos WorldgridAtos Worldline FMN&SWEH1 2012 new organizationGermany840084011850UK & Ireland812-26786786France500004994425568Benelux (& The Nordics)493049373566Atos Worldline457-8-1448-25423Central and Eastern Europe269-126925125418North America275-3272272North & South West Europe202-3-1198-1980Iberia1656017110181Other BU's3531-14340-90251Total Group4,3660-5-454,3160004,316Managed Services2,026-90-191,9971,997Systems Integration1,067-334-101,02890251,142HTTS & Specialized Businesses9673-8-13948-90-25833Consulting & Technology Services307390-2343343Total Group4,3660-5-454,3160004,316Revenue Internal transfers occurred in the four Service Lines and were mainly related to the transfer of Systems Integration and Managed Services in France and Benelux to Consulting & Technology Services for EUR 39 million. At Group level, exchange rates impact was EUR -45 million in the first semester. It mainly came from the decrease of the British Pound (-3.2 percent), the Argentine Peso (-15.2 percent) and the Brazilian Real (-9.5 percent) versus the Euro. Net scope impact was EUR -5 million on top line, mainly resulting from the acquisition of Daesa (September 2012), MSL (May 2012), Quality Equipment (June 2012) and disposals of SYNSiS (June 2012) and Atos Formation (February 2013). The adaptation of the organization made in the first semester of 2013 is reflected on the right part of the exhibit above. C.1.1.2 Operating margin Operating margin for the first semester of 2013 amounted to EUR 279.0 million, representing 6.5 percent of revenue, an improvement of +86 basis points compared to 5.6 percent of revenue in the first half of 2012 at constant scope and exchange rates. The following schedule is presenting the impact on 2012 operating margin of exchange rates, impact of the acquisitions and disposals, and internal transfers reflecting the adaptation of the Group organization, as explained above for revenue. H1 2012 statutoryInternal transferScope impactExchange rates impactAtos WorldgridAtos Worldline FMN&SWEGermany65.60.065.67.8%2.468.08.0%UK & Ireland55.7-1.853.96.9%53.96.9%France0.5-0.20.00.30.1%-6.31.8-4.1-0.7%Benelux (& The Nordics)33.60.033.66.8%4.137.66.6%Atos Worldline78.6-0.60.178.117.4%-1.876.318.0%Central and Eastern Europe26.8-0.126.810.0%2.39.138.29.1%North America23.3-0.323.08.5%23.08.5%North & South West Europe13.20.0-0.113.16.6%-13.10.090.5%Iberia2.50.30.02.81.7%0.73.62.0%Other BU's18.1-2.3-0.814.94.4%1.816.86.7%Global structures*-69.10.6-68.5-1.6%-1.0-69.5-1.6%Total Group248.80.0-2.2-2.9243.65.6%0.00.00.0243.65.6%Managed Services146.2-1.80.0-0.9143.57.2%143.57.2%Systems Integration41.2-1.5-2.0-0.737.03.6%-1.61.837.23.3%HTTS & Specialized Businesses105.80.40.0-1.1105.111.1%1.6-1.8104.912.6%Consulting & Technology Services11.62.9-0.2-0.114.24.1%14.24.1%Corporate costs*-56.1-56.1-1.3%-56.1-1.3%Total Group248.80.0-2.2-2.9243.65.6%0.00.00.0243.65.6%* Global structures includes the Global delivery Lines costs not allocated to the Group Business Unit and the Corporates costs* Corporate costs excludes Global delivery Lines costs allocated to the Services LinesH1 2012 former organizationH1 2012 new organizationOperating margin C.1.2 Revenue profile evolution In the first semester of 2013, 76 percent of the revenue base was generated by multi-year contracts, deriving from multi-year Managed Services contracts (47 percent of total revenue), Application Management contracts and Atos Worldgrid (respectively 7 percent and 2 percent included in Systems Integration) and Hi-Tech Transactional Services & Specialized Businesses (20 percent of total revenue). In EUR millionH1 2013H1 2012*Managed Services1,9981,997Systems Integration1,1331,142HTTS & Specialized Businesses844833Consulting & Technology Services314343Total Group4,2904,316* Constant scope and exchange rates 47%26%20%7% Europe remained the Group’s main operational base, generating 87 percent of total revenue compared to 89 percent of total revenue in H1 2012 at constant scope and exchange rates. This slight increase of the weight of non-European operations is a result of higher growth rates achieved in these geographies. In EUR millionH1 2013H1 2012*United-Kingdom & Ireland833786Germany809850Benelux & The Nordics548566France514568Atos Worldline440423Central & Eastern Europe420418North America312272Iberia164181Other BUs251251Total Group4,2904,316* Constant scope and exchange rates 19%19%13%12%10%10%7%4%6% The Group provides IT services and solutions to many industry sectors. The customers are addressed through four global markets which are Manufacturing Retail & Services, Public Health & Transportation, Financial Services, and Telco, Media & Utilities. Increased weight of Telco, Media & Utilities is mainly due to the contribution of the McGraw-Hill contract in the US and new contracts in the energy sector while the weight of the Manufacturing, Retail & Services market diminished on the back of the successful completion at the end of the first half of 2012 of the Siemens project to separate and transform the platforms between Siemens and the former SIS scope. In EUR millionH1 2013H1 2012*Manufacturing, Retail & Services1,3541,442Public sector, Healthcare & Transport1,1401,143Financial Services798824Telco, Media & Utilities998907Total Group4,2904,316* Constant scope and exchange rates 31%27%19%23% C.1.3 Performance by Service Line In EUR millionH1 2013H1 2012*% growthH1 2013H1 2012*H1 2013H1 2012*Managed Services1,9981,997+0.0%162.5143.58.1%7.2%Systems Integration1,1331,142-0.8%55.037.24.9%3.3%HTTS & Specialized Businesses844833+1.4%99.4104.911.8%12.6%of which HTTS592561+5.6%93.887.815.8%15.7%Consulting & Technology Services314343-8.5%13.914.24.4%4.1%Corporate costs**-51.8-56.1-1.2%-1.3%Total Group4,2904,316-0.6%279.0243.66.5%5.6%* Constant scope and exchange rates** Corporate costs exclude Global Delivery Lines costs allocated to the Service LinesRevenueOperating MarginOperating Margin % C.1.3.1 Managed Services In EUR millionH1 2013H1 2012*changeRevenue1,9981,997+0.0%Operating margin162.5143.5Operating margin rate8.1%7.2%+95bp*constant scope and exchange rates Representing 47 percent of the Group, Managed Services revenue was EUR 1,998 million, stable year-on-year. UK & Ireland was up by +8.7 percent at EUR 389 million thanks to the contribution from new contracts such as EDF Energy, NDA and Insolvency Services. North America strongly grew by +19.1 percent, fully benefiting from the ramp-up of the McGraw-Hill contract. Asia-Pacific was up by +20 percent at EUR 74 million, on the back of additional volumes with a large bank in Hong-Kong and new customers such as Dah Sing Bank. Germany revenue decreased due to the base effect related to the transition project with Siemens (EUR -35 million) completed in June 2012 as well as the insolvency of Neckermann (EUR -10 million). France (-7.8 percent) did not reached the expected level of new business and therefore could not compensate contract terminations in Financial Services and volume reductions in Industry. In Middle East, a one-time sale in Qatar for EUR 7 million during the first quarter of 2012 was not repeated this year. Managed Services revenue profile by geographies Germany26%UK & Ireland19%Benelux & The Nordics16%France9%North America13%Other countries17% Operating margin improved by EUR +19.0 million compared to the first half of 2012 reaching EUR 162.5 million or 8.1 percent of revenue, increasing by +95 basis points year-on-year. The improvement came from the industrialization of the activity through Global Delivery Lines and the execution of the transformation program in the geographies such as Benelux & The Nordics, UK & Ireland, and Other BUs. This resulted in the materialization of back office synergies, application of the lean techniques and offshoring. On top of these strong actions on costs, Benelux and the UK improved significantly their operational performance. C.1.3.2 Systems Integration In EUR millionH1 2013H1 2012*changeRevenue1,1331,142-0.8%Operating margin55.037.2Operating margin rate4.9%3.3%+160bp*constant scope and exchange rates Representing 26 percent of the total Group revenue, System Integration landed at EUR 1,133 million down -0.8 percent year-on-year. Sales increase due to the ramp-up of NSN in Germany, the preparation of the Asian martial arts games in Ashkhabad, and a contract with a major media company in the UK. This was negatively countered by the continuing weak demand in continental Europe, particularly in the Public sector and in Financial Services, added to the unfavorable comparative basis due to the 2012 London Olympics. Application Management represented 28 percent of total Systems Integration revenue in the first half of 2013 and projects the remaining 72 percent. Utilization rate was 81 percent in the first semester of 2013. Systems Integration revenue profile by geographies France17%Germany24%UK & Ireland12%Benelux & The Nordics10%Iberia8%CEE15%Other countries14% Operating margin progressed by EUR +17.8 million at EUR 55.0 million, representing 4.9 percent of revenue, an improvement by +160 basis points compared to the same period last year. Margin improvement was primarily driven by France thanks to operational efficiencies and indirect costs optimization, coupled with the recovery of Atos Worldgrid compared to the losses incurred last year on three specific projects. The increased volume in offshore delivery (NSN, McGraw-Hill, E-Plus) combined with the decrease of the Indian Rupee versus the Euro contributed positively to the operating margin which also advanced in the UK & Ireland as a consequence of cost base adjustments and higher revenues. This was in part offset by the ramp-down of the AMS contract in Austria (contract lost by SIS before the closing of the acquisition). C.1.3.3 Hi-Tech Transactional Services (HTTS) & Specialized Businesses In EUR millionH1 2013H1 2012*changeRevenue844833+1.4%of which HTTS592561+5.6%Operating margin99.4104.9of which HTTS93.887.8Operating margin rate11.8%12.6%-82bpof which HTTS15.8%15.7%+19bp*constant scope and exchange rates Revenue represented 20 percent of the Group at EUR 844 million, up +1.4 percent year-on-year. Growth came from HTTS, up EUR +31 million or +5.6 percent landing at EUR 592 million. Main contributor was eCS business ending at EUR 266 million with an organic growth of 10.2 percent. Within eCS, Transactional Web and Smart Ticketing & e-Traffic were the main growth engines, with the biometric passport contract in France as well as fertilization on e-Commerce projects. In Smart Ticketing & e-Traffic Management services, the increase stemmed primarily from the UK with the new contract “Transport for Greater Manchester”. Payment business reached EUR 325 million, up +2.1 percent mainly through the issuing activities, thanks to a sustained performance in e-Wallet in France, International Gateway, and ACS in the UK, and in Belgium with a good level of projects revenue and higher transaction volumes on banking cards. Business Process Outsourcing (BPO) at EUR 182 million was down by -3.3 percent or EUR -6 million. The Medical BPO at EUR 87 million declined by EUR -10 million due to lower volumes output. The Financial BPO business grew by EUR +5 million to EUR 94 million thanks to NS&I Payment Plan 1 milestone (ISPP1) completed in the first quarter of this year. Specialized Business at EUR 71 million dropped by -16.0 percent mainly due to the ramp-down of the Swiss national wide Polycom contract in Switzerland. HTTS & Specialized Businesses revenue profile by geographies Atos Worldline52%UK & Ireland32%Other countries16% At EUR 99.4 million, operating margin decreased by EUR -5.5 million or -80 basis points, representing 11.8 percent. The higher profitability in HTTS (EUR +6.0 million) was more than offset by the deterioration of both Medical BPO (EUR -9.9 million) and Specialized Businesses (EUR -1.6 million). HTTS operating margin at EUR 93.8 million or 15.8 percent of revenue improved EUR +6.0 million or +22 basis points on last year primarily driven by the cost optimization on transport products and on Governmental contracts in the UK, added to higher sales in Belgium. In Specialized Businesses, the operating margin of EUR 6.7 million or 9.4 percent of revenue was down by EUR -1.6 million as a consequence of the decrease in revenue. Finally, BPO was down by EUR -9.9 million compared to last year, leading to a loss of EUR -1.1 million, primarily due to set up costs related to DWP PIP in which revenue will start only in the second semester this year. This added to a low margin on the DWP medical assessments contract. C.1.3.4 Consulting & Technology Services In EUR millionH1 2013H1 2012*changeRevenue314343-8.5%Operating margin13.914.2Operating margin rate4.4%4.1%+29bp*constant scope and exchange rates Revenue in Consulting & Technology Services stood at EUR 314 million, decreasing compared to the first semester of last year by -8.5 percent. The figure can be broken-down between the impact of fewer working days (-1.5 percent, affecting in particular France and Benelux) and business contraction (-7.0 percent) across all Markets but more particularly in Financial Services and TM&U. Consulting & Technology Services revenue profile by geographies France43%Benelux & The Nordics32%Iberia11%UK & Ireland11%Latin America2%Other countries1% Operating margin was slightly below last year by EUR -0.3 million at EUR 13.9 million, improving in relative terms by +30 basis point at 4.4 percent as strong improvement plans for resource management and costs efficiency have been put in place to enable profitability improvement despite the organic decline. C.1.4 Performance by Business Units In EUR millionH1 2013H1 2012*% growthH1 2013H1 2012*H1 2013H1 2012*United-Kingdom & Ireland833786+6.0%64.453.97.7%6.9%Germany809850-4.9%52.768.06.5%8.0%Benelux & The Nordics548566-3.1%49.537.69.0%6.6%France514568-9.5%8.0-4.11.6%-0.7%Atos Worldline440423+3.9%76.276.317.3%18.0%Central & Eastern Europe420418+0.3%31.638.27.5%9.1%North America312272+14.6%24.523.07.9%8.5%Iberia164181-9.7%3.53.62.1%2.0%Other BUs251251+0.0%22.616.89.0%6.7%Global structures**-54.2-69.5-1.3%-1.6%Total Group4,2904,316-0.6%279.0243.66.5%5.6%* Constant scope and exchange ratesRevenueOperating MarginOperating Margin %** Global structures include the Global Delivery Lines costs not allocated to the Group Business Unit and the Corporates costs During the first semester of 2013, the revenue performance was driven mostly by North America (+14.6 percent) and the United-Kingdom (+6.0 percent), thanks to the contribution of the new large contracts and also by the continued increase of Atos Worldline (+3.9 percent) which accelerated in the second quarter at +5.1 percent compared to +2.6 percent in the first quarter. Germany was almost flat excluding the base effect from the Siemens transition contract invoiced in H1 2012. Benelux & Nordics limited its decline at -3.1 percent while Iberia still suffers from the current economic environment. The activity in France, after a particularly tough first quarter, also impacted by less working days, did not improve with volumes still declining year-on-year. Operating margin was up +15 percent compared to the same period last year. The improvement came mainly from France, Benelux & The Nordics, the UK, and in a lesser extent from the US. C.1.4.1 United Kingdom & Ireland In EUR millionH1 2013H1 2012*ChangeRevenue833786+6.0%Operating margin64.453.9Operating margin rate %7.7%6.9%+87bp* Constant scope and exchange rates Revenue was EUR 833 million, +6.0 percent year-on-year. Managed Services was EUR 389 million, up +8.7 percent. This was mainly due to new contracts with EDF Energy, NDA and Insolvency Services partly offset by the base effect of London 2012. Revenue in Systems Integration was EUR 138 million, up +8.2 percent thanks to the completion of a large project with the a media company and an SAP upgrade project with Siemens. HTTS revenue was EUR 91 million, +7.4 percent above prior year mainly thanks to the Greater Manchester e-Ticketing new contract. BPO was down by -3.3 percent at EUR 182 million, mainly due to DWP Medical lower assessment volumes offset by additional volume related revenues in NS&I (Milestone 1). Consulting revenue was EUR 34 million, up EUR +6 million or +21.7 percent. This is mainly due to new contracts with DCNS, the IFA project, and improvement in the health sector. Operating margin stood at EUR 64.4 million, representing 7.7 percent of revenue compared to 6.9 percent for the first half of 2012. Managed Services operating margin improved by EUR +7.1 million compared to the first half of 2012 due to new EDF and NDA contracts contribution, lower network costs, and also pension curtailment. In Systems Integration, operating margin improved by EUR +7.3 million above prior year, mainly due to increased project activity with a large media company, cost base efficiencies, and lower indirect costs. HTTS operating margin was up EUR +4.7 million year-on-year, mainly due to top line growth as well as costs optimization on transport and ticketing software solutions. In BPO, operating margin was negative at EUR -1.1 million, EUR -9.9 million below prior year, mainly due to set up costs related to the DWP PIP (EUR -8.0 million) where revenue will start only in the second semester this year. This added to low margin on DWP medical assessments contract where volumes decreased in the first half of 2013. Consulting operating margin increased by EUR +1.2 million year-on-year, in line with revenue growth. C.1.4.2 Germany In EUR millionH1 2013H1 2012*ChangeRevenue809850-4.9%Operating margin52.768.0Operating margin rate %6.5%8.0%-147bp* Constant scope and exchange rates Revenue decreased by -4.9 percent to last year at EUR 809 million. Managed Services revenue reached EUR 517 million, down by -9.8 percent year-on-year. Top line was affected by the phase-out of the transition and transformation projects with Siemens and the Neckermann insolvency. Systems Integration grew by +4.9 percent at EUR 271 million, thanks to the ramp-up of the NSN application management contract that started in the course of the semester and services rendered for Thyssen Krupp. This was partly offset by fewer projects. Operating margin decreased at EUR 52.7 million, representing 6.5 percent of revenue. Systems Integration operating margin decreased by EUR -2.1 million. Main impact was the transition phase on NSN contract where the productivity is still affected by the customer staff takeover. Operating margin in Managed Services declined by EUR -12.4 million versus last year, most of which was related to base effect of the ending Siemens transition project in June 2012 as well as the loss of revenue with Neckermann following its insolvency in the second half of 2012. C.1.4.3 Benelux & The Nordics In EUR millionH1 2013H1 2012*ChangeRevenue548566-3.1%Operating margin49.537.6Operating margin rate %9.0%6.6%+239bp* Constant scope and exchange rates The GBU continued to experience weak demand in the cyclical activities. Revenue reached EUR 548 million, down by -3.1 percent year-on-year. Managed services grew by +1.4 percent. Performance was contrasted with the activity in the Nordics increasing due to the ramp-up of the PostNord contract in Denmark, while Benelux slightly contracted due to a lack of volumes in several large accounts. Systems Integration was down by -9.2 percent, mostly coming from less volumes with various Dutch Government Ministries as well as challenging activities in Financial Services. Consulting & Technology Services dropped by -12.3 percent with Technology Services at -10.1 percent. Both were affected by continuing tough market conditions in Financial Services, in spite of a slight improvement in the energy sector. The operating margin rate increased to 9.0 percent, resulting from strong action plans to decrease the cost base, including the renegotiation of the pension plans with the local work council which led to an IAS 19 charge reduction compared to last year. Managed Services operating margin increased by EUR +12.2 million on last year. This resulted from the effect of a slightly growing top line, an improved contract margin following recovery plans in government contracts, productivity gains in the delivery center, and upselling. Additionally a EUR +3.1 million reduction of pension charge was derived from the Dutch pension renegociation. Systems Integration margin was almost stable. Productivity gains, optimization on indirect costs, and workforce management actions almost compensated for the margin impact due to the revenue shortfall. Despite the decrease in revenue, Consulting & Technology Services margin remained flat due to a slight increase in the average daily rate, additional cost optimizations and the effect of the pension plan amendment. C.1.4.4 France In EUR millionH1 2013H1 2012*ChangeRevenue514568-9.5%Operating margin8.0-4.1Operating margin rate %1.6%-0.7%+229bp* Constant scope and exchange rates Revenue in France reached EUR 514 million, representing an organic decrease of -9.5 percent or EUR -54 million compared to last year. Managed Services decreased by -7.8 percent compared to last year. The growth in TMT market by +2.3 percent with new contracts signed end of 2012 (TDF and Gemalto) did not compensate for the decline in the other markets due to contract terminations and volume reduction with several customers. Systems Integration dropped by -9.9 percent driven by the volume reduction in the public sector (Ministry of Finance and Ministry of Agriculture) and the end of some projects in Financial Services. The lower number of working days compared to last year also contributed to the top line decrease. Consulting & Technological Services decreased by -8.5 percent primarily affected by the lack of activity in the banking and public sectors and the lower level of working days compared to last year. Operating margin turned positive to 1.6 percent of revenue at EUR 8.0 million, up EUR +12.2 million year-on-year. This improvement was mainly due to the recovery of System Integration with a massive increase by EUR 16 million, due to the streamlining of middle management layers and the reduction of indirect costs completed with the recovery of Atos Worldgrid after the contract issues experienced in the first semester of 2012 on EDF and GDF contracts (EUR + 10.1 million). Managed Services suffered primarily from the loss of revenue of the terminated contracts in 2012 and margin decreased by EUR -1.7 million year-on-year. The revenue decline effect could not be fully compensated by strong actions on indirect costs and the continuous industrialization of the activity. Consulting & Technology Services operating margin decrease was limited at EUR -2.1 million year-on- year and showed the strong efforts of the GBU in adapting the cost base to the level of revenue. C.1.4.5 Atos Worldline In EUR millionH1 2013H1 2012*ChangeRevenue440423+3.9%Operating margin76.276.3Operating margin rate %17.3%18.0%-68bp* Constant scope and exchange rates Atos Worldline reported revenue of EUR 440 million, up EUR +16 million or +3.9 percent to last year, mainly through project revenue. Payment activities increased by +2.0 percent, mainly driven by issuing processing. The growth in issuing came from 3 main geographies: France thanks to ACS and e-Wallet, Belgium through various development projects and APAC with the sale of licenses. eCs increased by +9.0 percent compared to last year, thanks to transactional web and Smart Mobility. The transactional web benefitted from the growth of e-commerce and higher volumes on the Biometric passport. Smart Mobility growth was led by the new contracts such as connected vehicles (Renault, Michelin), Mc Donald’s and Orange. Operating margin stood at EUR 76.2 million (17.3 percent), unchanged to last year. Revenue growth mainly stemmed from build-up projects, generating a lower margin rate than recurring activities. The additional margin was then offset by tariff pressure on renewed issuing contracts. C.1.4.6 Central & Eastern Europe In EUR millionH1 2013H1 2012*ChangeRevenue420418+0.3%Operating margin31.638.2Operating margin rate %7.5%9.1%-159bp* Constant scope and exchange rates Revenue in Central & Eastern Europe grew by +0.3 percent at EUR 420 million compared to last year. The Business Unit largely benefited from the ramp-up of a new project in Turkey (in preparation for the Asian martial arts games in Ashkhabad in Turkmenistan) and a strong activity in the Public sector in Slovakia. Conversely, Austria was affected by the ramp-down of the AMS contract that ended in the second half of last year. Switzerland was below previous year due to an unfavorable comparative basis effect (Toll collection). Italy reported a limited decline of EUR -3 million considering the current economic environment thanks to the growing contribution of e-Utile. Operating margin was EUR 31.6 million or 7.5 percent. This represents a decrease of EUR -6.5 million year on year. The growing activity with the Ashkhabad project and the Civil & National Security business in Switzerland generated additional contribution to margin compared to last year. Adversely, Austria fell, due to the ramp-down of the AMS contract and also a lack of volume in Systems Integration which resulted in unabsorbed direct costs. Finally, profitability lowered in Poland in the Telco sector. C.1.4.7 North America In EUR millionH1 2013H1 2012*ChangeRevenue312272+14.6%Operating margin24.523.0Operating margin rate %7.9%8.5%-59bp* Constant scope and exchange rates North America revenue was EUR 312 million, increasing by +14.6 percent year on year. Managed Services revenue increased by 20 percent as a result of the McGraw-Hill contract contribution. Several other new contracts supported also supported the growth, particularly Pfizer and City of San Diego. This was narrowed down by the comparison effect with Siemens, and some terminated contracts. In Systems Integration, North America successfully completed the AIG contract in 2012 which resulted this year in a decline of -4 percent. This was partially offset by the upselling of projects on the McGraw- Hill contract. Operating margin increased by EUR +1.5 million year on year. In Managed Services, operating margin was stable at 7.9 percent with the effect of the revenue increase almost fully countered by the extra efforts made on the Siemens account to increase quality of services as well as the base effect of the end of transition and transformation. Systems Integration declined by EUR -1.3 million as a result of fewer revenues. C.1.4.8 Iberia In EUR millionH1 2013H1 2012*ChangeRevenue164181-9.7%Operating margin3.53.6Operating margin rate %2.1%2.0%+17bp* Constant scope and exchange rates In Iberia, revenue was EUR 164 million, down -9.7 percent, primarily driven by the Public sector due to spend cuts in regional and central government agencies and the termination of the contract with Generalitat Catalunya. The Telecom market dropped by EUR -5 million mostly in Systems Integration due to fewer volumes recorded in Vodafone NGIN and a contract ending with Telefonica. Revenue slightly grew in Manufacturing Retail & Services with EADS. Despite the drop in revenue, operating margin remained almost stable to last year at EUR 3.5 million. The tightening of indirect costs combined with the renegotiated labor conditions allowed to adjust rapidly the cost base and offset the impact of revenue shortfall. C.1.4.9 Other Business Units In EUR millionH1 2013H1 2012*ChangeRevenue251251+0.0%Operating margin22.616.8Operating margin rate %9.0%6.7%+233bp* Constant scope and exchange rates Major Events Revenue was down by EUR -7 million year on year, reflecting the impact of the comparative basis in 2012 due to the London 2012 games. Operating margin was up by EUR +1.7 million on last year. Asia Pacific Revenue grew by +11.8 percent. This was driven by Managed Services, in particular in Hong Kong due to increased volumes in Financial Services with a large Hong Kong bank and Dah Sing Bank. Operating margin increased by EUR +5.9 million compared to last year. This was mostly derived from the incremental margin due to higher revenues and savings. Latin America Revenue was flat compared with last year. Sales increased in the Public sector in the HTTS unit with higher volumes in e-ticketing were compensated by the end of contracts in Technology Services and Managed Services. Operating margin was stable too. South Africa, India, Morocco, Middle East Revenue dropped by -13.5 percent compared to previous year, which was due to an exceptional delivery of a Datacenter for EUR 8 million in the first semester of 2012 in Qatar. This was mitigated by an improved performance in Systems Integration in the Middle East. Operating margin rose by EUR +12 million, mainly in India which benefitted from an increase in offshore (internal) demand on various projects (NSN, E-Plus, a multinational document management corporation, McGraw-Hill and Pfizer), and also from the depreciation of the Indian Rupee at the end of the semester. New Business Venture The unit is encompassing blueKiwi, Canopy, Yunano. The Group invested in its Cloud platforms and software in order to be fully ready for revenue development in the second semester. C.1.4.10 Global structures costs Global structure costs amounted to EUR -54.2 million, which represents a positive variance of EUR +15.3 million over last year, materializing the full effect of the SIS integration program. C.1.5 Revenue by Global Market The Group is organized in four industry sectors, as described hereunder. In EUR millionH1 2013H1 2012*% growthManufacturing, Retail & Services1,3541,442-6.0%Public sector, Healthcare & Transport1,1401,143-0.3%Financial Services798824-3.2%Telco, Media & Utilities998907+10.0%Total Group4,2904,316-0.6%* Constant scope and exchange rates Revenue by Global Market reported evolution year-on-year was led by large contracts signed from mid- 2012 to the first quarter of 2013. More particularly, Telecom, Media & Utilities grew by +10 percent with the strong contribution from McGraw-Hill in the US and NSN in Germany. Public sector, Healthcare & Transport remained stable with UK increase from new government contracts and the Nordics with the new PostNord contract in Denmark. This allowed compensating a lower demand in France which also impacted Financial Services due to a lower demand which remained concentrated on regulation and productivity. This led to -3.2 percent in this market. Finally, Manufacturing, Retail & Services was down with the combined effect of Siemens transition project and weak demand in continental Europe where most of the revenue is generated in that market. Manufacturing, Retail & Services In this market, the top 10 clients represented 46 percent of revenue with Siemens, Renault Nissan, EADS, Bayer, Carl Zeiss, Coca Cola, Thyssen Krupp, a German coal mining corporation, Daimler Group, and a large European consumer electronics company. Public sector, Healthcare & Transport 32 percent of the revenue in this market were realized with the 10 main clients: Department of Work and Pensions and Ministry of Justice in the UK, European Union Institutions, the French Ministry of Ecologie, the UK Border Agency, NHS Scotland, the Ashkhabad Olympic Complex, Vehicle Op Standards Agency (VOSA), Nuclear Decommissioning Agency (NDA) and National Assembly for Wales. Financial Services In this market, 48 percent of the revenue were generated with the 10 main clients being: National Savings & Investments (NS&I), a large German bank, BNP Paribas, ING, a large Hong Kong bank, Achmea, Credit Agricole, La Poste, Société Générale, and Talanx. Telco, Media & Utilities The 10 main clients were a large media company in the UK, KPN, EDF, McGraw-Hill, Orange, Nokia Siemens Networks (NSN), Telecom Italia, Microsoft, Schlumberger and Vodafone. They represented 65 percent of the total Global Market revenue. C.1.6 Carve-out of Atos payment and merchant transactional activities C.1.6.1 Objectives of the carve-out and creation of Worldline The Group announced in February 2013 the decision to carve out Atos payment and merchant transactional activities around Atos Worldline and specific transactional businesses. The key objective was to reveal this new entity as worldwide player and European leader in the payment space with a more integrated and efficient management of operations and to provide the strategic and financial flexibility to expand its product offerings across the entire transaction value chain including alliances and partnerships. This resulted in reaffirming this new entity’s leading position in the payment sector, which is also enhanced by the ability to leverage on the large and strong Atos customer base and geographical presence. Grouping all payment activities within a single defined perimeter with specific reporting enable increased internal and external transparency on this business performance while strengthening the operational performance of the new entity. The carve-out process was completed at the end of the first semester and Worldline an Atos company, is operational since July 1st, 2013, combining in one entity the payment and transactions activities of Atos. Worldline top management organization: Thierry Breton, Chairman and CEO of Atos, chairs the Board of Directors of Worldline Gilles Grapinet, Atos Senior Executive Vice President Global functions, was appointed Chief Executive Officer of Worldline Marc-Henri Desportes, former Executive Vice President of Atos Hi-Tech Transactional Services was appointed General Manager of Worldline Christophe Duquenne was appointed Worldline Chief Operating Officer C.1.6.2 Organization and key figures With 2012 pro forma revenues of EUR 1,068 million, Worldline operates under its own brand in 17 countries with a global reach and offices across Asia and Latin America. Worldline employs over 7,100 employees worldwide. Worldline is organized in three Global Business Lines which reflect a very important go-to-market and internal organization to leverage key offerings and services from its very rich portfolio. These three Global Business Lines have full P&L responsibility across their geographies. Merchant Services & Terminals This Business Line addresses merchants (SMBs), large retail organizations, and online merchants. It generated EUR 353 million revenue in 2012 pro forma at 2013 constant scope and exchange rates. The main services provided by this Business Line are: Commercial acquiring Online services Private label cards Terminals One of the key central components of the business value proposition of this Business Line relies on its extensive portfolio of payment services. It allows the company to support merchants and retailer at all stages of their customer experience, remortly outside the store, at the store, and even after the sale through a powerful combination of cross channels payment solutions which can be seamlessly integrated with advanced CRM loyalty and analytics capabilities. Mobility & e-Transactional Services The customers addressed are public entities, transport companies, healthcare organizations and telecom and media companies. This Business Line generated EUR 341 million revenue in 2012 pro forma at 2013 constant scope and exchange rates. The main services provided by this Business Line are: e-Consumer and mobility e-Government collection e-Ticketing Based on the Atos Worldline success story, this Business Line brings sophisticated payment and transactional solutions and services to large public and private organizations, to support the challenge of mass payment and beyond payment interactions with thousands of customers, passengers, and citizens. Fundamentally, it reuses core components of the payment portfolio and platforms to offer solutions deeper in the value chain of our service B2C clients: Machine-to-machine real time capabilities (management of connected devices leveraging connected terminals solutions and know-how), Fraud management services, customer care platforms and services, Core payment solutions also used for merchant services like the Worldline internet gateway. Financial Processing & Software Licensing The customers addressed are financial institutions. The size of this business was EUR 375 million revenue in 2012 pro forma at 2013 constant scope and exchange rates. The main services provided by this Business Line are: Acquiring processing Issuing processing Online banking Payment software licessing This business is resilient, with a sustained profitability. The Business Line margin levers are industrialization of the delivery, optimization of technological platforms and added value services of basics processing such as Fraud management, data analytic, and personalization. The sale of software licenses has a higher profitability profile than the core processing activities. C.1.6.3 H1 2013 performance In the first semester 2013, Worldline revenue reached EUR 548 million, up +5.4 percent year-on-year. Operating margin was EUR 80.0 million, representing 14.6 percent of revenue, and an increase of +40 basis points compared to the first half of 2012. Free cash flow was EUR 62 million compared to EUR 50 in the first half of 2012. In EUR millionH1 2013H1 2012% growthH1 2013H1 2012H1 2013H1 2012Merchant Services & Terminals178171+3.7%32.531.718.3%18.5%Mobility & e-Transactional Services182165+10.0%20.820.011.4%12.1%Financial Processing & Software Licensing189183+2.8%35.031.418.5%17.1%Central costs-8.3-9.2-1.5%-1.8%Total Group548520+5.4%80.074.014.6%14.2%Unaudited pro forma figures at constant scope and exchange rates, based on best estimates by Business LinesRevenueOperating MarginOperating Margin % Merchant Services & Terminals Revenue was EUR 178 million for the first half of 2013, up +3.7 percent with 18.3 percent operating margin rate. Revenue growth came from the Benelux with volumes increasing in commercial acquiring together with new projects. Revenue increased also in internet payment in France and for loyalty cards in the UK. Total growth was impacted by lower terminal sales in historical domestic markets while new international markets are picking up. Operating margin rate was almost stable despite the effect from terminals. In this Business Line, profitability has a strong seasonality due to higher consumer volumes at the end of the year. Mobility & e-Transactional Services The Business Line revenue strongly grew by +10.0 percent in the first half of 2013 at EUR 182 million. Operating margin was 11.4 percent of revenue. Revenue growth came from France in e-Tolling, payment, digitalization, and from connected car projects with automotive manufacturers. Growth also came from the UK with e-Ticketing and from Latin America in fare collection. Finally, the e-Government business grew thanks to tax collection projects. In this Business Line, build activities for new business development have a large weight. Profitability was slightly lower compared to last year considering a higher portion of project and should increase as soon as volumes of transactions develop. Financial Processing & Software Licensing In Financial Processing & Software Licensing, revenue growth was +2.8 percent during the first half of 2013 at EUR 189 million. Operating margin improved by +140 basis points at 18.5 percent of revenue. Growth was generated with additional payment software licensing business in Asia and in France in issuing (e-Wallet and international payment platform). Revenue also increased in Benelux with growing volumes both for banking cards and in new projects. The development of new payment forms for banks as well as important project work and license sales to banks supported both top and bottom line. C.1.7 Portfolio C.1.7.1 Order entry and book to bill In the first half of 2013, the total Group order entry reached EUR 4,557 million, representing a book to bill ratio of 106 percent. Order entry in the first semester included renewal of large contracts such as NS&I in the UK, E-Plus, and a large German bank. New contracts were also signed, among others: with a large European consumer electronics company in the Netherlands, Veolia and EDF Transport in France, American College Testing and City of Indianapolis in the US, Asian martial arts games in Ashkhabad in Central & Eastern Europe, and a multinational document management corporation in the UK. Excluding the Siemens large account, for which a significant portion of the seven year outsourcing and application management contracts was recorded as opening backlog in July 2011, the book to bill reached 111 percent in the first semester of 2013. Order entry and book to bill by Service Line was as follows in H1 2013: In EUR million and %H1 2013H1 2013Managed Services1,69185%Systems Integration1,06494%HTTS & Specialized Businesses1,446171%Consulting & Technology Services357114%Total Group4,557106%Order entryBook to bill Managed Services reached 85 percent book to bill (90 percent excluding Siemens) compared to 134 percent for the same period last year. This performance was mainly due to the signature of the following contracts: renewal of E-Plus (TM&U), a large consumer electronics company (MRS) in the Netherlands and a large German bank (FS) in Germany, new contracts with Veolia (TM&U) and EDF Transport (TM&U) in France, and in the US the new contract with ACT (PHT) and the renewal of the contract with MFS Investment Management. Systems Integration activities reached 94 percent book to bill. Some major contracts were signed or renewed during the first semester. The main ones were: renewal of E-Plus (TM&U) and new contract with the Work Agency (PHT) in Germany. In France, signatures were the renewal of Renault (MRS) and a new one with Airbus (MRS). New contracts were signed in Turkey (CEE) for the preparation of the Asian martial arts games in Ashkhabad (PHT) and in the UK with a multinational document management corporation (MRS). HTTS & Specialized Businesses achieved a strong 171 percent book to bill. This performance was primarily made in BPO linked to the renewals of NS&I (Financial Services) and with the Ministry of Justice (PHT), both in the UK. HTTS itself stood at 104 percent, mainly thanks to fertilization on existing contracts performed by Atos Worldline with BNP Paribas (Financial Services), LCH Clearnet (Financial Services) and ANTS, the French Agency for Secure ID (PHT) and the renewal with Equens (Financial Services). In the UK, signatures were performed with Rail Safety & Standards Board (PHT) and with National Car Parks. Finally, Specialized Businesses units stood at 87 percent including the renewal by Atos Worldgrid for electricity, transport & distribution. Consulting & Technology Services achieved 114 percent book to bill ratio. The Service Line benefited from the new contract signatures in Benelux in the energy sector with Gasunie and GDF Suez, and in the UK with the Ministry of Defense. Order entry and book to bill by Market were as follows in H1 2013: In EUR million and %H1 2013H1 2013Manufacturing, Retail & Services1,359100%Public sector, Healthcare & Transport96585%Financial Services1,217153%Telco, Media & Utilities1,016102%Total Group4,557106%Order entryBook to bill C.1.7.2 Main contract signatures of the period During the first semester, major wins per Market are listed below: Manufacturing, Retail & Services TypeClientOfferingBusiness UnitSLDurationNewLarge consumer electronics companyCommon PlatformsBenelux & The NordicsMS60NewGivaudanEnd-user servicesCentral & Eastern EuropeMS60Fertilis.SiemensVoice servicesGermanyMS109RenewalRenault Application managementFranceSI12NewDocument management corporationEntreprise services access pointUK & IrelandSI63 Public, Health & transportation TypeClientOfferingBusiness UnitSLDurationNewACTCommon PlatformsNorth AmericaMS60NewAshgabatIT services for Asian martial arts gamesCentral & Eastern EuropeSI24NewCity of IndianapolisCommon PlatformsNorth AmericaMS60NewMinistry of DefenceCore Network ServicesUK & IrelandSI/CO36NewRail Safety & Standards BoardData digitalization in Mainframe environmentUK & IrelandHTTS60 Financial Services TypeClientOfferingBusiness UnitSLDurationRenewalNS&IFinancial BPOUK & IrelandBPO84RenewalLarge German BankSelf Service DevicesGermanyMS54RenewalGlobal asset managerPhysical DevicesNorth AmericaMS60Fertilis.BNP Paribas FortisIssuing - Card ProcessingAtos WorldlineHTTS60NewLargest insurance company in NLAdaptive WorkplaceBenelux & The NordicsMS36 Telco, Media & Utilities TypeClientOfferingBusiness UnitService LineDurationRenewalE-PlusMOU for 5 years prolongationGermanyMS/SI/HTTS60NewVeolia GroupManaged infrastructure solutionFranceMS60Fertilis.McGraw-HillServer managementNorth AmericaMS42RenewalMicrosoftCommon PlatformsNorth AmericaMS60NewNederlandse GasunieServer managementBenelux & The NordicsTS48 C.1.7.3 Full backlog At the end of the first semester of 2013, the full backlog amounted to EUR 15,548 million or 1.8 year of revenue, representing an increase of EUR +258 million compared to December 31st, 2012 at constant scope and exchange rates. Most of the increase came from HTTS & Specialized Businesses thanks to the renewal of NS&I in BPO. As a result, the backlog for the Service Line increased by EUR 2.2 billion. Managed Services showed a backlog decrease while Systems Integration was almost flat. In Consulting & Technology Services, the backlog increased by +19.1 percent thanks to the order entry in Benelux and in the UK mentioned above. C.1.7.4 Full qualified pipeline The full qualified pipeline at the end of June 2013 reached EUR 5.0 billion compared to EUR 5.3 billion at the end of 2012 (at constant exchange rates), which included the large NS&I contract renewed in May 2013. The Pipeline represented 6.9 months of revenue slightly down by -0.6 month of revenue. By Service Line, cyclical activities were at 7.8 months of revenue of which 8.7 for Systems Integration and recurring businesses were at 6.4 months of revenue with 6.9 for Managed Services and 5.3 for HTTS & Specialized Businesses. C.1.8 Human Resources C.1.8.1 Headcount evolution The total number of employees was 77,105 at the end of June 2013 compared with 76,417 at the end of December 2012, representing an increase of +688 people over the first semester of 2013 This comprised of a large decrease in indirect staff (-387 people, -6.0 percent) in line with the indirect costs reduction plan. Direct workforce increased by +1.5 percent (+1,075) in the period, of which +649 in India in line with the offshoring acceleration strategy. As a result, the number of direct employees at the end of June 2013 was 71,016, representing 92.1 percent of the total headcount, compared to 91.5 percent at the end of 2012. Headcount evolution in the first semester of 2013 by Service Line and Business Units is the following: Opening January 2013Adaptation of organizationAdjusted openingScopeHiringLeaversDismissal, restruct. & otherClosing June 2013Managed Services28,61128,6112,584-1,293-61429,288Systems Integration21,9411,34323,2842,030-1,333-52223,459HTTS & SB12,016-1,34310,673602-348810,935Consulting & TS7,1867,186-11236-332597,138Corporate functions18718713-95196Total Direct69,941069,941-115,465-3,315-1,06471,016Germany7,6721277,799406-113-967,996United-Kingdom & Ireland10,15310,153553-445-2949,967France9,1575679,724-1162-285-1849,306Benelux (& The Nordics)6,0027666,768173-248-696,624Atos Worldline5,3425,342164-112-215,373North America3,8643,864365-220-1933,816Central & Eastern Europe5,7131,0506,7631,022-305-1387,342North & South West Europe1,524-1,5240Iberia4,8073135,120105-114-1124,999Other BUs15,657-1,29914,3582,611-1,4721815,515Global Structures50504-12578Total Direct69,941069,941-115,465-3,315-1,06471,016Total Indirect6,4766,476-8291-261-4096,089TOTAL GROUP76,417076,417-195,756-3,576-1,47377,105 Staff in the emerging countries represented 27 percent of total staff. The Group offshore capability represented 9,871 at the end of June 2013 with a majority located in India. This represents an increase by +8 percent compared to 9,158 people at the end of 2012. C.1.8.2 Changes in scope The changes in scope in the first half of 2013 for -19 employees were linked to the disposal of Atos Formation. C.1.8.3 Hiring The volume of recruitments reached +5,756 in the total workforce, representing 8 percent of the staff at January 1st, 2012. Those hiring were primarily made in Managed Services (+2,584; representing 47 percent of the total direct workforce hiring) and in Systems Integration (+2,030; 37 percent). The level of hiring has been specifically strong in the United-Kingdom (+553; representing 10 percent of the total direct workforce hiring) and in the US (+365; 7 percent) in order to cope with the growing activity. In Other BUs, the high level of hiring is mostly explained by the implementation of the strategy to continuously accelerate the development of the offshore locations such as India (+1,438) and Brazil (+469). C.1.8.4 Leavers Leavers comprise voluntary permanent staff leavers, as permanent staff who have been dismissed are classified under “dismissed”. The total number of leavers in the first half of 2013 was 3,576 (of which 3,315 in the direct workforce). Those leavers were primarily in Systems Integration (1,333; representing 40 percent of the direct employees leavers) and Managed Services (1,293; 39 percent). Attrition rate decreased by -1.3 point to reach 9.5 percent at the end of June 2013 compared to 10.8 percent at the end of December 2012. Emerging Other countries 0%5%10%15%20%25%30% C.1.8.5 Dismissal, restructuring & other 1,473 staff were dismissed or restructured in the first half of 2013, of which -409 in the indirect workforce. Resizing plans on indirect staff were mainly concentrated in the largest European countries, reflecting the ongoing efforts to cope with difficult business context in those geographies. C.1.8.6 External Subcontractors The number of external subcontractors decreased to 6,534 at the end of June 2013, 1,100 less compared to one year earlier. 8,4848,0777,6417,6287,1706,8666,5341,0002,0003,0004,0005,0006,0007,0008,0009,00010,000 This level of subcontractors represented 8.7 percent of the total headcount at the end June 2013, compared to a level of 10.1 percent one year earlier. The objective remains to carefully monitor the level of non-critical subcontractors. C.2 2013 objectives After a satisfactory first half, the Group is in position to confirm all its objectives for 2013 as stated in the February 21st, 2013 release, i.e.: Revenue The Group expects to continue to slightly grow compared to 2012. Operating margin The Group has the objective to improve its operating margin rate to around 7.5 percent of revenue compared to 6.6 percent in 2012. Free cash flow The Group has the ambition to achieve a free cash flow above EUR 350 million. Earnings per share (EPS) The Group confirms its ambitions for an EPS (adjusted, non-diluted) representing an increase of +50 percent compared to 2011 statutory (up +25 percent compared to 2012). C.3 Financial review C.3.1 Income statement The Group reported a net income (attributable to owners of the parent) of EUR 116.3 million for the half year 2013, which represented 2.7% of Group revenues of the period. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was EUR 173.7 million, representing 4.0% of Group revenues of the period, up +40bp compared with last year. (in EUR million)6 months ended 30 June2013% Margin6 months ended 30 June2012% MarginOperating margin 279.06.5%248.85.7%Other operating income / (expenses)(87.4)(78.4)Net financial income / (expenses)(22.5)(19.7)Tax charge (53.4)(47.7)Non-controlling interests and associates0.6(1.2)Netincome–Attributabletoownersof the parent116.32.7%101.82.3%Normalizednetincome–Attributableto owners of the parent (*)173.74.0%155.73.6%(*) Defined hereafter.3.9%Operating income191.64.5%170.4 C.3.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analysed in the operational review. C.3.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of EUR 87.4 million in the first half of 2013. The following table presents this amount by nature: (In EUR million)6 months ended 30 June20136 months ended 30 June2012Staff reorganization(48.3)(27.6)Rationalization and associated costs(21.2)(10.7)Integration costs and acquisition costs(10.4)(25.8)Customer relationships amortization (PPA) *(22.0)(20.2)Other items14.55.9Total(87.4)(78.4)* Purchase Price Allocation. The EUR 48.3 million staff reorganization expense was the consequence of both the Group workforce adaptation to the effects of the economic recession in Europe and the streamlining of middle management layers and more particularly in Benelux, Iberia and Corporate. The EUR 21.2 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation mainly in Germany for EUR 5.8 million and in Latin America for EUR 10.3 million further to TOP² program, and in Benelux EUR 3.8 million linked to the restructuring plan. The EUR 10.4 million integration and acquisition costs consisted of costs of IT infrastructure carve out and harmonization together with the roll out of Group transactional systems and processes in the former SIS entities. The EUR 14.5 million other items corresponded mainly to the gain from the sale of fixed assets. C.3.1.3 Net financial expense Net financial expense amounted to EUR 22.5 million for the period (compared with EUR 19.7 million last year) and was composed of a net cost of financial debt of EUR 17.4 million and non-operational financial costs of EUR 5.1 million. Non-operational financial costs amounted to EUR 5.1 million compared to EUR 3.2 million in June 2012 and mainly consisted of pension financial related costs (EUR 6.6 million compared to EUR 2.5 million in 2012). These costs represented the difference between the interest costs and the interest income on plan assets for plans which are funded. C.3.1.4 Corporate tax The tax charge per June 2013 was EUR 53.4 million (including CVAE - Cotisation sur la Valeur Ajoutée des Entreprises since 2009) with a profit before tax of EUR 169.1 million. The normalized Effective Tax Rate (ETR) full year of 33.2% adjusted by of tax discrete items led to an ETR of 31.6%. C.3.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. They amounted to EUR -1.4 million in June 2013 (compared to EUR 2.9 million in June 2012). C.3.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) is EUR 173.7 million, increasing by +11.6% compared with last year. (in EUR million) 6 months ended 30 June20136 months ended 30 June2012Net income - Attributable to owners of the parent116.3101.8Other operating income and expenses(87.4)(78.4)Tax effect on other operating income and expenses27.325.6Other unusual items on tax2.7(1.1)Total unusual items – Net of tax(57.4)(53.9)Normalized net income - Attributable to owners of the parent 173.7155.7 C.3.1.7 Half year Earning Per Share (in EUR million)6 months ended 30 June2013% Margin6 months ended 30 June2012% MarginNetincome–Attributabletoownersof the parent [a]116.32.7%101.82.3%Impact of dilutive instruments 8.17.9Netincomerestatedofdilutiveinstruments-Attributabletoownersof the parent [b]124.42.9%109.72.5%Normalizednetincome–Attributableto owners of the parent [c]173.74.0%155.73.6%Impact of dilutive instruments 8.17.9Normalizednetincomerestatedofdilutiveinstruments-Attributabletoowners of the parent [d]181.84.2%163.63.7%Average number of shares [e] 85,741,350 83,454,764 Impact of dilutive instruments 12,849,350 12,451,971 Diluted average number of shares [f] 98,590,700 95,906,735 (In EUR)Basic EPS [a] / [e]1.361.22Diluted EPS [b] / [f]1.261.14Normalized basic EPS [c] / [e]2.031.87Normalized diluted EPS [d] / [f]1.841.71 Potential dilutive instruments comprised stock subscription (equivalent to 2,052,448 options) and convertible bonds (equivalent to 10,796,902 shares of which 5,414,771 issued in 2009 and 5,382,131 issued in 2011). The convertible bonds are the only instruments that generate a restatement of net income used for the diluted EPS calculation. The EUR 8.1 million restatements corresponded to the interest expenses relating to the liability component net of deferred tax (EUR 4.9 million issued in 2009 and EUR 3.2 million issued in 2011). Normalized basic and diluted EPS reached respectively EUR 2.03 (EUR 1.87 for the first half of 2012) and EUR 1.84 (EUR 1.71 for the first half of 2012) and increase over the period by respectively +8.6% and +7.6%. The adjusted non-diluted EPS presented here below constitutes a key objective for full year 2013 set up by the Group in December 2010 when it announced the acquisition of SIS in order to measure the efficiency of the 2011-2013 three year plans. The total number of shares used for the calculation herein below is fixed and corresponds to the number of shares at December 31st, 2011. (in EUR million) 6 months ended 30 June 20136 months ended 30 June 2012Net income - Attributable to owners of the parent116.3101.8Staff reorganization(48.3)(27.6)Rationalization and associated costs(21.2)(10.7)Customer relationships amortization (PPA) *(22.0)(20.2)Disposal of subsidiaries-4.3Subtotal(91.5)(54.2)Tax effect with effective tax rate 28.917.1Total adjusments – Net of tax(62.6)(37.1)Adjusted net income - Attributable to owners of the parent 178.9138.8Number of shares **83,566,76883,566,768Adjusted non-diluted EPS2.141.66* Purchase Price Allocation.** Number of shares at December 31st, 2011 basis for the calculation of adjusted non-diluted EPS in 2012 and 2013 as presented at the full year 2011 release. C.3.2 Cash Flow and net cash The Group reported a net cash position of EUR 358.6 million at the end of June 2013, thus representing an improvement of EUR 258.0 million compared with June 2012. (in EUR million)6 months ended 30 June20136 months ended 30 June2012Operating Margin before Depreciation and Amortization (OMDA)380.9345.4Capital expenditures(169.8)(155.3)Change in working capital requirement63.358.4Cash From Operation (CFO)274.4248.5Taxes paid(36.9)(30.8)Net cost of financial debt paid(17.4)(16.5)Reorganization in other operating income (59.8)(25.4)Rationalization & associated costs in other operating income (27.4)(24.9)Integration and acquisition costs(10.4)(28.5)Net financial investments *2.6(4.9)Profit sharing amounts payable transferred to debt(2.6)(2.5)Other changes **35.312.1Free Cash Flow157.8127.1Net (acquisitions) / disposals-103.0Capital increase / (decrease)-10.0Dividends paid to owners of the parent(17.3)-Change in net cash /(debt)140.5240.1Opening net cash /(debt)232.1(141.8)Change in net cash / (debt)140.5240.1Impact of foreign exchange rate fluctuation on net Cash / (Debt) (14.0)2.3Closing net cash /(debt)358.6100.6**"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationcostsandacquisitioncosts),dividendspaidtonon-controllinginterests,salesoftreasuryshares&commonstockissuesfollowingemployeesexerciseofstockoptionsandotherfinancial items with cash impact.* Net Long term financial investments excluding acquisitions and disposals. Free cash flow represented by the change in net cash or net debt, excluding equity changes, dividends paid to shareholders and net acquisitions and disposals, reached EUR 157.8 million compared with EUR 127.1 million during the six months ended 30 June 2012. Cash From Operations (CFO) amounted to EUR 274.4 million and increased by EUR 25.9 million compared to last year and coming from the following items: OMDA (EUR +35.5 million), Higher capital expenditures (EUR -14.5 million), Change in working capital requirement (EUR +4.9 million). OMDA of EUR 380.9 million, representing an increase of EUR +35.5 million compared to June 2012, reached 8.9% of revenues against 7.9% of revenues in June 2012. This growth in OMDA derived from the operating margin improvement. (in EUR million)6 months ended 30 June20136 months ended 30 June2012Operating margin279.0248.8 + Depreciation of fixed assets165.9174.9 + Net book value of assets sold / written off8.95.3 + Charge for equity-based compensation5.77.0+/- Net charge / (release) of pension provisions(39.9)(22.9)+/- Net charge / (release) of provisions excluding release provisions from SiS combination(5.3)(8.3) - Release of provisions from SiS combination(33.4)(59.4)OMDA380.9345.4 The amount of EUR 33.4 million of release of provisions from SIS combination corresponded to losses incurred on projects, litigations and assets brought by SIS at completion date. Capital expenditures amounted to EUR 169.8 million or 4.0% of revenue slightly above the level of the first half of 2012 at 3.6%. Main changes came from Germany (EUR 33.0 million) and the United Kingdom (EUR 30.9 million) further to the implementation of new large contracts, expansion of Canopy and from Atos Worldline (EUR 26.0 million) rebuilding current technological platforms which will continue in the second half of the year. The positive change in working capital requirement was EUR 63.3 million (up EUR +4.9 million). The DSO ratio reached 44 days at the end of June 2013 while the DPO was 84 days as of June 2013. Cash out related to taxes paid reached EUR 36.9 million higher than last year by EUR +6.1 million. The cost of net debt of EUR 17.4 million increased by EUR +0.9 million compared to the first half of 2012 including the following elements: An average expense rate of 4.62 per cent on the average gross borrowings compared to 4.37 per cent in 2012 (this slight increase is due to the increased weight of convertible bond in Group gross debt representing EUR 12.0 million out of EUR 17.4 million); and An average income rate of 0.55 per cent on the average net cash compared to 0.82 per cent in 2012. Cash outflow linked to reorganization costs represented EUR 59.8 million. Main GBUs impacted were Germany, Benelux, Iberia and Corporate. Rationalization and associated costs resulting from the closure of premises and datacenters as part the Group real estate optimization plan led to EUR 27.4 million. Main GBUs involved were Germany, Latin America, United Kingdom and Benelux. Other changes of EUR 35.3 million mainly corresponded to: Sale of treasury stock and issuance of common stock following employees exercise of stock options for EUR 23.8 million; Proceeds from the sale of fixed assets in other operating income for EUR 21.0 million; and Dividends paid to non-controlling interests for EUR -5.7 million. As a result, the Group free cash flow (FCF) generated during the first half 2013 was EUR 157.8 million. In the first half of 2013, dividends paid to owners of the parent amounted to EUR 51.3 million (EUR 0.60 per share) of which EUR 17.3 million cashed out and EUR 34.0 million through the issuance of new shares. Foreign exchange rate fluctuation which is determined on debt or cash exposure by country represented a decrease in the net cash of EUR 14.0 million mainly coming from the change of Euro against British Pound and Indian Rupee. During the first half 2013, the effects were EUR 7.7 million on British Pound and EUR 3.9 million on Indian Rupee. The Group excluded as of the first half 2013 the impact of foreign exchange rate fluctuation from the free cash flow. The objective of such change was to provide a more adequate assessment of the Group operational performance as well as to align the free cash flow definition on the market position and main IT services competitors. This change would have increased the Group free cash flow reported in 2012 by EUR 8.6 million of which EUR 2.3 million for the first half of the year. C.3.3 Parent company results The profit before tax of the parent company amounts to EUR 7.3 million for the end of June 2013, compared with EUR 21.6 million for the first semester 2012. C.4 Interim condensed consolidated financial statements C.4.1 Interim consolidated income statement (in EUR million)Notes6 months ended 30 June20136 months ended 30 June201212 months ended 31 December 2012Revenue Note 24,290.04,366.08,844.3Personnel expensesNote 3(2,277.2)(2,273.7)(4,502.2)Operating expensesNote 4(1,733.8)(1,843.5)(3,762.1)Operating margin279.0248.8580.0% of revenue6.5%5.7%6.6%OtheroperatingincomeandexpensesNote 5(87.4)(78.4)(198.6)Operating income191.6170.4381.4% of revenue4.5%3.9%4.3%Net cost of financial debt(17.4)(16.5)(34.2)Other financial expenses(26.7)(26.9)(54.7)Other financial income21.623.737.1Net financial incomeNote 6(22.5)(19.7)(51.8)Net income before tax169.1150.7329.6Tax chargeNote 7(53.4)(47.7)(102.9)Shareofnetprofit/(loss)ofassociates(0.8)1.71.3Net income114.9104.7228.0Of which:-attributabletoownersoftheparent116.3101.8223.8- non-controlling interests(1.4)2.94.2(in EUR and number of shares)Netincome-Attributabletoowners of the parentNote 8Weightedaveragenumberofshares 85,741,35083,454,76484,066,299Basic earnings per share1.361.222.66Dilutedweightedaveragenumberof shares 98,590,70095,906,73596,696,049Diluted earnings per share1.261.142.48 C.4.2 Interim consolidated statement of comprehensive income (in EUR million)6 months ended 30 June20136 months ended 30 June201212 months ended 31 December 2012Net income 114.9104.7228.0Other comprehensive income(44.0)24.8(12.4)Cash flow hedging (3.1)(2.0)(2.5)(43.6)24.8(8.9)2.72.0(1.0)(2.5)(138.8)(241.6)(3.2)(173.4)(326.6)0.734.685.0Total other comprehensive income(46.5)(114.0)(254.0)Total comprehensive income for the period68.4(9.3)(26.0)Of which:- attributable to owners of the parent69.8(12.1)(30.2)- non-controlling interests(1.4)2.84.2ExchangedifferencesontranslationofforeignoperationsDeferred tax on items recyclable recognized directly on equity - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable):Actuarial gains and losses generated in the period on defined benefit planDeferred tax on items non-recyclable recognized directly on equity C.4.3 Interim consolidated statement of financial position (in EUR million)Notes30June 201331December 2012 30June2012ASSETSGoodwillNote 91,917.81,942.21,965.8Intangible assets450.4464.0465.6Tangible assets634.8667.8683.1Non-current financial assets409.4395.2470.4Non-current financial instruments1.90.6-Deferred tax assets411.1362.5436.4Total non-current assets3,825.43,832.34,021.3Trade accounts and notes receivablesNote 101,865.81,960.02,012.6Current taxes67.036.328.9Other current assets482.2455.9534.0Current financial instruments7.03.13.0Cash and cash equivalentsNote 111,230.81,159.71,045.0Total current assets3,652.83,615.03,623.5Total assets7,478.27,447.37,644.8(in EUR million)Notes30June 201331December 2012 30June2012LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock87.185.784.6Additional paid-in capital1,899.01,842.51,802.2Consolidated retained earnings478.1312.5408.0Translation adjustments(159.6)(116.0)(82.3)Netincomeattributabletotheowners of the parent116.3223.8101.8Equityattributabletotheownersof the parent2,420.92,348.52,314.3Non-controlling interests23.530.831.1Total shareholders’ equity2,444.42,379.32,345.4ProvisionsforpensionsandsimilarbenefitsNote 12743.3736.3661.9Non-current provisionsNote 13125.1170.3148.5Borrowings763.1758.2766.3Deferred tax liabilities244.7192.4277.4Non-current financial instruments10.012.66.2Other non-current liabilities10.110.611.4Total non-current liabilities1,896.31,880.41,871.7Trade accounts and notes Note 151,112.11,026.81,054.2Current taxes142.699.5107.7Current provisionsNote 13175.3236.7380.2Current financial instruments13.02.68.5Current portion of borrowings109.0169.5178.1Other current liabilities1,585.51,652.51,699.0Total current liabilities3,137.53,187.63,427.7Total liabilities and shareholders’ equity7,478.27,447.37,644.8 C.4.4 Interim consolidated cash flow statement (in EUR million)Notes6 months ended 30 June20136 months ended 30 June201212 months ended31 December 2012Profit before tax169.1150.7329.6Depreciation of assetsNote 4165.9174.9344.6Net charge / (release) to operating provisions(78.5)(90.5)(166.2)Net charge / (release) to financial provisions6.93.48.3Net charge / (release) to other operating provisions(18.5)(35.3)(56.3)Customer relationships amortization (PPA)22.020.243.2Losses / (gains) on disposals of fixed assets(13.1)(1.8)10.9Net charge for equity-based compensation5.77.017.2Losses / (gains) on financial instruments(0.1)(0.3)(1.9)Net cost of financial debtNote 617.416.534.2Cash from operating activities before change in working capital requirement, financial interest and taxes276.8244.8563.6Taxes paid(36.9)(30.8)(74.2)Change in working capital requirement63.358.482.0Net cash from/ (used in) operating activities303.2272.4571.4Payment for tangible and intangible assets(169.8)(155.3)(325.1)Proceeds from disposals of tangible and intangible assets23.824.335.6Net operating investments(146.0)(131.0)(289.5)Amounts paid / received for acquisitions and long-term investments (4.7)114.797.4Cash and cash equivalents of companies purchased during the period-0.12.2Proceeds from disposals of financial investments7.312.818.8Cash and cash equivalents of companies sold during the period-(0.4)(0.8)Dividend received from entities consolidated by equity method- - 2.7Net long-term investments2.6127.2120.3Net cash from/ (used in) investing activities (143.4)(3.8)(169.2)Capital increase--23.4Common stock issues on the exercise of equity-based compensation23.89.827.8Dividends paid to owners of the parent(17.3)-(14.9)Dividends paid to non controlling interest(5.7)-(1.4)Payment for acquisition of non controlling interests--(0.5)New borrowingsNote 1412.827.58.9New finance leaseNote 141.90.80.1Repayment of long and medium-term borrowingsNote 14(6.9)(33.0)(43.1)Net cost of financial debt paid(15.1)(12.7)(18.7)Other flows related to financing activities(56.6)7.88.7Net cash from/ (used in) financing activities(63.1)0.2(9.7)Increase/ (decrease) in net cash and cash equivalents96.7268.8392.5Opening net cash and cash equivalents1,109.6722.8722.8Increase/ (decrease) in net cash and cash equivalentsNote 1496.7268.8392.5Impact of exchange rate fluctuations on cash and cash equivalents(17.4)3.2(5.7)Closing net cash and cash equivalentsNote 141,188.9994.81,109.6 C.4.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At 1 January 2012 restated83,56783.61,766.5404.5(107.1)(6.6)184.02,324.96.02,330.9* Common stock issued 1,0281.035.7(26.9)9.811.321.1* Appropriation of prior period net income184.0(184.0) - - * Dividends paid to non-controlling interests(14.9)(14.9)(14.9)* Equity-based compensation7.07.07.0* Other(0.3)(0.3)11.010.7Transactions with owners1,0281.035.7148.9--(184)1.622.323.9* Net income 101.8101.82.8104.6* Other Comprehensive income(138.8)24.8(114.0)0.0(114.0)Total comprehensive income for the period(138.8)24.8-101.8(12.2)2.8(9.4)At 30 June 201284,59584.61,802.2414.6(82.3)(6.6)101.82,314.331.12,345.4* Common stock issued 1,1081.140.3-41.441.4* Dividends paid to non-controlling interests--(1.4)(1.4)* Equity-based compensation10.210.210.2* Other0.60.6(0.3)0.3Transactions with owners1,1081.140.310.8 - - -52.2(1.7)50.5* Net income 122.0122.01.4123.4* Other Comprehensive income(102.8)(33.7)(3.5)(140.0)0.0(140.0)Total comprehensive income for the period(102.8)(33.7)(3.5)122.0(18.0)1.4(16.6)At 31 December 201285,70385.71,842.5322.6(116.0)(10.1)223.82,348.530.82,379.3IAS19 revised impacts at 1 January 2013(9.8)(9.8)(9.8)At 1 January 2013 85,70385.71,842.5312.8(116.0)(10.1)223.82,338.730.82,369.5* Common stock issued 1,4081.456.5(34.1)23.823.8* Appropriation of prior period net income223.8(223.8) - - * Dividends paid to non-controlling interests(17.3)(17.3)(5.7)(23.0)* Equity-based compensation5.75.75.7* Other0.20.2(0.2)-Transactions with owners1,4081.456.5178.3 - - (223.8)12.4(5.9)6.5* Net income 116.3116.3(1.4)114.9* Other Comprehensive income(2.5)(43.6)(0.4)(46.5)0.0(46.5)Total comprehensive income for the period(2.5)(43.6)(0.4)116.369.8(1.4)68.4At 30 June 201387,11187.11,899.0488.6(159.6)(10.5)116.32,420.923.52,444.4 (in EUR million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests C.4.6 Appendices to the interim condensed consolidated financial statements C.4.6.1 Basis of preparation The 2013 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at June 30th, 2013. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias/index_en.htm The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the December 31st, 2012 financial statements and disclosed in the Group’s 2012 Registration Document. The interim consolidated financial statements for the six months ended June 30th, 2013 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31st, 2012. The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after January 1st, 2013: Amendments to IAS 1 – Presentation of Items of Other Comprehensive Income; Amendments to IFRS 1 - Severe Hyperinflation; Amendments to IFRS 7 - Disclosures : Offsetting Financial Assets and Financial Liabilities; Amendments to IFRS 10, 11 and 12 – Transition Guidance; Amendments to various IFRS statements contained in the Annual Improvements to IFRSs 2009- 2011 Cycle; IFRIC 20 - Stripping Costs in the production Phase of a surface Mine. IAS 27 (revised) - Separate Financial Statements; IAS 28 (revised) - Investments in Associates and Joint Ventures; IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IFRS 13 - Fair Value Measurement; The following standards, interpretations and amendments to existing standards that have been published are not mandatory for the Group’s accounting period beginning on or after January 1st, 2013: Amendments to IFRS 1 – Government loans; Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities. The impact of the other changes on the Group’s Financial Statements is limited. The interim consolidated financial statements do not take into account: Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB) New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: o o Amendments to IFRS 10, 12 and IAS 27 – Investment entities; o Amendments to IAS 36 - Recoverable Amount Disclosures for Non-Financial Assets; o Amendments to IAS 39 – Novation and Derivatives and Continuation of Hedge IFRS 9 - Financial Instruments and subsequent amendments to IFRS 9 and IFRS 7; o Accounting; IFRIC 21 – Levies. The potential impact of these standards, amendments and interpretations on the consolidated financial statements is currently being assessed. C.4.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS19 revised, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. According to the revision of IAS19, from January 1st, 2013, benefit plans costs are recognized in the Group’s operating income, except for net interest on the net defined benefit liability (asset) which is recognized in “other financial income and expenses”. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. C.4.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation Since January 1st, 2013, there has been no significant change of scope. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. The chief operating decision maker decided to reorganize as per the operating segments detailed here below: Operating segments Germany France Activities Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline and Atos Worldgrid) in Germany. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline and Atos Worldgrid) in France. United Kingdom & Ireland Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses in Ireland and the United Kingdom. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline) in Belux and The Netherlands. Hi-Tech Transactional Services & Specialized Businesses in Belgium, China, France, Germany, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand and The Netherlands. Benelux Atos Worldline Central & Eastern Europe Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses in Austria, Bulgaria, Croatia, Czech Republic, Poland, Romania, Serbia, Slovakia, Turkey and Russia. Systems Integration, Managed Services in Canada and United States of America. Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses in Denmark, Finland & Baltics, Greece, Italy, Sweden and Switzerland. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldgrid) in Andorra, Portugal and Spain. Consulting & Technology Services, Systems Integration, Managed Services and Hi-Tech Transactional Services & Specialized Businesses (excluding Atos Worldline) in Argentina, Australia, Brazil, Chile, China, Colombia, Egypt, Hong-Kong, India, Indonesia, Japan, Malaysia, Mexico, Morocco, Philippines, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, UAE, and also Atos Worldgrid (China, France, Germany, Italy and Spain) and Major Events activities. North America North & South Western Europe Iberia Other Countries Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from each external contract amounted to less than 10 per cent of the Group’s revenue. As a result of the decision to carve-out the payment activities, the adaptation of the Atos organization led to the following changes to in July 2013: The GBU North & South West Europe (N&SWE) was split with i) Nordic countries transferred to “Benelux & The Nordics” and ii) Switzerland and Italy joined “Central & Eastern Europe” (CEE). This decision of reducing the number of GBUs reflected the objective to optimize the operational efficiency and to decrease indirect costs. The entity AWFM (Atos Worldline Financial Markets), which was already under the new France Management was transferred to the GBU France. This was in line with the carve-out of Atos Payment activities. In term of Service Line, AWFM is part of Systems Integration. The entity Atos Worldgrid is managed and reported as a global business within the Systems Integration Service Line. As such, Atos Worldgrid local entities (France, Italy, Spain, Germany and APAC) will be reported in the corresponding GBUs. Under IFRS8, no change in segments organisation were recorded during the first half 2013. The reconciliation with GBUs and service lines disclosed for the financial communication including proforma figures for the first half of 2012 is detailed on the operational review of the current document. The operating segment information for the periods is as follows: GermanyFranceUnited Kingdom and IrelandBeneluxAtos WorldlineCentral and Eastern EuropeNorth AmericaNorth and South West EuropeIberiaOther countriesTotal Operating segmentsGlobal Delivery LinesOther CorporateEliminationExternal revenue by segment800.4445.8833.4466.9462.8285.4311.8188.2151.8343.54,290.04,290.0%18.7%10.4%19.4%10.9%10.8%6.7%7.3%4.4%3.5%8.0%100.0%100.0%Inter-segment revenue85.241.916.438.313.758.112.210.57.9111.9396.156.7(452.8)- 0 Total revenue 885.6487.7849.8505.2476.5343.5324.0198.7159.7455.44,686.1 - 56.7(452.8)4,290.0Segment operating margin 51.81.564.446.678.918.524.514.62.928.5332.2-(53.2)279.0%6.5%0.3%7.7%10.0%17.0%6.5%7.9%7.8%1.9%8.3%7.7%6.5%Total segment assets 874.5 590.8 1,012.4 842.3 709.1 340.1 212.5 232.5 201.6 651.8 5,667.6 101.7 5,769.3 External revenue by segment839.5499.9812.2492.6457.1269.3275.4202.4164.8352.84,366.0-4,366.0%19.2%11.5%18.6%11.3%10.5%6.2%6.3%4.6%3.8%8.1%100.0%100.0%Inter-segment revenue69.845.614.733.512.448.17.06.25.396.2338.88.0(346.8) - Total revenue 909.3545.5826.9526.1469.5317.4282.4208.6170.1449.04,704.88.0(346.8)4,366.0Segment operating margin 65.60.555.633.678.626.823.313.22.519.1318.8-(70.0)248.8%7.8%0.1%6.8%6.8%17.2%10.0%8.5%6.5%1.5%5.4%7.3%5.7%Total segment assets1,003.3624.01,078.6941.8707.7340.9225.0301.9202.2557.75,983.1151.46,134.56 months ended 30 June 2012 (in EUR million)Total Group6 months ended 30 June 2013 The reportable assets are reconciled to total assets as follows: Total segment assets5,769.36,134.5Current & deferred tax Assets478.1465.3Cash & Cash Equivalents1,230.81,045.0Total Assets7,478.27,644.830June 2012(in EUR million)30June 2013 Note 3 Personnel expenses (In EUR million)6 months ended 30 June2013% Revenue6 months ended 30 June2012% RevenueWages and salaries (1,803.0)42.0%(1,777.6)40.7%Social security charges(476.0)11.1%(479.1)11.0%Tax, training, profit-sharing(30.4)0.7%(34.2)0.8%Equity-based compensation(5.7)0.1%(7.0)0.2%Net (charge) /release to provisions for staff expenses(2.0)0.0%1.30.0%Difference between pension contributions and net pension expense (*)39.9-0.9%22.9-0.5%Total(2,277.2)53.1%(2,273.7)52.1%(*) Difference between total cash contributions made to the pension funds and the net pension expense under IAS19R. 48/72 Note 4 Operating expenses (In EUR million)6 months ended 30 June2013% Revenue6 months ended 30 June2012% RevenueSubcontracting costs direct(641.5)15.0%(676.3)15.5%Purchase hardware and software(206.2)4.8%(220.7)5.1%Maintenance costs(194.9)4.5%(198.8)4.6%Rent & Lease expenses(149.8)3.5%(146.6)3.4%Telecom costs(142.9)3.3%(146.3)3.4%Travelling expenses(84.9)2.0%(97.6)2.2%Company cars(50.4)1.2%(49.8)1.1%Professional fees (83.6)1.9%(113.8)2.6%Taxes & Similar expenses(17.6)0.4%(16.7)0.4%Others expenses(62.9)1.5%(70.7)1.6%Subtotal expenses (1,634.7)38.1%(1,737.3)39.8%Depreciation of fixed assets(165.9)3.9%(174.9)4.0%Net (charge) / release to provisions40.6-0.9%66.3-1.5%Gains / (Losses) on disposal of assets(6.1)0.1%(1.8)0.0%Trade Receivables write-off(4.2)0.1%(8.6)0.2%Capitalized Production36.5-0.9%12.8-0.3%Subtotal other expenses(99.1)2.3%(106.2)2.4%Total(1,733.8)40.4%(1,843.5)42.2% Note 5 Other operating income and expenses (In EUR million)6 months ended 30 June20136 months ended 30 June2012Staff reorganization(48.3)(27.6)Rationalization and associated costs(21.2)(10.7)Integration costs and acquisition costs(10.4)(25.8)Customer relationships amortization (PPA) *(22.0)(20.2)Other items14.55.9Total(87.4)(78.4)* Purchase Price Allocation. The EUR 48.3 million staff reorganization expense was the consequence of both the Group workforce adaptation to the effects of the economic recession in Europe and the streamlining of middle management layers and more particularly in Benelux, Iberia and Corporate. The EUR 21.2 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation mainly in Germany for EUR 5.8 million and in Latin America for EUR 10.3 million further to TOP² program, and in Benelux EUR 3.8 million linked to the restructuring plan. 49/72 The EUR 10.4 million integration and acquisition costs consisted of costs of IT infrastructure carve out and harmonization together with the roll out of Group transactional systems and processes in the former SIS entities. The EUR 14.5 million other items corresponded mainly to the gain from the sale of fixed assets. Note 6 Net financial income Net cost of financial debt (In EUR million)6 months ended 30 June20136 months ended 30 June2012Net interest expenses(15.1)(15.5)Interest on obligations under finance leases(0.4)(0.6)Gain/(loss) on disposal of cash equivalents-0.7Gain/(loss) on interest rate hedges of financial debt (1.9)(1.1)Net cost of financial debt(17.4)(16.5) Other financial income and expenses (In EUR million)6 months ended 30 June20136 months ended 30 June2012Foreign exchange income / (expenses) 0.22.0Fair value gain/(loss) on forward exchange contracts held for trading1.2(1.1)Discounting financial income / (expenses) -(0.1)Other income / (expenses) (6.5)(4.0)Other financial income and expenses(5.1)(3.2)Of which:- other financial expenses(26.7)(26.9)- other financial income21.623.7 Net financial expense amounted to EUR 22.5 million for the period (compared with EUR 19.7 million last year) and was composed of a net cost of financial debt of EUR 17.4 million and non-operational financial costs of EUR 5.1 million. Non-operational financial costs amounted to EUR 5.1 million compared to EUR 3.2 million in June 2012 and mainly consisted of pension financial related costs (EUR 6.6 million compared to EUR 2.5 million in 2012). These costs represented the difference between the interest costs and the interest income on plan assets for plans which are funded. Note 7 Income tax expenses The tax charge per June 2013 was EUR 53.4 million (including CVAE - Cotisation sur la Valeur Ajoutée des Entreprises since 2009) with a profit before tax of EUR 169.1 million. The normalized Effective Tax Rate (ETR) full year of 33.2% adjusted by discrete tax items led to an ETR of 31.6%. 50/72 Note 8 Earnings per share Potential dilutive instruments comprised stock subscription (equivalent to 2,052,448 options) and convertible bonds (equivalent to 10,796,902 shares of which 5,414,771 issued in 2009 and 5,382,131 issued in 2011). The convertible bonds are the only instruments that generate a restatement of net income used for the diluted EPS calculation. The EUR 8.1 million restatements corresponded to the interest expenses relating to the liability component net of deferred tax (EUR 4.9 million issued in 2009 and EUR 3.2 million issued in 2011). The average number of stock options not exercised in June 2013 amounted to 7,164,324 shares. (In EUR million and shares)6 months ended 30 June20136 months ended 30 June2012Net income - Attributable to owners of the parent [a]116.3101.8Impact of dilutive instruments 8.17.9Net income restated of dilutive instruments - Attributable to owners of the parent [b]124.4109.7Average number of shares outstanding [c] 85,741,350 83,454,764 Impact of dilutive instruments [d] 12,849,350 12,451,971 Diluted average number of shares [e]=[c]+[d] 98,590,700 95,906,735 Earnings per share in EUR [a]/[c]1.361.22Diluted earnings per share in EUR [b]/[e]1.261.14 Note 9 Goodwill (In EUR million)31 December 2012Disposals DepreciationsImpact of business combi-nationExchange rate fluctuations30 June 2013Gross value2,521.4--(35.7)2,485.7Impairment loss(579.2)--11.3(567.9)Carrying amount1,942.2--(24.4)1,917.8 Impairment tests for interim financial reporting have been limited to: cash generating units (CGUs) for which an event occurred during the semester giving an indication that their assets may be impaired, other “sensitive” CGUs at year-end 2012, for which the recoverable amount of assets was close to their carrying values. During the semester, The Group has performed an impairment test for two “sensitive” CGUs, France and Iberia and concluded that no impairment charge needed to be recorded as of June 30, 2013. 51/72 Note 10 Trade accounts and notes receivable (In EUR million)30June 201331 December 2012Gross value1,968.32,051.7Transition costs10.912.6Provision for doubtful debts(113.4)(104.3)Net asset value1,865.81,960.0Prepayments(56.8)(69.9)Deferred income and upfront payments received(437.5)(483.8)Net accounts receivable 1,371.51,406.3Number of days’ sales outstanding (DSO)4444 Note 11 Cash and cash equivalents (In EUR million)30June 201331 December 2012Cash in hand and short-term bank deposit523.7493.8Money market funds 707.1665.9Total1,230.81,159.7 Depending on market conditions and short-term cash flow expectation, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 12 Pensions The net total amount recognised in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is EUR 381.6 million. Per January 1st, 2013 Group adopted IAS19 Revised (IAS19R). The main consequences of the revision are that past service costs are now recognised immediately, expected returns on assets are replaced by investment income calculated with a rate that is set equal to the discount rate, mortality assumption will systematically include allowance for future changes in life expectancy and taxes are included in plan liabilities. The measurement of the liabilities is highly sensitive to long term interest rates, which are the basis of the discount rate to be used under IAS19R. Reference discount rates for the major currencies have not changed significantly since December 31st, 2012, therefore plan liabilities and plan assets for major plans in these regions have not been remeasured per June 2013. Unchanged since December 31st, 2012, liabilities are based on the following discount rates: Euro zone (long duration plans) Euro Zone (other plans) United Kingdom 30 June 2013 31 December 2012 3.65% 3.00% 4.50% 30 June 2012 4.15% 3.40% 4.70% 31 December 2011 4.95% 4.50% 4.70% During the first half of 2013, the following significant events took place, which contributed to mitigate the increase in service costs due to lower discount rates: Accrual rate in the pension plan in the Netherlands was reduced in order to stabilise the cash contribution level; and Three alternative benefit adaptations were offered to certain pension beneficiaries in the United Kingdom. 52/72 In Germany pension liabilities increased due to a transfer of staff related to winning an outsourcing contract. The transferring liabilities are EUR 9.9 million which will be compensated by the client. As a consequence of adoption of IAS19R, an amount EUR 8.9 million of unrecognised past service costs has been added to accrued pension liabilities as well as various smaller restatements for a total amount of EUR 2.9 million. Below we compare the first semester 2013 results with results previously disclosed under IAS19 and restated numbers for prior periods under IAS19R. The development of pension provisions over the half year is therefore as follows: (In EUR million)30June201331 December 2012 restated31 December 2012 publishedIAS19RIAS19RIAS19Amountsrecognizedinfinancialstatementsconsist of :Prepaid pension asset – post employment plans361.7340.8340.8Accruedliability–postemploymentandotherlong term benefits(743.3)(748.1)(736.3)Net amount recognized – Total(381.6)(407.3)(395.5) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In EUR million)6 months ended 30 June 20136 months ended 30 June 2012 restated6 months ended 30 June 2012 published12 months ended 31 December 2012 restated12 months ended 31 December 2012 publishedIAS19RIAS19RIAS19IAS19RIAS19Operating margin(22.4)(40.2)(34.7)(78.0)(73.1)Other operating items0.3----Financial result(6.6)(1.0)(2.5)(2.0)(6.6)Total (expense)/profit(28.7)(41.2)(37.2)(80.0)(79.7) Opening and closing positions reconcile as follows: (In EUR million)30June201331 December 2012 restated31 December 2012 publishedIAS19RIAS19RIAS19Net amount recognized at the beginning of period:(407.3)(110.7)(98.0)Reclassification other current liabilities(1.8)(9.0)(9.0)Net periodic pension cost – post employment plans (24.4)(68.0)(66.1)Benefits paid / Employer Contributions54.6120.0120.0Business combinations(10.2)(11.8)(11.8)Amounts recognized in Other Comprenhensive Income(3.2)(323.8)(326.6)Currency impacts and other10.7(4.0)(4.0)Net amount recognized at the end of period(381.6)(407.3)(395.5) 53/72 Note 13 Provisions (In EUR million)31 December 2012ChargeRelease usedRelease unusedOther (*)30June2013CurrentNon- currentReorganization123.632.6(85.6)(5.3)(0.9)64.454.79.7Rationalization48.610.0(11.8)(3.2)7.951.517.633.9Project commitments130.119.2(39.6)(17.4)(7.5)84.857.827.0Litigations and contingencies104.714.1(8.1)(10.5)(0.5)99.745.254.5Total provisions407.075.9(145.1)(36.4)(1.0)300.4175.3125.1(*) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of consolidation. Note 14 Borrowings Change in net debt over the period (In EUR million)30June201331 December2012Opening net debt / (cash)(232.1)141.812.88.92.415.8(6.9) (43.1)(96.7) (392.5)1.90.1-0.8-25.814.08.62.63.3Other flows related to financing activities(56.6) (1.6)Closing net debt / (cash)(358.6)(232.1)New borrowingsConvertible bondsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debtProfit-sharing amounts payable to French employees transferred to debtNew finance leases Long and medium-term debt of companies sold during the periodLong and medium-term debt of companies acquired during the period Tangible assets held under finance leases had a net carrying value of EUR 25.5 million. Net cash and cash equivalents (In EUR million)30June201331 December20121,230.81,159.7(41.9) (50.1)Total net cash and cash equivalents1,188.91,109.6Cash and cash equivalents Overdrafts 54/72 Note 15 Trade accounts and notes payable (In EUR million)30June 201331December 2012Trade payables and notes payable1,106.61,021.3Amounts payable on tangible assets5.55.5Trade payables and notes payable1,112.11,026.8Net advance payments(9.6)(40.4)Prepaid expenses(191.0)(145.7)Net accounts payable911.5840.7Number of days’ payable outstanding (DPO)8471 Trade accounts and notes payable are expected to be paid within one year. Note 16 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 24th, 2013. 55/72 C.5 Statutory Auditors’ review report on the half -year financial information for the period ended June 30 th, 2013 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2013, the verification of the information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris, July 25th, 2013 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Christophe Patrier Victor Amselem 56/72 D CORPORATE GOVERNANCE D.1 Office renewals and appointment of directors The Company’s Combined General Meeting held on May 29th, 2013 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the term of office of Directors Ms. Aminata Niane (Senegalese citizen) and Mr. Vernon Sankey (British citizen). It also appointed Ms. Lynn Paine (American citizen) as Director, and proceeded with the reelection of Ms. Jean Fleming (British citizen) as Director representing the employee shareholders. Biography of Ms. Lynn Paine Lynn Sharp Paine Number of shares : 500 John G. McLean Professor of Business Administration / Senior Associate Dean for Faculty Development at Harvard Business School Date of birth : July 17th, 1949 Nationality : American Date of appointment : May 29th, 2013 Term expires on : AGM ruling on the accounts of the 2015 financial year Background J.D., cum laude, Harvard Law School, 1979 D.Phil., Oxford University, 1976 B.A., summa cum laude, Smith College, 1971 Other directorships and positions as at December 31, 2012 Abroad Governing Board (Public Member), Center for Audit Quality, Washington, D.C. Academic Advisory Council, Hills Program on Governance – Center for Strategic and International Studies, Washington, D.C. Selection Panel, Luce Scholars Program, Henry Luce Foundation, NYC Positions held during the last five years Advisory Board, Conference Board Governance Center, NYC (2009-2011) Director, RiskMetrics Group (merged with MSCI June 2010) (2008-2010) and member of the Compensation and Human Resources Committee Member, Conference Board Task Compensation NYC (2009) Force on Executive Lynn Paine is Senior Associate Dean of Harvard Business School where she chairs and co-ordinates the programs on corporate governance. An American specialist with worldwide recognition, she currently co- chairs the Senior Executive Program for China. She co-founded and chaired the “Leadership and Corporate Accountability” required courses, which she has taught in the MBA program as well as the Advanced Management Program. In addition to providing executive education and consulting services to numerous firms, she has served on a variety of advisory boards and panels. In particular, she was a member of the Conference Board Commission on Public Trust and Private enterprise. 57/72 D.2 Composition of the Board of Directors As of the date of this update of the reference document, the Board of Directors, comprised of 13 persons including 7 independent directors, was the following: Name of the Director M Thierry BRETON M Nicolas BAZIRE* M Jean-Paul BECHAT* M Roland BUSCH Mme Jean FLEMING M Bertrand MEUNIER* Mme Colette NEUVILLE* Mme Aminata NIANE* M Michel PARIS Mme Lynn SHARP PAINE M Pasquale PISTORIO* M Vernon SANKEY* M Lionel ZINSOU-DERLIN Date of first appointment or latest renewal 30 May 2012 30 May 2012 30 May 2012 1st July 2011 29 May 2013 30 May 2012 30 May 2012 29 May 2013 30 May 2012 29 May 2013 30 May 2012 29 May 2013 30 May 2012 Date of the expiry of the mandate AGM 2015 AGM 2014 AGM 2015 AGM 2014 AGM 2017 AGM 2015 AGM 2014 AGM 2016 AGM 2014 AGM 2016 AGM 2015 AGM 2016 AGM 2014 Independant Director D.3 Performance shares allocation plan In connection with the authorization granted, for thirty-eight months, by the Combined General Meeting of May 30th, 2012 (eighteenth resolution), the Board of Directors, during its meeting held on July 24th, 2013, and upon the recommendation of the Nomination and Remuneration Committee, decided to proceed with the allocation of 723 335 ordinary performance shares of the Company, to be issued in favor of the first managerial lines of Atos, i.e. 705 beneficiaries, including the Chairman and Chief Executive Officer. Performance conditions of the new plan relate to yearly internal financial criteria linked to profitability and free cash flow, identical to those of the previous plan of December 22nd, 2011, but strengthened as these conditions are cumulative. Consequently, all performance conditions have to be fulfilled over the two years in order to be allowed to the acquisition of 100 perdent of the allocated shares. Moreover, the plan requirement was strengthened by the addition of an external condition linked to the social and environmental performance of the company. The Board of Directors has taken note of the particularly demanding nature of these performance conditions. It is specified that if one or several performance conditions, whether external or internal, was not fulfilled for the first or second year of the plan, the performance shares would become null and void. The features of the performance share allocation plan are as follows: Condition of attendance: Subject to certain exceptions provided for in the plan, the allocation of performance shares is conditioned on the preservation of employee or corporate officer status by the beneficiary during the vesting period; 1. Performance condition: The allocation of performance shares is also subject to the achievement of the following five internal and external performance conditions, calculated for the consecutive years 2013 and 2014: 2. 58/72 Internal performance conditions For each of the years 2013 and 2014: o the Group free cash flow before dividend and acquisition/sales results for the year in question is at least equal to one of the following amounts: (i) 85 percent of the amount of the Group free cash flow, before dividends and acquisition/sales results, as mentioned in the Company’s budget for the year in question, or (ii) the amount of the Group free cash flow before dividends and acquisition/sales results for the previous year with a 10 percent increase; o the Group operating margin for the year in question is at least equal to one of the following amounts: (i) 85 percent of the amount of the Group’s operating margin as mentioned in the Company's budget for the year in question, or (ii) the amount of the Group operating margin from the previous year with a 10 percent increase; It being specified that the indicators for the four performance conditions hereabove described will be calculated at constant scope and exchange rate. External performance condition o For 2013, Atos must achieve at least the rating of GRI A (or equivalent); or become part of the European Dow Jones Sustainability Index 2013; and o For 2014, Atos must achieve at least the rating of GRI A (or equivalent); or become part of the European Dow Jones Sustainability Index 2014. 3. Acquisition and conservation periods: The allocation of performance shares decided by the Board of Directors dated July 24th, 2013 consists of two plans (France and International). Either plan applies depending on whether the beneficiary is an employee of a group entity located in France or abroad. Plan France: Beneficiaries of performance shares will definitively acquire the performance shares allocated to them on the second anniversary of the allocation date, it being stipulated that these will further be subject to the aforementioned condition of attendance, subject to certain exceptions stated in the plan; the beneficiaries will also be required to retain the shares thus acquired for a period of two years following this date. The Chairman and Chief Executive Officer is a Plan France beneficiary. Plan International: Beneficiaries of performance shares who are employees of companies of the Atos Group with registered office outside France will definitively acquire the performance shares allocated to them on the fourth anniversary of the allocation date, subject to achieving the performance conditions and the aforementioned condition of attendance. The shares thus acquired will not be subject to any conservation obligation and will be immediately available for sale by their beneficiaries. 59/72 4. Specific supplementary provisions applicable to the Chairman and Chief Executive Officer: The Board of Directors allocated 45,000 performance shares to the Chairman and Chief Executive Officer. This amount takes into account the recommendations of the AFEP-MEDEF Corporate Governance Code with respect to the Chairman and Chief Executive Officer, as well as his compensation over 3 years as set in the Board of Director's decision of May 30th, 2012. In its analysis, the Board of Directors, upon the recommendation of the Nomination and Remuneration Committee, considered the following elements: o o o o the allocation of 45,000 performance shares to the Chairman and Chief Executive Officer represents around 6 percent of the total number of allocated shares; the number of shares allocated to the Chairman and Chief Executive Officer represents a security based compensation of around 43 percent of his total compensation; the conservation obligation, for the duration of his duties, of 15 percent of performance shares which would be allocated to him will also apply to the Chairman and Chief Executive Officer; the conditions under article L. 225-197-6 of the French Commercial Code applicable to this allocation are met through the existence of a derogatory profit-sharing agreement. 60/72 E COMMON STOCK EVOLUTION AND PERFORMANCE E.1 Basic data Atos SE shares are traded on the Paris NYSE Euronext Market under code ISIN FR0000051732. The shares have been listed in Paris since 1995. The shares are not listed on any other stock exchange and Atos SE is the only listed company in the Group. E.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN : 87,111,003 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : NYSE Euronext Paris Segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 Payability PEA/SRD : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext AFP ATO ATO Reuters Thomson ATOS.PA ATO FR Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services The shares are also components of the following indices: Index Type Code ISIN Market Place Euronext (Compartment A) Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext CAC 70 Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext 100 Global Europe FR0003502079 Paris-Amsterdam-Brussels-Lisbon SBF 80 Global FR0003999473 Paris PX8 SBF 120 Global FR0003999481 Paris PX4 SBF 250 Global FR0003999499 Paris PX5 CAC IT20 Sector QS0010989091 Paris CIT20 CAC IT Sector FR0003501980 Paris PXT DJ Euro Stoxx Techno Sector EUR0009658541 Germany-Xetra SX8E CAC Technology Sector QS0011017827 Paris CAC Software & Computer Services Sustainable Development: ASPI Eurozone, FTSE4Good, Europa EMP 100 Europa CAP 100, ECPI Ethical Index Euro Sector FR0000051732 Paris 61/72 E.1.2 Free Float The free-float of the Group shares exclude stakes held by the reference shareholders, namely the two main shareholders, Financière Daunou 17 (PAI Partners) holding 21.0 percent of the share capital as at June 30th, 2013, and Siemens Beteiligungen Inland GmbH (owned by Siemens AG, Siemens group) holding a stake of 14.3 percent of the share capital which it committed to keep until June 30th, 2016. No other reference shareholder has announced its will to maintain a strategic shareholding in the Group’s share capital. Stakes owned by the employees are also excluded from the free float. As at June 30th, 2013 Shares % of share capital % of voting rights Treasury stock 137,193 0.2% 0.0% PAI Partners 18,288,376 21.0% 21.0% Siemens 12,483,153 14.3% 14.3% Employees 1,726,402 2.0% 2.0% Free float 54,475,879 62.5% 62.5% Total 87,111,003 100.0% 100.0% E.2 Dividend policy On a proposal from the Board of directors, the Combined General Meeting held on May 29th, 2013, approved the payment in 2013 of a dividend of 0.60 euro per share on the 2012 results as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal period Dividend paid per share (in EUR) 2012 € 0.60 2011 € 0.50 2010 € 0.50 E.3 Financial calendar October 24th, 2013 Third quarter 2013 Revenue E.4 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti, Group Senior Vice-President Investor Relations and financial communication, Tel: +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Requests for information can also be sent by email to investors@atos.net 62/72 E.5 Common stock E.5.1 At June 30th, 2013 As at June 30th, 2013, the Group’s issued common stock amounted to EUR 87,111,003 divided into 87,111,003 fully paid-up shares of EUR 1.00 par value each. Since December 31st, 2012, the share capital was increased by 1,407,573 euros, corresponding to the issuance of 1,407,573 new shares, split as follows: 703,967 new shares resulting from the exercise of stock options, issuance premiums amounting to EUR 23,092,392.41 in the aggregate, 702,606 new shares resulting from the payment of the 2012 dividend in shares, issuance premiums amounting to EUR 33,689,958 in the aggregate, and 1,000 new shares resulting from the definitive acquisition of performance shares. E.5.2 Shareholders’ agreements The Group has not received notice of any shareholder agreements for filing with the stock exchange authorities and, to the best knowledge of the Group Management, no other “action de concert” (shareholder agreements) or similar agreements exist. On the occasion of the acquisition by the Company from Siemens of Siemens’ former subsidiary SIS, the Siemens group committed to keep its shareholding in the Company, amounting to 12,483,153 shares, until June 30th, 2016. To the Company’s knowledge, there is no other agreement capable of having a material effect, in case of public offer on the share capital of the Company. E.5.3 Treasury stock E.5.3.1 Legal Framework The 12th resolution of the Combined General Meeting of May 29th, 2013 renewed in favour of the Board of Directors, the authorisation to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10 percent of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to this general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10 percent limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorisation. 63/72 These purchases may be carried out by virtue of any allocation permitted by law, with the aims of this share repurchasing program being: to keep them and subsequently use them for payment or exchange in relation to possible external growth operations, in accordance with market practices accepted by the Autorité des Marchés Financiers (French Financial Market Authority), it being specified that the maximum amount of shares acquired by the Company to this end shall not exceed 5 percent of the share capital, to ensure liquidity and an active market of the Company’s shares through an investment service provider acting independantly pursuant to a liquidity contract, in accordance with the professional conduct charter accepted by the Autorité des Marchés Financiers (French Financial Market Authority), to attribute or sell these shares to the executive officers and directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) the free share issuance regime established by articles L. 225-197-1 et seq. of the Commercial Code and (iv) a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions laid down by market authorities and at such times as the board of directors or the person acting upon its delegation so decides,, to remit the shares acquired upon the exercise of rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations in relation to the issuance of such securities, under the terms and conditions laid down by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides, or, to cancel them as a whole or in part through a reduction of the share capital pursuant to the thirteenth resolution of the Combined General Meeting held on May 29th, 2013. The maximum purchase price per share may not exceed EUR 81.99 (fees excluded). The Board of Directors may adjust the aforementioned purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and attribution of free shares, as well as in the event of division of the nominal value of the share or regrouping of the shares to take account of the effect of these operations on the value of the share. As a result, the maximum amount of funds assigned to the share repurchasing program amounts to 702,682,422.57 euros as calculated on the basis of the share capital as at December 31 , 2012. This authorization was granted for a period of eighteen (18) months as from May 29th, 2013. E.5.3.2 Treasury Stock As at June 30th, 2013, the Company owned 137,193 shares which amounted to 0.16 percent of the share capital with a portfolio value of EUR 7,822,744.86, based on June 28th, 2013 market price, and with book value of EUR 5,041,889.09. These shares are assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. 64/72 E.5.4 Potential common stock (stock option and convertible bond) E.5.4.1 Potential dilution Based on 87,111,003 shares in issue, the common stock of the Group could be increased, as at June 30th, 2013 by 18,713,455 new shares, representing 17.7 percent of the common stock after dilution. This dilution could occur with the exercise of all stock subscription options granted to employees or through the conversion of the convertible bond issued in 2009 and 2011; or through the acquisition of performance shares granted in 2011 and 2012 as follows: In shares June 30th, 2013 December 31st, 2012 Change % dilution Number of shares outstanding 87,111,003 85,703,430 1,407,573 From convertible bonds 2009 5,533,872 5,533,872 5.2% From convertible bonds 2011 5,447,078 5,447,078 5.1% From stock subscription options 6,782,555 7,542,180 759,625 6.4% Performance shares 949,950 967,300 17,350 0.9% Potential dilution 18,713,455 19,490,430 776,975 17.7% Total potential common stock 105,824,458 105,193,860 630,598 Stock options evolution Number of stock subscription options at December 31st , 2012 Stock subscription options granted during the first semester of 2013 Stock subscription options exercised during the first semester of 2013 Stock subscription options cancelled during the first semester of 2013 Stock subscription options expired during the first semester of 2013 Number of stock subscription options at June 30th, 2013 7,542,180 0 -703,967 -3,333 -52,325 6,782,555 65/72 E.5.4.2 Current authorizations to issue shares and other securities Pursuant to the resolution adopted by the General Meeting of May 29th, 2013, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of the date of this document: Authorization (euros) Authorization amount (par value) Use of the authorizations (par value) Unused balance (par value) Authorization expiration date E.G.M. 05/30/2012 10th resolution Share capital increase with preferential subscription right(*) 25,000,000 0 25,000,000 07/30/2014 E.G.M. 05/30/2012 11th resolution Share capital increase without preferential subscription right (*) 12,500,000 0 12,500,000 07/30/2014 E.G.M. 05/30/2012 13th resolution Share capital increase in the event of a Public Exchange Offer (*) 12,500,000 0 12,500,000 07/30/2014 E.G.M. 05/30/2012 14th resolution Share capital increase to remunerate contribution in kind (*) 8,711,100 0 8,711,100 07/30/2014 E.G.M. 05/30/2012 16th resolution Share capital increase through incorporation of reserves, benefits or premiums Maximum amount which may be converted into share capital n/a 07/30/2014 E.G.M. 05/30/2012 18th résolution Attribution of performance shares to the employees and executive officers and directors 871,110 723,335 147,775 07/30/2015 E.G.M. 05/29/2013 12th resolution Authorization to buyback the Company shares 10% of the share capital adjusted at any moment 95,491 as at 06/30/2013 around 9.89% of the share capital 11/29/2014 E.G.M. 05/29/2013 13th resolution Share capital reduction 10% of the share capital adjusted as at the day of the reduction 0 10% of the share capital adjusted as at the day of the reduction 11/29/2014 E.G.M. 05/29/2013 14th resolution Share capital increase reserved to the employees 1,720,800 0 1,720,800 07/29/2015 E.G.M. 05/29/2013 15th resolution Attribution of performance shares to the employees and executive officers and directors *Any share capital increase pursuant to this resolution would be deducted from the aggregate 25,000,000 euro cap set for the 10th to 14th resolutions by the 15th resolution that was adopted by the General Meeting of May 30th, 2012. 871,110 0 871,110 07/29/2016 66/72 The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the sixteenth resolution of the General Meeting of May 30th, 2012 being set aside) amounts to 26,869,575, representing 30.85 percent of the share capital updated on June 30th, 2013. E.5.5 First half of 2013 and subsequent key trading dates On February 21st, 2013, Atos announced its 2012 annual results. Revenue was EUR 8,844 million, representing +0.8 percent organic growth compared to 2011 revenue at constant scope and exchange rates. Book-to-bill ratio was 113 percent in 2012 thanks to major bookings in Managed Services and in BPO, and at the end of the year in Systems Integration. Operating margin was EUR 580.0 million, representing 6.6 percent of revenue compared to 4.8 percent in 2011 at constant scope and exchange rates. The Group generated in 2012 EUR 259 million of free cash flow, leading to a net cash position of EUR 232 million at the end of 2012. Net income Group share stood at EUR 224 million compared to EUR 182 million in 2011 statutory. The Group announced the decision to carve-out Atos payment and merchant transactional activities around Atos Worldline and specific transactional businesses. On March 20th, 2013, Siemens announced the sale to other investors of all its Atos convertible bonds, it acquired pursuant to contribution of its IT services business (SIS) to Atos in July 2011. On April 25th, 2013, Atos announced its revenue for the first quarter of 2013. Revenue was EUR 2,117 million, representing an organic evolution of -1.2 percent compared to the first quarter of 2012. Order entry was EUR 1,987 million leading to a book to bill ratio of 94 percent. Net cash stood at EUR 258 million at the end of March 2013. On July 24th, 2013, Atos announced its 2013 first half results. Revenue was EUR 4,290 million, representing a limited organic decline of -0.6 percent. The four largest Business Units were Germany and the UK with 19 percent of total revenue each, Benelux & The Nordics with 13 percent and France with 12 percent. Operating margin was EUR 279.0 million, representing 6.5 percent of revenue compared to 5.6 percent in the first semester of 2012. The Group generated EUR 158 million of free cash flow in the first semester of 2013. Net cash position was EUR 359 million at the end of June 2013. Book to bill ratio reached 106 percent thanks to a strong commercial activity in the second quarter of year at 118 percent. Net income Group share stood at EUR 116 million compared to EUR 102 million in the first half of 2012. All 2013 objectives were confirmed as well as the completion of the carve-out process announced in February 2013 of its global payment and transactional activities. Operational since July 1st, 2013 Worldline, an Atos company, combines in one entity the payment and transactional activities of Atos to form the European leader in these domains. 67/72 F CLAIMS AND LITIGATION The Atos Group is a global business operating in some 47 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’s size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues and issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner. During the first half-year of 2013 some significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30 th, 2013, to cover for the identified claims and litigations, added up to EUR 82 million (including tax and social contribution claims but excluding labour claims). F.1 Tax and Social Contribution claims The Group is involved in a number of routine tax & social contribution claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. A number of the tax & social contribution claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non-contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a tax (Stamp Duty) re-imbursement of an amount over EUR 9 million. The total provision for tax & social contribution claims, as inscribed in the consolidated accounts closed as at June 30th, 2013, was EUR 14 million. F.2 Commercial claims There is a small number of commercial claims across the Group. Some claims were made from 2006 by a company for services allegedly supplied to the Group in the past. After a thorough investigation, the Group concluded that the claims were not legitimate. These claims were thus rejected, no payment was made by the Group and, consequently, several judicial proceedings were made. These proceedings are still pending before the courts. The group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. There were a number of significant on-going commercial cases in various jurisdictions that the group acquired through the acquisition of Siemens IT Solutions and Services. Some of these cases involve claims on behalf of the group and in 2013 a number were successfully resolved. The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at June 30th, 2013, was EUR 68 million. 68/72 F.3 Labour claims There are over 77,000 employees in the Group and relatively few labour claims. In most jurisdictions there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in France, Brazil and the UK, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. There are 32 claims against the Group which exceed EUR 200,000. The provision for these claims, as inscribed in the consolidated accounts closed as at June 30th, 2013 was EUR 3.9 million. F.4 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/dispositions. F.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past smester on the Company’s and the Group’s financial situation or profitability. 69/72 FULL INDEX Contents ...................................................................................................................................... 2 A Persons responsible ................................................................................................................ 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit................................................................................................................... 4 B Atos in the first semester of 2013 ............................................................................................. 5 B.1 Interim consolidated income statement .............................................................................. 5 B.2 Key achievements ........................................................................................................... 6 C Financials .............................................................................................................................. 9 C.1 Operational review .......................................................................................................... 9 C.1.1 Executive Summary .................................................................................................. 9 C.1.1 Statutory to constant scope and exchange rates reconciliation ..................................... 11 C.1.1.1 Revenue ......................................................................................................... 11 C.1.1.2 Operating margin ............................................................................................ 12 C.1.2 Revenue profile evolution ........................................................................................ 13 C.1.3 Performance by Service Line .................................................................................... 14 C.1.3.1 Managed Services ............................................................................................ 14 C.1.3.2 Systems Integration ........................................................................................ 15 C.1.3.3 Hi-Tech Transactional Services (HTTS) & Specialized Businesses ........................... 16 C.1.3.4 Consulting & Technology Services ...................................................................... 17 C.1.4 Performance by Business Units ................................................................................ 17 C.1.4.1 United Kingdom & Ireland ................................................................................. 18 C.1.4.2 Germany ........................................................................................................ 18 C.1.4.3 Benelux & The Nordics ..................................................................................... 19 C.1.4.4 France ............................................................................................................ 20 C.1.4.5 Atos Worldline ................................................................................................. 20 C.1.4.6 Central & Eastern Europe .................................................................................. 21 C.1.4.7 North America ................................................................................................. 21 C.1.4.8 Iberia ............................................................................................................. 22 C.1.4.9 Other Business Units ........................................................................................ 22 C.1.4.10 Global structures costs ..................................................................................... 23 C.1.5 Revenue by Global Market ....................................................................................... 23 C.1.6 Carve-out of Atos payment and merchant transactional activities ................................. 24 C.1.6.1 Objectives of the carve-out and creation of Worldline ........................................... 24 C.1.6.2 Organization and key figures ............................................................................. 24 C.1.6.3 H1 2013 performance ...................................................................................... 26 70/72 C.1.7 Portfolio ................................................................................................................ 27 C.1.7.1 Order entry and book to bill .............................................................................. 27 C.1.7.2 Main contract signatures of the period ................................................................ 28 C.1.7.3 Full backlog .................................................................................................... 28 C.1.7.4 Full qualified pipeline ....................................................................................... 29 C.1.8 Human Resources................................................................................................... 29 C.1.8.1 Headcount evolution ........................................................................................ 29 C.1.8.2 Changes in scope ............................................................................................ 29 C.1.8.3 Hiring ............................................................................................................. 30 C.1.8.4 Leavers .......................................................................................................... 30 C.1.8.5 Dismissal, restructuring & other ........................................................................ 30 C.1.8.6 External Subcontractors ................................................................................... 31 C.2 2013 objectives ............................................................................................................ 31 C.3 Financial review ............................................................................................................ 32 C.3.1 Income statement .................................................................................................. 32 C.3.1.1 Operating margin ............................................................................................ 32 C.3.1.2 Other operating income and expenses ................................................................ 32 C.3.1.3 Net financial expense ....................................................................................... 33 C.3.1.4 Corporate tax .................................................................................................. 33 C.3.1.5 Non-controlling interests .................................................................................. 33 C.3.1.6 Normalized net income ..................................................................................... 33 C.3.1.7 Half year Earning Per Share .............................................................................. 34 C.3.2 Cash Flow and net cash ........................................................................................... 36 C.3.3 Parent company results ........................................................................................... 38 C.4 Interim condensed consolidated financial statements ......................................................... 39 C.4.1 Interim consolidated income statement ..................................................................... 39 C.4.2 Interim consolidated statement of comprehensive income ........................................... 40 C.4.3 Interim consolidated statement of financial position .................................................... 41 C.4.4 Interim consolidated cash flow statement .................................................................. 42 C.4.5 Interim consolidated statement of changes in shareholders’ equity ............................... 43 C.4.6 Appendices to the interim condensed consolidated financial statements ........................ 44 C.4.6.1 Basis of preparation ......................................................................................... 44 C.4.6.2 Significant accounting policies ........................................................................... 45 C.4.6.3 Notes to the half-year condensed consolidated financial statements ....................... 45 C.5 Statutory Auditors’ review report on the half-year financial information for the period ended June 30th, 2013 ....................................................................................................................... 56 71/72 D Corporate Governance .......................................................................................................... 57 D.1 Office renewals and appointment of directors.................................................................... 57 D.2 Composition of the Board of Directors .............................................................................. 58 D.3 Performance shares allocation plan.................................................................................. 58 E Common stock evolution and performance ............................................................................... 61 E.1 Basic data .................................................................................................................... 61 E.1.1 Information on stock............................................................................................... 61 E.1.2 Free Float .............................................................................................................. 62 E.2 Dividend policy ............................................................................................................. 62 E.3 Financial calendar ......................................................................................................... 62 E.4 Contacts ...................................................................................................................... 62 E.5 E.5.1 Common stock .............................................................................................................. 63 At June 30th, 2013 .................................................................................................. 63 E.5.2 Shareholders’ agreements ....................................................................................... 63 E.5.3 Treasury stock ....................................................................................................... 63 E.5.3.1 Legal Framework ............................................................................................. 63 E.5.3.2 Treasury Stock ................................................................................................ 64 E.5.4 Potential common stock (stock option and convertible bond) ....................................... 65 E.5.4.1 Potential dilution ............................................................................................. 65 E.5.4.2 Current authorizations to issue shares and other securities ................................... 66 E.5.5 First half of 2013 and subsequent key trading dates ................................................... 67 F Claims and litigation ............................................................................................................. 68 F.1 Tax and Social Contribution claims .................................................................................. 68 F.2 Commercial claims ........................................................................................................ 68 F.3 Labour claims ............................................................................................................... 69 F.4 Representation & Warranty claims ................................................................................... 69 F.5 Miscellaneous ............................................................................................................... 69 Full index ................................................................................................................................... 70 72/72 | Semestriel, 2013, IT, Atos | write me a financial report |
Semestriel | 2,014 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| Update of the 2013 Registration Document Including the half year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original document has been filed with the Autorité des Marchés Financiers (AMF) on August 5, 2014, in accordance with Article 212-13 of the AMF’s general regulations. It complements the 2013 Registration Document filed with the AMF on April 2, 2014 under number D14-0272. This document has been issued by the Company and commits its signatories and is available on the AMF website (www.amf-france.org) et the one of the issuer (www.atos.net) CONTENTS Contents ...................................................................................................................................... 2 A Persons responsible ................................................................................................................ 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit................................................................................................................... 4 B Atos in the first half of 2014 .................................................................................................... 5 C Finance ................................................................................................................................. 7 C.1 Operational review .......................................................................................................... 7 C.2 2014 Objectives ............................................................................................................ 24 C.3 Financial review ............................................................................................................ 25 C.4 Interim condensed consolidated financial statements ......................................................... 31 C.5 2014 Statutory Auditors’ report on the half-year financial information for the period ended June 30, .................................................................................................................................. 52 D Corporate governance ........................................................................................................... 53 D.1 Office renewals and appointment of directors.................................................................... 53 D.2 Composition of the Board of Directors .............................................................................. 53 D.3 Executive compensation and stock ownership ................................................................... 53 E Common stock evolution ....................................................................................................... 57 E.1 Basic data .................................................................................................................... 57 E.2 Dividend policy ............................................................................................................. 58 E.3 Financial calendar ......................................................................................................... 58 E.4 Contacts ...................................................................................................................... 58 E.5 Common stock .............................................................................................................. 59 F Claims and litigation ............................................................................................................. 65 F.1 Tax and Social Contribution claims .................................................................................. 65 F.2 Commercial claims ........................................................................................................ 65 F.3 Labor claims ................................................................................................................. 66 F.4 Representation & Warranty claims ................................................................................... 66 F.5 Miscellaneous ............................................................................................................... 66 G Implantations ....................................................................................................................... 67 H Full index ............................................................................................................................ 69 2/71 A PERSONS RESPONSIBLE A.1 For the Update of the Registration Document Thierry Breton CEO and Chairman, Atos A.2 For the accuracy of the Update of the Regis tration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the Update of the 2013 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2014 half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report (here attached) presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the Update of the 2013 Registration Document and examined the information in respect of the financial position and the accounts contained herein. Thierry Breton CEO and Chairman, Atos Bezons, August 5, 2014 3/71 A.3 For the audit Appointment and term of offices Statutory Auditors Grant Thornton Victor Amselem Appointed on: May 27, 2014 for a term Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Deloitte & Associés Christophe Patrier Appointed on: May 30, 2012 for a term Term of office expires: at the end of the AGM held to adopt the 2017 financial statements Substitute Auditors Cabinet IGEC Appointed on: May 27, 2014 for a term of 6 years Appointed on: May 27, 2014 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Cabinet B.E.A.S. Appointed on: May 30, 2012 for a term of 6 years Appointed on: May 30, 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements 4/71 B ATOS IN THE FIRST HALF OF 2014 January 8 Atos pursued its share buy-back program by implementing, as announced on November 15, 2013. It is the second tranche for an amount of € 115 million. This second tranche was implemented pursuant to the authorization by the Ordinary General Meeting of December 27, 2013 of an additional purpose for the share buy-back program, namely the payment in Atos SE shares for a maximum amount of € 115 million to the Atos Dutch employee pension fund, in accordance with the final agreement dated December 18, 2013. This amount was in addition to the € 43 million amount already paid in cash. February 19 Atos announced its 2013 annual results and inform its ambition to complete IPO of Worldline. With revenue at € 8,615 million, nearly stable compared to 2012 at constant scope and exchange rates, the Group strongly improved its operating margin to € 645.2 million, an increase of € 78.3 million to reach 7.5% of revenue, completely in line with the 7% to 8% target announced in December 2010 as part of the three-year plan. Net cash position was € 905 million at the end of 2013. The Group generated in 2013 € 365 million of free cash flow also in line with the € 350 to € 400 million target of the three-year plan 2011-2013. Order entry was € 8.8 billion. Book to bill ratio was 105% (excluding Siemens). April 17 Atos published its revenue for the first quarter of 2014. Revenue was € 2,064 million, representing an organic evolution of -1.8% compared to the first quarter of 2013. Order entry was € 1,671 million leading to a book to bill ratio of 81%. Net cash position stood at € 830 million at the end of March 2014. All 2014 objectives were confirmed. Atos announced also that Worldline is fully mobilized to complete its IPO on schedule. April 17 Atos confirms that the group has held friendly discussions with key stakeholders of Steria over the last few months, including with its CEO and its Chairman. Atos has indicated that, should Steria wish to reinstate the industrial project to join the Atos group, the Atos Board of Directors was ready to maintain the terms of its friendly offer, at € 22 in cash per Steria share, to remain valid until the Sopra EGM on June 27, 2014. April 25 Atos SE launched a new employee shareholding plan “Sprint 2014” under the framework of article L. 225- 138-1 of the French Commercial Code (Code de commerce) and articles L. 3332-1 et seq. of the French Labor Code (Code du travail). This employee offering will help to strengthen the relationship between the Group and its employees by offering employees the possibility to be more closely associated with the developments and future performance of the Group. May 7 Atos’ subsidiary Worldline filed its document de base with the French Autorité des Marchés Financiers (AMF) on 6 May 2014. Registration of the document de base was the first step towards the planned initial public offering of Worldline’s shares on the regulated market of Euronext Paris. The process was subject to receipt of the AMF’s visa on the prospectus for the transaction. May 26 Atos and Bull together announced the intended public offer in cash by Atos for all the issued and outstanding shares in the capital of Bull. Atos offer was set at € 4.90 per Bull’s share in cash, representing a 22% premium over the Bull’s closing price (€ 4.01) on Friday May 23, 2014, the last trading day before May 26, and a 30% premium with respect to the 3 month volume weighted average share price (€ 3.77).The offer was also targeting the outstanding Bull’s OCEANEs at € 5.55 per OCEANEs. The offer valued the fully diluted share capital of Bull Group at approximately € 620 million. The offer is subject to reaching a minimum 50% + 1 share of Bull’s share capital acceptance level, and Atos intends to ultimately delist the Bull shares by way of squeeze-out or a subsequent merger between the two companies. 5/71 May 27 Atos SE’s held its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors have been approved by a large majority. In particular, the General Meeting approved the dividend payment of € 0.70 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors Ms. Colette Neuville and Mr. Nicolas Bazire, Roland Busch and Michel Paris. Finally, in accordance with the recommendations of the AFEP-MEDEF Code, the General Meeting delivered with 94.26% support a favorable opinion on elements of compensation due or allocated for the financial year ending December 31, 2013 to Mr. Thierry BRETON, Chairman and Chief Executive Officer. June 6 Atos declared the filing with the Autorité des Marchés Financiers (AMF) of a draft public offer targeting all of Bull’s outstanding shares and instruments having support of Crescendo Industries, Pothar Investments, Orange group and the BPI representing a total amount of 35.5% of Bull’s share capital to Atos’ public offer, comprising the tender agreements. June 11 Atos announced it has acquired Cambridge Technology Partners, a leading IT consulting firm in the Swiss market. With 300 employees, Cambridge reported revenues of CHF 40 million in 2013 (€ 35 million). In a very competitive market, Cambridge has developed a strong reputation in the areas of digital marketing, Identity & Access Management (IAM) and Digital Work Place, in addition to traditional business and technology consulting. June 26 Atos announced the success of Worldline initial public offering on the regulated market of Euronext Paris. Worldline is an Atos SE subsidiary, one of Europe’s leading providers of electronic payment and transactional services and one of the largest such providers worldwide. Set at 16.40 euros per share, the global offering raised a total of approximately € 575 million, consisting of a capital increase of approximately € 255 million and the sale of approximately € 320 million of existing shares by Atos SE. 6/71 C FINANCE C.1 Operational review C.1.1 Executive Summary In 2014, the Group implemented operational changes that are reflected in the 2014 figures from January 1, 2014: The Transport Sub-market that used to be part of the PHT (Public, Health & Transport) Global Market was transferred to MRS (Manufacturing, Retail & Services) – renamed to “MRT” (Manufacturing, Retail & Transport) - except for a few Transportation accounts (c. 25%) that were transferred to PHT - renamed to “PH” (Public & Health). The Consulting & Technology Services Global Service Line was merged within Systems Integration in the relevant Business Units where it became a practice to create the new C&SI (Consulting & Systems Integration) Global Service Line. Revenue for the six-month period ended June 30, 2014 totaled € 4,176 million down €-82 million or -1.9% on a like-for-like basis compared to the first half of 2013. Representing 51% of the total Group revenue, Managed Services (including BPO) declined by €-51 million or -2.3% year-on-year. The contribution of new large contracts such as Philips in Benelux & The Nordics, the Post Office in the UK, Deutsche Bank in Germany, Givaudan in Central & Eastern Europe, City of Indianapolis and Benjamin Moore in the US were not sufficient to offset discontinued contracts, committed price decreases combined with lower volumes with Siemens and the impact of large transition and transformation projects completed in the previous year. As a result, the Managed Services activity declined in several geographies: Germany was impacted by the end of large transitions (Bayer and Siemens), Benelux & The Nordics declined following the ramp-down of KPN and Delta, and France was down in Manufacturing, Retail & Transportation following the end of the GEFCO contract. On the opposite, Managed Services revenue in the United Kingdom grew by +3.7%, mainly driven by the strong performance in BPO, both Financial and Medical. Representing 36% of the total Group revenue in the first semester, Consulting & Systems Integration, including Technology Services, declined by -2.1% year-on-year. Revenue growth in Germany fuelled by the NSN global contract and in the Major Events Business Unit thanks to the ramp-up of several games projects, was more than offset by decreasing activity in most of the other Business Units and particularly in Benelux & The Nordics, North America, and the United Kingdom. By Business Unit, the revenue performance was fuelled by the United Kingdom +1.9%, benefiting from the growth of BPO, and Major Events. The other main geographies declined: Benelux & The Nordics was affected by the ramp-down of one contract with KPN; Germany was mainly impacted by a lower activity in Managed Services, particularly with Siemens as already mentioned; France was down across several markets, and Central & Eastern Europe was impacted by lower volumes and price reductions with Siemens and by the ramp-down of the ex-SIS contract with AMS BG (Employment Agency) in Austria. Worldline increased by +0.2% year-on-year (from a standalone perspective, Worldline as a public company increased revenue by +2.2%). Merchant Services & Terminals and Financial Processing & Software Licensing increased respectively by €+2 million and €+6 million while Mobility & e-Transactional Services decreased by €-7 million. The moderate growth of Merchant Services & Terminals hid a strong performance in Commercial Acquiring (+5.7%), in Private Label Cards & Loyalty services (+5.8%) and in Online services (+3.3%) while the Global Business Line was impacted by the postponed availability of the new range of terminals, due to the time required to obtain national certifications at the end of the first half of 2014 materializing into -9.4% decrease in the Terminals segment. In Mobility & e-Transactional Services, e-Ticketing achieved a double-digit growth (+12.1%) while e-Government Collection and e- Consumer & Mobility dropped respectively by €-7 and €-5 million. Group operating margin increased by +20 basis points year-on-year. Managed Services was down by -120 basis points, while Consulting & Systems Integration progressed by +170 basis points. Corporate costs continued to decrease through the Tier One Program. Operating margin slightly progressed in most of the geographies benefiting from reductions in indirect costs and productivity gains more than compensating lower revenue. UK experienced overruns on the project Transport for Greater Manchester and France was impacted by lower revenue which hit the operating margin despite strong costs reduction measures, more particularly in Managed Services. Finally, the Group continued to invest in Cloud & Enterprise Services with € 16 million expensed during the first half of 2014, an increase by €+6 million compared to the first semester of 2013. 7/71 The total order entry reached € 4,360 million, representing a book to bill ratio of 104%, with a strong second quarter at 127%, as expected. During the second quarter, on top of renewals, the Group signed several new large contracts which are going to fuel organic growth as early as the second half of 2014. These include a 10-year mainframe contract with Airbus in Germany, a 5-year infrastructure management contract with a large postal and delivery company in the UK, a 5-year Cloud based full outsourcing contract in France with one of the Big Four accounting firms, a contract with Disclosure Scotland, an executive agency of the Scottish Government, a 3-year infrastructure management contract with a large electronics company in the Benelux, a 5-year Datacenter management contract with a large Dutch technology company, and a 6-year Financial BPO contract with NS&I in the UK which demonstrates the value of the B-to-B strategy with this customer. These seven key contracts totaled more than € 500 million of order entry. In addition, the Group also extended for 5 years its outsourcing contract with a large bank in Hong Kong, as well as its Application Management contract with Renault Nissan in France over the same period of time. The Group signed a 5-year end-user computing service contract with the Ministry of Justice in the UK, a 3-year extension with Fidelity Information Services in Germany, a Financial Processing & Software Licensing contract with ING for Worldline, and renewed its Managed Services contract with Achmea, both in the Netherlands. Thanks to its investment and high skills developed in innovative offerings, the Group reached an agreement with Siemens in the area of Data Center security. For this solution Atos and Siemens signed a 3-year extension from 2018 to 2021 as a specific part of the long term IT contract for Managed Services. Finally, as part of the Global Alliance between the two Groups, Siemens and Atos committed to a joint investment plan above € 20 million for Data Analytics. At the end of June 2014, the full backlog amounted to € 15.3 billion or 1.8 year of revenue, compared to € 15.2 billion at the end of 2013. The full qualified pipeline at the end of the first half was € 5.0 billion, compared to € 5.3 billion as of December 31, 2013. The total headcount was 76,465 at the end of June 2014. The number of direct employees at the end of June 2014 was 70,892, representing 92.7% of the total headcount, compared to 91.5% at the end of the first half of 2013. In the first half of 2014, 5,476 new employees were recruited of which 53% in offshore countries. Offshore headcount totaled 16,778 staff and represented 22% of total staff at the end of June 2014, up by +16% compared to one year earlier. 56% of them were located in India, mainly for Systems Integration, and 26% in Central & Eastern Europe, mainly for Managed Services. Attrition during the first half was 9.7% at Group level, and 17.1% in emerging countries. 8/71 C.1.2 Statutory to constant scope and exchange rates reconciliation In € millionH1 2014H1 2013% growthStatutory revenue4,1764,290-2.7%Scope effect5Exchange rates effect-37Revenue at constant scope and exchange rates4,1764,258-1.9%Operating margin274.6279.0-1.6%Scope impact1.0Exchange rates impact-6.5Operating margin at constant scope and exchange rates274.6273.5+0.4%as % of revenue6.6%6.4% C.1.2.1 Revenue Revenue in the first semester of 2014 amounted to € 4,176 million, representing an organic change of -1.9% compared to revenue at constant scope and exchange rates of € 4,258 million in the first half of 2013. The following table presents the effect on H1 2013 revenue of exchange rates, acquisitions and disposals, and internal transfers reflecting the Group’s new organization. In € millionFY 2013 statutoryInternal transferWorldline Carve-outFY 2013 new organizationScope impactExchange rates impact*FY 2013 at constant scope and FXGermany1,65911,6611,661UK & Ireland1,6470-1271,520511,571France1,02011,02001,020Benelux (& The Nordics)1,08311,085-3-11,080Atos Worldline896-89600Central & Eastern Europe873-9865-21844North America6072609-20588Iberia325-31293293Other BU's504-5-424567-36427Total IT Services8,6150-1,1057,5103-277,485Worldline1,1051,105-121,093TOTAL GROUP8,615008,6153-398,579Managed Services4,0173904,407-34,404Consulting & Systems Integration2,2788243,1033-253,081HTTS & Specialized Businesses1,706-601-1,10500Consulting & Systems Integration176-17600Technology Services437-43700Total IT Services8,6150-1,1057,5103-277,485Worldline1,1051,105-121,093TOTAL GROUP8,615008,6153-398,579* At June 2014 Exchange ratesRevenue FY Internal transfers between Services Lines included (i) the transfer of Consulting in the United Kingdom & Ireland, Germany, Benelux & The Nordics, France, Iberia, and Latin America to Consulting & Systems Integration (C&SI) for € 87 million, (ii) Technology Services to C&SI for €-227 million and (iii) the carve- out of Worldline. As a consequence of this carve-out, the HTTS & Specialized Business Global Service Line was discontinued and the Specialized Businesses component was merged into C&SI except for BPO that was merged into Managed Services. At Group level, exchange rates impact was €-37 million in the first semester. It mainly came from the decrease of the Argentine Peso (-36.8%) and the Brazilian Real (-15.8%), the Turkish Lira (-20.1%) and the US Dollar (-4.1%) while the British Pound was in an overall upwards trend (+3.5%) versus the Euro. 9/71 Net scope impact was €-5 million on the top line, mainly resulting from the acquisition WindowLogic (Asia-Pacific, July 2013) and the disposal of Atos Formation (France, March 2013) and Metrum (The Netherlands, January 2014). The adaptation of the organization made in the first semester of 2014 is reflected on the right part of the table above. C.1.2.2 Operating margin Operating margin for the first semester of 2014 amounted to € 274.6 million, representing 6.6% of revenue, an improvement of +20 basis points compared to 6.4% in the first half of 2013 at constant scope and exchange rates. The following table presents the effect on H1 2013 operating margin of exchange rates, acquisitions and disposals, and internal transfers reflecting the adaptation of the Group organization, as explained above for revenue. In € millionH1 2013 statutoryInternal transferWorldline Carve-outH1 2013 new organizationScope effectExchange rates effect*H1 2013 at constant scope and FXGermany52.7-2.450.450.4UK & Ireland64.4-8.056.41.958.3France8.00.28.20.10.08.4Benelux & The Nordics49.5-0.449.10.10.049.2Atos Worldline76.2-76.20.00.00.0Central & Eastern Europe31.60.031.6-1.630.0North America24.5-2.721.8-1.020.8Iberia3.5-0.43.13.1Other BU's22.65.4-2.725.40.8-4.921.3Global Structures-54.2-0.18.9-45.4-45.4Total IT Services279.00.0-78.5200.61.0-5.6196.0Worldline78.578.5-0.977.5TOTAL GROUP279.00.00.0279.01.0-6.5273.5Managed Services162.55.7168.1-2.8165.4Consulting & Systems Integration55.023.60.078.61.0-2.876.9HTTS & Specialized Businesses99.4-15.4-84.0Consulting4.3-4.3Technology Services9.6-9.6Global Structures-51.80.05.5-46.2-46.2Total IT Services279.00.0-78.5200.61.0-5.6196.0Worldline78.578.5-0.977.5TOTAL GROUP279.00.00.0279.01.0-6.5273.5* At June 2014 Exchange ratesOperating margin 10/71 C.1.3 Revenue profile evolution In the first semester of 2014, 74% of the revenue base was generated by multi-year contracts, deriving from multi-year Managed Services contracts (51% of total revenue, including BPO), Worldline revenue (13% of total revenues), Application Management, and Worldgrid contracts included in Consulting & Systems Integration, respectively with 8% and 2% of total revenues. In € millionH1 2014H1 2013*Managed Services2,1382,190Consulting & Systems Integration1,5031,535Worldline535534TOTAL GROUP4,1764,258* at constant scope and exchange rates 51%36%13% Europe remained the Group’s main operational base, generating 87% of total revenue. 19%19%13%12%12%9%7%5%4% In € millionH1 2014H1 2013*United-Kingdom & Ireland812797Germany784809Worldline535534France505516Benelux & The Nordics500546Central & Eastern Europe388400North America292298Other BUs214211Iberia146148TOTAL GROUP4,1764,258* at constant scope and exchange rates The Group provides IT services and solutions to many industry sectors. The customers are addressed through four global markets which are Manufacturing Retail & Transportation, Public & Health, Telcos, Media & Utilities, and Financial Services. 35%24%22%19% In € millionH1 2014H1 2013*Manufacturing, Retail & Transportation1,4411,502Public & Health1,010969Telcos, Media & Utilities936996Financial Services789792TOTAL GROUP4,1764,258* at constant scope and exchange rates 11/71 C.1.4 Performance by Service Line In € millionH1 2014H1 2013*% growthH1 2014H1 2013*H1 2014H1 2013*Managed Services2,1382,190-2.3%136.1165.46.4%7.6%Consulting & Systems Integration1,5031,535-2.1%100.576.96.7%5.0%Corporate costs**-42.0-46.2-1.2%-1.2%Total IT Services3,6413,724-2.2%194.6196.05.3%5.3%Worldline535534+0.2%80.077.515.0%14.5%TOTAL GROUP4,1764,258-1.9%274.6273.56.6%6.4%* at constant scope and exchange rates** Corporate costs exclude Global Delivery Lines costs allocated to the Service LinesRevenueOperating marginOperating margin % C.1.4.1 Managed Services In € millionH1 2014H1 2013*% variationRevenue2,1382,190-2.3%Operating margin136.1165.4Operating margin rate6.4%7.6%Direct headcounts end of June33,72033,277* at constant scope and exchange rates Representing 51% of the Group, Managed Services revenue, which includes BPO, was € 2,138 million, down -2.3% compared to the first half of 2013. The pattern was contrasted as growth materialized in the United Kingdom by +3.7%, benefiting from a positive dynamic in the Public Sector, notably with the full ramp-up of DWP PIP contract which over-compensated for the WCA contract and business increase with Department of Health and NS&I. North America grew by +2.0% thanks to the ramp-up of several Cloud contracts in Public and Media sectors. The Service Line also grew in several geographies such as Iberia, Middle East, and India. In Germany, despite new contract ramping-up in Telcos and Financial Services, revenue declined due to the end of the transition period with Bayer and Siemens as well as price reduction with the latter. Revenue contracted in Benelux & The Nordics on the back of contracts ramping-down in Financial Services and Telcos, more particularly one contract KPN, while the new infrastructure outsourcing contract with Philips was successfully delivered and started ramping-up. In Central & Eastern Europe, new contracts started to generate revenue in Switzerland, Italy, Poland, and Croatia. This did not compensate for lower volumes and base effects in Austria and in Slovakia. In France, a Cloud based contract with one large bank did not fully compensate for the ramp-down or scope reductions with customers in Energy and Manufacturing sectors. Managed Services revenue profile by geographies CEE France UK & Ireland 29%23%14%12%8%8%6% North America Benelux & The Nordics Germany Other countries 12/71 Managed Services operating margin decreased compared to previous year to reach € 136.1 million, down by €-29.3 million year-on-year. Managed Services performance was contrasted in the first semester. Three major elements affected the operating margin and were not fully compensated for by operational efficiencies. First, France performance suffered from revenue decrease and one-off transition slippages for a total of € 13 million despite strong actions on indirect costs; second, a base effect of € 10 million due to the pension plan amendment recorded in the first semester of 2013; and finally, the Group decided to increase its operational expenditures from € 10 million to € 16 million, an extra € 6 million to further enhance the Canopy Cloud platform. Nevertheless several Business Units performed well with margin gains such as the United Kingdom, North America and to a lesser extent Asia Pacific, Latin America, and India, Middle-East & Africa (IMEA). More particularly, United Kingdom & Ireland benefited from the ramp-up of several major public contracts. C.1.4.2 Consulting & Systems Integration In € millionH1 2014H1 2013*% variationRevenue1,5031,535-2.1%Operating margin100.576.9Operating margin rate6.7%5.0%Direct headcounts end of June30,41330,482* at constant scope and exchange rates Consulting & Systems Integration half-year revenue was € 1,503 million, down -2.1% compared to the first half of 2013. Consulting grew by +12.3% thanks to new contracts won in the United Kingdom, primarily with the Ministry of Defence, British Airways, the Post Office, and several other clients in the private sector. This increased commercial activity absorbed the ramp-down of the Department for International Development Engagement in the UK and reduced revenue with KPN in Benelux and within the Telcos, Media & Utilities market in France. Systems Integration, including Technology Services, was down by -2.9%. The Service Line posted significant growth in the Public & Health market (+5.5%) led by Germany, Major Events thanks to several International Olympic Committee projects ramp-up, and Iberia. Conversely, revenue was impacted by lower volumes in all the other markets. Revenue in Telcos, Media & Utilities dropped through several accounts among which KPN, contracts termination in Benelux, price decrease in Germany, and also due to an unfavorable comparison basis for AIG in the US. Partial offset came from the ramp-up of the NSN global contract, mostly in Germany. France posted a slight growth over the period. In Systems Integration, utilization rate increased to 84.8% in 2014 compared to 81.2% in the first half of 2013. Consulting & Systems Integration revenue profile by geographies UK & Ireland 23%20%14%13%12%18% CEE France Other countries Benelux & The Nordics Germany At € 100.5 million for the first 6 months of the year, operating margin in Consulting & System Integration increased by +170 basis points versus last year as continuous operational plans for resource management and costs efficiency have been performed to enable profitability improvement. Consulting progressed significantly compared to last year, mostly driven by new business in the United Kingdom combined with cost efficiencies in Iberia. 13/71 Operating margin in Systems Integration including Technology Services was up +150 basis points compared to the first half of 2013. This improvement was primarily driven by productivity gains and SG&A optimization in Germany and France, a successful recovery on several large projects in Central & Eastern Europe, and an overall strong quality improvement in Benelux & The Nordics which more than compensated for the slippage on the Transport for Greater Manchester project. C.1.4.3 Worldline In € millionH1 2014H1 2013*% variationRevenue535534+0.2%Operating margin80.077.5Operating margin rate15.0%14.5%Direct headcounts end of June6,6056,623* at constant scope and exchange rates Worldline revenue represented 13% of the Group at € 535 million, up +0.2% year-on-year. Financial Processing & Software Licensing was the main contributor to revenue evolution thanks to a good volume dynamic in Issuing processing and additional project revenue from SEPA standard in online banking solutions, mainly in France. Merchant Services & Terminals also contributed to growth with higher volumes in number of transactions, mainly in commercial acquiring in Belgium. Terminals business dropped by 9.4% even if this activity started to recover at the end of the semester. In Mobility & e- Transactional Services, Worldline performed fewer projects in the Public Sector, mainly for its direct customers. Worldline revenue profile by Global Business lines 34%36%31% Merchant Services &Terminals Financial Processing &Software Licensing Mobility & e-Transactional Services Operating margin was € 80.0 million, representing 15.0% of revenue, compared to 14.5% in the first half of 2013, an improvement in line with full year expectations. Merchant Services & Terminals benefited from transaction volume growth in Commercial Acquiring and from costs optimization in Benelux while margin declined in the Terminals business due to anticipated revenue drop during the first half of the year. Financial Processing & Software Licensing improved mainly in Issuing processing, Online Banking, and Payment Software Licensing. Finally, Mobility & e-Transactional Services was down due to a committed price decrease for one contract in e-Government in the UK. 14/71 C.1.5 Performance by Business Units In € millionH1 2014H1 2013*% growthH1 2014H1 2013*H1 2014H1 2013*United-Kingdom & Ireland812797+1.9%54.458.36.7%7.3%Germany784809-3.1%51.950.46.6%6.2%France505516-2.0%1.18.40.2%1.6%Benelux & The Nordics500546-8.4%50.549.210.1%9.0%Central & Eastern Europe388400-3.0%32.830.08.4%7.5%North America292298-2.2%22.920.87.9%7.0%Iberia146148-1.5%3.43.12.3%2.1%Other BUs214211+1.7%20.221.39.4%10.1%Global structures**-42.6-45.4-1.2%-1.2%Total IT Services3,6413,724-2.2%194.6196.05.3%5.3%Worldline535534+0.2%80.077.515.0%14.5%TOTAL GROUP4,1764,258-1.9%274.6273.56.6%6.4%* at constant scope and exchange ratesRevenueOperating marginOperating margin %** Global structures include the Global Delivery Lines costs not allocated to the Group Business Unit and the Corporates costs By geography, in an economic environment which continued to be slow in Europe, the Group focused on protecting or enhancing its operational profitability by executing Tier One Program new initiatives in order to compensate for revenue decline in several geographies. All the Business Units improved their operating margin with the exception of United Kingdom & Ireland and France. The UK faced a difficult contract with Transport for the Greater Manchester which led to a €-10 million loss recorded in the first half. At the same time, the WCA contract with DWP also impacted operating margin. France was primarily impacted by a lack of revenue in Managed Services partly mitigated by a strong monitoring of indirect costs. Despite a still difficult economic environment and declining revenue, Benelux & The Nordics reached a double digit margin rate. The Group continued to reduce its Global structure costs, both in IT Services and in Worldline. C.1.5.1 United Kingdom & Ireland In € millionH1 2014H1 2013*% variationRevenue8127971.9%Operating margin54.458.3Operating margin rate6.7%7.3%* at constant scope and exchange rates Revenue was € 812 million, up +1.9%. This growth was primarily driven by the Public & Health market where BPO grew by +12.5%, thanks to the build-up of the DWP PIP contract which more than offset the lower volumes on WCA contract. Managed Services also benefited from additional volumes with the Department of Health, NDA, and a new contract with the Post Office. Consulting activities also contributed thanks to the ramp-up of the Ministry of Defence contract. This more than compensated for reduced volumes or projects with the Welsh Government, in Public Sector and also with EDF, British Telecom and with a large media company in the other markets. Operating margin was € 54.4 million, down by -63 basis points. This decrease of profitability came from Systems Integration which recorded a €-10 million loss related to the Transport for Greater Manchester project contract transferred from Worldline, as mentioned in its Registration Document (§ 9.9). Excluding this one-time loss, UK margin improved by 10.3% compared to the first half of 2013. This was partially offset mainly by the fall-out of the growth in Consulting, a contract renegotiation in Managed Services and the positive effect of PIP contract ramp-up in BPO. 15/71 C.1.5.2 Germany In € millionH1 2014H1 2013*% variationRevenue784809-3.1%Operating margin51.950.4Operating margin rate6.6%6.2%* at constant scope and exchange rates Revenue was € 784 million, down -3.1% compared to the first half of 2013. In Managed Services, the revenue was affected by the end of the transition phases on Bayer and Siemens, price decrease, mainly with Siemens and KPN, and some contract terminations such as Ferrostaal. A new contract with Coriant and the ramp-up of Deustche Bank partly compensated for this negative trend. Partial offset came from Consulting & Systems Integration which improved thanks to the NSN contract initiated in 2013, and a new contract with the Ministry of Defense. Operating margin reached € 51.9 million and improved by +55 basis points compared to the first half of 2013. Consulting & Systems Integration benefited from increased revenue combined with productivity gains and indirect costs optimization which compensated for price reduction. Managed Services was down due to less volume effect coming from the phase-out of one-time projects with Siemens and Bayer not fully offset by cost reduction performed over the period. C.1.5.3 Benelux & The Nordics In € millionH1 2014H1 2013*% variationRevenue500546-8.4%Operating margin50.549.2Operating margin rate10.1%9.0%* at constant scope and exchange rates In Benelux & The Nordics, revenue dropped by -8.4%, in a context of still declining demand affecting all Service Lines. Both Managed services and Consulting & Systems Integration were affected by contract lost in 2013 (KPN, Delta, UPM), added to price pressures on Achmea and UVIT contracts and the end of the PostNord transition. This trend has been partially offset by higher activity in the Public Sector driven by contracts with the Dutch National Police and Ministry of Infrastructure, the ramp-up of a Cloud contract with Philips, and upselling at Rabobank. Despite a negative base effect of €-6 million due to the pensions curtailment performed in the first half of 2013 and a lower revenue in the period, the operating margin reached € 50.5 million, and improved by +110 basis points. This strong achievement was attributable to a tight control of costs in both Managed Services and Consulting & Systems Integration coupled with an improved utilization rate and one contract settlement in Consulting & Systems Integration while Managed Services was further affected by tariff pressure. C.1.5.4 France In € millionH1 2014H1 2013*% variationRevenue505516-2.0%Operating margin1.18.4Operating margin rate0.2%1.6%* at constant scope and exchange rates At € 505 million, revenue was limited at -2.0% year-on-year. This slight decrease was primarily driven by Managed Services due to the end of some contracts such as Gefco or GDF Suez. Consulting & Systems Integration revenue remained almost stable as new projects with CNES and fertilization with Renault allowed to offset missing license resales compared to last year and price pressure on the LCH Clearnet contract in the Financial Services market. 16/71 The decline in operating margin entirely came from Managed Services. This was partially mitigated by the strong improvement of Consulting & Systems Integration thanks to higher utilization rates in Application Management and SAP practices, as well as a better profitability in the smart grid business and a continuous reduction of indirect costs. C.1.5.5 Central & Eastern Europe In € millionH1 2014H1 2013*% variationRevenue388400-3.0%Operating margin32.830.0Operating margin rate8.4%7.5%* at constant scope and exchange rates The -3.0% decrease in revenue was entirely driven by Managed Services activities where several projects in the Public Sector in Slovakia and in Austria ended last year, adding to less volumes with Siemens, and despite partial offset from the ramp-up of ePodkarpackie in Poland and Givaudan in Switzerland. Revenue in Consulting & Systems Integration was stable. Growth in the Public Sector, particularly in Slovakia, compensated for the base effect of the Ashgabat phase 1 project completion and the 2013 Mersin Mediterranean Games in Turkey. The +100 basis points increase in operating margin derived mainly from lower warranty costs, higher R&D State premiums, and improved project profitability in the Public Sector in Consulting & Systems Integration. Conversely and on top of lower revenue, Managed Services suffered from a bold comparative basis derived from Siemens projects completed last year, together with the end of AMS and AIS contracts. C.1.5.6 North America In € millionH1 2014H1 2013*% variationRevenue292298-2.2%Operating margin22.920.8Operating margin rate7.9%7.0%* at constant scope and exchange rates First half revenue decreased by -2.2% versus last year. This stemmed from Consulting & Systems Integration services principally due to the completion of the AIG datacenter migration project in 2013 and lower volume with Zimmer Holding and P&G, partially offset by ramp-ups with Daimler and Hunstmann. Growth of Managed Services was mostly driven by fertilization with McGraw Hill, contracts in the Public Sector such as ACT, City of Indianapolis (including a large portion of Cloud services), and Benjamin Moore in Manufacturing, Retail & Transportation. Operating margin progressed to 7.9% primarily pulled by growth and delivery cost efficiencies in Managed Services. C.1.5.7 Iberia In € millionH1 2014H1 2013*% variationRevenue146148-1.5%Operating margin3.43.1Operating margin rate2.3%2.1%* at constant scope and exchange rates Revenue was down by -1.5% year-on-year, to be compared with the -6.2% organic decrease posted for the year ended December 31, 2013 and mainly reflecting lower Consulting & Systems Integration activities within Manufacturing, Retail & Transportation and Telcos, Media & Utilities markets and in spite of significant recovery in the Public sector. Despite revenue decline, the Business Unit manages to increase its operating margin through proactive workforce and cost base management combined with further reduction of indirect costs. 17/71 C.1.5.8 Other Business Units In € millionH1 2014H1 2013*% variationRevenue2142111.7%Operating margin20.221.3Operating margin rate9.4%10.1%* at constant scope and exchange rates Major Events Revenue grew by €+6 million thanks to the ramp-up of Rio 2016 Summer Games combined with several regional projects such as VeraCruz 2014 and Baku 2015. Operating margin progressed € +1.6 million on higher revenue and improved utilization rate in the former MSL entity. Asia-Pacific Revenue remained stable year-on-year, thanks to increased activities for Siemens and the regional contract with Deutsche Bank, which both compensated for less hardware & software resales in Managed Services. The operating margin improvement of +130 basis points on prior year mainly derived from productivity gains in Consulting & Systems Integration and fall-through from higher added value Managed Services revenue in China and Singapore. Latin America Revenue dropped by -8.7% compared to last year due to several contracts phased-out during the period in both Managed Services and Consulting & Systems Integration. Operating margin remained stable versus last year. India, Middle-East & Africa Revenue grew by +7.6%, primarily pulled by Managed Services in the Middle East. Operating margin also improved by +160 basis points thanks to continuous increase of offshored delivery volumes in India and business growth in the Middle-East. C.1.5.9 Global structures costs Global structures costs decreased by € 2.8 million compared to the first half of 2013 as a result of the continuous optimization of the Group’s central functions. 18/71 C.1.6 Revenue by Market The Group is organized in four industry sectors, as described: In € millionH1 2014H1 2013*% growthManufacturing, Retail & Transportation1,4411,502-4.0%Public & Health1,010969+4.3%Telcos, Media & Utilities936996-6.0%Financial Services789792-0.4%TOTAL GROUP4,1764,258-1.9%* at constant scope and exchange ratesRevenue C.1.6.1 Manufacturing, Retail & Transportation Manufacturing, Retail & Transportation is currently the largest market segment of the Group (35%) and reached € 1,441 million for the six-month period ended June 30, 2014. It was down -4.0% compared to the first half of 2013. New contracts contributed to additional revenue: Philips and DCO in the Netherland, Givaudan in Switzerland, Benjamin Moore in North America, Daimler in Germany, and CNES in France. This partially compensated for some decline: Bayer, Peugeot, IPM, Talecris and finally Siemens. In this Market, 41% of revenues were generated with 10 main customers: Siemens, Renault Nissan, Philips, VOSA (Vehicle Op Standards Agency), EADS (Airbus), Carl-Zeiss, DSK/RAG, Thyssen Krupp, Highways Agency and Coca-Cola. C.1.6.2 Public & Health Public & Health revenue in the first half was € 1,010 million and accounted for 24% of the Group revenue. It increased by +4.3% compared to the six-month period ended June 30, 2013. This growth was mainly attributable to contracts located in UK & Ireland: The Department for Work & Pensions where the new PIP contract more than compensated for the ramp-down of the WCA contract, the Department of Health and the Post Office both benefiting from increased volumes. Germany also grew thanks to a new contract with the Federal Ministry of Defence, as well as North America with the ACT ramp-up, and Major Events with the ramp-up of the future games for the International Olympic Committee (IOC), together with new projects signed by the former MSL company acquired in 2012. The top 10 customers accounted for 38% of this market segment were the Department for Work & Pensions, the UK Ministry of Justice, the European Union Institutions, the French Ministère de l’Ecologie, NHS Scotland, the NDA (Nuclear Decommissioning Authority), SNCF, the UK Boarder Agency, Bundesagentur für Arbeit, the Department of Health and the International Olympic Committee. C.1.6.3 Telcos, Media & Utilities Telecom, Media & Utilities reached € 936 million in the first semester (22% of Group revenue) down -6% compared to the six-month period ended June 30, 2013. This performance mainly resulted from the ramp-down of KPN and Delta contracts in Benelux & The Nordics partially compensated for by the NSN global contract signed at the end of 2012. Unfavorable comparison basis resulted from a one-time hardware sale to EDF and a non-recurring project delivered to a large media company. The first 10 customers accounted for 65% of this market were a large media company, EDF/British Energy, KPN, NSN, McGraw-Hill, Orange, Telecom Italia, Microsoft, GDF Suez and Schlumberger. 19/71 C.1.6.4 Financial Services Financial services reached € 789 million, down -0.4% compared to the first half of 2013, representing 19% of the Group. This resulted from a strong performance in France mainly with a large banking customer and in Worldline with the impact of new businesses. On the other hand, Financial Services growth was adversely impacted by the AIG project completion last year. 52% of the revenue were generated with 10 clients: National Savings & Investments, Deutsche Bank, BNP Paribas, ING, Standard Chartered Bank, Achmea, Credit Agricole, La Poste and Société Générale and Talanx. C.1.7 Portfolio C.1.7.1 Order entry and book to bill The Group order entry in the first half of 2014 totaled € 4,360 million, representing a book to bill ratio of 104%, of which 127% reached in Q2 as anticipated. Book to bill was 113% in Managed Services in particularly driven by the UK, Benelux & The Nordics, France and Asia Pacific. Book to bill was 99% in Consulting & Systems Integration, mainly led by France. Book to bill was 87% for Worldline. Excluding Siemens (backlog closed in July 2011), the total Book to bill was 107%. During the second quarter, the Group signed several new large contracts which are going to fuel organic growth as early as the second half of 2014. These includes a 10-year mainframe contract with Airbus in Germany, a 5-year infrastructure management contract with a large letters delivery company in the UK, a 5-year Cloud based full outsourcing contract in France with one of the Big Four accounting firm, a contract with Disclosure Scotland, an executive agency of the Scottish Government, a 3-year infrastructure management contract with NXP Semiconductors in the Benelux, a 5-year Datacenter management contract with a large Dutch technology company, and a 6-year Financial BPO contract with NS&I in the UK which demonstrates the value of the B-to-B strategy with this customer. These seven key contracts totaled circa € 500 million of order entry. Order entry in the first half-year also included renewal of large contracts such as with a large media company in the UK (Managed Services and Systems Integration), a large Bank in Hong Kong (Managed Services) and Renault Nissan in France (Managed Services and System Integration). Thanks to its investment and high skills developed in innovative offerings, the Group reached an agreement with Siemens in the area of Data Center security. For this solution Atos and Siemens signed a 3-year extension from 2018 to 2021 as a specific part of the long term IT contract for Managed Services. Finally, as part of the Global Alliance between the two Groups, Siemens and Atos committed to a joint investment plan above € 20 million for Data Analytics. Order entry and book to bill by Market was as follows: Order EntryBook to billBook to billH1 2014H1 2014Manufacturing, Retail & Transportation1,673 116%Public & Health941 93%Telcos, Media & Utilities914 98%Financial Services832 106%Total Group4,360 104% 20/71 Order entry and book to bill by Service Line was as follows: Order EntryBook to billBook to billH1 2014H1 2014Manufacturing, Retail & Transportation1,673 116%Public & Health941 93%Telcos, Media & Utilities914 98%Financial Services832 106%Total Group4,360 104% C.1.7.2 Full backlog The full backlog at the end of June 2014 amounted to € 15,314 million representing 1.8 years of revenue, an increase by €+151 million. Most of the increase came from Managed Services thanks to major renewals and significant new contracts. As a result, the backlog for the Service Line represented 2.3 years of revenue. C.1.7.3 Full qualified pipeline The full qualified pipeline amounted to € 5,034 million at the end of June 2014, stable compared to the prior year. It represented 7.0 months of revenue. By business, qualified pipeline represented 10.2 months of revenue for Worldline and 6.6 months of revenue for IT Services. 21/71 C.1.8 Human Resources C.1.8.1 Headcount evolution The total headcount was 76,465 at the end of June 2014, up +145 people compared to end of last year. During the first half, indirect staff decreased by -4%, as a consequence of the continuing SG&A costs reduction induced by the Tier One Program, while during the same period direct workforce increased by +361. Direct headcount closed at 70,892 at end of June 2014 and represented 92.7% of the Group total headcount, compared to 92.4% six months earlier. In the first half of 2014, 5,476 new employees were recruited of which 53% in offshore countries. Offshore headcount totaled 16,778 staff and represented 22% of total staff at the end of June 2014, up by +16% compared to one year earlier. 56% of them were located in India, mainly for Systems Integration, and 26% in Central & Eastern Europe, mainly for Managed Services. Headcount evolution over the first half of 2014 by Services Line and Business Unit is the following: Opening January 2014Adaptation of organizationAdjusted openingScopeHiringLeaversDismissal, restruct. & otherClosing June 2014Managed Services33,277033,277-712,911-1,687-71033,720Consulting & Systems Integration30,581-9930,4822332,095-1,673-72430,413HTTS & Specialized Business6,524-6,524000000Global Structures149014906-76154IT Services70,531-6,62363,9081625,012-3,367-1,42864,287Worldline06,6236,6230248-175-916,605Total Direct70,531070,5311625,260-3,542-1,51970,892United-Kingdom & Ireland9,626-6308,9960670-495-449,127Germany7,88307,883093-131-517,794France9,28009,2800190-223-2109,037Benelux & The Nordics6,23106,231-96100-283-685,884Central & Eastern Europe7,660-447,6162581,015-377-1698,343North America3,72103,7210278-224-2313,544Iberia4,886-4604,426063-103-1554,231Other BUs16,146-44215,70402,603-1,531-49816,278Global Structures50151000-249IT Services65,483-1,57563,9081625,012-3,367-1,42864,287Worldline5,0481,5756,6230248-175-916,605Total Direct70,531070,5311625,260-3,542-1,51970,892Total Indirect5,78905,78929216-183-2785,573TOTAL GROUP76,320076,3201915,476-3,725-1,79776,465 C.1.8.2 Changes in scope The figures presented in this column reflect the disposal of Metrum in Benelux in the first quarter 2014 and the acquisition of Cambridge Technology in Switzerland in the second quarter. C.1.8.3 Hiring The total number of recruitments during the first half of 2014 reached +5,476 and represented 7.2% of the headcount as of January 1, 2014. Those hiring were primarily made in Managed Services (+2,911 people and 55% of the total recruitments of the period) and in Systems Integration (+1,950 recruits or 37% of the total). By Business Units, the growth of Managed Services offshore in Poland (+488) and Romania (+285) explains largely the +1,015 employees recruited in Central & Eastern Europe. The UK recruited +670 employees to replace leavers and fuel the ramp-up of the DWP PIP contract. The +2,603 hiring reported in Other Business Units reflect the accelerated growth of offshore delivery, primarily in India (+1,767, 33% of the total direct recruitments) and in the Philippines (+106). 22/71 C.1.8.4 Leavers Leavers only comprise staff voluntary resignations. The total number of leavers over the first semester 2014 was -3,725 of which -3,542 from the direct workforce, primarily in Managed Services (-1,687 people, 48% of the total direct leavers) and Systems Integration (-1,558 leavers and 44% of the total). Attrition during the first half was 9.7% at Group level, and 17.1% in emerging countries, stable compared to the first half of 2013. C.1.8.5 Restructuring, Dismissals and other 1,568 staff were dismissed or restructured during the first semester of 2014. Streamlining efforts were mainly concentrated in the UK, North America, Latin America, Asia Pacific and in Benelux & The Nordics. The other flows correspond to net In/Out changes in temporary employees. C.1.8.6 External Subcontractors The number of external subcontractors at 5,505 full time equivalents (7.4% of productive full time equivalents) at the end of the semester decreased by more than a thousand compared to June 2013, when it represented 8.5%. The objective remains to carefully monitor the level of non-critical subcontractors. 23/71 C.2 2014 Objectives Further to the first half of the year, and taking into account the perspective of the second semester, the Group confirms all its objectives for 2014 as stated in the February 19, 2014 release, i.e.: Revenue The Group expects to positively grow compared to 2013. Operating margin The Group has the objective to continue improving its operating margin rate targeting 7.5% to 8.0% of revenue. Free cash flow The Group expects to achieve a free cash flow above 2013 level, in line with 2016 ambition. 24/71 C.3 Financial review C.3.1 Income statement The Group reported a net income (attributable to owners of the parent) of € 76.4 million for the half year 2014, which represented 1.8% of Group revenues of the period. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 173.5 million, representing 4.2% of Group revenues of the period, up +20bp compared to last year. (in € million)6 months ended 30 June2014% Margin6 months ended 30 June2013% MarginOperating margin 274.66.6%279.06.5%Other operating income / (expenses)(145.2)(87.4)Net financial income / (expenses)(21.0)(22.5)Tax charge (29.2)(53.4)Non-controlling interests and associates(2.8)0.6Netincome–Attributabletoownersof the parent76.41.8%116.32.7%Normalizednetincome–Attributableto owners of the parent (*)173.54.2%173.74.0%(*) Defined hereafter.4.5%Operating income129.43.1%191.6 C.3.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. C.3.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of € 145.2 million in the first half of 2014. The following table presents this amount by nature: (in € million)6 months ended 30 June20146 months ended 30 June2013Staff reorganization(81.7)(48.3)Rationalization and associated costs(22.5)(21.2)Integration costs and acquisition costs(7.1)(10.4)Customer relationships amortization (PPA) *(22.1)(22.0)Other items(11.8)14.5Total(145.2)(87.4)* Purchase Price Allocation. 25/71 The € 81.7 million staff reorganization expense was mainly the consequence of: a restructuring plan in Germany agreed with the Unions in June 2014 for the employees located in AIT Frankfurt further to a bundle of economic reasons especially due to the termination of several local contracts at AIT Frankfurt; the adaptation of the Group workforce in several countries such as Benelux & The Nordics, Iberia, United Kingdom, and Germany; the streamlining of middle management layers, including Global Structures. The € 22.5 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation, mainly in Germany (€ 5.7 million) and Benelux & The Nordics (€ 2.9 million), linked to restructuring plans. This amount also includes external costs for the implementation of Worldline’s TEAM Program (€ 2.4 million). The € 7.1 million integration and acquisition costs represented mainly remaining costs for the migration and the standardization of internal IT platforms. The € 11.8 million expense in other items corresponded mainly to fees related to € 5.5 million of transaction services costs incurred for the unsuccessful Nets acquisition project and additional € 4.5 million provisions for the DWP-MSA contract loss after the settlement signed during the period. C.3.1.3 Net financial expense Net financial expense amounted to € 21.0 million for the period (compared with € 22.5 million last year) and was composed of a net cost of financial debt of € 6.1 million and non-operational financial costs of € 14.9 million. Non-operational financial costs amounted to € 14.9 million compared to € 5.1 million in June 2013 and mainly consisted of pension financial related costs (€ 7.0 million compared to € 6.6 million in 2013), net foreign exchange expense (€ 3.7 million compared to a net foreign exchange gain of € 0.9 million in 2013), and other expenses for € 4.0 million (including € 2.2 million for financing of receivables). The pension financial related costs represent the difference between interest costs on defined benefit obligations and the interest income on plan assets for plans which are funded. C.3.1.4 Corporate tax The tax charge for the six-month period ended June 30, 2014 was € 29.2 million including the French CVAE tax, with a profit before tax of € 108.4 million. The annualized Effective Tax Rate (ETR) of 26.3% adjusted for tax discrete items led to an ETR of 27.0%. C.3.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. They amounted to € 0.8 million in June 2014 (compared to € -1.4 million in June 2013). 26/71 C.3.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was almost stable at € 173.5 million, representing 4.2% of Group revenues of the period, up +20bp compared to last year. (in € million)6 months ended 30 June20146 months ended 30 June2013Net income - Attributable to owners of the parent76.4116.3Other operating income and expenses(145.2)(87.4)Tax effect on other operating income and expenses47.427.3Other unusual items on tax0.72.7Total unusual items – Net of tax(97.1)(57.4)Normalized net income - Attributable to owners of the parent 173.5173.7 C.3.1.7 Half year Earning Per Share (in € million)6 months ended 30 June2014% Margin6 months ended 30 June2013% MarginNetincome–Attributabletoownersof the parent [a]76.41.8%116.32.7%Impact of dilutive instruments -8.1Netincomerestatedofdilutiveinstruments-Attributabletoownersof the parent [b]76.41.8%124.42.9%Normalizednetincome–Attributableto owners of the parent [c]173.54.2%173.74.0%Impact of dilutive instruments -8.1Normalizednetincomerestatedofdilutiveinstruments-Attributabletoowners of the parent [d]173.54.2%181.84.2%Average number of shares [e] 98,809,813 85,741,350 Impact of dilutive instruments 1,555,170 12,849,350 Diluted average number of shares [f] 100,364,983 98,590,700 (In €)Basic EPS [a] / [e]0.771.36Diluted EPS [b] / [f]0.761.26Normalized basic EPS [c] / [e]1.762.03Normalized diluted EPS [d] / [f]1.731.84 Potential dilutive instruments comprised stock subscription (equivalent to 1,555,170 options) and did not generate a restatement of net income used for the diluted EPS calculation. 27/71 C.3.2 Cash Flow and net cash The Group reported a net cash position of € 216.7 million at the end of June 2014, thus representing a decrease of € 141.9 million compared to June 2013. The net cash position at the end of June 2014 did not include the € 551.2 million cash proceeds net of fees related to the disposal of 16.8% Wordline SA shares by Atos SE and the capital increase of Worldline SA. Such cash proceeds were received on July 1, 2014. (in € million)6 months ended 30 June20146 months ended 30 June2013Operating Margin before Depreciation and Amortization (OMDA)400.7380.9Capital expenditures(154.5)(169.8)Change in working capital requirement31.363.3Cash From Operation (CFO)277.5274.4Reorganization in other operating income (70.8)(59.8)Rationalization & associated costs in other operating income (19.1)(27.4)Integration and acquisition costs(7.1)(10.4)Net financial investments *(1.6)2.6Taxes paid(74.8)(36.9)Net cost of financial debt paid(6.1)(17.4)Profit sharing amounts payable transferred to debt(1.0)(2.6)Other changes **26.835.3Free Cash Flow (FCF)123.8157.8Net (acquisitions) / disposals(20.1)-Restrictive cash for planned Bull acquisition(628.3)-Group share buy-back program(138.7)-Dividends paid to owners of the parent(38.3)(17.3)Change in net cash /(debt)(701.6)140.5Opening net cash /(debt)905.4232.1Change in net cash / (debt)(701.6)140.5Impact of foreign exchange rate fluctuation on net Cash / (Debt) 12.9(14.0)Closing net cash /(debt)216.7358.6**"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationcostsandacquisitioncosts),dividendspaidtonon-controllinginterests,salesoftreasuryshares&commonstockissuesfollowingemployeesexerciseofstockoptionsandotherfinancial items with cash impact.* Net Long term financial investments excluding acquisitions and disposals. Free cash flow represented by the change in net cash or net debt, excluding equity changes, dividends paid to shareholders and net acquisitions and disposals, reached € 123.8 million compared with € 157.8 million during the six months ended June 30, 2013. Cash From Operations (CFO) amounted to € 277.5 million and increased by € 3.1 million compared to last year and coming from the following items: OMDA (€ +19.8 million), Change in working capital requirement (€ -32.0 million). Lower capital expenditures (€ +15.3 million), 28/71 OMDA of € 400.7 million, representing an increase of € +19.8 million compared to June 2013, reached 9.6% of revenues against 8.9% of revenues in June 2013. The breakdown of operating margin to OMDA was as follows: (in € million)6 months ended 30 June20146 months ended 30 June2013Operating margin274.6279.0 + Depreciation of fixed assets149.0165.9 + Net book value of assets sold / written off9.18.9 + Charge for equity-based compensation9.35.7+/- Net charge / (release) of pension provisions(12.7)(39.9)+/- Net charge / (release) of provisions(28.6)(38.7)OMDA400.7380.9 Capital expenditures amounted to € 154.5 million or 3.7% of revenue slightly below the level of the first half of 2013 at 4.0%. Main changes came from Germany (€ 35.3 million) and the United Kingdom (€ 24.6 million) further to the implementation of large BPO and Management Services contracts, and from Worldline (€ 31.0 million) with a significant portion related to capitalized cost linked to the modernization of current technological platforms. The positive change in working capital requirement was € 31.3 million (compared to € 63.3 million in June 2013). The DSO ratio reached 45 days at the end of June 2014 compared to 44 days at the end of June 2013. DSO has been positively impacted by the implementation of financial arrangements on large customer contracts by 11 days compared to 7 days in June 2013. The DPO was 94 days as of June 2014 compared to 84 days at the end of June 2013 thanks to the global purchasing plan reducing the number of suppliers in exchange of more favorable payments terms. Cash out related to taxes paid reached € 74.8 million and was higher than last year by € 37.9 million. The increase in tax cash out corresponded to deferred tax payments of previous periods which have become due in the first half of 2014 principally in Germany for € 23.8 million and Worldline Belgium for € 8.9 million. The € 6.1 million cost of net debt decreased by € 11.3 million compared to the first half of 2013 including the following elements: an average expense rate of 2.45% on the average gross borrowings compared to 4.62% in 2013 (this decrease is mainly due to the conversion of all convertible bonds) and, an average income rate of 0.64% on the average net cash compared to 0.55% in 2013. Cash outflow linked to reorganization costs represented € 70.8 million. Main GBUs impacted were France, Benelux & The Nordics, Germany, CEE and United Kingdom & Ireland. Rationalization and associated costs of € 19.1 million result from the closure of premises and datacenters as part of the Group real estate optimization plan. The main GBUs involved were Germany, Benelux & The Nordics, CEE and United Kingdom & Ireland. Other changes of € 26.8 million mainly corresponded to: Sale of treasury stock and issuance of common stock following employees exercise of stock options for € 57.2 million; Other operating expenses for € -16.4 million of which an expense for € 10.5 million related to DWP-MSA contract loss and € 5.5 million of transaction services costs incurred for the unsuccessful Nets acquisition project; Other financial expenses for € -12.8 million; and Dividends paid to non-controlling interests for € -1.2 million. As a result, the Group free cash flow (FCF) generated during the first half 2014 was € 123.8 million. The net debt impact resulting from net acquisitions/disposals corresponded to the acquisition of Cambridge Technology Partners in CEE for € 20.1 million (including € 5.8 million of net cash). 29/71 The restrictive cash for the planned Bull acquisition of 100% of all shares and share based instruments amounts to € 628.3 million. During the first half of 2014, the Group repurchased Atos’ shares for € 138.7 million as part of the Group share buy-back program and the liquidity contract. In the first half of 2014, dividends paid to owners of the parent amounted to € 69.1 million (€ 0.70 per share) of which € 38.3 million cashed out and € 30.8 million through the issuance of new shares. Foreign exchange rate fluctuation which is determined on debt or cash exposure by country represented an increase in net cash of € 12.9 million mainly coming from the change of Euro against British Pound for € 10.1 million. C.3.3 Parent company results The profit before tax of the parent company amounts to € 60.4 million for the end of June 2014, compared with € 7.0 million for the first semester 2013. 30/71 C.4 Interim condensed consolidated financial statements C.4.1 Interim consolidated income statement (in € million)Notes6 months ended 30 June20146 months ended 30 June201312 months ended 31 December 2013Revenue Note 24,176.34,290.08,614.6Personnel expensesNote 3(2,215.9)(2,277.2)(4,445.9)Operating expensesNote 4(1,685.8)(1,733.8)(3,523.5)Operating margin274.6279.0645.2% of revenue6.6%6.5%7.5%OtheroperatingincomeandexpensesNote 5(145.2)(87.4)(228.5)Operating income129.4191.6416.7% of revenue3.1%4.5%4.8%Net cost of financial debt(6.1)(17.4)(30.9)Other financial expenses(54.8)(26.7)(68.3)Other financial income39.921.636.5Net financial incomeNote 6(21.0)(22.5)(62.7)Net income before tax108.4169.1354.0Tax chargeNote 7(29.2)(53.4)(95.9)Shareofnetprofit/(loss)ofassociates(2.0)(0.8)1.5Net income77.2114.9259.6Of which:-attributabletoownersoftheparent76.4116.3261.6- non-controlling interests0.8(1.4)(2.0)(in € and number of shares)Netincome-Attributabletoowners of the parentNote 8Weightedaveragenumberofshares 98,809,81385,741,35087,805,661Basic earnings per share0.771.362.98Dilutedweightedaveragenumberof shares 100,364,98398,590,70099,336,179Diluted earnings per share0.761.262.77 31/71 C.4.2 Interim consolidated statement of comprehensive income (in € million)6 months ended 30 June20146 months ended 30 June201312 months ended 31 December 2013Net income 77.2114.9259.6Other comprehensive income43.5(44.0)(68.3)Cash flow hedging 10.8(3.1)(0.1)35.4(43.6)(69.8)(2.7)2.71.6(62.6)(2.5)(92.1)(88.5)(3.2)(108.8)25.90.716.7Total other comprehensive income(19.1)(46.5)(160.4)58.168.499.2Of which:- attributable to owners of the parent57.369.8101.2- non-controlling interests0.8(1.4)(2.0)Exchangedifferencesontranslationofforeign operationsDeferred tax on items recyclable recognized directly on equity - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable):Actuarial gains and losses generated in the period on defined benefit planDeferred tax on items non-recyclable recognized directly on equityTotal comprehensive income for the period 32/71 C.4.3 Interim consolidated statement of financial position (in € million)Notes30June 201431December 201330June 2013ASSETSGoodwillNote 91,960.41,915.71,917.8Intangible assets436.1445.4450.4Tangible assets622.6619.0634.8Non-current financial assetsNote 101,098.4376.5409.4Non-current financial instruments1.60.31.9Deferred tax assets428.1336.5411.1Total non-current assets4,547.23,693.43,825.4Trade accounts and notes receivablesNote 111,751.41,722.51,865.8Current taxes118.423.767.0Other current assetsNote 121,117.6437.3482.2Current financial instruments7.919.17.0Cash and cash equivalentsNote 13922.21,306.21,230.8Total current assets3,917.53,508.83,652.8Total assets8,464.77,202.27,478.2(in € million)30June 201431December 201330June 2013LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock100.298.187.1Additional paid-in capital2,471.12,385.11,899.0Consolidated retained earnings869.9350.1478.1Translation adjustments(150.3)(185.7)(159.6)Netincomeattributabletotheowners of the parent76.4261.6116.3Equityattributabletotheownersof the parent3,367.32,909.22,420.9Non-controlling interests181.830.023.5Total shareholders’ equity3,549.12,939.22,444.4Provisionsforpensionsandsimilar benefitsNote 14795.0723.1743.3Non-current provisionsNote 1580.0108.9125.1Borrowings606.0307.3763.1Deferred tax liabilities217.0147.5244.7Non-current financial instruments5.76.810.0Other non-current liabilities8.99.510.1Total non-current liabilities1,712.61,303.11,896.3TradeaccountsandnotespayablesNote 171,233.21,055.61,112.1Current taxes136.980.2142.6Current provisionsNote 15199.7193.5175.3Current financial instruments0.525.913.0Current portion of borrowings99.593.5109.0Other current liabilities1,533.21,511.21,585.5Total current liabilities3,203.02,959.93,137.5Total liabilities and shareholders’ equity8,464.77,202.27,478.2 33/71 C.4.4 Interim consolidated cash flow statement (in € million)Notes6 months ended 30 June20146 months ended 30 June201312 months ended 31 December 2013Profit before tax108.4169.1354.0Depreciation of assetsNote 4149.0165.9329.1Net charge / (release) to operating provisions(41.4)(78.5)(145.1)Net charge / (release) to financial provisions7.66.916.9Net charge / (release) to other operating provisions9.3(18.5)(38.0)Customer relationships amortization (PPA)22.122.044.3Losses / (gains) on disposals of fixed assets6.9(13.1)(12.7)Net charge for equity-based compensation9.35.716.7Losses / (gains) on financial instruments(5.3)(0.1)2.5Net cost of financial debtNote 66.117.430.9Cash from operating activities before change in working capital requirement, financial interest and taxes272.0276.8598.6Taxes paid(74.8)(36.9)(96.7)Change in working capital requirement31.363.3111.2Net cash from/ (used in) operating activities228.5303.2613.1Payment for tangible and intangible assets(154.5)(169.8)(340.0)Proceeds from disposals of tangible and intangible assets2.623.834.5Net operating investments(151.9)(146.0)(305.5)Amounts paid / received for acquisitions and long-term investments (669.1)(4.7)(28.0)Cash and cash equivalents of companies purchased during the period5.8 - 2.5Proceeds from disposals of financial investments18.27.37.3Dividend received from entities consolidated by equity method- - 2.4Net long-term investmentsNote 18(645.1)2.6(15.8)Net cash from/ (used in) investing activities (797.0)(143.4)(321.3)Common stock issues on the exercise of equity-based compensation57.223.898.1Capital increase subscribed by non-controlling interests- - 13.0Portion of convertible bonds- - (2.0)Purchase and sale of treasury stock(138.7) - (115.8)Dividends paid to owners of the parent(38.3)(17.3)(17.3)Dividends paid to non-controlling interest(1.2)(5.7)(6.0)Payment for acquisition of non controlling interests--(1.6)New borrowingsNote 16305.212.88.2New finance leaseNote 16(0.1)1.92.2Repayment of long and medium-term borrowingsNote 16(4.1)(6.9)(37.8)Net cost of financial debt paid(6.1)(15.1)(19.9)Other flows related to financing activities(4.6)(56.6)(58.6)Net cash from/ (used in) financing activities169.3(63.1)(137.5)Increase/ (decrease) in net cash and cash equivalents(399.2)96.7154.3Opening net cash and cash equivalents1,238.31,109.61,109.6Increase/ (decrease) in net cash and cash equivalentsNote 16(399.2)96.7154.3Impact of exchange rate fluctuations on cash and cash equivalents16.5(17.4)(25.6)Closing net cash and cash equivalentsNote 18855.61,188.91,238.3 34/71 C.4.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At January 1, 2013 85,70385.71,842.5312.8(116.0)(10.1)223.82,338.730.82,369.5* Common stock issued 1,4081.456.5(34.1)23.823.8* Appropriation of prior period net income223.8(223.8) - - * Dividends paid to non-controlling interests(17.3)(17.3)(5.7)(23.0)* Equity-based compensation5.75.75.7* Other0.20.2(0.2)-Transactions with owners1,4081.456.5178.3 - - (223.8)12.4(5.9)6.5* Net income 116.3116.3(1.4)114.9* Other Comprehensive income(2.5)(43.6)(0.4)(46.5)(46.5)Total comprehensive income for the period(2.5)(43.6)(0.4)116.369.8(1.4)68.4At June 30, 201387,11187.11,899.0488.6(159.6)(10.5)116.32,420.923.52,444.4* Common stock issued 11,05511.0486.10.1497.2497.2* Dividends paid to non-controlling interests - - (0.3)(0.3)* Equity-based compensation11.011.011.0* Changes in auto-control shares(33.9)(33.9)(33.9)* Equity portion of compound instrument (23.8)(23.8)(23.8)* Other6.36.37.513.8Transactions with owners11,055.011.0486.1(40.3) - - - 456.87.2464.0* Net income 145.3145.3(0.6)144.7* Other Comprehensive income(89.6)(26.1)1.9(113.8)(0.1)(113.9)Total comprehensive income for the period(89.6)(26.1)1.9145.331.5(0.7)30.8At December 31, 201398,16698.12,385.1358.7(185.7)(8.6)261.62,909.230.02,939.2* Common stock issued 2,0972.186.0(30.8)57.357.3* Appropriation of prior period net income261.6(261.6) - - * Dividends paid to non-controlling (38.3)(38.3)(1.2)(39.5)* Equity-based compensation9.39.39.3* Changes in auto-control shares and treasury stock(25.7)(25.7)(25.7)* Worldline IPO impact398.6398.6152.2550.8* Other(0.4)(0.4)(0.4)Transactions with owners2,0972.186.0574.3 - - (261.6)400.8151.0551.8* Net income 76.476.40.877.2* Other Comprehensive income(62.6)35.48.1(19.1)(19.1)Total comprehensive income for the period(62.6)35.48.176.457.30.858.1At June 30, 2014100,263100.22,471.1870.4(150.3)(0.5)76.43,367.3181.83,549.1(in € million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests 35/71 C.4.6 Appendices to the interim condensed consolidated financial statements C.4.6.1 Basis of preparation The 2014 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at June 30, 2014. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). Those standards and interpretations can be found at: http://ec.europa.eu/internal_market/accounting/ias/index_en.htm The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the December 31, 2013 financial statements and disclosed in the Group’s 2013 Reference Document. The interim consolidated financial statements for the six months ended June 30, 2014 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2013. The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on or after January 1, 2014: Amendments IFRS 10, 11, 12 – Transition Guidance; Amendments IFRS 10, 12 and IAS 27 - Investment Entities; Amendments IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting. IAS 32 (revised) – Offsetting Financial Assets and Financial liabilities; IAS 36 (revised) - Disclosures - Recoverable Amount for Non-Financial Assets; IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IAS 27 (revised) - Separate Financial Statements; IAS 28 (revised) - Investments in Associates and Joint Ventures; The impact of those changes in standards and interpretations on the Group’s consolidated financial statements is limited. The consolidated financial statements do not take into account: Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB); New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: o o o Annual improvements — 2010-2012 cycle; o Annual improvements — 2011-2013 cycle; o Amendments IAS 19 – Defined benefit plans: employee contributions; o o Amendments IFRS 11 – Accounting for acquisitions of interests in joint operations; o Amendments IAS 16 and IAS 38 – clarification of acceptable methods of depreciation and IFRS 9 - Financial Instruments (replacement of IAS 39); IFRIC 21 – Levies; IFRS 14- Regulatory Deferral Accounts; amortization. The potential impact of these standards, amendments and interpretations on the consolidated financial statements is currently being assessed. These consolidated financial statements are presented in euro, which is the Group’s functional currency. All figures are presented in € millions with one decimal. 36/71 The policies set out below have been applied in consistency with all years presented. C.4.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS19 revised, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. Benefit plans costs are recognized in the Group’s operating income, except for net interest on the net defined benefit liability (asset) which is recognized in “other financial income and expenses”. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. C.4.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation In the context of the initial public offering of Worldline (IPO), Atos SE has sold existing shares on the regulated market of Euronext Paris (Compartment A; ISIN Code: FR0011981968; ticker: WLN). The gross proceeds from the French public offering and the international offering amount to a total of € 574.7 million (before any exercise of the over-allotment option), including € 255.0 million of new shares (i.e. 15,548,780 new shares) and € 319.7 million of existing shares (i.e. 19,492,013 existing shares) sold by Atos SE. Worldline’s shares started to be traded on June 27, 2014 and the delivery occurred only on July 1. The six-month ended June 30, 2014 financial statements of Atos reflect the consequences of the IPO except for the over-allotment option. As Atos maintained control over Worldline after the IPO, the net disposal result of the existing shares owned by Atos SE, as well as the proceed from the sale of new shares issued resulting from a capital increase of Worldline is shown in Atos equity. 37/71 Equity impacts are summarized as follows: (in € million)30 June 2014Sale price of shares sold by Atos SE319.7Accumulated reserves53.9Proceeds from the sales of existing shares265.8IPO transaction costs(8.1)Proceeds from the sales of new shares184.2Dilution loss(31.6)Result in Equity410.3Tax impact(11.7)Net result in Equity398.6 First, Atos has sold 19,492,013 of existing Worldline shares for € 16.4 per share which led to the recognition of € 319.7 million of proceeds which were reduced by the accumulated reserves in Atos books for € 53.9 million and by some IPO costs totaling € 8.1 million. Secondly, Worldline issued 15,548,780 of new shares in June at € 16.4 generating proceeds net of fees of € 251.0 million and recorded minority interests for € 66.8 million. Finally, a € -31.6 million loss due to a dilution of 9.8% in Worldline was also recorded in equity. Since January 1, 2014, there has been no significant change of scope other than the dilution in Worldline. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. 38/71 The chief operating decision maker decided to reorganize as per the operating segments detailed here below: Operating segments United Kingdom & Ireland Consulting & Systems Integration and Managed Services in Ireland Activities Germany Benelux & The Nordics (BTN) France Central & Eastern Europe (CEE) North America Iberia Other Countries Worldline and the United Kingdom. Consulting & Systems Integration and Managed Services in Germany. Consulting & Systems Integration and Managed Services in Belgium, Denmark, Estonia, Finland & Baltics, Luxembourg, Sweden and The Netherlands. Consulting & Systems Integration and Managed Services in France. Consulting & Systems Integration and Managed Services in Austria, Bulgaria, Croatia, Czech Republic, Hungary, Italy, Poland, Romania, Russia, Serbia, Slovakia, Switzerland and Turkey. Consulting & Systems Integration and Managed Services in Canada and United States of America. Consulting & Systems Integration and Managed Services in Andorra, Portugal and Spain. Consulting & Systems Integration and Managed Services in Argentina, Australia, Brazil, China, Colombia, Egypt, Hong-Kong, India, Japan, Malaysia, Mexico, Morocco, New Zealand, Philippines, Qatar, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, UAE, and also Major Events activities. Hi-Tech Transactional Services & Specialized Businesses in Argentina, Austria, Belgium, Chile, China, France, Germany, Hong- Kong, Iberia, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, The Netherlands and the United Kingdom. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from each external contract amounted to less than 10% of the Group’s revenue. In 2013, in order to further improve the operational efficiency of the Group, the chief operating decision maker has decided to make the following adaptations in the Group organization: The GBU North & South West Europe (N&SWE) was split between i) Nordic countries transferred to the newly called Benelux & The Nordics GBU (BTN) and ii) Switzerland and Italy transferred to Central & Eastern Europe GBU (CEE), The entity Atos Worldline Financial Markets (AWFM) was transferred under the management of the France GBU. In terms of Service Line, AWFM is part of Systems Integration, and The Atos Worldgrid entity, formerly part of the segment “Other countries”, is now reported in the corresponding GBUs (France, Italy, Spain, Germany and APAC). In terms of Service Line, Atos Worldgrid is part of Systems Integration. As of June 2013, the carve-out of the Worldline business was not completed. As it would have been impracticable to reflect such carve-out in the six-month period ended June 30, 2013 consolidated financial statements of Atos, the segment information hereafter for this period presents the old scope of Worldline. 39/71 The changes compared to 2013 segments organization are summarized here below: Operating segments in 2013 N&SWE Atos Worldgrid Bridge Denmark, Sweden & Finland & the Nordics Italy & Switzerland Atos Worldgrid Germany Atos Worldgrid Spain Atos Worldgrid Italy Atos Worldgrid China Atos Worldgrid France Operating segments in 2014 BTN CEE Germany Iberia CEE Other Countries France The change in internal management reporting is applied retrospectively and comparative figures are restated. 40/71 The operating segment information for the periods is as follows: 6 months ended 30 June 2013 United Kingdom and IrelandGermanyBTNFranceCentral and Eastern EuropeNorth AmericaIberiaOther countriesWorldlineTotal Operating segmentsOther CorporateEliminationExternal revenue by segment812.4784.0499.9505.0388.3291.7145.7214.1535.24,176.34,176.3%19.5%18.8%12.0%12.1%9.3%7.0%3.5%5.1%12.8%100.0%100.0%Inter-segment revenue35.896.249.536.369.913.611.6119.321.2453.4(453.4) - Total revenue 848.2880.2549.4541.3458.2305.3157.3333.4556.44,629.7-(453.4)4,176.3Segment operating margin 54.452.050.51.132.822.93.420.180.0317.2(42.6)274.6%6.7%6.6%10.1%0.2%8.4%7.9%2.3%9.4%14.9%7.6%6.6%Total segment assets 939.7 838.0 927.8 601.5 507.2 189.7 201.9 514.5 1,196.8 5,917.1 1,078.9 6,996.0 External revenue by segment833.4809.0548.0537.6419.6311.8163.6251.0416.04,290.04,290.0%19.4%18.9%12.8%12.5%9.8%7.3%3.8%5.9%9.7%100.0%100.0%Inter-segment revenue16.486.442.733.660.912.26.6112.513.6385.056.7(441.7)-Total revenue 849.8895.4590.7571.2480.5324.0170.2363.5429.74,675.056.7(441.7)4,290.0Segment operating margin 64.452.749.511.831.624.53.522.672.6333.3(54.3)279.0%7.7%6.5%9.0%2.2%7.5%7.9%2.1%9.0%17.5%7.8%6.5%Total segment assets1,012.2894.0917.7656.5550.5212.5210.5508.6706.65,669.2100.15,769.3(in € million)(in € million)Total Group6 months ended 30 June 2014 41/71 The reportable assets are reconciled to total assets as follows: Total segment assets6,996.05,769.3Current & deferred tax Assets546.5478.1Cash & Cash Equivalents922.21,230.8Total Assets8,464.77,478.230June 2013(in € million)30June 2014 Note 3 Personnel expenses (in € million)6 months ended 30 June2014% Revenue6 months ended 30 June2013% RevenueWages and salaries (1,739.8)41.7%(1,803.0)42.0%Social security charges(461.0)11.0%(476.0)11.1%Tax, training, profit-sharing(17.3)0.4%(30.4)0.7%Equity-based compensation(9.3)0.2%(5.7)0.1%Net (charge) /release to provisions for staff expenses(1.3)0.0%(2.0)0.0%Difference between pension contributions and net pension expense (*)12.8-0.3%39.9-0.9%Total(2,215.9)53.1%(2,277.2)53.1%(*) Difference between total cash contributions made to the pension funds and the net pension expense under IAS19R. 42/71 Note 4 Operating expenses (in € million)6 months ended 30 June2014% Revenue6 months ended 30 June2013% RevenueSubcontracting costs direct(587.1)14.1%(641.5)15.0%Purchase hardware and software(226.3)5.4%(206.2)4.8%Maintenance costs(200.5)4.8%(194.9)4.5%Rent & Lease expenses(141.5)3.4%(149.8)3.5%Telecom costs(143.7)3.4%(142.9)3.3%Travelling expenses(73.1)1.8%(84.9)2.0%Company cars(45.8)1.1%(50.4)1.2%Professional fees (73.0)1.7%(83.6)1.9%Taxes & Similar expenses(17.9)0.4%(17.6)0.4%Others expenses(71.3)1.7%(62.9)1.5%Subtotal expenses (1,580.3)37.8%(1,634.7)38.1%Depreciation of fixed assets(149.0)3.6%(165.9)3.9%Net (charge) / release to provisions29.9-0.7%40.6-0.9%Gains / (Losses) on disposal of assets(6.5)0.2%(6.1)0.1%Trade Receivables write-off(11.4)0.3%(4.2)0.1%Capitalized Production31.5-0.8%36.5-0.9%Subtotal other expenses(105.5)2.5%(99.1)2.3%Total(1,685.8)40.4%(1,733.8)40.4% Note 5 Other operating income and expenses (in € million)6 months ended 30 June20146 months ended 30 June2013Staff reorganization(81.7)(48.3)Rationalization and associated costs(22.5)(21.2)Integration costs and acquisition costs(7.1)(10.4)Customer relationships amortization (PPA) *(22.1)(22.0)Other items(11.8)14.5Total(145.2)(87.4)* Purchase Price Allocation. The € 81.7 million staff reorganization expense was mainly the consequence of: a restructuring plan in Germany agreed with the Unions in June 2014 for the employees located in AIT Frankfurt further to a bundle of economic reasons especially due to the termination of several local contracts at AIT Frankfurt; the adaptation of the Group workforce in several countries such as Benelux & The Nordics, Iberia, United Kingdom, and Germany; the streamlining of middle management layers, including Global Structures. The € 22.5 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation, mainly in Germany (€ 5.7 million) and Benelux & The Nordics (€ 2.9 million), linked to restructuring plans. This amount also includes external costs for the implementation of Worldline’s TEAM Program (€ 2.4 million). 43/71 The € 7.1 million integration and acquisition costs represented mainly remaining costs for the migration and the standardization of internal IT platforms. The € 11.8 million expense in other items corresponded mainly to fees related to € 5.5 million of transaction services costs incurred for the unsuccessful Nets acquisition project and additional € 4.5 million provisions for the DWP-MSA contract loss after the settlement signed during the period. Note 6 Net financial income Net financial expense amounted to € 21.0 million for the period (compared with € 22.5 million last year) and was composed of a net cost of financial debt of € 6.1 million and non-operational financial costs of € 14.9 million. Net cost of financial debt (in € million)6 months ended 30 June20146 months ended 30 June2013Net interest expenses(4.1)(15.1)Interest on obligations under finance leases(0.3)(0.4)Gain/(loss) on disposal of cash equivalents0.1-Gain/(loss) on interest rate hedges of financial debt (1.8)(1.9)Net cost of financial debt(6.1)(17.4) The cost of net debt of € 6.1 million decreased by € 11.3 million compared to the first half of 2013 including the following elements: an average expense rate of 2.45% on the average gross borrowings compared to 4.62% in 2013 (this decrease is mainly due to the reimbursements of the convertible bonds) and, an average income rate of 0.64% on the average net cash compared to 0.55% in 2013. Other financial income and expenses (in € million)6 months ended 30 June20146 months ended 30 June2013Foreign exchange income / (expenses) (5.9)0.2Fair value gain/(loss) on forward exchange contracts held for trading2.31.2Discounting financial income / (expenses) (0.5)-Other income / (expenses) (10.8)(6.5)Other financial income and expenses(14.9)(5.1)Of which:- other financial expenses(54.8)(26.7)- other financial income39.921.6 Non-operational financial costs amounted to € 14.9 million compared to € 5.1 million in June 2013 and mainly consisted of pension financial related costs (€ 7.0 million compared to € 6.6 million in 2013), net foreign exchange expense (€ 3.7 million compared to a net foreign exchange gain of € 0.9 million in 2013), and other expenses for € 4.0 million (including € 2.2 million for financing of receivables). The pension financial related costs represent the difference between interest costs on defined benefit obligations and the interest income on plan assets for plans which are funded. 44/71 Note 7 Income tax expenses The tax charge for the six-month period ended June 30, 2014 was € 29.2 million including the French CVAE tax, with a profit before tax of € 108.4 million. The annualized Effective Tax Rate (ETR) of 26.3% adjusted for tax discrete items led to an ETR of 27.0%. Note 8 Earnings per share Potential dilutive instruments comprised stock subscription (equivalent to 1,555,170 options) and did not generate a restatement of net income used for the diluted EPS calculation. The average number of stock options not exercised in June 2014 amounted to 3,178,504 shares. (in € million and shares)6 months ended 30 June20146 months ended 30 June2013Net income - Attributable to owners of the parent [a]76.4116.3Impact of dilutive instruments -8.1Net income restated of dilutive instruments - Attributable to owners of the parent [b]76.4124.4Average number of shares outstanding [c] 98,809,813 85,741,350 Impact of dilutive instruments [d] 1,555,170 12,849,350 Diluted average number of shares [e]=[c]+[d] 100,364,983 98,590,700 Earnings per share in € [a]/[c]0.771.36Diluted earnings per share in € [b]/[e]0.761.26 Note 9 Goodwill (in € million)31 December 2013Impact of business combi-nationExchange rate fluctuations30June 2014Gross value2,486.719.537.42,543.6Impairment loss(571.0)-(12.2)(583.2)Carrying amount1,915.719.525.21,960.4 During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event, even on the CGUs considered “sensitive” as of June 30, 2014. Note 10 Non-current financial assets (in € million)30June 201431 December 2013Pension prepaymentsNote 14419.0325.0Restrictive cash for planned Bull acquisition628.3-Other (*)51.151.5Total1,098.4376.5(*)"Other"includeloans,deposits,guarantees,investmentsinassociatesaccountedforundertheequitymethod and non consolidated investments excluding "Restrictive cash for planned Bull acquisition". 45/71 Note 11 Trade accounts and notes receivable (in € million)30June 201431 December 2013Gross value1,849.51,820.2Transition costs6.08.4Provision for doubtful debts(104.1)(106.1)Net asset value1,751.41,722.5Prepayments(48.0)(67.3)Deferred income and upfront payments received(361.6)(368.3)Net accounts receivable 1,341.81,286.9Number of days’ sales outstanding (DSO)4540 Atos securitization program of trade receivables has been renewed for 5 years on June 18, 2013 with a maximum amount of receivables sold of € 500.0 million and a maximum amount of financing of € 200.0 million. The new program is structured with two compartments, called ON and OFF: Compartment “ON” is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level; Compartment “OFF” is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution. As of June 30, 2014, the Group has sold: In the compartment “ON” € 309.6 million receivables for which € 10.0 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet; In the compartment “OFF” € 41.1 million receivables which qualify for de-recognition as substantially all risks and rewards associated with the receivables were transferred. Note 12 Other current assets (in € million)30June201431 December 2013Inventories16.117.3State - VAT receivables110.498.3Prepaid expenses215.3154.8Other receivables & current assets771.6155.6Advance payment4.211.3Total1,117.6437.3 Other assets at the end of June 2014 included the € 551.2 million expected cash proceeds net of fees for: € 300.2 million from the disposal of 16.8% Worldline SA shares by Atos SE; € 251.0 million from the Worldline SA capital increase net of fees that took place in June 27, 2014. Such proceeds were cashed in on July 1, 2014. 46/71 Note 13 Cash and cash equivalents (in € million)30June 201431 December 2013Cash in hand and short-term bank deposit596.7553.0Money market funds 325.5753.2Total922.21,306.2 Depending on market conditions and short-term cash flow expectation, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 14 Pensions The net total amount recognized in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is € 376.0 million. The measurement of the liabilities is highly sensitive to long term interest rates, which are the basis of the discount rate to be used under IAS19R. Reference discount rates for the Eurozone and Switzerland have changed significantly since December 31, 2013, therefore plan liabilities and plan assets for major plans in these regions have been remeasured per June 30. The following discount rates have been used: Euro zone (long duration plans) Euro Zone (other plans) United Kingdom 30 June 2014 3.10% 2.70% 4.60% 31 December 2013 3.70% 3.30% 4.60% The development of pension provisions over the half year is therefore as follows: (in € million)30June201431 December 2013Amounts recognized in financial statements consist of :Prepaid pension asset – post employment plans419.0325.0Accruedliabilitypost-employmentplansandotherlongtermbenefit plans(795.0)(723.1)Net amount recognized – Total(376.0)(398.1) The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (in € million)6 months ended 30 June 20146 months ended 30 June 2013Operating margin(28.3)(22.4)Other operating items(1.0)0.3Financial result(7.0)(6.6)Total (expense)/profit(36.3)(28.7) 47/71 Opening and closing positions reconcile as follows: (in € million)30June2014Net amount recognized at the beginning of period:(398.1)Net periodic pension cost(36.3)Benefits paid / Employer contributions154.4Business combinations / (disposals)(1.8)Amounts recognized in Other Comprenhensive Income(88.5)Exchange rate impact and other(5.7)Net amount recognized at the end of period(376.0) Note 15 Provisions (in € million)31 December 2013ChargeRelease usedRelease unusedOther (*)30June2014CurrentNon- currentReorganization58.045.8(31.2)(3.3)-69.367.91.4Rationalization42.32.5(7.1)(1.0)3.440.113.426.7Project commitments117.827.0(35.6)(14.3)1.296.176.619.5Litigations and contingencies84.37.0(2.9)(12.9)(1.3)74.241.832.4Total provisions302.482.3(76.8)(31.5)3.3279.7199.780.0(*) Other movements mainly consist of the currency translation adjustments and impacts of changes in scope of consolidation. 48/71 Note 16 Borrowings Change in net debt over the period (in € million)30June2014Opening net cash / (debt)905.4(305.2)4.1(399.2)0.1(4.9)12.9(1.0)Other flows related to financing activities4.5Closing net cash / (debt)216.7Profit-sharing amounts payable to French employees transferred to debtNew finance leases Long and medium-term debt of companies acquired during the periodNew borrowingsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debt Tangible assets held under finance leases had a net carrying value of € 5.5 million. Note 17 Trade accounts and notes payable (in € million)30June 201431 December 2013Trade payables and notes payable1,232.51,054.8Amounts payable on tangible assets0.70.8Trade payables and notes payable1,233.21,055.6Net advance payments(4.2)(11.3)Prepaid expenses(215.3)(154.8)Net accounts payable1,013.7889.5Number of days’ payable outstanding (DPO)9482 Trade accounts and notes payable are expected to be paid within one year. 49/71 Note 18 Cash flow statements Net long-term investments (in € million)6 months ended 30 June20146 months ended 30 June201312 months ended 31 December 2013Amountspaidforacquisitionsandlong-terminvestments :Bull (restrictive cash for planned acquisition)(628.3)--Cambridge Technology Partners (CEE)(21.0)--WindowLogic (APAC)--(18.2)Deposit(16.0)(3.8)(4.1)Other(3.8)(0.9)(5.7)Total amounts paid for acquisitions and long-term investments (669.1)(4.7)(28.0)Cashandcashequivalentsofcompaniespurchased during the period:Cambridge Technology Partners (CEE)5.8--WindowLogic (APAC)--2.5Totalcashandcashequivalentsofcompanies purchased during the period5.80.02.5Proceedsfromdisposalsoffinancialinvestments:Deposit16.86.86.8Other1.40.50.5Totalproceedsfromdisposalsoffinancialinvestments18.27.37.3Dividendreceivedfromentitiesconsolidatedby equity method:Dividendreceivedfromentitiesconsolidatedbyequity method--2.4Totaldividendreceivedfromentitiesconsolidated by equity method--2.4Net long-term investments(645.1)2.6(15.8) Net cash and cash equivalents (in € million)30June201431 December2013922.21,306.2(66.6) (67.9)Total net cash and cash equivalents855.61,238.3Cash and cash equivalents Overdrafts Note 19 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 28, 2014. 50/71 Note 20 Subsequent event Over-allotment option The over-allotment option that had been exercised early July ended on July 25 and resulted in the sale of an additional 3,923,452 Worldline shares at a unit price of € 16.4. At the term of this option, Atos had a remaining percentage of interest in Worldline of 70.4%. Bull Following the announcement of Atos intention to acquire Bull on May 26, 2014, Atos launched a public offer targeting all of Bull’s outstanding shares and instruments. This € 4.90 cash offer values Bull’s share capital at c. € 620 million on a fully diluted basis. The offer’s success is subject to reaching a 50% + 1 share threshold of Bull’s share capital and voting rights. The public offering will close on July 31, 2014 and the final results will be communicated on August 18. In case of success, the offer will reopen for 10 days from September 9 to 22, 2014. As a consequence, the final percentage of interest will only been known mid-September. Atos reserves the right to implement a mandatory squeeze-out of the shares and Oceane at the closing of the offer if necessary requirements are met (95% Bull’s share capital). Should this not be the case, Atos is considering other courses of action to be implemented within 12 months of its takeover, such as a subsequent merger or other contribution transactions, the terms of which are still being considered. 51/71 C.5 Statutory Auditors’ report on the half -year financial information for the period ended June 30, 2014 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2014, the verification of the information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information given in the interim management report commenting the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris, July 28, 2014 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Christophe Patrier Victor Amselem 52/71 D CORPORATE GOVERNANCE D.1 Office renewals and appointment of directors The Company’s Combined General Meeting held on May 27, 2014 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the term of office of Directors Ms. Colette Neuville (French citizen) and Messrs. Nicolas Bazire (French citizen), Roland Busch (German citizen) and Michel Paris (French citizen). D.2 Composition of the Board of Directors As of the date of this Update of the Registration Document, the Board of Directors, comprised of 12 persons including 8 independent directors, was the following: Name of the Director Mr Thierry BRETON Mr Nicolas BAZIRE* Mr Jean-Paul BECHAT* Mr Roland BUSCH Ms Jean FLEMING Mr Bertrand MEUNIER* Ms Colette NEUVILLE* Ms Aminata NIANE* Mr Michel PARIS Ms Lynn SHARP PAINE* Mr Pasquale PISTORIO* Mr Vernon SANKEY* * Independent Director Date of first appointment or latest renewal May 30 2012 May 27 2014 May 30 2012 May 27 2014 May 29 2013 May 30 2012 May 27 2014 May 29 2013 May 27 2014 May 29 2013 May 30 2012 May 29 2013 Date of the expiry of the mandate AGM 2015 AGM 2017 AGM 2015 AGM 2017 AGM 2017 AGM 2015 AGM 2017 AGM 2016 AGM 2017 AGM 2016 AGM 2015 AGM 2016 D.3 Executive compensation and stock owners hip D.3.1 Performance shares allocation plan decided on July 28, 2014 In connection with the authorization granted, for thirty-eight months, by the Combined General Meeting of May 29, 2013 (fifteenth resolution), the Board of Directors, during its meeting held on July 28, 2014, and upon the recommendation of the Nomination and Remuneration Committee, decided to proceed with the allocation of 691,000 ordinary performance shares of the Company, to be issued in favor of the first managerial lines of Atos, including the Chairman and Chief Executive Officer. Performance conditions to be achieved over two consecutive years 2014 and 2015 of the new plan relate to yearly internal financial criteria linked to profitability and free cash flow, identical to those of the previous plan of July 24, 2013, but strengthened by adding a revenue growth criteria. As for the July 24, 2013 plan, the plan also provides for an external condition linked to the social and environmental performance of the company. 53/71 The features of the performance share allocation plan are as follows: Condition of attendance: Subject to certain exceptions provided for in the plan, the allocation 1. of performance shares is conditioned on the preservation of employee or corporate officer status by the beneficiary during the vesting period; Performance condition: The allocation of performance shares is also subject to the 2. achievement of the following internal and external performance conditions, calculated for the consecutive years 2014 and 2015: Internal performance conditions For each of the years 2014 and 2015: the Group free cash flow before dividend and acquisition/sales results for the year in question is at least equal to one of the following amounts: (i) 85% of the amount of the Group free cash flow, before dividends and acquisition/sales results, as mentioned in the Company’s budget for the year in question, or (ii) the amount of the Group free cash flow before dividends and acquisition/sales results for the previous year with a 10% increase; the Group operating margin for the year in question is at least equal to one of the following amounts: (i) 85% of the amount of the Group’s operating margin as mentioned in the Company's budget for the year in question, or (ii) the amount of the Group operating margin from the previous year with a 10% increase; Revenue growth for the relevant year is at least equal to one of the two following amounts: (i) Revenue Growth rate as mentioned in the Company’s budget for the year in question -1.2% or (ii) 0% for 2014 and 1% for 2015 per reference to the Group Growth targets communicated in the framework of the 3 year Plan (2014-2016). It being specified that for each year, at least 2 of 3 internal performance criteria must be met, and if one criterion is not met, this criteria becomes compulsory for the following year. External performance condition For 2014, Atos must achieve at least the rating of GRI A (or equivalent); or become part of the European Dow Jones Sustainability Index 2014 (Europe or World); and For 2015, Atos must achieve at least the rating of GRI A (or equivalent); or become part of the European Dow Jones Sustainability Index 2015 (Europe or World) External performance criteria should be met every year. 54/71 3. Acquisition and conservation periods: The allocation of performance shares decided by the Board of Directors of Atos SE dated July 28, 2014 consists of two plans (France and International). Either plan applies depending on whether the beneficiary is an employee of a group entity located in France or abroad. Plan France: Beneficiaries of performance shares will definitively acquire the performance shares allocated to them on the second anniversary of the allocation date, it being stipulated that these will further be subject to the aforementioned condition of attendance, subject to certain exceptions stated in the plan; the beneficiaries will also be required to retain the shares thus acquired for a period of two years following this date. The Chairman and Chief Executive Officer is a Plan France beneficiary. Plan International: Beneficiaries of performance shares who are employees of companies of the Atos Group with registered office outside France will definitively acquire the performance shares allocated to them on the fourth anniversary of the allocation date, subject to achieving the performance conditions and the aforementioned condition of attendance. The shares thus acquired will not be subject to any conservation obligation and will be immediately available for sale by their beneficiaries. 4. Specific supplementary provisions applicable to the Chairman and Chief Executive Officer: The Board of Directors allocated 46,000 performance shares to the Chairman and Chief Executive Officer. This amount takes into account the recommendations of the AFEP-MEDEF Corporate Governance Code with respect to the Chairman and Chief Executive Officer, as well as his compensation over 3 years as set in the Board of Director's decision of May 30, 2012. In its analysis, the Board of Directors, upon the recommendation of the Nomination and Remuneration Committee, considered the following elements: the allocation of 46,000 performance shares to the Chairman and Chief Executive Officer represents around 6.7% of the total number of allocated shares; the number of shares allocated to the Chairman and Chief Executive Officer represents a security based compensation of around 45% of his total compensation; the conservation obligation, for the duration of his duties, of 15% of performance shares allocated to him will also apply to the Chairman and Chief Executive Officer. D.3.2 Performance shares that have become available since January 1, 2014 for the Chairman and CEO – AMF Table 7 Since January 1, 2014, performance shares granted on December 22nd, 2011, became definitively acquired by their beneficiaries, according to the France Plan Rules. The performance conditions of this Tranche were related to 2013 (Tranche 2). The Atos Chairman and CEO is a beneficiary of this plan. Acquisition terms are described in the 2013 Registration Document in part G.4.3.1. Furthermore, beneficiaries are required to remain owner of their acquired shares for an additional period of two years; the shares will become available for possible sale on March 17, 2016. Plan Date Number of Shares definitively acquired Since 01/01/2014 Vesting Date number of shares available during the Since 01/01/2014 Availability Date Dec-22-11 Tranche 2 Chairman and CEO 32 500 March-17-14 0 March-17-16 55/71 D.3.3 Subscription or purchase options exercised since January 1, 2014 by the Chairman and CEO – AMF Table 5 PLAN 23.12.08 Tranche 1 230,044 18.40 PLAN 23.12.08 Tranche 2 230,043 22.00 PLAN 23.12.08 Tranche 3 29,913 26.40 TOTAL 490,000 Thierry Breton Chairman and CEO Name of the Executive Plan Date (Grant Date) Number of options exercised since 01/01/2014 Exercise price in euros Further to these operations, the Chairman and CEO holds 336,914 shares resulting from the exercise of options. In addition, he possesses 65,000 performance shares (Performance shares plan granted on December 22, 2011) that will become available for possible sale on December 22, 2015 for 50% and March 17, 2016 for the remaining 50%, and 5,000 shares acquired personally. 56/71 E COMMON STOCK EVOLUTION E.1 Basic data Atos SE shares are traded on the Paris Euronext Market under code ISIN FR0000051732. The shares have been listed in Paris since 1995. The shares are not listed on any other stock exchange. E.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN Payability PEA/SRD : 100,261,670 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Euronext Paris Segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext AFP ATO ATO Reuters Thomson ATOS.PA ATO FR Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services The shares are also components of the following indices: Index Type Code ISIN Market Place Euronext (Compartment A) Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext CAC 70 Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext 100 Global Europe FR0003502079 Paris-Amsterdam-Brussels-Lisbon SBF 80 Global FR0003999473 Paris PX8 SBF 120 Global FR0003999481 Paris PX4 SBF 250 Global FR0003999499 Paris PX5 CAC IT20 Sector QS0010989091 Paris CIT20 CAC IT Sector FR0003501980 Paris PXT DJ Euro Stoxx Techno Sector EUR0009658541 Germany-Xetra SX8E CAC Technology Sector QS0011017827 Paris CAC Software & Computer Services Sustainable Development: ASPI Eurozone, FTSE4Good, Europa EMP 100 Europa CAP 100, ECPI Ethical Index Euro Sector FR0000051732 Paris 57/71 E.1.2 Free Float The free-float of the Group shares exclude stakes held by the reference shareholders, namely the two main shareholders, Financière Daunou 17 (PAI Partners) holding 9.5% of the share capital as at June 30, 2014, and Siemens AG holding a stake of 12.5% of the share capital which it committed to keep until June 30, 2016. No other reference shareholder has announced its will to maintain a strategic shareholding in the Group’s share capital. Stakes owned by the employees are also excluded from the free float. As at June 30, 2014 Shares % of share capital % of voting rights Treasury stock PAI Partners Siemens Board of Directors Employees Free float 162,905 9,502,125 12,483,153 417,450 2,101,493 75,594,544 0.2% 9.5% 12.5% 0.4% 2.1% 75.4% 0.0% 9.5% 12.5% 0.4% 2.1% 75.5% Total 100,261,670 100.0% 100.0% E.2 Dividend policy On a proposal from the Board of directors, the Combined General Meeting held on May 27, 2014, approved the payment in 2014 of a dividend of 0.70 euro per share on the 2013 results as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal period Dividend paid per share (in €) 2013 € 0.70 2012 € 0.60 2011 € 0.50 E.3 Financial calendar November 7, 2014 Third quarter 2014 Revenue E.4 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti, Group Senior Vice President Mergers & Acquisitions and Strategy Investor Relations, Financial Communication Tel: +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Requests for information can also be sent by email to investors@atos.net 58/71 E.5 Common stock E.5.1 At June 30, 201 4 As at June 30, 2014, the Group’s issued common stock amounted to € 100,261,670 divided into 100,261,670 fully paid-up shares of € 1.00 par value each. Since December 31, 2013, the share capital was increased by 2,096,224 euros, corresponding to the issuance of 2,096,224 new shares, split as follows: 1,528,650 new shares resulting from the exercise of stock options, issuance premiums amounting to € 55,746,340.5 in the aggregate, 567,574 new shares resulting from the payment of the 2013 dividend in shares, issuance premiums amounting to € 30,325,478.82 in the aggregate. E.5.2 Shareholders’ agreements The Group has not received notice of any shareholder agreements for filing with the stock exchange authorities and, to the best knowledge of the Group Management, no other “action de concert” (shareholder agreements) or similar agreements exist. On the occasion of the acquisition by the Company from Siemens of Siemens’ former subsidiary SIS, the Siemens group committed to keep its shareholding in the Company, amounting to 12,483,153 shares, until June 30, 2016. To the Company’s knowledge, there is no other agreement capable of having a material effect, in case of public offer on the share capital of the Company. E.5.3 Treasury stock E.5.3.1 Legal Framework The 13th resolution of the Combined General Meeting of May 27, 2014 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to this general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. 59/71 These purchases may be carried out by virtue of any allocation permitted by law, with the aims of this share repurchasing program being: to keep them and subsequently use them for payment or exchange in relation to possible external growth operations, in accordance with market practices accepted by the Autorité des Marchés Financiers (French Financial Market Authority), it being specified that the maximum amount of shares acquired by the Company to this end shall not exceed 5 %of the share capital, to ensure liquidity and an active market of the Company’s shares through an investment service provider acting independently pursuant to a liquidity contract, in accordance with the professional conduct charter accepted by the Autorité des Marchés Financiers (French Financial Market Authority), to attribute or sell these shares to the executive officers and directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) the free share issuance regime established by articles L. 225-197-1 et seq. of the Commercial Code and (iv) a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions laid down by market authorities and at such times as the board of directors or the person acting upon its delegation so decides, to remit the shares acquired upon the exercise of rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations in relation to the issuance of such securities, under the terms and conditions laid down by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides, to cancel them as a whole or in part through a reduction of the share capital pursuant to the fourteenth resolution of the Combined General Meeting held on May 27, 2014, or to transfer them to the Dutch Employee pension fund, called Stichting Pensioenfonds Atos, which the registered office is located to Utrecht, Nederland, in the context of the settlement agreement (Run-off and Settlement Agreement) concluded with the Company and its subsidiary Atos Nederland B.V., either via Atos Nederland B.V. or directly, it being specified that in this latter case, the payment shall be made by the Company on behalf of its subsidiary Atos Nederland B.V. pursuant to a delegation of payment or any other mechanism. The maximum purchase price per share may not exceed € 97 (fees excluded). The Board of Directors may adjust the aforementioned purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and attribution of free shares, as well as in the event of division of the nominal value of the share or regrouping of the shares to take account of the effect of these operations on the value of the share. As a result, the maximum amount of funds assigned to the share repurchasing program amounts to 952,204,826.2 euros as calculated on the basis of the share capital as at December 31, 2013, this maximum amount may be adjusted to take in account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen months as from May 27, 2014. E.5.3.2 Treasury Stock As at June 30, 2014, the Company owned 162,905 shares which amounted to 0.2% of the share capital with a portfolio value of € 9,911,140.2, based on June 30, 2014 market price, and with book value of € 10,309,636.61. Out of this amount, 50,000 shares were held through the liquidity contract entered into by the Company with Rothschild & Cie Banque, the outstanding amount being assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and corresponding to the hedging of its undertakings under the LTI and MIP plans. 60/71 E.5.4 Potential common stock E.5.4.1 Potential dilution Based on 100,261,670 shares in issue, the common stock of the Group could be increased, as at June 30, 2014 by 4,390,844 new shares, representing 4.2% of the common stock after dilution. This dilution could occur with the exercise of all stock subscription options granted to employees or through the acquisition of performance shares granted in 2011, 2012 and 2013 as follows: In shares June 30, 2014 December 31, 2013 Change % dilution Number of shares outstanding 100,261,670 98,165,446 2,096,224 From stock subscription options 3 178 504 5,015,053 1,836,549 3.0% Performance shares 1,212,340 1,212,490 150 1.1% Potential dilution 4,390,844 6,227,543 1,836,699 4.2% Total potential common stock 104,652,514 104,392,989 259,525 Stock options evolution Number of stock subscription options at December 31, 2013 Stock subscription options granted during the first semester of 2014 Stock subscription options exercised during the first semester of 2014 Stock subscription options cancelled during the first semester of 2014 Stock subscription options expired during the first semester of 2014 Number of stock subscription options at June 30, 2014 5,015,053 0 -1,528,650 0 -307,899 3,178,504 61/71 E.5.4.2 Current authorizations to issue shares and other securities Pursuant to the resolution adopted by the General Meeting of May 27, 2014, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of the date of this document: Authorization (euros) Authorization amount (par value) Use of the authorizations (par value) Unused balance (par value) Authorization expiration date E.G.M. 27 May 2014 13th resolution Authorization to buyback the Company shares 10% of the share capital adjusted at any moment 76,500 Around 9.92% of the share capital 11/27/2015 (18 months) E.G.M. 27 May 2014 14th resolution Share capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 11/27/2015 (18 months) E.G.M. 27 May 2014 15th resolution Share capital increase with preferential subscription right 29,878,460 0 29,878,460 07/27/2016 (26 months) E.G.M. 27 May 2014 16th resolution Share capital increase without preferential subscription right by public offer (*) (**) E.G.M. 27 May 2014 17th resolution Share capital increase without preferential subscription right by private placement (*) (**) 9,959,486 9,959,486 0 0 9,959,486 9,959,486 07/27/2016 (26 months) 07/27/2016 (26 months) E.G.M. 27 May 2014 18th resolution Share capital increase without preferential subscription right to remunerate contribution in kind (*) (**) E.G.M. 27 May 2014 19th resolution Increase of the number of securities in case of share capital increase with or without subscription right (*) (**) (***) 9,959,486 Extension de 15% maximum de l’émission initiale 0 0 9,959,486 Extension de 15% maximum de l’émission initiale 07/272016 (26 months) 07/27/2016 (26 months) E.G.M. 27 May 2014 20th resolution Share capital increase through incorporation of premiums, reserves, benefits or other (*) 29,878,460 0 29,878,460 07/27/2016 (26 months) A.G.E. 27 mai 2014 21st resolution Share capital increase reserved to the employees (*) 1,991,897 1,991,897 07/27/2016 (26 months) 62/71 E.G.M. 27 May 2014 22nd resolution Grant of performance shares to employees and executive officers 995,948 995,948 07/27/2017 (38 months) E.G.M. 29 May 2013 15th resolution Grant of performance shares to employees and executive officers (*) Any share capital increase pursuant to the 16th, 17th, 18th, 19th, 20th and 21st resolutions shall be deducted from the cap set by the 15th resolution. (**) The share capital increases without preferential subscription right carried out pursuant to the 16 th, 17th, 18th and 19th resolutions are subject to an aggregate sub-cap corresponding to 10% of the share capital of the Company on the day of the Combined General Meeting of May 27, 2014 (i.e. 9,959,486 euros). Any share capital increase pursuant to these resolutions shall be deducted from this aggregate sub-cap. (***) The additional issuance shall be deducted from (i) the cap of the resolution pursuant to which the initial issuance was decided, (ii) the aggregate cap set by the 15th resolution, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at (**) here above. 07/29/2016 (38 months) 1,002,616 691,000 311,616 The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the nineteenth resolution of the General Meeting of May 27, 2014 being set aside) amounts to 31,877,025.08, representing 31.79% of the share capital updated on June 30, 2014. E.5.5 First half of 2014 and subsequent key trading dates February 19 Atos announced its 2013 annual results and inform its ambition to complete IPO of Worldline. With revenue at € 8,615 million, nearly stable compared to 2012 at constant scope and exchange rates, the Group strongly improved its operating margin to € 645.2 million, an increase of € 78.3 million to reach 7.5% of revenue, completely in line with the 7% to 8% target announced in December 2010 as part of the three-year plan. Net cash position was € 905 million at the end of 2013. The Group generated in 2013 € 365 million of free cash flow also in line with the € 350 to € 400 million target of the three-year plan 2011-2013. Order entry was € 8.8 billion. Book to bill ratio was 105% (excluding Siemens). April 17 Atos published its revenue for the first quarter of 2014. Revenue was € 2,064 million, representing an organic evolution of -1.8% compared to the first quarter of 2013. Order entry was € 1,671 million leading to a book to bill ratio of 81%. Net cash position stood at € 830 million at the end of March 2014. All 2014 objectives were confirmed. Atos announced that Worldline is fully mobilized to complete its IPO on schedule. Atos also confirmed that the group has held friendly discussions with key stakeholders of Steria over the last few months, including with its CEO and its Chairman. Atos has indicated that, should Steria wish to reinstate the industrial project to join the Atos group, the Atos Board of Directors was ready to maintain the terms of its friendly offer, at € 22 in cash per Steria share, to remain valid until the Sopra EGM on June 27, 2014. May 26 Atos and Bull together announced the intended public offer in cash by Atos for all the issued and outstanding shares in the capital of Bull. Atos offer was set at € 4.90 per Bull’s share in cash, representing a 22% premium over the Bull’s closing price (€ 4.01) on Friday May 23, 2014, the last trading day before May 26, and a 30% premium with respect to the 3 month volume weighted average share price (€ 3.77).The offer was also targeting the outstanding Bull’s OCEANEs at € 5.55 per OCEANEs. The offer valued the fully diluted share capital of Bull Group at approximately € 620 million. The offer was subject to reaching a minimum 50% + 1 share of Bull’s share capital acceptance level, and Atos intended to ultimately delist the Bull shares by way of squeeze-out or a subsequent merger between the two companies. 63/71 May 27 Atos SE’s held its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved by a large majority. In particular, the General Meeting approved the dividend payment of € 0.70 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors Ms. Colette Neuville and Mr. Nicolas Bazire, Roland Busch and Michel Paris. Finally, in accordance with the recommendations of the AFEP-MEDEF Code, the General Meeting delivered with 94.26% support a favorable opinion on elements of compensation due or allocated for the financial year ending December 31, 2013 to Mr. Thierry BRETON, Chairman and Chief Executive Officer. June 6 Atos declared the filing with the Autorité des Marchés Financiers (AMF) of a draft public offer targeting all of Bull’s outstanding shares and instruments having support of Crescendo Industries, Pothar Investments, Orange group and the BPI representing a total amount of 35.5% of Bull’s share capital to Atos’ public offer, comprising the tender agreements. June 11 Atos announced it has acquired Cambridge Technology Partners, a leading IT consulting firm in the Swiss market. With 300 employees, Cambridge reported revenues of CHF 40 million in 2013 (€ 35 million). In a very competitive market, Cambridge has developed a strong reputation in the areas of digital marketing, Identity & Access Management (IAM) and Digital Work Place, in addition to traditional business and technology consulting. June 26 Atos announced the success of Worldline initial public offering on the regulated market of Euronext Paris. Worldline is an Atos SE subsidiary, one of Europe’s leading providers of electronic payment and transactional services and one of the largest such providers worldwide. Set at 16.40 euros per share, the global offering raised a total of approximately € 575 million, consisting of a capital increase of approximately € 255 million and the sale of approximately € 320 million of existing shares by Atos SE. July 29 Atos today announced its results for the first half of 2014 and confirmed all its objectives for 2014. Revenue was € 4,176 million, representing an organic evolution of -1.9% compared to the first half of 2013. Operating margin was € 274.6 million, representing 6.6% of revenue, an improvement of +20bps compared to the same period last year. The Group generated € 124 million of free cash flow in the first half of 2014. Net cash position was € 845 million at the end of June 2014 including € 628 million restricted cash for the Bull acquisition (excluding € 639 million from the Worldline IPO received in July). Order entry was € 4,360 million, representing a book to bill ratio of 104% for the first half of the year, with € 500 million of new significant contracts won in June 2014. Net income Group share was € 76 million. 64/71 F CLAIMS AND LITIGATION The Atos Group is a global business operating in some 52 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues and issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner. During the first half-year of 2014 some significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2014, to cover for the identified claims and litigations, added up to € 87.33 million (including tax and social contribution claims but excluding labor claims). F.1 Tax and Social Contribution claims The Group is involved in a number of routine tax & social contribution claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. A number of the tax & social contribution claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non-contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a tax (Stamp Duty) re-imbursement of an amount over € 9 million. The total provision for tax & social contribution claims, as inscribed in the consolidated accounts closed as at June 30, 2014, was €13.15 million. F.2 Commercial claims There is a small number of commercial claims across the Group. Some claims were made from 2006 by a company for services allegedly supplied to the Group in the past. After a thorough investigation, the Group concluded that the claims were not legitimate. These claims were thus rejected, no payment was made by the Group and, consequently, several judicial proceedings were made. These proceedings are still pending before the courts. The group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. There were a number of significant on-going commercial cases in various jurisdictions that the group acquired through the acquisition of Siemens IT Solutions and Services. Some of these cases involve claims on behalf of the group and in 2014 a number were successfully resolved. The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at June 30, 2014, was €74.17 million. 65/71 F.3 Labor claims There are over 76,000 employees in the Group and relatively few labor claims. In most jurisdictions there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in Brazil and the UK, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. There are 25 claims against the Group which exceed € 200,000. The provision for these claims, as inscribed in the consolidated accounts closed as at June 30, 2014 was € 3.06 million. F.4 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/dispositions. F.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. 66/71 G IMPLANTATIONS Global Headquarters Atos River Ouest 80, quai Voltaire 95 877 Bezons Cedex Tel.: +33 1 73 26 00 00 Andorra Atos Doctor Vilanova, 9 Edificio Thais 2°A AD-500 Andorra la Vella Tel.: +376 82 54 47 Argentina Atos C1430CRG Cnel. Manuel Arias 3751, 18th floor Cdad. Aut. de Buenos Aires Tel.: +54 11 6315 8800 Worldline Ruta 8 Km. 18 - Calle 122 N° 4785 ex. Gral. Roca - B1653JUK Villa Ballester Tel.: +54 11 5193 5800 Australia Atos 885 Mountain Highway Bayswater Victoria 3153 Tel.: +61 3 9721 6400 Austria Atos & Worldline Siemensstrasse 92 A-1210 Vienna Tel.: +43 51707 0 Belgium Atos Da Vincilaan 5 B-1935 Zaventem Tel.: +32 2 690 28 00 Worldline Chaussée de Haecht 1442 Haachtsesteenweg 1130 Brussels Tel.: +32 2 727 61 11 Brazil Atos Rua Werner Siemens 111 05069-900 Sao Paulo, SP Tel: +55 11 3550 2000 Bulgaria Atos Serdika Offices 48, Sitnyakovo Blvd. 1505 Sofia Tel.: +359 2 402 23 00 Canada Atos 6375 Shawson Drive Mississanga, ON L5T 1S7 Tel.: +905 461 3535 Chile Atos & Worldline Av. Providencia 1760 - Piso 17 - Oficina 1702 7500498 Santiago de Chile Tel.: +56 2 477 1313 China Atos & Worldline Building B No.7, Wangjing Zhonghuan Nan Rd, Chaoyang District Beijing 100102, PRC Tel.: +86 10 6911 5888 Colombia Atos Autopista Norte N° 108-27, Of. 1505 Torre 2 Edifício Paralelo Bogota Tel.: +57 1 519 0233 Croatia Atos Heinzelova 69 10000 Zagreb Tel.: +385 1 286 7000 Czech Republic Atos Doudlebska 1699/5 140 00 Prague Tel.: +420 233 034 211 Denmark Atos Dybendalsvaenget 3 2630 Tasstrup Tel.: +45 4331 1400 Egypt Atos 50 Abbass El Akkad Street Nasr City 11757 Cairo Tel.: +202 26708806 Estonia Atos Vaïke-Paala 1 11415 Talinn Tel.: +372 6 308 649 Finland Atos Kalkkipellontie 6 02650 Espoo Tel.: +358 10 688 5000 France Worldline River Ouest 80, quai Voltaire 95 877 Bezons Cedex Tel.: +33 1 34 34 95 95 Atos Worldgrid 28 rue Gustave Eiffel 38027 Grenoble Cedex 1 Tel.: +33 4 38 12 50 00 67/71 Atos Consulting & Technology Services River Ouest 80, quai Voltaire 95 877 Bezons Cedex Tel.: +33 1 73 26 00 00 Germany Atos Otto-Hahn-Ring 6 D-81379 München Tel.: +49 211 399 0 Atos Consulting & Technology Services Bruchstr. 5 D-45883 Gelsenkirchen Tel.: +49 209 9456 7555 Worldline Hahnstraße 25 D-60528 Frankfurt/Main Tel.: +49 69 66 57 10 Hong Kong Atos & Worldline 8/F, Octa Tower 8 Lam Chak Street Kowloon Bay Tel.: +852 2280 6008 Hungary Atos Gizella ut 51-57 H-1143 Budapest Tel.: +36 30 743 0 India Atos Prism Towers, “A” wing, 6th Floor, Mindspace Ob Link Road, Goregaon West Mumbai, 400 062 Tel.: +91 22 66 45 25 00 Worldline 701, Interface 11 Malad (West) Mumbai, 400 064 Tel.: +91 22 40 42 40 00 Indonesia Worldline Wisma Keiai Prince, #1707 JI. Jend. Sudirman Kav.3 Jakarta 10220 Tel.: +62 21 572 4373 Ireland Atos Fitzwilliam Court Leeson Close, Dublin 2 Tel.: +353 1 216 2000 Italy Atos Via Vipiteno, 4 20128 Milano Tel.: +39 02 2431 Japan Atos Level 20, Shinjuku Park Tower 3-7-1 Nishi-Shinjuku, Shinjuku-ku Tokyo 163-1020 Tel.: +81 3 3344 6631 Luxembourg Atos Rue Nicolas Bové 2a L-1253 Luxembourg Tel.: +352 31 36 37 1 Malaysia Atos Suite F01, 1st Floor 2310 Century Square, Jalan Usahawan 63000 Cyberjaya - Selangor Tel.: +60 3 8316 0288 Worldline Suite19.01 Level 19 Centrepoint South Mid Valley City Lingkaram Syed Putra 59200 Kuala Lumpur Tel.: +603 2084 5418 Mexico Atos Corporativo Santa Fe Av. Santa Fe No. 505 piso 9 Col. Santa Cruz Manca Santa Fe Deleg. Cuajimalpa de Morelos 05349, Mexico, D.F. Tel.: +52 55 5081 4600 Morocco Atos Casablanca Nearshore Park – Shore 7 1100, boulevard El Qods - Quartier Sidi, Maârouf Casablanca Tel.: +212 (0)5 29 04 45 29 New Zealand Atos Level 1 326 Lambton Wellington, 6011 Tel.: +64 4 978 1745 Philippines Atos 23/F Cyber One Building 11 Eastwood Ave., Bagumbayan, Quezon City, 1110 Tel.: +63 2 982 9600 Poland Atos Ul. Postępu 18 02-676 Warsaw Tel.: +48 22 444 65 00 Portugal Atos Edifício Europa Av. José Malhoa, 16, 7.º andar B2 1070-159 Lisboa Tel.:+ (351) 21 097 14 00 Qatar Atos 3rd Floor, QFIB Building, Suhaim Bin Hamad Street Al Sadd Area, Zone #38, Building no. 89858, P.O.Box. 202378 Doha Tel.: +974 444 78183 Romania Atos Strada Preciziei, N24, Corp H3 Bucharest 062204 Tel.: +40 21 3058603 Russia Atos 1st Kozhevnichesky per., 6/1 115114 Moscow Tel.: +7 495 7372599 Saudi Arabia Atos Olayan H.O Tower B, 1st level Al Malaz Area, Al Ehssa Street P.O.Box. 8772 Riyadh 11492 Tel.: +966 14749000 Serbia Atos Pariske komune 22 11070 Belgrade Tel.: +381 11 3012200 Singapore Atos & Worldline 620A Lorong 1 Toa Payoh TP4 Building Level 5 Singapore 319762 Tel.: +65 6496 3888 Slovakia Atos Einsteinova 11 851 01 Bratislava Tel.: +421 2 68526801 South Africa Atos Woodlands Office Park, Ground Floor, Building 32 Woodlands Drive, Woodmead Johannesburg Tel.: +27 87 310 2867 Spain Atos & Worldline Albarracín, 25 28037 Madrid Tel.: +34 91 440 8800 Atos Consulting & Technology Services Albasanz 16, 4ª planta 28037 Madrid Tel.: +34 91 214 9500 Sweden Atos Johanneslundsvägen 12-14 19487 Upplands Väsby Tel.: +46 87306500 68/71 Switzerland Atos Freilagerstrasse 28 8047 Zürich Tel.: +41 58 702 11 11 Taiwan Atos & Worldline 5FNo.100, Sec 3 Min Sheng East Road Taipei 10596 Tel.: +886 2 2514 2500 Thailand Atos 2922/339 Charn Issara Tower II, 36th floor New Petchaburi Road, Bangkapi, Huaykwang 10310 Bangkok Tel.: +66 2787-9000 The Netherlands Atos, Atos Consulting & Technology Services Papendorpseweg 93 3528 BJ Utrecht Tel.: +31 (0) 88 265 5555 Worldline Wolweverstraat 18 2924 CD Ridderkerk Tel.: +31 180 442 442 Turkey Atos Yakacik Cad. No: 111 43870 Kartal Istanbul Tel.: +90 216 459 20 10 United Arab Emirates Atos The Galleries, Level 2, Building 2, Downtown Jebel Ali Sheikh Zayed Rd PO Box500437 Dubai Tel.: +9714 4402300 United Kingdom Atos & Worldline 4 Triton Square Regent’s Place London NW1 3HG Tel.: +44 20 7830 4444 USA Atos 2500 Westchester Avenue Purchase, NY 10577 Tel.: +1 914 881 3000 H FULL INDEX Contents ...................................................................................................................................... 2 A Persons responsible ................................................................................................................ 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit................................................................................................................... 4 B Atos in the first half of 2014 .................................................................................................... 5 C Finance ................................................................................................................................. 7 C.1 Operational review .......................................................................................................... 7 C.1.1 Executive Summary .................................................................................................. 7 C.1.2 Statutory to constant scope and exchange rates reconciliation ....................................... 9 C.1.2.1 Revenue ........................................................................................................... 9 C.1.2.2 Operating margin ............................................................................................ 10 C.1.3 Revenue profile evolution ........................................................................................ 11 C.1.4 Performance by Service Line .................................................................................... 12 C.1.4.1 Managed Services ............................................................................................ 12 C.1.4.2 Consulting & Systems Integration ...................................................................... 13 C.1.4.3 Worldline ........................................................................................................ 14 C.1.5 Performance by Business Units ................................................................................ 15 C.1.5.1 United Kingdom & Ireland ................................................................................. 15 C.1.5.2 Germany ........................................................................................................ 16 C.1.5.3 Benelux & The Nordics ..................................................................................... 16 C.1.5.4 France ............................................................................................................ 16 C.1.5.5 Central & Eastern Europe .................................................................................. 17 C.1.5.6 North America ................................................................................................. 17 C.1.5.7 Iberia ............................................................................................................. 17 C.1.5.8 Other Business Units ........................................................................................ 18 C.1.5.9 Global structures costs ..................................................................................... 18 C.1.6 Revenue by Market ................................................................................................. 19 C.1.6.1 Manufacturing, Retail & Transportation ............................................................... 19 C.1.6.2 Public & Health ................................................................................................ 19 C.1.6.3 Telcos, Media & Utilities .................................................................................... 19 C.1.6.4 Financial Services ............................................................................................ 20 C.1.7 Portfolio ................................................................................................................ 20 C.1.7.1 Order entry and book to bill .............................................................................. 20 C.1.7.2 Full backlog .................................................................................................... 21 C.1.7.3 Full qualified pipeline ....................................................................................... 21 69/71 C.1.8 Human Resources................................................................................................... 22 C.1.8.1 Headcount evolution ........................................................................................ 22 C.1.8.2 Changes in scope ............................................................................................ 22 C.1.8.3 Hiring ............................................................................................................. 22 C.1.8.4 Leavers .......................................................................................................... 23 C.1.8.5 Restructuring, Dismissals and other ................................................................... 23 C.1.8.6 External Subcontractors ................................................................................... 23 C.2 2014 Objectives ............................................................................................................ 24 C.3 Financial review ............................................................................................................ 25 C.3.1 Income statement .................................................................................................. 25 C.3.1.1 Operating margin ............................................................................................ 25 C.3.1.2 Other operating income and expenses ................................................................ 25 C.3.1.3 Net financial expense ....................................................................................... 26 C.3.1.4 Corporate tax .................................................................................................. 26 C.3.1.5 Non-controlling interests .................................................................................. 26 C.3.1.6 Normalized net income ..................................................................................... 27 C.3.1.7 Half year Earning Per Share .............................................................................. 27 C.3.2 Cash Flow and net cash ........................................................................................... 28 C.3.3 Parent company results ........................................................................................... 30 C.4 Interim condensed consolidated financial statements ......................................................... 31 C.4.1 Interim consolidated income statement ..................................................................... 31 C.4.2 Interim consolidated statement of comprehensive income ........................................... 32 C.4.3 Interim consolidated statement of financial position .................................................... 33 C.4.4 Interim consolidated cash flow statement .................................................................. 34 C.4.5 Interim consolidated statement of changes in shareholders’ equity ............................... 35 C.4.6 Appendices to the interim condensed consolidated financial statements ........................ 36 C.4.6.1 Basis of preparation ......................................................................................... 36 C.4.6.2 Significant accounting policies ........................................................................... 37 C.4.6.3 Notes to the half-year condensed consolidated financial statements ....................... 37 C.5 2014 Statutory Auditors’ report on the half-year financial information for the period ended June 30, .................................................................................................................................. 52 D Corporate governance ........................................................................................................... 53 D.1 Office renewals and appointment of directors.................................................................... 53 D.2 Composition of the Board of Directors .............................................................................. 53 D.3 Executive compensation and stock ownership ................................................................... 53 D.3.1 Performance shares allocation plan decided on July 28, 2014 ....................................... 53 D.3.2 Performance shares that have become available since January 1, 2014 for the Chairman and CEO – AMF Table 7 ......................................................................................................... 55 D.3.3 Subscription or purchase options exercised since January 1, 2014 by the Chairman and CEO – AMF Table 5 ............................................................................................................... 56 70/71 E Common stock evolution ....................................................................................................... 57 E.1 Basic data .................................................................................................................... 57 E.1.1 Information on stock............................................................................................... 57 E.1.2 Free Float .............................................................................................................. 58 E.2 Dividend policy ............................................................................................................. 58 E.3 Financial calendar ......................................................................................................... 58 E.4 Contacts ...................................................................................................................... 58 E.5 Common stock .............................................................................................................. 59 E.5.1 At June 30, 2014 .................................................................................................... 59 E.5.2 Shareholders’ agreements ....................................................................................... 59 E.5.3 Treasury stock ....................................................................................................... 59 E.5.3.1 Legal Framework ............................................................................................. 59 E.5.3.2 Treasury Stock ................................................................................................ 60 E.5.4 Potential common stock .......................................................................................... 61 E.5.4.1 Potential dilution ............................................................................................. 61 E.5.4.2 Current authorizations to issue shares and other securities ................................... 62 E.5.5 First half of 2014 and subsequent key trading dates ................................................... 63 F Claims and litigation ............................................................................................................. 65 F.1 Tax and Social Contribution claims .................................................................................. 65 F.2 Commercial claims ........................................................................................................ 65 F.3 Labor claims ................................................................................................................. 66 F.4 Representation & Warranty claims ................................................................................... 66 F.5 Miscellaneous ............................................................................................................... 66 G Implantations ....................................................................................................................... 67 H Full index ............................................................................................................................ 69 71/71 | Semestriel, 2014, IT, Atos | write me a financial report |
Semestriel | 2,015 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| Update of the 2014 Registration Document Including the half year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original document has been filed with the Autorité des Marchés Financiers (AMF) on August 7, 2015, in accordance with Article 212-13 of the AMF’s general regulations. It complements the 2014 Registration Document filed with the AMF on April 1st, 2015 under number D15-0277. This document has been issued by the Company and commits its signatories. This update of the Registration Document is available on the AMF website (www.amf-france.org) et the one of the issuer (www.atos.net). CONTENTS Contents ...................................................................................................................................... 2 A Persons responsibles ............................................................................................................... 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit................................................................................................................... 3 B Atos in the first half of 2015 .................................................................................................... 4 C Finance ................................................................................................................................. 6 C.1 Operational review .......................................................................................................... 6 C.2 2015 objectives ............................................................................................................ 21 C.3 Financial review ............................................................................................................ 22 C.4 Interim condensed consolidated financial statements ......................................................... 28 C.5 2015 Statutory Auditors’ report on the half-year financial information for the period ended June 30, .................................................................................................................................. 50 D Corporate governance ........................................................................................................... 51 D.1 Office renewals and appointment of directors.................................................................... 51 D.2 Composition of the Board of Directors .............................................................................. 51 D.3 Combined General Meeting held on May 28, 2015 ............................................................. 52 D.4 Executive compensation and stock ownership ................................................................... 52 D.5 Bond issue ................................................................................................................... 54 E Common Stock Evolution ....................................................................................................... 55 E.1 Basic data .................................................................................................................... 55 E.2 Dividend policy ............................................................................................................. 56 E.3 Financial calendar ......................................................................................................... 56 E.4 Contacts ...................................................................................................................... 56 E.5 Common stock .............................................................................................................. 57 F Risks analysis ...................................................................................................................... 62 F.1 Tax and Social Contribution claims .................................................................................. 62 F.2 Commercial claims ........................................................................................................ 62 F.3 Labor claims ................................................................................................................. 63 F.4 Representation & Warranty claims ................................................................................... 63 F.5 Miscellaneous ............................................................................................................... 63 G Locations ............................................................................................................................. 64 H Full index ............................................................................................................................ 65 2/67 A PERSONS RESPONSIBLES A.1 For the Update of the Registration Document Thierry Breton CEO and Chairman, Atos A.2 For the accuracy of the Update of the Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Update to the 2014 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2015 have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the company and all the other companies included in the scope of consolidation, and that the enclosed interim financial report gives a fair description of the material events that occurred in the first six months of the financial year and their impact on the financial statements, the main related party transactions, as well as a description of the main risks and uncertainties for the remaining six months of the year. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the Update of the 2014 Registration Document and examined the information in respect of the financial position and the accounts contained herein. Thierry Breton CEO and Chairman, Atos Bezons, August 6, 2015 A.3 For the audit Appointment and term of offices Statutory Auditors Substitute Auditors Grant Thornton Victor Amselem Cabinet IGEC Appointed on: May 27, 2014 for a term Appointed on: May 27, 2014 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2019 financial statements of 6 years Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Deloitte & Associés Jean Pierre Agazzi Cabinet B.E.A.S. Appointed on: May 30, 2012 for a term Appointed on: May 30, 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements 3/67 B ATOS IN THE FIRST HALF OF 2015 January Atos unveiled its vision and anticipates the technology shifts that will shape business through to 2018 in Ascent Journey 2018 - The 3rd Digital Revolution: Agility and Fragility, a unique research conducted by the 100 top business technologists from the Atos Scientific Community. February On February 18, Atos announced its 2014 annual results. Revenue was € 9,051 million, +5.1% year-on- year and -1.1% at constant scope and exchange rates. In the fourth quarter, revenue organic evolution was +0.1%. Operating margin was € 701.9 million, representing 7.8% of revenue, compared to 7.5% in 2013. Order entry was € 9.1 billion representing a book to bill ratio of 101%. Full backlog increased by €+0.9 billion to € 16.2 billion, representing 1.7 year of revenue. Net cash position was € 989 million at the end of 2014. Free cash flow was € 367 million in 2014 compared to € 365 million in 2013. Net income was € 283 million, up +8.8% year-on-year and net income Group share was € 265 million, up +1.4% compared to 2013. The Group announced its objective in 2015 to increase revenue and profitability in line with the 3-year plan taking full advantage of 2014 achievements. On February 25, PAI Partners sold to other investors via an Accelerated Bookbuilt Offering most of its remaining shares of Atos SE, i.e. 9,200,000 shares representing 9% of the share capital, at a price per share of € 63.25. Atos and EMC announced plans on February 26 to further strengthen their strategic alliance. Atos has decided to re-integrate the Canopy subsidiary and make it part of the Atos corporate structure. EMC and VMware intend to continue their strategic long-term investment, now as shareholders of Atos. These moves will allow the continuous support and strong collaboration of EMC and VMware with Canopy, while strengthening the partnership between the EMC Federation of strategically aligned businesses and Atos Consulting & System integration as well as the newly created Big Data & Cyber-Security Atos divisions. April Atos announced on April 22 its first quarter 2015 revenue. In the first quarter, revenue was € 2,427 million, up +17.6% year-on-year and up +0.2% at constant scope and exchange rates. Order entry was € 2,198 million, up +31.5% year-on-year, representing a book to bill ratio at 91%. Full backlog was € 16.6 billion, representing 1.7 years of revenue. Full qualified pipeline totaled at € 5.6 billion, representing 6.7 months of revenue. May Atos SE held on May 28 its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved. In particular, the General Meeting approved the annual and consolidated accounts for the financial year ended December 31st, 2014, the dividend payment of €0.80 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors of Thierry Breton, Bertrand Meunier and Pasquale Pistorio, and ratified the appointment as Director of Valérie Bernis. 4/67 June Atos held on June 18 an Analyst Day in its Headquarters in Bezons (France) to present its new positioning and profile. During the first half of its 3-year plan that will end in December 2016, Atos has accelerated its transformation with the completion of the Worldline IPO, the integration of the Bull operations and technologies, and the announcement of the project to acquire Xerox ITO in North America. The Group provided an update on “2016 Ambition” targets, halfway through the 2014-2016 3-year plan and taking into account its recent achievements. Compared to 2014, the Group intends to double its net income Group share to circa €530 million in 2016. This strong increase will be led by the profitability improvement, additional operating margin from scope expansion, reduction in restructuring costs, and a new tax profile. Atos announced the successful placement of its first bond issue on June 26. The bond issue has been significantly oversubscribed by a large and diversified European investor base, which allowed Atos to increase the size of the issue from € 500 million to € 600 million. This bond issue totals € 600 million, with a 5-year maturity. The coupon rate is 2.375%. On June 30, Atos completed the acquisition of Xerox ITO which reinforces its position as a global leader in digital services for a net purchase price which totaled US$ 966 million (€ 811 million). With circa US$ 2 billion revenue, North America becomes the largest geography for Atos where it is now ranked number 9 in ITO services. 5/67 C FINANCE C.1 Operational review C.1.1 Executive summary Revenue in the first half of 2015 was € 4,941 million, up +18.3% year-on-year and up +0.3% at constant scope and exchange rates. Organic growth in the second quarter of 2015 was +0.3%, continuing the positive trend recorded in the fourth quarter of 2014 (+0.1% organic growth) and in the first quarter of 2015 (+0.2% organic growth). Representing 50% of the total Group, Managed Services revenue was € 2,488 million, up +16.3% year-on-year and +0.8% organically. Growth was mainly generated in the United Kingdom benefiting from major BPO contracts. The Service Line also benefited from the ramp-up of several large Managed Services contracts in the United Kingdom, in France, in the US, and in “Other Business Units”. Conversely, the Service Line faced several ramp-downs and scope reductions in Germany, North America, and Benelux. During the second quarter, the revenue trend of Managed Services significantly improved compared to the first quarter in most of the Business units. In particular, France benefited from the ramp up of large contracts won last year. Contracts recently signed also benefited to the improvement of the revenue evolution in Germany and Benelux & The Nordics. Representing 33% of the total Group, revenue in Consulting & Systems Integration was € 1,612 million, up +7.3% year-on-year and down -2.4% at constant scope and exchange rates. The activity was strong in the Public Sector, mainly in the United Kingdom, in Central & Eastern Europe, and in France. As it was already the case during the first quarter, revenue decline was concentrated in Germany, largely attributable to lower volumes and price reductions in the telco sector. Representing 5% of the total Group, Big Data & Cyber-security revenue was € 270 million, up +4.2% organically. Revenue growth was driven by strong demand on innovative products and stemmed from a strong activity in High Performance Computing in France, mainly in the Public sector, notably for the Ministère de l’Intérieur and for the defense and research sectors. Revenue growth was also led by Germany with High Performance Computing sales to DKRZ and University of Dresden. In Security, Cyber- security posted a robust performance led by France, compensating for Swiss governmental order delays. On a standalone basis, Worldline increased its revenue by +4.1%. From a contributive perspective to Atos, revenue was € 571 million, up +3.9% compared to the first half of 2014. All Global Business Lines grew organically. In Merchant Services & Terminals, growth was primarily driven by Commercial Acquiring and by the dynamism of the Terminal business. Main growth drivers in Financial Processing & Software Licensing were Online Banking and Payment Software Licensing activities. Revenue increased in Mobility & e-Transactional Services thanks to e-Ticketing increased volumes and new projects in Latin America as well as e-Government collection with new contracts signed in the Benelux. Operating margin was € 345.6 million, up +26% year-on-year and representing 7.0% of revenue, an improvement by +60 basis points on a like for like basis. Margin increased in several geographies benefiting from reductions in indirect costs, TOP Tier One savings initiatives, and the first synergies on Bull perimeter, coupled with the continuous actions since 2013 on pensions which materialized by a positive effect in the first half of 2015, in Germany by € 20 million and for Corporate by € 18 million. The improvement came from the United Kingdom where operating margin strongly improved, by Managed Services activities, beyond revenue performance and on the back of slippages on projects booked in the first half of 2014. In France, operating margin increase was led by the contribution of Big Data & Cyber- security, Managed Services, and related TOP Program actions combined with workforce management measures, compensating for missing revenue in Consulting & Systems Integration. Benelux & The Nordics and North America maintained their profitability level at 9.2% and 7.8% respectively, despite revenue evolution. Operating margin was affected in Germany by lower volumes and utilization rate in Systems Integration and in “Other Business Units” by the Swiss government order delays. 6/67 Managed Services improved its operating margin by +100 basis points, Big Data & Security remained stable at € 37.5 million, Consulting & Systems Integration and Worldline profitability decreased by -60 basis points and -120 basis points respectively while central costs decreased by € 22 million (50 basis points). Operating income for the first half of the year was € 197 million (€ 129 million in H1 2014) as a result of the following items: expenses for reorganization, rationalization and integration costs reached € 116 million as the consequence of: 1/ the plan to generate Bull synergies, 2/ the adaptation of the Group workforce in several countries in continental Europe and more particularly in Germany; 3/the rationalization of offices mainly in Benelux and Germany. In the first half of 2015, € 31 million was recorded as amortization of Purchase Price Allocation (PPA). Financial result was a charge of € 11 million, down from € 21 million in the first half of 2014. Total tax charge was € 47 million, representing an effective tax rate of 25.2% compared to 27.0% in the first half of last year, starting to reflect the new tax profile of the Group. As a result, Net income was € 138 million, up +79% year-on-year. Non-controlling interests were € 15 million, related to Worldline following the IPO in June 2014, leading to a Net income Group share of € 123 million, +61% compared to € 76 million last year, up +61% year-on-year. OMDA was € 459 million representing 9.3% of revenue. Reorganization, rationalization, and integration costs totaled € 142 million, in line with the full year amount expected at € 235 million. Net capital expenditures totaled € 215 million, representing 4.3% of revenue. Working capital contribution was € 49 million, resulting from the continuous actions of the Group and the improvement of the working capital of the Bull operations. Tax paid was € 58 million (€ 75 million last year). The Group generated a free cash flow of € 141 million. At the end of June, the Group paid € 811 million for the acquisition of Xerox ITO. The cash-out resulting from the payment in cash of the dividend on 2014 results was € 31 million. Group net cash position as of June 30, 2015 was € 354 million. The order entry during the first half of 2015 totaled € 5,088 million, up +16.7% year-on-year and representing a book to bill ratio of 103%. The commercial activity has been particularly strong in the second quarter with a book to bill ratio of 115%. The Group signed several important contracts enabling the digital journey of its clients by addressing the 4 key Customer Transformation Challenges: the Group enables Operational Excellence for several large clients including Siemens, BASF and a global leader in the optical industry in Germany, in the Public Sector in the United Kingdom, and a telco operator in the Middle-East. Atos is supporting Business Reinvention and helping renew the Customer Experience of - among others - AccorHotels in France, and global truck manufacturer in Benelux. Some of these deals also leveraged Worldline’s expertise. Trust & Compliance is improved thanks to Atos’ solutions being implemented on behalf of several Government Agencies in some European countries. At the end of June 2015, the full backlog was € 17.1 billion in line with the level reached at the end of December 2014, representing 1.7 years of revenue. The full qualified pipeline totaled to € 5.5 billion in line with the level reached at the end of December 2014, representing 6.6 months of revenue. The total headcount was 83,602 at the end of June 2015. 2,138 employees exited the Group workforce following the early termination of the Work Capability Assessment BPO contract with the Department for Work and Pensions in the UK and the outsourcing of on-sites services activities in France. During the first half of 2015, 6,830 new employees were recruited while attrition during the first half was 11.1% at Group level and 20.6% in emerging countries. Number of staff in offshore countries increased by +22% year-on-year, reaching 20,537 people by the end of June 2015. Offshore in Systems Integration represented 41% of direct staff in line with the objective to reach 50% by the end of 2016. More than two thirds of the offshore workforce was located in Asia (57% in India), the rest being mainly in Central & Eastern Europe. On July 1st, 2015, 9,489 staff joined Atos from Xerox, with 4,309 in the US and Canada, 3,882 in India, the Philippines, and Mexico and the remaining 1,298 are mostly in the UK and in Germany. Including Xerox ITO, the total headcount of the Group was 93,091. 7/67 C.1.2 Statutory to constant scope and exchange rates reconciliation The table below presents the impacts on the half-year 2014 revenue of (i) internal transfers to reflect the Group’s new organization, (ii) acquisitions and disposals, and (iii) change in exchange rates. In € millionH1 2014 statutoryInternal transfersH1 2014 new reportingScope effectsExchange rates effects*H1 2014 at constant scope and FXUK & Ireland812812-1696892France505505319824Germany78478440824Benelux & The Nordics50050049-1549North America292292967368Other BUs74874813439922of which Central & Eastern Europe388of which Iberia146of which former Other BUs214Total IT Services3 6413 6415362024 379Worldline53553514549TOTAL GROUP4 1764 1765362164 928Managed Services2 13832 1411771492 467Consulting & Systems Integration1 503-581 445162451 652Big Data & Cyber-security55551968260Total IT Services3 64103 6415362024 379Worldline53553514549TOTAL GROUP4 17604 1765362164 928* At average June 2015 YTD exchange ratesRevenue Internal transfers between Services Lines included (i) the transfer of € 55 million from Consulting & Systems Integration to the newly created Big Data & Cyber-security Service Line following the acquisition of Bull, (ii) the transfer of one contract in the US from Consulting & Systems Integration to Managed Services for € 3 million. The exchange rates impact was €+216 million mainly resulting from the British Pound strengthening versus the euro (+12.1%), as well as the US Dollar (+22.7%), the Swiss Franc (+15.6%) and the Hong- Kong Dollar (+22.7%). On the opposite the Russian Rouble (-25.4%) depreciated versus the euro. Scope effects were mainly related to Bull acquisition (€+574 million). Other changes in scope had a €-38 million net impact on the revenue. They were related to the acquisition of Cambridge Technology Partners (Central & Eastern Europe, May 2014) on one hand, and the outsourcing of on-site services (France, March 2015) and the early termination of the DWP WCA contract (United Kingdom, March 2015) on the other hand. 8/67 The effects of internal transfers, acquisitions and disposals, and change in exchange rates on operating margin were the following: In € millionH1 2014 statutoryInternal transfersH1 2014 new reportingScope effectsExchange rates effects*H1 2014 at constant scope and FXUK & Ireland54543764France1123024Germany5252153Benelux & The Nordics50500051North America23230528Other BUs56564869of which Central & Eastern Europe33of which Iberia3of which former Other BUs20Global Structures-43-43-13-55Total IT Services1951951820233Worldline8080282TOTAL GROUP2752751822314Managed Services13611371311161Consulting & Systems Integration100-1189-3289Big Data & Cyber-security101020737Corporate-42-42-13-55Total IT Services19501951820233Worldline8080282TOTAL GROUP27502751822314* At average June 2015 YTD exchange ratesOperating margin 9/67 C.1.3 Revenue profile C.1.3.1 By Service Line During the first half of 2015, 70% of the Group revenue was generated by multi-year contracts, deriving from multi-year Managed Services contracts (50% of total revenue including BPO), Worldline transactional services (12%), and Application Management contracts (8% reported in Consulting & Systems Integration). In € millionH1 2015Managed Services2 488Consulting & Systems Integration1 612Big Data & Cyber-security270Total IT Services4 370Worldline571TOTAL GROUP4 941 50%33%5%12% C.1.3.2 By Business Unit Europe remained the Group’s main operational base, generating 86% of total revenue in the first half of 2015. In € millionH1 2015United-Kingdom & Ireland995France825Germany759Benelux & The Nordics515North America340Other BUs936Total IT Services4,370Worldline571TOTAL GROUP4,941 20%17%15%10%7%19%12% C.1.3.3 By Market The Group provides IT services and solutions to many industry sectors. Customers are addressed through four Global Markets which are Manufacturing Retail & Transportation, Public & Health, Telcos, Media & Utilities, and Financial Services. 32%29%21%18% In € millionH1 2015Manufacturing, Retail & Transportation1,598Public & Health1,438Telcos, Media & Utilities1,021Financial Services885TOTAL GROUP4,941 10/67 C.1.4 Performance by Service Line In € millionH1 2015H1 2014*% organic% yoyH1 2015H1 2014*H1 2015H1 2014*Managed Services2,4882,467+0.8%+16.3%185.7161.37.5%6.5%Consulting & Systems Integration1,6121,652-2.4%+7.3%76.688.84.8%5.4%Big Data & Cyber-security270260+4.2%37.537.413.9%14.4%Corporate costs**-32.3-54.7-0.7%-1.2%Total IT Services4,3704,379-0.2%+20.0%267.5232.86.1%5.3%Worldline***571549+3.9%+6.7%78.181.613.7%14.9%TOTAL GROUP4,9414,928+0.3%+18.3%345.6314.37.0%6.4%* at constant scope and exchange rates** Corporate costs exclude Global Delivery Lines costs allocated to the Service Lines*** Worldline reported +4.1% organic growth on a stand alone basisRevenueOperating marginOperating margin % C.1.4.1 Managed Services In € millionH1 2015H1 2014*% organic% yoyRevenue2,4882,467+0.8%+16.3%Operating margin185.7161.3Operating margin rate7.5%6.5%* at constant scope and exchange rates Representing 50% of the total Group, Managed Services revenue was € 2,488 million, up +16.3% year- on-year and +0.8% organically. Revenue trend was contrasted as growth materialized primarily in the United Kingdom as BPO activity was sustained thanks to the ramp-up of the DWP PIP and NS&I projects. The Service Line also benefited from the ramp-up of several large Managed Services contracts in the United Kingdom, in France, and in the US. Managed Services performance was good in “Other Business Units”, notably in Asia Pacific (+7.9%) thanks to higher volumes with a large customer in Financial Services and ramp-ups in existing contracts with Global customers, in Iberia (+6.1%) through increased scope of services and higher volumes achieved with BBVA, E.ON and in the Public sector, and in India, Middle-East & Africa (+5.9%) which benefited from new contracts such as Dynacons in India. Conversely, revenue declined in Germany, North America, and Benelux, mainly due to the successful delivery of several large projects last year that were not compensated by new business generation this year. In Germany, the activity fell due to ended projects, lower volumes and ramp-downs on delivered services notably within Financial Services. Benelux & The Nordics faced scope reduction on some accounts. The drop in North America was mainly related to the Metlife contract terminated last year, the base effect from the McGraw-Hill Education separation and several other contracts successfully delivered last year. In France the situation improved during the second quarter with the ramp-up of contracts in Manufacturing such as Airbus and PWC, while lower volumes in Financial Services impacted the first half. The revenue trend of Managed Services significantly improved compared to the first quarter in most of the Business units as contracts recently signed also benefited to the improvement of the revenue evolution in Germany and Benelux & The Nordics. Managed Services revenue profile by geographies Germany 32%19%12%12%10%16% United-Kingdom & Ireland Benelux & The Nordics France Other countries North America 11/67 Operating margin in Managed Services was € 185.7 million during the first half of 2015, representing 7.5% of revenue, an improvement by +100 basis points compared to the same period last year. BPO activity in the United Kingdom strongly contributed to the Service Line improvement as well as the impact of various workforce actions, synergies on Bull perimeter, savings plans conducted in all Business Units, and pension plans optimization in Germany. C.1.4.2 Consulting & Systems Integration In € millionH1 2015H1 2014*% organic% yoyRevenue1,6121,652-2.4%+7.3%Operating margin76.688.8Operating margin rate4.8%5.4%* at constant scope and exchange rates Consulting & Systems Integration revenue was € 1,612 million, up +7.3% year-on-year and -2.4% at constant scope and exchange rates. As it was already the case during the first quarter, revenue decline was concentrated in Germany largely attributable to lower volumes and price reductions in the telco sector, with Telefonica/E-plus and Nokia, and in Manufacturing, Retail & Transportation. The activity was strong in the Public & Health Market in most of the geographies, notably in the United Kingdom, in Central & Eastern Europe, and in France, leading to a healthy +5.5% organic growth in this Market. Revenue slightly grew in Financial Services, mainly in India, Middle-East & Africa. Finally, Manufacturing decline mainly came from the United Kingdom in the Transport sector as well as in Germany. Consulting & Systems Integration revenue profile by geographies France 26%16%13%12%33% Benelux & The Nordics United-Kingdom & Ireland Germany Other countries Consulting & Systems Integration operating margin was € 76.6 million. Lower volumes and utilization rate in Germany and to a lesser extent project slippage in France accounted for most of the difference in operating margin with the first half of 2014. Conversely, operating margin significantly increased in the United Kingdom and in “Other Business Units”. 12/67 C.1.4.3 Big Data & Cyber-security In € millionH1 2015H1 2014*% organicRevenue270260+4.2%Operating margin37.537.4Operating margin rate13.9%14.4%* at constant scope and exchange rates Big Data & Security revenue was € 270 million, up +4.2% organically. Revenue growth was driven by strong demand on innovative products and stemmed from strong activity in France (+9.1%) in High Performance Computing, mainly in the Public sector driven by the contract renewal of Ministère de l’Intérieur and Norway Police (delivered from France), combined with increased activity in Extreme Computing (with the French Ministries in the defense & research area), Cyber-security, and High-end servers, which more than offset less revenue in Mission Critical Systems. Revenue growth was also led by Germany with High Performance Computing sales to DKRZ and University of Dresden. Most of other Business Units grew, notably Asia Pacific, Iberia, and Benelux & The Nordics. Central & Eastern Europe was impacted by the drop in Switzerland due to orders delayed in the Public Sector, only partly compensated by new HPC activity in Poland and Croatia. Big Data & Cyber-security revenue profile by geographies 60%12%27% France Other countries Germany Big Data & Security operating margin stood at € 37.5 million for the first half of of 2015, stable compared to last year, the decrease in Central & Eastern Europe, being compensated by significant growth in the other Business Units, notably France and Germany. C.1.4.4 Worldline In € millionH1 2015H1 2014*% organic% yoyRevenue571549+3.9%+6.7%Operating margin78.181.6Operating margin rate13.7%14.9%* at constant scope and exchange ratesWorldline reported +4.1% organic growth on a stand alone basis Representing 12% of the total Group revenue, Worldline achieved a strong performance with revenue organic growth of +3.9%. From a standalone perspective, as a public company, Worldline posted an organic growth of +4.1%. All Global Business Lines achieved grew compared to last year at constant scope and exchange rates. Merchant Services & Terminals was up +4.6%, while Financial Processing & Software Licensing and Mobility & e-Transactional Services increased by +2.0% and +5.4% respectively. Merchant Services & Terminals performance was sustained by strong Terminals sales, reaching +14.7% in the first half of 2015, while lower volumes and non-recurring items recorded last year in Online Services and in Private Label Cards & Loyalty services fully offset the positive outcome in Commercial Acquiring which benefited from higher volumes and a favorable mix of the unit price per transaction. In Merchant Services & Terminals, E-ticketing was up by +7.8% thanks to volumes and new projects ramp- up. In Financial Processing & Software Licensing, Online Banking activities reached a double-digit growth thanks to higher volumes and a one-off termination fee in Germany, Licensing performance was driven by Germany and by a new integration project in France. Acquiring was up +0.7%, and Issuing Processing was stable. 13/67 Worldline operating margin reached € 78.1 million. The profitability of Worldline has been impacted by a strategic investment in commercial acquiring paving the way of future growth. Profitability increased in Financial Processing & Software Licensing as well as in Mobility & e-Transactional Services thanks to the combination of a better revenue mix, the implementation of the TEAM program, and efficiency gains realized on the IT infrastructure management. C.1.5 Performance by Business Units In € millionH1 2015H1 2014*% organic% yoyH1 2015H1 2014*H1 2015H1 2014*United-Kingdom & Ireland995892+11.5%+22.5%102.964.110.3%7.2%France825824+0.1%+63.3%30.123.83.7%2.9%Germany759824-7.9%-3.2%41.152.85.4%6.4%Benelux & The Nordics515549-6.1%+3.1%47.650.69.2%9.2%North America340368-7.6%+16.7%26.428.27.8%7.7%Other Business Units936922+1.5%+25.1%59.968.56.4%7.4%Global structures**-40.4-55.3-0.9%-1.3%Total IT Services4,3704,379-0.2%+20.0%267.5232.86.1%5.3%Worldline***571549+3.9%+6.7%78.181.613.7%14.9%TOTAL GROUP4,9414,928+0.3%+18.3%345.6314.37.0%6.4%* at constant scope and exchange rates** Global structures include the Global Delivery Lines costs not allocated to the Group Business Unit and the Corporates costs*** Worldline reported +4.1% organic growth on a stand alone basisRevenueOperating marginOperating margin % C.1.5.1 United Kingdom & Ireland In € millionH1 2015H1 2014*% organic% yoyRevenue995892+11.5%+22.5%Operating margin102.964.1Operating margin rate10.3%7.2%*constant scope and exchange rates Revenue was € 995 million, up +11.5%. The strong revenue growth was mostly attributable to the Public & Health Market and to BPO activities, benefiting from continued positive impact of new contracts ramp-ups since last year. Revenue in Managed Services strongly grew on last year, largely pulled by the ramp-up and successful execution of the DWP PIP contract and increased activity with National Savings & Investments. Growth in the Public sector was also attributable to the Ministry of Justice through increased project work and resale volumes. The Manufacturing, Retail & Transportation Market also grew, notably thanks to the ramp-up of Royal Mail Group while Telcos, Medias & Utilities was impacted by lower volumes in Media and Energy. Revenue in Consulting & Systems Integration was down -2.0%. Public sector improved by +6.2%, mainly driven by additional consulting activity notably through higher volumes in the defense sector, the ramp- up of the Post Office Application Management contract, and increased project activity with the Nuclear Decommissioning Authority and the Ministry of Justice. Manufacturing, Retail & Transportation Market was impacted by the Transport area due to off-boarding of legacy contracts and by other projects ended, still only partially compensated by the increase in SAP products delivered to new customers. The Telcos, Medias & Utilities Market slightly grew thanks to increased consulting activity for Pearson. Big Data & Security activity was launched and revenue reached € 4 million, growing thanks to a cyber- security project with a company specialized in defense systems. 14/67 Operating margin was € 102.9 million, significantly improving compared to last year (€+39 million). The improvement came beyond revenue performance and on the back of slippages on projects booked in the first half of 2014. This improvement was largely driven by Managed Services activities with the ramp- up and successful execution of the DWP PIP contract, meeting successfully interim milestones. The margin performance was helped by savings from TOP program initiatives and some freeze on recruitments, coupled with benefits resulting from commercial negotiations with customers to recover costs from transition delays. Operating margin in Consulting & Systems Integration improved year-on- year thanks to the reduction of the cost base resulting from TOP initiatives. These savings were partly reinvested into new sales growth (presales and skilling of expertise) in order to drive new business growth in key market demand areas (such as analytics, cloud, digital…) and mainly for Manufacturing, Retail & Transportation and Financial Services Markets. C.1.5.2 France In € millionH1 2015H1 2014*% organic% yoyRevenue825824+0.1%+63.3%Operating margin30.123.8Operating margin rate3.7%2.9%*constant scope and exchange rates France returned to revenue growth in Q2 thanks to an improvement in Managed Services and a continued positive trend in Big Data & Cyber-security. In Managed Services, Manufacturing, Retail & Transportation Market posted a solid growth thanks to a global aircraft manufacturer and PWC contracts ramp ups. This was however offset by a drop in the Financial Services and in Public & Health. Consulting & Systems Integration revenue was impacted in the Manufacturing, Retail & Transportation Market by the end of one contract with Michelin. In the Telcos, Medias & Utilities Market, increasing volumes with GDF partly compensated lower project revenue with other customers in Telco and Energy. The Financial Services Market was almost stable. Finally, the Public & Health Market grew thanks to more business done for the European Institutions and to new contracts with local administrations. Big Data & Cyber-security revenue increased by +9.1%, fueled by the Public & Health Market growing in France, notably with the Ministry of Defense, the CEA (“Commissariat à l'énergie atomique et aux énergies alternatives”; Commission for Atomic Energy and Alternative Energies), and the Social Security through Extreme Computing and HPC products sales. This was partly offset by revenue decline in the Telcos, Medias & Utilities and Manufacturing, Retail & Transportation Markets. At € 30.1 million or 3.7% of revenue, France improved its operating margin by +80 basis points and €+6.3 million year-on-year. This improvement was led by the contribution of Big Data & Cyber-security thanks to revenue increase and savings on indirect costs. Managed Services operating margin improved year-on-year in spite of a revenue decrease, thanks to continued TOP initiatives, strengthened workforce management measures, notably through moving resources to Technology Services growing activities, and thanks to a strong indirect costs reduction. Operating margin in Consulting & Systems Integration decreased due to revenue evolution and increased pre-sales costs in order to strengthen commercial initiatives. This trend was mitigated by a drastic monitoring of indirect costs which were strongly reduced. 15/67 C.1.5.3 Germany In € millionH1 2015H1 2014*% organic% yoyRevenue759824-7.9%-3.2%Operating margin41.152.8Operating margin rate5.4%6.4%*constant scope and exchange rates Revenue was € 759 million, down -7.9% on last year. The decline was attributable to both Managed Services and Consulting & Systems Integration Service Lines, mainly resulting from lower volumes with some long standing large customers. The second quarter still showed a better performance than the first quarter. Managed Services revenue contracted compared to last year as Financial Services revenue evolution was impacted by less revenue generated with Talanx, and Telcos, Medias & Utilities had less activity with Telefonica/E-plus, as a consequence of the difficult situation of the customer environment. Revenue also decreased in Manufacturing, Retail & Transportation despite new contracts ramping-up with K+S and Airbus and Siemens slightly growing thanks to new projects. Consulting & Systems Integration strongly decreased. This trend was largely attributable to the Telcos, Medias & Utilities Market, as a consequence of the Telco challenging environment, the end of some transitions partly compensated by new projects, and declining volumes especially in the Energy & Utilities sector. Manufacturing, Retail & Transportation faced several ramp-downs not compensated by the ramp- up of the BMW contract. Financial Services and Public & Health Markets remained stable. Big Data & Security revenue reached € 34 million, strongly increasing thanks to HPC activity in Public & Health with DKRZ and University of Dresden. Operating margin reached € 41.1 million or 5.4% of revenue, down €-11.7 million compared to the prior year, as a result of declining revenues. Operating margin in Managed Services improved despite revenue evolution, mainly thanks to strong savings actions to more than offset the negative impacts mentioned above, notably through significant cuts in SG&A expenses and optimization of the external workforce. Managed Services also benefited from an increased delivery from offshore locations. Consulting & Systems Integration profitability suffered from the revenue decline mentioned above. This was partially offset by strong costs savings actions as part of TOP Tier One program, notably through significant reduction in SG&A expenses, reorganization of staff, and also the impact of the closure of the Frankfurt site. In both Managed Services and Consulting & Systems integration, the Group continuous optimization program of its pension schemes contributed positively to the German operating margin by € 20 million in the first half of 2015. Finally, operating margin in Big Data & Security increased compared to last year, led by the strong increase of the activity, coupled with an improvement in SG&A expenses. 16/67 C.1.5.4 Benelux & The Nordics In € millionH1 2015H1 2014*% organic% yoyRevenue515549-6.1%+3.1%Operating margin47.650.6Operating margin rate9.2%9.2%*constant scope and exchange rates Revenue during the first half of 2015 € 515 million, down -6.1% year-on-year. As in Germany, revenue performance improved during the second quarter of 2015 compared to the first one. Revenue in Managed Services was down by -7.8%, a decrease mainly coming from the Telcos, Medias & Utilities Market impacted by decline on KPN contracts, and in Financial Services where higher revenue with new or existing customers such as Achmea or MN Services did not fully compensate a drop with ING. Consulting & Systems Integration revenue decreased -4.0%, despite a strong growth in Technology Services (+7.6%) representing 41% of Consulting & Systems Integration, following a commercial push initiated by the Business Unit. Telcos, Medias & Utilities concentrated most of the decline, related to KPN. Financial Services grew through ING and ABM Amro. Public & Health Market benefited from growth with several Dutch institutions. Manufacturing, Retail & Transportation slightly declined due to anticipated contract ramp-downs with some clients. Big Data & Cyber-security also posted a solid growth (+6.2%), mainly in Telcos, Medias & Utilities. Operating margin reached € 47.6 million during the first half of 2015. The Business Unit managed to maintain its profitability level at 9.2% of revenue despite revenue evolution. This was achieved thanks to a strong monitoring of the cost base in Managed Services and specific actions in Consulting & Systems Integration, mainly on workforce management, and increasing utilization rates notably in the Technology Services business. Big Data & Security operating margin strongly increased thanks to revenue. C.1.5.5 North America In € millionH1 2015H1 2014*% organic% yoyRevenue340368-7.6%+16.7%Operating margin26.428.2Operating margin rate7.8%7.7%*constant scope and exchange rates Revenue reached € 340 million, down -7.6% year-on-year. Revenue in Managed Services continued to be affected in Manufacturing, Retail & Transportation and Financial Services Markets, largely driven by the successful completion of several large projects in 2014 such as Metlife and McGraw-Hill Education separation project that have not been fully compensated yet. A significant growth was achieved with existing client such as Huntsman. Revenue remained stable compared to last year in Consulting & Systems Integration thanks to higher activity for Daimler and Siemens, as well as delivered projects with several new clients such as Metropolitan Utilities District and Veritiv which compensated for the base effect coming from the successful completion of Johnson’s contract in 2014, and the ramp-down of one project with Disney. In Big Data & Security, revenue reached € 10 million, mainly stable compared to last year. Operating margin was € 26.4 million representing 7.8% of revenue, slightly improving compared to 7.7% in 2014 despite revenue evolution. This was achieved thanks to TOP Tier One savings actions and a tight monitoring of indirect costs. This enabled an improvement of profitability in Big Data & Cyber- security and in Consulting & Systems Integration despite the revenue shortage on projects and higher pre-sales costs reflecting the dynamic bid pursuits. Managed Services operating margin was down despite strong savings initiatives. 17/67 C.1.5.6 Other Business Units In € millionH1 2015H1 2014*% organic% yoyRevenue936922+1.5%+25.1%Operating margin59.968.5Operating margin rate6.4%7.4%*constant scope and exchange rates In other Business units, revenue slightly increased, with a strong activity in Financial Services and Public & Health for both Managed Services and Consulting & Systems Integration and most of the geographies growing. Operating margin benefited from actions related to workforce management and TOP program initiatives in all countries which partly compensated the margin effect resulting from the delay of orders from the Swiss Institutions. As a result, Asia Pacific, Iberia, and Latin America recorded an increase in operating margin. C.1.5.7 Global structures Global structures costs amounted to €-40.4 million, which represented a positive variance of € 14.9 million over last year, mainly driven by savings resulting from synergies from the Bull integration combined with the positive outcome of the pension plan optimization (€+18 million). Some structure costs increased as a consequence of the globalization of the organization and the impact from the performance share plan and employee incentive plans compared to the first half of 2014. C.1.6 Revenue by Market In € millionH1 2015H1 2014*% organicManufacturing, Retail & Transportation1,5981,649-3.1%Public & Health1,4381,293+11.2%Telcos, Media & Utilities1,0211,076-5.1%Financial Services885910-2.8%TOTAL GROUP4,9414,928+0.3%* at constant scope and exchange rates Manufacturing, Retail & Transportation is currently the largest market segment of the Group (32%) and reached € 1,598 million. It was down -3.1% compared to last year. Siemens account was limited to -2.2% despite some contractual price decrease granted in September 2014 and in January 2015. Public & Health revenue reached € 1,438 million and accounted for 29% of the Group, increasing by +11.2% compared to last year, mainly thanks to the ramp-up of the PIP contract for the United Kingdom Department for Work & Pensions in the United Kingdom and to a lesser extent to Big Data & Cyber- security. Telcos, Media & Utilities represented 21% of the Group revenue and reached € 1,021 million, down by -5.1% compared to the first half of 2014, main impact being related to significant ramp-downs and contractual price reductions with Telefonica/E-plus in Germany and with KPN in Benelux & The Nordics. Financial Services revenue represented 18% of the Group and reached € 885 million, -2.8% compared to the first half of 2014. The decrease was mostly attributable to Germany impacted by the decline of Talanx, as well as North America and France both facing base effects on MetLife and BNP Paribas contracts. 18/67 C.1.7 Portfolio C.1.7.1 Order entry and book to bill The total Group order entries reached € 5,088 million, representing a book-to-bill ratio of 103% and notably 115% in the second quarter. Order entry of the first half of 2015 included the renewal or extension of several contracts in Managed Services such as Siemens in several countries and more particularly Germany and the US, in the Health sector in the United Kingdom (Public & Health), a global leader in the optical industry in Germany (Manufacturing, Retail & Transportation) and McGraw-Hill in the US (Telcos, Medias & Utilities). Managed Services achieved a book-to-bill ratio of 100% in the first half of 2015. The main contracts renewed over the period were Siemens, mainly in Germany and the US, NS&I (Financial Services) and a public health institution (Public & Health) in the United Kingdom, a global leader in the optical industry (Manufacturing, Retail & Transportation) in Germany and McGraw-Hill (Telcos, Medias & Utilities) in the US. Main new contracts were BASF (Manufacturing, Retail & Transportation) in Germany and Royal Mail (Manufacturing, Retail & Transportation) in the United Kingdom. During the first half of 2015, Consulting & Systems Integration achieved a strong book-to-bill ratio of 105%, 118% during the second quarter, mainly benefiting from new contracts with Accor (Manufacturing, Retail & Transportation) and Orange (Telcos, Medias & Utilities) in France, global truck manufacturer (Manufacturing, Retail & Transportation) in Benelux & The Nordics, a Ministry of Interior (Public & Health) in Central & Eastern Europe, and Telco operator in Middle Operator (Telcos, Medias & Utilities) in IMEA. Big Data & Security achieved a strong book-to-bill ratio of 128% over the period, with main new contracts related to HPC notably with CEA (Public & Health) in France. Worldline achieved a book-to-bill ratio of 101%. Largest signatures over the period were in Germany. C.1.7.2 Full backlog At the end of June 2015, the full backlog was € 17.1 billion in line with the level reached at the end of December 2014, representing 1.7 years of revenue. C.1.7.3 Full qualified pipeline The full qualified pipeline totaled to € 5.5 billion in line with the level reached at the end of December 2014, representing 6.6 months of revenue. 19/67 C.1.8 Human Resources C.1.8.1 Headcount evolution The total headcount was 83,602 at the end of June 2015. Headcount movements in 2015 are detailed in the table below: Opening January 2015ScopeHiringLeaversDismissal, restruct.& otherClosing June 30, 2015Managed Services35,765-2,1442,895-1,806-1,55533,155Consulting & Systems Integration34,13823,230-2,264-1,00934,097Big Data & Cyber-security1,88513138-921,2163,160Corporate functions586028-45-158411IT Services Direct72,374-2,1296,291-4,207-1,50670,823Worldline Direct6,6700287-233-646,660Total Direct79,044-2,1296,578-4,440-1,57077,483United-Kingdom & Ireland9,744-1,375562-436-2178,278France13,103-798183-405-5612,027Germany7,9542486-170-947,800Benelux & The Nordics5,937-179-229-1005,686North America3,0607216-187-2242,872Other BUs32,505145,157-2,777-81734,082Global Structures7108-3278IT Services Direct72,374-2,1296,291-4,207-1,50670,823Worldline Direct6,6700287-233-646,660Total Direct79,044-2,1296,578-4,440-1,57077,483Total Indirect6,821-9252-212-7326,119TOTAL GROUP85,865-2,1386,830-4,652-2,30383,602 Number of staff in offshore countries increased by +22% year-on-year, reaching 20,537 people by the end of June 2015. Offshore in Systems Integration represented 41% of direct staff in line with the objective to reach 50% by the end of 2016. More than two thirds of the offshore workforce was located in Asia (57% in India), the rest being mainly in Central & Eastern Europe. C.1.8.2 Changes in scope 2,138 employees exited the Group workforce following the early termination of the Work Capability Assessment BPO contract with the Department for Work and Pensions and the outsourcing of on-sites services activities in France. On July 1st, 2015, 9,489 staff joined Atos from Xerox, with 4,309 in the US and Canada, 3,882 in India, the Philippines, and Mexico and the remaining 1,298 are mostly in the UK and in Germany. Including Xerox ITO, the total headcount of the Group was 93,091. C.1.8.3 Hiring The total number of recruitments during the first half of 2015 was +6,830 and represented 8.0% of the headcount as of January 1st, 2015. 591 employees were recruited in the United Kingdom (of which 562 direct staff) to replace leavers and cover the ramp-up of contracts in BPO, following the same trend as last year. The +5,157 direct staff hired in “Other Business Units” reflect the accelerated growth of offshore delivery, primarily in India, but also in Brazil, in the Philippines, and in Thailand. In addition, the Global Managed Services factories recruitments were mainly in Poland and in Romania. All in all, recruitments in offshore locations represented roughly 2/3 of the total hiring of the Group. C.1.8.4 Leavers Leavers only comprise staff voluntary resignations. The total number of leavers over the period was -4,652. Attrition during the first half was 11.1% at Group level and 20.6% in emerging countries. 20/67 C.1.8.5 Restructuring, Dismissals and other 2,303 employees (of which 1,570 direct staff) were dismissed or restructured over this first half of 2015. Streamlining efforts were mainly concentrated in continental Europe. C.2 2015 objectives The Group confirms its 2015 objectives and raises the free cash flow objectives. The figures below include Xerox ITO contribution from July 1st, 2015: Revenue The Group targets a positive revenue organic growth. Operating margin The Group has the objective to improve its operating margin rate targeting 8.0% to 8.5% of revenue. Free cash flow The Group expects to generate a free cash flow of circa € 420 million. 21/67 C.3 Financial review C.3.1 Income statement The Group reported a net income (attributable to owners of the parent) of € 123.0 million for the half year ended June 30, 2015, which represented 2.5% of Group revenues of the period. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 224.1 million, representing 4.5% of Group revenues of the period, up +30 basis points compared to last year. (in € million)6 months ended 30 June2015% Margin6 months ended 30 June2014% MarginOperating margin 345.67.0%274.66.6%Other operating income / (expenses)(148.3)(145.2)Net financial income / (expenses)(10.7)(21.0)Tax charge (47.1)(29.2)Non-controlling interests and associates(16.5)(2.8)Netincome–Attributabletoownersof the parent123.02.5%76.41.8%Normalizednetincome–Attributableto owners of the parent (*)224.14.5%173.54.2%(*) Defined hereafter.3.1%Operating income197.34.0%129.4 C.3.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analysed in the operational review. C.3.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of € 148.3 million in the first half of 2015. The following table presents this amount by nature: (in € million)6 months ended 30 June20156 months ended 30 June2014Staff reorganization(68.4)(81.7)Rationalization and associated costs(29.5)(22.5)Integration and acquisition costs(18.3)(7.1)Amortization of intangible assets (PPA from acquisitions) (31.2)(22.1)Other items(0.9)(11.8)Total(148.3)(145.2) 22/67 The € 68.4 million staff reorganization expense was mainly the consequence of: the adaptation of the Group workforce in several countries such as Benelux & The Nordics, Central & Eastern Europe, Germany and Iberia; the streamlining of middle management layers, including Global Structures; the restructuring initiated on Bull G&A as part of the plan to generate cost synergies. The € 29.5 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation, mainly in Germany (€ 6.3 million) and Benelux & The Nordics (€ 5.7 million), linked to restructuring plans. This amount also includes external costs for the implementation of Worldline’s TEAM Program (€ 1.3 million) and for the optimization of G&A in the context of the Bull integration (€ 5.5 million). The € 18.3 million integration and acquisition costs represented mainly integration costs for Bull (€ 10.4 million) and Xerox integration and acquisition costs (€ 6.1 million). The € 0.9 million expense in other items corresponded mainly to a € 26.3 million exceptional loss recorded on a UK customer to cover both the depreciation of assets and receivables and an expected settlement to exit this contract. This loss was offset by € 27.7 million of releases of dilapidation provisions. C.3.1.3 Net financial expense Net financial expense amounted to € 10.7 million for the period (compared to € 21.0 million for the first semester of 2014) and was composed of a net cost of financial debt of € 3.2 million and non-operational financial costs of € 7.5 million. Non-operational financial costs amounted to € 7.5 million compared to € 14.9 million in June 2014 and mainly consisted of pension financial related costs (€ 14.8 million compared to € 7.0 million in 2014), net foreign exchange gains (€ 7.9 million compared to a net foreign exchange loss of € 3.7 million in 2014), and other expenses for € 0.6 million. C.3.1.4 Corporate tax The tax charge for the six-month period ended June 30, 2015 was € 47.1 million including the French CVAE tax, with a profit before tax of € 186.6 million. The annualized Effective Tax Rate (ETR) of 24.8% adjusted for tax discrete items led to an ETR of 25.2%. C.3.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. Non-controlling interests was amounted to € 14.9 million in June 2015 (compared to € 0.8 million in June 2014). The increase is mostly related to Worldline (€ 14.4 million) after the dilution of our participating interest, as part of the IPO on June 27, 2014. 23/67 C.3.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was up at € 224.1 million, representing 4.5% of Group revenues of the period, up +30 basis points compared to last year. (in € million)6 months ended 30 June20156 months ended 30 June2014Net income - Attributable to owners of the parent123.076.4Other operating income and expenses(148.3)(145.2)Tax effect on other operating income and expenses48.047.4Other unusual items on tax(0.8)0.7Total unusual items – Net of tax(101.1)(97.1)Normalized net income - Attributable to owners of the parent 224.1173.5 C.3.1.7 Half year Earning Per Share (in € million)6 months ended 30 June2015% Margin6 months ended 30 June2014% MarginNetincome–Attributabletoownersof the parent [a]123.02.5%76.41.8%Impact of dilutive instruments --Netincomerestatedofdilutiveinstruments-Attributabletoownersof the parent [b]123.02.5%76.41.8%Normalizednetincome–Attributableto owners of the parent [c]224.14.5%173.54.2%Impact of dilutive instruments --Normalizednetincomerestatedofdilutiveinstruments-Attributabletoowners of the parent [d]224.14.5%173.54.2%Average number of shares [e] 100,253,782 98,809,813 Impact of dilutive instruments 909,426 1,555,170 Diluted average number of shares [f] 101,163,208 100,364,983 (In €)Basic EPS [a] / [e]1.230.77Diluted EPS [b] / [f]1.220.76Normalized basic EPS [c] / [e]2.241.76Normalized diluted EPS [d] / [f]2.221.73 Potential dilutive instruments comprised stock subscription (equivalent to 909,426 options) and did not generate a restatement of net income used for the diluted EPS calculation. 24/67 C.3.2 Cash Flow and net cash The Group reported a net cash position of € 354.0 million at the end of June 2015, thus representing an increase of € 137.3 million compared to June 2014. The net cash position at the end of June 2015 included the €-811.0 million cash-out for Xerox ITO acquisition. (in € million)6 months ended 30 June20156 months ended 30 June2014Operating Margin before Depreciation and Amortization (OMDA)458.5400.7Capital expenditures(214.9)(154.5)Change in working capital requirement49.131.3Cash From Operation (CFO)292.7277.5Reorganization in other operating income (95.7)(70.8)Rationalization & associated costs in other operating income (27.9)(19.1)Integration and acquisition costs(18.3)(7.1)Net financial investments *1.7(1.6)Taxes paid(57.8)(74.8)Net cost of financial debt paid(3.2)(6.1)Profit sharing amounts payable transferred to debt(0.2)(1.0)Other changes **50.126.8Free Cash Flow (FCF)141.4123.8Net (acquisitions) / disposals(813.0)(20.1)Restrictive cash for planned Bull acquisition-(628.3)Group share buy-back program-(138.7)Dividends paid to owners of the parent(30.7)(38.3)Change in net cash /(debt)(702.3)(701.6)Opening net cash /(debt)989.1905.4Change in net cash / (debt)(702.3)(701.6)Impact of foreign exchange rate fluctuation on net Cash / (Debt) 67.212.9Closing net cash /(debt)354.0216.7**"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationcostsandacquisitioncosts),dividendspaidtonon-controllinginterests,salesoftreasuryshares&commonstockissuesfollowingemployeesexerciseofstockoptionsandotherfinancial items with cash impact.* Net Long term financial investments excluding acquisitions and disposals. Free cash flow represented by the change in net cash or net debt, excluding equity changes, dividends paid to shareholders and net acquisitions and disposals, reached € 141.4 million compared to € 123.8 million during the six-month period ended June 30, 2014. Cash From Operations (CFO) amounted to € 292.7 million and increased by € 15.2 million compared to last year and coming from the following items: OMDA (€+57.8 million), Higher capital expenditures (€-60.4 million), Change in working capital requirement (€+17.8 million). 25/67 OMDA of € 458.5 million, representing an increase of €+57.8 million compared to June 2014, reached 9.3% of revenues against 9.6% of revenues in June 2014. The breakdown of operating margin to OMDA was as follows: (in € million)6 months ended 30 June20156 months ended 30 June2014Operating margin345.6274.6 + Depreciation of fixed assets172.7149.0 + Net book value of assets sold / written off19.19.1 + Charge for equity-based compensation15.59.3+/- Net charge / (release) of pension provisions(52.3)(12.7)+/- Net charge / (release) of provisions(42.1)(28.6)OMDA458.5400.7 Capital expenditures increased to € 214.9 million compared to € 154.5 million for the first semester of 2014, notably due the ramp-up of large BPO contracts in the United Kingdom. The positive change in working capital requirement was € 49.1 million (compared to € 31.3 million in June 2014). The DSO ratio reached 39 days at the end of June 2015 compared to 45 days at the end of June 2014. DSO has been positively impacted by the implementation of financial arrangements on large customer contracts by 12 days compared to 11 days in June 2014. The DPO was 87 days as of June 2015 compared to 94 days at the end of June 2014. Cash out related to taxes paid reached € 57.8 million and was lower than last year by € 17.0 million, due to favorable timings of payments in Germany. The € 3.2 million cost of net debt decreased by € 2.9 million compared to the first half of 2014 including the following elements: An average expense rate of 2.34% on the average gross borrowings compared to 2.45% in 2014 and; An average income rate of 1.13% on the average gross cash compared to 0.64% in 2014. Reorganization, rationalization and associated costs reached € 123.6 million, including the cash out related to acceleration of the Bull reorganization. Integration and acquisition costs amounting to € 18.3 million represented mainly integration costs for Bull (€ 10.4 million) and Xerox integration and acquisition costs (€ 6.1 million). Other changes of € 50.1 million mainly corresponded to: Sale of treasury stock and issuance of common stock following employees exercise of stock options for € 37.5 million (€ 19.7 million lower than last year); Proceeds from other operating income for € 21.1 million of which € 16.9 million of sale of assets; Other operating expenses for €-14.1 million of which a €-11.2 million including the last installment related to the early termination of the DWP WCA contract; Other financial income for € 6.3 million; and Dividends paid to non-controlling interests for €-0.7 million. As a result, the Group free cash flow (FCF) generated during the first half 2015 was € 141.4 million. The net debt impact resulting from net acquisitions/disposals corresponded mainly to the acquisition of Xerox ITO for € 811.0 million at the end of June. 26/67 In the first half of 2015, dividends paid to owners of the parent amounted to € 80.4 million (€ 0.80 per share) of which € 30.7 million cashed out and € 49.7 million through the issuance of new shares. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented an increase in net cash of € 67.2 million mainly coming from the exchange rate of the Euro against the British Pound (€ 27.8 million), the US Dollar (€ 11.7 million) and the Swiss Franc (€ 9.1 million). C.3.3 Parent company results The profit before tax of the parent company amounted to € 46.2 million for the six-month period ended June 30, 2015 compared to € 60.4 million in the first semester 2014. 27/67 C.4 Interim condensed consolidated financial statements C.4.1 Interim consolidated income statement (in € million)Notes6 months ended 30 June20156 months ended 30 June201412 months ended 31 December 2014Revenue Note 24,941.24,176.39,051.2Personnel expensesNote 3(2,531.5)(2,215.9)(4,573.2)Operating expensesNote 4(2,064.1)(1,685.8)(3,776.1)Operating margin345.6274.6701.9% of revenue7.0%6.6%7.8%OtheroperatingincomeandexpensesNote 5(148.3)(145.2)(261.6)Operating income197.3129.4440.3% of revenue4.0%3.1%4.9%Net cost of financial debt(3.2)(6.1)(15.3)Other financial expenses(38.5)(54.8)(72.7)Other financial income31.039.936.4Net financial incomeNote 6(10.7)(21.0)(51.6)Net income before tax186.6108.4388.7Tax chargeNote 7(47.1)(29.2)(104.1)Shareofnetprofit/(loss)ofassociates(1.6)(2.0)(2.1)Net income137.977.2282.5Of which:-attributabletoownersoftheparent123.076.4265.2- non-controlling interests14.90.817.3(in € and number of shares)Netincome-Attributabletoowners of the parentNote 8Weightedaveragenumberofshares 100,253,78298,809,81399,358,877Basic earnings per share1.230.772.67Dilutedweightedaveragenumberof shares 101,163,208100,364,983100,570,183Diluted earnings per share1.220.762.64 28/67 C.4.2 Interim consolidated statement of comprehensive income (in € million)6 months ended 30 June20156 months ended 30 June201412 months ended 31 December 2014Net income 137.977.2282.5Other comprehensive income167.543.594.8Cash flow hedging 44.110.84.1139.235.490.8(15.8)(2.7)(0.1)52.0(62.6)(501.4)78.9(88.5)(676.1)(26.9)25.9174.7Total other comprehensive income219.5(19.1)(406.6)357.458.1(124.1)Of which:- attributable to owners of the parent341.257.3(141.3)- non-controlling interests16.20.817.2Exchangedifferencesontranslationofforeign operationsDeferred tax on items recyclable recognized directly on equity - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable):Actuarial gains and losses generated in the period on defined benefit planDeferred tax on items non-recyclable recognized directly on equityTotal comprehensive income for the period 29/67 C.4.3 Interim consolidated statement of financial position (in € million)Notes30June 201531December 201430June 2014ASSETSGoodwillNote 92,731.32,627.91,960.4Intangible assets674.1646.6436.1Tangible assets698.2693.7622.6Non-current financial assetsNote 101,101.0227.61,098.4Non-current financial instruments2.33.21.6Deferred tax assets416.6419.7428.1Total non-current assets5,623.54,618.74,547.2Trade accounts and notes receivablesNote 112,028.62,124.11,751.4Current taxes46.917.3118.4Other current assetsNote 12812.8648.21,117.6Current financial instruments11.910.27.9Cash and cash equivalentsNote 131,936.01,620.3922.2Total current assets4,836.24,420.13,917.5Total assets10,459.79,038.88,464.7(in € million)30June 201531December 201430June 2014LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock103.1101.3100.2Additional paid-in capital2,607.02,521.62,471.1Consolidated retained earnings683.7399.6869.9Translation adjustments44.8(94.4)(150.3)Netincomeattributabletotheowners of the parent123.0265.276.4Equityattributabletotheownersof the parent3,561.63,193.33,367.3Non-controlling interests219.6208.8181.8Total shareholders’ equity3,781.23,402.13,549.1Provisionsforpensionsandsimilar benefitsNote 141,178.91,258.1795.0Non-current provisionsNote 1590.093.880.0Borrowings665.2528.1606.0Deferred tax liabilities82.766.4217.0Non-current financial instruments7.68.35.7Other non-current liabilities19.718.88.9Total non-current liabilities2,044.11,973.51,712.6TradeaccountsandnotespayablesNote 171,507.41,397.01,233.2Current taxes94.273.0136.9Current provisionsNote 15231.9263.9199.7Current financial instruments7.54.60.5Current portion of borrowings916.8103.199.5Other current liabilities1,876.61,821.61,533.2Total current liabilities4,634.43,663.23,203.0Total liabilities and shareholders’ equity10,459.79,038.88,464.7 30/67 C.4.4 Interim consolidated cash flow statement (in € million)Notes6 months ended 30 June20156 months ended 30 June201412 months ended 31 December 2014Profit before tax186.6108.4388.7Depreciation of assetsNote 4172.7149.0313.0Net charge / (release) to operating provisions(94.4)(41.4)(134.9)Net charge / (release) to financial provisions14.57.623.2Net charge / (release) to other operating provisions(39.7)9.3(10.2)Purchase Price Allocation amortization (PPA) 31.222.150.7Losses / (gains) on disposals of fixed assets0.66.99.6Net charge for equity-based compensation15.59.322.7Losses / (gains) on financial instruments(0.8)(5.3)(9.8)Net cost of financial debtNote 63.26.115.3Cash from operating activities before change in working capital requirement, financial interest and taxes289.4272.0668.3Taxes paid(57.8)(74.8)(119.7)Change in working capital requirement49.131.3104.6Net cash from/ (used in) operating activities280.7228.5653.2Payment for tangible and intangible assets(214.9)(154.5)(354.1)Proceeds from disposals of tangible and intangible assets40.42.69.2Net operating investments(174.5)(151.9)(344.9)Amounts paid / received for acquisitions and long-term investments (817.1)(669.1)(633.5)Cash and cash equivalents of companies purchased during the period- 5.8 (3.7)Proceeds from disposals of financial investments5.918.29.0Dividend received from entities consolidated by equity method- - 2.5Net long-term investmentsNote 18(811.2)(645.1)(625.7)Net cash from/ (used in) investing activities (985.7)(797.0)(970.6)Capital increase-- 35.3 Common stock issues on the exercise of equity-based compensation37.557.273.9Capital increase subscribed by non-controlling interests- - 253.1Purchase and sale of treasury stock-(138.7)(234.5)Dividends paid to owners of the parent(30.7)(38.3)(38.3)Dividends paid to non-controlling interest(0.7)(1.2)(1.9)Proceeds of disposal of non controlling interests--372.3New borrowingsNote 16946.0305.2182.6New finance leaseNote 16-(0.1)0.2Repayment of long and medium-term borrowingsNote 16(12.5)(4.1)(47.9)Net cost of financial debt paid(3.2)(6.1)(15.3)Other flows related to financing activities20.5(4.6)(6.0)Net cash from/ (used in) financing activities956.9169.3573.5Increase/ (decrease) in net cash and cash equivalents251.9(399.2)256.1Opening net cash and cash equivalents1,542.51,238.31,238.3Increase/ (decrease) in net cash and cash equivalentsNote 16251.9(399.2)256.1Impact of exchange rate fluctuations on cash and cash equivalents79.716.548.1Closing net cash and cash equivalentsNote 181,874.1855.61,542.5 31/67 C.4.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At January 1, 201498,16698.12,385.1358.7(185.7)(8.6)261.62,909.230.02,939.2* Common stock issued 2,0972.186.0(30.8)57.357.3* Appropriation of prior period net income261.6(261.6) - - * Dividends paid to non-controlling interests(38.3)(38.3)(1.2)(39.5)* Equity-based compensation9.39.39.3* Changes in auto-control shares and treasury stock(25.7)(25.7)(25.7)* Worldline IPO impact398.6398.6152.2550.8* Other(0.4)(0.4)(0.4)Transactions with owners2,0972.186.0574.3 - - (261.6)400.8151.0551.8* Net income 76.476.40.877.2* Other Comprehensive income(62.6)35.48.1(19.1)(19.1)Total comprehensive income for the period(62.6)35.48.176.457.30.858.1At June 30, 2014100,263100.22,471.1870.4(150.3)(0.5)76.43,367.3181.83,549.1* Common stock issued 1,0711.150.5 - 51.651.6* Appropriation of prior period net income - - - * Dividends paid to non-controlling interests - - (0.7)(0.7)* Equity-based compensation13.413.413.4* Changes in auto-control shares(95.0)(95.0)(95.0)* Worldline IPO impact40.540.516.857.3* Other14.114.1(5.5)8.6Transactions with owners1,071.01.150.5(27.0) - - - 24.610.635.2* Net income 188.8188.816.5205.3* Other Comprehensive income(438.8)55.9(4.5)(387.4)(0.1)(387.5)Total comprehensive income for the period(438.8)55.9(4.5)188.8(198.6)16.4(182.2)At December 31, 2014101,334101.32,521.6404.6(94.4)(5.0)265.23,193.3208.83,402.1* Common stock issued 1,7861.885.4(49.7)37.537.5* Appropriation of prior period net income265.2(265.2) - - * Dividends paid to non-controlling interests(30.7)(30.7)(1.1)(31.8)* Equity-based compensation15.115.10.415.5* Changes in auto-control shares and treasury stock0.10.10.1* Other5.15.1(4.7)0.4Transactions with owners1,7861.885.4205.1 - - (265.2)27.1(5.4)21.7* Net income 123.0123.014.9137.9* Other Comprehensive income50.7139.228.3218.21.3219.5Total comprehensive income for the period50.7139.228.3123.0341.216.2357.4At June 30, 2015103,120103.12,607.0660.444.823.3123.03,561.6219.63,781.2(in € million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests 32/67 C.4.6 Appendices to the interim condensed consolidated financial statements C.4.6.1 Basis of preparation The 2015 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at June 30, 2015. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The accounting policies, presentation and methods of computation that have been followed in these interim consolidated financial statements are in line with those that were applied in the preparation of the December 31st, 2014 financial statements and disclosed in the Group’s 2014 Reference Document. The interim consolidated financial statements for the six months ended June 30, 2015 have been prepared in accordance with the standard IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2014. The following standards, interpretations and amendments to existing standards that have been published are mandatory for the Group’s accounting period beginning on January 1, 2015: Annual improvement to IFRS 2011-2013 Cycle; IFRIC 21 Levies. The retrospective application of IFRIC 21 “Levies", which describes the criteria for recognizing a liability for levies other than income tax, had no material impact on the Group's consolidated profit for the first half of Fiscal Year 2015 (€ 1.7 million additional net expense) or its consolidated financial position at June 30, 2015. The impact of IFRIC 21 on the Group Equity as of January 1, 2015 has not been restated. Other changes in standards and interpretations had no impact on the Group’s consolidated financial statements. The consolidated financial statements do not take into account: Draft standards that are still at the exposure draft stage at the International Accounting Standards Board (IASB); New standards, interpretations and amendments to existing standards and interpretations not yet approved by the European Union. This notably concerns: o Regulatory Deferral Accounts (IFRS 14); o Accounting for Acquisition of Interests in Joint Operations (Amendments to IFRS 11); o Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38); o Equity Method in Separate Financial Statements (Amendment to IAS 27); o Sale or Contribution of Assets between an Investor and its Associate or Joint Venture o (Amendment to IFRS 10 and IAS 28); Investment Entities : Applying the Consolidated Exception (Amendments to IFRS 10, IFRS 12 and IAS 28); o Disclosure Initiative (Amendment to IAS 1); o Revenue from Contracts with customers (IFRS15); o Financial Instruments (IFRS 9); o Defined Benefits Plans : Employee Contributions (Amendments to IAS 19); o Annual improvement to IFRSs 2010-2012 Cycle; o Annual improvement to IFRSs 2012-2014 Cycle. The potential impact of these standards, amendments and interpretations on the consolidated financial statements is currently being assessed. 33/67 These consolidated financial statements are presented in euro, which is the Group’s functional currency. All figures are presented in € millions with one decimal. C.4.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortisation are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS19 revised, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. Benefit plans costs are recognized in the Group’s operating income, except for net interest on the net defined benefit liability (asset) which is recognized in “other financial income and expenses”. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. 34/67 C.4.6.3 Notes to the half-year condensed consolidated financial stateme nts Note 1 Changes of scope of consolidation XEROX ITO On June 30, 2015, Atos completed the acquisition of Xerox ITO which was announced in December 2014. Thanks to this acquisition, Atos will have a stronger and more balanced global presence. Xerox ITO business employs 9,451 employees in 47 countries of which 4,244 are located in the US and 3,857 are in global delivery countries such as India, the Philippines, and Mexico. With circa US$ 2 billion revenue, North America becomes one of the largest geographies for Atos where it is now ranked number 9 in ITO services following the acquisition. In addition, as announced at the time of signing, Atos has entered into a worldwide strategic collaboration with Xerox and becomes one of Xerox’s primary IT services providers. Consideration transferred: The net purchase price totaled US$ 966 million (€ 811 million), composed of US$ 950 million and an additional amount of US$ 50 million following the occurrence of certain events prior to closing, plus US$100 million representing the estimated present value of future tax benefits to Atos. Net debt items and closing adjustments amounted to US$ 134 million to be confirmed within 90 days. Impact in the Group consolidated financial Statements: As of June 30, 2015, in absence of detailed information to allocate the purchase price to identifiable assets acquired and liabilities assumed, Atos is not in a position to provide the information requested by IFRS 3.59. The Xerox ITO consideration paid or to be paid is presented under the caption ‘non-current financial assets’ in the Group Consolidated Financial Statements as of June 30, 2015. The Xerox ITO activities will be consolidated by Atos from July 1st, 2015. 35/67 Bull Identifiable assets acquired and liabilities assumed at the date of acquisition (in € million) Initial assets acquired and liability assumed Other AdjustmentAssets acquired and liabilty assumed at the end of the measurement period Intangible assets209.7(0.1)209.6Tangible assets64.3-64.3Investment in associates7.1-7.1Non-current financial assets39.2-39.2Deferred tax assets48.12.050.1Other non current asset0.2-0.2Total non-current assets368.51.9370.4Trade accounts and notes receivables295.0(7.6)287.4Current taxes4.7-4.7Other current assets203.2-203.2Current financial instruments0.6-0.6Cash and cash equivalents75.8-75.8Total current assets579.3(7.6)571.7Total assets (A)947.8(5.7)942.1Non-controlling interests0.51.92.4Total shareholder's equity0.51.92.4Provisions for pensions and similar benefits197.5(5.9)191.6Non-current provisions135.932.9168.8Borrowings147.3-147.3Deferred tax liabilities72.0-72.0Total non-current liabilities552.727.0579.7Trade accounts and notes payables79.9(1.5)78.4Current taxes3.81.04.8Current financial instruments0.8-0.8Current portion of borrowings19.5-19.5Other current liabilities322.1(3.8)318.3Total current liabilities426.0(4.3)421.7Total Liabilities (B)979.224.61,003.8Fair value of acquisition (A) - (B)(31.4)(30.3)(61.7) Identifiable assets acquired and liabilities assumed have been further analyzed during the first half of 2015 based on the better understanding of Bull acquired business. This analysis led to recognize an additional net liability of € 30.3 million mainly composed of additional provisions for losses and work in progress on contracts for which triggering events were originating prior to August 31, 2014. If new information is obtained within the end of August 2015 (12 months after acquisition date) about facts and circumstances that existed at the acquisition date that would lead to adjustments to opening balance sheet, then the acquisition accounting would be revised. Goodwill Goodwill recognized as a result of the acquisition is detailed as follows: (in € million)December 2014June 2015Total consideration paid602.7 602.7 Fair value of identifiable net assets(31.4)(61.7)Total Goodwil634.1 664.4 36/67 Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. In 2015, the chief operating decision maker decided to reorganize and reduce the operating segments. The following adaptations were detailed here below: The GBU Central & Eastern Europe and Iberia were transferred under the segment “Other Countries”. Operating segments in 2014 Bridge Operating segments in 2015 Central & Eastern Europe (CEE) Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Greece, Hungary, Italy, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Switzerland and Turkey Other Countries Iberia Andorra, Portugal and Spain Other Countries As a result of these changes, the Group segment organization in 2015 was the following: Operating segments United Kingdom & Ireland Consulting & Systems Integration, Managed Services and Big Data Activities Germany Benelux & The Nordics (BTN) France North America Other Countries Worldline and Security in Ireland and the United Kingdom. Consulting & Systems Integration and Managed Services in Germany. Consulting & Systems Integration, Managed Services and Big Data and Security in Belgium, Denmark, Estonia, Finland & Baltics, Luxembourg, Sweden and The Netherlands. Consulting & Systems Integration, Managed Services and Big Data and Security in France. Consulting & Systems Integration, Managed Services and Big Data and Security in Canada and United States of America. Consulting & Systems Integration, Managed Services and Big Data and Security in Algeria, Andorra, Argentina, Australia, Austria, Brazil, Bulgaria, China, Colombia, Croatia, Cyprus, Czech Republic, Egypt, Gabon, Greece, Hungary, Hong-Kong, India, Italy, Ivory Coast, Japan, Lithuania, Lebanon, Malaysia, Madagascar, Mauritius, Mexico, Morocco, Namibia, New-Zealand, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi-Arabia, Senegal, Singapore, Serbia, Slovakia, South-Africa, Spain, Switzerland, Taiwan, Thailand, Tunisia, Turkey, UAE, Uruguay and also Major Events activities. Hi-Tech Transactional Services & Specialized Businesses in Argentina, Austria, Belgium, Chile, China, France, Germany, Hong- Kong, Iberia, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, The Netherlands and the United Kingdom. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from each external contract amounted to less than 10% of the Group’s revenue. 37/67 The operating segment information for the periods is as follows: 6 months ended 30 June 2014 United Kingdom and IrelandGermanyBTNFranceNorth AmericaOther countriesWorldlineTotal Operating segmentsOther CorporateEliminationExternal revenue by segment994.9758.8515.3824.8340.4936.0571.04,941.24,941.2%20.1%15.4%10.4%16.7%6.9%18.9%11.6%100.0%100.0%Inter-segment revenue(24.5)90.145.949.417.2217.1(6.7)388.541.7(430.2) - Total revenue 970.4848.9561.2874.2357.61,153.1564.35,329.741.7(430.2)4,941.2Segment operating margin 102.941.147.630.126.359.978.1386.0(40.4)345.6%10.3%5.4%9.2%3.6%7.7%6.4%13.7%7.8%7.0%Total segment assets 1,140.4 885.1 731.4 1,404.4 240.1 1,542.2 992.5 6,936.1 1,124.1 8,060.2 External revenue by segment812.4784.0499.9505.0291.7748.1535.24,176.34,176.3%19.5%18.8%12.0%12.1%7.0%17.9%12.8%100.0%100.0%Inter-segment revenue35.896.249.536.313.6200.821.2453.4(453.4) - Total revenue 848.2880.2549.4541.3305.3948.9556.44,629.7-(453.4)4,176.3Segment operating margin 54.452.050.51.122.956.380.0317.2(42.6)274.6%6.7%6.6%10.1%0.2%7.9%7.5%14.9%7.6%6.6%Total segment assets939.7838.0927.8601.5189.71,223.61,196.85,917.11,078.96,996.0(in € million)(in € million)Total Group6 months ended 30 June 2015 38/67 The reportable assets are reconciled to total assets as follows: Total segment assets8,060.26,996.0Current & deferred tax Assets463.5546.5Cash & Cash Equivalents1,936.0922.2Total Assets10,459.78,464.730June 2014(in € million)30June 2015 Note 3 Personnel expenses (in € million)6 months ended 30 June2015% Revenue6 months ended 30 June2014% RevenueWages and salaries (2,011.0)40.7%(1,739.8)41.7%Social security charges(545.8)11.0%(461.0)11.0%Tax, training, profit-sharing(15.9)0.3%(17.3)0.4%Equity-based compensation(15.5)0.3%(9.3)0.2%Net (charge) /release to provisions for staff expenses4.4-0.1%(1.3)0.0%Net (charge)/release of pension provisions52.3-1.1%12.8-0.3%Total(2,531.5)51.2%(2,215.9)53.1% 39/67 Note 4 Operating expenses (in € million)6 months ended 30 June2015% Revenue6 months ended 30 June2014% RevenueSubcontracting costs direct(846.1)17.1%(587.1)14.1%Purchase hardware and software(312.4)6.3%(226.3)5.4%Maintenance costs(217.0)4.4%(200.5)4.8%Rent & Lease expenses(190.2)3.8%(141.5)3.4%Telecom costs(123.6)2.5%(143.7)3.4%Travelling expenses(93.8)1.9%(73.1)1.8%Company cars(37.4)0.8%(45.8)1.1%Professional fees (84.9)1.7%(73.0)1.7%Taxes & Similar expenses(22.7)0.5%(17.9)0.4%Others expenses(37.3)0.8%(71.3)1.7%Subtotal expenses (1,965.4)39.8%(1,580.3)37.8%Depreciation of assets(172.7)3.5%(149.0)3.6%Net (charge) / release to provisions37.7-0.8%29.9-0.7%Gains / (Losses) on disposal of assets0.30.0%(6.5)0.2%Trade Receivables write-off(8.4)0.2%(11.4)0.3%Capitalized Production44.4-0.9%31.5-0.8%Subtotal other expenses(98.7)2.0%(105.5)2.5%Total(2,064.1)41.8%(1,685.8)40.4% Note 5 Other operating income and expenses (in € million)6 months ended 30 June20156 months ended 30 June2014Staff reorganization(68.4)(81.7)Rationalization and associated costs(29.5)(22.5)Integration and acquisition costs(18.3)(7.1)Amortization of intangible assets (PPA from acquisitions) (31.2)(22.1)Other items(0.9)(11.8)Total(148.3)(145.2) The € 68.4 million staff reorganization expense was mainly the consequence of: the adaptation of the Group workforce in several countries such as Benelux & The Nordics, Central & Eastern Europe, Germany and Iberia; the streamlining of middle management layers, including Global Structures; the restructuring initiated on Bull G&A as part of the plan to generate cost synergies. 40/67 The € 29.5 million rationalization and associated costs primarily resulted from the closure of office premises and datacenters consolidation, mainly in Germany (€ 6.3 million) and Benelux & The Nordics (€ 5.7 million), linked to restructuring plans. This amount also includes external costs for the implementation of Worldline’s TEAM Program (€ 1.3 million) and for the optimization of G&A in the context of the Bull integration (€ 5.5 million). The € 18.3 million integration and acquisition costs represented mainly integration costs for Bull (€ 10.4 million) and Xerox integration and acquisition costs (€ 6.1 million). The € 0.9 million expense in other items corresponded mainly to a € 26.3 million exceptional loss recorded on a UK customer to cover both the depreciation of assets and receivables and an expected settlement to exit this contract. This loss was offset by € 27.7 million of releases of dilapidation provisions. Note 6 Net financial income Net financial expense amounted to € 10.7 million for the period (compared with € 21.0 million last year) and was composed of a net cost of financial debt of € 3.2 million and non-operational financial costs of € 7.5 million. Net cost of financial debt (in € million)6 months ended 30 June20156 months ended 30 June2014Net interest expenses(1.0)(4.1)Interest on obligations under finance leases(0.3)(0.3)Gain/(loss) on disposal of cash equivalents0.20.1Gain/(loss) on interest rate hedges of financial debt (2.1)(1.8)Net cost of financial debt(3.2)(6.1) The cost of net debt of € 3.2 million compared to € 6.1 million in the first half of 2014 including the following elements: An average expense rate of 2.34% on the average gross borrowings compared to 2.45% in 2014 and; An average income rate of 1.13% on the average gross cash compared to 0.64% in 2014. 41/67 Other financial income and expenses (in € million)6 months ended 30 June20156 months ended 30 June2014Foreign exchange income / (expenses) (0.4)(5.9)Fair value gain/(loss) on forward exchange contracts held for trading8.32.3Discounting financial income / (expenses) -(0.5)Other income / (expenses) (15.4)(10.8)Other financial income and expenses(7.5)(14.9)Of which:- other financial expenses(38.5)(54.8)- other financial income31.039.9 Non-operational financial costs amounted to € 7.5 million compared to € 14.9 million in June 2014 and mainly consisted of pension financial related costs (€ 14.8 million compared to € 7.0 million in 2014), net foreign exchange gain (€ 7.9 million compared to a net foreign exchange expense of € 3.7 million in 2014), and other expenses for € 0.6 million (including € 1.3 million for financing of receivables). The pension financial related costs represent the difference between interest costs on defined benefit obligations and the interest income on plan assets for plans which are funded. Note 7 Income tax expenses The tax charge for the six-month period ended June 30, 2015 was € 47.1 million including the French CVAE tax, with a profit before tax of € 186.6 million. The annualized Effective Tax Rate (ETR) of 24.8% adjusted for tax discrete items led to an ETR of 25.2%. 42/67 Note 8 Earnings per share Potential dilutive instruments comprised stock subscription (equivalent to 909,426 options) and did not generate a restatement of net income used for the diluted EPS calculation. The average number of stock options not exercised in June 2015 amounted to 2,372,382 shares. (in € million and shares)6 months ended 30 June20156 months ended 30 June2014Net income - Attributable to owners of the parent [a]123.076.4Impact of dilutive instruments --Net income restated of dilutive instruments - Attributable to owners of the parent [b]123.076.4Average number of shares outstanding [c] 100,253,782 98,809,813 Impact of dilutive instruments [d] 909,426 1,555,170 Diluted average number of shares [e]=[c]+[d] 101,163,208 100,364,983 Earnings per share in € [a]/[c]1.230.77Diluted earnings per share in € [b]/[e]1.220.76 Note 9 Goodwill (in € million)31 December 2014Impact of business combi-nationExchange rate fluctuations30June 2015Gross value3,214.330.3102.13,346.7Impairment loss(586.4)-(29.0)(615.4)Carrying amount2,627.930.373.12,731.3 During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event, even on the CGUs considered “sensitive” as of June 30, 2015. Note 10 Non-current financial assets (in € million)30June 201531 December 2014Pension prepayments153.7136.4Other (*)947.391.2Total1,101.0227.6(*)"Other"includeloans,deposits,guarantees,investmentsinassociatesaccountedforundertheequitymethod and non consolidated investments. The caption “Other” of € 947.3 million increased by € 856.1 million and corresponded mainly to the acquisition price of Xerox ITO for € 811 million. 43/67 Note 11 Trade accounts and notes receivable (in € million)30June 201531 December 2014Gross value2,148.52,231.8Transition costs3.15.6Provision for doubtful debts(123.0)(113.3)Net asset value2,028.62,124.1Prepayments(71.4)(87.1)Deferred income and upfront payments received(482.0)(458.8)Net accounts receivable 1,475.21,578.2Number of days’ sales outstanding (DSO)3938 Atos securitization program of trade receivables has been renewed for 5 years on June 18, 2013 with a maximum amount of receivables sold of € 500.0 million and a maximum amount of financing of € 200.0 million. The new program is structured with two compartments, called ON and OFF: Compartment “ON” is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level; Compartment “OFF” is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution. As of June 30, 2015, the Group has sold: In the compartment “ON” € 257.2 million receivables for which € 10.0 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet; In the compartment “OFF” € 41.8 million receivables which qualified for de-recognition as substantially all risks and rewards associated with the receivables were transferred. Note 12 Other current assets (in € million)30June 201531 December 2014Inventories52.252.1State - VAT receivables105.399.5Prepaid expenses284.7200.9Other receivables & current assets357.9270.8Advance payment12.724.9Total812.8648.2 Note 13 Cash and cash equivalents (in € million)30June 201531 December 2014Cash in hand and short-term bank deposit1,110.4861.2Money market funds 825.6759.1Total1,936.01,620.3 Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. 44/67 Note 14 Pensions The net total amount recognized in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits is € 1,025.2 million. Reference discount rates for the Eurozone have increased significantly since December 31, 2014, therefore plan liabilities and plan assets for major plans in this region have been remeasured per June 30, 2015. Plans in the UK and Switzerland have not been remeasured as no comparable significant moves have been observed. The following discount rates have been used: (in %)30June201531 December 2014Euro zone (long duration plans)2.55%2.20%Euro zone (other plans)2.05%1.60%United Kingdom3.70%3.70% The increase in reference discount rates has led to an improvement of the net balance sheet position (recorded through other comprehensive income in the balance sheet) of € 57.0 million. During the first half of 2015, pension benefits within corporate structures have been redefined both in terms of eligibility criteria which have been clarified and benefit formula. The associated reduction in liability of € 17.8 million has been recorded in operating expenses. In Germany the indexing policy was adjusted to reflect that pensions in payment will not be indexed in years when the local financial situation does not support the cost of indexing, leading to a net one-off reduction of operating expenses of € 7.0 million. Furthermore, a lump sum option was introduced and the option for retirees to have their benefit paid out in instalments was incorporated in liability measurement. The related effects were a reduction of operating expenses of € 12.8 million and a further reduction in net liabilities of € 22.0 million recorded through other comprehensive income in the balance sheet. The net total amount recognized in the balance sheet in Group accounts in respect of pension plans and other long term employee benefits at June 30, 2015 is € 1,025.2 million compared to € 1,121.7 million at December 31, 2014. The development of pension provisions over the half year is therefore as follows: (in € million)30June201531 December 2014Amounts recognized in financial statements consist of :Prepaid pension asset – post employment plans153.7136.4Accruedliability-postemploymentplansandotherlongtermbenefit plans(1,178.9)(1,258.1)Net amounts recognized – Total(1,025.2)(1,121.7) 45/67 The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (in € million)6 months ended 30 June20156 months ended 30 June2014Operating margin4.2(28.3)Other operating items(1.5)(1.0)Financial result(14.8)(7.0)Total (expense)/profit(12.1)(36.3) Note 15 Provisions (in € million)31 December 2014ChargeRelease usedRelease unusedBusinessCombi-nationOther (*)30June2015CurrentNon- currentReorganization101.734.1(53.4)(10.0)-0.172.561.211.3Rationalization33.66.3(7.4)(6.0)-2.028.59.419.1Project commitments114.134.0(36.2)(13.7)18.65.9122.799.822.9Litigations and contingencies108.38.7(8.5)(32.5)14.37.998.261.536.7Total provisions357.783.1(105.5)(62.2)32.915.9321.9231.990.0(*) Other movements mainly consist of the currency translation adjustments. Note 16 Borrowings Change in net debt over the period (in € million)30June2015Opening net cash / (debt)989.1(946.0)12.5251.967.2(0.2)Other flows related to financing activities(20.5)Closing net cash / (debt)354.0Profit-sharing amounts payable to French employees transferred to debtNew borrowingsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debt In respect with the acquisition of the Xerox ITO assets, Atos has secured the availability of the funds for the date of the closing of the transaction with a one month specific drawdown of the € 1.8 billion Credit Facility covering the purchase price. Most of this drawdown is expected to be repaid on July 29, 2015 with the cash of the Group. 46/67 Note 17 Trade accounts and notes payable (in € million)30June 201531 December 2014Trade payables and notes payable1,506.41,396.0Amounts payable on tangible assets1.01.0Trade payables and notes payable1,507.41,397.0Net advance payments(12.7)(24.9)Prepaid expenses(284.7)(200.9)Net accounts payable1,210.01,171.2Number of days’ payable outstanding (DPO)8778 Trade accounts and notes payable are expected to be paid within one year. 47/67 Note 18 Cash flow statements Net long-term investments (in € million)6 months ended 30 June20156 months ended 30 June201412 months ended 31 December 2014Amountspaidforacquisitionsandlong-terminvestments :Xerox ITO (811.0)--Bull (restrictive cash for planned acquisition)-(628.3)(602.7)Cambridge Technology Partners (CEE)-(21.0)(21.0)SiT (Austria)--2.2Deposit(2.2)(16.0)(1.0)Other(3.9)(3.8)(11.0)Total amounts paid for acquisitions and long-term investments (817.1)(669.1)(633.5)Cashandcashequivalentsofcompaniespurchased during the period:Bull --(9.5)Cambridge Technology Partners (CEE)-5.85.8Totalcashandcashequivalentsofcompanies purchased during the period-5.8(3.7)Proceedsfromdisposalsoffinancialinvestments:Deposit1.016.84.4Other4.91.44.6Totalproceedsfromdisposalsoffinancialinvestments5.918.29.0Dividendreceivedfromentitiesconsolidatedby equity method:Dividendreceivedfromentitiesconsolidatedbyequity method--2.5Totaldividendreceivedfromentitiesconsolidated by equity method--2.5Net long-term investments(811.2)(645.1)(625.7) Net cash and cash equivalents (in € million)30June201531 December 20141,936.01,620.3(61.9) (77.8)Total net cash and cash equivalents1,874.11,542.5Cash and cash equivalents Overdrafts 48/67 Note 19 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 28, 2015. Note 20 Subsequent event In July, Atos completed the successful placement and admission to trading on Euronext Paris of its first bond issue. This bond issue totaled € 600 million, with a five year maturity and a coupon rate of 2.375%. 49/67 C.5 Statutory Auditors’ report on the half -year financial information for the period ended June 30, 2015 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2015, the verification of the information contained in the interim management report. These interim condensed consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information given in the interim management report commenting the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Neuilly-sur-Seine and Paris, July 29, 2015 The Statutory Auditors Deloitte & Associés Grant Thornton French member of Grant Thornton International Jean-Pierre Agazzi Victor Amselem 50/67 D CORPORATE GOVERNANCE D.1 Office renewals and appointment of directors The Company’s Combined General Meeting held on May 28, 2015 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the term of office of Directors Messrs. Thierry Breton (French citizen), Bertrand Meunier (French citizen) and Pasquale Pistorio (Italian citizen) and ratified the appointment of Ms. Valérie Bernis (French citizen) as director. Following the renewal of the Directors’ terms of office, the Board of Directors meeting held after the General Meeting decided to (i) renew Mr. Thierry Breton as Chairman and Chief Executive Officer for the duration of his mandate as Director, (ii) renew Mr. Pasquale Pistorio’s mandate as Lead Director and (iii) confirmed the composition of the Board’s Committees. D.2 Composition of the Board of Directors D.2.1 Composition as at June 30, 2015 As of the date of this Update of the Registration Document, the Board of Directors, comprised of 11 persons including 8 independent directors, was the following: Name of the Director Mr Thierry BRETON Mr Nicolas BAZIRE* Ms Valérie BERNIS* Mr Roland BUSCH Ms Jean FLEMING Mr Bertrand MEUNIER* Ms Colette NEUVILLE* Ms Aminata NIANE* Ms Lynn PAINE* Mr Pasquale PISTORIO* Mr Vernon SANKEY* Date of first appointment or latest renewal May 28 2015 May 27 2014 May 28 2015** May 27 2014 May 29 2013 May 28 2015 May 27 2014 May 29 2013 May 29 2013 May 28 2015 May 29 2013 Date of the expiry of the mandate AGM 2018 AGM 2017 AGM 2017 AGM 2017 AGM 2017 AGM 2018 AGM 2017 AGM 2016 AGM 2016 AGM 2018 AGM 2016 Independent Director ** Temporarily appointed as director by the Board of Directors during its meeting held on April, the 15 2015, to replace Mr. Michel Paris, having resigned, for the remaining duration of her predecessor’s term, and whose appointment was ratified by the combined general meeting of May 28, 2015 D.2.2 Directors’ independence The following elements supplement Paragraph G.3.1.4 of the 2014 Registration Document so far as it concerns the criteria of 2% of turnover on the basis of which the directors’ independence is acknowledged: “This criteria of 2% of the consolidated turnover achieved by the Company with a group within which one of its directors exercises a function, was set by the Board of Directors upon recommendation of the Nomination and Remuneration Committee and upon independent directors’ opinion, on the basis of the particularities of the Atos group activity, and in particular the rigorous procedures related to answers to bidding processes. In connection with the independence review that took place in December 2014, the data analyzed by the Nomination and Remuneration Committee and then presented to the Board of Directors showed that the amount of sales by the Atos Group to any of the concerned groups was much lower than 1% of the Atos Group consolidated turnover over the examined period in 2014 (January 1 st to October 31, 2014). Besides, the Board took into account the non-significant feature of the business relation for the other party and the nature of the links between the directors and Atos’ concerned clients”. 51/67 D.3 Combined General Meeting held on May 28, 2015 The Combined General Meeting held on May 28, 2015 approved all the resolutions submitted by the Board of Directors. The results of the votes at the Combined General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. D.4 Executive compensation and stock ownership D.4.1 Performance shares allocation plan decided on July 28, 2015 In connection with the authorization granted, for thirty-eight months, by the Combined General Meeting of May 27, 2014 (twenty-second resolution), the Board of Directors, during its meeting held on July 28, 2015, and upon the recommendation of the Nomination and Remuneration Committee, decided to proceed with the allocation of 868,000 ordinary performance shares of the Company, to be issued in favor of the first managerial lines of Atos, including the Chairman and Chief Executive Officer. Performance conditions to be achieved over the three years 2015, 2016 and 2017 of the new plan relate to internal financial criteria linked to profitability, free cash flow and revenue growth, identical to those of the previous plan of July 28, 2014. As for the July 28, 2014 plan, the plan also provides for an external condition linked to the social and environmental performance of the company. The features of the performance share allocation plan are as follows: 1. Condition of attendance: Subject to certain exceptions provided for in the plan, the allocation of performance shares is conditioned on the preservation of employee or corporate officer status by the beneficiary during the vesting period; 2. Performance condition: The allocation of performance shares is also subject to the achievement of the following internal and external performance conditions, calculated for the three years 2015, 2016, and 2017: Internal performance conditions For each of the years 2015, 2016, and 2017: the Group free cash flow before dividend and acquisition/sales results is at least equal to one of the following amounts: (i) (ii) 85% of the amount of the Group free cash flow, before dividends and acquisition/sales results, as mentioned in the Company’s budget. This condition is assessed on an annual basis for each year 2015 and 2016 and on the first semester basis for the year 2017. or the amount of the Group free cash flow before dividends and acquisition/sales results for the previous period with a 10% increase; the previous period is defined as the previous year for each year 2015 and 2016 and the first semester 2016 for the first semester 2017. the Group operating margin is at least equal to one of the following amounts: (i) (ii) 85% of the amount of the Group’s operating margin as mentioned in the Company's budget. This condition is assessed on an annual basis for each year 2015 and 2016 and on the first semester basis for the year 2017. or the amount of the Group operating margin for the previous period with a 10% increase; the previous period is defined as the previous year for each year 2015 and 2016 and the first semester 2016 for the first semester 2017. 52/67 Revenue growth for 2015, 2016, and for the first semester 2017 is at least equal to one of the two following amounts: (i) (ii) Revenue growth rate as mentioned in the Company’s budget minus a percentage decided by the Board of Directors; or Yearly growth rate per reference to the Group growth targets communicated in the framework of the 3 year plan 2014-2016 (updated in June 2015) and for the first semester 2017. It being specified that: - As far as 2015 and 2016 are concerned, for each year, at least 2 of 3 internal performance criteria must be met. If one criterion is not met for the year 2015, this criteria becomes compulsory for the following year; As far as 2017 is concerned, at least 2 of 3 criteria must be met. External performance condition For the years 2015, 2016, and 2017: at least achieve the rating of GRI G4 “Comprehensive” (former GRI A); or become part of the Dow Jones Sustainability Index (Europe or World) (annual rating) The condition is achieved as soon as this criterion is validated at least two years during the period. 3. Acquisition and conservation periods: The allocation of performance shares decided by the Board of Directors of Atos SE dated July 28, 2015 consists of two plans (France and International). Either plan applies depending on whether the beneficiary is an employee of a group entity located in France or abroad. Plan France: Beneficiaries of performance shares will definitively acquire the shares in 2018, as early as one of the two following dates: on January 2, 2018 or at the date of validation of the 2017 external performance criterion, if necessary. It is stipulated that these performance shares will further be subject to the aforementioned condition of attendance, subject to certain exceptions stated in the plan; the beneficiaries will also be required to retain the shares thus acquired for a period of two years following this date. The Chairman and Chief Executive Officer is a Plan France beneficiary. Plan International: Beneficiaries of performance shares who are employees of companies of the Atos Group with registered office outside France will definitively acquire the performance shares allocated to them on January 2, 2020, subject to achieving the performance conditions and the aforementioned condition of attendance. The shares thus acquired will not be subject to any conservation obligation and will be immediately available for sale by their beneficiaries. 4. Specific supplementary provisions applicable to the Chairman and Chief Executive Officer: The Board of Directors allocated 55,000 performance shares to the Chairman and Chief Executive Officer. This amount takes into account the recommendations of the AFEP-MEDEF Corporate Governance Code with respect to the Chairman and Chief Executive Officer, as well as his compensation over 3 years as set by the Board of Director's decision as confirmed by the general meeting of December the 27th, 2013 and in particular that the portion of compensation in shares awarded to the Chief Executive Officer does not exceed 45% of his total annual compensation. In its analysis, the Board of Directors, upon the recommendation of the Nomination and Remuneration Committee, considered the following elements: the allocation of 55,000 performance shares to the Chairman and Chief Executive Officer represents around 6.3% of the total number of allocated shares; the number of shares allocated to the Chairman and Chief Executive Officer constitutes a reasonable projection, in case of an increase of the Company’s share price, in order not to exceed the threshold of a compensation in shares of 45% of his total annual compensation; 53/67 the conservation obligation, for the duration of his duties, of 15% of performance shares allocated to him will also apply to the Chairman and Chief Executive Officer. Will also apply the prohibition to conclude any financial hedging instruments over the shares being the subject of the award during the whole duration of the mandate of the Chief Executive Officer. D.4.2 Performance shares that have become available since January 1st, 2015 for the Chairman and CEO – AMF Table 7 Since January 1, 2015, performance shares granted on July 24th, 2013, were finally vested to their beneficiaries, according to the France Plan Rules. The performance conditions related to 2013 and 2014. The Chairman and Chief Executive Officer is a beneficiary of this plan. Acquisition terms and conditions are described in the 2014 Registration Document in part G.4.3.2. Furthermore, beneficiaries are required to remain owner of their acquired shares for an additional period of two years; the shares will become available for possible sale on July 24, 2017. Plan dateNumber if shares vested since January 1st, 2015Vesting dateNumber of shares made available since January 1st, 2015Availability dateChairman and CEOJuly 24, 201345,000July 24, 20150July 24, 2017 D.4.3 Subscription or purchase options exercised since January 1st, 2015 by the Chairman and CEO – AMF Table 5 Name of the executivePlan date(Grant date)Number if options exercised since January 1st, 2015Exercise price in €Thierry BretonChairman and CEOPLAN 12.23.08 Tranche 3200,13026.4Total200,130 Further to the exercise of 200,130 stock options, as mentioned hereinabove, the Chairman and Chief Executive Officer proceeded on January 5, 2015 to the disposal of 4,130 shares. The Chairman and Chief Executive Officer also preceded to the disposal of 5,000 shares, which were not subject to any retaining obligation, on May the 19, 2015. Following these operations and those mentioned in paragraph D.4.2 hereinabove, the Chairman and Chief Executive Officer holds, as of the date of this Document, 532,914 shares resulting from the exercise of options. In addition, he possesses 65,000 performance shares vested pursuant to the plan of December 22, 2011 (these will become available for possible sale on December 22, 2015 for 50% and March 17, 2016 for the remaining 50%) and 45,000 performance shares vested pursuant to the plan of July 24, 2013 (these will become available for possible sale on July 24, 2017). D.5 Bond issue On The Company proceeded to the successful placement of its first bond issue on June 26, 2015. This bond issue totals € 600 million, with a 5-year maturity. The coupon rate is 2.375%. Atos and the bonds are unrated. This first landmark transaction, which confirms investors’ confidence in the Group’s strategy, allows Atos to diversify its financing sources in line with its 3-year plan 2014-2016, while benefiting from long-term resources at an attractive cost. The French Autorité des Marchés Financiers (the “AMF”) granted visa n°15-319 dated June 29, 2015 to the prospectus. Admission of the bonds to trading on Euronext Paris was effective on the settlement date, which took place on July 2, 2015. 54/67 E Common Stock Evolution E.1 Basic data Atos SE shares are traded on the Paris Euronext Market under code ISIN FR0000051732. The shares have been listed in Paris since 1995. The shares are not listed on any other stock exchange. E.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN : 103,119,075 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Euronext Paris Segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 Payability PEA/SRD : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext AFP ATO ATO Reuters Thomson ATOS.PA ATO FR Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services The shares are also components of the following indices: Index Type Code ISIN Market Place Euronext (Compartment A) Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext CAC 70 Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext 100 Global Europe FR0003502079 Paris-Amsterdam-Brussels-Lisbon SBF 80 Global FR0003999473 Paris PX8 SBF 120 Global FR0003999481 Paris PX4 SBF 250 Global FR0003999499 Paris PX5 CAC IT20 Sector QS0010989091 Paris CIT20 CAC IT Sector FR0003501980 Paris PXT DJ Euro Stoxx Techno Sector EUR0009658541 Germany-Xetra SX8E CAC Technology Sector QS0011017827 Paris CAC Software & Computer Services Sustainability: DJSI World, FTSE4Good, Ethibel Excellence (both Euro and Europe zone), Vigeo Sector FR0000051732 Paris 55/67 E.1.2 Free Float The free-float of the Group shares exclude stakes held by the reference shareholder, Siemens AG holding a stake of 11% of the share capital which it committed to keep until June 30, 2016. Financière Daunou 17 declared on March 3, 2015 to the AMF (Authorité des Marchés Financier; Financial Markets Authority) having crossed downwards the threshold of 5% of the capital and voting rights of the Company following the sale off-market of 9,200,000 shares of the Company as part of an Accelerated Book Building procedure. No other shareholder has announced holding more than 5% in the Group’s share capital. Stakes owned by the employees are also excluded from the free float. As at June 30, 2015 Shares % of share capital % of voting rights Treasury stock 1,229,264 1.2% 0.0% Siemens 12,483,153 12.1% 12.3% Board of Directors 606,962 0.6% 0.6% Employees 2,738,202 2.7% 2.7% Free float 86,061,494 83.5% 84.5% Total 103,119,075 100.0% 100.0% E.2 Dividend policy On a proposal from the Board of directors, the Combined General Meeting held on May 28, 2015, approved the payment in 2015 of a dividend of 0.80 euro per share on the 2014 results as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal period 2014 2013 2012 Dividend paid per share (in €) € 0.80 € 0.70 € 0.60 E.3 Financial calendar October 22, 2015 Third quarter 2015 revenue E.4 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti, Executive Vice President, Investor Relations & Financial Communication Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Benoit d’Amécourt, Investor Relations Manager +33 (0)1 73 26 02 27 benoit.damecourt@atos.net Requests for information can also be sent by email to investors@atos.net 56/67 E.5 Common stock E.5.1 At June 30, 2015 As at June 30, 2015, on the basis of a decision of the Chairman and Chief Executive Officer dated as of July 3, 2015 the Company’s issued common stock amounted to € 103,119,075 divided into 103,119,075 fully paid-up shares of € 1.00 par value each. Since December 31, 2014, the share capital was increased by € 1,786,548, corresponding to the issuance of 1,786,548 new shares, split as follows: 999,316 new shares resulting from the exercise of stock options, issuance premiums amounting to € 36,452,182 in the aggregate, 787,232 new shares resulting from the payment of the 2014 dividend in shares, issuance premiums amounting to € 49,107,532.16 in the aggregate. E.5.2 Shareholders’ agreements To the Company’s knowledge, there is no other agreement capable of having a material effect, in case of public offer on the share capital of the Company than the ones mentioned in the 2014 Registration Document, in part G.7.7.5. E.5.3 Treasury stock E.5.3.1 Legal Framework The 12th resolution of the Combined General Meeting of May 28, 2015 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to the general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. These purchases may be carried out by virtue of any allocation permitted by law, with the aims of this share repurchasing program being: to keep them and subsequently use them for payment or exchange in relation to possible external growth operations, in accordance with market practices accepted by the Autorité des Marchés Financiers (French Financial Market Authority), it being specified that the maximum amount of shares acquired by the Company to this end shall not exceed 5% of the share capital, to ensure liquidity and an active market of the Company’s shares through an investment service provider acting independently pursuant to a liquidity contract, in accordance with the professional conduct charter accepted by the Autorité des Marchés Financiers (French Financial Market Authority), to attribute or sell these shares to the executive officers and directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or admitted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) free awards of share in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions laid down by market authorities and at such times as the board of directors or the person acting upon its delegation so decides, to remit the shares acquired upon the exercise of rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations in relation to the issuance of such securities, under the terms and conditions laid down by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides, or 57/67 to cancel them as a whole or in part through a reduction of the share capital pursuant to the 13th resolution of the Combined General Meeting held on May 28, 2015, or The maximum purchase price per share may not exceed € 100 (fees excluded). The Board of Directors may adjust the aforementioned purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and attribution of free shares, as well as in the event of division of the nominal value of the share or regrouping of the shares to take account of the effect of these operations on the value of the share. As a result, the maximum amount of funds assigned to the share repurchasing program amounts to € 1,013,325,270 as calculated on the basis of the share capital as at December 31, 2014, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from May 28, 2015. E.5.3.2 Treasury Stock As at June 30, 2015, the Company owned 1,229,264 shares which amounted to 1.19% of the share capital with a portfolio value of € 82,336,102.72, based on June 30, 2015 market price, and with book value of € 77,390,704.79. These shares are assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. E.5.4 Potential common stock E.5.4.1 Potential dilution Based on 103,119,075 issued shares as at June 30, 2015, the common stock of the Group could be increased by 1,697,692 new shares, representing 1.6% of the common stock before dilution. This dilution could occur with the exercise of all stock subscription options granted to employees. Performance shares are not considered as potentially dilutive as the Group expects to purchase on the market the shares to be delivered to employees. As such, the potential dilution is calculated as follows: In shares June 30, 2015 December 31, 2014 Change % dilution Number of shares outstanding From stock subscription options 103,119,075 1,697,692 101,332,527 1,786,548 2,806,747 1,109,055 1.6% Potential dilution 1,697,692 2,806,747 -1,109,055 1.6% Total potential common stock 104,816,767 104,139,274 677,493 Stock options evolution Number of stock subscription options at December 31, 2014 2,806,747 Stock subscription options granted during the first semester of 2015 0 Stock subscription options exercised during the first semester of 2015 999,316 Stock subscription options expired or cancelled during the first semester of 2015 109,739 Number of stock subscription options at June 30, 2015 1,697,692 58/67 E.5.4.2 Current authorizations to issue shares and other securities Pursuant to the resolution adopted by the General Meeting of May 28, 2015, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of the date of this document: Authorization (euros) Authorization amount (par value) Use of the authorizations (par value) Unused balance (par value) Authorization expiration date E.G.M. 28 May 2015 12th resolution Authorization to buyback the Company shares 10% of the share capital adjusted at any moment 0 10% 11/28/2016 (18 months) E.G.M. 28 May 2015 13th resolution Share capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 11/28/2016 (18 months) E.G.M. 28 May 2015 14th resolution Share capital increase reserved to the employees (*) 2,045,885 0 2,045,885 07/28/2017 (26 months) E.G.M. 27 May 2014 15th resolution Share capital increase with preferential subscription right 29,878,460 0 29,878,460 07/27/2016 (26 months) E.G.M. 27 May 2014 16th resolution Share capital increase without preferential subscription right by public offer (*) (**) 9,959,486 0 9,959,486 07/27/2016 (26 months) E.G.M. 27 May 2014 17th resolution Share capital increase without preferential subscription right by private placement (*) (**) E.G.M. 27 May 2014 18th resolution Share capital increase without preferential subscription right to remunerate contribution in kind (*) E.G.M. 27 May 2014 19th resolution Increase of the number of securities in case of share capital increase with or without preferential subscription right (*) (**) (***) 9,959,486 9,959,486 Extension by 15% maximum of the initial issuance 0 0 0 9,959,486 9,959,486 Extension by 15% maximum of the initial issuance 07/27/2016 (26 months) 07/27/2016 (26 months) 07/27/2016(26 months) E.G.M. 27 May 2014 20th resolution Share capital increase through incorporation of premiums, reserves, benefits or other (*) 29,878,460 0 29,878,460 07/27/2016 (26 months) 59/67 E.G.M. 27 May 2014 22nd resolution Grant of performance shares to employees and executive officers 995,948 868 000 127,948 07/27/2017 (38 months) E.G.M. 29 May 2013 15th resolution Grant of performance shares to employees and executive officers 1,031,190 691,000 340,190 07/29/2016 (38 months) (*) Any share capital increase pursuant to the 16th, 17th, 18th, 19th, 20th resolutions of the Combined General Meeting of May 27, 2014 and of the 14th resolution of the Combined General Meeting of May 28, 2015 shall be deducted from the cap set by the 15 th resolution of the Combined General Meeting of May 27, 2015. (**) The share capital increases without preferential subscription right carried out pursuant to the 16 th, 17th, 18th and 19th resolutions of the Combined General Meeting of May 27, 2014 are subject to an aggregate sub-cap corresponding to 10% of the share capital of the Company on the day of the Combined General Meeting of May 27, 2014 (i.e. 9,959,486 euros). Any share capital increase pursuan t to these resolutions shall be deducted from this aggregate sub-cap. (***) The additional issuance shall be deducted from (i) the cap of the resolution pursuant to which the initial issuance was decided, (ii) the aggregate cap set by the 15th resolution of the Combined General Meeting of May 27, 2014, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at (**) here above. The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the nineteenth resolution of the General Meeting of May 27, 2014 being set aside) amounts to 31,905,599.83, representing 31.49% of the share capital updated on June 30, 2015. E.5.5 First half of 2015 and subsequent key trading dates January Atos unveiled its vision and anticipates the technology shifts that will shape business through to 2018 in Ascent Journey 2018 - The 3rd Digital Revolution: Agility and Fragility, a unique research conducted by the 100 top business technologists from the Atos Scientific Community. February On February 18, Atos announced its 2014 annual results. Revenue was € 9,051 million, +5.1% year-on- year and -1.1% at constant scope and exchange rates. In the fourth quarter, revenue organic evolution was +0.1%. Operating margin was € 701.9 million, representing 7.8% of revenue, compared to 7.5% in 2013. Order entry was € 9.1 billion representing a book to bill ratio of 101%. Full backlog increased by €+0.9 billion to € 16.2 billion, representing 1.7 year of revenue. Net cash position was € 989 million at the end of 2014. Free cash flow was € 367 million in 2014 compared to € 365 million in 2013. Net income was € 283 million, up +8.8% year-on-year and net income Group share was € 265 million, up +1.4% compared to 2013. The Group announced its objective in 2015 to increase revenue and profitability in line with the 3-year plan taking full advantage of 2014 achievements. On February 25, PAI Partners sold to other investors via an Accelerated Bookbuilt Offering most of its remaining shares of Atos SE, i.e. 9,200,000 shares representing 9% of the share capital, at a price per share of € 63.25. Atos and EMC announced plans on February 26 to further strengthen their strategic alliance. Atos has decided to re-integrate the Canopy subsidiary and make it part of the Atos corporate structure. EMC and VMware intend to continue their strategic long-term investment, now as shareholders of Atos. These moves will allow the continuous support and strong collaboration of EMC and VMware with Canopy, while strengthening the partnership between the EMC Federation of strategically aligned businesses and Atos Consulting & System integration as well as the newly created Big Data & Cyber-Security Atos divisions. 60/67 April Atos announced on April 22 its first quarter 2015 revenue. In the first quarter, revenue was € 2,427 million, up +17.6% year-on-year and up +0.2% at constant scope and exchange rates. Order entry was € 2,198 million, up +31.5% year-on-year, representing a book to bill ratio at 91%. Full backlog was € 16.6 billion, representing 1.7 years of revenue. Full qualified pipeline totaled at € 5.6 billion, representing 6.7 months of revenue. May Atos SE held on May 28 its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved. In particular, the General Meeting approved the annual and consolidated accounts for the financial year ended December 31st, 2014, the dividend payment of €0.80 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors of Thierry Breton, Bertrand Meunier and Pasquale Pistorio, and ratified the appointment as Director of Valérie Bernis. June Atos held on June 18 an Analyst Day in its Headquarters in Bezons (France) to present its new positioning and profile. During the first half of its 3-year plan that will end in December 2016, Atos has accelerated its transformation with the completion of the Worldline IPO, the integration of the Bull operations and technologies, and the announcement of the project to acquire Xerox ITO in North America. The Group provided an update on “2016 Ambition” targets, halfway through the 2014-2016 3-year plan and taking into account its recent achievements. Compared to 2014, the Group intends to double its net income Group share to circa €530 million in 2016. This strong increase will be led by the profitability improvement, additional operating margin from scope expansion, reduction in restructuring costs, and a new tax profile. Atos announced the successful placement of its first bond issue on June 26. The bond issue has been significantly oversubscribed by a large and diversified European investor base, which allowed Atos to increase the size of the issue from € 500 million to € 600 million. This bond issue totals € 600 million, with a 5-year maturity. The coupon rate is 2.375%. On June 30, Atos completed the acquisition of Xerox ITO which reinforces its position as a global leader in digital services for a net purchase price which totaled US$ 966 million (€ 811 million). With circa US$ 2 billion revenue, North America becomes the largest geography for Atos where it is now ranked number 9 in ITO services. July On July 29, Atos announced its first half 2015 results. Revenue was € 4,941 million, up +18% year-on- year and up +0.3% at constant scope and exchange rates. Organic growth in the second quarter of 2015 was +0.3%, continuing the positive trend recorded in the fourth quarter of 2014 (+0.1% organic growth) and in the first quarter of 2015 (+0.2% organic growth). Operating margin was € 345.6 million, up +26% year-on-year and representing 7.0% of revenue, an improvement by +60 basis points on a like for like basis. Net income was € 138 million, up +79% year-on-year and Net income Group share was € 123 million, up +61% year-on-year. Free cash flow totaled € 141 million during the first half of 2015 and the Group net cash position at the end of June was € 354 million. Commercial activity was strong in Q2 with a book to bill ratio of 115% leading to a book to bill ratio of 103% and an order entry totaling € 5,088 million for the first half of 2015. 61/67 F RISKS ANALYSIS The Company conducted a review of risks that could have a material adverse impact on its business, or results (or its ability to achieve its objectives) and considers that there are no significant risks other than those presented in the 2014 Registration Document filed with the AMF on April 1st, 2015. The Atos Group is a global business operating in 66 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on problems and potential disputes. All disputes and potential claims are carefully monitored, reported and managed in an appropriate manner. During the first half-year of 2015 there was a small increase in the number of claims involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2015, to cover for the identified claims and litigations (including the former Bull cases), added up to € 104.7 million (including tax and social contribution claims but excluding labor claims). F.1 Tax and Social Contribution claims The Group is involved in a number of routine tax & social contribution claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. A number of the tax & social contribution claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non-contentious administrative procedures. The total provision for tax & social contribution claims (including the former Bull cases), as inscribed in the consolidated accounts closed as at June 30, 2015, was € 23.3 million. F.2 Commercial claims There are a small number of commercial claims across the Group, having regard to the size of the Group’s operations. The group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. There were a number of significant on-going commercial cases in various jurisdictions that the group acquired through both the acquisitions of Siemens IT Solutions and Services, and of Bull. Some of these cases involve claims on behalf of the group and a number of the cases have already been successfully resolved. The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at June 30, 2015, was € 81.4 million. 62/67 F.3 Labor claims There are over 80,000 employees in the Group and relatively few labor claims. In most jurisdictions there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value and these cases are mostly in South America, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. There are 21 claims against the Group which exceed € 300,000. The provision for these claims, as inscribed in the consolidated accounts closed as at June 30, 2015 was € 2.2 million. F.4 Representation & Warranty claims The Group is not a party to any material representation & warranty claims arising out of acquisitions/dispositions. F.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. 63/67 G LOCATIONS Global Headquarter River Ouest 80, quai Voltaire 95 877 Bezons Cedex Tel.: +33 1 73 26 00 00 Americas Argentina Brazil Canada Chile Colombia Mexico Uruguay USA Asia-Pacific Australia China Hong Kong Indonesia Japan Malaysia New-Zealand Philippines Singapore Taiwan Thailand Europe Andorra Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Italy Ireland Lithuania Luxembourg Poland Portugal Romania Russia Serbia Slovakia Spain Sweden Switzerland The Netherlands United Kingdom 64/67 India, Middle-East & Africa Algeria Benin Burkina Faso Egypt Gabon India Ivory-coast Lebanon Madagascar Mali Mauritius Morocco Qatar Saudi Arabia Senegal South Africa Turkey United Arab Emirates H FULL INDEX Contents ..................................................................................................................................... 2 A Persons responsibles ............................................................................................................... 3 A.1 For the Update of the Registration Document ..................................................................... 3 A.2 For the accuracy of the Update of the Registration Document ............................................... 3 A.3 For the audit .................................................................................................................. 3 B Atos in the first half of 2015 .................................................................................................... 4 C Finance ................................................................................................................................. 6 C.1 Operational review .......................................................................................................... 6 C.1.1 Executive summary .................................................................................................. 6 C.1.2 Statutory to constant scope and exchange rates reconciliation ....................................... 8 C.1.3 Revenue profile ...................................................................................................... 10 C.1.3.1 By Service Line ............................................................................................... 10 C.1.3.2 By Business Unit ............................................................................................. 10 C.1.3.3 By Market ....................................................................................................... 10 C.1.4 Performance by Service Line .................................................................................... 11 C.1.4.1 Managed Services ........................................................................................... 11 C.1.4.2 Consulting & Systems Integration ...................................................................... 12 C.1.4.3 Big Data & Cyber-security ................................................................................ 13 C.1.4.4 Worldline ........................................................................................................ 13 C.1.5 Performance by Business Units ................................................................................ 14 C.1.5.1 United Kingdom & Ireland ................................................................................ 14 C.1.5.2 France ........................................................................................................... 15 C.1.5.3 Germany ........................................................................................................ 16 C.1.5.4 Benelux & The Nordics ..................................................................................... 17 C.1.5.5 North America ................................................................................................. 17 C.1.5.6 Other Business Units ........................................................................................ 18 C.1.5.7 Global structures ............................................................................................. 18 C.1.6 Revenue by Market................................................................................................. 18 C.1.7 Portfolio ................................................................................................................ 19 C.1.7.1 Order entry and book to bill .............................................................................. 19 C.1.7.2 Full backlog .................................................................................................... 19 C.1.7.3 Full qualified pipeline ....................................................................................... 19 C.1.8 Human Resources .................................................................................................. 20 C.1.8.1 Headcount evolution ........................................................................................ 20 C.1.8.2 Changes in scope ............................................................................................ 20 C.1.8.3 Hiring ............................................................................................................ 20 C.1.8.4 Leavers .......................................................................................................... 20 C.1.8.5 Restructuring, Dismissals and other ................................................................... 21 65/67 C.2 2015 objectives ............................................................................................................ 21 C.3 Financial review ............................................................................................................ 22 C.3.1 Income statement .................................................................................................. 22 C.3.1.1 Operating margin ............................................................................................ 22 C.3.1.2 Other operating income and expenses ............................................................... 22 C.3.1.3 Net financial expense ....................................................................................... 23 C.3.1.4 Corporate tax ................................................................................................. 23 C.3.1.5 Non-controlling interests .................................................................................. 23 C.3.1.6 Normalized net income ..................................................................................... 24 C.3.1.7 Half year Earning Per Share .............................................................................. 24 C.3.2 Cash Flow and net cash .......................................................................................... 25 C.3.3 Parent company results........................................................................................... 27 C.4 Interim condensed consolidated financial statements ......................................................... 28 C.4.1 Interim consolidated income statement ..................................................................... 28 C.4.2 Interim consolidated statement of comprehensive income ........................................... 29 C.4.3 Interim consolidated statement of financial position.................................................... 30 C.4.4 Interim consolidated cash flow statement .................................................................. 31 C.4.5 Interim consolidated statement of changes in shareholders’ equity ............................... 32 C.4.6 Appendices to the interim condensed consolidated financial statements ........................ 33 C.4.6.1 Basis of preparation ......................................................................................... 33 C.4.6.2 Significant accounting policies ........................................................................... 34 C.4.6.3 Notes to the half-year condensed consolidated financial statements ....................... 35 C.5 2015 Statutory Auditors’ report on the half-year financial information for the period ended June 30, .................................................................................................................................. 50 D Corporate governance ........................................................................................................... 51 D.1 Office renewals and appointment of directors ................................................................... 51 D.2 Composition of the Board of Directors ............................................................................. 51 D.2.1 Composition as at June 30, 2015 ............................................................................. 51 D.2.2 Directors’ independence .......................................................................................... 51 D.3 Combined General Meeting held on May 28, 2015 ............................................................. 52 D.4 Executive compensation and stock ownership ................................................................... 52 D.4.1 Performance shares allocation plan decided on July 28, 2015 ...................................... 52 Performance shares that have become available since January 1st, 2015 for the Chairman D.4.2 and CEO – AMF Table 7 ......................................................................................................... 54 Subscription or purchase options exercised since January 1st, 2015 by the Chairman and D.4.3 CEO – AMF Table 5 ............................................................................................................... 54 D.5 Bond issue ................................................................................................................... 54 66/67 E Common Stock Evolution ....................................................................................................... 55 E.1 Basic data .................................................................................................................... 55 E.1.1 Information on stock .............................................................................................. 55 E.1.2 Free Float .............................................................................................................. 56 E.2 Dividend policy ............................................................................................................. 56 E.3 Financial calendar ......................................................................................................... 56 E.4 Contacts ...................................................................................................................... 56 E.5 Common stock ............................................................................................................. 57 E.5.1 At June 30, 2015.................................................................................................... 57 E.5.2 Shareholders’ agreements ....................................................................................... 57 E.5.3 Treasury stock ....................................................................................................... 57 E.5.3.1 Legal Framework ............................................................................................. 57 E.5.3.2 Treasury Stock ................................................................................................ 58 E.5.4 Potential common stock .......................................................................................... 58 E.5.4.1 Potential dilution ............................................................................................. 58 E.5.4.2 Current authorizations to issue shares and other securities ................................... 59 E.5.5 First half of 2015 and subsequent key trading dates ................................................... 60 F Risks analysis ...................................................................................................................... 62 F.1 Tax and Social Contribution claims .................................................................................. 62 F.2 Commercial claims ........................................................................................................ 62 F.3 Labor claims ................................................................................................................. 63 F.4 Representation & Warranty claims .................................................................................. 63 F.5 Miscellaneous ............................................................................................................... 63 G Locations ............................................................................................................................. 64 H Full index ............................................................................................................................ 65 67/67 | Semestriel, 2015, IT, Atos | write me a financial report |
Semestriel | 2,016 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
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| Update of the 2015 Registration Document Including the 2016 half-year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original Update of the 2015 Registration Document has been filed with the Autorité des Marchés Financiers (AMF) on August 4, 2016, in accordance with Article 212-13 of the AMF’s general regulations. It complements the 2015 Registration Document filed with the AMF on April 7, 2016 under number D.16-0300. This document has been issued by the Company and commits its signatories. This update of the Registration Document is available on the AMF website (www.amf-france.org) and the one of the issuer (www.atos.net). CONTENTS Contents ................................................................................................................................................. 2 A Persons responsibles .......................................................................................................................... 3 A.1 For the Update of the Registration Document ................................................................................. 3 A.2 For the accuracy of the Update of the Registration Document........................................................... 3 A.3 For the audit .............................................................................................................................. 3 B Atos in the first half of 2016 ............................................................................................................... 4 C Finance ............................................................................................................................................ 6 C.1 Operational review...................................................................................................................... 6 C.2 2016 objectives ........................................................................................................................ 26 C.3 Financial review ....................................................................................................................... 27 C.4 Interim condensed consolidated financial statements .................................................................... 34 Statutory Auditors’ review report on the half-yearly financial information for the period from January 1st C.5 to June 30, 2016 ................................................................................................................................. 53 D Corporate governance ...................................................................................................................... 54 D.1 Office renewals and appointment of directors ............................................................................... 54 D.2 Composition of the Board of Directors ......................................................................................... 54 D.3 Combined General Meeting held on May 26, 2016 ......................................................................... 54 D.4 Executive compensation and stock ownership .............................................................................. 55 E Common Stock Evolution .................................................................................................................. 58 E.1 Basic data ............................................................................................................................... 58 E.2 Dividend policy ......................................................................................................................... 59 E.3 Financial calendar ..................................................................................................................... 59 E.4 Contacts .................................................................................................................................. 59 E.5 Common stock ......................................................................................................................... 60 F Risks analysis ................................................................................................................................. 64 G Locations ........................................................................................................................................ 66 H Full index ....................................................................................................................................... 67 2/69 A PERSONS RESPONSIBLES A.1 For the Update of the Registration Document Thierry Breton CEO and Chairman, Atos A.2 For the accuracy of the Update of the Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Update to the 2015 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements of Atos S.E., for the period from January 1st to June 30, 2016 have been prepared in accordance with the applicable accounting standards and give a true and fair view of the financial position and results of the Company and all the other companies included in the scope of consolidation, and that the included half-year financial report gives a fair description of the material events that occurred in the first six months of the financial year and their impact on the financial statements, the main related party transactions, as well as a description of the main risks and uncertainties for the remaining six months of the year. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have examined the information in respect of the financial position and the accounts contained herein and read the whole of the Update of the 2015 Registration Document. Thierry Breton CEO and Chairman, Atos Bezons, August 3, 2016 A.3 For the audit Appointment and term of offices Statutory Auditors Substitute Auditors Grant Thornton Victor Amselem Cabinet IGEC Appointed on: May 27, 2014 for a term of 6 Appointed on: May 27, 2014 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2019 financial statements years Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Deloitte & Associés Jean Pierre Agazzi Cabinet B.E.A.S. Appointed on: May 30, 2012 for a term of 6 Appointed on: May 30, 2012 for a term of 6 years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements years Term of office expires: at the end of the AGM held to adopt the 2017 financial statements 3/69 B ATOS IN THE FIRST HALF OF 2016 January On January 19, 2016, Atos announced that it has been ranked by PAC as one of the top three leading security IT services providers in Europe, the Middle East & Africa. The report ranks the top 20 IT security software vendors and the top 20 IT security services providers in EMEA. For IT services providers it considers infrastructure support, project and outsourcing services as well as application management and project services. It also takes into account BPO services as well as costs for hardware and personnel. On January 20, 2016, Atos announced it has completed the acquisition from Gores Group and Siemens of Unify, the world number three in integrated communication solutions generating € 1.2 billion annual revenue. The acquisition creates a unique integrated proposition for unified communications improving the social collaboration, digital transformation and business performance of its clients. As disclosed on January 21, 2016, the bullion servers from Bull, the Atos brand for technology products and software, have again beaten performance records, according to the international benchmark from Standard Performance Evaluation Cooperative (SPEC). Performed with a 16-socket configuration, this benchmark demonstrates that the high-end enterprise bullion x86 servers perform at exceptional levels and are the most powerful in the world in terms of speed and memory. Orange Cyberdefense and Atos, through its technology brand Bull, announced on January 25, 2016 having signed a strategic partnership to jointly take on the secure mobile terminal communications market. This partnership with Atos completes Orange Cyberdefense range of communications security solutions. Under the agreement, Orange Cyberdefense will be selling Hoox, the most secure smartphone on the market, to its customers. February On February 24, 2016, Atos announced its 2015 annual results. All 2015 objectives were achieved. Revenue was € 10,686 million, up +18% year-on-year and +0.4% organically. Operating margin was € 883.7 million, representing 8.3% of revenue, compared to 7.1% in 2014 at constant scope and exchange rates. Order entry was € 11.2 billion leading to a book to bill ratio of 105%. Full backlog increased by €+2.9 billion to € 19.1 billion, representing 1.7 year of revenue. Net cash position was € 593 million at the end of 2015. Free cash flow was € 450 million in 2015 compared to € 367 million in 2014. Net income was € 437 million, up +55% year-on-year and net income Group share was € 406 million, up +53% compared to 2014. Significant further improvements are planned in 2016 April On April 07, 2016, Atos launched its fully integrated business-driven analytics solution – Atos Codex. According to Gartner, “by 2017, organizations using predictive business performance metrics will increase their profitability by 20%”. Atos Codex provides data analytics end-to-end along the complete IT value chain. The services range from digital transformation strategy & consulting, use case business modeling, data science expertise, agile analytics deployment and ongoing evolution management. On April 12, 2016, Atos revealed Bull sequana, the world’s most efficient supercomputer. This first exascale-class computer is capable of processing a billion billion operations while consuming 10 times less energy than current systems. Designed to integrate the most advanced technologies in the futures, Bull sequana is already being implemented at the French Alternative Energies and Atomic Energy Commission (CEA). As such, Atos strengthens its leadership in high-volume data processing and analysis, enabling its customers to reinvent their business models through "Atos Codex", an integrated end-to-end predictive & cognitive analytics solution. On April 21, 2016, Atos announced its 2016 first quarter revenue and a strong start of the year reinforcing the achievement of all 2016 objectives. Revenue was € 2,757 million, up +1.6% organically and +15.0% at constant exchange rates. Order entry was € 2,794 million leading to a book to bill ratio of 101%. 4/69 May On May 18, 2016, through its technology brand Bull, Atos simplifies and speeds up implementation of Big Data solutions with the launch of new appliance ‘Data lake & analytics factory’ by bullion. Atos launched a Big Data appliance – the Data lake & analytics factory by bullion. Big-Data-in-a-box: integrated with the bullion server as an appliance that industrializes data collection, storage and analytics. This significantly enhances data analytics agility, security and efficiency in real-time. It offers organizations fast and cost efficient means to exploit the value of their existing data. The Data lake & analytics factory by bullion is the latest innovation part of the Atos Codex offer. Atos announced certification of its Cloud Foundry platform on May 23, 2016 by the Cloud Foundry Foundation. The company actively participates in the industry’s only certification program designed to establish reliable portability across platforms in a multi-vendor, multi-cloud environment. Thanks to this certification, Atos joins a prestigious list of providers certified by the Cloud Foundry Foundation to deliver the leading multi-cloud platform. Atos SE held on May 26, 2016 its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved. In particular, the General Meeting approved the annual and consolidated accounts for the financial year ending December 31, 2015, the dividend payment of €1.10 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors of Ms. Aminata Niane, Ms. Lynn Paine, and Mr. Vernon Sankey. Following the renewal of the Directors’ terms of office, the Board of Directors held after the General Meeting decided to confirm the composition of the Board’s Committees. On May 30 2016, Atos demonstrated its continued excellence in corporate sustainability as it published its 2015 Corporate Responsibility Integrated Report in accordance with the most demanding recommendations from the Global Reporting Initiative (GRI) G4 comprehensive option and the International Integrated Reporting Framework (IIRC). Indeed, since 2014 and for the second year in a row, Atos successfully completed the GRI Content Index Service with the G4 comprehensive option. With this approach, Atos demonstrates that its extra financial performance disclosures are accurate and exhaustive. All the information has been assured by an external auditor and is gathered in two documents: the Corporate Responsibility Report and the Registration Document. Atos, through its commercial brand Bull, launched on June 14, 2016 the Bull Battle Management System (BMS). Bull BMS is a complete solution that optimizes real-time information sharing for land and air-land combat, throughout entire battalions (at HQ, inside vehicles and for the dismounted soldiers) and for all mission types. It allows rapid creation of combined arms battle groups, which can share information about the mission effectively, even in degraded network conditions. It has optimal ergonomics making it easy to learn and use. The highly intuitive user interface is similar to those of civilian tools. Thus it has high tolerance for manual entry and it automates the capture of data, two major advantages on the battlefield. The solution has a level of technical neutrality which means it can be easily adapted to the national choice of equipment – such as tactical radio, vehicles, vetronics, operating systems and connected armaments. Atos establishes partnerships with the local ecosystem of defence industries. Relying on a shared software base and open architecture, Atos develops a national solution in close collaboration with its clients. It allows specific elements to be taken into account regarding the doctrine of use, the geographic and linguistic context and the order of battle. As announced on July 20, 2016, Atos delivers the IT Backbone to Rio 2016™ Olympic Games. Distributing the results to the world in less than half a second, with no second chances, is a technological feat years in the making – one to be fully realized at the Rio 2016™ Olympic Games. Driven by the maturity of mobile technology, Atos – the worldwide IT Partner and lead integrator of the Olympic and Paralympic Games – has led the IOC’s technology effort to enable Games results and other data to be shared both online and through traditional means faster, to any platform, anywhere. In order to relay results, events and athlete information to spectators and media around the world, Atos has further strengthened its well-developed complex systems with new technologies, such as the Olympic Video Player. The Olympic Video Player gives viewers of live sporting events real-time results, statistics, biographies and social media conversations– all in one, integrated screen. The Olympic Video Player will showcase content as it’s never shown before, at just a mouse click away for fans. Whatever the devices, wherever they are, Olympic Games fans have the ultimate choice and control over what, how, where and when they watch, in the territories where the Rights-Holding Broadcasters have chosen to use the OVP. 5/69 C FINANCE C.1 Operational review C.1.1 Executive summary Revenue in the first half of 2016 reached € 5,697 million, +15.3% compared to H1 2015 statutory (+17.9% at constant exchange rates) and +1.7% organically. The Group reached +1.8% organic growth in the second quarter of 2016, continuing the positive trend observed in the first quarter (+1.6% organically). In addition to the organic growth which strongly improved compared to H1 2015, the year-on-year growth was mainly led by the contribution of Xerox ITO acquired in July 2015 and Unify since February 2016, of which only the Communication & Collaboration Services (CCS) business has been transferred to Managed Services and is included in the figures presented hereafter. The Unify Software & Platforms (S&P) business has been accounted for as discontinued operations from the date of acquisition and is therefore not consolidated in the figures presented in the operational review. Exchange rates had a negative effect of €-114 million, mainly attributable to the British pound (-6% year- on-year versus euro), the Argentine peso (-39%), the Brazilian real (-20%), the Turkish lira (-13%) and the Swiss franc (-4%). Operating margin reached € 444.4 million in the first half of 2016, up +28.6% year-on-year mainly thanks to productivity gains from industrialization programs, the effect of recent acquisitions and the related costs synergies, notably on Bull, Xerox ITO, and Unify CCS, and the impact from the restatement related to the change in the classification of share based payment expense from operating margin to other operating incomes and expenses in line with the presentation adopted by Atos’ main competitors. Profitability reached 7.8% of revenue, +60 basis points compared to 7.2% in the same period of 2015 at constant scope and exchange rates. The improvement was +130 basis points excluding € 38 million one-offs recorded in H1 last year related the pension schemes optimization. Representing 57% of the Group in the first half of 2016, Managed Services revenue was € 3,221 million, +29.5% year-on-year. At constant scope and exchange rates, revenue grew by +0.6% over the period, slightly improving compared to the trend observed since last year (2015 organic growth was +0.4%) and in the first quarter of 2016 (+0.4%). The Service Line continued to successfully drive the transition of its customers to Cloud infrastructures resulting in positive organic growth, thanks to volume increases and market share gains globally compensating for unit price decrease. Growth materialized primarily in North America, benefitting from the full integration of Xerox ITO and fueled by increased volumes with several large customers within Public & Health and Telecom, Media & Utilities sectors. Germany went back to positive, mainly benefitting from increased volumes in the public sector, in Financial Services and with Siemens. In “Other Business Units”, Asia Pacific achieved a solid growth particularly due to higher volumes in Financial Services, while India, Middle-East & Africa increased thanks to new customers in the telecom sector. Revenue stabilized in France thanks to the signature of several contracts in the last few quarters. The situation remained more challenging for Benelux & The Nordics, notably due to ending contracts mainly within Financial Services, and in the UK, largely attributable to a base effect last year. Operating margin in Managed Services was € 281.0 million in the first half of 2016, representing 8.7% of revenue. This improvement of +150 basis points compared to H1 2015 at constant scope and exchange rates came from strong operational savings throughout all geographies, in particular thanks to the migration to the Cloud of several customers’ infrastructure generating significant unit cost reduction. The operating margin improvement in Unify CCS resulting from the large restructuring program in Unify also contributed to the operating margin improvement of the Service Line. The strong margin increase performed by the Service Line was achieved despite the lower revenue and therefore margin in the UK mentioned above. The operating margin improvement reached +180 basis points excluding the pension one-off effect recorded in H1 2015. 6/69 Representing 28% of the Group, Consulting & Systems Integration revenue was € 1,584 million in the first half of 2016, turning to a positive organic growth of +0.5%, confirming the trend observed in the first quarter (+0.4%). The new management team was able to return to positive organic growth with main improvements performed in France and Germany, fueled by a strong activity in most of the markets. In Central & Eastern Europe and to a lesser extent in North America, the delay of several contracts into the second semester affected the organic growth in the first half. Operating margin was € 77.8 million, representing 4.9% of revenue, an improvement by +20 basis points compared to the first half of 2015 at constant scope and exchange rates or +70 basis points excluding the pension one-offs recorded in H1 2015. This was mainly attributable to the successful workforce improvement actions in most of the geographies, including France, the UK and Germany, and the costs synergies achieved following Bull integration in France. The start of the recovery of Consulting & Systems Integration both in revenue and margin was achieved while investing in innovation and new offerings to enhance the planned operating margin catch up with best in class peers. Revenue in Big Data & Cybersecurity was € 302 million in the first half of 2016, up +12.8% organically, consistent with the +12.2% posted in the first quarter, representing 5% of the Group revenues. Growth was recorded in almost all geographies, with very strong dynamics in Germany, UK, Benelux & the Nordics, and Central & Eastern Europe, materializing the increasing internationalization of the former Bull business through the roll-out of highly demanded innovative solutions in the Big Data and Cybersecurity activities. Operating margin was € 42.4 million, representing 14.0% of revenue. This improvement of +10 basis points compared to H1 2015 at constant scope and exchange rates was largely driven by the strong revenue performance combined with continuous costs optimization including Bull integration synergies, which enabled to maintain a high level of margin. From a contributive perspective to Atos, Worldline revenue was € 589 million, growing by +5.9% at constant scope and exchange rates. On a standalone basis, revenue reached € 615 million, up +6.0% on a like-for-like basis. The three global business lines contributed to the organic growth over the period: Merchant Services & Terminals achieved a healthy double digit growth rate, notably thanks to increased volume of transactions and price mix in Commercial Acquiring as well as a strong level of Payment Terminals sales in both local and international markets. Financial Processing & Software Licensing expanded thanks to the continued transactions volumes growth in Acquiring Processing, notably in France and in India, increased revenues from Authentication and Fraud Management services within Issuing Processing business, and a strong level of licenses sold in Europe and in Asia. In Mobility & e-Transactional Services, growth was led by e-Consumer & Mobility activities enjoying a double-digit growth rate thanks to several new contracts signed and projects ramp-up mainly in France. e-Ticketing activities also contributed to the growth with increased project delivery with railways companies in the UK and higher volumes of e-Ticketing in Argentina. A good performance was also recorded in France and Argentina in e-Government Collection. Overall, the Business Line managed to more than compensate the base effect resulting from the end of the VOSA contract in the UK in the third quarter last year. Operating margin was € 91.6 million or 15.6% of revenue, improving by +170 basis points compared to H1 2015 at constant scope and exchange rates, fueled by the strong performance in Merchant Services & Terminals, thanks to transactions volumes growth with a better price mix, as well as margin recovery in the UK. Operating margin in Financial Processing & Software Licensing was stable, while Mobility & e-Transactional Services achieved to almost compensate for the end of the VOSA contract. On a standalone basis, OMDA increased by +80 basis points, reaching € 117.2 million and 19.1% of revenue. The stronger increase of the operating margin rate compared to OMDA stemmed from a more efficient project delivery resulting in a lower level of provisions booked on contracts. 7/69 Several large geographies such as Germany, North America, and France significantly improved their revenue performance during the first semester: Germany confirmed its recovery, turning back to positive revenue growth in all Service Lines, with a strong organic growth of +4.9% (to be compared to -1.4% posted in H2 last year), notably thanks to strong actions undertaken in Systems Integration by the new management; North America was up +4.4%, compared to +0.1% posted in H2 last year, benefitting from the full effect of the integration of Xerox ITO and the new sales dynamic, mainly in Managed Services; France with +3.4% organic revenue growth, improving compared to +1.1% recorded in H2 2015, grew notably in Systems Integration and in Big Data & Cybersecurity. In the first semester of 2016, the main contributors to Group revenue growth were Germany, North America, Worldline, France and “Other Business Units”. In addition to the ones mentioned above: Worldline continued to contribute to the Group organic growth with a strong +5.9% over the period; “Other Business Units” also contributed to Group revenue growth, thanks to a good performance in Asia Pacific, South America and IMEA. In the first semester of 2016, the Group continued to execute the Tier One Program through industrialization, global delivery from offshore locations, and continuous optimization of SG&A. In addition, the Group benefitted from the full impact of costs synergies following the integration of Bull and Xerox ITO, coupled with the effect of the Unify restructuring plan. The margin improvement was particularly visible in several major GBUs such as Germany (also benefitting from a positive base effect due to a settlement recorded last year in Unify), North America and France. The UK managed to broadly stabilize its operating margin in spite of the revenue effect already mentioned while Benelux and the Nordics faced a lower margin coming from the level of activity in Managed Services in particular in Financial Services. It is worth to be noted that in the first semester of 2016 the Group did not benefit from the impact of pension schemes optimization while € 38 million were recorded last year in Germany and in Global structures. During the first half of 2016, the Group recorded € 6,309 million order entry, up +24.0% year-on-year and representing a book to bill ratio of 111%. Commercial activity was particularly strong in Q2 with a book to bill ratio of 120%, driven by Cloud migration projects such as in the contract signed with the Texas Department of Information Resources for Hybrid Cloud Services and by digital transformation projects as for example the signature with a new logo, an American large quick serve restaurant provider, to deliver digital retail solution and an improved customer experience with the development of a mobile app. The Group also renewed large contracts such as the PIP contract with the UK Department for Work & Pensions. Commercial dynamism also came from the cross-selling strategy of the Group. As such, the Group signed a significant contract in Big Data with a French car manufacturer including the sale of a HPC, showing the promising perspectives of Big Data opportunities in the private sector, and had one of its first significant wins with Unify for the outsourcing of the communication network’s management and services of Solvay. Commercial dynamism translated into healthy book to bill ratios in all Service Lines during the first half of 2016. Managed Services book to bill ratio reached 110% thanks to large signatures in Benelux & The Nordics as well as in North America and Germany. Consulting & Systems Integration order entry represented 106% of revenue thanks to several contract wins in UK & Ireland in particular as well as in Benelux & The Nordics and in France. The level of booking was also high in Big Data & Cybersecurity and Worldline at 127% and 116% respectively. In line with the dynamic commercial activity, the full backlog at the end of June 2016 amounted to € 19.5 billion, representing 1.7 year of revenue, compared to € 19.1 billion published at the end of 2015. The full qualified pipeline was representing 6.7 months of revenue at € 6.4 billion, compared to € 6.2 billion published at the end of 2015. 8/69 The total headcount was 96,352 at the end of June 2016. The increase of +5.5% of the Group workforce compared to 91,322 at the end of December 2015 was mainly due to the circa 5,200 staff who joined the Group from Unify on February 1st, 2016. Attrition was 12.2% at Group level of which 18.4% in offshore countries, excluding the discontinued Unify Software & Platforms operations. The number of direct employees at the end of June 2016 was 88,926, representing 92.3% of the total Group headcount, compared to 93.7% at the end of 2015. Adjusted from the scope effect from Unify, indirect staff decreased by -5.1% in line with the continuous optimization of the indirect workforce. Number of staff in offshore countries reached 26,126 people by the end of June 2016. The majority of the offshore workforce is located in India, the rest being mainly in Eastern Europe. Offshore for Systems Integration represented 44% of direct staff. 9/69 C.1.2 Statutory to constant scope and exchange rates reconciliation Revenue in H1 2016 reached € 5,697 million, +15.3% compared to H1 2015 statutory, +17.9% at constant exchange rates, and +1.7% organically. Operating margin reached € 444.4 million (7.8% of revenue), up +28.6% year-on-year and +10.7% compared to € 401.5 million (7.2% of revenue) in H1 2015 at constant scope and exchange rates (+60 basis points). In € millionH1 2016H1 2015% changeStatutory revenue5,6974,941+15.3%Exchange rates effect-108Revenue at constant exchange rates5,6974,833+17.9%Scope effect776Exchange rates effect on acquired/disposed perimeters-6Revenue at constant scope and exchange rates5,6975,603+1.7%Statutory operating margin444.4345.6+28.6%Equity based compensation reclassification15.5Scope effect51.7Exchange rates effect-11.2Operating margin at constant scope and exchange rates444.4401.5+10.7%as % of revenue7.8%7.2% The table below presents the effects on H1 2015 revenue of acquisitions and disposals, internal transfers reflecting the Group’s new organization, and change in exchange rates. In € millionH1 2015 statutoryScope effectsInternal transfersExchange rates effects*H1 2015 at constant scope and FXNorth America3406064-2948Germany75912700886United-Kingdom & Ireland995250-58962France825-600819Benelux & The Nordics515500521Other Business Units93617-4-39911Worldline57100-15556TOTAL GROUP4,9417760-1145,603Managed Services2,488779-1-633,203Consulting & Systems Integration1,612-21-341,576Big Data & Cybersecurity270-10-2268Worldline57100-15556TOTAL GROUP4,9417760-1145,603* At average June 2016 YTD exchange rates Scope effects on revenue amounted to €776 million and mainly related to the positive contribution of Xerox ITO (6 months for €+596 million) and Unify (5 months for €+244 million, including €+89 million of revenue made with Unify Software & Platforms discontinued operations). Other effects were mainly related to (i) the early termination of the DWP WCA contract (2 months), (ii) the disposal of on-sites services in France (2 months), (iii) the sale of the Occupational Health business in January 2016 (6 months), and (iv) the external revenue made with Unify and accounted as internal revenue further to the acquisition (5 months). It was decided to record this flow as external revenue to be consistent with the associated operating margin (more particularly for the operating margin rate reporting purpose) Exchange rates had a negative impact of €-114 million on H1 2015 revenue, mainly attributable to the British pound (-6% year-on-year versus euro), the Argentine peso (-39%), the Brazilian real (-20%), the Turkish lira (-13%) and the Swiss franc (-4%). 10/69 Same effects as well as the reclassification of the cost of equity based compensation are reflected in the operating margin at constant scope and exchange rates. As such, net scope effect on operating margin amounted to € 51.7 million and exchange rates effect accounted for €-11.2 million. These effects are detailed below: In € millionH1 2015 statutoryScope effectsInternal transfersExchange rates effects*Equity based compensationsH1 2015 at constant scope and FXNorth America26.445.21.6-0.472.7Germany41.12.20.00.043.3United-Kingdom & Ireland102.91.90.0-5.998.9France30.10.90.00.031.0Benelux & The Nordics47.60.40.00.048.0Other Business Units59.91.1-1.6-2.956.5Global structures-40.40.414.2-25.8Worldline78.10.00.0-2.41.376.9TOTAL GROUP345.651.70.0-11.215.5401.5Managed Services185.751.0-0.8-5.4230.4Consulting & Systems Integration76.60.70.8-3.374.8Big Data & Cybersecurity37.50.00.0-0.337.1Corporate costs-32.30.00.00.314.2-17.8Worldline78.10.00.0-2.41.376.9TOTAL GROUP345.651.70.0-11.215.5401.5* At average June 2016 YTD exchange rates 11/69 C.1.3 Revenue profile C.1.3.1 By Service Line Consulting & SystemsIntegration 57%28%5%10% Worldline Managed Services Big Data & Cybersecurity C.1.3.2 By Business Unit Worldline Benelux & The Nordics France Germany Other Business Units North America United-Kingdom & Ireland 18%16%16%15%9%16%10% C.1.3.3 By Market Telcos, Media & Utilities Manufacturing, Retail &Transportation Public & Health Financial Services 35%29%20%16% 12/69 C.1.4 Performance by Service Line In € millionH1 2016H1 2015*% organicH1 2016H1 2015*H1 2016H1 2015*Managed Services3,2213,203+0.6%281.0230.48.7%7.2%Consulting & Systems Integration1,5841,576+0.5%77.874.84.9%4.7%Big Data & Cybersecurity302268+12.8%42.437.114.0%13.9%Corporate costs**-48.4-17.8-0.9%-0.4%Worldline589556+5.9%91.676.915.6%13.8%TOTAL GROUP5,6975,603+1.7%444.4401.57.8%7.2%* At constant scope and exchange rates** Corporate costs exclude Global Service Lines costs allocated to the Service LinesRevenueOperating marginOperating margin % C.1.4.1 Managed Services In € millionH1 2016H1 2015*% organicRevenue3,2213,203+0.6%Operating margin281.0230.4Operating margin rate8.7%7.2%* At constant scope and exchange rates 2016 first half revenue in Managed Services was € 3,221 million, up +0.6% at constant scope and exchange rates, with a significant growth in Cloud Services and in Technology Transformation Services. In addition, the Service Line won several key contracts notably in the area of workplace and service desk automation supporting growth in several geographies such as North America, Asia Pacific and Germany. The Service Line strategy is to proactively propose to its key clients in its large geographies to transform their IT landscape enabling them to automate and to migrate to cloud infrastructures. Revenue organic growth materialized in almost all markets. Public & Health led the growth in almost all geographies, in particular in North America with an increase mainly fueled by large sales to an American state agency, the renegotiation of volumes and rates with a Californian county, as well as additional business with a county in Texas. In Germany, growth came from increased volumes and sales with the Ministry of Justice as well as increased activity from Unify Communication & Collaboration Services with various local administrations. Revenue grew in the public sector in the United Kingdom mainly pulled by a new pricing structure on the DWP PIP contract as well as volumes increase. In France, revenue grew thanks to new business with DCNS (Shipbuilding National Agency) and the ramp-up of contracts with a large Aircraft company and French Railways. Central & Eastern Europe benefitted from new contracts and additional businesses with several clients especially in Switzerland. Manufacturing, Retail & Transportation benefitted from license sale to Siemens in Germany and from new business with a large biotechnology corporation in North America. Telco, Media & Utilities benefitted from a sustained activity mainly with Disney in North America, as well as in “Other Business Units”. This more than offset a drop in Financial Services, with a significant one-off activity with NS&I in the United Kingdom and McGraw-Hill Financial in North America in 2015, and the ramp-down of a significant contract with a large bank in Benelux & the Nordics. Managed Services revenue profile by geographies North America United-Kingdom &Ireland France Germany Other countries Benelux & The Nordics 29%22%19%9%7%13% 13/69 Operating margin in Managed Services was € 281.0 million in the first half of 2016, representing 8.7% of revenue. This improvement of +150 basis points compared to H1 2015 at constant scope and exchange rates was realized thanks to strong operational savings throughout all geographies, in particular with the migration to the Cloud of several customers’ infrastructures generating significant unit cost reduction. The improvement in margin of the Unify CCS business resulting from the large restructuring program in Unify also contributed to the operating margin improvement of the Service Line. In terms of geographies, North America, Germany, France, Central & Eastern Europe, and Asia Pacific profitability increased either in line with revenue performance or was strengthened by a tight monitoring of costs including Tier One Program actions, mainly through synergies from integrations, workforce management actions, the continued offshoring efforts, and procurement savings. The strong margin increase performed by the Service Line was achieved despite the lower revenue and therefore margin in the UK mentioned above. The operating margin improvement reached +190 basis points excluding the pension one-off effect recorded in the prior year. C.1.4.2 Consulting & Systems Integration In € millionH1 2016H1 2015*% organicRevenue1,5841,576+0.5%Operating margin77.874.8Operating margin rate4.9%4.7%* At constant scope and exchange rates Consulting & Systems Integration revenue during the first half of 2016 reached € 1,584, up +0.5% at constant scope and exchange rates. Financial Services was the main growth contributor, notably in France, thanks to higher volumes with large French banks, and in the UK with the delivery and installation of equipment at customers such as Close Brothers. Telco, Media & utilities also achieved a positive growth mainly driven by additional projects with a large Media company in the UK. Manufacturing remained slightly behind due to fewer projects with Siemens in the first half. In the public sector, new contracts signed with the French Ministry of Defense and Ministry of Justice in Germany partly compensated for the Ashgabat phase II project ramp-down, several projects ended in the first semester of 2015 in Slovakia and Turkey, and several delays into the second semester. Consulting & Systems Integration revenue profile by geographies Other countries France Benelux & The Nordics 28%17%13%12%30% United-Kingdom &Ireland Germany Operating margin was € 77.8 million, representing 4.9% of revenue. The improvement of +20 basis points compared to the first half of 2015 at constant scope and exchange rates, or +70 basis points excluding the pension one-off recorded in H1 2015, was mainly attributable to the successful workforce improvement actions in most of the geographies, including France, the UK, and Germany, and to the costs synergies achieved following Bull integration in France. Conversely, Central & Eastern Europe was impacted from lower-than-expected revenue and declining profitability on some projects, notably in Turkey and Poland, while India, Middle-East & Africa had to cope with a difficult contract where the status is steadily improving. Overall, the start of the recovery of Consulting & Systems Integration both in revenue and margin was achieved while investing in innovation and new offerings to enhance the planned operating margin catch up with best in class peers. 14/69 C.1.4.3 Big Data & Cybersecurity In € millionH1 2016H1 2015*% organicRevenue302268+12.8%Operating margin42.437.1Operating margin rate14.0%13.9%* At constant scope and exchange rates Revenue in Big Data & Cybersecurity was € 302 million, showing a healthy organic growth of +12.8% with a strong performance recorded in almost all geographies. Growth was primarily driven by the Public & Health sector in France, through High Performance Computing sales to Météo France and the CEA (Commission for Atomic Energy and Alternative Energies), software license revenue with the Ministry of Defense and Cybersecurity activity for the Ministry of the Interior. Manufacturing, Retail & Transportation also contributed to growth being positively impacted by a one-off sale of software license to a large BtoB specialty retailer in Germany. Big Data & Cybersecurity revenue profile by geographies North America France Other countries Germany United-Kingdom &Ireland 55%13%5%4%3%20% Benelux & The Nordics Operating margin was € 42.4 million, representing 14.0% of revenue. This improvement of +20 basis points compared to the first semester of 2015 at constant scope and exchange rates was largely driven by the strong revenue performance combined with continuous costs optimization including Bull integration synergies, which enabled to maintain a high level of margin. 15/69 C.1.4.4 Worldline A detailed review of Worldline half-year 2016 results can be found at worldline.com, in the investors section. In € millionH1 2016H1 2015*% organicRevenue589556+5.9%Operating margin91.676.9Operating margin rate15.6%13.8%* At constant scope and exchange rates Worldline contributive revenue was € 589 million, improving by +5.9% organically. On a standalone basis, Worldline revenue reached € 615 million over the first semester of 2016, up +6.0% at constant scope and exchange rates. All Global Business Lines contributed to the revenue organic growth: In Merchant Services & Terminals, revenue was € 209 million or +10.0% on a like-for-like basis. Commercial Acquiring achieved a strong performance with a double digit growth through increased transaction volumes (+7%) both in Belgium and on international markets, by a more favorable price mix as well as an increased payment terminals base installed in India. Revenue in Payment Terminals increased double-digit thanks to a very good performance in International sales and in the Netherlands, while Germany continued on its good momentum. Private Label Cards & Loyalty Services grew thanks to larger volumes of digital self-service kiosks in the UK and to higher activity in the Fuel Genie card scheme. In Online services, revenue for Acceptance & e-payment services slightly increased, while e-Commerce services decreased due less project activity compared with the first half of 2015. Financial processing & Software Licensing revenue reached € 206 million, up + 4.1% compared to last year. Main growth driver was Acquiring Processing, thanks to volume growth and the raise of the terminal base under management in India. Revenue increase in Issuing processing was driven by a strong activity in Authentication services in France, Belgium and Germany (ACS, 3D secure, Trusted Authentication) and in e-Wallets. Good volume growth in core issuing was also recorded, notably in Fraud services in Belgium and in Germany, more than compensating the effect of price decreases. Sales in Payment Software Licensing grew thanks to good trends in APAC, with higher managed card services and project-based activity, and to expansion in Europe. Despite higher volumes notably in Online Banking electronique Payment, revenue in Online Banking Services was almost stable due to an unfavorable 2015 comparison basis. In Mobility & e-Transactional Services, revenue was € 175 million and +3.5% organically, fueled by a double digit growth rate in e-Consumer & Mobility driven by Contact & Consumer Cloud activities in France and by increased revenue with Teleshopping. Sales of e-Ticketing solutions grew thanks to digital transformation projects in the UK rail industry and to the rollout of the new Onboard Ticketing solution MTIS. These favorable trends more than compensated some end of contracts. The growth was also strong in Latin America notably on Cordoba and Tucuman contracts. e-Government Collection revenue suffered from the effect of the end of VOSA contract which occurred at end of Q3 2015. Excluding this negative effect, the trend was however very good, with a substantial growth in France driven by revenue increase with various public sector projects and in Luxembourg. Growth was also strong in Argentina (Farmalink, Salta) and in Austria. As anticipated and communicated in 2015, the French “Radar” contract (with ANTAI) stopped on June 8, 2016. 16/69 Worldline revenue profile by geographies Germany & CEE Other countries France Benelux 36%32%10%10%11% United-Kingdom Operating margin was € 91.6 million or 15.6% of revenue, improving by +170 basis points compared to 2015: In Merchant Services & Terminals, operating margin was € 33.9 million and 16.3% of revenue, up + 570 basis points on a like-for-like basis, driven by volume growth and positive price effect in Commercial Acquiring, coupled with margin recovery in the merchant network in the UK and the positive base effect derived from a settlement with a customer recorded last year. Financial processing & Software Licensing operating margin reached € 44.1 million and 21.5% of revenue, down – 20 basis points compared to the first semester of 2015. A strong revenue growth fall through notably in Payment Software & Licensing and Issuing Processing as well as improved projects profitability in many geographies, had a favorable impact on margin. These positive trends were however offset by specific investments made to reinforce infrastructure security and robustness as well as customary price concessions granted end of 2015 in the context of renewal of long-term processing contracts. Mobility & e-Transactional Services operating margin was € 23.2 million and 13.3% of revenue, decreasing by -60 basis points. The profitability of the business line was impacted as revenue from VOSA, which was a very mature contract, was substituted by new business consisting of project activities and ramping-up volumes. Standalone Operating Margin before Depreciation and Amortization (OMDA) increased by +80 basis points on a standalone basis, reaching € 117.2 million and 19.1% of revenue. The stronger increase of the operating margin rate compared to OMDA stemmed from a more efficient project delivery resulting in a lower level of provisions booked on contracts. 17/69 C.1.5 Performance by Business Units In € millionH1 2016H1 2015*% organicH1 2016H1 2015*H1 2016H1 2015*North America990948+4.4%100.472.710.1%7.7%Germany930886+4.9%80.843.38.7%4.9%United-Kingdom & Ireland918962-4.6%89.098.99.7%10.3%France847819+3.4%47.631.05.6%3.8%Benelux & The Nordics492521-5.5%38.348.07.8%9.2%Other Business Units931911+2.2%53.456.55.7%6.2%Global structures**-56.8-25.8-1.1%-0.5%Worldline589556+5.9%91.676.915.6%13.8%TOTAL GROUP5,6975,603+1.7%444.4401.57.8%7.2%* At constant scope and exchange rates** Global structures include the Global Services Lines costs not allocated to the Group Business Unit and Corporate costsRevenueOperating marginOperating margin % Several large geographies such as Germany, North America, and France significantly improved their revenue performance during the first semester: Germany confirmed its recovery, turning back to positive revenue growth in all Service Lines, with a strong organic growth of +4.9% (to be compared to -1.4% posted in H2 last year), notably thanks to strong actions undertaken in Systems Integration by the new management; North America was up +4.4%, compared to +0.1% posted in H2 last year, benefitting from the full effect of the integration of Xerox ITO and the new sales dynamic, mainly in Managed Services; France with +3.4% organic revenue growth, improving compared to +1.1% recorded in H2 2015, grew notably in Systems Integration and in Big Data & Cybersecurity. In the first semester of 2016, the main contributors to Group revenue growth were Germany, North America, Worldline, France and “Other Business Units”. In addition to the ones mentioned above: Worldline continued to contribute to the Group organic growth with a strong +5.9% over the period; “Other Business Units” also contributed to Group revenue growth, thanks to a good performance in Asia Pacific, South America and IMEA. Conversely: The United Kingdom posted a -4.6% organic decrease mainly attributable to the base effect of outstanding volumes processed for NS&I in H1 2015; Benelux & The Nordics at -5.5% due to the ramp-down of contracts in Managed Services, notably in Financial Services. In the first semester of 2016, the Group continued to execute the Tier One Program through industrialization, global delivery from offshore locations, and continuous optimization of SG&A. In addition, the Group benefitted from the full impact of costs synergies following the integration of Bull and Xerox ITO, coupled with the effect of the Unify restructuring plan. The margin improvement was particularly visible in several major Business Units such as Germany (also benefitting from a positive base effect due to a settlement recorded last year in Unify), North America and France. The UK managed to broadly stabilize its operating margin in spite of the revenue effect already mentioned while Benelux and the Nordics faced a lower margin coming from the level of activity in Managed Services in particular in Financial Services. It is worth to be noted that in the first semester of 2016 the Group did not benefit from the impact of pension schemes optimization while € 38 million were recorded last year in Germany and in Global structures. 18/69 C.1.5.1 North America In € millionH1 2016H1 2015*% organicRevenue990948+4.4%Operating margin100.472.7Operating margin rate10.1%7.7%* At constant scope and exchange rates Revenue reached € 990 million, +4.4% at constant scope and exchange rates, mainly fueled by Managed Services where the best performance was achieved in Telcos, Media & Utilities with large customers such as Disney. Public & Health was fueled by higher levels of resale and installation with an American state agency and a county in Texas, as well as a result of higher volumes and reviewed contract terms with a Californian county. Manufacturing, Retail & Transportation benefitted from new business and ramp-up on several contracts such as Xerox, Israel Chemical as well as a large biotechnology company. Consulting & Systems Integration was down, especially within Manufacturing, Retail & Transportation derived from ramp-down or large contracts delivered last year and not yet fully compensated by new business. Additionally, the cross-selling program already launched on the large US Managed Services customer base is expected to deliver beyond the first semester of this year. Revenue in Big Data & Cybersecurity continued to grow mainly in the public sector. Profitability improved to 10.1% of revenue as operating margin grew particularly in Managed Services in line with revenue improvement as well as Tier One Program continuous actions, synergies, procurement savings, offshoring acceleration, and more efficient project management. C.1.5.2 Germany In € millionH1 2016H1 2015*% organicRevenue930886+4.9%Operating margin80.843.3Operating margin rate8.7%4.9%* At constant scope and exchange rates During the first half of 2016, the Business Unit posted a strong revenue performance, up +4.9% compared to the same period last year at constant scope and exchange rates, leading to € 930 million revenue. The Business Unit confirmed the positive trend recorded in the first quarter this year following a better fourth quarter last year with an improvement coming from all Service Lines and most of the Markets, in particular from Public & Health. Managed Services growth came from Public & Health, improving through ramp-up volumes for the Department of Justice as well as an increased activity from Unify Communication & Collaboration Services with various local administrations. Manufacturing, Retail & Transportation benefitted primarily from larger project and resale volumes with Siemens. Financial Services grew thanks to project volumes with a major German bank, while the Telecom market was impacted by reduced activity with longstanding customers such as Nokia. Consulting & Systems Integration continued to record a strong organic growth, with all the markets turning to positive, reflecting the positive sales dynamic as a result from the change of the Service Line management last year. In particular, Public & Health posted a double digit growth led by higher volumes with the Ministry of Justice, while the other Markets managed to win both new customers and additional projects. Big Data & Cybersecurity also achieved a double digit revenue growth, mainly driven by a very strong performance in Manufacturing, Retail & Transportation attributable to software license sales which largely offset the base effect of a High Performance Computing project delivered last year. Operating margin reached € 80.8 million or 8.7% of revenue, significantly improving compared to H1 2015 at constant scope and exchange rates. Operating margin improved in Managed Services thanks to the combination of strong revenue growth and continued strong actions on cost, notably from significant optimization of the workforce, as well as an increased activity from offshore delivery platforms. In addition, the Service Line benefitted from Unify restructuring plan and from a one-off settlement recorded last year with one customer. Consulting & Systems Integration pursued its recovery thanks to continued workforce optimization while posting revenue growth as mentioned above. 19/69 C.1.5.3 United Kingdom & Ireland In € millionH1 2016H1 2015*% organicRevenue918962-4.6%Operating margin89.098.9Operating margin rate9.7%10.3%* At constant scope and exchange rates Revenue was € 918 million, down -4.6% year-on-year at constant scope and exchange rates. The Business Unit was largely impacted by the comparison effect with last year in Managed Services when outstanding volumes were processed for NS&I. Public & Health grew, benefiting from the ramp-up of the new contract with Metropolitan Police combined with increased volumes and projects achieved with DWP for the PIP contract. This was not sufficient to compensate for the NS&I base effect in Financial Services and for Telcos, Media & Utilities impacted by specific projects performed last year for large customers which was not repeated during the first half of this year. Revenue in Consulting & Systems Integration was almost stable. Growth was achieved in financial and telecom sectors thanks to new contracts and increased volumes, respectively with Close Brothers and a large Media company. In Manufacturing, Retail & Transportation, the growth achieved in new SAP engagements could not compensate for contracts ramp-down with customers such as Brakes and Xerox. Revenue slightly declined in the public sector with large contracts and programs ending, notably with the UK Civil Service, and Skills Development Scotland, partly offset by an increase of project activities on key accounts such as Metropolitan Police and in the Defense area. Big Data & Cybersecurity revenue strongly grew especially in Public & Health and Telcos, Media & Utilities, notably through software licenses and an increased demand on cybersecurity and High Performance Computing projects. Operating margin was € 89.0 million and represented 9.7% of the revenue. The Business Unit achieved to maintain its level of profitability despite revenue decline in Managed Services. In particular, strong management actions were implemented to pursue the efforts on costs savings and synergies through Tier One Program initiatives, as well as a tight project management on large contracts. Profitability improved in Systems Integration through costs optimizations as well as in Big Data & Cybersecurity thanks to a strong revenue growth. C.1.5.4 France In € millionH1 2016H1 2015*% organicRevenue847819+3.4%Operating margin47.631.0Operating margin rate5.6%3.8%* At constant scope and exchange rates At € 847 million, revenue in France was up +3.4% organically. This good performance was attributable to a positive turnaround in Consulting & Systems Integration, as well as a continued healthy performance of Big Data & Cybersecurity. Managed Services was almost stable thanks to new business signed and delivered notably with DCNS (Shipbuilding National Agency) and the ramp-up of contracts such as the ones with PwC and with a large aircraft manufacturer, mainly in Manufacturing, Retail & Transportation. On the other way round, lower resale volumes combined with less projects led to an organic decline in Telcos, Media & Utilities, and in Financial Services. Consulting & Systems Integration posted a strong revenue organic increase, returning to positive in almost all Markets. In particular, Public & Health benefited from the ramp-up of new contracts, notably with the Ministry of Defense and several local administrations. Financial Services as well as Manufacturing, Retail & Transportation benefitted from additional project volumes and new contracts, in particular with large institutions or companies such as Crédit Agricole, Sanofi, and Accor. In Telcos, Media & Utilities, projects ramp-up with FDJ and SFR partly offset the ramp-down of several other contracts. Big Data & Cybersecurity continued on its robust positive trend mainly originated in Public & Health, notably with an increasing demand from the Ministry of Defense, Météo France, the CEA (Commission for Atomic Energy and Alternative Energies) and Ministère de l’Intérieur. 20/69 Operating margin reached € 47.6 million, representing 5.6% of revenue, an improvement by +180 basis points. Profitability improved in all Service Lines, primarily led by Managed Services in an environment of stable revenue, driven by strong cost saving actions. Operating margin in Consulting & Systems Integration significantly increased in line with the solid revenue growth and combined with a more optimized utilization of staff in Technology Services within Consulting & Systems Integration resulting from an efficient workforce management initiated last year and with the effect of the cost synergies program on Bull performed in 2015. Finally, Big Data & Cybersecurity’s performance was also up thanks to the additional gross margin generated in a context of revenue increase. C.1.5.5 Benelux & The Nordics In € millionH1 2016H1 2015*% organicRevenue492521-5.5%Operating margin38.348.0Operating margin rate7.8%9.2%* At constant scope and exchange rates At € 492 million, revenue was down -5.5% organically, continuing the negative trend observed last year (-6.1% organic decline in the first semester of 2015). In Managed Services, revenue was affected by the declining trend mainly originating from Financial Services suffering from the ING contract ramp-down and lower resale volumes with Rabobank. While Manufacturing, Retail & Transportation benefitted from the ramp-up of the new contract with Philips, Public & Health and Telcos, Media & Utilities decreased due respectively to ended contracts with Dutch public institutions as well as the Post Nord contract ramp-down in Denmark, and the termination of some contracts with Telco operators. Consulting & Systems Integration revenue decrease was due to Telcos, Media & Utilities in the Netherlands, while in Manufacturing, Retail & Transportation the Siemens account faced lower volumes mainly in Denmark. Conversely Financial Services and Public & Health performed respectively higher resale volumes in Denmark and increased service delivery with the European Union in Belgium. Big Data & Cybersecurity continued to record a high growth on a business launched further to the acquisition of Bull, driven by sales of software licenses, cybersecurity and High Performance Computing products in the Belgian and Denmark public sector. Operating margin reached € 38.3 million, representing 7.8% of revenue. Benelux & The Nordics managed to contain the margin erosion in spite of a difficult market environment and a context of a significant revenue decrease. This performance resulted from workforce management efficiency with the optimization of the costs base in Consulting & Systems Integration in particular. Operating margin increase in Big Data & Cybersecurity directly stemmed from the expansion of the business. 21/69 C.1.5.6 Other Business Units In € millionH1 2016H1 2015*% organicRevenue931911+2.2%Operating margin53.456.5Operating margin rate5.7%6.2%* At constant scope and exchange rates Revenue in “Other Business Units” reached € 931 million, up +2.2% organically, enhanced by Managed Services, in particular in Financial Services from higher volumes with a large bank in Hong-Kong as well as in Telcos, Media & Utilities from new projects in South Africa and India. This allowed compensating for slightly lower volumes and price reductions with Siemens and some large equipment deliveries recorded in the prior year in Manufacturing, Retail & Transportation. Revenue grew in Big Data & Cybersecurity at a double-digit rate organically, similar to the trend observed in the first quarter, mainly driven by two new contracts in Switzerland. This fully compensated for ending projects in Consulting & Systems Integration, notably Ashgabat phase II. Operating margin was € 53.4 million, representing 5.7% of revenue, broadly stable compared to the first half of 2015 at constant scope and exchange rates. Margin benefitted from revenue improvement as well as increased productivity in the global delivery centers and from tight monitoring of costs allowing for an improved price competitiveness. C.1.5.7 Global structures Global structures costs increased by €-31.0 million compared to the first half of 2015 at constant scope and exchange rates, impacted by both the optimization of the pension scheme recorded in the prior year, and the effect of the increased globalization of the Group functions which will be fully reflected in the Group recharges to business units on a full year basis. 22/69 C.1.6 Revenue by Market In € millionH1 2016H1 2015*% organicManufacturing, Retail & Transportation2,0001,982+0.9%Public & Health1,6391,532+6.9%Telcos, Media & Utilities1,1251,111+1.3%Financial Services933978-4.6%TOTAL GROUP5,6975,603+1.7%* At constant scope and exchange rates C.1.6.1 Manufacturing, Retail & Transportation Representing 35% of the Group revenue, Manufacturing, Retail & Transportation was the largest Market segment and reached € 2,000 million in H1 2016, growing by +0.9% compared to H1 2015 at constant scope and exchange rates. Manufacturing, Retail & Transportation revenue benefited from its strong commercial activity notably within Managed Services and Worldline. In this market, the top 10 clients (excluding Siemens) represented 24% of revenue and were Xerox, a large aircraft manufacturer, Nike, Renault Nissan, Johnson & Johnson, a large electronics company, Daimler Group, Volkswagen, Marriott, and BASF. C.1.6.2 Public & Health Public & Health was the second market of the Group (29%) with total revenue of € 1,639 million, representing a strong increase by +6.9% compared to H1 2015 at constant scope and exchange rates. Growth mainly came from North America thanks to Texas Department of Information Resources and from France with the Ministry of Defense. Big Data & Cybersecurity also showed a strong performance across all Business Units. 35% of the revenue in this market was realized with 10 main clients: Department for Work & Pensions (DWP), the UK Ministry of Justice, European Union Institutions, an Texas Department of Information Resources, Ministry of Defense in France, Nuclear Decommissioning Authority (NDA), SNCF, CEA (Commission for Atomic Energy and Alternative Energies) in France, ANTAI in France (Agence Nationale de Traitement Automatisé des Infractions) and Bundesagentur für Arbeit (Federal Employment Agency) in Germany. C.1.6.3 Telcos, Media & Utilities Telcos, Media & Utilities represented 20% of the Group revenue and reached € 1,125 million, up by +1.3% compared to H1 2015 at constant scope and exchange rates. Revenue increase was mainly driven by new contracts in North America and “Other Business Units”, notably Asia Pacific and India, Middle-East & Africa. Main clients were a large media company in the UK, EDF, Disney World, Orange, Nokia, Telefonica/O2, Microsoft, Telecom Italia, Engie, and Schlumberger. The top 10 main clients represented 51% of the total Telcos, Media & Utilities revenue. C.1.6.4 Financial Services Financial Services was the fourth Market of the Group and represented 16% of the total revenue at € 933 million, declining by -4.6% compared to H1 2015 at constant scope and exchange rates. The decrease mainly came from the base effect related to outstanding volumes processed last year for National Savings & Investments (NS&I) in the UK and from the ramp-down of a contract with a large bank in Benelux & the Nordics. In this market, 48% of the revenue was generated with the 10 main clients: National Savings & Investments (NS&I), the largest German bank, a large bank in Hong Kong, McGraw-Hill Financial, BNP Paribas, La Poste, Crédit Agricole, Achmea, Société Générale, and Commerzbank. 23/69 C.1.7 Portfolio C.1.7.1 Order entry and book to bill In the first semester of 2016, the Group order entry totaled € 6,309 million, up +24.0% year-on-year, representing a book to bill ratio of 111% and notably 120% in the second quarter. Order entry and book to bill by Service Line in IT Services was as follows: In € millionQ1Q2H1 2016Q1Q2H1 2016Managed Services1,5012,0523,553 97%123%110%Consulting & Systems Integration8548331,687 110%103%106%Big Data & Cyber-security159224384 117%136%127%Total IT Services2,5153,1095,624 102%118%110%Order EntryBook to bill Commercial activity was particularly strong in Q2 with a book to bill ratio of 120%, driven by Cloud migration projects such as in the contract signed with the Texas Department of Information Resources for Hybrid Cloud Services and by digital transformation projects as for example the signature with a new logo, an American large quick serve restaurant provider, to deliver digital retail solution and an improved customer experience with the development of a mobile app. The Group also renewed large contracts such as the PIP contract with the UK Department for Work & Pensions. Commercial dynamism also came from the cross-selling strategy of the Group. As such, the Group signed a significant contract in Big Data with a French car manufacturer including the sale of a HPC, showing the promising perspectives of Big Data opportunities in the private sector, and had one of its first significant wins with Unify for the outsourcing of the communication network’s management and services of Solvay. Commercial dynamism translated into healthy book to bill ratios in all Service Lines during the first half of 2016. Managed Services book to bill ratio reached 110% thanks to large signatures in Benelux & The Nordics as well as in North America and Germany. Consulting & Systems Integration order entry represented 106% of revenue thanks to several contract wins in UK & Ireland in particular as well as in Benelux & The Nordics and in France. The level of booking was also high in Big Data & Cybersecurity and Worldline at 127% and 116% respectively. Order entry and book to bill by Market were as follows: In € millionQ1Q2H1 2016Q1Q2H1 2016Manufacturing, Retail & Transportation1,0881,1372,226 109%113%111%Public & Health9661,1132,078 123%131%127%Telcos, Media & Utilities404574978 81%92%87%Financial Services3366901,027 71%150%110%Total Group2,7943,5156,309 101%120%111%Order EntryBook to bill C.1.7.2 Full backlog In line with the dynamic commercial activity and representing 1.7 year of revenue, the full backlog at the end of June 2016 amounted to € 19.5 billion including the backlog of Unify CCS, compared to € 19.1 billion published at the end of 2015. C.1.7.3 Full qualified pipeline Including Unify CCS, the full qualified pipeline was representing 6.7 months of revenue at € 6.4 billion, compared to € 6.2 billion published at the end of 2015. 24/69 C.1.8 Human Resources The total headcount was 96,352 at the end of June 2016, compared to 91,322 at the end of 2015. The increase of +5.5% (or + 5,030 staff) of the Group total workforce was mostly due to 5,199 staff from Unify who joined the Group on February 1st, 2016, of which 1,871 in Unify CCS part and 3,328 staff in Unify S&P. Excluding the Unify S&P activities, reported under discontinued operations, total headcount would be at 93,312, increasing by +2.2%. The figures herein below in paragraph C.1.8 exclude the discontinued Unify S&P operations. During the first semester of 2016, the Group hired 8,247 staff (of which 96% direct employees), mainly in Managed Services counting for more than 60% of the direct hiring over the period. The hiring have been mainly achieved in “Other Business Units” (totaling 63% of direct hiring), notably in offshore countries such as India, Poland, Romania, Morocco, and Philippines, as well as in the US, the UK and Brazil. Attrition rate was 12.2% at Group level, of which 18.4% in offshore countries. Headcount evolution in H1 2016 by Business Units and by Service Line was as the following: OpeningJanuary 2016Internal transfersScopeHiringLeavers, Dismissal &RestructuringClosing June 2016Managed Services41,361-1,4594,795-3,55444,061Consulting & Systems Integration33,710--232,517-3,28132,923Big Data & Cybersecurity3,385--224-1013,508Functions352--4-199157Worldline6,750--319-3266,743Total Direct85,558-1,4367,859-7,46187,392North America12,074-2,5682121,220-1,4139,525Germany7,57820455385-1858,235United-Kingdom & Ireland7,771210302817-6348,466France11,62936-323-72211,266Benelux & The Nordics5,18966-56-3424,969Other Business Units34,1282,0523695,024-3,83137,742Global structures438--15-8445Worldline6,750--319-3266,743Total Direct85,558-1,4367,859-7,46187,392Total Indirect5,764-407289-5405,920Total Group91,322-1,8438,148-8,00193,312 The number of direct employees at the end of June 2016 was 87,392, representing 93.7% of the total Group headcount, stable compared to the end of December 2015. Indirect staff was 5,920, slightly up compared to the end of December 2015. Adjusted from the scope effect from Unify CCS, indirect staff decreased by -5.1% in line with the continuous optimization of the indirect workforce. Number of staff in offshore countries reached 26,126 people by the end of June 2016. The majority of the offshore workforce is located in India, the rest being mainly in Eastern Europe. Offshore for Systems Integration represented 44% of the activity direct workforce. 25/69 C.2 2016 objectives The Group raised all its objectives for 2016 stated in the February 24, 2016 release: Revenue: Organic growth of +1.5% to +2.0% (vs. above +0.4% initially). Growth at constant exchange rates above +11% (vs. above +8% initially). Operating margin: Between 9.2% and 9.5% of revenue (vs. 9.0% to 9.5% initially). Free cash flow: Above € 550 million (vs. circa € 550 million initially). The figures above include Unify Managed Services from February 1st, 2016 and exclude Equens contribution. 26/69 C.3 Financial review C.3.1 Income statement The net income from continuing operations (attributable to owners of the parent) was € 205.2 million, representing 3.6% of Group revenues of the period and an improvement of 66.9% compared to the first half of 2015. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 285.4 million, representing 5.0% of Group revenues of the period, up +30bp compared to last year. The Group reported a net income including discontinued operations (attributable to owners of the parent) of € 173.7 million for the half year ended June 30, 2016. (in € million)6 months ended 30 June2016% Margin6 months ended 30 June2015 (*)% MarginOperating margin 444.47.8%361.17.3%Other operating income / (expenses)(120.5)(163.8)Net financial income / (expenses)(31.8)(10.7)Tax charge (57.9)(47.1)Non-controlling interests and associates(29.0)(16.5)Netincomefromcontinuingoperations–Attributabletoownersof the parent205.23.6%123.02.5%Net income from discontinued operations(31.5)-Netincomeincludingdiscontinuedoperations–Attributabletoownersofthe parent173.73.0%123.02.5%Normalizednetincome–Attributableto owners of the parent (**)285.45.0%234.54.7%(**) The normalized net income is based on continuing operations and is defined hereafter.(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies".4.0%Operating income323.95.7%197.3 C.3.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. 27/69 C.3.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of € 120.5 million in the first half of 2016. The following table presents this amount by nature: (in € million)6 months ended 30 June20166 months ended 30 June2015 (*)Staff reorganization(57.3)(68.4)Rationalization and associated costs(25.6)(29.5)Integration and acquisition costs(14.4)(18.3)Amortization of intangible assets (PPA from acquisitions) (44.7)(31.2)Equity based compensation(21.5)(15.5)Other items43.0(0.9)Total(120.5)(163.8)(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies". The € 57.3 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries such as Central & Eastern Europe, France, Germany, Iberia, North America and United Kingdom. The € 25.6 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in Central & Eastern Europe, Germany and North America, linked to restructuring plans. This amount also encompasses external costs linked to the continuation of Worldline’s TEAM program, including the reorganization of office premises in France and Belgium. The € 14.4 million integration and acquisition costs represented mainly integration costs for Xerox ITO and Unify integration and acquisition costs. These costs also included the execution of the Equens and Paysquare transactions. The € 43.1 million profit in other items corresponded mainly to the gain on the Visa share disposal for € 51.2 million and partially offset by a settlement concluded with a customer in Germany. C.3.1.3 Net financial expense Net financial expense amounted to € 31.8 million for the period (compared to € 10.7 million for the first semester of 2015) and was composed of a net cost of financial debt of € 7.9 million and non-operational financial costs of € 23.9 million. Non-operational financial costs amounted to € 23.9 million compared to € 7.5 million in June 2015 and consisted of pension financial related costs (€ 14.9 million compared to € 14.8 million in 2015), net foreign exchange loss (€ 5.6 million compared to a net foreign exchange gain of € 7.9 million in 2015) and other expenses for € 3.4 million. C.3.1.4 Corporate tax The tax charge for the six-month period ended June 30, 2016 was € 57.9 million including the French CVAE tax, with a profit before tax of € 292.1 million. The annualized Effective Tax Rate (ETR) was 19.8% compared to 25.2% for the first half of 2015. 28/69 C.3.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. Non-controlling interests amounted to € 29.0 million in June 2016 (compared to € 14.9 million in June 2015). This increase was mostly related to the increased Worldline net income (comprising the gain related to the sale of Visa Europe share) allocated to minority shareholders. C.3.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was up at € 285.4 million, representing 5.0 % of Group revenues of the period, up +30bp compared to last year. (in € million)6 months ended 30 June20166 months ended 30 June2015 (*)Netincomefromcontinuingoperations-Attributabletoownersof the parent205.2123.0Other operating income and expenses(120.5)(163.8)Tax impact on unusual items40.352.3Total unusual items – Net of tax(80.2)(111.5)Normalized net income - Attributable to owners of the parent 285.4234.5(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies". C.3.1.7 Half year Earning Per Share EPS calculation from continuing operations (in € million)6 months ended 30 June2016% Margin% Growth6 months ended 30 June2015% MarginNetincomefromcontinuingoperations–Attributabletoownersof the parent [a]205.23.6%123.02.5%Impact of dilutive instruments - - Netincomefromcontinuingoperationsrestatedofdilutiveinstruments-Attributabletoownersof the parent [b]205.23.6%123.02.5%Normalizednetincome–Attributableto owners of the parent [c]285.45.0%234.54.7%Impact of dilutive instruments - - Normalizednetincomerestatedofdilutiveinstruments-Attributabletoowners of the parent [d]285.45.0%234.54.7%Average number of shares [e] 103,052,796 100,253,782 Impact of dilutive instruments 547,348 909,426 Diluted average number of shares [f] 103,600,144 101,163,208 (In €)BasicEPSfromcontinuingoperations[a] / [e]1.9962.3%1.23DilutedEPSfromcontinuingoperations [b] / [f]1.9862.9%1.22Normalized basic EPS [c] / [e]2.7718.4%2.34Normalized diluted EPS [d] / [f]2.7518.8%2.32 29/69 Potential dilutive instruments comprised vested stock options (equivalent to 547,348 options) and did not generate a restatement of net income used for the diluted EPS calculation. EPS calculation including discontinued operations (in € million)6 months ended 30 June2016% Margin% Growth6 months ended 30 June2015% MarginNetincomeincludingdiscontinuedoperations–Attributabletoownersof the parent [a]173.73.0%123.02.5%Impact of dilutive instruments - - Netincomeincludingdiscontinuedoperationsrestatedofdilutiveinstruments-Attributabletoownersof the parent [b]173.73.0%123.02.5%Average number of shares [e] 103,052,796 100,253,782 Impact of dilutive instruments 547,348 909,426 Diluted average number of shares [f] 103,600,144 101,163,208 (In €)BasicEPSincludingdiscontinuedoperations [a] / [e]1.6937.4%1.23DilutedEPSincludingdiscontinuedoperations [b] / [f]1.6837.9%1.22 30/69 C.3.2 Cash Flow and net cash The Group reported a net cash position of € 412.5 million at the end of June 2016, thus representing an increase of € 60.5 million compared to June 2015. The net cash position at the end of June 2015 included the € -366.0 million cash-out for the Unify acquisition. (in € million)6 months ended 30 June20166 months ended 30 June2015Operating Margin before Depreciation and Amortization (OMDA)586.3458.5Capital expenditures(201.5)(214.9)Change in working capital requirement(22.4)49.1Cash From Operation (CFO)362.4292.7Reorganization in other operating income (60.2)(95.7)Rationalization & associated costs in other operating income (25.2)(27.9)Integration and acquisition costs(10.9)(18.3)Taxes paid(74.0)(57.8)Net cost of financial debt paid(7.9)(3.2)Other changes *(3.2)14.1Free Cash Flow (FCF)181.0103.9Net (acquisitions) / disposals(321.8)(813.0)Proceed from the disposal of the Visa share35.6-Capital increase / (decrease)21.237.5Dividends paid to owners of the parent(47.3)(30.7)Change in net cash /(debt)(131.3)(702.3)Opening net cash /(debt)593.1989.1Change in net cash / (debt)(131.3)(702.3)Impact of foreign exchange rate fluctuation on net Cash / (Debt) (49.3)67.2Closing net cash /(debt)412.5354.0(*)"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationcostsandacquisitioncosts),dividendspaidtonon-controllinginterests,andotherfinancialitemswithcashimpact,netlongtermfinancialinvestmentsexcludingacquisitionsanddisposals,andprofitsharingamounts payable transferred to debt. Free cash flow represented by the change in net cash or net debt, excluding equity changes (notably cash received from employees upon exercise of stock options), dividends paid to shareholders, sale of the Visa Share, impact of foreign exchange rate fluctuation on opening net cash balance, and net acquisitions and disposals, reached € 181.0 million compared to € 103.9 million in the first semester 2015 (+ 74.2%). Cash From Operations (CFO) amounted to € 362.4 million and increased by € 69.7 million compared to the prior year, due to the following items: OMDA (€ +127.8 million); Capital expenditures (€ -13.4 million); Change in working capital (€ -71.5 million). 31/69 OMDA of € 586.3 million, representing an increase of € +127.8 million compared to June 2015, reached 10.3% of revenues compared to 9.3% of revenues in June 2015. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended 30 June20166 months ended 30 June2015 (*)Operating margin444.4361.1 + Depreciation of fixed assets203.6172.7 + Net book value of assets sold / written off7.219.1+/- Net charge / (release) of pension provisions(20.6)(52.3)+/- Net charge / (release) of provisions(48.3)(42.1)OMDA586.3458.5(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies". Capital expenditures totaled € 201.5 million, representing 3.5% of revenue, compared to € 214.9 million in the first semester of 2015 (4.3% of revenue) and after 3.9% of revenue in the second semester of 2015. The negative contribution from change in working capital was € -22.4 million (compared to € +49.1 million in June 2015). The DSO ratio reached 32 days at the end of June 2016 compared to 38 days at the end of June 2015. DSO has been positively impacted by the implementation of financial arrangements on large customer contracts by 14 days compared to 12 days in June 2015. The DPO was 80 days as of June 2016 compared to 87 days at the end of June 2015. Cash out related to taxes paid reached € 74.0 million and was higher than last year by € 16.2 million in line with the increase in Profit before Tax. The € 7.9 million cost of net debt decreased by € 4.7 million compared to the first half of 2015 including the following elements: A net cash position of € 593.1 million at the beginning of the period (partially reduced by the cash out related to the Unify acquisition in January), compared to € 989.1 million at the beginning of 2015; An average expense rate of 1.50% on the average gross borrowings compared to 2.34% in 2015 and; An average income rate of 0.99% on the average gross cash compared to 1.13% in 2015. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 96.3 million fully in line with the € 150 million FY 2016 objective. A larger portion of reorganization and rationalization costs was pulled forward into H1 in order to optimize the impact on the full year operating margin. Other changes amounted to € -3.2 million. As a result, the Group free cash flow (FCF) generated during the first half of 2016 was € 181.0 million. The net debt impact resulting from net acquisitions/disposals corresponded mainly to the acquisition of Unify at the end of January for a consideration of € 366.0 million. Capital increase, mostly related to proceeds from equity based compensation, totaled € 21.2 million in the first half compared to € 37.5 million in the first semester of 2015 mainly reflecting the lower number of stock options exercised. As part of the sale of Visa Europe share, the Group received € 35.6 million as the cash portion from Visa Inc. the remaining part compared to the total € 51.2 million proceeds relates to preferred shares and a long-term (3-year) receivable from Visa Inc. In the first half of 2016, dividends paid to owners of the parent amounted to € 113.5 million (€ 1.10 per share) of which € 47.3 million cashed out and € 66.2 million through the issuance of new shares. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net cash of € -49.3 million mainly coming from the exchange rate of the British Pound (€ -37.1 million) and the US Dollar (€ -3.2 million) against Euro. 32/69 C.3.3 Parent company results The profit before tax of the parent company amounted to € 37.2 million for the six-month period ended June 30, 2016 compared to € 46.2 million in the first semester of 2015. 33/69 C.4 Interim condensed consolidated financial statements C.4.1 Interim condensed consolidated income statement (in € million)Notes6 months ended 30 June20166 months ended 30 June2015 (*)Revenue Note 25,697.04,941.2Personnel expensesNote 3(2,720.9)(2,516.0)Operating expensesNote 4(2,531.7)(2,064.1)Operating margin444.4361.1% of revenue7.8%7.3%Other operating income and expensesNote 5(120.5)(163.8)Operating income323.9197.3% of revenue5.7%4.0%Net cost of financial debt(7.9)(3.2)Other financial expenses(34.2)(38.5)Other financial income10.331.0Net financial incomeNote 6(31.8)(10.7)Net income before tax292.1186.6Tax chargeNote 7(57.9)(47.1)Share of net profit/(loss) of associates - (1.6)Net income from continuing operations234.2137.9Net income from discontinued operations(31.5) - Net income202.7137.9Of which:- attributable to owners of the parent173.7123.0- non-controlling interests29.014.9(in € and number of shares)Net income from continuing operationsNote 8Weighted average number of shares 103,052,796100,253,782Basicearningspersharefromcontinuingoperations1.991.23Diluted weighted average number of shares 103,600,144101,163,208Dilutedearningspersharefromcontinuingoperations1.981.22(in € and number of shares)Netincome-AttributabletoownersoftheparentNote 8Weighted average number of shares 103,052,796100,253,782Basic earnings per share1.691.23Diluted weighted average number of shares 103,600,144101,163,208Diluted earnings per share1.681.22(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies". 34/69 C.4.2 Interim condensed consolidated statement of comprehensive income (in € million)6 months ended 30 June20166 months ended 30 June2015Net income202.7137.9Other comprehensive income(168.2)167.5Cash flow hedging 0.844.1Changeinfairvalueofavailableforsalefinancialassets(44.8)-(126.0)139.21.8(15.8)(146.6)52.0(194.2)78.947.6(26.9)Total other comprehensive income(314.8)219.5(112.1)357.4Of which:- attributable to owners of the parent(121.6)341.2- non-controlling interests9.516.2Exchange differences on translation of foreign operationsDeferred tax on items recyclable recognized directly on equity - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable):Actuarial gains and losses generated in the period on defined benefit planDeferred tax on items non-recyclable recognized directly on equityTotal comprehensive income for the period 35/69 C.4.3 Interim condensed consolidated statement of financial position (in € million)Notes30June 201631December 2015ASSETSGoodwillNote 93,285.13,118.1Intangible assets970.5920.3Tangible assets743.8818.8Non-current financial assetsNote 10433.6259.2Non-current financial instruments-1.4Deferred tax assets511.4442.4Total non-current assets5,944.45,560.2Trade accounts and notes receivablesNote 112,286.52,273.3Current taxes32.823.5Other current assetsNote 121,014.7868.9Current financial instruments4.98.1Cash and cash equivalentsNote 131,741.11,946.8Assets held for saleNote 11,035.7-Total current assets6,115.75,120.6Total assets12,060.110,680.8(in € million)30June 201631December 2015LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock104.7103.5Additional paid-in capital2,708.32,626.1Consolidated retained earnings830.3688.6Translation adjustments(105.9)18.3Netincomeattributabletotheownersoftheparent173.7406.2Equity attributable to the owners of the parent3,711.13,842.7Non-controlling interests267.7254.4Total shareholders’ equity3,978.84,097.1Provisions for pensions and similar benefitsNote 141,353.81,121.6Non-current provisionsNote 1580.286.8Borrowings1,210.21,210.8Deferred tax liabilities117.470.0Non-current financial instruments2.54.7Other non-current liabilities6.712.2Total non-current liabilities2,770.82,506.1Trade accounts and notes payablesNote 171,712.81,605.5Current taxes90.9104.7Current provisionsNote 15167.3199.8Current financial instruments9.98.7Current portion of borrowings294.3143.1Other current liabilities2,087.12,015.8Liabilities held for saleNote 1948.2-Total current liabilities5,310.54,077.6Total liabilities and shareholders’ equity12,060.110,680.8 36/69 C.4.4 Interim condensed consolidated cash flow statement (in € million)Notes6 months ended 30 June20166 months ended 30 June2015Profit before tax292.1186.6Depreciation of assetsNote 4203.6172.7Net charge / (release) to operating provisions(68.9)(94.4)Net charge / (release) to financial provisions14.814.5Net charge / (release) to other operating provisions(4.7)(39.7)Purchase Price Allocation amortization (PPA) 44.731.2Losses / (gains) on disposals of fixed assets(58.3)0.6Net charge for equity-based compensation21.515.5Losses / (gains) on financial instruments4.0(0.8)Net cost of financial debtNote 67.93.2Cash from operating activities before change in working capital requirement, financial interest and taxes456.7289.4Taxes paid(74.0)(57.8)Change in working capital requirement(22.4)49.1Net cash from/ (used in) operating activities360.3280.7Payment for tangible and intangible assets(201.5)(214.9)Proceeds from disposals of tangible and intangible assets25.240.4Net operating investments(176.3)(174.5)Amounts paid / received for acquisitions and long-term investments (346.1)(817.1)Cash and cash equivalents of companies purchased during the period24.9 - Proceeds from disposals of financial investments38.15.9Cash and cash equivalents of companies sold during the period5.5 - Net long-term investments(277.6)(811.2)Net cash from/ (used in) investing activities (453.9)(985.7)Common stock issues on the exercise of equity-based compensation18.137.5Capital increase subscribed by non-controlling interests3.1 - Dividends paid to owners of the parent(47.3)(30.7)Dividends paid to non-controlling interest(0.6)(0.7)New borrowingsNote 1611.4946.0New finance leaseNote 163.3Repayment of long and medium-term borrowingsNote 16(19.9)(12.5)Net cost of financial debt paid(0.1)(3.2)Other flows related to financing activities112.320.5Net cash from/ (used in) financing activities80.3956.9Increase/ (decrease) in net cash and cash equivalents(13.3)251.9Opening net cash and cash equivalents1,873.71,542.5Increase/ (decrease) in net cash and cash equivalentsNote 16(13.3)251.9Impact of exchange rate fluctuations on cash and cash equivalents(62.9)79.7Closing net cash and cash equivalentsNote 181,797.51,874.1 37/69 C.4.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At January 1, 2015101,334101.32,521.6404.6(94.4)(5.0)265.23,193.3208.83,402.1* Common stock issued 1,7861.885.4(49.7)37.537.5* Appropriation of prior period net income265.2(265.2) - - * Dividends paid to non-controlling interests(30.7)(30.7)(1.1)(31.8)* Equity-based compensation15.115.10.415.5* Changes in auto-control shares and treasury stock0.10.10.1* Other5.15.1(4.7)0.4Transactions with owners1,7861.885.4205.1 - - (265.2)27.1(5.4)21.7* Net income 123.0123.014.9137.9* Other Comprehensive income50.7139.228.3218.21.3219.5Total comprehensive income for the period50.7139.228.3123.0341.216.2357.4At June 30, 2015103,120103.12,607.0660.444.823.3123.03,561.6219.63,781.2* Common stock issued 4000.419.119.519.5* Dividends paid to non-controlling interests - (0.2)(0.2)* Equity-based compensation9.29.25.714.9* Other1.41.4(1.9)(0.5)Transactions with owners400.00.419.110.6 - - - 30.13.633.7* Net income 0.015.915.9* Other Comprehensive income(8.0)(26.5)2.3283.2251.015.3266.3Total comprehensive income for the period(8.0)(26.5)2.3283.2251.031.2282.2At December 31, 2015103,520103.52,626.1663.018.325.6406.23,842.7254.44,097.1* Common stock issued 1,2401.282.2(63.4)20.01.221.2* Appropriation of prior period net income406.2(406.2) - - * Dividends paid to non-controlling interests(47.3)(47.3)(0.3)(47.6)* Equity-based compensation17.217.23.420.6* Changes in auto-control shares and treasury stock0.10.10.1* Other--(0.5)(0.5)Transactions with owners1,2401.282.2312.8 - - (406.2)(10.0)3.8(6.2)* Net income 173.7173.729.0202.7* Other Comprehensive income(141.5)(124.2)(29.6)(295.3)(19.5)(314.8)Total comprehensive income for the period(141.5)(124.2)(29.6)173.7(121.6)9.5(112.1)At June 30, 2016104,760104.72,708.3834.3(105.9)(4.0)173.73,711.1267.73,978.8(in € million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholder's equityItems recognized directly in equityNet income TotalNon controlling interests 38/69 C.4.6 Appendices to the interim condensed consolidated financial statements C.4.6.1 Basis of preparation The 2016 interim condensed consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1st, 2016. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The interim condensed consolidated financial statements for the six months ended June 30, 2016 have been prepared in accordance with IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2015. The accounting policies, presentation and methods of computation that have been followed in these interim condensed consolidated financial statements are in line with those that were applied in the preparation of the December 31, 2015 financial statements and disclosed in the Group’s 2015 Reference Document. The new standards, interpretations or amendments whose application was mandatory for the Group effective for the fiscal year beginning January 1st, 2016 did not have a material impact on the interim condensed consolidated financial statements. The Group has not early adopted any standard or interpretation not required to be applied in fiscal year 2016. The Group does not apply IFRS standards and interpretations that have not been yet approved by the European Union at the closing date. These interim condensed consolidated financial statements are presented in euro, which is the Group’s functional currency. All figures are presented in € millions with one decimal. C.4.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS19 revised, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. Benefit plans costs are recognized in the Group’s operating income, except for net interest on the net defined benefit liability (asset) which is recognized in “other financial income and expenses”. 39/69 Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full- year earnings projections. Change in free cash flow and operating margin new definition The Group decided to change the “free cash flow” and “operating margin” definitions by excluding equity based compensation effects from the calculation of financial performance, in line with sector practice. As such, Group free cash flow excludes proceeds from equity based compensation and the amortization cost of equity based compensation plans is excluded from the “operating margin” and presented in “other operating income and expenses”. This change in presentation has been applied retroactively to all periods presented and as a consequence of this reclassification, the first semester of 2015 and the full year 2015 “operating margin” have been increased respectively by € 15.5 million and € 33.3 million. 40/69 C.4.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes of scope of consolidation UNIFY ACQUISITION On January 20, 2016, Atos completed the acquisition of Unify, a leader in integrated communication solutions, which was announced in November 2015. The initial cash consideration transferred to acquire 100% of Unify amounts to € 366 million and will be subject to price adjustments. Software & Platforms discontinued operations The Services activities of Unify have been integrated in the Atos Service Line “Managed Services” from February 1st, 2016 and the software and platforms activities have been accounted for as discontinued operations. Atos Group decided, as early as the acquisition date, to put on sale the Software & Platforms business (S&P). The S&P business has been treated as discontinued operations as from February 1st, 2016 in accordance with IFRS 3 and IFRS 5 requirements. The flows relating to the services rendered by the continuing operations to S&P have been eliminated at the S&P level. As a result, the External Revenue of the Group includes revenues related to such flows. In the interim consolidated statement of financial position, the net assets allocated to the S&P business have been presented on the line “Assets held for sale” and net liabilities on the line “Liabilities held for sale”. The net loss of the S&P business from February 1st to June 30, 2016 has been presented under the “net income from discontinued operations” caption of the interim consolidated income statement. Identifiable assets acquired and liabilities assumed at the date of acquisition for the continuing operations (in € million) Initial assets acquired and liability assumed Intangible assets86.4Tangible assets3.8Non-current financial assets14.3Total non-current assets104.5Trade accounts and notes receivables109.8Current taxes0.3Other current assets53.9Cash and cash equivalents17.9Total current assets181.9Total assets (A)286.4Provisions for pensions and similar benefits58.6Non-current provisions17.9Borrowings10.6Total non-current liabilities87.1Trade accounts and notes payables44.0Other current liabilities106.7Total current liabilities150.7Total Liabilities (B)237.8Fair value of acquisition (A) - (B)48.6 41/69 The valuation of assets acquired and liabilities assumed for the continuing operations resulted in the recognition of customer relationship and backlog for an amount of € 86.4 million determined by an independent expert. Those intangible assets will be amortized over a period from 2 to 10 years. The impact of the amortization of the customer relationship and backlog is € 4.4 million as of June 30, 2016. Preliminary Goodwill allocated to the Unify continuing operations Goodwill was recognized on continuing operations as follows: (in € million)June 2016Preliminary allocation of the consideration paid to continuing operations256.0 Fair value of identifiable net assets48.6 Preliminary Goodwill207.4 XEROX ITO On June 30, 2015, Atos completed the acquisition of Xerox ITO which was announced in December 2014. During the semester 2016, Atos has finalized the accounting for this business combination. Identifiable assets acquired and liabilities assumed at the date of acquisition (in € million)Initial assets acquired and liability assumedAdditional adjustments identified in 2016Assets acquired and liability assumed at the end of the measurement periodIntangible assets 229.4 0.1 229.5 Tangible assets 157.6 (6.0) 151.6 Non-current financial assets 1.4 - 1.4 Deferred tax assets 19.0 2.4 21.4 Other non current asset 2.7 - 2.7 Total non-current assets 410.1 (3.5) 406.6 Trade accounts and notes receivables 245.6 1.3 246.9 Other current assets 94.0 (8.0) 86.0 Cash and cash equivalents 10.9 (0.8) 10.1 Total current assets 350.5 (7.5) 343.0 Total assets (A)760.6 (11.0)749.6Provisions for pensions and similar benefits 24.8 (1.2) 23.6 Non-current provisions 7.2 5.2 12.4 Borrowings 58.8 - 58.8 Deferred tax liabilities 1.5 - 1.5 Other non-current liabilities 0.3 - 0.3 Total non-current liabilities 92.6 4.0 96.6 Trade accounts and notes payables 81.1 0.8 81.9 Current taxes 2.5 - 2.5 Current portion of borrowings 13.9 - 13.9 Other current liabilities 169.5 7.6 177.1 Total current liabilities 267.0 8.4 275.4 Total Liabilities (B)359.612.4372.0Fair value of acquisition (A) - (B)401.0 (23.4)377.6 The valuation of assets acquired and liabilities assumed at their fair value has resulted in the recognition of new intangible assets excluding software for a total amount of € 156.7 million of which € 154.2 million for Customer Relationships determined by an independent expert. Customer Relationships are being amortized over 6 to 12 years. An amortization expense of € 9.7 million was recorded for the six-month period ended June 30, 2016. 42/69 Goodwill Goodwill was recognized as a result of the acquisition as follows: (in € million)June 2016December 2015Total consideration paid812.1812.1USD vs EUR hedging of the consideration paid(46.8)(46.8)Tax effect on USD vs EUR hedging of the consideration paid16.116.1Fair value of identifiable net assets377.6401.0Total403.8380.4 The residual goodwill is attributable to synergies expected to be achieved from integrating Xerox ITO operations into the Group. Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and chairman of the Board of Directors who makes strategic decisions. Following the Unify acquisition, the Group segment organization in 2016 was the following: Operating segments United Kingdom & Ireland Consulting & Systems Integration, Managed Services and Big Data Activities France Germany North America Benelux & The Nordics Other Business Units Worldline and Security in Ireland and the United Kingdom. Consulting & Systems Integration, Managed Services and Big Data and Security in France. Consulting & Systems Integration and Managed Services in Germany. Consulting & Systems Integration, Managed Services and Big Data and Security in Canada, Mexico, the United States of America and also the Xerox ITO activities. Consulting & Systems Integration, Managed Services and Big Data and Security in Belgium, Denmark, Estonia, Finland & Baltics, Luxembourg, Sweden and The Netherlands. Consulting & Systems Integration, Managed Services and Big Data and Security in Algeria, Andorra, Argentina, Australia, Austria, Brazil, Bulgaria, Chile, China, Colombia, South Korea, Croatia, Czech Republic, Egypt, Gabon, Greece, Hungary, Hong-Kong, India, Italy, Ivory Coast, Japan, Lithuania, Lebanon, Malaysia, Madagascar, Mauritius, Morocco, Namibia, New-Zealand, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi- Arabia, Senegal, Singapore, Serbia, Slovakia, Slovenia, South- Africa, Spain, Switzerland, Taiwan, Thailand, Tunisia, Turkey, UAE, Uruguay and also Major Events activities. Hi-Tech Transactional Services & Specialized Businesses in Argentina, Austria, Belgium, Chile, China, France, Germany, Hong- Kong, Iberia, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, The Netherlands and the United Kingdom. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenues from each external contract amounted to less than 10% of the Group’s revenue. 43/69 The operating segment information for the periods is as follows: Total Group 6 months ended 30 June 2015 (in € million)United Kingdom and IrelandFranceGermanyNorth AmericaBenelux & The NordicsOther Business UnitsWorldlineTotal Operating segmentsGlobal StructuresEliminationExternal revenue by segment917.9846.8929.5990.2492.2931.2589.25,697.05,697.0%16.1%14.9%16.3%17.4%8.6%16.3%10.3%100.0%100.0%Inter-segment revenue90.0124.6158.7114.479.2517.025.61,109.539.8(1,149.3) - Total revenue 1,007.9971.41,088.21,104.6571.41,448.2614.86,806.539.8(1,149.3)5,697.0Segment operating margin 89.047.580.9100.438.353.491.6501.1(56.7)444.4%9.7%5.6%8.7%10.1%7.8%5.7%15.5%8.8%7.8%Total segment assets 1,194.0 1,279.8 1,197.7 1,322.1 609.5 1,557.1 1,020.1 8,180.3 558.8 8,739.1 External revenue by segment994.9824.8758.8340.4515.3936.0571.04,941.24,941.2%20.1%16.7%15.4%6.9%10.4%18.9%11.6%100.0%100.0%Inter-segment revenue(24.5)49.490.117.245.9217.1(6.7)388.541.7(430.2) - Total revenue 970.4874.2848.9357.6561.21,153.1564.35,329.741.7(430.2)4,941.2Segment operating margin 102.930.141.126.347.659.978.1386.0(40.4)345.6%10.3%3.6%5.4%7.7%9.2%6.4%13.7%7.8%7.0%Total segment assets1,140.41,404.4885.1240.1731.41,542.2992.56,936.11,124.18,060.26 months ended 30 June 2016 44/69 The reportable assets are reconciled to total assets as follows: Total segment assets8,739.18060.2Current & deferred tax Assets544.2463.5Cash & Cash Equivalents1,741.11,936.0Asset held for sale1,035.7-Total Assets12,060.110,459.730June 2015(in € million)30June 2016 Note 3 Personnel expenses (in € million)6 months ended 30 June2016% Revenue6 months ended 30 June2015 (*)% RevenueWages and salaries (2,141.6)37.6%(2,011.0)40.7%Social security charges(571.9)10.0%(545.8)11.0%Tax, training, profit-sharing(27.8)0.5%(15.9)0.3%Net (charge) /release to provisions for staff expenses(0.2)0.0%4.4-0.1%Net (charge)/release of pension provisions20.6-0.4%52.3-1.1%Total(2,720.9)47.8%(2,516.0)50.9%(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note C.4.6.2 "Significant accounting policies". Note 4 Operating expenses (in € million)6 months ended 30 June2016% Revenue6 months ended 30 June2015% RevenueSubcontracting costs direct(862.8)15.1%(846.1)17.1%Purchase hardware and software(517.2)9.1%(312.4)6.3%Maintenance costs(274.8)4.8%(217.0)4.4%Rent & Lease expenses(264.4)4.6%(190.2)3.8%Telecom costs(146.4)2.6%(123.6)2.5%Travelling expenses(87.5)1.5%(93.8)1.9%Company cars(34.7)0.6%(37.4)0.8%Professional fees (106.0)1.9%(84.9)1.7%Taxes & Similar expenses(14.1)0.2%(22.7)0.5%Others expenses(91.0)1.6%(37.3)0.8%Subtotal expenses (2,398.9)42.1%(1,965.4)39.8%Depreciation of assets(203.6)3.6%(172.7)3.5%Net (charge) / release to provisions48.5-0.9%37.7-0.8%Gains / (Losses) on disposal of assets(3.1)0.1%0.30.0%Trade Receivables write-off(10.0)0.2%(8.4)0.2%Capitalized Production35.4-0.6%44.4-0.9%Subtotal other expenses(132.8)2.3%(98.7)2.0%Total(2,531.7)44.4%(2,064.1)41.8% 45/69 In 2015, further to the integration of Bull following its acquisition in August 2014, the Group reclassified several lines according to its business model. This was more particularly the case for the Cost of Sales (representing the cost of hardware equipment and software licenses) and subcontracting expenses. The migration of the Bull ERP to the Atos ERP system which applies to all the Atos Business Units was performed on July 1st, 2015. Note 5 Other operating income and expenses (in € million)6 months ended 30 June20166 months ended 30 June2015 (*)Staff reorganization(57.3)(68.4)Rationalization and associated costs(25.6)(29.5)Integration and acquisition costs(14.4)(18.3)Amortization of intangible assets (PPA from acquisitions) (44.7)(31.2)Equity based compensation(21.5)(15.5)Other items43.0(0.9)Total(120.5)(163.8)(*) June 30, 2015 adjusted to reflect change in presentation disclosed in Note B.4.6.2 "Significant accounting policies". The € 57.3 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries such as Central & Eastern Europe, France, Germany, Iberia, North America and United Kingdom. The € 25.6 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in Central & Eastern Europe, Germany and North America, linked to restructuring plans. This amount also encompasses external costs linked to the continuation of Worldline’s TEAM program, including the reorganization of office premises in France and Belgium. The € 14.4 million integration and acquisition costs represented mainly integration costs for Xerox ITO and Unify integration and acquisition costs. These costs also included the execution of the Equens and Paysquare transactions. The € 43.1 million profit in other items corresponded mainly to the gain on the Visa share disposal for € 51.2 million and partially offset by a settlement concluded with a customer in Germany. Note 6 Net financial income Net financial expense amounted to € 31.8 million for the period (compared to € 10.7 million for the first semester of 2015) and was composed of a net cost of financial debt of € 7.9 million and non-operational financial costs of € 23.9 million. Net cost of financial debt (in € million)6 months ended 30 June20166 months ended 30 June2015Net interest expenses(7.1)(1.0)Interest on obligations under finance leases(0.9)(0.3)Gain/(loss) on disposal of cash equivalents0.10.2Gain/(loss) on interest rate hedges of financial debt -(2.1)Net cost of financial debt(7.9)(3.2) 46/69 The € 7.9 million cost of net debt increased by € 4.7 million compared to the first half of 2015 including the following elements: A net cash position of € 593.1 million at the beginning of the period (partially reduced by the cash out related to the Unify acquisition in January), compared to € 989.1 million at the beginning 2015; An average expense rate of 1.50% on the average gross borrowings compared to 2.34% in 2015 and; An average income rate of 0.99% on the average gross cash compared to 1.13% in 2015. Other financial income and expenses (in € million)6 months ended 30 June20166 months ended 30 June2015Foreign exchange income / (expenses) (2.2)(0.4)Fair value gain/(loss) on forward exchange contracts held for trading(3.4)8.3Discounting financial income / (expenses) --Other income / (expenses) (18.3)(15.4)Other financial income and expenses(23.9)(7.5)Of which:- other financial expenses(34.2)(38.5)- other financial income10.331.0 Non-operational financial costs amounted to € 23.9 million compared to € 7.5 million in June 2015 and consisted of pension financial related costs (€ 14.9 million compared to € 14.8 million in 2015), net foreign exchange loss (€ 5.6 million compared to a net foreign exchange gain of € 7.9 million in 2015), and other expenses for € 3.4 million. The pension financial related costs represent the difference between interest costs on defined benefit obligations and the interest income on plan assets for plans which are funded. Note 7 Income tax expenses The tax charge for the six-month period ended June 30, 2016 was € 57.9 million including the French CVAE tax, with a profit before tax of € 292.1 million. The annualized Effective Tax Rate (ETR) was 19.8% compared to 25.2% for the first half of 2015. 47/69 Note 8 Earnings per share Potential dilutive instruments comprised vested stock options (equivalent to 547,348 options) and did not generate a restatement of net income used for the diluted EPS calculation. The average number of stock options not exercised in June 2016 amounted to 1,100,130 shares. (in € million and shares)6 months ended 30 June20166 months ended 30 June2015Net income from continuing operations – Attributable to owners of the parent [a]205.2123.0Impact of dilutive instruments --Net income from continuing operations restated of dilutive instruments - Attributable to owners of the parent [b]205.2123.0Average number of shares outstanding [c] 103,052,796 100,253,782 Impact of dilutive instruments [d] 547,348 909,426 Diluted average number of shares [e]=[c]+[d] 103,600,144 101,163,208 (In €)Basic EPS from continuing operations [a] / [e]1.991.23Diluted EPS from continuing operations [b] / [f]1.981.22 (in € million and shares)6 months ended 30 June20166 months ended 30 June2015Net income – Attributable to owners of the parent [a]173.7123.0Impact of dilutive instruments --Net income restated of dilutive instruments - Attributable to owners of the parent [b]173.7123.0Average number of shares outstanding [c] 103,052,796 100,253,782 Impact of dilutive instruments [d] 547,348 909,426 Diluted average number of shares [e]=[c]+[d] 103,600,144 101,163,208 Earnings per share in € [a]/[c]1.691.23Diluted earnings per share in € [b]/[e]1.681.22 Note 9 Goodwill (in € million)31 December 2015Impact of business combi-nationChange of scopeExchange rate fluctuations30June 2016Gross value3,721.3230.8(8.2)(80.0)3,863.9Impairment loss(603.2)--24.4(578.8)Carrying amount3,118.1230.8(8.2)(55.6)3,285.1 During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event. 48/69 Note 10 Non-current financial assets (in € million)30June 201631 December 2015Pension prepayments143.0128.5Fairvalueofnon-consolidatedinvestmentsnetofimpairment24.055.7Other (*)266.675.0Total433.6259.2(*)"Other"includeloans,deposits,guarantees,investmentsinassociatesaccountedforundertheequitymethodand non consolidated investments. The variation of € 191.6 million in “Other” mainly corresponded to the loan of € 165.8 million in Bull international towards Unify discontinued operations. Note 11 Trade accounts and notes receivable (in € million)30June 201631 December 2015Gross value2,364.32,339.7Transition costs37.143.2Provision for doubtful debts(114.9)(109.6)Net asset value2,286.52,273.3Prepayments(70.7)(53.2)Deferred income and upfront payments received(606.2)(610.0)Net accounts receivable 1,609.61,610.1Number of days’ sales outstanding (DSO)3232 Atos securitization program of trade receivables has been renewed for 5 years on June 18, 2013 with a maximum amount of receivables sold of € 500.0 million and a maximum amount of financing of € 200.0 million. The new program is structured with two compartments, called ON and OFF: Compartment “ON” is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level; Compartment “OFF” is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution. As of June 30, 2016, the Group has sold: In the compartment “ON” € 303.0 million receivables for which € 110.0 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet; In the compartment “OFF” € 43.0 million receivables which qualified for de-recognition as substantially all risks and rewards associated with the receivables were transferred. Note 12 Other current assets (in € million)30June 201631 December 2015Inventories59.459.9State - VAT receivables152.7149.7Prepaid expenses382.7310.5Other receivables & current assets400.6342.5Advance payment19.36.3Total1,014.7868.9 49/69 Note 13 Cash and cash equivalents (in € million)30June 201631 December 2015Cash in hand and short-term bank deposit1,041.7848.4Money market funds 699.41,098.4Total1,741.11,946.8 Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 14 Pensions and similar benefits The net total amount recognized in the balance sheet in respect of pension plans and other long term employee benefits is € 1,210.8 million compared to € 993.1 million at December 31, 2015. Discount and long term inflation rates have significantly decreased since December 31, 2015, notably for the Eurozone and the United Kingdom. Therefore plan liabilities and plan assets for major plans have been remeasured at June 30, 2016. The following discount rates have been used: (in %)30June201631 December 2015Euro zone (long duration plans)1.65%2.65%Euro zone (other plans)1.15%2.05%United Kingdom3.05%3.90% The following long term inflation rates have been used: (in %)30June201631 December 2015Euro zone1.45%1.75%United Kingdom (RPI)2.85%3.10% During the first half of 2016, the acquisition of Unify increased net pension liabilities by € 58.6 million. The amounts recognized in the balance sheet consist of: (in € million)30June201631 December 2015Prepaid pension asset – post employment plans143.0128.5Accruedliability-postemploymentplansandotherlongtermbenefit plans(1,353.8)(1,121.6)Net amounts recognized – Total(1,210.8)(993.1) 50/69 The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (in € million)6 months ended 30 June20166 months ended 30 June2015Operating margin(26.9)4.2Other operating income and expenses3.6(1.5)Net financial income(14.9)(14.8)Total (expense)/profit(38.2)(12.1) Note 15 Provisions (in € million)31 December 2015ChargeRelease usedRelease unusedBusinessCombi-nationOther (*)30June2016CurrentNon- currentReorganization41.923.6(25.6)(1.0)2.5(2.1)39.335.63.7Rationalization23.74.8(2.6)(2.3)1.6(1.4)23.99.514.4Project commitments109.213.3(32.0)(13.0)14.8(2.4)89.968.121.8Litigations and contingencies111.811.3(7.5)(21.1)3.4(3.5)94.454.140.3Total provisions286.652.9(67.6)(37.4)22.4(9.4)247.5167.380.2(*) Other movements mainly consist of the currency translation adjustments. Note 16 Borrowings Change in net debt over the period (in € million)30June2016Opening net cash / (debt)593.1(11.4)19.9(13.3)(3.3)(10.6)(49.4)(0.9)Other flows related to financing activities(111.6)Closing net cash / (debt)412.5Profit-sharing amounts payable to French employees transferred to debtNew finance leases Long and medium-term debt of companies acquired during the periodNew borrowingsRepayment of long and medium-term borrowingsVariance in net cash and cash equivalentsImpact of exchange rate fluctuations on net long and medium-term debt Other flows related to financing activities' correspond mostly to the re-consolidation of financial liabilities on the compartment 'ON' securitization program. 51/69 Note 17 Trade accounts and notes payable (in € million)30June 201631 December 2015Trade payables and notes payable1,713.81,606.3Amounts payable on tangible assets(1.0)(0.8)Trade payables and notes payable1,712.81,605.5Net advance payments(19.3)(6.3)Prepaid expenses(382.7)(310.5)Net accounts payable1,310.81,288.7Number of days’ payable outstanding (DPO)8075 Trade accounts and notes payable are expected to be paid within one year. Note 18 Cash flow statements Net cash and cash equivalents (in € million)30June 201631 December 20151,916.81,946.8(119.3) (73.1)Total net cash and cash equivalents1,797.51,873.7Cash and cash equivalents Overdrafts Note 19 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 26, 2016. Note 20 Subsequent event There are no subsequent events to be mentioned. 52/69 C.5 Statutory Auditors’ review report on the half-yearly financial information for the period from January 1 s t to June 30, 2016 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2016, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information presented in the interim management report on the condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Neuilly-sur-Seine and Paris, July 26, 2016 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton French member of Grant Thornton International Jean-Pierre Agazzi Victor Amselem 53/69 D CORPORATE GOVERNANCE D.1 Office renewals and appointment of directors The Company’s Combined General Meeting held on May 26, 2016 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the terms of office as Directors of Ms. Aminata Niane (Senegalese citizen) and Lynn Paine (American citizen) and of Mr. Vernon Sankey (British citizen). Following the renewal of the Directors’ terms of office, the Board of Directors meeting held after the General Meeting decided to confirm the composition of the Board’s Committees. D.2 Composition of the Board of Directors As of the date of this Update of the Registration Document, the Board of Directors, comprised 11 directors including 8 independent directors, as follows: Name of the Director Mr Thierry BRETON Mr Nicolas BAZIRE* Ms Valérie BERNIS* Mr Roland BUSCH Ms Jean FLEMING Mr Bertrand MEUNIER* Ms Colette NEUVILLE* Ms Aminata NIANE* Ms Lynn PAINE* Mr Pasquale PISTORIO* Mr Vernon SANKEY* Date of first appointment or latest renewal May 28 2015 May 27 2014 May 28 2015 May 27 2014 May 29 2013 May 28 2015 May 27 2014 May 26 2016 May 26 2016 May 28 2015 May 26 2016 Date of the expiry of the mandate AGM 2018 AGM 2017 AGM 2017 AGM 2017 AGM 2017 AGM 2018 AGM 2017 AGM 2019 AGM 2019 AGM 2018 AGM 2019 Independent Director D.3 Combined General Meeting held on May 26, 2016 The Combined General Meeting held on May 26, 2016 approved all the resolutions submitted by the Board of Directors. The results of the votes at the Combined General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. 54/69 D.4 Executive compensation and stock ownership D.4.1 Performance shares allocation plan decided on July 26, 2016 In connection with the authorization granted for thirty-eight months, by the Combined General Meeting of May 26, May 2016 (twentieth resolution), the Board of Directors decided, during its meeting held on July 26, 2016, and upon the recommendation of the Nomination and Remuneration Committee, to proceed with the allocation of 947,885 ordinary performance shares of the Company, to be issued in favor of the first managerial lines of Atos, including the Chairman and Chief Executive Officer. Performance conditions to be achieved over the three years 2016, 2017 and 2018 of the new plan relate to internal financial criteria linked to profitability, free cash flow and revenue growth, identical to those of the previous plan of July 28, 2015. As for the July 28, 2015 plan, the plan also provides for an external condition linked to the social and environmental performance of the company. The features of the performance share allocation plan are as follows: A. Presence condition: subject to certain exceptions provided in the plan, the allocation of performance shares is conditioned on the preservation of employee or corporate officer status by the beneficiary during the vesting period; B. Performance condition: the allocation of performance shares is also subject to the achievement of the following internal and external performance conditions, appraised for each of the three years 2016, 2017, and 2018. Internal performance conditions For each of the three years 2016, 2017, and 2018: the Group free cash flow before dividend and acquisition/sales results is at least equal to one of the following amounts: (i) (ii) 85% of the amount of the Group free cash flow, before dividends and acquisition/sales results, as mentioned in the Company’s budget of the year in question; or the amount of the Group free cash flow before dividends and acquisition/sales results for the previous year with a 10% increase. the Group operating margin is at least equal to one of the following amounts: (i) (ii) 85% of the amount of the Group’s operating margin as mentioned in the Company's budget of the year in question; or the amount of the Group operating margin for the previous year with a 10% increase. Revenue growth of the year in question is at least equal to one of the two following amounts: Revenue growth rate as mentioned in the Company’s budget minus a percentage decided by the Board of Directors; or Yearly growth rate per reference to the Group growth targets. Revenue growth of the year in question is at least equal to one of the two following amounts: (i) It being specified that for each year, at least 2 of 3 internal performance criteria must be met. If one criterion is not met for the year in question, this criterion becomes compulsory for the following year. External performance condition For the years 2016, 2017, and 2018: The condition is achieved as soon as this criterion is validated for the three years during the vesting period. at least achieve the rating of GRI G4 “Comprehensive”; or become part of the Dow Jones Sustainability Index (Europe or World) (annual rating) C. Acquisition and conservation periods: The allocation of performance shares decided by the Board of Directors of Atos SE dated July 26, 2016 provides for all Beneficiaries of performance shares who are employees of companies of the Atos Group to definitively acquire the performance shares allocated to them on July 26, 2019, subject to achieving the performance conditions and the aforementioned presence condition. The shares thus acquired will not be subject to a conservation obligation and will be then immediately available for sale by their beneficiaries. 55/69 D. Specific supplementary provisions applicable to the Chairman and Chief Executive Officer: The Board of Directors allocated a theoretical maximum number of 56,500 performance shares to the Chairman and Chief Executive Officer (theoretical maximum allocation - pls. see below). This amount takes into consideration the recommendations of the AFEP-MEDEF Corporate Governance Code with respect to the Chairman and Chief Executive Officer, as well as his compensation over 3 years as set by the Board of Director's decision of May 30, 2012 as confirmed by the general meeting of December the 27, 2013 and the Board of Directors of May 28, 2015. As to its analysis, the Board of Directors, upon the recommendation of the Nomination and Remuneration Committee, considered the following elements: the theoretical maximum allocation to the Chairman and Chief Executive Officer represents around 6.0% of the total number of allocated shares; the principle and the supplemental requirement to modulate the definitive allocation of performance shares for the Chairman and Chief Executive Officer according to the effective performance of the Group in 20161 and, with respect to the cap providing the portion of compensation in shares awarded to the Chief Executive Officer shall not exceed 45% of his total annual compensation (even in the most favorable circumstances); subject to the presence and performance conditions of the plan being achieved, the definitive allocation of performance shares for the Chairman and Chief Executive Officer may vary from 41,800 shares minimum up to 56,500 shares maximum in case of, respectively, low or over performance of Atos Group in 2016 corresponding to an achievement of 70% or 130% of his variable compensation in 2016; the conservation obligation, for the duration of his duties, of 15% of performance shares allocated to him will also apply to the Chairman and Chief Executive Officer; Will also apply the prohibition to conclude any financial hedging instruments over the shares being the subject of the award during the whole duration of the mandate of the Chief Executive Officer. D.4.2 Performance shares that have become available since January 1st, 2016 for the Chairman and CEO – AMF Table 7 Since January 1st, 2016, the second half of the performance shares granted on December 22, 2011 (Tranche 2) became available for possible sale to the beneficiaries according to the France Plan Rules. The Atos Chairman and CEO is a beneficiary of this plan. Acquisition and availability terms are described in the 2015 Registration Document in part G.4.3.1. At the end of June 2016, the Atos Chairman and CEO did not sell any of those shares. Besides, performance shares granted on July 28, 2014, became definitively acquired by their beneficiaries, according to the France Plan Rules. The Atos Chairman and CEO is a beneficiary of this plan. Acquisition terms are described in the 2015 Registration Document in part G.4.3.3. Furthermore, beneficiaries are required to remain owner of their acquired shares for an additional period of two years; the shares will become available for possible sale on July 28, 2018. Plan dateNumber of shares vested since January 1st, 2016Vesting DateNumber of shares made available since January 1st, 2016Availability DateJuly 28, 2014 46,000 July 28, 2016-July 28, 2018March 17, 2016Chairman and CEODecember 22, 2011Tranche 2 32,500 March 17, 2014 32,500 1 Modulation applicable to the members of the Atos Group General management. 56/69 D.4.3 Subscription or purchase options exercised since January 1st, 2016 by the Chairman and CEO – AMF Table 5 Since January 1st, 2016, the Atos Chairman and CEO did not exercise any stock-options. The Atos Chairman and CEO proceeded on April 27, 2016 and April 28, 2016 to the disposal of 1,101 and 28,899 shares respectively. Following these operations and those mentioned in paragraph D.4.2 hereinabove, the Chairman and CEO holds, as of July 28, 2016, 502,914 shares resulting from the exercise of options. In addition, he possesses 65,000 performance shares vested pursuant to the plan of December 22, 2011, 45,000 performance shares vested pursuant to the plan of July 24, 2013 (these will become available for possible sale on July 24, 2017) and 46,000 performance shares vested pursuant to the plan of July 28, 2014 (these will become available for possible sale on July 28, 2018). 57/69 E COMMON STOCK EVOLUTION E.1 Basic data Atos SE shares are traded on the Paris Euronext Market under code ISIN FR0000051732. The shares have been listed in Paris since 1995. The shares are not listed on any other stock exchange. E.1.1 Information on stock Number of shares Sector classification Main index Other indices Market Trading place Tickers Code ISIN : 104,759,633 : Information Technology : CAC AllShares : CAC IT, CAC IT20, CAC Next20, Euronext 100, SBF120 : Euronext Paris Segment A : Euronext Paris (France) : ATO (Euronext) : FR0000051732 Payability PEA/SRD : Yes/Yes The main tickers are: Source Tickers Source Tickers Euronext AFP ATO ATO Reuters Thomson ATOS.PA ATO FR Bloomberg ATO FP The Euronext sector classification is as follows: Euronext: sector classification Industry Classification Benchmark (ICB) 9000 AEX Technology 9530 AEX Software and Computer services 9533 Computer Services The shares are also components of the following indices: Index Type Code ISIN Market Place Euronext (Compartment A) Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext CAC 70 Global Europe Paris-Amsterdam-Brussels-Lisbon Euronext 100 Global Europe FR0003502079 Paris-Amsterdam-Brussels-Lisbon SBF 80 Global FR0003999473 Paris PX8 SBF 120 Global FR0003999481 Paris PX4 SBF 250 Global FR0003999499 Paris PX5 CAC IT20 Sector QS0010989091 Paris CIT20 CAC IT Sector FR0003501980 Paris PXT DJ Euro Stoxx Techno Sector EUR0009658541 Germany-Xetra SX8E CAC Technology Sector QS0011017827 Paris CAC Software & Computer Services Sustainability: DJSI World, FTSE4Good, Ethibel Excellence (both Euro and Europe zone), Vigeo Sector FR0000051732 Paris 58/69 E.1.2 Free Float The free-float of the Group shares exclude stakes held by the reference shareholder, Siemens AG holding a stake of 11,9% of the share capital which it committed to keep until September 30, 2020. Blackrock Inc. announced having successively crossed the thresholds of 5% of the share capital and voting rights: (i) (ii) (iii) (iv) (v) downwards on March 21, 2016; upwards on March 23, 2016; downwards on March 31, 2016; upwards on April 1st, 2016; downwards on April 4, 2016. Bank of America Corporation announced having crossed, indirectly through companies of its group that it controls, upwards on April 29, 2016, and downwards on May 4, 2016, the thresholds of 5% of the share capital and voting rights. No other shareholder has announced holding more than 5% in the Group’s share capital. Stakes owned by the employees are also excluded from the free float. As at June 30, 2016 Shares % of share capital % of voting rights Treasury stock 477,159 0.5% 0.0% Siemens 12,483,153 11.9% 12.0% Board of Directors 622,316 0.6% 0.6% Employees 1,495,922 1.4% 1.4% Free float 89,681,083 85.6% 86.0% Total 104,759,633 100.0% 100,0% E.2 Dividend policy On a proposal from the Board of directors, the Combined General Meeting held on May 26, 2016, approved the payment in 2016 of a dividend of 1.10euro per share on the 2015 results as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal period 2015 2014 2013 Dividend paid per share (in €) € 1.10 € 0.80 € 0.70 E.3 Financial calendar October 20, 2016 Third quarter 2016 revenue E.4 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti, Executive Vice President, Investor Relations & Financial Communication Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Benoit d’Amécourt, Investor Relations & Financial Communication Director +33 (0)1 73 26 02 27 benoit.damecourt@atos.net Requests for information can also be sent by email to investors@atos.net 59/69 E.5 Common stock E.5.1 At June 30, 2016 As at June 30, 2016, on the basis of a decision of the Chairman and Chief Executive Officer dated as of June 30, 2016 the Company’s issued common stock amounted to € 104,759,633 divided into 104,759,633 fully paid-up shares of € 1.00 par value each. Since December 31, 2015, the share capital was increased by € 1,240,391 corresponding to the issuance of 1,240,391 new shares, split as follows: 347,561 new shares resulting from the exercise of stock options, issuance premiums amounting to € 16,775,322.38 in the aggregate; 892,830 new shares resulting from the payment of the 2015 dividend in shares, issuance premiums amounting to € 65,605,148.4 in the aggregate. E.5.1 Shareholders’ agreements To the Company’s knowledge, there is no other agreement capable of having a material effect, in case of public offer on the share capital of the Company than the ones mentioned in the 2015 Registration Document, in part G.7.7.5. E.5.2 Treasury stock E.5.2.1 Legal Framework The 11th resolution of the Combined General Meeting of May 26, 2016 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to the general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. These purchases may be carried out by virtue of any allocation permitted by law, with the aims of this share repurchasing program being: to keep them and subsequently use them for payment or exchange in the context of possible external growth operations, in accordance with market practices accepted by the Autorité des Marchés Financiers (French Financial Market Authority), it being specified that the maximum amount of shares acquired by the Company in this context shall not exceed 5% of the share capital, to ensure liquidity and an active market of the Company’s shares through an investment service provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the Autorité des Marchés Financiers (French Financial Market Authority), to attribute or sell these shares to the executive officers and directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or admitted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) free awards of share in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions laid down by market authorities and at such times as the board of directors or the person acting upon its delegation so decides, to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides, or to cancel them as a whole or in part through a reduction of the share capital pursuant to the 12th resolution of the Combined General Meeting held on May 26, 2016, or The maximum purchase price per share may not exceed € 105 (fees excluded). The Board of Directors may adjust the aforementioned purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and 60/69 attribution of free shares, as well as in the event of division of the nominal value of the share or regrouping of the shares to take account of the effect of these operations on the value of the share. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,086,952,041 as calculated on the basis of the share capital as at December 31, 2015, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from May 26, 2016. E.5.2.2 Treasury Stock As at June 30, 2016, the Company owned 477,159 shares which amounted to 0.5% of the share capital with a portfolio value of € 35,562,660.27, based on June 30, 2016 market price, and with book value of € 31,306,118.51. These shares are assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. E.5.3 Potential common stock E.5.3.1 Potential dilution Based on 104,759,633 issued shares as at June 30, 2016, the common stock of the Group could be increased by 796,875 new shares, representing 0.8% of the common stock before dilution. This dilution could occur with the exercise of all stock subscription options granted to employees. Performance shares are not considered as potentially dilutive as the Group expects to purchase on the market the shares to be delivered to employees. As such, the potential dilution is calculated as follows: In shares June 30, 2016 December 31, 2015 Change % dilution Number of shares outstanding 104,759,633 103,519,242 1,240,391 From stock subscription options 796,875 1,294,524 497,649 0.8% Potential dilution 796,875 1,294,524 497,649 0.8% Total potential common stock 105,556,508 104,813,766 742,742 Stock options evolution Number of stock subscription options at December 31, 2015 1,294,524 Stock subscription options granted during the first half of 2016 0 Stock subscription options exercised during the first half of 2016 347,561 Stock subscription options expired or cancelled during the first half of 2016 150,088 Number of stock subscription options at June 30, 2016 796,875 61/69 E.5.3.2 Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meeting of May 26, 2016, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of the date of this document: Authorization Authorization amount (par value) Use of the authorizations (par value) Unused balance (par value) Authorization expiration date E.G.M. 26 May 2016, 11th resolution Authorization to buyback the Company shares E.G.M. 26 May 2016, 12th resolution Share capital decrease 10% of the share capital adjusted at any moment 10% of the share capital adjusted as at the day of the decrease 0 0 10% 10% 11/26/2017 (18 months) 11/26/2017 (18 months) E.G.M. 26 May 2016, 13th resolution Share capital increase with preferential subscription right E.G.M. 26 May 2016, 14th resolution Share capital increase without preferential subscription right by public offer(1)(2) E.G.M. 26 May 2016, 15th resolution Share capital increase without preferential subscription right by private placement (1)(2) E.G.M. 26 May 2016, 16th resolution Share capital increase without preferential subscription right to remunerate contribution in kind (1)(2) E.G.M. 26 May 2016, 17th resolution Increase in the number of securities in case of share capital increase with or without preferential subscription right (1)(2)(3) E.G.M. 26 May 2016, 18th resolution Share capital increase through incorporation of premiums, reserves, benefits or other E.G.M. 26 May 2016, 19th resolution Share capital increase reserved to the employees(1) E.G.M. 26 May 2016, 20th resolution 31,146,128 10,382,042 10,382,042 10,382,042 Extension by 15% maximum of the initial issuance 3 234 millions 2,076,408 0 0 0 0 0 0 0 31,146,128 10,382,042 10,382,042 10,382,042 Extension by 15% maximum of the initial issuance 3 234 millions 2,076,408 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2018 (26 months) 07/26/2019 Grant of performance shares to employees and executive officers 1,142,024 947,885 194,139 (38 months) (1) Any share capital increase pursuant to the 14th, 15th, 16th, 17th, and 19th resolutions of the Combined General Meeting of May 26, 2016 shall be deducted from the cap set by the 13th resolution of the Combined General Meeting of May 26, 2016. (2) The share capital increases without preferential subscription right carried out pursuant to the 14 th, 15th, 16th, and 17th resolutions of the Combined General Meeting of May 26, 2016 are subject to an aggregate sub-cap corresponding to 10% of the share capital of the Company on the day of the Combined General Meeting of May 26, 2016 (i.e. a nominal amount of 10,382,042 euros). Any share capital increase pursuant to these resolutions shall be deducted from this aggregate sub-cap. (3) The additional issuance shall be deducted from (i) the cap of the resolution pursuant to which the initial issuance was decided, (ii) the aggregate cap set by the 13th resolution of the Combined General Meeting of May 26, 2016, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at (2) here above. The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 17th and 18th resolutions of the General Meeting of May 26, 2016 being set aside) amounts to 32,288,153.42, representing 30.82% of the share capital updated on June 30, 2016. 62/69 E.5.4 First half of 2015 and subsequent key trading dates January On January 20, 2016, Atos announced it has completed the acquisition from Gores Group and Siemens of Unify, the world number three in integrated communication solutions generating € 1.2 billion annual revenue. The acquisition creates a unique integrated proposition for unified communications improving the social collaboration, digital transformation and business performance of its clients. February On February 24, 2016, Atos announced its 2015 annual results. All 2015 objectives were achieved. Revenue was € 10,686 million, up +18% year-on-year and +0.4% organically. Operating margin was € 883.7 million, representing 8.3% of revenue, compared to 7.1% in 2014 at constant scope and exchange rates. Order entry was € 11.2 billion leading to a book to bill ratio of 105%. Full backlog increased by €+2.9 billion to € 19.1 billion, representing 1.7 year of revenue. Net cash position was € 593 million at the end of 2015. Free cash flow was € 450 million in 2015 compared to € 367 million in 2014. Net income was € 437 million, up +55% year-on-year and net income Group share was € 406 million, up +53% compared to 2014. Significant further improvements are planned in 2016 April On April 21, 2016, Atos announced its 2016 first quarter revenue and a strong start of the year reinforcing the achievement of all 2016 objectives. Revenue was € 2,757 million, up +1.6% organically and +15.0% at constant exchange rates. Order entry was € 2,794 million leading to a book to bill ratio of 101%. May Atos SE held on May 26, 2016 its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved. In particular, the General Meeting approved the annual and consolidated accounts for the financial year ending December 31, 2015, the dividend payment of €1.10 per share, as well as the option for payment of the dividend in either shares or cash. The General Meeting also renewed the terms of office of Directors of Ms. Aminata Niane, Ms. Lynn Paine, and Mr. Vernon Sankey. Following the renewal of the Directors’ terms of office, the Board of Directors held after the General Meeting decided to confirm the composition of the Board’s Committees. 63/69 F RISKS ANALYSIS The Company conducted a review of risks that could have a material adverse impact on its business, or results (or its ability to achieve its objectives) and considers that there are no significant risks other than those presented in the Atos’ 2015 Registration Document filed with the AMF on April 7, 2016. The Atos Group is a global business operating in some 72 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half of 2016 some significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks recorded in the consolidated financial statements closed as of June 30, 2016, to cover for the identified claims and litigations, added up to € 51 million (including tax and social contribution claims but excluding labor claims). F.1.1 Tax and Social Contribution claims The Group is involved in a number of routine tax & social contribution claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. A number of the tax & social contribution claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a tax (Stamp Duty) re-imbursement of an amount over € 10 million. The total provision for tax & social contribution claims, as recorded in the consolidated financial statements closed as at June 30, 2016, was € 23.6 million. F.1.2 Commercial claims There are a small number of commercial claims across the Group. Litigations are handled by the Group Legal Department. The Group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. There were a number of significant on-going commercial cases in various jurisdictions that the Group acquired through the acquisition of Siemens IT Solutions and Services, of Bull Group and Xerox ITO. Some of these cases involve claims on behalf of the Group and in 2016 a number were successfully resolved. The cases coming from Unify which has been recently acquired by the Group from Siemens are subject to post- closing discussions and the Group is confident that it will obtain a satisfactory coverage of the associated risks. As a result, the Unify cases have no impact on the total provision of € 27.38 million for commercial claim risks, as recorded in the consolidated financial statements closed as at June 30, 2016. 64/69 F.1.3 Labor claims There are approximately 100,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in Brazil, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. There are 24 claims against the Group which exceed € 300,000. The provision for these claims, as recorded in the consolidated financial statements closed as at June 30, 2016, was € 3.41 million. F.1.4 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/dispositions. F.1.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. 65/69 G LOCATIONS Global Headquarter Atos River Ouest 80, quai Voltaire 95 877 Bezons Cedex Tel.: +33 1 73 26 00 00 Americas Argentina Brazil Canada Chile Colombia Guatemala Mexico Peru Uruguay USA Asia-Pacific Australia China Hong Kong Indonesia Japan Korea Malaysia New-Zealand Philippines Singapore Taiwan Thailand Europe Andorra Austria Belgium Bulgaria Croatia Czech Republic Denmark Estonia Finland France Germany Greece Hungary Italy Ireland Lithuania Luxembourg Poland Portugal Romania Russia Serbia Slovakia Spain Sweden Switzerland The Netherlands United Kingdom 66/69 India, Middle-East & Africa Algeria Benin Burkina Faso Egypt Gabon India Ivory-coast Lebanon Madagascar Mali Mauritius Morocco Qatar Saudi Arabia Senegal South Africa Turkey United Arab Emirates H FULL INDEX Contents ................................................................................................................................................. 2 A Persons responsibles .......................................................................................................................... 3 A.1 For the Update of the Registration Document ................................................................................. 3 A.2 For the accuracy of the Update of the Registration Document........................................................... 3 A.3 For the audit .............................................................................................................................. 3 B Atos in the first half of 2016 ............................................................................................................... 4 C Finance ............................................................................................................................................ 6 C.1 Operational review...................................................................................................................... 6 C.1.1 Executive summary.............................................................................................................. 6 C.1.2 Statutory to constant scope and exchange rates reconciliation ................................................ 10 C.1.3 Revenue profile ................................................................................................................. 12 C.1.3.1 By Service Line ........................................................................................................... 12 C.1.3.2 By Business Unit ......................................................................................................... 12 C.1.3.3 By Market .................................................................................................................. 12 C.1.4 Performance by Service Line ............................................................................................... 13 C.1.4.1 Managed Services ....................................................................................................... 13 C.1.4.2 Consulting & Systems Integration ................................................................................. 14 C.1.4.3 Big Data & Cybersecurity ............................................................................................. 15 C.1.4.4 Worldline ................................................................................................................... 16 C.1.5 Performance by Business Units ............................................................................................ 18 C.1.5.1 North America ............................................................................................................ 19 C.1.5.2 Germany ................................................................................................................... 19 C.1.5.3 United Kingdom & Ireland ............................................................................................ 20 C.1.5.4 France ....................................................................................................................... 20 C.1.5.5 Benelux & The Nordics ................................................................................................. 21 C.1.5.6 Other Business Units ................................................................................................... 22 C.1.5.7 Global structures ........................................................................................................ 22 C.1.6 Revenue by Market ............................................................................................................ 23 C.1.6.1 Manufacturing, Retail & Transportation .......................................................................... 23 C.1.6.2 Public & Health ........................................................................................................... 23 C.1.6.3 Telcos, Media & Utilities ............................................................................................... 23 C.1.6.4 Financial Services ....................................................................................................... 23 C.1.7 Portfolio............................................................................................................................ 24 C.1.7.1 Order entry and book to bill ......................................................................................... 24 C.1.7.2 Full backlog ................................................................................................................ 24 C.1.7.3 Full qualified pipeline ................................................................................................... 24 C.1.8 Human Resources .............................................................................................................. 25 C.2 2016 objectives ........................................................................................................................ 26 67/69 C.3 Financial review ....................................................................................................................... 27 C.3.1 Income statement ............................................................................................................. 27 C.3.1.1 Operating margin ........................................................................................................ 27 C.3.1.2 Other operating income and expenses ........................................................................... 28 C.3.1.3 Net financial expense .................................................................................................. 28 C.3.1.4 Corporate tax ............................................................................................................. 28 C.3.1.5 Non-controlling interests .............................................................................................. 29 C.3.1.6 Normalized net income ................................................................................................ 29 C.3.1.7 Half year Earning Per Share ......................................................................................... 29 C.3.2 Cash Flow and net cash ...................................................................................................... 31 C.3.3 Parent company results ...................................................................................................... 33 C.4 Interim condensed consolidated financial statements .................................................................... 34 C.4.1 Interim condensed consolidated income statement ................................................................ 34 C.4.2 Interim condensed consolidated statement of comprehensive income ....................................... 35 C.4.3 Interim condensed consolidated statement of financial position ............................................... 36 C.4.4 Interim condensed consolidated cash flow statement ............................................................. 37 C.4.5 Interim consolidated statement of changes in shareholders’ equity .......................................... 38 C.4.6 Appendices to the interim condensed consolidated financial statements .................................... 39 C.4.6.1 Basis of preparation .................................................................................................... 39 C.4.6.2 Significant accounting policies ...................................................................................... 39 C.4.6.3 Notes to the half-year condensed consolidated financial statements .................................. 41 Statutory Auditors’ review report on the half-yearly financial information for the period from January 1st C.5 to June 30, 2016 ................................................................................................................................. 53 D Corporate governance ...................................................................................................................... 54 D.1 Office renewals and appointment of directors ............................................................................... 54 D.2 Composition of the Board of Directors ......................................................................................... 54 D.3 Combined General Meeting held on May 26, 2016 ......................................................................... 54 D.4 Executive compensation and stock ownership .............................................................................. 55 D.4.1 Performance shares allocation plan decided on July 26, 2016 .................................................. 55 Performance shares that have become available since January 1st, 2016 for the Chairman and CEO – D.4.2 AMF Table 7 .................................................................................................................................... 56 D.4.3 Table 5 Subscription or purchase options exercised since January 1st, 2016 by the Chairman and CEO – AMF ....................................................................................................................................... 57 E Common Stock Evolution .................................................................................................................. 58 E.1 Basic data ............................................................................................................................... 58 E.1.1 Information on stock .......................................................................................................... 58 E.1.2 Free Float ......................................................................................................................... 59 E.2 Dividend policy ......................................................................................................................... 59 E.3 Financial calendar ..................................................................................................................... 59 E.4 Contacts .................................................................................................................................. 59 68/69 E.5 Common stock ......................................................................................................................... 60 E.5.1 At June 30, 2016 ............................................................................................................... 60 E.5.1 Shareholders’ agreements .................................................................................................. 60 E.5.2 Treasury stock .................................................................................................................. 60 E.5.2.1 Legal Framework ........................................................................................................ 60 E.5.2.2 Treasury Stock ........................................................................................................... 61 E.5.3 Potential common stock ...................................................................................................... 61 E.5.3.1 Potential dilution ......................................................................................................... 61 E.5.3.2 Current authorizations to issue shares and other securities .............................................. 62 E.5.4 First half of 2015 and subsequent key trading dates ............................................................... 63 F Risks analysis ................................................................................................................................. 64 F.1.1 Tax and Social Contribution claims ....................................................................................... 64 F.1.2 Commercial claims ............................................................................................................. 64 F.1.3 Labor claims ..................................................................................................................... 65 F.1.4 Representation & Warranty claims ....................................................................................... 65 F.1.5 Miscellaneous .................................................................................................................... 65 G Locations ........................................................................................................................................ 66 H Full index ....................................................................................................................................... 67 69/69 | Semestriel, 2016, IT, Atos | write me a financial report |
Semestriel | 2,017 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| Update of the 2016 Registration Document Including the 2017 half-year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original Update of the 2016 Registration Document has been filed with the Autorité des Marchés Financiers (AMF) on August 4, 2017, in accordance with Article 212-13 of the AMF’s general regulations. It complements the 2016 Registration Document filed with the AMF on March 31st, 2017 under number D.17-0274. This document has been issued by the Company and commits its signatories. This update of the Registration Document 2016 is available on the AMF website (www.amf- france.org) and the one of the issuer (www.atos.net). Content CONTENT .................................................................................................................... 2 A. ACTIVITY REPORT .............................................................................................. 3 A.1 Atos in the first half of 2017 ......................................................................................... 3 A.2 Operational review ...................................................................................................... 6 A.3 2017 objectives ........................................................................................................ 22 A.4 Claims and litigations ................................................................................................ 22 A.5 Related parties ......................................................................................................... 24 B. FINANCIAL STATEMENTS ................................................................................. 25 B.1 Financial review ........................................................................................................ 25 B.2 Interim condensed consolidated financial statements ..................................................... 31 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1st to June 30, 2017 ...................................................................................... 55 C. PERSONS RESPONSIBLE ................................................................................... 56 C.1 For the Update of the Registration Document ............................................................... 56 C.2 For the accuracy of the Update of the Registration Document ......................................... 56 C.3 For the audit ............................................................................................................ 56 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .......................... 57 D.1 Office renewals and appointment of directors ............................................................... 57 D.2 Composition of the Board of Directors and Directors’ independence ................................. 57 D.3 General Meetings held in 2017 .................................................................................... 58 D.4 Executive compensation and stock ownership ............................................................... 58 D.5 Common Stock Evolution ........................................................................................... 62 E. APPENDICES .................................................................................................... 67 E.1 Contacts .................................................................................................................. 67 E.2 Financial calendar ..................................................................................................... 67 E.3 AMF cross-reference table .......................................................................................... 68 E.4 Full index ................................................................................................................. 71 2/74 A. Activity Report A.1 Atos in the first half of 2017 January On January 2, 2017, Atos announced the acquisition of Engage ESM, a leading provider in the enterprise- service management sector and a ServiceNow Gold Services Partner. This acquisition enabled Atos to offer enterprise and emerging customers an enhanced portfolio of cloud-based service-management solutions and further solidifies the position of Atos as Europe’s number one brand in IT and digital services. On January 11, 2017, Atos announced that it has signed a multi-million Euro five-year contract with Coca-Cola Hellenic Bottling Company (CCHBC), one of the world’s largest bottlers of brands of The Coca- Cola Company. Under the new contract, Atos took over development and management of key IT applications supporting the CCHBC business. Atos announced on January 20, 2017 the first installation of its Bull sequana X1000 new-generation supercomputer system, in the UK at the Hartree Centre. Founded by the UK government, the Science and Technology Facilities Council (STFC) Hartree Centre is a high performance computing and data analytics research facility. The world’s most efficient supercomputer, Bull sequana, is an exascale-class computer capable of processing a billion billion operations per second while consuming 10 times less energy than current systems. On January 24, 2017, Atos announced having secured a five-year contract, extendable for an additional five years, with the government of Western Australia (WA). This followed a stringent selection process in which 56 companies pitched to deliver on the ‘GovNext-ICT program’, a foundational element of the State’s Information and Communications Technology (ICT) strategy launched in 2016. With this appointment, Atos is on track to achieve its ambition to bring world-class standards and business practices that will re-invent and transform citizen engagement in Western Australia. February On February 8, 2017, Atos, a global leader in digital transformation, has secured an initial ten year contract with University College London Hospitals NHS Foundation Trust (UCLH) to be its Digital Transformation Partner and broadening its client base within the health services sector as a result. Under the agreement Atos will deliver IT outsourcing (ITO) and enhance the unified Information and Communications Technology (ICT) service model to fully support the UCLH mission to deliver high quality patient care, excellent education and world-class research. On February 17, 2017, Atos expanded its expertise in Big Data services with the acquisition of zData, a leader in Big Data consulting and solutions for both commercial and enterprise corporations. Atos has signed a share purchase agreement with zData, bringing a unique team of software engineers and data scientists to support its customers’ digital transformation journey within all sectors. 3/74 On February 22, 2017, Atos announced record results in 2016 and the over-achievement of all its 2016 financial objectives. Revenue was € 11,717 million, up +9.7% year-on-year, +12.8% at constant exchange rates, and +1.8% organically. Operating margin was € 1,104 million, representing 9.4% of revenue, compared to 8.3% in 2015 at constant scope and exchange rates. The commercial dynamism of the Group was particularly strong in 2016 with record order entry reaching € 13.0 billion, +16.2% compared to € 11.2 billion statutory in 2015. It represented a book to bill ratio of 111% in 2016, of which 119% during the fourth quarter of 2016. Full backlog increased by +11.9% year-on-year to € 21.4 billion at the end of 2016, representing 1.8 year of revenue. Net income was € 620 million, +41.9% year-on-year and net income Group share reached € 567 million, +39.6%. Basic EPS Group share was € 5.47, +36.1% compared to € 4.01 in 2015 and diluted EPS Group share was € 5.44, +36.5% compared to € 3.98 during 2015. Free cash flow reached € 579 million in 2016, +47.3% compared to € 393 million in 2015, materializing a strong improvement of operating margin conversion rate to free cash flow, reaching 52.5% in 2016 compared to 43% in 2015 and in line with the circa 65% 2019 objective. Net cash position was € 481 million at the end of 2016. March On March 9, 2017, the Euronext Scientific Board on Indices announced its decision to include Atos in the CAC 40 index, the primary index of the Paris stock exchange, where the Group is listed. This decision took effect as from the March 20, 2017 market trading session. On March 27, 2017, Atos was ranked at the top of the CAC 40 Governance Index, a new corporate governance index based on the CAC 40, developed by Euronext together with Corporate social responsibility (CSR) rating agency Vigeo Eiris. The index rates companies listed in the CAC 40 Paris stock index on their corporate governance performance, in particular the extent to which they have integrated social responsibility and sustainability into their decision-making processes. April On April 24, 2017, Atos announced its 2017 first quarter revenue, and the decision to integrate Unify Software & Platforms with the objective to grow by year-end. Revenue (including Unify S&P as of January 1st, 2017) was € 3,111 million, up +2.0% organically and +12% at constant exchange rates. Order entry was € 3,035 million leading to a book to bill ratio of 98%. Taking into account the integration of Unify Software & Platforms from January 1st, Atos raised its 2017 operating margin objective to circa 10%. May On May 11, 2017, Atos announced that it had signed a new five year deal with the BBC to provide technology services. Atos supports the BBC’s digital transformation and will provide staff with simple to use, quality tools and systems, helping them continue to make world-class programmes and services. The new contract delivers substantial savings to the BBC. It is the final contract to be procured under the BBC’s Aurora Programme, which has now re-sourced the Corporation’s core technology services. The BBC has now fully moved to a multi-supplier model, which will see services delivered by a combination of third parties and BBC in-house teams, giving the BBC better value, greater flexibility and access to new technology as it emerges. Atos SE held on May 24, 2017 its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer of the Company. All resolutions submitted by the Board of Directors were approved. The General Meeting massively approved the annual and consolidated accounts for the financial year ending December 31st, 2016 and the 2016 dividend payment of €1.60 per share, up over 45% compared to last year. The General Meeting also renewed the terms of office of Directors of Mr. Nicolas Bazire, Ms. Valérie Bernis, Mr. Roland Busch and Ms. Colette Neuville.The General Meeting issued a favorable opinion on the elements of compensation due or allocated to Mr. Thierry Breton for the financial year ending December 31st, 2016 and approved the features and criteria for setting, allocating, and granting, the fixed, variable, long-term and exceptional elements making up the total compensation and benefits of all kinds attributable to the Chairman and Chief Executive Officer for the financial year ending December 31st, 2017. 4/74 June On June 15, 2017, Atos, through its technology brand Bull, won a contract with GENCI (Grand Équipement National de Calcul Intensif) to deliver one of the most powerful supercomputers in the world, planned for the end of 2017. A successor of the Curie system installed at the TGCC (Très Grand Centre de Calcul of the CEA in Bruyères-Le-Chatel), the Bull Sequana supercomputer has an overall power of 9 petaflops and can carry out 9 million billion operations per second. It will be used for research purposes in France and Europe. The announcement was formalised the day before at the Ministry of Higher Education, Research and Innovation. On June 27, 2017, Atos, a global leader in digital transformation, were selected by Safran, leader in the aeronautics and aerospace sectors, as its partner to optimize datacenters worldwide. The four-year contract runs till 2021 and has the option of a two-year extension. By awarding Atos the contract to optimize its datacenters, Safran is accelerating its digital transformation by securing the best solutions on the market. 5/74 A.2 Operational review A.2.1 Statutory to constant scope and exchange rates reconciliation Revenue in H1 2017 reached € 6,311 million, +10.8% compared to H1 2016 statutory, +11.6% at constant exchange rates, and +2.2% organically. Operating margin reached € 538 million, representing 8.5% of revenue, compared to € 408 million (6.6% of revenue) in H1 2016 at constant scope and exchange rates (+190 basis points). In € millionH1 2017H1 2016% changeStatutory revenue6,311 5,697 10.8%Exchange rates effect-44 Revenue at constant exchange rates6,311 5,653 11.6%Scope effect518 Exchange rates effect on acquired/disposed perimeters5 Revenue at constant scope and exchange rates 6,311 6,177 2.2%Statutory operating margin538 444 21.2%Scope effect-34 Exchange rates effect-3 Operating margin at constant scope and exchange rates538 408 32.0%as % of revenue8.5%6.6% The table below presents the effects on 2016 revenue of acquisitions and disposals, internal transfers reflecting the Group’s new organization, and change in exchange rates. In € millionH1 2016 statutoryScope effectInternal transfersExchange rates effect*H1 2016 at constant scope and exchange ratesNorth America990 114 -0 37 1,141 Germany930 138 1 0 1,069 United Kingdom & Ireland918 24 0 -90 852 France847 1 -1 0 847 Benelux & The Nordics492 14 37 2 546 Other Business Units931 70 -37 18 983 Worldline589 157 0 -6 740 TOTAL GROUP 5,697 518 0 -38 6,177 Infrastructure & Data Management3,221 360 0 -25 3,556 Business & Platform Solutions1,584 -0 -9 -8 1,567 Big Data & Cybersecurity302 2 9 1 313 Worldline589 157 0 -6 740 TOTAL GROUP5,6975180-386,177* At average Jun 2017 YTD exchange rates Scope effect amounted to €+518 million for revenue. This was related to the contribution of Unify Software & Platforms (6 months), Unify Services (January 2016), Anthelio (6 months), Equens, Paysquare, and Komerçni Banka Smartpay (6 months), Engage ESM and Z-data. Internal transfers of (i) operations in Poland, Russia, and Lithuania from Other Business Units (Central & Eastern Europe) to Benelux & The Nordics, and (ii) Big Data consulting activities in Middle-East from Business & Platform Solutions to Big Data & Cybersecurity occurred as of January 1st, 2017. From H1 2016 statutory, currency exchange rates negatively contributed to revenue for a total of €-38 million, mainly coming from the British pound depreciating versus the Euro, partly compensated by the American dollar and the Brazilian real increasing versus the Euro. 6/74 The impacts described above are reflected in the operating margin at constant scope and exchange rates. In particular, scope effect amounted to €-34 million, mostly due to the loss making Unify S&P operations in H1 2016 (before full completion of the restructuring plan). These effects are detailed below: In € millionH1 2016 statutoryScope effectInternal transfersExchange rates effect*H1 2016 at constant scope and exchange ratesNorth America100 13 -1 4 116 Germany81 -60 1 0 23 United Kingdom & Ireland89 4 0 -9 84 France48 -2 -2 -0 43 Benelux & The Nordics38 -1 -2 -0 35 Other Business Units53 10 4 3 70 Global structures**-57 0 0 1 -56 Worldline92 2 0 -1 93 TOTAL GROUP 444 -34 -0 -3 408 Infrastructure & Data Management281 -36 0 -2 243 Business & Platform Solutions78 0 -0 -1 77 Big Data & Cybersecurity42 -0 0 0 43 Corporate costs-48 0 0 1 -48 Worldline92 2 0 -1 93 TOTAL GROUP444-340-3408* At average Jun 2017 YTD exchange rates** Global structures include the Global Divisions costs not allocated to the Group Business Units and Corporate costs A.2.2 Performance by Division Revenue in H1 2017 was € 6,311 million, up +11.6% at constant exchange rates and +2.2% organically. The Group reached +2.4% organic growth in the second quarter of 2017, strengthening the positive trend already performed in the first quarter. All the Divisions contributed to revenue organic growth thanks to a strong commercial momentum and to the investment strategy in innovation and technology. Operating margin was € 538 million, representing 8.5% of revenue, an improvement of +190 basis points fueled by Infrastructure & Data Management (+240 basis points), Business & Platform Solutions (+120 basis points), and Worldline (+240 basis points). In € millionH1 2017H1 2016*Organic evolutionH1 2017H1 2016*H1 2017H1 2016*Infrastructure & Data Management 3,589 3,556 0.9% 329 243 9.2%6.8%Business & Platform Solutions 1,608 1,567 2.6% 98 77 6.1%4.9%Big Data & Cybersecurity 357 313 13.8% 43 43 12.2%13.6%Corporate costs-46 -48 -0.8%-0.9%Worldline7577402.3%1149315.0%12.6%TOTAL6,3116,1772.2%5384088.5%6.6%* At constant scope and exchange ratesRevenueOperating marginOperating margin % 7/74 A.2.2.1 Infrastructure & Data Management In € millionH1 2017H1 2016*Organic evolutionRevenue 3,589 3,556 0.9%Operating margin 329 243 Operating margin rate9.2%6.8%* At constant scope and exchange rates 2017 first half revenue in Infrastructure & Data Management (including Unify S&P) was € 3,589 million, up +0.9% at constant scope and exchange rates, with a significant growth in Cloud Services and in Technology Transformation Services. In addition, the Division is actively involved in the transformation of its key client IT landscape through automation and robotization, and won some key contracts as part of the Digital Transformation Factory supporting growth in several geographies such as North America, Asia Pacific and Germany. Growth materialized primarily in the Public & Health sector, notably in North America thanks to increased volumes and additional scope from an Oracle Exadata implementation for the Texas Department of Information Resources, as well as the new contracts in France with Naval Group and the CEA (Commission for Atomic Energy and Alternative Energies). Financial services benefited from the ramp-up of new large contracts signed last year such as Aegon and the National Savings & Investments in the United Kingdom, Kasbank and VGZ in the Netherlands and AXA in France, while growth in Asia Pacific was sustained by higher volumes and large deliveries with a large bank in Hong-Kong. Manufacturing, Retail & Transportation posted a solid performance in several geographies, fueled notably by the new contracts with Rheinmetall in Germany, Monsanto in North America, as well as Akzo Nobel and NXP in Benelux & The Nordics. The situation in Telcos, Media & Utilities remained challenging, in particular in the United Kingdom impacted by some scope reductions with BBC while the renewal of the contract was signed in Q2 this year. Revenue was up +1.0% organically during the second quarter 2017. Infrastructure & Data Management revenue profile by geographies North America Benelux & The Nordics 31%21%19%9%7%14% Germany France United-Kingdom & Ireland Other countries Operating margin in Infrastructure & Data Management (including Unify S&P) was € 329 million in the first half of 2017, representing 9.2% of revenues. This improvement of +240 basis points came from migrations to cloud-based infrastructures, automation and robotization, and industrialization. The Division also performed the successful integration of Unify Services and the execution of the restructuring plan of Unify as a whole. Additionally, margin improvement was led by increased revenue, combined with continued tight cost monitoring and strong project management. Operational profitability improved in all geographies. The performance was mainly driven by Germany, benefiting from the effect of Unify restructuring program performed last year. In Benelux & The Nordics and in France, operating margin benefited from a better business mix, whereas North America continued to show good performance thanks to operational efficiency. Finally, in the United Kingdom, operating margin improved thanks to new contracts and strong focus on the costs base which more than compensated margin effects on the BBC 8/74 contract. A.2.2.2 Business & Platform Solutions In € millionH1 2017H1 2016*Organic evolutionRevenue 1,608 1,567 2.6%Operating margin 98 77 Operating margin rate6.1%4.9%* At constant scope and exchange rates Business & Platform Solutions revenue during the first half of 2017 reached € 1,608 million, +2.6% at constant scope and exchange rates. The Division increased its competitiveness thanks to a more efficient workforce management and the industrialization of global delivery. The Division is also shifting to high value digital transformation projects and revenue growth was led by Digital Transformation Factory in particular with the implementation of Industry 4.0 solutions for large manufacturers. Growth was driven by Manufacturing, Retail & Transportation that recorded good performance in all geographies and particularly in Germany, which benefited from the development of SAP HANA and Codex activities, notably materializing in the automotive sector with Daimler and Volkswagen; this added to the ramp-up of several contracts in Central & Eastern Europe (Coca-Cola) and Asia (Betagro). Public & Health was also growing particularly in Middle East & Africa thanks to last phase of the contract with Polimeks and successful Codex activities in Major Events and in Asia Pacific. Telcos, Media & Utilities also posted a good performance in Germany, combined with higher volumes and crosselling achieved in the energy sector in Italy thanks to Codex solutions. In Financial Services, the business was more challenging in France, Iberia and Central & Eastern Europe with less projects performed this year while in Germany the Division managed to start several new projects in mobile application development and customer experience services with a leading bank. Revenue growth reached +2.7% organically in Q2 2017. Business & Platform Solutions revenue profile by geographies Other countries France Benelux & The Nordics Germany 27%18%13%10%32% United-Kingdom & Ireland Operating margin was € 98 million, representing 6.1% of revenue. The strong improvement of +120 basis points was attributable to the good revenue performance, mainly in Middle East & Africa, Central & Eastern Europe, and Germany, combined with the effects in most geographies of costs savings and successful workforce management actions. France, North America, Iberia and South America succeeded to improve operating margin thanks to the application services industrialization program and the utilization rate improvement. Overall, Business & Platform Solutions continued its positive trends both in revenue and margin by investing in innovation and new Codex and SAP HANA offerings to deliver the planned operating margin enhancement. 9/74 A.2.2.3 Big Data & Cybersecurity In € millionH1 2017H1 2016*Organic evolutionRevenue 357 313 13.8%Operating margin 43 43 Operating margin rate12.2%13.6%* At constant scope and exchange rates Revenue in Big Data & Cybersecurity was € 357 million, showing a solid organic growth of +13.8% with a strong performance recorded particularly in the United Kingdom, North America and France. This performance was largely fueled by a strong High Performance Computing (HPC) activity particularly in the United Kingdom and in France in the research area respectively with customers such as the Science & Technology Facilities Council, the Atomic Weapon Establishment, the Oxford University, and also with GENCI (Grand Equipement National de Calcul Intensif) and the CEA as well as large clients in Manufacturing. Cybersecurity activities were also very dynamic, notably pulled by contracts with large customers in North America, such as Xerox, and in Germany, such as Nokia. Indeed due to the data deluge and adoption of the new technologies, large organizations are facing more and more sophisticated cyberattacks on a scale not seen before. Atos has developed end-to-end cybersecurity capabilities to help its customers addressing these new large threats. The Group has a leadership position in security governance, secure communications, situational awareness, and digital identity & access management. In Q2 2017, Big Data & Cybersecurity Division recorded a revenue organic growth at +14.2%. Big Data & Cybersecurity revenue profile by geographies Operating margin was € 43 million, representing 12.2% of revenue. The Division continued to record significant growth while investing on innovative solutions and products as well as extending its international footprint. 10/74 A.2.2.4 Worldline A detailed review of Worldline half-year 2017 results can be found at worldline.com, in the investors section. In € millionH1 2017H1 2016*Organic evolutionRevenue 757 740 2.3%Operating margin 114 93 Operating margin rate15.0%12.6%* At constant scope and exchange rates Worldline contributive revenue was € 757 million, improving by +2.3% organically. Merchant Services, grew by +5.2% organically and reached € 259 million. The growth mainly came from Merchant Payments Services, notably from Commercial Acquiring, which benefitted from a continuous increase in the number of transactions, from a strong momentum in India with the demonetization impact leading to higher volumes of transactions (x2.5 versus last year), and from positive business trends at Paysquare and KB SmartPay recently acquired. Merchant Digital Services grew as well, thanks to Private Label Cards & Loyalty services, with higher kiosks sales and project revenues with transportation companies in the United Kingdom. Financial Processing reached € 344 million, up +6.1% organically. Revenue in Issuing Processing grew thanks to a high level of Fraud Prevention Services in Belgium and continued strong growth in authentication services over the period (ACS and 3D Secure). Revenue increase was also sustained by the overall card payment transaction growth. Acquiring Processing was also particularly dynamic thanks to more volumes and projects mainly in France and in Italy. Digital banking grew mainly thanks to continued development and good fertilization on project related activities in France. Finally, Accounts Payments increased along with transaction volumes of Sepa payments in the Netherlands and in Germany, as well as significant volume growth on iDeal activity in the Netherlands, a business operated by Equens. Mobility & e-Transactional Services revenue was € 154 million, decreasing by -9.3% organically, as the Trusted Digitization (former « e-Government Collection ») business line was impacted for the last semester by the termination of the “Radars” contract that occurred in June 2016. Excluding that effect, the growth of Mobility & e-Transactional Services would have exceeded +11% in H1 2017. This performance would have been achieved thanks to a double-digit underlying growth recorded in Trusted Digitization, particularly in healthcare transactional services, tax collection activities in Latin America and with more revenue from various projects with French government agencies; to a robust growth in e-Ticketing, benefiting from a good dynamic in Latin America, thanks to higher fare collections revenue; finally to a double digit growth in e-Consumer & Mobility explained by a good project activity in France and in Germany. Revenue increased by +2.6% organically in Q2 2017. Worldline revenue profile by geographies The Netherlands Belgium Other countries Germany United-Kingdom France 25%23%13%13%7%20% 11/74 Operating margin was € 114 million or 15.0% of revenue, improving by +240 basis points compared to the first semester of 2016 largely fueled by the strong performance of Financial Processing, driven by a strong revenue growth coupled with the fast delivery of equensWorldline costs synergies. Merchant Services operating margin was impacted by the change of interchange fees in Belgium while the business unit performed transactions volumes growth and positive price effects in Commercial Acquiring and higher sales of digital self-service kiosks within Private Label Cards & Loyalty Services. Finally Mobility & e- Transactional Services operating margin was as expected strongly impacted by the termination of the “Radars” contract compared to last year. Higher volumes and resulting margin increase in Connected Living & Mobility and e-Ticketing activity together with a positive one-off pension adjustment (€ 7 million) partly compensated this effect. 12/74 A.2.3 Performance by Business Units In € millionH1 2017H1 2016*Organic evolutionH1 2017H1 2016*H1 2017H1 2016*North America 1,162 1,141 1.8% 124 116 10.7%10.2%Germany 1,080 1,069 1.0% 70 23 6.5%2.1%United Kingdom & Ireland 880 852 3.4% 83 84 9.4%9.8%France 847 847 0.1% 59 43 6.9%5.1%Benelux & The Nordics 536 546 -1.8% 46 35 8.7%6.4%Other Business Units 1,049 983 6.8% 89 70 8.5%7.1%Global structures**-46 -56 -0.8%-1.0%Worldline7577402.3%1149315.0%12.6%TOTAL6,3116,1772.2%5384088.5%6.6%* At constant scope and exchange rates** Global structures include Global Divisions costs not allocated to the Group Business Units and Corporate costsRevenueOperating marginOperating margin % During the first half of 2017, revenue grew in most of the Business Units: North America with the roll-out of the Orchestrated Hybrid Cloud model, the deployment of the Digital Workplace offering, and with an increasing business in Big Data & Cybersecurity; Germany with the delivery of several projects, notably the implementation of Industry 4.0 solutions in the automotive sector and mobile applications in Financial Services; United Kingdom & Ireland confirming the positive trend recorded since the second semester last year. The Infrastructure & Data Management activity remained strong in most of the verticals. The strong revenue growth in Big Data & Cybersecurity was driven by HPC activity, including the delivery of two Sequana supercomputers in the defense and research sectors; France where revenue was stable thanks to IDM contracts ramp-up in the defense sector and several HPC projects in the automotive and public sectors; in Benelux & The Nordics, revenue continued to recover in IDM benefiting from higher volume and contracts ramp-up in Manufacturing and in Financial Services. While revenue of B&PS was stable in Benelux, the Division was affected in Q2 by a comparison basis on a contract delivered to the Polish administration last year; Other Business Units significantly contributed to Group revenue growth thanks to a strong performance in Asia-Pacific and Middle East mainly, and notably within Business & Platform Solutions; and in Worldline with the continued dynamic of Merchant Services, Financial Processing, and new activities in Mobility. During the first semester of 2017, the Group executed its transformation programs through industrialization, automation and robotization, and continuous optimization of SG&A. In addition, the Group benefited from the Unify restructuring plan and from synergies with Equens. Almost all Business Units showed a profitability improvement, notably Germany benefiting from the Unify integration, Benelux & The Nordics with a better business mix, and France thanks to actions to improve operational efficiency. North America recorded 10.7% becoming the most profitable geography of the Group. 13/74 A.2.3.1 North America In € millionH1 2017H1 2016*Organic evolutionRevenue 1,162 1,141 1.8%Operating margin 124 116 Operating margin rate10.7%10.2%* At constant scope and exchange rates Revenue reached € 1,162 million, +1.8% at constant scope and exchange rates, mainly fueled by the strong performance of Big Data & Cybersecurity activities, reflecting the progressive diversification of the Business Unit and notably its ability to leverage on large IDM customers to develop other activities. The overall revenue performance of North America was still impacted by the turn-around of the Unify S&P sales, which should contribute to the acceleration of the Business Unit growth in the second semester, together with the delivery of contracts signed in the first part of the year (book to bill at 167%, highest across the Group). Infrastructure & Data Management achieved a successful development in Cloud services thanks to the deployment of a Hybrid Cloud solution in Texas DIR and the positive contribution from the contract won last year with Monsanto. Growth was mainly fueled by Public & Health, while the impact from the ramp up of new contracts within Manufacturing, Retail & Transportation was offset by the end of projects and contractual price adjustments with other customers. The performance in Telcos, Media & Utilities was affected by the base effect of one off sales achieved last year. Business & Platform Solutions remains a quite small activity and was broadly stable over the period. While Manufacturing, Retail & Transportation benefited from new wins with existing US customers, this was mostly compensated by the impact from ended projects successfully achieved last year, notably in Telcos, Media & Utilities. Revenue in Big Data & Cybersecurity recorded a particularly high growth and was strong in each vertical thanks to a strong demand on cybersecurity solutions with large longstanding customers such as Xerox. The Business Unit also developped sales in Big Data in most of the markets. Operating margin continued to improve to reach a solid profitability of 10.7% of revenues at € 124 million. The Business Unit benefited from the impacts of revenue improvement as well as strong actions to reduce the costs base, and a more efficient project management, which translated into improvement within all Divisions. A.2.3.2 Germany In € millionH1 2017H1 2016*Organic evolutionRevenue 1,080 1,069 1.0%Operating margin 70 23 Operating margin rate6.5%2.1%* At constant scope and exchange rates During the first half of 2017, the Business Unit achieved an organic growth of +1.0% compared to the same period last year at constant scope and exchange rates, leading to € 1,080 million revenue. Business & Platform Solutions benefited from the ramp up of new contracts won in the prior year, while Big Data & Cybersecurity performance was affected by the base effect related to the significant deliveries achieved last year. Revenue in Infrastructure & Data Management was slightly down due to price reductions contracted with several large customers. In Infrastructure & Data Management, revenue was fueled by the ramp-up of the new contract with Rheinmetall won in Q3 last year. Financial Services was supported by significant deliveries; this was however more than offset by contractual price reductions already agreed with some customers. The 14/74 telecom market was impacted by the reduced activity with Nokia, partially mitigated by increased volumes delivered to Telefonica. Finally, the revenue growth of the Division was impacted by the integration of Unify S&P since January 1st, 2017, which should fuel acceleration by year end. Business & Platform Solutions continued to record a strong organic growth, with all the markets contributing to this performance. In particular, Financial Services and Manufacturing sectors achieved a double digit growth, driven by SAP HANA business coupled with the ramp-up of new contracts, notably with BMW and Deutsche Bank. The good performance of Telcos, Media & Utilities was sustained by new contracts with Telefonica and EnBW. Finaly Public & Heath remained dynamic, as well as projects with Siemens. Big Data & Cybersecurity achieved strong performance in cybersecurity services with clients such as Nokia and BMW, but this could not compensate for the base effect from successful deliveries achieved last year and not performed this year. Operating margin reached € 70 million or 6.5% of revenue, significantly improving compared to H1 2016 at constant scope and exchange rates. Profitability grew particularly in Infrastructure & Data Management benefiting from the execution of the Unify restructuring plan which materialized through Unify S&P activities turning back to positive, as well as continued strong actions on costs optimization. Business & Platform Solutions confirmed its recovery thanks to the strong revenue growth and continued workforce optimization. A.2.3.3 United Kingdom & Ireland In € millionH1 2017H1 2016*Organic evolutionRevenue 880 852 3.4%Operating margin 83 84 Operating margin rate9.4%9.8%* At constant scope and exchange rates Revenue was € 880 million, up +3.4% at constant scope and exchange rates, pursuing the good trend recorded in the first quarter and notably fueled by the strong dynamism of IDM and BDS activities. Infrastructure & Data Management improved compared to last year, benefiting from the ramp up of new contracts signed last year such as Aegon, as well as continued strengthening of Digital Workplace solutions for key longstanding customers and new cloud engagements notably in the Manufacturing and Public Sectors. Growth was mainly fueled by Public & Health, thanks to the ramp-up of new contracts with University College London Hospitals and Police Services Northern Ireland, combined with increased volumes and projects achieved with longstanding customers such as the Ministry of Justice and DWP for the PIP contract. Financial Services benefited from the strong activity due to the ramp up of the Aegon contract mentioned above and increased projects with NS&I. This was largely compensating for the decrease in Telcos, Media & Utilities impacted by contractual scope reductions with BBC renewed in Q2. Within Business & Platform Solutions, growth came from most verticals thanks to an increasing demand for SAP HANA projects materialized through several new engagements. This could not compensate for the ramp down of legacy contracts in the Media and Public sectors, with BBC and the Post Office respectively. Big Data & Cybersecurity had a strong momentum over the semester, notably in Public & Health and Manufacturing, Retail & Transportation through increased demand in cybersecurity and High Performance Computing activities. Operating margin was € 83 million and represented 9.4% of the revenue. The Business Unit benefited from the revenue growth and managed to maintain a good level of profitability despite the negative impact of contractual price reductions mainly within Infrastructure & Data Management. In particular, strong management actions were implemented to pursue the efforts on costs savings and synergies through Tier One Program initiatives, as well as a tight project management on large contracts. 15/74 A.2.3.4 France In € millionH1 2017H1 2016*Organic evolutionRevenue 847 847 0.1%Operating margin 59 43 Operating margin rate6.9%5.1%* At constant scope and exchange rates At € 847 million, revenue was slightly improving by +0.1% organically. The performance of the Business Unit was driven by Infrastructure & Data Management and Big Data & Cybersecurity. In Infrastructure & Data Management, the growth came primarily from Public & Health, thanks notably to Naval Group contract in France. Financial Services recorded a strong performance with ramp up on contracts such as AXA. Manufacturing Retail & Transportation and Telcos, Media & Utilities benefited from new contracts such as the one with Safran on Orchestrated Hybrid Cloud partly offsetting the impact on some contracts ramp-down. Business & Platform Solutions activities were led by the growth in Manufacturing sector, mainly coming from an increasing activity in Digital Workplace projects with large companies such as Michelin, Air France or Renault while Public & Health was affected by the end of a large contract with the Ministry of Defense. Telcos, Media & Utilities was stable with an increase in Codex activities especially in the energy sector. Big Data & Cybersecurity pursued its positive trend, benefiting from the strong demand in the HPC area, with new contracts such as GENCI (Grand Equipement National de Calcul Intensif), the ramp-up of projects with CEA (Commission for Atomic Energy and Alternative Energies) and Renault, as well as from the developing Hoox business. Operating margin reached € 59 million, representing 6.9% of revenue, an improvement by +180 basis points, notably due to a good performance in Business & Platform Solutions and Infrastructure & Data Management. In Business Platform & Solutions driven by strong costs savings actions combined with an improvement of the Average Daily Rate. In Infrastructure & Data Management, efficient workforce management as well as costs base optimization significantly increased the operating margin rate. Big Data & Cybersecurity maintained a solid level of margin while continuing to invest in innovative solutions and products. Finally, the Business Unit also benefited from strong transversal costs savings actions, including in real estate. 16/74 A.2.3.5 Benelux & The Nordics In € millionH1 2017H1 2016*Organic evolutionRevenue 536 546 -1.8%Operating margin 46 35 Operating margin rate8.7%6.4%* At constant scope and exchange rates At € 536 million, revenue was down by -1.8% organically, the Business Unit managed to reduce the organic decrease observed last year (-7.3% organic decline in 2016). Infrastructure & Data Management pursued its recovery and recorded a slight growth mainly sitting in the Netherland, Belgium and Poland. From a market perspective, growth was posted mainly in Manufacturing, Retail & Transportation sector, which benefited from higher volumes achieved with Akzo Nobel, NXP and the ramp-up of the Philips contract. In Financial Services, the new contracts won with Kasbank and VGZ largely compensated for lower volumes with other customers. Increased activities in Poland and with the European Union offset lower business in Telcos, Media & Utilities market with customers such as KPN and Schlumberger and also with one customer in Denmark in the Public Sector. Business & Platform Solutions was stable in Benelux. The Division was affected in Q2 by a comparison basis on a contract delivered to the polish administration last year partly compensated by new contracts signed in the Netherlands and increased volumes with European Union. Manufacturing, Retail & Transportation benefited from new contracts such as the one signed with Akzo Nobel (One Hub) in Digital transformation. Within the Telcos, Media & Utilities market, the ramp up on the new contract signed with T-Mobile compensated less projects with KPN. In Big Data & Cybersecurity, the activity is still in roll-out phase. During the period, some contracts were delayed to the second half of the year. Operating margin reached € 46 million, representing 8.7% of revenue, improving by +230 basis points. Infrastructure & Data management operating margin was driven by favorable business mix coupled with a strong monitoring of the costs base. Business & Platform Solutions as well as Big Data & Cybersecurity profitability were affected by revenue decrease. A.2.3.6 Other Business Units In € millionH1 2017H1 2016*Organic evolutionRevenue 1,049 983 6.8%Operating margin 89 70 Operating margin rate8.5%7.1%* At constant scope and exchange rates Revenue in “Other Business Units” reached € 1,049 million, up +6.8% organically, fueled by strong activity in all Divisions and especially by Business & Platform Solutions. Infrastructure & Data Management grew in Financial Services driven by higher volumes with a large bank in Hong-Kong. Telcos, Media & Utilities also recorded a strong growth in Iberia, India and Italy where state of the art Digital Workplace services were rolled-out for Enel. This compensated for contractual price reductions with one large customer in Manufacturing. Business & Platform Solutions revenue recorded strong performance in almost all markets. In particular, the Public sector benefited from the ramp-up of new contracts such as the last phase of the Polimeks contract and the Taiwan University Games in Asia. Manufacturing, Retail & Transportation and Telcos, Media & Utilities posted significant growth as well, mainly driven by higher volumes and new projects in Central Europe and Asia. This largely compensated for customers budget restrictions in Financial Services 17/74 more particularly in Iberia and in Central Europe. Revenue in Big Data & Security slightly increased benefiting from new HPC opportunities in Africa for public sector more than compensating comparaison basis in Iberia and Central Europe. Operating margin was € 89 million, representing 8.5% of revenue, slightly improving compared to the first half of 2016 at constant scope and exchange rates. Margin benefited mainly from the contribution of the significant growth achieved, as well as from tight monitoring of costs across all countries. A.2.3.7 Global structures Global structures costs decreased by €9 million compared to the first half of 2016, reflecting the continued efforts in costs optimization and a better monitoring of third party and real estate costs. As a reminder, the Group significantly invested last year in sales and portfolio offerings to prepare the recovery plan of the Business & Platfom Solutions Division and the launch of the new 3-year plan. 18/74 A.2.4 Revenue by Market In € millionH1 2017H1 2016*Organic evolutionManufacturing, Retail & Transportation 2,388 2,347 1.8%Public & Health 1,781 1,717 3.7%Telcos, Media & Utilities 1,016 1,042 -2.5%Financial Services 1,126 1,071 5.1%TOTAL6,3116,1772.2%* At constant scope and exchange rates A.2.4.1 Manufacturing, Retail & Transportation Manufacturing, Retail & Transportation was the largest market segment of the Group (38%) and reached € 2,388 million in the first semester of 2017, growing by +1.8 % compared to the first semester of 2016 at constant scope and exchange rates. Manufacturing, Retail & Transportation revenue benefitted from contracts ramp-up in Germany including Rheinmetall and in North America with Monsanto. By Division, strong performance was posted by Business & Platform Solutions and Big Data & Cybersecurity. In this market, the top 10 clients (excluding Siemens) represented 19% of revenue with Conduent, BASF, Johnson & Johnson, Rheinmetall, Xerox, Renault Nissan, Philips, Airbus, Daimler, and Royal Mail. A.2.4.2 Public & Health Public & Health was the second market of the Group (28%) with a total revenue of € 1,781 million, representing an increase of +3.7% compared to the first semester of 2016 at constant scope and exchange rates. Growth mainly came from North America notably from increased volumes with Texas DIR and from Middle East & Africa with the contract with Polymeks. By Division, the strong performance was particularly driven by Infrastructure & Data Management. 36% of the revenue in this market was realized with the 10 main clients: Department for Work & Pensions (DWP), Department of Information Resources Texas (US), Ministry of Justice (UK), European Union Institutions, McLaren Health Care Corporation (US), CEA (Commission for Atomic Energy and Alternative Energies) in France, Nuclear Decommissioning Authority (NDA) in the UK, SNCF (France), Bundesagentur für Arbeit (Germany), and AllScripts (US). A.2.4.3 Telcos, Media & Utilities Telcos, Media & Utilities represented 16% of the Group revenue and reached € 1,016 million, representing a decrease of -2.5%. This mainly came from some scope reduction with BBC in the United Kingdom, partially offset by a revenue increase in Central Eastern Europe with Enel, as well as in Germany with Telefonica and in Benelux & The Nordics with T-Mobile. The top 10 main clients represented 54% of this market and were BBC, EDF, The Walt Disney Company, Telefonica/O2, Orange, Nokia, Telecom Italia, Microsoft, Enel, and Engie. A.2.4.4 Financial Services Financial Services represented 18% of the group revenue at €1,126 million, representing an increase by +5.1% compared to the first semester of 2016. This performance was fueled Infrastructure & Data Management with the ramp-up of Aegon in the United Kingdom and higher volumes with a large bank in Hong Kong. Worldline also contributed to the growth of this market. 44% revenue of Financial Services was generated with the 10 main clients: National Savings & Investments, Deutsche Bank, Standard Chartered Bank, Standard & Poors Global, BNP Paribas, ING, ICBPI SpA Group, Société Générale, Crédit Agricole, and La Poste. 19/74 A.2.5 Portfolio A.2.5.1 Order entry and book to bill During the first semester of 2017, the Group order entry reached € 6,869 million, representing a book to bill ratio of 109%, and notably 120% in the second quarter. Order entry and book to bill by Division was as follows: In € millionQ1 2017Q2 2017H1 2017Q1 2017Q2 2017H1 2017Infrastructure & Data Management 1,793 2,218 4,012 100%124%112%Business & Platform Solutions 775 882 1,657 98%107%103%Big Data & Cybersecurity 199 232 431 122%119%121%Worldline 267 502 769 73%128%102%Total3,0353,8346,86998%120%109%Order entryBook to bill % For IT services activities, book to bill ratio was 112% for IDM, 103% for B&PS, while Big Data & Cybersecurity reported a strong 121%. In Q2, new deals were signed on the 4 pillars of the Atos Digital Transformation Factory, mainly in North America with a Digital Workplace contract with Enterprise Rent-A-Car, in Benelux & The Nordics with Orchestrated Hybrid Cloud solutions for a European industrial equipment manufacturer, as well as several contracts with Siemens in Germany. New projects were signed such as with Northern Ireland Electricity Networks in the United Kingdom and with Nokia in Germany. Big Data & Cybersecurity pursued its strong commercial dynamic while Worldline managed to sign new contracts in the Public Sector and in Financial Services. Renewals in Q2 included large contracts in Infrastructure & Data Management such as the renewal of BBC in the United Kingdom, Allscripts in North America and the contract with a very large energy provider in France. Worldline renewed several Issuing Processing contracts notably with Belfius. During the first semester, the Group has signed separate partnership agreements with Cisco, Dell EMC, and Hitachi Data Systems to resell Atos high-speed servers Bullion to their customers. Order entry and book to bill by Market were as follows: In € millionQ1 2017Q2 2017H1 2017Q1 2017Q2 2017H1 2017Manufacturing, Retail & Transportation 1,312 1,383 2,694 111%115%113%Public & Health 760 1,263 2,023 89%136%114%Telcos, Media & Utilities 508 650 1,158 100%128%114%Financial Services 455 539 993 81%96%88%Total3,0353,8346,86998%120%109%Order entryBook to bill % A.2.5.2 Full backlog In line with the dynamic commercial activity and taking into account the integration of Unify S&P, the full backlog at the end of June 2017 amounted to € 22.2 billion compared to € 21.4 billion at the end of December 2016, representing 1.8 year of revenue. A.2.5.3 Full qualified pipeline The full qualified pipeline was € 7.0 billion, compared to € 6.5 billion at the end of December 2016 and representing 6.7 months of revenue. 20/74 A.2.6 Human Resources The total headcount of the Group was 98,480 at the end of June 2017 slightly reduced compared to 100,096 at the end of December 2016. Hiring is anticipating the implementation of automation and focused on digital transformation skills. The Group pursued the digital training and reskilling of its teamswith a strong increase of certification in this field. In Big Data & Cybersecurity, staff increased by +8% during H1. The total headcount included entities acquired during the first quarter 2017, Engage ESM in the United Kingdom and zData in North America. During the first semester of 2017, the Group hired 6,959 staff (of which 95% direct employees),compared to 8,148 in H1 2016. The hirings have been mainly achieved in “Other Business Units” (totaling 63% of direct hirings), notably in low costs countries such as India, Poland, Romania and Philippines, as well as in the United States, the United Kingdom to fullfil new contracts and to compensate attrition. Attrition rate was 11.8% at Group level, of which 17.8% in offshore countries. Headcount evolution in H1 2017 by Business Units and by Division was as the following: ClosingDecember 2016Unify S&P integrationScopeHiringLeavers, Dismissals &RestructuringClosingJune2017Infrastructure & Data Management46,824 1,416 80 3,927 -5,219 47,029 Business & Platform Solutions32,564 1,981 -2,656 31,890 Big Data & Cybersecurity3,726 23 296 -35 4,010 Functions122 6 -8 120 Worldline8,132 396 -428 8,100 Total Direct 91,369 1,416 103 6,607 -8,346 91,148 North America11,704 93 23 909 -3,547 9,182 Germany8,592 356 45 -360 8,633 United Kingdom & Ireland8,330 57 80 533 -655 8,345 France11,950 17 302 -779 11,490 Benelux & The Nordics4,844 118 237 867 6,066 Other Business Units37,398 775 4,165 -3,492 38,846 Global structures418 20 48 486 Worldline8,132 396 -428 8,100 Total Direct 91,369 1,416 103 6,607 -8,346 91,148 Total Indirect 5,969 1,343 34 352 -366 7,332 Unify S&P2,759 -2,759 0 TOTAL GROUP100,09601376,959-8,71298,480 21/74 A.3 2017 objectives The Group confirms all its objectives for 2017 stated in the April 24, 2017 release: Revenue growth: circa +9.5% at constant exchange rates, above +2% organically. Operating margin: circa 10% of revenue. Free cash flow: operating margin conversion rate to free cash flow between 55% and 58%. A.4 Claims and litigations The Atos Group is a global business operating in some 72 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2017 several significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of 30 June 2017, to cover for the identified claims and litigations, added up to €40.2 million (including tax claims but excluding labour claims). A.4.1 Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Some of the tax claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a tax (Stamp Duty) re-imbursement of an amount over €10 million. The total provision for tax claims, as inscribed in the consolidated accounts closed as at 30 June 2017, was €25.0 million. 22/74 A.4.2 Commercial claims There are a small number of commercial claims across the Group. Litigations are handled by the Group Legal Department. The Group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. There were a number of significant on-going commercial cases in various jurisdictions that the Group acquired through the acquisition of Siemens IT Solutions and Services, of Bull Group and Xerox ITO. Some of these cases involve claims on behalf of the Group and in 2017 some of them were successfully resolved. The cases coming from Unify which has been acquired by the Group from Siemens are subject to post- closing discussions and the Group is confident that it will obtain a satisfactory coverage of the associated risks. As a result, the Unify cases have no impact on the total provision of €15.1 million for commercial claim risks, as inscribed in the consolidated accounts closed as at 30 June 2017. A.4.3 Labor claims There are approximately 100,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in France and in Latin America, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. The whole of the claims exceeding €300,000 have been provisioned for an overall amount of €5.5 million as inscribed in the consolidated financial statements as at 30 June 2017. A.4.4 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/dispositions. A.4.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. 23/74 A.5 Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). Significant related-party transactions are described in the Note 28 – Related party transactions on page 197 of the Atos 2016 registration document filed with the Autorité des Marchés Financiers (AMF) on March 31st, 2017. During the First Half of 2017, no other significant related-party transactions have been identified. 24/74 B. Financial statements B.1 Financial review B.1.1 Income statement As the sale of Unify S&P was no longer considered highly probable in the near future, it has been consolidated from January 1st, 2017 and is now included in Infrastructure & Data Management. Therefore, there are no discontinued operations in 2017. The Group reported a net income (attributable to owners of the parent) of € 211.2 million for the half year ended June 30, 2017, representing 3.3% of Group revenue of the period and an improvement of +24.7% compared to the first half of 2016 (from continuing operations) excluding the gain on the sale of Worldline’s share in Visa Europe to Visa Inc. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 354.4 million, representing 5.6% of Group revenue of the period, up +60bp compared to last year. (in € million)6 months ended 30 June2017% Margin6 months ended 30 June2016% MarginOperating margin 538.48.5%444.47.8%Other operating income / (expenses)-211.0-120.5Operating income327.45.2%323.95.7%Net financial income / (expenses)-32.3-31.8Tax charge -55.8-57.9Non-controlling interests and associates-28.1-29.0Net income from continuing operations – Attributable to owners of the parent211.23.3%205.23.6%Net income from discontinued operations0.0-31.5Net income including discontinued operations – Attributable to owners of the parent211.23.3%173.73.0%Normalized net income – Attributable to owners of the parent (*)354.45.6%285.45.0%(*) The normalized net income is based on continuing operations and is defined hereafter. B.1.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. 25/74 B.1.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent. They represent a net expense of € 211.0 million in the first half of 2017. The following table presents this amount by nature: (in € million)6 months ended 30 June20176 months ended 30 June2016Staff reorganization-40.0-57.3Rationalization and associated costs-22.8-25.6Integration and acquisition costs-19.6-14.4Amortization of intangible assets (PPA from acquisitions) -61.6-44.7Equity based compensation-45.1-21.5Other items-21.943.0TOTAL-211.0 -120.5 The € 40.0 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries in Continental Europe and North America. The € 22.8 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in France, in Germany, and North America. This amount also encompasses external costs linked to the continuation of Worldline’s TEAM program including the rationalization of office premises in France. The € 19.6 million integration and acquisition costs mainly related to the execution of Unify, Equens and Paysquare post-acquisition integration, and to the migration and standardization of internal IT platforms from last acquired companies. The six-month 2017 amortization of intangible assets recognized in the Purchase Price Allocation (PPA) of € 61.6 million was mainly composed of: € 20.7 million of SIS Customer Relationships amortized over 8.75 years starting July 1st, 2011; € 10.4 million of Xerox ITO Customer Relationships amortized over 6 to 12 years starting July 1 st, 2015; € 8.3 million of Bull Customer Relationships and Patents amortized over respectively 9.3 years and 9.9 years starting September 1st, 2014; € 9.9 million of Unify Customer Relationships and technologies amortized over 2 to 10 years starting February 1st, 2016 (in 2016 part of this amortization was included in discontinued operations); € 5.0 million of Equens and Paysquare Customer Relationships amortized over 6.5 to 9.5 years starting October 1st, 2016; and € 4.6 million of Anthelio Customer Relationships amortized over 6 to 12 years starting October 1st, 2016. The equity based compensation expense amounted to € 45.1 million within other operating income and expenses compared to € 21.5 million from the previous period. The increase related to the scope expansion, the stock price evolution, as well as the achievement of performance conditions. In the first half of 2016, the gain on the sale of Worldline’s share in Visa Europe to Visa Inc. was included in other items. In the first half of 2017, other items included several settlements. 26/74 B.1.1.3 Net financial expense Net financial expense amounted to € 32.3 million for the period (compared to € 31.8 million for the first semester of 2016) and was composed of a net cost of financial debt of € 12.8 million and non-operational financial costs of € 19.5 million. Non-operational financial costs amounted to € 19.5 million compared to € 23.9 million in the first half of 2016 and consisted of pension financial related costs (€ 15.1 million compared to € 14.9 million in 2016), a net foreign exchange loss (€ 4.7 million compared to € 5.6 million in 2016) and other financial income (€ 0.3 million compared to other financial expense for € 3.4 million in 2016, notably thanks to higher dividends received from associates). B.1.1.4 Corporate tax The tax charge for the six-month period ended June 30, 2017 was € 55.8 million including the French CVAE tax, with a profit before tax of € 295.1 million. The annualized Effective Tax Rate (ETR) was 18.9% compared to 19.8% for the first half of 2016. B.1.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. Non-controlling interests amounted to € 28.1 million in June 2017 (compared to € 29.0 million in June 2016). Restated from the gain on the Visa share in the prior year, minority interests increased by € 14.5 million. The increase was mostly related to the non-controlling interests in Worldline, including the joint venture partners in equensWorldline further to the transaction that occurred on September 30, 2016. B.1.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was up at € 354.4 million, representing 5.6% of Group revenue for the period, up +60 basis points compared to last year. (in € million)6 months ended 30 June20176 months ended 30 June2016Net income from continuing operations - Attributable to owners of the parent211.2205.2Other operating income and expenses-211.0-120.5Tax impact on unusual items67.940.3Total unusual items – Net of tax-143.2-80.2Normalized net income from continuing operation- Attributable to owners of the parent 354.4285.4 27/74 B.1.1.7 Half year Earning Per Share EPS calculation (in € million)6 months ended 30 June2017% Margin6 months ended 30 June2016% MarginNet income from continuing operations – Attributable to owners of the parent [a]211.23.3%205.23.6%Impact of dilutive instruments - - Net income from continuing operations restated of dilutive instruments - Attributable to owners of the parent [b]211.23.3%205.23.6%Normalized net income – Attributable to owners of the parent [c]354.45.6%285.45.0%Impact of dilutive instruments - - Normalized net income restated of dilutive instruments - Attributable to owners of the parent [d]354.45.6%285.45.0%Average number of shares [e] 104,919,748 103,052,796 Impact of dilutive instruments 425,763 547,348 Diluted average number of shares [f] 105,345,511 103,600,144 (In €)Basic EPS from continuing operations [a] / [e]2.011.99Diluted EPS from continuing operations [b] / [f]2.001.98Normalized basic EPS [c] / [e]3.382.77Normalized diluted EPS [d] / [f]3.362.75 Potential dilutive instruments comprised vested stock options (equivalent to 425,763 options) and did not generate a restatement of net income used for the diluted EPS calculation. EPS calculation including discontinued operations in 2016 (in € million)6 months ended 30 June2017% Margin6 months ended 30 June2016% MarginNet income including discontinued operations – Attributable to owners of the parent [a]211.23.3%173.73.0%Impact of dilutive instruments - - Net income including discontinued operations restated of dilutive instruments - Attributable to owners of the parent [b]211.23.3%173.73.0%Average number of shares [e] 104 919 748 103 052 796 Impact of dilutive instruments 425 763 547 348 Diluted average number of shares [f] 105 345 511 103 600 144 (In €)Basic EPS including discontinued operations [a] / [e]2.011.69Diluted EPS including discontinued operations [b] / [f]2.001.68 28/74 B.1.2 Cash Flow and net cash The Group reported a net cash position of € 342.2 million at the end of June 2017 and a free cash flow generation of € 242.2 million in the first half of 2017, increasing by 35% compared to the first half of 2016. (in € million)6 months ended 30 June20176 months ended 30 June2016Operating Margin before Depreciation and Amortization (OMDA)712.0 586.3 Capital expenditures-235.4 -201.5 Change in working capital requirement-37.4 -23.6 Cash From Operation (CFO)439.2 361.2 Reorganization in other operating income -67.6 -60.2 Rationalization & associated costs in other operating income -14.0 -25.2 Integration and acquisition costs-19.0 -10.9 Taxes paid-63.7 -74.0 Net cost of financial debt paid-12.8 -7.9 Profit sharing-1.5 -0.9 Other changes *-18.6 -2.3 Free Cash Flow (FCF)242.2 179.8 Net (acquisitions) / disposals-11.6 -321.8 Proceed from the disposal of the Visa share - 35.6 Capital increase / (decrease)30.9 21.2 Share buy-back-8.1 0.0 Dividends paid to owners of the parent-167.6 -47.3 Change in net cash /(debt)85.8 -132.5 Opening net cash /(debt)430.3 545.8 Unify S&P opening net debt-101.4 - Change in net cash / (debt)85.8 -132.5 Impact of foreign exchange rate fluctuation on net Cash / (Debt) -72.3 -49.3 Closing net cash /(debt)342.2 364.0 Note:FigureshavebeenrestatedfromchangeinWorldline'sintermediationactivitiespresentation(effectof€-47monH12016openingnetcash,€-1monH12016FCF,and€-51monH12017openingnetcash)detailedin"Significantaccounting policies"(*)"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociated costs, integration costs and acquisition costs), dividends paid to non-controlling interests, and other financial Free cash flow represented by the change in net cash or net debt, excluding equity changes (notably cash received from employees upon exercise of stock options), dividends paid to shareholders, impact of foreign exchange rate fluctuation on opening net cash balance, and net acquisitions and disposals, reached € 242.2 million compared to € 179.8 million in the first semester 2016 (+34.7%). Cash From Operations (CFO) amounted to € 439.2 million and increased by € 78.0 million compared to the prior year, due to the following items: OMDA (€+125.7 million); Capital expenditures (€-33.9 million); Change in working capital (€-13.8 million). 29/74 OMDA of € 712.0 million, representing an increase of €+125.7 million compared to June 2016, reached 11.3% of revenue compared to 10.3% of revenue in June 2016. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended 30 June20176 months ended 30 June2016Operating margin538.4 444.4 + Depreciation of fixed assets236.5 203.6 + Net book value of assets sold / written off8.1 7.2 +/- Net charge / (release) of pension provisions-26.6 -20.6 +/- Net charge / (release) of provisions-44.3 -48.3 OMDA712.0 586.3 Capital expenditures totaled € 235.4 million, representing 3.7% of revenue, compared to € 201.5 million in the first semester of 2016 (3.5% of revenue). The negative contribution from change in working capital was €-37.4 million (compared to €-23.6 million in June 2016). The DSO ratio reached 36 days at the end of June 2017 compared to 32 days at the end of June 2016. DSO has been positively impacted by the implementation of financial arrangements on large customer contracts by 17 days in June 2017 and 14 days in June 2016. The DPO was 78 days as of June 2017 compared to 80 days at the end of June 2016. Cash out related to taxes paid reached € 63.7 million and was lower than last year by € 10.3 million mainly thanks to the use of losses carried forward. The € 12.8 million cost of net debt increased by € 4.9 million compared to the first half of 2016 including the following elements: A net cash position of € 430.3 million at the beginning of the period, compared to € 545.8 million at the beginning of 2016; An average expense rate of 1.66% on the average gross borrowings compared to 1.50% in 2016 and; An average income rate of 0.65% on the average gross cash compared to 0.99% in 2016. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 100.5 million in line with the full year 2017 objective of 1% of Group revenue (excluding Equens integration). A larger portion of reorganization and rationalization costs was pulled forward into H1 in order to optimize the impact on the full year operating margin. Other changes amounted to €-18.6 million, relating to other financial expenses and several settlements. As a result, the Group free cash flow (FCF) generated during the first half of 2017 € 242.2 million. Capital increase totaled € 30.9 million in the first half of 2017 compared to € 21.2 million in the first semester of 2016, mainly reflecting the Group shareholding program SPRINT for employees, more than compensating the decrease of the number of stock options exerciced. Share buy back was implemented within the first half of 2017 for € 8.1 million in order to deliver management performance shares with no dilution effect. In the first half of 2017, dividends paid to owners of the parent amounted to € 167.6 million (€ 1.60 per share) compared to € 47.3 million in the first half of 2016 (€ 1.10 per share). The option to receive dividend payment in shares was not offered in 2017. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net cash of €-72.3 million mainly coming from the exchange rate of the US Dollar (€-50.1 million) and several Asian currencies (€-9.4 million) against Euro. 30/74 B.1.3 Parent company results The profit before tax of the parent company amounted to € 25.0 million for the six-month period ended June 30, 2017 compared to € 37.2 million in the first semester of 2016. B.2 Interim condensed consolidated financial statements B.2.1 Interim condensed consolidated income statement (in € million)Notes6 months ended 30 June20176 months ended 30 June2016Revenue Note 26,310.8 5,697.0 Personnel expensesNote 3-2,917.6 -2,720.9 Operating expensesNote 4-2,854.8 -2,531.7 Operating margin538.4444.4% of revenue8.5%7.8%Other operating income and expensesNote 5-211.0 -120.5 Operating income327.4323.9% of revenue5.2%5.7%Net cost of financial debt-12.8 -7.9 Other financial expenses-39.0 -34.2 Other financial income19.4 10.3 Net financial incomeNote 6-32.3 -31.8 Net income before tax295.1292.1Tax chargeNote 7-55.8 -57.9 Net income from continuing operations239.3234.2Net income from discontinued operations - -31.5 NET INCOME239.3202.7Of which:- attributable to owners of the parent211.2 173.7 - non-controlling interests28.1 29.0 (in € million and in number of shares)Notes6 months ended 30 June20176 months ended 30 June2016Net income from continuing operations - attributable to owners of the parentNote 8211.2 205.2 Weighted average number of shares 104,919,748 103,052,796 Basic earnings per share from continuing operations2.01 1.99 Diluted weighted average number of shares 105,345,511103,600,144Diluted earnings per share from continuing operations2.00 1.98 Net income - Attributable to owners of the parentNote 8211.2 173.7 Weighted average number of shares 104,919,748 103,052,796 Basic earnings per share2.01 1.69 Diluted weighted average number of shares 105,345,511103,600,144Diluted earnings per share2.00 1.68 31/74 B.2.2 Interim condensed consolidated statement of comprehensive income (in € million)6 months ended 30 June20176 months ended 30 June2016Net income239.3 202.7 Other comprehensive income ▪ to be reclassified subsequently to profit or loss (recyclable):-133.5-168.2Cash flow hedging -2.2 0.8 Change in fair value of available for sale financial assets1.4 -44.8 Exchange differences on translation of foreign operations-134.3 -126.0 Deferred tax on items recyclable recognized directly on equity1.6 1.8 ▪ not reclassified to profit or loss (non-recyclable):38.8-146.6Actuarial gains and losses generated in the period on defined benefit plan46.7 -194.2 Deferred tax on items non-recyclable recognized directly on equity-7.947.6Total other comprehensive income-94.7 -314.8 Total comprehensive income for the period144.6-112.1Of which:▪ attributable to owners of the parent116.8-121.6▪ non-controlling interests27.89.5 32/74 B.2.3 Interim condensed consolidated statement of financial position (in € million)Notes6 months ended 30 June201731December 2016*ASSETSGoodwillNote 94,193.3 3,864.8 Intangible assets1,266.3 1,243.4 Tangible assets702.3 740.9 Non-current financial assetsNote 10215.3 233.3 Non-current financial instruments - 0.1 Deferred tax assets610.8 412.3Total non-current assets6,988.06,494.8Trade accounts and notes receivableNote 112,552.22,555.0Current taxes64.627.2 Other current assetsNote 121,500.5 1,386.8 Current financial instruments8.2 10.0 Cash and cash equivalentsNote 132,015.9 2,070.5 Assets held for saleNote 1 - 1,006.3Total current assets6,141.47,055.8Total ASSETS13,129.413,550.6(in € million)6 months ended 30 June201731December 2016*LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock105.4 104.9 Additional paid-in capital2,738.0 2,713.1 Consolidated retained earnings1,433.8 948.4 Translation adjustments-162.2 -29.4 Net income attributable to the owners of the parent211.2 578.8 Equity attributable to the owners of the parent4,326.2 4,315.8 Non-controlling interests536.5 519.4 Total shareholders’ equity4,862.74,835.2Provisions for pensions and similar benefitsNote 141,495.91,410.7Non-current provisionsNote 15135.1 114.0 Borrowings1,411.5 1,500.1 Deferred tax liabilities286.4 100.6 Non-current financial instruments - 1.4 Other non-current liabilities5.6 6.3 Total non-current liabilities3,334.53,133.2Trade accounts and notes payableNote 172,031.61,919.4Current taxes120.959.9 Current provisionsNote 15196.8 194.2 Current financial instruments9.8 7.5 Current portion of borrowings262.3 140.5 Other current liabilities2,310.8 2,409.1 Liabilities held for saleNote 1 - 851.7 Total current liabilities4,932.25,582.2TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY13,129.413,550.6(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies 33/74 B.2.4 Interim condensed consolidated cash flow statement (in € million)Notes6 months ended 30 June20176 months ended 30 June 2016*PROFIT BEFORE TAX295.1 292.1 Depreciation of assetsNote 4236.5 203.6 Net charge / (release) to operating provisions-71.0 -68.9 Net charge / (release) to financial provisions14.4 14.8 Net charge / (release) to other operating provisions-20.0 -4.7 Purchase Price Allocation amortization (PPA) 61.6 44.7 Losses / (gains) on disposals of fixed assets3.8 -58.3 Net charge for equity-based compensation45.1 21.5 Losses / (gains) on financial instruments0.5 4.0 Net cost of financial debtNote 612.8 7.9 Cash from operating activities before change in working capital requirement, financial interest and taxes578.8456.7Taxes paid-63.7 -74.0Change in working capital requirement-37.4 -23.6 Net cash from/ (used in) operating activities477.7359.1Payment for tangible and intangible assets-235.4 -201.5Proceeds from disposals of tangible and intangible assets4.9 25.2 Net operating investments-230.4-176.3Amounts paid / received for acquisitions and long-term investments -12.6 -346.1Cash and cash equivalents of companies purchased during the period-0.4 24.9 Proceeds from disposals of financial investments11.8 38.1 Cash and cash equivalents of companies sold during the period-0.2 5.5 Net long-term investments-1.4-277.6Net cash from/ (used in) investing activities -231.8 -453.9 Capital increase - - Common stock issues on the exercise of equity-based compensation10.7 18.1 Capital increase subscribed by non-controlling interests20.2 3.1 Purchase and sale of treasury stock-8.1 - Dividends paid to owners of the parent-167.6 -47.3 Dividends paid to non-controlling interest-0.8 -0.6 New borrowingsNote 16112.9 11.4 New finance leaseNote 165.1 3.3 Repayment of long and medium-term borrowingsNote 16-129.3 -19.9 Net cost of financial debt paid-12.8 -0.1 Other flows related to financing activities60.5 112.3 Net cash from/ (used in) financing activities-109.280.3Increase/ (decrease) in net cash and cash equivalents136.7 -14.5 Opening net cash and cash equivalents1,991.7 1,826.4 Unify S&P opening cash and cash equivalent -92.0 - Increase/ (decrease) in net cash and cash equivalentsNote 16136.7-14.5Impact of exchange rate fluctuations on cash and cash equivalents-75.7-62.9 Closing net cash and cash equivalentsNote 181,960.71,749.0(*) 30 June 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies 34/74 B.2.5 Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period-endCommon StockAdditional paid-in capitalConsolidated retained earningsTranslation adjustmentsItems recognized directly in equityNet income TotalNon controlling interestsTotal shareholders' equity(thousands) At January 1, 2016 103,520 103.5 2,626.1 663.0 18.3 25.6 406.2 3,842.7 254.4 4,097.1 ▪ Common stock issued 1,240 1.2 82.2 -63.4 20.0 1.2 21.2 ▪ Appropriation of prior period net income406.2 -406.2 0.0 0.0 ▪ Dividends paid to shareholders and to non-controlling interests-47.3 -47.3 -0.3 -47.6 ▪ Equity-based compensation17.2 17.2 3.4 20.6 ▪ Changes in auto-control shares and treasury stock0.1 0.1 0.1 ▪ Other-0,0-0.5 -0.5 Transactions with owners 1,240 1.2 82.2 312.8 0.0 0.0 -406.2 -10.0 3.8 -6.2 ▪ Net income 173.7 173.7 29.0 202.7 ▪ Other Comprehensive income-141.5 -124.2 -29.6 -295.3 -19.5 -314.8 Total comprehensive income for the period-141.5 -124.2 -29.6 173.7 -121.6 9.5 -112.1 At June 30, 2016 104,760 104.7 2,708.3 834.3 -105.9 -4.0 173.7 3,711.1 267.7 3,978.8 ▪ Common stock issued 149 0.2 4.8 -2.8 2.2 7.3 9.5 ▪ Dividends paid to shareholders and to non-controlling interests-2.8 -2.8 ▪ Equity-based compensation 24.2 24.2 -1.4 22.8 ▪ Changes in auto-control shares0.1 0.1 - 0.1 ▪ Equens impact 178.5 178.5 221.8 400.3 ▪ Other 0.8 0.8 0.8 1.6 Transactions with owners 149 0.2 4.8 200.8 205.8 225.7 431.5 ▪ Net income - 405.1 405.1 24.0 429.1 ▪ Other Comprehensive income-85.4 76.5 2.7 - -6.2 2.0 -4.2 Total comprehensive income for the period-85.4 76.5 2.7 405.1 398.9 26.0 424.9 At December 31, 2016 104,908 104.9 2,713.1 949.7 -29.4 -1.3 578.8 4,315.8 519.4 4,835.2 ▪ Common stock issued 460 0.5 24.9 25.4 5.5 30.9 ▪ Appropriation of prior period net income578.8 -578.8 0.0 - ▪ Dividends paid to shareholders and to non-controlling interests-167.6 -167.6 -2.5 -170.1 ▪ Equity-based compensation31.5 31.5 0.9 32.4 ▪ Changes in auto-control shares and treasury stock-8.1 -8.1 -8.1 ▪ Change in scope WL12.3 12.3 -12.3 ▪ Other-1.9 2.0 0.1 -2.3 -2.2 Transactions with owners 460 0.5 24.9 432.7 0.0 14.3 -578.8 -106.4 -10.7 -117.1 ▪ Net income 211.2 211.2 28.1 239.3 ▪ Other Comprehensive income38.3 -132.8 0.1 -94.4 -0.3 -94.7 Total comprehensive income for the period38.3 -132.8 0.1 211.2 116.8 27.8 144.6 At June 30, 2017 105,368 105.4 2,738.0 1,420.7 -162.2 13.1 211.2 4,326.2 536.5 4,862.7 35/74 B.2.6 Appendices to the interim condensed consolidated financial statements B.2.6.1 Basis of preparation The 2017 interim condensed consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1st, 2017. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The interim condensed consolidated financial statements for the six months ended June 30, 2017 have been prepared in accordance with IAS 34 - Interim Financial Reporting. As such these financial statements do not include all of the information required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31st, 2016. The accounting policies, presentation and methods of computation that have been followed in these interim condensed consolidated financial statements are in line with those that were applied in the preparation of the December 31st, 2016 financial statements and disclosed in the Group’s 2016 Reference Document except for the change in intermediation activities of Worldline disclosed hereafter. The new standards, interpretations or amendments whose application was mandatory for the Group effective for the fiscal year beginning January 1st, 2017 did not have a material impact on the interim condensed consolidated financial statements. The Group has not early adopted any standard or interpretation not required to be applied in fiscal year 2017. The Group does not apply IFRS standards and interpretations that have not been yet approved by the European Union at the closing date. This interim condensed consolidated financial statements presented in euro, which is the Group’s functional currency. All figures are presented in € million with one decimal. Ceased discontinued operations and held for sale classifications of the Software and Platform business from January 1st, 2017 As the sale of Unify S&P was no longer considered highly probable in the near future, it has been consolidated from January 1st 2017. The 2016 comparative financial information presented in this document has not been yet restated for this consolidation. Nevertheless, for comparison purposes, a summarized restated income statement for the six-month period ended June 30, 2016 and a summarized restated statement of financial position as of December 31st, 2016 have been computed and are presented in the note 19. The full restatement of the 2016 consolidated accounts including the notes will be presented in December 2017 consolidated financial statements. IFRS 15 implementation IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Constructions Contracts and IFRIC 13 Customers Loyalty Programs. IFRS 15 will be effective for Atos Group starting January 1st, 2018. Atos is taking part to a Syntec Numérique task force to assess the impacts of this new standard in the IT 36/74 sector. The Atos Group initiated and is currently assessing the potential impacts of the new standard in its consolidated financial statements based on the analysis of a sample of contracts representative of the business of the Group and all its Divisions. Atos Group pays a particular attention to the following topics in the course of the analysis: Identification of the performance obligations in the multiple arrangements services contracts Under IAS 18, revenue is recognized by the Group separately for each clearly identified component of a contract as the new revenue recognition model under IFRS 15 requires a five-step analysis: Determining the transaction price; Allocating the transaction price; Recognizing revenue. Identifying the contract with the customer; Identifying the performance obligations; Under IFRS 15, contracts have to be analyzed to identify performance obligations. This analysis has to be performed based on two main criteria: Transfer of the control of goods or services to the customer; Identification of separate performance obligations according to their nature and in the context of the contract. Contracts delivered by IDM and B&PS Divisions are more likely to be impacted by the changes introduced in the new standard as they often embed transition and transformation phases prior to delivery of recurring services. When such transition and transformation phases represent added value to the customer resulting in a transfer of control, then revenue relating to those phases can be recognized. When this is not the case, costs incurred on those phases have to be capitalized when criteria required are met and amortized over the life of the contracts. The cash collected for such phases would have to be considered as advance payment. Agent versus principal The Group is performing an analysis of the nature of its relationship with its customers to determine if it is acting as principal or as an agent in the delivery of a contract or part of it and in particular in the commercial acquiring and issuing businesses of the Worldline Division and the resale of Hardware of IT services Divisions even if the Group tends to sell more of its own Hardware further to the Bull and Unify acquisitions. Under IAS 18, the Group currently applies a risks and rewards analysis to determine whether it is acting as an agent or as principal in a transaction. Under IFRS 15, the Group will be considered as acting as principal if it controls goods and services before delivering them to the client. As a result, Atos may have to modify the presentation of its external revenue in some instances. A switch from principal to agent would lead to a decrease in both external revenue and operating expenses for a comparable amount. Costs to acquire a contract Under IFRS 15, incremental costs to acquire a contract will be capitalized. Group practice is currently to expense those costs when they are incurred. 37/74 B.2.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual accounts, the following accounting principles are relevant for the interim accounts: Impairment of assets Goodwill and assets that are subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; significant increase in interest rates. loss of a major client; Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant moves in the discount rate to be used under IAS19 revised, and limited to the Group’s most significant pension plans. For less significant plans or if there are no significant evolutions in discount rates to be used, actuarial projections are used. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. Change in intermediation activities of Worldline Acquiring is part of the business of Worldline consisting in contracting with merchants for payment card acceptance. The key role of an acquirer is to transfer to the merchant’s bank account the funds received in a card transaction from the cardholder’s issuing bank. Through this intermediation activity, Worldline and its affiliates are facing cash fluctuations due to the lag that may exist between the payment to the merchants and the receipt of the funds from the payment schemes (Visa, MasterCard or other schemes). Payment Schemes also define interchange fees that apply except if there is a bilateral agreement between the Acquirer and the Issuer. Worldline has no such bilateral agreement with the Issuers. Interchange fees are consequently completely driven by the rates defined by the Schemes. In the past, the Group had elected to net the assets and liabilities related to its intermediation activities (funds received in advance and payables to merchants). With respect to interchange fees collected from merchants, the Group used to consider them as a cash item and to recognize a liability for the corresponding payments to be made to the issuers. Interchange fees positions were not netted. In recent years, Worldline completed several acquisitions in the acquiring business and witnessed that in some instances the time lag of intermediation flows was not as short as that experienced by the Company in the past. In addition, the Company noted that the de-netted presentation of the flows had become a common practice among large acquiring listed players publishing their Financial Statements in IFRS or US Gaap. In order to take into account the new variety of its acquiring activities and allow for a better comparability of its financial statements with its main peers, Atos and Worldline decided to stop netting and to change the presentation of its balance sheet by isolating in dedicated lines assets and liabilities related to its 38/74 intermediation activities (including interchange fees for consistency purposes). Atos and Worldline believe that this change provides reliable and more relevant information about effects of acquiring transactions on Atos and Worldline consolidated financial position. This change has been applied retrospectively and Atos has restated its opening statement of financial position accordingly presenting those intermediation positions in other current assets and other current liabilities. The effects of the change of presentation on the cash are: €-47m on H1 2016 opening net cash, €-1m on H1 2016 free cash flow, and €-51m on H1 2017 opening net cash. The impact on other current assets (assets linked to intermediation activities) presented in Note 12 is the same in the other current liabilities. 39/74 B.2.6.3 Notes to the half-year condensed consolidated financial statements Note 1 Changes in the scope of consolidation Unify acquisition The Services activities of Unify have been integrated in the Atos Division “Infrastructure & Data Management” from February 1st, 2016 and the Software and Platforms activities have been accounted for as discontinued operations. Further to the decision of the Board of Directors in April 2017 to terminate the discussions with the potential buyers, Unify S&P is no longer held for sale and has been fully consolidated starting January 1 st, 2017 leading to an update of the purchase price allocation. Identifiable assets acquired and liabilities assumed at the date of acquisition (in € million)Assets acquired and liability assumed at the end of the measurement periodIntangible assets197.9Tangible assets16.9Non-current financial assets57.4Total non-current assets272.2Trade accounts and notes receivables291.4Current taxes6.0Other current assets465.8Cash and cash equivalents102.8Total current assets866.0TOTAL ASSETS (A)1,138.2Provisions for pensions and similar benefits226.9Non-current provisions178.8Borrowings11.1Deferred tax liabilities39.7Total non-current liabilities456.5Trade accounts and notes payables195.0Current taxes20.5Current portion of borrowings167.2Other current liabilities613.3Total current liabilities808.3TOTAL LIABILITIES (B)1,264.7Fair value of acquisition (A) - (B)-126.6 The valuation of assets acquired and liabilities assumed for Unify resulted in the recognition of customer relationships and backlog for an amount of € 108.6 million. The customer relationships will be amortized over a period from 2 to 10 years. Trade name and trademarks have been recognized for € 55.7 million and technologies for € 33.4 million. Those valuations have been performed by an independent expert. The impact of the amortization of the customer relationships, backlog and technologies is € 9.9 million for the 6 months period ended June 30, 2017. 40/74 Final goodwill Goodwill was recognized as follows: (in € million)June 2017Consideration paid [A]346.5Fair value of identifiable net assets [B]-126.6Final Goodwill [A] - [B] 473.0 The goodwill arising from this acquisition is not tax deductible. Equens & Paysquare acquisition After the completion of the regulatory processes in the Netherlands and in Belgium, the transactions with Equens, Paysquare were finalized on September 30, 2016. The business combination was made up of two components: equensWordline The merger of the Financial Services Business of Worldline with Equens resulted in the creation of equensWordline held at 63.6% by Wordline and 36.4% by Equens’ previous shareholders. equensWordline is held at 44.5% by Atos Group. In accordance with IFRS 3, this operation has been treated as a business combination with the takeover of equensWordline by the Group and the sale to the previous shareholders of Equens of a non-controlling interest in the Financial Services Business. As the transaction is non cash, the consideration transferred by the Group to the previous shareholders of Equens corresponds to 36.4% of the fair value of the Financial Services Business (on the basis of a valuation of € 700 million by an independent expert for the full business) and to the counterpart received by the Group of 63.6% of the fair value of Equens (on the basis of a valuation of € 400.3 million by an independent expert for the full business). The net assets and liabilities acquired from Equens have been booked at fair value in the Group consolidated financial statements. The net assets and liabilities of the Financial Services Business are kept at their net book value before business combination as well as the part transferred to the previous Equens’ Shareholders for € 5.5 million. The impacts as at December 31th, 2016 of the Business combination in the equity of the group are as follows: (in € million)Consideration transferred from WordlineConsideration transferred from EquensTotal considarationGroup share-5.5178.5173.0Non controlling interests5.5221.8227.3Total shareholder's equity0.0400.3400.3 Paysquare On September 30, 2016, Worldline acquired from Equens 100% of its commercial acquiring subsidiary Paysquare for a cash consideration paid of € 113.2 million. Paysquare is fully consolidated in Atos Group since October 1st, 2016. Paysquare is held at 69.97% by Atos Group. 41/74 The fair value of Equens and Paysquare net assets acquired are set out in the table below: (in € million)Assets acquired and liability assumed at the end of the measurement periodFixed assets174.6Net debt36.6Provisions-54.4Other net assets-44.2Fair value of acquisition112.6 Identifiable assets acquired and liabilities assumed have been further analyzed during the first half of 2017 based on the better understanding of Equens-Paysquare acquired business. This analysis led to decrease by € 35.2 million of the equity acquired mainly due to impairment of assets, originating prior to September 30, 2016. Preliminary Goodwill The Group has opted to measure the non-controlling interests at fair value (full Goodwill method). (in € million)June 2017Consideration transfered for Equens178.5Consideration transfered for Paysquare113.2Total Consideration [A]291.7Fair Value of Non controlling Interest [B]221.8Equity acquired (Equens & Paysquare)48.9Customer RelationShips acquired net of deferred tax63.7Fair Value of net assets [C]112.6TOTAL [A] + [B] - [C]400.8 If new information is obtained by the end of September 2017 (12 months after acquisition date) about facts and circumstances that existed at the acquisition date that would lead to adjustments to opening balance sheet, then the acquisition accounting would be revised. Other acquisitions Engage ESM On December 30, 2016, Atos acquired Engage ESM in the United Kingdom, a leading provider in the enterprise-service management sector and a ServiceNow Gold Services Partner. This acquisition will enable Atos to offer enterprise and emerging customers an enhanced portfolio of cloud-based service- management solutions and further solidifies the position of Atos as Europe’s number one brand in IT and digital services. This entity is fully consolidated in Atos consolidated financial statements since January 1st, 2017. zData On February 17, 2017, Atos acquired zData, specialized in Big Data consulting and solutions for both commercial and enterprise corporations in the US. This entity is fully consolidated in Atos consolidated financial statements since February 1st, 2017. 42/74 Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and Chairman of the Board of Directors who makes strategic decisions. Operating segments in 2016BridgeOperating segments in 2017 Central & Eastern Europe (CEE) Lithuania, Russia, Poland, Belarus BTN Unify and S&P Chile Other Business Units The Global delivery centers have been isolated in Other Business Units. Following the above mentioned changes, the Group segment organization in 2017 was the following: Operating segments Activities United Kingdom & Ireland Business & Platform Solutions, Infrastructure & Data Management and Big Data and Security in Ireland and the United Kingdom. France Business & Platform Solutions, Infrastructure & Data Management and Big Data and Security in France and Morocco. Germany Business & Platform Solutions and Infrastructure & Data Management, and Big Data and Security in Germany. North America Business & Platform Solutions, Infrastructure & Data Management and Big Data and Security in Canada, Mexico, the United States of America and also the Xerox ITO activities. Benelux & The Nordics Business & Platform Solutions, Infrastructure & Data Management and Big Data and Security in Belarus, Belgium, Denmark, Estonia, Finland & Baltics, Lithuania, Luxembourg, Poland, Russia, Sweden and The Netherlands. Other Business Units Business & Platform Solutions, Infrastructure & Data Management and Big Data and Security in Algeria, Andorra, Argentina, Australia, Austria, Bosnia and Herzegovina, Brazil, Bulgaria, Chile, China, Colombia, South Korea, Croatia, Czech Republic, Egypt, Gabon, Greece, Hungary, Hong-Kong, India, Italy, Ivory Coast, Japan, Lebanon, Malaysia, Madagascar, Mauritius, Namibia, New-Zealand, Peru, Philippines, Portugal, Qatar, Romania, Saudi-Arabia, Senegal, Singapore, Serbia, Slovakia, Slovenia, South-Africa, Spain, Switzerland, Taiwan, Thailand, Tunisia, Turkey, UAE, Uruguay, Venezuela, Major Events activities and the Global Delivery Centers. Worldline Hi-Tech Transactional Services & Specialized Businesses in Argentina, Austria, Belgium, Chile, China, Czech Republic, Finland, France, Germany, Hong-Kong, Iberia, India, Indonesia, Italia, Malaysia, Poland, Philippines, Singapore, Taiwan, Thailand, The Netherlands and the United Kingdom. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group’s revenue. 43/74 The operating segment information for the periods is as follows: (in € million)United Kingdom and IrelandFranceGermanyNorth AmericaBenelux & The NordicsOther Business UnitsWorldlineTotal Operating segmentsGlobal StructuresEliminationTotal Group 6 months ended 30 June 2017 External revenue by segment 880.2 847.2 1,079.8 1,161.7 535.9 1,049.2 756.8 6,310.8 6,310.8 %13.9%13.4%17.1%18.4%8.5%16.6%12.0%100.0%100.0%Inter-segment revenue 94.0 135.8 203.4 206.7 112.9 750.9 21.4 1,525.1 56.0 -1,581.1 Total revenue 974.2 983.0 1,283.2 1,368.4 648.8 1,800.1 778.2 7,835.9 56.0 -1,581.1 6,310.8 Segment operating margin 82.9 58.7 69.7 124.2 46.3 89.3 113.7 584.8 -46.4 538.4 %9.4%6.9%6.5%10.7%8.7%8.5%15.0%9.3%8.5%Total segment assets 912.6 1,668.1 1,442.4 1,172.7 648.0 1,656.7 1,895.1 9,395.6 1,042.6 10,438.2 6 months ended 30 June 2016 External revenue by segment 917.9 846.8 929.5 990.2 588.1 835.3 589.2 5,697.0 5,697.0 %16.1%14.9%16.3%17.4%10.3%14.7%10.3%100.0%100.0%Inter-segment revenue 90.0 124.6 158.7 114.4 79.2 517.0 25.6 1,109.5 39.8 -1,149.3 - Total revenue 1,007.9 971.4 1,088.2 1,104.6 667.3 1,352.3 614.8 6,806.5 39.8 -1,149.3 5,697.0 Segment operating margin 89.0 47.5 80.9 100.4 39.8 51.9 91.6 501.1 -56.7 444.4 %9.7%5.6%8.7%10.1%6.8%6.2%15.5%8.8%7.8%Total segment assets 955.5 1,747.8 1,294.1 1,004.9 1,029.1 1,424.9 1,942.7 9,399.0 635.3 10,034.3 44/74 The total assets by segment for the periods is as follows: (in € million)30 June 201731 December 2016*Total segment assets10,438.2 10,034.3 Current & deferred tax Assets675.3 439.5 Cash & Cash Equivalents2,015.9 2,070.5 Asset held for sale0.0 1,006.3 TOTAL ASSETS13,129.4 13,550.6 (*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Note 3 Personnel expenses (in € million)6 months ended 30 June2017% Revenue6 months ended 30 June2016% RevenueWages and salaries -2,325.536.9%-2,141.637.6%Social security charges-602.69.5%-571.910.0%Tax, training, profit-sharing-18.10.3%-27.80.5%Net (charge) /release of provisions for staff expenses2.10.0%-0.20.0%Net (charge)/release of pension provisions26.6-0.4%20.6-0.4%TOTAL-2,917.6 46.2%-2,720.9 47.8% Note 4 Operating expenses (in € million)6 months ended 30 June2017% Revenue6 months ended 30 June2016% RevenueSubcontracting costs direct-966.0 15.3%-862.8 15.1%Purchase hardware and software-643.2 10.2%-517.2 9.1%Maintenance costs-304.0 4.8%-274.8 4.8%Rent & Lease expenses-295.0 4.7%-264.4 4.6%Telecom costs-153.7 2.4%-146.4 2.6%Travelling expenses-85.1 1.3%-87.5 1.5%Company cars-29.3 0.5%-34.7 0.6%Professional fees -118.8 1.9%-106.0 1.9%Taxes & Similar expenses-13.2 0.2%-14.1 0.2%Other expenses-76.4 1.2%-91.0 1.6%Subtotal expenses -2 684.7 42.5%-2 398.9 42.1%Depreciation of assets-236.5 3.7%-203.6 3.6%Net (charge) / release of provisions42.3 -0.7%48.5 -0.9%Gains / (Losses) on disposal of assets-3.8 0.1%-3.1 0.1%Trade Receivables write-off-20.5 0.3%-10.0 0.2%Capitalized Production48.5 -0.8%35.4 -0.6%Subtotal other expenses-170.0 2.7%-132.8 2.3%TOTAL-2 854.8 45.2%-2 531.7 44.4% The increase of hardware and software purchases in the first half of 2017 compared to the first half of 2016 is fully attributable to the consolidation of Unify S&P as of January 1st, 2017. 45/74 Note 5 Other operating income and expenses (in € million)6 months ended 30 June20176 months ended 30 June2016Staff reorganization-40.0-57.3Rationalization and associated costs-22.8-25.6Integration and acquisition costs-19.6-14.4Amortization of intangible assets (PPA from acquisitions) -61.6-44.7Equity based compensation-45.1-21.5Other items-21.943.0TOTAL-211.0 -120.5 The € 40.0 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries in Continental Europe and North America. The € 22.8 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in France, in Germany, and North America. This amount also encompasses external costs linked to the continuation of Worldline’s TEAM program including the rationalization of office premises in France. The € 19.6 million integration and acquisition costs mainly related to the execution of Unify, Equens and Paysquare post-acquisition integration, and to the migration and standardization of internal IT platforms from last acquired companies. The six-month 2017 amortization of intangible assets recognized in the Purchase Price Allocation (PPA) of € 61.6 million was mainly composed of: € 20.7 million of SIS Customer Relationships amortized over 8.75 years starting July 1st, 2011; € 10.4 million of Xerox ITO Customer Relationships amortized over 6 to 12 years starting July 1st, 2015; € 8.3 million of Bull Customer Relationships and Patents amortized over respectively 9.3 years and 9.9 years starting September 1st, 2014; € 9.9 million of Unify Customer Relationships and technologies amortized over 2 to 10 years starting February 1st, 2016 (in 2016 part of this amortization was included in discontinued operations); € 5.0 million of Equens and Paysquare Customer Relationships amortized over 6.5 to 9.5 years starting October 1st, 2016; and € 4.6 million of Anthelio Customer Relationships amortized over 6 to 12 years starting October 1st, 2016. The equity based compensation expense amounted to € 45.1 million within other operating income and expenses compared to € 21.5 million from the previous period. The increase related to the scope expansion, the stock price evolution, as well as the achievement of performance conditions. In the first half of 2016, the gain on the sale of Worldline’s share in Visa Europe to Visa Inc was included in other items. In the first half of 2017, other items included several settlements. 46/74 Note 6 Net financial result Net financial expense amounted to € 32.3 million for the period (compared to € 31.8 million for the first semester of 2016) and was composed of a net cost of financial debt of € 12.8 million and non-operational financial costs of € 19.5 million. Net cost of financial debt (in € million)6 months ended 30 June20176 months ended 30 June2016Net interest expenses-12.2-7.1Interest on obligations under finance leases-0.6-0.9Gain/(loss) on disposal of cash equivalents - 0.1NET COSTS OF FINANCIAL DEBT-12.8 -7.9 The € 12.8 million cost of net debt increased by € 4.9 million compared to the first half of 2016 including the following elements: A net cash position of € 430.3 million at the beginning of the period, compared to € 545.8 million at the beginning of 2016; An average expense rate of 1.66% on the average gross borrowings compared to 1.50% in 2016 and; An average income rate of 0.65% on the average gross cash compared to 0.99% in 2016. Other financial income and expenses (in € million)6 months ended 30 June20176 months ended 30 June2016Foreign exchange income / (expenses) -2.5-2.2 Fair value gain/(loss) on forward exchange contracts held for trading-2.2-3.4Other income / (expenses) -14.8-18.3OTHER FINANCIAL INCOME AND EXPENSES-19.5 -23.9 Of which:- other financial expenses-39.0 -34.2 - other financial income19.4 10.3 Non-operational financial costs amounted to € 19.5 million compared to € 23.9 million in the first half of 2016 and consisted of pension financial related costs (€ 15.1 million compared to € 14.9 million in 2016), a net foreign exchange loss (€ 4.7 million compared to € 5.6 million in 2016) and other financial income (€ 0.3 million compared to other financial expense for € 3.4 million in 2016, notably thanks to higher dividends received from associates). The pension financial related costs represent the difference between interest costs on defined benefit obligations and the interest income on plan assets for plans which are funded. Note 7 Income tax expenses The tax charge for the six-month period ended June 30, 2017 was € 55.8 million including the French CVAE tax, with a profit before tax of € 295.1 million. The annualized Effective Tax Rate (ETR) was 18.9% compared to 19.8% for the first half of 2016. 47/74 Note 8 Earnings per share Potential dilutive instruments comprised vested stock options (equivalent to 425,763 options) and did not generate a restatement of net income used for the diluted EPS calculation. (in € million and shares)6 months ended 30 June20176 months ended 30 June2016Net income from continuing operations – Attributable to owners of the parent [a]211.2 205.2 Impact of dilutive instruments --Net income from continuing operations restated of dilutive instruments - Attributable to owners of the parent [b]211.2 205.2 Average number of shares outstanding [c] 104,919,748 103,052,796 Impact of dilutive instruments [d] 425,763 547,348 Diluted average number of shares [e]=[c]+[d] 105,345,511 103,600,144 Basic EPS from continuing operations [a] / [c]2.01 1.99 Diluted EPS from continuing operations [b] / [e]2.00 1.98 (in € million and shares)6 months ended 30 June20176 months ended 30 June2016Net income – Attributable to owners of the parent [a]211.2 173.7 Impact of dilutive instruments --Net income restated of dilutive instruments - Attributable to owners of the parent [b]211.2 173.7 Average number of shares outstanding [c] 104,919,748 103,052,796 Impact of dilutive instruments [d] 425,763 547,348 Diluted average number of shares [e]=[c]+[d] 105,345,511 103,600,144 Earnings per share in € [a]/[c] 2.01 1.69 Diluted earnings per share in € [b]/[e]2.00 1.68 Note 9 Goodwill (in € million)31 December 2016Reclassification from asset held for sale Impact of business combi-nationExchange rate fluctuations30June 2017Gross value 4 431.8 320.2 44.7 -38.5 4 758.2 Impairment loss-567.0-0.1 - 2.2 -564.9Carrying amount 3 864.8 320.1 44.7 -36.3 4 193.3 During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event. 48/74 Note 10 Non-current financial assets (in € million)30June 201731 December 2016Pension prepayments104.196.2Fair value of non-consolidated investments net of impairment26.455.1Other (*)84.882.0TOTAL215.3 233.3 (*) "Other" include loans, deposits, guarantees, investments in associates accounted for under the equity method and non consolidated investments. Note 11 Trade accounts and notes receivable (in € million)30June 201731 December 2016Gross value2 673.7 2 645.1 Transition costs13.3 32.5 Provision for doubtful debts-134.8 -122.5 Net asset value2 552.2 2 555.0 Prepayments-98.0 -82.2 Deferred income and upfront payments received-606.5 -714.5 Net accounts receivable 1 847.7 1 758.2 Number of days’ sales outstanding (DSO)36 30 Atos securitization program of trade receivables has been renewed for 5 years on June 18, 2013 with a maximum amount of receivables sold of € 500.0 million and a maximum amount of financing of € 200.0 million. The program is structured with two compartments, called ON and OFF: Compartment “ON” is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level; Compartment “OFF” is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution. As of June 30, 2017, the Group has sold: In the compartment “ON” € 339.7 million receivables for which € 68.7 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet; In the compartment “OFF” € 37.1 million receivables which qualified for de-recognition as substantially all risks and rewards associated with the receivables were transferred. 49/74 Note 12 Other current assets (in € million)30June 201731 december 2016*Inventories97.2 52.8 State - VAT receivables191.0 176.4 Prepaid expenses486.5 425.6 Other receivables & current assets538.6 447.3 Advance payment39.1 35.1 Assets linked to intermediation activities148.2 249.6 TOTAL1 500.5 1 386.8 (*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Note 13 Cash and cash equivalents (in € million)30June 201731 December 2016*Cash in hand and short-term bank deposit1 989.5 1 688.3 Money market funds 26.4 382.2 TOTAL2 015.9 2 070.5 (*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 14 Pensions and similar benefits The net total amount recognized in the balance sheet in respect of pension plans is € 1,335.3 million (including Unify S&P plans) compared to € 1,263.3 million at December 31st, 2016 (excluding Unify S&P plans). The net provision at December 31st, 2016 in respect of pension plans for Unify S&P was € 124.6 million. Discount and long term inflation rates have remained stable since December 31st, 2016, notably for the Eurozone and the United Kingdom. The following discount rates have been used: (in %)30June201731 December 2016Euro zone (long duration plans)1.95%1.95%Euro zone (other plans)1.40%1.40%United Kingdom2.80%2.80% The following long term inflation rates have been used: (in %)30June201731 December 2016Euro zone1.45%1.45%United Kingdom (RPI)3.25%3.25% The fair value of plan assets for major schemes has been remeasured as at June 30, 2017. 50/74 The amounts recognized in the balance sheet consist of: (In € million)30June201731 December 2016Prepaid pension asset 104.1 96.2 Accrued liability – pension plans-1,439.4 -1,359.5 Total Pension plan-1,335.3 -1,263.3 Accrued liability – other long term benefits-56.5 -51.2 Total accrued liability-1,495.9 -1,410.7 During the first half of 2017, a change in the plan rules was introduced in the Railways Pension Scheme to freeze the pensionable pay on an ongoing basis. As a result, pensionable benefits for the Atos Worldline UK participating employees will no longer increase with salary evolutions. A corresponding one-off impact of € 7 million was recorded in the income statement during the six-month period ending June 30, 2017. The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (in € million)6 months ended 30 June 20176 months ended 30 June2016Operating margin-17.0 -26.9 Other operating income and expenses1.4 3.6 Net financial income-14.6 -14.9 Total (expense)/profit-30.2 -38.2 Note 15 Provisions (in € million)31 December 2016ChargeRelease usedRelease unusedReclassification of liabilities previously held for saleOther30June2017CurrentNon-currentReorganization93.026.3-46.2-2.618.1-1.986.775.810.9Rationalization21.75.6-6.7-3.411.65.133.910.623.3Project commitments72.07.4-16.2-19.07.32.153.641.911.7Litigations and contingencies121.410.8-7.9-14.346.31.3157.668.589.2TOTAL PROVISIONS308.250.1-77.0-39.383.36.6331.9196.8135.1 51/74 Note 16 Borrowings Change in net debt over the period (in € million)30 June201731 December2016*Opening net cash / (debt)430.3541.9Reclassification of assets (liabilities) previously held for sale-101.4 - New borrowings-112.9 -6.0 Bonds - -300.0 Repayment of long and medium-term borrowings129.3 49.0 Variance in net cash and cash equivalents136.6 189.5 New finance leases -5.1 -4.9 Long and medium-term debt of companies acquired during the period - -18.2 Impact of exchange rate fluctuations on net long and medium-term debt-72.4 -0.3 Profit-sharing amounts payable to French employees transferred to debt-1.5 -0.8 Other flows related to financing activities-60.5 -20.1 Closing net cash / (debt)342.2430.3(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Other flows related to financing activities correspond mostly to the re-consolidation of financial liabilities on the compartment 'ON' securitization program. Note 17 Trade accounts and notes payable (in € million)30June 201731 December2016*Trade payable and notes payable2,031.61,919.4Net advance payments-39.1 -35.1 Prepaid expenses-486.5 -425.6 Net accounts payable1,506.01,458.7Number of days’ payable outstanding (DPO)78.076.0(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Note 18 Cash flow statements Net cash and cash equivalents (in million)30 June 201731 December 2016*Cash and cash equivalents2,015.9 2,070.5 Overdrafts-55.2 -78.8 Total net cash and cash equivalents1,960.71,991.7(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies 52/74 Note 19 Impact of ceased discontinued operations and held for sale classifications of the Software and Platform business The Atos Group decided, as early as the Unify acquisition date, on January 20, 2016, to put up for sale the Software & Platforms business (S&P). The S&P business has been treated as discontinued operations from February 1st, 2016 in accordance with IFRS 3 and IFRS 5 requirements. As of December 31st, 2016, Atos was still engaged in an active process to sell S&P business and was in discussion with potential buyers. As such, the discontinued treatment was maintained. In the published 2016 consolidated financial statements, the flows relating to the services rendered by the continuing operations to S&P were eliminated at the S&P level. As a result, the External Revenue of the Atos Group included revenue related to such flows. In the 2016 consolidated statement of financial position, the net assets allocated to the S&P were presented on the line “Assets held for sale” and net liabilities on the line “Liabilities held for sale”. The net income of the S&P business from February 1st to December 31st, 2016 was presented under the “net income from discontinued operations” caption of the published consolidated income statement. In April 2017 based on the status of the discussions with the potential buyers, the Board of Directors decided to terminate those discussions, considering that integrating Unify S&P in Atos operations would represent a higher value for Atos shareholders. Therefore the sale was not any more highly probable and consequently the accounting treatment as discontinued operations and held for sale was no longer justified. As a result, the June 2017 condensed financial statements fully reflect the consolidation of the S&P business since January 1st, 2017 for the six- month period ended June 30, 2017 and the financial position as of this date. For comparison purposes, a summarized restated income statement for the six-month period ended June 30, 2016 and a summarized restated statement of financial position as of December 31st, 2016 have been computed and are presented hereafter. The full restatement of the 2016 consolidated accounts including the notes will be presented in December 2017 consolidated financial statements. Summarized income statement as of June 30, 2016 (in € million)6 months ended 30 June 2016Impact of ceased discontinued operations6 months ended 30 June 2016 restatedRevenue 5,697.0 205.9 5,902.9 Operating and personnel expenses-5,252.6 -233.2 -5,485.8 Operating margin444.4-27.3417.1% of revenue7.8%7.1%Other operating income and expenses-120.5 -3.9 -124.4 Operating income323.9 -31.2 292.7 Net financial expenses-31.8 -0.8 -32.6 Net income before tax292.1-32.0260.1Tax charge-57.9 0.4 -57.5 Net income from continuing operations234.2-31.5202.7Net income from discontinued operations-31.5 31.5 - Net income202.7 - 202.7Of which:- attributable to owners of the parent173.7 - 173.7 - non-controlling interests29.0 - 29.0 53/74 Summarized statement of financial position as of December 31st, 2016 (in € million)31 December 2016*Impact of ceased held for sale31 December 2016 restatedGoodwill3,864.8 320.1 4,184.9 Other Fixed assets1,984.3 137.7 2,122.0 Other non current assets645.7 73.4 719.1 Non current assets6,494.8531.27,026.0Trades, other receivables and other current assets3,979.0 378.7 4,357.8 Cash & cash equivalent2,070.5 -54.0 2,016.5 Assets held for sale1,006.3 -1,006.3 - Current assets7,055.8-681.56,374.3TOTAL ASSETS13,550.6-150.313,400.3Shareholders equity4,835.2 - 4,835.2Provision for pensions and for losses & contingencies1,524.7 192.58 1,717.3 Other non current liabilities1,608.5 44.24 1,652.7 Non current liabilities3,133.2236.83,370.0Trades and other debt4,730.5 464.5 5,195.1 Liabilities held for sale851.7 -851.7 - Current liabilities5,582.2-387.25,195.1TOTAL LIABILITIES13,550.6-150.313,400.3(*) 31 December 2016 adjusted to reflect change in presentation disclosed in note accounting rules and policies Note 20 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 25, 2017. Note 21 Subsequent event There is no significant subsequent event to be mentioned. 54/74 B.3 Statutory auditors’ review report on the half- yearly financial information for the period from January 1st to June 30, 2017 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2017, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information presented in the interim management report on the condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Neuilly-sur-Seine, July 26, 2017 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton French member of Grant Thornton International Jean-Pierre Agazzi Victor Amselem 55/74 C. Persons responsible C.1 For the Update of the Registration Document Thierry Breton Chairman & Chief Executive Officer C.2 For the accuracy of the Update of the Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the Update of the 2016 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2017 half-year condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report (here attached) presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the Update of the 2016 Registration Document and examined the information in respect of the financial position and the accounts contained herein. Bezons, August 3, 2017 Thierry Breton Chairman & Chief Executive Officer C.3 For the audit Grant Thornton Victor AmselemAppointed on: May 27, 2014 for a term of 6 yearsAppointed on: May 27, 2014 for a term of 6 yearsTerm of office expires: at the end of the AGM held to adopt the 2019 financial statementsTerm of office expires: at the end of the AGM held to adopt the 2019 financial statementsDeloitte & Associés Jean-Pierre AgazziCabinet B.E.A.S.Appointed on: May 30, 2012 for a term of 6 yearsAppointed on: May 30, 2012 for a term of 6 yearsTerm of office expires: at the end of the AGM held to adopt the 2017 financial statementsTerm of office expires: at the end of the AGM held to adopt the 2017 financial statementsAPPOINTMENT AND TERM OF OFFICESSubstitute auditorsStatutory auditorsCabinet IGEC 56/74 D. Corporate governance and additional information D.1 Office renewals and appointment of directors The Company’s Combined General Meeting held on May 24, 2017 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the terms of office as Directors of Ms. Valérie Bernis (French citizen), Ms. Colette Neuville (French citizen), Mr. Nicolas Bazire (French citizen) and Dr. Roland Busch (German citizen). The Board of directors also voluntarily submitted to the General Meeting the re-appointment of the Director representing the employee shareholders. Among the two candidates running for the position, Ms. Jean Fleming obtained a majority vote of 97.25% and was appointed. The General Meeting also adopted a resolution to the effect of reducing to 3 years the duration of the term of office of the Director representing the employee shareholders. Following the renewal of the Directors’ terms of office, the Board of Directors meeting held after the General Meeting decided to modify the composition of the Audit Committee (Mr. Vernon Sankey, Chairman, Mr. Roland Busch, Mr. Bertrand Meunier and Ms. Lynn Paine) and confirmed the composition of the Nomination and Remuneration Committee (Mr. Nicolas Bazire, Chairman, Mr. Bertrand Meunier and Mr. Pasquale Pistorio). The General Meeting also approved, with a 99.97% majority vote, the amendment to the Articles of Association in order to appoint one or two directors representing the employees. Such appointment will be implemented within 6 months following the 2017 General Meeting as provided by the legal provisions. D.2 Composition of the Board of Directors and Directors’ independence As of the date of this Update of the Registration Document, the Board of Directors, comprised 11 directors including 7 independent directors, as follows: Name of the DirectorDate of first appointment or latest renewalDate of the expiry of the mandateMr Thierry BRETONDecember 30 2016AGM 2019Mr Nicolas BAZIRE*May 24 2017AGM 2020Ms Valérie BERNIS*May 24 2017AGM 2020Mr Roland BUSCHMay 24 2017AGM 2020Ms Jean FLEMINGMay 24 2017AGM 2020Mr Bertrand MEUNIER*May 28 2015AGM 2018Ms Colette NEUVILLE*May 24 2017AGM 2020Ms Aminata NIANEMay 26 2016AGM 2019Ms Lynn PAINE*May 26 2016AGM 2019Mr Pasquale PISTORIO*May 28 2015AGM 2018Mr Vernon SANKEY*May 26 2016AGM 2019 Independent Director During the Board of Directors meeting held on May 24, 2017, following the 2017 General Meeting, and in consideration of the office renewals and confirmation of committee membership which had occurred, the Board of Directors assessed the independence of its members. The directors confirmed to be independent are: Nicolas Bazire, Valérie Bernis, Bertrand Meunier, Colette Neuville, Lynn Paine, Pasquale Pistorio and 57/74 Vernon Sankey, i.e. a ratio of 70% in accordance with the AFEP-MEDEF Code which requires that at least half of the Directors are independent. D.3 General Meetings held in 2017 D.3.1 Annual Combined General Meeting held on May 24, 2017 The Combined General Meeting held on May 24, 2017 approved all the resolutions submitted by the Board of Directors. The results of the votes at the Combined General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. Upon a proposal of the Board of Directors, the resolution proposing a performance shares plan for 2017 was not submitted to the shareholders’ vote. Following the discussions conducted by the Company with the shareholders but also with the proxy advisory firms, the Board of Directors decided to entrust the Nomination and Remuneration Committee with a mission of proposing a simplified 2017 performance share plan to be submitted to an Extraordinary General Meeting to be convened at the beginning of the second half of 2017. D.3.2 Extraordinary General Meeting held on July 24, 2017 Following the decision taken by the Board of Directors to withdraw the resolution regarding the 2017 performance share plan from the shareholders’ vote during the annual General Meeting, the Nomination and Remuneration Committee presented to the Board of directors a revised and simplified plan addressing the concerns that had been raised. This plan was submitted to the shareholders’ vote on the occasion of the Extraordinary General Meeting convened and held on July 24, 2017. The related resolution was adopted with a very significant score of 96.95%. D.4 Executive compensation and stock ownership D.4.1 Performance shares allocation plan decided on July 24, 2017 In connection with the authorization granted for thirty-eight months, by the Combined General Meeting of May 26, 2016 (twentieth resolution) and the approval by the Combined General Meeting of May 24, 2017 of the thirteenth resolution (“Say on Pay ex ante”), the Board of Directors decided, during its meeting held on July 24, 2017, and upon the recommendation of the Nomination and Remuneration Committee, to proceed with the allocation of a theorical maximum number of 43,000 performance shares to be issued in favor of the Chairman and Chief Executive Officer. Performance conditions to be achieved over the three years 2017, 2018 and 2019 of the new plan relate to internal financial criteria linked to profitability, free cash flow and revenue growth, identical to those of the previous plan of July 26, 2016. As for the July 26, 2016 plan, the plan also provides for an external condition linked to the social and environmental performance of the company. Additional requirements in respect of the achievement of financial objectives in connection with the 2017- 2019 strategic plan and with regard to the social and environmental performance of the company for maintaining a high level of recognition over the period have been introduced. Thus, performance conditions of the previous plans, to be fulfilled for each of the three years 2017, 2018, and 2019 are maintained but they now allow the beneficiary to acquire, assuming their achievement, a reduced number of shares corresponding to 70% of the number initially allocated, the remaining 30% being a variable component depending on the level of achievement of financial performance and social responsibility objectives. . 58/74 The features of the performance shares allocation plan are as follows: A. Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the allocation of performance shares is conditioned on the preservation of corporate officer status by the beneficiary during the vesting period; B. Performance condition: the allocation of performance shares is also subject to the achievement of the following internal and external performance conditions, appraised for each of the three years 2017, 2018, and 2019. a. Allowing the vesting of 70% of the performance shares: Internal performance conditions For each of the three years 2017, 2018, and 2019: the Group free cash flow before dividend and acquisition/sales results is at least equal to one of the following amounts: (i) 85% of the amount of the Group free cash flow, before dividends and acquisition/sales results, as mentioned in the Company’s budget of the year in question; or (ii) the amount of the Group free cash flow before dividends and acquisition/sales results for the previous year with a 10% increase. the Group operating margin is at least equal to one of the following amounts: (i) 85% of the amount of the Group’s operating margin as mentioned in the Company's budget of the year in question; or (ii) the amount of the Group operating margin for the previous year with a 10% increase. Revenue growth of the year in question is at least equal to one of the two following amounts: (i) Revenue growth rate as mentioned in the Company’s budget minus a percentage decided by the Board of Directors; or (ii) Yearly growth rate per reference to the Group growth targets. It being specified that for each year, at least 2 of 3 internal performance criteria must be met. If one criterion is not met for the year in question, this criterion becomes compulsory for the following year. External performance condition For the years 2017, 2018, and 2019, the Atos Group must at least achieve the rating of GRI G4 “Comprehensive” (highest ranking of the Global Reporting Initiative) or be part of the Dow Jones Sustainability Index (Europe or World). The condition is achieved as soon as this criterion is validated for at least two years over the 3-year period. b. Allowing the vesting of the remaining 30% of the performance shares: Assuming the achievement of the performance conditions stated above and the compliance with the employment condition, the additional 30% is subject to: (i) the effective performance of the Group over the 2017-2019 period as measured based on the average of annual achievement rates (weighting 40% Operating Margin, 30% Free Cash Flow and 30% Organic Growth) underlying the variable compensation of Group Managers (the “Average Group Multiplier”), including that due to the Chairman and Chief Executive Officer, as well as (ii) the fulfilment, over the whole period of the social responsibility condition as described above. 59/74 Vesting criteria applicable to the remaining 30% of the grant (i.e. from 70% up to 100%) are determined as follows: Additional internal performance conditions for the vesting of 15% of performance shares A progressive vesting up to 15% of total number of granted shares is defined based on the achievement rate reflected by the Average Group Multiplier (AGM) over the years 2017, 2018 and 2019: – If Average Group Multiplier (AGM) is below 85%, there is no complementary vesting (0%); – If Average Group Multiplier (AGM) is in between 85% and 100%, the complementary vesting represents (AGM – 85%) performance shares, i.e. from 0 to 15% of performance shares; – If Average Group Multiplier is above 100% (over performance vs. budget objectives), 15% of performance shares are vested (ceiling). Additional requirement on external performance condition for the vesting of 15% of performance shares If the external performance condition stated above is met 3 years in a row over the 2017-2019 period then the condition is achieved and 15% of the initially granted shares are vested. C. Acquisition and conservation: Subject to the presence and performance conditions of the plan being achieved, the performance shares granted will be acquired on July 24, 2020. The final number of vested shares will be capped at 38,738 shares (difference between the maximum number of performance shares that can be granted to the Chairman and CEO in accordance with the twentieth resolution of the Combined General Meeting of May 26, 2016, i.e. 93,438 shares, corresponding to 0.09% of the share capital at that date, and the number of performance shares granted to the Chairman and CEO in respect of the year 2016, i.e 54,700 shares). The beneficiary is required to remain owner of 15% of his acquired shares for the duration of his duties and cannot conclude any financial hedging instruments over the shares being the subject of the award during the whole duration of the mandate of the Chief Executive Officer. D.4.2 Performance shares allocation plan (not related to the Chairman and Chief Executive Officer) decided on July 25, 2017 In connection with the authorization granted for thirty-eight months by the Extraordinary General Meeting of July 24, 2017 to freely allot performance shares, adopted with 96.94% of the vote, the Board of Directors decided, during its meeting held on July 25, 2017, and upon the recommendation of the Nomination and Remuneration Committee, to proceed with the allocation of 777,910 performance shares of the Company, to be issued in favor of the first managerial lines of Atos, excluding the Chairman and Chief Executive Officer. Performance conditions to be achieved over the three years 2017, 2018 and 2019 of this new plan relate to internal financial criteria linked to profitability, operating margin conversion rate in free cash flow and revenue growth. The plan also provides for an external condition linked to the social and environmental performance of the company. The main features of the performance shares allocation plan are as follows: Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the allocation of performance shares is conditioned on the preservation of employee status by the beneficiary during the vesting period; Performance condition: the allocation of performance shares is also subject to the achievement of internal and external performance conditions, set by the Board of Directors and appraised for each year of the plan. For each of the three years of the plan, 2017, 2018, and 2019, demanding and measurable internal and external performance conditions set by the Board of Directors must be achieved. Acquisition and conservation periods: Subject to the presence and performance conditions of the plan being achieved, the performance shares granted will be acquired on July 25, 2020. 60/74 The shares acquired will not be subject to a conservation obligation and will be then immediately availaible for sale by their beneficiaries. D.4.3 Performance shares that have become available since January 1st, 2017 for the Chairman and CEO – AMF Table 7 Since January 1st, 2017, the performance shares granted on July 24, 2013 became available for possible sale to the beneficiaries according to the France Plan Rules. The Atos Chairman and CEO is a beneficiary of this plan. Acquisition and availability terms are described in the 2016 Registration Document in part G.4.3.4. Plan DateNumber of shares available since January 1, 2017 Vesting DateAvailability DateChairman and CEOJuly 24, 201345,000 July 24, 2015July 24, 2017 D.4.4 Subscription or purchase options exercised since January 1st, 2017 by the Chairman and CEO – AMF Table 5 The Atos Chairman and CEO did not hold any outstanding options. 61/74 D.5 Common Stock Evolution D.5.1 Basic data D.5.1.1 Information on stock The Company's shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. ATOS SE securities are eligible for SRD and PEA. The Company’s shares have been included in the CAC 40, the main share index published by NYSE Euronext Paris, since March 20, 2017. The main tickers are: SourceTickersEuronext ATO AFP ATO Bloomberg ATO FP Reuters ATOS PA ThomsonATO FR The Euronext sector classification is as follows: Euronext: ICB sectorial classificationsIndustry: 9000, TechnologySupersector: 9500, TechnologySector: 9530, Software and Computer ServicesSubsector: 9533, Computer Services D.5.1.2 Free-float The free-float of the Group shares excludes stakes held by the reference shareholder, Siemens AG, holding a stake of 11.8% of the share capital which it committed to keep until September 30, 2020. As at June 30, 2017, no other shareholder had announced holding more than 5% of the Company’s share capital. Stakes owned by the employees and the management as well as treasury shares, are also excluded from the free float. As of June 30, 2017Shares% of share capital% of voting rightsSiemens12,483,153 11.8%11.9%Employees1,229,682 1.2%1.2%Board of Directors610,213 0.6%0.6%Treasury stock250,265 *0.2% - Free float 90,795,655 86.2%86.4%Total 105,368,968 100.0%100.0% including 16,582 sharesq to be effectively delivered to LTI beneficiaries on July 1st, 2017 62/74 D.5.2 Dividend policy On a proposal from the Board of directors, the Combined General Meeting held on May 24, 2017, approved the payment in 2017 of a dividend of 1.60 euro per share on the 2016 results. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal periodDividend paid per share (in €)2016 1.60 2015 1.10 20140.80 D.5.3 Common stock D.5.3.1 At June 30, 2017 As at June 30, 2017, on the basis of a decision of the Chairman and Chief Executive Officer dated as of June 30, 2017 the Company’s issued common stock amounted to € 105,368,968 divided into 105,368,968 fully paid-up shares of € 1.00 par value each. Since December 31st, 2016, the share capital was increased by € 460,289 corresponding to the issuance of 460,289 new shares, split as follows: 165,324 new shares resulting from the exercise of stock options, issuance premiums amounting to € 5,194,712.9 in the aggregate; 294,965 new shares resulting from the implementation of an employee shareholding plan, issuance premiums amounting to € 22,122,375 in the aggregate. D.5.3.2 Shareholders’ agreements To the Company’s knowledge, there is no other agreement capable of having a material effect, in case of public offer on the share capital of the Company than the ones mentioned in the 2016 Registration Document, in part G.7.7.5. D.5.3.3 Treasury stock Legal Framework The 14th resolution of the Combined General Meeting of May 24, 2017 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to the general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. 63/74 These purchases may be carried out by virtue of any allocation permitted by law, with the aims of this share repurchasing program being: to ensure liquidity and an active market of the Company’s shares through an investment service provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the Autorité des Marchés Financiers (French Financial Market Authority); to attribute or sell these shares to the executive officers and directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225- 177 et seq. of the Commercial Code, and (iii) free awards of share in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the board of directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them for payment or exchange in the context of possible external growth operations, it being specified that the maximum amount of shares acquired by the Company in this context shall not exceed 5% of the share capital; or to cancel them as a whole or in part through a reduction of the share capital pursuant to the 15th resolution of the Combined General Meeting held on May 24, 2017. The maximum purchase price per share may not exceed € 170 (fees excluded). The Board of Directors may adjust the aforementioned purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the allocation of free shares, as well as in the event of division of the nominal value of the share or share consolidation, so as to take account of the effect of these operations on the value of the share. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,783,447,543 as calculated on the basis of the share capital as at December 31st, 2016, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from May 24, 2017. Treasury Stock As at June 30, 2017, the Company owned 250,2651 shares which amounted to 0.2% of the share capital with a portfolio value of €30,757,568.50, based on June 30, 2017 market price, and with book value of € 20,240,596.10. These shares are assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. The Company proceeded to the purchase of 143,000 own shares from June 30, 2017 to July 4, 2017, as part of a mandate given to a financial intermediary as announced by the Group on June 30, 2017, on the basis of the authorization granted by the 14th resolution of the Combined General Meeting of May 24, 2017. 1 Including 16,582 shares to be effectively delivered to LTI beneficiaries on July 1st ,2017. 64/74 D.5.3.4 Potential common stock Potential dilution Based on 105,368,968 outstanding shares as of June 30, 2017, the share capital of the Group could be increased by 2,854,723 new shares, representing 2.7% of the share stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares, as follows: (in shares)June 30, 2017December 31, 2016Change% dilutionNumber of shares outstanding 105,368,968 104,908,679 460,289 From stock subscription options483,088 648,629 -165,541 0.5%From performance shares2,371,635 2,479,645 -108,010 2.3%Potential dilution 2,854,723 3,128,274 -273,551 2.7%Total potential common stock 108,223,691 108,036,953 186,738 On the total of 483,088 of stock options, no option had a price of exercise higher than € 122.90 (closing stock price as of June 30, 2017). Stock options evolution Number of stock subscription options at December 31, 2016 648,629 Stock subscription options granted during the first half of 2017 - Stock subscription options exercised during the first half of 2017 165,324 Stock subscription canceled or forfeited during the first half of 2017 217 Number of stock subscription options at June 30, 2017 483,088 As of June 30, 2017, the total of stock options granted by the Group are all exercisable and in the money. 65/74 Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meetings of May 26, 2016, May 24, 2017, and July 24, 2017 the following authorizations to modify the share capital, and to issue shares and other securities are in force as of July 25, 2017: AuthorizationAuthorization amount (value)Use of the authorizations (par value)Unused balance (par value)Authorization expiration dateEGM July 24, 20171st resolutionAuthorization to allot free shares to employees and executive officers 948,320 777,910 170,410 09/24/2020 (38 months)EGM May 24, 201714th resolutionAuthorization to buyback the Company shares 10% of the share capital adjusted at any moment 143,000 9.86%11/24/2018 (18 months)EGM May 24, 201715th resolutionShare capital decrease 10% of the share capital adjusted as at the day of the decrease - 10%11/24/2018 (18 months)EGM May 24, 201716th resolutioncapital increase reserved to employees1 2,106,933 - 2,106,933 07/24/2019 (26 months)EGM May 26, 201613th resolutionShare capital increase with preferential subscription right 31,146,128 - 31,146,128 07/26/2018 (26 months)EGM May 26, 201614th resolutionShare capital increase without preferential subscription right by public offer1 2 10,382,042 - 10,382,042 07/26/2018 (26 months)EGM May 26, 201615th resolutionShare capital increase without preferential subscription right by private placement1 2 10,382,042 - 10,382,042 07/26/2018(26 months) EGM May 26, 201616th resolutionShare capital increase without preferential subscription right to remunerate contribution in kind1 2 10,382,042 - 10,382,042 07/26/2018 (26 months)EGM May 26, 201617th resolutionIncrease in the number of securities in case of share capital increase with or without preferential subscription right1 2 3Extension by 15% maximumof the initial issuance - Extension by 15% maximum of the initial issuance07/26/2018 (26 months)EGM May 26, 201618th resolutionShare capital increase through incorporation of premiums, reserves, benefits or other3,234 million - 3,234 million07/26/2018 (26 months)3Theadditionalissuanceshallbedeductedfrom(i)thecapoftheresolutionpursuanttowhichtheinitialissuancewasdecided,(ii)theaggregatecapsetbythe13thresolutionoftheCombinedGeneralMeetingofMay 26,2016, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at 2 here above.1Anysharecapitalincreasepursuanttothe14th,15th,16th,17thresolutionsoftheCombinedGeneralMeetingofMay 26,2016andtothe16thresolutionoftheCombinedGeneralMeetingofMay24,2017shallbededucted from the cap set by the 13th resolution of the Combined General Meeting of May 26, 2016.2Thesharecapitalincreaseswithoutpreferentialsubscriptionrightcarriedoutpursuanttothe14th,15th,16thand17thresolutionsoftheCombinedGeneralMeetingofMay 26,2016aresubjecttoanaggregatesub-capcorresponding to 10% of the share capital of the Company on the day of the Combined General Meeting of May 26, 2016 (i.e. € 10,382,042). Any share capital increase pursuant to these resolutions shall be deducted from this The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 17th and 18th resolutions of the General Meeting of May 26, 2016 being set aside) amounts to 32,094,449, representing 30.46% of the share capital updated on June 30, 2017. 66/74 E. Appendices E.1 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Executive Vice President, Investor Relations & Financial Communication Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Benoit d’Amécourt Investor Relations & Financial Communication Director +33 (0)1 73 26 02 27 benoit.damecourt@atos.net Aurélie Le Pollès Investor Relations & Financial Communication Manager +33 1 73 26 42 35 aurelie.lepolles@atos.net Requests for information can also be sent by email to investors@atos.net E.2 Financial calendar October 24, 2017 February 21st, 2018 April 25, 2018 May 24, 2018 July 25, 2018 October 23, 2018 Third quarter 2017 revenue FY 2017 results Q1 2018 revenue Annual General Meeting H1 2018 results Q3 2018 revenue 67/74 E.3 AMF cross-reference table The cross-reference table identifies the main information required by Regulation No. 809/2004 of the European Commission dated April 29, 2004 (the “Regulation”). The table indicates the section of this Update to the Reference Document and, if applicable, of the Reference Document where is presented the information related to each item. N° Items of the Annex I of the regulation Sections in update of registration Document Sections in registration Document 1. 1.1 1.2 2. 2.1 2.2 3. 3.1 3.2 4. 5. 5.1. 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2. 6. 6.1. 6.1.1 Persons Responsible Indication of persons responsible Declaration by persons responsible Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Selected financial information Historical financial information Financial information for interim periods Risk Factors Information about the issuer History and Development of the issuer The legal and commercial name of the issuer The place and the number of registration The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office The important events in the development of the issuer’s business Investments Business overview Principal Activities Nature of the issuer’s operations and its principal activities C.1 C.2 C.3 C.3 N/A N/A A.4 N/A N/A N/A N/A A.1;A.2 N/A A.4.1 A.4.2 A.4.3 A.4.3 A.5.1; E.3 N/A F. G.2.2 G.2.2 G.2.2 G.2.2 A.5.2; A.6.1 N/A 6.1.2 6.2. 6.3. 6.4. 6.5. 7. 7.1. 7.2 8. 8.1. 8.2 9. 9.1. 9.2. 9.2.1 9.2.2 9.2.3 10. 10.1. 10.2. 10.3. 10.4. New products or services developed Principal Markets Exceptional factors Dependence on patents or licenses, industrial, commercial o financial contracts or new manufacturing processes Basis for statements made by the issuer regarding its competitive position Organizational Structure Brief description of the Group List of significant subsidiaries Property, Plants and Equipment Material tangible fixed assets Environmental issues that pay affect the utilization of the tangible fixed assets Operating and Financial Review Financial Condition Operating Results Significant factors materially affecting the issuer’s income from operations Disclosure of material changes in net sales or revenues Information regarding any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations Capital Resources Issuer’s capital resources Sources and amounts of the issuer’s cash flows Information on the borrowing requirements and funding structure Restrictions on the use of capital resources A.1;A.2 A.1;A.2 A.1;A.2 N/A N/A N/A N/A A.2 N/A N/A N/A A.2;B A.2;B A.2 A.2;B B.1.2 N/A N/A A.1; A.2; C.2; C.3; C.4; C.5; C.6; C.7 A.1; A.2; C.2; C.3; C.4; C.5; C.6; C.7 A.1; A.2; B.2 N/A F.1; F.3.3 B.2 E.5.3 ; G2.2 E.4.7.4 ; Note 30 E.4.7.4 - Note 13 D.5 E.1; E.3 E.1; E.3 E.1; E.3 E.1; E.3 E.3; G.7 E.3.2 E.3.3 N/A 68/74 N° Items of the Annex I of the regulation 10.5. 11. 12. 12.1 12.2 13. 14. 14.1. 14.2. 15. 15.1. 15.2. 16. 16.1. 16.2. 16.3. 16.4. 17. 17.1. 17.2. 17.3. 18. 18.1. 18.2. 18.3. 18.4. 19. 20. 20.2. 20.3. 20.4. 20.4.1 20.4.2 20.4.3 20.5. 20.6. 20.7 20.7.1 20.8. 20.9. 21. 21.1. 21.1.1 21.1.2 21.1.3 21.1.4 21.1.5 21.1.6 Anticipated sources of funds to fulfill commitments Research and Development, Patents and Licenses Trend Information The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects Profit Forecasts or Estimates Administrative, Management, and Supervisory bodies and senior management Composition – statements Conflicts of interests Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment Information about audit and Remuneration Committee Statement related to corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders Identification of the main shareholders Voting rights Ownership and control Arrangements which may result in a change in control of the issuer Related party transactions Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information Pro forma financial information Financial statements Auditing of historical annual financial information Statement indicating that the historical financial information has been audited Indication of other information which has been audited Source of the data when financial data in the Registration Document is not extracted from the issuer’s audited financial statements Age of latest financial information Interim and other financial information Dividend policy Amount of dividends Legal and arbitration proceedings Significant change in the issuer’s financial or trading position Additional Information Share Capital Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition rights and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association 21.1.7 21.2. 21.2.1 Description of issuer’s objects and purposes 21.2.2 Provisions of the issuer’s Articles of Association, statutes, charter or bylaws with respect to the members of the administrative, management and supervisory bodies 21.2.3 Description of the rights, preferences and restrictions attaching to each class of 69/74 Sections in update of registration Document Sections in registration Document N/A N/A E.3.3 C.6 A.2 B; C ; E.1 A.1;A.2 B; C ; E.1 N/A N/A D.2 A.6.2; G.2.4; G.3.1.3 D.2 G.2.4; G.3.1.4; G.6.5 D.4 D.4 G.4 G.4 D.2 N/A N/A N/A G.2.4 G.2.4 G.3.1 G.3.1 A.2.6 D.5.3.4 D.5.3.4 D.2; E.1.7 G.4; G.7.1; G.7.2 D.2.1.3 D.5.1.2 G.7.1; G.7.2; G.7.7 D.5.1.2 G.7.1.2 D.5.1.2 G.7.1; G.7.2; G.7.7 G.7 E.4.7.4 - Note 28 N/A A.5 B B B A.5; E.2; E.3; E.4; H.2.2 N/A E.4 B.3 B.3 E.4.1 N/A N/A N/A N/A D.5.2 A.4 N/A E1 N/A G.2.3; G.7.3 G.7.3 F.6 E.3 D.5 N/A D.5 D.5 G.7 N/A G.7 G.7.7.7 N/A N/A D.5 G.7 N/A G.7 N/A G.2.2 N/A G.2 G.2.3; G.7.3 N° Items of the Annex I of the regulation the existing shares 21.2.4 Description of actions to change the rights of holders of the shares 21.2.5 Description of the conditions governing the manner in which Annual General Meetings and Extraordinary General Meetings of Shareholders are called 21.2.6 Description of any provision that would have an effect of delaying, deferring or preventing a change in control of the issuer 21.2.7 Description of the conditions governing the ownership threshold above which shareholder ownership must be disclosed 21.2.8 Description of the conditions governing changes in the capital 22. Material Contracts Third party information and statement by experts and declarations of any interest Statement or report attributed to a person acting as an expert Information sourced from third parties Documents on Display Information on holdings 23. 23.1 23.2 24. 25. 70/74 Sections in update of registration Document N/A N/A N/A N/A N/A N/A A2 N/A N/A N/A N/A Sections in registration Document G.2 G.2 G.2 G.2 N/A E.1.5; F.1; F.2 N/A N/A G.2.1; G.2.2; G.7 E.4.7.4 E.4 Full index CONTENT .................................................................................................................... 2 A. ACTIVITY REPORT .............................................................................................. 3 A.1 Atos in the first half of 2017 .................................................................................... 3 A.2 Operational review ................................................................................................... 6 A.2.1 Statutory to constant scope and exchange rates reconciliation ............................... 6 A.2.2 Performance by Division .................................................................................... 7 A.2.3 Performance by Business Units ......................................................................... 13 A.2.4 Revenue by Market ......................................................................................... 19 A.2.5 Portfolio ........................................................................................................ 20 A.2.6 Human Resources ........................................................................................... 21 A.3 2017 objectives ...................................................................................................... 22 A.4 Claims and litigations ............................................................................................. 22 A.4.1 Tax claims ..................................................................................................... 22 A.4.2 Commercial claims .......................................................................................... 23 A.4.3 Labor claims .................................................................................................. 23 A.4.4 Representation & Warranty claims .................................................................... 23 A.4.5 Miscellaneous ................................................................................................. 23 A.5 Related parties ....................................................................................................... 24 B. FINANCIAL STATEMENTS ................................................................................. 25 B.1 Financial review ..................................................................................................... 25 B.1.1 Income statement .......................................................................................... 25 B.1.2 Cash Flow and net cash ................................................................................... 29 B.1.3 Parent company results ................................................................................... 31 B.2 Interim condensed consolidated financial statements ........................................... 31 B.2.1 Interim condensed consolidated income statement ............................................. 31 B.2.2 Interim condensed consolidated statement of comprehensive income ................... 32 B.2.3 Interim condensed consolidated statement of financial position ............................ 33 B.2.4 Interim condensed consolidated cash flow statement .......................................... 34 B.2.5 Interim consolidated statement of changes in shareholders’ equity ....................... 35 B.2.6 Appendices to the interim condensed consolidated financial statements................. 36 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1st to June 30, 2017 ............................................................... 55 C. PERSONS RESPONSIBLE ................................................................................... 56 C.1 For the Update of the Registration Document ........................................................ 56 C.2 For the accuracy of the Update of the Registration Document ............................... 56 C.3 For the audit .......................................................................................................... 56 71/74 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .......................... 57 D.1 Office renewals and appointment of directors ........................................................ 57 D.2 Composition of the Board of Directors and Directors’ independence ...................... 57 D.3 General Meetings held in 2017 ............................................................................... 58 D.3.1 Annual Combined General Meeting held on May 24, 2017 .................................... 58 D.3.2 Extraordinary General Meeting held on July 24, 2017 .......................................... 58 D.4 Executive compensation and stock ownership ....................................................... 58 D.4.1 Performance shares allocation plan decided on July 24, 2017 ............................... 58 D.4.2 Performance shares allocation plan (not related to the Chairman and Chief Executive Officer) decided on July 25, 2017 ..................................................................... 60 D.4.3 Performance shares that have become available since January 1st, 2017 for the Chairman and CEO – AMF Table 7 ..................................................................... 61 D.4.4 Subscription or purchase options exercised since January 1st, 2017 by the Chairman and CEO – AMF Table 5 ................................................................................... 61 D.5 Common Stock Evolution........................................................................................ 62 D.5.1 Basic data ..................................................................................................... 62 D.5.2 Dividend policy ............................................................................................... 63 D.5.3 Common stock ............................................................................................... 63 E. APPENDICES .................................................................................................... 67 E.1 Contacts ................................................................................................................. 67 E.2 Financial calendar .................................................................................................. 67 E.3 AMF cross-reference table...................................................................................... 68 E.4 Full index ............................................................................................................... 71 72/74 73/74 | Semestriel, 2017, IT, Atos | write me a financial report |
Semestriel | 2,018 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
### Response:
| Update of the 2017 Registration Document Including the 2018 half-year financial report This document is a full free translation of the original French text. In case of discrepancies, the French version shall prevail. The original Update of the 2017 Registration Document has been filed with the Autorité des Marchés Financiers (AMF) on July 27, 2018, in accordance with Article 212-13 of the AMF’s general regulations. It complements the 2017 Registration Document filed with the AMF on February 26th, 2018 under number D.18-0074. This document has been issued by the Company and commits its signatories. This update of the Registration Document 2017 is available on the AMF website (www.amf- france.org) and the one of the issuer (www.atos.net). Content A. ACTIVITY REPORT .................................................................................. 3 A.1 Atos in the first half of 2018 ......................................................................................... 3 A.2 Operational review ...................................................................................................... 7 A.3 2018 objectives ........................................................................................................ 22 A.4 Claims and litigations ................................................................................................. 23 A.5 Related parties .......................................................................................................... 24 B. FINANCIAL STATEMENTS ...................................................................... 25 B.1 Financial review ........................................................................................................ 25 B.2 Interim condensed consolidated financial statements ..................................................... 31 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1st to June 30, 2018 ...................................................................................... 53 C. PERSON RESPONSIBLE ......................................................................... 54 C.1 For the Update of the Registration Document ................................................................ 54 C.2 For the accuracy of the Update of the Registration Document ......................................... 54 C.3 For the audit ............................................................................................................. 54 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .............. 55 D.1 Office renewals and composition of the Board of Directors .............................................. 55 D.2 Annual General Meeting held on May 24, 2018 .............................................................. 55 D.3 Executive compensation and stock ownership ............................................................... 56 D.4 Common Stock Evolution ........................................................................................... 58 E. APPENDICES ......................................................................................... 65 E.1 Contacts ................................................................................................................. 65 E.2 Financial calendar .................................................................................................. 65 E.3 AMF cross-reference table ...................................................................................... 66 E.4 Full index ............................................................................................................... 69 Trusted Partner for your Digital Journey 2/71 A. Activity Report A.1 Atos in the first half of 2018 January Atos announced on January 2, the completion of the acquisition of the Siemens’ subsidiary, Convergence Creators Holding GmbH (CVC), a global multi-industry digital transformation solutions provider. Atos’ intent to acquire CVC was announced on October 2, 2017. CVC delivers software-based solutions in the fields of communication networks and enterprise cybersecurity. Atos announced in January 15, it had been named a global Leader by Everest Group in its latest report: IoT Services PEAK Matrix™ Assessment and Market Trends 2017: Have You Taken the Plunge in IoT Yet?. The report assessed the relative capabilities of 18 global IT service providers offering IoT Services. Atos’ System Integration and Operations capabilities and Worldline’s ready-to-use solutions are recognized for enabling clients to progress rapidly from PoC to production. On January 22, Atos signed a contract to deliver its latest supercomputer, the ‘BullSequana X1000’, to Forschungszentrum Jülich in Germany. The 12-petaflop machine (able to execute more than 12 million billion operations per second) will be Germany’s fastest supercomputer and one the most powerful computers in the world. On January 30, Atos signed a contract to deliver large scale IT outsourcing services to Henkel, a global leader operating worldwide in three business areas: Adhesive Technologies, Beauty Care and Laundry & Home Care. As part of the contract, Atos will be responsible for Henkel’s Datacenter infrastructure, globally hosted in two main sites in Germany and the US. The new contract enables Henkel to react to the digitization of the market and to strengthen its position. February Atos announced on February 5, that it had been positioned as a Leader by Gartner in its Magic Quadrant for Managed Workplace Services, Europe based on its ability to execute and its completeness of vision. Additionally Atos is positioned as a Leader in North America in Gartner’s Magic Quadrant for Managed Workplace Services, North America. North America is Atos’ largest geography. On February 15, Atos announced that it had signed a contract in Sweden with EuroMaint Rail AB, Europe's leading independent supplier of maintenance services for the rail transport industry, to create a modern flexible infrastructure with solutions for the digital workplace of the future. This 5 year contract will significantly reduce the company’s costs while ensuring security and compliance at all times. EuroMaint Rail has found a trusted partner in Atos to complete its digital transformation journey and face the future today. On February 21, Atos announced its Full Year 2017 results and achievement of all of its annual objectives. Revenue was € 12,691 million, +10.1% at constant exchange rates, and +2.3% organically, particularly led by the Atos Digital Transformation Factory. Operating margin was € 1,292 million, representing 10.2% of revenue, compared to 8.9% in 2016 at constant scope and exchange rates. The commercial dynamism of the Group was particularly high in 2017 with order entry reaching € 13.9 billion, up by +6.8% compared € 13.0 billion statutory in 2016. It represented a book to bill ratio of 110% in 2017, of which 123% during the fourth quarter. Full backlog increased by +6.0% year-on-year to €22.7 billion at the end of 2017, representing 1.8 year of revenue. The full qualified pipeline reached € 7.4 billion, a strong increase by +14.7% compared to € 6.5 billion published at the end of 2016. Net income was € 665 million, +14.5% compared to 2016 excluding the gain on the Worldline’s sale of the share in Visa Europe to Visa Inc. for € 51 million and net income Group share reached € 601 million, +10.7% compared to 2016 excluding Visa share. Therefore, basic EPS Group share was € 5.72, +9.3% compared to 2016 excluding Visa share and normalized EPS Group share was € 8.24, +9.3% compared to 2016. Free cash flow reached € 714 million in 2017, +25.4% compared to € 569 million in 2016, materializing the continuous improvement of operating margin conversion rate to free cash flow, reaching 55.3% in 2017, 56.5% excluding pension one-offs. Net cash position was € 307 million at the end of 2017, broadly stable compared to € 329 million at the end of 2016, reflecting the amount paid for acquisitions and Trusted Partner for your Digital Journey 3/71 dividend during the year. March On March 20, Atos signed a significant contract with insurance and asset management leader Aviva to deliver cross enterprise critical data services over a six and-a-half year period. Atos announced on March 22, having in its role as Worldwide IT Partner to the IOC, run and orchestrated the key IT systems that helped secure the success of the Olympic & Paralympics Winter Games PyeongChang 2018. This year for the first time in the history of the Olympic Games, all critical applications were hosted 100% in the Cloud. Atos ensured that the results were delivered around the world in 0.3 second. Atos and Siemens, a global engineering leader announced on March 26, the reinforcement of their strategic co-operation, with plans to accelerate their joint business until 2020 through an ambitious joint go-to-market plan and the strengthening of their joint innovation and investment program. The program had been increased by €100 million, totaling €330 million – more than three times the original sum. This will further support the Siemens and Atos IoT MindSphere-Codex strategic co-operation as well as the joint go-to-market. April On April 9, Atos delivered end-to-end services as Official Partner of the Gold Coast 2018 Commonwealth Games (GC2018). The appointment reflected Atos’ contribution towards delivering the largest sporting event in the southern hemisphere this decade as well as the successful partnership with the Gold Coast 2018 Commonwealth Games Corporation (GOLDOC). Atos announced on April 19, that it had been identified as a ‘Leader’ by global research and advisory firm NelsonHall in its latest Vendor Evaluation & Assessment Tool (NEAT) for Big Data & Analytics Services. According to the report, Atos has a comprehensive offering (including consulting and system integration services, platforms, reference architectures, and a well-developed set of industry solutions). On April 23, Atos and Siemens, a global technology powerhouse, announced their ambition to further accelerate their joint business cooperation in Digital Services and Digital technologies in particular around MindSphere, the cloud-based, open IoT (Internet of Things) operating system from Siemens. They intended to agree on a preferred partnership for the provision of Siemens MindSphere On-premise managed by Atos. On April 24, Atos entered into a global agreement with Google Cloud to bring the full capability of Machine Learning and AI to the digital transformation needs of enterprise customers. With its secure Hybrid Cloud solution, Atos data management platform will support clients in meeting their individual requirements for data localization, as well as access and control requirements that European and global regulations demand. Atos announced on April 25 the revenue of its first quarter of 2018. Q1 2018 revenue was € 2,945 million, +3.7% at constant exchange rates and up +2.0% organically. The Group pursued its strong commercial dynamism with order entry at € 2,941 million leading to a book to bill ratio of 100%. On April 30, a new strategic digital partnership had been announced which will place technology and innovation at the heart of Scotland’s water supply and waste water management. Within an ever- changing digital landscape where customer expectations are higher than ever, Scottish Water will work with Atos and Capgemini to deliver IT services which will provide technology solutions to help the utility manage its country-wide activities. The announcement of the new five-year partnership was made after a rigorous competitive tendering and procurement process. May Atos and the Commonwealth of Virginia announced on May 4, a new $120M multi-year relationship where Atos will provide advanced cybersecurity services for the Virginia Information Technology Agency (VITA). VITA, which supports the commonwealth by providing cybersecurity, IT infrastructure services and IT governance, continues to move forward with an IT modernization strategy to deliver secure, agile, high-quality services at cost-competitive rates. Atos, announced on May 15, that its subsidiary Worldline, issued a press release related to the signature of an agreement with SIX to enter into a strategic partnership where Worldline would acquire SIX Payment Services, the payment services division of SIX. Trusted Partner for your Digital Journey 4/71 Atos announced on May 25 that it has been identified as a ‘Leader’ by global research and advisory firm NelsonHall in its latest Vendor Evaluation & Assessment Tool (NEAT) for General Data Protection Regulation (GDPR) Services. Atos published on May 28 its 2017 Corporate Responsibility Report and announced that it had successfully fulfilled the requirements of the Global Reporting Initiative (GRI) Standards “Comprehensive” option in accordance with the International Integrated Reporting Council (IIRC). For the sixth consecutive year, Atos published an integrated report which includes the group’s key information: its financial results, strategy, materiality, and its CSR challenges and initiatives. June Atos had been awarded on June 7, two major outsourcing contracts by Siemens, a global engineering leader, to drive Siemens’ digital transformation program. The first contract will cover multiple activities spanning Application Management services and Technical Production Support in SAP, Microsoft and Business Intelligence for multiple divisions of Siemens, while the second contract will cover Application Management services for Siemens regions in Europe, APAC and Latin America. Both contracts, with a total value above €200 million, will run for a duration of 5 years commencing Q4 2018. Most of those contracts represent new business for Atos. On June 14, Atos announced that it had been ranked amongst the top 5 global players in Managed Security Services (MSS) in terms of 2017 market share revenue, according to the latest Gartner report. Atos announced on June 21 that its new Earth Observation (EO) Platform, officially named Mundi Web Services, is now live and being used by several clients. This platform is supported by a newly-created consortium, composed of DLR, e-Geos, EOX, GAF, Sinergise, Spacemetric, Thales Alenia Space and T- Systems, which is led by Atos, on behalf of the European Commission and ESA (European Space Agency). Mundi gives users and companies unlimited, free and complete access to real-time geo Copernicus satellite data and enables them to combine it with their own data and tools, to build new innovative products and services that integrate accurate and real-time information from satellites. Atos had signed on June 21 a significant new contract with Supercomputing Wales, the national supercomputing research facility for Wales that will result in a world-first Atos and Dell EMC supercomputing Centre of Excellence. This partnership will provide high performance computing facilities and big data research capabilities to a consortium of universities in Wales including Cardiff, Swansea, Aberystwyth and Bangor Universities. On June 21, Atos announced that the option for the payment of the dividend in share resulted in the exercise of 62.79% of the rights in favor of a payment in shares. This rate of dividend distribution in shares led to an increase by € 111.6 million in the equity of Atos SE. This transaction resulted in the issuance of 1,063,666 new shares (representing an increase by approximately 1.01% of the share capital and of the effective voting rights), which will be delivered and admitted for trading on Euronext Paris on June 22, 2018. The dividend resulting from the option for the payment in cash represented a total amount of € 67.5 million. It was paid on June 22, 2018. Atos announced on June 22 that it had been identified as a ‘Leader’ by global research and advisory firm NelsonHall in its latest Vendor Evaluation & Assessment Tool (NEAT) for Digital Banking Services. On June 25, Atos and the CEA (French Alternative Energies and Atomic Energy Commission)’s direction of defense applications (CEA/DAM) placed Tera 1000 – a supercomputer they developed together for defense and nuclear deterrence uses – among the world’s 500 most powerful machines. Reaching the 14th position, Tera 1000 thus becomes the most powerful European general-purpose supercomputer, with a computing power of 25 petaflops and a very competitive power consumption of 4 MegaWatts. Atos announced on June 26 that it has been positioned as a Leader by Gartner in both its Magic Quadrant for Data Center Outsourcing and Hybrid Infrastructure Managed Services for Europe and for North America. Atos had been selected on June 27 by the PSA Group, French car manufacturer and innovative mobility solutions provider, to support the acceleration of the digital transformation of the Group and the integration of Opel-Vauxhall. This major 7-year contract draws on Atos’ global centers of expertise and includes the resumption of PSA’s IT activities in Argentina. The overall framework will cover all the entities of the PSA Group, across all its divisions and geographies. Trusted Partner for your Digital Journey 5/71 On June 27, the Centre of Computation Research and Technology (CCRT), located at the CEA (French Alternative Energies and Atomic Energy Commission) center in Bruyères-le-Châtel, and Atos announced that they are collaborating to provide CCRT’s industrial users with one of the most powerful quantum simulators in the world. Built by Atos, the machine will allow partners such as EDF, Safran, IFPEN, and the CEA itself to evaluate the potential of quantum technologies with regard to their specific needs. July On July 22, Atos announced today its agreement with Syntel (NASDAQ:SYNT), a leading global provider of integrated information technology and knowledge process services, with respect to the acquisition by Atos of Syntel, for aggregate consideration of $3.4 billion or $41.0 per Syntel share. Syntel brings to Atos a powerful suite of digital and proprietary solutions recognized by top analysts as being among the most advanced: cloud, social media, mobile, analytics, IoT, and automation at c. 40% of Syntel’s revenue. Syntel will significantly strengthen the Group’s Business & Platform Solutions Division with best-in-class delivery platform generating among the highest margins of the industry. This transaction expands Atos’ capabilities in North America to provide end-to-end services to US customers. It also strongly reinforces its Banking, Finance & Insurance verticals. The compelling match between the two companies offers multiple opportunities for revenue synergies, expected to reach c. $250 million by the end of 2021 with c. $50 million operating margin, through cross-selling opportunities on both European and US customer base. Annual cost synergies are expected by the end of 2021 at c. $ 120 million from G&A optimization taking advantage of the combined scale as well as the alignment of KPIs in Business & Platform Solutions. This acquisition is expected to be double digit accretive to Group EPS as early as 2019 as well as with a strong double digit EPS accretion with full run rate synergies after 3 years. The transaction is planned to close by year-end. On, July 23, Atos announced its financial results for the first half of 2018. Revenue was € 6,005 million, up +3.4% at constant exchange rates restated from IFRS 15 and +1.7% organically, deriving from the demand of large organizations implementing their digital transformation. This particularly benefitted to Business & Platform Solutions, Big Data & Cybersecurity, and Worldline. The Group grew by +2.8% excluding North America which is expected to go back to growth by year-end. Operating margin was € 545 million, representing 9.1% of revenue. Order entry reached € 7,051 million in H1 2018 with a book-to-bill ratio at 117%. Free cash flow was at € 180 million at the end of June 2018. Trusted Partner for your Digital Journey 6/71 A.2 Operational review A.2.1 Statutory to constant scope and exchange rates reconciliation Revenue in H1 2018 reached € 6,005 million, +3.6% at constant exchange rates, restated from IFRS 15, and +1.7% organically. Operating margin reached € 545 million, representing 9.1% of revenue, an improvement from +20 basis point, and +30 basis point excluding H1 2017 pension one-off compared to € 523 million in H1 2017 at constant scope and exchange rates. In € millionH1 2018H1 2017 restated from IFRS 15% changeH1 2017 reportedStatutory revenue6,005 6,007 -0.0%6,311 Exchange rates effect-202 -214 Revenue at constant exchange rates6,005 5,805 +3.4%6,097 Scope effect104 104 Exchange rates effect on acquired/disposed perimeters-6 -6 Revenue at constant scope and exchange rates 6,005 5,903 +1.7% 6,195 Statutory operating margin545 538 +1.3%538 Scope effect10 10 Exchange rates effect-26 -26 Operating margin at constant scope and exchange rates545 523 +4.3%523 as % of revenue9.1%8.9%8.4% The table below presents the effects on 2017 revenue of acquisitions and disposals, internal transfers, reflecting the Group’s new organization, IFRS 15, and change in exchange rates. In € millionH1 2017 statutoryScope effectsInternal transfersIFRS 15Exchange rates effects*H1 2017 at constant scope and exchange ratesGermany1,080 4 5 -56 1,034 North America1,162 37 -13 -64 -120 1,001 UK & Ireland880 -44 -18 818 France847 7 -4 -34 -0 816 Benelux & The Nordics536 -0 -18 -2 515 Other Business Units1,049 33 8 -70 -54 967 Worldline757 23 4 -18 -13 753 TOTAL GROUP 6,311 104 -303-208 5,903 Infrastructure & Data Management3,589 6 -225 -154 3,216 Business & Platform Solutions1,608 35 -4 -51 -33 1,555 Big Data & Cybersecurity357 40 -9 -8 379 Worldline757 23 4 -18 -13 753 TOTAL GROUP6,311104-303-2085,903* At H1 2018 exchange ratesH1 2017 revenue IFRS 15 implementation as of January 1, 2018 led to restatement on H1 2017 accounts of €-303 million for revenue. Scope effects amounted to €+104 million for revenue. This was mostly related to the acquisitions of CVC, Pursuit Healthcare Advisors, Conduent’s Healthcare Provider Consulting, and Conduent’s Breakaway Group, First Data Baltics, DRWP, MRL Posnet, Imakumo, on one side, and to the disposal of Cheque Service and Paysquare Belgium on the other side. The following internal transfers occurred as of January 1, 2018: (i) Diamis activities from Business & Platform Solutions in France to Worldline, (ii) activities from Other Business Units to Germany, and (iii) activities in Israel which were consolidated in North America as part of Xerox ITO acquisition to Other Business Units. Trusted Partner for your Digital Journey 7/71 From H1 2017 statutory, currency exchange rates negatively contributed to revenue for a total of €-208 million, mainly coming from the American dollar and to a lesser extent from the British pound and South American currencies depreciating versus the Euro. The impacts described above are reflected in the operating margin at constant scope and exchange rates. In particular, scope effect amounted to € +10 million. These effects are detailed below: In € millionH1 2017 statutoryScope effectsInternal transfersIFRS 15Exchange rates effects*H1 2017 at constant scope and exchange ratesGermany70 1 1 72 North America124 3 -7 -13 108 UK & Ireland83 -2 81 France59 -0 -1 0 58 Benelux & The Nordics46 -0 46 Other Business Units89 -0 5 -7 87 Global structures**-46 -0 -47 Worldline114 6 1 -3 117 TOTAL GROUP 538 10 0 -26 523 Infrastructure & Data Management329 -0 -18 312 Business & Platform Solutions98 5 -1 -3 99 Big Data & Cybersecurity43 0 -2 42 Corporate costs-46 0 -46 Worldline114 6 1 -3 117 TOTAL GROUP53810-26523* At H1 2018 exchange ratesH1 2017 operating margin** Global structures include the IT Services Divisions global costs not allocated to the Business Units and Corporate costs. Worldline holds its own corporate costs A.2.2 Performance by Division Revenue in H1 2018 was € 6,005 million, up +1.7% organically, thanks to a strong performance recorded in Big Data & Cybersecurity, Wordline, and Business & Platform Solutions. The decrease of Infrastructure & Data Management (IDM) was due to the slowdown of North America. Indeed IDM excluding North America grew. Operating margin was € 545 million, representing 9.1% of revenue, an improvement by +20 basis points and +30 basis point excluding H1 2017 pension one-off mainly fueled by the good performance in Business & Platform Solutions (+100 basis points), Big Data & Cybersecurity (+110 basis points) and Worldline (+70 basis points). Operating profitability of Infrastructure & Data Management decreased to 8.9%, as a result of North America revenue slowdown and to a lesser extent Germany during the first half of the year. In € millionH1 2018H1 2017*Organic evolutionH1 2018H1 2017*H1 2018H1 2017*Infrastructure & Data Management 3,163 3,216 -1.7% 282 312 8.9%9.7%Business & Platform Solutions 1,617 1,555 +4.0% 119 99 7.4%6.4%Big Data & Cybersecurity 429 379 +13.1% 52 42 12.1%11.0%Corporate costs - - - -37 -46 -0.7%-0.9%Worldline 797 753 +5.9% 129 117 16.2%15.5%Total6,0055,903+1.7%545523 9.1%8.9%* At constant scope and exchange rates, and restated for IFRS 15 RevenueOperating marginOperating margin % Trusted Partner for your Digital Journey 8/71 A.2.2.1 Infrastructure & Data Management En millions d'eurosH1 2018H1 2017*Organic evolutionRevenue 3,163 3,216 -1.7%Operating margin 282 312 Operating margin rate8.9%9.7%* At constant scope and exchange rates, and restated for IFRS 15 2018 first half revenue in Infrastructure & Data Management was € 3,163 million, down -1.7% at constant scope and exchange rates. In line with the transformation of the business model of the Division, revenue significantly grew in Hybrid Cloud Orchestration, in Digital Workplace and in projects inTechnology Transformation Services. The Division continued the digital transformation of its main clients through automation and robotization, supporting growth in several geographies, notably in France, the United Kingdom, Iberia, Asia Pacific, and Midlle-East & Africa. Growth materialized in Financial Services, fueled mainly by the ramp-up of the significant contract signed end of last year with Aviva coupled with increased volumes and projects with National Savings & Investments in the United Kingdom, and with a large bank in Hong Kong as well as new business opportunities in North America. The Public & Health sector benefitted from increasing cloud migration activities for public institutions in Benelux, higher volumes with the Texas Department of Information Resources in North America, and Digital Workplace in several geographies. Manufacturing, Retail & Transportation was impacted by the finalization of digitalization and transformation projects for some large customers, such as Rheinmetall in Germany and the end of several contracts in North America. On the opposite, France recorded a high performance thanks to the ramp up of new Hybrid Cloud contracts such as Safran. The situation in Telco, Media & Utilities remained challenging, impacted by scope reductions with BBC in the United Kingdom, reinsourced contract with Microsoft in North America as well as lower volumes with Disney, and finally the base effect due to Transformation projects with Telefonica last year in Germany. Revenue was down -1.7% organically during the second quarter 2018. Infrastructure & Data Management revenue profile by geographies Operating margin in Infrastructure & Data Management was € 282 million in the first half of 2018, representing 8.9% of revenue, down by -80 basis points compared to last year. Results improved in France, the United Kingdom and Other Business Units. Nevertheless, IDM margin was impacted by lower revenue in North America, and to a lesser extent in Germany. In North America, more than two thirds of the revenue decline was compensated by strong actions on the cost base. Trusted Partner for your Digital Journey 9/71 A.2.2.2 Business & Platform Solutions En millions d'eurosH1 2018H1 2017*Organic evolutionRevenue 1,617 1,555 +4.0%Operating margin 119 99 Operating margin rate7.4%6.4%* At constant scope and exchange rates, and restated for IFRS 15 Business & Platform Solutions revenue during the first half of 2018 reached € 1,617 million, +4.0% at constant scope and exchange rates. The Division pursued the solid trend recorded since the beginning of the year in most of the geographies, fueled by an increasing demand for digital projects, mainly related to SAP HANA, Codex and Hybrid Cloud solutions. The sales dynamic was visible in most of the markets. Growth was primarily fueled by Manufacturing, Retail & Transportation which recorded a good performance in most of the geographies. This was more particularly the case in Germany, notably thanks to the development of SAP HANA activities mainly within the automotive sector, and in the United Kingdom, which benefitted from several SAP engagements and a new Hybrid Cloud program with International Airlines Group. Public & Health posted a good perfomance in Germany, combined with the ramp-up of contracts in France and new business in healthcare in North America. This largely offset the base effect from the Asian Games contract successfully delivered last year within Middle East & Africa. Telcos, Media & Utilities business was more challenging in Germany and in Benelux & The Nordics due to lower volumes with large telco operators. Financial Services was growing, particularly in France thanks to increasing activities with large accounts in the banking sector and higher volumes in Iberia. Revenue growth reached +3.1% organically in Q2 2018. Business & Platform Solutions revenue profile by geographies Benelux & The Nordics Germany France Other countries 27%19%12%10%32% United Kingdom & Ireland Operating margin was € 119 million, representing 7.4% of revenue. The strong improvement of +100 basis points was mainly led by Germany, the United Kingdom, North America, and France. This was primarily attributable to the good revenue performance combined with continued costs savings effects in most geographies, notably through the industrialization of global delivery, and a more efficient workforce management. Thanks to a better business mix in revenue coming from Codex, SAP HANA and more generally from digital offerings, Business & Platform Solutions continued its positive trend of margin improvement. Trusted Partner for your Digital Journey 10/71 A.2.2.3 Big Data & Cybersecurity En millions d'eurosH1 2018H1 2017*Organic evolutionRevenue 429 379 +13.1%Operating margin 52 42 Operating margin rate12.1%11.0%* At constant scope and exchange rates, and restated for IFRS 15 Revenue in Big Data & Cybersecurity was € 429 million, showing a high organic growth of +13.1% with a strong performance recorded primarily in North America and Germany. In particular, growth was primarily driven by very dynamic Cybersecurity activities in the large geographies, mainly led by the United Kingdom thanks to International Airlines Group, and also in Germany, Benelux & The Nordics and North America. Mission Critical Systems sales posted a solid growth as well, benefitting from the integration of CVC, mainly in Space & Avionics activities in Central & Eastern Europe. Big Data sector remained strong over the period, led by increasing sales of Bullions mainly in North America and in France. High Performance Computing recorded a strong growth in Germany driven by significant activities with research institutes, and new opportunities were generated in several geographies such as in France with PSA, as well as in Benelux & The Nordics and North America for the main ones. The activity faced a base effect in France and in the United Kingdom due to several significant sales last year. In Q2 2018, Big Data & Cybersecurity Division recorded a revenue organic growth at +12.0%. Big Data & Cybersecurity revenue profile by geographies France United Kingdom & Ireland North America Other countries Germany 38%14%13%6%29% Operating margin was € 52 million, representing 12.1% of revenue and a strong improvement of +110 basis points compared to last year on a like for like basis. The Division continued to record significant growth while investing in innovative solutions and products as well as extending its international footprint. It also benefitted from the start of the integration of CVC activities. Trusted Partner for your Digital Journey 11/71 A.2.2.4 Worldline A detailed review of Worldline half-year 2018 results can be found at worldline.com, in the investors section. En millions d'eurosH1 2018H1 2017*Organic evolutionRevenue 797 753 +5.9%Operating margin 129 117 Operating margin rate16.2%15.5%* At constant scope and exchange rates, and restated for IFRS 15 Worldline contributive revenue was € 797 million, improving by +5.9% organically. Merchant Services, grew by +4.3% organically and reached € 286 million. Growth in Merchant Payment Services was primarily fueled by Commercial Acquiring services, thanks notably to a strong revenue growth in Continental Europe, triggered by higher volumes on international card transactions in Belgium, as well as positive price and volume effects in Czech Republic, Germany, Poland and the Netherlands; and a solid double digit growth in India. This strong acceleration of Commercial Acquiring services was nonetheless partly offset by the temporary slowdown of Payment Terminal Services. Merchant Digital Services grew as well, thanks mainly to Digital Retail project revenue in the United Kingdom. Financial Processing reached € 370 million, up +7.2% organically. Acquiring Processing grew thanks to high project activity as well as to strong growth in authorization volumes, notably in France, Italy and Germany; Account payments benefitted from increasing SEPA payment transaction volumes, strong increase in the number of transactions on the Dutch iDeal scheme, from a high project activity in Instant Payments and SWIFT payments. Software licensing revenue was fueled by the newly signed large outsourcing contract. Issuing Processing benefitted from the continuous increase in e-Payment, Authentication services and e-Wallet transactions. Finally the growth in Digital Banking was led by new projects in France in e-Brokerage and in digital banking platforms. Mobility & e-Transactional Services revenue was € 141 million, up +5.4% organically. Trusted Digitization grew double digit, benefiting from a strong momentum with French government agencies such as French SAMU and the Ministry of Justice. In addition, business was strong in Latin America, both in healthcare transactional services and in tax collection services. Growth in e-Consumer & Mobility was fueled notably by Connected Living activities in Germany and in Iberia. In Q2 2018, Worldline recorded revenue organic growth at +5.9%. Trusted Partner for your Digital Journey 12/71 Worldline revenue profile by geographies Other countries Belgium Germany The Netherlands France 23%22%13%12%6%24% The United Kingdom Operating margin was € 129 million or 16.2% of revenue, improving by +70 basis points compared to the first semester of 2017 led by the strong performance of Financial Processing, mainly driven by a the strong revenue growth, coupled with the continuous effect cost synergies generated on equensWorldline. Merchant Services operating margin also improved, thanks to transactions volumes growth and productivity earnings in Commercial Acquiring. Finally, Mobility & e-Transactional Services operating margin was impacted by the base effect of one-off pension adjustment (€ 7 million) recorded last year, by some contracts terminated in e-ticketing in the United Kingdom, as well as the one-off related to the settlement of commercial litigation. The business Unit launched strong actions in order to improve productivity in the delivery of projects. Trusted Partner for your Digital Journey 13/71 A.2.3 Performance by Business Units In € millionH1 2018H1 2017*Organic evolutionH1 2018H1 2017*H1 2018H1 2017*Germany 1,057 1,034 +2.2% 68 72 6.4%7.0%North America 967 1,001 -3.4% 89 108 9.3%10.8%France 841 816 +3.1% 61 58 7.3%7.1%United Kingdom & Ireland 826 818 +0.9% 89 81 10.7%9.9%Benelux & The Nordics 510 515 -0.9% 39 46 7.7%9.0%Other Business Units 1,008 967 +4.2% 111 87 11.0%9.0%Global structures** - - - -41 -47 -0.8%-0.9%Worldline797753+5.9%12911716.2%15.5%Total6,0055,903+1.7%545523 9.1%8.9%* At constant scope and exchange rates, and restated for IFRS 15 ** Global structures include the IT Services Divisions global costs not allocated to the Business Units and Corporate costs. Worldline holds its own corporate costsOperating marginRevenueOperating margin % A.2.3.1 Germany In € millionH1 2018H1 2017*Organic evolutionRevenue 1,057 1,034 +2.2%Operating margin 68 72 Operating margin rate6.4%7.0%* At constant scope and exchange rates, and restated for IFRS 15 During the first half of 2018, the Business Unit achieved an organic growth of +2.2% compared to the same period last year at constant scope and exchange rates, leading to € 1,057 million revenue, with an increasing performance of +4.3% posted in the second quarter. Significant growth was achieved thanks to new contracts within Business & Platform Solutions and Big Data & Cybersecurity, which more than compensated for lower performance in Infrastructure & Data Management. In Infrastructure & Data Management, revenue decline was mostly due to large Transition & Transformation projects delivered last year to customers such as Rheinmetall or Telefonica. The Division benefitted from the ramp up of several new contracts notably in the Manufacturing sector such as Henkel, as well as increasing channel activities within Unify. In addition, the Division continued the development of its digital activities and achieved new wins in Digital Workplace. Business & Platform Solutions reached a strong growth pursuing its solid trend mainly fueled by Manufacturing, Retail & Transportation and Public sectors. The Division continued to generate new digital opportunities with a dynamic SAP HANA activity, notably thanks to projects delivered in the automotive sector such as with Volkswagen, as well as a new win achieved with ThyssenKrupp. The performance of Telecom, Media & Utilities was affected by volume reduction with some customers. Big Data & Cybersecurity pursued its strong momentum over the semester with a healthy organic growth, thanks to the acceleration of the demand for High Performance Computing and Cybersecurity activities in all markets. In particular, the activity within Public sector remained high thanks to significant sales achieved with Research Institutes. Operating margin reached € 68 million or 6.4% of revenue, below last year by -60 bps at constant scope and exchange rates. Profitability grew significantly in Business & Platform Solutions driven by the strong revenue growth and continued workforce optimization, while within Infrastructure & Data Management the performance was affected by the revenue decline despite strong actions on costs optimization. Trusted Partner for your Digital Journey 14/71 A.2.3.2 North America In € millionH1 2018H1 2017*Organic evolutionRevenue 967 1,001 -3.4%Operating margin 89 108 Operating margin rate9.3%10.8%* At constant scope and exchange rates, and restated for IFRS 15 Revenue reached € 967 million, decreasing by € -34 million or -3.4% organically. The Business Unit achieved significant growth in Business & Platform Solutions and Big Data & Cybersecurity activities, confirming the progressive diversification trend of its portfolio as per previous quarters, but this could not compensate the disappointing performance in Infrastructure & Data Management. In Manufacturing Retail & Transportation as well as in Telco, Media & Utilities, revenue in Infrastructure & Data Management was overall affected by reinsourcing of activities at some customers, such as Microsoft as well as reduced scope with some others further to contracts renewals such as Disney. On the other side the Division performed a sustained activity in Public & Health, and pursued its digital strategy thanks to increased hybrid cloud solutions delivered. Business & Platform Services closed the semester with a strong increase largely attributable to Public & Health, which benefitted from new logos won by healthcare companies integrated by the Group last year. Revenue in Big Data & Cybersecurity achieved a very strong growth, mainly within Public & Health as well as Manufacturing, Retail & Transportation sectors. The performance was largely driven by a very solid activity in Big Data, mainly thanks to increased Bullion sales, as well as cybersecurity products. Operating margin reached € 89 million, representing 9.3% of revenue, decreasing by -160 basis points compared to last year maintaining a high level of profitability despite revenue erosion, thanks to tight cost base adjustment and Business & Platform Solutions productivity improvement. A.2.3.3 France In € millionH1 2018H1 2017*Organic evolutionRevenue 841 816 +3.1%Operating margin 61 58 Operating margin rate7.3%7.1%* At constant scope and exchange rates, and restated for IFRS 15 At € 841 million, revenue was improving by +3.1% organically, confirming the positive trend recorded last year, fueled by Infrastructure & Data Management and Business & Platform Solutions activities. Infrastructure & Data Management achieved a healthy performance organically. The strong growth came primarily from Manufacturing, Retail and Transportation, thanks to the Safran contract ramp-up on Orchestrated Hybrid Cloud. Financial Services showed a good performance, notably supported by the ramp up of contracts in the Insurance sector, while Telecom, Media & Utilities was slightly down. Despite the additional demand in Technology Transformation Services activities with the Ministry of Finance notably for hybrid cloud activities, coupled with the ramp-up of the new contract with the CEA (Commission for Atomic Energy and Alternative Energies), Public & Health was affected by the end of the transformation project with Naval Group. Business & Platform Solutions posted a solid organic growth, mainly driven by the increasing business in Codex and Orchestrated Hybrid Cloud projects with large companies notably in the banking sector. Growth was coming from Public & Health, mainly due to Technology Services activities with the impact from new contracts through UGAP (national procurement department) and with local public bodies (Collectivités Territoriales), as well as Financial Services, largely driven by the deal extension with Crédit Agricole. Manufacturing, Retail & Transportation showed a sustained activity as well, thanks to the contracts ramp-up with PSA and Sanofi. The performance in Telcos remained stable. Trusted Partner for your Digital Journey 15/71 In Big Data & Cybersecurity, all markets except Public & Health improved compared to last year thanks to new contracts signed such as PSA High Performance Computer, combined with renewals or extensions with EDF and CNAF, as well as significant growth in Managed Security Services. Public & Health sector benefited last year from the full ramp-up of large HPC contracts such as CEA and GENCI which were not repeated this year. Operating margin reached € 61 million, representing 7.3% of revenue, up +20 basis points, notably due to a good performance in Business & Platform Solutions and Infrastructure & Data Management. The improvement within Business & Platform Solutions was driven by a strong monitoring of productivity, while Infrastructure & Data Management benefitted from a favorable business mix as well as an efficient workforce management. Big Data & Cybersecurity profitability remained stable. A.2.3.4 United Kingdom & Ireland In € millionH1 2018H1 2017*Organic evolutionRevenue 826 818 +0.9%Operating margin 89 81 Operating margin rate10.7%9.9%* At constant scope and exchange rates, and restated for IFRS 15 Revenue was € 826 million, up +0.9% at constant scope and exchange rates, with main contribution from Infrastructure & Data Management and Business & Platform Solutions activities, thanks to continued efforts to renew the entity portfolio which more than compensated for the partial scope reinsourcing of BBC following the contract renewal achieved in 2017. Infrastructure & Data Management remained slightly positive over the semester thanks to a strong performance achieved within Financial Services, where the growth came from the ramp up of the new contract signed end of last year with Aviva, coupled with increased volumes and projects with National Savings & Investments. This more than compensated for lower volumes from customers in Manufacturing, Retail & Transportation as well as Telecom, Media & Utilities, notably driven by contractual scope reductions with BBC, which were also partly mitigated by the ramp up of new contracts won since the end of last year, such as Northern Ireland Electric and International Airlines Group. Within Public & Health, the ramp down of some contracts and base effect from transitions successfully achieved last year such as Ministry of Justice were offset by the contribution of significant new contracts won end of last year with University College London Hospitals and Department of Energy and Climate Change (DECC). Business & Platform Solutions achieved a solid organic growth over the semester with improvement shown in all markets and in particular in Manufacturing, Retail & Transportation. The Division benefitted from increased demand for digital projects notably related to SAP HANA and Orchestrated Hybrid Cloud solutions. The decrease in Big Data & Cybersecurity was largely attributable to Public & Health market with a significant reduction in HPC activities following successful sales and deliveries achieved last year. This was partly compensated by increasing cybersecurity sales notably within the Manufacturing, Retail & Transportation sector such as International Airlines Group. Operating margin was € 89 million and represented 9.9% of the revenue, an improvement of +80 basis points compared to last year at constant scope and exchange rate. The profitability increased in all Divisions, driven by improved revenue mix combined with increased operational efficiency through continued tight project management and strong actions to optimize the cost base. Trusted Partner for your Digital Journey 16/71 A.2.3.5 Benelux & The Nordics In € millionH1 2018H1 2017*Organic evolutionRevenue 510 515 -0.9%Operating margin 39 46 Operating margin rate7.7%9.0%* At constant scope and exchange rates, and restated for IFRS 15 At € 510 million, revenue was down by -0.9% organically. Infrastructure & Data Management was roughly stable. Public & Health sector grew thanks to higher volumes achieved with Dutch Public Institutions as well as new business notably with Dutch University Hospitals and contracts ramping up with the European Union in Belgium. The situation remained more challenging in the other sectors, either affected by volume reductions with existing customers in Telco and Financial Services, or contracts not renewed in Manufacturing, Retail & Transportation. Business & Platform Solutions decreased organically mainly in Systems Integration, which represents almost half of the Division, while Technology and Consulting Services were improving compared to last year. Telco, Media & Utilities declined mainly in the Netherlands in particular due to the ramp down of contracts such as KPN and lower volumes in Belgium. Public & Health posted a slight growth thanks to the ramp-up with the Dutch Ministry of Foreign Affairs. Financial Services grew thanks to an increasing demand for Cloud projects. Big Data & Cybersecurity pursued its development and recorded a strong organic growth, driven by various sales in Manufacturing, Retail & Transportation and Financial Services sectors, from High Performance Computing and Cybersecurity activities. Operating margin reached € 39 million, representing 7.7%. Business & Platform Solutions profitability was affected by revenue decrease. Infrastructure & Data Management managed to remain at a good level of profitability above Group average. Big Data & Cybersecurity is still in a process of investing in business development and presales activity to further accelerate top line growth. A.2.3.6 Other Business Units In € millionH1 2018H1 2017*Organic evolutionRevenue 1,008 967 +4.2%Operating margin 111 87 Operating margin rate11.0%9.0%* At constant scope and exchange rates, and restated for IFRS 15 Revenue in “Other Business Units” reached € 1,008 million, up +4.2% organically, fueled by strong activity in all Divisions and especially in Infrastructure & Data Management and Big Data & Cybersecurity. Infrastructure & Data Management expanded in Telecom, Media & Utilities thanks to new contracts in Italy and business opportunities in Iberia and in India, as well as increased volumes with international telecommunications provider in Middle East & Africa. Growth in Public Sector mainly came from additional business in Iberia and from a project ramp-up with the Western Australian Government, while Financial Services benefitted from higher volumes with a large bank in Hong-Kong, and from an increased activity in Austria and in Morocco. This compensated for the volume reductions in Manufacturing in Central Europe. Business & Platform Solutions continued to grow in almost all markets. In particular, Telecom, Media & Utilities benefitted from increased volumes and fertilization, notably with Italian accounts and from a contract ramp-up with an Indian oil company. Financial Services were also dynamic, driven by new contracts in the banking sector in Italy, Iberia and North Africa, whereas Manufacturing, Retail & Transportation grew mainly in South America and Middle East & Africa thanks to new projects. This was more than compensated for the end of the last phase of the Asian Games contract last year. Trusted Partner for your Digital Journey 17/71 Big Data & Cybersecurity posted a strong growth, fueled by new projects in Asia Pacific and Iberia, coupled with higher project activity in Central Europe, compensating for comparison basis in Africa where significant HPC sales were achieved last year. Operating margin was € 110 million, representing 10.9% of revenue, improving by +200 basis points compared to the first half of 2017 at constant scope and exchange rates. Margin benefitted mainly from the contribution of the significant growth achieved, successful start of the CVC integration, as well as from tight monitoring of costs across all countries. Productivity improvement in Global Delivery Centers (reported in Other Business Units) also supported the operating margin improvement. A.2.3.7 Global structures Global structures costs decreased by € 6 million compared to the first half of 2017, reflecting the continued efforts on internal costs optimization in most functions as well as on third party costs. Trusted Partner for your Digital Journey 18/71 A.2.4 Revenue by Market In € millionH1 2018H1 2017*Organic evolutionManufacturing, Retail & Transportation 2,177 2,208 -1.4%Public & Health 1,696 1,645 +3.1%Financial Services 1,187 1,092 +8.7%Telcos, Media & Utilities 946 959 -1.3%Total6,0055,903+1.7%* At constant scope and exchange rates, and restated for IFRS 15 A.2.4.1 Manufacturing, Retail & Transportation Manufacturing, Retail & Transportation was the largest market segment of the Group (36%) and reached € 2,177 million in the first semester of 2018, decreasing by -1.4 % compared to the first semester of 2017 at constant scope and exchange rates. Revenue decrease was mainly coming from North America partly compensated by a strong increase in France. In particular, strong performance was recorded within Big Date & Cybersecurity and Business & Platform Solutions Divisions. In this market, the top 10 clients (excluding Siemens) represented 17% of revenue with Conduent, Airbus, Johnson & Johnson, Philips, Rheinmetall, Daimler, Renault Nissan, Volkswagen, Xerox, and International Airlines Group. A.2.4.2 Public & Health Public & Health was the second largest market of the Group (28%) with total revenue of € 1,696 million, representing an increase of +3.1% compared to the first semester of 2017 at constant scope and exchange rates. Growth mainly came from North America and Germany, with strong performance from IDM and B&PS divisions. 36% of the revenue in this market was realized with 10 main clients: Department for Work & Pensions (DWP), European Union Institutions, Ministry of Justice (UK), Texas Department of Information Resources (US), Allscripts (US), McLaren Health Care Corporation (US), Nuclear Decommissioning Authority (UK), Bundesagentur für Arbeit (Germany), SNCF (France), and Collectivités Territoriales (France). A.2.4.3 Financial Services Financial Services was the third Market of the Group and represented 20% of the total revenue at € 1,187 million, representing an increase by +8.7% compared to the first semester of 2017 at constant scope and exchange rates. Strong performance was posted in the UK, in particular within IDM, thanks notably to Aviva and National Savings & Investments contracts and in Worldline. In this market, 44% of the revenue was generated with the 10 main clients: National Savings & Investments, Deutsche Bank, a large bank in Hong-Kong, S&P Global, ICBPI SpA Group, BNP Paribas, ING, Crédit Agricole, Société Générale, and La Poste. A.2.4.4 Telcos, Media & Utilities Telcos, Media & Utilities represented 16% of the Group revenue and reached € 946 million, representing a decrease of -1.3% compared to the first semester of 2017 at constant scope and exchange rates. Revenue decrease was mainly coming from the partial or total reinsourcing of large contracts such as BBC in the UK and Microsoft in the US. Strong performance was recorded within BDS division. Main clients were EDF, Orange, Telefonica/O2, Nokia, BBC, Deutsche Telekom, The Walt Disney Company, Enel, TIM, and Engie. The top 10 main clients represented 50% of the total Telcos, Media & Utilities Market revenue. Trusted Partner for your Digital Journey 19/71 A.2.5 Portfolio A.2.5.1 Order entry and book to bill During the first semester of 2018, the Group order entry reached € 7,051 million, representing a book to bill ratio of 117%, and notably 134% in the second quarter. Order entry and book to bill by Division was as follows: In € millionQ1 2018Q2 2018H1 2018Q1 2018Q2 2018H1 2018Infrastructure & Data Management 1,509 2,388 3,897 97%149%123%Business & Platform Solutions 749 951 1,700 94%116%105%Big Data & Cybersecurity 294 252 546 147%110%127%Worldline 389 520 908 101%126%114%Total2,9414,1117,051100%134%117%Order entryBook to bill Book to Bill ratio was particularly high for Infrastructure & Data Management and Big Data & Cybersecurity with respectively 123% and 127%. Business & Platform Solutions recorded a healthy 105% with a solid Q2 at 116%. Finally Worldline reported 114% with a strong acceleration in Q2. New contracts in Q2 benefitted to Infrastructure & Data Management thanks to a strong commercial dynamism in particular in North America with the signature of contracts in Orchestrated Hybrid Cloud and Digital Workplace in Financial Services or for Industry 4.0. Still in Infrastructure & Data Management, the United Kingdom signed a large contract in the Public Sector in Robotic Process Automation (RPA). Germany signed large new contracts such as with Siemens or in aerospace industry, where revenue will be generated in most of the Divisions. Worldline signed a major partnership contract with Commerzbank in Q2. Renewals in Q2 included large contracts such as in Public Sector in the United Kingdom, and in Oil and Gas industry in both Benelux & The Nordics and North America. North America recorded a strong Book to Bill in Q2 at 190%, which should materialize in a better revenue trend during the second half of the year. Order entry and book to bill by Market were as follows: In € millionQ1 2018Q2 2018H1 2018Q1 2018Q2 2018H1 2018Manufacturing, Retail & Transportation 830 1,452 2,281 78%130%105%Public & Health 777 987 1,763 93%115%104%Telcos, Media & Utilities 499 587 1,086 108%121%115%Financial Services 835 1,086 1,921 143%180%162%Total2,9414,1117,051100%134%117%Order entryBook to bill By market, H1 Book to Bill was very strong in Financial Services with large signatures in North America, Worldline, the United Kingdom & Ireland, and Asia Pacific. A.2.5.2 Full backlog In line with the dynamic commercial activity, the full backlog at the end of June 2018 amounted to € 23.2 billion compared to € 22.2 billion at the end of December 2017, representing 1.9 year of revenue. A.2.5.3 Full qualified pipeline The full qualified pipeline was € 7.7 billion, compared to € 7.3 billion at the end of December 2017 and representing 7.8 months of revenue. Trusted Partner for your Digital Journey 20/71 A.2.6 Human Resources The total headcount of the Group was 96,103 at the end of June 2018 slightly reduced compared to 97,267 at the end of December 2017. The scope impact was related to the acquisition of CVC impacting mainly in Central and Eastern Europe, and to a lesser extent Germany and North America. Excluding scope effect, the staff decreased by -2% accompanying and anticipating the effect from automation and robotization mainly in Infrastructure & Data Management and in Business & Platform Solutions. During the first semester of 2018, the Group hired 5,721 staff (of which 93% direct employees), compared to 6,959 in H1 2017. The hirings have been mainly achieved in “Other Business Units” (totaling 56% of direct hirings), notably in offshore/low cost countries such as India, Poland, Romania and Philippines. Hirings have also been performed in Worldline and in Big Data & Cybersecurity to sustain existing and future growth. Attrition rate was 12.3% at Group level, of which 18.5% in offshore countries. Headcount evolution in H1 2018 by Business Unit and by Division was as follows: End ofDecember 2017ScopeHiringLeavers, dismissals& restructuringEnd ofJune 2018Infrastructure & Data Management45,678 0 2,362 -3,653 44,387 Business & Platform Solutions31,279 0 1,924 -2,970 30,233 Big Data & Cybersecurity4,221 639 318 -245 4,933 Functions130 0 18 -5 143 Worldline8,682 0 699 -318 9,063 Total Direct 89,989 639 5,321 -7,191 88,758 Germany8,497 53 87 -217 8,420 North America8,600 19 636 -1,170 8,085 France11,267 0 394 -764 10,897 United Kingdom & Ireland8,350 0 375 -826 7,899 Benelux & The Nordics5,688 0 148 -432 5,404 Other Business Units38,409 567 2,948 -3,455 38,469 Global structures496 0 34 -9 521 Worldline8,682 0 699 -318 9,063 Total Direct 89,989 639 5,321 -7,191 88,758 Total Indirect 7,277 161 400 -493 7,345 TOTAL GROUP97,2678005,721-7,68496,103 Trusted Partner for your Digital Journey 21/71 A.3 2018 objectives In 2018, taking into account the effect of IFRS 15, the Group targets ambitious objectives for its 3 key financial criteria in line with its 2019 Ambition: Revenue organic growth: +2% to +3%; Operating margin: 10.5% to 11% of revenue; Free cash flow: circa 60% of operating margin. Trusted Partner for your Digital Journey 22/71 A.4 Claims and litigations The Atos Group is a global business operating in some 73 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2018 several significant claims made against the Group were successfully resolved in terms favorable to the Group. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2018 to cover for the identified claims and litigations, added up to € 43.4 million (including tax claims but excluding labor claims). A.4.1 Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Some of the tax claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a Stamp Duty re-imbursement. Following a judgement HSBC reached by the European Justice Court, Atos UK commenced proceedings in 2009 to recover a stamp duty paid in 2000 of an amount over € 10.0 million. The Stamp Duty aspect of the claim was won in 2012. Regarding the time limit rule a favorable judgement was released in April 2017. Atos UK is now waiting for the outcome of the HMRC’s request for appeal in the test case. The total provision for tax claims, as inscribed in the consolidated accounts closed as at June 30, 2018 was € 21.7 million. A.4.2 Commercial claims There are a small number of commercial claims across the Group. The commercial claims are managed by the Group Legal Department. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions. During the first half of 2018, the Group and Siemens signed two settlements agreements covering the Unify cases on one hand and the Siemens IT Solutions et Services cases on the other. Further to the signature of these agreements, the Group is confident that it has obtained a satisfactory coverage for the residual risks associated with the acquisition of Unify. The Group is facing a very small number of IP cases of a highly speculative nature in which the claims are heavily inflated and without merit. Trusted Partner for your Digital Journey 23/71 The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at June 30, 2018, amounts to € 21.7 million. A.4.3 Labor claims There are more than 100,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims but such claims are often of low value or inflated and typical for companies operating in this region. The Group is a respondent in a few labor claims of higher value in France and Brazil, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding € 300.0 million have been provisioned for an overall amount of € 9.7 million as inscribed in the consolidated financial statements as at June 30, 2018. A.4.4 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/dispositions. A.4.5 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. A.5 Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). Significant related-party transactions are described in the Note 28 – Related party transactions on page 209 of the Atos 2017 registration document filed with the Autorité des Marchés Financiers (AMF) on February 26th, 2018. During the First Half of 2018, no other significant related-party transactions have been identified. Trusted Partner for your Digital Journey 24/71 B. Financial statements B.1 Financial review All 2017 figures are restated from IFRS 15 and IFRS 9. B.1.1 Income statement The Group reported a net income (attributable to owners of the parent) of € 228 million for the half year ended June 30, 2018, representing 3.8% of Group revenue of the period and an improvement of +7.7% compared to the first half of 2017. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 356 million, representing 5.9% of Group revenue of the period. 6 months ended 30 June 2018%6 months ended 30 June 2017 restated%Operating margin 5459.1%5389.0%Other operating income/(expenses)-203-211Operating income3425.7%3275.5%Net financial income/(expenses)-21-32Tax charge -59-56Non-controlling interests and associates-35-28Netincome–Attributabletoownersof the parent2283.8%2113.5%Normalizednetincome–Attributabletoownersoftheparent(*)3565.9%3445.7%(*) The normalized net income is defined hereafter B.1.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. Trusted Partner for your Digital Journey 25/71 B.1.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 203 million in the first half of 2018. The following table presents this amount by nature: (In € million)6 months ended 30 June 20186 months ended 30 June 2017Staff reorganization-39-40Rationalization and associated costs-15-23Integration and acquisition costs-29-20Amortization of intangible assets (PPA from acquisitions) -57-62Equity based compensation-39-45Other items-24-22Total-203-211 The € 39 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries such as Germany, France, the United Kingdom, and the Netherlands. A significant staff reorganization was implemented in North America, however with more limited costs compared to other countries. The € 15 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in France, Germany and North America for similar amounts. Integration and acquisition costs mainly relate to the migration and standardization of internal IT platforms from acquired companies. The € 29 million in the first half of 2018 came from the current integration of equensWorldline, the integration of several acquisitions performed in 2017 including CVC, and the acquisition costs of the ongoing operation with SIX Payment Services within Worldline. The 2018 amortization of intangible assets recognized in the Purchase Price Allocation (PPA) of € 57 million was mainly composed of: € 11 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 9 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 9 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 5 million of Equens and Paysquare customer relationships amortized over 6.5 to 9.5 years starting October 1, 2016. The equity based compensation expense amounted to € 39 million compared to € 45 million in the first half of 2017 and in line with the € 41 million recorded in the second half of 2017. The € 24 million expenses in other items corresponded mainly to expenses related to semi retirement schemes in Germany and France. Trusted Partner for your Digital Journey 26/71 B.1.1.3 Net financial expense Net financial expense amounted to € 21 million for the period (compared to € 32 million for the first semester of 2017) and was composed of a net cost of financial debt of € 9 million and non-operational financial costs of € 12 million. Net cost of financial debt amounted to € 9 million compared to € 13 million due to higher interest income on deposit and the use of commercial papers at better conditions compared to syndicated loan. Non-operational financial costs decreased to € 12 million compared to € 20 million in the first half of 2017, mainly coming from a net foreign exchange gain and from the recognition of the reevaluation of the Visa preferred share through P&L for € 3.3 million. B.1.1.4 Corporate tax The tax charge for the six-month period ended June 30, 2018 was € 59 million with a profit before tax of € 321 million. The annualized Effective Tax Rate (ETR) was 18.3% compared to 18.9% for the first half of 2017. B.1.1.5 Non-controlling interests Non-controlling interests included shareholdings held by joint venture partners and other associates of the Group. Non-controlling interests amounted to € 35 million in June 2018 (compared to € 28 million in June 2017). The increase was mostly related to the non-controlling interests in Worldline, including the joint venture partners in equensWorldline. B.1.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was up at € 356 million, representing 5.9% of Group revenue for the period. 6 months ended 30 June 20186 months ended 30 June 2017Net income - Attributable to owners of the parent228211Other operating income and expenses net of tax-129-133Normalized net income - Attributable to owners of the parent 356344 Trusted Partner for your Digital Journey 27/71 B.1.1.7 Half year Earning Per Share (In € million and shares)6 months ended 30 June 2018% Margin6 months ended 30 June 2017 restated% MarginNetincome–Attributabletoownersofthe parent [a]2283.8%2113.5%Impact of dilutive instruments --Netincomerestatedofdilutiveinstruments-Attributabletoownersofthe parent [b]2283.8%2113.5%Normalizednetincome–Attributabletoowners of the parent [c]3565.9%3445.7%Impact of dilutive instruments --Normalizednetincomerestatedofdilutiveinstruments-Attributabletoowners of the parent [d]3565.9%3445.7%Average number of shares [e] 105,344,848 104,919,748 Impact of dilutive instruments 125,413 425,763 Diluted average number of shares [f] 105,470,261 105,345,511 (In €)Basic EPS [a] / [e]2.162.01Diluted EPS [b] / [f]2.162.00Normalized basic EPS [c] / [e]3.383.28Normalized diluted EPS [d] / [f]3.383.27 Potential dilutive instruments comprised vested stock options (equivalent to 125,413 options) and did not generate a restatement of net income used for the diluted EPS calculation. Trusted Partner for your Digital Journey 28/71 B.1.2 Cash Flow and net cash The Group reported a net cash position of € 351 million at the end of June 2018 and a free cash flow generation of € 180 million in the first half of 2018. (in € million)6 months ended 30 June 20186 months ended 30 June 2017Operating Margin before Depreciation and Amortization (OMDA)721712Capital expenditures-223-235Change in working capital requirement-140-37Cash from operation (CFO)358439Tax paid-57-64Net cost of financial debt paid-9-13Reorganization in other operating income -54-68Rationalization & associated costs in other operating income -5-14Integration and acquisition costs-26-19Other changes (*)-28-20Free Cash Flow (FCF)180242Net (acquisitions) / disposals-24-12Capital increase / (decrease)1331Share buy-back-50-8Dividends paid-70-168Change in net cash/(debt)4986Opening net cash/(debt)307430Unify S&P opening net debt--101Change in net cash/(debt)4986Foreign exchange rate fluctuation on net cash/(debt) -5-72Closing net cash/(debt)351342(*)"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationandacquisitioncosts)andotherfinancialitemswithcashimpact, net long term financial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt Starting January 1, 2018, dividends paid to non-controlling interests are not anymore a Free Cash Flow item but reported in line ‘Dividends paid’. The 2017 full year impact was € 1.8 million. Free cash flow represented by the change in net cash or net debt, excluding equity changes (notably cash received from the exercise of stock options), dividends paid, impact of foreign exchange rate fluctuation on opening net cash balance, and net acquisitions and disposals, reached € 180 million compared to € 242 million in the first semester 2017. Cash From Operations (CFO) amounted to € 358 million compared to €439 million in the first half of 2017, the evolution coming from the following items: OMDA (€ +9 million); Capital expenditures (€+12 million); Change in working capital (€-103 million). Trusted Partner for your Digital Journey 29/71 OMDA of € 721 million, representing an increase of €+9 million compared to June 2017, reached 12.0% of revenue compared to 11.9% of revenue in June 2017. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended 30 June 20186 months ended 30 June 2017Operating margin545538 + Depreciation of fixed assets221237 + Net book value of assets sold/written off178+/- Net charge/(release) of pension provisions-45-27+/- Net charge/(release) of provisions-18-44OMDA721712 Capital expenditures totaled € 223 million, representing 3.7% of revenue, compared to € 235 million in the first semester of 2017 (3.9% of revenue). The negative contribution from change in working capital was €-140 million (compared to €-37 million in the first half of 2017). The DSO has increased by 7 days (from 39 days at the end of December 2017 to 46 days at the end of June 2018), while the DPO has increased by 3 days (from 98 days at the end of December 2017 to 101 days at the end of June 2018) (for the post IFRS15 calculation of the DSO and DPO please refer to respectively Notes 11 and 17). The DSO has been positively impacted by the implementation of financial arrangements on large customer contracts by 23 days in June 2018 and 23 days in December 2017. Cash out related to taxes paid remained low at € 57 million mainly thanks to the use of losses carried forward. The € 9 million cost of net debt decreased by € 4 million compared to the first half of 2017 including the following elements: An average expense rate of 1.36% on the average gross borrowings compared to 1.66% in 2017 and; An average income rate of 0.98% on the average gross cash compared to 0.65% in 2017. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 85 million in line with the full year objective of 1% of Group revenue (excluding material acquisitions). A larger portion of reorganization costs was pulled forward into H1 in order to optimize the impact on the full year operating margin. Other changes amounted to €-28 million and increased by € 8 million due to several 2017 settlements. As a result of the increase of the working capital requirement, the Group free cash flow (FCF) generated € 180 million during the first half of 2018, compared to € 242 million in the first half of 2017. Capital increase totaled € 13 million in the first half of 2018 compared to € 31 million in the first semester of 2017. This is mainly explained by the Group shareholding program SPRINT for employees occurred only in the first half of 2017 for € 20 million and the increase of the number of stock options exercised in the first half of 2018 compared to the first half of 2017. Share buy back reached € 50 million during the first half 2018 compared to € 8 million in the first half 2017. These share buy backs are related to managers’ performance shares delivery and aim at avoiding dilution effect for the shareholders. In the first half of 2018, dividends paid mostly related to dividend paid to owners of the parent which amounted to € 68 million (€ 1.70 per share) compared to € 168 million in the first half of 2017 (€ 1.60 per share) when all the dividend was paid in cash. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net cash of €-5 million. As a reminder, the net cash in the first half of 2017 was significantly impacted by the exchange rate of the US Dollar against Euro. Trusted Partner for your Digital Journey 30/71 B.2 Interim condensed consolidated financial statements B.2.1 Interim condensed consolidated income statement (in € million)Notes6 months ended 30 June 20186 months ended 30 June 2017 restatedRevenue Note 26,0056,007Personnel expensesNote 3-2,773-2,918Operating expensesNote 4-2,687-2,551Operating margin545538% of revenue9.1%9.0%Other operating income and expensesNote 5-203-211Operating income342327% of revenue5.7%5.5%Net cost of financial debt-9-13Other financial expenses-31-39Other financial income1919Net financial incomeNote 6-21-32Net income before tax321295Tax chargeNote 7-59-56Net income262239Of which:- attributable to owners of the parent228211- non-controlling interests3528 (In € million and shares)Notes6 months ended 30 June 20186 months ended 30 June 2017Net income - Attributable to owners of the parentNote 8228211Weighted average number of shares 105,344,848104,919,748Basic earnings per share2.162.01Diluted weighted average number of shares 105,470,261105,345,511Diluted earnings per share2.162.00 Trusted Partner for your Digital Journey 31/71 B.2.2 Interim condensed consolidated statement of comprehensive income (in € million)6 months ended 30 June 20186 months ended 30 June 2017 restatedNet income 262239Other comprehensive income-4-134Cash flow hedging 5-2Change in fair value of available for sale financial assets-1Exchange differences on translation of foreign operations-7-134Deferredtaxonitemsrecyclablerecognizeddirectlyonequity-2259397447Deferredtaxonitemsnon-recyclablerecognizeddirectlyin equity-16-8Total other comprehensive income55-95Total comprehensive income for the period317145Of which:- attributable to owners of the parent284117- non-controlling interests3428Actuarial gains and losses generated in the period on defined benefit plan - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable): Trusted Partner for your Digital Journey 32/71 B.2.3 Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2018December 31, 2017ASSETSGoodwillNote 94,4004,384Intangible assets1,3221,310Tangible assets658693Non-current financial assetsNote 10242281Deferred tax assets400381Total non-current assets7,0217,049Trade accounts and notes receivableNote 112,8312,660Current taxes3333Other current assetsNote 121,4841,475Current financial instruments158Cash and cash equivalentsNote 131,9672,260Total current assets6,3306,436TOTAL ASSETS13,35113,484(in € million)NotesJune 30, 2018December 31, 2017LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock107105Additional paid-in capital2,8622,740Consolidated retained earnings1,9691,498Translation adjustments-287-282Net income attributable to the owners of the parent228601Equity attributable to the owners of the parent4,8794,662Non-controlling interests600564Total shareholders’ equity5,4795,226Provisions for pensions and similar benefitsNote 141,2601,350Non-current provisionsNote 15118113Borrowings1,0381,241Deferred tax liabilities140119Other non-current liabilities35Total non-current liabilities2,5582,828Trade accounts and notes payablesNote 172,2192,060Current taxes113100Current provisionsNote 15141173Current financial instruments67Current portion of borrowings577712Other current liabilities2,2572,378Total current liabilities5,3145,431TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY13,35113,484 Trusted Partner for your Digital Journey 33/71 B.2.4 Interim condensed consolidated cash flow statement (in € million)Notes6 months ended 30 June 20186 months ended 30 June 2017Profit before tax321295Depreciation of assetsNote 4221237Net charge / (release) to operating provisions-62-71Net charge / (release) to financial provisions1414Net charge / (release) to other operating provisions3-20Amortization of intangible assets (PPA from acquisitions) 5762Losses / (gains) on disposals of fixed assets04Net charge for equity-based compensation3945Unrealized losses / (gains) on changes in fair value and other-71Net cost of financial debtNote 6913Cash from operating activities before change in working capital requirement, financial interest and taxes594579Tax paid-57-64Change in working capital requirement-140-37Net cash from / (used in) operating activities397478Payment for tangible and intangible assets-223-235Proceeds from disposals of tangible and intangible assets135Net operating investments-210-230Amounts paid for acquisitions and long-term investments -17-13Cash and cash equivalents of companies purchased during the period-90Proceeds from disposals of financial investments212Cash and cash equivalents of companies sold during the period00Net long-term investments-24-1Net cash from / (used in) investing activities -234-232Common stock issues on the exercise of equity-based compensation1311Capital increase subscribed by non-controlling interests-20Purchase and sale of treasury stock-50-8Dividends paid-70-168New borrowingsNote 1654113New finance leaseNote 1645Repayment of long and medium-term borrowingsNote 16-365-129Net cost of financial debt paid-9-13Other flows related to financing activities-161Net cash from / (used in) financing activities-423-109Increase / (decrease) in net cash and cash equivalents-259137Opening net cash and cash equivalents2,1821,992Unify S&P opening cash and cash equivalent -92Increase / (decrease) in net cash and cash equivalentsNote 16-259137Impact of exchange rate fluctuations on cash and cash equivalents-4-76Closing net cash and cash equivalentsNote 181,9181,961 Trusted Partner for your Digital Journey 34/71 B.2.5 Interim consolidated statement of changes in shareholders’ equity Number of shares at period-end(thousands)At January, 2017104,9081052,713950-29-15794,3165194,835▪ Common stock issued 46012525631▪ Appropriation of prior period net income579-579▪ Dividends paid to shareholders and to non-controlling interests-168-168-3-170▪ Equity-based compensation3232132▪ Changes in auto-control shares and treasury stock-8-8-8▪ Change in scope WL1212-12▪ Other-220-2-2Transactions with owners46012543314-579-106-11-117▪ Net income 21121128239▪ Other Comprehensive income38-1330-940-95Total comprehensive income for the period38-133021111728145At June 30, 2017105,3681052,7381,421-162132114,3265374,863▪ Common stock issued 762258▪ Dividends paid11▪ Equity-based compensation3333134▪ Changes in treasury stock-51-51-51▪ Acquisition of Non controlling interest without a change in control1818-29-11▪ Change in scope WL-12-1212▪ Other2-2022Transactions with owners7621-14-11-7-18▪ Net income 38938936426▪ Other comprehensive income74-1203-43-2-45Total comprehensive income for the period74-120338934635381At December 31, 2017105,4441052,7401,496-28226014,6625645,226▪ IFRS9 hedging impact-66At December 31, 2017 restated105,4441052,7401,490-28286014,6625645,226▪ Common stock issued 1,44021221247131▪ Appropriation of prior period net income601-601▪ Dividends paid-179-179-2-182▪ Equity-based compensation3636238▪ Changes in treasury stock-50-50-50▪ Transactions with owners55-5▪ Other-1-1-1Transactions with owners1,4402122411-601-662-65▪ Net income 22822835262▪ Other comprehensive income58-4256-155Total comprehensive income for the period58-4222828434317At June 30, 2018106,8841072,8621,958-287112284,8796005,479 (in € million)Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholders' equityItems recognized directly in equityNet income TotalNon controlling interests Trusted Partner for your Digital Journey 35/71 B.2.6 Appendices to the interim condensed consolidated financial statements B.2.6.1 Basis of preparation and significant accounting policies The 2018 interim consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1, 2018. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). These interim consolidated financial statements for the six months period ended June 30, 2018, have been prepared in accordance with IAS 34 - Interim Financial Reporting and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended December 31, 2017. They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. Changes in accounting policies Except regarding new standards effective for the periods beginning as of January 1, 2018, such as IFRS 15 and IFRS 9 described below, the accounting policies applied in these interim consolidated financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended December 31, 2017. IFRS 15 IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group has adopted IFRS 15 using the full retrospective method. Accordingly, the information presented for 2017 has been restated. Principal versus agent The Group has performed an analysis of the nature of its relationship with its customers to determine if it is acting as principal or as an agent in the delivery of its contracts when the Group is reselling hardware, software or IT services. Under IAS 18, the Group used to apply a risks and rewards analysis to determine whether it was acting as principal or as an agent in a transaction. Under IFRS 15, the Group is considered as acting as principal if it controls goods and services before delivering them to the client. Identification of the performance obligations in the multiple arrangements services contracts Contracts delivered by Infrastructure & Data Management and Business & Platform Solutions Divisions often embed transition and transformation phases prior to delivery of recurring services. The new standard clarifies the treatment of such activities performed before delivering recurring services. Under IFRS 15, when such transition and transformation phases represent standalone added value to the customer resulting in a transfer of control, then revenue relating to those phases can be recognized. When this is not the case, costs incurred on those phases have to be capitalized when criteria required are met and amortized over the life of the contracts. The cash collected for such phases would have to be considered as advance payment. Under IAS 18, Atos Group used to recognize revenue on some transition phases when the Group had right to be paid for the work performed to date. Under IFRS 15, all transition phases are now capitalized as contract assets and amortized over the life of the contract. This restatement is not material at group level. Financial impacts at Group level 2017 revenue under IFRS 15 decreases by € 695 million of which € 303 million as of June 30, 2017 compared to the revenue recognized in accordance with IAS 18. The cumulative effect in equity as of January 1, 2017 is nil. Trusted Partner for your Digital Journey 36/71 IFRS 9 IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. Classification of Financial assets IFRS 9 defines a new classification and measurement approach for financial assets. There are three principal classification categories for financial assets: measured at amortized cost, Fair Value through OCI (FVOCI), Fair Value through Profit & Loss. Those new classification requirements have no material impact on the Group’s accounting for trade receivables, contract assets, loans and cash and cash equivalent. Impairment of financial assets and contract assets IFRS 9 introduces a new forward-looking “expected loss” impairment model that replaces the existing “incurred loss” impairment model. For trade and other receivables including contract assets, the Group assessed the actual credit losses experienced over the past several years and estimated that the application of IFRS 9’s impairment requirement at January 1, 2018 results in no material impact over the impairment recognized under IAS 39. The cash and cash equivalents are held with bank and financial institution counterparties, majority of which are rated from A- to AA-. The Group used not to depreciate such assets. The estimated impairment on cash and cash equivalent was calculated based on the S&P default probability and is not material. Hedge accounting While initially applying IFRS 9, the Group has to choose as its accounting policy to continue to apply the hedge accounting requirement of IAS 39 instead of the requirements in IFRS 9. The Group has elected to apply the new requirements of IFRS 9. The Group uses forward foreign exchange contracts to hedge the variability in cash flows arising from changes in foreign exchanges rates relating to foreign currency sales and purchases. The Group designates only the change in fair value of the spot element of the forward exchange contract as the hedging instrument in cash flow hedging relationship. Under IAS 39, the change in fair value of the forward element of the forward exchange contracts is recognized immediately in profit and loss. On adoption of IFRS 9 requirements, the Group has elected to separately account for the forward points as a cost of hedging. Consequently, the changes in forward points will be recognized in OCI and accumulated in a cost of hedging reserve as a separate component within equity and accounted for subsequently as gain and losses accumulated in the cash flow hedge reserve. The impact on reserves and retained earnings at January, 1 2018 as result of the application of IFRS 9 hedge accounting requirements is a decrease in reserves and retained earnings and an increase in OCI by € 6.3 million. IFRS 16 The standard is effective for annual periods beginning on or after January 1, 2019. IFRS 16 replaces existing leases guidance IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. There are recognition exemptions for short-term leases and leases of low-value items. IFRS 16 introduces a single on-balance sheet lease accounting model for lessees. Atos Group, as a lessee, will have to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The Group has completed an initial assessment of potential impact on its consolidated financial statements but has not yet completed its detailed assessment. So far, the most significant impact identified is that the Group will recognize assets and liabilities for its operating leases of Real Estate, IT equipment’s and cars used by employees. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge of right-of-use assets and interest expense on lease liabilities. Trusted Partner for your Digital Journey 37/71 Other standards The Group has not early adopted any standard or interpretation not required to be applied in fiscal year 2018. The Group does not apply IFRS standards and interpretations that have not been yet approved by the European Union at the closing date. These interim consolidated financial statements are presented in euro, which is the Group’s functional currency. All figures are presented in € million. Trusted Partner for your Digital Journey 38/71 B.2.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual consolidated financial statements, the following significant accounting principles are relevant for the interim consolidated financial statements: Impairment of assets Goodwill and assets that are subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying amount could not be recoverable. If necessary, an impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable value. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Pensions and similar benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant impacts on both the obligations and plan assets and limited to the Group’s most significant pension plans. For less significant plans actuarial projections are used. Corporate income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax expense is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full- year earnings projections. Revenue recognition policies Multiple arrangements services contracts The Group may enter into multiple-element arrangements, which may include combinations of different goods or services. Revenue is recognized for each distinct good or service which is separately identifiable from other items in the arrangement and if the customer can benefit from it. Contracts delivered by Infrastructure & Data Management and Business & Platform Solutions Divisions often embed transition and transformation prior to the delivery of recurring services, such as IT support and maintenance. When transition or transformation activities represent knowledge transfer to set up the recurring service and provide no incremental benefit to the customer (set up activities), no revenue is recognized in connection with these activities. The costs incurred during these activities are capitalized as contract assets if they create a resource that will be used in satisfying future performance obligations related to the contract and if they are recoverable. They are amortized on a systematic basis over the contractual period, taking into account any anticipated contract. The cash collected for such activities is considered as advance payment and recognized as revenue over the recurring service period. In contrast, when these activities transfer to the customer the control of a distinct good or service and the customer could benefit from this good or service independently from the recurring services, they are accounted for separately and revenues relating to these activities are recognized. When a single contract contains multiple distinct goods or services, the consideration is allocated between the goods and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the list prices at which the Group sells the goods or services separately. Otherwise, the Group estimates stand- alone selling prices using a cost plus margin approach. Principal versus agent When the Group resells hardware, software and IT services purchased from third-party suppliers, it performs an analysis of the nature of its relationship with its customers to determine if it is acting as principal or as agent in Trusted Partner for your Digital Journey 39/71 the delivery of the good or service. The Group is a principal if it controls the specified good or service before it is transferred to the customer. In such case, revenue is recognized on a gross basis. If the Group is an agent, revenue is recognized on a net basis (net of suppliers costs), corresponding to any fee or commission to which the Group is entitled. When the Group is providing a significant service of integrating the specified good or service, it is acting as a principal in the process of resale. If the specified good or service is distinct from the other services promised to its customer, the Group is acting as a principal notably if it is primarily responsible for the good or service meeting the customer specifications or assumes inventory or delivery risks. For Worldline activities, Revenue generated by acquiring activities is recognized net of interchange fees charged by issuing banks. The Group does not provide, a significant service of integrating the service performed by the issuing bank and is not responsible for the execution of this service. These fees are transferred to the merchant in a pass- through arrangement and are not part of the consideration to which the Group is entitled in exchange for the service it provides to the merchant. In contrast, scheme fees paid to the payment schemes (Visa, Mastercard, Bancontact…) are accounted for in expenses as fulfilment costs and recognized as revenue when invoiced to merchants. The Group provides commercial acquiring services by integrating the services purchased from the payment schemes. At a point in time versus over time recognition Revenue is recognized when the Group transfers the control of a good or service to the customer, either at a point in time or over time. For recurring services, the revenue is recognized over time as the customer simultaneously receives and consumes the benefit provided by the Group’s performance as the Group performs. If the Group has a right to invoice a customer at an amount that corresponds directly with its performance to date, the revenue is recognized at that amount. Otherwise, revenue is recognized based on the costs incurred if the entity’s efforts are not expensed evenly throughout the period covered by the service. When the Group builds an asset or provides specific developments, revenue is recognized over time, generally based on costs incurred, when the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced or when the performance does not create an asset with an alternative use and the Group has an enforceable right to payment for the performance completed to date. Otherwise, revenue is recognized at a point in time. Upfront Payments Upfront payments to clients made at the inception of a contract are recorded in “Contract asset” and spread as a reduction of revenue over the length of the contract. Upfront payments received from clients at the inception of a contract are recorded in “Contract liability” and spread as an increase in revenue over the term of the contract. Costs to acquire a contract Incremental costs to acquire a contract are capitalized and amortized over the life of the contract. Balance sheet presentation Contract assets primarily relate to the Group’s rights to consideration for work completed but not yet billed at the reporting date. Contract assets also include upfront payments to clients made at the inception of a contract. Contract liabilities relate to upfront payments received from customers. Trusted Partner for your Digital Journey 40/71 B.2.6.3 Significant event of the semester SIX Payment Services During the first half of 2018, Worldline announced they have signed an agreement to enter into a strategic partnership where Worldline would acquire SIX Payment Services, the payment services division of SIX. The transaction will be mostly paid in Worldline shares with a cash component of CHF 0.34 billion valuing SIX Payment Services at an enterprise value of CHF 2.75 billion. The transaction is expected to close during the fourth quarter of 2018, after the finalization of the carve out of SIX Payment Services from SIX Group and a Worldline Extraordinary General Meeting that will approve the issuance of new Worldline shares in exchange for the contribution of SIX Payment Services to Worldline. The transaction is also subject to work councils’ information and European companies work council consultation processes in Worldline and Atos European companies work council, as well as customary antitrust and regulatory approvals. B.2.6.4 Notes to the half-year condensed consolidated financial statements Note 1 Changes in the scope of consolidation During the first half of 2018, the Group did not close any material acquisition. Other acquisitions Convergence Creators Holding Gmbh (CVC) In December 2017, Atos acquired CVC, a global multi-industry digital transformation solutions provider. This entity is fully consolidated from January 1, 2018. The consideration amounted to € 45 million generating a preliminary goodwill of € 25 million. The valuation of assets acquired and liabilities assumed at their fair value has resulted in the recognition of new intangible assets (customer relationships and technology, valued by an independent expert) for a total amount of € 35 million. Airlynx Atos acquired Air-Lynx, a French manufacturer of next-generation professional radio networks based on 4G LTE market standards. Air-Lynx is fully consolidated from April 1, 2018. Trusted Partner for your Digital Journey 41/71 Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and Chairman of the Board of Directors who makes strategic decisions. Operating segments in 2017BridgeOperating segments in 2018North AmericaIsrael ITO Xerox activitiesOther business Units The Global delivery centers have been isolated in Other Business Units. Following the above mentioned changes, the Group segment organization in 2018 was the following: Operating segmentsActivitiesUnited Kingdom & IrelandBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataand Security in Ireland and the United Kingdom.FranceBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataand Security in France and Morocco offshore delivery Center.GermanyBusiness&PlatformSolutions,Infrastructure&DataManagementinGermanyand Big Data and Security.North AmericaBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinCanada,Mexico,theUnitedStatesofAmericaandtheITOXerox activities.Benelux & The Nordics Business&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinBelarus,Belgium,Denmark,Estonia,Finland,Lithuania,Luxembourg, Poland, Russia, Sweden and The Netherlands.Other Business Units Business&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinAlgeria,Andorra,Argentina,Australia,Austria,BosniaandHerzegovina,Brazil,Bulgaria,Chile,China,Colombia,SouthKorea,Croatia,Cyprus,CzechRepublic,Egypt,Gabon,Greece,Hungary,Hong-Kong,India,IsraelITOXeroxactivities,Italy,IvoryCoast,Japan,Lebanon,Malaysia,Madagascar,Mauritius,Morocco,Namibia,New-Zealand,Peru,Philippines,Portugal,Qatar,Romania,Saudi-Arabia,Senegal,Singapore,Serbia,Slovakia,Slovenia,South-Africa,Spain,Switzerland,Taiwan,Thailand,Tunisia,Turkey,UAE, Uruguay and also Major Events activities, Global Delivery CentersWorldlineHi-TechTransactionalServices&SpecializedBusinessesinArgentina,Austria,Belgium,Brazil,Chile,China,CzechRepublic,Finland&Baltics,France,Germany,Hong-Kong,Iberia,India,Indonesia,Italy,Malaysia,Poland,Singapore,Sweden,Taiwan, The Netherlands, the United Kingdom and the United States of America. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group’s revenue. Trusted Partner for your Digital Journey 42/71 The operating segment information for the periods is as follows: (in € million)United Kingdom and IrelandFranceGermanyNorth AmericaBenelux & The NordicsOther Business UnitsWorldlineTotal Operating segmentsGlobal StructuresEliminationTotal Group 6 months ended 30 June 2018 External revenue by segment 826 841 1,057 967 510 1,008 797 6,005 0 - 6,005 % of Group revenue13.7%14.0%17.6%16.1%8.5%16.8%13.3%100.0%100.0%Inter-segment revenue 107 184 198 178 143 894 22 1,727 140 - 1,866 Total revenue 932 1,026 1,254 1,145 654 1,902 819 7,732 140 - 1,866 6,005 Segment operating margin 89 61 68 89 39 111 129 586 - 41 - 545 % of margin10.7%7.4%8.2%10.8%4.7%13.4%15.7%71.0%66.1%Total segment assets 1,134 1,701 1,733 1,480 795 1,657 2,122 10,622 330 10,952 6 months ended 30 June 2017 restated External revenue by segment 836 813 1,024 1,098 517 980 739 6,007 6,007 %13.9%13.5%17.0%18.3%8.6%16.3%12.3%100.0%100.0%Inter-segment revenue 94 136 203 207 113 751 21 1,525 56 - 1,581 Total revenue 930 949 1,227 1,304 630 1,731 761 7,533 56 - 1,581 6,007 Segment operating margin 83 59 70 124 46 89 114 585 - 46 538 %9.9%7.2%6.8%11.3%8.9%9.1%15.4%9.7%9.0%Total segment assets 913 1,668 1,442 1,173 648 1,657 1,895 9,396 1,043 10,438 Trusted Partner for your Digital Journey 43/71 The total assets by segment for the periods is as follows: (in € million)June 30, 2018June 30, 2017Total segment assets10,952 10,438 Tax Assets433 675 Cash & Cash Equivalents1,967 2,016 Total Assets13,351 13,129 Note 3 Personnel expenses (In € million)6 months ended 30 June 2018% Revenue6 months ended 30 June 2017 restated% RevenueWages and salaries -2,20736.8%-2,32638.7%Social security charges-5929.9%-60310.0%Tax, training, profit-sharing-200.3%-180.3%Net (charge)/release to provisions for staff expenses10.0%20.0%Net (charge)/release of pension provisions45-0.7%27-0.4%Total-2,773 46.2%-2,918 48.6% Note 4 Operating expenses (In € million)6 months ended 30 June 2018% Revenue6 months ended 30 June 2017 restated% RevenueSubcontracting costs direct-1,018 17.0%-931 15.5%Hardware and software purchase-455 7.6%-397 6.6%Maintenance costs-320 5.3%-304 5.1%Rent & Lease expenses-292 4.9%-295 4.9%Telecom costs-172 2.9%-154 2.6%Travelling expenses-66 1.1%-85 1.4%Company cars-28 0.5%-29 0.5%Professional fees -110 1.8%-119 2.0%Taxes & Similar expenses-9 0.1%-13 0.2%Others expenses-74 1.2%-67 1.1%Subtotal expenses -2,544 42.4%-2,394 39.8%Depreciation of assets-221 3.7%-237 3.9%Net (charge)/release to provisions17 -0.3%42 -0.7%Gains/(Losses) on disposal of assets-7 0.1%-4 0.1%Trade Receivables write-off-8 0.1%-21 0.3%Capitalized Production76 -1.3%61 -1.0%Subtotal other expenses-142 2.4%-157 2.6%Total-2,687 44.7%-2,551 42.5% Trusted Partner for your Digital Journey 44/71 Note 5 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 203 million in the first half of 2018. The following table presents this amount by nature: (In € million)6 months ended 30 June 20186 months ended 30 June 2017Staff reorganization-39-40Rationalization and associated costs-15-23Integration and acquisition costs-29-20Amortization of intangible assets (PPA from acquisitions) -57-62Equity based compensation-39-45Other items-24-22Total-203-211 The € 39 million staff reorganization expense was mainly the consequence of the adaptation of the Group workforce in several countries such as Germany, France, the United Kingdom, and the Netherlands. Significant staff reorganization was implemented in North America, however with more limited costs compared to other countries. The € 15 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in France, Germany and North America for similar amounts. Integration and acquisition costs mainly relate to the migration and standardization of internal IT platforms from acquired companies. The € 29 million in the first half of 2018 came from the current integration of equensWorldline, the integration of several acquisitions performed in 2017 including CVC, and the acquisition costs of the ongoing operation with SIX Payment Services within Worldline. The 2018 amortization of intangible assets recognized in the Purchase Price Allocation (PPA) of € 57 million was mainly composed of: € 11 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 9 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 9 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 5 million of Equens and Paysquare customer relationships amortized over 6.5 to 9.5 years starting October 1, 2016. The equity based compensation expense amounted to € 39 million compared to € 45 million in the first half of 2017 and in line with the € 41 million recorded in the second half of 2017. The € 24 million expenses in other items corresponded mainly to expenses related to semi retirement schemes in Germany and France. Trusted Partner for your Digital Journey 45/71 Equity-based compensation The € 39 million expense recorded within other operating income relating to equity-based compensation (€ 45.1 million in 2017) is made up of: (In € million)6 months ended 30 June 20186 months ended 30 June 2017By years:Plans 2017191Plans 20161812Plans 2015316Plans 2014011Plans 2013-5Plan 2012-0Total3945By category of plans:Free Share plans 3937Stock options08Employee share purchase plans--Total3945 Free shares plans The total expense within the heading “other operating income and expense” relating to free share plans during the year was the following: (In € million)6 months ended 30 June 20186 months ended 30 June 2017AtosPlans 201716-Plan 20161510Plan 2015315Plan 201422Plan 2013-2BullPlan 2014-24Plan 2013-1WorldlinePlans 201731Plan 201632Plan 2013-0Total3937 Trusted Partner for your Digital Journey 46/71 Subsidiaries stock options plans Grant dateNumber of options initially grantedAcquisitionDate Number ofoptionsvested 2018 expense for 6 months ended 30 June 2018(in € million)Bull14 March 2014200,00014 March 2018200,0000.01 July 20142,030,0001 July 20181,402,500-0.4Worldline25 May 2016196,00025 May 2018179,0000.116 August 201645,00025 May 201845,0000.1Total-0.2 Beneficiaries of Bull stock options can either convert their shares into Atos shares or obtain cash payment indexed on Atos share through a liquidity contract upon exercise of their options. Note 6 Net financial result Net financial expense amounted to € 21 million for the period (compared to € 32 million for the first semester of 2017) and was composed of a net cost of financial debt of € 9 million and non-operational financial costs of € 12 million. Net cost of financial debt (In € million)6 months ended 30 June 20186 months ended 30 June 2017Net interest expenses-9-12Interest on obligations under finance leases0-1Net cost of financial debt-9-13 The € 9 million cost of net debt decreased by € 4 million compared to the first half of 2017 including the following elements: An average expense rate of 1.36% on the average gross borrowings compared to 1.66% in June 2017 and; An average income rate of 0.98% on the average gross cash compared to 0.65% in June 2017. Other financial income and expenses (In € million)6 months ended 30 June 20186 months ended 30 June 2017Foreign exchange income/(expenses) 8-3Fair value gain/(loss) on forward exchange contracts held for trading-1-2Other income/(expenses) -19-15Other financial income and expenses-12-20Of which:- other financial expenses-31-39- other financial income1919 Non-operational financial costs decreased to € 12 million compared to € 20 million in the first half of 2017, mainly coming from a net foreign exchange gain and from the recognition of the reevaluation of the Visa preferred share through P&L for € 3.3 million. Trusted Partner for your Digital Journey 47/71 Note 7 Income tax expenses The tax charge for the six-month period ended June 30, 2018 was € 59 million with a profit before tax of € 321 million. The annualized Effective Tax Rate (ETR) was 18.3% compared to 18.9% for the first half of 2017. Note 8 Earnings per share Potential dilutive instruments comprised vested stock options (equivalent to 125,413 options) and did not generate a restatement of net income used for the diluted EPS calculation. (In € million and shares)6 months ended 30 June 20186 months ended 30 June 2017Net income – Attributable to owners of the parent [a]228 211 Impact of dilutive instruments --Net income restated of dilutive instruments - Attributable to owners of the parent [b]228 211 Average number of shares outstanding [c] 105,344,848 104,919,748 Impact of dilutive instruments [d] 125,413 425,763 Diluted average number of shares [e]=[c]+[d] 105,470,261 105,345,511 (In €) Basic EPS [a] / [c]2.16 2.01 Diluted EPS [b] / [e]2.162.00 Note 9 Goodwill (In € million)December 31, 2017Impact of business combi-nationExchange differences and otherJune 30, 2018Gross value4,9561254,974Impairment loss-572--2-574Carrying amount 4,384 12 3 4,400 CVC (acquisition consolidated as of January 1, 2018) preliminary goodwill amounted to € 25 million, while part of Pursuit (2017 acquisition) preliminary goodwill has been allocated to intangible assets for € 18 million. During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event. Note 10 Non-current financial assets (In € million)June 30, 2018December 31, 2017Pension prepaymentsNote 14124114Fair value of non-consolidated investments net of impairment3173Other (*)8794Total242281(*) "Other" includes loans, deposits, guarantees and investments in associates accounted for under the equity method Trusted Partner for your Digital Journey 48/71 Note 11 Trade accounts and notes receivable (In € million)June 30, 2018December 31, 2017 restatedContract assets1,724 1,336 Trade receivables1,229 1,446 Provision for doubtful debt-122 -122 Net asset value2,831 2,660 Contract liabilities-749 -689 Net accounts receivable 2,083 1,971 Number of days’ sales outstanding (DSO)46 39 Further to IFRS 15 implementation, the calculation of the DSO takes into account the resale transactions receivables on which related revenue is recognized on a net basis since IFRS 15 implementation (net of suppliers costs) while it does not take into account the gross revenue related to these transaction. The impact from this restatement at the end of 2017 amounts to 4 days. As a result, the post IFRS 15 DSO is structurally higher than the underlying customer payment terms. Atos securitization program of trade receivables has been renewed for 5 years on May 29, 2018. The maximum amount of financing has been reduced from € 200 million to € 100 million and limited to € 50 million of the Compartment “OFF”. The program is structured with two compartments, called ON and OFF: Compartment “ON” is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level; Compartment “OFF” is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution. As of June 30, 2018, the Group has sold: In the compartment “ON” € 85 million receivables for which € 10 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet; In the compartment “OFF” € 36 million receivables which qualified for de-recognition as substantially all risks and rewards associated with the receivables were transferred. Note 12 Other current assets (In € million)June 30, 2018December 31, 2017Inventories129 95 State - VAT receivables252 195 Prepaid expenses476 366 Other receivables & current assets454 467 Advance payment37 35 Assets linked to intermediation activities137 317 Total1,484 1,475 Trusted Partner for your Digital Journey 49/71 Note 13 Cash and cash equivalents (In € million)June 30, 2018December 31, 2017Cash in hand and short-term bank deposit1,959 2,252 Money market funds 8 8 Total1,967 2,260 Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. Note 14 Pensions and similar benefits The net total amount recognized in the balance sheet in respect of pension plans is € 1,075 million compared to € 1,179 million at December 31, 2017. Discount and long- term inflation rates have slightly increased since December 31, 2017, for the Eurozone and the United Kingdom. The discount rate has however significantly increased over the same period in the USA reflecting the market movement. June 30, 2018December 31, 2017June 30, 2018December 31, 2017June 30, 2018December 31, 2017Discount rate2.80%2.70%1.60% ~ 2.05%1.50% ~ 1.95%3.90%3.50%RPI: 3.10%RPI: 3.20%CPI: 2.10%CPI: 2.20%USAnanaInflation assumptionUnited KingdomEurozone1.45%1.45% The fair value of plan assets for major schemes has been remeasured as at June 30, 2018. The amounts recognized in the balance sheet consist of: (In € million)June 30, 2018December 31, 2017Amounts recognized in the balance sheet consist of :Prepaid pension asset 124114Accrued liability – pension plans [a]-1,199-1,293Total Pension plan-1,075-1,179Accrued liability – other long-term employee benefits [b]-61-56Total accrued liability [a] + [b]-1,260-1,350 During the first semester, Atos set up its own independent Swiss foundation for the management of the risks of old age, death and disability benefits for employees of Atos AG and Atos Consulting, with full implementation in 2019.The rules of the foundation stipulate that any remaining funding shortfall, after consideration given to some legal measures, is shared between employees and Atos at a 40%/60% basis. The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In € million)June 30, 20186 months ended 30 June 2017Operating margin-12-17Other operating income and expenses11Financial result-13-15Total (expense)/profit -23-30 Trusted Partner for your Digital Journey 50/71 Note 15 Provisions (In € million)December 31, 2017ChargeRelease usedRelease unusedBusinessCombi-nationOther (*)June 30, 2018CurrentNon- currentReorganization7716-41-421069654Rationalization254-4-21428821Project commitments468-9-1410042348Litigations and contingencies13811-12-101-91203486Total provisions28639-66-2934-4260141118(*) Other movements mainly consist of the currency translation adjustments Note 16 Borrowings Change in net debt over the period (In € million)June 30, 2018December 31, 2017Opening net cash/(debt)307329New borrowings-54-589Repayment of long and medium-term borrowings365293Variance in net cash and cash equivalents-259433New finance leases -4-6Long and medium-term debt of companies sold during the period3-Long and medium-term debt of companies acquired during the period-1-5Impact of exchange rate fluctuations on net long and medium-term debt-5-144Profit-sharing amounts payable to French employees transferred to debt0-1Other flows related to financing activities1-3Closing net cash/(debt) 351307 Other flows related to financing activities correspond mostly to the re-consolidation of financial liabilities on the compartment 'ON' securitization program. Note 17 Trade accounts and notes payable (In € million)June 30, 2018December 31, 2017 restatedTrade payables and notes payable2,2192,060Net advance payments-37-35Prepaid expenses-476-366Net accounts payable1,7071,659Number of days’ payable outstanding (DPO)10198 Further to IFRS 15 implementation, the calculation of the DPO takes into account the resale transactions payables on which related costs are accounted on a net basis since IFRS 15 implementation (offset by resale transactions revenue in the income statement) while it does not take into account the gross costs related to these transaction. The impact from this restatement at the end of 2017 amounts to 17 days. As a result, the post IFRS 15 DPO is structurally higher than the underlying supplier payment terms. Trusted Partner for your Digital Journey 51/71 Note 18 Cash flow statements Net cash and cash equivalents (in million)June 30, 2018December 31, 2017Cash and cash equivalents1,967 2,260 Overdrafts-48 -78 Total net cash and cash equivalents1,918 2,182 Note 19 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 22, 2018. Note 20 Subsequent event Atos announced today its agreement with Syntel (NASDAQ:SYNT), a leading global provider of integrated information technology and knowledge process services, with respect to the acquisition by Atos of Syntel, for aggregate consideration of $3.4 billion or $41.0 per Syntel share. Trusted Partner for your Digital Journey 52/71 B.3 Statutory auditors’ review report on the half- yearly financial information for the period from January 1st to June 30, 2018 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2018, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information presented in the interim management report on the condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Paris-La Défense and Neuilly-sur-Seine, July 23, 2018 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton French member of Grant Thornton International Christophe Patrier Virginie Palethorpe Trusted Partner for your Digital Journey 53/71 C. Person responsible C.1 For the Update of the Registration Document Thierry Breton Chairman & Chief Executive Officer C.2 For the accuracy of the Update of the Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the Update of the 2017 Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2018 half-year condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report (here attached) presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole of the Update of the 2017 Registration Document and examined the information in respect of the financial position and the accounts contained herein. Bezons, July 27, 2018 Thierry Breton Chairman & Chief Executive Officer C.3 For the audit Appointment and term of offices Statutory auditors Grant Thornton Virginie Palethorpe Appointed on: October 31, 1990, then renewed in October 24,1995, in May 30, 2002, in June 12, 2008, and in May 17, 2014 Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Substitute auditors Cabinet IGEC Appointed on: October 31, 1990, then renewed in October 24,1995, in May 30, 2002, in June 12, 2008, and in May 17, 2014 Term of office expires: at the end of the AGM held to adopt the 2019 financial statements Deloitte & Associés Christophe Patrier Appointed on: December 16,1993, renewed in February 24, 2000, in May 23, 2006, in May 30, 2012, and in May 23, 2018 Term of office expires: at the end of the AGM held to adopt the 2023 financial statements Trusted Partner for your Digital Journey 54/71 D. Corporate governance and additional information D.1 Office renewals and composition of the Board of Directors The Company’s Combined General Meeting held on May 24, 2018 approved all the proposed renewals of terms of office of directors which it was submitted. In particular, it renewed the terms of office as Directors of Mr. Bertrand Meunier (French citizen) for a period of three years, and of Mr. Pasquale Pistorio (Italian citizen) for a period of one year. Following the renewals of the Directors’ terms of office, the Board of Directors, during its meeting held after the Annual General Meeting, decided to confirm the composition of the Board’s Committee and to revew Mr. Pistorio’s term of office as Lead Director. Consequently, as of the date of this Update of the 2017 Registration Document, the Board of Directors comprised 12 Directors including 7 independent Directors, as follows: Date of appointment/ renewal December 30, 2016 May 24, 2017 May 24, 2017 May 24, 2017 May 24, 2017 December 18, 2017 May 24, 2018 May 24, 2017 May 26, 2016 May 26, 2016 May 24, 2018 May 26, 2016 Name Thierry Breton Nicolas Bazire1** Valérie Bernis** Roland Busch Jean Fleming2 Marie-Christine Lebert3 Bertrand Meunier** Colette Neuville** Aminata Niane Lynn Paine** Pasquale Pistorio** Vernon Sankey4** * AGM: Annual General Meeting; N&R: Nomination and Remuneration Committee; A: Audit Committee. ** 1 Chairman of the Nomination and Remuneration Committee. 2 Director representing the employee shareholders appointed by the General meeting 3 Director representing the employees 4 Chairman of the Audit Committee. Nationality French French French German British French French French Senegalese American Italian British Age 63 60 59 53 49 55 62 81 61 68 82 69 Independent Director Committee member N&R* A* N&R/A A N&R A End of office term AGM* 2019 AGM 2020 AGM 2020 AGM 2020 AGM 2020 AGM 2020 AGM 2021 AGM 2020 AGM 2019 AGM 2019 AGM 2019 AGM 2019 D.2 Annual General Meeting held on May 24, 2018 The Combined General Meeting held on May 24, 2018 approved all the resolutions submitted by the Board of Directors. The results of the votes at the Combined General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. In particular, the General Meeting approved the annual and consolidated accounts for the financial year ending December 31, 2017, the payment of a dividend for 2017 of € 1.70 per share, and the option for the payment of the dividend either in shares or cash. It also approved the renewal of Deloitte & Associés’ term of office as statutory auditors for a period of six years. It acknowledged the termination of B.E.A.S.’ term of office as substitute statutory auditors and, after amending the articles of association to that effect, decided not to replace this firm. Trusted Partner for your Digital Journey 55/71 The General Meeting approved the elements of compensation and benefits paid or awarded to Mr. Thierry Breton, Chairman and Chief Executive Officer for the financial year ending December 31, 2017 and approved the features and criteria for setting, allocating, and granting, the fixed, variable, long-term and exceptional elements making up the total compensation and benefits of all kinds attributable to the Chairman and Chief Executive Officer for the financial year ending December 31, 2018. D.3 Executive compensation and stock ownership D.3.1 Performance shares allocation plan decided on July 22, 2018 In connection with the authorization granted for thirty-eight months, by the Combined General Meeting of May 24, 2018 (twenty-first resolution) and, with regard to the Chairman and Chief Executive Officer, the approval by the same Combined General Meeting of the eleventh resolution (“Say on Pay ex ante”), the Board of Directors decided, during its meeting held on July 22, 2018, and upon the recommendation of the Nomination and Remuneration Committee, to proceed with the allocation of 891,175 ordinary performance shares of the Company, to be issued in favor of the first managerial lines and key employees of Atos, including the Chairman and Chief Executive Officer. After having consulted the Nomination and Remuneration Committee, the Board of Directors decided, for the 2018 grant of performance shares, to replicate the new structure of performance share plan approved by the Extraordinary General Meeting of July 24, 2017 for top managers of the Group; the Board of Directors maintained the alignment with the strategic orientations and the demanding nature of the performance requirements for the vesting. In the context of significant acquisitions and in particular of the Syntel’s acquisition project disclosed on July 22nd 2018 (of which the Company expects a double digits relution of the Basic Earnings Per Share as from 2019), the Board of Directors considered that the earnings per share indicator now becomes a key evaluation of the achievement of the Group’s ambitions in connection with Syntel’s integration. Therefore, the Board of Directors decided that the earnings per share will replace the operating margin conversion rate into free cash flow indicator if the Syntel transaction is closed. Specifically, the 2018 grant of performance shares is governed by the following features and conditions applicable to the allocation of 51,350 performance shares in favor of the Chairman and Chief Executive Officer: A. Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the allocation of performance shares is conditioned on the preservation of employee or corporate officer status by the beneficiary during the vesting period; B. Performance condition: the allocation of performance shares is also subject to the achievement of the following internal and external performance conditions, appraised for each of the three years 2018, 2019, and 2020. Internal performance conditions For each of the three years 2018, 2019, and 2020, the revenue organic growth rate, the operating margin rate and the earnings per share (or the operating margin conversion rate into free cash flow if Syntel’s transaction is not closed) must be at least equal to the rates set as a target by the Board of Directors, in line with the annual financial objectives communicated by the Company at the beginning of the year. The performance condition linked to earnings per share (Basic EPS as defined in Atos Registration Document for 2017) will be achieved for 2018 provided that the earnings per share increase during H2 by at least 10 per cent, a step up after the 7 per cent increase achieved in H1. External performance condition The Company must be part of the Dow Jones Sustainability Index (World or Europe) or must be granted at least Ecovadis Silver rating for each of the 3-years of the plan. Trusted Partner for your Digital Journey 56/71 C. Vesting: All or part of the granted performance shares will vest on July 30, 2021, subject to the presence and performance conditions being satisfied. The final number of vested performance shares for each beneficiary will amount to 100% of granted performance shares if all performance conditions are satisfied each year. In the event that all performance conditions would be validated for the first two years and for the third year, only two internal performance conditions would be fulfilled with the third internal performance condition for this last year reaches at least 85% completion, the final number of vested performance shares for each beneficiary will amount to 75% of granted performance shares. The vested shares shall not be subject to any holding requirement, and therefore shall be immediately transferable by their beneficiaries. D. Obligations specific to the Chairman and Chief Executive Officer: The Chairman and Chief Executive Officer is required to remain owner of 15% of his acquired shares for the duration of his duties and cannot conclude any financial hedging instruments over the shares being the subject of the award during the whole duration of the mandate of the Chief Executive Officer. D.3.2 Performance shares that have become available since January 1st, 2018 for the Chairman and CEO – AMF Table 7 Since January 1st, 2018, the performance shares granted on July 28, 2014 became available for possible sale to the beneficiaries according to the France Plan Rules. The Atos Chairman and CEO is one of the beneficiaries of this plan. Acquisition and availability terms are described in the 2017 Registration Document in part G.3.3.1. AMF Table 7 Plan Date Number of shares available during the financial year Vesting Date Availability Date Chairman and CEO July 28, 2014 46,000 July 28, 2016 July 28, 2018 The Chairman and CEO is subject to a conservation obligation for the duration of his mandate of 15% of the shares vested. D.3.3 Subscription or purchase options exercised since January 1st, 2018 by the Chairman and CEO – AMF Table 5 The Atos Chairman and CEO did not hold any outstanding options. Trusted Partner for your Digital Journey 57/71 D.4 Common Stock Evolution D.4.1 Basic data D.4.1.1 Information on stock The Company's shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. ATOS SE securities are eligible for SRD and PEA. The Company’s shares have been included in the CAC 40, the main share index published by NYSE Euronext Paris, since March 20, 2017. The main tickers are: SourceTickersEuronext ATO AFP ATO Bloomberg ATO FP Reuters ATOS PA ThomsonATO FR The Euronext sector classification is as follows: Euronext: ICB sectorial classificationsIndustry: 9000, TechnologySupersector: 9500, TechnologySector: 9530, Software and Computer ServicesSubsector: 9533, Computer Services D.4.1.2 Free-float The free-float of the Group shares excludes stakes held by the reference shareholder, Siemens Pension- Trust e.V., holding 12 483 153 shares of the Company which it committed to keep until September 30, 2020 as it is indicated in section D.4.3.2. Thresholds crossings and shareholders’ agreements. Stakes owned by the employees and the management as well as treasury shares, are also excluded from the free float. As of June 30, 2018Shares% of share capital% of voting rightsSiemens12 483 153 11.7%11.7%Employees1 177 690 1.1%1.1%Board of Directors517 736 0.5%0.5%Treasury stock371 202 0.3% - Free float 92 334 438 86.4%86.7%Total 106 884 219 100,0%100,0% Trusted Partner for your Digital Journey 58/71 D.4.2 Dividend On a proposal from the Board of directors, the Combined General Meeting held on May 24, 2018, approved the payment in 2018 of a dividend of 1.70 euro per share on the 2017 results as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal periodDividend paid per share (in €)2017 1.70 2016 1.60 20151.10 D.4.3 Common stock D.4.3.1 At June 30, 2018 As at June 30, 2018, on the basis of a decision of the Chairman and Chief Executive Officer dated as of June 30, 2018 the Company’s issued common stock amounted to € 106,884,219 divided into 106,884,219 fully paid-up shares of € 1.00 par value each. Since December 31st, 2017, the share capital was increased by € 1,438,870 corresponding to the issuance of 1,438,870 new shares, split as follows: 375,204 new shares resulting from the exercise of stock options, issuance premiums amounting to € 11,347,388.48 in the aggregate;avec 1,063,666 new shares resulting from the paiement in shares of the dividend for the 2017 financial year, issuance premiums amounting to € 110,695,720.62 in the aggregate. D.4.3.2 Thresholds crossings and shareholders’ agreements Thresholds crossings: Since 1st January 2018, the Group was informed of the following statutory thresholds crossings: (i) Siemens Aktiengesellschaft (« Siemens AG ») declared having crossed downwards, on March, 27 2018, the statutory thresholds of 10% and 5% of the share capital and the voting rights of the Company and not to directly hold any share of the Company anymore; (ii) Siemens Pension-Trust e.V., a German law association, controlled by Siemens A.G.1, declared having individually crossed upwards, on March, 27 2018, the statutory thresholds of 5% and 10% of the share capital and the voting rights of the Company (following the transfer off-market by Siemens AG of 12,483,153 shares of the Company) and declared holding 11.84% of the share capital and voting rights of the Company; (iii) BlackRock Inc., acting on behalf of clients and funds which it manages, declared having crossed, downwards, on July 10, 2018, the statutory thresholds of 5% of the share capital and voting rights of the Company (following the return of shares held as collateral). BlackRock, Inc. declared holding 4.96% of the share capital and voting rights of the Company; (iv) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, upwards on July 17, 2018, the statutory thresholds of 5% of the share capital and voting rights of the Company (following an acquisition of shares off-market and an increase in the number of shares 1 Siemens Pension Trust e.V. is controlled by Siemens AG as the Chairman of the Board of Directors of the association is proposed by Siemens AG, the members of the association still being in position to refuse the proposed candidate but the members can not appoint a candidate which has not been presented by Siemens AG. The other members of the Board of Sirectors are appointed upon proposal made by the Chairman. Trusted Partner for your Digital Journey 59/71 held as collateral). BlackRock, Inc. declared holding 5.11% of the share capital and voting rights of the Company; (v) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, downwards, on July 18, 2018, the statutory thresholds of 5% of the share capital and voting rights of the Company (following the sale of Atos SE shares on the market and a decrease in the number of Atos SE shares held as collateral). BlackRock, Inc. declared holding 4.98% of the share capital and voting rights of the Company. Name of entity notifying the threshold crossing Date of reporting Date of threshold crossing Shares % of share capital1 % of voting rights2 Siemens Aktiengesellschaft 04/03/20183 03/27/2018 0 0% 0% Siemens Pension- Trust e.V. 04/03/20183 03/27/2018 12,483,153 11.84%4 11.84%4 BlackRock Inc. 07/11/2018 07/10/2018 5,241,4795 4.96%6 4.96%6 BlackRock Inc. 07/18/2018 07/17/2018 5,403,9627 5.11%8 5.11%8 BlackRock Inc. 07/19/2018 07/18/2018 5,265,2259 4.98%10 4.98%10 1. On the date of threshold crossing. 2. Including treasury shares on that date pursuant to article 223-11 I al. 2 of the Réglement Général de l’Autorité des Marchés Financiers (French Financial Market Authority General Regulations). 3. Supplemented in particular by a postal mail received on April 5, 2018. 4. On the basis of a share capital composed of 105,469,200 shares representing the same amount of voting rights pursuant to article 223-11 al. 2 of the Réglement Général. 5. Including (i) 1,269 ATOS SE shares in the form of ADRs, (ii) 314,440 ATOS SE shares assimilated pursuant to the provisions of article L.233-9 I, 4° bis of the French Commercial Code coming from the CFDs (contracts for differences) without due date, concerning the same amount of ATOS SE shares, exclusively paid in cash and (iii) 206,516 ATOS SE shares held as collateral. Besides, BlackRock, Inc. declared holding 647,514 ATOS SE shares on behalf of clients (not taken into account in the stated holding) for which clients have retained the exercise of voting rights. 6. On the basis of a share capital composed of 105,674,700 shares representing the same amount of voting rights pursuant to article 223-11 al. 2 of the Réglement Général. 7. Including (i) 1,042 ATOS SE shares in the form of ADRs, (ii) 2,000 physically settled call options giving the right, upon exercise, to the same amount of ATOS SE shares, which may be exercised at any moment until September 21, 2018 at a price of € 130.00, (iii) 316,225 ATOS SE shares assimilated pursuant to the provisions of article L.233-9 I, 4° bis of the French Commercial Code coming from the CFDs (contracts for differences) without due date, concerning the same amount of ATOS SE shares, exclusively paid in cash, (iv) 1,109 ATOS SE shares assimilated pursuant to the provisions of articles L.233-9 I, 6° of the French Commercial Code further to a securities loan, and (v) 394,616 ATOS SE shares held as collateral. Besides, BlackRock, Inc. declared holding 638,825 ATOS SE shares on behalf of clients (not taken into account in the stated holding) for which clients have retained the exercise of voting rights. 8. On the basis of a share capital composed of 105,674,700 shares representing the same amount of voting rights pursuant to article 223-11 al. 2 of the Réglement Général. 9. Including (i) 1,031 ATOS SE shares in the form of ADRs, (ii) 2,000 physically settled call options giving the right, upon ex ercise, to the same amount of ATOS SE shares, which may be exercised at any moment until September 21, 2018 at a price of € 130.00, (iii) 317,169 ATOS SE shares assimilated pursuant to the provisions of article L.233-9 I, 4° bis of the French Commercial Code coming from the CFDs (contracts for differences) without due date, concerning the same amount of ATOS SE shares, exclusively paid in cash, (iv) 1,109 ATOS SE shares assimilated pursuant to the provisions of articles L.233-9 I, 6° of the French Commercial Code further to a securities loan, and (v) 258,011 ATOS SE shares held as collateral. Besides, BlackRock, Inc. declared holding 638,826 ATOS SE shares on behalf of clients (not taken into account in the stated holding) for which clients have retained the exercise of voting rights. 10. On the basis of a share capital composed of 105,674,700 shares representing the same amount of voting rights pursuant to article 223-11 al. 2 of the Réglement Général. Shareholders’ agreements: On the occasion of the acquisition by the Company from Siemens of Siemens’ former subsidiary SIS, the Siemens group committed to keep its shareholding in the Company, amounting to 12,483,153 shares, until June 30, 2016. This lock-up shareholder commitment was extended to September 30, 2020, pursuant to an amendment to the lock-up agreement entered into on October 30, 2015 between Siemens AG, the Company and Siemens Beteiligungen Inland GmbH, in the context of the strengthening of the alliance between both companies. Under this agreement, Siemens nevertheless retained the possibility, as from July 1, 2016, to transfer its shareholding in the Company to two Siemens employees pension Trusted Partner for your Digital Journey 60/71 funds,Siemens Pension Trust e.V. and BSAV-Trust e.V., provided that such pension trust agree to abide by the terms and conditions of the lock-up agreement, and that when exercising the right to suggest a representative to be elected to the Atos Board of Directors, it shall always suggest an active member of the management board of Siemens. On March 27, 2018, in connection with the financing by Siemens AG of a pension plan, Siemens AG transferred, off the market, the entirety of its shareholding in the Company, i.e. 12,483,153 Atos SE shares, to Siemens Pension-Trust e.V., which Siemens AG controls1. The corresponding thresholds crossings were notified to the Autorité des Marchés Financiers (French Financial Market Authority – “AMF”) by Siemens AG and Siemens Pension-Trust e.V.2. On this occasion, Siemens AG and Siemens Pension Trust e.V. declared, inter alia, (i) not to act in concert together nor with a third party, (i) not to consider further acquisition of Atos SE shares, nor to acquire control of the Company; (iii) not to modify their strategy towards the Company. In connection with the above mentioned transfer of shares, Siemens Pension Trust e.V. executed a “Joinder Agreement” on March 23, 2018 under which Siemens Pension Trust e.V. agreed to be bound by the terms and conditions of the lock-up agreement, as mentioned hereabove. D.4.3.3 Treasury stock Legal Framework The 12th resolution of the Combined General Meeting of May 24, 2018 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to the general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. These purchases may be carried out: to ensure liquidity and an active market of the Company’s shares through an investment services provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the AMF; to attribute or sell these shares to the executive officers and Directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) free awards of shares in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them in payment or exchange or other in the context of potential external growth operations; or to cancel them as a whole or in part through a reduction of the share capital authorized by the General Meeting, in particular pursuant to the 13th resolution of the Combined General Meeting held on May 24, 2018. 1 See footnote 1 at section D.4.3.2. Thresholds crossings here above. 2 See section D.4.3.2. Thresholds crossings here above. Trusted Partner for your Digital Journey 61/71 The maximum purchase price per share may not exceed € 190 (fees excluded). The Board of Directors may adjust the aforementioned maximum purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the free allocation of shares, as well as in the event of division of the nominal value of the share or share consolidation or any other transaction on equity, so as to take account of the impact of such transactions on the value of the shares. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 2,003,461,460 as calculated on the basis of the share capital as at December 31st, 2017, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from May 24, 2018. Treasury Stock As at June 30, 2018, the Company owned 371,202 shares which amounted to 0.3% of the share capital with a portfolio value of € 43,412,073.90, based on June 30, 2018 market price, and with book value of € 43,813,878.92. These shares are assigned to the allocation of shares to employees or executive officers and directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. The Company proceeded to the purchase of: (i) 70,000 shares on February 22, 2018 as part of a mandate given to a financial intermediary as announced by the Group on the same day; (ii) 360,000 shares from June 1st, to June 12, 2018, as part of a mandate given to a financial intermediary as announced by the Group on May 28, 2018. From January 1st, 2018 to June 30, 2018 the Company transferred 391,276 shares of the Company to beneficiaries of LTI (Long term Incentives) plans. Trusted Partner for your Digital Journey 62/71 D.4.3.4 Potential common stock Potential dilution Based on 106,884,219 outstanding shares as of June 30, 2018, the share capital of the Group could be increased by 3,174,424 new shares, representing 2.97% of the share stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares, as follows: (in shares)June 30, 2018December 31, 2017Change% dilutionNumber of shares outstanding 106,884,219 105,445,349 1,438,870 From stock subscription options375,204 406,707 -31,503 0.4%From performance shares2,799,220 2,799,220 0 2.6%Potential dilution 3,174,424 3,205,927 -31,503 3.0%Total potential common stock 110,058,643 108,651,276 1,407,367 On the total of 375,204 of stock options, no option had a price of exercise higher than € 116.95 (closing stock price as of June 29, 2018). Stock options evolution Number of stock subscription options at December 31, 2017 406,707 Stock subscription options granted as of June 30th 2018 - Stock subscription options exercised as of June 30th 2018 31,502 Stock subscription canceled or forfeited as of June 30th 2018 - Number of stock subscription options at June 30, 2018 375,204 As of June 30, 2018, the total of stock options granted by the Group are all exercisable and in the money. Trusted Partner for your Digital Journey 63/71 Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meeting of May 24, 2018, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of July 22, 2018: AuthorizationAuthorization amount (value)Use of the authorizations (par value)Unused balance (par value)Authorization expiration dateEGM May 24, 201812th resolutionAuthorization to buyback the Company shares 10% of the share capital adjusted at any moment 360,0009.66%11/24/2019 (18 months)EGM May 24, 201813th resolutionShare capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 07/24/2020 (26 months)EGM May 24, 201814th resolutionShare capital increase with preferential subscription right 31,700,186 0 31,700,186 07/24/2020 (26 months)EGM May 24, 201815th resolutionShare capital increase without preferential subscription right by public offer1 2 10,566,728 0 10,566,728 07/24/2020 (26 months)EGM May 24, 201816th resolutionShare capital increase without preferential subscription right by private placement1 2 10,566,728 0 10,566,728 07/24/2020(26 months) EGM May 24, 201817th resolutionShare capital increase without preferential subscription right to remunerate contribution in kind1 2 10,566,728 0 10,566,728 07/24/2020 (26 months)EGM May 24, 201818th resolutionIncrease in the number of securities in case of share capital increase with or without preferential subscription right1 2 3Extension by 15% maximumof the initial issuance0Extension by 15% maximum of the initial issuance07/24/2020 (26 months)EGM May 24, 201819th resolutionShare capital increase through incorporation of premiums, reserves, benefits or other3,865 million03,865 million07/24/2020 (26 months)EGM May 24, 201820th resolutionCapital increase reserved to employees1 2,113,345 0 2,113,345 07/24/2020 (26 months)EGM May 24, 201821st resolutionAuthorization to allot free shares to employees and executive officers951,005891,17559,83007/24/2021 (38 months)3Theadditionalissuanceshallbedeductedfrom(i)thecapoftheresolutionpursuanttowhichtheinitialissuancewasdecided,(ii)theaggregatecapsetbythe14th resolutionoftheCombinedGeneralMeetingofMay 24,2018,and(iii)incaseofsharecapitalincreasewithoutpreferentialsubscriptionrights,theamountofthesub-cap mentioned at 2 here above.1Anysharecapitalincreasepursuanttothe15th,16th,17th,18thand20thresolutionsoftheCombinedGeneralMeetingofMay 24,2018shallbedeductedfromthecap set by the 14th resolution of the Combined General Meeting of May 24, 2018.2Thesharecapitalincreaseswithoutpreferentialsubscriptionrightcarriedoutpursuanttothe15th,16th,17thand18thresolutionsoftheCombinedGeneralMeetingofMay 24,2018aresubjecttoanaggregatesub-capcorrespondingto10%ofthesharecapitaloftheCompanyonthedayoftheCombinedGeneralMeetingofMay 24, 2018 (i.e. € 10,566,728). Any share capital increase pursuant to these resolutions shall be deducted from this aggregate sub-cap. The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 18th and 19th resolutions of the General Meeting of May 24, 2018 being set aside) amounts to 32,651,191, representing 30.55% of the share capital updated on June 30, 2018. Trusted Partner for your Digital Journey 64/71 E. Appendices E.1 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Executive Vice President, Investor Relations & Financial Communication Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Aurélie Le Pollès Investor Relations & Financial Communication Manager +33 1 73 26 42 35 aurelie.lepolles@atos.net Requests for information can also be sent by email to investors@atos.net E.2 Financial calendar October 23, 2018 February 21, 2019 April 25, 2019 Third quarter 2018 revenue Full Year 2018 results First quarter 2019 revenue Trusted Partner for your Digital Journey 65/71 E.3 AMF cross-reference table The cross-reference table identifies the main information required by Regulation No. 809/2004 of the European Commission dated April 29, 2004 (the “Regulation”). The table indicates the section of this Update to the Reference Document and, if applicable, of the Reference Document where is presented the information related to each item. N° Items of the Annex I of the regulation Sections in update of registration Document Pages Sections in 2017 registration Document 1. 1.1 1.2 2. 2.1 2.2 3. 3.1 3.2 4. 5. 5.1. 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2. 6. 6.1. 6.1.1 6.1.2 6.2. 6.3. 6.4. 6.5. 7. 7.1. 7.2 8. 8.1. Persons Responsible Indication of persons responsible Declaration by persons responsible Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Selected financial information Historical financial information Financial information for interim periods Risk Factors Information about the issuer History and Development of the issuer The legal and commercial name of the issuer The place and the number of registration The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office The important events in the development of the issuer’s business Investments Business overview Principal Activities Nature of the issuer’s operations and its principal activities New products or services developed Principal Markets Exceptional factors Dependence on patents or licenses, industrial, commercial o financial contracts or new manufacturing processes Basis for statements made by the issuer regarding its competitive position Organizational Structure Brief description of the Group List of significant subsidiaries Property, Plants and Equipment Material tangible fixed assets Environmental issues that pay affect the utilization of the tangible fixed assets C.1 C.2 C.3 C.3 C.3 N/A A.2 ;B N/A N/A N/A N/A N/A N/A A.2 A.1 N/A N/A N/A N/A N/A N/A N/A N/A 54 54 54 54 54 A.4.1 A.4.2 A.4.3 A.4.3 N/A 7-21; 25-53 A.5.1; E.3 N/A F. N/A N/A N/A N/A G.2.2 G.2.2 G.2.2 N/A N/A G.2.2 A.5.2; A.6.1 E.3.3.3 7-21 3-6 N/A N/A A.1; A.2; C.2; C.3; C.4; C.5; C.6; C.7 B.3; C A.1; A.2; B.2 N/A N/A F.1; F.3.3 N/A B.2 N/A N/A E.5.3 ; G2.2 N/A E.4.7.4 ; Note 30 N/A E.4.7.4 - Note 13 8.2 N/A N/A D.5 9. 9.1. 9.2. Operating and Financial Review Financial Condition Operating Results A.2 ;B A.2 ;B 7-21; 25-53 7-21; 25-53 E.1; E.3 9.2. 9.2.1 9.2.2 9.2.3 Significant factors materially affecting the issuer’s income from operations Disclosure of material changes in net sales or revenues Information regarding any governmental, economic, fiscal, monetary or A.2 ;B A.2 ;B A.2 ;B 7-21; 25-53 7-21; 25-53 7-21; E.1; E.3 E.1; E.3 E.1; E.3 Trusted Partner for your Digital Journey 66/71 N° Items of the Annex I of the regulation political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations 10. Capital Resources 10.1. Issuer’s capital resources 10.2. Sources and amounts of the issuer’s cash flows 10.3. 10.4. 10.5. 11. 12. 12.1 12.2 13. 14. 14.1. Information on the borrowing requirements and funding structure Restrictions on the use of capital resources Anticipated sources of funds to fulfill commitments Research and Development, Patents and Licenses Trend Information The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects Profit Forecasts or Estimates Administrative, Management, and Supervisory bodies and senior management Composition – statements 14.2. Conflicts of interests 15. 15.1. 15.2. 16. 16.1. 16.2. 16.3. 16.4. 17. 17.1. 17.2. 17.3. 18. 18.1. 18.2. 18.3. Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment Information about audit and Remuneration Committee Statement related to corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders Identification of the main shareholders Voting rights Ownership and control 18.4. Arrangements which may result in a change in control of the issuer 19. 20. 20.1. Related party transactions Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information 20.2. 20.3. 20.4. 20.4.1 20.4.2 20.4.3 20.5. 20.6. 20.7 Pro forma financial information Financial statements Auditing of historical annual financial information Statement indicating that the historical financial information has been audited Indication of other information which has been audited Source of the data when financial data in the Registration Document is not extracted from the issuer’s audited financial statements Age of latest financial information Interim and other financial information Dividend policy Trusted Partner for your Digital Journey 67/71 Sections in update of registration Document A.2 ;B A.2 ;B A.2 ;B A.2 ;B N/A N/A A.2 ;B A.2 ;B N/A D.1 N/A D3 D3 D.1 N/A N/A N/A N/A A.2.6 D4.3 N/A D4.3 D4.3 N/A N/A A5 A.2 ;B N/A B3 N/A N/A N/A N/A D4.2 Pages Sections in 2017 registration Document 25-53 7-21; 25-53 7-21; 25-53 7-21; 25-53 7-21; 25-53 N/A N/A 10. E.3; G.7 E.3.2 E.3.3 N/A E.3.3 C.6 7-21; 25-53 B; C ; E.1 7-21; 25-53 N/A B; C ; E.1 N/A 55 N/A A.6.2; G.2.4; G.3.1.3 G.2.4; G.3.1.4; G.6.5 55-57 55-57 G.4 G.4 55 N/A N/A N/A N/A 20 G.2.4 G.2.4 G.3.1 G.3.1 D.2; E.1.7 59-64 G.4; G.7.1; G.7.2 D.2.1.3 N/A 59-64 59-64 N/A G.7.1; G.7.2; G.7.7 G.7.1.2 G.7.1; G.7.2; G.7.7 N/A 24 G.7 E.4.7.4 - Note 28 7-21; 25-53 N/A A.5; E.2; E.3; E.4; H.2.2 N/A E.4 54 N/A E.4.1 N/A N/A N/A N/A 59 N/A E1 N/A G.2.3; G.7.3 N° Items of the Annex I of the regulation 20.7.1 20.8. Amount of dividends Legal and arbitration proceedings 20.9. 21. 21.1. 21.1.1 21.1.2 21.1.3 21.1.4 21.1.5 21.1.6 21.1.7 21.2. 21.2.1 21.2.2 21.2.3 21.2.4 21.2.5 21.2.6 21.2.7 21.2.8 22. 23. 23.1 23.2 24. 25. Significant change in the issuer’s financial or trading position Additional Information Share Capital Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition rights and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association Description of issuer’s objects and purposes Provisions of the issuer’s Articles of Association, statutes, charter or bylaws with respect to the members of the administrative, management and supervisory bodies Description of the rights, preferences and restrictions attaching to each class of the existing shares Description of actions to change the rights of holders of the shares Description of the conditions governing the manner in which Annual General Meetings and Extraordinary General Meetings of Shareholders are called Description of any provision that would have an effect of delaying, deferring or preventing a change in control of the issuer Description of the conditions governing the ownership threshold above which shareholder ownership must be disclosed Description of the conditions governing changes in the capital Material Contracts Third party information and statement by experts and declarations of any interest Statement or report attributed to a person acting as an expert Information sourced from third parties Documents on Display Information on holdings Trusted Partner for your Digital Journey 68/71 Sections in update of registration Document D4.2 A4 A.2 ;B D4 D4 D4.3 D4.3.4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A A1 N/A N/A N/A N/A Pages Sections in 2017 registration Document 59 22 7-21; 25-53 G.7.3 F.6 E.3 58-64 58-64 61-64 63 G.7 N/A G.7 G.7.7.7 N/A N/A G.7 N/A N/A G.7 N/A G.2.2 N/A G.2 N/A N/A G.2.3; G.7.3 G.2 G.2 N/A N/A G.2 N/A G.2 N/A 3-6 N/A E.1.5; F.1; F.2 N/A N/A N/A N/A N/A G.2.1; G.2.2; G.7 E.4.7.4 – Note 30 N/A E.4 Full index A. ACTIVITY REPORT ............................................................................................ 3 A.1 Atos in the first half of 2018 .................................................................................................. 3 A.2 Operational review ................................................................................................................ 7 A.2.1 Statutory to constant scope and exchange rates reconciliation ............................................ 7 A.2.2 Performance by Division ................................................................................................ 8 A.2.3 Performance by Business Units ...................................................................................... 14 A.2.4 Revenue by Market ...................................................................................................... 19 A.2.5 Portfolio ...................................................................................................................... 20 A.2.6 Human Resources ........................................................................................................ 21 A.3 2018 objectives ................................................................................................................... 22 A.4 Claims and litigations .......................................................................................................... 23 A.4.1 Tax claims .................................................................................................................. 23 A.4.2 Commercial claims ....................................................................................................... 23 A.4.3 Labor claims ................................................................................................................ 24 A.4.4 Representation & Warranty claims ................................................................................. 24 A.4.5 Miscellaneous .............................................................................................................. 24 A.5 Related parties .................................................................................................................... 24 B. FINANCIAL STATEMENTS ............................................................................... 25 B.1 Financial review ................................................................................................................... 25 B.1.1 Income statement ........................................................................................................ 25 B.1.2 Cash Flow and net cash ................................................................................................ 29 Interim condensed consolidated financial statements ......................................................... 31 Interim condensed consolidated income statement ........................................................... 31 B.2.1 Interim condensed consolidated statement of comprehensive income ................................. 32 B.2.2 Interim condensed consolidated statement of financial position ......................................... 33 B.2.3 Interim condensed consolidated cash flow statement ........................................................ 34 B.2.4 B.2.5 Interim consolidated statement of changes in shareholders’ equity..................................... 35 B.2.6 Appendices to the interim condensed consolidated financial statements .............................. 36 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1st to June 30, 2018 ............................................................................................... 53 B.2 C. PERSON RESPONSIBLE ................................................................................... 54 C.1 For the Update of the Registration Document ...................................................................... 54 C.2 For the accuracy of the Update of the Registration Document ............................................. 54 C.3 For the audit ........................................................................................................................ 54 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION ........................ 55 D.1 Office renewals and composition of the Board of Directors .................................................. 55 D.2 Annual General Meeting held on May 24, 2018 .................................................................... 55 D.3 Executive compensation and stock ownership ..................................................................... 56 D.3.1 Performance shares allocation plan decided on July 22, 2018 ............................................ 56 D.3.2 Performance shares that have become available since January 1st, 2018 for the Chairman and CEO – AMF Table 7 ....................................................................................................... 57 D.3.3 Subscription or purchase options exercised since January 1st, 2018 by the Chairman and CEO – AMF Table 5 ................................................................................................................ 57 D.4 Common Stock Evolution ..................................................................................................... 58 D.4.1 Basic data ................................................................................................................... 58 D.4.2 Dividend ..................................................................................................................... 59 D.4.3 Common stock............................................................................................................. 59 Trusted Partner for your Digital Journey 69/71 E. APPENDICES .................................................................................................. 65 E.1 Contacts............................................................................................................................... 65 E.2 Financial calendar ................................................................................................................ 65 E.3 AMF cross-reference table ................................................................................................... 66 E.4 Full index ............................................................................................................................. 69 Trusted Partner for your Digital Journey 70/71 | Semestriel, 2018, IT, Atos | write me a financial report |
Semestriel | 2,019 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
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### Company:
Atos
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| 2018 Universal Registration Document (URD) Including the 2019 half-year financial report This document is a free English translation of the original French version. In case of discrepancies, the French version shall prevail. The French version of this Universal Registration Document was filed with the Autorité des Marchés Financiers (AMF) on July 30, 2019, as competent authority under Regulation (EU) 2017/1129 without prior approval pursuant to Article 9 of Regulation (EU) 2017/1129. The Universal Registration Document may be used for the purposes of an offer to the public of securities or admission of securities to trading on a regulated market if it is supplemented by a securities note and, if applicable, a summary together with any amendments to the Universal Registration Document. All shall be approved by the AMF in accordance with Regulation (EU) 2017/1129. This Universal Registration Document incorporates by reference the 2018 Registration Document filed with (https://atos.net/wp- content/uploads/2019/04/atos-2018-registration-document.pdf) and updates the mandatory sections in accordance with the regulation. A cross-reference table is provided in section E hereof to easily find the information incorporated by reference and the information updated or modified. the AMF on February 22, 2019 under number D.19-0072 This Universal Registration Document is available on the AMF website (www.amf-france.org) and the one of the issuer (www.atos.net). 1/88 Content A. ACTIVITY REPORT .............................................................................................. 3 A.1 Distribution in kind of 23.5% of Worldline share capital to Atos’ shareholders out of the 50.8% owned by the Group .......................................................................................... 3 A.2 Atos in the first half of 2019 ......................................................................................... 5 A.3 Management and organization .................................................................................... 11 A.4 Operational review .................................................................................................... 18 A.5 2019 objectives ........................................................................................................ 31 A.6 Claims and litigations ................................................................................................. 31 A.7 Related parties .......................................................................................................... 33 B. FINANCIAL STATEMENTS .................................................................................. 34 B.1 Financial review ........................................................................................................ 34 B.2 Interim condensed consolidated financial statements ..................................................... 41 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1 to June 30, 2019 ........................................................................................ 67 C. PERSON RESPONSIBLE ..................................................................................... 69 C.1 For the Universal Registration Document ...................................................................... 69 C.2 For the accuracy of the Universal Registration Document ............................................... 69 C.3 For the audit ............................................................................................................. 69 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .......................... 70 D.1 Appointment of a Deputy Chief Executive Officer ........................................................... 70 D.2 Office renewals and composition of the Board of Directors .............................................. 70 D.3 Annual General Meeting held on April 30, 2019 ............................................................. 71 D.4 Executive compensation and stock ownership ............................................................... 72 D.5 Common Stock Evolution ........................................................................................... 76 E. APPENDICES ..................................................................................................... 82 E.1 Contacts .................................................................................................................. 82 E.2 Financial calendar...................................................................................................... 82 E.3 2018 Universal Registration Document cross-reference table .......................................... 82 E.4 Full index ................................................................................................................. 86 2/88 A. Activity Report A.1 Distribution in kind of 23.5% of Worldline share capital to Atos’ shareholders out of the 50.8% owned by the Group On January 30, 2019, Atos SE announced during its Investor Day a project to distribute in kind 23.5% of Worldline share capital to Atos’ shareholders, out of the 50.8% owned by the Group. This project was approved unanimously by the Board of Directors upon the recommendation of an ad hoc committee comprising the independent directors and the Chairman of the Board. During the Annual General Meeting held on April 30, 2019, Atos shareholders approved this exceptional distribution in kind at 99.94%, with a distribution ratio of Worldline shares to Atos shareholders equal to 2 Worldline shares for 5 Atos shares held. Atos’ shareholders also approved under the 15th resolution the Global Alliance Agreement (the “Alliance”), which was entered into between the Company and Worldline on March 25, 2019 in light of the parties’ willingness to maintain a strong industrial and commercial partnership. The Alliance governs four main domains: Sales, Research and Development (R&D), Human Resources and Procurement, and includes in particular a mutual general cooperation clause and governance provisions relating to the implementation of an Alliance Board. The Alliance came into force upon the distribution of the Worldline shares and shall remain valid for five years. Following the effectiveness of the transaction on May 7, 2019, Atos holds 27.3% of the share capital and 35.0% of the voting rights of Worldline. As from that date, this stake has been accounted for under the equity method in Atos’ financial statements. On May 6, 2019, Atos and Worldline entered into a separation agreement whereby they assigned the separation activities to the parties in a coordinated manner, notably in the areas of intellectual property rights, group processes and policies, IT systems migration and integration, security, IT support, offshore resources, insurance, subleasing of premises, parental guarantees and data protection. The loss of control of Worldline resulting from the distribution in kind caused a capital gain (net of taxes) recorded in the Atos consolidated financial statements as of June 30, 2019, as a consequence of the revaluation at market value of all the Worldline shares held by Atos before the distribution in kind. This gain was recognized in the consolidated income statement in “Net income from discontinued operation” (see in Note 1 – Changes in the scope of consolidation). This transaction came at a time when Atos had completed its global profile, capabilities and geographical footprint with the acquisition of Syntel. Consistent with the priorities highlighted in the 2019-2021 strategic plan, the distribution in kind of Worldline shares reinforced the Group’s focus as a leading listed digital player and increased its strategic flexibility, thereby allowing Atos to further amplify growth and value creation as the digital landscape accelerates. Atos’ shareholders also directly benefited from the value creation potential of Worldline shares distributed as part of this project. Similarly, Worldline had also scaled up significantly over the course of 2018. With the acquisition of SIX Payment Services, Worldline can pursue an independent standalone strategy as the undisputed payment leader in Europe, delivering strong revenue growth, profitability and sustainable cash flow generation. In a backdrop of continued consolidation in the European payment market, the transaction increases Worldline’s strategic flexibility. Worldline also benefits from a strengthened equity capital markets profile as a result of its increased free float and liquidity. 3/88 The relationship between the two groups remains strong. Indeed, Atos reinforced its industrial and commercial partnership with Worldline and maintained all the existing partnerships on an arm’s length basis through the creation of the Alliance. This Alliance notably comprises a joint go-to-market strategy and R&D cooperation and also combines innovation in digital and payment services as well as talent pools and networks. Atos also continues to participate in Worldline’s governance, with reduced representation of Atos from 5 to 3 Board members consistent with its reduced ownership level. Thierry Breton continues to serve as non-executive Chairman of Worldline’s Board of Directors and Gilles Grapinet remains Chief Executive Officer of Worldline. The shareholders’ agreement between Atos and SIX Group was amended with effect on May 7, 2019 to reflect the continued partnership between the two groups post distribution. The main modifications to the shareholders’ agreement, which was described in the information document (Document E) filed on October 31, 2018 with the AMF under registration number E-18-070 and in the Worldline 2018 registration document filed on March 21, 2019 with the AMF under number D.19-0185, are the following: Worldline’s Board of Directors, on May 7, 2019, shall comprise 12 directors and be composed as follows (i) 3 directors designated by Atos, including the Chairman (compared to 6 in the previous version of the shareholders’ agreement), (ii) 2 directors designated by SIX Group (in line with the previous version of the shareholders’ agreement), (iii) the Chief Executive Officer of Worldline and (iv) 6 independent directors (compared to 4 in the previous version of the shareholders’ agreement); Atos shall be entitled to designate (i) 3 directors at Worldline’s Board of Directors for so long as it owns a number of shares representing more than 30% of Worldline’s voting rights and provided that Atos holds 10 percentage points more than SIX Group in voting rights during a period of 7 months following the Annual General meeting held on April 30, 2019, (ii) 2 directors and 1 censor if Atos owns a number of shares representing more than 16% of Worldline’s share capital or voting rights and (iii) 1 director and 1 censor if Atos owns a number of shares representing more than 8% of Worldline’s share capital or voting rights; in the event where Atos would come to own a number of shares between 8% and 16% of Worldline’s share capital or voting rights and SIX Group holds a number of shares representing more than 8% of Worldline’s share capital and voting rights, neither Worldline nor its subsidiaries could take certain significant decisions without the prior approval of the Board of Directors including the affirmative vote of at least one of the directors designated by Atos, the list of such significant decisions, as described in aforementioned Document E, being identical to the one presented in the shareholders’ agreement for the prior approval of SIX Group. Pursuant to the provisions of the shareholders’ agreement, SIX Group’s right of prior authorization has taken effect upon payment of the distribution in kind; the obligations under the shareholders’ agreement related to the orderly market sell-down of Worldline shares shall be applicable, except for certain provisions, for any of Worldline shares sell-down representing on a given day more than 10% of the average daily trading volumes for a period of 30 trading days (compared to 20% in the previous version of the shareholders’ agreement) and shall also be applicable for a distribution in kind of Worldline shares; Atos and SIX Group shall have the option to participate in any significant sell-down (defined as the transfer of Worldline shares representing more than 10% of the average daily trading volumes for a period of 30 trading days) contemplated by the other party which would be carried out through a private placement or a secondary public offering of Atos’ or SIX Group’s shares, pro rata to their respective shareholding in Worldline on a share capital basis; and the shareholders’ agreement will remain in force until the earlier of (i) October 18, 2028, unless SIX Group requests a ten-year period renewal, (ii) its termination by mutual agreement of Atos and SIX Group, and (iii) the holding by SIX Group or Atos of a number of Worldline shares representing less than 4% of the share capital or voting rights of Worldline. Atos and SIX Group also committed to retain, subject to certain exceptions, their respective shareholding in Worldline during a six-month lock-up period, starting from April 30, 2019. 4/88 A.2 Atos in the first half of 2019 January Atos announced on January 16, it has been named for the third year running, as a global Leader in IoT services by Everest Group. The report assesses the relative capabilities of 19 global IT service providers offering IoT services. Atos has been recognized for its Atos Codex IoT Services built in-house and via partnerships with major technology providers and niche startups. On January 21, Atos launched its new Evidian Safekit software solution to ensure high availability of enterprise business-critical services hosted in the Cloud. It is fully comprehensive and includes real-time replication, load balancing and failover all within the same one software product. It also announced its the release of its new Horus security suite for Intelligent Transportation Systems (ITS), a solution which provides security to communications in connected vehicles. On January 30, Atos announced its project to distribute 23.5% of Worldline’s share capital to Atos’ shareholders leading to the creation of 2 listed global pure play leaders. As a consequence, while continuing their industrial and commercial partnership, Atos will reinforce its focus as a leading digital pure player and Worldline will benefit from a strengthened equity profile and enhanced ability to pursue consolidation opportunities. At the occasion of an Investor Day held on January 30 in its Headquarters in Bezons (France) the Group launched ADVANCE 2021, its new three-year plan, building on its reinforced global profile in digital services. Atos announced on January 31, that it has been positioned as a Leader by Gartner in both its Magic Quadrant for Managed Workplace Services for Europe and for North America, based on its ability to execute and its completeness of vision. This is the third consecutive year Atos has been named a Leader in the Europe report, and the second year in the North America report. February Atos announced on February 5, an agreement with the Science and Technology Facilities Council’s (STFC) Hartree Centre that will see one of the UK’s leading high-performance computing research facility take the first UK delivery of an Atos Quantum Learning Machine, the highest performing quantum simulator in the world. This Quantum Learning Machine will be one of the highest-performing ever deployed by Atos and will be used to develop new quantum-based services designed to help researchers and industry prepare for the coming quantum computing revolution. On February 7, Atos and Worldline, the European leader in the payments and transactional services industry, announced the signature of the United Nations’ Standards of Conduct for Business and the L’Autre Cercle Charter of LGBT+ Commitment – pledging their support to LGBT+ (Lesbian, Gay, Bisexual, Transgender, Intersex and others) people at work worldwide. On February 12, Atos announced that is had been recognized as a global leader within the IT sector by international non-profit organization CDP on the 2018 CDP Climate Performance Leadership Index. Atos was awarded an “A-” grade worldwide for various items (Disclosure, Awareness, Management, Leadership) demonstrating the high level of its environmental stewardship. This grade highlights the quality of Atos’ actions and approaches in managing climate change. On February 15 Atos, together with fifteen other organizations, including Siemens, AES, Airbus, Allianz, Cisco, Daimler, Dell Technologies, Deutsche Telekom, Enel, IBM, MSC, NXP, SGS, Total and TÜV Süd welcome three new partners in The Charter of Trust, the world’s first joint charter for greater cybersecurity. These are BSI German Federal Office for Information Security, CCN National Cryptologic Center and Graz University of Technology in Austria. 5/88 On February 21, Atos announced its Full Year 2018 results. Revenue was € 12,258 million, +4.2% at constant exchange rates, and +1.2% organically, particularly led by the Atos Digital Transformation Factory which represented 30% of 2018 revenue (vs. 23% in 2017) benefitting from the strong demand of large organizations implementing their digital transformation. Operating margin was € 1,260 million, representing 10.3% of revenue, compared to 10.8% in 2017 at constant scope and exchange rates. In 2018, the Group did not record one off related to pension schemes optimization plan in operating margin while in 2017 it had a positive effect of € 28 million representing 20 basis points on operating margin. The commercial dynamism of the Group was particularly high in 2018 with order entry reaching € 13.7 billion, representing a book to bill ratio of 112% in 2018 compared to 109% in 2017 at constant rate. During the fourth quarter, the book to bill reached 124%. Net income was € 703 million, +5.8% compared to 2017 and net income Group share reached € 630 million, +5.0% compared to 2017. Therefore, basic and diluted EPS reached respectively € 5.95 (€ 5.72 in 2017) and € 5.95 (€ 5.70 in 2017). Normalized basic and diluted EPS reached respectively € 8.56 (€ 8.24 in 2017) and € 8.56 (€ 8.21 in 2017). Free cash flow reached € 720 million in 2018, excluding 62 million of acquisition costs on Syntel and SIX Payment Services and upfront financing fees on Syntel, representing a cash conversion of 57.1%. Net debt was -€ 2.9 billion at the end of 2018 reflecting the amount paid for the acquisition of Syntel during the year, the cash component and the contingent consideration related to the acquisition of SIX Payment Services. On February 25, Atos announced together with its partner Google Cloud a new contract with T-Mobile Netherlands to deliver a new scalable chatbot, which uses Artificial Intelligence (AI), as part of the telecommunications company’s digital transformation plan. Bringing together Atos’ industry knowledge and expertise with the latest AI and ML technologies from Google Cloud, this multi-channel chatbot will streamline customer queries, increase customer satisfaction and reduce costs. March On March 4, Atos and Ooredoo, the region’s leading enabler of digital business innovation, announced at Mobile World Congress, a partnership for enterprises to accelerate their digital business competitiveness. Thanks to this new partnership, Ooredoo’s customers can now benefit from Atos’ industry leading experience and solutions in Infrastructure as a Service (IaaS), Cloud Transformation and also cybersecurity services. On March 13, Atos announced a contract with the Western Australian Department of Health to support the transition and transformation of its ICT infrastructure into a fully managed Hybrid Digital Cloud Service. As part of this AUD$124m (~€78.2 million) five-year contract Atos will work with the WA health system’s ICT service provider, Health Support Services (HSS), to transition the current legacy infrastructure from the incumbent provider to Atos Cloud platforms. Atos announced on March 14 that it has developed the Advanced Access Control System (AACS) for the Olympic Games Tokyo 2020. As the Worldwide IT Partner of the International Olympic Committee (IOC), Atos will manage the Advanced Access Control System with the support of Panasonic’s solutions and equipment and NEC’s facial recognition system as key partners in this project. On March 19, Atos announced that Elie Girard has been appointed as Group Deputy CEO. April On April 2 Atos announced that it had successfully digitally transformed, in just 15 months, Illumia, the first Italian family business in the energy sector, using Atos’ digital energy platform "DORA" (Digital Operations for Retailers by Atos). Through this contract, Illumia saw immediate cost and financial benefits, as well as a better user experience and optimized control processes. Atos and Google Cloud inaugurated on April 4 a joint artificial intelligence (AI) laboratory in the presence of Bruno Le Maire, French Minister of Economy and Finance. Set up as part of the global partnership between Atos and Google Cloud, this laboratory, which is unique in France, enables clients, businesses and public organizations to identify practical cases, for which AI could provide innovative and effective solutions. 6/88 On April 10 Atos announced that it was awarded the Google Cloud Global Breakthrough Partner of the Year Award. Atos was recognized for its outstanding growth in its customer base over the last year to extend the reach of the Google Cloud ecosystem. Through Atos’s expertise in cloud orchestration, migration and management, joint customers have been able to use the cloud to power transformation and innovation and respond faster to customer needs. Atos announced on April 10 Open Hybrid Cloud, a fully-managed, on-premise solution that smoothly transitions businesses from traditional to cloud-native operations, as well as accelerates enterprises’ move to a hybrid cloud strategy as the solution incorporates key components of Google Cloud’s Anthos. On April 10 Atos and CloudBees announced a partnership to offer a joint solution to help customers modernize their application development practices on Google Cloud Platform (GCP). The solution is an integrated service that makes oversight of the software development environment easy and provides a managed platform for the software delivery process. On April 18, Atos announced that it has offset 100% of its 2018 CO2 emissions worldwide, through a dedicated wind farm program. In addition to offsetting emissions from its data centers, which it has done since 2014, Atos now ensures that this program also includes the offsetting of carbon emissions produced by its offices and business travel. This initiative is part of Atos’ global environmental program supporting ADVANCE 2021 strategic plan. Atos announced on April 24 that it has been identified as a ‘Leader’ by global research and advisory firm NelsonHall in its latest Vendor Evaluation & Assessment Tool (NEAT) for SAP HANA and S/4HANA services. The report cites Atos’ strengths, including a significant organizational focus on growing HANA and S/4HANA, broad geographic delivery footprint, clearly defined target verticals and geographies, assets incorporating innovative offerings like SAP Leonardo and SAP Cloud Platform and its Breakthrough Partnership with Google Cloud to drive S/4HANA on the cloud. Atos announced on April 25 the revenue of its first quarter of 2019. Q1 2019 revenue was € 2,818 million, up +0.4% organically. The Group strategy focused on digital projects and on data management and security drove organic growth in Business & Platform Solutions at +3.5% and in Big Data & Cybersecurity at +11.4%. Alongside, Infrastructure & Data Management showed signs of improvement thanks to North America starting its recovery. The Group pursued its good commercial dynamism with order entry at € 2,428 million leading to a book to bill ratio of 86%. On April 30 Atos SE held its Annual General Meeting chaired by Mr. Thierry Breton, Chairman and Chief Executive Officer. The shareholders widely approved the renewal of the terms of office of Mr. Thierry Breton, Chairman and Chief Executive Officer for a period of three years as well as they approved the three-year strategic plan ADVANCE 2021. Exceptional distribution in kind of 23.5% of the share capital of Worldline and the Company’s sense of purpose were also overwhelmingly approved by the shareholders as follow: “At Atos, our mission is to help design the future of the information technology space. Our expertise and services support the development of knowledge, education as well as multicultural and pluralistic approaches to research that contribute to scientific and technological excellence. Across the world, we enable our customers, employees and collaborators, and members of societies at large to live, work and develop sustainably and confidently in the information technology space” Atos announced on April 30 that it has been recognized as part of Dell EMC’s exclusive President’s Circle with an award for Global Alliances EMEA Systems Integrator and Strategic Outsourcer Partner of the Year. This year’s awards were presented at Dell Technologies World 2019, during Dell EMC’s Global Partner Summit, which took place in Las Vegas on April 29. During the event, Atos also received an award for Global Alliances Growth Partner of the Year in recognition of an exceptional year-on-year revenue growth. 7/88 May Atos published its 2018 Integrated Report on May 7, which presents a global vision of the group. For the first time, all of the most relevant information in terms of financial and non-financial performance, strategy and achievements are consolidated in an integrated and consistent way in a single report. The report addresses the Group’s risks and opportunities, challenges and initiatives in Corporate Social Responsibility (CSR). It was prepared in accordance with the 2018 Registration Document and successfully fulfils the recommendations of the Global Reporting Initiative (GRI) Standard option "Comprehensive". Following the approval of the transaction by Atos shareholders at the Annual General Meeting held on April 30, 2019, Atos announced that the distribution in kind of Worldline shares to Atos shareholders is effective as from May 7, the payment date. Atos launched a new unified cloud identity and access management solution for ultimate security on May 13. Acting as a single identity provider and management system for all platforms, cloud and on-premise, this new solution, based on Evidian software from Atos, enables organizations to keep control of all identities that need access to their business systems, providing them with ultimate security. On May 14 Atos announced that it has been selected as a major Google Cloud high performance computing services partner, expanding the global partnership with new services for enterprise customers. Leveraging Atos’ Center for Excellence in Performance Programming (CEPP), customers will have the computing power needed to get the most out of their data when addressing large issues in science, engineering and business. On May 15, Atos announced that it has joined forces with the startup Rcup to address musculoskeletal disorders (MSDs) for operators working in industrial environments or medical personnel, with intelligent morphological insoles. Developed as part of a project called ‘Mission Zero Accident’, these morphological insoles, inserted into safety shoes, are tailor-made for each operator, and reduce back strain. They are also equipped with integrated sensors that collect anonymously, on a daily basis, a large amount of data (loads carried by operators, movements in the factory) which are then transmitted to a secure platform hosted by Atos. They are then analyzed by Machine Learning algorithms. Atos unveiled on May 15 the Top 30 energy consumption of the world's most popular mobile applications in a study conducted by startup Greenspector. Increasingly demanding in terms of technical resources (RAM, CPU, Data…), mobile applications used by 5 billion mobile users worldwide have a booming impact on energy consumption and the environment. On May 16 Atos announced the launch of its new Hardware Security Module (HSM) for IoT, a high- performance security device designed to protect IoT ecosystems through cryptographic features. The new HSM, part of the Horus portfolio, combines ‘as-a-Service’ access, centralized key management system and IoT security services for a fully-integrated solution. Atos announced on May 16 that it has delivered its Atos Quantum Learning Machine, the world's highest- performing commercially available quantum simulator, to French multinational energy company Total. As part of an ambitious cross-functional research project, the Total group intends to use the Atos QLM to support all of its businesses. On May 16 Atos announced the launch of BullSequana Edge, the highest-performing edge computing server on the market worldwide to manage data at the edge. The BullSequana Edge has been designed to be used securely for the Internet of Things (IoT), in environments in which fast response times are critical - such as manufacturing 4.0, autonomous vehicles, healthcare and retail/airport security – where data needs to be processed and analyzed at the edge in real-time. Atos announced on May 16 that it has been chosen by Veolia, the world leader in utilities, to develop its secure collaborative environment with G Suite from Google Cloud. On May 16 Atos announced myQLM, a new program providing researchers, students and developers quantum programming tools for free, in order to democratize access to quantum simulation and encourage innovation in quantum computing. Eighteen months after disclosing the world's highest- performing quantum simulator in the world - the Atos Quantum Learning Machine, capable of simulating up to 41 quantum bits (Qubits) - Atos continues to innovate in the field of quantum computing by allowing the Atos QLM user ecosystems to develop quantum algorithms autonomously. 8/88 On May 17 Atos announced that it is now an official Microsoft Partner for Mixed Reality and joins prestigious Microsoft Mixed Reality Partner Program (MRPP). This confirms Atos’ expertise and success in building Mixed Reality innovative solutions, combining the benefits of both virtual and augmented reality – using Microsoft HoloLens technologies. Atos announced on May 17 the signature of a partnership agreement with the Public Hospitals of Paris (AP-HP, Hôpitaux de Paris) and Nantes (University Hospital Center, CHU) for the launch of a delivery drone project for the hospital of the future. As part of this agreement, Atos will design a software platform to optimize and automate the delivery of medical products between and within facilities through air and river drones - enabling healthcare professionals to control the delivery times of medical goods and products in emergency situations, and at any time. On May 22 Atos announced it has been positioned as a leader in Robotic Process Automation (RPA) and Artificial Intelligence (AI) services in banking by global research firm NelsonHall. The vendor profile highlighted Atos’ strengths in the space, including its portfolio of proprietary IP and B&PS (Business & Platform Solutions) delivery in North America acquired with Syntel, Atos’ relationships with leading product vendors, particularly its Google delivery partnership, and the company’s existing client base of tier-one banks. On May 23 Atos announced that it was selected, alongside its strategic partners – Capgemini and the CEA – to deliver a prototype of a Big Data platform to the French Defense Procurement Agency (Direction Générale de l’Armement, DGA). Project Artemis aims to provide the French Ministry of the Armed Forces with a sovereign « infostructure » for massive data storage and management. June On June 3, Atos announced, that the Joliot-Curie supercomputer designed by Atos for French national high-performance computing organization GENCI and based on Atos’ BullSequana architecture, is set to become the most powerful French research supercomputer when it reaches 22 petaflops in 2020. The new supercomputer is located at the CEA’s Very Large Computing Centre (TGCC) was inaugurated on 3 June 2019 by François Jacq, CEA Chairman, Thierry Breton, Atos CEO, and Philippe Lavocat, GENCI CEO. Atos announced on June 6 a new 4-year contract to deliver its latest supercomputer, the BullSequana XH2000, to Uninett Sigma2, the national e-infrastructure provider in Norway. The supercomputer will be Norway’s most powerful supercomputer and provide Norwegian researchers with an enhanced computing capacity to enable new innovation breakthroughs. On June 13 Atos announced that it has signed a multi-year $150 million USD contract to deliver Digital Managed Workplace Services for National Grid’s core business, spanning the UK and northeastern United States. National Grid is a British multi-national electricity and gas utility company headquartered in the UK. On June 13 Atos announced a strategic partnership with Virtru, a leading data protection platform provider that stands at the intersection of security and privacy. The partnership will provide global organizations with a joint encryption solution for Digital Workplace, protecting customer data across cloud-based platforms. This solution combines Atos hardware encryption with Virtru’s encryption software and is aimed at organizations which are looking for easy-to-use data encryption solutions to protect data in both cloud and hybrid environments. Atos announced on June 14 that it has tied 3rd highest global rank in Managed Security Services (MSS) in terms of 2018 market share revenue, according to the latest Gartner report. On June 18 Atos announced that it has been selected by Ørsted, a global leader in offshore wind, to supply critical communications solutions based on TETRA (Terrestrial Trunked radio) technology for two offshore wind farms, off the coast of Changhua County in Taiwan. Atos announced on June 18 a new 6-year contract with Damart, the international fashion and home- shopping retailer and brand of Damartex Group, to digitally transform its business by moving its infrastructure to the cloud. Damart will use a cloud solution combining Google Cloud Platform (GCP) and Atos’ Digital Private Cloud platform. 9/88 On June 26 Atos announced that Gartner, Inc. has positioned Atos as a Leader in its Magic Quadrant for Data Center Outsourcing and Hybrid Infrastructure Managed Services for both Europe and for North America. This is the 8th consecutive year that Atos has been named a Leader in the Europe-focused report, and the third consecutive year in the North America-focused report. July Atos announced on July 1 that it has strengthened its strategic partnership with Google Cloud with two high-performance regional extensions of existing Google Cloud data centers in Frankfurt (Germany) and Ashburn VA (North America), to support Oracle database customers. These two regional extensions will be equipped with Atos’ high-performance BullSequana S servers and will enable Oracle database customers to run their workloads efficiently and effectively and benefit from Google Cloud Platform (GCP). On July 3 Atos together with GENCI (Grand Équipement National de Calcul Intensif), announced the winners of its scientific competition, the Atos Joseph Fourier Award 2019. The award aims to accelerate research and innovation by rewarding projects in the fields of numerical simulation and Artificial Intelligence (AI). Atos announced on July 3 the winners of its international student competition, the Atos IT Challenge, which were presented with their awards at a ceremony presided over by Thierry Breton, Chairman and CEO of the Group, held at Atos’ global headquarters. Now in its eight year, the competition saw teams from 20 countries around the world compete on the theme of ‘Machine Learning for Sustainability’. On, July 25, Atos announced its financial results for the first half of 2019. Revenue was € 5,744 million, up +0.8% organically, thanks to a strong performance recorded in Big Data & Cybersecurity, and growth in Business & Platform Solutions. The decrease of Infrastructure & Data Management reduced from Q1 at -3.0% to Q2 at -0.6% further to the improvement of the situation in North America. Operating margin was € 529 million, representing 9.2% of revenue, an improvement by +20 basis points mainly fueled by the good performance in Business & Platform Solutions (+80 basis points), while Infrastructure & Data Management achieved stabilization. Operating profitability of Big Data & Cybersecurity reflected specific R&D and offering investments in both Cybersecurity and Big Data solutions. Order entry reached € 5,742 million, representing a book to bill ratio of 100%, of which 113% in the second quarter. Free cash flow was at € 23 million at the end of June 2019. 10/88 A.3 Management and organization Atos is incorporated in France as a “Société Européenne” (European Company) with a Board of Directors, chaired by Thierry Breton, Chairman and Chief Executive Officer. A.3.1 Group General Management Committee (GMC) The general management is composed of a Chairman and Chief Executive Officer, Thierry Breton, a Deputy Chief Executive Officer & Chief Financial Officer, Elie Girard, and six Senior Executive Vice- Presidents. They form the General Management Committee (GMC). The role of the Atos General Management Committee (GMC) is to develop and execute the Group strategy and to ensure value is delivered to clients, shareholders, partners and employees. This Committee is in charge of the global coordination of the Group Management. Name Thierry Breton Elie Girard Eric Grall Title Chairman and Chief Executive Officer Worldline Chairman Deputy Chief Exectutive Officer Chief Financial Officer Senior Executive Vice-President Group Chief Operation Officer Responsibility Atos Head of Global Infrastructure & Data Management Pierre Barnabé Senior Executive Vice-President Also responsible for Group Security Head of Big Data & Cybersecurity Senior Executive Vice-President CEO United Kingdom & Ireland Philippe Mareine Senior Executive Vice-President Adrian Gregory Human resources and Chief Digital & Transformation Officer Also Head of Siemens Global Alliance and Group Corporate and Social Responsibility Sean Narayanan Senior Executive Vice-President Head of Business & Platform Solutions Robert Vassoyan Senior Executive Vice-President Group Chief Commercial Officer Acting as Head of Telcos, Media & Utilities Thierry Breton, Atos SE Chairman & Chief Executive Officer and Worldline Chairman Former French Minister of Economy, Finances and Industry, Thierry Breton was Chairman and Chief Executive Officer of France Telecom, the second European leader telecommunications operator, and Chairman and Chief Executive Officer of Thomson. He was previously Executive Managing Director and then Vice-Chairman of the Bull Group. Thierry Breton taught leadership and corporate governance at Harvard Business School. He is a graduate of the École Supérieure d’Électricité “Supélec” of Paris and of the Institut des Hautes Études de Défense Nationale. He has been honored with the prestigious awards of “Commandeur de la Légion d’Honneur” and “Grand Officier de l’Ordre National du Mérite.” He is Atos Chairman and Chief Executive Office and he is in addition Chairman of Worldline. Elie Girard, Deputy Chief Executive Officer & Chief Financial Officer Elie Girard is a graduate of the École Centrale de Paris and of Harvard University. He began his career as auditor at Andersen, before joining the Ministry for the Economy, Finance and Industry in the Treasury department. Between 2004 and 2007, Elie Girard worked for the Office of Thierry Breton, the Minister for the Economy, Finance and Industry in France. He joined Orange in 2007 and was appointed Chief of Staff to the Chairman and Chief Executive Officer. Since September 2010, he was Senior Executive Vice- President in charge of Strategy & Development of the Orange group, member of the Group Executive Committee. In April 2014, Elie joined Atos as Deputy Chief Financial Officer of Atos Group. He has been appointed Group Chief Financial Officer in February 2015 and Group Senior Executive Vice President in February 2018. In March 2019, Elie has been appointed Group Deputy Chief Executive Officer. 11/88 Eric Grall, Senior Executive Vice-President, Chief Operation Officer, Head of Infrastructure & Data Management Eric Grall comes from HP that he joined as a graduate in 1986, and where he held first positions in marketing and R&D in the product business, before entering the Services activities of the Group in 1998. He then had several management positions related to outsourcing, from pre-sales to operations. In 2005, he was appointed Vice-President and General Manager in charge of the Global Services Delivery for HP in the EMEA region, covering outsourcing, consulting and support services and led a major transformation of its delivery model. After the EDS acquisition in 2008, Eric led the ITO activities of the new outsourcing business. Eric joined Atos in 2009 as EVP of the Infrastructure & Data Management Division. Since 2017, he is Senior Executive Vice-President Chief Operating Officer. He is part of the Atos General Management Committee since February 2018. Pierre Barnabé, Chief Operating Officer Big Data & Cybersecurity Pierre Barnabé is Chief Operating Officer of the Global Division Big Data & Cybersecurity within the Group Atos, following the successful merger of Bull with Atos. He joined Bull in August 2013 as Chief Operating Officer. Previously, Pierre was General Manager of SFR Business team. He began his career in the venture capital department of Thalès. In 1998, he joined Alcatel Lucent with various successful sales positions (Vice-President Sales France, Vice-President Sales South Europe) before being appointed Chief Executive Officer of Alcatel Lucent France then Group Executive Vice-President Human Resources & Transformation. Knight of the French National Order of Merit, Pierre Barnabé is graduated from NEOMA Business School and from CentraleSupélec. He joined the Atos General Management Committee in April 2019. Adrian Gregory, Senior Executive Vice-President, Chief Executive Officer United Kingdom & Ireland Adrian Gregory joined Atos in 2007 and has a 20-year blue-chip background with experience of a wide range of technology solutions and multiple client sectors. Most recently he was Senior Vice-President for Public sector, Health & BBC with responsibility for all aspects of client business and future strategy. In July 2015 he was appointed Chief Executive Officer of the United Kingdom & Ireland and joined the Atos Executive Committee. He joined the Atos General Management Committee in October 2018. Philippe Mareine, Head of Human Resources, Logistics, Housing and Head of Siemens Global Alliance & Head of Group CSR Prior to his current position, he was Deputy Manager in the French Treasury department’s Inspection Générale des Finances unit and, previously, he was in charge of Human Resources in the Public Accounts department of the French Ministry for the Budget. From 2005 to 2007, he was technical adviser in charge of employee relations and reform in the office of the French Minister of the Economy, Finance and Industry. He held several managerial positions at the French Tax Administration. He joined Atos in 2009 as General Secretary of the Board of Directors in charge of legal functions, compliance, audit, security and social responsibility policy. He is today Head of Human Resources, Head of Siemens Global Alliance and Head of Group CSR. He is a graduate from the École Polytechnique and École Nationale d’Administration. He joined the Atos General Management Committee in April 2019. Sean Narayanan, Head of Business & Platform Solutions Sean Narayanan has over 20 years experience in IT and management consulting across the world. He is currently Executive Vice-President and Head of Business & Platform Solutions at Atos. Prior to Atos he was Chief Business Officer at digital company Liquidhub. He has also served as Chief Delivery Officer of iGATE (now Capgemini) and worked with Cognizant as Vice-President and consulting firm Booz Allen Hamilton. Mr. Narayanan is a recognized expert on management and technology, a speaker at various seminars and conferences and has been widely quoted in the international media. Sean has a master’s degree in regional and city planning from the University of Oklahoma and a bachelor’s degree in architecture from the Regional Engineering College, Trichy, India. He joined the Atos General Management Committee in April 2019. Robert Vassoyan, Senior Executive Vice-President, Chief Commercial Officer Robert Vassoyan is a graduate of ESSEC business school. Robert’s career spanned from Renault, Compaq to HP where he served in various senior management positions in Sales and Marketing. In 2007 he joined Cisco and became in 2011 the President of Cisco France. Robert joined Atos as Senior Executive Vice- President, Chief Commercial Officer in March 2018 12/88 A.3.2 Organization chart 13/88 A.3.3 The Executive Committee The role of the Executive Committee is to develop and execute the Group strategy and to ensure value is delivered to clients, shareholders and employees; it is also to improve interaction and cooperation between the countries and the global markets, divisions and functions. The Atos Executive Committee is composed of the General Management Committee and of: Global Divisions Eric Grall, Senior Executive Vice-President, Chief Operation Officer, Head of Infrastructure & Data Management Please refer to his biography in A.3.1 Group General Management Committee Patrick Adiba, Head of Unified Communication & Collaboration, CEO Olympics & Major Events Patrick Adiba holds a degree in Electronic and Telecommunications Engineering from INSA, Lyon and did an Executive MBA at Stanford University in 2001. Prior to joining Atos, he held various management positions at Schlumberger and including the position of Vice-President and General Manager of the Mobility Solutions Division before becoming General Manager of the Latin America region. He joined Atos in 2004 to take responsibility for Major Events, an entity within Atos that manages the Olympic and Paralympic Games and other Sport events. After a move to Madrid, he took on the additional role of managing the Atos activities in Iberia. In 2013, he was entrusted with the Management of the Group Human Resources and the following year he was appointed Chief Commercial Officer. In 2018 Patrick took on the management of the Unified Communication & Collaboration (UCC) Division and continues to manage Major Events. Sean Narayanan, Head of Business & Platform Solutions Please refer to his biography in A.3.1 Group General Management Committee Rakesh Khanna, Head of Atos Syntel Rakesh Khanna is Chief Executive Officer of Atos|Syntel and has more than 30 years of experience in technology services, having held leadership roles in North America, Europe and Asia. He served as Syntel’s Chief Operating Officer from 2012 until 2016 and was President of Banking and Financial Services from 2005 until 2012. Rakesh was rated among the world’s top Chief Operating Officers multiple times by executive placement firm ExecRank. Earlier, he spent 10 years in various leadership roles at i- flex solutions and was a core member of the team that developed FLEXCUBE, the world's best-selling banking solution. He also spent 11 years at Tata Burroughs, managing projects for global clients. He holds a Bachelor of Engineering in Mechanical Engineering from Victoria Jubilee Technical Institute and a Master of Business Administration in Marketing from NMIMS, Mumbai. Rakesh serves on the academic council and board of studies of NMIMS, a top 10 management college in India. Pierre Barnabé, Chief Operating Officer Big Data & Cybersecurity Please refer to his biography in A.3.1 Group General Management Committee 14/88 Global Business Units Simon Walsh, Head of North American Operations Simon Walsh is Chief Executive Officer of Atos North America, reporting to Atos Chairman and Chief Executive Officer Thierry Breton. Prior to Atos, Simon was Chief Operating Officer of Virtustream, Dell Technologies’ global cloud business, where he led its global expansion and supported the Chief Executive Officer’s daily execution of the company’s strategy. Before Virtustream, Simon was Senior Vice-President and Chief Operating Officer of EMC Europe Middle East & Africa. He also spent 17 years with Computacenter PLC, with the latter four years as Managing Director of the United Kingdom & Ireland, delivering IT services and solutions throughout the United Kingdom & Ireland. Simon is Chairman of Beds on Board, a startup focused on providing accommodation on stationery yachts. Simon is based in Irving, Texas, at Atos’ North America regional headquarters. Ursula Morgenstern, Head of Germany Ursula Morgenstern joined Atos in 2002 through the acquisition of KPMG Consulting. From 2007 to 2009, she was Senior Vice-President responsible for Systems Integration, and then she was Senior Vice- President responsible for Private Sector Markets. Prior to that, she held a variety of roles in Systems Integration including management roles for sectors and various practices. In 2011, she was Chief Operating Officer of the United Kingdom & Ireland and in 2012 she took on the role as Chief Executive Officer of the geography. From July 2015 to February 2018 she managed the Global Business & Platform Solutions Division. Since February 2018 she is Chief Executive Officer of Germany. Additionally, she has been appointed as Managing Director of Atos Information Technology in March 2018. Jean-Marie Simon, Head of France Jean-Marie Simon held various R&D and Production positions within Schlumberger, first in Clamart in France then in Oslo in Norway. He worked in Indonesia as Operations Technical Director for Asia. He was Chief Information Officer for Schlumberger Oilfield Services for three years. He moved to Schlumberger Sema following the acquisition of Sema group and then to Atos, developing the Consulting and Integration Systems practices around Human Resources. He was previously Human Resources Director for France, Germany, Italy and Spain from 2005 to 2007 and Group Human Resources Executive Vice- President from 2007 to 2013. He is currently Chief Executive Officer of Atos France. Adrian Gregory, Head of United Kingdom & Ireland Please refer to his biography in A.3.1 Group Global Management Committee Peter‘t Jong – Head of Benelux & The Nordics As an experienced IT leader, Peter has a proven track record in delivering results and managing complex customer relationships. He started his career in technical automation with AT&T and Philips, and then continued a career in technology with Lucent working in the Netherlands and in the USA. In 2001 Peter joined Atos as Head of Managed Services in the Netherlands and expanded his scope to Executive Vice- President for Sales and Chief Operating Officer for Atos Northern Europe. From 2015 Peter was responsible for leading the Managed Services organization in Germany and managed the carve-out and integration of Unify within Atos, followed by his appointment as Chief Executive Officer of Benelux & The Nordics in May 2016. Giuseppe Di Franco, Head of Central & Eastern Europe Giuseppe Di Franco has more than 25 years of experience in the Information and Communication Technology sector. After several years in Business Consulting, acquiring broad experience in international Mergers & Acquisitions and Information and Communication Technology Outsourcing, he joined Siemens in 2005 as Senior Vice-President, assuming different roles as Chief Executive Officer and Director of the Region South West Europe for the Energy Industry. In 2013, he assumed the role of Chief Executive Officer of Atos Italy and Head of the Energy & Utilities Industry market at Atos Global level. Since February 2018 Giuseppe Di Franco is Chief Executive Officer of Central & Eastern Europe. Giuseppe Di Franco has a degree in Engineering Management achieved at the Politecnico di Milano and is Alumnus Top Influencer of the University. He is also a board member of several Italian Information and Communication Technology associations. 15/88 Iván Lozano, Head of Iberia Iván Lozano Rodríguez has spent most of his career in Atos, after joining the Group in June 1994 as a Consultant in the Telecom Unit. There he held different positions from 1995 to 2008, among them Operations Manager and Operations Business Unit Manager. In April 2008, he was appointed Head of Systems Integration. Iván Lozano’s task, already as a member of Atos Iberia Executive Committee, was to design, build and deploy the new Business Unit. In November 2010, Iván Lozano was appointed as Chief Operations Officer at Atos Iberia. Iván Lozano is an Engineer in Telecommunications from the Universidad Politécnica in Madrid, and a Postgraduate in International Leadership Capability from the Glasgow Caledonian University (United Kingdom). Herbert Leung, Head of Asia-Pacific Herbert Leung spent most of his career at Schlumberger where he began as Regional Director for China and Canada, then as International Technical Director, and then as Vice-President for a Europe-Africa region. In 2004, at Schlumberger Sema, he was in charge of Managed Services for the United Kingdom, the Americas and the Asia-Pacific. He then joined Atos in 2004 and became Chief Executive Officer of Asia-Pacific, where he was supported in July 2011. Herbie completed his Bachelor of Science in Electronics with a first-class honors University of Dundee, Scotland, United Kingdom. Francis Meston, Head of Middle East & Africa Francis Meston joined Atos as Head of Consulting & Systems Integration from the E.D.S French subsidiary where he has been appointed Chief Executive Officer since January 2002. In 1996, he joined AT Kearney as Vice-President in charge of Europe Middle East & Africa business transformation and strategy practices as well as MIA Global practice. He was previously Vice-President of Capgemini Consulting where he led the French operations, the Europe Middle East & Africa Telecommunication practice and the Europe Middle East & Africa business reengineering practice. Francis Meston is a graduate of École Centrale Marseille and holds a MBA in Finance from Purdue (Indiana). Francis Meston is “maître de conférences” at HEC Business School. In July 2015 he has been appointed Head of Middle East & Africa, and Group Digital Transformation Officer. Sales & Markets Kari Kupila, Head of Siemens Account Kari Kupila began his career with Siemens Osakeyhtiö, Espoo in 1986 holding various management-level positions within the Company in Germany, notably Head of Equipment Financing, Head of Corporate Finance, Head of Regions and Sales Management. In 2010, he was appointed Chief Executive Officer Cluster for South West Europe and CEO SIS Verwaltungsgesellschaft GmbH, in 2011 he was appointed GBU Head North South West Europe. He is currently managing the Siemens Account. Kari Kupila is graduated from Helsingin kauppakorkeakoulu and holds a Master of Science and Economics with a focus on Law and Finance. Group Functions Sophie Proust, Group Chief Technology Officer Sophie Proust is graduate of the École Supérieure d’Electricité “Supélec” of Paris. She joined Bull in 1989 where she held various technical managerial positions in the mainframe, IT administration solutions and HW server design. In 2010, Sophie headed the Tera100 Project which delivered the CEA with the first Petaflops-scale calculator in Europe. She joined the Atos Group in 2014 following the acquisition by Atos of Bull, where she held the position of Head of Research & Development. At Atos, Sophie was head of the Research & Development for the Big Data & Cybersecurity division from 2014 to January 2019. In January 2019, Sophie was nominated Group Chief Technology Officer (CTO), joining the Atos Executive Committee. Alongside this, Sophie is part of the Atos Quantum Advisory Board, chaired by Thierry Breton with Serge Haroche (Nobel 2012). She has been a member of the Board of Directors of the Université Technologique de Troyes (UTT) since December 2018. Philippe Mareine, Head of Human Resources, Logistics, Housing and Head of Siemens Global Alliance & Head of Group CSR Please refer to his biography in A.3.1 Group Global Management Committee 16/88 Marc Meyer, Head of Executive & Talent Management, Communications Marc Meyer comes from Dexia where he served as Head of Group Communications. Marc joined Bull Group in 1986, where he held several senior positions in corporate and marketing communications. In 1997, he joined Thomson, a consumer electronics firm and in 2001 was promoted to the Company Executive Committee. Then, he joined the France Telecom/Orange Group as Executive Vice-President for Communications. Marc Meyer has been promoted as Head of Executive & Talent Management, Communications in 2014. He is a graduate from the Sorbonne University in Paris. He received the French Légion d’Honneur (Chevalier). Alexandre Menais, General Secretary, Head of Mergers & Acquisitions, Legal & Compliance Alexandre Menais joined Atos in 2011 as Group General Counsel. Before Atos, Alexandre Menais worked as Senior Associate at Hogan Lovells in Paris and London. In 2006, he became General Counsel at eBay France (eBay, Paypal and Skype) before being promoted as Europe Legal Director of eBay. In 2009, he joined Accenture as General Counsel France and Benelux. Alexandre holds a LLM in Business law from the University of Strasbourg and a MBA from HEC. He has been appointed as Board Member of the French Competition Authority (Autorité de la concurrence) in March 2019. Gilles Arditti, Head of Investor Relations & Financial Communication, and Responsible for Internal Audit After six years at Bull and four years at KPMG, Gilles Arditti joined Atos in 1990, where until 2006 he was, successively, Director of Mergers & Acquisitions, Director of Finance and Human Resources for Atos Origin in France, and Chief Financial Officer of France, Germany and Central Europe. In 2007, Gilles Arditti became Head of Investors Relation & Financial Communication for the Atos Group, a position he still holds. In March 2014, he was appointed Group Head of Mergers & Acquisitions and member of the Executive Committee. Since June 2014, Gilles Arditti is member of the Board of Directors of Worldline. Holding a master’s degree in Finance from the University Paris-Dauphine and a master’s degree in International Finance from HEC Paris, Gilles Arditti is also graduated from the engineer school École Nationale Supérieure de Techniques Industrielles et des Mines d’Alès (ENSTIMA) and is a Certified Public Accountant (CPA). Uwe Stelter, Deputy Chief Financial Officer Uwe Stelter is Deputy Chief Financial Officer of the Group since July 2019, after holding Chief Operating Officer roles in the Infrastructure & Data Management and Business & Platform Solutions Divisions of Atos as well as leading the Syntel integration. Prior to that he was Chief Financial Officer of the Infrastructure & Data Management Division and of the North America Business Unit. Uwe joined the Atos Group in 2011 from Siemens where he held multiple global Finance Management positions in the US and Germany in both the Siemens IT services and Communication divisions. In addition, Uwe Stelter was Chief Financial Officer of ProSTEP, a Germany based Consulting and Software company serving the Product Lifecycle Management (PLM) market. He is a graduate in Business Administration from AKAD University in Germany. 17/88 A.4 Operational review A.4.1 Statutory to constant scope and exchange rates reconciliation Revenue in H1 2019 reached € 5,744 million, -5.4% at constant exchange rates and +0.8% organically. Operating margin reached € 529 million, representing 9.2% of revenue, an improvement of +20 basis points at constant scope and exchange rates. In € millionH1 2019H1 2018% changeStatutory revenue5,744 6,005 -4.3%Exchange rates effect68 Revenue at constant exchange rates5,744 6,074 -5.4%Scope effect-395 Exchange rates effect on acquired/disposed perimeters23 Revenue at constant scope and exchange rates 5,744 5,701 +0.8%Statutory operating margin529 545 -2.9%Scope effect-41 Exchange rates effect9 Operating margin at constant scope and exchange rates529 513 +3.1%as % of revenue9.2%9.0% The table below presents the effects on H1 2018 revenue of acquisitions and disposals, internal transfers, reflecting the Group’s new organization, and change in exchange rates. In € millionH1 2018 statutoryScope effectsInternal transfersExchange rates effects*H1 2018 at constant scope and exchange ratesNorth America967363911,420Germany1,057-5 1,052UK & Ireland826277860France8416847Benelux & The Nordics5101-1 510Other Business Units1,00810-6 1,012Worldline797-797 TOTAL GROUP6,005-395 915,701Infrastructure & Data Management3,163-3 -27 603,193Business & Platform Solutions1,61742421262,087Big Data & Cybersecurity429-19 65421Worldline797-797 TOTAL GROUP6,005-395 915,701* At H1 2019 exchange ratesH1 2018 revenue Scope effects amounted to € -395 million for revenue, of which: € -797 million related to the restatement of the contribution of Worldline to the Group revenue in H1 2018. As a reminder, on January 30, 2019, Atos SE announced during its Investor Day a project to distribute in kind 23.5% of Worldline share capital to Atos’ shareholders, out of the 50.8% owned by the Group. During the Annual General Meeting held on April 30, 2019, Atos shareholders approved this exceptional distribution in kind. It was thereafter implemented on May 7, 2019, with a distribution ratio of Worldline shares to Atos shareholders equal to 2 Worldline shares for 5 Atos shares held. Following the transaction, Atos holds 27.3% of the share capital. From an accounting standpoint, Worldline was recorded as a discontinued operation according to IFRS 5 from January 1, 2019 to April 30, 2019 (instead of May 7, 2019 for practical reasons) and then under the equity method in Atos’ financial statements, implying that the revenue realized by Worldline in H1 2019 is no more part of the Group revenue; Alongside, the revenue realized by Atos’ entities with Worldline in H1 2019 is no more neutralized in the Group consolidation but recognized as Group revenue, and represented € 33 million in H1 2018; 18/88 The remaining net positive amount of € +369 million was mostly related to Syntel acquisition (6 months for € 410 million), the disposal of some specific Unified Communication & Collaboration activities, and the disposal and decommissioning of non-strategic activities within CVC. The following internal transfers occurred as of January 1, 2019: (i) healthcare contracts in NAO transferred to Atos Syntel, previously reported within Infrastructure & Data Management and now reported within Business & Platform Solutions as of January 1, 2019, (ii) Escala offering transferred from Infrastructure & Data Management to Big Data & Cybersecurity, (iii) a Telecom contract transferred to Infrastructure & Data Management. From H1 2018 statutory, currency exchange rates positively contributed to revenue for a total of €+91 million, mainly coming from the American dollar. The impacts described above are reflected in the operating margin at constant scope and exchange rates. In particular, scope effect amounted to € -41 million, mainly coming from Worldline contribution restatement impacting the Group margin by € -129 million, compensated by € +88 million for the rest of the Group, mainly coming from the contribution of Syntel. These effects are detailed below: In € millionH1 2018 statutoryScope effectsInternal transfersExchange rates effects*H1 2018 at constant scope and exchange ratesNorth America89429140UK & Ireland893193France61061Germany68-5 62Benelux & The Nordics39-2 -0 37Other Business Units11150-0 160Global structures**-41 0-40 Worldline129-129 TOTAL GROUP545-41 9513Infrastructure & Data Management282-8 -2 5277Business & Platform Solutions11910123224Big Data & Cybersecurity52-5 1149Corporate costs-37 -0 -37 Worldline129-129 TOTAL GROUP545-41 9513* At H1 2019 exchange rates** Global structures include the Global Divisions costs not allocated to the Group Business Units and Corporate costsH1 2018 operating margin A.4.2 Performance by Division Revenue in H1 2019 was € 5,744 million, up +0.8% organically, thanks to a strong performance recorded in Big Data & Cybersecurity, and growth in Business & Platform Solutions. The decrease of Infrastructure & Data Management reduced from Q1 at -3.0% to Q2 at -0.6% further to the improvement of the situation in North America. Operating margin was € 529 million, representing 9.2% of revenue, an improvement of +20 basis points mainly fueled by the good performance in Business & Platform Solutions (+80 basis points), while Infrastructure & Data Management achieved stabilization. Operating profitability of Big Data & Cybersecurity reflected specific R&D and offering investments in both Cybersecurity and Big Data solutions. In € millionH1 2019H1 2018*Organic evolutionH1 2019H1 2018*H1 2019H1 2018*Infrastructure & Data Management 3,137 3,193 -1.8% 274 277 8.7%8.7%Business & Platform Solutions 2,135 2,087 +2.3% 247 224 11.6%10.8%Big Data & Cybersecurity 473 421 +12.4% 48 49 10.2%11.7%Corporate costs - - - -40 -37 -0.7%-0.7%Total5,7445,701+0.8%529513 9.2%9.0%* At constant scope and exchange ratesRevenueOperating marginOperating margin % 19/88 A.4.2.1 Infrastructure & Data Management En millions d'eurosH1 2019H1 2018*Organic evolutionRevenue 3,137 3,193 -1.8%Operating margin 274 277 Operating margin rate8.7%8.7%* At constant scope and exchange ratesInfrastructure & Data Management Infrastructure & Data Management revenue was € 3,137 million in H1 2019, down -1.8% at constant scope and exchange rates. The Division pursued its business model transformation by increasing the share of revenue in Hybrid Cloud Orchestration and in projects in Technology Transformation Services. The Division continued the digital transformation of its main clients through automation and robotization and managed to close several new deals in strategic areas, notably in Germany, North America, the United Kingdom, France and Benelux & The Nordics. Growth materialized in Financial Services, mainly fueled by the ramp-up of the significant contracts in the United States with CNA Financial Corporation over compensating the Standard & Poor’s contract which was not renewed last year, and in the United Kingdom with Aviva, coupled with increased activities with NS&I and Aegon. Telcos, Media & Utilities benefitted from additional sales achieved with BBC and the ramp-up of the contracts with Scottish Water in the United Kingdom and with a Spanish mobile telco operator. The situation in Public sector and in Manufacturing, Retail & Transportation remained challenging, notably in the United Kingdom suffering from the base effect of transitions completed with Ministry of Justice in H1 2018, and in the United States due in particular to the termination of Marriott International contract end of H1 2018. This was partly offset by increased business in Other Business Units. After a first quarter at -3.0%, the Division achieved -0.6% organically during the second quarter of 2019 thanks notably to the improvement of the situation in North America. Infrastructure & Data Management revenue profile by geographies France North America Germany United Kingdom & Ireland 26%22%20%9%7%15% Benelux & The Nordics Other countries Operating margin in Infrastructure & Data Management was € 274 million in the first half of 2019, representing 8.7% of revenue, achieving stability compared to last year. Indeed, all geographies pursued strong cost saving actions including the RACE program to adjust their cost base to the revenue evolution. 20/88 A.4.2.2 Business & Platform Solutions En millions d'eurosH1 2019H1 2018*Organic evolutionRevenue 2,135 2,087 +2.3%Operating margin 247 224 Operating margin rate11.6%10.8%* At constant scope and exchange ratesBusiness & Platform Solutions Business & Platform Solutions revenue during the first half of 2019 reached € 2,135 million, +2.3% at constant scope and exchange rates. Growth was strong in Manufacturing, Retail & Transportation, which benefitted from good performance in almost all geographies and particularly in Germany, thanks to new application management services with Siemens, as well as new SAP engagement in Austria and the contribution from Syntel activities in North America, while new business recently won in the Benelux & The Nordics also contributed positively. Telcos, Media & Utilities sector showed a growth largely fueled by Other Business Units through higher volumes with Italian and Spanish utilities coupled with higher activity through Worldgrid contracts in France, partly offset by lower volumes in application management contracts in Germany and in Benelux & The Nordics. The Division posted a resilient growth in Financial Services. Syntel activities strongly supported the performance in this market in North America and materialized synergies on existing accounts in the United Kingdom, while the situation was more challenging in the banking sector in France, Iberia and Central Europe. In Public & Health market, higher volumes achieved in Germany and in France could not compensate volume reductions in legacy contracts in North America and contracts terminated last year in Benelux & The Nordics and project completions in the United Kingdom. Revenue growth reached +1.1% organically in Q2 2019. The Division management reduced the number of low margin contracts within Atos legacy activities in Q1 2019, and further in Q2 2019. Business & Platform Solutions revenue profile by geographies Benelux & The Nordics France United Kingdom & Ireland Other countries 22%21%15%9%9%23% North America Germany Operating margin was € 247 million, representing 11.6% of revenue. The strong improvement of +80 basis points was mainly led by North America, Germany and the United Kingdom. This was primarily attributable to the cost synergies from Syntel integration combined with a reduction of some low margin contracts at the occasion of transfer of contracts to Atos Syntel. The improvement also came from increasing revenue from digital offerings combined with continued cost saving effects in most geographies, notably through the industrialization of global delivery and a more efficient workforce management. 21/88 A.4.2.3 Big Data & Cybersecurity En millions d'eurosH1 2019H1 2018*Organic evolutionRevenue 473 421 +12.4%Operating margin 48 49 Operating margin rate10.2%11.7%* At constant scope and exchange ratesBig Data & Cybersecurity Revenue in Big Data & Cybersecurity was € 473 million, with a continued double-digit growth led by a strong performance largely driven by France and Benelux & The Nordics. In particular, growth was notably sustained by Big Data activity, mainly coming from new business in France, combined with a strong performance posted in Benelux & The Nordics with CSC in Finland, as well as in Brazil with a petroleum company. Cybersecurity activities also posted a double-digit growth led by new business opportunities with CNA Financial Corporation in North America, combined with good performance in Benelux & the Nordics and Germany which largely offset revenue from licenses not repeated this year in the United Kingdom. Mission Critical Systems sales posted a solid growth largely coming from the ramp-up of the National Police contract in Central & Eastern Europe. In Q2 2019, Big Data & Cybersecurity Division recorded a revenue organic growth at +13.2%. Big Data & Cybersecurity revenue profile by geographies United Kingdom & Ireland 43%14%9%9%3%22% Germany Other countries France Benelux & The Nordics North America Operating margin was € 48 million, representing 10.2% of revenue and a reduction of -150 basis points compared to last year on a like for like basis. Operating profitability in H1 2019 reflected specific R&D and offering investments in both Cybersecurity and Big Data solutions. 22/88 A.4.3 Performance by Business Units In € millionH1 2019H1 2018*Organic evolutionH1 2019H1 2018*H1 2019H1 2018*North America 1,345 1,420 -5.3% 148 140 11.0%9.9%Germany 1,074 1,052 +2.2% 68 62 6.3%5.9%France 887 847 +4.6% 59 61 6.7%7.2%United Kingdom & Ireland 842 860 -2.1% 87 93 10.3%10.8%Benelux & The Nordics 524 510 +2.6% 39 37 7.4%7.3%Other Business Units 1,073 1,012 +6.1% 168 160 15.6%15.8%Global structures** - - - -38 -40 -0.7%-0.7%Total5,7445,701+0.8%529513 9.2%9.0%* At constant scope and exchange rates** Global structures include the IT Services Divisions global costs not allocated to the Business Units and Corporate costsOperating marginRevenueOperating margin % A.4.3.1 North America In € millionH1 2019H1 2018*Organic evolutionRevenue 1,345 1,420 -5.3%Operating margin 148 140 Operating margin rate11.0%9.9%* At constant scope and exchange ratesNorth America Revenue reached € 1,345 million, decreasing by € -76 million or -5.3% organically. The Business Unit was affected by off-boarding contracts and reduced scope with legacy customers notably within Infrastructure & Data Management unit. Revenue in Infrastructure & Data Management was still impacted in H1 2019 by two contracts not renewed last year: Marriott International in Manufacturing, Retail & Transportation and Standard & Poor’s in Financial Services. Manufacturing, Retail & Transportation benefitted from new logo business such as a conglomerate specialized in tourism retail and entertainment complexes. Financial Services recorded a good performance: it benefitted from the contribution of the new contract won with CNA Financial Corporation, which more than compensated Standard & Poor’s contract. Telcos, Media & Utilities was mainly affected by the impact from decreased volume. In Business & Platform Solutions, Financial Services and Manufacturing, Retail & Transportation benefitted from Syntel acquisition and recorded a good performance. Public & Health was impacted by lower volumes within Atos legacy activities. In Big Data & Cybersecurity, the Division reached a good performance in Financial Services and Telcos, Media & Utilities, driven notably by new business opportunities with CNA Financial Corporation. However, this was not sufficient to compensate for the non-repeated high level of product sales performed last year in Manufacturing, Retail & Transportation and Public & Health sectors. Operating margin reached € 148 million, representing 11.0% of revenue. It increased its profitability by +110 basis points compared to last year despite revenue erosion. In Business & Platform Solutions, the Business Unit increased its operating margin rate thanks to the contribution from Syntel, including the first effect of synergies. In addition, Big Data & Cybersecurity contributed as well on the improvement of the operating margin rate. Finally, in Infrastructure & Data Management, profitability slightly decreased due to revenue decline despite first benefits from workforce optimization initiatives and strong cost reduction actions. 23/88 A.4.3.2 Germany In € millionH1 2019H1 2018*Organic evolutionRevenue 1,074 1,052 +2.2%Operating margin 68 62 Operating margin rate6.3%5.9%* At constant scope and exchange ratesGermany During the first half of 2019, the Business Unit achieved an organic growth of +2.2% compared to the same period last year at constant scope and exchange rates, leading to € 1,074 million revenue. Growth derived from the good performance in Business & Platform Solutions and Big Data & Cybersecurity, while the situation of Infrastructure & Data Management remained challenging. In Infrastructure & Data Management, the revenue was roughly stable. The Business Unit benefitted from increased business within Public & Health sector. However, this could not compensate for negative growth reported within other sectors. Manufacturing, Retail & Transportation was largely impacted by lower volumes while Unified Communication activities were positive. Telcos, Media & Utilities faced reduced scope with Nokia and Financial Services contract termination within Unify activities. The Division continued its digital development and achieved new wins notably in the digital workplace area. Business & Platform Solutions pursued its strong momentum over the semester. Manufacturing, Retail & Transportation benefitted from the new application management services with Siemens. Public & Health as well as Financial Services showed a strong performance from new services notably with a large German bank. These largely overcompensated for the ending Nokia application management contract terminated last year which impacted Telcos, Media & Utilities. Big Data & Cybersecurity achieved a strong growth led by Manufacturing, Retail & Transportation with new business notably in the Automotive sector. This largely compensated for lower volumes recorded within Financial Services and Public & Health sectors. Operating margin reached € 68 million or 6.3% of revenue, above last year by +40 bps at constant scope and exchange rates. Profitability grew significantly in Business & Platform Solutions, driven by the strong revenue growth and continued workforce optimization, over compensating declines both in Infrastructure & Data Management notably caused by difficulties with a legacy contract with a telecommunication provider as well as in Big Data & Cybersecurity. 24/88 A.4.3.3 France In € millionH1 2019H1 2018*Organic evolutionRevenue 887 847 +4.6%Operating margin 59 61 Operating margin rate6.7%7.2%* At constant scope and exchange ratesFrance At € 887 million, revenue was improving by +4.6% organically, confirming the positive trend recorded last year, fueled by Big Data & Cybersecurity and Business & Platform Solutions activities. Infrastructure & Data Management was decreasing organically. From a market point of view, growth was posted mainly in Financial Services notably coming from higher volumes within Insurance sector through hybrid cloud activities, while Public & Health was stable thanks to higher volumes and increasing hybrid cloud business with a large public company, offset by several ramp-down contracts. This was not enough to compensate for Telcos, Media & Utilities and Manufacturing, Retail & Transportation sectors notably impacted by several contracts ending. Business & Platform Solutions posted an increase organically, showing an improvement in almost all markets. The growth came primarily from Telcos, Media & Utilities, mainly driven by new business from Worldgrid activities, while Public & Health benefitted from new contracts such as with a large Group of private hospitals. The Manufacturing, Retail & Transportation sector showed a sustained activity as well, combined with increased demand on SAP HANA implementations. Conversely, the Business Unit was affected by the performance in Financial Services mainly due to the base effect from projects delivered last year and not repeated this year. Big Data & Cybersecurity achieved double-digit growth benefitting from the strong performance in almost all markets, thanks to new business within High Performance Computer and Big Data contracts. Telcos, Media & Utilities market was affected by the base effect from High Performance Computer delivery, successfully achieved with a large national energy provider last year. Operating margin reached € 59 million, representing 6.7% of revenue, -50 basis points at constant scope and exchange rates. In Infrastructure & Data Management as well as in Business & Platform Solutions, the monitoring of the actions on costs and on productivity did not fully materialize. Big Data & Cybersecurity increased its operating margin, supported by strong revenue growth. A.4.3.4 United Kingdom & Ireland In € millionH1 2019H1 2018*Organic evolutionRevenue 842 860 -2.1%Operating margin 87 93 Operating margin rate10.3%10.8%* At constant scope and exchange ratesUnited Kingdom & Ireland Revenue was € 842 million, down -2.1% at constant scope and exchange rates. Despite strong business growth in Business & Platform Solutions, the business unit could not compensate for the base effect of sales achieved in the first semester 2018 in Big Data & Cybersecurity and the completion of transitions and transormations as well as volume reductions in Infrastructure & Data Management. Infrastructure & Data Management decreased compared to last year. Financial Services achieved a strong performance, notably thanks to the increased revenue with NS&I and Aegon, coupled with the ramp-up on Aviva contract. Telcos, Media & Utilities market was mainly driven by additional sales achieved with BBC and the ramp-up of the hybrid cloud contract with Scottish Water. Manufacturing, Retail & Transportation also increased, thanks to the cloud deliveries on contract extension with a UK postal service company. However, this could not fully compensate for the decline in Public Sector impacted by the transition completion of Ministry of Justice. 25/88 Business & Platform Solutions closed the semester with strong organic growth. In Financial Services, the performance was supported by the ramp-up of Aegon and Coventry Building Society contracts. Within Manufacturing, Retail & Transportation market, growth was essentially derived from increased projects on intelligent infrastructure with a rail infrastructure company in Europe. Telcos, Media & Utilities remained broadly stable while Public & Health was impacted by end of projects. Big Data & Cybersecurity was down due to lower sales of licenses in Cybersecurity compared to last year. This effect was only partly mitigated by Bullion deliveries to the UK postal service company and the ramp-up of Cybersecurity contract with Aegon. Operating margin was € 87 million and represented 10.3% of the revenue, a decrease of -40 basis points compared to last year at constant scope and exchange rate, mainly resulting from volume reduction in BPO contracts. Business & Platform Solutions managed to improve the profitability thanks to continued tight project management and strong actions to optimize the cost base. Big Data & Cybersecurity managed to keep profitability roughly stable. A.4.3.5 Benelux & The Nordics In € millionH1 2019H1 2018*Organic evolutionRevenue 524 510 +2.6%Operating margin 39 37 Operating margin rate7.4%7.3%* At constant scope and exchange ratesBenelux & The Nordics At € 524 million, revenue was up by +2.6% organically. Infrastructure & Data Management remained nearly stable year-on-year showing a strong performance achieved within Telco, Media & Utilities while Manufacturing, Retail & Transportation sector was stable, benefitting from the recently signed extended Philips contract as well as higher volumes achieved with Philip Morris International which were compensated by the base effect on activities achieved last year within Siemens Windpower in the Nordics. Public & Health and Financial Services sectors were affected by ended contracts, notably with Public Institutions, as well as volume reductions with Achmea, partly compensated by the ramp-up of the contract signed with Dutch University Hospitals. Business & Platform Solutions revenue posted a decrease organically. Manufacturing, Retail & Transportation market growth was driven by the ramp-up of the contract with Philips. The situation was more challenging in other sectors: within Public & Health the new business with a Dutch Ministry was not enough to compensate for the decline from the ended contract with a Public Institution while Financial Services declined mainly in the Netherlands. Telcos, Media & Utilities sector was affected by the ramp down with KPN, partly compensated by recent won deal with a major Dutch telecom firm. Big Data & Cybersecurity recorded a strong organic growth, primarily driven by a sustained demand through HPC area with CSC in Finland, as well as higher product sales notably with a large IT Group in Belgium. Additionally, the Division benefitted from a good performance in several countries such as Poland, Sweden or Denmark. Operating margin reached € 39 million, representing 7.4% of revenue, an improvement of +10 basis points compared to last year at constant scope and exchange rates. The profitability increased in Big Data & Cybersecurity and Business & Platform Solutions driven by improved revenue mix combined with increased operational efficiency through continued tight project management and strong actions to optimize the cost base. Infrastructure & Data Management margin decreased compared to last year but managed to keep a high level of profitability. 26/88 A.4.3.6 Other Business Units In € millionH1 2019H1 2018*Organic evolutionRevenue 1,073 1,012 +6.1%Operating margin 168 160 Operating margin rate15.6%15.8%* At constant scope and exchange ratesOther Business Units Revenue in “Other Business Units” reached € 1,073 million, up +6.1% organically, fueled by strong activity in all Divisions and especially in Big Data & Cybersecurity and in Business & Platform Solutions. Infrastructure & Data Management grew strongly, showing an acceleration in all markets. In particular, Public Sector posted a double-digit growth, thanks notably to the ramp-up of projects with the Western Australian Department of Health and coupled with the sales achieved in Central & Eastern Europe. The new cloud contract with a Spanish mobile telco operator contributed to growth recorded by Telcos, Media & Utilities. Financial Services benefitted from the ramp-up of a contract with a large private bank in Morocco and higher activity in Central Europe and India. Manufacturing, Retail & Transportation remained broadly stable, thanks to increased business in China and Spain. Business & Platform Solutions continued to grow in most markets. Telcos, Media & Utilities market was fueled by increased volumes, notably with Italian and Spanish clients and by new projects in Middle East & Africa. Growth in Manufacturing, Retail & Transportation was mainly driven by the ramp-up of new contracts and spread over Central & Eastern Europe and South America. Public & Health was also dynamic, thanks to new projects with governmental institutions, essentially in Central & Eastern Europe and South America. Big Data & Cybersecurity posted a double-digit growth, fueled by new Cybersecurity projects and fertilization in Central Europe, notably with a National Police in Central & Eastern Europe and Armasuisse, coupled with HPC deliveries in Brazil. Operating margin was € 168 million, representing 15.6% of revenue. While margin in Business & Platform Solutions decreased, Infrastructure & Data Management as well as Big Data & Cybersecurity managed to improve the profitability. As a reminder, Global Delivery Centers margin is included in that of Other Business Units. A.4.3.7 Global structures Global structures costs were nearly stable compared to the first half of 2018, reflecting the continued internal costs optimization in most functions. 27/88 A.4.4 Revenue by Market In € millionH1 2019H1 2018*Organic evolutionManufacturing, Retail & Transportation 2,063 2,058 +0.2%Public & Health 1,697 1,717 -1.2%Financial Services 1,041 989 +5.2%Telcos, Media & Utilities 943 937 +0.7%Total5,7445,701+0.8%* At constant scope and exchange rates A.4.4.1 Manufacturing, Retail & Transportation Manufacturing, Retail & Transportation was the largest market segment of the Group (36%) and reached € 2,063 million in the first semester of 2019, growing by +0.2 % compared to the first semester of 2018 at constant scope and exchange rates. Revenue increase mainly came from Germany thanks notably to Siemens and Unified Communications, offset by a decline in North America due to Marriott International. In this market, the top 10 clients (excluding Siemens) represented 20% of revenue with a leading North American logistics company, Conduent, Daimler, Philips, a conglomerate specialized in tourism retail and entertainment complexes, a global leader in Aerospace & Defense Group, Johnson & Johnson, a UK postal company, Rheinmetall, and a large German pharmaceutical Company. A.4.4.2 Public & Health Public & Health was the second market of the Group (30%) with total revenue of € 1,697 million, representing a decrease of -1.2% compared to the first semester of 2018 at constant scope and exchange rates. Revenue decrease mainly came from the United Kingdom however partially compensated by good performance in France within Big Data & Cybersecurity Division and in Germany within Infrastructure & Data Management Division. 35% of the revenue in this market was realized with 10 main clients: Texas Department of Information Resources, UK Department for Work & Pensions (DWP), European Union Institutions, AllScripts, McLaren Health Care Corporation, UK Nuclear Decommissioning Authority, a French Ministry, UK Ministry of Justice, a governemental ageny in Germany, and Bundesagentur für Arbeit. A.4.4.3 Financial Services Financial Services was the third Market of the Group and represented 18% of the total revenue at € 1,041 million, representing an increase of +5.2% compared to the first semester of 2018 at constant scope and exchange rates. A good performance was recorded in the United Kingdom thanks to Aegon and NS&I. The market was also benefiting from contract ramp-up in North America Operations with CNA Financial Corporation. In this market, 51% of the revenue was generated with the 10 main clients: NS&I, Standard Chartered Bank, American Express, State Street Corporation, CNA Financial Corporation, Deutsche Bank, Aegon, Aviva, Achmea and BNP Paribas. A.4.4.4 Telcos, Media & Utilities Telcos, Media & Utilities represented 16% of the Group revenue and reached € 943 million, representing an increase of +0.7% compared to the first semester of 2018 at constant scope and exchange rates. Revenue increase was mainly coming from BBC in the United Kingdom combined with a strong performance within Iberia and Benelux & The Nordics. Main clients were EDF, BBC, Orange, Telefonica/O2, Worldline, Deutsche Telekom, The Walt Disney Company, Enel, Telecom Italia and Nokia. The top 10 main clients represented 49% of the total Telcos, Media & Utilities Market revenue. 28/88 A.4.5 Portfolio A.4.5.1 Order entry and book to bill During the first semester of 2019, the Group order entry reached € 5,742 million, representing a book to bill ratio of 100%, of which 113% in the second quarter. Order entry and book to bill by Division was as follows: In € millionQ1 2019Q2 2019H1 2019Q1 2019Q2 2019H1 2019Infrastructure & Data Management 1,076 1,791 2,867 70%112%91%Business & Platform Solutions 1,112 1,116 2,228 104%104%104%Big Data & Cybersecurity 241 406 647 112%158%137%Total2,4283,3135,74286%113%100%Order entryBook to bill Book to Bill ratio was particularly high for Big Data & Cybersecurity with 137%. Business & Platform Solutions recorded a healthy 104%, while Infrastructure & Data Management reported 91%, reflecting a high level of new signatures in a year with only a few contracts up for renewal. New contracts in Q2 benefitted to Infrastructure & Data Management thanks to a strong commercial dynamism in particular in Manufacturing, Retail & Transportation with notably a new contract in North America. Still in Infrastructure & Data Management, the Benelux & The Nordics as well as the United Kingdom signed large contracts through the Public & Health sector. Business & Platform Solutions signed new contracts notably in Benelux & The Nordics and in Germany. Big Data & Cybersecurity pursued its solid commercial dynamic reaching +158% book to bill ratio in Q2. Renewals in Q2 included several contracts in Infrastructure & Data Management such as in the United Kingdom within the Public & Health sector as well as with Philips in Benelux & The Nordics and several other deals in North America and France. Big Data & Cybersecurity managed to renew two important deals in Public sector in France. Order entry and book to bill by Market were as follows: In € millionQ1 2019Q2 2019H1 2019Q1 2019Q2 2019H1 2019Manufacturing, Retail & Transportation 708 1,424 2,132 71%133%103%Public & Health 741 931 1,672 87%110%99%Telcos, Media & Utilities 561 591 1,151 119%125%122%Financial Services 418 368 787 83%68%76%Total2,4283,3135,74286%113%100%Order entryBook to bill A.4.5.2 Full backlog In line with the commercial activity, the full backlog at the end of June 2019 amounted to € 21.3 billion, stable compared to the end of December 2018, representing 1.9 year of revenue. A.4.5.3 Full qualified pipeline The full qualified pipeline was € 7.1 billion, compared to € 6.8 billion at the end of December 2018 and representing 7.4 months of revenue. 29/88 A.4.6 Human Resources The total headcount of the Group was 108,851 at the end of June 2019 compared to 122,110 at the end of December 2018. This evolution is strongly impacted by a -11,678 headcounts scope impact mostly related to the deconsolidation of Worldline as of April 30, 2019. Excluding this scope effect, the staff decreased by -1.5% accompanying and anticipating the effect of automation and robotization. During the first semester of 2019, the Group hired 9,165 staff (of which 94% direct employees), compared to 4,955 in H1 2018. Hiring have been mainly achieved in “Other Business Units”, notably in offshore/nearshore countries such as India and Poland. Attrition rate was 15.4% at Group level, of which 21.4% in offshore/nearshore countries. Headcount evolution in H1 2019 by Business Unit and by Division was as follows: End ofDecember 2018ScopeHiringLeavers, dismissals& restructuringEnd ofJune 2019Infrastructure & Data Management44,530 -11 3,757 -3,406 44,871 Business & Platform Solutions52,954 0 4,472 -7,234 50,192 Big Data & Cybersecurity5,186 -91 417 -232 5,280 Functions156 0 1 3 160 Total Direct 102,826 -102 8,648 -10,869 100,503 Germany8,503 -18 105 -214 8,376 North America11,127 -10 859 -1,730 10,246 France10,606 -11 540 -730 10,406 United Kingdom & Ireland8,485 0 1,475 -710 9,250 Benelux & The Nordics5,235 0 213 -405 5,043 Other Business Units58,316 -63 5,424 -7,070 56,606 Global structures554 0 32 -10 576 Total Direct 102,826 -102 8,648 -10,869 100,503 Total Indirect 7,810 0 517 22 8,348 Worldline 11,474 -11,576 470 -368 0 TOTAL GROUP122,110-11,6789,635-11,216108,851 30/88 A.5 2019 objectives In 2019, the Group targets the following objectives for its 3 key financial criteria in line with its ADVANCE 2021 3-year plan: Revenue organic growth: +1% to +2%; Operating margin: circa 10.5% of revenue; Free cash flow: between € 0.6 billion to € 0.7 billion. On January 30, 2019, the Group held an Investor Day, where it announced to the market, after issuing in a first time a press release in the morning before market opening, its three-year plan with targets for the year 2021. The 2019 full-year objectives, first year of the three-year plan, as well as the underlying assumptions have been presented accordingly. These assumptions are presented in the section B.4 (https://atos.net/wp- Strategy and ADVANCE 2021 of content/uploads/2019/04/atos-2018-registration-document.pdf) this Universal Registration Document. the 2018 Registration Document incorporated by reference A.6 Claims and litigations The Atos Group is a global business operating in some 73 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. Due to the deconsolidation of Worldline, Worldline’s claims and litigations have been removed and are no longer supervised by the Group. However, in the context of their Global Alliance, Atos and Worldline have agreed to cooperate in the management of current and future litigations involving both groups by coordinating their respective legal departments. During the first half-year of 2019 the Group has successfully put an end to several significant litigations through settlements agreements and favourable court decisions. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of 30 June 2019 to cover for the identified claims and litigations, added up to € 33 million (including tax and commercial claims but excluding labor claims). A.6.1 Risks relating to the deconsolidation of Worldline The deconsolidation of Worldline from the Atos Group results in new risks which could have material adverse impact on Atos’ business or results (or its ability to achieve its objectives), and/or a significant likelihood to occur. 31/88 in Prior to the deconsolidation, Atos and Worldline had a certain level of interdependency materialized by a joint go-to-market strategy, common talent pools and networks, cooperation of experts in innovation and data/security, joint agreements with third parties notably suppliers, common tools and processes, and a number of shared functions and shared IT systems. As a consequence, the major risks for Atos resulting from the separation of Worldline from the Atos Group are the potential limitation of joint commercial opportunities and synergies, which might impact Atos’ capacity to generate future revenue, and the potential security incidents affecting IT systems linked to the intertwining of IT and production IT structures which might cause recovery costs, and reputation or other damages. To mitigate those risks, Atos entered into an alliance agreement with Worldline, dated March 25, 2019, which was authorized by the Board of Directors and approved by the Company’s Annual General Meeting held on April 30, 2019 (the “Alliance”). The Alliance aims at maintaining a strong partnership in the following four main domains, implying mutual obligations of both groups: Sales, Research and Development (R&D), Human Resources and Procurement; it notably includes a mutual general cooperation clause and governance provisions relating to the implementation of the Alliance. Atos and Worldline also entered into a separation agreement, dated May 6, 2019, which was authorized by the Board of Directors. This separation agreement notably organizes a close cooperation for the separation and migration of IT systems. Finally, ahead of the separation, Atos and Worldline set up an appropriate project management structure involving 16 workstreams (1 per domain) and a clear project governance was put in place to achieve an adequate transition. Several committees comprising Atos and Worldline representatives meet on a regular basis to monitor the transition, ensure the proper implementation of the Alliance and define corrective actions, when required A.6.2 Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Some of the tax claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a Stamp Duty re-imbursement. Following a judgement HSBC reached by the European Justice Court, Atos UK commenced proceedings in 2009 to recover a stamp duty paid in 2000 of an amount over €10 million. The Stamp Duty aspect of the claim was won in 2012. Regarding the time limit rule a favorable judgement was released in April 2017. Atos UK is now waiting for the outcome of the HMRC’s request for appeal in the test case. The total provision for tax claims, as inscribed in the consolidated accounts closed as at 30 June 2019 was € 22 million. A.6.3 Commercial claims There are a small number of commercial claims across the Group. Some important contracts that have been monitored by the Risk Management Department have evolved into litigation, particularly in Germany. These disputes are managed by the Group's Legal Department. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, the latest one being a litigation inherited from Syntel which the Group is trying to settle amicably. The Group and Siemens signed two settlements agreements covering the Unify cases on one hand and the Siemens IT Solutions et Services cases on the other hand. Further to the signature of these agreements, the Group is confident that it has obtained a satisfactory coverage for the residual risks associated with the acquisition of Unify. The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at 30 June 2019, amounts to € 11 million. 32/88 A.6.4 Labor claims There are almost 110.000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of € 11 million as inscribed in the consolidated financial statements as at 30 June 2019. A.6.5 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. A.6.6 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. A.7 Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). Significant related-party transactions are described in the Note 14 – Related party transactions on page 229 of the 2018 Registration Document filed with the Autorité des Marchés Financiers (AMF) on February 22, 2019. Following the distribution in kind of 23.5% of Worldline share capital to Atos’ shareholders on May 7, 2019, Atos holds 27.3% of the share capital and 35.0% of the voting rights of Worldline. As from May 1, 2019 (instead of May 7, 2019 for practical reasons), this stake has been accounted for under the equity method in Atos’ financial statements. Consequently, the transactions between Atos and Worldline, over which the Group has a significant influence, are detailed below in the Note 13 – Related party transactions. 33/88 B. Financial statements B.1 Financial review Worldline Discontinued operation Following the decision made on January 29, 2019 by Atos Board of Directors to submit to Annual General Meeting the project to distribute 23.5% of Worldline total shares to Atos shareholders and the approval of the transaction by Atos shareholders at the Annual General Meeting on April 30, 2019, this distribution of Worldline shares took effect on May 7, 2019, the payment date for the stock dividend. Thus, in accordance with IFRS 5, Worldline’s results up to April 30, 2019 (instead of May 7, 2019 for practical reasons) have been reclassified to “Net income from discontinued operation”. The gain resulting from this transaction was recognized in the consolidated income statement in “Net income from discontinued operation” (see in note 1 – Changes in the scope of consolidation). Worldline 2018 contributions to the Group income statement and cash flow were restated accordingly. B.1.1 Income statement The Group reported a net income from continuing operations (attributable to owners of the parent) of € 180 million for the half year ended June 30, 2019, representing 3.1% of Group revenue. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 343 million, representing 6.0% of Group revenue of the period. (In € million)6 months ended 30 June 2019%6 months ended 30 June 2018 *%Continuing operationsOperating margin 5299.2%4167.9%Other operating income/(expenses)-241-169Operating income2885.0%2474.7%Net financial income/(expenses)-79-23Tax charge -38-35Non-controlling interests -2-1Share of net profit/(loss) of associates12-Netincomefromcontinuingoperations–Attributabletoowners of the parent1803.1%1883.6%Normalizednetincomefromcontinuingoperations–Attributable to owners of the parent **3436.0%3025.8%Discontinued operationNetincomefromdiscontinuedoperation–Attributabletoowners of the parent3,05540** The normalized net income is defined hereafter.*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. The net income from discontinued operation is made of the contribution from Worldline net result from January 1, 2019 to April 30, 2019 and of the net gain on distribution of Worldline shares net of costs to distribute (after tax). This net gain was € 2,996 million (see in Note 1 – Changes in the scope of consolidation). B.1.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. 34/88 B.1.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 241 million in the first half of 2019. The following table presents this amount by nature: (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *Staff reorganization-63-37Rationalization and associated costs-17-13Integration and acquisition costs-24-16Amortization of intangible assets (PPA from acquisitions) -79-49Equity based compensation-34-32Other items-24-23Total-241-169*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. Staff reorganization increased to € 63 million, mainly due to the acceleration of the adaptation of the Group workforce in several countries, in particular in Germany and to a lesser extent in France, as well as the reorganization of the Global Infrastructure & Data Management Division. The € 17 million rationalization and associated costs primarily resulted from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs at € 24 million mainly related to the integration costs of Syntel to generate synergies while the other costs relate to the migration and standardization of internal IT platforms from earlier acquisitions. In the first half of 2019, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 79 million was mainly composed of: € 33 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 11 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 10 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 9 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014. The equity-based compensation expense amounted to € 34 million in the first half of 2019 compared to € 32 million in the first half of 2018. In the first half of 2019, the € 24 million other expenses remained stable and corresponded mainly to semi-retirement scheme in Germany and break-up fees related to supplier contract terminations. 35/88 B.1.1.3 Net financial expense Net financial expense amounted to € 79 million for the period (compared to € 23 million for the first half of 2018) and was composed of a net cost of financial debt of € 36 million and non-operational financial costs of € 43 million. Net cost of financial debt increased from € 8 million in the first half of 2018 to € 36 million in the first half of 2019 of which € 32 million from interest expenses to finance Syntel acquisition. Non-operational financial costs amounted to € 43 million compared to € 14 million in the first half of 2018, mainly coming from the interests on the lease liabilities following the first application of IFRS 16 and a net foreign exchange loss of € 3 million compared to a gain of € 7 million on the first half of 2018. B.1.1.4 Corporate tax The tax charge for the first half of 2019 was € 38 million with a profit before tax from continuing operations of € 209 million. The annualized Effective Tax Rate (ETR) was 18.3% compared to 15.5% for the first half of 2018. This increase related mostly to the integration in the Group scope of Syntel, which has a higher ETR than average. This effect was similar to the effect that Worldline used to have on Group ETR when it was consolidated as part of the continuing operations. Therefore the Group ETR remained stable compared to the situation before Worldline deconsolidation and Syntel acquisition. B.1.1.5 Share of net profit/(loss) of associates Associates accounted for under equity method amounted to € 12 million in the first half of 2019 coming from the contribution of Worldline since May 1, 2019. B.1.1.6 Non-controlling interests Due to the loss of control of Worldline, non-controlling interests are not significant for the Group anymore. B.1.1.7 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was € 343 million, representing 6.0% of Group revenue for the period. (in € million)6 months ended 30 June 20196 months ended 30 June 2018 *Netincomefromcontinuingoperations-Attributabletoowners of the parent180188Otheroperatingincomeandexpensesnetoftaxfromcontinuingoperations-163-115Normalized net income from continuing operations - Attributable to owners of the parent 343302*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. 36/88 B.1.1.8 Half year Earning Per Share (In € million and shares)6 months ended 30 June 2019% Margin6 months ended 30 June 2018 *% MarginContinuing operationsNetincomefromcontinuingoperations–Attributable to owners of the parent [a]1803.1%1883.6%Impact of dilutive instruments - - Netincomefromcontinuingoperationsrestatedofdilutiveinstruments-Attributabletoownersof the parent [b]1803.1%1883.6%Average number of shares [e] 106,980,344 105,344,848 Impact of dilutive instruments 8,730 125,413 Diluted average number of shares [f] 106,989,074 105,470,261 (In €)Basic EPS from continuing operations [a] / [e]1.681.78Diluted EPS from continuing operations [b] / [f]1.681.78NormalizedbasicEPSfromcontinuingoperations [c] / [e]3.212.87NormalizeddilutedEPSfromcontinuingoperations [d] / [f]3.212.87Discontinued operationNetincomefromdiscontinuedoperation–Attributable to owners of the parent [a]3,05553.2%400.8%Impact of dilutive instruments - - Netincomefromdiscontinuedoperationrestatedofdilutiveinstruments-Attributableto owners of the parent [b]3,05553.2%400.8%Average number of shares [e] 106,980,344 105,344,848 Impact of dilutive instruments 8,730 125,413 Diluted average number of shares [f] 106,989,074 105,470,261 (In €)Basic EPS from discontinued operation [a] / [e]28.550.38DilutedEPSfromdiscontinuedoperation[b]/[f]28.550.38*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinuedoperation”, in accordance with IFRS 5. Potential dilutive instruments comprised vested stock options (equivalent to 8,730 options). 37/88 B.1.2 Cash Flow and net cash The Group reported a net debt position of € 2,939 million at the end of June 2019 and a free cash flow generation of € 23 million in the first half of 2019. (in € million)6 months ended 30 June 20196 months ended 30 June 2018 *Operating Margin before Depreciation and Amortization (OMDA)835542Capital expenditures-173-177Lease payments-167-Change in working capital requirement-269-152Cash from operation (CFO)227213Tax paid-48-31Net cost of financial debt paid-36-8Reorganization in other operating income -49-52Rationalization & associated costs in other operating income -22-2Integration and acquisition costs-24-15Other changes**-26-27Free Cash Flow (FCF)2378Net (acquisitions) / disposals-11-21Capital increase / (decrease)157Share buy-back-76-50Dividends paid-58-70Change in net cash/(debt)-107-57Opening net cash/(debt)-2,872307Net (cash)/debt from (used in) discontinued operation35-309Change in net cash/(debt)-107-57Foreign exchange rate fluctuation on net cash/(debt) 5-4Closing net cash/(debt)-2,939-62*NetdebtfromitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netdebtfrom(usedin)discontinued operation”, in accordance with IFRS 5.**"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationandacquisitioncosts)andotherfinancialitemswithcashimpact,netlongtermfinancialinvestmentsexcludingacquisitionsanddisposals,andprofitsharingamountspayabletransferredtodebt. Free cash flow represented by the change in net cash or net debt, excluding equity changes, dividends paid, impact of foreign exchange rate fluctuation on opening net cash balance, and net acquisitions and disposals, was € 23 million compared to € 78 million in the first half of 2018. Cash From Operations (CFO) amounted to € 227 million compared to € 213 million in the first half of 2018, the evolution coming from the following items: OMDA net of lease payments (€ +126 million); Capital expenditures (€+4 million); Change in working capital (€-117 million). 38/88 OMDA of € 835 million, representing an increase of €+293 million compared to June 2018, reached 14.5% of revenue compared to 10.3% of revenue in June 2018. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended 30 June 20196 months ended 30 June 2018 *Operating margin529416 + Depreciation of fixed assets171173 + Depreciation of right of use164- + Net book value of assets sold/written off1317+/- Net charge/(release) of pension provisions-39-47+/- Net charge/(release) of provisions-3-18OMDA835542*OMDAitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinuedoperation”,in accordance with IFRS 5. In addition to the depreciation of right of use assets under IFRS16, the increase by € 293 million of OMDA is due to the Syntel scope effect as well as organic improvement from operations. Capital expenditures totaled € 173 million, representing 3.0% of revenue, 40 bps less than the same period last year as the Group structure became less capital intensive. The negative contribution from change in working capital was €-269 million (compared to €-152 million in the first half of 2018). The DSO has increased by 6 days (from 43 days at the end of December 2018 to 49 days at the end of June 2019), while the DPO has decreased by 2 days (from 97 days at the end of December 2018 to 95 days at the end of June 2019). DSO has been positively impacted by the sale of receivables with no recourse on large customer contracts by 23 days, stable compared to December 2018. As of June 30, 2019, € 858 million of trade receivables were sold, compared to € 894 million as of December 31, 2018, with no recourse to banks with transfer of risks as defined by IFRS 9 and were therefore derecognized in the Statement of Financial Position as of June 30, 2019. Cash out related to taxes paid increased by € 17 million mainly due to Syntel scope effect. Cost of net debt increased from € 8 million in the first half of 2018 to € 36 million in the first half of 2019 of which € 32 million from interest expenses to finance Syntel acquisition. This impact was partially reduced thanks to the average rate of 1.60% on the average gross cash compared to 0.98% in the first half of 2018. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 95 million. A larger portion of reorganization costs was pulled forward into H1 to optimize the impact on the full year operating margin. The Group objective for the full year is confirmed at 1% of revenue plus Syntel integration costs and German transformation plan. Other changes amounted to € -26 million, stable compared to last year same period. As a result of the above evolutions as well as increase of the working capital requirement, the Group free cash flow (FCF) generated € 23 million during the first half of 2019, compared to € 78 million in the first half of 2018. Capital increase totaled € 15 million in the first half of 2019 compared to € 7 million in the first half of 2018. This is mainly explained by the Group shareholding program SHARE 2018 for employees which occurred only in the first half of 2019. Share buy-back reached € 76 million during the first half of 2019 compared to € 50 million in the first half of 2018. These share buy-back programs are related to managers performance shares delivery and aim at avoiding dilution effect for the shareholders. In the first half of 2019, dividends paid mostly related to dividend paid to owners of the parent which amounted to € 55 million (€ 1.70 per share) compared to € 68 million in the first half of 2018 (€ 1.70 per share). Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net debt of € 5 million. 39/88 B.1.3 Bank covenant The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility, the $ 1.9 billion term loan and the securitization program, with a leverage ratio (net debt divided by OMDA) of 2.09 at the end of June 2019. According to the credit documentation of the multi-currency revolving credit facility, the $ 1.9 billion term loan and the securitization program, the leverage ratio is calculated on a proforma basis, excluding IFRS16 impacts, taking into account 12 months rolling OMDA at the end of June 30, 2019. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility, the $ 1.9 billion term loan and the securization program. 40/88 B.2 Interim condensed consolidated financial statements B.2.1 Interim condensed consolidated income statement (in € million)Notes6 months ended 30 June 20196 months ended 30 June 2018 *Revenue Note 25,7445,241Personnel expensesNote 4.1-2,677-2,435Operating expensesNote 4.2-2,538-2,390Operating margin529416% of revenue9.2%7.9%Other operating income and expensesNote 5-241-169Operating income288247% of revenue5.0%4.7%Net cost of financial debt-36-8Other financial expenses-53-24Other financial income1010Net financial incomeNote 6.1-79-23Net income before tax209224Tax chargeNote 7-38-35Share of net profit/(loss) of associates12 - Continuing operationsNet income from continuing operations182189Of which:- attributable to owners of the parent180188- non-controlling interests21Discontinued operationNet income from discontinued operation3,14373Of which:- attributable to owners of the parent3,05540- non-controlling interests8933Total GroupNet income of consolidated companies3,326262Of which:- attributable to owners of the parent3,235228- non-controlling interests9135*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinuedoperation”, in accordance with IFRS 5. 41/88 (In € million and shares)Notes6 months ended 30 June 20196 months ended 30 June 2018 *Netincomefromcontinuingoperations-Attributabletoowners of the parentNote 12180188Weighted average number of shares 106,980,344105,344,848Basic earnings per share from continuing operations1.681.78Diluted weighted average number of shares 106,989,074105,470,261Diluted earnings per share from continuing operations1.681.78Netincomefromdiscontinuedoperation-Attributabletoowners of the parentNote 123,05540Weighted average number of shares 106,980,344105,344,848Basic earnings per share from discontinued operation28.550.38Diluted weighted average number of shares 106,989,074105,470,261Diluted earnings per share from discontinued operation28.550.38Netincomeofconsolidatedcompanies-Attributabletoowners of the parentNote 123,235228Weighted average number of shares 106,980,344105,344,848Basic earnings per share of consolidated companies30.232.16Diluted weighted average number of shares 106,989,074105,470,261Diluted earnings per share of consolidated companies30.232.16*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. B.2.2 Interim condensed consolidated statement of comprehensive income (in € million)6 months ended 30 June 20196 months ended 30 June 2018Net income of consolidated companies3,326262Other comprehensive income47-4Cash flow hedging 35Exchange differences on translation of foreign operations45-7Deferred tax on items recyclable recognized directly on equity-1-2-11359-15674Deferred tax on items non-recyclable recognized directly in equity43-16Total other comprehensive income-6655Total comprehensive income for the period3,260317Of which:- attributable to owners of the parent3,169284- non-controlling interests9134Actuarial gains and losses generated in the period on defined benefit plan - to be reclassified subsequently to profit or loss (recyclable): - not reclassified to profit or loss (non-recyclable): 42/88 B.2.3 Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2019December 31, 2018ASSETSGoodwillNote 85,8388,863Intangible assets1,7092,813Tangible assets579725Right-of-use1,101-Investments in associates accounted for under the equity methodNote 92,7437Non-current financial assetsNote 6.3225321Deferred tax assets426459Total non-current assets12,62113,188Trade accounts and notes receivableNote 3.22,8082,965Current taxes274Other current assetsNote 4.41,4982,791Current financial instruments1512Cash and cash equivalentsNote 6.22,2302,546Total current assets6,5538,388TOTAL ASSETS19,17321,576 (in € million)NotesJune 30, 2019December 31, 2018LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock109107Additional paid-in capital1,4412,862Consolidated retained earnings2,2722,760Translation adjustments-240-285Net income attributable to the owners of the parent3,235630Equity attributable to the owners of the parent6,8176,074Non-controlling interests82,027Total shareholders’ equity6,8258,101Provisions for pensions and similar benefitsNote 101,3881,385Non-current provisionsNote 1188101Borrowings3,7154,381Deferred tax liabilities298421Non-current financial instruments4-Non current lease liabilities858-Other non-current liabilities 15Total non-current liabilities6,3536,295Trade accounts and notes payablesNote 4.32,1292,462Current taxes99132Current provisionsNote 11125146Current financial instruments02Current portion of borrowings1,4541,037Current lease liabilities336-Other current liabilities Note 4.51,8523,400Total current liabilities5,9957,180TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY19,17321,576 43/88 B.2.4 Interim condensed consolidated cash flow statement (in € million)Notes6 months ended 30 June 20196 months ended 30 June 2018 *Profit before tax from continuing operations209224Depreciation of assetsNote 4.2171173Depreciation of right-of-use164-Net charge / (release) to operating provisions-33-64Net charge / (release) to financial provisions1512Net charge / (release) to other operating provisions6-Amortization of intangible assets (PPA from acquisitions) 7949Losses / (gains) on disposals of fixed assets11-Net charge for equity-based compensation3432Unrealized losses / (gains) on changes in fair value and other-1-4Net cost of financial debtNote 6.1368Interest on lease liabilityNote 6.114-Cash from operating activities before change in working capital requirement, financial interest and taxes705430Tax paid-48-31Change in working capital requirement-269-152Net cash from / (used in) operating activities388247Payment for tangible and intangible assets-173-177Proceeds from disposals of tangible and intangible assets-13Net operating investments-173-164Amounts paid for acquisitions and long-term investments -3-13Cash and cash equivalents of companies purchased during the period--9Proceeds from disposals of financial investments-82Net long-term investments-11-20Net cash from / (used in) investing activities -184-184Common stock issues on the exercise of equity-based compensation157Purchase and sale of treasury stock-76-50Dividends paid-58-70Lease payments-167-New borrowingsNote 6.49154Finance lease-4Repayment of current and non-current borrowingsNote 6.4-81-356Net cost of financial debt paid-36-8Other flows related to financing activities32Net cash from / (used in) financing activities-309-417Increase / (decrease) in net cash and cash equivalents-105-355Opening net cash and cash equivalents2,3782,182Net cash from (used in) discontinued operation-95-334Increase / (decrease) in net cash and cash equivalentsNote 6.4-105-355Impact of exchange rate fluctuations on cash and cash equivalents14-4Closing net cash and cash equivalentsNote 6.42,1911,488* Net cash and cash equivalent flows relating to Worldline for 2018 have been reclassified to “Net cash from (used in) discontinued operation”, in accordance with IFRS 5. 44/88 B.2.5 Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period-end(thousands)At December 31, 2017 restated105,4441052,7401,490-28286014,6625645,226▪ Common stock issued 1,4402122 - - - - 1247131▪ Appropriation of prior period net income601-601 - ▪ Dividends paid-179-179-2-182▪ Equity-based compensation3636238▪ Changes in treasury stock-50-50-50▪AcquisitionofNoncontrollinginterestwithoutachange in control55-5 - ▪ Other - 1 -1-1Transactions with owners1,440 2 122 411 -601 -67 2 -65 ▪ Net income 22822835262▪ Other Comprehensive income58-4256-155Total comprehensive income for the period58 -4 2 228 284 34 317 At June 30, 2018106,884107 2,862 1,958 -287 11 228 4,879 600 5,479 ▪ Common stock issued 2 - -1-2-3▪ Dividends paid - -9-9▪ Equity-based compensation1717219▪ Changes in treasury stock-34-34-13-47▪ Dilution impact8918911,4172,308▪AcquisitionofNoncontrollinginterestwithoutachange in control-4-4 4 - Transactions with owners2 - 870 869 1,399 2,268 ▪ Net income 402402 38440▪ Other comprehensive income-8011-78 -10-88Total comprehensive income for the period-80 1 1 402 324 28 352 At December 31, 2018106,8861072,8622,748-285116306,0742,0278,101▪ Common stock issued 2,3292140142142▪ Appropriation of prior period net income630-630 - - ▪ Dividends paid-182-182-2-184▪ Distribution in kind of Worldline shares-1,561-783-2,344-2,344▪ Equity-based compensation333333▪ Changes in treasury stock-75-75-75▪ Non controlling interests Worldline - -2,107-2,107▪ Other - - Transactions with owners2,3292-1,421-378-630-2,426-2,109-4,536▪ Net income 3,2353,235913,326▪ Other comprehensive income-113452-65-65Total comprehensive income for the period-1134523,2353,170913,261At June 30, 2019109,2151091,4412,257-240143,2356,81786,825Additional paid-in capitalConsolidated retained earningsTranslation adjustmentsCommon StockTotal shareholders' equityItems recognized directly in equityNet income TotalNon controlling interests 45/88 B.2.6 Appendices to the interim condensed consolidated financial statements B.2.6.1 Basis of preparation and significant accounting policies The 2019 interim condensed consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1, 2019. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). These interim consolidated financial statements for the six months period ended June 30, 2019, have been prepared in accordance with IAS 34 - Interim Financial Reporting - and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended December 31, 2018. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. Changes in accounting policies Except for new standards and amendments effective for the periods beginning as of January 1, 2019, the accounting policies applied in these interim consolidated financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended December 31, 2018. The Group has implemented the new standard IFRS 16 “Leases” and the new interpretation IFRIC 23 “Uncertainty over Income tax treatment” on January 1, 2019. As a result, the Company has changed its accounting policies for leases accounting and for the classification of certain liabilities linked to uncertainty over income tax as detailed below. IFRS 16 “Leases” IFRS 16 replaces existing leases guidance IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 introduces a single on-balance sheet lease accounting model for lessees requiring them to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make future lease payments. The Group applied IFRS 16 as of January 1, 2019 using the modified retrospective approach under which the comparative period is not restated. Instead, the cumulative impact of the application of the new standard is recognized in retained earnings at the transition date. Impact on equity is nil as of January 1, 2019. The Group also used the below simplification & exemptions for the application of IFRS 16: The Group applied the practical expedient to grandfather the definition of a lease on transition. This means that as at January 1, 2019, the Group applied IFRS 16 to all alive contracts entered before this date and identified as leases in accordance with IAS 17 and IFRIC 4. For contracts entered into after January 1, 2019, the Group assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period in exchange for consideration; The Group also applied exemptions allowed by IFRS 16.5 to not recognize short term leases (less than 12 months) and leases for which the underlying asset is of a low value. Payments under such contracts are registered in the profit and loss statement, on a straight-line basis, over the duration of the contract. 46/88 The new standard does not trigger any adjustments on transition for the Group, for leases in which it acts as a lessor as IFRS 16 does not trigger any change on the existing accounting treatment under IAS 17. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using a Group’s incremental borrowing bullet rate. Those rates have been determined for all currencies of the Group by geographies and by maturity. The incremental borrowing bullet rates are calculated by taking for each currency a reference market index quotation and adding up a spread corresponding to the cost of financing that would be applied by a lender to any subsidiary of Atos Group. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in the future lease payments arising from a change in an index or rate, a change in estimate of the amount expected to be payable under a residual value guarantee, or changes in the assessment of whether an extension option is reasonably certain to be exercised or a termination option is reasonably certain to be exercised. The Group has applied judgment to determine the lease term for some Real Estate lease contracts in which it is a lessee and that include renewal or early termination options analyzing whether those sites, mainly offices and data center, were strategic or not. In most cases, the Group retained the earliest date when the Group can go out from its lease commitment without paying any penalty except for French 3/6/9 specific leases where the 9th year has systematically been defined as lease term. Those assumptions might be revised during 2019 depending on IFRIC conclusions. Impacts on financial statements The Group elected to present the lease liability and the right to use the assets on dedicated lines in the Balance Sheet. Amortization of the right to use the asset is part of the operating margin, interest costs is part of the financial result of the Group. The impact of IFRS 16 implementation on Operating Margin and Group net result is not material as of June 30, 2019. The Group elected to exclude the lease liabilities from the Group net debt definition. Therefore, Free Cash Flow as per Group definition remains comparable with prior years. Excluding Worldline which is presented as held for distribution as of January 1, 2019, IFRS 16 led to the recognition of an opening lease liability for € 1,237 million. This liability relates mainly to Real Estate, IT equipments and cars used by employees. Reconciliation of operating lease commitments as of December 31, 2018 and opening lease liability is as follows: (in € million)1 January 2019Operating lease commitment at December 31, 2018 as disclosed in the Group's consolidated financial statements1,559Worldline held for distribution-210Short-term and low value assets leases (IFRS 16 exemptions)-10Discounting effect -144Finance lease liabilities recognised as at 31 December 201812Other impacts30Lease Liabilities recognised at January 1st 20191,237 The impacts of the first application of IFRS 16 on the opening balance sheet are the following, excluding Worldline which is presented as held for distribution as of January 1, 2019: the accounting of the right-of-use assets for an amount of € 1,249 million, non-current lease liabilities for € 899 million and current lease liabilities for € 338 million (those amounts are considered as net of prepaid leases); the previous amounts include the reclassification of recognized tangible assets and financial debt related to existing finance leases as of December 31, 2018 for an amount of € 12 million to right-of-use and lease liability; the reclassification of lease incentive benefits from current and non-current liabilities to reduction of the right-of-use assets for € 23 million; this amount reduces the amount of right-of-use assets indicated hereabove; the reclassification of onerous lease provision from non-current liabilities to reduction of the right-of- use assets for an amount of € 7 million; this amount reduces the amount of right-of-use assets indicated hereabove. 47/88 IFRIC 23 “Uncertainty over Income Tax Treatments” In May 2017, the IASB issued IFRIC 23 “Uncertainty over Income Tax Treatments”. The interpretation clarifies the recognition and measurement requirements when there is uncertainty over income tax treatments. In assessing the uncertainty, an entity shall consider whether it is probable that a taxation authority will accept the uncertain tax treatment. The adoption of this amendment did not lead to any revaluation of tax liabilities. The amount of uncertain tax liabilities formerly included under provisions and classified according to the simplified retrospective method to current income tax liabilities is not material. Other standards As of January 1, 2019, the Group applied the following standards, interpretations and amendments that had no material impact on the Group financial statements: Amendments to IFRS 9 - Prepayment Features with Negative Compensation; • Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures; • Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement; • Annual Improvements to IFRS Standards 2015–2017. The Group has not early adopted any standard or interpretation not required to be applied for periods beginning as or after January 1, 2019. The Group does not apply IFRS standards and interpretations that have not been yet approved by the European Union at the closing date. These interim consolidated financial statements are presented in euro, which is the Group’s presentation currency. All figures are presented in € million. Accounting estimates and judgments The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the 2019 interim condensed consolidated financial statements remain identical to those described in the last annual report, except for significant new judgments made for the application of IFRS 16 including the determination of the incremental borrowing rate of each lease contract and the probability of the renewal of such contracts. B.2.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual consolidated financial statements, significant accounting principles are presented in Notes 7 – Income tax expenses, 8 – Goodwill and 10 – Pension plans and other long-term benefits, being relevant for the interim consolidated financial statements. 48/88 B.2.6.3 Notes to the half-year condensed consolidated financial statements Note 1 – Changes in the scope of consolidation Note 2 – Segment information Note 3 – Revenue, trade receivables, contract assets and contract costs Note 4 – Operating items Note 5 – Other operating income and expenses Note 6 – Financial assets, liabilities and financial result Note 7 – Income tax Note 8 – Goodwill Note 9 – Investments in associates accounted for under the equity method Note 10 – Pensions plans and other long-term benefits Note 11 – Provisions Note 12 - Shareholders’ equity Note 13 – Related party transactions Note 14 – Approval of interim financial statements Note 15 – Subsequent events 49/88 50 52 54 55 57 59 62 62 63 63 64 64 65 66 66 Note 1 Changes in the scope of consolidation During the first half of 2019, the Group did not close any material acquisition. Distribution in kind of Worldline shares Discontinued operations up to April 30, 2019 Following the decision made on January 29, 2019 by Atos Board of Directors to submit to Annual General Meeting the project to distribute 23.5% of Worldline total shares to Atos shareholders and the approval of the transaction by Atos shareholders at the Annual General Meeting on April 30, 2019, this distribution of Worldline shares took effect on May 7, 2019, the payment date for the stock dividend. Thus, in accordance with IFRS 5, Worldline’s results up to April 30, 2019 (instead of May 7, 2019 for practical reasons) have been reclassified to “Net income from discontinued operation”. The distribution to Atos shareholders was made based on a ratio of 2 Worldline shares for 5 Atos shares held, in accordance with the terms of the transaction announced by Atos on March 22, 2019 and valued at the opening price on May 7, 2019 of the Worldline share (€ 54.70). Under IFRS, the distribution in kind of Worldline shares took place in two steps: (i) the first step is the sale of the 50.8% of Worldline shares held by Atos, and (ii) the second step is the acquisition of the 27.3% of Worldline shares retained by Atos. The net gain resulting from the loss of control of all Worldline shares held by the Group following the distribution was recognized in the consolidated income statement in “Net income from discontinued operation”. This gain was presented net of current and deferred taxes and costs to distribute the Worldline shares (after tax). Cash flows relating to Worldline operations up to April 30, 2019 have been reclassified in the consolidated statement of cash flows to “Net cash from (used in) discontinued operation”. 50/88 Impact on the consolidated income statement Worldline was not previously classified as held-for-distribution or as a discontinued operation. The comparative condensed consolidated statement of profit and loss has been changed to show the discontinued operation separately from continuing operations. The flows relating to the services rendered by the continuing operations to Worldline have been eliminated at the Worldline level. As a result, the external revenue of the Group includes revenues related to such flows. Detailed income statement of the discontinued operation (in € million)From January 1, 2019 to April 30, 2019*From January 1, 2018 to June 30, 2018Revenue 705764Personnel expenses-289-338Operating expenses-263-296Operating margin153129% of revenue21.7%16.9%Other operating income and expenses-22-34Operating income13195% of revenue18.6%12.5%Net financial income712Net income before tax20197Tax charge-48-24Net gain (loss) on disposal of discontinued operation2,996 - Other costs related to the distribution of Worldline shares-5 - Net income3,14373Of which:- attributable to owners of the parent3,05540- non-controlling interests8933*IncomeandexpenseitemsrelatingtoWorldlinefor2019havebeenreclassifieduntilApril30,2019to“Netincome from discontinued operation”, in accordance with IFRS 5. See note 1. The loss of control of Worldline following the distribution in kind generated a net gain of € 2,996 million in 2019. This amount is net of € 18 million of cost to distribute (after tax) Investment in Associates from May 1, 2019 Following the distribution, Atos held 27.3% of Worldline’s share capital and 35% of voting rights, subject to a six-month lock-up period. Starting May 1, 2019, the Group has no more control on Worldline, but a significant influence on Worldline. As such, the Group investment in Worldline was from that date presented as part of “Investments in associates accounted for under the equity method” in the 2019 consolidated financial statements. A purchase price allocation has been performed for the part of the business which is still held by the Group. The Group share of Worldline net contributive result since May 1, 2019 is presented in the Group 2019 consolidated income statement in “Share of net profit/(loss) of associates”. The new intangible assets generated by the purchase price allocation exercise are amortized on the same line. 51/88 Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO and Chairman of the Board of Directors who makes strategic decisions. The Global delivery centers have been isolated in Other Business Units. The Group segment organization in 2019 was the following: Operating segmentsActivitiesUnited Kingdom & IrelandBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataand Cybersecurity in Ireland and the United Kingdom.FranceBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataand Security in France and Morocco offshore delivery Center.GermanyBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataand Security in Germany.North AmericaBusiness&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinCanada,Guatemala,MexicoandtheUnitedStatesofAmericaBenelux & The Nordics Business&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinBelarus,Belgium,Denmark,Estonia,Finland,Lithuania,Luxembourg, Poland, Russia, Sweden and The Netherlands.Other Business Units Business&PlatformSolutions,Infrastructure&DataManagementandBigDataandCybersecurityinAlgeria,Andorra,Argentina,Australia,Austria,BosniaandHerzegovina,Brazil,Bulgaria,Chile,China,Colombia,Croatia,CzechRepublic,Egypt,Gabon,Greece,Hungary,Hong-Kong,India,Israel,Italy,IvoryCoast,Japan,Lebanon,Malaysia,Madagascar,Mauritius,Morocco,Namibia,New-Zealand,Philippines,Portugal,Qatar,Romania,Saudi-Arabia,Senegal,Singapore,Serbia,Slovakia,Slovenia,South-Africa,SouthKorea,Spain,Switzerland,Taiwan,Thailand,Tunisia,Turkey,UAE,UruguayandalsoMajorEvents activities, Global Delivery Centers Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group’s revenue. 52/88 The operating segment information for the periods is as follows: (in € million)United Kingdom and IrelandFranceGermanyNorth AmericaBenelux & The NordicsOther Business UnitsTotal Operating segmentsGlobal StructuresEliminationTotal Group 6 months ended 30 June 2019 External revenue by segment 842 887 1,074 1,345 524 1,073 5,744 5,744 % of Group revenue14.7%15.4%18.7%23.4%9.1%18.7%100.0%100.0%Inter-segment revenue 31 99 94 31 75 495 825 197 - 1,022 - Total revenue 873 986 1,168 1,376 599 1,568 6,569 197 - 1,022 5,744 Segment operating margin 87 59 68 148 39 168 567 -38 - 529 % of margin10.3%6.6%6.3%11.0%7.4%15.6%9.9%9.2% Total segment assets 1,330 1,854 1,987 4,681 1,019 2,334 13,204 3,311 16,515 6 months ended 30 June 2018 * External revenue by segment 830 848 1,060 967 515 1,021 5,241 - - 5,241 % of Group revenue15.8%16.2%20.2%18.4%9.8%19.5%100.0%100%Inter-segment revenue103177194179139881 1,672 136 - 1,808 - Total revenue 9321026125411456541902 6,913 136 - 1,808 5,241 Segment operating margin 89 61 68 89 39 111 457 -41 - 416 % of margin10.7%7.2%6.4%9.3%7.6%10.8%8.7%7.9% Total segment assets 1,134 1,701 1,733 1,480 795 1,657 8,500 330 8,830 * Figures presented are restated from Worldline activities, in accordance with IFRS 5. 53/88 The total assets by segment for the periods is as follows: (in € million)June 30, 2019June 30, 2018Total segment assets16,515 8,830 Total segment assets from Worldline*-2,122 Tax Assets428 433 Cash & Cash Equivalents2,230 1,967 Total Assets19,173 13,351 * Worldline is no more considered as segment. The Group revenue from external customers are split into the following divisions: (in € million)Infrastructure and data management Business & Platform solutionsBig Data & cybersecurityTotal GroupJune 30, 2019External revenue by segment 3,1372,135 473 5,744 % of Group revenue 54.6%37.2%8.2%100.0%6 months ended 30 June 2018 *External revenue by segment 3,1791,6324305,241 % of Group revenue 60.7%31.1%8.2%100.0%* Figures presented are restated from Worldline activities, in accordance with IFRS 5. Note 3 Revenue, trade receivables, contract assets and contract costs 3.1 – Disaggregation of revenue from contracts with customers (in € million)Manufacturing, Retail &Transport Public & HealthFinancial ServicesTelcos, media & utilities Total GroupJune 30, 2019External revenue by market2,0631,697 1,041 943 5,744 % of Group revenue 35.9%29.5%18.1%16.4%100.0%6 months ended 30 June 2018 *External revenue by market1,9571,614 751 919 5,241 % of Group revenue 37.3%30.8%14.3%17.5%100.0%* Figures presented are restated from Worldline activities, in accordance with IFRS 5. 54/88 3.2 – Trade accounts and Notes receivables (In € million)June 30, 2019December 31, 2018Contract assets1,638 1,489 Trade receivables1,142 1,471 Contract costs 100 89 Expected credit losses allowances-72 -84 Net asset value2,808 2,965 Contract liabilities-672 -776 Net accounts receivable 2,137 2,188 Number of days’ sales outstanding (DSO)49 43 Atos securitization program of trade receivables has been renewed for 5 years on May 29, 2018 with a maximum amount of receivables sold of € 500 million and a maximum amount of financing reduced from € 200 million to € 100 million. The Group sold with recourse trade receivables for € 93 million. These trade receivables have not been derecognized from the statement of financial position, because the Group retains substantially all risks and rewards. The amount received on transfer (€ 10 million) has been recognized as a secured bank loan. The arrangement with the bank is such that the customer remits cash directly to the Group and the Group transfers the collected amount to the bank. As of June 30, 2019, € 858 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 894 million as of December 31, 2018). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2019. Note 4 Operating items 4.1 – Personnel expenses (In € million)6 months ended 30 June 2019% Revenue6 months ended 30 June 2018 *% RevenueWages and salaries -2,17237.8%-1,95437.3%Social security charges-5058.8%-5129.8%Tax, training, profit-sharing-390.7%-160.3%Net (charge)/release to provisions for staff expenses-0.0%-0.0%Net (charge)/release of pension provisions39-0.7%47-0.9%Total-2,677 46.6%-2,436 46.5%*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinuedoperation”, in accordance with IFRS 5. 55/88 4.2 – Non-personnel operating expenses (In € million)6 months ended 30 June 2019% Revenue6 months ended 30 June 2018 *% RevenueSubcontracting costs direct-950 16.5%-924 17.6%Hardware and software purchase-507 8.8%-435 8.3%Maintenance costs-331 5.8%-298 5.7%Rent expenses-11 0.2%-164 3.1%Telecom costs-152 2.6%-148 2.8%Travelling expenses-79 1.4%-59 1.1%Professional fees -100 1.7%-94 1.8%Others expenses-127 2.2%-155 3.0%Subtotal expenses -2,258 39.3%-2,278 43.5%Depreciation of assets-171 3.0%-173 3.3%Depreciation of right-of-use-164 2.9%--Net (charge)/release to provisions3 -0.1%18 -0.3%Gains/(Losses) on disposal of assets-10 0.2%-7 0.1%Trade receivables write-off-5 0.1%-6 0.1%Capitalized production66 -1.2%56 -1.1%Subtotal other expenses-280 4.9%-112 2.1%Total-2,538 44.2%-2,390 45.6%*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. 4.3 – Trade accounts and notes payable (In € million)June 30, 2019December 31, 2018Trade payables and notes payable2,1292,462Net advance payments-34-37Prepaid expenses and advanced invoices-656-666Net accounts payable1,4371,759Number of days’ payable outstanding (DPO)9597 4.4 – Other current assets (In € million)June 30, 2019December 31, 2018Inventories91 133 State - VAT receivables193 273 Prepaid expenses and advanced invoices656 666 Other receivables & current assets524 530 Net advance payments34 37 Assets linked to intermediation activities-1,151 Total1,498 2,791 The intermediation activities in 2018 were related to Worldline activities only. 56/88 4.5 – Other current liabilities (In € million)June 30, 2019December 31, 2018Employee-related liabilities408512 Social security and other employee welfare liabilities 150206 VAT payables321430 Contract liabilities672776 Liabilities linked to intermediation activities -1,151 Other operating liabilities 301325 Total 1,8523,400 The intermediation activities in 2018 were related to Worldline activities only. Note 5 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 241 million in the first half of 2019. The following table presents this amount by nature: (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *Staff reorganization-63-37Rationalization and associated costs-17-13Integration and acquisition costs-24-16Amortization of intangible assets (PPA from acquisitions) -79-49Equity based compensation-34-32Other items-24-23Total-241-169*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. Staff reorganization increased to € 63 million, mainly due to the acceleration of the adaptation of the Group workforce in several countries, in particular in Germany and to a lesser extent in France, as well as the reorganization of the Global Infrastructure & Data Management Division. The € 17 million rationalization and associated costs primarily resulted from the closure of office premises and data centers consolidation, mainly in North America and France. Integration and acquisition costs mainly related to the integration costs of Syntel to generate synergies while the other costs relate to the migration and standardization of internal IT platforms from earlier acquisitions. In the first half of 2019, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 79 million was mainly composed of: € 33 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 11 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 10 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 9 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014. 57/88 The equity-based compensation expense amounted to € 34 million in the first half of 2019 compared to € 32 million in the first half of 2018. In the first half of 2019, the € 24 million other expenses remained stable and corresponded mainly to semi-retirement scheme in Germany and break-up fees related to supplier contract terminations. Equity-based compensation The € 34 million expense recorded within other operating income relating to equity-based compensation (€ 32 million in the first half of 2018) is made up of: (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *By years : Plans 20187-Plans 20171115Plan 20161315Plan 201532Plans 2014-0Total3432By category of plans : Free share plans3332Employee share purchase plan1-Total3432* Figures presented are restated from Worldline activities, in accordance with IFRS 5. Free shares plans The total expense within the heading “other operating income and expense” relating to free share plans during the year was the following: (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *AtosPlans 20186-Plans 20171115Plan 20161315Plan 201532Plan 2014-2Bull Plan 2014-2Total3332* Figures presented are restated from Worldline activities, in accordance with IFRS 5. 58/88 Employee share purchase plan Share 2018 In December 2018, the Group implemented a new employee share option plan called Share detailed as follows: SHARE 2018 was open to employees throughout the Group. This new plan offered eligible employees the purchase of shares at a 20% discount with a five-year lock-up period restriction and the attribution of free shares for the first 2 subscribed shares. As a consequence of the plan, the Group issued 263,518 shares at a reference share price of € 74.4 (before the 20% discount application). The cost related to SHARE 2018 takes into account the effect of the five-year lock-up period restriction calculated based on the following parameters: SHARE 2018Number of shares issued263,518Share price at grant date (€)68.8Percentage of discount 20%Lock-up period5 yearsRisk free interest rate (%)-0.003%Borrowing-lending spread (%)5%Expense recognized in 2019 (in € million)1 Note 6 – Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 79 million for the period (compared to € 23 million for the first semester of 2018) and was composed of a net cost of financial debt of € 36 million and non-operational financial costs of € 43 million. Net cost of financial debt The € 36 million cost of net debt increased by € 28 million compared to the first half of 2018 mostly due to the debt raised to finance Syntel acquisition in the second semester of 2018 (c. $ 3.4 billion). In addition, and further to this financing, the average expense rate of the Group was 1.63% on the average gross borrowings compared to 1.36% in the first half of 2018. The increase of the average income rate on the average gross cash to 1.60% compared to 0.98% in the first half of 2018 slightly mitigated the increase of interest expenses. (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *Net interest expenses-36-8Interest on obligations under finance leases-0Net cost of financial debt-36-8*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. 59/88 Other financial income and expenses (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *Foreign exchange income/(expenses) -37Fair value gain/(loss) on forward exchange contracts held for trading - -1Interest on lease liability-14-Other income/(expenses) -26-21Other financial income and expenses-43-14Of which:- other financial expenses-53-24- other financial income1010*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. Non-operational financial costs amounted to € 43 million compared to € 14 million in the first half of 2018, mainly coming from the interests on the lease liabilities following the first application of IFRS 16 and a net foreign exchange loss of € 3 million compared to a gain of € 7 million last year. 6.2 – Cash and cash equivalents (In € million)June 30, 2019December 31, 2018Cash in hand and short-term bank deposit2,181 2,506 Money market funds 49 40 Total2,230 2,546 Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. 6.3 – Non-current financial assets (In € million)June 30, 2019December 31, 2018Pension prepaymentsNote 10105116Fair value of non-consolidated investments net of impairment582Other*115123Total225321*"Other"includesloans,deposits,guaranteesandup-frontandunderwritingfeesrelatedtopastacquisitionsamortized over the duration of the debt instrument 60/88 6.4 – Change in net debt over the period (In € million)June 30, 2019December 31, 2018Opening net cash/(debt)-2,872307Discontinued operations35 - New borrowings-77-1,758Bonds-14-1,797Repayment of current and non-current borrowings81287Variance in net cash and cash equivalents-105222Long and medium-term debt of companies sold during the period-3Long and medium-term debt of companies acquired during the period--103Impact of exchange rate fluctuations on net long and medium-term debt5-34Profit-sharing amounts payable to French employees transferred to debt-11Other flows related to financing activities90Closing net cash/(debt) -2,939-2,872 (in €million)June 30, 2019December 31, 2018Cash and cash equivalents2,230 2,546 Overdrafts-39 -168 Total net cash and cash equivalents2,191 2,378 The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility, the $ 1.9 billion term loan and the securitization program, with a leverage ratio (net debt divided by OMDA) of 2.09 at the end of June 2019. According to the credit documentation of the multi-currency revolving credit facility, the $ 1.9 billion term loan and the securitization program, the leverage ratio is calculated on a proforma basis, excluding IFRS16 impacts, taking into account 12 months rolling OMDA at the end of June 30, 2019. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility, the $ 1.9 billions term loan and the securization program. 61/88 Note 7 Income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. The tax charge for the first half of 2019 was € 38 million with a profit before tax from continuing operations of € 209 million. The annualized Effective Tax Rate (ETR) was 18.3% compared to 15.5% for the first half of 2018. This increase related mostly to the integration in the Group scope of Syntel, which has a higher ETR than average. This effect was similar to the effect that Worldline used to have on Group ETR when it was consolidated as part of the continuing operations. Therefore, the Group ETR remained stable compared to the situation before Worldline deconsolidation and Syntel acquisition. Note 8 – Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually by comparing its carrying amount to its recoverable amount at the closing date based on December actuals and latest 3 year plan, or more often whenever events or circumstances indicate that the carrying amount could not be recoverable. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. (In € million)December 31, 2018Assets held for distributionImpact of business combi-nationExchange differences and otherJune 30, 2019Gross value9,431-3,050-3306,408Impairment loss-567---2-569Carrying amount 8,863 -3,050 -3 28 5,838 During the semester, the Group has not recorded any impairment for any CGUs as there was not any triggering event. The only significant movement on the carrying amount relates to the Worldline disposal following the loss of control. 62/88 Note 9 – Investments in associates accounted for under the equity method (In € million)December 31, 2018AcquisitionNet resultsExchange differences and otherJune 30, 2019Worldline-2,73211-72,736Other701-17Total7273212-82,743 Note 10 – Pensions plans and other long-term benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant impacts on both the obligations and plan assets and limited to the Group’s largest pension plans. For less material plans, straightforward actuarial projections are used. The net total amount recognized in the balance sheet in respect of pension plans is € 1,226 million (excluding Worldline) compared to € 1,197 million at December 31, 2018 (including Worldline). Discount rates have significantly decreased since December 31, 2018, for all zone/countries, reflecting the market movement over the period. June 30, 2019December 31, 2018June 30, 2019December 31, 2018June 30, 2019December 31, 2018Discount rate2.50%2.90%0.9% ~ 1.4%1.6% ~ 2.05%3.50%4.00%RPI: 3.20%RPI: 3.20%CPI: 2.20%CPI: 2.20%USAnanaInflation assumptionUnited KingdomEurozone1.45%1.45% The fair value of plan assets for major schemes has been remeasured as at June 30, 2019. The amounts recognized in the balance sheet consist of: (In € million)June 30, 2019December 31, 2018Amounts recognized in financial statements consist of :Prepaid pension asset 105116Accrued liability – pension plans [a]-1,331-1,314Total Pension plan-1,226-1,197Accrued liability – other long-term employee benefits [b]-57-71Total accrued liability [a] + [b]-1,388-1,385 63/88 The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In € million)6 months ended 30 June 20196 months ended 30 June 2018 *Operating margin-9-7Other operating income and expenses11Financial result-15-12Total (expense)/profit -23-18*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. Note 11 Provisions (In € million)December 31, 2018Assets held for distributionChargeRelease usedRelease unusedOther (*)June 30, 2019CurrentNon- currentReorganization70-443-29-3279772Rationalization1801-3-5314410Project commitments37-311-13-4126233Litigations and contingencies121-3118-2-7-7932172Total provisions247-3873-47-19-221312588(*) Other movements mainly consist of the currency translation adjustments Note 12 Shareholders’ equity Earnings per share Potential dilutive instruments comprised vested stock options (equivalent to 8,730 options) and did not generate a restatement of net income used for the diluted EPS calculation. Earnings per share – Continuing operations (In € million and shares)6 months ended 30 June 20196 months ended 30 June 2018 *Net income from continuing operations– Attributable to owners of the parent [a]180 188 Impact of dilutive instruments --Net income from continuing operations restated of dilutive instruments - Attributable to owners of the parent [b]180 188 Average number of shares outstanding [c] 106,980,344 105,344,848 Impact of dilutive instruments [d] 8,730 125,413 Diluted average number of shares [e]=[c]+[d] 106,989,074 105,470,261 (In €) Basic EPS from continuing operations [a] / [c]1.68 1.78 Diluted EPS from continuing operations [b] / [e]1.681.78*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. 64/88 Earnings per share – Discontinued operation (In € million and shares)6 months ended 30 June 20196 months ended 30 June 2018 *Net income of consolidated companies - Attributable to owners of the parent [a]3,055 40 Impact of dilutive instruments --Net income of consolidated companies restated of dilutive instruments - Attributable to owners of the parent [b]3,055 40 Average number of shares outstanding [c] 106,980,344 105,344,848 Impact of dilutive instruments [d] 8,730 125,413 Diluted average number of shares [e]=[c]+[d] 106,989,074 105,470,261 (In €) Basic EPS including discontinued operation [a] / [c]28.55 0.38 Diluted EPS including discontinued operation [b] / [e]28.550.38*IncomeandexpenseitemsrelatingtoWorldlinefor2018havebeenreclassifiedto“Netincomefromdiscontinued operation”, in accordance with IFRS 5. Note 13 Related party transactions Related parties are defined as follows: Entities which are controlled directly by the Group, either solely or jointly, or indirectly through one or more intermediary controls. Entities which offer post-employment benefits in favor of employees of the Group, or entities which are controlled or jointly owned by a member of the key management personnel of the Group as defined hereafter; and Key management personnel of the Group defined as persons who have the authority and responsibility for planning, directing and controlling the activity of the Group, namely members of the Board of Directors as well as Senior Executive Vice-Presidents. Transactions between Atos and its subsidiaries, which are related parties of the Group, have been eliminated in consolidation and are not disclosed in this note. Transactions between Atos and Worldline, over which the Group has a significant influence, are detailed below. Transactions between the related parties The main transactions between the related entities are composed of: The reinvoicing of the premises; The invoicing of delivery services such as personnel costs or use of delivery infrastructure; The invoicing of administrative services; and The interest expenses related to the financial items. These transactions are entered into at market conditions. Related party transactions are detailed as follows: (in € million)2 months ended 30 June 2019Revenue 21Operating income/expenses-20 65/88 The receivables and liabilities included in the statement of financial position linked to the related parties are detailed as follows: (in € million)June 30, 2019Trade accounts and notes receivables 33Trade accounts and notes payables 30 Note 14 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 24, 2019. Note 15 Subsequent events There is no significant subsequent event to be mentioned. 66/88 B.3 Statutory auditors’ review report on the half- yearly financial information for the period from January 1 to June 30, 2019 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2019, ▪ the verification of the information presented in the interim management report. These interim condensed consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our conclusion, we draw your attention to the matter set out in the note B.2.6.1. “Basis of preparation and significant accounting policies” to the interim condensed consolidated financial statements regarding change in accounting policies related to the first application of IFRS 16 “Leases” effective since January 1, 2019. 67/88 2. Specific verification We have also verified the information presented in the interim management report on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Paris-La Défense and Neuilly-sur-Seine, July 25, 2019 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton French member of Grant Thornton International Christophe Patrier Virginie Palethorpe 68/88 C. Person responsible C.1 For the Universal Registration Document Thierry Breton Chairman & Chief Executive Officer C.2 For the accuracy of the Universal Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Universal Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the 2019 half-year condensed consolidated financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report (here attached) presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, July 30, 2019 Thierry Breton Chairman & Chief Executive Officer C.3 For the audit Appointment and term of offices Statutory auditors Grant Thornton Virginie Palethorpe Appointed on: October 31, 1990, then renewed in October 24, 1995, in May 30, 2002, in June 12, 2008, and in May 17, 2014 Term of office expires: at the end of the AGM voting on the 2019 financial statements Substitute auditors Cabinet IGEC Appointed on: October 31, 1990, then renewed in October 24, 1995, in May 30, 2002, in June 12, 2008, and in May 17, 2014 Term of office expires: at the end of the AGM voting on the 2019 financial statements Deloitte & Associés Christophe Patrier Appointed on: December 16, 1993, renewed in February 24, 2000, in May 23, 2006, in May 30, 2012, and in May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements 69/88 D. Corporate governance and additional information D.1 Appointment of a Deputy Chief Executive Officer The Board of Directors unanimously approved on March 18, 2019 the appointment of Mr. Elie Girard as Group Deputy Chief Executive Officer. D.2 Office renewals and composition of the Board of Directors The Company’s Annual General Meeting, held on April 30, 2019, approved all the proposed renewals of Directors. In particular, it renewed the terms of office as Directors of (i) Mr. Thierry Breton and Mr. Vernon Sankey for a period of three years, and (ii) Ms. Aminata Niane and Ms. Lynn Paine for a period of two years. The General Meeting also appointed Mr. Vivek Badrinath as Director for a period of two years and Mr. Jean-Louis Georgelin as censor for a period of one year. During its meeting held right before the General Meeting on April 30, 2019, the Board acknowledged the resignation of Ms. Marie-Christine Lebert as Employee Director, and the designation of her successor, Mr. Farès Louis, by the CFDT as the most representative trade-union among the French companies of the Atos Group. Pursuant to applicable laws, the term of office of Mr. Farès Louis will expire in 2020, at the end of the general meeting voting on the 2019 financial statements. On that basis, the Board of Directors, during its meeting held right after the Annual General Meeting, decided (i) to renew Mr. Thierry Breton as Chairman and Chief Executive Officer for the duration of his term of office as Director, (ii) to renew Ms. Aminata Niane as Lead Director for the duration of her term of office as Director, and (iii) to confirm the composition of the Board’s committees. Following these various changes, as of the date of this Universal Registration Document, the Board of Directors comprised twelve Directors including eight independent Directors, and one censor, as follows: 70/88 EXPERIENCEAgeGenderNationalityNumber of sharesNumber of other mandates in listed companies1IndependenceDate of first appointment2End of term of officeSeniority on BoardChairman & CEOThierry BRETON64MFrench5080853⁴NO02/10/2009AGM 202210N/AVivek BADRINATH50MFrench5001YES04/30/2019AGM 20210N/ANicolas BAZIRE62 MFrench10404YES02/10/2009AGM 202010N&RValérie BERNIS60 FFrench5052YES04/15/2015AGM 20204CSRRoland BUSCH54 MGerman10002NO07/01/2011AGM 20208AuditBertrand MEUNIER63 MFrench10000YES02/10/2009AGM 202110Audit, N&RColette NEUVILLE82 FFrench10121YES04/13/2010AGM 20209N/AAminata NIANE62 FSenegalese10120YES05/27/2010AGM 20219Lead Independent DirectorLynn PAINE70 FAmerican10000YES05/29/2013AGM 20216Audit, CSRVernon SANKEY69 MBritish10000YES02/10/2009AGM 202210Audit, CSRDirector representing the employee shareholders (L225-23 CCom)Jean FLEMING50FBristish13900NO05/26/2009AGM 202010N&REmployee Director (L225-27-1 CCom)Farès LOUIS57MFrench00NO04/25/2019AGM 20200N/ACensorJean-Louis GEORGELIN71MFrench00YES04/30/2019AGM 20200N/A1 Other mandates exercised in listed companies (outside the Atos Group). Mandates exercised in listed companies belonging to the same group account for one single mandate. 2 Date of first appointment on the Board of Directors of Atos3 N&R : Nomination and Remuneration Committee, Audit : Audit Committee, CSR : CSR Committee ⁴ Since Worldline was deconsolidated from the Atos Group as of May 7, 2019, Mr. Breton has an additional mandate in a listed company outside the Atos Group Chairman of CommitteePERSONAL INFORMATIONPOSITION ON THE BOARDDirectors (L225-17 Ccom)MEMBERSHIP IN COMMITTEES3(And other office) D.3 Annual General Meeting held on April 30, 2019 The Annual General Meeting held on April 30, 2019 approved all the resolutions submitted by the Board of Directors. The results of the votes at the General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. In particular, and as part of its usual business, the Annual General Meeting approved the annual and consolidated accounts for the financial year ending December 31, 2018, the payment of a dividend for 2018 of € 1.70 per share, and the option for the payment of the dividend either in shares or cash. The Annual General Meeting approved the elements of compensation and benefits paid or awarded to Mr. Thierry Breton, Chairman and Chief Executive Officer for the financial year ending December 31, 2018 and approved the features and criteria for setting, allocating, and granting, the fixed, variable, long-term and exceptional elements making up the total compensation and benefits of all kinds attributable to the Chairman and Chief Executive Officer and to the Deputy Chief Executive Officer, Mr. Elie Girard, for the financial year ending December 31, 2019. The General Meeting also approved the following specific decisions: (i) the 2021 ADVANCE strategic plan which had been submitted to its vote on a consultative basis; (ii) the exceptional distribution in kind to the Company’s shareholders of 23.5% of Worldline’s share capital; (iii) in anticipation of the provisions of the so-called “Loi Pacte”, the sense of purpose (“raison d’être”) of the Company, as proposed by the Board of Directors, which was approved to be inserted in the Company’s articles of association. 71/88 D.4 Executive compensation and stock ownership D.4.1 Performance shares allocation plan decided on July 24, 2019 Pursuant to the authorization granted by the Annual General Meeting of April 30, 2019 under the 21st resolution, the Board of Directors of the Company decided, during its meeting held on July 24, 2019, and upon the recommendation of the Nomination and Remuneration Committee, to grant 907,500 performance shares in favor of the first managerial lines and key employees of Atos. In that context, the Chairman and Chief Executive Officer and the Deputy Chief Executive Officer were granted 40,300 and 15,900 performance shares, respectively, by virtue of the 17th and 26th resolutions of the Annual General Meeting above mentioned. The main features and conditions of this grant of performance shares are as follows: Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the grant of performance shares is conditioned on the beneficiary’s remaining within the group as an employee or corporate officer during the vesting period; Performance condition: the vesting of all or part of the performance shares shall be subject to the achievement over a three-year period of three internal financial performance indicators and an external performance condition linked to the corporate social responsibility, referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe). The three internal financial performance indicators chosen are directly connected to key success factors for the achievement of the Group’s ambitions as outlined in the strategic plan ADVANCE 2021: (i) Organic Revenue growth conditioning 30% of the grant; (ii) Operating Margin conditioning 25% of the grant, and (iii) Free Cash Flow conditioning 25% of the grant. These indicators will be calculated on a consolidated basis, taking into account potential scope variations and changes in the foreign exchange rates. Their target achievement levels were set in line with the objectives of the plan ADVANCE 2021 (scope excluding Worldline). The elasticity curves below accelerate upwards and downwards the percentage of the grant related to each indicator according to its level of achievement over the 3-year period. The external performance condition linked to the corporate social responsibility, referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe) conditions 20% of the grant. The target achievement is based on the average of the scores achieved by the Group during the vesting period, based on the average percentile ranking achieved by the Company resulting from the comparison with the other companies included in the DJSI index in relation to the three years. 72/88 Group performance indicators Weight Elasticity curves % vested Average of the External Revenue Organic growth rates over 3 years (2019-2021) 30% Floor: +1.75% Target: +2.50% 30% 100% Cap: +3.00% 150% Average rate of Operating Margin over 3 years (2019- 2021) 25% Floor: 10.5% Target: 10.8% 50% 100% Cap: 11.1% 130% Cumulated FCF at the end of the 3-year plan (in 2021) 25% Floor: €2.00 billion Target: €2.25 billion 50% 100% Cap: €2.40 billion 130% Average of the yearly DJSI scores (World or Europe) of Atos compared to the average of other companies over the 3- year period 20% Floor: 70th percentile Target: 80th percentile Cap: 90th percentile 50% 100% 150% The final number of vested performance shares shall in no circumstance be above the number granted. Obligations specific to the executive officers: The Chairman and Chief Executive Officer and the Deputy Chief Executive Officer are required to remain owner of 15% of their acquired shares for the duration of their duties. The Chairman and Chief Executive Officer and the Deputy Chief Executive Officer acknowledged the prohibition set by the Company to enter into hedging transactions over the granted shares for the duration of their social mandate as executive officers and formally undertook to abide by the prohibition. D.4.2 Stock Option plan decided on July 24, 2019 Pursuant to the authorization granted by the Annual General Meeting of April 30, 2019 under the 22nd resolution, the Board of Directors decided, during its meeting held on July 24, 2019, and upon the recommendation of the Nomination and Remuneration Committee, to grant 209,200 options to subscribe shares (hereinafter, the options or the stock-options) be issued in favor of the Group Executive Committee members. In that context, the Chairman and Chief Executive Officer and the Deputy Chief Executive Officer were granted 40,300 and 15,900 stock- options respectively, in accordance with the 17th and 26th resolutions of the Annual General Meeting mentioned above. The main features and conditions of this grant of stock options are as follows: Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the exerice of the options is conditioned on the beneficiary’s remaining a group employee or corporate officer during the vesting period; Performance condition: ability to exercise options in whole or in part at the end of a 3-year vesting period is subject to the achievement of a stock market performance indicator (Total Shareholder Return) measured over the vesting period. This indicator will be assessed based on the comparative performance of the Atos SE share against the average performance of a basket composed of indexes (40%) and companies operating in the same industry (60%): 73/88 CAC 40 index: 20% - STOXX Europe 600 Technology index: 20% IBM (10%) – DXC (10%) – Capgemini (10%) – Accenture (10%) - Sopra Steria (10%) - CGI Group (10%) The performance of the Atos SE share and the shares or indexes of the basket will be calculated based on the average of the opening share price (dividends reinvested) during the trading days of the second quarter of 2019 in comparison with the second quarter of 2021 preceding the vesting date. No stock-option will vest if the relative performance of the Atos SE share is less than 100% of the average performance of the basket over a three-year period; 80% of the stock-options will vest if the relative performance of the Atos SE share is equal to 100%; 100% of the stock-options will vest if the relative performance of the Atos SE share is equal to or above 115%. For relative performance between these points, the percentage of vested stock-options will be determined based on linear interpolation. Strike price and exercise period: vested options will be exercisable over a seven-year period as from the vesting date, at a strike price of €79.86 (average of the first quoted Atos share price on Euronext Paris over the twenty trading sessions preceding the grant date, plus five percent). Vesting of shares: the Board of Directors may, at any time before the vesting date, decide to deliver existing shares instead of shares to be issued. Obligations specific to the executive officers: The Chairman and Chief Executive Officer and the Deputy Chief Executive Officer are required to remain owner of 15% of their acquired shares for the duration of their duties. The Chairman and Chief Executive Officer and the Deputy Chief Executive Officer acknowledged the prohibition set by the Company to enter into hedging transactions over the granted options as well as on the shares issued upon exercise of the options for the duration of their social mandate as executive officers and formally undertook to abide by the prohibition. D.4.3 Performance shares that have become available since January 1, 2019 for the Executive Officers – AMF Table 7 Since January 1st, 2019, the performance shares granted on July 26, 2016 became available for possible sale to the beneficiaries. The Atos Chairman and CEO and the Deputy CEO are part of the beneficiaries of this plan. Terms and conditions regarding share acquisition and availability are described in the 2018 Registration Document in section G.3.3.1. AMF Table 7 Plan Date Number of shares available during the financial year Vesting Date Availability Date Chairman and CEO July 26, 2016 71,620 July 26, 2019 July 26, 2019 Deputy CEO July 26, 2016 18,957 July 26, 2019 July 26, 2019 Further to the exceptional distribution of Worldline shares, the number of performance shares initially granted was adjusted in accordance with applicable rules and the decisions of the Annual General Meeting and of the Board of Directors of April 30, 2019. ** The Chairman and CEO is subject to a conservation obligation for the duration of his mandate as executive officer concerning 15% of the vested shares. 74/88 D.4.4 Subscription or purchase options exercised since January 1, 2019 by Executive Officers – AMF Table 5 Up to the grant dated July 24, 2019, the Atos Chairman and CEO and the Deputy CEO owned no outstanding stock-options. 75/88 D.5 Common Stock Evolution D.5.1 Basic data D.5.1.1 Information on stock The Company's shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. ATOS SE securities are eligible for SRD and PEA. The Company’s shares have been included in the CAC 40, the main share index published by Euronext Paris, since March 20, 2017. The main tickers are: SourceTickersEuronextATOAFPATOBloombergATO FPReutersATOS PAThomsonATO FR The Euronext sector classification is as follows: Euronext: ICB sectorial classificationsIndustry: 9000, TechnologySupersector: 9500, TechnologySector: 9530, Software and Computer ServicesSubsector: 9533, Computer Services D.5.1.2 Adjustment of the Atos stock price Following the approval of the exceptional distribution of Worldline shares by the Annual General meeting of April 30, 2019, the Atos stock price was adjusted on May 3, 2019, the ex-date for the exceptional distribution of 2 Worldline shares for 5 Atos shares owned, and also the ex-date for the ordinary dividend of 1.70 euro per Atos share. Therefore, the Atos stock price, which closed on May 2, 2019 at 93.16 euros was adjusted at the opening of the stock market on May 3, by 24.0 euros of which 22.30 euros for the exceptional distribution of Worldline shares and 1.70 euros for the ordinary dividend. The stock performance is then to be assessed taking this adjustment into account. 76/88 D.5.1.3 Free-float The free-float of the Group shares excludes stakes held by the reference shareholder, Siemens Pension- Trust e.V., holding 12,483,153 shares of the Company which it committed to keep until September 30, 2020. Stakes owned by the employees and the management as well as treasury shares, are also excluded from the free float. As of June 30, 2019Shares% of share capital% of voting rightsSiemens Pension Trust e.V.112,483,15311.4%11.5%Employees1,146,4951.0%1.1%Board of Directors517,5440.5%0.5%Treasury stock1,126,0941.0% - Free float 93,941,628 86.0%86.9%Total 109,214,914 100.0%100.0%1 Siemens Pension trust e.V. is controlled by Siemens A.G. D.5.2 Dividend Upon proposal of the Board of Directors, the Annual General Meeting held on April 30, 2019, approved the payment in 2019 of a dividend of 1.70 euro per share on the 2018 results, as well as the option for the payment of the dividend in shares. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal periodDividend paid per shareDividend 2018 (paid in 2019)1.70 €Dividend 2017 (paid in 2018)1.70 €Dividend 2016 (paid in 2017) 1.60 € D.5.3 Common stock D.5.3.1 At June 30, 2019 As at June 30, 2019, on the basis of a decision of the Chairman and Chief Executive Officer dated as of June 30, 2019, the Company’s issued common stock amounted to € 109,214,914 divided into 109,214,914 fully paid-up shares of € 1.00 par value each. Since December 31, 2018, the share capital was increased by € 2,328,695 corresponding to the issuance of 2,328,695 new shares, split as follows: (i) 25,467 new shares resulting from the exercise of stock options, issuance premiums amounting to € 1,092,216.88 in the aggregate; (ii) 2,039,710 new shares resulting from the payment in shares of the dividend for the 2018 financial year, issuance premiums amounting to € 124,463,104 in the aggregate; (iii) 263,518 new shares resulting from the implementation of an employee shareholding plan (SHARE 2018), issuance premiums amounting to € 15,418,438.18 in the aggregate. 77/88 D.5.3.2 Thresholds crossings Since January 1st, 2019, the Group was informed of the following thresholds crossings: (i) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, upwards on February 4, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following the receipt of ATOS SE shares held as collateral). BlackRock, Inc. declared holding 5.03% of the share capital and voting rights of the Company; (ii) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, downwards, on February 6, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following a decrease in the number of Atos SE shares held as collateral). BlackRock, Inc. declared holding 4.80% of the share capital and voting rights of the Company; (iii) Société Générale, declared having crossed, upwards, on April 12, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following an acquisition of Atos SE shares off market). Société Générale declared holding 5.02% of the share capital and voting rights of the Company; (iv) Société Générale, declared having crossed, downwards, on May 17, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following a disposal of Atos SE shares off market). Société Générale declared not holding any shares of the Company anymore; (v) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, upwards, on May 30, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following the receipt of Atos SE shares held as collateral). BlackRock, Inc. declared holding 5.02% of the share capital and voting rights of the Company; (vi) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, downwards, on May 31, 2019, the thresholds of 5% of the share capital and voting rights of the Company (following the return of Atos SE shares held as collateral). BlackRock, Inc. declared holding 4.65% of the share capital and voting rights of the Company. Name of entity notifying the threshold crossingDate of reportingDate of threshold crossingDirection (↗↘)Shares% of share capital1% of voting rights2Reference of AMF publication BlackRock Inc.02/05/201902/04/2019↗5,376,2005.03%5.03%219C0217BlackRock Inc.02/07/201902/06/2019↘5,135,4334.80%4.80%219C0234Société Générale04/17/201904/12/2019↗5,380,6425.02%5.02%219C0670Société Générale05/22/201905/17/2019↘00%0%219C0840BlackRock Inc.05/31/201905/30/2019↗5,375,5555.02%5.02%219C0901BlackRock Inc.06/04/201905/31/2019↘4,980,8884.65%4.65%219C09161. On the date of threshold crossing.2. Including treasury shares on that date pursuant to article 223-11 I. al. 2 of the Réglement Général de l’Autorité des Marchés Financiers (French Financial Market Authority General Regulations). D.5.3.3 Treasury stock Legal Framework The 18th resolution of the Annual General Meeting of April 30, 2019 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. The number of shares purchased may not exceed 10% of the share capital of the Company, at any moment in time, such percentage applying to a capital adjusted in accordance with the operations which shall have an effect on the share capital subsequently to the general meeting, it being specified that in the case of shares purchased within a liquidity contract, the number of shares taken into account to determine the 10% limit shall correspond to the number of shares purchased from which shall be deducted the number of shares resold during the duration of the authorization. 78/88 These purchases may be carried out: to ensure liquidity and an active market of the Company’s shares through an investment services provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the AMF; to attribute or sell these shares to the executive officers and Directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) free awards of shares in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them in payment or exchange or other in the context of potential external growth operations; or to cancel them as a whole or in part through a reduction of the share capital authorized by the General Meeting, in particular pursuant to the 19th resolution of the Annual General Meeting held on April 30, 2019. The maximum purchase price per share may not exceed € 120 (fees excluded). The Board of Directors may adjust the aforementioned maximum purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the free allocation of shares, as well as in the event of division of the nominal value of the share or share consolidation or any other transaction on equity, so as to take account of the impact of such transactions on the value of the shares. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,282,634,520 as calculated on the basis of the share capital as at December 31, 2018, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from April 30, 2019. Treasury Stock As at June 30, 2019, the Company owned 1,126,094 shares which amounted to 1% of the share capital with a portfolio value of € 82,790,430, based on June 30, 2019 market price, and with book value of € 80,521,928.89. These shares are assigned to the allocation of shares to employees or executive officers and Directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI and MIP plans. The Company proceeded to the purchase of 1,100,000 shares from May 9, 2019 to June 19, 2019 as part of a mandate given to a financial intermediary as announced by the Group on May 8, 2019. From January 1st, 2019 to June 30, 2019 the Company transferred 3,748 shares of the Company to beneficiaries of LTI plans. 79/88 D.5.3.4 Potential common stock Potential dilution Based on 109,214,914 outstanding shares as of June 30, 2019, the share capital of the Group could be increased by 3,228,453 new shares, representing 2.96% of the share stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares, as follows: (in shares)June 30, 2019December 31, 2018Change% dilutionNumber of shares outstanding 109,214,914 106,886,219 2,328,695 From stock subscription options - 25,467 - 25,467 0.0%From performance shares 3,228,453 2,594,916 633,537 3.0%Potential dilution 3,228,453 2,620,383 608,070 3.0%Total potential common stock 112,443,367 109,506,602 2,936,765 Stock options evolution Number of stock subscription options at December 31, 201825,467Stock subscription options granted as of June 30, 2019-Stock subscription options exercised as of June 30, 201925,467Stock subscription canceled or forfeited as of June 30, 20190Number of stock subscription options at June 30, 20190 As of June 30, 2019, all stock options granted by the Group had been exercised, canceled or forfeited. 80/88 Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meeting of May 24, 2018 and April 30, 2019, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of July 24, 2019: AuthorizationAuthorization amount (value)Use of the authorizations (par value)Unused balance (par value)Authorization expiration dateEGM April 30, 201918th resolutionAuthorization to buyback the Company shares 10% of the share capital adjusted at any moment 1,100,0008.99%10/30/2020 (18 months)EGM April 30, 201919th resolutionShare capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 06/30/2021 (26 months)EGM April 30, 201920th resolutionCapital increase reserved to employees12,143,15802,143,15806/30/2021 (26 months)EGM April 30, 201921st resolutionAuthorization to allot free shares to employees and executive officers964,421907 50056,92106/30/2022 (38 months)EGM April 30, 201922nd resolutionAuthorization to grant stock options to employees and executive officers214,315209 2005,11506/30/2021 (26 months)EGM May 24, 201814th resolutionShare capital increase with preferential subscription right 31,700,186 0 31,700,186 07/24/2020 (26 months)EGM May 24, 201815th resolutionShare capital increase without preferential subscription right by public offer1 2 10,566,728 0 10,566,728 07/24/2020 (26 months)EGM May 24, 201816th resolutionShare capital increase without preferential subscription right by private placement1 2 10,566,728 0 10,566,728 07/24/2020 (26 months) EGM May 24, 201817th resolutionShare capital increase without preferential subscription right to remunerate contribution in kind1 2 10,566,728 0 10,566,728 07/24/2020 (26 months)EGM May 24, 201818th resolutionIncrease in the number of securities in case of share capital increase with or without preferential subscription right1 2 3Extension by 15% maximumof the initial issuance0Extension by 15% maximum of the initial issuance07/24/2020 (26 months)EGM May 24, 201819th resolutionShare capital increase through incorporation of premiums, reserves, benefits or other3,865 million03,865 million07/24/2020 (26 months)1Anysharecapitalincreasepursuanttothe15th,16th,17th,18thresolutionsoftheCombinedGeneralMeetingofMay 24,2018andthe20thresolutionoftheCombinedGeneralMeetingofApril30,2019shallbedeductedfrom the cap set by the 14th resolution of the Combined General Meeting of May 24, 2018.2Thesharecapitalincreaseswithoutpreferentialsubscriptionrightcarriedoutpursuanttothe15th,16th,17thand18thresolutionsoftheCombinedGeneralMeetingofMay 24,2018aresubjecttoanaggregatesub-capcorrespondingto10%ofthesharecapitaloftheCompanyonthedayoftheCombinedGeneralMeetingofMay 24,2018(i.e.€ 10,566,728).Anysharecapitalincreasepursuanttotheseresolutionsshallbedeductedfromthisaggregate sub-cap.3Theadditionalissuanceshallbedeductedfrom(i)thecapoftheresolutionpursuanttowhichtheinitialissuancewasdecided,(ii)theaggregatecapsetbythe14thresolutionoftheCombinedGeneralMeetingofMay 24,2018, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at 2 here above. The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 18th and 19th resolutions of the Annual General Meeting of May 24, 2018 being set aside) amounts to 32,878,923, representing 30.10% of the share capital updated on June 30, 2019. 81/88 E. Appendices E.1 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Executive Vice President, Investor Relations & Financial Communication Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Yves Chabrol Investor Relations & Financial Communication Manager Tel +33 (0) 6 09 78 46 08 yves.chabrol@atos.net Requests for information can also be sent by email to investors@atos.net E.2 Financial calendar October 24, 2019 February 19, 2020 April 22, 2020 Third quarter 2019 revenue Full Year 2019 results First quarter 2020 revenue E.3 2018 Universal Registration Document cross- reference table The cross-reference table below identifies the information required by appendices 1 and 2 of the Commission Delegated Regulation (EU) 2019/980 of March 14, 2019 in accordance with the structure of the Universal Registration Document and allows to cross-reference them with the sections of the 2018 Registration Document incorporated by reference in this Universal Registration Document. N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Sections in the 2018 Registration Document Sections in the current 2018 URD 1. 1.1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. 3. 4. 4.1. Persons responsible, third party information, experts’ reports and competent authority approval Indication of persons responsible Declaration by persons responsible Name, address, qualification and material interest in the issuer of experts Confirmation of the accuracy of the source from a third party Statement from the designated authority with no prior approval Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Risk Factors Information about the issuer The legal and commercial name of the issuer A.4.1 A.4.2 N/A N/A N/A A.4.3 N/A Section F G.1.2 C.1 C.2 N/A N/A AMF box C.3 N/A A.6 82/88 N° 4.2. 4.3. 4.4. 5. 5.1. 5.1.1. 5.1.2. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. 5.7.1. 5.7.2. 5.7.3. 5.7.4. 6. 6.1. 6.2. 7. 7.1. 7.1.1. 7.1.2. 7.2. 7.2.1. 7.2.2. 8. 8.1. 8.2. 8.3. 8.4. 8.5. 9 9.1. 10. 10.1. 10.2. 11. 11.1. 11.2. 11.3. 12. 12.1 Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 The place and the number of registration The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office Business overview Principal Activities Nature of the issuer’s operations and its principal activities New products or services developed Principal market Importants business events Strategy and objectives Dependence on patents or licenses, industrial, commercial o financial contracts or new manufacturing processes Basis for statements made by the issuer regarding its competitive position Investements Main investements Material investments of the issuer that are in progress or for which firm commitments have already been made, including the geographic distribution of these investments and the method of financing Main joint ventures and undertakings in which the issuer holds a proportion of the capital environmental issues Organizational Structure Brief description of the Group List of significant subsidiaries Operating and financial review Financial condition Balanced and comprehensive alanysis of development and performance or position including both financial and, where appropriate, non-financial Key Performance Indicators Likely future development in the field of research and development Operating Results Unusual or unfrequent events or new developments materially affecting the issuer’s income Narrative discussion about material changes in net sales or revenues Capital resources Issuer’s capital resources Sources and amounts of the issuer’s cash flows Information on the borrowing requirements and funding structure Restrictions on the use of capital resources Anticipated sources of funds to fulfill commitments Regulatory environment Information regarding any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations Trend information The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects Profit forecasts or estimates Profit forceasts or estimates publication Statement setting out the principal assumputions upon which the issuer has based his forecast or estimate Statement pointing out the comparaison with historial financial information consistent with the issuer’s accounting policies Administrative, management and supervisory body and senior management. Information regarding the members Name, business addresses and functions Detail of the nature of any family relationship Relevant management expertise and management experience 83/88 Sections in the 2018 Registration Document G.1.2 G.1.2 G.1.2 ; G.5.4 A.1 ; A.2 ; B.1 ; C C A.1 ; A.2 ; B.3 A.5.2 ; A.6.1 B.4 ; E.2 ; E.3 F.2.6.5 ; F.3.6.5 B.3 E.4.3.3 ; E.5.7.3 – Note 1 N/A N/A Section D.5 E.6.4 ; G.1.2 E.5.7.3 – Note 15 E.1 ; E.4 C.6 E.1 ; E.4 B ; C ; E.1 B ; C ; E.1 E.4 ; G.5 E.4.2 E.4.3 N/A N/A D1 ; D4 B ; C ; E1 B ; C ; E1 E2 ; E3 E2 ; E3 E.5.7.2 A.6.2 ; G.2.3 G.2.3 G.2.3 Sections in the current 2018 URD - - - - A.1 ; A.2 A.5 B.2.6.3 – Note 1 N/A N/A - A.4 ; B.1 A.4 ; B.1 A.4 A.4 B.1 ; D.5 B.1.2 B.1.3 N/A N/A A.4 A.4 A.5 A.5 B.2.6 A.3 ; D.1 ; D.2 - - N° 12.2 13. 13.1. 13.2. 14. 14.1. 14.2. 14.3. 14.4. 14.5. 15. 15.1. 15.2. 15.3. 16. 16.1. 16.2. 16.3. 16.4. 17. 18. 18.1. 18.1.1. 18.1.2. 18.1.3. 18.1.4. 18.1.5. 18.1.6. 18.1.7. 18.2. 18.2.1. 18.3. 18.3.1. 18.3.2. 18.3.3. 18.4. 18.5. 18.5.1. 18.5.2. 18.6. 18.7. 19. 19.1. 19.1.1. 19.1.2. 19.1.3. 19.1.4. 19.1.5. 19.1.6. 19.1.7. 19.2. 19.2.1. Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Details of any convictions Conflict of interest Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment Information about audit and Remuneration Committee Statement related to corporate governance Potential material impacts on the corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders Identification of the main shareholders holding more than 5% Types of voting rights Ownership and control Arrangements which may result in a change in control of the issuer Related party transactions Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information Audited historical financial information covering the latest three years Change of accounting referece date Accounting standards Change of accounting framework Financial information according to French accounting standards Consolidated financial statements Age of latest financial information Interim and other financial information Quarterly or half-yearly financial information Auditing of historical annual financial information Independent audit of historical annual financial information Indication of other information in the registration document that has been audited by auditors Source of information and reason for information not to be auditted Pro forma financial information Dividend policy Description of the issuer’s policy on dividends Amount of dividend per share Legal and arbitration proceedings Significant changes in the issuer’s financial position Additional information Share Capital Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition rights and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association Register and entry number of the issuer and brief description of the issuer’s object and purposes 84/88 Sections in the 2018 Registration Document G.2.3 G.2.3.9 G.3 G.3 G.2.3 G.2.3.7 ; G.2.3.8 G.2.4.3 ; G.2.4.4 G.2.1 N/A D.2 . E.1.6 G.3 ; G.5.1 ; G.5.2 D.2.4.2 G.5.1 ; G.5.2 ; G.5.7 G.5.1.2 G.5.1 ; G.5.2 ; G.5.7 G.5 E.5.7.3 – Note 14 E.5 N/A E.5.7.2 E.5.7.2 E.5 E.5 E.5 N/A E.5.1 N/A N/A N/A G.1.3 G.5.3 F.4 E.5 – Note 16 G.7.5.1 N/A G.5.7.6 G.5.7.7 N/A N/A G.5.7.2 G.1.2 Sections in the current 2018 URD - D.4 - D.2 - - - - A.4.6 D.4 ; D.5.3 - D.5.1.3 ; D.5.3.2 A.7 ; B.2.6.3 – Note 13 N/A B.2.6 B.2.6 - B.2 - B.2 N/A N/A N/A D.5.2 A.6 - D.5.3.1 N/A D.5.3.3 D.5.3.4 N/A N/A N° 19.2.2. 19.2.3. 20. 21. Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Rights, preferences and restrictions attached to each share category Article of association, statutes, charter or bylaws delaying, deferring or preventing a change of control of the issuer Material Contracts Documents on Display 85/88 Sections in the 2018 Registration Document G.1.3.2 ; G.5.3 G.1 E.1.5 G.1 ; G.5 Sections in the current 2018 URD A.4.5 E.1 E.4 Full index CONTENT .................................................................................................................... 1 A. ACTIVITY REPORT .............................................................................................. 3 A.1 Distribution in kind of 23.5% of Worldline share capital to Atos’ shareholders out of the 50.8% owned by the Group ................................................................................................................... 3 A.2 Atos in the first half of 2019 ...................................................................................................... 5 A.3 Management and organization ................................................................................................. 11 A.3.1 Group General Management Committee (GMC) .................................................................. 11 A.3.2 Organization chart ......................................................................................................... 13 A.3.3 The Executive Committee ............................................................................................... 14 A.4 Operational review .................................................................................................................. 18 A.4.1 Statutory to constant scope and exchange rates reconciliation ............................................. 18 A.4.2 Performance by Division ................................................................................................. 19 A.4.3 Performance by Business Units ........................................................................................ 23 A.4.4 Revenue by Market ........................................................................................................ 28 A.4.5 Portfolio ........................................................................................................................ 29 A.4.6 Human Resources .......................................................................................................... 30 A.5 2019 objectives ....................................................................................................................... 31 A.6 Claims and litigations .............................................................................................................. 31 A.6.1 Risks relating to the deconsolidation of Worldline ............................................................... 31 A.6.2 Tax claims .................................................................................................................... 32 A.6.3 Commercial claims ......................................................................................................... 32 A.6.4 Labor claims .................................................................................................................. 33 A.6.5 Representation & Warranty claims ................................................................................... 33 A.6.6 Miscellaneous ................................................................................................................ 33 A.7 Related parties ........................................................................................................................ 33 B. FINANCIAL STATEMENTS ................................................................................. 34 B.1 Financial review ....................................................................................................................... 34 B.1.1 Income statement .......................................................................................................... 34 B.1.2 Cash Flow and net cash .................................................................................................. 38 B.1.3 Bank covenant ............................................................................................................... 40 Interim condensed consolidated financial statements ............................................................. 41 Interim condensed consolidated income statement ............................................................. 41 B.2.1 Interim condensed consolidated statement of comprehensive income ................................... 42 B.2.2 Interim condensed consolidated statement of financial position ........................................... 43 B.2.3 Interim condensed consolidated cash flow statement .......................................................... 44 B.2.4 B.2.5 Interim consolidated statement of changes in shareholders’ equity....................................... 45 B.2.6 Appendices to the interim condensed consolidated financial statements ................................ 46 B.2 B.3 Statutory auditors’ review report on the half-yearly financial information for the period from January 1 to June 30, 2019 ...................................................................................................... 67 C. PERSON RESPONSIBLE ..................................................................................... 69 C.1 For the Universal Registration Document ................................................................................ 69 C.2 For the accuracy of the Universal Registration Document ........................................................ 69 C.3 For the audit ............................................................................................................................ 69 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .......................... 70 D.1 Appointment of a Deputy Chief Executive Officer ..................................................................... 70 D.2 Office renewals and composition of the Board of Directors ...................................................... 70 D.3 Annual General Meeting held on April 30, 2019 ....................................................................... 71 D.4 Executive compensation and stock ownership ......................................................................... 72 D.4.1 Performance shares allocation plan decided on July 24, 2019 .............................................. 72 D.4.2 Stock Option plan decided on July 24, 2019 ...................................................................... 73 D.4.3 Performance shares that have become available since January 1, 2019 for the Executive Officers – AMF Table 7 ............................................................................................................... 74 D.4.4 Subscription or purchase options exercised since January 1, 2019 by Executive Officers – AMF Table 5 ......................................................................................................................... 75 86/88 D.5 Common Stock Evolution ......................................................................................................... 76 D.5.1 Basic data ..................................................................................................................... 76 D.5.2 Dividend ....................................................................................................................... 77 D.5.3 Common stock............................................................................................................... 77 E. APPENDICES .................................................................................................... 82 E.1 Contacts................................................................................................................................... 82 E.2 Financial calendar .................................................................................................................... 82 E.3 2018 Universal Registration Document cross-reference table ................................................. 82 E.4 Full index ................................................................................................................................. 86 87/88 | Semestriel, 2019, IT, Atos | write me a financial report |
Semestriel | 2,020 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Atos
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| Amendment to the 2019 Universal Registration Document (URD) Including the 2020 half-year financial report Only the French version of the amendment to the 2019 Universal Registration Document has been submitted to the Autorité des Marchés Financier (AMF). It is therefore the only version that is legally binding. This amendment to the Universal Registration Document was filed on July 30, 2020 with the AMF in its capacity as the competent authority under Regulation (EU) 2017/1129, without prior approval in accordance with Article 9 of that Regulation. The French version of the Universal Registration Document may be used for the purpose of a public offering of financial securities or the admission of financial securities for trading on a regulated market if it is supplemented by a securities note and, as the case may be, a summary and all amendments made to the Universal Registration Document. The resulting set of documents is approved by the AMF in accordance with Regulation (EU) 2017/1129. This amendment updates and should be read together with the 2019 Universal Registration Document filed with the AMF on March 3, 2020 under registration number D.20-0096. A cross-reference table is included in this amendment to allow readers to locate easily the information that is incorporated by reference and the information that has been updated or modified. The 2019 Universal Registration Document and this amendment are available on the Atos website (www.atos.net), in the Investors / Regulated Information section, and on the AMF website (www.amf- france.org). Trusted Partner for your Digital Journey 1/85 Content CONTENT ......................................................................................................................................................... 2 A. ACTIVITY REPORT ................................................................................................................................ 3 Focus on Covid-19 impact on current Atos business ................................................................................................. 3 A.1 Atos Analyst Day 2020 .................................................................................................................................................. 5 A.2 A.3 Atos in the first half of 2020 .......................................................................................................................................... 7 A.4 Management and organization ................................................................................................................................... 10 Operational review ...................................................................................................................................................... 16 A.5 2020 objectives ............................................................................................................................................................ 31 A.6 Risk Factors: risks relating to the Covid-19 pandemic ............................................................................................. 31 A.7 Claims and litigations .................................................................................................................................................. 32 A.8 Related parties ............................................................................................................................................................. 34 A.9 B. FINANCIAL STATEMENTS .................................................................................................................. 35 Financial review ........................................................................................................................................................... 35 B.1 Interim condensed consolidated financial statements ............................................................................................. 42 B.2 B.3 Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2020 ........................................................................................................................................................................ 67 C. PERSON RESPONSIBLE .................................................................................................................... 69 Person responsible for the amendment to the Universal Registration Document .................................................. 69 C.1 Statement of the person responsible for the amendment to the Universal Registration Document ...................... 69 C.2 For the audit ................................................................................................................................................................. 69 C.3 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .................................................. 70 Office renewals and composition of the Board of Directors..................................................................................... 70 D.1 Annual General Meeting held on June 16, 2020 ........................................................................................................ 71 D.2 Executive compensation and stock ownership ......................................................................................................... 72 D.3 Common Stock Evolution ........................................................................................................................................... 74 D.4 E. APPENDICES ....................................................................................................................................... 79 Contacts ....................................................................................................................................................................... 79 E.1 Financial calendar ....................................................................................................................................................... 79 E.2 Amendment to the 2019 Universal Registration Document cross-reference table ................................................. 79 E.3 Cross-reference table for the Half-Yearly Financial Report ...................................................................................... 82 E.4 Full index ..................................................................................................................................................................... 83 E.5 Trusted Partner for your Digital Journey 2/85 A. Activity Report A.1 Focus on Covid-19 impact on current Atos business Atos has taken care of its employees In this unprecedented environment, the first priority of Atos has been to protect its people while supporting efforts globally to curb the spread of the Covid-19. Its very centralized organizational model allowed Atos to react very quickly to take care of its employees. The Group immediately adopted all hygiene and safety guidelines as published by the World Health Organization and all the 73 local governments where it has employees, including the quarantine recommendations when necessary, the distribution of masks, gels, and sanitation equipment to those requiring office or factory work. Its Crisis Management Task Forces took the lead for employee care with the fast set-up of an Alert Infrastructure, mobilizing the Group Human Resources network, to provide individual support for those with Covid-19 symptoms and diagnosis. Also, employees fully adopted work from home across the Group, moving from circa 30% in normal time to 96% work from home, worldwide, in a manner of days, including a massive movement to home working in India in less than 24 hours. The Group has also provided emotional and mental support for employees isolated at home. Finally, and obviously, most travels have been stopped. Atos has supported its customers during the crisis While taking care of its employees, the business continuity plans the Group set up ensure continuity of service for all customers through massive homeworking support, Service Desk and Digital Workplace, as well as seamless continuation of mission critical activities (hospitals, polices and governments, energy production, etc.). In particular, the Group quickly rolled out Communications & Collaboration technologies to enable remote working and social distancing at its customers. As soon as in the early days of the crisis, the Group launched its “Always Ready” program and portfolio, especially dedicated to Covid-19 related needs. It’s a collection of Customer Cases, Offerings and Actions on how it is helping communities and clients to respond to the situation. Whether it’s rapidly enabling telemedicine in hospitals or printing 3D visors, Atos employees are working hard to contribute to the fight supporting Customers and Communities on a daily basis. The Group strongly supports its customers reinforcing their cybersecurity at a moment where they are more critical than ever for business continuity and potentially targeted by an increased cyberthreat. Supporting Public and Health authorities is at the heart of the Atos’ concerns, with an immediate response for accelerating critical research on Covid-19 with its HPC, analytics and other services, but also to support emergency communications dispatching and help pandemic tracking with critical real-time information on outbreaks allowing to reduce time to react. Now minds and efforts are turning to the post-Covid times, actively preparing for the “new normal” which will see an acceleration in specific customers’ needs, namely data platforms, cybersecurity, cloud migration, digital workplace, and decarbonization. The Group is solidly positioned to navigate smoothly through the crisis thanks to deep client relationships across all industries, a resilient business profile and a robust balance sheet that provides a strong financial flexibility. Atos has demonstrated its resilient profile This crisis enabled Atos to demonstrate its resilience coming from its multi-year contracts that generate two thirds of the Group revenue, deriving from Infrastructure & Data Management and Application Management contracts within Business & Platform Solutions. In Big Data & Cybersecurity, most of Atos’s services and products are absolutely necessary to its customers, including and sometimes even more, in crisis times. In total circa 75% of Group revenue is made of critical services. Trusted Partner for your Digital Journey 3/85 The composition of its customer base also brings resilience as Atos is mainly performing business with large companies having more than 1€bn annual revenue or with the public sector or similar bodies. Together, they represent 90% of revenue. In addition, the Group has a well-balanced Industry mix. Indeed, the largest Industry is Manufacturing which represents “only” 20% of Group revenue and the smallest exposure is Healthcare & Life Sciences which represents 12% of the business. The all four others being in between 15% and 20%. Moreover, the Group is under exposed to the most impacted sectors at the moment, and rather over exposed to the most resilient ones. For exemple, the exposure to Travel & Leisure is only circa 2% of our revenue. 2020 objectives post Covid-19 As the 2020 objectives disclosed on February 19, 2020 were pre Covid-19 effect, the Group has updated at the occasion of its Q1 revenue release on April 22, 2020 its three objectives for the full year 2020: A revenue organic evolution between -2% and -4% (versus c. +2% pre Covid-19); An operating margin rate between 9% and 9.5% of revenue (versus +20 bps to +40 bps above 2019 pre Covid-19, as a reminder in 2019 we reported 10.3%); A free cash flow between € 0.5 billion and € 0.6 billion (versus c. € 0.7 billion pre Covid-19). The assumptions which led to these 2020 objectives post Covid-19 are described hereunder. The Group has suspended its targets for 2021, the last year of the three-year plan presented at the Investor Day held on January 30, 2019. On June 24, 2020, the Group held its 2020 Analyst Day where it has presented its vision as well as its mid-term target, described within section A.2. Assumptions regarding Covid-19 impact on 2020 revenue The main effect relates to discretionary projects, mainly on professional services which normally are delivered on customer sites, and also to take into account a coming slowdown on customer demand for projects not considered as mandatory in the current environment. We have estimated this effect from March to the end of the year at c. -450 million euros. Another effect is on fertilization and volumes for c. -200 million euros on multi-year contracts. The Group also estimated less product sales for c. -100 million euros. On the other side, in the current context where people in all organizations are constraint to work from home generate an additional demand on digital workplace, enterprise communications, and obviously security offerings. This will lead to c. +100 million euros positive impact on revenue. Finally, the Group has also identified additional requirements in the Public Sector such as High Performance Computing for instance for research centers. We have estimated this effect at c. +50 million euros. All in all, we moved to a bracket between -2% and -4% organic evolution this year. Assumptions regarding Covid-19 impact on 2020 operating margin Non personnel costs and discretionary spend have been restricted and the Group implemented a strong purchase order freeze for non-customer related requirements. Subcontractors furlough for Time & Material and Outsourced Services were put in place, and replaced when possible with the Group own staff capabilities. A large review of key suppliers was also initiated, asking for volume reductions, additional discounts, or starting price renegotiation. This will lead to c. +170 million euros savings. As far as the Atos employees are concerned, the Group froze hiring and took actions on bonuses and salary increases, asked employees to take vacations when there is no impact on the business, and when absolutely required we implemented short time work. In addition, internal staff has been reassigned to surging needs such as mission critical deliveries. The Group expects that the effect of hiring freeze as well as the implementation when necessary part-time work and furlough in several countries generate c. +80 million euros savings. In addition, the effect of salary freeze and also on reduced variable pay may provide c. +90 million euros savings. In addition, travel freeze is expected to save c. +40 million euros this year as well as other actions on the cost base to save c. +20 million euros. Finally, all the actions identified and launched will mitigate the revenue decrease by +400 million euros, leading to a post Covid-19 operating margin objective between 9% and 9.5%. Trusted Partner for your Digital Journey 4/85 Assumptions regarding Covid-19 impact on 2020 free cash flow The Group has updated the pre Covid-19 2020 free cash flow objective of c. 700 million euros disclosed on February 19, 2020 to take into account the operating margin decrease described above (i.e. c. -150 million euros after tax). The Group also factored in its new estimate a negative effect from collections of receivables of c. -50 million euros. These both effects will be partly mitigated by several actions such as reducing Capex by c. +25 million euros and other items by c. +25 million euros. This leads to a post Covid-19 2020 free cash flow objective between 500 and 600 million euros. Exceptional cancellation of dividend payment in 2020 In these unprecedented circumstances, during its session on April 21, 2020, the Board of Directors took the exceptional decision not to propose the 1.40 euro per share dividend which was initially considered to be submitted to the Annual General Meeting. In addition, the Chief Executive Officer as well as other members of the General Management Committee have decided to reduce by 30% their compensation during the three-month period from March to May 2020. The Chairman of the Board of Directors has made the same decision. The Group confirms that the cancellation of the dividend this year is an exception to its dividend policy with a pay-out ratio between 25% and 30% of Net income Group share. A.2 Atos Analyst Day 2020 On June 24, 2020, at the occasion of a fully global and digital 2020 Analyst Day, the Group has presented its Vision, Ambition and Strategy in the mid-term. Mid-term targets The Group’s ambition is to reach the following targets in the mid-term: Revenue growth at constant currency: +5% to +7%; Operating margin rate: 11% to 12% of revenue; Free cash flow: an operating margin conversion rate to free cash flow above 60%. Vision, Ambition & Strategy The Group believes that Digitalization has delivered only a fraction of its potential. While the data deluge of the last decade will accelerate, it will now be topped by a profusion of data-driven services. In this new era, customers are calling for value – they want outcome-based services –, experience – they want innovative and flexible services –, and safety – they want secure and decarbonized services. Those customer calls focus on 7 key digital breakthroughs which turn into growth levers for Atos leveraging on its skills and assets: 1. Full Stack Cloud The move to the Cloud is accelerating into Hybrid Cloud (Private and Public Clouds), multi-Cloud (across several Public Clouds), and convergent Cloud strategies (migration and modernization of Data, Platforms and Applications together) building a holistic approach to the Cloud, a Full Stack Cloud. This evolution requires an increased orchestration function. In addition, the most complex application landscapes have started to move into the Cloud. Atos is building on its new profile (Application Modernization expertise from Syntel), its longstanding expertise in Business Critical Applications and SAP, and its strong proximity with Hyperscalers to seize this Full Stack Cloud shaping and acceleration. 2. Business Critical Applications Digitalization accelerates into Business Critical Applications territory requiring an intensification of cloudification, Data analytics, IoT, local data processing, and 5G. Business continuity criticality emphasized during the Covid-19 crisis has been fostering further this trend. Atos is leveraging on its DNA in vertical Business Critical Applications enhanced by SPRING transformation, and its local data processing capabilities (Edge computing) to capture this natural sizeable market opportunity. Trusted Partner for your Digital Journey 5/85 3. Digital Platforms Digital Platforms have become the first business transformation priority of CEOs for the years to come, and will be originating an estimated 70% of the new value created in the economy. Digital Platforms, which enable the sharing data from enterprises within or across value chains, is a transformative trend with a huge untapped opportunity in the B2B world. Through its end-to-end digital capabilities combined with a deep industry knowledge, Atos, as a recognized leader in Security and Computing, is ideally positioned as the neutral enterprise Digital Platforms’ operator. 4. Customer Experience In this new era of Digitialization, Customer Experience will be critical to expand the reach of the newly created data-driven services. This will leave the sole domain of user interface to encompass further immersive experience, real-time innovation and seamless omni-channel, as well as “No User Interface” logics. Atos leverages on IP-driven solutions to bring technologies such as Artificial Intelligence/Machine Learning (AI/ML), IoT / Edge (Local Computing), and real-time Cloud and Application architectures to Customer Experience territory to unleash the power of Digitalization. 5. Employee Experience Further to the Covid-19 crisis, the Group, who is already a Digital Workplace market leader, estimates that organizations will move from 10% to more than 40% of work-from-home in the new normal. Leaving behind the quick fixes implemented during the crisis, the period to come will see Digital Workplace replaced by a holistic Employee Experience approach, including reimagined collaboration and flexible working. Building on its strong Unified Communications and Security solutions, its partner ecosystem, and its Industry specific Design Thinking and Personas, Atos intends to become the distant leader in Employee Experience in the new normal. 6. Digital Security Digital Security encompasses Cybersecurity, but also Mission Critical Systems, IoT Security, and Economic Security – pointing at the willingness from customers not to depend on a single technology provider. Cybersecurity is evolving at a very quick pace due to an ever changing Cyber threat landscape, a pervasive Data environment, and an increased attack surface resulting from « hybrid digital ». Atos is today #3 in Cybersecurity services worldwide, and has developed a unique Cybersecurity innovation track record in order to protect end users, IoT and Data as well as detecting and responding to threats with its prescriptive Security Operation Centers. The Group intends to complement its technologies through Managed extended Detection & Response, Privilege Access Management, and Cloud Encryption. The Group ambitions to reach more than €2bn revenue in Digital Security in the mid-term. 7. Decarbonization Atos has developed over the past 10 years a unique Decarbonization expertise, well recognized by all sustainability rankings. The Group has decided to announce today its commitment to be Net-Zero Carbon by 2035, reinforcing its leadership. Decarbonization is now entering the Boardrooms of customers, and is supported by unprecedented public policies and societal aspirations. Atos can leverage on its unique know-how to shape new Decarbonization value propositions to customers, both in core IT and in business processes, and seize a market opportunity reaching close to $30bn for the sole Green IT in 2024. Offerings range from Decarbonization assessments to the introduction in large contracts of CO2 reduction commitments through DLA (Decarbonization Level Agreements), and the use of key technologies such as IoT, Cloud, AI & Analytics, Digital Twin to decarbonize carbon intense business processes. Atos expects to generate more than €500m revenue in the mid-term in Decarbonization. Based on the above Digital breakthroughs, its unique skills and assets, Atos ambitions to become the Leader in Secure and Decarbonized Digital. Use of cash and M&A policy The Group maintains its dividend policy going forward with a payout ratio between 25% and 30% of net income Group share. The remaining free cash flow will be used to self-finance acquisitions (and to buy back a limited number of shares to deliver long-term incentive plans). The Group targets bolt-on acquisitions to boost key portfolio offerings, and Cybersecurity companies. Considering its limited level of net debt, leverage remains available for sizeable and transformative M&A. This use of cash and M&A policy with continue to be underpinned by a strict financial discipline. Trusted Partner for your Digital Journey 6/85 A.3 Atos in the first half of 2020 January Atos announced on January 7, it signed a four-year contract to supply its BullSequana XH2000 supercomputer, to the University of Luxembourg, renowned European university and international leader in research. The supercomputer, named as ‘AION’, will allow the university to further accelerate research and to face global competition, by achieving cutting-edge results. On January 13, Atos signed a new four-year contract worth over €80 million (approximately £67.8 million) with the European Centre for Medium-Range Weather Forecasts (ECMWF) to supply its BullSequana XH2000 supercomputer, which is one of the most powerful meteorological supercomputers in the world. It will increase ECMWF’s computing power by a factor of around 5 and will support hundreds of researchers from over 30 countries across Europe in their work on medium and long-range weather forecasting and prediction. Notably, it will enable them to reliably predict the occurrence and intensity of extreme weather events significantly ahead of time, essential to respond to the climate and weather crisis facing us today. On January 23, Atos announced a contract with the Regional Government of Castilla-La Mancha to support its e-Government project. The objective of this project is to digitally transform the different administrative and public services in the region. February On February 4, Atos announced that it has completed the sale of ca. € 23.9 million Worldline shares, for ca. € 1.5 billion, representing ca. 13.1% of the Worldline share capital through a private placement by way of accelerated bookbuilt offering. In case of exchange in full of the outstanding € 500 million zero per cent. Atos bonds exchangeable into Worldline shares due 2024, Atos will no longer hold any Worldline shares. On February 4, Atos announced the completion of its acquisition of Maven Wave, a U.S.-based cloud and technology consulting firm specialized in delivering digital transformation solutions for large enterprises. With this acquisition, Atos reinforces its global leadership in cloud-solutions for applications, data analytics and machine learning in hybrid and multi-cloud platforms. On February 12, Atos extended its strategic partnership by signing a new contract with French multinational automotive manufacturer Groupe PSA. This program is to build an SAP S/4HANA enterprise platform which integrates the two Opel-Vauxhall and Peugeot-Citroen-DS entities on a joint accounting system, in order to accelerate digital transformation across the Groupe. On February 17, Atos announced that it has expanded its collaboration with Microsoft to jointly address the fast-growing SAP HANA market, targeting the most demanding customers, many of whom are running mission-critical SAP workloads. March On March 12, Atos signed a four-year contract worth £12 million with Network Rail to design, deliver and manage a new digital private cloud platform that will underpin the operations of Britain’s rail infrastructure provider. April On April 22, Atos announced its acquisition of Miner & Kasch, an artificial intelligence (AI) and data science consulting firm headquartered in Elkridge, Maryland that specializes in building intelligent end-to- end, data-driven solutions. With this acquisition, Atos will enhance its big data and AI consulting practice of zData experts to accelerate its Data Science-as-a-Service offering and to deploy edge and next generation data science platforms for industry solutions at a global scale. On April 22, Atos announced the revenue of its first quarter of 2020. Q1 2020 revenue was € 2,834 million, down -0.8% organically. In the context of Covid-19 crisis and restrictions and lockdowns in March in most of the countries where the Group operates, revenue decreased only slightly thanks to the resilient profile of its businesses based on multi-year contracts combined with its solid business in Big Data and Cybersecurity. Moreover, and in spite of the crisis, the Group accelerated its commercial dynamism with order entry at € 2,908 million leading to a book to bill ratio of 103%, significantly up compared to last year at 86%. Trusted Partner for your Digital Journey 7/85 On April 28, Atos North America was awarded a multi-year contract with the State of Texas’ Department of Information Resources (DIR) to deliver next generation private cloud transformation and artificial intelligence and machine learning capabilities. This modernization will automate processes, create efficiencies, free-up resources and improve service delivery quality for the state’s agencies and residents. May On May 13, Atos announced that it has sold its Atos Quantum Learning Machine (QLM), the world’s highest-performing commercially available quantum simulator, through its APAC distributor Intelligent Wave Inc. (IWI), in Japan. This is the first QLM that Atos has sold in Japan. On May 19, Atos announced it has delivered its Atos Quantum Learning Machine, the world's highest- performing commercially available quantum simulator, to CSC – IT Center for Science. The 30-qubit Atos Quantum Learning Machine – called Kvasi – gives the Finnish science and research community the means to prepare for the upcoming era of quantum computing. June On June 2, Atos North America announced another multi-year contract with Texas Department of Information Resources (DIR) to transform their mainframe technology with enhanced automation and rapid, consistent delivery, enabling a modern Mainframe-as-a-Service (MFaaS) model for state government agencies that serve Texas business, education and citizens. For these DIR customers, Atos’ modernization allows crucial agency business, such as, child support and criminal justice, to access adaptive, resilient, affordable and secure mainframe services. On June 4, Atos was proud to announce its role as a founding member of the GAIA-X Foundation, a non- profit organization that is being setup to create the next generation of data platforms for Europe, its member states, companies and citizens. On June 24, at the occasion of a fully global and digital 2020 Analyst Day, Atos presented its Vision, Ambition and Strategy in the mid-term. On June 24, Atos announced that it has signed an agreement to acquire AliA Consulting in France to complement its Energy & Utilities business through its subsidiary Worldgrid. The combination of the two companies will create a leading provider for energy and utility companies delivering state-of-the-art expertise in billing and CRM implementations and solutions. It will strengthen Atos’ global industry strategy for the energy and utilities market and position Atos as the #1 SAP and S/4 HANA transformation provider for Utilities in Europe. On June 24, Atos announced an agreement to acquire Paladion, a US-based global provider of Managed Security Services, to strengthen its global cybersecurity services. This acquisition will bring Managed Detection & Response (MDR) capabilities to the Atos portfolio and create the next generation of Atos’ Prescriptive Security Operations Center offering. On June 24, Atos announced its commitment to achieve net-zero carbon emissions by 2035, a date which is 15 years ahead of the ambitious aim of the UN Paris Agreement on Climate Change to limit the global warming of the planet to 1.5oC compared to pre-industrial levels (net-zero by 2050). This decision expands Atos’ ambitions on decarbonization even further, positioning decarbonization as a core element of its growth strategy and the Company as the decarbonization leader in its Industry. On June 30, Atos announced a new contract with Dassault Aviation to support the integration of the Rafale aircraft into the European Future Combat Air System (SCAF, Système de Combat Aérien du Futur) program. Named “F4 standard”, this new version of the Rafale will provide collaborative combat capabilities. As part of this project, Atos works on developing the new generation of the aircraft's multi- level gateway (E-SNA), effectively securing connectivity and two-way data exchange between the various onboard communication networks. July On July 7, Atos launched “Scaler, the Atos Accelerator”, its new startup and SME program with a unique focus on industries, security and decarbonization. It brings together Atos’ technology teams with selected startups to co-create innovative digital solutions for clients in specific industries – answering proven business use cases and benefiting from a joint and accelerated go-to-market. Atos Scaler also supports Atos’ security and decarbonization strategies, making them key focuses in its approach. Trusted Partner for your Digital Journey 8/85 On July 7, Atos announced the development of a new Quantum Annealing Simulator, thus becoming the world’s first company to provide powerful simulation solutions to explore the two main technological paths of quantum computing: quantum annealing, via its new solution, and universal gate quantum computing, via its existing Atos Quantum Learning Machine offering (Atos QLM). Atos’ Quantum Annealing Simulator will be compatible with the Atos Quantum Learning Machine, offering customers the best of both worlds while enabling them to switch quantum methods based on their specific needs. On July 7, Atos announced a multi-year partnership with French multinational energy company Total, to explore new and more effective pathways to a decarbonized, energy-efficient future using quantum technologies. Leveraging Atos’ unique Center for Excellence in Performance Programming (CEPP) and Quantum R&D Program, this partnership aims to use quantum calculation to identify new materials and molecules that will accelerate society's journey to carbon neutrality. On July 8, Atos in agreement with the Wellcome Genome Campus, in Cambridgeshire, UK, announced its global HPC, AI & Quantum Life Sciences Centre of Excellence in order to provide organizations on Campus, and global genome and bio-data institutes worldwide, access to emerging HPC, AI & Quantum technologies. On July 9, Atos and the International Olympic Committee (IOC), announced an extension to their long- standing Worldwide Olympic Partnership through to 2024. On July 9, Atos announced that the Biocomputing Unit at the Spanish National Center for Biotechnology (CNB), part of the Spanish National Research Council (CSIC), is using Atos’ supercomputing resource to produce a refined 3D model of the SARS-Cov2 spike protein. By knowing more detail about the structure of this protein, which is the one that the virus uses to enter human cells, researchers can better understand how the virus initiates infection. This important step forward may help in the development of a vaccine. On July 27, Atos announced its financial results for the first half of 2020. Revenue was € 5,627 million, down -2.8% organically. In the context of Covid-19 crisis, Group revenue decreased only slightly thanks to its solid positioning in most of the Industries. Operating margin reached 8.0% of revenue representing € 450 million, down -110 basis points compared to last year. The strong cost actions implemented end of Q1 have partly mitigated the revenue effect. Order entry reached € 6,280 million, representing a book to bill ratio of 112%, of which 121% in the second quarter. The full backlog at the end of June 2020 amounted to € 22.5 billion, compared to € 21.9 billion at the end of December 2019, representing 1.9 year of revenue. The full qualified pipeline was € 8.6 billion, compared to € 7.4 billion at the end of December 2019 and representing 8.8 months of revenue. Group free cash flow during the first half of 2020 was € -172 million, compared to € +23 million in the first half of 2019. The variation results mainly from c. € -60 million less Operating Margin before Depreciation and Amortization (OMDA) and from several working capital effects which will be recovered for a large part in the second semester. On July 27, Atos announced that it has entered into exclusive negotiations with shareholders from digital.security with a view to acquiring the company. digital.security, a subsidiary of Econocom group, is a leading independent player in cybersecurity in France and BeLux. This strategic move will confirm Atos’ leading position in cybersecurity services in France with 500 dedicated experts and will also strengthen its number 1 position in Europe. On July 27, Atos announced an agreement to acquire EcoAct, an internationally recognized carbon reduction strategy consulting firm. This acquisition will support Atos’ decarbonization ambition by enriching its portfolio of carbon reduction digital solutions, services and strategies to further support its clients at every stage of their journeys towards carbon neutrality. Trusted Partner for your Digital Journey 9/85 A.4 Management and organization Atos is incorporated in France as a “Société Européenne” (European Company) chaired by Bertrand Meunier, Chairman of the Board of Directors, and a General Management Committee, led by Elie Girard, Chief Executive Officer. Since November 2019, the roles of Chairman and Chief Executive Officer have been separated. On May 13, 2020, the Group announced the company has appointed Bryan Ireton as Head of North America, effective June 1, 2020. Bryan Ireton replaces Simon Walsh who pursues other opportunities outside of Atos. On July 28, 2020, the Group announced the appointment of Yannic Tricaud as Head of Southern Europe. As a consequence, the organization chart of the Group at the date of the filing of this Document is the following: Bertrand Meunier, Chairman of Atos SE Board of Directors Bertrand Meunier joined CVC as Managing Partner in 2012. Bertrand participated, as a Founding Partner, in the creation of PAI Partners, an independently managed company, in 1998 and in its buyout from BNP Paribas in 2002. He was a member of the Executive Committee of PAI Partners and Chairman of the Partners’ Committee. He joined PAI in 1982, formerly part of BNP Paribas, and for eleven years led investments in Information Technology and Communications, before turning to Consumer Goods, Retail and Services sector and then led the investment teams. He was involved in a significant number of major transactions for PAI including Amora-Maille, Atos, Bouygues Telecom, Chr. Hansen, Panzani, Saur, SPIE, United Biscuits, Vivarte and Yoplait. Bertrand is a graduate of Ecole Polytechnique and holds a master’s degree in Mathematics from Paris VI University. Elie Girard, Chief Executive Officer Elie Girard joined Atos in April 2014 as deputy Group Chief Financial Officer. He was appointed Group Chief Financial Officer in February 2015 and joined the Atos General Management Committee. He was appointed Group Deputy CEO in March 2019 and has been nominated CEO with effect from November 1, 2019. Before joining Atos, Elie Girard, a graduate from the Ecole Centrale Paris and Harvard University, began his career as an auditor at Andersen and then joined the Ministry of the Economy, Finance and Industry from 2002 until 2007. He joined Orange in 2007 and was appointed Chief of Staff to the Chairman and Chief Executive Officer. In September 2010, he was promoted to Senior Executive Vice- President in charge of Strategy & Development of the Orange Group and member of the Group Executive Committee. A.4.1 Organization chart Chief Digital & Transformation Officer and CSR –P.Mareine Performance –E.de Pontèves Industries Functions Chief Executive OfficerElie Girard Resources & Services –G.DiFranco UCC –R.Vassoyan Public Sector & Defense –P.Barnabé Telecom, Media & Technology –J.P Poirault BDS –P.Barnabé Southern Europe –Y. Tricaud Investor Relations and Internal Audit –G.Arditti Chief Operating Officer –E.Grall B&PS Public & Regional –N.Bihmane Operations Financial Services & Insurance –A.Gregory North America –B.Ireton Healthcare & Life Science –R.Vassoyan Central Europe–U.Morgenstern General Secretary –A.Menais Manufacturing –E.Grall Executives and Marketing & Communications –M.Meyer B&PS Atos|Syntel–A.Gregorysupported by R.KhannaCEO Atos |Syntel Human Resources –P.Peterson Northern Europe –P’t. Jong Regional Business Units Chief Financial Officer –U.Stelter IDM –J.Debecker Growing Markets –N.Bihmane Chief Technology Officer –S.Proust Trusted Partner for your Digital Journey 10/85 A.4.2 Group General Management Committee (GMC) The Atos Group General Management Committee (GMC) is composed of the Chief Executive Officer, Elie Girard, and the Heads of Group Industries, Operations, Regional Business Units and Functions. The role of the GMC is to develop and execute the Group strategy and to ensure value is delivered to clients, shareholders, partners and employees. The GMC oversees the global coordination of the Group management. A.4.2.1 Industries Eric Grall, Head of Manufacturing Eric Grall comes from HP and where he held first positions in marketing and R&D in the product business, before entering the Services activities of the Group in 1998. He then had several management positions related to outsourcing, from pre-sales to operations. In 2005, he was appointed Vice-President and General Manager in charge of the Global Services Delivery for HP in the EMEA region, covering outsourcing, consulting and support services. After the EDS acquisition in 2008, Eric led the ITO activities of the new outsourcing business. Eric joined Atos in 2009 as EVP of the Infrastructure & Data Management Division. Since 2017, he is in charge of Atos Global Operations (Infrastructure & Data Management, Business & Platform Solutions, Big Data & Cybersecurity, and Unify Software & Platforms), and Geographic Business Units. Since February 2020, in addition to his role as Chief Operating Officer, he is Head of Manufacturing. Adrian Gregory, Head of Financial Services & Insurance Adrian Gregory joined Atos in 2007 and has a 20-year blue-chip background with experience of a wide range of technology solutions and multiple client sectors. Most recently he was Senior Vice-President for Public sector, Health & BBC with responsibility for all aspects of client business and future strategy. In July 2015 he was appointed Chief Executive Officer of the United Kingdom & Ireland and joined the Atos Executive Committee. In 2019, he was appointed Head of Business & Platform Solutions AtoslSyntel and in February 2020 Head of Financial Services & Insurance. Pierre Barnabé, Head of Public Sector & Defense Pierre Barnabé is Head of Big Data & Cybersecurity within the Group Atos, following the successful merger of Bull with Atos. Since February 2020, in addition to his role of Head of Big Data & Cybersecurity, he is Head of Public Sector & Defense. He joined Bull in August 2013 as Chief Operating Officer. Previously, Pierre was General Manager of SFR Business team. He began his career in the venture capital department of Thalès. In 1998, he joined Alcatel Lucent with various successful sales positions (Vice-President Sales France, Vice-President Sales South Europe) before being appointed Chief Executive Officer of Alcatel Lucent France then Group Executive Vice-President Human Resources & Transformation. Knight of the French National Order of Merit, Pierre Barnabé is graduated from NEOMA Business School and from Centrale Supélec. Jean-Philippe Poirault, Head of Telecom, Media & Technology Graduated from Supelec, Jean-Philippe Poirault has held senior management positions in IT and software services activities at Alcatel-Lucent and Ericsson in several European and Asian countries. In January 2018, he joined Amazon Web Services in the United States to lead the Telecom market. In September 2019, he joined Atos as Chief Executive Officer of Atos in France. Since February 2020, he is Head of Telecom, Media & Technology. Giuseppe Di Franco, Head of Resources & Services After several years in Business Consulting, Giuseppe di Franco joined Siemens in 2005 as Senior Vice- President, assuming different roles as Chief Executive Officer and Director of the Region South West Europe for the Energy Industry. In 2013, he assumed the role of Chief Executive Officer of Atos Italy and Head of the Energy & Utilities Industry market at Atos Global level. In February 2018 Giuseppe Di Franco was appointed Chief Executive Officer of Central & Eastern Europe. Since February 2020, he is Head of Resources & Services. Giuseppe Di Franco has a degree in Engineering Management achieved at the Politecnico di Milano and is Alumnus Top Influencer of the University. Trusted Partner for your Digital Journey 11/85 Robert Vassoyan, Head of Healthcare & Life Science Robert Vassoyan is a graduate of ESSEC business school. His career spanned from Renault, Compaq to HP where he served in various senior management positions in Sales and Marketing. In 2007 he joined Cisco and became in 2011 the President of Cisco France. Robert joined Atos as Chief Commercial Officer in March 2018. Since February 2020, he is Head of Healthcare & Life Sciences and Head of Unified Communication & Collaboration. A.4.2.2 Operations Eric Grall, Chief Operating Officer Please refer to his biography in A.3.2.1 Group General Management Committee – Industries. Jo Debecker, Head of Infrastructure & Data Management Jo Debecker studied finance and computer science at the university of Leuven, Belgium. He started his career as system analyst and systems manager for Procter and Gamble on mainframe, database and SAP technologies. In 2003 Jo joined Hewlett-Packard as solution manager and solution executive in the strategic sales department. In 2008, Jo was appointed senior Director Service management for the European infrastructure delivery and drove the process integration of EDS into HP. In 2011 Jo joined Atos as head of Service Management globally, during 2011 and 2019 Jo ran the IDM division for Germany and North America. He was appointed Chief Operating Officer for IDM in 2018 before being promoted to the position as Head of IDM in February 2020. Adrian Gregory, Head of Business & Platform Solutions Atos Syntel Please refer to his biography in A.3.2.1 Group General Management Committee – Industries Nourdine Bihmane, Head of Business & Platform Solutions Public & Regional Born in 1977, Nourdine Bihmane joined Atos in 2002 starting to work for various clients and in sales roles, quickly taking over management positions. In 2009, he became Head of Managed Services in Iberia, then moved to New York to lead the delivery transformation of the largest account of Atos in the United States. In 2015, he has been appointed Head of Operations for North America and led the integration of Xerox ITO. Nourdine moved back to Europe in 2017 to drive the strategic & lean initiatives on all Atos’ operations, before being named in 2019 Head of Business & Platform Solutions, Public and Regional Business and member of the Atos Executive Committee. Since 2020, he is also Head of Growing Markets. Nourdine graduated as an engineer from CNAM in France and holds executive degrees from Princeton University and INSEAD. He is also an active member of the International Red Cross and Red Crescent Movement. Robert Vassoyan, Head of Unified Communication & Collaboration Please refer to his biography in A.3.2.1 Group General Management Committee - Industries Enguerrand de Pontevès, Head of Performance Enguerrand de Pontevès joined Atos in 2008 as Procurement Director for France and Spain and was promoted as Group Chief Procurement Officer in 2009. In 2018 he joined the Infrastructure Data Management division to manage the Client Managers community. In 2019 he led the project of operational divestiture with Worldline and managed the Spring program aiming at setting-up an Industry- led organization, he was promoted to the role of Head of Performance. Before Atos, Enguerrand de Pontevès worked as Head of Logistic at Valeo. In 2000 he joined Altis Semiconductor to contribute to the JV structure between IBM and Infineon. In 2002 he joined Pechiney as head of IT procurement and relocated to Montreal in Canada in 2007 after the takeover by Alcan. Enguerrand holds a master’s in Business Management with major in logistic & procurement from ESCEM. Trusted Partner for your Digital Journey 12/85 A.4.2.3 Regional Business Units Bryan Ireton, Head of North America Bryan Ireton is Head of Atos North America. Bryan Ireton and his leadership team are responsible for serving more than 200 North American clients. Bryan Ireton joined Atos with nearly 30 years of professional experience in the IT industry, including a lengthy career at Accenture where he served in a variety of roles including most recently as Director of Operations for Financial Services across North America. He also served as President of Accenture Credit Services and CEO of Accenture Mortgage Cadence during his tenure at the company. Prior to Accenture, Bryan Ireton held leadership roles in the telecommunications industry with both AT&T and MCI. Ursula Morgenstern, Head of Central Europe Ursula Morgenstern joined Atos in 2002 through the acquisition of KPMG Consulting. From 2007 to 2009, she was Senior Vice-President responsible for Systems Integration, and then she was Senior Vice- President responsible for Private Sector Markets. Prior to that, she held a variety of roles in Systems Integration including management roles for sectors and various practices. In 2011, she was Chief Operating Officer of the United Kingdom & Ireland and in 2012 she took on the role as Chief Executive Officer of the geography. From July 2015 to February 2018 she managed the Global Business & Platform Solutions Division. Since February 2018 she is Chief Executive Officer of Germany. Additionally, she has been appointed as Managing Director of Atos Information Technology in March 2018. Since February 2020, she is Head of Central Europe in addition to her role as Chief Executive Officer of Atos in Germany. Yannick Tricaud, Head of Southern Europe Yannick Tricaud is a graduate of the Ecole Supérieure des Techniques Aéronautique et de Construction Automobile (ESTACA). He began his career in 1997 at Hewlett Packard, in the Outsourcing Division, as a support engineer, working on customer Information Systems. For 13 years, he held various management positions, from Service Delivery Manager, to the management of major international outsourcing contracts. In 2010, he joined Capgemini Group, in order to take over, in more than thirty countries, the IT activities of the world leader in energy management and automation. In 2013, he is appointed Vice President of Capgemini Infrastructure Management, responsibile of the entire french customer installed base. Between 2014 and 2017, he joined Sopra-Steria, at the time of the merger, in order to build a dedicated Infrastructure Services subsidiary, of which he took over as Executive Director. In May 2017, Yannick Tricaud joined Atos, as Director of the Infrastructure & Data Management division for France. In August 2020, he was promoted to France & Southern Europe Chief Executive Officer and became a member of the Group's Management Committee. Peter ‘t Jong – Head of Northern Europe As an experienced IT leader, Peter has a proven track record in delivering results and managing complex customer relationships. He started his career in technical automation with AT&T and Philips, and then continued a career in technology with Lucent working in the Netherlands and in the USA. In 2001 Peter joined Atos as Head of Managed Services in the Netherlands and expanded his scope to Executive Vice- President for Sales and Chief Operating Officer for Atos Northern Europe. From 2015 Peter was responsible for leading the Managed Services organization in Germany and managed the carve-out and integration of Unify within Atos, followed by his appointment as Chief Executive Officer of Benelux and & The Nordics in May 2016. Since February 2020, he is Head of Northern Europe. Nourdine Bihmane, Head of Growing Markets Please refer to his biography in A.3.2.2 Group General Management Committee – Operations Trusted Partner for your Digital Journey 13/85 A.4.2.4 Functions Uwe Stelter, Chief Financial Officer Uwe Stelter joined the Atos Group in 2011 from Siemens where he held multiple global Finance Management positions in the US and Germany in both the Siemens IT services and Communication divisions. In addition, Uwe Stelter was Chief Financial Officer of ProSTEP, a Germany-based Consulting and Software company serving the Product Lifecycle Management (PLM) market. Uwe Stelter became Chief Financial Officer of the Group in November 2019, after holding Chief Operating Officer roles in the Infrastructure & Data Management and Business & Platform Solutions Divisions of Atos in the last 4 years as well as being in charge of the integration of Syntel. Prior to that he was Chief Financial Officer of the Infrastructure & Data Management Division and of the North America Business Unit. He is a graduate in Business Administration from AKAD University in Germany. Philippe Mareine, Chief Digital & Transformation Officer and Head of CSR Philippe Mareine was Deputy Manager in the French Treasury department’s Inspection Générale des Finances unit and, previously, he oversaw Human Resources in the Public Accounts department of the French Ministry for the Budget. He held several managerial positions at the French Tax Administration. He joined Atos in 2009 as General Secretary of the Board of Directors in charge of legal functions, compliance, audit, security and social responsibility policy. In 2014, he became Head of Human Resources, then Head of Siemens Global Alliance. He is today Chief Digital & Transformation Officer. Philippe Mareine is also in charge of Group Corporate Social Responsibility (CSR). He is a graduate from the Ecole Polytechnique and Ecole Nationale d’Administration. Paul Peterson, Head of Human Resources Paul Peterson graduated from Brigham Young University and pursued graduate education at The Ohio State University. Paul joined Atos in 1998, early in his career, as the HR Director for the Major Events business unit. Over his career, Paul has worked and lived in North America, APAC, and across Europe, holding leadership roles in HR, IT, and Operations. Notable and more recent leadership roles include Head of HR and Talents in North America (2012), Head of HR for Global Infrastructure and Data Management (2018), and Deputy Head of Group HR (2019). Paul became Head of Group Human Resources in February 2020, leading a team of +1,500 worldwide HR professionals. Sophie Proust, Group Chief Technology Officer Sophie Proust is graduate of the Ecole Supérieure d’Electricité “Supélec” of Paris. She joined Bull in 1989 where she held various technical managerial positions in the mainframe, IT administration solutions and HW server design. In 2010, Sophie headed the Tera100 Project which delivered the CEA with the first Petaflops-scale calculator in Europe. She joined the Atos Group in 2014 following the acquisition of Bull, where she held the position of Head of Research & Development for the Big Data & Cybersecurity Division from 2014 to January 2019. In January 2019, Sophie was appointed Group Chief Technology Officer (CTO), joining the Atos Executive Committee. Alongside this, Sophie is part of the Atos Quantum Advisory board. Sophie was a member of the Board of Directors of Worldline from December 2016 to April 2019 and has been a member of the board of directors of the Université Technologique de Troyes (UTT) since December 2018. Alexandre Menais, General Secretary Alexandre Menais joined Atos in 2011 as Group General Counsel. He is also in charge of Merger & Acquisitions and corporate development since 2015 and in addition has been appointed General Secretary in 2018. Before Atos, Alexandre Menais worked as Senior Associate at Hogan Lovells in Paris and London. In 2006, he became General Counsel at eBay France (eBay, Paypal and Skype) before being promoted as Europe Legal Director of eBay. In 2009, he joined Accenture as General Counsel France and Benelux. Alexandre holds a LLM in Business law from the University of Strasbourg and a MBA from HEC. Alexandre Menais has been nominated in March 2019 Board member of the French competition Authority. Trusted Partner for your Digital Journey 14/85 Gilles Arditti, Head of Investor Relations and Responsible for Internal Audit After six years at Bull and four years at KPMG, Gilles Arditti joined Atos in 1990, where until 2006 he was, successively, Director of Mergers & Acquisitions, Director of Finance and Human Resources for Atos Origin in France, and Chief Financial Officer of France, Germany and Central Europe. In 2007, Gilles Arditti became Head of Investors Relations for the Atos Group, a position he still holds. Since February 2020, he is also Head of Internal Audit. In March 2014, he was appointed Group Head of Mergers & Acquisitions and member of the Executive Committee. Since June 2014, Gilles Arditti is member of the Board of Directors of Worldline. Holding a master’s degree in Finance from the University Paris-Dauphine and a master’s degree in International Finance from HEC Paris, Gilles Arditti is also graduated from the engineer school École Nationale Supérieure de Techniques Industrielles et des Mines d’Alès (ENSTIMA) and is a Certified Public Accountant (CPA). Marc Meyer, Head of Executives & Head of Marketing and Communications Graduate from the Sorbonne University and INSEAD Business School, Marc Meyer joined Atos in 2009 coming from Dexia where he served as Head of Group Communications. Marc started his career working in the French Parliament Assemblée Nationale and joined the IT Group Bull Group in 1986, where he held several senior positions in corporate and marketing communications for 10 years. In 1997, he joined Thomson, a consumer electronics firm and in 2001 was promoted to the Company Executive Committee. Then, he joined the France Telecom/Orange Group as Executive Vice-President for Communications. Marc served as advisor to the Ministry of Economy, Finance and Industry in 2005. Marc Meyer has been promoted as Head of Executive & Talent Management, Communications in Atos in 2014. He has been decorated from the French Légion d’Honneur (Chevalier) in 2007. Trusted Partner for your Digital Journey 15/85 A.5 Operational review A.5.1 Statutory to constant scope and exchange rates reconciliation Revenue in H1 2020 reached € 5,627 million, -2.3% at constant exchange rates and -2.8% organically. Operating margin reached € 450 million, representing 8.0% of revenue, a decrease by -110 basis points at constant scope and exchange rates. In € millionH1 2020H1 2019% changeStatutory revenue5,627 5,744 -2.0%Exchange rates effect14 Revenue at constant exchange rates5,627 5,758 -2.3%Scope effect32 Exchange rates effect on acquired/disposed perimeters2 Revenue at constant scope and exchange rates 5,627 5,792 -2.8%Statutory operating margin450 529 -15.1%Scope effect-6 Exchange rates effect1 Operating margin at constant scope and exchange rates450 525 -14.4%as % of revenue8.0%9.1% The table below presents the effects on H1 2019 revenue of acquisitions and disposals, internal transfers, reflecting the Group’s new organization, and change in exchange rates. In € millionH1 2019 statutoryScope effectsInternal transfersExchange rates effects*H1 2019 at constant scope and exchange ratesNorth America1,345461321,423Northern Europe1,366-9 13-2 1,368Central Europe1,374-9 441,372Southern Europe1,2188301,229Growing Markets442-2 -22 -18 399TOTAL GROUP5,74432155,792Infrastructure & Data Management3,137264133,179Business & Platform Solutions2,1354-12 12,128Big Data & Cybersecurity473381485TOTAL GROUP5,74432155,792Manufacturing1,1440-2 1,142Financial Services & Insurance1,112951,126Public Sector & Defense1,141141,146Telecom, Media & Technology86917-0 885Resources & Services82322827Healthcare & Life Sciences65537665TOTAL GROUP5,74432155,792* At H1 2020 exchange ratesH1 2019 revenue Trusted Partner for your Digital Journey 16/85 Scope effects amounted to € +32 million for revenue, of which: € +44 million related to the acquisition of Maven Wave, consolidated as of February 1, 2020. • € +13 million related to other acquisitions (Miner & Kasch, IDnomic, X-PERION) • € -25 million related to the disposal of some specific Unified Communication & Collaboration activities mostly in H1 2020 as well as former ITO activities in the UK beginning of H2 2019, and the disposal and decommissioning of non-strategic activities within CVC. NB: As the closing of the recent acquisitions of Alia Consulting and Paladion are expected to take place before the end of the year, no restatement is necessary for both H1 2019 revenue and operating margin. Internal transfers mostly referred to Cybersecurity consulting services formerly developed in Business & Platform Solutions and now integrated under Big Data & Cybersecurity since H2 2019, the revenue of a contract previously signed between Worldline and Growing Markets and now signed between Worldline and France (part of Southern Europe) since January 1, 2020, and finally the transfer of contracts realized by Syntel India in Europe and previously reported under Growing market. Currency exchange rates effects positively contributed to revenue for € +15 million and to operating margin for € +1 million mostly related to the appreciation of the U.S. dollar against the Euro which has more than compensated the depreciation of both the Argentinian peso and the Brazilian real against the Euro over the period. The impacts described above are reflected in the operating margin at constant scope and exchange rates. Scope effect amounted to € -6 million, mainly coming from Maven Wave acquisition impacting the Group margin by € +2 million, compensated by € -7 million due to the disposal of activities. These effects are detailed below: In € millionH1 2019 statutoryScope effectsInternal transfersExchange rates effects*H1 2019 at constant scope and exchange ratesNorth America1482403193Northern Europe126-2 10-1 134Central Europe91-4 -1 086Southern Europe92-1 -5 85Growing Markets112-2 -44 -1 65Global Structures-38 0-38 TOTAL GROUP529-6 1525Infrastructure & Data Management274-5 1270Business & Platform Solutions2470-2 -0 246Big Data & Cybersecurity48-1 2049Corporate costs-40 -40 TOTAL GROUP529-6 1525Manufacturing81-1 81Financial Services & Insurance1461147Public Sector & Defense97-0 197Telecom, Media & Technology60-4 -0 55Resources & Services74-1 -0 73Healthcare & Life Sciences710071TOTAL GROUP529-6 1525* At H1 2020 exchange ratesH1 2019 Operating margin Trusted Partner for your Digital Journey 17/85 A.5.2 Performance by Industry In € millionH1 2020H1 2019*Organic evolutionH1 2020H1 2019*H1 2020H1 2019*Manufacturing 1,037 1,142 -9.2% 13 81 1.2%7.1%Financial Services & Insurance 1,077 1,126 -4.3% 126 147 11.7%13.1%Public Sector & Defense 1,216 1,146 +6.1% 116 97 9.5%8.5%Telecom, Media & Technology 836 885 -5.6% 84 55 10.0%6.2%Resources & Services 804 827 -2.8% 43 73 5.3%8.9%Healthcare & Life Sciences 657 665 -1.2% 68 71 10.3%10.7%Total5,6275,792-2.8%450525 8.0%9.1%* At constant scope and exchange ratesOperating marginOperating margin %Revenue A.5.2.1 Manufacturing In € millionH1 2020H1 2019*Organic evolutionRevenue 1,037 1,142 -9.2%Operating margin 13 81 Operating margin rate1.2%7.1%* At constant scope and exchange rates With 18% of the Group revenue, Manufacturing reported a revenue of € 1,037 million, representing a decrease by -9.2% compared to H1 2019 at constant scope and exchange rates. The Industry was impacted by a significant decrease of its activity mainly in Q2 due to Covid-19 in the Automotive and Aerospace sectors, especially in Southern Europe with PSA, North America with Daimler and Central Europe with Volkswagen. The Industry was also impacted by lower volumes with Siemens, mainly in North America, and the base effect of some contracts which ended in 2019 in Northern Europe. New business started with a large German automotive manufacturer in the first quarter and increasing activity with BASF and Rheinmetall allowed to limit the impact of this more difficult context. The share of business realized with the top 10 customers represents 52% of the Manufacturing Industry, by decreasing order: Siemens, Rheinmetall, Daimler Group, a large german automotive manufacturer, Volkswagen, a global leader in Aerospace and Defense, a leader in systems and equipment in the Aerospace and Defense sectors, PSA, a large french automotive manufacturer, BASF. Operating margin reached € 13 million, representing 1.2% of revenue, due to some one-offs on difficult contracts and as a consequence of the revenue drop, and impacted by the ability to reduce the costs only partially within the first semester. A.5.2.2 Financial Services & Insurance In € millionH1 2020H1 2019*Organic evolutionRevenue 1,077 1,126 -4.3%Operating margin 126 147 Operating margin rate11.7%13.1%* At constant scope and exchange rates Financial Services & Insurance revenue was € 1,077 million during the first half of 2020, representing 19% of total revenue of the Group. The industry was down by -4.3% organically compared to H1 2019 at constant scope and exchange rates. This decrease was driven by a combination of challenges in the Banking customer landscape accelerated by the effects from the Covid-19 pandemic. In North America, the industry suffered from a business mix highly exposed to decisions from several banking institutions to reduce discretionary expenses and therefore project volumes. Trusted Partner for your Digital Journey 18/85 In Europe, the Industry had to face different strategies from their customers. Several banking institutions in Southern and Central Europe decided to postpone the outsourcing of part of their IT activities and to delay the launch of new projects. In particular Central Europe faced reduced business with Deutsche Bank. This trend was more than compensated by the ramp-up of the service phase in a multi-divisional contract with Aegon in the United Kingdom. Growing Markets was impacted by non-repeated product sales performed last year notably in Asia within Infrastructure & Data Management, combined with a terminated infrastructure project in Middle-East. The top 10 customers of the industry segment Financial Services & Insurance represented 51% of the H1 total revenue of the Industry and were by decreasing order: NS&I, a large bank based in Hong-Kong, Aegon, a US financial payment institution, CNA Financial Corporation, State Street Corporation, Deutsche Bank, Worldline, Aviva and a French bank. Operating margin was € 126 million, representing 11.7% of revenue and a reduction of -130 basis points compared to last year on a like for like basis. The performance was mainly impacted by revenue decrease in North America. A.5.2.3 Public Sector & Defense In € millionH1 2020H1 2019*Organic evolutionRevenue 1,216 1,146 +6.1%Operating margin 116 97 Operating margin rate9.5%8.5%* At constant scope and exchange rates Public Sector & Defense was the largest Industry of the Group with a revenue at € 1,216 million representing 22% of the Group revenue, with a growth of +6.1% compared to H1 2019 at constant scope and exchange rates, accelerating in Q2 2020 to reach +9.0%. This growth was driven by Northern Europe, mainly with the continuation of a large High-Performance Computing project with a weather forecast institution and higher volumes with European Union Institutions in Cloud solutions. In Central Europe, revenue also grew strongly fueled by a High-Performance Computing deal with a research center, and a new SAP Hana contract. This strong performance more than compensated the demand reduction from the German Employment Agency. In North America, the Industry grew thanks to the ramp-up of NG911 project in California State, to the development of new projects with a US state and to the delivery of mainframe services for another US state. These new projects as well as the activity with Texas DIR allowed to fully compensate the ramp down of some contracts such as Orange County. Revenue in Growing Markets decreased mainly due to the postponement of Tokyo Olympic Games. This was only partly compensated by the development of High-Performance Computing activities in India, and the launch of a new project with a Post office Institution in Middle East & Africa. Southern Europe declined due to sales of products not replicated in 2020, a ramp down in High performance Computing projects not fully compensated by Advanced computing project with Meteo France. 41% of the revenue in this Industry was realized with the top 10 clients: European Union Institutions, Texas Department of Information Resources, a research center in Germany, UK Nuclear Decommissioning Authority, two French Ministries, UK Ministry of Justice, a research center in France, the French Collectivites Territoriales and a German national Employment Agency. Operating margin reached € 116 million, representing 9.5% of revenue, +100 basis points at constant scope and exchange rates, led by the growth of the activity, a better business mix and strong costs reduction initiatives. Trusted Partner for your Digital Journey 19/85 A.5.2.4 Telecom, Media & Technology In € millionH1 2020H1 2019*Organic evolutionRevenue 836 885 -5.6%Operating margin 84 55 Operating margin rate10.0%6.2%* At constant scope and exchange rates Telecom, Media & Technology revenue represented 15% of the Group revenue and reached € 836 million, decreasing by -5.6% compared to H1 2019 at constant scope and exchange rates. Telecom activity was impacted by less product sales, notably with two large German operators, by some volume reductions with TIM and Orange in Southern Europe. Conversely, positive developments were recorded in Southern Europe with customers like a British multinational telecommunications company and Central Europe with Orange. Media recorded an increase across all the Regional Business Units, with more prominent amounts in North America thanks to new business with a US multinational technology company and a large US entertainment company, as well as in Southern Europe with new project delivered to a French multinational media conglomerate. Activity on Media in Northern Europe slightly decreased compared to last year mainly in Digital Workplace. Technology declined mainly due to the ramp-down of Business & Platform Solutions contracts in Central Europe and Northern Europe, as well as legacy Unified Communication & Collaboration. Positive results were recorded in North America thanks to an increase in Digital Workplace offerings, growing organically business of newly acquired Maven Wave and ramp-up with a US global aerospace and defense technology company. Southern Europe remained stable at last year’s level. Situation remained challenging in Growing Markets. Main clients are BBC, Orange, Conduent, a large US entertainment company, Deutsche Telekom, Telefonica/O2, TIM, Xerox, a multinational company, and a Global telecommunication provider. The top 10 clients represented 44% of the total Telecom, Media & Technology Industry revenue. telecommunications Operating margin was € 84 million or +10.0% of revenue, an increase of +380 basis points compared to last year at constant scope and exchange rate, led by positive one-off transactions and effective cost measures. A.5.2.5 Resources & Services In € millionH1 2020H1 2019*Organic evolutionRevenue 804 827 -2.8%Operating margin 43 73 Operating margin rate5.3%8.9%* At constant scope and exchange rates Revenue generated by Resources & Services in the first half 2020 reached € 804 million representing 14% of the total revenue of the Group. The Industry decreased by -2.8% compare to H1 2019 with very different trends across its components together with the negative impact of the Covid-19 Pandemic. Business with clients in Energy and Utilities sectors fueled the growth. In particular, the Industry successfully delivered new High-Performance Computing projects in Brazil and managed to fertilize their on-going activities with ENEL. Digital workplace services were ramped-up with National Grid in Northern Europe and with a major energy provider in North America. In Southern Europe, activity with EDF increased thanks to the development of new offerings. Situation in Retail, Transportation and Hospitality sectors was more challenging, in a context marked by the impact of the Covid-19 pandemic. Trusted Partner for your Digital Journey 20/85 A large IoT deal was signed with Goli nutrition in the first quarter in North America mitigating volume reductions with other customers. In Northern Europe, ramp-up of projects with Network Rail could not mitigate the reduction of volumes with a large UK mail company. Finally, in Central Europe, additional volumes with several clients could not compensate the impact of activities stopped with Thomas Cook due to their insolvency situation and a challenging legacy Unified Communication & Collaboration activity. Main clients were EDF, a US multinational delivery services company, ENEL, SNCF, a french multinational electric utility company, Network Rail, National Grid, a UK postal service company, a Brazilian multinational corporation in the petroleum industry, an American fast food company. The top 10 clients represented 42% of the total Resources & Services revenue. Operating margin reached € 43 million, representing 5.3% of revenue, -350 basis points at constant scope and exchange rates, coming from the revenue decrease, which actions on costs could only partly compensate, and a lower margin in the start-up phase of some new contracts. A.5.2.6 Healthcare & Life Sciences In € millionH1 2020H1 2019*Organic evolutionIn € million 657 665 -1.2%Revenue 68 71 Operating margin10.3%10.7%* At constant scope and exchange rates Representing 12% of total revenue of the Group, Healthcare & Life Sciences revenue was € 657 million, down by -1.2% compared to H1 2019 at constant scope and exchange rates. The revenue decrease was limited to -1.2%, as the Industry achieved to deliver +2.6% organic growth in Q2. North America performance was impacted by decreasing volumes on contracts performed for Hospitals and by the non-repeated product sales performed last year with a global leader in healthcare IT. It was partially offset by significant ramp-up on advanced computing project with a new large contract in North America. Northern Europe faced challenging situation within Infrastructure & Data Management Division. The unit was impacted by volume reductions with National Savings & Investments in the United Kingdom combined with some volume reductions on Philips Healthcare, and also on Major Hospitals contracts in the Benelux. In Central Europe, the Industry was fueled by the ramp-up of Digital Workplace contracts with Bayer and also a biopharmaceutical company based in Switzerland signed last year. Similarly, it benefited in Southern Europe from a strong activity in digital projects and High Performance Computing and the launch of a new contract with a very large European Pharma company, combined with the ramp-up of an Australian Public Agency contract in Growing Markets. The top 10 main clients represented 59% of the total Healthcare & Life Sciences revenue and were by decreasing order: UK Department for Work & Pensions (DWP), McLaren Heath Care Corporation, two large US Healthcare company, Bayer, a global leader in Healthcare IT, Johnson & Johnson, Philips, a Public healthcare service in Scotland and University College London Hospital. Operating margin was € 68 million, representing 10.3% of revenue and a reduction of -40 basis points compared to last year on a like for like basis, broadly stable compared to last year. A.5.3 Performance by Regional Business Units In € millionH1 2020H1 2019*Organic evolutionH1 2020H1 2019*H1 2020H1 2019*North America 1,355 1,423 -4.8% 208 193 15.3%13.5%Northern Europe 1,360 1,368 -0.6% 101 134 7.4%9.8%Central Europe 1,370 1,372 -0.1% 42 86 3.1%6.3%Southern Europe 1,143 1,229 -7.0% 86 85 7.5%6.9%Growing Markets 399 399 -0.0% 54 65 13.4%16.4%Global structures - - - -40 -38 -0.7%-0.7%Total5,6275,792-2.8%450525 8.0%9.1%* At constant scope and exchange ratesOperating marginRevenueOperating margin % Trusted Partner for your Digital Journey 21/85 A.5.3.1 North America In € millionH1 2020H1 2019*Organic evolutionRevenue 1,355 1,423 -4.8%Operating margin 208 193 Operating margin rate15.3%13.5%* At constant scope and exchange rates Revenue reached € 1,355 million, decreasing by -4.8% organically. North America faced contrasted situations between its different industries. While the Covid-19 pandemic hit North America later than Europe, the customers took more drastic reduction actions earlier. Telecom, Media & Technology recorded a solid growth benefitting from additional volumes in digital workplace for various clients and from the ramp-up of of projects with new logo with a US global aerospace and defense engineering company positively impacting Infrastructure & Data management unit. The industry was also fueled by positive contribution from the new acquisition Maven Wave. Both trends largely compensated lower volumes recorded in H1 with Conduent. Public Sector & Defense achieved a growth which accelerating in the second quarter. This performance was due to ramp-up of the NG911 project in California and new digital workplace projects launched in the US. The Industry also benefited from increased volumes on Mainframes activities impacting positively Big Data & Cybersecurity unit, which compensated reductions such as Orange County. Manufacturing declined and was most impacted by Covid-19 coming from non-repeated product sales performed last year combined with lower volumes with Siemens. While Resources & Services was down, the industry benefited from product sales to new client Goli nutrition in the first quarter 2020 and ramp-up on Digital Workplace contracts with National Grid notably. This mitigated the volume reductions in the context of Covid-19 pandemic. Healthcare & Life Sciences decreased due to the non-repeated product sales performed last year with a global leader in healthcare IT and reduced volumes in Healthcare. This could be only partially compensated by significant ramp-up on advanced computing project developed with a large new customer. Financial Services & Insurance faced decisions from customers in the banking sector to reduce expenses to external IT partners. Despite this challenging context, increased volumes were performed, and new projects were delivered. Operating margin reached € 208 million, representing 15.3% of revenue. It increased its profitability by +180 basis points compared to last year despite revenue decrease. Telecom, Media & Technology and Public Sector & Defense benefitted from revenue increase. The profitability improvement was also fueled by a better mix of revenue, workforce optimization initiatives and strong actions on the cost base. Trusted Partner for your Digital Journey 22/85 A.5.3.2 Northern Europe In € millionH1 2020H1 2019*Organic evolutionRevenue 1,360 1,368 -0.6%Operating margin 101 134 Operating margin rate7.4%9.8%* At constant scope and exchange rates During the first half of 2020, Northern Europe revenue reached € 1,360 million revenue, reporting a slight organic decline of -0.6%, compared to the same period last year at constant scope and exchange rates. This performance resulted from very different situations in the different Industries. Public Sector & Defense recorded a double-digit growth mainly led by successful deliveries to European Union Institutions, the delivery of High Performance Computing solution to a weather forecast institution, as well as increased volumes with a Ministry of Defense. The ramp-up was driven mainly by Cloud solutions, Digital Workplace, Analytics and Automation. Financial Services & Insurance closed the half-year with a small increase, driven by ramp-up in United Kingdom (Aegon contract) together with smaller deals in Business & Platform Solutions and Big Data & Cybersecurity. This partially mitigated a slowdown in Benelux. Manufacturing declined, impacted by contracts ended in 2019 in Benelux, alongside with base effect of sales achieved last year and not repeated in 2020. Telecom, Media & Technology recorded decreasing volumes with several clients in Media and some projects ramped down in Telco. This was partially offset by positive development in Cloud Solutions and Infrastructure and Foundation Services in United Kingdom. Healthcare & Life Sciences decreased, mainly driven by ramp-down of Customer Experience projects and the postponement of Application projects. Resources & Services faced some ramp-down projects in United Kingdom, as well as with a French airline company. This was partially compensated by increased project volume and a new contract with a US multinational delivery services company, as well as positive ramp-up in Infrastructure & Foundation Services in the United Kingdom. Operating margin reached € 101 million or +7.4% of revenue, a decrease of -240 basis points compared to last year at constant scope and exchange rate, mainly resulting from higher Sales and Presales investments in large new bids, Covid related expenses and volume reductions in Healthcare contract. Trusted Partner for your Digital Journey 23/85 A.5.3.3 Central Europe In € millionH1 2020H1 2019*Organic evolutionRevenue 1,370 1,372 -0.1%Operating margin 42 86 Operating margin rate3.1%6.3%* At constant scope and exchange rates Revenue was € 1,370 million, roughly stable compared to last year at constant scope and exchange rates. A strong performance from Public Sector & Defense and Health & Life Sciences was offset by more challenging situations in other Industries. Healthcare & Life Sciences grew strongly. This was fueled by the launch of new Digital Workplace contract with Bayer, as well as the ramp-up of the new contracts with a biopharmaceutical company based in Switzerland. In the domain of application management, the Industry recorded very strong growth with Healthcare customers in Germany. Public Sector & Defense also recorded a strong growth mainly led by High Performance Computer sales with a research center in Germany in Big Data & Cybersecurity. This was partially offset by a decrease in Infrastructure & Data Management coming primarily from one-off sales of products in 2019. Telecom, Media & Technology decreased compared to last year, coming primarily from ramp-down of application management activities with a Nordic telecommunication provider and by volume reductions in most lines of service from large telecom operators. Volumes were also reduced on legacy Unified Communication & Collaboration. The ramp-up of new contracts with a US multinational technology company and a leading software partner mitigated this challenging situation. Financial Services & Insurance was down due to less sales of products with large German banks compared to last year in the context of Covid-19 pandemic. Smaller positive developments were recorded in Business & Platform Solutions. In Manufacturing, especially the Automotive sector was down. The Industry was strongly impacted by volume reductions with large car manufacturers like Volkswagen or Daimler which was not compensated by new sales with a large german automotive manufacturer. Siemens had registered lower volumes, despite the ramp-up of new projects, for instance in the domain of SAP Hana implementation. The performance was also impacted by strong volume reductions with a global leader in Aerospace and Defense which were not fully compensated by increasing volumes with BASF and Rheinmetal. Resources & Services was impacted by lower demand for legacy Unify Communication & Collaboration products and also due to Thomas Cook bankruptcy, which offset the development of new High Perforamnce Computer deals with Karstadt, a global leader in offshore wind, a leader in the distribution of electrical equipment, and a german public railway company. Operating margin reached € 42 million or +3.1% of revenue, -320 basis points compared to last year. The decline came from reduction in project profitability and some offs in difficult contracts in Manufacturing and lack of flexibility in labor costs. Trusted Partner for your Digital Journey 24/85 A.5.3.4 Southern Europe In € millionH1 2020H1 2019*Organic evolutionRevenue 1,143 1,229 -7.0%Operating margin 86 85 Operating margin rate7.5%6.9%* At constant scope and exchange rates Revenue reached € 1,143 million, decreasing by -7.0% organically. While business grew in Healthcare & Life Sciences, the situation was more challenging in Manufacturing and Public Sector & Defense. Healthcare & Life Sciences posted a strong growth with the development of Cloud services for a social security customer, new projects developed with a Pharma leader, consulting activities delivered in Spain and High-Performance Computing deliveries in Italy. Manufacturing went down mainly in Automotive and Services, but also due to the significant impact from the ramp down of a High-Performance Computing contract with PSA in 2019, the end of the software solution contract with a french multinational tyre manufacturer, the ramp-down of a large french automotive manufacturer contract, and volume reductions with a global leader in Aerospace and Defense. The ramp up on Dassault in France, and the positive trend in developing new offering for aerospace clients and various customers mitigated this challenging environment. Public Sector & Defense faced sales of products not replicated in 2020, the ramp-down of Big Data projects while Advanced computing project with Meteo France mitigated this situation. Telecom, Media & Technology was impacted by the decision of a customer in telco to reinsource. Infrastructure & Data Management increased its business in France with the ramp-up of a new contract with a French multinational media conglomerate and additional volumes with PwC. In Big Data & Cybersecurity, growth was fueled with Big Data sales. Financial Services & Insurance decreased organically in Infrastructure & Data Management despite additional activities with a European leader in payment activity in France and the ramp up of a new contract in Italy with an insurance company on Digital Workplace. Business & Platform Solutions decreased due to some ramp-downs of projects in France, and in Iberia. Resources & Services was impacted by Retail and Transportation. Less volume with a french airline company, while it maintained dynamism with SNCF through the development of new offerings. Energy & Utilities grew thanks to a good level of activity with EDF, compensating less volume with Engie. Operating margin reached € 86 million, representing 7.5% of revenue, +60 basis points at constant scope and exchange rates. Manufacturing and Public Sector & Defense increased their operating margin thanks to cost reduction actions in a context of less activity volumes. A.5.3.5 Growing Markets In € millionH1 2020H1 2019*Organic evolutionRevenue 399 399 -0.0%Operating margin 54 65 Operating margin rate13.4%16.4%* At constant scope and exchange rates Revenue reached € 399 million in this Business Unit, stable compared to 2019. Healthcare & Life Sciences achieved a double-digit growth, with the ramp-up of the new customer Western Australia Department of Health. Revenue in Resources & Services also grew double digit compared with previous year, fueled by development of High-Performance Computing projects in Brazil with a multinational corporation in the petroleum industry, as well as volume increase through fertilization in ENEL. This more than compensated one ramp down in India. Trusted Partner for your Digital Journey 25/85 Manufacturing reached a mid-digit growth, thanks to the delivery of new services in Infrastructure & Data Management. Business & Platform Solutions activities also increased with higher activity in Asia. Telecom, Media & Technology went down in Business & Platform Solutions with less License sales and in Application Management with a major telecommunication operator in Middle East & Africa, partly compensated by new projects with MTN. Financial Services & Insurance decreased due to less activity in Asia, and in the Middle East. Public Sector & Defense faced the postponement of the Tokyo Olympic Games to the next year. This was only partly compensated by the development of High-Performance Computing activities in India, especially with a telecom operator based in South Africa, and by the launch of new projects with an Algerian mail operator. Operating margin was € 54 million, representing 13.4% of revenue, -290 basis points compared to 2019. This decrease was mainly due to the impact of Tokyo Olympics postponement. A.5.3.6 Global structures Global structures costs slightly increased compared to the first half of 2019, reflecting negative impacts from the Covid-19 Pandemic, partially offset by the continued internal costs optimization in most of the support functions. Trusted Partner for your Digital Journey 26/85 A.5.4 Revenue by Division Revenue in H1 2020 was € 5,627 million, down by -2.8% organically. Continued strong performance recorded in Big Data & Cybersecurity could not compensate for the decrease in Business & Platform Solutions strongly impacted by the Covid-19 pandemic and to a lesser extendt in Infrastructure & Data Management. In € millionH1 2020H1 2019*Organic evolutionInfrastructure & Data Management 3,101 3,179 -2.4%Business & Platform Solutions 1,963 2,128 -7.7%Big Data & Cybersecurity 563 485 +16.0%Total5,6275,792-2.8%* At constant scope and exchange ratesRevenue A.5.4.1 Infrastructure & Data Management Infrastructure & Data Management revenue was € 3,101 million in H1 2020, with -2.4% organic decline at constant scope and exchange rates. The Division managed to ramp-up projects in several geographies, including EU Lisa with the European Institutions, the run phase of Aegon in Northern Europe, with US State Governments, a large german automotive manufacturer, Bayer in Central Europe and a US multinational technology company across multiple geographies. This allowed to mitigate the consequences of some volume reductions and reduced license sales in comparison to 2019. Infrastructure & Data Management revenue profile by geographies 28%29%25%11%6% Northern Europe Central Europe North America Southern Europe Growing Markets A.5.4.2 Business & Platform Solutions In Business & Platform Solutions revenue was € 1,963 million, down -7.7% organically. After a first quarter at -4,9%, the Division was strongly impacted by the consequences of Covid-19 pandemic. In North America, both Technology Professional Services and Application Maintenance activities were very sensitive to the decisions from customers to reduce their IT expenses and to postpone Digital projects. In Europe, the Division faced the same challenges in Technology Services and Application Maintenance offerings. In addition, several French and Spanish customers in Telecom and Banking sectors decided to reinsource some IT activities. In application management, the Division was also impacted by less activity with a large Telecom operator in Germany and with a leading Media broadcaster in Northern Europe, as well as by the base effect from product sales realized last year and not replicated in the German Public sector. Finally, performance in Growing Markets was impacted by the postponement of Tokyo 2020 Olympics. These negative impacts were mitigated by the launch of new projects in several geographies and Industries. In particular, the Division contributed to the launch of the service phase with Aegon in the United Kingdom and to the new SAP HANA projects across the globe. Trusted Partner for your Digital Journey 27/85 Business & Platform Solutions revenue profile by geographies Growing Markets Northern Europe Central Europe North America Southern Europe 22%19%31%20%8% A.5.4.3 Big Data & Cybersecurity Revenue in Big Data & Cybersecurity reached € 563 million, maintaining a strong growth at +16.0% compared to last year. Cybersecurity recorded double-digit growth mainly due to a very good performance in Cybersecurity Managed Services. Mission Critical Systems sales showed a slight organic growth. The Growth in Central Europe was fueled by the Advance computing business in Germany with Research and Science, and in Northern Europe by Analytics, Artificial Intelligence & Automation with the European Center for Medium Range Weather Forecasting. Growing Markets benefited from the ramp-up of a High Performance Computer contract with a Brazilian multinational corporation in the petroleum industry, an Algerian mail operator, and new contracts with Public administration. In North America, the organic growth was driven by the ramp up of activities with a US State, and new deals with a US multinational technology company. Southern Europe declined organically, the good performance of Italy with new contracts in the High Performance Computer area was offset by a decline in France and Iberia. Big Data & Cybersecurity revenue profile by geographies Central Europe Northern Europe Southern Europe Growing Markets 10%15%35%32%8% North America Trusted Partner for your Digital Journey 28/85 A.5.5 Portfolio A.5.5.1 Order entry and book to bill During the first semester of 2020, the Group order entry reached € 6,280 million, representing a book to bill ratio of 112%, of which 121% in the second quarter. Order entry and book to bill by industry was as follows: In € millionQ1 2020Q2 2020H1 2020Q1 2020Q2 2020H1 2020Manufacturing 311 490 801 58%98%77%Financial Services & Insurance 515 779 1,294 98%142%120%Public Sector & Defense 833 972 1,805 143%154%148%Telecom, Media & Technology 660 398 1,058 149%101%127%Resources & Services 359 494 853 86%128%106%Healthcare & Life Sciences 230 239 470 71%72%71%Total2,9083,3736,280103%121%112%Order entryBook to bill Book to Bill ratio was particularly high in Public Sector & Defense at 148%, Telecom Media Technology at 127%, and Financial Services & Insurance at 120%. The main new contracts signed in Q2 included a large Outsourcing contract in Financial Services & Insurance in Northern Europe, a Server and Cloud Management contract with a Belgian grid operator in Resources & Services, an application modernization contract with a loans group (Financial Services & Insurance), and a new contract with a customs and fiscal union (Public Sector & Defense), as well as a large contract with a European leader in healthcare in Central Europe (Manufacturing). A new global contract with a large German pharmaceutical and chemical company (Health & Life Sciences) was distributed among multiple Regions. Contract renewals that took place in Q2 included large signatures with the European Commission (Public Sector & Defense) in Northern Europe, a large American financial services company (Financial Services & Insurance) and Texas Department of Information Resources (Public Sector & Defense) in North America, and a large French electricity and gas supplier (Resources & Services) in Southern Europe, as well as a German banking institution (Financial Services & Insurance) in Central Europe. Order entry and book to bill by Regional Business Units were as follows: Public Sector & DefenseQ1 2020Q2 2020H1 2020Q1 2020Q2 2020H1 2020North America 1,092 802 1,893 160%119%140%Northern Europe 428 810 1,239 61%123%91%Central Europe 559 763 1,322 84%108%96%Southern Europe 650 832 1,482 110%151%130%Growing Markets 179 166 345 92%81%96%Total2,9083,3736,280103%121%112%Order entryBook to bill Order entry and book to bill by Division were as follows: In € millionQ1 2020Q2 2020H1 2020Q1 2020Q2 2020H1 2020Infrastructure & Data Management 1,492 1583 3,075 96%103%99%Business & Platform Solutions 1,077 1431 2,507 106%151%128%Big Data & Cybersecurity 338 360 698 130%119%124%Total2,9083,3736,280103%121%112%Order entryBook to bill A.5.5.2 Full backlog In line with the commercial activity, the full backlog at the end of June 2020 amounted to € 22.5 billion, compared to € 21.9 billion at the end of December 2019, representing 1.9 year of revenue. A.5.5.3 Full qualified pipeline The full qualified pipeline was € 8.6 billion, a very strong increase compared to € 7.4 billion at the end of December 2019 showing the commercial dynamism of the Group and representing 8.8 months of revenue. Trusted Partner for your Digital Journey 29/85 A.5.6 Human Resources The total headcount of the Group was 106,980 at the end of June 2020 compared to 108,317 at the end of December 2019. The Group welcomed 374 new employees from Maven Wave and Miner & Kasch acquisitions. Excluding this scope effect, the staff decreased by -1.6% taking into account Covid-19 crisis and accompanying and anticipating the effect of automation and robotization. During the first semester of 2020, the Group hired 7,176 staff, compared to 9,165 in H1 2019. Hiring has been mainly achieved in offshore/nearshore countries such as India and Poland. Attrition rate was 11.8% at Group level (15.1% in H1 2019) with a strong reduction in Q2, of which 16.7% in offshore/nearshore countries. Headcount evolution in H1 2020 by Regional Business Unit and by Division was as follows: End ofDecember 2019ScopeHiringLeavers, dismissals& restructuringEnd ofJune 2020Infrastructure & Data Management43,638 239 2,725 -2,871 43,731 Business & Platform Solutions50,619 0 3,567 -5,218 48,968 Big Data & Cybersecurity5,489 29 384 -181 5,721 Functions160 0 25 162 347 Total Direct 99,906 268 6,701 -8,108 98,767 North America9,953 268 587 -985 9,823 Northern Europe13,707 0 783 -854 13,636 Central Europe11,512 0 260 -255 11,517 Southern Europe16,398 0 705 -1,367 15,736 Growing Markets47,759 0 4,342 -4,657 47,444 Global structures577 0 24 10 611 Total Direct 99,906 268 6,701 -8,108 98,767 Total Indirect 8,411 106 474 -779 8,212 TOTAL GROUP108,3173747,176-8,887106,980 Trusted Partner for your Digital Journey 30/85 A.6 2020 objectives In 2020, the Group targets the following objectives for its 3 key financial criteria: Revenue organic evolution: between -2% and -4%; Operating margin rate: 9% to 9.5% of revenue; Free cash flow: € 0.5 billion to € 0.6 billion. On June 24, 2020, the Group held an Analyst Day, where it announced to the market, after issuing in a first time a press release in the morning before market opening, its mid-targets. The underlying assumptions are presented in section A.2. A.7 Risk Factors: risks relating to the Covid-19 pandemic 2020 started in a highly challenging and uncertain context with the Covid-19 pandemic situation. Atos risk profile has been adapted to further emphasize employees’ health and well-being as well as the economic disruption. People risk category: People care including Health, Safety and Physical Security In the current pandemic context, the vigilance in the care of Atos employees and their families is the highest priority. Atos must always protect their health and safety and going forward should adapt its well-being initiatives to take into account changing working practices. A Global Crisis Management Team (CMT) has been set up which aims to constantly monitor, define and coordinate the mitigation actions related to (but not limited to) People Care. We adhere strictly to the World Health Organization’s instructions and closely follow the evolution of the infection. Measures to avoid contamination at the office, ensure home office readiness, and promote wellbeing initiatives, such as avoiding people in isolation and ensuring balance with family duties, are undertaken. The decisions taken as well as the information given during the Global CMT meetings are then cascaded to the local CMTs in the countries in which we operate. Regular interactions between Global and Local teams are in place to ensure consistency. Operational & Security risk categories: Business continuity & Cyberattack In the current pandemic context, it is of the utmost importance that continuity of the business is maintained, to secure our clients’ activities. Atos is also facing the risk of affected performance resulting from third parties supporting us in the delivery of goods and/or services for our customers. The current context is also increasing Cyber threat as malicious actors are taking advantage of the situation to attack the systems of companies, organisations and individuals; The urgent introduction of large-scale teleworking or remote working is a factor increasing cyber risks, which is permanently monitored. As mentioned above, in response to the Covid-19 pandemic, Atos has set up a Global Crisis Management Team which constantly monitors, defines and coordinates mitigation actions to ensure business continuity, including establishing a pandemic plan, activating Business Continuity Plans, coordinating suppliers and clients, undertaking legal reviews, introducing a remote on-boarding process for new joiners, and reinforcing security rules. Those actions are immediately cascaded to the geographies through the Local Crisis Management Teams and continuous interactions enable quick responses to potential issues. Go-to-market risk category: Customer centricity and Customer digital transformation Atos’s activity depends on demand in our clients’ markets. In the context of the current Covid-19 pandemic, volatile and uncertain economic conditions could adversely affect client demand for our services and solutions (e.g. slowdown of the digital transformation of our clients) and therefore would hamper the capacity to reach our business targets. It is also crucial to be reactive and fully understand our clients’ needs to support them during this difficult period. Trusted Partner for your Digital Journey 31/85 The Atos “Always Ready” program has been launched with three essential objectives: to serve our communities, help our customers transition, and bring our technology to the fight against the virus. As part of this plan, we are deploying immediately available Atos solutions and technologies that are tailored to support our clients during the Covid-19 crisis. Meanwhile, the initiative has evolved into the “Future Ready” program to cater for the digital transformation challenges that lie ahead of our clients in the coming years. Financial Performance and the exposure in trade receivables are strictly monitored, cost relief measures have been undertaken and closed interactions with our clients have been further established to better anticipate and calibrate their needs. Please note that the above update is completing the risks highlighted in the 2019 Universal Registration Document. These continue to be addressed in addition to the mitigation measures undertaken due to the pandemic situation. A.8 Claims and litigations The Atos Group is a global business operating in some 73 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions made involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group and the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. Due to the deconsolidation of Worldline, Worldline’s claims and litigations have been removed and are no longer supervised by the Group. However, in the context of their Global Alliance, Atos and Worldline have agreed to cooperate in the management of current and future litigations involving both groups by coordinating their respective legal departments. During the first half-year of 2020 the Group has successfully put an end to several significant litigations through settlements agreements and favourable court decisions. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of 30 June 2020 to cover for the identified claims and litigations, added up to € 34 million (including tax and commercial claims but excluding labor claims). A.8.1 Risks relating to the Covid-19 pandemic The Covid-19 pandemic generated the need to handle the risks related to potential commercial and labor claims. In order to properly address those risks, a Global Crisis Committee was set up, as well as a specific Crisis Committee at Legal Excom Level. The Global Crisis Committee meeting took place 3 times per week at the peak of the crisis and it had the purpose of coordinating Atos’ reaction to the Covid emergency. The Legal department’s coordinated efforts allowed for the elaboration of templates (e.g. letters, clauses, documents, recommendations) and the constant follow-up of specific cases. In addition, a check-list was implemented to analyse all the major and at-risk contracts. The Legal department also supported the Delivery, Business and Communication departments. All instructions and recommendations were based on the synchronized work done by the Legal department, the Global Crisis Committee and based on legal advice provided by external counsels. Trusted Partner for your Digital Journey 32/85 A.8.2 Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Some of the tax claims are in Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a stamp duty re-imbursement. Following a judgement HSBC reached by the European Justice Court, Atos UK commenced proceedings in 2009 to recover a stamp duty paid in 2000 of an amount over € 10 million. The stamp duty aspect of the claim was won in 2012. Regarding the time limit rule a favorable judgement was released in April 2017. Atos UK is now waiting for the outcome of the HMRC’s request for appeal in the test case. The total provision for tax claims, as inscribed in the consolidated accounts closed as at June 30, 2020, was € 26 million. A.8.3 Commercial claims There are a small number of commercial claims across the Group. Some important contracts that have been monitored by the Risk Management Department have evolved into litigation, particularly in France. These disputes are managed by the Group's Legal Department. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, the latest one being a litigation inherited from Syntel which the Group is trying to settle amicably. The Group and Siemens signed two settlements agreements covering the Unify cases on one hand and the Siemens IT Solutions et Services cases on the other hand. Further to the signature of these agreements, the Group is confident that it has obtained a satisfactory coverage for the residual risks associated with the acquisition of Unify. The total provision for commercial claim risks, as inscribed in the consolidated accounts closed as at June 30, 2020, amounts to € 8 million. A.8.4 Labor claims There are almost 110.000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of € 7 million as inscribed in the consolidated financial statements as at June 30, 2020. A.8.5 Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. A.8.6 Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. Trusted Partner for your Digital Journey 33/85 A.9 Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). The related-party transactions are described in the Note 16 – Related party transactions on page 247 of the 2019 Universal Registration Document. Following the private placement of Worldline shares by way of accelerated bookbuilding offering conducted in February 2020, the Group considered it no longer had a significant influence over Worldline which is therefore no more considered as an associate according to IAS 28. Hence, at the disposal date, the retained interest in Worldline was classified as a financial asset under IFRS 9, measured at fair value through the profit and loss. Therefore, Worldline is no longer considered as a related party in accordance with IAS 24. Trusted Partner for your Digital Journey 34/85 B. Financial statements B.1 Financial review B.1.1 Income statement The Group reported a net income from continuing operations (attributable to owners of the parent) of € 329 million for the half year ended June 30, 2020, representing 5.8% of Group revenue. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 319 million, representing 5.7% of Group revenue of the period. (In € million)6 months ended June 30, 2020%6 months ended June 30, 2019%Continuing operationsOperating margin 4508.0%5299.2%Other operating income/(expenses)-87-241Operating income3626.4%2885.0%Net financial income/(expenses)-1-79Tax charge -34-38Non-controlling interests -1-2Share of net profit/(loss) of associates312Netincomefromcontinuingoperations–Attributabletoowners of the parent3295.8%1803.1%Normalizednetincomefromcontinuingoperations–Attributable to owners of the parent*3195.7%3436.0%Discontinued operationNetincomefromdiscontinuedoperation–Attributabletoowners of the parent-3,055* The normalized net income is defined hereafter In 2019, the net income from discontinued operation included the contribution from Worldline net result from January 1, 2019 to April 30, 2019. In addition, it included the € 2,996 million net gain on distribution of Worldline shares net of costs to distribute (after tax) that took effect in May 7, 2019. B.1.1.1 Operating margin Operating margin represents the underlying operational performance of the current business and is analyzed in the operational review. In accordance with recommendations from European and French regulators, the Group has elected to maintain effects of Covid-19 as part of the operating margin and not to present those as part of the Other operating income and expenses. B.1.1.2 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 87 million in the first half of 2020. The following table presents this amount by nature: Trusted Partner for your Digital Journey 35/85 (In € million)6 months ended June 30, 20206 months ended June 30, 2019Staff reorganization-80-63Rationalization and associated costs-22-17Integration and acquisition costs-20-24Amortization of intangible assets (PPA from acquisitions) -78-79Equity based compensation-35-34Other items147-24Total-87-241 Staff reorganization increased to € 80 million, mainly due to the acceleration of the adaptation of the Group workforce in several countries, in particular in Germany. The € 22 million rationalization and associated costs primarily resulted from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs at € 20 million mainly related to the integration costs of Syntel to generate synergies while the other costs relate to the migration and standardization of internal IT platforms from earlier acquisitions. In the first half of 2020, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 78 million was mainly composed of: € 33 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 10 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 10 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 8 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014. The equity-based compensation expense amounted to € 35 million in the first half of 2020 compared to € 34 million in the first half of 2019. In the first half of 2020, other items presented a net profit for € 147 million compared to € -24 million including the following one-off items: The transaction made in February on Worldline shares, as follows: The Accelerated Bookbuilding Offering of Worldline shares (ABO) on the market at € 61.5 per share led to a net gain on disposal, before tax, of € 120 million, including the write- off of the intangible assets generated by the Worldline purchase price allocation in May 7, 2019 and accounted for under equity method; The retained interest of Atos in Worldline Group (c. 3.8%) was valued at the fair value at the disposal date, resulting in an additional profit of € 54 million presented as part of the net gain on disposal. Excluding the transaction described above, other expenses amounted to € 27 million remaining stable compared to 2019 and mainly corresponded to semi-retirement scheme in Germany and in UK. B.1.1.3 Net financial expense Net financial expense amounted to € 1 million for the period (compared to € 79 million for the first half of 2019) and was composed of a net cost of financial debt of € 21 million and net gain of non-operational financial of € 20 million. Trusted Partner for your Digital Journey 36/85 Net cost of financial debt decreased from € 36 million in the first half of 2019 to € 21 million in the first half of 2020 due to the full reimbursment on November 14, 2019 of $ 1,900 million term loan to fund the Syntel acquisition and the payback in April 2020 of the € 600 million bond issued in July 2015. The average expense rate of the Group was 1.40% on the average gross borrowings compared to 1.63% in the first half of 2019. The average income rate on the average gross cash was 0.69% compared to 1.60% in the first half of 2019. Non-operational financial net gain amounted to € 20 million compared to net cost of € 43 million in the first half of 2019 and were mainy composed of: net variance for € +41 million related to the OEB derivative liability and underlying Worldline shares, both at fair value through profit and loss as per IFRS 9; pension related interest of € 6 million compared to € 15 million on the first half of 2019. The pension financial cost represented the difference between interest costs on pension obligations and interest income on plan assets; lease liability interest (broadly stable compared to € 14 million expenses on the first half of 2019); net foreign exchange gain (including hedges) of € 4 million compared to a loss (including hedges) of € 3 million on the first half of 2019. B.1.1.4 Corporate tax The tax charge for the first half of 2020 was € 34 million with a profit before tax of € 361 million. The annualized projected Effective Tax Rate (ETR) was 18.5% (excluding the tax effects of the Worldline transaction that occurred during the period) compared to 18.3% for the first half of 2019. The annualized projected ETR has been computed taking into consideration annual objectives including Covid-19 impacts. B.1.1.5 Share of net profit/(loss) of associates On February 4, 2020, Atos lost its significant influence over Worldline and is no more considered as an associate according to IAS 28. From this date, Worldline remaining shares held by Atos are presented as Non-current financial assets and measured at fair value through profit and loss in accordance with IFRS 9. Associates accounted for under equity method amounted to € 3 million in the first half of 2020, including the Worldline contribution for € 2 million from January 1st, 2020 to January 31, 2020 (instead of February 4, 2020 for practical reasons). B.1.1.6 Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was € 319 million, representing 5.7% of Group revenue for the period. (in € million)6 months ended June 30, 20206 months ended June 30, 2019Netincomefromcontinuingoperations-Attributabletoownersofthe parent329180Other operating income and expenses net of tax from continuing operations-18-163Netgain/(loss)atfairvaluemeasurementonderivativeliabilityandunderlying Worldline shares, net of tax28-Normalizednetincomefromcontinuingoperations-Attributabletoowners of the parent 319343 Trusted Partner for your Digital Journey 37/85 B.1.1.7 Half year Earning Per Share (In € million and shares)6 months ended June 30, 2020% Margin6 months ended June 30, 2019% MarginContinuing operationsNetincomefromcontinuingoperations–Attributabletoownersof the parent [a]3295.8%1803.1%Impact of dilutive instruments --Netincomefromcontinuingoperationsrestatedofdilutiveinstruments - Attributable to owners of the parent [b]3295.8%1803.1%Normalized net income from continuing operations – Attributable to owners of the parent [c]3195.7%3436.0%Impact of dilutive instruments --Normalizednetincomefromcontinuingoperationsrestatedofdilutive instruments - Attributable to owners of the parent [d]3195.7%3436.0%Average number of shares [e]108,780,193106,980,344Impact of dilutive instruments -8,730Diluted average number of shares [f]108,780,193106,989,074(In €)Basic EPS from continuing operations [a] / [e]3.021.68Diluted EPS from continuing operations [b] / [f]3.021.68Normalized basic EPS from continuing operations[c] / [e]2.933.21Normalized diluted EPS from continuing operations [d] / [f]2.933.21Discontinued operationNet income from discontinued operation – Attributable to owners of the parent [a]--3,05553.2%Impact of dilutive instruments --Netincomefromdiscontinuedoperationrestatedofdilutiveinstruments - Attributable to owners of the parent [b]--3,05553.2%Average number of shares [e]-106,980,344Impact of dilutive instruments -8,730Diluted average number of shares [f]-106,989,074(In €)Basic EPS from discontinued operation [a] / [e]-28.55Diluted EPS from discontinued operation [b] / [f]-28.55 Trusted Partner for your Digital Journey 38/85 B.1.2 Cash Flow and net cash The Group reported a net debt position of € 779 million at the end of June 2020 and a free cash flow generation of € -172 million in the first half of 2020. (in € million)6 months ended June 30, 20206 months ended June 30, 2019OperatingMarginbeforeDepreciationandAmortization(OMDA)774835Capital expenditures-186-173Lease payments-172-167Change in working capital requirement-407-269Cash from operation (CFO)9227Tax paid-55-48Net cost of financial debt paid-21-36Reorganization in other operating income -53-49Rationalization & associated costs in other operating income -21-22Integration and acquisition costs-22-24Other changes*-7-26Free Cash Flow (FCF)-17223Net (acquisitions) / disposals1,239-11Capital increase / (decrease)-15Share buy-back-45-76Dividends paid-3-58Change in net cash/(debt)1,019-107Opening net cash/(debt)-1,736-2,872Net debt from (used in) discontinued operation-35Change in net cash/(debt)1,019-107Foreign exchange rate fluctuation on net cash/(debt) -625Closing net cash/(debt)-779-2,939*"Otherchanges"includeotheroperatingincomewithcashimpact(excludingreorganization,rationalizationandassociatedcosts,integrationandacquisitioncosts)andotherfinancialitemswithcashimpact,netlongtermfinancial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt. Free cash flow represented by the “Change in net cash/(debt)”, excluding net acquisitions and disposals of the period, equity changes and dividends paid, was € -172 million compared to € +23 million in the first half of 2019. Cash From Operations (CFO) amounted to € +9 million compared to € +227 million in the first half of 2019, the evolution coming from the following items: • OMDA net of lease payments (€ -66 million); Capital expenditures (€ -13 million); Change in working capital (€ -138 million). Trusted Partner for your Digital Journey 39/85 OMDA of € 774 million, representing a decrease of € -61 million compared to June 2019, reached 13.8% of revenue compared to 14.5% of revenue in June 2019. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended June 30, 20206 months ended June 30, 2019Operating margin450529 + Depreciation of fixed assets165171 + Depreciation of right of use168164 + Net book value of assets sold/written off413+/- Net charge/(release) of pension provisions-39-39+/- Net charge/(release) to allowances/provisions26-3OMDA774835 Capital expenditures totaled € 186 million, representing 3.3% of revenue, 30 bps more than the same period last year. For full year, capital expenditure is reducing to 3% below 2019 level. The negative contribution from change in working capital was € -407 million (compared to € -269 million in the first half of 2019). The DSO has increased by 11 days (from 47 days at the end of December 2019 to 58 days at the end of June 2020), while the DPO has decreased by 10 days (from 79 days at the end of December 2019 to 69 days at the end of June 2020). Cash out related to taxes paid increased by € 7 million. Cost of net debt decreased by € 15 million due to the full reimbursment on November 14, 2019 of $ 1,900 million term loan to fund the Syntel acquisition and the payback in April 2020 of the € 600 million bond issued in July 2015. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 97 million. A portion of reorganization costs was pulled forward into H1 to optimize the impact on the full year operating margin. Other changes amounted to € -7 million compared to € -26 million. An improvement of € 19 million mainly due to a positive effect of foreign exchange and less one-time effects in the first semester 2019. As a result of the above evolutions mainly impacted by the change of the working capital requirement, the Group free cash flow (FCF) generated € -172 million during the first half of 2020, compared to € +23 million in the first half of 2019. The variation results mainly from € -61 million less Operating Margin before Depreciation and Amortization (OMDA), € -63 million reduced sales of receivables which will be caught up by year-end and € -50 million timing effect of third-party payments which became due in first semester and is leading to lower payments in second semester, as well as increased work in progress for € -24 million mainly on large deliveries of High Performance Computing. The net cash impact resulting from the net acquisitions/disposals amounted to € 1,239 million, mainly originated from the Accelerated Bookbuilding Offering of Worldline shares (ABO) on the market for € 1,425 million, net of costs of disposal and tax, reduced by the acquisitions of Maven Wave and Miner & Kasch for € 182 million. No Capital increase in the first half of 2020 compared to € 15 million in the first half of 2019. This is mainly explained by the Group shareholding program SHARE 2018 for employees which occurred only in the first half of 2019. Share buy-back reached € 45 million during the first half of 2020 compared to € 76 million in the first half of 2019. These share buy-back programs are related to managers performance shares delivery and aim at avoiding dilution effect for the shareholders. In the first half of 2020, no dividends were paid by Atos SE as a consequence of Covid-19 economic impact. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented an increase in net debt of € 62 million mainly in US Dollar, Indian Rupee and Brazilian currency. As a result, the Group net debt position as of June 30, 2020 was € 779 million, compared to € 1,736 million as of December 31, 2019. As a reminder, assuming the full conversion of the Optional Exchangeable Bonds, net debt would be € 279 million. Trusted Partner for your Digital Journey 40/85 B.1.3 Bank covenant The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility and the securitization program, with a leverage ratio (net debt divided by OMDA) of 0.56 at the end of June 2020. According to the credit documentation of the multi-currency revolving credit facility and the securitization program, the leverage ratio is calculated excluding IFRS16 impacts, taking into account 12 months rolling OMDA at the end of June 30, 2020. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility and the securization program. Trusted Partner for your Digital Journey 41/85 B.2 Interim condensed consolidated financial statements B.2.1 Interim condensed consolidated income statement (in € million)Notes6 months ended June 30, 20206 months ended June 30, 2019Revenue Note 3.15,6275,744Personnel expensesNote 4.1-2,623-2,677Operating expensesNote 4.2-2,555-2,538Operating margin450529% of revenue8.0%9.2%Other operating income and expensesNote 5-87-241Operating income362288% of revenue6.4%5.0%Net cost of financial debt-21-36Other financial expenses-101-53Other financial income12110Net financial incomeNote 6.1-1-79Net income before tax361209Tax chargeNote 7-34-38Share of net profit/(loss) of associatesNote 9312Continuing operationsNet income from continuing operations330182Of which:- attributable to owners of the parent329180- non-controlling interests12Discontinued operationNet income from discontinued operation-3,143Of which:- attributable to owners of the parent-3,055- non-controlling interests-89Total GroupNet income of consolidated companies3303,326Of which:- attributable to owners of the parent3293,235- non-controlling interests191 Trusted Partner for your Digital Journey 42/85 (In € million and shares)Notes6 months ended June 30, 20206 months ended June 30, 2019Netincomefromcontinuingoperations-Attributabletoowners of the parentNote 12329180Weighted average number of shares 108,780,193106,980,344Basic earnings per share from continuing operations3.021.68Diluted weighted average number of shares 108,780,193106,989,074Diluted earnings per share from continuing operations3.021.68Netincomefromdiscontinuedoperation-Attributableto owners of the parentNote 12-3,055Weighted average number of shares -106,980,344Basic earnings per share from discontinued operation-28.55Diluted weighted average number of shares -106,989,074Diluted earnings per share from discontinued operation-28.55Netincomeofconsolidatedcompanies-Attributabletoowners of the parentNote 123293,235Weighted average number of shares 108,780,193106,980,344Basic earnings per share of consolidated companies3.0230.23Diluted weighted average number of shares 108,780,193106,989,074Diluted earnings per share of consolidated companies3.0230.23 B.2.2 Interim condensed consolidated statement of comprehensive income (In € million)6 months ended June 30, 20206 months ended June 30, 2019Net income of consolidated companies3303,326Other comprehensive income - to be reclassified subsequently to profit or loss (recyclable):-22047Cash flow hedging -43Exchange differences on translation of foreign operations-21745Deferred tax on items recyclable recognized directly on equity1-1 - not reclassified to profit or loss (non-recyclable):-49-113Actuarialgainsandlossesgeneratedintheperiodondefinedbenefit plan-68-156Deferred tax on items non-recyclable recognized directly in equity1843Total other comprehensive income-269-66Total comprehensive income for the period613,260Of which:- attributable to owners of the parent603,169- non-controlling interests191 Trusted Partner for your Digital Journey 43/85 B.2.3 Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2020December 31, 2019ASSETSGoodwillNote 86,1136,037Intangible assets1,5641,675Tangible assets579552Right-of-use1,0641,084InvestmentsinassociatesaccountedforundertheequitymethodNote 971,727Non-current financial assetsNote 6.3873351Deferred tax assets345325Total non-current assets10,54511,751Trade accounts and notes receivableNote 3.22,9532,858Current taxes8853Other current assetsNote 4.41,5301,568Current financial instruments97Cash and cash equivalentsNote 6.23,2572,413Total current assets7,8376,898TOTAL ASSETS18,38218,649 (in € million)NotesJune 30, 2020December 31, 2019LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock109109Additional paid-in capital1,4411,441Consolidated retained earnings5,6112,278Translation adjustments-369-152Netincomeofconsolidatedcompaniesattributabletotheownersofthe parent3293,399Equity attributable to the owners of the parent7,1217,075Non-controlling interests1012Total shareholders’ equity7,1317,087Provisions for pensions and similar benefitsNote 101,2821,252Non-current provisionsNote 114669Borrowings2,6632,651Derivative liabilities169107Deferred tax liabilities159238Non-current financial instruments12Non-current lease liabilities944927Other non-current liabilities 13Total non-current liabilities5,2665,249Trade accounts and notes payablesNote 4.32,1022,278Current taxes211182Current provisionsNote 11156119Current financial instruments71Current portion of borrowings1,3751,498Current lease liabilities352346Other current liabilities Note 4.51,7831,888Total current liabilities5,9856,313TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY18,38218,649 Trusted Partner for your Digital Journey 44/85 B.2.4 Interim condensed consolidated cash flow statement (in € million)Notes6 months ended June 30, 20206 months ended June 30, 2019Profit before tax from continuing operations361209Depreciation of assetsNote 4.2165171Depreciation of right-of-useNote 4.2168164Net charge / (release) to operating provisions-14-33Net charge / (release) to financial provisions1315Net charge / (release) to other operating provisions316Amortization of intangible assets (PPA from acquisitions) 7879Losses / (gains) on disposals of fixed assets *-17111Net charge for equity-based compensation3134Unrealized losses / (gains) on changes in fair value and other-32-1Net cost of financial debtNote 6.12136Interest on lease liabilityNote 6.11414Cashfromoperatingactivitiesbeforechangeinworkingcapitalrequirement,financialinterestandtaxes665705Tax paid-55-48Change in working capital requirement-407-269Net cash from / (used in) operating activities202388Payment for tangible and intangible assets-186-173Proceeds from disposals of tangible and intangible assets2-Net operating investments-184-173Amounts paid for acquisitions and long-term investments -181-3Cashandcashequivalentsofcompaniespurchasedduringthe period2-Proceeds from disposals of financial investments1,424-8Cashandcashequivalentsofcompaniessoldduringtheperiod-3-Net long-term investments1,243-11Net cash from / (used in) investing activities 1,059-184Commonstockissuesontheexerciseofequity-basedcompensation-15Purchase and sale of treasury stock-45-76Dividends paid--58Dividends paid to non-controlling interests-3-Lease payments-172-167New borrowings1,03691Repayment of current and non-current borrowings-1,226-81Net cost of financial debt paid-21-36Other flows related to financing activities-83Net cash from / (used in) financing activitiesNote 6.4-439-309Increase/(decrease)innetcashandcashequivalents821-105Opening net cash and cash equivalents2,3342,378Net cash from (used in) discontinued operation--95Increase / (decrease) in net cash and cash equivalentsNote 6.4821-105Impactofexchangeratefluctuationsoncashandcashequivalents-6214Closing net cash and cash equivalentsNote 6.43,0932,191* "Losses / (gains) on disposal of assets" including the ABO of Worldline shares gain. Trusted Partner for your Digital Journey 45/85 B.2.5 Interim consolidated statement of changes in shareholders’ equity (In € million)Number of shares at period-end (thousands)Common StockAdditional paid-in capitalConsolidated retained earningsTranslation adjustmentsItems recognized directly in equityNet income TotalNon controlling interestsTotal shareholders' equityAt December 31, 2018, adjusted106,8861072,8622,748-285116306,0742,0278,101▪ Common stock issued 2,3292140142142▪ Appropriation of prior period net income630-630--▪ Dividends paid-182-182-2-184▪ Distribution in kind of Worldline shares-1,561-783-2,344-2,344▪ Equity-based compensation333333▪ Changes in treasury stock-75-75-75▪ Non controlling interests Worldline--2,107-2,107Transactions with owners2,3292-1,421-378 - - -630-2,426-2,109-4,536▪ Net income3,2353,235913,326▪ Other comprehensive income-113452-65-65Total comprehensive income for the period-1134523,2353,170913,261At June 30, 2019109,2151091,4412,257-240143,2356,81786,825▪ Dividends paid--1-1▪ Equity-based compensation343434▪ Changes in treasury stock-37-37-37▪ Other-1-132Transactions with owners-3-1-42-2▪ Net income1641641165▪ Other comprehensive income1589-59898Total comprehensive income for the period1589-51642621263At December 31, 2019109,2151091,4412,269-15293,3997,075127,087▪ Common stock issued - - ▪ Appropriation of prior period net income3,399-3,399 - - ▪ Dividends paid - -3-3▪ Equity-based compensation313131▪ Changes in treasury stock-45-45-45Transactions with owners - - - 3,385 - - -3,399-14-3-17▪ Net income3293291330▪ Other comprehensive income-49-217-3-269-269Total comprehensive income for the period - - - -49-217-332960161At June 30, 2020109,2151091,4415,605-36963297,121107,131 46/85 B.2.6 Appendices to the interim condensed consolidated financial statements B.2.6.1 Basis of preparation and significant accounting policies The 2020 interim condensed consolidated financial statements have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1, 2020. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). These interim consolidated financial statements for the six months period ended June 30, 2020, have been prepared in accordance with IAS 34 - Interim Financial Reporting - and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended December 31, 2019. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. Changes in accounting policies Except for new standards and amendments effective for the periods beginning as of January 1, 2020, the accounting policies applied in these interim consolidated financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended December 31, 2019. Other standards As of January 1, 2020, the Group applied the following standards, interpretations and amendments that had no material impact on the Group financial statements: Amendments to References to Conceptual Framework in IFRS Standards; Amendments to IFRS 3 – Definition of a Business; Amendments to IAS 1 and IAS 8 – Definition of Material; Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform. The Group has not early adopted any standard or interpretation not required to be applied for periods beginning as or after January 1, 2020. The Group does not apply IFRS standards and interpretations that have not been yet approved by the European Union at the closing date. The Group is currently reviewing the potential impact of the IFRIC decisions of December 2019 on the definition of the enforceable contractual period of a lease. The final assessment is still on-going and no major impact is expected. These interim consolidated financial statements are presented in euro, which is the Group’s presentation currency. All figures are presented in € million. Accounting estimates and judgments The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the 2020 interim condensed consolidated financial statements remain identical to those described in the last annual report, except for potential Covid-19 impacts which are detailed in B.2.6.3. 47/85 B.2.6.2 Significant accounting policies In addition to the accounting principles as disclosed in the annual consolidated financial statements, significant accounting principles are presented in Notes 7 – Income tax expenses, 8 – Goodwill and 10 – Pension plans and other long-term benefits, being relevant for the interim consolidated financial statements. B.2.6.3 Impact of pandemic crisis on interim consolidated financial statements The events linked to Covid-19 led the Group to take into consideration the global economy downturn and recent market conditions in the judgments made and assumptions taken when preparing these interim consolidated financial statements. The Covid-19 pandemic (and its consequences) is considered as a trigger event for impairment testing. As such, the Group performed procedures to ensure recoverable amount of Regional Business Units were not falling below its carrying amount (See Note 8). Recoverability of Deferred tax Assets and tax losses carried forward has been tested based on the new business assumptions (See Note 7). Impacts of Covid-19 on long term contract accounting has been reviewed taking into consideration potential loss-making situation or recoverability of contract assets and contract costs. Expected Credit Loss model has also been reviewed to consider potential increased risk in customer bankruptcies (See Note 3.2). In accordance with recommendations from European and French regulators, the Group has elected to maintain effects of Covid-19 as part of the operating margin and not to present those as part of the Other operating income and expenses. 48/85 B.2.6.4 Notes to the half-year condensed consolidated financial statements Note 1 – Changes in the scope of consolidation Note 2 – Segment information Note 3 – Revenue, trade receivables, contract assets and contract costs Note 4 – Operating items Note 5 – Other operating income and expenses Note 6 – Financial assets, liabilities and financial result Note 7 – Income tax Note 8 – Goodwill Note 9 – Investments in associates accounted for under the equity method Note 10 – Pensions plans and other long-term benefits Note 11 – Provisions Note 12 - Shareholders’ equity Note 13 – Approval of interim financial statements Note 14 – Subsequent events 49/85 50 51 54 55 57 59 63 63 64 65 66 66 66 66 Note 1 Changes in the scope of consolidation Worldline shares disposal in 2020 Following the distribution in kind of 23.5% of Worldline shares to Atos shareholders on May 7, 2019 and a disposal of a part of the remining shares in November 2019, Atos disposed on February 4, 2020 a part of its retained interest by selling ca. 23.9 million of Worldline shares through an Accelerated Bookbuiling Offering (ABO) on the market for € 1,425 million, net of costs of disposal and tax. The gain on disposal was recognized in the consolidated income statement in “Other operating income and expenses”, as elected by the Group in its Accounting Policies in the 2019 Registration Document. After the distribution in kind in May 2019, the Group considered it had a significant influence over Worldline and therefore applied IAS 28. Hence, Worldline was accounted for under Equity method. Following the ABO in February 2020, the Group considered it has no longer a significant influence over Worldline according to IAS 28. Hence, at the disposal date, the retained interest in Worldline was classified as a financial asset under IFRS 9, measured at fair value through the profit and loss. The financial impacts of this transaction are disclosed in Notes 5, 6.3 and 9. Maven Wave acquisition January 31, 2020, Atos acquired Maven Wave, a U.S.-based business and technology consulting firm specialized in delivering digital transformation solutions for large enterprises. The company is a leading Google Cloud Premier Partner with eight Cloud Partner Specializations and recognized as the Google Cloud North America Services Partner of the year in both 2018 and 2019. Maven Wave has been reported in the RBU North America. The consideration transferred was € 172 million leading to the recognition of a preliminary goodwill for € 168 million. If the acquisition of Maven Wave had occurred on January 1, 2020, the six-month revenue for 2020 would have been € 67 million and the six-month net income would have been € 5 million. Miner & Kasch acquisition April 22, 2020, Atos announced its acquisition of Miner & Kasch, an artificial intelligence (AI) and data science consulting firm headquartered in Elkridge, Maryland that specializes in building intelligent end-to- end, data-driven solutions. With this acquisition, Atos will enhance its big data and AI consulting practice of zData experts to accelerate its Data Science-as-a-Service offering and to deploy edge and next generation data science platforms for industry solutions at a global scale. Miner & Kasch has been reported in the RBU North America. The consideration transferred was € 10 million leading to the recognition of a final goodwill for € 8 million. If the acquisition of Miner & Kasch had occurred on January 1, 2020, the six-month revenue for 2020 would have been € 5 million and the six-month net income would have been € 1 million. 50/85 Note 2 Segment information According to IFRS 8, reported operating segments profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the company CEO who makes strategic decisions. As of 2020, the Group initiated a transformation, called “SPRING”, aiming at reshaping its portfolio of offerings, reinforcing its go-to-market approach, and setting-up an Industry led organization. In this context, six Industries have been created: Manufacturing; Financial Services & Insurance; Public Sector & Defense; Telecom, Media & Technology; Resources & Services; Healthcare & Life Sciences. At the same time, the Group gathered Global Business Units into 5 Regional Business Units (RBU), each of them under a single leadership: North America; Northern Europe: former United Kingdom & Ireland, and Benelux & The Nordics; Central Europe: former Germany, and Central & Eastern Europe excluding Italy; Southern Europe: former France, Iberia, and Italy; Growing Markets: former Asia-Pacific, South America, and Middle East & Africa. The Global delivery centers have been isolated in Growing markets caption. The Regional Business Units (RBUs) remain the main operating segments. In order to facilitate the transition period related to “SPRING”, the Group also reports by Division the revenue in 2020. Revenue will be disclosed by Industry and Division in the 2020 Full Year Financial Statements with comparative period. 51/85 Operating segmentsIndustriesNorth AmericaManufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinCanada, Guatemala, Mexico and the United States of America.Northern Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinBelarus,Belgium,Denmark,Estonia,Finland,Ireland,Lithuania,Luxembourg,Poland,Russia, Sweden, The Netherlands and the United Kingdom.Central Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media& Technology, Resources & Services, in addition to Healthcare & Life Sciences in Austria, BosniaandHerzegovina,Bulgaria,Croatia,CzechRepublic,Germany,Greece,Hungary,Israel, Romania, Serbia, Slovakia, Slovenia, Switzerland.Southern Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinAndorra, France, Italy, Morocco offshore delivery Center, Portugal and Spain.Growing marketsManufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinAbuDhabi,Algeria,Andorra,Argentina,Australia,Brazil,Chile,China,Colombia,Egypt, Gabon,Hong-Kong,India,IvoryCoast,Japan,Lebanon,Malaysia,Madagascar,Mauritius,Morocco,Namibia,New-Zealand,Peru,Philippines,Qatar,Saudi-Arabia,Senegal,Singapore,South-Africa,SouthKorea,Taiwan,Thailand,Tunisia,Turkey,UAE, Uruguay and also Major Events activities, Global Delivery Centers. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group’s revenue. 52/85 The operating segment information for the periods is as follows: (in € million)North AmericaNorthern EuropeCentral EuropeSouthern EuropeGrowing marketsTotal operating segments Global structures Elimination Total Group6 months ended June 30, 2020External revenue by segment1,3551,3601,3701,1433995,627--5,627% of Group revenue24.1%24.2%19.6%20.3%7.1%100.0%100.0%Inter-segment revenue46879742569841138-979-Total revenue 1,4011,4471,4671,1859686,468138-9795,627Segment operating margin 208101428654490-40450% of margin15.3%7.4%3.1%7.5%13.4%8.7%8.0%Total segment assets4,8082,5222,3492,4691,49413,6421,05014,6926 months ended June 30, 2019*External revenue by segment1,3451,3661,3741,2184425,744--5,744% of Group revenue23.4%23.8%19.3%21.2%7.7%100.0%100.0%Inter-segment revenue299693110449776197-973-Total revenue 1,3741,4621,4671,3288906,521197-9735,744Segment operating margin 1481269192112568-38529% of margin11.0%9.2%6.6%7.5%25.4%9.9%9.2%Total segment assets4,6812,3492,4282,2111,53613,2053,31116,515* Figures presented are restated by Regional Business Units, in accordance with IFRS8. 53/85 The total assets by segment for the periods is as follows: (in € million)June 30, 2020June 30, 2019Total segment assets14,69216,515Tax Assets433428Cash & Cash Equivalents3,2572,230Total Assets18,38219,173 The Group revenue are split into the following industries: (in € million)Manufac-turingFinancial Services & Insurance Public Sector & DefenseTelecom, Media & TechnologyRessources & ServicesHealthcare & Life SciencesTotal Group6 months ended June 30, 2020External revenue by market1,0371,0771,2168368046575,627% of Group revenue 18.4%19.1%21.6%14.9%14.3%11.7%100.0%6 months ended June 30, 2019External revenue by market1,1441,1121,1418698236555,744% of Group revenue 19.9%19.4%19.9%15.1%14.3%11.4%100.0%* Figures presented are restated by Regional Business Units, in accordance with IFRS8. Note 3 Revenue, trade receivables, contract assets and contract costs 3.1 – Disaggregation of revenue by Division In order to facilitate the transition period related to “SPRING”, the Group also reports by Division the revenue in the first semester 2020 as follows: (in € million)Infrastructure and data management Business & Platform solutionsBig Data & cybersecurityTotal Group6 months ended June 30, 2020External revenue by segment 3,1011,9635635,627% of Group revenue 55.1%34.9%10.0%100.0%6 months ended June 30, 2019External revenue by segment 3,1372,1354735,744% of Group revenue 54.6%37.2%8.2%100.0% Revenue will be disclosed by Industry and Division in the 2020 Full Year Financial Statements with comparative period. Trusted Partner for your Digital Journey 54/85 3.2 – Trade accounts and Notes receivables (In € million)June 30, 2020December 31, 2019Contract assets1,7471,517Trade receivables1,1911,301Contract costs 116106Expected credit losses allowances-101-66Net asset value2,9532,858Contract liabilities-651-680Net accounts receivable 2,3022,178Number of days’ sales outstanding (DSO)5847 Atos securitization program of trade receivables has been renewed for 5 years on May 29, 2018 with a maximum amount of receivables sold of € 500 million and a maximum amount of financing reduced from € 200 million to € 100 million. The Group sold with recourse trade receivables for € 59 million. These trade receivables have not been derecognized from the statement of financial position, because the Group retains substantially all risks and rewards. As of June 30, 2020, € 795 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 873 million as of December 31, 2019). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2020. The € 795 million included $ 82 million in the US where Atos only sells 90% of the right to cash flows and then derecognizes 90% of the receivables. The Group did not face any major customer’s bankruptcy due to Covid-19 and does not anticipate a significant increase in its exposure. As such, the Group did not amend significantly its expected credit loss model. The Group also assessed its potential exposure on the recoverability of the contract assets and contract costs. As a result, no impairement nor accelerated depreciation have been deemed necessary. Note 4 Operating items 4.1 – Personnel expenses (In € million)6 months ended June 30, 2020% Revenue6 months ended June 30, 2019% RevenueWages and salaries -2,12837.8%-2,17237.8%Social security charges-5018.9%-5058.8%Tax, training, profit-sharing-330.6%-390.7%Net(charge)/releasetoprovisionsforstaffexpenses-10.0%--Net (charge)/release of pension provisions39-0.7%39-0.7%Total-2,62346.6%-2,67746.6% Trusted Partner for your Digital Journey 55/85 4.2 – Non-personnel operating expenses (In € million)6 months ended June 30, 2020% Revenue6 months ended June 30, 2019% RevenueSubcontracting costs direct-94716.8%-95016.5%Hardware and software purchase-58010.3%-5078.8%Maintenance costs-2865.1%-3315.8%Rent expenses-180.3%-110.2%Telecom costs-1422.5%-1522.6%Travel expenses-340.6%-791.4%Professional fees -1021.8%-1001.7%Others expenses-1432.5%-1272.2%Subtotal expenses -2,25340.0%-2,25839.3%Depreciation of assets-1652.9%-1713.0%Depreciation of right-of-use-1683.0%-1642.9%Net (charge)/release to allowances/provisions-260.5%3-0.1%Gains/(Losses) on disposal of assets-30.1%-100.2%Trade receivables write-off-60.1%-50.1%Capitalized production66-1.2%66-1.2%Subtotal other expenses-3025.4%-2804.9%Total-2,55545.4%-2,53844.2% 4.3 – Trade accounts and notes payable (In € million)June 30, 2020December 31, 2019Trade payables and notes payable2,1022,278Net advance payments-46-31Prepaid expenses and advanced invoices-737-691Net accounts payable1,3191,556Number of days’ payable outstanding (DPO)6979 4.4 – Other current assets (In € million)June 30, 2020December 31, 2019Inventories114104State - VAT receivables201212Prepaid expenses and advanced invoices737691Other receivables & current assets432529Net advance payments4631Total1,5301,568 Trusted Partner for your Digital Journey 56/85 4.5 – Other current liabilities (In € million)June 30, 2020December 31, 2019Employee-related liabilities363355Social security and other employee welfare liabilities 176172VAT payables367371Contract liabilities651680Other operating liabilities 226310Total 1,7831,888 Note 5 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 87 million in the first half of 2020. The following table presents this amount by nature: (In € million)6 months ended June 30, 20206 months ended June 30, 2019Staff reorganization-80-63Rationalization and associated costs-22-17Integration and acquisition costs-20-24Amortization of intangible assets (PPA from acquisitions) -78-79Equity based compensation-35-34Other items147-24Total-87-241 Staff reorganization increased to € 80 million, mainly due to the acceleration of the adaptation of the Group workforce in several countries, in particular in Germany. The € 22 million rationalization and associated costs primarily resulted from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs at € 20 million mainly related to the integration costs of Syntel to generate synergies while the other costs relate to the migration and standardization of internal IT platforms from earlier acquisitions. In the first half of 2020, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 78 million was mainly composed of: € 33 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 10 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 10 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 8 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014. The equity-based compensation expense amounted to € 35 million in the first half of 2020 compared to € 34 million in the first half of 2019. In the first half of 2020, other items presented a net profit for € 147 million compared to € -24 million including the following one-off items: The transaction made in February on Worldline shares, as follows: The Accelerated Bookbuilding Offering of Worldline shares (ABO) on the market at € 61.5 per share led to a net gain on disposal, before tax, of € 120 million, including the write-off of the intangible assets generated by the Worldline purchase price allocation in May 7, 2019 and accounted for under equity method; Trusted Partner for your Digital Journey 57/85 The retained interest of Atos in Worldline Group (c. 3.8%) was valued at the fair value at the disposal date, resulting in an additional profit of € 54 million presented as part of the net gain on disposal. Excluding the transaction described above, other expenses amounting € 27 million remaining stable compared to 2019 and mainly corresponded to semi-retirement scheme in Germany and in UK. Equity-based compensation In the context of Covid-19 crisis, Board of Director of July 24, 2020 amended the new performance conditions for free share plans granted in 2018 and 2019 and the stock options plan of 2019 in regards to the 2020 revised targets. As a result, the initial assumptions taken for the calculation of those plans remain unchanged at the end of June and will be revised in the second half of the year. The € 35 million expense recorded within other operating income relating to equity-based compensation (€ 34 million in the first half of 2019) is made up of: (In € million)6 months ended June 30, 20206 months ended June 30, 2019By years : Plans 20207-Plans 20197-Plans 201877Plans 20171311Plans 2016-13Plans 201513Total3534By category of plans : Free share plans3333Stock options0-Employee share purchase plan21Total3534 Free shares plans Main previous plans presented in “other operating income and expense” during the semester was the following: Grant DateOctober 23, 2019July 24, 2019Number of shares granted 12,000857,743Share price at grant date (€)63.6069.75Vesting dateOctober 23, 2022July 24, 2022Expected life (years)33Expected dividend yield (%)2.07%2.07%Fair value of the instrument (€)59.7765.552020 expense recognized (in € million)06 Grant DateMarch 27, 2018July 22, 2018Number of shares granted 8,550891,175Share price at grant date (€)90.0090.00Vesting date March 26, 2021July 21, 2021Expected life (years)33Expected dividend yield (%)1.20%1.20%Fair value of the instrument (€)87.0887.082020 expense recognized (in € million)07 Trusted Partner for your Digital Journey 58/85 Grant DateJuly 28, 2015July 25, 2017Foreign planNumber of shares granted 510,000777,910Share price at grant date (€)69.7090.00Vesting dateJanuary 2, 2020July 25, 2020Expected life (years)4.53Expected dividend yield (%)1.20%1.20%Fair value of the instrument (€)65.8988.122020 expense recognized (in € million)113 Stock options plan granted in 2019 Number of shares issued209,200Share price at grant date (€)78Strike price (€)80Vesting dateJuly 24, 2022Expected maturity of the plan (years)3 yearsRisk free interest rate (%)-0.44%Expected dividend yield (%)2.07%Fair value of the instrument (€)6.67Expense recognized in 2020 (in € million)0 Employee share purchase plan Share 2020 In June 2020, the Group implemented a new employee share option plan called SHARE detailed as follows: SHARE 2020 was open to employees throughout the Group. This new plan offered eligible employees the purchase of shares at a 25% discount with a five-year lock-up period restriction and the attribution of free shares for the first 2 subscribed shares. As a consequence of the plan, the Group will issue new shares end of July, at a reference share price of € 64.6 (before the 25% discount application). Final impact will be adjusted in the second half of the year once the subscriptions are full and final. The cost related to SHARE 2020 takes into account the effect of the five-year lock-up period restriction calculated based on the following parameters: Number of shares issued780,412Share price at grant date (€)67.82Percentage of discount (%)25%Lock-up period (years)5Risk free interest rate (%)-0.49%Expense recognized in 2020 (in € million)2 Note 6 – Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 1 million for the period (compared to € 79 million for the first half of 2019) and was composed of a net cost of financial debt of € 21 million and net gain of non-operational financial of € 20 million. Net cost of financial debt Net cost of financial debt decreased from € 36 million in the first half of 2019 to € 21 million in the first half of 2020 due to the full reimbursment on November 14, 2019 of $ 1,900 million term loan to fund the Syntel acquisition and the payback in April 2020 of the € 600 million bond issued in July 2015. The average expense rate of the Group was 1.40% on the average gross borrowings compared to 1.63% in the first half of 2019. The average income rate on the average gross cash was 0.69% compared to 1.60% in the first half of 2019. Trusted Partner for your Digital Journey 59/85 (In € million)6 months ended June 30, 20206 months ended June 30, 2019Net interest expenses-20-36Gain/(loss) on interest rate hedges of financial debt -1-Net cost of financial debt-21-36 Other financial income and expenses (In € million)6 months ended June 30, 20206 months ended June 30, 2019Foreign exchange income/(expenses) 4-3Netgain/(loss)atfairvaluemeasurementonderivativeliabilityandunderlying Worldline shares41-Interest on lease liability-14-14Other income/(expenses) -12-26Other financial income and expenses20-43Of which:- other financial expenses-101-53- other financial income12110 Non-operational financial net gain amounted to € 20 million compared to net cost of € 43 million in the first half of 2019 and were mainy composed of: net variance for € +41 million related to the OEB derivative liability and underlying Worldline shares, both at fair value through profit and loss as per IFRS 9; pension related interest of € 6 million compared to € 15 million on the first half of 2019. The pension financial cost represented the difference between interest costs on pension obligations and interest income on plan assets; lease liability interest (broadly stable compared to € 14 million expenses on the first half of 2019); net foreign exchange gain (including hedges) of € 4 million compared to a loss (including hedges) of € 3 million on the first half of 2019. 6.2 – Cash and cash equivalents (In € million)June 30, 2020December 31, 2019Cash in hand and short-term bank deposit3,2072,363Money market funds 5050Total3,2572,413 Depending on market conditions and short-term cash flow expectations, Atos may from time to time invest in Money Market Funds for a maturity not exceeding three months. 6.3 – Non-current financial assets (In € million)June 30, 2020December 31, 2019Pension prepaymentsNote 10229231Fair value of non-consolidated investments net of impairment5424Other *102116Total873351*"Other"includesloans,deposits,guaranteesandup-frontandunderwritingfeesrelatedtopastacquisitionsamortizedover the duration of the debt instrument Trusted Partner for your Digital Journey 60/85 During the first half of 2020, the increase of the “Fair value of non-consolidated investments net of impairment” reflected the reclassification of the Worldline’s remaining shares, from Investment in associates into Non-current financial assets for a total amount of € 445 million. This non-current financial asset was henceforth measured at the fair value through profit and loss in the other financial income and expense according to IFRS 9 and led to the recognition of a financial income for a total amount of € 94 million as of June 30, 2020. 6.4 – Change in net debt over the period Reconciliation of movements of liabilities to cash flows arising from financing activities and the change in Net debt /(cash) position as follows: Trusted Partner for your Digital Journey 61/85 Change in Net debt/(cash) (In € million)BondsOptional exchan-geable bondBank loans and com-mercial papersSecuriti-zationOther borrow-ings excl. over-draftLease liabilityCommon stockAddi-tional paid-in-capitalConsoli-dated retained earningsNon control-ling interestsCash & cash equiva-lentsOver-draftTotalAt January 1, 20202,70050080510551,2731091,4412,269122,413-791,736Capital Increase----------Common stock issues on the exercise of equity-based compensation-----------Purchase and sale of treasury stock---------45----Dividends paid-------------Dividendspaidtonon-controllinginterests----------3---Lease payments------172-------New borrowings1,036-------1,036Repaymentofcurrentandnon-current borrowings-600-590--36--------1,226Net cost of financial debt paid---21--------21Otherflowsrelatedtofinancingactivities-8--------8Netcashfrom/(usedin)financingactivitiesexcludingleasepaymentsandequityrelated flows-600-446-8-57--------219Netcashfrom/(usedin)financing activities-600-446-8-57-172---45-3---Net cost of financial debt accrual2121Newleasesincludingbusinesscombinations-----201-------Interest on lease liability14Impact of exchange rate fluctuations -20-----67562Other changes ----21195-----67583Varianceinnetcashandcashequivalents----------912-91-821At June 30, 20202,1005001,2512191,2961091,4412,22493,257-164779LiabilitiesEquityNet Cash & cash equivalents Trusted Partner for your Digital Journey 62/85 (In € million)June 30, 2020December 31, 2019Cash and cash equivalents 3,2572,413Overdrafts-164-79Total net cash and cash equivalents3,0932,334 Bank covenant The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility and the securitization program, with a leverage ratio (net debt divided by OMDA) of 0.56 at the end of June 2020. According to the credit documentation of the multi-currency revolving credit facility and the securitization program, the leverage ratio is calculated excluding IFRS16 impacts, taking into account 12 months rolling OMDA at the end of June 30, 2020. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility and the securization program. Note 7 Income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is determined by applying the estimated effective tax rate for the full year to the “half-year net income before tax”. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the year in the light of full-year earnings projections. The tax charge for the first half of 2020 was € 34 million with a profit before tax of € 361 million. The annualized projected Effective Tax Rate (ETR) was 18.5% (excluding the tax effects of the Worldline transaction that occurred during the period) compared to 18.3% for the first half of 2019. The annualized projected ETR has been computed taking into consideration annual objectives including Covid-19 impacts. In the context of Covid-19, the Group re-assessed the recoverability of its deferred tax assets based on the new mid-term plan of the Group communicated to the market on June 24, 2020. As a result, no additional allowance has been recorded. Note 8 – Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually by comparing its carrying amount to its recoverable amount at the closing date based on December actuals and latest mid-term plan, or more often whenever events or circumstances indicate that the carrying amount could not be recoverable. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Trusted Partner for your Digital Journey 63/85 (In € million)December 31, 2019Assets held for distributionImpact of business combi-nationExchange differences and otherJune 30, 2020Gross value6,617-175-1136,678Impairment loss-580--15-565Carrying amount6,037-175-996,113(In € million)December 31, 2018Assets held for distributionImpact of business combi-nationExchange differences and otherDecember 31, 2019Gross value9,431-3,0501151226,617Impairment loss-5671--13-580Carrying amount8,863-3,0491151096,037 The increase of the goodwill carrying amount in the first half of 2020 was related to the acquisitions of Maven Wave and Miner & Kasch. The Covid-19 pandemic and its consequences are considered as a trigger event for impairment testing under IAS 36. As such, the Group performed procedures to assess the potential need of impairment as of June 30, 2020. Regional Business Units (RBUs) presenting a large headroom as part of the 2019 impairment test (worst case sensitivity scenario) have not been tested again in June 2020, considering the range was too high to be affected by any Covid-19 effect. A formal impairment test has been performed for other RBUs by updating 2020 figures and taking into consideration the mid-term plan of the Group communicated to the market on June 24, 2020. Discount rates have also been updated. An analysis of the calculation’s sensitivity to a combined change in the key parameters (operating margin, discount rate and perpetual growth rate) has been performed and increased to +/- 75 bp for each of these parameters (compared to +/- 50 bp in 2019). Those sensitivity analyses did not highlight any probable scenario where RBUs recoverable amount would fall below its carrying amount. Based on those procedures performed, no additional impairment has been booked in the interim consolidated financial statements of the Group. Note 9 – Investments in associates accounted for under the equity method (In € million)December 31, 2019Business combinationDisposalNet resultsExchange differences and otherJune 30, 2020Worldline1,724--1,2812-445-Other3--127Total1,727--1,2813-4437(In € million)December 31, 2018Business combinationDisposalNet resultsExchange differences and otherDecember 31, 2019Worldline-2,732-1,05345-1,724Other7--2-63Total1,7272,732-1,05347-61,727 Atos disposed in February 2020 part of its retained interest over Worldline with a sale of 23.9 million of Worldline shares through an Accelerated Bookbuiling Offering (ABO). This transaction led to a net book value disposed of € 1,281 million in February 2020. After completion of the transaction (ABO), Atos voting rights over Worldline amounted to 7.36% and 3.82% of interest. The review of the governance led to the conclusion that Atos no longer has a significant influence over Worldline. As such, Worldline is no more considered as an associate according to IAS 28. The amount of € 445 million in “Exchange differences and other” reflected the reclassification of the retained interest in Worldline shares, from Investment in associates into Non-current financial assets in the Consolidated Statement of Financial Position. This non-current financial asset was henceforth measured at fair value through profit and loss in accordance with IFRS 9. Trusted Partner for your Digital Journey 64/85 Note 10 – Pensions plans and other long-term benefits The remeasurement principle for pension liabilities and assets at interim periods is the following: actuarial remeasurements are only triggered if there are significant impacts on both the obligations and plan assets and limited to the Group’s largest pension plans. For less material plans, straightforward actuarial projections are used. The net total amount recognized in the balance sheet in respect of pension plans is € 1,009 million compared to € 972 million at December 31, 2019. The Corporate bond interest rate markets for all major zone/countries were particularly volatile this first half of the year due to the Covid-19 crisis, with a peak at the end of March 2020. The discount rate curves have been downward sloping since then, as a consequence of the drop in the sovereign bond rates combined with the reduction in the credit spread. The discount rates at June 30, 2020 have decreased since December 31, 2019, for the UK and the USA, and have remained unchanged in the Eurozone. June 30, 2020December 31, 2019June 30, 2020December 31, 2019June 30, 2020December 31, 2019Discount rate1.60%2.10%0,8% ~ 1,3%0,8% ~ 1,3%2.40%3.00%RPI: 2.80%RPI: 2.95%CPI: 1.80%CPI: 1.95%Inflation assumption1.45%1.45%United KingdomEurozoneUSAnana The fair value of plan assets for major schemes has been remeasured as at June 30, 2020. Atos has a relatively small exposure to Equity markets. Hence, the Covid-19 crisis has had a limited impact on the pension plan asset performances in the UK, the USA and Switzerland. The estimated funding ratios in those countries, on a technical basis, do not require any measures of deficit recovery. The amounts recognized in the balance sheet consist of: (In € million)June 30, 2020December 31, 2019Amounts recognized in financial statements consist of :Prepaid pension asset 229231Accrued liability – pension plans [a]-1,237-1,203Total Pension plan-1,009-972Accrued liability – other long-term employee benefits [b]-45-50Total accrued liability [a] + [b]-1,282-1,252 The net impact of defined benefits plans on Group profit and loss can be summarized as follows: (In € million)6 months ended June 30, 20206 months ended June 30, 2019Operating margin-20-9Other operating income and expenses11Financial result-6-15Total (expense)/profit -25-23 Trusted Partner for your Digital Journey 65/85 Note 11 Provisions (In € million)December 31, 2019ChargeRelease usedRelease unusedOther (*)June 30, 2020CurrentNon- currentReorganization7444-16-1-100936Rationalization92-1-0-871Project commitments309-4-2-132302Litigationsandcontingencies755-1-6-12622537Total provisions18859-22-10-1320215646(*) Other movements mainly consist of the currency translation adjustments Note 12 Shareholders’ equity Potential dilutive instruments comprised vested stock options. Any stock options plan have been vested in 2020. Earnings per share – Continuing operations (In € million and shares)6 months ended June 30, 20206 months ended June 30, 2019Netincomefromcontinuingoperations–Attributabletoownersof the parent [a]329180Impact of dilutive instruments --Netincomefromcontinuingoperationsrestatedofdilutiveinstruments - Attributable to owners of the parent [b]329180Average number of shares outstanding [c]108,780,193106,980,344Impact of dilutive instruments [d]-8,730Diluted average number of shares [e]=[c]+[d]108,780,193106,989,074(In €)Basic EPS from continuing operations [a] / [c]3.021.68Diluted EPS from continuing operations [b] / [e]3.021.68 Earnings per share – Discontinued operations (In € million and shares)6 months ended June 30, 20206 months ended June 30, 2019Netincomefromdiscontinuedoperation-Attributabletoownersof the parent [a]-3,055Impact of dilutive instruments --Netincomefromdiscontinuedoperationrestatedofdilutiveinstruments - Attributable to owners of the parent [b]-3,055Average number of shares outstanding [c]108,780,193106,980,344Impact of dilutive instruments [d]-8,730Diluted average number of shares [e]=[c]+[d]108,780,193106,989,074(In €)Basic EPS from discontinued operation [a] / [c]-28.55Diluted EPS from discontinued operation [b] / [e]-28.55 Note 13 Approval of interim financial statements The interim financial statements were approved by the Board of Directors on July 24, 2020. Note 14 Subsequent events There is no significant subsequent event to be mentioned. Trusted Partner for your Digital Journey 66/85 B.3 Statutory auditors’ Review Report on the half- yearly financial information for the period from January 1 to June 30, 2020 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2020, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements were prepared under the responsibility of the Board of Directors on July 24 2020, on the basis of the information available at that date in the evolving context of the Covid-19 crisis and difficulties in assessing its impact and future prospects. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the interim management report established on July 24, 2020 on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 67/85 Paris-La Défense and Neuilly-sur-Seine, July 29, 2020 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton Membre français de Grant Thornton International Jean-François Viat Virginie Palethorpe Trusted Partner for your Digital Journey 68/85 C. Person responsible C.1 Person responsible for the amendment to the Universal Registration Document Elie Girard Chief Executive Officer C.2 Statement of the person responsible for the amendment to the Universal Registration Document I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the amendment to the Universal Registration Document, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report here attached presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, July 30, 2020 Elie Girard Chief Executive Officer C.3 For the audit Appointment and term of offices Statutory auditors Grant Thornton - Virginie Palethorpe Appointed on: October 31, 1990, then renewed in October 24, 1995, on May 30, 2002, on June 12, 2008, on May 17, 2014, and on June 16, 2020 Term of office expires: at the end of the AGM voting on the 2025 financial statements Deloitte & Associés – Jean-François Viat Appointed on: December 16, 1993, renewed on February 24, 2000, on May 23, 2006, on May 30, 2012, and on May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements Trusted Partner for your Digital Journey 69/85 D. Corporate governance and additional information D.1 Office renewals and composition of the Board of Directors The Company’s Annual General Meeting, held on June 16, 2020, approved the proposed ratification of appointments and the renewals of Directors. In particular, it approved the ratifications of the appointments of Mr. Elie Girard and of Mr. Cedrik Neike. It also renewed the terms of office as Directors of (i) Mr. Cedrik Neike for a period of three years, and (ii) Ms. Valerie Bernis and Ms. Colette Neuville for a period of two years, as well as the term of office of Jean Fleming as Director representing the employee shareholders for two years. Mr.Nicolas Bazire informed the Board of Directors before the Annual General Meeting that he did not wish to request the renewal of his term of office as Director. The Board of Directors acknowledged this and therefore decided not to submit to the shareholders’ vote the related resolution. The terms of office of Mr. Nicolas Bazire therefore expired at the end of the Annual General Meeting. Before the Annual General Meeting held on June 16, 2020, the Board of Directors was informed by the CFDT, as the most representative trade union among the French companies of the Atos Group, and acknowledged the renewal of Mr. Farès Louis as Employee Director. Pursuant to applicable laws, the term of office of Mr. Farès Louis will expire in 2023, at the end of the General Meeting voting on the 2022 financial statements. On that basis, the Board of Directors, during its meeting held right after the Annual General Meeting, decided to modify the composition of the Nomination and Remuneration Committee as follows: Mr. Bertrand Meunier (Chairman); - - Ms. Colette Neuville. Ms. Jean Fleming; and The composition of the Audit Committee and the CSR committee remains unchanged. Following these various changes, as of the date of this amendment to the Universal Registration Document, the Board of Directors comprised eleven Directors including seven independent Directors, as follows: Trusted Partner for your Digital Journey 70/85 EXPERIENCEAgeGenderNationalityNumber of sharesNumber of other mandates in listed companies1IndependenceDate of first appointment2End of term of officeSeniority on BoardChairmanBertrand MEUNIER64 MFrench/British140000YES02/10/2009AGM 202111Audit, N&R Chief Executive OfficerElie GIRARD42MFrench516320NO12/16/2019AGM 20220N/AVivek BADRINATH51MFrench5001YES04/30/2019AGM 20211AuditValérie BERNIS61 FFrench5051YES04/15/2015AGM 20224CSRCedrik NEIKE47 MFrench/German5001NO01/28/2020AGM 20230N/AColette NEUVILLE83 FFrench10120YES04/13/2010AGM 20229N&RAminata NIANE63 FSenegalese10120YES05/27/2010AGM 20219Lead Independent DirectorLynn PAINE70 FAmerican10000YES05/29/2013AGM 20216Audit, CSRVernon SANKEY71 MBritish12960YES02/10/2009AGM 202211Audit, CSRDirector representing the employee shareholders (L225-23 CCom)Jean FLEMING51FBristish14960NO05/26/2009AGM 202210N&REmployee Director (L225-27-1 CCom)Farès LOUIS58MFrench00NO04/25/2019AGM 20231N/ADirectors (L225-17 Ccom)PERSONAL INFORMATIONPOSITION ON THE BOARDMEMBERSHIP IN COMMITTEES3(And other office) Chairman of the Committee3 N&R : Nomination and Remuneration Committee, Audit : Audit Committee, CSR : CSR Committee2 Date of first appointment on the Board of Directors of Atos1 Other mandates exercised in listed companies (outside the Atos Group). Mandates exercised in listed companies belonging to the same group account for one single mandate. D.2 Annual General Meeting held on June 16, 2020 The Annual General Meeting held on June 16, 2020 approved the resolutions submitted by the Board of Directors. The results of the votes at the Annual General Meeting together with the documentation on the adopted resolutions are available on the Company’s website, www.atos.net, Investors section. In particular, and as part of its usual business, the Annual General Meeting approved the annual and consolidated accounts for the financial year ending December 31, 2019, it being reminded that the Board of Directors had exceptionally decided not to submit the distribution of a dividend to the Annual General Meeting’s approval in order to take into account the circumstances related to the Covid-19 epidemic. The Annual General Meeting also approved in particular the elements making up the compensation and the benefits paid during or awarded for the financial year 2019 to Mr. Bertrand Meunier, Chairman of the Board of Directors and Mr. Elie Girard, for his successive mandates as Deputy Chief Executive Officer and Chief Executive Officer. The Annual General Meeting approved then the compensation policies applicable for 2020 to the Directors, the Chairman of the Board of Directors and the Chief Executive Officer. The term of office of Grant Thornton as Statutory Auditor was also renewed for six years. Finally, to take into account the new legislative environment in force, the Annual General Meeting approved all the resolutions aimed at amending the articles of association. Trusted Partner for your Digital Journey 71/85 D.3 Executive compensation and stock ownership D.3.1 Performance shares allocation plan decided on July 24, 2020 Pursuant to the authorization granted by the Annual General Meeting of June 16, 2020 under the 32nd resolution, the Board of Directors of the Company decided, during its meeting held on July 24, 2020, and upon the recommendation of the Nomination and Remuneration Committee, to grant 870,630 performance shares in favor of Atos’ first managerial lines, key employees and experts. In that context, the Chief Executive Officer was granted 31,800 performance shares by virtue of the 21st resolution of the Annual General Meeting. The main features and conditions of this grant of performance shares are as follows: Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the grant of performance shares is conditioned on the beneficiary’s remaining within Atos’ group as an employee or corporate officer during the vesting period. Performance condition: the vesting of all or part of the performance shares shall be subject to the achievement over a three-year period of three internal financial performance indicators and two performance conditions, one external and one internal, related to the corporate social responsibility (“CSR”), referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe) and the reduction of the CO2 emissions, respectively. The four internal performance indicators chosen are directly connected to key success factors for the achievement of the Group’s ambitions and include three financial indicators and one CSR indicator: (i) Organic Revenue growth conditioning 30% of the grant; (ii) Operating Margin conditioning 25% of the grant; (iii) Free Cash Flow conditioning 25% of the grant, and (iv) The decrease in CO2 emissions conditioning 10% of the grant. The financial indicators will be calculated on a consolidated basis, taking into account potential scope variations and changes in the foreign exchange rates. Their target achievement levels were determined in line with the mid-term objectives set by the Board of Directors, under the assumption, for the financial indicators, of a return to a normal economic activity by mid-2021 taking into account the repercussions of the Covid-19 pandemic. The external performance condition linked to CSR, referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe) conditions 10% of the grant. The target achievement is based on the average of the scores achieved by the Atos group during the vesting period, based on the average percentile ranking achieved by the Company resulting from the comparison with the other companies included in the DJSI index in relation to the three years. Elasticity curves accelerate upwards and downwards the percentage of the grant related to each performance indicator according to its level of achievement over the 3-year period. The final number of vested performance shares shall shall not under any circumstances exceed the number initially granted. Obligations specific to the executive officers: The Chief Executive Officer is required to remain owner of 15% of the acquired shares for the duration of his duties. The Chief Executive Officer acknowledged the prohibition set by the Company to enter into hedging transactions over the granted shares for the duration of his corporate mandate as Executive Officer and formally undertook to abide by the prohibition. Trusted Partner for your Digital Journey 72/85 D.3.2 Revision of the performance conditions for the performance share plans dated July 22, 2018 and July 24, 2019 Given the unprecedent circumstances due to the Covid-19 crisis, the Board of Directors, during its meeting held on July 24, 2020, decided upon the recommendation of the Nomination and Remuneration Committee, to revise the financial targets for the performance share plans granted in 2018 and 2019, respectively. Regarding the performance share plan dated July 22, 2018, the Board of Directors decided upon the recommendation of the Nomination and Remuneration Committee, to reconcile the 2020 financial indicators targets with the revised objectives for 2020 as announced by the Company. Regarding the performance share plan dated July 24, 2019, the Board of Directors decided upon the recommendation of the Nomination and Remuneration Committee, to align the target achievement levels of the financial indicators with the mid-term objectives set by the Board of Directors, under the assumption of a return to a normal economic activity by mid-2021 taking into account the repercussions of the Covid-19 pandemic. D.3.3 Performance shares that have become available since January 1, 2020 for the Executive Officers – AMF Table 7 Since January 1, 2020, no performance shares have become available to Executive Officers. However, the performance shares granted on July 25, 2017 will become available on July 31, 2020. The Chef Executive Officer is part of the beneficiaries of this plan. Terms and conditions regarding share acquisition and availability are described in the 2019 Universal Registration Document in section G.3.3.1. AMF Table 7 Plan Date Number of shares available during the financial year Vesting Date Availability Date Chef Executive Officer July 25, 2017 12,766 July 31, 2020 July 31, 2020 D.3.4 Subscription or purchase options exercised since January 1, 2020 by Executive Officers – AMF Table 5 The Chef Executive Officer did not receive stock-options prior to the grant dated July 24, 2019 (under vesting). Trusted Partner for your Digital Journey 73/85 D.4 Common Stock Evolution D.4.1 Basic data D.4.1.1 Information on stock The Company's shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. Atos SE shares are eligible for SRD and PEA. The Company’s shares have been included in the CAC 40, the main share index published by Euronext Paris, since March 20, 2017. The main tickers are: SourceTickersEuronextATOAFPATOBloombergATO FPReutersATOS PAThomsonATO FR The Euronext sector classification is as follows: Euronext: ICB sectorial classificationsIndustry: 9000, TechnologySupersector: 9500, TechnologySector: 9530, Software and Computer ServicesSubsector: 9533, Computer Services D.4.1.2 Free-float The free-float of the Group shares excludes stakes held by the reference shareholder, Siemens Pension- Trust e.V., holding 12,483,153 shares of the Company which it committed to keep until September 30, 2020. Stakes owned by the employees and the members of the Board of Directors as well as treasury shares, are also excluded from the free float. As of June 30, 2020Shares% of share capital% of voting rightsSiemens Pension-Trust e.V.112,483,15311.4%11.5%Employees1,435,5111.3%1.3%Board of Directors72,9530.1%0.1%Treasury stock699,7380.6% - Free float 94,523,559 86.5%87.1%Total 109,214,914 100.0%100.0%1 Siemens Pension-Trust e.V. is controlled by Siemens A.G. D.4.2 Dividend Considering the Covid-19 crisis, Atos intended to act responsibly and spread the efforts requested across all its stakeholders. As a result, the Board of Directors decided on April 21, 2020 to withdraw its proposal to pay a dividend and therefore the related option to receive the dividend in shares at the Annual General Meeting held on June 16, 2020. Trusted Partner for your Digital Journey 74/85 During the past three fiscal periods, Atos SE paid the following dividends: Fiscal periodAmount of the dividendPayment for 2019 N/A Dividend 2018 (paid in 2019)1.70 €Dividend 2017 (paid in 2018)1.70 € D.4.3 Common stock D.4.3.1 Common stock as at June 30, 2020 As at June 30, 2020, the Company’s issued common stock amounted to € 109,214,914 divided into 109,214,914 fully paid-up shares of € 1.00 par value each. Since December 31, 2019, the share capital has remained unchanged and was not subject to any variation. As announced on June 2, 2020, the share capital will be increased on July 31, 2020 by the issuance of new shares resulting from the implementation of an employee shareholding plan (Share 2020). D.4.3.2 Thresholds crossings The Group has not been informed of any statutory thresholds crossings for the period between January 1, 2020 to June 30, 2020. D.4.3.3 Treasury stock Legal Framework The 22nd resolution of the Annual General Meeting of June 16, 2020 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. These purchases may be carried out: to ensure liquidity and an active market of the Company’s shares through an investment services provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the AMF; to attribute or sell these shares to the executive officers and Directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 225-177 et seq. of the Commercial Code, and (iii) free awards of shares in particular under the framework set by articles L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them in payment or exchange or other in the context of potential external growth operations; or Trusted Partner for your Digital Journey 75/85 to cancel them as a whole or in part through a reduction of the share capital authorized by the General Meeting, in particular pursuant to the 23rd resolution of the Annual General Meeting held on June 16, 2020. This authorization shall be used at any time except during public offers on the shares of the Company. The purchase of shares shall not exceed, at any time, a maximum number of shares representing 10% of the share capital of the Company, at any time, this percentage being applied to a share capital figure adjusted to reflect transactions affecting the share capital subsequent to the 2020 Annual General Meeting, it being specified that where the shares are repurchased in the context of a liquidity contract, the number of shares taken into account in calculating the 10% limit will be the number of shares purchased minus the number of shares resold during the period of the authorization. Acquisitions, sales and transfers or exchange of shares may be made by any means, subject to the limits authorized by the laws and regulations in force, on one or several occasion, on a regulated market or via a multilateral trading facility or a systematic internalizer or over the counter, including by public tender offering or by block purchases or sales (with no limit on the portion of the share repurchase program), and where required, by derivative financial instrument (traded on a regulated market or a multilateral trading facility via a systematic internalizer or over the counter) or by warrants or securities giving access to Company shares, or the implementation of optional strategies such as purchases or sales of purchase or sale options, or by the issuance of securities giving access to the Company’s capital by conversion, exchange, redemption, exercise of a warrant or any other means to Company shares held by this latter party, and when the Board of Directors or the person acting on the Board of Directors’ authority, under conditions laid down in the law, decides in compliance with the relevant legal and regulatory provisions. The maximum purchase price per share may not exceed € 120 (fees excluded). The Board of Directors may adjust the aforementioned maximum purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the free allocation of shares, as well as in the event of division of the nominal value of the share or share consolidation or any other transaction on equity, so as to take account of the impact of such transactions on the value of the shares. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,310,578,968 as calculated on the basis of the share capital as at December 31, 2019, this maximum amount may be adjusted to take into account the amount of the capital on the day of the General Meeting. This authorization was granted for a period of eighteen (18) months as from June 16, 2020. Treasury Stock As at June 30, 2020, the Company owned 699,738 shares which amounted to 0.6% of the share capital with a portfolio value of € 53,110,114.20, based on June 30, 2020 market price, and with book value of € 47,851,310.23. These shares are assigned to the allocation of shares to employees or executive officers and Directors of the Company or its group, and correspond to the hedging of its undertakings under the LTI plans. The Company proceeded to the purchase of 215,000 shares from March 23, 2020 to March 24, 2020 and of 445,000 shares from June 24, 2020 to June 30, 2020 as part of a mandate given to a financial intermediary as announced by the Group respectively on March 23, 2020 and on June 24, 2020. From January 1, 2020 to June 30, 2020 the Company transferred 542,466 shares of the Company to beneficiaries of LTI plans. Trusted Partner for your Digital Journey 76/85 D.4.3.4 Potential common stock Potential dilution Based on 109,214,914 outstanding shares as of June 30, 2020, the share capital of the Group could be increased by 2,531,677 new shares, representing 2.32% of the share stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares, as follows: (in shares)June 30, 2020December 31, 2019Change% dilutionNumber of shares outstanding109,214,914109,214,9140From stock subscription options168,900168,90000.15%From performance shares2,362,7772,857,280-494,5032.16%Potential dilution2,531,6773,026,180-494,5032.32%Total potential common stock111,746,591112,241,094-494,503 Stock options evolution Number of stock subscription options at December 31, 2019168,900Stock subscription options granted as of June 30th 2020 - Stock subscription options exercised as of June 30th 2020 - Stock subscription canceled or forfeited as of June 30th 2020 - Number of stock subscription options at June 30, 2020168,900 As of June 30th, 2020, no stock options granted by the Group are exercisable, the total of stock options are vesting and will be exercisable as from July 24th, 2022. Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meeting of April 30, 2019 and June 16, 2020, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of July 24, 2020: Trusted Partner for your Digital Journey 77/85 AuthorizationAuthorization amount (value)Use of the authorizations (par value)Unused balance (par value)Authorization expiration dateEGM June 16, 202022nd resolutionAuthorization to buyback the Company shares 10% of the share capital adjusted at any moment 445,00019.59%12/16/2021 (18 months)EGM June 16, 202023rd resolutionShare capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 08/16/2022 (26 months)EGM June 16, 202024th resolutionShare capital increase with preferential subscription right 32,764,474 0 32,764,474 08/16/2022 (26 months)EGM June 16, 202025th resolutionShare capital increase without preferential subscription right by public offer 2 3 10,921,491 0 10,921,491 08/16/2022 (26 months)EGM June 16, 202026th resolutionShare capital increase without preferential subscription right by private placement 2 3 10,921,491 0 10,921,491 08/16/2022 (26 months) EGM June 16, 202027th resolutionShare capital increase without preferential subscription right to remunerate contribution in kind 2 3 10,921,491 0 10,921,491 08/16/2022 (26 months)EGM June 16, 202028th resolutionIncrease in the number of securities in case of share capital increase with or without preferential subscription right 2 3 4Extension by 15% maximumof the initial issuance0Extension by 15% maximum of the initial issuance08/16/2022 (26 months)EGM June 16, 202029th resolutionShare capital increase through incorporation of premiums, reserves, benefits or other5,111 million05,111 million08/16/2022 (26 months)EGM June 16, 202030th resolutionCapital increase reserved to employees22,184,29802,184,29808/16/2022 (26 months)EGM June 16, 202031st resolutionCapital increase reserved to operations reserved to employees in certain countries through equivalent and complementary framework2218,4290218,42908/16/2022 (26 months)EGM June 16, 202032nd resolutionAuthorization to allot free shares to employees and executive officers982,934870,630112,30408/16/2023 (38 months)EGM April 30, 201922nd resolutionAuthorization to grant stock options to employees and executive officers214,315209,200 55,11506/30/2021 (26 months)2Anysharecapitalincreasepursuanttothe25th,26th,27th,28th,30thand31stresolutionsoftheCombinedGeneralMeetingofJune16,2020shallbedeductedfromthecapsetbythe24th resolution of the Combined General Meeting of June 16, 2020.3Thesharecapitalincreaseswithoutpreferentialsubscriptionrightcarriedoutpursuanttothe25th,26th,27thand28thresolutionsoftheCombinedGeneralMeetingofJune16,2020aresubjecttoanaggregatesub-capcorrespondingto10%ofthesharecapitaloftheCompanyonthedayoftheCombinedGeneralMeetingofJune16,2020(i.e.€ 10,921,491).Anysharecapitalincrease pursuant to these resolutions shall be deducted from this aggregate sub-cap.4Theadditionalissuanceshallbedeductedfrom(i)thecapoftheresolutionpursuanttowhichtheinitialissuancewasdecided,(ii)theaggregatecapsetbythe24thresolutionoftheCombinedGeneral Meeting of June 16, 2020, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at 3 here above.5 including 40,300 cancelled stock-options1 The purchase of 215,000 shares carried out from March 23, 2020 to March 24, 2020 is not included as it deducted from the amount authorized under the 18th resolution of the Combined General Meeting of April 30, 2020. The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 28th and 29th resolutions of the Annual General Meeting of June 16, 2020 being set aside) amounts to 33,961,724, representing 31.10% of the share capital updated on June 30, 2020 Trusted Partner for your Digital Journey 78/85 E. Appendices E.1 Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Executive Vice-President Investor Relations and Internal Audit Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Yves Chabrol Investor Relations Manager Tel +33 (0) 6 09 78 46 08 yves.chabrol@atos.net Requests for information can also be sent by email to investors@atos.net E.2 Financial calendar October 22, 2020 Third quarter 2020 revenue E.3 Amendment to the 2019 Universal Registration Document cross-reference table The cross-reference table below identifies the information required by appendices 1 and 2 of the Commission Delegated Regulation (EU) 2019/980 of March 14, 2019 in accordance with the structure of the Universal Registration Document and allows to cross-reference them with the sections of the 2019 Universal Registration Document incorporated by reference in this amendment to the 2019 Universal Registration Document. N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Sections in the 2019 Universal Registration Document Amendment to the 2019 Universal Registration Document 1. 1.1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. 3. 4. 4.1. 4.2. Persons responsible, third party information, experts’ reports and competent authority approval Indication of persons responsible Declaration by persons responsible Name, address, qualification and material interest in the issuer of experts Confirmation of the accuracy of the source from a third party Statement from the designated authority with no prior approval Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Risk Factors Information about the issuer The legal and commercial name of the issuer The place and the number of registration A.4.1 A.4.2 N/A N/A N/A A.4.3 N/A F.2 G.1.2 G.1.2 C.1 C.2 N/A N/A N/A C.3 N/A A.7 N/A N/A Trusted Partner for your Digital Journey 79/85 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 4.3. 4.4. 5. 5.1. 5.1.1. 5.1.2. 5.2. 5.3. 5.4. 5.5. The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office Business overview Principal Activities Nature of the issuer’s operations and its principal activities New products or services developed Principal market Importants business events Strategy and objectives Dependence on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes 5.6. Basis for statements made by the issuer regarding its competitive position 5.7. Investments 5.7.1. Main investments 5.7.2. 5.7.3. 5.7.4. 6. 6.1. 6.2. 7. 7.1. 7.1.1. 7.1.2. 7.2. 7.2.1. 7.2.2. 8. 8.1. 8.2. 8.3. 8.4. 8.5. 9 Material investments of the issuer that are in progress or for which firm commitments have already been made, including the geographic distribution of these investments and the method of financing Main joint ventures and undertakings in which the issuer holds a proportion of the capital Environmental issues Organizational Structure Brief description of the Group List of significant subsidiaries Operating and financial review Financial condition Balanced and comprehensive analysis of development and performance or position including both financial and, where appropriate, non-financial Key Performance Indicators Likely future development in the field of research and development Operating Results Unusual or unfrequent events or new developments materially affecting the issuer’s income Narrative discussion about material changes in net sales or revenues Capital resources Issuer’s capital resources Sources and amounts of the issuer’s cash flows Information on the borrowing requirements and funding structure Restrictions on the use of capital resources Anticipated sources of funds to fulfill commitments Regulatory environment Information regarding any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations Trend information 9.1. 10. 10.1. The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year 10.2. Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects 11. 11.1. 11.2. 11.3. 12. Profit forecasts or estimates Profit forceasts or estimates publication Statement setting out the principal assumptions upon which the issuer has based his forecast or estimate Statement pointing out the comparaison with historial financial information consistent with the issuer’s accounting policies Administrative, management and supervisory body and senior Trusted Partner for your Digital Journey 80/85 Sections in the 2019 Universal Registration Document G.1.2 G.1.2; I.1.1 A.1; A.2; B.1; C C A.1; A.2; B.3 A.5.2; A.6.1; G.4.8.5 B.4; E.2 F.2.4.2; F.3.4.2 B.3 B.1.2; E.4.7.5 – Note 1 N/A N/A D.5 A.1 ; A.2 ; A.6.2 E.4.7.5 – Note 17 E.1; E.3; E.4 C.5 E.1; E.3; E.4 B; C; E.1; G.4.8.5 B; C; E.1 E.4; G.4 E.4.5 E.3.3.1 N/A N/A D.1; D.4 B; C; E.1 B; C; E.1 E.2; E.3 E.2; E.3 E.4.7.2 Amendment to the 2019 Universal Registration Document N/A N/A N/A N/A N/A A.3 A.2; A.6 N/A N/A B.2.6.4 – Note 1 N/A N/A N/A A.4 N/A A.5 N/A A.5; B.1; B.2 A.1; A.5 A.1; A.5 B.2 ; D.4 B.1.2 B.1.3 N/A N/A A.1 A.5 A.1; A.5 A.2; A.6; B.1 A.2; A.6; B.1 B.2.6.1, B.2.6.2 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 12.1 12.2 13. 13.1. 13.2. 14. 14.1. 14.2. 14.3. 14.4. 14.5. 15. 15.1. 15.2. 15.3. 16. management. Information regarding the members Name, business addresses and functions Detail of the nature of any family relationship Relevant management expertise and management experience Details of any convictions Conflicts of interest Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment Information about Audit and Remuneration Committee Statement related to corporate governance Potential material impacts on the corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders 16.1. Identification of the main shareholders holding more than 5% 16.2. 16.3. 16.4. Types of voting rights Ownership and control Arrangements which may result in a change in control of the issuer 17. Related party transactions 18. 18.1. 18.1.1. 18.1.2. 18.1.3. 18.1.4. 18.1.5. 18.1.6. 18.1.7. 18.2. 18.2.1. 18.3. 18.3.1. 18.3.2. 18.3.3. 18.4. 18.5. 18.5.1. 18.5.2. 18.6. 18.7. 19. 19.1. 19.1.1. 19.1.2. 19.1.3. 19.1.4. 19.1.5. 19.1.6. Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information Audited historical financial information covering the latest three years Change of accounting reference date Accounting standards Change of accounting framework Financial information according to French accounting standards Consolidated financial statements Age of latest financial information Interim and other financial information Quarterly or half-yearly financial information Auditing of historical annual financial information Independent audit of historical annual financial information Indication of other information in the registration document that has been audited by auditors Source of information and reason for information not to be audited Pro forma financial information Dividend policy Description of the issuer’s policy on dividends Amount of dividend per share Legal and arbitration proceedings Significant changes in the issuer’s financial position Additional information Share Capital Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition righ.s and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association 19.1.7. 19.2. Trusted Partner for your Digital Journey 81/85 Sections in the 2019 Universal Registration Document A.6.2; G.2.3 G.2.3 G.2.3 G.2.3.8 G.2.3.9 G.3 G.3 G.2.3 G.2.3.9 G.2.4.3; G.2.4.4 G.2.1 G.2.2 D.2; E.1.6 G.3 D.2.4.2 E.5.4 - Note 6; G.4.7.3 G.4.7.4 G.4.1; G.4.2; G.4.7 G.1 E.4.7.5 - Note 16; E.5.4 - Note 18 E.4; H.2.2 N/A E.4.7.2 E.4.7.2 E.4 E.4 E.4 N/A E.4.1 N/A N/A E.1 G.4.3 G.4.3 F.4 E.4.7.5 – Note 18 G.4.7 N/A G.4.7 G.4.7 N/A N/A G.4.7 Amendment to the 2019 Universal Registration Document A.4 N/A N/A N/A N/A D.3 D.3 D.1 N/A N/A N/A N/A A.5.6 D.3 N/A D.4.1.2 ; D.4.3.2 N/A D.4.1 ; D.4.3 N/A A.9 B.2 N/A B.2.6 B.2.6 B.2 B.2 B.2 B.2 B.3 N/A N/A A.5 D.4.2 D.4.2 A.8 B.2.6.4 – Note 14 D.4.3 N/A D.4.3 D.4.3 N/A N/A N/A N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Sections in the 2019 Universal Registration Document Amendment to the 2019 Universal Registration Document 19.2.1. 19.2.2. 19.2.3. 20. 21. Register and entry number of the issuer and brief description of the issuer’s object and purposes Rights, preferences and restrictions attached to each share category Article of association, statutes, charter or bylaws delaying, deferring or preventing a change of control of the issuer Material Contracts Documents on Display G.1.2 G.1.3.2 G.1 E.1.5 G.1; G.4.4 A.5.5 E.1 E.4 Cross-reference table for the Half-Yearly Financial Report In order to facilitate the reading of this document, the cross-reference table hereafter, identifies within this Amendment to the 2019 Universal Registration Document the information which constitutes the Interim Financial Report requested to be published by listed companies in accordance with article L. 451-1-2 of the French Monetary and Financial Code and article 222–4 of the AMF General Regulations. Information Consolidated half-yearly financial statements First half-year management report Declaration of the person responsible for the Amendment to the 2019 Universal Registration Document Statutory auditors’ report on the consolidated half-yearly financial statements B.3 Sections B.2 A.1, A.3, A.5, A.7, A.9, B.1 C.2 In accordance with the requirements of article 19 of regulation (EU) 2017/1129 (Prospective Regulation) are incorporated by reference the consolidated half-yearly financial statements as of June 30, 2019 under IFRS, the related statutory auditors’ reports and the Group management report presented within the 2018 Universal Registration Document n° D.19-0728 filed with the AMF on July 30, 2019. Other information included in the 2018 Universal Registration Document has been replaced and/or updated, as applicable, by the information contained in this Universal Registration Document. Trusted Partner for your Digital Journey 82/85 E.5 Full index CONTENT ..........................................................................................................................................................2 A. ACTIVITY REPORT .................................................................................................................................3 Focus on Covid-19 impact on current Atos business ................................................................................................... 3 A.1 Atos Analyst Day 2020 .................................................................................................................................................... 5 A.2 A.3 Atos in the first half of 2020 ............................................................................................................................................ 7 A.4 Management and organization...................................................................................................................................... 10 Operational review ......................................................................................................................................................... 16 A.5 Statutory to constant scope and exchange rates reconciliation ...................................................................... 16 A.5.1 Performance by Industry ................................................................................................................................ 18 A.5.2 Performance by Regional Business Units ...................................................................................................... 21 A.5.3 Revenue by Division ...................................................................................................................................... 27 A.5.4 Portfolio ......................................................................................................................................................... 29 A.5.5 A.5.6 Human Resources ......................................................................................................................................... 30 2020 objectives .............................................................................................................................................................. 31 Risk Factors: risks relating to the Covid-19 pandemic ............................................................................................... 31 Claims and litigations .................................................................................................................................................... 32 Risks relating to the Covid-19 pandemic ........................................................................................................ 32 A.8.1 Tax claims ..................................................................................................................................................... 33 A.8.2 Commercial claims ........................................................................................................................................ 33 A.8.3 Labor claims .................................................................................................................................................. 33 A.8.4 Representation & Warranty claims ................................................................................................................. 33 A.8.5 A.8.6 Miscellaneous ................................................................................................................................................ 33 Related parties ............................................................................................................................................................... 34 A.6 A.7 A.8 A.9 B. FINANCIAL STATEMENTS .................................................................................................................. 35 Financial review ............................................................................................................................................................. 35 B.1 Income statement .......................................................................................................................................... 35 B.1.1 Cash Flow and net cash ................................................................................................................................ 39 B.1.2 B.1.3 Bank covenant ............................................................................................................................................... 41 Interim condensed consolidated financial statements ............................................................................................... 42 Interim condensed consolidated income statement ........................................................................................ 42 B.2.1 Interim condensed consolidated statement of comprehensive income ........................................................... 43 B.2.2 Interim condensed consolidated statement of financial position ..................................................................... 44 B.2.3 Interim condensed consolidated cash flow statement..................................................................................... 45 B.2.4 B.2.5 Interim consolidated statement of changes in shareholders’ equity ................................................................ 46 Appendices to the interim condensed consolidated financial statements ........................................................ 47 B.2.6 Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2020 .......................................................................................................................................................................... 67 B.2 B.3 C. PERSON RESPONSIBLE .................................................................................................................... 69 Person responsible for the amendment to the Universal Registration Document .................................................... 69 C.1 Statement of the person responsible for the amendment to the Universal Registration Document ........................ 69 C.2 For the audit ................................................................................................................................................................... 69 C.3 D. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .................................................. 70 Office renewals and composition of the Board of Directors ....................................................................................... 70 D.1 Annual General Meeting held on June 16, 2020 ........................................................................................................... 71 D.2 Executive compensation and stock ownership ........................................................................................................... 72 D.3 Performance shares allocation plan decided on July 24, 2020 ....................................................................... 72 D.3.1 D.3.2 Revision of the performance conditions for the performance share plans dated July 22, 2018 and July 24, 2019 ...................................................................................................................................................................... 73 Performance shares that have become available since January 1, 2020 for the Executive Officers – AMF Table 7 .................................................................................................................................................................... 73 Subscription or purchase options exercised since January 1, 2020 by Executive Officers – AMF Table 5 ...... 73 D.3.4 Common Stock Evolution ............................................................................................................................................. 74 Basic data ...................................................................................................................................................... 74 D.4.1 Dividend ........................................................................................................................................................ 74 D.4.2 D.3.3 D.4 Trusted Partner for your Digital Journey 83/85 D.4.3 Common stock ............................................................................................................................................... 75 E. APPENDICES ....................................................................................................................................... 79 Contacts ......................................................................................................................................................................... 79 E.1 Financial calendar ......................................................................................................................................................... 79 E.2 Amendment to the 2019 Universal Registration Document cross-reference table .................................................... 79 E.3 Cross-reference table for the Half-Yearly Financial Report ........................................................................................ 82 E.4 Full index ........................................................................................................................................................................ 83 E.5 Trusted Partner for your Digital Journey 84/85 | Semestriel, 2020, IT, Atos | write me a financial report |
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| Amendment to the 2020 Universal Registration Document (URD) Including the 2021 half-year financial report Only the French version of the amendment to the 2020 Universal Registration Document has been submitted to the Autorité des Marchés Financier (AMF). It is therefore the only version that is legally binding. This amendment to the Universal Registration Document was filed on July 30, 2021 with the AMF in its capacity as the competent authority under Regulation (EU) 2017/1129, without prior approval in accordance with Article 9 of that Regulation. The French version of the Universal Registration Document may be used for the purpose of a public offering of financial securities or the admission of financial securities for trading on a regulated market if it is supplemented by a securities note and, as the case may be, a summary and all amendments made to the Universal Registration Document. The resulting set of documents is approved by the AMF in accordance with Regulation (EU) 2017/1129. This amendment updates and should be read together with the 2020 Universal Registration Document filed with the AMF on April 7, 2021 under registration number D.21-0269. A cross-reference table is included in this amendment to allow readers to locate easily the information required under Appendices of 1 and 2 of Commision Delegated Regulation (EU) 2019/980 of March 14, 2019, in accordance with the structure of the Universal Registration Document and the information that has been updated or modified. The 2020 Universal Registration Document and this amendment are available on the Atos website (www.atos.net), in the Investors / Regulated Information section, and on the AMF website (www.amf- france.org). Trusted Partner for your Digital Journey 1/69 Content 1. ACTIVITY REPORT ................................................................................................ 3 1.1. Atos in the first half of 2021 ...................................................................................................... 3 1.2. Operational review .................................................................................................................... 7 1.2.1. Statutory to constant scope and exchange rates reconciliation ................................................. 7 1.2.2. Performance by Industry ..................................................................................................... 9 1.2.3. Performance by Regional Business Units ............................................................................. 13 1.2.4. Portfolio .......................................................................................................................... 18 1.2.5. Human Resources ............................................................................................................ 19 1.3. 2021 objectives and mid-term targets ..................................................................................... 20 1.4. Risk Factors ............................................................................................................................. 21 1.5. Claims and litigations .............................................................................................................. 21 1.5.1. Tax claims ....................................................................................................................... 22 1.5.2. Commercial claims ........................................................................................................... 22 1.5.3. Labor claims .................................................................................................................... 23 1.5.4. Representation & Warranty claims ...................................................................................... 23 1.5.5. Miscellaneous .................................................................................................................. 23 1.6. Related parties ........................................................................................................................ 23 2. 1. ACTIVITY REPORT ................................................................................................ 3 1.1. Atos in the first half of 2021 ...................................................................................................... 3 1.2. Operational review .................................................................................................................... 7 1.2.1. Statutory to constant scope and exchange rates reconciliation ................................................. 7 1.2.2. Performance by Industry ..................................................................................................... 9 1.2.3. Performance by Regional Business Units ............................................................................. 13 1.2.4. Portfolio .......................................................................................................................... 18 1.2.5. Human Resources ............................................................................................................ 19 1.3. 2021 objectives and mid-term targets ..................................................................................... 20 1.4. Risk Factors ............................................................................................................................. 21 1.5. Claims and litigations .............................................................................................................. 21 1.5.1. Tax claims ....................................................................................................................... 22 1.5.2. Commercial claims ........................................................................................................... 22 1.5.3. Labor claims .................................................................................................................... 23 1.5.4. Representation & Warranty claims ...................................................................................... 23 1.5.5. Miscellaneous .................................................................................................................. 23 1.6. Related parties ........................................................................................................................ 23 FINANCIAL STATEMENTS .................................................................................... 24 2.1. Financial review ....................................................................................................................... 24 2.1.1. Income statement ............................................................................................................ 24 2.1.2. Cash Flow and net cash .................................................................................................... 27 2.1.3. Bank covenant ................................................................................................................. 29 2.2. Interim condensed consolidated financial statements ............................................................. 30 Interim condensed consolidated income statement ............................................................... 30 2.2.1. Interim condensed consolidated statement of comprehensive income ..................................... 31 2.2.2. Interim condensed consolidated statement of financial position.............................................. 32 2.2.3. Interim condensed consolidated cash flow statement ............................................................ 33 2.2.4. 2.2.5. Interim consolidated statement of changes in shareholders’ equity ......................................... 34 2.2.6. Notes to the interim condensed consolidated financial statements .......................................... 35 2.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2021 ...................................................................................................... 52 3. PERSON RESPONSIBLE ....................................................................................... 54 3.1. Person responsible for the amendment to the Universal Registration Document ..................... 54 3.2. Statement of the person responsible for the amendment to the Universal Registration Document ................................................................................................................................ 54 3.3. For the audit ............................................................................................................................ 54 CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION ............................ 55 4.1. Office renewals and composition of the Board of Directors ...................................................... 55 4.2. Annual General Meeting held on May 12, 2021 ........................................................................ 56 4.3. Executive compensation and stock ownership ......................................................................... 57 4.3.1. Performance shares allocation plan decided on July 27, 2021 ................................................ 57 4.3.2. Revision of the performance conditions for the performance share plans 2019 and 2020 ........... 58 4.3.3. Performance shares that have become available since January 1, 2021 for the Executive Officers – AMF Table 7.................................................................................................................. 58 4.3.4. Subscription or purchase options exercised since January 1, 2021 by Executive Officers – AMF Table 5 ........................................................................................................................... 58 4.4. Common Stock Evolution ......................................................................................................... 59 4.4.1. Basic data ....................................................................................................................... 59 4.4.2. Dividend ......................................................................................................................... 60 4.4.3. Common stock ................................................................................................................. 60 5. APPENDICES ....................................................................................................... 64 5.1. Contacts ................................................................................................................................... 64 5.2. Financial calendar .................................................................................................................... 64 5.3. Amendment to the 2020 Universal Registration Document cross-reference table.................... 64 5.4. Cross-reference table for the Half-Yearly Financial Report ...................................................... 67 5.5. Full index ................................................................................................................................. 68 Trusted Partner for your Digital Journey 2/69 1. Activity Report 1.1. Atos in the first half of 2021 January The South Australian Government chose Atos as a strategic partner. The partnership is expected to deliver managed platform services, including data security and cloud migration. Atos and IBM announced the expansion of a strategic global alliance to help companies accelerate their digital transformation and optimize business processes. Atos is proud to participate in the development of France’s national strategy on quantum technologies. With unique expertise in Europe and innovative technologies such as the Atos Quantum Learning Machine (QLM), the world's most powerful quantum simulator, Atos is already working closely with national players such as GENCI (Grand Equipement National de Calcul) and the CEA (Commissariat à l'Energie Atomique), as well as the start-up Pasqal. Atos and OVHcloud announced that they have joined forces to bring trusted cloud transformation capabilities and services to enterprises and public organizations worldwide. Under this partnership, OVHcloud and Atos are creating a market-leading 100% European multi-cloud solution. This combination maximizes Atos’ powerful one-stop shop offering — Atos OneCloud — and OVHcloud’s innovative cloud solutions based on sovereign infrastructures. Atos teamed up with SAP in support of RISE with SAP, a new offering from SAP that helps clients move business-critical elements to the cloud, accelerating their digital transformation and realizing value from their investments in the journey to an intelligent enterprise. February The UK’s National Employment Savings Trust (Nest) announced that Atos will serve as its future pension scheme administrator. Atos, Axione and Siemens were awarded the contract to supply, implement and maintain the multi- service network and video surveillance system for three of the four future Parisian metro lines (15, 16 and 17) which are part of the Grand Paris Express, the largest urban transport project in Europe. Atos raised its decarbonization ambition to reach net-zero by 2028. With this ambition, Atos is committing to reducing the global carbon emissions under its control and influence by 50% by 2025 (scopes 1, 2, 3), and to offset all its residual emissions by 2028. Atos’s new trajectory is 22 years ahead of the 2050 target set by the Paris Agreement to limit global warming to 2°C by 2050 above pre- industrial levels, and seven years ahead of the target previously set by the Group. Atos completed the acquisition of Profit4SF, a Dutch technology and management consulting company specializing in Salesforce enterprise implementations for customers across the Netherlands. Atos was selected by the Spanish State Meteorological Agency (AEMET) to supply and install its computing and storage technology. Based on the BullSequana supercomputing architecture from Atos, the new supercomputer will provide almost ten times more computing capacity than the current one, which was installed in 2014. Atos and HDF Energy announced a plan to develop an end-to-end long-term solution to supply data centers with green hydrogen generated by renewable energy. The new solution by Atos and HDF will be the first available on the market for data centers with heavy power consuming workloads, with the goal of demonstrating the first full production center operated using green hydrogen in 2023. Trusted Partner for your Digital Journey 3/69 March Atos was named a Leader in Technology Business Research Inc.’s (TBR) Market Landscape for Quantum Computing. Atos was identified as a “Leader” for its ability to advance the exploration and development of quantum algorithms. Atos was positioned as a global leader in cyber resiliency services by research and advisory firm NelsonHall in its latest NEAT report. Atos signed a contract with Swansea University to deploy its BullSequana X410 supercomputer, built on the new NVIDIA A100 Tensor Core GPU architecture and NVIDIA Mellanox HDR 200Gb/s InfiniBand networking, which will enable academics in Swansea and across Wales to drive ground-breaking research based on advanced machine learning and deep learning algorithms. Atos delivered its Atos Quantum Learning Machine (Atos QLM), the world's highest-performing commercially available quantum simulator, to the Leibniz Supercomputing Centre (LRZ), of the Bavarian Academy of Sciences and Humanities. Atos will switch all of its nearly 5,500 company cars to electric models by the end of 2024. With this move, Atos aims to reduce the carbon emissions of its global fleet by 50% within three years, in line with its ambition to reach net-zero by 2028. April Atos signed a long-term agreement to become the official digital partner of European Athletics, the governing body for athletics in Europe, in a deal which extends until 2024. Atos, Dassault Systèmes, Groupe Renault, STMicroelectronics and Thales joined forces to create the Software République, a new open ecosystem for intelligent and sustainable mobility. Atos announced a contract with Bureau Veritas, a global leader in testing, inspection and certification, to provide advanced cybersecurity services to protect its 75,000 employees, 1,600 offices and laboratories in 140 countries. Atos and the Paris 2024 Organizing Committee for the Olympic and Paralympic Games announced their partnership. Atos becomes the exclusive official cybersecurity services and operations supporter for the event. Atos announced the revenue of its first quarter of 2021. Q1 2021 revenue was € 2,692 million, down -1.9% at constant currency. Covid-19 was still impacting Atos business over the quarter despite good resilience in Financial Services & Insurance and in Healthcare & Life Sciences, as well as in Northern Europe, in Growing Markets and in Southern Europe which showed an encouraging recovery. Order entry reached € 2,596 million leading to a book to bill ratio of 96%. Atos announced it has reached an agreement to acquire Ipsotek, a leading AI-enhanced video analytics software provider. Atos reached an agreement to acquire Processia, a product lifecycle management (PLM) system integrator and Dassault Systèmes Global Service Partner, headquartered in Canada. The first EuroHPC supercomputer is now operational. Named “Vega,” the new supercomputer is based on Atos’ BullSequana XH2000 architecture. Atos inaugurated a new global research and development lab in Les Clayes-sous-Bois, in the greater Paris metropolitan area (Yvelines), France. The new 8,000 square meter lab hosts approximately 350 highly qualified Atos engineers and provides a modern space dedicated to research in quantum computing, high- performance computing, edge, artificial intelligence and cybersecurity. May Atos and SENAI CIMATEC, one of Brazil’s leading education, research and innovation institutes, announced Brazil’s first Center of Excellence in quantum computing dedicated to the business sector. Trusted Partner for your Digital Journey 4/69 Atos and the Port of Esbjerg, one of the largest harbors in Scandinavia, announced a joint co-innovation project to create a leading carbon-neutral harbor with a dedicated ambitious decarbonization solution for their customers. Atos announced that Bulgaria’s new EuroHPC supercomputer, based on Atos’s powerful BullSequana XH2000 architecture, has been fully delivered and assembled at Sofia Tech Park in Bulgaria. Atos signed a major contract with the Flemish government to become its main digital partner for the next seven years. Atos was ranked as the #2 global player and top European player in Managed Security Services (MSS) in terms of 2020 revenue, according to the latest Gartner report. Atos and Thales announced the creation of Athea, a joint venture that will develop a sovereign big data and artificial intelligence platform for public and private sector players in the defense, intelligence and internal state security communities. Athea will draw on the experience gained by both companies from the demonstration phase of the ARTEMIS program, the big data platform of the French Ministry of Armed Forces. June Atos delivered SICS, the command-and-control system for the SCORPION program, to the French Defense Procurement Agency (Direction Générale de l’Armement, DGA). Additionally, the DGA has also entrusted Atos to further develop the system and maintain it in working condition. Atos was awarded a contract by the University of Edinburgh to deliver the BullSequana XH2000, the most energy-efficient supercomputing system on the market. It becomes the largest system dedicated to GPU computing deployed at a customer site in the UK. Atos confirmed its position as the leader of secure and decarbonized digital, by providing customers with the most comprehensive, end-to-end decarbonization capabilities on the market to enable and accelerate their journeys to net-zero. This new offering will be driven through and supported by the global net-zero Transformation Center of Excellence, which will be distributed across nine hubs located in Europe, North America and Asia. Atos and Huma, the digital health innovator, announced a five-year strategic global partnership to shift healthcare and clinical trials from hospital to home. Atos joined AI4Cities, a three-year EU-funded project which aims to help six European cities and regions accelerate their transition toward carbon neutrality, including Helsinki (Finland), Amsterdam (Netherlands), Copenhagen (Denmark), Paris Region (France), Stavanger (Norway) and Tallin (Estonia). Atos launched ThinkAI, a secure, scalable, end-to-end offering which enables organizations to successfully design, develop and deliver high-performance AI applications. July Atos was selected by the European Olympic Committees (EOC) as its official digital technology partner for the 2023 and 2027 editions of the European Games. As part of this partnership, Atos, a long-standing supporter of the Olympic Movement, and EOC, the governing body for Europe’s 50 National Olympic Committees, will work together to improve fan engagement. At its annual Atos Technology Days event, Atos launched the Atos Computer Vision Platform — a new, highly-scalable end-to-end AI video and image analytics platform. It is the most comprehensive video and image analytics solution on the market today. Atos also launched a major initiative that positions the Group as a main actor in the growing data economy and outlines its strategic vision for the coming years. The Atos Digital Hub is a one-of-a-kind solution whose primary objective is to serve as an accelerator for the building of ecosystem platforms. Eight new start-ups joined Scaler, the Atos Accelerator program, which now includes 20 start-ups. Pierre Fabre, a pharmaceutical and dermocosmetics group, selected Atos to handle its secure, decarbonized digital transformation. As part of this joint project, Pierre Fabre will initiate a multi-cloud strategy based on the one-stop shop offered by Atos OneCloud. Trusted Partner for your Digital Journey 5/69 Atos and IBM announced their plans to collaborate to build a new, highly-advanced digital infrastructure for the Dutch Ministry of Defense. Atos announced on July 12, 2021 an adjustement of its Annual Objectives, due to an accelerated decline of legacy infrastructure business in a context of a much stronger demand for post-COVID cloud migration, and the anticipation that this business shift will persist during the second semester. In this context, the Group adjusted its objectives for 2021: Revenue growth at constant currency for the full year to stable (vs +3.5% to +4.0% initially); - Operating margin objective to c. 6.0% for the full year (vs 9.4% to 9.8% initially); - Positive Free Cash Flow (vs 550 to 600 million euros initially) The Group also announced the acceleration of its transformation agenda: The strategic portfolio review of non-core assets is being finalized; and - The negotiations with social partners regarding the necessary turnaround of the German infrastructure business have concluded to a restructuring plan of c. 1,300 people, providing an additional 1% operating margin at Group level mid-term and with a total cost of 180 million euros. On July 16, 2021, S&P Global Ratings announced having placed Atos “BBB+” rating on watch negative. Atos will provide a Next-Generation Global Employee Experience to EY. The contract will see Atos personalize and improve the IT experience for more than 300,000 EY people through its Proactive Experience Center. Atos announced that the Company, with the support of external advisors, has completed the full accounting review of the two U.S legal entities on which there was a qualified opinion in the report of the auditors for the 2020 consolidated financial statements. The work performed, which has been reviewed by the auditors as part of their half-year procedures, did not reveal any material misstatement for the Group consolidated financial statements. In addition, the Board of Directors, in its meeting held on July 27, 2021, has reviewed and approved the Group half-year consolidated financial statements closed at June 30, 2021. The Statutory Auditors have completed their usual limited review of the half-year condensed consolidated financial statements and an unqualified Auditors’ report is in process to be issued. The remediation and prevention plan was completed and is being rolled-out. The main actions set-up in the plan covered the following topics: preventive controls, guidelines and documentation, HR review, skilling and organization, and awareness and training. The aim of the plan is remediation in North America and prevention in all regions. Atos announced its financial results for the first half of the year. Revenue was € 5,424 million, down - 1.0% at constant currency. Revenue during the first half was impacted by Cloud acceleration on Legacy Infrastructure business as well as a stronger decrease in Unified Communications & Collaboration business. Operating margin reached 5.6% of revenue representing € 302 million, down -220 basis points compared to last year at constant currency, impacted by the revenue decline in activities with a low short-term flexibility. Order entry reached € 5,569 million, representing a book to bill ratio of 103%, with a second quarter at 109%. The full backlog at the end of June 2021 amounted to € 23.6 billion, stable compared to the end of December 2020, representing 2.1 years of revenue. The full qualified pipeline was € 7.4 billion, representing 7.9 months of revenue a decrease compared to the beginning of the year due to the evolution of the business. Group free cash flow during the first half of 2021 was €-369 million, compared to €-172 million in the first half of 2020. The variation results mainly from c. €-141 million less Operating Margin before Depreciation and Amortization (OMDA) and from working capital effects mainly € 200 million lower contribution from customers’ cash in advance. Atos announced the signature of 3 bolt-on acquisitions in Digital and Cloud: Nimbix: a US based leading High Performance Computing (HPC) Cloud platform provider. Nimbix offers HPC-as-a-service providing engineers and scientists access to infrastructure and software to build, compute, scale, and roll-out simulation and Artificial Intelligence applications; IDEAL GRP: a Product Lifecycle Management (PLM) integrator and partner of Siemens Digital Industry Software, based in Finland. IDEAL GRP offers consulting, integration, and maintenance services in Manufacturing and Energy sectors. It will add highly skilled team of approximately 100 experts to Atos. This transaction follows the PLM specialist Processia acquisition in June 2021; - Visual BI: a US based company specialist of Business Intelligence and Analytics in Cloud environment and an Elite Snowflake partner. With this acquisition, Atos will welcome 180 new highly skilled colleagues. Trusted Partner for your Digital Journey 6/69 1.2. Operational review 1.2.1. Statutory to constant scope and exchange rates reconciliation Revenue in H1 2021 reached € 5,424 million, -1.0% at constant currency and -2.7% organically. Operating margin reached € 302 million, representing 5.6% of revenue, a decrease by -220 basis points at constant currency. In € millionH1 2021H1 2020% changeStatutory revenue5,424 5,627 -3.6%Exchange rates effect-150 Revenue at constant exchange rates5,424 5,477 -1.0%Scope effect100 Exchange rates effect on acquired/disposed perimeters-4 Revenue at constant scope and exchange rates 5,424 5,574 -2.7%Statutory operating margin302 450 -32.9%Scope effect6 Exchange rates effect-23 Operating margin at constant scope and exchange rates302 433 -30.3%as % of revenue5.6%7.8% The tables below present the effects on H1 2020 revenue and operating margin of acquisitions and disposals, internal transfers, reflecting the Group’s new organization, and change in exchange rates. In € millionH1 2020 statutoryInternal transfersExchange rates effectsH1 2020 at constant exchange rates*Manufacturing 1,037 -11 -20 1,006 Financial Services & Insurance 1,077 2 -38 1,041 Public Sector & Defense 1,216 35 -18 1,233 Telecom, Media & Technology 836 -50 -25 761 Resources & Services 804 34 -24 814 Healthcare & Life Sciences 657 -9 -26 622 TOTAL GROUP5,627-1505,477North America 1,355 -115 1,240 Northern Europe 1,360 -1 1,359 Central Europe 1,370 -2 1,368 Southern Europe 1,143 4 -0 1,147 Growing Markets 399 -4 -32 363 TOTAL GROUP5,627-1505,477Scope effects97TOTAL GROUP at constant scope and FX5,574* At H1 2021 average exchange ratesH1 2020 revenue Trusted Partner for your Digital Journey 7/69 In € millionH1 2020 statutoryInternal transfersExchange rates effectsH1 2020 at constant exchange rates*Manufacturing 13 2 -1 13 Financial Services & Insurance 126 1 -6 121 Public Sector & Defense 116 2 -3 115 Telecom, Media & Technology 84 -9 -5 70 Resources & Services 43 1 -2 42 Healthcare & Life Sciences 68 2 -5 65 TOTAL GROUP450-22427North America 208 -19 188 Northern Europe 101 -0 100 Central Europe 42 -0 42 Southern Europe 86 8 -0 94 Growing Markets 54 -8 -2 43 Global Structures- 40 -1 - 41 TOTAL GROUP450-22427Scope effects6TOTAL GROUP at constant scope and FX433* At H1 2021 average exchange ratesH1 2020 Operating margin Scope effects amounted to € 97 million for revenue and € 6 million for operating margin. They are mainly related to: the acquisitions closed in 2020 and H1 2021 for €+118 million for the revenue and €+10 million for operating margin; and the disposal of some specific Unified Communications & Collaboration activities and Wivertis GmBH in 2020, amounting for a total of €-21 million for revenue and €-4 million for operating margin. Currency exchange rates effects negatively contributed to revenue for €-150 million and to Operating margin for €-22 million. They mostly came from the depreciation of the American dollar against the Euro and, to a lesser extent, the depreciation of both the Hong Kong dollar and the Brazilian real against the Euro over the period. Trusted Partner for your Digital Journey 8/69 1.2.2. Performance by Industry In € millionH1 2021H1 2020*Evolution at constant currencyH1 2021H1 2020*H1 2021H1 2020*Manufacturing 980 1,006 -2.6% 47 13 4.7%1.3%Financial Services & Insurance 1,095 1,041 +5.2% 94 121 8.6%11.7%Public Sector & Defense 1,190 1,233 -3.5% 30 115 2.5%9.4%Telecom, Media & Technology 748 761 -1.7% 34 70 4.6%9.3%Resources & Services 778 814 -4.5% 32 42 4.1%5.2%Healthcare & Life Sciences 633 622 +1.9% 65 65 10.3%10.4%Total5,4245,477-1.0%302427 5.6%7.8%* At constant currencyOperating marginOperating margin %Revenue 1.2.2.1. Manufacturing In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 980 1,006 -2.6%Operating margin 47 13 Operating margin rate4.7%1.3%* At constant currency With 18% of the Group revenue, Manufacturing reported a revenue of € 980 million, representing a decrease by -2.6% compared to H1 2020 at constant currency. The Industry was impacted by an accelerated move of Infrastructure to Public Cloud in all sub-industries. The Industry was also impacted by volume reduction with Siemens, mainly in Northern Europe, Central Europe and North America, while new projects were launched in Growing Markets. In Southern Europe, the decline with some clients in Aerospace and Process Industries started in 2020, was partially compensated by volume increase with Industrial services and Discrete Manufacturing sectors. Activity increased with Food and Beverage customers, in Central Europe with the ramp-up of new projects with a large beverage company and Philip Morris. In North America, revenue increased thanks to the ramp-up of a logo in Analytics, as well as the ramp-up of a new contract with a major elevator manufacturer. The share of business realized with the top 10 customers represented 50% of the Manufacturing Industry. Operating margin reached € 47 million, representing 4.7% of revenue, +340 basis points at constant currency. Despite a negative volume impact, the Industry managed to increase margin on projects, with strong cost control and program improvements plans executed on difficult accounts in Aerospace and Discrete Manufacturing sectors which were placed since last year under close scrutiny, and also thanks to the launch of new projects with better cost and delivery control. Reduction of structure costs also had a positive contribution. Trusted Partner for your Digital Journey 9/69 1.2.2.2. Financial Services & Insurance In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,095 1,041 +5.2%Operating margin 94 121 Operating margin rate8.6%11.7%* At constant currency Financial Services & Insurance revenue was € 1,095 million during the first semester of 2021, representing 20% of total revenue of the Group. The Industry grew by 5.2% at constant currency compared to 2020. This increase was mainly driven by Business Transformation Services with a strong increase, mainly in Northern Europe with a new Logo in the pensions area won in 2020, the ramp-up of a contract with Aegon in the United Kingdom, as well as additional volumes with a savings bank. The Insurance sector grew, mainly due to ramp-up of the contract with Willis Towers Watson compensating the ramp-down and price reduction with Continental Casualty Company in North America, and in Northern Europe and ramp-down with Aviva. The Banking sector decreased, due to DST Worldwide in Northern Europe, reduction of business with State Street linked to Covid-19 and volume reduction with American Express in North America and business reduction with Deutsche Bank in Central Europe, and the end of a contract with a major bank in Spain. Growing Markets achieved growth led by a new HPC delivery for a major bank in Brazil in the first quarter, and a new logo with a Digital Bank in Egypt, notwithstanding the decrease with one large bank in Asia. The top 10 customers of the Industry segment Financial Services & Insurance represented 50% of the H1 2021 total revenue of the Industry. Operating margin reached € 94 million, representing 8.6% of revenue and a reduction of -310 basis points compared to last year at constant currency. The Industry benefited from a positive volume effect related notably to new contracts in North America and Northern Europe. But this positive effect was compensated by margin reductions with large customers in Asia and Germany. Some new projects were also impacted by attrition rate in the Group Global Delivery Centers which required use of subcontractors to secure delivery. 1.2.2.3. Public Sector & Defense In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,190 1,233 -3.5%Operating margin 30 115 Operating margin rate2.5%9.4%* At constant currency Public Sector and Defense is the largest Industry of the Group with € 1,190 million representing 22% of the Group revenue. The Industry revenue decreased by -3.5% compared to H1 2020 at constant currency, mainly in North America, Northern Europe and Central Europe. The HPC deals slightly grew, led by a High-Performance Computing project with an Italian research consortium in the Euro HPC program. This compensated the decrease due to non-repeatable large HPC deliveries in H1 2020 to a research institution in Germany, and to Indian authorities. Trusted Partner for your Digital Journey 10/69 The Industry faced volume and price reductions with Texas DIR, as well as projects ramp-down with European Institutions, US Government, National Police in Switzerland and Belgium Authorities. It was also negatively impacted by non-repeatable product sales with the State of New Jersey in 2020, and to the deconsolidation of Wivertis. This could not be compensated by increased business with government institutions in the United Kingdom, the new logo State of Oklahoma and the development of NG911 project with the State of California, and the ramp-up of a project with Autobahn in Germany. 37% of the revenue in this Industry was realized with 10 main clients. Operating margin reached € 30 million, representing 2.5% of revenue. The Industry was first impacted by the significant decrease in volume which generated less margin on projects and important under- absorption of structure costs. This volume effect was also augmented by price reduction especially in North America with Texas DIR and by lower margin on new projects in Southern and Central Europe. 1.2.2.4. Telecom, Media & Technology In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 748 761 -1.7%Operating margin 34 70 Operating margin rate4.6%9.3%* At constant currency Telecom, Media & Technology represented 14% of the Group revenue and reached € 748 million, decreasing by –1.7% compared to H1 2020 at constant currency. Impacted overall by the accelerated move of Infrastructure to the Cloud. High Tech & Technology grew in the semester compared with last year mostly due to major Product sales deal with a large Technology partner in Northern Europe which overcompensated the drop in Central Europe and North America linked with project ramp-downs that were recorded respectively with Nokia, Xerox, and Conduent. In North America, projects with Google and Northrop Grumman continued to contribute positively. Media decreased led by business slow down with BBC in Northern Europe and by ramp down with McGraw-Hill in North America. Business recovered with a large entertainment company in North America. Telecom activity registered decline mostly due to unsufficient new business to compensate one-offs transactions from 2020 and a contract termination in Germany. Southern Europe recorded an improvement due to new business and Growing markets also had a positive impact due to higher volumes delivered in Africa. 45% of the revenue was generated by the top 10 clients of the Industry. Operating margin was € 34 million or 4.6% of revenue. The Industry was impacted mainly by volume reduction due to the shift to Cloud which could not be compensated due to the fix cost nature of the Infrastructure and 2020 one-off deals in North America and Central Europe which could not be repeated in 2021. Project margin improvements in former difficult accounts as well as volume increase in Northern Europe could not compensate for this decrease due to low margin made on product sales. Trusted Partner for your Digital Journey 11/69 1.2.2.5. Resources & Services In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 778 814 -4.5%Operating margin 32 42 Operating margin rate4.1%5.2%* At constant currency Revenue generated by Resources & Services in the first half 2021 reached € 778 million representing 14% of the total revenue of the Group. The Industry decreased by -4.5% at constant currency compared to H1 2020, improving in Q2 with a decrease limited at -2.5%. The main RBUs impacted were North America, Northern Europe and Growing Markets, whereas Central Europe and Southern Europe were growing in H1 2021. Projects with clients in the Energy and Utilities sectors decreased, mainly due to non-repeatable HPC Product Sales in H1 2020 with Petrobras in Brazil and a major Utility in France, as well as lower volume with other customers in Northern Europe. The situation with customers operating in Retail, Transportation and Hospitality sectors was also challenging with the end of the contract with Triple Five, volume reduction with a mail company in the United Kingdom and with volume reductions with Fedex in the first quarter. This was mitigated by additional product sales with Goli Nutrition and the ramp-up of new Logos such as a French transportation company. Group new offerings related to Decarbonization also positively impacted the revenue in the Industry, especially with an airlines company. The top 10 main clients represented 40% of the total Resources & Services revenue. Operating margin reached € 32 million, representing 4.1% of revenue. The main impacts were in Northern Europe with revenue decrease with a large UK Utility company, and also in Southern Europe with volume reductions impacting the profitability. Volume reductions were partially compensated with efficiency control on projects, for instance in Southern Europe and India. The Industry engaged sales costs to support commercial development especially towards large transportation companies in the aftermath of Covid-19 pandemic. 1.2.2.6. Healthcare & Life Sciences In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 633 622 +1.9%Operating margin 65 65 Operating margin rate10.3%10.4%* At constant currency Representing 12% of total revenue of the Group, Healthcare & Life Sciences revenue was € 633 million, increasing by +1.9% compared to H1 2020 at constant currency. North America performance was impacted by volume reduction of sales performed with Allscripts and a ramp down of IOT services in Healthcare. This reduction was compensated by the positive contribution from the Cloud services acquisition Maven Wave and the ramp-up on new logos in North America. Northern Europe increased due to projects ramp-ups in United Kingdom with a social security institution as well as with a major hospital. This more than compensated the ramp-down of the Philips contract in the Netherlands. Trusted Partner for your Digital Journey 12/69 The Industry was also fueled by the ramp-up of a global contract with Bayer across the geographies, and by the performance of Growing Markets thanks to a contract with Western Australian Department of Health. The top 10 clients represented 57% of the revenue of the Industry. Operating margin was € 65 million, representing 10.3% of revenue and stable compared to last year. The Industry benefitted from a positive volume impact which was even augmented by strong profitability on new projects. This improvement in the project margin allowed the Industry to invest in its commercial structures. 1.2.3. Performance by Regional Business Units In € millionH1 2021H1 2020*Evolution at constant currencyH1 2021H1 2020*H1 2021H1 2020*North America 1,170 1,240 -5.6% 138 188 11.8%15.2%Northern Europe 1,402 1,359 +3.1% 91 100 6.5%7.4%Central Europe 1,240 1,368 -9.4% 21 42 1.7%3.1%Southern Europe 1,231 1,147 +7.3% 46 94 3.7%8.2%Growing Markets 382 363 +5.3% 45 43 11.8%11.9%Global structures - -+0.0%- 39 -41 -0.7%-0.7%Total5,4245,477-1.0%302427 5.6%7.8%* At constant currencyOperating marginRevenueOperating margin % 1.2.3.1. North America In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,170 1,240 -5.6%Operating margin 138 188 Operating margin rate11.8%15.2%* At constant currency Revenue reached € 1,170 million, decreasing by -5,6% % at constant currency. North America Region faced a volume reduction in classical data centers activities and Time and Material activities compensated by a good performance of Maven Wave Cloud solutioning and Big Data & Cybersecurity. The new acquisitions in cybersecurity services expertise with In Fidem and Paladion, Eagle Creek specialized in Salesforce Integration and Processia in Product Life Cycle Management had a positive contribution to revenue growth. Telecom, Media & Technology declined by -3,8% impacted by lower volumes in digital workplace due to the expiration of some contracts. This hit was compensated by the positive impact of Big Data and Cybersecurity due to a volume increase with Google and the positive contribution of the Eagle Creek acquisition and of the new logo Northrop Grumman, Infrastructure management and AI services. The Media market remained stable. Public Sector & Defense revenue reduced significantly, impacted by the volume reduction in mainframe and projects activities with Texas DIR and the base effect from one-time product sales with State of New Jersey in 2020. This negative trend was partially compensated by the ramp up of digital workplace projects launched with the new logo State of Oklahoma and the new NG911 project with State of California. Manufacturing Industry remained stable, a slight decrease in Siemens and Daimler Time and Material activities due to Covid crisis was compensated by digital workplace and services projects with new logos such as Carrier and Otis. Resources & Services declined due to volume reduction in the Transportation and Hospitality market with Fedex and SIAM. This trend has been partly compensated by a slight ramp-up on Edge and Internet of Things services and the sign off a new logo Kroger. Trusted Partner for your Digital Journey 13/69 Healthcare & Life Sciences decreased at constant currency. It was mainly attributable to the termination of a contract with McLaren and to volume reduction with Allscripts, as well as to ramp down of Cloud solutions in Healthcare. This reduction was compensated by the positive contribution from the Cloud services rendered by Maven Wave and the ramp-up on new logos such as Baylor Scott White Health and Humana. Financial Services & Insurance achieved a growth benefitting from the ramp up in volumes of sales with customers such as Willis Towers Watson and the positive contribution of Eagle Creek acquisition. The Industry faced also the Covid crisis impact, customers from banking sector decreasing their expenses to external IT partners such as State Street and American Express. Operating margin reached € 138 million, representing 11.8% of revenue. The profitability decreased compared to 2020 mainly due the revenue erosion especially in the Public Sector & Defense sector and in Telecom, Media & Technology, which generated less margin on projects but also less absorption of structure costs. The margin reduction mainly related to less non-repeated product sales and advanced computing in 2021 compared with last year and a volume reduction in mainframe and other Infrastructure services. New projects launched in 2021 contributed positively but required in some cases higher level of subcontractors to compensate the attrition rate in the United States and in the Global Delivery Centers supporting US contracts. 1.2.3.2. Northern Europe In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,402 1,359 +3.1%Operating margin 91 100 Operating margin rate6.5%7.4%* At constant currency Revenue was € 1,402 million, increasing by +3.1% at constant currency. Strong business growth in Telecom, Media & Technology and Financial Services & Insurance, and growth in Manufacturing and Healthcare & Life Sciences compensated for the challenges faced by Public Sector & Defense and Resources & Services. Manufacturing grew compared to last year thanks to ramp-ups with Philip Morris and Nouryon as well as a contract with the new Logo Nornickel which more than compensated the decline with Siemens. Financial Services & Insurance closed the half with growth, largely driven by a big new project won in 2020 with an pensions company in the United Kingdom, as well as a ramp-up of a contract with a new logo in the insurance sector. This was more than enough to compensate for some contract terminations and ramp-downs like Aviva and a worldwide service provider. Public Sector & Defense decreased compared to last year, mainly due to the closing off of the High- Performance Computing contract with the European Centre for Medium Range Weather Forecast, as well as HPC deliveries with the European Union Institutions in 2020 that did not repeat in 2021. This was partially mitigated by the strong performance with a few government institutions in the United Kingdom. Telecom, Media & Technology increased significantly compared to last year, mainly due to a Big Data deal with a Technology customer. Positive development was recorded with a multinational technology company. These projects more than compensated some volume reductions in Media sector, and ramp- down of a project with a large telecom operator. Resources & Services decreased compared to last year primarily due to the ramp-down of contracts with a UK postal company, an integrated energy company in the United Kingdom, and an airlines group, which could not be fully offset by positive developments with a new logo in transportation. Healthcare & Life Sciences increased organically due to projects ramp-ups mainly in United Kingdom with a social security institution as well as with a major hospital. This more than compensated the ramp-down of the Philips contract in Benelux. Trusted Partner for your Digital Journey 14/69 Operating margin reached € 91 million or 6.5% of revenue, decreasing by -90 basis points compared to last year at constant currency. Positive volume impact did not compensate for project cost overruns. 1.2.3.3. Central Europe In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,240 1,368 -9.4%Operating margin 21 42 Operating margin rate1.7%3.1%* At constant currency Revenue was € 1,240 million, with -9.4% decline compared to last year at constant currency. The region missed in 2021 the non-repeatable large High-Performance Computing deliveries of last year, which led to a decrease in Telecom, Media & Technology, Manufacturing and Public Sector & Defense industries. Healthcare & Life Sciences closed the semester with a slight growth at constant currency, mainly fueled by the Digital Workplace contracts ramp-up with Bayer, a German healthcare provider, and with a biopharmaceutical company based in Switzerland. Those positive impact overcome slight decline in Unified Communications and Collaboration portfolio. Public Sector & Defense decreased compared to last year. It was mainly attributable to the non-repeated High-Performance Computing sale with Research & Science Germany in Big Data & Cybersecurity and the volume decrease in WEP 2030 with National Police in Switzerland. This was partially offset by the ramp- up of volumes in digital workplace services with Autobahn and City of Vienna as well as with German Federal Employment Agency and Ministry of Defense. Revenue in Telecom, Media & Technology declined. This was mainly due to one-off deals in 2020 which were not repeated in 2021 and to the decline in Unified Communications & Collaboration channel business. Despite this negative result, upsides were recorded in the Big data and Cybersecurity sales in this sector, increase of volumes with a large telecom operator and a media company. Financial Services & Insurance reported a slight decline. Upsides were mainly foreseen with a new project and additional UCC services with large German banks. These positive impacts were in part offset by the ramp down of the volume delivered to several insurance companies. Manufacturing revenue decreased compared to last year. The largest Industry in the region was mainly impacted by a volume reduction with Siemens and with automotive players such as Volkswagen and BMW which could not be compensated by the new sales with Daimler. The SAP Hana implementations remained on a positive trend as well as the Time and Material activities with new projects on smaller accounts. This situation was partially mitigated by Food & Beverage sector, which had a positive contribution where new projects ramped up with Philip Morris and the new logo Japan Tobacco. The Sec Consult acquisition reinforced the revenue growth in Big Data and Cybersecurity services in the region, which was already on a positive trend. Resources & Services recorded a strong growth compared to last year, mainly driven by new contracts signed with electricity providers in Germany, and additional revenue in Unified Communications & Collaboration sales in Germany. The positive developments were partially offset by a one-off deal in 2020 which did not repeat in 2021 with a Toll Collection company. Operating margin amounts to € 21 million or 1.7% of revenue, -130 basis points compared to last year. The decline came first from the lower revenue in Public Sector and Defense. The Telecom, Media, and Technology Industry also faced a strong impact from high margin one-off deals concluded in 2020 which did not repeat in 2021, while Finance Services & Insurance was hit by costs challenges in first phases of new projects with banking clients. Workforce management measures or costs take outs both in Operations and Support functions brought some savings but could not compensate for the decrease in project margin. Trusted Partner for your Digital Journey 15/69 1.2.3.4. Southern Europe In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 1,231 1,147 +7.3%Operating margin 46 94 Operating margin rate3.7%8.2%* At constant currency Revenue reached € 1,231 million, increasing by 7.3% compared to H1 2020 at constant currency. The growth of the business was driven by the good performance of in most of the Industries. In Telecom, Media & Technology, the situation remained challenging. Manufacturing increased, mainly in Discrete Manufacturing with a new logo in France, with Industrial Services, and also in Automotive with the ramp-up of a contract with a large French automotive manufacturer. This compensated the slow post Covid-19 restart in Aerospace with two leaders in the sector in Europe. Financial Services & Insurance increased, linked to the growth of the activity with Worldline and additional volume with Caisse des Dépôts in France, while Spain was impacted by the termination of a contract with a major Bank, as well as lower volumes with other banks. Public Sector & Defense posted a strong growth, with some major impacts linked to a new High- Performance Computing project with an Euro HPC project in Italy, and also a new HPC contract in Portugal. The business was also fueled by the launch of new projects with two French ministries and with a Social Security agency in France. These new projects compensated for the decreasing volumes with a research center in France and with European Institutions and the ramp down of HPC projects with Meteo France. Telecom, Media & Technology decreased, mainly in High Tech & Engineering impacted by the reduction of Product sales done with channel partners. A new logo in the Digital Workplace in Italy in the Telecom sector allowed the Industry to limit the impact of this decrease. Resources & Services slightly increased, mainly driven by Transportation and Hospitality with a new logo with a French transportation company, and dynamism with SNCF through additional volume. This compensated the reduction in Energy and Utilities due to one-off HPC Sales in 2020 with a major French Utility company. Healthcare & Life Sciences increased significantly, largely coming from dynamism in Healthcare in France with new Digital projects. Operating margin reached € 46 million, representing 3.7% of revenue. The RBU was first impacted by pricing from suppliers in very specific areas. The region also supported additional commercial investment to support its growth as well as new research and development projects related to local and group programs. In addition, project cost overruns were impacting margin. Trusted Partner for your Digital Journey 16/69 1.2.3.5. Growing Markets In € millionH1 2021H1 2020*Evolution at constant currencyRevenue 382 363 +5.3%Operating margin 45 43 Operating margin rate11.8%11.9%* At constant currency Revenue reached € 382 million in this Regional Business Unit, +5.3% compared to the first semester of 2020 at constant currency, with a strong activity in Manufacturing, Financial Services & Insurance, Telecom, Media & Technology and Healthcare & Life Sciences. Manufacturing grew with new projects and volume increased in most sectors such as Food and Beverage, Discrete Manufacturing, Automotive, Aerospace and also with Siemens. Financial Services & Insurance increased, led by the Insurance sector with new deals in India. Banking and financial services sector also grew with volume increase in a major bank in Brazil, a new logo with a Digital Bank project in Egypt. These positive trends compensated volume reduction with a major bank in Asia. Public Sector & Defense recorded growth compared with last year, with a substantial ramp up in APAC as a result of volume increase and sales of Bullion along with growth in Major events due to Olympics activities coming back to growth in the first semester. This overcompensated the decline in Africa impelled by local government sector, as well as the delay of High-Performance Computing activities in India. Telecom, Media & Technology grew, essentially coming from Telecom sector and also additional business with Google in Asia and in South America, despite the reduction of Business in Unified Communications & Collaboration in High Tech & Engineering. Revenue in Resources & Services declined compared with previous year, due to the reduction of High- Performance Computing projects in Brazil with Petrobras, as well as volume reduction with IOCL in India. Healthcare & Life Sciences achieved a double-digit growth supported by ramp up in APAC for Western Australia Health and new projects with Bayer as well as tariff increase for some pharmaceutical customers which counterbalance some ramp downs in the same sector. Operating margin was € 45 million, representing 11.8% of revenue, stable compared to 2020 at constant rate. This improvement was due to volume increase, positive turnaround of activities related to the Olympics projects after the postponement of Tokyo games in 2020, and better control over low margin projects especially in India, in Africa and Middle-East. These positive evolutions compensated for additional structure costs related to the implementation of the new management structure in the RBU, aligned with Spring organization, as well the as use of subcontractors required to deliver clients requests in some geographies. 1.2.3.6. Global structures Global structures costs slightly reduced, due to continued costs optimization in most support functions. Trusted Partner for your Digital Journey 17/69 1.2.4. Portfolio 1.2.4.1. Order entry and book to bill During the first semester of 2021, the Group order entry reached € 5,569 million, representing a book to bill ratio of 103%, with the second quarter at 109%. Order entry and book to bill by Industry was as follows: In € millionQ1 2021Q2 2021H1 2021Q1 2021Q2 2021H1 2021Manufacturing 481 503 983 99%102%100%Financial Services & Insurance 413 360 773 76%65%71%Public Sector & Defense 533 1,123 1,656 92%184%139%Telecom, Media & Technology 519 270 789 139%72%105%Resources & Services 356 491 847 90%128%109%Healthcare & Life Sciences 294 226 521 94%71%82%Total2,5962,9735,56996%109%103%Order entryBook to bill Order entry and book to bill by Regional Business Units were as follows: In € millionQ1 2021Q2 2021H1 2021Q1 2021Q2 2021H1 2021North America 339 355 694 60%59%59%Northern Europe 581 1,083 1,664 80%161%119%Central Europe 687 709 1,397 113%113%113%Southern Europe 702 616 1,318 116%99%107%Growing Markets 288 210 498 159%104%130%Total2,5962,9735,56996%109%103%Order entryBook to bill Book to Bill ratio was particularly high in Public Sector & Defense at 139% and as Geographies are concerned in Northern Europe at 119% and Growing Markets at 130%. The main new contracts signed over Q2 included notably a large outsourcing contract in Benelux covering service integration, security, and Cloud services with the Flemish Government (Public Sector & Defense), a large contract in Telecom, Media & technology with EY to provide Next Generation Employee Experience Solution for 300,000+ employees, a large contract in Manufacturing in Central Europe with a large European manufacturer to modernize the supply chain management, an important Cloud and Edge contract in Resources & Services with a major international logistics company, and a digital transformation contract with a major hospital chain in the US to enhance the end-user experience in Healthcare & Life Sciences. Contract renewals that took place in Q2 included large signatures with notably the Department for Work and Pensions (Health & Life Sciences) in Northern Europe, with a large European manufacturer (Manufacturing) in Central Europe, and with a leading financial services company in Central Europe (Financial Services & Insurance). 1.2.4.2. Full backlog In line with the commercial activity, the full backlog at the end of June 2021 amounted to € 23.6 billion, stable compared to the end of December 2020, representing 2.1 years of revenue. 1.2.4.3. Full qualified pipeline The full qualified pipeline was € 7.4 billion, compared to € 8.8 billion at the end of December 2020 and representing 7.9 months of revenue. The qualified pipeline decreased during the first semester in line with the evolution of the business. Indeed, there are less large, long cycle outsourcing Infrastructure deals and more short cycle Cloud and Cloud applications deals on which Atos won many important ones. Trusted Partner for your Digital Journey 18/69 1.2.5. Human Resources The total headcount was 104,808 at the end of June 2021, compared to 104,430 at the end of December 2020, increasing by +0.4%. The scope impacts are related to the acquisitions of Eagle Creek, SEC Consult, Motiv, Infidem Profit4SF, Processia and Ipsotek. Excluding these acquisitions, total headcount decreased by -0.7% over the period. In the first half of 2021, the Group hired 9,391 staff (92,0% were Direct employees). The hiring mainly occurred in offshore countries such as India, Poland, Romania, as well as in Growing Markets, North America, Northern Europe and Southern Europe to a lower extent. The number of direct employees at the end of June 2021 was 96,161, representing 91.7% of the total Group headcount. Indirect staff was 8,647. Attrition rate in the first half of 2021 was 16.6% (vs 11.8% in H1 2020), of which 22.8% in offshore. Detailed headcount movements during the first six months were the following: End ofDecember 2020ScopeHiringLeavers, dismissals, restructuring & transfersEnd ofJune 2021North America9,203 513 935 -1,364 9,287 Northern Europe12,930 268 743 -1,033 12,908 Central Europe11,323 104 235 -366 11,296 Southern Europe16,222 0 583 -877 15,928 Growing Markets45,904 39 6,106 -5,968 46,081 Global structures634 0 41 -14 661 Total Direct 96,216 924 8,643 -9,622 96,161 Total Indirect 8,214 113 748 -427 8,647 TOTAL GROUP104,4301,0379,391-10,050104,808 Trusted Partner for your Digital Journey 19/69 1.3. 2021 objectives and mid-term targets The Covid-19 pandemic continued to impact negatively the Group activity, with still a lower demand from customers in several sectors and more particularly in Aerospace, Car manufacturing, Transportation, Hospitality and non-food Retail. This trend is more pronounced for the classic infrastructure activities that showed in the first semester of this year a larger decline than in the past few years in favor of other activities that benefited from the increasing demand from customers, more specifically the migration to Cloud and Cloud Applications, as well as digital transformation, Cybersecurity, and Big Data. This drop in the classic infrastructure business resulted in the first half of this year in an unexpected performance of the Group for its three main financial KPIs: revenue growth, operating margin rate, and free cash flow. In this context and considering that the trend observed during the first semester of this year should continue during the second semester also, the Group revised the 2021 objectives and issued press release on July 12, 2021. Adjusted Objectives Initial Objectives (July 12, 2021) (February 18, 2021) Revenue growth at constant currency Stable +3.5% to +4.0% % Operating Margin to revenue c. 6.0% 9.4% to 9.8% Free Cash Flow Positive €550 to €600 million The acceleration of the digital transformation of the customers benefited to the segments that the Group considers as strategic and will support its growth and profitability agenda. These segments are: Digital, Cloud, Security, and Decarbonization. After 2021, which is a transition year for Atos, the Group expects to improve on all its KPIs in 2022 and maintains its mid-term targets of revenue growth at constant currency from +5% to +7%, operating margin rate from 11% to 12% and free cash flow conversion above 60%. This expectation assumes a continued decline of legacy infrastructure business and an increased appetite from customers for digital transformation with trusted partners and is based on the current economic and pandemic environment. The Group also accelerated its transformation agenda that will support pivoting the business mix towards the four key segments mentioned above and increase its profitability. This transformation is supported by: The conclusion of an agreement with social partners in Germany with the objective to turnaround loss making and cash negative areas in Germany on Classic Infrastructure business. The agreement relates to the restructuring of c. 1,300 staff starting this year until the end of 2023. The cost required is c. € 180 million. As part of the agreement signed is the freeze of collective salary increases until the end of 2023 for employees in the scope. As a result, the objective of the plan is a significant improvement of the operating margin in Germany representing at Group level +100bps operating margin impact mid-term; Bolt-on acquisitions in Digital, Cloud, Security, and Decarbonization of which three announced on July 28th (see §1.1); A strategic portfolio review of non-core assets that will help the Group to focus on growing areas (Digital, Cloud, Security, and Decarbonization) and find partners for other areas and assets to optimize their potential. The Board of Directors in its meeting on July 27, 2021 decided the following strategic moves: o first, partnering on Datacenter hosting and associated activities to enhance customer service while improving the utilization of assets; joining forces in a consolidating market will allow these activities to develop further technical expertise and adjacent offerings while conducting required investments in classic infrastructure assets; second, the transformation of Atos Unified Communications & Collaboration puts us in the position to find the right partner with strong software and / or telecommunications expertise; combining technical and go to market capabilities will bring scale and investment that will allow our clients to accelerate their move to Unified Communications-as-a-Service (UCaaS) o Trusted Partner for your Digital Journey 20/69 o and Contact Center-as-a-Service (CCaaS), while benefiting from new differentiated services alongside robust private cloud solutions; third, partnering with best-in-class digital and specialized players on sub-critical activities to allow Atos to focus its efforts on its core markets while enhancing the quality of service to customers of those activities. In total, the Group decided to move forward fast on those tracks, representing a total scope of c. 20% of Group revenue. 1.4. Risk Factors The main risk factors with which the Group could be confronted are detailed in chapter 7.2 of the 2020 registration document. No significant changes can be mentioned since the filing date of the 2020 registration document except for the risk factor regarding the audit of the two U.S legal entities on which there was a qualified opinion in the report of the auditors for the 2020 consolidated financial statements. Indeed, the Company, with the support of external advisors, has completed the full accounting review of these entities. The work performed, which has been reviewed by the auditors as part of their half-year procedures, did not reveal any material misstatement for the Group consolidated financial statements. Moreover, the Atos Board of Directors in its meeting held on July 27, 2021, has reviewed the Group half- year consolidated financial statements closed at June 30, 2021. The Statutory Auditors have completed their usual limited review of the half-year condensed consolidated financial statements and an unqualified Auditors’ report was issued. The remediation and prevention plan was completed and is being rolled-out. The main actions set-up in the plan covered the following topics: preventive controls, guidelines and documentation, HR review, skilling and organization, and awareness and training. The aim of the plan is remediation in North America and prevention in all regions. 1.5. Claims and litigations The Atos Group is a global business operating in 71 countries. In many of the countries where the Group operates there are no claims, and in others there are only a very small number of claims or actions involving the Group. Having regards to the Group’ size and revenue, the level of claims and litigation remains low. The low level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group as well as to the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2021 the Group has successfully put an end to several significant litigations through settlements agreements and favorable court decisions. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2021 to cover the identified claims and litigations, added up to € 34 million (including tax and commercial claims but excluding labor claims). Trusted Partner for your Digital Journey 21/69 1.5.1. Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Some of the tax claims are in India and Brazil, where Atos is a defendant in some cases and a plaintiff in others. Such claims are typical for companies operating in these regions. Proceedings in these countries usually take a long time to be processed. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a stamp duty re-imbursement. Following a judgment regarding HSBC reached by the European Justice Court, Atos UK commenced proceedings in 2009 to recover a stamp duty paid in 2000 of an amount over € 10 million. The stamp duty aspect of the claim was won in 2012. Regarding the statute of limitation, a favorable judgment was obtained in April 2017. Atos UK is now waiting for the outcome of the HMRC’s request for appeal in similar cases. The total provision for tax claims, as inscribed in the consolidated accounts closed as at June 30, 2021, was € 24 million. 1.5.2. Commercial claims There are a small number of commercial claims across the Group. Some important contracts that have been monitored by the Risk Management Department have evolved into litigation. These disputes are managed by the Group's Legal Department. Significant commercial cases have been closed this semester. There is a number of significant ongoing commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, notably a litigation inherited from Syntel. On April 20, 2021, the United States District Court for the Southern District of New York granted in part the post-trial motion filed by Syntel, now part of Atos, in connection with Syntel’s ongoing litigation with Cognizant and its subsidiary TriZetto. The Court reduced the jury’s $855 million damages award to $570 million and denied Cognizant and TriZetto’s request for an additional $75 million in pre-judgment interest. In October 2020, a jury found Syntel liable for trade secret misappropriation and copyright infringement and awarded Cognizant and TriZetto approximately $855 million in damages. Throughout the trial and in its post-trial motion, Syntel maintained that Cognizant and TriZetto had failed to meet their burden to show trade secret misappropriation and that their damages theories were improper as a matter of law. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $570 million punitive damages award was excessive and should be reduced to $285 million. TriZetto agreed to this reduction. The Court issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. While Atos supports the Court’s decision to significantly reduce the punitive damages at issue and prevent a further windfall to Cognizant and TriZetto in the form of pre-judgment interest, Atos appealed the portion of the jury’s verdict affirmed by the Court. Among other concerns, Atos continues to consider the amount of damages grossly out of proportion to the acts complained of, and that the maximum amount of damages legally available to TriZetto in this case is approximately $8.5 million. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021. The total provision for commercial claim risks, as recorded in the consolidated accounts closed as at June 30, 2021, amounts to € 10,1 million. Trusted Partner for your Digital Journey 22/69 1.5.3. Labor claims There are close to 105.000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of € 6,2 million as recorded in the consolidated financial statements as at June 30, 2021. 1.5.4. Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. 1.5.5. Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, judicial, or arbitral proceedings, pending or potential, likely to have or having had significant consequences over the past semester on the Company’s and the Group’s financial situation or profitability. 1.6. Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). The related-party transactions are described in the Note 17 – Related party transactions on pages 325 and 326 of the 2020 Universal Registration Document. Trusted Partner for your Digital Journey 23/69 2. Financial statements 2.1. Financial review 2.1.1. Income statement The Group reported a net loss (attributable to owners of the parent) of € 129 million for the half year ended June 30, 2021. The normalized net income before unusual, abnormal and infrequent items (net of tax) for the period was € 162 million, representing 3.0% of Group revenue of the period. (in € million)6 months ended June 30, 2021% of revenue6 months ended June 30, 2020% of revenueOperating margin 3025.6%4508.0%Other operating income (expenses)-419-87Operating income (loss)-118-2.2%3626.4%Net financial income (expense)-3-1Tax charge -6-34Non-controlling interests -2-1Share of net profit (loss) of associates-03Net income (loss) – Attributable to owners of the parent-129-2.4%3295.8%Normalized net income* – Attributable to owners of the parent1623.0%3195.7%* The normalized net income is defined hereafter 2.1.1.1. Operating margin Operating margin represents the underlying operational performance of the on-going business and is analyzed in detail in the operational review. In accordance with recommendations from European and French regulators, the Group has elected to maintain effects of Covid-19 as part of the operating margin and not to present those as part of the Other operating income and expenses. 2.1.1.2. Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 419 million in the first half of 2021. Trusted Partner for your Digital Journey 24/69 The following table presents this amount by nature: (in € million)6 months ended June 30, 20216 months ended June 30, 2020Staff reorganization-79-80Rationalization and associated costs-42-22Integration and acquisition costs-22-20Amortization of intangible assets (PPA from acquisitions) -79-78Equity based compensation-33-35Other items-164147TOTAL-419-87 Staff reorganization were stable at € 79 million. Staff reorganization expense mainly included the temporary slow-down of the German workforce adaptation before the launch of the restructuring plan announced on July 12, 2021 and involving c. 1,300 people but also included the adaptation of the workforce in other European countries and the cost of the final phase of the transformation program of the Group. The € 42 million rationalization and associated costs primarily resulted from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs at € 22 million mainly related to the integration costs of 2020 and 2021 acquisitions as well as the cost of the retention schemes. In the first half of 2021, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 79 million was mainly composed of: € 30 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 12 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 8 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 6 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016. The equity-based compensation expense amounted to € 33 million in the first half of 2021 compared to € 35 million in the first half of 2020. In the first half of 2021, other items amounted to a net expense of € 164 million compared to a net gain of € 147 million in the first half of 2020 (a net expense of € 27 million excluding the effects of the Worldline transaction of February 2020), and included the impact from the unprecedented acceleration of the decline of legacy infrastructure business in a context of a much stronger post-Covid demand for Cloud migration. Those exceptional items mainly included write-off of assets of circa. € 60 million in North America and Northern Europe, loss provisions for circa. € 40 million mainly in North America, unusual impacts of settlements of circa. € 30 million, mainly in Central Europe and Growing Markets, as well as other long-term employee benefits. 2.1.1.3. Net financial expense Net financial expense amounted to € 3 million for the period (compared to a € 1 million net expense for the first half of 2020) and was composed of a net cost of financial debt of € 13 million and net gain of other financial items of € 10 million. Net cost of financial debt decreased from € 21 million in the first half of 2020 to € 13 million in the first half of 2021 due to the reimbursement in April 2020 of the € 600 million bond issued in July 2015. Trusted Partner for your Digital Journey 25/69 The average expense rate of the Group was 0.89% on the average gross borrowings compared to 1.40% in the first half of 2020. The average income rate on the average gross cash was 0.63% compared to 0.69% in the first half of 2020. Other financial items were a net gain of € 10 million compared to € 20 million in the first half of 2020 and were mainly composed of: a net gain of € 32 million related to the OEB derivative and underlying Worldline shares, both at fair value through profit and loss under IFRS 9; pension related financial expenses of € 8 million compared to € 6 million in the first half of 2020; lease liability interest of € 8 million compared to € 14 million in the first half of 2020. This variation mainly results from the modification of certain major contrats associated with lower discount rates; net foreign exchange loss (including hedges) of € 6 million compared to a gain of €4 million in the first half of 2020. 2.1.1.4. Corporate tax The tax charge for the first half of 2021 was € 6 million with a loss before tax of € 121 million. The annualized projected Effective Tax Rate (ETR) was 18.6% compared to 18.5% for the first half of 2020 (excluding the tax effects of the Worldline transaction that occurred in 2020). The Group estimated the main impacts of its revised guidance announced on July 12, 2021 on the recoverability of its deferred tax assets; it mainly resulted in the derecognition of deferred tax assets for an amount of € 32 million, which was considered in the determination of the tax charge for the half year of 2021. 2.1.1.5. Share of net profit (loss) of associates On February 4, 2020, Atos lost its significant influence over Worldline which was no more considered as an associate according to IAS 28. From this date, the retained interest in Worldline is presented as Non- current financial assets measured at fair value through the income statement under IFRS 9. Share of net profit of associates accounted for under the equity method amounted to € 0 million compared to € 3 million in the first half of 2020, including the Worldline contribution for € 2 million from January 1st, 2020 to January 31, 2020 (instead of February 4, 2020 for practical reasons). 2.1.1.6. Normalized net income The normalized net income excluding unusual, abnormal and infrequent items (net of tax) was € 162 million, representing 3.0% of Group revenue for the period. (in € million)6 months ended June 30, 20216 months ended June 30, 2020Net income (loss) - Attributable to owners of the parent-129329Other operating income and expenses, net of tax-314-18Netgain(loss)atfairvaluemeasurementonderivativeliabilityandunderlyingWorldline shares, net of tax2328Normalized net income (loss) - Attributable to owners of the parent 162319 Trusted Partner for your Digital Journey 26/69 2.1.1.7. Half year Earning Per Share (in € million and shares)6 months ended June 30, 2021% of revenue6 months ended June 30, 2020% of revenueNet income (loss) – Attributable to owners of the parent [a]-129-2.4%3295.8%Impact of dilutive instruments - - Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-129-2.4%3295.8%Normalized net income – Attributable to owners of the parent [c]1623.0%3195.7%Impact of dilutive instruments --Normalized net income restated of dilutive instruments- Attributable to owners of the parent [d]1623.0%3195.7%Average number of shares [e] 109,593,846 108,780,193 Impact of dilutive instruments - - Diluted average number of shares [f] 109,593,846 108,780,193 (in €)Basic EPS (Earning Per Share) [a] / [e]-1.183.02Diluted EPS [b] / [f]-1.183.02Normalized basic EPS [c] / [e]1.482.93Normalized diluted EPS [d] / [f]1.482.93 2.1.2. Cash Flow and net cash The Group reported a net debt position of € 1,129 million at the end of June 2021 and a free cash flow generation of €-369 million in the first half of 2021. (in € million)6 months ended June 30, 20216 months ended June 30, 2020Operating Margin before Depreciation and Amortization (OMDA)633774Capital expenditures-154-186Lease payments-183-172Change in working capital requirement-394-407Cash from operation (CFO)-989Tax paid-46-55Net cost of financial debt paid-13-21Reorganization in other operating income -96-53Rationalization & associated costs in other operating income -43-21Integration and acquisition costs-8-22Other changes*-66-7Free Cash Flow (FCF)-369-172Net (acquisitions) disposals-1441,239Capital increase (decrease)-0-Share buy-back-57-45Dividends paid-100-3Change in net cash (debt)-6701,019Opening net cash (debt)-467-1,736Change in net cash (debt)-6701,019Foreign exchange rate fluctuation on net cash (debt) 9-62Closing net cash (debt)-1,129-779* "Other changes" include other operating income with cash impact (excluding reorganization, rationalization and associated costs, integration and acquisition costs) and other financial items with cash impact, net long term financial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt. Trusted Partner for your Digital Journey 27/69 Free cash flow represented by the “Change in net cash (debt)”, excluding net acquisitions and disposals of the period, equity changes and dividends paid, was € -369 million compared to €-172 million in the first half of 2020. Cash from Operations (CFO) amounted to €-98 million compared to € +9 million in the first half of 2020, the evolution coming from the following items: • OMDA, net of lease payments (€-152 million); Capital expenditures (€ +32 million); Change in working capital (€ +13 million). OMDA of € 633 million, representing a decrease of € 141 million compared to June 2020, reached 11.7% of revenue compared to 13.8% of revenue in June 2020. The bridge from operating margin to OMDA was as follows: (in € million)6 months ended June 30, 20216 months ended June 30, 2020Operating margin302450 + Depreciation of fixed assets167165 + Depreciation of right of use176 168 + Net book value of assets sold/written off64+/- Net charge/(release) of pension provisions-16-39+/- Net charge/(release) of provisions-226OMDA633774 Capital expenditures totaled € 154 million, representing 2.8% of revenue, 50 bps less than the same period last year, reflecting the actions from the Group to optimize capital expenditure as well as to move to less capital-intensive activities. The negative contribution from change in working capital was €-394 million (compared to €-407 million in the first half of 2020). The DSO has increased by 8 days (from 46 days at the end of December 2020 to 54 days at the end of June 2021), while the DPO has decreased by 4 days (from 80 days at the end of December 2020 to 76 days at the end of June 2021). The level of trade receivables sold with no recourse to banks with transfer of risks as defined by IFRS 9 has decreased from € 878 million at the end of December 2020 to € 820 million at the end of June 2021. Cash out related to taxes paid decreased by € 9 million. Cost of net debt decreased by € 8 million due to the reimbursement in April 2020 of the € 600 million bond issued in July 2015. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 147 million compared to € 97 million in the first half of 2020 and represented 2.7% of revenue. They mainly included reorganization costs in connection with the transformation program started in the second half of 2020 and finalized over the first half of 2021. Rationalization expense primarily resulted from the closure of office premises and data centers consolidation, mainly in North America and France. Finally, integration and acquisition costs mainly comprised the integration costs for the new acquisitions. Other changes amounted to €-66 million compared to €-7 million. They included in particular the cash effect of pension and early retirement programs in France and in Germany and settlements with customers. As a result of the above evolutions mainly impacted by the change of the working capital requirement, the Group generated a free cash flow (FCF) of €-369 million during the first half of 2021, compared to €-172 million in the first half of 2020. The net cash impact resulting from the net (acquisitions) disposals amounted to €-144 million, mainly originated from the five acquisitions of the period as detailed in Note 1 of the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 28/69 There was no capital increase in either of the first half of 2021 and 2020. Share buy-back reached € 57 million during the first half of 2021 compared to € 45 million in the first half of 2020. These share buy-back programs are related to managers performance shares delivery and aim at avoiding a dilution effect for the shareholders. In the first half of 2021, dividends paid by Atos SE amounted to € 98 million while no dividends were paid in 2020 as a consequence of the Covid-19 economic impact. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net debt of € 9 million mainly coming from the exchange rates of the US Dollar, Indian Rupee and British Pound against the Euro. As a result, the Group net debt position as of June 31, 2021 was € 1,129 million, compared to € 467 million as of December 31, 2020. As a reminder, assuming the full conversion of the Optional Exchangeable Bonds, net debt would be € 629 million at the end of June 2021. 2.1.3. Bank covenant The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility, with a leverage ratio (net debt divided by OMDA) of 0.99 at the end of June 2021. According to the credit documentation of the multi-currency revolving credit facility, the leverage ratio is calculated excluding IFRS 16 impacts since 2019 and takes into account 12 months rolling of OMDA. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility. Trusted Partner for your Digital Journey 29/69 2.2. Interim condensed consolidated financial statements 2.2.1. Interim condensed consolidated income statement (in € million)Notes6 months ended June 30, 20216 months ended June 30, 2020Revenue Note 3.15,4245,627Personnel expenseNote 4.1-2,579-2,623Operating expenseNote 4.2-2,543-2,555Operating margin302450% of revenue5.6%8.0%Other operating income and expensesNote 5-419-87Operating income (loss)-118362% of revenue-2.2%6.4%Net cost of financial debt-13-21Other financial expense-40-101Other financial income50121Net financial expenseNote 6.1-3-1Net income (loss) before tax-121361Tax chargeNote 7-6-34Share of net profit (loss) of associates03Net income (loss) of consolidated companies-127330Of which:- attributable to owners of the parent-129329- non-controlling interests21 (in € million and shares)Notes6 months ended June 30, 20216 months ended June 30, 2020Net income (loss) of consolidated companies - Attributable to owners of the parent-129329Weighted average number of shares 109,593,846108,780,193Basic earnings per share of consolidated companiesNote 11-1.183.02Diluted weighted average number of shares 109,593,846108,780,193Diluted earnings per share of consolidated companiesNote 11-1.183.02 Trusted Partner for your Digital Journey 30/69 2.2.2. Interim comprehensive income condensed consolidated statement of (in € million)6 months ended June 30, 20216 months ended June 30, 2020Net income (loss)-127330Other comprehensive income125-220Change in value of cash flow hedges6-4Exchange differences on translation of foreign operations118-217Deferred tax on items recyclable recognized directly in equity1193-49134-68Deferred tax on items non-recyclable recognized directly in equity-4118Total other comprehensive income218-269Total comprehensive income for the period9161Of which:- attributable to owners of the parent8960- non-controlling interests21Actuarial gains and losses generated in the period on defined benefit plans - to be reclassified subsequently to profit or loss (recyclable) - not reclassified to profit or loss (non-recyclable) Trusted Partner for your Digital Journey 31/69 2.2.3. Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2021December 31, 2020ASSETSGoodwillNote 86,3296,140Intangible assets1,3441,391Tangible assets490514Right-of-use assets1,1461,135Investments in associates accounted for under the equity method77Non-current financial assetsNote 6.3776772Deferred tax assets320351Total non-current assets10,41310,310Trade accounts and notes receivableNote 3.22,9912,847Current taxes6943Other current assetsNote 4.41,5521,631Current financial instruments1013Cash and cash equivalentsNote 6.22,4833,282Total current assets7,1057,816TOTAL ASSETS17,51818,127(in € million)NotesJune 30, 2021December 31, 2020LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock110110Additional paid-in capital1,4761,476Consolidated retained earnings5,3704,725Net income (loss) attributable to the owners of the parent-129550Equity attributable to the owners of the parent6,8286,861Non-controlling interests1010Total shareholders’ equity6,8386,871Provisions for pensions and similar benefitsNote 91,2041,359Non-current provisionsNote 104047BorrowingsNote 6.41,9702,669Derivative liabilities136168Deferred tax liabilities160164Non-current lease liabilitiesNote 6.4948975Other non-current liabilities 22Total non-current liabilities4,4585,385Trade accounts and notes payableNote 4.32,0482,230Current taxes3886Current provisionsNote 10147118Current financial instruments313Current portion of borrowingsNote 6.41,6441,083Current lease liabilitiesNote 6.4366360Other current liabilities Note 4.51,9751,981Total current liabilities6,2225,871TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY17,51818,127 Trusted Partner for your Digital Journey 32/69 2.2.4. Interim condensed consolidated cash flow statement (in € million)Notes6 months ended June 30, 20216 months endedJune 30, 2020Profit (loss) before tax-121361Depreciation of assetsNote 4.2167165Depreciation of right-of-useNote 4.2176168Net charge (release) to operating provisions-18-14Net charge (release) to financial provisions913Net charge (release) to other operating provisions8631Amortization of intangible assets (PPA from acquisitions) Note 57978Losses (gains) on disposals of fixed assets14-171Net charge for equity-based compensation3231Unrealized losses (gains) on changes in fair value and otherNote 6.1-33-32Net cost of financial debtNote 6.11321Interest on lease liabilityNote 6.1814Cash from operating activities before change in working capital requirement, financial interest and taxes412665Tax paid-46-55Change in working capital requirement-394-407Net cash from (used in) operating activities-27202Payment for tangible and intangible assets-154-186Proceeds from disposals of tangible and intangible assets82Net operating investments-146-184Amounts paid for acquisitions and long-term investments -151-181Cash and cash equivalents of companies purchased during the period92Proceeds from disposals of financial investments-21,424Cash and cash equivalents of companies sold during the period-2-3Net long-term investments-1441,243Net cash from (used in) investing activities -2911,059Purchase and sale of treasury stock-57-45Dividends paid-98-Dividends paid to non-controlling interests-3-3Lease paymentsNote 6.4-183-172New borrowingsNote 6.47691,036Repayment of current and non-current borrowingsNote 6.4-864-1,226Net cost of financial debt paidNote 6.4-13-21Other flows related to financing activitiesNote 6.41-8Net cash from (used in) financing activities-448-439Increase (decrease) in net cash and cash equivalents-766821Opening net cash and cash equivalents3,1422,334Increase (decrease) in net cash and cash equivalentsNote 6.4-766821Impact of exchange rate fluctuations on cash and cash equivalentsNote 6.411-62Closing net cash and cash equivalentsNote 6.42,3873,093 Trusted Partner for your Digital Journey 33/69 2.2.5. Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period end(thousands)Common StockAdditional paid-in capitalConsolidated retained earningsNet income TotalNon controlling interestsTotal shareholders' equityAt December 31, 2019109,2151091,4412,1263,3997,075127,087▪ Appropriation of prior period net income (loss)3,399-3,399--▪ Dividends paid---3-3▪ Equity-based compensation313131▪ Changes in treasury stock-45-45-45Transactions with owners---3,385-3,399-14-3-17▪ Net income (loss) of consolidated companies-3293291330▪ Other comprehensive income-269-269-269Total comprehensive income for the period----26932960161At June 30, 2020109,2151091,4415,2423297,121107,131▪ Common stock issued 778135--36-36▪ Dividends paid-------1-1▪ Equity-based compensation---33-33-33▪ Changes in treasury stock---0-0-0▪ Other----3--3-1-4Transactions with owners77813529066-264▪ Net income (loss) of consolidated companies----2212212222▪ Other comprehensive income----546--547-0-547Total comprehensive income for the period----546221-3262-324At December 31, 2020109,9931101,4764,7245506,861106,871▪ Appropriation of prior period net income (loss)550-550--▪ Dividends paid-98-98-2-100▪ Equity-based compensation323232▪ Changes in treasury stock-57-57-57▪ Other0000Transactions with owners---428-550-122-2-124▪ Net income (loss) of consolidated companies--129-1292-127▪ Other comprehensive income2182180218Total comprehensive income for the period---218-12989291At June 30, 2021109,9931101,4765,370-1296,828106,838 Trusted Partner for your Digital Journey 34/69 2.2.6. Notes to the interim condensed consolidated financial statements These interim condensed consolidated financial statements were approved by the Board of Directors on July 27, 2021. 2.2.6.1. Basis of preparation All amounts are presented in millions of euros unless otherwise indicated. Certain totals may have rounding differences. Basis of preparation Atos (“the Group”) interim condensed consolidated financial statements for the six months period ended June 30, 2021, have been prepared in accordance with the applicable international accounting standards, as endorsed by the European Union and of mandatory application as at January 1, 2021. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The Group interim condensed consolidated financial statements for the six months period ended June 30, 2021, have been prepared in accordance with IAS 34 - Interim Financial Reporting. This standard provides that interim condensed financial statements do not include all the information required under IFRS for the preparation of annual consolidated financial statements. These interim condensed consolidated financial statements must therefore be read in conjunction with the Group’s consolidated financial statements as at and for the year ended December 31, 2020. However selected explanatory notes are included to explain events and transactions that are significant to understand of the changes in the Group’s financial position and performance since the latest annual consolidated financial statements. The accounting policies and measurement methods used to prepare these interim condensed consolidated financial statements are identical to those applied by the Group at December 31, 2020 and described in the notes to the consolidated financial statements for the year ended December 2020, except: new standards and interpretations mandatorily applicable presented in the paragraph below; the specific measurement methods of IAS 34 presented in the paragraph below. New standards and interpretations applicable from January 1, 2021 The following new standards, interpretations or amendments whose application was mandatory for the Group for the fiscal year beginning January 1, 2021 had no material impact on the interim condensed consolidated financial statements: Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 – Interest Rate Benchmark Reform (Phase 2). Other standards The Group has not early adopted any other standard, interpretation or amendment applicable to financial years starting after January 1, 2021, regardless of whether they were adopted by the European Union. The potential impacts of these new pronouncements are currently being analyzed. Accounting estimates and judgments The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the interim condensed consolidated financial statements remain identical to those described in the latest annual report, except the specific measurement methods of IAS 34 regarding estimate of income tax expense (as described in Note 7), goodwill valuations (as described in Note 8) and pension plans and other long-term benefits valuations (as described in Note 9). Trusted Partner for your Digital Journey 35/69 2.2.6.2. Impact of the pandemic crisis on the interim condensed consolidated financial statements As of the date of issue of the interim condensed consolidated financial statements, unforeseen events related to the pandemic have not led to any contract termination, dispute with customers or suppliers, or material concessions made by Atos. The events linked to Covid-19 led the Group to take into consideration the current market conditions in the judgments made and assumptions taken when preparing these interim condensed consolidated financial statements Estimates on long-term contracts have been reviewed taking into consideration potential loss-making situations or risks of recoverability on contract assets and contract costs. The expected credit loss valuation has also been reviewed to consider potential increased bankruptcy risk of customers. In accordance with recommendations from European and French regulators, the Group has elected to maintain effects of the pandemic crisis as part of the operating margin and to not present them as part of Other operating income and expense. 2.2.6.3. Alternative Performance measures The alternative performance measures monitored by the Group are identical to those monitored by the Group at December 31, 2020 and described in the notes to the consolidated financial statements for the year ended December 2020. Trusted Partner for your Digital Journey 36/69 2.2.6.4. Notes to the interim condensed consolidated financial statements Note 1 – Changes in the scope of consolidation Note 2 – Segment information Note 3 – Revenue, trade receivables, contract assets and contract costs Note 4 – Operating items Note 5 – Other operating income and expenses Note 6 – Financial assets, liabilities and financial result Note 7 – Income tax Note 8 – Goodwill Note 9 – Pensions plans and other long-term benefits Note 10 – Provisions Note 11 - Shareholders’ equity Note 12 – Litigations Note 13 – Subsequent events Trusted Partner for your Digital Journey 37/69 38 39 41 41 43 45 48 48 49 50 50 51 51 Note 1 Changes in the scope of consolidation Acquisition of Motiv On February 15, 2021, Atos acquired Motiv ICT Security, the largest independent Managed Security Services (MSS) provider in the Netherlands. This acquistion reinforces Atos’s position as the third worldwide Managed Security Services provider by strengthening the Group’s local capabilities and bringing its recent investment in the Managed Detection and Response (MDR) platform, AIsaac, to Dutch customers. In addition, Motiv’s sovereign Security Operations Center (SOC), independently certified at the highest levels of maturity, further expands Atos’ extensive network of global SOCs, a pivotal component of the Atos Prescriptive Security approach. Motiv is mainly reported in the RBU Northern Europe. The consideration transferred was € 63 million leading to the recognition of a preliminary goodwill of € 51 million. Had the acquisition of Motiv ICT Security occurred on January 1, 2021, the six-month revenue and operating margin for 2021 would have been € 19 million and € 1 million, respectively. Other acquisitions Other acquisitions completed during the first half of 2021 included: In Fidem On January 19, 2021, Atos acquired In Fidem, a Canada-based specialized cybersecurity consulting firm, with expertise in cloud security, digital identity, risk management, security operations, digital forensics and cyber breach response. In Fidem is reported in the RBU North America. Profit4SF On February 17, 2021, Atos acquired Profit4SF, a Dutch-based technology and management consulting company specializing in salesforce enterprise implementations for its customers across the Netherlands. Profit4SF is reported in the RBU Northern Europe. Ipsotek On May 28, 2021, Atos acquired Ipsotek, a leading AI enhanced video analytics software provider. Ipsotek is reported in the RBU Northern Europe. Processia On June 1, 2021, Atos acquired Processia, a Product Lifecycle Management (PLM) system integrator and Dassault Systèmes Global Service Partner. Processia is reported in the RBU North America. Total consideration transferred for these acquisitions was € 97 million leading to the recognition of a preliminary goodwill of € 92 million. Had these acquisitions occurred on January 1, 2021, the six-month revenue and operating margin for 2021 would have been € 23 million and € 4 million, respectively. Trusted Partner for your Digital Journey 38/69 Note 2 Segment information According to IFRS 8, reported operating segment profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker, and is reconciled to Group profit or loss. The chief operating decision maker assesses segments profit or loss using a measure of operating profit. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Company CEO who makes strategic decisions. The internal management reporting is built around two axes: Regional Business Units (North America, Northern Europe, Central Europe, Southern Europe and Growing Markets) and Industries (Manufacturing, Financial Services & Insurance, Public Sector & Defense, Telecom, Media & Technology, Resources & Services, and Healthcare & Life Sciences). Regional Business Units have been determined by the Group as key components reviewed by the chief operating decision maker. As a result, and for IFRS 8 requirements, the Group discloses Regional Business Units as operating segments. Regional segments (RBU) are made of the following countries: North AmericaManufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinCanada, Guatemala, Mexico and the United States of America.Northern Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinBelarus,Belgium,Denmark,Estonia,Finland,Ireland,Lithuania,Luxembourg,Poland,Russia,Sweden,TheNetherlands and the United Kingdom.Central Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinAustria,BosniaandHerzegovina,Bulgaria,Croatia,CzechRepublic,Germany,Greece,Hungary,Israel,Romania,Serbia, Slovakia, Slovenia, Switzerland.Southern Europe Manufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinAndorra,France,Italy, Morocco offshore delivery Center, Portugal and Spain.Growing marketsManufacturing,FinancialServices&Insurance,PublicSector&Defense,Telecom,Media&Technology,Resources&Services,inadditiontoHealthcare&LifeSciencesinAbuDhabi,Algeria,Argentina,Australia,Brazil,Chile,China,Colombia,Egypt,Gabon,Hong-Kong,India,IvoryCoast,Japan,Lebanon,Malaysia,Madagascar,Mauritius,Morocco,Namibia,New-Zealand,Peru,Philippines,Qatar,Saudi-Arabia,Senegal,Singapore,South-Africa,SouthKorea,Taiwan,Thailand,Tunisia,Turkey,UAE,UruguayandalsoMajorEventsactivities,GlobalDeliveryCenters.Operating segments All Industries are represented in each RBU. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group’s revenue. Trusted Partner for your Digital Journey 39/69 The operating segment information are as follows: (in € million)North AmericaNorthern EuropeCentral EuropeSouthern EuropeGrowing marketsTotal operating segments Global structures Elimination Total Group6 months ended June 30, 2021External revenue by segment1,1701,4021,2401,2313825,424--5,424% of Group revenue21.6%25.8%22.9%22.7%7.0%100.0%100.0%Inter-segment revenue2986996257284889-937-Total revenue 1,1991,4881,3381,2939546,27289-9375,424Segment operating margin 13891214645341-39302% of margin11.8%6.5%1.7%3.7%11.8%6.3%5.6%Total segment assets4,5122,5372,3322,6081,44813,4371,20814,6456 months ended June 30, 2020External revenue by segment1,3551,3601,3701,1433995,627--5,627% of Group revenue24.1%24.2%24.4%20.3%7.1%100.0%100.0%Inter-segment revenue46879742569841138-979-Total revenue 1,4011,4471,4671,1859686,468138-9795,627Segment operating margin 208101428654490-40450% of margin15.3%7.4%3.1%7.5%13.4%8.7%8.0%Total segment assets4,8082,5222,3492,4691,49413,6421,05014,692 The segment assets detailed above are reconciled to total asset as follows: (in € million)June 30, 2021June 30, 2020Total segment assets14,645 14,692 Tax assets389 433 Cash & Cash Equivalents2,483 3,257 Total Assets17,518 18,382 Trusted Partner for your Digital Journey 40/69 Note 3 Revenue, trade receivables, contract assets and contract costs 3.1 – Disaggregation of revenue from contracts with customers The Group revenue can be broken down by Industry as follows: (in € million)Manufac-turingFinancial Services & Insurance Public Sector & DefenseTelecom, Media & TechnologyRessources & ServicesHealthcare & Life SciencesTotal Group6 months ended June 30, 2021External revenue by Industry9801,0951,1907487786335,424% of Group revenue 18.1%20.2%21.9%13.8%14.3%11.7%100.0%6 months ended June 30, 2020External revenue by Industry1,0371,0771,2168368046575,627% of Group revenue 18.4%19.1%21.6%14.9%14.3%11.7%100.0% 3.2 – Trade accounts and notes receivables, and contract liabilities (in € million)June 30, 2021December 31, 2020Contract assets1,729 1,686 Trade receivables1,257 1,140 Contract costs 144 130 Expected credit loss allowance-140 -109 Trade accounts and notes receivable2,991 2,847 Contract liabilities-812 -773 Net accounts receivable 2,179 2,074 Number of days’ sales outstanding (DSO)54 46 Contract assets, net of contract liabilities were stable compared to the positions at the end of December 2020. The DSO ratio increased from 46 days to 54 days at June 30, 2021. As of June 30, 2021, € 820 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 878 million at the end of December 31, 2020). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2021. The € 820 million included € 73 million in the US where Atos only sells 95% of the right to cash flows and then derecognizes 95% of the receivables. Note 4 Operating items 4.1 – Personnel expenses (in € million)6 months ended June 30, 2021% Revenue6 months ended June 30, 2020% RevenueWages and salaries -2,07538.3%-2,12837.8%Social security charges-4879.0%-5018.9%Tax, training, profit-sharing-350.6%-330.6%Net (charge)/release to provisions for staff expenses20.0%10.0%Net (charge)/release of pension provisions16-0.3%39-0.7%TOTAL-2,579 -47.5%-2,623 46.6% Trusted Partner for your Digital Journey 41/69 4.2 – Non-personnel operating expenses (in € million)6 months ended June 30, 2021% Revenue6 months ended June 30, 2020% RevenueSubcontracting costs direct-969 17.9%-947 16.8%Hardware and software purchase-602 11.1%-580 10.3%Maintenance costs-267 4.9%-286 5.1%Rent expenses-19 0.4%-18 0.3%Telecom costs-109 2.0%-142 2.5%Travelling expenses-23 0.4%-34 0.6%Professional fees -106 2.0%-102 1.8%Other expenses-148 2.7%-143 2.5%Subtotal expenses -2,243 41.4%-2,253 40.0%Depreciation of assets-167 3.1%-165 2.9%Depreciation of right-of-use-176 3.2%-168 3.0%Net (charge)/release to provisions0 0.0%-26 0.5%Gains/(Losses) on disposal of assets2 0.0%-3 0.1%Trade receivables write-off-7 0.1%-6 0.1%Capitalized production48 -0.9%66 -1.2%Subtotal other expenses-300 5.5%-302 5.4%TOTAL-2,543 46.9%-2,555 45.4% 4.3 – Trade accounts and notes payable (in € million)June 30, 2021December 31, 2020Trade accounts and notes payable2,0482,230Net advance payments-48-55Prepaid expenses and advanced invoices-719-732TOTAL1,2811,444Number of days’ payable outstanding (DPO)7680 4.4 – Other current assets (in € million)June 30, 2021December 31, 2020Inventories128 141 State - VAT receivables247 271 Prepaid expenses and advanced invoices719 732 Other receivables & current assets409 432 Net advance payments48 55 TOTAL1,552 1,631 4.5 – Other current liabilities (in € million)June 30, 2021December 31, 2020Employee-related liabilities380312 Social security and other employee welfare liabilities 170169 VAT payables404466 Contract liabilities812773 Other operating liabilities 209261 TOTAL1,9751,981 Trusted Partner for your Digital Journey 42/69 Note 5 Other operating income and expenses Other operating income and expenses relate to income and expenses that are unusual, abnormal and infrequent and represented a net expense of € 419 million in the first half of 2021. The following table presents this amount by nature: (in € million)6 months ended June 30, 20216 months ended June 30, 2020Staff reorganization-79-80Rationalization and associated costs-42-22Integration and acquisition costs-22-20Amortization of intangible assets (PPA from acquisitions) -79-78Equity based compensation-33-35Other items-164147TOTAL-419-87 Staff reorganization were stable at € 79 million. Staff reorganization expense mainly included the temporary slow-down of the German workforce adaptation before the launch of the restructuring plan announced on July 12, 2021 and involving c. 1,300 people but also included the adaptation of the workforce in other European countries and the cost of the final phase of the transformation program of the Group. The € 42 million rationalization and associated costs primarily resulted from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs at € 22 million mainly related to the integration costs of 2020 and 2021 acquisitions as well as the cost of the retention schemes. In the first half of 2021, amortization of intangible assets recognized through Purchase Price Allocation (PPA) of € 79 million was mainly composed of: € 30 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 12 million of Xerox ITO customer relationships amortized over 6 to 12 years starting July 1, 2015; € 8 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 6 million of Unify customer relationships and technologies amortized over 2 to 10 years starting February 1, 2016. The equity-based compensation expense amounted to € 33 million in the first half of 2021 compared to € 35 million in the first half of 2020. In the first half of 2021, other items amounted to a net expense of € 164 million compared to a net gain of € 147 million in the first half of 2020 (a net expense of € 27 million excluding the effects of the Worldline transaction of February 2020), and included the impact from the unprecedented acceleration of the decline of legacy infrastructure business in a context of a much stronger post-Covid demand for Cloud migration. Those exceptional items mainly included write-off of assets of circa. € 60 million in North America and Northern Europe, loss provisions for circa. € 40 million mainly in North America, unusual impacts of settlements of circa. € 30 million, mainly in Central Europe and Growing Markets, as well as other long- term employee benefits. Equity-based compensation The € 33 million expense recorded within other operating income and expenses relating to equity-based compensation (€ 35 million in the first half of 2020) is mainly made up of performance share plans granted from 2018 until 2020. Trusted Partner for your Digital Journey 43/69 The equity-based compensation plans are detailed by year and by nature as follows: (in € million)6 months ended June 30, 20216 months ended June 30, 2020By years : Plans 2020157Plans 2019107Plans 201877Plans 2017-13Plans 2016--Plans 2015-1Total3335By category of plans : Performance share plans3333Stock option plan00Employee share purchase plan-2Total3335 Performance share plans Main plans presented in “other operating income and expenses” during the semester was the following: AtosGrant DateJuly 24, 2020Number of shares granted 870 630Share price at grant date (€)75.00Vesting dateJuly 24, 2023Expected life (years)3Expected dividend yield (%)2.07%Fair value of the instrument (€)68.74112021 expense recognized (in € million) AtosAtosGrant DateOctober 23, 2019July 24, 2019Number of shares granted 12 000907 500Share price at grant date (€)63.6069.75Vesting dateOctober 23, 2022July 24, 2022Expected life (years)33Expected dividend yield (%)2.07%2.07%Fair value of the instrument (€)59.7765.550102021 expense recognized (in € million) AtosAtosGrant DateMarch 27, 2018July 22, 2018Number of shares granted 8 550891 175Share price at grant date (€)90.090.0Vesting date March 27, 2021July 30, 2021Expected life (years)33Expected dividend yield (%)1.20%1.20%Fair value of the instrument (€)87.0887.08062021 expense recognized (in € million) Trusted Partner for your Digital Journey 44/69 Stock option plans Grant DateJuly 24, 2019Number of shares issued209 200Share price at grant date (€)77.9Strike price (€)80.1Vesting dateJuly 24, 2022Expected maturity of the plan (years)3Expected dividend yield (%)2.07%Fair value of the instrument (€)6.6702021 expense recognized (in € million) The change in outstanding share options for Atos SE during the period was the following: Number of sharesWeighted average strike price(in €)Number of sharesWeighted average strike price(in €)Outstanding at the beginning of the year162,90077.9168,90077.9Granted during the year----Forfeited during the year-10,00077.9-6,00077.9Exercised during the year---Expired during the year----Outstanding at the end of the year152,90077.9162,90077.9Exercisable at the end of the year, below year-end stock price*----June 30, 2021December 31, 2020(*) Stock price : € 51.30 at June 30, 2021 and € 74.78 at December 31, 2020. Note 6 Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 3 million for the period (compared to a € 1 million net expense for the first half of 2020) and was composed of a net cost of financial debt of € 13 million and net gain of other financial items of € 10 million. Net cost of financial debt (in € million)6 months ended June 30, 20216 months ended June 30, 2020Net interest expenses-12-20Gain/(loss) on interest rate hedges of financial debt -1-1Net cost of financial debt-13-21 Net cost of financial debt decreased from € 21 million in the first half of 2020 to € 13 million in the first half of 2021 due to the reimbursement in April 2020 of the € 600 million bond issued in July 2015. The average expense rate of the Group was 0.89% on the average gross borrowings compared to 1.40% in the first half of 2020. The average income rate on the average gross cash was 0.63% compared to 0.69% in the first half of 2020. Trusted Partner for your Digital Journey 45/69 Other financial income and expense (in € million)6 months ended June 30, 20216 months ended June 30, 2020Foreign exchange income/(expenses) -44Fair value gain/(loss) on forward exchange contracts-20Change gain/(loss) on financial instruments related to Worldline3241Interest on lease liability-8-14Other income/(expenses) -8-12Other financial income and expenses1020Of which:- other financial expenses-40-101- other financial income50121 Other financial items were a net gain of € 10 million compared to € 20 million in the first half of 2020 and were mainly composed of : a net gain of € 32 million related to the net value of the OEB derivative and the underlying Worldline shares, both measured at fair value through profit and loss under IFRS 9; pension related financial expenses of € 8 million compared to € 6 million in the first half of 2020; lease liability interest of € 8 million compared to € 14 million in the first half of 2020. This variation mainly results from the modification of some major contrats associated with lower discount rates; net foreign exchange loss (including hedges) of € 6 million compared to a gain of €4 million in the first half of 2020. 6.2 – Cash and cash equivalents (in € million)June 30, 2021December 31, 2020Cash in hand and short-term bank deposit2,4333,235 Money market funds 5147 TOTAL2,483 3,282 Depending on market conditions and short-term cash flow expectations, Atos invests from time to time in Money Market Funds or bank deposits for a maturity period not exceeding three months. 6.3 – Non-current financial assets (in € million)June 30, 2021December 31, 2020Pension prepaymentsNote 9121112Fair value of non-consolidated investments, net of impairment557556Other*99103TOTAL776772*"Other"includesloans,deposits,guaranteesandup-frontandunderwritingfeesrelatedtopastacquisitionsamortizedovertheduration of the debt instrument Fair value of non-consolidated investments included € 551 million related to the retained interest in Worldline: In February 2020, Atos disposed of part of its retained interest over Worldline with a sale of 23.9 million of Worldline shares through an Accelerated Bookbuiling Offering (ABO). This transaction led to a net book value disposed of € 1,281 million in February 2020. After completion of the transaction (ABO), Atos interest in Worldline amounted to 3.82%. Atos lost its Trusted Partner for your Digital Journey 46/69 significant influence over Worldline which was no more considered as an associate according to IAS 28. Hence, at the disposal date, the retained interest in Worldline was classified as non-current financial assets measured at fair value through the income statement under IFRS 9. 6.4 – Change in net debt over the period Financial liabilities changes and net debt (cash) changes reconcile to the cash flow statement as follows: (In € million)BondsOptional exchan-geable bondBank loans and commercial papersSecuriti-zationOther borrow-ings (excl. overdraft)Total borrowingsCash & cash equiva-lentsOverdraftTotal net cash & cash equiv.Short-term financial assets (liabilities)*Net debt(cash) Lease liabilitiesAt January 1, 20212,100500965-473,6123,282-1403,14224671,335Lease payments------------183New borrowings--750-19769----769-Repayment of borrowings---835--29-864-----864-Net cost of financial debt paid-----13-13-----13-Other financing activities flows---1-1----1-Net cash and cash equivalent changes-------83973-766-766-Cash flows impacts---851-23-107-83973-766-659-183Net cost of financial debt----1313----13-New leases incl. business combinations-----------139Interest on lease liabilities-----------8Impact of exchange rate fluctuations ------40-2911--1115At June 30, 20212,1005008801373,5182,483-972,38721,1291,314Non-current portion1,970-1,970948Current portion1,5482,3872-841366*Short-term financial assets and liabilities bearing interests with maturity of less than 12 months. (in € million)June 30, 2021December 31, 2020Cash and cash equivalents2,4833,282Overdrafts-97-140TOTAL 2,387 3,142 Bank covenant The Group achieved its borrowing covenant (leverage ratio) applicable to the multi-currency revolving credit facility, with a leverage ratio (net debt divided by OMDA) of 0.99 at the end of June 2021. According to the credit documentation of the multi-currency revolving credit facility, the leverage ratio is calculated excluding IFRS 16 impacts since 2019 and takes into account 12 months rolling of OMDA. The leverage ratio must not be greater than 2.5 times under the terms of the multi-currency revolving credit facility. Trusted Partner for your Digital Journey 47/69 Note 7 Income tax The income tax charge includes current and deferred tax expenses. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is recognized based on management’s estimate of the effective tax rate for the whole financial year applied to the “net income before tax” of the interim period. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the whole year in the light of full-year earnings projections. The tax charge for the first half of 2021 was € 6 million with a loss before tax of € 121 million. The annualized projected Effective Tax Rate (ETR) was 18,6% compared to 18.5% for the first half of 2020 (excluding the tax effects of the Worldline transaction that occurred in 2020). The Group estimated the main impacts of its revised guidance announced on July 12, 2021 on the recoverability of its deferred tax assets; it mainly resulted in the derecognition of deferred tax assets for an amount of € 32 million, which was considered in the determination of the tax charge for the half year of 2021. Note 8 Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually or more often whenever events or circumstances indicate that the carrying amount could not be recovered. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Goodwill is allocated to a Cash Generating Unit (CGU) or a group of CGUs for the purpose of impairment testing. Goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Goodwill is tested for impairment at the Regional Business Unit level as RBU are the lowest level at which the goodwill is monitored for internal management purposes. For the purpose of preparing the interim condensed consolidated financial statements, an impairment test is performed only if the Group has determined that indicators of impairment existed. (in € million)December 31, 2020Impact of businesscombinationExchange differences and otherJune 30, 2021Gross value6,705105976,907Impairment loss-565--13-578Carrying amount6,140105846,329(in € million)December 31, 2019Impact of businesscombinationExchange differences and otherDecember 31, 2020Gross value6,617410-3226,705Impairment loss-580-15-565Carrying amount6,037410-3076,140 Trusted Partner for your Digital Journey 48/69 The increase of the goodwill in the first half of 2021 was related to the acquisitions described in Note 1, offset by the finalization of the purchase price allocation for previous acquisitions. The information made to the public on July 12, 2021 according to which Atos adjusted its 2021 annual objectives, together with the share price decrease which arose from such announcement, are considered triggering events for impairment testing under IAS 36. As such, the Group performed procedures to assess the potential need for impairment as of June 30, 2021. An impairment test has been performed for all RBUs by updating 2021 figures and taking into consideration the acceleration announced by the Group in its transformation by expanding its achievements in, and focusing on, Digital, Cloud Security and Decarbonization. The test was performed with discount rates (WACC) used at December 31, 2020 and presented in the 2020 consolidated financial statements. Based on management assumptions that the Group improves on all its KPIs in 2022 and maintains its mid- term targets of revenue growth at constant currency from +5% to +7%, operating margin rate from 11% to 12% and free cash flow conversion above 60%, the value in use of all RBUs remained higher than their net carrying amount at June 30, 2021. The test remains sensitive to discount rates, long-term growth rates and operating margin rates. A sensitivity analysis was carried out on all RBUs in order to determine when the value in use equals the net carrying value when those parameters are deteriorated. The results are presented below: Increase in thediscount rateDecrease in theperpetual growth rateDecrease in theoperating margin rate(in basis points)(in basis points)(in basis points)North America82-98-177Northern Europe787-1,207-487Central Europe489-639-332Southern Europe350-460-298Growing markets1,712-4,500-867 Note 9 Pensions plans and other long-term benefits For the purpose of preparing the interim condensed consolidated financial statements, the liabilities and assets related to post-employment and other long-term employee defined benefits are calculated using the latest valuation at the previous financial year closing date. Adjustments of actuarial assumptions are performed on the largest pension plans of the Group only if significant fluctuations or one-time events have occurred during the six-month period. The net total amount recognized in the balance sheet in respect of pension plans was € 1,048 million compared to € 1,204 million at December 31, 2020. Between December 31, 2020 and June 30, 2021, discount rates have increased from 25 to 50 basis points, depending on the geographical area, as a result of an increase in the sovereign bond rates combined with an increase in the credit spread. 6 months ended June 30, 2021December 31, 20206 months ended June 30, 2021December 31, 20206 months ended June 30, 2021December 31, 20206 months ended June 30, 2021December 31, 2020Discount rate2.00%1.50%0.9% ~ 1.3%0.5% ~ 0.9%0.40%0.15%2.60%2.25%RPI: 3.20%RPI: 2.90%CPI: 2.50%CPI: 2.20%USAnanaInflation assumptionUnited KingdomEuro zone1.45%1.45%Switzerlandnana The fair value of plan assets for major schemes has been remeasured as at June 30, 2021. The amounts recognized in the balance sheet consist of: Trusted Partner for your Digital Journey 49/69 (in € million)June 30, 2021December 31, 2020Prepaid pension asset 121112Accrued liability – pension plans [a]-1,169-1,317Total Pension plan-1,048-1,204Accrued liability – other long-term employee benefits [b]-35-42Total accrued liability [a] + [b]-1,204-1,359 The net impact of defined benefit plans on the Group income statement can be summarized as follows: (in € million)6 months ended June 30, 20216 months ended June 30, 2020Operating margin-30-20Other operating income and expenses131Other financial income and expense-8-6Total (expense)/profit -25-25 Note 10 Provisions (in € million)December 31, 2020AdditionRelease usedRelease unusedOther (*)June 30, 2021CurrentNon- currentReorganization 79 5-20-2063612Rationalization 9 1-1-10946Project commitments 23 39-3-1159572Litigations and contingencies 54 5-1-41562630Total provisions16551-24-82187 147 40 (*) Other movements mainly consist of currency translation adjustments Additions mainly include loss provisions recorded on projects impacted by the transformation of the Group moving away from its legacy activities. Note 11 Shareholders’ equity There are no dilutive instruments for the six-month period ended June 30, 2021. Earnings per share (in € million and shares)6 months ended June 30, 20216 months ended June 30, 2020Net income (loss)– Attributable to owners of the parent [a]-129 329 Impact of dilutive instruments -Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-129329 Average number of shares outstanding [c] 109,593,846 108,780,193 Impact of dilutive instruments [d] - - Diluted average number of shares [e]=[c]+[d] 109,593,846 108,780,193 (In €) Basic Earning per Share [a] / [c]-1.18 3.02 Diluted Earning per Share [b] / [e]-1.183.02 Trusted Partner for your Digital Journey 50/69 Note 12 Litigations TriZetto/Cognizant case In 2015, Syntel initiated a lawsuit against the TriZetto Group and Cognizant Technology Solutions, stating claims for breach of contract, intentional interference with contractual relations and misappropriation of confidential information. In response to the complaint, TriZetto and Cognizant asserted various counterclaims, trade secret misappropriation. including claims against Syntel for copyright infringement and On October 27, 2020, a jury in the United States District Court for the Southern District of New York found Syntel, which was acquired by Atos in 2018, liable for trade secret misappropriation and copyright infringement and specified approximately $855 million in damages in favor of Cognizant and TriZetto, of which $570 million of punitive damages. On April 20, 2021, the United States District Court for the Southern District of New York granted in part the post-trial motion filed by Syntel. The Court reduced the jury’s $855 million damages award to $570 million and denied Cognizant and TriZetto’s request for an additional $75 million in pre-judgment interest. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $570 million punitive damages award was excessive and should be reduced to $285 million. Trizetto agreed to this reduction. The Court also issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. While the Company supports the Court’s decision to significantly reduce the punitive damages at issue and prevent a further windfall to Cognizant and TriZetto in the form of pre-judgment interest, Syntel appealed the portion of the jury’s verdict affirmed by the Court. Among other concerns, the Company continues to consider the amount of damages grossly out of proportion to the acts complained of, and that the maximum amount of damages legally available to TriZetto in this case is approximately $8.5 million. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021. The appeal process typically takes 18 months or more. No payment of damages will have to be made before the appeal decision but Syntel was required to post a supersedeas bond for approximately the remaining damages amount at the time the appeal was filed. Note 13 Subsequent events German infrastructure business restructuring On July 12, 2021, Atos announced that negotiations with social partners regarding the necessary turnaround of the German infrastructure business have concluded to a restructuring plan of c. 1,300 people. The plan will be detailed on July 28, 2021. Except for the above event, there is no significant subsequent event to be mentioned. Trusted Partner for your Digital Journey 51/69 2.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2021 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half- yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2021, the verification of the information presented in the interim management report. The worldwide crisis linked to the Covid-19 pandemic has created special conditions for the preparation and limited review of the condensed interim consolidated financial statements. Indeed, this crisis and the exceptional measures taken in the context of the state of health emergency have had multiple consequences for companies, particularly on their activity and financing, as well as increased uncertainties on their future prospects. Some of these measures, such as travel restrictions and remote work, have also had an impact on the internal organization of companies and on the way in which our work is carried out. These interim condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the interim management report on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 52/69 Paris-La Défense and Neuilly-sur-Seine, July 30, 2021 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton Membre français de Grant Thornton International Jean-François Viat Virginie Palethorpe Trusted Partner for your Digital Journey 53/69 3. Person responsible 3.1. Person responsible for the amendment to the Universal Registration Document Elie Girard Chief Executive Officer 3.2. Statement of the person responsible for the the Universal Registration amendment Document to I hereby declare that the information contained in the amendment to the Universal Registration Document, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report here attached presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, July 30, 2021 Elie Girard Chief Executive Officer 3.3. For the audit Appointment and term of offices Statutory auditors Grant Thornton - Virginie Palethorpe Appointed on: October 31, 1990, then renewed in October 24, 1995, on May 30, 2002, on June 12, 2008, on May 17, 2014, and on June 16, 2020 Term of office expires: at the end of the AGM voting on the 2025 financial statements Deloitte & Associés – Jean-François Viat Appointed on: December 16, 1993, renewed on February 24, 2000, on May 23, 2006, on May 30, 2012, and on May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements Trusted Partner for your Digital Journey 54/69 4. Corporate governance and additional information 4.1. Office renewals and composition of the Board of Directors The Company’s Annual General Meeting held on May 12, 2021 approved the proposed renewals of Directors’ terms of office. In particular, it renewed the terms of office of Mr. Bertrand Meunier, Mr. Vivek Badrinath, Ms. Aminata Niane and Ms. Lynn Paine for a period of three years. On this basis, the Board of Directors, during its meeting held right after the Annual General Meeting, decided to renew Mr. Bertrand Meunier's term of office as Chairman of the Board of Directors for the duration of his directorship and to confirm the composition of the Board Committees. As of the date of this Ammendment to the Universal Registration Document, the Board of Directors comprised thirteen Directors, including six independent Directors, as follows: EXPERIENCEAgeGenderNationalityNumber of sharesNumber of other mandates in listed companies1IndependenceDate of first appointment2End of term of officeSeniority on BoardChairmanBertrand Meunier65 MFrench/British140001NO07/03/2008AGM 202412N&G Chief Executive OfficerElie Girard43MFrench703980NO12/16/2019AGM 20221N/AVivek Badrinath52MFrench5001YES04/30/2019AGM 20241AudituValérie Bernis62 FFrench5052YES04/15/2015AGM 20225Rem, CSRCedrik Neike48 MFrench/German5002NO01/28/2020AGM 20231N/AColette Neuville83 FFrench10120YES04/13/2010AGM 202210CSRAminata Niane64 FSenegalese10120YES05/27/2010AGM 202410RemLynn Paine71 FAmerican10000YES05/29/2013AGM 20247Auditu, N&G, CSREdouard Philippe50 MFrench5010YES10/27/2020AGM 20230N&GVernon Sankey72 MBritish12960NO02/10/2009AGM 202212Auditu, CSRDirector representing the employee shareholders (L225-23 CCom)Jean Fleming52FBristish17180NO05/26/2009AGM 202211RemVesela Asparuhova38FBulgarian00NO10/15/2020AGM 20230N/AFarès Louis59MFrench00NO04/25/2019AGM 20231N/A1 Other mandates exercised in listed companies (outside the Atos Group). Mandates exercised in listed companies belonging to the same group account for one single mandate. 2 Date of first appointment on the Board of Directors of Atos3 N&G: Nominations and Governance Committee, Rem: Remuneration Committee, Audit : Audit Committee, CSR : CSR Committee Chairman of the Committeeu Vivek Badrinath, Lynn Paine and Vernon Sankey have the required and financial accounting skills by virtue of their educational and career background for the purpose of their membership in the Audit CommitteeEmployee Directors (L225-27-1 CCom)PERSONAL INFORMATIONPOSITION ON THE BOARDMEMBERSHIP IN COMMITTEES3Directors (L225-17 CCom) As compared to the information published in the 2020 Universal Registration Document, Mr. Cedrik Neike has been appointed on June 2, 2021 to the Supervisory Board of Evonik Industries AG, a listed company based in Germany. Trusted Partner for your Digital Journey 55/69 4.2. Annual General Meeting held on May 12, 2021 The Annual General Meeting held on May 12, 2021 in a closed session with a live video broadcast, due to health constraints related to the Covid-19 epidemic. The Annual General Meeting approved the financial statements for the fiscal year 2020 and the payment of an ordinary dividend of €0.90 per share for that year, which was paid as of May 18, 2021. The Board of Directors took note of the negative vote on the second resolution regarding the approval of the consolidated financial statements for the year ending December 31, 2020 (see above §1.1 & §1.4 for the most recent developments regarding the audit of the two U.S legal entities on which there was a qualified opinion in the report of the auditors for the 2020 consolidated financial statements and the remediation and prevention plan). The Annual General Meeting then approved the compensation and benefits paid or awarded for the year 2020 to Mr. Bertrand Meunier, Chairman of the Board of Directors, and to Mr. Elie Girard, Chief Executive Officer. The Annual General Meeting approved the 2021 compensation policies applicable to the Directors, the Chairman of the Board of Directors and the Chief Executive Officer. Atos shareholders adopted, by a very large majority, a "Say On Climate" resolution on the Group's environmental policy regarding decarbonization, confirming its position among the most advanced technology companies in the fight against climate change. The results of the votes at the Annual General Meeting together with the documentation on the adopted resolutions are available on the Company’s website (www.atos.net), Investors section. Trusted Partner for your Digital Journey 56/69 4.3. Executive compensation and stock ownership 4.3.1. Performance shares allocation plan decided on July 27, 2021 Pursuant to the authorization granted by the Annual General Meeting of May 12, 2021 under the 20th resolution, the Board of Directors of the Company decided, during its meeting held on July 27, 2021, and upon the recommendation of the Remuneration Committee, to grant 862,100 performance shares in favor of the Group Management Committee and selected Executives and key employees. The Chief Executive Officer decided to waive his eligibility to a performance shares grant in 2021. The Remuneration Committee and the Board of Directors took note of this request from the Chief Executive Officer. Accordingly, the Board confirmed that no performance shares will be granted to Mr. Élie Girard for the year 2021. Besides, the Group Chief Financial Officer also waived the 2021 grant. Finally, the Board of Directors decided a discount of 10% vs the initially planned award in shares in favor of the Group Management Committee members. The main features and conditions of the performance shares plan are as follows: Presence condition: subject to certain exceptions provided in the plan such as death, disability or retirement of the beneficiary, the grant of performance shares is conditioned on the beneficiary’s remaining within Atos’ Group as an employee or corporate officer during the vesting period. Performance condition: the vesting of all or part of the performance shares shall be subject to the achievement over a three-year period of three internal financial performance indicators and two performance conditions, one external and one internal, related to the corporate social responsibility (“CSR”), referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe) and the reduction of the CO2 emissions, respectively. The four internal performance indicators chosen are directly connected to key success factors for the achievement of the Group’s ambitions and include three financial indicators and one CSR indicator: (i) External revenue growth rate conditioning 30% of the grant; (ii) Operating Margin rate conditioning 25% of the grant; (iii) Conversion rate of Operating Margin into Free Cash Flow conditioning 25% of the grant, and (iv) The decrease in CO2 emissions conditioning 10% of the grant. The financial indicators will be calculated on a consolidated basis, taking into account potential scope variations and changes in the foreign exchange rates. The Board of Directors has decided upon the recommendation of the Nomination Committee to align the performance targets of the 2021 performance share plan with the revised objectives disclosed to the market on July 12, 2021 and with a progressive improvement of the indicators towards the mid-term of the Group which were confirmed the same day. The external performance condition linked to CSR, referring to the Dow Jones Sustainability Index (“DJSI”) (World or Europe) conditions 10% of the grant. The target achievement is based on the average of the scores achieved by the Atos Group during the vesting period, based on the average percentile ranking achieved by the Company resulting from the comparison with the other companies included in the DJSI index in relation to the three years. Elasticity curves accelerate upwards and downwards the percentage of the grant related to each performance indicator according to its level of achievement over the 3-year period. The final number of vested performance shares shall not under any circumstances exceed the number initially granted. Trusted Partner for your Digital Journey 57/69 4.3.2. Revision of the performance conditions for performance share plans 20191 and 20202 The Board of Directors, during its meeting held on July 16, 2021, decided upon the recommendation of the Nomination Committee, to revise the financial targets for the performance share plans granted in 2019 and 2020 respectively, applicable to all beneficiaries of these plans, save for the Chief Executive Officer and the Group Chief Financial Officer for whom the financial targets were not revised. The Purpose of that revision was to align the performance targets of these performance share plans with the revised guidance disclosed to the market on July 12, 2021. As far as the other members of the Group Management Committee are concerned, the grants for the years 2019 and 2020 were reduced by 20% and 15% respectively (through a proportional decrease of the maximum number of performance shares initially granted). The extra-financial targets are maintained for all beneficiairies. 4.3.3. Performance shares that have become available since January 1, 2021 for the Executive Officers – AMF Table 7 Since January 1, 2021, no performance shares have become available to Executive Officers. However, the performance shares granted on July 22, 2018 will become available on July 30, 2021. The Chief Executive Officer is part of the beneficiaries of this plan. Terms and conditions regarding share acquisition and availability are described in the 2020 Universal Registration Document in section 4.3.3.1. AMF Table 7 Plan Date Number of shares available during the financial year Vesting Date Availability Date Chief Executive Officer July 22, 2018 13,748 July 30, 2021 July 30, 2021 4.3.4. Subscription or purchase options exercised since January 1, 2021 by Executive Officers – AMF Table 5 The Chief Executive Officer did not receive stock-options prior to the grant dated July 24, 2019 (under vesting). 1 Performance shares plans dated July 24, 2019 and October 23, 2019 2 Performance shares plan dated July 24, 2020 Trusted Partner for your Digital Journey 58/69 the 4.4. Common Stock Evolution 4.4.1. Basic data 4.4.1.1. Information on stock The Company's shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. Atos SE shares are eligible for SRD and PEA. The Company’s shares have been included in the CAC 40, the main share index published by Euronext Paris, since March 20, 2017. The main tickers are: SourceTickersEuronextATOAFPATOBloombergATO FPReutersATOS PAThomsonATO FR The Euronext sector classification is as follows: Euronext: ICB sectorial classificationsIndustry: 9000, TechnologySupersector: 9500, TechnologySector: 9530, Software and Computer ServicesSubsector: 9533, Computer Services 4.4.1.2. Free-float Atos updated its level of free float following the expiration, on September 30, 2020, of the lock-up commitment pursuant to the Lock-up Agreement between Atos SE and Siemens Pension-Trust e.V. (SPT). Considering that SPT acts independently with regard to its status, and is not legally controlled by Siemens AG, the 10,722,509 Atos shares owned by SPT as of June 30, 2021, representing 9.75%, were included in the free-float. Stakes owned by the employees and the members of the Board of Directors as well as treasury shares, are excluded from the free float. Trusted Partner for your Digital Journey 59/69 4.4.2. Dividend On the proposal of the Board of Directors, the Annual General Meeting of May 12, 2021 approved the payment in 2021 of a dividend of 0.90€ per share in respect of the result of the 2020 fiscal year. The payment of the dividend intervened on May 18, 2021. During the past three fiscal periods, Atos SE paid the following dividends: 4.4.3. Common stock 4.4.3.1. Common stock as at June 30, 2021 As at June 30, 2021, the Company’s issued common stock amounted to € 109,993,166 divided into 109,993,166 fully paid-up shares of € 1.00 par value each. Since December 31, 2020, the share capital has remained unchanged and was not subject to any variation. 4.4.3.2. Threshold crossings Since January 1, 2021, the Group has been informed of the following statutory thresholds crossings: (i) BlackRock, Inc., acting on behalf of clients and funds which it manages, declared having crossed, upwards on February 1, 2021, the thresholds of 5% of the share capital and voting rights of the Company (following an acquisition of Atos SE shares on and off market and the receipt of Atos SE shares held as collateral). BlackRock, Inc. declared holding 5.06% of the share capital and voting rights of the Company; (ii) Siemens Pension-Trust e.V. declared having crossed downwards, on June 14, 2021, the thresholds of 10% of the share capital and voting rights of the Company (following the sale of Atos SE shares on the market). Siemens Pension-Trust e.V. declared holding 9.96% of the share capital and voting rights of the Company through the trust Siemens Pension-Trust e.V. Trusted Partner for your Digital Journey 60/69 4.4.3.3. Treasury stock Legal Framework The 16th resolution of the Annual General Meeting of May 12, 2021 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. These purchases may be carried out: to ensure liquidity and an active market of the Company’s shares through an investment services provider acting independently in the context of a liquidity contract, in accordance with the professional conduct charter accepted by the AMF; to attribute or sell these shares to the executive officers and Directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 22-10-56 et seq. of the Commercial Code, and (iii) free awards of shares in particular under the framework set by articles L. 22-10-59, L. 22-10-60 et L. 225-197-1 et seq. of the Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them in payment or exchange or other in the context of potential external growth operations; or to cancel them as a whole or in part through a reduction of the share capital authorized by the General Meeting, in particular pursuant to the 17th resolution of the Annual General Meeting held on May 12, 2021. This authorization shall be used at any time except during public offers on the shares of the Company. This authorization will also enable the Company to trade in its own shares for any other purpose in accordance with the regulations in force or which would be presumed to be legitimate by the applicable legal and regulatory provisions or which would be recognized as a market practice by the AMF. In such a case, the Company would inform its shareholders by way of a press release. The purchase of shares shall not exceed, at any time, a maximum number of shares representing 10% of the share capital of the Company, at any time, this percentage being applied to a share capital figure adjusted to reflect transactions affecting the share capital subsequent to the Annual General Meeting held on May 12, 2021, it being specified that where the shares are repurchased in the context of a liquidity contract, the number of shares taken into account in calculating the 10% limit will be the number of shares purchased minus the number of shares resold during the period of the authorization. Acquisitions, sales and transfers or exchange of shares may be made by any means, subject to the limits authorized by the laws and regulations in force, on one or several occasion, on a regulated market or via a multilateral trading facility or a systematic internalizer or over the counter, including by public tender offering or by block purchases or sales (with no limit on the portion of the share repurchase program), and where required, by derivative financial instrument (traded on a regulated market or a multilateral trading facility via a systematic internalizer or over the counter) or by warrants or securities giving access to Company shares, or the implementation of optional strategies such as purchases or sales of purchase or sale options, or by the issuance of securities giving access to the Company’s capital by conversion, Trusted Partner for your Digital Journey 61/69 exchange, redemption, exercise of a warrant or any other means to Company shares held by this latter party, and when the Board of Directors or the person acting on the Board of Directors’ authority, under conditions laid down in the law, decides in compliance with the relevant legal and regulatory provisions. The maximum purchase price per share may not exceed € 120 (fees excluded). The Board of Directors may adjust the aforementioned maximum purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the free allocation of shares, as well as in the event of division of the nominal value of the share or share consolidation or any other transaction on equity, so as to take account of the impact of such transactions on the value of the shares. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,319,917,992 as calculated on the basis of the share capital as of the day of the Annual General Meeting. This authorization was granted for a period of eighteen (18) months as from May 12, 2021. Treasury Stock As at June 30, 2021, the Company owned 782,876 shares which amounted to 0.7% of the share capital with a portfolio value of € 40,161,538.80 based on June 30, 2021 market price, and with book value of € 49,524,498.45. These shares are assigned to the allocation of shares to employees or executive officers and Directors of the Company or its group and correspond to the hedging of its undertakings under the LTI plans. The Company proceeded to the purchase of 820,000 shares from February 19, 2021 to March 5, 2021 as part of a mandate given to a financial intermediary as announced by the Group on February 19, 2021. From January 1, 2021 to June 30, 2021 the Company transferred 155,389 shares of the Company to beneficiaries of LTI plans. 4.4.3.4. Potential common stock Potential dilution Based on 109,993,166 outstanding shares as of June 30, 2021, the common stock of the Group could be increased by 2,580,340 new shares, representing 2.35% of the common stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares, as follows: (in shares)June 30, 2021*December 31, 2020Change% of share capitalNumber of shares outstanding109,993,166109,993,166-From stock subscription options152,900162,900-10,0000.14%From performance shares2,427,4402,812,862-385,4222.21%Potential dilution2,580,3402,975,762-395,4222.35%Total potential common stock112,573,506112,968,928* Does not take into account new grants and reductions in the number of performance shares decided after June 30, 2021, or any write-offs after that date On the total of 152,900 of stock options, no option had a price of exercise lower than € 52.46 (opening stock price as of June 30 2021). Trusted Partner for your Digital Journey 62/69 Stock options evolution Number of stock subscription options at December 31, 2020162,900Stock subscription options granted in 2021-Stock subscription options exercised in 2021-Stock subscription canceled or forfeited in 202110,000Number of stock subscription options at June 30, 2021152,900 As of June 30, 2021, no stock options granted by the Group are exercisable, the total of stock options are vesting and will be exercisable as from July 24th, 2022. Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meeting of June 16, 2020 and May 12, 2021, the following authorizations to modify the share capital, and to issue shares and other securities are in force as of July 27, 2021: The number of new authorized shares that may be issued pursuant to the above-mentioned delegation of authority (the 28th and 29th resolutions of the Annual General Meeting of June 16, 2020 being set aside) amounts to 32,892,912, representing 29.90% of the share capital as of the date of this document. Trusted Partner for your Digital Journey 63/69 5. Appendices 5.1. Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Gilles Arditti Executive Vice-President Investor Relations and Internal Audit Tel +33 (0) 1 73 26 00 66 gilles.arditti@atos.net Mohamed Taghia Investor Relations Manager Tel +33 (0) 6 75 08 37 75 mohamed.taghia@atos.net Requests for information can also be sent by email to investors@atos.net 5.2. Financial calendar October 21, 2021 (Before Market Opening) February 28, 2022 (After Market Close) April 27, 2022 (Before Market Opening) May 18, 2022 July 27, 2022 (Before Market Opening) Third quarter 2021 revenue Full Year 2021 results First Quarter 2022 revenue Annual General Meeting First semester 2022 results 5.3. Amendment to the 2020 Universal Registration Document cross-reference table The cross-reference table below identifies the information required by appendices 1 and 2 of the Commission Delegated Regulation (EU) 2019/980 of March 14, 2019 in accordance with the structure of the Universal Registration Document which are mentioned in the sections of the 2020 Universal Registration Document as updated and/or modified by this Amendment to the 2020 Universal Registration Document. Both documents must be read together. The information on the websites mentioned by the following hyperlink www.atos.net and www.amf- france.org pages 1 and 56 of this amendment to the 2020 Universal Registration Document are not part of the amendment. Trusted Partner for your Digital Journey 64/69 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 1. 1.1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. 3. 4. 4.1. 4.2. 4.3. 4.4. Persons responsible, third party information, experts’ reports and competent authority approval Indication of persons responsible Declaration by persons responsible Name, address, qualification and material interest in the issuer of experts Confirmation of the accuracy of the source from a third party Statement from the designated authority with no prior approval Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Risk Factors Information about the issuer The legal and commercial name of the issuer The place and the number of registration The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office Business overview Principal Activities 5. 5.1. 5.1.1. Nature of the issuer’s operations and its principal activities 5.1.2. New products or services developed 5.2. Principal market 5.3. Importants business events 5.4. Strategy and objectives 5.5. Dependence on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes 5.6. Basis for statements made by the issuer regarding its competitive position 5.7. Investments 5.7.1. Main investments 5.7.2. 5.7.3. 5.7.4. 6. Material investments of the issuer that are in progress or for which firm commitments have already been made, including the geographic distribution of these investments and the method of financing Main joint ventures and undertakings in which the issuer holds a proportion of the capital Environmental issues Organizational Structure 6.1. Brief description of the Group 6.2. 7. 7.1. 7.1.1. 7.1.2. 7.2. List of significant subsidiaries Operating and financial review Financial condition Balanced and comprehensive analysis of development and performance or position including both financial and, where appropriate, non-financial Key Performance Indicators Likely future development in the field of research and development Operating Results 7.2.1. Unusual or unfrequent events or new developments materially affecting the issuer’s income Trusted Partner for your Digital Journey 65/69 Sections in the 2020 Universal Registration Document 9.1.1 9.1.2 N/A N/A N/A 9.1.3 N/A 7.2 4.1.2 4.1.2 4.1.2 4.1.1 ; 4.1.2; 9.2 1. “Atos profile”; 3.1; 2 2 1. “Atos profile”; 1. “Market sizing and competitive landscape” 1. “2020 key achievements”;1. “Atos story”; 8.8.5 Vision, ambition & strategy; 3.2 7.2.4.2; 1. “Market sizing and competitive landscape 1. “Business model” ; 6.1.7.5 – Note 1 N/A N/A 5.2 1. “Atos profile; 1. “Atos story”; 6.1.7.5 – Note 18 3.1; 3.3; 6.1 2.4 3.1; 3.3; 6.1 1 “2020 key achievements”.; 2; 3.1; 8.8.5 Amendment to the 2020 Universal Registration Document 3.1 3.2 N/A N/A N/A 3.3 N/A 1.4 N/A N/A N/A N/A N/A N/A N/A 1.1 1.3 N/A N/A 2.2.6.3 – Note 1 N/A N/A N/A N/A N/A 1.2 N/A 1.2; 2.1; 2.2 1.2 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 7.2.2. Narrative discussion about material changes in net sales or revenues 8. 8.1. 8.2. 8.3. 8.4. 8.5. 9 9.1. Capital resources Issuer’s capital resources Sources and amounts of the issuer’s cash flows Information on the borrowing requirements and funding structure Restrictions on the use of capital resources Anticipated sources of funds to fulfill commitments Regulatory environment Information regarding any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations Trend information 10. 10.1. The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year 10.2. Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects 11. 11.1. 11.2. 11.3. 12. Profit forecasts or estimates Profit forceasts or estimates publication Statement setting out the principal assumptions upon which the issuer has based his forecast or estimate Statement pointing out the comparaison with historial financial information consistent with the issuer’s accounting policies Administrative, management and supervisory body and senior management. Information regarding the members 12.1 Name, business addresses and functions 12.2 13. 13.1. 13.2. 14. 14.1. 14.2. Detail of the nature of any family relationship Relevant management expertise and management experience Details of any convictions Conflicts of interest Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment 14.3. Information about Audit and Remuneration Committee 14.4. 14.5. 15. 15.1. 15.2. 15.3. 16. 16.1. 16.2. 16.3. 16.4. Statement related to corporate governance Potential material impacts on the corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders Identification of the main shareholders holding more than 5% Types of voting rights Ownership and control Arrangements which may result in a change in control of the issuer 17. Related party transactions 18. 18.1. 18.1.1. 18.1.2. 18.1.3. Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information Audited historical financial information covering the latest three years Change of accounting reference date Accounting standards Trusted Partner for your Digital Journey 66/69 Sections in the 2020 Universal Registration Document 1. “Market sizing and competitive landscape; 2; 3.1 6.1; 8 3.3.2 3.3.3.1 N/A N/A 5 1” Market trends”; 2; 3.1 1” Market trends”; 2; 3.1 3.2; 3.3 3.2; 3.3 6.1.7.2 1. »Board of Directors »,; 1. “Group Management Committee”; 4.2.3.1 4.2.3.7 4.2.3.1 4.2.3.6 4.2.3.7 4.3 4.3 4.2.3.1 4.2.3.7 4.2.4.3 ; 4.2.4.4 ; 4.2.4.6 4.2.1 4.2.2 5.3; 3.1.6 4.3.3 5.3.7 ; 8.7.5 6.1.7.5 - Note 6; 8.2 4.1.3.2 ; 8.7.4 8.1.1.2; 8.2; 8.7 4.1 6.1.7.5- Note 17; 6.1.7.5- Note 19 6.2; 9.6.2 N/A 6.1.7.2 Amendment to the 2020 Universal Registration Document 1.2 2.2 ; 4.4 2.1.2 2.1.3 N/A N/A N/A 1.2 1.2 1.3; 2.1 1.3; 2.1 2.2.6.1 N/A N/A N/A N/A N/A 4.3 4.3 4.1 N/A N/A N/A N/A 1.2.5 4.3 N/A 4.4.1.2 ; 4.4.3.2 N/A 4.4.1 ; 4.4.3 N/A 1.6 2.2 N/A 2.2.6.1 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Sections in the 2020 Universal Registration Document Amendment to the 2020 Universal Registration Document 18.1.4. 18.1.5. 18.1.6. 18.1.7. 18.2. 18.2.1. 18.3. 18.3.1. 18.3.2. 18.3.3. 18.4. 18.5. 18.5.1. 18.5.2. 18.6. 18.7. 19. 19.1. Change of accounting framework Financial information according to French accounting standards Consolidated financial statements Age of latest financial information Interim and other financial information Quarterly or half-yearly financial information Auditing of historical annual financial information Independent audit of historical annual financial information Indication of other information in the registration document that has been audited by auditors Source of information and reason for information not to be audited Pro forma financial information Dividend policy Description of the issuer’s policy on dividends Amount of dividend per share Legal and arbitration proceedings Significant changes in the issuer’s financial position Additional information Share Capital 6.1.7.2 6.1 6.1 6.1 N/A 6.1.1 N/A N/A 3.1 8.3 8.3 7.3.3 6.1.7.5– Note 19 2.2.6.1 2.2 2.2 2.2 2.2 2.3 N/A N/A 1.2 4.4.2 4.4.2 1.5 2.2.6.3 – Note 13 19.1.1. 19.1.2. 19.1.3. 19.1.4. 19.1.5. 19.1.6. 19.1.7. 19.2. 19.2.1. 19.2.2. 19.2.3. 20. 21. Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition righ.s and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association Register and entry number of the issuer and brief description of the issuer’s object and purposes Rights, preferences and restrictions attached to each share category Article of association, statutes, charter or bylaws delaying, deferring or preventing a change of control of the issuer Material Contracts Documents on Display 8.1.1.2; 8.2; 8.7; 8.7.7 N/A 8.7.6 8.7.7 8.7.7 N/A 8.7.2 4.1.2 4.1.3.2 4.1.3.2 6.2 4.1; 8.4 4.4.3 N/A 4.4.3 4.4.3 N/A N/A N/A 1.2.4 5.1 5.4. Cross-reference table for the Half-Yearly Financial Report In order to facilitate the reading of this document, the cross-reference table hereafter, identifies within this Amendment to the 2020 Universal Registration Document the information which constitutes the Interim Financial Report requested to be published by listed companies in accordance with article L. 451-1-2 of the French Monetary and Financial Code and article 222–4 of the AMF General Regulations. Information Consolidated half-yearly financial statements First half-year management report Declaration of the person responsible for the Amendment to the 2020 Universal Registration Document Statutory auditors’ report on the consolidated half-yearly financial statements 2.3 Sections 2.2 1.1, 1.2, 1.4, 1.6, 2.1 3.2 Trusted Partner for your Digital Journey 67/69 5.5. Full index 1. ACTIVITY REPORT ................................................................................................ 3 1.1. Atos in the first half of 2021 ...................................................................................................... 3 1.2. Operational review .................................................................................................................... 7 1.2.1. Statutory to constant scope and exchange rates reconciliation ................................................. 7 1.2.2. Performance by Industry ..................................................................................................... 9 1.2.2.1. Manufacturing .......................................................................................................................... 9 1.2.2.2. Financial Services & Insurance ................................................................................................... 10 1.2.2.3. Public Sector & Defense ............................................................................................................ 10 1.2.2.4. Telecom, Media & Technology .................................................................................................... 11 1.2.2.5. Resources & Services ............................................................................................................... 12 1.2.2.6. Healthcare & Life Sciences ........................................................................................................ 12 1.2.3. Performance by Regional Business Units ............................................................................. 13 1.2.3.1. North America ......................................................................................................................... 13 1.2.3.2. Northern Europe ...................................................................................................................... 14 1.2.3.3. Central Europe ........................................................................................................................ 15 1.2.3.4. Southern Europe ...................................................................................................................... 16 1.2.3.5. Growing Markets ...................................................................................................................... 17 1.2.3.6. Global structures ..................................................................................................................... 17 1.2.4. Portfolio .......................................................................................................................... 18 1.2.4.1. Order entry and book to bill ...................................................................................................... 18 1.2.4.2. Full backlog ............................................................................................................................. 18 1.2.4.3. Full qualified pipeline ................................................................................................................ 18 1.2.5. Human Resources ............................................................................................................ 19 1.3. 2021 objectives and mid-term targets ..................................................................................... 20 1.4. Risk Factors ............................................................................................................................. 21 1.5. Claims and litigations .............................................................................................................. 21 1.5.1. Tax claims ...................................................................................................................... 22 1.5.2. Commercial claims ........................................................................................................... 22 1.5.3. Labor claims .................................................................................................................... 23 1.5.4. Representation & Warranty claims ..................................................................................... 23 1.5.5. Miscellaneous .................................................................................................................. 23 1.6. Related parties ........................................................................................................................ 23 FINANCIAL STATEMENTS ................................................................................... 24 2.1. Financial review ....................................................................................................................... 24 Income statement ............................................................................................................ 24 2.1.1.1. Operating margin ..................................................................................................................... 24 2.1.1.2. Other operating income and expenses ........................................................................................ 24 2.1.1.3. Net financial expense ............................................................................................................... 25 2.1.1.4. Corporate tax .......................................................................................................................... 26 2.1.1.5. Share of net profit (loss) of associates ........................................................................................ 26 2.1.1.6. Normalized net income ............................................................................................................. 26 2.1.1.7. Half year Earning Per Share ...................................................................................................... 27 2.1.2. Cash Flow and net cash .................................................................................................... 27 2.1.3. Bank covenant ................................................................................................................. 29 2.2. Interim condensed consolidated financial statements ............................................................. 30 Interim condensed consolidated income statement ............................................................... 30 2.2.1. Interim condensed consolidated statement of comprehensive income ..................................... 31 2.2.2. Interim condensed consolidated statement of financial position ............................................. 32 2.2.3. Interim condensed consolidated cash flow statement ............................................................ 33 2.2.4. 2.2.5. Interim consolidated statement of changes in shareholders’ equity......................................... 34 2.2.6. Notes to the interim condensed consolidated financial statements .......................................... 35 2.2.6.1. Basis of preparation ................................................................................................................. 35 2.2.6.2. Impact of the pandemic crisis on the interim condensed consolidated financial statements ................ 36 2.2.6.3. Alternative Performance measures ............................................................................................. 36 2.2.6.4. Notes to the interim condensed consolidated financial statements .................................................. 37 2.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2021 ...................................................................................................... 52 3. PERSON RESPONSIBLE ....................................................................................... 54 3.1. Person responsible for the amendment to the Universal Registration Document ..................... 54 Trusted Partner for your Digital Journey 68/69 3.2. Statement of the person responsible for the amendment to the Universal Registration Document ................................................................................................................................ 54 3.3. For the audit ............................................................................................................................ 54 4. CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION ............................ 55 4.1. Office renewals and composition of the Board of Directors ...................................................... 55 4.2. Annual General Meeting held on May 12, 2021 ........................................................................ 56 4.3. Executive compensation and stock ownership ......................................................................... 57 4.3.1. Performance shares allocation plan decided on July 27, 2021 ................................................ 57 4.3.2. Revision of the performance conditions for the performance share plans 2019 and 2020 ........... 58 4.3.3. Performance shares that have become available since January 1, 2021 for the Executive Officers – AMF Table 7 ................................................................................................................. 58 4.3.4. Subscription or purchase options exercised since January 1, 2021 by Executive Officers – AMF Table 5 ........................................................................................................................... 58 4.4. Common Stock Evolution ......................................................................................................... 59 4.4.1. Basic data ....................................................................................................................... 59 4.4.1.1. Information on stock ................................................................................................................ 59 4.4.1.2. Free-float ................................................................................................................................ 59 4.4.2. Dividend ......................................................................................................................... 60 4.4.3. Common stock................................................................................................................. 60 4.4.3.1. Common stock as at June 30, 2021 ............................................................................................ 60 4.4.3.2. Threshold crossings .................................................................................................................. 60 4.4.3.3. Treasury stock ......................................................................................................................... 61 4.4.3.4. Potential common stock ............................................................................................................ 62 5. APPENDICES ...................................................................................................... 64 5.1. Contacts................................................................................................................................... 64 5.2. Financial calendar .................................................................................................................... 64 5.3. Amendment to the 2020 Universal Registration Document cross-reference table ................... 64 5.4. Cross-reference table for the Half-Yearly Financial Report ...................................................... 67 5.5. Full index ................................................................................................................................. 68 Trusted Partner for your Digital Journey 69/69 | Semestriel, 2021, IT, Atos | write me a financial report |
Semestriel | 2,022 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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### Subject:
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| Amendment to the 2021 Universal Registration Document (URD) Including the 2022 half-year financial report Only the French version of the amendment to the 2021 Universal Registration Document has been submitted to the Autorité des Marchés Financier (AMF). It is therefore the only version that is legally binding. This amendment to the Universal Registration Document was filed on August 5, 2022 with the AMF in its capacity as the competent authority under Regulation (EU) 2017/1129, without prior approval in accordance with Article 9 of that Regulation. The French version of the Universal Registration Document may be used for the purpose of a public offering of financial securities or the admission of financial securities for trading on a regulated market if it is supplemented by a securities note and, as the case may be, a summary and all amendments made to the Universal Registration Document. The resulting set of documents is approved by the AMF in accordance with Regulation (EU) 2017/1129. This amendment updates and should be read together with the 2021 Universal Registration Document filed with the AMF on April 6, 2022 under registration number D.22-0247. A cross-reference table is included in this amendment to allow readers to locate easily the information required under Appendices of 1 and 2 of Commision Delegated Regulation (EU) 2019/980 of March 14, 2019, in accordance with the structure of the Universal Registration Document and the information that has been updated or modified. The 2021 Universal Registration Document and this amendment are available on the Atos website (www.atos.net), in the Investors / Regulated Information section, and on the AMF website (www.amf- france.org). Trusted Partner for your Digital Journey 1/88 Content 1. ACTIVITY REPORT .............................................................................................. 4 1.1. Envisioned spin-off project ....................................................................................................... 4 1.2. Atos Executive Board ................................................................................................................ 7 1.3. Atos in the first half of 2022 ..................................................................................................... 8 1.4. Operational review ................................................................................................................. 12 1.4.1. Statutory to constant scope and exchange rates reconciliation ............................................. 12 1.4.2. Performance by Business ................................................................................................ 14 1.4.3. Performance by Regional Business Units ........................................................................... 15 1.4.4. Portfolio ........................................................................................................................ 16 1.4.5. Human ressources ......................................................................................................... 17 1.5. 2022 objectives ...................................................................................................................... 18 1.6. Risk Factors ............................................................................................................................ 19 1.7. Claims and litigations ............................................................................................................. 20 1.7.1. Tax claims ..................................................................................................................... 20 1.7.2. Commercial claims ......................................................................................................... 20 1.7.3. Labor claims .................................................................................................................. 21 1.7.4. Representation & Warranty claims .................................................................................... 21 1.7.5. Miscellaneous ................................................................................................................ 21 1.8. Related parties ....................................................................................................................... 21 2. 1. ACTIVITY REPORT .............................................................................................. 4 1.1. Envisioned spin-off project ....................................................................................................... 4 1.2. Atos Executive Board ................................................................................................................ 7 1.3. Atos in the first half of 2022 ..................................................................................................... 8 1.4. Operational review ................................................................................................................. 12 1.4.1. Statutory to constant scope and exchange rates reconciliation ............................................. 12 1.4.2. Performance by Business ................................................................................................ 14 1.4.3. Performance by Regional Business Units ........................................................................... 15 1.4.4. Portfolio ........................................................................................................................ 16 1.4.5. Human ressources ......................................................................................................... 17 1.5. 2022 objectives ...................................................................................................................... 18 1.6. Risk Factors ............................................................................................................................ 19 1.7. Claims and litigations ............................................................................................................. 20 1.7.1. Tax claims ..................................................................................................................... 20 1.7.2. Commercial claims ......................................................................................................... 20 1.7.3. Labor claims .................................................................................................................. 21 1.7.4. Representation & Warranty claims .................................................................................... 21 1.7.5. Miscellaneous ................................................................................................................ 21 1.8. Related parties ....................................................................................................................... 21 FINANCIAL STATEMENTS .................................................................................. 22 2.1. Financial review ...................................................................................................................... 22 2.1.1. Income statement .......................................................................................................... 22 2.1.2. Cash Flow and net cash .................................................................................................. 25 2.1.3. Bank covenant ............................................................................................................... 27 2.2. Interim condensed consolidated financial statements ............................................................ 28 Interim condensed consolidated income statement ............................................................. 28 2.2.1. Interim condensed consolidated statement of comprehensive income ................................... 29 2.2.2. Interim condensed consolidated statement of financial position............................................ 30 2.2.3. Interim condensed consolidated cash flow statement .......................................................... 31 2.2.4. 2.2.5. Interim consolidated statement of changes in shareholders’ equity ....................................... 32 2.2.6. Notes to the interim condensed consolidated financial statements ........................................ 33 2.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2022 ..................................................................................................... 55 3. PERSON RESPONSIBLE ..................................................................................... 57 3.1. Person responsible for the amendment to the Universal Registration Document .................... 57 3.2. Statement of the person responsible for the amendment to the Universal Registration Document ............................................................................................................................... 57 3.3. For the audit ........................................................................................................................... 57 CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION .......................... 58 4.1. Composition of the Board of Directors .................................................................................... 58 4.2. Appointment of a new Chief Executive Officer and of a Deputy Chief Executive Officer .......... 64 4.3. Annual General Meeting held on May 18, 2022 ....................................................................... 66 4.4. Compensation and stock ownership for executive corporate officers...................................... 67 4.4.1. Compensation for the executive corporate officers ............................................................. 67 4.4.2. Performance shares and free shares allocation plans decided on May 18, 2022 and June, 13 2022 ............................................................................................................................ 71 4.4.3. Revision of the performance conditions of the performance share plan dated July 27, 2021 ..... 74 4.4.4. Non-achievement of the performance condition of the stock options plan dated July 24, 2019 . 74 4.4.5. Shares granted for free to executive corporate officer since January 1, 2022 – AMF Table N°6 74 4.4.6. Performance shares that have become available since January 1, 2022, for executive corporate officers – AMF Table N°7 ................................................................................................. 75 4.4.7. AMF Table N°11 ............................................................................................................. 75 4.5. Common Stock Evolution ........................................................................................................ 76 4.5.1. Basic data ..................................................................................................................... 76 4.5.2. Dividend ....................................................................................................................... 77 4.5.3. Common stock ............................................................................................................... 77 Trusted Partner for your Digital Journey 2/88 5. APPENDICES ..................................................................................................... 83 5.1. Contacts .................................................................................................................................. 83 5.2. Financial calendar ................................................................................................................... 83 5.3. Amendment to the 2021 Universal Registration Document cross-reference table................... 83 5.4. Cross-reference table for the Half-Yearly Financial Report ..................................................... 86 5.5. Full index ................................................................................................................................ 87 Trusted Partner for your Digital Journey 3/88 1. Activity Report 1.1. Envisioned spin-off project On June 14, 2022, Atos announced during a Capital Markets Day that it is studying a separation into two publicly listed companies: 1. SpinCo : a leading player positioned in the high-growth digital transformation, big data and cybersecurity markets SpinCo would be positioned in high growth markets, driven by the shift to public cloud, increasing need for cybersecurity, big data and analytics going mainstream, and the development of smart applications. SpinCo would be led by a seasoned management team with a successful track record, under the leadership of Philippe Oliva and Anil Agrawal as CFO. In 2021, the SpinCo perimeter generated €4.9 billion revenue, a 7.8% operating margin and a c. €150 million free cash flow before interest and tax. SpinCo would bring together two of Atos’ existing business lines: Digital: with c. 50,000 experts2 and strong partnerships with hyperscalers and market leading software vendors, Digital partners with customers in their digital journey to help them transform their businesses. In a fast-growing market supported by the shift to cloud and an increasing demand for digital transformation, Digital is well positioned to grow. Led by Rakesh Khanna, Digital generated €3.5 billion in revenue and a high single-digit operating margin in 2021. Digital’s 2022- 2026 acceleration plan, for a total cost of c. €370 million over the period, would aim at improving its sales performance in order to unlock growth potential, and transforming its delivery model in order to enhance profitability. Big Data and Security (BDS): with c. 9,000 highly talented experts2, BDS is the trusted partner for secure data intelligence, through two activities: Digital Security and Advanced Computing. Recognized by Gartner as the #1 player in Managed Security Services worldwide and by Hyperion as the #3 player worldwide in Supercomputing, BDS enjoys a strong position in its markets, to capitalize on a growing demand for cybersecurity and advanced computing products and services. Led by Jean-Philippe Poirault, BDS generated €1.4 billion in revenue and a midsingle-digit operating margin in 2021 (driven down by the Advanced Computing division while Digital Security stood at a high-single digit). Investments in BDS over 2022-2026, for a total amount of c. €40 million, would aim at accelerating growth, notably by repositioning its advanced computing portfolio, and stepping up operating margin, through renewed growth and improved cost base. SpinCo would benefit from strong commercial and managerial synergy opportunities between its two business lines, in particular with the fertilization of Digital’s customer base by BDS and with a joint go-to- market strategy. In total, SpinCo’s acceleration plan is expected to represent an investment of €0.4 billion over the next five years. This is expected to allow SpinCo to deliver c. 7% organic growth on average over 2022-2026 (starting from an expected €5.3 billion in 2022), to gradually improve its operating margin to 12% in 2026 and generate €700 million in free cash flow before interest and tax, corresponding to a 75% to 80% OMDA conversion1. SpinCo’s leverage target would be below 3.0x OMDA as of 2024. 2. TFCo (Atos): leader in Managed Infrastructure Services, Digital Workplace and Professional Services TFCo (Atos) would consist of Atos’ Tech Foundations business line, focused on designing, building and managing complex and vital information systems worldwide. Led by Nourdine Bihmane and Darren Pilcher as CFO, Tech Foundations is positioned on the infrastructure and private cloud market, which is currently experiencing a mix shift from traditional to next generation infrastructure. With c. 48,000 employees2 across the world and serving more than 1,200 customers across geographies and industries, Tech Foundations generated, in 2021 (excluding UCC), €5.4 billion in revenue, a -1.1% operating margin and a €-507 million free cash flow before interest and tax (including an exceptional €-180 million cash out related to the funding of a restructuring plan in Germany and working capital normalization for around €-200 million). 1 Expressed in percentage of OMDA pre-IFRS 16 2 Indicative and provisional figure as c. 6,000 Atos employees are still in the process of being allocated. If a decision is made to move forward with the envisaged project, full allocation is expected to be completed at the close of the project. Trusted Partner for your Digital Journey 4/88 In order to adapt to the shifting market trends described above, TFCo would implement an ambitious turnaround plan that would ultimately reposition the business for growth, profitability and cash generation. This plan, for a total cost of €1.1 billion over the 2022- 2026 period, is articulated around 3 key steps: Refocus: rationalizing the activity portfolio to pave the way for transformation, by exiting non- strategic businesses and turning around or exiting negative margin accounts; Recover: resetting the cost structure by addressing structural issues across right shoring, age pyramid, reducing third-party spending and consolidating data centers and facilities to drive cost savings; Rebound: stabilize revenue and then pivot to growth, thanks to the development of next generation offerings and investments in sales capabilities. TFCo is expected to generate c. €5.0 billion in revenue in 2022 (excluding UCC). As the turnaround plan is being executed, revenue is expected to decrease to c. €4.1 billion in 2024 before stabilizing in 2025 and resuming a growth trajectory form 2026 onwards. Operating margin is expected to turn positive in 2025 and to exceed 5% in 2026. Free cash flow before interest and tax is expected at €150 million in 2026 and growing around €50 million per year thereafter, which would enable TFCo to have a solid stand-alone path or participate in industry consolidation. The contemplated project would maximize value for all Atos’ stakeholders by: Creating two companies, with an increased focus on their respective strategies and markets, each with a dedicated management team, the agility to better serve their customers and to execute their respective transformation plans; Providing each company with an adequate capital structure adapted to its respective growth and cash generation profile; Unlocking value of SpinCo by creating a publicly listed company exposed to highgrowth and high- margin markets; Supporting TFCo’s transformation and fully financing its turnaround, thereby restoring its financial performance, while keeping optionality to participate in market consolidation; Creating a wealth of professional development opportunities for employees. Financing of Atos’ transformation plan successfully secured Atos announced on June 14, 2022, that Should the Group decide to move forward with this project, the total funding needs for the 2022-2023 period, until the contemplated separation would become effective, are estimated to be around €1.6 billion. This amount assumes that the realization of the proceeds expected from a contemplated non-core businesses disposal program (mostly within SpinCo), for €0.7 billion. On June 14, 2022, Atos has completed the sale of its entire stake in Worldline of c. 7 million shares representing c. 2.5% of Worldline’s share capital. The sale was carried out by way of an accelerated book building to institutional investors. The net proceeds from this transaction amounted to c. 220 million euros. On July 13, 2022, S&P Global lowered Atos’ credit rating to BB. This new rating, which takes into account the envisioned transformation plan presented on June 14, still provides a favorable framework for the setup of an adequate and sustainable capital structure. It also allows Atos to continue to have access to a wide range of debt financing instruments, thus maintaining the flexibility needed to optimize its capital structure. As highlighted by S&P Global’s statement, Atos’ liquidity is strong and its financial policy is supportive. In particular, S&P Global stated that Atos' planned liquidity should provide the Group with the means to deliver its transformation plan. On July 29, Atos successfully finalized an agreement for a new debt package, which provides the Group with the funding it needs during the interim period before the envisioned separation into two listed companies, and significantly reinforces its liquidity. Trusted Partner for your Digital Journey 5/88 The new debt package consists of the following: the conversion of €1.5 billion (out of a total of €2.4 billion of revolving credit facility commitment) into an unsecured term loan with a maturity of 18 months and two 6-month extensions at the Group’s option; A €900 million revolving credit facility maturing in 2025; In addition, a new €300 million unsecured bridge loan to be repaid out of the expected proceeds from the contemplated non-core businesses disposal program. The maturity is 12 months with one 6-month extension at the Group’s option; The net debt/ OMDA financial covenant has been reset at 3.75x and will be tested annually, at end December. The syndication of this new debt package was finalized in a short timeframe, among Atos existing lenders composed of international banks. The unsecured term loan was oversubscribed, with very satisfactory pricing conditions. This demonstrates banking partner’s strong support of the Group’s strategy and marks an important milestone in its envisioned transformation plan. Contemplated transaction calendar and details If it is decided to move forward with the project, the objective would be to complete the separation into two entities (involving a prior reorganization of the Group) during the second half of 2023, and to complete the listing and distribution of SpinCo shares by the end of 20233, according to the preferred scenario at this stage. Atos’ Board of Directors has approved the launch of the in-depth study of the contemplated transaction. The decision on this reorganization and separate listing project and its terms and conditions will be made after the ongoing in-depth analysis has been completed; it remains conditional on general market conditions and would be subject to customary processes, including governance bodies and shareholders’ approval as well as consultation with the relevant employee representative bodies. Further information on any significant developments in this respect will be made to the market in due time, in accordance with applicable regulations. In the preferred scenario at this stage, Atos’ shareholders would retain their current shares of Atos and would receive SpinCo shares as in-kind distributions. SpinCo would be listed on the Euronext Paris stock exchange. After completion of the envisaged transaction, it is currently contemplated that Atos shareholders would hold 100% of TFCo and 70% of Spin Co. The remaining 30% stake in Spin Co would be held by TFCo and monetized over time to refinance TFCo’s turnaround costs. 3 According to preferred scenario at this stage Trusted Partner for your Digital Journey 6/88 1.2. Atos Executive Board In June and July 2022, the Group strengthened its governance to ensure the successful execution of its operational performance improvement plan and its strategic transformation project in order to create value for all its stakeholders, in particular its customers, employees and shareholders. This management team is now composed of: Nourdine Bihmane, Group CEO and co-CEO in charge of the Tech Foundations business, operational performance improvement and in particular cash generation. Diane Galbe, Senior Executive Vice President (Directrice Générale Adjointe) of the Group in charge of strategic projects and all support functions of the Group. Philippe Oliva, co-CEO in charge of Digital, Big Data and Security activities, as well as the acceleration and innovation plan for these growth activities. Philippe Oliva will retain his position as Group Deputy CEO. They will carry out their respective missions under the supervision of the Board of Directors and, as far as the strategic project is concerned, of the ad hoc Committee formed within it. Following those changes, the Group Executive Board, led by Nourdine Bihmane, Chief Executive Officer, is now composed as follows: Trusted Partner for your Digital Journey 7/88 1.3. Atos in the first half of 2022 January Atos announced that effective January 1st, 2022, Rodolphe Belmer has assumed office as the Group’s new Chief Executive Officer. Atos completed the acquisition of Cloudreach, a leading multi-cloud services company specializing in public cloud application development and cloud migration, with strong partnerships with all three hyperscalers. Through this acquisition Atos welcomes over 600 highly skilled cloud professionals to further strengthen its global cloud expertise. Atos developed a video system for Dassault Aviation’s ‘Falcon Albatros’, the future surveillance aircraft of France’s Navy. Atos was awarded a new contract to supply and install a new supercomputing cluster at Technische Universität Dresden (TU) in Germany. The supercomputer, based on Atos’ powerful BullSequana XH2000 architecture, will be used for data intensive HPC tasks and data analysis at the Center for Information Services and High-Performance Computing (ZIH). February Atos officially launched its ‘Factory of the Future’ project in Angers, France. With this new state-of-the- art factory, Atos is committed to both improving the quality of life at work for its employees, and meeting the highest technological requirements demanded by its customers around the world, through enhanced productivity, space optimization and a reduced carbon footprint. The ‘Factory of the Future’ project will ultimately create around 100 skilled jobs and turn the plant into a true European innovation center, the Group’s flagship, on an international scale. Atos announced a new governance structured around 3 Business Lines and 4 Regions, served by a Commercial Center of Excellence and Corporate Functions. Each Business Line - Tech Foundations, Digital and Big Data & Security (BDS) regroups the activities that fall under the same business model and operate in the same competitive landscape. The four Regions - Northern Europe & APAC, Central Europe, Southern Europe and the Americas - have ownership of accounts, regional resources and full P&L, in order to ensure optimal customer centricity and accelerated operational cadence. Atos unveiled its new exascale-class supercomputer, the BullSequana XH3000, a hybrid computing platform with unparalleled flexibility and performance to enable top scientists and researchers to advance research in sectors such as weather forecasting and climate change, new drug discovery, genomics. Designed and manufactured in Europe at its factory in Angers, France, this is Atos’ most efficient and powerful supercomputer and an important element in securing today’s digital and economic sovereignty. March Atos, Dassault Systèmes, Orange, Renault Group, STMicroelectronics and Thales launched the Software République incubator, an open innovation ecosystem for sustainable, secure and intelligent mobility. The incubator provides startups with resources from the six members, as well as a tailor-made support program Atos ensured effective and secure delivery of the Olympic and Paralympic Winter Games Beijing 2022. These games saw more than 3,400 athletes compete, supported by key digital systems which were orchestrated and secured by Atos, leveraging its global digital platforms, infrastructure, and cloud orchestration expertise. Atos announced the opening of a new next-gen Security Operations Center (SOC) in Sofia, Bulgaria, as part of the continuous expansion of its cybersecurity activities. The new center is Atos’ 16th next-gen SOC worldwide. It is designed to rapidly identify and limit the impact of security incidents for large organizations globally via 24/7/365 threat monitoring, detection, and targeted response supported by state-of-the-art technology with Artificial Intelligence (AI) and Machine Learning (ML) – ultimately strengthening Atos’ powerful global SOC network. Trusted Partner for your Digital Journey 8/88 Atos announced that it has been positioned as a Leader by Gartner in its February 2022 Magic Quadrant for Outsourced Digital Workplace Services (ODWS). This is the sixth consecutive year that Atos has been named a Leader in a Gartner Magic Quadrant report related to outsourced digital workplace services April Atos and the European multi-national space technology company OHB were awarded a contract by the German Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support to supply the "Space Situational Awareness Center Expansion Stage 1" to the German Federal Armed Forces. The two companies are supporting the German federal armed forces in the creation of a Space Situational Awareness (SSA) system to protect Germany’s national space infrastructure. Atos announced that it is ranked the number 1 in Managed Security Services (MSS) in terms of 2021 MSS revenue, according to the latest Gartner report, Gartner, Market Share: Managed Security Services, Worldwide, 2021. Atos moved up from number 2 to number 1 worldwide since 2020 with 20.9% growth, achieving the highest revenue of vendors in this market. Atos announced the revenue of its first quarter of 2022. Q1 2022 revenue was € 2,747 million, down -0.6% at constant currency. Q1 2022 showed a significant sequential improvement compared to Q4 2021, where revenue contracted -5.4% at constant currency and -6.9% organically excluding the impact of the UK BPO contract reassessment. Order entry was € 2.0 billion in Q1 2022, representing a book to bill ratio of 72%. May Atos launched Nimbix Supercomputing Suite, a set of flexible and secure high-performance computing (HPC) solutions available in an as-a-service model. Atos’ Nimbix Supercomputing Suite includes two new offerings including industry-first federated supercomputing-as-a-service and dedicated bare metal services, providing customers with added agility for their compute-intensive workloads and expanded consumption models. The Finnish Meteorological Institute (FMI), the government agency responsible for gathering and reporting weather data and forecasts in Finland, selected Atos in a seven-year multi-million-euro deal, to supply, deliver, install and operate a supercomputing system, based on Atos’ BullSequana XH2000 architecture. Compared to FMI’s current solution the new system will increase its computing power by a factor of 4 and will enable it to provide its clients with enhanced and more precise and reliable forecasting information. June Atos and IBM announced an expansion of their partnership around IBM Cloud for Financial Services to help financial services companies reach optimum data and systems security with “EU trusted third party cybersecurity monitoring” supplied by Atos. This will enable organizations, including operators of vital importance (OIV) and operators of essential services (OES) to go a step further in the adoption of cloud technology. Atos and OVHcloud, the European leader in cloud computing, announced a partnership in the field of quantum computing to make Atos’ quantum emulator available “as a service” through OVHcloud offers. Research laboratories, universities, startups and large companies will ultimately have the opportunity to design quantum software and explore pioneering applications well ahead of the market. Atos announced that it is studying a separation into two publicly listed companies to unlock value and implement an ambitious transformation plan. The two companies would be: SpinCo, a leading player in the digital transformation, big data and cybersecurity markets, delivering high growth and high margins, with a €0.4 billion plan to accelerate profitable growth; and TFCo (Atos), a leader in managed infrastructure services, digital workplace and professional services, with an ambitious €1.1 billion plan to drive full turnaround by 2026. Trusted Partner for your Digital Journey 9/88 Nourdine Bihmane and Philippe Oliva were appointed as Deputy CEOs of Atos. Nourdine Bihmane in charge of Tech Foundations, and Philippe Oliva in charge of the Digital/BDS perimeter (to form the newly named SpinCo). Atos was chosen to provide the pre-exascale system to be hosted by the Barcelona Supercomputing Center, in Spain, as part of the EuroHPC JU (European High Performance Computing Joint Undertaking). MareNostrum5 will rank amongst the world’s top supercomputers and will pave the way toward exascale capabilities. A large accelerator partition will be based on Atos’ recently announced BullSequana XH3000 next-gen hybrid architecture – the largest installation worldwide. Atos and Renault Group launched ID@scale (Industrial Data @ Scale), a new service for industrial data collection to support manufacturing companies in their digital journey towards Industry 4.0. “ID@S” (Industrial Data @ Scale) will allow manufacturers to collect and structure data from industrial equipment at scale to improve operational excellence and product quality. Atos announced it has been awarded a 1.2 million euros contract by the NATO Communications and Information Agency (NCI Agency) to install and configure mission critical cybersecurity capabilities and systems at 22 NATO sites. This new contract covers the upgrade of two key cybersecurity systems of the NATO resilience strategy: the Network Intrusion Protection/Detection System (NIPS) and Full Packet Capture (FPC) system. July Atos announced that 5 new start-ups are joining “Scaler, the Atos Accelerator” program, an open innovation accelerator program for startups and SMEs. These new start-ups have a specific focus on digital security and quantum. Athea, a the project “ARTEMIS.IA” (Architecture for Processing and Massive Exploitation of Multi-Source Information and Artificial Intelligence) by the Armament General Directorate (Direction Générale de l’Armement). This project aims to offer scalable capabilities for massive data processing and artificial intelligence (AI) that meet the different business needs of the French Ministry of the Armed Forces. joint venture between Atos and Thales, was awarded phase 3 of Atos announced that it has been positioned by Gartner as a Leader in the 2022 Magic Quadrant for Data center Outsourcing (DCO) and Hybrid Infrastructure Managed Services (HIMS), Worldwide. This is the second time Atos is positioned as a Leader in the Gartner Magic Quadrant for DCO and HIMS, Worldwide. Atos announced that the Group is strengthening its governance to ensure the successful execution of its operational performance improvement plan and its strategic transformation project in order to create value for all its stakeholders, in particular its customers, employees and shareholders. This management team is composed of: Nourdine Bihmane, Group CEO and co-CEO in charge of the Tech Foundations business, operational performance improvement and in particular cash generation; Diane Galbe, Senior Executive Vice President (Directrice Générale Adjointe) of the Group in charge of strategic projects and all support functions of the Group, and Philippe Oliva, co-CEO in charge of Digital, Big Data and Security activities, as well as the acceleration and innovation plan for these growth activities. Philippe Oliva has retained his position as Group Deputy CEO. Rodolphe Belmer leaves his position at Atos upon the announcement. Trusted Partner for your Digital Journey 10/88 Atos announced that it has been positioned as a Visionary in the Gartner Magic Quadrant for Public Cloud IT Transformation Services, 2022, Worldwide, based on its completeness of vision and ability to execute. This is the first time that Atos has been recognized in this report. Atos announced its financial results for the first half of the year. Revenue was € 5,563 million, down -0.6% at constant currency. Operating margin reached 1.1% of revenue representing € 59 million, down -460 basis points compared to last year at constant currency, impacted by the revenue decline in activities with a low short-term flexibility. Order entry in Q2 standed at €2.8 billion compared with € 2.0 billion in Q1, and a strong sequential improvement in book-to-bill, at 101% in Q2 compared with 72% in Q1. Full backlog at the end of June 2022, amounted to €22.6 billion, down €1.6 billion at constant currency compared to the end of December 2021, including €0.9 billion of corrections pertaining to prior periods, and representing 2.0 years of revenue. The full qualified pipeline was €7.1 billion, slightly up compared to the end of December 2021 and representing 7.6 months of revenue. Group free cash flow during the first half of 2022 was €-555 million, compared to €-369 million in the first half of 2021. H1 2022 free cash flow primarily reflects the low level of OMDA recorded over the period, at €369 million, compared to €633 million in H1 2021. Trusted Partner for your Digital Journey 11/88 1.4. Operational review 1.4.1. Statutory to constant scope and exchange rates reconciliation Revenue was € 5,563 million in H1 2022, up 2.6% compared to H1 2021 on a reported basis and slightly down -0.6% at constant currency. On an organic basis, revenue decreased -2.1%. Operating margin reached € 59 million, representing 1.1% of revenue, a decrease by -460 basis points at constant currency. In € millionH1 2022H1 2021% changeStatutory revenue5,563 5,424 +2.6%Exchange rates effect170 Revenue at constant exchange rates5,563 5,594 -0.6%Scope effect84 Exchange rates effect on acquired/disposed perimeters5 Revenue at constant scope and exchange rates 5,563 5,683 -2.1%Statutory operating margin59 302 -80.4%Exchange rates effect16 Operating margin at constant exchange rates59 317 -81.3%Scope effect -5 Exchange rates effect on acquired/disposed perimeters0 Operating margin at constant scope and exchange rates59 313 -81.1%as % of revenue1.1%5.5% Scope effects amounted to € 89 million for revenue and € -5 million for operating margin. They are related to the acquisitions closed in 2021 and the acquisition of Cloudreach. Currency exchange rates effects positively contributed to revenue for €+170 million and operating margin for €+16 million. They mostly came from the appreciation of the American Dollar and the Pound Sterling against the Euro over the period. Trusted Partner for your Digital Journey 12/88 The tables below present the effects on H1 2021 revenue and operating margin of acquisitions and disposals, internal transfers, reflecting the Group’s new geographic organization, and change in exchange rates. In € millionH1 2021 statutoryInternal transfersExchange rates effectsH1 2021 at constant exchange rates*Americas 1,170 56 122 1,348 Northern Europe & APAC 1,402 179 44 1,625 Central Europe 1,240 34 6 1,280 Southern Europe 1,231 1,231 Others & Global structures 382 -269 -2 111 TOTAL GROUP5,4241705,594Scope effects89TOTAL GROUP at constant scope and FX5,683* At H1 2022 average exchange ratesH1 2021 revenue In € millionH1 2021 statutoryInternal transfersExchange rates effectsH1 2021 at constant exchange rates*Americas 138 4 17 159 Northern Europe & APAC 91 19 3 113 Central Europe 21 2 0 24 Southern Europe 46 00 46 Others & Global structures 6 -25 -4 - 24 TOTAL GROUP302016317Scope effects-5TOTAL GROUP at constant scope and FX313* At H1 2022 average exchange ratesH1 2021 Operating margin Trusted Partner for your Digital Journey 13/88 1.4.2. Performance by Business Operating margin %In € millionH1 2022H1 2021*Evolution at constant currencyH1 2022H1 2022SpinCo Perimeter 2,539 2,490 +2.0% 89 3.5%Tech Foundations Perimeter 3,024 3,104 -2.6%-30-1.0%Total5,5635,594-0.6%591.1%* At constant currencyRevenueOperating margin Note: operating margins were allocated to businesses based on customer projects and by profit/costs centers. Small variances may arise once fully integrated into the Group’s reporting systems. The revenue of the Tech Foundations business, including UCC, decreased by -2.6% in H1 2022 at constant currency (-2.0% excluding UCC). This is a strong sequential improvement compared to 2021, where revenue declined -11.4% over the full year (including UCC), evidencing the momentum that started to build up quickly within the newly formed Tech Foundations business line. The infrastructure business reported a much more contained revenue decline than last year, reaping the first benefits from renewed focus under the Group’s new organization. Professional services delivered robust growth, benefitting from high structural demand. Digital workplace services and BPO were stable due to refocusing actions and UCC contracted due to persisting supply chain tensions. The deliberate gradual wind down of the value-added resale business continued into H1 2022. Revenue in top 30 accounts increased by 2.2% reflecting the accounts. Operating margin was success -1.0%, in line with that of FY21. of the playbook deployed across these The SpinCo perimeter (Digital and Big Data & Cybersecurity) grew +2.0% in H1 2022 at constant currency. Growth in Digital was driven by the contribution of recent acquisitions that enriched the Group’s offerings, particularly in multi-cloud services, as well as robust organic trends in the applications and cloud businesses, notably in Americas, although mitigated by volume reductions with a large customer, and a decrease in value-added resale. Cybersecurity continued on its above-market growth trajectory. As anticipated, Advanced Computing contracted due to a reduction in HPC sales, reflecting the deal flow cyclicality in this business, compounded by supply chain tensions. Operating margin was 3.5% in H1 2022, impacted by the shortfall in HPC revenue, as well as an increase in staff cost. FY22 operating margin is expected to be back-end loaded and will benefit in H2 from performance improvement actions. Trusted Partner for your Digital Journey 14/88 1.4.3. Performance by Regional Business Units In € millionH1 2022H1 2021*Evolution at constant currencyH1 2022H1 2021*H1 2022H1 2021*Americas 1,353 1,348 +0.4% 73 159 5.4%11.8%Northern Europe & APAC 1,625 1,625 +0.0% 28 113 1.7%7.0%Central Europe 1,258 1,280 -1.7%-3024 -2.4%1.9%Southern Europe 1,198 1,231 -2.7% 40 46 3.4%3.7%Others & Global structures 129 111 +15.9%-52-24 NANATotal5,5635,594-0.6%59317 1.1%5.7%* At constant currencyOperating marginRevenueOperating margin % Americas revenue was up +0.4% at constant currency, driven by the contribution of recent acquisitions in multi-cloud services and product lifecycle management. Trends were robust in digital, in particular with the ramp up of a new contract with a major hospital chain. This was offset by a revenue decrease in Tech Foundations, driven by infrastructure and UCC services, as well as fluctuations in the advanced computing business. Operating margin was significantly lower than in H1 2021, primarily due to high personal costs inflation and a less favorable contract mix. Northern Europe & APAC’s revenue was stable at constant currency compared to H1 2021. Revenue growth turned positive in Q2, driven by a good momentum in Digital, particularly with public sector and defense customers, as well as in BDS. Tech Foundations activities were slightly down in H1 but improved sequentially between Q1 and Q2. Robust growth in digital workplace was offset by a decline in the BPO business, following the reassessment of a large contract in the UK in Q4 2021. Operating margin was lower than in H1 2021, impacted by the aforementioned BPO contract reassessment and underperforming contracts in the process of being right-sized. Central Europe’s revenue decreased by -1.7% at constant currency, impacted by the termination of an underperforming contract with a telecom operator, as part of the Group’s performance improvement actions, and low activity levels in HPC and UCC. Excluding these items, revenue was stable with a marked improvement between Q1 and Q2, driven by robust growth in Digital. The decline in Tech Foundations’ activities (excluding UCC) was much more contained than last year. Operating margin was negative, as anticipated, due to salary inflation and challenging delivery of some projects. Southern Europe’s revenue decreased by -2.7% at constant currency, due to fluctuations in the HPC business, and to the continued deliberate wind down of value-added resale. Excluding these two activities, which are minor revenue contributors, the RBU turned in a modest revenue growth in H1. Momentum in Digital was robust. Tech Foundations improved, with a more decline than last year, as contract renewals and new wins provided some resilience. Operating margin remained broadly in line with H1 2021, as operational improvements compensated for the impacts of salary inflation and of two underperforming contracts. Others & Global structures encompass Middle East, Africa, Major Events as well as two cost centers: the Group’s global delivery centers and global structures. Revenue grew +15.9% at constant currency supported by business related to the Beijing Olympics. Operating margin, structurally negative, decreased year-on-year due to under-absorption of global delivery centers’ fixed costs. Trusted Partner for your Digital Journey 15/88 1.4.4. Portfolio 1.4.4.1. Order entry and book to bill During the first semester of 2022, the Group order entry reached € 4,837 million, representing a book to bill ratio of 87%. In € millionQ1 2022Q2 2022H1 2022Q1 2022Q2 2022H1 2022Americas 562 616 1,178 87%87%87%Northern Europe & APAC 365 673 1,037 44%84%64%Central Europe 428 658 1,086 69%103%86%Southern Europe 594 806 1,400 99%135%117%Others & Global structures 40 96 136 65%141%105%Total1,9882,8494,83772%101%87%* Order entry does not include debooking for the purpose of the computation of the Book-to-bill ratioOrder entry*Book to bill Commercial momentum improved significantly in Q2, with order entry at € 2.8 billion, compared with € 2.0 billion in Q1, and book-to-bill at 101% in Q2 compared with 72% in Q1. This renewed momentum was reflected in high-profile contracts signed during the second quarter, including an additional supercomputer as part of the EuroHPC program (6th awarded to Atos, out of 8 in total in the program), a large contract with an automotive manufacturer for connected vehicles, an Infrastructure maintenance and transformation contract with a Public Central Procurement Agency and an end to end IT managed services contract with an Asian Navigation company. 1.4.4.2. Full backlog and full qualified pipeline Full backlog at the end of June 2022, amounted to €22.6 billion, down €1.6 billion at constant currency compared to the end of December 2021, including €0.9 billion of corrections pertaining to prior periods, and representing 2.0 years of revenue. The full qualified pipeline was €7.1 billion, slightly up compared to the end of December 2021 and representing 7.6 months of revenue. Trusted Partner for your Digital Journey 16/88 1.4.5. Human ressources Detailed Headcount movements during the first six months were the following: End ofDecember 2021ScopeHiringLeavers, dismissals, restructuring & transfersEnd ofJune 2022Americas17,153 165 3,617 -2,541 18,394 Northern Europe & APAC14,222 365 1,609 -1,652 14,544 Central Europe12,446 0 547 -705 12,288 Southern Europe15,782 0 1,386 -1,531 15,637 GDC and Others39,547 0 8,020 -5,672 41,895 Global structures657 0 10 -443 224 Total Direct 99,807 530 15,189 -12,544 102,982 Total Indirect 9,328 212 900 -1,242 9,198 TOTAL GROUP109,13574216,089-13,786112,180 Total headcount stood at 112,180 at the end of June 2022, up +2.8% compared to 109,135 at the end of December 2021 (+2.1% organically). In H1 2022, Atos hired 16,089 new employees (gross), of which 7,855 in Q2, mainly in Digital and BDS, and predominantly in offshore and nearshore countries, in order to support the growth expected in the second half of the year and to ensure the conditions for future success. Atos also welcomed Cloudreach’s 742 employees. Trusted Partner for your Digital Journey 17/88 1.5. 2022 objectives At the occasion of its half-year results announcement on July 27, 2022, Atos reiterated that its FY22 performance will be back-end loaded and refined its full-year objectives. Revenue growth objective is unchanged, at -0.5% to +1.5% at constant currency. Revenue growth at constant currency is expected to turn positive in H2, underpinned by the renewed commercial momentum observed in the second quarter, and the Group’s success in securing the right talents in H1. Operating margin is expected at the lower end of the 3% to 5% range. Operating margin is expected to increase markedly as the benefits of performance improvement actions launched earlier in the year will materialize in H2. Such actions are focused on structure costs (including the unwinding of the Spring organization, a reduction in subcontracting, selective hirings and strengthened cost discipline), underperforming contracts and pricing. Additionally, Atos expects an uptick in operating margin in its hardware-intensive businesses, primarily HPC, driven by volume recovery and secured components supply. Free cash flow is expected at the lower end of the €-150 million to €200 million range excluding additional impacts of the envisioned transformation plan. Such additional impacts are estimated around €-250 million, including the cost of financing, in line with information communicated at Atos Capital Markets Day in June. Free cash flow, excluding additional costs of the transformation plan, is expected to improve significantly as a direct consequence of operating margin recovery, supported by positive seasonal working capital effects. Trusted Partner for your Digital Journey 18/88 1.6. Risk Factors Risk factor linked to the envisioned separation plan As announced on June 14, 2022, the Board of Directors of Atos has approved the launch of an in-depth study of a possible separation of the Group into two listed companies, namely SpinCo on the one hand, bringing together Atos’ Digital and Big Data and Security (BDS) business lines, and TFCo (Atos) on the other hand, composed of Atos’ Tech Foundations business line. The decision on this reorganization and separate listing project and its terms and conditions will be made after the ongoing in-depth analysis has been completed; it would be subject to and remains conditional on customary processes, including governance bodies and shareholders’ approval as well as consultation with the relevant employee representative bodies. There are many factors that could impact the structure or timing of, the anticipated benefits from, or determination to ultimately proceed with all or part of the contemplated transaction, including, among others, general economic and market conditions, variations in customer and business confidence, interactions with employees, creditors and other stakeholders, tax considerations, fluctuating interest rates, specific market conditions in one or more of the industries of the business lines projected to be separated, and changes in the regulatory or legal environment. There can be no guarantee that the intended benefits of the contemplated transaction will be achieved. An inability to realize the full extent of the anticipated benefits of the contemplated transaction, as well as any delays encountered in the process, could have an adverse effect upon the revenues, level of expenses, operating results and generated cash-flows of Atos or the companies resulting from such contemplated transaction. In any case, Atos cannot predict the level of liquidity in the stock market or the value of such companies. All other risk factors are included in section 7.2 of the 2021 Universal Registration Document, it being specified that those related to key people retention and acquisition (sections 7.2.1.1 and 7.2.1.2) have become even more relevant in the context of the study and potential implementation of the separation project, and mitigation actions are being amplified accordingly. Trusted Partner for your Digital Journey 19/88 1.7. Claims and litigations The Atos Group is a global business operating in 71 countries. In many of the countries where the Group operates there are no claims, and in others there is only a very small number of claims or actions involving the Group. The current level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group as well as to the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2022 the Group has successfully put an end to several significant litigations through settlement agreements. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2022 to cover for the identified major claims and litigations, added up to €53.3 million (including tax and commercial claims but excluding labor claims). The significant decrease in the provisions at the end of the first semester of 2022 is mostly due to a settlement reached in a case in the United States in which the adverse party accepted to pay a significant amount to Atos. The provision for this case has been reduced accordingly and will continue to decrease over time to reflect actual payments made by the adverse party. 1.7.1. Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Certain tax claims are in Brazil, where Atos is a defendant in a number of cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. Following the decision in a reported test case in the UK, there is substantial ongoing court claim against the UK tax authorities for a Stamp Duty re-imbursement. Following a judgment of the European Justice Court, Atos UK commenced proceedings in 2009 to recover a stamp duty paid in 2000 for an amount over €10 million. The Stamp Duty aspect of the claim was won in 2012. Regarding the time limit rule a favorable judgment was obtained in April 2017. Atos UK is now waiting for the outcome of the HMRC’s request for appeal in the test case. The total provision for tax claims, as set forth in the consolidated financial statements as at June 30, 2022, was €16.6 million. The increase in the amount of the provisions is mainly due to the accrual of interests and foreign exchange. 1.7.2. Commercial claims There are a small number of commercial claims across the Group. Significant commercial cases have been closed this semester. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, notably a litigation inherited from Syntel. In October 2020, a jury found Syntel liable for trade secret misappropriation and copyright infringement and awarded Cognizant and TriZetto approximately $855 million in damages. Throughout the trial and in its post-trial motion, Syntel maintained that Cognizant and TriZetto had failed to meet their burden to show trade secret misappropriation and that their damages theories were improper as a matter of law. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $570 million punitive damages award was excessive and Trusted Partner for your Digital Journey 20/88 should be reduced to $285 million. TriZetto agreed to this reduction. The Court issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. While Atos supports the Court’s decision to significantly reduce the punitive damages at issue and prevent a further windfall to Cognizant and TriZetto in the form of pre-judgment interest, Atos appealed the portion of the jury’s verdict affirmed by the Court. Among other concerns, Atos continues to consider the amount of damages grossly out of proportion to the acts complained of, and that the maximum amount of damages legally available to TriZetto in this case is approximately $8.5 million. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021. According to the schedule set by the Court, Syntel filed its Opening Appeal Brief on September 2, 2021, TriZetto filed its Opposition Appeal Brief on December 2, 2021 and Syntel filed its Reply Appeal Brief on December 23, 2021. The appeal process typically takes around 18 months. The total provision for commercial claim risks, as set forth in the consolidated accounts closed as at June 30,2022, amounts to €36.7 million. 1.7.3. Labor claims There are close to 112,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of €5.1 million as set forth in the consolidated financial statements as at June 30, 2022. 1.7.4. Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. 1.7.5. Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, legal or arbitration proceedings, pending or potential, over the past 12 months, likely to have or having had significant consequences on the Company’s and the Group’s financial position or profitability. 1.8. Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). The related-party transactions are described in the Note 17 – Related party transactions on page 354 of the 2021 Universal Registration Document. Trusted Partner for your Digital Journey 21/88 2. Financial statements 2.1. Financial review 2.1.1. Income statement The Group reported a net loss (attributable to owners of the parent) of € 503 million for the half year ended June 30, 2022. The normalized net loss before unusual, abnormal and infrequent items (net of tax) for the period was € 119 million, representing -2.1% of Group revenue of the period. (in € million)6 months ended June 30, 2022% of revenue6 months ended June 30, 2021% of revenueOperating margin 591.1%3025.6%Other operating income (expense)-357-419Operating income (loss)-298-5.4%-118-2.2%Net financial income (expense)-129-3Tax charge -77-6Non-controlling interests 0-2Share of net profit (loss) of associates--0Net income (loss) – Attributable to owners of the parent-503-9.1%-129-2.4%Normalized net income* – Attributable to owners of the parent-119-2.1%1623.0%* The normalized net income is defined hereafter 2.1.1.1. Operating margin Operating margin represents the underlying operational performance of the on-going business and is analyzed in detail in the operational review. 2.1.1.2. Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 357 million in the first half of 2022. The following table presents this amount by nature: (in € million)6 months ended June 30, 20226 months ended June 30, 2021Staff reorganization-73-79Rationalization and associated costs-33-42Integration and acquisition costs-18-22Amortization of intangible assets (PPA from acquisitions) -67-79Equity-based compensation-11-33Impairment of goodwill and other non-current assets-910Other items-64-164TOTAL-357-419 Trusted Partner for your Digital Journey 22/88 Staff reorganization amounted to € 73 million, a slight decrease compared to the first half of 2021. This decrease is mainly due to reduced restructuring measures in Northern Europe. Staff reorganization expense included the adaptation of the workforce in European countries. The € 33 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs at € 18 million mainly related to the integration costs of 2022 and 2021 acquisitions, as well as the cost of retention schemes. In the first half of 2022, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises of € 67 million was mainly composed of: € 32 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 5 million of Anthelio customer relationships amortized until February 2026. The equity-based compensation expense amounted to € 11 million in the first half of 2022 compared to € 33 million in the first half of 2021, reflecting the lower values of the 2021 and 2022 performance share plans compared to the plan delivered in 2021 (2018 plans), together with an under achievement of the performance on the 2019 plans. Impairment of goodwill and other non-current assets related to impairment of assets associated with disposal groups classified as held for sale. In the first half of 2022, other items amounted to a net expense of € 64 million compared to € 164 million in the first half of 2021. Those exceptional items mainly included the impact of the impairment of current assets from the Russian business classified as held for sale, for € 32 million, as well as the cost associated with the envisaged transformation plan of the Group, as announced on June 14, 2022. 2.1.1.3. Net financial expense Net financial expense amounted to € 129 million for the period (compared to € 3 million last year) and was composed of a net cost of financial debt of € 13 million and other financial costs of € 116 million. Net cost of financial debt remained stable compared to the first half of 2021 at € 13 million. The average expense rate of the Group was 0.70% on the average gross borrowings compared to 0.89% in the first half of 2021. The average income rate on the average gross cash was 0.58% compared to 0.63% in the first half of 2021. Other financial items were a net loss of € 116 million compared to a net gain of € 10 million in the first half of 2021 and were mainly composed of: a net loss of € 83 million composed of the net loss from the disposal of Worldline shares, the change in value of the OEB derivative and the derivative to hedge the residual exposure to Worldline shares, both measured at fair value through profit and loss under IFRS 9; pension related financial expense of € 8 million stable compared to the first half of 2021; lease liability interest of € 9 million compared to € 8 million in the first half of 2021. This variation mainly resulted from the increase in discount rates; net foreign exchange loss (including hedges) of € 2 million compared to a loss of € 6 million in the first half of 2021. Trusted Partner for your Digital Journey 23/88 2.1.1.4. Corporate tax The tax charge for the first half of 2022 was € 77 million with a loss before tax of € 427 million. Due to a loss before tax, the Effective Tax Rate (ETR) of the period is not meaningful. The Group assessed the main impacts of its revised mid-term plan announced on June 14, 2022 on the recoverability of its deferred tax assets. It resulted in € 84 million of deferred tax assets not recognized over the period and the derecognition of € 50 million of deferred tax assets previously recognized. 2.1.1.5. Normalized net income The normalized net loss excluding unusual, abnormal and infrequent items (net of tax) was € 119 million, representing -2.1% of Group revenue for the period. (in € million)6 months ended June 30, 20226 months ended June 30, 2021Net income (loss) - Attributable to owners of the parent-503-129Other operating income and expense, net of tax-294-314Net gain (loss) on financial instruments related to Worldline shares, net of tax-9123Normalized net income (loss) - Attributable to owners of the parent -119162 2.1.1.6. Half year Earning Per Share (in € million and shares)6 months ended June 30, 2022% of revenue6 months ended June 30, 2021% of revenueNet income (loss) – Attributable to owners of the parent [a]-503-9.1%-129-2.4%Impact of dilutive instruments - - Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-503-9.1%-129-2.4%Normalized net income (loss)– Attributable to owners of the parent [c]-119-2.1%1623.0%Impact of dilutive instruments - - Normalized net income (loss) restated of dilutive instruments- Attributable to owners of the parent [d]-119-2.1%1623.0%Average number of shares [e] 110,623,880 109,593,846 Impact of dilutive instruments - - Diluted average number of shares [f] 110,623,880 109,593,846(in €)Basic EPS (Earning Per Share) [a] / [e]-4.55-1.18Diluted EPS [b] / [f]-4.55-1.18Normalized basic EPS [c] / [e]-1.071.48Normalized diluted EPS [d] / [f]-1.071.48 Trusted Partner for your Digital Journey 24/88 2.1.2. Cash Flow and net cash The Group reported a net debt position of € 1,792 million at the end of June 2022 and a free cash flow of € -555 million in the first half of 2022. (in € million)6 months ended June 30, 20226 months ended June 30, 2021Operating Margin before Depreciation and Amortization (OMDA)369633Capital expenditures-123-154Lease payments-207-183Change in working capital requirement-383-394Cash from operation (CFO)-344-98Tax paid-21-46Net cost of financial debt paid-13-13Reorganization in other operating income -63-96Rationalization & associated costs in other operating income -34-43Integration and acquisition costs-16-8Other changes*-64-66Free Cash Flow (FCF)-555-369Net (acquisitions) disposals-92-144Capital increase1-0Share buy-back-2-57Dividends paid-2-100Change in net cash (debt)-649-670Opening net cash (debt)-1,226-467Change in net cash (debt)-649-670Foreign exchange rate fluctuation on net cash (debt) 989Reclassification to assets held for sale-15-Closing net cash (debt)-1,792-1,129* "Other changes" include other operating income with cash impact (excluding reorganization, rationalization and associated costs, integration and acquisition costs) and other financial items with cash impact, net long term financial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt. Free cash flow representing the change in net cash or net debt, excluding net (acquisitions) disposals, equity changes and dividends paid to shareholders, reached € -555 million versus € -369 million in the first half of 2021. Cash From Operations (CFO) amounted to € -344 million compared to € -98 million in the first half of 2021, the evolution coming from the following items: OMDA, net of lease payments (€ -288 million); Capital expenditures (€ +31 million); Change in working capital requirement (€ +11 million). OMDA of € 369 million, representing a decrease of € 264 million compared to June 2021, reached 6.6% of revenue compared to 11.7% of revenue in June 2021. The bridge from operating margin to OMDA was as follows: Trusted Partner for your Digital Journey 25/88 (in € million)6 months ended June 30, 20226 months ended June 30, 2021Operating margin59302 + Depreciation of fixed assets135167 + Depreciation of right of use192 176 + Net book value of assets sold/written off56+/- Net charge (release) of pension provisions-19-16+/- Net charge (release) of provisions-2-2OMDA369633 Capital expenditures totaled € 123 million, representing 2.2% of revenue, 60 bps less than the same period last year, reflecting the actions from the Group to optimize capital expenditure as well as to move to less capital-intensive activities. The negative contribution from change in working capital requirement was € -383 million (compared to € -394 million in the first half of 2021). The DSO has increased by 6 days (from 44 days at the end of December 2021 to 50 days at the end of June 2022), while the DPO has increased by 3 days (from 78 days at the end of December 2021 to 81 days at the end of June 2022). The level of trade receivables sold with no recourse to banks with transfer of risks as defined by IFRS 9 decreased from € 834 million at the end of December 2021 to € 821 million at the end of June 2022. Cash out related to taxes paid decreased by € 25 million and amounted to € 21 million in the first half of 2022. Cost of net debt was stable at € 13 million. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 113 million compared to € 147 million in the first half of 2021 and represented 2.0% of revenue. They mainly included reorganization costs in connection with the measures to adapt the workforce in European countries. Rationalization expense primarily resulted from the closure and consolidation of data centers, mainly in North America. Finally, integration and acquisition costs mainly comprised the integration costs for the new acquisitions. Other changes amounted to € -64 million compared to € -66 million in the first half of 2021. They mainly included the costs incurred on those onerous contracts for which the provision was recorded at the end of December 2021, as well as the cash effect of pension and early retirement programs in the UK and in Germany. As a result of the above impacts mainly driven by the change in the working capital requirement, the Group presented a Free Cash Flow (FCF) of € -555 million during the first half of 2022, compared to € -369 million in the first half of 2021. The net cash impact resulting from the net (acquisitions) disposals amounted to € -92 million and originated from the acquisition of Cloudreach, net of the proceeds of the retained interest in Worldline. Capital increase totaled € 1 million in the first half of 2022 compared to none in the first half of 2021. Share buy-back amounted to € 2 million during the first half of 2022 compared to € 57 million in the first half of 2021. Share buy-back programs relate to managers performance shares delivery and aim at avoiding a dilution effect for the shareholders. Performance shares to be delivered in 2022 will be obtained through a capital increase rather than share buy-back. No dividends were paid to Atos SE shareholders in the first half of 2022 while they amounted to € 98 million in the first half of 2021. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented a decrease in net debt of € 98 million mainly coming from the evolution of exchange rates of the US Dollar, Indian Rupee and British Pound against the Euro. As a result, the Group net debt position as of June 30, 2022 was € 1,792 million, compared to € 1,226 million as of December 31, 2021. Trusted Partner for your Digital Journey 26/88 2.1.3. Bank covenant As at June 30, 2022, the multi-currency revolving credit facility was drawn for an amount of € 80 million. For information only, at this date, the borrowing covenant applicable to this revolving credit facility was 4.31. However, according to the documentation of the multi-currency revolving credit facility the ratio is tested only once a year at 31 December of each fiscal year. Moreover, on July 29, 2022, Atos has signed the final documentation of its a new financing package described in the paragraph 1.1 of the Activity report. The leverage ratio applicable to this new financing package was raised from 2.5 to 3.75. It will be measured once a year at 31 December of each fiscal year excluding IFRS 16 impacts and taking into account 12 months rolling of OMDA. Trusted Partner for your Digital Journey 27/88 2.2. Interim condensed consolidated financial statements 2.2.1. Interim condensed consolidated income statement (in € million)Notes6 months ended June 30, 20226 months ended June 30, 2021Revenue Note 3.15,5635,424Personnel expenseNote 4.1-2,892-2,579Operating expenseNote 4.2-2,612-2,543Operating margin59302% of revenue1.1%5.6%Other operating income and expenseNote 5-357-419Operating income (loss)-298-118% of revenue-5.4%-2.2%Net cost of financial debt-13-13Other financial expense-243-40Other financial income12750Net financial income (expense)Note 6.1-129-3Net income (loss) before tax-427-121Tax chargeNote 7-77-6Share of net profit (loss) of equity-accounted investments-0Net income (loss)-504-127Of which:attributable to owners of the parent-503-129non-controlling interests-02 (in € million and shares)Notes6 months ended June 30, 20226 months ended June 30, 2021Net income (loss) - Attributable to owners of the parent-503-129Weighted average number of shares 110,623,880109,593,846Basic earnings per shareNote 11-4.55-1.18Diluted weighted average number of shares 110,623,880109,593,846Diluted earnings per shareNote 11-4.55-1.18 Trusted Partner for your Digital Journey 28/88 2.2.2. Interim condensed consolidated statement comprehensive income (in € million)6 months ended June 30, 20226 months ended June 30, 2021Net income (loss)-504-127Other comprehensive income352125Change in fair value of cash flow hedge instruments66Exchange differences on translation of foreign operations349118Deferred tax on items to be reclassified to profit or loss-2126693Actuarial gains and losses on defined benefit plans265134Deferred tax on items not reclassified to profit or loss1-41Total other comprehensive income (loss)618218Total comprehensive income (loss) for the period11591Of which:attributable to owners of the parent11589non-controlling interests-02To be reclassified subsequently to profit or loss (recyclable)Not reclassified to profit or loss (non recyclable) Trusted Partner for your Digital Journey 29/88 of 2.2.3. Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2022December 31, 2021ASSETSGoodwillNote 85,5565,105Intangible assets1,0991,089Tangible assets427421Right-of-use assets9841,072Equity-accounted investments64Non-current financial assetsNote 6.3459840Non-current financial instrumentsNote 6.3190Deferred tax assets194189Total non-current assets8,7448,720Trade accounts and notes receivableNote 3.22,8882,583Current taxes7076Other current assetsNote 4.41,4661,430Current financial instruments2114Cash and cash equivalentsNote 6.23,4643,372Total current assets7,9097,476Assets held for saleNote 1628623TOTAL ASSETS17,28016,819(in € million)NotesJune 30, 2022December 31, 2021LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock111111Additional paid-in capital1,4991,498Consolidated retained earnings3,4545,790Net income (loss) attributable to the owners of the parent-503-2,962Equity attributable to the owners of the parent4,5604,437Non-controlling interests06Total shareholders’ equity4,5614,444Provisions for pensions and similar benefitsNote 9713944Non-current provisionsNote 10497657BorrowingsNote 6.42,7502,750Derivative liabilities1940Deferred tax liabilities7667Non-current lease liabilitiesNote 6.4819894Other non-current liabilities21Total non-current liabilities4,8765,352Trade accounts and notes payableNote 4.32,0352,003Current taxes6161Current provisionsNote 10216137Current financial instruments84Current portion of borrowingsNote 6.42,5061,849Current lease liabilitiesNote 6.4335360Other current liabilitiesNote 4.52,1752,131Total current liabilities7,3376,546Liabilities related to assets held for saleNote 1506477TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY17,28016,819 tableau vérifiéle 01/07 Trusted Partner for your Digital Journey 30/88 2.2.4. Interim condensed consolidated cash flow statement (in € million)Notes6 months ended June 30, 20226 months ended June 30, 2021Net income (loss) before tax -427-121Depreciation of assetsNote 4.2135167Depreciation of right-of-useNote 4.2192176Net addition (release) to operating provisions-21-18Net addition (release) to financial provisions69Net addition (release) to other operating provisions-5786Amortization of intangible assets (PPA from acquisitions)Note 56779Impairment of goodwill and other non current assetsNote 591-Losses (gains) on disposals of non current assets11214Net charge for equity-based compensation1132Unrealized losses (gains) on changes in fair value and otherNote 6.1-24-33Net cost of financial debtNote 6.11313Interest on lease liabilityNote 6.198Net cash from (used in) operating activities before change in working capital requirement and taxes107412Tax paid-21-46Change in working capital requirement-341-394Net cash from (used in) operating activities-255-27Payment for tangible and intangible assets-123-154Proceeds from disposals of tangible and intangible assets28Net operating investments-121-146Amounts paid for acquisitions and long-term investments-280-151Cash and cash equivalents of companies purchased during the period119Net proceeds from disposals of financial investments219-2Cash and cash equivalents of companies sold during the period--2Net long-term financial investments-49-144Net cash from (used in) investing activities-170-291Common stock issued1-Purchase and sale of treasury stock-2-57Dividends paid--98Dividends paid to non-controlling interests-2-3Lease paymentsNote 6.4-207-183New borrowingsNote 6.42,297769Repayment of current and non-current borrowingsNote 6.4-1,642-864Net cost of financial debt paidNote 6.4-13-13Other flows related to financing activitiesNote 6.411Net cash from (used in) financing activities434-448Increase (decrease) in net cash and cash equivalents8-766Opening net cash and cash equivalents3,2393,142Increase (decrease) in net cash and cash equivalentsNote 6.48-766Impact of exchange rate fluctuations on cash and cash equivalentsNote 6.49811Reclassification to assets held for saleNote 1-15-Closing net cash and cash equivalentsNote 6.43,3302,387 Trusted Partner for your Digital Journey 31/88 2.2.5. Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period end(thousands)Common StockAdditional paid-in capitalConsolidated retained earningsNet income (loss)TotalNon controlling interestsTotal shareholders' equityAt December 31, 2020109,9931101,4764,7245506,861106,871▪ Appropriation of prior period net income (loss)550-550--▪ Dividends paid-98-98-2-100▪ Equity-based compensation323232▪ Changes in treasury stock-57-57-57Transactions with owners---428-550-122-2-124▪ Net income (loss) of consolidated companies--129-1292-127▪ Other comprehensive income2182180218Total comprehensive income for the period---218-12989291At June 30, 2021109,9931101,4765,370-1296,828106,838▪ Common stock issued 737122--23-23▪ Dividends paid-0--0-0-0▪ Equity-based compensation-1--1--1▪ Changes in treasury stock-1--1--1▪ Other3-3-4-1Transactions with owners7371222-24-519▪ Net income (loss) of consolidated companies--2,833-2,8331-2,832▪ Other comprehensive income418-4180418Total comprehensive income for the period---418-2,833-2,4151-2,414At December 31, 2021110,7301111,4985,790-2,9624,43764,444▪ Common stock issued 3301-11▪ Appropriation of prior period net income-2,9622,962--▪ Dividends paid---2-2▪ Equity-based compensation999▪ Changes in treasury stock-2-2-2▪ Other00-4-3Transactions with owners3301-2,9542,9628-63▪ Net income (loss) of consolidated companies--503-503-0-504▪ Other comprehensive income618618-0618Total comprehensive income for the period---618-503115-0115At June 30, 2022110,7631111,4993,454-5034,56004,561 32/88 2.2.6. Notes to the interim condensed consolidated financial statements These interim condensed consolidated financial statements were approved by the Board of Directors on July 26, 2022. 2.2.6.1. Basis of preparation All amounts are presented in millions of euros unless otherwise indicated. Certain totals may have rounding differences. Accounting framework The interim condensed consolidated financial statements of Atos (“the Group”) for the six-month period ended June 30, 2022, have been prepared in accordance with the international accounting standards endorsed by the European Union and whose application was mandatory as at June 30, 2022. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRS IC). The Group interim condensed consolidated financial statements for the six-month period ended June 30, 2022, have been prepared in accordance with IAS 34 - Interim Financial Reporting. This standard provides that interim condensed financial statements do not include all the information required under IFRS for the preparation of annual consolidated financial statements. These interim condensed consolidated financial statements must therefore be read in conjunction with the Group consolidated financial statements as at and for the year ended December 31, 2021. However selected explanatory notes are included to explain events and transactions that are significant to understand the changes in the Group financial position and performance since the latest annual consolidated financial statements. The accounting policies and measurement methods used to prepare these interim condensed consolidated financial statements are identical to those applied by the Group at December 31, 2021 and described in the notes to the consolidated financial statements for the year ended December 2021, except: new standards and interpretations mandatorily applicable presented in the paragraph below; the specific measurement methods of IAS 34 presented in the paragraph below. New standards and interpretations applicable from January 1, 2022 The following new standards, interpretations or amendments whose application was mandatory for the Group for the fiscal year beginning January 1, 2022 had no material impact on the interim condensed consolidated financial statements: Amendements to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use; Amendements to IFRS 3 – Reference to the Conceptual Framework; Amendements to IAS 37 – Onerous Contracts: Costs of Fulfilling a Contract; Annual Improvements to IFRS Standards 2018–2020 Cycle; IFRS IC decisions regarding Principal versus Agent: Software Reseller (IFRS 15). Other standards The Group does not apply IFRS standards and interpretations that have not yet been approved by the European Union at the closing date. In addition, none of the new standards effective for annual periods beginning after January 1, 2022 and for which an earlier application is permitted have been applied by the Group. The potential impacts of these new pronouncements are currently being analyzed. The IFRS IC decision issued in April 2021 regarding "Configuration or customization costs in a Cloud Computing Arrangement" had no material impact on the interim condensed consolidated financial statements. 33/88 Use of estimates and judgments The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the interim condensed consolidated financial statements remain identical to those described in the latest annual report, except the specific measurement methods of IAS 34 regarding estimate of income tax expense (as described in Note 7) and pension plans and other long-term benefits valuations (as described in Note 9). 2.2.6.2. Main events New organization and contemplated separation of the Group into two publicly listed companies On February 10, 2022, Atos announced a change in governance. Starting from the first semester of 2022, the Group will be governed around three business lines, replacing the current Industries, and the five Regional Business Units will be grouped into four. The three business lines were defined as follows: Tech Foundations, focused on designing, building and managing complex and vital information systems worldwide and positioned on the infrastructure and private cloud market; Digital, positioned on the fast-growing market supported by the shift to the cloud and an increasing demand for digital transformation, through a strong partnership with hyperscalers and market leading software vendors; Big Data and Security, specialized in secure data intelligence, through two activities: Digital Security and Advanced Computing. On June 14, 2022, Atos announced that it was studying a separation into two publicly listed companies: SpinCo (Evidian) would bring together Atos Digital and Big Data and Security business lines; TFCo (Atos) would be composed of Atos Tech Foundations business line. In the contemplated scenario, Atos shareholders would retain their current shares of Atos and would receive SpinCo shares as in-kind distributions. SpinCo would be listed on the Euronext Paris stock exchange. After completion of the envisaged transaction, it is currently contemplated that Atos shareholders would hold 100% of TFCo and 70% of SpinCo. The remaining 30% stake in SpinCo would be held by TFCo and monetized over time to refinance TFCo turnaround costs. The Group indicated that, if it was decided to move forward with this project, the objective would be to complete the separation into two entities, involving a prior reorganization of the Group, during the second half of 2023, and to complete the listing and distribution of SpinCo shares by the end of 2023. Atos board of directors approved the launch of the in-depth study of this project. However the decision on this reorganization and separate listing project and its terms and conditions will be made once the ongoing in-depth analysis has been completed; it remains conditional on general market conditions and would be subject to customary processes, including governance bodies and shareholders’ approval as well as consultation with the relevant employee representative bodies. Considering the early stage of the project, Atos considered that SpinCo did not represent a disposal group according to IFRS 5 definition. In addition, the contemplated project does not have any consequence on the segment information for the interim consolidated financial statements at June 30, 2022. 34/88 Sale of the residual stake in Worldline On June 14, 2022, Atos completed the sale of its entire stake in Worldline of c. 7.0 million shares representing c. 2.5% of Worldline share capital. The sale was carried out by way of an accelerated book building to institutional investors. Atos has concomitantly entered into a derivative transaction to hedge its residual exposure to Worldline share price related to the outstanding exchangeable bonds due 2024, which were issued in 2019. As a result of these transactions, Atos raised net proceeds of 219 million and is no longer a shareholder of Worldline. Accounting consequences are described in Note 6. Consequences of Russia invasion of Ukraine Since the outbreak of the conflict, Atos has evaluated and reduced its operations in Russia in line with international sanctions and confirmed early April a managed exit out of its Russian-based operations. Atos used to deliver digital services to its client based worldwide from Russia. Services currently delivered from Russia were moved to other countries, including India and an expanded Turkish SAP Centre of Excellence. In addition, Atos has entered into a disposal process of its Russian subsidiary (see Note 1). Impacts of Russia invasion of Ukraine on the interim consolidated financial statements are limited to the accounting consequences of the contemplated disposal. Hyperinflation in Turkey Since April 30, 2022, Turkey is considered a hyperinflationary economy. The application of IAS 29 provisions did not result in any material impact for Atos at June 30, 2022. 35/88 2.2.6.3. Notes to the interim condensed consolidated financial statements Note 1 – Changes in the scope of consolidation 37 Note 2 – Segment information 38 Note 3 – Revenue, trade receivables, contract assets and contract costs 40 Note 4 – Operating items 41 Note 5 – Other operating income and expense 42 Note 6 – Financial assets, liabilities and financial result 46 Note 7 – Income tax 49 Note 8 – Goodwill 49 Note 9 – Pensions plans and other long-term benefits 52 Note 10 – Provisions 53 Note 11 - Shareholders’ equity 53 Note 12 – Litigations 53 Note 13 – Subsequent events 54 36/88 Note 1 Changes in the scope of consolidation Acquisition of Cloudreach On January 3, 2022, Atos acquired Cloudreach, a leading multi-cloud services company specializing in public cloud application development and cloud migration, with strong partnerships with all three hyperscalers. Through this acquisition, Atos welcomes over 600 highly skilled cloud professionals to further strengthen its global cloud expertise. Cloudreach was incorporated in 2009 and is headquartered in London with additional offices in the USA, Canada, the Netherlands, Germany, France, Switzerland and India. The consideration transferred was € 256 million leading to the recognition of a preliminary goodwill of € 230 million. Had the acquisition of Cloudreach occurred on January 1, 2022, the six-month revenue and operating margin would have been € 49 million and € -8 million, respectively. Contemplated disposals Unified Communications & Collaboration business In 2021, Atos announced the contemplated disposal of the Unified Communications & Collaboration business and determined that this disposal group met the held for sale classification criteria at the end of September 2021. Atos Russian operations As described in 2.2.6.2, Atos has launched the process of selling its Russian subsidiary in April 2022. As at June 30, 2022, the Group determined that this disposal group met the held for sale classification criteria considering the status of the negotiations. Major classes of assets and liabilities related to the disposal groups classified as held for sale can be presented as follows: (in € million)June 30, 2022December 31, 2021ASSETSGoodwill144224Intangible assets147142Tangible assets117Right-of-use assets1610Equity-accounted investments00Non-current financial assets43Deferred tax assets2728Total non-current assets349414Trade accounts and notes receivable124120Current taxes127Other current assets12383Current financial instruments0-0Cash and cash equivalents19-Total current assets278209TOTAL ASSETS628623 37/88 (in € million)June 30, 2022December 31, 2021LIABILITIES Provisions for pensions and similar benefits147197Non-current provisions1315Deferred tax liabilities3327Non-current lease liabilities53Total non-current liabilities198243Trade accounts and notes payable106113Current taxes21Current provisions1612Current portion of borrowings4Current lease liabilities65Other current liabilities175105Total current liabilities308235TOTAL LIABILITIES506477 The measurement of those disposal groups at fair value less costs to sell resulted in a total of € 120 million impairment of goodwill, non-currents asset and current assets recorded as part of Other operating income and expense in the first half of 2022. Note 2 Segment information On February 10, 2022, the Group announced a change in governance: starting from the first semester 2022, the Group will be organized around three business lines, replacing the former Industries, and the five Regional Business Units (RBUs) will be grouped into four. The three Business Lines are: Tech Foundations, that bundles Atos asset-intensive activities and regroups activities reaching maturity such as Data Centre & Hosting, Digital Workplace, Unified Communications & Collaboration (UCC), as well as Business Process Outsourcing (BPO); Digital, a skills and capabilities-driven service business that serves Atos customers in Digital, Cloud and Decarbonization and help them succeed in their digital transformation; Big Data & Security (BDS), a high-growth, R&D-intensive business that focuses on Cybersecurity products & services, High performance & Edge computing and Mission critical systems. The four Regional Business Units are: Americas: former North America and the South America cluster of the former Growing Markets RBU; Northern Europe & APAC: former Northern Europe and the Asia Pacific cluster of the former Growing Markets RBU; Central Europe; and Southern Europe. Corporate and Other regroups Corporate functions, Global Delivery Centers and the other countries previously reported in the former Growing Markets RBU. Regional Business Units remain the key components reviewed by the chief operating decision maker. As a result, and for IFRS 8 requirements, Regional Business Units remain the disclosed operating segments. 38/88 Regional Business Units are now made of the following countries: AmericasArgentina,Brazil,Canada,Chile,Colombia,Guatemala,Mexico,Peru,theUnitedStatesofAmericaandUrugay.Northern Europe & APACAustralia,Belgium,China,Denmark,Estonia,Finland,HongKong,India,Ireland,Japan,Lithuania,Luxembourg,Malaysia,NewZealand,Norway,Philippines,Singapore,Sweden,Taiwan,Thailand,theNetherlands, the United Kingdom and South Korea.Central Europe Austria,Belarus,BosniaandHerzegovina,Bulgaria,Croatia,CzechRepublic,Germany,Greece,Hungary,Poland, Israel, Romania, Russia, Serbia, Slovakia and Switzerland.Southern Europe Andorra, France, Italy, Portugal and Spain.Corporate and OtherAbuDhabi,Algeria,Benin,BurkinaFaso,Egypt,Gabon,IvoryCoast,Kenya,Lebanon,Madagascar,Mali,Mauritius,Morocco,Namibia,Qatar,Saudi-Arabia,Senegal,SouthAfrica,Tunisia,Turkey,UAEaswellasCorporate functions and Global Delivery Centers (GDC).Operating segments Each Business Line is represented in each RBU. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group revenue. The operating segment information is as follows: (in € million)AmericasNorthern Europe & APACCentral EuropeSouthern EuropeCorporateand OtherElimination Total Group6 months ended June 30, 2022External revenue by segment1,3531,6251,2581,1981295,563% of Group revenue24.3%29.2%22.6%21.5%2.3%100.0%Inter-segment revenue559210461670-9810Total revenue 1,4081,7171,3611,258799-9815,563Segment operating margin 7328-3040-5259% of margin5.4%1.7%-2.4%3.4%-40.3%1.1%Total segment assets as at June 30, 20224,3293,5111,4122,5121,16212,9256 months ended June 30, 2021*External revenue by segment1,2261,5811,2731,2311135,424% of Group revenue22.6%29.1%23.5%22.7%2.1%100.0%Inter-segment revenue338910062637-9220Total revenue 1,2591,6701,3731,293750-9225,424Segment operating margin* 1421102446-19302% of margin11.6%6.9%1.9%3.7%-17.0%5.6%Total segment assets as at December 31, 20213,9133,0951,4852,4811,58512,559* Figures presented are restated to reflect the new composition of the RBU. The segment assets detailed above are reconciled to total assets as follows: (in € million)June 30, 2022December 31, 2021Total segment assets12,925 12,559 Tax assets264 265 Cash & cash equivalents3,464 3,372 Assets held for sale628 623Total assets17,280 16,819 39/88 Since the first half of 2022, the Group started reporting revenue according to the two new contemplated perimeters: Tech Foundations and Evidian. The revenue associated with those perimeters could be broken down as follows: (in € million)Tech FoundationsperimeterEvidianperimeterTotal Group6 months ended June 30, 2022External revenue by perimeter3 0242 5395 563% of Group revenue 54,4%45,6%100,0% Revenue for the six-month period ended June 30, 2021 was not available for those perimeters. Note 3 Revenue, trade receivables, contract assets and contract costs 3.1 – Disaggregation of revenue from contracts with customers Most of the revenue generated by the Group is recognized over time. The Group applies the “cost-to-cost” method to measure progress to completion for fixed price contracts. Most of the Big Data and security activities revenue is recognized at a point of time when solutions are delivered except for High Performance Computer solutions where Atos is building a dedicated asset with no alternative use and has right to payment arising from the contract or local regulation for costs incurred including a reasonable margin. In this specific case, revenue is recognized over time. Disaggregated revenue by Region and according to the Tech Foundations and Evidian perimeters is presented in Note 2. 3.2 – Trade accounts and notes receivable, and contract liabilities (in € million)June 30, 2022December 31, 2021Contract assets1,362 1,393 Trade receivables1,501 1,309 Contract costs 105 93 Expected credit loss allowance-81 -213 Trade accounts and notes receivable2,888 2,583 Contract liabilities-910 -849 Net accounts receivable 1,977 1,734 Number of days’ sales outstanding (DSO)50 44 Contract assets, net of contract liabilities were stable compared to the positions at the end of December 2021. The DSO ratio increased from 44 days to 50 days at June 30, 2022. As of June 30, 2022, € 821 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 834 million at the end of December 31, 2021). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2022. The € 821 million included € 54 million in the US where Atos only sold 95% of the right to cash flows and then derecognized 95% of the receivables. Trusted Partner for your Digital Journey 40/88 Note 4 Operating items 4.1 – Personnel expense (in € million)6 months ended June 30, 2022% Revenue6 months ended June 30, 2021% RevenueWages and salaries -2,34542.2%-2,07538.3%Social security charges-5259.4%-4879.0%Tax, training, profit-sharing-410.7%-350.6%Net (charge) release to provisions for staff expense-0.0%20.0%Net (charge) release of pension provisions19-0.3%16-0.3%TOTAL-2,892 52.0%-2,579 47.5% 4.2 – Non-personnel operating expense (in € million)6 months ended June 30, 2022% Revenue6 months ended June 30, 2021% RevenueSubcontracting costs direct-1,064 19.1%-969 17.9%Hardware and software purchase-555 10.0%-602 11.1%Maintenance costs-286 5.1%-267 4.9%Rent expense-6 0.1%-19 0.4%Telecom costs-106 1.9%-109 2.0%Travelling expense-32 0.6%-23 0.4%Professional fees -108 1.9%-106 2.0%Other expense-180 3.2%-148 2.7%Subtotal expense -2,337 42.0%-2,243 41.4%Depreciation of assets-135 2.4%-167 3.1%Depreciation of right-of-use-192 3.5%-176 3.2%Net (charge) release to provisions6 -0.1%0 0.0%Gains (Losses) on disposal of assets-4 0.1%2 0.0%Trade receivables write-off-2 0.0%-7 0.1%Capitalized production52 -0.9%48 -0.9%Subtotal other expense-275 4.9%-300 5.5%TOTAL-2,612 47.0%-2,543 46.9% 4.3 – Trade accounts and notes payable (in € million)June 30, 2022December 31, 2021Trade accounts and notes payable2,0352,003Net advance payments-31-40Prepaid expense and advanced invoices-631-603TOTAL1,373 1,359 Number of days’ payable outstanding (DPO)81 78 4.4 – Other current assets (in € million)June 30, 2022December 31, 2021Inventories161 125 State - VAT receivables278 284 Prepaid expense and advanced invoices631 603 Other receivables & current assets365 378 Net advance payments31 40 TOTAL1,466 1,430 As of June 30, 2022, € 26 million of French R&D tax credit receivables (Crédit Impôt Recherche) were transferred to a bank with conditions of the transfer meeting IFRS 9 requirements for derecognition. Those Trusted Partner for your Digital Journey 41/88 receivables were therefore derecognized from the line item “Other current assets” in the statement of financial position as of June 30, 2022. 4.5 – Other current liabilities (in € million)June 30,2022December 31, 2021Employee-related liabilities482392 Social security and other employee welfare liabilities 154161 VAT payables386447 Contract liabilities910849 Other operating liabilities 242282 TOTAL2,1752,131 Note 5 Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 357 million in the first half of 2022. The following table presents this amount by nature: (in € million)6 months ended June 30, 20226 months ended June 30, 2021Staff reorganization-73-79Rationalization and associated costs-33-42Integration and acquisition costs-18-22Amortization of intangible assets (PPA from acquisitions) -67-79Equity-based compensation-11-33Impairment of goodwill and other non-current assets-91 - Other items-64-164TOTAL-357-419 Staff reorganization amounted to € 73 million, a slight decrease compared to the first half of 2021. This decrease is mainly due to reduced restructuring measures in Northern Europe. Staff reorganization expense included the adaptation of the workforce in European countries. The € 33 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs at € 18 million mainly related to the integration costs of 2022 and 2021 acquisitions as well as the cost of retention schemes. In the first half of 2022, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises of € 67 million was mainly composed of: € 32 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of SIS customer relationships amortized over 4 to 12 years starting July 1, 2011; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 5 million of Anthelio customer relationships amortized until February 2026. The equity-based compensation expense amounted to € 11 million in the first half of 2022 compared to € 33 million in the first half of 2021, reflecting the lower values of the 2021 and 2022 performance share plans compared to the plan delivered in 2021 (2018 plans), together with an under achievement of the performance on the 2019 plans. Trusted Partner for your Digital Journey 42/88 Impairment of goodwill and other non-current assets related to impairment of assets associated with disposal groups classified as held for sale. In the first half of 2022, other items amounted to a net expense of € 64 million compared to € 164 million in the first half of 2021. Those exceptional items mainly included the impact of the impairment of current assets from the Russian business classified as held for sale, for € 32 million, as well as the cost associated with the envisaged transformation plan of the Group, as announced on June 14, 2022. Equity-based compensation The € 11 million expense recorded within other operating income and expense relating to equity-based compensation (€ 33 million in the first half of 2021) was mainly made up of: € 8 million related to performance share plans granted from 2019 until 2022, of which € 2 million related to the 2022 performance share plans; € 3 million related to the cash-settled incentive plan implemented in the first half of 2022. Equity-based compensation plans are detailed by year and by nature as follows. By year (in € million)6 months ended June 30, 20226 months ended June 30, 2021Plans 2022*5-Plans 20212-Plans 2020415Plans 2019010Plans 2018-7TOTAL1133* including the cash-settled plan attributed in 2022. By category of plans (in € million)6 months ended June 30, 20226 months ended June 30, 2021Performance share plans833Stock option plans-00Employee share purchase plans0-Cash-settled incentive plans3-TOTAL1133 Performance share plans In the first half of 2022, Atos implemented three new performance share plans, one of them having three vesting tranches: Board of directors meeting dateMay, 18 2022June, 13 2022Number of shares granted 264,00039,000Share price at grant date (€)23.418.8Vesting dateMay, 18 2025June, 18 2025Expected life (years)33Expected dividend yield (%)1.741.74Fair value of the instrument (€)19.2714.912022 expense recognized (in € million)00 Trusted Partner for your Digital Journey 43/88 Board of directors meeting dateMay, 18 2022May, 18 2022May, 18 2022Number of shares granted 309,560309,703619,352Share price at grant date (€)23.423.423.4Vesting dateMay, 18 2023May, 18 2024May, 18 2025Expected life (years)123Expected dividend yield (%)1.741.741.74Fair value of the instrument (€)21.5621.1920.822022 expense recognized (in € million)100 Rules governing the performance share plans in the Group are as follows: To receive the share, the grantee must generally be an employee or a corporate officer of the Group or a company employee related to Atos; Vesting is conditional upon both the continued employment and the achievement of performance criteria, financial and non-financial ones that varies according to the plan rules such as; o internal financial performance criteria including Group revenue growth, Group Operating Margin and Group Free Cash Flow (FCF); o internal and external social and environmental responsibility performance criteria; o an external stock market performance criterion; The vesting period varies according to the plan rules but never exceeds 3 years; The lock-up period varies according to the plan rules but never exceeds 2 years. Previous plans impacting the consolidated income statement of the first semester of 2022 were the following: Board of directors meeting dateJuly 24, 2020July 24, 2021Number of shares granted 870,630862,100Share price at grant date (€)75.041.2Vesting dateJuly 24, 2023July 24, 2024Expected life (years)33Expected dividend yield (%)2.072.09Fair value of the instrument (€)68.7439.672022 expense recognized (in € million)32 Board of directors meeting dateJuly 24, 2019October 23, 2019Number of shares granted 907,50012,000Share price at grant date (€)69.863.6Vesting dateJuly 24, 2022October 23, 2022Expected life (years)33Expected dividend yield (%)2.072.07Fair value of the instrument (€)65.5559.772022 expense recognized (in € million)00 In the first half of 2022, the Board of Directors decided to revise the financial targets for the performance share plan granted in 2020, applicable to all beneficiaries of the plan. The purpose of that revision was to align the performance targets of the plan with the mid-term plan announced on June 14, 2022. Trusted Partner for your Digital Journey 44/88 Stock option plans In 2019, Atos implemented a stock option plan detailed as follows: Board of directors meeting dateJuly 24, 2019Number of stock options initially granted209,200Share price at grant date (€)77.9Strike price (€)80.1Vesting dateJuly 24, 2022Expected maturity of the plan (years)3Expected dividend yield (%)2.07Fair value of the instrument (in €)6.6702022 expense recognized (in € million) The change in outstanding share options for Atos SE during the period was the following: (in € million)Number of sharesWeighted average strike price(in €)Number of sharesWeighted average strike price(in €)Outstanding at the beginning of the period137,00077.9162,90077.9Granted during the periodForfeited during the period-39,00077.9-25,90077.9Exercised during the periodExpired during the periodOutstanding at the end of the period98,00077.9137,00077.9Exercisable at the end of the period, below period-end stock price*----June 30, 2022December 31, 2021(*) Stock price : € 12.78 at June 30, 2022 and € 37.39 at December 31, 2021. Cash-settled incentive plans In the first half of 2022, Atos implemented an equity-based compensation plan for the beneficiaries of the performance share plans granted in July 2019. Subject to their continued employment, the value of the plan based on the value of Atos SE share on vesting date (July 24, 2022) will be settled in cash in September 2022. The related expense accrued in the first half of 2022 amounted to € 3 million. Trusted Partner for your Digital Journey 45/88 Note 6 Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 129 million for the period (compared to € 3 million in the first half of 2021) and was composed of a net cost of financial debt of € 13 million and other financial expense of € 116 million. Net cost of financial debt (in € million)6 months ended June 30, 20226 months ended June 30, 2021Net interest expense-13-12Gain (loss) on interest rate hedges of financial debt --1Net cost of financial debt-13-13 Net cost of financial debt remained stable compared to 2021 at € 13 million in the first half. The average expense rate of the Group was 0.70% on the average gross borrowings compared to 0.89% in the first half of 2021. The average income rate on the average gross cash was 0.58% compared to 0.63% in the first half of 2021. Other financial income and expense As described in 2.2.6.2, on June 14, 2022, Atos completed the sale of its entire stake in Worldline. The sale transaction resulted in a loss of € 109 million recognized in the income statement as part of “Other financial income and expense”. Concomitantly to the sale, Atos entered into a derivative transaction to hedge its residual exposure to Worldline shares related to the outstanding exchangeable bonds due 2024, which were issued in 2019. The premium paid on the derivative transaction was recognized on the balance sheet as a derivative asset and subsequently remeasured in accordance with IFRS 9 at fair value through the income statement as part of “Other financial income and expense”. (in € million)6 months ended June 30, 20226 months ended June 30, 2021Foreign exchange income (expense) 1-4Fair value gain (loss) on forward contracts-2-2Net gain (loss) on financial instruments related to Worldline shares-8332Interest on lease liability-9-8Other income (expense) -22-8Other financial income and expense-11610Of which:- other financial expense-243-40- other financial income12750 Other financial items were a net loss of € 116 million compared to a net gain of € 10 million in the first half of 2021 and were mainly composed of: a net loss of € 83 million composed of the net loss from the disposal of Worldline shares, the change in value of the OEB derivative and the derivative to hedge the residual exposure to Worldline shares, both measured at fair value through profit and loss under IFRS 9; pension related financial expense of € 8 million stable compared to the first half of 2021; lease liability interest of € 9 million compared to € 8 million in the first half of 2021. This variation mainly resulted from the increase in discount rates; Trusted Partner for your Digital Journey 46/88 net foreign exchange loss (including hedges) of € 2 million compared to a loss of € 6 million in the first half of 2021. 6.2 – Cash and cash equivalents (in € million)June 30, 2022December 31, 2021Cash in hand and short-term bank deposit3,4043,313 Money market funds 6059 TOTAL3,4643,372 Depending on market conditions and short-term cash flow expectations, Atos invests from time to time in Money Market Funds or bank deposits for a maturity period not exceeding three months. 6.3 – Non-current financial assets (in € million)June 30, 2022December 31, 2021Pension prepaymentsNote 9255261Fair value of non-consolidated investments, net of impairment5347Other*199232TOTAL459840* "Other" includes loans, deposits, guarantees and up-front and underwriting fees related to past acquisitions amortized over the duration of the debt instrument The fair value of non-consolidated investments variation included € 342 million related to the disposal of the retained interest in Worldline on June 14, 2022 as described in 2.2.6.2. As a result of that disposal, Atos is no longer a shareholder of Worldline. Atos concomitantly entered into a derivative transaction to hedge its residual exposure to Worldline share price related to the outstanding exchangeable bonds due 2024, which were issued in 2019. The premium paid on the derivative transaction was recognized on the balance sheet as a derivative asset and subsequently remeasured in accordance with IFRS 9 at fair value through the income statement. In the consolidated statement of financial position at June 30, 2022, the value of the derivative asset was estimated at € 19 million and offset the value of the derivative liability corresponding to the derivative component embedded in the bond exchangeable in Worldline shares. Trusted Partner for your Digital Journey 47/88 6.4 – Change in net debt over the period Financial liabilities changes and net debt (cash) changes reconcile to the cash flow statement as follows: (In € million)BondsOptional exchan-geable bondBank loans and commercial papersOther borrow-ings excl. overdraftTotal borrowingsCash & cash equiva-lentsOverdraftTotal net cash & cash equivalentsShort-term financial assets/liabilities*Net debt/(cash) Lease liabilitiesAt January 1, 20222,9005001,029374,4663,372-1333,23921,2261,254Lease payments-----------207New borrowings--2,265322,2972,297-2,297---Repayment of current and non-current borrowings-700--899-43-1,642-1,642--1,642---Net cost of financial debt paid------13--13-13-Other flows related to financing activities---111-1---Other net cash and cash equivalents changes------66732-634-2636-Cash flows impacts-700-1,367-10656-24329-2649-207Change in lease liabilities----------77Interest on lease liability----------9Impact of exchange rate fluctuations ---11131-3298--9823Reclassificationtoassetsheldforsale------15--15-15-3Other changes ---11116-3283--83106At June 30, 20222,2005002,395275,1223,464-1343,33001,7921,153Non-current portion2,200500502,7502,750819Current portion-2,345272,3723,464-1343,330-958335*Short-term financial assets and liabilities bearing interests with maturity of less than 12 months. Net cash and cash equivalents (in € million)June 30, 2022December 31, 2021Cash and cash equivalents3,4643,372Overdrafts-134-133TOTAL3,3303,239 Bank covenant At the end of June 2022, the borrowing covenant of the Group applicable to the multi-currency revolving credit facility was 4.31. According to the credit documentation of the multi-currency revolving credit facility, the leverage ratio is calculated excluding IFRS 16 impacts since 2019 and takes into account 12 months rolling of OMDA. Under the terms of the multi-currency revolving credit facility, the leverage ratio shall be tested once a year at 31 December of each fiscal year and must not be greater than 2.5 times. The disclosure of the leverage ratio at the end June 2022 is made for information purposes only. The Group has initiated discussions with the syndicated banks to modify the covenant terms. To date, those negotiations are well advanced and should ensure that the Group meet its covenant ratio at December 31, 2022. As at June 30, 2022, the revolving credit facility was undrawn but for € 80 million. Trusted Partner for your Digital Journey 48/88 Note 7 Income tax The income tax charge includes current and deferred tax expense. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is recognized based on management’s estimate of the effective tax rate for the whole financial year applied to the “net income before tax” of the interim period. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the whole year in the light of full-year earnings projections. The tax charge for the first half of 2022 was € 77 million with a loss before tax of € 427 million. Due to a loss before tax, the Effective Tax Rate (ETR) of the period is not meaningful. The Group assessed the main impacts of its revised mid-term plan announced on June 14, 2022 on the recoverability of its deferred tax assets. It resulted in € 84 million of deferred tax assets not recognized over the period and the derecognition of € 50 million of deferred tax assets previously recognized. Note 8 Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually by comparing its carrying amount to its recoverable amount at the closing date based on the 5-year mid-term plan, or more often whenever events or circumstances indicate that the carrying amount could not be recovered. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Goodwill is allocated to a Cash Generating Unit (CGU) or a group of CGUs for the purpose of impairment testing. Goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Goodwill is tested for impairment at the Regional Business Unit level as RBU are the lowest level at which the goodwill is monitored for internal management purposes. For the purpose of preparing the interim condensed consolidated financial statements, an impairment test is performed only if the Group has determined that indicators of impairment exist. Following the announcement made on February 10, 2022 (see Note 2), the four Regional Business Units are henceforth: Americas: former North America and the South America cluster of the former Growing Markets RBU; Northern Europe & APAC: former Northern Europe and the Asia Pacific cluster of the former Growing Markets RBU; Central Europe; and Southern Europe. In addition, considering that the legacy infrastructure business has eventually not been disposed of, the related CGUs that had been tested for impairment separately at December 31, 2021 are now considered again as part of a unique CGU in each geography. Trusted Partner for your Digital Journey 49/88 Following the significant share price drop over the first half of the year, and particularly following the announcement made to the market on June 14, 2022 (see 2.2.6.2), the Group performed an impairment test for all RBUs at June 30, 2022, based notably on its revised mid-term plan prepared for this announcement, as well as updated discount rates. The revised mid-term plan covers the period 2022-2026 and is conditional upon the Group obtaining the necessary financing conditions. At June 30, 2022, discount rates and perpetual growth rates used were the following: Discount ratesPerpetualgrowth rateAmericas11.0%2.6%Northern Europe and APAC9.5%2.5%Central Europe8.8%2.2%Southern Europe9.3%2.1%Other15.3%5.4% Discount rates used at December 31, 2021 based on the previous geographical organization were the following: December 31, 2021North America9.5%Northern Europe8.3%Central Europe8.1%Southern Europe8.2%Growing Markets11.2% The recoverable value was determined based on the fair value less costs to sell that the Group categorized within Level 3 of the fair value hierarchy, according to IFRS 13. Such fair value was based on a multicriteria approach, including Discounted Cash Flows (DCF), trading multiples and transaction multiples. The impairment tests performed at June 30, 2022 did not result in the recognition of any goodwill impairment. Even though the impairment tests were performed based on a multicriteria approach, they were sensitive to discount rates, long-term growth rates and operating margin rates. Trusted Partner for your Digital Journey 50/88 For information purposes, a sensitivity analysis was carried out on the enterprise values arising from the DCF method to determine the value of those parameters for which the enterprise value equals the net carrying amount. The results are presented below: Increase (decrease) in thediscount rateIncrease (decrease) in theperpetual growth rateIncrease (decrease) in theoperating margin rate(in basis points)(in basis points)(in basis points)Americas50-90-80Northern Europe & APAC500na*-470Central Europe240-450-110Southern Europe120-240-90Other20-30-10* na: significantly negative perpertual growth rates were not considered meaningful. Changes in carrying amounts can be presented as follows: (In € million)December 31, 2021ChangeReclassification to assets held for saleExchange differences and otherJune 30, 2022Gross value6,761239-2297,230Impairment loss-1,656-3--14-1,673Carrying amount5,105236-2155,556(in € million)December 31, 2020ChangeReclassification to assets held for saleExchange differences and otherDecember 31, 2021Gross value6,705256-4732736,761Impairment loss-565-1,325249-16-1,656Carrying amount6,140-1,069-2242575,105 The increase of the goodwill in the first half of 2022 was related to the acquisition of Cloudreach, as described in Note 1. Trusted Partner for your Digital Journey 51/88 Note 9 Pensions plans and other long-term benefits For the purpose of preparing the interim condensed consolidated financial statements, the liabilities and assets related to post-employment and other long-term employee defined benefits are calculated using the latest valuation at the previous financial year closing date. Adjustments of actuarial assumptions are performed on the largest pension plans of the Group only if significant fluctuations or one-time events have occurred during the six-month period. The net total amount recognized on the balance sheet in respect of pension plans was € 425 million compared to € 647 million at December 31, 2021. (in € million)June 30, 2022December 31, 2021Prepaid pension asset 255261Accrued liability – pension plans [a]-680-908Total Pension plan-425-647Accrued liability – other long-term employee benefits [b]-32-36Total accrued liability [a] + [b]-713-944 Between December 31, 2021 and June 30, 2022, long-term government bond rates as well as credit spreads have increased significantly across the main markets. The increase in nominal rates was mainly due to a sharp increase in inflation expectations combined with a change in central banks policy to limit inflation. As a result, discount rates have increased from +1.80% in the UK and the US to +2.10% in the Eurozone (long-term rates). This increase is due predominantly to long-term government bond rates (from +1.20% in Switzerland to +1.60% in the Eurozone) and to a lesser extent to a widening of credit spreads (from +0.30% in the UK to +0.70% in Switzerland). 6 months ended June 30, 2022December 31, 20216 months ended June 30, 2022December 31, 20216 months ended June 30, 2022December 31, 20216 months ended June 30, 2022December 31, 2021Discount rate3.8%2.0%3.2% ~3.4%1.0% ~ 1.3%2.2%0.30%4.4%2.6%RPI: 3.15%RPI: 3.30%CPI: 2.45%CPI: 2.60%naUnited KingdomEurozoneSwitzerlandUSAInflation assumption1.45%na2.0%nana The fair value of plan assets for major schemes was remeasured as at June 30, 2022. The net impact of defined benefit plans on Group income statement could be summarized as follows: (In € million)6 months ended June 30, 20226 months ended June 30, 2021Operating margin-29-30Other operating income and expense-113Financial result-8-8Total (expense) profit -38-25 Trusted Partner for your Digital Journey 52/88 Note 10 Provisions (in € million)December 31, 2021Business combinationsAdditionRelease usedRelease unusedOther (*)Reclassification to liabilities held for saleJune 30, 2022CurrentNon- currentReorganization 169 -11-42-10313926113Rationalization 7 00-0-0-0-0716Project commitments 584 -14-41-316-1531168363Litigations and contingencies 34 -7-1-43-3352015Total provisions794031-84-368-2713 216 497 (*) Other movements mainly consist of currency translation adjustments The release of provisions for reorganization mainly related to the utilization of the provision related to the German restructuring plan launched in the second half of 2021. Additions included several restructuring measures across European countries. Additions to and release of unused provisions for project commitments corresponded to reassessments on onerous contracts, mainly in Americas together. Note 11 Shareholders’ equity There are no dilutive instruments for the six-month period ended June 30, 2022. Earnings per share (in € million and shares)6 months ended June 30, 20226 months ended June 30, 2021Net income (loss)– Attributable to owners of the parent [a]-503 -129 Impact of dilutive instruments --Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-503-129 Average number of shares outstanding [c] 110,623,880 109,593,846 Impact of dilutive instruments [d] - - Diluted average number of shares [e]=[c]+[d] 110,623,880 109,593,846 (in €)Basic Earning (loss) per Share [a] / [c]-4.55 -1.18 Diluted Earning (loss) per Share [b] / [e]-4.55-1.18 Note 12 Litigations TriZetto In 2015, Syntel initiated a lawsuit against the TriZetto Group and Cognizant Technology Solutions, stating claims for breach of contract, intentional interference with contractual relations and misappropriation of confidential information. In response to the complaint, TriZetto and Cognizant asserted various counterclaims, including claims against Syntel for copyright infringement and trade secret misappropriation. On October 27, 2020, a jury in the U.S. District Court for the Southern District of New York found Syntel, which was acquired by Atos in 2018, liable for trade secret misappropriation and copyright infringement and specified approximately $ 855 million in damages in favor of Cognizant and TriZetto, of which $ 570 million of punitive damages. On April 20, 2021, the United States District Court for the Southern District of New York granted in part the Trusted Partner for your Digital Journey 53/88 post-trial motion filed by Syntel. The Court reduced the jury’s $ 855 million damages award to $ 570 million and denied Cognizant and TriZetto’s request for an additional $ 75 million in pre-judgment interest. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $ 285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $ 570 million punitive damages award was excessive and should be reduced to $ 285 million. Trizetto agreed to this reduction. The Court also issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. While the Company supports the Court’s decision to significantly reduce the punitive damages at issue and prevent a further windfall to Cognizant and TriZetto in the form of pre-judgment interest, Syntel appealed the portion of the jury’s verdict affirmed by the Court. Among other concerns, the Company continues to consider the amount of damages grossly out of proportion to the acts complained of, and that the maximum amount of damages legally available to TriZetto in this case is approximately $ 8.5 million. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021 and briefing was completed on December 23, 2021. The appeal process typically takes 18 months or more. No payment of damages will have to be made before the appeal decision but Syntel was required to post a supersedeas bond for approximately the remaining damages amount at the time the appeal was filed. Note 13 Subsequent events There is no significant subsequent event to report. Trusted Partner for your Digital Journey 54/88 2.3. Statutory auditors’ Review Report on the half- yearly financial information for the period from January 1 to June 30, 2022 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2022, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the interim management report on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 55/88 Paris-La Défense and Neuilly-sur-Seine, July 29, 2022 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton Membre français de Grant Thornton International Jean-François Viat Virginie Palethorpe Trusted Partner for your Digital Journey 56/88 3. Person responsible 3.1. Person responsible for the amendment to the Universal Registration Document Nourdine Bihmane Chief Executive Officer 3.2. Statement of the person responsible for the the Universal Registration amendment Document to I hereby declare that the information contained in the amendment to the Universal Registration Document, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import. I hereby declare that, to the best of my knowledge, the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report here attached presents a fair picture of significant events occurring during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, August 5, 2022 Nourdine Bihmane Chief Executive Officer 3.3. For the audit Appointment and term of offices Statutory auditors Grant Thornton - Virginie Palethorpe Appointed on: October 31, 1990, then renewed in October 24, 1995, on May 30, 2002, on June 12, 2008, on May 17, 2014, and on June 16, 2020 Term of office expires: at the end of the AGM voting on the 2025 financial statements Deloitte & Associés – Jean-François Viat Appointed on: December 16, 1993, renewed on February 24, 2000, on May 23, 2006, on May 30, 2012, and on May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements Trusted Partner for your Digital Journey 57/88 4. Corporate governance and additional information 4.1. Composition of the Board of Directors Evolution of the composition of the Board of Directors and its Committees The Company’s Annual General Meeting held on May 18, 2022 approved the proposed new composition of its Board of Directors with: the ratification of the provisional appointment of Rodolphe Belmer as Director; the renewal of the terms of office of Rodolphe Belmer, Valérie Bernis and Vernon Sankey for a period of three years; the appointment of René Proglio, Astrid Stange and Elizabeth Thinkham as new independent Directors, respectively, for a period of two years, two years and three years; the appointment of Kat Hopkins as new Director representing the employee shareholders, for a period of three years. On June 14, 2022, the Company announced that Rodolphe Belmer had given his resignation from his positions as Director and Chief Executive Officer of the Company. Such resignation took effect on July 13, 2022. Furthermore, The Board of Directors held on July 26, 2022, co-opted Caroline Ruellan as a new independent Director of the Company, to replace Cedrik Neike for the remainder of his term (i.e., until the Annual General Meeting ruling on the 2022 financial statements). This provisional appointment will be submitted to the next ordinary general meeting for ratification. Considering its new composition, the Board of Directors, during its meetings held on May 18, 2022 and July 12, 2022 decided, on the recommendation of the Nomination and Governance Committee, to make certain changes to the composition of its committees, which are consequently composed as follows: Audit Committee: René Proglio (Chair), Vivek Badrinath and Vernon Sankey; Nomination and Governance Committee: Elizabeth Tinkham (Chair), Lynn Paine, Édouard Philippe and Vernon Sankey; Remuneration Committee: Astrid Stange (Chair), Valérie Bernis and Vesela Asparuhova; CSR Committee: Valérie Bernis (Chair), Farès Louis and Astrid Stange. Furthermore, it should be noted that, as part of the study of the strategic project of the Group presented during the Capital Market Day on June 14, 2022, the Board of Directors decided to set-up a consultative ad hoc Committee in charge, inter alia, of providing recommendations and overseeing the study and implementation of the project by the management team. This committee, with a majority of independent Directors, is composed of René Proglio (Chair), Bertrand Meunier, Valérie Bernis, Édouard Philippe and Vernon Sankey. Trusted Partner for your Digital Journey 58/88 As of the date of this amendment to the Universal Registration Document, the Board of Directors is composed of fourteen Directors, including eight independent Directors, as follows: EXPERIENCEAgeGenderNationalityNumber of sharesNumber of other mandates in listed companies1IndependenceDate of first appointment2End of term of officeSeniority on BoardChairmanBertrand MEUNIER66 MFrench/British250000NO07/03/2008AGM 202414AHVivek BADRINATH52MFrench5001YES04/30/2019AGM 20243CuValérie BERNIS63 FFrench5052YES04/15/2015AGM 20257CSR, Rem, AHAminata NIANE65 FSenegalese10120NO05/27/2010AGM 202412N/ALynn PAINE73 FAmerican10000YES05/29/2013AGM 20249N&GEdouard PHILIPPE51 MFrench5010YES10/27/2020AGM 20231N&G, AHRené PROGLIO73MFrench5001YES05/18/2022AGM 20240Cu, AHCaroline RUELLAN54FFrench00YES07/26/2022AGM 20230N/AVernon SANKEY73 MBritish12960NO02/10/2009AGM 202513Cu, N&G, AHAstrid STANGE56FGerman5001YES05/18/2022AGM 20240Rem, CSRElizabeth TINKHAM60FAmerican5000YES05/18/2022AGM 20250N&GDirector representing the employee shareholders (L225-23 CCom)Kat HOPKINS43FBritish4070NO05/18/2022AGM 20250N/AVesela ASPARUHOVA39FBulgarian00NO10/15/2020AGM 20231RemFarès LOUIS60MFrench00NO04/25/2019AGM 20233CSR 2 Date of first appointment on the Board of Directors of Atos3 N&G: Nominations and Governance Committee, Rem: Remuneration Committee, C : Accounting Committee, CSR : CSR Committee, AH: Ad hoc Commitee Chairman of the Committeeu Vivek Badrinath, René Proglio and Vernon Sankey have sufficient financial and accounting skills by virtue of their educational and career backgrounds for the purpose of their membership in the Audit CommitteePERSONAL INFORMATIONPOSITION ON THE BOARDMEMBERSHIP IN COMMITTEES3Directors (L225-17 CCom)Employee Directors (L225-27-1 CCom)1 Other mandates exercised in listed companies (outside the Atos Group). Mandates exercised in listed companies belonging to the same group account for one single mandate. New directors’ biographies Katrina (Kat) HOPKINS Biography – Professional Experience Director representing the employee shareholders Number of shares: 407 Atos Vice President, Group Head Talent and Career Management, Learning & Development at Atos International (UK) Katrina Hopkins is Vice President of Atos and Group Head of Talent, Career and Learning at Atos International. Ms. Hopkins is a Human Resources Manager with over 20 years of experience. Date of birth: June 18, 1979 She has been with Atos since 2011 and joined the Group as part of Atos' acquisition of Siemens IT Solutions & Services. She has held various roles within the Human Resources Department, both regionally and globally, and is currently responsible for Talent Development, Performance and Learning within the Atos Group. Nationality: British Date of first appointment: May 18, 2022 Ms. Hopkins holds a BSc (with Honors), in Psychology and is a Fellow of the Chartered Institute of Personnel and Development. Directorships and positions Term expires on: AGM ruling on the 2024 financial statements Other directorships and positions Within the Atos Group Member of the Supervisory Board of the Atos Stock Plan Employee Mutual Fund (FCPE) since 2022 Other positions held during the last five years Within the Atos Group None Outside the Atos Group Outside the Atos Group None None Trusted Partner for your Digital Journey 59/88 René PROGLIO* Biography – Professional Experience Chairman of the Audit Committee*** Partner in the Strategic Advisory Group at PJT Partners René Proglio is a graduate of French business school HEC and holds a Chartered Accountant Diploma. Number of shares: 500 Mr. Proglio is a partner in the Strategic Advisory Group of PJT Partners. With more than 30 years of experience in the M&A market, Mr. Proglio brings a strategic vision as well as leading financial expertise to companies. Date of birth: June 29, 1949 Nationality: French Mr. Proglio joined PJT Partners in September 2021. He was previously at Morgan Stanley, where he served as Vice President and Head of the French market. Mr. Proglio joined Morgan Stanley in 2003 as a Managing Director in the Investment Banking group and led the advisory business in Paris before taking overall responsibility for the French business. Date of first appointment: May 18, 2022 He began his career at Arthur Andersen in the Audit and Consulting groups, where he served as a partner for 20 years and held various management positions. Directorships and positions Term expires on: AGM ruling on the 2023 financial statements Other directorship and positions Within the Atos Group None Other positions held during the last five years Within the Atos Group Outside the Atos Group None France: Outside the Atos Group Partner of PJT Partners**, since 2021 Censor of Tinubu Square SA (France) Vice Chaiman and Managing Director at Morgan Stanley** from 2008 to 2021 Abroad: Director of Photo-Me International Plc** (United-Kingdom) Independent Director ** Listed company *** Mr. René Proglio has been appointed as Chairman of the Audit Committee by the Board of Directors dated July 12, 2022, of which he was a member since May 18, 2022 Caroline RUELLAN* Director Biography – Professional Experience Consultant Number of shares: 0 Date of birth: August 13, 1967 Caroline Ruellan has over twenty-five years of experience in corporate law and corporate governance. She began her career as a lecturer at the University of Picardie Jules Verne and then at the École des Mines de Paris, where she taught business law for more than fifteen years. She then joined the AIG Group, the world leader in financial risk insurance, from 2007 to 2013, as Head of Claims for Europe before being appointed Head of Innovation and Institutional Relations. Nationality: Trusted Partner for your Digital Journey 60/88 French Date of first appointment: July 26, 2022, to replace Cedrik NEIKE, and which will be submitted to the next ordinary general meeting for ratification Caroline Ruellan is the CEO and founder of SONJ Conseil, an independent consulting firm that assists French and international companies in matters of governance, activism and strategy. She also closely follows the development of many companies in Europe as well as the implementation of their governance. Indeed, since 2016, she has been chairing and running the Cercle des Administrateurs. She is also an independent director of ADAM (Association for the Defense of Minority Shareholders), a member of the of the Retail Investors Consultative Commission of the French Financial Markets Authority (AMF), and a member of the Supervisory Board of Ardian France since 2019. Caroline Ruellan holds a PhD in private law and an LL.M. from Harvard Law School. Term expires on: AGM ruling on the 2022 financial statements Directorships and positions Other directorship and positions Other positions held during the last five years Within the Atos Group None Within the Atos Group Outside the Atos Group None France: Outside the Atos Group CEO of SONJ Conseil • Member of the supervisory board of Ardian France CEO of SONJ Conseil • Member of the supervisory board of Ardian France Chair of the Cercle des Administrateurs Independent director of ADAM • Director of the Institut Aspen France Abroad: None Independent Director Astrid STANGE* Biography – Professional Experience Chair of the Remuneration Committee Former COO at AXA and former Senior Partner and Managing Director at BCG Member of the CSR Committee Number of shares: 500 Date of birth: December 27, 1965 Astrid Stange started her executive career at Bertelsmann Buch AG as head of direct marketing in 1995. She became Senior Partner and Managing Director of the Boston Consulting Group where she started in 1998 as a member of the Global Insurance Practice. From 2008 to 2013, she led BCG’s Insurance practice in Germany and then became Global Sector Leader for Life Insurance. Ms. Astrid Stange joined AXA in 2014 as member of the Executive Board of AXA Konzern AG (Germany), in charge of strategy, human resources, organization and client management. In December 2017, Ms. Stange was appointed Chief Operating Officer (COO) of AXA and member of the Management Committee of AXA SA. As COO, she led a major transformation of the company regarding technology and data. In 2018, she also took the operational responsibility for the new built unit AXA Group Operations which delivers infrastructure and application services, security, emerging technologies, but also BPO and procurement services to AXA Group. Nationality: German Date of first appointment: Astrid Stange studied economics at the Ruhr University in Bochum. In 1993, she obtained a doctorate from the Department of Economics of the Technische Universität Braunschweig. Trusted Partner for your Digital Journey 61/88 May 18, 2022 Directorships and positions Term expires on: AGM ruling on the 2023 financial statements Other directorships and positions Within the Atos Group None Other positions held during the last five years Within the Atos Group Outside the Atos Group None France: Outside the Atos Group None Abroad: Member of the supervisory board at Deutsche Lufhansa AG** (Germany) • Co-CEO of Element Insurance AG (as from August 1, 2022) (Germany) Chief Operating Officer and member of the Executive Committee: AXA** (France), from 2017 until October 2021 • CEO AXA Group Operations SAS (France), from 2018 until October 2021 Chair of the board, AXA Group Operations SAS (France), from 2018 until October 2021 Member of the supervisory board, Financial Controller, GIE AXA (France), from 2017 until October 2021 ** Independent director Listed company Elizabeth TINKHAM* Biography – Professional Experience Chair of the Nomination and Governance Committee Number of shares: 500 Date of birth: November 5, 1961 Nationality: American Former Senior Managing Director and Global Client Account Lead for Microsoft Account in Accenture Ltd Elizabeth Tinkham was a Senior Managing Director and member of the Global Executive Committee at Accenture plc, where she held a variety of client facing and executive positions. She was the global account lead for Microsoft, responsible for driving account growth as well as the technology partnership between Microsoft and Accenture. Prior to heading the Microsoft account, Ms. Tinkham led Accenture’s Global and North American Management Consulting practice for the Communications, Media and Technology (CMT) verticals. Her responsibilities included revenue growth, M&A activity and chairing the CMT Investment Board. Ms. Tinkham now advises innovative, growth-focused companies on the challenges and opportunities inherent to shifting to digital technologies. She also advises the state of Washington on educational and equity issues through her role as chair of Washington Stem, a non-profit organization. Date of first appointment: May 18, 2022 Term expires on: AGM ruling on the a 2024 financial statements Ms. Tinkham teaches classes in management consulting and in nonprofit board management at the University of Washington’s Foster School of Business. Ms. Tinkham graduated from Ohio State University with a degree in aeronautical and astronautical engineering. Directorships and positions Other directorships and positions Other positions held during the last five years Within the Atos Group None Within the Atos Group None Trusted Partner for your Digital Journey 62/88 Outside the Atos Group France: None Abroad: Director: Headspin (United States) • Director: Particle (United States) • Director: Athena Alliance (United States) Chair of the board of directors: Washington STEM (United-States) Affiliate Lecturer, University of Washington, Foster School of Business (United States) ** Independent director Listed company Trusted Partner for your Digital Journey 63/88 Outside the Atos Group Senior Managing Director: Accenture Ltd**, until March 2017 4.2. Appointment of a new Chief Executive Officer and of a Deputy Chief Executive Officer As part of the study of a project for the separation of Atos’ legacy activities (Tech Foundations), on the one hand, and its Big Data and Security (BDS) and Digital activities, on the other hand, through two independent listed companies, the Board of Directors approved on June 13, 2022 the appointment of two new Deputy Chief Executive Officers wih effect on June 14, 2022. Nourdine Bihmane was appointed Deputy CEO in charge of Tech Foundations while Philippe Oliva was appointed Deputy CEO in charge of the Digital/BDS perimeter (to form the newly named SpinCo). Furthermore, this contemplated separation would lead to a reorganization of the Atos group resulting in a significant reduction in the scope of the functions and a redefinition of the mission of the Atos Chief Executive Officer. Acknowleging this evolution, Rodolphe Belmer, former CEO, considered that he had no choice but to resign from his position as CEO of the Company, as of September 30, 2022, at the latest, so as to allow time to ensure the orderly transition of the Group’s governance with the two newly appointed Deputy CEOs. Following Rodolphe Belmer’s effective departure from the Group on July 13, 2022, the Board of Directors decided to appoint Nourdine Bihmane as CEO and to renew Philippe Oliva as Deputy CEO. Executive corporate officers biographies Nourdine BIHMANE Biography – Professional Experience Chief Executive Officer Group CEO and co-CEO in charge of Tech Foundations Professional address: River Ouest – 80 quai Voltaire 95870 Bezons, France Nourdine Bihmane brings over 20 years of proven tech expertise, driving change management, growth and P&L performance. Nourdine served in several global management roles across Europe, North America, and emerging markets and drove successful transformation and turnaround programs for the Atos Group. He was most recently Executive Vice President, Head of Global Delivery, and CEO of Growing Markets. He has extensive commercial and operational knowledge of Atos, especially in the fields of managed services and decarbonization. Number of shares: 8,798 Date of birth: February 10, 1977 Nationality: French Nourdine Bihmane was appointed on June 14, 2022 Deputy CEO in charge of Tech Foundations, a leading business in managed infrastructure services, digital workplace and professional services. Following the departure of the former CEO, Nourdine Bihmane was appointed CEO of Atos SE as from July 13, 2022. Nourdine graduated from the University Pierre et Marie Curie in Paris in engineering and has attended the engineering courses of the Conservatoire National des Arts et Métiers. He also obtained a certification from INSEAD on "Leadership in digital transformation". Date of appointment: June 14, 2022 (as Depuy CEO) and July 13, 2022 (as CEO) Directorships and positions Other directorships and positions Within the Atos Group Other positions held during the last five years Term expires on: AGM ruling on the 2024 financial statements France: • Chief Executive Officer of Atos Meda Abroad: • Member of the Supervisory Board of Atos Nederland B.V. (Netherlands) Within the Atos Group France: Chief Executive Officer of EcoAct SAS (until May 2022) Trusted Partner for your Digital Journey 64/88 Manager of EcoAct Iberia SL (Spain) • Director of Unify Holdings B.V. Deputy Chief Executive Officer of Atos SE (until July 13, 2022) (Netherlands), Atos Saudi LLC (Saudi Arabia), Climate Pal Ltd (Kenya), Carbon Clear Limited (United- Kingdom), EcoAct, Inc. (United- States). Abroad: None Outside the Atos Group Outside the Atos Group None None Philippe OLIVA Biography – Professional Experience Deputy CEO in charge of the Digital/BDS perimeter Professional address: River Ouest – 80 quai Voltaire 95870 Bezons, France Number of shares: 0 Group Deputy CEO and co-CEO in charge of Digital & Big Data and Security Philippe Oliva is capitalizing on a strong international experience in the digital sector, having spent almost 20 years at IBM where he has notably served as Vice President for Integrated Technologies, then Cloud Services and Hybrid Services in North America. Philippe joins Atos from Eutelsat where he has been Chief Commercial Officer for the past four years. Philippe Oliva joined Atos in April 2022 as Chief Commercial Officer and was appointed on June 14, 2022 as Deputy CEO in charge of the Digital/BDS perimeter (to form the newly named SpinCo), a leading business in the digital transformation, big data and cybersecurity markets, delivering high growth and high margins. Philippe Oliva is a graduate of the Ecole Supérieure des Ingénieurs Commerciaux. Date of birth: July 30, 1972 Directorships and positions Nationality: French Other directorships and positions Other positions held during the last five years Date of appointment: June 14, 2022 Within the Atos Group None Outside the Atos Group Within the Atos Group None Term expires on: Date of realization of the separation project None Outside the Atos Group France: Chief Commercial Officer at Eutelsat* (until April 2022) Abroad: None Listed company Declarations related to the executive corporate officers To the best of the Company’s knowledge, there have been no official public incrimination and/or sanctions taken by statutory or regulatory authorities (including designated professional organisms) against the executive corporate officers. No court has, over the course of the past five years at least, prevented any executive corporate officer from acting as member of an administrative, managing or supervisory body of an issuer or from participating in the management or oversight of an issuer’s business. Neither of them has been convicted for fraud over the past five years at least. Neither of them has taken part as senior manager in a bankruptcy, receivership or liquidation over the past five years. Trusted Partner for your Digital Journey 65/88 Potential conflict of interest and agreements To the Company’s knowledge, there is no potential conflict of interest between the duties to the Company of the executive corporate officers and their private interests and/or other duties. To the Company’s knowledge, there are no existing service agreements between any executive corporate officer and Atos SE or one of its subsidiaries which would provide for benefits. To the best of the Company’s knowledge, there are no arrangements, or any type of agreement with the shareholders, clients, service providers or others by which any executive corporate officer was selected as member of an administrative, managing or supervisory body or as a member of the general management of the Company. To the best of the Company’s knowledge, there are no family relationships between any executive corporate officers and Directors of the Company. Finally, to the best of the Company’s knowledge, there are no restrictions accepted by any executive corporate officer concerning the sale of their potential shareholding in the Company’s share capital other than the retention obligations defined by the Board of Directors for the executive corporate officers of the Company. 4.3. Annual General Meeting held on May 18, 2022 The Annual General Meeting was held on May 18, 2022 at the Company’s headquarters and with a live video broadcast. The Annual General Meeting approved the annual and the consolidated financial statements for the financial year ending December 31, 2021, and the allocation of the net income for the year. The Annual General Meeting then approved the compensation and benefits paid or awarded for the year 2021 to Mr. Bertrand Meunier, Chairman of the Board of Directors, to Mr. Elie Girard, former Chief Executive Officer, to Mr. Pierre Barnabé, interim Chief Executive Officer and Mr. Adrian Gregory, interim Deputy Chief Executive Officer. The Annual General Meeting approved the 2022 compensation policies applicable to the Directors, the Chairman of the Board of Directors and the Chief Executive Officer. The results of the votes at the Annual General Meeting together with the documentation on the adopted resolutions are available on the Company’s website (in the section Investors – Annual General Meeting: https://atos.net/en/investors/annual-general-meeting). Trusted Partner for your Digital Journey 66/88 4.4. Compensation and stock ownership executive corporate officers 4.4.1. Compensation for the executive corporate officers 4.4.1.1. Conditions of departure of Mr. Rodolphe Belmer As a reminder, Mr Rodolphe Belmer submitted to the Board of Directors on June 13 his resignation from his mandates as Director and Chief Executive Officer of the Company, with an effective date no later than September 30, 2022 to ensure the orderly transition of the Group’s governance. During this meeting, the Board of Directors authorized, pursuant to Articles L. 225-38 et seq. of the French Commercial Code, the signing of an agreement concerning the end of the terms of office of Rodolphe Belmer as Director and Chief Executive Officer between him and the Company (the “Agreement”). The Agreement was concluded prior to the announcement by the Company, by press release dated June 14, 2022, of the decision of its Board of Directors, following the preliminary strategic review work carried out under the aegis of Rodolphe Belmer, to study a project to separate the historical activities of Atos (Tech Foundations), on the one hand, and its Big Data and Security (BDS) and Digital activities, on the other hand, through two independent listed companies. The Board of Directors of Atos considered that the conclusion of the Agreement allows the Company to preserve its interests in the context of its executive corporate officer’s departure, by providing in particular for commitments made by Rodolphe Belmer to ensure an orderly transition of the executive management. Rodolphe Belmer effectively left his position on the evening of July 13, 2022. The financial terms of the termination of Mr. Belmer’s mandates were decided by the Board of Directors on June 13, 2022, and July 26, 2022, on the recommendation of the Remuneration Committee, and comply with the compensation policy approved by the General Meeting of the Company on May 18, 2022, under the 21st resolution, namely: Fixed compensation Rodolphe Belmer’s fixed compensation was paid on a prorata temporis basis from January 1, 2022 until July 13 (on the evening), 2022, date of his effective departure, i.e., a gross amount of € 642,857.15 for the year 2022. Variable compensation Rodolphe Belmer’s annual variable compensation for 2022 amounted to €600,000 for the first half of the year and €0 for the second half of the year, taking into account his effective departure from the Group on July,13, 2022. The variable compensation awarded to Rodolphe Belmer for the first half of 2022 was set by the Board of Directors on 26 July 2022, on the recommendation of the Remuneration Committee, at €600,000 gross (or 100% of the target variable compensation) after validation of the achievement of the qualitative criteria, namely: the preparation and the validation of a medium-term strategic plan by the Board of Directors and the presentation of this plan during a dedicated investors day, which took place on June 14, 2022. With respect to variable compensation for the period from July 1 to the date of his effective departure on July 13, 2022, the Board of Directors decided on June 13, 2022 that 100% of the target variable compensation would be paid on a prorata temporis basis subject to the achievement of qualitative criteria to be decided by the Board of Directors regarding the success of the transition of the executive management. At the meeting of July 26, 2022, the Board of Directors, considering the effective departure of Rodolphe Belmer on July 13, 2022, and the absence of performance to be assessed over such a short period, noted that there was no need to set the performance conditions, and that no variable compensation would be due to Mr. Belmer for the second half of 2022. The payment of the variable compensation will be subject to the approval of the Annual General Meeting called to approve the financial statements for the financial year ending December 31, 2022. Trusted Partner for your Digital Journey 67/88 for Multiannual equity-based compensation Mr. Rodolphe Belmer was granted 99,000 performance shares under the Performance Share Plan dated May 18, 2022. These shares were subject to: an acquisition period of three years; performance criteria assessed over three years; and a continued employment condition until the end of the acquisition period. The resignation of Mr. Rodolphe Belmer had caused him to lose all his performance share rights, the employment condition being no longer fulfilled. Severance payment The departure of Mr. Rodolphe Belmer can be qualified as involuntary due to the complete redefinition of Atos SE’s strategy resulting in a possible change in Atos' components by separating the Group’s activities and thus a complete redefinition of the scope, the substance, functions and mission of the executive management function. Mr. Rodolphe Belmer will therefore receive a severance payment of EUR 1.8 million corresponding to 9 months of theoretical gross monthly compensation (fixed plus target annual variable). In agreement with Mr. Rodolphe Belmer, and taking into account the special circumstances, the amount of the severance payment was reduced compared to that approved by the General Assembly pursuant to Article L. 22-10-8 of the French Commercial Code. Indeed, the compensation policy provides that the maximum amount of the indemnity could amount to 200% of the theoretical gross annual compensation (fixed and target annual variable). The payment of this indemnity will be subject to the approval of the Annual General Meeting called to approve the financial statements for the financial year ending December 31, 2022. Non-compete clause The Board of Directors has decided to release Mr. Rodolphe Belmer from his non-compete undertaking upon termination of his mandate. Consequently, no indemnity is due in this respect. Fringe benefits Mr. Rodolphe Belmer has ceased to benefit, from his effective departure on July 13, 2022, from a company car with driver and from the pension and health expenses schemes in force at Atos. Other compensation components Mr. Rodolphe Belmer did not receive exceptional compensation for his mandate. As a reminder, Mr. Rodolphe Belmer did not receive any other compensation component or fringe benefits related to his mandate from Atos SE or any of its subsidiaries. He was not bound by any employment contract and did not benefit from any supplementary pension scheme from the Company and was personally responsible for building up a pension supplement beyond the mandatory basic and complementary schemes. 4.4.1.2. Compensation of Messrs. Nourdine Bihmane and Philippe Oliva As part of the appointment of Messrs. Nourdine Bihmane and Philippe Oliva as Deputy Chief Executive Officers of the Company with effect from June 14, 2022, the Board of Directors dated June 13, 2022 and Trusted Partner for your Digital Journey 68/88 July 26, 2022, set, on a proposal from the Remuneration Committee, the terms and conditions of their compensation as of June 14, 2022 in compliance with the compensation policy approved by the General Meeting of Shareholders on May 18, 2022. For the record, the provisions of the compensation policy provided for the Chief Executive Officer are intended to apply to any new executive corporate officer who would be appointed as chief executive officer or deputy chief executive officer. This compensation policy therefore applies to the new Chief Executive Officer, Mr. Nourdine Bihmane, and to the new Deputy Chief Executive Officer, Mr. Philippe Oliva. It is specified in this respect that the components of the compensation policy applicable to Nourdine Bihmane remained unchanged following his appointment as Chief Executive Officer on July 13, 2022. In accordance with the recommendations of the Afep-Medef Code, Nourdine Bihmane and Philippe Oliva have terminated their employment contract. This termination of employment contracts was taken into account by the Board of Directors, which considered it appropriate to compensate for the loss of the rights attached to the status of employees, which were gradually created during their careers within the Group. Fixed compensation A gross annual fixed compensation of € 600,000, paid in twelve monthly installments. Variable compensation The annual variable compensation, based on objectives, whose target is 100% of the fixed compensation (i.e. a target annual variable compensation of €600,000), with a maximum payment limited to 130% of the target annual variable compensation in case of outperformance (i.e. a maximum annual variable compensation of €780,000 as of the date of taking up the position) and no minimum payment. With regard to variable remuneration for the period of the second half of 2022, the Board of Directors has decided, on the recommendation of the Remuneration Committee, to take into account the exceptional circumstances and recent significant developments (see section 1.1 on the envisioned spin-off project and section 4 on governance), to introduce into the variable compensation objectives, a criterion related to the new governance structure and the major transformation project announced on June 14, 2022. This change responds to strong requests from shareholders with whom the Company and its Board of Directors are in constant dialogue. The variable compensation for the second half of 2022 for the Chief Executive Officer and the Deputy Chief Executive Officer will depend on the achievement of objectives: For 80% of the weighting, based on financial indicators relating to revenue growth, operating margin rate and free cash-flow, For 20% of the weighting, based on a new criterion related to the new governance structure and the transformation project announced on June 14, 2022. This criterion comprises four key indicators including: o A high level of collaboration within the Group’s new governance; o The improvement or at least the achievement of an equivalent retention rate for all Group employees and BDS executives in the second half of 2022 compared to the first half of 2022; o The achievement of some key milestones of the separation project measured at the end of 2022; o The successful implementation of the employee engagement plan in the transformation project and the achievement of defined target for surveys reflecting this engagement. Trusted Partner for your Digital Journey 69/88 Taking into account this decision, the weighting for each indicator is adjusted as follows: The Board of Directors, on the recommendation of the Remuneration Committee, has defined the elasticity curves enabling the amount of variable compensation due to be accelerated upwards and downwards depending on the level of achievement of each of the objectives. The budget targets and objectives underlying this variable compensation were adopted by the Board of Directors on July 26, 2022, on the recommendation of the Remuneration Committee, on the basis of Atos' 2022 perspectives. For reasons of business confidentiality, the figures of the objectives cannot be made public. The achievement rates recorded by the Board of Directors at the end of 2022 will be disclosed in the Universal Registration Document. If one of the executive corporate officers leaves the Group during the financial year, the amount of the variable part of his compensation for the current year or semester will be calculated pro rata to his attendance time during the period concerned. The targets set for the second half of 2022 by the Board of Directors on July 26, 2022 will be applied to the period from June 14 to 30, 2022 following their entry into office. The payment of the variable compensation will be subject to the approval of the Annual General Meeting called to approve the financial statements for the financial year ending December 31, 2022. Multiannual equity-based compensation The Chief Executive Officer and the Deputy Chief Executive Officer each receive, under their mandate, a multiannual equity-based compensation in the form of an allocation of performance shares. The Board of Directors decided on June 13, 2022 to grant each of them, as of June 18, 2022, 19,500 additional performance shares under the Atos performance share plan No. 1. The terms of the grant dedicated to the Chief Executive Officer and the Deputy Chief Executive Officer are in accordance with the compensation policy which provides, in particular: a three-year vesting period expiring June 18, 2025; six performance criteria: TSR (20%), organic revenue growth (20%), operating margin (20%), cumulative free cash flow (20%) and two CSR criteria, one external based on the Dow Jones Sustainability Index DJSI (10%), the other internal aimed at reducing CO2 emissions (10%); an average acquisition rate capped at 100% for the executive corporate officers; an obligation to retain until the end of each beneficiary’s term of office at least 15% of the acquired shares. Please refer to section 4.3.1.4 of the 2021 Universal Registration Document for details on the terms and conditions of the Performance Share Plan No. 1. It is specified that on May 18, 2022, Nourdine Bihmane and Philippe Oliva were each granted, under their employment contract, 30,000 performance shares and free shares (on a 100% target basis) as part of the free allocation plans, Plans No. 1 and No. 2 dated May 18, 2022 (refer to section 4.3.2 below). The average acquisition rate of Plan No. 1 of performance shares is not capped at 100% as this grant was made prior to Trusted Partner for your Digital Journey 70/88 their appointment as executive corporate officers; however, the general obligation of executive corporate officers to retain 15% of the performance shares delivered to them during their mandate applies to these shares. Exceptional compensation related to the completion of the project under review The Chief Executive Officer and the Deputy Chief Executive Officer will each receive an exceptional compensation for the successful completion of the project, the study of which was announced during the Investor Day on June 14, 2022, for amounts ranging from 100% to 80% of the gross annual fixed compensation, depending on whether the project is carried out between July 2023 and December 2023 (or later). The payment of this compensation will be subject to the approval of the Annual General Meeting called to approve the financial statements for the year ending 31 December 2023. Fringe Benefits The Chief Executive Officer and the Deputy Chief Executive Officer each benefit from the use of a company car. In addition, they benefit from the collective life, disability and health insurance schemes applicable in the Company on the same terms as the employees. The Chief Executive Officer and the Deputy Chief Executive Officer do not benefit from any supplementary pension scheme and are personally responsible for building up a pension supplement beyond the mandatory basic and complementary schemes. Severance payment The Chief Executive Officer and the Deputy Chief Executive Officer are each entitled to a severance pay in the event of involuntary departure (in any form, including non-renewal) during the first three years of his term of office following a merger or demerger (excluding the project and projects in line with the Company’s current strategy), a takeover or change of control within the meaning of article L. 233-3 of the French Commercial Code, or a significant change in the Atos's strategy. As an exception, no such indemnity would be due in the event of involuntary departure resulting from serious or gross misconduct, a change of position at the initiative of the executive corporate officer concerned to take up new duties in another group, a change of position within the Group or retirement. The granting of this indemnity was decided in order to take into account the resignation of the employment contract of each of them and the loss of all the related benefits. The amount of the indemnity will be 100% of the theoretical gross annual compensation (fixed and target annual variable), calculated on the basis of the 12 months preceding the termination of employment, subject to performance conditions. 4.4.2. Performance shares and free shares allocation plans decided on May 18, 2022 and June, 13 2022 As a reminder, for the year 2022 the Board of Directors had decided, subject to the approval of the Shareholders’ Meeting, to implement a strategy consisting of two long-term incentive plans with separate categories of eligible beneficiaries and each serving specific purposes, introducing greater flexibility into the long-term incentive policy for the Group’s employees, while aligning the interests of the Company’s corporate executive officers and the Group’s executive committee with those of the shareholders. In particular, pursuant to the authorization granted by the Annual General Meeting of May 18, 2022 under the 31st resolution, the Board of Directors of the Company decided on the same day, on the recommendation of the Remuneration Committee, to set-up the following two plans: A first plan of performance shares for the Chief Executive Officer of the Company (for 100% of its Trusted Partner for your Digital Journey 71/88 allocation) and to the members of the executive committee (for 50% of their allocation) (the “Plan No. 1”). A second plan of free shares, subject to performance or not, applicable to the members of the executive committee (for 50% of their allocation), as well as to Atos’ executive managers and key digital talents (for 100% of their allocation) (the “Plan No. 2”). The main features and conditions of these share plans are as follows: Number of Granted Shares Plan No. 1 The Board of Directors on May 18, 2022 decided to grant to (i) Mr. Rodolphe Belmer as Chief Executive Officer, 99,000 performance shares and (ii) to certain members of the executive committee 165,000 performance shares (on a 100% target basis) under Plan No. 1. In the context of the appointment of Nourdine Bihmane and Philippe Oliva as Deputy Chief Executive Officers, and in accordance with the terms and conditions of the compensation policy applicable to executive corporate officers, the Board of Directors on June 13, 2022, decided to grant to each of them, effective June 18, 2022, 19,500 additional performance shares under Plan No. 1. It is also specified that, following the resignation of Mr. Rodolphe Berlmer from his position as Chief Executive Officer, the 99,000 performance shares granted to him under Plan No. 1 are forfeited. Plan No. 2 The Board of Directors on May 18, 2022, decided to grant free shares and performance shares in three separate tranches under Plan No. 2, up to 1,238,615 shares, to certain members of the executive committee and to Atos’ executive managers and key digital talents. The share allocation under Plan No. 2 is divided as follows: 25% of the allocation (the “Tranche 1”) may vest on 18 May 2023, subject to a continued employment condition only. No performance conditions will apply; 25% of the allocation (the “Tranche 2”) may vest on 18 May 2024, subject to a continued employment condition only. No performance conditions will apply; 50% of the allocation (the “Tranche 3”) may vest on 18 May 2025, subject to a continued employment condition and the achievement of performance indicators. It should also be noted that, contrary to Tranches 2 and 3 that were allocated under the 31st resolution of the General Meeting on May 18, 2022, Tranche 1, which is «non-qualified», was not granted under an authorization of the General Meeting. Consequently, the shares vested under Tranche 1 may only be delivered in existing shares of the Company, without the possibility of issuing new shares. Vesting Period Plan No. 1 The allocation of shares to their beneficiaries will become final at the end of a three (3) year vesting period. No holding period will apply except for the minimum holding obligation of 15% concerning executive corporate officers. Plan No. 2 The allocation of the shares to their beneficiaries will become final at the end of the vesting period applicable to each Tranche, i.e. an acquisition period of one year for Tranche 1, two years for Tranche 2 and three Trusted Partner for your Digital Journey 72/88 years for Tranche 3. No holding period will apply. Performance conditions Plan No. 1 The definitive acquisition of all or part of the performance shares is subject to the achievement over a period of three years of: three internal financial performance indicators including (i) organic revenue growth, (ii) operating margin rate, and (iii) cumulative free cash flow, each weighted at 20%; one external stock market performance criterion (TSR) weighted at 20%; The relative stock market performance of the Atos SE share, with dividend reinvestment, will be measured over the three-year period (2022-2024) against the median stock market performance of a basket of competing companies in the same industry; two external and internal social and environmental responsibility (CSR) performance indicators, each weighted at 10%. The external CSR performance condition would be based on the Dow Jones Sustainability Index ("DJSI") (World or Europe) over the performance period (2022-2024). The internal CSR indicator would be based on the reduction of CO2 emissions achieved over the performance period. The financial indicators are calculated on a constant scope of consolidation and exchange rate basis. An elasticity curve relating to each performance indicator depending on its level of achievement at the end of the three-year period would allow the percentage of the final allocation of performance shares to vary upwards or downwards. As an exception, no upward variation in the event of outperformance may be applied to the non-financial criteria relating to CSR. An average vesting rate will be calculated based on the weighting assigned to each indicator, with a performance capped at 100% for executive corporate officers and up to 130% of the total grant for the other beneficiaries, members of the executive committee. Plan No. 2 As a reminder, the definitive acquisition of the shares allocated under Tranches 1 and 2 will not be subject to any performance condition. Only the vesting of the shares allocated under Tranche 3 is subject to the achievement over a period of three years: of three internal financial performance indicators including (i) organic revenue growth, (ii) operating margin rate, and (iii) cumulative free cash flow, each weighted at 25%; of two external and internal social and environmental responsibility (CSR) performance indicators, each weighted at 12.5%. The external CSR indicator would be based on the the Dow Jones Sustainability Index ("DJSI") (World or Europe) over the performance period (2022-2024). The internal CSR indicator would be based on the reduction of CO2 emissions achieved over the performance period. The financial indicators are calculated on a constant scope of consolidation and exchange rate basis. An elasticity curve relating to each performance indicator depending on its level of achievement at the end of the three-year period would allow the percentage of the final allocation of performance shares to vary upwards or downwards. As an exception, no upward variation in the event of outperformance may be applied to the non-financial criteria relating to CSR. The final number of shares acquired may not under any circumstances exceed the number initially granted. Trusted Partner for your Digital Journey 73/88 Presence condition For Plan No. 1 and Plan No. 2, the vesting of the shares will be subject to the beneficiary’s presence within the Atos Group during the entire vesting period applicable to the plan or tranche concerned, except as provided in the plan, such as death, disability or retirement. 4.4.3. Revision of the performance conditions of performance share plan dated July 27, 2021 The Board of Directors, during its meetings held on July 26, 2022, decided on the recommendation of the Remuneration Committee, to revise the financial targets for the performance share plans granted in 2021. The purpose of these revisions was not only to take into consideration attrition risks on the Atos executives population but also to integrate the new guidance for 2022 and 2023. 4.4.4. Non-achievement of the performance condition of the stock options plan dated July 24, 2019 The vesting of the stock-options plan dated July 24, 2019 was subject to the relative performance of the Atos SE share compared to the performance of a basket consisting of indexes and shares, measured on the basis of the average of the opening share price (dividends reinvested) during the trading days of the calendar quarter preceding the grant date and the vesting date (i.e. July 25, 2022) of the options. The Board of Directors, during its meeting held on July 26, 2022, validated the non-achievement of performance condition of the stock options plan dated July 24, 2019. Consequently, the stock-options granted under this plan are forfeited. 4.4.5. Shares granted for free to executive corporate officer since January 1, 2022 – AMF Table N°6 During fiscal year 2022, Rodolphe Belmer, Nourdine Bihmane and Philippe Oliva were granted performance shares in their respective capacities as Chief Executive Officer, Deputy Chief Executive Officer and Deputy Chief Executive Officer. Vesting Date Availability DateRodolphe Belmer**May 18, 2022Plan n°1*99 000May 18, 2025May 18, 2025Nourdine BihmaneMay 18, 2022Plan n°1*19 500***June 18, 2025June 18, 2025Philippe OlivaMay 18, 2022Plan n°1*19 500****June 18, 2025June 18, 2025AMF Table 6PlanDatePlan Number of shares As a reminder, all the shares granted under plan N°1 are subject to the performance conditions described above in 4.3.2. ** The performance shares granted to Rodolphe Belmer in 2022 will not be delivered at the end of the vesting period. Rodolphe Belmer left the Group on July 13, 2022 and hence, will not fulfil the presence condition. *** In his capacity as employee, Nourdine Bihmane benefited on May 18, 2022, from a grant of 15,000 shares under Plan No. 1 and 15,000 shares under Plan No. 2. **** In his capacity as employee, Philippe Oliva benefited on May 18, 2022, from a grant of 15,000 shares under Plan No. 1 and 15,000 shares under Plan No. 2. Trusted Partner for your Digital Journey 74/88 the 4.4.6. Performance shares that have become available since January 1, 2022, for executive corporate officers – AMF Table N°7 The performance shares granted on July 24, 2019 became available on July 25, 2022. The acquisition and availability conditions are detailed in the 2021 Universal Registration Document, in section 4.3.3.1. Rodolphe Belmer, Nourdine Bihmane and Philippe Oliva did not receive any performance shares in their capacities as corporate executive officers for this plan dated July 24, 2019. Performance shares that became available to Mr Bihmane under the performance share plan dated July 24, 2019, were granted to him at the time he was an employee of the Group. Rodolphe BelmerJuly 24, 2019Not applicableNot applicableNot applicableNourdine BihmaneJuly 24, 2019960*July 25, 2022July 25, 2022Philippe OlivaJuly 24, 2019Not applicableNot applicableNot applicable* The performance shares delivered to Mr Bihmane were awarded under his employment contract.Tableau AMF n° 7Plan Date Number of shares availableduring the financial yearVestingDateAcquisition Date 4.4.7. AMF Table N°11 Bertrand MeunierChairmanRodolphe BelmerCEO until July 13, 2022Nourdine BihmaneDeputy CEO as of June 14, 2022 and CEO as of July 13, 2022Philippe OlivaDeputy CEO as of June 14, 2022 * In accordance with the recommendations of the Afep-Medef Code, Mr. Nourdine Bihmane has no longer an employment contract on the date of his appointment as Deputy Chief Executive Officer by the Board of Directors on 13 June 2022.** In accordance with the recommendations of the Afep-Medef Code, Mr. Philippe Oliva has no longer an employment contract on the date of his appointment as Deputy Chief Executive Officer by the Board of Directors on 13 June 2022. NO**NOYESYESNO*NOYESYESNONONONONONOYESYESCompany Corporate OfficersEmployment contractSupplementary pension planPayments or benefits effectively or potentially due in the event of termination or change of positionNon-compete payment clause Trusted Partner for your Digital Journey 75/88 4.5. Common Stock Evolution 4.5.1. Basic data 4.5.1.1. Information on stock The Company’s shares have been admitted to trading on the Euronext Paris regulated market (Compartment A) since 1995, under ISIN code FR0000051732. Atos SE shares are eligible for SRD and PEA. The Company’s shares were included in the CAC 40, the main share index published by Euronext Paris, from March 20, 2017 until September 17, 2021 when Atos exited the index. Atos is now included in the Next 20 index. The Company’s shares have been included on the new CAC 40 ESG index created in March 2021. The main tickers are: The Euronext sector classification is as follows: 4.5.1.2. Free-float Atos updated its level of free float following the expiration, on September 30, 2020, of the lock-up commitment pursuant to the Lock-up Agreement between Atos SE and Siemens Pension-Trust e.V. (SPT). Considering that SPT acts independently with regard to its status, and is not legally controlled by Siemens AG, the 9,383,356 Atos shares owned by SPT as of June 30, 2022, representing 8,47%, were included in the free-float. Stakes owned by the employees and the members of the Board of Directors as well as treasury shares, are excluded from the free float. As of June 30, 2022Shares% of share capital% of voting rights*Employees2,844,6472.57%2.57%Board of Directors32,1200.03%0.03%Treasury stock147,1460.13%0.13%Free float107,739,78697.27%97.27%Total110,763,699100.0%100.0%* Theoretical voting rights in accordance with Article 223-11 of the AMF's General Regulations. Trusted Partner for your Digital Journey 76/88 4.5.2. Dividend Due to a negative net income in 2021, the Board of Directors of the Company, at its meeting held on February 28, 2022, decided not to propose the payment of a dividend at this Annual General Meeting on May 18, 2022. During the past three fiscal periods, Atos SE paid the following dividends: Fiscal period Amount of the dividend Distribution for the 2021 financial year N/A Dividend 2020 (paid in 2021) 0.90 € Distribution for the 2019 financial year N/A 4.5.3. Common stock 4.5.3.1. Common stock as at June 30, 2022 As at June 30, 2022, the Company’s issued common stock amounted to € 110,763,699 divided into 110,763,699 fully paid-up shares of € 1.00 par value each. Compared to December 31, 2021, the share capital was increased upon the issuance on March 21, 2022 of 33,367 new Atos shares resulting from a capital increase reserved to employees located in the United- Kingdom as part of the employee shareholding plan entitled “Share Incentive Plan 2021”. Additionally, since June 30, 2022, the share capital was increased on July 25, 2022 upon the issuance of 184,963 new Atos shares in connection with the final vesting and delivery of performance shares granted on July 24, 2019 to certain employees and executive officers of the Group. As a result, as of this date, the Company’s issued common stock amounted to € 110,948,662 divided into 110,948,662 fully paid-up shares of € 1.00 par value each. 4.5.3.2. Threshold crossings Between January 1, 2022 and June 30, 2022, the Group was informed of the following legal thresholds crossings: (i) Bank of America Corporation declared having crossed upwards, on March 8, 2022, indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following an acquisition of Atos SE shares on market and an increase in the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 6.90% of the share capital and voting rights of the Company; (ii) Bank of America Corporation declared having crossed upwards, on April 14, 2022, indirectly, through companies it controls, the thresholds of 10% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares on market and an increase in the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 10.39% of the share capital and voting rights of the Company; (iii) Bank of America Corporation declared having crossed downwards, on April 25, 2022, indirectly, through companies it controls, the thresholds of 10% of the share capital and voting rights of the Company (following sales of Atos SE shares on market and a reduction of the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 9.95 % of the share capital and voting rights of the Company; (iv) UBS Group AG declared having crossed upwards, on May 11, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares off market and an increase in the number of shares owned as a result of statutory assimilation). UBS Group AG. declared holding, directly and indirectly, 5.31% of the share capital and voting rights of the Company; Trusted Partner for your Digital Journey 77/88 (v) UBS Group AG declared having crossed downwards, on May 13, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following sale of Atos SE shares off market). UBS Group AG declared not holding any share of the Company anymore; (vi) Bank of America Corporation declared having crossed upwards, on May 24, 2022, indirectly, through companies it controls, the thresholds of 10% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares on market and an increase of the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 10.33% of the share capital and voting rights of the Company; (vii) UBS Group AG declared having crossed upwards, on May 24, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares off market and an increase of the number of shares owned as a result of statutory assimilation). UBS Group AG. declared holding, directly and indirectly, 5.12% of the share capital and voting rights of the Company; (viii) UBS Group AG declared having crossed downwards, on May 25, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following sale of Atos SE shares off market). UBS Group AG declared not holding any share of the Company anymore; (ix) UBS Group AG declared having crossed upwards, on May 27, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares off market and the increase of the number of shares owned as a result of statutory assimilation). UBS Group AG declared holding, directly and indirectly, 5.04% of the share capital and voting rights of the Company; (x) UBS Group AG declared having crossed downwards, on May 30, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following sale of Atos SE shares off market). UBS Group AG declared not holding any share of the Company anymore; (xi) UBS Group AG declared having crossed upwards, on May 31, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following the acquisition of Atos SE shares off market and the increase of the number of shares owned as a result of statutory assimilation). UBS Group AG declared holding, directly and indirectly, 5.05% of the share capital and voting rights of the Company; (xii) UBS Group AG declared having crossed downwards, on June 1st, 2022, directly and indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following sale of Atos SE shares off market). UBS Group AG declared not holding any share of the Company anymore; (xiii) Bank of America Corporation declared having crossed upwards, on June 3, 2022, indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following a change in the way it holds the ATOS shares, having came into possession of previously assimilated shares, in accordance with article 223-11-1 of the French Financial Market Authority General Regulation). Bank of America Corporation declared effectively holding, indirectly, 5.0001% of the share capital and voting rights holding and, with the assimilated shares, 10.77% of the share capital and voting rights of the Company; (xiv) Bank of America Corporation declared having crossed downwards, on June 17, 2022, indirectly, through companies it controls, the thresholds of 10% of the share capital and voting rights of the Company (following sales of Atos SE shares on market and a reduction in the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 8.44 % of the share capital and voting rights of the Company; Trusted Partner for your Digital Journey 78/88 (xv) Bank of America Corporation declared having crossed downwards, on June 22, 2022, indirectly, through companies it controls, the thresholds of 5% of the share capital and voting rights of the Company (following sales of Atos SE shares on market and a reduction of the number of shares owned as a result of statutory assimilation). Bank of America Corporation declared holding, indirectly, 1.52 % of the share capital and voting rights of the Company. UBS Group AG 05/17/22 05/11/22 ↗ 5,883,972 5.31% 5.31% 222C1149 UBS Group AG 06/07/22 06/01/22 ↘ 0 0% 0% 222C1400 UBS Group AG 06/06/22 05/31/22 ↗ 5,590,273 5.05% 5.05% 222C1374 Bank of America Corporation 06/22/22 06/17/22 ↘ 9,343,949 8.44% 8.44% 222C1581 Bank of America Corporation 06/29/22 06/22/22 ↘ 1,687,441 1.52% 1.52% 222C1683 Bank of America Corporation 05/26/22 05/24/22 ↗ 11,444,210 10.33% 10.33% 222C1276 Name of entity notifying the threshold crossing Date of reporting Date of threshold crossing Direction (↗↘) Shares % of share capital1 % of voting rights2 Reference of AMF publication Bank of America Corporation 03/11/22 03/08/22 ↗ 7,644,854 6.90% 6.90% 222C0590 Bank of America Corporation 06/07/22 06/03/22 ↗ 11,930,319 10.77%3 10.77% 222C1417 UBS Group AG 05/19/22 05/13/22 ↘ 0 0% 0% 222C1189 1 On the date of threshold crossing. 2 Including treasury shares on that date pursuant to article 223-11 I. al. 2 of the Réglement Général de l’Autorité des Marchés Financiers (French Financial Market Authority General Regulations). 3 Declaration made following a change in the way it holds the shares and coming in actual possession of 5,538,317 shares representing 5.0001% of the share capital and voting rights, in accordance with article 223-11-1 of the Réglement Général de l’Autorité des Marchés Financiers (French Financial Market Authority General Regulations). UBS Group AG 06/03/22 05/30/22 ↘ 0 0% 0% 222C1358 UBS Group AG 05/30/22 05/24/22 ↗ 5,669,720 5.12% 5.12% 222C1279 UBS Group AG 05/31/22 05/25/22 ↘ 0 0% 0% 222C1314 Bank of America Corporation 04/19/22 04/14/22 ↗ 11,509,827 10.39% 10.39% 222C0895 UBS Group AG 06/02/22 05/27/22 ↗ 5,578,330 5.04% 5.04% 222C1352 Bank of America Corporation 04/28/22 04/25/22 ↘ 11,020,008 9.95% 9.95% 222C0957 Trusted Partner for your Digital Journey 79/88 4.5.3.3. Treasury stock Legal Framework The 22nd resolution of the Annual General Meeting of May 18, 2022 renewed in favor of the Board of Directors, the authorization to trade in the Group’s shares, in connection with the implementation of a share buyback program. These purchases may be carried out: to ensure liquidity and an active market of the Company’s shares through an investment services provider acting independently in the context of a liquidity contract, in accordance with the market practice accepted by the AMF; to attribute or sell these shares to the executive officers and Directors or to the employees of the Company and/or to the current or future affiliated companies, under the conditions and according to the terms set or accepted by applicable legal and regulatory provisions in particular in connection with (i) profit-sharing plans, (ii) the share purchase option regime laid down under articles L. 22- 10-56 et seq. and L. 225-177 et seq. of the French Commercial Code, and (iii) free awards of shares in particular under the framework set by articles L. 22-10-59, L. 22-10-60 et L. 225-197-1 et seq. of the French Commercial Code and (iv) French or foreign law shareholding plans, in particular in the context of a company savings plan, as well as to carry out all hedging operations relating to these operations, under the terms and conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to remit the shares acquired upon the exercise of the rights attached to securities giving the right, whether immediate or deferred, by reimbursement, conversion, exchange, presentation of a warrant or any other way, to the attribution of shares of the Company, as well as to carry out all hedging operations relating to the issuance of such securities, under the conditions set by market authorities and at such times as the Board of Directors or the person acting upon its delegation so decides; to keep them and subsequently use them in payment or exchange or other in the context of potential external growth operations; or to cancel them as a whole or in part through a reduction of the share capital authorized by the General Meeting, in particular pursuant to the 17th resolution of the Annual General Meeting held on May 12, 2021. This authorization shall be used at any time except during public offers on the shares of the Company. This authorization will also enable the Company to trade in its own shares for any other purpose in accordance with the regulations in force or which would be presumed to be legitimate by the applicable legal and regulatory provisions or which would be recognized as a market practice by the AMF. In such a case, the Company would inform its shareholders by way of a press release. The purchase of shares shall not exceed, at any time, a maximum number of shares representing 10% of the share capital of the Company, at any time, this percentage being applied to a share capital figure adjusted to reflect transactions affecting the share capital subsequent to the Annual General Meeting held on May 18, 2022, it being specified that where the shares are repurchased in the context of a liquidity contract, the number of shares taken into account in calculating the 10% limit will be the number of shares purchased minus the number of shares resold during the period of the authorization. Acquisitions, sales and transfers or exchange of shares may be made by any means, subject to the limits authorized by the laws and regulations in force, on one or several occasion, on a regulated market or via a multilateral trading facility or a systematic internalizer or over the counter, including by public tender offering or by block purchases or sales (with no limit on the portion of the share repurchase program), and where required, by derivative financial instrument (traded on a regulated market or a multilateral trading facility via a systematic internalizer or over the counter) or by warrants or securities giving access to Company shares, or the implementation of optional strategies such as purchases or sales of purchase or sale options, or by the issuance of securities giving access to the Company’s capital by conversion, exchange, redemption, exercise of a warrant or any other means to Company shares held by this latter party, and when the Board of Directors or the person acting on the Board of Directors’ authority, under conditions laid down in the law, decides in compliance with the relevant legal and regulatory provisions. The maximum purchase price per share may not exceed € 120 (fees excluded). Trusted Partner for your Digital Journey 80/88 The Board of Directors may adjust the aforementioned maximum purchase price in the event of incorporation of premiums, reserves or profits, giving rise either to an increase in the nominal value of the shares or to the creation and the free allocation of shares, as well as in the event of division of the nominal value of the share or share consolidation or any other transaction on equity, so as to take account of the impact of such transactions on the value of the shares. As a result, the maximum amount of funds assigned to the share buyback program amounts to € 1,329,164,388 as calculated on the basis of the share capital as of the day of the Annual General Meeting. This authorization was granted for a period of 18 months as from May 18, 2022. Treasury Stock As at June 30, 2022, the Company owned 147,146 shares which amounted to 0.13% of the share capital with a portfolio value of € 1,881,261.61 based on June 30, 2022 market price, and with book value of € 3,205,532.53. These shares were purchased in the context of share buyback program and are intended to be delivered to beneficiaries of performance shares plans, share purchase plans or other long-term incentive plans. From January 1, 2022 to June 30, 2022 the Company transferred 139,480 shares of the Company to beneficiaries of LTI plans. 4.5.3.4. Potential common stock Potential dilution Based on 110,763,699 outstanding shares as of June 30, 2022, the common stock of the Group could be increased by 3,703,558 new shares, representing 3.35% of the common stock before dilution. This dilution could come from the exercise of stock subscription options granted to employees or from the acquisition of performance shares or free shares, as follows: (in shares)June 30, 2022*December 31, 2021Change % dilutionNumber of shares outstanding110,763,699110,730,33233,367From stock subscription options176,000137,000-61,0000.07%From performance / free shares3,627,5582,605,5631,021,9953.28%Potential dilution3,703,5582,742,563960,9953.35%Total potential common stock114,467,257113,472,895*Doesnottakeintoaccount(i)thevestinganddeliveryonJuly25,2022of184,963performancesharesgrantedonJuly24,2019andtheconcomitantwrite-offof553,110performance shares on this same date (ii) the write-off of the 76,000 stock subscription options on July 25, 2022 or any write-offs after June 30, 2022 On the total of 76,000 stock options, no option had a price of exercise lower than € 12.945 (opening stock price as of June 30, 2022). Stock options evolution Number of stock subscription options as of December 31, 2021137,000Stock subscription options granted in H1 20220Stock subscription options exercised in H1 20220Stock subscription options cancelled or forfeited in H1 202261,000Number of stock subscription options as of June 30, 202276,000 As of June 30, 2022, none of the outstanding stock options granted by the Group were exercisable. Furthermore, on July 26, 2022, the Board of Directors acknowledged that the vesting condition of these options, relating to the performance of the Atos SE share compared to the performance of a basket consisting of indexes and shares, measured on the basis of the average of the opening share price (with dividend reinvestment) during the trading days of the calendar quarter preceding the grant date (i.e., July 25, 2019) and vesting date (i.e., July 25, 2022), was not met. As a result, all the stock options granted under this 2019 plan are deemed null and void. Trusted Partner for your Digital Journey 81/88 Current authorizations to issue shares and other securities Pursuant to the resolutions adopted by the General Meetings on May 12, 2021 and May 18, 2022, the following authorizations to modify the share capital and to issue shares and other securities are in force as of June 30, 2022: AuthorizationAuthorization amount (value)Use of the authorizations (par value)Unused balance (par value)Authorization expiration dateEGM May 18, 202222nd resolutionAuthorization to buyback the Company shares 10% of the share capital adjusted at any moment 0100%11/18/2023 (18 months)EGM May 12, 202117th resolutionShare capital decrease 10% of the share capital adjusted as at the day of the decrease 0 10% of the share capital adjusted as at the day of the decrease 07/12/2023 (26 months)EGM May 18, 202223rd resolutionShare capital increase with preferential subscription right 44,305,479 0 44,305,479 07/18/2024 (26 months)EGM May 18, 202224th resolutionShare capital increase without preferential subscription right by public offerings other thanthose referred to in article L. 411-2 of the FrenchMonetary and Financial Code 1 2 11,076,369 0 11,076,369 07/18/2024 (26 months)EGM May 18, 202225th resolutionShare capital increase without preferential subscription right by public offering mentionedin article L. 411-2, 1° of the French Monetary andFinancial Code 1 2 11,076,369 0 11,076,369 07/18/2024 (26 months)EGM May 18, 202226th resolutionShare capital increase without preferential subscription right to remunerate contribution in kind 1 2 11,076,369 0 11,076,369 07/18/2024 (26 months)EGM May 18, 202227th resolutionIncrease in the number of securities in case of share capital increase with or without preferential subscription right 1 2 3 Extension by 15% maximumof the initial issuance0Extension by 15% maximum of the initial issuance07/18/2024 (26 months)EGM May 18, 202228th resolutionShare capital increase through incorporation of premiums, reserves, benefits or other5,694 million05,694 million07/18/2024 (26 months)EGM May 18, 202229th resolutionCapital increase reserved to employees12,215,27302,215,27307/18/2024 (26 months)EGM May 18, 202230th resolutionCapital increase reserved to operations reserved to employees in certain countries through equivalent and complementary framework1221,5270221,52711/18/2023 (18 months)EGM May 18, 202231st resolutionAuthorization to allot free shares to employees and executive officers1,661,4551,182,461 4478,99407/18/2025 (38 months)1Anysharecapitalincreasepursuanttothe24th,25th,26th,27th,29thand30thresolutionsoftheCombinedGeneralMeetingofMay18,2022shallbedeductedfromthecapsetbythe23th resolution of the Combined General Meeting of May 18, 2022.2Thesharecapitalincreaseswithoutpreferentialsubscriptionrightcarriedoutpursuanttothe24th,25th,26thand27thresolutionsoftheCombinedGeneralMeetingofMay18,2022aresubjecttoanaggregatesub-capcorrespondingto10%ofthesharecapitaloftheCompanyonthedayoftheCombinedGeneralMeetingofMay18,2022(i.e.€ 11,076,369).Anysharecapitalincreasepursuantto these resolutions shall be deducted from this aggregate sub-cap.3Theadditionalissuanceshallbedeductedfrom(i)thecapoftheresolutionpursuanttowhichtheinitialissuancewasdecided,(ii)theaggregatecapsetbythe23thresolutionoftheCombinedGeneral Meeting of May 18, 2022, and (iii) in case of share capital increase without preferential subscription rights, the amount of the sub-cap mentioned at 2 here above.4 Initial Grant of 1,281,461 performance shares on May 18, 2022 and June 18, 2022, among which 99,000 were canceled. As of June 30, 2022, the number of new authorized shares that may be issued pursuant to the above- mentioned delegation of authority (the 27th and 28th resolutions of the Annual General Meeting of May 18, 2022 being set aside) amounts to 44,783,473, representing 40.44% of the share capital. Trusted Partner for your Digital Journey 82/88 5. Appendices 5.1. Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Thomas Guillois Head of Investor Relations Tel +33 6 21 34 36 62 thomas.guillois@atos.net Requests for information can also be sent by email to investors@atos.net 5.2. Financial calendar October 26, 2022 February 28, 2023 April 27, 2023 July 26, 2023 October 26, 2023 (Before Market Opening) (After Market Closing) (Before Market Opening) (Before Market Opening) (Before Market Opening) Third quarter 2022 revenue Full year 2022 results First quarter 2023 revenue First half 2023 results Third quarter 2023 revenue 5.3. Amendment to the 2021 Universal Registration Document cross-reference table The cross-reference table below identifies the information required by appendices 1 and 2 of the Commission Delegated Regulation (EU) 2019/980 of March 14, 2019 in accordance with the structure of the Universal Registration Document which are mentioned in the sections of the 2021 Universal Registration Document as updated and/or modified by this Amendment to the 2021 Universal Registration Document. Both documents must be read together. The information on the websites mentioned by the following hyperlink www.atos.net and www.amf- france.org on pages 1 and 66 of this amendment to the 2021 Universal Registration Document are not part of the amendment. Trusted Partner for your Digital Journey 83/88 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 1. 1.1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. 3. 4. 4.1. 4.2. 4.3. 4.4. Persons responsible, third party information, experts’ reports and competent authority approval Indication of persons responsible Declaration by persons responsible Name, address, qualification and material interest in the issuer of experts Confirmation of the accuracy of the source from a third party Statement from the designated authority with no prior approval Statutory auditors Names and addresses of the auditors Indication of the removal or resignation of auditors Information regarding changes of statutory auditors during the period Risk Factors Information about the issuer The legal and commercial name of the issuer The place and the number of registration The date of incorporation and the length of life of the issuer The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, and the address and telephone number of its registered office Business overview Principal Activities 5. 5.1. 5.1.1. Nature of the issuer’s operations and its principal activities 5.1.2. New products or services developed 5.2. Principal market 5.3. Importants business events 5.4. Strategy and objectives 5.5. Dependence on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes 5.6. Basis for statements made by the issuer regarding its competitive position 5.7. Investments 5.7.1. Main investments 5.7.2. 5.7.3. 5.7.4. 6. Material investments of the issuer that are in progress or for which firm commitments have already been made, including the geographic distribution of these investments and the method of financing Main joint ventures and undertakings in which the issuer holds a proportion of the capital Environmental issues Organizational Structure 6.1. Brief description of the Group 6.2. 7. 7.1. 7.1.1. 7.1.2. 7.2. List of significant subsidiaries Operating and financial review Financial condition Balanced and comprehensive analysis of development and performance or position including both financial and, where appropriate, non-financial Key Performance Indicators Likely future development in the field of research and development Operating Results 7.2.1. Unusual or unfrequent events or new developments materially affecting the issuer’s income Trusted Partner for your Digital Journey 84/88 Sections in the 2021 Universal Registration Document 9.1.1 9.1.2 N/A N/A N/A 9.1.3 N/A 7.2 4.1.2 4.1.2 4.1.2 4.1.1 ; 4.1.2; 9.2 1. “Atos profile”; 3.1; 2 2 1. “Atos profile”; 1. “Market sizing and competitive landscape” 1. “2021 key achievements”;1. “Atos story”; 8.8.5 Vision, ambition & strategy; 3.2 7.2.4.2; 1. “Market sizing and competitive landscape 1. “Business model” ; 6.1.7.5 – Note 1 N/A N/A 5.2 1. “Atos profile; 1. “Atos story”; 6.1.7.5 – Note 18 3.1; 3.3; 6.1 2.4 3.1; 3.3; 6.1 1 “2020 key achievements”.; 2; 3.1; 8.8.5 Amendment to the 2021 Universal Registration Document 3.1 3.2 N/A N/A N/A 3.3 N/A 1.6 N/A N/A N/A N/A N/A N/A N/A 1.1; 1.2 1.5 N/A N/A 2.2.6.3 – Note 1 N/A N/A N/A N/A N/A 1.4 N/A 1.4; 2.1; 2.2 1.4 N° Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 7.2.2. Narrative discussion about material changes in net sales or revenues 8. 8.1. 8.2. 8.3. 8.4. 8.5. 9 9.1. Capital resources Issuer’s capital resources Sources and amounts of the issuer’s cash flows Information on the borrowing requirements and funding structure Restrictions on the use of capital resources Anticipated sources of funds to fulfill commitments Regulatory environment Information regarding any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations Trend information 10. 10.1. The most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year 10.2. Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects 11. 11.1. 11.2. 11.3. 12. Profit forecasts or estimates Profit forceasts or estimates publication Statement setting out the principal assumptions upon which the issuer has based his forecast or estimate Statement pointing out the comparaison with historial financial information consistent with the issuer’s accounting policies Administrative, management and supervisory body and senior management. Information regarding the members 12.1 Name, business addresses and functions 12.2 13. 13.1. 13.2. 14. 14.1. 14.2. Detail of the nature of any family relationship Relevant management expertise and management experience Details of any convictions Conflicts of interest Remuneration and Benefits Remuneration and benefits in kind Pension, retirement or similar benefits Board Practices Current term office Contracts providing benefits upon termination of employment 14.3. Information about Audit and Remuneration Committee 14.4. 14.5. 15. 15.1. 15.2. 15.3. 16. 16.1. 16.2. 16.3. 16.4. Statement related to corporate governance Potential material impacts on the corporate governance Employees Number of employees Shareholdings and stock options Arrangements involving the employees in the capital of the issuer Major shareholders Identification of the main shareholders holding more than 5% Types of voting rights Ownership and control Arrangements which may result in a change in control of the issuer 17. Related party transactions 18. 18.1. 18.1.1. 18.1.2. 18.1.3. Financial Information concerning the issuer’s assets and liabilities, financial position and profits and losses Historical Financial Information Audited historical financial information covering the latest three years Change of accounting reference date Accounting standards Trusted Partner for your Digital Journey 85/88 Sections in the 2021 Universal Registration Document 1. “Market sizing and competitive landscape; 2; 3.1 6.1; 8 3.3.2 3.3.3.1 N/A N/A 5 1” Market trends”; 2; 3.1 1” Market trends”; 2; 3.1 3.2 3.2 3.2 1. »Board of Directors »,; 1. “Group Management Committee”; 4.2.3.1 4.2.3.7 4.2.3.1 4.2.3.6 4.2.3.7 4.3 4.3 4.2.3.1 4.2.3.7 4.2.4.3 ; 4.2.4.4 ; 4.2.4.5 4.2.1 4.2.2 5.3; 3.1.6 4.3.3 5.3.7 ; 8.7.5 6.1.7.5 - Note 6; 8.2 4.1.3.2 ; 8.7.4 8.1.1.2; 8.2; 8.7 3.2 ; 4.1 6.1.7.5- Note 17; 6.1.7.5- Note 19 6.2; 9.6.2 N/A 6.1.7.2 Amendment to the 2021 Universal Registration Document 1.4 2.2 ; 4.5 2.1.2 2.1.3 N/A N/A N/A 1.4 1.4 1.5 1.5 2.2.6.1 4.1 ; 4.2 4.2 4.1 ; 4.2 4.2 4.2 4.4 4.4 4.1 ; 4.2 N/A N/A N/A N/A 1.4.5 4.5 N/A 4.5.1.2 ; 4.5.3.2 N/A N/A N/A 1.8 2.2 N/A 2.2.6.1 N° 18.1.4. 18.1.5. 18.1.6. 18.1.7. 18.2. 18.2.1. 18.3. 18.3.1. 18.3.2. 18.3.3. 18.4. 18.5. 18.5.1. 18.5.2. 18.6. 18.7. 19. 19.1. Appendices 1 and 2 of the commission delegated regulation (EU) 2019/980 of March 14, 2019 Change of accounting framework Financial information according to French accounting standards Consolidated financial statements Age of latest financial information Interim and other financial information Quarterly or half-yearly financial information Auditing of historical annual financial information Independent audit of historical annual financial information Indication of other information in the registration document that has been audited by auditors Source of information and reason for information not to be audited Pro forma financial information Dividend policy Description of the issuer’s policy on dividends Amount of dividend per share Legal and arbitration proceedings Significant changes in the issuer’s financial position Additional information Share Capital Sections in the 2021 Universal Registration Document 6.1.7.2 6.1 6.1 6.1 N/A 6.1.1 N/A N/A 3.1 8.3 8.3 7.3.3 6.1.7.5– Note 19 Amendment to the 2021 Universal Registration Document 2.2.6.1 2.2 2.2 2.2 2.2 2.3 N/A N/A 1.4 4.5.2 4.5.2 1.7 2.2.6.3 – Note 13 19.1.1. 19.1.2. 19.1.3. 19.1.4. 19.1.5. 19.1.6. 19.1.7. 19.2. 19.2.1. 19.2.2. 19.2.3. 20. 21. Amount of issued capital Shares not representing capital Shares held by or on behalf of the issuer itself Convertible securities, exchangeable securities or securities with warrants Information about and terms of any acquisition rights and or obligations over authorized but unissued capital or an undertaking to increase the capital Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and details of such options including those persons to whom such options relate History of share capital Memorandum and Articles of Association Register and entry number of the issuer and brief description of the issuer’s object and purposes Rights, preferences and restrictions attached to each share category Article of association, statutes, charter or bylaws delaying, deferring or preventing a change of control of the issuer Material Contracts Documents on Display 8.1.1.2; 8.2; 8.7; 8.7.7 N/A 8.7.6 8.7.7 8.7.7 N/A 8.7.2 4.1.2 4.1.3.2 4.1.3.2 6.2 4.1; 8.4 4.5.3 N/A 4.5.3.3 4.5.3.4 4.5.3.4 N/A 4.5.3 1.4.4 5.1 5.4. Cross-reference table for the Half-Yearly Financial Report In order to facilitate the reading of this document, the cross-reference table hereafter, identifies within this Amendment to the 2021 Universal Registration Document the information which constitutes the Interim Financial Report requested to be published by listed companies in accordance with article L. 451-1-2 of the French Monetary and Financial Code and article 222–4 of the AMF General Regulations. Information Consolidated half-yearly financial statements First half-year management report Declaration of the person responsible for the Amendment to the 2020 Universal Registration Document Statutory auditors’ report on the consolidated half-yearly financial statements 2.3 Sections 2.2 1.1, 1.3, 1.4, 1,6, 1.8, 2.1 3.2 Trusted Partner for your Digital Journey 86/88 5.5. Full index 1. ACTIVITY REPORT ................................................................................................ 4 1.1. Envisioned spin-off project ........................................................................................................ 4 1.2. Atos Executive Board ................................................................................................................. 7 1.3. Atos in the first half of 2022 ...................................................................................................... 8 1.4. Operational review .................................................................................................................. 12 1.4.1. Statutory to constant scope and exchange rates reconciliation ............................................... 12 1.4.2. Performance by Business .................................................................................................. 14 1.4.3. Performance by Regional Business Units ............................................................................. 15 1.4.4. Portfolio .......................................................................................................................... 16 1.4.4.1. Order entry and book to bill ...................................................................................................... 16 1.4.4.2. Full backlog and full qualified pipeline ......................................................................................... 16 1.4.5. Human ressources ........................................................................................................... 17 1.5. 2022 objectives ....................................................................................................................... 18 1.6. Risk Factors ............................................................................................................................. 19 1.7. Claims and litigations .............................................................................................................. 20 1.7.1. Tax claims ...................................................................................................................... 20 1.7.2. Commercial claims ........................................................................................................... 20 1.7.3. Labor claims .................................................................................................................... 21 1.7.4. Representation & Warranty claims ..................................................................................... 21 1.7.5. Miscellaneous .................................................................................................................. 21 1.8. Related parties ........................................................................................................................ 21 FINANCIAL STATEMENTS ................................................................................... 22 2.1. Financial review ....................................................................................................................... 22 Income statement ............................................................................................................ 22 2.1.1.1. Operating margin ..................................................................................................................... 22 2.1.1.2. Other operating income and expense.......................................................................................... 22 2.1.1.3. Net financial expense ............................................................................................................... 23 2.1.1.4. Corporate tax .......................................................................................................................... 24 2.1.1.5. Normalized net income ............................................................................................................. 24 2.1.1.6. Half year Earning Per Share ...................................................................................................... 24 2.1.2. Cash Flow and net cash .................................................................................................... 25 2.1.3. Bank covenant ................................................................................................................. 27 2.2. Interim condensed consolidated financial statements ............................................................. 28 Interim condensed consolidated income statement ............................................................... 28 2.2.1. Interim condensed consolidated statement of comprehensive income ..................................... 29 2.2.2. Interim condensed consolidated statement of financial position ............................................. 30 2.2.3. Interim condensed consolidated cash flow statement ............................................................ 31 2.2.4. 2.2.5. Interim consolidated statement of changes in shareholders’ equity......................................... 32 2.2.6. Notes to the interim condensed consolidated financial statements .......................................... 33 2.2.6.1. Basis of preparation ................................................................................................................. 33 2.2.6.2. Main events............................................................................................................................. 34 2.2.6.3. Notes to the interim condensed consolidated financial statements .................................................. 36 1. ACTIVITY REPORT ................................................................................................ 4 1.1. Envisioned spin-off project ........................................................................................................ 4 1.2. Atos Executive Board ................................................................................................................. 7 1.3. Atos in the first half of 2022 ...................................................................................................... 8 1.4. Operational review .................................................................................................................. 12 1.4.1. Statutory to constant scope and exchange rates reconciliation ............................................... 12 1.4.2. Performance by Business .................................................................................................. 14 1.4.3. Performance by Regional Business Units ............................................................................. 15 1.4.4. Portfolio .......................................................................................................................... 16 1.4.4.1. Order entry and book to bill ...................................................................................................... 16 1.4.4.2. Full backlog and full qualified pipeline ......................................................................................... 16 1.4.5. Human ressources ........................................................................................................... 17 1.5. 2022 objectives ....................................................................................................................... 18 1.6. Risk Factors ............................................................................................................................. 19 1.7. Claims and litigations .............................................................................................................. 20 1.7.1. Tax claims ...................................................................................................................... 20 1.7.2. Commercial claims ........................................................................................................... 20 1.7.3. Labor claims .................................................................................................................... 21 1.7.4. Representation & Warranty claims ..................................................................................... 21 1.7.5. Miscellaneous .................................................................................................................. 21 1.8. Related parties ........................................................................................................................ 21 2. 2.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2022 ...................................................................................................... 55 3. PERSON RESPONSIBLE ....................................................................................... 57 3.1. Person responsible for the amendment to the Universal Registration Document ..................... 57 3.2. Statement of the person responsible for the amendment to the Universal Registration Document ................................................................................................................................ 57 3.3. For the audit ............................................................................................................................ 57 CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION ............................ 58 4.1. Composition of the Board of Directors ..................................................................................... 58 4.2. Appointment of a new Chief Executive Officer and of a Deputy Chief Executive Officer ........... 64 4.3. Annual General Meeting held on May 18, 2022 ........................................................................ 66 4.4. Compensation and stock ownership for executive corporate officers ...................................... 67 4.4.1. Compensation for the executive corporate officers ............................................................... 67 4.4.1.1. Conditions of departure of Mr. Rodolphe Belmer .......................................................................... 67 4.4.1.2. Compensation of Messrs. Nourdine Bihmane and Philippe Oliva...................................................... 68 Trusted Partner for your Digital Journey 87/88 4.4.2. Performance shares and free shares allocation plans decided on May 18, 2022 and June, 13 2022 ..................................................................................................................................... 71 4.4.3. Revision of the performance conditions of the performance share plan dated July 27, 2021 ....... 74 4.4.4. Non-achievement of the performance condition of the stock options plan dated July 24, 2019 ... 74 4.4.5. Shares granted for free to executive corporate officer since January 1, 2022 – AMF Table N°6 .. 74 4.4.6. Performance shares that have become available since January 1, 2022, for executive corporate officers – AMF Table N°7 ................................................................................................... 75 4.4.7. AMF Table N°11 ............................................................................................................... 75 4.5. Common Stock Evolution ......................................................................................................... 76 4.5.1. Basic data ....................................................................................................................... 76 4.5.1.1. Information on stock ................................................................................................................ 76 4.5.1.2. Free-float ................................................................................................................................ 76 4.5.2. Dividend ......................................................................................................................... 77 4.5.3. Common stock................................................................................................................. 77 4.5.3.1. Common stock as at June 30, 2022 ............................................................................................ 77 4.5.3.2. Threshold crossings .................................................................................................................. 77 4.5.3.3. Treasury stock ......................................................................................................................... 80 4.5.3.4. Potential common stock ............................................................................................................ 81 5. APPENDICES ...................................................................................................... 83 5.1. Contacts................................................................................................................................... 83 5.2. Financial calendar .................................................................................................................... 83 5.3. Amendment to the 2021 Universal Registration Document cross-reference table ................... 83 5.4. Cross-reference table for the Half-Yearly Financial Report ...................................................... 86 5.5. Full index ................................................................................................................................. 87 Trusted Partner for your Digital Journey 88/88 | Semestriel, 2022, IT, Atos | write me a financial report |
Semestriel | 2,023 | IT | Atos | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| Half-Year Financial Report June 30, 2023 This Half-Year Financial Report is a translation into English of the official version of the Rapport Financier Semestriel which has been prepared in French for the semester ended June 30, 2023 filled with the AMF on July 31, 2023 and available on the AMF’s website (www.amf-france.org) and on the Company’s website (www.atos.net). Trusted Partner for your Digital Journey 1/50 Content 1. PERSON RESPONSIBLE ....................................................................................... 3 1.1. Responsibility statement for the Half-Year Financial Report ..................................................... 3 1.2. For the audit ............................................................................................................................. 3 2. ACTIVITY REPORT .............................................................................................. 4 2.1. Progress on the envisioned spin-off project .............................................................................. 4 2.2. Tech Foundations Analyst Day (June 7, 2023) .......................................................................... 4 2.3. Atos in the first half of 2023 ..................................................................................................... 6 2.4. Operational review ................................................................................................................... 9 2.4.1. Statutory to constant scope and exchange rates reconciliation ............................................... 9 2.4.2. Performance by Business ................................................................................................ 11 2.4.3. Performance by Regional Business Units ........................................................................... 12 2.4.4. Portfolio ........................................................................................................................ 13 2.4.5. Human ressources ......................................................................................................... 13 2.5. 2023 objectives ...................................................................................................................... 14 2.6. Risk Factors ............................................................................................................................ 15 2.7. Claims and litigations ............................................................................................................. 16 2.7.1. Tax claims ..................................................................................................................... 16 2.7.2. Commercial claims ......................................................................................................... 16 2.7.3. Labor claims .................................................................................................................. 17 2.7.4. Representation & Warranty claims .................................................................................... 17 2.7.5. Miscellaneous ................................................................................................................ 17 2.8. Related parties ....................................................................................................................... 17 FINANCIAL STATEMENTS .................................................................................. 18 3.1. Financial review ...................................................................................................................... 18 3.1.1. Income statement .......................................................................................................... 18 3.1.2. Free Cash Flow and net debt ........................................................................................... 21 3.1.3. Financial situation .......................................................................................................... 23 3.2. Interim condensed consolidated financial statements ............................................................ 24 Interim condensed consolidated income statement ............................................................. 24 3.2.1. Interim condensed consolidated statement of comprehensive income ................................... 25 3.2.2. Interim condensed consolidated statement of financial position............................................ 26 3.2.3. Interim condensed consolidated cash flow statement .......................................................... 27 3.2.4. 3.2.5. Interim consolidated statement of changes in shareholders’ equity ....................................... 28 3.2.6. Notes to the interim condensed consolidated financial statements ........................................ 29 3.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2023 ..................................................................................................... 47 4. APPENDICES ..................................................................................................... 49 4.1. Contacts .................................................................................................................................. 49 4.2. Financial calendar ................................................................................................................... 49 4.3. Full index ................................................................................................................................ 50 Trusted Partner for your Digital Journey 2/50 1. Person responsible 1.1. Responsibility statement for the Half-Year Financial Report I hereby declare that, to the best of my knowledge, the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and all the other companies included in the scope of consolidation, and that the half-year management report here attached presents a fair picture of significant events occurred during the first six months of the year, their impact on the financial statements, the main transactions between related parties as well as a description of the main risks and uncertainties for the remaining six months of the year. Bezons, July 31, 2023 Nourdine Bihmane Chief Executive Officer 1.2. For the audit Appointment and term of offices Statutory auditors Grant Thornton - Samuel Clochard Appointed on: October 31, 1990, then renewed in October 24, 1995, on May 30, 2002, on June 12, 2008, on May 17, 2014, and on June 16, 2020 Term of office expires: at the end of the AGM voting on the 2025 financial statements Deloitte & Associés – Jean-François Viat Appointed on: December 16, 1993, renewed on February 24, 2000, on May 23, 2006, on May 30, 2012, and on May 23, 2018 Term of office expires: at the end of the AGM voting on the 2023 financial statements Trusted Partner for your Digital Journey 3/50 2. Activity Report 2.1. Progress on the envisioned spin-off project Completion of operational carve-out Atos announces the completion of its internal operational carve-out within a 12-month timeframe. This is a decisive step in the execution of Atos’ strategic transformation project. Primary local carve-outs and underlying separation activities have been successfully executed in all countries1. These include legal entity operationalization, and the transfer of employees, contracts, assets and liabilities to new legal entities where legal and regulatory laws allow. As a result, Tech Foundations and Eviden are now fully operational as separate entities within the Atos Group. Each entity has a distinct operating model, go-to-market strategy and a focused portfolio, enabling them to cater to specific customer needs. Atos has therefore completed the rollout of its new client-centric organization fostering innovation, performance and consistent value delivery to all of the Group’s stakeholders. €700 million divestment program fully secured and expanded by an additional €400 million On July 3rd, 2023, Atos announced it had entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct. This proposed transaction, combined with the other divestments already successfully closed or secured, would allow Atos to complete its non-core businesses divestment program of €700 million set during the Group's Capital Markets Day on June 14, 2022. This achievement highlights Atos' determination to swiftly execute this program, which streamlines the Group’s portfolio and contributes to the financing of its ongoing transformation. When devising its divestment program and refining the scope of its two future entities, the Group identified additional opportunities to rationalize its portfolio, which have already garnered expressions of interests. As a result, the divestment program is expanded by an additional €400 million. 2.2. Tech Foundations Analyst Day (June 7, 2023) On Wednesday June 7, 2023, at the occasion of the Analyst Day dedicated to Tech Foundations, the business highlighted its plan Refocus, Recover and Rebound and the progress made leading to the raising of its 2026 ambitions. A redefined portfolio addressing larger and growing markets Tech Foundations has redefined its core portfolio to better address key customer priorities and to strategically position itself to capitalize on market trends such as distributed workforce post-Covid, fast move to multi-cloud and hybrid configurations and heightened importance of sovereign cloud as well as artificial intelligence. Through the strategic redirection on its core offerings, Tech Foundations is pivoting towards a larger addressable market of approximately € 705 billion worldwide, which is 40% higher than what was considered at last year’s Atos Capital Markets Day on June 14, 2022. In particular, the redirection addresses an expanded technology advisory & customized services market, as well as new business areas in hybrid and multi-cloud infrastructure and digital business platforms. This larger total addressable market is expected to grow 3-5% per annum over 2022-2026 (CAGR). 1 Except for three countries representing 0.3% of Group revenue Trusted Partner for your Digital Journey 4/50 Specifically, Tech Foundations’ portfolio is evolving around four core businesses, totalling € 4.5 billion revenue in 2022: Hybrid and cloud infrastructure to manage, operate and modernize business-critical operations in the cloud continuum, seamlessly from edge to public and everywhere else in-between. This offering, with its new services, totalled €2.1 billion in revenue in 2022; Digital workplace, to provide end-to-end employee experience through digital collaboration and productivity tools, as well as intelligent customer care services. This offering totalled €1.2 billion in revenue in 2022; Technology advisory & customized services, which delivers tech advisory and technical professional services, including expanded solutions such as AI, data analytics, automation and IoT. This expanded offering totalled €0.9 billion in revenue in 2022; Digital business platforms, which encompass high-growth solutions such as generative AI, green IT, major events and more. This new offering totalled €0.3 billion in revenue in 2022. In parallel, Tech Foundations is actively reducing its exposure to non-core activities (BPO, hardware & software resale and UCC), which represented revenue of € 0.9 billion in 2022. Strong execution positioning Tech Foundations on a path for sustainable value creation Tech Foundations is implementing a comprehensive margin expansion aiming to reduce costs and improve operational efficiency. This transformational effort, unprecedented in the Group’s history, encompasses over 300 initiatives that have already yielded significant results, with a gross run-rate benefit of € 270 million delivered as of the end of Q1 2023. These achievements have been primarily driven by 900 headcount reductions in high-cost countries, pricing increases across more than 85 accounts, and addressing 66% of underperforming accounts revenue so far. As a result, Tech Foundations is on track to realize targeted gross benefits of € 1.2 billion from its transformation plan by 2026. In parallel, on the commercial side, Tech Foundations has stabilized its performance by gradually rebuilding a robust and more selective commercial pipeline, which has led to new logos and large deals wins, and an improved book-to-bill ratio quarter-over-quarter. With its actions currently in place, Tech Foundations aims to significantly accelerate its book-to-bill. Thanks to its strategic portfolio reshaping and the successful implementation of a comprehensive margin expansion plan, Tech Foundations has achieved notable milestones. In 2022, Tech Foundations stabilized its core portfolio revenue with organic growth of +1.2%, and turned its operating margin positive, three years ahead of its original plan. Upgrading mid-term ambitions In light of its recent outperformance and its long-term strategic vision, Tech Foundations is upgrading its 2026 ambitions: Revenue is expected to bottom out at c.€ 5 billion in 2024, as a combination of a 0-2% organic growth p.a. in core revenue and an ongoing managed decline in non-core activities. Tech Foundations’ revenue is then expected to resume a growth trajectory in 2026. Operating margin is expected to reach 6% to 8% in 2026. • Free cash flow before interest and tax is expected to turn positive in 2025 and reach over €250 million in 2026. In comparison with the previous plan, presented at last year’s Atos Capital Markets Day, and based on strong execution and financial performance so far, this upgraded plan aims to stabilize core revenue 2 years earlier, deliver 100 to 300 basis points higher operating margin in 2026 and a cumulative free cash flow before interest and tax higher by over € 300 million over the 2023-2026 period – this results from a higher operating margin as well as a total cost of the transformation plan being approximately 10% lower. Such costs are now estimated at € 780 million for the period 2022-2026 and ensure a payback period of less than two years. Trusted Partner for your Digital Journey 5/50 2.3. Atos in the first half of 2023 January Atos launched a new hybrid server, the BullSequana SH powered by 4th Gen Intel® Xeon® Scalable processors, and two new edge servers, the BullSequana EXR and the BullSequana EXD, to help businesses address AI and analytics challenges securely in the face of today’s vast data growth. All three servers are manufactured in Atos' factory in Angers. Atos entered into exclusive negotiations with Mitel for the sale of its Unified Communications & Collaboration business (Unify). This constitutes a new step in the implementation of the Atos divestment program as announced at the Group’s Capital Markets Day in June 2022. February Atos signed a contract with Madrid City Council, for which it plays a key role in updating and expanding the new Territorial Municipal Emergency Plan (PEMAM ‘Plan Territorial de Emergencia Municipal del Ayuntamiento de Madrid’) of the city. With the help of Atos, the City Council will ensure effective anticipating, forecasting, monitoring and response of emergency activity across the city. Atos won a contract with a total order value of over 20 million euros to build and install a new high- performance computer for the Max Planck Society, a world-leading science and technology research organization. Particularly demanding scientific projects, such as those in astrophysics, life science research, materials research, plasma physics, and AI will benefit from the high-performance capabilities of the new system. Atos has, for the 10th consecutive year, been included in S&P’s Global Sustainability Yearbook. For this 2023 edition Atos has received a Top 10% S&P Global ESG score in the IT Services industry. In the review of 7,800 companies globally, Atos is ranked as one of the most sustainable companies in the world and within the top 10% in its industry. The annual Sustainability Yearbook recognizes companies, grouped by industry, that have demonstrated strong corporate sustainability. Atos has received an indicative offer from Airbus to enter into a long-term strategic and technological agreement and to acquire a minority stake of 29.9% in Eviden. This proposal is consistent with Atos’ separation plan announced during the June 14, 2022, Capital Markets Day. Atos’ Board of Directors has decided to further engage with Airbus, conduct a due-diligence process and negotiate on mutually satisfactory terms on both a long-term strategic and technological partnership and the disposal of the 29.9% stake in Eviden. Atos does not intend to grant any exclusivity to Airbus, and no assurances can be made that the parties will successfully negotiate and enter into a definitive set of agreements. Atos published its 2022 annual results and announced that the Group returned to growth, at +1.3% at constant currency, and achieved all its financial objectives with a clear improvement in all KPIs in the second half of the year. In particular, Eviden started to accelerate its profitable growth and Tech Foundations delivered fast and tangible first results on its strategic roadmap, turning profitable three years ahead of plan. March Atos has been honored as a winner of a 2022 SEAL Business Sustainability Award, for its leadership, transparency, and commitment to sustainable business practices. The 2022 SEAL Organizational Impact Award recognizes overall corporate sustainability performance and represents the 50 most sustainable companies globally. Winners were selected by combining two premier ESG data sets - the CDP A-List ™ and the Corporate Sustainability Assessment (CSA, now part of S&P Global ESG Scores ™). Atos has been recognized for the fourth year in a row on the CDP’s prestigious Supplier Engagement Rating Leaderboard and has thus been recognized by CDP for its work to engage suppliers to reduce emissions, lower environmental risks and jointly tackle climate change. Only the top 8% of companies who disclosed information for the full climate questionnaire achieved a place on the CDP Supplier Engagement Leaderboard. Trusted Partner for your Digital Journey 6/50 Atos has been positioned as a Leader by Gartner in its 2023 Magic Quadrant for Outsourced Digital Workplace Services (ODWS), based on its Completeness of Vision and Ability to Execute. This is the seventh consecutive year that Atos has been named a Leader in a Gartner Magic Quadrant report related to outsourced digital workplace services. Atos is the only European company to be listed in the Leaders’ quadrant. Atos has provided an update regarding the ongoing strategic discussions with Airbus. Atos has taken note of Airbus’ decision to no longer pursue the discussions it initiated in February 2023, with respect to the potential acquisition of a minority stake of 29.9% in Eviden. Atos has confirmed it will, with Airbus, explore other options and pursue the work on the long term strategic and technological partnership between Airbus and Eviden which has the potential to create significant value for both companies, with a view of submitting these for consideration to its Board of Directors. April Atos announced that it has completed the sale of its Italian operations (“Atos Italia”) to Lutech S.p.A., an Italian provider of IT services and solutions, on March 31, with a 100% cash consideration. The completion of this transaction is a new milestone in the successful execution of Atos’ divestment plan, securing c.80% of the plan’s €700 million expected proceeds and demonstrating the Group’s ability to execute at pace. Eviden announced the evolution of its digital identity management products so that they will be ready for the post-quantum era by the end of the year. Eviden announced the opening of three cloud centers - in India (Bangalore and Pune) and Poland (Bydgoszcz) - to support customers worldwide at every stage of their cloud journey, from cloud migration and continuous optimization to accelerating innovation, all protected under the umbrella of cybersecurity. Atos announced that it has launched a campaign to test more than 150 critical IT applications dedicated to managing and broadcasting the Olympic and Paralympic Games Paris 2024. These tests are conducted by the Atos Integration Testing Lab (ITL) in Madrid, partnering with the International Olympic Committee (IOC), the Paris 2024 Organizing Committee for the Olympic and Paralympic Games (OCOG), international sports federations and technology partners across the board. The campaign aims to validate operations for various systems that are key to a successful Olympic and Paralympic Games Paris 2024. Atos announced its revenue for the first quarter of 2023. It recorded a robust +2.8% organic revenue growth in Q1 with both businesses delivering on their 2023 priorities. Eviden reported another solid quarter with high growth, well balanced between its synergetic Digital, Big Data and Cybersecurity activities. Tech Foundations continued to reshape its portfolio, confirming the earlier-than-anticipated stabilization of its core business while further reducing its exposure to non-strategic activities. May Eviden launched QaptivaTM its new Quantum Computing offering to enable real world application development and usage, using best-of-breed quantum computing technologies. With Qaptiva, Eviden enables its rich Software and Hardware partner ecosystem to use the Qaptiva Application development platform, offering corporate customers solutions to facilitate the development of tangible quantum applications, and run them in as-a-service or on premises modes. The Atos Board of Directors, upon the recommendation of the Nomination and Governance Committee chaired by Elizabeth Tinkham, has approved the following changes to its composition, in line with the needs identified and the strategy pursued, in particular in the areas of corporate governance, digital transformation of companies, especially in the financial sector, and digital strategies in the fields of security and defense: the renewal of the mandate of Caroline Ruellan and the appointment of two new independent Directors, Jean-Pierre Mustier and Laurent Collet-Billon, to be submitted to a vote of the shareholders at the Annual General Meeting. Eviden and the University of Edinburgh announced a three-year contract extension to increase the computing capacity of the BullSequana XH2000. This energy-efficient supercomputing system was delivered by Atos to facilitate the Extreme Scaling Service of DiRAC, allowing the UK science community to Trusted Partner for your Digital Journey 7/50 pursue cutting-edge research on a broad range of topics, from simulating the entire evolution of the universe to modelling the fundamental structure of matter. On May 25, 2023, the United States Second Circuit Court of Appeals vacated a decision by the United States District Court for the Southern District of New York, as part of Syntel’s ongoing litigation with Cognizant and its subsidiary TriZetto, finding Syntel, now part of Atos, liable for damages due to Syntel’s alleged trade secret misappropriation and copyright infringement. The case began in 2015, before Syntel’s acquisition by Atos in 2018. June Tech Foundations, the Atos business leading in managed services, focusing on hybrid cloud infrastructure, employee experience and technology services, held an Analyst Day to highlight its proven transformation plan, leading to a clear and accelerated path to value creation and upgraded 2026 ambitions. It announced: the redefining its portfolio around core activities and pivoting in industry-leading offerings with focus on higher growth segments and new go-to-market strategy; strong execution leading to improved outlook: revenue to bottom out in 2024 at c.€ 5 billion, with 0-2% core revenue growth and ongoing managed decline in non-core business; executing a comprehensive margin expansion plan, targeting €1.2 billion gross benefits by 2026 to bring operating margin to industry standard and over €300 million higher cumulative cash-flow for the next four years compared to original plan. Eviden announced AIsaac Cyber Mesh, a next generation of cybersecurity detection and response, reinforced by Amazon Web Services (AWS) Security Data Lake and powered by generative AI technologies. AIsaac Cyber Mesh offers an advanced end-to-end detection, response, and recovery solution, built on a cybersecurity mesh-enabled architecture using generative AI and predictive analytics. Eviden announced that GMV, leading provider of satellite control centers, has selected Eviden’s SkyMon solution for the new center being set up by Hisdesat, the Spanish Government satellite operator. SkyMon will monitor next-generation satellites from the “Spainsat NG” program, the most advanced satellites in Europe for defense and secure communications. Eviden announced that it was awarded a major $100M contract with NCMRWF, on behalf of the India Ministry of Earth Sciences, to build two new supercomputers dedicated to weather modelling and climate research for IITM and NCMRWF. Atos SE’s Combined Annual General Meeting of shareholders was held on 28 June at the Company's headquarters and chaired by Mr. Bertrand Meunier, Chairman of the Board of Directors. Atos’ shareholders approved all of the resolutions submitted by the Board of Directors and rejected all of the resolutions proposed by certain minority shareholders. July Atos Group announced that it has entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct SAS and its subsidiaries (“EcoAct”). With this potential transaction, Atos would secure its divestment program of non-core assets while engaging in a strategic partnership with Schneider Electric on decarbonization. The proposed transaction does not include Atos’ digital Net Zero Transformation practice (part of Eviden business), dedicated to supporting its customers in all industries to catalyze their decarbonization goals, which will be kept within the Atos Group. Trusted Partner for your Digital Journey 8/50 2.4. Operational review 2.4.1. Statutory to constant scope and exchange rates reconciliation Revenue was € 5,548 million in H1 2023, down -0.3% compared to H1 2022 on a reported basis and up 0.5% at constant currency. On an organic basis, revenue increased +2.3%. Operating margin reached € 212 million, representing 3.8% of revenue, an increase by c.+290 basis points at constant currency. In € million H1 2023 H1 2022 % change Statutory revenue 5,548 5,563 0.3% Exchange rates effect 45 Revenue at constant exchange rates 5,548 5,518 +0.5% Scope effect 92 Exchange rates effect on acquired/disposed perimeters 3 Revenue at constant scope and exchange rates 5,548 5,423 +2.3% Statutory operating margin 212 59 +258.6% Exchange rates effect 4 Operating margin at constant exchange rates 212 55 +285.8% Scope effect 5 Exchange rates effect on acquired/disposed perimeters 0 Operating margin at constant scope and exchange rates 212 50 +326.7% as % of revenue 3.8% 0.9% Scope effects (including exchange rates effect on acquired/disposed perimeters) amounted to €-95 million for revenue and €-5 million for operating margin. They mainly related to the exit of Russia in 2022, and in 2023 to the divesture of Italy, and to a lesser extent to the divestiture of EGSE and Sislog. Currency exchange rates effects negatively contributed to revenue for €-45 million and Operating margin for €-4 million. They mostly came from the depreciation of the Pound Sterling, the Argentine peso and the Turkish libra not compensated by the appreciation of the American dollar. Trusted Partner for your Digital Journey 9/50 The tables below present the effects on H1 2022 revenue and operating margin of acquisitions and disposals, internal transfers, reflecting the Group’s new geographic organization, and change in exchange rates. In € millionH1 2022 StatutoryInternal transfersExchange rates effects *H1 2022 at Constant Scope and CurrencyAmericas1,353 -8 1 1,346 Northern Europe and APAC1,625 6 -45 1,587 Central Europe1,258 0 8 1,266 Southern Europe1,198 2 0 1,200 Others & Global Structures129 0 -10 119 Total Group 5,563 0 -45 5,518 Scope effects-95Total Group 5,423 * At average Jun YTD exchange ratesRevenue H1 2022 In € millionH1 2022 StatutoryInternal transfersExchange rates effects *H1 2022 at Constant Scope and CurrencyAmericas73 -0 -2 71 Northern Europe and APAC28 1 -1 28 Central Europe-30 -0 -0 -30 Southern Europe40 -0 0 40 Others & Global Structures-52 -1 -1 -54 Total Group 59 0 -4 55 Scope effects-5Total Group 50 * At average Jun YTD exchange ratesOperating Margin H1 2022 Trusted Partner for your Digital Journey 10/50 2.4.2. Performance by Business In € millionH1 2023H1 2022VariationVar. atcst. curr.Var.organicH1 2023H1 2022H1 2023H1 2022Eviden Perimeter 2,625 2,539 +3.4%+4.3%+7.0% 138 89 5.3%3.5%Tech Foundations Perimeter 2,923 3,024 -3.3%-2.6%-1.6% 73 -30 2.5%-1.0%Total5,5485,563-0.3%+0.5%+2.3%21259 3.8%1.1%RevenueOperating marginOperating margin % Tech Foundations Perimeter: Tech Foundations’ core business revenue2 was broadly stable in H1 (-0.1% organic). The decline of Hybrid Cloud & Infrastructure continued to soften, while other core business lines posted moderate growth. Simultaneously, Tech Foundations remained committed to reducing non-core activities (BPO, hardware & software resale) as part of its ongoing portfolio reshaping efforts. UCC, in the process of being divested, grew its revenue in H1. As a result, Tech Foundations recorded a slight organic decrease of -1.6% in total revenue in H1 2023. Operating margin amounted to €73 million, or 2.5% of revenue, compared to -1.0% in H1 2022. Tech Foundations is making steady progress on its comprehensive margin expansion plan targeting €1.2 billion in gross benefits by 2026. As of June 2023, 32% of this target has already been achieved, translating into a € 230 million gross increment in operating margin in H1 2023 alone, partly offset by cost inflation, backfills and revenue decrease. This achievement was primarily driven by 900 headcount reductions in high-cost countries during H1, bringing the total to c. 1,600 since the plan’s inception. Eviden Perimeter: Eviden delivered +7.0% organic growth in H1 (+4.6% in Q2). Digital Security achieved strong growth, fueled by Eviden's leadership and innovation in cybersecurity. In June 2023, Eviden partnered with AWS to launch AIsaac Cyber Mesh, a cutting-edge cybersecurity detection and response solution powered by generative AI technologies. Advanced computing grew strongly, driven by HPC and high-end servers designed for artificial intelligence and machine learning. Despite some impacts from contract portfolio rationalization in H1 2023, Digital's organic growth improved significantly compared to the same period last year, driven by smart platforms and cloud transformation services, along with positive trends in the public sector in Europe. Operating margin was € 138 million, or 5.3% of revenue, a substantial increase compared to 3.5% in H1 2022. Despite continued cost inflation, Eviden demonstrated improvements across all activities, resulting from effective cost take-out actions, portfolio rationalization, and higher fixed costs absorption in Advanced Computing. 2 Excluding UCC, Italian operations, BPO and hardware and software resale Trusted Partner for your Digital Journey 11/50 2.4.3. Performance by Regional Business Units In € millionH1 2023H1 2022VariationVar. atcst. curr.Var.organicH1 2023H1 2022H1 2023H1 2022Americas 1,311 1,353 -3.1%-2.6%-2.6% 133 73 10.1%5.4%Northern Europe & APAC 1,584 1,625 -2.6%-0.2%-0.2% 63 28 4.0%1.7%Central Europe 1,297 1,258 +3.1%+2.4%+4.8%16-30 1.3%-2.4%Southern Europe 1,211 1,198 +1.1%+0.9%+6.8% 58 40 4.8%3.4%Others & Global Structures 145 129 +12.6%+21.4%+21.4%-58-52 NANATotal5,5485,563-0.3%+0.5%+2.3%21259 3.8%1.1%RevenueOperating marginOperating margin % Americas revenue decreased by -2.6% organically, resulting from the low level of order entry recorded in FY22, a trend that largely reversed, with a 164% book-to-bill in Q2 2023. The decline in Tech Foundations activities narrowed and was primarily attributable to a proactive reduction in underperforming contacts. Eviden’s activities remained robust despite an element of market slowdown, while numerous opportunities lie ahead in the cloud and security markets. Operating margin improved markedly to 10.1%, thanks to cost structure adaptation measures carried out in H2 2022. Northern Europe & APAC revenue was broadly stable year-on-year. Tech Foundations activities were slightly down due to the exit of a large BPO contract at the end of 2022, while the core business showed good resilience with the ramp-up of new contracts. Eviden’s activities were slightly up thanks to robust trends in Digital particularly in the public sector, while Advanced Computing contracted due to fluctuations in HPC and Lab-as-a-service revenue. Operating margin improved to 4.0% in H1 2023, thanks to management actions conducted in 2022 to improve delivery, reduce costs and increase pricing. Central Europe recorded a robust +4.8% organic growth (+2.4% at constant currency, primarily reflecting the exit of Russian operations in 2022). Eviden’s activities reported high growth across the board, partially offset by the decline of Tech Foundations’ activities driven by the reduction in value-added resale and a difficult infrastructure market in Germany. Operating margin turned positive at 1.3%, resulting from strong execution of Tech Foundations margin expansion plan, as well as higher margin on new business at Eviden. Southern Europe recorded a strong +6.8% organic growth. Growth was high at Eviden, driven by Advanced Computing with the delivery of a significant HPC contract in Spain, as well as Digital Security. Tech Foundations activities were flat as growth in Digital Workplace and Technology Advisory & Customized Services compensated for the deliberate reduction in value-added resale. Scope impacts represented - 5.9%, primarily reflecting the divestment of Italian operations in Q2 2023. As a result, revenue growth at constant currency was +0.9%. Operating margin improved to 4.8% thanks to renegotiation of underperforming contracts. Others and global structures encompass Middle East, Africa, Major Events as well as two cost centers: the Group’s global delivery centers and global structures. Revenue grew +21.4% organically supported by by double-digit growth in Africa and Middle East and Turkey. Operating margin, structurally negative, was stable. Trusted Partner for your Digital Journey 12/50 2.4.4. Portfolio 2.4.4.1. Order entry and book to bill Order entry was €5.1 billion in H1 2023, representing a book-to-bill ratio of 93% (compared with 87% in H1 2022). Book-to-bill improved markedly in Q2, to 112%, compared to 73% in Q1. In € millionQ1 2023Q2 2023H1 2023Q1 2023Q2 2023H1 2023Americas 428 1,069 1,497 65%164%114%Northern Europe & APAC 474 706 1,180 60%89%74%Central Europe 395 708 1,103 62%107%85%Southern Europe 722 536 1,258 109%97%104%Others & Global Structures 37 58 95 56%74%66%Total2,0563,0775,13373%112%93%* Order entry does not include debooking for the purpose of the computation of the Book-to-bill ratioOrder entry*Book to bill 2.4.4.2. Full backlog and full qualified pipeline At the end of June 2023, the full backlog was € 19.6 billion, down €-0.5 billion compared to December 2022 excluding the impact from divestments. It represented 1.8 years of revenue. The full qualified pipeline amounted to €6.9 billion at the end of June 2023, up €0.3 billion compared to December 2022 excluding the impact from divestments. It represented 7.6 months of revenue. 2.4.5. Human ressources Total headcount was 107,013 at the end of June 2023, down -3.4% compared to 110,797 at the end of December 2022 (-1.9% organically). In H1 2023, Atos hired 8,431 new employees (gross), effectively offsetting voluntary attrition, which stood at 18% at the end of June on a trailing twelve-month basis, and 15% in Q2 alone. The reduction in Group headcount was due to restructuring and performance-related terminations, resulting in 2,404 exits in H1. Additionally, the divestment of Atos Italia in Q2 2022 accounted for a reduction of 1,647 employees. Trusted Partner for your Digital Journey 13/50 2.5. 2023 objectives At the occasion of its half-year results announcement on July 28, 2023, Atos upgraded and precised its full- year objectives: In 2023, Group revenue organic growth is now expected between 0.0% and +2.0% (previously: -1.0% to +1.0%), with an acceleration of Eviden’s organic growth compared to 2022 and a managed reduction of Tech Foundations’ revenue resulting from portfolio reshaping. Group operating margin3 outlook remains unchanged, at 4% to 5%. Eviden’s operating margin is expected to increase compared to 2022, while Tech Foundations’ operating margin is expected in positive territories. Free cash flow for the full year is expected to remain broadly similar to that of H1. 3 At current perimeter, including UCC and EcoAct (transactions expected to close in H2 2023) Trusted Partner for your Digital Journey 14/50 2.6. Risk Factors Risk factor linked to the envisioned separation plan On June 14th, 2022, the Group announced the study of a project to separate into two independent companies, namely on one side the Group's Digital and Big Data and Cybersecurity activities (designated as the Eviden perimeter), and on the other side its outsourcing and infrastructure activities (designated as the Tech Foundations scope), which should allow each of them to follow its own trajectory. The prior internal reorganization required by the separation project was initiated at the start of 2023 with a view to completing the planned separation before the end of 2023 (for more details on the progress of the separation project, see section 2.1). The decision on the finalization of the envisaged separation project remains conditional and will be subject to the necessary processes, in particular the approval of the governance bodies and the shareholders. At this stage, many factors could have a negative impact on the timetable, the expected benefits, or the decision to ultimately proceed with all or part of the contemplated separation or even the terms of its completion, including, among others, the general economic and market conditions, changes in customer confidence, interactions with associates, creditors and other stakeholders, tax considerations, fluctuation in interest rates, specific market conditions in one or more of the business areas that should be separated and changes in the regulatory or legal environment. Nor can there be any guarantee that the expected benefits of the proposed separation will be achieved. An inability to realize all of the expected benefits of the proposed separation, as well as a delay encountered in the process, could have a negative effect on the turnover, the level of expenses, the results of operations and the cash flows generated by Atos or the companies resulting from the contemplated separation. Similarly, Atos cannot give any assurance as to the future stock market value that will result from this operation or as to the appetite of the financial markets for it. If, on the contrary, this separation project does not succeed or if its realization were to take significantly longer than expected, the legibility of the commercial positioning of the two parts of the Group could suffer, which could lead to deterioration of the relationship between the whole Group and its customers. On the other hand, part of the financing linked to this separation project could be called into question. This could lead to calling into question, at least partially, the transformation of the two parts of the Group to adapt them to their respective market environments while entailing the need to further rationalize the support functions and the organization of the Group to adapt them to the service of one Group rather than two, if applicable. The combination of all or some of these factors could have an adverse effect on the level of motivation of the Group's employees and lead to an overall decline in their performance as well as the departure of key personnel. All other risk factors are included in section 7.2 of the 2022 Universal Registration Document, it being specified that those related to the retention and acquisition of key people (sections 7.2.1.1 and 7.2.1.2) have become even more relevant to the study and the potential implementation of the separation project. In addition, with regard to these latter risks, it is specified that the related mitigation measures are amplified accordingly, in particular by means of appropriate retention systems. Trusted Partner for your Digital Journey 15/50 2.7. Claims and litigations The Atos Group is a global business operating in 69 countries. In many of the countries where the Group operates there are no claims, and in others there is only a very small number of claims or actions involving the Group. The current level of claims and litigation is attributable in part to self-insurance incentives and the vigorous promotion of the quality of the services performed by the Group as well as to the intervention of a fully dedicated Risk Management department, which effectively monitors contract management from offering through delivery and provides early warnings on potential issues. All potential and active claims and disputes are carefully monitored, reported and managed in an appropriate manner and are subject to legal reviews by the Group Legal Department. During the first half-year of 2023 the Group has successfully put an end to several significant litigations through settlement agreements. Group Management considers that sufficient provisions have been made. The total amount of the provisions for litigation risks, in the consolidated accounts closed as of June 30, 2023 to cover for the identified major claims and litigations, added up to €57.7 million (including tax and commercial claims but excluding labor claims). 2.7.1. Tax claims The Group is involved in a number of routine tax claims, audits and litigations. Such claims are usually solved through administrative non-contentious proceedings. Certain tax claims are in Brazil, where Atos is a defendant in a number of cases and a plaintiff in others. Such claims are typical for companies operating in this region. Proceedings in this country usually take a long time to be processed. In other jurisdictions, such matters are normally resolved by simple non- contentious administrative procedures. The total provision for tax claims, as set forth in the consolidated financial statements as at June 30, 2023, was €25.6 million. The increase in the amount of the provisions is mainly due to the accrual of interests and foreign exchange. 2.7.2. Commercial claims There are a small number of commercial claims across the Group. Significant commercial cases have been closed this semester. There is a number of significant on-going commercial cases in various jurisdictions that the Group has integrated as a result of several acquisitions, notably a litigation inherited from Syntel. In October 2020, a jury found Syntel liable for trade secret misappropriation and copyright infringement and awarded Cognizant and TriZetto approximately $855 million in damages. Throughout the trial and in its post-trial motion, Syntel maintained that Cognizant and TriZetto had failed to meet their burden to show trade secret misappropriation and that their damages theories were improper as a matter of law. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $570 million punitive damages award was excessive and should be reduced to $285 million. TriZetto agreed to this reduction. The Court issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. On 25 May 2023, the United States Second Circuit Court vacated a decision issued by the United States District Court for the Southern District of New York, as part of Syntel’s ongoing litigation with Cognizant and its subsidiary TriZetto, which was finding Syntel, now part of Atos, liable for damages due to Syntel’s alleged trade secret misappropriation and copyright infringement. The Second Circuit Court remanded the case to the District Court for further consideration if any amount Trusted Partner for your Digital Journey 16/50 of damages are still appropriate. This practically means that the legal opinion issued by the Second Circuit (the Court of Appeal) clearly stated that the use of the avoided development costs methodology, which led to the initial $570m damages, was contrary to the law. The total provision for commercial claim risks, as set forth in the consolidated accounts closed as at June 30,2023, amounts to €32.1 million. 2.7.3. Labor claims There are close to 107,000 employees in the Group and relatively few labor claims. In almost every jurisdiction there are no or very few claims. Latin America is the only area where there is a significant number of claims, but such claims are often of low value or inflated and typical for companies operating in this region. The Group is respondent in a few labor claims of higher value, but in the Group’s opinion most of these claims have little or no merit and are provisioned appropriately. All of the claims exceeding €300,000 have been provisioned for an overall amount of €5.6 million as set forth in the consolidated financial statements as at June 30, 2023. 2.7.4. Representation & Warranty claims The Group is a party to a very small number of representation & warranty claims arising out of acquisitions/disposals. 2.7.5. Miscellaneous To the knowledge of the Company, there are no other administrative, governmental, legal or arbitration proceedings, pending or potential, over the past 12 months, likely to have or having had significant consequences on the Company’s and the Group’s financial position or profitability. 2.8. Related parties This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). The related-party transactions are described in the Note 17 – Related party transactions on page 375 of the 2022 Universal Registration Document. Trusted Partner for your Digital Journey 17/50 3. Financial statements 3.1. Financial review 3.1.1. Income statement The Group reported a net loss (attributable to owners of the parent) of € 600 million for the half year ended June 30, 2023. The normalized net loss before unusual, abnormal and infrequent items (net of tax) for the period was € 113 million, representing -2.0% of Group revenue of the period. (in € million)6 months ended June 30, 2023% of revenue6 months ended June 30, 2022% of revenueOperating margin 2123.8%591.1%Other operating income (expense)-646-357Operating income (loss)-434-7.8%-298-5.4%Net financial income (expense)-103-129Tax charge -65-77Non-controlling interests 00Share of net profit (loss) of equity-accounted investments2-Net income (loss) – Attributable to owners of the parent-600-10.8%-503-9.1%Normalized net income (loss)* – Attributable to owners of the parent-113-2.0%-119-2.1%* The normalized net income (loss) is defined hereafter 3.1.1.1. Operating margin Operating margin represents the underlying operational performance of the on-going business and is analyzed in detail in the operational review. 3.1.1.2. Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 646 million in the first half of 2023. The following table presents this amount by nature: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Staff reorganization-430-73Rationalization and associated costs-30-33Integration and acquisition costs-4-18Amortization of intangible assets (PPA from acquisitions) -60-67Equity-based compensation-14-11Impairment of goodwill and other non-current assets-55-91Other items-53-64TOTAL-646-357 Trusted Partner for your Digital Journey 18/50 Staff reorganization amounted to € 430 million and reflected intensified workforce adaptation measures, in particular the extension of the German restructuring plan launched in December 2022, as well as one- off separation costs as the Group executed the majority of the legal carve-out plan over the semester. The € 30 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs of € 4 million mainly related to the cost of retention schemes, as well as the remaining integration activities on 2022 and 2021 acquisitions. In the first half of 2023, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises amounted to € 60 million, compared to € 67 million in the first half of 2022, and was mainly composed of: € 31 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 7 million related to the last year of SIS customer relationships amortization. The equity-based compensation expense amounted to € 14 million in the first half of 2023 compared to € 11 million in the first half of 2022. Impairment of goodwill and other non-current assets amounted to € 55 million and mostly related to the impairment of goodwill in North America as a result of the forthcoming exit from the joint arrangement with the State Street group. In the first half of 2023, other items were a net expense of € 53 million compared to € 64 million in the first half of 2022. In 2023, those exceptional items mainly included the effects of a vendor contract renegotiation, the net cost of pension and early retirement programs in Germany, the UK and France, and legal costs on major litigations. 3.1.1.3. Net financial expense Net financial expense amounted to € 103 million for the period (compared to € 129 million in the first half of 2022) and was composed of a net cost of financial debt of € 40 million and other financial costs of € 63 million. Net cost of financial debt increased from € 13 million in the first half of 2022 to € 40 million in the first half of 2023. This variation mainly resulted from interests on the additional portion of the multi-currency revolving credit facility, Term Loan A and Term Loan B drawn in the first half of 2023. The average expense rate of the Group was 2.35% on the average gross borrowings, compared to 0.70% in the first half of 2022. The average income rate on the average gross cash was 2.05% compared to 0.58% in the first half of 2022. Other financial items were a net loss of € 63 million compared to a net loss of € 116 million in the first half of 2022 and were mainly composed of: pension related financial expense of € 17 million compared to € 8 million for the first half of 2022. The increase is explained by the rise in the discount rates determined at the end of 2022; lease liability interest of € 12 million compared to € 9 million in the first half of 2022. This variation mainly resulted from the increase in discount rates; net foreign exchange loss (including hedges) of € 8 million compared to a loss of € 2 million in the first half of 2022, notably due to unhedged positions in South Africa. Trusted Partner for your Digital Journey 19/50 3.1.1.4. Corporate tax The tax charge for the first half of 2023 was € 65 million with a loss before tax of € 537 million. This charge included € 30 million of non-recurring items, mainly the tax cost of the carve-out operations executed in the first semester, and taxes withheld on internal dividend distributions. Due to the loss before tax of the period, the Effective Tax Rate (ETR) of the period is not meaningful. 3.1.1.5. Normalized net income The normalized net loss excluding unusual, abnormal and infrequent items (net of tax) was € 113 million, representing -2.0% of Group revenue for the period. (in € million)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss) - Attributable to owners of the parent-600-503Other operating income and expense, net of tax-486-294Net gain (loss) on financial instruments related to Worldline shares, net of tax--91Normalized net income (loss) - Attributable to owners of the parent -113-119 3.1.1.6. Half year Earning Per Share (in € million and shares)6 months ended June 30, 2023% of revenue6 months ended June 30, 2022% of revenueNet income (loss) – Attributable to owners of the parent [a]-600-10.8%-503-9.1%Impact of dilutive instruments - - Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-600-10.8%-503-9.1%Normalized net income (loss)– Attributable to owners of the parent [c]-113-2.0%-119-2.1%Impact of dilutive instruments - - Normalized net income (loss) restated of dilutive instruments- Attributable to owners of the parent [d]-113-2.0%-119-2.1%Weighted average number of shares [e] 110,681,896 110,623,880 Impact of dilutive instruments - - Diluted weighted average number of shares [f]110,681,896110,623,880(in €)Basic EPS (Earning Per Share) [a] / [e]-5.42-4.55Diluted EPS [b] / [f]-5.42-4.55Normalized basic EPS [c] / [e]-1.02-1.07Normalized diluted EPS [d] / [f]-1.02-1.07 Trusted Partner for your Digital Journey 20/50 3.1.2. Free Cash Flow and net debt The Group reported a net debt position of € 2,321 million at the end of June 2023 and a free cash flow of € -969 million for the first half of 2023. (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating Margin before Depreciation and Amortization (OMDA)487369Capital expenditures-110-123Lease payments-181-207Change in working capital requirement*-645-383Cash from operation (CFO)-450-344Tax paid-40-21Net cost of financial debt paid-40-13Reorganization in other operating income -247-63Rationalization & associated costs in other operating income -25-34Integration and acquisition costs in other operating income -2-16Other changes**-165-64Free Cash Flow (FCF)-969-555Net (acquisitions) disposals190-92Capital increase-01Share buy-back-3-2Dividends paid-31-2Change in net cash (debt)-812-649Opening net cash (debt)-1,450-1,226Change in net cash (debt)-812-649Foreign exchange rate fluctuation on net cash (debt) -5998Reclassification to assets held for sale--15Closing net cash (debt)-2,321-1,792* Change in working capital requirement excluding the working capital requirement change related to items reported in other operating income and expense.** "Other changes" include other operating income and expense with cash impact (excluding staff reorganization, rationalization and associated costs, integration and acquisition costs) and other financial items with cash impact, net long term financial investments excluding acquisitions and disposals, and profit sharing amounts payable transferred to debt. Free cash flow representing the change in net cash or net debt, excluding net (acquisitions) disposals, equity changes and dividends paid to shareholders, was € -969 million versus € -555 million in the first half of 2022. Cash From Operations (CFO) amounted to € -450 million compared to € -344 million in the first half of 2022, the evolution coming from the following items: OMDA, net of lease payments (€ +144 million); Capital expenditures (€ +13 million); Change in working capital requirement (€ -262 million). OMDA of € 487 million, representing an increase of € 118 million compared to June 2022, reached 8.8% of revenue compared to 6.6% of revenue in June 2022. The bridge from operating margin to OMDA was as follows: Trusted Partner for your Digital Journey 21/50 (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating margin21259 + Depreciation of fixed assets136135 + Depreciation of right of use157 192 + Net book value of assets sold/written off25+/- Net charge (release) of pension provisions-20-19+/- Net charge (release) of provisions0-2OMDA487369 Capital expenditures totaled € 110 million, representing 2.0% of revenue, 20 bps less than the same period last year, reflecting the actions from the Group to optimize capital expenditure as well as to move to less capital-intensive activities. The negative contribution from change in working capital requirement was € 645 million (compared to € -383 million in the first half of 2022). Besides the usual seasonality between semesters, the change in working capital requirement was affected by working capital normalization effects in the context of the separation process. The DSO increased by 3 days (from 41 days at the end of December 2022 to 44 days at the end of June 2023), while the DPO decreased by 9 days (from 85 days at the end of December 2022 to 76 days at the end of June 2023). The level of trade receivables sold with no recourse to banks with transfer of risks as defined by IFRS 9 decreased from € 862 million at the end of December 2022 to € 715 million at the end of June 2023. Cash out related to taxes paid increased by € 19 million and amounted to € 40 million in the first half of 2023. Cost of net debt increased to € 40 million as a result of the cost associated with the refinancing of the Group arising from the additional drawdown made on the term loans and the revolving credit facility over the semester. Reorganization, rationalization and associated costs, and integration and acquisition costs reached € 274 million compared to € 113 million in the first half of 2022. Cash paid for reorganization costs included € 236 million of restructuring and reskilling measures, as well as one-off separation costs as the Group executed the majority of the legal carve-out plan over the semester. Rationalization expense primarily resulted from the closure and consolidation of data centers, mainly in North America. Other changes amounted to € -165 million compared to € -64 million in the first half of 2022. They included in particular € 76 million of payments arising from past settlements with customers and vendors, and € 42 million of costs incurred on those onerous contracts for which the provision was recorded at the end of December 2021. As a result of the above impacts mainly driven by the change in the working capital requirement, the Group presented a Free Cash Flow (FCF) of € -969 million during the first half of 2023, compared to € -555 million in the first half of 2022. The net cash impact resulting from net (acquisitions) disposals amounted to € 190 million and mainly originated from the disposal of the Group Italian operations to Lutech on March 31, 2023. There was no capital increase in the first half of 2023 compared to a € 1 million capital increase in the first half of 2022. Share buy-back amounted to € 3 million during the first half of 2023 compared to € 2 million in the first half of 2022. Share buy-back programs relate to the delivery of performance shares to managers and aim at avoiding a dilution effect for the shareholders. No dividends were paid to Atos SE shareholders in the first half of 2023 and in the first half of 2022. The € 31 million cash out corresponded mainly to taxes withheld on internal dividend distributions. Foreign exchange rate fluctuation determined on debt or cash exposure by country represented an increase in net debt of € 59 million mainly coming from the evolution of exchange rates of the US Dollar and British Pound against the Euro. As a result, the Group net debt position as of June 30, 2023 was € 2,321 million, compared to € 1,450 million as of December 31, 2022. Trusted Partner for your Digital Journey 22/50 3.1.3. Financial situation Bank covenant As at June 30, 2023, the multi-currency revolving credit facility was drawn for an amount of € 580 million, Term Loan A for € 1,500 million and Term Loan B for € 100 million and reimbursed for € 200 million. Even if, according to the documentation applicable to the multi-currency revolving credit facility, Term loan A and Term loan B, the ratio is tested only once a year at 31 December of each fiscal year, the Group remained within its borrowing covenant with a leverage ratio (net debt divided by a 12-month rolling OMDA, excluding IFRS 16 impacts) of 3.06 at the end of June 2023. The leverage ratio applicable to the financing package put in place in July 2022 amounts to 3.75. Liquidity The continuity of operations relies in particular on the liquidity of the Group, which is secured by the financing structure currently in place, and by an action plan that will be implemented in the next twelve months and that encompasses mainly additional disposals of assets but also cost reduction measures. The contemplated spin-off project remains conditional upon the implementation of a new financing for both Eviden and Tech Foundations. Trusted Partner for your Digital Journey 23/50 3.2. Interim condensed consolidated financial statements 3.2.1. Interim condensed consolidated income statement (in € million)Notes6 months ended June 30, 20236 months ended June 30, 2022Revenue Note 25,5485,563Personnel expenseNote 4.1-2,818-2,892Operating expenseNote 4.2-2,518-2,612Operating margin21259% of revenue3.8%1.1%Other operating income and expenseNote 5-646-357Operating income (loss)-434-298% of revenue-7.8%-5.4%Net cost of financial debtNote 6.1-40-13Other financial expenseNote 6.1-82-243Other financial incomeNote 6.119127Net financial income (expense)Note 6.1-103-129Net income (loss) before tax-537-427Tax chargeNote 7-65-77Share of net profit (loss) of equity-accounted investments20Net income (loss)-600-504Of which:▪ attributable to owners of the parent-600-503▪ non-controlling interests-0-0 (in € million and shares)Notes6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)- Attributable to owners of the parent-600-503Weighted average number of shares 110,681,896110,623,880Basic earnings per shareNote 11-5.42-4.55Diluted weighted average number of shares 110,681,896110,623,880Diluted earnings per shareNote 11-5.42-4.55 Trusted Partner for your Digital Journey 24/50 3.2.2. Interim condensed consolidated statement comprehensive income (in € million)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)-600-504Other comprehensive income-116352Change in fair value of cash flow hedge instruments136Exchange differences on translation of foreign operations-128349Deferred tax on items to be reclassified to profit or loss-0-215266Actuarial gains and losses on defined benefit plans18265Deferred tax on items not reclassified to profit or loss-31Total other comprehensive income (loss)-101618Total comprehensive income (loss) for the period-701115Of which:▪ attributable to owners of the parent-701115▪ non-controlling interests-0-0To be reclassified subsequently to profit or loss (recyclable)Not reclassified to profit or loss (non recyclable) Trusted Partner for your Digital Journey 25/50 of 3.2.3. Interim condensed consolidated statement of financial position (in € million)NotesJune 30, 2023December 31, 2022ASSETSGoodwillNote 85,1545,305Intangible assets760919Tangible assets385414Right-of-use assets786892Equity-accounted investments108Non-current financial assetsNote 6.3138171Non-current financial instruments113Deferred tax assets296294Total non-current assets7,5308,017Trade accounts and notes receivableNote 3.22,5732,603Current taxes10764Other current assetsNote 4.41,7011,485Current financial instruments2918Cash and cash equivalentsNote 6.22,6203,331Total current assets7,0297,501Assets held for saleNote 1758876TOTAL ASSETS15,31716,394(in € million)NotesJune 30, 2023December 31, 2022LIABILITIES AND SHAREHOLDERS’ EQUITYCommon stock111111Additional paid-in capital1,4991,499Consolidated retained earnings2,0913,195Net income (loss) attributable to the owners of the parent-600-1,012Equity attributable to the owners of the parent3,1013,793Non-controlling interests47Total shareholders’ equity3,1053,799Provisions for pensions and similar benefitsNote 9618639Non-current provisionsNote 10321496BorrowingsNote 6.42,4502,450Derivative liabilities113Deferred tax liabilities136148Non-current lease liabilitiesNote 6.4630704Other non-current liabilities31Total non-current liabilities4,1594,451Trade accounts and notes payableNote 4.31,9812,187Current taxes12063Current provisionsNote 10376245Current financial instruments711Current portion of borrowingsNote 6.42,6502,412Current lease liabilitiesNote 6.4270309Other current liabilitiesNote 4.52,2032,260Total current liabilities7,6087,487Liabilities related to assets held for saleNote 1445656TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY15,31716,394 Trusted Partner for your Digital Journey 26/50 3.2.4. Interim condensed consolidated cash flow statement (in € million)Notes6 months ended June 30, 20236 months ended June 30, 2022Net income (loss) before tax -537-427Depreciation of assetsNote 4.2136135Depreciation of right-of-useNote 4.2157192Net addition (release) to operating provisions-20-21Net addition (release) to financial provisions206Net addition (release) to other operating provisions-11-57Amortization of intangible assets (PPA from acquisitions)Note 56067Impairment of goodwill and other non current assetsNote 55591Losses (gains) on disposals of non current assets9112Net charge for equity-based compensation1411Unrealized losses (gains) on changes in fair value and other-2-24Net cost of financial debtNote 6.14013Interest on lease liabilityNote 6.1129Net cash from (used in) operating activities before change in working capital requirement and taxes-67107Tax paid-40-21Change in working capital requirement-512-341Net cash from (used in) operating activities-618-255Payment for tangible and intangible assets-110-123Proceeds from disposals of tangible and intangible assets12Net operating investments-110-121Amounts paid for acquisitions and long-term investments-21-280Cash and cash equivalents of companies purchased during the period-11Net proceeds from disposals of financial investments218219Cash and cash equivalents of companies sold during the period-12-Net long-term financial investments186-49Net cash from (used in) investing activities76-170Common stock issued01Purchase and sale of treasury stock-3-2Dividends paid*-28-Dividends paid to non-controlling interests-3-2Lease paymentsNote 6.4-181-207New borrowingsNote 6.41 7002 297Repayment of current and non-current borrowingsNote 6.4-1 440-1 642Net cost of financial debt paidNote 6.4-40-13Other flows related to financing activitiesNote 6.4-811Net cash from (used in) financing activities-75434Increase (decrease) in net cash and cash equivalents-6188Opening net cash and cash equivalents3 1903 239Increase (decrease) in net cash and cash equivalentsNote 6.4-6188Impact of exchange rate fluctuations on cash and cash equivalentsNote 6.4-5798Reclassification to assets held for saleNote 1--15Closing net cash and cash equivalentsNote 6.42 5153 330* corresponded to taxes withheld on internal dividend distributions Trusted Partner for your Digital Journey 27/50 3.2.5. Interim consolidated statement of changes in shareholders’ equity (in € million)Number of shares at period end(thousands)Common StockAdditional paid-in capitalConsolidated retained earningsNet income (loss)Totalattributable to the owners of the parentNon controlling interestsTotal shareholders' equityAt December 31, 2021110,7301111,4985,790-2,9624,43764,444▪ Common stock issued 3301-11▪ Appropriation of prior period net income (loss)-2,9622,962--▪ Dividends paid---2-2▪ Equity-based compensation999▪ Changes in treasury stock-2-2-2▪ Other00-4-3Transactions with owners3301-2,9542,9628-62▪ Net income (loss) --503-503-0-504▪ Other comprehensive income (loss)618618-0618Total comprehensive income (loss) for the period---618-503115-0115At June 30, 2022110,7631111,4993,454-5034,56004,561▪ Common stock issued 18811▪ Dividends paid-0-0-0▪ Equity-based compensation141414▪ Other1178Transactions with owners188--15-15721▪ Net income (loss)--509-5090-508▪ Other comprehensive income (loss)-274-274-0-274Total comprehensive income (loss) for the period----274-509-7820-782At December 31, 2022110,9511111,4993,195-1,0123,79373,799▪ Common stock issued ------▪ Appropriation of prior period net income (loss)-1,0121,012--▪ Dividends paid---3-3▪ Equity-based compensation111111▪ Changes in treasury stock-3-3-3▪ Other0000Transactions with owners----1,0031,0129-36▪ Net income (loss) --600-600-0-600▪ Other comprehensive income (loss)-101-1010-101Total comprehensive income (loss) for the period----101-600-701-0-701At June 30, 2023110,9511111,4992,091-6003,10143,105 Trusted Partner for your Digital Journey 28/50 3.2.6. Notes to the interim condensed consolidated financial statements These interim condensed consolidated financial statements were approved by the Board of Directors on July 27, 2023. 3.2.6.1. Basis of preparation All amounts are presented in millions of euros unless otherwise indicated. Certain totals may have rounding differences. Accounting framework The interim condensed consolidated financial statements of Atos (“the Group”) for the six-month period ended June 30, 2023, have been prepared in accordance with the international accounting standards endorsed by the European Union and whose application was mandatory as at June 30, 2023. The international standards comprise the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS), the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRS IC). The Group interim condensed consolidated financial statements for the six-month period ended June 30, 2023, have been prepared in accordance with IAS 34 - Interim Financial Reporting. This standard provides that interim condensed financial statements do not include all the information required under IFRS for the preparation of annual consolidated financial statements. These interim condensed consolidated financial statements must therefore be read in conjunction with the Group consolidated financial statements as at and for the year ended December 31, 2022. However selected explanatory notes are included to explain events and transactions that are significant to understand the changes in the Group financial position and performance since the latest annual consolidated financial statements. The accounting policies and measurement methods used to prepare these interim condensed consolidated financial statements are identical to those applied by the Group at December 31, 2022 and described in the notes to the consolidated financial statements for the year ended December 2022, except: new standards and interpretations mandatorily applicable presented in the paragraph below; the specific measurement methods of IAS 34 presented in the paragraph below. New standards and interpretations applicable from January 1, 2023 The following new standards, interpretations or amendments whose application was mandatory for the Group for the fiscal year beginning January 1, 2023 had no material impact on the interim condensed consolidated financial statements: Narrow scope amendments to IAS 1; Narrow scope amendments to IAS 8; Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction. Other standards The Group does not apply IFRS standards and interpretations that have not yet been approved by the European Union at the closing date. In addition, none of the new standards effective for annual periods beginning after January 1, 2023 and for which an earlier application is permitted have been applied by the Group. The potential impacts of these new pronouncements are currently being analyzed. Trusted Partner for your Digital Journey 29/50 Regarding the amendments to IAS 12 - International Tax Reform –Pillar Two Model Rules: In response to the “Pillar Two” international tax reform that aimed at introducing a minimum global tax rate of 15%, the IASB published amendments to IAS 12 on May 23, 2023, with immediate and retrospective effect. Under these amendments, entities shall notably not report any deferred tax assets and liabilities related to Pillar Two and shall disclose information about their potential exposure to any top-up taxes. As these amendments had not been adopted by the European Union as at June 30, 2023, the Group did not disclose any information regarding the impacts of Pillar Two. As at June 30, 2023, in accordance with IAS 8, the Group did not accounted for deferred income taxes in connection with Pillar Two in the interim condensed consolidated financial statements, given the difficulties involved in making the necessary estimates as well as the issues and uncertainties relating to the application of IAS 12 pending adoption of the amendments. The Group is currently assessing its exposure to top-up taxes. Use of estimates and judgments The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense in the financial statements and disclosures of contingent assets and liabilities at the closing date. Material judgments made by the management on accounting principles applied, as well as the main sources of uncertainty related to the estimates used to elaborate the interim condensed consolidated financial statements remain identical to those described in the latest annual report, except the specific measurement methods of IAS 34 regarding estimate of income tax expense (as described in Note 7) and pension plans and other long-term benefits valuations (as described in Note 9). Liquidity The continuity of operations relies in particular on the liquidity of the Group, which is secured by the financing structure currently in place, and by an action plan that will be implemented in the next twelve months and that encompasses mainly additional disposals of assets but also cost reduction measures. The contemplated spin-off project remains conditional upon the implementation of a new financing for both Eviden and Tech Foundations. Trusted Partner for your Digital Journey 30/50 3.2.6.2. Notes to the interim condensed consolidated financial statements Note 1 – Changes in the scope of consolidation Note 2 – Segment information Note 3 – Revenue, trade receivables, contract assets, contrat liabilities and contract costs Note 4 – Operating items Note 5 – Other operating income and expense Note 6 – Financial assets, liabilities and financial result Note 7 – Income tax Note 8 – Goodwill Note 9 – Pensions plans and other long-term benefits Note 10 – Provisions Note 11 - Shareholders’ equity Note 12 – Litigations Note 13 – Subsequent events Trusted Partner for your Digital Journey 31/50 32 34 35 36 38 40 42 42 44 45 45 45 46 Note 1 Changes in the scope of consolidation Completed and contemplated disposals Atos Italia S.p.A. On April 3, 2023, Atos announced that it had completed the sale of its Italian operations (“Atos Italia”) to Lutech S.p.A., an Italian provider of IT services and solutions, on March 31, with a 100% cash consideration. The transaction perimeter does not include the Italian EuroHPC business which will be kept within Atos, nor the Unified Communications & Collaboration's Italian operations, part of a separate divestment project. The disposal resulted in a € 17 million loss recorded as part of Other operating income and expense in the first half of 2023. Unified Communications & Collaboration business Atos announced in 2021 the contemplated disposal of the Unified Communications & Collaboration business and determined that this disposal group met the held for sale classification criteria at the end of September 2021. In accordance with IFRS 5, Atos considered the held for sale classification remained appropriate as at June 30, 2023 considering the signing of the transaction with Mitel and the expected closing of the transaction during the second semester of 2023. Unified Communications & Collaboration business is mainly reported in the RBU Centrale Europe. EcoAct On July 3, 2023, Atos announced that it had entered into exclusive negotiations with Schneider Electric for the sale of 100% of EcoAct SAS and its subsidiaries. The Group determined as at June 30, 2023 that this disposal group met the held for sale classification criteria considering the advanced stage of the negotiations and the expected closing of the transaction during the second semester of 2023. EcoAct is mainly reported in the RBU Southern Europe. State Street As a result of the forthcoming exit from the joint arrangement with the State Street group, the Group determined as at June 30, 2023 that the disposal group met the held for sale classification criteria considering the advanced stage of the discussions and the expected closing of the transaction during the second semester of 2023. State Street is reported in the RBU Americas. Trusted Partner for your Digital Journey 32/50 Major classes of assets and liabilities related to the disposal groups classified as held for sale can be presented as follows: (in € million)June 30, 2023December 31, 2022ASSETSGoodwill190346Intangible assets218156Tangible assets1112Right-of-use assets1729Non-current financial assets64Deferred tax assets4443Total non-current assets487589Trade accounts and notes receivable140172Current taxes1210Other current assets120105Total current assets271286TOTAL ASSETS758876(in € million)June 30, 2023December 31, 2022LIABILITIES Provisions for pensions and similar benefits117129Non-current provisions2028Deferred tax liabilities4239Non-current lease liabilities614Total non-current liabilities184210Trade accounts and notes payable112215Current taxes24Current provisions1015Current lease liabilities48Other current liabilities133203Total current liabilities260446TOTAL LIABILITIES445656 Other comprehensive income represented a cumulated net gain of € 13 million as at June 30, 2023. The measurement of those disposal groups at fair value less costs to sell resulted in a € 55 million impairment of goodwill and other non-current asset recorded as part of Other operating income and expense in the first half of 2023. Trusted Partner for your Digital Journey 33/50 Note 2 Segment information On June 14, 2022, Atos announced that it was studying a separation into two publicly listed companies: Eviden would bring together Atos Digital and Big Data and Security business lines; TFCo (Atos) would be composed of Atos Tech Foundations business line. The project remains conditional on general market conditions and would be subject to customary processes, including governance bodies and shareholders’ approval, but also to the financing of TFco and Eviden. Considering the stage of the project, Atos deemed that at June 30, 2023, Eviden did not meet the IFRS 5 criteria to be classified as held for sale and discontinued operations. The contemplated project does not have any consequence on the segment information for the consolidated financial statements at June 30, 2023. For IFRS 8 requirements, Regional Business Units are the disclosed operating segments as they are the key components reviewed by the chief operating decision maker. Regional Business Units are made of the following countries: AmericasArgentina,Brazil,Canada,Chile,Colombia,Guatemala,Mexico,Peru,theUnitedStatesofAmericaandUruguay.Northern Europe & APACAustralia,Belgium,China,Denmark,Estonia,Finland,HongKong,India,Ireland,Japan,Lithuania,Luxembourg,Malaysia,NewZealand,Norway,Philippines,Singapore,Sweden,Taiwan,Thailand,theNetherlands, the United Kingdom and South Korea.Central Europe Austria,BosniaandHerzegovina,Bulgaria,Croatia,CzechRepublic,Germany,Greece,Hungary,Poland,Israel, Romania, Serbia, Slovakia and Switzerland.Southern Europe Andorra, France, Italy, Portugal and Spain.Corporate and OtherAbuDhabi,Algeria,Benin,BurkinaFaso,Egypt,Gabon,IvoryCoast,Kenya,Lebanon,Madagascar,Mali,Mauritius,Morocco,Namibia,Qatar,Saudi-Arabia,Senegal,SouthAfrica,Tunisia,Turkey,UAEaswellasCorporate functions and Global Delivery Centers (GDC).Operating segments Each Business Line is represented in each RBU. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. The revenue from each external contract amounted to less than 10% of the Group revenue. Trusted Partner for your Digital Journey 34/50 The operating segment information was the following: (in € million)AmericasNorthern Europe & APACCentral EuropeSouthern EuropeCorporateand OtherElimination Total Group6 months ended June 30, 2023External revenue by segment1,3111,5841,2971,2111455,548% of Group revenue23.6%28.6%23.4%21.8%2.6%100.0%Inter-segment revenue518310764686-9910Total revenue 1,3631,6671,4041,275831-9915,548Segment operating margin 133631658-58212% of margin10.1%4.0%1.3%4.8%-40.3%3.8%Total segment assets as at June 30, 20233,8193,0091,2812,1341,29311,5376 months ended June 30, 2022External revenue by segment1,3531,6251,2581,1981295,563% of Group revenue24.3%29.2%22.6%21.5%2.3%100.0%Inter-segment revenue559210461670-9810Total revenue 1,4081,7171,3611,258799-9815,563Segment operating margin7328-3040-5259% of margin5.4%1.7%-2.4%3.4%-40.3%1.1%Total segment assets as at December 31, 20224,1342,9821,2672,1251,32111,829 The assets detailed above by segment are reconciled to total assets as follows: (in € million)June 30, 2023December 31, 2022Total segment assets11,537 11,829 Tax assets402 358 Cash and cash equivalents2,620 3,331 Assets held for sale758 876Total assets15,317 16,394 The revenue associated with Tech Foundations and Eviden perimeters can be broken down as follows: (in € million)Tech FoundationsperimeterEvidenperimeterTotal Group6 months ended June 30, 2023External revenue by perimeter2,9232,6255,548% of Group revenue 52.7%47.3%100.0%6 months ended June 30, 2022External revenue by perimeter3,0242,5395,563% of Group revenue 54.4%45.6%100.0% Note 3 Revenue, trade receivables, contract assets, contract liabilities and contract costs 3.1 – Disaggregation of revenue from contracts with customers Most of the revenue generated by the Group is recognized over time. The Group applies the “cost-to-cost” method to measure progress to completion for fixed price contracts. Most of the Big Data and Security activities revenue is recognized at a point in time when solutions are delivered except for High Performance Computer solutions when Atos is building a dedicated asset with no alternative use and has a right to payment arising from the contract or local regulation for costs incurred including a reasonable margin. In this specific case, revenue is recognized over time. Disaggregated revenue by Region and according to the Tech Foundations and Eviden perimeters is presented in Note 2. Trusted Partner for your Digital Journey 35/50 3.2 – Trade accounts and notes receivable, and contract liabilities (in € million)June 30, 2023December 31, 2022Contract assets1,160 1,168 Trade receivables1,390 1,413 Contract costs 94 101 Expected credit loss allowance-72 -79 Trade accounts and notes receivable2,573 2,603 Contract liabilities-853 -974 Net accounts receivable 1,720 1,629 Number of days’ sales outstanding (DSO)44 41 Contract assets, net of contract liabilities slightly increased compared to the positions at the end of December 2022, due to the consumption of advance payments received on the EuroHPC program, as well as major deferred revenues and advance payments reversing overtime, in Central Europe and Americas. The DSO ratio increased from 41 days to 44 days at June 30, 2023. As of June 30, 2023, € 715 million of trade receivables were transferred to third parties with conditions of the transfers meeting IFRS 9 requirements, meaning transfer of contractual cash flows and transfer of substantially all risks and rewards are achieved (€ 862 million at the end of December 31, 2022). Those trade receivables were therefore derecognized in the statement of financial position as of June 30, 2023. The € 715 million included € 77 million in the US where Atos only sold 95% of the right to cash flows and then derecognized 95% of the receivables. Note 4 Operating items 4.1 – Personnel expense (in € million)6 months ended June 30, 2023% Revenue6 months ended June 30, 2022% RevenueWages and salaries -2,27941.1%-2,34542.2%Social security charges-5269.5%-5259.4%Tax, training, profit-sharing-320.6%-410.7%Net (charge) release to provisions for staff expense-0.0%-0.0%Net (charge) release of pension provisions20-0.4%19-0.3%TOTAL-2,818 50.8%-2,892 52.0% Trusted Partner for your Digital Journey 36/50 4.2 – Non-personnel operating expense (in € million)6 months ended June 30, 2023% Revenue6 months ended June 30, 2022% RevenueSubcontracting costs direct-1,002 18.1%-1,064 19.1%Hardware and software purchase-522 9.4%-555 10.0%Maintenance costs-261 4.7%-286 5.1%Rent expense-5 0.1%-6 0.1%Telecom costs-98 1.8%-106 1.9%Travelling expense-33 0.6%-32 0.6%Professional fees -116 2.1%-108 1.9%Other expense-223 4.0%-180 3.2%Subtotal expense -2,258 40.7%-2,337 42.0%Depreciation of assets-136 2.4%-135 2.4%Depreciation of right-of-use-157 2.8%-192 3.5%Net (charge)/release to provisions4 -0.1%6 -0.1%Gains/(Losses) on disposal of assets-2 0.0%-4 0.1%Trade receivables write-off-4 0.1%-2 0.0%Capitalized production35 -0.6%52 -0.9%Subtotal other expense-260 4.7%-275 4.9%TOTAL-2,518 45.4%-2,612 47.0% Rent expense corresponds to short‑term lease contracts and low value assets. 4.3 – Trade accounts and notes payable (in € million)June 30, 2023December 31, 2022Trade accounts and notes payable1,9812,187Net advance payments-30-28Prepaid expense and advanced invoices-604-569TOTAL1,348 1,590 Number of days’ payable outstanding (DPO)76 85 4.4 – Other current assets (in € million)June 30, 2023December 31, 2022Inventories170 157 State - VAT receivables367 280 Prepaid expense and advanced invoices604 569 Other receivables & current assets530 452 Net advance payments30 28 TOTAL1,701 1,485 As of June 30, 2023, € 30 million of French R&D tax credit receivables (Crédit Impôt Recherche) were transferred to a bank with conditions of the transfer meeting IFRS 9 requirements for derecognition. Those receivables were therefore derecognized from the line item “Other current assets” in the statement of financial position as of June 30, 2023. Trusted Partner for your Digital Journey 37/50 4.5 – Other current liabilities (in € million)June 30, 2023December 31, 2022Employee-related liabilities536445 Social security and other employee welfare liabilities 159157 VAT payables393411 Contract liabilities853974 Other operating liabilities 261273 TOTAL2,2032,260 Employee-related liabilities included € 121 million of signed settlements with employees in connection with the German restructuring plans, compared to € 72 million in December 21, 2022. Note 5 Other operating income and expense Other operating income and expense relate to income and expense that are unusual, abnormal and infrequent and represented a net expense of € 646 million in the first half of 2023. The following table presents this amount by nature: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Staff reorganization-430-73Rationalization and associated costs-30-33Integration and acquisition costs-4-18Amortization of intangible assets (PPA from acquisitions) -60-67Equity-based compensation-14-11Impairment of goodwill and other non-current assets-55-91Other items-53-64TOTAL-646-357 Staff reorganization amounted to € 430 million and reflected intensified workforce adaptation measures, in particular the extension of the German restructuring plan launched in December 2022, as well as one-off separation costs as the Group executed the majority of the legal carve-out plan over the semester. The € 30 million rationalization and associated costs primarily resulted from the closure and consolidation of data centers, mainly in North America. Integration and acquisition costs of € 4 million mainly related to the cost of retention schemes, as well as the remaining integration activities on 2022 and 2021 acquisitions. In the first half of 2023, the amount related to the amortization of intangible assets recognized in the purchase price allocation exercises amounted to € 60 million, compared to € 67 million in the first half of 2022, and was mainly composed of: € 31 million of Syntel customer relationships and technologies amortized over 12 years starting November 1, 2018; € 8 million of Bull customer relationships and patents amortized over respectively 9 years and 7 to 10 years starting September 1, 2014; € 7 million related to the last year of SIS customer relationships amortization. The equity-based compensation expense amounted to € 14 million in the first half of 2023 compared to € 11 million in the first half of 2022. Impairment of goodwill and other non-current assets amounted to € 55 million and mostly related to the impairment of goodwill in North America as a result of the forthcoming exit from the joint arrangement with the State Street group. Trusted Partner for your Digital Journey 38/50 In the first half of 2023, other items were a net expense of € 53 million compared to € 64 million in the first half of 2022. In 2023, those exceptional items mainly included the effects of a vendor contract renegotiation, the net cost of pension and early retirement programs in Germany, the UK and France, and legal costs on major litigations. Equity-based compensation The € 14 million expense recorded within other operating income and expense relating to equity-based compensation (€ 11 million in the first half of 2022) was mainly related to performance share plans granted from 2020 until 2022. Equity-based compensation plans are detailed by year and by nature as follows: By year (in € million)6 months ended June 30, 20236 months ended June 30, 2022Plans 20230-Plans 202285Plans 202142Plans 202024Plans 2019-0TOTAL1411 By category of plans (in € million)6 months ended June 30, 20236 months ended June 30, 2022Performance share plans128Stock option plans--0Employee share purchase plans10Cash-settled incentive plans13TOTAL1411 Performance share plans In the first half of 2023, Atos implemented two new performance share plans, one of them having three vesting tranches: Board of directors meeting dateJune 28, 2023June 28, 2023June 28, 2023June 28, 2023Number of shares granted 581,750375,266375,285750,549Share price at grant date (€)13.113.113.113.1Vesting dateJune 28, 2026June 28, 2024June 28, 2025June 28, 2026Expected life (years)3123Expected dividend yield (%)0.670.670.670.67Fair value of the instrument (€)12.8413.0813.0812.822023 expense recognized (in € million)0000 Trusted Partner for your Digital Journey 39/50 Rules governing the performance share plans in the Group are as follows: To receive the shares, the grantee must generally be an employee or a corporate officer of the Group or a company employee related to Atos; Vesting is conditional upon both the continued employment and the achievement of performance criteria, financial and non-financial ones that vary according to the plan rules such as: o Internal financial performance criteria including Group revenue growth, Group Operating Margin and Group Free Cash Flow (FCF); o Internal and external social and environmental responsibility performance criteria; o An external stock market performance criterion; The vesting period varies according to the plan rules but never exceeds 3 years; The lock-up period varies according to the plan rules but never exceeds 2 years. Previous plans impacting the consolidated income statement of the first semester of 2023 were the following: Board of directors meeting dateMay 18, 2022May 18, 2022May 18, 2022May 18, 2022June 13, 2022Number of shares granted 309,560309,703619,352264,00039,000Share price at grant date (€)23.423.423.423.418.8Vesting dateMay, 18 2023May, 18 2024May, 18 2025May, 18 2025June, 18 2025Expected life (years)12333Expected dividend yield (%)1.741.741.741.741.74Fair value of the instrument (€)21.5621.1920.8219.2714.912023 expense recognized (in € million)21310Board of directors meeting dateJuly 24, 2020July 24, 2021Number of shares granted 870,630862,100Share price at grant date (€)75.041.2Vesting dateJuly 24, 2023July 24, 2024Expected life (years)33Expected dividend yield (%)2.072.09Fair value of the instrument (€)68.7439.672023 expense recognized (in € million)34 Note 6 Financial assets, liabilities and financial result 6.1 – Financial result Net financial expense amounted to € 103 million for the period (compared to € 129 million in the first half of 2022) and was composed of a net cost of financial debt of € 40 million and other financial expense of € 63 million. Trusted Partner for your Digital Journey 40/50 Net cost of financial debt (in € million)6 months ended June 30, 20236 months ended June 30, 2022Interest income8421Interest expense-124-34Net cost of financial debt-40-13 In the first half of 2023, interests on cash pooling accounts represented an income of € 66 million and an expense of € 64 million (compared to € 10 million and € 12 million, respectively in the first half of 2022). Net cost of financial debt increased from € 13 million in the first half of 2022 to € 40 million in the first half of 2023. This variation mainly resulted from interests on the additional portion of the multi-currency revolving credit facility, Term Loan A and Term Loan B drawn in the first half of 2023. The average expense rate of the Group was 2.35% on the average gross borrowings compared to 0.70% in the first half of 2022. The average income rate on the average gross cash was 2.05% compared to 0.58% in the first half of 2022. Other financial income and expense (in € million)6 months ended June 30, 20236 months ended June 30, 2022Foreign exchange income (expense) -71Fair value gain (loss) on forward exchange contracts-1-2Net gain (loss) on financial instruments related to Worldline0-83Interest on lease liability-12-9Other income (expense) -43-22Other financial income and expense-63-116Of which:- other financial expense-82-243- other financial income19127 Other financial items were a net loss of € 63 million compared to a net loss of € 116 million in the first half of 2022 and were mainly composed of: pension related financial expense of € 17 million compared to € 8 million for the first half of 2022. The increase is explained by the rise in the discount rates determined at the end of 2022; lease liability interest of € 12 million compared to € 9 million in the first half of 2022. This variation mainly resulted from the increase in discount rates; net foreign exchange loss (including hedges) of € 8 million compared to a loss of € 2 million in the first half of 2022, notably due to unhedged positions in South Africa. 6.2 – Cash and cash equivalents (in € million)June 30, 2023December 31, 2022Cash in hand and short-term bank deposit2,5723,256 Money market funds 4775 TOTAL2,6203,331 Depending on market conditions and short-term cash flow expectations, Atos invests from time to time in Money Market Funds or bank deposits for a maturity period not exceeding three months. Trusted Partner for your Digital Journey 41/50 6.3 – Non-current financial assets (in € million)June 30, 2023December 31, 2022Pension prepayments2428Fair value of non-consolidated investments85Other*106138TOTAL138171* "Other" includes loans, deposits, guarantees and up-front and underwriting fees related to past acquisitions amortized over the duration of the debt instrument. Other also included the funding of the non-current portion of the 2021 German restructuring plan. 6.4 – Change in net debt over the period Change in net cash (debt) reconciles to the cash flow statement as follows: (In € million)BondsOptional exchan-geable bondBank loans and commercial papersOtherTotal borrowings excl. overdraftCash & cash equivalentsOverdraftTotal net cash and cash equivalentsShort-term financial assets (liabilities)*Net cash (debt)Lease liabilitiesAt January 1, 20232,2005001,980414,7223,331-1413,19081-1,4501,013Lease payments------181--181--181-181New borrowings--1,7001,7001,700-1,700---Repayment of borrowings---1,440--1,440-1,440--1,440---Net cost of financial debt paid------40--40--40-Other flows related to financing activities------81--8181--Other cash flow changes---1414-63256-576-2-592-Cash flows impacts--26014274-67456-61880-812-181Change in lease liabilities----------58Interest on lease liability----------12Impact of exchange rate fluctuations ----0-0-37-20-57-3-59-3Other changes ----0-0-37-20-57-3-5968At June 30, 20232,2005002,240554,9962,620-1042,515158-2,321900Non-current portion1,90050050-2,450-----2,450630Current portion300-2,190552,5462,620-1042,515158129270*Short-term financial assets and liabilities bearing interests with maturity of less than 12 months. New borrowings corresponded to the additional drawdown made on the term loans and the revolving credit facility in the period. Net cash and cash equivalents (in € million)June 30, 2023December 31, 2022Cash and cash equivalents2,6203,331Overdrafts-104-141Net cash and cash equivalents2,5153,190 Bank covenant As at June 30, 2023, the multi-currency revolving credit facility was drawn for an amount of € 580 million, Term Loan A for € 1,500 million and Term Loan B for € 100 million and reimbursed for € 200 million. Even if, according to the documentation applicable to the multi-currency revolving credit facility, Term loan A and Term loan B, the ratio is tested only once a year at 31 December of each fiscal year, the Group remained within its borrowing covenant with a leverage ratio (net debt divided by a 12-month rolling OMDA, excluding IFRS 16 impacts) of 3.06 at the end of June 2023. The leverage ratio applicable to the financing package put in place in July 2022 amounts to 3.75. Trusted Partner for your Digital Journey 42/50 Note 7 Income tax The income tax charge includes current and deferred tax expense. For the purposes of the interim condensed consolidated financial statements, consolidated income tax is recognized based on management’s estimate of the effective tax rate for the whole financial year applied to the “net income before tax” of the interim period. The estimated effective tax rate for the full-year is determined on the basis of forecasted current and deferred tax expense for the whole year in the light of full-year earnings projections. The tax charge for the first half of 2023 was € 65 million with a loss before tax of € 537 million. This charge included € 30 million of non-recurring items, mainly the tax cost of the carve-out operations executed in the first semester, and taxes withheld on internal dividend distributions. Due to the loss before tax of the period, the Effective Tax Rate (ETR) of the period is not meaningful. Note 8 Goodwill Goodwill is not amortized and is subject to an impairment test performed at least annually by comparing its carrying amount to its recoverable amount at the closing date based on the 5-year mid-term plan, or more often whenever events or circumstances indicate that the carrying amount could not be recovered. Such events and circumstances include but are not limited to: significant deviance of economic performance of the asset when compared with budget; significant worsening of the asset’s economic environment; loss of a major client; significant increase in interest rates. Goodwill is allocated to a Cash Generating Unit (CGU) or a group of CGUs for the purpose of impairment testing. Goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the lowest level at which management monitors goodwill. Goodwill is tested for impairment at the Regional Business Unit level as RBU are the lowest level at which the goodwill is monitored for internal management purposes. For the purpose of preparing the interim condensed consolidated financial statements, an impairment test is performed only if the Group has determined that indicators of impairment exist. Changes in carrying amounts can be presented as follows: (in € million)December 31, 2022ChangeExchange differences and otherReclassification to assets held for saleJune 30, 2023Gross value6,956-0-39-986,819Impairment loss-1,652-51-1452-1,665Carrying amount5,305-51-53-475,154(in € million)December 31, 2021ChangeExchange differences and otherReclassification to assets held for saleDecember 31, 2022Gross value6,761259139-2026,956Impairment loss-1,656-851080-1,652Carrying amount5,105174148-1225,305 As at June 30, 2023, the Group determined that no indicators of impairment existed. The impairment loss recorded over the first half of 2023 mainly related to the impairment of a portion of goodwill in Americas resulting from the forthcoming exit from the joint arrangement with the State Street group. Trusted Partner for your Digital Journey 43/50 Note 9 Pensions plans and other long-term benefits For the purpose of preparing the interim condensed consolidated financial statements, the liabilities and assets related to post-employment and other long-term employee defined benefits are calculated using the latest valuation at the previous financial year closing date. Adjustments of actuarial assumptions are performed on the largest pension plans of the Group only if significant fluctuations or one-time events have occurred during the six-month period. After the reclassification to liabilities related to assets held for sale, the net total amount recognized on the balance sheet in respect of pension plans was € 558 million compared to € 579 million at December 31, 2022. (in € million)June 30, 2023December 31, 2022Prepaid pension asset 2428Accrued liability – pension plans [A]-582-607Total Pension plan-558-579Accrued liability – other long-term employee benefits [B]-36-32Total accrued liability [a] + [b]-618-639 The French pension reform did not have any material impact on the interim condensed consolidated financial statement. At the end of June 2023, market yields on AA-rated corporate bonds across the Eurozone and the US were similar to those observed at the end of December 2022. As a result, the discount rates determined at the end of December 2022 were maintained. In the UK, the market yields further increased over the semester while they slightly decreased in Switzerland. Those changes were reflected in the discount rates determined at the end of June 2023. 6 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 20226 months ended June 30, 2023December 31, 2022Discount rate5.35%4.85%3.8%~4.0%3.8%~4.0%2.00%2.25%5.00%5.0%Salary increase2.9%2.9%2.5%~2.95%2.5%~2.95%2.25%2.25%nanaRPI: 3.30%RPI: 3.20%CPI: 2.65%CPI: 2.55%naUnited KingdomEurozoneSwitzerlandUSAInflation assumption2.2%na2.2%nana The fair value of plan assets for major schemes was remeasured as at June 30, 2023. The net impact of defined benefit plans on Group income statement could be summarized as follows: (in € million)6 months ended June 30, 20236 months ended June 30, 2022Operating margin-28-29Other operating income and expense-4-1Financial result-17-8Total (expense) profit -48-38 The increase in the financial expense recognized in the first half of 2023 (€ 17 million compared to € 8 million for the first half of 2022) is explained by significant rises in the discount rates used for the actuarial valuations between December 31, 2021 and December 31, 2022. Trusted Partner for your Digital Journey 44/50 Note 10 Provisions (in € million)December 31, 2022AdditionRelease usedRelease unusedOther*Reclassification to liabilitiesrelated to assets held for saleJune 30, 2023CurrentNon- currentReorganization 116 180-99-1-021971952Rationalization 7 3-0-00-1047Project commitments 563 68-137-60311447165282Litigations and contingencies 55 11 -5-16-31431330Total provisions741262-241-78113698 376 321 * Other movements mainly consist of currency translation adjustments Additions in reorganization included mainly the extension of the German restructuring plan launched in December 2022. Additions to provisions for project commitments related to reassessments on onerous contracts, mainly in Northern Europe, while the release unused related to the favourable effects of a settlement with a customer in Germany and a reassessment on a vendor onerous contract. Note 11 Shareholders’ equity As at June 30, 2023, Atos SE issued share capital amounted to € 111 million, divided into 110,681,896 fully paid‑up common stock of € 1.00 par value each. Earnings (loss) per share (in € million and shares)6 months ended June 30, 20236 months ended June 30, 2022Net income (loss)– Attributable to owners of the parent [a]-600 -503 Impact of dilutive instruments --Net income (loss) restated of dilutive instruments - Attributable to owners of the parent [b]-600-503 Weighted average number of shares outstanding [c] 110,681,896 110,623,880 Impact of dilutive instruments [d] - - Diluted weighted average number of shares [e]=[c]+[d] 110,681,896 110,623,880 (in €)Basic Earning (loss) per Share [a] / [c]-5.42 -4.55 Diluted Earning (loss) per Share [b] / [e]-5.42-4.55 There are no dilutive instruments for the six-month period ended June 30, 2023. Note 12 Litigations TriZetto In 2015, Syntel initiated a lawsuit against the TriZetto Group and Cognizant Technology Solutions, stating claims for breach of contract, intentional interference with contractual relations and misappropriation of confidential information. In response to the complaint, TriZetto and Cognizant asserted various counterclaims, including claims against Syntel for copyright infringement and trade secret misappropriation. On October 27, 2020, a jury in the U.S. District Court for the Southern District of New York found Syntel, Trusted Partner for your Digital Journey 45/50 which was acquired by Atos in 2018, liable for trade secret misappropriation and copyright infringement and specified approximately $ 855 million in damages in favor of Cognizant and TriZetto, of which $ 570 million of punitive damages. On April 20, 2021, the United States District Court for the Southern District of New York granted in part the post-trial motion filed by Syntel. The Court reduced the jury’s $ 855 million damages award to $ 570 million and denied Cognizant and TriZetto’s request for an additional $ 75 million in pre-judgment interest. In its decision, the Court held that sufficient evidence existed to support the jury’s verdict of trade secret misappropriation and that the jury’s award of $ 285 million in compensatory damages was not contrary to law. However, the Court found that the jury’s $ 570 million punitive damages award was excessive and should be reduced to $ 285 million. Trizetto agreed to this reduction. The Court also issued an injunction prohibiting future use by Syntel of the specific trade secrets at issue in the trial. The appeal was filed with the U.S. Court of Appeals for the Second Circuit on May 26, 2021 and briefing was completed on December 23, 2021. The oral argument in the Court of Appeals took place on September 19, 2022. On May 25, 2023, the United States Second Circuit Court of Appeals vacated the decision issued by the United States District Court for the Southern District of New York. In its decision, the Second Circuit held that the use of the avoided development costs methodology, underlying the initial $570m damages, was contrary to the law. The Second Circuit remanded the case to the District Court for further consideration if any amount of damages are still appropriate. Assuming the Second Circuit’s decision stands, the District Court will decide whether TriZetto is entitled to compensatory damages under New York trade-secret law; compensatory damages under copyright law; and punitive damages under New York trade-secret law (punitive damages are unavailable under copyright law). Consistent with the Second Circuit opinion, Atos maintains its assessment, as previously communicated, that the maximum amount of damages legally available to TriZetto is approximately $8.5m. Note 13 Subsequent events There is no significant subsequent event to report. Trusted Partner for your Digital Journey 46/50 3.3. Statutory auditors’ Review Report on the half- yearly financial information for the period from January 1 to June 30, 2023 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the General Meetings and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: ▪ ▪ the review of the accompanying interim condensed consolidated financial statements of Atos S.E., for the period from January 1 to June 30, 2023, the verification of the information presented in the interim management report. These interim condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I- Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. II- Specific verification We have also verified the information presented in the interim management report on the interim condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the interim condensed consolidated financial statements. Trusted Partner for your Digital Journey 47/50 Paris-La Défense and Neuilly-sur-Seine, July 31, 2023 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton Membre français de Grant Thornton International Jean-François Viat Samuel Clochard Trusted Partner for your Digital Journey 48/50 4. Appendices 4.1. Contacts Institutional investors, financial analysts and individual shareholders may obtain information from: Thomas Guillois Head of Investor Relations Tel +33 6 21 34 36 62 thomas.guillois@atos.net Requests for information can also be sent by email to investors@atos.net 4.2. Financial calendar October 26, 2023 (Before Market Opening) Third quarter 2023 revenue Trusted Partner for your Digital Journey 49/50 4.3. Full index 1. PERSON RESPONSIBLE ......................................................................................... 3 1.1. Responsibility statement for the Half-Year Financial Report ...................................................... 3 1.2. For the audit .............................................................................................................................. 3 2. ACTIVITY REPORT ................................................................................................ 4 2.1. Progress on the envisioned spin-off project ............................................................................... 4 2.2. Tech Foundations Analyst Day (June 7, 2023) ........................................................................... 4 2.3. Atos in the first half of 2023 ...................................................................................................... 6 2.4. Operational review .................................................................................................................... 9 2.4.1. Statutory to constant scope and exchange rates reconciliation ................................................. 9 2.4.2. Performance by Business .................................................................................................. 11 2.4.3. Performance by Regional Business Units ............................................................................. 12 2.4.4. Portfolio .......................................................................................................................... 13 2.4.4.1. Order entry and book to bill ...................................................................................................... 13 2.4.4.2. Full backlog and full qualified pipeline ......................................................................................... 13 2.4.5. Human ressources ........................................................................................................... 13 2.5. 2023 objectives ....................................................................................................................... 14 2.6. Risk Factors ............................................................................................................................. 15 2.7. Claims and litigations .............................................................................................................. 16 2.7.1. Tax claims ...................................................................................................................... 16 2.7.2. Commercial claims ........................................................................................................... 16 2.7.3. Labor claims .................................................................................................................... 17 2.7.4. Representation & Warranty claims ..................................................................................... 17 2.7.5. Miscellaneous .................................................................................................................. 17 2.8. Related parties ........................................................................................................................ 17 FINANCIAL STATEMENTS ................................................................................... 18 3.1. Financial review ....................................................................................................................... 18 Income statement ............................................................................................................ 18 3.1.1.1. Operating margin ..................................................................................................................... 18 3.1.1.2. Other operating income and expense.......................................................................................... 18 3.1.1.3. Net financial expense ............................................................................................................... 19 3.1.1.4. Corporate tax .......................................................................................................................... 20 3.1.1.5. Normalized net income ............................................................................................................. 20 3.1.1.6. Half year Earning Per Share ...................................................................................................... 20 3.1.2. Free Cash Flow and net debt ............................................................................................. 21 3.1.3. Financial situation ............................................................................................................ 23 3.2. Interim condensed consolidated financial statements ............................................................. 24 Interim condensed consolidated income statement ............................................................... 24 3.2.1. Interim condensed consolidated statement of comprehensive income ..................................... 25 3.2.2. Interim condensed consolidated statement of financial position ............................................. 26 3.2.3. Interim condensed consolidated cash flow statement ............................................................ 27 3.2.4. 3.2.5. Interim consolidated statement of changes in shareholders’ equity......................................... 28 3.2.6. Notes to the interim condensed consolidated financial statements .......................................... 29 3.2.6.1. Basis of preparation ................................................................................................................. 29 3.2.6.2. Notes to the interim condensed consolidated financial statements .................................................. 31 3.3. Statutory auditors’ Review Report on the half-yearly financial information for the period from January 1 to June 30, 2023 ...................................................................................................... 47 4. APPENDICES ...................................................................................................... 49 4.1. Contacts................................................................................................................................... 49 4.2. Financial calendar .................................................................................................................... 49 4.3. Full index ................................................................................................................................. 50 Trusted Partner for your Digital Journey 50/50 | Semestriel, 2023, IT, Atos | write me a financial report |
Semestriel | 2,016 | Supplies | BIC | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Supplies
### Company:
BIC
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| R E R U D R U O P ) S ( T I A F * MADE TO LAST* 6 HALF-YEAR FINANCIAL REPORT S T N E T N O C MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. Key figures H1 2016 Highlights H1 2016 Group operational trends H1 2016 operational trends by category BIC Group Net Sales by geography Impact of change in perimeter and currency fluctuations on net sales IFO and Normalized IFO by category Share repurchase program – cancelled shares Related-party transactions Capital evolution Material events that occurred in H1 2016 Material events that occurred after June 30, 2016 Description of the principal risks and uncertainties for H2 2016 Full-Year 2016 Outlook Glossary CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements AUDITORS' REPORT STATEMENT ON THE HALF-YEARLY REPORT 2016 1 2 3 4 7 8 9 9 10 10 10 11 11 11 12 12 13 14 15 16 18 19 21 39 41 1.1. Key figures 2 1.2. H1 2016 Highlights 3 Net Sales 3 Results 3 1.3. H1 2016 Group operational trends 4 Net Sales 4 Income From Operations and Normalized Income From Operations 4 Net Income and EPS 5 Net cash position 6 Shareholders’ remuneration 6 1.4. H1 2016 operational trends by category 7 Consumer business 7 BIC Graphic 8 1.5. BIC Group Net Sales by geography 8 1.6. Impact of change in perimeter and currency fluctuations on net sales 9 1.7. IFO and Normalized IFO by category 9 1.8. Share repurchase program – cancelled shares 10 1.9. Related-party transactions 10 1.10. Capital evolution 10 1.11. Material events that occurred in H1 2016 11 1.12. Material events that occurred after June 30, 2016 11 1.13. Description of the principal risks and uncertainties for H2 2016 11 1.14. Full-Year 2016 Outlook 12 1.15. Glossary 12 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 1 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 Key figures 1.1. Key figures (in millions euros) Q2 2016 vs. Q2 2015 H1 2016 vs. H1 2015 Q2 2015 Q2 2016 As reported Constant currency basis H1 2015 H1 2016 As reported GROUP Net Sales Gross Profit Normalized Income From Operations Normalized IFO margin Normalized IFO margin excluding the special employee bonus Income From Operations IFO margin Net Income Group Share 623,1 307,4 137,4 22,0% 22,0% 143,9 23,1% 99,3 616,0 308,3 131,6 21,4% 21,4% 127,3 20,7% 89,1 1,1% 4,2% 11,5% 10,3% +4,2% 1 134,0 569,8 239,2 21,1% 21,1% 241,5 21,3% 176,6 1 133,3 558,8 207,9 18,3% 19,4% 203,7 18,0% 140,1 0,1% 13,1% 15,7% 20,6% Earnings Per Share Group Share (in euros) 2,10 1,89 10,0% 3,74 2,98 20,3% Stationery Net Sales IFO IFO margin Normalized IFO margin Normalized IFO margin excluding the special employee bonus Lighters Net Sales IFO IFO margin Normalized IFO margin Normalized IFO margin excluding the special employee bonus Shavers Net Sales IFO IFO margin Normalized IFO margin Normalized IFO margin excluding the special employee bonus Other Products Net Sales Total Consumer business Net Sales IFO IFO margin Normalized IFO margin Normalized IFO margin excluding the special employee bonus BIC Graphic Net Sales IFO IFO margin Normalized IFO margin 233,2 40,7 17,5% 17,1% 17,1% 178,4 75,6 42,3% 41,6% 41,6% 117,8 23,4 19,8% 19,1% 19,1% 22,3 551,7 144,5 26,2% 25,3% 25,3% 71,4 -0,6 -0,9% -3,0% 230,7 38,8 16,8% 17,5% 17,5% 177,2 70,6 39,8% 40,5% 40,5% 120,1 15,4 12,8% 13,8% 13,8% 18,6 546,6 125,9 23,0% 23,8% 23,8% 69,5 1,4 2,0% 2,5% 1,1% 0,7% +2,0% 16,6% 0,9% 2,7% +4,0% +5,4% +9,0% 15,3% +4,7% +0,3% 390,3 60,5 15,5% 15,7% 15,7% 341,9 136,6 39,9% 39,7% 39,7% 230,2 44,7 19,4% 20,2% 20,2% 39,1 1 001,5 246,2 24,6% 24,5% 24,5% 132,5 -4,7 -3,6% -4,7% 386,7 49,9 12,9% 13,3% 14,1% 340,8 132,7 38,9% 39,3% 40,0% 237,9 28,0 11,8% 12,3% 13,4% 34,3 999,7 211,3 21,1% 21,5% 22,4% 133,6 -7,6 -5,7% -5,4% 0,9% 0,3% +3,3% 12,2% 0,2% +0,8% Normalized IFO margin excluding the special employee bonus 3,0% 2,5% 4,7% 3,2% BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT Constant currency basis +5,4% +5,6% +5,4% +9,9% 10,9% +5,9% +2,3% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 H1 2016 Highlights 1.2. H1 2016 Highlights NET SALES Consumer business: 999.7 million euros (+5.9% on a constant currency basis): • • • Stationery: 386.7 million euros (+5.6% on a constant currency basis) Lighters: 340.8 million euros (+5.4% on a constant currency basis) Shavers: 237.9 million euros (+9.9% on a constant currency basis) BIC Graphic: 133.6 million euros (+2.3% on a constant currency basis) RESULTS Normalized Income From Operations (IFO): 207.9 million euros (-13.1% as reported) • • Normalized IFO margin: 18.3% compared to 21.1% in H1 2015 Normalized IFO margin excluding the special employee bonus: 19.4% Reported Income From Operations (IFO): 203.7 million euros (-15.7% as reported) Earning Per Share Group share: 2.98 euros (-20.3% as reported) Net cash position as of June 30, 2016: 98.2 million euros BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 3 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 H1 2016 Group operational trends 1.3. H1 2016 Group operational trends NET SALES H1 2016 Net Sales were 1,133.3 million euros, down 0.1% as reported and up 5.4% on a constant currency basis. The strong negative impact of currency fluctuations (-5.5%) was mainly due to the depreciation of Latin American currencies against the euro. Consumer business grew 5.9% on a constant currency basis with good performances across all regions (Europe +9.8%, North America +3.4%, Developing Markets +5.9%). BIC Graphic Net Sales increased by 2.3% on a constant currency basis. INCOME FROM OPERATIONS AND NORMALIZED INCOME FROM OPERATIONS H1 2016 Gross Profit margin was 49.3% compared to 50.2% in H1 2015. Excluding the impact of the special employee bonus, Gross Profit margin would have been 50.0%. Q2 2016 Gross Profit margin represented 50.0% of sales compared to 49.3% in Q2 2015. H1 2016 Normalized IFO was 207.9 million euros (Normalized IFO margin of 18.3% or 19.4% excluding the impact of the special employee bonus). Q2 2016 Normalized IFO was 131.6 million euros. Consumer business Normalized IFO margin was 21.5% in H1 2016, a decline of 3.0 points (down 2.1 points excluding the impact of the special employee bonus) attributable to increased investment in brand support and research and development. Q2 2016 Normalized IFO margin was 23.8% compared to 25.3% in Q2 2015. BIC Graphic Normalized IFO margin fell by 0.7 points in H1 2016 to a negative 5.4% (if the impact of the special employee bonus is excluded, it increased 1.5 points to a negative 3.2%). Q2 2016 Normalized IFO margin was 2.5% compared to a negative 3.0% in Q2 2015. KEY COMPONENTS OF THE CHANGE IN NORMALIZED IFO MARGIN (in points) H1 2015 vs. H1 2014 Q1 2016 vs. Q1 2015 Q2 206 vs. Q2 H1 2016 vs. H1 2015 2015 Change in cost of production (a) +1,5 1,2 +0,6 0,1 Total Brand Support (b) 0,2 0,8 0,8 0,8 Of which, promotions and investments related to consumer and business development support accounted for in Gross Profit Margin 0,5 0,3 +0,1 0,1 Of which, advertising, consumer and trade support +0,3 0,5 0,9 0,7 OPEX and other expenses +0,7 0,9 0,4 0,8 Total change in Normalized IFO margin excluding the special employee bonus +2,0 2,9 0,6 1,7 Special employee bonus 2,2 1,1 Of which impact on Gross Profit 1,5 0,7 Of which impact on OPEX 0,7 0,4 Total change in Normalized IFO margin +2,0 5,1 0,6 2,8 (a) (b) Gross Profit margin excluding promotions and investments related to consumer and business development support. Total Brand Support: consumer and business development support + advertising, consumer and trade support. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 H1 2016 Group operational trends NON-RECURRING ITEMS (in million euros) Q1 2015 Q1 2016 Q2 2015 Q2 2016 H1 2015 Income From Operations 97.6 76.4 143.9 127.3 241.5 As % of Net Sales 19.1% 14.8% 23.1% 20.7% 21.3% Restructuring costs 4.5 4.2 4.5 Divestment of Fuel Cell business net of restructuring costs 0.3 1.9 2.2 Impact of lump sum election for terminated vested pension participants in the U.S. 4.6 4.6 Normalized IFO 101.8 76.4 137.4 131.6 239.2 As % of Net Sales 19.9% 14.8% 22.0% 21.4% 21.1% Special employee bonus 11.4 Normalized IFO excluding the special employee bonus 101.8 87.7 137.4 131.6 239.2 As % of Net Sales 19.9 % 17.0% 22.0% 21.4% 21.1% NET INCOME AND EPS Income before tax fell back to 200.3 million euros compared to 253.3 million euros in H1 2015. Net finance revenue was a negative 3.4 million euros (compared to 11.8 million euros in H1 2015) due to unfavorable H1 2016 fair value adjustments to U.S. dollar denominated financial assets in compared to December 2015 (fair value adjustments booked in H1 2015 were favorable). Net income Group Share was 140.1 million euros in H1 2016, a 20.6% drop as reported. Q2 2016 net income Group Share was 89.1 million euros, down by 10.3% on a reported basis. The effective tax rate in H1 2016 was 30.0%. EPS Group Share were 2.98 euros compared to 3.74 euros in H1 2015, down by 20.3%. Normalized EPS Group Share decreased by 18.1% to 3.04 euros compared to 3.71 euros in H1 2015. EPS Group Share in Q2 2016 was 1.89 euros compared to 2.10 euros in Q2 2015, down by 10.0%. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT H1 2016 203.7 18.0% 4.2 207.9 18.3% 11.4 219.3 19.4% 5 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 H1 2016 Group operational trends NET CASH POSITION At the end of June 2016, the Group’s net cash position stood at 98.2 million euros. CHANGE IN NET CASH POSITION (in million euros) 2015 NET CASH POSITION (BEGINNING OF THE PERIOD - DECEMBER) 320.2 Net cash from operating activities +93.1 Of which operating cash flow +239.4 Of which change in working capital and others 146.3 CAPEX 50.7 Dividend payment 134.8 Share buyback program 26.3 Net cash from the exercise of stock options and the liquidity contract +8.0 Proceeds from sale of Fuel Cell assets +14.0 Other items NET CASH POSITION (END OF THE PERIOD - JUNE) +0.2 223.7 Net cash from operating activities was +61.6 million euros with +196.1 million euros in operating cash flow. The negative change in working capital and others of 134.5 million euros was mainly related to the seasonality of trade receivables. Net cash was also impacted by increased investments in CAPEX as well as dividend payment (including the special dividend) and share buybacks. SHAREHOLDERS’ REMUNERATION Ordinary dividend of 3.40 euros per share and special dividend of 2.50 euros per share paid in June 2016. 60.7 million euros in share buy-backs at the end of June 2016 (487,025 shares purchased at an average price of 124.60 euros). BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 2016 448.0 +61.6 +196.1 134.5 74.4 277.0 60.7 +0.8 0.1 98.2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 H1 2016 operational trends by category 1.4. H1 2016 operational trends by category CONSUMER BUSINESS Stationery Lighters Stationery H1 2016 Net Sales decreased by 0.9% as reported but grew by 5.6% on a constant currency basis. Second quarter 2016 Net Sales were down 1.1% as reported but increased 4.0% on a constant currency basis. H1 2016 Net Sales of Lighters decreased by 0.3% as reported but grew by 5.4% on a constant currency basis. Second quarter 2016 Net Sales were down 0.7% as reported but increased 5.4% on a constant currency basis. Developed markets ● In Europe, the increase in H1 Net Sales was in the high single-digits thanks to a strong back-to-school sell-in in all countries, notably in France and Eastern Europe. Developed markets ● Europe delivered high single-digit growth in H1 Net Sales driven by promotions and sleeved lighters in Western Europe as well as strong growth in Eastern Europe (distribution gains). In North America, we delivered mid-single digit growth in H1 on the back of a good back-to-school sell-in and the continued success of our “Champion brand” strategy, especially in the BIC® Atlantis range. North America achieved low single-digit growth in H1 when compared to a good H1 2015, which had benefited from customers buying ahead of price adjustments implemented in Q2 2015. Developing Markets H1 2016 Net Sales were stable. Developing Markets In H1 2016, growth in Net Sales was in the high single-digits. In Latin America, H1 Net Sales declined slightly. In Brazil, we In Mexico, we increase our market share. continued experienced delayed Q2 back-to-school shipments which should be realized in Q3 (sell-in). to In the Middle-East and Africa, we delivered high single-digit growth along with market share gains in South Africa. H1 Domestic Sales of Cello Pens increased mid-single digit thanks to new product launches, notably in the ButterflowTM range. H1 2016 Normalized IFO margin for Stationery was 13.3% compared to 15.7% in 2015. Excluding the impact of the special employee bonus, Normalized IFO margin for Stationery would have been 14.1%. The year-on-year decline is attributable to investments in brand support in Europe and North America to boost growth, and an increase in operating expenses, as well as currency devaluations in Latin America. Q2 2016 Normalized IFO margin was 17.5% compared to 17.1% in Q2 2015. In Latin America, growth in H1 Net Sales was in the high single-digits with a strong performance in Mexico (distribution gains). In the Middle-East and Africa, we enjoyed double-digit growth in H1. H1 2016 Normalized IFO for Lighters was 39.3% compared to 39.7% in 2015. Excluding the impact of the special employee bonus, Normalized IFO margin for Lighters would have been 40.0%, thanks notably to a higher Gross Profit margin. Q2 2016 Normalized IFO margin was 40.5% compared to 41.6% in Q2 2015 due notably to higher operating expenses. Shavers H1 2016 Net Sales of Shavers increased by 3.3% as reported and by 9.9% on a constant currency basis. Second quarter 2016 Net Sales were up 2.0% as reported and by 9.0% on a constant currency basis. Developed markets ● In Europe, H1 Net Sales growth was in the high single-digits, driven by a good performance in Eastern Europe. We benefited from the success of products such as the BIC® 3, BIC® Miss Soleil® and BIC® Flex and Easy shavers. In North America, we delivered mid-single digit growth in H1. We increased our market share by 2.2 points to 29%(1) thanks to our added-value products including the Flex range (BIC® Flex 3, BIC® Flex 4 and BIC® Flex 5 shavers), our Hybrid offers (BIC® Hybrid 3 and BIC® Hybrid 4 Flex shavers) as well as the BIC® Soleil Shine shaver. (1) Source: IRI total market YTD through 26-JUNE-2016 (one-piece shavers) – in value terms. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 7 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 BIC Group Net Sales by geography Developing Markets We registered double digit growth in H1 sales. In Latin America, all product ranges contributed to this growth, especially BIC® Comfort 3 shaver. In the Middle-East and Africa, we achieved mid-single digit growth in H1 driven by our triple-blade products and BIC® Flex 3 shaver. H1 2016 Normalized IFO margin for Shavers was 12.3% compared to 20.2% in 2015. Excluding the impact of the special employee bonus, Normalized IFO margin for Shavers would have been 13.4%. This year-on-year decrease was due to increased investment in research and development and in brand support, notably in the U.S. (launch of the new BIC® Soleil Shine shaver and continued investment in the BIC® Flex 5 shaver). Q2 2016 Normalized IFO margin was 13.8%, compared to 19.1% in Q2 2015, due to a negative FX impact on Gross Profit margin and continued investment in research and development and in brand support, notably in Brazil (TV campaigns to promote the BIC® Soleil and BIC® Comfort 3 shavers). Other Consumer Products H1 2016 Net Sales of Other Consumer Products decreased by 12.2% as reported and fell by 10.9% on a constant currency basis. Second quarter 2016 Net Sales were down 16.6% as reported and by 15.3% on a constant currency basis. BIC Sport registered a double-digit decline in its H1 Net Sales on a constant currency basis. H1 2016 Normalized IFO for Other Consumer Products was 0.8 million euros (1.0 million euros excluding the impact of the special employee bonus), compared to 2.2 million euros in H1 2015. Q2 2016 Normalized IFO for Other Consumer Products was 1.2 million euros compared to 2.9 million euros in Q2 2015. BIC GRAPHIC BIC Graphic Net Sales for H1 2016 increased by 0.8% as reported and by 2.3% on a constant currency basis. Second quarter 2016 Net Sales were down 2.7% as reported but increased by 0.3% on a constant currency basis. In Europe, BIC delivered good performances in key countries such as France and Germany. In North America, our “Good Value” line and new products continued to perform well, driving growth in both Hard Goods and Writing Instruments. H1 2016 Normalized IFO margin for BIC Graphic was a negative 5.4% compared to a negative 4.7% in 2015. Excluding the impact of the special employee bonus, its Normalized IFO margin would have been a negative 3.2%, thanks to lower operating expenses compared to H1 2015. Q2 2016 Normalized IFO margin for BIC Graphic was a positive 2.5% compared to a negative 3.0% in Q2 2015, benefiting from lower cost of production and operating expenses. The review of the strategic alternatives for BIC Graphic is proceeding as planned. 1.5. BIC Group Net Sales by geography (in millions euros) Q2 2016 vs. Q2 2015 H1 2016 vs. H1 2015 Q2 2015 Q2 2016 Constant As reported currency basis H1 2015 H1 2016 Constant As reported currency basis Group Net Sales 623.1 616.0 1.1% +4.2% 1,134.0 1,133.3 0.1% +5.4% Europe Net Sales 160.0 170.1 +6.3% +8.7% 277.6 296.6 +6.8% +8.8% North America Net Sales 290.5 290.3 0.1% +2.3% 511.5 526.1 +2.9% +3.5% Developing Markets Net Sales 172.6 155.6 9.8% +3.3% 344.9 310.6 10.0% +5.5% BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 Impact of change in perimeter and currency fluctuations on net sales 1.6. Impact of change in perimeter and currency fluctuations on net sales (in %) Q2 2015 Q2 2016 H1 2015 Perimeter 0.6% 0.7% Currencies +11.5% 5.3% +11.5% Of which USD +10.5% 1.0% +9.9% Of which BRL 0.9% 1.0% 0.4% Of which ARS +0.2% 0.6% +0.2% Of which INR +0.6% 0.2% +0.7% Of which MXN +0.4% 1.1% +0.4% Of which RUB and UHA 0.3% 0.3% 0.4% 1.7. IFO and Normalized IFO by category (in millions euros) Q2 2015 Q2 2016 H1 2015 Group Income From Operations 143.9 127.3 241.5 Normalized Income From operations 137.4 131.6 239.2 Stationery Income From Operations 40.7 38.8 60.5 Normalized Income From operations 39.9 40.3 61.2 Lighters Income From Operations 75.6 70.6 136.6 Normalized Income From operations 74.2 71.7 135.6 Shavers Income From Operations 23.4 15.4 44.7 Normalized Income From operations 22.5 16.6 46.4 Other Products Income From Operations 4.9 1.1 4.4 Normalized Income From operations 2.9 1.2 2.2 Total Consumer business Income From Operations 144.5 125.9 246.2 Normalized Income From operations 139.5 129.8 245.4 BIC Graphic Income From Operations 0.6 1.4 4.7 Normalized Income From operations 2.1 1.8 6.2 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT H1 2016 5.5% 0.1% 1.7% 1.1% 0.2% 1.0% 0.3% H1 2016 203.7 207.9 49.9 51.4 132.7 133.9 28.0 29.2 0.6 0.8 211.3 215.2 7.6 7.3 9 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 Share repurchase program – cancelled shares 1.8. Share repurchase program – cancelled shares SOCIÉTÉ BIC obtained at the Annual Shareholders’ Meeting on May 18, 2016 to renew its shares repurchase program. During the first half of 2016: SOCIÉTÉ BIC repurchased, under the liquidity agreement with Natixis, 183,485 shares for a total value of 23.79 million euros and sold 182,158 shares for a total value of 23.65 million euros; SOCIÉTÉ BIC repurchased 487,025 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 18, 2016, excluding shares acquired under the liquidity agreement; 12,714 options were exercised in the period for 0.63 million euros, of which 0.06 million euros have not been received at the end of June 2016; SOCIÉTÉ BIC received early 2016, 0.39 million euros related to stock options exercised at the end of 2015. SHARE REPURCAHSE PROGRAM Number of shares acquired Weighted average price (in €) Amount (in M€) February 2016 117,908 126.78 14.9 March 2016 115,379 130.22 15.0 April 2016 8,400 122.42 1.0 May 2016 91,678 124.14 11.4 June 2016 TOTAL 153,660 487,025 119.11 124.60 18.3 60.7 The number of free, performance-based shares transferred to beneficiaries is 113,588 during the first half 2016, of which 112,436 shares transferred by SOCIÉTÉ BIC and 1,152 shares transferred by BIC CORPORATION. Moreover, SOCIÉTÉ BIC proceeded to 159,680 free, performance-based share grants and 20,750 free, non-performance-based share grants. 1.9. Related-party transactions This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). Significant related-party transactions are described in the Note 24 – Related parties on page 210 of the Group BIC 2015 registration document filed with the Autorité des Marchés Financiers (AMF) on March 23, 2016. During the First Half of 2015, no other significant related-party transactions have been identified. 1.10. Capital evolution N/A BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 Material events that occurred in H1 2016 1.11. Material events that occurred in H1 2016 In Early 2016, the decision was taken to close BIC’s Stationery facility in Shanghai (China) and transfer its production to other BIC Stationery sites with higher production volumes. Acknowledging Chief Executive Officer Mario Guevara’s decision to retire in May 2016, the Board of Directors of SOCIETE BIC has decided to propose an evolution of Group governance: The Promotional Product Industry has changed throughout 2015 with a consolidation happening in all regions and new entrants arising. In light of this evolution, in early 2016, the Board has decided to initiate a review of strategic alternatives for BIC Graphic. The strategic review is expected to be concluded by the end of 2016. It has been voted, during the Annual Shareholders Meeting held on 18 May 2016, a change in company’s by-laws in order for the the Executive the Chief Executive Officer and Chairman, Vice-Presidents to exercise their functions until 72 years old. The Board of Directors that followed this Annual Shareholders Meeting has combined the Chairmanship and Chief Executive Officer functions and has nominated Bruno Bich as Chairman and Chief Executive Officer. 1.12. Material events that occurred after June 30, 2016 N/A 1.13. Description of the principal risks and uncertainties for H2 2016 BIC pursues an active and dynamic approach to risk management. The purpose of this approach is to enhance the Group’s capacity in identifying, managing and monitoring major risks that could affect: its personnel, assets, environment or reputation; the Group’s ability to reach its objectives and abide by its values, ethics or laws and regulations. following areas: financial markets, legal, industry and environment, strategy and operations. A description of the main risks identified by the BIC Group is available in the section entitled “Risks factors” of the 2015 registration document (page 25) filed with the Autorité des Marchés Financiers (AMF) on March 23, 2016 and which is available online, following this link: http://www.bicworld.com/en/finance/publications/. The approach is based on identification and analysis of the main risks to which the Group is exposed, particularly those related to the No additional significant risk or uncertainties have been identified for the second half of 2016. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 11 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTHS PERIOD ENDED JUNE 30, 2016 Full-Year 2016 Outlook 1.14. Full-Year 2016 Outlook In 2016, we expect to deliver mid-single digit growth in Net Sales on a comparative basis. Excluding major macro-economic disruptions or currency fluctuations, Normalized IFO margin(1) should decline by between 100 and 150 basis points as a result of accelerated Brand Support and R&D investments aimed at fueling profitable medium- and long-term growth. We also expect to maintain Net Cash from operating activities at current levels despite an in development CAPEX. increase 1.15. Glossary Constant currency basis: Constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates. Free cash flow before acquisitions and disposals: Net cash from operating activities - net capital expenditures +/- other investments Comparative basis: on a constant currency basis and constant perimeter. Figures at constant perimeter exclude the impacts of acquisitions and/or disposals that occurred during the current year and/or during the previous year, up to their anniversary date. All comments related to Net Sales are made on a comparative basis. Normalized IFO: Normalized means excluding non-recurring items. Free cash flow after acquisitions and disposals: Net cash from operating activities - net capital expenditures +/- other investments - acquisitions/disposals of equity investments / subsidiaries / business lines. Net cash from operating activities: principal revenue-producing activities of the entity and other activities that are not investing or financing activities Net cash position: Cash and cash equivalents + Other current financial assets - Current borrowings - Non-current borrowings (1) Excluding the special bonus awarded to employees who were not granted shares under our performance share plan. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 2.1. Consolidated income statement 14 2.2. Consolidated statement of comprehensive income 15 2.3. Consolidated statement of financial position 16 2.4. Consolidated statement of changes in equity 18 2.5. Consolidated cash flow statement 19 2.6. Notes to the consolidated financial statements 21 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS 13 14 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated income statement 2.1. Consolidated income statement (condensed financial statements) (in thousand euros) Notes Net sales 2-2 Cost of goods 4 Gross profit Distribution costs 4 Administrative expenses 4 Other operating expenses 4 Other income 5 Other expenses 5 Income from operations Income from cash and cash equivalents 6 Net finance income/(Net finance costs) 6 Income before tax Income tax expense 7 Net income from consolidated entities Net income from continuing operations Consolidated income of which: Non-controlling interests NET INCOME GROUP SHARE 8 Earnings per share Group share (in euros) 8 Diluted earnings per share Group share (in euros) (a) 8 Average number of shares outstanding net of treasury shares over the period 8 (a) The dilutive elements taken into account are stock options. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT June 30, 2015 1,133,995 (564,218) 569,777 (156,762) (114,717) (60,404) 10,117 (6,509) 241,502 6,435 5,334 253,271 (76,061) 177,210 177,210 177,210 640 176,570 3.74 3.70 47,200,210 June 30, 2016 1,133,297 (574,449) 558,848 (161,540) (115,476) (73,215) 1,906 (6,846) 203,677 5,183 (8,605) 200,254 (60,145) 140,109 140,109 140,109 140,109 2.98 2.95 47,029,831 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of comprehensive income 2.2. Consolidated statement of comprehensive income (condensed financial statements) (in thousand euros) Notes June 30, 2015 GROUP NET INCOME A 177,210 OTHER COMPREHENSIVE INCOME 7-2 Actuarial differences on post-employment benefits not recyclable to the income statement (a) 30,955 Deferred tax on actuarial differences on post-employment benefits 7-2 (11,273) Total actuarial differences not recyclable to the income statement - Net of tax B 19,682 Gain/(Loss) on cash flow hedge 18 (813) Exchange differences arising on translation of overseas operations (b) 36,528 Available for sale investments (1) Deferred tax and current tax recognized on other comprehensive income 7-2 (1,690) Other comprehensive income recyclable to the income statement - Net of tax TOTAL COMPREHENSIVE INCOME C D = A + B + C 34,024 230,916 Attributable to: BIC Group 225,854 TOTAL Non-controlling interests 5,062 230,916 (a) (b) The impact of actuarial differences is mainly due to U.S. and French plans. The main items impacting the translation reserve variance for the period, by currency, are as follows: U.S. dollar -12.9 million euros, Indian rupee -10.0 million euros, Brazilian real 35.3 million euros and Mexican peso -6.9 million euros. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT June 30, 2016 140,109 (49,690) 18,059 (31,631) 5,397 4,121 (311) 9,206 117,685 117,685 117,685 15 16 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of financial position 2.3. Consolidated statement of financial position (condensed financial statements) Assets (in thousand euros) Notes December 31, 2015 Property, plant and equipment 508,533 Investment properties 2,150 Net goodwill 9 324,894 Intangible assets 96,777 Other non-current assets 10 28,636 Deferred tax assets 163,756 Derivative instruments 18, 20 549 Non-current assets 1,125,295 Inventories 11 478,413 Income tax advance payments 11,614 Trade and other receivables 11, 20 439,979 Other current assets 19,391 Derivative instruments 18, 20 3,296 Other current financial assets 20 73,048 Cash and cash equivalents 20 385,156 Current assets TOTAL ASSETS 1,410,897 2,536,192 CF: see consolidated cash flow statement. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT June 30, 2016 537,159 2,057 319,125 96,258 27,761 188,356 4,116 1,174,832 519,451 14,152 558,730 27,337 4,791 29,050 221,916 1,375,427 2,550,259 Equity and liabilities (in thousand euros) Share capital Accumulated profits Translation reserve Shareholders’ equity Group Share Non-controlling interests Shareholders’ equity Non-current borrowings Other non-current liabilities Employee benefits obligation Provisions Deferred tax liabilities Derivative instruments Non-current liabilities Trade and other payables Current borrowings Current tax due Other current liabilities Derivative instruments Current liabilities TOTAL EQUITY AND LIABILITIES SHEQ: see consolidated statement of changes in equity. CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of financial position Notes December 31, 2015 12-1 180,169 1,652,982 16,393 1,849,544 SHEQ 1,849,544 13 2,450 1,259 208,832 14 41,526 52,506 18, 20 134 306,707 11, 20 124,867 13, 20 7,780 15,183 15 228,406 18, 20 3,705 379,941 2,536,192 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT June 30, 2016 178,782 1,439,436 20,514 1,638,732 1,638,732 2,279 1,259 250,838 40,406 47,520 1,789 344,091 145,175 150,538 22,765 247,512 1,446 567,436 2,550,259 17 18 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4. Consolidated statement of changes in equity (condensed financial statements) (in thousand euros) Notes Share Accumulated profits capital Translation reserve Cash flow hedge derivatives Share- holders’ equity Group share Non- controlling interests At December 31, 2015 180,169 1,652,509 16,393 473 1,849,544 Dividends paid CF, 16 (277,042) (277,042) Decrease in share capital (a) Increase in share capital (b) 49 582 631 Treasury shares (1,435) (57,669) (59,104) Recognition of share-based payments CF, 17 7,019 7,019 Other Total transactions with Shareholders (1,386) (1) (327,110) - - (1) (328,497) Net income for the period 140,109 140,109 Other comprehensive income Total comprehensive income (30,109) 110,000 4,121 4,121 3,564 3,564 (22,425) 117,685 At June 30, 2016 178,782 1,435,399 20,514 4,037 1,638,732 (a) (b) CF: No shares were cancelled during the first half of 2016. Following the exercise of stock options, the share capital was increased by 12,714 shares. see consolidated cash flow statement. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT - - Share- holders’ equity 1,849,544 (277,042) 631 (59,104) 7,019 (1) (328,497) 140,109 (22,425) 117,685 1,638,732 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated cash flow statement 2.5. Consolidated cash flow statement (condensed financial statements) (in thousand euros) Notes December 31, 2015 Operating activities Net income Group share Income and expense without cash impact: Non-controlling interests Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss Provision for employee benefits Other provisions (excluding provisions on current assets) Hedging and derivative instruments Option premium expense Recognition of share-based payments Deferred tax variation (Gain)/Loss from disposal of fixed assets IS IS 4 4 17, SHEQ 7-1 5, (a) 325,058 1,443 89,574 1,650 20,525 (11,760) 2,076 187 15,126 4,772 (13,039) Cash flow from operations 435,612 (Increase)/Decrease in net working capital Payments related to employee benefits Financial expense/(income) Interest (paid)/received Income tax expense Income tax paid NET CASH FROM OPERATING ACTIVITIES 11 6 7-1 (H) (23,968) (39,975) (11,742) 10,872 139,675 (143,328) 367,147 Investing activities Disposal of fixed assets Change in payables to suppliers of fixed assets Purchases of property, plant and equipment Purchases of intangible assets (Increase)/Decrease in other investments (Purchase)/Sale of other current financial assets Business and asset (acquisitions)/divestitures NET CASH FROM INVESTING ACTIVITIES (b) 2, (i) 2 (f) (c) 14,901 2,316 (112,778) (7,945) (460) (23,840) 13,977 (113,829) Financing activities Dividends paid Non-controlling interest buy-back Borrowings/(Repayments) Payments of obligations under finance leases Purchase of financial instruments Increase in treasury shares and exercise of stock options NET CASH FROM FINANCING ACTIVITIES SHEQ, 16, (d) 13, (j) (e) (g) (134,829) (73,977) (78) (1,104) (1,031) (16,733) (227,752) Net cash and cash equivalents net of bank overdrafts Opening cash and cash equivalents net of bank overdrafts Exchange difference CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 13 BS, 13 25,566 348,503 6,543 380,612 IS: See consolidated income statement. SHEQ: See consolidated statement of changes in equity. BS: See consolidated balance sheet. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT June 30, 2016 140,109 44,739 - 11,454 3,537 (55) 1,347 7,019 (11,979) (83) 196,089 (128,288) (11,962) (3,504) 3,419 72,124 (66,268) 61,610 1,405 - (67,649) (6,741) (130) 46,296 - (26,819) (277,042) - 131,139 (369) (1,563) (59,862) (207,697) (172,905) 380,612 (2,125) 205,582 19 20 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated cash flow statement As of June 30, 2016 cash and cash equivalents amount to 221.9 million euros and bank overdrafts to 16.3 million euros. Net cash from financing activities Net cash from operating activities First half of 2016 net cash flows from operating activities amounts to 61.6 million euros and include 2.5 million euros in payments related to restructuring (5.9 million euros during 2015). During the first half of 2016, There was no disposal of individually significant fixed assets (a). The main gains on disposal in 2015 were related to the disposal of (a): Auckland Property in New Zealand for 7.8 million euros; Cash flow from financing activities amounts to -207.7 million euros on the first half 2016 compared to 227.8 million euros in 2015. The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 16) (d). During the first half of 2016, 487,025 shares were repurchased by SOCIÉTÉ BIC for 60.7 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 183,485 shares for 23.8 million euros and sold 182,158 shares for 23.7 million euros. In addition, 12,714 options were exercised in the period for 0.6 million euros, including 0.1 million euros which have not yet been received at end of June 2016. Moreover, in early 2016, SOCIÉTÉ BIC received 0.4 million euros related to stock options exercised at the end of 2015 (g). Fuel Cell Technology assets for 2.8 million euros; San Antonio manufacturing site based in Texas, U.S. for 1.4 million euros. During the first half of 2016, the working capital increase amounted to 128.3 million. The variance is mainly explained by a trade receivables increase (k). Net cash from investing activities During 2015, 180,213 shares were repurchased by SOCIÉTÉ BIC for 26.3 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 158,419 shares for 22.5 million euros and sold 157,661 shares for 22.4 million euros. In addition, 160,628 options were exercised in the period for 8.7 million euros, including 0.4 million euros which had not been received at end of December 2015. Moreover, in early 2015, SOCIÉTÉ BIC received 1.4 million euros related to stock options exercised at the end of 2014 (g). Cash flows from investing activities amounts to -26.8 million euros in the first half of 2016 compared to -113.8 million euros in 2015. As of June 30, 2016, new borrowings amount to 131.1 million euros (mainly France) (j). During the first half of 2016, the Group BIC purchased 74.4 million euros of property, plant and equipement and intangible assets. They are short-term financing to ensure the ponctual liquidity needs of SOCIÉTÉ BIC During the first half of 2016, there was no disposal of individually significant fixed assets (b). In 2015, the BIC Group disposed of its Fuel Cell Technology assets. This amount is net of disbursement related to restructuring costs (c). The amount of financial assets classified under “Other current financial assets” refers to investments not eligible for classification as cash & cash equivalents under IAS 7. As of June 30, 2016, these investments consist of units of UCITS and negotiable debt securities, all of which are liquid within 5 days (f). Purchases of property, plant and equipment do not include finance leases booked as a counterpart to a financial debt, as these transactions do not have any impact on cash (i). BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 2.6. NOTE 1 NOTE 2 NOTE 3 NOTE 4 NOTE 5 NOTE 6 NOTE 7 NOTE 8 NOTE 9 NOTE 10 NOTE 11 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements General Balance sheet – Liabilities MAIN RULES AND ACCOUNTING POLICIES 22 NOTE 12 SHARE CAPITAL 1-1 Accounting policies Change in Group structure 1-2 Subsequent events 1-3 OPERATING SEGMENTS 22 23 23 23 NOTE 13 12-1 12-2 Share capital SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2016 BORROWINGS AND FINANCIAL LIABILITIES 2-1 2-2 General information Information on the income statement and assets by activity Information by geography 2-3 EXCHANGE RATES OF FOREIGN CURRENCIES 23 23 25 25 NOTE 14 NOTE 15 PROVISIONS OTHER CURRENT LIABILITIES Additional information Notes to the income statement NOTE 16 DIVIDENDS OPERATING EXPENSES 26 NOTE 17 SHARE-BASED PAYMENTS OTHER INCOME AND EXPENSES 26 NOTE 18 FINANCIAL INSTRUMENTS FINANCE INCOME INCOME TAX 7-1 7-2 Income tax expense Deferred and current tax recognized on other comprehensive income EARNINGS PER SHARE GROUP SHARE 27 27 27 28 29 NOTE 19 18-1 18-2 Impact of hedging of interest rate and foreign exchange risks on the consolidated financial statements as of June 30, 2016 Impact of hedging of interest rate and foreign exchange risks on the consolidated financial statements as of December 31, 2015 CONTINGENT LIABILITIES NOTE 20 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Balance sheet – Assets GOODWILL 29 OTHER NON-CURRENT ASSETS 31 CHANGE IN NET WORKING CAPITAL 31 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 32 32 32 33 34 34 34 35 35 35 36 36 37 21 22 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 1-1 Accounting policies 1-1-1 Pursuant to European regulation no 1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in the accordance with accounting principles as defined by International Accounting Standards Board (IASB) as adopted by the European Union. International Financial Reporting Standards are at European available http://ec.europa.eu/internal_market/accounting/ias/index_en.htm. General on the Union website 1-1-2 Adoption of new and revised IFRS, their interpretations and amendments New standards, amendments and interpretations of mandatory application for financial years beginning on or after January 1, 2016 The following standards and amendments are effective since January 1, 2016 and have been applied to the consolidated financial statements as of June 30, 2016: The international standards include the IFRS (International Financial Reporting Standards), the IAS (International Accounting Standards), as well as their SIC (Standing Interpretation Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. The condensed consolidated financial statements as of June 30, 2015 and June 30, 2016 have been prepared in compliance with IAS 34 “Interim financial reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. Annual improvements to IFRSs 2010-2012 cycle; Annual improvements to IFRSs 2012-2014 cycle; Amendments to IAS 1 – Disclosure Initiative; Amendments to IAS 16 et IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortization; Amendments to IAS 19 – Defined Benefits Plans: Employee Benefits; Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint-Operations. IAS 34 allows presentation of a selection of notes to the condensed consolidated financial statements that should be read in conjunction with the consolidated financial statements of the fiscal year ended December 31, 2015. The measurement procedures used for the interim condensed consolidated financial statements are as follows: New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2016 As of June 30, 2016, the Group did not elect to early apply any standard, interpretation or amendment, particularly regarding: Interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre-tax result of the interim period excluding unusual material items. The income tax charge related to any unusual item in the period is accrued using its actual tax expense; Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealized Losses; Amendments to IAS 7 – Disclosures initiatives; Amendments to IFRS 2 – Share-based Payment. Regarding the main pension plans and other employee benefits (United States, Canada, France, United Kingdom), actuarial valuations are performed every six months. Provisions are based on estimates made at the end of the previous year and on the discount rates as of June 30. is currently conducting analysis on the practical The Group consequences of these new regulations and the effects of their implementation on the financial statements. Regarding share-based payments and other benefits plans, expenses are recognized in the period on a pro rata basis of the estimated costs for the year. The principal accounting policies remain unchanged compared to last year except for adoption of the following standard, effective since January 1, 2016. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements New standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2016 IFRS 9 – Financial instruments; ● Analysis on the practical consequences of these new regulations is in progress. However, it is too early to be able to estimate the impact. IFRS 10 – Consolidated Financial Statements; IFRS 15 – Revenue from Contracts with Customers; 1-2 No significant change occurred during the 1st half of 2016. Change in Group structure IFRS 16 – Leases. 1-3 Subsequent events No subsequent events occurred between July 1, 2016 and the reporting date. NOTE 2 OPERATING SEGMENTS 2-1 General information BIC operating segments have been determined based on the reports regularly provided to the management and used to make strategic decisions. 2-2 Information on the income statement and assets by activity All indicators are determined according to IFRS, except for: The management considers the business from a product category perspective, knowing that each category can be reviewed for a specific geographic area if necessary. The categories are as follows: Stationery consumer, Lighters, Shavers, Other Consumer and BIC Graphic (Advertising and Promotional Products). These operating segments receive their revenues production and distribution of each product category. from the normalized income from operations, which is the income from operations restated for non-recurring items (in particular real estate gains, the gain or loss on the sale of businesses and restructuring costs). It constitutes the key financial metrics used within the Group; normalized income from operations excluding the impact of the special employee bonus that has been awarded to employees who have not been granted shares under our performance share plan and after approval of the exceptional dividend ; Freight billed to customers, royalty income and financial interest are also included in these category revenues but are insignificant compared to net sales. As they are not analyzed by the Operational Directors, according to category of products, they are not detailed in the note below. capital additions, which are the purchases and internal generation of property, plant and equipment and intangible fixed assets for the period. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 23 24 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements (in million euros) June 30, 2015 June 30, 2016 Other Stationery consumer Lighters Shavers Consumer BIC Graphic Total Stationery consumer Lighters Shavers BIC Consumer Graphic Other Total Income Statement Net sales 390 342 230 38 133 1,134 387 341 238 34 133 1,133 Depreciation and amortization (13) (8) (10) (7) (5) (43) (13) (9) (11) (7) (5) (45) Income from operations 60 137 45 5 (5) 242 50 133 28 1 (8) 204 Restatements made to obtain the normalized income from operations Impact of lump sum election for terminated vested pension participants (5) Restructuring costs related to distribution reorganization in the Middle East and in the African regions 4 2 Profit and restructuring costs related to Fuel Cell assets sale (2) Restructuring costs related to U.S. sales force reorganization 2 Other 1 Normalized income from operations 61 136 46 2 (6) 239 51 134 29 1 (7) 208 Special employee bonus 3 2 3 3 11 Normalized income from operations excluding the impact of the special employee bonus 61 136 46 2 (6) 239 54 136 32 1 (4) 219 (in million euros) June 30, 2015 June 30, 2016 Stationery consumer Other Lighters Shavers Consumer BIC Graphic Total Other Stationery consumer Lighters Shavers Consumer BIC Graphic Total Capital additions 10 15 13 9 4 51 14 16 30 12 3 74 Net inventories 204 94 95 18 70 482 216 114 99 18 73 519 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 2-3 Information by geography The geographies identified by the management are: France, Europe (excluding France), North America and Developing markets. (in million euros) June 30, 2015 June 30, 2016 France Europe excluding France North America Developing markets Total France Europe excluding France North America Developing markets Total Net sales 102 176 511 344 1,134 106 190 526 311 1,133 Non-current assets (a) 189 154 286 320 949 204 164 294 321 982 (a) Other than financial instruments (4.1 million euros in 2016 and 1.2 million euros in 2015), deferred tax assets (188.4 million euros in 2016 and 153.1 million euros in 2015). NOTE 3 EXCHANGE RATES OF FOREIGN CURRENCIES The following table shows foreign currency equivalents of one euro (for instance: average 2016 is 1 euro = 1.12 U.S. dollars). Foreign currencies 2015 Average 2016 Average June 30, 2015 June 30, 2016 Euro Euro Euro Euro U.S. dollar - USD 1.12 1.12 1.12 1.11 Australian dollar - AUD 1.43 1.52 1.46 1.49 Canadian dollar - CAD 1.38 1.48 1.39 1.44 Swiss franc - CHF 1.06 1.10 1.04 1.08 Chinese renminbi - CNY 6.94 7.30 6.96 7.41 British pound - GBP 0.73 0.78 0.71 0.84 Hong Kong dollar - HKD 8.65 8.67 8.68 8.64 Indian rupee - INR 70.13 75.03 71.25 74.97 Japanese yen - JPY 134.22 124.19 138.58 114.29 Korean won - KRW 1,227.33 1,3219.14 1,258.00 1,275.76 Malaysian ringgit - MYR 4.06 4.57 4.24 4.44 New Zealand dollar - NZD 1.51 1.65 1.63 1.55 Philippine peso - PHP 49.72 52.31 50.51 52.33 Polish zloty - PLN 4.14 4.37 4.18 4.40 Swedish krona - SEK 9.34 9.31 9.26 9.39 Singapore dollar - SGD 1.51 1.54 1.51 1.50 South African rand - ZAR 13.30 17.19 13.64 16.23 Argentinian peso - ARS 9.84 16.05 10.16 16.87 Brazilian real - BRL 3.31 4.12 3.52 3.58 Mexican peso - MXN 16.89 20.19 17.42 20.18 Venezuelan bolivar - VEF* 58.14 393.01 58.36 698.79 Ukrainian hryvnia - UAH 24.23 28.53 23.54 27.65 Russian ruble - RUB 64.72 78.10 61.81 71.31 The Venezuelan subsidiary financial statements as of June 30, 2016, are translated using the SICAMI rate representing the most conservative exchange rate. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 25 26 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 4 OPERATING EXPENSES (in thousand euros) June 30, 2015 June 30, 2016 Raw materials, consumables used and change in inventory 298,383 295,214 Staff costs 303,132 328,193 Depreciation and amortization expenses 43,033 44,739 Other operating expenses 239,849 256,171 Loss on operational foreign currency translation TOTAL 11,705 896,102 363 924,680 Other operating income and expenses are not included in the total amount and are disclosed in Note 5. They include the French research tax credit for 1.1 million euros, versus 1.7 million euros for 2015. Staff costs include special premium for 11.4 million euros in 2016. Research and development costs expensed for the first half of 2016 amount to 16.0 million euros, versus 12.4 million euros for the first half of 2015. The tax credit for competitiveness and employment (CICE) amounts to 0.8 million euros in 2016, versus 1.0 million euros in the first half of 2015. NOTE 5 OTHER INCOME AND EXPENSES (in thousand euros) June 30, 2015 June 30, 2016 Royalties income 42 22 Gain on disposal of fixed assets 314 83 Fuel Cell asset divestiture and related costs reduction plan 2,205 Impact of lump sum election for terminated vested pension participants in the U.S. 4,552 Other 2,925 1,801 Other income 10,038 1,906 Restructuring costs (4,480) (4,267) Other (1,950) (2,579) Other expenses TOTAL (6,430) 3,608 (6,846) (4,940) Other income and expenses related to the first half of 2016 mainly include: income of 2.2 million euros related to the sale of Portable Fuel Cell Technology assets, net of related restructuring expenses; restructuring costs for -1.9 million euros related to distribution reorganization in the Middle East and Africa regions ; restructuring costs for -4.5 million euros related primarily to distribution reorganization in the Middle East and Africa regions; restructuring costs for -1.7 million euros related to U.S. sales force reorganization ; 4.6 million euros related to lump sum election for terminated vested pension participants in the U.S. Other income and expenses related to the first half of 2015 mainly include: BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 6 FINANCE INCOME (in thousand euros) June 30, 2015 June 30, 2016 Interest income from cash and cash equivalents 3,127 3,375 Interest on bank deposits 3,308 1,807 Income from cash and cash equivalents 6,435 5,183 Interest expense (1,215) (1,679) Hedging instruments revaluation (803) (1,353) Net financial foreign exchange difference 7,352 (5,573) Net finance income/(Net finance costs) FINANCE (COSTS)/REVENUE 5,334 11,769 (8,605) (3,422) The decrease in finance income during the first half of 2016 compared to the first half of 2015 comes from several factors: Income from cash and cash equivalents decreased compared to the previous period due to lower investment volumes and less favorable interest rates; In the first half of 2016, the appreciation of the euro and the Brazilian real against the U.S. dollar generated an unfavorable impact on the valuation of financial assets denominated in U.S. dollars, while in the same period of the previous year, these currencies depreciated against the U.S. dollar, generating a profit. NOTE 7 INCOME TAX 7-1 Income tax expense (in thousand euros) June 30, 2015 June 30, 2016 Income before tax 253,272 200,254 Tax charge TAX RATE 76,061 30.03% 60,145 30.03% At the end of June 2016, the Group's effective tax rate is determined on an annual basis. The tax charge is calculated by applying the estimated average rate for the 2016 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2016 and effective after June 30, 2016. The income tax charge related to any unusual items in the period is accrued using the related actual tax expense. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 27 28 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 7-2 Deferred and current tax recognized on other comprehensive income Deferred and current taxes recognized on other comprehensive income result from the following items: At June 30, 2016 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) (49,690) Cash flow hedge 5,397 Foreign exchange impact 4,121 Total other comprehensive income (2) TOTAL (1)+(2) 9,517 (40,173) At June 30, 2015 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) 30,955 Cash flow hedge (813) Foreign exchange impact 36,528 Other (1) Total other comprehensive income (2) TOTAL (1)+(2) 35,713 66,668 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT Deferred taxes 18,059 (1,833) 1,522 (311) 17,748 Deferred taxes (11,273) 531 (2,222) 1 (1,690) (12,963) CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 8 EARNINGS PER SHARE GROUP SHARE Earnings per share (Group share) and diluted earnings per share (Group share) correspond to the Group net income divided by the relevant number of shares. The number of shares used to calculate the earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. The number of shares used to calculate the diluted earnings per share (Group share) is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of stock options. As of June 30, 2016, there are no shares with relutive impact and the maximum dilutive effect from stock options not exercised is around 0.5% of the share capital. June 30, 2015 June 30, 2016 Numerator (in thousand euros) Net income Group share 176,570 140,109 Denominator (in number of shares) Weighted average number of ordinary shares in circulation 47,200,210 47,029,831 Dilutive effect of stock options 532,175 539,847 Diluted weighted average number of ordinary shares in circulation 47,732,385 47,569,678 Earnings per share Group share (in euros) Earnings per share Group share 3.74 2.98 Diluted earnings per share Group share 3.70 2.95 NOTE 9 GOODWILL (in thousand euros) Notes Gross value Impairment loss Net value At January 1, 2016 341,818 (16,924) 324,894 Exchange differences (5,805) 36 (5,768) At June 30, 2016 336,013 (16,888) 319,125 The balance, as of June 30, 2016, includes the following principal net goodwill: (in thousand euros) December 31, 2015 June 30, 2016 BIC CORPORATION (b) 119,361 117,141 Cello Pens 101,973 97,987 BIC Violex 49,174 49,174 Norwood North America (a) (b) 32,861 32,129 PIMACO (b) 5,606 6,745 Others (b) TOTAL 15,919 324,894 15,950 319,125 (a) (b) Following the reorganization of the BIC Graphic activity, the goodwill of Norwood North America includes the goodwill of Norwood Promotional Products and Atchison. These goodwill amounts are linked to cash-generating units represented by distribution subsidiaries. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 29 30 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements To perform the impairment tests, the Group used the following discounted and perpetual growth rates: Weighted average cost of capital (wacc) before tax Perpetual growth rate 2015 2016 2015 BIC CORPORATION 10.6% 10.0% 1.5% Cello Pens 15.4% 14.7% 8.75% BIC Violex 11.8% 13.3% 3.0% Norwood North America 8.7% 8.7% 1.5% PIMACO 13.6% 19.7% 1.7% Each goodwill item has been allocated to a cash-generating units (“CGU”) representing the lowest level at which goodwill is monitored by the Group. The goodwill on BIC CORPORATION is thus mainly allocated to cash-generating units linked to the distribution by BIC CORPORATION of stationery products and lighters. The goodwill on Cello Pens is allocated to the cash-generating units linked to the production and distribution by Cello of stationery products. For each CGU having significant goodwill, key assumptions used in terms of rates of sales growth and margins over the future 3-year in the terminal value are consistent with past period and performance. Regarding the test performed on Norwood as of December 31, 2015, sensitivity to the assumptions used in the calculation indicates that to cover net assets, and for each factor taken independently: the discount rate before tax should not exceed 9.2%; the perpetual growth rate may not be less than 0.9%; the The remaining goodwill on BIC Violex cash-generating unit linked to shavers developed and/or produced by BIC Violex and sold all over the world. This cash-generating unit also includes the portion of BIC CORPORATION goodwill allocated to shavers. is limited to As every year, as of June 30, 2016, the Group performed impairment tests on these goodwill amounts (except for Norwood, for which a test was performed as of December 31, 2015). is based on a The goodwill comparison between the recoverable amount of each of the Group’s cash-generating units and the corresponding assets’ net book value (including goodwill). impairment test methodology net sales at constant income from operations margin over the future 3-year period should not be less than 17% compared to the level retained in the impairment test; the income from operations on the future 3-year period should not be less than 12% compared to the level retained in the impairment test. Regarding the test performed on Cello Pens, sensitivity to the assumptions used in the calculation indicates that to cover assets, and for each factor taken independently: the discount rate before tax should not exceed 15.2%; the perpetual growth rate should not be less than 8%; Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over three years and a discounted residual value using the perpetual growth method, including notably the following: net sales at constant income from operations margin over the future 3-year period should not be less than 8% compared to the level retained in the impairment test; the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rate; the income from operations on the future 3-year period should not be less than 6% compared to the level retained in the impairment test. the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics. The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to an impairment, taking into account the observed margin on tests conducted. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 2016 1.5% 8.5% 2.9% 1.5% 1.7% CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 10 OTHER NON-CURRENT ASSETS (in thousand euros) Notes December 31, 2015 June 30, 2016 Other investments 42 25 Guarantee deposits 4,786 5,322 Deferred pensions 1,849 12 Other non-current assets TOTAL 21,958 28,636 22,402 27,761 NOTE 11 CHANGE IN NET WORKING CAPITAL (in thousand euros) December 31, 2015 Cash flows impact Foreign exchange and others June 30, 2016 Net inventory 478,413 40,948 90 519,451 Inventory - Gross value 495,590 41,789 (83) 537,296 Inventory - Impairment (17,177) (841) 173 (17,845) Trade and other receivables 439,979 119,628 (877) 558,730 Trade and other payables (124,867) (20,070) (238) (145,175) Other assets and liabilities NET WORKING CAPITAL CF (188,337) 605,188 (12,217) 128,288 1,499 474 (199,055) 733,950 CF: see consolidated cash flow statement. In 2015, a reverse factoring arrangement was established by one of our U.S. customers by which, through the intermediary of a Bank, the Group is able to obtain faster payment of its outstanding receivables. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 31 32 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 12 SHARE CAPITAL 12-1 Share capital (in thousand euros) December 31, 2015 June 30, 2016 Authorized, issued and fully paid share capital 183,139 183,188 Repurchase of shares of the Company SHARE CAPITAL (2,970) 180,169 (4,406) 178,782 As of June 30, 2016, the registered share capital of SOCIÉTÉ BIC is 183,187,607.22 euros divided into 47,954,871 shares of 3.82 euros each. Registered shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 1,153,414 treasury shares, acquired at an average price of 96,76 euros in accordance with Article L. 225-209 of the French Commercial Code, which represent 2.41% of the share capital. 12-2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2016 Purpose of the repurchase Number of shares Average acquisition price (in euros) % of the share capital Liquidity agreement (a) 4,323 124.23 0.01% Free share grants (a) TOTAL 1,149,091 1,153,414 92.65 92.76 2.40% 2.41% (a) Article L. 225-209 of the French Commercial Code. In accordance with the liquidity agreement with Natixis in respect of SOCIÉTÉ BIC shares, as of June 30, 2016, the liquidity account contained the following: 4,323 BIC shares; 3,132,408.16 euros. SOCIÉTÉ BIC obtained authorization from the Annual Shareholders’ Meeting on May 18, 2016, to renew its share repurchase program. Number of shares purchased in 2016 (b) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 18, 2016 153,660 Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 6, 2015 333,365 Average share repurchase price for the purchases during the first half of 2016 (in euros) 124.60 (b) Excluding shares repurchased under the liquidity contract. During the first half 2016, SOCIÉTÉ BIC did not cancel any shares. To the best of the Company’s knowledge, as of June 30, 2016, Shareholders holding more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: At June 30, 2016 % of shares (approx.) % of voting rights (approx.) SOCIÉTÉ M.B.D. 26.46% 36.44% Bich family 16.38% 22.42% BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 13 BORROWINGS AND FINANCIAL LIABILITIES (in thousand euros) December 31, 2015 June 30, 2016 Bank overdrafts 4,544 16,335 Bank loans and non-current financial liabilities (see detail below) 1,984 133,193 Obligations under finance leases BANK BORROWINGS AND OVERDRAFTS 3,702 10,230 3,289 152,817 Bank overdrafts are due within one year. The long-term portion of obligations under finance leases is not significant. Bank loans and financial liabilities have the following maturities: (in thousand euros) December 31, 2015 June 30, 2016 On demand or within one year 1,974 133,185 In the 2nd year 3 3 In the 3rd year 3 3 In the 4th year TOTAL 3 1,984 1 133,193 Main bank loans/credit lines and financial liabilities are as follows: Borrowing country Currency Euro equivalents (in thousand euros) December 31, 2015 June 30, 2016 France EUR 130,000 Malaysia MYR 745 791 Russia RUB 701 Turkey TRY 460 South Korea KRW 1,171 1,176 TOTAL Other Misc. 68 1,984 65 133,193 The borrowing in France for 130 million euros is a short-term financing to ensure the punctual liquidity needs of SOCIÉTÉ BIC. Information on interest rates As of June 30, 2016, outsanding loans and credit lines were contracted with floating rates ranging between 3.99% and 13.18%. Information on covenants None of the loans contain any covenants that could trigger early repayment of the debt. Relative exposure, deemed not significant, has not been hedged. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT 33 34 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 14 PROVISIONS (in thousand euros) Tax and social risks and litigation Litigation Product liability Other risks and charges Total At January 1, 2016 29,377 6,855 2,019 3,275 41,526 Additional provisions 1,493 2,065 224 400 4,181 Reversals of provisions utilized (1,310) (950) (204) (766) (3,230) Reversals of provisions not utilized (224) (1 149) (899) (305) (2,578) Exchange differences 340 227 (48) (13) 506 At June 30, 2016 29,676 7,048 1,092 2,590 40,406 As of June 30, 2016, it was not deemed necessary to book provisions for the risks described in the Part 1 “Half Year Management report - Description of the principal risks and uncertainties for the 2nd Half 2016” that could affect: the Company’s personnel, assets, environment or reputation; the Group’s ability to reach its objectives and abide by its values, ethics or the laws and regulations. Group. In accordance with the Group’s accounting policies, it may be decided to record provisions when tax-related risks are considered likely to generate a payment to local tax authorities. The Group reviews the evaluation of all its tax positions on a regular basis, using external advisors and considers that its tax positions are adequately provided for. However, the Group cannot predict the final outcome of future audits. Tax and social risks and litigation Provisions for tax and social risks and litigation relate mainly to: tax risks; Litigation As of June 30, 2016, the litigation provision mainly represents distributor and commercial agent risks for 2.2 million euros (2.1 million euros at December 31, 2015). U.S. workers’ compensation. Tax audits are carried out regularly by local tax authorities which may dispute positions taken by the individual local entities of the Product liability Product liability mainly relates to the U.S. NOTE 15 OTHER CURRENT LIABILITIES (in thousand euros) December 31, 2015 June 30, 2016 Social liabilities 96,489 88,474 Other tax liabilities 11,585 20,163 Other current liabilities OTHER CURRENT LIABILITIES 120,332 228,406 138,875 247,512 NOTE 16 DIVIDENDS For the 2015 fiscal year, an ordinary dividend of 3.40 euros per share and a special dividend of 2.50 euros per share were distributed to Shareholders on June 1, 2016. For the 2014 fiscal year, an ordinary dividend of 2.85 euros per share was distributed to Shareholders on May 21, 2015. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 17 SHARE-BASED PAYMENTS As of June 30, 2016, the fair value of options and shares granted amounts to 7 million euros and is booked in staff costs. The Board of Directors of May 18, 2016 decided to grant 159,680 free shares to 546 beneficiaries subject to performance conditions and 20,750 free shares to 258 beneficiaries without performance conditions. NOTE 18 FINANCIAL INSTRUMENTS 18-1 Impact of hedging of interest rate and foreign exchange risks on the consolidated financial statements as of June 30, 2016 The following amounts have been booked as the fair value of derivatives at the end of June 30, 2016 (in thousand euros): Derivative items and revaluation Hedge income qualification/ hedged risk Financial net Income/ (expense) before tax (a) - Note 6 Income from operations – Note 4 Other comprehensive income before tax (a) Current assets (b) Non- current assets Current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/Foreign exchange risk (1,353) 993 5,359 4,395 4,117 (1,446) Dividends Net investment/Foreign exchange risk 38 284 Subtotal (1) (1,353) 993 5,397 4,679 4,117 (1,446) Revaluation of cross- currency swaps backed by cash positions in foreign currencies At fair value through P&L/Foreign exchange risk Subtotal (2) TOTAL 1+2 630 (723) 993 5,397 112 4,791 4,117 (1,446) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at June 30, 2016, restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2015. Including options not yet exercised by SOCIÉTÉ BIC representing current assets of 1,153 thousand euros. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT Non- current Liabilities (1,789) (1,789) (1,789) 35 36 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 18-2 Impact of hedging of interest rate and foreign exchange risks on the consolidated financial statements as of December 31, 2015 The following amounts have been booked as the fair value of derivatives at the end of December 2015 (in thousand euros): Derivative items and revaluation Hedge income qualification/ hedged risk Financial net Income/ (expense) before tax (a) – Note 6 Income from operations – Note 4 Other comprehensive income before tax (a) Current assets (b) Non- current assets Current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/Foreign exchange risk (674) (785) 4,491 3,050 549 (3,187) Dividends Net investment/Foreign exchange risk 239 246 Subtotal (1) (674) (785) 4,731 3,296 549 (3,187) Revaluation of cross- currency swaps backed by cash positions in foreign currencies At fair value through P&L/Foreign exchange risk Subtotal (2) TOTAL 1+2 (618) (1,292) (785) 4,731 3,296 549 (518) (3,705) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at December 31, 2015, restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2014. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets of 937 thousand euros. NOTE 19 CONTINGENT LIABILITIES As of June 30, 2016, neither SOCIÉTÉ BIC nor its subsidiaries has any pending litigation, claims or disputes which, in the opinion of management, after consultation with their advisors, would have a material adverse impact on the consolidated financial statements. BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT Non- current Liabilities (134) (134) (134) CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 20 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Accounting categories and fair value of financial instruments Balance sheet items June 30, 2016 Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Hedging derivatives Held-to- maturity investments Loans and receivables (including cash) Available for sale assets Financial assets 818,628 818,628 114,589 8,907 695,107 25 Non current Derivatives 18 4,116 4,116 4,116 Other investments 25 25 25 Current Trade and other receivables 11 558,730 558,730 558,730 Derivatives 18 4,791 4,791 4,791 Other current financial assets 29,050 29,050 29,050 Cash and cash equivalent 221,916 221,916 85,539 136,377 Financial liabilities 301,226 301,226 3,235 Non current Non current borrowings 13 2,279 2,279 Derivatives 18 1,789 1,789 1,789 Current Current borrowings 13 150,538 150,538 Derivatives 18 1,446 1,446 1,446 Trade and other payables 11 145,175 145,175 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT Liabilities at amortized cost 297,992 2,279 150,538 145,175 37 38 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements Balance sheet items December 31, 2015 Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Hedging Derivatives Held-to- maturity investments Loans and receivables Available for sale assets (including cash) Liabilities at amortized cost Financial assets 902,070 902,027 280,676 3,845 4,251 613,256 42 Non current Derivatives 18 549 549 549 Other investments 42 42 42 Current Trade and other receivables 11 439,979 439,979 439,979 Derivatives 18 3,296 3,296 3,296 Other current financial assets 73,048 73,005 68,797 4,251 Cash and cash equivalent 385,156 385,156 211,879 173,277 Financial liabilities 138,937 138,937 3,839 135,097 Non current Non current borrowings 13 2,450 2,450 2,450 Derivatives 18 134 134 134 Current Current borrowings 13 7,780 7,780 7,780 18 3,705 3,705 3,705 Trade and other payables 11 124,867 124,867 124,867 The valuation methods adopted for financial instruments are as follows: Financial instruments other than derivatives recorded in the balance sheet: The book values used are reasonable estimates of their market value except for marketable securities whose carrying values used are determined based on the last known net asset values as of June 30, 2016. Derivative financial instruments: Market values have been calculated internally on the basis of last known closing prices as of June 30, 2016. They are consistent with valuation reports provided by financial institutions. Fair value valuation method The tables below set out the fair value method for valuing financial instruments, using the following three levels: level 1 (quoted prices in active markets): money market UCITS and other current financial assets; level 2 (observable inputs): derivatives - hedging accounting; level 3 (non observable inputs): no such instruments are held as of June 30, 2016. Category of instruments June 30, 2016 (in thousand euros) Total Level 1 Level 2 Level 3 At fair value through the income statement - Assets 114,589 114,589 Derivative hedges - Assets 8,907 8,907 Derivative hedges - Liabilities 3,235 3,235 BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT AUDITORS' REPORT 39 40 For the period from January 1 to June 30, 2016 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of SOCIETE BIC, for the period from January 1 to June 30, 2016; the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Paris and Neuilly-sur-Seine, August 4, 2016 The Statutory Auditors French original signed by Grant Thornton Deloitte & Associés French Member of Grant Thornton International François BUZY Vincent PAPAZIAN BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT STATEMENT ON THE HALF-YEARLY REPORT 2016 41 42 STATEMENT ON THE HALF-YEARLY REPORT 2016 NAME AND FUNCTION Bruno Bich Chairman DECLARATION BY RESPONSIBLE PERSON OF THE 2016 HALF-YEAR FINANCIAL REPORT “I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2016 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year.” On August 3, 2016 Bruno Bich Chairman BIC GROUP - 2016 HALF-YEAR FINANCIAL REPORT INVESTORS RELATIONS 14, RUE JEANNE D'ASNIÈRES 92611 CLICHY CEDEX - FRANCE TEL: 33 (0) 1 45 19 52 26 EMAIL: investors.info@bicworld.com LIMITED COMPANY CAPITAL EUROS 183,108,384.24 DIVIDED INTO 47,936,075 SHARES OF EUROS 3.82 QUOTED ON EUROLIST EURONEXT PARIS ISIN: FR0000120966 MNEMONIC: BB CONTINUOUS QUOTATION 552.008.443 REGISTERED IN NANTERRE, FRANCE SOCIÉTÉ BIC - 92611 CLICHY CEDEX (FRANCE) WWW.BICWORLD.COM n u g a D e d o l É i i : © o t o h P | Semestriel, 2016, Supplies, BIC | write me a financial report |
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| For youFor everyoneHALF YEAR FINANCIAL REPORTMade to last2017 CONTENTS MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. 1.16. 1 2 3 4 7 8 9 9 10 11 11 11 12 12 12 12 13 Key Figures H1 2017 Highlights H1 2017 Group operational trends H1 2017 operational trends by category BIC Group Net Sales by geography Impact of change in perimeter and currency fluctuations on net sales IFO and Normalized IFO by category Reconciliation with alternative performance measures Share repurchase program – cancelled shares Related-party transactions Capital evolution Material events that occurred in H1 2017 Material events that occurred after June 30, 2017 Description of the principal risks and uncertainties for H2 2017 Full-Year 2017 Outlook Glossary CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 15 16 17 18 20 21 23 Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements AUDITOR'S REPORT 43 STATEMENT ON THE HALF-YEARLY REPORT 2017 45 1.1. Key Figures 2 1.2. H1 2017 Highlights 3 1.3. H1 2017 Group operational trends 4 1.4. H1 2017 operational trends by category 7 1.5. BIC Group Net Sales by geography 8 1.6. Impact of change in perimeter and currency fluctuations on net sales 9 1.7. IFO and Normalized IFO by category 9 1.8. Reconciliation with alternative performance measures 10 1.9. Share repurchase program – cancelled shares 11 1.10. Related-party transactions 11 1.11. Capital evolution 11 1.12. Material events that occurred in H1 2017 12 1.13. Material events that occurred after June 30, 2017 12 1.14. Description of the principal risks and uncertainties for H2 2017 12 1.15. Full-Year 2017 Outlook 12 1.16. Glossary 13 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 1 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Key Figures 1.1. Key Figures(1) (in millions euros) Q2 2017 vs. Q2 2016 H1 2017 vs. H1 2016 Q2 2016 Q2 2017 As reported Constant currency basis Compa- rative basis H1 2016 H1 2017 As reported Constant currency basis Group Net Sales 562.2 593.7 +5.6% +3.6% +3.9% 1,031.5 1,062.9 +3.0% +0.1% Gross Profit 292.2 304.5 529.0 550.2 Income From Operations 127.9 120.6 5.7% 209.3 194.9 6.9% IFO margin 22.7% 20.3% 20.3% 18.3% Normalized Income From Operations 132.1 138.2 +4.6% 213.6 219.4 +2.7% Normalized IFO margin 23.5% 23.3% 20.7% 20.6% Normalized IFO margin excluding the special employee bonus 23.5% 23.3% 21.6% 20.6% Net Income Group Share 89.1 79.9 10.3% 140.1 129.6 7.5% Earnings Per Share Group Share (in euros) 1.89 1.71 9.5% 2.98 2.78 6.7% Stationery Net Sales 241.1 264.7 +9.8% +8.3% +9.1% 408.2 428.1 +4.9% +2.8% IFO 41.6 36.2 50.2 36.6 IFO margin 17.3% 13.7% 12.3% 8.6% Normalized IFO margin 18.0% 16.0% 12.7% 11.3% Normalized IFO margin excluding the special employee bonus 18.0% 16.0% 13.6% 11.3% Lighters Net Sales 177.2 185.5 +4.7% +2.0% +2.0% 340.8 356.9 +4.7% +0.8% IFO 70.6 77.3 132.7 141.2 IFO margin 39.8% 41.7% 38.9% 39.6% Normalized IFO margin 40.5% 41.7% 39.3% 39.6% Normalized IFO margin excluding the special employee bonus 40.5% 41.7% 40.0% 39.6% Shavers Net Sales 120.1 122.0 +1.6% -0.9% 0.9% 237.9 236.4 0.6% -4.3% IFO 15.4 17.2 28.0 31.5 IFO margin 12.8% 14.1% 11.8% 13.3% Normalized IFO margin 13.8% 14.1% 12.3% 13.4% Normalized IFO margin excluding the special employee bonus 13.8% 14.1% 13.3% 13.4% Other products Net Sales 23.8 21.4 10.2% -10.7% 10.0% 44.6 41.5 6.9% -7.7% IFO 0.3 10.1 1.6 14.4 Normalized IFO 0.4 1.3 1.5 1.8 Normalized IFO excluding the special employee bonus 0.4 1.3 1.3 1.8 (1) Second quarter and First Half 2016 and 2017 results are accounted for and presented in accordance with IFRS 5; BIC Graphic is no longer considered as a separate category or reporting segment. BIC Graphic Europe reports to European BIC Consumer Product management. In Developing Markets, BIC Graphic operations report to their respective country's Consumer Product management. On June 30, 2017, BIC Graphic North America and Asian Sourcing operations were sold to H.I.G. Capital. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT Compa- rative basis +0.3% +3.3% +0.8% 4.3% 7.3% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 H1 2017 Highlights 1.2. H1 2017 Highlights NET SALES Stationery: 428.1 million euros (+3.3% on a comparative basis) Lighters: 356.9 million euros (+0.8% on a constant currency basis) Shavers: 236.4 million euros (-4.3% on a constant currency basis) RESULTS Normalized Income From Operations (IFO): 219.4 million euros (+2.7% as reported) • Reported Income From Operations (IFO): 194.9 million euros (-6.9% as reported) Normalized IFO margin: 20.6% compared to 21.6% in H1 2016 (excluding the special employee bonus) Earnings Per Share Group share: 2.78 euros (-6.7% as reported) Normalized Earnings Per Share Group share: 3.23 euros (+6.3% as reported) Net cash position as of June 30, 2017: 87.2 million euros BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 3 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 H1 2017 Group operational trends 1.3. H1 2017 Group operational trends NET SALES H1 2017 Net Sales totaled 1,062.9 million euros, up 3.0% as reported and up 0.3% on a comparative basis. The favorable impact of currency fluctuations (+2.9%) was mainly due to the appreciation of the U.S. dollar and Brazilian real against the euro. Europe and Developing markets grew by 3.7% and 2.3%, respectively, while North America declined by 3.7% on a comparative basis. INCOME FROM OPERATIONS AND NORMALIZED INCOME FROM OPERATIONS H1 2017 Gross Profit Margin was 51.8%, compared to 51.3% in H1 2016. H1 2017 Normalized IFO was 219.4 million euros. KEY COMPONENTS OF THE CHANGE IN NORMALIZED IFO MARGIN (in points) H1 2016 vs. H1 2015(a) Q1 2017 vs. Q1 2016 Q2 2017 vs. Q2 2016 Change in cost of production(b) 0.1 +0.8 0.3 Total Brand Support(c) 0.8 0.8 +0.5 Of which, promotions and investments related to consumer and business development support accounted for in Gross Profit Margin 0.1 0.1 0.4 Of which, advertising, consumer and trade support 0.7 0.7 +0.9 OPEX and other expenses 0.8 1.9 0.4 Total change in Normalized IFO margin excluding the special employee bonus 1.7 1.9 0.2 Special employee bonus 1.1 +1.9 Of which impact on Gross Profit 0.7 +1.2 Of which impact on OPEX 0.4 +0.7 Total change in Normalized IFO margin 2.8 0.0 0.2 (a) (b) (c) Non-restated from IFRS 5. Gross Profit margin excluding promotions and investments related to consumer and business development support. Total Brand support: consumer and business development support + advertising, consumer and trade support. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT H1 2017 vs. H1 2016 +0.3 0.1 0.3 +0.2 1.2 1.0 +0.9 +0.5 +0.4 0.1 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 H1 2017 Group operational trends NON-RECURRING ITEMS (in million euros) Q1 Q2 H1 2016 2017 2016 2017 2016 Income From Operations 81.4 74.3 127.9 120.6 209.3 As % of Net Sales 17.3% 15.8% 22.7% 20.3% 20.3% Restructuring costs (related primarily to BIC Graphic Europe and Developing Markets operations in 2017) 7.0 4.2 17.6 4.2 Normalized IFO 81.4 81.3 132.1 138.2 213.6 As % of Net Sales 17.3% 17.3% 23.5% 23.3% 20.7% Special employee bonus 8.8 8.8 Normalized IFO excluding the special employee bonus 90.2 81.3 132.1 138.2 222.3 As % of Net Sales 19.2 % 17.3% 23.5% 23.3% 21.6% NET INCOME AND EPS Income before tax fell back to 194.9 million euros, from 208.5 million euros in H1 2016. Net finance revenue was nil, compared to a negative 0.8 million euros in H1 2016. H1 2016 was negatively impacted by fair value adjustments to financial assets denominated in USD when compared to December 2015. Net income Group Share was 129.6 million euros, a 7.5% drop as reported. The effective tax rate was 30.0% excluding the impact of the sale of BIC Graphic North America and Asian Sourcing. Net Income From Continuing Operations was 136.3 million euros; Net Income From Discontinued Operations was a negative 6.7 million euros and included the net loss related to the sale of BIC Graphic North America and Asian Sourcing. EPS Group share was 2.78 euros, compared to 2.98 euros in H1 2016, i.e. down by 6.7%. Normalized EPS Group share increased 6.3% to 3.23 euros, compared to 3.04 euros in H1 2016. EPS Group Share in Q2 2017 was 1.71 euros compared to 1.89 euros in Q2 2016, down by 9.5%. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 2017 194.9 18.3% 24.5 219.4 20.6% 219.4 20.6% 5 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 H1 2017 Group operational trends NET CASH POSITION At the end of June 2017, the Group’s net cash position stood at 87.2 million euros. CHANGE IN NET CASH POSITION (in million euros) 2016 Net Cash position (beginning of period - December) 448.0 Net cash from operating activities +61.6 Of which operating cash flow +196.1 Of which change in working capital and others 134.5 CAPEX 74.4 Dividend payment 277.0 Share buyback program 60.7 Net cash from the exercise of stock options and the liquidity contract +0.8 Proceeds from sale of BIC Graphic North America and Asian Sourcing(a) Others 0.1 Net Cash position (end of period - June) 98.2 (a) Excluding 8.8 million euros of subordinated loan. Net cash from operating activities was +77.0 million euros, including +198.1 million euros in operating cash flow. The negative change in working capital and other items of 121.1 million euros was mainly related to the seasonality of trade receivables. Net cash was also impacted by investments in CAPEX as well as the dividend payments and share buybacks. Net cash was positively impacted by the proceeds from the sale of BIC Graphic North America and Sourcing Asia. SHAREHOLDERS’ REMUNERATION Ordinary dividend of 3.45 euros per share paid in May 2017. 18.0 million euros in share buy-backs at the end of June 2017 (160,577 shares purchased at an average price of 111.98 euros). BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 2017 222.2 +77.0 +198.1 121.1 74.7 161.0 18.0 +0.6 +55.7 14.6 87.2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 H1 2017 operational trends by category 1.4. H1 2017 operational trends by category Stationery Stationery H1 2017 Net Sales increased by 4.9% as reported and by 3.3% on a comparative basis. Second quarter 2017 Net Sales were up 9.8% as reported and up 9.1% on a comparative basis. H1 2017 Normalized IFO margin for Stationery was 11.3%, compared to 12.7% in H1 2016 (13.6% excluding the impact of the is mainly due to the special employee bonus). This decline reinforcement of our brand support investment plan, particularly in in OPEX. Q2 2017 developing markets, and Normalized IFO margin was 16.0%, compared to 18.0% in Q2 2016, due to higher operating expenses. the increase Developed markets In Europe, Net Sales grew mid-single digit thanks to a good Back-to-School sell-in in both Western and Eastern Europe. We recorded strong initial sell-in for our new products, most notably the BIC® Gelocity Illusion erasable gel pen, the BIC® Intensity Writing Felt pen and the BIC® 4-color 3+1 pen. In North America, Net Sales grew low-single digit. In a slightly declining market (YTD June 2017), we reinforced our leadership in Ball Pens, Mechanical Pencils and Correction products. We also benefited from the success of new products: BIC® Gelocity Quick Dry and BIC® Velocity Max Mechanical Pencil. Developing Markets Lighters H1 2017 Net Sales of Lighters increased by 4.7% as reported and by 0.8% on a constant currency basis. Second quarter 2017 Net Sales were up 4.7% as reported and up 2.0% on a constant currency basis. Developed Markets Europe delivered mid-single-digit growth in Net Sales, driven by good performance in both Western and Eastern Europe. North American Net Sales were stable. We gained market share in the U.S.. H1 2017 Net Sales grew low-single-digit with a strong second quarter. Developing Markets In Latin America, we grew low-single digit. In Brazil, we continued to gain market share thanks to both core and new products (BIC® Cristal Fashion and BIC® Cristal Up) as well as distribution gains. Mexico registered positive growth on the back of a successful back-to-school sell-in across the entire range driven by our core products, including BIC® Cristal and the BIC® Evolution® coloring range. In the Middle-East and Africa, sales increased double-digit with growth across all regions. South Africa back-to-school was solid, with significant market share gains. In North-West Africa, our Proximity strategy helped us to gain distribution with a broader range of products. In H1 2017, Net Sales declined at a low single-digit rate, with a good performance in Mexico, in the Middle-East and in Africa. H1 2017 Normalized IFO margin for Lighters was 39.6%, compared to 39.3% in H1 2016 (40.0% excluding the impact of the special employee bonus), due to lower Gross Profit. The increase in operating expenses was more than offset by lower Brand Support investment. Q2 2017 Normalized IFO margin was 41.7%, compared to 40.5% in Q2 2016, due to lower Brand Support investment compared to Q2 2016. Cello Pens Domestic Sales grew mid-single digit, thanks to our Champion brands strategy with successful new product launches in the ButterflowTM and GelTech ranges. We also benefited from targeted brand support investments. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 7 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 BIC Group Net Sales by geography Shavers Developing Markets H1 2017 Net Sales of Shaver's decreased by 0.6% as reported, and by 4.3% on a constant currency basis. Second quarter 2017 Net Sales grew by 1.6% as reported but decreased by 0.9% on a constant currency basis. In H1 2017 the increase in Net Sales grew mid-single-digit. In Latin America, we recorded high-single digit growth in Net Sales with all product ranges contributing, especially the BIC® Flex 3 shaver and the BIC® Soleil® range. Developed Markets In Europe, Net Sales increased mid-single-digit, with high-single digit performance in Q2 2017. The solid growth in Eastern Europe was driven by the success of both core and value-added products such as the BIC® 3, the BIC® Flex 3 Hybrid and the BIC® Miss Soleil® shavers. In North America, Net Sales declined double-digit, with an improved trend in the second quarter compared to the first quarter. At the end of June 2017, the total U.S. wet shave market(1) declined by 9.5% (-4.5% for the one-piece segment). Continued disruption increased competitive activity and unprecedented levels of pricing and promotional pressure in the one-piece segment, in addition to increased activity from Private labels. BIC’s market share in the one-piece segment was 26.9% at end-June, representing a 2.1-point drop on our 29.0% record market share achieved in H1 2016. Focusing on our value/performance positioning, we continued to gain market share in the 5-blade men’s one-piece segment, thanks notably to the launch of the BIC® Hybrid 5 shaver: we achieved a market share of 34.8%1, in H1 2017, up 6.4 points on H1 2016. in the refillable segment has led to In the Middle-East and Africa, Net Sales were stable thanks to a strong Q2 (orders shifted from Q1 to Q2). H1 2017 Normalized IFO margin for Shaver's was 13.4% compared to 12.3% in H1 2016 (13.3% excluding the impact of the special employee bonus). The margin change mainly reflected the decline in North American Net Sales and higher operating expenses (including continued investments in R&D), which were offset by lower cost of production and Brand Support compared to H1 2016. Q2 2017 Normalized IFO margin was 14.1%, compared to 13.8% in Q2 2016 as a result of the same impacts as those described previously. Other Products H1 2017 Net Sales of Other Products decreased by 6.9% as reported and by -7.3% on a comparative basis. BIC Sport posted a mid-single-digit decrease in its Net Sales on a comparative basis. H1 2017 Normalized IFO for Other Products was a negative 1.8 million euros, compared to a negative 1.5 million euros in H1 2016. Q2 2017 Normalized IFO for Other Products was a positive 1.3 million euros, compared with a positive 0.4 million euros in Q2 2016. 1.5. BIC Group Net Sales by geography (in million euros) Q2 2017 vs. Q2 2016 H1 2017 vs. H1 2016 Q2 2016 Q2 2017 As reported Comparative basis H1 2016 H1 2017 As reported Comparative basis Group Net Sales 562.2 593.7 +5.6% +3.9% 1,031.5 1,062.9 +3.0% +0.3% Europe Net Sales 170.0 177.5 +4.4% +4.8% 296.5 307.1 +3.5% +3.7% North America Net Sales 236.4 242.1 +2.4% +0.7% 424.4 419.7 1.1% 3.7% Developing Markets Net Sales 155.8 174.0 +11.7% +7.9% 310.6 336.1 +8.2% +2.3% (1) Source: IRI total market YTD ending 02-JULY-2017 – in value terms. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Impact of change in perimeter and currency fluctuations on net sales 1.6. Impact of change in perimeter and currency fluctuations on net sales (in %) Q2 2016 Q2 2017 H1 2016 Perimeter 0.3 Currencies 5.3% +2.0% 5.5% Of which USD 1.0% +0.8% 0.1% Of which BRL 1.0% +0.8% 1.7% Of which ARS 0.6% 0.1% 1.1% Of which INR 0.2% +0.2% 0.2% Of which MXN 1.1% +0.0% 1.0% Of which RUB and UAH 0.3% +0.2% 0.3% 1.7. IFO and Normalized IFO by category (in million euros) Q2 2016 Q2 2017 H1 2016 Group Income From Operations 127.9 120.6 209.3 Normalized Income From operations 132.1 138.2 213.6 Stationery Income From Operations 41.6 36.2 50.2 Normalized Income From operations 43.4 42.3 52.0 Lighters Income From Operations 70.6 77.3 132.7 Normalized Income From operations 71.7 77.3 133.9 Shavers Income From Operations 15.4 17.2 28.0 Normalized Income From operations 16.6 17.2 29.2 Other Products Income From Operations 0.3 10.1 1.6 Normalized Income From operations 0.4 1.3 1.5 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT H1 2017 0.2 +2.9% +1.1% +1.4% 0.1% +0.2% 0.2% +0.2% H1 2017 194.9 219.4 36.6 48.2 141.2 141.4 31.5 31.7 14.4 1.8 9 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Reconciliation with alternative performance measures 1.8. Reconciliation with alternative performance measures NORMALIZED IFO RECONCILIATION (in million euros) FY 2016 Income From Operations 403.4 Restructuring costs (related primarily to BIC Graphic Europe and Developing Markets operations in 2017) +6.6 Retiree Medical Adjustment in the U.S. 0.9 Normalized IFO 409.1 Special employee bonus 8.8 Normalized IFO excluding the special employee bonus 417.9 NORMALIZED EPS RECONCILIATION (in euros) FY 2016 EPS 5.32 Impairment recognized for BIC Graphic North America and Asian sourcing +0.78 Net loss from divestiture of BIC Graphic North America and Asian Sourcing Restructuring costs (related primarily to BIC Graphic Europe and Developing Markets operations in 2017) +0.15 Retiree Medical Adjustment in the U.S. 0.01 Normalized EPS 6.24 NET CASH RECONCILIATION (in million euros – rounded figures) December 31,2016 Cash and cash equivalents (1) 243.8 Other current financial assets (2)(a) 29.4 Current borrowings (3) 49.6 Non-current borrowings (4) 1.4 NET CASH POSITION (1) + (2) + (3) + (4) 222.2 (a) In the balance sheet, the line “Other current financial assets and derivative instruments” also includes 7.9 million euros and 1.7 million euros worth of derivative instruments, respectively at June 30, 217 and at December 31, 2016. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT H1 2017 194.9 +24.5 219.4 219.4 H1 2017 2.78 +0.09 +0.36 3.23 June 30,2017 291.2 4.7 208.5 0.2 87.2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Share repurchase program – cancelled shares 1.9. Share repurchase program – cancelled shares SOCIÉTÉ BIC obtained at the Annual Shareholders’ Meeting on May 10, 2017 to renew its shares repurchase program. During the first half of 2017: SOCIÉTÉ BIC repurchased, under the liquidity agreement with Natixis, 256,666 shares for a total value of 29.64 million euros and sold 243,506 shares for a total value of 28.32 million euros; SOCIÉTÉ BIC repurchased 160,577 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 10, 2017, excluding shares acquired under the liquidity agreement; 30,270 options were exercised in the period for 1.66 million euros, of which 0.22 million euros have not yet been received at the end of June 2017; In early 2017, SOCIÉTÉ BIC received 0.61 million euros related to stock options exercised at the end of 2016. SHARE BUY-BACK PROGRAM Number of shares acquired Average weighted price (in euros) Amount (in million euros) February 2017 38,433 117.49 4.5 March 2017 42,144 115.05 4.9 April 2017 May 2017 40,000 106.28 4.2 June 2017 40,000 109.14 4,4 Total 160,577 111.98 18.0 The number of free, performance-based shares transferred to beneficiaries is 94,553 during the first half of 2017, of which transferred by SOCIÉTÉ BIC and 1,288 shares 93,265 shares transferred by BIC CORPORATION. Moreover, SOCIÉTÉ BIC proceeded to 155,790 free, performance-based share grants and 17,100 free, non-performance-based share grants. 1.10. Related-party transactions the This paragraph relationships between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). is aimed at ensuring transparency in Related-party transactions are described in the Note 25 – Related parties on page 225 of the Group BIC 2016 registration document filed with the Autorité des Marchés Financiers (AMF) on March 22, 2017. During the first half of 2017, no other significant related-party transactions have been identified by BIC Group. 1.11. Capital evolution N/A BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 11 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Material events that occurred in H1 2017 1.12. Material events that occurred in H1 2017 BIC Group announced on June 30, 2017 that following the Asset and Share Purchase Agreement signed on June 6, 2017, BIC Graphic North America and Asian Sourcing operations had been sold to H.I.G. Capital. BIC Graphic North America and Asian Sourcing Assets and Liabilities have been accounted for as “Non-Current Assets Held For Sale” and “Discontinued Operations” since 31 December 2016, in accordance with IFRS 5(1). 1.13. Material events that occurred after June 30, 2017 N/A 1.14. Description of the principal risks and uncertainties for H2 2017 BIC pursues an active and dynamic approach to risk management. The purpose of this approach is to enhance the Group’s capacity in identifying, managing and monitoring major risks that could affect: its personnel, assets, environment or reputation; the Group’s ability to reach its objectives and abide by its values, ethics or laws and regulations. following areas: financial markets, legal, industry and environment, strategy and operations. A description of the main risks identified by the BIC Group is available in the section entitled “Risk factors” of the 2016 registration document (page 27) filed with the Autorité des Marchés Financiers (AMF) on March 22, 2017 and which is available online, at the following adress: http://www.bicworld.com/en/finance/publications/. The approach is based on identification and analysis of the main risks to which the Group is exposed, particularly those related to the No additional significant risks or uncertainties have been identified for the second half of 2017. 1.15. Full-Year 2017 Outlook As markets remain volatile for the balance of the year, coupled with recent signs of lower consumption in Brazil, we now expect to trend between 3% to 4% Full Year Organic Net Sales growth. While we continue to invest for the long term, we are adjusting our 2017 Brand support due to market dynamics. Therefore, we expect the decrease in 2017 Normalized Income from Operations margin to be less than the – 100 basis points initially expected. (1) Please refer to BIC Q1 2017 press release issued on April 26, 2017. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6 MONTH PERIOD ENDED JUNE 30, 2017 Glossary 1.16. Glossary Constant currency basis: constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates. Comparative basis: at constant currencies and constant perimeter. Figures at constant perimeter exclude the impacts of acquisitions and/or disposals that occurred during the current year and/or during the previous year, until their anniversary date. All Net Sales category comments are made on a comparative basis. Normalized IFO: normalized means excluding non-recurring items as detailed on page 5. Normalized IFO margin: Normalized IFO as a percentage of Net Sales. operating Net principal revenue-generating activities of the entity and other activities that are not investing or financing activities. cash from activities: Net cash position: Cash and cash equivalents + Other current financial assets - Current borrowings - Non-current borrowings. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 13 14 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 2.1. Consolidated income statement 16 2.2. Consolidated statement of comprehensive income 17 2.3. Consolidated statement of financial position 18 2.4. Consolidated statement of changes in equity 20 2.5. Consolidated cash flow statement 21 2.6. Notes to the consolidated financial statements 23 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS 15 16 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated income statement 2.1. Consolidated income statement (condensed financial statements) (in thousand euros) Net Sales Cost of goods Gross profit Distribution costs Administrative expenses Other operating expenses Other income Other expenses Income From Operations Income from cash and cash equivalents Net finance income/(Net finance costs) Income before tax Income tax expense Net income from consolidated entities Net income from continuing operations Net income from discontinued operations Consolidated income of which: Non-controlling interests NET INCOME GROUP SHARE Earnings per share Group share (in euros) Continuing operations Discontinued operations Diluted earnings per share Group share (in euros) (a) Continuing operations Discontinued operations Average number of shares outstanding net of treasury shares over the period (a) * The dilutive elements taken into account are stock options. Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia (see Notes 1-2 et 21). BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT Notes 2-2 4 4 4 4 5 5 6 6 7 8 8 8 8 June 30, 2016* 1,031,542 (502,524) 529,018 (141,475) (103,558) (70,971) 1,888 (5,600) 209,303 5,155 (5,922) 208,538 (62,633) 145,905 145,905 (5,796) 140,109 140,109 2.98 3.10 (0.12) 2.95 3.07 (0.12) 47,029,831 June 30, 2017 1,062,856 (512,632) 550,224 (148,696) (110,767) (72,183) 2,328 (26 003) 194,904 3,842 (3,884) 194,862 (58,529) 136,333 136,333 (6,776) 129,556 129,556 2.78 2.92 (0.14) 2.75 2.90 (0.15) 46,683,913 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of comprehensive income 2.2. Consolidated statement of comprehensive income (condensed financial statements) (in thousand euros) Notes June 30, 2016 GROUP NET INCOME A 140,109 OTHER COMPREHENSIVE INCOME 7-2 Actuarial differences on post-employment benefits not recyclable to the income statement (a) (49,690) Deferred tax on actuarial differences on post-employment benefits 7-2 18,059 Total actuarial differences not recyclable to the income statement – Net of tax B (31,631) Gain/(Loss) on cash flow hedge 5,397 Exchange differences arising on translation of overseas operations (b) 4,121 Available for sale investments Deferred tax and current tax recognized on other comprehensive income 7-2 (311) Other comprehensive income recyclable to the income statement – Net of tax C 9,206 TOTAL COMPREHENSIVE INCOME D = A + B + C 117,685 Attributable to: BIC Group 117,685 Non-controlling interests TOTAL 117,685 (a) (b) The impact of actuarial differences is mainly due to U.S. plans. The main items impacting the translation reserve variance for the period, by currency, are as follows: Brazilian real -21.9 million euros and U.S. dollar -37.6 million euros. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 129,556 1,944 (670) 1,274 26,608 (65,172) 3 (6,155) (44,716) 86,116 86,116 86,116 17 18 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of financial position 2.3. Consolidated statement of financial position (condensed financial statements) Assets (in thousand euros) Notes December 31, 2016 Property, plant and equipment 564,420 Investment properties 2,088 Goodwill 9 297,304 Intangible assets 75,447 Other non-current assets 10 29,472 Deferred tax assets 174,669 Derivative instruments 18, 20 33 Non-current assets 1,143,433 Inventories 11 468,142 Income tax advance payments 30,823 Trade and other receivables 11, 20 483,099 Other current assets 20,584 Derivative instruments 18, 20 1,702 Other current financial assets 20 29,439 Cash and cash equivalents 20 243,762 Current assets 1,277,551 Assets held for sale 152,697 TOTAL ASSETS 2,573,680 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 586,529 1,909 285,574 73,508 38,464 184,603 10,007 1,180,594 469,659 17,672 614,905 19,685 7,895 4,717 291,164 1,425,697 2,606,291 Equity and liabilities (in thousand euros) Share capital Accumulated profits Shareholders’ equity Group share Non-controlling interests Shareholders’ equity Non-current borrowings Other non-current liabilities Employee benefits obligation Provisions Deferred tax liabilities Derivative instruments Non-current liabilities Trade and other payables Current borrowings Current tax due Other current liabilities Derivative instruments Current liabilities Liabilities held for sale TOTAL EQUITY AND LIABILITIES SHEQ: See consolidated statement of changes in equity. CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of financial position Notes December 31, 2016 12-1 178,333 1,614,282 1,792,615 SHEQ 1,792,615 13 1,452 1,178 205,455 14 35,560 51,358 18, 20 4,234 299,239 11, 20 118,676 13, 20 49,578 13,596 15 232,111 18, 20 15,591 429,553 52,273 2,573,680 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 178,142 1,530,746 1,708,888 1,708,888 182 1,320 184,000 40,650 44,021 1,767 271,940 136,805 208,466 14,961 262,884 2,347 625,463 2,606,291 19 20 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4. Consolidated statement of changes in equity (condensed financial statements) (in thousand euros) Notes Share capital Accumulated profits Actuarial differences recognized in equity Translation reserve Cash flow hedge derivatives Share- holders’ equity Group share Non- controlling interests Share- holders’ equity At January 1, 2016 180,169 1,731,790 (79,281) 16,393 473 1,849,544 1,849,544 Dividends paid CF, 16 (277,042) (277,042) (277,042) Decrease in share capital (1,724) (54,063) (55,787) (55,787) Increase in share capital 234 2,646 2,880 2,880 Treasury shares (346) (23,981) (24,326) (24,326) Recognition of share-based payments CF, 17 14,944 14,944 14,944 Other (1) (1) (1) Total transactions with shareholders (1,835) (337,497) (339,333) (339,333) Net income for the period 249,686 249,684 249,684 Other comprehensive income 139 (3,803) 45,789 (9,406) 32,719 32,719 Total comprehensive income 249,824 (3,803) 45,789 (9,406) 282,404 282,404 At January 1, 2017 178,333 1,644,117 (83,085) 62,182 (8,933) 1,792,615 1,792,615 Dividends paid CF, 16 (161,045) (161,045) (161,045) Decrease in share capital (a) Increase in share capital (b) 116 1,544 1,660 1,660 Treasury shares (307) (17,776) (18,084) (18,084) Recognition of share-based payments CF, 17 7,629 7,629 7,629 Total transactions with Shareholders (191) (169,648) (169,840) (169,840) Net income for the period 129,556 129,556 129,556 Other comprehensive income 2,892 1,274 (65,172) 17,565 (43,441) (43,441) Total comprehensive income 132,448 1,274 (65,172) 17,565 86,115 86,115 At June 30, 2017 178,142 1,606,916 (81,810) (2,990) 8,632 1,708,888 1,708,888 (a) (b) CF: No shares were cancelled during the first half of 2017. Following the exercise of stock options, the share capital was increased by 30,270 shares. See consolidated cash flow statement. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated cash flow statement 2.5. Consolidated cash flow statement (condensed financial statements) (in thousand euros) Notes December 31, 2016 Operating activities Net income Group share Net income from discontinued operations Net income from continuing operations Income and expense without cash impact: Non-controlling interests Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss Goodwill impairment Provision for employee benefits Other provisions (excluding provisions on current assets) Unrealized foreign currency gain/loss Hedging and derivative instruments Option premium expense Recognition of share-based payments Deferred tax variation (Gain)/Loss from disposal of fixed assets IS IS 5 7-1 (a) 249,686 (35,854) 285,540 93,716 20,901 33,965 22,000 (5,133) 3,303 4,031 1,876 14,944 (21,835) (223) Cash flow from operations 417,231 (Increase)/Decrease in net working capital Payments related to employee benefits Financial expense/(income) Interest (paid)/received Income tax expense Income tax paid • Net cash from operating activities from continuing operations Net cash from operating activities from discontinued operations 11, (k) (l) 6 7-1 (62,815) (34,019) (5,676) 5,553 113,300 (134,838) 276,188 22,548 NET CASH FROM OPERATING ACTIVITIES (A) 298,736 Investing activities Disposal of fixed assets Purchases of property, plant and equipment Purchases of intangible assets (Increase)/Decrease in other investments (Purchase)/Sale of other current financial assets Divestiture of Bic Graphic North America and Asian Sourcing • Net cash from investing activities from continuing operations Net cash from investing activities from discontinued operations (b) (i), (h) (h) (f) (c) 1,944 (170,618) (10,212) 294 46,103 - (127,178) (5,310) NET CASH FROM INVESTING ACTIVITIES (B) (132,489) Financing activities Dividends paid Borrowings/(Repayments) Payments of obligations under finance leases Purchase of financial instruments Increase in treasury shares Exercise of stock options • Net cash from financing activities from continuing operations Net cash from financing activities from discontinued operations SHEQ, 16, (d) 10, 13, (j) (g) (g) (277,042) 19,820 (1,214) (1,919) (81,782) 2,666 (291,513) (47,958) NET CASH FROM FINANCING ACTIVITIES (C) (339,471) NET CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFT (A) + (B) + (C) (173,224) Opening cash and cash equivalents net of bank overdrafts Exchange difference BS, 13 380,612 10,040 CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 13 217,430 IS: See consolidated income statement. SHEQ: See consolidated statement of changes in equity. BS: See consolidated balance sheet. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 125,556 (6,776) 136,333 46,921 (81) - 10,704 4,232 2,425 (5,147) 1,402 8,602 (10,647) 10,171 198,138 (125,084) (10,321) (2,711) 2,553 62,036 (47,591) 70,939 6,081 77,020 854 (71,501) (3,240) (472) 24,734 55,749 9,484 (3,360) 6,124 (161,045) 130,592 (1,145) (1,525) (19,455) 2,040 (48,235) (2,302) (50,539) 32,604 217,430 (14,774) 235,260 21 22 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Consolidated cash flow statement As of June 30, 2017 cash and cash equivalents amount to 291.2 million euros and bank overdrafts to 55.9 million euros. Net cash from financing activities Net cash from operating activities First half of 2017 net cash flows from operating activities amounts to 77.0 million euros and include 5.4 million euros in payments related to restructuring (8.0 million euros during 2016). During the first half of 2017, the loss on disposal before tax corresponds to BIC Graphic North America and Asian Sourcing operations and amounts to 10.0 million euros (a). In addition, there was no disposal of individually significant fixed assets during the first semester 2017 (a). During 2016, there was no disposal of individually significant fixed assets (a). The working capital increase amounts to 125.1 million euros, including 117.8 million euros of continuing operations, compared to an increase in 2016 of 62.8 million euros. The 2017 variance is mainly explained by a trade receivables strong increase (k). The payments related to employee benefits are mainly driven by the U.S. (l) Net cash from investing activities First half of 2017, cash flows from investing activities amount to 6.1 million euros, compared to a 2016 cash outflows for -132.5 million euros. Cash flow from financing activities amounts to -50.5 million euros in the first half of 2017 compared to -339.5 million euros in 2016. The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 16) (d). As of June 30, 2017, new borrowings amount to 130.6 million euros (mainly France). They are short-term financing to ensure the ponctual liquidity needs of SOCIÉTÉ BIC (j). During the first half 2017, 160,577 shares were repurchased by SOCIÉTÉ BIC for 18.0 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 256,666 shares for 29.6 million euros and sold 243,506 shares for 28.3 million euros. In addition, 30,270 options were exercised in the period for 1.7 million euros, including 0.2 million euros which have not yet been received at end of June 2017. Moreover, in early 2017, SOCIÉTÉ BIC received 0.6 million euros related to stock options exercised at the end of 2016 (g). During 2016, 652,745 shares were repurchased by SOCIÉTÉ BIC for 81.6 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 439,202 shares sold 437,650 shares for 56.4 million euros. In addition, 61,384 options were exercised including 0.6 million euros which have not yet been received at end of December 2017. Moreover, in early 2017, SOCIÉTÉ BIC received 0.4 million euros related to stock options exercised at the end of 2016 (g). for 56.5 million euros and in the period for 2.9 million euros, During the first half of 2017 and during 2016, there was no disposal of individually significant fixed assets (b). During the first half of 2017, the Group BIC purchased 74.7 million euros of property, plant and equipement and intangible assets (h). Purchases of property, plant and equipment do not include finance leases booked as a counterpart to a financial debt, as these transactions do not have any impact on cash (i). The amount of financial assets classified under “Other current financial assets” refers to investments not eligible for classification as cash & cash equivalents under IAS 7. As of June 30, 2017, these investments consist of units of UCITS and negotiable debt securities, all of which are liquid within 5 days (f). During the first half of 2017, the BIC Group disposed of BIC Graphic North America and Asian Sourcing operations. The net disposal price amounts to 55.7 million euros (63.6 million U.S. dollars).(c) BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 2.6. NOTE 1 NOTE 2 NOTE 3 NOTE 4 NOTE 5 NOTE 6 NOTE 7 NOTE 8 NOTE 9 NOTE 10 NOTE 11 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements General Balance sheet - Liabilities MAIN RULES AND ACCOUNTING POLICIES 24 NOTE 12 SHARE CAPITAL 1-1 Accounting policies 1-2 Change in Group structure Subsequent events 1-3 OPERATING SEGMENTS 24 25 25 25 NOTE 13 12-1 12-2 Share capital SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2017 BORROWINGS AND FINANCIAL LIABILITIES 2-1 2-2 General information Information on the income statement and assets by activity Information by geography 2-3 EXCHANGE RATES OF FOREIGN CURRENCIES 25 25 27 27 NOTE 14 NOTE 15 PROVISIONS OTHER CURRENT LIABILITIES Additional Information Income Statement NOTE 16 DIVIDENDS OPERATING EXPENSES 28 NOTE 17 SHARE-BASED PAYMENTS OTHER INCOME AND EXPENSES 28 NOTE 18 FINANCIAL INSTRUMENTS FINANCE INCOME INCOME TAX 7-1 7-2 Income tax expense Deferred and current tax recognized on other comprehensive income EARNINGS PER SHARE GROUP SHARE 29 29 29 30 31 NOTE 19 NOTE 20 18-1 18-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of June 30, 2017 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2016 CONTINGENT LIABILITIES FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Balance sheet - Assets NOTE 21 DISCONTINUED OPERATIONS GOODWILL 31 OTHER NON-CURRENT ASSETS 33 CHANGE IN NET WORKING CAPITAL 33 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 34 34 34 35 36 36 36 37 37 37 38 38 39 41 23 24 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 1-1 Accounting policies 1-1-1 Pursuant to European regulation no. 1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in accordance with accounting principles as defined by the International Accounting Standards Board (IASB) as adopted by the European Union. These are available on the European Union website at http://ec.europa.eu/internal_market/accounting/ias/index_en.htm. General principles 1-1-2 Adoption of new and revised International Financial Reporting Standards, interpretations and amendments New standards, amendments and interpretations with mandatory application for financial years beginning on or after January 1, 2017 The international standards include the IFRS (International Financial Reporting Standards), the IAS (International Accounting Standards), as well as their SIC (Standing Interpretation Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. The following standards and amendments are effective since January 1, 2017 and have been applied to the consolidated financial statements as of June 30, 2017: Amendments to IAS 7 – Disclosure initiative; The condensed consolidated financial statements as of June 30, 2016 and June 30, 2017 have been prepared in compliance with IAS 34 “Interim financial reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. IAS 34 allows presentation of a selection of notes to the condensed consolidated financial statements that should be read in conjunction with the consolidated financial statements at December 31, 2016. Amendments to IAS 12 – Recognition of deferred tax assets for unrealized losses; New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2017 The measurement procedures used for the interim condensed consolidated financial statements are as follows: As of June 30, 2017, the Group did not elect to early apply any standard, interpretation or amendment, particularly regarding: Interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre-tax result of the interim period excluding unusual material items. The income tax charge related to any unusual item in the period is accrued using its actual tax expense; Regarding the main pension plans and other employee benefits (United States, Canada, France, United Kingdom), actuarial valuations are performed every six months. Amounts recognized in the interim statement of financial position are based on estimates made at the end of the previous year and on the discount rates as of June 30. IFRS 9 – Financial instruments; IFRS 15 – Revenue Amendments to IFRS 15 – Clarification. from Contracts with Customers and The implementation of the standard on revenue recognition is subject to a dedicated project within the BIC Group. The work carried out, to date, shows that the expected effects on the consolidated financial statements should be limited and relate to some contractual clauses in the sales contracts. The cumulative Income From Operations will not change, but its breakdown could be different over time. Regarding share-based payments and other benefits plans, expenses are recognized in the period on a pro rata basis of the estimated costs for the year. The principal accounting policies remain unchanged compared to last year except for adoption of the following standard, effective since January 1, 2017. In addition, the Group has not yet decided on the transition method to be applied on January 1, 2018. is currently conducting analysis on the practical The Group consequences of IFRS 9 and the effects of their implementation on the financial statements. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements Standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2017 1-2 Change in Group structure On June 6, 2017, BIC Group has announced that it has signed an Asset and Share Purchase Agreement to sell its BIC Graphic North America and Asian Sourcing operations to H.I.G. Capital, a global U.S. private equity firm. The closing is effective as of June 30, 2017. IFRS 16 – Leases; IFRIC 22 – Foreign Currency Transactions and Advance Consideration; The net disposal price amounts 73.6 million dollars, including 10 million U.S. dollars through a six-year subordinated note bearing a 7% per annum capitalized interest. Amendments to IFRS 2 – Classification and measurement of share-based payment transactions. Analysis on the practical consequences of these new regulations is in progress. However, it is too early to be able to estimate the impact. For IFRS 16, the Group has not yet decided on the transition method to be applied. Consequently, the subsidiaries BIC Graphic USA Manufacturing Co. Inc. and BIC Advertising and Promotional Products Co. Ltd. were excluded from the Group consolidation scope as of June 30, 2017. 1-3 Subsequent events No subsequent event occurred between July 1, 2017 and the reporting date. NOTE 2 OPERATING SEGMENTS 2-1 General information BIC operating segments have been determined based on the reports regularly provided to the management and used to make strategic decisions. 2-2 Information on the income statement and assets by activity All indicators are determined according to IFRS, except for: The management considers the business from a product category perspective, knowing that each category can be reviewed for a specific geographic area if necessary. On February 7, 2017, BIC Group confirmed the strategic alternatives review for BIC Graphic North America and the Asia Sourcing operations. Consequently, in the first half of 2017, BIC Graphic is no longer considered as a separate category or a reporting segment. The activities of BIC Graphic Europe and Developing Markets are now recognized and presented in Stationery and Other Products categories. The categories are as follows: Stationery, Lighters, Shavers and Other Products. Normalized Income From Operations, which is the income from operations restated for non-recurring items (in particular real estate gains, the gain or loss on the sale of businesses and restructuring costs). It constitutes the key financial metrics used within the Group; Normalized Income From Operations excluding the impact of the special employee bonus that was awarded to employees who were not granted free shares under our performance share plan and after approval of the exceptional dividend; Capital additions, which comprise the purchases and internal generation of property, plant and equipment and intangible fixed assets for the period. These operating segments earn their revenues from the production and distribution of each product category. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 25 26 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements (in million euros) June 30, 2016* Stationery Lighters Other Shavers Products Total Stationery Lighters Income Statement Net sales 408 341 238 45 1,033 428 357 Depreciation and amortization (13) (9) (11) (7) (40) (11) (10) Impairment loss Income from operations 50 133 28 (2) 209 37 141 Restatements made to obtain Normalized Income From Operations Restructuring costs related to distribution reorganization in the Middle East and in the African regions 2 Restructuring costs related to U.S. sales force reorganization 2 Restructuring costs related to continuing BIC Graphic operations Other 1 Normalized Income From Operations 52 134 29 (1) 214 48 141 Special employee bonus 3 2 3 9 Normalized Income From Operations excluding the impact of the special employee bonus 55 136 32 (1) 222 48 141 Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. As of June 30, 2017, Walmart Group has been identified as one major customer by the BIC Group (net sales above 10%). (in million euros) December 31, 2016 Stationery Lighters Other Shavers Products Total Stationery Lighters Capital additions(a) 45 39 71 21 176 16 16 Net inventories 224 121 107 15 468 223 121 (a) Excluding capital additions of discontinued operations (2 million euros in 2017 and 5 million euros in 2016). BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 Other Shavers Products Total 236 42 1,063 (13) (7) (42) 32 (14) 195 24 32 (2) 219 32 (2) 219 June 30, 2017 Other Shavers Products Total 24 16 73 107 18 470 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 2-3 Information by geography Geographies identified by the management are: France, Europe (excluding France), North America and Developing Markets. (in million euros) June 30, 2016* June 30, 2017 France Europe excluding France North America Developing markets Total France Europe excluding France North America Developing markets Total Net sales 106 191 424 311 1,031 108 199 420 336 1,063 Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. (in million euros) December 31, 2016 June 30, 2017 France Europe excluding France North America Developing markets Total France Europe excluding France North America Developing markets Total Non-current assets (a) 223 181 311 346 1,061 231 185 218 349 982 (a) Other than financial instruments (10 million euros in 2017 and 0.03 million euros in 2016), deferred tax assets (184.6 million euros in 2017 and 174.7 million euros in 2016). NOTE 3 EXCHANGE RATES OF FOREIGN CURRENCIES The following table shows foreign currency equivalents of one euro (e.g.: average 2017 is 1 euro = 1.08 U.S. dollars). Foreign currencies Average 2016 Average 2017 June 30, 2016 June 30, 2017 Euro Euro Euro Euro U.S. dollar – USD 1.12 1.08 1.11 1.14 Australian dollar – AUD 1.52 1.44 1.49 1.49 Canadian dollar – CAD 1.48 1.45 1.44 1.48 Swiss franc – CHF 1.10 1.08 1.08 1.09 Chinese renminbi – CNY 7.30 7.45 7.41 7.74 British pound – GBP 0.78 0.86 0.84 0.88 Hong Kong dollar – HKD 8.67 8.43 8.64 8.91 Indian rupee – INR 75.03 71.16 74.97 73.74 Japanese yen – JPY 124.19 121.81 114.29 127.75 Korean won – KRW 1,319.14 1,235.84 1,275.76 1,304.56 Malaysian ringgit – MYR 4.57 4.75 4.44 4.90 New Zealand dollar – NZD 1.65 1.53 1.55 1.56 Philippine peso – PHP 52.31 54.13 52.33 57.58 Polish zloty – PLN 4.37 4.27 4.40 4.23 Swedish krona – SEK 9.31 9.60 9.39 9.64 Singapore dollar – SGD 1.54 1.52 1.50 1.57 South African rand – ZAR 17.19 14.30 16.23 14.92 Argentinian peso – ARS 16.05 17.05 16.87 18.93 Brazilian real – BRL 4.12 3.45 3.58 3.76 Mexican peso – MXN 20.19 20.99 20.18 20.58 Venezuelan bolivar – VEF* 393.01 1,367.27 698.79 3,012.77 Ukrainian hryvnia – UAH 28.53 29.01 27.65 29.77 Russian ruble – RUB 78.10 62.80 71.31 67.54 The Venezuelan subsidiary financial statements as of June 30, 2017, are translated using the SICAMI rate representing the most conservative exchange rate. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 27 28 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 4 OPERATING EXPENSES (in thousand euros) June 30, 2016* June 30, 2017 Raw materials, consumables used and change in inventory 266,490 275,964 Staff costs 272,887 274,922 Depreciation and amortization expenses 39,914 41,813 Other operating expenses 238,573 249,045 Loss on operational foreign currency translation 664 2,535 TOTAL 818,528 844,278 Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. Other operating income and expenses are not included in the total amount and are disclosed in Note 5. They include the French research tax credit for 1.3 million euros, versus 1.1 million euros for the first half 2016. Staff costs include special premium for 8.8 million euros in 2016. Other operating expenses mainly include outside services. The tax credit for competitiveness and employment (CICE) amounts to 1.3 million euros in the first half of 2017, versus 0.8 million euros in the first half of 2016. Research and development costs expensed for the first half of 2017 amount to 18.0 million euros, versus 16.0 million euros for the first half 2016. NOTE 5 OTHER INCOME AND EXPENSES (in thousand euros) June 30, 2016* June 30, 2017 Royalties income 22 3 Gain on disposal of fixed assets 66 89 Other 1,801 2,237 Other income 1,888 2,328 Impairment loss 81 Restructuring costs related to retained BIC Graphic operations (23,742) Others restructuring plans (4,267) (796) Other (1,333) (1,546) Other expenses (5,600) (26,003) TOTAL (3,712) (23,675) Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. Other income and expenses incurred in the first half of 2017 mainly include restructuring costs for -24.5 million euros related essentially to Graphic Europe reorganization costs (redundancy costs and inventory write down). Other income and expenses related to the first half of 2016 mainly included: restructuring costs for -1.9 million euros related to distribution reorganization in the Middle East and Africa regions; restructuring costs for -1.7 million euros related to U.S. sales force reorganization. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 6 FINANCE INCOME (in thousand euros) June 30, 2016* June 30, 2017 Interest income from cash and cash equivalents 3,348 1,440 Interest on bank deposits 1,807 2,402 Income from cash and cash equivalents 5,155 3,842 Interest expense 1,122 (1,142) Hedging instrument revaluation (1,353) 146 Net financial foreign exchange difference (5,691) (2,888) Net finance income/(Net finance costs) (5,922) (3,884) FINANCE (COSTS)/REVENUE (767) (42) Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. The decrease in finance income during the first half of 2017 compared to the first half of 2016 comes from several factors: Income from cash and cash equivalents decreased compared to the previous period due to lower investment volumes; In the first half of 2016, the appreciation of the euro and the Brazilian real against the U.S. dollar had an unfavorable impact on the valuation of financial assets denominated in U.S. dollars. In the first half of 2017, the appreciation of the euro against the U.S. dollar generated a less negative impact as U.S. dollar volumes were lower. NOTE 7 INCOME TAX 7-1 Income tax expense (in thousand euros) June 30, 2016* June 30, 2017 Income before tax 208,538 194,862 Tax expense 62,633 58,529 TAX RATE 30.0% 30.0% Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. At the end of June 2017, the Group's effective tax rate is determined on an annual basis. The tax charge is calculated by applying the estimated average rate for the 2017 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2017 and effective after June 30, 2017. The income tax charge related to any unusual items in the period is accrued using its actual tax expense. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 29 30 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 7-2 Deferred and current tax recognized on other comprehensive income Deferred and current taxes recognized on other comprehensive income result from the following items: At June 30, 2017 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) 1,944 Cash flow hedge 26,608 Foreign exchange impact (65,172) Other 3 Total other comprehensive income (2) (38,561) TOTAL (1)+(2) (36,617) At June 30, 2016 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) (49,690) Cash flow hedge 5,397 Foreign exchange impact 4,121 Total other comprehensive income (2) 9,517 TOTAL (1)+(2) (40,173) BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT Deferred taxes (670) (9,043) 2,893 (5) 6,155 (6,825) Deferred taxes 18,059 (1,833) 1,522 (311) 17,748 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 8 EARNINGS PER SHARE GROUP SHARE Earnings per share Group share and diluted earnings per share Group share correspond to the Group net income divided by the relevant number of shares. The number of shares used to calculate earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. The number of shares used to calculate diluted earnings per share Group share is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of stock options. As of June 30, 2017, there are no shares with relutive impact and the maximum dilutive effect from stock options not exercised is around 0.3% of the share capital. June 30, 2016* June 30, 2017 Numerator (in thousand euros) Net income Group share from continuing operations 145,905 136,333 Denominator (in number of shares) Weighted average number of ordinary shares in circulation 47,029,831 46,683,913 Dilutive effect of stock options 539,847 406,725 Diluted weighted average number of ordinary shares in circulation 47,569,678 47,090,638 Earnings per share Group share (in euros) Earnings per share Group share from continuing operations 3.10 2.92 Diluted earnings per share Group share from continuing operations 3.07 2.90 Restated from IFRS 5 “Discontinued operations” following the disposal of BIC Graphic North America and Asia. NOTE 9 GOODWILL (in thousand euros) Notes Gross value Impairment loss Net value At January 1, 2017 314,345 (17,041) 297,304 Exchange differences (13,992) 2,262 (11,730) At June 30, 2017 300,353 (14,779) 285,574 The balance, as of June 30, 2017, includes the following principal net goodwill: (in thousand euros) December 31, 2016 June 30, 2017 BIC CORPORATION (a) 122,634 114,774 Cello Pens 102,579 99,605 BIC Violex 49,174 49,174 PIMACO (a) 7,046 6,428 Other (a) 15,871 15,593 TOTAL 297,304 285,574 (a) These goodwill amounts are linked to cash-generating units represented by distribution subsidiaries. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 31 32 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements To perform the impairment tests, the Group used the following discount and perpetual growth rates: Weighted average cost of capital before tax Perpetual growth rate 2016 2017 2016 BIC CORPORATION 10.0% 10.6% 1.5% Cello Pens 13.5% 13.5% 8.0% BIC Violex 13.3% 14.1% 2.9% PIMACO 19.7% 20.3% 1.7% Each goodwill item has been allocated to a cash-generating unit (“CGU”) representing the lowest level at which goodwill is monitored by the Group. Regarding the test performed on Cello Pens, sensitivity to the assumptions used in the calculation indicates that to cover assets, and for each factor taken independently: The goodwill on BIC CORPORATION is thus mainly allocated to cash-generating units linked to the distribution by BIC CORPORATION of stationery products and lighters. the discount rate before tax should not exceed 14.2%; the perpetual growth rate should not be less than 7.5%; The goodwill on Cello Pens is allocated to the cash-generating units linked to the production and distribution of stationery products by Cello. Net Sales at constant Income From Operations margin over the future 5-year period should not be less than 7% compared to the level retained in the impairment test; the The remaining goodwill on BIC Violex cash-generating unit linked to shavers developed and/or produced by BIC Violex and sold all over the world. This cash-generating unit also includes the portion of BIC CORPORATION goodwill allocated to shavers. is allocated to As every year, as of June 30, 2017, the Group performed impairment tests on these goodwill amounts. the Income From Operations on the future 5-year period may not be less than 18% compared to the level retained in the impairment test. Additionally, Cello future economic performance is highly dependent upon the realization of its current business plan, which includes growth in both domestic and export sales, as well as the realization of improved gross margin rates. The goodwill is based on a comparison between the recoverable amount of each of the Group’s cash-generating units and the corresponding assets’ net book value (including goodwill). impairment test methodology The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to impairment, taking into account the observed margin on tests conducted. Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over a maximum of five years and a discounted residual value using the perpetual growth method, including notably the following: the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rate; the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 2017 1.5% 8.0% 2.9% 0% CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 10 OTHER NON-CURRENT ASSETS (in thousand euros) Notes December 31, 2016 Other investments 28 Guarantee deposits 4,779 Deferred pensions 2,471 Subordinated loan 1-2, 21, CF Other non-current assets 22,194 TOTAL 29,472 NOTE 11 CHANGE IN NET WORKING CAPITAL (in thousand euros) December 31, 2016 Cash flow impact (1) Foreign exchange and other Assets/liabilities held for sale at December 31, 2016 not sold in 2017 and reclassified Net inventory 468,142 7,539 (14,874) 8,852 Inventory – Gross value 483,629 12,994 (15,248) 9,060 Inventory – Impairment (15,487) (5,455) 374 (208) Trade and other receivables 483,099 145,155 (17,001) 3,652 Trade and other payables (118,676) (2,253) (14,996) (881) Other assets and liabilities (190,360) (32,659) 9,941 (1,698) NET WORKING CAPITAL 642,205 117,782 (36,931) 9,925 (1) See (k) consolidated cash flow statement. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT June 30, 2017 30 5,054 3,646 8,763 20,971 38,464 June 30, 2017 469,659 490,435 (20,776) 614,905 (136,805) (214,776) 732,982 33 34 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 12 SHARE CAPITAL 12-1 Share capital (in thousand euros) December 31, 2016 June 30, 2017 Authorized, issued and fully paid share capital 181,649 181,765 Repurchase of shares of the Company (3,316) (3,623) SHARE CAPITAL 178,333 178,142 As of June 30, 2017, the registered share capital of SOCIÉTÉ BIC is 181,765,043.04 euros divided into 47,582,472 shares of 3.82 euros each. Registered shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 948,492 treasury shares, acquired at an average price of 90.07 euros in accordance with Article L. 225-209 of the French Commercial Code, and which represent 2.00% of the share capital. 12-2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2017 Purpose of the repurchase Number of shares Average acquisition price (in euros) % of the share capital Liquidity agreement (a) 17,708 105.54 0.04% Free share grants (a) 930,784 89.78 1.96% TOTAL 948,492 90.07 2.00% (a) Article L. 225-209 of the French Commercial Code. In accordance with the liquidity agreement with Natixis in respect of SOCIÉTÉ BIC shares, as of June 30, 2017, the liquidity account contained the following: 17,708 BIC shares; 1,885,760.15 euros. At initial set-up, the liquidity account contained the following: 2,312 BIC shares; 912,744.48 euros. SOCIÉTÉ BIC obtained authorization from the Annual Shareholders’ Meeting on May 10, 2017, to renew its share repurchase program. Number of shares purchased in 2017 (b) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 10, 2017 45,000 Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 18, 2016 115,577 Average share repurchase price for the purchases during the first half of 2017 (in euros) 111.98 (b) Excluding shares repurchased under the liquidity contract. During the first half of 2017, SOCIÉTÉ BIC did not cancel any shares. To the best of the Company’s knowledge, as of June 30, 2017, Shareholders holding more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: At June 30, 2017 % of shares (approx.) % of voting rights (approx.) SOCIÉTÉ M.B.D. 26.70 % 36.65 % Bich family 16.52 % 22.56 % BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 13 BORROWINGS AND FINANCIAL LIABILITIES (in thousand euros) Bank overdrafts Current borrowings Non-current borrowings Obligations under finance leases Total At January 1, 2017 26,332 21,832 6 2,860 51,030 Cash Flows 29,572 130,594 (2) (1,145) 159,019 "Non cash" variations (1) (93) (151) (245) Variations in obligations under finance leases Exchange differences (1) (93) (151) (245) Subsidiary divestiture (1,156) (1,156) At June 30, 2017 55,903 152,333 4 408 208,648 Bank overdrafts are due within one year. The long-term portion of obligations under finance leases is not significant. Bank loans and financial liabilities have the following maturities: (in thousand euros) December 31, 2016 June 30, 2017 On demand or within one year 21,832 152,333 In the 2nd year 3 In the 3rd year 3 1 In the 4th year 3 TOTAL 21,838 152,337 Main bank loans/credit lines and financial liabilities are as follows: Borrowing country Currency Euro equivalents (in thousand euros) December 31, 2016 June 30, 2017 France EUR 20,000 150,000 Turkey TRY 564 1,097 South Korea KRW 1,182 1,150 Other Misc. 92 90 TOTAL 21,838 152,337 Information on interest rates As of June 30, 2017, outstanding loans and credit lines were contracted with floating rates ranging between 0.2% and 15%. Information on covenants None of the loans contain any covenants that could trigger early repayment of the debt. Relative exposure, deemed not significant, has not been hedged. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 35 36 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 14 PROVISIONS (in thousand euros) Tax and social risks and litigation Llitigation Product liability Other risks and charges Total At January 1, 2017 25,560 5,477 1,075 3,447 35,560 Additional provisions 700 4,575 166 1,894 7,335 Reversals of provisions utilized (360) (635) (1,211) (2,206) Reversals of provisions not utilized (93) (560) (152) (82) (887) Exchange differences (417) (339) (85) (96) (936) Non-current liabilities held for sale at December 31, 2016 not sold in 2017 and reclassified 1,236 150 223 174 1,783 At June 30, 2017 26,626 8,668 1,228 4,127 40,650 As of June 30, 2017, it was not deemed necessary to book provisions for the risks described in Part 1 “Half Year management report – Description of the principal risks and uncertainties for the 2nd Half 2017” that could affect: the Company’s personnel, assets, environment or reputation; the Group’s ability to reach its objectives and abide by its values, ethics or the laws and regulations. Group. In accordance with the Group’s accounting policies, it may be decided to record provisions when tax-related risks are considered likely to generate a payment to local tax authorities. The Group reviews the evaluation of all its tax positions on a regular basis, using external counsels and considers that its tax positions are adequately provided for. However, the Group cannot predict the ultimate outcome of future audits. Tax and social risks and litigation Litigation Provisions for tax and social risks and litigation relate mainly to: tax risks; As of June 30, 2017, the litigation provision mainly represents distributor and commercial agent risks for 1.8 million euros (2.2 million euros at December 31, 2016). U.S. workers’ compensation. Tax audits are carried out regularly by local tax authorities which may dispute positions taken by the individual local entities of the Product liability Product liability mainly relates to the U.S. NOTE 15 OTHER CURRENT LIABILITIES (in thousand euros) December 31, 2016 June 30, 2017 Social liabilities 98,104 90,828 Other tax liabilities 12,123 24,259 Other current liabilities 121,884 147,796 OTHER CURRENT LIABILITIES 232,111 262,884 NOTE 16 DIVIDENDS For the 2016 fiscal year, an ordinary dividend of 3.45 euros per share has been distributed to the Shareholders on May 24, 2017. For the 2015 fiscal year, an ordinary dividend of 3.40 euros per share and a special dividend of 2.50 euros per share were distributed to the Shareholders on June 1, 2016. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 17 SHARE-BASED PAYMENTS As of June 30, 2017, the fair value of options and shares granted amounts to 7.6 million euros and were booked in staff costs. The Board of Directors of February 10, 2017 decided to grant 155,790 free shares to 519 beneficiaries subject to performance conditions and 17,100 free shares to 270 beneficiaries without performance conditions. The plans’ unit fair value is 109.05 euros. NOTE 18 FINANCIAL INSTRUMENTS 18-1 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of June 30, 2017 The following amounts were recognized as the fair value of derivatives at June 30, 2017 (in thousand euros): Derivative items and revaluation Hedge income qualification/ hedged risk Financial net Income/ (expense) before tax (a) – Note 6 Income From Operations – Note 4 Other comprehensive income before tax (a) Current assets (b) Non current assets Current Liabilities Impact of hedging revaluation Commercial flows Cash flow hedge/Foreign exchange risk 269 4,678 23,579 7,756 10,007 (2,304) Dividends Net investment/ Foreign exchange risk 3,029 139 Subtotal (1) 269 4,678 26,608 7,895 10,007 (2,304) Impact of revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/Foreign exchange risk Subtotal (2) 323 (43) TOTAL 1 + 2 592 4,678 26,608 7,895 10,007 (2,347) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio as of June 30, 2017, restated for the reversal of the mark-to-market of hedging instruments in the portfolio as of December 31, 2016. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 1,103 thousand euros. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT Non- current Liabilities (1,767) (1,767) (1,767) 37 38 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements 18-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2016 The following amounts were recognized as the fair value of derivatives at December 31, 2016 (in thousand euros): Derivative items and revaluation Hedge income qualification/ hedged risk Financial net Income/ (expense) before tax (a) – Note 6 Income From Operations – Note 4 Other comprehensive income before tax (a) Current assets (b) Non- current assets Current Liabilities Impact of hedging revaluation Commercial flows Cash flow hedge/Foreign exchange risk (2,164) (1,977) (10,977) 1,702 33 (12,335) Dividends Net investment/Foreign exchange risk (3,129) (2,890) Subtotal (1) (2,164) (1,977) (14,107) 1,702 33 (15,225) Impact of revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/Foreign exchange risk Subtotal (2) 152 (366) TOTAL 1 + 2 (2,012) (1,977) (14,107) 1,702 33 (15,591) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio as of December 31, 2016, restated for the reversal of the mark-to-market of hedging instruments in the portfolio as of December 31, 2015. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 979 thousand euros. NOTE 19 CONTINGENT LIABILITIES As of June 30, 2017, neither SOCIÉTÉ BIC nor its subsidiaries has any pending litigation, claims or disputes which, in the opinion of management, after consultation with their advisors, would have a material adverse impact on the consolidated financial statements. BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT Non- current Liabilities (4,234) (4,234) (4,234) CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 20 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Accounting categories and fair value of financial instruments Balance sheet items June 30, 2017 Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value Derivative through hedging the income statement instruments Held-to- maturity investments Loans and receivables (including cash) Available for sale assets Debt at amortized cost Financial assets 928,717 928,717 96,170 17,902 814,616 30 Non-current Derivative financial instruments 18 10,007 10,007 10,007 Other investments 30 30 30 Current Trade and other receivables 11 614,905 614,905 614,905 Derivative financial instruments 18 7,895 7,895 7,895 Other current financial assets 4,717 4,717 4,717 Cash and cash equivalents 291,164 291,164 91,453 199,711 Financial liabilities 349,567 349,567 4,114 345,453 Non-current Borrowings 13 182 182 182 Derivative instruments 18 1,767 1,767 1,767 Current Borrowings 13 208,465 208,465 208,465 Derivative instruments 18 2,347 2,347 2,347 Trade and other payables 11 136,805 136,805 136,805 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT At fair value through equity 39 40 CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements Balance sheet items December 31, 2016 Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Held-to- maturity investments Loans and receivables (including cash) Available for sale assets Debt at amortized cost At fair value through equity Financial assets 758,063 758,063 116,534 1,735 1,428 638,337 28 Non-current Derivatives financial instruments 18 33 33 33 Other investments 28 28 28 Current Trade and other receivables 11 483,099 483,099 483,099 Derivative financial instruments 18 1,702 1,702 1,702 Other current financial assets 29,439 29,439 28,011 1,428 Cash and cash equivalents 243,762 243,762 88,523 155,239 Financial liabilities 189,531 189,531 19,825 169,706 Non-current Borrowings 13 1,452 1,452 1,452 Derivative instruments 18 4,234 4,234 4,234 Current Borrowings 13 49,578 49,578 49,578 Derivative instruments 18 15,591 15,591 15,591 Trade and other payables 11 118,676 118,676 118,676 The valuation methods adopted for financial instruments are as follows: Financial instruments other than derivatives recorded in the balance sheet: The carrying amount used are reasonable estimates of their market value except for marketable securities whose carrying amounts are determined based on the last known net asset values as of June 30, 2017. Derivative financial instruments: Market values were calculated internally on the basis of last-known closing prices as of June 30, 2017. They are consistent with valuation reports provided by financial institutions. Fair value valuation method The tables below set out the fair value method for valuing financial instruments, using the following three levels: level 1 (quoted prices in active markets): money market UCITS and other current financial assets; level 2 (observable inputs): derivatives – hedge accounting; level 3 (non-observable inputs): no such instruments are held as of June 30, 2017. Category of instruments June 30, 2017 (in thousand euros) Total Level 1 Level 2 Level 3 At fair value through the income statement – Assets 96,170 96,170 Derivative hedges – Assets 17,902 17,902 Derivative hedges – Liabilities 4,114 4,114 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT CONDENSED CONSOLIDATED FIRST HALF FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 21 DISCONTINUED OPERATIONS BIC Graphic North America and Asia were classified as discontinued operations at December 31, 2016 following the contemplated disposal of these activities which represented almost all the assets and liabilities of BIC Graphic (operating segment). As a consequence, these assets and liabilities (including the in Norwood goodwill) were measured at December 31, 2016 accordance with IFRS 5, Non-Current Assets Held For Sale And Discontinued Operations, at the lower of their carrying amount and fair value less costs to sell. On June 6, 2017, BIC Group announced that it had signed an Asset and Share Purchase Agreement to sell its BIC Graphic North America and Asian Sourcing operations to H.I.G. Capital, a global U.S. private equity firm. The closing is effective on June 30, 2017. The net disposal price amounts to 73.6 million U.S. dollars, including 10 million U.S. dollars through a six-year subordinated note bearing a 7% per annum capitalized interest. The related loss net of tax amounts to 4.0 million euros, subject to final adjustments. Given their significant nature, these activities were subject to a restatement in the income statement and the cash flow statement as follows: Consolidated income statement (in thousand euros) Notes June 30, 2016 June 30, 2017 Net Sales 2-2 101,755 100,291 Cost of goods 4 (71,926) (69,033) Gross profit 29,829 31,258 Distribution costs 4 (20,065) (18,246) Administrative expenses 4 (11,918) (13,115) Other operating expenses 4 (2,245) (2,738) Other income 5 17 11 Other expenses 5 (1,246) (1,156) Income From Operations (5,628) (3,986) Income from cash and cash equivalents 6 27 91 Net finance income/(Net finance costs) 6 (2,684) (41) Income before tax (8,285) (3,935) Income tax expense 7 2,489 1,184 Net income from consolidated entities (5,796) (2,751) Net income from discontinued operations amounts to -6.8 million euros including the net loss of -4.0 million euros and the first half year 2017 net income of -2.8 million euros. Consolidated cash flow statement (in thousand euros) December 31, 2016 June 30, 2017 Opening cash and cash equivalents net of bank overdraft 30,288 Net cash from operating activities 22,548 6,081 Net cash from investing activities (5,310) (3,360) Net cash from financing activities (47,958) (2,302) Exchange difference 432 (419) NET CASH FROM DISCONTINUED OPERATIONS BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT 41 42 BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT AUDITOR'S REPORT 43 44 AUDITOR'S REPORT For the period from January 1 to June 30, 2017 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of SOCIETE BIC, for the period from January 1 to June 30, 2017; the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements. Neuilly-sur-Seine, August 3, 2017 The Statutory Auditors French original signed by Grant Thornton French Member of Grant Thornton International Vianney MARTIN Deloitte & Associés François BUZY BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT STATEMENT ON THE HALF-YEARLY REPORT 2017 45 46 STATEMENT ON THE HALF-YEARLY REPORT 2017 NAME AND FUNCTION Bruno Bich Chairman DECLARATION BY RESPONSIBLE PERSON OF THE 2017 HALF-YEAR FINANCIAL REPORT "I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2017 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year." On August 2, 2017 Bruno Bich Chairman BIC GROUP - 2017 HALF-YEAR FINANCIAL REPORT SOCIÉTÉ BIC - 92611 CLICHY CEDEX (FRANCE)WWW.BICWORLD.COM Photo© : Élodie Daguin 23/03/2016 18:12 BIC_DDR_2015_COUV_V04_OK_A4.indd 1 | Semestriel, 2017, Supplies, BIC | write me a financial report |
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| 2018 HALF YEAR FINANCIAL REPORT • CONTENTS MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. 1 2 3 4 7 8 9 9 10 11 11 11 11 11 12 12 Key figures H1 2018 Highlights H1 2018 Group operational trends H1 2018 operational trends by category BIC Group Net Sales by geography Impact of changes in perimeter and currency fluctuations on Net Sales Reconciliation with alternative performance measures Share repurchase program – cancelled shares Related-party transactions Capital evolution Material events that occurred in H1 2018 Material events that occurred after June 30, 2018 Description of the principal risks and uncertainties for H2 2018 Full-Year 2018 Outlook Glossary CONSOLIDATEDFINANCIAL STATEMENTS Consolidated income statement 2.1. Consolidated statement of comprehensive income 2.2. Consolidated statement of financial position 2.3. Consolidated statement of changes in equity 2.4. Consolidated cash flow statement 2.5. Notes to the consolidated financial statements 2.6. 13 14 15 16 18 19 21 AUDITOR'S REPORT 43 STATEMENT ON THE HALF-YEARLY REPORT 2018 45 1.1. Key figures 2 1.2. H1 2018 Highlights 3 1.3. H1 2018 Group operational trends 4 1.4. H1 2018 operational trends by category 7 1.5. BIC Group Net Sales by geography 8 1.6. Impact of changes in perimeter and currency fluctuations on Net Sales 9 1.7. Reconciliation with alternative performance measures 9 1.8. Share repurchase program – cancelled shares 10 1.9. Related-party transactions 11 1.10. Capital evolution 11 1.11. Material events that occurred in H1 2018 11 1.12. Material events that occurred after June 30, 2018 11 1.13. Description of the principal risks and uncertainties for H2 2018 11 1.14. Full-Year 2018 Outlook 12 1.15. Glossary 12 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 1 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 Key figures 1.1. Key figures (in million euros) Q2 2018 vs. Q2 2017 H1 2018 vs. H1 2017 Q2 2017 (restated for IFRS15) Q2 2018 As reported Constant currency basis Compa- rative basis H1 2017 (restated for IFRS15) H1 2018 As reported Constant currency basis Group Net Sales 599.0 543.9 9.2% 3.1% 2.3% 1,072.3 959.3 10.5% 3.1% Gross Profit 310.5 283.9 560.5 507.4 Normalized Income From Operations (NIFO) 137.1 118.7 13.4% 218.2 188.2 13.7% Normalized IFO margin 22.9% 21.8% 20.3% 19.6% Income From Operations (IFO) 119.6 50.0 58.2% 193.6 119.5 38.3% IFO margin 20.0% 9.2% 18.1% 12.5% Net Income Group Share 79.2 22.2 72.0% 128.7 70.8 45.0% Net Income Group Share excluding Cello Goodwill Impairment 79.2 90.9 +14.8% 128.7 139.5 +8.4% Normalized Earnings Per Share Group Share (in euros) 2.04 1.99 2.5% 3.21 3.05 5.0% Earnings Per Share Group Share (in euros) 1.70 0.49 71.2% 2.76 1.55 43.8% Stationery Net Sales 267.8 249.5 6.8% 1.7% 1.4% 433.4 401.3 7.4% 1.1% Normalized IFO 41.6 37.4 47.6 47.0 Normalized IFO margin 15.5% 15.0% 11.0% 11.7% IFO 35.5 (31.3) 36.0 (21.8) IFO margin 13.2% -12.6% 8.3% 5.4% Lighters Net Sales 186.4 165.0 11.5% 4.5% 4.5% 358.6 317.7 11.4% 2.7% Normalized IFO 77.0 63.3 141.0 117.7 Normalized IFO margin 41.3% 38.4% 39.3% 37.1% IFO 77.0 63.3 140.8 117.7 IFO margin 41.3% 38.4% 39.3% 37.1% Shavers Net Sales 123.4 113.5 8.0% 0.3% 0.3% 238.7 210.5 11.8% 3.1% Normalized IFO 17.2 16.9 31.4 24.6 Normalized IFO margin 14.0% 14.9% 13.1% 11.7% IFO 17.2 16.9 31.2 24.6 IFO margin 13.9% 14.9% 13.1% 11.7% Other products Net Sales 21.5 15.9 25.8% 24.2% 6.9% 41.6 29.8 28.5% 26.8% Normalized IFO 1.2 1.2 (1.8) (1.0) IFO (10.1) 1.2 (14.4) (1.0) GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Compa- rative basis 1.9% 0.1% 2.6% 3.1% 10.4% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 H1 2018 Highlights 1.2. H1 2018 Highlights NET SALES Stationery: 401.3 million euros (-0.1% on a comparative basis) Lighters: 317.7 million euros (-2.6% on a comparative basis) Shavers: 210.5 million euros (-3.1% on a constant currency basis) RESULTS Normalized Income From Operations (IFO): 188.2 million euros (-13.7% as reported) • Reported Income From Operations (IFO): 119.5 million euros (-38.3% as reported) Normalized IFO margin: 19.6% compared to 20.3% in H1 2017 Earnings Per Share (Group share): 1.55 euros (-43.8% as reported) Normalized Earnings Per Share (Group share): 3.05 euros (-5.0% as reported) Net cash position as of June 30, 2018: 55.1 million euros GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 3 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 H1 2018 Group operational trends 1.3. H1 2018 Group operational trends NET SALES H1 2018 Net Sales totaled 959.3 million euros, down 10.5% as reported and down 1.9% on a comparative basis. The unfavorable impact of currency fluctuations (-7.4%) was mainly due to the depreciation of the U.S. dollar and Brazilian real against the euro. Europe grew by 0.8% on a comparative basis. North America and Developing Markets declined by 0.5% and by 6.3%, respectively. INCOME FROM OPERATIONS AND NORMALIZED INCOME FROM OPERATIONS H1 2018 Gross Profit margin was 52.9%, compared to 52.3% in H1 2017. H1 2018 Normalized IFO was 188.2 million euros compared to 218.2 million euros in H1 2017, with Normalized IFO margin of 19.6% vs. 20.3% in H1 2017. KEY COMPONENTS OF THE CHANGE IN NORMALIZED IFO MARGIN (in points) H1 2017 vs. H1 2016(a) Q1 2018 vs. Q1 2017 Q2 2018 vs. Q2 2017 Change in cost of production(b) +0.3 +1.6 +0.5 Total Brand Support(c) (0.1) (0.2) +0.2 Of which, promotions and investments related to consumer and business development support accounted for in Gross Profit Margin (0.3) (0.6) (0.1) Of which, advertising, consumer and trade support +0.2 +0.4 +0.3 OPEX and other expenses (1.2) (1.8) (1.8) Total change in Normalized IFO margin excluding the special employee bonus (1.0) (0.4) (1.1) Special employee bonus +0.9 Of which, impact on Gross Profit +0.5 Of which, impact on OPEX +0.4 Total change in Normalized IFO margin (0.1) (0.4) (1.1) (a) (b) (c) Before 2017 IFRS15 restatement as 2016 was not restated. Gross Profit margin excluding promotions and investments related to consumer and business development support. Total Brand Support: consumer and business development support + advertising, consumer and trade support. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT H1 2018 vs. H1 2017 +1.0 (0.1) (0.4) +0.3 (1.6) (0.7) (0.7) MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 H1 2018 Group operational trends NON-RECURRING ITEMS (in million euros) Q1 Q2 H1 2017 (restated for IFRS 15) 2018 2017 (restated for IFRS 15) 2018 2017 (restated for IFRS 15) Income From Operations 74.1 69.6 119.6 50.0 193.6 As % of Net Sales 15.7% 16.7% 20.0% 9.2% 18.1% Restructuring costs related primarily to BIC Graphic 7.0 17.5 24.6 Cello goodwill impairment 68.7 Normalized IFO 81.1 69.6 137.1 118.7 218.2 As % of Net Sales 17.1% 16.7% 22.9% 21.8% 20.3% Cello goodwill impairment is explained by lower growth perspectives in both domestic and export sales. NET INCOME AND EPS Income before tax was at 125.3 million euros, compared to 193.6 million euros in H1 2017. Net finance revenue was 5.8 million euros compared to nil in H1 2017. H1 2018 was positively impacted, particularly in Q2, by fair value adjustments to financial assets denominated in USD when compared to December 2017. H1 2018 Net income Group Share was 70.8 million euros, a 45.0% drop as reported (139.5 million euros, increasing 8.4%, before the Cello goodwill impairment). The effective tax rate was 43.5% and 28.1% excluding the impact of Cello goodwill impairment. Q2 2018 Net Income Group Share was 22.2 million euros and would have been 90.9 million euros excluding Cello goodwill impairment. EPS Group share was 1.55 euros, compared to 2.76 euros in H1 2017, i.e., down 43.8%. Normalized H1 EPS Group share decreased 5.0% to 3.05 euros, compared to 3.21 euros in H1 2017. EPS Group Share in Q2 2018 was 0.49 euros compared to 1.70 euros in Q2 2017, down 71.2%. Normalized Q2 2018 EPS Group share decreased 2.5% to 1.99 euros, compared to 2.04 euros in Q2 2017. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 2018 119.5 12.5% 68.7 188.2 19.6% 5 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 H1 2018 Group operational trends NET CASH POSITION At the end of June 2018, the Group’s net cash position stood at 55.1 million euros. CHANGE IN NET CASH POSITION (in million euros) 2017 (restated for IFRS 15) Net Cash position (beginning of period - December) 222.2 Net cash from operating activities +77.0 Of which operating cash flow +196.9 Of which change in working capital and others (119.9) CAPEX (74.7) Dividend payment (161.0) Share buyback program (18.0) Net cash from the exercise of stock options and the liquidity contract +0.6 Proceeds from sale of BIC Graphic North America and Asian Sourcing(a) +55.7 Others (14.6) Net Cash position (end of period - June) 87.2 (a) 2017 Net Cash Position excluded 8.8 million euros of subordinated loan. Net cash from operating activities was +83.1 million euros, including +197.7 million euros in operating cash flow. The negative 114.6 million euros change in working capital, and others was mainly driven by accounts receivables and inventory increased when compared to December 2017 mainly due to seasonality. Net cash was also negatively impacted by investments in CAPEX as well as the dividend payments and share buybacks. SHAREHOLDERS’ REMUNERATION Ordinary dividend of 3.45 euros per share paid in May 2018. 23.8 million euros in share buy-backs by Société BIC at the end of June 2018 (296,932 shares purchased at an average price of 80.04 euros). BIC Corporation had share buy-backs for 0.1 million euros. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 2018 204.9 +83.1 +197.7 (114.6) (51.6) (157.8) (23.9) +1.4 +9.2 (10.2) 55.1 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 H1 2018 operational trends by category 1.4. H1 2018 operational trends by category Stationery Lighters Stationery H1 2018 Net Sales decreased by 7.4% as reported and by 0.1% on a comparative basis. Second quarter 2018 Net Sales were down 6.8% as reported and down 1.4% on a comparative basis. H1 2018 Net Sales of Lighters decreased by 11.4% as reported and by 2.6% on a comparative basis. Second quarter 2018 Net Sales were down 11.5% as reported and down 4.5% on a comparative basis. In Europe, while the market declined 2.2% in value(1). Net Sales were flat with continued solid performance in Southern Europe (Spain and Turkey) partially offset by negative back-to-school phasing in France (shipment to customers postponed from June to July, versus last year). Europe Net Sales were flat in H1. In Western Europe, in spite of unchanged market conditions and distribution channels for BIC, performance was impacted by the decision to adjust a part of our route-to-market in traditional networks. In Eastern Europe, we continued to grow market share. In North America, Net Sales increased mid-single digit with a strong performance in e-commerce, the on-going success of our BIC® Gelocity Quick Dry pen, as well as positive back-to-school phasing. Year-to-date June 2018, BIC outperformed the declining U.S. Stationery market (-0.9%), gaining 0.5 points market share in value(2). In Latin America, Net Sales decreased low-single digit, negatively impacted by the 10-day transportation strike in May in Brazil, combined with on-going inventory adjustments by customers, as well as a negative back-to-school phasing in Mexico. North American Net Sales decreased slightly in H1. Following pre-buys from retailers in Q1 ahead of the April 1st price increase, Q2 performance was soft, as expected. The non-refillable pocket lighter market in the US declined by 0.3%(3). In Latin America, Net Sales decreased high-single digit, due to on-going In addition to this, Brazil’s performance was impacted by the 10-day transportation strike in May. Mexico performed well with a positive trend in Q2, driven by enlarged distribution in traditional stores. inventory adjustments by customers in Brazil. Cello Pens Domestic Sales in India were flat on a comparative basis as Cello continues its product trade-up strategy and portfolio streamlining. H1 2018 Normalized IFO margin for Stationery was 11.7%, compared to 11.0% in H1 2017 with favorable Sales Mix and cost efficiency, offsetting increasing Raw Material costs. Q2 2018 Normalized IFO margin was 15.0%, compared to 15.5% in Q2 2017. H1 2018 Normalized IFO margin for Lighters was 37.1%, compared to 39.3% in H1 2017, reflecting an increase in Raw Materials and Brand Support as well as unfavorable fixed cost absorption. Q2 2018 Normalized IFO margin was 38.4%, compared to 41.3% in Q2 2017. (1) Source: GFK - YTD May 2018 – Europe 7 (France, UK, Germany, Italy, Spain, Belgium, Greece). (2) Source: NPD - YTD July 2018. (3) Source: IRI CMULO - YTD 1-JUL-2018. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 7 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 BIC Group Net Sales by geography Shavers H1 2018 Net Sales of Shaver's decreased by 11.8% as reported, and by 3.1% on a constant currency basis. Second quarter 2018 Net Sales decreased by 8.0% as reported and by 0.3% on a constant currency basis. The performance was solid in Europe with Net Sales increasing mid-single digit. This was mainly due to continued growth in Eastern Europe, notably in Russia with a market share increase driven by BIC® Flex 3 Hybrid and new distribution gains. Western Europe Net Sales were flat in spite of a declining market (down 1.1% in value, YTD May 2018(1)) for the one-piece segment. In the Middle-East and Africa, Net Sales decreased double-digit in with performance negatively promotional activities and current unfavorable importation legislation in North Africa. impacted by a decrease H1 2018 Normalized IFO margin for Shaver's was 11.7% compared to 13.1% in H1 2017, driven by low volumes, unfavorable product mix increase in Raw Material costs partially offset by lower Brand Support compared to last year. Q2 2018 Normalized IFO margin was 14.9%, compared to 14.0% in Q2 2017. Other Products In North America, Net Sales decreased mid-single digit, negatively impacted by the on-going market disruption including competitive pressure. BIC underperformed the U.S. one-piece market (down 3.9% in value), losing 0.5 points resulting with 26.4% market share in value (YTD June 2018(2)), in spite of the continued success of our new products BIC® Soleil® Balance, N°1 new product on the female one-piece market, BIC® Flex 3 Hybrid and BIC® Soleil® Bella Click. In Latin America, net sales were flat. In Brazil, the impact of the 10-day transportation strike was more than offset by our distribution expansion and market share momentum, while market declined 2.7% in value (YTD May 2018(3)). BIC gained 2.5 points to reach 21.2% market share in value (YTD May), driven by BIC® 3 and our latest launches such as BIC® Flex 3 and BIC® Soleil Sensitive. H1 2018 Net Sales of Other Products decreased by 28.5% as reported and by 10.4% on a comparative basis. Second quarter 2018 Net Sales decreased by 25.8% as reported and by 6.9% on a comparative basis. BIC Sport posted a low double-digit decrease in its Net Sales on a comparative basis. H1 2018 Normalized IFO for Other Products was a negative 1.0 million euros, compared to a negative 1.8 million euros in H1 2017. Q2 2018 Normalized IFO for Other Products was 1.2 million euros, flat vs. last year. 1.5. BIC Group Net Sales by geography (in million euros) Q2 2018 vs. Q2 2017 H1 2018 vs. H1 2017 Q2 2017 (Restated for IFRS 15) Q2 2018 As reported Comparative basis H1 2017 (Restated for IFRS 15) H1 2018 As reported Comparative basis Group Net Sales 599.0 543.9 9.2% 2.3% 1,072.3 959.3 10.5% 1.9% Europe Net Sales 181.2 176.1 2.8% +1.7% 312.8 300.3 4.0% +0.8% North America Net Sales 241.9 224.9 7.0% 0.7% 420.4 379.8 9.7% 0.5% Developing markets Net Sales 175.9 142.9 18.7% 8.5% 339.1 279.1 17.7% 6.3% (1) Source: MAT Nielsen - May 2018. (2) Source: IRI total market YTD ending 01-JULY-2018. (3) Source: Retail Index, YTD May 2018. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 Impact of changes in perimeter and currency fluctuations on Net Sales 1.6. Impact of changes in perimeter and currency fluctuations on Net Sales (in %) Q2 2017 Q2 2018 H1 2017 Perimeter 0.3% 0.8% 0.2% Currencies +2.0% 6.1% +2.9% Of which USD +0.8% 2.6% +1.1% Of which BRL +0.8% 1.2% +1.4% Of which ARS 0.1% 0.4% 0.1% Of which INR +0.2% 0.3% +0.2% Of which MXN +0.0% 0.7% 0.2% Of which RUB and UAH +0.2% 0.3% +0.2% 1.7. Reconciliation with alternative performance measures NORMALIZED IFO RECONCILIATION (in million euros) H1 2017 (restated for IFRS 15) FY 2017 (restated for IFRS 15) Income From Operations 193.6 374.9 Restructuring costs related primarily to BIC Graphic +24.6 +24.7 Cello goodwill impairment Normalized IFO 218.2 399.6 NORMALIZED EPS RECONCILIATION (in euros) H1 2017 (restated for IFRS15) 2017 (restated for IFRS15) EPS 2.76 6.18 Net loss from divestiture of BIC Graphic North America and Asian Sourcing +0.09 +0.09 Normalized EPS excluding impairment recognized for BIC Graphic North America and Asia Sourcing 2.85 6.27 Restructuring costs related primarily to BIC Graphic +0.36 +0.38 Cello goodwill impairment Normalized EPS 3.21 6.65 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT H1 2018 1.2% 7.4% 3.6% 1.3% 0.6% 0.4% 0.5% 0.3% H1 2018 119.5 +68.7 188.2 H1 2018 1.55 1.55 +1.50 3.05 9 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 Share repurchase program – cancelled shares NET CASH RECONCILIATION (in million euros – rounded figures) December 31, 2017 June 30, 2018 Cash and cash equivalents (1) 188.6 170.5 Other current financial assets (2)(a) 21.4 25.1 Current borrowings (3)(a) (4.9) (140.5) Non-current borrowings (4) (0.2) NET CASH POSITION (1) + (2) - (3) - (4) 204.9 55.1 (a) In the balance sheet at December 31, 2017 and at June 30, 2018, the line “Other current financial assets and derivative instruments” also includes respectively 23.6 million euros and 9.3 million euros worth of derivative instruments. . In the balance sheet at December 31, 2017 and at June 30, 2018, the line ”Current borrowings” includes also respectively 1.7 million euros and 36.7 million euros worth of bank overdrafts and 3.1 million euros and 103.7 million euros worth of current borrowings. 1.8. Share repurchase program – cancelled shares SOCIÉTÉ BIC obtained at the Annual Shareholders’ Meeting on May 16, 2018 to renew its shares repurchase program. During the first half of 2018: SOCIÉTÉ BIC repurchased, under the liquidity agreement with Natixis, 314,097 shares for a total value of 26.62 million euros and sold 312,216 shares for a total value of 26.50 million euros; SOCIÉTÉ BIC repurchased 296,932 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 16, 2018, excluding shares acquired under the liquidity agreement; 15,526 options were exercised in the period for 0.99 million euros, of which 0.11 million euros had not been received at the end of June 2018; SOCIÉTÉ BIC received 0.69 million euros in early 2018, related to stock options exercised at the end of 2017. SHARE BUY-BACK PROGRAM - SOCIÉTÉ BIC Number of shares acquired Average weighted price (in euros) Amount (in million euros) February 2018 100,009 83.37 8.3 March 2018 165,000 78.07 12.9 April 2018 May 2018 June 2018 31,923 79.74 2.6 TOTAL 296,932 80.04 23.8 The number of free, performance-based shares transferred to is 120,133 during the first half 2018, of which beneficiaries 118,427 shares transferred by SOCIÉTÉ BIC and 1,706 shares transferred by BIC CORPORATION. The number of free, non-performance-based shares transferred to beneficiaries by SOCIÉTÉ BIC was 14,100. Moreover, SOCIÉTÉ BIC carried out 170,720 free, performance-based share grants and 30,500 free, non-performance-based share grants. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 Related-party transactions 1.9. Related-party transactions This paragraph is aimed at ensuring transparency in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). Significant related-party transactions are described in the Note 25 – Related parties on page 225 of the Group BIC 2017 registration document filed with the Paris Strock Exchange Athority "Autorité des Marchés Financiers (AMF)" on March 21, 2018. During the First Half of 2018, no other significant related-party transactions were identified. 1.10. Capital evolution N/A 1.11. Material events that occurred in H1 2018 N/A 1.12. Material events that occurred after June 30, 2018 N/A 1.13. Description of the principal risks and uncertainties for H2 2018 BIC pursues an active and dynamic approach to risk management. The purpose of this approach is to enhance the Group’s capacity in identifying, managing and monitoring major risks that could affect: its personnel, assets, environment, customers, Shareholders or reputation; A description of the main risks identified by the BIC Group is in the section entitled “Risks factors” of the 2017 available registration document (page 24) filed with the Autorité des Marchés Financiers (AMF) on March 21, 2018 and which is available online, at the following: the Group’s ability to reach its objectives and abide by its values, ethics or laws and regulations. The approach is based on identification and analysis of the main risks to which the Group is exposed, particularly those related to the following areas: financial markets, legal, industry and environment, strategy and operations and including products safety. http://www.bicworld.com/en/finance/publications/. No additional significant risk or uncertainties have been identified for the second half of 2018. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 11 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2018 Full-Year 2018 Outlook 1.14. Full-Year 2018 Outlook We expect 2018 Group Net Sales to increase between +1 and +3% on a comparative basis, with all categories contributing to the growth. Major factors affecting sales performance could include continued competitive pressures in Shavers, further inventory reductions from retailers, and continued softness in the Brazilian economy. 2018 Normalized Income from Operations will also be impacted by sales performance. Based on these factors, we expect Normalized Income from Operations margin to be between 17% and 18%. Gross Profit will be impacted by an increase in raw material costs, higher depreciation, while we will continue to invest in targeted Brand Support and Operating Expenses. 1.15. Glossary Constant currency basis: constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates. Organic growth or Comparative basis: at constant currencies and constant perimeter. Figures at constant perimeter exclude the impacts of acquisitions and/or disposals that occurred during the current year and/or during the previous year, until their anniversary date. All Net Sales category comments are made on a comparative basis. Gross profit: is the margin that the Group realizes after deducting its manufacturing costs. Normalized IFO: normalized means excluding non-recurring items as detailed on page 3. Normalized IFO margin: Normalized IFO as a percentage of Net Sales. Net cash from operating activities: principal revenue-generating activities of the entity and other activities that are not investing or financing activities. Net cash position: Cash and cash equivalents + Other current financial assets - Current borrowings - Non-current borrowings (except financial liabilities following IFRS 16 implementation). GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 2.1. Consolidated income statement 14 2.2. Consolidated statement of comprehensive income 15 2.3. Consolidated statement of financial position 16 2.4. Consolidated statement of changes in equity 18 2.5. Consolidated cash flow statement 19 2.6. Notes to the consolidated financial statements 21 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS 13 14 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated income statement 2.1. Consolidated income statement (Condensed financial statements) (in thousand euros) Net sales Cost of goods Gross profit (a) Distribution costs Administrative expenses Other operating expenses Other income Other expenses Income from operations Income from cash and cash equivalents Net finance income/(Net finance costs) Income before tax Income tax expense Net income from consolidated entities Net income from continuing operations Net income from discontinued operations Consolidated income of which: Non-controlling interests Net income Group share Earnings per share Group share (in euros) Continuing operations Discontinued operations Diluted earnings per share Group share (in euros) (b) Continuing operations Discontinued operations Average number of shares outstanding net of treasury shares over the period (a) (b) * Gross profit is the margin that the Group realizes after deducting its manufacturing costs. The dilutive elements taken into account are stock options. Restated for IFRS 15 “Revenue from Contracts with Customers”. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Notes 2-2 4 4 4 4 5 5 6 6 7 8 8 8 8 8 June 30, 2017* 1,072,255 (511,725) 560,530 (148,696) (110,767) (83,752) 2,328 (26,003) 193,640 3,842 (3,884) 193,598 (58,145) 135,453 135,453 (6,776) 128,677 128,677 2.76 2.90 (0.14) 2.73 2.88 (0.15) 46,683,913 June 30, 2018 959,294 (451,864) 507,430 (138,969) (105,156) (73,435) 1,424 (71,754) 119,540 3,348 2,426 125,314 (54,520) 70,794 70,794 70,794 70,794 1.55 1.55 1.54 1.54 45,755,483 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated statement of comprehensive income 2.2. Consolidated statement of comprehensive income (Condensed financial statements) (in thousand euros) Notes June 30, 2017* GROUP NET INCOME* A 128,677 OTHER COMPREHENSIVE INCOME Actuarial differences on post-employment benefits not recyclable to the income statement (a) 1,944 Deferred tax on actuarial differences on post-employment benefits 7-2 (670) Total actuarial differences not recyclable to the income statement - Net of tax B 1,274 Gain/(Loss) on cash flow hedge 26,608 Exchange differences arising on translation of overseas operations* (b) (65,125) Equity instruments at fair value 3 Deferred tax and current tax recognized on other comprehensive income 7-2 (6,155) Other comprehensive income recyclable to the income statement - Net of tax C (44,669) TOTAL COMPREHENSIVE INCOME D = A + B + C 85,282 Attributable to: BIC Group 85,282 Non-controlling interests TOTAL 85,282 (a) (b) The impact of actuarial differences is mainly due to U.S. plans. The main items impacting the translation reserve variance for the period, by currency, are as follows: Brazilian real -24.6 million euros, U.S. dollar +10.4 million euros, Indian rupee -8.8 million euros, Argentinian peso -6.4 million euros and Mexican peso +3.5 million euros. Restated for IFRS 15 “Revenue from Contracts with Customers”. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT June 30, 2018 70,794 21,942 (4,911) 17,031 (17,254) (31,564) (3) 7,221 (41,600) 46,225 46,225 46,225 15 16 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated statement of financial position 2.3. Consolidated statement of financial position (Condensed financial statements) ASSETS (in thousand euros) Notes December 31, 2017* January 1, 2018** Property, plant and equipment 9-1, 9-2 631,083 684,559 Investment properties 1,788 1,788 Goodwill 10 276,851 276,851 Intangible assets 73,780 73,780 Other non-current assets 11 44,840 44,840 Deferred tax assets 140,637 140,637 Derivative instruments 19 38 38 Non-current assets 1,169,017 1,222,493 Inventories 12 428,977 428,977 Income tax advance payments 32,254 32,254 Trade and other receivables 12 477,080 473,499 Other current assets 12,763 12,763 Derivative instruments 19 23,620 23,620 Other current financial assets 19, CF 21,395 21,395 Cash and cash equivalents 21, CF 188,626 188,626 Current assets 1,184,715 1,181,134 TOTAL ASSETS 2,353,732 2,403,627 ** CF: Restated for IFRS 15 “Revenue from contracts with customers”. Opening balance sheet - First-time application of IFRS 9 “Financial Assets depreciation” and IFRS 16 “Leases”. see consolidated cash flow statement. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT June 30, 2018 676,923 1,772 206,528 72,101 45,537 105,016 136 1,108,013 470,175 11,687 573,974 18,744 9,343 25,093 170,473 1,279,489 2,387,502 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated statement of financial position EQUITY AND LIABILITIES (in thousand euros) Notes December 31, 2017* January 1, 2018** Share capital 13-1 175,141 175,141 Accumulated profits 1,527,029 1,523,446 Shareholders’ equity Group share 1,702,170 1,698,587 Non-controlling interests Shareholders’ equity SHEQ 1,702,170 1,698,587 Non-current borrowings 14, 19 215 51,643 Other non-current liabilities 1,112 1,112 Employee benefits obligation 174,139 174,139 Provisions 15 42,171 42,692 Deferred tax liabilities 48,176 48,176 Derivative instruments 19 104 104 Non-current liabilities 265,917 317,866 Trade and other payables 12 125,539 125,539 Current borrowings 14 4,866 6,396 Current tax due 10,774 10,774 Other current liabilities 16 242,245 242,245 Derivative instruments 19 2,220 2,220 Current liabilities 385,645 387,174 TOTAL EQUITY AND LIABILITIES 2,353,732 2,403,627 ** SHEQ: See consolidated statement of changes in equity. Restated for IFRS 15 “Revenue from Contracts with Customers”. Opening balance sheet - First-time application of IFRS 9 “Financial assets depreciation” and IFRS 16 “Leases”. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT June 30, 2018 174,565 1,395,051 1,569,616 1 569 616 35,300 1,098 166,146 43,555 5,237 216 251,552 130,709 153,974 17,492 258,147 6,012 566,334 2,387,502 17 18 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4. Consolidated statement of changes in equity (in thousand euros) Notes Share capital Accumulated profits Actuarial differences recognized in equity Translation reserve Cash flow hedge derivatives Cost of hedging through OCI Share- holders’ equity Group share Non- controlling interests At January 1, 2017 reported 178,333 1,644,117 (83,085) 62,182 (8,933) 1,792,615 IFRS 15 adjustment (934) At January 1, 2017 restated 178,333 1,643,182 (83,085) 62,182 (8,933) 1,791,681 Dividends paid Decrease in share capital Increase in share capital Treasury shares Recognition of share-based payments Other movements Total transactions with Shareholders Net income for the period* Other comprehensive income IFRS 9 “Hedge accounting” restatement** Total comprehensive income CF, 17 CF, 18 (3,804) 281 331 - (3,193) - (161,045) (93,334) 3,634 391 7,851 (111) (242,615) 287,341 11,245 2,136 - - - - - (16,302) - - - - - (147,879) - - - - - 21,892 - - - - - (2,136) (161,045) (97,138) 3,915 722 7,851 (111) (245,807) 287,341 (131,044) - - - - - 300,722 (16,302) (147,879) 21,892 (2,136) 156,297 At January 1, 2018 175,141 1,701,290 (99,387) (85,697) 12,959 (2,136) 1,702,170 IFRS 9 adjustment “Financial assets depreciation” (3,583) (3,583) At January 1, 2018 restated 175,141 1,697,707 (99,387) (85,697) 12,959 (2,136) 1,698,587 Dividends paid Decrease in share capital (a) Increase in share capital (b) Treasury shares Recognition of share-based payments Other Total transactions with Shareholders Net income for the period Other comprehensive income Total comprehensive income CF, 17 CF, 18 - 59 (635) - (576) (157,762) - 930 (23,403) 5,614 1 (174,620) 70,794 1,240 17,031 - - - - (31,564) - - - - (9,382) (1,894) (157,762) - 989 (24,038) 5,614 1 (175,196) 70,794 (24,569) - - - - 72,034 17,031 (31,564) (9,382) (1,894) 46,225 At June 30, 2018 174,565 1,595,121 (82,356) (117,261) 3,577 (4,030) 1,569,616 (a) (b) CF: * ** No shares were cancelled during the first half of 2018. Following the exercise of stock options, the share capital was increased by 15,526 shares. see consolidated cash flow statement. Restated for IFRS 15 “Revenue from Contracts with Customers”. Restated for IFRS 9 for the time value of options and forward contracts. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Share- holders’ equity 1,792,615 (934) 1,791,681 (161,045) (97,138) 3,915 722 7,851 (111) (245,807) 287,341 (131,044) 156,297 1,702,170 (3,583) 1,698,587 (157,762) - 989 (24,038) 5,614 1 (175,196) 70,794 (24,569) 46,225 1,569,616 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated cash flow statement 2.5. Consolidated cash flow statement Notes to the consolidated financial statements for the first Hear ended June 30, 2018 (in thousand euros) Notes June 30, 2017* Operating activities Net income Group share Net income from discontinued operations Net income from continuing operations Income and expense without cash impact: Non-controlling interests Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss Goodwill impairment Provision for employee benefits Other provisions (excluding provisions on current assets) Unrealized foreign currency (gain)/loss Hedging and derivative instruments Option premium expense Recognition of share-based payments Deferred tax variation (Gain)/loss from disposal of fixed assets IS IS 2,9 2, 5, 9-2 10, (a) 15 (b) 19 19 18, SHEQ 7-1 5, (c) 128,677 (6,776) 135,454 46,921 (81) - 10,704 4,232 2,425 (5,147) 1,402 8,602 (11,032) 10,171 Cash flow from operations 196,874 (Increase)/decrease in net working capital Payments related to employee benefits Financial expense/(income) Interest (paid)/received Income tax expense Income tax paid • Net cash from operating activities from continuing operations Net cash from operating activities from discontinued operations 12, (d) (e) 6 7-1 (123,820) (10,321) (2,711) 2,553 62,036 (47,591) 70,939 6,081 NET CASH FROM OPERATING ACTIVITIES 77,020 Investing activities Disposal of fixed assets Purchases of property, plant and equipment Purchases of intangible assets (Increase)/Decrease in other investments Sale of other current financial assets Divestiture of BIC Graphic North America and Asian Sourcing • Net cash from operating activities from continuing operations Net cash from operating activities from discontinued operations (c) 9-1, (g) (g) (h) (i) 854 (71,501) (3,240) (472) 24,734 55,749 9,484 (3,360) NET CASH FROM INVESTING ACTIVITIES 6,124 Financing activities Dividends paid Borrowings/(Repayments) Payments of obligations under finance leases Purchase of financial instruments Increase in treasury shares Exercise of stock options • Net cash from financing activities from continuing operations Net cash from financing activities from discontinued operations SHEQ, 17, (j) 14, (k) 19 (l) (l) (161,045) 130,592 (1,145) (1,525) (19,455) 2,040 (48,235) (2,302) NET CASH FROM FINANCING ACTIVITIES (50,539) Net cash variation 32,604 Opening cash and cash equivalents net of bank overdrafts Exchange difference BS, 14 217,430 (14,774) CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 14 235,260 IS: See consolidated income statement. SHEQ: See consolidated statement of changes in equity. BS: See consolidated balance sheet. * Restated for IFRS 15 “Revenue from Contracts with Customers”. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT June 30, 2018 70,794 - 70,794 53,001 (47) 68,709 8,953 790 (4,938) 929 560 5,614 (6,631) (50) 197,684 (134,405) (6,843) (1,244) 1,365 61,151 (34,592) 83,116 - 83,116 603 (48,324) (3,281) 73 5,021 - (45,908) - (45,908) (157,762) 100,929 (7,292) (659) (23,919) 1,444 (87,259) - (87,259) (50,051) 186,969 (3,189) 133,729 19 20 CONSOLIDATEDFINANCIAL STATEMENTS Consolidated cash flow statement As of June 30, 2018, cash and cash equivalents amounted to 170.5 million euros and bank overdrafts to 36.7 million euros. Purchases of property, plant and equipment do not include finance leases booked as a counterpart to a financial debt, as these transactions do not have any impact on cash (g). Net cash from operating activities H1 2018 net cash to 83.1 million euros and included 1.9 million euros in payments related to restructuring (5.4 million euros during the first half 2017). from operating activities amounted The amount of financial assets classified under “Other current financial assets” refers to investments not eligible for classification as Cash & cash equivalents under IAS 7. As of June 30, 2018, these investments consisted of units of UCITS and negotiable debt securities, all of which are liquid within 5 days (h). During the first half 2018, a partial impairment of Cello goodwill was booked for 68.7 million euros (see note 10) (a). The Group recorded foreign exchange (gains)/ losses with no cash impact in financial income and restated these in the consolidated cash flow statement (b). During the first half of 2017, the BIC Group disposed of BIC Graphic North America and Asian Sourcing operations. The net disposal price amounted to 55.7 million euros (63.6 million U.S. dollars) (i). Net cash from financing activities During the first half 2018, there was no gain on disposal of individually significant fixed assets (c). During the first half 2017, the loss on disposal before tax corresponded to BIC Graphic North America and Asian Sourcing operations and amounted to 10.0 million euros (c). In the first half of 2018, cash from financing activities amounted to -87.3 million euros compared to -50.5 million euros during the first half 2017. The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 17) (j). During the first half 2017, there was no other disposal of individually significant fixed assets (c). The working capital (see note 12 for the definition) increase amounted to 134.4 million euros, compared to an increase during the (including 117.8 million euros related to continuing operations). The 2018 variance in trade receivables (d). first half 2017 of 123.8 million euros is mainly explained by a strong increase The payments related to employee benefits were mainly driven by the U.S. (e). NET CASH FROM INVESTING ACTIVITIES In the first half of 2018, cash from investing activities amount to 45.9 million euros compared to 6.1 million euros during the first half 2017. During the first half of 2018 and 2017, there was no disposal of individually significant fixed assets (c). During the first half of 2018, the BIC Group purchased 51.6 million euros of property, plant and equipement and intangible assets (out of which 0.3 millions euros were cashed out for 2017 investments)(g). As of June 30, 2018, new borrowings amounted to 100.9 million euros compared to 130.6 million euros during the first half 2017. They are short-term financing to ensure the ad hoc liquidity needs of SOCIÉTÉ BIC (k). During the first half 2018, 296,932 shares were repurchased by SOCIÉTÉ BIC for 23.8 million euros and 1,706 shares were repurchased by BIC Corporation for an amount of 0.2 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 314,097 shares for 26.6 million euros and sold 312,216 shares for 26.5 million euros. In addition, 15,526 options were exercised in the period for 1.0 million euros, including 0.1 million euros which have not yet been received at end of June 2018. Moreover, in early 2018, SOCIÉTÉ BIC received 0.7 million euros related to stock options exercised at the end of 2017 (l). During the first half 2017, 160,577 shares were repurchased by SOCIÉTÉ BIC for 18.0 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 256,666 shares for 29.6 million euros and sold 243,506 shares for 28.3 million euros. In addition, 30,270 options were exercised including 0.2 million euros which have not yet been received at end of June 2017. Moreover, in early 2017, SOCIÉTÉ BIC received 0.6 million euros related to stock options exercised at the end of 2016 (l). in the period for 1.7 million euros, GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 2.6. Notes to the consolidated financial statements General Balance sheet - Liabilities NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 22 NOTE 13 SHARE CAPITAL NOTE 2 1-1 Accounting policies 1-2 Change in Group structure 1-3 Subsequent events OPERATING SEGMENTS 22 24 24 24 NOTE 14 13-1 13.2 Share capital SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2018 BORROWINGS AND FINANCIAL LIABILITIES NOTE 3 2-1 2-2 General information Information on the income statement and assets by activity Information by geography 2-3 EXCHANGE RATES OF FOREIGN CURRENCIES 24 24 25 25 NOTE 15 NOTE 16 PROVISIONS OTHER CURRENT LIABILITIES Additional Information Income Statement NOTE 17 DIVIDENDS NOTE 4 OPERATING EXPENSES 26 NOTE 18 SHARE BASED PAYMENTS NOTE 5 OTHER INCOME AND EXPENSES 26 NOTE 19 FINANCIAL INSTRUMENTS NOTE 6 NOTE 7 NOTE 8 FINANCIAL INCOME INCOME TAX 7-1 7-2 Income tax expense Deferred and current tax recognized in other comprehensive income EARNINGS PER SHARE GROUP SHARE 27 27 27 28 29 NOTE 20 NOTE 21 19-1 19-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of June 30, 2018 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2017 CONTINGENT LIABILITIES EXPOSURE TO MARKET RISKS Balance sheet - Assets 21-1 21-2 Credit risk Fair value of financial assets and liabilities NOTE 9 PROPERTY, PLANT AND EQUIPMENT 29 NOTE 10 9-1 9-2 Property, plant and equipment - Gross value Property, plant and equipment - Depreciation and impairment loss GOODWILL 29 30 30 NOTE 11 OTHER NON-CURRENT ASSETS 32 NOTE 12 CHANGE IN NET WORKING CAPITAL 32 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 33 33 33 34 35 35 35 36 36 36 37 37 38 38 39 42 21 22 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 1-1 Accounting policies 1-1-1 Pursuant to European regulation no. 1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in accordance with accounting principles as defined by the International Accounting Standards Board (IASB) as adopted by the European Union. International Financial Reporting Standards are available on the at http://ec.europa.eu/internal_market/accounting/ias/index_en.htm. General European Union website 1-1-2 Adoption of new and revised International Financial Reporting Standards, interpretations and amendments New standards, amendments and interpretations of mandatory application for financial years beginning on or after January 1, 2018 The international standards include the IFRS (International Financial Reporting Standards), the IAS (International Accounting Standards), as well as their SIC (Standing Interpretations Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. The following standards and amendments are effective since January 1, 2017 and have been applied to the consolidated financial statements as of June 30, 2018: IFRS 9 – Financial Instruments. The condensed consolidated financial statements as of June 30, 2017 and June 30, 2018 have been prepared in compliance with IAS 34 “Interim Financial Reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. The implementation of this standard has the following main impacts on the financial statements: • Impairment of financial assets (particularly trade receivables) is based on expected credit losses (instead of observed), starting as from initial recognition. IAS 34 allows presentation of a selection of notes to the condensed consolidated financial statements that should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017. To determine the expected credit losses for the portfolio, the Group uses a provision matrix based on its historical observed default rates over the expected remaining life of the trade receivables, which is adjusted for forward-looking estimates. The measurement procedures used for the condensed consolidated financial statements are as follows: income tax expense for the period results from the estimated annual Group effective income tax rate applied to the pre-tax result of the period excluding unusual material items. The income tax charge related to any unusual item in the period is accrued using its actual tax expense; The additional amount of provision to be recorded is booked through Shareholders’ equity at the transition date. It amounts to 3.6 million euros; • BIC applies IFRS 9 for hedge accounting. Therefore, for option and forward contracts documented in hedge accounting, the fair value change in: the time value component of options, and regarding the main pension plans and other employee benefits (United States, Canada, France, Great Britain), actuarial valuations are performed every six months. Amounts recognized in the interim statement of financial position are based on estimates made at the end of the previous year and on the discount rates as of June 30. Regarding share-based payments and other benefits plans, expenses are recognized in the period pro rata to the estimated costs for the year. the forward points is recorded through OCI. These amounts will be recycled in financial income when the hedged item is recorded. The impact of the restatement as of January 1, 2018 amounts to 73 thousand euros for the time value of the options and 3.4 million euros for forward exchange contracts (2.1 million euros after tax); IFRS 15 – Revenue Amendments to IFRS 15 – Clarification. from Contracts with Customers and The principal accounting policies remain unchanged compared to last year except for adoption of the following standards, effective since January 1st, 2018. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements In May 2014, the IASB released IFRS 15 with the FASB (Financial IFRS 15 establishes a single Accounting Standards Board). comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It supersedes the following revenue Standards and Interpretations as of January 1, 2018: IAS 18 – Revenue; IAS 11 – Construction Contracts; IFRIC 13 – Customer Loyalty Programmes; IFRIC 15 – Agreements for the Construction of Real Estate; IFRIC 18 – Transfers of Assets from Customers; and SIC 31 – Revenue – Barter Transactions Involving Advertising Services. The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2018 As of June 30, 2018, the Group did not elect to early apply any standard, interpretation or amendment, except for IFRS 16 - Leases: Upon its initial implementation, IFRS 16 affects the accounting of leases by lessees: • as of January 1, 2018, the lessees will have to recognize in the assets of the balance sheet in the form of a right of use with a counterpart of a rent liability, all leases of whatever nature, either operating leases or finance leases; The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is presented in a five-step model framework: • • • • identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; recognize revenue when performance obligation. (or as) the entity satisfies a The effects on the consolidated financial statements are limited and concern certain contractual clauses in the sales agreements. The main impact is related to business development funds that consist of general brand promotions or advertising services (that the Group could have also acquired from a third-party advertising supplier) and is accounted for as an operating expense instead of net sales amounting 11.6 million euros as of June 30, 2017. in addition to the effect on the statement of financial position, the income statement is also affected: instead of the current operating expense, lessees recognize a depreciation charge and an interest expense; regarding the statement of cash flows, only the interest expenses continue to affect the operating cash flows, while the financing cash flows are impacted by the repayment of the debt. Financial reporting judgement when applying the new accounting standard, notably: • • • The Group has chosen the modified retrospective transition method. is subject to a significant amount of the definition of a lease; the estimation of the remaining duration of each lease; the determination of the discount rate. Amendments to IAS 19 – Plan Amendments, Curtailments and Settlements. The Income from operations is not affected significantly, but this new accounting treatment mainly results in a reclassification between net sales and expenses. The Group has decided to apply the standard retrospectively to the prior reporting period presented in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. New standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2018 IFRIC 23 – Uncertainty over Income Tax Treatments; IFRIC 22 – Foreign Currency Transactions and Advance Consideration. Analysis on the practical consequences of these new regulations is in progress. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 23 24 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 1-2 Change in Group structure 1-3 Subsequent events At June 30, 2018, there is no significant change in Group structure. No subsequent event occurred between July 1, 2018 and the reporting date. NOTE 2 OPERATING SEGMENTS 2-1 General information BIC Group operating segments have been determined based on the reports regularly provided to the management and used to make strategic decisions. 2-2 Information on the income statement and assets by activity All indicators are determined according to IFRS, except for: The management considers the business from a product category perspective, knowing that each category can be reviewed for a specific geographic area if necessary. On February 7, 2017, the BIC Group confirmed the strategic alternatives review for BIC Graphic North America and the Asia Sourcing operations. Consequently, since the first half 2017, BIC Graphic is no longer considered as a separate category or reporting segment. The activities of BIC Graphic Europe and Developing Markets are now accounted and presented in the Stationery and Other Products categories. normalized income from operations, which is the income from operations restated for non-recurring items (in particular real estate gains, the gain or loss on the sale of businesses and restructuring costs). It constitutes the key financial metrics used within the Group; capital additions, which are the purchases and internal generation of property, plant and equipment and intangible fixed assets for the period. The categories are as follows: Stationery, Lighters, Shavers, Other Products. These operating segments receive their revenues production and distribution of each product category. from the (in million euros) June 30, 2017* June 30, 2018 Stationery Lighters Shavers Other Products Total Stationery Lighters Shavers Other Products Total Income Statement Net sales 433 359 239 42 1,072 401 318 210 30 959 Depreciation and amortization (11) (10) (13) (7) (42) (16) (11) (15) (11) (53) Impairment loss (69) (69) Income from operations 36 141 31 (14) 194 (22) 118 24 (1) 119 Restatements made to obtain the normalized income from operations Restructuring costs related to continuing BIC Graphic operations 24 Assets impairment: Cello Goodwill 69 69 Normalized income from operations 48 141 31 (2) 218 47 118 24 (1) 188 Restated for IFRS15 "Revenue from Contract with Customers" As of June 30, 2018, the BIC Group had not identified any major customers with which it realized more than 10% of its net sales over the period. (in million euros) December 31, 2017 June 30, 2018 Stationery Lighters Shavers Other Products Total Stationery Lighters Shavers Other Products Total Capital additions(a) 69 39 51 25 184 11 19 13 9 51 Net inventories 195 119 99 16 429 216 132 106 17 470 (a) Excluding capital additions of discontinued operations (2 million euros in 2017) GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 2-3 Information by geography Since 2010, the geographies identified by the management are: France, Europe (excluding France), North America and Developing Markets. (in million euros) June 30, 2017* June 30, 2018 France Europe excluding France North America Developing Markets Total France Europe excluding France North America Developing Markets Total Net sales 111 202 420 339 1,072 109 191 380 279 959 Restated for IFRS15 "Revenue from Contract with Customers" (in million euros) December 31, 2017 June 30, 2018 France Europe excluding France North America Developing markets Total France Europe excluding France North America Developing markets Total Non-current assets(a) 252 193 214 360 1,018 262 203 231 297 993 (a) Other than financial instruments (0.14 million euros in 2018 and 0.03 million euros in 2017), deferred tax assets (105.8 million euros in 2018 and 140.6 million euros in 2017). NOTE 3 EXCHANGE RATES OF FOREIGN CURRENCIES The following table shows foreign currency equivalents of one euro (for instance: at average 2018 rate 1 euro = 1.13 U.S. dollars). Foreign currencies Average 2017 Average 2018 June 30, 2017 June 30, 2018 Euro Euro Euro Euro U.S. dollar - USD 1.08 1.21 1.14 1.17 Australian dollar - AUD 1.44 1.57 1.49 1.58 Canadian dollar - CAD 1.45 1.55 1.48 1.54 Swiss franc - CHF 1.08 1.17 1.09 1.16 Chinese renminbi - CNY 7.45 7.70 7.74 7.72 British pound - GBP 0.86 0.88 0.88 0.89 Hong Kong dollar - HKD 8.43 9.48 8.91 9.15 Indian rupee - INR 71.16 79.53 73.74 79.81 Japanese yen - JPY 121.81 131.46 127.75 129.04 Korean won - KRW 1,235.84 1,302.30 1,304.56 1,297.00 Malaysian ringgit - MYR 4.75 4.77 4.90 4.71 New Zealand dollar - NZD 1.53 1.69 1.56 1.72 Philippine peso - PHP 54.13 62.97 57.58 62.17 Polish zloty - PLN 4.27 4.22 4.23 4.37 Swedish krona - SEK 9.60 10.16 9.64 10.45 South African rand - ZAR 14.30 14.89 14.92 16.05 Argentinian peso - ARS 17.05 26.26 18.93 34.43 Brazilian real - BRL 3.45 4.15 3.76 4.49 Mexican peso - MXN 20.99 23.09 20.58 22.88 Ukrainian hryvnia - UAH 29.01 32.33 29.77 30.70 Rouble russe - RUB 62.80 71.96 67.54 73.16 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 25 26 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 4 OPERATING EXPENSES (in thousand euros) June 30, 2017* June 30, 2018 Raw materials, consumables used and change in inventory 275,964 228,455 Staff costs 274,922 262,838 Depreciation and amortization expenses 41,813 53,001 Other operating expenses* 262,242 225,130 TOTAL 854,940 769,424 Restated for IFRS15 "Revenue from Contracts with Customers" Other income and expenses are not included in the total amount and are disclosed in Note 5. They include the French research tax credit for 1.4 million euros, versus 1.3 million euros for 2017. Other operating expenses mainly include outside services. Research and development costs expensed for the first half of 2018 amount to 15.3 million euros, versus 18.0 million euros for the first half of 2017. The tax credit for competitiveness and employment (CICE) amounts to 1.1 million euros for the first half of 2018, versus 1.3 million euros for the first half of 2017. NOTE 5 OTHER INCOME AND EXPENSES (in thousand euros) June 30, 2017 June 30, 2018 Royalties income 3 5 Gain on disposal of fixed assets 89 50 Other 2,237 1,369 Other income 2,328 1,424 Impairment loss 81 (68,661) Restructuring costs related to retained BIC Graphic operations (23,742) Cost reduction plans - other (796) Other (1,546) (3,093) Other expenses (26,003) (71,754) TOTAL (23,675) (70,330) Other income and expenses incurred in the first half 2018 mainly include the partial Cello goodwill impairment amounting to 68.7 million euros (see note 10). Other income and expenses incurred in the first half 2017 mainly included restructuring costs for -24.5 million euros related essentially to Graphic Europe reorganization costs (redundancy costs and inventory write down). GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 6 FINANCIAL INCOME (in thousand euros) June 30, 2017 June 30, 2018 Interest income from cash and cash equivalents 1,440 1,872 Interest on bank deposits 2,402 1,476 Income from cash and cash equivalents 3,842 3,348 Interest expense (1,142) (1,376) Cost of net financial debt - IFRS 16 (728) Hedging instruments revaluation 146 Net financial foreign exchange difference (2,888) 4,530 Net finance income / (Net finance costs) (3,884) 2,426 FINANCE (COSTS)/REVENUE (42) 5,774 The increase in financial income during the first half of 2018 compared to the first half of 2017 comes from several factors: In the first half of 2018, the appreciation of the U.S. dollar against the euro and the Brazilian real generated a favorable impact on the valuation of financial assets denominated in U.S. dollars, whereas in the first half of 2017, the appreciation of the euro against the U.S. dollar had a negative impact. Income from cash and cash equivalents decreased compared to the previous period due to lower interest rates.- NOTE 7 INCOME TAX 7-1 Income tax expense (in thousand euros) June 30, 2017* June 30, 2018 Income before tax 193,598 125,314 Tax charge 58,145 54,520 TAX RATE 30.0% 43.51% Restated for IFRS15 "Revenue from Contracts with Customers". At the end of June 2018, the Group effective tax rate is determined on an annual basis. The Tax charge is calculated by applying the estimated average rate for the 2018 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2018 and effective after June 30, 2018. The income tax charge related to any unusual items in the period is accrued using the actual tax expense. As of June 30,2018, the Cello goodwill was partially impaired for an amount of 68.7 million euros and generated an increase in the Group effective tax rate. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 27 28 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 7-2 Deferred and current tax recognized in other comprehensive income Deferred and current taxes recognized in other comprehensive income result from the following items: At June 30, 2018 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) 21,942 Cash flow hedge (17,254) Foreign exchange impact (31,564) Other (3) Total other comprehensive income (2) (48,821) TOTAL (1) + (2) (26,879) At June 30, 2017 (in thousand euros) Other comprehensive income Actuarial differences on post-employment benefits (1) 1,944 Cash flow hedge 26,608 Foreign exchange impact (65,172) Other 3 Total other comprehensive income (2) (38,561) TOTAL (1) + (2) (36,617) GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Deferred taxes (4,911) 5,974 558 689 7,221 2,310 Deferred taxes (670) (9,043) 2,893 (5) (6,155) (6,825) CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 8 EARNINGS PER SHARE GROUP SHARE Earnings per share (Group share) and diluted earnings per share (Group share) correspond to the Group net income divided by the relevant number of shares. The number of shares used to calculate the earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. The number of shares used to calculate the diluted earnings per share (Group share) is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of stock options. As of June 30, 2018, there are no shares with relutive impact and the maximum dilutive effect from stock options not exercised is around 0.1% of the share capital. June 30, 2017* June 30, 2018 Numerator (in thousand euros) Net income Group share from continuing operations 135,453 70,794 Denominator (in number of shares) Weighted average number of shares in circulation 46,683,913 45,755,483 Dilutive effect of stock options 406,725 278,408 Diluted weighted average number of shares in circulation 47,090,638 46,033,891 Earnings per share Group share from continuing operations (in euros) Earnings per share Group share from continuing operations 2.90 1.55 Diluted earnings per share Group share from continuing operations 2.88 1.54 Restated for IFRS 15 “Revenue from Contracts with Customers”. NOTE 9 PROPERTY, PLANT AND EQUIPMENT 9-1 Property, plant and equipment - Gross value (in thousand euros) Land& buildings Machinery & equipment Construction in progress Other assets fixed Land& buildings Right of use Machinery & equipment - Right of use Vehicle Right of use Other assets - Right of use fixed Total At January 1, 2018 417,908 1,185,453 171,181 26,254 1,793 65 667 79 1,803,402 IFRS 16 - First-time application 39,061 4,691 8,811 917 53,480 Acquisitions 7,388 12,101 28,415 84 1,169 1,211 12 50,379 Disposals/Write-offs (281) (3,529) (832) (858) (25) (25) (14) (5,563) Other transfers 16,070 22,284 (39,138) 785 Exchange differences (3,567) (5,580) (1,635) (677) 82 5 (139) (19) (11,532) At June 30, 2018 437,518 1,210,729 157,991 25,587 42,105 4,736 10,525 975 1,890,166 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 29 30 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 9-2 Property, plant and equipment - Depreciation and impairment loss (in thousand euros) Land & buildings Machinery & equipment Construction in progress Other assets fixed Land & buildings - Right of use Machinery & equipment - Right of use Vehicule leases Other fixed assets - Right of use Total At January 1, 2018 235,319 917,425 616 18,622 38 2 229 66 1,172,318 Depreciation for the period 7,542 34,100 914 5,122 703 1,748 137 50,264 Impairment loss (72) (72) Disposals/Write-offs (140) (3,384) (728) (3) (13) (12) (4,280) Exchange differences (971) (3,545) (452) (5) 6 (21) 1 (4,987) At June 30, 2018 241,750 944,524 616 18,356 5,155 708 1,943 191 1,213,243 NET VALUE At June 30, 2018 195,768 266,206 157,375 7,232 36,950 4,028 8,582 783 676,923 At December 31, 2017 182,589 268,028 170,565 7,632 1,755 63 438 13 631,083 NOTE 10 GOODWILL (in thousand euros) Notes Gross value Impairment loss Net value At January 1, 2017 314,345 (17,041) 297,304 Liquidation of Hungarian subsidiary (3,057) 3,057 Exchange differences (20,897) 444 (20,453) At January 1, 2018 290,391 (13,540) 276,851 Impairment loss - Cello (68,709) (68,709) Exchange differences (2,099) 485 (1,614) At June 30, 2018 288,292 (81,764) 206,528 The balance, as of June 30, 2018, includes the following principal net Goodwill: (in thousand euros) At December 31, 2017 June 30, 2018 BIC CORPORATION 110,166 112,767 Cello Pens 95,908 23,894 BIC Violex 49,174 49,174 PIMACO(a) 6,084 5,386 Others(a) 15,519 15,307 TOTAL 276,851 206,528 (a) These Goodwill amounts are linked to cash-generating units represented by distribution subsidiaries GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements To perform the impairment tests, the Group used the following discount and perpetual growth rates: Weighted average cost of capital (WACC) before tax Perpetual growth rate 2017 2018 2017 2018 BIC CORPORATION 10.6% 9.6% 1.5% 1.5% Cello Pens 14.1% 14.9% 8.6% 4.8% BIC Violex 14.1% 14.3% 2.9% 1.9% PIMACO 20.3% 18.2% 0% 1.5% Each Goodwill item has been allocated to a cash-generating unit (“CGU”) representing the lowest level at which Goodwill is monitored by the Group. The Goodwill on BIC CORPORATION is thus mainly allocated to cash-generating units linked to the distribution by BIC CORPORATION of stationery products and lighters. The Goodwill on Cello Pens is allocated to the cash-generating units linked to the production and distribution of stationery products by Cello. The remaining Goodwill on BIC Violex the cash-generating unit linked to shavers developed and/or produced by BIC Violex and sold all over the world. This cash-generating unit also includes the portion of BIC CORPORATION Goodwill allocated to shavers. is allocated to As every year, as of June 30, 2018, the Group performed impairment tests on these Goodwill amounts. maximum of five years and a terminal value using the perpetual annuity method, including notably the following: the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rate; the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics. Regarding the Cello Pens impairment test performed as of June 30, 2018, the recoverable amount of the cash-generating unit calculated on the value in use is below the net book value. Cello goodwill has accordingly been partially impaired as of June 30, 2018 for an amount of 68.7 million euros. This impairment is explained by less favorable conditions than initially anticipated on the Stationery products development in India and export markets. The Goodwill is based on a comparison between the recoverable amount of each of the Group’s cash-generating units and the corresponding assets’ net book value (including Goodwill). impairment test methodology The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to impairment, taking into account the observed headroom on tests conducted. Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over a GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 31 32 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 11 OTHER NON-CURRENT ASSETS (in thousand euros) Notes December 31, 2017 June 30, 2018 Other investments 30 27 Guarantee deposits 4,932 4,657 Deferred pensions 9,813 18,520 Subordinated loan 21 8,338 Other non-current assets 21,727 22,332 TOTAL 44,840 45,537 The subordinated loan has been classified in current asset as of June 30,2018 and is thus included in other current financial assets as the loan will be reimbursed during the second half 2018. NOTE 12 CHANGE IN NET WORKING CAPITAL (in thousand euros) December 31, 2017* Cash flows impact Foreign exchange and others** June 30, 2018 Net inventory 428,977 44,225 (3,027) 470,175 Inventory - Gross value 444,694 44,240 (3,025) 485,909 Inventory - Impairment (15,717) (15) (2) (15,734) Trade and other receivables*,** 477,080 107,445 (10,551) 573,974 Trade and other payables (125,539) (5,242) 73 (130,709) Other assets and liabilities* (200,552) (12,023) (5,588) (218,164) NET WORKING CAPITAL 579,965 134,405 (19,093) 695,277 ** Restated for IFRS 15 “Revenue from Contracts with Customers”. Restated for IFRS 9 adjustment “Financial assets depreciation”. The working capital is used to finance the Group's operating cycle. Details of the elements used in the calculation are presented above. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 13 SHARE CAPITAL 13-1 Share capital (in thousand euros) December 31, 2017 June 30, 2018 Authorized, issued and fully paid-up share capital 178,126 178,186 Repurchase of shares of the Company (2,985) (3,621) SHARE CAPITAL 175,141 174,565 As of June 30, 2018, the registered share capital of SOCIÉTÉ BIC was 178,185,554.06 euros divided into 46,645,433 shares of 3.82 euros each. Registered shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 947,781 treasury shares, acquired at an average price of 86.07 euros in accordance with Article L. 225-209 of the French Commercial Code, which represent 2.03% of the share capital. 13.2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2018 Purpose of the repurchase Number of shares Average acquisition price (in euros) % of the share capital Liquidity agreement(a) 13,169 79.29 0.03% Free share grants(a) 934,612 86.17 2.00% TOTAL 947,781 86.07 2.03% (a) Article L. 225-209 of the French Commercial Code. In accordance with the liquidity agreement transferred by Natixis to ODDO on June 27, 2018 in respect of SOCIÉTÉ BIC shares, as of June 30, 2018, the liquidity account contained the following: 13,169 BIC shares; 2,390,514.77 euros. At initial set-up, the liquidity account contained the following: 2,312 BIC shares; 912,744.48 euros. SOCIÉTÉ BIC obtained authorization from the Annual Shareholders’ Meeting on May 16, 2018, to renew its share repurchase program. Number of shares purchased in 2018(b) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 10, 2017 265,009 Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 16, 2018 31,923 Average share repurchase price for the purchases during the first half of 2018 (in euros) 80.04 (b) Excluding shares repurchased under the liquidity contract. During the first half of 2018, SOCIÉTÉ BIC did not cancel any shares. To the best of the Company’s knowledge, as of June 30, 2018, Shareholders holding more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: At June 30, 2018 % of shares (approx.) % of voting rights (approx.) SOCIÉTÉ M.B.D. 27.24% 37.34% Bich family 16.87% 22.97% GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 33 34 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 14 BORROWINGS AND FINANCIAL LIABILITIES (in thousand euros) Bank overdrafts Current borrowings and financial liabilities Non-current borrowings and financial liabilities Current lease liability Non-current lease liability Total At January 1, 2018 1,657 3,044 3 165 212 5,081 Cash Flows 35,087 100,929 (7,291) 1 128,726 “Non-cash” variations (262) 20,645 35,083 55,466 Variations in obligations under leases – IFRS 16 First-time application 1,530 51,429 52,959 Variations in obligations under leases 19,089 (16,762) 2,327 Exchange difference (262) 25 416 179 At June 30, 2018 36,744 103,711 3 13,519 35,297 189,274 Bank overdrafts are due within one year. Bank loans and financial liabilities have the following maturities: (in thousand euros) December 31, 2017 June 30, 2018 On demand or within one year 3,044 103,711 In the 2nd year 3 3 TOTAL 3,047 103,714 Main bank loans/credit lines and financial liabilities are as follows: Borrowing country Currency Euro equivalents (in thousand euros) December 31, 2017 June 30, 2018 France EUR 100,000 Turkey TRY 1,799 2,483 South Korea KRW 1,173 1,157 Other Misc. 75 74 TOTAL 3,047 103,714 Information on interest rates As of June 30, 2018, outstanding loans and credit lines were contracted with floating rates ranging between 0% and 21%. Information on covenants: None of the loans contain any covenants that could trigger early repayment of the debt. Relative exposure, deemed not significant, has not been hedged. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 15 PROVISIONS (in thousand euros) Tax and social risks and litigation Litigation Product liability Other risks and charges Total At January 1, 2018 27,052 10,129 1,151 3,837 42,170 Additional provisions 715 2,767 132 359 3,973 Reversals of provisions utilized (760) (493) (560) (529) (2,342) Reversals of provisions not utilized (97) (453) (290) (841) IFRS 16 implementation 521 521 Exchange differences (177) (100) 14 (412) (674) Reclassification (10) 760 750 At June 30, 2018 26,723 11,849 738 4,244 43,555 As of June 30, 2018, it was not deemed necessary to book provisions for the risks described in the Part 1 “Group Presentation” that could affect: the Company’s personnel, assets, environment or reputation; the Group’s ability to reach its objectives and abide by its values, ethics or the laws and regulations. provisions when tax-related risks are considered likely to generate a payment to local tax authorities The Group reviews the evaluation of all its tax positions on a regular basis, using external counsels and considers that its tax positions are adequately provided for. However, the Group cannot predict the ultimate outcome of future audits. Tax and social risks and litigation Litigation Provisions for tax and social risks and litigation relate mainly to: tax risks; As of June 30, 2018, the litigation provision mainly represents distributor and commercial agent risks for 1.7 million euros (1.9 million euros at December 31, 2017). U.S. workers’ compensation. Tax audits are carried out regularly by local tax authorities which may dispute positions taken by Group subsidiaries. In accordance with the Group’s accounting policies, it may be decided to record Product liability Product liability mainly relates to the U.S. NOTE 16 OTHER CURRENT LIABILITIES (in thousand euros) December 31, 2017* June 30, 2018 Social liabilities 96,470 89,224 Other tax liabilities 10,893 23,663 Other current liabilities* 134,883 145,261 Other current liabilities 242,245 258,147 Restated for IFRS 15 "Revenue from Contracts with Customers" NOTE 17 DIVIDENDS For the 2017 fiscal year, an ordinary dividend of 3.45 euros per share was distributed to Shareholders on May 30, 2018. For the 2016 fiscal year, an ordinary dividend of 3.45 euros per share was distributed to Shareholders on May 24, 2017. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT 35 36 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 18 SHARE BASED PAYMENTS As of June 30, 2018, the fair value of options and shares granted amounts to 5.6 million euros and is booked in staff costs. The Board of Directors of May 16, 2018 decided to grant 170,720 free shares to 499 beneficiaries, subject to performance conditions, and 30,500 free shares to 244 beneficiaries without performance conditions. The plans’ unit fair value is 76.78 euros. NOTE 19 FINANCIAL INSTRUMENTS 19-1 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of June 30, 2018 The following amounts have been booked as the fair value of derivatives as of June 30, 2018 (in thousand euros): Derivative instruments and revaluation Hedge income qualification/ hedged risk Net financial Income/ (expense) before tax(a) - Note 6 Income from operations - Note 4 Other comprehensive income before tax(a) Current assets(b) Non- Current assets Current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/ Foreign exchange risk 99 (940) (15,583) 9,247 136 (4,357) Dividends Net investment/ Foreign exchange risk (1,399) (1,397) Subtotal (1) 99 (940) (17,251) 9,247 136 (5,754) Revaluation of cross- currency swaps backed by cash positions in foreign currencies At fair value through P&L/ Foreign exchange risk Subtotal (2) 13 97 (258) TOTAL 1+2 112 (940) (17 251) 9 343 136 (6 012) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at June 30, 2018, restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2017. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 800 thousand euros. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Non- Current Liabilities (216) (216) (216) CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 19-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2017 The following amounts have been booked as the fair value of derivatives as of December 2017 (in thousand euros): Derivative instruments and revaluation Hedge qualification/ hedged risk Net financial Income/ (expense) before tax(a) - Note 6 Income from operations - Note 4 Other comprehensive income before tax(a) Current assets(b) Non- Current assets Current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/ Foreign exchange risk 396 5,584 30,361 23,488 38 (1,915) Dividends Net investment/Foreign exchange risk 2,892 2 Subtotal (1) 396 5,584 33,253 23,490 38 (1,915) Revaluation of cross- currency swaps backed by cash positions in foreign currencies At fair value throughP&L/Foreign exchangerisk Subtotal (2) 192 131 (305) TOTAL 1+2 588 5,584 33,253 23,621 38 (2,220) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at December 31, 2017, restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2016. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 701 thousand euros. NOTE 20 CONTINGENT LIABILITIES As of June 30, 2018, neither SOCIÉTÉ BIC nor its subsidiaries had any pending litigation, claims or disputes which, in the opinion of management, after consultation with their advisors, would have a material adverse impact on the consolidated financial statements. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Non- Current Liabilities (104) (104) (104) 37 38 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 21 EXPOSURE TO MARKET RISKS 21-1 Credit risk (in thousand euros) Gross trade receivables Not yet due or past due for less than 60 days Past due for 60 to 90 days Past due for 90 to 120 days Past due for more than 120 days Total gross trade receivables Doubtful receivables TOTAL BEFORE ALLOWANCE Not yet due or past due for less than 60 days Past due for 60 to 90 days Past due for 90 to 120 days Past due for more than 120 days Allowance on specific trade receivables Allowance on statistically calculated trade receivables Other receivables TRADE AND OTHER RECEIVABLES - NET ** Restated for IFRS 15 "Revenue from Contracts with Customers". See note 1 IFRS 9 Application - impairment of financial assets GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Note 14 December 31, 2017* 425,796 5,609 6,086 8,162 445,654 12,447 458,100 (15,809) (3,226) 38,015 477,080 June 30, 2018** 527,216 6,208 6,076 16,431 555,930 11,761 567,691 (4,818) (685) (767) (17,447) (17,309) (6,408) 29,985 573,959 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements 21-2 Fair value of financial assets and liabilities Accounting categories and fair value of financial instruments Balance sheet items June 30, 2018 Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Receivables at amortized cost Debts at amortized cost Financial assets 779,033 779,033 96,348 9,479 673,206 Non-current Derivatives financial instruments 19 136 136 136 Other investments 27 27 27 Current Trade and other receivables 12 573,959 573,959 12,720 561,239 Derivative financial instruments 19 9,343 9,343 9,343 Other current financial assets 15,915 15,915 15,915 Subordinated loan 11 9,178 9,178 9,178 Cash and cash equivalents 170,473 170,473 67,685 102,789 Financial liabilities 326,211 326,211 6,228 319,983 Non-current Borrowings 14 35,301 35,301 35,301 Derivative instruments 19 216 216 216 Current Borrowings 14 153,974 153,974 15,3974 Derivative instruments 19 6,012 6,012 6,012 Trade and other payables 12 130,709 130,709 130,709 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT At fair value through equity 39 40 CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements Balance sheet items December 31, 2017* Breakdown by category of instruments (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Held-to- maturity investments Loans and receivables (including cash) Available -for-sale assets Debts at amortized cost At fair value through equity Financial assets 719,127 719,127 73,314 23,658 622,125 30 Non-current Derivatives financial instruments 19 38 38 38 Subordinated loan 11 8,338 8,338 8,338 Other investments 30 30 30 Current Trade and other receivables * 12 477,080 477,080 477,080 Derivative financial instruments 19 23,620 23,620 23,620 Other current financial assets 21 395 21,395 21,395 Cash and cash equivalents 188,626 188,626 51,919 13,6707 Financial liabilities 132,944 132,944 2,324 130,620 Non-current Borrowings 14 215 215 215 Derivative instruments 19 104 104 104 Current Borrowings 14 4,866 4,866 4,866 Derivative instruments 19 2,220 2,220 2,220 Trade and other payables 12 125,539 125,539 125,539 Restated for IFRS15 "Revenue from Contract with Customers" The valuation methods adopted for financial instruments are as follows: Financial instruments other than derivatives recorded in the balance sheet: The book values used are reasonable estimates of their market value except for marketable securities whose carrying values used are determined based on the last known net asset values as of June 30, 2018. Derivative financial instruments: Market values were calculated internally on the basis of last-known closing prices as of June 30, 2018. They are consistent with valuation reports provided by financial institutions. GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT CONSOLIDATEDFINANCIAL STATEMENTS Notes to the consolidated financial statements Fair value valuation6method The tables be low set out the fair value method for valuing financial instruments, using the following three levels: level 1 (quoted prices in active markets): money market UCITS and other current financial assets; level 2 (observable inputs): derivatives - hedge accounting; level 3 (non-observable inputs): no such instruments are held as of June 30, 2018. Category of instruments June 30, 2018 (in thousand euros) June 30, 2018 Level 1 Level 2 At fair value through the income statement - Assets 96,348 96,348 Derivative hedges - Assets 9,479 9,479 Derivative hedges - Liabilities 6,228 6,228 GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT Level 3 41 42 CONSOLIDATEDFINANCIAL STATEMENTS GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT AUDITOR'S REPORT 43 44 AUDITOR'S REPORT For the period from January 1 to June 30, 2018 This is a free translation into English of the statutory auditors’ review report on the half-year financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-year management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of SOCIÉTÉ BIC, for the period from January 1 to June 30, 2018; the verification of the information presented in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRS as adopted by the European Union applicable to interim financial information. Without qualifying the above conclusion, we draw your attention to Note 1-1-2 to the condensed half-year consolidated financial statements, “Adoption of newly published and revised IFRS, interpretations and amendments”, setting out the impacts of the application as of January 1, 2018 of IFRS 9, Financial Instruments, IFRS 15, Revenue from Contracts with Customers, and IFRS 16, Leases. II - Specific verification We have also verified the information presented in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly-sur-Seine and Paris La Défense, August 1, 2018 The Statutory Auditors French original signed by Grant Thornton French member of Grant Thornton International Deloitte & Associés Vianney Martin François Buzy GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT STATEMENT ON THE HALF-YEARLY REPORT 2018 45 46 STATEMENT ON THE HALF-YEARLY REPORT 2018 NAME AND FUNCTION Gonzalve Bich Chief Executive Officer DECLARATION BY RESPONSIBLE PERSON OF THE HALF-YEAR REPORT "I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2018 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year. " On July 31, 2018 Gonzalve Bich Chief Executive Officer GROUPE BIC - 2018 HALF-YEAR FINANCIAL REPORT SOCIÉTÉ BIC - 92611 CLICHY CEDEX (FRANCE)WWW.BICWORLD.COM | Semestriel, 2018, Supplies, BIC | write me a financial report |
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| SOCIÉTÉ BIC92611 CLICHY CEDEX (FRANCE)www.bic.com HALF-YEAR FINANCIAL2O21Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Key figures H1 2021 highlights H1 2021 Group operational trends H1 2021 operational trends by division Group Net Sales by geography Second half 2021 trends and 2021 outlook Impact of change in perimeter and currency fluctuations on net sales (excludes ARS) Reconciliation with alternative performance measures Share repurchase program – cancelled shares Related-party transactions Capital evolution Material events that occurred in H1 2021 Material events that occurred after June 30, 2021 Description of the principal risks and uncertainties for the second half 2021 Glossary 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1 2 3 4 7 10 10 11 12 13 13 13 14 14 14 17 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 2.2 2.3 2.4 2.5 2.6 Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION STATEMENT ON THE HALF-YEARLY REPORT 2021 19 20 21 22 24 25 26 45 47 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 1.1 KEY FIGURES 1.2 H1 2021 HIGHLIGHTS 1.3 H1 2021 GROUP OPERATIONAL TRENDS 1.4 H1 2021 OPERATIONAL TRENDS BY DIVISION 1.5 GROUP NET SALES BY GEOGRAPHY 1.6 SECOND HALF 2021 TRENDS AND 2021 OUTLOOK 1.7 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) 1.8 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES 1.9 SHARE REPURCHASE PROGRAM – CANCELLED SHARES 1.10 RELATED-PARTY TRANSACTIONS 1.11 CAPITAL EVOLUTION 1.12 MATERIAL EVENTS THAT OCCURRED IN H1 2021 1.13 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2021 1.14 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR THE SECOND HALF 2021 1.15 GLOSSARY • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 2 3 4 7 10 10 11 12 13 13 13 14 14 14 17 1 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Key figures 1.1 KEY FIGURES (in million euros) H1 2021 vs. H1 2020 H1 2020 H1 2021 As reported FX impact (a) (in pts) Change in Perimeter (b) (in pts) Group Net Sales 775.8 916.7 +18.2% (7.2) 3.0 Gross Profit 371.2 473.9 Adjusted Earnings Before Interest and Taxes (EBIT) 92.9 166.1 Adjusted EBIT Margin 12.0% 18.1% EBIT 24.0 332.6 EBIT Margin 3.1% 36.3% Net Income Group Share 22.1 230.2 Earnings Per Share Group Share (in euros) 0.49 5.12 Adjusted Net Income Group Share 84.0 112.7 Adjusted Earnings Per Share Group Share (in euros) 1.87 2.51 Human expression (Stationery) Net Sales 293.9 333.3 +13.4% (4.9) 6.5 Adjusted EBIT 19.0 27.6 Adjusted EBIT Margin 6.5% 8.3% EBIT (34.9) 29.1 EBIT Margin 11.9% 8.7% Flame for life (Lighters) Net Sales 268.2 367.4 +37.0% (9.9) 1.9 Adjusted EBIT 87.3 145.7 Adjusted EBIT Margin 32.5% 39.6% EBIT 84.0 143.8 EBIT Margin 31.3% 39.2% Blade excellence (Shavers) Net Sales 200.7 200.4 (0.1)% (7.7) (0.4) Adjusted EBIT 21.9 32.4 Adjusted EBIT Margin 10.9% 16.2% EBIT 17.3 32.3 EBIT Margin 8.6% 16.1% Other products Net Sales 13.1 15.7 +19.7% 0.2 Adjusted EBIT (1.1) (3.0) EBIT (3.5) (3.0) Unallocated costs Adjusted EBIT (34.2) (36.5) EBIT (38.9) 130.3 (a) (b) (c) Forex impact excluding Argentinian Peso (ARS). Mainly acquisitions of Djeep and Rocketbook. See Glossary. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • Argentina impact (c) (in pts) (0.1) (0.3) 0.3 Comparative basis +22.5% +12.1% +44.7% +8.0% +19.5% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 highlights 1.2 H1 2021 HIGHLIGHTS RESULTS Solid results, driven by Net Sales growth in all divisions: Flame for Life performance boosted by an exceptional start to the year in US Pocket and Utility Lighters, which we don’t expect to repeat in the second half, as well as robust growth in Latin America and the successful integration of Djeep in Europe; Human Expression result driven by Digital Writing, while Core Writing Instruments markets remained challenging in Latin America and India; Blade Excellence fueled by the success of BIC 5-blade and Hybrid competitive environment. shavers despite a challenging Strong growth in e-commerce in all regions, including Developing Markets. Continued manufacturing efficiencies and further savings from the Invent the Future transformation plan. Sustained Free Cash Flow generation driven by strong Cash From Operations. (in million euros) H1 2020 H1 2021 Group Net Sales 775.8 916.7 Change as reported 19.2% +18.2% Change on a comparative basis 18.2% +22.5% Change on a constant currency basis 17.7% +26.2% EBIT 24.0 332.6 EBIT Margin 3.1% 36.3% Adjusted EBIT 92.9 166.1 Adjusted EBIT Margin 12.0% 18.1% EPS (in euros) 0.49 5.12 Adjusted EPS (in euros) 1.87 2.51 Free Cash Flow before acquisitions and disposals 42.3 103.7 Net Cash Position 41.5 366.7 NET SALES BY DIVISION Human Expression (Stationery): 333.3 million euros (+12.1% on a comparative basis and +19.1% at constant currency). Flame for Life (Lighters): 367.4 million euros (+44.7% on a comparative basis and +47.7% at constant currency). Blade Excellence (Shavers): 200.4 million euros (+8.0% on a comparative basis and +8.4% at constant currency). • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 3 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 Group operational trends 1.3 H1 2021 GROUP OPERATIONAL TRENDS H1 2021 HIGHLIGHTS First Half 2021 Net Sales increased 26.2% at constant currencies. The unfavorable impact of currency fluctuations (–7.2 points) was mainly due to the decrease of the US Dollar and Brazilian Real against the Euro (1). Excluding the impact of acquisitions and divestitures, growth on a comparative basis was 22.5%. Growth was fueled by the Flame for Life division, with a robust performance in Europe, North America, and Latin America. Boosted by a strong start-to-the-year, performance in the US contributed approximately 10 points to H1 Group Net Sales growth on a comparative basis. This was driven by improved market trends in value (total US Lighter market grew 6.2% YTD June (2)) combined with customers' order calibration during the first four months of the year, in response to unforeseen consumer demand. BIC outperformed the US market in both volume and value, propelled by distribution gains, favorable mix, and increased pricing. particularly in the female 3-blade segment, we continued to grow our 5-blade business in both male and female and outpaced the fast-growing online market. E-commerce (excluding Rocketbook) delivered a solid +26% growth compared to the same period last year, fueled by Pure Players channels (+21%) and Omniretailers (+30%). Growth in Latin America, Middle East and Africa, and India was driven by increased distribution and efficient promotional campaigns. Consistent with our Sustainable Development journey, we launched several innovative products with environmental benefits in H1, including the BIC® Cristal™ Re'New, our first rechargeable metallic Cristal Ball Pen, and the BIC® BAMBOO, our first CO2 neutral labeled shaver with a responsibly sourced bamboo handle. We also started to rollout our new sustainable “SD Hybrid” shaver range in Europe. In Human Expression, Rocketbook continue to show outstanding results, with Net Sales up more than 90% in H1. All online channels contributed to growth, with sales to Amazon driven by the success of June's Prime day. BIC's H1 Core Writing Instruments performance was driven by Europe, where total Back-to-School sell-in is expected to grow mid-single digit in 2021. In North America, the lack of product availability resulting from supply chain challenges negatively affected shipments to customers and are expected to impact Back-to-School sell-in. The Blade Excellence division performance was fueled by the success of our 3-blade products in Latin America. While the US increasingly competitive, in-store distribution remained We achieved more than 15.0 million euros incremental benefit from our Invent the Future plan in H1, of which approximately 4.0 million euros indirect procurement. BIC's raw materials market prices soared 10% in Q2 compared to Q1 2021, the rebound in global consumption prompted a disruption in supply chains worldwide, resulting in a surge in sea freight costs, coupled with increased port to port lead-times. As previously communicated, we expect the current market conditions to weigh on Full Year 2021 margins. in direct and H1 2021 Free Cash Flow before acquisitions and disposals totaled 103.7 million euros, including 30.3 million euros of CAPEX. Net Cash Position was 366.7 million euros, positively impacted by 173.9 million euros of proceeds from our headquarters' sale. (1) (2) This excludes the Argentinian Peso. IRI data lighters 27JUN2021 (Pocket and Utility lighters). • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 Group operational trends EARNINGS BEFORE INTEREST AND TAXES (EBIT) AND ADJUSTED EBIT (in million euros) H1 2020 H1 2021 Net Sales 775.8 916.7 Gross Profit 371.2 473.9 Gross Profit margin 47.8% 51.7% EBITDA 115.6 382.1 EBIT 24.0 332.6 EBIT margin 3.1% 36.3% Non-recurring items 68.9 (166.5) Adjusted EBIT 92.9 166.1 Adjusted EBIT margin 12.0% 18.1% H1 Gross Profit margin increased by 3.9 points to 51.7% compared to 47.8% in H1 2020. Excluding 2020 under-absorption of fixed costs due to the Covid-19 pandemic, the Gross Profit margin increased by 1.7 points. The improvement was driven by the strong increase in North America Lighter sales, a decrease in Brand Support above Net Sales, and manufacturing and raw material procurement efficiencies. This was partly offset by adverse Forex from Latin American currencies against the US Dollar. H1 Adjusted EBIT was favorably impacted by operating leverage from Net Sales growth. Freight and Distribution costs were higher as a result of the increase in customer demand. KEY COMPONENTS OF THE CHANGE IN ADJUSTED EBIT MARGIN (in points) Q1 2021 vs. Q1 2020 Q2 2021 vs. Q2 2020 H1 2021 vs. H1 2020 Change in Gross Profit (a) +0.5 +2.6 +1.7 Brand Support +1.2 (0.5) +0.3 OPEX and other expenses (a) +5.9 +2.7 +4.1 TOTAL CHANGE IN ADJUSTED EBIT MARGIN +7.6 +4.8 +6.1 (a) Excluding in 2020 under absorption of fixed costs due to Covid-19 pandemic for the Gross Profit and excluding restructuring costs, Cello impairment and non-recurring items mostly commercial force underactivity for the OPEX and other expenses. ADJUSTED EBIT RECONCILIATION (in million euros) Q1 2020 Q1 2021 Q2 2020 Q2 2021 H1 2020 H1 2021 EBIT 23.0 227.3 1.0 105.2 24.0 332.6 Restructuring costs (Transformation plan) and Ecuador factory closure in H1 2020 2.3 3.9 5.5 0.3 7.9 4.2 Cello impairment 41.7 41.7 Some Expenses related to the Covid-19 epidemic mainly under absorption of fixed costs 19.3 19.3 Clichy Headquarters sales capital gain (167.7) (167.7) PIMACO divestiture capital gain (3.0) (3.0) Adjusted EBIT 25.3 60.5 67.5 105.6 92.9 166.1 H1 2021 non-recurring items included: 167.7 million euros from Clichy Headquarters sale gain in Q1 2021; 3.0 million euros from PIMACO divestiture gain in Q1 2021; 4.2 million euros of restructuring costs related to the transformation plan. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 5 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 Group operational trends NET INCOME AND EPS (in million euros) H1 2020 EBIT 24.0 Finance revenue/costs 9.9 Income before Tax 33.9 Net Income Group share 22.1 Adjusted Net Income Group Share (a) 84.0 Adjusted EPS Group Share (in euros) 1.87 EPS Group Share (in euros) 0.49 (a) Excluding 2021 Clichy Headquarters net capital gain, 2021 PIMACO divestiture, restructuring costs & Argentina hyperinflationary accounting for 2021 and 2020. CHANGE IN NET CASH POSITION (in million euros) 2020 NET CASH POSITION (BEGINNING OF PERIOD – DECEMBER) 146.9 Net cash from operating activities +86.1 Of which operating cash flow +136.6 Of which change in working capital and others (50.5) CAPEX (a) (43.8) Dividend payment (110.2) Share buyback program (7.4) Net cash from the liquidity contract Proceed from the sale of Clichy Headquarters Proceed from PIMACO divestiture Acquisitions (b) (2.7) Other items (27.4) NET CASH POSITION (END OF PERIOD – JUNE) 41.5 (a) (b) Including -12.6 million euros in H1 2020 and +0.8 million euros in H1 2021 related to assets payable change. Haco Industries Ltd. in 2020 & 2021, Rocketbook and Djeep in 2021. At the end of June, the Group's Net Cash position was 366.7 million euros, positively impacted by the sale of Clichy Headquarters and PIMACO. The tax related to the HQ sale (46 million euros) will be paid later in the year. Net cash from operating activities was impacted by an unfavorable change in working capital due to increased accounts receivables following strong H1 Net Sales. SHAREHOLDERS’ REMUNERATION Ordinary dividend of 1.80 euros per share paid in June 2021. 15.7 million euros in share buy-backs by SOCIÉTÉ BIC at the end of June 2021. 277,834 shares were purchased at an average price of 56.58 euros through the ESG Impact Share buyback program launched in March in partnership with Exane BNP Paribas. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • H1 2021 332.6 (4.0) 328.5 230.2 112.7 2.51 5.12 2021 183.9 +134.0 +230.3 (96.3) (30.3) (80.9) (15.7) +1.2 +173.9 +3.4 (7.2) +4.4 366.7 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 operational trends by division 1.4 H1 2021 OPERATIONAL TRENDS BY DIVISION HUMAN EXPRESSION (STATIONERY) (in million euros) H1 2020 H1 2021 Volumes sold (in million units) 2,457.9 2,742.7 Change vs. prior year 29.6% +11.6% Net Sales 293.9 333.3 Change as reported vs. prior year 26.7% +13.4% Change on a comparative basis vs. prior year 26.5% +12.1% Change at constant currency vs. prior year 25.6% +19.1% Adjusted EBIT 19.0 27.6 Adjusted EBIT Margin 6.5% 8.3% EBIT (34.9) 29.1 EBIT Margin 11.9% 8.7% Growth in Human Expression was notably driven by robust performance in Digital Writing with the success of Rocketbook, helped by a favorable comparable basis versus H1 2020 where the first wave of Covid-19 lockdowns drastically affected our key markets. In Europe, sell-in performance was driven by a rebound in the traditional channel with higher demand from Office Suppliers and growth in Modern Mass Channel in France, Italy and in the UK. Second Quarter Net Sales were impacted by a positive phasing impact in Back-to-school shipments from Q3 to Q2 compared to last year driven by customer demand. While markets continued to be tough, declining double-digit in Brazil and Mexico, BIC outperformed in both markets driven by Coloring and Pens segments. In South Africa, BIC gained 1.4 points (2) in value driven by improved performance in Coloring, Correction and Marking. Our recent acquisition of Lucky Stationery in Nigeria continues to perform well with H1 21 Net Sales more than doubling, underpinning BIC's efficient route-to-market strategy in the region. In India, Cello Net Sales grew double-digit, with strong performance in the first quarter, driven by improved domestic market conditions and a solid performance in e-commerce. However, the market environment in India, having returned to lockdowns in April, remains extremely challenging with ongoing mobility disruptions and office/retail closures. In North America, the US Stationery market rebounded +11.5% in value (1) vs 2020 hit by lockdowns and driven mostly by Gel segment which increased +30% in value. BIC lost 0.8 points market share in in Ball Pen and Correction and value, outperforming underperforming in the growing Gel and Permanent Marker segments. In line with our Horizon strategy, we performed strongly in Digital Writing as Rocketbook sales grew over 90% versus last year. Overall sell-in performance was negatively impacted by product shortage due to supply chain challenges affecting Back-to-School shipments. H1 2021 Human Expression division adjusted EBIT margin was 8.3% compared to 6.5% in 2020. This increase was driven by higher Net Sales (including Rocketbook) and manufacturing and raw material procurement efficiencies, partly offset by unfavorable Forex (from Latin American currencies versus US Dollar) and higher freight and distribution costs. (1) (2) Nielsen YTD June (03-JUL-21). IRI YTD May 2021. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 7 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 operational trends by division FLAME FOR LIFE (LIGHTERS) (in million euros) H1 2020 H1 2021 Volumes sold (in million units) 592.2 799.3 Change vs. prior year 16.4% +35.0% Net Sales 268.2 367.4 Change as reported vs. prior year 16.1% +37.0% Change on a comparative basis vs. prior year 14.7% +44.7% Change at constant currency vs. prior year 14.6% +47.7% Adjusted EBIT 87.3 145.7 Adjusted EBIT Margin 32.5% 39.6% EBIT 84.0 143.8 EBIT Margin 31.3% 39.2% The Flame for Life division was the top performer of the first half with growth boosted by improved market conditions in US Pocket and Utility Lighters, strong growth in Latin America, and the integration of Djeep in Europe. In Europe, sell-in performance was driven by a rebound in both traditional channel and Modern Mass Market in France, a good performance in both Pocket and Utility lighters in Italy combined with strong growth in Tobacco retailers, and successful new listings in Russia. Djeep lighters performed well with the successful launch in several European countries during the second quarter. In the US, the pocket lighters market declined 2.9% in volume and grew 5.5 % in value (1) boosted by positive market trends and customers realigning their orders reflecting the start to the year's unexpected consumer demand. BIC gained share in both volume (+2.4 points) and value (+1.2 points), fueled by growth in the convenience channel, the success of EZ Reach contributing to additional listings and to favorable mix, and increased pricing. The Utility in value, with BIC slightly underperforming year-to-date due to lack of product availability resulting from sea freight challenges, and longer lead times. BIC remains the leader in this segment, with 53% market share in value, lighter market grew 10% up 6.8 points compared to June 2020. BIC overall sell-in performance was fueled by strong market growth (approximately 33 points), distribution gains (approximately 8 points), efficiency in our pricing strategy, including Revenue Growth Management (approximately 7 points), and positive impact from customers prebuying following the May 2021 announced price increase (approximately 7 points). In Latin America, sell-in performance was fueled by Brazil following a low level of customers' inventory at the end of 2020 and higher demand for both smoking and non-smoking usages, combined with lower importations of lighters triggered by adverse currency fluctuations (devaluation of the Brazilian Real). In Mexico sell-out performance contributed to strong sell-in with distribution gains in all regions. H1 2021 Flame For Life division adjusted EBIT margin was 39.6% compared to 32.5% in 2020, driven by the strong increase in Net Sales and the favorable impact of price adjustments in US Lighters. This was partially offset by higher Brand Support investments compared to the same period last year and higher Freight and Distribution costs. (1) IRI Data YTD JUN 2021. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 H1 2021 operational trends by division BLADE EXCELLENCE (SHAVERS) (in million euros) H1 2020 H1 2021 Volumes sold (in million units) 1,077.9 1,193.0 Change vs. prior year 13.7% +10.7% Net Sales 200.7 200.4 Change as reported vs. prior year 10.6% 0.1% Change on a comparative basis vs. prior year 8.8% +8.0% Change at constant currency vs. prior year 8.1% +8.4% Adjusted EBIT 21.9 32.4 Adjusted EBIT Margin 10.9% 16.2% EBIT 17.3 32.3 EBIT Margin 8.6% 16.1% The Blade Excellence division's overall performance was driven by the success of our added-value products such as 5 blade shavers and hybrid ranges, despite challenging competitive environment in key geographies. 3 blade and 1.2 points in the male segment. Despite these headwinds, and in line with the Horizon strategy, we continued to focus on premium segments and successfully gained +0.7 points in value in both men's and women's 4 and 5 blade segments. We outpaced the online market, gaining +0.9 points. In Europe, sell-in performance was negatively impacted by challenging markets trends, notably in France, the UK and Italy and product availability issues in several countries, partially offset by successful new listings in Eastern Europe. In Latin America, our trade-up strategy towards the triple-blade offering continued to pay off and drove overall performance in both Brazil and Mexico. In the U.S., the in-store Disposable market declined 3.1% in value (1) with continued softness in the category driven by aggressive promotional activity and numerous new products launched by competition in H1 2021, including value positioning items. BIC lost 2.2 points market share, 3.5 points in the female segment mostly in H1 2021 Blade Excellence division adjusted EBIT margin was 16.2% compared to 10.9% impacted positively by operating leverage from Net Sales growth, and manufacturing and raw material procurement efficiencies. in 2020, OTHER PRODUCTS (in million euros) H1 2020 H1 2021 Net Sales 13.1 15.7 Change as reported 14.1% +19.7% Change on a comparative basis 13.4% +19.5% Change at constant currency 13.5% +19.5% Adjusted EBIT (1.1) (3.0) EBIT (3.5) (3.0) UNALLOCATED COSTS (in million euros) H1 2020 H1 2021 Adjusted EBIT (34.2) (36.5) EBIT (38.9) 130.3 H1 2021 unallocated costs are mainly related to Corporate headquarters costs, and Clichy Headquarters sales capital gain amounting 167.7 million euros. The decrease in Adjusted EBIT is due to the costs of the implementation of the transformation plan. (1) IRI YTD June 2021. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 9 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Group Net Sales by geography 1.5 GROUP NET SALES BY GEOGRAPHY (in million euros) H1 2020 H1 2021 % as reported % at constant currencies % on a comparative basis Group 775.8 916.7 +18.2% +26.2% +22.5% Europe 257.7 292.0 +13.3% +15.2% +12.7% North America 343.2 406.4 +18.4% +28.7% +22.5% Latin America 94.0 125.9 +33.9% +55.1% +54.3% Middle East and Africa 39.0 51.1 +31.2% +37.7% +37.7% Asia and Oceania (including India) 41.9 41.3 1.6% 1.5% +4.6% 1.6 SECOND HALF 2021 TRENDS AND 2021 OUTLOOK UPDATE OF OUR 2021 OUTLOOK (BASED ON CURRENT MARKET ASSUMPTIONS) Given H1 performance and current market assumptions and without any substantial market deterioration during the second half, we upgrade our Net Sales outlook and now expect to deliver +9% to +11% total Net Sales growth at constant currencies. than initially expected raw materials and freight & distribution costs. We anticipate an increase in working capital notably driven by the building of strategic inventories to protect supply and delivery for 2022. The balance of the year will be affected by input cost inflation and the current disruption of supply chains worldwide, leading to higher Full-Year 2021 Free Cash Flow target remains above 200 million euros. 2021 OUTLOOK ASSUMPTIONS Our 2021 outlook assumptions (1). Market Trends (in value): is based on the following market • low-single digit increase for total U.S. pocket lighter market, low to mid-single-digit decrease in total U.S. one-piece Shavers market; Europe: flat to slight increase in Stationery, slight increase in Lighters, high-single digit decrease in Shavers; North America: • mid-single digit increase in U.S. Stationery market, Latin America: high-single to double digit decrease in Stationery, mid-single digit increase in Lighters and low to mid-single digit increase in Shavers; India: high-single digit increase in Stationery. (1) Euromonitor and BIC estimates. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Impact of change in perimeter and currency fluctuations on net sales (excludes ARS) EBIT and Free Cash Flow drivers: flat Gross Profit Margin with increased volumes and positive price impact offset by higher Raw Materials costs, and adverse FX; increase in Brand Support, R&D and Innovation to support Net Sales growth; lower OPEX as % of Net Sales; approximately 100 million euros in CAPEX. increase in Freight and Distribution; Currency: 2021 USD-Euro hedging rate: 1.13. 1.7 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) (in %) H1 2020 H1 2021 Perimeter 0.1 3.0 Currencies 1.0 7.2 Of which USD +0.8 4.8 Of which BRL 1.1 1.4 Of which MXN 0.3 0.1 Of which AUD 0.1 +0.2 Of which ZAR 0.1 Of which INR 0.2 Of which RUB and UAH 0.1 0.4 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 11 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Reconciliation with alternative performance measures 1.8 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES ADJUSTED EBIT RECONCILIATION (in million euros) Q2 2020 Q2 2021 H1 2020 EBIT 1.0 105.2 24.0 Restructuring costs (Transformation plan) and Ecuador factory closure in H1 2020 5.5 0.3 7.9 Cello impairment 41.7 41.7 Some Expenses related to the Covid-19 epidemic mainly under absorption of fixed costs 19.3 19.3 Clichy Headquarters sales capital gain PIMACO divestiture capital gain Adjusted EBIT 67.5 105.6 92.9 ADJUSTED EPS RECONCILATION (in million euros) Q2 2020 Q2 2021 H1 2020 EPS (0.07) 1.53 0.49 Restructuring costs (Transformation plan and Ecuador factory closure in H1 2020) +0.09 +0.01 +0.12 Cello impairment +0.93 +0.93 Some Expenses related to the Covid-19 epidemic mainly under absorption of fixed costs +0.31 +0.31 Argentina hyperinflationary accounting (IAS 29) +0.01 +0.01 +0.02 Clichy Headquarters sales capital gain PIMACO divestiture capital gain Adjusted EPS 1.27 1.55 1.87 NET CASH RECONCILIATION (in million euros – rounded figures) December 31, 2020 Cash and cash equivalents (1) +265.7 Other current financial assets (2) (a) Current borrowings (3) (b) (77.2) Non-current borrowings (4) (4.7) NET CASH POSITION (1) + (2) - (3) - (4) 183.9 (a) (b) In the balance sheet at December 31, 2020 and June 30, 2021, the “Other current financial assets and derivative instruments” line also includes respectively 26.1 million euros and 14.1 million euros worth of derivative instruments. Excluding financial liabilities following IFRS 16 implementation. FREE CASH FLOW RECONCILIATION (in million euros – rounded figures) December 31, 2020 Net cash from operating activities (1) +357.6 Capital expenditure (2) (83.1) FREE CASH FLOW BEFORE ACQUISITION AND DISPOSALS (1) - (2) 274.5 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • H1 2021 332.6 4.2 (167.7) (3.0) 166.1 H1 2021 5.12 +0.07 +0.03 (2.67) (0.04) 2.51 June 30, 2021 +450.0 (78.4) (4.9) 366.7 June 30, 2021 +134.0 (30.3) 103.7 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Share repurchase program – cancelled shares 1.9 SHARE REPURCHASE PROGRAM – CANCELLED SHARES During the first half of 2021: SOCIÉTÉ BIC repurchased 277,834 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 20, 2020, excluding shares acquired under the liquidity agreement; SOCIÉTÉ BIC repurchased, under the liquidity agreement Natixis – ODDO BHF, 276,046 shares for a total value of 14.62 million euros and sold 298,246 shares for a total value of 15.81 million euros. SOCIÉTÉ BIC – SHARE BUYBACK PROGRAM Number of shares acquired Average weighted price (in euros) Amount (in million euros) March 2021 62,600 50.46 3.2 April 2021 77,005 53.35 4.1 May 2021 65,770 62.93 4.1 June 2021 72,459 59.57 4.3 TOTAL 277,834 56.58 15.7 The number of free, performance-based shares transferred by SOCIÉTÉ BIC to beneficiaries is 136,203 during the first half 2021. The number of free, non-performance-based shares transferred to beneficiaries by SOCIÉTÉ BIC was 18,400. Moreover, SOCIÉTÉ BIC proceeded to 238,899 free, performance-based share grants and 133,847 free, non-performance-based share grants. 1.10 RELATED-PARTY TRANSACTIONS This paragraph is aimed at ensuring transparency in the relationship between their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). the Group and its Shareholders (and Significant related-party transactions are described in the Note 25 – Related parties on page 262 of BIC's 2020 Universal Registration Document filed with the Autorité des Marchés Financiers (AMF) on April 1, 2021. During the first half of 2021, BIC has not identified any significant related-party transactions. 1.11 CAPITAL EVOLUTION As of June 30, 2021, the total number of issued shares of SOCIÉTÉ BIC was 45,395,857 shares, representing: 66,774,710 voting rights; 66,255,030 voting rights excluding shares without voting rights. Total number of treasury shares held at the end of June 2021: 519,680. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 13 14 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Material events that occurred in H1 2021 1.12 MATERIAL EVENTS THAT OCCURRED IN H1 2021 N/A 1.13 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2021 N/A 1.14 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR THE SECOND HALF 2021 BIC pursues an active and dynamic approach to risk management. The objective of this approach is to enhance the Group’s capacity in identifying, managing, preventing, mitigating, and monitoring key risks that could affect: the Group’s employees, customers, Shareholders, assets, environment or reputation; the Group’s ability to achieve its objectives, abide and defend its Values, ethics, or laws and regulations. This approach is based on the identification and analysis of the main risks to which the Group is exposed. A description of the main risks identified by the BIC Group is available in the section entitled Risk Management of the 2020 Universal Registration Document (URD) (Chapter 2) filed with the Autorité des Marchés Financiers (AMF) on April 1, 2021 and which is available online, following this link: https://us.bic.com/en_us/ investors-press-releases-presentations-publications. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Description of the principal risks and uncertainties for the second half 2021 Main risks and risk assessment as disclosed in BIC’s 2020 URD Medium Risks related to Plastic and Climate change Risks related to Consumer Demand and Growth in our three business categories Risks related to Retail Disruption and Consolidation Risks related to BIC’s Supply Chain and Production Risks related to BIC’s Net Sales Regional Concentration X Risk related to the execution of BIC’s transformation program “BIC 2022 – Invent the Future” X Risk related to M&A execution in the context of BIC’s Horizon strategic plan X Risks related to Product Safety X Risks related to counterfeiting, parallel imports, and non-compliant products from competition X Risks related to increased Regulations X Risks related to the non-respect of Human Rights and Unfair Practices X Risks related to IT Security X • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • High X X X X 15 16 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Description of the principal risks and uncertainties for the second half 2021 RISK ASSOCIATED TO THE COVID-19 CRISIS Worldwide disruption in freight and distribution following the Covid-19 crisis could increase the risks related to BIC’s Supply Chain and Production (see below 2020 Universal Registration Document). Risks related to BIC’s Supply Chain and Production As a consumer products manufacturing, distribution and sales-oriented organization, BIC is exposed to the risk of production interruptions and internal and external supply chains issues related to potential raw materials shortages, operational interruptions at suppliers (repetition), particularly during critical seasonal purchasing periods such as “back-to-school” in Stationery. BIC operates several manufacturing and warehousing sites throughout the world; however, certain products may be concentrated within specific geographic, which may be impacted in the event of a catastrophic event. BIC is exposed to specific risks linked to the storage and use of hazardous substances. Among these are: gas for lighters; solvents for permanent markers and dry-wipe markers; solvents for industrial cleaning processes. Level of risks: medium Potential impact on BIC: Examples of Risk Mitigation: Reliance on outside vendor’s supply chain could lead to a shortage of raw materials if the vendor suffers a catastrophic event. A lengthy supplier qualification timeframe of 1-2 years may impact the availability of potential suppliers. Risks of losing supply of key input materials, if a supplier changes a formulation. A significant supply chain disruption could lead to BIC’s inability to meet consumer demand and/or commitments. BIC has formed a Procurement group to focus on supplier acquisition, supplier qualification, and onboarding, as well as alternative sourcing and materials. Mitigating controls are in place to look for multi-supplier sourcing. Working with R&D to qualify additional suppliers. Utilization of an enhanced communication platform (Control Tower) between sales and production teams to “right-size” product quantities and locations. Certain plastics used within BIC products may be subject to material competition from other sectors, which may diminish the availability of raw materials and eventual stock. Reliance on specific raw materials and a significant cut in plastic from suppliers due to environmental regulations may impact product development. In all BIC factories: constant attention is paid to the implementation and monitoring of preventive measures and safety systems for gas and solvent storage areas. Suitable control devices and equipment are in place to minimize physical and chemical risks posed by hazardous substances. Priority is given to the use of appropriate fire prevention systems and appropriate fire detection and control equipment; Interdependencies between BIC facilities could be impaired in the event a peril causes an inability to ship product from a manufacturing site to distribution, which would impair the ability to supply goods to consumers, particularly during critical seasonal periods such as “back to school”, etc. The Covid-19 crisis impacted BIC’s Global Supply Chain with higher absenteeism, some temporary factory closures and supply chain disruptions due notably to border closures, as well as the discontinuation of the activity of some of our suppliers and subcontractors. hazard and risk assessments are conducted; procedures are established to identify, assess, and prevent incidents and accidents; the workforce is trained to recognize potential hazards, as well as to take preventive and corrective actions; compliance with local regulatory requirements is an integral part of the daily management of the sites; strategic inventories defined in all factories to cover key materials and components; training programs in place in all factories to back up the critical processes and secure the flexibility to cover market needs; maintenance programs in place in all factories to protect key equipment and technical processes. In particular, certain Group factories are subject to the European Union SEVESO Directive, which identifies industrial sites that could pose significant accident risks and requires the manufacturers to carry out risk studies to identify possible accident scenarios, evaluate their potential consequences and implement preventive measures. The SEVESO plants have emergency procedure protocols (plan d’opération interne and plan particulier d’intervention) and a major hazard prevention policy. For the two SEVESO plants, BIC has also implemented a safety management system. Outside of France, some plants have equivalent Emergency Plans that address Risks with potential off-site consequences. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 Glossary 1.15 GLOSSARY Constant currency basis: constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates. Organic change or Comparative basis: at constant currencies and constant perimeter. Figures at constant perimeter exclude the impact of acquisitions and/or disposals that occurred during the current year and/or during the previous year, until their anniversary date. All Net Sales category comments are made on a comparative basis. Organic change excludes Argentina Net Sales for both 2019 and 2020. EBITDA: EBIT before Depreciation and Amortization (excluding amortization of right of use under IFRS 16 standard), and impairment. Adjusted EBIT margin: adjusted EBIT as a percentage of Net Sales. Net Cash from operating activities: cash generated from principal activities of the entity and other activities that are not investing or financing activities. Free Cash Flow: net cash flow from operating activities less capital expenditures (CAPEX). Free cash flow does not include acquisitions and proceeds from the sale of businesses. Net cash position: cash and cash equivalents + Other current - Non-current financial IFRS 16 borrowings implementation). assets Current (except financial borrowings liabilities following Adjusted EBIT: adjusted means excluding normalized items. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 17 18 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 CONSOLIDATED INCOME STATEMENT 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2.5 CONSOLIDATED CASH FLOW STATEMENT 2.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 20 21 22 24 25 26 19 20 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 2.1 CONSOLIDATED INCOME STATEMENT (Consolidated financial statements) (in thousand euros) Notes June 30, 2020 Net sales 2-2 775,832 Cost of goods 3 (404,639) Gross profit (a) 371,192 Distribution costs 3 (124,173) Administrative expenses 3 (104,663) Other operating expenses 3 (67,256) Other income 4 2,950 Other expenses 4 (54,060) Earnings before interest and taxes (EBIT) 23,991 Income from cash and cash equivalents 5 2,058 Net finance income/(net finance costs) 5 7,832 Income before tax 33,881 Income tax expense 6 (11,797) Consolidated income of which: 22,084 Non-controlling interests Net income Group share 7 22,084 Earnings per share Group share (in euros) 0.49 Diluted earnings per share Group share (in euros) (b) 0.49 (a) (b) Gross profit is the margin that the Group realizes after deducting its manufacturing costs. The dilutive elements taken into account are stock options and free shares. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • June 30, 2021 916,716 (442,842) 473,874 (131,095) (111,654) (67,775) 175,104 (5,884) 332,570 1,253 (5,299) 328,524 (98,360) 230,164 230,164 5.12 5.14 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Consolidated financial statements) (in thousand euros) Notes June 30, 2020 June 30, 2021 GROUP NET INCOME A 22,084 230,164 OTHER COMPREHENSIVE INCOME Actuarial differences on post-employment benefits not recyclable to the income statement (a) (39,882) 31,331 Deferred tax on actuarial differences on post-employment benefits 8,377 (5,221) Other comprehensive income not recyclable to the income statement - Net of tax B (31,505) 26,110 Gain/(Loss) on cash flow hedge 7,267 (15,174) Exchange differences arising on translation of overseas operations (103,710) 30,375 Other (5) 3 Deferred tax and current tax recognized on other comprehensive income 6-2 (606) 2,495 Other comprehensive income recyclable to the income statement - Net of tax C (97,054) 17,699 TOTAL COMPREHENSIVE INCOME D = A + B + C (106,475) 273,974 Attributable to: BIC Group (106,475) 273,974 Non-controlling interests TOTAL (106,475) 273,974 (a) The impact of actuarial differences is mainly due to U.S. plans. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 21 22 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Consolidated financial statements) Assets (in thousand euros) Notes Goodwill 8 Other intangible assets Property, plant and equipment Investment properties Other non-current assets 9 Deferred tax assets Derivative instruments 18 Non-current assets Inventories 10 Income tax advance payments Trade and other receivables 10, 20 Other current assets Derivative instruments 18 Other current financial assets 15, 20 Cash and cash equivalents 15, 20 Current assets TOTAL ASSETS • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • December 31, 2020 243,829 65,997 613,374 1,454 23,695 114,302 976 1,063,627 379,021 11,152 409,625 14,185 26,081 1 265,744 1,105,809 2,169,436 June 30, 2021 247,991 64,226 590,679 1,904 24,315 124,194 47 1,053,356 442,987 5,802 530,982 23,453 8,185 449,981 1,461,389 2,514,746 Equity and liabilities (in thousand euros) Share capital Reserves and retained earnings Shareholders’ equity Group share Non-controlling interests Shareholders’ equity Non-current borrowings Other non-current liabilities Employee benefits obligation Provisions Deferred tax liabilities Derivative instruments Non-current liabilities Trade and other payables Current borrowings Current tax due Other current liabilities Derivative instruments Current liabilities TOTAL EQUITY AND LIABILITIES SHEQ: See consolidated statement of changes in equity. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position Notes December 31, 2020 June 30, 2021 11-1 171,809 171,427 1,284,399 1,470,037 1,456,208 1,641,464 SHEQ 1,456,208 1,641,464 12, 20 27,985 24,802 12,707 14,508 122,964 98,244 13 25,560 21,715 60,914 64,877 18 53 250,183 224,146 10 99,470 167,265 12 89,976 90,898 18,801 89,573 14 251,504 297,293 18 3,294 4,108 463,045 649,137 2,169,436 2,514,746 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 23 24 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousand euros) Notes Share capital Accumulated profits Additional paid in capital Actuarial differences recognized in equity Translation reserve Cash flow hedge derivatives Cost of hedging through OCI Share- holders’ equity Group share Non- controlling interests Share- holders’ equity At January 1, 2020 171,869 1,642,195 12,342 (101,231) (113,183) (3,909) 1,608,082 1,608,082 Dividends paid Decrease in share capital (a) Increase in share capital Treasury shares Recognition of share-based payments Hyperinflation impact in Argentina Other Total transactions with Shareholders Net income for the period Other comprehensive income Total comprehensive income 16 17 - (45) - (45) - (110,214) - (7,266) 938 (17) (116,559) 22,084 1,678 - - 2,185 - 2,185 - - - - - (31,505) (103,710) - - - - - - - - 4,977 - - - - (110,214) - (7,311) 2,185 938 (17) (114,419) 22,084 (128,560) - - - - (110,214) - (7,311) 2,185 938 (17) (114,419) 22,084 (128,560) 23,762 (31,505) (103,710) 4,977 (106,476) (106,476) At June 30, 2020 171,824 1,549,398 14,527 (132,736) (216,893) 1,068 1,387,187 1,387,187 At January 1, 2021 171,809 1,621,415 17,786 (111,979) (255,486) 12,663 1,456,208 1,456,208 Dividends paid Decrease in share capital (a) Increase in share capital Treasury shares Recognition of share-based payments Hyperinflation impact in Argentina Other Total transactions with Shareholders Net income for the period Other comprehensive income Total comprehensive income 16 17 - (382) - (382) - (80,919) - (14,263) 1,782 28 (93,372) 230,164 (27) - - 5,037 - 5,037 - - - - - 26,110 - - - - 30,375 - - 1 1 - (12,648) - - - - (80,919) - (14,646) 5,037 1,782 26 (88,719) 230,164 43,810 - - - - (80,919) - (14,646) 5,037 1,782 26 (88,719) 230,164 43,810 230,137 26,110 30,375 (12,648) 273,974 273,974 At June 30, 2021 171,427 1,758,180 22,823 (85,869) (225,111) 13 1,641,464 1,641,464 (a) No shares were canceled during the first half of 2021. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated cash flow statement 2.5 CONSOLIDATED CASH FLOW STATEMENT (in thousand euros) Notes June 30, 2020 June 30, 2021 Operating activities Net income Group share Elimination of expenses and income with no impact on cash flows or non-business related expenses: Argentina hyperinflationary accounting Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss on tangible and non-tangible assets Provision for employee benefits Other provisions (excluding provisions on current assets) Unrealized foreign currency gain/loss Hedging and derivative instruments Option premium expense Recognition of share-based payments Financial expense/(income) Income tax expense Deferred tax variation (Gain)/loss from disposal of fixed assets Gain on sale of Clichy headquarters Gain on disposal of PIMACO IS 2 15 (a), 2 13 15 (b) 17, SHEQ 4, 15 (c) 4, 15 (c) 4, 15 (c) 22,084 768 57,908 42,291 8,313 2,768 (12,550) (907) 783 2,185 643 40,407 (28,070) 63 - - 230,164 1,420 56,345 838 5,328 (2,351) 571 4,119 531 5,037 (55) 104,592 (6,232) 735 (167,711) (3,027) Cash flow from operations 136,687 230,306 (Increase)/decrease in net working capital Payments related to employee benefits Income tax paid 10, 15 (d) 15 (e) (31,211) (4,955) (14,385) (62,592) (4,485) (29,194) NET CASH FROM OPERATING ACTIVITIES 86,135 134,035 Investing activities Disposal of PIMACO Sale of Clichy headquarters Disposal of fixed assets Purchases of property, plant and equipment Purchases of intangible assets (Increase)/decrease in other investments Sale of other current financial assets Acquisition of subsidiaries 15 (c) 15 (g), 2 15 (g), 2 15 (h) 15 (i) - 496 (41,071) (2,726) (59) 3,861 (2,721) 3,445 173,854 1,608 (26,514) (3,772) 282 - (7,154) NET CASH FROM INVESTING ACTIVITIES (42,220) 141,749 Financing activities Dividends paid Borrowings/(repayments) Interest (paid)/received Payments of obligations under leases Purchase of financial instruments Increase in treasury shares SHEQ, 15 (j) 12, 15 (k) 15 (l) (110,214) 105,000 (443) (7,900) (501) (7,384) (80,919) 906 47 (8,535) (241) (14,528) NET CASH FROM FINANCING ACTIVITIES (21,441) (103,269) Net cash variation Opening cash and cash equivalents net of bank overdrafts Exchange difference BS, 12, 20 22,474 146,846 (18,885) 172,515 264,733 11,294 CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 12, 20 150,435 448,542 IS: See consolidated income statement. SHEQ: See consolidated statement of changes in equity. BS: See consolidated balance sheet. References from (a) to (l) explained in Note 15. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 25 26 2.6 NOTE 1 NOTE 2 NOTE 3 NOTE 4 NOTE 5 NOTE 6 NOTE 7 NOTE 8 NOTE 9 NOTE 10 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS General Balance sheet – Liabilities MAIN RULES AND ACCOUNTING POLICIES 27 NOTE 11 SHARE CAPITAL 1-1 1-2 1-3 1-4 Accounting policies Change in Group structure Significant events Subsequent events 27 27 27 27 11-1 11-2 Share capital SOCIÉTÉ BIC owned shares and repurchase of shares of the Company as of June 30, 2021 NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES OPERATING SEGMENTS 28 2-1 2-2 2-3 General information Information on income statement and assets by activity Informations by geography 28 28 30 NOTE 13 NOTE 14 PROVISIONS OTHER CURRENT LIABILITIES Income statement Additional information OPERATING EXPENSES 30 NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT OTHER INCOME AND EXPENSES 31 NOTE 16 DIVIDENDS FINANCE INCOME 31 NOTE 17 SHARE-BASED PAYMENTS INCOME TAX 32 NOTE 18 FINANCIAL INSTRUMENTS 6-1 6-2 Income tax expense Deferred and current tax recognized on other comprehensive income EARNINGS PER SHARE GROUP SHARE 32 32 33 18-1 18-2 Impact of interest rate and foreign exchange risks’ hedging on consolidated financial statements as of June 30, 2021 Impact of interest rate and foreign exchange risks’ hedging on consolidated financial statements as of December 31, 2020 Balance sheet – Assets NOTE 19 CONTINGENT LIABILITIES GOODWILL 33 NOTE 20 EXPOSURE TO MARKET RISKS OTHER NON-CURRENT ASSETS 35 20-1 20-2 Credit risk Fair value of financial assets and liabilities CHANGE IN NET WORKING CAPITAL 35 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 35 35 36 36 38 38 39 39 40 40 40 41 41 42 42 43 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 1-1 Accounting policies 1-1-1 Pursuant to European regulation no.1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in accordance with accounting principles as defined by the International Accounting Standards Board (IASB) as adopted by the European Union. International Financial Reporting Standards are available on the European Union website. General New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2021 As of June 30, 2021, the Group did not elect to early apply any standard, interpretation or amendment. Standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2021 The (International Financial Reporting Standards), the IAS (International Accounting Interpretation their SIC Standards), as well as Committee) and (International Financial Reporting IFRIC Interpretations Committee) interpretations. international standards include the IFRS (Standing The condensed consolidated financial statements as of June 30, 2020 and June 30, 2021 have been prepared in compliance with IAS 34 “Interim financial reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. IAS 34 allows presentation of a selection of notes to the condensed consolidated in financial statements of conjunction with December 31, 2020. financial statements that should be read the consolidated amendments to IAS 1 – Presentation of Financial Statements: Classification of Liabilities as Current or Non-current; amendments to IAS 8 – Accounting Policy Changes; amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses; amendments to IAS 16 – Property, Plant and Equipment - Proceeds before Intended Use; amendments to IAS 37 – Provisions, Contingent Liabilities and Contingent Assets – Onerous contracts – Cost of Fulfilling a Contract; annual improvements – 2018-2020; amendments to IFRS 3 – Business Combinations – References to the conceptual framework; The measurement procedures used for the interim condensed consolidated financial statements are as follows: amendments to IFRS 16 – Leases – Covid-19 rent relief beyond June 30, 2021. interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre-tax result of the interim period excluding non-recurring material items. The income tax charge related to any non-recurring item in the period is accrued using its actual tax expense; Analysis on the practical consequences of these new regulations is in progress. 1-2 Change in Group structure regarding the main pension plans and other employee benefits (United States, Canada, France, United Kingdom), actuarial valuations are performed every six months. Amounts recognized in the interim statement of financial position are based on estimates made at the end of the previous year and on the discount rates as of June 30. Regarding share-based payments and other benefits plans, expenses are recognized in the period on a pro rata basis of the estimated costs for the year. On February 26, 2021 – BIC announced the closing of the sale of its Brazilian adhesive label business, PIMACO, to Grupo CCRR for 40 million Brazilian Real (approximately 6.0 million euros). The transaction has been approved by the Brazilian antitrust authorities. 1-3 Significant events The principal accounting policies remain unchanged compared to last year except for adoption of the following standard, effective since January 1, 2021. 1-1-2 Adoption of new and revised International Financial Reporting Standards, interpretations and amendments On February 11, 2021 – BIC announced that it has signed with its BNP Paribas Real Estate and CITALLIOS Clichy-la-Garenne-based and BIC Technologies sites for an amount of 175 million euros, representing a 167.7 million euros gross capital gain. the sale of (France) Headquarters New standards, amendments and interpretations of mandatory application for financial years beginning on or after January 1, 2021 1-4 Subsequent events No other subsequent event occurred between July 1, 2021 and the reporting date. The following standards and amendments are effective since January 1, 2021 and have been applied to the consolidated financial statement as of June 30, 2021: amendments to IFRS 4 – Temporary exemption from IFRS 9; amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform – Phase 2. The application of these standards and amendments did not have any material impact on the Group’s accounts. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 27 28 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 2 OPERATING SEGMENTS 2-1 General information 2-2 Information on income statement and assets by activity According to IFRS 8, BIC Group operating segments have been determined based on the reports regularly provided to the management and used to make strategic decisions. As of Q1 2021, BIC has evolved its financial communication and KPIs to adapt to the Horizon plan. The measurement policies that the Group uses for segmental reporting under IFRS 8 are the same as those used in its financial statements. Normalized income from operations is replaced by Adjusted EBIT. All indicators are determined according to IFRS, except for: The Management, composed of operational representatives responsible for the continents, representatives of the categories and cross-functional areas, considers the business from a product category perspective, knowing that each category can be reviewed for a specific geographic area if necessary. These operating segments receive their revenues from the production and distribution of each product category. adjusted income from operations, which is the EBIT restated for non-recurring items (in particular real estate gains, the gain or loss on the sale of businesses and restructuring costs). It constitutes the key financial metric used within the Group; internal capital additions, which are the purchases and generation of property, plant and equipment and intangible fixed assets for the period. Following the new organization announced at the time of BIC’s transformation plan launched in February 2019, a new reporting structure has been put in place starting in 2020. The unallocated costs have been removed from Categories’ Income From Operations and Normalized Income From Operations, and will be presented separately: stationery; lighters; shavers; other products; unallocated costs. Unallocated costs include: net costs (balance of income and expenses): • of Corporate headquarters including IT, finance, legal and HR costs, other net costs that can’t be allocated to Categories, notably restructuring costs, gains or losses on assets’ divestiture, etc. of shared services center; • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements At June 30, 2020 At June 30, 2021 (in million euros) Stationery Lighters Shavers Other Products Unallocated costs Total Stationery Lighters Shavers Other Products Unallocated costs Total Income statement Net sales 294 268 201 13 776 333 368 200 16 917 Depreciation and amortization (17) (13) (17) (11) (58) (16) (14) (16) (10) (56) Impairment loss (42) (42) (1) EBIT (35) 84 17 (3) (39) 24 29 144 32 3 131 333 Restatements made to obtain adjusted EBIT Cello impairment on property, plant & equipment and trademark impairment in 2020 42 42 Restructuring costs 2 5 8 1 2 1 4 Some expenses related to the Covid-19 epidemic, mainly underabsorption of fixed costs 12 3 4 19 Clichy headquarters sales capital gain (168) (168) PIMACO divestiture capital gain (3) (3) Adjusted EBIT 19 87 22 (1) (34) 93 28 146 32 (3) (37) 166 As of June 30, 2021, the BIC Group had identified Walmart group as a major customer with which it realized 10% of its net sales over the period. At June 30, 2020 At June 30, 2021 (in million euros) Stationery Lighters Shavers Other Products Total Stationery Lighters Shavers Other Products Total Capital additions (a) (b) 7 18 11 7 44 6 11 8 5 30 Net inventories 234 140 102 9 485 221 116 98 7 443 (a) (b) Excluding 2021 capital additions not cashed out end of June 2021 and including capital additions cashed out in 2021 related to 2020 for a net amount of -0.8 million euros. Excluding 2020 capital additions not cashed out end of June 2020 and including capital additions cashed out in 2020 related to 2019 for a net amount of 12.6 million euros. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 29 30 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 2-3 Informations by geography The geographies identified by the management are: France, Europe (excluding France), North America and Developing markets. At June 30, 2020 At June 30, 2021 (in million euros) France Europe excl- uding France North America Latin America Middle East and Africa Asia and Oceania (incl- uding Cello) Total France Europe excl- uding France North America Latin America Middle East and Africa Asia and Oceania (incl- uding Cello) Total Net sales 84 174 343 94 39 42 776 103 189 406 126 51 41 917 The Group may grant year-end rebates. These rebates are booked in net sales and amounted 51 millions euros as of June 30, 2021 compared to 47 million euros as of June 30, 2020. At December 31, 2020 At June 30, 2021 (in million euros) France Europe excluding France North America Developing Markets Total France Europe excluding France North America Developing Markets Total Non-current assets (a) 322 187 243 196 948 313 182 247 184 926 (a) Other than financial instruments (0.1 million euros in 2021 and 2.9 million euros in 2020), deferred tax assets (124.2 million euros in 2021 and 114.2 million euros in 2020). NOTE 3 OPERATING EXPENSES (in thousand euros) June 30, 2020 June 30, 2021 Raw materials, consumables used and change in inventory 188,271 235,047 Staff costs 245,853 249,531 Depreciation and amortization expenses 57,908 56,113 Other operating expenses 208,354 219,453 Impairment loss on manufacturing equipment 184 403 Profit/(loss) on operational foreign currency translation 131 (7,181) TOTAL 700,731 753,366 Other income and expenses are not included in the total amount and are disclosed in Note 4. Other operating expenses mainly include outside services. Research and development costs recognized under other operating expenses for the first half of 2021 amounted to 11.1 million euros, versus 9.6 million euros during the first half of 2020. They include the French research tax credit for 1.5 million euros, same as 2020. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 4 OTHER INCOME AND EXPENSES (in thousand euros) June 30, 2020 June 30, 2021 Royalties income 57 (1) Gain on sale of Clichy’s Headquarters 167,711 Gain on disposal of fixed assets 509 PIMACO divestiture gain 3,027 Other 2,893 3,858 Other income 2,950 175,104 Loss on disposal of fixed assets (63) Impairment on property, plant & equipement and trademark – Cello (41,729) Cost reduction plans (7,873) (4,248) Other (4,395) (1,636) Other expenses (54,060) (5,884) TOTAL (51,110) 169,220 Other income and expenses incurred in the first half 2021 mainly include: Other income and expenses incurred in the first half 2020 mainly included: 167.7 million euros from Clichy Headquarters sale; PIMACO divestiture gain for 3 million euros; property, plant and equipement along with trademark impairment of Cello for 41.7 million euros; 4.2 million euros of restructuring costs, of which transformation plan, is the main driver. the the restructuring costs amounting to 7.9 million euros mainly related to “BIC 2022 – Invent the Future” transformation plan expenses; the expenses linked to the Covid-19 impact during the first half of 2020 for 2.1 million euros. NOTE 5 FINANCE INCOME (in thousand euros) June 30, 2020 June 30, 2021 Interest income from cash and cash equivalents 1,211 425 Interest on bank deposits 847 827 Income from cash and cash equivalents 2,058 1,253 Interest expense (1,948) (884) Cost of financial debt – IFRS 16 (752) (527) Argentina hyperinflation accounting - IAS 29 (1,377) (2,957) Net financial foreign exchange difference 11,910 (931) Net finance income/(net finance costs) 7,832 (5,299) FINANCE (COSTS)/REVENUE 9,890 (4,046) Financial income decreased in the first half 2021 compared to 2020. It comes from several factors: first half of 2021 was more hyperinflation accounting than in 2020; impacted by Argentina during the first half of 2020, the depreciation of Mexican peso and Brazilian real against the U.S. dollar generated a much favorable financial assets denominated in U.S. dollars; impact on the valuation of income from cash and cash equivalents decreased compared to the previous period due to lower interest rates. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 31 32 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 6 INCOME TAX 6-1 Income tax expense (in thousand euros) June 30, 2020 June 30, 2021 Income before tax 33,881 328,524 Tax charge 11,797 98,360 TAX RATE 34.82% 29.94% At the end of June 2021, the Group effective tax rate is determined on an annual basis. The tax charge is calculated by applying the estimated average rate for the 2021 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2021 and effective after June 30, 2021. The income tax charge related to any non-recurring items in the period is accrued using the actual tax expense. 6-2 Deferred and current tax recognized on other comprehensive income Deferred and current taxes recognized in other comprehensive income result from the following items: June 30, 2021 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined-benefit plans (1) 31,331 (5,221) Other comprehensive income (2) 15,204 2,495 Cash flow hedge (15,174) 2,526 Foreign exchange impact 30,375 (30) Other 3 (1) TOTAL (1)+(2) 46,535 (2,726) June 30, 2020 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined-benefit plans (1) (39,882) 8,377 Other comprehensive income (2) (97,734) (606) Cash flow hedge 5,981 (2,289) Foreign exchange impact (103,710) 1,683 Other (5) 1 TOTAL (1)+(2) (137,616) 7,771 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 7 EARNINGS PER SHARE GROUP SHARE Earnings per share (Group share) and diluted earnings per share (Group share) correspond to the Group net income divided by the relevant number of shares. The number of shares used to calculate the earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. The number of shares used to calculate the diluted earnings per share (Group share) is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of free shares and stock options. As of June 30, 2021, there are no shares with relutive impact and the maximum dilutive effect from unvested free shares is around 3.0% of the share capital. June 30, 2020 June 30, 2021 Numerator (in thousand euros) Net income Group share from continuing operations 22,084 230,164 Denominator (in number of shares) Weighted average number of ordinary shares in circulation 44,967,891 44,967,216 Dilutive effect of free shares 101,028 (156,044) Diluted weighted average number of ordinary shares in circulation 45,068,919 44,811,172 Earnings per share Group share from continuing operations (in euros) Earnings per share Group share from continuing operations 0.49 5.12 Diluted earnings per share Group share from continuing operations 0.49 5.14 NOTE 8 GOODWILL (in thousand euros) Notes Gross value Impairment loss Net value At January 1, 2020 313,737 (110,032) 203,705 Djeep acquisition 29,885 29,885 Rocketbook Acquisition 22,048 22,048 Exchange differences (23,118) 11,309 (11,809) At January 1, 2021 342,552 (98,723) 243,829 PIMACO disposal (3,651) 3,651 _ Exchange differences 5,323 (1,161) 4,162 At June 30, 2021 344,224 (96,233) 247,991 The balance, as of June 30, 2021, includes the following principal net goodwill: (in thousand euros) December 31, 2020 June 30, 2021 BIC CORPORATION Stationery (a) 49,168 50,614 Lighters (a) 38,819 40,072 BIC Violex 69,281 69,934 Kenya 4,852 5,034 Nigeria 12,937 12,428 Djeep 29,885 29,885 Rocketbook 21,851 22,679 Other (a) 17,037 17,346 TOTAL 243,829 247,991 (a) These goodwill amounts are linked to cash-generating units represented by distribution subsidiaries. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 33 34 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements To perform the impairment tests, the Group used the following discount and perpetual growth rates: Weighted average cost of capital (WACC) before tax Perpetual growth rate 2020 2021 2020 2021 BIC CORPORATION Stationery 8.5% 9.9% 1.5% 1.5% Lighters 8.4% 9.6% 1.5% 1.5% Cello Pens 14.7% 14.2% 3.4% 4.0% BIC Violex 12.05% 13.8% 1.9% 1.9% Kenya 18.7% 17.9% 6.0% 5.0% Nigeria 24.6% 28.2% 8.1% 10.3% Djeep 9.2% 0% Rocketbook 9.1% 1.5% As every year, as of June 30, 2021, the Group performed annual impairment tests on these goodwill amounts. Each goodwill item has been allocated to a cash-generating unit (“CGU”) representing the is lowest monitored by the Group. level at which goodwill The goodwill on BIC CORPORATION is thus mainly allocated to the distribution by BIC cash-generating units CORPORATION of stationery products and lighters. linked to The goodwill on Cello Pens is allocated to the cash-generating units linked to the production and distribution of stationery products by Cello. The goodwill on Rocketbook is allocated to the cash-generating unit linked to the distribution of the Core and Fusion notebooks, reusable notebooks used with erasable pens by Rocketbook. The goodwill is based on a impairment test methodology comparison between the recoverable amount of each of the Group’s cash-generating units and the corresponding assets’ net book value (including goodwill). Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over a maximum of five years and a terminal value using the perpetual annuity method, including notably the following: The remaining goodwill on BIC Violex is allocated to the cash-generating unit linked to shavers developed and/or produced by BIC Violex and sold all over the world. This cash-generating unit also includes the portion of BIC CORPORATION goodwill allocated to shavers. The goodwill on the Kenya subsidiary is allocated to the cash-generating unit linked to the production and distribution of stationery products by BIC East Africa. is allocated to the The goodwill on the Nigeria subsidiary cash-generating unit linked to the production and distribution of stationery products by Lucky Stationary Limited. the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rates; the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics. Considering the impairment on part of the assets on the CGU Cello, any negative variance of drivers (discount rate, performance and perpetual growth rates) would lead to an additional impairment of other assets. The goodwill on Djeep is allocated to the cash-generating unit linked to the production and distribution of lighters by Djeep. The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to impairment, taking into account the observed headroom on the other tests conducted. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 9 OTHER NON-CURRENT ASSETS (in thousand euros) December 31, 2020 June 30, 2021 Guarantee deposits 4,265 3,642 Deferred pensions 555 3,381 Deferred compensation in the U.S. (other than pensions) 9,744 10,113 Other non-current assets 9,131 7,179 TOTAL 23,695 24,315 NOTE 10 CHANGE IN NET WORKING CAPITAL (in thousand euros) December 31, 2020 Cash flows impact Operating Cash flows impact Investing (a) PIMACO disposal Price adjustment & earn-out clauses Haco/ Rocket- book Price adjust- ment Djeep & Sibjet Cash to be received from PIMACO sale Reclass. of PSE from LT to ST Foreign exchange and other June 30, 2021 Net inventory 379,021 56,202 (715) 8,479 442,987 Inventory - Gross value 394,319 56,969 (715) 8,732 459,305 Inventory - Impairment (15,298) (767) (253) (16,319) Trade and other receivables 409,625 113,815 (1,906) 2,067 7,381 530,982 Trade and other payables (99,470) (65,896) (768) 517 (1,648) (167,265) Other receivables and payables (231,182) (41,530) (673) 4,154 3,000 (1,395) (3,474) (271,100) NET WORKING CAPITAL 457,993 62,592 (768) (2,777) 4,154 3,000 2,067 (1,395) 10,737 535,603 (a) Cash flows impact Investing includes capital additions cashed out in 2021 relating to 2020 and excludes 2021 capital additions not yet cashed out for a net amount of -0.8 million. The working capital is used to finance the Group’s operating cycle. Details of the elements used in the calculation are presented above. NOTE 11 SHARE CAPITAL 11-1 Share capital (in thousand euros) December 31, 2020 June 30, 2021 Authorized, issued and fully paid-up share capital 173,412 173 412 Repurchase of shares of the Company (1,603) (1,985) SHARE CAPITAL 171,809 171,427 As of June 30, 2021, the registered share capital of SOCIÉTÉ BIC was 173,412,173.74 euros divided into 45,395,857 shares of 3.82 euros each. Registered shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 519,580 treasury shares, acquired at an average price of 86.20 euros in accordance with Article L. 225-209 of the French Commercial Code, which represent 1.14% of the share capital. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 35 36 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 11-2 SOCIÉTÉ BIC owned shares and repurchase of shares of the Company as of June 30, 2021 Purpose of the repurchase Number of shares Average acquisition price (in euros) % of the share capital Liquidity agreement (a) 15,506 48.32 0.03% Free share grants (a) 504,174 87.36 1.11% TOTAL 519,680 86.20 1.14% (a) Article L. 225-209 of the French Commercial Code. In accordance with the liquidity agreement, transferred by Natixis to ODDO on June 27, 2018, in respect of SOCIÉTÉ BIC shares, as of June 30, 2021, the liquidity account contained the following: At initial set-up, the liquidity account contained the following: 2,312 BIC shares; 15,506 BIC shares; 749,209.70 euros. 912,744.48 euros. the Annual SOCIÉTÉ BIC obtained authorization Shareholders’ Meeting on May 19, 2021, to renew its share repurchase program (see 2020 Universal Registration Document, chapter 8 p. 310). from Number of shares purchased in 2021 (a) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 20, 2020 277,834 Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 19, 2021 Average share repurchase price for the purchases during the first half of 2021 (in euros) 56.58 (a) Excluding shares repurchased under the liquidity contract. To the best of the Company’s knowledge, as of June 30, 2021, Shareholders holding more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: At December 31, 2020 % of shares (approx.) % of voting rights (approx.) SOCIÉTÉ M.B.D. 28.39% 38.70% Bich family 17.22% 23.42% NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES (in thousand euros) Bank overdrafts Short-term borrowings Current borrowings and financial liabilities Non-current borrowings and financial liabilities Current lease liability Non-current lease liability Total At January 1, 2021 1,011 75,000 1,174 4,710 12,792 23,275 117,961 Cash Flows 422 906 (8,282) (507) (7,461) “Non-cash” changes 6 (116) 184 7,986 (2,861) 5,199 Variations in obligations under leases 7,482 (3,134) 4,348 PIMACO disposal (20) (3) (23) Exchange difference 6 (116) 184 308 494 875 At June 30, 2021 1,438 75,000 1,964 4,894 12,496 19,908 115,699 Bank overdrafts are due within one year. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Bank loans and financial liabilities have the following maturities: (in thousand euros) December 31, 2020 June 30, 2021 On demand or within one year 76,174 76,964 In the 2nd year In the 3rd year 4,894 In the 4th year 4,710 In the 5th year After five years TOTAL 80,884 81,858 Main bank loans/credit lines and financial liabilities are as follows: Borrowing country Euro equivalents (in thousand euros) Currency December 31, 2020 June 30, 2021 France EUR 75,000 75,000 Turkey TRY 1,042 1,864 Kenya KES 4,710 4,894 Other 132 100 TOTAL 80,884 81,858 Information on interest rates As of June 30, 2021, outstanding loans and credit lines were contracted with floating rates ranging between 10% and 20%. The borrowings indicated for France consist exclusively of NeuCP issues, which were issued on average at -0.08%. IFRS 16 Liability The BIC Group has opted to use an incremental borrowing rate for discounting debt. The rate used for each lessee is the rate he would have to pay to borrow, over a similar period and with similar security, the funds necessary to obtain an asset of similar value to the leased asset in a similar economic environment. Relative exposure, deemed not significant, has not been hedged. Information on covenants None of the current loans contains any covenant that could trigger early repayment of the debt. The term used at the transition date is the residual term of the contracts. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 37 38 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 13 PROVISIONS (in thousand euros) Tax and social risks and litigation Liitigation Product liability Other risks and charges Total At January 1, 2021 3,845 13,375 311 8,029 25,560 Additional provisions 279 1,928 424 2,632 Reversals of provisions utilized (1,013) (758) (2,921) (4,692) Reversals of provisions not utilized (2) (184) (107) (292) Exchange differences 49 333 12 7 401 PIMACO disposal (8) (492) 1 (500) Reclassification (1,395) (1,395) At June 30, 2021 3,149 14,202 323 4,039 21,714 As of June 30, 2021, it was not deemed necessary to book provisions for the risks described in Part 1 “Group Presentation” that could affect: the Company’s personnel, assets, environment or reputation; Litigation As of June 30, 2021, the litigation provision mainly represents distributor and commercial agent risks for 2.1 million euros (1.9 million euros as at December 31, 2020). the Group’s ability to reach its objectives and abide by its Values, ethics or the laws and regulations. Tax (excluding income tax) and social risks and litigation Provisions for tax (excluding income tax) and social risks and litigation relate mainly to: Other risks and charges As of June 30, 2021, other provisions for risks and charges are mainly related to the restructuring provisions for an amount of 2.1 million euros. tax risks; Product liability Product liability mainly relates to the U.S. U.S. workers’ compensation. NOTE 14 OTHER CURRENT LIABILITIES (in thousand euros) December 31, 2020 June 30, 2021 Social liabilities 86,766 95,084 Other tax liabilities 10,132 19,625 Accrued Business Development Fund 75,516 93,179 Provision for restructuring 17,252 13,024 Other current liabilities 61,512 76,381 OTHER CURRENT LIABILITIES 251,178 297,293 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT References from (a) to (l) refer to the consolidated cash flow statement on page 25. During the first half 2020, there was no disposal of individually significant fixed assets (c). As of June 30, 2021 cash and cash equivalents amounted to 450.0 million euros and bank overdrafts to 1.4 million euros. Net cash from operating activities H1 2021 net cash from operating activities amounted to 134.0 million euros. As of June 30, 2020 property, plant and equipment of Cello Pens were impaired for 26.8 million euros and the trademark for 14.9 million euros (a). The Group recorded foreign exchange (gains)/losses with no cash impact in financial income and restated these in the consolidated cash flow statement (b). In the first half of 2021, the sale of Clichy headquarters generated a capital gain of 167.7 million euros. The divestiture of PIMACO generated a capital gain of 3.0 million euros (c). There was no individually significant disposal of fixed assets during the first half of 2020 (c). During the first half 2021, the BIC Group disbursed 30.3 million euros on property, plant and equipement and intangible assets (including -0.8 million euros related to the change in fixed asset supplier accounts) (g). Purchases of property, plant and equipment do not include finance leases booked as a counterpart to a financial debt, as these transactions do not have any impact on cash (g). During the first half of 2021, payments were made in respect of the Haco Kenya earn-out for 2.7 million dollars, Rocketbook price adjustment for 2.2 million dollars and Djeep price adjustment for 3 million euros (i). An additional amount of 2.7 million euros related to the acquisition of Haco Industries Kenya was disbursed in the first half 2020 (i). “Other current financial assets” referred to investments not eligible for classification as cash & cash equivalents under IAS 7. These investments consisted of units of UCITS and negotiable debt securities, all of which are liquid within 5 days. They were sold during 2020 (h). The working capital (see Note 10 for the definition) increase amounted to 62.6 million euros compared to an increase, during the first half 2020, of 31.2 million euros. The 2021 variance is mainly explained by an increase in trade receivables and inventories, partly offset by an increase in trade payables (d). Net cash from financing activities Net cash from financing activities amounted to -103.3 million euros during the first half 2021 compared to -21.4 million euros in the first half 2020. The 2020 variance was mainly explained by an inventories (d). increase The payments related to employee benefits were mainly driven by the U.S. and United Kingdom (e). Net cash from investing activities Net cash from investing activities amounted to 141.7 million euros during the first half 2021 compared to -42.2 million euros during the first half 2020. During the first half 2021, the headquarters of Clichy were sold for a net amount of 173.9 million euros that represent the proceed on disposal net of related costs. in The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 16) (j). As of June 30, 2021, new borrowings amounted to 0.9 million euros, compared to 105.0 million euros in the first half 2020 (k). During the first half 2021, 277,834 shares were repurchased by SOCIÉTÉ BIC for 15.7 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 276,046 shares for 14.6 million euros, and sold 298,246 shares for 15.8 million euros (l). During the first half 2020, 136,383 shares were repurchased by SOCIÉTÉ BIC for 7.4 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 215,239 shares for 11.2 million euros, and sold 213,872 shares for 11.2 million euros (l). During the first half 2021, PIMACO was disposed of for a net amount of 3.4 million euros that represents the proceed on disposal net of cash & cash equivalent of the divested entity, related costs and also income tax paid on the capital gain. NOTE 16 DIVIDENDS For the 2020 fiscal year, an ordinary dividend of 1.80 euros per share was distributed to Shareholders on June 2, 2021. For the 2019 fiscal year, an ordinary dividend of 2.45 euros per share was distributed to Shareholders on June 3, 2020. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 39 40 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 17 SHARE-BASED PAYMENTS As of June 30, 2021, the fair value of options and shares granted amounts to 5,037 thousand euros and is booked in staff costs. The Board of Directors of February 16, 2021 decided to grant 244,181 free shares to 162 beneficiaries subject to performance conditions and 137,322 free shares to 672 beneficiaries without performance conditions. The plans’ unit fair value is 42.93 euros. The Board of Directors of May 19, 2021 decided exceptionally to grant 1,224,500 stock options to 14 beneficiaries subject to performance conditions. The plans’ unit fair value is 7.54 euros. NOTE 18 FINANCIAL INSTRUMENTS 18-1 Impact of interest rate and foreign exchange risks’ hedging on consolidated financial statements as of June 30, 2021 The following amounts have been booked as the fair value of derivatives as of June 30, 2021 (in thousand euros): Derivative instruments and revaluation Hedge qualification/ hedged risk Net financial Income/ (expense) before tax – Note 5 Income from operations – Note 3 Other comprehensive income before tax (a) Current assets (b) Non-current assets Current liabilities Non-current liabilities Hedging revaluation impact Commercial flows Cash flow hedge/foreign exchange risk (290) (1,461) (14,526) 8,043 47 (3,946) Dividends Net investment/ foreign exchange risk (648) 139 (122) Subtotal (1) (290) (1,461) (15,174) 8,182 47 (4,068) Revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/foreign exchange risk (130) 3 (41) Subtotal (2) (130) 3 (41) TOTAL (1)+(2) (421) (1,461) (15,174) 8,185 47 (4,108) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at June 30, 2021 restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2020. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 245 thousand euros. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 18-2 Impact of interest rate and foreign exchange risks’ hedging on consolidated financial statements as of December 31, 2020 The following amounts have been booked as the fair value of derivatives as of December 31, 2020 (in thousand euros): Derivative instruments and revaluation Hedge income qualification/ hedged risk Net financial Income/ (expense) before tax – Note 5 Income from operations – Note 3 Other comprehensive income before tax (a) Current assets (b) Non-current assets Current liabilities Non-current liabilities Hedging revaluation impact Commercial flows Cash flow hedge/foreign exchange risk (398) 5,148 21,470 25,236 976 (3,214) (53) Dividends Net investment/ foreign exchange risk 1,914 664 Subtotal (1) (398) 5,148 23,384 25,900 976 (3,214) (53) Revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/oreign exchange risk 166 173 (80) Subtotal (2) 166 173 (80) TOTAL (1)+(2) (232) 5,148 23,384 26,073 976 (3,294) (53) (a) (b) This corresponds to mark-to-market of hedging instruments in the portfolio at December 31, 2020, restated for the reversal of the mark-to-market of the portfolio of hedging instruments as of December 31, 2019. Including options not yet exercised held by SOCIÉTÉ BIC representing current assets for 528 thousand euros. NOTE 19 CONTINGENT LIABILITIES As of June 30, 2021, neither SOCIÉTÉ BIC nor its subsidiaries were aware of any contingent liabilities. Contingent liabilities are defined by IAS 37 as follows: possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity; actual obligations resluting from previous events and that are not recognized because: • settlement, involving an outflow representing economic benefits, is not probable, or their amount cannot be measured reliably. • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 41 42 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 20 EXPOSURE TO MARKET RISKS 20-1 Credit risk (in thousand euros) Gross trade receivables Not yet due or past due for less than 60 days Past due for 60 to 90 days Past due for 90 to 120 days Past due for more than 120 days Total gross trade receivables Doubtful receivables TOTAL BEFORE ALLOWANCE (A) Allowance on trade receivables not yet due or past due for less than 60 days Allowance on trade receivables past due for 60 to 90 days Allowance on trade receivables past due for 90 to 120 days Allowance on trade receivables past due for more than 120 days TOTAL ALLOWANCE (B) Allowance on specific trade receivables Allowance on statistically calculated trade receivables Other receivables (C) TRADE AND OTHER RECEIVABLES – NET (A)+(B)+(C) • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • Note 10 December 31, 2020 318,508 8,131 6,690 28,990 362,319 13,711 376,030 (6,171) (127) (340) (24,371) (31,050) (25,142) (5,908) 64,644 409,625 June 30, 2021 455,162 9,258 6,619 28,126 499,164 13,098 512,262 (6,539) (331) (459) (24,167) (31,495) (24,567) (6,970) 50,257 530,982 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 20-2 Fair value of financial assets and liabilities Accounting categories and fair value of financial instruments June 30, 2021 Breakdown by category of instruments Balance sheet items (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Receivables at amortized cost Debts at amortized cost At fair value through equity Financial assets 989,233 989,233 256,544 8,233 724,457 Non-current Derivative financial instruments 18 47 47 47 Other investments 38 38 38 Current Trade and other receivables 10 530,982 530,982 16,910 514,072 Derivative financial instruments 18 8,185 8,185 8,185 Other current financial assets Cash and cash equivalents 15 449,981 449,981 239,596 210,385 Financial liabilities 298,047 298,047 10,974 4,108 282,965 Non-current Borrowings 12 24,802 24,802 24,802 Derivative instruments 18 Djeep earn-out clause 3,961 3,961 3,961 Rocketbook earn-out clause 5,603 5,603 5,603 Current Borrowings 12 90,898 90,898 90,898 Derivative instruments 18 4,108 4,108 4,108 Rocketbook earn-out clause 1,410 1,410 1,410 Trade and other payables 10 167,265 167,265 167,265 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 43 44 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements December 31, 2020 Breakdown by category of instruments Balance sheet items (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Receivables at amortized cost Debts at amortized cost At fair value through equity Financial assets 702,460 702,460 128,509 27,057 546,894 Non-current Derivatives financial instruments 18 976 976 976 Other investments 34 34 34 Current Trade and other receivables 10 409,625 409,625 10,268 399,357 Derivative financial instruments 18 26,081 26,081 26,081 Other current financial assets 1 1 1 Cash and cash equivalents 15 265,744 265,744 118,206 147,537 Financial liabilities 231,497 231,497 10,718 3,347 217,432 Non-current Borrowings 12 27,985 27,985 27,985 Derivative instruments 18 53 53 53 Djeep earn-out clause 3,961 3,961 3,961 Rocketbook earn-out clause 5,398 5,398 5,398 Current Borrowings 12 89,976 89,976 89,976 Derivative instruments 18 3,294 3,294 3,294 Rocketbook earn-out clause 1,358 1,358 1,358 Trade and other payables 10 99,470 99,470 99,470 The valuation methods adopted for financial instruments are as follows: financial instruments other than derivatives recorded in the balance sheet: The book values used are reasonable estimates of their market value except for marketable securities whose carrying values are determined based on the last known net asset values as of June 30, 2021; Fair value valuation method The tables below set out the fair value method for valuing financial instruments, using the following three levels: level 1 (quoted prices in active markets): money market UCITS and other current financial assets; level 2 (observable inputs): derivatives - hedge accounting; level 3 (non-observable inputs): no such instruments are held as of June 30, 2021. derivative financial instruments: Market values are either those of the financial institutions or have been calculated by an external third-party on the basis of the last known closing prices as of June 30, 2021. They are consistent with the valuation reports provided by the financial institutions. June 30, 2021 Category of instruments (in thousand euros) Total Level 1 Level 2 Level 3 At fair value through the income statement – Assets 256,544 256,544 Derivative hedges – Assets 8,233 8,233 Derivative hedges – Liabilities 4,108 4,108 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 45 46 STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION For the period from January 1 to June 30, 2021 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders of SOCIÉTÉ BIC, In compliance with the assignment entrusted to us by our Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French monetary and financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of SOCIÉTÉ BIC, for the period from January 1 to June 30, 2021; the verification of the information presented in the half-yearly management report. Due to the global crisis related to the Covid-19 pandemic, the condensed half-yearly consolidated financial statements of this period have been prepared and reviewed under specific conditions. Indeed, this crisis and the exceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies’ internal organization and the performance of our procedures. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34, standard of the IFRSs as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed interim consolidated financial statements. Neuilly-sur-Seine and Paris-La Défense, July 29, 2021 The Statutory Auditors French original signed by Grant Thornton Deloitte & Associés French member of Grant Thornton International Vianney MARTIN Jean-Pierre AGAZZI • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • STATEMENT ON THE HALF-YEARLY REPORT 2021 • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • 47 48 STATEMENT ON THE HALF-YEARLY REPORT 2021 I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2020 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year. On July 29, 2021 Gonzalve Bich Chief Executive Officer • BIC GROUP - 2021 HALF-YEAR FINANCIAL REPORT • HALF-YEAR FINANCIAL2O21Report SOCIÉTÉ BIC92611 CLICHY CEDEX (FRANCE)www.bic.com | Semestriel, 2021, Supplies, BIC | write me a financial report |
Semestriel | 2,022 | Supplies | BIC | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| 2022 HALF-YEAR FINANCIAL REPORT MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 Key figures H1 2022 highlights H1 2022 Group operational trends H1 2022 operational trends by division Group net sales by geography 2022 outlook and market assumptions Recent events that occurred after June 30, 2022 Impact of change in perimeter and currency fluctuations on net sales (excludes ARS) Reconciliation with alternative performance measures Share repurchase program – cancelled shares Related-party transactions Capital evolution Material events that occurred in H1 2022 Material events that occurred after June 30, 2022 Description of the principal risks and uncertainties for H2 2022 Glossary 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1 2 3 4 8 11 11 12 12 13 14 14 14 15 15 15 17 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 2.2 2.3 2.4 2.5 2.6 Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEAR FINANCIAL INFORMATION STATEMENT ON THE HALF-YEAR REPORT 2022 49 19 20 21 22 24 25 26 47 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF HALF-YEAR CONSOLIDATED FINANCIAL DIRECTORS FOR THE 6-MONTH PERIOD STATEMENTS 19 ENDED JUNE 30, 2022 1 2.1 Consolidated income statement 20 1.1 Key figures 2 2.2 Consolidated statement of comprehensive income 21 1.2 H1 2022 highlights 3 2.3 Consolidated statement of financial position 22 1.3 H1 2022 Group operational trends 4 2.4 Consolidated statement of changes in equity 24 1.4 H1 2022 operational trends by division 8 2.5 Consolidated cash flow statement 25 1.5 Group net sales by geography 11 2.6 Notes to the consolidated financial statements 26 1.6 2022 outlook and market assumptions 11 1.7 Recent events that occurred after June 30, 2022 12 1.8 Impact of change in perimeter and currency 1.1 KEY FIGURES 2 fluctuations on net sales (excludes ARS) 12 1.9 Reconciliation with alternative performance STATUTORY AUDITORS’ REVIEW REPORT ON measures 13 1.2 H1 2022 HIGHLIGHTS 3 THE HALF-YEAR FINANCIAL INFORMATION 47 1.10 Share repurchase program – cancelled shares 14 1.11 Related-party transactions 14 1.3 H1 2022 GROUP OPERATIONAL TRENDS 4 1.12 Capital evolution 14 1.13 Material events that occurred in H1 2022 15 1.4 H1 2022 OPERATIONAL TRENDS BY DIVISION 8 1.14 Material events that occurred after June 30, 2022 15 STATEMENT ON THE HALF-YEAR REPORT 2022 49 1.15 Description of the principal risks and uncertainties for H2 2022 15 1.5 GROUP NET SALES BY GEOGRAPHY 11 1.16 Glossary 17 1.6 2022 OUTLOOK AND MARKET ASSUMPTIONS 11 1.7 RECENT EVENTS THAT OCCURRED AFTER JUNE 30, 2022 12 1.8 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) 12 1.9 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES 13 1.10 SHARE REPURCHASE PROGRAM – CANCELLED SHARES 14 1.11 RELATED-PARTY TRANSACTIONS 14 1.12 CAPITAL EVOLUTION 14 1.13 MATERIAL EVENTS THAT OCCURRED IN H1 2022 15 1.14 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2022 15 1.15 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR H2 2022 15 1.16 GLOSSARY 17 1 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Key figures 1.1 KEY FIGURES (in million euros) H1 2022 vs. H1 2021 H1 2021 H1 2022 As reported FX impact (in points) (a) Change in Perimeter (in points) (b) Group Net Sales 916.7 1,127.2 +23.0% +7.8 +0.9 Gross Profit 473.9 559.8 Adjusted Earnings Before Interest and Taxes (EBIT) 166.1 202.9 Adjusted EBIT Margin 18.1% 18.0% EBIT 332.6 197.7 EBIT Margin 36.3% 17.5% Net Income Group Share 230.2 139.4 Earnings Per Share Group Share (in euros) 5.12 3.15 Adjusted Net Income Group Share (in euros) 112.7 149.7 Adjusted Earnings Per Share Group Share 2.51 3.39 Human Expression (Stationery) Net Sales 333.3 438.0 +31.4% +6.3 +2.5 Adjusted EBIT 27.6 35.6 Adjusted EBIT Margin 8.3% 8.1% EBIT 29.1 33.5 EBIT Margin 8.7% 7.7% Flame for Life (Lighters) Net Sales 367.4 436.0 +18.7% +8.8 Adjusted EBIT 145.7 166.9 Adjusted EBIT Margin 39.6% 38.3% EBIT 143.8 165.9 EBIT Margin 39.2% 38.0% Blade Excellence (Shavers) Net Sales 200.4 240.3 +19.9% +8.4 Adjusted EBIT 32.4 43.3 Adjusted EBIT Margin 16.2% 18.0% EBIT 32.3 41.1 EBIT Margin 16.1% 17.1% Other products Net Sales 15.7 12.8 18.4% Adjusted EBIT (3.0) (3.8) EBIT (3.0) (3.8) Unallocated costs Adjusted EBIT (36.5) (39.1) EBIT 130.3 (39.1) (a) (b) (c) Forex impact excluding Argentinian Peso (ARS). Mainly acquisition of Inkbox. See Glossary. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • Argentina impact (in points) (c) +0.6 +0.9 +0.6 +0.5 Comparative basis +13.7% +21.7% +9.3% +11.0% 18.4% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Key figures H1 2022 highlights 1.1 KEY FIGURES 1.2 H1 2022 HIGHLIGHTS RESULTS H1 2022 vs. H1 2021 (in million euros) Change in Argentina Strong continued momentum in all divisions – H1 Net Sales growing 15.5% at Constant Currencies. Market share increased or maintained countries we operate execution and enhanced consumer-centricity. in 80% of the in, driven by efficient commercial FX impact Comparative Perimeter impact (in points) (a) (in points) (b) (in points) (c) H1 2022 H1 2021 As reported basis Human Expression: +23% Back-to-School sell-in growth in the Northern Hemisphere (Europe, North America, and Mexico), and high-double-digit growth in Brazil and India. Flame for Life: +17% growth in added-value products and double-digit growth in all key countries powered by distribution gains and innovation. Blade Excellence: +13% growth in added-value one-piece and hybrid shavers and increasing contribution of our B2B business BIC Blade-Tech (31% of Blade Excellence's growth in H1). Group Resilience to Input Cost Inflation Headwinds driven by favorable pricing and Net Sales operating leverage. Net Sales 916.7 1,127.2 +23.0% +7.8 +0.9 +0.6 +13.7% Gross Profit 473.9 559.8 Sustained Operating Cash Flow (275.6 million euros): working Capital impacted by the seasonality of Account Receivables (Back-to-School sell-in) and the negative impact of inflation on Inventories (40 million euros at the end of June). Adjusted Earnings Before Interest and Taxes (EBIT) 166.1 202.9 Adjusted EBIT Margin 18.1% 18.0% EBIT 332.6 197.7 EBIT Margin 36.3% 17.5% Net Income Group Share 230.2 139.4 5.12 3.15 Earnings Per Share Group Share (in euros) H1 2022 H1 2021 (in million euros) Adjusted Net Income Group Share (in euros) 112.7 149.7 Group Net Sales 916.7 1,127.2 Adjusted Earnings Per Share Group Share 2.51 3.39 Change as reported +18.2% +23.0% Human Expression (Stationery) Change on a comparative basis +22.5% +13.7% Net Sales 333.3 438.0 +31.4% +6.3 +2.5 +0.9 +21.7% Change on a constant currency basis +26.2% +15.5% Adjusted EBIT 27.6 35.6 EBIT 332.6 197.7 Adjusted EBIT Margin 8.3% 8.1% 36.3% 17.5% EBIT Margin EBIT 29.1 33.5 Adjusted EBIT 166.1 202.9 EBIT Margin 8.7% 7.7% Adjusted EBIT Margin 18.1% 18.0% Flame for Life (Lighters) 5.12 3.15 EPS (in euros) Net Sales 367.4 436.0 +18.7% +8.8 +0.6 +9.3% Adjusted EPS (in euros) 2.51 3.39 Adjusted EBIT 145.7 166.9 Free Cash Flow before acquisitions and disposals 103.7 22.4 Adjusted EBIT Margin 39.6% 38.3% Net Cash Position 366.7 229.9 EBIT 143.8 165.9 EBIT Margin 39.2% 38.0% Blade Excellence (Shavers) Net Sales 200.4 240.3 +19.9% +8.4 +0.5 +11.0% NET SALES BY DIVISION Adjusted EBIT 32.4 43.3 Adjusted EBIT Margin 16.2% 18.0% Human Expression (Stationery): 438.0 million euros (+21.7% on a comparative basis and +25.4% at constant currency). EBIT 32.3 41.1 Flame for Life (Lighters): 436.0 million euros (+9.3% on a comparative basis and +10.1% at constant currency). EBIT Margin 16.1% 17.1% Blade Excellence (Shavers): 240.3 million euros (+11.0% on a comparative basis and +11.8% at constant currency). Other products Net Sales 15.7 12.8 18.4% 18.4% Adjusted EBIT (3.0) (3.8) (3.8) EBIT (3.0) Unallocated costs Adjusted EBIT (36.5) (39.1) EBIT 130.3 (39.1) (a) Forex impact excluding Argentinian Peso (ARS). (b) Mainly acquisition of Inkbox. (c) See Glossary. 2 3 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 Group operational trends 1.3 H1 2022 GROUP OPERATIONAL TRENDS H1 2022 HIGHLIGHTS H1 2022 Group Net Sales increased 13.7% on a comparative basis, 15.5% at constant currencies and 10.7% on a 12-month rolling basis. Growth was driven by volume increase, favorable mix, and the successful implementation of price increases in all regions. All divisions and regions contributed to H1 performance. We gained or maintained market share in 80% of the countries we operate in, including in all three categories in Europe and the U.S. Total input cost inflation weighed approximately 48 million euros on H1 adjusted EBIT. For the full year, we expect approximately 100 million euros negative impact, which should be more than offset by volume increase, price adjustments, and additional savings, and allow us to grow adjusted EBIT in absolute terms. In Human Expression, H1 Organic growth was driven by our Core Writing Instruments and Coloring segments following robust Back-to-School shipments and efficient in-store execution. In the Northern Hemisphere (Europe, North America, and Mexico), Back-to-School sell-in increased by almost 20% in volume and 23% in value compared to the same period last year. Countries hardest hit by the pandemic, such as Brazil, South Africa, Nigeria, and India, continued to recover in Q2, with high-double digit growth on a comparative basis, all now having recovered ahead of 2019 levels. Operating Cash Flow reached 275.6 million euros, fueled by strong business performance. The -175.3 million euros change in Net Current Working Capital was driven by Trade and other Receivables (-138.8 million euros), as a result of strong Net Sales growth, by an increase in Inventory levels (-102.1 million euros of which 40 million euros input cost inflation from Raw Material, Freight and Electricity). H1 Free Cash flow before acquisitions and disposals was +22.4 million euros. The end of June Net Cash position was 229.9 million euros and included 58.2 million euros paid for the acquisition of Inkbox. Our added-value products (decorated and Utility Lighters, BIC® EZ Reach, and Djeep) grew 17% in value and accounted for 38% of the Flame for Life H1 Net Sales. US Lighters contributed to 51% of the division's organic growth, boosted by distribution gains, innovation, positive price and mix (all accounting for approximately 4.5 pts of the US Lighters growth in H1), and catch-up of orders in Q1. BIC EZ Reach reached a 5.5% market share in value, driven by increased distribution, primarily in Convenience Stores. In Blade Excellence, value-added products continued to fuel the performance of our One-Piece and Hybrid segments and grew 13% in H1. This was notably driven by the success of the BIC Soleil Escape four-blade shaver in the US, which reached a 2% share of the US women's one-piece segment in less than six months. Our BIC Blade-Tech B2B business continued to gather momentum and contributed to 31% of the total Blade Excellence year-to-date Net Sales growth. H1 2022 Gross Profit margin decreased by 2.0 points to 49.7%. The impact of input cost inflation (-5.3 pts compared to H1 2021 including Raw Materials, Air and Sea Freight and Electricity) and unfavorable FX, mostly EUR/USD hedging rate (-0.7 pts) were partially offset by favorable fixed cost absorption (+2.0 pts), favorable pricing (+1.4 pts), and the positive contribution of Inkbox (+0.3 pts). H1 2022 Adjusted EBIT increased by 22.2%, and the adjusted EBIT margin was 18.0%, almost flat compared to H1 2021. Net Sales operating leverage (+4.6 pts) more than offset the increase in Brand Support (-1.1 pts), OPEX (-0.6 pts) and Inkbox impact (-0.9 pts). HORIZON STRATEGIC PLAN IN ACTION The relentless execution of BIC's Horizon strategic plan drove our robust performance in H1, as we pursue our journey towards accelerated profitable growth. Building on a rejuvenated R&D and innovation pipeline, we continue to accelerate product launches supported by effective Brand Support in all divisions. In Human Expression, Intensity Color Change, our new writing Felt Pen transforming everyday writing in most geographies. Our BIC® EZ Reach Utility Pocket Lighter continued to gain distribution in all channels, a proof point of relevant innovation driving growth and creating value. In July, we launched our BIC Ecolutions Lighter in the US and France. This unique lighter was designed with 16% lower environmental impact compared to the classic BIC Maxi. It will be gradually deployed in the rest of Europe starting in September. BIC Soleil Escape, our new female razor offering a sensorial experience, was among the key drivers of year-to-date Blade Excellence's performance in the US. The BIC Bamboo shaver, with a bamboo handle, reached 2.6% volume market share in Sweden in less than 10 months, demonstrating the consumer relevance of products with clear sustainability benefits. into a creative opportunity, was launched • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 Group operational trends H1 2022 Group operational trends In May 2022, we announced our Greenhouse Gas (GHG) emission reduction targets for 2030 (1), accelerating our longstanding commitment to sustainability while making GHG emissions reduction a key component of BIC's long-term strategy. In line with the Paris Agreement target requirements, we pledged to reduce 50% of our GHG emissions for Scope 1 and 100% for Scope 2 by 2030. For Scope 3, our goal is to reduce by 5% our GHG emissions by 2030, of which -30% for the Flame for Life division. E-commerce sales grew 14% in H1. Core e-commerce sales continued to be driven by the Omniretailers channel and performance in Developing Markets, with high double-digit growth in India and Brazil. Our Shaver and Lighter businesses grew double-digit, driven by North America and Brazil. In Stationery, we expect a solid Back-to-School season driven by targeted Brand Support investment. We increased our Net Sales per SKU by 25% in H1 2022, driven by Human Expression and Flame For Life momentum, coupled with a net SKU reduction of 9%, as we continue to drive complexity reduction across our portfolio. 1.3 H1 2022 GROUP OPERATIONAL TRENDS H1 2022 HIGHLIGHTS H1 2022 Group Net Sales increased 13.7% on a comparative Total input cost inflation weighed approximately 48 million basis, 15.5% at constant currencies and 10.7% on a 12-month euros on H1 adjusted EBIT. For the full year, we expect rolling basis. Growth was driven by volume increase, favorable mix, approximately 100 million euros negative impact, which should At the end of June 2022, we reached more than 70% of in our reusable, compostable or recyclable plastic Consumer packaging, on track to achieve our 100% goal in 2025. and the successful implementation of price increases in all regions. be more than offset by volume increase, price adjustments, and All divisions and regions contributed to H1 performance. We gained additional savings, and allow us to grow adjusted EBIT in absolute Adding growth and profitability to the Blade Excellence division and, more generally, to the Group, our B2B business, BIC Blade Tech, is ramping up quickly, driven by additional orders from existing customers. or maintained market share in 80% of the countries we operate in, terms. including in all three categories in Europe and the U.S. In June 2022, our headquarters in Clichy (France) were relocated to a certified BREEAM (Building Research Environmental Assessment Method) Establishment building, for environmental performance consumption efficiency. Operating Cash Flow reached 275.6 million euros, fueled by In Human Expression, H1 Organic growth was driven by our strong business performance. The -175.3 million euros change in Net Current Working Capital was driven by Trade and other Core Writing Instruments and Coloring segments following In line with our Horizon strategy to pivot our Stationery business towards Human Expression and expand our Total Addressable Markets to the fast-growing Creative Expression segment, we acquired Tattly, a small, high-quality 2-4 days US based Decal company. Tattly will help diversify BIC's offer in Skin Creative, adding a recognized Decal Brand to BIC's BodyMark temporary marker and Inkbox semi-permanent tattoo. The Decals segment is the largest segment of the non-permanent Skin Creative market, which is expected to reach 1.5 billion USD in 2030, growing 13% annually. thus meeting the highest requirements Receivables (-138.8 million euros), as a result of strong Net robust Back-to-School shipments and efficient in-store and energy Sales growth, by an increase in Inventory levels (-102.1 million execution. In the Northern Hemisphere (Europe, North euros of which 40 million euros input cost inflation from Raw America, and Mexico), Back-to-School sell-in increased by Material, Freight and Electricity). almost 20% in volume and 23% in value compared to the same period last year. Countries hardest hit by the pandemic, such H1 Free Cash flow before acquisitions and disposals was as Brazil, South Africa, Nigeria, and India, continued to recover +22.4 million euros. The end of June Net Cash position was in Q2, with high-double digit growth on a comparative basis, all 229.9 million euros and included 58.2 million euros paid for now having recovered ahead of 2019 levels. the acquisition of Inkbox. Our added-value products (decorated and Utility Lighters, BIC® EZ Reach, and Djeep) grew 17% in value and accounted for 38% of the Flame for Life H1 Net Sales. US Lighters contributed to 51% of the division's organic growth, boosted HORIZON STRATEGIC PLAN IN ACTION by distribution gains, innovation, positive price and mix (all accounting for approximately 4.5 pts of the US Lighters growth in H1), and catch-up of orders in Q1. BIC EZ Reach reached a The relentless execution of BIC's Horizon strategic plan drove our 5.5% market share in value, driven by increased distribution, robust performance in H1, as we pursue our journey towards primarily in Convenience Stores. accelerated profitable growth. In Blade Excellence, value-added products continued to fuel Building on a rejuvenated R&D and innovation pipeline, we the performance of our One-Piece and Hybrid segments and continue to accelerate product launches supported by effective grew 13% in H1. This was notably driven by the success of the Brand Support in all divisions. In Human Expression, Intensity BIC Soleil Escape four-blade shaver in the US, which reached a Color Change, our new writing Felt Pen transforming everyday 2% share of the US women's one-piece segment in less than six writing into a creative opportunity, was launched in most months. Our BIC Blade-Tech B2B business continued to geographies. Our BIC® EZ Reach Utility Pocket Lighter gather momentum and contributed to 31% of the total Blade continued to gain distribution in all channels, a proof point of Excellence year-to-date Net Sales growth. relevant innovation driving growth and creating value. In July, we launched our BIC Ecolutions Lighter in the US and France. This H1 2022 Gross Profit margin decreased by 2.0 points to unique lighter was designed with 16% lower environmental 49.7%. The impact of input cost inflation (-5.3 pts compared to impact compared to the classic BIC Maxi. It will be gradually H1 2021 including Raw Materials, Air and Sea Freight and deployed in the rest of Europe starting in September. BIC Soleil Electricity) and unfavorable FX, mostly EUR/USD hedging rate Escape, our new female razor offering a sensorial experience, (-0.7 pts) were partially offset by favorable fixed cost was among the key drivers of year-to-date Blade Excellence's absorption (+2.0 pts), favorable pricing (+1.4 pts), and the performance in the US. The BIC Bamboo shaver, with a bamboo positive contribution of Inkbox (+0.3 pts). H1 2022 Adjusted handle, reached 2.6% volume market share in Sweden in less than EBIT increased by 22.2%, and the adjusted EBIT margin was 10 months, demonstrating the consumer relevance of products 18.0%, almost flat compared to H1 2021. Net Sales operating with clear sustainability benefits. leverage (+4.6 pts) more than offset the increase in Brand Support (-1.1 pts), OPEX (-0.6 pts) and Inkbox impact (-0.9 pts). (1) 2019 Baseline. 4 5 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 Group operational trends EARNINGS BEFORE INTEREST AND TAXES (EBIT) AND ADJUSTED EBIT (in million euros) H1 2021 H1 2022 Net Sales 916.7 1,127.2 Gross Profit 473.9 559.8 Gross Profit margin 51.7% 49.7% EBITDA 382.1 247.5 EBIT 332.6 197.7 EBIT margin 36.3% 17.5% Non-recurring items (166.5) 5.3 Adjusted EBIT 166.1 202.9 Adjusted EBIT margin 18.1% 18.0% H1 2022 Gross Profit margin decreased by 2.0 points to 49.7%. The impact of input cost inflation (-5.3 pts compared to H1 2021) and unfavorable FX mostly EUR/USD hedging rate (-0.7 pts) were partially offset by favorable fixed cost absorption (+2.0 pts) and favorable pricing (+1.4 pts), and the positive contribution of Inkbox (+0.3 pts). H1 2022 Adjusted EBIT increased by 22.2%, and the adjusted EBIT margin was 18.0%, almost flat compared to H1 2021. Net Sales operating leverage (+4.6 pts) and the decrease in Freight and Distribution (+0.2 pts) more than offset the increase in Brand Support (-1.1 pts), and OPEX (-0.6 pts), and the impact of Inkbox (-0.9 pts). KEY COMPONENTS OF THE CHANGE IN ADJUSTED EBIT MARGIN (in points) H1 2022 vs. H1 2021 Change in Gross Profit (2.0) Brand Support (1.1) OPEX and other expenses (a) +3.0 TOTAL CHANGE IN ADJUSTED EBIT MARGIN (0.1) (a) Other expenses include notably Freight & Distribution and R&D. NON-RECURRING ITEMS (in million euros) H1 2021 H1 2022 EBIT 332.6 197.7 Restructuring costs (Transformation plan) 4.2 Clichy Headquarters sales capital gain (167.7) PIMACO divestiture capital gain (3.0) Acquisition costs 1.5 Rocketbook earnout and Djeep price adjustment 0.7 Ukraine operations impairment 3.0 Adjusted EBIT 166.1 202.9 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 Group operational trends H1 2022 Group operational trends EARNINGS BEFORE INTEREST AND TAXES (EBIT) AND ADJUSTED EBIT NET INCOME AND EPS H1 2022 H1 2022 H1 2021 H1 2021 (in million euros) (in million euros) EBIT 332.6 197.7 Net Sales 916.7 1,127.2 Gross Profit 473.9 559.8 Finance revenue/costs (4.0) (4.1) Gross Profit margin 51.7% 49.7% Income before Tax 328.5 193.6 Net Income Group share 230.2 139.4 EBITDA 382.1 247.5 Adjusted Net Income Group Share (a) 112.7 149.7 EBIT 332.6 197.7 2.51 3.39 Adjusted EPS Group Share (in euros) EBIT margin 36.3% 17.5% 5.12 3.15 EPS Group Share (in euros) Non-recurring items (166.5) 5.3 Adjusted EBIT 166.1 202.9 (a) See glossary. Adjusted EBIT margin 18.1% 18.0% H1 2022 Adjusted EBIT increased by 22.2%, and the adjusted EBIT H1 2022 Gross Profit margin decreased by 2.0 points to 49.7%. margin was 18.0%, almost flat compared to H1 2021. Net Sales The impact of input cost inflation (-5.3 pts compared to H1 2021) CHANGE IN NET CASH POSITION operating leverage (+4.6 pts) and the decrease in Freight and and unfavorable FX mostly EUR/USD hedging rate (-0.7 pts) were Distribution (+0.2 pts) more than offset the increase in Brand partially offset by favorable fixed cost absorption (+2.0 pts) and Support (-1.1 pts), and OPEX (-0.6 pts), and the impact of Inkbox favorable pricing (+1.4 pts), and the positive contribution of Inkbox 2022 2021 (in million euros) (-0.9 pts). (+0.3 pts). NET CASH POSITION (BEGINNING OF PERIOD – DECEMBER) 183.9 400.1 Net cash from operating activities +134.0 +62.8 Of which operating cash flow +230.3 +275.6 KEY COMPONENTS OF THE CHANGE IN ADJUSTED EBIT MARGIN Of which change in working capital and others (96.3) (212.8) CAPEX (a) (30.3) (40.4) H1 2022 vs. H1 2021 Dividend payment (80.9) (94.7) (in points) Share buyback program (15.7) (28.8) Change in Gross Profit (2.0) Net cash from the liquidity contract +1.2 +0.4 Brand Support (1.1) Proceed from the sale of Clichy Headquarters +173.9 OPEX and other expenses (a) +3.0 Proceed from PIMACO divestiture +3.4 +1.1 TOTAL CHANGE IN ADJUSTED EBIT MARGIN (0.1) Acquisitions (b) (7.2) (67.8) (a) Other expenses include notably Freight & Distribution and R&D. Other items +4.4 (2.8) NET CASH POSITION (END OF PERIOD – JUNE) 366.7 229.9 (a) (b) Including (7.3) million euros in 2022 and +0.8 million euros in 2021 related to assets payable change. Haco Industries Ltd., Rocketbook & Djeep in 2021, Inkbox, Rocketbook & Djeep in 2022. NON-RECURRING ITEMS At the end of June 2022, Net Cash position was 229.9 million euros. Net Cash from operating activities was affected by a growth in working capital due to increased accounts receivables following high Q2 Net Sales and increased inventory levels driven by 40 million euros of input cost inflation (Raw Material, Freight, and Electricity). The Inkbox acquisition also impacted Net Cash position. H1 2022 H1 2021 (in million euros) EBIT 332.6 197.7 Restructuring costs (Transformation plan) 4.2 Clichy Headquarters sales capital gain (167.7) PIMACO divestiture capital gain (3.0) SHAREHOLDERS’ REMUNERATION Acquisition costs 1.5 Rocketbook earnout and Djeep price adjustment 0.7 In line with our disciplined capital allocation framework, we continued our commitment to attractive Shareholder returns with a balance of dividend and buybacks with: Ukraine operations impairment 3.0 Adjusted EBIT 166.1 202.9 2.15 euros per share of ordinary dividend paid in June 2022; and 28.8 million euros in share buybacks were completed by SOCIÉTÉ BIC at the end of June 2022 (573,501 shares were purchased at an average price of 50.28 euros). 6 7 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 operational trends by division 1.4 H1 2022 OPERATIONAL TRENDS BY DIVISION HUMAN EXPRESSION (STATIONERY) (in million euros) H1 2021 H1 2022 Volumes sold (in million units) 2,742.7 3,519.5 % Change +11.6% +28.3% Net Sales 333.3 438.0 Change as reported +13.4% +31.4% Change on a comparative basis +12.1% +21.7% Change at constant currency +19.1% +25.4% Adjusted EBIT 27.6 35.6 Adjusted EBIT Margin 8.3% 8.1% EBIT 29.1 33.5 EBIT Margin 8.7% 7.7% The Human Expression division's Net Sales grew 25.4% at constant currency and 21.7% on a comparative basis in H1 2022. This strong performance was driven by solid commercial execution in all geographies, with double-digit growth in Europe, Latin America, the Middle East, Africa, and India, supported by the successful implementation of price increases. In line with our Horizon goals to strengthen our presence in Creative Expression, we outperformed the strategic segment of Coloring in five key countries (US, UK, South Africa, Brazil and Mexico). In Europe, H1 performance was driven by both Western Europe (Poland, Turkey). (UK, France, Back-to-School sell-in was boosted by mid-single growth from both core products like the BIC® Cristal and our iconic BIC® 4-Color™, and added-value products like Coloring felt pen and pencils. We expect Back-to-School sell-out to grow mid-single digit fueled by strong commercial execution. Italy) and Eastern Europe In the US, the Stationery market grew 3% in value (1), driven by premium-priced products such as Gel. BIC gained +0.7 points in value share (including Mechanical Pencil and Correction). We outperformed the market successfully in key strategic segments like Coloring and Gel. The 2022 Back-to-School season is expected to be strong, with 70% of US consumers planning to shop in-store, and increasingly looking for quality and value products in the face of rising inflation. fueled by core stationery products In Brazil, the market continued to rebound, growing double-digit, and we consolidated our leadership position, gaining +1.9 points versus 2020 (pre-pandemic) achieving 55.5% market share in value (2), thanks to efficient in-store execution. Net sales more than doubled, fueled by robust Back-to-School performance for both sell-in and sell-out and positive pricing. In Mexico, the market grew more than 40% in value (3), driven by the return to schools and offices. Net Sales performance was fueled by Back-to-School sell-in with double-digit growth in both classic and added-value segments like Coloring. Cello Net Sales in India increased double-digit, boosted by a continued rebound of the market and solid double-digit growth in e-commerce. The Human Expression division's H1 2022 adjusted EBIT margin was 8.1% compared to 8.3% in H1 2021. This slight decrease was driven by an increase in raw material and freight costs and Inkbox's investment, partly offset by Net Sales operating leverage and favorable fixed cost absorption. (1) (2) (3) YTD June - NPD data. YTD May 2022 – Nielsen, estimated 16% coverage. YTD May 2022 – Nielsen, estimated 24% coverage. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 operational trends by division H1 2022 operational trends by division FLAME FOR LIFE (LIGHTERS) 1.4 H1 2022 OPERATIONAL TRENDS BY DIVISION H1 2022 H1 2021 (in million euros) Volumes sold (in million units) 799.3 850.1 % Change +35.0% +6.4% HUMAN EXPRESSION (STATIONERY) Net Sales 367.4 436.0 Change as reported +37.0% +18.7% Change on a comparative basis +44.7% +9.3% H1 2022 H1 2021 (in million euros) Change at constant currency +47.7% +10.1% Volumes sold (in million units) 2,742.7 3,519.5 Adjusted EBIT 145.7 166.9 % Change +11.6% +28.3% Adjusted EBIT Margin 39.6% 38.3% Net Sales 333.3 438.0 EBIT 143.8 165.9 Change as reported +13.4% +31.4% EBIT Margin 39.2% 38.0% Change on a comparative basis +12.1% +21.7% Change at constant currency +19.1% +25.4% In Latin America, the lighter market in Brazil grew +0.8% in value, and we continue to gain market share. BIC's double-digit Net Sales growth was fueled by the continued demand for more flame usage, high barriers for imported lighters, and price increases. The Flame for Life division's Net Sales grew 10.1% at constant currency and 9.3% on a comparative basis in H1 2022, driven by high-single to double-digit growth in all major regions we operate in. Sell-out performance was also robust as BIC outperformed markets in all key countries including US, France, Germany and Brazil. Adjusted EBIT 27.6 35.6 Adjusted EBIT Margin 8.3% 8.1% EBIT 29.1 33.5 Flame for Life H1 2022 adjusted EBIT margin was 38.3% compared to 39.6% in H1 2021, due to higher Raw Materials and Air and Sea Freight import costs, and an increase in Brand Support, driven notably by the BIC® EZ Reach advertising campaign in the US. This was partly offset by Net Sales operating leverage and favorable fixed cost absorption. EBIT Margin 8.7% 7.7% In the US, the Pocket lighter market declined -11.6% in volume and -4.7% to successfully outperform, gaining share in both volume (+2.4 pts) and value (+1.1 pts). Our added-value utility pocket lighter BIC EZ Reach continued to be successful and reached 5.5% of the total pocket lighter market in value, up 1.5 points since the start of 2022. H1 Net sales were boosted by further distribution gains, and price adjustments. in value (1), however BIC continued In Brazil, the market continued to rebound, growing double-digit, The Human Expression division's Net Sales grew 25.4% at and we consolidated our leadership position, gaining +1.9 points constant currency and 21.7% on a comparative basis in H1 2022. versus 2020 (pre-pandemic) achieving 55.5% market share in This strong performance was driven by solid commercial execution value (2), thanks to efficient in-store execution. Net sales more than in all geographies, with double-digit growth in Europe, Latin America, the Middle East, Africa, and India, supported by the doubled, fueled by robust Back-to-School performance for both successful implementation of price increases. In line with our sell-in and sell-out and positive pricing. Horizon goals to strengthen our presence in Creative Expression, In Mexico, the market grew more than 40% in value (3), driven by In Europe, the recovery in traditional channels, price increases, and the success of added-value products such as Djeep and decorated lighters drove Net Sales' double-digit growth. Our Invest-to-grow countries including Germany and Turkey achieved double to triple-digit growth driven by efficient pricing and promotional actions. we outperformed the strategic segment of Coloring in five key the return to schools and offices. Net Sales performance was fueled countries (US, UK, South Africa, Brazil and Mexico). by Back-to-School sell-in with double-digit growth in both classic In Europe, H1 performance was driven by both Western Europe and added-value segments like Coloring. (UK, France, Italy) and Eastern Europe (Poland, Turkey). Cello Net Sales in India increased double-digit, boosted by a Back-to-School sell-in was boosted by mid-single growth from both continued rebound of the market and solid double-digit growth in core products like the BIC® Cristal and our iconic BIC® 4-Color™, e-commerce. and added-value products like Coloring felt pen and pencils. We The Human Expression division's H1 2022 adjusted EBIT margin expect Back-to-School sell-out to grow mid-single digit fueled by was 8.1% compared to 8.3% in H1 2021. This slight decrease was strong commercial execution. driven by an increase in raw material and freight costs and Inkbox's In the US, the Stationery market grew 3% in value (1), driven by investment, partly offset by Net Sales operating leverage and premium-priced products such as Gel. BIC gained +0.7 points in favorable fixed cost absorption. value share fueled by core stationery products (including Mechanical Pencil and Correction). We outperformed the market successfully in key strategic segments like Coloring and Gel. The 2022 Back-to-School season is expected to be strong, with 70% of US consumers planning to shop in-store, and increasingly looking for quality and value products in the face of rising inflation. (1) YTD June - NPD data. (2) YTD May 2022 – Nielsen, estimated 16% coverage. (3) YTD May 2022 – Nielsen, estimated 24% coverage. (1) Period ending July 2, 2022 – IRI, estimated 70% market coverage. 8 9 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 operational trends by division BLADE EXCELLENCE (SHAVERS) (in million euros) H1 2021 H1 2022 Volumes sold (in million units) 1,193.0 1,212.4 % Change +0.7% +1.6% Net Sales 200.4 240.3 Change as reported 0.1% +19.9% Change on a comparative basis +8.0% +11.0% Change at constant currency +8.4% +11.8% Adjusted EBIT 32.4 43.3 Adjusted EBIT Margin 16.2% 18.0% EBIT 32.3 41.1 EBIT Margin 16.1% 17.1% The Blade Excellence division's Net Sales grew 11.8% at constant currency and 11.0% on a comparative basis in H1 2022. Sell-in performance was powered by added-value and new products in Europe, Latin America, and North America, in addition to the strong contribution of our BIC Blade-Tech business. We reached record high market shares in five of our key markets (Mexico, Brazil, Poland, Portugal and UK). In Europe, BIC gained market share in both France (+1.8 pts in value) and the UK (+1.3 pts in value (1)) fueled by the success of 3-blade products in both female and male segments. Net Sales were notably driven by good performance and promotional activities in the UK, Poland, and Turkey. Added-value products, such as the Flex and Soleil ranges, contributed successfully to growth. In the US, the market grew 0.8% in value, and BIC kept pace. The performance of our Soleil range was fueled by the success of our new BIC® Soleil Escape shaver launched earlier this year, which already reached 2.0% of share (2). In Brazil and Mexico, we pursued our successful trade-up strategy towards three blades offering with solid double-digit growth in both countries. In Brazil, after four years of successful share gain, we continued to outperform the market (+1.0 pts in value (3)), reaching a historical high record of 24% share in value, boosted by premium male and female products (Comfort 3 and Simply Soleil). In Mexico, the market was up mid-single digit in value, and we kept pace thanks to the solid performance of both Flex and Soleil ranges in the traditional channel. Blade Excellence H1 2022 adjusted EBIT margin was 18.0% compared to 16.2% in H1 2021, driven by Net Sales operating leverage, favorable fixed cost absorption, and the positive contribution from BIC Blade-Tech B2B business. This was partially offset by higher manufacturing costs (Electricity & Freight costs) and higher Brand support. OTHER PRODUCTS (in million euros) H1 2021 H1 2022 Net Sales 15.7 12.8 Change as reported +19.7% (18.4) Change on a comparative basis +19.5% (18.4) Change at constant currency +19.5% (18.4) Adjusted EBIT (3.0) (3.8) EBIT (3.0) (3.8) UNALLOCATED COSTS (in million euros) H1 2021 H1 2022 Adjusted EBIT (36.5) (39.1) EBIT 130.3 (39.1) (1) (2) (3) YTD May 2022, Nielsen. YTD June 2022 - IRI. YTD May 2022 – Nielsen, estimated 62% coverage. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 H1 2022 operational trends by division Group net sales by geography BLADE EXCELLENCE (SHAVERS) 1.5 GROUP NET SALES BY GEOGRAPHY H1 2022 H1 2021 (in million euros) Volumes sold (in million units) 1,193.0 1,212.4 % at constant currencies % on a comparative basis % Change +0.7% +1.6% H1 2022 H1 2021 % as reported (in million euros) Net Sales 200.4 240.3 Group 916.7 1,127.2 +23.0% +15.5% +13.7% Change as reported 0.1% +19.9% Europe 292.0 336.9 +15.4% +15.7% +15.7% Change on a comparative basis +8.0% +11.0% North America 406.4 499.0 +22.8% +11.3% +9.2% Change at constant currency +8.4% +11.8% Latin America 125.9 179.7 +42.8% +29.6% +24.0% Adjusted EBIT 32.4 43.3 Middle East and Africa 51.1 57.1 +11.7% +5.4% +5.4% Adjusted EBIT Margin 16.2% 18.0% Asia and Oceania (including India) 41.3 54.4 +31.8% +26.0% +26.0% EBIT 32.3 41.1 EBIT Margin 16.1% 17.1% The Blade Excellence division's Net Sales grew 11.8% at constant In Brazil and Mexico, we pursued our successful trade-up strategy currency and 11.0% on a comparative basis in H1 2022. Sell-in towards three blades offering with solid double-digit growth in both performance was powered by added-value and new products in countries. In Brazil, after four years of successful share gain, we 1.6 2022 OUTLOOK AND MARKET ASSUMPTIONS continued to outperform the market (+1.0 pts in value (3)), reaching a Europe, Latin America, and North America, in addition to the strong contribution of our BIC Blade-Tech business. We reached record historical high record of 24% share in value, boosted by premium high market shares in five of our key markets (Mexico, Brazil, male and female products (Comfort 3 and Simply Soleil). In Mexico, Poland, Portugal and UK). the market was up mid-single digit in value, and we kept pace thanks to the solid performance of both Flex and Soleil ranges in the In Europe, BIC gained market share in both France (+1.8 pts in traditional channel. value) and the UK (+1.3 pts in value (1)) fueled by the success of 2022 OUTLOOK UPDATE (BASED ON CURRENT MARKET ASSUMPTIONS) Blade Excellence H1 2022 adjusted EBIT margin was 18.0% 3-blade products in both female and male segments. Net Sales were compared to 16.2% in H1 2021, driven by Net Sales operating notably driven by good performance and promotional activities in leverage, favorable fixed cost absorption, and the positive the UK, Poland, and Turkey. Added-value products, such as the Flex We are updating our guidance and expect to grow Full-Year Net Sales between 10% and 12% at constant currencies (previously 7%-9%), driven by volume increase and favorable pricing. All divisions will contribute to organic growth in H2. Brand Support & OPEX aimed at fueling growth, we expect to grow FY 2022 adjusted EBIT in absolute terms, driven by higher volumes, positive pricing, and additional savings. We maintain our target of over 200 million euros in Free Cash Flow. contribution from BIC Blade-Tech B2B business. This was partially and Soleil ranges, contributed successfully to growth. offset by higher manufacturing costs (Electricity & Freight costs) In the US, the market grew 0.8% in value, and BIC kept pace. The and higher Brand support. performance of our Soleil range was fueled by the success of our new BIC® Soleil Escape shaver launched earlier this year, which Input cost inflation is expected to have an impact of approximately 100 million euros. Despite these inflation headwinds and higher already reached 2.0% of share (2). OTHER PRODUCTS 2022 MARKET ASSUMPTIONS H1 2022 H1 2021 (in million euros) is based on the following market Latin America: double-digit increase in Stationery; low to mid-single-digit to in mid-single-digit increase in Shavers; India: double-digit increase in Stationery. Our 2022 outlook assumptions (1): Net Sales 15.7 12.8 decrease Lighters and low Change as reported +19.7% (18.4) Market trends (in value): Change on a comparative basis +19.5% (18.4) Europe: low to mid-single-digit decrease in Stationery, flat to low single-digit decrease in Lighters, flat to low-single-digit decrease in Shavers; North America: • • Change at constant currency +19.5% (18.4) Adjusted EBIT (3.0) (3.8) EBIT drivers: EBIT (3.0) (3.8) Gross profit: • • • low to mid-single-digit decrease in U.S. stationery market, increase in volumes and prices, low to mid-single-digit decrease for total U.S. pocket lighter market, higher raw materials and sea and air freight costs, UNALLOCATED COSTS slightly unfavorable FX hedging/Positive USD-MXN), impact (Negative USD-Euro slight decrease in the total U.S. one-piece Shaver market; positive contribution from Inkbox; H1 2022 H1 2021 (in million euros) Adjusted EBIT (36.5) (39.1) EBIT 130.3 (39.1) (1) YTD May 2022, Nielsen. (1) Based on Euromonitor and BIC estimates. (2) YTD June 2022 - IRI. (3) YTD May 2022 – Nielsen, estimated 62% coverage. 10 11 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Recent events that occurred after June 30, 2022 Adjusted EBIT: • increase in Brand Support to support Net Sales growth – increase in R&D and OPEX to support long-term growth and innovation, Free Cash Flow before Acquisitions and Disposals drivers: • approximately 100 million euros in CAPEX. • additional savings, negative impact on 2022 EBIT from Inkbox; Currency: 2022 USD-Euro hedging rate: 1.1750. 1.7 RECENT EVENTS THAT OCCURRED AFTER JUNE 30, 2022 On July 26, BIC has acquired Tattly to build capabilities in Skin Creative in line with our Horizon strategy. The consideration for this acquisition is not significant. No other subsequent event occurred between July 1, 2022 and the reporting date. 1.8 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) (in %) H1 2021 H1 2022 Perimeter +3.0 +0.9 Currencies 7.2 +7.8 Of which USD 4.8 +5.2 Of which BRL 1.4 +1.2 Of which MXN 0.1 +0.6 Of which AUD +0.2 +0.1 Of which ZAR +0.1 Of which INR 0.2 +0.2 Of which RUB and UAH 0.4 +0.3 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Recent events that occurred after June 30, 2022 Reconciliation with alternative performance measures Adjusted EBIT: Free Cash Flow before Acquisitions and Disposals drivers: 1.9 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES increase in Brand Support to support Net Sales growth – approximately 100 million euros in CAPEX. increase in R&D and OPEX to support long-term growth and innovation, Currency: 2022 USD-Euro hedging rate: 1.1750. additional savings, negative impact on 2022 EBIT from Inkbox; ADJUSTED EBIT RECONCILIATION H1 2022 H1 2021 (in million euros) EBIT 332.6 197.7 1.7 RECENT EVENTS THAT OCCURRED Restructuring costs (Transformation plan) 4.2 Clichy Headquarters sales capital gain (167.7) AFTER JUNE 30, 2022 PIMACO divestiture capital gain (3.0) Acquisition costs 1.5 Rocketbook earnout and Djeep price adjustment 0.7 On July 26, BIC has acquired Tattly to build capabilities in Skin Creative in line with our Horizon strategy. Ukraine operations impairment 3.0 The consideration for this acquisition is not significant. Adjusted EBIT 166.1 202.9 No other subsequent event occurred between July 1, 2022 and the reporting date. ADJUSTED EPS RECONCILIATION H1 2022 H1 2021 (in euros) EPS 5.12 3.15 1.8 IMPACT OF CHANGE IN PERIMETER AND Restructuring costs (Transformation plan) +0.07 CURRENCY FLUCTUATIONS ON NET SALES Argentina hyperinflationary accounting (IAS 29) +0.03 0.1 Clichy Headquarters sales capital gain (2.67) (EXCLUDES ARS) PIMACO divestiture capital gain (0.04) Acquisition costs 0.02 Rocketbook earnout and Djeep price adjustment 0.06 Ukraine operations impairment 0.06 H1 2022 H1 2021 (in %) Adjusted EPS 2.51 3.39 Perimeter +3.0 +0.9 Currencies 7.2 +7.8 NET CASH RECONCILIATION Of which USD 4.8 +5.2 Of which BRL 1.4 +1.2 June 30, 2022 December 31, 2021 (in million euros – rounded figures) Of which MXN 0.1 +0.6 Cash and cash equivalents (1) +468.9 +320.5 Of which AUD +0.2 +0.1 Current borrowings (2) (a) (63.9) (87.9) Of which ZAR +0.1 Non-current borrowings (3) (4.9) (2.7) Of which INR 0.2 +0.2 NET CASH POSITION (1) - (2) - (3) 400.1 229.9 Of which RUB and UAH 0.4 +0.3 (a) Excluding financial liabilities following IFRS 16 implementation. FREE CASH FLOW RECONCILIATION June 30, 2022 December 31, 2021 (in million euros – rounded figures) Net cash from operating activities (1) 280.6 62.8 Capital expenditure (2) (74.9) (40.4) FREE CASH FLOW BEFORE ACQUISITION AND DISPOSALS (1) - (2) 205.7 22.4 12 13 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 14 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Share repurchase program – cancelled shares 1.10 SHARE REPURCHASE PROGRAM – CANCELLED SHARES During the first half of 2022: SOCIÉTÉ BIC repurchased 573,501 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 18, 2022 excluding shares acquired under the liquidity agreement. SOCIÉTÉ BIC repurchased, under the liquidity agreement Natixis – ODDO BHF, 230,388 shares for a total value of 11.45 million euros and sold 237,775 shares for a total value of 11.90 million euros. BIC - SHARE BUYBACK PROGRAM Number of shares acquired Average weighted price (in euros) Amount (in million euros) January 2022 23,100 50.19 1.2 February 2022 113,568 47.70 5.4 March 2022 140,897 46.48 6.5 April 2022 75,550 47.85 3.6 May 2022 126,028 56.52 7.1 June 2022 94,358 52.72 5.0 TOTAL 573,501 50.28 28.8 The number of free, performance-based shares transferred by SOCIÉTÉ BIC to beneficiaries was 99,843 during the first half 2022. The number of free, non-performance-based shares transferred to beneficiaries by SOCIÉTÉ BIC was 12,600. Moreover, performance-based non-performance-based share grants. SOCIÉTÉ BIC share proceeded grants to and 240,156 free, 118,947 free, 1.11 RELATED-PARTY TRANSACTIONS This paragraph is aimed at ensuring transparency in the relationship between their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). the Group and its Shareholders (and Significant related-party transactions are described in the Note 25 – Related parties on page 255 of BIC’s 2021 Universal Registration Document filed with the Autorité des Marchés Financiers (AMF) on March 25, 2022. During the first half of 2022, BIC has not identified any significant related-party transactions. 1.12 CAPITAL EVOLUTION As of June 30, 2022, the total number of issued shares of SOCIÉTÉ BIC was 44,677,929 shares, representing: 65,721,660 voting rights; 65,005,053 voting rights excluding shares without voting rights. Total number of treasury shares held at the end of June 2022: 716,607. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Share repurchase program – cancelled shares Material events that occurred in H1 2022 1.10 SHARE REPURCHASE PROGRAM – 1.13 MATERIAL EVENTS THAT OCCURRED IN H1 2022 CANCELLED SHARES N/A SOCIÉTÉ BIC repurchased, under the liquidity agreement During the first half of 2022: Natixis – ODDO BHF, 230,388 shares for a total value of SOCIÉTÉ BIC repurchased 573,501 shares under the share 11.45 million euros and sold 237,775 shares for a total value repurchase programs authorized by the Annual Shareholders’ of 11.90 million euros. Meeting held on May 18, 2022 excluding shares acquired under the liquidity agreement. 1.14 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2022 BIC - SHARE BUYBACK PROGRAM Number of shares Average weighted price Amount acquired (in million euros) (in euros) January 2022 23,100 50.19 1.2 February 2022 113,568 47.70 5.4 N/A March 2022 140,897 46.48 6.5 April 2022 75,550 47.85 3.6 May 2022 126,028 56.52 7.1 June 2022 94,358 52.72 5.0 1.15 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR H2 2022 TOTAL 573,501 50.28 28.8 Moreover, SOCIÉTÉ BIC proceeded to 240,156 free, The number of free, performance-based shares transferred by performance-based share grants and 118,947 free, SOCIÉTÉ BIC to beneficiaries was 99,843 during the first half non-performance-based share grants. 2022. The number of free, non-performance-based shares transferred to beneficiaries by SOCIÉTÉ BIC was 12,600. BIC pursues an active and dynamic approach to risk management. The objective of this approach is to enhance the Group’s capacity in identifying, managing, preventing, mitigating, and monitoring key risks that could affect: This approach is based on the identification and analysis of the main risks to which the Group is exposed. A description of the risk management system is disclosed in Chapter § 2.4 Risk management and internal control procedures implemented by the Company and Insurance, in BIC’s 2021 Universal Registration Document (URD) filed with the Autorité des Marchés Financiers (AMF) on March 25, 2022 and available on BIC’s website: https://us.bic.com/en_us/investors. the Group’s employees, customers, Shareholders, assets, environment or reputation; 1.11 RELATED-PARTY TRANSACTIONS the Group’s ability to achieve its objectives, abide and defend its values, ethics, or laws and regulations. Significant related-party transactions are described in the Note 25 This paragraph is aimed at ensuring transparency in the relationship – Related parties on page 255 of BIC’s 2021 Universal Registration between the Group and its Shareholders (and their Risk Impact Low Medium High representatives), as well as in the links between the Group and Document filed with the Autorité des Marchés Financiers (AMF) on Risks related to Plastic and Climate Change X related companies that the Group does not exclusively control (i.e. March 25, 2022. During the first half of 2022, BIC has not joint ventures or investments in associates). identified any significant related-party transactions. Risks related to Consumer Demand and Growth in our three business categories X Risks related to Retail Disruption and Consolidation X Risks related to BIC’s Supply Chain and Production X Risks related to BIC’s Net Sales Regional Concentration X Risk related to M&A execution in the context of BIC’s Horizon strategic plan X 1.12 CAPITAL EVOLUTION Risks related to Product Safety X Risks related to counterfeiting, parallel imports, and non-compliant products from competition X Risks related to increased Regulations X As of June 30, 2022, the total number of issued shares of SOCIÉTÉ BIC was 44,677,929 shares, representing: Risks related to IT Security X 65,721,660 voting rights; Risks related to the non-respect of Human Rights and Unfair Practices X 65,005,053 voting rights excluding shares without voting rights. Risk related to the execution of BIC’s transformation program BIC 2022 – Invent The Future X Total number of treasury shares held at the end of June 2022: 716,607. 14 15 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 16 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Description of the principal risks and uncertainties for H2 2022 IMPACT OF THE COVID-19 PANDEMIC ON BIC’S RISK MANAGEMENT IN 2021 AND IN H1 2022 As the pandemic evolves, so does the risk landscape. Below are some of its main impacts to BIC: in our three business Consumer Demand and Growth categories, specifically, a sharp decline of consumption and evolution of consumer habits; and challenges to anticipate demand behavior given the uncertain patterns of economic recovery due to the pandemic; Supply Chain and Production, including the mandatory partial or total shutdown of BIC’s factories in certain countries, the disruption due to the closure of borders globally; the surge in demand for goods and services putting constraints on the supply chain worldwide; Retail Disruption and Consolidation due to widespread and extended closure of traditional and convenience stores during the lockdown periods, compounded by customers financial hardship and potentially bankruptcy. These risks required mitigation measures to protect the health and safety of our employees while ensuring business continuity. The Group continues to apply the government directives in each country where it operates. Work organization continues to adapt in accordance with health authority recommendations as they change, and remote working was implemented whenever possible. BIC’s sound strategy, financial situation, integrated business model, and transformation will help alleviate the longer-term impacts of the pandemic. UKRAINE CRISIS – MARCH 2022 The Group closely monitors the potential consequences of the Ukraine crisis, which is evolving rapidly. Our utmost priority is to help and protect our team members. An action plan has been implemented to ensure their safety. Russia and Ukraine accounted for 2.4% of BIC’s 2021 total Net Sales (1.8% for Russia and 0.6% for Ukraine). The Group doesn’t have any industrial presence in these two countries. Please refer to “Risks related to Supply Chain and “Risks related to IT security”. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 Description of the principal risks and uncertainties for H2 2022 Glossary IMPACT OF THE COVID-19 PANDEMIC ON BIC’S RISK MANAGEMENT IN 2021 1.16 GLOSSARY AND IN H1 2022 Retail Disruption and Consolidation due to widespread and As the pandemic evolves, so does the risk landscape. Below are some of its main impacts to BIC: extended closure of traditional and convenience stores during Adjusted EBIT: adjusted means excluding normalized items. Adjusted EBIT margin: adjusted EBIT as a percentage of Net Sales. Net Cash from operating activities: cash generated from principal activities of the entity and other activities that are not investing or financing activities. Free Cash Flow: net cash flow from operating activities less capital expenditures (CAPEX). Free Cash flow does not include acquisitions and proceeds from the sale of businesses. Net cash position: cash and cash equivalents + Other current - Non-current financial borrowings IFRS 16 implementation). Constant currency basis: constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates. Organic change or Comparative basis: at constant currencies and constant perimeter. Figures at constant perimeter exclude the impact of acquisitions and/or disposals that occurred during the current year and/or during the previous year, until their anniversary date. All Net Sales category comments are made on a comparative basis. Organic change excludes Argentina Net Sales for both 2021 and 2022. On a 12-month rolling basis at constant currency: last 12-month Net Sales variance vs. last year last 12-month at constant currency. EBITDA: EBIT before Depreciation and Amortization (excluding under of IFRS 16 standard), and impairment. the lockdown periods, compounded by customers financial Consumer Demand and Growth in our three business hardship and potentially bankruptcy. categories, specifically, a sharp decline of consumption and These risks required mitigation measures to protect the health and evolution of consumer habits; and challenges to anticipate safety of our employees while ensuring business continuity. The demand behavior given the uncertain patterns of economic Group continues to apply the government directives in each recovery due to the pandemic; country where it operates. Work organization continues to adapt in Supply Chain and Production, including the mandatory partial accordance with health authority recommendations as they change, or total shutdown of BIC’s factories in certain countries, the and remote working was implemented whenever possible. disruption due to the closure of borders globally; the surge in BIC’s sound strategy, financial situation, integrated business model, demand for goods and services putting constraints on the and transformation will help alleviate the longer-term impacts of supply chain worldwide; assets Current (except financial borrowings liabilities following the pandemic. amortization right of use UKRAINE CRISIS – MARCH 2022 Russia and Ukraine accounted for 2.4% of BIC’s 2021 total Net The Group closely monitors the potential consequences of the Sales (1.8% for Russia and 0.6% for Ukraine). The Group doesn’t Ukraine crisis, which is evolving rapidly. Our utmost priority is to have any industrial presence in these two countries. Please refer to help and protect our team members. An action plan has been “Risks related to Supply Chain and “Risks related to IT security”. implemented to ensure their safety. 16 17 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 18 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2022 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 CONSOLIDATED INCOME STATEMENT 20 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 21 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 22 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 24 2.5 CONSOLIDATED CASH FLOW STATEMENT 25 2.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 18 19 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 20 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 2.1 CONSOLIDATED INCOME STATEMENT (Consolidated financial statements) (in thousand euros) Notes June 30, 2021 Net sales 2-2 916,716 Cost of goods 3 (442,842) Gross profit (a) 473,874 Distribution costs 3 (131,095) Administrative expenses 3 (111,654) Other operating expenses 3 (67,775) Other income 4 175,104 Other expenses 4 (5,884) Earnings before interest and taxes (EBIT) 332,570 Income from cash and cash equivalents 5 1,253 Net finance income/(net finance costs) 5 (5,299) Income before tax 328,524 Income tax expense 6 (98,360) Consolidated income of which: 230,164 Non-controlling interests Net income Group share 7 230,164 Earnings per share Group share (in euros) 5.12 (a) Gross profit is the margin that the Group realizes after deducting its manufacturing costs. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • June 30, 2022 1,127,151 (567,398) 559,753 (143,256) (124,118) (92,101) 3,118 (5,739) 197,657 3,884 (7,952) 193,589 (54,205) 139,384 139,384 3.15 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement Consolidated statement of comprehensive income 2.1 CONSOLIDATED INCOME STATEMENT 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Consolidated financial statements) June 30, 2022 Notes June 30, 2021 (Consolidated financial statements) (in thousand euros) Net sales 2-2 916,716 1,127,151 June 30, 2022 Notes June 30, 2021 (in thousand euros) Cost of goods 3 (442,842) (567,398) GROUP NET INCOME A 230,164 139,384 Gross profit (a) 473,874 559,753 OTHER COMPREHENSIVE INCOME Distribution costs 3 (131,095) (143,256) Actuarial differences on post-employment benefits not recyclable to the income statement (a) Administrative expenses 3 (111,654) (124,118) 31,331 15,614 Other operating expenses 3 (67,775) (92,101) Deferred tax on actuarial differences on post-employment benefits 6-2 (5,221) (1,657) Other income 4 175,104 3,118 Other comprehensive income not recyclable to the income statement – net of tax B 26,110 13,957 Other expenses 4 (5,884) (5,739) Gain/(loss) on cash flow hedge (15,174) (13,316) Earnings before interest and taxes (EBIT) 332,570 197,657 Exchange differences arising on translation of overseas operations (b) 30,375 82,607 Income from cash and cash equivalents 5 1,253 3,884 Equity instruments at fair value 3 (5) Net finance income/(net finance costs) 5 (5,299) (7,952) Deferred tax and current tax recognized on other comprehensive income 6-2 2,495 3,387 Income before tax 328,524 193,589 Other comprehensive income recyclable to the income statement – net of tax C 17,699 72,673 Income tax expense 6 (98,360) (54,205) TOTAL COMPREHENSIVE INCOME D = A + B + C 273,974 226,014 Consolidated income of which: 230,164 139,384 Attributable to: Non-controlling interests BIC Group 273,974 226,014 Net income Group share 230,164 139,384 7 Non-controlling interests 5.12 3.15 Earnings per share Group share (in euros) TOTAL 273,974 226,014 (a) Gross profit is the margin that the Group realizes after deducting its manufacturing costs. (a) (b) The impact of actuarial differences is mainly due to U.S, France and UK. plans. The main items impacting the translation reserve variance for the period, by currency, are as follows: U.S. dollar (32.6 million euros), Brasilian real (22.1 million euros) and Mexican peso (12.4 million euros). 20 21 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 22 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Consolidated financial statements) Assets (in thousand euros) Notes Goodwill 8 Other intangible assets Property, plant and equipment Investment properties Other non-current assets 9 Deferred tax assets Derivative instruments 18 Non-current assets Inventories 10 Income tax advance payments Trade and other receivables 10, 20-1 Other current assets Derivative instruments 18 Other current financial assets 20-2 Cash and cash equivalents 15 Current assets TOTAL ASSETS • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • December 31, 2021 256,058 66,032 588,799 1,892 25,788 131,458 62 1,070,090 490,222 30,475 418,186 16,259 1,694 468,914 1,425,750 2,495,840 June 30, 2022 310,458 105,975 617,553 1,915 29,544 138,139 42 1,203,626 625,466 16,353 577,155 30,177 2,617 20 320,474 1,572,262 2,775,888 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position Consolidated statement of financial position Equity and liabilities 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2022 Notes December 31, 2021 (in thousand euros) Share capital 11-1 169,665 167,933 Reserves and retained earnings 1,554,155 1,671,046 Shareholders’ equity Group share 1,723,820 1,838,979 (Consolidated financial statements) Non-controlling interests Shareholders’ equity SHEQ 1,723,820 1,838,979 Assets Non-current borrowings 12, 20-2 23,782 49,269 June 30, 2022 Notes December 31, 2021 (in thousand euros) Other non-current liabilities 12,866 18,517 Goodwill 8 256,058 310,458 Employee benefits obligation 80,016 61,798 Other intangible assets 66,032 105,975 Provisions 13 20,328 21,198 Property, plant and equipment 588,799 617,553 Deferred tax liabilities 68,654 34,178 Investment properties 1,892 1,915 Derivative instruments 18 14 731 Other non-current assets 9 25,788 29,544 Non-current liabilities 205,660 185,691 Deferred tax assets 131,458 138,139 Trade and other payables 10 149,154 203,650 Derivative instruments 18 62 42 Current borrowings 12 76,287 101,922 Non-current assets 1,070,090 1,203,626 Current tax due 35,265 90,344 Inventories 10 490,222 625,466 Other current liabilities 14 292,154 324,787 Income tax advance payments 30,475 16,353 Derivative instruments 18 13,499 30,515 Trade and other receivables 10, 20-1 418,186 577,155 Current liabilities 566,360 751,218 Other current assets 16,259 30,177 TOTAL EQUITY AND LIABILITIES 2,495,840 2,775,888 Derivative instruments 18 1,694 2,617 SHEQ: See consolidated statement of changes in equity. Other current financial assets 20-2 20 Cash and cash equivalents 15 468,914 320,474 Current assets 1,425,750 1,572,262 TOTAL ASSETS 2,495,840 2,775,888 22 23 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 24 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousand euros) Notes Share capital Accumulated profits Additional paid in capital Actuarial differences recognized in equity Translation reserve Cash flow hedge derivatives Cost of hedging through OCI Share- holders’ equity Group share Non- controlling interests At January 1, 2021 171,809 1,621,415 17,786 (111,979) (255,486) 12,663 1,456,208 Dividends paid Decrease in share capital (a) Increase in share capital (b) Treasury shares Recognition of share-based payments Hyperinflation impact in Argentina Other Total transactions with Shareholders Net income for the period Other comprehensive income Total comprehensive income 16 17 (382) (382) (80,919) (14,263) 1,782 28 (93,372) 230,164 (27) - 5,037 - 5,037 26,110 - - 30,375 - - - - (12,648) 1 (80,919) (14,646) 5,037 1,782 26 (88,719) 230,164 43,810 - 230,137 26,110 30,375 (12,648) 273,974 At June 30, 2021 171,427 1,758,180 22,823 (85,869) (225,111) 13 1,641,464 At January 1, 2022 169,665 1,820,292 28,232 (76,364) (211,618) (6,387) 1,723,820 Dividends paid Decrease in share capital (a) Increase in share capital (b) Treasury shares Recognition of share-based payments Hyperinflation impact in Argentina Other Total transactions with Shareholders Net income for the period Other comprehensive income Total comprehensive income 16 17 (1,732) - (1,732) (94,744) (26,722) 4,859 4 (116,601) 139,384 136 - 7,480 - 7,480 - - 13,958 - - 82,607 - - (10,071) - - (94,744) (28,454) 7,480 4,859 4 (110,853) 139,384 86,630 - - 139,520 13,958 82,607 (10,071) 226,014 At June 30, 2022 167,933 1,843,209 35,712 (62,406) (129,011) (16,458) 1,838,979 (a) No shares were cancelled during the first half of 2022. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • Share- holders’ equity 1,456,208 (80,919) (14,646) 5,037 1,782 26 (88,719) 230,164 43,810 273,974 1,641,464 1,723,820 (94,744) (28,454) 7,480 4,859 4 (110,853) 139,384 86,630 226,014 1,838,979 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity Consolidated cash flow statement 2.4 CONSOLIDATED STATEMENT OF CHANGES 2.5 CONSOLIDATED CASH FLOW STATEMENT IN EQUITY Notes June 30, 2021 June 30, 2022 (in thousand euros) Operating activities Share- Net income Group share Elimination of expenses and income with no impact on cash flows or non-business related expenses: Argentina hyperinflationary accounting Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss on tangible and non-tangible assets Subsidiaries acquisition costs Provision for employee benefits Other provisions (excluding provisions on current assets) Unrealized foreign currency gain/loss Hedging and derivative instruments Option premium expense Recognition of share-based payments Financial expense/(income) Income tax expense Deferred tax variation (Gain)/loss from disposal of other fixed assets Gain on sale of Clichy headquarters Gain on disposal of PIMACO IS 230,164 139,384 holders’ Cost of Actuarial Share- Non- equity hedging Cash flow differences Additional holders’ controlling Group through hedge recognized Translation paid in Share Accumulated 1,420 56,345 838 - 5,328 (2,351) 571 4,119 531 5,037 (55) 104,592 (6,232) 735 (167,711) (3,027) 4,161 57,212 1,418 1,922 4,665 (152) 2,902 2,891 456 7,480 (370) 90,783 (36,578) (577) - - equity interests share OCI derivatives in equity reserve capital Notes capital profits (in thousand euros) 2, 3 At January 1, 2021 171,809 1,621,415 17,786 (111,979) (255,486) 12,663 1,456,208 1,456,208 Dividends paid 16 (80,919) (80,919) (80,919) Decrease in share capital (a) 13 15 (b) Increase in share capital (b) Treasury shares (382) (14,263) (14,646) (14,646) Recognition of 17, SHEQ share-based payments 17 5,037 5,037 5,037 Hyperinflation impact in Argentina 1,782 1,782 1,782 Other 28 1 26 26 15 (c) 4, 15 (c) 4, 15 (c) Total transactions with Shareholders (382) (93,372) 5,037 (88,719) (88,719) Net income for the period 230,164 230,164 230,164 Cash flow from operations 230,306 275,597 Other comprehensive 11, 15 (d) 15 (e) (62,592) (4,485) (29,194) (175,338) (12,545) (24,922) (Increase)/decrease in net working capital Payments related to employee benefits Income tax paid income (27) 26,110 30,375 (12,648) 43,810 43,810 Total comprehensive income 230,137 26,110 30,375 (12,648) 273,974 273,974 NET CASH FROM OPERATING ACTIVITIES 134,035 62,792 At June 30, 2021 171,427 1,758,180 22,823 (85,869) (225,111) 13 1,641,464 1,641,464 Investing activities At January 1, 2022 169,665 1,820,292 28,232 (76,364) (211,618) (6,387) 1,723,820 1,723,820 Diposal of PIMACO Proceeds on disposal of other investments Sale of Clichy headquarters Disposal of other fixed assets Purchases of property, plant and equipment Purchases of intangible assets (Increase)/decrease in other investments Acquisition of subsidiaries 3,445 - 173,854 1,608 (26,514) (3,772) 282 (7,154) 1,098 - 619 (35,864) (4,526) (159) (67,777) Dividends paid 16 (94,744) (94,744) (94,744) Decrease in share capital (a) Increase in share 15 (c) 15 (g) 15 (g) capital (b) Treasury shares (1,732) (26,722) (28,454) (28,454) Recognition of share-based payments 17 7,480 7,480 7,480 15 (i) Hyperinflation impact NET CASH FROM INVESTING ACTIVITIES 141,749 (106,610) in Argentina 4,859 4,859 4,859 Other 4 4 4 Financing activities Total transactions SHEQ, 16, 15 (j) 12, 15 (k) (80,919) 906 47 (8,535) (241) (14,528) (94,744) 21,308 351 (8,069) (461) (28,380) Dividends paid Borrowings/(repayments) Interest (paid)/received Payments of obligations under leases Purchase of financial instruments Increase in treasury shares with Shareholders (1,732) (116,601) 7,480 (110,853) (110,853) Net income for the period 139,384 139,384 139,384 12 Other comprehensive income 136 13,958 82,607 (10,071) 86,630 86,630 15 (l) Total comprehensive income 139,520 13,958 82,607 (10,071) 226,014 226,014 NET CASH FROM FINANCING ACTIVITIES (103,269) (109,996) At June 30, 2022 167,933 1,843,209 35,712 (62,406) (129,011) (16,458) 1,838,979 1,838,979 Net cash variation Opening cash and cash equivalents net of bank overdrafts Exchange difference 172,515 264,733 11,294 (153,814) 468,413 4,824 BS, 12, 20 (a) No shares were cancelled during the first half of 2022. CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 12, 20 448,542 319,424 IS: See consolidated income statement. SHEQ: See consolidated statement of changes in equity. BS: See consolidated balance sheet. References from (a) to (l) explained in Note 15. 24 25 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 26 2.6 NOTE 1 NOTE 2 NOTE 3 NOTE 4 NOTE 5 NOTE 6 NOTE 7 NOTE 8 NOTE 9 NOTE 10 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS General Balance sheet – Equity and liabilities MAIN RULES AND ACCOUNTING POLICIES 27 NOTE 11 SHARE CAPITAL 1-1 1-2 1-3 1-4 Accounting policies Change in Group structure Significant events Subsequent events 27 28 28 28 11-1 11-2 Share capital SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2022 NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES OPERATING SEGMENTS 29 2-1 2-2 Information by activity Information by geography 29 30 NOTE 13 PROVISIONS (NON-CURRENT LIABILITIES) NOTE 14 OTHER CURRENT LIABILITIES Income Statement and Statement of Comprehensive Income Additional information OPERATING EXPENSES 30 OTHER INCOME AND EXPENSES 31 NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT FINANCIAL INCOME 31 NOTE 16 DIVIDENDS INCOME TAX 32 NOTE 17 SHARE-BASED PAYMENTS 6-1 6-2 Income tax expense Deferred and current tax recognized in other comprehensive income EARNINGS PER SHARE GROUP SHARE Balance sheet – Assets 32 32 33 NOTE 18 FINANCIAL INSTRUMENTS 18-1 18-2 Impact of foreign exchange and interest rate risk hedging on the consolidated financial statements as of June 30, 2022 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2021 GOODWILL 34 NOTE 19 CONTINGENT LIABILITIES OTHER NON-CURRENT ASSETS CHANGE IN NET WORKING CAPITAL 35 36 NOTE 20 EXPOSURE TO MARKET RISKS 20-1 20-2 Credit risk Fair value of financial assets and liabilities NOTE 21 RELATED PARTIES 21-1 21-2 21-3 Consolidated subsidiaries Members of the Board of Directors and of the Executive Committee Companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 36 36 37 37 39 39 39 40 41 41 41 41 42 42 43 43 44 46 46 46 46 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 2.6 NOTES TO THE CONSOLIDATED FINANCIAL NOTE 1 MAIN RULES AND ACCOUNTING POLICIES STATEMENTS 1-1-2 Adoption of new and revised International Financial Reporting Standards, interpretations and amendments 1-1 Accounting policies 1-1-1 Pursuant to European regulation n° 1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in accordance with accounting principles as defined by the International Accounting Standards Board (IASB) as adopted by the European Union. International Financial Reporting Standards are available on the European Union website. General New standards, amendments and interpretations of mandatory application for financial years beginning on or after January 1, 2022 General Balance sheet – Equity and liabilities The following standards and amendments are effective since January 1, 2022 and have been applied to the consolidated financial statement as of June 30, 2022: NOTE 11 SHARE CAPITAL 36 NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 27 11-1 Share capital 36 1-1 Accounting policies 27 11-2 SOCIÉTÉ BIC shares held in treasury stock and 1-2 Change in Group structure 28 share repurchase program as of June 30, 2022 37 1-3 Significant events 28 The (International Financial Reporting Standards), the IAS (International Accounting Interpretation their SIC Standards), as well as Committee) and (International Financial Reporting IFRIC Interpretations Committee) interpretations. international standards include the IFRS amendments to IFRS 4 – Temporary exemption from IFRS 9; 1-4 Subsequent events 28 NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES 37 amendments to IAS 16 – Property, Plant and Equipment – Proceeds before Intended Use; NOTE 2 OPERATING SEGMENTS 29 (Standing NOTE 13 PROVISIONS (NON-CURRENT LIABILITIES) 39 2-1 Information by activity 29 amendments to IAS 37 – Provisions, Contingent Liabilities and Contingent Assets – Onerous contracts – Cost of Fulfilling a Contract; 2-2 Information by geography 30 39 NOTE 14 OTHER CURRENT LIABILITIES 39 The condensed consolidated financial statements as of June 30, 2021 and June 30, 2022 have been prepared in compliance with IAS 34 “Interim financial reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. Income Statement and Statement annual Improvements – 2018-2020; of Comprehensive Income Additional information amendments to IFRS 3 – Business Combinations – References to the conceptual framework; NOTE 3 OPERATING EXPENSES 30 NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT 40 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform – Phase 2. NOTE 4 OTHER INCOME AND EXPENSES 31 IAS 34 allows presentation of a selection of notes to the condensed consolidated financial statements that should be read in conjunction with the consolidated financial statements of December 31, 2021. NOTE 16 DIVIDENDS 41 NOTE 5 FINANCIAL INCOME 31 The application of these standards and amendments did not have any material impact on the Group’s accounts. NOTE 17 SHARE-BASED PAYMENTS 41 NOTE 6 INCOME TAX 32 The measurement procedures used for the interim condensed consolidated the financial December 31, 2021, and are as follows: 6-1 Income tax expense 32 NOTE 18 FINANCIAL INSTRUMENTS 41 statements are the same as 6-2 Deferred and current tax recognized in other New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2022 18-1 Impact of foreign exchange and interest rate comprehensive income 32 risk hedging on the consolidated financial interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre-tax result of the interim period excluding non-recurring material items. The income tax charge related to any non-recurring item in the period is accrued using its actual tax expense; NOTE 7 EARNINGS PER SHARE GROUP SHARE 33 statements as of June 30, 2022 41 18-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial As of June 30, 2022, the Group did not elect to early apply any standard, interpretation or amendment. statements as of December 31, 2021 42 Balance sheet – Assets NOTE 19 CONTINGENT LIABILITIES 42 NOTE 8 GOODWILL 34 regarding the main pension plans and other employee benefits (United States, Canada, France, United Kingdom), actuarial valuations are performed every six months. Amounts recognized in the interim statement of financial position are based on estimates made at the end of the previous year and on the discount rates as of June 30. Standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2022 NOTE 20 EXPOSURE TO MARKET RISKS 43 NOTE 9 OTHER NON-CURRENT ASSETS 35 20-1 Credit risk 43 20-2 Fair value of financial assets and liabilities 44 NOTE 10 CHANGE IN NET WORKING CAPITAL 36 NOTE 21 RELATED PARTIES 46 amendments to IAS 1 – Presentation of Financial statements: Classification of Liabilities as Current or Non-current; 21-1 Consolidated subsidiaries 46 21-2 Members of the Board of Directors and of amendments to IAS 8 – Accounting Policy changes; the Executive Committee 46 Regarding share-based payments and other benefits plans, expenses are recognized in the period on a pro rata basis of the estimated costs for the year. 21-3 Companies in which a member of the Board of amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses; Directors or of the Executive Committee has a significant voting right 46 amendments to IFRS 16 – Leases – Covid-19 rent relief beyond June 30, 2021. The principal accounting policies remain unchanged compared to last year except for adoption of the following standard, effective since January 1, 2022. Analysis on the practical consequences of these new regulations is in progress. 1-1-3 Turkey is now considered as “hyperinflationary” as defined by IFRS rules. Hyperinflation accounting in Turkey The hyperinflation in Turkey has no significant impact on Group's accounts. 26 27 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 28 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 1-2 Change in Group structure 1-3 Significant events BIC has announced on February 1, 2022 that is has completed the acquisition of Inkbox Ink Incorporated for 65 million U.S. dollars (57 million euros), and a deferred consideration based on Inkbox’s future sales and profitability growth. In March 2022, the new BIC headquarters has been finalized. This new lease is increasing the property, plant and equipment and the borrowings by 28 million euros following IFRS 16. This investment was fully consolidated in the financial statements as of February 1, 2022. This acquisition has been treated as a business combination. A preliminary goodwill amounting 78.5 million U.S. dollars (70 million euros as of February 1, 2022) has been determined based on the fair value of net assets of Inkbox at the acquisition date. The preliminary goodwill was allocated to the assets as follows: Ukraine Crisis – March 2022 The Group closely monitors the potential consequences of the Ukraine crisis, which is evolving rapidly. Our utmost priority is to help and protect our team members. An action plan has been implemented to ensure their safety. Russia and Ukraine accounted for 2.0% of BIC’s June 2022 total net sales (1.7% for Russia and 0.3% in Ukraine). The Group doesn’t have any industrial presence in these two countries. the Inkbox trademark amounting 24.2 million U.S. dollars, i.e. 21.5 million euros as of February 1, 2022; the patent and the software amounting 13.4 million U.S. dollars, i.e. 11.9 million euros as of February 1, 2022; a non-compete agreement amounting 1.1 million U.S. dollars, i.e. 0.9 million euros as of February 1, 2022; the related deferred tax liability amounting 3.9 million U.S. dollars, i.e. 3.5 million euros as of February 1, 2022. This crisis could affect the supply and prices of certain raw materials, and has increased the risk of cyberattack. 1-4 Subsequent events On July 26, BIC acquired Tattly to build capabilities in Skin Creative in-line with our Horizon Strategy. The preliminary goodwill amounts thus 43.8 million U.S. dollars, i.e. 38.9 million euros as of February 1, 2022. The total consideration for this acquisition is not significant. No other subsequent event occurred between July 1, 2022 and the reporting date. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 1-2 Change in Group structure 1-3 Significant events NOTE 2 OPERATING SEGMENTS BIC has announced on February 1, 2022 that is has completed the In March 2022, the new BIC headquarters has been finalized. This 2-1 Information by activity acquisition of Inkbox Ink Incorporated for 65 million U.S. dollars new lease is increasing the property, plant and equipment and the (57 million euros), and a deferred consideration based on Inkbox’s borrowings by 28 million euros following IFRS 16. At June 30, 2022 At June 30, 2021 future sales and profitability growth. Human Expression Flame for Life Blade Excellence Other Products Unallocated costs Human Expression Flame for Life Blade Excellence Other Products Unallocated costs This investment was fully consolidated in the financial statements as Ukraine Crisis – March 2022 Total Total (in million euros) of February 1, 2022. This acquisition has been treated as a business The Group closely monitors the potential consequences of the combination. Income statement Ukraine crisis, which is evolving rapidly. Our utmost priority is to A preliminary goodwill amounting 78.5 million U.S. dollars Net sales 333 368 200 16 917 438 436 240 13 1,127 help and protect our team members. An action plan has been (70 million euros as of February 1, 2022) has been determined implemented to ensure their safety. Depreciation and amortization based on the fair value of net assets of Inkbox at the acquisition (16) (14) (16) (10) (56) (17) (15) (16) (10) (57) Russia and Ukraine accounted for 2.0% of BIC’s June 2022 total net date. The preliminary goodwill was allocated to the assets as sales (1.7% for Russia and 0.3% in Ukraine). The Group doesn’t have Impairment loss (1) (1) (1) follows: any industrial presence in these two countries. EBIT 29 144 32 (3) 131 333 34 166 41 (4) (39) 198 the Inkbox trademark amounting 24.2 million U.S. dollars, i.e. This crisis could affect the supply and prices of certain raw Restatements made to obtain adjusted EBIT 21.5 million euros as of February 1, 2022; materials, and has increased the risk of cyberattack. the patent and the software amounting 13.4 million U.S. Restructuring costs 1 2 1 4 dollars, i.e. 11.9 million euros as of February 1, 2022; a non-compete agreement amounting 1.1 million U.S. dollars, 1-4 Subsequent events Acquisition costs 1 1 i.e. 0.9 million euros as of February 1, 2022; Rocketbook earn-out/Djeep price adjustment 1 On July 26, BIC acquired Tattly to build capabilities in Skin Creative the related deferred tax liability amounting 3.9 million U.S. in-line with our Horizon Strategy. dollars, i.e. 3.5 million euros as of February 1, 2022. The total consideration for this acquisition is not significant. The preliminary goodwill amounts thus 43.8 million U.S. dollars, i.e. Ukraine 1 2 3 38.9 million euros as of February 1, 2022. No other subsequent event occurred between July 1, 2022 and the Clichy headquarters sales capital gain reporting date. (168) (168) PIMACO divestiture capital gain (3) (3) Adjusted EBIT 28 146 32 (3) (37) 166 36 167 43 (4) (39) 203 As of June 30, 2022, BIC has not identified any customer with which it realized more than 10% ot its net sales over the period. At June 30, 2022 At June 30, 2021 Human Expression Flame for Life Blade Excellence Other Products Human Expression Flame for Life Blade Excellence Other Products Total Total (in million euros) Capital additions (a)(b) (without rights of use) 6 11 8 5 30 8 13 9 10 40 Net inventories 221 116 98 7 443 283 180 156 7 625 (a) (b) Excluding 2022 capital additions not cashed out end of June 2022 and including capital additions cashed out in 2022 related to 2021 for a net amount of +7.3 million euros. Excluding 2021 capital additions not cashed out end of June 2021 and including capital additions cashed out in 2021 related to 2020 for a net amount of (0.8) million euros. 28 29 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 30 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 2-2 Information by geography The regions identified by the management are the following: At June 30, 2021 At June 30, 2022 (in million euros) France Europe excluding France North America Latin America Middle East and Africa Asia and Ocenia (including Cello) Total France Europe excluding France North America Latin America Middle East and Africa Asia and Ocenia (including Cello) Total Net sales 103 189 406 126 51 41 917 105 223 499 180 66 54 1,127 The Group may grant year-end rebates. These rebates are booked in net sales and amounted 52 million euros as of June 30, 2022 compared to 51 million euros as of June 30, 2021. At December 31, 2021 At June 30, 2022 (in million euros) France Europe excluding France North America Developing markets Total France Europe excluding France North America Developing markets Total Non-current assets (a) 313 182 247 184 926 340 177 362 181 1,060 (a) Other than financial instruments (42 thousand euros in 2022 and 0.1 million euros in 2021) and deferred tax assets (138.1 million euros in 2022 and 131.5 million euros in 2021). NOTE 3 OPERATING EXPENSES (in thousand euros) As of June 30, 2021 As of June 30, 2022 Raw materials, consumables used and change in inventory 235,047 309,336 Staff costs 249,531 270,357 Depreciation and amortization expenses 56,113 57,212 Other operating expenses 219,453 287,651 Impairment loss on manufacturing equipment 403 11 Profit/(loss) on operational foreign currency translation (7,181) 2,306 TOTAL 753,366 926,873 Other income and expenses are not included in the total amount and are disclosed in Note 4. Other operating expenses mainly include outside services. Research and development costs recognized under “Other operating expenses” for the first half of 2022 amounted to 11.2 million euros, versus 11.1 million euros during the first half of 2021. They include the French research tax credit for 1.3 million euros, compared to 1.5 million euros in 2021. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 2-2 Information by geography NOTE 4 OTHER INCOME AND EXPENSES The regions identified by the management are the following: As of June 30, 2022 As of June 30, 2021 (in thousand euros) At June 30, 2022 At June 30, 2021 Royalty income (1) 38 Asia and Asia and Gain on sale of Clichy’s headquarters 167,711 Ocenia Europe Middle Ocenia Europe Middle (including excluding North Latin East and (including excluding North Latin East and Gain on disposal of fixed assets 509 530 Cello) Total France France America America Africa Cello) Total France France America America Africa (in million euros) PIMACO divestiture gain 3,027 Net sales 103 189 406 126 51 41 917 105 223 499 180 66 54 1,127 Other 3,858 2,551 Other income 175,104 3,118 The Group may grant year-end rebates. These rebates are booked in net sales and amounted 52 million euros as of June 30, 2022 compared to 51 million euros as of June 30, 2021. Other impairment (1,397) Cost reduction plans (4,248) 490 Djeep price adjustment & Rocketbook earn-out (701) At June 30, 2022 At December 31, 2021 Other (1,636) (4,131) Europe Europe Other expenses (5,884) (5,739) excluding North Developing excluding North Developing France France America markets Total France France America markets Total (in million euros) TOTAL 169,220 (2,621) Non-current assets (a) 313 182 247 184 926 340 177 362 181 1,060 Other income and expenses incurred in first half of 2022 mainly include: Other income and expenses incurred in the first half 2021 mainly include: (a) Other than financial instruments (42 thousand euros in 2022 and 0.1 million euros in 2021) and deferred tax assets (138.1 million euros in 2022 and 131.5 million euros in 2021). a 2.3 million euros impairment of receivables and a 0.7 million euros impairment of inventories have been booked to reflect the situation in Ukraine; 167.7 million euros from Clichy Headquarters sale; PIMACO divestiture gain for 3.0 million euros; NOTE 3 OPERATING EXPENSES 4.2 million euros of restructuring costs, of which the 2021 transformation plan is the main driver. 0.7 million euros price and earn-out adjustment related to Djeep and Rocketbook acquisitions. As of June 30, 2022 As of June 30, 2021 (in thousand euros) Raw materials, consumables used and change in inventory 235,047 309,336 NOTE 5 FINANCIAL INCOME Staff costs 249,531 270,357 Depreciation and amortization expenses 56,113 57,212 Other operating expenses 219,453 287,651 As of June 30, 2022 As of June 30, 2021 (in thousand euros) Impairment loss on manufacturing equipment 403 11 Interest income from cash and cash equivalents 425 671 Profit/(loss) on operational foreign currency translation (7,181) 2,306 Interest on bank deposits 827 3,214 TOTAL 753,366 926,873 Income from cash and cash equivalents 1,253 3,884 Interest expense (884) (3,525) Other income and expenses are not included in the total amount Research and development costs recognized under “Other Cost of financial debt – IFRS 16 (527) (501) and are disclosed in Note 4. operating expenses” for the first half of 2022 amounted to 11.2 million euros, versus 11.1 million euros during the first half of 2021. Argentina hyperinflation accounting – IAS 29 (2,957) (6,639) Other operating expenses mainly include outside services. Net financial foreign exchange difference (931) 2,714 They include the French research tax credit for 1.3 million euros, compared to 1.5 million euros in 2021. Net finance income/(net finance costs) (5,299) (7,952) FINANCE (COSTS)/REVENUE (4,046) (4,068) Financial compared to 2021. It comes from several factors: income remained stable during first half of 2022 In fiscal year 2020, the Group has improved its access to short and medium-term liquidity through the implementation of a 3-year, 200 million euro Revolving Credit Facility (RCF) and a 200 million euro NeuCP program. first half of 2022 was more negatively impacted by Argentina hyperinflation accounting than in 2021; To date, the RCF has not yet been drawn down, and NeuCP’s outstanding balance amounts to 75 million euro. Despite the inflationary environment currently prevailing in the euro zone, generating tensions on the yield curve and credit market, NeuCP's issuances have taken place in negative territory and therefore do not create additional financial expense. partly offset by: income from cash and cash equivalents increase compared to the previous period due to higher interest rates. 30 31 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 32 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 6 INCOME TAX 6-1 Income tax expense (in thousand euros) June 30, 2021 June 30, 2022 Income before tax 328,524 193,589 Tax charge 98,360 54,205 TAX RATE 29.94% 28.00% At the end of June 2022, the Group effective tax rate is determined on an annual basis. The tax charge is calculated by applying the estimated average rate for the 2022 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2022 and effective after June 30, 2022. The income tax charge related to any non-recurring items in the period is accrued using the actual tax expense. 6-2 Deferred and current tax recognized in other comprehensive income Deferred and current taxes recognized in other comprehensive income result from the following items: June 30, 2022 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined-benefit plans (1) 15,614 (1,657) Other comprehensive income (2) 69,285 3,387 Cash flow hedge (13,316) 3,245 Foreign exchange impact 82,607 141 Other (5) 1 TOTAL (1) + (2) 84,900 1,730 June 30, 2021 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined-benefit plans (1) 31,331 (5,221) Other comprehensive income (2) 15,204 2,495 Cash flow hedge (15,174) 2,526 Foreign exchange impact 30,375 (30) Other 3 (1) TOTAL (1) + (2) 46,535 (2,726) • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements NOTE 6 NOTE 7 INCOME TAX EARNINGS PER SHARE GROUP SHARE The number of shares used to calculate the diluted earnings per share (Group share) is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of free shares and stock options. Earnings per share (Group share) and diluted earnings per share (Group share) correspond to the Group net income divided by the relevant number of shares. 6-1 Income tax expense June 30, 2022 June 30, 2021 (in thousand euros) The number of shares used to calculate the earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. Income before tax 328,524 193,589 Tax charge 98,360 54,205 As of June 30, 2022, there are no shares with relutive impact and the maximum dilutive effect from unvested free shares and stock-options are around 1.3% of the share capital. TAX RATE 29.94% 28.00% At the end of June 2022, the Group effective tax rate is determined changes voted by June 30, 2022 and effective after June 30, 2022. on an annual basis. The tax charge is calculated by applying the The income tax charge related to any non-recurring items in the June 30, 2022 June 30, 2021 estimated average rate for the 2022 full year to income before tax period is accrued using the actual tax expense. Numerator (in thousand euros) (excluding unusual material items), taking into account any tax rate Net income Group share from continuing operations 230,164 139,384 6-2 Deferred and current tax recognized in other comprehensive income Denominator (in number of shares) Weighted average number of ordinary shares in circulation 44,967,216 44,210,401 Deferred and current taxes recognized in other comprehensive income result from the following items: Dilutive effect of free shares (156,044) 563,608 June 30, 2022 Diluted weighted average number of ordinary shares in circulation 44,811,172 44,774,009 Earnings per share Group share from continuing operations (in euros) Other comprehensive income Deferred taxes (in thousand euros) Earnings per share Group share from continuing operations 5.12 3.15 Actuarial differences on defined-benefit plans (1) 15,614 (1,657) Diluted earnings per share Group share from continuing operations 5.14 3.11 Other comprehensive income (2) 69,285 3,387 Cash flow hedge (13,316) 3,245 Foreign exchange impact 82,607 141 Other (5) 1 TOTAL (1) + (2) 84,900 1,730 June 30, 2021 Other comprehensive income Deferred taxes (in thousand euros) Actuarial differences on defined-benefit plans (1) 31,331 (5,221) Other comprehensive income (2) 15,204 2,495 Cash flow hedge (15,174) 2,526 Foreign exchange impact 30,375 (30) Other 3 (1) TOTAL (1) + (2) 46,535 (2,726) 32 33 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 34 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 8 GOODWILL (in thousand euros) Notes Gross value Impairment loss Net value At January 1, 2021 342,552 (98,723) 243,829 Rocketbook Acquisition 2,509 2,509 PIMACO disposal (3,651) 3,651 Exchange differences 14,946 (5,226) 9,720 At January 1, 2022 356,356 (100,298) 256,058 Inkbox Acquisition 38,692 38,692 Exchange differences 17,791 (2,083) 15,708 At June 30, 2022 412,839 (102,381) 310,458 The balance, as of June 30, 2022, includes the following principal net goodwill: (in thousand euros) December 31, 2021 June 30, 2022 BIC CORPORATION – Human Expression (a) 52,352 55,926 BIC CORPORATION – Flame for Life (a) 41,578 44,674 BIC Violex – Blade Excellence 70,718 72,332 Kenya – Human Expression 5,057 5,245 Nigeria – Human Expression 12,558 13,949 Djeep – Flame for Life 29,885 29,885 Rocketbook – Human Expression 26,178 28,440 Inkbox – Human Expression 42,011 Other (a) 17,733 17,997 TOTAL 256,058 310,458 (a) These goodwill amounts are linked to cash-generating units represented by distribution subsidiaries. To perform the impairment tests, the Group used the following discount and perpetual growth rates: Weighted average cost of capital (WACC) before tax Perpetual growth rate 2021 2022 2021 2022 BIC CORPORATION Human Expression 9.9% 9.7 % 1.5% 1.5% Flame for Life 9.6% 9.8 % 1.5% 1.5% Cello Pens – Human Expression 14.2% 14.3% 4.0% 4.0% BIC Violex – Blade Excellence 13.8% 13.9 % 1.9% 1.9% Kenya – Human Expression 17.9% 19.0 % 5% 5% Nigeria – Human Expression 28.2% 29.0 % 10.3% 11.5% Djeep – Flame for Life 9.2% 9.5 % 0% 0% Rocketbook – Human Expression 9.1% 9.2 % 2% 1.5% Inkbox – Human Expression 17.7 % 6.7% • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements As every year, as of June 30, 2022, the Group performed annual impairment tests on these goodwill amounts. Each goodwill item has been allocated to a cash-generating unit is lowest (“CGU”) representing the monitored by the Group. NOTE 8 GOODWILL level at which goodwill The goodwill is based on a impairment test methodology comparison between the recoverable amount of each of the Group’s cash-generating units and the corresponding assets’ net book value (including goodwill). Gross value Impairment loss Net value Notes (in thousand euros) The goodwill on BIC CORPORATION is thus mainly allocated to cash-generating units the distribution by BIC CORPORATION of stationery products and lighters. linked to At January 1, 2021 342,552 (98,723) 243,829 Rocketbook Acquisition 2,509 2,509 Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over a maximum of five years and a terminal value using the perpetual annuity method, including notably the following: The goodwill on Cello Pens is allocated to the cash-generating units linked to the production and distribution of stationery products by Cello and was fully depreciated. PIMACO disposal (3,651) 3,651 Exchange differences 14,946 (5,226) 9,720 At January 1, 2022 356,356 (100,298) 256,058 is allocated to the The remaining goodwill on BIC Violex cash-generating unit linked to shavers developed and/or produced by BIC Violex and sold all over the world. This cash-generating unit also includes the portion of BIC CORPORATION goodwill allocated to shavers. the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rates; Inkbox Acquisition 38,692 38,692 Exchange differences 17,791 (2,083) 15,708 At June 30, 2022 412,839 (102,381) 310,458 the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics, notably in Nigeria and in India. is allocated to the The goodwill on the Kenya subsidiary cash-generating unit linked to the production and distribution of stationery products by BIC East Africa. The balance, as of June 30, 2022, includes the following principal net goodwill: June 30, 2022 December 31, 2021 (in thousand euros) The goodwill on the Nigeria subsidiary is allocated to the cash-generating unit linked to the production and distribution of stationery products by Lucky Stationery Limited. Considering the impairment on part of the assets on the CGU Cello Pens, any negative variance of drivers (discount rate, performance and perpetual growth rates) would lead to an additional impairment of other assets. BIC CORPORATION – Human Expression (a) 52,352 55,926 BIC CORPORATION – Flame for Life (a) 41,578 44,674 The goodwill on Djeep is allocated to the cash-generating unit linked to the production and distribution of lighters by Djeep. BIC Violex – Blade Excellence 70,718 72,332 Kenya – Human Expression 5,057 5,245 The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to impairment, taking into account the observed headroom on the other tests conducted. The goodwill on Rocketbook is allocated to the cash-generating unit linked to the distribution of the Core and Fusion notebooks, reusable notebooks used with erasable pens by Rocketbook. Nigeria – Human Expression 12,558 13,949 Djeep – Flame for Life 29,885 29,885 Rocketbook – Human Expression 26,178 28,440 The goodwill generated on the cash-generating unit linked to the distribution of semi-permanent tattoos by Inkbox. Inkbox is allocated to Inkbox – Human Expression 42,011 Other (a) 17,733 17,997 TOTAL 256,058 310,458 (a) These goodwill amounts are linked to cash-generating units represented by distribution subsidiaries. NOTE 9 OTHER NON-CURRENT ASSETS To perform the impairment tests, the Group used the following discount and perpetual growth rates: June 30, 2022 December 31, 2021 (in thousand euros) Weighted average cost of capital (WACC) before tax Perpetual growth rate Guarantee deposits 3,519 3,852 2022 2022 2021 2021 Deferred pensions 4,398 5,328 BIC CORPORATION Deferred compensation in the U.S. (other than pensions) 10,412 11,312 Human Expression 9.9% 9.7 % 1.5% 1.5% Other non-current assets 7,459 9,052 Flame for Life 9.6% 9.8 % 1.5% 1.5% TOTAL 25,788 29,544 Cello Pens – Human Expression 14.2% 14.3% 4.0% 4.0% BIC Violex – Blade Excellence 13.8% 13.9 % 1.9% 1.9% Kenya – Human Expression 17.9% 19.0 % 5% 5% Nigeria – Human Expression 28.2% 29.0 % 10.3% 11.5% Djeep – Flame for Life 9.2% 9.5 % 0% 0% Rocketbook – Human Expression 9.1% 9.2 % 2% 1.5% Inkbox – Human Expression 17.7 % 6.7% 34 35 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 36 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 10 CHANGE IN NET WORKING CAPITAL (in thousand euros) December 31, 2021 Cash flows impact Operating Cash flows impact Investing (a) Djeep Price adjustment Inkbox Acquisition Earn-out clauses Inkbox Price adjustment & earn-out clauses Rocketbook Cash received from PIMACO sale Foreign exchange and other June 30, 2022 Net inventory 490,222 102,088 1,320 31,836 625,466 Inventory – Gross value 506,151 102,269 1,320 32,467 642,208 Inventory – Impairment (15,930) (181) (631) (16,742) Trade and other receivables 418,186 138,841 208 (1,098) 21,018 577,155 Trade and other payables (149,154) (54,568) 7,306 (833) (6,401) (203,650) Other receivables and payables (b) (270,943) (11,024) 410 (1,739) (11,190) 7,883 (6,162) (292,764) NET WORKING CAPITAL 488,311 175,338 7,306 410 (1,043) (11,190) 7,883 (1,098) 40,291 706,206 (a) Cash flow impact Investing includes capital additions cashed out in 2022 related to 2021 and excludes 2022 capital additions not yet cashed out for a net amount of +7.3 million euros. (b) Other receivables and payables are composed of: Notes December 31, 2021 June 30, 2022 Other current assets Asset 16,259 30,177 + Other non-current assets Asset 25,788 29,544 Guarantee deposits 9 (3,519) (3,852) Deferred pensions 9 (4,398) (5,328) Other current liabilities Liabilities (292,154) (324,787) Other non-current liabilities Liabilities (12,866) (18,517) TOTAL (270,943) (292,764) The working capital is used to finance the Group’s operating cycle. Details of the elements used in the calculation are presented above. NOTE 11 SHARE CAPITAL 11-1 Share capital (in thousand euros) December 31, 2021 June 30, 2022 Authorized, issued and fully paid-up share capital 170,670 170,670 Repurchase of shares of the Company (1,004) (2,737) SHARE CAPITAL 169,665 167,933 As of June 30, 2022, the share capital of SOCIÉTÉ BIC was 170,669,688.78 euros divided into 44,677,929 shares of 3.82 euros each. Bearer shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 716,607 treasury shares, acquired at an average price of 62.83 euros in accordance with Article L. 225-209 of the French Commercial Code, which represent 1.60 % of the share capital. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 11-2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2022 NOTE 10 CHANGE IN NET WORKING CAPITAL Average acquisition price (in euros) Price Cash adjustment received Purpose of the repurchase Number of shares % of the share capital Cash flows Cash flows Earn-out & earn-out from Foreign Liquidity agreement (a) 29,229 52.33 0.07% December 31, impact impact June 30, Djeep Price Inkbox clauses clauses PIMACO exchange Investing (a) 2021 Operating 2022 adjustment Acquisition Inkbox Rocketbook sale and other (in thousand euros) Free share grants (a) 687,378 63.28 1.54% Net inventory 490,222 102,088 1,320 31,836 625,466 TOTAL 716,607 62.83 1.60% Inventory – (a) Article L. 225-209 of the French Commercial Code. Gross value 506,151 102,269 1,320 32,467 642,208 Inventory – In accordance with the liquidity agreement, transferred by Natixis to ODDO on June 27, 2018, in respect of SOCIÉTÉ BIC shares, as of June 30, 2022, the liquidity account contained the following: At initial contract set-up, the liquidity account contained the following: Impairment (15,930) (181) (631) (16,742) Trade and other 2,312 BIC shares; receivables 418,186 138,841 208 (1,098) 21,018 577,155 29,229 BIC shares; 912,744.48 euros. Trade and other 1,357,877 euros. SOCIÉTÉ BIC obtained authorization the Annual Shareholders’ Meeting on May 19, 2021, to renew its share repurchase program (see 2021 Universal Registration Document, chapter 8, p. 304). from payables (149,154) (54,568) 7,306 (833) (6,401) (203,650) Other receivables and payables (b) (270,943) (11,024) 410 (1,739) (11,190) 7,883 (6,162) (292,764) NET WORKING CAPITAL 488,311 175,338 7,306 410 (1,043) (11,190) 7,883 (1,098) 40,291 706,206 Number of shares purchased in 2022 (a) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 19, 2021 540,245 (a) Cash flow impact Investing includes capital additions cashed out in 2022 related to 2021 and excludes 2022 capital additions not yet cashed out for a net amount of +7.3 million euros. (b) Other receivables and payables are composed of: Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 18, 2022 33,256 50.28 Average share repurchase price for the purchases during the first half of 2022 (in euros) June 30, 2022 Notes December 31, 2021 (a) Excluding shares repurchased under the liquidity contract. Other current assets Asset 16,259 30,177 + Other non-current assets Asset 25,788 29,544 To the best of the Company’s knowledge, as of June 30, 2022, Shareholders holding respectively more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: Guarantee deposits 9 (3,519) (3,852) Deferred pensions 9 (4,398) (5,328) Other current liabilities Liabilities (292,154) (324,787) At June 30, 2022 Other non-current liabilities Liabilities (12,866) (18,517) % of shares (approx.) % of voting rights (approx.) TOTAL (270,943) (292,764) SOCIÉTÉ M.B.D. 28.84% 39.19% Bich family 16.91% 21.84% The working capital is used to finance the Group’s operating cycle. Details of the elements used in the calculation are presented above. NOTE 11 SHARE CAPITAL NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES 11-1 Share capital Current borrowings and financial liabilities Non-current borrowings and financial liabilities June 30, 2022 December 31, 2021 (in thousand euros) Bank overdrafts Short-term borrowings Current lease liability Non-current lease liability Total (in thousand euros) Authorized, issued and fully paid-up share capital 170,670 170,670 At January 1, 2022 501 59,000 4,364 4,896 12,422 18,886 100,069 Repurchase of shares of the Company (1,004) (2,737) Cash flows 539 16,000 7,672 (2,364) (8,069) 13,778 SHARE CAPITAL 169,665 167,933 “Non-cash” changes 9 (183) 120 9,665 28,267 37,342 In addition, SOCIÉTÉ BIC holds 716,607 treasury shares, acquired As of June 30, 2022, the share capital of SOCIÉTÉ BIC was Variations in obligations under leases at an average price of 62.83 euros in accordance with 170,669,688.78 euros divided into 44,677,929 shares of 3.82 8,622 25,275 33,898 Article L. 225-209 of the French Commercial Code, which euros each. Bearer shares held for more than two years carry INKBOX acquisition 379 1,269 1,648 represent 1.60 % of the share capital. double voting rights. PIMACO disposal (13) (13) Exchange difference 9 (183) 120 664 1,185 1,803 At June 30, 2022 1,050 75,000 11,853 2,652 14,018 46,617 151,189 Bank overdrafts are due within one year. 36 37 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 38 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Bank loans and financial liabilities come due as following: (in thousand euros) December 31, 2021 June 30, 2022 On demand or within one year 63,263 86,853 In the 2nd year 2,652 In the 3rd year 4,896 In the 4th year In the 5th year After five years TOTAL 68,159 89,506 Main bank loans/credit lines and financial liabilities are as follows: Borrowing country Euro equivalents (in thousand euros) Currency December 31, 2021 June 30, 2022 France EUR 59,000 75,000 Turkey TRY 1,696 5,556 Kenya KES 4,896 2,652 India INR 2,567 6,219 Other 79 TOTAL 68,159 89,506 Information on interest rates As of June 30, 2022, outstanding loans and credit lines, apart from NeuCP bonds, were contracted with floating rates ranging between 5.56% and 30%. Information on covenants None of the current loans contains any covenant that could trigger early repayment of the debt. The borrowings indicated for France consist exclusively of NeuCP bonds, issued on average at -0.015%. Relative exposure, deemed not significant, has not been hedged. IFRS 16 liability BIC has opted to use an incremental borrowing rate for discounting debt. The rate used for each lessee is the rate he would have to pay to borrow, over a similar period and with similar security, the funds necessary to obtain an asset of similar value to the leased asset in a similar economic environment. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements Bank loans and financial liabilities come due as following: NOTE 13 PROVISIONS (NON-CURRENT LIABILITIES) June 30, 2022 December 31, 2021 (in thousand euros) On demand or within one year 63,263 86,853 In the 2nd year Tax and social risks and litigation 2,652 Other risks and charges In the 3rd year 4,896 Litigation Product liability Total (in thousand euros) In the 4th year At January 1, 2022 3,105 12,658 337 4,228 20,328 In the 5th year Additional provisions 658 1,535 207 2,401 After five years Reversals of provisions utilized (731 (905) (815) (2,451) TOTAL 68,159 89,506 Reversals of provisions not utilized (42) (60) (102) Exchange differences 263 754 29 (23) 1,022 Main bank loans/credit lines and financial liabilities are as follows: At June 30, 2022 3,254 14,042 365 3,535 21,198 Borrowing country Euro equivalents June 30, 2022 Currency December 31, 2021 (in thousand euros) Tax (excluding income tax) and social risks and litigation Provisions for tax (excluding income tax) and social risks and litigation relate mainly to: Other risks and charges As of June 30, 2022, other provisions for risks and charges are mainly related to the restructuring provisions for an amount of 1.2 million euros. France EUR 59,000 75,000 Turkey TRY 1,696 5,556 tax risks; Kenya KES 4,896 2,652 U.S. workers’ compensation. India INR 2,567 6,219 Product liability Product liability mainly relates to the U.S. Other 79 Litigation As of June 30, 2022, the litigation provision mainly represents distributor and commercial agent risks for 2.1 million euros (1.9 million euros as at December 31, 2021). TOTAL 68,159 89,506 Information on interest rates Information on covenants As of June 30, 2022, outstanding loans and credit lines, apart from None of the current loans contains any covenant that could trigger NeuCP bonds, were contracted with floating rates ranging between early repayment of the debt. NOTE 14 OTHER CURRENT LIABILITIES 5.56% and 30%. IFRS 16 liability The borrowings indicated for France consist exclusively of NeuCP BIC has opted to use an incremental borrowing rate for discounting bonds, issued on average at -0.015%. June 30, 2022 December 31, 2021 (in thousand euros) debt. The rate used for each lessee is the rate he would have to pay Relative exposure, deemed not significant, has not been hedged. Social liabilities 111,706 91,994 to borrow, over a similar period and with similar security, the funds necessary to obtain an asset of similar value to the leased asset in a Other tax liabilities 9,641 16,040 similar economic environment. Accrued business development fund 87,419 110,627 Provision for restructuring 8,563 5,850 Other current liabilities 74,825 100,276 OTHER CURRENT LIABILITIES 292,154 324,787 38 39 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 40 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT References from (a) to (l) refer to the consolidated cash flow statement on page 25. As of June 30, 2022 cash and cash equivalents amounted to 320.5 million euros and bank overdrafts to 1.0 million euros. During the first half 2021, PIMACO was disposed of for a net amount of 4.6 million euros that represents the proceed on disposal followed by some price adjustments, net of cash and cash equivalent of the divested entity, related costs and also income tax paid on the capital gain. Net cash from operating activities First half 2022 net cash from operating activities amounted to 62.8 million euros, compared to 134.0 million euros as at June 30, 2021. During the first half 2022, BIC disbursed 40.4 million euros on property, plant and equipment and intangible assets (including -7.3 million euros related to the change in fixed asset supplier accounts) (g) compared to 30.3 million euros in 2021 (including -0.8 million euros related to change in fixed asset supplier accounts). The Group recorded foreign exchange (gains)/losses with no cash impact in financial income and restated these in the consolidated cash flow statement (b). Purchases of property, plant and equipment do not include finance leases booked as a counterpart to a financial debt, as these transactions do not have any impact on cash (g). There is no individually significant disposal of fixed assets during the first half of 2022 (c). In the first half of 2022, payments were made relating to: In the first half of 2021, the sale of Clichy headquarters generated a capital gain of 167.7 million euros. 58.2 million euros for the acquisition of Inkbox, corresponding to the purchase price net of cash and cash equivalents of the entity and related costs; The divestiture of PIMACO in 2021 generated a capital gain of 3.0 million euros (c). the price adjustment of Djeep for EUR 0.8 million euros; the earn-out clause for Rocketbook for 8.7 million euros(i). The working capital (see Note 10 for the definition) increased by 175.3 million euros compared to an increase during the first half 2022 of 62.6 million euros. The 2022 change in working capital is mainly impacted by an increase in account ceceivables (strong Back-to-School sell-in), and inventories (negative impact of input cost inflation, and inventory build-up ahead of H2 shipments) (d). During the first half of 2021, payments were made in respect of Haco Kenya earn-out for 2.7 million U.S. dollars, Rocketbook price adjustment for 2.2 million U.S. dollars and Djeep price adjustment for 3 million euros (i). The first half 2021 variance is mainly explained by an increase in trade receivables and inventories, partly offset by an increase in trade payables (d). Net cash from financing activities Net cash from financing activities amounted to -110.0 million euros during the first half 2022 compared to -103.3 million euros in the first half 2021. The payments related to employee benefits were mainly driven by the U.S. and United Kingdom (e). The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 16) (j). Net cash from investing activities Net cash from investing activities amounted to -106.6 million euros during the first half 2022 compared to 141.7 million euros during the first half 2021. As of June 30, 2022, new borrowings (net from repayments) amounted to 21.3 million euros, mainly due to a 16.0 million euros new borrowing in France, compared to 0.9 million euros of net increase in 2021 (k). During the first half 2022, there was no disposal of individually significant fixed assets (c). During the first half 2021, the headquarters of Clichy were sold for a net amount of 173.9 million euros that represent the proceed on disposal net of related costs and also income tax paid on the capital gain for 45.9 million euros. During the first half 2022, 573,501 shares were repurchased by SOCIÉTÉ BIC for 28.8 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 230,388 shares for 11.5 million euros, and sold 237,775 shares for 11.9 million euros (l). During the first half 2021, 277,834 shares were repurchased by SOCIÉTÉ BIC for 15.7 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 276,046 shares for 14.6 million euros, and sold 298,246 shares for 15.8 million euros (l). • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements NOTE 16 DIVIDENDS NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT During the first half 2021, PIMACO was disposed of for a net References from (a) to (l) refer to the consolidated cash flow For the 2021 fiscal year, an ordinary dividend of 2.15 euros per share was distributed to Shareholders on June 1, 2022. amount of 4.6 million euros that represents the proceed on disposal statement on page 25. For the 2020 fiscal year, an ordinary dividend of 1.80 euros per share was distributed to Shareholders on June 2, 2021. followed by some price adjustments, net of cash and cash equivalent As of June 30, 2022 cash and cash equivalents amounted to of the divested entity, related costs and also income tax paid on the 320.5 million euros and bank overdrafts to 1.0 million euros. capital gain. NOTE 17 SHARE-BASED PAYMENTS During the first half 2022, BIC disbursed 40.4 million euros on Net cash from operating activities property, plant and equipment and intangible assets (including First half 2022 net cash from operating activities amounted to 7.3 million euros related to the change in fixed asset supplier As of June 30, 2022, the fair value of options and shares granted amounts to 7,480 thousand euros and is booked in staff costs. The Board of Directors of February 15, 2022 decided to grant 240,156 free shares to 176 beneficiaries subject to performance conditions and 118,947 free shares to 739 beneficiaries without performance conditions. The plans’ unit fair value is 42.57 euros. 62.8 million euros, compared to 134.0 million euros as at June 30, accounts) (g) compared to 30.3 million euros in 2021 (including 2021. 0.8 million euros related to change in fixed asset supplier accounts). The Group recorded foreign exchange (gains)/losses with no cash Purchases of property, plant and equipment do not include finance impact in financial income and restated these in the consolidated leases booked as a counterpart to a financial debt, as these cash flow statement (b). transactions do not have any impact on cash (g). There is no individually significant disposal of fixed assets during the NOTE 18 FINANCIAL INSTRUMENTS In the first half of 2022, payments were made relating to: first half of 2022 (c). 58.2 million euros for the acquisition of Inkbox, corresponding In the first half of 2021, the sale of Clichy headquarters generated a 18-1 Impact of foreign exchange and interest rate risk hedging on the consolidated financial statements as of June 30, 2022 to the purchase price net of cash and cash equivalents of the capital gain of 167.7 million euros. entity and related costs; The divestiture of PIMACO in 2021 generated a capital gain of the price adjustment of Djeep for EUR 0.8 million euros; 3.0 million euros (c). The following amounts have been booked as the fair value of derivatives as of June 30, 2022 (in thousand euros): the earn-out clause for Rocketbook for 8.7 million euros(i). The working capital (see Note 10 for the definition) increased by During the first half of 2021, payments were made in respect of Net financial Income/ (expense) before tax – Note 5 Other compre- hensive income before tax (a) 175.3 million euros compared to an increase during the first half Haco Kenya earn-out for 2.7 million U.S. dollars, Rocketbook price 2022 of 62.6 million euros. The 2022 change in working capital is Non- current liabilities Non- current assets Income from operations – Note 3 Hedge qualification/ hedged risk adjustment for 2.2 million U.S. dollars and Djeep price adjustment mainly impacted by an increase in account ceceivables (strong Current assets (b) Current liabilities for 3 million euros (i). Back-to-School sell-in), and inventories (negative impact of input Derivative instruments and revaluation cost inflation, and inventory build-up ahead of H2 shipments) (d). Hedging revaluation impact Net cash from financing activities The first half 2021 variance is mainly explained by an increase in Commercial flows Cash flow hedge/foreign exchange risk Net cash from financing activities amounted to -110.0 million euros trade receivables and inventories, partly offset by an increase in during the first half 2022 compared to -103.3 million euros in the trade payables (d). 6 (5,216) (9,902) 2,617 42 (23,757) (731) first half 2021. The payments related to employee benefits were mainly driven by Dividends Net investment/ foreign exchange risk The dividends paid represent the dividends paid by SOCIÉTÉ BIC to the U.S. and United Kingdom (e). its Shareholders (see Note 16) (j). (3,444) (6,320) As of June 30, 2022, new borrowings (net from repayments) Net cash from investing activities Subtotal (1) 6 (5,216) (13,346) 2,617 42 (30,078) (731) amounted to 21.3 million euros, mainly due to a 16.0 million euros Net cash from investing activities amounted to -106.6 million euros Revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/foreign exchange risk new borrowing in France, compared to 0.9 million euros of net during the first half 2022 compared to 141.7 million euros during increase in 2021 (k). the first half 2021. During the first half 2022, 573,501 shares were repurchased by During the first half 2022, there was no disposal of individually (832) (437) SOCIÉTÉ BIC for 28.8 million euros. Under the liquidity agreement, significant fixed assets (c). Subtotal (2) (832) (437) SOCIÉTÉ BIC bought 230,388 shares for 11.5 million euros, and During the first half 2021, the headquarters of Clichy were sold for sold 237,775 shares for 11.9 million euros (l). TOTAL (1) + (2) (827) (5,216) (13,346) 2,617 42 (30,515) (731) a net amount of 173.9 million euros that represent the proceed on During the first half 2021, 277,834 shares were repurchased by (a) This corresponds to the market value of hedging instruments in the portfolio at June 30, 2022 restated for the reversal of the market value of the portfolio of hedging instruments as of December 31, 2021. Including options not yet exercised held by BIC representing current assets for 273 thousand euros. disposal net of related costs and also income tax paid on the capital SOCIÉTÉ BIC for 15.7 million euros. Under the liquidity agreement, gain for 45.9 million euros. (b) SOCIÉTÉ BIC bought 276,046 shares for 14.6 million euros, and sold 298,246 shares for 15.8 million euros (l). 40 41 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 42 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 18-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of December 31, 2021 The following amounts have been booked as the fair value of derivatives as of December 31, 2021 (in thousand euros): Derivative instruments and revaluation Hedge income qualification/ hedged risk Net financial Income/ (expense) before tax – Note 5 Income from operations – Note 3 Other compre- hensive income before tax (a) Current assets (b) Non- current assets Current liabilities Non- current liabilities Hedging revaluation impact Commercial flows Cash flow hedge/foreign exchange risk (268) (6,855) (23,002) 1,298 62 (10,304) (14) Dividends Net investment/ foreign exchange risk (3,540) (2,876) Subtotal (1) (268) (6,855) (26,542) 1,298 62 (13,180) (14) Revaluation of cross-currency swaps backed by cash positions in foreign currencies At fair value through P&L/foreign exchange risk (16) 396 (319) Subtotal (2) (16) 396 (319) TOTAL (1) + (2) (285) (6,855) (26,542) 1,694 62 (13,499) (14) (a) (b) This corresponds to the market value of hedging instruments in the portfolio at December 31, 2021 restated for the reversal of the market value of the portfolio of hedging instruments as of December 31, 2020. Including options not yet exercised held by BIC representing current assets for 267 thousand euros. NOTE 19 CONTINGENT LIABILITIES As of June 30, 2022, neither SOCIÉTÉ BIC nor its subsidiaries were aware of any contingent liabilities. Contingent liabilities are defined by IAS 37 as follows: obligations that are not recognized because: • settlement, involving an outflow representing economic benefits, is not probable, or possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity; their amount cannot be measured reliably. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 18-2 Impact of interest rate and foreign exchange risk hedging on the consolidated financial statements as of NOTE 20 EXPOSURE TO MARKET RISKS December 31, 2021 20-1 Credit risk The following amounts have been booked as the fair value of derivatives as of December 31, 2021 (in thousand euros): Net financial Other June 30, 2022 December 31, 2021 (in thousand euros) Income/ compre- Gross trade receivables Note Hedge income Non- Non- (expense) Income from hensive qualification/ Current current Current current before tax – operations – income Not yet due or past due for less than 60 days 352,246 512,740 before tax (a) assets (b) Derivative instruments and revaluation hedged risk assets liabilities liabilities Note 5 Note 3 Past due for 60 to 90 days 12,728 17,062 Hedging revaluation impact Past due for 90 to 120 days 7,418 4,942 Commercial flows Cash flow (268) (6,855) (23,002) 1,298 62 (10,304) (14) Past due for more than 120 days 34,185 33,076 hedge/foreign exchange risk Total gross trade receivables 406,577 567,821 Dividends Net investment/ (3,540) (2,876) Doubtful receivables 14,515 18,091 foreign exchange TOTAL BEFORE ALLOWANCE (A) 421,092 585,911 risk Allowance on trade receivables not yet due or past due for less than 60 days (5,448) (7,356) Subtotal (1) (268) (6,855) (26,542) 1,298 62 (13,180) (14) Allowance on trade receivables past due for 60 to 90 days (482) (518) Revaluation of cross-currency At fair value (16) 396 (319) swaps backed by cash positions through Allowance on trade receivables past due for 90 to 120 days (1,016) (409) in foreign currencies P&L/foreign Allowance on trade receivables past due for more than 120 days (24,968) (28,069) exchange risk TOTAL ALLOWANCE (B) (31,914) (36,352) Subtotal (2) (16) 396 (319) (29,292) Allowance on specific trade receivables (26,183) TOTAL (1) + (2) (285) (6,855) (26,542) 1,694 62 (13,499) (14) (7,060) Allowance on statistically calculated trade receivables (5,731) (a) This corresponds to the market value of hedging instruments in the portfolio at December 31, 2021 restated for the reversal of the market value of the portfolio of hedging instruments as of December 31, 2020. Other receivables (C) 29,009 27,596 (b) Including options not yet exercised held by BIC representing current assets for 267 thousand euros. TRADE AND OTHER RECEIVABLES – NET (A) + (B) + (C) 418,186 10 577,155 NOTE 19 CONTINGENT LIABILITIES obligations that are not recognized because: As of June 30, 2022, neither SOCIÉTÉ BIC nor its subsidiaries were aware of any contingent liabilities. settlement, involving an outflow representing economic benefits, is not probable, or Contingent liabilities are defined by IAS 37 as follows: their amount cannot be measured reliably. possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity; 42 43 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 44 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 20-2 Fair value of financial assets and liabilities Accounting categories and fair value of financial instruments June 30, 2022 Balance sheet items (in thousand euros) Notes Balance sheet value Fair value At fair value through the income statement Financial assets 900,351 900,351 138,348 Non-current Derivative financial instruments 18 42 42 Other investments 44 44 44 Current Trade and other receivables 10 577,155 577,155 31,219 Derivative financial instruments 18 2,617 2,617 Other current financial assets 20 20 20 Cash and cash equivalents 15 320,474 320,474 107,065 Financial liabilities 407,142 407,142 21,056 Non-current Borrowings 12 49,269 49,269 Derivative instruments 18 731 731 Djeep earn-out clause 3,961 3,961 3,961 Rocketbook earn-out clause 4,403 4,403 4,403 Inkbox earn-out clause 3,357 3,357 3,357 Current Borrowings 12 101,922 101,922 Derivative instruments 18 30,515 30,515 Rocketbook earn-out clause 606 606 606 Inkbox earn-out clause 8,729 8,729 8,729 Trade and other payables 10 203,650 203,650 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • Breakdown by category of instruments Derivative hedging instruments Receivables at amortized cost Debts at amortized cost 2,659 759,344 42 545,936 2,617 213,408 31,246 354,841 49,269 731 101,922 30,515 203,650 At fair value through equity HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Notes to the consolidated financial statements 20-2 Fair value of financial assets and liabilities December 31, 2021 Accounting categories and fair value of financial instruments Breakdown by category of instruments At fair value through the income statement June 30, 2022 Derivative hedging instruments Receivables at amortized cost Debts at amortized cost At fair value through equity Balance sheet items (in thousand euros) Balance sheet value Breakdown by category of instruments Notes Fair value At fair value Financial assets 888,902 888,902 268,307 1,756 618,840 through the Derivative Receivables Debts at At fair value Balance income hedging at amortized amortized through Balance sheet items Non-current sheet value Fair value statement instruments cost cost equity Notes (in thousand euros) Derivatives financial instruments 18 62 62 62 Financial assets 900,351 900,351 138,348 2,659 759,344 Other investments 46 46 46 Non-current Current Derivative financial instruments 18 42 42 42 Trade and other receivables 10 418,186 418,186 14,943 403,243 Other investments 44 44 44 Derivative financial instruments 18 1,694 1,694 1,694 Current Other current financial assets Trade and other receivables 10 577,155 577,155 31,219 545,936 Cash and cash equivalents 15 468,914 468,914 253,317 215,597 Derivative financial instruments 18 2,617 2,617 2,617 Financial liabilities 276,432 278,523 13,696 13,513 249,223 Other current financial assets 20 20 20 Non-current Cash and cash equivalents 15 320,474 320,474 107,065 213,408 Borrowings 12 23,782 23,782 23,782 Financial liabilities 407,142 407,142 21,056 31,246 354,841 Derivative instruments 18 14 14 14 Non-current Djeep earn-out clause 3,961 3,961 3,961 Borrowings 12 49,269 49,269 49,269 Rocketbook earn-out clause 3,512 5,603 3,512 Derivative instruments 18 731 731 731 Current Djeep earn-out clause 3,961 3,961 3,961 Borrowings 12 76,287 76,287 76,287 Rocketbook earn-out clause 4,403 4,403 4,403 Derivative instruments 18 13,499 13,499 13,499 Inkbox earn-out clause 3,357 3,357 3,357 Rocketbook earn-out clause 6,223 6,223 6,223 Current Trade and other payables 10 149,154 149,154 149,154 Borrowings 12 101,922 101,922 101,922 Derivative instruments 18 30,515 30,515 30,515 Fair value valuation method The tables below set out the fair value method for valuing financial instruments, using the following three levels: The valuation methods adopted for financial instruments are as follows: Rocketbook earn-out clause 606 606 606 Inkbox earn-out clause 8,729 8,729 8,729 financial instruments other than derivatives recorded in the balance sheet: 10 Trade and other payables 203,650 203,650 203,650 level 1 (quoted prices in active markets): money market UCITS and other current financial assets; The book values used are reasonable estimates of their market value except for marketable securities whose carrying values are determined based on the last known net asset values as of June 30, 2022; level 2 (observable inputs): derivatives – hedge accounting; level 3 (non-observable inputs): no such instruments are held as of June 30, 2022. derivative financial instruments: indicated by financial Market values are either those institutions or have been calculated by an external third-party on the basis of the last known closing prices as of June 30, 2022. They are consistent with the valuation reports provided by the financial institutions. June 30, 2022 Total Level 1 Level 2 Level 3 Category of instruments (in thousand euros) At fair value through the income statement – Assets 138,348 138,348 Derivative hedges – Assets 2,659 2,659 Derivative hedges – Liabilities 31,246 31,246 44 45 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 46 HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 21 RELATED PARTIES Pursuant to IAS 24, BIC Group considers the following to be related parties: 21-1 Consolidated subsidiaries all consolidated subsidiaries (see Note 28 in 2021 Universal Registration Document); all members of the Board of Directors (see 2021 Universal Registration Document – section 4.1.1.4 “Mandates and duties of the Corporate Officers and Directors as of December 31, 2021”) as well as their close relatives; Transactions between the parent company and its subsidiaries as well as transactions between subsidiaries are eliminated through the consolidation process. 21-2 Members of the Board of Directors and of the Executive Committee all companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right. Transactions concluded during the first half 2022 with members of the Board of Directors and of the Executive Committee are as follows: (in thousand euros) Expenses Short-term employee benefits 5,573 Post-employment benefits 47 Other long-term benefits 81 Termination benefits Share-based payments 2,321 TOTAL TRANSACTIONS 8,023 21-3 Companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right As of June 30, 2022, no such related parties were identified. • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEAR FINANCIAL INFORMATION NOTE 21 RELATED PARTIES Pursuant to IAS 24, BIC Group considers the following to be related 21-1 Consolidated subsidiaries parties: Transactions between the parent company and its subsidiaries as all consolidated subsidiaries (see Note 28 in 2021 Universal well as transactions between subsidiaries are eliminated through Registration Document); the consolidation process. all members of the Board of Directors (see 2021 Universal Registration Document – section 4.1.1.4 “Mandates and duties of the Corporate Officers and Directors as of December 31, 2021”) 21-2 Members of the Board of Directors and of as well as their close relatives; the Executive Committee all companies in which a member of the Board of Directors or Transactions concluded during the first half 2022 with members of of the Executive Committee has a significant voting right. the Board of Directors and of the Executive Committee are as follows: Expenses (in thousand euros) Short-term employee benefits 5,573 Post-employment benefits 47 Other long-term benefits 81 Termination benefits Share-based payments 2,321 TOTAL TRANSACTIONS 8,023 21-3 Companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right As of June 30, 2022, no such related parties were identified. 46 47 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 48 STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEAR FINANCIAL INFORMATION For the period from January 1 to June 30, 2022 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders of SOCIÉTÉ BIC, In compliance with the assignment entrusted to us by our Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French monetary and financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of SOCIÉTÉ BIC, for the period from January 1 to June 30, 2022; the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1 - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34, standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2 - Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed interim consolidated financial statements. Neuilly-sur-Seine and Paris-La Défense, August 3, 2022 The Statutory Auditors French original signed by Grant Thornton Deloitte & Associés French member of Grant Thornton International Vianney MARTIN Jean-Pierre AGAZZI • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • STATUTORY AUDITORS’ REVIEW REPORT ON THE HALF-YEAR FINANCIAL INFORMATION STATEMENT ON THE HALF-YEAR REPORT 2022 For the period from January 1 to June 30, 2022 This is a free translation into English of the statutory auditors’ review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking users. This report includes information relating to the specific verification of information given in the Group’s half-yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders of SOCIÉTÉ BIC, In compliance with the assignment entrusted to us by our Annual General Meeting and in accordance with the requirements of article L. 451-1-2-III of the French monetary and financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-yearly consolidated financial statements of SOCIÉTÉ BIC, for the period from January 1 to June 30, 2022; the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1 - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34, standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2 - Specific verification We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed interim consolidated financial statements. Neuilly-sur-Seine and Paris-La Défense, August 3, 2022 The Statutory Auditors French original signed by Deloitte & Associés Grant Thornton French member of Grant Thornton International Vianney MARTIN Jean-Pierre AGAZZI 48 49 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • 50 STATEMENT ON THE HALF-YEAR REPORT 2022 I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2022 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year. On August 4, 2022 Gonzalve Bich Chief Executive Officer • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • STATEMENT ON THE HALF-YEAR REPORT 2022 I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half-year ended June 30, 2022 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year, their impact on the financial statements, of the main related-party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year. On August 4, 2022 Gonzalve Bich Chief Executive Officer 50 • BIC GROUP - 2022 HALF-YEAR FINANCIAL REPORT • SOCIÉTÉ BIC 92110 CLICHY (FRANCE) www.bic.com | Semestriel, 2022, Supplies, BIC | write me a financial report |
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| 2023 Half-year financial report S T N E T N O C 1 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑MONTH PERIOD ENDED JUNE 30, 2023 1.1 Key figures 1.2 H1 2023 highlights 1.3 H1 2023 Group operational trends 1.4 H1 2023 operational trends by division 1.5 Group net sales by geography 1.6 2023 Outlook and market assumptions 1.7 Recent events that occurred after June 30, 2023 1.8 Impact of change in perimeter and currency fluctuations on net sales (excludes ARS) 1.9 Reconciliation with alternative performance measures 1.10 Share repurchase program – Cancelled shares 1.11 Related‑party transactions 1.12 Capital evolution 1.13 Material events that occurred in H1 2023 1.14 Material events that occurred after June 30, 2023 1.15 Description of the principal risks and uncertainties for H2 2023 1.16 Glossary 1 2 3 4 8 11 12 12 13 13 15 15 15 16 16 16 16 2 HALF‑YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 Consolidated income statement 2.2 Consolidated statement of comprehensive income 2.3 Consolidated statement of financial position 2.4 Consolidated statement of changes in equity 2.5 Consolidated cash flow statement 2.6 Notes to the consolidated financial statements 3 STATUTORY AUDITORS' REVIEW REPORT ON THE HALF‑YEAR FINANCIAL INFORMATION 4 STATEMENT ON THE HALF‑YEAR REPORT 2023 17 18 19 20 22 23 24 47 49 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑MONTH PERIOD ENDED JUNE 30, 2023 1.1 KEY FIGURES 1.2 H1 2023 HIGHLIGHTS 1.3 H1 2023 GROUP OPERATIONAL TRENDS 1.4 H1 2023 OPERATIONAL TRENDS BY DIVISION 1.5 GROUP NET SALES BY GEOGRAPHY 1.6 2023 OUTLOOK AND MARKET ASSUMPTIONS 1.7 RECENT EVENTS THAT OCCURRED AFTER JUNE 30, 2023 1.8 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) 1.9 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES 1.10 SHARE REPURCHASE PROGRAM – CANCELLED SHARES 1.11 RELATED‑PARTY TRANSACTIONS 1.12 CAPITAL EVOLUTION 1.13 MATERIAL EVENTS THAT OCCURRED IN H1 2023 1.14 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2023 1.15 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR H2 2023 1.16 GLOSSARY • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 2 3 4 8 11 12 12 13 13 15 15 15 16 16 16 16 1 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Key figures 1.1 KEY FIGURES H1 2023 vs. H1 2022 (in million euros) H1 2022 H1 2023 As reported FX impact (a) (in points) Change in Perimeter (b) (in points) Group Net Sales 1,127.2 1,176.9 +4.4% (0.5) +0.3 Gross Profit Adjusted Earnings Before Interest and Taxes (EBIT) 559.8 202.9 580.8 175.1 Adjusted EBIT Margin EBIT 18.0% 197.7 14.9% 174.7 - - - EBIT Margin Net Income Group Share Earnings Per Share Group Share (in euros) Adjusted Net Income Group Share 17.5% 139.4 3.15 149.7 14.8% 121.6 2.81 126.8 - - - Adjusted Earnings Per Share Group Share (in euros) 3.39 2.93 Human Expression (Stationery) Net Sales 438.0 460.3 +5.1% (1.4) +0.7 Adjusted EBIT 35.6 44.6 Adjusted EBIT Margin EBIT 8.1% 33.5 9.7% 44.7 - - - EBIT Margin 7.7% 9.7% Flame for Life (Lighters) Net Sales 436.0 434.3 (0.4)% +0.4 (0.0) Adjusted EBIT 166.9 153.1 Adjusted EBIT Margin EBIT 38.3% 165.9 35.3% 152.8 - - - EBIT Margin 38.0% 35.2% Blade Excellence (Shavers) Net Sales 240.3 268.3 +11.7% (0.7) (0.0) Adjusted EBIT 43.3 20.5 Adjusted EBIT Margin EBIT 18.0% 41.1 7.6% 20.3 - - - EBIT Margin 17.1% 7.6% Other products Net Sales 12.8 14.0 +9.4% (0.9) (0.0) Adjusted EBIT (3.8) (0.8) EBIT (3.8) (0.8) Unallocated costs Adjusted EBIT (39.1) (42.3) EBIT (39.1) (42.3) (a) (b) (c) Forex impact excluding Argentinian Peso (ARS). Mainly acquisition of Inkbox. See Glossary. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • Argentina impact (c) (in points) +0.5 - - +1.0 - +0.1 - +0.5 - (0.0) Comparative basis +4.1% - - +4.7% - (0.9)% - +11.9% - +10.3% MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 highlights 1.2 H1 2023 HIGHLIGHTS RESULTS H1 market share gains in most key regions across all divisions, continuing strong growth momentum. H1 Human Expression: +9.1% net sales growth at constant currency (CC), driven by a solid back‑to‑school sell‑in in North America and Europe, and double‑digit growth in developing markets. H1 Flame for Life: +0.6% net sales change at CC versus H1 2022. Solid performance in Europe and developing markets partially offset by an exceptional US sales performance in Q1’22, due to positive phasing of sales. Excluding the phasing impact, net sales would have grown 5.5% at CC. H1 Blade Excellence: +14.7% net sales growth at CC, fueled by added‑value products across Europe and Latin America and double‑digit growth in the Middle East and Africa. H1 adjusted EBIT margin at 14.9%: negatively impacted by input cost inflation (raw materials and electricity), fixed cost absorption and Forex, partially offset by favorable price and mix. Sustained Operating Cash Flow €240.6 million: free cash flow was slightly positive, at €2.5 million, due to higher trade receivables, driven by strong back‑to‑school sell‑in. (in million euros) H1 2022 H1 2023 Group Net Sales 1,127.2 1,176.9 Change as reported +23.0% +4.4% Change on a comparative basis +13.7% +4.1% Change on a constant currency basis +15.5% +7.0% EBIT 197.7 174.7 EBIT Margin 17.5% 14.8% Adjusted EBIT 202.9 175.1 Adjusted EBIT Margin 18.0% 14.9% EPS (in euros) 3.15 2.81 Adjusted EPS (in euros) 3.39 2.93 Free Cash Flow before acquisitions and disposals 22.4 2.5 Net Cash Position 229.9 197.6 NET SALES BY DIVISION Human Expression (Stationery): 460.3 million euros (+4.7% on a comparative basis and +9.1% at constant currency). Flame for Life (Lighters): 434.3 million euros (-0.9% on a comparative basis and +0.6% at constant currency). Blade Excellence (Shavers): 268.3 million euros (+11.9% on a comparative basis and +14.7% at constant currency). • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 3 1 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 Group operational trends 1.3 H1 2023 GROUP OPERATIONAL TRENDS H1 2023 HIGHLIGHTS First half 2023 net sales increased 7.0%, at constant currencies (CC), 4.1% on a comparable basis and 13.3% on a 12‑‑month rolling basis. Net sales growth was driven by solid commercial execution – online and in‑stores, in our Blade Excellence and Human Expression divisions, and in most regions: Europe, Latin America, the Middle East and Africa. Net sales from e‑commerce continued to grow, up 9.9% at constant currencies, bringing the total share of online sales to 11.8% compared with 11.3% in H1 2022. First half gross profit margin decreased by 0.4 points to 49.3%, due to: input cost inflation (raw material and electricity costs), fixed cost absorption, and forex (mainly due to USD/MXN and €/ TRY, while EUR/USD hedging was favorable). This was partially offset by favorable price, mix, and manufacturing efficiencies. H1 23 adjusted EBIT margin was 14.9%, compared to 18.0% in H1 2022, negatively impacted by gross profit decline and increased opex and brand support investments. As a reminder, Q1 2022 margin benefited from an exceptional net sales performance in US lighters related to phasing. At the end of June 2023, net cash position was €197.6 million, with €60.4 million in share buybacks. Update on Horizon Plan execution Consumer‑centricity and Innovation H1 net sales performance was led by our consumer‑centric, highly innovative pipeline, as we continued to execute our Horizon Plan. The new BIC® EasyRinse shaver was launched online and in stores in the US, and it has already shown promising results, including a total market share value gain of 1.7% year to date and a #1 rank in new women’s products (in unit sales) in the US wet shave segment. BIC® Soleil Escape, our most successful new item from 2022 in the US women’s disposable segment, continued to contribute to growth and achieved a 4.0% market share gain in value. The new BIC®Break‑Resistant mechanical pencil, with lead that is 75% stronger than the leading US competitor, was launched in the US and performed well online and in stores. Non‑‑recurring items included: For first half 2022: ● €(2.2) million of acquisition costs related to Inkbox, the Rocketbook earnout, and Djeep price adjustment; €(3.0) million related to Ukraine operations impairment. Revenue Growth Management (RGM) Revenue growth management continued to drive momentum in H1 2023, with top‑line growth fueled by positive pricing and mix focus on building a across all consumer‑centric portfolio pushed our net sales per SKU growth to +14.5%, and we posted a net SKU reduction of 7%, in line with our 2023 ambition. three divisions. Our For first half 2023: €(0.4) million related to Lucky Stationary Ltd (Nigeria), the Rocketbook earnout, and acquisition costs. H1 2023 effective tax rate was 28.1% vs. 28.0% for H1 2022. Operating cash flow was €240.6 million, resulting from good business performance. The €195.3 million negative change in working capital and others was mainly driven by higher trade and other receivables of €162.8 million linked to increased net sales. As a result, H1 2023 free cash flow before acquisitions and disposals was €2.5 million. External Growth and New businesses Inkbox continued its growth trajectory in H1 2023, delivering low double‑digit year‑on‑year sales increases. This momentum was driven by accelerating our omnichannel development, both online and offline, through its launch at a major US retailer. Our B2B business, BIC Blade Tech, continued to perform well. In Q2 we delivered high growth, driven by continued momentum with our existing partners, resulting in solid double‑digit growth for the first half of 2023. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 Group operational trends Path to Sustainability We continued to make progress on our sustainable development journey, reducing virgin plastic in our products and packaging, and launching innovative products with reduced environmental impact. Our new product, the BIC® Ecolutions Gel Pen, made of 78% ocean‑bound plastic, has been available since Q4 last year in the US. This new product complements our sustainable stationery range, Ecolutions, which are made of at least 50% recycled materials and sold in packaging in the US that is 100% recycled and recyclable. EARNINGS BEFORE INTEREST AND TAXES (EBIT) AND ADJUSTED EBIT (in million euros) Q2 2022 Q2 2023 H1 2022 H1 2023 Net Sales 611.4 638.2 1,127.2 1,176.9 Gross Profit 292.6 312.7 559.8 580.8 Gross Profit margin 47.9% 49.0% 49.7% 49.3% EBITDA 124.0 128.3 247.5 224.1 EBIT 99.8 102.8 197.7 174.7 EBIT margin 16.3% 16.1% 17.5% 14.8% Non‑recurring items 1.3 2.2 5.3 0.4 Adjusted EBIT 101.1 105.0 202.9 175.1 Adjusted EBIT margin 16.5% 16.5% 18.0% 14.9% First half gross profit margin decreased by 0.4 points to 49.3%, due to: input cost inflation (raw material and electricity costs), fixed cost absorption, and forex (mainly due to USD/MXN and €/ TRY, while EUR/USD hedging was favorable). This was partially offset by favorable price, mix, and manufacturing efficiencies. H1 23 adjusted EBIT margin was 14.9%, compared to 18.0% in H1 2022, negatively impacted by gross profit decline and increased opex and brand support investments. As a reminder, Q1 2022 margin benefited from an exceptional net sales performance in US lighters related to phasing. KEY COMPONENTS OF THE CHANGE IN ADJUSTED EBIT MARGIN (in points) Q1 2023 vs. Q1 2022 Q2 2023 vs. Q2 2022 H1 2023 vs. H1 2022 Change in Gross Profit (2.0) +1.1 (0.4) Brand Support (1.2) +0.3 (0.4) OPEX and other expenses (1) (3.6) (1.4) (2.3) TOTAL CHANGE IN ADJUSTED EBIT MARGIN (6.8) (3.1) (1) Other expenses include notably Freight & Distribution and R&D. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 5 1 6 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 Group operational trends NON‑RECURRING ITEMS (in million euros) H1 2022 EBIT 197.7 Rocketbook earnout and Djeep price adjustment (2022), Lucky Stationery and Rocketbook earnout (2023) 0.7 Acquisition costs related to Inkbox (January 2022) and other acquisition costs (2023) 1.5 Ukraine operations impairment 3.0 Adjusted EBIT 202.9 NET INCOME AND EPS (in million euros) H1 2022 EBIT 197.7 Finance revenue/costs (4.1) Income before Tax 193.6 Net Income Group share 139.4 Adjusted Net Income Group Share (1) 149.7 Adjusted EPS Group Share (in euros) 3.39 EPS Group Share (in euros) 3.15 (a) See glossary. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • H1 2023 174.7 (0.5) 0.9 175.1 H1 2023 174.7 (5.5) 169.2 121.6 126.8 2.93 2.81 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 Group operational trends NET CASH POSITION (in million euros) H1 2022 H1 2023 NET CASH POSITION (BEGINNING OF PERIOD: DECEMBER) 400.1 359.9 Net cash from operating activities +62.8 +45.3 Of which operating cash flow +275.6 +240.6 Of which change in working capital and others (212.8) (195.3) CAPEX (a) (40.4) (42.8) Dividend payment (94.7) (110.2) Share buyback program (28.8) (60.4) Net cash from the liquidity contract +0.4 (0.8) Proceed from Pimaco divestiture +1.1 Acquisitions (b) (67.8) Other items (2.8) +6.6 NET CASH POSITION (END OF PERIOD: JUNE) 229.9 197.6 (a) (b) Including -7.3 million euros in 2022 and +1.0 million euros in June 2023 related to assets payable change. Inkbox, Rocketbook & Djeep in 2022. At the end of June 2023, Net Cash position was 197.6 million euros, with 60.4 million euros in share buybacks. SHAREHOLDERS’ REMUNERATION Ordinary dividend of 2.56 euros per share was paid on May 31, 2023. 60.4 million euros in share buybacks were completed by SOCIÉTÉ BIC at the end of June 2023, 1,041,449 shares were purchased at an average price of 57.97 euros per share. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 7 1 8 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 operational trends by division 1.4 H1 2023 OPERATIONAL TRENDS BY DIVISION HUMAN EXPRESSION (in million euros) Q2 2022 Q2 2023 H1 2022 H1 2023 Volumes in million units 3,519.5 3,306.4 % Change +28.3% (6.1) % Net Sales 269.7 282.9 438.0 460.3 Change as reported +33.4% +4.9% +31.4% +5.1% Change on a comparative basis +21.9% +6.7% +21.7% +4.7% Change at constant currency +25.4% +9.5% +25.4% +9.1% Adjusted EBIT 24.1 42.2 35.6 44.6 Adjusted EBIT Margin 9.0% 14.9% 8.1% 9.7% The Human Expression division’s H1 Net Sales grew by 9.1%, at constant currencies, and by 4.7%, on a comparable basis, with a positive price mix in all categories as main driver. In Europe, the 10.3% growth was driven by a good back‑to‑school season Italy) and in southern Eastern Europe owing to positive price and mix, along with further distribution gains in the traditional channel. In the UK, we gained 0.8 pts in value, despite a declining market, as we grew volume and price in the modern mass market channel. In the US, the 7.6% net sales increase was driven by solid back‑to‑school orders, as well as strong e‑commerce performance. BIC remains both a value brand and a valued brand chosen by consumers, gaining +0.8 pts in value in a declining market. This performance was fueled by core stationery products. Our semi‑permanent tattoo business, InkboxTM, contributed to grow, notably thanks to expansion offline at a major US retailer. (Portugal, (1) (2) In the Southern Hemisphere, Brazil’s net sales performance was driven by favorable price and mix, as well as strong back‑to‑school sell‑out driven by a comprehensive marketing plan. Mexico’s net sales performance was impacted by a back‑to‑school phasing (from June to July) that was partially offset by growing added value segments such as Coloring. In the Middle East and Africa, net sales grew at a double‑digit rate, led by our core product, the BIC® Cristal Medium, as well as favorable pricing. H1 2023 Human Expression division adjusted EBIT margin was 9.7% compared to 8.1% in H1 2022. The increase was driven by favorable pricing and mix, lower brand support, and favorable net sales leverage. This was partially offset by unfavorable forex, mainly the US dollar/Mexican peso, and manufacturing costs, as well as higher opex. (1) Year to date May 2023: IRI. (2) Year to date May 2023: NPD data. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 operational trends by division FLAME FOR LIFE (in million euros) Q2 2022 Q2 2023 H1 2022 H1 2023 Volumes in million units 850.1 819.8 % Change +6.4% (3.6)% Net Sales 209.7 205.8 436.0 434.3 Change as reported +8.7% (1.8) % +18.7% (0.4) % Change on a comparative basis (2.5) % +0.9% +9.3% (0.9) % Change at constant currency (1.4) % +2.8% +10.1% +0.6% Adjusted EBIT 79.8 69.2 166.9 153.1 Adjusted EBIT Margin 38.0% 33.6% 38.3% 35.3% H1 2023 Flame for Life division performance was driven by good showings in Europe, Latin America, the Middle East, and Africa. US H1 2023 performance was impacted by H1 2022 phasing. Excluding this impact, net sales would have grown by 5.5% at constant currency. In the US, the total lighter market declined 5.6% in volume and 1.4% in value . However, BIC maintained its leadership position, gaining share in volume, +0.7 pts, and value, +0.9 pts, topping its competitors thanks to positive price and mix. Our innovative utility pocket lighter, BIC EZ Reach, continued to outperform the market, gaining 1.2 pts in value, boosted by advertising campaigns and distribution expansion in all channels. H1 net sales performance in the US was impacted by H1 2022 phasing, which benefited from delayed shipments following supply issues in Q4 2021. (1) In Europe, net sales grew at a high single‑digit pace, driven by favorable price and mix and further distribution gains in Eastern Europe. We pursued our Horizon strategy, moving towards a more value‑driven model, as performance also benefited from a positive mix with the success of our premium products, Djeep and EZ Reach. In Latin America, Brazil’s net sales grew at a double‑digit pace, fueled by positive market trends, distribution increases, and new decorated lighter launches. H1 2023 Flame for Life division adjusted EBIT margin was 35.3% compared to 38.3% in H1 2022. This was the result of unfavorable fixed cost absorption, negative net sales operating leverage in the US, and higher opex investments. Brand support investments were also higher, as we launched a new BIC EZ Reach advertising campaign in Europe. This was partly offset by favorable pricing and forex (EUR/USD hedging). Input cost inflation was offset by manufacturing efficiencies. ® (1) YTD ending June, 2023: IRI, estimated 70% market coverage. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 9 1 10 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 H1 2023 operational trends by division BLADE EXCELLENCE (in million euros) Q2 2022 Q2 2023 H1 2022 H1 2023 Volumes in million units 1,212.4 1,255.2 % Change +1.6% +3.5% Net Sales 126.8 143.6 240.3 268.3 Change as reported +22.0% +13.3% +19.9% +11.7% Change on a comparative basis +10.0% +16.8% +11.0% +11.9% Change at constant currency +11.1% +19.7% +11.8% +14.7% Adjusted EBIT 17.9 14.8 43.3 20.5 Adjusted EBIT Margin 14.1% 10.3% 18.0% 7.6% In the Blade Excellence division, BIC gained market share across all key regions. Added value and new products drove solid performance in the 3 to 5 blade and Hybrid ranges, notably in Europe and Latin America. In Europe, BIC gained market share by value in all its major countries, including in France (+3.1 pts), Italy (+1.1 pts), and Poland (+1.4 pts) , fueled by the success of 3 to 5 blade products in the female and male segments. Net sales grew at a double‑digit pace on higher volumes, favorable price and mix, and further distribution gains. Our added‑value products in the Flex and Soleil ranges and our sustainable ranges, Hybrid Flex and Click Soleil, contributed to growth, in line with our Horizon goals to increase premium offerings. (1) (2) We outpaced the US market by +0.4 pts driven by the male segment, with the performance of our added‑value Flex range. Net sales performance was impacted by competitive promotions in the female wet shave category, however our premium products such as the recent BIC Soleil Escape (4 and 5 blades) and our new ® breakthrough innovation BIC EasyRinse shaver contributed to growth. BIC® EasyRinse achieved 1.7% market share of women’s and men’s disposables in value. Our trade‑up strategy towards our value‑added 3 blade‑offering is bearing fruit in Latin America. Notably, in Brazil, net sales grew at a double‑digit pace, and we continued to gain market share, up thanks to our Comfort 3, Soleil, and Hybrid 0.9 pts in value in value. Net sales grew ranges. In Mexico, we gained +0.7 pts at a high single‑digit pace, driven by added‑value products (Comfort 3) and the listing of new products in the modern trade channel. (3) (4) H1 2023 Blade Excellence division adjusted EBIT margin was 7.6% compared to 18.0% in H1 2022, due to significant input cost inflation (raw materials and electricity) and unfavorable forex (mainly the US dollar/Mexican peso), partially offset by our manufacturing efficiencies. The margin was also impacted by higher opex and brand ® support EasyRinse and a major advertising campaign in the US. investments, mostly related to the launch of BIC (1) YTD May (except France: June 2023) : Nielsen. (2) YTD June: IRI 2023. (3) Year to date May 2023: Nielsen data. (4) Year to date May 2023: Nielsen data. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Group net sales by geography OTHER PRODUCTS (in million euros) H1 2022 H1 2023 Net Sales 12.8 14.0 Change as reported (18.4)% 9.4% Change on a comparative basis (18.4)% 10.3% Change at constant currency (18.4)% 10.3% Adjusted EBIT (3.8) (0.8) EBIT (3.8) (0.8) UNALLOCATED COSTS (in million euros) H1 2022 H1 2023 Adjusted EBIT (39.1) (42.3) EBIT (39.1) (42.3) 1.5 GROUP NET SALES BY GEOGRAPHY H1 net sales by geography (in million euros) H1 2022 H1 2023 % As reported % at constant currencies % On a comparative basis Group 1,127.2 1,176.9 +4.4% +7.0% +4.1% Europe 327.9 353.9 +7.9% +10.1% +10.0% North America 499.0 476.6 (4.5)% (4.7)% (5.3)% Latin America 179.7 216.9 +20.7% +29.3% +13.8% Middle East and Africa 66.1 83.0 +25.6% +33.4% +33.4% Asia and Oceania (including India) 54.4 46.5 (14.5)% (9.1)% (9.1)% • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 11 1 12 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 2023 Outlook and market assumptions 1.6 2023 OUTLOOK AND MARKET ASSUMPTIONS 2023 OUTLOOK CONFIRMED (1) Full Year 2023 net sales are expected to grow between 5% and 7% at constant currencies, driven by price and mix. We expect to improve our 2023 adjusted EBIT and adjusted EBIT margin, as well as our gross profit margin, though this will be partially offset by continued investments in our operations and brand support aimed at driving our Horizon ambition of delivering profitable long‑term growth. Free cash flow is expected to be above €200 million in 2023, for the fifth year in a row. 2023 MARKET ASSUMPTIONS (2) Our 2023 outlook is based on the following market assumptions versus 2022 : Market trends (in value): Europe: ● low to mid‑single‑digit decrease in Stationery, low to mid‑single‑digit decrease in Lighters, flat to low‑single‑digit increase in Shavers; US: ● low to mid‑single‑digit decrease in Stationery market, low to mid‑single‑digit decrease for total pocket Lighter market, low to mid‑single‑digit decrease in the total one‑piece Shaver market; Latin America: ● low to mid‑single‑digit increase in Stationery, low to mid‑single‑digit increase in Lighters, low to mid‑single‑digit increase in Shavers; India: mid to high‑single‑digit increase in Stationery. EBIT drivers: gross profit: ● increase in prices and mix, raw materials inflation from prior year, energy and labor/overhead inflation, slightly favorable forex (excluding Argentina), manufacturing efficiencies; adjusted EBIT: ● gross profit expansion, increase in brand support to drive net sales growth, increase in R&D and opex to support Horizon’s long‑term growth and innovation. Free cash flow before acquisitions and disposals drivers: approximately €110‑120 million in capex. Currency: 2023 EUR‑USD hedging rate: 1.08. 1.7 RECENT EVENTS THAT OCCURRED AFTER JUNE 30, 2023 Mid‑July the Group has internally determined a supply chain driven plan to relocate highlighter business in South Carolina, USA to other BIC locations. st No other subsequent event occurred between July 1 , 2023 and the reporting date. (1) Based on current market assumptions. (2) Euromonitor and BIC estimates. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Impact of change in perimeter and currency fluctuations on net sales (excludes ARS) 1.8 IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) IMPACT OF CHANGE IN PERIMETER AND CURRENCY FLUCTUATIONS ON NET SALES (EXCLUDES ARS) (in %) Q2 2022 Q2 2023 H1 2022 H1 2023 Perimeter +1.2 +0.0 +0.9 +0.3 Currencies +9.5 (2.9) +7.8 (0.5) Of which USD +6.1 (1.0) +5.2 +0.3 Of which BRL +1.3 (0.2) +1.2 +0.1 Of which MXN +0.8 +0.6 +0.6 +0.6 Of which CAD +0.3 (0.2) +0.3 (0.2) Of which ZAR +0.0 (0.2) +0.1 (0.2) Of which NGN +0.1 (0.2) +0.1 (0.1) Of which TRY (0.4) (0.3) (0.5) (0.3) Of which INR +0.2 (0.2) +0.2 (0.1) Of which RUB and UAH +0.7 (0.7) +0.3 (0.2) 1.9 RECONCILIATION WITH ALTERNATIVE PERFORMANCE MEASURES ADJUSTED EBIT RECONCILIATION (in million euros) Q2 2022 Q2 2023 H1 2022 H1 2023 EBIT 99.8 102.8 197.7 174.7 Rocketbook earnout and Djeep price adjustment (2022), Lucky Stationery and Rocketbook earnout (2023) 0.7 1.3 0.7 (0.5) Acquisition costs related to Inkbox (January 2022) and other acquisition costs (2023) 0.6 0.9 1.5 0.9 Ukraine operations impairment 3.0 Adjusted EBIT 101.1 105.0 202.9 175.1 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 13 1 14 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Reconciliation with alternative performance measures ADJUSTED EPS RECONCILIATION (in euros) Q2 2022 Q2 2023 H1 2022 EPS 1.62 1.64 3.15 Rocketbook earnout and Djeep price adjustment (2022), Lucky Stationery and Rocketbook earnout (2023) +0.06 +0.02 +0.06 Argentina hyperinflationary accounting (IAS29) +0.09 +0.03 +0.1 Acquisition costs related to Inkbox (January 2022) and other acquisition costs (2023) +0.01 +0.01 +0.02 Ukraine operations impairment +0.06 Virtual Power Purchase Agreement Greece +0.06 Adjusted EPS 1.78 1.76 3.39 NET CASH RECONCILIATION (in million euros – rounded figures) December 31, 2022 Cash and cash equivalents (1) +422.9 Current borrowings (2) (a) (63.0) Non‑current borrowings (3) NET CASH POSITION (1) – (2) – (3) 359.9 (a) Excluding financial liabilities following IFRS16 implementation. FREE CASH FLOW RECONCILIATION (in million euros – rounded figures) December 31, 2022 Net cash from operating activities (1) 300.0 Capital expenditure (2) (96.3) FREE CASH FLOW BEFORE ACQUISITION AND DISPOSALS (1) – (2) 203.7 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • H1 2023 2.81 (0.01) +0.06 +0.01 +0.06 2.93 June 30, 2023 +340.2 (142.6) 197.6 June 30, 2023 45.3 (42.8) 2.5 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Share repurchase program – Cancelled shares 1.10 SHARE REPURCHASE PROGRAM – CANCELLED SHARES During the first half of 2023: ● SOCIÉTÉ BIC repurchased 1,041,449 shares under the share repurchase programs authorized by the Annual Shareholders’ Meeting held on May 18, 2022 and May 16, 2023 excluding shares acquired under the liquidity agreement; SOCIÉTÉ BIC repurchased, under the liquidity agreement Natixis – ODDO BHF, 319,745 shares for a total value of 19.18 million euros and sold 302 996 shares for a total value of 18.39 million euros. SOCIÉTÉ BIC Number of shares acquired Average weighted price (in euros) Amount (in million euros) January 2023 0 0 0 February 2023 185,526 61.57 11.4 March 2023 267,468 60.41 16.2 April 2023 70,480 58.16 4.1 May 2023 161,317 57.43 9.3 June 2023 356,658 54.47 19.4 TOTAL 1,041,449 57.97 60.4 The number of free, performance‑based shares transferred by SOCIÉTÉ BIC to beneficiaries was 170,160 during the first half 2023. The number of free, non‑performance‑based shares transferred to beneficiaries by SOCIÉTÉ BIC was 24,485. Moreover, SOCIÉTÉ BIC proceeded performance‑based non‑performance‑based share grants. share grants to 184,037 free, 102,959 free, and 1.11 RELATED‑PARTY TRANSACTIONS This paragraph in the relationship between the Group and its Shareholders (and their representatives), as well as in the links between the Group and related companies that the Group does not exclusively control (i.e. joint ventures or investments in associates). is aimed at ensuring transparency Significant related‑party transactions are described in the Note 25 – Related parties on page 287 of BIC’s 2022 Universal Registration Document filed with the Autorité des Marchés Financiers (AMF) on March 30, 2023. During the first half of 2023, BIC has not identified any significant related‑party transactions. 1.12 CAPITAL EVOLUTION As of June 30, 2023, the total number of issued shares of SOCIÉTÉ BIC is 43,952,226 shares, representing: ● 64,832,149 voting rights; 63,551,745 voting rights excluding shares without voting rights. Total number of treasury shares held at the end of June 2023: 1,280,404. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 15 1 16 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS FOR THE 6‑‑MONTH PERIOD ENDED JUNE 30, 2023 Material events that occurred in H1 2023 1.13 MATERIAL EVENTS THAT OCCURRED IN H1 2023 N/A 1.14 MATERIAL EVENTS THAT OCCURRED AFTER JUNE 30, 2023 N/A 1.15 DESCRIPTION OF THE PRINCIPAL RISKS AND UNCERTAINTIES FOR H2 2023 BIC pursues an active and dynamic approach management. to risk The objective of this approach is to enhance the Group’s capacity in identifying, managing, preventing, mitigating, and monitoring key risks that could affect: ● the Group’s employees, customers, Shareholders, assets, environment or reputation; the Group’s ability to achieve its objectives, abide and defend its values, ethics, or laws and regulations. This approach is based on the identification and analysis of the main risks to which the Group is exposed. A description of the risk management system is disclosed in Chapter § 2.4 Risk management and internal control procedures implemented by the Company and Insurance, in BIC’s 2022 Universal Registration Document (URD) filed with the Autorité des Marchés Financiers (AMF) on March 30, 2023 and available on BIC’s website: https://us.bic.com/en_us/investors. 1.16 GLOSSARY Constant currency basis: constant currency figures are calculated by translating the current year figures at prior Year monthly average exchange rates. Organic change or Comparative basis: at constant currencies and constant perimeter. Figures at constant perimeter exclude the impact of acquisitions and/or disposals that occurred during the current year and/or during the previous year, until their anniversary date. All Net Sales category comments are made on a comparative basis. Organic change excludes Argentina Net Sales. EBITDA: (excluding IFRS 16 standard), and impairment. Adjusted EBIT: adjusted means excluding normalized items. EBIT before Depreciation and Amortization under amortization of right of use Adjusted EBIT margin: adjusted EBIT as a percentage of Net Sales. Net Cash from operating activities: cash generated from principal activities of the entity and other activities that are not investing or financing activities. Free Cash Flow: net cash flow from operating activities less capital expenditures (CAPEX). Free cash flow does not include acquisitions and proceeds from the sale of businesses. Net cash position: cash and cash equivalents + Other current borrowings – Non‑current financial assets – Current IFRS 16 liabilities following borrowings (except financial implementation). • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑YEAR CONSOLIDATED FINANCIAL STATEMENTS 2.1 CONSOLIDATED INCOME STATEMENT 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2.5 CONSOLIDATED CASH FLOW STATEMENT 2.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 18 19 20 22 23 24 17 18 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 2.1 CONSOLIDATED INCOME STATEMENT (in thousand euros) Notes June 30, 2022 Net sales 2‑1 1,127,151 Cost of goods 3 (567,398) Gross profit (a) 559,753 Distribution costs 3 (143,256) Administrative expenses 3 (124,118) Other operating expenses 3 (92,101) Other income 4 3,118 Other expenses 4 (5,739) Earnings before interest and taxes (EBIT) 197,657 Income from cash and cash equivalents 5 3,884 Net finance income/(net finance costs) 5 (7,952) Income before tax 193,589 Income tax expense 6 (54,205) Net income from consolidated entities 139,384 Net income from continuing operations 8 139,384 Consolidated income of which: 139,384 Non‑controlling interests Net income Group share 7 139,384 Earnings per share Group share (in euros) 3.15 Diluted earnings per share Group share (in euros) (b) 3.11 (a) (b) Gross profit is the margin that the Group realizes after deducting its manufacturing costs. The dilutive elements taken into account are stock options and free shares. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • June 30, 2023 1,176,932 (596,152) 580,780 (159,168) (140,898) (105,014) 4,507 (5,521) 174,686 11,314 (16,811) 169,189 (47,542) 121,647 121,647 121,647 121,647 2.81 2.78 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income 2.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousand euros) Notes June 30, 2022 June 30, 2023 GROUP NET INCOME A 139,384 121,647 OTHER COMPREHENSIVE INCOME Actuarial differences on post‑employment benefits not recyclable to the income statement (a) 15,614 2,415 Deferred tax on actuarial differences on post‑employment benefits 6‑2 (1,657) (675) Other comprehensive income not recyclable to the income statement – net of tax B 13,957 1,740 Gain/(Loss) on cash flow hedge (13,316) (11,033) Exchange differences arising on translation of overseas operations (b) 82,607 1,325 Equity instruments at fair value (5) 10 Deferred tax and current tax recognized on other comprehensive income 6‑2 3,387 2,006 Other comprehensive income recyclable to the income statement – net of tax C 72,673 (7,692) TOTAL COMPREHENSIVE INCOME D = A + B + C 226,014 115,695 Attributable to: BIC Group 226,014 115,695 Non‑controlling interests TOTAL 226,014 115,695 (a) (b) The impact of actuarial differences is mainly due to U.S., U.K. and France plans. The main items impacting the translation reserve variance for the period, by currency, are as follows: U.S. dollar (12.4 million euros), Bresilian real (12.9 million euros) and Mexican peso (21.2 million euros). • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 19 2 20 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 2.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Assets (in thousand euros) Notes December 31, 2022* Goodwill 8 297,610 Other intangible assets 109,782 Property, plant and equipment 612,632 Investment properties 1,597 Other non‑current assets 9 29,736 Deferred tax assets 132,609 Derivative instruments 18 3,464 Non‑current assets 1,187,431 Inventories 10 588,257 Income tax advance payments 39,335 Trade and other receivables 10, 21‑1 414,682 Other current assets 23,022 Derivative instruments 18 10,802 Other current financial assets 15, 21‑2 6,540 Cash and cash equivalents 15 416,317 Current assets 1,498,955 TOTAL ASSETS 2,686,386 Corrected to include the accounting of the Virtual Power Purchase Agreement (see Notes 18 & 21). • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • June 30, 2023 288,242 110,547 607,387 1,523 29,497 115,591 1 1,152,788 600,649 7,319 569,613 31,197 13,778 12,965 327,189 1,562,710 2,715,498 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position Equity and liabilities (in thousand euros) Notes December 31, 2022* June 30, 2023 Share capital 11‑1 166,307 163,007 Reserves and retained earnings 1,699,698 1,658,511 Shareholders’ equity Group share 1,866,005 1,821,518 Non‑controlling interests Shareholders’ equity SHEQ 1,866,005 1,821,518 Non‑current borrowings 12, 21‑2 42,839 41,982 Other non‑current liabilities 9,338 4,816 Employee benefits obligation 57,419 55,394 Provisions 13 19,124 18,538 Deferred tax liabilities 73,161 50,680 Derivative instruments 18 13,418 29,331 Non‑current liabilities 215,299 200,741 Trade and other payables 10 181,108 188,762 Current borrowings 12 76,543 160,218 Current tax due 44,747 24,453 Other current liabilities 14 293,201 315,802 Derivative instruments 18 9,483 4,004 Current liabilities 605,082 693,239 TOTAL EQUITY AND LIABILITIES 2,686,386 2,715,498 Corrected to include the accounting of the Virtual Power Purchase Agreement (see Notes 18 & 21). SHEQ: see consolidated statement of changes in equity. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 21 2 22 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity 2.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousand euros) Notes Share capital Accumulated profits Additional paid in capital Actuarial differences recognized in equity Translation reserve Hedge derivatives Share- holders’ equity Group share Non- controlling interests Share- holders’ equity At January 1, 2022 169,665 1,820,292 28,232 (76,364) (211,618) (6,387) 1,723,820 1,723,820 Dividends paid 16 (94,744) (94,744) (94,744) Treasury shares (1,732) (26,722) (28,454) (28,454) Recognition of share‑based payments 17 7,480 7,480 7,480 Hyperinflation impact in Argentina 4,859 4,859 4,859 Other 4 4 4 Total transactions with Shareholders (1,732) (116,601) 7,480 (110,853) (110,853) Net income for the period 139,384 139,384 139,384 Other comprehensive income 136 13,958 82,607 (10,071) 86,630 86,630 Total comprehensive income At June 30, 2022 139,520 167,933 1,843,209 35,712 13,958 (62,406) 82,607 (129,011) (10,071) 226,014 (16,458) 1,838,979 226,014 - 1,838,979 At January 1, 2023* 166,307 1,885,619 42,895 (63,567) (167,171) 1,922 1,866,005 1,866,005 Dividends paid 16 (110,219) (110,219) (110,219) Decrease in share (a) capital Increase in share capital Treasury shares (3,300) (57,825) (61,125) (61,125) Recognition of share‑based payments 17 8,060 8,060 8,060 Hyperinflation impact in Argentina 3,313 3,313 3,313 Other (211) (211) (211) Total transactions with Shareholders Net income for the period (3,300) (164,942) 121,647 8,060 (160,182) 121,647 (160,182) 121,647 Other comprehensive income (349) 1,740 1,325 (8,668) (5,952) (5,952) Total comprehensive income At June 30, 2023 121,298 163,007 1,841,975 50,955 1,740 (61,827) 1,325 (165,846) (8,668) 115,695 (6,746) 1,821,518 115,695 - 1,821,518 Corrected to include the accounting of the Virtual Power Purchase Agreement (see Notes 18 & 21). (a) No shares were cancelled during the first half of 2023. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Consolidated cash flow statement 2.5 CONSOLIDATED CASH FLOW STATEMENT (in thousand euros) Notes June 30, 2022 June 30, 2023 Operating activities Net income Group share Elimination of expenses and income with no impact on cash flows or non‑business related expenses: Argentina hyperinflationary accounting IS 139,384 4,161 121,647 2,488 Depreciation and amortization of intangible and tangible assets and investment properties Impairment loss on tangible and non‑tangible assets Subsidiaries acquisition costs 2, 3 57,212 1,418 1,922 58,134 751 (1,844) Provision for employee benefits 4,665 4,424 Other provisions (excluding provisions on current assets) Unrealized foreign currency gain/loss 13 (a) 15 (152) 2,902 291 4,183 Hedging and derivative instruments 2,891 325 Option premium expense Recognition of share‑based payments Financial expense/(income) SHEQ, 17 456 7,480 (370) 765 8,060 (7,602) Income tax expense 90,783 51,233 Deferred tax variation (36,578) (2,316) (Gain)/loss from disposal of other fixed assets (577) 88 Cash flow from operations 275,597 240,627 (Increase)/decrease in net working capital 10, 15 (b) (175,338) (154,826) Payments related to employee benefits 15 (c) (12,545) (3,103) Income tax paid (24,922) (37,424) NET CASH FROM OPERATING ACTIVITIES 62,792 45,274 Investing activities Diposal of PIMACO 1,098 Disposal of other fixed assets 619 1,280 Purchases of property, plant and equipment 15 (d) (35,864) (36,464) Purchases of intangible assets 15 (d) (4,526) (6,308) (Increase)/decrease in other investments (159) 34 Purchase of other current financial assets 15 (e) (11,301) Acquisition of subsidiaries (67,777) NET CASH FROM INVESTING ACTIVITIES (106,610) (52,759) Financing activities Dividends paid Net variation of short term borrowings (f) SHEQ, 15 , 16 (g) 12, 15 (94,744) 21,308 (110,219) 80,336 Interest (paid)/received 351 9,192 Payments of obligations under leases 12 (8,069) (7,495) Purchase of financial instruments (461) (1,238) Increase in treasury shares 15 (h) (28,380) (61,158) NET CASH FROM FINANCING ACTIVITIES (109,996) (90,582) Net cash variation (153,814) (98,066) Opening cash and cash equivalents net of bank overdrafts BS, 12, 21 468,413 415,219 Exchange difference 4,824 7,973 CLOSING CASH AND CASH EQUIVALENTS NET OF BANK OVERDRAFTS BS, 12, 21 319,424 325,125 IS: see consolidated income statement. SHEQ: see consolidated statement of changes in equity. BS: see consolidated balance sheet. References from (a) to (h) explained in Note 15. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 23 2 24 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 2.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS General Balance sheet - Equity and liabilities NOTE 1 main rules and accounting policies 25 NOTE 11 Share capital NOTE 2 1‑1 1‑2 1‑3 1‑4 1‑5 Operating segments Accounting policies Change in Group structure Significant events Pension reform in France Subsequent events 25 26 26 26 26 27 NOTE 12 11‑1 Share capital 11‑2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2023 Borrowings and financial liabilities 2‑1 2‑2 Information by activity Information by geography 27 28 NOTE 13 NOTE 14 Provisions (non‑current liabilities) Other current liabilities Income Statement and Statement of Comprehensive Income Additional information NOTE 3 Operating expenses 28 NOTE 15 Comments on the consolidated cash flow statement NOTE 4 Other income and expenses 29 NOTE 16 Dividends NOTE 5 Financial income 29 NOTE 17 Share‑based payments NOTE 6 Income tax 30 NOTE 18 Financial instruments NOTE 7 6‑1 6‑2 Income tax expense Deferred and current tax recognized in other comprehensive income Earnings per share Group share 30 30 31 18‑1 Impact of foreign exchange risk hedging on the consolidated financial statements as of June 30, 2023 18‑2 Impact of foreign exchange risk hedging on the consolidated financial statements as of December 31, 2022 NOTE 19 Related parties NOTE 8 Balance sheet - Assets Goodwill 31 19‑1 Consolidated subsidiaries 19‑2 Members of the Board of Directors and of the Executive Committee NOTE 9 NOTE 10 Other non‑current assets Change in net working capital 33 34 19‑3 Companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right NOTE 20 Contingent liabilities NOTE 21 Exposure to market risks 21‑1 Credit risk 21‑2 Fair value of financial assets and liabilities • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 34 34 35 36 37 37 38 39 39 39 39 40 41 41 41 41 41 42 42 43 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 1 MAIN RULES AND ACCOUNTING POLICIES 1‑1 1‑1‑1 Pursuant to European regulation n°1606/2002 of July 19, 2002 concerning international accounting standards, the consolidated financial statements of the BIC Group have been prepared in accordance with accounting principles as defined by the International Accounting Standards Board (IASB) as adopted by the European Union. International Financial Reporting Standards are available on the European Union website. The international standards include the IFRS (International (International Financial Reporting Standards), (Standing Accounting Standards), as well as Interpretation Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. Accounting policies General the IAS their SIC 1‑1‑2 Adoption of new and revised International Financial Reporting Standards, interpretations and amendments New standards, amendments and interpretations of mandatory application for financial years beginning on or after January 1, 2023 The following standards and amendments are effective since January 1, 2023 and have been applied to the consolidated financial statement as of June 30, 2023: ● Amendments to IAS 1 – Presentation of Financial statements: Disclosure of Accounting Policies; Amendments to IAS 8 – Definition of Accounting Estimates; Amendments to IAS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction. The condensed consolidated financial statements as of June 30, 2023 have been prepared in compliance with IAS 34 “Interim financial reporting”. The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. The application of these standards and amendments did not have any material impact on the Group’s accounts. New standards, interpretations and amendments that may be applied early for financial years beginning on or after January 1, 2023 IAS 34 allows presentation of a selection of notes to the condensed consolidated financial statements that should be read in conjunction with the consolidated financial statements of December 31, 2022. As of June 30, 2023, the Group did not elect to early apply any standard, interpretation or amendment. Standards, interpretations and amendments that may not be applied early for financial years beginning on or after January 1, 2023 The measurement procedures used for the interim condensed consolidated financial statements are as follows: interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre‑tax result of the interim period excluding non‑recurring material items. The income tax charge related to any non‑recurring item in the period is accrued using its actual tax expense; regarding the main pension plans and other employee benefits (United States, Canada, France, United Kingdom), actuarial valuations are performed every six months. Amounts recognized in the interim statement of financial position are based on estimates made at the end of the previous year and on the discount rates as of June 30. Regarding share‑based payments and other benefits plans, expenses are recognized in the period on a pro rata basis of the estimated costs for the year. The principal accounting policies remain unchanged compared to last year except for adoption of the following standard, effective since January 1, 2023. Analysis on the practical consequences of these new regulations is in progress. The International Tax Reform - OECD Pillar Two rules. These amendments are expected to be published and adopted by the European Union in the second half of 2023. BIC will have to ensure that it is subject to a minimum tax rate of 15% in the countries where it carries out its activities. Work is underway to estimate the impact of these new provisions and put the Group in a position to meet the new reporting obligations. IASB has also published amendments to IAS 12 - 1‑1‑3 Climate change is one of the most important challenge of mankind in the 21 century. The Group has long committed to review, disclose and reduce impact on the environment. These actions have been rewarded with a renewed A- grade in the leadership category of the Carbon Disclosure Project (CDP). Climate change and sustainable development st its activities’ • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 25 2 26 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements When preparing financial statements, the Group uses estimates and judgments for valuation and recognition of assets and liabilities. These estimates are linked to identified risks applicable to the Group’s activities. Among those, climate‐change related risks are being carefully considered. Those risks are mainly related to: ● increase in carbon‐intensive raw material costs (plastic, metal, gaz and chemicals) due to energy‐saving programs and other indirect costs to enable an improved access to sustainable raw material, amid global competition; destruction of assets linked to physical climate related event directly impacting BIC’s operations. As part of its program “Writing the future, together” and according to the Paris Agreement, the Group has committed by 2030 to reduce its GHG compared to 2019: ● 50% for direct GHG emissions (scope 1), through the use of alternative heat sources and low impact refrigerants; 100% for direct GHG emissions (scope 2), thanks to renewable sourcing for all electricity consumption; 5% for GHG of scope 3, through the selection of suppliers of low carbon impact raw material. The Management includes climate‐change related risks in its business plans used tests. The Group’s commitments have not triggered any impact on impairment tests. in impairment 1‑2 From the December 31 , 2022, the structure of the Group had not changed. Change in Group structure st 1‑3 No subsequent event occurred between January 1 , 2023 and th June 30 , 2023. Significant events st 1‑4 The French pension reform was enacted the April 14, 2023. To apply IAS 19, it considered as a modification of plan and its consequences booked in net income during the first half‑year 2023. The impact is not judged significant in the Group interim financial consolidated statements. Pension reform in France 1‑5 Mid‑July, the Group has internally determined a supply chain driven plan to relocate highlighter business in South Carolina, USA to other BIC locations. No other subsequent event occurred between July 1 , 2023 and the reporting date. Subsequent events st • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 2 OPERATING SEGMENTS 2‑1 Information by activity At June 30, 2022 At June 30, 2023 (in million euros) Human Expression Flame for Life Blade Excellence Other Products Unalloca ‑ted costs Total Human Expression Flame for Life Blade Excellence Other Products Unalloca ‑‑ted costs Total Income statement Net sales 438 436 240 13 1,127 460 434 268 14 1,177 Depreciation and amortization (17) (15) (16) (10) (57) (16) (14) (15) (13) (58) Impairment loss (1) (1) (1) (1) EBIT 34 166 41 (4) (39) 198 45 153 20 (1) (42) 175 Restatements made to obtain adjusted EBIT Acquisition costs 1 1 0.3 0.3 0.2 0.9 Rocketbook earn‑out/ Lucky Stationary price adjustment 1 (0.5) (0.5) Ukraine 1 2 3 Adjusted EBIT 36 167 43 (4) (39) 203 45 153 20 (1) (42) 175 At June 30, 2023, BIC has identified one customer with which it realized more than 10% of its net sales over the period. At June 30, 2022 At June 30, 2023 (in million euros) Human Expression Flame for Life Blade Excellence Other Products Total Human Expression Flame for Life Blade Excellence Other Products Total (a) (b) Capital additions (without rights of use) 8 13 9 10 40 8 9 14 12 43 Net inventories 283 180 156 7 625 281 187 126 7 601 (a) (b) Excluding 2023 capital additions not cashed out end of June 2023 and including capital additions cashed out in 2023 related to 2022 for a net amount of -1,0 million euros. Excluding 2022 capital additions not cashed out end of June 2022 and including capital additions cashed out in 2022 related to 2021 for a net amount of +7.3 million euros. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 27 2 28 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 2‑2 Information by geography The regions identified by the management are the following: At June 30, 2022 At June 30, 2023 (in million euros) France Europe excluding France North America Latin America Middle East and Africa Asia and Ocenia (including Cello) TOTAL France Europe excluding France North America Latin America Middle East and Africa Asia and Ocenia (including Cello) TOTAL Net sales 105 223 499 180 66 54 1,127 103 251 477 217 83 47 1,177 The Group may grant year‑end rebates. These rebates are booked in net sales and amounted 50 million euros as of June 30, 2023 compared to 52 million euros as of June 30, 2022. At December 31, 2022 At June 30, 2023 (in million euros) France Europe excluding France North America Developing Markets TOTAL France Europe excluding France North America Developing Markets TOTAL Non‑current (a) assets 339 189 341 181 1,050 332 185 331 185 1,033 (a) Other than financial instruments (1 thousand euros in 2023 and 3.5 thousand euros in 2022), and deferred tax assets (115.6 million euros in 2023 and 132.6 million euros in 2022) and deferred pensions (3.7 million euros in 2023 and 4.1 million euros in 2022). NOTE 3 OPERATING EXPENSES Operating expenses breakdown is as follow: (in thousand euros) June 30, 2022 June 30, 2023 Raw materials, consumables used and change in inventory 309,336 330,520 Staff costs 270,357 294,081 Depreciation and amortization expenses 57,212 58,134 Other operating expenses 287,651 305,355 Impairment loss on manufacturing equipment 11 736 Profit/(loss) on operational foreign currency translation 2,306 12,406 TOTAL 926,873 1,001,232 Other income and expenses are not included in the total amount and are disclosed in Note 4. Other operating expenses mainly include outside services. Research and development costs recognized under “Other operating expenses” for the first half of 2023 amounted to 12.6 million euros, versus 11.2 million euros during the first half of 2022. They include the French research tax credit for 1.1 million euros, compared to 1.3 million euros in 2022. The effects of currency hedging are booked in “profit/(loss) on operational foreign currency translation”. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 4 OTHER INCOME AND EXPENSES Other income and expenses breakdown is as follow: (in thousand euros) June 30, 2022 June 30, 2023 Royalty income 38 Gain on disposal of fixed assets Rocketbook earn‑out adjustment Other 530 2,551 340 1,447 2,720 Other income 3,118 4,507 Impairment (1,397) Cost reduction plans Lucky Stationary earn‑out adjustment Djeep and Rocketbook earn‑out adjustment Other 490 (701) (4,131) (47) (2,746) (2,728) Other expenses (5,739) (5,521) TOTAL (2,621) (1,014) Other income and expenses incurred in first half of 2023 mainly include: ● 1.4 million euros earn‑out adjustment related to Rocketbook acquisition; 2.7 million euros earn‑out adjustment related to Lucky Stationary acquisition. Other income and expenses incurred in first half of 2022 mainly include: ● a 2.3 million euros impairment of receivables and a 0.7 million euros impairment of inventories have been booked to reflect the situation in Ukraine; 0.7 million euros price and earn‑out adjustment related to Djeep and Rocketbook acquisitions. NOTE 5 FINANCIAL INCOME Financial income breakdown is as follow: (in thousand euros) June 30, 2022 June 30, 2023 Interest income from cash and cash equivalents 671 6,993 Interest on bank deposits 3,214 4,320 Income from cash and cash equivalents 3,884 11,314 Cost of financial debt (3,525) (3,665) Cost of financial debt – IFRS 16 (501) (696) Argentina hyperinflation accounting – IAS 29 Net financial foreign exchange difference (6,639) 2,714 (4,738) (4,532) VPPA - fairvalue (3,181) Net finance income/(net finance costs) (7,952) (16,811) FINANCE (COSTS)/REVENUE (4,068) (5,497) Financial income decreases during first half of 2023 compared to first half 2022. It comes from several factors: ● the fair value change related to the VPPA signed in Greece for 3.2 million euros (see Note 18); the 2023 unfavorable impact of the fair value adjustments to financial assets denominated in U.S. Dollar against the Brazilian Real; partly compensated by: ● income from cash and cash equivalents increase compared to the previous period due to higher interest rates of return as a result of rates moving back into positive territory on all currencies, particularly the euro and the US dollar. In fiscal year 2020, the Group has improved its access to short and medium‑term liquidity through the implementation of a 3‑year, 200 million euro Revolving Credit Facility (RCF) and a 200 million euro NeuCP program. first half of 2023 was less negatively impacted by Argentina hyperinflation accounting than in 2022, • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 29 2 30 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements The RCF was renewed on June 27, 2023 for a new 3‑year period. To date, the RCF has not yet been drawn down, and NeuCP’s outstanding balance on June 30, 2023 amounts to 96 million euro. Despite the inflationary environment currently prevailing in the euro zone, generating tensions on the yield curve and credit market. Short term negative rates environment which prevailed in 2022 has disappeared. Even if NeuCP demand is still high, the emission average rate of the first‑half‑year amounts to 2.95%. The NeuCP interest are booked in Cost of financial debt. NOTE 6 INCOME TAX 6‑1 Income tax expense (in thousand euros) June 30, 2022 June 30, 2023 Income before tax 193,589 169,189 Tax charge 54,205 47,542 TAX RATE 28.00% 28.10% At the end of June 2023, the Group effective tax rate is determined on an annual basis. The tax charge is calculated by applying the estimated average rate for the 2023 full year to income before tax (excluding unusual material items), taking into account any tax rate changes voted by June 30, 2023 and effective after this date. The income tax charge related to any non‑recurring items in the period is accrued using the actual tax expense. 6‑2 Deferred and current tax recognized in other comprehensive income Deferred and current taxes recognized in other comprehensive income result from the following items: JUNE 30, 2023 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined‑benefit plans (1) 2,415 (675) Other comprehensive income (2) (9,699) 2,007 Hedge derivates (11,033) 2,378 Foreign exchange impact 1,325 (369) Other 10 (2) TOTAL (1)+(2) (7,284) 1,332 JUNE 30, 2022 (in thousand euros) Other comprehensive income Deferred taxes Actuarial differences on defined‑benefit plans (1) 15,614 (1,657) Other comprehensive income (2) 69,285 3,387 Hedge derivates (13,316) 3,245 Foreign exchange impact 82,607 141 Other (5) 1 TOTAL (1)+(2) 84,900 1,730 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 7 EARNINGS PER SHARE GROUP SHARE Earnings per share (Group share) and diluted earnings per share (Group share) correspond to the Group net income divided by the relevant number of shares. The number of shares used to calculate the earnings per share (Group share) is the weighted average number of ordinary shares outstanding during the period less the weighted average number of shares held in treasury stock by SOCIÉTÉ BIC during the period and presented as a reduction to equity. The number of shares used to calculate the diluted earnings per share (Group share) is the weighted average number of shares potentially in circulation during the period, which corresponds to the number of shares used for basic earnings per share Group share, adjusted for the dilutive effect of free shares and stock options. As of June 30, 2023, there are no share with relutive impact and the maximum dilutive effect from unvested free shares and stock‑options are around 1.3% of the share capital. June 30, 2022 June 30, 2023 Numerator (in thousand euros) Net income Group share from continuing operations 139,384 121,647 Denominator (in number of shares) Weighted average number of ordinary shares in circulation 44,210,401 43,229,749 Dilutive effect of free shares 563,608 589,219 Diluted weighted average number of ordinary shares in circulation 44,774,009 43,818,967 Earnings per share Group share from continuing operations (in euros) Earnings per share Group share from continuing operations 3.15 2.81 Diluted earnings per share Group share from continuing operations 3.11 2.78 NOTE 8 GOODWILL Goodwill breakdown is as follow: (in thousand euros) Gross value Impairment loss Net value At January 1, 2022 356,356 (100,298) 256,058 Inkbox Acquisition 26,861 26,861 Tattly Acquisition 2,280 2,280 AMI Acquisition 2,197 2,197 Exchange differences 6,433 3,781 10,214 At January 1, 2023 394,127 (96,517) 297,610 Exchange differences (10,359) 991 (9,368) At June 30, 2023 383,768 (95,526) 288,242 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 31 2 32 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements The balance, as of June 30, 2023, includes the following principal net goodwill: (in thousand euros) December 31, 2022 June 30, 2023 BIC CORPORATION (a) – Human Expression 54,911 54,103 BIC CORPORATION (a) – Flame for Life 43,794 43,094 BIC Violex – Blade Excellence 71,873 69,616 Kenya – Human Expression 4,966 4,302 Nigeria – Human Expression 12,738 7,242 Djeep – Flame for Life 29,885 29,885 Rocketbook – Human Expression 27,797 27,286 Inkbox – Human Expression 29,306 28,766 Tattly – Human Expression 2,115 2,076 Advanced Magnetic Interaction – Human Expression 2,197 2,197 Other (a) 18,028 19,675 TOTAL 297,610 288,242 (a) These goodwill amounts are linked to cash‑generating units represented by distribution subsidiaries. To perform the impairment tests, the Group used the following discount and perpetual growth rates: Weighted average cost of capital (WACC) before tax Perpetual growth rate 2022 2023 2022 2023 BIC CORPORATION Human Expression 9.7% 10.5% 1.5% 1.5% Flame for Life 9.8% 10.0% 1.5% 1.5% Cello Pens – Human Expression 14.3% 14.4% 4.0% 4.1% BIC Violex – Blade Excellence 13.9% 13.6% 1.9% 1.9% Kenya – Human Expression 19.0% 33.8% 5.0% 5.6% Nigeria – Human Expression 29.0% 28.1% 11.5% 8.1% Djeep – Flame for Life 9.5% 10.6% Rocketbook – Human Expression 9.2% 9.35% 1.5% 1.5% Inkbox – Human Expression 17.7% 11.8% 6.7% 2% • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Each goodwill item has been allocated to a cash‑generating unit (“CGU”) representing the lowest level at which goodwill is monitored by the Group. The goodwill on BIC CORPORATION is thus mainly allocated to cash‑generating units linked to the distribution by BIC CORPORATION of stationery products and lighters. The goodwill on Cello Pens is allocated to the cash‑generating units linked to the production and distribution of stationery products by Cello and was fully depreciated. The remaining goodwill on BIC Violex is allocated to the linked to shavers developed and/or cash‑generating unit produced by BIC Violex and sold all over the world. This cash‑generating unit also the portion of BIC CORPORATION goodwill allocated to shavers. includes The goodwill on the Kenya subsidiary is allocated to the cash‑generating unit linked to the production and distribution of stationery products by BIC East Africa. The goodwill on the Nigeria subsidiary is allocated to the cash‑generating unit linked to the production and distribution of stationery products by Lucky Stationary Limited. The goodwill on Djeep is allocated to the cash‑generating unit linked to the production and distribution of lighters by Djeep. The goodwill on Rocketbook is allocated to the cash‑generating unit linked to the distribution of the Core and Fusion notebooks, reusable notebooks used with erasable pens by Rocketbook. As every year, as of June 30, 2023, the Group performed annual impairment tests on these goodwill amounts. The goodwill is based on a impairment test methodology comparison between the recoverable amount of each of the Group’s cash‑generating units and the corresponding assets’ net book value (including goodwill). Such recoverable amounts correspond to the value in use and are determined using discounted future cash flow projections over a maximum of five years and a terminal value using the perpetual annuity method, including notably the following: the discount rate before taxes used is the weighted average cost of capital. Particular attention has been paid to the analysis of the main market items used for the calculation of the discount rates; the perpetual growth rates were determined based on external (inflation rate) and internal (business growth) sources. Perpetual growth rates above 2% take into account market specifics, notably in Nigeria, Kenya and in India. Considering the impairment on part of the assets on the CGU Cello, any negative variance of drivers (discount rate, performance and perpetual growth rates) would lead to an additional impairment of other assets. The sensitivity of the other impairment tests to changes in the key assumptions indicates that no reasonably likely change would lead to impairment, taking into account the observed headroom on the other tests conducted. The goodwill generated on is allocated to the cash‑generating unit linked to the distribution of semi‑permanent tattoos by Inkbox. Inkbox NOTE 9 OTHER NON‑CURRENT ASSETS (in thousand euros) December 31, 2022 June 30, 2023 Guarantee deposits 5,319 5,329 Deferred pensions 4,056 3,712 Deferred compensation in the U.S. (other than pensions) 5,598 5,495 Other non‑current financial assets 5,681 5,596 Other non‑current assets 9,082 9,365 TOTAL 29,736 29,497 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 33 2 34 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 10 CHANGE IN NET WORKING CAPITAL Change in net working capital breakdown is as follow: (in thousand euros) December 31, 2022 Cash flows impact Operating Cash flows impact (a) Investing Capital subsidies adjustments Earn‑out clauses Rocketbook and Nigeria Argentina Hyper- inflation Other variances Foreign exchange and other June 30, 2023 Net inventory 588,257 14,439 228 (2,275) 600,649 Inventory – Gross value 605,973 16,540 228 (2,349) 620,392 Inventory – Impairment (17,715) (2,101) 74 (19,743) Trade and other receivables 414,682 162,831 (591) (7,309) 569,613 Trade and other payables (181,108) (5,284) (1,040) (5) (1,326) (188,762) Other receivables and (b) payables (264,840) (17,159) (260) 1,844 3,027 2,829 (274,560) NET WORKING CAPITAL 556,992 154,826 (1,040) (260) 1,844 228 2,431 (8,081) 706,940 (a) (b) Cash flows impact Investing includes capital additions cashed out in 2023 relating to 2022 and excludes 2023 capital additions not yet cashed out. Other receivables and payables are composed of: Note December 31, 2022 June 30, 2023 Other current assets + Other non‑current assets - Guarantee deposits - Other non‑current financial assets - Deferred pensions Asset Asset 9 9 9 23,021 29,736 (5,319) (5,681) (4,056) 31,199 29,497 (5,329) (5,596) (3,712) Other current liabilities - Other non‑current liabilities TOTAL Liabilities Liabilities (293,201) (9,340) (264,840) (315,802) (4,817) (274,560) The working capital is used to finance the Group’s operating cycle. Details of the elements used in the calculation are presented above. NOTE 11 SHARE CAPITAL 11‑1 Share capital (in thousand euros) December 31, 2022 June 30, 2023 Authorized, issued and fully paid‑up share capital 167,898 167,898 Repurchase of shares of the Company (1,591) (4,891) SHARE CAPITAL 166,307 163,007 As of June 30, 2023, the share capital of SOCIÉTÉ BIC was 167,897,503.32 euros divided into 43,952,226 shares of 3.82 euros each. Bearer shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC holds 1,280,404 treasury shares, acquired at an average price of 57.40 euros in accordance with Article L. 225‑209 of the French Commercial Code, which represent 2.91% of the share capital. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 11‑2 SOCIÉTÉ BIC shares held in treasury stock and share repurchase program as of June 30, 2023 Purpose of the repurchase Number of shares Average acquisition price (in euros) % of the share capital Liquidity agreement (a) 40,087 53.41 0.09% Free share grants (a) 1,240,317 57.52 2.82% TOTAL 1,280,404 57.40 2.91% (a) Article L. 225‑209 of the French Commercial Code. In accordance with the liquidity agreement, transferred by Natixis to ODDO on June 27, 2018, in respect of SOCIÉTÉ BIC shares, as of June 30, 2023, the liquidity account contained the following: ● 40,087 BIC shares; 801,027 euros. At initial contract set‑up, the liquidity account contained the following: ● 2,312 BIC shares; 912,744.48 euros. SOCIÉTÉ BIC obtained authorization the Annual Shareholders’ Meeting on May 16, 2023, to renew its share repurchase program (see 2022 Universal Registration Document, chapter 8, p.341). from Number of shares purchased in 2023 (a) Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 18, 2022 606,864 Share repurchase program authorized by the Annual Shareholders’ Meeting held on May 16, 2023 434,585 Average share repurchase price forthe purchases during the first half of 2023 (in euros) 57.97 (a) Excluding shares repurchased under the liquidity contract. To the best of the Company’s knowledge, as of June 30, 2023, Shareholders holding respectively more than 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital and/or of the voting rights of the Company were as follows: At June 30, 2023 % of shares (approx.) % of voting rights (approx.) SOCIÉTÉ M.B.D. 29.32% 39.75% Bich family 16.00% 21.50% • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 35 2 36 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 12 BORROWINGS AND FINANCIAL LIABILITIES (in thousand euros) Bank overdrafts Short‑‑term borrowings Current borrowings and financial liabilities Non‑‑current borrowings and financial liabilities Current lease liability Non‑‑current lease liability Total At January 1, 2023 1,099 50,000 11,843 13,601 42,839 119,382 Cash Flows 966 46,000 34,336 (7,308) (186) 73,806 “Non‑cash” changes (1) (1,579) 11,262 (670) 9,012 Variations of lease debt 11,785 178 11,963 Exchange difference (1) (1,579) (522) (848) (2,951) At June 30, 2023 2,063 96,000 44,600 17,555 41,982 202,201 At June 30, 2023 bank overdrafts, bank loans and financial liabilities are due within one year. At December 31, 2022 bank overdrafts, bank loans and financial liabilities were due within one year. Main bank loans/credit lines and financial liabilities are as follows: Euro equivalents Borrowing country (in thousand euros) Currency December 31, 2022 June 30, 2023 France Turkey Nigeria India TOTAL EUR TRY NGN INR 50,140 3,443 845 7,415 61,843 126,139 2,882 11,579 140,600 Information on interest rates As of June 30, 2023, outstanding loans and credit lines, apart from NeuCP bonds, were contracted with floating rates ranging between 3.80% and 25.47%. The borrowings indicated for France consist exclusively of NeuCP bonds, issued on average at 3.83%. Relative exposure, deemed not significant, has not been hedged. Information on covenants None of the current loans contains any covenant that could trigger early repayment of the debt. IFRS 16 Liability BIC uses an incremental borrowing rate for discounting debt. The rate used for each lessee is the rate he would have to pay to borrow, over a similar period and with similar security, the funds necessary to obtain an asset of similar value to the leased asset in a similar economic environment. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 13 PROVISIONS (NON‑CURRENT LIABILITIES) Provisions breakdown is as follow: (in thousand euros) Tax and social risks and litigation Litigation Product liability Other risks and charges Total At January 1, 2022 3,105 12,658 337 4,228 20,328 Additional provisions 1,744 4,515 1,325 7,585 Reversals of provisions utilized (1,055) (3,974) (895) (5,924) Reversals of provisions not utilized (209) (2,896) (157) (3,261) Exchange differences 186 573 20 (527) 251 At January 1, 2023 3,734 10,913 356 4,119 19,124 Additional provisions 166 2,002 1,153 3,321 Reversals of provisions utilized (413) (1,838) (630) (2,881) Reversals of provisions not utilized (1) (147) (1) (149) Exchange differences 137 (538) (7) (467) (877) Reclassification 651 (651) At June 30, 2023 4,274 9,741 349 4,174 18,538 Tax (excluding income tax) and social risks and litigation Provisions for tax (excluding income tax) and social risks and litigation relate mainly to: ● tax risks; U.S. workers’ compensation. Uncertain tax positions relating to IAS 12 income taxes are recognized as deferred tax liabilities if it is considered probable that the tax authorities will reject the position. Litigation As of June 30, 2023, the litigation provision mainly represents litigations in the US for 5.4 million euros. Other risks and charges As of June 30, 2023, other provisions for risks and charges are mainly related to distributor and commercial agent risks. NOTE 14 OTHER CURRENT LIABILITIES Other current liabilities breakdown is as follows: (in thousand euros) December 31, 2022 June 30, 2023 Social liabilities 100,829 88,683 Other tax liabilities 5,942 20,639 Accrued business development fund 105,465 118,675 Accrued costs – restructuring 5,780 4,625 Other current liabilities 75,185 83,179 OTHER CURRENT LIABILITIES 293,201 315,802 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 37 2 38 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 15 COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT References from (a) to (h) refer to the consolidated cash flow statement. As of June 30, 2023 cash and cash equivalents amounted to 327.2 million euros and bank overdrafts to 2.1 million euros. Net cash from operating activities First half 2023 net cash from operating activities amounted to 45.3 million euros, compared to 62.8 million euros as at June 30, 2022. The Group recorded foreign exchange (gains)/losses with no cash impact in financial income and restated these in the consolidated cash flow statement (a) . The net working capital variation on opening (see Note 10 for the definition) has an impact on cash of -154,8 million euros compared to an impact during the first half 2022 of -175.3 million euros. The 2023 change in working capital is mainly impacted by (b) an increase of receivables . During the first half 2023, BIC disbursed 42.8 million euros on property, plant and equipment and intangible assets acquisitions compared to 40.4 million euros in the first half 2022 (d) . “Other current financial assets” refer to investments not eligible for classification as cash & cash equivalents under IAS 7. These investments consisted of units of UCITS and negotiable debt (e) securities, all of which are liquid within two days . Net cash from financing activities Net cash from financing activities amounted to -90.6 million euros during the first half 2023 compared to -110.0million euros during the first half 2022. The dividends paid represent the dividends paid by SOCIÉTÉ BIC to its Shareholders (see Note 16) (f) . As of June 30, 2023, debt issuance net from reimbursements amounted to 80.3 million euros, compared to 21.3 million euros of net issuance in the first half 2022 (g) . The first half 2022 variance is mainly explained by an increase in account ceceivables sell‑in) and inventories (negative impact of input cost inflation, and inventory build‑up ahead of second semester shipments) The payments related to employee benefits were mainly driven by the U.S. and France (strong Back‑to‑School (b) . (c) . During the first half 2023, 1,041,449 shares were repurchased by SOCIÉTÉ BIC for 60.4 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 319,745 shares for 19.2 million euros, and sold 302,996 shares for 18.4 million euros During the first half 2022, 573,501 shares were repurchased by SOCIÉTÉ BIC for 28.8 million euros. Under the liquidity agreement, SOCIÉTÉ BIC bought 230,388 shares for 11.5 million euros, and sold 237,775 shares for 11.9 million euros Net cash from investing activities Net cash from investing activities amounted to -52.7 million euros during the first half 2023 compared to -106.6 million euros during the first half 2022. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • (h) . (h) . HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 16 DIVIDENDS For the 2022 fiscal year, an ordinary dividend of 2.56 euros per share was distributed to Shareholders on May 31, 2023. For the 2021 fiscal year, an ordinary dividend of 2.15 euros per share was distributed to Shareholders on June 1, 2022. NOTE 17 SHARE‑BASED PAYMENTS As of June 30, 2023, the fair value of options and shares granted amounts to 8,060 thousand euros and is booked in staff costs. The Board of Directors of February 14, 2023 decided to grant 194,037 free shares to 184 beneficiaries subject to performance conditions and 102,959 free shares to 742 beneficiaries without performance conditions. The plans’ unit fair value is 59.72 euros. NOTE 18 FINANCIAL INSTRUMENTS 18‑1 Impact of foreign exchange risk hedging on the consolidated financial statements as of June 30, 2023 The following amounts have been booked as the fair value of derivatives as of June 30, 2023 (in thousand euros): Derivative instruments and revaluation Hedge qualification/ hedged risk Net financial Income/ (expense) before tax – Note 5 Income from operations – Note 3 Other comprehensive (a) income before tax Current (b) assets Non‑‑current assets Current Liabilities Non‑‑current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/ foreign exchange risk 473 3,004 1,395 13,682 1 (2,959) (245) Energy derivative intrument Cash flow hedge (3,181) (12,724) (29,086) Dividends Net investment/ foreign exchange risk 261 (971) Subtotal (1) (2,708) 3,004 (11,068) 13,682 1 (3,930) (29,331) Revaluation of cross‑currency swaps backed by cash positions in foreign currencies At fair value through P&L/ foreign exchange risk (328) 96 (74) Subtotal (2) (328) 96 (74) TOTAL 1+2 (3,036) 3,004 (11,068) 13,778 1 (4,004) (29,331) (a) (b) This corresponds to the market value of hedging instruments in the portfolio at June 30, 2023 restated for the reversal of the market value of the portfolio of hedging instruments as of December 31, 2022. Including options not yet exercised held by BIC representing current assets for 889 thousand euros. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 39 2 40 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 18‑2 Impact of foreign exchange risk hedging on the consolidated financial statements as of December 31, 2022 The following amounts have been booked as the fair value of derivatives as of December 31, 2022 (in thousand euros): Derivative instruments and revaluation Hedge income qualification/ hedged risk Net financial Income/ (expense) before tax – Note 5 Income from operations – Note 3 Other comprehensive income before (a) tax Current (b) assets Non‑current assets Current Liabilities Non‑current Liabilities Hedging revaluation impact Commercial flows Cash flow hedge/ foreign exchange risk 148 2,430 10,083 10,496 3,464 (7,668) (237) Dividends Net investment/ foreign exchange risk 1,644 (1,435) Subtotal (1) 148 2,430 11,727 10,496 3,464 (9,102) (237) Revaluation of cross‑currency swaps backed by cash positions in foreign currencies At fair value through P&L/ foreign exchange risk (151) 306 (381) Energy derivative intrument At fair value through P&L (13,181) (13,181) Subtotal (2) (13,333) 306 (381) (13,181) TOTAL 1+2 (13,184) 2,430 11,727 10,802 3,464 (9,483) (13,418) (a) (b) This corresponds to the market value of hedging instruments in the portfolio at December 31, 2022 restated for the reversal of the market value of the portfolio of hedging instruments as of December 31, 2021. Including options not yet exercised held by BIC representing current assets for 415 thousand euros. In November 2022, our Greek subsidiary BIC Violex signed a Virtual Power Purchasing Agreement (VPPA) as part of our sustainability strategy to meet our climate targets. Under the terms of this contract, BIC Violex is committed to purchasing 55 GWh at a fixed price for a 15‑year period from 2024 to 2039. Under IFRS 9, a VPPA is structured as a financial product linked to the price of electricity (swap, option, structured product); the contract, or part of it, meets the definition of a financial derivative within the meaning of IFRS 9 (settled on a net basis and not giving rise to a physical delivery of electricity). This contract, which reduces to fluctuations in energy prices, has been classified as a cash flow hedge. This qualification is based in particular on the following observations: the Group's exposure High visibility of future electricity consumption by the Greek assets, corroborating the highly probable nature of the cash flows hedged. The application of IFRS 9 leads to the recognition of : an asset of 42 million euros at November 4, 2022 in respect of the fair value of the contract at inception. This amount is offset by a provision for the Day One Gain of 42 million euros, which will be reversed through the income statement on a straight‑line basis from the asset's production start‑up date; a change in fair value of -13 million euros at December 31, 2022; an additional -16 million euros change in fair value at June 30, 2023, the effective portion of which is recorded in the statement of comprehensive income (-13 million euros) and the ineffective portion in net financial expense (-3 million euros). Strong correlation expected between the cost of supplying energy to the Group's Greek assets and the contract's future cash flows; Correction of error: comparatives contract. in accordance with IAS 8, the 2022 have been corrected to take account of this • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 19 RELATED PARTIES Pursuant to IAS 24, BIC Group considers the following to be related parties: ● all consolidated subsidiaries (see Note 28 in 2022 Universal Registration Document); all members of the Board of Directors (see 2022 Universal Registration Document, and responsibilities of the Corporate Officers and Directors” as of December 31, 2022) as well as their close relatives; section 4.1.3.3. “Offices all companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right. 19‑1 Transactions between the parent company and its subsidiaries as well as transactions between subsidiaries are eliminated through the consolidation process. Consolidated subsidiaries 19‑2 Members of the Board of Directors and of the Executive Committee Transactions concluded during the first half with members of the Board of Directors and of the Executive Committee are as follows: (in thousand euros) At June 30, 2022 At June 30, 2023 Short‑term employee benefits 5,573 6,350 Post‑employment benefits 47 58 Other long‑term benefits 81 79 Share‑based payments 2,321 2,376 TOTAL TRANSACTIONS 8,022 8,862 19‑3 Companies in which a member of the Board of Directors or of the Executive Committee has a significant voting right As of June 30, 2023, no such related parties were identified. NOTE 20 CONTINGENT LIABILITIES As of June 30, 2023, neither SOCIÉTÉ BIC nor its subsidiaries were aware of any contingent liabilities. Contingent liabilities are defined by IAS 37 as follows: ● possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity; obligations that are not recognized because: ● settlement, involving an outflow representing economic benefits, is not probable, or their amount cannot be measured reliably. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 41 2 42 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements NOTE 21 EXPOSURE TO MARKET RISKS 21‑1 Credit risk (in thousand euros) Gross trade receivables Not yet due or past due for less than 60 days Past due for 60 to 90 days Past due for 90 to 120 days Past due for more than 120 days Total gross trade receivables Doubtful receivables TOTAL BEFORE ALLOWANCE Allowance on trade receivables not yet due or past due for less than 60 days Allowance on trade receivables past due for 60 to 90 days Allowance on trade receivables past due for 90 to 120 days Allowance on trade receivables past due for more than 120 days Total allowance (B) Allowance on specific trade receivables Allowance on statistically calculated trade receivables Other receivables (C) TRADE AND OTHER RECEIVABLES – NET (A)+(B)+(C) • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • Note December 31, 2022 319,074 12,464 7,635 35,114 374,287 17,119 391,406 (4,779) (1,394) (1,340) (28,093) (35,605) (28,832) (6,773) 58,882 10 414,682 June 30, 2023 493,091 11,799 4,250 29,476 538,616 16,790 555,406 (6,014) (649) (254) (28,792) (35,710) (24,204) (11,506) 49,917 569,613 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 21‑2 Accounting categories and fair value of financial instruments Fair value of financial assets and liabilities JUNE 30, 2023 Breakdown by category of instruments Balance sheet items (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Receivables at amortized cost Debts at amortized cost At fair value through equity Financial assets 929,126 929,126 364,300 13,779 551,048 Non‑current Derivative financial instruments 18 1 1 1 Loans accorded to external partners 9 5,522 5,522 5,522 Other investments 60 60 60 Current Trade and other receivables 10 569,613 569,613 24,087 545,526 Derivative financial instruments 18 13,778 13,778 13,778 Other current financial assets 12,965 12,965 12,965 Cash and cash equivalents 15 327,189 327,189 327,189 Financial liabilities 428,258 428,258 3,961 33,334 390,963 Non‑current Borrowings 12 41,983 41,983 41,983 Derivative instruments 18 29,331 29,331 29,331 Djeep earn‑out clause 3,961 3,961 3,961 Current Borrowings 12 160,218 160,218 160,218 Derivative instruments 18 4,004 4,004 4,004 Trade and other payables 10 188,762 188,762 188,762 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 43 2 44 HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements DECEMBER 31, 2022* Breakdown by category of instruments Balance sheet items (in thousand euros) Note Balance sheet value Fair value At fair value through the income statement Derivative hedging instruments Receivables at amortized cost Debts at amortized cost At fair value through equity Financial assets Non‑current 857,482 857,482 438,823 14,266 404,393 Derivatives financial instruments Loans accorded to external partners Other investments 18 9 3,464 5,625 50 3,464 5,625 50 50 3,464 5,625 Current Trade and other receivables Derivative financial instruments Other current financial assets Cash and cash equivalents 10 18 15 414,682 10,802 6,540 416,317 414,682 10,802 6,540 416,317 15,915 6,540 416,317 10,802 398,767 Financial liabilities Non‑current 332,125 332,125 8,734 22,901 300,489 Borrowings Derivative instruments Djeep earn‑out clause 12 18 42,839 13,418 3,961 42,839 13,418 3,961 3,961 13,418 42,839 Current Borrowings Derivative instruments Rocketbook earn‑out clause Trade and other payables 12 18 10 76,543 9,483 4,773 181,108 76,543 9,483 4,773 181,108 4,773 9,483 76,543 181,108 Corrected to include the accounting of the Virtual Power Purchase Agreement (see Note 18) The valuation methods adopted for financial instruments are as follows: ● Financial instruments other than derivatives recorded in the balance sheet: The book values used are reasonable estimates of their market value except for marketable securities whose carrying values are determined based on the last known net asset values as of June 30, 2023; ● Derivative financial instruments: Fair value valuation method The tables below set out the fair value method for valuing financial instruments, using the following three levels: ● level 1 (quoted prices in active markets): money market UCITS and other current financial assets; level 2 (observable inputs): derivatives – hedge accounting; level 3 (non‑observable inputs): only Virtual Power Purchase agreement (see below). Market values are either those indicated by financial institutions or have been calculated by an external third‑party on the basis of the last known closing prices as of June 30, 2023. They are consistent with the valuation reports provided by the financial institutions. June 30, 2023 Category of instruments (in thousand euros) Total Level 1 Level 2 Level 3 At fair value through the income statement – Assets 364,300 364,300 Derivative hedges – Assets 13,779 13,779 Derivative hedges – Liabilities 33,334 4,248 29,086 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • HALF‑‑YEAR CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements In order to reduce its exposure to the risk of fluctuating market future energy purchase prices, consumption needs in advance, and has entered into (and will continue to enter into) Virtual Power Purchase Agreements (VPPAs), which enable it to cover part of its energy needs on the basis of prices negotiated with suppliers for a given period. As indicated in note 18, a VPPA has been signed in Greece. The renewable energy production the agreements are managed by their respective operators. BIC has no right of determination or control over the use of the facilities. The benefits deriving from the VPPA agreements are made up of 2 components: a cash flow that depends, among other things, on the Group hedges its facilities underlying the evolution of the spot price of electricity, and the certificates that BIC receives as proof of the origin of the electricity produced from renewable energies. The difference between the contractually fixed price per MWh of electricity produced and the spot price of electricity at the time the electricity is produced is due between BIC and the operator on a monthly basis. The contract is valued on the basis of an internal model based on unobservable market parameters. Given the uncertainties involved in valuing this contract, a level 3 classification has been adopted. • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 45 2 46 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • STATUTORY AUDITORS' REVIEW REPORT ON THE HALF‑YEAR FINANCIAL INFORMATION • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 47 48 STATUTORY AUDITORS' REVIEW REPORT ON THE HALF‑‑YEAR FINANCIAL INFORMATION This is a free translation into English of the statutory auditors’ review report on the half‑yearly financial information issued in French and is provided solely for the convenience of English‑speaking users. This report includes information relating to the specific verification of information given in the Group’s half‑yearly management report. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of article L. 451‑1‑2 III of the French monetary and financial code ("code monétaire et financier"), we hereby report to you on: the review of the accompanying half‑yearly consolidated financial statements of SOCIÉTÉ BIC, for the period from January 1 to June 30, 2023, the verification of the information presented in the half‑yearly management report. These half‑yearly consolidated financial statements are the responsibility of the of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half‑yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half‑yearly consolidated financial statements do not give a true and fair view of the assets and liabilities and of the financial position of the group as at June 30, 2023 and of the results of its operations for the period then ended in accordance with IFRSs as adopted by the European Union. II - Specific verification We have also verified the information presented in the half‑yearly management report on the half‑yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half‑yearly consolidated financial statements. Neuilly‑sur‑Seine and Paris‑La Défense, July, 26 2023 The Statutory Auditors French original signed by Grant Thornton ERNST & YOUNG Audit Membre français de Grant Thornton International Virginie Palethorpe Jeremy Thurbin • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • STATEMENT ON THE HALF‑YEAR REPORT 2023 I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements for the half‑year ended June 30, 2023 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and the profit of the Company and the entities included in the scope of consolidation of the Group and that the First Half Management Report includes a faithful representation of the major events which occurred during the first six months of the financial year,their impact on the financial statements, of the main related‑party transactions, as well as a description of the major risks and uncertainties for the remaining six months of the year. th On July 28 , 2023 Gonzalve Bich Chief Executive Officer • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • 49 50 • BIC GROUP - 2023 HALF-YEAR FINANCIAL REPORT • SOCIÉTÉ BIC 92110 CLICHY (FRANCE) www.bic.com | Semestriel, 2023, Supplies, BIC | write me a financial report |
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| HALF-YEAR FINANCIAL REPORT 2022 TABLE OF CONTENTS 2022 HALF-YEAR BUSINESS REPORT ................................................................................................................. 4 BUSINESS OVERVIEW ........................................................................................................................................................... 4 FINANCIAL OVERVIEW ....................................................................................................................................................... 5 RELATED-PARTY TRANSACTIONS ........................................................................................................................................ 6 EVENTS SINCE 30 JUNE 2022 .............................................................................................................................................. 7 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2022 ................................................................................... 7 OUTLOOK FOR 2022 ........................................................................................................................................................... 7 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS ............................................................................. 8 1.1 1.2 1.3 1.4 1.5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................................................................................... 9 CONSOLIDATED INCOME STATEMENT ......................................................................................................................... 10 STATEMENT OF COMPREHENSIVE INCOME .................................................................................................................. 11 CONSOLIDATED STATEMENT OF CASH FLOWS .............................................................................................................. 12 CHANGES IN CONSOLIDATED SHAREHOLDER'S EQUITY .................................................................................................. 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............................. 14 2.1 2.1.1 2.1.2 2.1.3 2.2 2.2.1 2.2.2 2.3 2.4 SIGNIFICANT EVENTS DURING THE HALF-YEAR ............................................................................................................. 15 Acquisitions .......................................................................................................................................................... 15 Other key events ................................................................................................................................................... 15 Events after the reporting period ............................................................................................................................ 16 ACCOUNTING PRINCIPLES AND METHODS ................................................................................................................... 16 Accounting principles ............................................................................................................................................. 16 Management estimates.......................................................................................................................................... 17 FINANCIAL RISK FACTORS ........................................................................................................................................... 17 CHANGES IN THE SCOPE OF CONSOLIDATION ............................................................................................................... 18 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS ................................................................... 19 GOODWILL ................................................................................................................................................................ 20 3.1 NON-CURRENT FINANCIAL ASSETS .............................................................................................................................. 20 3.2 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES ...................................................................................... 21 EMPLOYEE PROVISIONS AND BENEFITS ........................................................................................................................ 22 3.4 FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) .................................................................................................. 23 3.5 RIGHTS OF USE AND LEASE DEBT ................................................................................................................................. 24 3.6 PERSONNEL EXPENSES ............................................................................................................................................... 24 3.7 OTHER OPERATING INCOME AND EXPENSES ................................................................................................................ 25 3.8 NET FINANCIAL INCOME ............................................................................................................................................. 26 3.9 3.10 INCOME TAXES .......................................................................................................................................................... 26 3.11 OPERATING SEGMENT INFORMATION ......................................................................................................................... 27 EARNINGS PER SHARE ................................................................................................................................................ 28 3.12 STATEMENT OF CASH FLOWS ...................................................................................................................................... 28 3.13 2 3.14 CONTINGENT ASSETS AND LIABILITIES ......................................................................................................................... 29 3.15 RELATED PARTIES ...................................................................................................................................................... 30 FINANCIAL COMMITMENTS ........................................................................................................................................ 30 3.16 REPORT OF THE STATUTORY AUDITORS ON THE 2022 HALF-YEAR FINANCIAL INFORMATION ....................... 31 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT ................................. 33 3 2022 HALF-YEAR BUSINESS REPORT BUSINESS OVERVIEW ALTEN has asserted its position as a European leader in Engineering and Technology Consulting. The Group supports its customers’ development strategies in the areas of innovation, R&D, and information systems. ALTEN’s business consists of two operating segments: Engineering and R&D outsourcing, Information Systems and Internal Networks. As of 30 June 2022, ALTEN had 49,600 employees (including 43,650 engineers): 12,550 employees (including 10,800 engineers) in France; 37,050 employees (including 32,850 engineers) outside France. ALTEN generated 67.2% of its business internationally (compared to 63.8% during the first half of 2021). Significant events for the first half of 2022: ALTEN continued its development in France and internationally. ALTEN thus completed four acquisitions in France and abroad during the first half of 2022: Spain: a company specialized in the Cloud and digital transformation (annual revenue: €12 million, 180 consultants) India/USA/Canada: a company specialized in product engineering (annual revenue: €12 million, 480 consultants) UK: a company specialized in Could architectures and digital transformation (annual revenue: €110 million, 710 consultants) Australia: a company specialized in project management (annual revenue: €10 million, 90 consultants) 4 FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board of Directors on 22 September 2022, after prior review by the Audit Committee. Income statement (IFRS): Revenue Revenue at 30 June 2022 amounted to €1,825.9 million, up by 30.9% compared to 30 June 2021 (€1,395.2 million). On a like-for-like basis, business grew by 19.8% (14.5% in France and 22.8% outside France). International business now accounts for 67.2% of the Group’s activity (compared to 63.8% in the first half of 2021). Operating profit on activity Operating profit on activity amounted to €208.6 million, up by 52.1% compared to the first half of 2021 (€137.1 million). The operating margin on activity reached 11.4% of revenue (9.8% of revenue in June 2021). The increase in the operating margin was less significant in France (7.8% in 2022 versus 6.9% in 2021) than internationally (13.2% in 2022 vs. 11.5% in 2021) due to a later recovery in activity, a lower gross margin growth and an increase in managerial costs. Operating profit Operating profit amounted to €186.9 million (compared to €124.2 million on 30 June 2021). It includes share- based payments (non-cash) of €15.4 million and non-recurring costs of €6.2 million, mainly consisting of acquisition fees and earn-outs on acquisitions recognised outside the goodwill allocation period (€5.6 million). Net income, Group share After taking into account the net financial income (+€0.4 million) and the tax expense (€48.3 million), the net income, Group share, was €139 million, i.e. 7.6% of revenue (€89.3 million at 30 June 2021, i.e. 6.4% of revenue). 5 Consolidated balance sheet items and financial movements Under assets, non-current assets represent 43.6% of the total balance sheet (€1,311.2 million), and mainly consist of goodwill (76.8%, i.e. €1,006.3 million) and IFRS 16 rights of use (13.5%, i.e. €176.9 million). Current assets, excluding cash, represent 47.0% of the total balance sheet, and are mainly composed of accounts receivable and related assets, which represent over 85.5% of this item. Under liabilities, equity represents 51.2% of the total balance sheet. Earn-outs amounted to €156.1 million, including €117.3 million payable in more than one year. In the first half of 2022, ALTEN Group generated a gross cash flow of €245 million (compared with €171 million on 30 June 2021). Restated for IFRS 16 items, gross cash flow from operations was €213.8 million (11.7% of revenue) compared with €141.6 million (i.e. 10.1% of revenue) at 30 June 2021. Its growth is in line with that of the Operating Profit on Activity. Due to low CAPEX, the gross margin rate is close to the operating margin on activity. €46.4 million were paid in taxes. The change in Working Capital Requirement amounted to €(154.6) million, heavily impacted by the sharp increase in accounts receivable linked to organic growth and the deterioration in the average payment period of clients from 86 to 94.5 days. CAPEX remained low, at €11 million, and represented 0.6% of revenue. As a result, free cash flow amounted to +€1.1 million. After taking into account financial investment flows of €116 million, mainly related to the effects of changes in scope and earn-outs (€107.8 million), other financing flows, and the payment of dividends this year of €44.1 million, the net cash position was €62.4 million at the end of June 2022. Gearing is therefore -4.1%, reflecting the Group’s very sound balance sheet structure. RELATED-PARTY TRANSACTIONS There were no new related-party transactions in the first half of 2022. 6 EVENTS SINCE 30 JUNE 2022 Since 30 June 2022, the Group has not completed any specific transactions. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2022 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 56 to 64 of the 2021 Universal Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 29 April 2022. OUTLOOK FOR 2022 The first half of 2022 followed the same trend as 2021. In an unchanged context, ALTEN should achieve satisfactory organic growth and operating margin on activity in the second half of the year and will continue its targeted external growth strategy. In Boulogne-Billancourt, 22 September 2022, The Board of Directors 7 HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 8 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS (In thousands of euros) Notes 30/06/2022 Goodwill 3.1 1 006 333 Rights of use 3.6 176 921 Intangible assets 7 144 Property, plant and equipment 42 128 Interests in associates 1 200 Non-current financial assets 3.2 62 798 Deferred tax assets 3.10 14 635 NON-CURRENT ASSETS 1 311 160 Trade receiv ables 3.3 877 636 Client contract assets 3.3 330 690 Other current assets 3.3 138 165 Current tax assets 66 863 Cash and cash equiv alents 284 445 CURRENT ASSETS 1 697 800 TOTAL ASSETS 3 008 959 LIABILITIES (In thousands of euros) Notes 30/06/2022 Share capital 36 144 Additional paid-in capital 60 250 Consolidated reserv es 1 304 641 Consolidated earnings 138 997 EQUITY (Group share) 1 540 032 NON-CONTROLLING INTERESTS (344) TOTAL EQUITY 1 539 688 Post-employment benefits 3.4 16 094 Non-current prov isions 3.4 9 433 Non-current financial liabilities 3.5 7 894 Non-current lease debt 3.6 133 477 Other non-current liabilities 3.3 121 428 Deferred tax liabilities 3.10 1 558 NON-CURRENT LIABILITIES 289 885 Current prov isions 3.4 8 244 Current financial liabilities 3.5 214 773 Current lease debt 3.6 53 148 Trade payables 165 979 Other current liabilities 3.3 532 912 Client contract liabilities 3.3 163 173 Current tax liabilities 41 156 CURRENT LIABILITIES 1 179 386 TOTAL EQUITY AND LIABILITIES 3 008 959 31/12/2021 888 723 172 233 7 594 37 813 1 180 57 477 14 877 1 179 897 778 784 189 189 103 385 65 968 312 311 1 449 636 2 629 533 31/12/2021 36 098 60 250 1 117 241 207 837 1 421 427 (371) 1 421 056 18 859 8 848 6 393 130 637 120 246 2 860 287 842 10 776 86 482 51 971 126 842 442 742 168 927 32 895 920 636 2 629 533 9 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros) REVENUE Purchases consumed Employee benefits expense External charges Other taxes and lev ies Depreciation and amortisation charges Other operating expenses Other operating income OPERATING PROFIT ON ACTIVITY Share-based payments PROFIT FROM ORDINARY ACTIVITIES Other operating expenses Other operating income Impairment of goodwill OPERATING PROFIT Borrowing costs and financial costs of leases Other financial expenses Other financial income Income tax expense EARNING OF CONSOLIDATED ENTITIES Earnings from associates NET OVERALL EARNINGS Including: Non-controlling interests Group share Earnings per share in euros (Group share) Diluted earning per share in euros (Group share) Notes 3.11 3.7 3.7 3.8 3.8 3.1 3.9 3.9 3.9 3.10 3.12 3.12 30/06/2022 1 825 929 (184 091) (1 266 264) (124 141) (6 559) (37 521) (2 331) 3 566 208 588 (15 433) 193 155 (9 251) 3 040 0 186 944 (1 438) (6 016) 7 806 (48 285) 139 012 20 139 032 35 138 997 4,09 4,01 30/06/2021 1 395 225 (131 908) (990 561) (89 574) (6 734) (35 961) (6 193) 2 836 137 131 (7 526) 129 604 (5 891) 497 0 124 211 (1 396) (7 281) 7 518 (33 720) 89 332 (11) 89 322 38 89 283 2,64 2,59 10 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros) Net income, Group share Net income, non-controlling interest’s share Consolidated net income Change in fair v alue of realisable financial assets (net of income tax) Translation adjustments Items that may be reclassified to income Change in fair v alue of securities held for sale (net of income tax) Actuarial differences on employee benefits (net of income tax) Items that may not be reclassified to income TOTAL INCOME FOR THE PERIOD Including: Group share Non-controlling interests Notes 3.2 30/06/2022 138 997 35 139 032 0 12 788 12 788 (4 800) 2 832 (1 968) 149 853 149 825 28 30/06/2021 89 283 38 89 322 0 8 085 8 085 (5 500) 900 (4 600) 92 806 92 771 36 11 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros) Notes 30/06/2022 Consolidated net income 139 033 Earnings from associates (20) Depreciation, prov isions and other calculated expenses 3.13 40 660 Share-based payments 3.7 15 433 Income tax expense 3.10 48 285 Capital gains or losses from disposals 197 Borrowing costs and financial costs of leases 3.9 1 438 Financial cost on update and prov isions (55) Gross cash flow borrowing costs and tax 244 969 Taxes paid 3.13 (46 361) Change in working capital requirements 3.3 (154 615) Net cash flow from operating activities 43 993 Acquisitions of tangible and intangible assets (11 032) Acquisitions of financial assets (10 045) Impact of changes in scope and earn outs 3.13 (107 021) Disposals of tangible and intangible assets 53 Reductions in financial assets 1 932 Net cash flow from investing activities (126 113) Net financial interest paid (1 762) Div idends paid to shareholders (44 144) Capital increase 3.13 (0) Acquisitions and disposals of treasury shares (680) Changes in non-current financial liabilities 3.5 (1 773) Change in current financial liabilities 3.5 128 625 Change in lease debt 3.6 (30 510) Net cash flow from financing transactions 49 755 Change in cash position (32 365) Impact of exchange rate v ariations 4 499 Cash at beginning of period 312 311 Cash at end period 284 445 The Group’s net cash position/(net debt) ratio, excluding lease debts, breaks down as follows: (In thousands of euros) 30/06/2022 Cash at end period 284 445 + Bank borrowings and related debt 3.5 (7 729) + Borrowings in the market 3,5 (172 500) + Bank ov erdrafts 3.5 (41 834) = Net cash position/(Net debt) 62 382 30/06/2021 89 322 11 38 314 7 526 33 720 346 1 396 400 171 035 (10 271) (76 550) 84 214 (6 559) (1 136) (45 965) 322 1 681 (51 657) (1 609) (33 875) 0 119 (5 506) 44 323 (26 460) (23 009) 9 548 2 677 283 424 295 649 30/06/2021 295 649 (50 934) (70 000) (11 810) 162 905 12 1.5 CHANGES IN CONSOLIDATED SHAREHOLDER'S EQUITY (In thousands of euros) Number of shares in circulation Number of shares issued Capital Additional paid-in capital Reserves At 31 December 2020 33 776 746 34 240 711 35 953 60 250 1 043 949 2020 allocation of earnings Capital increase Dividends paid to shareholders Other changes Treasury shares Share-based payments 101 235 1 720 101 235 106 98 011 (106) (33 875) (82) 6 358 Transactions with shareholders 102 955 101 235 106 0 70 305 Total income for the period (4 600) At 30 June 2021 33 879 701 34 341 946 36 059 60 250 1 109 655 At 31 December 2021 33 919 343 34 379 483 36 099 60 250 1 120 271 2021 allocation of earnings Capital increase Dividends paid to shareholders Other changes Treasury shares Share-based payments 43 308 (6 472) 43 308 45 207 837 (45) (44 145) 13 604 Transactions with shareholders 36 836 43 308 45 0 177 251 Total income for the period (1 968) At 30 June 2022 33 956 179 34 422 791 36 144 60 250 1 295 554 Change in equity capital, non-controlling interests (In thousands of euros) Reserves Translation reserves At 31 December 2020 (267) 7 2020 allocation of earnings Change in scope Capital increase Total income for the period (224) 64 (2) At 30 June 2021 (428) 5 At 31 December 2021 (427) 3 2021 allocation of earnings Change in scope Capital increase Total income for the period 53 (8) At 30 June 2022 (374) (5) Treasury shares (9 070) 119 119 (8 951) (8 728) (680) (680) (9 409) Earnings (224) 224 38 38 53 (53) 35 35 Translation reserves (15 489) 0 8 088 (7 401) 5 700 0 12 796 18 495 Shareholders ’ equity (485) 0 64 0 36 (384) (371) 0 0 0 28 (344) Earnings 98 011 (98 011) (98 011) 0 89 283 89 283 207 837 (207 837) (207 837) 138 997 138 997 Shareholde rs’ equity 1 213 604 0 0 (33 875) (82) 119 6 358 (27 480) 92 771 1 278 895 1 421 427 0 0 (44 145) 0 (680) 13 604 (31 221) 149 825 1 540 032 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 14 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions Clevertask (revenue: €12 million; 180 consultants) On 21 January 2022, Alten Europe acquired a group of Spanish companies (plus one in Andorra) specialized in the Cloud and digital transformation. Volansys (revenue: €12 million; 480 consultants) On 28 February 2022, Alten India and Alten Europe acquired an Indian company with two subsidiaries, in the US and Canada, specialized in product engineering. Methods (revenue: €110 million; 710 consultants) On 13 April 2022, Alten Europe acquired a group of British companies specialized in Cloud architectures and digital transformation. Meta PM (revenue: €10 million; 90 consultants) On 30 June 2022, PPP Australia acquired a group of three Australian companies specialized in project management. This latest acquisition, completed at the end of the 2022 half-year, will be consolidated in the second half of 2022. The acquisition price is recorded as a non-current financial asset on 30 June 2022 (Note 3.2). In accordance with accounting principles, the allocation of the acquisition price is ongoing and will be completed within twelve months of the acquisition date. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Other key events During the first half of the year, and for the financial year ended on 31 December 2021, €44.1 million of dividends were paid to ALTEN SA shareholders. ALTEN SA signed a syndicated loan agreement for an amount of €350 million, in force since 11 March 2022 and until 2027, aimed at replacing a syndicated credit line for an amount of €160 million, which was terminated early and voluntarily on 24 January 2022, i.e. two months before maturity (note 3.5). 15 The ALTEN Group’s exposure to the consequences of the conflict in Ukraine is marginal: the Group has a legal entity in Ukraine which generated revenue of €3.1 million in the first half of 2022 (€6.1 million over the 12 months of the 2021 financial year). The net assets of this entity amounted to €0.9 million on 30 June 2022 (€0.2 million on 31 December 2021). The Group also has a branch in Russia in the field of Oil & Gas, which achieved revenue in 2021 of €25 million with a headcount of 129 employees. The net assets of this branch amounted to €2.1 million on 31 December 2021. This branch’s activity was gradually wound down in 2022. 2.1.3 Events after the reporting period None. 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2022 were prepared in accordance with IAS 34 “Interim Financial Reporting”, as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and should be read using the consolidated financial statements for the period ended on 31 December 2021 (included in the 2021 Universal Registration Document) as a reference. The 2021 consolidated financial statements included in the issuer’s 2021 Universal Registration Document are also available on its website page dedicated to financial statements: https://www.alten.com/investors/ The financial statements presented in this document were approved by the Board of Directors on 22 September 2022. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2022 are identical to those used for the consolidated financial statements at 31 December 2021, with the exception of the new standards, amendments and interpretations applicable as of 1 January 2022. These standards, amendments and interpretations, whose application is mandatory as of 1 January 2022, did not have a significant effect on the Group’s condensed consolidated financial statements as of 30 June 2022. In particular, the Group considered the impacts of: 16 IFRS IC decisions concerning the recognition of configuration and customisation costs for software made available in the Cloud under a SaaS contract; amendments to IAS 37 relating to loss-making contracts and the notion of ‘costs that relate directly to the contract’. The analysis of these impacts is ongoing and will be completed by the financial year-end on 31 December 2022. Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory on 1 January 2022. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates made by Management when preparing the consolidated financial position on 31 December 2021 are presented in the 2021 Universal Registration Document on page 177. The estimates, judgements and assumptions made by the Group in preparing the financial statements for the period ended 30 June 2022 relate mainly to: the assessment of the recoverable value of cash-generating units and in particular goodwill (Note 3.1); prospects for the use of deferred tax assets (Note 3.10). 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2021 consolidated financial statements remain essentially unchanged. 17 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company name Basis of consolidation (*) % interest % control Country of operation Clevertask Solutions SL FC 100,00 100,00 Spain Cleverdata Solutions SL FC 100,00 100,00 Spain Clevertask Andorra SLU Volansys Technologies Private Ltd Volansys LLC Volansys Canada Inc. Methods Holding Ltd Methods Business and Digital Technology Ltd Methods Consulting (Analytics) Ltd Methods Analytics Ltd CoreAzure Ltd Alten Danmark (1) Cmed SAS (1) FC FC FC FC FC FC FC FC FC FC FC 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 Andorra India USA Canada UK UK UK UK UK Denmark France (*) FC = Full consolidation (1) Companies previously founded or acquired and consolidated for the first time during the reporting period. Other changes in scope Two companies in Indonesia and the UK, which no longer have any operational activities or significant assets and liabilities, were removed from the scope of consolidation during the period. In addition, during the first half of 2022, the Group continued to simplify its scope of consolidation through mergers, particularly in France, Italy, Germany, Finland, the United States and India. 18 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS 19 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: In thousands of euros France UK Belgium Portugal The Netherland s Spain Germany Switzerland Italy Scandinavi a North America Asia Eastern Europe Other Total 31/12/2021 183 002 48 388 12 686 29 375 26 168 107 019 119 783 25 015 53 180 63 902 120 923 92 265 6 850 169 888 723 Acquisitions 75 284 12 430 15 570 103 283 Disposals/withdrawals 0 Earn-out adjustments 1 447 1 447 Translation adjustments (210) 531 (663) 5 670 4 342 9 670 Other (6) 114 3 102 3 210 Impairments 0 30/06/2022 182 996 123 575 12 686 29 375 26 168 119 449 119 783 25 546 53 180 63 239 126 593 116 725 6 850 169 1 006 334 For the first half of 2022, changes in goodwill were due to: the acquisitions completed by the Group in the first half of the year (described in Note 2.1.1); earn-out adjustments; translation differences on goodwill denominated in foreign currencies; corrections of net positions acquired (included in the “Other” line) within the allocation period. The Group performs impairment tests on an annual basis or when loss of value indicators emerge. The discount rates (WACC) used at 30 June 2022 were revised upwards by 1.5 points compared to those used at 31 December 2021, to take into account changes in the global economic situation. To conclude, the assets of the CGUs showing signs of loss of value demonstrate that their recoverable value is higher than their net book value. Consequently, no impairment was registered as of 30 June 2022. It should be noted that in a relatively uncertain context, the forecasts and estimates used for these tests could be significantly modified at a later date. 3.2 Non-current financial assets (In thousands of euros) Book value according to IFRS 9 Hierarchy of the fair value of financial assets at 30/06/2022 Amortised cost Fair value through comprehensive income without recycling Fair value through earnings 30/06/2022 31/12/2021 Level 1 Level 2 Level 3 Securities held for sale 14 047 8 010 22 057 20 430 17 591 4 466 Deposits and guarantees 16 081 16 081 13 625 Other long-term assets (loans and receiv able 24 659 24 659 23 422 Total 40 741 14 047 8 010 62 798 57 477 17 591 4 466 Other long-term assets consist in particular of a loan to a company in which the Group has an equity interest. 20 Securities held for sale include the following interests: Entity % interest Fair value at opening Acquisition, disposal, reclassificatio n Variation in FV through comprehensive income Variation in FV through income Fair value at closing Fair value hierarchical level PHINERGY LTD 12,83% 17 400 (4 800) 12 600 1 META CONSULTING GROUP 100,00% 4 991 4 991 1 OTHER Total 3 030 20 430 1 381 6 372 (4 800) 54 54 4 466 22 057 3 On 30 June 2022, the Group acquired the company META CONSULTING GROUP (see Note 2.1.1 “Acquisitions”). 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES (In thousands of euros) 31/12/2021 Cash flow variation Other flows (*) 30/06/2022 Current Non-current Trade receiv ables 778 784 65 625 33 227 877 636 877 636 Client contract assets 189 189 125 884 15 617 330 690 330 690 Client contract liabilities (168 927) 8 425 (2 672) (163 173) (163 173) Customer adv ances and payments on account (2) (9 403) (959) (167) (10 529) (10 529) Trade receivables and related accounts (a) 789 643 198 975 46 005 1 034 623 1 034 623 Trade payables (126 843) (17 321) (21 815) (165 979) (165 979) Prepaid expenses (1) 25 563 14 628 1 654 41 844 41 844 Supplier receiv ables (1) 2 199 (564) 885 2 519 2 519 Supplier adv ances and payments on account (1) 1 099 (170) 584 1 513 1 513 Trade payables and related accounts (b) (97 982) (3 428) (18 693) (120 103) (120 103) Tax and social security receiv ables (1) 66 042 5 151 13 500 84 693 84 693 Other receiv able (1) 8 039 339 (1 210) 7 168 7 168 Tax and social security debt (2) (417 959) (49 023) (15 469) (482 451) (478 298) (4 153) Other debts (2) (5 215) 2 600 (2 677) (5 293) (5 293) Other assets/liabilities (c) (349 093) (40 933) (5 857) (395 883) (391 730) (4 153) WCR (= a + b + c) 342 567 154 615 21 456 518 637 522 790 (4 153) Reconciliation with the consolidated statement of financial position Sum of (1) Current financial assets 102 941 444 19 383 15 411 (15) 137 736 429 137 736 429 Total of “Other current assets” 103 385 19 383 15 397 138 165 138 165 Sum of (2) Earn outs (432 577) (130 410) (47 382) (18 313) (25 655) (498 273) (156 065) (494 120) (38 790) (4 153) (117 275) Total of “Other current and non-current liabilities” (562 988) (47 382) (43 968) (654 338) (532 912) (121 428) (*) “Other flows” correspond to newly consolidated companies, translation differences or flows excluded by the nature of the change in WCR. Earn-outs are debts relating to acquisitions. The following table shows the breakdown of the portfolio of trade receivables based on age: 30/06/2022 31/12/2021 (In thousands of euros) Unmatured Less than 6 months 6 months to one year More than 1 year Balance Unmatured Less than 6 months 6 months to one year More than 1 year Balance TRADE RECEIVABLES Gross v alue 673 673 181 577 23 504 12 656 891 410 625 569 147 475 8 811 9 081 790 936 Prov isions 0 (2 937) (870) (9 967) (13 774) 0 (3 067) (1 477) (7 608) (12 152) Net values 673 673 178 640 22 634 2 689 877 636 625 569 144 408 7 334 1 474 778 784 21 Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros) Labour disputes (1) Commercial disputes Other risks TOTAL At 31/12/2021 5 898 740 12 986 19 624 Reclassification (48) 0 48 0 Exchange rate v ariations 4 (4) 3 3 Change in scope 0 0 0 0 Prov isions for the financial year 1 237 4 1 121 2 361 Rev ersals (prov isions used) (1 009) (301) (180) (1 490) Rev ersals (prov isions not used) (1 344) (225) (1 252) (2 821) At 30/06/2022 4 738 214 12 725 17 677 Of which current provisions 2 181 89 5 974 8 244 Of which non-currents provisions 2 557 125 6 751 9 433 (1) Labour disputes involve individually insignificant amounts. Employee benefits Employee benefits consist mainly of end-of-career commitments. These commitments were determined at the end of June 2022 on the basis of the same actuarial assumptions, with the exception of the discount rate, which has been revised upwards compared to 31 December 2021 to take into account changes in the Iboxx rates in the first half of 2022. (In thousands of euros) Total commitment At 31/12/2021 18 859 Change in scope 0 Reclassification 0 Cost of serv ices prov ided 941 Interest expenses 70 Actuarial gains and losses (3 776) Benefits paid 0 At 30/06/2022 16 094 22 3.5 FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) (In thousands of euros) 31/12/2021 Inc Repayment Change in scope Other (translations adjustments, reclassification ) 30/06/2022 Current Loans and related debt Bank borrowings Borrowings in the m arket Other loans and related debt Bank overdrafts Deposits and guarantees received Other financial liabilities Total 87 222 6 046 80 000 1 177 5 279 160 214 92 875 95 681 3 119 92 500 62 36 160 50 131 891 a (3 412) (2 989) (423) (1 627) (5 039) b 2 062 2 062 14 (1 249) 827 (1 324) (58) (1 266) 381 3 057 2 114 180 229 6 118 172 500 1 612 41 834 210 395 222 668 172 563 21 172 500 43 41 834 376 214 773 Change in statement of cash flows financial liabilities (a + b) 126 852 128 625 Bank overdrafts (In thousands of euros) 30/06/2022 EUR USD INR JPY Fixed rate Bank borrowings 6 118 990 165 3 130 1 833 90 As of 30 June 2022, this item consisted of medium and long-term borrowings mainly denominated in foreign currencies for an amount of €6.4 million. It should be noted that no drawdown was made on the new “Club Deal” syndicated loan during the first half of the year (short-term variable-rate financing) on an open line of €350 million. Market funding The Group has entered into a €250 million programme to issue short-term negotiable debt securities (NeuCP) set up in January 2021. The financial documentation for the programme is available on the website https://eucpmtn.banque-france.fr/public/#/liste-des-emetteurs. The debt amounted to €172.5 million as of 30 June 2022. Non-current 7 665 6 096 1 569 210 19 7 894 (1 773) Variable rate 6 028 23 3.6 RIGHTS OF USE AND LEASE DEBT Rights of use (In thousands of euros) Real estate leases Vehicle leases Computer equipment leases Other leases Gross value Gross value - 01/01/2022 247 394 43 059 7 183 863 New contracts 5 038 5 876 1 057 152 Increases in duration/rent 5 530 384 129 57 Decreases in lease periods/rentals an (3 759) (2 609) (207) (20) Change in scope 16 203 1 063 967 (108) Translation adjustments 880 (21) (60) 21 Gross value - 30/06/2022 271 287 47 752 9 069 966 Depreciation and amortisation Depreciation and amortisation - 01/01 (99 955) (21 314) (4 556) (441) Prov isions (21 750) (6 345) (1 259) (202) Rev ersals 3 929 2 138 178 1 Change in scope (1 361) (367) (483) 105 Translation adjustments (524) 17 47 (12) Depreciation and amortisation - 30/06 (119 661) (25 870) (6 073) (549) Net value - 30/06/2022 151 626 21 882 2 996 417 Financial lease debt (current and non-current liabilities) (In thousands of euros) Real estate leases Vehicle leases Computer equipment leases Other leases Lease liability - 01/01/2022 New contracts 157 720 5 066 21 810 5 902 2 650 1 057 428 152 Increases in duration/rent 8 618 358 129 57 Decreases in lease periods/rentals an (1 151) (463) (29) (19) Cash flow (repayments) (24 422) (6 358) (1 260) (202) Change in scope 15 073 689 483 (4) Translation adjustments 345 (3) (13) 10 Lease liability - 30/06/2022 161 249 21 936 3 018 423 Current debt Non-current debt 40 877 120 372 10 261 11 675 1 761 1 257 249 174 3.7 PERSONNEL EXPENSES (In thousands of euros) 30/06/2022 30/06/2021 Salaries and benefits (1 244 299) (975 060) Set prov isions to labour disputes 1 116 282 Retirement benefits (951) (506) Taxes lev ied on wages (17 265) (12 091) Employee profit sharing (4 866) (3 186) Total (1 266 264) (990 561) Total 298 499 12 123 6 100 (6 594) 18 125 820 329 074 (126 266) (29 555) 6 246 (2 105) (472) (152 153) 176 921 Total 182 608 12 177 9 162 (1 661) (32 241) 16 242 338 186 626 53 148 133 478 24 Share-based payments PLANS Date of award by the Board 24/10/2018 18/06/2019 18/06/2019 15/11/2019 27/10/2020 27/10/2020 27/10/2020 23/02/2021 23/02/2021 27/10/2021 27/10/2021 Class of financial instruments awarded Ordinary share Preferred B share Ordinary share Ordinary share Ordinary share Ordinary share Ordinary share Ordinary share Ordinary share Ordinary share Ordinary share Number of financial instruments awarded of which number awarded to employees of which number awarded to Corporate Officer 100 450 100 450 0 814 391 423 49 550 49 550 0 150 000 150 000 0 157 170 157 170 0 164 500 54 500 110 000 10 000 10 000 0 109 450 109 450 0 13 500 13 500 0 105 850 105 850 0 116 825 116 825 0 Number of instruments voided over the period Number of instruments subscribed for over the period Number of instruments outstanding at 30/06/2022 5 200 80 500 0 0 1 100 43 850 800 147 100 35 333 79 630 0 149 500 0 10 000 700 108 150 0 13 500 0 105 850 250 116 575 Fair value of the financial instruments (in euros) 73,7 4 899,9 92,5 96,4 76,7 75,7 76,7 84,9 85,9 132,5 130,6 Vesting date Final award conditions 24/10/2022 18/06/2021 18/06/2023 15/11/2023 27/10/2022 27/10/2023 27/10/2022 23/02/2024 23/10/2023 30/10/2023 27/10/2025 Presence and Presence and Presence and Presence and Presence and Presence and Presence Presence Presence Presence Presence performance performance performance performance performance performance Lock-up/Non-transferability period None 18/06/2023 None None None None None None None None None Cost of services provided H1 2022 (In thousands o Employer contribution cost H1 2022 (In thousands (In thousands of euros) 1 024 100 463 58 602 43 1 615 87 1 379 256 2 226 383 163 31 1 260 178 327 54 3 134 528 1 411 111 3.8 OTHER OPERATING INCOME AND EXPENSES (In thousands of euros) Restructuring costs 30/06/2022 30/06/2021 (1 754) (770) Fees associated with the acquisition of new companies (1 245) (2 207) Social security and tax adjustments 1 367 128 Other (5 563) (1 561) Total other operating income and expenses (6 211) (5 394) Including other operating expenses (9 251) (5 891) Including other operating income 3 040 497 Other operating income and expenses over the period consisted of restructuring costs (-€0.8 million), fees related to acquisitions (-€1.2 million), gains from URSSAF audits in France (+€1.4 million) and the adjustment of the costs of combining the acquired companies (-€5.6 million) as part of the application of IFRS 3 (in particular the change in earn-out liabilities and earn-out subject to continued employment). TOTAL 13 604 1 829 15 433 25 3.9 NET FINANCIAL INCOME (In thousands of euros) 30/06/2022 30/06/2021 Bank interest charges (395) (542) Interest on lease-financing agreements 0 0 Gross borrowing costs (395) (542) Income from receiv ables and inv estments 349 246 Income from the disposal of marketable securities 0 0 Net borrowing costs (46) (296) Interest on leases (IFRS 16) (1 392) (1 100) Net borrowing costs and financial costs of leases (1 438) (1 396) Foreign exchange losses (4 833) (5 146) Other financial expenses (550) (750) Discounted financial expenses (632) (54) Financial prov isions 0 (1 331) Other financial expenses (6 016) (7 281) Foreign exchange gains 7 077 5 698 Other financial income 675 603 Financial income as a result of discount 0 0 Rev ersal of financial prov isions 55 1 217 Other financial income 7 806 7 518 Other net financial income and expenses 1 791 237 NET FINANCIAL INCOME/(EXPENSES) 353 (1 159) Net financial income amounted to €0.4 million in the first half of 2022, impacted mainly by a net exchange gain of €2.2 million resulting mainly from a fall in the value of the Euro against the Dollar over the period. 3.10 INCOME TAXES Breakdown of income tax expense (In thousands of euros) 30/06/2022 30/06/2021 Net income: Group and minority interests Earnings of equity-accounted companies Impairment of goodwill Share-based payments Income tax expenses Pre-tax earnings 139 033 (20) 0 13 604 48 285 200 901 89 322 11 0 6 358 33 720 129 410 Tax rate of the consolidating company Theoretical income tax expense Difference in tax rate versus foreign companies Difference in tax rate versus French companies Miscellaneous tax credits Inactivated deferred tax assets CVAE (value-added tax) reclassification Other permanent differences 25,83% 51 893 (4 148) 0 (2 560) 244 2 688 169 28,41% 36 765 (4 626) 517 (3 101) 216 2 256 1 692 Tax expense recognised 48 285 33 720 Effective income tax rate 24,03% 26,06% Income tax distribution: Deferred tax Income tax payable Total (592) 48 876 48 285 1 154 32 565 33 720 26 Deferred tax Deferred tax receivables and liabilities consist of: (In thousands of euros) 30/06/2022 31/12/2021 Employee profit-sharing 1 188 1 596 Retirement benefits 3 788 3 584 Other timing differences 7 028 3 925 Restatement for IFRS 16 4 (66) Tax loss carry-forwards 1 069 2 978 Total deferred tax 13 077 12 017 Including: Deferred tax assets 14 635 14 877 Deferred tax liabilities (1 558) (2 860) (In thousands of euros) 30/06/2022 31/12/2021 Deferred taxes at start of year 12 017 10 657 Impact on comprehensiv e income IAS 19/IFRIC 21 0 (107) Change in scope 1 980 1 558 Exchange rate v ariations (1 513) (1 665) Expenses (or income) for the period 592 1 574 Deferred taxes at year end 13 077 12 017 The Group has assessed the recoverable portion of tax loss carry-forwards based on a 3-year projection of expected taxable income. The amount of non-capitalised deferred taxes for tax loss carry-forwards amounted to €12.3 million (€47.3 million basis) at 30 June 2022. 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. 27 (In thousands of euros) 30/06/2022 30/06/2021 France International TOTAL France International TOTAL Net rev enue 598 377 1 227 551 1 825 929 505 370 889 855 1 395 225 Operating profit on activ ity 46 679 161 909 208 588 34 760 102 371 137 131 Rat e of operat ing profit on act ivit y/revenue for t he 7,8% 13,2% 11,4% 6,9% 11,5% 9,8% Profit from continuing operations 34 938 158 217 193 155 29 121 100 483 129 604 Operating profit 36 694 150 250 186 944 29 055 95 155 124 211 Financial income (1 216) 1 569 353 494 (1 653) (1 159) Income tax expense (12 029) (36 255) (48 285) (9 957) (23 763) (33 720) Earning of consolidated entities 23 449 115 564 139 012 19 593 69 739 89 332 NET OVERALL EARNINGS 23 449 115 584 139 032 19 593 69 729 89 321 (In thousands of euros) 30/06/2022 30/06/2021 France International TOTAL France International TOTAL Goodw ill 182 998 823 336 1 006 333 182 776 613 782 796 557 Interests in associates 0 1 200 1 200 0 1 108 1 108 Headcount at year end 12 550 37 050 49 600 11 250 27 300 38 550 Cash at end period 70 795 213 650 284 445 73 202 222 424 295 625 Financial liabilities (excluding rental debt) 203 945 18 722 222 667 111 785 21 241 133 025 Net inv estments for the period (12 633) (110 516) (123 150) (18 311) (33 346) (51 657) The contribution to first-half revenues of companies consolidated during the period amounted to €3.8 million. 3.12 EARNINGS PER SHARE (In thousands of euros) 30/06/2022 30/06/2021 Net income, Group share Weighted average number of shares Earnings per share 138 997 33 953 302 4,09 89 283 33 840 399 2,64 (In thousands of euros) 30/06/2022 30/06/2021 Earnings Dilutive effect Diluted earning 138 997 0 138 997 89 283 0 89 283 Weighted average number of shares Effect of dilutions Weighted average number of shares after potential dilution 33 953 302 702 202 34 655 504 33 840 399 672 978 34 513 377 Diluted earnings per share 4,01 2,59 3.13 STATEMENT OF CASH FLOWS 28 Changes in depreciation, provisions and other calculated income/expenses 30/06/2022 30/06/2021 Amortisation of intangible assets 1 792 1 784 Depreciation of property, plant and equipment 6 330 5 554 Prov isions for risks and expenses (928) 2 115 Other income and calculated expenses 3 911 495 Depreciation/amortisation of usage rights 29 555 28 367 Total 40 660 38 314 Breakdown of taxes paid 30/06/2022 30/06/2021 Repayments receiv ed 2 118 24 605 Payments made (48 479) (34 876) Total (46 361) (10 271) Impact of changes in scope and earn outs 30/06/2022 30/06/2021 Acquisitions of consolidated subsidiaries (113 439) (73 315) Cash from deconsolidated subsidiaries (28) 0 Cash from new consolidated subsidiaries 24 637 35 934 Payment of earn-outs (18 191) (8 584) Total (107 021) (45 965) 3.14 CONTINGENT ASSETS AND LIABILITIES In the context of two audits of the accounts of a French subsidiary concerning in particular the transfer prices between this subsidiary and an English subsidiary over the period 2013-2014 and 2015-2017, the Auditing Department sent proposals for rectification in terms of corporation tax, withholding tax and CVAE for a total amount of €3.4 million. After analysing the claims with its specialized advisors, and considering that the department’s position is questionable, the risk has been provisioned for €0.8 million. In the context of an audit of the same English subsidiary for the period 2009-2019, the Auditing Department considered this time that the activity of this English subsidiary was that of a permanent establishment of the same French subsidiary. The Auditing Department sent a proposed adjustment dated 23 December 2019 and 22 June 2022 for corporate income tax and additional contributions, minimum business tax and CVAE in respect of this presumed income for a total amount of €65.4 million. This amount includes duties for an amount of €32.6 million, late payment interest and increases of 80% according to the provisions of article 1728-1 of the French General Tax Code for €21 million. 29 After having thoroughly studied the arguments of the French tax authority with its specialized advisors and considering that the position of the Auditing Department is contradictory due to the very nature of the two procedures implemented and questionable in terms of the factual and legal elements that can be invoked, the Group has every right to pursue its challenges of the proposed adjustments and has a good chance of success in this procedure. Furthermore, at this stage, the Group does not have sufficient information to allow it to assess and recognise a specific provision corresponding to a reliable estimate of the residual adjustment risk incurred. As a result, no provision has been made in the financial statements in connection with this tax audit. 3.15 RELATED PARTIES Compensation and benefits granted to Corporate Officers Over the first half of 2022, there were no significant changes to the compensation reported as of 31 December 2021. Relations with related parties Over the first half of 2022, there were no significant changes to the information disclosed as of 31 December 2021. 3.16 FINANCIAL COMMITMENTS No material changes in financial commitments occurred during the first half of 2022 compared to those published as of 31 December 2021. 30 REPORT OF THE STATUTORY AUDITORS ON THE 2022 HALF-YEAR FINANCIAL INFORMATION To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying half-year condensed consolidated financial statements of Alten S.A., for the period from 1 January 2022 to 30 June 2022, as appended hereto; the verification of the information presented in the half-yearly business report. These half-year condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. This work is less extensive than that required for an audit conducted in accordance with the professional standards applicable in France. Consequently, the assurance that the financial statements, taken as a whole, are free from material misstatement obtained during a limited review is a moderate assurance, lower than that obtained in the context of an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half- year condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard as adopted by the European Union applicable to interim financial information. 31 II - Specific verifications We have also verified the information provided in the half-year business report on the half-year condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half-year condensed consolidated financial statements. Paris La Défense, 27 septembre 2022 Neuilly-sur-Seine, 27 septembre 2022 KPMG Audit IS Grant Thornton Jean-Marc Discours Xavier Niffle Jean-François Baloteaud Partner Partner Partner 32 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT “I declare, to the best of my knowledge, that the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and provide a true and fair view of the assets, liabilities, financial position and results of the Company and all its subsidiaries, and that the half-year business t report provides a true and fair view of the significant events that occurred during the first six months of the financial year, their impact on the financial statements, the main transactions between related parties, and a description of the main risks and uncertainties for the remaining six months of the financial year”. On 27 September 2022, Simon AZOULAY Chairman and Chief Executive Officer 33 alten.com alten.com | Semestriel, 2022, IT, Alten | write me a financial report |
Semestriel | 2,015 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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| 2015 Half-year financial report ALTEN, French public limited company (Société Anonyme) with capital of €34,181,274.81 Registered Office: 40 Avenue André Morizet 92100 Boulogne Billancourt Listed in the Nanterre Trade and Companies Register under No. 348 607 417 - 1 - Contents 2015 half-year financial report ............................................................................................................ 3 1. ACTIVITY OVERVIEW ........................................................................................................................................ 3 FINANCIAL OVERVIEW..................................................................................................................................... 3 2. RELATED-PARTY TRANSACTIONS .................................................................................................................... 5 3. 4. EVENTS SINCE 30 JUNE 2015 ........................................................................................................................... 5 5. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2015 ............................................................ 5 6. OUTLOOK .......................................................................................................................................................... 6 Half-year condensed consolidated financial statements ............................................................... 7 Statutory Auditors' report on the half-year financial statements ................................................... 28 Declaration by the person in charge of the half-year financial report ........................................ 29 - 2 - 2015 half-year financial report 1. ACTIVITY OVERVIEW 1.1. Alten activity: Alten is the European leader in engineering and technology consulting. The Group carries out design and research projects for the Technical and Information Systems divisions of major customers in the industrial, telecommunications and service sectors. Alten's business consists of three operating segments: Engineering and Technology Consulting (ETC), which represents 75% of revenue; Telecoms and Networks, which represents 17% of revenue; Information Systems, which represents 8% of revenue. At the end of June 2015, Alten had 19,520 employees, of whom 88% are high-level engineering consultants. Alten generates 51.8% of its business in France and 48.2% internationally, primarily in Europe. 1.2. Significant events for the first half of 2015: The business environment showed overall improvement during the first half of the year. Although the market remains challenging in some business sectors and in certain countries, Alten has succeeded in generating positive organic growth with sustained momentum. Business grew by 12.4% during the first half of the year: Organic growth stands at 3.4% and the impact of acquisitions at 9%, mainly at the international level. Business is growing in all countries, with the exception of Sweden and Germany where business remains stable. Some countries (UK, Spain, Italy) are experiencing organic growth rates above 10%. Despite the slowdown in the Aeronautics market, Alten has succeeded in achieving growth above 5% thanks to projects involving the A330 Neo and process engineering activities. The automotive sector is experiencing strong growth, particularly in France. The Oil & Gas sector, traditionally a strong performer, has remained stable. This represents a real achievement given the noticeable reduction in investments. Finally, the Telecom operators market remains very challenging, particularly in France. 2. FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board meeting of 21 September 2015. In order to take into account the impact of the new IFRIC interpretation 21 - Levies, the financial position at 31 December 2014 was modified in relation to the one presented in the consolidated financial statements of 31 December 2014, published in April 2015, as was the financial position at 30 June 2014. The 2014 comparison has therefore been modified to comply with this standard. - 3 - 2.1. Income statement (IFRS): REVENUE Revenue stands at €764.2 million versus €680.1 million at 30 June 2014, i.e. a growth of 12.4%. Growth in activity at constant scope came to 3.4%: +2.8% in France and +4.1% internationally. There were 122.8 business days in the first half of 2015 (versus 122.7 business days in the first half of 2014). OPERATING PROFIT ON ACTIVITY Operating profit on activity amounts to €67.1 million, or 8.8% of €56.8 million, 8.4% of revenue in June 2014 (restated according to IFRIC 21). revenue, versus In France, the operating margin grew from 8.9% of revenue in June 2014 to 9.4% of revenue in June 2015. The improvement in the activity rate, the return to an operating margin near that of the Group for Geci France (taken over by Alten Sud-Ouest), and the management of overhead costs explain the improvement of the margin in France. Internationally, the operating margin grew from 7.9% of revenue at 30 June 2014 to 8.0% at 30 June 2015. With the exception of France, the operating margin is always penalised by the contribution resulting from acquisitions, which are less profitable, and by strong seasonality in Germany (121 business days during the first half of the year). Profit from ordinary activities Profit from ordinary activities stands at €67.2 million after factoring in payments in shares (negligible). OPERATING PROFIT Once the non-recurring profit of -€2.4 million, corresponding primarily to the end of the expenses undertaken for the Geci reorganisation and the professional fees associated with acquisitions, is factored in, operating profit comes to €64.8 million, i.e. 8.5% of revenue. It was €49.7 million at the end of June 2014, i.e. 7.3% of revenue. Net income, Group share After factoring in the net financial income (+€2.6 million), the income tax expense (€22.3 million), the earnings of equity-accounted companies (+€0.3 million) and non-controlling interests (-€0.1 million), the net income, Group share totals €45.3 million, or 5.9% of revenue, an increase of 34.4% over the preceding year (€33.7 million). 2.2. Consolidated balance sheet items and financial movements The financial structure of the Alten Group is very robust. Under assets, non-current assets represent 39.8% of the overall balance sheet (€1,068.8 million) primarily consisting of goodwill (27.5%), an increase of €17.2 million. Current assets, excluding cash assets, consist primarily of receivables, which amount to 46.7% of significant equity (€579.7 million) amounting to 54.2% of the overall balance sheet. the balance sheet. Under liabilities, the Group had Following the payment of €33.2 million in dividends, the net cash position stands at -€17.6 million. Its gearing (net debt/equity ratio) is 3%. Alten is therefore in compliance with all its bank covenants. During the first half of 2015, the Alten Group generated gross cash flow of €69.3 million, an increase of 18% over last year (€58.7 million). The DSO ratio contracted from 100 days at the end of 2014 to 97 days at the end of June 2015. - 4 - Consequently, despite organic growth of 3.4% and unfavourable business seasonality conditions for the first half of the year, the increase in working capital requirements only amounts to €20.5 million. The flows generated by business activity therefore total €28.6 million (i.e. 3.7% of revenue). Cash flows on investments, totalling -€27.0 million, correspond primarily to the financing of: tangible and intangible assets (fittings, software licenses, computer equipment and infrastructure, etc.) for -€5.5 million; net disposals of non-current financial assets (deposits and guarantees; AFS stock) of +€1.4 million; external growth and earn-outs on acquisition for -€22.9 million. Cash flows involving financing operations totalled –€12.8 million and consisted primarily of the payment of €33.2 million in dividends, mainly financed by the use of current financial liabilities (€22.6 million) and capital increases from the exercise of stock options (€0.8 million). Consequently, the net change in cash position is -€11 million according to IFRS. The net cash position at 30 June 2015 was -€17.5 million (€15.5 million at 30 June 2014 and €25.9 million at 31 December 2014) 3. RELATED-PARTY TRANSACTIONS There were no related-party transactions in the first half of 2015. 4. EVENTS SINCE 30 JUNE 2015 The Alten Group made several acquisitions: On 1 July 2015, Alten acquired the company Aixialis Développement, which specialises in the CRO sector (group of eight companies, including one located in Belgium with approximately 160 consultants); Last 31 July, ALTEN Belgium Sprl acquired Coralius, a Belgian company specialising in software testing and software quality assurance (approximately 70 consultants). 5. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2015 The nature and severity of the risks facing the Alten Group remain unchanged from those presented on pages 109 to 114 of the 2014 Registration Document filed with the Autorité des Marchés Financiers (the French Financial Markets Authority) on 27 April 2015. Among these, changes in the economic environment, and particularly their impact on the activity rate and organic growth, as well as the Group's ability to recruit, are the main factors likely to affect the course of business over the second half of the year. - 5 - 6. OUTLOOK 2015 ALTEN will continue to pursue a development policy based on organic growth and accretive acquisitions to: Attain a critical mass of at least 1,500 engineers in any strategic countries; Successfully transform services in Germany to confirm ALTEN's position as the preferred partner for the largest customers and to improve the operating margin. Signed at Boulogne-Billancourt, 21 September 2015, The Board of Directors - 6 - CONTENTS 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS ............................................................................... 8 CONSOLIDATED BALANCE SHEET ................................................................................................................................... 9 INCOME STATEMENT....................................................................................................................................................... 10 STATEMENT OF COMPREHENSIVE INCOME ................................................................................................................. 11 STATEMENT OF CONSOLIDATED CASH FLOWS ........................................................................................................... 12 CHANGE IN CONSOLIDATED SHAREHOLDERS' EQUITY ............................................................................................. 13 1.1 1.2 1.3 1.4 1.5 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................... 14 SIGNIFICANT EVENTS DURING THE HALF-YEAR ............................................................................................................ 15 Activity ........................................................................................................................................................................ 15 Acquisitions ................................................................................................................................................................. 15 Dividends .................................................................................................................................................................... 15 Other information ...................................................................................................................................................... 15 Events after the reporting period............................................................................................................................ 15 ACCOUNTING PRINCIPLES AND METHODS ................................................................................................................ 16 Basis of preparation and accounting principles .................................................................................................. 16 Management estimates........................................................................................................................................... 16 FINANCIAL RISK FACTORS ............................................................................................................................................. 16 CHANGES IN THE SCOPE OF CONSOLIDATION .......................................................................................................... 17 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.2 2.2.1 2.2.2 2.3 2.4 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS....................................................................... 18 GOODWILL ...................................................................................................................................................................... 19 3.1 PROPERTY, PLANT AND EQUIPMENT ............................................................................................................................. 19 3.2 3.3 FINANCIAL ASSETS .......................................................................................................................................................... 19 3.4 CURRENT ASSETS ............................................................................................................................................................. 20 PROVISIONS ..................................................................................................................................................................... 21 3.5 FINANCIAL LIABILITIES ..................................................................................................................................................... 21 3.6 OTHER LIABILITIES ............................................................................................................................................................. 22 3.7 PAYROLL EXPENSES ........................................................................................................................................................ 22 3.8 OTHER NON-CURRENT INCOME AND EXPENSES ........................................................................................................ 23 3.9 NET FINANCIAL INCOME ........................................................................................................................................... 23 3.10 INCOME TAX ON EARNINGS .................................................................................................................................... 24 3.11 OPERATING SEGMENT INFORMATION ..................................................................................................................... 25 3.12 EARNINGS PER SHARE ............................................................................................................................................... 25 3.13 CASH FLOW STATEMENT ............................................................................................................................................ 26 3.14 CONTINGENT ASSETS AND LIABILITIES ...................................................................................................................... 26 3.15 RELATED PARTIES ........................................................................................................................................................ 27 3.16 FINANCIAL COMMITMENTS ...................................................................................................................................... 27 3.17 Statutory Auditors' report on the half-year financial statements .................................................................... 28 Declaration by the person in charge of the half-year financial report ......................................................... 29 - 7 - 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS - 8 - 1.1 CONSOLIDATED BALANCE SHEET ASSETS (In thousands of euros) Notes 30/06/2015 31/12/2014 (1) Goodwill 3.1 293 530 276 259 Intangible assets 10 098 9 122 Property, plant and equipment 3.2 34 876 18 145 Inv estments in associates 3 987 3 644 Non-current financial assets 3.3 68 534 67 920 Deferred tax assets 3.11 14 661 12 791 NON-CURRENT ASSETS 425 687 387 881 Trade receiv ables 3.4 499 174 462 256 Other current assets 3.4 44 189 32 999 Current tax assets 40 271 35 697 Cash and cash equiv alents 59 487 70 467 CURRENT ASSETS 643 121 601 418 TOTAL ASSETS 1 068 808 989 299 LIABILITIES (In thousands of euros) Notes 30/06/2015 31/12/2014 (1) Share capital 34 180 34 140 Additional paid-in capital 45 714 44 981 Consolidated reserv es 453 138 402 466 Consolidated earnings 45 279 79 363 EQUITY (group share) 578 311 560 950 NON-CONTROLLING INTERESTS 1 381 1 281 TOTAL EQUITY 579 693 562 231 Prov isions 3.5 19 439 18 673 Non-current financial liabilities 3.6 15 764 6 194 Other non-current liabilities 3.7 14 021 14 300 Deferred tax liabilities 3.11 1 889 1 129 NON-CURRENT LIABILITIES 51 114 40 296 Prov isions 3.5 4 689 6 482 Current financial liabilities 3.6 61 803 38 814 Trade payables 55 509 47 972 Other current liabilities 3.7 310 285 285 945 Current tax liabilities 5 715 7 558 CURRENT LIABILITIES 438 001 386 771 TOTAL LIABILITIES 1 068 808 989 299 (1) The consolidat ed balance sheet for t he period ended 31 December 2014 was modified in relat ion t o t he one cont ained in t he consolidat ed financial st at ement s at 31 December 2014 published in April 2015 in order t o t ake int o account t he impact of t he new int erpret at ion of IFRIC 21 - Levies (Please refer t o Not e 2.2.1) - 9 - 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros) Notes 30/06/2015 30/06/2014 (1) REVENUE 3.12 764 174 680 069 Purchases consumed Payroll expenses External charges Taxes other than on income Depreciation and amortisation Other operating expenses Other operating income 3.8 (61 914) (552 939) (73 722) (4 968) (5 615) (1 652) 3 695 (55 830) (493 971) (64 373) (5 266) (4 687) (2 931) 3 780 OPERATING PROFIT ON ACTIVITY 67 058 56 791 Share-based payments 135 76 PROFIT FROM ORDINARY ACTIVITIES 67 193 56 867 Non-current operating expenses Non-current operating income Income from asset disposals Impairment of goodwill 3.9 3.9 (3 184) 759 0 0 (7 445) 277 0 OPERATING PROFIT 64 768 49 699 Net borrowing costs Other financial expenses Other financial income Income tax expense 3.10 3.10 3.10 3.11 (410) (4 309) 7 296 (22 294) (231) (2 795) 2 984 (16 870) EARNINGS OF CONSOLIDATED ENTITIES 45 052 32 787 Earnings from associates 343 1 002 NET OVERALL EARNINGS 45 395 33 789 Including: Minority interests 116 111 Attributable to owners of the Company 45 279 33 678 Earnings per share in euros (Group share) 3.13 1,37 1,03 Diluted earnings per share in euros (Group share) 3.13 1,37 1,03 (1) The consolidat ed income st at ement for t he period ended 30 June 2014 was modified in relat ion t o t he one included in t he consolidat ed financial st at ement s of 30 June 2014 published in Oct ober 2014 t o t ake int o account t he impact of t he new int erpret at ion of IFRIC 21 - Levies (Please refer t o Not e 2.2.1) - 10 - 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros) Notes 30/06/2015 30/06/2014 (1) Net income, Group share Earnings attributable to minority interests 45 279 116 33 678 111 Consolidated net earnings 45 395 33 789 Change in fair value of sellable financial assets (net of income tax) Translation adjustments 3.3 462 4 484 938 223 INCOME AND EXPENSES RECOGNISED DIRECTLY IN EQUITY AND TRANSFERABLE TO PROFIT OR LOSS 4 946 1 161 Actuarial differences on employee benefits (net of income tax) 0 0 Items recognised directly in equity and not transferable to profit or loss 0 0 TOTAL INCOME FOR THE PERIOD 50 341 34 950 Including: Attributable to owners of the Company Minority interests 50 228 113 34 839 111 (1) The consolidat ed income st at ement for t he period ended 30 June 2014 was modified in relat ion t o t he one included in t he consolidat ed financial st at ement s of 30 June 2014 published in Oct ober 2014 t o t ake int o account t he impact of t he new int erpret at ion of IFRIC 21 - Levies (Please refer t o Not e 2.2.1) - 11 - 1.4 STATEMENT OF CONSOLIDATED CASH FLOWS (In thousands of euros) Notes 30/06/2015 30/06/2014 (1) Consolidated net earnings 45 395 33 789 Earnings of equity-accounted companies (343) (1 002) Depreciation, amortisation and operating prov isions 3.14 3 463 8 856 Share-based payments (135) (76) Income tax expense 3.11 22 294 16 870 Capital gains or losses from disposals (1 728) 129 Net borrowing costs 3.10 410 231 Financial cost on update and prov isions (67) (334) Gross cash flow before borrowing costs and tax 69 288 58 730 Taxes paid 3.14 (20 243) (17 550) Change in working capital requirements 3.14 (20 451) (37 936) Net cash flow from operating activities 28 594 2 976 Acquisition of tangible and intangible assets (5 465) (3 140) Acquisition of financial assets (1 386) (1 213) Impact of changes in scope and earn-outs 3.14 (22 881) (25 472) Disposals of tangible and intangible assets 64 84 Changes in non-current financial assets 2 697 2 316 Net cash flow from investing activities (26 972) (27 426) Net financial interest paid (971) (412) Div idends paid to shareholders (33 160) (33 013) Capital increase 3.14 773 6 523 Acquisitions and disposals of treasury shares (281) 79 Changes in non-current financial liabilities (1 728) (403) Change in current financial liabilities 22 585 20 031 Net cash flow from financing activities (12 783) (7 195) Impact of exchange rate movements on cash 180 81 Change in cash position (10 980) (31 563) Cash at beginning of period 70 467 96 952 Cash at end of period 59 487 65 388 Change (10 980) (31 563) (1) The consolidated net earnings and t he change in working capit al requirement s of t he 30 June 2014 comparison period weremodified in relat ion t o t he dat a cont ained in t he cash flows stat ement included in t he consolidat ed financial stat ement s at 30 June 2015, published in October 2014, t o t ake int o account t he impact of t he applicat ion of t he new int erpret at ion of IFRIC 21 - Levies (Please refer t o Not e 2.2.1) In accordance with IAS 7 identifying bank borrowings and loans with financing activities, the table above shows the change in positive cash flow items. The Group’s net cash position breaks down as follows: (In thousands of euros) 30/06/2015 30/06/2014 Cash at end of period 59 487 65 388 Bank loans (57 262) (39 094) Bank ov erdrafts (19 766) (10 747) Net cash position (17 541) 15 547 - 12 - 1.5 CHANGE IN CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands of euros) Number of shares in circulation Number of shares issued Capital Additional paid-in capital Reserves Treasury shares Translation reserve At 31 December 2013 32 600 331 33 075 301 33 618 36 951 367 251 (9 194) (224) 2013 allocation of earnings Capital increase (2) Dividends paid to shareholders Other variations Treasury shares Share-based payments 402 401 3 676 402 401 409 6 114 73 831 (33 013) (76) 79 Transactions with shareholders 33 006 408 33 477 702 34 027 43 065 407 992 (9 114) (224) Total income for the period Earnings attributable to minority interests 938 223 Profit and income and expenses in shareholders’ equity 938 223 At 30 June 2014 (1) 33 006 408 33 477 702 34 027 43 065 408 930 (9 114) (1) At 31 December 2014 (1) 33 121 861 33 589 610 34 141 44 981 411 009 (8 971) 428 2014 allocation of earnings Capital increase (2) Dividends paid to shareholders Other variations Treasury shares Share-based payments 39 165 39 165 40 733 79 363 (33 160) (63) (135) (281) Transactions with shareholders 33 161 026 33 628 775 34 181 45 714 457 013 (9 252) 428 Total income for the period Earnings attributable to minority interests 462 4 487 Profit and income and expenses in shareholders’ 462 4 487 At 30 June 2015 33 161 026 33 628 775 34 181 45 714 457 476 (9 252) 4 914 (1) The change in shareholders' equity for the period ended 30 June 2014 and the shareholders' equity at 31 December were modified in relation to those presented in the consolidated financial statements of 30 June 2014 and 31 December 2014 to take into account the impact of the new interpretation of IFRIC 21 - Lev ies (Please refer to Note 2.2.1) (2) Capital increases associated with the exercise of stock options CHANGE IN SHAREHOLDERS’ EQUITY, MINORITY INTEREST SHARE (In thousands of euros) Reserves Translatio n reserve Earnings SHAREHOLDE RS’ EQUITY At 31 December 2013 859 280 1 140 2013 allocation of earnings Change in scope Capital increase Total income for the period 280 1 (280) 111 0 0 0 112 At 30 June 2014 (1) 1 141 111 1 251 At 31 December 2014 (1) 2014 allocation of earnings Change in scope Capital increase Total income for the period 1 066 220 (12) (4) (3) 220 (220) 116 1 281 0 (12) 0 116 At 30 June 2015 1 273 (4) 116 1 384 (1) The change in shareholders' equity for the period ended 30 June 2014 and the shareholders' equity at 31 December were modified in relation to those presented in the consolidated financial statements of 30 June 2014 and 31 December 2014 to take into account the impact of the new interpretation of IFRIC 21 - Lev ies (Please refer to Note 2.2.1) - 13 - Earnings (Group share) 73 831 (73 831) 0 33 678 1 002 33 678 33 678 79 363 (79 363) 0 45 279 343 45 279 45 279 SHAREHOL DERS’ EQUITY 502 234 0 6 523 (33 013) 0 79 (76) 475 746 34 839 1 002 34 839 510 586 560 950 0 773 (33 160) (63) (281) (135) 528 083 50 228 343 50 228 578 311 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - 14 - 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Activity Please refer to the "half-year financial report" section of this document. 2.1.2 Acquisitions Lincoln (Revenue €21 million; 230 consultants) On 12 February 2015, Alten SA acquired all securities of the company Abilène, a holding of Lincoln, a French company specialised in data science and more specifically in business intelligence and clinical studies in France. Eclipse IT (Revenue €11 million; 95 consultants) On 26 January 2015, Alten Nederland acquired all securities for four Dutch companies specialised in software testing and business intelligence. Experco (Revenue €7 million; 70 consultants) On 23 February 2015, Alten Canada acquired all securities of the company Experco, a Canadian company specialised in IT consulting. 2.1.3 Dividends During the first half of the year, €33.2 million in dividends were paid to Alten SA shareholders for the financial year ended 31 December 2014. 2.1.4 Other information Tax audits began during the first six months of the year for the two French companies; On 20 March 2015, Alten SA signed a new “Club Deal” credit agreement to replace the existing agreement, which ends on 31 December 2015. This agreement sets out more favourable conditions and establishes a credit line for €160 million for a maximum of seven years. 2.1.5 Events after the reporting period The Group made several acquisitions at the beginning of the second half of 2015: On 1 July 2015, Alten SA acquired a group of French companies specialising in the consulting and integration of business intelligence systems in the health sector (Revenue €17 million; 160 consultants); On 31 July 2015, ALTEN Belgium acquired a Belgian company specialising in the field of consulting and testing (Revenue €8 million; 70 consultants). - 15 - 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statement of 30 June 2015 was prepared in accordance with IAS 34 "Interim Financial Reporting", as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and the consolidated financial statements for the period ended 31 December 2014 (included in the 2014 Registration Document) are to be used as a reference while reviewing them. The 2014 consolidated financial statements included in the issuer's 2014 Registration Document are also available on its website page dedicated to financial statements: http://www.alten.com/investors. The financial statements presented in this document were approved by the Board meeting of 21 September 2015. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Basis of preparation and accounting principles The accounting principles and the calculation methods used to prepare the condensed consolidated financial statements of 30 June 2015 are identical to those used for the consolidated financial statements of 31 December 2014, with the exception of the new mandatory standards, amendments and interpretations effective as at 1 January 2015 and applied by the Group. This is the first time the Group is applying the interpretation "IFRIC 21 – Levies", which redefines the operative factor for the recognition of liabilities associated with taxes. The Group's review and analysis of its various taxes led to a change in the recognition of the Contribution Sociale de Solidarité des Sociétés (C3S) (Corporate Social Solidarity Tax) in France from a retrospective standpoint and resulted in the modification of the summary comparison statements presented above. The C3S liability was originally recognised progressively throughout the financial year depending on revenue but is now, in accordance with the provisions of IFRIC 21, fully recorded on 1 January of the following financial year. The impact of this change in accounting on the consolidated earnings is mainly noticeable in the half-year results: Profit from ordinary activities was reduced by €0.8 million at 30 June 2014 and by €0.6 million at 30 June 2015. The Group's shareholders' equity increased by €0.9 million at 31 December 2014. The other standards, amendments or interpretations published or applicable at 1 January 2015 have not resulted in any changes in the half-year condensed consolidated financial statements of 30 June 2015. Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory at 1 January 2015. The Group believes that these should not have any significant impact on the consolidated financial statements. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates provided by Management in the preparation of the consolidated statements are presented on page 200 of the 2014 Registration Document. 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2014 consolidated financial statements remain essentially unchanged. - 16 - 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION The percentage of interest and control set forth below include, as the case may be, firm or conditional commitments to dispose of minority interests, even if the disposals are not yet completed, in accordance with IFRS 3 and IAS 27 as revised. Additions to the scope France Company name LINCOLN ABILENE (*) FC = Full consolidation SIRET NO. 37934230600063 40421019700020 Basis of consolidation (*) FC FC % interest 100,00 100,00 % control 100,00 100,00 Abroad Company name Basis of consolidation (*) % interest % control Country of operation ECPLIPSE IT BIS FC 100,00 100,00 The Netherlands ECPLIPSE IT MN FC 100,00 100,00 The Netherlands ECPLIPSE IT SERVICES ECPLIPSE IT TS EXPERCO (*) FC = Full consolidation FC FC FC 100,00 100,00 100,00 100,00 100,00 100,00 The Netherlands The Netherlands Canada Other changes in scope Legal reorganisations During the first half of the year, the Group undertook the following legal reorganisations: In Germany, the companies Inventive Engineering Gmbh and HY (non-consolidated at 31 December 2014) merged into Alten Gmbh. Geci Gmbh also merged into Alten Technology Gmbh; In France, the companies G-Fit, Geci Systèmes SAS and Pcubed France underwent mergers with the companies Alten SIR, Alten Sud-Ouest and MI-GSO respectively. Creations Several companies created at the end of the 2014 financial year were included in the consolidation scope during the first half of 2015 (HPA, Alt 02, Alt 03, Alt 04, Alt 05, Alten SIR GSS (51%), Aptech OP2, Hins Hong Kong, Co, and ACF Spain). Exclusion from scope Several companies, whether dormant, liquidated or in the process of liquidation were excluded from the consolidation scope for the first half of the year. Change in the percentage of interests The Group purchased 3.2% of the securities and voting rights of Aptech from a minority shareholder, bringing the Group's stake in the company from 80% to 83.2%. - 17 - 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS - 18 - 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: (In thousands of euros) France UK Belgium The N etherlands Spain Germany Italy Finland Sweden United States Offshore + Asia Nearshore Other Total 31/12/2014 92 109 4 236 8 512 12 824 19 991 45 448 12 949 13 228 27 275 29 084 6 038 3 898 666 276 259 Acquisitions 5 127 7 776 69 3 160 16 132 Disposals (23) (23) Earn-out adjustments (375) 150 (225) Translation adjustments 1 558 58 1 616 Other (117) (341) 229 (229) Reclassifications 0 Impairments 0 30/06/2015 97 119 4 236 8 512 20 600 19 991 44 801 12 949 13 228 27 275 31 021 6 015 3 898 3 884 293 530 For the first half of 2015, changes in goodwill were due to: The acquisitions made by the Group (described in Note 2.1.2); - The adjustment of the earn-outs and net positions of the previous acquisitions during the allocation period. The Group performs value tests on an annual basis or when loss of value indicators emerge. The tests performed on 30 June 2015 for the assets of the CGUs showing signs of value loss demonstrate that their recoverable value is higher than their net accounting value. As a result, no impairment representing a loss in value was recorded at 30 June 2015. The discount rate (WACC) of the country and the perpetual growth rate used at 30 June 2015 are identical to those of 31 December 2014 in the absence of any significant changes in the factors making up these rates. 3.2 PROPERTY, PLANT AND EQUIPMENT The increase in property, plant and equipment over the period is primarily due to the lease-back of a property (€16 million) under the terms of the acquisition of Lincoln during the period. 3.3 FINANCIAL ASSETS Carrying amount according to IAS 39 Hierarchisation of the fair value of financial assets (In thousands of euros) Note Amortised cost Fair value through shareholders’ equity Fair value through earnings 30/06/2015 31/12/2014 Level 1 Level 2 Level 3 Assets NON-CURRENT FINANCIAL ASSETS: 42 416 26 118 68 534 67 919 17 246 0 8 873 Securities held for sale 26 118 26 118 25 848 17 246 0 8 873 Deposits and guarantees 6 459 6 459 6 677 Other long-term assets (loans and receivab les) 35 957 35 957 35 394 TRADE RECEIVABLES 3.4 499 174 499 174 462 256 Other current assets * 3.4 4 528 4 528 3 390 Cash and cash equivalents 59 487 59 487 70 467 59 487 excluding tax and social security receivab les and prepaid expenses. - 19 - Securities held for sale include the following: Entity % Interest Fair value 31/12/2014 Acquisition (disposal) Change in fair value Fair value 30/06/2015 Fair value hierarchical level Data used Ausy 9,33% 13 026 1 462 14 488 1 Share price FCP X-Ange 5,90% 2 663 95 2 758 1 v alue SMART TRADE * 0,00% 1 285 (285) (1 000) 0 PHINERGY LTD 13,30% 8 391 8 391 3 Miscellaneous 483 (2) 482 3 Total 25 848 (192) 462 26 118 Please refer to Note 3.10 on net financial income 3.4 CURRENT ASSETS (In thousands of euros) 30/06/2015 31/12/2014 TRADE RECEIVABLES Gross v alue 504 070 467 243 Impairments (4 896) (4 988) Total 499 174 462 256 OTHER CURRENT ASSETS Inv entory 187 133 Social security receiv ables 3 078 3 843 Tax receiv ables 25 536 18 782 Other receivables 5 149 3 867 Impairment of other receiv ables (808) (610) Prepaid expenses 11 048 6 983 Total 44 189 32 999 The following table presents the breakdown of the portfolio of trade receivables by age of the account: 30/06/2015 31/12/2014 (in thousands of euros) Unmatured Less than 6 months Six months to one year More than one year Balance Unmatured Less than 6 months Six months to one year More than one year Balance TRADE RECEIVABLES Gross v alue 424 112 68 438 5 753 5 766 504 070 362 110 92 029 9 864 3 240 467 243 Prov isions 0 (106) (432) (4 357) (4 895) (312) (597) (4 079) (4 988) Net values 424 112 68 332 5 321 1 409 499 174 362 110 91 717 9 267 (839) 462 255 Based on its experience and given its trade debt collection policies, the Group estimates that the level of impairment for the financial year is in accordance with the risks incurred. - 20 - 3.5 PROVISIONS (In thousands of euros) Corporate disputes(1) Commercial disputes Miscellaneo us risks Retirement benefits (2) At 31/12/2014 4 606 566 4 828 15 155 Change in scope 0 1 108 Translation adjustments 8 Reclassifications 19 15 (448) Exchange rate v ariations Prov isions for the financial year 642 23 495 1 408 Rev ersals (prov isions used) (684) (15) (1 864) Rev ersals (prov isions not used) (781) (549) (367) (36) At 30/06/2015 3 802 40 2 651 17 635 NON-CURRENT PROVISIONS (in thousands of euros) 30/06/2015 31/12/2014 Corporate disputes 1 494 2 296 Commercial disputes 0 549 Miscellaneous risks 310 672 Retirement benefits 17 635 15 155 Total 19 439 18 673 CURRENT PROVISIONS (in thousands of euros) 30/06/2015 31/12/2014 Corporate disputes 2 307 2 310 Commercial disputes 40 17 Miscellaneous risks 2 342 4 155 Retirement benefits 0 0 Total 4 689 6 482 (1) Some corporate disputes are individually insignificant (2) Retirement benefits were determined at the end of June 2015 on the basis of the same actuarial assumptions as those used at 31 December 2014. The sensitivity analysis presented below shows the total amount of the commitment in relation to a change in the discount rate of plus or minus 1 point: Sensitivity analysis of retirements benefits Discount rate 1 point 2.65% (rate curve) +1 point Total commitment (in thousands of euros) 22 047 17 635 14 138 3.6 FINANCIAL LIABILITIES (In thousands of euros) 31/12/2014 Inc Repayment Change in scope Other (goodwill) 30/06/2015 Current Bank loans 40 159 39 044 (34 645) 0 189 44 748 40 871 Other loans and related debt 893 1 237 (794) 11 176 1 12 514 933 Ov erdrafts 3 507 16 335 (96) 6 14 19 766 19 766 Deposits and guarantees receiv ed 226 12 (229) 138 158 305 Employee profit-sharing 223 7 (18) 0 23 234 233 Total 45 008 56 634 (35 781) 11 320 385 77 567 61 803 - 21 - TOTAL 25 155 1 108 8 (414) 0 2 567 (2 563) (1 733) 24 129 Non- current 3 877 11 581 0 305 1 15 764 Bank loans (In thousands of euros) Bank loans 30/06/2015 44 748 EUR 42 919 USD GBP 1 829 Fixed rate 2 414 Variable rate 42 334 At 30 June 2015, this item consists of: Drawdown of the new “Club Deal” for €30 million (variable rate short-term financing) on a line opened for €160 million; The drawdown of the old "Club Deal" for €30 million at the end of December 2014 was reimbursed over the course of the first half of the year; - A loan for €5 million subscribed at the end of December 2013 repayable over three years (three- month Euribor variable rate +0.5%). The remaining capital owed stands at €3.3 million at 30 June 2015 following a repayment of €1.7 million during the course of the first half of the year; - A fixed-term advance of 1 month for €9 million subscribed at the end of June; - Other mid- and long-term loans for €2.4 million, including €1.8 million denominated in GBP. The repayment over the period of a line of credit subscribed in November 2014 and denominated in USD for an amount of €2.5 million at 31 December 2014 must also be noted. Other financial liabilities At 30 June 2015, the other financial liabilities consist of the liability on the property lease of €10.8 million acquired during the purchase of the Lincoln company. 3.7 OTHER LIABILITIES (In thousands of euros) Earn-outs(1) 31/12/2014 18 438 Change (1 535) Change in scope Translation adjustments 641 30/06/2015 17 544 Current 7 695 Non- current 9 849 Social security debt(2) 146 529 13 955 4 306 849 165 638 161 662 3 977 Tax liabilities 84 457 4 257 4 100 177 92 990 92 990 Deferred income 22 414 175 860 42 23 490 23 490 Other liabilities 28 407 (5 111) 1 135 212 24 643 24 448 196 Total 300 245 11 740 10 401 1 920 324 306 310 285 14 021 (1) The counterparty for earn-outs on companies acquired is in goodwill. Fair value is established according to observable market data (Level 3). (2) Debt relating to time savings accounts. 3.8 PAYROLL EXPENSES (In thousands of euros) 30/06/2015 30/06/2014 Salaries and benefits (540 207) (482 380) Corporate disputes 790 289 Retirement benefits (1 115) (816) Taxes lev ied on wages (10 767) (9 771) Employee profit sharing (1 639) (1 292) Total (552 939) (493 971) - 22 - 3.9 OTHER NON-CURRENT INCOME AND EXPENSES (In thousands of euros) 30/06/2015 30/06/2014 Restructuring costs (1) (2 370) (1 122) Costs associated with the acquisition of new companies (773) (1 178) Social security and tax adjustments 326 (4 884) Other 392 15 Total non-current operating income (2 425) (7 168) Including non-current operating expenses (3 184) (7 445) Including non-current operating income 759 277 (1) Costs generated by specific measures taken to offset the deterioration of the economic environment (partial unemployment, reduction in headcount, site mergers, etc.). This item primarily involves costs incurred and provisioned in Germany (€1.7 million) and in France (€0.5 million). 3.10 NET FINANCIAL INCOME (In thousands of euros) 30/06/2015 30/06/2014 Bank interest charges (318) (379) Interest on lease-financing agreements (215) (28) Gross borrowing costs (533) (407) Income from receiv ables and inv estments 123 176 Income from the disposal of marketable securities 0 0 Net borrowing costs (410) (231) Foreign exchange losses (3 289) (1 401) Other financial expenses (649) (523) Discounted financial expenses (Retirement benefits) (257) (229) Financial prov isions (114) (642) Other financial expenses (4 309) (2 795) Foreign exchange gains 4 575 1 652 Other financial income 2 654 356 Financial income as a result of discount 50 334 Rev ersal of financial prov isions 17 642 Other financial income 7 296 2 984 Other net financial income and expenses 2 987 188 NET FINANCIAL INCOME (EXPENSES) 2 578 (42) Over the period, the Group earned €1.9 million in capital gains on the disposal of the minority interest it held in Smart Trade Technologies. - 23 - 3.11 INCOME TAXES Breakdown of income tax expenses (In thousands of euros) 30/06/2015 30/06/2014 Net financial income: Group and minority interests 45 395 33 789 Earnings of equity-accounted companies (343) (1 002) Impairment of goodwill 0 0 Stock options (135) (76) Income tax expense 22 294 16 870 Pre-tax earnings 67 211 49 581 Tax rate of the consolidating company 34,43% 34,43% Theoretical income tax expense 23 143 17 072 Special 3% tax on div idends paid 995 990 Additional contribution 10.7% 788 366 Difference in tax rate v ersus foreign companies (2 949) (1 692) Miscellaneous tax credits (apprenticeship, family, gifts, etc.) (414) (377) Specific tax credits (4 800) (5 027) Unactiv ated deferred tax assets 1 470 580 CVAE (v alue added tax) reclass. 3 367 3 271 Other permanent differences 695 1 686 Tax expense recognised 22 294 16 871 Effective income tax rate 33,17% 34,02% Including deferred taxes (2 181) (868) Including income tax payable 24 475 17 739 Total 22 294 16 871 (*) Tax free income. Deferred taxes Deferred tax receivables and liabilities consist of: (In thousands of euros) 30/06/2015 31/12/2014 Employee profit-sharing 557 514 Retirement benefits 5 663 4 836 Other timing differences 1 415 2 451 Tax-loss carry-forwards 5 137 3 860 Total deferred taxes: 12 772 11 662 Including: Deferred tax assets 14 661 12 791 Deferred tax liabilities (1 889) (1 129) The amount of unactivated deferred taxes for tax-loss carry-forwards amounted to €2.7 million (€9.1 million basis) at 30 June 2015. - 24 - 3.12 OPERATING SEGMENT INFORMATION In accordance with IFRS 8 “Operating Segments”, the financial information published below was used by the main operational decision-maker (the Chairman) to internally assess the performance of the segments. (In thousands of euros) France 30/06/2015 Abroad TOTAL France 30/06/2014 Abroad Revenue Inter-segment and intra-group neutralisation Net revenue Net revenue Operating profit on activity Rate of operating profit on activity/revenue for the segment Profit from ordinary activities Operating profit Net financial income Income tax expense Earnings of consolidated entities 412 266 (16 248) 396 018 37 422 9,4% 37 557 36 826 1 577 (13 355) 25 049 25 381 403 481 (35 326) 368 155 29 636 8,0% 29 636 27 942 1 001 (8 939) 20 003 20 014 815 748 (51 574) 764 174 67 059 8,8% 67 194 64 768 2 578 (22 294) 45 052 45 395 402 517 (18 267) 384 250 33 394 8,7% 33 470 28 326 156 (9 596) 18 886 19 738 330 228 (34 409) 295 819 23 398 7,9% 23 398 21 373 (199) (7 273) 13 901 14 060 NET OVERALL EARNINGS (In thousands of euros) France 30/06/2015 Abroad TOTAL France 30/06/2014 Abroad Goodwill Impairment over the financial year Equity-accounted investments Workforce at Year End Cash at end of period Financial liabilities 97 119 3 939 9 820 15 979 73 307 196 412 48 9 700 43 507 4 260 293 530 0 3 987 19 520 59 487 77 567 109 678 1 040 9 433 31 576 44 057 163 997 8 340 33 812 6 185 Net investments for the period 9 221 17 751 26 972 (133) 27 559 The contribution of the companies acquired during the period to net financial income is €1.7 million, and €21.4 million for the revenue of the first half of 2015. 3.13 EARNINGS PER SHARE (In thousands of euros) 30/06/2015 30/06/2014 Earnings 45 279 33 678 Weighted average number of shares 33 143 162 32 708 457 Earnings per share 1,37 1,03 (In thousands of euros) 30/06/2015 30/06/2014 Earnings Effect of dilutions Diluted earnings 45 279 0 45 279 33 678 0 33 678 Weighted average number of shares Effect of dilutions Weighted average number of shares after potential dilution 33 143 162 27 627 33 170 789 32 708 457 109 448 32 817 905 Diluted earnings per share 1,37 1,03 - 25 - TOTAL 732 745 (52 676) 680 069 56 791 8,4% 56 868 49 699 (42) (16 870) 32 787 33 798 TOTAL 273 675 0 1 040 17 773 65 388 50 242 27 426 3.14 CASH FLOW STATEMENT CHANGES IN DEPRECIATION, AMORTISATION AND PROVISIONS NET OF REVERSALS 30/06/2015 30/06/2014 Amortisation of intangible assets 1 285 1 055 Depreciation of property, plant and equipment 3 907 3 259 Impairment of goodwill 0 0 Provisions for risks and expenses (1 729) 4 542 Total 3 463 8 856 Breakdown of taxes paid 30/06/2015 30/06/2014 Repayments received 4 272 2 428 Payments made (24 515) (19 978) Total (20 243) (17 550) Breakdown of cash flows on working capital requirements 30/06/2015 30/06/2014 Changes in net WCR - customers (22 090) (34 154) Changes in net WCR - suppliers (1 824) (5 788) Changes in net WCR – other receivables and operating payables 3 464 1 738 Total (20 451) (38 204) Impact of changes in scope and earn-outs 30/06/2015 30/06/2014 Acquisitions of consolidated subsidiaries (30 553) (28 558) Cash from new consolidated subsidiaries 7 683 3 085 Cash from deconsolidated subsidiaries (11) Total (22 881) (25 472) Capital increase 30/06/2015 30/06/2014 Share options exercised 773 6 523 Total 773 6 523 3.15 CONTINGENT ASSETS AND LIABILITIES Contingent assets A dispute over adjustments made by URSSAF (for €14.8 million) was initiated by Group companies. No assets have been recognised in the financial statements in respect of these disputes pending court decisions. Contingent liabilities None - 26 - 3.16 RELATED PARTIES Remuneration granted to corporate officers Over the first half of 2015, there were no significant changes to the remunerations published at 31 December 2014. Relations with related parties Over the first half of 2015, there were no significant changes to the information presented at 31 December 2014. 3.17 FINANCIAL COMMITMENTS Excluding the €3.2 million in banking guarantees and pledges received as debt guarantees on the acquisitions made over the period, no significant changes in other commitments occurred during the first half of 2015 as compared to those published at 31 December 2014. - 27 - Statutory Auditors' report on the half-year financial statements Alten - Period from 1 January 2015 to 30 June 2015 To the shareholders, In compliance with the mission entrusted to us by your General Meeting and pursuant to Article L. 451-1-2 III of the French Monetary and Financial Code, we performed: a limited examination of the condensed consolidated half-year financial statements of Alten S.A. for the period from 1 January 2015 to 30 June 2015, as appended to this report; a verification of the information provided in the half-year financial report. These consolidated half-year financial statements were prepared under the responsibility of the Board of Directors. It is our responsibility, based on our limited examination, to provide our opinion of these statements. 1 Opinion on the financial statements We performed our limited examination according to the professional standards applicable in France. A limited examination consists primarily of discussions with the executives in charge of the accounting and financial functions and in applying analytical procedures. These tasks have a smaller scope than those required for an audit performed in accordance with the professional standards applicable in France. Consequently, the assurance that financial statements as a whole do not contain any significant anomalies based on a limited examination must be a moderate assurance and less certain than one resulting from an audit. Based on our limited examination, we did not identify any significant anomalies that could bring into question the compliance of the half-year condensed consolidated financial statements with IAS 34, the IFRS standard adopted by the European Union for interim financial disclosures. 2 Specific verification We also performed a verification of the information provided in the half-year financial report with comments on the half-year condensed consolidated financial statements included in our limited examination. We have no matters to report as to its fair presentation and its consistency with the half-year condensed consolidated financial statements. Paris La Défense, 25 septembre 2015 Paris, 25 septembre 2015 KPMG Audit IS Grant Thornton Membre français de Grant Thornton French member of Grant Thornton International Jean-Pierre Valensi Associate Vincent Frambourt Associate - 28 - Declaration by the person in charge of the half- year financial report "I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial situation and results of the Company and all its subsidiaries, and that the half-year financial report provides a fair reflection of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year." 25 September 2015. Mr Simon Azoulay Chairman and Chief Executive Officer - 29 - | Semestriel, 2015, IT, Alten | write me a financial report |
Semestriel | 2,019 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Alten
### Response:
| Half-Year Financial Report 2O19 www.alten.com Contents 2019 HALF-YEAR MANAGEMENT REPORT ............................................................................................ 4 BUSINESS OVERVIEW...........................................................................................................................4 FINANCIAL OVERVIEW .........................................................................................................................5 RELATED-PARTY TRANSACTIONS .........................................................................................................6 EVENTS SINCE 30 JUNE 2019 ...............................................................................................................6 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2019 .....................................................6 2019 OUTLOOK ....................................................................................................................................6 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS............................................................ 7 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................8 1.2 CONSOLIDATED INCOME STATEMENT ......................................................................................9 1.3 STATEMENT OF COMPREHENSIVE INCOME............................................................................10 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS .......................................................................11 1.5 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY................................12 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............... 13 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR.......................................................................14 2.1.1 Acquisitions..........................................................................................................................14 2.1.2 Dividends .............................................................................................................................14 2.1.3 Other significant events.......................................................................................................14 2.1.4 Events after the reporting period ........................................................................................14 2.2 ACCOUNTING PRINCIPLES AND METHODS..............................................................................15 2.2.1 Accounting principles...........................................................................................................15 2.2.2 Management estimates.......................................................................................................16 2.3 FINANCIAL RISK FACTORS........................................................................................................16 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION ........................................................................16 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS................................................... 18 3.1 GOODWILL...............................................................................................................................19 3.2 FINANCIAL ASSETS ...................................................................................................................19 3.3 CURRENT ASSETS .....................................................................................................................20 3.4 EMPLOYEE PROVISIONS AND BENEFITS ..................................................................................21 3.5 FINANCIAL LIABILITIES (EXCLUDING RENTAL DEBT) ................................................................22 3.6 RIGHTS OF USE AND RENTAL DEBT .........................................................................................22 www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 3.7 OTHER LIABILITIES ...................................................................................................................24 3.8 PERSONNEL EXPENSES.............................................................................................................25 3.9 OTHER OPERATING INCOME AND EXPENSES..........................................................................26 3.10 NET FINANCIAL INCOME..........................................................................................................27 3.11 INCOME TAXES ........................................................................................................................27 3.12 OPERATING SEGMENT INFORMATION....................................................................................30 3.13 EARNINGS PER SHARE .............................................................................................................30 3.14 STATEMENT OF CASH FLOWS..................................................................................................31 3.15 CONTINGENT ASSETS AND LIABILITIES....................................................................................32 3.16 RELATED PARTIES ....................................................................................................................33 3.17 FINANCIAL COMMITMENTS.....................................................................................................33 STATUTORY AUDITORS' REPORT ON THE 2019 HALF-YEARLY FINANCIAL INFORMATION ........................... 34 DECLARATION BY THE PERSON IN CHARGE OF THE HALF-YEAR FINANCIAL REPORT .................................. 35 www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 2019 half-year management report BUSINESS OVERVIEW ALTEN is the European leader in engineering and technology consulting. The Group carries out design and research projects for the Technical and Information Systems Divisions of major customers in the industrial, telecommunications and service sectors. ALTEN's business consists of three operating segments: engineering and Technology Consulting (ETC); networks, Telecoms and Multimedia; technological information systems. At the end of June 2019, ALTEN had 31,200 engineers and consultants including: 11,500 in France; 19,700 outside France. ALTEN generated 55.8% of its business internationally (compared to 54.2% during the first half of 2018). Significant events for the first half of 2019: ALTEN continues to grow internationally. ALTEN made seven international acquisitions during the first half of 2019: one company in the Netherlands with annual revenue of €6.5 million and 90 consultants; two companies in Germany with annual revenue of €22.5 million and 255 consultants; one company in Spain with annual revenue of €6 million and 95 consultants; one company in the United Kingdom with annual revenue of €11 million and 170 consultants; one company in Denmark with annual revenue of €6 million and 50 consultants; one company in India with annual revenue of €8.5 million and 260 consultants. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 4 FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board of Directors on 19 September 2019, after prior review by the Audit Committee. Income statement (IFRS): Revenue Revenue at 30 June 2019 totalled €1,292.3 million, compared to €1,099.9 million at 30 June 2018, an increase of 17.5%. At constant scope and exchange rates, business grew by 12.5% (13.4% in France and 11.7% outside France) despite an unfavourable calendar effect (one less business day than in 2018). Operating profit on activity Consolidated operating profit on activity for the half-year stands at €116.6 million, up 13.5% in comparison to June 2018 (€102.7 million). The Group's operating margin of 9% was slightly lower than the previous year (9.3%) due to an unfavourable calendar effect (one less business day), which was partially offset by an improved gross margin. In France, the operating margin remained stable (9.9% in 2019 versus 10% in 2018), thanks to higher selling prices and control of G&A expenses. Internationally, the operating margin was down (8.4% in 2019 versus 8.8% in 2018), due to the calendar effect and commercial structuring and HR efforts to support growth. Operating profit Operating profit amounted to €108.9 million (versus €100.3 million at 30 June 2018) after taking into account €4.5 million in non-recurring costs (tax and social security audits, acquisition fees and restructuring costs) and €3.2 million from an IFRS 2 expense on share payments with no cash impact. Net income, Group share After taking into account the financial income (€0.1 million) from the tax expense (€34.9 million), the earnings of equity-accounted companies (€2.8 million), and non-controlling interests (€0.5 million), net income, Group share was €76.4 million, or 5.9% of revenue, up 1.9% from the previous year (€75 million at 30 June 2018, representing 6.8% of revenue). Consolidated balance sheet items and financial movements The financial structure of the ALTEN Group is very robust. Under assets, non-current assets represent 42.1% of the overall balance sheet (€1,929.5 million), which consists in particular of goodwill (66.7%, i.e. €542.4 million). Current assets, excluding cash, consist primarily of accounts to 43.3% of the balance sheet. Under liabilities, the Group has significant equity (€1,012.3 million), which represents 52.5% of the overall balance sheet. receivable, which amount www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 5 In the first half of 2019, the ALTEN Group generated gross cash flow of €123.1 million, up 12% compared to June 2018 (€110 million) before impact of the application of IFRS 16 on 1 January 2019. Gross cash flow was €145.9 million after taking account of the impact of IFRS 16. The €27.9 million increase in working capital requirements was limited despite the seasonal deterioration of the DSO and the financing of organic growth. After taking into account taxes paid (€29 million), Capex (€8.0 million) and cash flows on rental debt (€22.1 million), free cash flow totalled €58.9 million, i.e. €4.6% of revenue, up sharply from 2018 (x5). Financial investments (€57.4 million) and dividends (€33.4 million) were partially financed by debt. Accordingly, the net cash position at 30 June 2019 is -€17.7 million. The Group gearing ratio (net debt/equity) was 1.7%. It does not include IFRS 16 rental debt. ALTEN is in compliance with all of its bank covenants. RELATED-PARTY TRANSACTIONS There were no related-party transactions in the first half of 2019. EVENTS SINCE 30 JUNE 201 9 The Group completed the acquisition of a business in the United States with revenue of $13 million. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2019 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 52 and 120 to 124 of the 2018 Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 26 April 2019. 2019 OUTLOOK In the current economic climate, ALTEN should achieve satisfactory organic growth in line with the first half of 2019. ALTEN will also continue its targeted acquisition strategy to accelerate its growth, internationally in particular. Signed at Boulogne-Billancourt, September 23rd 2019, The Board of Directors. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 6 Half-year condensed consolidated financial statements 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 7 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSET S (In thousands of euros) Notes 30/06/2019 (1) 31/12/2018 Goodwill 3.1 542 421 494 125 Usage rights 3.6 135 157 0 Intangible assets 9 101 9 703 Property, plant and equipment 28 707 28 267 Inv estments in associates 31 635 28 901 Non-current financial assets 3.2 51 809 45 930 Deferred tax assets 14 079 12 435 NON-CURRENT ASSET S 812 911 619 361 Trade receiv ables 3.3 610 078 626 641 Customer contract assets 3.3 225 799 134 142 Other current assets 3.3 78 044 67 174 Current tax asset s 83 393 93 891 Cash and cash equiv alents 3.2 119 297 120 372 CURRENT ASSETS 1 116 612 1 042 220 TOTAL ASSETS 1 929 522 1 661 581 LIABILITIES (In thousands of euros) Notes 30/06/2019 (1) 31/12/2018 Share capital 35 601 35 522 Addit ional paid-in capital 60 250 54 375 Consolidated reserv es 839 999 719 804 Consolidated earnings 76 409 157 869 EQUIT Y (Group share) 1 012 258 967 571 NON-CONTROLLING INTERESTS 2 188 4 863 TOTAL EQUITY 1 014 445 972 434 Post-employment benefits 3.4 28 251 22 778 Non-current prov isions 3.4 7 823 5 889 Non-current financial liabilit ies 3.5 3 108 7 246 Non-current rent al debt 3.6 96 525 Other non-current liabilit ies 3.7 24 995 19 878 Deferred tax liabilities 3.11 1 034 425 NON-CURRENT LIABILITIES 161 738 56 216 Current prov isions 3.4 6 905 7 565 Current financial liabilities 3.5 133 960 100 881 Current rental debt 3.6 41 199 0 Trade payables 97 273 79 045 Other current liabilities 3.7 377 161 346 427 Customer contract liabilities 85 615 92 568 Current tax liabilities 11 226 6 446 CURRENT LIABILIT IES 753 339 632 932 TOTAL EQUITY AND LIABILITIES 1 929 522 1 661 581 (1) For the period ended 30 June 2019, t he consolidated st atement of financial position includes impacts relat ed to the applicat ion of IFRS 16 "Leases", effectiv e 1 January 2019, using the modified retrospectiv e method (see Not e 2.2.1). www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 8 1.2 CONSOLIDATED INCOME STATEMENT www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 9 10 1.3 STATEMENT OF COMPREHENSIVE INCOME www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 11 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS The Group's net cash position/(net debt) ratio, excluding rental debts, breaks down as follows: www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 12 1.5 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 14 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions BAST TECHNIEK (Revenue: €6.5 million; 90 consultants) On 2 January 2019, Orion acquired the Dutch electronics company. EINSPLUS (Revenue: €6 million; 80 consultants) On 7 January 2019, Alten Europe acquired Einsplus, a German automotive company. SDOS (Revenue: €6 million; 95 consultants) On 13 February 2019, Alten Europe acquired 100% of the shares of SDOS, which owns 100% of the subsidiary SDOSCAT. Both companies are IT specialists. IPN (Revenue: €16.5 million; 175 consultants) On 1 April 2019, Alten Gmbh acquired a group of four German engineering and IT consulting firms. WAFER SPACE (Revenue: €8.5 million; 260 consultants) On 30 April 2019, Alten Calsoft Labs India acquired Wafer Space Semiconductors in India, a semiconductor technology company. QUICK RELEASE (Revenue: €11 million; 170 consultants) On 17 May 2019, Alten Europe acquired a group of automotive engineering companies located in the UK, Germany and the US. LARIX (Revenue: €6 million; 50 consultants) On 28 June 2019, Alten Europe acquired 100% of the voting rights of the Danish company Larix A/S, which owns 100% of Larix Sweden AB, both of which specialise in CRO. These last two acquisitions, whose purchase price is in the process of being allocated, will be consolidated in the second half of 2019. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Dividends During the first half of the year, €33.4 million in dividends were paid to ALTEN SA shareholders for the financial year ended at 31 December 2018. 2.1.3 Other key events None. 2.1.4 Events after the reporting period Early in the second half of the year, the Group acquired a business in the United States with revenue of approximately €11 million. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 15 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2019 were prepared in accordance with IAS 34 "Interim Financial Reporting", as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and should be read using the consolidated financial statements for the period ended at 31 December 2018 (included in the 2018 Registration Document) as a reference. The 2018 consolidated financial statements included in the issuer's 2018 Registration Document are also available on its website page dedicated to financial statements: http://www.alten.com.fr/investors/ The financial statements presented in this document were approved by the Board of Directors on 19 September 2019. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2019 are identical to those used for the consolidated financial statements at 31 December 2018, with the exception of the new standards applicable as of 1 January 2019. Excluding the new IFRS 16 "Leases", the other standards, amendments and interpretations whose application is mandatory as from 1 January 2019 have not had a significant impact on the Group's consolidated financial statements. The Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at the European level but whose application was not mandatory at 1 January 2019. IFRS 16 applicable starting 1 January 2019 Starting 1 January 2019, the Group applied the new IFRS 16 "Leases" in place of IAS 17. This new standard introduces changes in the measurement and recognition of leases for the lessee. Leases are now treated using a model similar to the one applied to lease-financing agreements only under IAS 17. Lessees recognise: - a non-current asset representing rights of use for the leased asset on the assets side of the consolidated statement of financial position; - a financial debt representing an obligation to pay for such rights on the liabilities side of the consolidated statement of financial position; - depreciation and amortisation charges for rights of use and interest charges on rental debt in the consolidated income statement. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 16 At the transition date, the Group applied the modified retrospective method with no impact on shareholders' equity and no adjustments to previously published financial statements. Use of the initial agreement period to determine the discount rate at the transition date was also retained by the Group. The weighted average discount rate used by the Group is 1.2%. The application of the standard covered about 2,200 lease agreements in the Group (80% transport vehicles, 15% property leases and 5% IT equipment and miscellaneous). Over 85% of the rental debt is made up of property rental agreements. The accounting principles and the impact of the new standard on the summary statements are presented in Note 3.6 "Rental debt and rights of use". 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates by Management to prepare the consolidated position are presented in the 2018 Registration Document on page 226, to which must be added the term of the lease agreements as part of the application of IFRS 16, effective this financial year beginning 1 January 2019. 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2018 consolidated financial statements remain essentially unchanged. 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope (1) (2) Einsplus was absorbed by Alten Gmbh at the same time as its acquisition. Companies created or acquired (previously or during the half-year) and consolidated for the first time during this period. Other changes in scope In the first half of 2019, the Group continued to streamline its legal structure by merging several entities in Germany and the US. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 17 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 18 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: For the first half of 2019, changes in goodwill were due to: - - the acquisitions made by the Group during the first half of the year (described in note 2.2.1), including the acquisitions of Quick Release and Larix, for which the acquisition prices will be allocated to the assets and liabilities identified during the second half of 2019; earn-out adjustments; translation adjustments on goodwill denominated in foreign currency; corrections of positions acquired (included in the "Other" line) within the allocation period. The Group performs value tests on an annual basis or when loss of value indicators emerge. The tests performed on 30 June 2019 for the assets of the CGUs showing signs of loss of value demonstrate that their recoverable value is higher than their net book value. As a result, no impairment representing a loss in value was recorded at 30 June 2019. The discount rate (WACC) of the country and the perpetual growth rate used at 30 June 2019 are identical to those of 31 December 2018 in the absence of any significant changes in the factors making up these rates. 3.2 FINANCIAL ASSETS Other long-term assets are primarily comprised of loans with associates Securities held for sale include the following interests: www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 19 3.3 CURRENT ASSETS The following table shows the breakdown of the portfolio of trade receivables based on age: Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 20 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (1) Social disputes involve sums that taken individually are insignificant. (2) The Group is involved in a number of tax and social disputes. The corresponding risks and provisions are analysed with the assistance of the Group's consultants. Employee benefits Employee benefits primarily comprise end-of-career commitments. These commitments were determined at the end of June 2019 on the basis of the same actuarial assumptions as those adopted at 31 December 2018, with the exception of a discount rate of 1.20% (compared to 2.0% at 31 December 2018). www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 21 3.5 FINANCIAL LIABILITIES (EXCLUDING RENTAL DEBT) Bank overdrafts At 30 June 2019, this item consists of: the drawdown of the “Club Deal” for €102 million (short-term variable-rate financing) on a line opened for €160 million; - a loan for €7 million subscribed at the end of December 2016, repayable over three years (fixed rate of 0.4%). The remaining principal balance was €2.3 million at 30 June 2019; - other mid and long-term loans denominated in foreign currencies amounting to €5.8 million. Other loans and related debt Financial lease debt recognised as "Other loans and related debt" at 31 December 2018 for an amount of €1.7 million was reclassified at 1 January 2019 on the "rental debt" line with the application of IFRS 16. 3.6 RIGHTS OF USE AND RENTAL DEBT Leases, as defined by IFRS 16 "Leases", are recognised in the balance sheet as: assets corresponding to rights of use for the leased asset during the term of the agreement At the effective date of a lease, rights of use are valued at their cost and include the initial amount of debt plus or minus any advance payments and benefits received from the lessor. Any initial direct costs incurred for the signing of the agreement (marginal costs that would not have been incurred if the agreement had not been entered into) increase the amount of the assets. Rights of use are amortised over the useful life of the underlying assets. This period always corresponds to the term of the lease agreement, given the type of agreements the Group enters into; rental debt for future payment obligations over the term of the agreement www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 22 When the agreement enters into force, rental debt is recognised at an amount equal to the discounted value of the rents paid over the term of the agreement. The amounts taken into account for rent in the valuation of the debt are fixed or variable rents, payments to be made or received from the lessor, less payments already made or received. Rents are discounted using discount rates broken down by country and based on the average terms of the agreements. In the income statement, depreciation and amortisation expenses are recognised in profit from ordinary activities and interest expenses in financial income. The tax impact of this consolidation restatement is taken into account through the recognition of deferred taxes. During the life of each agreement, the amount of the debt and rights of use may be adjusted should events occur that lead to the upward or downward revision or modification of the term of the lease and the amount of rent. Initially, the term of the lease is defined individually for each agreement and corresponds to the fixed period of the commitment, taking into account the optional periods that are reasonably certain to be exercised. The main simplification measures allowed by IFRS 16 are applied by the Group: - exclusion of leases relating to underlying assets with a value of less than €5,000; - exclusion of leases with terms of under 12 months. Rents for agreements excluded from the scope of IFRS 16 are recognised directly as non-current operating expenses. At 30 June 2019 and at the transition date, the main impacts related to the application of IFRS 16 "Leases" are as follows: Consolidated statement of financial position Rights of use (non-current assets) www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 23 Financial rental debt (current and non-current liabilities) It should be noted that a new lease for premises was signed by a French entity during the period. This lease will become effective during the second half of the year and result in an increase in rights of use and rental debt of €35.2 million. Statement of consolidated cash flows The application of IFRS 16 has no impact on total consolidated cash flow but causes an improvement in gross cash flow and, ultimately, the flows generated by the business, to the detriment of cash flows related to financing transactions. In the first half of 2019, the "net cash flow from financing transactions" included lease payments totalling €22.1 million (€21.3 million for repayment of the principal of the lease debt and €0.8 million in interest paid). Consolidated income statement The application of IFRS 16 had little impact on the consolidated income statement. In the first half of 2019, net income was impacted -€0.2 million, with an impact of +€0.4 million on operating profit on activity, -€0.8 million on financial income and +€0.1 million on tax expenses. 3.7 OTHER LIABILITIES www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 24 3.8 PERSONNEL EXPENSES Share-based payments www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 25 3.9 NON-CURRENT OPERATING INCOME AND EXPENSES Over the period, other operating income and expenses consisted of restructuring costs (-€0.5 million) in relation to costs incurred by one-off adaptation measures linked to reorganisations in recently acquired companies (re- groupings of sites, wage costs, etc.), acquisition fees (-€0.6 million), social security and fiscal reassessments (-€2.6 million), and the adjustment of the costs of combining businesses acquired (-€0.8 million) within the framework of the application of IFRS 3 (in particular changes in debts on earn-outs). 3.10 NET FINANCIAL INCOME Financial income for the period includes interest expenses on leases relating to the application of IFRS 16 for an amount of €774 thousand. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 26 3.11 INCOME TAXES Breakdown of income tax expenses The increase in the effective income tax rate at 30 June 2019 compared to 30 June 2018 is due largely to the impact of the elimination of the Employment and Competitiveness Tax Credit (CICE) on 1 January 2019 www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 27 Deferred taxes Deferred tax receivables and liabilities consist of: The amount of non-activated deferred taxes for tax-loss carry-forwards amounted to €7.8 million (€36.2 million basis) at 30 June 2019. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 28 3.12 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. Companies included in the consolidation scope during the period contributed €4.8 million to revenue for the half-year. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 29 3.13 EARNINGS PER SHARE www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 30 3.14 STATEMENT OF CASH FLOWS 3.15 CONTINGENT ASSETS AND LIABILITIES Contingent liabilities were unchanged in type and in comparison, to those presented in the 2018 consolidated financial statements, with the exception of the corrections proposed on 21 June 2019 by the French tax authorities relating to an audit of the Alten SA accounting records from 2015 to 2017, which resulted in restatements totalling €12.2 million. With respect to the legal and factual arguments that can be asserted by the Group, the Group has every right to challenge the proposed notifications. Consequently, no provisions were recorded in the financial statements. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 31 3.16 RELATED PARTIES Compensation and benefits granted to Corporate Officers Over the first half of 2019, there were no significant changes to the compensation reported at 31 December 2018. Relations with related parties Over the first half of 2019, there were no significant changes to the information presented at 31 December 2018. 3.17 FINANCIAL COMMITMENTS No material changes in financial commitments took place during the first half of 2019 compared to those published at 31 December 2018. www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 32 Statutory Auditors' report on the 2019 half-yearly financial information This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by the Shareholders Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Alten SA, for the six months ended June 30, 2019; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our conclusion, we draw your attention to paragraph “IFRS 16 applicable starting 1 January 2019” of the Note 2.2.1 ”Accounting principles” and the note 3.6 ”Usage rights and rental debt” to the condensed half-year consolidated financial statements, which describes the application as of January 1, 2019 of IFRS 16 “Leases”. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Paris La Défense, September 20th, 2019 KPMG Audit IS Jean-Pierre VALENSI, Associé Neuilly-sur-Seine, September 20th, 2019 Grant Thornton Membre français de Grant Thornton International Jean François BALOTEAUD, Associé www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A 33 Declaration by the person in charge of the half-year financial report "I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial position and results of the Company and all its subsidiaries, and that the half-year management report provides a fair view of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year". September 23rd, 2019. Simon AZOULAY Chairman and Chief Executive Officer www.alten.com ALTEN | Group Management / Registered office A French limited company (Société Anonyme) with capital of €35,601,261.15 | 40 avenue André Morizet, 92513 Boulogne-Billancourt Cedex, France | Tel.: +33 (0)1 46 08 72 00 | Fax: +33 (0)1 46 08 70 10 SIRET 348 607 417 00055 | R.C.S Nanterre 348 607 417 | VAT No. FR79 348 607 417 | NACE 6202 A WWW.ALTEN.COM | Semestriel, 2019, IT, Alten | write me a financial report |
Semestriel | 2,023 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| 1 TABLE OF CONTENTS 2023 HALF-YEAR BUSINESS REPORT ................................................................................................................. 4 BUSINESS OVERVIEW ............................................................................................................................................................................... 4 FINANCIAL OVERVIEW .............................................................................................................................................................................. 4 RELATED-PARTY TRANSACTIONS .............................................................................................................................................................. 6 EVENTS SINCE 30 JUNE 2023 .................................................................................................................................................................... 6 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2023........................................................................................................... 7 OUTLOOK FOR 2023 ................................................................................................................................................................................. 7 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS ............................................................................. 8 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................................................................... 9 1.2 CONSOLIDATED INCOME STATEMENT ....................................................................................................................................... 10 1.3 STATEMENT OF COMPREHENSIVE INCOME ............................................................................................................................... 11 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS .......................................................................................................................... 12 1.5 CHANGES IN CONSOLIDATED SHAREHOLDER'S EQUITY ............................................................................................................. 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............................. 14 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR .......................................................................................................................... 15 2.1.1 Acquisitions ................................................................................................................................................................................ 15 2.1.2 Other key events ........................................................................................................................................................................ 15 2.1.3 Events after the reporting period .............................................................................................................................................. 15 2.2 ACCOUNTING PRINCIPLES AND METHODS ................................................................................................................................ 16 2.2.1 Accounting principles ................................................................................................................................................................. 16 2.2.2 Management estimates ............................................................................................................................................................. 16 2.3 FINANCIAL RISK FACTORS .......................................................................................................................................................... 17 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION ........................................................................................................................... 17 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS ................................................................... 18 3.1 GOODWILL ................................................................................................................................................................................. 19 3.2 NON-CURRENT FINANCIAL ASSETS ............................................................................................................................................ 19 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES ................................................................................................ 20 3.4 EMPLOYEE PROVISIONS AND BENEFITS ..................................................................................................................................... 21 3.5 FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) ............................................................................................................. 22 3.6 RIGHTS OF USE AND LEASE DEBT ............................................................................................................................................... 23 3.7 EMPLOYEE BENEFITS EXPENSE ................................................................................................................................................... 23 3.8 OTHER OPERATING INCOME AND EXPENSES ............................................................................................................................. 24 3.9 NET FINANCIAL INCOME ............................................................................................................................................................ 25 3.10 INCOME TAXES ........................................................................................................................................................................... 25 3.11 SEGMENT INFORMATION .......................................................................................................................................................... 26 3.12 EARNINGS PER SHARE ................................................................................................................................................................ 27 3.13 STATEMENT OF CASH FLOWS .................................................................................................................................................... 27 2 3.14 CONTINGENT ASSETS AND LIABILITIES ....................................................................................................................................... 28 3.15 RELATED PARTIES ....................................................................................................................................................................... 29 3.16 FINANCIAL COMMITMENTS ....................................................................................................................................................... 29 REPORT OF THE STATUTORY AUDITORS ON THE 2023 HALF-YEAR FINANCIAL INFORMATION ....................................... 30 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT ................................................. 31 This is a free translation into English of the ALTEN 2023 Half-year Financial Report issued in the French language and is provided solely for the convenience of English-speaking readers. In case of discrepancy the French version prevails. 3 2023 HALF-YEAR BUSINESS REPORT BUSINESS OVERVIEW ALTEN has asserted its position as a European leader in Engineering and Technology Consulting. The Group supports its customers’ development strategies in the areas of innovation, R&D, and information systems. ALTEN’s business consists of two operating segments: Engineering and R&D outsourcing; Information Systems and Internal Networks. • As of 30 June 2023, ALTEN had 57,400 employees (including 50,550 engineers): 11,550 engineers in France; • 39,000 engineers outside France. ALTEN generated 68% of its business internationally (compared to 67.2% during the first half of 2022). Significant events for the first half of 2023: ALTEN is continuing its development in France and internationally, making three acquisitions in 2023 : USA/Canada: a company specialized in software testing (revenue: €18 million, 185 consultants) Poland: a company specialising in IT & telecommunications services (revenue: €19 million, 350 consultants, including 50% external) India/USA/Germany: a company specialising in IT development and engineering services (revenue: €9 million, 500 consultants) FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board of Directors on 21 September 2023, after prior review by the Audit Committee. 4 • Income statement (IFRS): Revenue Revenue at 30 June 2023 amounted to €2,047.9 million, up by 12.2% compared to 30 June 2022 (€1,825.9 million). On a like-for-like basis, business grew by 11.4% (9.4% in France and 12.5% outside France). International business now accounts for 68.0% of the Group’s activity (compared to 67.2% in the first half of 2022). Operating profit on activity Operating profit on activity amounted to €188.0 million, down by 9.9% compared to the first half of 2022 (€208.6 million). The operating margin on activity reached 9.2% of revenue (11.4% of revenue in June 2022). The operating margin decreased both in France (5.6% in 2023 versus 7.8% in 2022) and internationally (10.9% in 2023 versus 13.2% in 2022) due to the consolidation of less profitable companies. This was also due to a satisfactory rate of activity which was however lower than the exceptionally high rate of 2022, an increase in structuring expenses and the seasonal nature of the activity. It remains satisfactory and comparable to the half-year operating margins achieved before Covid. Operating profit Operating profit amounted to €156.3 million (compared to €186.9 million on 30 June 2022). It includes share-based payments (non-cash) of -€16.6 million and non-recurring costs of -€15.1 million, mainly consisting the bonus pool and earn-outs on acquisitions recognised outside the goodwill allocation period (- €10.2 million). Net income, Group share After taking into account the net financial income (-€2.7 million) and the income tax expense (-€42.5 million), the net income, Group share, was €111.1 million, i.e. 5.4% of revenue (€139 million at 30 June 2022, i.e. 7.6% of revenue). Consolidated balance sheet items and financial movements Under assets, non-current assets represent 42.1% of the total balance sheet (€1,445.5 million), and mainly consist of goodwill (73.0%, i.e. €1,055.6 million) and IFRS 16 rights of use (16.4%, i.e. €237.7 million). Current assets, excluding cash, represent 46.4% of the total balance sheet, and are mainly composed of accounts receivable and related assets, which represent over 82,4% of this item. Under liabilities, equity represents 55.3% of the total balance sheet. 5 Earn-outs amounted to €144.1 million, including €77.2 million payable in more than one year. In the first half of 2023, ALTEN Group generated a gross cash flow of €219.5 million (compared with €245 million on 30 June 2022). Restated for IFRS 16 items, gross cash flow from operations was €183.4 million (9.0% of revenue) compared with €213.8 million (i.e. 11.7% of revenue) at 30 June 2022. Due to low CAPEX, the gross cash flow rate is close to the operating margin on activity. Taxes paid amounted to €81.9 million, including the payment of €37.1 million in capital gains tax on the sale of Cprime in the US. The change in Working Capital Requirement amounted to -€111.8 million, heavily impacted by the sharp increase in trade receivables linked to organic growth and the deterioration in the average payment period of clients, which increased from 93 to 97 days. CAPEX remained low, at -€12.8 million, and accounted for 0.6% of revenue. As a result, free cash flow amounted to -€22.4 million. Restated for the exceptional capital gains tax generated in 2022, it would have amounted to €14.7 million or 0.7% of revenue, up compared to June 2022 (€1.1 million). After taking into account financial investment flows of €53.5 million, mainly related to the effects of changes in scope and earn-outs (-€68.0 million) and other financing flows, the net cash position was €340.3 million at the end of June 2023. Gearing is therefore -17.9%, reflecting the Group’s very sound balance sheet structure. NB: the dividends voted at the end of June are paid in July and represent €51.4 million. RELATED-PARTY TRANSACTIONS There were no new related-party transactions in the first half of 2023. EVENTS SINCE 30 JUNE 2023 Since 30 June 2023, the Group has continued its targeted acquisitions: Spain/Germany: a company specialising in aeronautical engineering (revenue: €7 million, 130 consultants) Japan: a company specialising in embedded software (revenue: €41 million, 720 consultants) 6 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2023 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 62 to 68 of the 2022 Universal Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 27 April 2023. OUTLOOK FOR 2023 ALTEN achieved satisfactory growth in activity, with most sectors and geographical areas remaining on the right track. After two years of very sustained growth as part of the post-Covid catch-up, a slowdown in organic growth was expected and reflects the process of the economy returning to normal. Although the pace of growth is slowing, ALTEN should achieve organic growth of around 10% in 2023, a satisfactory operating margin on activity and will continue its targeted external growth strategy. In Boulogne-Billancourt, 21 September 2023, The Board of Directors 7 HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 8 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS (In thousands of euros) Notes Goodwill Rights of use Intangible assets Property, plant and equipment Interests in associates Non-current financial assets Deferred tax assets 3.1 3.6 3.2 3.10 NON-CURRENT ASSETS Customers Client contract assets Other current assets Current tax assets Cash and cash equivalents 3.3 3.3 3.3 CURRENT ASSETS TOTAL ASSETS LIABILITIES (In thousands of euros) Notes Share capital Additional paid-in capital Consolidated reserves Consolidated earnings EQUITY (Group share) NON-CONTROLLING INTERESTS TOTAL EQUITY Post-employment benefits Non-current provisions Non-current financial liabilities Non-current lease debt Other non-current liabilities Deferred tax liabilities 3.4 3.4 3.5 3.6 3.3 3.10 NON-CURRENT LIABILITIES Current provisions Current financial liabilities Current lease debt Trade payables Other current liabilities Client contract liabilities Current tax liabilities 3.4 3.5 3.6 3.3 3.3 CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES 30/06/2023 1 055 579 237 742 7 399 48 503 1 224 73 938 21 135 1 445 520 934 924 376 226 231 012 48 889 396 453 1 987 504 3 433 024 30/06/2023 36 479 60 250 1 692 592 111 097 1 900 417 (298) 1 900 119 16 241 11 357 7 218 184 263 71 001 1 638 291 718 8 501 133 705 65 514 169 836 636 177 183 011 44 442 1 241 187 3 433 024 31/12/2022 1 020 857 227 558 7 172 45 461 1 260 71 388 18 941 1 392 637 964 135 246 087 122 187 40 269 601 735 1 974 414 3 367 051 31/12/2022 36 305 60 250 1 284 779 457 567 1 838 901 (283) 1 838 618 14 833 10 237 3 526 180 842 92 788 913 303 139 8 003 180 587 57 522 138 835 568 896 191 281 80 170 1 225 294 3 367 051 9 1.2 CONSOLIDATED INCOME STATEMENT 10 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros)Notes30/06/202330/06/2022Net income, Group share111 097138 997Net income, non-controlling interest’s share(15)35Consolidated net income111 081139 032Translation adjustments(14 258)12 788Items that may be reclassified to income(14 258)12 788Revaluation of equity instruments held (net of income tax)3.22 250(4 800)Actuarial differences on employee benefits (net of income tax)422 832Items that may not be reclassified to income2 292(1 968)TOTAL INCOME FOR THE PERIOD99 115149 853Including:Group share99 130149 825Non-controlling interests(15)28 11 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros)Notes30/06/202330/06/2022Consolidated net income111 081139 033Earnings from associates36(20)Depreciation, provisions and other calculated expenses3.1349 25140 660Share-based payments3.716 55515 433Income tax expense3.1042 49748 285Capital gains or losses from disposals275197Borrowing costs and financial costs of leases3.91051 438Financial cost on update and provisions(340)(55)Gross cash flow borrowing costs and tax 219 460244 969Taxes paid3.13(81 878)(46 361)Change in working capital requirements 3.3(111 809)(154 615)Net cash flow from operating activities25 77343 993Acquisitions of tangible and intangible assets (12 872)(11 032)Acquisitions of financial assets(87 254)(10 045)Impact of changes in scope and earn outs3.13(59 108)(107 021)Disposals of tangible and intangible assets10653Change in financial assets17 5661 932Net cash flow from investing activities(141 562)(126 113)Net financial interest paid(260)(1 762)Dividends paid to shareholders(0)(44 144)Capital increase3.130(0)Acquisitions and disposals of treasury shares463(680)Change in non-current financial liabilities3.5(8 627)(1 773)Change in current financial liabilities3.5(43 789)128 625Change in lease debt 3.6(33 659)(30 510)Net cash flow from financing transactions(85 873)49 755Change in cash position(201 662)(32 365)Impact of exchange rate variations(3 620)4 499Cash at beginning of period601 735312 311Cash at end period396 453284 445 The Group’s net cash position/(net debt) ratio, excluding lease debts, breaks down as follows: (In thousands of euros)30/06/202330/06/2022Cash at end period396 453284 445+ Investments of more than 3 months3.384 1860+ Bank borrowings and related debt3.5(123 046)(180 229)+ Bank borrowings3.5(17 288)(41 834)= Net cash position/(Net debt)340 30562 382 12 1.5 CHANGES IN CONSOLIDATED SHAREHOLDER'S EQUITY (In thousands of euros)Number of shares in circulationNumber of shares issuedCapitalAdditional paid-in capital ReservesTreasury sharesTranslation reservesEarningsShareholders’ equityAt 31 December 202133 919 34334 379 48336 09960 2501 120 271(8 728)5 700207 8371 421 4272021 allocation of earnings207 837(207 837)0Capital increase43 30843 30845(45)0Dividends paid to shareholders(44 145)(44 145)Other changes0Treasury shares(6 472)(680)(680)Share-based payments13 60413 604Transactions with shareholders36 83643 308450177 251(680)0(207 837)(31 221)Total income for the period(1 968)12 796138 997149 825At 30 June 202233 956 17934 422 79136 14460 2501 295 554(9 409)18 495138 9971 540 032At 31 December 202234 108 47434 576 52636 30660 2501 299 538(9 663)(5 096)457 5671 838 9012022 allocation of earnings457 567(457 567)0Capital increase165 025165 025173(173)0Dividends paid to shareholders(51 417)(51 417)Other changes0Treasury shares4 539463463Share-based payments13 34113 341Transactions with shareholders169 564165 0251730419 3184630(457 567)(37 614)Total income for the period2 292(14 258)111 09799 130At 30 June 202334 278 03834 741 55136 47960 2501 721 147(9 201)(19 354)111 0971 900 417 At 31 December 2021(427)353(371)2021 allocation of earnings53(53)0Change in scope0Capital increase0Total income for the period(8)3528At 30 June 2022(374)(5)35(344)At 31 December 2022(238)(3)(42)(283)2022 allocation of earnings(42)420Change in scope0Capital increase0Total income for the period0(15)(15)At 30 June 2023(280)(3)(15)(298)Change in equity, Group shareChange in equity, non-controlling interestsReservesTranslation reservesEarningsShareholders’ equity(In thousands of euros) 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 14 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions Cortac (revenue: €14 million; 65 consultants) On 1 December 2022, PPP US acquired Cortac Group LLC in the United States, specialized in project management. Qualitance (revenue: €13 million; 300 consultants) On 30 December 2022, Alten Europe and Alten SI Techno Romania acquired the Romanian company Qualitance QBS SA, specialising in software development and IT consulting. QA Consultants (revenue: €18 million; 185 consultants) On 28 April 2023, Alten Europe acquired a group of two companies in Canada and the United States, specialising in software testing. Solwit (revenue: €19 million; 350 consultants including 50% external) On 16 May 2023, Alten Europe acquired the Polish company Solwit, specialising in IT. Accord Global Technology Solutions (revenue: €9 million; 500 consultants) On 9 June 2023, Alten Europe acquired the Indian company Accord Global Technology Solutions PVT, which holds a subsidiary in the US and a subsidiary in Germany. This group of companies specialises in IT development and engineering services. These last two acquisitions completed late at the end of the first half of 2023 will be consolidated in the second half of 2023. The acquisition price is recorded as a non-current financial asset on 30 June 2023 (Note 3.2). In accordance with accounting principles, the allocation of the acquisition price is ongoing and will be completed within twelve months of the acquisition date. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Other key events During the first half of the year, and for the financial year ended on 31 December 2022, €51.4 million of dividends were paid to ALTEN SA shareholders in July. 2.1.3 Events after the reporting period To accelerate its development and strengthen its position in strategic sectors and activities, the Group is pursuing its targeted external growth strategy: in Spain/Germany, acquisition in July 2023 of a group of companies specialising in aeronautical engineering (revenue: €7 million, 130 consultants); 15 in Japan, acquisition in September 2023 of a company specialising in IT development (revenue: €41 million, 720 consultants). 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2023 were prepared in accordance with IAS 34 “Interim Financial Reporting”, as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and should be read using the consolidated financial statements for the period ended on 31 December 2022 (included in the 2022 Universal Registration Document) as a reference. The 2022 consolidated financial statements included in the issuer’s 2022 Universal Registration Document are also available on its website page dedicated to financial statements: https://www.alten.com/investors/. 2.2.1 Accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2023 are identical to those used for the consolidated financial statements at 31 December 2022, with the exception of the new standards, amendments and interpretations applicable as of 1 January 2023. These standards, amendments and interpretations, whose application is mandatory as of 1 January 2023, did not have a significant effect on the Group’s condensed consolidated financial statements as of 30 June 2023. In particular, the Group is carrying out an in-depth assessment of the potential impacts of the entry into force of the Pillar 2 regulation adopted on 14 December 2022 by the European Union and applicable from financial years beginning on 1 January 2024. The Group does not anticipate any significant impact at this stage. Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory on 1 January 2023. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates made by Management when preparing the consolidated financial position on 31 December 2022 are presented in the 2022 Universal Registration Document on page 191. The estimates, judgements and assumptions made by the Group in preparing the financial statements for the period ended 30 June 2023 relate mainly to: the assessment of the recoverable value of cash-generating units and in particular goodwill (Note 3.1); - prospects for the use of deferred tax assets (Note 3.10). 16 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2022 consolidated financial statements remain essentially unchanged. 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company nameBasis of consolidation (*)% interest% controlCountry of operationQualitance QBS SAFC100,00100,00RomaniaCortac Group LLCFC100,00100,00USAQA Consultants IncFC100,00100,00CanadaQA Consultants USA IncFC100,00100,00USAMI GSO PMO(1)FC100,00100,00RomaniaPMO Analytics(1)FC100,00100,00France(*) FC = Full consolidation (1) Companies previously founded and consolidated for the first time during this period. Other changes in scope One company in Nigeria no longer presenting any significant operating activities or significant assets or liabilities was removed from the scope of consolidation during the period. In addition, during the first half of 2023, the Group continued to simplify its legal scope of consolidation through mergers, particularly in Germany and France. 17 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS 18 3.1 GOODWILL Goodwill, allocated by country or geographical area, is broken down as follows: In thousands of euros France GermanySpainUKScandinaviaItalyPortugalBelgiumThe NetherlandsSwitzerlandEastern EuropeUSACanadaIndiaChinaAsia (other)AustraliaTotal31/12/2022183 512140 605122 304115 60262 63353 17129 37512 68626 17325 7926 84995 1605 80263 36855 36215 8246 6411 020 857Acquisitions 6 50812 75827 21346 479Disposals/withdrawals0Earn-out adjustments(2 330)(4 124)(2 265)2722 467(1 949)(7 929)Translation adjustments(870)102(1 888)(25)(792)(1 197)(110)(273)(5 052)Other377164711 224Impairment030/06/2023183 512138 311122 304111 47761 76353 17129 37512 68626 17325 89411 092106 30232 99165 76054 16515 7144 8911 055 579 For the first half of 2023, changes in goodwill were due to: the acquisitions completed by the Group in the first half of the year (described in Note 2.1.1); - earn-out adjustments; - translation differences on goodwill denominated in foreign currencies; - corrections of net positions acquired (included in the “Other” line) within the allocation period. The Group performs impairment tests on an annual basis or when loss of value indicators emerge. The discount rates (WACC) used at 30 June 2023 for the tests performed are identical to those used at 31 December 2022, in the absence of significant changes in the main market parameters. To conclude, the assets of the CGUs showing signs of loss of value demonstrate that their recoverable value is higher than their net book value. Consequently, no impairment was registered as of 30 June 2023. It should be noted that in a relatively uncertain context, the forecasts and estimates used for these tests could be significantly modified at a later date. 3.2 Non-current financial assets (In thousands of euros)Amortised costFair value through comprehensive income without recyclingFair value through earningsLevel 1Level 2Level 3Equity instruments7 25038 21545 46528 9987 25038 215Deposits and guarantees18 40418 40416 82818 404Other long-term assets (loans and receivables)10 06910 06925 56210 069Total 28 473 7 250 38 215 73 938 71 388 7 250 - 66 688 Book value according to IFRS 930/06/202331/12/2022Fair value of financial assets at 30/06/2023 Other long-term assets include loans and receivables from companies in which the Group has an equity interest. A loan of €14.7 million was repaid during the period. Equity instruments include the following interests: Entity% interestFair value at beginning of periodAcquisition, disposal, reclassificationVariation in FV through comprehensive incomeVariation in FV through incomeFair value at end of periodFair value hierarchical levelPHINERGY LTD12,83%5 0002 2507 2501CORTAC(1)100,00%14 110(14 110)03QUALITANCE(1)100,00%7 249(7 249)03GLOBAL SOLUTIONS PRIVATE LTD AGREEMENT(2)100,00%24 40024 4003SOLWIT(2)100,00%11 21311 2133OTHER2 638(477)4412 6023Total28 99813 7762 25044145 465 19 (1) The companies Cortac and Qualitance acquired at the end of the 2022 financial year were consolidated during the first half of 2023. (2) In May and June 2023, the Group acquired the companies Solwit and Accord Global Solutions (see Note 2.1.1 “Acquisitions during the period”) which will be consolidated in the second half of 2023. 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES (In thousands of euros)31/12/2022Cash flow variationOther flows (*)30/06/2023Current Non-currentCustomers964 135(36 872)7 661934 924934 924Client contract assets246 087130 528(389)376 226376 226Client contract liabilities(191 281)9 718(1 448)(183 011)(183 011)Customer advances and payments on account (2)(21 574)12 858(26)(8 742)(8 742)Trade receivables and related accounts (a)997 367116 2315 7991 119 3971 119 397Trade payables(138 835)(26 818)(4 183)(169 836)(169 836)Prepaid expenses (1)25 23721 99566247 89347 893Supplier receivables (1)4 034(1 451)(124)2 4592 459Supplier advances and payments on account (1)3 0643 422(47)6 4406 440Trade payables and related accounts (b)(106 500)(2 852)(3 692)(113 043)(113 043)Tax and social security receivables (1)85 0657 539(7 555)85 04985 049Tax and social security debt (2)(483 016)(12 666)(4 368)(500 050)(495 929)(4 121)Post-employment benefits (2)(1 248)(14 993)(16 241)Other receivable (1)4 473843(1 047)4 2704 270Other debts (2)(2 254)3 961(4 600)(2 893)(2 893)Other assets/liabilities (c)(395 732)(1 571)(32 563)(429 865)(409 503)(4 121)Working capital requirement (= a + b + c)495 135111 809(30 456)576 488596 850(4 121)Reconciliation with the consolidated statement of financial positionSum of (1)121 87332 348(8 110)146 110146 110Current financial assets31584 58784 90184 901Total of “Other current assets”122 18732 34876 477231 012231 012Sum of (2)(506 844)2 905(23 987)(527 926)(507 564)(4 121)Earn outs(154 839)10 763(144 076)(77 196)(66 880)Dividends payable(51 417)(51 417)(51 417)Total of “Other current and non-current liabilities”(661 684)2 905(64 640)(723 419)(636 177)(71 001) (*) “Other flows” correspond to newly consolidated companies, translation differences or flows excluded by the nature of the change in Working Capital Requirement. The earn-outs included in “Other current and non-current liabilities” are debts relating to acquisitions. During the first half of 2023, part of the proceeds of the Agile business sales at the end of 2022 was invested in debt securities for an amount of $90 million. These current financial assets are included in “Other current assets”. The following table shows the breakdown of the portfolio of trade receivables based on age: Gross value738 424166 46929 50516 679951 077726 405212 55327 20912 524978 691Provisions0(1 447)(1 908)(12 799)(16 154)0(2 073)(2 682)(9 801)(14 556)Net values738 424165 02227 5973 881934 924726 405210 48024 5272 723964 135(In thousands of euros)30/06/202331/12/2022 UnmaturedLess than 6 months6 months to 1 yearMore than 1 yearBalanceUnmaturedLess than 6 months6 months to 1 yearMore than 1 yearBalanceTRADE RECEIVABLES 20 Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros)Labour disputesCommercial disputesOther risksTOTALAt 31/12/20224 76463112 84518 239Reclassification00(342)(342)Exchange rate variations(3)131Change in scope0000Provisions for the financial year25704 5124 769Reversals (provisions used)(699)(142)(80)(922)Reversals (provisions not used)(381)(276)(1 230)(1 887)At 30/06/20233 93721415 70719 858Of which current provisions2 8101355 5568 501Of which non-currents provisions1 1277910 15111 357 Labour disputes involve individually insignificant amounts. The increase in provisions for “Other risks” is due in particular to a notification of a €4.1 million adjustment relating to a tax audit of a French entity for the 2018 to 2020 financial years. Employee benefits Employee benefits consist mainly of end-of-career commitments. These commitments were determined at the end of June 2023 on the basis of the same actuarial assumptions, with the exception of the discount rate, which has been revised upwards slightly to 3.80% compared to 3.75% at 31 December 2022, to take into account changes in the Iboxx rates in the first half of 2023. (In thousands of euros)Total commitmentAt 31/12/202214 833Change in scope0Reclassification382Cost of services provided922Interest expenses175Actuarial gains and losses(56)Benefits paid0Foreign exchange gain/loss(15)At 30/06/202316 241 21 3.5 FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) (In thousands of euros)31/12/2022IncRepaymentChange in scopeOther (translations adjustments, reclassification)30/06/2023Current Non-currentLoans and related debt154 68931 365(62 757)0(250)123 046116 0966 951 Bank borrowings68 885364(62 682)(276)6 291386 252 Borrowings in the market85 00031 0000116 000116 000 Other loans and related debt8041(75)2675657698Bank overdrafts 28 996(12 234)587(61)17 28817 288Deposits and guarantees received159(80)147(0)225225Other financial liabilities27094(8 804)9 368(564)36432242Total184 11431 459(83 875)10 102(875)140 924133 7057 218abChange in statement of cash flows financial liabilities (a + b)(52 416)(43 789)(8 627) Bank overdrafts (In thousands of euros)30/06/2023EURINRJPYFixed rateVariable rateBank borrowings6 2916554 1141 5224 9091 382 As of 30 June 2023, this item consisted of medium- and long-term borrowings mainly denominated in foreign currencies for an amount of €6.3 million. It should be noted that no drawdown was made on the new “Club Deal” syndicated loan during the first half of the year (short-term variable-rate financing) on an open line of €350 million. Market funding The Group has entered into a €250 million programme to issue short-term negotiable debt securities (NeuCP) set up in January 2021. The financial documentation for the programme is available on the website https://eucpmtn.banque-france.fr/public/#/liste-des-emetteurs. The debt amounted to €116.0 million as of 30 June 2023. 22 3.6 RIGHTS OF USE AND LEASE DEBT Rights of use (In thousands of euros)Real estate leasesVehicle leasesComputer equipment leasesOther leasesTotalGross valueGross value – 01/01/2023334 54355 87211 7521 436403 602New contracts15 57510 0411 85654828 020Increases in duration/rent19 5625521638820 365Decreases in lease periods/rent and outflows(16 854)(3 713)(700)(400)(21 667)Change in scope2 8061 8744971 6036 780Translation adjustments(2 187)(87)(6)99(2 182)Gross value – 30/06/2023353 44464 53813 5623 374434 918Depreciation and amortisationDepreciation and amortisation - 01/01/2023(137 671)(30 937)(6 604)(833)(176 045)Provisions(25 293)(7 479)(1 397)(420)(34 589)Reversals6 2962 85363331610 097Change in scope1 927220(111)(124)1 912Translation adjustments1 3597140(21)1 448Depreciation and amortisation - 30/06/2023(153 382)(35 272)(7 439)(1 083)(197 176)Net value - 30/06/2023200 06229 2656 1232 291237 742 Financial lease debt (current and non-current liabilities) (In thousands of euros)Real estate leasesVehicle leasesComputer equipment leasesOther leasesTotalLease liability – 01/01/2023207 59425 0025 163605238 364New contracts15 91210 4191 86141628 607Increases in duration/rent18 9395191598719 704Decreases in lease periods/rent and outflows(10 542)(831)(39)(84)(11 496)Cash flow (repayments)(24 288)(7 564)(1 403)(404)(33 659)Change in scope4 9742 0963871 4898 946Translation adjustments(789)(11)3576(689)Lease liability – 30/06/2023211 80029 6296 1622 185249 777Current debt48 82013 2152 73474665 514Non-current debt162 98016 4143 4291 440184 263 3.7 PERSONNEL EXPENSES (In thousands of euros)30/06/202330/06/2022Salaries and benefits(1 406 269)(1 244 299)Set provisions to labour disputes 8241 116Retirement benefits(922)(951)Taxes levied on wages(19 149)(17 265)Employee profit sharing(5 352)(4 866)Total(1 430 868)(1 266 264) 23 Share-based payments PLANSTOTALDate of award by the Board 18/06/201918/06/201915/11/201927/10/202023/02/202123/02/202127/10/202127/10/202126/10/202226/10/2022Class of financial instruments awardedPreferred B shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareNumber of financial instruments awarded81449 550150 000164 500109 45013 500105 850116 82559 700116 455 of which number awarded to employees39149 550150 00054 500109 45013 500105 850116 82559 700116 455 of which number awarded to Corporate Officers42300110 000000000Number of instruments voided over the period1 5007 30002 2008001 900275Number of instruments subscribed over the period41 05013 500Number of instruments outstanding at 30/06/202300131 600149 500102 9500105 050114 32559 700116 180Fair value of the financial instruments (in euros)4 899,992,596,475,784,985,9132,5130,6117,9115,7Vesting date18/06/202118/06/202315/11/202327/10/202323/02/202423/10/202330/10/202327/10/202526/10/202426/10/2026Final award conditionsPresencePresence and performancePresence and performancePresence and performancePresence and performancePresencePresencePresence and performancePresencePresence and performanceLock-up/Non-transferability period18/06/2023NoneNoneNoneNoneNoneNoneNoneNoneNoneCost of services provided H1 2023 (In thousands of euros)4277871 6211 8291 2602083 0991 4111 5521 14713 341Employer contribution cost H1 2023 (In thousands of euros)53236202817322148891573841393 214(In thousands of euros)16 555 3.8 OTHER OPERATING INCOME AND EXPENSES (In thousands of euros)30/06/202330/06/2022Restructuring costs(589)(770)Fees associated with the acquisition of new companies (1 111)(1 245)Social security and tax adjustments (3 176)1 367Other(10 262)(5 563)Total other operating income and expenses(15 138)(6 211)Including other operating expenses(16 543)(9 251)Including other operating income1 4053 040 Other operating income and expenses over the period consisted of restructuring costs (-€0.6 million), fees related to acquisitions (-€1.1 million), net costs related to tax disputes (-€3.2 million) and the adjustment of the costs of combining the acquired companies (-€10,2 million) as part of the application of IFRS 3 (in particular the change in earn-out liabilities and earn-out subject to continued employment). 24 3.9 NET FINANCIAL INCOME (In thousands of euros)30/06/202330/06/2022Bank interest charges(2 733)(395)Interest on lease-financing agreements00Gross borrowing costs(2 733)(395)Income from receivables and investments4 232349Income from the disposal of marketable securities1420Net borrowing costs1 641(46)Interest on leases (IFRS 16)(1 745)(1 392)Net borrowing costs and financial costs of leases(105)(1 438)Foreign exchange losses(18 614)(4 833)Other financial expenses (1 780)(550)Discounted financial expenses(861)(632)Financial provisions(144)0Other financial expenses (21 398)(6 016)Foreign exchange gains16 8297 077Other financial income1 015675Financial income as a result of discount00Reversal of financial provisions96255Other financial income18 8057 806Other net financial income and expenses(2 593)1 791NET FINANCIAL INCOME/(EXPENSES)(2 698)353 Financial income amounted to -€2.7 million in the first half of 2023 (+€0.3 million in the first half of 2022). 3.10 INCOME TAXES Breakdown of income tax expense :Deferred tax(156)(592)Income tax payable42 65348 876Total42 49748 285 (In thousands of euros)30/06/202330/06/2022Net income: Group and minority interests111 081139 033Earnings of equity-accounted companies36(20)Impairment of goodwill 00Share-based payments13 34113 604Income tax expenses42 49748 285Pre-tax earnings166 955200 901Tax rate of the consolidating company25,83%25,83%Theoretical income tax expense43 12551 893Difference in tax rate versus foreign companies(2 608)(4 148)Miscellaneous tax credits(3 483)(2 560)Inactivated deferred tax assets66244CVAE (value-added tax) reclassification1 6672 688Other permanent differences3 730169Tax expense recognised42 49748 285Effective income tax rate25,45%24,03%Income tax distribution 25 Deferred tax Deferred tax receivables and liabilities consist of: (In thousands of euros) 30/06/2023 31/12/2022 Employee profit-sharing 1 348 2 454 Retirement benefits 2 542 2 398 Other timing differences 9 941 7 229 Restatement for IFRS 16 185 148 Tax loss carry-forwards 5 481 5 799 Total deferred tax 19 497 18 028 Including: Deferred tax assets 21 135 18 941 Deferred tax liabilities (1 638) (913) (In thousands of euros) 30/06/2023 31/12/2022 Deferred tax at the beginning of the financial year 18 028 12 017 Impact on comprehensive income IAS 19/IFRIC 21 (21) (1 398) Change in scope 601 3 784 Exchange rate variations 733 (815) Expenses (or income) for the period 156 4 441 Deferred tax at the end of the financial year 19 497 18 028 The Group has assessed the recoverable portion of tax loss carry-forwards based on a 3-year projection of expected taxable income. The amount of non-capitalised deferred taxes for tax loss carry-forwards amounted to €7.2 million (€30.0 million basis) at 30 June 2023. 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. The contribution to the revenue for the half-year of consolidated companies over the period amounted to €6.4 million and a net profit of -€0.6 million. 26 3.12 EARNINGS PER SHARE (In thousands of euros)30/06/202330/06/2022Net income, Group share111 097138 997Weighted average number of shares 34 214 95133 953 302Earnings per share3,254,09(In thousands of euros)30/06/202330/06/2022Earnings 111 097138 997Dilutive effect00Diluted earning111 097138 997Weighted average number of shares 34 214 95133 953 302Effect of dilutions610 940702 202Weighted average number of shares after potential dilution34 825 89134 655 504Diluted earnings per share3,194,01 3.13 STATEMENT OF CASH FLOWS Changes in depreciation, provisions and other calculated income/expenses30/06/202330/06/2022Amortisation of intangible assets1 5871 792Depreciation of property, plant and equipment8 3116 330Provisions for risks and expenses1 960(928)Other income and calculated expenses2 8043 911Depreciation/amortisation of usage rights34 58929 555Total49 25140 660Breakdown of taxes paid30/06/202330/06/2022Repayments received5 0312 118Payments made(86 909)(48 479)Total(81 878)(46 361)Impact of changes in scope and earn outs30/06/202330/06/2022Acquisitions of consolidated subsidiaries(39 537)(113 439)Cash from deconsolidated subsidiaries(791)(28)Cash from new consolidated subsidiaries2 73424 637Payment of earn-outs(21 514)(18 191)Total(59 108)(107 021) 27 3.14 CONTINGENT ASSETS AND LIABILITIES In the context of two audits of the accounts of a French subsidiary concerning in particular the transfer prices between this company and an English subsidiary over the periods 2013-2014 and 2015-2017, the Audit Department sent adjustments in terms of corporation tax, withholding tax and CVAE for a total amount of €3.4 million. For the 2013-2014 period, the French subsidiary obtained full satisfaction by a judgment of the Administrative Court of Montreuil handed down on 20 February 2023. As the authority did not appeal, the provision of €0.8 million was reversed. For the 2015-2017 period, the Audit Department abandoned all increases during the discussion held on 18 July 2023. In the context of two accounting audits relating to the same English subsidiary for which the transfer prices were disputed, over the periods 2009-2015 and 2016-2019, the Audit Department considered that the activity of this English subsidiary fell within the scope of a permanent establishment in France. The English subsidiary was subject to an adjustment in terms of corporation tax and additional contributions, a minimum professional tax and CVAE contribution in respect of its presumed income, for a total amount of €65.4 million (duties, penalties of 80% and late payment interest included). The English subsidiary disputes these adjustments. It had also paid in full and in good time all taxes to which it was subject in the United Kingdom for the periods 2009-2015 and 2016-2019. With regard to the period 2009-2015, a litigation claim was brought by the English subsidiary which led the tax authority to submit the application to the Administrative Court of Montreuil. This claim was rejected in full under the terms of a decision dated 20 February 2023. The Court did not wish to rule on the consequences to be drawn from the settlement by the British company of the corporate income tax paid in the United Kingdom on the same tax base, resulting in double taxation in France and the United Kingdom. The English subsidiary appealed this decision to the Paris Administrative Court of Appeal, and continues to monitor the discussions between the French authorities and the British authorities in the context of the mutual agreement procedure for the double taxation settlement. For the 2016-2019 period, the Department has not yet responded to the English company’s observations dated 25 August 2022. After having thoroughly studied the arguments of the French tax authority with its special advisors, considering that the position of the Audit Department is questionable in view of the factual and legal elements that may be relied on, the English company considers that it has legitimate grounds on which to continue the litigation procedure, and a serious chance of success. In addition, at this stage, the company does not have sufficient information to assess and recognise a specific provision corresponding to a reliable estimate of the potential residual risk of adjustment or the consequence of the double taxation settlement procedure. As a result, no provision has been made in the financial statements in connection with these tax audits. The French Competition Authority opened an administrative inquiry into the Engineering and Technology Consulting (ICT) and software publishing sectors at the end of 2018. ALTEN is a key ICT player. As of the date of this Document, the investigation is still ongoing and it is not possible to assess the potential consequences of this administrative investigation. At the end of 2021, the Romanian Competition Council opened an investigation into suspicions of anti- competitive practices in the labour market concerning the skilled/specialised workforce in the sectors of motor vehicle production and related activities. All ICT players in Romania were visited and property 28 was seized. As of the date of this Document, the investigation is still ongoing and it is not possible to assess the potential consequences of this administrative investigation. 3.15 RELATED PARTIES Compensation and benefits granted to Corporate Officers Compensation and benefits granted to Corporate Officers Over the first half of 2023, there were no significant changes to the compensation reported as of 31 December 2022. Relations with related parties Over the first half of 2023, there were no significant changes to the information disclosed as of 31 December 2022. 3.16 FINANCIAL COMMITMENTS No material changes in financial commitments occurred during the first half of 2023 compared to those published as of 31 December 2022. 29 REPORT OF THE STATUTORY AUDITORS ON THE HALF-YEAR RESULTS FOR 2023 To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying half-year condensed consolidated financial statements of Alten SA, for the period from 1 January 2023 to 30 June 2023, as appended hereto; • the verification of the information presented in the half-yearly business report. These half-year condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. I - Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical procedures. This work is less extensive than that required for an audit conducted in accordance with the professional standards applicable in France. Consequently, the assurance that the financial statements, taken as a whole, are free from material misstatement obtained during a limited review is a moderate assurance, lower than that obtained in the context of an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half- year condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard as adopted by the European Union applicable to interim financial information. II - Specific verification We have also verified the information provided in the half-year business report on the half-year condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half-year condensed consolidated financial statements. Paris La Défense, 22 September 2023 Neuilly-sur-Seine, 22 September 2023 KPMG Audit IS Grant Thornton Jean-Marc DISCOURS Partner Xavier NIFFLE Partner Jean-François BALOTEAUD Partner 30 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT “I declare, to the best of my knowledge, that the half-year condensed financial statements have been prepared in accordance with the applicable accounting standards and provide a true and fair view of the assets, liabilities, financial position and results of the Company and all its subsidiaries, and that the half-year business report provides a true and fair view of the significant events that occurred during the first six months of the financial year, their impact on the financial statements, the main transactions between related parties, and a description of the main risks and uncertainties for the remaining six months of the financial year”. On 22 September 2023 Simon AZOULAY Chairman and Chief Executive Officer 31 32 | Semestriel, 2023, IT, Alten | write me a financial report |
Semestriel | 2,021 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Alten
### Response:
| 1 TABLE OF CONTENTS BUSINESS OVERVIEW 4 FINANCIAL OVERVIEW RELATED-PARTY TRANSACTIONS EVENTS SINCE 30 JUNE 2021 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2021 2021 OUTLOOK 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 8 1.1 1.2 1.3 1.4 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CASH FLOWS 1.5 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 14 2.1 2.1.1 2.1.2 SIGNIFICANT EVENTS DURING THE HALF-YEAR Acquisitions Impacts linked to the Covid-19 health crisis 2.1.3 2.1.4 2.2 2.2.1 Other key events Events after the reporting period ACCOUNTING PRINCIPLES AND METHODS Accounting principles 2.2.2 2.3 2.4 Management estimates FINANCIAL RISK FACTORS CHANGES IN THE SCOPE OF CONSOLIDATION 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS 19 3.1 GOODWILL 3.2 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES 3.4 3.5 Non-current financial assets EMPLOYEE PROVISIONS AND BENEFITS FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) 3.6 3.7 3.8 3.9 RIGHTS OF USE AND LEASE DEBT PERSONNEL EXPENSES OTHER OPERATING INCOME AND EXPENSES NET FINANCIAL INCOME 3.10 3.11 OPERATING SEGMENT INFORMATION 3.12 3.13 3.14 CONTINGENT ASSETS AND LIABILITIES INCOME TAXES EARNINGS PER SHARE STATEMENT OF CASH FLOWS 5 7 7 7 7 9 10 11 12 13 15 15 15 16 16 16 16 17 17 18 20 20 21 22 23 24 24 25 25 26 27 27 28 28 2 3.15 RELATED PARTIES 28 3.16 FINANCIAL COMMITMENTS 29 REPORT OF THE STATUTORY AUDITORS ON THE 2021 HALF-YEAR FINANCIAL INFORMATION 30 1 CONCLUSION ON THE FINANCIAL STATEMENTS 30 2 SPECIFIC VERIFICATIONS 31 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT 32 3 HALF-YEAR BUSINESS REPORT 2021 BUSINESS OVERVIEW ALTEN has asserted its position as a European leader in Engineering and Technology Consulting. The Group supports its customers’ development strategies in the areas of innovation, R&D, and information systems. ALTEN’s business consists of two operating segments: Engineering and R&D outsourcing, Information Systems and Internal Networks. At 30 June 2021, ALTEN had 38,500 employees (including 33,800 engineers): 11,200 employees (including 9,600 engineers) in France; 27,300 employees (including 24,200 engineers) outside France. ALTEN generated 63.8% of its business internationally (compared to 60.4% during the first half of 2020). Significant events for the first half of 2021: ALTEN continued its development in France and internationally. ALTEN thus completed five acquisitions in France and abroad during the first half of 2021: a company in Italy with annual revenues of €21 million and 300 consultants; a company in France with annual revenues of €37 million and 280 consultants; a company in the United Kingdom with annual revenues of €9.5 million and 65 consultants; a company in Germany with annual revenues of €10 million and 90 consultants; a company in the United Kingdom with annual revenues of €20 million and 180 consultants; 4 FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board of Directors on 22 September 2021, after prior review by the Audit Committee. Income statement (IFRS): Revenue Revenues at 30 June 2021 amounted to €1,395.2 million, up 12.5% compared to 30 June 2020 (€1,240.4 million). On a like-for-like basis, business grew by 3.4% (-0.1% in France and 5.7% outside France). All business segments posted strong growth in the second quarter of 2021, due in part to the favourable base effect of the second quarter of 2020. The Automotive and Civil Aeronautics sectors were nevertheless impacted by the health crisis. Rail/Naval, Defence & Security, Life Sciences and other Industries posted growth of over 10%. All geographical areas grew with the exception of Germany and Sweden, where the Automotive and/or Civil Aeronautics sectors have a significant weight. France was stable, continuing to be impacted in these sectors, but has performing well in other sectors. Operating profit on activity Operating profit on activity amounted to €137.1 million, up by 82.4% compared to the first half of 2020 (€75.2 million). The operating margin on activity returned to its pre-crisis level and reached 9.8% of revenue (6.1% of revenue in June 2020). The increase in the operating margin was less marked in France (6.9% in 2021 versus 4.3% in 2020) than internationally (11.5% in 2021 versus 7.2% in 2020), mainly due to a later recovery than internationally, and therefore a weaker rate of activity, and proportionately higher G&A costs, with France supporting Corporate activities. Operating profit Operating profit was €124.2 million (compared with €68.7 million at 30 June 2020). It includes share-based payments (non-cash) of €7.5 million and non-recurring costs of €5.4 million, mainly consisting of restructuring costs internationally, acquisition fees, and earn-outs on acquisitions recognised outside the goodwill allocation period. 5 Net income, Group share After taking into account the net financial income (-€ 1.2 million) and the tax expense (-€33.7 million), the net income, Group share, was €89.3 million, i.e. 6.4% of revenue (€60.6 million at 30 June 2020, i.e. 4.9% of revenue). Consolidated balance sheet items and financial movements Under assets, non-current assets represent 45.2% of the total balance sheet (€2,410.9 million), which consists in particular of goodwill (33%, i.e. €796.5 million) and IFRS 16 rights of use (7.5%, i.e. €180.9 million). Current assets, excluding cash, represent 42.5% of the total balance sheet, and are mainly comprised of accounts receivable and related assets, which represent over 80% of this item. Under liabilities, equity still represents 53% of the balance sheet total. Earn-outs amounted to €82 million, including €68 million payable in more than one year. In the first half of 2021 ALTEN Group generated a gross cash flow of €171 million (compared with €98.5 million at 30 June 2020). Restated for IFRS 16 items, gross operating cash flow was €141.6 million (10.1% of revenue) compared with €71.4 million (i.e. 5.8% of revenue) at 30 June 2020. Its growth is in line with that of the ROA. Due to low Capex, the gross margin rate is close to the operating margin on activity. Taxes paid represented €10.3 million; the change in WCR amounted to €76.5 million, mainly due to the significant increase in trade receivables, linked to the strong organic growth in the second quarter. CAPEX remained low, at €6.2 million, and represented 0.45% of revenue. As a result, free cash flow amounted to €50.4 million, or 3.6% of revenue. After taking into account the effects of changes in scope and earn-outs (-€52 million) and other financing flows, and the payment of dividends this year of €33.9 million, net cash position was €162.9 million at the end of June 2021. Gearing is therefore -12.7%, reflecting the Group’s very sound balance sheet structure. 6 RELATED-PARTY TRANSACTIONS By private deed dated 20 May 2021, ALTEN SA and SIMALEP renewed the commercial lease dated 28 July 2011, for the 1st floor premises in a building located at 119-121 Grande Rue in Sèvres. This lease renewal was submitted for authorisation by the Board of Directors on 27 October 2020 and will be approved at the next General Meeting. By private deed dated 20 May 2021, ALTEN SA and SEV 56 entered into a commercial lease for the premises located on the 5th and 8th floors at 119-121 Grande Rue in Sèvres. This lease was submitted for authorisation by the Board of Directors on 27 October 2020 and will be approved at the next General Meeting. EVENTS SINCE 30 JUNE 2021 Since 30 June 2021, the Group has not completed any specific transactions. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2021 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 54 to 61 of the 2020 Universal Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 28 April 2021. 2021 OUTLOOK Automotive and Civil Aeronautics remained impacted by the crisis but are once again growing. The return to organic growth occurred more quickly than anticipated, but the sustainability and intensity of the recovery will obviously depend on the evolution of the health crisis. If the context remains unchanged, ALTEN should achieve satisfactory organic growth and operating margin on activity in 2021. ALTEN will also continue to strengthen its position in strategic sectors and activities by pursuing its policy of targeted acquisitions in order to accelerate its development, mainly internationally. In the second half, ALTEN will pursue its external growth following a strategic plan to diversify business sectors and geographical areas. Signed at Boulogne-Billancourt, 22 September 2021, The Board of Directors. 7 HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 8 1.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS (In thousands of euros) Notes 30/06/2021 Goodwill Rights of use Intangible assets Property, plant and equipment Investments in associates Non-current financial assets Deferred tax assets 3.1 3.6 3.2 3.10 796 557 180 931 7 402 31 693 1 108 59 039 12 927 NON-CURRENT ASSETS 1 089 657 Trade receivables Customer contract assets Other current assets Current tax assets Cash and cash equivalents 3.3 3.3 3.3 3.2 632 387 200 179 99 539 93 519 295 649 CURRENT ASSETS 1 321 274 TOTAL ASSETS 2 410 931 LIABILITIES (In thousands of euros) Notes 30/06/2021 Share capital Additional paid-in capital Consolidated reserves Consolidated earnings 36 059 60 250 1 093 302 89 283 EQUITY (Group share) 1 278 895 NON-CONTROLLING INTERESTS (384) TOTAL EQUITY 1 278 511 Post-employment benefits Non-current provisions Non-current financial liabilities Non-current lease debt Other non-current liabilities Deferred tax liabilities 3.4 3.4 3.5 3.6 3.3 3.10 17 624 9 798 8 848 138 244 71 173 1 821 NON-CURRENT LIABILITIES 247 506 Current provisions Current financial liabilities Current lease debt Trade payables Other current liabilities Customer contract liabilities Current tax liabilities 3.4 3.5 3.6 3.3 3.3 9 407 124 178 52 212 123 608 425 713 118 513 31 284 CURRENT LIABILITIES 884 914 TOTAL EQUITY AND LIABILITIES 2 410 931 31/12/2020 701 567 162 636 7 940 29 770 1 118 100 262 11 648 1 014 941 586 618 108 100 80 084 79 445 283 424 1 137 670 2 152 611 31/12/2020 35 953 60 250 1 019 391 98 011 1 213 604 (484) 1 213 120 17 257 7 512 9 314 126 104 70 275 991 231 453 9 539 78 653 44 110 99 101 344 628 115 130 16 878 708 039 2 152 611 9 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros) REVENUE Purchases consumed Personnel expenses External charges Other taxes and levies Depreciation and amortisation charges Other operating expenses Other operating income OPERATING PROFIT ON ACTIVITY Share-based payments PROFIT FROM ORDINARY ACTIVITIES Other operating expenses Other operating income Impairment of goodwill OPERATING PROFIT Borrowing costs and financial costs of leases Other financial expenses Other financial income Income tax expense EARNING OF CONSOLIDATED ENTITIES Earnings from associates NET OVERALL EARNINGS Including: Non-controlling interests Group share Earnings per share in euros (Group share) Diluted earning per share in euros (Group share) Notes 3.11 3.7 3.7 3.8 3.8 3.1 3.9 3.9 3.9 3.10 3.12 3.12 30/06/2021 1 395 225 (131 908) (990 561) (89 574) (6 734) (35 961) (6 193) 2 836 137 131 (7 526) 129 604 (5 891) 497 0 124 211 (1 396) (7 281) 7 518 (33 720) 89 332 (11) 89 322 38 89 283 2,64 2,59 30/06/2020 1 240 380 (121 136) (920 932) (82 384) (6 663) (33 055) (3 712) 2 665 75 162 (2 518) 72 644 (5 383) 1 406 0 68 667 (1 198) (8 239) 20 908 (20 961) 59 177 1 366 60 543 (103) 60 646 1,80 1,77 10 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros) Net income, Group share Net income, non-controlling interest’s share Consolidated net income Change in fair value of realisable financial assets (net of income tax) Translation adjustments Items that may be reclassified to income Change in fair value of securities held for sale (net of income tax) Actuarial differences on employee benefits (net of income tax) Items that may not be reclassified to income TOTAL INCOME FOR THE PERIOD Including: Group share Non-controlling interests Notes 30/06/2021 89 283 38 89 322 0 8 085 8 085 3.2 (5 500) 900 (4 600) 92 806 92 771 36 30/06/2020 60 646 (103) 60 543 0 (7 354) (7 354) 0 53 189 53 280 (91) 11 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros) Notes 30/06/2021 Consolidated net income 89 322 Earnings from associates 11 Depreciation, provisions and other calculated expenses 3.13 38 314 Share-based payments 3.7 7 526 Income tax expense 3.10 33 720 Capital gains or losses from disposals 346 Borrowing costs and financial costs of leases 3.9 1 396 Financial cost on update and provisions 400 Gross cash flow borrowing costs and tax 171 035 Taxes paid 3.13 (10 271) Change in working capital requirements 3.3 (76 550) Net cash flow from operating activities 84 214 Acquisitions of tangible and intangible assets (6 559) Acquisitions of financial assets (1 136) Impact of changes in scope and earn-outs 3.13 (45 965) Disposals of tangible and intangible assets 322 Reductions in financial assets 1 681 Net cash flow from investing activities (51 657) Net financial interest paid (1 609) Dividends paid to shareholders (33 875) Capital increases 3.13 0 Acquisitions and disposals of treasury shares 119 Changes in non-current financial liabilities 3.5 (5 506) Change in current financial liabilities 3.5 44 323 Change in lease debt 3.6 (26 460) Net cash flow from financing transactions (23 009) Change in cash position 9 548 Impact of exchange rate variations 2 677 Cash at beginning of period 283 424 Cash at end period 295 649 The Group’s net cash position/(net debt) ratio, excluding lease debts, breaks down as follows: (In thousands of euros) 30/06/2021 Cash at end period 295 649 + Bank borrowings and related debt 3.5 (50 934) + Borrowings in the market 3,5 (70 000) + Bank overdrafts 3.5 (11 810) = Net cash position/(Net debt) 162 905 30/06/2020 60 543 (1 366) 27 862 2 518 20 961 (14 164) 1 198 957 98 509 (26 178) 95 108 167 438 (7 430) (3 237) 18 028 54 3 343 10 758 (1 393) 0 0 (778) (472) (92 943) (24 234) (119 821) 58 375 (2 580) 202 550 258 346 30/06/2020 258 346 (25 492) (8 555) 224 298 12 1.5 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (In thousands of euros)Number of shares in circulationNumber of shares issuedCapitalAdditional paid-in capitalReservesTreasury sharesTranslation reservesEarningsShareholders’ equityAt 31 December 201933 696 14734 156 17035 86460 250861 179(8 713)948164 2251 113 7522019 allocation of earnings164 225(164 225)0Capital increases22 77422 77424(24)0Dividends paid to shareholders0Other changes5555Treasury shares(10 176)(778)(778)Share-based payments2 2882 288Transactions with shareholders12 59822 774240166 544(778)0(164 225)1 565Total income for the period(7 366)60 64653 280At 30 June 202033 708 74534 178 94435 88860 2501 027 723(9 492)(6 418)60 6461 168 597At 31 December 202033 776 74634 240 71135 95360 2501 043 949(9 070)(15 489)98 0111 213 6042020 allocation of earnings98 011(98 011)0Capital increases101 235101 235106(106)0Dividends paid to shareholders(33 875)(33 875)Other changes(82)(82)Treasury shares1 720119119Share-based payments6 3586 358Transactions with shareholders102 955101 235106070 3051190(98 011)(27 480)Total income for the period(4 600)8 08889 28392 771At 30 June 202133 879 70134 341 94636 05960 2501 109 655(8 951)(7 401)89 2831 278 895 At 31 December 2019237(5)(656)(425)2019 allocation of earnings(656)6560Change in scope(56)(56)Capital increases0Total income for the period12(103)(91)At 30 June 2020(475)7(103)(571)At 31 December 2020(267)7(224)(485)2020 allocation of earnings(224)2240Change in scope6464Capital increases0Total income for the period(2)3836At 30 June 2021(428)538(384)ReservesTranslation reservesEarningsShareholders’ equity(In thousands of euros) 13 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 14 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions IT Sector (Revenue: €27 million; 400 consultants) On 22 December 2020, ALTEN Europe acquired the Portuguese company IT Sector specialising in digital transformation and IT infrastructures. This acquisition, which was completed late at the end of 2020, was consolidated as from 1 January 2021. Consoft (Revenue: €21 million; 300 consultants) On 22 January 2021, Alten Europe acquired the Italian company Consoft specialising in Infra IT and Digital. Nexeo (Revenue: €37 million; 280 consultants) On 12 February 2021, Altenware acquired the NEXEO group of companies in France and Belgium specialising in the transformation and digitisation of information systems. Radtac (Revenue: €9.5 million; 65 consultants) On 1 March 2021, C-prime UK acquired Radtac Holdings Limited in the United Kingdom, which holds two subsidiaries in England and one in Finland, specialising in Agile consulting and training. Eeins (Revenue: €10 million; 90 consultants) On 19 March 2021, Alten Europe acquired a group of four companies (two German and two Romanian) specialising in Engineering Consulting, mainly in the Automotive sector. Cmed (Revenue: €20 million; 180 consultants) On 1 May 2021, Alten Europe acquired Cmed Group Ltd in the United Kingdom, a holding company comprising operational subsidiaries specialising in life sciences (United Kingdom, Romania and the United States). The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Impacts linked to the Covid-19 health crisis Group revenue was €1,395.2 million in the first half of 2021, compared with €1,240.4 million in the first half of 2020, i.e. an increase of 12.5% (3.4% at constant scope and exchange rates). All business sectors grew over the half-year with the exception of automotive and civil aeronautics. 15 Organic growth returned in the first half of 2021. However, the sustainability and intensity of the recovery will depend on the evolution of the health crisis. In this still uncertain context, the estimates, judgements and assumptions made by the Group in the preparation of these financial statements are disclosed in Note "2.2.2. Management estimates" 2.1.3 Other key events During the first half of the year, and for the financial year ended on 31 December 2020, €33.9 million of dividends were paid to ALTEN SA shareholders. 2.1.4 Events after the reporting period None 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2021 were prepared in accordance with IAS 34 “Interim Financial Reporting”, as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and should be read using the consolidated financial statements for the period ended at 31 December 2020 (included in the 2020 Universal Registration Document) as a reference. The 2020 consolidated financial statements included in the issuer’s 2020 Universal Registration Document are also available on its website page dedicated to financial statements: https://www.alten.com/investors/ The financial statements presented in this document were approved by the Board of Directors on 22 September 2021. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2021 are identical to those used for the consolidated financial statements at 31 December 2020, with the exception of the new standards, amendments and interpretations applicable as of 1 January 2021. These standards, amendments and interpretations, obligatory from 1 January 2021 onwards, did not have a significant effect on the Group’s condensed consolidated financial statements at 30 June 2021. 16 Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory at 1 January 2021. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates made by Management when preparing the consolidated financial position are presented in the 2020 Universal Registration Document on page 169. However, apart from the main consequences of the Covid-19 health crisis having a significant effect on the financial statements for the period ended on 30 June 2021 and explained in Note “2.1.2 Impacts linked to the Covid-19 health crisis”, the estimates, judgements and assumptions chosen by the Group for preparation of the financial statements for the period ended 30 June 2021 mainly relate to: the valuation of the recoverable value of cash-generating units and in particular goodwill (Note 3.1); prospects for the use of deferred tax assets (Note 3.11). 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2020 consolidated financial statements remain essentially unchanged. 17 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company nameBasis of consolidation (*)% interest% controlCountry of operationCprime UKFC100,00100,00UKConsoftFC100,00100,00ItalyIT SectorFC100,00100,00PortugalEeins Experts SRLFC100,00100,00RomaniaEeins Timisoara SRLFC100,00100,00RomaniaEeins GMBHFC100,00100,00GermanyFinaxiumFC100,00100,00FranceNexo InsuranceFC100,00100,00FranceNexeo BelgiumFC100,00100,00BelgiumNexeo Consulting HoldingFC100,00100,00FranceRadtac OYFC100,00100,00FinlandRadtac Holdings LimitedFC100,00100,00UKRadtac LimitedFC100,00100,00UKCmed Group LTDFC100,00100,00UKCmed LTDFC100,00100,00UKCmed INCFC100,00100,00United StatesCmed SRLFC100,00100,00RomaniaCmed Technology LTDFC100,00100,00UK(*) FC = Full consolidation Other changes in scope During the first half of 2021, the Group continued to legally simplify its scope through mergers, particularly in Romania, the United States, Germany, Spain, Finland and Sweden. 18 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS 19 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: (In thousands of euros) France UKBelgiumThe NetherlandsSpain/PortugalGermanySwitzerlandItalyScandinaviaNorth AmericaOffshore and AsiaNearshoreOtherTotal31/12/2020159 44918 27912 68626 168104 865103 89124 34047 18164 201102 43631 0546 850169701 567Acquisitions 23 45928 43424 9838 6374 93890 449Disposals/withdrawals0Earn-out adjustments2 7784 370(700)(665)(1 817)3 966Translation adjustments109(139)(153)1 9583122 086Other(131)216(1 415)9531(307)(1 511)Reclassifications0Impairments030/06/2021182 77646 82112 68626 168132 841115 48324 20151 51364 048103 76029 2426 850169796 557 For the first half of 2021, changes in goodwill were due to: the acquisitions completed by the Group in the first half of the year (described in Note 2.1.1); earn-out adjustments; translation adjustments on goodwill denominated in foreign currencies, corrections of positions acquired (included in the “Other” line) within the allocation period. The Group performs value tests on an annual basis or when loss of value indicators emerge. Discount rates (WACC) and the perpetual growth rate used at 30 June 2021 are identical to those of 31 December 2020. To conclude, the assets of the CGUs showing signs of loss of value demonstrate that their recoverable value is higher than their net book value. Consequently, no impairment was registered at 30 June 2021. Note that in this uncertain situation with the health crisis, forecasts and estimates made for these tests could be significantly modified subsequently. 3.2 Non-current financial assets (In thousands of euros)Amortised costFair value by comprehensive income without recyclingFair value through earningsLevel 1Level 2Level 3Securities held for sale18 7561 18519 94161 11717 3002 641Deposits and guarantees13 86613 86614 555Other long-term assets (loans and receivables) (1)25 23225 23224 590Total 39 098 18 756 1 185 59 039 100 262 17 300 - 2 641 Carrying amount according to IFRS 930/06/202131/12/2020Hierarchy of the fair value of financial assets at 30/06/2021 Other long-term assets consist in particular of a loan to a company in which the Group has an equity interest. Securities held for sale include the following interests: 20 Entity% interestFair value at openingAcquisition, disposal, reclassificationVariation in FV through comprehensive incomeVariation in FV through incomeFair value at closingFair value hierarchical levelPHINERGY LTD9,84%22 800(5 500)17 3001CONSOFT1 320(1 320)01IT SECTOR34 384(34 384)01OTHER2 613969(941)2 6413Total61 117(34 735)(5 500)(941)19 941 The decrease in securities held for sale is due in particular to the acquisition of IT Sector at the end of the financial year 2020, consolidated as of 1 January 2021 (see Note 2.1). 3.3 WORKING CAPITAL REQUIREMENTS AND TRADE RECEIVABLES (In thousands of euros)31/12/2020Cash flow variationOther flows (*)30/06/2021Current Non-currentTrade receivables586 6186 89738 872632 387632 387Customer contract assets108 10086 2395 841200 179200 179Customer contract liabilities(115 130)16 545(19 928)(118 513)(118 513)Customer advances and payments on account(2)(5 279)653(2 639)(7 265)(7 265)Trade receivables and related accounts (a)574 308110 33422 146706 788706 788Trade payables(99 101)(14 657)(9 850)(123 608)(123 608)Prepaid expenses (1)14 94210 7615 10430 80730 807Supplier receivables(1)1 703(798)(279)626626Supplier advances and payments on account(1)1 706(1 077)8971 5251 525Trade payables and related accounts (b)(80 751)(5 771)(4 128)(90 650)(90 650)Tax and social security receivables(1)56 45124 563(19 946)61 06861 068Other receivable(1)4 8991 873(1 627)5 1465 146Tax and social security debt(2)(332 812)(48 819)(21 524)(403 155)(399 767)(3 388)Other debts(2)(4 101)(5 630)5 479(4 251)(4 251)Other assets/liabilities (c)(275 563)(28 013)(37 617)(341 193)(337 805)(3 388)WCR (= a + b + c)217 99476 551(19 600)274 945278 332(3 388)Reconciliation with the consolidated statement of financial positionSum of (1)79 70035 322(15 851)99 17199 171Current financial assets383(15)368368Total of "Other current assets"80 08435 322(15 866)99 53999 539Sum of (2)(342 192)(53 796)(18 683)(414 671)(411 284)(3 388)Earn-outs(72 711)(9 503)(82 213)(14 428)(67 785)Total of "Other current and non-current liabilities"(414 903)(53 796)(28 186)(496 885)(425 713)(71 173) (*) “Other flows” correspond to newly consolidated companies in the scope of consolidation, translation adjustments or flows excluded by the nature of the change in WCR. The earn-outs are liabilities relating to acquisitions. The following table shows the breakdown of the portfolio of trade receivables based on age: 21 UnmaturedLess than 6 months6 months to 1 yearMore than 1 yearBalanceUnmaturedLess than 6 months6 months to 1 yearMore than 1 yearBalanceTRADE RECEIVABLES Gross value530 58097 3525 95312 170646 054459 827106 17722 1959 492597 691Provisions0(2 615)(1 126)(9 925)(13 667)0(2 278)(1 471)(7 324)(11 073)Net values530 58094 7374 8262 244632 387459 827103 90020 7242 168586 618(In thousands of euros)30/06/202131/12/2020 Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros)Labour disputes (1)Commercial disputesOther risksTOTALAt 31/12/20204 3081 02711 71517 051Reclassification286(8)0278Exchange rate variations00(4)(3)Change in scope110015125Provisions for the financial year38303 2263 609Reversals (provisions used)(369)0(710)(1 080)Reversals (provisions not used)(296)(400)(80)(776)At 30/06/20214 42261914 16319 205Of which current provisions2 6883946 3259 407Of which non-currents provisions1 7352257 8389 798 (1) Social disputes involve sums that taken individually are insignificant. Employee benefits Employee benefits primarily comprise end-of-career commitments. These commitments were determined at the end of June 2021 on the basis of the same actuarial assumptions with the exception of the discount rate, which was revised upwards compared to 31 December 2020 (from 0.5% to 1.0%) to take into account changes in the Iboxx rates in the first half of 2021. (In thousands of euros)Total commitmentAt 31/12/202017 257Change in scope1 038Reclassification0Cost of services provided833Interest expenses27Actuarial gains and losses(1 200)Benefits paid(332)At 30/06/202117 624 22 3.5 FINANCIAL LIABILITIES (EXCLUDING LEASE LIABILITIES) (In thousands of euros)31/12/2020IncRepaymentChange in scopeOther (translations adjustments, reclassification30/06/2021Current Non-currentBank borrowings and related debt83 95570 053(39 097)6 00914120 934112 1728 762 Bank borrowings82 797(38 811)5 800949 79542 1027 692 Borrowings in the market070 00070 00070 000 Other loans and related debt1 15853(286)20951 139691 070Bank overdrafts 3 8877 731(21)5515811 81011 810Deposits and guarantees received12(2)1010Other financial liabilities1131532427219676Total87 96777 937(39 120)6 066176133 026124 1788 848abChange in statement of cash flows financial liabilities (a + b)38 817124 1788 848 Bank overdrafts (In thousands of euros)30/06/2021EURUSDJPYFixed rateVariable rateBank borrowings49 79544 3463 4042 04598145 411 At 30 June 2021, this item consists of: The drawdown of the “Club Deal” for €40 million (short-term variable-rate financing) on a line opened for €160 million; PPP Loans in the USA (financial support for companies in the United States in the context of the health crisis) for €3.4 million; Other mid and long-term loans denominated in foreign currencies amounting to €6.4 million. Market funding The Group has entered into an issuance program of short-term negotiable debt securities (NeuCP) for an amount of €250 million set up in January 2021 in order to optimise and diversify its sources of financing. The financial documentation for the programme is available on the website https://eucpmtn.banquefrance.fr/public/#/liste- des-emetteurs. The debt amounted to €70 million as of 30 June 2021. 23 3.6 RIGHTS OF USE AND LEASE DEBT Usage rights (In thousands of euros)Real estate leasesVehicle leasesComputer equipment leasesOther leasesTotalGross valueGross value - 01/01/2021199 73035 1234 604475239 932New contracts34 9775 96850552941 980Decreases in lease periods/rentals and withdrawals(11 045)(4 013)(579)(25)(15 662)Change in scope14 2774 6681 17618620 308Translation adjustments1 084(33)16111 078Gross value - 30/06/2021239 02441 7125 7221 177287 635Depreciation and amortisationDepreciation and amortisation - 01/01/2021(59 478)(14 731)(2 850)(237)(77 296)Provisions(20 714)(6 527)(893)(274)(28 408)Reversals4 8383 382480228 720Change in scope(6 764)(2 106)(459)(52)(9 382)Translation adjustments(342)17(10)(5)(340)Depreciation and amortisation - 30/06/2021(82 460)(19 965)(3 733)(547)(106 704)Net value - 30/06/2021156 56421 7471 990630180 931 Financial lease debt (current and non-current liabilities) (In thousands of euros)Real estate leasesVehicle leasesComputer equipment leasesOther leasesTotalLease debt - 01/01/2021147 74220 4561 773243170 213New contracts22 2815 66937652928 855Increases in duration/rent12 755241129013 125Decreases in lease periods/rentals and withdrawals(5 592)(633)(99)(3)(6 327)Cash flow (repayments)(18 725)(6 476)(896)(274)(26 370)Change in scope6 7022 57772313410 136Translation adjustments823(13)76823Lease debt - 30/06/2021165 98521 8222 014635190 456Current debt40 10810 2931 29851352 212Non-current debt125 87711 528716123138 244 3.7 PERSONNEL EXPENSES (In thousands of euros)30/06/202130/06/2020Salaries and benefits(975 060)(907 321)Set provisions to social disputes 282(61)Retirement benefits(506)(735)Taxes levied on wages(12 091)(11 302)Employee profit sharing(3 186)(1 513)Total(990 561)(920 932) The government aid measures in the face of the health crisis, such as those for short-time work in France, are entered as reduction in personnel expenses. 24 • Share-based payments PLANSTOTALDate of award by the Board 26/04/201726/07/201719/09/201725/10/201724/10/201818/06/201918/06/201915/11/201927/10/202027/10/202027/10/202024/02/202124/02/2021Class of financial instruments awardedPreferred B sharePreferred B sharePreferred B sharePreferred B shareOrdinary sharePreferred B shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareOrdinary shareNumber of financial instruments awarded100 45081449 550150 000157 170164 50010 000109 45013 500 of which number awarded to employees100 45039149 550150 000157 17054 50010 000109 45013 500 of which number awarded to corporate officers0423000110 000000Number of instruments voided over the period1 60001 000000000Number of instruments subscribed for over the period400814040000000Number of instruments outstanding at 30/06/202186 250047 350148 900157 170164 50010 000109 45013 500Fair value of the financial instruments (in euros)2 555,12 389,62 862,22 856,473,74 899,992,596,476,775,776,784,985,9Vesting date26/04/201926/07/201919/09/201925/10/201924/10/202218/06/202118/06/202315/11/202327/10/202227/10/202327/10/202224/02/202424/02/2023End of lock-up/non-transferability period26/04/202126/07/202119/09/202125/10/2021None18/06/2023NoneNoneNoneNoneNoneNoneNoneCost of services provided H1 2021 (In thousands of euro)660258145164632921 1181 3941 395164584956 358Employer contribution cost H1 2021 (In thousands of euro)102431005831593893324787371 168(In thousands of euros)7 526 3.8 OTHER OPERATING INCOME AND EXPENSES (In thousands of euros)30/06/202130/06/2020Restricting costs(1 754)(3 352)Fees associated with the acquisition of new companies (2 207)(1 707)Social security and tax adjustments 128(74)Other(1 561)1 156Total other operating income and expenses(5 394)(3 977)Including other operating expenses(5 891)(5 383)Including other operating income4971 406 Other operating income and expenses over the period consisted of restructuring costs (-€1.8 million) relating mainly to headcount reduction measures in Spain, and fees related to acquisitions (-€2.2 million), and the adjustment of the costs of combining the acquired companies (-€1.6 million) as part of the application of IFRS 3 (in particular the change in earn-out liabilities and earn-out liabilities contingent on continued presence). 3.9 NET FINANCIAL INCOME (In thousands of euros)30/06/202130/06/2020Bank interest charges(542)(478)Interest on lease-financing agreements00Gross borrowing costs(542)(478)Income from receivables and investments246212Income from the disposal of marketable securities00Net borrowing costs(296)(266)Interest on leases (IFRS16)(1 100)(932)Net borrowing costs and financial costs of leases(1 396)(1 198)Foreign exchange losses(5 146)(5 836)Other financial expenses (750)(911)Discounted financial expenses(54)(186)Financial provisions(1 331)(1 305)Other financial expenses (7 281)(8 239)Foreign exchange gains5 6985 675Other financial income60314 708Financial income as a result of discount00Reversal of financial provisions1 217525Other financial income7 51820 908Other net financial income and expenses23712 669NET FINANCIAL INCOME(1 159)11 471 Net financial income amounted to -€1.2 million for the first half of 2021. Net financial income for the first half of 2020, amounting to €11.5 million, included in “Other financial income” the capital gain on the disposal of an equity-accounted company. 25 3.10 INCOME TAXES • Breakdown of income tax expenses (In thousands of euros)30/06/202130/06/2020Net income: Group and minority interests89 32260 544Earnings of equity-accounted companies11(1 366)Impairment of goodwill 00Share-based payments6 3582 288Income tax expenses33 72020 961Pre-tax earnings129 41082 427Tax rate of the consolidating company28,41%32,02%Theoretical income tax expense36 76526 393Difference in tax rate versus foreign companies(4 626)(5 535)Difference in tax rate versus French companies517480Miscellaneous tax credits(3 101)(3 523)Inactivated deferred tax assets2161 225CVAE (value added tax) reclassification2 2564 213Other permanent differences1 692(2 291)Tax expense recognised33 72020 961Effective income tax rate26,06%25,43%Income tax distribution :Deferred taxes1 1541 548Income tax payable32 56519 413Total33 72020 961 Deferred taxes Deferred tax receivables and liabilities consist of: (In thousands of euros)30/06/202131/12/2020Employee profit-sharing680508Retirement benefits3 6243 784Other timing differences5 156(160)IFRS 16 (155)2 669Tax-loss carry-forwards1 8013 856Total deferred taxes11 10610 657Including:Deferred tax assets 12 92711 648Deferred tax liabilities (1 821)(991)(In thousands of euros)30/06/202131/12/2020Deferred taxes at start of year10 6579 906Impact on total income IAS 19/IFRIC 210205Change in scope2 076(545)Exchange rate variations(464)1 595Expenses (or income) for the period(1 164)(505)Deferred taxes at year end11 10610 657 In light of the health crisis, the Group valued the recoverable component of deferrable tax losses on the basis of a 3-year projection of the expected tax results. The amount of non-capitalised deferred taxes for tax-loss carry- forwards amounted to €10.3 million (€37.8 million basis) at 30 June 2021. 26 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. (In thousands of euros)FranceInternationalTOTALFranceInternationalTOTALNet revenue505 370889 8551 395 225491 078749 3021 240 380Operating profit on activity34 760102 371137 13121 12354 03975 162Rate of operating profit on activity/revenue for the segment 6,9%11,5%9,8%4,3%7,2%6,1%Profit from ordinary activities29 121100 483129 60419 80552 83972 644Operating profit29 05595 155124 21118 20850 45968 667Financial income494(1 653)(1 159)13 855(2 384)11 471Income tax expense(9 957)(23 763)(33 720)(8 161)(12 800)(20 961)Earning of consolidated entities19 59369 73989 33223 90235 27559 177NET OVERALL EARNINGS 19 59369 72989 32125 35835 18560 543(In thousands of euros)FranceInternationalTOTALFranceInternationalTOTALGoodwill182 776613 782796 557137 233416 449553 682Investments in associates0-11-1101 0651 065Headcount at year end11 25027 30038 55012 78023 32036 100Cash at end period73 202222 424295 62597 501160 835258 336Financial liabilities (excluding rental debt)111 78521 241133 02523 48711 00234 489Net investments for the period(18 311)(33 346)(51 657)36 628(25 870)10 75830/06/202030/06/202130/06/202030/06/2021 Companies included in the consolidation scope during the period contributed €28.0 million to revenue for the half-year. 3.12 EARNINGS PER SHARE (In thousands of euros)30/06/202130/06/2020Net income, group share89 28360 646Weighted average number of shares 33 840 39933 707 795Earnings per share2,641,80(In thousands of euros)30/06/202130/06/2020Earnings 89 28360 646Dilutive effect00Diluted earning89 28360 646Weighted average number of shares 33 840 39933 707 795Effect of dilutions672 978507 818Weighted average number of shares after potential dilution34 513 37734 215 613Diluted earnings per share2,591,77 27 3.13 STATEMENT OF CASH FLOWS Changes in depreciation, provisions and other calculated income/expenses30/06/202130/06/2020Amortisation of intangible assets1 7841 578Depreciation of property, plant and equipment5 5546 102Provisions for risks and expenses2 115(5 003)Other income and calculated expenses495(1 301)Depreciation/amortisation of usage rights28 36726 486Total38 31427 862Breakdown of taxes paid30/06/202130/06/2020Repayments received24 6056 039Payments made(34 876)(32 217)Total(10 271)(26 178)Impact of changes in scope and earn-outs30/06/202130/06/2020Acquisitions of consolidated subsidiaries(73 315)(24 267)Disposals of shares of subsidiaries 039 375Cash from new consolidated subsidiaries35 93410 114Payment of earn-outs(8 584)(7 194)Total(45 965)18 028 3.14 CONTINGENT ASSETS AND LIABILITIES Contingent liabilities presented in the 2020 consolidated financial statements did not change significantly during the first half of the year. 3.15 RELATED PARTIES Compensation and benefits granted to Corporate Officers Over the first half of 2021, there were no significant changes to the compensation reported at 31 December 2020. Relations with related parties Over the first half of 2021, there were no significant changes to the information disclosed at 31 December 2020. 28 3.16 FINANCIAL COMMITMENTS No material changes in financial commitments occurred during the first half of 2021 compared to those published at 31 December 2020. 29 REPORT OF THE STATUTORY AUDITORS ON THE 2021 HALF-YEAR FINANCIAL INFORMATION To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying half-year condensed consolidated financial statements of Alten, for the period from 1 January 2021 to 30 June 2021, the verification of the information presented in the half-yearly management report. The global crisis linked to the Covid-19 pandemic creates special conditions for the preparation and limited review of the half-year condensed consolidated financial statements. This crisis and the exceptional measures as part of the state of emergency have had several consequences for companies, particularly regarding their activities and financing. The crisis has also increased uncertainty about future prospects. Some of these measures, such as travel restrictions and working from home, have also had an effect on the internal organisation of companies and on the way we carry out our work. These half-year condensed consolidated financial statements were prepared under the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1 Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. This work is less extensive than that required for an audit conducted in accordance with the professional standards applicable in France. Consequently, the assurance that the financial statements, taken as a whole, are free from material misstatement obtained during a limited review is a moderate assurance, lower than that obtained in the context of an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half- year condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard as adopted by the European Union applicable to interim financial information. 30 2 Specific verifications We have also verified the information provided in the half-year business report on the half-year condensed consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half-year condensed consolidated financial statements. Neuilly sur Seine and Paris La Défense, 22 September 2021 The Statutory Auditors Grant Thornton KPMG Audit IS French Member of Grant Thornton International Jean-François Baloteaud Jean-Marc Discours Xavier Niffle Partner Partner Partner 31 DECLARATION BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT “I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial position and results of the Company and all its subsidiaries, and that the half-year management report provides a fair view of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year”. 22 September 2021. Simon AZOULAY Chairman and Chief Executive Officer 32 33 | Semestriel, 2021, IT, Alten | write me a financial report |
Semestriel | 2,018 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Alten
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| Half-year financial report 2018 ALTEN, French limited company (Société Anonyme) with capital of €35,521,455.90 Registered office: 40 Avenue André Morizet 92100 Boulogne Billancourt Listed in the Nanterre Trade and Companies Register under No. 348 607 417 - 1 - Contents 2018 HALF-YEAR MANAGEMENT REPORT ............................................................................................. 4 BUSINESS OVERVIEW ................................................................................................................................................. 4 FINANCIAL OVERVIEW ............................................................................................................................................. 4 RELATED-PARTY TRANSACTIONS ............................................................................................................................. 6 EVENTS SINCE 30 JUNE 2018 .................................................................................................................................... 6 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2018 ...................................................................... 6 2018 OUTLOOK .......................................................................................................................................................... 6 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS ............................................................... 7 1.1 CONSOLIDATED BALANCE SHEET ............................................................................................................... 8 1.2 CONSOLIDATED INCOME STATEMENT ....................................................................................................... 9 1.3 STATEMENT OF COMPREHENSIVE INCOME ............................................................................................. 10 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS ....................................................................................... 11 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY ............................................. 12 1.5 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............. 13 SIGNIFICANT EVENTS DURING THE HALF-YEAR ........................................................................................ 14 2.1 Acquisitions .............................................................................................................................................. 14 2.1.1 Dividends ................................................................................................................................................. 14 2.1.2 2.1.3 Other significant events......................................................................................................................... 14 2.1.4 Events after the reporting period ........................................................................................................ 14 2.2 ACCOUNTING PRINCIPLES AND METHODS ............................................................................................. 14 2.2.1 Accounting principles ............................................................................................................................ 15 2.2.2 Management estimates ........................................................................................................................ 16 2.3 FINANCIAL RISK FACTORS .......................................................................................................................... 16 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION ...................................................................................... 16 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS ...................................................... 17 3.1 GOODWILL ................................................................................................................................................... 18 3.2 FINANCIAL ASSETS ....................................................................................................................................... 18 3.3 CURRENT ASSETS .......................................................................................................................................... 19 EMPLOYEE PROVISIONS AND BENEFITS .................................................................................................... 19 3.4 3.5 FINANCIAL LIABILITIES .................................................................................................................................. 20 3.6 OTHER LIABILITIES ......................................................................................................................................... 21 PERSONNEL EXPENSES ................................................................................................................................ 21 3.7 3.8 NON-CURRENT OPERATING INCOME AND EXPENSES ........................................................................... 21 3.9 NET FINANCIAL INCOME ............................................................................................................................ 22 INCOME TAXES ........................................................................................................................................ 22 3.10 OPERATING SEGMENT INFORMATION ................................................................................................. 23 3.11 EARNINGS PER SHARE............................................................................................................................. 24 3.12 - 2 - 3.13 3.14 3.15 3.16 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................... 24 CONTINGENT ASSETS AND LIABILITIES................................................................................................... 25 RELATED PARTIES ..................................................................................................................................... 25 FINANCIAL COMMITMENTS ................................................................................................................... 25 Statutory Auditors’ report on the half-yearly financial information ............................................... 26 Declaration by the person in charge of the half-year financial report ........................................ 27 - 3 - 2018 half-year management report BUSINESS OVERVIEW ALTEN is the European leader in engineering and technology consulting. The Group carries out design and research projects for the Technical and Information Systems Divisions of major customers in the industrial, telecommunications and service sectors. ALTEN's business consists of three operating segments: engineering and Technology Consulting (ETC); networks, Telecoms and Multimedia; technological information systems. At the end of June 2018, ALTEN had 26,500 engineers and consultants including: 10,550 in France; 15,950 outside France. ALTEN generates 45.8% of its business in France and 54.2% internationally (compared to 46.9% and 53.1% respectively during the first half of 2017). Significant events for the first half of 2018: ALTEN continues to grow internationally. Accordingly, ALTEN made 5 international acquisitions in 2018: two companies within the Germany/Austria scope representing €15.5 million in revenue and 175 consultants; two companies in Spain representing €27.5 million in revenue and 570 consultants; one company in China representing €7 million in revenue and 160 consultants. The Group's organic growth has accelerated since 2017, particularly during the first half of 2018, and has reached 10%. FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board meeting of 20 September 2018. Income statement (IFRS): Revenue At 30 June 2018, revenue, determined according to the new IFRS 15 standard in effect since 1 January 2018, totalled €1,099.9 million compared to €990.9 million at 30 June 2017, after restatement under IFRS 15, i.e. an increase of 11%. On a like-for-like basis, business grew by 10% (8.4% in France and 11.4% outside France) despite an unfavourable calendar effect (one less business day than in 2017). - 4 - ALTEN generates 25% of its business outside the euro zone. The exchange rate effect was particularly strong during this period since it hampered growth by 2% due to the appreciation of the euro against all currencies. The first half of the year saw organic growth accelerate in all geographical areas, including France. All business sectors are experiencing growth (with the exception of Oil & Gas) particularly in Aerospace, Defence & Security, Life Sciences and Rail & Naval. Operating profit on activity Consolidated operating profit on activity for the half-year stands at €102.7 million, up 10.9% in comparison to June 2017 (€92.6 million). The Group-operating margin is stable at 9.3% compared to the previous year, despite one less business day than in 2017. In France, the operating margin also remained stable (10% in 2018 versus 10.1% in 2017) despite the calendar effect and the commercial structuring and HR work. This is mostly thanks to the productivity gains on projects and the receipt of the Research Tax Credit. The operating margin experienced a very slight change at the international level (8.8% in 2017; 8.7% in 2018) thanks to a small improvement in the utilisation rate. Operating profit Operating profit totals €100.3 million (versus €82.1 million at 30 June 2017) after accounting for non-recurrent costs of €1.5 million (fees for acquisitions and restructuring costs) and €0.9 million in IFRS 2 expenses on share-based payments without a cash impact. Net income, Group share After accounting for net financial income (+€0.1 million), the income tax expense (-€28.9 million), the earnings of equity-accounted companies (+€4.8 million), and some minority interests (-€1.3 million), net income, group share is €75 million, i.e. 6.8% of revenue, up by 2.3% compared to the previous year (€73.3 million at 30 June 2017, i.e. 7.4% of revenue restated per IFRS 15). Consolidated balance sheet items and financial movements The financial structure of the ALTEN Group is very robust. Under assets, non-current assets represent 38.6% of the overall balance sheet (€1,559.5 million) primarily consisting of goodwill (30.5%, i.e. €475.2 million). Current assets, excluding cash assets, consist primarily of accounts receivable, which amount to 45.3% of the balance sheet. Under liabilities, the Group has significant equity (€877.8 million), which represents 56.3% of the overall balance sheet. During the first half of 2018, the ALTEN Group generated gross cash flow of €110 million, an increase of 16.5% compared to June 2017 (€94.4 million). The change of -€70.4 million in working capital requirements was impacted by a seasonal degradation of the DSO by 3 days and the financing of organic growth. After taking into account the taxes paid (€20.7 million) and Capex (€8.6 million), free cash flow totals €10.2 million. Financial investments (€51.9 million) and dividends (€33.4 million) were partially financed by debt. Accordingly, the net cash position at 30 June 2018 is -€47.7 million. - 5 - The Group's gearing (net debt/equity ratio) is 5.4% and its net debt/operating profit on activity ratio is 0.23. ALTEN is therefore in compliance with all its bank covenants. RELATED-PARTY TRANSACTIONS There were no related-party transactions in the first half of 2018. EVENTS SINCE 30 JUNE 2018 None. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2018 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 121 to 126 of the 2017 Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 27 April 2018. 2018 OUTLOOK In the current economic climate, ALTEN should achieve satisfactory organic growth in line with the first half of 2018. ALTEN will also continue its acquisitions strategy, particularly internationally. Signed at Boulogne-Billancourt, 20 September 2018, The Board of Directors - 6 - Half-year condensed consolidated financial statements 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS - 7 - 1.1 CONSOLIDATED BALANCE SHEET ASSETS (In thousands of euros)Notes30/06/201831/12/2017 restated*31/12/2017 reportedGoodwill3.1475 201436 740436 740Intangible assets10 54810 97010 970Property, plant and equipment26 73524 63124 631Investments in associates24 58019 13619 136Non-current financial assets3.252 80450 45450 454Deferred tax assets3.1012 13312 93012 930NON-CURRENT ASSETS601 999554 860554 860Trade receivables3.3525 589528 461647 287Customer contract assets3.3180 945118 826Other current assets3.375 21050 51450 514Current tax assets86 14181 68681 686Cash and cash equivalents3.289 60783 96683 966CURRENT ASSETS957 492863 453863 453TOTAL ASSETS 1 559 4911 418 3131 418 313LIABILITIES (In thousands of euros)Notes30/06/201831/12/2017 restated*31/12/2017 reportedShare capital34 38334 38334 383Additional paid-in capital 54 37554 37554 375Consolidated reserves714 033596 796596 796Consolidated earnings75 019147 025147 025EQUITY (Group share)877 811832 580832 580NON-CONTROLLING INTERESTS3 7051 6531 653TOTAL EQUITY881 516834 232834 232Employee benefits3.424 35223 08123 081Provisions 3.43 2311 8661 866Non-current financial liabilities3.59 5378 0638 063Other non-current liabilities3.614 00512 53712 537Deferred tax liabilities3.102928383NON-CURRENT LIABILITIES51 41845 63145 631Provisions 3.48 5619 5729 572Current financial liabilities3.5128 05449 28349 283Trade payables 74 21963 66263 662Other current liabilities3.6335 564320 486409 241Customer contract liabilities69 69288 755Current tax liabilities10 4686 6946 694CURRENT LIABILITIES626 558538 451538 451TOTAL EQUITY AND LIABILITIES1 559 4911 418 3131 418 313(*) The consolidated statement of financial position for the year ended 31 December 2017 was restated in relation to the one provided in the consolidated financial statements at 31 December 2017 and published in April 2018 in order to take the impact of the application of the new IFRS 15 standard into account (Please refer to note 2.2.1) - 8 - 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros)Notes30/06/2018REVENUE 3.111 099 936990 943983 668Purchases consumed(91 435)(85 538)(92 936)Personnel expenses3.7(791 693)(710 610)(710 610)External charges(100 402)(91 621)(76 949)Other taxes and levies(5 137)(5 540)(5 540)Depreciation and amortisation charges(7 161)(6 150)(6 150)Other operating expenses(2 899)(3 829)(3 829)Other operating income1 5034 9504 950OPERATING PROFIT ON ACTIVITY102 71392 60492 604Share-based payments3.7(939)(10 032)(10 032)PROFIT FROM ORDINARY ACTIVITIES101 77482 57282 572Other operating expenses3.8(2 924)(1 822)(1 822)Other operating income3.81 4341 3601 360OPERATING PROFIT100 28482 10982 109Net borrowing costs3.9(375)(360)(360)Other financial expenses3.9(3 401)(7 524)(7 524)Other financial income3.93 85726 21926 219Income tax expense3.10(28 895)(28 545)(28 545)EARNINGS OF CONSOLIDATED ENTITIES71 47071 89971 899Earnings from associates4 7821 8591 859NET OVERALL EARNINGS 76 25273 75973 759Including:Non-controlling interests1 233459459Group share75 01973 30073 300Earnings per share in euros (Group share)3.122,252,212,21Diluted earnings per share in euros (Group share)3.122,212,172,1730/06/2017 restated*30/06/2017 reported(1) The consolidated income statement for the year ended 30 June 2017 was restated in relation to the one provided in the consolidated financial statements at 30 June 2017 and published in September 2017 in order to take the impact of the applicationof the new IFRS 15 standard into account (Please refer to note 2.2.1) - 9 - 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros)Notes30/06/201830/06/2017Net income, Group share75 01973 300Net income, non-controlling interests’ share1 233459Consolidated net income76 25273 759Change in fair value of sellable financial assets (net of income tax)3.21 400(20 419)Translation adjustments725(6 262)Income and expenses recognised directly in equity and transferable to profit or loss2 125(26 681)Actuarial differences on employee benefits (net of income tax)00Items recognised directly in equity and not transferable to profit or loss00TOTAL INCOME FOR THE PERIOD78 37747 078Including:Group share77 11546 640Non-controlling interests1 262438 - 10 - 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros)Notes30/06/201830/06/2017Consolidated net income76 25273 759Earnings from associates(4 782)(1 859)Depreciation, provisions and other calculated expenses3.137 9504 807Share-based payments3.793910 032Income tax expense3.1028 89528 545Capital gains or losses from disposals(22)(21 445)Net borrowing costs3.9375360Financial cost on update and provisions382243Gross cash flow before borrowing costs and tax 109 99094 443Taxes paid3.13(20 727)(24 480)Change in working capital requirements 3.13(70 439)(46 326)Net cash flow from operating activities18 82423 637Acquisitions of tangible and intangible assets (8 667)(5 297)Acquisitions of financial assets(3 868)(4 716)Impact of changes in scope and earn-outs3.13(48 013)(11 300)Disposals of tangible and intangible assets64330Reductions in financial assets1 06529 683Net cash flow from investing activities(59 419)8 699Net financial interest paid(675)64Dividends paid to shareholders(33 364)(33 232)Capital increase3.13(0)76Acquisitions and disposals of treasury shares665(26)Changes in non-current financial liabilities3.5(394)7Change in current financial liabilities3.580 118(9 810)Net cash flow from financing transactions46 351(42 921)Change in cash position5 756(10 585)Impact of exchange rate variations(114)(1 277)Cash at beginning of period83 96694 986Cash at end of period89 60783 124 In accordance with IAS 7 identifying bank borrowings and loans with financing transactions, the table above shows the change in positive cash flow items. The Group’s net cash position/(net debt) breaks down as follows: (In thousands of euros)30/06/201830/06/2017Cash at end of period89 60783 124+ Bank borrowings and related debt3.5(118 101)(69 305)+Bank overdrafts 3.5(19 221)(10 985)= Net cash position/(Net debt)(47 715)2 833 - 11 - 1.5 STATEMENT OF SHAREHOLDERS' EQUITY CHANGES IN CONSOLIDATED (In thousands of euros)Number of shares in circulationNumber of shares issuedCapitalAdditional paid-in capitalReservesTreasury sharesTranslation reserveEarnings (Group share)Shareholders’ equityAt 31 December 201633 224 76933 687 72534 24046 749548 909(8 901)5 345112 405738 7472016 allocation of earnings112 405(112 405)0Capital increase(1)4 9924 99257176Dividends paid to shareholders(33 231)(33 231)Other changes0Treasury shares(266)(26)(26)Share-based payments8 6808 680Transactions with shareholders33 229 49533 692 71734 24646 820636 763(8 927)5 3450714 246Total income for the period(20 419)(6 241)73 30046 640At 30 June 201733 229 49533 692 71734 24646 820616 345(8 927)(896)73 300760 886At 31 December 201733 356 73933 828 49734 38454 376612 753(9 533)(6 425)147 025832 5802017 allocation of earnings147 025(147 025)0Capital increase0Dividends paid to shareholders(33 366)(33 366)Other changes0Treasury shares9 944665665Share-based payments817817Transactions with shareholders33 366 68333 828 49734 38454 376727 230(8 868)(6 425)0800 696Total income for the period1 40069575 01977 114At 30 June 201833 366 68333 828 49734 38454 376728 630(8 868)(5 730)75 019877 811At 31 December 201666(34)3423742016 allocation of earnings342(342)(0)Change in scope1212Capital increase0Total income for the period(21)459438At 30 June 2017419(55)459823At 31 December 2017420(62)1 2951 6532017 allocation of earnings1 295(1 295)0Change in scope791791Capital increase0Total income for the period291 2331 262At 30 June 20182 506(33)1 2333 705Change in equity capital, non-controlling interestsReservesTranslation reserveEarningsShareholders’ equity(In thousands of euros) - 12 - 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - 13 - 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions KAMMERER (Revenue: €5.5 million; 95 consultants) On 28 March 2018, ALTEN Europe acquired 100% of the share capital and voting rights of the Austrian company specialising in the automotive sector. SHANGAI SHUANGJIE TECHNOLOGY (Revenue: €7 million; 160 consultants) On 13 April 2018, Sesame Group Ltd acquired 80% of the shares and voting rights of the Chinese company Shuangjie, which specialises in the automotive sector and has 2 subsidiaries. E-TIC SISTEMES (Revenue: €8.5 million; 150 consultants) On 12 April 2018, ALTEN Spain acquired 100% of the capital and voting rights of E-TIC Sistemes which has a multi-segment business in information technologies. XPULS (Revenue: €10 million; 80 consultants) On 27 April 2018, ALTEN Europe acquired 100% of the share capital and voting rights of the German company Xpuls Business, which specialises in the automotive and aviation sector. OPTIMISSA (Revenue: €19 million; 420 consultants) On 17 May 2018, ALTEN Europe acquired the Group of companies Optimissa which primarily has businesses in Spain. This Group of companies specialises in the field of banking IT. This acquisition, the price of which is in the process of being allocated, will be consolidated during the second half of 2018. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Dividends During the first half of the year, €33.4 million in dividends were paid to ALTEN SA shareholders for the financial year ended at 31 December 2017. 2.1.3 Other key events None. 2.1.4 Events after the reporting period None. 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2018 were prepared in accordance with IAS 34 "Interim Financial Reporting", as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and the consolidated financial statements for the period - 14 - ended at 31 December 2017 (included in the 2017 Registration Document) are to be used as a reference while reviewing them. The 2017 consolidated financial statements included in the issuer's 2017 Registration Document are also available on its website page dedicated to financial statements: http://www.alten.com.fr/investors. The financial statements presented in this document were approved by the Board meeting of 20 September 2018. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2018 are identical to those used for the consolidated financial statements at 31 December 2017, with the exception of the new standards applicable as of 1 January 2018, and in particular IFRS 15 "Revenue from contracts with customers". The Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at the European level but whose application was not mandatory at 1 January 2018. Impact of the new standard applicable as of 1 January 2018 IFRS 15 The transition project initiated by the Group several years ago consisted in analysing the contracts and in evaluating the impacts of this new standard on the recognition of revenue. This work was performed by the Group's teams, with the assistance of a consultant, over the entire scope of the Group. The main items identified as modifying the recognition of revenue for the Group are the following: expenses re-invoiced to customers were until now presented as cost reductions (external charges or personnel expenses). They are now presented under revenue according to IFRS 15; the notion of an agent/principal introduced by IFRS 15 affects the recognition of revenue from certain customer contracts including subcontracting and the sale of licenses. Per IFRS 15, net revenue is recognised on this type of contract. The transition on 1 January 2018 was performed retroactively: the financial statements presented above (note 1) include the period ended at 30/06/2018 presented according to IFRS 15, and the comparison periods are restated in accordance with this same standard. IFRS 9 The provisions of IFRS 9 regarding recognition methods for financial assets at fair value were taken into account from a forward planning perspective given the lack of any major impact. The standard's provisions concerning trade receivables stipulate that they should now be depreciated on the basis of the credit losses expected at maturity. The Group performed an analysis of the history of its prior trade receivables and identified a marginal impact. - 15 - 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates provided by Management in the preparation of the consolidated statements are presented on page 225 of the 2017 Registration Document. 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2017 consolidated financial statements remain essentially unchanged. 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company nameBasis of consolidation (*)% interest% controlCountry of operationAlten Austria Sud (formerly Kammerer)FC100,00100,00AustriaAnotech Energy Doha (1)FC85,0085,00QatarAnotech Energy Services (1)FC100,00100,00Great BritainE-Tic SistemesFC100,00100,00SpainChongqing Wangjie TechnologyFC80,0080,00ChinaShangai Shuangje TechnologyFC80,0080,00ChinaShangai Yujie Automobile DesignFC80,0080,00ChinaTechalten Portugal (1)FC100,00100,00PortugalXpuls Business SolutionsFC100,00100,00Germany(*) FC = Full consolidation(1) creation Other changes in scope Over the first half of 2018, the Group has continued to streamline its legal structure by merging several entities in Germany, France and Switzerland. - 16 - 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS - 17 - 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: (In thousands of euros)Switzerland31/12/2017126 9444 23612 68621 09719 99173 21322 46919 50744 17975 72211 6054 924169436 740Acquisitions 25 2862 6562 7821 92632 650Disposals0Earn-out adjustments(34)4 4744 440Translation adjustments141(214)1 599(154)1 371Other0Reclassifications0Impairments030/06/2018126 9444 23612 68621 09745 27675 86822 57519 50743 96581 79514 2346 850169475 201ScandinaviaNorth AmericaOffshore and AsiaNearshoreOtherTotalItalyFrance UKBelgiumThe NetherlandsSpainGermany For the first half of 2018, changes in goodwill were due to: the acquisitions made by the Group during the first half of the year (described in note 2.1.1), including the acquisition of Optimissa for which the acquisition price will be allocated to the assets and liabilities identified during the second half of 2018; earn-out adjustments; - translation adjustments on goodwill denominated in foreign currency. The Group performs value tests on an annual basis or when loss of value indicators emerge. The tests performed on 30 June 2018 for the assets of the CGUs showing signs of value loss demonstrate that their recoverable value is higher than their net book value. As a result, no impairment representing a loss in value was recorded at 30 June 2018. The discount rate (WACC) of the country and the perpetual growth rate used at 30 June 2018 are identical to those of 31 December 2017 in the absence of any significant changes in the factors making up these rates. 3.2 FINANCIAL ASSETS Amortised costFair value through shareholders’ equityFair value through earningsLevel 1Level 2Level 3Assets Securities held for sale15 05415 05413 86515 054Deposits and guarantees10 39910 3999 861Other long-term assets (loans and receivables)(1)27 35127 35126 728Total 37 750 15 054 - 52 804 50 454 - - 15 054 (1) Other long-term assets are primarily comprised of loans with associates(In thousands of euros)NoteCarrying amount according to IAS 3930/06/201831/12/2017Hierarchisation of the fair value of financial assets Securities held for sale include the following interests: Entity% InterestFair value 31/12/2017Acquisition (disposal)Change in fair valueFair value 30/06/2018Fair value hierarchical levelData usedFCP XANGE3 520(163)1 4004 7573Net asset valuePHINERGY LTD 12,83%8 3918 3913MISCELLANEOUS1 954(48)1 9063Total13 865(211)1 40015 054 - 18 - 3.3 CURRENT ASSETS (In thousands of euros)30/06/201831/12/2017TRADE RECEIVABLES AND CONTRACT ASSETS Gross value718 651659 133Impairments(12 117)(11 845)Total 706 534 647 287 OTHER CURRENT ASSETS Inventory3924Social security receivables17 0325 516Tax receivables 29 13626 110Other receivables 7 6929 827Impairment of other receivables(699)(672)Prepaid expenses22 0109 709Total 75 210 50 514 The following table shows the breakdown of the portfolio of trade receivables based on age: UnmaturedLess than 6 months6 months to one yearMore than 1 yearBalanceUnmaturedLess than 6 months6 months to one yearMore than 1 yearBalanceTRADE RECEIVABLES AND CONTRACT ASSETS Gross value609 32592 6746 46210 190718 651535 722107 4717 2848 655659 133Provisions0(1 271)(676)(10 171)(12 118)0(1 560)(1 910)(8 376)(11 846)Net values609 32591 4035 78620706 534535 722105 9125 375279647 287(In thousands of euros)30/06/201831/12/2017 Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros)Social disputes(1)Commercial disputesMiscellaneous risks(2)TOTALAt 31/12/20174 8521 6884 89711 437Change in scope0Exchange rate variations12325Provisions for the financial year86221 0001 864Reversals (provisions used)(611)(6)(29)(646)Reversals (provisions not used)(570)(66)(252)(888)At 30/06/20184 5341 6035 65611 792Of which current provisions2 2971 5614 7038 561Of which non-current provisions2 237429523 231 (1) Social disputes involve sums that taken individually are insignificant. (2) The Group is involved in a number of tax and social disputes. The corresponding risks and provisions are analysed with the assistance of the Group's consultants. - 19 - Employee benefits Employee benefits primarily comprise end-of-career commitments. These commitments were determined at the end of June 2018 based on the same actuarial assumptions as those used at 31 December 2017 with, in particular, a discount rate of 1.80%. (In thousands of euros)Retirement benefitsAt 31/12/201723 081Change in scope0Cost of services provided1 177Interest expenses188Actuarial gains and losses0Benefits paid-94At 30/06/201824 352 3.5 FINANCIAL LIABILITIES (In thousands of euros)31/12/2017IncRepaymentChange in scopeOther (Translation adjustments, reclassificati30/06/2018Current Non-currentBank borrowings and related debt45 82872 906(1 319)740(53)118 101108 8289 273 Bank borrowings44 02972 367(79)112116 429107 6138 816 Other loans and related debt1 799539(1 240)740(165)1 6731 216457Bank overdrafts10 9198 266(10)4719 22119 221Deposits and guarantees received37419(282)(3)109109Other financial liabilities225147(3)(209)1595155Total57 34581 337(1 614)740(218)137 591128 0549 537abChange in statement of cash flows financial liabilities (a +b)80 118(394)79 724 Bank overdrafts (In thousands of euros)30/06/2018EURGBPUSDMADCADFixed Variable Bank overdrafts116 429112 3361 345264562 2671 986114 443 At 30 June 2018, this item consists of: - the drawdown of the “Club Deal” for €93 million (short-term variable-rate financing) on a line opened for €160 million; a loan for €7 million subscribed at the end of December 2016, repayable over three years (fixed rate of 0.4%). The remaining principal balance was €4.7 million at 30 June 2018; three loans maturing in three months for an amount of €14.5 million; other mid and long-term loans denominated in foreign currencies amounting to €4.0 million. Other loans and related debt Other loans and related debt at 30 June 2018 comprised, in particular, leases amounting to €1.7 million. - 20 - 3.6 OTHER LIABILITIES (In thousands of euros)31/12/2017ChangeChange in scopeOther (Translation adjustments, reclassification)30/06/2018Current Non-currentEarn-outs(1)24 595(684)(4 798)20619 3208 75410 566Social security debt183 23219 8992 727(1 095)204 763201 3243 439Tax liabilities 114 987631 227(402)115 875115 875Other liabilities10 2091 232(1 921)929 6119 611Total333 02320 510(2 765)(1 199)349 569335 56414 005(1) Earn-outs related to company acquisitions. 3.7 PERSONNEL EXPENSES (In thousands of euros)30/06/201830/06/2017Salaries and benefits(775 740)(694 101)Social disputes 318639Retirement benefits (1 083)(1 308)Taxes levied on wages(12 145)(12 103)Employee profit sharing(3 043)(3 737)Total(791 693)(710 610) Share-based payments PLANTOTALDate awarded by the Board of Directors27/07/201627/10/201626/04/201726/07/201719/09/201725/10/2017Class of financial instruments awardedPreferred B sharePreferred B sharePreferred B sharePreferred B sharePreferred B sharePreferred B shareNumber of financial instruments awarded1 57250018167729200 Of which number awarded to employees1 57250018167729200 Of which number awarded to Corporate Officers000000Number of instruments voided over the period2800000Number of instruments subscribed for over the period000000Number of instruments outstanding at 30/06/20181 46150018167729200Fair value of the financial instruments (in euros)1 438,71 702,72 555,12 389,62 862,22 856,4Final award date27/07/201827/10/201826/04/201926/07/201919/09/201925/10/2019End of lock-up/non-transferability period27/07/202027/10/202026/04/202126/07/202119/09/202125/10/2021Cost of services provided 2018 (In thousands of euros)41913243218050817Employer contribution cost 2018 (In thousands of euros)772200148121Total939 3.8 NON-CURRENT OPERATING INCOME AND EXPENSES (In thousands of euros)30/06/201830/06/2017Costs associated with the acquisition of new companies (752)(537)Social security and tax adjustments (425)(439)Other(313)513Total earnings(1 489)(463)Including non-current operating expenses(2 924)(1 822)Including non-current operating income1 4341 360 fees on acquisitions income and expenses consist of Non-current operating (-€0.8 million), of provisions for social security and tax adjustments (-€0.4 million), and of miscellaneous income and expenses related to prior acquisitions (-€0.3 million). - 21 - 3.9 NET FINANCIAL INCOME (In thousands of euros)30/06/201830/06/2017Bank interest charges(416)(482)Interest on lease-financing agreements(50)(51)Gross borrowing costs(466)(533)Income from receivables and investments91173Income from the disposal of marketable securities00Net borrowing costs(375)(360)Foreign exchange losses(2 610)(6 731)Other financial expenses (221)(369)Discounted financial expenses(570)(424)Financial provisions00Other financial expenses (3 401)(7 524)Foreign exchange gains3 1994 024Other financial income65822 195Financial income as a result of discount00Reversal of financial provisions00Other financial income3 85726 219Other net financial income and expenses45618 695NET FINANCIAL INCOME (EXPENSES)8118 336 At 30 June 2018, other financial income solely consists of interest on loans with associates, whereas at 30 June 2017 it included the capital gains for the disposal of the AUSY securities totalling €21.5 million. 3.10 INCOME TAXES Breakdown of income tax expenses (In thousands of euros)30/06/201830/06/2017Net income: Group and minority interests76 25273 759Earnings of equity-accounted companies(4 782)(1 859)Stock Options and Share Plans8178 680Income tax expense28 89528 545Pre-tax earnings101 183109 124Tax rate of the consolidating company34,43%34,43%Theoretical income tax expense34 84137 575Special 3% tax on dividends paid(20)997Difference in tax rate versus foreign companies(4 343)(3 250)Difference in tax rate versus French companies 28%(206)0Miscellaneous tax credits(8 420)(5 911)Unactivated deferred tax assets2 048433CVAE (value added tax) reclassification4 2513 998Other permanent differences 744(5 296)Tax expense recognised28 89528 545Effective income tax rate28,56%26,16%Including deferred taxes417(180)Including income tax payable28 47828 725Total28 89528 545 - 22 - The increase in the effective income tax rate at 30 June 2018 compared to 30 June 2017 is primarily due to the presence of reduced rate capital gains at 30 June 2017 resulting from the disposal of the AUSY investment securities in France. Deferred taxes Deferred tax receivables and liabilities consist of: (In thousands of euros)30/06/201830/06/2017Employee profit-sharing1 0161 246Retirement benefits7 4867 703Other timing differences1 0121 375Tax-loss carry-forwards2 3272 590Total deferred taxes11 84112 914Including:Deferred tax assets 12 13313 450Deferred tax liabilities (292)(536) The amount of non-activated deferred taxes for tax-loss carry-forwards amounted to €4.8 million (€18.5 million basis) at 30 June 2018. 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. FranceInternationalTOTALFranceInternationalTOTALNet revenue503 821596 1151 099 936464 901526 042990 943Operating profit on activity50 53352 180102 71346 78345 82192 604Rate of operating profit on activity/revenue for the segment 10,0%8,8%9,3%10,1%8,7%9,3%Profit from ordinary activities49 81351 961101 77438 33744 23582 572Operating profit49 80850 477100 28438 47643 63382 109Net financial income1 167(1 085)8117 78754818 336Income tax expense(13 931)(14 964)(28 895)(16 038)(12 507)(28 545)Earnings of consolidated entities42 51528 95571 47040 22631 67471 899NET OVERALL EARNINGS 47 33028 92376 25241 96631 79373 759FranceInternationalTOTALFranceInternationalTOTALGoodwill126 944348 257475 201126 966285 526412 493Impairment over the financial year00Investments in associates22 2062 37424 58012 8232 33715 160Headcount at Year End12 00018 00030 00011 28015 01426 294Cash at end of period21 49568 11289 60724 38958 73583 124Financial liabilities129 3558 235137 59071 4859 10580 590Net investments for the period(4 790)(54 630)(59 419)(25 180)16 481(8 699)(In thousands of euros)(In thousands of euros)30/06/201830/06/201730/06/201830/06/2017 Companies included in the consolidation scope during the period contributed €3.2 million to revenue for the half-year. - 23 - 3.12 EARNINGS PER SHARE (In thousands of euros)30/06/201830/06/2017Earnings75 01973 300Weighted average number of shares 33 366 68333 228 525Earnings per share2,252,21(In thousands of euros)30/06/201830/06/2017Earnings 75 01973 300Effect of dilutions00Diluted earnings75 01973 300Weighted average number of shares 33 366 68333 228 525Effect of dilutions524 473563 440Weighted average number of shares after potential dilution33 891 15633 791 965Diluted earnings per share2,212,17 3.13 STATEMENT OF CASH FLOWS Changes in depreciation, amortisation and provisions net of reversals30/06/201830/06/2017Amortisation of intangible assets1 9081 544Depreciation of property, plant and equipment5 2544 602Provisions for risks and expenses1 601(1 424)Other income and calculated expenses(813)84Total7 9504 807Breakdown of taxes paid30/06/201830/06/2017Repayments received7 9373 501Payments made(28 664)(27 981)Total(20 727)(24 480)Breakdown of cash flow on working capital requirements30/06/201830/06/2017Changes in net WCR - customers(66 481)(34 379)Changes in net WCR - suppliers(4 431)(4 976)Changes in net WCR – other receivables and operating payables473(6 972)Total(70 439)(46 326)Impact of changes in scope and earn-outs30/06/201830/06/2017Acquisitions of consolidated subsidiaries(35 477)(3 232)Cash from new consolidated subsidiaries2 5182 021Cash from deconsolidated subsidiaries00Earn-out payments(15 054)(10 089)Total(48 013)(11 300)Capital increase30/06/201830/06/2017Stock options exercised076Total076 - 24 - 3.14 CONTINGENT ASSETS AND LIABILITIES Contingent assets and liabilities remain essentially unchanged in nature from those presented in the 2017 consolidated financial statements. 3.15 RELATED PARTIES Compensation and benefits granted to Corporate Officers Over the first half of 2018, there were no significant changes to the compensation reported at 31 December 2017. Relations with related parties Over the first half of 2018, there were no significant changes to the information presented at 31 December 2017. 3.16 FINANCIAL COMMITMENTS No material changes in financial commitments took place during the first half of 2018 compared to those published at 31 December 2017. - 25 - Statutory Auditors' report on the 2018 half-yearly financial information Period from January 1, 2018 to June 30, 2018 To the Shareholders, In compliance with the assignment entrusted to us by the Shareholders Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Alten SA, for the six months ended June 30, 2018; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our conclusion, we draw your attention to paragraph “IFRS 15” of the Note 2.2.1.”Accounting principles” to the condensed half-year consolidated financial statements, which describes the application as of January 1, 2018 of IFRS 15 “Revenue from contracts with customers”. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. French original signed by Paris La Défense, 21 septembre 2018 Neuilly-sur-Seine, 21 septembre 2018 KPMG Audit IS Jean-Pierre Valensi Associé Grant Thornton Grant Thornton Membre français de Grant Thornton International Membre français de Grant Thornton International Vincent Frambourt Associé - 26 - Declaration by the person in charge of the half- year financial report "I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial position and results of the Company and all its subsidiaries, and that the half-year management report provides a fair view of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year". 21 September 2018. Simon AZOULAY Chairman and Chief Executive Officer - 27 - | Semestriel, 2018, IT, Alten | write me a financial report |
Semestriel | 2,017 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Alten
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| 2017 half-year financial report ALTEN, French limited company (Société Anonyme) with capital of €34,300,388.92 Registered office: 40 Avenue André Morizet 92100 Boulogne Billancourt Listed in the Nanterre Trade and Companies Register under No. 348 607 417 - 1 - Contents 2017 half-year management report ................................................................................................... 3 BUSINESS OVERVIEW ........................................................................................................................................ 3 1. FINANCIAL OVERVIEW..................................................................................................................................... 3 2. RELATED-PARTY TRANSACTIONS .................................................................................................................... 5 3. 4. EVENTS SINCE 30 JUNE 2017 ........................................................................................................................... 5 5. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2017 ............................................................ 5 6. OUTLOOK .......................................................................................................................................................... 6 Half-year condensed consolidated financial statements ............................................................... 7 Statutory Auditors’ report on the half-yearly financial information ............................................... 29 Declaration by the person in charge of the half-year financial report ........................................ 30 - 2 - 2017 half-year management report BUSINESS OVERVIEW ALTEN's business: ALTEN is the European leader in engineering and technology consulting. The Group carries out design and research projects for the Technical and Information Systems Divisions of major customers in the industrial, telecommunications and service sectors. ALTEN's business consists of three operating segments: Engineering and Technology Consulting (ETC); Telecoms and Networks; Information Systems. At the end of June 2017, ALTEN had 26,200 employees, of whom 88% are high-level engineering consultants. ALTEN generates 46.7% of its business in France and 53.3% internationally, primarily in Europe. Significant events for the first half of 2017: Business grew significantly, particularly internationally (+17%), despite an unfavourable calendar effect. Revenue stands at €983.7 million, up 13% compared to 2016. On a like-for-like basis, organic growth remains strong at 7.1% (5.8% in France; 8.4% outside France). ALTEN continues its international development (53.3% of revenue). With the exception of the United Kingdom, all geographical areas are experiencing growth (organic). With the exception of the Energy sector, all business sectors are also experiencing growth, particularly the Automotive and Aerospace sectors. In accordance with its strategic plan, ALTEN has consolidated its positions abroad thanks to it acquisitions policy. ALTEN has acquired 6 companies internationally: Two companies (Germany and Switzerland) representing €20 million in revenue and 175 consultants; Four companies in the United States representing €32 million in revenue and over 200 consultants. FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board meeting of 19 September 2017. Income statement (IFRS): Revenue At 30 June 2017, revenue stands at €983.7 million versus €870.5 million at 30 June 2016, i.e. growth of 13 % (+8.7% in France; +17.1% internationally). Activity at constant scope rose by 7.1% (5.8% in France and 8.3% internationally). International activity now represents 53.3% of the Group's business (51.4% at end-June 2016). - 3 - The first half of 2017 had one less business day than the first half of 2016, hampering organic growth by nearly 0.9%. At a constant number of business days, organic growth would have been 8%. In France, organic growth has noticeably improved thanks to the Automotive sector. At a constant number of business days, it would have exceeded 6.5%. Internationally, with the exception of the United Kingdom, all geographical areas are experiencing growth (organic). Growth accelerated in Northern Europe: Germany re- established organic growth, and growth in the Netherlands and Sweden showed noticeable improvement. In contrast, growth slowed in Southern Europe (Spain and Italy). All business sectors are growing, with the exception of the Energy sector. The Automotive and Aerospace sectors are driving growth. Operating profit on activity Consolidated operating profit on activity for the year-half stands at €92.6 million, equivalent to 9.4% of revenue versus €88.5 million, equivalent to 10.2% of revenue at 30 June 2016. It is only up by 4.7% compared to June 2016. Operating profit on activity is down in all geographical areas: 10.2% in France versus 11% in June 2016; 8.7% internationally versus 9.4% in June 2016. The decline in operating profit on activity is partly due to the calendar effect (1 less business day compared to the first half of 2016) representing an impact of 0.6 bp. It is also due to the significant effort undertaken to strengthen the management teams, which is necessary to support growth and further develop the mix in sectors and regions. Profit from ordinary activities Profit from ordinary activities stands at €82.1 million (versus €86.9 million at 30 June 2016) after accounting for expenses of €10.5 million beyond operations, including €0.5 million in non- recurring costs (fees for acquisitions and restructuring costs) and €10 million in IFRS 2 expenses on share-based payments without a cash impact. Operating profit After taking into account the non-recurring profit of -€0.5 million consisting mostly of fees for acquisitions fee (-€0.5 million), restructuring costs (-€0.4 million), provisions for social security and tax adjustments (-€0.4 million), and various forms of income relating to earlier acquisitions (+€0.9 million), operating profit totals €82.1 million, i.e. 8.3% of revenue. It was €86.9 million at end-June 2016, i.e. 10.0% of revenue. Net income, Group share After taking into account net financial income (+€18.3 million), the majority of which comes from the capital gains on the disposal of the AUSY equity interests (€21.5 million), the tax expense (-€28.5 million), the earnings of equity-accounted companies (+€1.9 million), and some minority interests (-€0.5 million), net income, group share is €73.3 million, i.e. 7.5% of revenue, up by 20.4% compared to last year (€60.9 million at 30 June 2016, i.e. 7.0% of revenue). Consolidated balance sheet items and financial movements The financial structure of the ALTEN Group is very robust. - 4 - Under assets, non-current assets represent 39.3% of the overall balance sheet (€1,339.4 million) primarily consisting of goodwill (30.8%), an increase of €1.3 million. Current assets, excluding cash assets, consist primarily of accounts receivable, which amount to 45.7% of the balance sheet. Under liabilities, the Group has significant equity (€760.9 million), which represents 56.8% of the overall balance sheet. Following the payment of €33.2 million in dividends, the net cash position stands at €2.8 million. Its gearing (net debt/equity ratio) is -0.4% and its net debt/operating profit on activity ratio is - 0.03. ALTEN is therefore in compliance with all its bank covenants. During the first half of 2017, the ALTEN Group generated gross cash flow of €94.4 million, an increase of 3.2% over last year (€91.5 million). The latter figure was negatively impacted by the taxes paid (€24.5 million) and an increase in working capital requirements (€46.3 million) due to an unfavourable seasonality factor during the first half of the year, alleviated during this first half by an improvement in the DSO (95.5 days in 2017 versus 98 days in June 2016). The flows generated by business activity therefore total €23.6 million (i.e. 2.4% of revenue). Cash flow on investments, totaling +€8.7 million, corresponds primarily to: tangible and intangible assets (fittings, software licences, computer equipment and infrastructure, etc.) for -€5.3 million; external growth and earn-outs on acquisition for -€11.3 million; the disposal of the interest held in AUSY for +€28.0 million. Cash flow on financing transactions represents -€42.9 million, mainly consisting of the payment of dividends for €33.2 million and additional bank financing for €9.8 million. Consequently, the net change in cash position is -€11.9 million according to IFRS. The net cash position at 30 June 2017 was €2.8 million (-€61.3 million at 30 June 2016 and €4.6 million at 31 December 2016). RELATED-PARTY TRANSACTIONS There were no related-party transactions in the first half of 2017. EVENTS SINCE 30 JUNE 2017 ALTEN acquired several companies internationally (see paragraph 2.1.4 of the note to the consolidated financial statements). MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2017 The nature and severity of the risks facing the ALTEN Group remain unchanged from those presented on pages 115 to 120 of the 2016 Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) on 28 April 2017. Among these, changes in the economic environment, and particularly their impact on the activity rate and organic growth, as well as the Group's ability to recruit, are the main factors likely to affect the course of business over the second half of the year. - 5 - 2017 OUTLOOK In a relatively favourable economic environment, ALTEN will continue to pursue its development strategy based on a dynamic acquisitions policy and its organic development capacity. ALTEN should achieve positive organic growth, as it did in the first half of the year, in compliance with its margin policy. Signed at Boulogne-Billancourt, 19 September 2017, The Board of Directors - 6 - Half-year condensed consolidated financial statements 2017 half-year management report ................................................................................................... 3 1. 2. 3. 4. 5. 6. BUSINESS OVERVIEW ..................................................................................................................................... 3 1.1. ALTEN'S business: ....................................................................................................................................... 3 Significant events for the first half of 2017: ........................................................................................... 3 1.2 FINANCIAL OVERVIEW .................................................................................................................................. 3 Income statement (IFRS): ................................................................................................................................... 3 Consolidated balance sheet items and financial movements .................................................................. 4 RELATED-PARTY TRANSACTIONS ................................................................................................................. 5 EVENTS SINCE 30 JUNE 2017 ........................................................................................................................ 5 MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2017 ......................................................... 5 2017 OUTLOOK .............................................................................................................................................. 6 Half-year condensed consolidated financial statements ............................................................... 7 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS ............................................................... 9 1.1 CONSOLIDATED BALANCE SHEET ............................................................................................................. 10 1.2 CONSOLIDATED INCOME STATEMENT ..................................................................................................... 11 1.3 STATEMENT OF COMPREHENSIVE INCOME ............................................................................................. 12 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS ....................................................................................... 13 1.5 CHANGE IN CONSOLIDATED SHAREHOLDERS' EQUITY ......................................................................... 14 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............. 15 SIGNIFICANT EVENTS DURING THE HALF-YEAR ........................................................................................ 16 2.1 Acquisitions .............................................................................................................................................. 16 2.1.1 2.1.2 Dividends ................................................................................................................................................. 16 2.1.3 Other key events .................................................................................................................................... 16 2.1.4 Events after the reporting period ........................................................................................................ 16 2.2 ACCOUNTING PRINCIPLES AND METHODS ............................................................................................. 16 2.2.1 Basis of preparation and accounting principles .............................................................................. 17 2.2.2 Management estimates ........................................................................................................................ 17 2.3 FINANCIAL RISK FACTORS .......................................................................................................................... 17 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION ...................................................................................... 17 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS ...................................................... 19 3.1 GOODWILL ................................................................................................................................................... 20 FINANCIAL ASSETS ....................................................................................................................................... 20 3.2 3.3 CURRENT ASSETS .......................................................................................................................................... 21 EMPLOYEE PROVISIONS AND BENEFITS .................................................................................................... 21 3.4 - 7 - FINANCIAL LIABILITIES .................................................................................................................................. 22 3.5 3.6 OTHER LIABILITIES ......................................................................................................................................... 22 3.7 PERSONNEL EXPENSES ................................................................................................................................ 23 3.8 NON-CURRENT OPERATING INCOME AND EXPENSES ........................................................................... 23 3.9 NET FINANCIAL INCOME ............................................................................................................................ 24 INCOME TAXES ........................................................................................................................................ 24 3.10 OPERATING SEGMENT INFORMATION ................................................................................................. 25 3.11 EARNINGS PER SHARE ............................................................................................................................ 26 3.12 STATEMENT OF CASH FLOWS ................................................................................................................. 27 3.13 CONTINGENT ASSETS AND LIABILITIES .................................................................................................. 27 3.14 RELATED PARTIES ..................................................................................................................................... 27 3.15 FINANCIAL COMMITMENTS ................................................................................................................... 28 3.16 Statutory Auditors’ report on the half-yearly financial information ............................................... 29 Declaration by the person in charge of the half-year financial report ........................................ 30 - 8 - 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS - 9 - 1.1 CONSOLIDATED BALANCE SHEET ASSETS (In thousands of euros)Notes30/06/201731/12/2016Goodwill3.1412 493411 200Intangible assets10 67211 816Property, plant and equipment22 93023 107Investments in associates15 16012 716Non-current financial assets3.252 21880 122Deferred tax assets3.1013 45013 368NON-CURRENT ASSETS526 922552 329Trade receivables3.3612 009579 164Other current assets3.352 22543 680Current tax assets65 14658 809Cash and cash equivalents3.283 12494 986CURRENT ASSETS812 504776 638TOTAL ASSETS1 339 4261 328 967LIABILITIES (In thousands of euros)Notes30/06/201731/12/2016Share capital34 24534 240Additional paid-in capital 46 82046 749Consolidated reserves606 521545 353Consolidated earnings73 300112 405EQUITY (Group share)760 886738 747NON-CONTROLLING INTERESTS823374TOTAL EQUITY761 708739 120Employee benefits3.423 11021 622Provisions 3.41 5862 098Non-current financial liabilities3.59 5909 766Other non-current liabilities3.617 10818 418Deferred tax liabilities3.105361 091NON-CURRENT LIABILITIES51 93052 995Provisions 3.48 63211 263Current financial liabilities3.571 00080 971Trade payables 67 93267 844Other current liabilities3.6372 926372 451Current tax liabilities5 2984 322CURRENT LIABILITIES525 788536 851TOTAL LIABILITIES1 339 4261 328 967 - 10 - 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros)Notes30/06/201730/06/2016REVENUE 3.11983 668870 482Purchases consumed(92 936)(83 100)Personnel expenses3.7(710 610)(610 239)External charges(76 949)(77 841)Other taxes and levies(5 540)(5 378)Depreciation and amortisation charges(6 150)(5 713)Other operating expenses(3 829)(1 358)Other operating income4 9501 605OPERATING PROFIT ON ACTIVITY92 60488 458Share-based payments3.7(10 032)0PROFIT FROM ORDINARY ACTIVITIES82 57288 458Other operating expenses3.8(1 822)(2 119)Other operating income3.81 360560Income from asset disposals00Impairment of goodwill00OPERATING PROFIT82 10986 900Net borrowing costs3.9(360)(505)Other financial expenses3.9(7 524)(4 492)Other financial income3.926 2192 395Income tax expense3.10(28 545)(25 798)EARNINGS OF CONSOLIDATED ENTITIES71 89958 500Earnings from associates1 8592 456NET OVERALL EARNINGS 73 75860 956Including:Non-controlling interests45984Group share73 30060 872Earnings per share in euros (Group share)3.122,211,83Diluted earnings per share in euros (Group share)3.122,171,83 - 11 - 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros)Notes30/06/201730/06/2016Net income, Group share73 30060 872Net income, non-controlling interests’ share45984Consolidated net income73 75960 956Change in fair value of sellable financial assets (net of income tax)3.2(20 419)3 365Translation adjustments(6 262)(1 382)Income and expenses recognised directly in equity and transferable to profit or loss(26 681)1 983Actuarial differences on employee benefits (net of income tax)0(1 876)Items recognised directly in equity and not transferable to profit or loss0(1 876)TOTAL INCOME FOR THE PERIOD47 07861 063Including:Group share46 64060 991Non-controlling interests43872 - 12 - 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros)Notes30/06/201730/06/2016Consolidated net income73 75960 956Earnings from associates(1 859)(2 456)Depreciation, provisions and other calculated expenses3.134 8076 688Share-based payments3.710 0320Income tax expense3.1028 54525 798Capital gains or losses from disposals(21 445)123Net borrowing costs3.9360505Financial cost on update and provisions243(71)Gross cash flow before borrowing costs and tax 94 44391 542Taxes paid3.13(24 480)(23 596)Change in working capital requirements 3.13(46 326)(56 835)Net cash flow from operating activities23 63711 111Acquisitions of tangible and intangible assets (5 297)(5 494)Acquisitions of financial assets(4 716)(1 128)Impact of changes in scope and earn-outs3.13(11 300)(45 387)Disposals of tangible and intangible assets330210Reductions in financial assets29 683577Net cash flow from investing activities8 699(51 222)Net financial interest paid64(704)Dividends paid to shareholders(33 232)(33 224)Capital increase3.1376481Acquisitions and disposals of treasury shares(26)96Changes in non-current financial liabilities7(3 436)Change in current financial liabilities(9 810)73 502Net cash flow from financing transactions(42 921)36 716Change in cash position(10 585)(3 395)Impact of exchange rate variations(1 277)(1 730)Cash at beginning of period94 98691 918Cash at end of period83 12486 793(In thousands of euros)30/06/201730/06/2016Cash at end of period3.283 12486 793+ Other bank borrowings and related debt(69 305)(130 968)+ Bank borrowings(10 985)(17 098)= Net cash position/(Net debt)2 833(61 273)3.53.5 In accordance with IAS 7 identifying bank borrowings and loans with financing transactions, the table above shows the change in positive cash flow items. The Group’s net cash position/(net debt) breaks down as follows: (En milliers d'euros)30/06/201730/06/2016Trésorerie à la clôture3.283 12486 793+ Emprunts bancaires et dettes assimilées(69 305)(130 968)+Concours bancaires(10 985)(17 098)= Trésorerie nette / (Endettement net)2 833(61 273)3.5 - 13 - 1.5.1 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands of euros)Number of shares in circulationNumber of shares issuedCapitalAdditional paid-in capitalReservesTreasury sharesTranslation reserveEarnings (Group share)Shareholders’ equityAT 31 DECEMBER 201533 195 22833 662 62534 21446 272466 308(9 102)4 079106 262648 0342015 allocation of earnings106 262(106 262)0Capital increase(1)23 70023 70024457481Dividends paid to shareholders(33 224)(33 224)Other variations(906)(906)Treasury shares1 6099696Share-based payments00Transactions with shareholders33 220 53733 686 32534 23846 729538 441(9 006)4 0790614 482Total income for the period1 489(1 370)60 87260 991At 30 June 201633 220 53733 686 32534 23846 729539 930(9 006)2 70960 872675 474At 31 December 201633 224 76933 687 72534 24046 749548 909(8 901)5 345112 405738 7472016 allocation of earnings112 405(112 405)0Capital increase(1)4 9924 99257176Dividends paid to shareholders(33 231)(33 231)Other variations0Treasury shares(266)(26)(26)Share-based payments8 6808 680Transactions with shareholders33 229 49533 692 71734 24646 820636 763(8 927)5 3450714 246Total income for the period(20 419)(6 241)73 30046 640At 30 June 201733 229 49533 692 71734 24646 820616 345(8 927)(896)73 300760 886(1) Capital increases associated with the exercise of stock optionsAt 31 december 20151 305(10)4821 7772015 allocation of earnings482(482)0Change in scope(1 817)(1 817)Capital increase0Total income for the period(11)8472At 30 June 2016(30)(21)8432At 31 December 201666(34)3423742016 allocation of earnings342(342)(0)Change in scope1212Capital increase0Total income for the period(21)459438At 30 June 2017419(55)459823Change in equity capital, Group shareChange in equity capital, non-controlling interestsReservesTranslation reserveEarningsShareholders’ equity(In thousands of euros) - 14 - 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - 15 - 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions KS ENGINEERING (Revenue: €6 million; 75 consultants) On 17 March 2017, ALTEN Europe acquired 100% of the shares and voting rights of KS Engineering, a company specialising in the automotive field with a subsidiary in Poland. TECHNO LIKE US (Revenue: €6 million; 70 consultants) On 15 May 2017, ALTEN Europe acquired 51% of the securities of Techno Like US, a Japanese company specialising in Engineering Consulting. The company was consolidated at 30 June 2017 using the equity-accounted method given that the Group does not have control. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Dividends During the first half of the year, €33.2 million in dividends were paid to ALTEN SA shareholders for the financial year ended at 31 December 2016. 2.1.3 Other key events ALTEN SA contributed its AUSY securities to the takeover bid initiated by Randstad France during the first half of 2017. As a result of this disposal, the Group recorded a capital gain of €21.5 million in financial income over the period. 2.1.4 Events after the reporting period The Group made several acquisitions at the beginning of the second half of 2017: In July 2017, Calsoft Labs Inc. acquired a US company specialising in IT (Revenue: €10 million; 70 consultants); In July 2017, ALTEN USA acquired a US company specialising in technology consulting (Revenue: €13 million; 70 consultants); In July 2017, ALTEN Switzerland acquired a Swiss company specialising in technology consulting (Revenue: €15 million; 95 consultants); In August and September 2017, C Prime acquired two US companies specialising in IT (Revenue: €11 million; 60 consultants). 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2017 were prepared in accordance with IAS 34 "Interim Financial Reporting", as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and the consolidated financial statements for the period ended at 31 December 2016 (included in the 2016 Registration Document) are to be used as a reference while reviewing them. The 2016 consolidated financial statements included in the issuer's 2016 Registration Document are also available on its website page dedicated to financial statements: http://www.alten.com/investors. - 16 - The financial statements presented in this document were approved by the Board meeting of 19 September 2017. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Basis of preparation and accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2017 are identical to those used for the consolidated financial statements at 31 December 2016. The other standards, amendments or interpretations published or applicable at 1 January 2017 have not resulted in any changes in the half-year condensed consolidated financial statements of 30 June 2017. Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory at 1 January 2017. The Group is continuing its qualitative and quantitative assessment of the impact of adopting IFRS 15, which however should not have any major impact on future financial statements. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates provided by Management in the preparation of the consolidated statements are presented on page 215 of the 2016 Registration Document. 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2016 consolidated financial statements remain essentially unchanged. 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company nameBasis of consolidation(*)% interest% controlCountry of operationKS Engineering(1)FCn/an/aGermanyTechno Like USEM51,0051,00JapanLMACP(2)FC90,0090,00FranceAnotech Energy Hong Kong(2)FC85,0085,00Hong KongNuo Dai Business Consulting(2)FC85,00100,00ChinaAlten Austria(2)FC100,00100,00AustriaADC Romania(2)FC100,00100,00RomaniaHotswap Gmbh(2)FC100,00100,00Germany(*) FC = Full consolidation; EM = Equity-accounted methodAdditions to the scope at 30-06-2017 (1) KS Engineering was absorbed by ALTEN Gmbh concurrently with its acquisition. (2) Companies created or acquired (prior to or during the half-year) and consolidated for the first time during this period. - 17 - Other changes in scope Exclusion from scope and legal reorganisations Over the first half of the year, the Group has continued to streamline its legal structure by merging several entities in Germany, Finland, Belgium, and Poland. Change in the percentage of interests None. - 18 - 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS - 19 - 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: (In thousands of euros)Switzerland31/12/2016127 3964 23612 68621 09719 99165 91010 17719 50743 15969 21413 3524 306169411 200Acquisitions 2 9712 971Disposals0Earn-out adjustments3201 1261 0622 508Translation adjustments(61)(4 212)(216)(4 489)Other(430)1995618302Reclassifications0Impairments030/06/2017126 9664 23612 68621 09719 99169 22010 17719 50744 22466 15913 1364 924169412 493NearshoreOtherTotalFrance UKBelgiumThe NetherlandsSpainGermanyItalyScandinaviaNorth AmericaOffshore and Asia For the first half of 2017, changes in goodwill were due to: the acquisitions made by the Group during the first half of the year (described in note 2.1.1); earn-out adjustments; - - corrections for assets and liabilities identified (included in the item "Other") within the allocation period. The Group performs value tests on an annual basis or when loss of value indicators emerge. The tests performed on 30 June 2017 for the assets of the CGUs showing signs of value loss demonstrate that their recoverable value is higher than their net book value. As a result, no impairment representing a loss in value was recorded at 30 June 2017. The discount rate (WACC) of the country and the perpetual growth rate used at 30 June 2017 are identical to those of 31 December 2016 in the absence of any significant changes in the factors making up these rates. 3.2 FINANCIAL ASSETS Amortised costFair value through shareholders’ equityFair value through earningsLevel 1Level 2Level 3Assets Non-current financial assets:34 39917 81952 21880 12217 819- Securities held for sale17 81917 81946 16317 819- Deposits and guarantees8 6918 6918 543- Other long-term assets (loans and receivables)25 70825 70825 416Trade receivables3.3612 009612 009579 164Other current assets*3.36 8216 8216 562Cash and cash equivalents83 12483 12494 98683 124*excluding tax and social security receivables and prepaid expenses.Hierarchisation of the fair value of financial assets(In thousands of euros)NoteCarrying amount according to IAS 3930/06/201731/12/2016 Securities held for sale include the following interests: Entity% InterestFair value 31/12/2016Acquisition (disposal)ImpairmentsChange in fair valueFair value 30/06/2017Fair value hierarchical levelData usedAUSY(1)0,00%27 140(6 521)(20 619)0FCP XANGE3 133672003 4003Net asset valuePHINERGY LTD 12,83%8 3918 3913MISCELLANEOUS7 499(1 471)6 0283Total46 163(7 925)0(20 419)17 819(1) ALTEN SA contributed its AUSY securities to the takeover bid initiated by Randstad France. - 20 - 3.3 CURRENT ASSETS Inventory27110Social security receivables4 2313 527Tax receivables 23 72522 300Other receivables 7 4197 557Impairment of other receivables(625)(1 105)Prepaid expenses17 44911 292Total 52 225 43 680 Gross value620 765585 947Impairments(8 756)(6 783)Total 612 009 579 164 OTHER CURRENT ASSETS (In thousands of euros)30/06/201731/12/2016TRADE RECEIVABLES The following table shows the breakdown of the portfolio of trade receivables based on age: Gross value519 16586 4237 1797 998620 765432 360130 09411 13212 361585 947Provisions0(943)(991)(6 823)(8 756)0(1 450)(573)(4 760)(6 783)Net values519 16585 4806 1891 175612 009432 360128 64410 5607 601579 164(In thousands of euros)30/06/201731/12/2016 UnmaturedLess than 6 months6 months to one yearMore than 1 yearBalanceUnmaturedLess than 6 months6 months to one yearMore than 1 yearBalanceTRADE RECEIVABLES Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of impairment for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros)Social disputes(1)Commercial disputesMiscellaneous risksTOTALAt 31/12/20163 8521 4438 06713 361Change in scopeTranslation adjustmentsReclassifications482(705)(223)Exchange rate variations(3)(5)(8)Provisions for the financial year1 009691601 239Reversals (provisions used)(1 011)(643)(749)(2 403)Reversals (provisions not used)(637)(130)(982)(1 748)At 30/06/20173 2131 2185 78710 218Of which current provisions2 3201 1785 1338 632Of which non-current provisions893396541 586 (1) Social disputes involve sums that taken individually are insignificant. - 21 - Employee benefits Employee benefits primarily comprise end-of-career commitments. These commitments were determined at the end of June 2017 based on the same actuarial assumptions as those used at 31 December 2016 with, in particular, a discount rate of 1.85%. (In thousands of euros)Retirement benefitsAt 31/12/201621 622Change in scope0Cost of services provided1 353Interest expenses181Actuarial gains and losses0Benefits paid-45At 30/06/201723 110 3.5 FINANCIAL LIABILITIES (In thousands of euros)31/12/2016IncRepaymentChange in scopeOther (translation adjustments, reclassificati30/06/2017Current Non-currentBank borrowings and related debt88 277626(19 330)166(454)69 28559 7969 489 Bank borrowings86 143(18 889)(256)66 99858 7508 248 Other loans and related debt2 134626(441)166(198)2 2871 0461 241Bank borrowings 2 1328 908(56)10 98410 984Deposits and guarantees received103103103Other financial liabilities2256(14)218218Total90 7389 541(19 344)166(510)80 59070 7809 810 Bank borrowings (In thousands of euros)30/06/2017EURUSDGBPCADFixed rateVariable rateBank borrowings66 99862 0131 2271 4042 3542 64464 354 At 30 June 2017, this item consists of: The drawdown of the “Club Deal” for €62 million (short-term variable-rate financing) on a line opened for €160 million; - Other mid- and long-term loans denominated in foreign currencies amounting to €5.0 million. Other loans and related debt Other loans and related debt at 30 June 2017 comprised, in particular, leases amounting to €1.4 million. 3.6 OTHER LIABILITIES (In thousands of euros)31/12/2016ChangeChange in scopeOther (Translation adjustments, reclassification)30/06/2017Current Non-currentEarn-outs(1)30 975(7 252)0(1 112)22 6119 14013 471Social security debt181 7659 444141(397)190 954187 3263 627Tax liabilities 100 385(1 571)8617199 07299 073Deferred income27 8434 171439832 41632 416Other liabilities49 900(5 164)1 395(1 150)44 98144 97110Total390 869(372)1 626(2 089)390 034372 92617 108 (1) Earn-outs related to company acquisitions. - 22 - 3.7 PERSONNEL EXPENSES (In thousands of euros)30/06/201730/06/2016Salaries and benefits(694 101)(594 535)Social disputes 639244Retirement benefits (1 308)(1 394)Taxes levied on wages(12 103)(11 328)Employee profit sharing(3 737)(3 225)Total(710 610)(610 239) Share-based payments PLAN 123456TOTALDate awarded by the Board of Directors27/07/201627/07/201627/07/201620/09/201627/10/201623/12/2016Class of financial instruments awardedOrdinary sharesPreferred A sharePreferred B shareOrdinary sharesPreferred B sharePreferred A shareNumber of financial instruments awarded99 8802 5201 87399 800500230 of which number awarded to employees99 8808401 87399 800500230 of which number awarded to Corporate Officers01 6800000Fair value of the financial instruments (in euros)55,13 460,41 438,759,61 702,73 967,2Final award date27/07/201727/07/201727/07/201820/09/201727/10/201823/12/2017End of lock-up/non-transferability period27/07/201827/07/201927/07/202020/09/201827/10/202023/12/2019Cost of services provided first-half 2017 (in thousands of euros)1 0654 3363932 3441364078 680Cost of corporate social contribution first-half 2017 (in thousands of euros)185755623242601 352Total10 032 3.8 NON-CURRENT OPERATING INCOME AND EXPENSES (In thousands of euros)30/06/201730/06/2016Restructuring costs(423)(466)Costs associated with the acquisition of new companies (537)(748)Social security and tax adjustments (439)(496)Other936151Total earnings(463)(1 559)Including non-current operating expenses(1 822)(2 119)Including non-current operating income1 360560 Non-current operating for acquisitions income and expenses consist of (-€0.5 million), restructuring costs (-€0.4 million), provisions for social security and tax adjustments (-€0.4 million), and miscellaneous income related to prior acquisitions (+€0.9 million). fees - 23 - 3.9 NET FINANCIAL INCOME (In thousands of euros)30/06/201730/06/2016Bank interest charges(482)(587)Interest on lease-financing agreements(51)(207)Gross borrowing costs(533)(794)Income from receivables and investments173289Income from the disposal of marketable securities00Net borrowing costs(360)(505)Foreign exchange losses(6 731)(3 898)Other financial expenses (369)(398)Discounted financial expenses(424)(196)Financial provisions00Other financial expenses (7 524)(4 492)Foreign exchange gains4 0241 812Other financial income22 195511Financial income as a result of discount071Reversal of financial provisions00Other financial income26 2192 395Other net financial income and expenses18 695(2 097)NET FINANCIAL INCOME (EXPENSES)18 336(2 602) Other financial income mainly comprises the capital gains on the disposal of the AUSY securities for an amount of €21.5 million (please refer to note 2.1.3). 3.10 INCOME TAXES Breakdown of income tax expenses (In thousands of euros)30/06/201730/06/2016Net income: Group and minority interests73 75960 956Earnings of equity-accounted companies(1 859)(2 456)Impairment of goodwill 00Stock options8 6800Income tax expense28 54525 798Pre-tax earnings109 12584 297Tax rate of the consolidating company34,43%34,43%Theoretical income tax expense37 57529 026Special 3% tax on dividends paid9971 027Difference in tax rate versus foreign companies(3 250)(3 325)Miscellaneous tax credits(5 911)(5 419)Unactivated deferred tax assets433469CVAE (value added tax) reclassification3 9983 674Other permanent differences (5 296)347Tax expense recognised28 54525 798Effective income tax rate26,16%30,60%Including deferred taxes(180)1 789Including income tax payable28 72524 008Total28 54525 798 - 24 - The reduction in the effective income tax rate at 30 June 2017 compared to 30 June 2016 is primarily due to the long-term capital gains resulting from the disposal of the AUSY investment securities in France. Deferred taxes Deferred tax receivables and liabilities consist of: (In thousands of euros)30/06/201730/06/2016Employee profit-sharing1 2461 056Retirement benefits7 7037 475Other timing differences1 375(575)Tax-loss carry-forwards2 5902 780Total deferred taxes12 91410 736Including:Deferred tax assets13 45012 115Deferred tax liabilities(536)(1 378) The amount of non-activated deferred taxes for tax-loss carry-forwards amounted to €3.4 million (€10.5 million basis) at 30 June 2017. 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operating Segments –, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. FranceAbroadTOTALFranceAbroadTOTALNet revenue459 390524 279983 668422 802447 680870 482Operating profit on activity46 78345 82192 60446 33542 12388 458Rate of operating profit on activity/revenue for the segment 10,2%8,7%9,4%11,0%9,4%10,2%Profit from ordinary activities36 75045 82182 57246 33542 12388 458Operating profit36 88945 22082 10945 87141 02886 900Net financial income17 78754818 336(357)(2 245)(2 602)Income tax expense(16 038)(12 507)(28 545)(14 773)(11 025)(25 798)Earnings of consolidated entities38 63933 26171 89930 74127 75858 500NET OVERALL EARNINGS 40 37933 38073 75933 07827 87860 956FranceAbroadTOTALFranceAbroadTOTALGoodwill126 966285 526412 493113 208267 444380 652Impairment over the financial year00Investments in associates12 8232 33715 1608 3551 5089 863Headcount at Year end11 28015 01426 29410 48512 43522 920Cash at end of period24 38958 73583 12414 54572 24886 793Financial liabilities71 4859 10580 590139 4049 155148 559Net investments for the period(25 180)16 481(8 699)4 07747 14551 222(In thousands of euros)(In thousands of euros)30/06/201730/06/201630/06/201730/06/2016 Companies included in the consolidation scope during the period contributed €4.4 million to revenue for the half-year. - 25 - 3.12 EARNINGS PER SHARE (In thousands of euros)30/06/201730/06/2016Earnings73 30060 872Weighted average number of shares 33 228 52533 215 391Earnings per share2,211,83(In thousands of euros)30/06/201730/06/2016Earnings 73 30060 872Effect of dilutions00Diluted earnings73 30060 872Weighted average number of shares 33 228 52533 215 391Effect of dilutions563 4404 151Weighted average number of shares after potential dilution33 791 96533 219 542Diluted earnings per share2,171,83 - 26 - 3.13 STATEMENT OF CASH FLOWS Changes in depreciation, amortisation and provisions net of reversals30/06/201730/06/2016Amortisation of intangible assets1 5441 252Depreciation of property, plant and equipment4 6024 239Impairment of goodwill00Provisions for risks and expenses(1 424)1 347Other income and calculated expenses84(151)Total4 8076 688Breakdown of taxes paid 30/06/201730/06/2016Repayments received3 5011 669Payments made(27 981)(25 265)Total(24 480)(23 596)Breakdown of cash flow on working capital requirements30/06/201730/06/2016Changes in net WCR - customers34 379(63 563)Changes in net WCR - suppliers4 976526Changes in net WCR – other receivables and operating payables6 9726 201Total46 326(56 835)Impact of changes in scope and earn-outs30/06/201730/06/2016Acquisitions of consolidated subsidiaries(3 232)(34 094)Cash from new consolidated subsidiaries2 0215 997Cash from deconsolidated subsidiaries0(33)Earn-out payments(10 089)(17 256)Total(11 300)(45 387)Capital increase30/06/201730/06/2016Stock options exercised76481Cancellation of treasury shares Issuance of share warrantsSubscription to equity of new companiesTotal76481 3.14 CONTINGENT ASSETS AND LIABILITIES Contingent assets and liabilities remain essentially unchanged from those presented in the 2016 consolidated financial statements. 3.15 RELATED PARTIES Compensation and benefits granted to Corporate Officers Over the first half of 2017, there were no significant changes to the compensation reported at 31 December 2016. Relations with related parties Over the first half of 2017, there were no significant changes to the information presented at 31 December 2016. - 27 - 3.16 FINANCIAL COMMITMENTS No material changes in financial commitments took place during the first half of 2017 compared to those published at 31 December 2016. - 28 - Statutory Auditors’ report on the half-yearly financial information For the period from 1 January 2017 to 30 June 2017 To the Shareholders, In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying half-yearly condensed consolidated financial statements of ALTEN SA, for the period from 1 January 2017 to 30 June 2017; the verification of the information presented in the half-year management report. These half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1 Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half-yearly condensed consolidated financial statements do not give a true and fair view of the assets and liabilities and of the financial position of the Group and of the results of its operations for the period then ended in accordance with IAS 34 standard of the IFRSs as adopted by the European Union. 2 Specific verification We have also verified the information presented in the half-year management report on the half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half-yearly condensed consolidated financial statements. Neuilly sur Seine, Paris La Défense, 20 September 2017. The Statutory Auditors Grant Thornton KPMG AUDIT IS French member of Grant Thornton International Vincent Frambourt Jean-Pierre Valensi Partner Partner - 29 - Declaration by the person in charge of the half- year financial report "I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial position and results of the Company and all its subsidiaries, and that the half-year management report provides a fair view of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year." 20 September 2017. Mr Simon AZOULAY Chairman and Chief Executive Officer - 30 - | Semestriel, 2017, IT, Alten | write me a financial report |
Semestriel | 2,016 | IT | Alten | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
IT
### Company:
Alten
### Response:
| 2016 Half-year financial report ALTEN, French public limited company (Société Anonyme) with capital of €34,238,752.31 Registered Office: 40 Avenue André Morizet 92100 Boulogne Billancourt Listed in the Nanterre Trade and Companies Register under No. 348 607 417 - 1 - Contents 2016 half-year financial report ............................................................................................................ 3 1. BUSINESS OVERVIEW ........................................................................................................................................ 3 2. FINANCIAL OVERVIEW..................................................................................................................................... 3 3. RELATED-PARTY TRANSACTIONS .................................................................................................................... 5 4. EVENTS SINCE 30 JUNE 2016 ........................................................................................................................... 5 5. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2016 ............................................................. 5 6. OUTLOOK .......................................................................................................................................................... 5 Half-year condensed consolidated financial statements ............................................................... 7 Statutory Auditors' report on the half-year financial statements ................................................... 26 Declaration by the person in charge of the half-year financial report ........................................ 27 - 2 - 2016 half-year financial report 1. BUSINESS OVERVIEW 1.1. Alten's business: Alten is the European leader in engineering and technology consulting. The Group carries out design and research projects for the Technical and Information Systems divisions of major customers in the industrial, telecommunications and service sectors. Alten's business consists of three operating segments: Engineering and Technology Consulting (ETC); Telecoms and Networks; Information Systems. At the end of June 2016, Alten had 22,900 employees, of whom 88% are high-level engineering consultants. Alten generates 48.6% of its business in France and 51.4% internationally, primarily in Europe. 1.2. Significant events for the first half of 2016: The business environment showed overall improvement during the first half of the year. All geographic regions experienced positive organic growth with the exception of Germany, which was negatively impacted by the integration of the finalised acquisitions and the automotive service transformation. Southern Europe and the US were particularly dynamic (growth in excess of 15%). All business sectors are experiencing organic growth. The Energy sector is the only sector facing difficulties in Oil & Gas and Nuclear. Alten continued its acquisitions policy, exclusively at the international level in this half-year period, to increase its market shares. Alten acquired five companies over the half-year, followed by two more at the beginning of the third quarter. 2. FINANCIAL OVERVIEW The half-year consolidated financial statements presented in this document were approved by the Board meeting of 20 September 2016. 2.1. Income statement (IFRS): Revenue Revenue stands at €870.5 million versus €764.2 million at 30 June 2015, i.e. a growth of 13.9%. At constant scope and exchange rates, business is up by 8.1%: +6.8% in France and +21.6% internationally. The organic growth of the first half of the year has been bolstered by a favourable calendar effect during the second quarter. At a constant number of business days, organic growth would have been 5.95% (i.e. 2.35% in France and 9.8% internationally). Operating profit on activity Operating profit on activity stands at €88.5 million, equivalent to 10.2% of revenue versus €67.1 million, equivalent to 8.8% of revenue at 30 June 2015. This amounts to a significant increase of 31.9%. - 3 - In France, the operating margin grew from 9.4% of revenue at end-June 2015 to 11.0% of revenue at end-June 2016. Internationally, the operating margin grew from 8.0% of revenue at 30 June 2015 to 9.4% at 30 June 2016. The improvement in the business operating margin is primarily due to the calendar effect of the first half of the year. It is also the result of the improved profitability of the acquisitions completed in 2014 and 2015, as well as tight control over the selling, general and administrative expenses (SG&A). Profit from ordinary activities Profit from ordinary activities stands at €88.5 million given the absence of payments in shares. Operating profit After factoring in the non-recurring profit of -€1.6 million corresponding to acquisitions fees (- €0.7 million), restructuring costs in Germany (-€0.5 million) and a provision for a tax adjustment in France (-€0.5 million), operating profit is €86.9 million, i.e. 10.0% of revenue. It was €64.8 million at 30 June 2015, i.e. 8.5% of revenue. Net income, Group share After factoring in the net financial expenses (-€2.6 million), the income tax expense (€25.8 million), the earnings of equity-accounted companies (+€2.4 million) and non-controlling interests (negligible), the net income, Group share totals €60.9 million, or 7.0% of revenue, an increase of 34.4% over the preceding year (€45.3 million at 30 June 2015). 2.2. Consolidated balance sheet items and financial movements The financial structure of the Alten Group is very robust. Under assets, non-current assets represent 41.1% of the overall balance sheet (€1,288.8 million) primarily consisting of goodwill (29.5%), an increase of €49.4 million. Current assets, excluding cash assets, consist primarily of receivables, which amount to 44.5% of significant equity (€675.5 million), which represents 52.4% of the overall balance sheet. the balance sheet. Under liabilities, the group has Following the payment of €33.2 million in dividends, the net cash position stands at -€61.3 million. Its gearing (net debt/equity ratio) is 9.1 % and its net debt/operating profit on activity ratio is 0.7. Alten is therefore in compliance with all its bank covenants. During the first half of 2016, the Alten Group generated gross cash flow of €91.5 million, an increase of 32% over last year (€69.3 million). The latter figure was negatively impacted by the taxes paid (€23.6 million) and an increase in the working capital requirements of €56.8 million due to an unfavourable seasonality factor during the first half of the year, significant organic growth (>10%) achieved during the second quarter and an increase in the day sales outstanding (DSO) from 93 days at the end of December 2015 to 98 days at the end of June 2016. The flows generated by business activity therefore total €11.1 million (i.e. 1.3% of revenue). Cash flows on investments, totalling -€51.2 million, correspond primarily to the financing of: tangible and intangible assets (fittings, software licences, computer equipment and infrastructure, etc.) for -€5.5 million; external growth and earn-outs on acquisition for -€45.4 million. Cash flows involving financing operations totalled +€36.8 million and consisted primarily of the payment of €33.2 million in dividends, mainly financed by the use of current financial liabilities (€73.5 million) and capital increases from the exercise of stock options (€0.5 million). Consequently, the net change in cash position is -€3.4 million according to IFRS. - 4 - The net cash position at 30 June 2016 was -€61.3 million (-€17.5 million at 30 June 2015 and €17.4 million at 31 December 2015). 3. RELATED-PARTY TRANSACTIONS There were no related-party transactions in the first half of 2016. 4. EVENTS SINCE 30 JUNE 2016 On 1 July 2016, Alten Canada acquired a Canadian company specialising in IT consulting (revenue €6 million; 40 consultants). On 28 July 2016, Anotech Energy USA acquired 100% of the share capital and voting rights of two US companies specialised in the Oil & Gas sector (revenue €13 million; 110 consultants). 5. MAIN RISKS AND UNCERTAINTIES IN THE SECOND HALF OF 2016 The nature and severity of the risks facing the Alten Group remain unchanged from those presented on pages 113 to 118 of the 2015 Registration Document filed with the Autorité des Marchés Financiers (the French Financial Markets Authority) on 25 April 2016. Among these, changes in the economic environment, and particularly their impact on the activity rate and organic growth, as well as the Group's ability to recruit, are the main factors likely to affect the course of business over the second half of the year. 6. 2016 OUTLOOK Given the overall improvement in the economic environment, Alten will achieve higher positive organic growth for 2016 than for the previous year and will slightly improve its operating margin in relation to 2015. Signed at Boulogne-Billancourt, 20 September 2016, The Board of Directors - 5 - Half-year condensed consolidated financial statements 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS 1.1 CONSOLIDATED BALANCE SHEET 1.2 CONSOLIDATED INCOME STATEMENT 1.3 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS 1.5 STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2.1 2.1.1 2.1.2 2.1.3 2.2 ACCOUNTING PRINCIPLES AND METHODS 2.2.1 2.2.2 Management estimates 2.3 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION SIGNIFICANT EVENTS DURING THE HALF-YEAR Acquisitions Dividends Events after the reporting period Basis of preparation and accounting principles Financial risk factors 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS 3.1 GOODWILL 3.2 3.3 CURRENT ASSETS 3.4 3.5 3.6 OTHER LIABILITIES 3.7 3.8 OTHER OPERATING INCOME AND EXPENSES 3.9 NET FINANCIAL INCOME 3.10 FINANCIAL ASSETS EMPLOYEE PROVISIONS AND BENEFITS FINANCIAL LIABILITIES EMPLOYEE EXPENSES INCOME TAXES 3.11 OPERATING SEGMENT INFORMATION 3.12 EARNINGS PER SHARE 3.13 CASH FLOW STATEMENT 3.14 CONTINGENT ASSETS AND LIABILITIES 3.15 RELATED PARTIES 3.16 FINANCIAL COMMITMENTS - 6 - 7 8 9 10 11 12 13 14 14 14 14 15 15 15 15 16 17 18 18 19 19 20 21 21 21 22 22 23 24 24 25 25 25 1. HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS - 7 - 1.1 CONSOLIDATED BALANCE SHEET ASSETS (In thousands of euros)Notes30/06/201631/12/2015Goodwill3.1380 652331 617Intangible assets10 19210 286Property, plant and equipment34 78136 273Equity interests in associates9 8637 598Non-current financial assets3.282 18581 311Deferred tax assets3.1012 11513 317NON-CURRENT ASSETS529 787480 402Trade receivables3.3573 431499 378Other current assets3.344 91744 159Current tax assets53 85446 797Cash and cash equivalents3.286 79391 918CURRENT ASSETS758 995682 253TOTAL ASSETS1 288 7821 162 655LIABILITIES (In thousands of euros)Notes30/06/201631/12/2015Share capital34 23934 215Additional paid-in capital 46 72946 272Consolidated reserves533 634461 286Consolidated earnings60 872106 262EQUITY (group share)675 474648 034NON-CONTROLLING INTERESTS321 777TOTAL EQUITY675 506649 811Employee benefits3.422 42517 600Provisions 3.42 2912 914Non-current financial liabilities3.517 47318 735Other non-current liabilities3.610 6618 173Deferred tax liabilities3.101 3781 995NON-CURRENT LIABILITIES54 22949 417Provisions 3.47 2706 860Current financial liabilities3.5131 08556 181Trade payables 65 98155 904Other current liabilities3.6348 162339 757Current tax liabilities6 5494 725CURRENT LIABILITIES559 048463 427TOTAL LIABILITIES1 288 7821 162 655 - 8 - 1.2 CONSOLIDATED INCOME STATEMENT (In thousands of euros)Notes30/06/201630/06/2015REVENUE 3.11870 482764 174Purchases consumed(83 100)(61 914)Employee expenses3.7(610 239)(552 939)External charges(77 841)(73 722)Other taxes and levies(5 378)(4 968)Depreciation and amortisation(5 713)(5 615)Other operating expenses(1 358)(1 652)Other operating income1 6053 695OPERATING PROFIT ON ACTIVITY88 45867 058Share-based payments0135PROFIT FROM ORDINARY ACTIVITIES88 45867 193Non-current operating expenses3.8(2 119)(3 184)Non-current operating income3.8560759Income from asset disposals00Impairment of goodwill00OPERATING PROFIT86 90064 768Net borrowing costs3.9(505)(410)Other financial expenses3.9(4 492)(4 309)Other financial income3.92 3957 296Income tax expense3.10(25 798)(22 294)EARNINGS OF CONSOLIDATED ENTITIES58 50045 052Earnings from associates2 456343NET OVERALL EARNINGS 60 95645 395Including:Non-controlling interests84116Attributable to owners of the Company60 87245 279Earnings per share in euros (Group share)3.121,831,37Diluted earnings per share in euros (Group share)3.121,831,37 - 9 - 1.3 STATEMENT OF COMPREHENSIVE INCOME (In thousands of euros)Notes30/06/201630/06/2015Net income, Group share60 87245 279Net income, non-controlling interests’ share84116Consolidated net earnings60 95645 395Change in fair value of sellable financial assets (net of income tax)3.23 365462Translation adjustments(1 382)4 484Income and expenses recognised directly in equity and transferable to profit or loss1 9834 946Actuarial differences on employee benefits (net of income tax)(1 876)0Items recognised directly in equity and not transferable to profit or loss(1 876)0TOTAL INCOME FOR THE PERIOD61 06350 341Including:Attributable to owners of the Company60 99150 228Non-controlling interests72113 - 10 - 1.4 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of euros)Notes30/06/201630/06/2015Consolidated net earnings60 95645 395Earnings from associates(2 456)(343)Depreciation, provisions and other calculated expenses3.136 6883 463Share-based payments0(135)Income tax expense3.1025 79822 294Capital gains or losses from disposals123(1 728)Net borrowing costs3.9505410Financial cost on update and provisions(71)(67)Gross cash flow before borrowing costs and tax 91 54269 288Taxes paid3.13(23 596)(20 243)Change in working capital requirements 3.13(56 835)(20 451)Net cash flow from operating activities11 11128 594Acquisitions of tangible and intangible assets (5 494)(5 465)Acquisitions of financial assets(1 128)(1 386)Impact of changes in scope and earn-outs3.13(45 387)(22 881)Disposals of tangible and intangible assets21064Reductions in financial assets5772 697Net cash flow from investing activities(51 222)(26 972)Net financial interest paid(704)(971)Dividends paid to shareholders(33 224)(33 160)Capital increase3.13481773Acquisitions and disposals of treasury shares96(281)Changes in non-current financial liabilities(3 436)(1 728)Changes in current financial liabilities73 50222 585Net cash flow from financing activities36 716(12 783)Change in cash position(3 395)(11 160)Impact of exchange rate variations(1 730)180Cash at beginning of period91 91870 467Cash at end of period86 79359 4873.5 In accordance with IAS 7 identifying bank borrowings and loans with financing activities, the table above shows the change in positive cash flow items. The Group’s net cash position/(net indebtedness) breaks down as follows: (In thousands of euros)30/06/201630/06/2015Cash at end of period3.286 79359 487+ Bank loans and related debt(130 968)(57 262)+ Bank overdrafts(17 098)(19 766)= Net cash position/(Net indebtedness)(61 273)(17 541)3.5 - 11 - 1.5 STATEMENT OF SHAREHOLDERS' EQUITY CHANGES IN CONSOLIDATED (In thousands of euros)Number of shares in circulationNumber of shares issuedCapitalAdditional paid-in capitalReservesTreasury sharesTranslation reserveEarnings (Group share)Shareholders’ equityAt 31 December 2014 (published)33 121 86133 589 61034 14144 981409 986(8 971)42879 487560 053Change of IFRIC 21 method1 022(124)898At 31 December 2014 (restated)33 121 86133 589 61034 14144 981411 009(8 971)42879 363560 9502014 allocation of earnings79 363(79 363)0Capital increase(1)39 16539 16540733773Dividends paid to shareholders(33 160)(33 160)Other variations(63)(63)Treasury shares(5 118)(281)(281)Share-based payments(135)(135)Transactions with shareholders33 155 90833 628 77534 18145 714457 013(9 252)4280528 083Total income for the period4624 48745 27950 228At 30 June 2015 33 155 90833 628 77534 18145 714457 476(9 252)4 91445 279578 311At 31 December 201533 195 22833 662 62534 21446 272466 308(9 102)4 079106 262648 0342015 allocation of earnings106 262(106 262)0Capital increase23 70023 70024457481Dividends paid to shareholders(33 224)(33 224)Other variations(906)(906)Treasury shares1 6099696Share-based payments00Transactions with shareholders33 220 53733 686 32534 23846 729538 441(9 006)4 0790614 482Total income for the period1 489(1 370)60 87260 991At 30 June 201633 220 53733 686 32534 23846 729539 930(9 006)2 70960 872675 474(1) Capital increases associated with the exercise of stock optionsAt 31 December 2014 (published)1 062(4)2181 276Change of IFRIC 21 method415,At 31 December 2014 (restated)1 066(4)2201 2812014 allocation of earnings220(220)0Change in scope(12)(12)Capital increase0Total income for the period(3)116113At 30 June 20151 273(7)1161 381At 31 December 20151 304(9)4821 7772015 allocation of earnings482(482)0Change in scope(1 817)(1 817)Capital increase0Total income for the period(11)8472At 30 June 2016(31)(21)8432Variation in consolidated equity capital, Group shareVariation in equity capital, non-controlling interestsReservesTranslation reserveEarningsShareholders’ equity(In thousands of euros) - 12 - 2. NOTES TO THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - 13 - 2.1 SIGNIFICANT EVENTS DURING THE HALF-YEAR 2.1.1 Acquisitions NEXSE (revenue €10 million; 65 consultants) On 25 January 2016, Alten Italia acquired 100% of the securities of Nexse, an Italian company specialising in software engineering. CRESTTEK (revenue €6 million; 70 consultants) On 4 February 2016, Alten USA acquired all securities and voting rights of the American company Cresttek LLC, itself the owner of 99.98% of an Indian company, Cresttek Engineering Solutions Private Ltd. These companies specialise in the automotive field. PVR (revenue €18 million; 175 consultants) On 2 March 2016, Calsoft Labs USA acquired 100% of a group of three companies specialising in life and health sciences in the United States: PVR Technologies Inc., Sirilan Corporation and Statminds LLC. ASM (revenue €17 million; 670 consultants) On 7 March 2016, the Group acquired the activities of the Technological Software Business division of the Indian group ASM located in three countries (India, USA and Singapore). IST (revenue €10 million; 70 consultants) On 11 April 2016, Alten Europe acquired 100% of the German company IST Gmbh (IST Innovative Software Technologie GmbH), a specialist in the ETC market. The revenue of the acquired companies, indicated above, are the latest known corporate figures presented on an annual basis. 2.1.2 Dividends During the first half of the year, €33.2 million in dividends were paid to Alten SA shareholders for the financial year ended 31 December 2015. 2.1.3 Events after the reporting period The Group made several acquisitions at the beginning of the second half of 2016: On 1 July 2016, Alten Canada acquired a Canadian company specialising in IT consulting (revenue €5 million; 40 consultants); On 28 July 2016, Anotech Energy USA acquired 100% of the share capital and voting rights of two US companies specialised in the Oil & Gas sector (revenue €13 million; 110 consultants). - 14 - 2.2 ACCOUNTING PRINCIPLES AND METHODS The condensed consolidated financial statements of 30 June 2016 were prepared in accordance with IAS 34 "Interim Financial Reporting", as published by the IASB (International Accounting Standards Board) and adopted by the European Union (EU), which allows for the presentation of a number of appended notes. These interim financial statements do not include all the required information and the consolidated financial statements for the period ended 31 December 2015 (included in the 2015 Registration Document) are to be used as a reference while reviewing them. The 2015 consolidated financial statements included in the issuer's 2015 Registration Document are also available on its website page dedicated to financial statements: http://www.alten.com/investors. The financial statements presented in this document were approved by the Board meeting of 20 September 2016. They are presented in thousands of euros unless otherwise indicated. 2.2.1 Basis of preparation and accounting principles The accounting principles and calculation methods used to prepare the condensed consolidated financial statements at 30 June 2016 are identical to those used for the consolidated financial statements at 31 December 2015. The other standards, amendments or interpretations published or applicable at 1 January 2016 have not resulted in any changes in the half-year condensed consolidated financial statements of 30 June 2016. Moreover, the Group did not apply in advance the latest standards, amendments or interpretations published by the IASB and adopted at European level but whose application was not mandatory at 1 January 2016. 2.2.2 Management estimates The preparation of financial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in these financial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable. The main estimates provided by Management in the preparation of the consolidated statements are presented on page 201 of the 2015 Registration Document. 2.3 FINANCIAL RISK FACTORS The financial risk factors noted in the 31 December 2015 consolidated financial statements remain essentially unchanged. - 15 - 2.4 CHANGES IN THE SCOPE OF CONSOLIDATION Additions to the scope Company nameBasis of consolidation (*)% interest% controlCountry of operationHOTSWAPFC100,00100,00SwedenNEXSEFC100,00100,00ItalyNEXSE TECHNOLOGY FC100,00100,00ItalyWLABFC100,00100,00ItalyCRESTTEK LLCFC100,00100,00USACRESTTEK ENGINEERING SOLUTIONS PRIVATE LTDFC100,00100,00IndiaPVR TECHNOLOGIES INCFC100,00100,00USASIRILAN CORPORATIONFC100,00100,00USASTATMINDS LLCFC100,00100,00USAASM ENTREPRISE SOLUTIONSFC100,00100,00IndiaABACUS BUSINESS SOLUTIONSFC100,00100,00USACALSOFT LABS SINGAPOREFC100,00100,00SingaporeIST GMBHFC100,00100,00GermanyAdditions to the scope at 30-06-2016 Other changes in scope Legal reorganisations Over the first half of the year, the Group has continued to streamline its legal structure by merging several entities in France, Germany, Belgium, Canada and the Netherlands. Exclusion from scope The company Quasus BV, which has no activities and is undergoing liquidation, was excluded from the consolidation scope during the first half of the year. Change in the percentage of interests During the period, the Group purchased all the minority stakes of several companies already fully consolidated (Itkena Polska and Aptech in particular). - 16 - 3. DETAILS OF THE CONSOLIDATED FINANCIAL STATEMENTS - 17 - 3.1 GOODWILL Goodwill, allocated by country, is broken down as follows: Note 3.1 - GOODWILL (In thousands of euros)31/12/2015112 0264 23612 69021 09719 99157 67112 94940 50340 3716 0153 898169331 617Acquisitions 7 3766 3223 36424 1005 36346 526Disposals0Earn-out adjustments(7)1 773(81)1 685Translation adjustments(35)(345)(97)(478)Other1 1811201 301Reclassifications0Impairments030/06/2016113 2084 23612 68421 09719 99166 94019 27143 75164 12611 2813 898169380 652NearshoreOtherTotalFrance UKBelgiumThe NetherlandsSpainGermanyItalyScandinaviaNorth AmericaOffshore and Asia For the first half of 2016, changes in goodwill were due to: The acquisitions made by the Group over the first half of the year (described in Note 2.1.1) and the acquisition of Hotswap (at the end of the 2015 reporting period), a Swedish company that was not consolidated in 2015; The earn-outs adjustments and the corrections for assets and liabilities identified (included in the item "Other") within the allocation period; Conversion adjustments on goodwill in foreign currency. The Group performs value tests on an annual basis or when loss of value indicators emerge. The tests performed on 30 June 2016 for the assets of the CGUs showing signs of value loss demonstrate that their recoverable value is higher than their net accounting value. As a result, no impairment representing a loss in value was recorded at 30 June 2016. The discount rate (WACC) of the country and the perpetual growth rate used at 30 June 2016 are identical to those of 31 December 2015 in the absence of any significant changes in the factors making up these rates. 3.2 FINANCIAL ASSETS Amortised costFair value through shareholders’ equityFair value through earningsLevel 1Level 2Level 3Assets NON-CURRENT FINANCIAL ASSETS:42 15740 02882 18581 31125 786014 242- Securities held for sale40 02840 02840 19525 786014 242- Deposits and guarantees7 7367 7367 584- Other long-term assets (loans and receivables)34 42034 42033 532Trade receivables3.4573 431573 431499 378Other current assets *3.44 7884 7886 057Cash and cash equivalents86 79386 79391 91886 793* excluding tax and social security receivables and prepaid expenses.Hierarchisation of the fair value of financial assets(In thousands of euros)NoteCarrying amount according to IAS 3930/06/201631/12/2015 Securities held for sale include the following: - 18 - Entity% InterestFair value 31/12/2015Acquisition (disposal)Change in fair valueFair value 30/06/2016Fair value hierarchical levelData usedAUSY(1)8,70%22 6723 11525 7861Share price FCP XANGE2 8711132503 2333Net asset valuePHINERGY LTD 12,83%8 3918 3913MISCELLANEOUS(2)6 262(3 644)2 6173Total40 195(3 532)3 36540 028(1) The increase in the fair value of the AUSY securities resulted from the adjustment in the share price following the announcement of the Public Purchase Offer by Randstadt France.(2) The decrease in the period resulted mainly from the consolidation at 1 January 2016 of Hotswap, a company acquired in 2015.(See Note 3.1) 3.3 CURRENT ASSETS Inventory73147Social security receivables4 1933 192Tax receivables 23 43925 014Other receivables 5 3266 555Impairment of other receivables(611)(644)Prepaid expenses12 4969 896Total 44 917 44 159 (In thousands of euros)30/06/201631/12/2015TRADE RECEIVABLES Gross value578 274503 979Impairments(4 843)(4 600)Total 573 431 499 378 OTHER CURRENT ASSETS The following table shows the breakdown of the portfolio of trade receivables based on age: UnmaturedLess than 6 months6 months to one yearMore than one yearBalanceUnmaturedLess than 6 months6 months to one yearMore than one yearBalanceTRADE RECEIVABLES Gross value493 64271 3599 6033 671578 274419 22576 0564 5664 131503 979Provisions(870)(493)(3 480)(4 843)(375)(468)(3 756)(4 600)Net values493 64270 4899 110191573 431419 22575 6814 098375499 378(In thousands of euros)30/06/201631/12/2015 Based on experience and considering its policy for recovering trade receivables, the Group feels that the level of depreciation for the financial year is appropriate to the risks involved. 3.4 EMPLOYEE PROVISIONS AND BENEFITS Provisions (In thousands of euros)Corporate disputes(1)Commercial disputesMiscellaneous risksTOTALAt 31/12/20154 131605 5849 774Change in scope4040Exchange rate variations11(11)(9)Provisions for the financial year48110499989Reversals (provisions used)(528)(406)(934)Reversals (provisions not used)(197)(18)(84)(299)At 30/06/20163 887935 5819 561Including current provisions2 774524 4447 270Including non-current provisions1 113401 1372 291 (1) Corporate disputes are individually insignificant - 19 - Employee benefits Employee benefits mainly consist of end-of-career commitments. These commitments were determined at end-June 2016 based on the same actuarial assumptions as those used at 31 December 2015, with the exception of the discount rate, which was dropped to 1.5% (versus 2.4% at 31 December 2015). (In thousands of euros)Retirement benefitsAt 31/12/201517 600Change in scope421Cost of services provided1 428Interest expenses196Actuarial gains and losses2 814Paid services-34At 30/06/201622 425 The sensitivity analysis presented below shows the total amount of the commitment in relation to a change in the discount rate of plus or minus 0.5 point: Discount rate -0.5 point1,50%+0.5 pointTotal commitment (in thousands of euros)24 83322 42520 311 3.5 FINANCIAL LIABILITIES (In thousands of euros)31/12/2015IncRepaymentChange in scopeOther (translation adjustments, reclassifications)30/06/2016Current Non-currentBank loans and related debt50 83482 990(5 577)2 826(105)130 968113 76517 204 Bank loans38 26182 345(1 823)174(66)118 891111 9756 917 Other loans and related debt12 573645(3 754)2 652(39)12 0771 79010 287Bank overdrafts 23 694(7 221)635(11)17 09717 098Deposits and guarantees received162(126)284-50270270Other financial liabilities22620(19)-3224223Total74 91683 009(12 943)3 745(169)148 558131 08517 473 Bank loans (In thousands of euros)30/06/2016EURUSDGBPCADFixed rateVariable rateBank loans118 891113 0991 8031 5592 4294 795114 096 At 30 June 2016, this item consists of: The drawdown of the new “Club Deal” for €110 million (short-term variable-rate financing) on a line opened for €160 million; A loan for €5 million subscribed at the end of December 2013 repayable over three years (three-month Euribor variable rate +0.5%). The remaining capital owed is €1.7 million at 30 June 2016; A senior debt (resulting from the 2015 purchase of a company in France) in the amount of €1.0 million at 30 June 2016 following the repayment of €1.6 million over the period; - 20 - Other mid- and long-term loans denominated in foreign currencies amounting to €5.8 million. Other loans and related debt At 30 June 2016, the other loans and related debt consisted of the liability on the property lease of €9.9 million acquired during the purchase of a company in France in 2015. 3.6 OTHER LIABILITIES (In thousands of euros)31/12/2015ChangeChange in scopeOther (translation adjustments, reclassifications)30/06/2016Current Non-currentEarn-outs (1)27 485(15 636)21 328(185)32 99326 2116 782Social security debt160 25311 8873 198(1 223)174 114170 2353 879Tax liabilities 97 941(6 756)1 292(336)92 14292 142Deferred income26 929(1 278)325(55)25 92125 921Other liabilities35 321(5 386)1 9891 73033 65433 653Total347 930(17 170)28 132(69)358 824348 16210 661 (1) The counterparty for earn-outs on companies acquired is in goodwill. 3.7 EMPLOYEE EXPENSES (In thousands of euros)30/06/201630/06/2015Salaries and benefits(594 535)(540 207)Corporate disputes 244790Retirement benefits (1 394)(1 115)Taxes levied on wages(11 328)(10 767)Employee profit sharing(3 225)(1 639)Total(610 239)(552 939) 3.8 NON-CURRENT OPERATING INCOME AND EXPENSES (In thousands of euros)30/06/201630/06/2015Restructuring costs(466)(2 370)Costs associated with the acquisition of new companies (748)(773)Social security and tax adjustments (496)326Other151392Total earnings(1 559)(2 425)Including non-current operating expenses(2 119)(3 184)Including non-current operating income560759 Other operating income and expenses primarily consist of restructuring costs associated with the latest acquisitions, particularly in Germany (-€0.5 million), costs associated with the acquisition of new companies (-€0.7 million) and a provision due to the notification of a tax adjustment in France (€0.5 million). - 21 - 3.9 NET FINANCIAL INCOME (In thousands of euros)30/06/201630/06/2015Bank interest charges(587)(318)Interest on lease-financing agreements(207)(215)Gross borrowing costs(794)(533)Income from receivables and investments289123Income from the disposal of marketable securities00Net borrowing costs(505)(410)Foreign exchange losses(3 898)(3 289)Other financial expenses (398)(649)Discounted financial expenses(196)(257)Financial provisions0(114)Other financial expenses (4 492)(4 309)Foreign exchange gains1 8124 575Other financial income5112 654Financial income as a result of discount7150Reversal of financial provisions017Other financial income2 3957 296Other net financial income and expenses(2 097)2 987NET FINANCIAL INCOME (EXPENSES)(2 602)2 578 3.10 INCOME TAXES Breakdown of income tax expenses (In thousands of euros)30/06/201630/06/2015Net earnings: Group and minority interests60 95645 395Earnings of equity-accounted companies(2 456)(343)Stock options0(135)Income tax expense25 79822 294Pre-tax earnings84 29767 211Tax rate of the consolidating company34,43%34,43%Theoretical income tax expense29 02623 143Special 3% tax on dividends paid1 027995Additional contribution 10.7%0788Difference in tax rate versus foreign companies(3 325)(2 949)Miscellaneous tax credits(5 419)(5 214)Unactivated deferred tax assets4691 470CVAE (value added tax) reclassification3 6743 367Other permanent differences 347695Tax expense recognised25 79822 294Effective income tax rate30,60%33,17%Including deferred taxes1 789(2 181)Including income tax payable24 00824 475Total25 79822 294 - 22 - Deferred taxes Deferred tax receivables and liabilities consist of: (In thousands of euros)30/06/201630/06/2015Employee profit-sharing1 056557Retirement benefits7 4755 663Other timing differences(575)1 415Tax-loss carry-forwards2 7805 137Total deferred taxes10 73612 772Including:Deferred tax assets 12 11514 661Deferred tax liabilities (1 378)(1 889) The amount of non-activated deferred taxes for tax-loss carry-forwards amounted to €3.2 million (€10.8 million basis) at 30 June 2016. 3.11 OPERATING SEGMENT INFORMATION In compliance with standard IFRS 8 – Operational Sectors -, the financial information published hereinafter is the information used by the main operational decision-maker (the CEO) to assess the performance of business segments. FranceAbroadTOTALFranceAbroadTOTALNet revenue422 802447 680870 482396 018368 155764 174Operating profit on activity46 33542 12388 45837 42229 63667 059Rate of operating profit on activity/revenue for the segment 11,0%9,4%10,2%9,4%8,0%8,8%Profit from ordinary activities46 33542 12388 45837 55729 63667 194Operating profit45 87141 02886 90036 82627 94264 768Net financial income(357)(2 245)(2 602)1 5771 0012 578Income tax expense(14 773)(11 025)(25 798)(13 355)(8 939)(22 294)Earnings of consolidated entities30 74127 75858 50025 04920 00345 052NET OVERALL EARNINGS 33 07827 87860 95625 38120 01445 395FranceAbroadTOTALFranceAbroadTOTALGoodwill113 208267 444380 65297 119196 412293 530Impairment over the financial year00Equity-accounted investments8 3551 5089 8633 939483 987Workforce at Year End10 48512 43522 9209 8209 70019 520Cash at end of period14 54572 24886 79315 97943 50759 487Financial liabilities139 4049 155148 55973 3074 26077 567Net investments for the period4 07747 14551 2229 22117 75126 972(In thousands of euros)(In thousands of euros)30/06/201630/06/201530/06/201630/06/2015 For the first half of 2016, the acquired companies contributed €22.1 million to revenue. - 23 - 3.12 EARNINGS PER SHARE (In thousands of euros)30/06/201630/06/2015Earnings60 87245 279Weighted average number of shares 33 215 39133 143 162Earnings per share1,831,37(In thousands of euros)30/06/201630/06/2015Earnings 60 87245 279Effect of dilutions00Diluted earnings60 87245 279Weighted average number of shares 33 215 39133 143 162Effect of dilutions4 15127 627Weighted average number of shares after potential dilution33 219 54233 170 789Diluted earnings per share1,831,37 3.13 STATEMENT OF CASH FLOWS CHANGES IN DEPRECIATION, AMORTISATION AND PROVISIONS NET OF REVERSALS30/06/201630/06/2015Amortisation of intangible assets1 2521 285Depreciation of property, plant and equipment4 2393 907Provisions for risks and expenses1 347(1 729)Other income and calculated expenses(151)0Total6 6883 463Breakdown of taxes paid30/06/201630/06/2015Repayments received1 6694 272Payments made(25 265)(24 515)Total(23 596)(20 243)Breakdown of cash flows on working capital requirements30/06/201630/06/2015Changes in net WCR - customers(63 563)(22 090)Changes in net WCR - suppliers526(1 824)Changes in net WCR – other receivables and operating payables6 2013 464Total(56 835)(20 451)Impact of changes in scope and earn-outs30/06/201630/06/2015Acquisitions of consolidated subsidiaries(34 094)(24 305)Cash from new consolidated subsidiaries5 9977 683Cash from deconsolidated subsidiaries(33)(11)Earn-out payments(17 256)(6 248)Total(45 387)(22 881)Capital increase30/06/201630/06/2015Stock options exercised481773Total481773 - 24 - 3.14 CONTINGENT ASSETS AND LIABILITIES Contingent assets A dispute over adjustments made by URSSAF (for €14.8 million) was initiated by Group companies. No assets have been recognised in the financial statements in respect of these disputes pending court decisions. Contingent liabilities The Group has an ongoing dispute with a minority ex-associate of one of its subsidiaries. The total amount of the plaintiff’s claim, disputed by ALTEN, is approximately €2 million. The maturity date is undefined. 3.15 RELATED PARTIES Remuneration and benefits granted to directors Over the first half of 2016, there were no significant changes to the remunerations reported at 31 December 2015. Relations with related parties Over the first half of 2016, there were no significant changes to the information presented at 31 December 2015. 3.16 FINANCIAL COMMITMENTS Excluding the increase in banking guarantees and pledges received as debt guarantees on the acquisitions made over the period in the amount of €3.4 million, no other significant changes in other commitments occurred during the first half of 2016 as compared to those published at 31 December 2015. - 25 - Statutory Auditors’ Review Report on the Half-yearly Financial Information For the period from January 1, 2016 to June 30, 2016 To the Shareholders, In compliance with the assignment entrusted to us by your Shareholders’ Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on: the review of the accompanying half-yearly condensed consolidated financial statements of Alten S.A., for the period from January 1, 2016 to June 30, 2016, the verification of the information presented in the half-yearly management report. These half-yearly consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1 Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying half-yearly condensed consolidated financial statements do not give a true and fair view of the assets and liabilities and of the financial position of the Group as at June 30, 2016 and of the results of its operations for the period then ended in accordance with IAS 34 standard of the IFRSs as adopted by the European Union. 2 Specific verification We have also verified the information presented in the half-yearly management report on the half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the half-yearly condensed consolidated financial statements. Paris La Défense, on September 21, 2016 KPMG Audit IS Grant Thornton French Member Firm of Grant Thornton International Jean-Pierre Valensi Vincent Frambourt Partner Partner - 26 - Declaration by the person in charge of the half- year financial report "I declare, to the best of my knowledge, that the half-year condensed financial statements have been compiled in accordance with the applicable accounting standards and provide an accurate picture of the assets, financial position and results of the Company and all its subsidiaries, and that the half-year financial report provides a fair view of the significant events that occurred during the first six months of the financial year, their impact on the statements, and the main uncertainties for the remaining six months of the financial year." 21 September 2016. Mr Simon Azoulay Chairman and Chief Executive Officer - 27 - | Semestriel, 2016, IT, Alten | write me a financial report |
Semestriel | 2,017 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Insurance
### Company:
Allianz
### Response:
| FIRST HALF-YEAR 2017 Allianz Group Interim Report 2017 To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. CONTENT A _ Interim Group Management Report Pages 1 - 18 2 Executive Summary 4 Property-Casualty Insurance Operations 6 Life/Health Insurance Operations 9 Asset Management 11 Corporate and Other 12 Outlook 14 Balance Sheet Review 16 Reconciliations B _ Condensed Consolidated Interim Financial Statements Pages 19 - 46 20 Consolidated Balance Sheets 21 Consolidated Income Statements 22 Consolidated Statements of Comprehensive Income 23 Consolidated Statements of Changes in Equity 24 Consolidated Statements of Cash Flows NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 26 General Information 33 Notes to the Consolidated Balance Sheets 38 Notes to the Consolidated Income Statements 42 Other Information C _ Further Information Pages 47 - 49 48 Responsibility Statement 49 Review Report Disclaimer regarding roundings The consolidated financial statements are presented in millions of Euros (€ MN) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/results. INTERIM GROUP MANAGEMENT REPORT Interim Report for the First Half-Year of 2017 − Allianz Group 1 Executive Summary Key figures KEY FIGURES ALLIANZ GROUP1 six months ended 30 June Total revenues2 Operating profit3,4,5 Net income3,4 thereof: attributable to shareholders4 Solvency II capitalization ratio6,7 Return on equity4,8 Earnings per share4 Diluted earnings per share4 € mn € mn € mn € mn % % € 2017 66,218 5,860 4,013 3,810 219 13.4 8.45 2016 64,759 5,063 3,425 3,231 218 12.3 7.10 € 8.44 6.92 Earnings summary2,3,4,5,6,7,8 ECONOMIC AND INDUSTRY ENVIRONMENT The world economy currently finds itself in fairly good shape and has gained some momentum in the course of the first half of 2017. Most industrialized countries have registered solid growth. The U.S. economy experienced only subdued growth in the first quarter of 2017, then firmed up somewhat in the second quarter. In the Euro- zone, economic recovery continued. Private consumption benefited from rising employment. In the emerging markets, economic mo- mentum improved as well. Growth in emerging Asian economies was supported by an acceleration in world trade and stable growth in China. Russia, having experienced two years of recession, enjoyed positive albeit weak growth. The heightened global political uncertainty failed to rattle the fi- nancial markets; stock market volatility in the first half-year was – overall – low. On the monetary policy front, in light of slightly better- than-expected Eurozone economic data, the European Central Bank started to tweak its forward guidance. Although the changes in com- munication were cautious, markets reacted sensitively to the pro- spect of potential tapering by the European Central Bank. In the United States, the Federal Reserve continued to raise the federal funds rate: In both March and June, it lifted the target policy rate range by 25 basis points, bringing it to 1.0 to 1.25 %. Moreover, in June 1_For further information on Allianz Group figures, please refer to note 4 to the condensed consolidated interim financial statements. 2 _Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the perfor- mance of its business segments and of the Group as a whole. 4_Prior year figures have been adjusted in order to reflect the impact resulting from an accounting policy change to measure the Guaranteed Minimum Income Benefit (GMIB) liability at fair value for our life business. For further information, please refer to note 2 to the condensed consolidated interim financial statements. 5_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. 6_2016 figures as of 31 December 2016, 2017 figures as of 30 June 2017. 7_Risk capital figures are group diversified at 99.5 % confidence level. Allianz Life US included based on third country equivalence with 150 % of “Risk Based Capital Company Action Level” since 30 September 2015. 8_Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow accounting, at beginning of the period and at end of the period. Annualized figures are not a forecast for full year numbers. For 2016, the return on equity for the full year is shown. 2 Delta 1,459 797 587 579 2 %-p 1.2 %-p 1.35 1.52 A – Interim Group Management Report the Federal Reserve announced its intention to begin implementing a balance sheet normalization program this year. Yields on 10-year German government bonds closed the end of June 2017 at 0.5 %, about 30 basis points higher than at year-end 2016. Spreads on Eurozone government bonds moved in different direc- tions. Spreads on French government bonds benefited from the outcome of the presidential and parliamentary elections and ended the first half-year at 35 basis points. Major stock markets around the globe showed positive performance, with a number of indices reach- ing new all-time highs. The Euro appreciated strongly against the U.S. Dollar in the first half of 2017. The U.S. Dollar-to-Euro exchange rate was 1.14 at the end of June 2017 (end of 2016: 1.05). For the insurance industry, the first half of 2017 presented a ra- ther mixed environment: While top lines grew in many markets, yields remained suppressed and insured losses form natural catas- trophes remained relatively high, albeit below the long-term average. In particular the U.S. market had to cope with numerous tornadoes, hail storms, floods, and mudslides. As a consequence, bottom lines remained under pressure. Added to that the digital transformation, which continues to gather speed, thus increasing competition and forcing insurers to adapt their business models as quickly as possible. In the asset management industry, fund flows accelerated, par- ticularly in the United States and Germany, both into bonds and into riskier asset types such as multi-assets and equity products. In the last week of June, bonds experienced a global sell-off, especially in the United States, as major central banks signaled they were considering a less accommodative monetary policy for the near future. MANAGEMENT’S ASSESSMENT Our total revenues went up 2.3 %, in the first half of 2017 – a 2.6 % increase on an internal basis9 compared to the same period of the previous year. All business segments contributed to this, with the Life/Health business segment registering the strongest increase, mainly due to premium growth in capital-efficient products in Ger- many as well as in unit-linked products in Asia-Pacific and Italy. Our operating investment result decreased by € 14 mn to € 12,083 mn. We recorded higher operating losses from financial assets and liabilities carried at fair value through income (net), large- ly due to a negative impact from fixed income duration management in our German Life business. In addition, operating realized gains/losses (net) declined as a result of lower debt realizations. We also recorded lower equity impairments, as the first half of 2016 had seen a downturn of some of the major equity markets. 9_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 16 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Our operating profit1 went up, mostly owing to our Life/Health business segment, which recorded higher investment margins main- ly in the United States, Spain, and the German life business, as well as higher technical margins in the United States and France. Our Asset Management business segment recorded strong operating profit growth, largely due to increased average third-party assets under management at PIMCO, as the first half of 2017 saw a high level of third-party net inflows. Operating profit also increased in our Proper- ty-Casualty business segment, mainly because the underwriting result benefited from lower claims from natural catastrophe events but also as an effect of profitability improvements at our operating entities. An increase in the operating result recorded by our Corpo- rate and Other business segment was driven by both the Holding & Treasury and Banking reportable segments. Our non-operating result improved by € 69 mn to a loss of € 263 mn. This development was impacted by lower realized gains and increased restructuring charges while the comparison period was burdened by the negative net impact from our South Korean Life/Health business. Income taxes increased by € 278 mn to € 1,585 mn and the effec- tive tax rate increased to 28.3 % (6M 2016: 27.6 %), mainly driven by less tax-free income. The increase in net income reflects the higher operating profit, partly offset by the rise in income taxes. Our shareholders’ equity2 decreased by € 2.9 bn to € 64.2 bn, with € 1.6 bn of this decrease being attributable to the share buy-back program. During the first half-year of 2017, Allianz SE purchased approximately 9.6 million own shares as part of its share-buy-back program announced in February 2017 with a total volume of up to € 3.0 bn.3 Over the same period, our Solvency II capitalization ratio grew to 219 %. For a more detailed description of the results generated by our business segments – specifically, Property-Casualty insurance opera- tions, Life/Health insurance operations, Asset Management, and Corporate and Other – please consult the respective chapter s on the following pages. Risk and opportunity management In our Annual Report 2016, we have described our opportunity and risk profile and addressed potential risks that could adversely affect our business as well as our risk profile. The statements contained in that report remain largely unchanged. We continue to monitor de- velopments in order to be able to react in a timely and appropriate manner, should the need arise. For further information, please refer to the chapter Outlook, which starts on page 12. Events after the balance sheet date For information on events after the balance sheet date, please refer to note 33 to the condensed consolidated interim financial statements. 1_Prior year figures have been adjusted due to an updated operating profit definition and an accounting policy change. For further information, please refer to note 4 and note 2, respectively, to the condensed consolidated interim financial statements. 2_For further information on shareholders‘ equity, please refer to page 14 of the Balance Sheet chapter. 3_For further information on the share buy-back program, please refer to note 17 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2017 — Allianz Group Other information RECENT ORGANIZATIONAL CHANGES Effective 1 January 2017, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The former reportable segment Asia Pacific has been allocated to the reportable segment Western & Southern Europe, Middle East, Africa, Asia Pacific. Previously reported information has been adjusted to reflect this change in the composi- tion of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. STRATEGY The Allianz Group’s strategy is described in the Risk and Opportunity Report in our Annual Report 2016. There have been no material changes to our Group strategy. PRODUCTS, SERVICES AND SALES CHANNELS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Opera- tions chapter in our Annual Report 2016. ALLIANZ GROUP AND BUSINESS SEGMENTS The Allianz Group operates and manages its activities through four business segments, which have all been mentioned above. For fur- ther information, please refer to note 4 to the condensed consolidat- ed interim financial statements or to the Business Operations chap- ter in our Annual Report 2016. ALLIANZ AND LIVERPOOL VICTORIA TO LAUNCH JOINT VENTURE IN THE UNITED KINGDOM PERSONAL INSURANCE MARKET Liverpool Victoria (LV=) will receive £ 500 mn from Allianz in ex- change for a 49 percent stake in Liverpool Victoria General Insurance (LV= GI). The new, long-term joint venture LV= GI, will acquire Allianz’s personal home and motor insurer’s renewal rights while Allianz will obtain LV= GI’s commercial insurer’s renewal rights. For further information, please refer to note 33 to the condensed consoli- dated interim financial statements. 3 A – Interim Group Management Report Property-Casualty Insurance Operations Key figures KEY FIGURES PROPERTY-CASUALTY1 2345 Italy: Gross premiums amounted to € 2,225 mn. The decline of 1.9 % on an internal basis resulted from unfavorable price effects in our motor insurance business. six months ended 30 June 2017 2016 Delta Gross premiums written Operating profit2 Net income Loss ratio3 Expense ratio4 Combined ratio5 € mn € mn € mn % % % 29,388 2,705 2,070 66.0 28.6 94.6 28,856 2,572 1,922 66.4 28.4 94.9 532 133 148 (0.4) %-p 0.2 %-p (0.2) %-p Operating profit OPERATING PROFIT € MN six months ended 30 June 2017 2016 Delta Underwriting result 1,136 1,045 91 Operating investment income (net) Other result1 Operating profit 1,490 79 2,705 1,473 54 2,572 17 25 133 Gross premiums written6 1_Consists of fee and commission income/expenses and other income/expenses. On a nominal basis, we recorded an increase in gross premiums written compared to the first six months of the previous year. Foreign currency translation effects amounted to € 1 mn.7 Con- solidation/deconsolidation effects were positive at € 176 mn, largely due to a portfolio purchase in the Netherlands and the acquisition of a new insurance entity in Morocco. Our operating profit increased, compared to the same period of the previous year. This was mainly driven by the fact that our underwrit- ing result benefited from lower claims from natural catastrophe events, but also from wide-spread profitability improvements across our operating entities. On an internal basis, our premiums went up 1.2 %, driven by a positive price effect of 1.1 % and a positive volume effect of 0.2 %. The following operations contributed positively to internal growth: A strong improvement on the claims side was partially offset by a lower contribution of run-off compared to the previous year and, to a smaller extent, by a slight deterioration on the expenses side. Our combined ratio improved by 0.2 percentage points to 94.6 %. AWP: Gross premiums grew to € 2,749 mn – an increase of 9.1 % on an internal basis. It was owed to our U.S. travel business and our assistance business in France. UNDERWRITING RESULT € MN Germany: Gross premiums amounted to € 6,251 mn. This inter- nal growth of 1.8 % was mainly due to positive price effects in our motor insurance business. six months ended 30 June Premiums earned (net) Accident year claims 2017 23,557 (16,326) 2016 22,823 (16,302) Delta 735 (23) Spain: Gross premiums stood at € 1,325 mn – up 6.1 % on an in- ternal basis. This was driven by positive price and volume effects across the portfolio. Previous year claims (run-off) Claims and insurance benefits incurred (net) Acquisition and administrative expenses (net) 770 (15,556) (6,739) 1,141 (15,162) (6,492) (371) (394) (247) The following operations contributed negatively to internal growth: AGCS: Gross premiums fell to € 3,939 mn – a decrease of 8.6 % on an internal basis. It was largely due to seasonality effects at Allianz Risk Transfer, as well as to the discontinuation of our U.S. crop busi- ness and re-underwriting activities in our marine business. Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 Underwriting result (127) 1,136 (124) 1,045 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of "change in reserves for insurance and investment contracts (net)". For further information, please refer to note 24 to the condensed consolidated interim financial statements. (3) 91 Turkey: Gross premiums decreased to € 644 mn. This decrease – 8.3 % on an internal basis – largely resulted from our strategic with- drawal from the motor third-party liability insurance business fol- lowing a regulatory change. 1_For further information on Allianz Property-Casualty figures, please refer to note 4 to the condensed consolidated interim financial statements. Our accident year loss ratio8 stood at 69.3 % – a 2.1 percentage point improvement compared to the first half of the previous year. In the first six months of this year our losses from natural catastrophes were lower than in the same period of 2016, reducing the impact on our combined ratio from 2.3 % to 1.1 %, representing a decrease of 1.2 percentage points. 2_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. 3_Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4_Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits Excluding losses from natural catastrophes, our accident year loss ratio improved to 68.2 %. This was mainly due to profitability improvements across the Allianz Group. incurred (net) divided by premiums earned (net). 6_We comment on the development of our gross premium written on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by 7_Based on the average exchange rates in 2017 compared to 2016. premiums earned (net). 4 Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report The following operations contributed positively to the development of our accident year loss ratio: AGCS: 1.0 percentage points. The accident year loss ratio bene- fited from the absence of natural catastrophes in 2017, as opposed to the first half-year of 2016. France: 0.3 percentage points. The improvement resulted from lower losses from natural catastrophe events but also from an im- provement in the attritional profitability. Germany: 0.2 percentage points. This was driven by a benign natural catastrophe environment. The following operation contributed negatively to the development of our accident year loss ratio: Australia: 0.2 percentage points. This was driven by higher losses from natural catastrophes but also by a customer reimbursement for unused insurance. Our positive run-off result amounted to € 770 mn, compared to € 1,141 mn in the first half-year of 2016. This translates into a run-off ratio of 3.3 %. The reduction in run-off is due to the fact we had seen a more positive loss development in previous years at our reinsurance operation as well as reserve releases from short-tail lines at AGCS in the first six months of 2016. Furthermore, we saw a negative impact in the beginning of 2017 stemming from the Ogden rate change which affected our operations Reinsurance, United Kingdom and Ireland. Total expenses amounted to € 6,739 mn in the first half of 2017, compared to € 6,492 mn in the same period of 2016. Our expense ratio increased by 0.2 percentage points. This was mainly due to higher administrative expenses. Interim Report for the First Half-Year of 2017 — Allianz Group OPERATING INVESTMENT INCOME (NET) € MN six months ended 30 June 2017 2016 Interest and similar income (net of interest expenses) 1,708 1,688 Operating income from financial assets and liabilities carried at fair value through income (net) (51) (25) Operating realized gains (net) 152 157 Operating impairments of investments (net) (6) (43) Investment expenses Expenses for premiums refunds (net)1 Operating investments income (net)2 (183) (131) 1,490 (175) (129) 1,473 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), and consists of the investment-related part of "change in reserves for insurance and investment contracts (net)". For further information, please refer to note 24 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result - as shown in note 4 to the condensed consolidated interim financial statements - and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) increased slightly, mainly due to lower impairments on equities in our APR business (accident insurance with premium refunds) and higher net interest and simi- lar income, partially offset by an unfavorable foreign currency trans- lation result net of hedging. The positive development of the net interest and similar income resulted from higher income from equities that overcompensated the lower income on debt securities. OTHER RESULT € MN six months ended 30 June 2017 2016 Fee and commission income 911 759 Other income 32 1 Fee and commission expenses (864) (706) Other expenses Other result 79 54 Our other result increased, mainly driven by realized gains from the sale of real estate held for own use by our Italian subsidiary. Net income Net income increased, primarily driven by the increase in operating profit and lower income taxes. Delta 20 (26) (5) 37 (8) (2) 17 Delta 152 31 (158) 25 5 A – Interim Group Management Report Life/Health Insurance Operations Key figures KEY FIGURES LIFE/HEALTH1 sales of fixed-indexed annuities, as there was uncertainty around local legislations and the 2016 marketing activities had been con- cluded. Sales of traditional variable annuities declined as well. six months ended 30 June Statutory premiums2 Operating profit3,4,5 Net income3 Return on equity3,6 € mn € mn € mn % 2017 33,619 2,282 1,611 13.3 2016 32,968 1,859 941 10.7 Delta 650 423 670 2.6 %-p In Italy, statutory premiums rose to € 5,577 mn, an increase of 8.5 % on an internal basis. This was predominantly due to higher unit- linked single premium sales, partially offset by a decrease in tradi- tional life business. In France, statutory premiums stood at € 4,146 mn. The increase – 6.9 % on an internal basis – was largely owed to a growth in capital- efficient and unit-linked products with guarantees. Our South Korean business was disposed of at the end of 2016. In order to best reflect the actual underlying drivers of our operating profit, we report it for the first six months of 2016 excluding South Korea, and specify the South Korean operating loss as a separate item. Similarly, the figures for present value of new business premiums are shown without effects from the South Korean business. To ensure consistency with the group income statement, however, prior year statutory premiums are presented including premiums collected from our South Korean business. 2,3,4,5,6, In the Asia-Pacific region, statutory premiums went up to € 2,487 mn, a 37.7 % rise on an internal basis. It was largely attributa- ble to an increase in unit-linked sales in Taiwan and Indonesia. Statu- tory premiums in South Korea amounted to € 642 mn in the first half of 2016. Premiums earned (net) Premiums earned (net) went down by € 172 mn to € 11,585 mn, result- ing from a decline in our business with traditional life products in Germany. Statutory premiums7 On a nominal basis, statutory premiums increased by 2.0 % in the first half of 2017. This includes favorable foreign currency translation effects of € 159 mn and negative (de-)consolidation effects of € 627 mn. On an internal basis7, statutory premiums increased by € 1,119 mn – or 3.5 % – to € 33,446 mn. In the German life business, statutory premiums increased to € 10,105 mn, a 13.2 % growth on an internal basis. We recorded higher sales in our business with capital-efficient products, which more than offset the decline in sales of traditional life products – including long-term interest rate guarantees. Statutory premiums in the Ger- man health business climbed to € 1,674 mn, a 1.8 % increase on an internal basis, driven by the acquisition of new customers in the supplementary health care coverage. Statutory premiums in the United States amounted to € 5,068 mn, down 25.1 % on an internal basis. This was caused by a decrease in Present value of new business premiums (PVNBP)8,9,10 Our PVNBP increased by € 722 mn to € 30,435 mn, largely because our business with unit-linked insurance products without guarantees generated higher sales in the Asia-Pacific region and Italy, as did our capital-efficient products in the German life business. This was partly offset by a sales decline for our fixed-indexed annuities in the United States. In line with our changed product strategy, premiums contin- ued to shift towards capital-efficient products. PRESENT VALUE OF NEW BUSINESS PREMIUMS (PVNBP) BY LINES OF BUSINESS % six months ended 30 June 2017 2016 Delta Guaranteed savings & annuities 23.6 29.3 (5.7) Protection & health 16.7 16.0 0.7 Unit-linked without guarantee 26.1 19.4 6.7 1_For further information on Allianz Life/Health figures, please refer to note 4 to the condensed consoli- Capital-efficient products 33.6 35.3 (1.7) dated interim financial statements. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Total 100.0 100.0 3_Prior year figures have been adjusted in order to reflect the impact resulting from an accounting policy change to measure the Guaranteed Minimum Income Benefit (GMIB) liability at fair value for our life business. For further information please refer to note 2 to the condensed consolidated interim financial statements. 4_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. 5_From the classification of our Korean life business as “held for sale” in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating. As such the negative result of € 204 mn for the second quarter of 2016 was considered as non-operating. 6_Represents annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the period and at the end of period. Annualized figures are not a forecast for full year numbers. For 2016, the return on equity for the full year is shown. 7_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-) consolidation effects, in order to provide more comparable information. 8_PVNBP before non-controlling interests. 9_Prior year figures changed in order to reflect the roll out of profit source reporting to Turkey. 10_Prior year figures are presented excluding effects from the South Korean business. 6 Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Operating profit OPERATING PROFIT BY PROFIT SOURCES1,2 OPERATING PROFIT BY PROFIT SOURCES € MN six months ended 30 June 2017 2016 Loadings and fees 2,949 2,770 Investment margin 2,082 1,861 Expenses (3,349) (3,359) Technical margin 549 480 Impact of changes in DAC Operating loss – South Korea1 Operating profit 52 2,282 190 (82) 1,859 1_The 2016 figure represents the operating loss of the first quarter only, as the negative result for the second quarter of 2016 was considered as non-operating. Our operating profit rose, as we achieved higher investment margins mainly in the United States, Spain, and the German life business, as well as higher technical margins in the United States and France. LOADINGS AND FEES3 LOADINGS AND FEES € MN six months ended 30 June 2017 2016 Loadings from premiums 1,916 1,845 Loadings from reserves 720 649 Unit-linked management fees Loadings and fees1 313 2,949 276 2,770 Loadings from premiums as % of statutory premiums 5.7 5.7 Loadings from reserves as % of average reserves 2,3 Unit-linked management fees as % of average unit-linked reserves3,4 0.1 0.2 0.1 0.2 1_Prior year figures are presented excluding the effects from the South Korean business. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. 4_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums went up in line with the higher sales, mainly in the German life business, and in the Asia-Pacific region. The growth in loadings from reserves was attributable to higher reserve volume, largely in the United States. Unit-linked management fees increased driven by Italy. 1_Prior year figures changed in order to reflect the roll out of profit source reporting to Turkey. 2_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. 3 _Loadings and fees include premium and reserve based fees, unit-linked management fees, and policyholder participation in expenses. Interim Report for the First Half-Year of 2017 — Allianz Group Delta 179 221 10 69 (138) 82 423 Delta 71 71 37 179 INVESTMENT MARGIN4 INVESTMENT MARGIN € MN six months ended 30 June 2017 2016 Interest and similar income 9,056 8,905 Operating income from financial assets and liabilities carried at fair value through income (net) (965) (551) Operating realized gains/losses (net) 2,916 3,112 Interest expenses (49) (56) Operating impairments of investments (net) (255) (934) Investment expenses Other1 Technical interest (609) 271 (4,401) (544) 55 (4,358) Policyholder participation Investment margin2 (3,882) 2,082 (3,768) 1,861 Investment margin in basis points3,4 49.3 45.8 1_Other comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income and expenses excluding unit-linked management fees on the other hand. 2_Prior year figures are presented excluding the effects from the South Korean business. 3_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 4_Yields are pro rata. Our investment margin increased mainly due to lower equity im- pairments in Germany and favorable market conditions in our varia- ble annuities business in the United States. This was partly offset by the negative impacts from our fixed income derivatives in the Ger- man life business. EXPENSES5 EXPENSES € MN six months ended 30 June 2017 2016 Acquisition expenses and commissions (2,451) (2,487) Administrative and other expenses Expenses1 (898) (3,349) (872) (3,359) Acquisition expenses and commissions as % of PVNBP2 Administrative and other expenses as % of average reserves3, 4 (8.1) (0.2) (8.4) (0.2) 1_Prior year figures are presented excluding the effects from the South Korean business. 2_PVNBP before non-controlling interests. 3_Aggregate policy reserves and unit-linked reserves. 4_Yields are pro rata. 4_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). 5_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. Delta 151 (414) (197) 7 679 (64) 216 (43) (114) 221 3.5 Delta 36 (26) 10 0.3 7 Our acquisition expenses and commissions decreased, predominantly due to declined sales in the fixed-indexed annuities business in the United States. It was partly offset by higher expenses due to sales growth in our German life business and in Asia-Pacific. Administrative and other expenses remained stable in relation to reserves. TECHNICAL MARGIN1 Our technical margin increased, as the first half of 2016 was burdened by one-off reserve adjustments predominantly in the United States. A reserve release for unclaimed contracts in France also contributed to this development. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC)2 IMPACT OF CHANGE IN DAC € MN six months ended 30 June 2017 2016 Capitalization of DAC 866 1,003 Amortization, unlocking and true-up of DAC Impact of change in DAC1 (814) 52 (813) 190 1_Prior year figures are presented excluding the effects from the South Korean business. The decrease in the impact of change in DAC was due to lower capital- ization of DAC, resulting mainly from decreased sales in fixed- indexed annuities in the United States. OPERATING PROFIT BY LINES OF BUSINESS3 OPERATING PROFIT BY LINES OF BUSINESS € MN six months ended 30 June 2017 2016 Guaranteed savings & annuities 1,216 986 Protection & health 457 339 Unit-linked without guarantee 185 176 Capital-efficient products Operating loss – South Korea1 Operating profit 425 2,282 440 (82) 1,859 1_The 2016 figure represents the operating loss of the first quarter only, as the negative result for the second quarter of 2016 was considered as non-operating. The operating profit in our guaranteed savings & annuities line of business went up. Much of the increase was contributed by our tradi- tional variable annuities business in the United States, which bene- fited from favorable market movements. The higher operating profit in the protection & health line of business was largely driven by a 1_Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policy- holder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. 2_Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the IFRS financial state- ments. 3_Prior year figures changed in order to reflect the roll out of profit source reporting to Turkey. 8 Delta (137) (1) (138) Delta 230 118 9 (15) 82 423 A – Interim Group Management Report higher technical margin in the German health business. Our operat- ing profit in the unit-linked without guarantee line of business went up slightly, too, which was primarily due to higher unit-linked fees in Italy. A decrease in operating profit in the capital-efficient products line was largely attributable to lower investment margin in the Unit- ed States. Return on equity Our return on equity increased by 2.6 percentage points to 13.3 % because – among other factors – the 2016 number had been negative- ly impacted by the unfavorable development of our South Korean business. Net income The increase in our net income was largely owed to our operating performance and the fact that the prior year’s net income had been negatively affected by our business in South Korea. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Asset Management Key figures KEY FIGURES ASSET MANAGEMENT1 six months ended 30 June 2017 2016 Delta Operating revenues Operating profit2 Cost-income ratio3 Net income € mn € mn % € mn 3,114 1,156 62.9 735 2,827 960 66.1 615 287 196 (3.2) %-p 120 Total assets under management as of 30 June4 thereof: Third-party assets under management as of 30 June4 € bn € bn 1,915 1,406 1,871 1,361 44 45 Assets under management COMPOSITION OF TOTAL ASSETS UNDER MANAGEMENT € BN Type of asset class as of 30 June 2017 as of 31 December 2016 Delta Fixed income 1,519 1,489 30 Equities Multi-assets1 Other2 Total 164 156 77 1,915 166 153 63 1,871 (2) 3 13 44 1_Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by distributing investments throughout several asset classes. 2_Other is composed of other asset classes than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc. Net inflows5 of total assets under management (AuM) amounted to € 73 bn, driven by third-party AuM net inflows of € 74 bn. Most of these third-party inflows occurred in the second quarter: They amounted to € 55 bn net and represented a quarterly record high, which was supported by one large mandate amounting to € 19 bn. Almost all of the first half-year’s third-party AuM net inflows are attributable to PIMCO, where we recorded € 73 bn. AllianzGI recorded third-party net inflows of € 2 bn. 1_For further information about our Asset Management business segment, please refer to note 4 to the condensed consolidated financial statements. 2_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. 3_Represents operating expenses divided by operating revenues. 4_2016 figure as of 31 December 2016. 5_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. Reinvested dividends amounted to € 5 bn. Interim Report for the First Half-Year of 2017 — Allianz Group Favorable effects from Market and Other6 contributed € 41 bn to the increase in total AuM. This was mainly driven by fixed income assets at PIMCO and – to a lesser extent – by equities at AllianzGI. Effects from consolidation, deconsolidation and other adjust- ments added € 13 bn to total AuM. Negative foreign currency translation effects amounted to € 83 bn and were primarily driven by the depreciation of the U.S. Dollar and the British Pound against the Euro. Despite these negative effects, total AuM increased overall by 2.4 %. In the following section we focus on the development of third- party assets under management. As of 30 June 2017, the share of third-party AuM by business unit remained stable at 76.0 % (31 December 2016: 76.1 %) attributable to PIMCO and 24.0 % (31 December 2016: 23.9 %) attributable to AllianzGI. The share of fixed income assets rose from 75.5 % to 76.2 % over the first half-year, mainly driven by strong third-party AuM net in- flows and positive market effects. The shares of equities, multi-assets and other decreased slightly or remained stable, at 9.8 %, 10.0 % and 4.0 %, respectively, while their absolute volumes remained almost unchanged (31 December 2016: 10.3 %, 10.0 % and 4.2 %, respectively). The shares in third-party assets of both mutual funds and sepa- rate accounts7 were quite steady compared to year-end 2016, with mutual funds at 58.1 % (31 December 2016: 57.8 %) and separate accounts at 41.9 % (31 December 2016: 42.2 %). As for the regional allocation of third-party AuM8 , shares shifted in favor of Europe (33.8 %), while the share of America declined (54.3 %) and the share of the Asia-Pacific region remained stable (11.8 %) (31 December 2016: 32.8 %, 55.3 % and 11.9 %, respectively). The shift was primarily driven by third-party AuM net inflows and positive market effects in the United Kingdom, which outpaced the overall favorable effects in the other regions. The decrease in America was due to the weakening of the U.S. Dollar, which mitigated the region’s AuM increase from net inflows and positive market effects. The overall three-year rolling investment performance9 of our Asset Management business increased over the first half of 2017, with 87 % of third-party assets outperforming their respective benchmarks (31 December 2016: 83 %). The increase was driven by both PIMCO’s and AllianzGI’s three year rolling investment performance, which rose from 88 % to 91 % and from 63 % to 70 %, respectively. 6_Market and Other represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds. 7_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 8_Based on the location of the asset management company. 9_Three-year rolling investment performance reflects the mandate-based and volume-weighted three- year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). 9 Operating revenues Our operating revenues went up by 10.1 % – a 7.5 % plus on an internal basis1. Performance fees increased, mainly in the United States. Other net fee and commission income rose, mainly driven by in- creased average third-party AuM, mostly at PIMCO. The positive effect was partially mitigated by a decrease in third-party AuM-driven margins at both, PIMCO and AllianzGI. Other operating revenues increased, mainly due to favorable for- eign currency translation effects on financial assets and liabilities carried at fair value through profit and loss. Operating profit Our operating profit increased by 20.4 % on a nominal basis and by 17.5 % on an internal basis1, because of strong revenue growth which was only partly offset by increased administrative expenses. The main driver for the increase of administrative expenses was higher personnel expenses, due to a rise in variable compensation, which is related to the overall positive business development. Lower expenses associated with the Special Performance Award (SPA) could only partly offset the total increase in operating expenses. The SPA was introduced in the fourth quarter of 2014 at PIMCO to secure performance and retain talent. Furthermore, increased non- personnel expenses also contributed to the rise in administrative expenses, albeit to a lesser extent. Our cost-income ratio improved significantly, as revenue growth outpaced the increase in expenses. The SPA effect added 0.4 percent- age points to the cost-income ratio – net of the impact on variable compensation. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 10 A – Interim Group Management Report ASSET MANAGEMENT BUSINESS SEGMENT INFORMATION € MN six months ended 30 June 2017 2016 Delta Performance fees 149 127 23 Other net fee and commission income 2,926 2,702 225 Other operating revenues 38 (1) 39 Operating revenues 3,114 2,827 287 Administrative expenses (net), excluding acquisition-related expenses (1,958) (1,868) (91) Operating expenses (1,958) (1,868) (91) Operating profit 1,156 960 196 Net income The increase in our net income corresponds to the positive develop- ment of our operating profit. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Corporate and Other Key figures KEY FIGURES CORPORATE AND OTHER1 € MN six months ended 30 June 2017 2016 Operating revenues 1,680 1,174 Operating expenses Operating result2 (1,945) (265) (1,497) (323) Net income (loss) (456) (188) KEY FIGURES REPORTABLE SEGMENTS2 € MN six months ended 30 June 2017 2016 HOLDING & TREASURY Operating revenues 1,044 544 Operating expenses (1,387) (928) Operating result (343) (384) BANKING Operating revenues 519 519 Operating expenses (462) (483) Operating result 57 36 ALTERNATIVE INVESTMENTS Operating revenues 121 111 Operating expenses (100) (87) Operating result 20 24 1_Consolidation included. For further information about our Corporate and Other business segment, please refer to note 4 to the condensed consolidated interim financial statements. 2_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. Interim Report for the First Half-Year of 2017 — Allianz Group Delta 506 (448) 58 (268) Delta 500 (458) 41 22 21 9 (13) (4) Earnings summary Our operating result improved due to the positive developments in Holding & Treasury and Banking. Our net loss worsened due to lower realized gains, as the prior year had benefited from one-off gains from the sale of financial stakes, as well as from lower non-operating trading result. In Holding & Treasury, the improvement of our operating result was mainly driven by a higher net interest result. Lower administra- tive expenses also contributed positively. Banking’s operating result increased. This was mainly driven by both a higher net fee and commission result as well as by lower loan loss provisions. The positive development was partly offset by a lower net interest result. 11 Outlook Economic outlook1 Prospects for the world economy remain favorable overall in mid- year 2017, despite the heightened level of political uncertainty. In the United States, even several months after taking office, the new U.S. administration’s stance across a wide range of policy areas remains highly opaque. Partly due to this backdrop, upward pressure on the U.S. Dollar has subsided, which improves the outlook for U.S. exports. All in all, the U.S. economy is likely to expand by around 2 % this year. In the Eurozone, the economic recovery looks set to continue. We expect the real gross domestic product to increase by about 2 %. While rising inflation will weigh on private consumption, household spending will be supported by rising employment. At a global level, overall output is likely to expand by 2.9 % in 2017, compared with 2.6 % in 2016. Industrialized countries are expected to register a 1.9 % growth in gross domestic product, while in emerging markets growth could pick up to 4.5 % from the 4.0 % seen in 2016, in part driven by an economic stabilization in emerging market heavyweights such as Russia. The uncertain global political and economic environment bears the potential for higher financial market volatility. On the monetary policy front, the Federal Reserve will probably continue to adjust its policy stance; the key rate is likely to be lifted by a further 25 basis points by year-end. In addition, the Federal Reserve has meanwhile reaffirmed its intention to begin reducing its balance sheet this year, provided that the economy performs in line with its expectations. In the Eurozone, the European Central Bank is expected to announce in September a further reduction in bond purchases for January 2018, probably from € 60 bn to € 40 bn. There are no key interest rate hikes on the cards until tapering will have been concluded. Modestly rising yields on 10-year U.S. government bonds, higher inflation rates in the Eurozone and speculation about the timing and manner of the Euro- pean Central Bank’s exit from its bond purchasing program will exert some upward pressure on European benchmark bond yields. For 10- year German government bonds, we see yields climbing modestly – towards 1 % – in the remainder of 2017; yields on 10-year U.S. govern- ment bonds may end the year around 2.5 %. We expect the U.S. Dollar- to-Euro exchange rate to close the year above the year-end closing rate of 2016. 1_The information presented in the sections “Economic outlook”, “Insurance industry outlook” and “Asset management industry outlook” is based on our own estimates. 12 A – Interim Group Management Report Insurance industry outlook We confirm our outlook for premium growth in 2017. As expected, the first half of the year saw the global economy shift up a gear, lead- ing to modest top-line growth, while the low-yield environment turned out much harder to escape, which led to unrelenting pressure on investment income. Further strain on the bottom line resulted from the unabated need to build new, digital business models. In the property-casualty sector, premiums in advanced markets should grow moderately, supported by the ongoing economic recov- ery. The emerging markets are expected to grow much faster, with Asia being the frontrunner. Overall, we expect global premium reve- nue growth. Given the still challenging pricing outlook, weak invest- ment income, and elevated catastrophe losses from severe weather events, the sector’s overall profitability will remain stressed. In the life sector, we expect advanced markets to recover and grow modestly, as demand benefits from rising employment and new product offers. Emerging markets, on the other hand, will perform more strongly, as rising incomes, urbanization, and social security reforms remain powerful engines for growing insurance demand. All in all, we expect global premium revenue to increase. To safeguard profitability, insurers will continue to review both their product mixes and their investment portfolios. As a result, overall profitability should not deteriorate any further. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Asset management industry outlook Outlook for the Allianz Group As described above, in the second half of 2017 we will continue to see uncertainty at a global level, both in monetary and fiscal policy as well as in trade, geopolitical processes and exchange rates. As illus- trated by the bond sell-down at the end of June, 2017, the global capital markets remain volatile in the light of potential changes in central banks’ monetary policy. We now expect the 2017 Allianz Group operating profit to arrive near the upper end of the outlook range of € 10.8 bn, plus or minus € 0.5 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations. Overall, the current market development is presenting both risks and opportunities for asset managers. Bonds remain particularly interesting for the growing number of retirees in developed countries looking for a stable stream of income; liability-driven investors may also consider further de-risking into bonds as yields rise. The asset management industry’s profitability remains under pressure from continuous flows into passive products as well as rising distribution costs; it may additionally be affected by measures aimed at strength- ening regulatory oversight and reporting. As a result of this pressure on profitability, the industry is likely to consolidate further. At the same time, digital channels are expected to continue gaining promi- nence. To continue growing their businesses, it is vital for asset man- agers to maintain sufficient business volumes, ensure efficient oper- ations, and keep their investment performance at continued high levels. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations, and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance, or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national, and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Interim Report for the First Half-Year of 2017 — Allianz Group 13 Balance Sheet Review Shareholders’ equity1 SHAREHOLDERS’ EQUITY € MN as of 30 June 2017 as of 31 December 2016 Delta Shareholders' equity Paid-in capital 28,928 28,928 Retained earnings 26,055 27,087 (1,032) Foreign currency translation adjustment (1,906) (762) (1,144) Unrealized gains and losses (net) 11,122 11,830 (709) Total1 64,198 67,083 (2,885) 1_Prior year figures have been adjusted in order to reflect the impact resulting from an accounting policy change to measure the Guaranteed Minimum Income Benefit (GMIB) liability at fair value for our life business. For further information, please refer to note 2 in the condensed consolidated interim financial statements. A major share of the decrease in shareholders’ equity – € 5,048 mn – was attributable to a dividend payout in May 2017 (€ 3,410 mn) and the share buy-back program2 which started in February of this year (€ 1,638 mn). In addition, negative impacts from foreign currency translation and a decline in unrealized gains – mainly from debt securities – decreased the shareholders’ equity by € 1,144 mn and € 709 mn, respectively. The overall decline could only partly be offset by the net income attributable to shareholders, amounting to € 3,810 mn. 1_This does not include non-controlling interests of € 2,864 mn and € 3,052 mn as of 30 June 2017 and 31 December 2016, respectively. For further information, please refer to note 17 to the condensed consolidated interim financial statements. 2_For further information, please refer to note 17 to the condensed consolidated interim financial statements. 14 A – Interim Group Management Report Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.3 Our regulatory capitalization is shown in the following table. SOLVENCY II REGULATORY CAPITAL ADEQUACY as of 30 June 2017 as of 31 December 2016 Delta Eligible own funds € bn 76.0 75.3 0.7 Capital requirement € bn 34.6 34.6 0.1 Capitalization ratio % 219 218 2 %-p The Solvency II capitalization ratio rose from 218 % to 219 % over the first six months of 2017. Eligible own funds slightly increased. The positive effects of operating Solvency II earnings and of regulatory changes were widely offset by the full recognition of the share buy- back program and other effects, such as taxes and foreign currency translation. The capital requirement remained almost stable, as drivers that increased capital requirements – in particular model changes – were strongly mitigated, in particular by favorable market impacts. However, on a pro forma basis, fully reflecting the € 3 bn share buy-back at year-end 2016, the Solvency II capitalization ratio increased from 209 % to 219 %. 3_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 67 in the Allianz Group Annual Report 2016. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report Total assets and total liabilities As of 30 June 2017, total assets amounted to € 887.2 bn and total liabilities were € 820.1 bn. Compared to year-end 2016, total assets and total liabilities rose by € 3.4 bn and € 6.5 bn, respectively. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. ASSET ALLOCATION AND FIXED INCOME PORTFOLIO OVERVIEW as of 30 June 2017 Type of investment € bn Debt instruments; thereof: 572.5 Government bonds 213.3 Covered bonds 85.5 Corporate bonds (excl. banks) 190.3 Banks 31.6 Other 51.7 Equities 53.2 Real estate 11.2 Cash/other 14.9 Total 651.8 Compared to year-end 2016, our overall asset allocation remained almost unchanged. The decrease in debt instruments, mainly cov- ered bonds, was partially offset by new investments in equities. Our well-diversified exposure to debt instruments decreased, primarily due to a slight rise in interest rates from their low level of year-end 2016. About 94 % of this portfolio was invested in invest- ment-grade bonds and loans.1 Our government bonds portfolio con- tained, amongst others, bonds from Italy and Spain that represented 4.0 %, and 1.9 % shares, respectively, of our debt instruments portfolio with unrealized gains (gross) of € 2,584 mn and € 827 mn. Of our covered bonds portfolio, 41.9 % (31 December 2016: 41.3 %) were Ger- man Pfandbriefe backed by either public-sector loans or mortgage loans. French, Spanish and Italian covered bonds had portfolio shares of 16.0 %, 9.4 % and 7.4 %, respectively (31 December 2016: 16.0 %, 9.4 % and 7.5 %). Our exposure to equities increased mainly due to new invest- ments. Our equity gearing 2 remained almost unchanged at 24 % (31 December 2016: 23 %). 1_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available. 2_Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policy- holder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill. Interim Report for the First Half-Year of 2017 — Allianz Group STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance busi- nesses. as of 31 December 2016 Delta as of 30 June 2017 as of 31 December 2016 € bn € bn % % 577.3 (4.8) 87.8 88.4 213.6 (0.3) 37.3 37.0 89.9 (4.4) 14.9 15.6 189.5 0.8 33.2 32.8 32.9 (1.2) 5.5 5.7 51.4 0.3 9.0 8.9 49.9 3.3 8.2 7.6 11.7 (0.5) 1.7 1.8 14.2 0.8 2.3 2.2 653.1 (1.2) 100.0 100.0 LIABILITIES PROPERTY-CASUALTY LIABILITIES As of 30 June 2017, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 64.9 bn, compared to € 65.7 bn at year-end 2016. On a net basis, our reserves, including discounted loss reserves, were almost unchanged at € 56.9 bn.3 LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts slightly decreased by € 0.8 bn to € 489.9 bn over the first six months of 2017. The € 9.9 bn increase in aggregate policy reserves before foreign currency translation effects was mainly driven by our operations in Germany (€ 6.1 bn), the United States (€ 3.6 bn before foreign curren- cy translation effects) and Switzerland (€ 0.5 bn before foreign cur- rency translation effects). Reserves for premium refund decreased by € 3.2 bn, due to lower unrealized gains to be shared with policyhold- ers as interest rates are on the rise. Foreign currency translation effects resulted from the weaker U.S. Dollar (€ (6.9) bn), Swiss Franc, and Asian currencies (€ (0.3) bn each). 3_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 13 to the condensed consolidated interim financial statements. Delta %-p (0.6) 0.3 (0.7) 0.4 (0.2) 0.1 0.5 (0.1) 0.1 15 Reconciliations The previous analysis is based on our condensed consolidated inter- im financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the Inter- national Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as com- plementary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Proper- ty-Casualty and Life/Health, operating revenues in Asset Manage- ment, and total revenues in Corporate and Other (Banking). COMPOSITION OF TOTAL REVENUES € MN six months ended 30 June 2017 2016 Property-Casualty Gross premiums written 29,388 28,856 Life/Health Statutory premiums 33,619 32,968 Asset Management Operating revenues 3,114 2,827 consisting of: Net fee and commission income Net interest income1 Income from financial assets and liabilities carried at fair value through income (net) 3,076 7 31 2,828 (3) 1 Other income 1 Corporate and Other thereof: Total revenues (Banking) 275 272 consisting of: Interest and similar income 217 249 Income from financial assets and liabilities carried at fair value through income (net)2 Fee and commission income 13 287 6 264 Interest expenses, excluding interest expenses from external debt (72) (90) Fee and commission expenses (172) (160) Other income 3 Consolidation effects within Corporate and Other 3 Consolidation (178) (165) Allianz Group total revenues 66,218 64,759 1_Represents interest and similar income less interest expenses. 2_Includes trading income. 16 A – Interim Group Management Report Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. RECONCILIATION OF NOMINAL TOTAL REVENUE GROWTH TO INTERNAL TOTAL REVENUE GROWTH % six months ended 30 June 2017 Internal growth Changes in scope of consoli- dation Foreign currency translation Nominal growth Property-Casualty 1.2 0.6 1.8 Life/Health 3.5 (1.9) 0.5 2.0 Asset Management 7.5 0.3 2.3 10.1 Corporate and Other 1.0 1.0 Allianz Group 2.6 (0.7) 0.3 2.3 Life/Health Insurance Operations OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 21 entities comprising 99.5 % of Life/Health total statutory premiums are in scope. EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administra- tive and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income state- ment.1 1_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly. Interim Report for the First Half-Year of 2017 — Allianz Group A _ Interim Group Management Report ACQUISITION, ADMINISTRATIVE, CAPITALIZATION, AND AMORTIZATION OF DAC1 € MN six months ended 30 June Acquisition expenses and commissions2 Definitions 2017 (2,451) 8 2016 (2,487) 7 Scope (63) (139) Acquisition costs incurred Capitalization of DAC2 Definition: URR capitalized Definition: policyholder participation3 Scope (2,506) 866 260 495 16 (2,619) 1,003 242 475 76 Capitalization of DAC Amortization, unlocking, and true-up of DAC2 Definition: URR amortized Definition: policyholder participation3 Scope 1,638 (814) (69) (662) (16) 1,796 (813) (22) (270) (324) Amortization, unlocking, and true-up of DAC (1,561) (1,430) Commissions and profit received on reinsurance business ceded Acquisition costs4 39 (2,391) 28 (2,225) Administrative and other expenses2 Definitions (898) 74 (872) 84 Scope (60) (111) Administrative expenses on reinsurance business ceded Administrative expenses4 8 (877) 1 (899) 1_Prior year figures changed in order to reflect the roll out of profit source reporting to Turkey. 2_As per Interim Group Management Report. 3_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 4_As per notes to the condensed consolidated interim financial statements. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR), and value of business acquired (VOBA), and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue re- serves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- uled URR amortization, true-up and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the group income statement. Policyholder participation is included within change in our re- serves for insurance and investment contracts (net) in the group income statement. Interim Report for the First Half-Year of 2017 — Allianz Group RECONCILIATION TO NOTES1 € MN six months ended 30 June Acquisition expenses and commissions2 Administrative and other expenses2 Capitalization of DAC2 Amortization, unlocking, and true-up of DAC2 Acquisition and administrative expenses 2017 (2,451) (898) 866 (814) (3,297) Definitions 106 Scope (122) Commissions and profit received on reinsurance business ceded 39 Administrative expenses on reinsurance business ceded Acquisition and administrative expenses (net)3 8 (3,267) 1_Prior year figures changed in order to reflect the roll out of profit source reporting to Turkey. 2_As per Interim Group Management Report. 3_As per notes to the condensed consolidated interim financial statements. 2016 (2,487) (872) 1,003 (813) (3,169) 516 (498) 28 1 (3,123) 17 18 This page intentionally left blank A – Interim Group Management Report Interim Report for the First Half-Year of 2017 — Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Interim Report for the First Half-Year of 2017 − Allianz Group 19 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS € MN ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Include mainly derivative financial instruments. 20 note as of 30 June 2017 as of 31 December 2016 17,154 14,463 5 8,454 8,333 6 535,806 536,869 7 104,496 105,369 115,268 111,325 8 15,225 15,562 9 24,061 24,887 951 1,003 10 38,041 38,050 3 14,378 14,196 11 13,353 13,752 887,189 883,809 11,073 11,271 12 13,666 13,038 24,902 21,360 13 71,745 72,373 14 504,404 505,322 115,268 111,325 4,737 4,683 15 39,799 39,867 3 13,401 13,290 16 7,682 7,615 16 13,448 13,530 820,127 813,674 64,198 67,083 2,864 3,052 17 67,062 70,135 887,189 883,809 Interim Report for the First Half-Year of 2017 — Allianz Group CONSOLIDATED INCOME STATEMENTS CONSOLIDATED INCOME STATEMENTS € MN six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements note 2017 2016 41,425 41,140 (2,643) (2,993) (3,639) (3,567) 18 35,143 34,580 19 11,099 11,115 20 (954) (491) 21 3,529 4,144 22 5,591 5,107 34 11 54,441 54,466 (26,579) (26,797) 1,185 1,511 23 (25,394) (25,286) 24 (6,697) (7,539) 25 (582) (606) (13) (24) 26 (332) (1,421) 27 (644) (601) 28 (12,678) (12,173) 29 (2,172) (1,923) (79) (67) (252) (94) (1) (1) (48,844) (49,734) 5,597 4,731 30 (1,585) (1,306) 4,013 3,425 203 194 3,810 3,231 8.45 7.10 8.44 6.92 21 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME € MN six months ended 30 June 2017 2016 Net income 4,013 3,425 Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income (6) Changes arising during the period (1,182) (313) Subtotal (1,182) (319) Available-for-sale investments Reclassifications to net income (1,635) (748) Changes arising during the period 927 6,229 Subtotal (708) 5,481 Cash flow hedges Reclassifications to net income (14) (8) Changes arising during the period (19) 285 Subtotal (34) 277 Share of other comprehensive income of associates and joint ventures Reclassifications to net income Changes arising during the period (25) (51) Subtotal (25) (51) Miscellaneous Reclassifications to net income Changes arising during the period 12 (34) Subtotal 12 (34) Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans 255 (604) Total other comprehensive income (1,682) 4,750 Total comprehensive income 2,330 8,175 Total comprehensive income attributable to: Non-controlling interests 176 296 Shareholders 2,154 7,879 For further details concerning income taxes on components of the other comprehensive income, please see note 30. 22 Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY € MN Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity Balance as of 1 January 2016, as previously reported 28,928 24,222 (926) 10,920 63,144 2,955 66,099 Adjustments (see note 2) (329) (329) (329) Balance as of 1 January 2016, as reported Total comprehensive income1 Paid-in capital 28,928 23,894 2,501 (926) (312) 10,920 5,690 62,815 7,879 2,955 296 65,771 8,175 Treasury shares Transactions between equity holders2 Dividends paid 7 (12) (3,320) 4 (4) 7 (12) (3,320) 15 (222) 7 3 (3,543) Balance as of 30 June 2016 28,928 23,069 (1,234) 16,606 67,369 3,044 70,413 Balance as of 1 January 2017, as previously reported 28,928 27,336 (754) 11,830 67,341 3,052 70,392 Adjustments (see note 2) (249) (8) (258) (258) Balance as of 1 January 2017, as reported Total comprehensive income1 Paid-in capital 28,928 27,087 4,015 (762) (1,144) 11,830 (717) 67,083 2,154 3,052 176 70,135 2,330 Treasury shares Transactions between equity holders2,3 Dividends paid (360) (1,277) (3,410) 8 (360) (1,269) (3,410) (162) (202) (360) (1,431) (3,612) Balance as of 30 June 2017 28,928 26,055 (1,906) 11,122 64,198 2,864 67,062 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2017 comprises net income attributable to shareholders of € 3,810 mn (2016: € 3,231 mn). 2_Includes income taxes within retained earnings. 3_During the first half-year of 2017, Allianz SE purchased for an amount of € 1,638 mn approximately 9.6 million own shares as part of its share-buy-back program announced in February 2017 with a total volume of up to € 3.0 bn. Thereof 7,472,978 own shares in the amount of € 1,271 mn were cancelled by the end of June 2017 without changing the registered capital of Allianz SE. Interim Report for the First Half-Year of 2017 — Allianz Group 23 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS € MN six months ended 30 June SUMMARY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents reclassified to assets of disposal groups held for sale Cash and cash equivalents at end of period CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and disposal groups classified as held for sale Real estate held for investment Fixed assets of renewable energy investments Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 24 2017 2016 19,615 15,527 (11,565) (13,891) (4,941) (1,787) (419) (117) 2,691 (269) 14,463 14,842 17,154 14,573 4,013 3,425 (220) (132) (3,229) (2,724) (1,311) (442) 718 622 13 24 2,328 2,283 2,085 1,384 87 (458) 631 (905) (654) (1,390) (405) (649) 3,921 3,859 649 529 7,316 10,439 262 (85) 3,409 (253) 15,602 12,101 19,615 15,527 1,051 1,028 82,146 77,973 136 163 381 710 215 63 85 141 2 3,023 3,593 128 43 87,167 83,714 Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED CONSOLIDATED STATEMENTS OF CASH FLOWS € MN six months ended 30 June 2017 2016 Payments for the purchase or origination of Financial assets designated at fair value through income (915) (1,012) Available-for-sale investments (92,224) (92,294) Held-to-maturity investments (140) (120) Investments in associates and joint ventures (1,229) (413) Non-current assets and disposal groups classified held for sale (50) Real estate held for investment (75) (324) Fixed assets of renewable energy investments (150) (165) Loans and advances to banks and customers (purchased loans) (1,407) (1,539) Property and equipment (701) (506) Subtotal (96,890) (96,373) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed Acquisitions of subsidiaries, net of cash acquired Change in other loans and advances to banks and customers (originated loans) (1,729) (1,329) Other (net) (112) 97 Net cash flow used in investing activities (11,565) (13,891) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 289 383 Proceeds from the issuance of certificated liabilities and subordinated liabilities 3,786 3,864 Repayments of certificated liabilities and subordinated liabilities (3,468) (2,477) Cash inflow from capital increases Transactions between equity holders (1,431) 3 Dividends paid to shareholders (3,612) (3,543) Net cash from sale or purchase of treasury shares (355) 8 Other (net) (150) (25) Net cash flow used in financing activities (4,941) (1,787) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS Income taxes paid (1,318) (1,465) Dividends received 1,266 1,026 Interest received 10,048 10,853 Interest paid (553) (485) Interim Report for the First Half-Year of 2017 — Allianz Group 25 B _ Condensed Consolidated Interim Financial Statements Notes to the Condensed Consolidated Interim Financial Statements GENERAL INFORMATION 1 – Basis of presentation The condensed consolidated interim financial statements of the Allianz Group are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs), as adopted under European Union regulations. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as ap- plied in the consolidated financial statements for the year ended 31 December 2016, except for the change in accounting policy as described in note 2. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2016. Insurance Contracts and is effective from 1 January 2021. The Allianz Group is currently evaluating the impact of adopting IFRS 17 on its consolidated financial statements. CHANGE IN ACCOUNTING POLICIES At the beginning of 2017, the Allianz Group entered into an economic hedging program for its Guaranteed Minimum Income Benefits (GMIBs), which were sold as part of its variable annuity portfolio. In order to mitigate accounting mismatches between the hedging derivatives and the GMIBs, the Allianz Group has started measuring the GMIBs at fair value through profit or loss as of 1 January 2017. This change in measurement is permitted by IFRS 4 and represents an accounting policy change. Accounting policy changes need to be applied retrospectively. The total effect of the new measurement on prior period numbers is as follows: In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. CHANGE OF CONSOLIDATED BALANCE SHEET RELATING TO THE CHANGE IN ACCOUNTING POLICIES FOR GMIBS € MN Amounts are rounded to millions of Euro (€ mn), unless other- wise stated. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Manage- ment on 3 August 2017. as of 31 December 2016 Financial liabilities carried at fair value through income Reserves for insurance and investment contracts As previously reported 10,737 505,460 Change in accounting policies GMIBs 534 (138) As reported 11,271 505,322 Deferred tax liabilities 4,822 (139) 4,683 Total liabilities 813,417 258 813,674 2 – Recently adopted and issued accounting pronouncements and change in accounting policies Shareholders' equity Non-controlling interests Total equity 67,341 3,052 70,392 (258) (258) 67,083 3,052 70,135 Total liabilities and equity 883,809 883,809 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS (EFFECTIVE 1 JANUARY 2017) The following amendments and revisions to existing standards be- came effective for the Allianz Group’s consolidated financial state- ments as of 1 January 2017: — IAS 7, Disclosure initiative, — IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses, — Annual Improvements to IFRSs 2014 – 2016 Cycle. No material impact arose on the financial results or the financial position of the Allianz Group. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS IFRS 17 Insurance Contracts was issued by the IASB in May 2017 and is the first comprehensive IFRS Standard establishing the accounting for insurance contracts. IFRS 17 replaces the interim Standard IFRS 4 In the consolidated income statement for the six months ended 30 June 2016, the GMIB-related change in accounting policies led to a € 78 mn decrease in income from financial assets and liabilities carried at fair value through income (net) and a € 5 mn decrease in changes in reserves for insurance and investment contracts (net). Together with the decrease of income taxes of € 29 mn the net income decreased with an amount of € 54 mn. This led to a 12 cent decrease in earnings per share. For the year ended 31 December 2016, the implementation of the changed accounting policy lead to a € 121 mn increase of income before income taxes and an increase of income taxes of € 42 mn. In total, the net income increased by € 79 mn. This resulted in an increase of 17 cents in earnings per share. 26 Interim Report for the First Half-Year of 2017 — Allianz Group 3 – Classification as held for sale NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE € MN as of 30 June 2017 as of 31 December 2016 Assets of disposal groups classified as held for sale Oldenburgische Landesbank AG, Oldenburg 13,889 13,915 Other disposal groups 370 42 Subtotal 14,259 13,957 Non-current assets classified as held for sale Real estate held for investment 119 160 Real estate held for own use 79 Subtotal 119 239 Total 14,378 14,196 Liabilities of disposal groups classified as held for sale Oldenburgische Landesbank AG, Oldenburg 13,236 13,282 Other disposal groups 165 8 Total 13,401 13,290 OLDENBURGISCHE LANDESBANK AG, OLDENBURG At the end of the second quarter of 2017, all requirements were still fulfilled to present Oldenburgische Landesbank AG, Oldenburg, allocated to the reportable segment Banking (Corporate and Other) as a disposal group classified as held for sale. RECLASSIFIED ASSETS AND LIABILITIES € MN Cash and cash equivalents 234 Financial assets carried at fair value through income 14 Investments 2,584 Loans and advances to banks and customers 10,889 Deferred tax assets 70 Other assets 97 Total assets 13,889 Financial liabilities carried at fair value through income 11 Liabilities to banks and customers 12,434 Other liabilities 414 Certificated liabilities 158 Subordinated liabilities 217 Total liabilities 13,236 Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements As of 30 June 2017, cumulative gains of € 59 mn were reported in other comprehensive income relating to the disposal group classified as held for sale. A sales contract for the Allianz shares in Olden- burgische Landesbank AG was signed on 23 June 2017. The necessary approvals and the transfer to the buyer are expected in the fourth quarter of 2017. 4 - Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable seg- ments derive revenue are consistent with the ones described in the consolidated financial statements for the year ended 31 December 2016. The statement contained therein regarding general segment reporting information is still applicable and valid. The reportable segments measure of profit or loss remained unchanged, except that effective 1 January 2017 restructuring charges are presented general- ly as non-operating items. Like the other non-operating items, they are shown in operating profit, if they are shared with the policyhold- ers. There is one exception from this general rule with regard to policyholder participation in tax benefits. As IFRS requires that the consolidated income statements present all tax benefits in the line item income taxes, even when they belong to policyholders, the corresponding expenses for premium refunds are shown as non- operating as well. RECENT ORGANIZATIONAL CHANGES Effective 1 January 2017, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The former reportable segment Asia Pacific has been allocated to the reportable segment Western & Southern Europe, Middle East, Africa, Asia Pacific. Previously reported information has been adjusted to reflect this change in the composi- tion of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. 27 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS € MN ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities 28 Property-Casualty Life/Health as of 30 June 2017 as of 31 December 2016 as of 30 June 2017 as of 31 December 2016 3,483 3,429 9,006 7,014 622 539 7,496 7,427 102,414 102,430 415,600 415,023 10,805 11,508 92,368 93,142 115,268 111,325 9,980 10,016 5,345 5,625 5,026 4,782 19,035 20,105 1,001 1,175 550 537 22,842 22,392 17,895 19,143 55 97 404 146 2,820 2,870 3,005 3,078 159,048 159,237 685,973 682,564 Property-Casualty Life/Health as of 30 June 2017 as of 31 December 2016 as of 30 June 2017 as of 31 December 2016 87 129 10,828 10,928 1,205 864 6,128 5,551 20,648 17,276 4,293 4,108 60,832 61,617 10,956 10,790 14,791 14,837 489,901 490,739 115,268 111,325 2,412 2,674 3,666 3,697 17,142 19,261 14,864 14,622 20 139 3 11 11 11 11 95 95 117,147 116,668 656,150 651,869 Interim Report for the First Half-Year of 2017 — Allianz Group Asset Management as of 30 June 2017 as of 31 December 2016 884 1,155 84 63 116 133 57 65 210 260 2,937 2,924 27 29 7,517 7,794 11,833 12,422 Asset Management as of 30 June 2017 as of 31 December 2016 174 174 87 29 2,644 2,925 5 5 2,910 3,133 Interim Report for the First Half-Year of 2017 — Allianz Group Corporate and Other as of 30 June 2017 as of 31 December 2016 4,046 3,053 653 701 101,823 103,578 6,089 6,081 825 936 7,681 8,556 13,904 13,925 12 11 135,033 136,841 Corporate and Other as of 30 June 2017 as of 31 December 2016 566 615 7,806 8,424 (92) (57) 208 188 25,495 25,283 13,262 13,306 10,434 10,586 13,403 13,485 71,081 71,830 B _ Condensed Consolidated Interim Financial Statements Consolidation Group as of 30 June 2017 as of 31 December 2016 as of 30 June 2017 as of 31 December 2016 (266) (187) 17,154 14,463 (402) (398) 8,454 8,333 (84,146) (84,295) 535,806 536,869 (4,823) (5,427) 104,496 105,369 115,268 111,325 (100) (78) 15,225 15,562 24,061 24,887 (1,636) (1,904) 951 1,003 (13,313) (14,965) 38,041 38,050 (12) (2) 14,378 14,196 13,353 13,752 (104,697) (107,256) 887,189 883,809 Consolidation Group as of 30 June 2017 as of 31 December 2016 as of 30 June 2017 as of 31 December 2016 (409) (400) 11,073 11,271 (1,646) (1,974) 13,666 13,038 (38) (24) 24,902 21,360 (43) (34) 71,745 72,373 (196) (196) 504,404 505,322 115,268 111,325 (1,636) (1,904) 4,737 4,683 (20,346) (22,223) 39,799 39,867 (25) (25) 13,401 13,290 (2,774) (2,994) 7,682 7,615 (50) (50) 13,448 13,530 (27,161) (29,826) 820,127 813,674 Total equity 67,062 70,135 Total liabilities and equity 887,189 883,809 29 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) € MN Property-Casualty Life/Health six months ended 30 June Total revenues1 2017 29,388 2016 28,856 2017 33,619 2016 32,968 Premiums earned (net) 23,557 22,823 11,585 11,757 Operating investment result Interest and similar income 1,760 1,736 9,056 9,128 Operating income from financial assets and liabilities carried at fair value through income (net) (51) (25) (965) (551) Operating realized gains/losses (net) 152 157 2,916 3,114 Interest expenses, excluding interest expenses from external debt (52) (48) (49) (57) Operating impairments of investments (net) (6) (43) (255) (934) Investment expenses (183) (175) (609) (551) Subtotal 1,621 1,602 10,094 10,149 Fee and commission income 911 759 708 679 Other income 32 1 1 9 Claims and insurance benefits incurred (net) Operating change in reserves for insurance and investment contracts (net)2 Loan loss provisions (15,556) (258) (15,162) (254) (9,838) (6,476) (10,127) (7,211) Acquisition and administrative expenses (net), excluding acquisition-related expenses (6,739) (6,492) (3,267) (3,123) Fee and commission expenses (864) (706) (350) (305) Operating amortization of intangible assets (9) (9) Operating restructuring charges (17) (14) Other expenses Reclassifications3 Operating profit (loss) 2,705 2,572 (148) 2,282 (149) 203 1,859 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (2) (21) 22 11 Non-operating realized gains/losses (net) 307 327 59 21 Non-operating impairments of investments (net) (53) (168) (27) (218) Subtotal 252 138 54 (186) Non-operating change in reserves for insurance and investment contracts (net) 2 Interest expenses from external debt Acquisition-related expenses Non-operating amortization of intangible assets (31) (26) (27) (21) Non-operating restructuring charges Reclassifications3 Non-operating items (165) 56 (33) 78 (7) 22 (49) (203) (460) Income (loss) before income taxes 2,761 2,651 2,305 1,399 Income taxes (691) (729) (693) (458) Net income (loss) 2,070 1,922 1,611 941 Net income (loss) attributable to: Non-controlling interests 90 84 67 73 Shareholders 1,980 1,838 1,544 868 1_Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2_For the six months ended 30 June 2017, includes expenses for premium refunds (net) in Property-Casualty of € (131) mn (2016: € (129) mn). 3_From the classification of the South Korean life business as "held for sale" in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating. Furthermore tax reclassifications are included in this line. 30 Interim Report for the First Half-Year of 2017 — Allianz Group Asset Management 2017 2016 3,114 2,827 12 2 31 1 (5) (6) 38 (2) 3,845 3,496 1 (1,958) (1,868) (769) (668) 1,156 960 7 7 6 (7) (6) (8) 2 (2) (4) 1,154 956 (419) (340) 735 615 35 29 700 586 Interim Report for the First Half-Year of 2017 — Allianz Group Corporate and Other 2017 275 383 10 (163) (49) 181 1,138 149 (13) (692) (1,027) (265) (29) 71 9 51 (421) (5) (56) (430) (695) 239 (456) 11 (467) 2016 272 370 12 (194) (40) 148 643 148 (24) (699) (540) (323) 79 354 (58) 375 (418) (4) (47) (371) 183 (188) 8 (196) Consolidation 2017 (178) (112) (1) (42) 107 197 148 (1,012) (148) 35 (27) 838 148 (18) 31 59 91 91 73 (21) 52 52 B _ Condensed Consolidated Interim Financial Statements Group 2016 2017 2016 (165) 66,218 64,759 35,143 34,580 (121) 11,099 11,115 (976) (563) 38 3,026 3,310 118 (161) (188) (261) (977) 166 (644) (601) 200 12,083 12,097 (471) 5,591 5,107 (149) 34 11 3 (25,394) (25,286) (74) (6,699) (7,539) (13) (24) 8 (12,684) (12,173) 296 (2,172) (1,923) (9) (9) (17) (14) 148 (1) (1) 34 238 (5) 5,860 5,063 4 22 71 132 504 835 (71) (444) 136 454 462 2 (421) (418) 6 (69) (58) (235) (80) (34) (238) 101 (263) (332) 97 5,597 4,731 39 (1,585) (1,306) 135 4,013 3,425 203 194 135 3,810 3,231 31 B _ Condensed Consolidated Interim Financial Statements RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES € MN Total revenues Premiums earned (net) Operating profit (loss) Net income (loss) six months ended 30 June 2017 2016 2017 2016 2017 2016 2017 2016 German Speaking Countries and Central & Eastern Europe 9,182 8,925 6,151 5,961 765 756 638 608 Western & Southern Europe, Middle East, Africa, Asia Pacific 6,737 6,758 5,786 5,676 923 761 665 507 Iberia & Latin America 2,615 2,353 1,828 1,677 154 89 54 55 Global Insurance Lines & Anglo Markets 12,069 12,490 7,661 7,672 774 911 656 724 Allianz Worldwide Partners 2,749 2,479 2,132 1,837 87 55 57 30 Consolidation (3,964) (4,149) (2) Total Property-Casualty 29,388 28,856 23,557 22,823 2,705 2,572 2,070 1,922 German Speaking Countries and Central & Eastern Europe 13,534 12,305 7,071 7,214 818 797 549 543 Western & Southern Europe, Middle East, Africa, Asia Pacific1 Iberia & Latin America 14,295 1,008 13,182 1,015 3,477 242 3,531 253 687 164 627 113 503 128 79 79 USA 5,068 6,575 609 547 587 302 410 220 Global Insurance Lines & Anglo Markets 297 321 185 211 17 15 13 13 Consolidation (584) (430) 1 9 6 9 5 Total Life/Health 33,619 32,968 11,585 11,757 2,282 1,859 1,611 941 Asset Management 3,114 2,827 1,156 960 735 615 Holding & Treasury (343) (384) (508) (244) Banking 275 270 57 36 38 35 Alternative Investments 20 24 14 16 Consolidation 2 5 Total Corporate and Other 275 272 (265) (323) (456) (188) Consolidation (178) (165) (18) (5) 52 135 Group 66,218 64,759 35,143 34,580 5,860 5,063 4,013 3,425 1_From the classification of the South Korean life business as "held for sale" in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating. 32 Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEETS 5 – Financial assets carried at fair value through income 6 – Investments INVESTMENTS € MN FINANCIAL ASSETS CARRIED AT FAIR VALUE THROUGH INCOME € MN as of 30 June 2017 as of 31 Decembe r 2016 as of 30 June 2017 as of 31 Decembe r 2016 Available-for-sale investments Held-to-maturity investments 511,147 2,414 512,268 2,399 Financial assets held for trading Debt securities Equity securities 431 201 264 210 Funds held by others under reinsurance contracts assumed Investments in associates and joint ventures 908 7,624 912 7,161 Derivative financial instruments 2,666 2,433 Real estate held for investment 11,226 11,732 Subtotal Financial assets designated at fair value through income 3,297 2,907 Fixed assets of renewable energy investments Total 2,487 535,806 2,397 536,869 Debt securities 2,691 2,970 Equity securities 2,466 2,457 Subtotal 5,157 5,426 Total 8,454 8,333 AVAILABLE-FOR-SALE INVESTMENTS AVAILABLE-FOR-SALE INVESTMENTS € MN as of 30 June 2017 as of 31 December 2016 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds Government and government agency bonds1 MBS/ABS 227,185 178,163 20,648 15,050 21,728 401 (917) (1,509) (179) 241,319 198,383 20,869 230,504 173,456 21,258 15,944 27,121 441 (1,575) (1,663) (303) 244,874 198,914 21,396 Other 4,351 638 (10) 4,979 3,569 753 (17) 4,305 Subtotal 430,348 37,817 (2,615) 465,550 428,787 44,259 (3,557) 469,489 Equity securities 32,730 13,206 (338) 45,598 30,323 12,649 (192) 42,779 Total 463,078 51,023 (2,954) 511,147 459,109 56,908 (3,750) 512,268 1_As of 30 June 2017, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 73,359 mn (31 December 2016: € 73,519 mn) and € 68,385 mn (31 December 2016: € 67,571 mn), respectively. Interim Report for the First Half-Year of 2017 — Allianz Group 33 B _ Condensed Consolidated Interim Financial Statements 7 – Loans and advances to banks and customers LOANS AND ADVANCES TO BANKS AND CUSTOMERS € MN as of 30 June 2017 Short-term investments and certificates of deposit 3,341 Loans 99,504 Other 1,747 Subtotal 104,591 Loan loss allowance (95) Total 104,496 8 – Reinsurance assets REINSURANCE ASSETS € MN as of 30 June 2017 Unearned premiums 1,912 Reserves for loss and loss adjustment expenses 8,253 Aggregate policy reserves 4,938 Other insurance reserves 122 Total 15,225 9 – Deferred acquisition costs DEFERRED ACQUISITION COSTS € MN as of 30 June 2017 Deferred acquisition costs Property-Casualty 5,026 Life/Health 17,962 Subtotal 22,988 Deferred sales inducements 579 Present value of future profits 494 Total 24,061 34 as of 31 Decembe r 2016 3,699 99,883 1,884 105,466 (97) 105,369 as of 31 Decembe r 2016 1,543 8,685 5,211 124 15,562 as of 31 Decembe r 2016 4,782 18,780 23,562 781 544 24,887 10 – Other assets OTHER ASSETS € MN as of 30 June 2017 as of 31 Decembe r 2016 Receivables Policyholders 5,991 5,938 Agents 4,638 4,217 Reinsurance 2,898 2,755 Other 5,587 5,126 Less allowances for doubtful accounts (597) (632) Subtotal 18,518 17,404 Tax receivables Income taxes 1,886 1,809 Other taxes 1,580 1,615 Subtotal 3,467 3,424 Accrued dividends, interest and rent 6,174 7,257 Prepaid expenses 530 390 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 473 677 Property and equipment Real estate held for own use 3,005 3,024 Software 2,711 2,640 Equipment 1,470 1,477 Subtotal 7,186 7,141 Other assets 1,694 1,756 Total 38,041 38,050 11 – Intangible assets INTANGIBLE ASSETS € MN as of 30 June 2017 as of 31 Decembe r 2016 Goodwill Distribution agreements1 Acquired business portfolios2 Customer relationships Other3 Total 12,060 898 148 107 140 13,353 12,372 951 172 122 136 13,752 1_Primarily includes the long-term distribution agreements with Commerzbank AG of € 242 mn (2016: € 261 mn), Banco Popular S.A. of € 361 mn (2016: € 371 mn), Yapi ve Kredi Bankasi A.S. of € 84 mn (2016: € 96 mn), Philippine National Bank of € 73 mn (2016: € 83 mn) and HSBC Asia, HSBC Turkey, BTPN Indonesia and Maybank Indonesia of € 118 mn (2016: € 133 mn). 2_Primarily includes the acquired business portfolio of Allianz Yasam ve Emeklilik A.S. of € 87 mn (2016: € 98 mn). 3_Primarily includes heritable building rights, land use rights, lease rights and brand names. Interim Report for the First Half-Year of 2017 — Allianz Group 12 – Liabilities to banks and customers LIABILITIES TO BANKS AND CUSTOMERS € MN as of 30 June 2017 as of 31 December 2016 Payable on demand and other deposits 927 897 Repurchase agreements and collateral received from securities lending transactions and derivatives 4,472 4,040 Other 8,267 8,101 Total 13,666 13,038 13 – Reserves for loss and loss adjustment expenses As of 30 June 2017, the reserves for loss and loss adjustment expenses of the Allianz Group amounted in total to € 71,745 mn (31 December 2016: € 72,373 mn). The following table reconciles the beginning and ending reserves of the Property-Casualty business segment for the half-years ended 30 June 2017 and 2016. CHANGE IN THE RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES IN THE PROPERTY-CASUALTY BUSINESS SEGMENT € MN 2017 2016 As of 1 January 61,617 61,169 Balance carry forward of discounted loss reserves 4,055 3,882 Subtotal 65,671 65,051 Loss and loss adjustment expenses incurred Current year 17,547 17,797 Prior years (1,016) (1,378) Subtotal 16,531 16,419 Loss and loss adjustment expenses paid Current year (6,341) (6,395) Prior years (9,804) (9,563) Subtotal (16,145) (15,958) Foreign currency translation adjustments and other changes (1,184) (532) Subtotal 64,873 64,981 Ending balance of discounted loss reserves (4,041) (3,969) As of 30 June 60,832 61,012 Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements 14 – Reserves for insurance and investment contracts RESERVES FOR INSURANCE AND INVESTMENT CONTRACTS € MN as of 30 June 2017 as of 31 December 2016 Aggregate policy reserves 436,012 433,610 Reserves for premium refunds 67,391 70,664 Other insurance reserves 1,001 1,048 Total 504,404 505,322 15 – Other liabilities OTHER LIABILITIES € MN as of 30 June 2017 as of 31 December 2016 Payables Policyholders 3,976 4,908 Reinsurance 1,990 1,745 Agents 1,491 1,616 Subtotal 7,457 8,269 Payables for social security 408 478 Tax payables Income taxes 1,958 1,836 Other taxes 1,847 1,452 Subtotal 3,804 3,287 Accrued interest and rent 588 564 Unearned income 465 440 Provisions Pensions and similar obligations 9,047 9,401 Employee related 2,292 2,551 Share-based compensation plans 343 431 Restructuring plans 305 95 Other provisions 1,834 2,121 Subtotal 13,820 14,599 Deposits retained for reinsurance ceded 2,090 2,254 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 145 159 Financial liabilities for puttable equity instruments 2,669 2,894 Other liabilities 8,353 6,922 Total 39,799 39,867 35 B _ Condensed Consolidated Interim Financial Statements 16 – Certificated and subordinated liabilities CERTIFICATED AND SUBORDINATED LIABILITIES € MN as of 30 June 2017 as of 31 December 2016 Senior bonds 6,554 6,574 Money market securities 1,129 1,041 Total certificated liabilities Subordinated bonds1 Hybrid equity2 Total subordinated bonds 7,682 13,403 45 13,448 7,615 13,485 45 13,530 1_Change due to the issuance of € 1.0 bn and $ 0.6 bn bonds as well as the redemption of a € 1.4 bn bond in the first half-year of 2017. 2_Relates to hybrid equity issued by subsidiaries. BONDS OUTSTANDING AS OF 30 JUNE 2017 ISIN Year of Issue Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A1HG1J8 2013 DE000A1AKHB8 2009 DE000A180B72 2016 DE000A1G0RU9 2012 DE000A1HG1K6 2013 DE000A180B80 2016 DE000A1HG1L4 2013 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 2012 DE000A14J9N8 2015 DE000A2DAHN6 2017 XS1556937891 2017 XS0857872500 2012 DE000A1YCQ29 2013 CH0234833371 2014 DE000A13R7Z7 2014 XS1485742438 2016 Allianz Finance II B.V., Amsterdam DE000A1GNAH1 2011 DE000A0GNPZ3 2006 36 Currency EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD USD EUR CHF EUR USD EUR EUR Notional amount Coupon in % Maturity date 500 1.375 % 13 March 2018 1,500 4.750 % 22 July 2019 750 0.000 % 21 April 2020 1,500 3.500 % 14 February 2022 750 3.000 % 13 March 2028 750 1.375 % 21 April 2031 750 4.500 % 13 March 2043 1,500 5.625 % 17 October 2042 1,500 2.241 % 7 July 2045 1,000 3.099 % 6 July 2047 600 5.100 % 30 January 2049 1,000 5.500 % Perpetual 1,500 4.750 % Perpetual 500 3.250 % Perpetual 1,500 3.375 % Perpetual 1,500 3.875 % Perpetual 2,000 5.750 % 8 July 2041 800 5.375 % Perpetual Interim Report for the First Half-Year of 2017 — Allianz Group 17 – Equity EQUITY € MN as of 30 June 2017 as of 31 December 2016 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital Retained earnings1,2 Foreign currency translation adjustments Unrealized gains and losses (net)3 Subtotal 27,758 26,055 (1,906) 11,122 64,198 27,758 27,087 (762) 11,830 67,083 Non-controlling interests 2,864 3,052 Total 67,062 70,135 1_As of 30 June 2017, include € (517) mn (31 December 2016: € (157) mn) related to treasury shares. 2_During the first half year of 2017, Allianz SE purchased for an amount of € 1,638 mn approximately 9.6 million own shares as part of its share-buy-back program announced in February 2017 with a total volume of up to € 3.0 bn. Thereof 7,472,978 own shares in the amount of € 1,271 mn were cancelled by the end of June 2017 without changing the registered capital of Allianz SE. 3_As of 30 June 2017, include € 264 mn (31 December 2016: € 297 mn) related to cash flow hedges. DIVIDENDS In the second quarter of 2017, a total dividend of € 3,410 mn (2016: € 3,320 mn) or € 7.60 (2016: € 7.30) per qualifying share was paid to the shareholders. Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements 37 B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENTS 18 – Premiums earned (net) PREMIUMS EARNED (NET) € MN 20 – Income from financial assets and liabilities carried at fair value through income (net) six months ended 30 June 2017 Property- Casualty Life/Health Consoli- dation Group INCOME FROM FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE THROUGH INCOME (NET) € MN Premiums written Gross 29,388 12,118 (81) 41,425 six months ended 30 June 2017 2016 Ceded Net Change in unearned premiums (net) Premiums earned (net) 2016 (2,424) 26,964 (3,406) 23,557 (300) 11,818 (232) 11,585 81 (2,643) 38,782 (3,639) 35,143 Income from financial assets and liabilities held for trading (net) Income from financial assets and liabilities designated at fair value through income (net) Income from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net)1 Total 1,272 180 (85) (2,322) (954) (322) (109) 134 (195) (491) Premiums written Gross Ceded 28,856 (2,743) 12,357 (323) (73) 73 41,140 (2,993) 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income. Net 26,113 12,034 38,147 Change in unearned premiums (net) Premiums earned (net) (3,290) 22,823 (277) 11,757 (3,567) 34,580 21 – Realized gains/losses (net) REALIZED GAINS/LOSSES (NET) € MN six months ended 30 June 2017 2016 19 – Interest and similar income REALIZED GAINS Available-for-sale investments INTEREST AND SIMILAR INCOME € MN Equity securities Debt securities 1,379 2,688 1,319 2,972 six months ended 30 June 2017 2016 Subtotal 4,067 4,291 Dividends from available-for-sale investments Interest from available-for-sale investments 1,227 6,731 1,023 6,939 Other Subtotal 268 4,335 581 4,872 Interest from loans to banks and customers 2,131 2,274 Rent from real estate held for investment 459 463 REALIZED LOSSES Other 550 416 Available-for-sale investments Total 11,099 11,115 Equity securities (271) (257) Debt securities (503) (469) Subtotal (773) (726) Other (33) (1) Subtotal (806) (728) Total 3,529 4,144 38 Interim Report for the First Half-Year of 2017 — Allianz Group 22 – Fee and commission income FEE AND COMMISSION INCOME € MN six months ended 30 June 2017 PROPERTY-CASUALTY Fees from credit and assistance business 663 Service agreements 249 Subtotal 911 LIFE/HEALTH Service agreements 60 Investment advisory 648 Subtotal 708 ASSET MANAGEMENT Management and advisory fees 3,398 Loading and exit fees 283 Performance fees 149 Other 15 Subtotal 3,845 CORPORATE AND OTHER Service agreements 750 Investment advisory and banking activities 388 Subtotal 1,138 CONSOLIDATION (1,012) Total 5,591 23 – Claims and insurance benefits incurred (net) CLAIMS AND INSURANCE BENEFITS INCURRED (NET) € MN six months ended 30 June Property- Casualty Life/Health Consoli- dation 2017 Gross (16,531) (10,089) 41 Ceded 975 251 (41) Net (15,556) (9,838) 2016 Gross (16,419) (10,416) 39 Ceded 1,258 289 (36) Net (15,162) (10,127) 3 Interim Report for the First Half-Year of 2017 — Allianz Group 2016 516 243 759 64 615 679 3,122 231 127 17 3,496 288 355 643 (471) 5,107 Group (26,579) 1,185 (25,394) (26,797) 1,511 (25,286) B _ Condensed Consolidated Interim Financial Statements 24 – Change in reserves for insurance and investment contracts (net) CHANGE IN RESERVES FOR INSURANCE AND INVESTMENT CONTRACTS (NET) € MN six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2017 Gross (261) (6,605) 35 (6,832) Ceded 3 131 134 Net (258) (6,474) 35 (6,697) 2016 Gross (256) (7,371) (74) (7,701) Ceded 3 160 163 Net (254) (7,211) (74) (7,539) 25 – Interest expenses INTEREST EXPENSES € MN six months ended 30 June 2017 2016 Liabilities to banks and customers (75) (89) Deposits retained for reinsurance ceded (21) (34) Certificated liabilities (119) (142) Subordinated liabilities (315) (286) Other (51) (55) Total (582) (606) 39 B _ Condensed Consolidated Interim Financial Statements 26 – Impairments of investments (net) IMPAIRMENTS OF INVESTMENTS (NET) € MN six months ended 30 June 2017 Impairments Available-for-sale investments Equity securities (333) Debt securities (35) Subtotal (368) Other (6) Non-current assets and assets of disposal groups classified as held for sale Subtotal (374) Reversals of impairments 42 Total (332) 27 – Investment expenses INVESTMENT EXPENSES € MN six months ended 30 June 2017 Investment management expenses (370) Expenses from real estate held for investment (177) Expenses from fixed assets of renewable energy investments (97) Total (644) 40 2016 (1,175) (42) (1,217) (9) (226) (1,451) 31 (1,421) 2016 (344) (193) (64) (601) 28 – Acquisition and administrative expenses (net) ACQUISITION AND ADMINISTRATIVE EXPENSES (NET) € MN six months ended 30 June 2017 2016 PROPERTY-CASUALTY Acquisition costs (5,128) (5,023) Administrative expenses (1,611) (1,469) Subtotal (6,739) (6,492) LIFE/HEALTH Acquisition costs (2,391) (2,225) Administrative expenses (877) (899) Subtotal (3,267) (3,123) ASSET MANAGEMENT Personnel expenses (1,185) (1,131) Non-personnel expenses (767) (736) Subtotal (1,952) (1,868) CORPORATE AND OTHER Administrative expenses (692) (698) Subtotal (692) (698) CONSOLIDATION (27) 8 Total (12,678) (12,173) Interim Report for the First Half-Year of 2017 — Allianz Group 29 – Fee and commission expenses FEE AND COMMISSION EXPENSES € MN six months ended 30 June 2017 PROPERTY-CASUALTY Fees from credit and assistance business (663) Service agreements (201) Subtotal (864) LIFE/HEALTH Service agreements (34) Investment advisory (315) Subtotal (350) ASSET MANAGEMENT Commissions (694) Other (76) Subtotal (769) CORPORATE AND OTHER Service agreements (859) Investment advisory and banking activities (168) Subtotal (1,027) CONSOLIDATION 838 Total (2,172) 30 – Income taxes INCOME TAXES € MN six months ended 30 June 2017 Current income taxes (1,367) Deferred income taxes (217) Total (1,585) Interim Report for the First Half-Year of 2017 — Allianz Group 2016 (506) (199) (706) (28) (277) (305) (637) (31) (668) (384) (156) (540) 296 (1,923) 2016 (1,462) 156 (1,306) B _ Condensed Consolidated Interim Financial Statements For the six months ended 30 June 2017 and 2016, the income taxes on components of other comprehensive income consist of the following: INCOME TAXES ON COMPONENTS OF OTHER COMPREHENSIVE INCOME € MN six months ended 30 June 2017 2016 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments (50) (37) Available-for-sale investments 245 (2,835) Cash flow hedges 15 (109) Share of other comprehensive income of associates and joint ventures 1 7 Miscellaneous 146 (12) Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (120) 293 Total 237 (2,694) 41 B _ Condensed Consolidated Interim Financial Statements OTHER INFORMATION 31 – Financial Instruments and fair value measurement FAIR VALUES AND CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: FAIR VALUES AND CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS € MN FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities As of 30 June 2017, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 99 mn (31 December 2016: € 100 mn). These investments are primarily investments in privately held corporations and partnerships. 42 as of 30 June 2017 as of 31 December 2016 Carrying amount Fair value Carrying amount Fair value 17,154 17,154 14,463 14,463 3,297 3,297 2,907 2,907 5,157 5,157 5,426 5,426 511,147 511,147 512,268 512,268 2,414 2,778 2,399 2,805 7,624 9,528 7,161 9,031 11,226 17,981 11,732 18,380 104,496 120,899 105,369 124,422 115,268 115,268 111,325 111,325 473 473 677 677 11,073 11,073 11,271 11,271 13,666 13,685 13,038 13,062 115,268 115,268 111,325 111,325 145 145 159 159 2,669 2,669 2,894 2,894 7,682 8,502 7,615 8,530 13,448 14,668 13,530 14,256 FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: — Financial assets and liabilities held for trading, — Financial assets and liabilities designated at fair value through income, — Available-for-sale investments, — Financial assets and liabilities for unit-linked contracts, — Derivative financial instruments and firm commitments included in other assets and other liabilities, and — Financial liabilities for puttable equity instruments. Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2017 and 31 December 2016: FAIR VALUE HIERARCHY (ITEMS CARRIED AT FAIR VALUE) € MN Level 11 as of 30 June 2017 Level 22 Level 33 Total Level 11 as of 31 December 2016 Level 22 Level 33 Total FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 366 2,918 13 3,297 447 2,451 9 2,907 Financial assets designated at fair value through income 3,966 1,045 145 5,157 4,205 1,043 178 5,426 Subtotal 4,332 3,964 158 8,454 4,652 3,494 187 8,333 Available-for-sale investments Corporate bonds 28,800 197,682 14,837 241,319 29,233 201,489 14,152 244,874 Government and government agency bonds 32,937 164,890 555 198,383 33,476 165,099 339 198,914 MBS/ABS 141 20,535 193 20,869 175 20,702 519 21,396 Other 789 1,515 2,675 4,979 783 1,018 2,504 4,305 Equity securities 36,698 781 8,118 45,598 34,169 781 7,829 42,779 Subtotal 99,364 385,404 26,379 511,147 97,836 389,089 25,342 512,268 Financial assets for unit-linked contracts 93,339 21,445 485 115,268 91,071 19,877 377 111,325 Derivative financial instruments and firm commitments included in other assets 472 473 677 677 Total 197,035 411,285 27,022 635,342 193,560 413,137 25,906 632,603 FINANCIAL LIABILITIES Financial liabilities held for trading 28 1,302 9,742 11,073 36 1,538 9,697 11,271 Financial liabilities for unit-linked contracts 93,339 21,445 485 115,268 91,071 19,877 377 111,325 Derivative financial instruments and firm commitments included in other liabilities 1 143 145 3 156 159 Financial liabilities for puttable equity instruments 2,472 53 145 2,669 2,657 92 145 2,894 Total 95,841 22,943 10,372 129,155 93,767 21,664 10,220 125,650 1_Quoted prices in active markets 2_Market observable inputs 3_Non-market observable inputs The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, as well as the significant Level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2016. No material changes have occurred since this report was published. SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. The converse policy applies for trans- fers from level 2 to level 1. Interim Report for the First Half-Year of 2017 — Allianz Group 43 B _ Condensed Consolidated Interim Financial Statements Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instru- ments carried at fair value and classified as level 3. RECONCILIATION OF LEVEL 3 FINANCIAL ASSETS € MN Financial assets carried at fair value through income Available-for-sale investments – Debt securities1 Available-for-sale investments – Equity securities Financial assets for unit-linked contracts Total Carrying value (fair value) as of 1 January 2017 187 17,513 7,829 377 25,906 Additions through purchases and issues 24 2,604 1,082 149 3,858 Net transfers into (out of) Level 3 (36) (600) 1 (25) (660) Disposals through sales and settlements 105 (692) (482) (9) (1,079) Net gains (losses) recognized in consolidated income statement (125) (8) 13 3 (118) Net gains (losses) recognized in other comprehensive income 219 (74) 145 Impairments (18) (175) (192) Foreign currency translation adjustments 5 (742) (70) (10) (817) Changes in the consolidated subsidiaries of the Allianz Group (15) (6) (21) Carrying value (fair value) as of 30 June 2017 158 18,260 8,118 485 27,022 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date (9) (79) 3 (85) 1_Primarily include corporate bonds. RECONCILIATION OF LEVEL 3 FINANCIAL LIABILITIES € MN Financial liabilities held for trading Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total Carrying value (fair value) as of 1 January 2017 9,697 377 145 10,220 Additions through purchases and issues 505 149 654 Net transfers into (out of) Level 3 (1) (25) (26) Disposals through sales and settlements (427) (9) (437) Net gains (losses) recognized in consolidated income statement 727 3 730 Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments (759) (10) (769) Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2017 9,742 485 145 10,372 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 676 3 678 44 Interim Report for the First Half-Year of 2017 — Allianz Group FAIR VALUE MEASUREMENT ON A NON-RECURRING BASIS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of im- pairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 26. 32 – Other information CONTINGENT LIABILITIES AND COMMITMENTS As of 30 June 2017, there were no significant changes in contingent liabilities, compared to the consolidated financial statements for the year ended 31 December 2016. As of 30 June 2017, outstanding commitments to invest in pri- vate equity funds and similar financial instruments amounted to € 11,175 mn (31 December 2016: € 9,640 mn) and outstanding com- mitments to invest in real estate and infrastructure amounted to € 5,369 mn (31 December 2016: € 3,979 mn). All other commitments showed no significant changes. 33 – Subsequent events ALLIANZ AND LIVERPOOL VICTORIA TO LAUNCH JOINT VENTURE IN THE UNITED KINGDOM PERSONAL INSURANCE MARKET Liverpool Victoria (LV=) will receive £ 500 mn from Allianz in ex- change for a 49 percent stake in Liverpool Victoria General Insurance (LV= GI). The new, long-term joint venture LV= GI, will acquire Allianz’s personal home and motor insurer’s renewal rights while Allianz will obtain LV= GI’s commercial insurer’s renewal rights. The first stage of the transaction is expected to close during the second half of 2017. The second stage of the transaction will take place in 2019 and will see Allianz pay £ 213 mn for a further 20.9 percent stake in LV= GI through an agreed, forward purchase, based on a total valuation of £ 1.020 bn for 100 percent of LV= GI. Both stages are subject to regulatory approvals. Interim Report for the First Half-Year of 2017 — Allianz Group B _ Condensed Consolidated Interim Financial Statements 45 B _ Condensed Consolidated Interim Financial Statements 46 This page intentionally left blank Interim Report for the First Half-Year of 2017 — Allianz Group FURTHER INFORMATION Interim Report for the First Half-Year of 2017 − Allianz Group 47 C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportuni- ties and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 3 August 2017 Allianz SE The Board of Management 48 Interim Report for the First Half-Year of 2017 — Allianz Group REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed interim consolidated financial statements of Allianz SE, Munich – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and select- ed explanatory notes – together with the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2017, that are part of the semi-annual financial report according to § 37w WpHG [“Wertpapierhandelsgesetz”: “German Securities Trad- ing Act”]. The preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard IAS 34 “Interim Financial Reporting” as adopted by the EU, and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on the condensed interim consoli- dated financial statements and on the interim group management report based on our review. We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evalua- tion, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in mate- rial respects, in accordance with IAS 34 “Interim Financial Reporting” as adopted by the EU, and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company em- ployees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report. Interim Report for the First Half-Year of 2017 — Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated finan- cial statements have not been prepared, in material respects, in accordance with IAS 34, “Interim Financial Reporting” as adopted by the EU, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, 3 August 2017 KPMG AG Wirtschaftsprüfungsgesellschaft Klaus Becker Wirtschaftsprüfer (Independent Auditor) Andreas Dielehner Wirtschaftsprüfer (Independent Auditor) 49 Financial calendar Important dates for shareholders and analysts1 Financial Results 3Q _____________________________________________________________ 10 November 2017 Financial Results 2017 _____________________________________________________________ 16 February 2018 Annual Report 2017 __________________________________________________________________ 9 March 2018 Annual General Meeting _______________________________________________________________ 9 May 2018 Financial Results 1Q __________________________________________________________________ 15 May 2018 Financial Results 2Q/Interim Report 6M __________________________________________________ 3 August 2018 Financial Results 3Q ______________________________________________________________ 9 November 2018 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and financial-year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone + 49 89 3800 0 – www.allianz.com Interim Report on the internet: www.allianz.com/interim-report – Front page design: hw.design GmbH – Date of publication: 4 August 2017 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2017, Insurance, Allianz | write me a financial report |
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| FIRST HALF-YEAR 2018 ALLIANZ GROUP INTERIM REPORT 2018 To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. CONTENT A _ Interim Group Management Report Pages 1 – 18 2 Executive Summary 4 Property-Casualty Insurance Operations 6 Life/Health Insurance Operations 9 Asset Management 11 Corporate and Other 12 Outlook 14 Balance Sheet Review 16 Reconciliations B _ Condensed Consolidated Interim Financial Statements Pages 19 – 44 20 Consolidated Balance Sheets 21 Consolidated Income Statements 22 Consolidated Statements of Comprehensive Income 23 Consolidated Statements of Changes in Equity 24 Consolidated Statements of Cash Flows NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 26 General Information 33 Notes to the Consolidated Balance Sheets 38 Notes to the Consolidated Income Statements 41 Other Information C _ Further Information Pages 45 – 47 46 Responsibility Statement 47 Review Report Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of Euros (€ mn) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/results. INTERIM GROUP MANAGEMENT REPORT A Interim Report for the First Half-Year of 2018 − Allianz Group 1 Repor t A _ Interim Group Management Report EXECUTIVE SUMMARY KEY FIGURES Key figures Allianz Group1 Six months ended 30 June 2018 2017 Total revenues2 € mn 67,350 66,218 Operating profit3 € mn 5,753 5,860 Net income3 € mn 4,025 4,013 thereof: attributable to shareholders € mn 3,830 3,810 Solvency II capitalization ratio4 % 230 229 Return on equity5 % 13.8 11.8 Earnings per share € 8.86 8.45 Diluted earnings per share € 8.78 8.44 Earnings summary2,3,4,5 ECONOMIC AND INDUSTRY ENVIRONMENT Overall, the world economy remains in fairly good shape. However, growth momentum in some major economies showed signs of cool- ing down at least temporarily in the first months of this year. In the Eurozone, while the economic upswing continued in the first half of 2018, the growth momentum could no longer match last year's very pronounced growth dynamic. Meanwhile in the United States, follow- ing a subdued start to the year 2018, the economy picked up speed again in the second quarter, mostly driven by private consumption. In the emerging market world, economic performance in Latin America was somewhat disappointing, while emerging Asia continued to benefit from stable growth in China. The first half of 2018 was characterized by continued political uncertainty. The trade conflict with the United States intensified, contributing to a deterioration in economic sentiment in some re- gions. In Italy, political risk increased with regard to the new anti- establishment government. Following a prolonged period of very low market volatility, stock markets experienced a spike in volatility in February when the wage growth and inflation figures released in the United States turned out higher than expected. On the monetary policy front, the European Central Bank announced in June that it would phase out its bond purchasing program at the end of 2018 – provided that the economy performs in line with its expectations. As of October, the monthly purchase volume will be reduced from € 30 bn to € 15 bn. In the United States, the Federal Reserve contin- ued to normalize its monetary policy stance. It increased the federal 1_For further information on Allianz Group figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 4_2017 figures as of 31 December 2017, 2018 figures as of 30 June 2018. Risk capital figures are group diversified at 99.5 % confidence level. 5_Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow accounting, at beginning of the period and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2017, the return on equity for the full year is shown. 2 Delta 1,132 (107) 13 20 1 %-p 2.0 %-p 0.41 0.34 funds rate range twice by 25 basis points, bringing it to a range of 1.75 % to 2 %, while continuing its balance sheet normalization pro- gram. Yields on 10-year German government bonds closed the month of June at 0.31 %, 12 basis points below the level reached at the end of 2017. Spreads on Eurozone government bonds moved more or less sideways in the first half of 2018, with Italy as one major excep- tion. Spreads on Italian government bonds widened substantially by 73 basis points on the back of heightened political uncertainty. Major stock markets around the globe registered losses, with downward corrections being most pronounced in emerging market economies. The U.S. Dollar-to-Euro exchange rate was subject to significant fluc- tuations in the first half of this year. Following an appreciation in early 2018, the Euro started to weaken against the U.S. Dollar in mid-April. This depreciation more than compensated for the appreciation at the beginning of the year; at the end of June 2018 the U.S. Dollar-to-Euro exchange rate was 1.17 (end of 2017: 1.20). Despite the higher market volatility and continued suppression of yields, there was also some unexpected relief for the insurance industry: Insured losses due to natural catastrophes were significantly lower than usual, at least at the global level. In Europe and the Unit- ed States, however, winter storms caused relatively high losses. The high volatility of global capital market indices also muted the long-term flows in the asset management industry at a global level. After a strong start, long-term net inflows significantly dimin- ished in the United States and Europe, dipping into negative territory in some months. In the United States, taxable bond flows, both pas- sive and active, remained strong throughout the first half of 2018 while there was a trend towards de-risking with outflows in high-yield and emerging-market bonds and trending into very short-duration fixed-income and core intermediary bonds. Overall, long-term flows into passive products in the United States continue to strongly out- pace flows into active. In Europe, passive have shown much higher organic growth rates than active; however, in absolute terms, flows into actively managed funds continue to dominate. Interim Report for the First Half-Year of 2018 − Allianz Group MANAGEMENT’S ASSESSMENT Our total revenues grew 1.7 %, in the first half of 2018 – an increase of 5.6 % on an internal basis1, compared to the same period of the pre- vious year, with all business segments registering strong growth. Our operating investment result declined by € 1,114 mn to € 10,969 mn compared to the more favorable first half-year of 2017. We recorded higher impairments, mostly on equities, particularly in the first quarter of 2018 when there was a downturn of major equity markets. In addition, low reinvestment yields led to a decline in in- come from debt securities; also, operating realized gains/losses (net) decreased as a result of lower debt realizations. Our operating profit decreased due to a lower investment mar- gin in our U.S. Life/Health business – a result of normalized market conditions and unfavorable foreign currency translation effects – as well as a lower operating result in our Corporate and Other business segment. The segment had benefited from a positive impact in the prior year related to the adapted cost allocation scheme for the pension provisions. Both our Asset Management business segment and our Property-Casualty business segment saw an increase in operating profit: Asset Management enjoyed higher assets under management (AuM)-driven revenues, mainly due to growth in aver- age third-party AuM. For Property-Casualty, the key driver was a higher underwriting result. Our non-operating result worsened by € 125 mn, resulting in a loss of € 388 mn. A negative impact from the sale of our traditional life insurance portfolio in Taiwan was partially offset by lower restruc- turing charges. Income taxes decreased by € 244 mn to € 1,340 mn, driven by the U.S. tax reform and the reduction in pretax income. The effective tax rate dropped to 25.0 % (28.3 %). The decrease in income taxes offset the lower operating profit and non-operating result, leading to an overall stable net income. Our shareholders’ equity2 decreased by € 5.3 bn to € 60.3 bn. Of this decrease, € 3.4 bn was attributable to the dividend payout and € 2.0 bn to the second share buy-back program announced in No- vember 2017: In the course of the first half-year of 2018, Allianz SE purchased 10.4 million own shares. 3 Over the same period, our Solvency II capitalization ratio rose to 230 %. For a more detailed description of the results generated by our business segments – Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other – please consult the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2017, we have described our risk and oppor- tunity profile and addressed potential risks that could adversely affect our business as well as our risk profile. The statements con- tained in that report remain largely unchanged. We continue to 1_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 16 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole. 2_For further information on shareholders‘ equity, please refer to page 14 of the Balance Sheet Review chapter. 3_For further information on the share buy-back program, please refer to note 17 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2018 − Allianz Group A _ Interim Group Management Report monitor developments in order to be able to react in a timely and appropriate manner, should the need arise. For further information, please refer to the chapter Outlook, which starts on page 12. Events after the balance sheet date For information on events after the balance sheet date, please refer to note 33 to the condensed consolidated interim financial state- ments. Other information RECENT ORGANIZATIONAL CHANGES Effective 1 January 2018 and 1 April 2018, the Allianz Group reor- ganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. Middle East and Africa were reallocated to the reportable segment Global Insurance Lines & Anglo Markets, Middle East and Africa. The reportable seg- ment Iberia & Latin America was combined with the reportable seg- ment Allianz Partners to form the reportable segment Iberia & Latin America and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. STRATEGY The Allianz Group’s strategy is described in the Risk and Opportunity Report that forms part of our Annual Report 2017. There have been no material changes to our Group strategy. PRODUCTS, SERVICES AND SALES CHANNELS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2017. ALLIANZ GROUP AND BUSINESS SEGMENTS The Allianz Group operates and manages its activities through the four business segments mentioned above. For further information, please refer to note 4 to the condensed consolidated interim financial statements or to the Business Operations chapter in our Annual Report 2017. 3 Repor t A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS KEY FIGURES Operating profit Key figures Property-Casualty1234 Operating profit € mn Six months ended 30 June Gross premiums written Operating profit Net income Loss ratio2 Expense ratio3 € mn € mn € mn % % 2018 29,984 2,729 2,244 66.4 28.0 2017 29,388 2,705 2,070 66.0 28.6 Delta 595 24 174 0.3 %-p (0.6) %-p Six months ended 30 June Underwriting result Operating investment income (net) Other result1 Operating profit 2018 1,185 1,482 62 2,729 2017 1,136 1,490 79 2,705 Delta 49 (8) (17) 24 Combined ratio4 % 94.4 94.6 (0.2) %-p 1_Consists of fee and commission income/expenses and other income/expenses. Gross premiums written5 On a nominal basis, we recorded an increase of 2.0 % in gross premi- ums written compared to the first six months of the previous year. This includes unfavorable translation effects of foreign currency € 1,157 mn6 and positive (de)consolidation effects of € 22 mn. Further, our premiums went up 5.9 % on an internal basis, driven by a positive volume effect of 4.3 % and a positive price effect of 1.6 %. Our operating profit increased slightly, compared to the same period of the previous year. Although we registered higher claims from natu- ral catastrophes than we had in the benign prior year, our underwrit- ing result increased, driven by profitability and efficiency improve- ments across our operating entities. Our investment result remained relatively stable compared to the previous year. A strong improvement on the expense side was offset by higher claims when compared to the previous year. In addition, we saw a small improvement in our run-off result. Overall, our combined ratio improved by 0.2 percentage points to 94.4 %. The following operations contributed positively to internal growth: AGCS: Gross premiums increased to € 4,371 mn – up 16.9 % on an internal basis. Much of this was a result of positive volume effects at Allianz Risk Transfer. Underwriting result € mn Six months ended 30 June Premiums earned (net) 2018 23,742 2017 23,557 Delta 185 Germany: Gross premiums amounted to € 6,521 mn, an internal growth of 4.3 %. It was mainly due to positive volume effects in our motor and commercial property insurance business and in our APR business (accident insurance with premium refunds). Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) Acquisition and administrative expenses (net) (16,572) 813 (15,759) (6,657) (16,326) 770 (15,556) (6,739) (246) 43 (203) 82 Allianz Partners: Gross premiums grew to € 2,768 mn – an in- crease of 5.5 % on an internal basis. It was owed to positive volume effects at Worldwide Care and our U.S. travel business. Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (142) (127) (15) Underwriting result 1,185 1,136 49 In the first six months of 2018, there were no operations with a signifi- cant negative contribution to internal growth. 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consoliated interim financial statements. Our accident year loss ratio7 stood at 69.8 % – a 0.5 percentage point deterioration compared to the first half of last year. In the first six months of this year, losses from natural catastrophes were higher than in the same period of 2017, increasing the impact on our com- bined ratio by 0.9 percentage points, from 1.1 % to 2.0 %. Excluding losses from natural catastrophes, our accident year loss ratio improved to 67.8 %. This was mainly due to profitability improvements across the Allianz Group. 1_For further information on Property-Casualty figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3_Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 5_We comment on the development of our gross premium written on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable infor- mation. 7_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned 6_Based on the average exchange rates in 2018 compared to 2017. (net). 4 Interim Report for the First Half-Year of 2018 − Allianz Group The following operations contributed positively to the development of our accident year loss ratio: AGCS: 0.4 percentage points. This was driven by an improvement in small and medium claims. Australia: 0.3 percentage points. The improvement resulted from positive price effects and better loss experience in our short-tail busi- ness. Italy: 0.1 percentage points. The accident year loss ratio benefit- ed from a decrease in severity of losses in our motor insurance busi- ness as well as from lower claims from weather-related events. The following operations weighed on the development of our acci- dent year loss ratio: Germany: 0.8 percentage points due to storms, mainly Friederike in 2018, with losses from natural catastrophes of more than double the amount recorded in the same period of 2017. France: 0.3 percentage points. The deterioration resulted from higher losses from storms and floods in the first half of 2018. Reinsurance: 0.2 percentage points. This was driven by the high- er natural catastrophe environment than in the first half of 2017. Our positive run-off result amounted to € 813 mn, compared to € 770 mn in the first half-year of 2017. This translates into a run-off ratio of 3.4 %, which is slightly higher than the 3.3 % we saw in the prior year. The previous year had been impacted by the Ogden rate change, which adversely affected our Reinsurance, United Kingdom, and Ireland operations. Total expenses amounted to € 6,657 mn in the first half of 2018, compared to € 6,739 mn in the same period of 2017. Our expense ratio decreased by 0.6 percentage points, benefiting from lower acquisition as well as lower administrative expenses. Interim Report for the First Half-Year of 2018 − Allianz Group A _ Interim Group Management Report Operating investment income (net) € mn Six months ended 30 June 2018 2017 Delta Interest and similar income (net of interest expenses) 1,671 1,708 (37) Operating income from financial assets and liabilities carried at fair value through income (net) (19) (51) 32 Operating realized gains (net) 92 152 (61) Operating impairments of investments (net) (28) (6) (22) Investment expenses (183) (183) 1 Expenses for premiums refunds (net)1 (51) (131) 80 Operating investments income (net)2 1,482 1,490 (8) 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) remained relatively stable in the first six months of 2018. We recorded lower interest and similar income; much of this deterioration was attributable to debt securities as a result of lower volumes and the low-yield environment. The decline was partially offset by higher income from equities. Other result € mn Six months ended 30 June 2018 2017 Delta Fee and commission income 868 911 (44) Other income 1 32 (31) Fee and commission expenses (806) (864) 58 Other expenses (1) Other result 62 79 (17) Our other result decreased, as the prior year had included higher realized gains from the sale of real estate held for own use by our Italian subsidiary. This could only partially be offset by a higher net fee and commission result generated by Allianz Partners. Net income Net income increased, mainly because lower restructuring charges and higher realized gains resulted in a higher non-operating result. 5 Repor t A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS KEY FIGURES Key figures Life/Health1 Six months ended 30 June Statutory premiums2 Operating profit Net income Return on equity3 € mn € mn € mn % 2018 34,229 2,144 1,322 10.9 2017 33,619 2,282 1,611 12.1 Delta 610 (138) (289) (1.2) %-p Present value of new business premiums (PVNBP)5 Our PVNBP increased by € 989 mn to € 31,423 mn, which mainly resulted from the higher sales of capital-efficient products in the German life business and our unit-linked insurance products without guarantees in Taiwan. This was partly offset by a sales decline of unit- linked products in Italy. In line with our changed product strategy, premiums continued to shift towards capital-efficient products. 2,3 Statutory premiums4 Present value of new business premiums (PVNBP) by lines of business % Six months ended 30 June 2018 2017 Delta On a nominal basis, statutory premiums increased by 1.8 % in the first half of 2018. This includes unfavorable foreign currency translation effects of € 996 mn and negative (de-)consolidation effects of € 39 mn. On an internal basis4, statutory premiums increased by € 1,645 mn – or 4.9 % – to € 35,225 mn. Guaranteed savings & annuities Protection & health Unit-linked without guarantee Capital-efficient products Total 17.8 17.3 27.2 37.7 100.0 23.6 16.7 26.1 33.6 100.0 (5.7) 0.6 1.1 4.1 life business, statutory premiums rose to € 10,876 mn, an increase of 7.6 % on an internal basis. We recorded higher sales in our business with capital-efficient products, which more than offset the decline in sales of traditional life products. In the German health business, statutory premiums went up to € 1,729 mn, a 3.3 % growth on an internal basis, driven by the acquisition of new customers in supplementary health care coverage. In the German Operating profit OPERATING PROFIT BY PROFIT SOURCES6 to € 4,627 mn, up 1.8 % on an internal basis. This was caused by an increase in sales of non-traditional variable annuities which was partly offset by declined fixed-indexed annuity sales. Statutory premiums in the United States amounted Operating profit by profit sources € mn Six months ended 30 June Loadings and fees 2018 3,002 2017 2,949 Delta 53 In Italy, statutory premiums rose to € 5,682 mn, an increase of 1.9 % on an internal basis. This was predominantly due to a higher volume of recurring premiums from our in-force business, partially offset by a decrease in traditional life business. Investment margin Expenses Technical margin Impact of changes in DAC 1,922 (3,395) 627 (11) 2,082 (3,349) 549 52 (161) (45) 78 (63) In France, statutory premiums stood at € 4,081 mn. The decrease – 1.6 % on an internal basis – was largely due to a drop in guaranteed savings & annuities, partly compensated by sales of unit-linked- without-guarantee products. In the Asia-Pacific region, statutory premiums went up to € 2,961 mn, a 27.5 % rise on an internal basis. It was largely attributa- ble to a sales increase for unit-linked products in Taiwan and tradi- tional products in China. Operating profit 2,144 2,282 Our operating profit decreased as a result of normalized market conditions and unfavorable foreign currency translation effects mainly in the United States. This was partly offset by a higher investment margin in Germany and higher income from unit-linked business in Italy and Taiwan. (138) 1_For further information on Life/Health figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 3_Represents annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the period and at the end of period. Annualized figures are not a forecast for full year numbers. For 2017, the return on equity for the full year is shown. 4_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. 5_PVNBP before non-controlling interests. 6_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. 6 Interim Report for the First Half-Year of 2018 − Allianz Group LOADINGS AND FEES1 Loadings and fees € mn Six months ended 30 June 2018 2017 Loadings from premiums 1,933 1,916 Loadings from reserves 726 720 Unit-linked management fees 343 313 Loadings and fees 3,002 2,949 Loadings from premiums as % of statutory premiums 5.6 5.7 Loadings from reserves as % of average reserves 1,2 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.2 0.2 1_Aggregate policy reserves and unit-linked reserves. 2_Yields are pro rata. 3_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums went up in line with the higher sales, mainly in the German life business, and Italy. Unit-linked management fees also rose, predominantly in Italy and Taiwan, as a result of increased assets under management. 1_Loadings and fees include premium and reserve based fees, unit-linked management fees, and policyholder participa- tion in expenses. Interim Report for the First Half-Year of 2018 − Allianz Group Delta 17 6 30 53 (0.1) A _ Interim Group Management Report INVESTMENT MARGIN2 Investment margin € mn Six months ended 30 June 2018 2017 Delta Interest and similar income 8,927 9,056 (129) Operating income from financial assets and liabilities carried at fair value through income (net) (1,127) (965) (161) Operating realized gains/losses (net) 2,652 2,916 (263) Interest expenses (50) (49) (1) Operating impairments of investments (net) (743) (255) (488) Investment expenses (650) (609) (42) Other1 90 271 (181) Technical interest (4,365) (4,401) 35 Policyholder participation (2,813) (3,882) 1,069 Investment margin 1,922 2,082 (161) Investment margin in basis points2,3 44.1 49.3 (5.2) 1_”Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit, and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees, on the other hand. 2_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 3_Yields are pro rata. Our investment margin decreased, largely due to negative foreign currency impacts in the United States. In addition, the prior period results benefited from favorable market conditions for the variable annuities business in the United States. Higher equity impairments and lower realizations on debt securities mainly in the German life business, after the sale of Italian government bonds has resulted in an elevated level in 2017, further contributed to the decrease in the investment margin. This was largely offset by the lower policyholder participation. 2_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). 7 Repor t A _ Interim Group Management Report EXPENSES1 Expenses € mn Six months ended 30 June 2018 2017 Acquisition expenses and commissions (2,494) (2,451) Administrative and other expenses (901) (898) Expenses (3,395) (3,349) Acquisition expenses and commissions as % of PVNBP1 (7.9) (8.1) Administrative and other expenses as % of average reserves2, 3 (0.2) (0.2) 1_PVNBP before non-controlling interests. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. Our acquisition expenses and commissions increased in line with the sales growth mainly recorded in our German life business and in Taiwan. In addition, we recorded higher production in the more ex- pensive bancassurance channel in Italy. Administrative and other expenses remained stable, also in rela- tion to reserves. TECHNICAL MARGIN2 Our technical margin went up, as the first half of 2017 was negatively impacted by one-off reserve adjustments predominantly in Spain. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC)3 Impact of change in DAC € mn Six months ended 30 June 2018 2017 Capitalization of DAC 858 866 Amortization, unlocking and true-up of DAC (869) (814) Impact of change in DAC (11) 52 The impact of change in DAC turned slightly negative. A one-off DAC adjustment in the United States had a positive effect on the 2017 result. 1_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 2_The technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participa- tion), lapse result (surrender charges and commission clawbacks) and reinsurance result. 3_”Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the IFRS financial statements. 8 Delta (43) (2) (45) 0.1 Delta (8) (55) (63) OPERATING PROFIT BY LINES OF BUSINESS Operating profit by lines of business € mn Six months ended 30 June 2018 2017 Delta Guaranteed savings & annuities 1,091 1,216 (125) Protection & health 465 457 8 Unit-linked without guarantee 208 185 23 Capital-efficient products 381 425 (44) Operating profit 2,144 2,282 (138) The operating profit in our guaranteed savings & annuities line of business dropped, which was mainly due to a normalization of results in our traditional variable annuity business in the United States after the favorable market conditions in the first six months of 2017. The slightly higher operating profit in the protection & health line of busi- ness was most due to a higher investment margin in Spain. Our oper- ating profit in the unit-linked without guarantee line of business went up, which was largely driven by higher unit-linked fees in Italy and Taiwan. A decrease in operating profit in the capital-efficient prod- ucts line was mainly attributable to lower investment margin in the United States as a result of unfavorable foreign currency effects. Net income The decrease in our net income was largely attributable to the sale of our traditional life insurance portfolio in Taiwan, which had a nega- tive net impact of € 218 mn. Return on equity Our return on equity decreased by 1.2 percentage points to 10.9 %, predominantly due to the drop in our net income. Interim Report for the First Half-Year of 2018 − Allianz Group ASSET MANAGEMENT KEY FIGURES Key figures Asset Management1 Six months ended 30 June 2018 2017 Delta Operating revenues € mn 3,257 3,114 143 Operating profit € mn 1,247 1,156 91 Cost-income ratio2 % 61.7 62.9 (1.2) %-p Net income € mn 934 735 199 Total assets under management as of 30 June3 € bn 1,993 1,960 32 thereof: Third-party assets under management as of 30 June3 € bn 1,464 1,448 17 Assets under management Composition of total assets under management € bn Type of asset class As of 30 June 2018 As of 31 December 2017 Delta Fixed income 1,560 1,553 7 Equities 164 164 Multi-assets1 165 163 2 Other2 104 81 23 Total 1,993 1,960 32 1_Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by distributing investments throughout several asset classes. 2_Other is composed of other asset classes than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc. Net inflows4 of total assets under management (AuM) amounted to € 2 bn for the first half of the year. Third-party AuM net inflows were at € 12 bn, due to a strong first quarter of 2018. Almost all of the first half-year’s third-party AuM net inflows are attributable to PIMCO, where we recorded € 11 bn, and came from the American and Asia- Pacific regions. AllianzGI also recorded third-party AuM net inflows (€ 0.4 bn) in a difficult business environment. In the first half-year of 2018, total AuM were negatively impact- ed by effects from Market and Dividends5 amounting to € 27 bn – due to PIMCO and mainly related to fixed-income assets. 1_For further information on Asset Management figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Represents operating expenses divided by operating revenues. 3_2017 figure as of 31 December 2017. 4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. 5_Market and Dividends represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds. Interim Report for the First Half-Year of 2018 − Allianz Group A _ Interim Group Management Report Positive effects from consolidation, deconsolidation, and other adjustments added € 24 bn to total AuM. This is mainly related to the onboarding of Allianz Capital Partners (ACP), which was transferred from the Corporate and Other business segment to the Asset Man- agement business segment (AllianzGI) as of 1 January 2018, adding Allianz Group assets of € 23 bn. Favorable foreign currency translation effects amounted to € 33 bn. As these more than offset the negative effects from Market and Dividends, total AuM increased by 1.7 % compared to the year- end 2017 reaching the highest quarter-end level ever. In the following section we focus on the development of third-party assets under management. As of 30 June 2018, the share of third-party AuM by business unit to PIMCO stable: 76.9 % were attributable (31 December 2017: 76.8 %), 23.1 % to AllianzGI (31 December 2017: 23.2 %). remained The shares in asset classes also remained stable overall: Fixed- income assets rose slightly from 76.4 % to 76.6 % over the first half- year, equities were at 9.3 %, multi-assets at 10.3 %, and other at 3.8 %. (31 December 2017: 9.4 %, 10.2 % and 4.0 %, respectively). The shares in third-party assets of both mutual funds and sepa- rate accounts6 were quite steady compared to year-end 2017, with mutual funds at 60.1 % (31 December 2017: 59.4 %) and separate accounts at 39.9 % (31 December 2017: 40.6 %). As for the regional allocation of third-party AuM7, shares shifted slightly towards America (54.6 %), while Europe’s share declined (33.8 %) and that of the Asia-Pacific region remained roughly stable (11.7 %) (31 December 2017: 53.4 %, 35.1 % and 11.5 %, respectively). The shift was primarily driven by positive foreign exchange effects and third-party AuM net inflows in the American region. The overall three-year rolling investment performance8 of our Asset Management business declined slightly over the first half of 2018, with 89 % of third-party assets outperforming their respective benchmarks (31 December 2017: 91 %). The decline was driven by both PIMCO’s and AllianzGI’s three-year rolling investment perfor- mance, which went down from 95 % to 93 % and from 75 % to 67 %, respectively. 6_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 7_Based on the location of the asset management company. 8_Three-year rolling investment performance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). 9 Repor t A _ Interim Group Management Report Operating revenues Our operating revenues went up by 4.6 % – a 10.9 % plus on an inter- nal basis1. The inclusion of ACP added € 78 mn net revenues in the first half of 2018. We recorded higher performance fees, due to an increase in AllianzGI’s fees, due to operating-profit-neutral carried interest from ACP. Other net fee and commission income rose, driven by increased average third-party AuM at PIMCO and an increase in third-party AuM-driven margins mainly due to a more favorable asset mix. Other operating revenues decreased, which was largely due to favorable foreign currency translation effects in the first half of 2017. Operating profit Our operating profit increased by 7.9 % on a nominal basis and 17.3 % on an internal basis1, driven by growth in revenues due to higher margins and higher average third party AuM. The increase in administrative expenses resulted mainly from higher personnel expenses at AllianzGI, particularly due to a mostly operating-profit-neutral rise associated with the ACP transfer. Our cost-income ratio improved by 1.2 percentage points, de- spite the inclusion of ACP, as revenue growth outpaced the increase in expenses. Asset Management business segment information € mn Six months ended 30 June 2018 2017 Performance fees 166 149 Other net fee and commission income 3,083 2,926 Other operating revenues 7 38 Operating revenues 3,257 3,114 Administrative expenses (net), excluding acquisition-related expenses (2,010) (1,958) Operating expenses (2,010) (1,958) Operating profit 1,247 1,156 Net income The increase in our net income was driven by the higher operating profit as well as a lower effective tax rate due to the U.S. tax reform. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 10 Delta 17 157 (31) 143 (52) (52) 91 Interim Report for the First Half-Year of 2018 − Allianz Group CORPORATE AND OTHER KEY FIGURES Key figures Corporate and Other1 € mn Six months ended 30 June 2018 2017 Operating revenues 1,320 1,680 Operating expenses (1,698) (1,945) Operating result (378) (265) Net income (loss) (481) (456) Key figures reportable segments2 € mn Six months ended 30 June 2018 2017 HOLDING & TREASURY Operating revenues 905 1,044 Operating expenses (1,347) (1,387) Operating result (442) (343) BANKING Operating revenues 333 519 Operating expenses (304) (462) Operating result 29 57 ALTERNATIVE INVESTMENTS Operating revenues 87 121 Operating expenses (53) (100) Operating result 35 20 1_Consolidation included. For further information on Corporate and Other figures, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2018 − Allianz Group Delta (359) 246 (113) (25) Delta (139) 40 (99) (186) 158 (28) (33) 47 14 A _ Interim Group Management Report Earnings summary In the Corporate and Other business segment, our operating result deteriorated over the first half-year, as improvements in Alternative Investments were more than offset by a decline in Holding & Treasury and Banking. Our net loss increased slightly: While we did record a higher non- operating investment result, it could not fully offset the deterioration in our operating result and the higher restructuring charges we faced. In Holding & Treasury, the deterioration of our operating result was mainly driven by the absence of a positive impact of € 148 mn recorded in the previous year’s period, related to the adapted cost allocation scheme for the pension provisions. The reportable segment Banking also registered a lower operating result, largely due to the disposal of Oldenburgische Landesbank AG in the first quarter of 2018. Alternative Investments generated a higher operating result compared to last year's period, much of which resulted from an in- crease in interest and similar income. 11 Repor t A _ Interim Group Management Report OUTLOOK Economic outlook1 Prospects for the world economy remain favorable overall in mid- year 2018. Nevertheless, political and economic risks have increased, in particular with regard to rising trade tensions. However, we do not expect any noticeable intensification of protectionist measures at the global level. Helped by the expansionary fiscal policy, we expect the U.S. economy to grow by 2.9 % in real terms in 2018. In the Eurozone, GDP growth is likely to exceed 2 % again in 2018. Apart from the favorable global backdrop, ongoing support from the European Central Bank’s loose monetary policy coupled with a somewhat looser fiscal policy should underpin the economic recovery. As in 2017, emerging-market economies are expected to grow by close to 5 %. Asian emerging markets continue to benefit from stable growth in China. The Eastern European countries meanwhile continue to capitalize on the ongoing upturn in the Eurozone. Latin America is lagging behind a bit, mainly because of growth disappointments in Argentina and Brazil. All in all, global output is expected to increase by 3.3 % in 2018. The uncertain global political environment bears the potential for higher financial market volatility. One example of this is the wid- ening of spreads on Italian government bonds in the context of the formation of the new government in the second quarter of 2018. Turning to monetary policy, we expect the Federal Reserve to pro- ceed with the normalization of its monetary policy stance. Two further rate hikes over the course of 2018 look realistic. In addition, the Fed- eral Reserve will continue to rein in its balance sheet moderately. In the Eurozone, the European Central Bank is expected to terminate its monthly bond purchasing program by the end of 2018, after a further reduction of the monthly volume to € 15 bn as of October 2018. No key interest rate hikes are expected before summer 2019. Modestly rising yields on 10-year U.S. government bonds, the good economic situation in the Eurozone, and gradually rising inflation rates are likely to influence investors’ interest rate expectations and exert upward pressure on European benchmark bond yields. For 10-year German government bonds, we see yields modestly climbing to slightly below 1 % until the end of 2018; yields on 10-year U.S. government bonds may end the year at about 3.3 %. While the ongoing Federal Reserve rate-hiking cycle will weigh on the Euro, the solid recovery in the Eurozone will act as a support factor. We expect the Dollar-to-Euro exchange rate to close the year at about 1.10 (2017: 1.20). 1_The information presented in the sections “Economic outlook”, “Insurance industry outlook” and “Asset management industry outlook” is based on our own estimates. 12 Insurance industry outlook Our outlook for 2018 remains largely unchanged, although we are now a little more cautious than at the start of the year. While higher global economic activity supports top-line growth, increased market volatility and suppressed yields continue to put pressure on invest- ment income. Further strain on the bottom line is exerted by the unabated need to build new digital business models. In the property-casualty sector, the specter of a trade conflict puts premium growth at risk. However, as long as trade disputes remain contained, the impact on overall economic activity is man- ageable. In that case, against the backdrop of an ongoing recovery and increasing inflation, global premium should continue to grow. In the life sector, global premium growth is mainly driven by Asian emerging markets and in particular by China. With no signs that economic growth falters in the latter, demand for life products will continue to expand strongly in these markets. By contrast, premi- um growth in mature markets will remain rather moderate, although the ongoing transformation of the business towards more customer- oriented products should help to revive demand. All in all, we expect global premium revenues to increase. . Interim Report for the First Half-Year of 2018 − Allianz Group Asset management industry outlook Our global economic outlook remains positive overall. In addition, we expect central banks to gradually move further away from accom- modative monetary policies, especially in the United States. We therefore expect a more modest capital market contribution to AuM growth. This may weigh on net inflows in certain asset classes while creating opportunities in other areas. For example, investors may look to further de-risk into bonds as yields become more attractive. Fur- thermore, bonds continue to be particularly interesting for the grow- ing number of retirees in developed countries, as well as for liability- driven investors looking for a stable stream of income. The industry’s profitability remains under pressure from both con- tinuous flows into passive products and rising distribution costs. At the same time, advanced analytics and digital channels are expected to continue gaining prominence, as is the trend from traditional towards alternative and solution-oriented products. Further consolidation across the industry is expected to contin- ue, as in order to pursue growth it is vital for asset managers to keep sufficient business volumes, ensure efficient operations, and maintain strong investment performance. Outlook for the Allianz Group We are on track to meet the 2018 Allianz Group operating profit outlook of € 11.1 bn, plus or minus € 0.5 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements may severely affect the results of our operations. Interim Report for the First Half-Year of 2018 − Allianz Group A _ Interim Group Management Report Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations, and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance, or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national, and/or global basis. Many of these factors may be more likely to occur, or more pro- nounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. 13 Repor t A _ Interim Group Management Report BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2018 As of 31 December 2017 Delta Shareholders' equity Paid-in capital 28,928 28,928 Retained earnings 25,090 27,199 (2,109) Foreign currency translation adjustment (2,694) (2,749) 55 Unrealized gains and losses (net) 8,958 12,175 (3,217) Total 60,282 65,553 (5,271) A major share of the decrease in shareholders’ equity – € 5,271 mn – was attributable to a dividend payout in May 2018 (€ 3,428 mn) as well as to the second share buy-back program2, which we carried out between January and May of this year (€ 2,000 mn). In addition, a decline in unrealized gains – mainly from debt securities – decreased the shareholders’ equity by € 3,217 mn. The overall decline could only partly be offset by the net income attributable to shareholders, amounting to € 3,830 mn. 1_This does not include non-controlling interests of € 2,360 mn and € 3,049 mn as of 30 June 2018 and 31 December 2017, respectively. For further information, please refer to note 17 to the condensed consolidated interim financial statements. 2_For further information, please refer to note 17 to the condensed consolidated interim financial statements. 14 Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.3 Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 2018 As of 31 December 2017 Delta Eligible own funds € bn 75.4 76.4 (1.0) Capital requirement € bn 32.7 33.3 (0.6) Capitalization ratio % 230 229 1 %-p The Solvency II capitalization ratio increased from 229 % to 230 % over the first six months of 2018. This slight increase was driven by a positive effect of operating Solvency II earnings, mostly offset by regulatory changes, capital management and management actions. 3_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 69 in the Allianz Group Annual Report 2017. Interim Report for the First Half-Year of 2018 − Allianz Group Total assets and total liabilities As of 30 June 2018, total assets amounted to € 896.7 bn (€ 4.6 bn less than at year-end 2017). Total liabilities were € 834.1 bn, representing a rise of € 1.4 bn compared to year-end 2017. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. Asset allocation and fixed income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds (excl. banks) Banks Other Equities Real estate Cash/other Total Compared to year-end 2017, our overall asset allocation remained almost unchanged, even though equities increased slightly. Our well-diversified exposure to debt instruments remained sta- ble compared to year-end 2017. About 94 % of this portfolio was invested in investment-grade bonds and loans. 1 Our government bonds portfolio contained, amongst others, bonds from Italy and Spain that represented 3.6 %, and 2.0 % shares of our debt instruments portfolio with unrealized gains (gross) of € 1,419 mn and € 1,196 mn. Of our covered bonds portfolio, 41.9 % (31 December 2017: 41.6 %) were German Pfandbriefe backed by either public-sector loans or mortgage loans. French, Spanish, and Italian covered bonds had portfolio respectively (31 December 2017: 16.3 %, 9.2 %, and 7.5 %). shares of 16.1 %, 9.0 %, and 7.0 %, Our exposure to equities increased due to higher volume. Our equity gearing2 slightly increased to 26 % (31 December 2017: 24 %). 1_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available. 2_Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill. Interim Report for the First Half-Year of 2018 − Allianz Group A _ Interim Group Management Report STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance busi- nesses. As of 30 June 2018 As of 31 December 2017 Delta As of 30 June 2018 As of 31 December 2017 Delta € bn € bn € bn % % %-p 575.6 576.1 (0.5) 86.1 86.7 (0.6) 213.3 213.6 (0.2) 37.1 37.1 78.2 83.0 (4.7) 13.6 14.4 (0.8) 198.0 195.6 2.4 34.4 34.0 0.4 30.1 30.6 (0.4) 5.2 5.3 (0.1) 55.9 53.4 2.5 9.7 9.3 0.4 64.4 60.2 4.2 9.6 9.1 0.6 11.6 11.4 0.1 1.7 1.7 17.0 16.7 0.3 2.6 2.5 668.6 664.4 4.1 100.0 100.0 LIABILITIES PROPERTY-CASUALTY LIABILITIES As of 30 June 2018, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 65.8 bn, compared to € 66.2 bn at year-end 2017. On a net basis, our reserves, including discounted loss reserves, increased slightly from € 56.3 bn to € 56.7 bn.3 LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 10.8 bn to € 509.8 bn over the first six months of 2018. The € 11.5 bn increase in aggregate policy reserves before foreign currency transla- tion effects was mainly driven by our operations in Germany (€ 7.0 bn) and the United States (€ 5.1 bn before foreign currency translation effects). Reserves for premium refunds decreased by € 3.3 bn (before foreign currency translation effects), due to lower unrealized gains to be shared with policyholders. Foreign currency translation effects increased the balance sheet value by € 2.8 bn, mainly driven by the stronger U.S. Dollar (€ 2.6 bn). 3_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 13 to the condensed consolidated interim financial statements. 15 Repor t A _ Interim Group Management Report RECONCILIATIONS The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRS), the Allianz Group uses operat- ing profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complemen- tary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Property- Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn Six months ended 30 June 2018 2017 PROPERTY-CASUALTY Gross premiums written 29,984 29,388 LIFE/HEALTH Statutory premiums 34,229 33,619 ASSET MANAGEMENT Operating revenues 3,257 3,114 consisting of: Net fee and commission income 3,249 3,076 Net interest income1 7 Income from financial assets and liabilities carried at fair value through income (net) 5 31 Other income 2 CORPORATE AND OTHER thereof: Total revenues (Banking) 147 275 consisting of: Interest and similar income 65 217 Income from financial assets and liabilities carried at fair value through income (net)2 2 13 Fee and commission income 262 287 Other income 4 3 Interest expenses, excluding interest expenses from external debt (14) (72) Fee and commission expenses (172) (172) CONSOLIDATION (267) (178) Allianz Group total revenues 67,350 66,218 1_Represents interest and similar income less interest expenses. 2_Includes trading income. 16 Composition of total revenue growth We believe that the understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Therefore, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth % Six months ended 30 June 2018 Internal Growth Changes in scope of consolidation Foreign currency translation Nominal Growth Property-Casualty 5.9 0.1 (3.9) 2.0 Life/Health 4.9 (0.1) (3.0) 1.8 Asset Management 10.9 2.3 (8.6) 4.6 Corporate and Other (1.3) (46.0) (46.5) Allianz Group 5.6 (0.2) (3.7) 1.7 Life/Health Insurance Operations OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 21 entities comprising 99.1 % of Life/Health total statutory premiums are in scope. EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administra- tive and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income state- ment. Interim Report for the First Half-Year of 2018 − Allianz Group Acquisition, administrative, capitalization, and amortization of DAC € mn Six months ended 30 June 2018 2017 Acquisition expenses and commissions1 (2,494) (2,451) Definitions 6 8 Scope (76) (63) Acquisition costs incurred (2,564) (2,506) Capitalization of DAC1 858 866 Definition: URR capitalized 277 260 Definition: policyholder participation2 512 495 Scope 16 16 Capitalization of DAC 1,663 1,638 Amortization, unlocking, and true-up of DAC1 (869) (814) Definition: URR amortized (50) (69) Definition: policyholder participation2 (600) (662) Scope (11) (16) Amortization, unlocking, and true-up of DAC (1,531) (1,561) Commissions and profit received on reinsurance business ceded 43 39 Acquisition costs3 (2,390) (2,391) Administrative and other expenses1 (901) (898) Definitions 60 74 Scope (64) (60) Administrative expenses on reinsurance business ceded 7 8 Administrative expenses3 (898) (877) 1_As per Interim Group Management Report. 2_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 3_As per notes to the condensed consolidated interim financial statements. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) Impact of change in DAC includes effects of change in DAC, un- earned revenue reserves (URR), and value of business acquired (VO- BA), and is the net impact of the deferral and amortization of acquisi- tion costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue re- serves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- uled URR amortization, true-up, and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the group income statement. Policyholder participation is included within change in our re- serves for insurance and investment contracts (net) in the group income statement. Interim Report for the First Half-Year of 2018 − Allianz Group Reconciliation to Notes € mn Six months ended 30 June Acquisition expenses and commissions1 Administrative and other expenses1 Capitalization of DAC1 Amortization, unlocking, and true-up of DAC1 Acquisition and administrative expenses Definitions Scope Commissions and profit received on reinsurance business ceded Administrative expenses on reinsurance business ceded Acquisition and administrative expenses (net)2 1_As per Interim Group Management Report. 2_As per notes to the condensed consolidated interim financial statements. A _ Interim Group Management Report 2018 2017 (2,494) (2,451) (901) (898) 858 866 (869) (814) (3,406) (3,297) 205 106 (136) (122) 43 39 7 8 (3,288) (3,267) 17 Repor t A _ Interim Group Management Report 18 This page intentionally left blank. Interim Report for the First Half-Year of 2018 − Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B Interim Report for the First Half-Year of 2018 – Allianz Group 19 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEETS Consolidated balance sheets € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Include mainly derivative financial instruments. 20 Note As of 30 June 2018 As of 31 December 2017 17,974 17,119 5 7,676 8,177 6 548,225 546,828 7 106,669 104,224 120,402 119,141 8 16,275 16,375 9 25,926 23,184 1,045 931 10 38,889 37,731 3 250 14,329 11 13,415 13,262 896,745 901,300 10,762 11,291 12 13,767 12,746 25,850 21,442 13 72,918 73,292 14 524,338 513,687 120,402 119,141 4,213 4,906 15 39,261 39,639 3 13,662 16 9,205 9,596 16 13,387 13,295 834,102 832,698 60,282 65,553 2,360 3,049 17 62,642 68,602 896,745 901,300 Interim Report for the First Half-Year of 2018 – Allianz Group CONSOLIDATED INCOME STATEMENTS Consolidated income statements € mn Six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements Note 2018 2017 41,966 41,425 (2,856) (2,643) (3,877) (3,639) 18 35,233 35,143 19 10,827 11,099 20 (1,109) (954) 21 3,397 3,529 22 5,727 5,591 15 34 54,090 54,441 (26,411) (26,579) 916 1,185 23 (25,494) (25,394) 24 (5,956) (6,697) 25 (514) (582) 1 (13) 26 (943) (332) 27 (630) (644) 28 (12,525) (12,678) 29 (2,204) (2,172) (301) (79) (158) (252) (1) (1) (48,724) (48,844) 5,366 5,597 30 (1,340) (1,585) 4,025 4,013 196 203 3,830 3,810 8.86 8.45 8.78 8.44 21 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Consolidated statements of comprehensive income € mn Six months ended 30 June Net income Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the period Subtotal Available-for-sale investments Reclassifications to net income Changes arising during the period Subtotal Cash flow hedges Reclassifications to net income Changes arising during the period Subtotal Share of other comprehensive income of associates and joint ventures Reclassifications to net income Changes arising during the period Subtotal Miscellaneous Reclassifications to net income Changes arising during the period Subtotal Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans Total other comprehensive income Total comprehensive income Total comprehensive income attributable to: Non-controlling interests Shareholders For further details concerning income taxes on components of the other comprehensive income, please see note 30. 22 2018 2017 4,025 4,013 71 (1,182) 71 (1,182) (446) (1,635) (2,919) 927 (3,365) (708) (14) (30) (19) (30) (34) (15) (25) (15) (25) (89) 12 (89) 12 129 255 (3,299) (1,682) 727 2,330 80 176 647 2,154 Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Consolidated statements of changes in equity € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity Balance as of 1 January 2017 28,928 27,087 (762) 11,830 67,083 3,052 70,135 Total comprehensive income1 4,015 (1,144) (717) 2,154 176 2,330 Paid-in capital Treasury shares (360) (360) (360) Transactions between equity holders2 (1,277) 8 (1,269) (162) (1,431) Dividends paid (3,410) (3,410) (202) (3,612) Balance as of 30 June 2017 28,928 26,055 (1,906) 11,122 64,198 2,864 67,062 Balance as of 1 January 2018 28,928 27,199 (2,749) 12,175 65,553 3,049 68,602 Total comprehensive income1 3,806 74 (3,233) 647 80 727 Paid-in capital Treasury shares 4 4 4 Transactions between equity holders2,3 (2,491) (19) 17 (2,493) (587) (3,080) Dividends paid (3,428) (3,428) (182) (3,610) Balance as of 30 June 2018 28,928 25,090 (2,694) 8,958 60,282 2,360 62,642 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2018 comprises net income attributable to shareholders of € 3,830 mn (2017: € 3,810 mn). 2_Includes income taxes within retained earnings. 3_As announced in November 2017, a share buy-back with a volume of € 2 bn was executed in the period from 3 January until 3 May 2018. During the first half year of 2018, Allianz SE purchased 10.4 million own shares for an amount of € 2.0 bn. All repurchased shares (10,373,863 shares) have been redeemed according to the simplified procedure without reduction of the share capital. The number of issued shares was thereby reduced from 440,249,646 (as of 31 December 2017) to 429,875,783 (effective on 13 June 2018). Interim Report for the First Half-Year of 2018 – Allianz Group 23 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated statements of cash flows € mn Six months ended 30 June SUMMARY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2018 Cash and cash equivalents at end of period CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and disposal groups classified as held for sale Real estate held for investment Fixed assets of renewable energy investments Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 24 2018 2017 15,030 19,615 (8,567) (11,565) (6,145) (4,941) 6 (419) 324 2,691 17,119 14,463 531 17,974 17,154 4,025 4,013 (170) (220) (2,454) (3,229) 2,293 (1,311) 710 718 (1) 13 2,083 2,328 (1,803) 2,085 (820) 87 45 631 239 (654) (339) (405) 4,534 3,921 (282) 649 8,674 7,316 154 262 (1,858) 3,409 11,005 15,602 15,030 19,615 1,763 1,051 84,685 82,146 206 136 453 381 59 215 46 85 2 2,460 3,023 188 128 89,859 87,167 Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED Consolidated statements of cash flows € mn Six months ended 30 June 2018 2017 Payments for the purchase or origination of: Financial assets designated at fair value through income (1,901) (915) Available-for-sale investments (89,230) (92,224) Held-to-maturity investments (252) (140) Investments in associates and joint ventures (1,893) (1,229) Non-current assets and disposal groups classified as held for sale (50) Real estate held for investment (221) (75) Fixed assets of renewable energy investments (113) (150) Loans and advances to banks and customers (purchased loans) (596) (1,407) Property and equipment (623) (701) Subtotal (94,830) (96,890) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed (208) Acquisitions of subsidiaries, net of cash acquired Change in other loans and advances to banks and customers (originated loans) (3,084) (1,729) Other (net) (304) (112) Net cash flow used in investing activities (8,567) (11,565) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 951 289 Proceeds from the issuance of certificated liabilities and subordinated liabilities 2,250 3,786 Repayments of certificated liabilities and subordinated liabilities (2,666) (3,468) Cash inflow from capital increases Transactions between equity holders (3,043) (1,431) Dividends paid to shareholders (3,610) (3,612) Net cash from sale or purchase of treasury shares 10 (355) Other (net) (37) (150) Net cash flow used in financing activities (6,145) (4,941) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS Income taxes paid (824) (1,301)1 Dividends received 1,472 1,266 Interest received 9,257 10,048 Interest paid (350) (553) 1_Prior year figure has been adjusted. Changes in liabilities arising from financing activities € mn Liabilities to banks and customers Certificated and subordinated liabilities Total As of 31 December 2017 8,925 22,891 31,817 Net cash flows 951 (416) 535 Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group (2) (2) Foreign currency translation adjustments (40) 6 (34) Fair value and other changes 2 111 113 As of 30 June 2018 9,836 22,592 32,428 Interim Report for the First Half-Year of 2018 – Allianz Group 25 Repor t B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Basis of presentation The Allianz Group’s condensed consolidated interim financial state- ments are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs), as adopted under European Union regulations. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as ap- plied in the consolidated financial statements for the year ended 31 December 2017. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2017. principal versus agent considerations (i.e. gross-up) and the account- ing treatment of certain asset management related upfront distribu- tion costs which under IFRS 15 can no longer be capitalized. The adoption of IFRS 15 led to an increase of fee and commis- sion income and fee and commission expenses of € 193 mn (i.e. gross- up effect) and a decrease of retained earnings as of 1 January 2018 by € 20 mn, due to the reversal of capitalized upfront distribution costs. Other than that, the adoption of IFRS 15 had no impact on the Allianz Group’s financial position and the financial results. OTHER ADOPTED ACCOUNTING PRONOUNCEMENTS The following amendments and revisions to existing standards be- came effective for the Allianz Group’s consolidated financial state- ments as of 1 January 2018: In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. Amounts are rounded to millions of Euro (€ mn), unless otherwise stated. − − − IFRS 2, Classification and Measurement of Share-based Payment Transactions, IAS 40, Transfers of Investment Property, IFRIC 22, Foreign Currency Transactions and Advance Considera- tion. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Man- agement on 2 August 2018. These changes had no material impact on the Allianz Group's finan- cial results or financial position. 2 _ Recently adopted accounting pronouncements (effective 1 January 2018) 3 _ Consolidation and classification as held for sale IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 supersedes IAS 18, IAS 11, and a number of reve- nue-related interpretations. The Group adopted IFRS 15 using the cumulative effect method on the required effective date. As a result, the Allianz Group did not apply the requirements of IFRS 15 to the comparative period presented. IFRS 15, revenue is recognized when (or as) the Allianz Group satisfies a performance obligation by transferring a service to a customer. Furthermore, revenue is recognized for these contracts to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur. The guidance also changes the accounting for certain contract costs and revises the criteria for determining if an entity is acting as a principal or agent in certain arrangements. Under SIGNIFICANT CHANGES IN NON-CONTROLLING INTERESTS On 27 April 2018, the Allianz Group successfully completed the acqui- sition of Euler Hermes’s outstanding shares and delisted Euler Her- mes’ shares from Euronext Paris on the very same day. From January through April 2018, the Allianz Group acquired the remaining 20.9 % of Euler Hermes’s outstanding shares in considera- tion for a total of € 1,073 mn in cash, equivalent to € 122 per share. The buyout of the outstanding shares reduced the shareholders’ equity of the Allianz Group of € 513 mn. Based on the Allianz Group’s detailed assessment, only a few dif- ferences in presentation and timing of revenue recognition were identified. The impacts Allianz Group identified primarily relate to 26 Interim Report for the First Half-Year of 2018 – Allianz Group CLASSIFICATION AS HELD FOR SALE Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2018 As of 31 December 2017 Assets of disposal groups classified as held for sale Oldenburgische Landesbank AG, Oldenburg 14,102 Other disposal groups 6 Subtotal 14,108 Non-current assets classified as held for sale Real estate held for investment 250 216 Real estate held for own use 4 Subtotal 250 220 Total 250 14,329 Liabilities of disposal groups classified as held for sale Oldenburgische Landesbank AG, Oldenburg 13,657 Other disposal groups 6 Total 13,662 OLDENBURGISCHE LANDESBANK AG, OLDENBURG In the first half of 2018, the Allianz Group disposed of Oldenburgische Landesbank AG, Oldenburg, a 90.2 % owned subsidiary of the Allianz Group, allocated to the reportable segment Banking (Cor- porate and Other). The entity had been classified as held for sale since year-end 2016. It was deconsolidated on 7 February 2018. At 31 December 2017 already, an impairment and a liability of € 233 mn had been recognized in connection with the expected loss from the sale of Oldenburgische Landesbank AG. In the first half of 2018, the Allianz Group received proceeds from the sale of its 90.2 % stake of € 323 mn and recognized a deconsolidation loss of € 24 mn. The impact of the disposal, net of cash disposed, on the consoli- dated statement of cash flows for the first half of 2018 was as follows: Impact of the disposal € mn Financial assets carried at fair value through income 20 Investments 2,492 Loans and advances to banks and customers 11,092 Deferred tax assets 51 Other assets 156 Financial liabilities carried at fair value through income (15) Liabilities to banks and customers (12,756) Other liabilities (578) Certificated liabilities (133) Subordinated liabilities (149) Other comprehensive income (45) Impairment loss on measurement of disposal group at fair value less costs to sell (49) Impairment in connection with expected loss (233) Realized loss from the disposal (24) Non-controlling interests (37) Proceeds from sale of the subsidiary, net of cash disposed1 (208) 1_Includes cash and cash equivalents at an amount of € 531 mn which were disposed of with the entity. Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements 4 _ Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable segments derive their revenues are consistent with those described in the consolidated financial statements for the year ended 31 December 2017. The statement contained therein regarding general segment reporting information is still applicable and valid. The reportable segments measure of profit or loss remained un- changed. RECENT ORGANIZATIONAL CHANGES Effective 1 January 2018 and 1 April 2018, the Allianz Group reor- ganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. Middle East and Africa were reallocated to the reportable segment Global Insurance Lines & Anglo Markets, Middle East and Africa. In the business seg- ment Property-Casualty, the reportable segment Iberia & Latin Amer- ica was combined with the reportable segment Allianz Partners to form the reportable segment Iberia & Latin America and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. 27 Repor t B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS Business segment information – consolidated balance sheets € mn Property-Casualty As of 30 June 2018 As of 31 December 2017 ASSETS Cash and cash equivalents 3,931 3,317 Financial assets carried at fair value through income 736 604 Investments 101,105 101,668 Loans and advances to banks and customers 10,738 10,610 Financial assets for unit-linked contracts Reinsurance assets 11,108 11,437 Deferred acquisition costs 5,070 4,715 Deferred tax assets 883 891 Other assets 22,453 22,787 Non-current assets and assets of disposal groups classified as held for sale 57 23 Intangible assets 3,101 2,985 Total assets 159,182 159,036 Property-Casualty As of 30 June 2018 As of 31 December 2017 LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 160 133 Liabilities to banks and customers 1,684 1,237 Unearned premiums 21,099 17,065 Reserves for loss and loss adjustment expenses 61,683 62,093 Reserves for insurance and investment contracts 14,796 14,928 Financial liabilities for unit-linked contracts Deferred tax liabilities 2,215 2,445 Other liabilities 16,250 18,876 Liabilities of disposal groups classified as held for sale 6 Certificated liabilities 11 Subordinated liabilities Total liabilities 117,888 116,794 28 Life/Health As of 30 June 2018 As of 31 December 2017 8,505 9,025 6,641 7,442 430,543 424,294 95,020 92,674 120,402 119,141 5,273 5,034 20,856 18,469 746 685 17,341 19,416 192 204 2,883 2,934 708,403 699,318 Life/Health As of 30 June 2018 As of 31 December 2017 10,510 11,021 5,454 5,655 4,780 4,402 11,303 11,256 509,815 499,060 120,402 119,141 3,514 3,956 13,670 14,600 12 11 65 65 679,525 669,168 Interim Report for the First Half-Year of 2018 – Allianz Group Asset Management As of 30 June 2018 As of 31 December 2017 939 1,050 67 72 36 24 64 59 176 148 3,742 3,215 7,421 7,332 12,445 11,901 Asset Management As of 30 June 2018 As of 31 December 2017 174 174 66 79 3,229 2,936 3,469 3,188 Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements Corporate and Other Consolidation Group As of 30 June 2018 As of 31 December 2017 As of 30 June 2018 As of 31 December 2017 As of 30 June 2018 As of 31 December 2017 5,131 3,919 (532) (192) 17,974 17,119 594 492 (362) (434) 7,676 8,177 102,474 105,441 (85,934) (84,599) 548,225 546,828 5,208 5,368 (4,361) (4,488) 106,669 104,224 120,402 119,141 (106) (96) 16,275 16,375 25,926 23,184 1,002 958 (1,762) (1,752) 1,045 931 6,238 8,871 (10,885) (16,558) 38,889 37,731 14,105 (3) 250 14,329 9 12 13,415 13,262 120,656 139,165 (103,942) (108,120) 896,745 901,300 Corporate and Other Consolidation Group As of 30 June 2018 As of 31 December 2017 As of 30 June 2018 As of 31 December 2017 As of 30 June 2018 As of 31 December 2017 458 577 (367) (440) 10,762 11,291 8,261 7,208 (1,806) (1,527) 13,767 12,746 (29) (26) 25,850 21,442 (68) (57) 72,918 73,292 (87) (109) (187) (193) 524,338 513,687 120,402 119,141 179 178 (1,762) (1,752) 4,213 4,906 24,434 26,242 (18,323) (23,015) 39,261 39,639 13,682 (25) 13,662 11,977 12,367 (2,783) (2,794) 9,205 9,596 13,342 13,250 (20) (20) 13,387 13,295 58,564 73,396 (25,344) (29,848) 834,102 832,698 Total equity 62,642 68,602 Total liabilities and equity 896,745 901,300 29 Repor t B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Six months ended 30 June 2018 2017 2018 2017 Total revenues1 29,984 29,388 34,229 33,619 Premiums earned (net) 23,742 23,557 11,491 11,585 Operating investment result Interest and similar income 1,717 1,760 8,927 9,056 Operating income from financial assets and liabilities carried at fair value through income (net) (19) (51) (1,127) (965) Operating realized gains/losses (net) 92 152 2,652 2,916 Interest expenses, excluding interest expenses from external debt (46) (52) (50) (49) Operating impairments of investments (net) (28) (6) (743) (255) Investment expenses (183) (183) (650) (609) Subtotal 1,533 1,621 9,010 10,094 Fee and commission income 868 911 767 708 Other income 1 32 12 1 Claims and insurance benefits incurred (net) (15,759) (15,556) (9,738) (9,838) Operating change in reserves for insurance and investment contracts (net)2 (193) (258) (5,730) (6,476) Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses (6,657) (6,739) (3,288) (3,267) Fee and commission expenses (806) (864) (369) (350) Operating amortization of intangible assets (9) (9) Operating restructuring charges (17) Other expenses (1) (1) (148) Operating profit (loss) 2,729 2,705 2,144 2,282 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 27 (2) 1 22 Non-operating realized gains/losses (net) 444 307 22 59 Non-operating impairments of investments (net) (144) (53) (15) (27) Subtotal 327 252 7 54 Non-operating change in reserves for insurance and investment contracts (net) 2 2 Interest expenses from external debt Acquisition-related expenses Non-operating amortization of intangible assets (29) (31) (251)3 (27) Non-operating restructuring charges (50) (165) (32) (7) Non-operating items 247 56 (273) 22 Income (loss) before income taxes 2,976 2,761 1,872 2,305 Income taxes (732) (691) (550) (693) Net income (loss) 2,244 2,070 1,322 1,611 Net income (loss) attributable to: Non-controlling interests 44 90 89 67 Shareholders 2,200 1,980 1,233 1,544 1_Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2_For the six months ended 30 June 2018, includes expenses for premium refunds (net) in Property-Casualty of € (51) mn (2017: € (131) mn). 3_Includes € 0.2 bn loss from the sale of the traditional life insurance portfolio in Taiwan. 30 Interim Report for the First Half-Year of 2018 – Allianz Group Asset Management 2018 2017 3,257 3,114 6 12 5 31 (5) (5) 5 38 4,200 3,845 2 (2,010) (1,958) (951) (769) 1,247 1,156 7 7 6 (7) (7) 1 (8) (6) (2) 1,241 1,154 (307) (419) 934 735 38 35 896 700 Interim Report for the First Half-Year of 2018 – Allianz Group Corporate and Other 2018 147 281 (8) (100) (45) 129 1,043 4 1 (552) (1,003) (378) 14 147 (12) 148 (416) (5) (77) (350) (728) 247 (481) 25 (506) 2017 275 383 10 (163) (49) 181 1,138 149 (13) (692) (1,027) (265) (29) 71 9 51 (421) (5) (56) (430) (695) 239 (456) 11 (467) Consolidation 2018 (267) (104) 4 41 103 247 291 (1,150) (5) 2 (35) (18) 925 12 (4) (2) (6) (6) 5 1 7 7 B _ Condensed Consolidated Interim Financial Statements Group 2017 2018 2017 (178) 67,350 66,218 35,233 35,143 (112) 10,827 11,099 (1) (1,145) (976) (42) 2,785 3,026 107 (98) (161) (770) (261) 197 (630) (644) 148 10,969 12,083 (1,012) 5,727 5,591 (148) 15 34 (25,494) (25,394) 35 (5,958) (6,699) 1 (13) (27) (12,525) (12,684) 838 (2,204) (2,172) (9) (9) (17) 148 (1) (1) (18) 5,753 5,860 31 36 22 59 612 504 (172) (71) 91 476 454 2 2 (416) (421) 6 (291) (69) (158) (235) 91 (388) (263) 73 5,366 5,597 (21) (1,340) (1,585) 52 4,025 4,013 196 203 52 3,830 3,810 31 Repor t B _ Condensed Consolidated Interim Financial Statements RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES Reconciliation of reportable segments to Allianz Group figures € mn Total revenues Premiums earned (net) Six months ended 30 June 2018 2017 2018 2017 German Speaking Countries and Central & Eastern Europe 9,506 9,228 6,365 6,172 Western & Southern Europe and Asia Pacific 6,587 6,548 5,412 5,667 Iberia & Latin America and Allianz Partners 5,323 5,364 3,995 3,959 Global Insurance Lines & Anglo Markets, Middle East and Africa 12,920 12,211 7,970 7,760 Consolidation (4,354) (3,964) Total Property-Casualty 29,984 29,388 23,742 23,557 German Speaking Countries and Central & Eastern Europe 14,322 13,619 6,976 7,132 Western & Southern Europe and Asia Pacific 14,483 14,182 3,502 3,400 Iberia & Latin America 987 1,008 227 242 USA 4,627 5,068 576 609 Global Insurance Lines & Anglo Markets, Middle East and Africa 336 325 208 201 Consolidation and Other (527) (584) 2 1 Total Life/Health 34,229 33,619 11,491 11,585 Asset Management 3,257 3,114 Holding & Treasury Banking 147 275 Alternative Investments Consolidation Total Corporate and Other 147 275 Consolidation (267) (178) Group 67,350 66,218 35,233 35,143 32 Operating profit (loss) Net income (loss) 2018 2017 2018 2017 621 790 549 664 855 905 693 651 275 242 165 111 994 769 851 644 (16) (13) 2,729 2,705 2,244 2,070 857 826 579 555 712 672 303 491 160 164 111 128 388 587 312 410 28 24 18 18 (1) 9 (1) 9 2,144 2,282 1,322 1,611 1,247 1,156 934 735 (442) (343) (506) (508) 29 57 (5) 38 35 20 29 14 (378) (265) (481) (456) 12 (18) 7 52 5,753 5,860 4,025 4,013 Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEETS 5 _ Financial assets carried at fair value through income 6 _ Investments Investments € mn Financial assets carried at fair value through income € mn As of 30 June 2018 As of 31 December 2017 As of 30 June 2018 As of 31 December 2017 Available-for-sale investments Held-to-maturity investments 519,795 2,720 520,397 2,678 Financial assets held for trading Funds held by others under reinsurance contracts assumed 847 836 Debt securities 424 405 Investments in associates and joint ventures 10,774 9,010 Equity securities 219 210 Real estate held for investment 11,551 11,419 Derivative financial instruments 2,701 2,461 Fixed assets of renewable energy investments 2,538 2,488 Subtotal 3,343 3,076 Total 548,225 546,828 Financial assets designated at fair value through income Debt securities 2,312 2,603 Equity securities 2,020 2,498 Subtotal 4,333 5,101 Total 7,676 8,177 AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale investments € mn As of 30 June 2018 As of 31 December 2017 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds 230,658 10,623 (2,598) 238,684 228,439 15,579 (493) 243,526 Government and government agency bonds1 179,568 21,163 (1,531) 199,200 177,186 22,551 (827) 198,911 MBS/ABS 22,756 220 (463) 22,514 21,405 368 (140) 21,633 Other 4,893 926 (13) 5,807 4,472 715 (18) 5,169 Subtotal 437,876 32,933 (4,605) 466,204 431,503 39,213 (1,477) 469,239 Equity securities 40,938 13,120 (468) 53,590 37,195 14,241 (278) 51,158 Total 478,815 46,053 (5,073) 519,795 468,697 53,455 (1,755) 520,397 1_As of 30 June 2018, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 73,955 mn (31 December 2017: € 74,132 mn) and € 70,682 mn (31 December 2017: € 68,638 mn), respectively. Interim Report for the First Half-Year of 2018 – Allianz Group 33 Repor t B _ Condensed Consolidated Interim Financial Statements 7 _ Loans and advances to banks and customers Loans and advances to banks and customers € mn As of 30 June 2018 As of 31 December 2017 Short-term investments and certificates of deposit 2,972 3,094 Loans 101,300 99,526 Other 2,484 1,697 Subtotal 106,756 104,317 Loan loss allowance (87) (94) Total 106,669 104,224 8 _ Reinsurance assets Reinsurance assets € mn As of 30 June 2018 As of 31 December 2017 Unearned premiums 2,015 1,504 Reserves for loss and loss adjustment expenses 9,360 10,112 Aggregate policy reserves 4,768 4,633 Other insurance reserves 132 127 Total 16,275 16,375 9 _ Deferred acquisition costs Deferred acquisition costs € mn As of 30 June 2018 As of 31 December 2017 Deferred acquisition costs Property-Casualty 5,070 4,715 Life/Health 19,767 17,568 Subtotal 24,837 22,283 Deferred sales inducements 681 450 Present value of future profits 408 451 Total 25,926 23,184 34 10 _ Other assets Other assets € mn As of 30 June 2018 As of 31 December 2017 Receivables Policyholders 6,500 6,134 Agents 4,663 4,231 Reinsurance 3,347 2,594 Other 5,322 4,904 Less allowances for doubtful accounts (580) (594) Subtotal 19,252 17,270 Tax receivables Income taxes 1,735 2,032 Other taxes 1,731 1,742 Subtotal 3,466 3,775 Accrued dividends, interest and rent 6,031 6,671 Prepaid expenses 605 442 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 438 538 Property and equipment Real estate held for own use 2,840 2,941 Software 2,817 2,786 Equipment 1,424 1,432 Subtotal 7,082 7,159 Other assets 2,015 1,876 Total 38,889 37,731 11 _ Intangible assets Intangible Assets € mn As of 30 June 2018 As of 31 December 2017 Goodwill 12,054 11,848 Distribution agreements1 874 918 Other2 488 496 Total 13,415 13,262 1_Primarily includes the long-term distribution agreements with Commerzbank AG of € 205 mn (2017: € 223 mn), Banco Popular S.A. of € 342 mn (2017: € 352 mn), Yapi ve Kredi Bankasi A.S. of € 58 mn (2017: € 71 mn), Philippine National Bank of € 62 mn (2017: € 67 mn) and HSBC Asia, HSBC Turkey, BTPN Indonesia, and Maybank Indonesia of € 100 mn (2017: € 110 mn). 2_Primarily include acquired business portfolios, customer relationships, heritable building rights, land use rights, lease rights, and brand names. Interim Report for the First Half-Year of 2018 – Allianz Group 12 _ Liabilities to banks and customers Liabilities to banks and customers € mn As of 30 June 2018 As of 31 December 2017 Payable on demand and other deposits 1,061 973 Repurchase agreements and collateral received from securities lending transactions and derivatives 3,932 3,821 Other 8,774 7,953 Total 13,767 12,746 13 _ Reserves for loss and loss adjustment expenses As of 30 June 2018, the reserves for loss and loss adjustment expens- es of the Allianz Group totaled € 72,918 mn (31 December 2017: € 73,292 mn). The following table reconciles the beginning and end- ing reserves of the Property-Casualty business segment for the half- years ended 30 June 2018 and 2017. Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn 2018 2017 As of 1 January 62,093 61,617 Balance carry forward of discounted loss reserves 4,096 4,055 Subtotal 66,189 65,671 Loss and loss adjustment expenses incurred Current year 17,740 17,547 Prior years (1,312) (1,016) Subtotal 16,427 16,531 Loss and loss adjustment expenses paid Current year (6,383) (6,341) Prior years (10,796) (9,804) Subtotal (17,178) (16,145) Foreign currency translation adjustments and other changes 60 (1,184) Changes in the consolidated subsidiaries of the Allianz Group 284 Subtotal 65,782 64,873 Ending balance of discounted loss reserves (4,099) (4,041) As of 30 June 61,683 60,832 Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements 14 _ Reserves for insurance and investment contracts Reserves for insurance and investment contracts € mn As of 30 June 2018 As of 31 December 2017 Aggregate policy reserves 455,159 440,926 Reserves for premium refunds 68,433 71,776 Other insurance reserves 746 984 Total 524,338 513,687 15 _ Other liabilities Other liabilities € mn As of 30 June 2018 As of 31 December 2017 Payables Policyholders 3,842 4,626 Reinsurance 2,199 1,589 Agents 1,505 1,562 Subtotal 7,547 7,777 Payables for social security 390 429 Tax payables Income taxes 2,019 2,006 Other taxes 1,696 1,453 Subtotal 3,716 3,458 Accrued interest and rent 625 461 Unearned income 517 469 Provisions Pensions and similar obligations 9,297 9,410 Employee related 2,537 2,540 Share-based compensation plans 338 497 Restructuring plans 317 313 Other provisions 1,840 2,055 Subtotal 14,329 14,815 Deposits retained for reinsurance ceded 1,912 2,025 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 280 147 Financial liabilities for puttable equity instruments 1,845 2,640 Other liabilities 8,102 7,418 Total 39,261 39,639 35 Repor t B _ Condensed Consolidated Interim Financial Statements 16 _ Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2018 As of 31 December 2017 Senior bonds1 8,045 8,538 Money market securities 1,160 1,058 Total certificated liabilities 9,205 9,596 Subordinated bonds 13,342 13,250 Hybrid equity2 45 45 Total subordinated liabilities 13,387 13,295 1_Change due to the redemption of a € 0.5 bn bond in the first half-year of 2018. 2_Relates to hybrid equity issued by subsidiaries. Bonds outstanding as of 30 June 2018 € mn ISIN Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A1AKHB8 DE000A180B72 DE000A19S4T0 DE000A1G0RU9 DE000A19S4U8 DE000A19S4V6 DE000A1HG1K6 DE000A180B80 DE000A1HG1L4 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 DE000A14J9N8 DE000A2DAHN6 XS1556937891 XS0857872500 DE000A1YCQ29 CH0234833371 DE000A13R7Z7 XS1485742438 Allianz Finance II B.V., Amsterdam DE000A1GNAH1 DE000A0GNPZ3 36 Year of issue 2009 2016 2017 2012 2017 2017 2013 2016 2013 2012 2015 2017 2017 2012 2013 2014 2014 2016 2011 2006 Currency EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD USD EUR CHF EUR USD EUR EUR Notional amount Coupon in % Maturity date 1,500 4.750 22 July 2019 750 0.000 21 April 2020 500 3-months Euribor + 50 bps 7 December 2020 1,500 3.500 14 February 2022 750 0.250 6 June 2023 750 0.875 6 December 2027 750 3.000 13 March 2028 750 1.375 21 April 2031 750 4.500 13 March 2043 1,500 5.625 17 October 2042 1,500 2.241 7 July 2045 1,000 3.099 6 July 2047 600 5.100 30 January 2049 1,000 5.500 Perpetual bond 1,500 4.750 Perpetual bond 500 3.250 Perpetual bond 1,500 3.375 Perpetual bond 1,500 3.875 Perpetual bond 2,000 5.750 8 July 2041 800 5.375 Perpetual bond Interim Report for the First Half-Year of 2018 – Allianz Group 17 _ Equity Equity € mn As of 30 June 2018 As of 31 December 2017 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital 27,758 27,758 Retained earnings1,2 25,090 27,199 Foreign currency translation adjustments (2,694) (2,749) Unrealized gains and losses (net)3 8,958 12,175 Subtotal 60,282 65,553 Non-controlling interests 2,360 3,049 Total 62,642 68,602 1_As of 30 June 2018, include € (112) mn (31 December 2017: € (115) mn) related to treasury shares. 2_As announced in November 2017, a share buy-back with a volume of € 2 bn was executed in the period from 3 January until 3 May 2018. During the first half year of 2018, Allianz SE purchased 10.4 million own shares for an amount of € 2.0 bn. All repurchased shares (10,373,863 shares) have been redeemed according to the simplified procedure without reduction of the share capital. The number of issued shares was thereby reduced from 440,249,646 (as of 31 December 2017) to 429,875,783 (effective on 13 June 2018). 3_As of 30 June 2018, include € 244 mn (31 December 2017: € 274 mn) related to cash flow hedges. DIVIDENDS In the second quarter of 2018, a total dividend of € 3,428 mn (2017: € 3,410 mn) or € 8.00 (2017: € 7.60) per qualifying share was paid to the shareholders. Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements 37 Repor t B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENTS 18 _ Premiums earned (net) Premiums earned (net) € mn 20 _ Income from financial assets and liabilities carried at fair value through income (net) Six months ended 30 June Property- Casualty Life/Health Consolidation Group Income from financial assets and liabilities carried at fair value through income (net) € mn 2018 Premiums written Six months ended 30 June 2018 2017 Gross 29,984 12,052 (69) 41,966 Income from financial assets and liabilities held for trading (net) (1,856) 1,272 Ceded Net (2,651) 27,332 (274) 11,778 69 (2,856) 39,110 Income from financial assets and liabilities designated at fair value through income (net) (110) 180 Change in unearned premiums (net) (3,590) (287) (3,877) Income from financial liabilities for puttable equity instruments (net) 77 (85) Premiums earned (net) 23,742 11,491 35,233 Foreign currency gains and losses (net)1 780 (2,322) 2017 Total (1,109) (954) Premiums written 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income. Gross 29,388 12,118 (81) 41,425 Ceded (2,424) (300) 81 (2,643) Net 26,964 11,818 38,782 Change in unearned premiums (net) (3,406) (232) (3,639) 21 _ Realized gains/losses (net) Premiums earned (net) 23,557 11,585 35,143 Realized gains/losses (net) € mn Six months ended 30 June 2018 2017 19 _ Interest and similar income REALIZED GAINS Available-for-sale investments Interest and similar income € mn Equity securities 1,967 1,379 Debt securities 1,741 2,688 Six months ended 30 June 2018 2017 Subtotal 3,708 4,067 Dividends from available-for-sale investments 1,476 1,227 Other 341 268 Interest from available-for-sale investments 6,476 6,731 Subtotal 4,049 4,335 Interest from loans to banks and customers 1,917 2,131 Rent from real estate held for investment 445 459 Other 513 550 REALIZED LOSSES Total 10,827 11,099 Available-for-sale investments Equity securities (226) (271) Debt securities (355) (503) Subtotal (581) (773) Other (71) (33) Subtotal (653) (806) Total 3,397 3,529 38 Interim Report for the First Half-Year of 2018 – Allianz Group 22 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2018 2017 PROPERTY-CASUALTY Fees from credit and assistance business 657 663 Service agreements 210 249 Subtotal 868 911 LIFE/HEALTH Service agreements 65 60 Investment advisory 702 648 Subtotal 767 708 ASSET MANAGEMENT Management and advisory fees1 3,735 3,398 Loading and exit fees 280 283 Performance fees 166 149 Other 19 15 Subtotal 4,200 3,845 CORPORATE AND OTHER Service agreements 727 750 Investment advisory and banking activities 316 388 Subtotal 1,043 1,138 CONSOLIDATION (1,150) (1,012) Total 5,727 5,591 1_Includes effects from the application of IFRS 15 as described in note 2. 23 _ Claims and insurance benefits incurred (net) Claims and insurance benefits incurred (net) € mn Six months ended 30 June Property- Casualty Life/Health Consolidation Group 2018 Gross (16,427) (10,009) 26 (26,411) Ceded 669 272 (24) 916 Net (15,759) (9,738) 2 (25,494) 2017 Gross (16,531) (10,089) 41 (26,579) Ceded 975 251 (41) 1,185 Net (15,556) (9,838) (25,394) Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements 24 _ Change in reserves for insurance and investment contracts (net) Change in reserves for insurance and investment contracts (net) € mn Six months ended 30 June Property- Casualty Life/Health Consolidation Group 2018 Gross (197) (5,838) (35) (6,070) Ceded 4 110 115 Net (193) (5,728) (35) (5,956) 2017 Gross (261) (6,605) 35 (6,832) Ceded 3 131 134 Net (258) (6,474) 35 (6,697) 25 _ Interest expenses Interest expenses € mn Six months ended 30 June 2018 2017 Liabilities to banks and customers (44) (75) Deposits retained for reinsurance ceded (25) (21) Certificated liabilities (121) (119) Subordinated liabilities (300) (315) Other (25) (51) Total (514) (582) 26 _ Impairments of investments (net) Impairments of investments (net) € mn Six months ended 30 June 2018 2017 Impairments Available-for-sale investments Equity securities (831) (333) Debt securities (103) (35) Subtotal (934) (368) Other (13) (6) Subtotal (946) (374) Reversals of impairments 4 42 Total (943) (332) 39 Repor t B _ Condensed Consolidated Interim Financial Statements 27 _ Investment expenses Investment expenses € mn Six months ended 30 June 2018 Investment management expenses (349) Expenses from real estate held for investment (173) Expenses from fixed assets of renewable energy investments (108) Total (630) 28 _ Acquisition and administrative expenses (net) Acquisition and administrative expenses (net) € mn Six months ended 30 June 2018 PROPERTY-CASUALTY Acquisition costs (5,075) Administrative expenses (1,582) Subtotal (6,657) LIFE/HEALTH Acquisition costs (2,390) Administrative expenses (898) Subtotal (3,288) ASSET MANAGEMENT Personnel expenses (1,253) Non-personnel expenses (757) Subtotal (2,010) CORPORATE AND OTHER Administrative expenses (552) Subtotal (552) CONSOLIDATION (18) Total (12,525) 40 2017 (370) (177) (97) (644) 2017 (5,128) (1,611) (6,739) (2,391) (877) (3,267) (1,185) (767) (1,952) (692) (692) (27) (12,678) 29 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2018 2017 PROPERTY-CASUALTY Fees from credit and assistance business (638) (663) Service agreements (168) (201) Subtotal (806) (864) LIFE/HEALTH Service agreements (34) (34) Investment advisory (335) (315) Subtotal (369) (350) ASSET MANAGEMENT Commissions1 (869) (694) Other (82) (76) Subtotal (951) (769) CORPORATE AND OTHER Service agreements (834) (859) Investment advisory and banking activities (169) (168) Subtotal (1,003) (1,027) CONSOLIDATION 925 838 Total (2,204) (2,172) 1_Includes effects from the application of IFRS 15 as described in note 2. 30 _ Income taxes Income taxes € mn Six months ended 30 June 2018 2017 Current income taxes (1,153) (1,367) Deferred income taxes (188) (217) Total (1,340) (1,585) For the six months ended 30 June 2018 and 2017, the income taxes on components of other comprehensive income consist of the follow- ing: Income taxes on components of other comprehensive income € mn Six months ended 30 June 2018 2017 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 59 (50) Available-for-sale investments 924 245 Cash flow hedges 10 15 Share of other comprehensive income of associates and joint ventures 4 1 Miscellaneous 31 146 Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (21) (120) Total 1,008 237 Interim Report for the First Half-Year of 2018 – Allianz Group OTHER INFORMATION 31 _ Fair values and carrying amounts of financial instruments FAIR VALUES AND CARRYING AMOUNTS The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities As of 30 June 2018, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 132 mn (31 December 2017: € 73 mn). These investments are primarily in- vestments in privately held corporations and partnerships. FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, − Derivative financial instruments and firm commitments included in other assets and other liabilities, and − Financial liabilities for puttable equity instruments. Interim Report for the First Half-Year of 2018 – Allianz Group B _ Condensed Consolidated Interim Financial Statements As of 30 June 2018 As of 31 December 2017 Carrying amount Fair value Carrying amount Fair value 17,974 17,974 17,119 17,119 3,343 3,343 3,076 3,076 4,333 4,333 5,101 5,101 519,795 519,795 520,397 520,397 2,720 2,947 2,678 2,992 10,774 13,012 9,010 11,059 11,551 19,291 11,419 18,913 106,669 120,943 104,224 119,934 120,402 120,402 119,141 119,141 438 438 538 538 10,762 10,762 11,291 11,291 13,767 13,736 12,746 12,759 120,402 120,402 119,141 119,141 280 280 147 147 1,845 1,845 2,640 2,640 9,205 9,924 9,596 10,459 13,387 13,957 13,295 14,757 41 Repor t B _ Condensed Consolidated Interim Financial Statements The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2018 and 31 December 2017: Fair value hierarchy (items carried at fair value) € mn As of 30 June 2018 Level 11 Level 22 FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 655 2,684 Financial assets designated at fair value through income 3,054 1,114 Subtotal 3,709 3,798 Available-for-sale investments Corporate bonds 11,683 209,110 Government and government agency bonds 16,811 181,657 MBS/ABS 46 22,299 Other 789 975 Equity securities 41,231 817 Subtotal 70,560 414,858 Financial assets for unit-linked contracts 96,178 23,493 Derivative financial instruments and firm commitments included in other assets 6 432 Total 170,453 442,581 FINANCIAL LIABILITIES Financial liabilities carried at fair value through income 83 1,791 Financial liabilities for unit-linked contracts 96,178 23,493 Derivative financial instruments and firm commitments included in other liabilities 1 280 Financial liabilities for puttable equity instruments 1,505 139 Total 97,766 25,703 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, as well as the significant Level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2017. No material changes have occurred since this report was published. 42 As of 31 December 2017 Level 33 Total Level 11 Level 22 Level 33 Total 4 3,343 347 2,716 13 3,076 165 4,333 3,876 1,076 150 5,101 169 7,676 4,223 3,792 162 8,177 17,891 238,684 15,816 211,507 16,203 243,526 731 199,200 30,884 167,449 578 198,911 168 22,514 45 21,406 182 21,633 4,042 5,807 694 899 3,577 5,169 11,543 53,590 40,247 788 10,122 51,158 34,376 519,795 87,687 402,048 30,661 520,397 731 120,402 95,224 23,324 592 119,141 438 1 537 538 35,277 648,311 187,135 429,701 31,416 648,252 8,889 10,762 34 1,139 10,118 11,291 731 120,402 95,224 23,324 592 119,141 280 1 146 147 201 1,845 2,377 87 175 2,640 9,821 133,290 97,637 24,697 10,886 133,220 SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. In 2018, this mainly affects a govern- ment bond portfolio with a transfer volume of € 13 bn for which now mainly composite prices are used. Conversely, the converse policy applies for transfers from level 2 to level 1. Interim Report for the First Half-Year of 2018 – Allianz Group Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. Reconciliation of level 3 financial assets € mn Financial assets carried at fair value through income Carrying value (fair value) as of 1 January 2018 162 Additions through purchases and issues 16 Net transfers into (out of) Level 3 1 Disposal through sales and settlements 124 Net gains (losses) recognized in consolidated income statement (133) Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments (1) Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2018 169 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date (10) 1_Primarily include corporate bonds. Reconciliation of level 3 financial liabilities € mn Carrying value (fair value) as of 1 January 2018 Additions through purchases and issues Net transfers into (out of) Level 3 Disposal through sales and settlements Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2018 Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date Interim Report for the First Half-Year of 2018 – Allianz Group Available-for-sale investments – Debt securities1 20,539 2,534 63 (477) 47 (147) (26) 283 17 22,833 37 Financial liabilities carried at fair value through income 10,118 449 (445) (1,445) 211 8,889 (1,583) B _ Condensed Consolidated Interim Financial Statements Available-for-sale investments – Equity securities Financial assets for unit-linked contracts Total 10,122 592 31,416 1,771 104 4,425 36 60 161 (524) (15) (892) 55 6 (25) 234 87 (191) (217) 34 (17) 300 4 1 22 11,543 731 35,277 6 33 Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total 592 175 10,886 104 26 579 60 60 (15) (460) 6 (1,439) (17) 194 1 731 201 9,821 6 (1,576) 43 Repor t B _ Condensed Consolidated Interim Financial Statements FAIR VALUE MEASUREMENT ON A NON-RECURRING BASIS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of im- pairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 26. 32 _ Other information CONTINGENT LIABILITIES AND COMMITMENTS As of 30 June 2018, there were no significant changes in contingent liabilities, compared to the consolidated financial statements for the year ended 31 December 2017. The following table shows the composition of purchase obliga- tions as of 30 June 2018: Purchase obligations € mn As of 30 June 2018 As of 31 December 2017 Commitments to acquire interests in associates and available- for-sale investments 13,613 16,001 Debt investments 8,005 6,392 Other 3,110 3,193 Total 24,728 25,586 All other commitments had no significant changes. 33 _ Subsequent events SHARE BUY-BACK PROGRAM On 4 July 2018, Allianz SE started a new share buy-back program with a volume of up to € 1 bn. The program shall be finalized by 30 September 2018. Allianz SE will cancel all repurchased shares. 44 Interim Report for the First Half-Year of 2018 – Allianz Group FURTHER INFORMATION C Interim Report for the First Half-Year of 2018 – Allianz Group 45 Repor t C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportuni- ties and risks associated with the expected development of the Group for the remaining months of the financial year. Munich, 2 August 2018 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Niran Peiris Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis 46 Interim Report for the First Half-Year of 2018 – Allianz Group REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements – comprising the consolidated balance sheets, consoli- dated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and selected explanatory notes – and the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2018 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhan- delsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the re- view of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assur- ance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group man- agement reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a finan- cial statement audit, we cannot express an audit opinion. Interim Report for the First Half-Year of 2018 − Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim finan- cial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, 2 August 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Wirtschaftsprüfer (German Public Auditor) Julia Unkel Wirtschaftsprüferin (German Public Auditor) 47 Repor t Financial calendar Important dates for shareholders and analysts1 Financial Results 3Q ____________________________________________________________________________________ 9 November 2018 Financial Results 2018 ___________________________________________________________________________________ 15 February 2019 Annual Report 2018 ________________________________________________________________________________________ 8 March 2019 Annual General Meeting ______________________________________________________________________________________ 8 May 2019 Financial Results 1Q _________________________________________________________________________________________ 14 May 2019 Financial Results 2Q/Interim Report 6M ______________________________________________________________________ 2 August 2019 Financial Results 3Q ____________________________________________________________________________________ 8 November 2019 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and financial-year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone +49 89 3800 0 – info@allianz.com – www.allianz.com Front page design: hw.design GmbH – Typesetting: Produced in-house with firesys Interim Report on the internet: www.allianz.com/interim-report – Date of publication: 3 August 2018 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2018, Insurance, Allianz | write me a financial report |
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| ALLIANZ GROUP FIRST HALF-YEAR 2019 INTERIM REPORT 2019 To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. CONTENT A _ Interim Group Management Report Pages 1 – 16 2 Executive Summary 4 Property-Casualty Insurance Operations 6 Life/Health Insurance Operations 9 Asset Management 11 Corporate and Other 12 Outlook 13 Balance Sheet Review 15 Reconciliations B _ Condensed Consolidated Interim Financial Statements Pages 17 – 44 18 Consolidated Balance Sheets 19 Consolidated Income Statements 20 Consolidated Statements of Comprehensive Income 21 Consolidated Statements of Changes in Equity 22 Consolidated Statements of Cash Flows NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 25 General Information 33 Notes to the Consolidated Balance Sheets 37 Notes to the Consolidated Income Statements 40 Other Information C _ Further Information Pages 45 – 47 46 Responsibility Statement 47 Review Report Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of Euros (€ mn) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/results. INTERIM GROUP MANAGEMENT REPORT A Interim Report for the First Half-Year of 2019 − Allianz Group 1 Repor t A _ Interim Group Management Report EXECUTIVE SUMMARY KEY FIGURES Key figures Allianz Group1 Six months ended 30 June 2019 2018 Delta Total revenues2 € mn 73,479 68,198 5,281 Operating profit3 € mn 6,121 5,753 367 Net income3 € mn 4,316 4,025 290 thereof: attributable to shareholders € mn 4,109 3,830 279 Solvency II capitalization ratio4 % 213 229 (17) %-p Return on equity5 % 14.7 13.2 1.5 %-p Earnings per share € 9.76 8.86 0.90 Diluted earnings per share € 9.75 8.78 0.96 Earnings summary2,3,4,5 ECONOMIC AND INDUSTRY ENVIRONMENT The first half of 2019 was marked by two noteworthy moments. In the first quarter, GDP growth showed surprising upwards trends in the U.S., Europe, and China simultaneously. This macroeconomic im- provement was accompanied by an impressive rally in the global equity and credit markets; as a result the losses of the fourth quarter of 2018, explained at this time by the assertiveness of the Federal Reserve in normalizing its monetary policy, were soon forgotten. The relief was short-lived, however, as there was some uncertainty about the outcome of U.S.-China trade negotiations, depressing trade and investments and causing major central banks to adopt a more cau- tious stance in their communication. The second key moment was when the U.S. government an- nounced in May its intention to increase tariffs from 10 % to 25 % on Chinese goods with a total volume of U.S. Dollar 200 bn. From that point on, both safe-haven and risky assets performed well: the former due to the elevated risk related to trade, clouding the short-term economic outlook, and the latter due to the dovish orientation of central banks. The insurance industry had to cope with considerable headwinds in the first half of 2019: First, the slowing global economic dynamics in the wake of the trade escalation suppressed top-line growth; second, market volatility and in particular the relentless decline in yields put renewed pressure on industry profitability; and third, 1_For further information on Allianz Group figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Total revenues comprise Property-Casualty total revenues (gross premiums written and fee and commission income), Life/Health statutory gross premiums written, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Total revenues in Property-Casualty now include fee and commission income. Prior year figures were adjusted accordingly. 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 4_2018 figures as of 31 December 2018, 2019 figures as of 30 June 2019. 5_Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2018, the return on equity for the full year is shown. 2 weather-related events such as hail storms remained at an elevated level. On the upside, however, prices continued to stabilize. Markets were volatile during the first half of 2019. International equity indices recovered significantly, with a notable dip in May, and recovery in June. Fixed-income indices rallied, especially in the U.S., as major central banks such as the Federal Reserve and European Central Bank lowered their economic growth expectations, making a prime rate increase less likely for the near future. In light of the capital market rebound, long-term net inflows picked up in 2019. Overall, fixed-income assets regained strength, while equity flows were highly volatile, with a setback in May 2019. The net flow trend towards passive investments continued, especially in the U.S. and in equities. MANAGEMENT’S ASSESSMENT Our total revenues grew 7.7 %, in the first half of 2019 – an increase of 5.9 % on an internal basis6 compared to the same period of the previ- ous year, driven by our Life/Health and Property-Casualty business segments. A major part of the increase in operating profit came from our insurance operations: In our Life/Health business segment, the oper- ating profit, supported by a good underlying performance, grew due to an increase in the DAC amortization period of the fixed index annuity business, partly outweighed by a lower investment margin. Our Property-Casualty business segment recorded a better under- writing result, attributable to an improved expense ratio, lower claims from natural catastrophes and weather-related events, partly offset by an increase in large losses, as well as top-line growth. Our Asset Management business segment’s operating profit was stable com- pared to the same period of 2018. An improvement in the operating result of our Corporate and Other business segment was mainly driven by profitability improvements at our internal IT service provider. Our operating investment result increased by € 696 mn to € 11,664 mn compared to the previous year’s period. We recorded a better trading result, which was largely attributable to foreign curren- cy risk management in Germany, as well as higher interest and similar income, to some extent due to a higher asset base, and lower equity impairments. These were partially offset by lower operating realized gains/losses (net), mostly from equities. Our non-operating result worsened by € 74 mn to a loss of € 461 mn. Lower non-operating realized gains/losses (net) were partially offset by a lower amortization of intangible assets (the first half-year of 2018 had been burdened by a negative impact from the sale of our traditional life insurance portfolio in Taiwan) as well as by a decrease in restructuring and integration expenses. Income taxes increased slightly by € 3 mn to € 1,344 mn. The effective tax rate decreased to 23.7 % (25.0 %), which was mostly due to positive effects from DTA recognition. The increase in net income was largely attributable to our oper- ating profit growth. 6_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 15 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole. Interim Report for the First Half-Year of 2019 − Allianz Group Our shareholders’ equity1 grew by € 7.1 bn to € 68.4 bn compared to 31 December 2018, driven by a € 9.0 bn increase in unrealized gains and losses (net) and net income attributable to shareholders of € 4.1 bn. This was partly offset by a dividend payout of € 3.8 bn and € 1.3 bn for the purchase of 6.2 million own shares as part of the fourth share buy-back program announced in March 20192. Over the same period, our Solvency II capitalization ratio decreased to 213 %. For a more detailed description of the results generated by our business segments – Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other – please consult the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2018, we described our risk and opportunity profile and addressed potential risks that could adversely affect our business as well as our risk profile. The statements contained in that report remain largely unchanged. We continue to monitor develop- ments in order to be able to react in a timely and appropriate man- ner, should the need arise. For further information, please refer to the chapter Outlook, which starts on page 12. Events after the balance sheet date For information on any events occurring after the balance sheet date, please refer to note 33 to the condensed consolidated interim finan- cial statements. Other information RECENT ORGANIZATIONAL CHANGES Due to the immateriality of the former reportable segments Banking and Alternative Investments, they have been combined with the former reportable segment Holding & Treasury to form the new reportable segment Corporate and Other, which is identical to the respective business segment. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. STRATEGY The Allianz Group’s strategy is described in the Risk and Opportunity Report that forms part of our Annual Report 2018. There have been no material changes to our Group strategy. 1_For further information on shareholders‘ equity, please refer to the Balance Sheet Review. 2_For further information on the share buy-back program, please refer to note 17 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2019 − Allianz Group A _ Interim Group Management Report PRODUCTS, SERVICES AND SALES CHANNELS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2018. ALLIANZ GROUP AND BUSINESS SEGMENTS The Allianz Group operates and manages its activities through the four business segments mentioned above. For further information, please refer to note 4 to the condensed consolidated interim financial statements or to the Business Operations chapter in our Annual Report 2018. 3 Repor t A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS KEY FIGURES Operating profit Key figures Property-Casualty12345 Operating profit € mn Six months ended 30 June 2019 2018 Delta Six months ended 30 June 2019 2018 Delta Total revenues2 Operating profit € mn € mn 32,916 2,838 30,851 2,729 2,065 109 Underwriting result Operating investment income (net) 1,346 1,454 1,185 1,482 161 (28) Net income Loss ratio3 € mn % 2,079 66.4 2,244 66.4 (165) 0.1 %-p Other result1 Operating profit 37 2,838 62 2,729 (25) 109 Expense ratio4 % 27.6 28.0 (0.5) %-p Combined ratio5 % 94.0 94.4 (0.4) %-p 1_Consists of fee and commission income/expenses and other income/expenses. Entirely driven by a higher underwriting result, our operating profit increased compared to the first six months of the previous year. Total revenues6 On a nominal basis, we recorded a 6.7 % increase in total revenues compared to the first six months of the previous year. This includes unfavorable foreign currency translation effects of € 4 mn7 and posi- tive (de)consolidation effects of € 696 mn. On an internal basis, our total revenues went up 4.5 %. Our underwriting result went up, driven by efficiency and profit- ability improvements across our operating entities. Our investment result declined. We saw strong improvements on the expense side as well as in accident year claims, which stood against a lower contribution from run-off when compared to the previous year. Overall, our combined ratio improved by 0.4 percentage points to 94.0 %. The following operations contributed positively to internal growth: AGCS: Total revenues increased to € 4,876 mn – up 8.8 % on an internal basis. Much of this was a result of positive price effects across both our corporate and specialty lines of business. Underwriting result € mn Six months ended 30 June Premiums earned (net) 2019 25,179 2018 23,742 Delta 1,437 Germany: Total revenues amounted to € 6,699 mn, an internal growth of 2.4 %. This was mainly due to favorable price effects in our motor and commercial property insurance business. Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) (17,468) 740 (16,727) (16,572) 813 (15,759) (896) (73) (969) Euler Hermes: Total revenues grew to € 1,594 mn – an increase of 10.0 % on an internal basis. This was owed to positive volume effects in all regions, especially in Asia and the Americas. Acquisition and administrative expenses (net) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (6,939) (166) (6,657) (142) (283) (24) Underwriting result 1,346 1,185 161 In the first six months of 2019, there were no operations with a signifi- cant negative contribution to internal growth. 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consolidated interim financial statements. Our accident year loss ratio8 stood at 69.4 % – a 0.4 percentage point improvement compared to the first six months of the last year. In the first half of this year, losses from natural catastrophes were lower than in the same period of 2018, decreasing the impact on our com- bined ratio by 0.4 percentage points, from 2.0 % to 1.5 %. Excluding losses from natural catastrophes, our accident year loss ratio stood at 67.8 %, almost unchanged from the previous year’s ratio, as the impact of an increase in large losses was mainly offset by lower claims from weather-related events. 1_For further information on Property-Casualty figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Total revenues in Property-Casualty now include fee and commission income. Prior year figures were adjusted accordingly. 3_Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4_Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6_We comment on the development of our total revenues on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned 7_Based on the average exchange rates in 2019 compared to 2018. (net). 4 Interim Report for the First Half-Year of 2019 − Allianz Group The following operations contributed positively to the development of our accident year loss ratio: France: 0.4 percentage points. This was driven by lower losses from natural catastrophes and weather-related events. Germany: 0.4 percentage points. The improvement resulted from lower claims in our property and personal accident lines of business combined with lower large losses. Allianz Partners: 0.2 percentage points. The accident year loss ratio benefited from favorable performance mainly in our travel insurance and assistance lines of business. The following operations weighed on the development of our acci- dent year loss ratio: AGCS: 0.3 percentage points. This was driven by unfavorable loss development, including large losses, and not fully offset by strong price increases. Spain: 0.1 percentage points. The deterioration resulted from a higher loss experience. Our positive run-off result amounted to € 740 mn, compared to € 813 mn in the first half-year of 2018. This translates into a run-off ratio of 2.9 %, which is lower than the 3.4 % we saw in the prior year. Most of our operations contributed positively to this development. Total expenses amounted to € 6,939 mn in the first half of 2019, compared to € 6,657 mn in the same period of 2018. Our expense ratio decreased by 0.5 percentage points, as it benefited from a strong premium growth in relation to the increase in expenses. Operating investment income (net) € mn Six months ended 30 June 2019 2018 Interest and similar income (net of interest expenses) 1,665 1,671 Operating income from financial assets and liabilities carried at fair value through income (net) (20) (19) Operating realized gains (net) 117 92 Operating impairments of investments (net) (19) (28) Investment expenses (192) (183) Expenses for premiums refunds (net)1 (98) (51) Operating investment income (net)2 1,454 1,482 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) decreased slightly in the first six months of 2019. All line items except for realized gains (net) and impairments (net) contributed to that development. Interim Report for the First Half-Year of 2019 − Allianz Group Delta (5) 26 9 (9) (47) (28) A _ Interim Group Management Report Other result € mn Six months ended 30 June 2019 2018 Delta Fee and commission income 992 868 124 Other income 1 1 Fee and commission expenses (954) (806) (148) Other expenses (2) (1) (1) Other result 37 62 (25) Our other result decreased, mainly due to a lower net fee and com- mission result generated by Allianz Partners. Net income Our net income decreased in the first six months of 2019. This was mainly due to lower realized gains and a reduction in our non- operating trading result, and could not be offset by the increase in our operating profit. 5 Repor t A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS KEY FIGURES Key figures Life/Health1 Six months ended 30 June Statutory premiums2 Operating profit Net income € mn € mn € mn 2019 37,399 2,327 1,788 2018 34,229 2,144 1,322 Delta 3,171 182 466 Present value of new business premiums (PVNBP)5 Our PVNBP increased by € 3,138 mn to € 34,562 mn, most of which was a result of the stronger sales of capital-efficient products in the German life business and in the United States. These positive effects were partly offset by weakened sales of unit-linked products in Italy and Taiwan. Return on equity3 % 13.4 11.4 2.0 %-p 2,3 Present value of new business premiums (PVNBP) by lines of business % Six months ended 30 June 2019 2018 Delta Statutory premiums4 Guaranteed savings & annuities 20.3 17.8 2.5 Protection & health 16.8 17.3 (0.5) On a nominal basis, statutory premiums increased by 9.3 % in the first half of 2019. This includes favorable foreign currency translation effects of € 401 mn and positive (de-)consolidation effects of € 22 mn. On an internal basis4, statutory premiums went up by € 2,747 mn – or 8.0 % – to € 36,973 mn. Unit-linked without guarantee Capital-efficient products Total 18.7 44.1 100.0 27.2 37.7 100.0 (8.5) 6.5 In the German life business, statutory premiums amounted to € 13,569 mn, up 24.8 % on an internal basis. This was predominantly driven by the higher single premium sales in our business with capital- efficient products. In the German health business, statutory premiums went up to € 1,777 mn. The increase – 2.8 % on an internal basis – resulted mainly from the premium adjustments in the comprehensive health care coverage and from the acquisition of new customers in supplementary health care coverage. Operating profit OPERATING PROFIT BY PROFIT SOURCES6,7 Operating profit by profit sources € mn Six months ended 30 June 2019 2018 Delta Statutory premiums in the United States rose to € 5,817 mn, translating into 17.4 % growth on an internal basis. This was due to an increase in sales of fixed index annuity and non-traditional variable annuity products. Loadings and fees Investment margin Expenses Technical margin 3,238 1,728 (3,574) 616 3,019 1,920 (3,413) 629 219 (192) (161) (13) In Italy, statutory premiums declined to € 4,835 mn, a decrease of 14.9 % on an internal basis. This was caused by lower sales in our business with unit-linked products compared to a high base in the first half of 2018. Impact of changes in DAC Operating profit 319 2,327 (11) 2,144 329 182 In France, statutory premiums increased to € 4,355 mn, up 6.7 % on an internal basis. This was largely due to stronger sales of our guaranteed savings & annuities products as well as of our protection & health products, with the effect partly offset by a decline in sales of unit-linked and capital-efficient products. In the Asia-Pacific region, statutory premiums decreased to € 2,658 mn, a 13.0 % drop on an internal basis. It was largely attribut- able to a sales decrease in unit-linked products in Taiwan that could not be compensated by the higher sales of traditional products in China and that of the protection & health products in Malaysia. Our operating profit increased. A key factor here was a change in the deferred acquisition cost amortization period from 20 to 25 years for fixed index annuities with lifetime income – based on an experience analysis illustrating an increase in persistency rates – in the United States. The effect was partly offset by lower investment margins in Germany, France, and the United States, largely due to increased policyholder participation. 1_For further information on Life/Health figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 3_Represents the annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2018, the return on equity for the full year is shown. 4_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. 5_PVNBP before non-controlling interests. 6_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. 7_Prior year figures have been changed in order to reflect the roll-out of profit source reporting to Mexico. 6 Interim Report for the First Half-Year of 2019 − Allianz Group LOADINGS AND FEES1 Loadings and fees € mn Six months ended 30 June 2019 2018 Loadings from premiums 2,119 1,945 Loadings from reserves 772 730 Unit-linked management fees 347 343 Loadings and fees 3,238 3,019 Loadings from premiums as % of statutory premiums 5.7 5.7 Loadings from reserves as % of average reserves1,2 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.2 0.2 1_Aggregate policy reserves and unit-linked reserves. 2_Yields are pro rata. 3_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums went up in line with the higher sales, mostly in the German life business, and in the Asia-Pacific region. Loadings from reserves rose driven by the increased reserve volumes mainly in Germany and in the United States and were stable in relation to reserves. INVESTMENT MARGIN2 Investment margin € mn Six months ended 30 June 2019 2018 Interest and similar income 9,283 8,927 Operating income from financial assets and liabilities carried at fair value through income (net) (351) (1,127) Operating realized gains/losses (net) 2,081 2,652 Interest expenses (56) (50) Operating impairments of investments (net) (539) (743) Investment expenses (697) (650) Other1 232 97 Technical interest (4,498) (4,374) Policyholder participation (3,727) (2,813) Investment margin 1,728 1,920 Investment margin in basis points2,3 37.5 44.1 1_“Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit, and on the other hand a difference in line item definitions compared to our financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees, on the other hand. 2_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 3_Yields are pro rata. 1_Loadings and fees include premium and reserve based fees, unit-linked management fees, and policyholder participa- tion in expenses. 2_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). Interim Report for the First Half-Year of 2019 − Allianz Group Delta 174 42 4 219 Delta 356 775 (571) (6) 203 (47) 135 (124) (913) (192) (6.6) A _ Interim Group Management Report Our investment margin decreased. In the German life business, the increased trading result was offset by lower realizations on equities and by a higher policyholder participation. The latter also out- weighed the positive effect from lower impairments in France. In the United States the quarterly unlocking effects and a higher policy- holder participation offset the favorable hedging result in the tradi- tional variable annuities business as well as the increase in interest and similar income, stemming mainly from debt instruments. EXPENSES3 Expenses € mn Six months ended 30 June 2019 2018 Delta Acquisition expenses and commissions (2,653) (2,508) (145) Administrative and other expenses (921) (905) (16) Expenses (3,574) (3,413) (161) Acquisition expenses and commissions as % of PVNBP1 (7.7) (8.0) 0.3 Administrative and other expenses as % of average reserves2, 3 (0.2) (0.2) 1_PVNBP before non-controlling interests. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. Our acquisition expenses and commissions increased in line with the sales growth mainly recorded in our German and U.S. life business as well as in the Asia-Pacific region. The lower unit-linked sales in Italy and Taiwan partly offset this development. Administrative and other expenses increased slightly, largely due to higher claim settlement expenses resulting from increased IT and operational costs in the German life business as well as to unfavorable foreign exchange impacts in the United States. These effects were partly compensated for by lower expenses in Indonesia, as the first half-year of 2018 was burdened by a one-off provision. TECHNICAL MARGIN4 Our technical margin went down mainly due to the negative claims experience in our businesses with savings & annuities and unit-linked without guarantees products in France as well as with protection & health products in the United States. 3_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 4_The technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participa- tion), lapse result (surrender charges and commission clawbacks) and reinsurance result. 7 Repor t A _ Interim Group Management Report IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC)1 Impact of change in DAC € mn Six months ended 30 June 2019 2018 Capitalization of DAC 881 859 Amortization, unlocking and true-up of DAC (563) (870) Impact of change in DAC 319 (11) The impact of change in DAC turned positive caused by the extension of the DAC amortization period in our U.S. business as well as by favorable true-ups in the United States and Germany. OPERATING PROFIT BY LINES OF BUSINESS2 Operating profit by lines of business € mn Six months ended 30 June 2019 2018 Guaranteed savings & annuities 1,127 1,085 Protection & health 473 468 Unit-linked without guarantee 241 208 Capital-efficient products 486 384 Operating profit 2,327 2,144 The increase of the operating profit in our guaranteed savings & annuities line of business was mainly due to favorable market-driven impacts in the United States. Our operating profit in the protection & health line of business increased slightly, which was largely driven by higher volumes and lower expense margin in France. The higher operating profit generated by our unit-linked without guarantee line of business mainly resulted from lower acquisition expenses in Taiwan, in France, and in Italy. An increase in operating profit in the capital- efficient products line was mainly attributable to the effect of the change in DAC in the United States. Net income An increase in our net income was due to the sale of our traditional life insurance portfolio in Taiwan in the previous year – which had generated a negative net impact of € 218 mn in the first six months of 2018 – as well as to the higher operating profit in the first half-year of 2019. Return on equity Our return on equity rose by 2.0 percentage points to 13.4 %, driven primarily by the increase in our net income. 1_”Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs as well as of front-end loadings on operating profit, and therefore differs from the figures reported in our IFRS financial statements. 2_Prior year figures changed in order to reflect the roll-out of profit source reporting to Mexico. 8 Delta 22 307 329 Delta 42 6 33 101 182 Interim Report for the First Half-Year of 2019 − Allianz Group ASSET MANAGEMENT KEY FIGURES Key figures Asset Management1 Six months ended 30 June 2019 2018 Operating revenues € mn 3,320 3,257 Operating profit € mn 1,251 1,247 Cost-income ratio2 % 62.3 61.7 Net income € mn 926 934 Total assets under management as of 30 June3 € bn 2,163 1,961 thereof: Third-party assets under management as of 30 June3 € bn 1,591 1,436 Assets under management Composition of total assets under management € bn Type of asset class As of 30 June 2019 As of 31 December 2018 Fixed income 1,718 1,553 Equities 161 143 Multi-assets1 172 160 Alternatives 112 105 Total 2,163 1,961 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash, and real property) used as an investment. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments over several asset classes. Net inflows4 of total assets under management (AuM) amounted to € 39.1 bn for the first half of the year 2019. Third-party AuM net inflows were at € 38.1 bn. The inflows were attributable to PIMCO (€ 42.6 bn total/€ 43.7 bn third-party). AllianzGI on the other hand recorded net outflows (€ 3.4 bn total/€ 5.6 bn third-party), mainly due to outflows from equities and multi-assets, while alternatives gained net inflows. Market and Dividends5 amounted to € 141.7 bn related to both, PIMCO and AllianzGI and throughout all asset classes. 1_For further information on Asset Management figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Represents operating expenses divided by operating revenues. 3_2018 figure as of 31 December 2018. 4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. 5_”Market and dividends” represents current income earned on the securities held in client accounts, as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds. Interim Report for the First Half-Year of 2019 − Allianz Group Delta 63 4 0.6 %-p (8) 201 155 Delta 164 18 11 8 201 A _ Interim Group Management Report Positive effects from consolidation, deconsolidation, and other adjustments added € 12.7 bn to total AuM. € 12.5 bn of these were attributable to PIMCO’s first consolidation of Gurtin Municipal Bond Management (Gurtin) in January 2019. Favorable foreign currency translation effects amounted to € 7.7 bn and occurred mainly at PIMCO. Third-party assets under management As of 30 June 2019 As of 31 December 2018 Delta Third-party assets under management € bn 1,591 1,436 10.8% Business units' share PIMCO % 78.5 77.8 0.7 %-p AllianzGI % 21.5 22.2 (0.7) %-p Asset classes split Fixed income % 78.4 77.9 0.5 %-p Equities % 8.5 8.3 0.2 %-p Multi-assets % 9.8 10.2 (0.4) %-p Alternatives % 3.4 3.6 (0.2) %-p Investment vehicle split1 Mutual funds % 58.9 59.3 (0.4) %-p Separate accounts % 41.1 40.7 0.4 %-p Regional allocation2 America % 56.1 56.3 (0.1) %-p Europe % 32.8 32.2 0.6 %-p Asia-Pacific % 11.1 11.6 (0.5) %-p Overall three-year rolling investment outperformance3 % 90 85 4 %-p 1_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 2_Based on the location of the asset management company. 3_Three-year rolling investment outperformance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). 9 Repor t A _ Interim Group Management Report Operating revenues Our operating revenues went up by 1.9 % on a nominal basis. The increase was driven by higher average third-party AuM at PIMCO and was supported by the Gurtin integration. On an internal basis1 operating revenues decreased by 3.2 %. We recorded lower performance fees at both AllianzGI and PIMCO. At AllianzGI, performance fees went down in volatile equity markets. At PIMCO, the development was mainly due to weaker hedge funds and lower carried interest, whereas separate accounts increased. Other net fee and commission income rose on a nominal basis, driven by increased average third-party AuM at PIMCO. Other operating revenues decreased, which was largely due to a less favorable foreign currency translation result and lower net inter- est and similar income. Operating profit Our operating profit increased slightly by 0.4 % on a nominal basis and was driven by revenue growth, almost offset by higher adminis- trative expenses. On an internal basis,1 operating profit went down by 4.9 %, mainly driven by lower performance fees. The nominal increase in administrative expenses was driven by PIMCO. It was due to a strong growth in number of employees, in line with investments in business growth and infrastructure. AllianzGI, on the other hand, recorded lower personnel expenses due to cost containment. Our cost-income ratio went up due to investments in business growth as well as lower performance fees. Asset Management business segment information € mn Six months ended 30 June 2019 2018 Performance fees 122 166 Other net fee and commission income 3,198 3,083 Other operating revenues 7 Operating revenues 3,320 3,257 Administrative expenses (net), excluding acquisition-related expenses (2,069) (2,010) Operating expenses (2,069) (2,010) Operating profit 1,251 1,247 Net income The decrease in our net income was driven by a lower non-operating result and higher income taxes, the latter due to unfavorable foreign currency translation effects. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 10 Delta (44) 115 (8) 63 (59) (59) 4 Interim Report for the First Half-Year of 2019 − Allianz Group CORPORATE AND OTHER KEY FIGURES Key figures Corporate and Other1 € mn Six months ended 30 June 2019 2018 Operating revenues 1,399 1,320 Operating expenses (1,694) (1,698) Operating result (296) (378) Net loss (482) (481) Earnings summary In the Corporate and Other business segment, our operating result improved over the first half-year, mainly driven by profitability im- provements at our internal IT service provider. Our net loss remained stable, as various effects offset one an- other. We recorded a higher operating result as well as lower restruc- turing and integration expenses. The positive development was partly offset by the deterioration in our non-operating investment result. 1_For further information on Corporate and Other figures, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2019 − Allianz Group Delta 78 4 82 A _ Interim Group Management Report 11 Repor t A _ Interim Group Management Report OUTLOOK Economic outlook1 The global economy seems to be heading towards a regime of low growth – low inflation after two years of strong activity. We expect global growth of 2.7 % in 2019 and 2020, after 3.1 % in 2018. This return to a weaker momentum primarily finds its roots in a regime of persistently high uncertainty (trade and political risks). On the trade front, new U.S. tariff measures in the first half of 2019 played a deci- sive role. We have therefore revised our global trade forecasts down- wards for 2019 and 2020 (+2.2 % in volume terms this year, and +2.5 % in 2020, after +3.8 % in 2018). Against this backdrop, the U.S. economy is expected to grow by +2.5 % year over year in 2019 and by +1.7 % in 2020, while China is expected to grow by +6.3 % and +6.2 %, respec- tively. The Eurozone may significantly decelerate at +1.2 % year over year in 2019 and 2020, compared with +1.9 % year over year in 2018. Emerging markets have started to feel the pain, too. The only reason why the uncertainty is not felt more strongly at the moment is that we see low inflationary pressures, which could be halted with a surge in oil prices, triggered by an escalating US – Iran conflict. Persistently high uncertainty until year-end, coupled with a de- celeration of trade, already had and will have a strong impact, par- ticularly in terms of financial market reactions: flight to quality, ex- tremely dovish central banks, and lower commodity prices, coalescing into a prolonged era of low-yields. But high debt levels – not least in the corporate sector – continue to pose a risk. Equity markets have so far positively reacted to the dovishness of central banks, opening a rift between (weak) economic fundamentals and market valuations. Therefore, market volatility is bound to remain elevated, and market corrections cannot be excluded. Insurance industry outlook The downside risks for our insurance industry outlook for 2019 have increased. Higher economic and political uncertainty takes its toll on economic activity. The growth moderation is particularly felt in the property-casualty sector, while in the life sector, the rebound in China should lead to higher global growth, as expected. Most advanced markets, however, will continue to see very modest growth at best, with low interest rates depressing demand for savings products. But all in all, we expect global premium revenue to increase. Industry profitability remains challenged. Increased market volatility and suppressed yields continue to put pressure on investment income. Further strain on the bottom line is exerted by the unabated need to build new, digital business models. 1_The information presented in the sections “Economic outlook”, “Insurance industry outlook” and “Asset management industry outlook” is based on our own estimates. 12 Asset management industry outlook The industry’s profitability remains under pressure from continuous flows into passive products, new pricing models, and rising distribu- tion costs. Digital channels such as robo-advisory platforms are gain- ing prominence and the strengthening of regulatory oversight could also affect profitability. At the same time, opportunities in the area of active management will continue to exist, particularly in alternative and solutions-oriented strategies, but also in equity and fixed-income. In order to continue growing, it is vital for asset managers to keep sufficient business volumes, ensure efficient operations, and maintain a strong investment performance. Outlook for the Allianz Group We are on track to meet the 2019 Allianz Group operating profit outlook of € 11.5 bn, plus or minus € 0.5 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements may severely affect the results of our operations. Cautionary note regarding forward-looking statements This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz Group's core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, most notably the EUR/USD exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions including and related integration issues and reorganization measures, and (xi) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. No duty to update The Allianz Group assumes no obligation to update any information or forward-looking statement contained herein, save for any information we are required to disclose by law. Interim Report for the First Half-Year of 2019 − Allianz Group BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2019 As of 31 December 2018 Shareholders' equity Paid-in capital 28,928 28,928 Retained earnings 26,084 27,967 Foreign currency translation adjustment (2,576) (2,607) Unrealized gains and losses (net) 15,943 6,945 Total 68,379 61,232 The increase in shareholders’ equity – € 7,147 mn – was attributable to the significantly increased unrealized gains and losses (net) of € 8,998 mn and net income attributable to shareholders amounting to € 4,109 mn. The dividend payout in May 2019 (€ 3,767 mn) and share buy-back (€ 1,275 mn) partly offset these effects. Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.2 Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 2019 As of 31 December 2018 Eligible own funds € bn 79.9 76.8 Capital requirement € bn 37.6 33.5 Capitalization ratio % 213 229 The Solvency II capitalization ratio decreased from 229 % to 213 % over the first six months of 2019. The decrease was predominantly driven by adverse market movements, capital management actions as well as regulatory and model changes, which were partly offset by positive operating S II earnings. 1_This does not include non-controlling interests of € 3,263 mn and € 2,447 mn as of 30 June 2019 and 31 December 2018, respectively. For further information, please refer to note 17 to the condensed consolidated interim financial statements. 2_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 81 in the Allianz Group Annual Report 2018. Interim Report for the First Half-Year of 2019 − Allianz Group Delta (1,883) 32 8,998 7,147 Delta 3.1 4.1 (17) %-p A _ Interim Group Management Report 13 Repor t A _ Interim Group Management Report Total assets and total liabilities As of 30 June 2019, total assets amounted to € 973.7 bn (increased by € 76.2 bn compared to year-end 2018). Total liabilities were € 902.1 bn, representing a rise of € 68.2 bn compared to year-end 2018. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. Asset allocation and fixed income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds Banks Other Equities Real estate Cash, cash equivalents, and other Total Compared to year-end 2018, our overall asset allocation remained rather stable with a modest increase in our equity investments. Our well-diversified exposure to debt instruments increased compared to year-end 2018, due to a positive performance on major debt markets. About 93 % of this portfolio was invested in investment- grade bonds and loans.1 Our government bonds portfolio contained bonds from France, Germany, Italy, and Spain that represented 17.6%, 13.4%, 7.8%, and 6.2% of our portfolio shares. Our corporate bonds portfolio contained bonds from the United States, Eurozone, and Europe excl. Eurozone. They represented 38.0 %, 35.2 % and 12.2 % of our portfolio shares. Our exposure to equities increased, due to a positive perfor- mance on major equity markets. 1_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available. 14 STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses. As of 30 June 2019 As of 31 December 2018 Delta As of 30 June 2019 As of 31 December 2018 Delta € bn € bn € bn % % %-p 625.5 580.3 45.2 85.8 86.2 (0.4) 230.5 211.6 19.0 36.9 36.5 0.4 75.7 76.1 (0.4) 12.1 13.1 (1.0) 218.2 200.4 17.9 34.9 34.5 0.4 35.3 32.2 3.0 5.6 5.6 0.1 65.8 60.0 5.8 10.5 10.3 0.2 72.9 63.2 9.7 10.0 9.4 0.6 12.9 12.5 0.4 1.8 1.9 (0.1) 17.7 16.9 0.8 2.4 2.5 (0.1) 728.9 672.8 56.1 100.0 100.0 LIABILITIES PROPERTY-CASUALTY LIABILITIES As of 30 June 2019, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 66.6 bn, compared to € 65.6 bn at year-end 2018. On a net basis, our reserves, including discounted loss reserves, increased from € 56.4 bn to € 57.4 bn.2 LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 37.0 bn to € 552.5 bn over the first six months of 2019. The € 13.0 bn increase in aggregate policy reserves before foreign currency trans- lation effects was mainly driven by our operations in Germany (€ 9.1 bn) and the United States (€ 3.3 bn before foreign currency translation effects). Reserves for premium refunds increased by € 23.1 bn (before foreign currency translation effects), due to higher unrealized gains to be shared with policyholders. Foreign currency translation effects increased the balance sheet value by € 0.9 bn. 2_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 13 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2019 − Allianz Group RECONCILIATIONS The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRS), the Allianz Group uses operat- ing profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complemen- tary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise total revenues in Property-Casualty, statu- tory premiums in Life/Health, operating revenues in Asset Manage- ment, and total revenues in Corporate and Other (Banking).1 Composition of total revenues € mn Six months ended 30 June 2019 2018 PROPERTY-CASUALTY Total revenues 32,916 30,851 consisting of: Gross premiums written 31,924 29,984 Fee and commission income 992 868 LIFE/HEALTH Statutory premiums 37,399 34,229 ASSET MANAGEMENT Operating revenues 3,320 3,257 consisting of: Net fee and commission income 3,320 3,249 Net interest and similar income (6) Income from financial assets and liabilities carried at fair value through income (net) 6 5 Other income 2 CORPORATE AND OTHER thereof: Total revenues (Banking) 118 147 consisting of: Interest and similar income 38 65 Income from financial assets and liabilities carried at fair value through income (net)1 2 2 Fee and commission income 285 262 Other income 4 Interest expenses, excluding interest expenses from external debt (10) (14) Fee and commission expenses (195) (172) Consolidation (275) (286) Allianz Group total revenues 73,479 68,198 1_Includes trading income. 1_Since 2019, total revenues in Property-Casualty include fee and commission income. Prior year figures were adjusted accordingly. Interim Report for the First Half-Year of 2019 − Allianz Group A _ Interim Group Management Report Composition of total revenue growth We believe that the understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Therefore, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth % Six months ended 30 June Internal Growth Changes in scope of consolidation Foreign currency translation Nominal Growth Property-Casualty 4.5 2.3 6.7 Life/Health 8.0 0.1 1.2 9.3 Asset Management (3.2) 0.3 4.8 1.9 Corporate and Other 1.6 (20.7) (19.5) Allianz Group 5.9 1.0 0.8 7.7 Life/Health Insurance Operations OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 22 entities – comprising the vast major- ity of Life/Health total statutory premiums – are in scope. EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administra- tive and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income statement. 15 Repor t A _ Interim Group Management Report Acquisition, administrative, capitalization, and amortization of DAC1 € mn Six months ended 30 June 2019 2018 Acquisition expenses and commissions2 (2,653) (2,508) Definitions 7 6 Scope (69) (63) Acquisition costs incurred (2,716) (2,564) Capitalization of DAC2 881 859 Definition: URR capitalized 283 277 Definition: policyholder participation3 594 512 Scope 14 14 Capitalization of DAC 1,773 1,663 Amortization, unlocking, and true-up of DAC2 (563) (870) Definition: URR amortized (29) (50) Definition: policyholder participation3 (450) (600) Scope (11) (10) Amortization, unlocking, and true-up of DAC (1,052) (1,531) Commissions and profit received on reinsurance business ceded 45 43 Acquisition costs4 (1,950) (2,390) Administrative and other expenses2 (921) (905) Definitions 73 60 Scope (84) (59) Administrative expenses on reinsurance business ceded 6 7 Administrative expenses4 (926) (898) 1_Prior year figures have been changed in order to reflect the roll-out of profit source reporting to Mexico. 2_As per Interim Group Management Report. 3_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 4_As per notes to the condensed consolidated interim financial statements. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) “Impact of change in DAC” includes effects of change in DAC, un- earned revenue reserves (URR), and value of business acquired (VOBA), and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- uled URR amortization, true-up, and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the group income statement. Policyholder participation is included within “change in our re- serves for insurance and investment contracts (net)” in the group income statement. 16 Reconciliation to Notes1 € mn Six months ended 30 June 2019 2018 Acquisition expenses and commissions2 (2,653) (2,508) Administrative and other expenses2 (921) (905) Capitalization of DAC2 881 859 Amortization, unlocking, and true-up of DAC2 (563) (870) Acquisition and administrative expenses (3,255) (3,424) Definitions 479 205 Scope (151) (118) Commissions and profit received on reinsurance business ceded 45 43 Administrative expenses on reinsurance business ceded 6 7 Acquisition and administrative expenses (net)3 (2,876) (3,288) 1_Prior year figures have been changed in order to reflect the roll-out of profit source reporting to Mexico. 2_As per Interim Group Management Report. 3_As per notes to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2019 − Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B Interim Report for the First Half-Year of 2019 − Allianz Group 17 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEETS Consolidated balance sheets € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Include mainly derivative financial instruments. 18 Note As of 30 June 2019 As of 31 December 2018 20,385 17,234 5 10,511 7,611 6 605,394 550,923 7 109,042 108,270 124,483 115,361 8 16,988 16,400 9 25,447 27,709 890 959 10 44,446 39,209 3 2,469 125 11 13,691 13,767 973,745 897,567 14,786 11,626 12 15,731 14,222 27,422 22,891 13 74,159 73,054 14 567,423 529,687 124,483 115,361 6,082 4,080 15 46,015 40,232 3 1,760 62 16 10,692 9,199 16 13,551 13,475 902,103 833,888 68,379 61,232 3,263 2,447 17 71,642 63,679 973,745 897,567 Interim Report for the First Half-Year of 2019 − Allianz Group CONSOLIDATED INCOME STATEMENTS Consolidated income statements € mn Six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring and integration expenses Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Note 2019 2018 44,803 41,966 (3,106) (2,856) (4,192) (3,877) 18 37,505 35,233 19 11,199 10,827 20 (350) (1,109) 21 2,503 3,397 22 5,891 5,727 6 15 56,755 54,090 (28,328) (26,411) 1,540 916 23 (26,787) (25,494) 24 (7,457) (5,956) 25 (559) (514) (1) 1 26 (703) (943) 27 (682) (630) 28 (12,459) (12,525) 29 (2,258) (2,204) (105) (301) (77) (158) (6) (1) (51,096) (48,724) 5,659 5,366 30 (1,344) (1,340) 4,316 4,025 207 196 4,109 3,830 9.76 8.86 9.75 8.78 19 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Consolidated statements of comprehensive income € mn Six months ended 30 June Net income Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the period Subtotal Available-for-sale investments Reclassifications to net income Changes arising during the period Subtotal Cash flow hedges Reclassifications to net income Changes arising during the period Subtotal Share of other comprehensive income of associates and joint ventures Reclassifications to net income Changes arising during the period Subtotal Miscellaneous Reclassifications to net income Changes arising during the period Subtotal Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans Total other comprehensive income Total comprehensive income Total comprehensive income attributable to: Non-controlling interests Shareholders For further details concerning income taxes on components of the other comprehensive income, please see note 30. 20 2019 2018 4,316 4,025 38 71 38 71 (387) (446) 9,368 (2,919) 8,982 (3,365) (3) 144 (30) 141 (30) 18 58 (15) 76 (15) 226 (89) 226 (89) (839) 129 8,623 (3,299) 12,939 727 745 80 12,194 647 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Consolidated statements of changes in equity € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity Balance as of 1 January 2018 28,928 27,199 (2,749) 12,175 65,553 3,049 68,602 Total comprehensive income1 3,806 74 (3,233) 647 80 727 Paid-in capital Treasury shares 4 4 4 Transactions between equity holders2 (2,491) (19) 17 (2,493) (587) (3,080) Dividends paid (3,428) (3,428) (182) (3,610) Balance as of 30 June 2018 28,928 25,090 (2,694) 8,958 60,282 2,360 62,642 Balance as of 1 January 2019 28,928 27,967 (2,607) 6,945 61,232 2,447 63,679 Total comprehensive income1 3,171 29 8,994 12,194 745 12,939 Paid-in capital Treasury shares3 (1,275) (1,275) (1,275) Transactions between equity holders2 (11) 3 4 (4) 168 164 Dividends paid (3,767) (3,767) (97) (3,865) Balance as of 30 June 2019 28,928 26,084 (2,576) 15,943 68,379 3,263 71,642 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2019 comprises net income attributable to shareholders of € 4.109 mn (2018: € 3,830 mn). 2_Includes income taxes within retained earnings. 3_As announced in March 2019, a share buy-back with a volume of € 1.5 bn has been executed since 4 March 2019. During the first half year of 2019, Allianz SE purchased 6.2 million own shares for an amount of € 1.3 bn. Interim Report for the First Half-Year of 2019 − Allianz Group 21 Repor t B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated statements of cash flows € mn Six months ended 30 June SUMMARY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2018 Cash and cash equivalents reclassified to assets of disposal groups held for sale in 2019 Cash and cash equivalents at end of period CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and disposal groups classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 22 2019 2018 23,301 15,030 (16,904) (8,567) (3,083) (6,145) 5 6 3,319 324 17,234 17,119 531 (168) 20,385 17,974 4,316 4,025 (169) (170) (1,800) (2,454) 171 2,293 968 710 1 (1) 2,917 2,083 243 (1,803) 34 (820) 956 45 (558) 239 (1,315) (339) 4,654 4,534 1,214 (282) 12,386 8,674 (77) 154 (640) (1,858) 18,985 11,005 23,301 15,030 980 1,763 75,642 84,685 325 206 235 453 4 59 56 46 3,430 2,460 39 188 80,712 89,859 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED Consolidated statements of cash flows € mn Six months ended 30 June 2019 2018 Payments for the purchase or origination of: Financial assets designated at fair value through income (1,612) (1,901) Available-for-sale investments (89,157) (89,230) Held-to-maturity investments (148) (252) Investments in associates and joint ventures (1,407) (1,893) Real estate held for investment (514) (221) Fixed assets of renewable energy investments (8) (113) Loans and advances to banks and customers (purchased loans) (1,849) (596) Property and equipment (535) (623) Subtotal (95,229) (94,830) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed (208) Change in other loans and advances to banks and customers (originated loans) (2,001) (3,084) Other (net) (386) (304) Net cash flow used in investing activities (16,904) (8,567) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 514 951 Proceeds from the issuance of certificated liabilities and subordinated liabilities 3,092 2,250 Repayments of certificated liabilities and subordinated liabilities (1,599) (2,666) Net change in lease liabilities (51) Transactions between equity holders 164 (3,043) Dividends paid to shareholders (3,865) (3,610) Net cash from sale or purchase of treasury shares (1,276) 10 Other (net) (62) (37) Net cash flow used in financing activities (3,083) (6,145) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS Income taxes paid (from operating activities) (1,006) (824) Dividends received (from operating activities) 1,394 1,472 Interest received (from operating activities) 9,552 9,257 Interest paid (from operating activities) (364) (350) Interim Report for the First Half-Year of 2019 − Allianz Group 23 Repor t B _ Condensed Consolidated Interim Financial Statements Changes in liabilities arising from financing activities € mn As of 1 January 2018 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2018 As of 1 January 2019 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2019 24 Liabilities to banks and customers 8,925 951 (2) (40) 2 9,836 10,049 514 (3) 24 3 10,588 Certificated and subordinated liabilities Lease liabilities Total 22,891 31,817 (416) 535 (2) 6 (34) 111 113 22,592 32,428 22,674 32,723 1,493 (51) 1,956 (3) 4 28 72 2,737 2,813 24,243 2,687 37,517 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Basis of presentation The Allianz Group’s condensed consolidated interim financial state- ments are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs), as adopted under European Union regulations. The Allianz Group has elected not to recognize right-of-use as- sets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets (e.g. tablets, personal computers, telephones, office furniture, copy and fax ma- chines) as well as car leases as these are considered not to be material for Allianz Group. The Allianz Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as ap- plied in the consolidated financial statements for the year ended 31 December 2018. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2018. In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. LEASES PREVIOUSLY CLASSIFIED AS OPERATING LEASES UNDER IAS 17 At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Allianz Group’s incremental borrowing rate as at 1 January 2019. Right-of-use assets were measured at an amount equal to the lease liability and adjust- ed by the amount of any prepaid or accrued lease payments. The Allianz Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating lease under IAS 17: Amounts are rounded to millions of Euro (€ mn), unless otherwise stated. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Manage- ment on 31 July 2019. − Applied a single discount rate to a portfolio of leases with similar characteristics. − Adjusted the right-of-use assets by the amount of IAS 37 onerous contract provision immediately before the date of initial applica- tion, as an alternative to an impairment review. 2 _ Recently adopted accounting pronouncements (effective 1 January 2019) − Excluded initial direct costs from measuring the right-of-use asset at the date of initial application. − Used hindsight in determining the lease term, if the contract contains options to extend or terminate the lease. IFRS 16, LEASING The Allianz Group has applied IFRS 16 using the modified retrospec- tive approach; therefore, any comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. On transition to IFRS 16, the Allianz Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts previously identified as leases. Contracts that had not been identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. There- fore, the definition of a lease under IFRS 16 was applied only to con- tracts entered into or changed on or after 1 January 2019. LEASES PREVIOUSLY CLASSIFIED AS FINANCE LEASES For leases classified as finance leases under IAS 17, the carrying liability at amount of the right-of-use asset and the 1 January 2019 were determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. lease AS A LESSOR The Allianz Group was not required to make any adjustments on transition to IFRS 16 for leases for which it acts as a lessor, except for subleases. The Allianz Group accounted for its (sub)leases in accord- ance with IFRS 16 from the date of initial application. AS A LESSEE As a lessee, the Allianz Group had previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Allianz Group. Under IFRS 16, the Allianz Group recognizes right-of-use assets and lease liabilities for most leases – i.e. these leases are on balance sheet. Under IFRS 16, the Allianz Group is required to assess the classifi- cation of subleases with reference to the right-of-use assets, not the underlying assets. On transition, the Allianz Group reassessed the classification of sublease contracts previously classified as operating leases under IAS 17. The Allianz Group applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contracts to each lease and non-lease component. Interim Report for the First Half-Year of 2019 − Allianz Group 25 Repor t B _ Condensed Consolidated Interim Financial Statements IMPACTS ON CONSOLIDATED FINANCIAL STATEMENTS On transition to IFRS 16, the Allianz Group recognized an additional € 2.3 bn of right-of-use assets in other assets and € 2.6 bn of lease liabilities in other liabilities, recognizing the difference against pre- paid rent, deferred rent, and onerous contract provisions. Impact on consolidated balance sheet € mn Before first application of IFRS 16 Application of IFRS 16 After imple- mentation of IFRS 16 Other assets 39,209 2,290 41,499 Total assets 39,209 2,290 41,499 Other liabilities 40,232 2,628 42,860 Total liabilities and equity 40,232 2,628 42,860 When measuring lease liabilities, the Allianz Group discounted lease payments using a country- and asset-specific incremental borrowing rate at 1 January 2019, ranging between 0.1 % and 19.7 %. The operating lease commitment can be reconciled to the lease liabilities according to IFRS 16 as follows: Reconciliation of lease commitment to lease liabilities € mn Operating lease commitment at 31 December 20181 3,202 Recognition exemption for short-term leases or leases expiring before 31 December 2019, leases of low value assets, car leases, and leases for intangible assets (183) Extension and termination options reasonably certain to be exercised 105 Variable lease payments based on an index or a rate 10 New lease contracts with commencement date after 1 January 2019 (205) Other (32) Discounted using the incremental borrowing rate at 1 January 2019 (268) Lease liabilities recognized at 1 January 2019 2,628 1_Compared to note 37 of the Allianz Group's Annual Report 2018, the operating lease commitments were adjusted by € 797 mn for commitments not included. OTHER ADOPTED ACCOUNTING PRONOUNCEMENTS The following amendments and revisions to existing standards be- came effective for the Allianz Group’s consolidated financial state- ments as of 1 January 2019: − IFRIC 23, Uncertainty over Income Tax Treatments, − IAS 28, Long-term Interests in Associates and Joint Ventures, − IAS 19, Plan amendment, Curtailment or Settlement, − Annual Improvements to IFRSs (2015 – 2017 Cycle). These changes had no material impact on the Allianz Group's finan- cial results or financial position. 26 3 _ Classification as held for sale CLASSIFICATION AS HELD FOR SALE Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2019 As of 31 December 2018 Assets of disposal groups classified as held for sale Allianz Popular 2,037 Other disposal groups 78 Subtotal 2,037 78 Non-current assets classified as held for sale Real estate held for investment 47 47 Real estate held for own use 47 Associates and joint ventures 338 Subtotal 432 47 Total 2,469 125 Liabilities of disposal groups classified as held for sale Allianz Popular 1,760 Other disposal groups 62 Total 1,760 62 ALLIANZ POPULAR, MADRID As of 30 June 2019, all requirements were fulfilled to present Allianz Popular, Madrid, allocated to the reportable segment Iberia & Latin America (Life/Health), as a disposal group classified as held for sale. Reclassification of assets and liabilities € mn Cash and cash equivalents 168 Investments 1,455 Loans and advances to banks and customers 13 Financial assets for unit-linked contracts 48 Reinsurance assets 1 Deferred acquisition costs 17 Other assets 66 Intangible assets 269 Total assets 2,037 Unearned premiums 26 Reserves for loss and loss adjustment expenses 60 Reserves for insurance and investment contracts 1,492 Financial liabilities for unit-linked contracts 48 Deferred tax liabilities 70 Other liabilities 64 Total liabilities 1,760 A sales contract for the Allianz shares in Allianz Popular was signed on 24 June 2019. The closing of the transaction will be expected during the first quarter of 2020. No impairment loss has been recog- nized in connection with this transaction. Interim Report for the First Half-Year of 2019 − Allianz Group 4 _ Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable seg- ments derive their revenues are consistent with those described in the consolidated financial statements for the year ended 31 December 2018. The statement contained therein regarding general segment reporting information is still applicable and valid. Effective 1 January 2019, the Allianz Group amended its operating profit definition to exclude certain costs that arise directly from inte- gration measures associated with external acquisitions of a certain magnitude or Group internal business combinations of entities with large business activities. Due to the one-off nature of integration expenses, the Allianz Group believes that the updated definition of operating profit provides more reliable and relevant information to the external audience, and accordingly, their exclusion provides additional insight into the operating profit trends of the underlying business. RECENT ORGANIZATIONAL CHANGES Due to the immateriality of the former reportable segments Banking and Alternative Investments, they have been combined with the former reportable segment Holding & Treasury to form the new reportable segment Corporate and Other, which is identical to the respective business segment. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 27 Repor t B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS Business segment information – consolidated balance sheets € mn Property-Casualty As of 30 June 2019 As of 31 December 2018 ASSETS Cash and cash equivalents 4,125 3,977 Financial assets carried at fair value through income 1,394 768 Investments 106,168 99,366 Loans and advances to banks and customers 10,709 10,773 Financial assets for unit-linked contracts Reinsurance assets 11,430 10,987 Deferred acquisition costs 5,239 4,796 Deferred tax assets 606 714 Other assets 26,314 23,357 Non-current assets and assets of disposal groups classified as held for sale 97 48 Intangible assets 3,438 3,292 Total assets 169,521 158,078 Property-Casualty As of 30 June 2019 As of 31 December 2018 LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 216 126 Liabilities to banks and customers 1,543 1,563 Unearned premiums 22,220 17,784 Reserves for loss and loss adjustment expenses 62,203 61,442 Reserves for insurance and investment contracts 15,113 14,388 Financial liabilities for unit-linked contracts Deferred tax liabilities 2,574 2,190 Other liabilities 20,406 19,115 Liabilities of disposal groups classified as held for sale 35 Certificated liabilities Subordinated liabilities Total liabilities 124,275 116,641 28 Life/Health As of 30 June 2019 As of 31 December 2018 10,826 8,301 8,842 6,620 480,566 434,794 97,791 95,808 124,483 115,361 5,653 5,504 20,207 22,912 689 710 20,544 18,808 2,605 77 2,679 2,976 774,884 711,870 Life/Health As of 30 June 2019 As of 31 December 2018 14,444 11,421 6,981 5,976 5,227 5,128 12,019 11,672 552,505 515,537 124,483 115,361 4,909 3,374 15,387 14,094 1,807 27 12 11 69 65 737,842 682,666 Interim Report for the First Half-Year of 2019 − Allianz Group Asset Management As of 30 June 2019 As of 31 December 2018 896 1,073 55 69 71 72 260 68 166 162 4,195 3,731 7,563 7,488 13,207 12,662 Asset Management As of 30 June 2019 As of 31 December 2018 174 174 52 46 3,936 3,370 4,161 3,589 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Corporate and Other Consolidation Group As of 30 June 2019 As of 31 December 2018 As of 30 June 2019 As of 31 December 2018 As of 30 June 2019 As of 31 December 2018 4,808 4,136 (271) (253) 20,385 17,234 657 506 (438) (353) 10,511 7,611 107,449 103,084 (88,860) (86,394) 605,394 550,923 5,007 5,449 (4,725) (3,828) 109,042 108,270 124,483 115,361 (96) (90) 16,988 16,400 25,447 27,709 1,140 1,095 (1,711) (1,722) 890 959 7,073 7,462 (13,680) (14,149) 44,446 39,209 (233) 2,469 125 11 12 13,691 13,767 126,145 121,745 (110,013) (106,788) 973,745 897,567 Corporate and Other Consolidation Group As of 30 June 2019 As of 31 December 2018 As of 30 June 2019 As of 31 December 2018 As of 30 June 2019 As of 31 December 2018 570 433 (444) (354) 14,786 11,626 8,601 8,045 (1,568) (1,536) 15,731 14,222 (25) (21) 27,422 22,891 (62) (59) 74,159 73,054 (64) (57) (131) (181) 567,423 529,687 124,483 115,361 258 193 (1,711) (1,722) 6,082 4,080 27,815 25,012 (21,529) (21,358) 46,015 40,232 (47) 1,760 62 13,824 11,458 (3,144) (2,271) 10,692 9,199 13,502 13,430 (20) (20) 13,551 13,475 64,506 58,513 (28,681) (27,522) 902,103 833,888 Total equity 71,642 63,679 Total liabilities and equity 973,745 897,567 29 Repor t B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Six months ended 30 June 2019 2018 2019 2018 Total revenues1 32,916 30,851 37,399 34,229 Premiums earned (net) 25,179 23,742 12,326 11,491 Operating investment result Interest and similar income 1,723 1,717 9,283 8,927 Operating income from financial assets and liabilities carried at fair value through income (net) (20) (19) (351) (1,127) Operating realized gains/losses (net) 117 92 2,081 2,652 Interest expenses, excluding interest expenses from external debt (57) (46) (56) (50) Operating impairments of investments (net) (19) (28) (539) (743) Investment expenses (192) (183) (697) (650) Subtotal 1,553 1,533 9,721 9,010 Fee and commission income 992 868 800 767 Other income 1 1 4 12 Claims and insurance benefits incurred (net) (16,727) (15,759) (10,062) (9,738) Operating change in reserves for insurance and investment contracts (net)2 (265) (193) (7,169) (5,730) Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses (6,939) (6,657) (2,876) (3,288) Fee and commission expenses (954) (806) (403) (369) Operating amortization of intangible assets (10) (9) Operating restructuring and integration expenses (1) Other expenses (2) (1) (4) (1) Operating profit (loss) 2,838 2,729 2,327 2,144 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (56) 27 81 1 Non-operating realized gains/losses (net) 226 444 30 22 Non-operating impairments of investments (net) (110) (144) (20) (15) Subtotal 60 327 90 7 Non-operating change in reserves for insurance and investment contracts (net) (34) 2 Interest expenses from external debt Acquisition-related expenses Non-operating amortization of intangible assets (56) (29) (26) (251) Non-operating restructuring and integration expenses (41) (50) (15) (32) Non-operating items (37) 247 15 (273) Income (loss) before income taxes 2,801 2,976 2,342 1,872 Income taxes (721) (732) (553) (550) Net income (loss) 2,079 2,244 1,788 1,322 Net income (loss) attributable to: Non-controlling interests 38 44 90 89 Shareholders 2,041 2,200 1,698 1,233 1_Total revenues comprise gross premiums written and (due to a definition change at the beginning of 2019) fee and commission income in Property-Casualty, statutory premiums in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Prior year figures have been adjusted accordingly. 2_For the six months ended 30 June 2019, includes expenses for premium refunds (net) in Property-Casualty of € (98) mn (2018: € (51) mn). 30 Interim Report for the First Half-Year of 2019 − Allianz Group Asset Management 2019 2018 3,320 3,257 10 6 6 5 (16) (5) 5 4,211 4,200 2 (2,069) (2,010) (891) (951) 1,251 1,247 (8) (7) (1) 1 (9) (6) 1,242 1,241 (316) (307) 926 934 40 38 885 896 Interim Report for the First Half-Year of 2019 − Allianz Group Corporate and Other 2019 118 259 12 (79) (39) 154 1,127 (1) (559) (1,016) (296) (22) 55 (15) 18 (429) (5) (20) (435) (731) 249 (482) 39 (520) 2018 147 281 (8) (100) (45) 129 1,043 4 1 (552) (1,003) (378) 14 147 (12) 148 (416) (5) (77) (350) (728) 247 (481) 25 (506) Consolidation 2019 (275) (76) (3) (8) 78 246 237 (1,238) 2 11 (15) 1,005 1 3 1 5 5 6 (2) 4 5 B _ Condensed Consolidated Interim Financial Statements Group 2018 2019 2018 (286) 73,479 68,198 37,505 35,233 (104) 11,199 10,827 4 (356) (1,145) 41 2,190 2,785 103 (130) (98) (558) (770) 247 (682) (630) 291 11,664 10,969 (1,150) 5,891 5,727 (5) 6 15 2 (26,787) (25,494) (35) (7,423) (5,958) (1) 1 (18) (12,459) (12,525) 925 (2,258) (2,204) (10) (9) (1) (6) (1) 12 6,121 5,753 (4) 6 36 (2) 313 612 (145) (172) (6) 173 476 (34) 2 (429) (416) (95) (291) (76) (158) (6) (461) (388) 5 5,659 5,366 1 (1,344) (1,340) 7 4,316 4,025 207 196 7 4,109 3,830 31 Repor t B _ Condensed Consolidated Interim Financial Statements RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES Reconciliation of reportable segments to Allianz Group figures € mn Total revenues Six months ended 30 June 2019 2018 German Speaking Countries and Central & Eastern Europe 9,805 9,548 Western & Southern Europe and Asia Pacific 6,405 6,603 Iberia & Latin America and Allianz Partners 6,799 5,954 Global Insurance Lines & Anglo Markets, Middle East and Africa 14,142 13,254 Consolidation (4,235) (4,508) Total Property-Casualty 32,916 30,851 German Speaking Countries and Central & Eastern Europe 17,240 14,322 Western & Southern Europe and Asia Pacific 13,644 14,483 Iberia & Latin America 787 987 USA 5,817 4,627 Global Insurance Lines & Anglo Markets, Middle East and Africa 432 336 Consolidation and Other (520) (527) Total Life/Health 37,399 34,229 Asset Management 3,320 3,257 Corporate and Other 118 147 Consolidation (275) (286) Group 73,479 68,198 32 Operating profit (loss) Net income (loss) 2019 2018 2019 2018 798 621 608 549 815 855 573 693 247 275 155 165 979 994 743 851 (16) (13) 2,838 2,729 2,079 2,244 820 857 565 579 777 712 578 303 131 160 133 111 588 388 506 312 30 28 21 18 (20) (1) (16) (1) 2,327 2,144 1,788 1,322 1,251 1,247 926 934 (296) (378) (482) (481) 1 12 4 7 6,121 5,753 4,316 4,025 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEETS 5 _ Financial assets carried at fair value through income 6 _ Investments Investments € mn Financial assets carried at fair value through income € mn As of 30 June 2019 As of 31 December 2018 Available-for-sale investments As of 30 June 2019 573,294 As of 31 December 2018 520,612 Held-to-maturity investments 2,632 2,787 Financial assets held for trading Funds held by others under reinsurance contracts assumed 757 732 Debt securities 416 421 Investments in associates and joint ventures 13,384 11,823 Equity securities 246 203 Real estate held for investment 12,897 12,455 Derivative financial instruments 4,615 2,729 Fixed assets of renewable energy investments 2,429 2,514 Subtotal 5,277 3,353 Total 605,394 550,923 Financial assets designated at fair value through income Debt securities 2,939 2,276 Equity securities 2,295 1,982 Subtotal 5,233 4,258 Total 10,511 7,611 AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale investments € mn As of 30 June 2019 As of 31 December 2018 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds 244,802 19,339 (485) 263,656 236,297 8,818 (3,923) 241,192 Government and government agency bonds1 181,512 34,695 (444) 215,763 180,094 19,106 (1,669) 197,531 MBS/ABS 26,364 693 (62) 26,995 24,267 202 (434) 24,035 Other 6,111 1,284 (21) 7,374 5,376 1,080 (14) 6,442 Subtotal 458,789 56,011 (1,012) 513,788 446,034 29,205 (6,040) 469,199 Equity securities 46,301 13,599 (396) 59,506 43,055 9,246 (888) 51,413 Total 505,090 69,611 (1,408) 573,294 489,089 38,451 (6,928) 520,612 1_As of 30 June 2019, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 80,317 mn (31 December 2018: € 71,260 mn) and € 72,180 mn (31 December 2018: € 68,667 mn), respectively. 7 _ Loans and advances to banks and customers 8 _ Reinsurance assets Loans and advances to banks and customers € mn Reinsurance assets € mn As of 30 June 2019 As of 31 December 2018 As of 30 June 2019 As of 31 December 2018 Short-term investments and certificates of deposit 2,882 3,105 Unearned premiums 2,217 1,713 Loans 103,900 102,898 Reserves for loss and loss adjustment expenses 9,662 9,672 Other 2,333 2,344 Aggregate policy reserves 4,976 4,887 Subtotal 109,116 108,348 Other insurance reserves 133 128 Loan loss allowance (73) (78) Total 16,988 16,400 Total 109,042 108,270 Interim Report for the First Half-Year of 2019 − Allianz Group 33 Repor t B _ Condensed Consolidated Interim Financial Statements 9 _ Deferred acquisition costs Deferred acquisition costs € mn Deferred acquisition costs Property-Casualty Life/Health Subtotal Deferred sales inducements Present value of future profits Total 10 _ Other assets Other assets € mn Receivables Policyholders Agents Reinsurance Other Less allowances for doubtful accounts Subtotal Tax receivables Income taxes Other taxes Subtotal Accrued dividends, interest and rent Prepaid expenses Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments Property and equipment Real estate held for own use Software Equipment Right-of-use assets1 Subtotal Other assets Total 1_For further information regarding the implementation of IFRS 16, please refer to note 2. 34 As of 30 June 2019 5,239 19,396 24,635 480 332 25,447 As of 30 June 2019 7,356 4,760 3,568 6,393 (642) 21,435 1,718 1,959 3,677 6,003 672 977 2,738 2,976 1,373 2,330 9,417 2,265 44,446 As of 31 December 2018 4,796 21,727 26,523 803 383 27,709 As of 31 December 2018 6,460 4,394 2,942 5,478 (600) 18,673 1,798 1,998 3,796 6,585 507 489 2,856 2,934 1,378 7,168 1,991 39,209 11 _ Intangible assets Intangible Assets € mn As of 30 June 2019 As of 31 December 2018 Goodwill 12,430 12,330 Distribution agreements1 628 815 Other2 633 621 Total 13,691 13,767 1_Primarily includes the long-term distribution agreements with Commerzbank AG. 2_Primarily include acquired business portfolios, customer relationships, heritable building rights, land use rights, lease rights, and brand names. 12 _ Liabilities to banks and customers Liabilities to banks and customers € mn As of 30 June 2019 As of 31 December 2018 Payable on demand and other deposits 1,143 1,115 Repurchase agreements and collateral received from securities lending transactions and derivatives 5,143 4,173 Other 9,445 8,934 Total 15,731 14,222 Interim Report for the First Half-Year of 2019 − Allianz Group 13 _ Reserves for loss and loss adjustment expenses As of 30 June 2019, the reserves for loss and loss adjustment expen- ses of the Allianz Group totaled € 74,159 mn (31 December 2018: € 73,054 mn). The following table reconciles the beginning and end- ing reserves of the Property-Casualty business segment for the half- years ended 30 June 2019 and 2018. Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn 2019 2018 As of 1 January 61,442 62,093 Balance carry forward of discounted loss reserves 4,157 4,096 Subtotal 65,598 66,189 Loss and loss adjustment expenses incurred Current year 18,786 17,740 Prior years (768) (1,312) Subtotal 18,018 16,427 Loss and loss adjustment expenses paid Current year (6,522) (6,383) Prior years (11,018) (10,796) Subtotal (17,540) (17,178) Foreign currency translation adjustments and other changes 250 60 Changes in the consolidated subsidiaries of the Allianz Group 224 284 Subtotal 66,550 65,782 Ending balance of discounted loss reserves (4,347) (4,099) As of 30 June 62,203 61,683 14 _ Reserves for insurance and investment contracts Reserves for insurance and investment contracts € mn As of 30 June 2019 As of 31 December 2018 Aggregate policy reserves 480,514 466,406 Reserves for premium refunds 86,229 62,573 Other insurance reserves 680 707 Total 567,423 529,687 Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 15 _ Other liabilities Other liabilities € mn As of 30 June 2019 As of 31 December 2018 Payables Policyholders 3,925 4,880 Reinsurance 2,218 1,655 Agents 1,667 1,652 Subtotal 7,810 8,186 Payables for social security 401 425 Tax payables Income taxes 2,085 1,530 Other taxes 1,848 1,738 Subtotal 3,933 3,268 Accrued interest and rent 632 437 Unearned income 511 503 Provisions Pensions and similar obligations 10,224 9,091 Employee related 2,494 2,779 Share-based compensation plans 362 383 Restructuring plans 298 335 Other provisions 1,929 2,079 Subtotal 15,307 14,667 Deposits retained for reinsurance ceded 2,485 2,568 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 294 330 Financial liabilities for puttable equity instruments 2,173 1,993 Lease liabilities1 2,687 Other liabilities 9,782 7,855 Total 46,015 40,232 1_For further information regarding the implementation of IFRS 16, please refer to note 2. 16 _ Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2019 As of 31 December 2018 Senior bonds1 9,530 8,036 Money market securities 1,162 1,163 Total certificated liabilities 10,692 9,199 Subordinated bonds 13,506 13,430 Hybrid equity2 45 45 Total subordinated liabilities 13,551 13,475 1_Change due to the issuance of two senior bonds with a total volume of € 1.5 bn in the first half-year of 2019. 2_Relates to hybrid equity issued by subsidiaries. 35 Repor t B _ Condensed Consolidated Interim Financial Statements Bonds outstanding as of 30 June 2019 € mn ISIN Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A1AKHB8 DE000A180B72 DE000A19S4T0 DE000A1G0RU9 DE000A19S4U8 DE000A2RWAX4 DE000A19S4V6 DE000A1HG1K6 DE000A2RWAY2 DE000A180B80 DE000A1HG1L4 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 DE000A14J9N8 DE000A2DAHN6 XS1556937891 XS0857872500 DE000A1YCQ29 CH02348333711 DE000A13R7Z7 XS1485742438 Allianz Finance II B.V., Amsterdam DE000A1GNAH1 DE000A0GNPZ3 1_CHF 0.5 bn subordinated bond called for redemption effective 4 July 2019. 17 _ Equity Equity € mn As of 30 June 2019 As of 31 December 2018 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital 27,758 27,758 Retained earnings1,2 26,084 27,967 Foreign currency translation adjustments (2,576) (2,607) Unrealized gains and losses (net)3 15,943 6,945 Subtotal 68,379 61,232 Non-controlling interests 3,263 2,447 Total 71,642 63,679 1_As of 30 June 2019, include € (1,359) mn (31 December 2018: € (84) mn) related to treasury shares. 2_As announced in March 2019, a share buy-back with a volume of € 1.5 bn has been executed since 4 March 2019. During the first half year of 2019, Allianz SE purchased 6.2 million own shares for an amount of € 1.3 bn. 3_As of 30 June 2019, include € 409 mn (31 December 2018: € 267 mn) related to cash flow hedges. DIVIDENDS In the second quarter of 2019, a total dividend of € 3,767 mn (2018: € 3,428 mn) or € 9.00 (2018: € 8.00) per qualifying share was paid to the shareholders. 36 Year of issue 2009 2016 2017 2012 2017 2019 2017 2013 2019 2016 2013 2012 2015 2017 2017 2012 2013 2014 2014 2016 2011 2006 Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD USD EUR CHF EUR USD EUR EUR Notional amount Coupon in % Maturity date 1,500 4.750 22 July 2019 750 0.000 21 April 2020 500 3-months Euribor + 50 bps 7 December 2020 1,500 3.500 14 February 2022 750 0.250 6 June 2023 750 0.875 15 January 2026 750 0.875 6 December 2027 750 3.000 13 March 2028 750 1.500 15 January 2030 750 1.375 21 April 2031 750 4.500 13 March 2043 1,500 5.625 17 October 2042 1,500 2.241 7 July 2045 1,000 3.099 6 July 2047 600 5.100 30 January 2049 1,000 5.500 Perpetual bond 1,500 4.750 Perpetual bond 500 3.250 Perpetual bond 1,500 3.375 Perpetual bond 1,500 3.875 Perpetual bond 2,000 5.750 8 July 2041 800 5.375 Perpetual bond Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENTS 18 _ Premiums earned (net) Premiums earned (net) € mn 20 _ Income from financial assets and liabilities carried at fair value through income (net) Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group Income from financial assets and liabilities carried at fair value through income (net) € mn 2019 Six months ended 30 June 2019 2018 Premiums written Gross 31,924 12,936 (57) 44,803 Income from financial assets and liabilities held for trading (net) (681) (1,856) Ceded Net (2,861) 29,063 (302) 12,634 57 (3,106) 41,697 Income from financial assets and liabilities designated at fair value through income (net) 407 (110) Change in unearned premiums (net) Premiums earned (net) (3,884) 25,179 (308) 12,326 (4,192) 37,505 Income from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net)1 Total (186) 110 (350) 77 780 (1,109) 2018 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated Premiums written in a foreign currency that are monetary items and not measured at fair value through income. Gross 29,984 12,052 (69) 41,966 Ceded (2,651) (274) 69 (2,856) Net 27,332 11,778 39,110 Change in unearned premiums (net) (3,590) (287) (3,877) 21 _ Realized gains/losses (net) Premiums earned (net) 23,742 11,491 35,233 Realized gains/losses (net) € mn Six months ended 30 June 2019 2018 19 _ Interest and similar income REALIZED GAINS Available-for-sale investments Equity securities 1,197 1,967 Interest and similar income € mn Debt securities Subtotal 1,616 2,813 1,741 3,708 Six months ended 30 June 2019 2018 Other 199 341 Dividends from available-for-sale investments 1,420 1,476 Subtotal 3,012 4,049 Interest from available-for-sale investments 6,834 6,476 Interest from loans to banks and customers Rent from real estate held for investment Other Total 1,949 461 535 11,199 1,917 445 513 10,827 REALIZED LOSSES Available-for-sale investments Equity securities Debt securities (191) (265) (226) (355) Subtotal (457) (581) Other (52) (71) Subtotal (509) (653) Total 2,503 3,397 Interim Report for the First Half-Year of 2019 − Allianz Group 37 Repor t B _ Condensed Consolidated Interim Financial Statements 22 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2019 2018 PROPERTY-CASUALTY Fees from credit and assistance business 798 657 Service agreements 194 210 Subtotal 992 868 LIFE/HEALTH Investment advisory 707 702 Service agreements 94 65 Subtotal 800 767 ASSET MANAGEMENT Management and advisory fees 3,870 3,735 Loading and exit fees 193 280 Performance fees 122 166 Other 26 19 Subtotal 4,211 4,200 CORPORATE AND OTHER Service agreements 781 727 Investment advisory and banking activities 346 316 Subtotal 1,127 1,043 CONSOLIDATION (1,238) (1,150) Total 5,891 5,727 23 _ Claims and insurance benefits incurred (net) Claims and insurance benefits incurred (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2019 Gross (18,018) (10,346) 36 (28,328) Ceded 1,291 284 (34) 1,540 Net (16,727) (10,062) 2 (26,787) 2018 Gross (16,427) (10,009) 26 (26,411) Ceded 669 272 (24) 916 Net (15,759) (9,738) 2 (25,494) 38 24 _ Change in reserves for insurance and investment contracts (net) Change in reserves for insurance and investment contracts (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2019 Gross (266) (7,314) 11 (7,570) Ceded 1 111 113 Net (265) (7,203) 11 (7,457) 2018 Gross (197) (5,838) (35) (6,070) Ceded 4 110 115 Net (193) (5,728) (35) (5,956) 25 _ Interest expenses Interest expenses € mn Six months ended 30 June 2019 2018 Liabilities to banks and customers (44) (44) Deposits retained for reinsurance ceded (36) (25) Certificated liabilities (127) (121) Subordinated liabilities (304) (300) Other (48) (25) Total (559) (514) 26 _ Impairments of investments (net) Impairments of investments (net) € mn Six months ended 30 June 2019 2018 Impairments Available-for-sale investments Equity securities (625) (831) Debt securities (15) (103) Subtotal (639) (934) Other (65) (13) Non-current assets and assets of disposal groups classified as held for sale (2) Subtotal (706) (946) Reversals of impairments 3 4 Total (703) (943) Interim Report for the First Half-Year of 2019 − Allianz Group 27 _ Investment expenses Investment expenses € mn Six months ended 30 June 2019 Investment management expenses (390) Expenses from real estate held for investment (186) Expenses from fixed assets of renewable energy investments (106) Total (682) 28 _ Acquisition and administrative expenses (net) Acquisition and administrative expenses (net) € mn Six months ended 30 June 2019 PROPERTY-CASUALTY Acquisition costs1 (5,269) Administrative expenses (1,671) Subtotal (6,939) LIFE/HEALTH Acquisition costs (1,950) Administrative expenses (926) Subtotal (2,876) ASSET MANAGEMENT Personnel expenses (1,268) Non-personnel expenses (802) Subtotal (2,069) CORPORATE AND OTHER Administrative expenses (559) Subtotal (559) CONSOLIDATION (15) Total (12,459) 1_Include € 328 mn (2018: € 260 mn) ceded acquisition costs. Interim Report for the First Half-Year of 2019 − Allianz Group 2018 (349) (173) (108) (630) 2018 (5,075) (1,582) (6,657) (2,390) (898) (3,288) (1,253) (757) (2,010) (552) (552) (18) (12,525) B _ Condensed Consolidated Interim Financial Statements 29 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2019 2018 PROPERTY-CASUALTY Fees from credit and assistance business (773) (638) Service agreements (181) (168) Subtotal (954) (806) LIFE/HEALTH Service agreements (64) (34) Investment advisory (339) (335) Subtotal (403) (369) ASSET MANAGEMENT Commissions (881) (869) Other (10) (82) Subtotal (891) (951) CORPORATE AND OTHER Service agreements (823) (834) Investment advisory and banking activities (193) (169) Subtotal (1,016) (1,003) CONSOLIDATION 1,005 925 Total (2,258) (2,204) 30 _ Income taxes Income taxes € mn Six months ended 30 June 2019 2018 Current income taxes (1,650) (1,153) Deferred income taxes 307 (188) Total (1,344) (1,340) For the six months ended 30 June 2019 and 2018, the income taxes on components of other comprehensive income consist of the follow- ing: Income taxes on components of other comprehensive income € mn Six months ended 30 June 2019 2018 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 33 59 Available-for-sale investments (2,716) 924 Cash flow hedges (54) 10 Share of other comprehensive income of associates and joint ventures (2) 4 Miscellaneous (5) 31 Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans 326 (21) Total (2,418) 1,008 39 Repor t B _ Condensed Consolidated Interim Financial Statements OTHER INFORMATION 31 _ Fair values and carrying amounts of financial instruments FAIR VALUES AND CARRYING AMOUNTS The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities As of 30 June 2019, fair values could not be reliably measured for equity totaled € 65 mn (31 December 2018: € 61 mn). These investments are primarily in- vestments in privately held corporations and partnerships. investments whose carrying amounts FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, and − Financial liabilities for puttable equity instruments. 40 As of 30 June 2019 As of 31 December 2018 Carrying amount Fair value Carrying amount Fair value 20,385 20,385 17,234 17,234 5,277 5,277 3,353 3,353 5,233 5,233 4,258 4,258 573,294 573,294 520,612 520,612 2,632 2,918 2,787 2,973 13,384 16,636 11,823 15,284 12,897 22,225 12,455 21,545 109,042 127,796 108,270 121,839 124,483 124,483 115,361 115,361 14,786 14,786 11,626 11,626 15,731 15,763 14,222 14,235 124,483 124,483 115,361 115,361 2,173 2,173 1,993 1,993 10,692 11,647 9,199 9,830 13,551 14,632 13,475 13,897 Interim Report for the First Half-Year of 2019 − Allianz Group The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2019 and 31 December 2018: Fair value hierarchy (items carried at fair value) € mn As of 30 June 2019 Level 11 Level 22 FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 435 4,683 Financial assets designated at fair value through income 3,345 1,725 Subtotal 3,780 6,407 Available-for-sale investments Corporate bonds 13,063 227,508 Government and government agency bonds 17,740 197,181 MBS/ABS 40 26,726 Other 974 1,090 Equity securities 43,139 611 Subtotal 74,956 453,117 Financial assets for unit-linked contracts 98,379 25,075 Total 177,114 484,599 FINANCIAL LIABILITIES Financial liabilities carried at fair value through income 107 2,580 Financial liabilities for unit-linked contracts 98,379 25,075 Financial liabilities for puttable equity instruments 1,777 90 Total 100,262 27,745 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, and the significant Level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2018. No material changes have occurred since this report was published. SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Transfers into/out of level 3 may occur due to a reassessment of the input parameters. Interim Report for the First Half-Year of 2019 − Allianz Group Level 33 160 164 324 23,085 843 229 5,310 15,755 45,221 1,029 46,573 12,099 1,029 306 13,434 Total 5,277 5,233 10,511 263,656 215,763 26,995 7,374 59,506 573,294 124,483 708,287 14,786 124,483 2,173 141,441 B _ Condensed Consolidated Interim Financial Statements As of 31 December 2018 Level 11 Level 22 Level 33 Total 1,341 1,888 123 3,353 3,112 985 161 4,258 4,453 2,874 284 7,611 11,821 209,461 19,910 241,192 18,234 178,530 766 197,531 45 23,807 183 24,035 826 1,075 4,540 6,442 37,163 655 13,595 51,413 68,089 413,529 38,994 520,612 90,856 23,676 829 115,361 163,398 440,078 40,107 643,583 36 1,568 10,023 11,626 90,856 23,676 829 115,361 1,665 108 221 1,993 92,556 25,351 11,073 128,980 41 Repor t B _ Condensed Consolidated Interim Financial Statements Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. Reconciliation of level 3 financial assets € mn Financial assets carried at fair value through income Carrying value (fair value) as of 1 January 2019 284 Additions through purchases and issues 9 Net transfers into (out of) Level 3 1 Disposal through sales and settlements 289 Net gains (losses) recognized in consolidated income statement (261) Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments 1 Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2019 324 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date 38 1_Primarily include corporate bonds. Reconciliation of level 3 financial liabilities € mn Carrying value (fair value) as of 1 January 2019 Additions through purchases and issues Net transfers into (out of) Level 3 Disposal through sales and settlements Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2019 Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 42 Available-for-sale investments – Debt securities1 25,399 3,218 514 (737) (326) 1,327 (23) 43 50 29,466 6 Financial liabilities carried at fair value through income 10,023 719 (441) 1,776 22 12,099 1,724 Available-for-sale investments – Equity securities Financial assets for unit-linked contracts Total 13,595 829 40,107 2,326 168 5,722 (1) 15 530 (429) (5) (882) 2 17 (569) 340 1,667 (130) (153) 42 4 91 10 60 15,755 1,029 46,573 17 61 Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total 829 221 11,073 168 87 973 15 15 (5) (1) (448) 17 1,793 4 26 1,029 306 13,434 17 1,742 Interim Report for the First Half-Year of 2019 − Allianz Group FAIR VALUE MEASUREMENT ON A NON-RECURRING BASIS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of im- pairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 26. 32 _ Other information LITIGATION On 24 May 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as principal shareholder in return for payment of a cash settlement amounting to € 51.50 per share. Allianz established the amount of the cash settlement on the basis of an expert opinion, and its adequacy was confirmed by a court appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”). In Septem- ber 2013, the district court (“Landgericht”) of Frankfurt dismissed the minority shareholders’ claims in their entirety. This decision has been appealed to the higher regional court (“Oberlandesgericht”) of Frankfurt. With its decision of 6 June 2019, the higher regional court of Frankfurt dismissed the appeals of the minority shareholders. With this decision the civil court proceeding is closed. CONTINGENT LIABILITIES AND COMMITMENTS As of 30 June 2019, there were no significant changes in contingent liabilities, compared to the consolidated financial statements for the year ended 31 December 2018. The following table shows the composition of purchase obliga- tions as of 30 June 2019: Purchase obligations € mn As of 30 June 2019 As of 31 December 2018 Commitments to acquire interests in associates and available-for-sale investments 18,101 17,199 Debt investments 6,797 5,746 Other 4,903 3,304 Total 29,801 26,249 All other commitments had no significant changes. Interim Report for the First Half-Year of 2019 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 33 _ Subsequent events The Allianz Group was not subject to any subsequent events that significantly impacted the Group’s financial results after the balance sheet date and before the condensed consolidated interim financial statements were authorized for issue. 43 Repor t B _ Condensed Consolidated Interim Financial Statements 44 This page intentionally left blank. Interim Report for the First Half-Year of 2019 − Allianz Group FURTHER INFORMATION C Interim Report for the First Half-Year of 2019 − Allianz Group 45 Repor t C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 31 July 2019 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Niran Peiris Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis 46 Interim Report for the First Half-Year of 2019 − Allianz Group REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements – comprising the consolidated balance sheet, consolidat- ed income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes – and the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2019 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhan- delsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the re- view of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assur- ance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group man- agement reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a finan- cial statement audit, we cannot express an audit opinion. Interim Report for the First Half-Year of 2019 − Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim finan- cial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, 1 August 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Wirtschaftsprüfer (German Public Auditor) Julia Unkel Wirtschaftsprüferin (German Public Auditor) 47 Repor t Financial calendar Important dates for shareholders and analysts1 Financial Results 3Q ____________________________________________________________________________________ 8 November 2019 Financial Results 2019 ___________________________________________________________________________________ 21 February 2020 Annual Report 2019 ________________________________________________________________________________________ 6 March 2020 Annual General Meeting ______________________________________________________________________________________ 6 May 2020 Financial Results 1Q _________________________________________________________________________________________ 12 May 2020 Financial Results 2Q/Interim Report 6M ______________________________________________________________________ 5 August 2020 Financial Results 3Q ____________________________________________________________________________________ 6 November 2020 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and financial-year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking our financial calendar at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone +49 89 3800 0 – info@allianz.com – www.allianz.com Front page design: hw.design GmbH – Typesetting: Produced in-house with firesys Interim Report on the internet: www.allianz.com/interim-report – Date of publication: 2 August 2019 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2019, Insurance, Allianz | write me a financial report |
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| ALLIANZ GROUP FIRST HALF-YEAR 2020 INTERIM REPORT 2020 To go directly to any chapter, simply click on the headline. All references to chapters, notes, internet pages, etc. within this report are also linked. CONTENT A _ Interim Group Management Report Pages 1 – 18 2 Executive Summary 5 Property-Casualty Insurance Operations 7 Life/Health Insurance Operations 10 Asset Management 12 Corporate and Other 13 Outlook 15 Balance Sheet Review 17 Reconciliations B _ Condensed Consolidated Interim Financial Statements Pages 19 – 46 20 Consolidated Balance Sheet 21 Consolidated Income Statement 22 Consolidated Statement of Comprehensive Income 23 Consolidated Statement of Changes in Equity 24 Consolidated Statement of Cash Flows NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 27 General Information 35 Notes to the Consolidated Balance Sheet 40 Notes to the Consolidated Income Statement 43 Other Information C _ Further Information Pages 47 – 49 48 Responsibility Statement 49 Review Report Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of Euros (€ mn) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/results. INTERIM GROUP MANAGEMENT REPORT A Interim Report for the First Half-Year of 2020 − Allianz Group 1 A _ Interim Group Management Report EXECUTIVE SUMMARY KEY FIGURES Key figures Allianz Group1 Six months ended 30 June 2020 2019 Total revenues2 € mn 73,495 73,479 Operating profit3 € mn 4,869 6,121 Net income3 € mn 3,101 4,316 thereof: attributable to shareholders € mn 2,927 4,109 Solvency II capitalization ratio4 % 187 212 Return on equity5 % 10.0 13.6 Earnings per share € 7.07 9.76 Diluted earnings per share € 6.94 9.75 Earnings summary2,3,4,5 ECONOMIC AND INDUSTRY ENVIRONMENT The first half-year of 2020 was marked by the COVID-19 pandemic. What was set to become a year of unspectacular growth is now expected to see a very severe recession, as the COVID-19 outbreak forced gov- ernments around the world to put the economy on an unprecedented pause in order to fight the pandemic. Although the trough of the crisis might already be behind us, the global economy is still operating at only 70 – 80 % capacity, reflecting the need for targeted lockdowns to combat new outbreaks of the virus and prolonged sanitary restrictions. It will take time before we can witness a return to business as usual. Governments have come to the rescue with huge fiscal support packages, amounting to more than € 9 tn at the global level (around 12 % of global GDP). Central banks, too, have responded quickly and boldly to contain the pandemic-related crisis, using the whole toolbox of monetary instruments (more than € 7 tn or close to 10 % of global GDP). These expansionary fiscal and monetary policy measures have left their mark on financial markets, in particular equity markets: After initially falling by around 30 % in reaction to COVID-19, equity markets started to recover as early as March and recouped most of their losses, leading to a decoupling between the real economy and equity market performance. The insurance industry is affected by the COVID-19 outbreak in three ways: First, claims, which will evolve over a much longer time hori- zon, as compared to property related catastrophes such as hurricanes, while the reduced claims frequency observed during the lockdown period has a positive effect. Second, in the capital markets, falling interest rates, widening spreads, and volatile stock markets will weigh on profit and loss accounts and balance sheets of insurers. Third, there will be second-round effects of the recession, as new business was virtually 1_For further information on Allianz Group figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Total revenues comprise Property-Casualty total revenues (gross premiums written and fee and commission income), Life/Health statutory gross premiums written, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 2 Delta 16 (1,252) (1,215) (1,181) (26) %-p (3.5) %-p (2.69) (2.80) brought to a halt during lockdowns and will recover only gradually. On top of these market challenges, there is the operational challenge of business continuity: maintaining operations and serving clients while protecting employees. The global asset management industry ended 2019 on a high note, only to face a new chapter of economic turmoil when the COVID - 19 pandemic broke out in early 2020. As already described, the volatility seen in stock markets reached new heights in March 2020, as investors sold their positions in a wave of uncertainty about conse- quences of the pandemic. Central banks around the world have been implementing stimulus packages in an attempt to lessen the impact of the pandemic on the economy. Thus, though volatile, there was a turn- around in the stock markets with the MSCI World listing not even 10 % below end of 2019 as per end of June 2020. For fixed-income indices, U.S. interest rates have been a shock absorber. In light of progressive market recovery, long-term net inflows were starting to stabilize in May 2020, yet with a mixed picture across asset classes: Equity fund out- flows were worsening in May 2020. Fixed-income funds on the other hand saw an improvement to a robust level of growth. MANAGEMENT’S ASSESSMENT Our total revenues decreased by 1.5 % on an internal basis6, compared to the same period of the previous year, driven by our Life/Health busi- ness segment. Our Asset Management business segment recorded volume-driven revenue growth, while our revenues from our Property- Casualty business segment increased very slightly. COVID-19 severely impacted the operating profit from our insur- ance operations. Our Property-Casualty business segment’s operating profit was burdened by a much lower underwriting result, due to COVID-19-related losses as well as higher claims from natural catas- trophes. In our Life/Health business segment we recorded a lower operating profit. This decline was mainly due to a lower investment margin – a result of the financial market turmoil as well as a change in the amortization period for deferred acquisition cost, which the United States had introduced in the second quarter of 2019, resulting in a favorable effect that year. Despite difficult markets, our Asset Manage- ment business segment’s operating profit grew due to higher average assets under management. The operating result of our Corporate and Other business segment worsened, driven by a lower operating invest- ment result and a contribution to a COVID-19 solidarity fund. Our operating investment result decreased by € 2,838 mn to € 8,827 mn, compared to the previous year’s period. This decrease was due to significantly higher impairments and a lower trading result, partly offset by higher realizations on debt securities. Our non-operating result worsened by € 284 mn to a loss of € 745 mn. This was partly due to higher investments in productivity and efficiency. In addition, COVID-19-related market impacts reduced our non-operating investment result. 4_2019 figures as of 31 December 2019. 2020 figures as of 30 June 2020, and exclude the application of transitional measures for technical provisions. 5_Represents the (annualized) ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the period and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2019, the return on equity for the full year is shown. 6_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. Interim Report for the First Half-Year of 2020 − Allianz Group Income taxes decreased by € 321 mn to € 1,023 mn, due to lower income before taxes. The effective tax rate increased to 24.8 % (23.7 %), in particular as a result of a lower positive impact from DTA recognition (+0.7 percentage points) and a higher negative impact from local taxes (+0.3 percentage points). The decrease in net income was largely driven by the drop in operating profit. Our shareholders’ equity1 decreased by € 1.9 bn to € 72.1 bn, compared to 31 December 2019, driven by a dividend payout of € 4.0 bn and € 750 mn for the purchase of 4.9 million own shares as part of the latest share buy-back program announced in March 20202. This was partly offset by a net income attributable to shareholders of € 2.9 bn. Over the same period, our Solvency II capitalization ratio de- creased to 187 %3. For a more detailed description of the results generated by our business segments – Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other – please consult the respective chapters on the following pages. Risk and opportunity management Group Risk has a central role within our risk governance framework: It is both the key Group function to support the Board of Management in fulfilling its risk oversight responsibilities, and also Allianz SE‘s Risk Management function. This also includes the ongoing assessment of risks in the context of pandemics such as COVID-19. For assessing current developments with potentially significant effects on the Allianz Group, such as COVID-19, it is particularly important to perform specific analyses. Therefore, our risk management processes include measures such as risk assessments, scenario analyses, solvency projections, and an increased reporting frequency if and as needed, making them suit- able for coping with adverse developments such as COVID - 19. RISK PROFILE UNDERWRITING RISK In our Life/Health insurance business, the COVID-19 pandemic could affect, amongst other things, the frequency and severity of diseases, mortality, and inflation. In our Property-Casualty insurance business, we continue to expect our Global lines to be hit the hardest – Allianz Partners via travel insurance, Euler Hermes via credit insurance, and AGCS in the entertainment or business interruption line of business – since the ongoing COVID-19 pandemic still leads to the cancelation or postponement of big events such as trade fairs or sporting events, or has the potential to increase insolvencies in case the termination of state aid is not accompanied by increasing economic activity. Decreas- ing claims frequency in motor business especially observed during the lockdown period has an offsetting effect, provided we do not face sig- nificant premium refunds. In addition, there is the risk that political pressure to retroactively extend insurance coverage may lead to legislative developments with adverse impacts on the insurance business. 1_For further information on shareholders‘ equity, please refer to the Balance Sheet Review. 2_For further information on the share buy-back program, please refer to note 18 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2020 − Allianz Group A _ Interim Group Management Report For underwriting risk, emerging events such as pandemics are an- alyzed and taken into account as part of the specific analyses or regu- lar model reviews carried out by our experts. FINANCIAL RISK The COVID-19 pandemic continues to have an impact on the Group’s market risk, as it is causing significant price impacts on the financial market especially for equities. It is also expected to continue having an impact on credit risk, in particular that associated with loans granted, investments in fixed-income securities, and reinsurance as well as credit spread risk – mainly when these are associated with investments in fixed-income securities. Nevertheless, due to the high quality of our fixed-income portfolio, which is characterized by highly rated invest- ments, the impact on credit risk should remain limited. The resulting impact on our financial risk is estimated based on specific analyses. LIQUIDITY RISK In the current market environment, which is under the influence of the COVID-19 pandemic, Allianz's liquidity situation is affected in particu- lar by the economic and solvency situation of our related entities as well as the political and regulatory requirements regarding corporate capital management activities, such as the general ability to pay divi- dends. We are carefully monitoring this development to ensure that Allianz SE in its role as the Group's holding company has sufficient re- sources to support solvency capital needs within the Group as well as its own operative liquidity needs. We still expect to retain a satisfactory liquidity position, as we define our risk appetite based on stress scenar- ios, and in Allianz SE's liquidity risk reporting we consider specific stress scenarios. For example, a dedicated scenario simultaneously assumes disturbances in the financial market as well as potential recapitaliza- tion needs of related undertakings. Furthermore, we have been in on- going contact with our entities to get a timely and comprehensive pic- ture on COVID-19-related impacts on liquidity and developments that could potentially have an adverse effect. OPERATIONAL RISK The Group's operational risks associated with the COVID-19 pandemic mainly result from possible operational delays due to public measures to restrict social contacts, as well as from employee health problems, costs of evoking the business continuity plans, and delays or failures in the provision of external services. The advanced digitalization of our operations has enhanced the Group’s ability to deal with the conse- quences of the crisis. In particular, it has helped us to shift the workforce to “Work from Home”-mode without major challenges and to ensure that all business processes continued without interruptions. CAPITALISATION In the first six months of 2020, our capitalization decreased from 212 % as of 31 December 2019, to 187 %3 as of 30 June 2020. The drop was mainly driven by the impact the pandemic and respective policy measures had on the financial markets. Key drivers have been declin- ing interest rates in combination with falling equity prices and increased credit spreads. While equity markets have recovered most of their losses in the second quarter, especially interest rates still remain at very low levels. 3_Including the application of transitional measures for technical provisions, the Solvency II capitalization ratio amounted to 217 % as of 30 June 2020. For further information, please refer to the Balance Sheet Review. 3 A _ Interim Group Management Report We are carefully monitoring the development of the COVID-19 cri- sis and are also managing our portfolios with great diligence to ensure that the Group and its entities continue to have sufficient resources to back their solvency capital needs in line with our dynamic own-risk and solvency management processes. Based on stress tests conducted, there is currently no indication of Allianz Group not being compliant with its Solvency Capital Requirement (SCR) or minimum consolidated Group Solvency Capital Requirement. This statement takes into account the known impacts of the COVID-19 pandemic as well as expected devel- opments, based on the conditions that existed as of 30 June 2020. OTHER INFORMATION Allianz has expanded its security and business continuity management measures to ensure the safety of employees and their families, while continuing to operate as smoothly as possible for the sake of our cus- tomers. Our statements on risks associated with the COVID-19 pandemic are based on our assessments as of end of June 2020. The overall im- pacts associated with the COVID-19 pandemic still cannot be pre- dicted with any certainty, due to the fact that the crisis is still ongoing. Events after the balance sheet date For information on any events occurring after the balance sheet date, please refer to note 34 to the condensed consolidated interim finan- cial statements. Other information RECENT ORGANIZATIONAL CHANGES In the course of the first half-year of 2020, there were some minor real- locations between the reportable segments. STRATEGY The Allianz Group’s strategy is described in the Risk and Opportunity Report that forms part of our Annual Report 2019. There have been no material changes to our Group strategy. PRODUCTS, SERVICES AND SALES CHANNELS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2019. ALLIANZ GROUP AND BUSINESS SEGMENTS The Allianz Group operates and manages its activities through the four business segments mentioned above. For further information, please refer to note 5 to the condensed consolidated interim financial state- ments or to the Business Operations chapter in our Annual Report 2019. 4 Interim Report for the First Half-Year of 2020 − Allianz Group A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS KEY FIGURES Operating profit Key figures Property-Casualty12345 Operating profit € mn Six months ended 30 June 2020 2019 Delta Six months ended 30 June 2020 2019 Delta Total revenues2 Operating profit Net income Loss ratio3 Expense ratio4 € mn € mn € mn % % 33,785 2,175 926 70.1 26.5 32,916 2,838 2,079 66.4 27.6 869 (663) (1,153) 3.7 %-p (1.0) %-p Underwriting result Operating investment income (net) Other result1 Operating profit 717 1,287 171 2,175 1,346 1,454 37 2,838 (629) (167) 134 (663) Combined ratio5 % 96.7 94.0 2.7 %-p 1_Consists of fee and commission income/expenses and other income/expenses. Total revenues6 Driven largely by the deterioration of our underwriting result, our operating profit decreased compared to the first six months of the pre- vious year. A decline in our operating investment income added to that outcome. On a nominal basis, we recorded a 2.6 % increase in total revenues compared to the first six months of the previous year. This includes unfavorable foreign currency translation effects of € 171 mn7 and positive (de)consolidation effects of € 956 mn. On an internal basis, our total revenues went up 0.3 %, driven by a positive price effect of 3.8 % and a negative volume effect of 3.5 %. The significant decrease in our underwriting result was driven by higher claims from natural catastrophes and an overall negative im- pact of COVID-19 that amounted to € 0.8 bn. Strong improvements on the expense side stood in contrast to a lower contribution from run-off, compared to the first six months of the previous year. Overall, our combined ratio worsened by 2.7 percentage points to 96.7 %. The following operations contributed positively to internal growth: AGCS: Total revenues increased to € 5,532 mn – up 12.1 % on an internal basis. Much of this was a result of positive price effects across our Property, Liability, and Financial Lines lines of business. Underwriting result € mn Six months ended 30 June Premiums earned (net) 2020 26,030 2019 25,179 Delta 850 Asia-Pacific: Total revenues amounted to € 660 mn, correspond- ing to 14.9 % internal growth. It was mainly due to favorable volume effects in China through our partnership with JD.com. Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) (18,706) 456 (18,250) (17,468) 740 (16,727) (1,239) (284) (1,523) Germany: Total revenues grew to € 6,770 mn, an increase of 1.1 % on an internal basis. It was the result of positive price effects in our mo- tor and houseowner insurance business. Acquisition and administrative expenses (net) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (6,909) (154) (6,939) (167) 31 13 The following operations weighed on internal growth: Allianz Partners: Total revenues decreased to € 3,261 mn, a 10.7 % drop on an internal basis. Much of this was a result of COVID- 19-related negative volume effects in our travel insurance business, particularly in the U.S. Underwriting result 717 1,346 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. (629) Italy: Total revenues fell to € 1,835 mn. This decrease of 4.9 % on an internal basis was mainly due to unfavorable volume and price effects in our motor insurance business. Allianz Direct: Total revenues amounted to € 597 mn – a decline of 11.5 % on an internal basis. This was based on negative volume effects in our motor insurance business. Our accident year loss ratio8 stood at 71.9 % – a 2.5 percentage point deterioration compared to the first half of the previous year, due to COVID-19-related losses and higher losses from natural catastrophes. This translates into a negative impact on our combined ratio of 0.8 per- centage points: from 1.5 % to 2.3 %. Leaving aside losses from natural catastrophes, our accident year loss ratio was 69.6 %, an increase by 1.7 percentage points in compari- son to previous year’s ratio. 1_For further information on Property-Casualty figures, please refer to note 5 to the condensed consolidated interim financial 6_We comment on the development of our total revenues on an internal basis, which means figures have been adjusted for statements. foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 2_Total revenues in Property-Casualty also include fee and commission income. 3_Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4_Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) 7_Based on the average exchange rates in 2020 compared to 2019. 8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned (net). divided by premiums earned (net). Interim Report for the First Half-Year of 2020 − Allianz Group 5 A _ Interim Group Management Report The following operations contributed positively to the development of our accident year loss ratio: Italy: 0.5 percentage points. This was driven by a lower claims fre- quency in our retail insurance business as a consequence of the lock- down. Allianz Direct: 0.4 percentage points. The improvement resulted from a significant reduction in claims frequency in our motor insurance business across all markets, also due to COVID-19. The biggest impact stemmed from Italy. The following operations weighed on the development of our accident year loss ratio: AGCS: 2.1 percentage points. This deterioration resulted from an increase in natural catastrophes and a severe impact of COVID-19, mostly on the Entertainment line of business. Reinsurance: 1.5 percentage points. This increase was almost exclusively due to the negative effects from the COVID-19 pandemic. Our positive run-off result amounted to € 456 mn, compared to € 740 mn in the first half-year of 2019. This translates into a run-off ratio of 1.8 %, after the 2.9 % we saw in the prior year. Most of our oper- ations contributed positively to our run-off result. Total expenses amounted to € 6,909 mn in the first six months of 2020, compared to € 6,939 mn in the same period of 2019. Our expense ratio improved significantly by 1.0 percentage points, benefiting from our acquisitions in the United Kingdom and a positive cost develop- ment at AGCS. Operating investment income (net) € mn Six months ended 30 June 2020 2019 Interest and similar income (net of interest expenses) 1,517 1,665 Operating income from financial assets and liabilities carried at fair value through income (net) (59) (20) Operating realized gains (net) 58 117 Operating impairments of investments (net) (117) (19) Investment expenses (201) (192) Expenses for premiums refunds (net)1 90 (98) Operating investment income (net)2 1,287 1,454 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), reported within “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 5 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) decreased in the first half-year of 2020. Almost all line items contributed to that development, which was particularly driven by turbulent financial markets. 6 Delta (149) (40) (59) (99) (10) 188 (167) Other result € mn Six months ended 30 June 2020 2019 Delta Fee and commission income 851 992 (140) Other income 150 1 148 Fee and commission expenses (830) (954) 124 Other expenses (2) 2 Other result 171 37 134 Our other result benefited from the sale of an owner-occupied prop- erty in Germany. Net income Our net income decreased strongly in the first six months of 2020. Be- side the decline in operating profit, a deterioration of our non-operat- ing investment result – which was due to the aforementioned turbulent financial markets – as well as an increase in our expenditure on effi- ciency measures contributed to this outcome. The overall effect was only partially offset by lower income taxes. Interim Report for the First Half-Year of 2020 − Allianz Group A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS KEY FIGURES Key figures Life/Health1 Six months ended 30 June Statutory premiums2 Operating profit Net income Return on equity3 23 € mn € mn € mn % 2020 36,356 1,810 1,802 12.3 2019 37,399 2,327 1,788 12.7 Delta (1,043) (517) 14 (0.4) %-p Present value of new business premiums (PVNBP)5 Our PVNBP decreased by € 3,292 mn to € 31,269 mn, under the im- pact of the pandemic. Most of the drop was a result of the lower sales of capital-efficient products in the German life business and in the United States. Another contributing factor was the decline in sales of guaranteed savings & annuities products in France. The negative ef- fects were partly offset by increased volumes from protection & health products in the German health business as well as in the United States, and from unit-linked products in Italy. Statutory premiums4 Present value of new business premiums by lines of business % On a nominal basis, statutory premiums decreased by 2.8 % in the first half of 2020, affected by social distancing due to COVID-19. Favorable foreign currency translation effects amounted to € 177 mn and posi- tive (de-)consolidation effects stood at € 59 mn. On an internal basis4, statutory premiums declined by € 1,280 mn – or 3.4 % – to € 36,356 mn. Statutory premiums in the German life business increased to € 13,782 mn. This 1.6 % growth on an internal basis was mainly driven by higher sales in our business with capital-efficient products. In the German health business, statutory premiums reached € 1,864 mn, up 4.9 % on an internal basis. This was largely attributable to premium ad- justments in the comprehensive health care coverage and from the ac- quisition of new customers in supplementary health care coverage. Six months ended 30 June Guaranteed savings & annuities Protection & health Unit-linked without guarantee Capital-efficient products Total Operating profit 2020 12.2 20.3 22.3 45.2 100.0 2019 20.3 16.8 18.7 44.1 100.0 Delta (8.1) 3.5 3.6 1.0 OPERATING PROFIT BY PROFIT SOURCES6,7 In the United States, statutory premiums declined to € 4,863 mn. The decrease – 18.4 % on an internal basis – was mostly caused by weakened sales of fixed index annuity products, with the effect partly offset by higher sales of non-traditional variable annuity products. Operating profit by profit sources € mn Six months ended 30 June 2020 2019 Delta In Italy, statutory premiums grew to € 5,213 mn, up 7.8 % on an in- ternal basis. This resulted mainly from stronger sales in our business with unit-linked and capital-efficient products. Loadings and fees Investment margin Expenses 3,257 1,602 (3,674) 3,266 1,729 (3,602) (9) (127) (72) In France, statutory premiums decreased to € 3,207 mn. Most of this drop – 26.4 % on an internal basis – was due to lower sales of our guaranteed savings & annuities products compared to a high base in the first half of 2019. Technical margin Impact of changes in DAC Operating profit 688 (63) 1,810 616 319 2,327 72 (382) (517) In the Asia-Pacific region, statutory premiums went up to € 2,948 mn, translating into an 8.2 % rise on an internal basis. It was mainly driven by a sales increase in unit-linked products in Indonesia and Taiwan. Our operating profit decreased, which was mainly due to the fact that in the second quarter of 2019, the amortization period for deferred ac- quisition costs had been extended in the United States, resulting in a favorable effect in that year. Further contributing factors included a COVID-19-induced decrease in the investment margin – driven by higher impairments in the first quarter of 2020 and increased hedging expenses in our U.S. variable-annuities business in the first half of 2020 – as well as the disposal of Allianz Popular S.L. in Spain. The overall COVID-19-related negative impact on the operating profit amounted to € 0.4 bn in the first half of 2020. 1_For further information on Life/Health figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 4_Our comments in the following section on the development of our statutory gross premiums written refer to figures deter- mined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. 5_PVNBP before non-controlling interests. 6_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing 3_Represents the annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2019, the return on equity for the full year is shown. underlying drivers of performance on a Life/Health business segment consolidated basis. 7_Prior year figures changed in order to reflect the refinement of profit source reporting in the USA. Interim Report for the First Half-Year of 2020 − Allianz Group 7 A _ Interim Group Management Report LOADINGS AND FEES1 Loadings and fees € mn Six months ended 30 June 2020 2019 Loadings from premiums 2,094 2,119 Loadings from reserves 818 793 Unit-linked management fees 346 354 Loadings and fees 3,257 3,266 Loadings from premiums as % of statutory premiums 5.8 5.7 Loadings from reserves as % of average reserves1,2 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.2 0.2 1_Aggregate policy reserves and unit-linked reserves. 2_Yields are pro rata. 3_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums went down, mostly due to lower sales of sin- gle-premium capital-efficient products in the German life business in the second quarter of 2020. Loadings from reserves rose, largely driven by higher reserve volumes mainly in Germany and in the United States, and were stable in relation to reserves. Unit-linked manage- ment fees decreased, which was primarily caused by the disposal of Allianz Popular S.L. in Spain. This was partly compensated by an in- crease in Italy, predominantly attributable to a rise in the assets under management. INVESTMENT MARGIN2 Investment margin € mn Six months ended 30 June 2020 2019 Interest and similar income 9,130 9,283 Operating income from financial assets and liabilities carried at fair value through income (net) (2,159) (351) Operating realized gains/losses (net) 4,791 2,081 Interest expenses (52) (56) Operating impairments of investments (net) (3,557) (539) Investment expenses (787) (697) Other1 (205) 233 Technical interest (4,588) (4,498) Policyholder participation (970) (3,727) Investment margin 1,602 1,729 Investment margin in basis points2,3 32.8 37.5 1_“Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit, and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees, on the other hand. 2_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 3_Yields are pro rata. 1_Loadings and fees include premium and reserve based fees, unit-linked management fees, and policyholder participation in expenses. 2_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). 8 Delta (25) 25 (8) (9) 0.1 Delta (153) (1,808) 2,710 3 (3,017) (90) (437) (90) 2,756 (127) (4.8) Our investment margin decreased. In the United States, we saw in- creased hedging expenses, which were due to market turbulences in our variable-annuities business. In most countries of the Eurozone, we recorded higher impairments in the first quarter of 2020, mostly for eq- uities, driven by the market turmoil caused by the COVID-19 pandemic. This was partly offset by higher realizations and lower policyholder participations. EXPENSES3 Expenses € mn Six months ended 30 June 2020 2019 Delta Acquisition expenses and commissions (2,722) (2,681) (41) Administrative and other expenses (952) (922) (30) Expenses (3,674) (3,602) (72) Acquisition expenses and commissions as % of PVNBP1 (8.7) (7.8) (0.9) Administrative and other expenses as % of average reserves2,3 (0.2) (0.2) 1_PVNBP before non-controlling interests. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. Our acquisition expenses and commissions increased. Much of this was due to higher commissions in France and to a shift from adminis- trative and other expenses in Thailand. In addition, stronger unit-linked sales in Indonesia and Italy, as well as higher protection & health sales in Turkey also contributed to the increase. The positive effects were partly offset by a decline in our product sales for fixed index annuities in the United States. Administrative and other expenses went up, largely due to higher IT and sponsorship expenses in Italy and increased social security con- tributions as well as IT expenses in France. TECHNICAL MARGIN4 Our technical margin improved, mainly due to lower claims experience and growth in the Asia-Pacific region. A release of claim reserves as well as a large claim in the first half of 2019 in France and a stronger lapse result in Italy also helped the upswing. Negative drivers included the deconsolidation of Allianz Popular S.L. in Spain, reduced disability margin in Switzerland, and a worsened risk margin in the German health business due to a higher policyholder participation. 3_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 4_The technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. Interim Report for the First Half-Year of 2020 − Allianz Group IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC)1 Impact of change in DAC € mn Six months ended 30 June 2020 2019 Capitalization of DAC 831 881 Amortization, unlocking and true-up of DAC (894) (563) Impact of change in DAC (63) 319 The impact of change in DAC turned negative. This was mainly caused by a change in the U.S. DAC amortization period in the second quarter of 2019, leading to a favorable effect in that year, and by true-ups due to market turmoil in the traditional variable-annuities business in the United States, as well as in the unit-linked business in Taiwan. The lower capitalization was largely driven by the weakened sales of fixed index annuity products in the United States. OPERATING PROFIT BY LINES OF BUSINESS2 Operating profit by lines of business € mn Six months ended 30 June 2020 2019 Guaranteed savings & annuities 783 1,127 Protection & health 443 473 Unit-linked without guarantee 220 241 Capital-efficient products 364 486 Operating profit 1,810 2,327 The operating profit in our guaranteed savings & annuities line of busi- ness decreased. Most of this was a consequence of a declined invest- ment margin in the United States. A product re-allocation to the capi- tal-efficient products line of business coupled with a lower contribution due to the decreased portfolio share in the German life business were further key factors. The drop in our operating profit in the protection & health line of business was largely driven by the lower investment mar- gins in France, and in the German health business. The deconsolidation of Allianz Popular S.L. in Spain also contributed negatively, while lower claims as well as growth in the Asia-Pacific region had a partially off- setting effect. The operating profit generated by our unit-linked with- out guarantee line of business decreased, mainly due to the disposal of Allianz Popular S.L. in Spain but also due to developments in our business in Taiwan. The decline in the operating profit in the capital- efficient products line of business resulted primarily from a change in the DAC amortization period in the United States in the second quarter of 2019, leading to a favorable effect in that year. This was partly com- pensated by higher volumes in the German life business. 1_”Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs as well as of front-end loadings on operating profit, and therefore differs from the figures reported in our IFRS financial statements. Interim Report for the First Half-Year of 2020 − Allianz Group Delta (50) (332) (382) Delta (344) (31) (20) (122) (517) A _ Interim Group Management Report Net income Our net income remained stable. A higher non-operating result – mainly due to increased realizations resulting from the disposal of Allianz Popular S.L. in Spain – and reduced income taxes in the first half-year of 2020 compensated for the decrease in the operating profit. Return on equity Our return on equity decreased slightly by 0.4 percentage points to 12.3 %. This was largely attributable to the increase in total equity com- pared to year-end 2019. 2_Prior year figures changed in order to reflect the refinement of profit source reporting in the USA. 9 A _ Interim Group Management Report ASSET MANAGEMENT KEY FIGURES Key figures Asset Management1 Six months ended 30 June 2020 2019 Operating revenues € mn 3,493 3,320 Operating profit € mn 1,319 1,251 Cost-income ratio2 % 62.2 62.3 Net income € mn 906 926 Total assets under management as of 30 June3 € bn 2,250 2,268 thereof: Third-party assets under management as of 30 June3 € bn 1,658 1,686 Assets under management Composition of total assets under management € bn Type of asset class As of 30 June 2020 As of 31 December 2019 Fixed income 1,815 1,801 Equities 155 170 Multi-assets1 168 177 Alternatives 113 120 Total 2,250 2,268 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments over several asset classes. Net outflows4 of total assets under management (AuM) amounted to € 20.5 bn for the first half of 2020, driven by third-party AuM net out- flows of € 20.6 bn. A major part of these net outflows was attributable to PIMCO, although AllianzGI contributed as well. (PIMCO: € 16.6 bn total/€ 20.3 bn third-party; AllianzGI: € 3.9 bn total/€ 0.3 bn third- party). Caused by COVID-19-related market turbulences, the net out- flows concentrated in the first quarter of the year, while in the second quarter we saw net inflows again. Positive effects from market and dividends5 totaled € 6.2 bn. Of these, € 27.8 bn came from PIMCO and were related to fixed-income assets, while € 21.6 bn negative effects stemmed from AllianzGI and were attributable to all asset classes except fixed-income assets. 1_For further information on Asset Management figures, please refer note 5 to the condensed consolidated interim financial statements. 2_Represents operating expenses divided by operating revenues. 3_2019 figure as of 31 December 2019. 4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend rein- vestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. 5_”Market and dividends” represents current income earned on the securities held in client accounts, as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds. 10 Delta 173 68 (0.1) %-p (20) (18) (28) Delta 14 (15) (9) (7) (18) Positive effects from consolidation, deconsolidation, and other adjustments added € 0.3 bn to total AuM. Unfavorable foreign currency translation effects amounted to € 4.0 bn and concerned PIMCO. Third-party assets under management As of 30 June 2020 As of 31 December 2019 Delta Third-party assets under management € bn 1,658 1,686 (1.7) % Business units' share PIMCO % 79.6 78.8 0.7 %-p AllianzGI % 20.4 21.2 (0.7) %-p Asset classes split Fixed income % 79.8 78.6 1.2 %-p Equities % 8.3 8.6 (0.3) %-p Multi-assets % 9.1 9.5 (0.4) %-p Alternatives % 2.8 3.3 (0.5) %-p Investment vehicle split1 Mutual funds % 57.3 58.8 (1.5) %-p Separate accounts % 42.7 41.2 1.5 %-p Regional allocation2 America % 56.3 55.4 0.9 %-p Europe % 31.7 33.4 (1.7) %-p Asia-Pacific % 11.9 11.2 0.7 %-p Overall three-year rolling investment outperformance3 % 67 92 (25) %-p 1_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 2_Based on the location of the asset management company. 3_Three-year rolling investment outperformance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). The decrease in the overall three-year rolling investment outperfor- mance is due to COVID-19-driven significant market dislocation; also investors shifted significant amounts of capital from both debt and eq- uity capital markets into money market funds during the first quarter of the year, which created a challenging performance environment for some of our funds. Interim Report for the First Half-Year of 2020 − Allianz Group Operating revenues Our operating revenues increased by 5.2 % on a nominal basis. This de- velopment was driven by higher average third-party AuM at PIMCO, due to strong market effects – despite a downturn in the first quarter of 2020 – especially from fixed-income assets. Net inflows and favora- ble foreign currency translation effects supported the increase. On an internal basis1 operating revenues increased by 3.0 %. We recorded lower performance fees at both AllianzGI and PIMCO due to a challenging performance environment following COVID-19. Other net fee and commission income rose, driven by increased average third-party AuM at PIMCO. Operating profit Our operating profit increased by 5.4 % on a nominal basis, as growth in operating revenues exceeded an increase in operating expenses. On an internal basis1, our operating profit grew by 3.3 %, which was due to higher average third-party AuM. The nominal increase in administrative expenses was driven by PIMCO, where an increase in headcount as well as a positive business development led to higher personnel expenses. AllianzGI, on the other hand, recorded lower expenses due to cost containment. Our cost-income ratio remained almost unchanged. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. Interim Report for the First Half-Year of 2020 − Allianz Group A _ Interim Group Management Report Asset Management business segment information € mn Six months ended 30 June 2020 2019 Delta Performance fees 72 122 (50) Other net fee and commission income 3,423 3,198 225 Other operating revenues (2) (2) Operating revenues 3,493 3,320 173 Administrative expenses (net), excluding acquisition-related expenses (2,174) (2,069) (105) Operating expenses (2,174) (2,069) (105) Operating profit 1,319 1,251 68 Net income The decrease in our net income was driven by a lower non-operating result due to restructuring expenses. 11 A _ Interim Group Management Report CORPORATE AND OTHER KEY FIGURES Key figures Corporate and Other1 € mn Six months ended 30 June 2020 2019 Operating revenues 1,402 1,399 Operating expenses (1,833) (1,694) Operating result (432) (296) Net loss (535) (482) Earnings summary Our operating result declined strongly, compared to the first six months of the previous year, mainly due to a deterioration in our oper- ating investment result and a contribution to a COVID-19 solidarity fund. Our net loss worsened as well. The decline of our operating result was partly offset by lower interest expenses for external debt and a higher income tax result. 1_For further information on Corporate and Other figures, please refer to note 5 to the condensed consolidated interim financial statements. 12 Delta 3 (139) (136) (53) Interim Report for the First Half-Year of 2020 − Allianz Group OUTLOOK Economic outlook1 Given the gradual recovery from lockdowns, we expect the global GDP (gross domestic product) to fall by 4.7 % in 2020, followed by growth of 4.8 % in 2021. The return to pre-crisis levels, mainly driven by China and the United States, is expected at the end of 2021 at the earliest. Uncer- tainty, however, remains extremely high. This U-shaped scenario hinges upon the assumption that fiscal and monetary policies remain effec- tive and no second wave of infections force governments to re-impose generalized domestic lockdowns. The unprecedented health and eco- nomic crisis triggered by COVID - 19 creates unprecedented levels of uncertainty, too. In our base case, the U.S. GDP will shrink by 5.3 % in 2020 and grow by 3.7 % in 2021. In the Eurozone, the shape of the U will be even more pronounced, plunging by 9 % in 2020 and recovering by 6 % in 2021. Continued sanitary restrictions, lingering contagion fears, heightened economic uncertainty, and the expected uneven global recovery will shape consumption and investment decisions and have an impact on underlying growth dynamics. As a result, the Eurozone GDP is expected to recover to pre-crisis levels in late 2022. Fiscal and monetary policy will remain expansionary for the time being. For money markets, in particular, a new cycle of interest rate hikes seems to be a long way off. It is very likely, after this very severe recession, that central banks will be more cautious than ever when it comes to monetary normalization. In this context, yields in developed markets are expected to remain on a long-term downward slope. For 2020, we expect 10-year Bunds to finish the year at -0.5 % and 10-year U.S. Treasuries at 1.0 %, slightly above current levels. Insurance industry outlook1 The COVID-19 pandemic rendered our forecast at the beginning of the year, which predicted rising premiums in 2020, obsolete. Now, a de- cline in global premiums has to be expected. In the property-casualty sector, the link between economic activ- ity and insurance demand is close. Therefore, the recession and grad- ual recovery, affecting new business in many lines of business, are ex- pected to have an impact on premium growth. In the life sector, demand for some products, such as unit-linked policies, is directly influenced by capital markets; therefore, higher vol- atility could influence premium growth. Industry profitability could be affected by two factors: Increased market volatility and suppressed yields may put pressure on investment income while COVID-19-related claims may shape underwriting profitability. Visibility on claims re- mains still relatively low and capital market developments are hardly predictable amidst an evolving pandemic. The trend of market hard- ening, however, might not be stopped by the pandemic, quite the con- trary. 1_The information presented is based on our own estimates. Interim Report for the First Half-Year of 2020 − Allianz Group A _ Interim Group Management Report long-term, COVID-19 might accelerate structural changes in the industry: The digitalization of the business model, the pivot to Asia, and the growing significance of ESG-factors (ESG = Envi- ronment, Social, Governance) are likely to gather steam after COVID - 19. Over the Asset management industry outlook1 The industry’s profitability remains under pressure from continuous flows into passive products, new pricing models, and rising distribution costs. Digital channels such as robo-advisory platforms are gaining prominence and the strengthening of regulatory oversight could also affect profitability. At the same time, opportunities in the area of active management will continue to exist, particularly in alternative / illiquid and solutions-oriented strategies, but also in equity and fixed-income products. In order to continue growing, it is vital for asset managers to keep sufficient business volumes, ensure efficient operations, and maintain a strong investment performance. Overall, it will be essential for asset managers to address their asset flows and profitability through continued structural changes in areas such as product innova- tion, cost structure, and growth strategies. Outlook for the Allianz Group The outlook for 2020 assumed no significant deviation from the under- lying assumptions, i.e. stable global economic growth and no major disruption. In light of the macroeconomic development caused by the pandemic, however, and the expected impact on the financial development of the operating entities of the Group, the Board of Management does not assume that Allianz Group will be able to achieve the target range for the operating profit 2020 in the amount of € 12 bn +/- € 500 mn as communicated in the 2019 Annual Report. Therefore, the overall outlook for 2020 was withdrawn on 30 April 2020. In our Property-Casualty insurance business, the strongest impact from the pandemic concerns the underwriting result, with a negative net effect of € 0.8 bn at the end of the first half of 2020 which is equally split over the first two quarters. The negative impact was primarily in entertainment, business interruption, business closure, Euler Hermes and travel. This negative impact is partly offset by a decline in fre- quency. Overall, the impact for 2020 will depend on the further develop- ment of the pandemic. Consequently, despite some positive impacts as described above, we expect a reduction in annual operating profit compared to the prior year. 13 A _ Interim Group Management Report The impact of the pandemic on the Life/Health business is largely due to the capital markets development. The market turbulences seen in the first six months led to a negative impact of € 0.4 bn, mainly via higher impairments and a spike in market volatility affecting the hedge result of our U.S. business. The overall impact for 2020 will de- pend on the further pandemic development and its impact on capital markets. We expect a lower operating profit compared to 2019. The Asset Management segment was affected by the financial market downturn and related investor uncertainties which led to negative market valuation of AuM, net outflows and lower performance fees in the first quarter 2020. Although latest market developments have pro- vided some tailwind, markets still face high volatility and a pronounced level of risk. Our Corporate and Other segment is also affected by the develop- ment of the capital markets due to a lower expected investment result. Given the overall uncertainty due to the pandemic as described above, a quantitative outlook in the usual manner cannot be given at the mo- ment. 14 Cautionary note regarding forward-looking statements This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz Group's core business and core markets, (ii) the perfor- mance of financial markets (in particular market volatility, liquidity, and credit events), (iii) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the develop- ment of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, most notably the EUR/USD exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions including and related integration issues and reorganization measures, and (xi) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. No duty to update The Allianz Group assumes no obligation to update any information or forward-looking statement con- tained herein, save for any information we are required to disclose by law. Interim Report for the First Half-Year of 2020 − Allianz Group BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2020 As of 31 December 2019 Shareholders' equity Paid-in capital 28,928 28,928 Retained earnings 27,654 29,577 Foreign currency translation adjustment (2,937) (2,195) Unrealized gains and losses (net) 18,491 17,691 Total 72,136 74,002 The decrease in shareholders’ equity – € 1,866 mn – was attributable to the dividend payout in May 2020 (€ 3,952 mn) and the change in treasury shares (€ 760 mn) due to the share buy-back. The net income attributable to shareholders amounting to € 2,927 mn partly offset these effects. 1_This does not include non-controlling interests of € 3,228 mn and € 3,363 mn as of 30 June 2020 and 31 December 2019, respectively. For further information, please refer to note 18 to the condensed consolidated interim financial statements. 2_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 84 in the Allianz Group Annual Report 2019. Interim Report for the First Half-Year of 2020 − Allianz Group Delta (1,924) (742) 800 (1,866) A _ Interim Group Management Report Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic prin- ciple of Solvency II rules.2 Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 20203 As of 31 December 2019 Delta Eligible own funds € bn 80.7 84.0 (3.3) Capital requirement € bn 43.2 39.5 3.7 Capitalization ratio % 187 212 (26) %-p Our Solvency II capitalization ratio decreased from 212 % to 187 %3 over the first six months of 2020. The decrease was predominantly driven by negative market developments following the COVID-19 pandemic and associated policy responses. This impact was only partly offset by capital generation and management actions. Two of our operating entities (Allianz Leben and Allianz Private Krankenversicherung) requested approval from the BaFin to apply transitional measures on their technical provisions, which the BaFin granted in June 2020. The application of transitionals decreases the value of technical provisions as disclosed in the market value balance sheet, with a partially offsetting impact in deferred taxes. As a result, Group eligible own funds increased by € 13.5 bn and our Solvency II capitalization ratio by 31 percentage points to 217 %. Our general cap- ital steering will continue to be based on the past approach, excluding the application of transitional measures for technical provisions. As this is the first-time application, we neither restate nor recalculate previ- ously disclosed ratios. 3_Eligible own funds excluding the application of transitional measures for technical provisions. Including the application of transitional measures for technical provisions, the own funds amounted to € 94.2 bn; and a Solvency II ratio of 217 % as of 30 June 2020. 15 A _ Interim Group Management Report Total assets and total liabilities As of 30 June 2020, total assets amounted to € 1,018.8 bn (up € 7.6 bn compared to year-end 2019). Total liabilities were € 943.4 bn, repre- senting a rise of € 9.6 bn compared to year-end 2019. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. Asset allocation and fixed-income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds Banks Other Equities Real estate Cash, cash equivalents, and other Total Compared to year-end 2019, our overall asset allocation remained rather stable, with a decrease in our equity investments. Our well-diversified exposure to debt instruments increased compared to year-end 2019, mainly due to new investments. About 92 % of this portfolio was invested in investment-grade bonds and loans.1 Our government bonds portfolio contained bonds from France, Germany, Italy, and Spain that represented 17.4 %, 13.7 %, 7.2 % and 6.2 % of our portfolio shares. Our corporate bonds portfolio contained bonds from the United States, Eurozone, and Europe excl. Eurozone. They represented 39.4 %, 33.2 % and 12.1 % of our portfolio shares. Our exposure to equities decreased due to sales and market movements. 1_Excluding self-originated German private retail mortgage loans. For 4 %, no ratings were available. 16 STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses. As of 30 June 2020 As of 31 December 2019 Delta As of 30 June 2020 As of 31 December 2019 Delta € bn € bn € bn % % %-p 663.7 643.6 20.1 86.6 85.3 1.3 246.3 238.1 8.2 37.1 37.0 0.1 68.1 71.3 (3.2) 10.3 11.1 (0.8) 241.9 228.9 13.0 36.4 35.6 0.9 36.3 35.8 0.5 5.5 5.6 (0.1) 71.0 69.4 1.6 10.7 10.8 (0.1) 68.3 78.3 (10.0) 8.9 10.4 (1.5) 13.3 13.0 0.2 1.7 1.7 20.9 19.4 1.5 2.7 2.6 0.2 766.2 754.4 11.8 100.0 100.0 LIABILITIES PROPERTY-CASUALTY LIABILITIES As of 30 June 2020, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 71.9 bn, compared to € 70.0 bn at year-end 2019. On a net basis, our reserves, including discounted loss reserves, increased from € 60.1 bn to € 61.1 bn.2 LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 8.0 bn to € 580.9 bn over the first six months of 2020. The € 9.3 bn increase in aggregate policy reserves before foreign currency transla- tion effects was mainly driven by our operations in Germany (€ 8.2 bn). Reserves for premium refunds decreased by € 0.8 bn (before foreign currency translation effects) and foreign currency translation effects reduced the balance sheet value by € 0.5 bn. 2_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 14 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2020 − Allianz Group RECONCILIATIONS The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRS), the Allianz Group uses operat- ing profit and internal growth to enhance the understanding of our re- sults. These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 5 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise total revenues in Property-Casualty, statutory premiums in Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn Six months ended 30 June 2020 PROPERTY-CASUALTY Total revenues 33,785 consisting of: Gross premiums written 32,933 Fee and commission income 851 LIFE/HEALTH Statutory premiums 36,356 ASSET MANAGEMENT Operating revenues 3,493 consisting of: Net fee and commission income 3,495 Net interest and similar income (8) Income from financial assets and liabilities carried at fair value through income (net) 5 CORPORATE AND OTHER thereof: Total revenues (Banking) 111 consisting of: Interest and similar income 34 Income from financial assets and liabilities carried at fair value through income (net)1 1 Fee and commission income 265 Interest expenses, excluding interest expenses from external debt (10) Fee and commission expenses (179) CONSOLIDATION (250) Allianz Group total revenues 73,495 1_Includes trading income. Interim Report for the First Half-Year of 2020 − Allianz Group 2019 32,916 31,924 992 37,399 3,320 3,320 (6) 6 118 38 2 285 (10) (195) (275) 73,479 A _ Interim Group Management Report Composition of total revenue growth We believe that the understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consoli- dation”) are analyzed separately. Therefore, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth % Six months ended 30 June 2020 Internal Growth Changes in scope of consolidation Foreign currency translation Nominal Growth Property-Casualty 0.3 2.9 (0.5) 2.6 Life/Health (3.4) 0.2 0.5 (2.8) Asset Management 3.0 2.2 5.2 Corporate and Other (6.0) (6.0) Allianz Group (1.5) 1.4 0.1 Life/Health insurance operations OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope en- tities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the invest- ment margin. Currently, 23 entities – comprising the vast majority of Life/Health total statutory premiums – are in scope. EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and com- missions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the Group income statement. 17 A _ Interim Group Management Report Acquisition, administrative, capitalization, and amortization of DAC1 € mn Six months ended 30 June 2020 Acquisition expenses and commissions2 (2,722) Definitions 6 Scope (68) Acquisition costs incurred (2,783) Capitalization of DAC2 831 Definition: URR capitalized 319 Definition: policyholder participation3 527 Scope 17 Capitalization of DAC 1,694 Amortization, unlocking, and true-up of DAC2 (894) Definition: URR amortized (45) Definition: policyholder participation3 (543) Scope (19) Amortization, unlocking, and true-up of DAC (1,501) Commissions and profit received on reinsurance business ceded 59 Acquisition costs4 (2,531) Administrative and other expenses2 (952) Definitions 79 Scope (78) Administrative expenses on reinsurance business ceded 4 Administrative expenses4 (947) 1_Prior year figures changed in order to reflect the refinement of profit source reporting in the USA. 2_As per Interim Group Management Report. 3_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 4_As per notes to the condensed consolidated interim financial statements. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) “Impact of change in DAC” includes effects of change in DAC, un- earned revenue reserves (URR), and value of business acquired (VOBA), and is the net impact of the deferral and amortization of ac- quisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue re- serves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- uled URR amortization, true-up, and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the Group income statement. Policyholder participation is included within “change in our re- serves for insurance and investment contracts (net)” in the Group in- come statement. 18 2019 (2,681) 7 (42) (2,716) 881 283 594 14 1,773 (563) (29) (450) (11) (1,052) 45 (1,950) (922) 73 (84) 6 (926) Reconciliation to Notes1 € mn Six months ended 30 June 2020 2019 Acquisition expenses and commissions2 (2,722) (2,681) Administrative and other expenses2 (952) (922) Capitalization of DAC2 831 881 Amortization, unlocking, and true-up of DAC2 (894) (563) Acquisition and administrative expenses (3,737) (3,284) Definitions 343 479 Scope (148) (122) Commissions and profit received on reinsurance business ceded 59 45 Administrative expenses on reinsurance business ceded 4 6 Acquisition and administrative expenses (net)3 (3,478) (2,876) 1_Prior year figures changed in order to reflect the refinement of profit source reporting in the USA. 2_As per Interim Group Management Report. 3_As per notes to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2020 − Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B Interim Report for the First Half-Year of 2020 − Allianz Group 19 2017 − Alli- B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEET Consolidated balance sheet € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Include mainly derivative financial instruments. 20 Note As of 30 June 2020 As of 31 December 2019 22,987 21,075 6 14,569 13,187 7 633,163 625,746 8 115,591 112,672 125,728 132,168 9 19,413 17,545 10 23,478 24,777 1,090 1,133 11 46,606 44,532 4 1,644 3,555 12 14,537 14,796 1,018,806 1,011,185 19,270 18,049 13 14,558 13,445 29,313 25,468 14 79,790 77,541 15 595,667 588,023 125,728 132,168 7,404 6,538 16 46,998 47,904 4 716 2,236 17 9,745 9,209 17 14,254 13,238 943,443 933,820 72,136 74,002 3,228 3,363 18 75,363 77,364 1,018,806 1,011,185 Interim Report for the First Half-Year of 2020 − Allianz Group CONSOLIDATED INCOME STATEMENT Consolidated income statement € mn Six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring and integration expenses Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Note 2020 2019 45,660 44,803 (4,012) (3,106) (3,578) (4,192) 19 38,071 37,505 20 10,808 11,199 21 (2,341) (350) 22 5,555 2,503 23 5,881 5,891 160 6 58,135 56,755 (31,199) (28,328) 2,774 1,540 24 (28,424) (26,787) 25 (4,374) (7,457) 26 (491) (559) (4) (1) 27 (4,319) (703) 28 (782) (682) 29 (13,161) (12,459) 30 (2,062) (2,258) (105) (105) (288) (77) (6) (54,011) (51,096) 4,124 5,659 31 (1,023) (1,344) 3,101 4,316 174 207 2,927 4,109 7.07 9.76 6.94 9.75 21 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income € mn Six months ended 30 June Net income Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the period Subtotal Available-for-sale investments Reclassifications to net income Changes arising during the period Subtotal Cash flow hedges Reclassifications to net income Changes arising during the period Subtotal Share of other comprehensive income of associates and joint ventures Reclassifications to net income Changes arising during the period Subtotal Miscellaneous Reclassifications to net income Changes arising during the period Subtotal Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans Total other comprehensive income Total comprehensive income Total comprehensive income attributable to: Non-controlling interests Shareholders For further details concerning income taxes on components of the other comprehensive income, please see note 31. 22 2020 2019 3,101 4,316 (16) (761) 38 (776) 38 436 (387) 243 9,368 679 8,982 (27) (3) 141 144 114 141 18 (96) 58 (96) 76 85 226 85 226 (155) (839) (149) 8,623 2,952 12,939 112 745 2,840 12,194 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity Balance as of 1 January 2019 28,928 27,967 (2,607) 6,945 61,232 2,447 63,679 Total comprehensive income1 3,171 29 8,994 12,194 745 12,939 Paid-in capital Treasury shares (1,275) (1,275) (1,275) Transactions between equity holders (11) 3 4 (4) 168 164 Dividends paid (3,767) (3,767) (97) (3,865) Balance as of 30 June 2019 28,928 26,084 (2,576) 15,943 68,379 3,263 71,642 Balance as of 1 January 2020 28,928 29,577 (2,195) 17,691 74,002 3,363 77,364 Total comprehensive income1 2,782 (742) 800 2,840 112 2,952 Paid-in capital Treasury shares2 (760) (760) (760) Transactions between equity holders 6 6 (126) (120) Dividends paid (3,952) (3,952) (121) (4,073) Balance as of 30 June 2020 28,928 27,654 (2,937) 18,491 72,136 3,228 75,363 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2020 comprises net income attributable to shareholders of € 2,927 mn (2019: € 4,109 mn). 2_In February 2020, a share buy-back with an intended volume of € 1.5 bn was announced and executed since 9 March 2020. During the first half-year of 2020, Allianz SE purchased 4.9 million own shares for an amount of € 750 mn as a first tranche. The second tranche with a volume of € 750 mn was suspended in April 2020. Interim Report for the First Half-Year of 2020 − Allianz Group 23 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows € mn Six months ended 30 June SUMMARY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents reclassified to assets of disposal groups held for sale in 2019 Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2020 Cash and cash equivalents at end of period CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and disposal groups classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 24 2020 2019 14,401 23,301 (9,591) (16,904) (2,958) (3,083) (249) 5 1,604 3,319 21,075 17,234 (168) 309 22,987 20,385 3,101 4,316 (174) (169) (1,378) (1,800) 1,560 171 1,064 968 4 1 2,143 2,917 (593) 243 (1,082) 34 618 956 (2,313) (558) (334) (1,315) 4,410 4,654 2,982 1,214 5,698 12,386 561 (77) (1,866) (640) 11,300 18,985 14,401 23,301 1,797 980 89,030 75,642 157 325 264 235 345 4 112 56 2,044 3,430 63 39 93,812 80,712 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED Consolidated statement of cash flows € mn Six months ended 30 June 2020 2019 Payments for the purchase or origination of: Financial assets designated at fair value through income (1,783) (1,612) Available-for-sale investments (94,915) (89,157) Held-to-maturity investments (115) (148) Investments in associates and joint ventures (1,244) (1,407) Non-current assets and disposal groups classified as held for sale (66) Real estate held for investment (422) (514) Fixed assets from alternative investments (5) (8) Loans and advances to banks and customers (purchased loans) (1,142) (1,849) Property and equipment (632) (535) Subtotal (100,325) (95,229) Business combinations (note 4): Proceeds from sale of subsidiaries, net of cash disposed 470 Change in other loans and advances to banks and customers (originated loans) (3,051) (2,001) Other (net) (496) (386) Net cash flow used in investing activities (9,591) (16,904) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 479 514 Proceeds from the issuance of certificated liabilities and subordinated liabilities 4,169 3,092 Repayments of certificated liabilities and subordinated liabilities (2,562) (1,599) Net change in lease liabilities (188) (51) Transactions between equity holders 31 164 Dividends paid to shareholders (4,073) (3,865) Net cash from sale or purchase of treasury shares (760) (1,276) Other (net) (54) (62) Net cash flow used in financing activities (2,958) (3,083) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENT OF CASH FLOWS Income taxes paid (from operating activities) (1,360) (1,006) Dividends received (from operating activities) 1,059 1,394 Interest received (from operating activities) 9,465 9,552 Interest paid (from operating activities) (465) (364) Interim Report for the First Half-Year of 2020 − Allianz Group 25 B _ Condensed Consolidated Interim Financial Statements Changes in liabilities arising from financing activities € mn As of 1 January 2019 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2019 As of 1 January 2020 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2020 26 Liabilities to banks and customers 10,049 514 (3) 24 3 10,588 8,894 479 34 (26) 2 9,383 Certificated and subordinated liabilities Lease liabilities Total 22,674 32,723 1,493 (51) 1,956 (3) 4 28 72 2,737 2,813 24,243 2,687 37,517 22,448 2,791 34,132 1,608 (188) 1,898 34 (4) (20) (49) (53) 165 114 23,999 2,748 36,129 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Basis of presentation 3 _ Impact due to COVID-19 The Allianz Group’s condensed consolidated interim financial state- ments are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs), as adopted under European Union regulations. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as applied in the consolidated financial statements for the year ended 31 December 2019. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2019. In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. Amounts are rounded to millions of Euro (€ mn), unless otherwise stated. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Management on 3 August 2020. The COVID-19 pandemic is currently affecting all aspects of personal and professional lives, global economic development, and the finan- cial markets. Despite all these uncertainties, the Allianz Group is very well prepared for the situation. The interim financial statements for the first half-year of 2020 have been prepared on a going concern basis. Consequently, the pandemic had impacts on all business seg- ments. In the business segment Property-Casualty, the business inter- ruption, entertainment, and credit were concerned due to higher claims. These effects were partly compensated by lower claims from reduced frequencies of claims in motor. In addition, the net income was lowered by reduced realized gains / losses (net) and higher impair- ments of investments. The business segment Life/Health was also im- pacted by negative effects, especially due to market turndowns in the investment areas and higher hedging costs. The business segment As- set Management was impacted by the severe financial market disrup- tion and related investor uncertainties which led to a negative market valuation of assets under management and net outflows in the first quarter of 2020. In the second quarter of 2020, the business units PIMCO and Allianz GI were able to almost fully recover from the afore- mentioned impacts by reaching strong positive market effects and third-party net inflows. 2 _ Recently adopted accounting pronouncements (effective 1 January 2020) The following amendments and revisions to existing standards be- came effective for the Allianz Group’s consolidated financial state- ments as of 1 January 2020: According to the US CARES Act which has been signed into law on 27 March 2020 in response to COVID-19, a carryback of tax losses generated in 2018, 2019, and 2020 to tax years 2015 and following years is permissible. For Allianz Life Insurance of North America, a tax loss carry back potential to those periods occurred leading to a tax asset valued with a tax rate of 35 % instead of a tax loss carry forward valued with a tax rate of 21 %. The resulting tax benefit amounts to € 92 mn. Revised Conceptual Framework, Amendments to References to the Conceptual Framework in IFRS IFRS 3, Definition of a Business, IAS 1 and IAS 8, Definition of Material, IFRS 9, IAS 39 and IFRS 7, Interest Rate Benchmark Reform (Phase 1), Standards. These changes had no material impact on the Allianz Group's financial results or financial position. Given to the Solvency II capitalization ratio of 187 %1, the Allianz Group does not see any indication of any non-compliance with its Solvency Capital Requirements of the minimum consolidated Group Solvency Capital Requirement. Due to the COVID-19 pandemic, the default risk for trade credits provided by suppliers has increased significantly. In order to protect the real economy, many governments, particularly European Union mem- ber states, established temporary state support schemes for the area of private credit insurance. In return for these state support schemes, the insurance companies have committed to maintaining their current level of credit limits. Euler Hermes, the credit insurer within the Allianz Group, entered into agreements with Germany, Denmark, Belgium, the Netherlands, and Norway as of 30 June 2020. Whereas some of the state support 1_Without transitionals. Interim Report for the First Half-Year of 2020 − Allianz Group 27 B _ Condensed Consolidated Interim Financial Statements schemes the Allianz Group entered into are reinsurance schemes, oth- ers are structured as guarantee contracts from a legal point of view. Irrespective of this legal qualification, for IFRS accounting purposes these contracts fulfill the definition of reinsurance contracts. Conse- quently, the state support schemes are consistently accounted for as reinsurance contracts. Until 30 June 2020, the total of premiums ceded under the state support schemes are € 164 mn. Against the backdrop of COVID-19, no active market exists for such transactions with com- parable volume and price. Regarding impairments of assets next to investments (e.g. soft- ware, deferred tax assets, right-of-use assets, and property, plant and equipment), the Allianz Group did not realize any material impair- ments. After evaluation, the Allianz Group concludes that the COVID- 19 pandemic and the respective economic slowdown does not result in an impairment of goodwill. So far, the Allianz Group has not observed any material nor sus- tained impacts on mortality, longevity, lapses, or health to justify signif- icant changes of assumption in projections parameters. In the second half-year of 2020, the assumptions will be reviewed in detail. Regarding the valuation methodologies used for financial instru- ments carried at fair value, the policy for determining the levels within the fair value hierarchy, and the significant Level-3 portfolios, no mate- rial changes have occurred in combination with the COVID-19 pan- demic. In total, the operating profit of the Allianz Group was reduced by € 1.2 bn due to COVID-19. Of this amount, € 0.8 bn were related to Property-Casualty and the remaining € 0.4 bn to Life/Health. In light of the macroeconomic developments caused by the pan- demic and the expected impact on the financial development of the operating entities of the Group, the outlook for 2020 was withdrawn on 30 April 2020. 4 _ Consolidation and classification as held for sale SIGNIFICANT BUSINESS COMBINATIONS IN 2020 Effective 10 July 2020, Allianz Seguros S.A. Brazil acquired 100 % in auto- mobile and other Property-Casualty business from SulAmérica (“Sul- América Auto e Massificados” – “SASAM”). The acquisition strengthens the competitive position of Allianz in Brazil, making it one of the top 3 insurers of the largest economy in South America with a market share of around 15 percent in motor and 9 percent in Property-Casualty insur- ance, and establishing Allianz as the number 2 in motor insurance. Allianz Brazil acquired approximately € 0.6 bn in assets and € 0.4 bn in liabilities of SASAM in consideration for a total purchase price of approximately up to € 0.5 bn. At the time the condensed consolidated interim financial statements of Allianz Group were authorized for issue, the initial accounting for the business combination was incomplete. Spe- cifically, the initial valuation of identifiable intangible assets as well as the transition of accounting policies of SASAM to IFRS requirements was still pending. Therefore, detailed disclosures of the amounts to be recog- nized as of the acquisition date for major classes of identifiable assets acquired and liabilities assumed including goodwill cannot be made at this point. Furthermore, the impact on revenue and net income of the consolidated income statement of the Allianz Group had SASAM been consolidated from 1 January 2020 cannot be reliably disclosed. 28 CLASSIFICATION AS HELD FOR SALE Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2020 As of 31 December 2019 Assets of disposal groups classified as held for sale Allianz Popular 1,884 Allianz Sakura 1,266 1,132 Other disposal groups 15 15 Subtotal 1,281 3,031 Non-current assets classified as held for sale Real estate held for investment 363 501 Real estate held for own use 23 Subtotal 363 524 Total 1,644 3,555 Liabilities of disposal groups classified as held for sale Allianz Popular 1,589 Allianz Sakura 706 637 Other disposal groups 10 10 Total 716 2,236 ALLIANZ SAKURA, TOKYO As of 30 June 2020, all requirements were fulfilled to present the Sakura investment in Japan, allocated to the reportable segments German Speaking Countries and Central & Eastern Europe (Life/Health) and Corporate and Other, as a disposal group classified as held for sale. Reclassified assets and liabilities € mn Cash and cash equivalents 28 Investments 1,237 Other assets 1 Total assets 1,266 Liabilities to banks and customers 695 Other liabilities 10 Total liabilities 706 No impairment loss has been recognized in connection with this trans- action. The closing of the transaction was completed on 1 July 2020. With the completion of the sale, the Allianz Group lost control of the Sakura investment, but retained a 50 %-interest in Sakura subject to at equity accounting. Interim Report for the First Half-Year of 2020 − Allianz Group ALLIANZ POPULAR, MADRID Effective 31 January 2020, the Allianz Group disposed of Allianz Popu- lar S.L., Madrid, a 60 % owned subsidiary of the Allianz Group allocated to the reportable segment Iberia & Latin America (Life/Health). The en- tity had been classified as held for sale since 30 June 2019. Until its deconsolidation on 31 January 2020, no impairment loss had been recognized. Upon closing of the sale, the Allianz Group recognized a gain of € 483 mn, included in the line realized gains/losses (net) of the consolidated income statement. The impact of the disposal, net of cash disposed, on the consoli- dated statement of cash flows for the first six months of 2020 was as follows: Impact on the disposal € mn Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisitions costs Other assets Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Other comprehensive income Derecognition of a derivate asset Realized gain from the disposal Non-controlling interests Proceeds from sale of the subsidiary, net of cash disposed1 1_Includes cash and cash equivalents at an amount of € 309 mn which were disposed of with the entity. 5 _ Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable segments derive their revenues are consistent with those described in the consol- idated financial statements for the year ended 31 December 2019. The statement contained therein regarding general segment report- ing information is still applicable and valid. RECENT ORGANIZATIONAL CHANGES Only minor reallocations between the reportable segments have been made. Interim Report for the First Half-Year of 2020 − Allianz Group 1,402 13 7 6 17 327 (29) (75) (1,468) (7) (72) (45) (17) 78 483 (150) 470 B _ Condensed Consolidated Interim Financial Statements 29 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS Business segment information – consolidated balance sheets € mn Property-Casualty As of 30 June 2020 As of 31 December 2019 ASSETS Cash and cash equivalents 5,473 5,334 Financial assets carried at fair value through income 1,408 1,415 Investments 105,478 107,740 Loans and advances to banks and customers 10,755 11,016 Financial assets for unit-linked contracts Reinsurance assets 13,405 11,739 Deferred acquisition costs 5,218 4,936 Deferred tax assets 782 794 Other assets 30,208 27,296 Non-current assets and assets of disposal groups classified as held for sale 95 100 Intangible assets 4,116 4,335 Total assets 176,938 174,706 Property-Casualty As of 30 June 2020 As of 31 December 2019 LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 193 114 Liabilities to banks and customers 1,223 1,556 Unearned premiums 23,639 20,022 Reserves for loss and loss adjustment expenses 67,301 65,414 Reserves for insurance and investment contracts 14,982 15,333 Financial liabilities for unit-linked contracts Deferred tax liabilities 2,659 2,712 Other liabilities 20,396 22,574 Liabilities of disposal groups classified as held for sale 10 10 Certificated liabilities Subordinated liabilities 12 12 Total liabilities 130,414 127,746 30 Life/Health As of 30 June 2020 As of 31 December 2019 10,888 10,165 13,001 11,661 509,853 500,885 104,556 100,466 125,728 132,168 6,102 5,898 18,260 19,841 709 836 19,123 20,592 912 3,016 2,660 2,695 811,791 808,223 Life/Health As of 30 June 2020 As of 31 December 2019 18,932 17,900 5,105 4,616 5,702 5,472 12,549 12,184 580,887 572,904 125,728 132,168 6,137 5,273 15,148 15,704 353 1,958 12 68 69 770,610 768,261 Interim Report for the First Half-Year of 2020 − Allianz Group Asset Management As of 30 June 2020 As of 31 December 2019 819 967 50 66 81 79 54 270 185 166 4,674 4,582 7,596 7,607 13,458 13,739 Asset Management As of 30 June 2020 As of 31 December 2019 43 43 31 24 4,016 4,408 4,090 4,475 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Corporate and Other Consolidation Group As of 30 June 2020 As of 31 December 2019 As of 30 June 2020 As of 31 December 2019 As of 30 June 2020 As of 31 December 2019 5,988 4,773 (180) (165) 22,987 21,075 498 517 (388) (473) 14,569 13,187 107,607 106,426 (89,855) (89,383) 633,163 625,746 5,570 5,739 (5,345) (4,820) 115,591 112,672 125,728 132,168 (94) (92) 19,413 17,545 23,478 24,777 1,164 1,092 (1,749) (1,755) 1,090 1,133 6,287 7,668 (13,685) (15,607) 46,606 44,532 637 566 (127) 1,644 3,555 165 159 14,537 14,796 127,916 126,940 (111,296) (112,423) 1,018,806 1,011,185 Corporate and Other Consolidation Group As of 30 June 2020 As of 31 December 2019 As of 30 June 2020 As of 31 December 2019 As of 30 June 2020 As of 31 December 2019 534 523 (389) (487) 19,270 18,049 10,767 8,827 (2,579) (1,597) 14,558 13,445 (28) (26) 29,313 25,468 (59) (56) 79,790 77,541 (72) (82) (129) (131) 595,667 588,023 125,728 132,168 326 284 (1,749) (1,755) 7,404 6,538 28,651 27,960 (21,214) (22,742) 46,998 47,904 353 319 (51) 716 2,236 12,423 12,336 (2,677) (3,139) 9,745 9,209 14,193 13,177 (20) (20) 14,254 13,238 67,175 63,344 (28,846) (30,006) 943,443 933,820 Total equity 75,363 77,364 Total liabilities and equity 1,018,806 1,011,185 31 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Six months ended 30 June 2020 2019 2020 2019 Total revenues1 33,785 32,916 36,356 37,399 Premiums earned (net) 26,030 25,179 12,041 12,326 Operating investment result Interest and similar income 1,577 1,723 9,130 9,283 Operating income from financial assets and liabilities carried at fair value through income (net) (59) (20) (2,159) (351) Operating realized gains/losses (net) 58 117 4,791 2,081 Interest expenses, excluding interest expenses from external debt (60) (57) (52) (56) Operating impairments of investments (net) (117) (19) (3,557) (539) Investment expenses (201) (192) (787) (697) Subtotal 1,197 1,553 7,366 9,721 Fee and commission income 851 992 742 800 Other income 150 1 10 4 Claims and insurance benefits incurred (net) (18,250) (16,727) (10,174) (10,062) Operating change in reserves for insurance and investment contracts (net)2 (64) (265) (4,326) (7,169) Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses (6,909) (6,939) (3,478) (2,876) Fee and commission expenses (830) (954) (354) (403) Operating amortization of intangible assets (10) (10) Operating restructuring and integration expenses (6) (1) Other expenses (2) (4) Operating profit (loss) 2,175 2,838 1,810 2,327 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (3) (56) (19) 81 Non-operating realized gains/losses (net) (31) 226 586 30 Non-operating impairments of investments (net) (463) (110) (118) (20) Subtotal (497) 60 449 90 Non-operating change in reserves for insurance and investment contracts (net) 27 (34) Interest expenses from external debt Acquisition-related expenses Non-operating amortization of intangible assets (55) (56) (23) (26) Non-operating restructuring and integration expenses (133) (41) (28) (15) Non-operating items (685) (37) 425 15 Income (loss) before income taxes 1,490 2,801 2,236 2,342 Income taxes (563) (721) (433) (553) Net income (loss) 926 2,079 1,802 1,788 Net income (loss) attributable to: Non-controlling interests 54 38 79 90 Shareholders 872 2,041 1,724 1,698 1_Total revenues comprise gross premiums written and fee and commission income in Property-Casualty, statutory premiums in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2_For the six months ended 30 June 2020, includes expenses for premium refunds (net) in Property-Casualty of € 90 mn (2019: € (98) mn). 32 Interim Report for the First Half-Year of 2020 − Allianz Group Asset Management 2020 2019 3,493 3,320 6 10 5 6 (14) (16) (3) 4,396 4,211 (2,174) (2,069) (901) (891) 1,319 1,251 (2) (2) (8) (8) (86) (1) (96) (9) 1,223 1,242 (317) (316) 906 926 53 40 853 885 Interim Report for the First Half-Year of 2020 − Allianz Group Corporate and Other 2020 111 188 (34) (98) (52) 4 1,248 (4) (586) (1,093) (432) (65) 141 (64) 13 (362) (9) (36) (394) (825) 290 (535) (12) (523) 2019 118 259 12 (79) (39) 154 1,127 (1) (559) (1,016) (296) (22) 55 (15) 18 (429) (5) (20) (435) (731) 249 (482) 39 (520) Consolidation 2020 (250) (93) (3) 4 96 259 263 (1,357) (11) (14) 1,115 (3) (2) 6 4 4 1 1 2 2 B _ Condensed Consolidated Interim Financial Statements Group 2019 2020 2019 (275) 73,495 73,479 38,071 37,505 (76) 10,808 11,199 (3) (2,250) (356) (8) 4,853 2,190 78 (128) (130) (3,674) (558) 246 (782) (682) 237 8,827 11,664 (1,238) 5,881 5,891 160 6 2 (28,424) (26,787) 11 (4,401) (7,423) (4) (1) (15) (13,161) (12,459) 1,005 (2,062) (2,258) (10) (10) (6) (1) (6) 1 4,869 6,121 3 (90) 6 1 702 313 (645) (145) 5 (33) 173 27 (34) (362) (429) (95) (95) (282) (76) 5 (745) (461) 6 4,124 5,659 (2) (1,023) (1,344) 4 3,101 4,316 174 207 5 2,927 4,109 33 B _ Condensed Consolidated Interim Financial Statements RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES Reconciliation of reportable segments to Allianz Group figures € mn Total revenues Six months ended 30 June 2020 2019 German Speaking Countries and Central & Eastern Europe 9,935 9,805 Western & Southern Europe and Asia Pacific 6,356 6,405 Iberia & Latin America and Allianz Partners 6,207 6,799 Global Insurance Lines & Anglo Markets, Middle East and Africa 15,433 14,142 Consolidation (4,146) (4,235) Total Property-Casualty 33,785 32,916 German Speaking Countries and Central & Eastern Europe 17,563 17,240 Western & Southern Europe and Asia Pacific 12,856 13,644 Iberia & Latin America 679 787 USA 4,863 5,817 Global Insurance Lines & Anglo Markets, Middle East and Africa 573 432 Consolidation and Other (178) (520) Total Life/Health 36,356 37,399 Asset Management 3,493 3,320 Corporate and Other 111 118 Consolidation (250) (275) Group 73,495 73,479 34 Operating profit (loss) Net income (loss) 2020 2019 2020 2019 877 798 438 608 910 815 475 573 373 247 227 155 14 979 (213) 743 1 2,175 2,838 926 2,079 753 820 515 565 775 777 561 578 72 131 542 133 216 588 243 506 19 30 (40) 21 (24) (20) (19) (16) 1,810 2,327 1,802 1,788 1,319 1,251 906 926 (432) (296) (535) (482) (3) 1 2 4 4,869 6,121 3,101 4,316 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEET 6 _ Financial assets carried at fair value through income 7 _ Investments Investments € mn Financial assets carried at fair value through income € mn As of 30 June 2020 As of 31 December 2019 Available-for-sale investments As of 30 June 2020 599,416 As of 31 December 2019 593,178 Held-to-maturity investments 2,498 2,589 Financial assets held for trading Funds held by others under reinsurance contracts assumed 770 752 Debt securities Equity securities Derivative financial instruments 423 234 8,049 431 251 6,884 Investments in associates and joint ventures Real estate held for investment Fixed assets of alternative investments 14,495 13,269 2,716 13,462 13,049 2,716 Subtotal 8,706 7,566 Total 633,163 625,746 Financial assets designated at fair value through income Debt securities 3,362 3,005 Equity securities 2,501 2,616 Subtotal 5,863 5,620 Total 14,569 13,187 AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale investments € mn As of 30 June 2020 As of 31 December 2019 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds 254,152 23,599 (1,163) 276,588 247,684 21,033 (354) 268,363 Government and government agency bonds1 193,062 39,150 (492) 231,720 189,229 34,743 (573) 223,400 MBS/ABS 27,917 1,234 (268) 28,883 27,752 762 (61) 28,453 Other 6,973 1,484 (38) 8,420 6,721 1,465 (30) 8,156 Subtotal 482,105 65,468 (1,962) 545,612 471,387 58,004 (1,018) 528,373 Equity securities 42,358 11,915 (469) 53,804 48,723 16,337 (255) 64,805 Total 524,463 77,383 (2,431) 599,416 520,110 74,341 (1,273) 593,178 1_As of 30 June 2020, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 86,892 mn (31 December 2019: € 84,788 mn) and € 77,668 mn (31 December 2019: € 74,997 mn), respectively. Interim Report for the First Half-Year of 2020 − Allianz Group 35 B _ Condensed Consolidated Interim Financial Statements 8 _ Loans and advances to banks and customers Loans and advances to banks and customers € mn As of 30 June 2020 As of 31 December 2019 Short-term investments and certificates of deposit 2,153 2,574 Loans 109,391 107,084 Other 4,110 3,072 Subtotal 115,654 112,730 Loan loss allowance (63) (58) Total 115,591 112,672 9 _ Reinsurance assets Reinsurance assets € mn As of 30 June 2020 As of 31 December 2019 Unearned premiums 2,632 1,853 Reserves for loss and loss adjustment expenses 11,237 10,304 Aggregate policy reserves 5,413 5,260 Other insurance reserves 131 128 Total 19,413 17,545 10 _ Deferred acquisition costs Deferred acquisition costs € mn As of 30 June 2020 As of 31 December 2019 Deferred acquisition costs Property-Casualty 5,218 4,936 Life/Health 17,783 19,195 Subtotal 23,001 24,130 Deferred sales inducements 204 351 Present value of future profits 273 295 Total 23,478 24,777 36 11 _ Other assets Other assets € mn As of 30 June 2020 As of 31 December 2019 Receivables Policyholders 7,460 7,241 Agents 5,273 4,676 Reinsurance 4,549 3,636 Other 6,271 5,848 Less allowances for doubtful accounts (674) (673) Subtotal 22,879 20,728 Tax receivables Income taxes 1,933 1,504 Other taxes 1,966 2,329 Subtotal 3,899 3,833 Accrued dividends, interest and rent 5,746 6,388 Prepaid expenses 846 621 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 976 702 Property and equipment Real estate held for own use 2,934 2,848 Software 3,165 3,183 Equipment 1,322 1,379 Right-of-use assets 2,349 2,416 Subtotal 9,770 9,826 Other assets 2,491 2,434 Total 46,606 44,532 12 _ Intangible assets Intangible Assets € mn As of 30 June 2020 As of 31 December 2019 Goodwill 13,146 13,207 Distribution agreements1 543 598 Other2 848 991 Total 14,537 14,796 1_Primarily includes the long-term distribution agreements with Commerzbank AG. 2_Primarily include acquired business portfolios, customer relationships, heritable building rights, land use rights, lease rights, and brand names. Interim Report for the First Half-Year of 2020 − Allianz Group 13 _ Liabilities to banks and customers Liabilities to banks and customers € mn As of 30 June 2020 As of 31 December 2019 Payables on demand and other deposits 1,201 1,082 Repurchase agreements and collateral received from securities lending transactions and derivatives 5,175 4,551 Other 8,182 7,812 Total 14,558 13,445 14 _ Reserves for loss and loss adjustment expenses As of 30 June 2020, the reserves for loss and loss adjustment expenses of the Allianz Group totaled € 79,790 mn (31 December 2019: € 77,541 mn). The following table reconciles the beginning and ending reserves of the Property-Casualty business segment for the half-years ended 30 June 2020 and 2019. Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn 2020 2019 As of 1 January 65,414 61,442 Balance carry forward of discounted loss reserves 4,552 4,157 Subtotal 69,965 65,598 Loss and loss adjustment expenses incurred Current year 21,248 18,786 Prior years (494) (768) Subtotal 20,754 18,018 Loss and loss adjustment expenses paid Current year (6,448) (6,522) Prior years (11,635) (11,018) Subtotal (18,083) (17,540) Foreign currency translation adjustments and other changes (760) 250 Changes in the consolidated subsidiaries of the Allianz Group 224 Subtotal 71,876 66,550 Ending balance of discounted loss reserves (4,575) (4,347) As of 30 June 67,301 62,203 Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 15 _ Reserves for insurance and investment contracts Reserves for insurance and investment contracts € mn As of 30 June 2020 As of 31 December 2019 Aggregate policy reserves 506,275 497,558 Reserves for premium refunds 88,788 89,781 Other insurance reserves 604 685 Total 595,667 588,023 16 _ Other liabilities Other liabilities € mn As of 30 June 2020 As of 31 December 2019 Payables Policyholders 3,936 5,425 Reinsurance 3,101 2,103 Agents 1,745 1,760 Subtotal 8,782 9,288 Payables for social security 387 425 Tax payables Income taxes 1,405 1,773 Other taxes 2,182 1,988 Subtotal 3,587 3,761 Accrued interest and rent 553 537 Unearned income 525 502 Provisions Pensions and similar obligations 10,699 10,556 Employee related 2,635 2,849 Share-based compensation plans 272 429 Restructuring plans 304 322 Other provisions 1,916 1,957 Subtotal 15,826 16,114 Deposits retained for reinsurance ceded 2,308 2,443 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 290 532 Financial liabilities for puttable equity instruments 2,464 2,073 Lease liabilities 2,748 2,791 Other liabilities 9,529 9,439 Total 46,998 47,904 37 B _ Condensed Consolidated Interim Financial Statements 17 _ Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2020 As of 31 December 2019 Senior bonds1 8,520 8,085 Money market securities 1,225 1,124 Total certificated liabilities 9,745 9,209 Subordinated bonds2 14,209 13,193 Hybrid equity3 45 45 Total subordinated liabilities 14,254 13,238 1_Change due to the issuance of two senior bonds with a total volume of € 1.25 bn and the redemption of a € 0.75 bn senior bond in the first half-year of 2020. 2_Change due to the issuance of a subordinated bond in the first half-year of 2020 with a volume of € 1.0 bn. 3_Relates to hybrid equity issued by subsidiaries. Bonds outstanding as of 30 June 2020 mn ISIN Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A19S4T0 DE000A1G0RU9 DE000A19S4U8 DE000A28RSQ8 DE000A2RWAX4 DE000A19S4V6 DE000A1HG1K6 DE000A2RWAY2 DE000A28RSR6 DE000A180B80 DE000A1HG1L4 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 DE000A14J9N8 DE000A2DAHN6 XS1556937891 DE000A2YPFA1 DE000A254TM8 XS0857872500 DE000A1YCQ29 DE000A13R7Z7 XS1485742438 Allianz Finance II B.V., Amsterdam DE000A1GNAH1 DE000A0GNPZ3 38 Year of issue 2017 2012 2017 2020 2019 2017 2013 2019 2020 2016 2013 2012 2015 2017 2017 2019 2020 2012 2013 2014 2016 2011 2006 Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD EUR EUR USD EUR EUR USD EUR EUR Notional amount Coupon in % Maturity date 500 3-months Euribor + 50 bps 07 December 2020 1,500 3.500 14 February 2022 750 0.250 06 June 2023 500 Non-interest bearing 14 January 2025 750 0.875 15 January 2026 750 0.875 06 December 2027 750 3.000 13 March 2028 750 1.500 15 January 2030 750 0.500 14 January 2031 750 1.375 21 April 2031 750 4.500 13 March 2043 1,500 5.625 17 October 2042 1,500 2.241 07 July 2045 1,000 3.099 06 July 2047 600 5.100 30 January 2049 1,000 1.301 25 September 2049 1,000 2.121 08 July 2050 1,000 5.500 Perpetual bond 1,500 4.750 Perpetual bond 1,500 3.375 Perpetual bond 1,500 3.875 Perpetual bond 1,096 5.750 08 July 2041 800 5.375 Perpetual bond Interim Report for the First Half-Year of 2020 − Allianz Group 18 _ Equity Equity € mn As of 30 June 2020 As of 31 December 2019 Shareholders' equity Issued capital Additional paid-in capital Retained earnings1,2 1,170 27,758 27,654 1,170 27,758 29,577 Foreign currency translation adjustments (2,937) (2,195) Unrealized gains and losses (net)3 18,491 17,691 Subtotal 72,136 74,002 Non-controlling interests 3,228 3,363 Total 75,363 77,364 1_As of 30 June 2020, include € (815) mn (31 December 2019: € (55) mn) related to treasury shares. 2_In February 2020, a share buy-back with an intended volume of € 1.5 bn was announced and executed since 9 March 2020. During the first half-year of 2020, Allianz SE purchased 4.9 million own shares for an amount of € 750 mn as a first tranche. The second tranche with a volume of € 750 mn was suspended in April 2020. 3_As of 30 June 2020, include € 533 mn (31 December 2019: € 415 mn) related to cash flow hedges. DIVIDENDS In the second quarter of 2020, a total dividend of € 3,952 mn (2019: € 3, 767 mn) or € 9.60 (2019: € 9.00) per qualifying share was paid to the shareholders. Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 39 B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENT 19 _ Premiums earned (net) 21 _ Income from financial assets and liabilities carried at fair value through income (net) Premiums earned (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group Income from financial assets and liabilities carried at fair value through income (net) € mn 2020 Six months ended 30 June 2020 2019 Premiums written Gross 32,933 12,779 (52) 45,660 Income from financial assets and liabilities held for trading (net) (1,290) (681) Ceded Net Change in unearned premiums (net) Premiums earned (net) (3,651) 29,282 (3,252) 26,030 (412) 12,367 (326) 12,041 52 (4,012) 41,649 (3,578) 38,071 Income from financial assets and liabilities designated at fair value through income (net) Income from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net)1 Total (10) (15) (1,026) (2,341) 407 (186) 110 (350) 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated 2019 in a foreign currency that are monetary items and not measured at fair value through income. Premiums written Gross 31,924 12,936 (57) 44,803 Ceded (2,861) (302) 57 (3,106) Net Change in unearned premiums (net) 29,063 (3,884) 12,634 (308) 41,697 (4,192) 22 _ Realized gains/losses (net) Premiums earned (net) 25,179 12,326 37,505 Realized gains/losses (net) € mn Six months ended 30 June 2020 2019 REALIZED GAINS Available-for-sale investments 20 _ Interest and similar income Equity securities 2,533 1,197 Debt securities 4,244 1,616 Subtotal 6,778 2,813 Interest and similar income € mn Other Subtotal 757 7,534 199 3,012 Six months ended 30 June 2020 2019 Dividends from available-for-sale investments 1,063 1,420 Interest from available-for-sale investments 6,816 6,834 REALIZED LOSSES Interest from loans to banks and customers 1,857 1,949 Available-for-sale investments Rent from real estate held for investment 497 461 Equity securities (1,480) (191) Other 575 535 Debt securities (469) (265) Total 10,808 11,199 Subtotal (1,949) (457) Other (30) (52) Subtotal (1,979) (509) Total 5,555 2,503 40 Interim Report for the First Half-Year of 2020 − Allianz Group 23 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2020 2019 PROPERTY-CASUALTY Fees from credit and assistance business 661 798 Service agreements 191 194 Subtotal 851 992 LIFE/HEALTH Investment advisory 660 707 Service agreements 82 94 Subtotal 742 800 ASSET MANAGEMENT Management and advisory fees 4,091 3,870 Loading and exit fees 199 193 Performance fees 72 122 Other 34 26 Subtotal 4,396 4,211 CORPORATE AND OTHER Service agreements 910 781 Investment advisory and banking activities 338 346 Subtotal 1,248 1,127 CONSOLIDATION (1,357) (1,238) Total 5,881 5,891 24 _ Claims and insurance benefits incurred (net) Claims and insurance benefits incurred (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2020 Gross (20,754) (10,479) 34 (31,199) Ceded 2,504 305 (34) 2,774 Net (18,250) (10,174) (28,424) 2019 Gross (18,018) (10,346) 36 (28,328) Ceded 1,291 284 (34) 1,540 Net (16,727) (10,062) 2 (26,787) Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 25 _ Change in reserves for insurance and investment contracts (net) Change in reserves for insurance and investment contracts (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2020 Gross (75) (4,428) (11) (4,513) Ceded 11 128 139 Net (64) (4,299) (11) (4,374) 2019 Gross (266) (7,314) 11 (7,570) Ceded 1 111 113 Net (265) (7,203) 11 (7,457) 26 _ Interest expenses Interest expenses € mn Six months ended 30 June 2020 2019 Liabilities to banks and customers (37) (44) Deposits retained for reinsurance ceded (42) (36) Certificated liabilities (80) (127) Subordinated liabilities (280) (304) Other (52) (48) Total (491) (559) 27 _ Impairments of investments (net) Impairments of investments (net) € mn Six months ended 30 June 2020 2019 Impairments Available-for-sale investments Equity securities (3,694) (625) Debt securities (511) (15) Subtotal (4,205) (639) Other (115) (65) Non-current assets and assets of disposal groups classified as held for sale (2) Subtotal (4,320) (706) Reversals of impairments 1 3 Total (4,319) (703) 41 B _ Condensed Consolidated Interim Financial Statements 28 _ Investment expenses Investment expenses € mn Six months ended 30 June 2020 Investment management expenses (436) Expenses from real estate held for investment (205) Expenses from fixed assets of alternative investments (141) Total (782) 29 _ Acquisition and administrative expenses (net) Acquisition and administrative expenses (net) € mn Six months ended 30 June 2020 PROPERTY-CASUALTY Acquisition costs1 (5,177) Administrative expenses (1,731) Subtotal (6,909) LIFE/HEALTH Acquisition costs (2,531) Administrative expenses (947) Subtotal (3,478) ASSET MANAGEMENT Personnel expenses (1,348) Non-personnel expenses (826) Subtotal (2,174) CORPORATE AND OTHER Administrative expenses (586) Subtotal (586) CONSOLIDATION (14) Total (13,161) 1_Include € 457 mn (2019: € 328 mn) ceded acquisition costs. 42 2019 (390) (186) (106) (682) 2019 (5,269) (1,671) (6,939) (1,950) (926) (2,876) (1,268) (802) (2,069) (559) (559) (15) (12,459) 30 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2020 2019 PROPERTY-CASUALTY Fees from credit and assistance business (652) (773) Service agreements (178) (181) Subtotal (830) (954) LIFE/HEALTH Investment advisory (299) (339) Service agreements (55) (64) Subtotal (354) (403) ASSET MANAGEMENT Commissions (883) (881) Other (18) (10) Subtotal (901) (891) CORPORATE AND OTHER Service agreements (917) (823) Investment advisory and banking activities (176) (193) Subtotal (1,093) (1,016) CONSOLIDATION 1,115 1,005 Total (2,062) (2,258) 31 _ Income taxes Income taxes € mn Six months ended 30 June 2020 2019 Current income taxes (564) (1,650) Deferred income taxes (459) 307 Total (1,023) (1,344) For the six months ended 30 June 2020 and 2019, the income taxes on components of other comprehensive income consist of the following: Income taxes on components of other comprehensive income € mn Six months ended 30 June 2020 2019 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 10 33 Available-for-sale investments (533) (2,716) Cash flow hedges (29) (54) Share of other comprehensive income of associates and joint ventures (24) (2) Miscellaneous 35 (5) Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans 74 326 Total (467) (2,418) Interim Report for the First Half-Year of 2020 − Allianz Group OTHER INFORMATION 32 _ Fair values and carrying amounts of financial instruments FAIR VALUES AND CARRYING AMOUNTS The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities As of 30 June 2020, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 78 mn (31 December 2019: € 81 mn). These investments are primarily investments in privately held corporations and partnerships. FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: Financial assets and liabilities held for trading, Financial assets and liabilities designated at fair value through in- come, Available-for-sale investments, Financial assets and liabilities for unit-linked contracts, and Financial liabilities for puttable equity instruments. Interim Report for the First Half-Year of 2020 − Allianz Group B _ Condensed Consolidated Interim Financial Statements As of 30 June 2020 As of 31 December 2019 Carrying amount Fair value Carrying amount Fair value 22,987 22,987 21,075 21,075 8,706 8,706 7,566 7,566 5,863 5,863 5,620 5,620 599,416 599,416 593,178 593,178 2,498 2,829 2,589 2,887 14,495 17,722 13,462 16,754 13,269 23,745 13,049 23,463 115,591 136,456 112,672 131,216 125,728 125,728 132,168 132,168 19,270 19,270 18,049 18,049 14,558 14,604 13,445 13,475 125,728 125,728 132,168 132,168 2,464 2,464 2,073 2,073 9,745 10,830 9,209 10,375 14,254 14,910 13,238 14,334 43 B _ Condensed Consolidated Interim Financial Statements The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2020 and 31 December 2019: Fair value hierarchy (items carried at fair value) € mn As of 30 June 2020 Level 11 Level 22 FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 1,085 7,577 Financial assets designated at fair value through income 3,751 1,902 Subtotal 4,836 9,479 Available-for-sale investments Corporate bonds 12,142 236,640 Government and government agency bonds 17,479 213,430 MBS/ABS 38 28,560 Other 933 1,243 Equity securities 33,941 512 Subtotal 64,532 480,384 Financial assets for unit-linked contracts 96,154 28,334 Total 165,522 518,198 FINANCIAL LIABILITIES Financial liabilities carried at fair value through income 148 5,021 Financial liabilities for unit-linked contracts 96,154 28,334 Financial liabilities for puttable equity instruments 1,927 242 Total 98,229 33,597 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, and the significant Level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2019. No material changes have occurred since this report was published. SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Transfers into/out of level 3 may occur due to a reassessment of the input parameters. 44 Level 33 44 211 255 27,807 811 286 6,244 19,352 54,499 1,239 55,993 14,101 1,239 295 15,635 Total 8,706 5,863 14,569 276,588 231,720 28,883 8,420 53,804 599,416 125,728 739,713 19,270 125,728 2,464 147,461 Level 11 394 3,740 4,133 11,645 17,836 46 1,102 45,755 76,384 103,695 184,212 130 103,695 1,674 105,499 As of 31 December 2019 Level 22 Level 33 Total 7,099 73 7,566 1,723 158 5,620 8,822 231 13,187 230,327 26,391 268,363 204,721 843 223,400 28,154 253 28,453 1,123 5,932 8,156 878 18,173 64,805 465,203 51,591 593,178 27,314 1,159 132,168 501,338 52,982 738,532 4,832 13,087 18,049 27,314 1,159 132,168 85 314 2,073 32,231 14,561 152,290 Interim Report for the First Half-Year of 2020 − Allianz Group Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. Reconciliation of level 3 financial assets € mn Carrying value (fair value) as of 1 January 2020 Additions through purchases and issues Net transfers into (out of) Level 3 Disposal through sales and settlements Net gains (losses) recognized in consolidated income statement Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2020 Net gains (losses) recognized in consolidated income statement held at the reporting date 1_Primarily include corporate bonds. Reconciliation of level 3 financial liabilities € mn Carrying value (fair value) as of 1 January 2020 Additions through purchases and issues Net transfers into (out of) Level 3 Disposal through sales and settlements Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2020 Net losses (gains) recognized in consolidated income statement held at the reporting date Interim Report for the First Half-Year of 2020 − Allianz Group Financial assets carried at fair value through income 231 64 3 (361) 319 (2) 255 (35) B _ Condensed Consolidated Interim Financial Statements Available-for- sale investments – Debt securities1 Available-for- sale investments – Equity securities Financial assets for unit- linked contracts Total 33,418 18,173 1,159 52,982 2,191 3,095 119 5,469 (148) (36) (11) (193) (832) (830) (27) (2,050) (129) (9) 4 185 629 (684) (55) (5) (350) (355) (52) (7) (2) (63) 77 (1) (3) 73 35,148 19,352 1,239 55,993 (72) 4 (102) Financial liabilities carried at fair value through income Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total 13,087 1,159 314 14,561 362 119 481 (11) (11) (546) (27) (19) (592) 1,219 4 1,223 (22) (2) (24) (3) (3) 14,101 1,239 295 15,635 1,195 4 1,199 45 B _ Condensed Consolidated Interim Financial Statements FAIR VALUE MEASUREMENT ON A NON-RECURRING BASIS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 27. 33 _ Other information LITIGATION In July 2020, complaints were filed against certain Allianz Global Inves- tors (AllianzGI) entities as well as, in part, Allianz SE and Allianz Asset Management GmbH in the U.S. Federal Court for the Southern District of New York, in connection with losses suffered by investors in AllianzGI’s Structured Alpha funds during the COVID-19-related mar- ket downturn. Allianz expects that other investors in such AllianzGI funds may bring similar actions. Allianz is currently reviewing the com- plaints and intends to defend vigorously against the allegations therein, which Allianz believes to be legally and factually flawed. AllianzGI U.S. has also received a related information request from the U.S. Securities and Exchange Commission (SEC) regarding AllianzGI’s Structured Alpha funds, and is fully cooperating with the SEC. CONTINGENT LIABILITIES AND COMMITMENTS The following table shows the composition of commitments as of 30 June 2020: Commitments € mn As of 30 June 2020 As of 31 December 2019 Commitments to acquire interests in associates and available- for-sale investments 21,715 20,691 Debt investments 7,688 8,197 Other 4,670 4,545 Total 34,073 33,433 As described in the Allianz Group’s Annual Report 2019, the Tier 1 Cap- ital Securities issued by HT1 Funding GmbH have been redeemed on 30 June 2020. This automatically terminated the contingent indemnity agreement between Allianz and HT1 Funding GmbH, pursuant to which Allianz was, under certain circumstances, obliged to make pay- ments to HT1. All other contingent liabilities and commitments had no signifi- cant changes compared to the consolidated financial statements for the year ended 31 December 2019. 46 34 _ Subsequent events The Allianz Group was not subject to any subsequent events that significantly impacted the Group’s financial results after the balance sheet date and before the condensed consolidated interim financial statements were authorized for issue. Interim Report for the First Half-Year of 2020 − Allianz Group FURTHER INFORMATION C Interim Report for the First Half-Year of 2020 − Allianz Group 47 C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed con- solidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the de- velopment and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 3 August 2020 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Christof Mascher Niran Peiris Dr. Klaus-Peter Röhler Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Renate Wagner 48 Interim Report for the First Half-Year of 2020 − Allianz Group REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements - comprising the consolidated balance sheet, consoli- dated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes – and the in- terim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2020 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to is- sue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assur- ance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of com- pany personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. financial statements promulgated by the Interim Report for the First Half-Year of 2020 − Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accord- ance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the pro- visions of the German Securities Trading Act applicable to interim group management reports. Munich, 4 August 2020 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Wirtschaftsprüfer (German Public Auditor) Clemens Koch Wirtschaftsprüfer (German Public Auditor) 49 Financial calendar Important dates for shareholders and analysts1 Financial Results 3Q Financial Results 2020 Annual Report 2020 Annual General Meeting Financial Results 1Q Financial Results 2Q/Interim Report 6M Financial Results 3Q 6 November 2020 19 February 2021 5 March 2021 5 May 2021 12 May 2021 6 August 2021 10 November 2021 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and financial-year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking our financial calendar at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone +49 89 3800 0 – info@allianz.com – www.allianz.com Front page design: hw.design GmbH – Typesetting: Produced in-house with Amana Interim Report on the internet: www.allianz.com/interim-report – Date of publication: 5 August 2020 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2020, Insurance, Allianz | write me a financial report |
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| ALLIANZ GROUP FIRST HALF-YEAR 2021 INTERIM REPORT 2021 To go directly to any chapter, simply click on the headline. All references to chapters, notes, internet pages, etc. within this report are also linked. CONTENT A _ Interim Group Management Report Pages 1 – 18 2 Executive Summary 4 Property-Casualty Insurance Operations 6 Life/Health Insurance Operations 9 Asset Management 11 Corporate and Other 12 Outlook 14 Balance Sheet Review 16 Reconciliations B _ Condensed Consolidated Interim Financial Statements Pages 19 – 48 20 Consolidated Balance Sheet 21 Consolidated Income Statement 22 Consolidated Statement of Comprehensive Income 23 Consolidated Statement of Changes in Equity 24 Consolidated Statement of Cash Flows NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 27 General Information 35 Notes to the Consolidated Balance Sheet 40 Notes to the Consolidated Income Statement 43 Other Information C _ Further Information Pages 49 – 51 50 Responsibility Statement 51 Review Report Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of euro (€ mn) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/results. INTERIM GROUP MANAGEMENT REPORT A Interim Report for the First Half-Year of 2021 − Allianz Group 1 A _ Interim Group Management Report EXECUTIVE SUMMARY KEY FIGURES Key figures Allianz Group1 Six months ended 30 June 2021 2020 Total revenues2 € mn 75,749 73,495 Operating profit3 € mn 6,655 4,869 Net income3 € mn 5,040 3,101 thereof: attributable to shareholders € mn 4,791 2,927 Solvency II capitalization ratio4 % 206 207 Return on equity5 % 15.6 11.4 Earnings per share € 11.47 7.07 Diluted earnings per share € 11.42 6.94 Earnings summary2,3,4,5 ECONOMIC AND INDUSTRY ENVIRONMENT The first half-year of 2021 was marked by the reopening of economies, which overall initiated a marked recovery from the effects of the COVID-19 crisis. Its main drivers were the rollout of vaccination campaigns as well as ongoing policy support – which also meant that, due to differences in vaccination progress and fiscal leeway, the extent of the recovery proved increasingly uneven. Most specifically, a noticeable gap opened between advanced markets and emerging economies, which have lacked access to sufficient amounts of vaccines and capital. Another salient feature was an increase in inflation – a result of supply bottlenecks for anything ranging from parts and materials to transport capacities to human resources. Fiscal and monetary policies remained expansionary, irrespective of the general recovery, supporting most asset classes over the first six months of 2021. Credit risk was kept under control despite a huge increase in corporate debt. Meanwhile, the green transformation gathered steam as both the United States under President Joe Biden and the European Commission announced ambitious plans to build renewable infrastructure and decarbonize economic growth. The insurance industry benefited from said recovery, seeing its premium income rise in numerous lines of business. The heightened risk awareness that came with the COVID-19 crisis increased the demand for risk protection, both in personal lines such as health and life and in commercial lines (supply chain and cyber risks). Later, a general return of confidence and vast amounts of “excess savings” drove a growing demand for savings products. In the property-casualty sector, commercial lines still benefited from rate hardening, while personal lines, in particular motor, saw a normalization of profitability and pricing. The progress of digitalization continued unabated, shaping 1_For further information on Allianz Group figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Total revenues comprise Property-Casualty total revenues (gross premiums written and fee and commission income), Life/Health statutory gross premiums written, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 4_2020 figures as of 31 December 2020. 2021 figures as of 30 June 2021. Figures exclude the application of transitional measures for technical provisions. 2 Delta 2,254 1,786 1,939 1,864 (1) %-p 4.2 %-p 4.41 4.48 increasing parts of life and health insurance and enabling new forms of services, such as digitalized medical advice. The global asset management industry continued to enjoy healthy returns in most asset classes in the first half-year of 2021, with the MSCI World Index – as one example – growing by 13 %. Driven by investor optimism, most traditional asset classes, such as large-cap equities and fixed-income products, continued to see inflows in 2021. At the same time, passive investments gained market share, growing at even higher rates than traditional active strategies and putting pressure on fee margins across the industry. Alternative investments – the largest revenue pool for the global asset management industry – also continued to see robust inflows. Above all, illiquid investment strategies benefited from low interest rates in major economies, causing investors to search for higher-yielding assets. Across asset classes, the industry saw a rapid shift toward investment strategies that took into account environmental, social and governance (ESG) criteria. Growth in this field is fueled by a mix of increasing regulatory pressure, shifting investor preferences, and government-driven investment commitments. MANAGEMENT’S ASSESSMENT Our total revenues increased by 5.2 % on an internal basis 6, compared to the same period of the previous year, mostly driven by our Life/Health business segment. Our Asset Management business segment recorded higher assets under management (AuM) driven revenues, and revenues from our Property-Casualty business segment increased slightly. Our operating profit increased significantly in comparison to the first half-year of 2020, which was severely impacted by COVID-19 in 2020. Our Property-Casualty business segment’s operating profit grew due to a higher underwriting result, while a recovery of the investment margin led to an increase in operating profit from our Life/Health business segment. Our Asset Management business segment’s operating profit increased due to higher average AuM and an improved cost-income ratio. The operating result of our Corporate and Other business segment improved due to a higher operating investment result and lower administrative expenses. Our operating investment result increased by € 3,516 mn to € 12,343 mn, compared to the previous year’s period largely driven by significantly lower impairments. Our non-operating result improved by € 704 mn to a loss of € 41 mn. This was mostly due to a higher non-operating investment result, which was impacted by COVID-19-related market impacts in the prior year. Income taxes increased by € 551 mn to € 1,573 mn, due to higher profit before tax. The effective tax rate decreased to 23.8 % (24.8 %), mostly due to higher profits in lower taxed countries. 5_Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity at the beginning of the period and at the end of the period. The net income attributable to shareholders is adjusted for net financial charges and currency translation effects related to undated subordinated bonds classified as shareholders’ equity. From the average shareholders’ equity undated subordinated bonds classified as shareholders’ equity and unrealized gains/losses on bonds net of shadow accounting are excluded. Annualized figures are not a forecast for full year numbers. For 2020, the return on equity for the full year is shown. 6_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. Interim Report for the First Half-Year of 2021 − Allianz Group The increase in net income was largely driven by the increase in operating profit, supported by a higher non-operating investment result. Our shareholders’ equity1 decreased by € 3.1 bn to € 77.7 bn, compared to 31 December 2020, driven by a dividend payout of € 4.0 bn and a € 4.6 bn reduction in unrealized gains and losses (net). This was partly offset by a net income attributable to shareholders of € 4.8 bn and a € 0.6 bn increase in foreign currency translation adjustments. Over the same period, our Solvency II capitalization ratio decreased slightly to 206 % 2. For a more detailed description of the results generated by each individual business segment (Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other), please consult the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2020, we described our risk and opportunity profile and addressed potential risks that could adversely affect our business as well as our risk profile. For our insurance business the statements contained in that report remain largely unchanged. For our asset management business the Board of Management of Allianz SE has come to the conclusion that there is a relevant risk relating to the Structured Alpha Funds: − Subsequent to the litigation pending in U.S. courts in relation to the Structured Alpha Funds against Allianz Global Investors U.S. LLC and other Allianz Group companies and the investigation launched by the U.S. Securities and Exchange Commission ("SEC") in 2020, the U.S. Department of Justice ("DOJ") has begun an investigation concerning the Structured Alpha Funds, and Allianz Global Investors U.S. LLC has received a voluntary request for documents and is fully cooperating with the SEC and the DOJ in the investigations and has immediately started its own review of this matter. In light of the DOJ investigation and based on information available to Allianz as of today, the Board of Management of Allianz SE has reassessed the matter and has come to the conclusion that there is a relevant risk that the matters relating to impact future the Structured Alpha Funds could materially financial results of Allianz Group. However, it is currently neither feasible to predict how the SEC and DOJ investigations and the pending court proceedings may be resolved nor the timing of any such resolution. It is in particular not feasible to reliably estimate the amount of any possible resolution including potential fines. Therefore, no provision has been recognized at the current stage. information from the DOJ. Allianz − Overall, we continue to monitor developments in order to be able to react in a timely and appropriate manner, should the need arise. For further information, please refer to the chapter Outlook. 1_For further information on shareholders‘ equity, please refer to the Balance Sheet Review. Interim Report for the First Half-Year of 2021 − Allianz Group A _ Interim Group Management Report Events after the balance sheet date For information on any events occurring after the balance sheet date, please refer to note 33 to the condensed consolidated interim financial statements. Other information RECENT ORGANIZATIONAL CHANGES In the course of the first half-year of 2021, there were some minor reallocations between the reportable segments. STRATEGY The Allianz Group’s strategy is described in the Risk and Opportunity Report that forms part of our Annual Report 2020. While the COVID- 19 crisis has prompted us to review and/or accelerate some elements of our Group strategy, there have been no material changes. PRODUCTS, SERVICES AND SALES CHANNELS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2020. ALLIANZ GROUP AND BUSINESS SEGMENTS The Allianz Group operates and manages its activities through the four business segments mentioned above. For further information, please refer to note 4 to the condensed consolidated interim financial statements or to the Business Operations chapter in our Annual Report 2020. 2_Including the application of transitional measures for technical provisions, the Solvency II capitalization ratio amounted to 236 % as of 30 June 2021. For further information, please refer to the Balance Sheet Review. 3 3 A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS KEY FIGURES Operating profit Key figures Property-Casualty1 2 3 4 5 Operating profit € mn Six months ended 30 June 2021 2020 Delta Six months ended 30 June 2021 2020 Delta Total revenues2 € mn 33,610 33,785 (174) Underwriting result 1,540 717 823 Operating profit € mn 2,871 2,175 696 Operating investment income (net) 1,324 1,287 37 Net income € mn 2,095 926 1,169 Other result1 7 171 (164) Loss ratio3 % 66.8 70.1 (3.3) %-p Operating profit 2,871 2,175 696 Expense ratio4 % 26.7 26.5 0.1 %-p 1_Consists of fee and commission income/expenses and other income/expenses. Combined ratio5 % 93.4 96.7 (3.2) %-p Total revenues6 Driven largely by the positive development of our underwriting result, our operating profit increased considerably compared to the first six months of the previous year. A slight rise in our operating investment income added to that outcome. On a nominal basis, we recorded a slight decrease in total revenues by 0.5 % compared to the first six months of the previous year. This included unfavorable foreign currency translation effects of € 746 mn 7 and positive (de)consolidation effects of € 414 mn. On an internal basis, our revenues went up 0.5 %, driven mainly by a positive price effect of 2.7 % and a negative volume effect of 2.3 %. The significant increase in our underwriting result was due to underlying improvements, considering COVID-19 effects, and a higher contribution from run-off, compared to the first half-year of 2020. Higher claims from natural catastrophes and a slight worsening on the expenses side had a partially offsetting effect. Overall, our combined ratio improved by 3.2 percentage points to 93.4 %. The following operations contributed positively to internal growth: Asia-Pacific: Total revenues increased to € 741 mn, an internal growth of 16.9 %. It was mainly due to favorable volume effects in China, specifically in our motor insurance business, the new health insurance business, and our partnership with JD.com. Underwriting result € mn Six months ended 30 June Premiums earned (net) Accident year claims 2021 25,620 (17,759) 2020 26,030 (18,706) Delta (409) 947 Turkey: Total revenues amounted to € 471 mn – up 19.0 % on an internal basis. Much of this was a result of price and volume increases in our motor insurance business. Previous year claims (run-off) Claims and insurance benefits incurred (net) Operating acquisition and administrative expenses (net) 652 (17,107) (6,834) 456 (18,250) (6,909) 196 1,143 75 Australia: Total revenues went up 6.4 % on an internal basis, totaling € 1,716 mn. Key drivers were increases in average premiums and volume increases in our home and motor insurance business. Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (139) (154) 15 Underwriting result 1,540 717 823 The following operations weighed on internal growth: United Kingdom: Total revenues went down 6.0 % on an internal basis, totaling € 2,200 mn. Much of this decrease was a result of a insurance COVID-19-related volume decline business and strong competitive dynamics in our motor insurance business. in our commercial France: Total revenues fell to € 2,445 mn. This internal decrease of 2.5 % was mainly due to unfavorable volume effects in our commercial property and liability insurance business. AGCS: Total revenues amounted to € 5,176 mn – a 1.1 % decline on an internal basis, which resulted from negative volume effects in our Liability line of business. 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consolidated interim financial statements. Our accident year loss ratio 8 stood at 69.3 % – a 2.5 percentage point improvement compared to the first half of the previous year, which was mainly due to COVID-19-related losses in that period. On the other hand, we recorded higher losses from natural catastrophes, which increased their impact on our combined ratio by 0.8 percentage points: from 2.3 % to 3.1 %. Without these losses from natural catastrophes, our accident year loss ratio would have improved by 3.3 percentage points to 66.2 %. 1_For further information on Property-Casualty figures, please refer to note 4 to the condensed consolidated interim financial 6_We comment on the development of our total revenues on an internal basis, which means figures have been adjusted for statements. foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 2_Total revenues in Property-Casualty also include fee and commission income. 3_Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4_Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) 7_Based on the average exchange rates in 2021 compared to 2020. 8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned (net). divided by premiums earned (net). 4 Interim Report for the First Half-Year of 2021 − Allianz Group The following operations contributed positively to the development of our accident year loss ratio: AGCS: 2.2 percentage points. This was driven by underlying improvements and a severe impact of COVID-19 in the first six months of 2020, mostly on the Entertainment line of business. Reinsurance: 0.8 percentage points. The improvement resulted almost exclusively from the fact that the COVID-19 pandemic had affected the previous year’s result; it was partially offset by higher claims from natural catastrophes. The following operations weighed on the development of our accident year loss ratio: Italy: 0.3 percentage points. The deterioration resulted from a lower claims frequency in our motor insurance business in the first half- year of 2020 due to COVID-19. Germany: 0.3 percentage points. This increase was due to higher claims from natural catastrophes and large losses, partially offset by underlying improvements, considering COVID-19 effects in the prior year. Our positive run-off result was € 652 mn, translating into a run-off ratio of 2.5 % – compared to € 456 mn and 1.8 % in the first half-year of 2020. Most of our operations contributed positively to our run-off result. Operating acquisition and administrative expenses amounted to € 6,834 mn in the first six months of 2021, compared to € 6,909 mn in the same period of 2020. Our expense ratio increased slightly by 0.1 percentage points to 26.7 %. Operating investment income (net) € mn Six months ended 30 June 2021 2020 Interest and similar income (net of interest expenses) 1,527 1,517 Operating income from financial assets and liabilities carried at fair value through income (net) (28) (59) Operating realized gains (net) 105 58 Operating impairments of investments (net) (4) (117) Investment expenses (216) (201) Expenses for premiums refunds (net)1 (60) 90 Operating investment income (net)2 1,324 1,287 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), reported within “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 24 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) increased slightly in the first half-year of 2021. All line items except investment expenses and expenses for premium refunds (net) contributed to that development. Interim Report for the First Half-Year of 2021 − Allianz Group Delta 10 32 47 113 (14) (150) 37 A _ Interim Group Management Report Other result € mn Six months ended 30 June 2021 2020 Delta Fee and commission income 860 851 9 Other income 1 150 (149) Fee and commission expenses (848) (830) (18) Other expenses (6) (6) Other result 7 171 (164) Our other result decreased, mainly because the previous year’s result had benefited from the sale of an owner-occupied property in Germany. Net income We registered a distinct increase in our net income in the first six months of 2021 by € 1,169 mn. Apart from the increase in our operating profit, this outcome was owed to an improvement of our non-operating investment result. The overall effect was only partially offset by higher income taxes. 5 5 A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS KEY FIGURES Key figures Life/Health1 Six months ended 30 June Statutory premiums2 Operating profit Net income Return on equity3 23 € mn € mn € mn % 2021 38,536 2,495 1,947 13.0 2020 36,356 1,810 1,802 12.8 Delta 2,180 685 145 0.2 %-p Present value of new business premiums (PVNBP)5 Our PVNBP increased by € 10,175 mn to reach € 41,444 mn. This was predominantly driven by higher sales for unit-linked products in Italy, capital-efficient products in the United States and Germany as well as protection & health products in Germany. Further contributing factors included an ongoing product transfer action in France and a back- book renegotiation impact in Italy. We saw an overall recovery compared to the first half-year of 2020, which was burdened by COVID-19 restrictions. Statutory premiums4 Present value of new business premiums by lines of business % On a nominal basis, statutory premiums increased by 6.0 % in the first half-year of 2021. This includes unfavorable foreign currency translation effects of € 876 mn as well as negative (de-)consolidation effects of € 53 mn. On an internal basis4, statutory premiums grew by € 3,109 mn – or 8.6 % – to € 39,412 mn. Six months ended 30 June Guaranteed savings & annuities Protection & health Unit-linked without guarantee Capital-efficient products 2021 14.5 19.0 25.9 40.5 2020 12.2 20.3 22.3 45.2 Delta 2.3 (1.3) 3.6 (4.6) In the German life business, statutory premiums dropped to € 11,829 mn, or by 14.2 % on an internal basis, as single premium sales decreased in our business with capital-efficient products and for our product Parkdepot. In the German health business, statutory premiums reached € 1,941 mn, a 4.1 % increase on an internal basis, largely attributable to the acquisition of new customers both in supplementary and comprehensive healthcare coverage as well as premium adjustments in the comprehensive healthcare coverage. Total 100.0 Operating profit OPERATING PROFIT BY PROFIT SOURCES6 100.0 In the United States, statutory premiums increased to € 5,789 mn, up 30.2 % on an internal basis. It was due to recovered sales in most lines of business. Operating profit by profit sources € mn In Italy, statutory premiums went up to € 7,390 mn, a 41.8 % increase on an internal basis. This resulted mainly from stronger sales in our business with unit-linked products. Six months ended 30 June Loadings and fees Investment margin 2021 3,387 2,129 2020 3,257 1,602 Delta 130 527 In France, statutory premiums grew to € 3,771 mn. Most of this increase – 17.6 % on an internal basis – was due to higher sales for our new multi support product. Expenses Technical margin Impact of changes in DAC (3,791) 637 134 (3,674) 688 (63) (117) (51) 197 In the Asia-Pacific region, statutory premiums grew to € 3,375 mn. The rise – 19.1 % on an internal basis – was mainly driven by a sales increase in unit-linked products in Indonesia and in the Philippines. Operating profit 2,495 1,810 685 Our operating profit increased, largely because favorable market developments led to the recovery of the investment margin – driven mainly by the United States, Germany and France. Additional factors included higher unit-linked management fees, mainly in Italy, and increased loadings from reserves in the German and the U.S. life business. A higher capitalization of DAC, resulting from recovered sales, was partly offset by higher acquisition expenses. 1_For further information on Life/Health figures, please refer to note 4 to the condensed consolidated interim financial statements. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 4_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. 5_PVNBP before non-controlling interests. 6_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing 3_Represents the annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning and at the end of the period. Annualized figures are not a forecast for full year numbers. For 2020, the return on equity for the full year is shown. underlying drivers of performance on a Life/Health business segment consolidated basis. 6 Interim Report for the First Half-Year of 2021 − Allianz Group LOADINGS AND FEES 1 Loadings and fees € mn Six months ended 30 June 2021 2020 Loadings from premiums 2,098 2,094 Loadings from reserves 864 818 Unit-linked management fees 424 346 Loadings and fees 3,387 3,257 Loadings from premiums as % of statutory premiums 5.4 5.8 Loadings from reserves as % of average reserves1,2 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.3 0.2 1_Aggregate policy reserves and unit-linked reserves. 2_Yields are pro rata. 3_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums remained stable. Loadings from reserves increased, most of which was driven by higher reserve volumes mainly in Germany and in the United States, and were stable in relation to reserves. Unit-linked management fees went up, primarily because of an increase in assets under management and higher performance fees in Italy and Slovakia. INVESTMENT MARGIN2 Investment margin € mn Six months ended 30 June 2021 2020 Interest and similar income 9,493 9,130 Operating income from financial assets and liabilities carried at fair value through income (net) (1,970) (2,159) Operating realized gains/losses (net) 4,271 4,791 Interest expenses (71) (52) Operating impairments of investments (net) (202) (3,557) Investment expenses (903) (787) Other1 (677) (205) Technical interest (4,514) (4,588) Policyholder participation (3,298) (970) Investment margin 2,129 1,602 Investment margin in basis points2,3 42.4 32.8 1_“Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit, and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees, on the other hand. 2_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 3_Yields are pro rata. 1_Loadings and fees include premium and reserve-based fees, unit-linked management fees, and policyholder participation in expenses. 2_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). Interim Report for the First Half-Year of 2021 − Allianz Group Delta 4 47 79 130 (0.3) Delta 363 189 (520) (19) 3,355 (116) (472) 75 (2,327) 527 9.6 A _ Interim Group Management Report Our investment margin increased. In the United States, favorable market developments led to a higher investment income mainly from our business with traditional and non-traditional variable annuities. In Germany and France, we saw lower impairments, mostly for equities – compared to the high level we had recorded in the first half-year of 2020. Another contributing factor was the disposal of our participation in Thailand. These positive effects were partly offset by higher policyholder participations and lower realizations. EXPENSES 3 Expenses € mn Six months ended 30 June 2021 2020 Delta Acquisition expenses and commissions (2,802) (2,722) (80) Administrative and other expenses (990) (952) (38) Expenses (3,791) (3,674) (117) Acquisition expenses and commissions as % of PVNBP1 (6.8) (8.7) 1.9 Administrative and other expenses as % of average reserves2,3 (0.2) (0.2) 1_PVNBP before non-controlling interests. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. Our acquisition expenses and commissions increased. Much of this was due to higher sales for protection & health products, fixed indexed and non-traditional variable annuities in the United States and unit- linked products in Italy. The trend was partly offset by lower sales volumes in our German life business. Administrative and other expenses went up, largely caused by a reallocation between acquisition and administrative expenses as well as higher restructuring and IT expenses in Germany. TECHNICAL MARGIN4 Our technical margin worsened, mainly because in the first half-year of 2020 the risk margin had benefited from a release of claim reserves in France. 3_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 4_The technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. 7 7 A _ Interim Group Management Report IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC)1 Impact of change in DAC € mn Six months ended 30 June 2021 2020 Capitalization of DAC 987 831 Amortization, unlocking and true-up of DAC (852) (894) Impact of change in DAC 134 (63) The impact of change in DAC turned positive. The higher capitalization was largely driven by recovered sales in our business with protection & health, fixed indexed and non-traditional variable annuity products in the United States. Additional drivers included strong unit-linked product sales in Italy and higher deferrable costs in France. Decreased amortization mainly resulted from true-ups, most of which occurred in our non-traditional variable-annuities business in the United States. OPERATING PROFIT BY LINES OF BUSINESS Operating profit by lines of business € mn Six months ended 30 June 2021 2020 Guaranteed savings & annuities 991 783 Protection & health 497 443 Unit-linked without guarantee 319 220 Capital-efficient products 688 364 Operating profit 2,495 1,810 An increase in our operating profit in the guaranteed savings & annuities line of business was largely due to an improved investment margin in the traditional variable-annuities business in the United States, driven by the positive market developments. Another key factor was the disposal of our participation in Thailand. A higher operating profit in our protection & health line of business was mainly a consequence of the recovered investment margin in the German health business. Operating profit growth in our unit-linked without guarantee line of business primarily resulted from increased unit- linked management fees in Italy, higher loadings from reserves in France and the developments in our business in Taiwan. The increase in the operating profit in our capital-efficient products line of business was largely owed to improved market conditions in our non-traditional variable-annuities business in the United States, as well as growth in our German life business. 1_”Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs as well as of front-end loadings on operating profit, and therefore differs from the figures reported in our IFRS financial statements. 8 Delta 156 42 197 Delta 207 54 99 325 685 Net income Our net income grew by € 145 mn driven by the increase in the operating profit that was only partly offset by a lower non-operating result. The latter was largely due to lower realizations, compared to the first half-year of 2020, where the disposal of Allianz Popular S.L. in Spain had resulted in a high figure. Return on equity Our return on equity went up slightly by 0.2 percentage points to 13.0 % as a result of the increase in the net income. Interim Report for the First Half-Year of 2021 − Allianz Group ASSET MANAGEMENT KEY FIGURES Key figures Asset Management1 Six months ended 30 June 2021 2020 Operating revenues € mn 3,835 3,493 Operating profit € mn 1,572 1,319 Cost-income ratio2 % 59.0 62.2 Net income € mn 1,216 906 Total assets under management as of 30 June3 € bn 2,488 2,389 thereof: Third-party assets under management as of 30 June3 € bn 1,830 1,712 Assets under management Composition of total assets under management € bn Type of asset class As of 30 June 2021 As of 31 December 2020 Fixed income 1,872 1,848 Equities 214 181 Multi-assets1 200 178 Alternatives 202 182 Total 2,488 2,389 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments over several asset classes. Net inflows4 of total assets under management (AuM) amounted to € 59.0 bn for the first half-year of 2021, driven by third-party AuM net inflows of € 63.8 bn. Both PIMCO and AllianzGI contributed nearly equally to this development (PIMCO: € 28.5 bn total/€ 34.4 bn third- party; AllianzGI: € 30.4 bn total/€ 29.3 bn third-party). Overall positive effects from market and dividends5 totaled € 5.4 bn. Of these, positive effects of € 22.2 bn came from AllianzGI and were mainly related to equity, while € 16.8 bn negative effects stemmed from PIMCO and were attributable mostly to fixed-income assets. 1_For further information on Asset Management figures, please refer note 4 to the condensed consolidated interim financial statements. 2_Represents operating expenses divided by operating revenues. 3_2020 figure as of 31 December 2020. 4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. 5_”Market and dividends” represents current income earned on the securities held in client accounts, as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds. Interim Report for the First Half-Year of 2021 − Allianz Group Delta 342 253 (3.2) %-p 310 99 118 Delta 24 33 22 20 99 A _ Interim Group Management Report Negative effects from consolidation, deconsolidation, and other adjustments amounted to € 6.5 bn. This amount is mainly made up of € 5.8 bn of third-party AuM transferred from AllianzGI to the new strategic partner Virtus Investment Advisers in the first quarter of 2021. Favorable foreign currency translation effects summed up to € 41.6 bn and were mainly related to PIMCO. Third-party assets under management As of 30 June 2021 As of 31 December 2020 Delta Third-party assets under management € bn 1,830 1,712 6.9 % Business units' share PIMCO % 76.7 78.1 (1.4) %-p AllianzGI % 23.3 21.9 1.4 %-p Asset classes split Fixed income % 76.0 78.3 (2.3) %-p Equities % 10.6 9.5 1.0 %-p Multi-assets % 10.2 9.4 0.7 %-p Alternatives % 3.2 2.7 0.5 %-p Investment vehicle split1 Mutual funds % 58.6 57.9 0.7 %-p Separate accounts % 41.4 42.1 (0.7) %-p Regional allocation2 America % 54.3 54.8 (0.5) %-p Europe % 33.2 32.8 0.4 %-p Asia-Pacific % 12.5 12.4 0.0 %-p Overall three-year rolling investment outperformance3 % 91 79 12 %-p 1_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 2_Based on the location of the asset management company. 3_Three-year rolling investment outperformance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). The overall three-year rolling investment outperformance has significantly improved after the COVID-19-driven material market dislocations and is now on a very high level. 9 9 A _ Interim Group Management Report Operating revenues Our operating revenues increased by 9.8 % on a nominal basis. This development was driven by higher average third-party AuM – at both AllianzGI and PIMCO – due to strong net inflows, favorable foreign currency translation effects as well as overall positive market effects. On an internal basis1 operating revenues increased by 15.7 %. We recorded higher performance fees – mainly at PIMCO – after a challenging performance environment in the first half-year of 2020 due to COVID-19. Other net fee and commission income rose, driven by increased average third-party AuM. Operating profit Our operating profit increased by 19.2 % on a nominal basis, as growth in operating revenues by far exceeded an increase in operating expenses. On an internal basis1, our operating profit went up by 26.5 %, which was predominantly due to higher average third-party AuM. The nominal increase in administrative expenses was driven by PIMCO, where a positive business development led to higher personnel expenses. Also AllianzGI contributed to the increase to a minor extent due to investments in business growth. Our cost-income ratio went down as a consequence of stronger growth in operating revenues and a lower increase in operating expenses, compared to the previous half-year. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 10 Asset Management business segment information € mn Six months ended 30 June 2021 2020 Delta Performance fees 180 72 108 Other net fee and commission income 3,656 3,423 233 Other operating revenues (1) (2) 1 Operating revenues 3,835 3,493 342 Operating administrative expenses (net) (2,263) (2,174) (89) Operating expenses (2,263) (2,174) (89) Operating profit 1,572 1,319 253 Net income The increase in our net income was mainly driven by the increase in operating profit. In addition, we also recorded a higher non-operating result due to higher realized gains as well as lower restructuring expenses. Interim Report for the First Half-Year of 2021 − Allianz Group CORPORATE AND OTHER KEY FIGURES Key figures Corporate and Other1 € mn Six months ended 30 June 2021 2020 Operating revenues 1,603 1,402 Operating expenses (1,882) (1,833) Operating result (278) (432) Net loss (214) (535) Earnings summary Our operating result improved substantially, compared to the first six months of the previous year, mainly due to a higher operating investment result and lower operating administrative expenses. loss decreased strongly, mainly driven by the improvement of our operating result as well as an increase in our non- operating investment result, which benefited from higher non- operating realized gains and losses (net). Our net 1_For further information on Corporate and Other figures, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2021 − Allianz Group Delta 202 (48) 153 321 A _ Interim Group Management Report 11 11 A _ Interim Group Management Report OUTLOOK Economic outlook1 The triad of vaccination, reopening and ongoing policy support is likely to drive global growth to new heights in 2021: We expect global GDP (gross domestic product) to expand by 5.5 % in 2021, which is slightly above our forecast at the beginning of the year. Globally, growth in 2021 will be led by the United States, bolstered by unprecedented fiscal stimuli, as well as China, which managed to get out of the COVID-19 crisis as early as last year: Growth rates for these two economies will be around 6.3 % and 8.2 %, respectively. Europe is lagging behind these two, as a late start of vaccination campaigns has delayed the reopening of the economy. As a consequence, Europe will feel the pinch of supply bottlenecks more than other markets. We expect the eurozone GDP to increase by 4.2 % in 2021. Fiscal and monetary policy will remain expansionary for the time being. We expect the leading central banks in the United States, Japan, and Europe to remain patient before hiking rates in 2023. As a result, there is only limited upside potential for long-term yields, which will likely continue to remain at current levels. This policy stance encourages risk-taking in the markets, as they benefit from ample liquidity injections. At the same time, however, the risk and magnitude of a market correction are increasing along with growing imbalances. Downside risk that might affect these forecasts include the emergence and spread of new COVID-19 virus variants, financial increasing political risks on both the market international and national arenas, triggered by factors including the United States-China rivalry and growing social unrest in the wake of COVID-19. instabilities, and Insurance industry outlook Our outlook for 2021 remains largely unchanged, although we are a little more optimistic now than we felt at the start of the year: The stronger global recovery, heightened risk awareness, and the increasing importance of digital products and sales channels all support top-line growth. On the other hand, increased market volatility and suppressed yields continue to put pressure on investment income. In the property-casualty sector, premium growth is driven not least by the ongoing market hardening in commercial lines. Emerging markets – including China – are set to outperform advanced markets by a wide margin. Premium growth in the life sector, having contracted in 2020, is expected to rebound rather strongly in 2021. Both segments, risk protection and savings products, are likely to benefit from higher risk awareness and “excess savings” in the aftermath of COVID-19, which will both support demand. 1_The information presented in the sections “Economic Outlook”, “Insurance Industry Outlook” and “Asset Management Industry Outlook” is based on our own estimates. 12 Asset management industry outlook The industry’s profitability remains under pressure from continuous flows into passive products and the associated margin compression, as well as from the increased cost to navigate a complex regulatory environment. Several themes that were already underway have clearly gained momentum as a result of the COVID-19 pandemic. For example, the trend toward using technology to grow and support digital distribution channels is likely to grow even stronger in the future. On the operations side, work and customer service models that combine remote working and on-site presence may well turn into permanent solutions. To remain competitive, firms must leverage advanced data and analytics and create a scalable operating set-up. While passive funds and alternative investments are continuing to grow, active investments still make up a major share of AuM at a global scale. Alternative investments, above all, are perceived as an opportunity to achieve above-market profitability growth; further opportunities exist in traditional public-equity and fixed-income products, as they will continue to be a source of capital and lending. Last but not least, asset managers who convincingly base their investment decisions on environmental, social and governance (ESG) considerations will achieve credible differentiation and above- average growth. Outlook for the Allianz Group At the end of the first half-year of 2021 the Allianz Group operating profit amounted to € 6.7 bn. Even after considering the natural catastrophe events in July, we now expect to achieve an operating profit for the full year in the upper half of the outlook range of € 12.0 bn, plus or minus € 1.0 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements may severely affect the operating profit and/or net income of our operations and the results of the Allianz Group. Cautionary note regarding forward-looking statements This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz’s core business and core markets, (ii) the performance of financial markets (in particular market volatility, Interim Report for the First Half-Year of 2021 − Allianz Group liquidity, and credit events), (iii) adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies and the financial services industry generally, (iv) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (v) mortality and morbidity levels and trends, (vi) persistency levels, (vii) the extent of credit defaults, (viii) interest rate levels, (ix) currency the EUR/USD exchange rate, exchange rates, most notably (x) changes in laws and regulations, including tax regulations, (xi) the impact of acquisitions including and related integration issues and reorganization measures, and (xii) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. No duty to update Allianz assumes no obligation to update any information or forward- looking statement contained herein, save for any information we are required to disclose by law. Interim Report for the First Half-Year of 2021 − Allianz Group A _ Interim Group Management Report 13 13 A _ Interim Group Management Report BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2021 As of 31 December 2020 Shareholders' equity Paid-in capital 28,902 28,928 Undated subordinated bonds 2,304 2,259 Retained earnings 32,313 31,371 Foreign currency translation adjustments (3,833) (4,384) Unrealized gains and losses (net) 18,013 22,648 Total 77,699 80,821 The decrease in shareholders’ equity was attributable to the dividend payout in May 2021 (€ 4.0 bn) and a reduction of the unrealized gains and income attributable to shareholders amounting to € 4.8 bn and an increase in foreign currency translation adjustments of € 0.6 bn partly offset these effects. losses (net) of € 4.6 bn. The net 1_This does not include non-controlling interests of € 3,692 mn and € 3,773 mn as of 30 June 2021 and 31 December 2020, respectively. For further information, please refer to note 17 to the condensed consolidated interim financial statements. 2_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 92 in the Allianz Group Annual Report 2020. 14 Delta (26) 46 942 551 (4,635) (3,123) Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules. 2 Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 2021 As of 31 December 2020 Delta Eligible own funds € bn 85.6 84.9 0.7 Capital requirement € bn 41.5 40.9 0.6 Capitalization ratio % 206 207 (1) %-p Our Solvency II capitalization ratio decreased by one percentage point from 207 % to 206 % 3 over the first six months of 2021. The decrease was predominantly driven by capital and management actions, the reduction of the ultimate forward rate and other effects such as taxes. Strong capital generation and favorable market the developments partially offset capitalization ratio. these negative effects on 3_Eligible own funds excluding the application of transitional measures for technical provisions. Including the application of transitional measures for technical provisions, the own funds amounted to € 98.0 bn; and a Solvency II ratio of 236 % as of 30 June 2021. Interim Report for the First Half-Year of 2021 − Allianz Group Total assets and total liabilities As of 30 June 2021, total assets amounted to € 1,078.3 bn (up liabilities were € 18.3 bn compared to year-end 2020). Total € 997.0 bn, representing a rise of € 21.5 bn compared to year-end 2020. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. Asset allocation and fixed-income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds Banks Other Equities Real estate Cash, cash equivalents, and other Total Compared to year-end 2020, our overall asset portfolio stayed stable, with an increase in our equity investments. Our well-diversified exposure to debt instruments decreased compared to year-end 2020, mainly due to market movements. About 92 % of the debt portfolio was invested in investment-grade bonds and loans. 1 Our government bonds portfolio contained bonds from France, Germany, United States and Italy that represented 15.9 %, 13.2 %, 8.2 % and 8.0 % of our portfolio shares. Our corporate bonds portfolio contained bonds from the United States, eurozone, and Europe excl. eurozone. They represented 40.9 %, 30.3 % and 12.2 % of our portfolio shares. Our exposure to equities increased due to market movements. 1_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available. Interim Report for the First Half-Year of 2021 − Allianz Group A _ Interim Group Management Report STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses. As of 30 June 2021 As of 31 December 2020 Delta As of 30 June 2021 As of 31 December 2020 Delta € bn € bn € bn % % %-p 670.4 682.4 (12.0) 84.6 86.3 (1.8) 244.9 258.5 (13.6) 36.5 37.9 (1.4) 60.5 66.7 (6.2) 9.0 9.8 (0.8) 254.2 249.5 4.7 37.9 36.6 1.4 35.6 35.9 (0.3) 5.3 5.3 75.3 71.8 3.5 11.2 10.5 0.7 85.7 73.1 12.6 10.8 9.3 1.6 14.6 14.3 0.3 1.8 1.8 21.9 20.5 1.5 2.8 2.6 0.2 792.7 790.3 2.4 100.0 100.0 LIABILITIES PROPERTY-CASUALTY LIABILITIES As of 30 June 2021, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 74.9 bn, compared to € 72.8 bn at year-end 2020. On a net basis, our reserves, including discounted loss reserves, increased from € 62.0 bn to € 64.0 bn. 2 LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 4.1 bn to € 600.2 bn over the first six months of 2021. The € 11.9 bn increase in aggregate policy reserves (before foreign currency translation effects) was mainly driven by our operations in Germany (€ 6.5 bn). Reserves for premium refunds decreased by € 11.1 bn (before foreign currency translation effects) and foreign currency translation effects increased the balance sheet value by € 3.3 bn. 2_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 13 to the condensed consolidated interim financial statements. 15 15 A _ Interim Group Management Report RECONCILIATIONS The analysis in the previous chapters is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRSs), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRSs. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise gross premiums written and fee and commission income in Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). in Property-Casualty, statutory premiums Composition of total revenues € mn Six months ended 30 June 2021 PROPERTY-CASUALTY Total revenues 33,610 consisting of: Gross premiums written 32,750 Fee and commission income 860 LIFE/HEALTH Statutory premiums 38,536 ASSET MANAGEMENT Operating revenues 3,835 consisting of: Net fee and commission income 3,836 Net interest and similar income (3) Income from financial assets and liabilities carried at fair value through income (net) 2 CORPORATE AND OTHER thereof: Total revenues (Banking) 131 consisting of: Interest and similar income 30 Income from financial assets and liabilities carried at fair value through income (net)1 1 Fee and commission income 325 Interest expenses, excluding interest expenses from external debt (12) Fee and commission expenses (214) CONSOLIDATION (364) Allianz Group total revenues 75,749 1_Includes trading income. 16 2020 33,785 32,933 851 36,356 3,493 3,495 (8) 5 111 34 1 265 (10) (179) (250) 73,495 Composition of total revenue growth We believe that the understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as in scope of acquisitions, disposals, and transfers (or “changes consolidation”) are analyzed separately. Therefore, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth % Six months ended 30 June 2021 Internal Growth Changes in scope of consolidation Foreign currency translation Nominal Growth Property-Casualty 0.5 1.2 (2.2) (0.5) Life/Health 8.6 (0.1) (2.4) 6.0 Asset Management 15.7 2.4 (8.2) 9.8 Corporate and Other 18.0 18.0 Allianz Group 5.2 0.5 (2.6) 3.1 Life/Health insurance operations OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 23 entities – comprising the vast majority of Life/Health total statutory premiums – are in scope. EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the Group income statement. Interim Report for the First Half-Year of 2021 − Allianz Group Acquisition, administrative, capitalization, and amortization of DAC € mn Six months ended 30 June 2021 2020 Acquisition expenses and commissions1 (2,802) (2,722) Definitions 8 6 Scope (68) (68) Acquisition costs incurred (2,862) (2,783) Capitalization of DAC1 987 831 Definition: URR capitalized 349 319 Definition: policyholder participation2 530 527 Scope 24 17 Capitalization of DAC 1,890 1,694 Amortization, unlocking, and true-up of DAC1 (852) (894) Definition: URR amortized (129) (45) Definition: policyholder participation2 (704) (543) Scope (17) (19) Amortization, unlocking, and true-up of DAC (1,702) (1,501) Commissions and profit received on reinsurance business ceded 65 59 Acquisition costs3 (2,610) (2,531) Administrative and other expenses1 (990) (952) Definitions 93 79 Scope (78) (78) Administrative expenses on reinsurance business ceded 5 4 Administrative expenses3 (971) (947) 1_As per Interim Group Management Report. 2_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 3_As per notes to the condensed consolidated interim financial statements. IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) “Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR), and value of business acquired (VOBA), and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes scheduled URR amortization, true-up, and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the Group income statement. Policyholder participation is included within “change in our reserves for insurance and investment contracts (net)” in the Group income statement. Interim Report for the First Half-Year of 2021 − Allianz Group Reconciliation to Notes € mn Six months ended 30 June Acquisition expenses and commissions1 Administrative and other expenses1 Capitalization of DAC1 Amortization, unlocking, and true-up of DAC1 Acquisition and administrative expenses Definitions Scope Commissions and profit received on reinsurance business ceded Administrative expenses on reinsurance business ceded Acquisition and administrative expenses (net)2 1_As per Interim Group Management Report. 2_As per notes to the condensed consolidated interim financial statements. A _ Interim Group Management Report 2021 2020 (2,802) (2,722) (990) (952) 987 831 (852) (894) (3,657) (3,737) 146 343 (138) (148) 65 59 5 4 (3,580) (3,478) 17 17 A _ Interim Group Management Report 18 This page intentionally left blank. Interim Report for the First Half-Year of 2021 − Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B Interim Report for the First Half-Year of 2021 − Allianz Group 19 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEET Consolidated balance sheet € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Include mainly derivative financial instruments. 20 Note As of 30 June 2021 As of 31 December 2020 24,150 22,443 5 21,605 21,191 6 654,901 656,522 7 119,122 116,576 148,392 137,307 8 21,601 20,170 9 23,949 21,830 921 1,006 10 47,978 45,573 3 321 1,790 11 15,407 15,604 1,078,347 1,060,012 24,644 24,079 12 15,348 14,722 30,058 25,341 13 83,375 80,897 14 615,122 611,096 148,392 137,307 6,578 8,595 15 52,216 49,005 3 10 1,134 16 9,222 9,206 16 11,992 14,034 996,956 975,417 77,699 80,821 3,692 3,773 17 81,390 84,594 1,078,347 1,060,012 Interim Report for the First Half-Year of 2021 − Allianz Group CONSOLIDATED INCOME STATEMENT Consolidated income statement € mn Six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring and integration expenses Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Note 2021 2020 45,569 45,660 (4,355) (4,012) (3,333) (3,578) 18 37,881 38,071 19 11,229 10,808 20 (1,961) (2,341) 21 4,973 5,555 22 6,500 5,881 3 160 58,625 58,135 (29,225) (31,199) 1,752 2,774 23 (27,473) (28,424) 24 (6,941) (4,374) 25 (485) (491) (3) (4) 26 (313) (4,319) 27 (899) (782) 28 (13,174) (13,161) 29 (2,325) (2,062) (155) (105) (239) (288) (6) (52,012) (54,011) 6,614 4,124 30 (1,573) (1,023) 5,040 3,101 249 174 4,791 2,927 11.47 7.07 11.42 6.94 21 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income € mn Six months ended 30 June Net income Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the period Subtotal Available-for-sale investments Reclassifications to net income Changes arising during the period Subtotal Cash flow hedges Reclassifications to net income Changes arising during the period Subtotal Share of other comprehensive income of associates and joint ventures Reclassifications to net income Changes arising during the period Subtotal Miscellaneous Reclassifications to net income Changes arising during the period Subtotal Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans Total other comprehensive income Total comprehensive income Total comprehensive income attributable to: Non-controlling interests Shareholders For further details concerning income taxes on components of the other comprehensive income, please see note 30. 22 2021 2020 5,040 3,101 (16) 573 (761) 573 (776) (960) 436 (3,620) 243 (4,579) 679 (36) (27) (107) 141 (143) 114 41 (96) 41 (96) 65 85 65 85 163 (155) (3,881) (149) 1,159 2,952 151 112 1,008 2,840 Interim Report for the First Half-Year of 2021 − Allianz Group CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity € mn Paid-in capital Undated subordinated bonds Retained earnings Foreign currency translation adjustments Balance as of 1 January 2020 28,928 29,577 (2,195) Total comprehensive income1 2,782 (742) Paid-in capital Treasury shares (760) Transactions between equity holders 6 Dividends paid (3,952) Balance as of 30 June 2020 28,928 27,654 (2,937) Balance as of 1 January 2021 28,928 2,259 31,371 (4,384) Total comprehensive income1 5,060 583 Paid-in capital Treasury shares Transactions between equity holders (26) (119) Undated subordinated bonds 46 (44) (32) Dividends paid (3,956) Balance as of 30 June 2021 28,902 2,304 32,313 (3,833) 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2021 comprises net income attributable to shareholders of € 4,791 mn (2021: €2,927 mn). Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity 17,691 74,002 3,363 77,364 800 2,840 112 2,952 (760) (760) 6 (126) (120) (3,952) (121) (4,073) 18,491 72,136 3,228 75,363 22,648 80,821 3,773 84,594 (4,635) 1,008 151 1,159 (145) (28) (172) (31) (31) (3,956) (205) (4,161) 18,013 77,699 3,692 81,390 23 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows € mn Six months ended 30 June SUMMARY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow provided by/used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2020 Cash and cash equivalents at end of period CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Other non-cash income/expenses Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and disposal groups classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 24 2021 2020 15,669 14,401 (8,061) (9,591) (5,985) (2,958) 84 (249) 1,707 1,604 22,443 21,075 309 24,150 22,987 5,040 3,101 (116) (174) (4,660) (1,378) 4,156 1,560 1,158 1,064 3 4 3,411 2,143 (1,851) 1,224 (3,198) (593) (324) (1,082) (106) 618 (950) (2,313) (528) (334) 4,517 4,410 2,046 2,982 7,527 5,698 (14) 561 (442) (3,091) 10,629 11,300 15,669 14,401 2,126 1,797 95,298 89,030 10 157 529 264 279 345 66 112 2,978 2,044 57 63 101,343 93,812 Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED Consolidated statement of cash flows € mn Six months ended 30 June 2021 2020 Payments for the purchase or origination of: Financial assets designated at fair value through income (2,181) (1,783) Available-for-sale investments (100,482) (94,915) Held-to-maturity investments (55) (115) Investments in associates and joint ventures (963) (1,244) Non-current assets and disposal groups classified as held for sale (66) Real estate held for investment (371) (422) Fixed assets from alternative investments (14) (5) Loans and advances to banks and customers (purchased loans) (1,049) (1,142) Property and equipment (557) (632) Subtotal (105,673) (100,325) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed 470 Change in other loans and advances to banks and customers (originated loans) (3,432) (3,051) Other (net) (299) (496) Net cash flow used in investing activities (8,061) (9,591) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 670 479 Proceeds from the issuance of certificated liabilities and subordinated liabilities 1,675 4,169 Repayments of certificated liabilities and subordinated liabilities (3,817) (2,562) Proceeds from the issuance of undated subordinated bonds classified as shareholders' equity Net change in lease liabilities (171) (188) Transactions between equity holders (172) 31 Dividends paid to shareholders (4,161) (4,073) Net cash from sale or purchase of treasury shares (760) Other (net) (10) (54) Net cash flow provided by/used in financing activities (5,985) (2,958) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENT OF CASH FLOWS Income taxes paid (from operating activities) (1,680) (1,360) Dividends received (from operating activities) 1,608 1,059 Interest received (from operating activities) 9,159 9,465 Interest paid (from operating activities) (438) (465) Interim Report for the First Half-Year of 2021 − Allianz Group 25 B _ Condensed Consolidated Interim Financial Statements Changes in liabilities arising from financing activities € mn As of 1 January 2020 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2020 As of 1 January 2021 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2021 26 Liabilities to banks and customers 8,894 479 34 (26) 2 9,383 9,559 670 1 (1) (1) 10,228 Certificated and subordinated liabilities Lease liabilities Total 22,448 2,791 34,132 1,608 (188) 1,898 34 (4) (20) (49) (53) 165 114 23,999 2,748 36,129 23,241 2,725 35,525 (2,141) (171) (1,643) 1 4 28 31 110 178 287 21,214 2,759 34,200 Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Basis of presentation financial The Allianz Group’s condensed consolidated statements are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs) applicable to interim financial reporting, as adopted under European Union regulations. interim 3 _ Consolidation and classification as held for sale SIGNIFICANT BUSINESS COMBINATIONS AFTER THE END OF THE REPORTING PERIOD For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as applied in the consolidated financial statements for the year ended 31 December 2020. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2020. In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. Amounts are rounded to millions of euro (€ mn), unless otherwise stated. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Management on 5 August 2021. 2 _ Recently adopted accounting pronouncements (effective 1 January 2021) The following amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2021: − − IFRS 9, IAS 39, IFRS 4 and IFRS 16, Interest Rate Benchmark Reform (Phase 2), IFRS 4, Extension of the Temporary Exemption from Applying IFRS 9. These changes had no material impact on the Allianz Group's condensed consolidated interim financial statements for the first half- year of 2021. WESTPAC GENERAL INSURANCE, SYDNEY On 2 December 2020, the Allianz Group has concluded an agreement to acquire Westpac’s general insurance business and to enter into a new 20-year exclusive agreement for the distribution of general in consideration for insurance products to Westpac customers AUD 725 mn. Additional future payments are contemplated in the agreement including AUD 25 mn expected in the second half-year of 2021 subject to integration milestones and future payments dependent on the achievement of certain targets. The transaction was completed on 1 July 2021. On completion, the new distribution arrangement with Westpac allows the Allianz Group to increase its share in the Australian consumer insurance market by providing a wider range of Allianz general insurance products to Westpac customers. The Allianz Group acquired approximately € 0.8 bn assets and € 0.5 bn liabilities. At the time the condensed consolidated interim financial statements of the Allianz Group were authorized for issue, the initial accounting for the business combination incomplete. Specifically, the initial valuation of identifiable intangible assets and the fair value measurement of the consideration transferred is pending in accordance with customary procedures. Therefore, detailed disclosures of the amounts to be recognized as of the acquisition date for major classes of identifiable assets acquired and liabilities assumed including goodwill cannot be made at this stage. Furthermore, the impact on revenue and net income of the consolidated income statement of the Allianz Group had the acquiree been consolidated from 1 January 2021 cannot be reliably disclosed. is AVIVA ITALY, MILAN On 4 March 2021, the Allianz Group has concluded an agreement to acquire Aviva Italia S.p.A., the non-life insurance company of the Aviva Group in Italy, in consideration for a purchase price of € 330 mn. Conditional on the receipt of the regulatory approvals, the transaction is expected to complete at the beginning of the fourth quarter of 2021. Aviva Italia S.p.A. comprises a non-life insurance portfolio, equally split between motor and non-motor business segments, with annual gross premiums of around € 400 mn. In total, nearly 500 agents will join Allianz Group alongside with their customer base and related employees. Upon completion, the market share of Allianz Group in the Italian non-life market is expected to grow by approximately 1 percentage point, consolidating its position as the third largest player in the non-life insurance market in Italy. Interim Report for the First Half-Year of 2021 − Allianz Group 27 B _ Condensed Consolidated Interim Financial Statements BUSINESS OPERATIONS OF AVIVA GROUP POLAND On 26 March 2021, the Allianz Group has concluded an agreement to purchase the life and non-life insurance operations, as well as pension and asset management business in Poland from the Aviva Group and to acquire each 51 percent stake life and nonlife bancassurance joint ventures with Santander in consideration for a net purchase price of € 2.5 bn. Subject to receipt of required regulatory approvals, the transaction is expected to complete before year-end 2021. in Aviva’s Through the acquisition, Allianz will double its revenues in the attractive Polish insurance market and achieve a well-balanced business mix between property/casualty and life insurance. In addition, the strong tied agents’ network and the long-term bancassurance joint venture with Santander will bolster Allianz’s distribution footprint and market position. CLASSIFICATION AS HELD FOR SALE Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2021 As of 31 December 2020 Assets of disposal groups classified as held for sale Closed book portfolio of Allianz Benelux 1,377 Other disposal groups 15 15 Subtotal 15 1,392 Non-current assets classified as held for sale Real estate held for investment 305 397 Associates and joint ventures 1 1 Subtotal 306 398 Total 321 1,790 Liabilities of disposal groups classified as held for sale Closed book portfolio of Allianz Benelux 1,125 Other disposal groups 10 10 Total 10 1,134 CLOSED BOOK PORTFOLIO OF ALLIANZ BENELUX S.A., BRUSSELS Effective 1 April 2021, the Allianz Group disposed of a closed book insurances together with life retail portfolio covering classical mortgage loans of Allianz Benelux S.A., Brussels, allocated to the reportable segment Western & Southern Europe and Asia Pacific (Life/Health). This portfolio had been classified as held for sale since 31 December 2020. Until its disposal on 1 April 2021, no impairment loss had been recognized in connection with this transaction. Upon closing of the sale, the Allianz Group recognized a loss of € 46 mn, included in the line realized gains/losses (net) of the consolidated income statement. 28 PORTFOLIO TRANSACTION AFTER THE END OF THE REPORTING PERIOD As part of its Life strategy to move to modern capital light insurance products, the Allianz Group has been considering the cession of a closed book of classical life insurance products within the reportable segment Western and Southern Europe and Asia Pacific (Life/Health). The transaction includes a portfolio consisting of technical provisions of about € 2 bn as well as corresponding assets (mainly financial instruments) of approximately the same amount. The Allianz Group is pursuing this transaction as an opportunity to further reduce operational complexity and strengthen its already solid financial position. The Allianz Group accelerated discussions with a potential buyer since beginning of the year and reached an agreement during July 2021, with the objective to execute the transaction before year- end 2021. The closing of the transaction is still subject to regulatory approvals. The requirements to present the closed book portfolio as a disposal group held for sale were not cumulatively met as of 30 June 2021, but were met before the condensed consolidated interim financial statements were authorized for issue. Interim Report for the First Half-Year of 2021 − Allianz Group 4 _ Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable segments derive their revenues are consistent with those described in the consolidated ended statements 31 December 2020. The statement contained therein regarding general segment reporting information is still applicable and valid. financial for the year REPORTABLE SEGMENTS MEASURE OF PROFIT OR LOSS its Effective 1 January 2021, the Allianz Group has amended operating profit definition by excluding income taxes related incidental benefits/expenses and litigation expenses. Both items are not attendant to the Allianz Group’s sustainable performance. Therefore, the Allianz Group believes that the amended definition information for of operating profit provides more relevant investors with respect to Allianz Group’s long-term profitability and its comparability over time. This amendment has no material impact on the Allianz Group’s condensed consolidated interim financial statements for the first half-year of 2021. RECENT ORGANIZATIONAL CHANGES Only minor reallocations between the reportable segments have been made. Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 29 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – CONSOLIDATED BALANCE SHEETS Business segment information – consolidated balance sheets € mn Property-Casualty As of 30 June 2021 As of 31 December 2020 ASSETS Cash and cash equivalents 5,186 4,961 Financial assets carried at fair value through income 986 754 Investments 112,194 109,040 Loans and advances to banks and customers 11,571 10,987 Financial assets for unit-linked contracts Reinsurance assets 13,913 12,713 Deferred acquisition costs 5,247 4,876 Deferred tax assets 1,017 886 Other assets 30,627 29,670 Non-current assets and assets of disposal groups classified as held for sale 80 85 Intangible assets 5,433 5,531 Total assets 186,254 179,502 Property-Casualty As of 30 June 2021 As of 31 December 2020 LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 464 140 Liabilities to banks and customers 1,213 1,252 Unearned premiums 24,005 19,681 Reserves for loss and loss adjustment expenses 70,182 68,171 Reserves for insurance and investment contracts 15,202 15,263 Financial liabilities for unit-linked contracts Deferred tax liabilities 2,635 3,011 Other liabilities 22,704 23,562 Liabilities of disposal groups classified as held for sale 10 10 Certificated liabilities Subordinated liabilities 47 12 Total liabilities 136,463 131,102 30 Life/Health As of 30 June 2021 As of 31 December 2020 12,295 10,907 20,358 20,320 525,079 526,165 107,486 105,209 148,392 137,307 7,762 7,535 18,702 16,953 796 744 18,794 21,282 226 1,701 2,424 2,599 862,315 850,722 Life/Health As of 30 June 2021 As of 31 December 2020 24,132 23,858 5,583 5,209 6,071 5,679 13,229 12,763 600,174 596,074 148,392 137,307 5,396 6,807 18,162 17,797 1,125 65 68 821,205 806,686 Interim Report for the First Half-Year of 2021 − Allianz Group Asset Management As of 30 June 2021 As of 31 December 2020 999 953 65 65 100 76 25 51 201 166 5,658 5,011 1 1 7,384 7,301 14,434 13,624 Asset Management As of 30 June 2021 As of 31 December 2020 43 36 22 4,787 4,453 4,822 4,518 Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Corporate and Other Consolidation Group As of 30 June 2021 As of 31 December 2020 As of 30 June 2021 As of 31 December 2020 As of 30 June 2021 As of 31 December 2020 5,805 5,791 (136) (170) 24,150 22,443 674 460 (479) (409) 21,605 21,191 109,583 111,997 (92,054) (90,756) 654,901 656,522 5,968 6,014 (5,929) (5,685) 119,122 116,576 148,392 137,307 (75) (77) 21,601 20,170 23,949 21,830 712 782 (1,805) (1,571) 921 1,006 6,453 8,033 (13,554) (18,422) 47,978 45,573 15 4 321 1,790 165 172 15,407 15,604 129,374 133,253 (114,031) (117,089) 1,078,347 1,060,012 Corporate and Other Consolidation Group As of 30 June 2021 As of 31 December 2020 As of 30 June 2021 As of 31 December 2020 As of 30 June 2021 As of 31 December 2020 547 490 (499) (409) 24,644 24,079 11,680 11,129 (3,128) (2,910) 15,348 14,722 (18) (18) 30,058 25,341 (37) (37) 83,375 80,897 (112) (98) (142) (144) 615,122 611,096 148,392 137,307 316 325 (1,805) (1,571) 6,578 8,595 28,390 29,140 (21,827) (25,947) 52,216 49,005 10 1,134 11,899 11,883 (2,677) (2,677) 9,222 9,206 11,900 13,974 (20) (20) 11,992 14,034 64,619 66,843 (30,153) (33,732) 996,956 975,417 Total equity 81,390 84,594 Total liabilities and equity 1,078,347 1,060,012 31 B _ Condensed Consolidated Interim Financial Statements BUSINESS SEGMENT INFORMATION – TOTAL REVENUES AND RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET INCOME (LOSS) Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Six months ended 30 June 2021 2020 2021 2020 Total revenues1 33,610 33,785 38,536 36,356 Premiums earned (net) 25,620 26,030 12,261 12,041 Operating investment result Interest and similar income 1,597 1,577 9,493 9,130 Operating income from financial assets and liabilities carried at fair value through income (net) (28) (59) (1,970) (2,159) Operating realized gains/losses (net) 105 58 4,271 4,791 Interest expenses, excluding interest expenses from external debt (70) (60) (71) (52) Operating impairments of investments (net) (4) (117) (202) (3,557) Investment expenses (216) (201) (903) (787) Subtotal 1,384 1,197 10,618 7,366 Fee and commission income 860 851 852 742 Other income 1 150 10 Claims and insurance benefits incurred (net) (17,107) (18,250) (10,365) (10,174) Operating change in reserves for insurance and investment contracts (net)2 (199) (64) (6,854) (4,326) Loan loss provisions Operating acquisition and administrative expenses (net) (6,834) (6,909) (3,580) (3,478) Fee and commission expenses (848) (830) (396) (354) Operating amortization of intangible assets (10) (10) Operating restructuring and integration expenses (12) (6) Other expenses (6) Reclassifications (18) Operating profit (loss) 2,871 2,175 2,495 1,810 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (69) (3) 121 (19) Non-operating realized gains/losses (net) 271 (31) (10) 586 Non-operating impairments of investments (net) (40) (463) (26) (118) Subtotal 162 (497) 85 449 Non-operating change in reserves for insurance and investment contracts (net) 97 27 Interest expenses from external debt Non-operating acquisition and administrative expenses (net)3 (18) Non-operating amortization of intangible assets (106) (55) (19) (23) Non-operating restructuring and integration expenses (144) (133) (28) (28) Reclassifications 18 Non-operating items (88) (685) 136 425 Income (loss) before income taxes 2,783 1,490 2,631 2,236 Income taxes (688) (563) (684) (433) Net income (loss) 2,095 926 1,947 1,802 Net income (loss) attributable to: Non-controlling interests 59 54 112 79 Shareholders 2,036 872 1,835 1,724 1_Total revenues comprise gross premiums written and fee and commission income in Property-Casualty, statutory premiums in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2_For the six months ended 30 June 2021, includes expenses for premium refunds (net) in Property-Casualty of € (60) mn (2020: € 90 mn). 3_Include, if applicable, acquisition-related expenses, income taxes related incidental benefits/expenses and litigation expenses. Until 2020, income taxes related incidental benefits/expenses and litigation expenses were shown within operating acquisition and administrative expenses (net). 32 Interim Report for the First Half-Year of 2021 − Allianz Group Asset Management 2021 2020 3,835 3,493 7 6 2 5 (10) (14) (1) (3) 4,910 4,396 (2,263) (2,174) (1,074) (901) 1,572 1,319 3 (2) 85 88 (2) (10) (8) (30) (86) 49 (96) 1,621 1,223 (405) (317) 1,216 906 73 53 1,144 853 Interim Report for the First Half-Year of 2021 − Allianz Group Corporate and Other 2021 131 200 10 (61) (52) 97 1,394 (3) (512) (1,254) (278) (28) 268 (40) 200 (336) 32 (10) (26) (141) (419) 204 (214) 5 (219) 2020 111 188 (34) (98) (52) 4 1,248 (4) (586) (1,093) (432) (65) 141 (64) 13 (362) (9) (36) (394) (825) 290 (535) (12) (523) Consolidation 2021 (364) (67) 2 (24) 64 272 246 (1,516) 1 15 1 1,248 (6) (2) 6 4 4 (2) (1) (3) (3) B _ Condensed Consolidated Interim Financial Statements Group 2020 2021 2020 (250) 75,749 73,495 37,881 38,071 (93) 11,229 10,808 (3) (1,985) (2,250) 4 4,352 4,853 96 (149) (128) (206) (3,674) 259 (899) (782) 263 12,343 8,827 (1,357) 6,500 5,881 3 160 (27,473) (28,424) (11) (7,038) (4,401) (3) (4) (14) (13,188) (13,161) 1,115 (2,325) (2,062) (10) (10) (12) (6) (6) (18) (3) 6,655 4,869 (2) 24 (90) 6 621 702 (106) (645) 4 538 (33) 97 27 (336) (362) 14 (145) (95) (227) (282) 18 4 (41) (745) 1 6,614 4,124 1 (1,573) (1,023) 2 5,040 3,101 249 174 2 4,791 2,927 33 B _ Condensed Consolidated Interim Financial Statements RECONCILIATION OF REPORTABLE SEGMENTS TO ALLIANZ GROUP FIGURES Reconciliation of reportable segments to Allianz Group figures € mn Total revenues Six months ended 30 June 2021 2020 German Speaking Countries and Central & Eastern Europe 9,943 9,935 Western & Southern Europe and Asia Pacific 6,313 6,356 Iberia & Latin America and Allianz Partners 6,380 6,207 Global Insurance Lines & Anglo Markets, Middle East and Africa 14,226 15,433 Consolidation (3,251) (4,146) Total Property-Casualty 33,610 33,785 German Speaking Countries and Central & Eastern Europe 15,717 17,563 Western & Southern Europe and Asia Pacific 16,001 12,856 Iberia & Latin America 710 679 USA 5,789 4,863 Global Insurance Lines & Anglo Markets, Middle East and Africa 563 573 Consolidation and Other (242) (178) Total Life/Health 38,536 36,356 Asset Management 3,835 3,493 Corporate and Other 131 111 Consolidation (364) (250) Group 75,749 73,495 34 Operating profit (loss) Net income (loss) 2021 2020 2021 2020 803 877 647 438 812 910 606 475 370 373 192 227 886 14 650 (213) 1 2,871 2,175 2,095 926 867 753 596 515 918 775 675 561 78 72 53 542 629 216 534 243 25 19 107 (40) (22) (24) (18) (19) 2,495 1,810 1,947 1,802 1,572 1,319 1,216 906 (278) (432) (214) (535) (6) (3) (3) 2 6,655 4,869 5,040 3,101 Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEET 5 _ Financial assets carried at fair value through income 6 _ Investments Financial assets carried at fair value through income € mn Investments € mn As of 30 June 2021 As of 31 December 2020 As of 30 June 2021 As of 31 December 2020 Financial assets held for trading Available-for-sale investments 619,069 621,777 Debt securities 651 599 Held-to-maturity investments 2,638 2,563 Equity securities 48 45 Funds held by others under reinsurance contracts assumed 780 770 Derivative financial instruments 15,205 15,463 Investments in associates and joint ventures 15,292 14,570 Subtotal 15,904 16,107 Real estate held for investment 14,637 14,294 Financial assets designated at fair value through income Fixed assets from alternative investments 2,484 2,548 Debt securities 2,739 2,569 Total 654,901 656,522 Equity securities 2,861 2,418 Loans 100 97 Subtotal 5,700 5,084 Total 21,605 21,191 AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale investments € mn As of 30 June 2021 As of 31 December 2020 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds 258,397 22,662 (1,102) 279,957 253,234 29,655 (238) 282,651 Government and government agency bonds1 203,594 29,383 (2,090) 230,887 199,267 44,740 (187) 243,820 MBS/ABS 26,871 1,179 (89) 27,960 26,654 1,466 (98) 28,023 Other 8,165 1,719 (61) 9,823 7,542 1,279 (82) 8,740 Subtotal 497,027 54,942 (3,341) 548,628 486,697 77,141 (604) 563,234 Equity securities 48,992 21,745 (295) 70,441 43,053 15,891 (400) 58,543 Total 546,018 76,687 (3,636) 619,069 529,750 93,031 (1,004) 621,777 1_As of 30 June 2021, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 93,760 mn (31 December 2020: € 95,096 mn) and € 85,424 mn (31 December 2020: € 82,202 mn), respectively. Interim Report for the First Half-Year of 2021 − Allianz Group 35 B _ Condensed Consolidated Interim Financial Statements 7 _ Loans and advances to banks and customers Loans and advances to banks and customers € mn As of 30 June 2021 As of 31 December 2020 Short-term investments and certificates of deposit 2,162 1,824 Loans 112,952 111,100 Other 4,076 3,720 Subtotal 119,191 116,644 Loan loss allowance (68) (67) Total 119,122 116,576 8 _ Reinsurance assets Reinsurance assets € mn As of 30 June 2021 As of 31 December 2020 Unearned premiums 2,981 1,810 Reserves for loss and loss adjustment expenses 11,339 11,274 Aggregate policy reserves 7,096 6,917 Other insurance reserves 184 169 Total 21,601 20,170 9 _ Deferred acquisition costs Deferred acquisition costs € mn As of 30 June 2021 As of 31 December 2020 Deferred acquisition costs Property-Casualty 5,247 4,876 Life/Health 18,297 16,550 Subtotal 23,544 21,426 Deferred sales inducements 201 190 Present value of future profits 204 213 Total 23,949 21,830 36 10 _ Other assets Other assets € mn As of 30 June 2021 As of 31 December 2020 Receivables Policyholders 7,528 7,214 Agents 5,008 4,592 Reinsurance 5,025 3,604 Other 7,024 6,092 Less allowances for doubtful accounts (786) (788) Subtotal 23,799 20,715 Tax receivables Income taxes 2,156 1,986 Other taxes 2,018 2,310 Subtotal 4,173 4,296 Accrued dividends, interest and rent 5,489 5,955 Prepaid expenses 1,038 793 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 375 1,134 Property and equipment Real estate held for own use 2,927 2,914 Software 3,351 3,340 Equipment 1,184 1,240 Right-of-use assets 2,325 2,332 Subtotal 9,787 9,827 Other assets 3,316 2,853 Total 47,978 45,573 11 _ Intangible assets Intangible Assets € mn As of 30 June 2021 As of 31 December 2020 Goodwill 13,585 13,489 Distribution agreements1 932 995 Other2 891 1,120 Total 15,407 15,604 1_Primarily includes the long-term distribution agreements with Banco Bilbao Vizcaya Argentaria S.A. 2_Primarily include acquired business portfolios, customer relationships, and brand names. Interim Report for the First Half-Year of 2021 − Allianz Group 12 _ Liabilities to banks and customers Liabilities to banks and customers € mn As of 30 June 2021 As of 31 December 2020 Payables on demand and other deposits 1,284 1,263 Repurchase agreements and collateral received from securities lending transactions and derivatives 5,121 5,164 Other 8,944 8,296 Total 15,348 14,722 13 _ Reserves for loss and loss adjustment expenses As of 30 June 2021, the reserves for loss and loss adjustment expenses of the Allianz Group totaled € 83,375 mn (31 December 2020: € 80,897 mn). The following table reconciles the beginning and ending reserves of the Property-Casualty business segment for the half-years ended 30 June 2021 and 2020. Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn 2021 2020 As of 1 January 68,171 65,414 Balance carry forward of discounted loss reserves 4,603 4,552 Subtotal 72,775 69,965 Loss and loss adjustment expenses incurred Current year 19,517 21,248 Prior years (992) (494) Subtotal 18,525 20,754 Loss and loss adjustment expenses paid Current year (6,415) (6,448) Prior years (10,866) (11,635) Subtotal (17,281) (18,083) Foreign currency translation adjustments and other changes 836 (760) Changes in the consolidated subsidiaries of the Allianz Group 20 Subtotal 74,875 71,876 Ending balance of discounted loss reserves (4,693) (4,575) As of 30 June 70,182 67,301 Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 14 _ Reserves for insurance and investment contracts Reserves for insurance and investment contracts € mn As of 30 June 2021 As of 31 December 2020 Aggregate policy reserves 522,452 507,184 Reserves for premium refunds 91,983 103,170 Other insurance reserves 686 741 Total 615,122 611,096 15 _ Other liabilities Other liabilities € mn As of 30 June 2021 As of 31 December 2020 Payables Policyholders 4,453 4,741 Reinsurance 4,233 2,846 Agents 2,339 2,055 Subtotal 11,025 9,642 Payables for social security 381 397 Tax payables Income taxes 1,898 1,812 Other taxes 2,221 1,983 Subtotal 4,119 3,795 Accrued interest and rent 536 457 Unearned income 675 551 Provisions Pensions and similar obligations 10,402 10,725 Employee related 2,779 2,774 Share-based compensation plans 309 367 Restructuring plans 264 306 Other provisions 2,008 2,040 Subtotal 15,761 16,211 Deposits retained for reinsurance ceded 3,898 3,903 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 517 245 Financial liabilities for puttable financial instruments 2,469 2,072 Lease liabilities 2,759 2,725 Other liabilities 10,076 9,005 Total 52,216 49,005 37 B _ Condensed Consolidated Interim Financial Statements 16 _ Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2021 As of 31 December 2020 Senior bonds 8,075 8,036 Money market securities 1,147 1,170 Total certificated liabilities 9,222 9,206 Subordinated bonds1 11,947 13,989 Hybrid equity2 45 45 Total subordinated liabilities 11,992 14,034 1_Change due to the redemption of two subordinated bonds with a nominal value of USD 1.0 bn and € 0.8 bn and the repurchase of a € 0.5 bn convertible bond in the first half-year of 2021. 2_Relates to hybrid equity issued by subsidiaries. Bonds outstanding as of 30 June 2021 mn ISIN Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A1G0RU9 DE000A19S4U8 DE000A28RSQ8 DE000A2RWAX4 DE000A19S4V6 DE000A1HG1K6 DE000A2RWAY2 DE000A28RSR6 DE000A180B80 DE000A1HG1L4 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 DE000A14J9N8 DE000A2DAHN6 XS1556937891 DE000A2YPFA1 DE000A254TM8 DE000A1YCQ29 DE000A13R7Z7 XS1485742438 DE000A289FK7 US018820AA81/ USX10001AA78 Allianz Finance II B.V., Amsterdam DE000A1GNAH1 38 Year of issue 2012 2017 2020 2019 2017 2013 2019 2020 2016 2013 2012 2015 2017 2017 2019 2020 2013 2014 2016 2020 2020 2011 Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD EUR EUR EUR EUR USD EUR USD EUR Notional amount Coupon in % Maturity date 1,500 3.500 14 February 2022 750 0.250 6 June 2023 500 Non-interest bearing 14 January 2025 750 0.875 15 January 2026 750 0.875 6 December 2027 750 3.000 13 March 2028 750 1.500 15 January 2030 750 0.500 14 January 2031 750 1.375 21 April 2031 750 4.500 13 March 2043 1,500 5.625 17 October 2042 1,500 2.241 7 July 2045 1,000 3.099 6 July 2047 600 5.100 30 January 2049 1,000 1.301 25 September 2049 1,000 2.121 8 July 2050 1,500 4.750 Perpetual bond 1,500 3.375 Perpetual bond 1,500 3.875 Perpetual bond 1,250 2.625 Perpetual bond 1,250 3.500 Perpetual bond 1,096 5.750 8 July 2041 Interim Report for the First Half-Year of 2021 − Allianz Group 17 _ Equity Equity € mn As of 30 June 2021 As of 31 December 2020 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital 27,732 27,758 Undated subordinated bonds 2,304 2,259 Retained earnings1 32,313 31,371 Foreign currency translation adjustments (3,833) (4,384) Unrealized gains and losses (net)2 18,013 22,648 Subtotal 77,699 80,821 Non-controlling interests 3,692 3,773 Total 81,390 84,594 1_As of 30 June 2021, include € (30) mn (31 December 2020: € (30) mn) related to treasury shares. 2_As of 30 June 2021, include € 355 mn (31 December 2020: € 494 mn) related to cash flow hedges. DIVIDENDS In the second quarter of 2021, a total dividend of € 3,956 mn (2020: € 3,952 mn) or € 9.60 (2020: € 9.60) per qualifying share was paid to the shareholders. Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 39 B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENT 18 _ Premiums earned (net) 20 _ Income from financial assets and liabilities carried at fair value through income (net) Premiums earned (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group Income from financial assets and liabilities carried at fair value through income (net) € mn 2021 Six months ended 30 June 2021 2020 Premiums written Gross 32,750 12,870 (52) 45,569 Income from financial assets and liabilities held for trading (net) (4,247) (1,290) Ceded Net Change in unearned premiums (net) Premiums earned (net) (4,039) 28,712 (3,091) 25,620 (368) 12,503 (242) 12,261 52 (4,355) 41,214 (3,333) 37,881 Income from financial assets and liabilities designated at fair value through income (net) Income from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net)1 Total 378 (179) 2,087 (1,961) (10) (15) (1,026) (2,341) 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated 2020 in a foreign currency that are monetary items and not measured at fair value through income. Premiums written Gross 32,933 12,779 (52) 45,660 Ceded (3,651) (412) 52 (4,012) Net Change in unearned premiums (net) 29,282 (3,252) 12,367 (326) 41,649 (3,578) 21 _ Realized gains/losses (net) Premiums earned (net) 26,030 12,041 38,071 Realized gains/losses (net) € mn Six months ended 30 June 2021 2020 REALIZED GAINS 19 _ Interest and similar income Available-for-sale investments Equity securities 1,715 2,533 Debt securities 3,390 4,244 Interest and similar income € mn Subtotal Other 5,105 680 6,778 757 Six months ended 30 June 2021 2020 Subtotal 5,785 7,534 Dividends from available-for-sale investments 1,630 1,063 Interest from available-for-sale investments 6,781 6,816 REALIZED LOSSES Interest from loans to banks and customers 1,798 1,857 Available-for-sale investments Rent from real estate held for investment 543 497 Equity securities (132) (1,480) Other 477 575 Debt securities (566) (469) Total 11,229 10,808 Subtotal (698) (1,949) Other (114) (30) Subtotal (812) (1,979) Total 4,973 5,555 40 Interim Report for the First Half-Year of 2021 − Allianz Group 22 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2021 2020 PROPERTY-CASUALTY Fees from credit and assistance business 635 661 Service agreements 225 191 Subtotal 860 851 LIFE/HEALTH Investment advisory 772 660 Service agreements 81 82 Subtotal 852 742 ASSET MANAGEMENT Management and advisory fees 4,536 4,091 Loading and exit fees 175 199 Performance fees 180 72 Other 18 34 Subtotal 4,910 4,396 CORPORATE AND OTHER Service agreements 1,069 910 Investment advisory and banking activities 325 338 Subtotal 1,394 1,248 CONSOLIDATION (1,516) (1,357) Total 6,500 5,881 23 _ Claims and insurance benefits incurred (net) Claims and insurance benefits incurred (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2021 Gross (18,525) (10,727) 27 (29,225) Ceded 1,418 362 (27) 1,752 Net (17,107) (10,365) (27,473) 2020 Gross (20,754) (10,479) 34 (31,199) Ceded 2,504 305 (34) 2,774 Net (18,250) (10,174) (28,424) Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 24 _ Change in reserves for insurance and investment contracts (net) Change in reserves for insurance and investment contracts (net) € mn Six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2021 Gross (185) (6,834) 15 (7,004) Ceded (14) 77 63 Net (199) (6,757) 15 (6,941) 2020 Gross (75) (4,428) (11) (4,513) Ceded 11 128 139 Net (64) (4,299) (11) (4,374) 25 _ Interest expenses Interest expenses € mn Six months ended 30 June 2021 2020 Liabilities to banks and customers (61) (37) Deposits retained for reinsurance ceded (40) (42) Certificated liabilities (81) (80) Subordinated liabilities (257) (280) Other (46) (52) Total (485) (491) 26 _ Impairments of investments (net) Impairments of investments (net) € mn Six months ended 30 June 2021 2020 Impairments Available-for-sale investments Equity securities (303) (3,694) Debt securities (17) (511) Subtotal (320) (4,205) Other (12) (115) Non-current assets and assets of disposal groups classified as held for sale Subtotal (332) (4,320) Reversals of impairments 19 1 Total (313) (4,319) 41 B _ Condensed Consolidated Interim Financial Statements 27 _ Investment expenses Investment expenses € mn Six months ended 30 June 2021 Investment management expenses (479) Expenses from real estate held for investment (268) Expenses from fixed assets from alternative investments (152) Total (899) 28 _ Acquisition and administrative expenses (net) Acquisition and administrative expenses (net) € mn Six months ended 30 June 2021 PROPERTY-CASUALTY Acquisition costs1 (5,016) Administrative expenses (1,818) Subtotal (6,834) LIFE/HEALTH Acquisition costs (2,610) Administrative expenses (988) Subtotal (3,598) ASSET MANAGEMENT Personnel expenses (1,408) Non-personnel expenses (854) Subtotal (2,263) CORPORATE AND OTHER Administrative expenses (480) Subtotal (480) CONSOLIDATION 1 Total (13,174) 1_Include € 523 mn (2020: € 457 mn) ceded acquisition costs. 42 2020 (436) (205) (141) (782) 2020 (5,177) (1,731) (6,909) (2,531) (947) (3,478) (1,348) (826) (2,174) (586) (586) (14) (13,161) 29 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2021 2020 PROPERTY-CASUALTY Fees from credit and assistance business (647) (652) Service agreements (201) (178) Subtotal (848) (830) LIFE/HEALTH Investment advisory (340) (299) Service agreements (56) (55) Subtotal (396) (354) ASSET MANAGEMENT Commissions (1,066) (883) Other (8) (18) Subtotal (1,074) (901) CORPORATE AND OTHER Service agreements (1,044) (917) Investment advisory and banking activities (211) (176) Subtotal (1,254) (1,093) CONSOLIDATION 1,248 1,115 Total (2,325) (2,062) 30 _ Income taxes Income taxes € mn Six months ended 30 June 2021 2020 Current income taxes (1,600) (564) Deferred income taxes 26 (459) Total (1,573) (1,023) For the six months ended 30 June 2021 and 2020, the income taxes on components of other comprehensive income consist of the following: Income taxes on components of other comprehensive income € mn Six months ended 30 June 2021 2020 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 62 10 Available-for-sale investments 1,814 (533) Cash flow hedges 56 (29) Share of other comprehensive income of associates and joint ventures 2 (24) Miscellaneous 47 35 Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (30) 74 Total 1,951 (467) Interim Report for the First Half-Year of 2021 − Allianz Group OTHER INFORMATION 31 _ Fair values and carrying amounts of financial instruments FAIR VALUES AND CARRYING AMOUNTS The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Financial liabilities for puttable financial instruments Certificated liabilities Subordinated liabilities As of 30 June 2021, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 158 mn (31 December 2020: € 98 mn). These investments are primarily investments in privately held corporations and partnerships. FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: − − financial assets and liabilities held for trading, financial assets and liabilities designated at fair value through income, − available-for-sale investments, − − financial assets and liabilities for unit-linked contracts, and financial liabilities for puttable financial instruments. Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements As of 30 June 2021 As of 31 December 2020 Carrying amount Fair value Carrying amount Fair value 24,150 24,150 22,443 22,443 15,904 15,904 16,107 16,107 5,700 5,700 5,084 5,084 619,069 619,069 621,777 621,777 2,638 2,871 2,563 2,884 15,292 19,085 14,570 17,706 14,637 25,403 14,294 25,094 119,122 136,145 116,576 138,198 148,392 148,392 137,307 137,307 24,644 24,644 24,079 24,079 15,348 15,378 14,722 14,768 148,392 148,392 137,307 137,307 2,469 2,469 2,072 2,072 9,222 10,176 9,206 10,409 11,992 12,861 14,034 15,039 43 B _ Condensed Consolidated Interim Financial Statements The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2021 and 31 December 2020: Fair value hierarchy (items carried at fair value) € mn As of 30 June 2021 Level 11 Level 22 FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 1,246 14,616 Financial assets designated at fair value through income 4,479 807 Subtotal 5,724 15,423 Available-for-sale investments Corporate bonds 12,510 236,422 Government and government agency bonds 15,813 214,162 MBS/ABS 33 27,390 Other 453 899 Equity securities 43,033 395 Subtotal 71,842 479,269 Financial assets for unit-linked contracts 112,401 34,622 Total 189,967 529,314 FINANCIAL LIABILITIES Financial liabilities carried at fair value through income 355 11,982 Financial liabilities for unit-linked contracts 112,401 34,622 Financial liabilities for puttable equity instruments 2,070 89 Total 114,826 46,693 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, and the significant level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2020. No material changes have occurred since this report was published. SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Transfers into/out of level 3 may occur due to a reassessment of the input parameters. 44 Level 33 43 415 457 31,025 912 537 8,470 27,014 67,958 1,369 69,785 12,307 1,369 310 13,987 Total 15,904 5,700 21,605 279,957 230,887 27,960 9,823 70,441 619,069 148,392 789,066 24,644 148,392 2,469 175,505 Level 11 1,029 3,983 5,012 12,986 15,431 35 569 36,483 65,504 103,746 174,262 202 103,746 1,662 105,609 As of 31 December 2020 Level 22 Level 33 Total 15,070 8 16,107 798 303 5,084 15,868 311 21,190 240,154 29,511 282,651 227,551 839 243,820 27,703 284 28,023 973 7,197 8,740 433 21,628 58,543 496,814 59,459 621,777 32,260 1,302 137,307 544,941 61,071 780,274 11,573 12,304 24,079 32,260 1,302 137,307 106 305 2,072 43,939 13,910 163,458 Interim Report for the First Half-Year of 2021 − Allianz Group Reconciliation of level-3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. Reconciliation of level-3 financial assets € mn Carrying value (fair value) as of 1 January 2021 Additions through purchases and issues Net transfers into (out of) level 3 Disposal through sales and settlements Net gains (losses) recognized in consolidated income statement Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2021 Net gains (losses) recognized in consolidated income statement held at the reporting date 1_Primarily include corporate bonds. Reconciliation of level-3 financial liabilities € mn Carrying value (fair value) as of 1 January 2021 Additions through purchases and issues Net transfers into (out of) level 3 Disposal through sales and settlements Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2021 Net losses (gains) recognized in consolidated income statement held at the reporting date FAIR VALUE MEASUREMENT ON A NON-RECURRING BASIS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 26. Interim Report for the First Half-Year of 2021 − Allianz Group Financial assets carried at fair value through income 311 114 3 (146) 172 4 1 457 42 B _ Condensed Consolidated Interim Financial Statements Available-for- sale investments – Debt securities1 Available-for- sale investments – Equity securities Financial assets for unit- linked contracts Total 37,831 21,628 1,302 61,071 3,778 3,858 172 7,922 (60) (108) (23) (188) (1,267) (1,015) (99) (2,527) 148 22 17 358 (235) 2,969 2,734 (4) (154) (158) 502 54 560 252 (240) 1 13 40,945 27,014 1,369 69,785 153 (1) 16 210 Financial liabilities carried at fair value through income Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total 12,304 1,302 305 13,910 263 172 5 441 (23) (23) (698) (99) (796) 53 17 70 385 384 1 1 12,307 1,369 310 13,987 (232) 16 (216) 45 B _ Condensed Consolidated Interim Financial Statements 32 _ Other information LITIGATION in legal, regulatory, and Allianz Group companies are arbitration proceedings in Germany and a number of foreign jurisdictions, including the United States. Such proceedings arise in the ordinary course of business, including, amongst others, their activities as insurance, banking and asset management companies, employers, investors and taxpayers. While it is not feasible to predict or determine the ultimate outcome of such proceedings, they may result in substantial damages or other payments or penalties or result in adverse publicity and damage to the Allianz Group’s reputation. As a result, such proceedings could have an adverse effect on the Allianz Group’s business, financial condition and results of operations. Apart from the proceedings discussed below, Allianz SE is not aware of any threatened or pending legal, regulatory or arbitration proceedings which may have, or have had in the recent past, significant effects on its and/or the Allianz Group’s financial position or profitability. Material proceedings in which Allianz Group companies are involved are in particular the following: involved In September 2015 and in January 2017, two separate putative class action complaints were filed against Allianz Life Insurance Company of North America ("Allianz Life") making allegations similar to those made in prior class actions regarding the sale of Allianz Life's annuity products, including allegations of breach of contract and violation of California unfair competition law. In one matter, the Court denied class certification. The case, which continued as an individual action, was settled between the parties with no effect on Allianz Group's financial position. The ultimate outcome of the remaining case cannot yet be determined. Since July 2020, multiple complaints have been filed in U.S. Federal Courts and also in certain U.S. State Courts against Allianz Global Investors U.S. LLC (“AllianzGI U.S.”) and in certain complaints, against certain of AllianzGI U.S.’s affiliates, including Allianz SE and Allianz Asset Management GmbH (“Affiliate Allianz Defendants”), in connection with losses suffered by in AllianzGI U.S.’s Structured Alpha funds (“Funds”) during the COVID-19 related market downturn. The actions brought to date have included institutional investor plaintiffs and individual plaintiffs, with certain plaintiffs asserting claims on behalf of putative classes. An investment consultant has also asserted third-party claims against AllianzGI U.S. Plaintiffs in the currently pending 25 actions have alleged losses of approximately USD 6 billion. In addition to the complaints filed to date, other investors in the Funds, or other third parties, may bring similar actions. Allianz intends to defend vigorously against the allegations contained in the complaints. investors Upon request from the U.S. Securities and Exchange Commission (“SEC”), AllianzGI U.S. has also provided substantial information to the SEC in connection with an SEC investigation of the Funds, and Allianz is fully cooperating with the SEC's investigation. Subsequent to the foregoing, the U.S. Department of Justice (“DOJ”) has begun an investigation concerning the Funds, and AllianzGI U.S. has received a voluntary request for documents and information from the DOJ. The DOJ has also requested information from certain current and former AllianzGI U.S. employees. Allianz is also fully cooperating with the DOJ in the investigation and has immediately started its own review of this matter. 46 As already announced by Ad-hoc disclosure, in light of the DOJ investigation and based on information currently available to Allianz, the Board of Management of Allianz SE has reassessed the matter and has come to the conclusion that there is a relevant risk that the matters relating to the Funds could materially impact future financial results of Allianz Group. However, it is currently neither feasible to predict how the SEC and DOJ investigations and the pending court proceedings may be resolved nor the timing of any such resolution. It is in particular not feasible to reliably estimate the amount of any possible resolution including potential fines. Therefore, in line with IAS 37.26, no provision has been recognized in the financial statements as of 30 June 2021. CONTINGENT LIABILITIES AND COMMITMENTS The following table shows the composition of commitments as of 30 June 2021: Commitments € mn As of 30 June 2021 As of 31 December 2020 Commitments to acquire interests in associates and available- for-sale investments 27,545 25,017 Debt investments 6,794 7,067 Other 7,584 5,416 Total 41,923 37,500 Any material contingent liabilities resulting from litigation matters are captured in the litigation section above. All other contingent liabilities and commitments had no significant changes compared to the consolidated ended statements 31 December 2020. financial for the year RELATED PARTY TRANSACTIONS Transactions between Allianz SE and its subsidiaries that are to be deemed related parties have been eliminated in the consolidation and are not disclosed in the notes. Business relations with joint ventures and associates are set on an arm’s length basis. Due to reinsurance agreements with the joint venture Enhanzed Reinsurance Ltd., Allianz SE recognized reinsurance assets and deposits retained for reinsurance ceded amounting to each € 2.3 bn in the first half-year of 2021. Interim Report for the First Half-Year of 2021 − Allianz Group 33 _ Subsequent events FLOODING CATASTROPHES In July 2021, Central Europe was hit by several flooding catastrophes. In Germany, the low-pressure system “Bernd” caused very severe damages. As of today, the Allianz Group expects net losses after reinsurance and including reinstatement premiums from these events of approximately € 0.4 bn. SHARE BUY-BACK PROGRAM On 5 August 2021, Allianz SE decided to start a new share buy-back program with a volume of up to € 750 mn. The program shall be finalized by 31 December 2021. Allianz SE will cancel all repurchased shares. Interim Report for the First Half-Year of 2021 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 47 B _ Condensed Consolidated Interim Financial Statements 48 This page intentionally left blank. Interim Report for the First Half-Year of 2021 − Allianz Group FURTHER INFORMATION C Interim Report for the First Half-Year of 2021 − Allianz Group 49 C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 5 August 2021 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Barbara Karuth-Zelle Dr. Klaus-Peter Röhler Ivan de la Sota Giulio Terzariol Dr. Günther Thallinger Christopher Townsend Renate Wagner 50 Interim Report for the First Half-Year of 2021 − Allianz Group REVIEW REPORT REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements - comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes – and the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2021 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. Interim Report for the First Half-Year of 2021 − Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, 5 August 2021 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Wirtschaftsprüfer (German Public Auditor) Clemens Koch Wirtschaftsprüfer (German Public Auditor) 51 Financial calendar Important dates for shareholders and analysts1 Financial Results 3Q Financial Results 2021 Annual Report 2021 Annual General Meeting Financial Results 1Q Financial Results 2Q/Interim Report 6M Financial Results 3Q 10 November 2021 18 February 2022 4 March 2022 4 May 2022 12 May 2022 5 August 2022 10 November 2022 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone + 49 89 3800 0 – www.allianz.com Front page design: hw.design GmbH – Typesetting: Produced in-house with SmartNotes Interim Report on the internet: www.allianz.com/interim-report – Date of publication: 6 August 2021 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2021, Insurance, Allianz | write me a financial report |
Semestriel | 2,022 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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Insurance
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| Allianz Group Interim Report 2022 First Half-Year CONTENT A _ Interim Group Management Report 2 Executive Summary 5 Property-Casualty Insurance Operations 7 Life/Health Insurance Operations 10 Asset Management 12 Corporate and Other 13 Outlook 15 Balance Sheet Review 17 Reconciliations B _ Condensed Consolidated Interim Financial Statements 20 Consolidated Balance Sheet 21 Consolidated Income Statement 22 Consolidated Statement of Comprehensive Income 23 Consolidated Statement of Changes in Equity 24 Consolidated Statement of Cash Flows Notes to the Condensed Consolidated Interim Financial Statements 27 General Information 39 Notes to the Consolidated Balance Sheet 44 Notes to the Consolidated Income Statement 47 Other Information C _ Further Information 54 Responsibility Statement 55 Review Report Pages 1 –18 Pages 19 – 52 Pages 53 – 55 INTERIM GROUP MANAGEMENT REPORT A Interim Report for the First Half-Year of 2022 − Allianz Group 1 A _ Interim Group Management Report EXECUTIVE SUMMARY Key figures Allianz Group 1 Six months ended 30 June 2022 2021 Delta Total revenues2 € mn 81,166 75,749 5,417 Operating profit3 € mn 6,733 6,655 78 Net income3 € mn 2,479 5,040 (2,562) thereof: attributable to shareholders € mn 2,267 4,791 (2,524) Solvency II capitalization ratio4 % 200 209 (9.0) %-p Return on equity5 % 6.7 10.6 (3.9) %-p Earnings per share € 5.28 11.47 (6.20) Diluted earnings per share € 5.18 11.42 (6.24) Earnings summary2,3,4,5 The first half-year of 2022 was overshadowed by the invasion of Ukraine. In addition to the human tragedy, the economic impact of the invasion has been far-reaching. Significantly rising commodity and food prices drove inflation – already elevated by supply shortages – to historic highs around the globe. International supply chains came under renewed stress, partly due to repeated lockdowns in China. Strong uncertainty among households and businesses was reflected in falling sentiment indicators – and an increasing reluctance to consume and invest. The bottom line is therefore that global growth in the first half of 2022 was rather weak. Inflation and the reaction of monetary policy were the dominant themes in the financial markets. Despite growing concerns about the economy, almost all central banks around the world devoted themselves to the fight against rising prices and turned the interest rate screw – sharply, in some cases. For example, the U.S. Federal Reserve raised its key interest rate from 0.25 % to 2.50 %, with the latest rate hike of 75 basis points taking place in July. The European Central Bank ended its bond-buying program and raised the deposit rate to zero in July; thereby, the experiment of negative interest rates in the eurozone came to an end. Irrespective of the different speeds of the interest rate turnaround, government bond yields (10-year) shot up sharply on both sides of the Atlantic. At the end of June, the U.S. yield was (just) above 3 % again, while its German counterpart was at 1.3 % – this after still being in negative territory at the beginning of the year. Rising interest rates and yields significantly impacted the stock markets, which closed the first half of the year with a historically poor performance of around minus 20 %. 1_For further information on Allianz Group figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Total revenues comprise Property-Casualty total revenues (gross premiums written and fee and commission income), Life/Health statutory gross premiums written, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). 3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 4_2021 figures as of 31 December 2021. 2022 figures as of 30 June 2022. Figures exclude the application of transitional measures for technical provisions. 5_Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity at the beginning of the period and at the end of the period. The net income attributable to 2 The insurance industry was unable to escape the negative trend. High inflation in particular, – and thus sharply rising claims levels – impacted business, especially in the motor and property lines of business. At the same time, real losses in household incomes limited demand. Price increases, however, kept premiums growing in the property-casualty sector in the first half of the year. Inflation plays a lesser role in the life sector, as policy benefits are generally fixed when contracts are concluded. By contrast, the slump in the capital markets had a negative impact, especially on sales of savings products. This slump was compounded by a decline in the household savings rate caused by falling incomes (in real terms). These factors dampened premium income, even though the demand for risk protection continued to be driven by heightened risk awareness in the wake of the COVID-19 crisis. In the asset management industry, market-related uncertainties entailed that, most asset classes faced redemptions in the first half- year of 2022, especially in the retail space. At the same time, passive investments remained attractive and continued to gain market share. This meant they grew more strongly than traditional active strategies and put additional pressure on fee margins across the industry. Despite the market turmoil, alternatives – and especially private investments – remain an attractive asset class, having proved their relative stability in the current difficult market environment. Across all asset classes, investors are increasingly demanding fulfillment of ESG (environmental, social and governance) criteria. Our total revenues increased by 3.7 % on an internal basis6, compared to the same period of the previous year. This was mostly driven by our Property-Casualty business segment due to positive price effects (mainly in Allianz Global Corporate & Specialty (AGCS), Türkiye, Germany and Brazil) and volume effects, largely from our U.S. travel insurance business. This internal growth was further supported by growth in the Life/Health business segment, but offset by negative internal growth in the Asset Management business segment. Our operating profit increased slightly in comparison to the first half-year of 2021. This was due to higher operating profit in the Property-Casualty and Asset Management business segments, largely offset by the Life/Health business segment. The increase was driven by higher operating investment income, and a slight rise in underwriting result in the Property-Casualty business. However, operating profit fell in the Life/Health business segment, largely because of a negative change in DAC for the variable annuities products in the United States. The Asset Management business segment benefited from higher assets under management-driven revenues. shareholders is adjusted for net financial charges related to undated subordinated bonds classified as shareholders’ equity. From the average shareholders’ equity undated subordinated bonds classified as shareholders’ equity and unrealized gains/losses on bonds net of shadow accounting are excluded. Annualized figures are not a forecast for full year numbers. For 2021, the return on equity for the full year is shown. 6_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. Interim Report for the First Half-Year of 2022 − Allianz Group Our operating investment result decreased by € 8,021 mn to € 4,322 mn, compared to the previous year’s period. This was largely driven by negative derivatives results caused by a combination of interest rate increases affecting mainly Allianz Leben and business factors in Allianz Life. Our non-operating result declined by € 3.3 bn to a loss of € 3.4 bn. This was mostly due to the Structured Alpha provision booked in the first quarter of 2022 and lower non-operating investment income due to the difficult market conditions. In addition, we recorded higher restructuring expenses of € 0.1 bn in relation to the Voya transaction 1, as well as continued investments in productivity and efficiency. Income taxes decreased by € 693 mn to € 880 mn, due to lower profit before tax. The effective tax rate increased to 26.2 % (23.8 %), due to higher non-tax-deductible expenses and higher local taxes. The decrease in net income was largely driven by the Structured Alpha provision booked in the first quarter of 2022. Our shareholders’ equity2 decreased by € 23.6 bn to € 56.4 bn, compared to 31 December 2021, mainly driven by a reduction of the unrealized gains and losses (net) from available-for-sale assets. Over the same period, our Solvency II capitalization ratio decreased to 200 % 3. For a more detailed description of the results generated by each individual business segment (Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other), please consult the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2021, we described our risk and opportunity profile and addressed potential risks that could adversely affect both our business and our risk profile. As announced by ad-hoc disclosures on 17 February 2022 and 11 May 2022, Allianz decided to recognize a provision of € 3.7 bn for the fourth quarter of 2021 and a provision of € 1.9 bn for the first quarter of 2022 for the Structured Alpha matter. Further details on this can be found in note 33. The invasion of Ukraine is another matter where new developments in the first half of 2022 are of specific importance for the Allianz Group’s risk profile. The invasion affects our strategic orientation and targets in the insurance business – directly for Central and Eastern Europe (CEE), and indirectly for Asia. − Our strategy in CEE remains similar, i.e. we remain committed to the region and its growth potential. The exception to this strategy is that our sale of the majority share in our local Russian business is directing greater focus to other CEE entities. − While we remain committed to our long-term strategy in Asia, we continue to monitor very closely the geopolitical implications of the invasion and its second-order effects on other emerging markets – 1_For further information on the Voya transaction, please refer to note 4 of the condensed consolidated interim financial statements. 2_For further information on shareholders‘ equity, please refer to the Balance Sheet Review. Interim Report for the First Half-Year of 2022 − Allianz Group A _ Interim Group Management Report such as the Asian economies – and on the regional political situation. At this point and from a financial impact perspective, the invasion has had a negative impact on our investment performance, whereas its earnings impact via the insurance business is immaterial for the Allianz Group. The Allianz Group’s capitalization as of the end of June 2022 is still adequate, and there is no strain on liquidity. In addition, the invasion has caused no cybersecurity incidents. − In the first half of 2022, the investment performance of broader asset markets (equity, fixed income) was negative. This reflected persistently high inflation, rising rates, fears of a recession and earnings revision, as well as the impact of a prolonged conflict between Russia and Ukraine. In addition, the Allianz Group was affected by the invasion via market value losses on investments in Russian, Ukrainian and Belarussian bonds. − There are two reasons why there was only a small impact via our insurance business. First, our local insurance operating entities in Ukraine and Russia amount to less than 0.3 % of the Allianz Group’s operating profit. Second, even though conditions in insurance markets were volatile, the direct impact of the invasion on our Group business run by AGCS and other global entities was limited by application of war exclusions on much of the business, as well as by active efforts by these Allianz entities to reduce exposure through, for example, no new business, and by clients reducing their exposure. − At this point, there is no evidence of significant direct and indirect impacts on Allianz Group’s liquidity that are attributable to the invasion. − Neither the Ukrainian entity nor other Allianz Group companies were hurt by cybersecurity incidents triggered by the invasion and the subsequent sanctions. Looking to the future, a prolonged invasion of Ukraine could continue to have a negative impact on the global economic outlook, with high commodity prices and inflation reducing confidence and impacting the performance of financial markets. Given our sensitivity to financial markets, this could further affect our capitalization. In this scenario, our operations would continue to be exposed to cybersecurity risk, especially as groups of hackers targeting critical Ukrainian infrastructure might cause spill-over effects, and Russia might target the West in retaliation for sanctions or cyber-attacks against Russian targets. The impact of the invasion on the Allianz Group is mitigated by a broad range of specific actions, which were implemented or initiated in the first half of the year, in combination with our general risk management processes. − We are writing no new business in our Russian and Ukrainian local entities (except where required by law), and we are monitoring the related reputational risk. We consider this risk to be relatively small and mostly related to sanctions. In addition, entities operating globally will continue to actively reduce their insurance exposure in Russia. 3_Including the application of transitional measures for technical provisions, the Solvency II capitalization ratio amounted to 227 % as of 30 June 2022. For further information, please refer to the Balance Sheet Review. 3 A _ Interim Group Management Report − Reputational impacts will be reduced even further once the sale of our majority stake in the Russian local business is completed. − Allianz SE and its subsidiaries continue to closely monitor underlying liquidity positions. This in particular includes analysis of potential liquidity needs at the level of Allianz SE if local entities have extraordinary recapitalization needs, or is unexpected adverse behavior regarding our cash pool balance. − The Allianz Group has stepped up cybersecurity measures, with a special focus on strengthening data backup procedures for Allianz Ukraine. In addition, business interruption procedures and external insurance cover for cyber risk are in place. Allianz Group’s cybersecurity situation is being monitored closely by the Allianz Technology Cyber Defense Center Team, and Allianz maintains close exchange with German governmental agencies, and global cyber intelligence) threat communities continues. if there information-sharing with (threat − Our Group risk management framework takes a forward-looking view and regularly assesses a range of scenarios. This includes a potential amplification of geopolitical tensions in the Asian region, and how we can respond to such developments. Nonetheless, in a worst case scenario, in which Russia completely cuts off its energy supply to Europe, and the resulting energy crisis and severe global recession lead to a sell-off for risky assets, the invasion of Ukraine could materially affect our capitalization, requiring additional countermeasures. Overall, we continue to closely monitor the evolution of the invasion of Ukraine, related geopolitical conflicts, their impacts on the global economy, on financial markets and on the Allianz Group, so that we can react in a timely and appropriate manner, should the need arise. The risks are managed via our continuous own risk and solvency management processes. For further information, please refer to the chapter Outlook. Events after the balance sheet date For information on any events occurring after the balance sheet date, please refer to note 34 to the condensed consolidated interim financial statements. 4 Other information Effective 1 January 2022, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The insurance activities in Asia-Pacific and Greece form a new reportable segment. In the Property-Casualty business segment, Allianz Direct and Allianz Partners were combined with the insurance activities in Western & Southern Europe to form the reportable segment Western & Southern Europe, Allianz Direct and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. The purpose of Allianz is to secure the future of our customers. Allianz strategy centers around delivering on this purpose and creating value for society. Since December 2021, Allianz SE has defined three strategic objectives for Allianz Group: growth, margin expansion and capital efficiency. In addition, Allianz SE plays a role in steering the implementation of strategic objectives and has therefore defined five focus areas to steer execution. These focus areas are described in the Risk and Opportunity Report that forms part of our Annual Report 2021. shareholders, customers, employees, and For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2021. The Allianz Group operates and manages its activities through the four business insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other. For further information, please refer to note 5 to the condensed consolidated interim financial statements, or to the Business Operations chapter in our Annual Report 2021. segments: Property-Casualty Interim Report for the First Half-Year of 2022 − Allianz Group A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS Operating profit Key figures Property-Casualty1 2 3 4 5 Operating profit € mn Six months ended 30 June Total revenues2 Operating profit Net income Loss ratio3 Expense ratio4 € mn € mn € mn % % 2022 37,662 3,022 1,651 67.2 26.9 2021 33,610 2,871 2,095 66.8 26.7 Delta 4,052 151 (444) 0.4 %-p 0.3 %-p Six months ended 30 June Underwriting result Operating investment income (net) Other result1 Operating profit 2022 1,564 1,448 10 3,022 2021 1,540 1,324 7 2,871 Delta 24 124 3 151 Combined ratio5 % 94.1 93.4 0.7 %-p 1_Consists of fee and commission income/expenses and other income/expenses. Total revenues6 largely by the positive development of our operating Driven investment increased considerably compared to the first six months of the previous year. A slight rise in our underwriting result added to that outcome. income, our operating profit On a nominal basis, we recorded a rise of 12.1 % in total revenues compared to the first six months of the previous year. This included favorable foreign currency translation effects of € 682 mn 7 and positive (de)consolidation effects of € 517 mn. On an internal basis, our revenues went up 8.5 %. This was driven by a positive price effect of 4.8 %, a positive volume effect of 2.8 %, and a positive service effect of 0.8 %. Our underwriting result rose moderately despite our increased combined ratio, which was overcompensated by strong premium growth. Overall, our combined ratio increased by 0.7 percentage points to 94.1 %, which was due to normalization of claims frequency, higher claims from natural catastrophes and a slight worsening on the expenses side, compared to the first half-year of 2021. Higher contribution from run-off had a partially offsetting effect on our combined ratio. The following operations contributed positively to internal growth: Allianz Partners: Total revenues increased to € 4,325 mn, an internal growth of 28.3 %. This was mainly due to favorable volume effects in our U.S. travel insurance business and – to a lesser extent – driven by higher revenues from service fees in our assistance business. Türkiye: Total revenues amounted to € 499 mn – up 82.2 % on an internal basis. Price increases following the rise in the consumer price index were key drivers for this development. Underwriting result € mn Six months ended 30 June Premiums earned (net) Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) 2022 28,446 (20,296) 1,186 (19,110) 2021 25,620 (17,759) 652 (17,107) Delta 2,826 (2,537) 534 (2,003) Germany: Total revenues went up 4.6 % on an internal basis, totaling € 7,067 mn. Much of this was due to price increases in our motor and commercial property insurance business. Operating acquisition and administrative expenses (net) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (7,664) (108) (6,834) (139) (830) 31 The following operations weighed on internal growth: China: Total revenues decreased by 12.9 % on an internal basis, totaling € 327 mn. Unfavorable volume effects due to economic conditions were the main drivers for this development. Underwriting result 1,564 1,540 1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. 24 Allianz Direct: Total revenues fell to € 519 mn. This internal decrease of 5.2 % was a result of volume decline, especially in Italy, due to strong price competition. Our accident year loss ratio8 stood at 71.3 % – an increase of 2.0 percentage points compared to the first half of the previous year. This was mainly due to normalization of claims frequency and higher claims from natural catastrophes. The latter resulted in an increase in our combined ratio of 0.9 percentage points: from 3.1 % to 4.0 %. 1_For further information on Property-Casualty figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Total revenues in Property-Casualty also include fee and commission income. 3_Represents claims and insurance benefits incurred (net), divided by premiums earned (net). 4_Represents acquisition and administrative expenses (net), divided by premiums earned (net). 5_Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits 6_We comment on the development of our total revenues on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 7_Based on the average exchange rates in 2022 compared to 2021. 8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned (net). incurred (net), divided by premiums earned (net). Interim Report for the First Half-Year of 2022 − Allianz Group 5 A _ Interim Group Management Report Leaving aside losses from natural catastrophes, our accident year loss ratio worsened by 1.1 percentage points to 67.3 %. The following operations contributed positively to the development of our accident year loss ratio: Allianz Partners: 0.7 percentage points. This resulted from a favorable business mix shift due to the strong rebound of the U.S. travel insurance business. Germany: 0.4 percentage points. This was driven by a high level of large losses in the first six months of 2021. The following operations weighed on the development of our accident year loss ratio: United Kingdom: 0.8 percentage points. This was due to reduced from natural claims catastrophes. frequency benefits and higher claims France: 0.7 percentage points. This resulted from higher claims from natural catastrophes, especially in May and June 2022. Brazil: 0.5 percentage points. This was driven by a deteriorating situation in the motor insurance market. Our positive run-off result was € 1,186 mn, translating into a run-off ratio of 4.2 % – compared to € 652 mn and 2.5 % in the first half-year of 2021. Most of our operations contributed positively to our run-off result. Operating acquisition and administrative expenses amounted to € 7,664 mn in the first six months of 2022, compared to € 6,834 mn in increased by the same period of 2021. Our expense ratio 0.3 percentage points to 26.9 %. Operating investment income (net) € mn Six months ended 30 June 2022 2021 Interest and similar income (net of interest expenses) 1,717 1,527 Operating income from financial assets and liabilities carried at fair value through income (net) (53) (28) Operating realized gains (net) 48 105 Operating impairments of investments (net) (68) (4) Investment expenses (234) (216) Expenses for premiums refunds (net)1 37 (60) Operating investment income (net)2 1,448 1,324 1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), reported within “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. 2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 5 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation). Our operating investment income (net) went up in the first half-year of 2022. This was largely driven by higher interest and similar income (net of interest expenses) due to inflation-linked bonds and higher interest rates. 6 Delta 190 (25) (57) (63) (18) 97 124 Other result € mn Six months ended 30 June 2022 2021 Fee and commission income 1,176 860 Other income 5 1 Fee and commission expenses (1,162) (848) Other expenses (10) (6) Other result 10 7 Our other result rose slightly, driven by a favorable fee result, especially from the travel business at Allianz Partners. Net income We registered a decrease of € 444 mn in our net income in the first six months of 2022. The favorable development of the operating profit and an improved tax result were more than offset by the non- operating result, which decreased by € 752 mn. It was strongly affected by a deterioration of our non-operating investment result mainly due to higher impairments, lower realized gains and losses as well as the change to hyperinflation accounting in Türkiye. Slightly higher restructuring expenses related to our efficiency initiatives also weighed on the non-operating result. Interim Report for the First Half-Year of 2022 − Allianz Group Delta 316 4 (313) (4) 3 A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS Key figures Life/Health1 Present value of new business premiums (PVNBP)5 Six months ended 30 June Statutory premiums2 Operating profit Net income Return on equity3 € mn € mn € mn % 2022 39,772 2,336 1,598 9.6 2021 38,536 2,495 1,947 13.0 Delta 1,236 (159) (349) (3.4) %-p Our PVNBP decreased by € 3,050 mn to € 38,394 mn. This was predominantly driven by Italy in our guaranteed savings & annuities business due to a group contract renegotiation in 2021 and our unit- linked without guarantees business due to worsened market developments. Lower sales volumes for capital-efficient products in Germany also had a negative impact. Higher sales volumes for fixed index annuities in the United States partly offset this development. Statutory premiums4 Present value of new business premiums by lines of business % On a nominal basis, statutory premiums increased by 3.2 % in the first half-year of 2022. This includes favorable foreign currency translation effects of € 752 mn as well as positive (de-)consolidation effects of € 330 mn. On an internal basis4, statutory premiums grew by € 154 mn – or 0.4 % – to € 38,690 mn. In the German life business, statutory premiums rose to € 12,035 mn, or by 1.7 % on an internal basis, mainly because of higher single premium sales in our business with capital-efficient products. In the German health business, statutory premiums reached € 1,998 mn, a 2.9 % increase on an internal basis, largely due to growth in our comprehensive healthcare coverage. Six months ended 30 June Guaranteed savings & annuities Protection & health Unit-linked without guarantee Capital-efficient products Total Operating profit 2022 8.8 20.3 25.4 45.5 100.0 2021 14.5 19.0 25.9 40.5 100.0 Delta (5.7) 1.3 (0.5) 5.0 In the United States, statutory premiums increased to € 7,381 mn, up 15.5 % on an internal basis. This was due to higher sales in our fixed index annuities business. In Italy, statutory premiums declined to € 6,434 mn, a 12.9 % decrease on an internal basis. This resulted mainly from lower sales in our business with unit-linked products. Operating profit by profit sources € mn Six months ended 30 June Loadings and fees 2022 3,613 2021 3,387 Delta 227 In France, statutory premiums dropped to € 3,586 mn. Most of this decrease – 4.9 % on an internal basis – was due to lower sales in our guaranteed savings & annuities business. Investment margin Expenses Technical margin 1,893 (4,164) 765 2,129 (3,791) 637 (236) (372) 129 In the Asia-Pacific region, statutory premiums grew to € 3,573 mn. The rise was mainly driven by favorable foreign currency translation effects. On an internal basis, statutory premiums fell slightly by 0.6 %. Impact of changes in DAC Operating profit 228 2,336 134 2,495 94 (159) Our operating profit decreased, largely because of a negative change in DAC for the variable annuities products in the United States. Additional unfavorable impacts came from a lower investment margin with negative hedge variance for the traditional variable annuities in our German business products. A lower contributed negatively to this result. Positive effects came from our acquisition in Poland resulting in higher loadings and fees, and an improved technical margin. investment margin 1_For further information on Life/Health figures, please refer to note 5 to the condensed consolidated interim financial statements. Annualized figures are not a forecast for full-year numbers. For 2021, the return on equity for the full year is shown. 2_Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 4_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-) consolidation effects, in order to provide more comparable information. 3_Represents the annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning and at the end of the period. 5_PVNBP before non-controlling interests. 6_The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. Interim Report for the First Half-Year of 2022 − Allianz Group 7 A _ Interim Group Management Report Loadings and fees1 Loadings and fees € mn Six months ended 30 June 2022 2021 Loadings from premiums 2,098 2,098 Loadings from reserves 1,017 864 Unit-linked management fees 498 424 Loadings and fees 3,613 3,387 Loadings from premiums as % of statutory premiums 5.3 5.4 Loadings from reserves as % of average reserves1,2 0.2 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.3 0.3 1_Aggregate policy reserves and unit-linked reserves. 2_Yields are pro rata. 3_Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. Loadings from premiums remained stable. Loadings from reserves increased, most of which were driven by higher reserve volumes – mainly in Germany and the United States – and slightly increased in relation to reserves. Unit-linked management fees went up, primarily because of our acquisition in Poland, but were partly offset by Italy with worsened market developments. Investment margin2 Investment margin € mn Six months ended 30 June 2022 2021 Interest and similar income 10,315 9,493 Operating income from financial assets and liabilities carried at fair value through income (net) (10,620) (1,970) Operating realized gains/losses (net) 6,778 4,271 Interest expenses (402) (71) Operating impairments of investments (net) (2,719) (202) Investment expenses (1,017) (903) Other1 2,701 (677) Technical interest (4,349) (4,514) Policyholder participation 1,205 (3,298) Investment margin 1,893 2,129 Investment margin in basis points2,3 38.0 42.4 1_“Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit, and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees, on the other hand. 2_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. 2022 aggregated policy reserves are excluding reinsured reserves from back-book transactions. 3_Yields are pro rata. 1_Loadings and fees include premium and reserve-based fees, unit-linked management fees, and policyholder participation in expenses. 2_The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements, mainly for the German life business). 8 Delta 152 74 227 (0.2) Delta 822 (8,650) 2,507 (331) (2,517) (114) 3,378 165 4,503 (236) (4.4) Our investment margin decreased, mainly driven by our fixed index annuity business in the United States – following the prior year back- book transaction, which was partly offset by positive impacts in the technical margin and DAC amortization. Another contributing factor in the United States was a negative hedge variance from our traditional variable annuities products. losses from derivatives, as well as higher impairments. These negative effects were partly offset by higher realizations in Germany, Belgium, Taiwan, and Spain. In Germany, we saw Expenses3 Expenses € mn Six months ended 30 June 2022 2021 Delta Acquisition expenses and commissions (3,116) (2,802) (315) Administrative and other expenses (1,047) (990) (57) Expenses (4,164) (3,791) (372) Acquisition expenses and commissions as % of PVNBP1 (8.1) (6.8) (1.4) Administrative and other expenses as % of average reserves2,3 (0.2) (0.2) 1_PVNBP before non-controlling interests. 2_Aggregate policy reserves and unit-linked reserves. 3_Yields are pro rata. Our acquisition expenses and commissions increased. Much of this was due to higher sales for fixed index annuities in the United States, higher sales in Asia-Pacific and our acquisition in Poland. The trend was partly offset by lower sales volumes in our German life business. Administrative and other expenses went up, largely caused by our acquisition in Poland and in line with business growth in the United States. Technical margin4 Our technical margin improved. This was mainly driven by a positive reinsurance margin due to the release of the ceding reinsurance commission following the prior year back-book transaction in the United States as well as the consolidation of the acquired Aviva operations in Poland. 3_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 4_The technical margin comprises risk result (risk premiums less benefits in excess of reserves less policy- holder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. Interim Report for the First Half-Year of 2022 − Allianz Group Impact of change in deferred acquisition costs (DAC)1 Impact of change in DAC € mn Six months ended 30 June 2022 2021 Capitalization of DAC 1,171 987 Amortization, unlocking and true-up of DAC (943) (852) Impact of change in DAC 228 134 The impact of change in DAC was positive. The higher capitalization was largely driven by higher sales volumes in our business with fixed index annuity products in the United States as well as higher sales in Asia-Pacific. Increased amortization mainly resulted from negative true-ups in our traditional variable annuities business due to declining stock markets partly offset by less amortization following the prior year back-book transaction in the United States. Operating profit by lines of business € mn Six months ended 30 June 2022 2021 Guaranteed savings & annuities 823 991 Protection & health 566 497 Unit-linked without guarantee 290 319 Capital-efficient products 657 688 Operating profit 2,336 2,495 A decrease in our operating profit in the guaranteed savings & annuities line of business was largely driven by negative change in DAC in our traditional variable annuities business due to declining stock markets in the United States, as well as a lower investment margin in the German Life business. An improved investment margin in Italy and China partly offset this development. A higher operating profit in our protection & health line of business was mainly a consequence of our acquisition in Poland leading to higher loadings and fees, and improved technical margin. Operating profit fell in our unit-linked without guarantee line of business – primarily in Italy and France – driven by declining equity markets. Higher unit-linked management fees in Poland partly offset this effect. The decrease in the operating profit in our capital-efficient products line of business was largely due to increased amortization, mainly resulting from negative change in DAC in our non-traditional variable annuities business as well as lower profits in our fixed index annuity business – following the prior year back-book transaction in the United States. 1_”Impact of change in DAC” includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of Interim Report for the First Half-Year of 2022 − Allianz Group Delta 184 (91) 94 Delta (168) 69 (30) (31) (159) A _ Interim Group Management Report Net income Our net income declined by € 349 mn, driven by the decrease in the operating profit and by a lower non-operating result. The latter was largely due to lower non-operating investment results in Lebanon and the United States as well as unfavorable impacts from premium refunds in our German life & health business. The decrease was further driven by policyholder participation for positive extraordinary tax impacts in our German life business, which however was mainly offset by taxes shown in the income taxes result. Return on equity Our return on equity declined by 3.4 percentage points to 9.6 %, mainly as a result of the decrease in the net income. acquisition costs as well as of front-end loadings on operating profit, and therefore differs from the figures reported in our IFRS financial statements. 9 A _ Interim Group Management Report ASSET MANAGEMENT Key figures Asset Management1 Six months ended 30 June 2022 2021 Operating revenues € mn 4,082 3,835 Operating profit € mn 1,601 1,572 Cost-income ratio2 % 60.8 59.0 Net income € mn (510) 1,216 Total assets under management as of 30 June3 € bn 2,319 2,609 thereof: Third-party assets under management as of 30 June3 € bn 1,769 1,966 Assets under management Composition of total assets under management € bn Type of asset class As of 30 June 2022 As of 31 December 2021 Fixed income 1,698 1,929 Equities 175 229 Multi-assets1 197 220 Alternatives 250 230 Total 2,319 2,609 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments over several asset classes. In a challenging market environment, net outflows4 of total assets under management (AuM) amounted to € 54.0 bn for the first half- year of 2022, driven by third-party AuM net outflows of € 42.8 bn. Both PIMCO and AllianzGI contributed to this outflow development (PIMCO: € 50.4 bn total/€ 42.4 bn third-party; AllianzGI: € 3.6 bn total/€ 0.5 bn third-party). Negative effects from market and dividends5 totaled € 361.7 bn. Thereby, negative effects of € 259.4 bn came from PIMCO and were mainly related to fixed-income assets, while € 102.2 bn negative effects stemmed from AllianzGI and were attributable to all asset classes. Favorable foreign currency translation effects amounted to € 128.5 bn and were mainly related to PIMCO’s AuM. 1_For further information on Asset Management figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Represents operating expenses divided by operating revenues. 3_2021 figure as of 31 December 2021. 4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. 5_”Market and dividends” represents current income earned on the securities held in client accounts, as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds. 10 Delta 247 29 1.8 %-p (1,726) (290) (197) Delta (231) (54) (24) 19 (290) Third-party assets under management As of 30 June 2022 As of 31 December 2021 Delta Third-party assets under management € bn 1,769 1,966 (10.0) % Business units' share PIMCO % 78.4 76.8 1.6 %-p AllianzGI % 21.6 23.2 (1.6) %-p Asset classes split Fixed income % 75.9 75.4 0.5 %-p Equities % 8.9 10.4 (1.5) %-p Multi-assets % 10.4 10.5 (0.1) %-p Alternatives % 4.8 3.7 1.1 %-p Investment vehicle split1 Mutual funds % 58.4 58.5 Separate accounts % 41.6 41.5 Regional allocation2 America % 55.7 55.5 0.2 %-p Europe % 31.9 32.4 (0.5) %-p Asia-Pacific % 12.4 12.1 0.3 %-p Overall three-year rolling investment outperformance3 % 79 91 (12) %-p 1_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). 2_Based on the location of the asset management company. 3_Three-year rolling investment outperformance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). The overall three-year rolling investment outperformance decreased – caused by difficult market conditions. Interim Report for the First Half-Year of 2022 − Allianz Group Operating revenues Our operating revenues increased by 6.4 % on a nominal basis. This development was driven by higher average third-party AuM, which led to higher AuM-driven fees at both PIMCO and AllianzGI. On an internal basis 1 operating revenues decreased by 1.7 %. We recorded lower performance fees – mainly at PIMCO – in a challenging market environment. Other net fee and commission income rose, driven by increased average third-party AuM. Operating profit Our operating profit increased by 1.8 % on a nominal basis, as growth in operating revenues slightly exceeded an increase in operating expenses. On an internal basis1, our operating profit decreased by 5.2 %. The nominal increase in administrative expenses was mainly driven by PIMCO, where higher personnel and non-personnel expenses were recorded. AllianzGI also contributed to the increase to a minor extent due to investments in business growth. Our cost-income ratio went up as a consequence of less growth in operating revenues and a higher increase in operating expenses, compared to the previous half-year. 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 2_For further information on Structured Alpha, please refer to note 33 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2022 − Allianz Group A _ Interim Group Management Report Asset Management business segment information € mn Six months ended 30 June 2022 2021 Delta Performance fees 130 180 (50) Other net fee and commission income 3,963 3,656 307 Other operating revenues (12) (1) (11) Operating revenues 4,082 3,835 247 Administrative expenses (net), excluding acquisition-related expenses (2,480) (2,263) (218) Operating expenses (2,480) (2,263) (218) Operating profit 1,601 1,572 29 Net income The decrease in our net income was driven by a provision of € 1.6 bn after tax related to the Structured Alpha2 matter and higher restructuring expenses in relation to the Voya transaction. 11 A _ Interim Group Management Report CORPORATE AND OTHER Key figures Corporate and Other1 € mn Six months ended 30 June 2022 2021 Delta Operating revenues 2,074 1,603 471 Operating expenses (2,307) (1,882) (425) Operating result (233) (278) 45 Net loss (271) (214) (56) Earnings summary Our operating result improved, compared to the first six months of the previous year. This was mainly due to our higher operating investment result, driven by inflation-linked bonds and dividends, which was partially offset by increased administrative and investment expenses. Our net loss increased, mainly driven by the decrease in our non- operating investment result, which was burdened by lower non- operating realized gains and losses (net) as well as higher impairments. The positive contribution from our operating result and our improved tax result only partially offset this development. 1_For further information on Corporate and Other figures, please refer to note 5 to the condensed consolidated interim financial statements. 12 Interim Report for the First Half-Year of 2022 − Allianz Group OUTLOOK Economic outlook1 The invasion of Ukraine has significantly worsened the growth outlook for 2022. Its direct and indirect effects have prompted us to significantly downgrade our forecast for global GDP (gross domestic product) in the current year, from 4.1 % at the beginning of the year to 2.9 % now. For the United States, we now expect growth of only 2 %, which is also due to the sharp turnaround in monetary policy and the absence of fiscal policy support. In China, growth is likely to fall back to 4.1 %, mainly reflecting the repeated lockdowns. Finally, for the eurozone we expect growth of 2.8 %. At the same time, global inflation is expected to rise to over 8 % on average for the year. Despite these substantial revisions, there are still significant downside risks to this outlook: a further escalation and widening of the invasion of Ukraine and a complete halt to Russian gas supplies to Europe could plunge the global economy into recession before the end of the year. Other uncertainty factors include China's Zero-COVID policy (with possible lockdowns at any time) as well as rising political risks – in particular social unrest caused by the skyrocketing costs of living. Monetary policy will likely prioritize the fight against inflation. The U.S. Federal Reserve is expected to raise its key interest rate to 3.5 % by the end of the year; the European Central Bank's key interest rate – the deposit rate – is likely to stand at 0.75 %. This approach will also give a further boost to the 10-year government bond yields, which we expect to climb to 3.2 % (United States) and 1.5 % (eurozone). At the same time, equity markets will remain under pressure and financial markets will remain highly volatile. Insurance industry outlook The invasion of Ukraine has also impacted the insurance industry. Rising prices continue to support premium income. However, weaker economic growth and declining real incomes are likely to limit demand. Premium growth in 2022 is therefore expected to be below original expectations. At the same time, while the investment environment remains very challenging due to stronger market movements, the increase in yields should generally have a positive impact on investment income. In the property-casualty sector, premium growth is likely to be mainly driven by rising prices. On the other hand, record inflation will also lead to higher expenses in many lines of business. In the life sector, the development of premium income will be dampened by declining savings rates and falling stock markets. However, greater awareness of the need for risk protection could boost risk products. There may also be some relief thanks to the expected decline in excess mortality as a result of the successful vaccination campaign in industrialized countries. 1_The information presented in the sections “Economic Outlook”, “Insurance Industry Outlook” and “Asset Management Industry Outlook” is based on our own estimates. Interim Report for the First Half-Year of 2022 − Allianz Group A _ Interim Group Management Report Asset management industry outlook While the top-line has been negatively impacted by market turmoil, there in the asset management segment. Although passive funds and alternative investments are continuing to grow, active investments still make up a major share of AuM on a global scale. Demand for alternatives – and especially private investments – is expected to remain high. There are still opportunities in active public-equity and fixed-income strategies – for instance, with future yields that are expected to grow in the fixed- income space – in the context of broad interest rates increases. is still potential for industry-wide growth The ESG (environmental, social and governance) segment of the industry is expected to grow strongly, but also to see greater regulation. Overall, regulation is expected to remain very substantial across the industry. Despite this multifaceted situation, the industry is expected to continue and even accelerate the trend towards using technology to grow and support digital distribution channels. To remain competitive, firms must leverage advanced data and analytics, and create a scalable operating set-up. Outlook for the Allianz Group At the end of the first half-year of 2022 the Allianz Group operating profit amounted to € 6.7 bn. We are on track to meet the 2022 Allianz Group operating profit outlook of € 13.4 bn, plus or minus € 1 bn. We currently do not expect any impact from the invasion of Ukraine that would jeopardize the 2022 Allianz Group operating profit outlook. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements may severely affect the operating profit and/or net income of our operations and the results of the Allianz Group. Cautionary note regarding forward- looking statements This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz’s core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known 13 A _ Interim Group Management Report companies and the financial services industry generally, (iv) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (v) mortality and morbidity levels and trends, (vi) persistency levels, (vii) the extent of credit defaults, (viii) interest rate levels, (ix) currency exchange rates, most notably the EUR/U.S. dollar exchange rate, (x) changes in laws and regulations, including tax regulations, (xi) the impact of acquisitions, including and related to integration issues and reorganization measures, and (xii) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. No duty to update Allianz assumes no obligation to update any information or forward- looking statement contained herein, save for any information we are required to disclose by law. 14 Interim Report for the First Half-Year of 2022 − Allianz Group BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2022 As of 31 December 2021 Delta Shareholders' equity Paid-in capital 28,902 28,902 Undated subordinated bonds 4,892 4,699 193 Retained earnings 31,740 32,784 (1,045) Foreign currency translation adjustments (1,280) (3,223) 1,943 Unrealized gains and losses (net) (7,862) 16,789 (24,651) Total 56,392 79,952 (23,559) The decrease in shareholders’ equity was attributable to the dividend payout in May 2022 (€ 4.4 bn) and a reduction of the unrealized gains and losses (net) of € 24.7 bn. The net income attributable to shareholders amounting to € 2.3 bn and an increase in foreign currency translation adjustments of € 1.9 bn partly offset these effects. 1_This does not include non-controlling interests of € 3,892 mn and € 4,270 mn as of 30 June 2022 and 31 December 2021, respectively. For further information, please refer to note 18 to the condensed consolidated interim financial statements. 2_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 106 in the Allianz Group Annual Report 2021. Interim Report for the First Half-Year of 2022 − Allianz Group A _ Interim Group Management Report Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules. 2 Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 2022 As of 31 December 2021 Delta Eligible own funds € bn 82.4 86.0 (3.6) Capital requirement € bn 41.3 41.2 0.1 Capitalization ratio % 200 209 (9) %-p Our Solvency II capitalization ratio decreased by 9 percentage points from 209 % to 200 % 3 over the first six months of 2022. The decrease was predominantly driven by market impacts, other effects (especially a provision for the Structured Alpha matter, and taxes), capital and management actions, and the reduction of the ultimate forward rate. Solid operating capital generation partially offset these negative effects on the capitalization ratio. 3_Eligible own funds excluding the application of transitional measures for technical provisions. Including the application of transitional measures for technical provisions, the own funds amounted to € 93.7 bn; and a Solvency II ratio of 227 % as of 30 June 2022. 15 A _ Interim Group Management Report Total assets and total liabilities As of 30 June 2022, total assets amounted to € 1,050.0 bn (down liabilities were € 89.5 bn compared to year-end 2021). Total € 990.0 bn, representing a fall of € 65.5 bn compared to year-end 2021. Asset allocation and fixed-income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds Banks Other Equities Real estate Cash, cash equivalents, and other Total Compared to year-end 2021, our overall asset portfolio decreased by € 92.3 bn, mainly in our debt instruments. Our well-diversified exposure to debt instruments decreased compared to year-end 2021, mainly due to market movements. About 91 % of the debt portfolio was invested in investment-grade bonds and loans. 1 Our government bonds portfolio contained bonds from France, Germany, United States and Italy, representing 15.2 %, 13.3 %, 9.8 % and 9.0 % of our portfolio shares. Our corporate bonds portfolio contained bonds from the United States, eurozone, and Europe excl. eurozone. They represented 42.4 %, 28.8 % and 11.2 % of our portfolio shares. Our exposure to equities decreased mainly due to market movements. 1_Excluding self-originated German private retail mortgage loans. For 4 %, no ratings were available. 16 The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses. As of 30 June 2022 As of 31 December 2021 Delta As of 30 June 2022 As of 31 December 2021 € bn € bn € bn % % 584.8 672.3 (87.5) 81.7 83.1 193.7 240.5 (46.9) 33.1 35.8 46.5 55.6 (9.2) 7.9 8.3 231.3 259.6 (28.3) 39.6 38.6 30.4 36.0 (5.6) 5.2 5.3 83.0 80.6 2.4 14.2 12.0 92.1 95.2 (3.1) 12.9 11.8 18.2 16.9 1.3 2.5 2.1 21.1 24.1 (3.0) 2.9 3.0 716.2 808.5 (92.3) 100.0 100.0 Property-Casualty liabilities As of 30 June 2022, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 80.3 bn, compared to € 78.2 bn at year-end 2021. On a net basis, our reserves, including discounted loss reserves, increased from € 65.8 bn to € 67.4 bn. 2 Life/Health liabilities Life/Health reserves for insurance and investment contracts decreased by € 43.4 bn to € 573.7 bn over the first six months of 2022. Aggregate policy reserves increased by € 4.2 bn (before foreign currency translation effects), reserves for premium refunds decreased by € 59.6 bn (before foreign currency translation effects) due to higher unrealized losses reducing future policyholder participation, and foreign currency translation effects increased the balance sheet value by € 11.9 bn. 2_For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 14 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2022 − Allianz Group Delta %-p (1.5) (2.7) (0.3) 0.9 (0.2) 2.2 1.1 0.4 RECONCILIATIONS The analysis in the previous chapters is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRSs), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRSs. For further information, please refer to note 5 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise gross premiums written and fee and commission income in Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). in Property-Casualty, statutory premiums Composition of total revenues € mn Six months ended 30 June 2022 PROPERTY-CASUALTY Total revenues 37,662 consisting of: Gross premiums written 36,486 Fee and commission income 1,176 LIFE/HEALTH Statutory premiums 39,772 ASSET MANAGEMENT Operating revenues 4,082 consisting of: Net fee and commission income 4,094 Net interest and similar income (12) Income from financial assets and liabilities carried at fair value through income (net) (1) CORPORATE AND OTHER thereof: Total revenues (Banking) 136 consisting of: Interest and similar income 34 Income from financial assets and liabilities carried at fair value through income (net)1 3 Fee and commission income 338 Interest expenses, excluding interest expenses from external debt (12) Fee and commission expenses (228) CONSOLIDATION (486) Allianz Group total revenues 81,166 1_Includes trading income. Interim Report for the First Half-Year of 2022 − Allianz Group 2021 33,610 32,750 860 38,536 3,835 3,836 (3) 2 131 30 1 325 (12) (214) (364) 75,749 A _ Interim Group Management Report Composition of total revenue growth We believe that the understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as in scope of acquisitions, disposals, and transfers (or “changes consolidation”) are analyzed separately. Therefore, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth % Six months ended 30 June 2022 Internal Growth Changes in scope of consolidation Foreign currency translation Nominal Growth Property-Casualty 8.5 1.5 2.0 12.1 Life/Health 0.4 0.9 2.0 3.2 Asset Management (1.7) 8.1 6.4 Corporate and Other 3.5 3.5 Allianz Group 3.7 1.1 2.3 7.2 Life/Health insurance operations The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 23 entities – comprising the vast majority of Life/Health total statutory premiums – are in scope. Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the Group income statement. 17 A _ Interim Group Management Report Acquisition, administrative, capitalization, and amortization of DAC € mn Six months ended 30 June 2022 2021 Acquisition expenses and commissions1 (3,116) (2,802) Definitions 9 8 Scope (95) (68) Acquisition costs incurred (3,202) (2,862) Capitalization of DAC1 1,171 987 Definition: URR capitalized 360 349 Definition: policyholder participation2 507 530 Scope 74 24 Capitalization of DAC 2,113 1,890 Amortization, unlocking, and true-up of DAC1 (943) (852) Definition: URR amortized (75) (129) Definition: policyholder participation2 (414) (704) Scope (91) (17) Amortization, unlocking, and true-up of DAC (1,522) (1,702) Commissions and profit received on reinsurance business ceded 253 65 Acquisition costs3 (2,358) (2,610) Operating administrative and other expenses1 (1,047) (990) Non-operating administrative and other expenses (5) (18) Definitions 110 93 Scope (84) (78) Administrative expenses on reinsurance business ceded 5 5 Administrative expenses3 (1,021) (988) 1_As per Interim Group Management Report. 2_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization. 3_As per notes to the condensed consolidated interim financial statements. Impact of change in deferred acquisition costs (DAC) The impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR), and value of business acquired (VOBA), and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes scheduled URR amortization, true-up, and unlocking. Both capitalization and amortization are included in the line item premiums earned (net) in the Group income statement. Policyholder participation is included within “change in our reserves for insurance and investment contracts (net)” in the Group income statement. 18 Reconciliation to Notes € mn Six months ended 30 June 2022 2021 Acquisition expenses and commissions1 (3,116) (2,802) Operating administrative and other expenses1 (1,047) (990) Non-operating administrative and other expenses (5) (18) Capitalization of DAC1 1,171 987 Amortization, unlocking, and true-up of DAC1 (943) (852) Acquisition and administrative expenses (3,941) (3,675) Definitions 499 146 Scope (195) (138) Commissions and profit received on reinsurance business ceded 253 65 Administrative expenses on reinsurance business ceded 5 5 Acquisition and administrative expenses (net)2 (3,378) (3,598) 1_As per Interim Group Management Report. 2_As per notes to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2022 − Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B Interim Report for the First Half-Year of 2022 − Allianz Group 19 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEET Consolidated balance sheet € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1_Includes mainly derivative financial instruments. 20 Note As of 30 June 2022 As of 31 December 2021 22,111 24,214 6 13,926 19,604 7 572,702 663,649 8 125,758 124,079 141,255 158,346 9 61,021 56,731 10 33,180 23,756 5,757 1,910 11 51,198 48,264 4 4,127 145 12 18,935 18,732 1,049,969 1,139,429 16,017 20,891 13 17,086 15,468 33,838 27,501 14 89,438 86,974 15 587,515 632,061 141,255 158,346 1,486 5,626 16 78,442 86,596 4 3,219 17 9,102 10,788 17 12,288 10,956 989,686 1,055,207 56,392 79,952 3,892 4,270 18 60,284 84,222 1,049,969 1,139,429 Interim Report for the First Half-Year of 2022 − Allianz Group CONSOLIDATED INCOME STATEMENT Consolidated income statement € mn Six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring and integration expenses Other expenses Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Note 2022 2021 49,942 45,569 (4,539) (4,355) (4,275) (3,333) 19 41,128 37,881 20 12,397 11,229 21 (10,959) (1,961) 22 7,176 4,973 23 7,057 6,500 10 3 56,808 58,625 (32,016) (29,225) 2,165 1,752 24 (29,851) (27,473) 25 804 (6,941) 26 (731) (485) (3) 27 (3,319) (313) 28 (998) (899) 29 (15,998) (13,174) 30 (2,613) (2,325) (169) (155) (566) (239) (7) (6) (53,449) (52,012) 3,359 6,614 31 (880) (1,573) 2,479 5,040 211 249 2,267 4,791 5.28 11.47 5.18 11.42 21 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income € mn Six months ended 30 June 2022 2021 Net income 2,479 5,040 Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the period 2,223 573 Subtotal 2,223 573 Available-for-sale investments Reclassifications to net income (877) (960) Changes arising during the period (23,763) (3,620) Subtotal (24,640) (4,579) Cash flow hedges Reclassifications to net income (25) (36) Changes arising during the period (267) (107) Subtotal (292) (143) Share of other comprehensive income of associates and joint ventures Reclassifications to net income (6) Changes arising during the period (19) 41 Subtotal (25) 41 Miscellaneous Reclassifications to net income Changes arising during the period (32) 65 Subtotal (32) 65 Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans 1,887 163 Total other comprehensive income (20,879) (3,881) Total comprehensive income (18,401) 1,159 Total comprehensive income attributable to: Non-controlling interests (103) 151 Shareholders (18,298) 1,008 For further details concerning income taxes on components of the other comprehensive income, please see note 31. 22 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity € mn Paid-in capital Undated subordinated bonds Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Share- holders' equity Non- controlling interests Total equity Balance as of 1 January 2021 28,928 2,259 31,371 (4,384) 22,648 80,821 3,773 84,594 Total comprehensive income1 5,060 583 (4,635) 1,008 151 1,159 Paid-in capital Treasury shares Transactions between equity holders (26) (119) (145) (28) (172) Undated subordinated bonds 46 (44) (32) (31) (31) Dividends paid (3,956) (3,956) (205) (4,161) Balance as of 30 June 2021 28,902 2,304 32,313 (3,833) 18,013 77,699 3,692 81,390 Balance as of 1 January 2022 28,902 4,699 32,784 (3,223) 16,789 79,952 4,270 84,222 Total comprehensive income1 4,216 2,136 (24,651) (18,298) (103) (18,401) Paid-in capital Treasury shares2 (826) (826) (826) Transactions between equity holders 7 7 33 40 Undated subordinated bonds 193 (59) (193) (59) (59) Dividends paid (4,383) (4,383) (309) (4,692) Balance as of 30 June 2022 28,902 4,892 31,740 (1,280) (7,862) 56,392 3,892 60,284 1_Total comprehensive income in shareholders’ equity for the six months ended 30 June 2022 comprises net income attributable to shareholders of € 2,267 mn (2021: € 4,791 mn). 2_In February 2022, a share buy-back with an intended volume of € 1 bn was announced and executed from 8 March 2022. During the first half-year of 2022, Allianz SE purchased 3.8 million own shares for an amount of € 766 mn. Interim Report for the First Half-Year of 2022 − Allianz Group 23 B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows € mn Six months ended 30 June 2022 2021 SUMMARY Net cash flow provided by/used in operating activities (2,257) 15,669 Net cash flow provided by/used in investing activities 4,863 (8,061) Net cash flow used in financing activities (4,928) (5,985) Effect of exchange rate changes on cash and cash equivalents 542 84 Change in cash and cash equivalents (1,780) 1,707 Cash and cash equivalents at beginning of period 24,214 22,443 Cash and cash equivalents reclassified to assets of disposal groups held for sale in 2022 (324) Cash and cash equivalents at end of period 22,111 24,150 CASH FLOW FROM OPERATING ACTIVITIES Net income 2,479 5,040 Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures (242) (116) Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale (3,862) (4,660) Other investments, mainly financial assets held for trading and designated at fair value through income 16,199 4,156 Depreciation and amortization 1,275 1,158 Loan loss provisions 3 Interest credited to policyholder accounts (577) 3,411 Other non-cash income/expenses (3,570) (1,851) Net change in: Financial assets and liabilities held for trading (15,148) (3,198) Reverse repurchase agreements and collateral paid for securities borrowing transactions 1,593 (324) Repurchase agreements and collateral received from securities lending transactions 159 (106) Reinsurance assets (466) (950) Deferred acquisition costs (895) (528) Unearned premiums 9,330 4,517 Reserves for loss and loss adjustment expenses 1,849 2,046 Reserves for insurance and investment contracts 3,302 7,527 Deferred tax assets/liabilities 40 (14) Other (net) (13,723) (442) Subtotal (4,735) 10,629 Net cash flow provided by/used in operating activities (2,257) 15,669 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 2,348 2,126 Available-for-sale investments 121,971 95,298 Held-to-maturity investments 53 10 Investments in associates and joint ventures 537 529 Non-current assets and disposal groups classified as held for sale 35 279 Real estate held for investment 105 66 Loans and advances to banks and customers (purchased loans) 4,496 2,978 Property and equipment 43 57 Subtotal 129,587 101,343 24 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED Consolidated statement of cash flows € mn Six months ended 30 June 2022 2021 Payments for the purchase or origination of: Financial assets designated at fair value through income (2,840) (2,181) Available-for-sale investments (110,609) (100,482) Held-to-maturity investments (155) (55) Investments in associates and joint ventures (1,829) (963) Non-current assets and disposal groups classified as held for sale Real estate held for investment (1,227) (371) Fixed assets from alternative investments (44) (14) Loans and advances to banks and customers (purchased loans) (759) (1,049) Property and equipment (603) (557) Subtotal (118,064) (105,673) Business combinations: Proceeds from sale of subsidiaries, net of cash disposed Acquisitions of subsidiaries, net of cash acquired Change in other loans and advances to banks and customers (originated loans) (4,877) (3,432) Other (net) (1,783) (299) Net cash flow provided by/used in investing activities 4,863 (8,061) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers 1,190 670 Proceeds from the issuance of certificated liabilities and subordinated liabilities 3,026 1,675 Repayments of certificated liabilities and subordinated liabilities (3,394) (3,817) Proceeds from the issuance of undated subordinated bonds classified as shareholders' equity Net change in lease liabilities (205) (171) Transactions between equity holders 8 (172) Dividends paid to shareholders (4,692) (4,161) Net cash from sale or purchase of treasury shares (826) Other (net) (34) (10) Net cash flow used in financing activities (4,928) (5,985) SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED STATEMENT OF CASH FLOWS Income taxes paid (from operating activities) (1,872) (1,680) Dividends received (from operating activities) 1,840 1,608 Interest received (from operating activities) 9,589 9,159 Interest paid (from operating activities) (801) (438) Interim Report for the First Half-Year of 2022 − Allianz Group 25 B _ Condensed Consolidated Interim Financial Statements Changes in liabilities arising from financing activities € mn As of 1 January 2021 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2021 As of 1 January 2022 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2022 26 Liabilities to banks and customers Certificated and subordinated liabilities Lease liabilities Total 9,559 23,241 2,725 35,525 670 (2,141) (171) (1,643) 1 1 (1) 4 28 31 (1) 110 178 287 10,228 21,214 2,759 34,200 11,034 21,744 2,790 35,568 1,190 (368) (205) 616 (2) 1 (1) 51 18 77 147 (17) (4) 52 31 12,257 21,390 2,715 36,362 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Basis of presentation financial The Allianz Group’s condensed consolidated statements are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs) applicable to interim financial reporting, as adopted under European Union regulations. interim In May 2017, the IASB issued IFRS 17, Insurance Contracts. In addition, the IASB issued further amendments to IFRS 17 in June 2020 and December 2021. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as applied in the consolidated financial statements for the year ended 31 December 2021. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2021. In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. The effective date of the new standard was postponed until 1 January 2023. The latest amendment issued by the IASB on 9 December 2021 adds a transition option that permits an entity to apply a classification overlay in the comparative periods presented on initial application of IFRS 17. The overlay allows all financial assets, including those held in respect of activities not connected to contracts within the scope of IFRS 17, to be classified, on an instrument-by- instrument basis, in the comparative periods in a way that aligns with how the entity expects those assets to be classified on initial application of intends to apply the classification overlay, including the impairment requirements of IFRS 9, consistently to all eligible financial instruments. IFRS 9. The Allianz Group Amounts are rounded to millions of euro (€ mn), unless otherwise stated. These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Management on 3 August 2022. 2 _ New accounting pronouncements The following amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2022: − − IFRS 3, Updating a Reference to the Conceptual Framework, IAS 16, Property, Plant and Equipment: Proceeds before Intended Use, IAS 37, Onerous Contracts – Cost of Fulfilling a Contract, and − − Annual Improvements to IFRS Standards 2018–2020 cycle (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41). These changes had no material impact on the Allianz Group's condensed consolidated interim financial statements for the first half- year of 2022. IFRS 17 provides comprehensive guidance on accounting for insurance contracts issued, reinsurance contracts held, and investment contracts with discretionary participation features. It introduces three new measurement models, reflecting a different extent of policyholder participation in investment performance or overall insurance entity performance. The general measurement model, also known as the building block approach, consists of the fulfillment cash flows and the contractual service margin. The fulfillment cash flows represent the risk-adjusted present value of an entity’s rights and obligations to the flows, policyholders, comprising estimates of expected cash discounting and an explicit risk adjustment for non-financial risk. The contractual service margin represents the unearned profit from in- force contracts that an entity will recognize as it provides services over the coverage period. At inception, the contractual service margin cannot be negative. If the fulfillment cash flows lead to a negative contractual service margin at inception, it will be set to zero and the negative amount will be recorded immediately in the statement of profit and loss. At the end of a reporting period, the carrying amount of a group of insurance contracts is the sum of the liability for remaining coverage and the liability of incurred claims. The liability for remaining coverage consists of the fulfillment cash flows related to future services and the contractual service margin, while the liability for incurred claims consists of the fulfillment cash flows related to past services. The contractual service margin gets adjusted for changes in cash flows related to future services and for the interest accretion at interest rates locked-in at initial recognition of the group of contracts. A release from the contractual service margin is recognized in profit or loss each period to reflect the services provided in that period based on “coverage units”. IFRS 17 only provides principle-based guidance on how to determine these coverage units. Allianz has defined the Interim Report for the First Half-Year of 2022 − Allianz Group 27 B _ Condensed Consolidated Interim Financial Statements account value for the reflection of investment services and the sum at risk for insurance services as the default approach to determine the coverage units. If multiple services are provided in one contract, a weighting is applied. The variable fee approach is a mandatory modification of the general measurement model regarding the treatment of the in order contractual service margin to accommodate direct insurance contract has a direct participating contracts. An participation feature if the following three requirements are met: the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items; the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. The assessment of whether an insurance contract meets these three criteria is made at inception of the contract and not revised subsequently, except in case of a substantial modification of the contract. For contracts with direct participation features, the contractual service margin is adjusted for changes in the amount of the entity’s share of the fair value of the underlying items. No explicit interest accretion is required since the contractual service margin is effectively remeasured when it is adjusted for changes in financial risks. The premium allocation approach is a simplified approach for the measurement of the liability of remaining coverage an entity may choose to use when the premium allocation approach provides a measurement which is not materially different from that under the general measurement model or if the coverage period of each contract in the group of insurance contracts is one year or less. Under the premium allocation approach, the liability for remaining coverage is measured as the amount of premiums received net of acquisition cash flows paid, less the net amount of premiums and acquisition cash flows that have been recognized in profit or loss over the expired portion of the coverage period based on the passage of time. The measurement of the liability for incurred claims is identical under all three measurement models, apart from the determination of locked-in interest rates used for discounting. IFRS 17 requires the separation of embedded derivatives, investment components, and performance obligations to provide non- insurance goods and services, if certain conditions are met. The separated components need to be accounted for separately according to IFRS 9 (embedded derivatives, investment components) or IFRS 15 (non-insurance goods and services). Measurement is not carried out at the level of individual contracts, but on the basis of groups of contracts. To allocate individual insurance contracts to groups of contracts, an entity first needs to define portfolios which include contracts with similar risks that are managed together. These portfolios are to be subdivided into groups of contracts cohorts. On on 23 November 2021, the E.U. Commission endorsed IFRS 17 into E.U. law. The requirement to form annual cohorts that prevents contracts issued more than one year apart from being included in the same group (IFRS 17.22) is subject to an optional exemption in the E.U. endorsement: The E.U. Commission grants E.U. users the right to choose whether or not to apply the requirement in IFRS 17.22 for certain contracts. Allianz will not make use of this exemption and will apply IFRS 17 as issued by the IASB. the basis of profitability and annual 28 In the statement of financial position, deferred acquisition costs and insurance related receivables will no longer be presented separately but as part of the insurance liabilities. This change in presentation will lead to a reduction in total assets, offset by a reduction in total liabilities. The amounts presented in the statement of financial performance need to be disaggregated into an insurance service result, consisting of the insurance revenue and the insurance service expenses, and insurance finance income and expenses. Income or expenses from reinsurance contracts held need to be presented separately from the expenses or income from insurance contracts issued. Property-Casualty business For non-life insurance contracts, the Allianz Group expects that a large part of the business qualifies for the premium allocation approach eligibility (the assessment performed as of the transition date has shown an eligibility of >95 %). The premium allocation approach has similar mechanics as the current IFRS approach and therefore only limited impact on main result drivers and only limited judgmental areas for the underwriting result. The estimation of the expected claims with regard to the loss reserves is the main area of judgment for P/C business and remains unaffected by the introduction of IFRS 17. The main changes for non-life insurance contracts comprise the mandatory discounting of loss reserves, a higher transparency of loss- making portfolios due to a more granular onerous contract testing, and the introduction of the risk adjustment for non-financial risk. While loss reserves are undiscounted under current IFRS, except for annuity claims, loss reserves are discounted under IFRS 17. Due to the discounting accident year loss ratios will be lower under IFRS 17 compared to current IFRS but also more volatile due to changes in interest rates. The standard requires the determination of the interest curve using observable market data based on a risk-free base curve and portfolio specific adjustments to reflect the illiquidity of insurance obligations. In general, the risk-free base curve as well as the adjustments are determined consistently with Solvency II. IFRS 17 requires to reflect expected losses over a contract’s lifetime at initial recognition in the income statement and the balance sheet as a loss component. The approach is very similar to the current premium deficiency testing, but IFRS 17 requires the calculation on a more granular level. As offsetting with profitable sets of insurance contracts is not allowed, the increasing granularity leads to an increasing number of onerous sub-segments. IFRS 17 does not prescribe a specific approach for determining the risk adjustment for non-financial risk. Allianz applies a Cost of Capital approach with a Cost of Capital rate of currently 6 % as under Solvency II. Besides some minor differences, the main difference is that IFRS 17 requires reflection of risk diversification across subsidiaries, which is not allowed under Solvency II. Allianz currently applies a diversification factor of 73 % leading to a diversification benefit of 27 %. Furthermore, IFRS 17 will change the presentation of insurance contract revenue; a gross written premium will no longer be presented in the statement of comprehensive income. Insurance contract revenue is defined in such a way as to achieve comparability with the revenue of other industries and, in particular, investment components may not be recognized as part of insurance contract revenue. From a P&L and KPI perspective, the general measurement model and premium allocation approach identical results and the Allianz Group does not plan to provide general measurement model lead to almost Interim Report for the First Half-Year of 2022 − Allianz Group specific KPIs for the P/C segment. The (net) combined ratio will remain the main KPI for the P/C segment and will be defined as the sum of insurance service expenses and the reinsurance result, divided by insurance revenue. Generally, the Allianz Group expects only limited impacts on the underwriting result. There will be a positive impact from the discounting of loss reserves, but, while the operating investment income (i.e. interest and dividends) will remain almost unchanged, the interest accretion on historic loss reserves will notably decrease the investment result. IFRS 17 contains an accounting policy option to recognize changes in financial parameters either in profit or loss or in other comprehensive income. This so-called “OCI option” can be exercised at the level of individual portfolios. The Allianz Group generally will make use of this option. Under this option, loss reserves are discounted for profit or loss with locked-in interest rates from the respective accident years and the discounting effect needs to be recognized as interest accretion in the investment result until reserves expire. The Allianz Group further expects only limited impact on equity at transition due to the offsetting impacts from discounting and risk adjustment for the measurement of loss reserves. Life/Health business For long-duration life insurance contracts, IFRS 17 is expected to have a significant impact on actuarial modeling, as more granular cash flow projections and regular updates of all assumptions will be required, either impacting profit or loss or the contractual service margin. Allianz re-uses the cash flow models developed for Solvency II reporting and embedded value to the extent possible and reasonable. Best estimate assumptions are in general consistent with Solvency II. However, specifications to cash flow models are made, if considered necessary. For example, IFRS 17 takes a more economic view on contract boundaries, i.e. requires anticipating renewals or top-up premiums to a larger extent than Solvency II in some cases. The Allianz Group expects that direct participating business, where the rules on profit sharing are defined by legal/contractual rights, will qualify fee approach eligibility the variable (approximately 2/3 of present value of future cash flows in the L/H segment). Indirect participating business, where the payments to the policyholder depend on the investment performance but there are no fixed rules on how the performance is passed on to the policyholders, as well as non-participating business, i.e. business without policyholder participation, including savings and risk business, will be accounted for under the general measurement model. The Allianz Group will continue to have unit-linked investment contracts (to be accounted for under IFRS 9) and unit-linked insurance contracts, which are contracts with significant insurance risk, e.g. via death or other insurance riders. The Allianz Group expects unit-linked insurance contracts to be eligible for the variable fee approach. for In the statement of financial position, the Allianz Group expects an increase of the insurance liabilities as these will be discounted with current rates and will contain an explicit future profit margin with the contractual service margin. Current IFRS equity contains the shareholder share of unrealized capital gains in other comprehensive income. These will be part of the insurance liabilities accounted for under the variable fee approach. These effects will result in a decrease of equity. In the income statement, the release of the contractual service margin and the risk adjustment for non-financial risk will Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements become the main components for the operating profit of the L/H business. the Allianz Group is currently assessing the quantitative impact of the application of IFRS 17. The final figures will also depend on the application of the transition approaches. IFRS 17 has to be applied retrospectively unless this is impracticable. Fulfillment cash flows are determined prospectively at every reporting date, including the date of initial application. However, the contractual service margin is rolled- forward over time, a split of profits between equity (“earned profits”) and contractual service margin (“unearned profits”) is required, but is often very challenging due to the long-term nature of some (life) insurance contracts. Besides the qualitative impacts described above, If a full retrospective application is impracticable, an entity can choose between a modified retrospective approach or a fair value approach. The objective of the modified retrospective approach is to use reasonable and supportable information available without undue cost or effort to achieve the closest possible outcome to full retrospective application. To the extent a retrospective determination is not possible, certain modifications are allowed. Under the fair value approach, the contractual service margin of a group of contracts at transition is determined as the difference between the fair value of this group at transition determined in accordance with IFRS 13 and the corresponding IFRS 17 fulfillment cash flows measures at transition. Besides the determination of the contractual service margin, another crucial topic at transition is the determination of historic interest rates. Allianz makes use of the introduction of Solvency II, which is the general basis for the interest rates as explained above. implementation project has made significant progress, as of the date of the publication of these consolidated financial statements, it is not practicable to finally quantify the effects on the Allianz Group consolidated IFRS 17 opening balance sheet for the fiscal year 2022 or on any consolidated financial statements for subsequent periods. Therefore, it is also not practicable to disclose any quantitative impacts on KPIs, like e.g. operating profit or net income. Although the IFRS 17 3 _ Invasion of Ukraine The invasion of Ukraine concerns the Allianz Group as a business operator with economic and financial implications, as an employer, and as a member of the international community. The repercussions of the invasion of Ukraine and an escalation of geopolitical conflicts are unpredictable and have the potential to significantly impact international financial markets and economies, e.g. due to higher inflation – or even stagflation – from energy prices, lower equity prices, a widening of credit spreads, as well as a rise in credit defaults. The Allianz Group expects to continue to remain sufficiently capitalized, in compliance with the regulatory Solvency Capital Requirement. The Allianz Group is neither insuring new business nor making new investments on behalf of the own investment portfolio in Russia or Belarus. The operating entities are no longer underwriting new insurance business in Russia, and have decisively reduced exposure in an orderly manner. 29 B _ Condensed Consolidated Interim Financial Statements With effect of 30 June 2022, the Russian operations of the Allianz Group are classified as a disposal group as held for sale. For further information, please see note 4. Overall, the financial impact on the condensed consolidated interim financial statements is so far limited for the Allianz Group. In the first half-year of 2022, impairments on Russian and Belarussian debt securities in the amount of € 1.1 bn had a total net impact of € (0.2) bn: € (0.1) bn for the business segment Property-Casualty and € (0.1) bn for the business segment Life/Health, after policyholder participation and taxes. 4 _ Consolidation and classification as held for sale European Reliance General Insurance Company S.A., Chalandri On 28 July 2022, the Allianz Group completed through an over-the- counter transaction the acquisition of 72 % of the shares of European Reliance General Insurance Company S.A., Chalandri, a leading Greek insurer, as agreed by virtue of certain share purchase agreements signed on 11 February 2022 with major shareholders. In the voluntary tender offer (VTO) with an acceptance period that ended on 1 August 2022, a further 9 % of the shares were offered for purchase by minority shareholders. During the period from 11 February 2022 and until 1 August 2022, the Allianz Group also acquired an additional 16 % of the shares of European Reliance General Insurance Company S.A. on the stock exchange. The total consideration for these acquisitions amounts to € 0.2 bn. The Allianz Group intends to proceed acquiring the remaining minority shares through a statutory squeeze-out process. The Allianz Group acquired approximately € 0.6 bn assets and € 0.4 bn liabilities. Overall, the impact of the transaction on the financial position of the Allianz Group is not material. 30 Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2022 As of 31 December 2021 Assets of disposal groups classified as held for sale African business operations1 2,980 Russian business operations 768 Investment management activities of AGI U.S. 195 Other disposal groups 67 Subtotal 4,010 Non-current assets classified as held for sale Real estate held for investment 115 125 Real estate held for own use 1 20 Associates and joint ventures 1 1 Subtotal 117 145 Total 4,127 145 Liabilities of disposal groups classified as held for sale African business operations1 2,373 Russian business operations 651 Investment management activities of AGI U.S. Other disposal groups 195 Total 3,219 1_African business of the Global Lines is not affected. African business operations On 4 May 2022, the Allianz Group announced the conclusion of agreements to form a partnership with Sanlam Ltd., Cape Town, a non- banking financial service company in Africa, by contributing its African business operations and further capital contributions in consideration for a minority shareholding in the partnership. As of 30 June 2022, all requirements to present the assets and liabilities of the affected operations across Africa allocated to the reportable segments Global Insurance Lines & Anglo Markets, Middle East and Africa (Property-Casualty and Life/Health) as held for sale were fulfilled. Interim Report for the First Half-Year of 2022 − Allianz Group Reclassified assets and liabilities € mn Cash and cash equivalents Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Intangible assets Total assets Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Total liabilities As of 30 June 2022, cumulative losses of € 29 mn were reported in other comprehensive income relating to the disposal group classified as held for sale. No impairment loss has been recognized in connection with this transaction. The agreement is subject to certain conditions precedent that Sanlam and/or the Allianz Group would be jurisdiction. The completion of the required to fulfill for each transaction is expected for the first half-year of 2023. Sale of Russian business operations to Interholding LLC, Moscow On 3 June 2022, the Allianz Group announced to dispose of 50 % plus one share in its Russian business operations to Interholding LLC, Moscow, the owner of Russian Property and Casualty insurer Zetta Insurance Company Ltd., Moscow. As of 30 June 2022, all requirements to present the assets and liabilities of the affected Russian business operations allocated to the reportable segments German Speaking Countries and Central & Eastern Europe (Property-Casualty and Life/Health) as held for sale were fulfilled. Interim Report for the First Half-Year of 2022 − Allianz Group 270 1,427 69 485 141 19 10 422 137 2,980 18 184 476 915 485 24 270 2,373 B _ Condensed Consolidated Interim Financial Statements Reclassified assets and liabilities € mn Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Total assets Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax liabilities Other liabilities Total liabilities As of 30 June 2022, cumulative losses of € 344 mn were reported in other comprehensive income relating to the disposal group classified as held for sale. No impairment loss has been recognized in connection with this transaction. The transaction is subject to regulatory approvals. The completion of the transaction is expected for the third quarter of 2022. Upon completion, a disposal loss of € 0.4 bn the to be recognized, reclassification of cumulative losses from other comprehensive income to profit or loss. is expected largely due to Transfer of U.S. investment teams and assets to Voya Investment Management LLC, Atlanta On 13 June 2022, the Allianz Group signed the agreement to transfer certain investment teams of AGI U.S. and the assets they manage with a volume of USD 101 bn to Voya Investment Management LLC, Atlanta, in consideration for a 24 % equity stake and a global distribution agreement between the two firms. As of 30 June 2022, all requirements to present the assets and liabilities connected to this transfer allocated to the reportable segment Asset Management as held for sale were fulfilled. The transaction was closed on 25 July 2022. The Allianz Group expects to realize a low three-digit million euro revaluation gain pending finalization of the initial measurement of the consideration. 45 5 469 13 15 19 34 168 768 123 71 351 1 105 651 31 B _ Condensed Consolidated Interim Financial Statements 5 _ Segment reporting The business activities of the Allianz Group, the business segments as well as the products and services from which the reportable segments derive their revenues are consistent with those described in the consolidated ended statements 31 December 2021. The statement contained therein regarding general segment reporting information is still applicable and valid. financial for the year Effective 1 January 2022, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The insurance activities in Asia Pacific and Greece form a new reportable segment. In the business segment Property-Casualty, Allianz Direct and Allianz Partners were combined with the insurance activities in Western & Southern Europe to form the reportable segment Western & Southern Europe, Allianz Direct and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. 32 Interim Report for the First Half-Year of 2022 − Allianz Group Interim Report for the First Half-Year of 2022 − Allianz Group This page intentionally left blank. B _ Condensed Consolidated Interim Financial Statements 33 B _ Condensed Consolidated Interim Financial Statements Business segment information – consolidated balance sheets € mn ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities 34 Property-Casualty Life/Health As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 4,978 4,806 10,102 12,427 1,185 930 11,804 18,279 107,321 114,223 448,188 528,211 11,301 11,773 113,286 111,827 141,255 158,346 16,169 14,718 44,900 42,059 5,699 5,099 27,481 18,657 1,838 1,081 3,420 945 33,003 29,913 21,085 21,330 1,680 47 2,341 92 6,338 6,232 4,860 4,735 189,512 188,822 828,723 916,908 Property-Casualty Life/Health As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 610 331 15,307 20,485 1,390 1,225 5,782 5,235 26,281 21,163 7,576 6,356 75,440 73,425 14,018 13,571 14,038 15,203 573,704 617,109 141,255 158,346 1,392 2,529 1,709 4,749 24,710 24,898 42,856 47,121 1,036 2,197 47 47 65 65 144,944 138,821 804,469 873,036 Interim Report for the First Half-Year of 2022 − Allianz Group Asset Management As of 30 June 2022 As of 31 December 2021 1,194 1,130 212 224 137 135 164 129 542 1,145 6,068 6,714 196 1 7,626 7,514 16,139 16,992 Asset Management As of 30 June 2022 As of 31 December 2021 100 100 (15) 5,873 9,373 5,974 9,458 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Corporate and Other Consolidation Group As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 6,005 5,973 (168) (122) 22,111 24,214 1,251 591 (526) (421) 13,926 19,604 117,307 115,351 (100,253) (94,272) 572,702 663,649 6,331 6,333 (5,323) (5,984) 125,758 124,079 141,255 158,346 (48) (47) 61,021 56,731 33,180 23,756 2,331 765 (2,373) (2,025) 5,757 1,910 7,726 8,223 (16,685) (17,915) 51,198 48,264 6 6 (96) 4,127 145 110 250 18,935 18,732 141,067 137,492 (125,472) (120,785) 1,049,969 1,139,429 Corporate and Other Consolidation Group As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 641 523 (540) (448) 16,017 20,891 12,397 12,101 (2,583) (3,193) 17,086 15,468 (19) (17) 33,838 27,501 (20) (23) 89,438 86,974 (96) (122) (131) (129) 587,515 632,061 141,255 158,346 694 389 (2,310) (2,025) 1,486 5,626 30,275 30,922 (25,272) (25,717) 78,442 86,596 (15) 3,219 11,755 13,441 (2,653) (2,653) 9,102 10,788 12,196 10,864 (20) (20) 12,288 10,956 67,862 68,119 (33,563) (34,226) 989,686 1,055,207 Total equity 60,284 84,222 Total liabilities and equity 1,049,969 1,139,429 35 B _ Condensed Consolidated Interim Financial Statements Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Six months ended 30 June 2022 2021 2022 2021 Total revenues1 37,662 33,610 39,772 38,536 Premiums earned (net) 28,446 25,620 12,682 12,261 Operating investment result Interest and similar income 1,786 1,597 10,315 9,493 Operating income from financial assets and liabilities carried at fair value through income (net) (53) (28) (10,620) (1,970) Operating realized gains/losses (net) 48 105 6,778 4,271 Interest expenses, excluding interest expenses from external debt (69) (70) (402) (71) Operating impairments of investments (net) (68) (4) (2,719) (202) Investment expenses (234) (216) (1,017) (903) Subtotal 1,410 1,384 2,336 10,618 Fee and commission income 1,176 860 963 852 Other income 5 1 7 Claims and insurance benefits incurred (net) (19,110) (17,107) (10,741) (10,365) Operating change in reserves for insurance and investment contracts (net)2 (71) (199) 964 (6,854) Loan loss provisions Operating acquisition and administrative expenses (net) (7,664) (6,834) (3,373) (3,580) Fee and commission expenses (1,162) (848) (456) (396) Operating amortization of intangible assets (10) (10) Operating restructuring and integration expenses (38) (12) Other expenses (10) (6) 3 Reclassifications (18) Operating profit (loss) 3,022 2,871 2,336 2,495 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (212) (69) (93) 121 Non-operating realized gains/losses (net) 156 271 48 (10) Non-operating impairments of investments (net) (375) (40) (46) (26) Subtotal (431) 162 (91) 85 Non-operating change in reserves for insurance and investment contracts (net) (61) 97 Interest expenses from external debt Non-operating acquisition and administrative expenses (net)3 (11) (5) (18) Non-operating amortization of intangible assets (100) (106) (42) (19) Non-operating restructuring and integration expenses (298) (144) (34) (28) Reclassifications 18 Non-operating items (840) (88) (234) 136 Income (loss) before income taxes 2,181 2,783 2,103 2,631 Income taxes (530) (688) (504) (684) Net income (loss) 1,651 2,095 1,598 1,947 Net income (loss) attributable to: Non-controlling interests 53 59 64 112 Shareholders 1,598 2,036 1,535 1,835 1_Total revenues comprise gross premiums written and fee and commission income in Property-Casualty, statutory premiums in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2_For the six months ended 30 June 2022, includes expenses for premium refunds (net) in Property-Casualty of € 37 mn (2021: € (60) mn). 3_Includes, if applicable, acquisition-related expenses, income taxes related incidental benefits/expenses, litigation expenses and one-time effects from significant reinsurance transactions with disposal character. 36 Interim Report for the First Half-Year of 2022 − Allianz Group Asset Management 2022 2021 4,082 3,835 1 7 (1) 2 (12) (10) (12) (1) 5,171 4,910 (2,480) (2,263) (1,078) (1,074) 1,601 1,572 (3) 3 (3) 85 (1) (6) 88 (1,851) (8) (10) (149) (30) (2,014) 49 (413) 1,621 (97) (405) (510) 1,216 88 73 (598) 1,144 Interim Report for the First Half-Year of 2022 − Allianz Group Corporate and Other 2022 136 382 (8) (67) (73) 233 1,700 (604) (1,562) (233) 32 108 (111) 29 (264) (1) (9) (47) (292) (524) 254 (271) 7 (278) 2021 131 200 10 (61) (52) 97 1,394 (3) (512) (1,254) (278) (28) 268 (40) 200 (336) 32 (10) (26) (141) (419) 204 (214) 5 (219) Consolidation 2022 (486) (87) 1 32 83 326 354 (1,954) (3) (27) (9) 1,644 6 (4) 10 6 6 12 (2) 10 (1) 11 B _ Condensed Consolidated Interim Financial Statements Group 2021 2022 2021 (364) 81,166 75,749 41,128 37,881 (67) 12,397 11,229 2 (10,680) (1,985) (24) 6,857 4,352 64 (467) (149) (2,786) (206) 272 (998) (899) 246 4,322 12,343 (1,516) 7,057 6,500 1 10 3 (29,851) (27,473) 15 865 (7,038) (3) 1 (14,130) (13,188) 1,248 (2,613) (2,325) (10) (10) (38) (12) (7) (6) (18) (6) 6,733 6,655 (2) (280) 24 6 319 621 (533) (106) 4 (494) 538 (61) 97 (264) (336) (1,868) 14 (159) (145) (528) (227) 18 4 (3,374) (41) (2) 3,359 6,614 (1) (880) (1,573) (3) 2,479 5,040 211 249 (3) 2,267 4,791 37 B _ Condensed Consolidated Interim Financial Statements Reconciliation of reportable segments to Allianz Group figures € mn Six months ended 30 June German Speaking Countries and Central & Eastern Europe Western & Southern Europe, Allianz Direct and Allianz Partners Iberia & Latin America Asia Pacific and Greece Global Insurance Lines & Anglo Markets, Middle East and Africa Consolidation Total Property-Casualty German Speaking Countries and Central & Eastern Europe Western & Southern Europe Iberia & Latin America Asia Pacific and Greece USA Global Insurance Lines & Anglo Markets, Middle East and Africa Consolidation and Other Total Life/Health Asset Management Corporate and Other Consolidation Group 38 Total revenues 2022 10,634 10,702 2,914 839 16,142 (3,567) 37,662 16,329 11,335 593 3,614 7,381 670 (149) 39,772 4,082 136 (486) 81,166 2021 9,943 9,291 2,614 788 14,226 (3,251) 33,610 15,717 12,586 710 3,415 5,789 563 (242) 38,536 3,835 131 (364) 75,749 Operating profit (loss) Net income (loss) 2022 2021 2022 2021 1,051 803 552 647 755 869 400 632 86 245 (83) 109 68 68 56 57 1,060 886 726 650 3,022 2,871 1,651 2,095 914 867 615 596 706 639 414 451 85 78 63 53 292 279 228 224 361 629 304 534 4 25 (5) 107 (26) (22) (21) (18) 2,336 2,495 1,598 1,947 1,601 1,572 (510) 1,216 (233) (278) (271) (214) 6 (6) 10 (3) 6,733 6,655 2,479 5,040 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED BALANCE SHEET 6 _ Financial assets carried at fair value through income 7 _ Investments Investments € mn Financial assets carried at fair value through income € mn As of 30 June 2022 As of 31 December 2021 As of 30 June 2022 As of 31 December 2021 Available-for-sale investments Held-to-maturity investments 531,008 2,863 625,250 2,749 Financial assets held for trading Funds held by others under reinsurance contracts assumed 925 838 Debt securities 709 708 Investments in associates and joint ventures 17,303 15,416 Equity securities 50 63 Real estate held for investment 18,185 16,923 Derivative financial instruments 5,790 11,190 Fixed assets from alternative investments 2,417 2,473 Subtotal 6,549 11,961 Total 572,702 663,649 Financial assets designated at fair value through income Debt securities 3,963 4,275 Equity securities 3,116 3,264 Loans 298 103 Subtotal 7,377 7,643 Total 13,926 19,604 Available-for-sale investments € mn As of 30 June 2022 As of 31 December 2021 Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Corporate bonds 262,549 2,151 (30,021) 234,679 260,903 18,761 (1,867) 277,797 Government and government agency bonds1 201,797 5,173 (26,498) 180,473 202,542 27,087 (2,882) 226,748 MBS/ABS 28,620 66 (1,845) 26,841 28,157 804 (149) 28,812 Other 10,535 3,715 (52) 14,198 9,493 2,671 (57) 12,106 Subtotal 503,501 11,104 (58,415) 456,190 501,094 49,323 (4,955) 545,462 Equity securities 57,590 18,215 (987) 74,818 53,609 26,626 (447) 79,788 Total 561,091 29,319 (59,402) 531,008 554,703 75,948 (5,402) 625,250 1_As of 30 June 2022, fair value and amortized costs of bonds from countries with a rating below AA amounted to € 83,975 mn (31 December 2021: € 92,825 mn) and € 75,270 mn (31 December 2021: € 86,440 mn), respectively. Interim Report for the First Half-Year of 2022 − Allianz Group 39 B _ Condensed Consolidated Interim Financial Statements 8 _ Loans and advances to banks and customers Loans and advances to banks and customers € mn As of 30 June 2022 As of 31 December 2021 Short-term investments and certificates of deposit 1,877 2,056 Loans 119,761 116,304 Other 4,195 5,797 Subtotal 125,833 124,157 Loan loss allowance (75) (79) Total 125,758 124,079 9 _ Reinsurance assets Reinsurance assets € mn As of 30 June 2022 As of 31 December 2021 Unearned premiums 3,217 2,216 Reserves for loss and loss adjustment expenses 13,610 13,033 Aggregate policy reserves 44,003 41,276 Other insurance reserves 191 206 Total 61,021 56,731 10 _ Deferred acquisition costs Deferred acquisition costs € mn As of 30 June 2022 As of 31 December 2021 Deferred acquisition costs Property-Casualty 5,699 5,099 Life/Health 26,497 18,224 Subtotal 32,197 23,323 Deferred sales inducements 750 234 Present value of future profits 234 199 Total 33,180 23,756 40 11 _ Other assets Other assets € mn As of 30 June 2022 As of 31 December 2021 Receivables Policyholders 8,274 7,580 Agents 5,735 4,574 Reinsurance 6,251 5,110 Other 7,437 7,114 Less allowances for doubtful accounts (813) (832) Subtotal 26,883 23,546 Tax receivables Income taxes 1,948 2,124 Other taxes 2,066 2,370 Subtotal 4,015 4,494 Accrued dividends, interest and rent 5,513 5,716 Prepaid expenses 1,241 996 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 518 331 Property and equipment Real estate held for own use 2,883 2,847 Software 3,337 3,377 Equipment 1,101 1,179 Right-of-use assets 2,235 2,338 Subtotal 9,557 9,741 Other assets 3,471 3,441 Total 51,198 48,264 12 _ Intangible assets Intangible assets € mn As of 30 June 2022 As of 31 December 2021 Goodwill 16,148 15,945 Distribution agreements1 1,239 1,164 Customer relationships2 916 886 Other3 633 737 Total 18,935 18,732 1_Primarily includes the long-term distribution agreements with Banco Bilbao Vizcaya Argentaria, S.A. and with Santander Aviva Life. 2_Result primarily from business combinations. 3_Primarily includes acquired business portfolios and brand names. Interim Report for the First Half-Year of 2022 − Allianz Group 13 _ Liabilities to banks and customers Liabilities to banks and customers € mn As of 30 June 2022 As of 31 December 2021 Payables on demand and other deposits 1,536 1,474 Repurchase agreements and collateral received from securities lending transactions and derivatives 4,829 4,434 Other 10,721 9,561 Total 17,086 15,468 14 _ Reserves for loss and loss adjustment expenses As of 30 June 2022, the reserves for loss and loss adjustment expenses of the Allianz Group totaled € 89,438 mn (31 December 2021: € 86,974 mn). The following table reconciles the beginning and ending reserves of the Property-Casualty business segment for the half-years ended 30 June 2022 and 2021. Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn 2022 2021 As of 1 January 73,425 68,171 Balance carry forward of discounted loss reserves 4,808 4,603 Subtotal 78,234 72,774 Loss and loss adjustment expenses incurred Current year 22,165 19,517 Prior years (1,447) (992) Subtotal 20,718 18,525 Loss and loss adjustment expenses paid Current year (7,590) (6,415) Prior years (12,084) (10,866) Subtotal (19,674) (17,281) Foreign currency translation adjustments and other changes 986 837 Changes in the consolidated subsidiaries of the Allianz Group 13 20 Subtotal 80,276 74,875 Ending balance of discounted loss reserves (4,836) (4,693) As of 30 June 75,440 70,182 Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 15 _ Reserves for insurance and investment contracts Reserves for insurance and investment contracts € mn As of 30 June 2022 As of 31 December 2021 Aggregate policy reserves 553,717 537,876 Reserves for premium refunds 33,033 93,476 Other insurance reserves 765 709 Total 587,515 632,061 16 _ Other liabilities Other liabilities € mn As of 30 June 2022 As of 31 December 2021 Payables Policyholders 3,750 5,560 Reinsurance 5,334 4,335 Agents 3,162 2,645 Subtotal 12,246 12,540 Payables for social security 400 435 Tax payables Income taxes 1,847 2,519 Other taxes 2,407 2,255 Subtotal 4,253 4,774 Accrued interest and rent 411 365 Unearned income 682 593 Provisions Pensions and similar obligations 7,944 11,185 Employee related 2,903 3,099 Share-based compensation plans 278 361 Restructuring plans 516 274 Other provisions 2,671 6,070 Subtotal 14,313 20,988 Deposits retained for reinsurance ceded 28,628 31,221 Derivative financial instruments used for hedging, that meet the criteria for hedge accounting, and firm commitments 1,649 994 Financial liabilities for puttable financial instruments 2,537 2,615 Lease liabilities 2,715 2,790 Other liabilities 10,607 9,281 Total 78,442 86,596 41 B _ Condensed Consolidated Interim Financial Statements 17 _ Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2022 As of 31 December 2021 Senior bonds1 7,979 9,589 Money market securities 1,123 1,198 Total certificated liabilities 9,102 10,788 Subordinated bonds2 12,243 10,911 Subordinated loans3 45 45 Total subordinated liabilities 12,288 10,956 1_Change due to the redemption of a senior bond with a nominal value of € 1.5 bn in the first half-year of 2022. 2_Change due to the issuance of a subordinated bond with a nominal value of € 1.25 bn in the first half-year of 2022. 3_Relates to hybrid equity issued by subsidiaries. Bonds outstanding as of 30 June 2022 mn ISIN Certificated liabilities Allianz Finance II B.V., Amsterdam DE000A19S4U8 DE000A3KY367 DE000A28RSQ8 DE000A2RWAX4 DE000A3KY342 DE000A19S4V6 DE000A1HG1K6 DE000A2RWAY2 DE000A28RSR6 DE000A180B80 DE000A3KY359 DE000A1HG1L4 Subordinated liabilities Allianz SE, Munich DE000A1RE1Q3 DE000A14J9N8 DE000A2DAHN6 XS1556937891 DE000A2YPFA1 DE000A254TM8 DE000A30VJZ6 DE000A1YCQ29 DE000A13R7Z7 XS1485742438 DE000A289FK7 US018820AA81/ USX10001AA78 DE000A3E5TR0 US018820AB64/ USX10001AB51 42 Year of issue 2017 2021 2020 2019 2021 2017 2013 2019 2020 2016 2021 2013 2012 2015 2017 2017 2019 2020 2022 2013 2014 2016 2020 2020 2021 2021 Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD EUR EUR EUR EUR EUR USD EUR USD EUR USD Notional amount Coupon in % Maturity date 750 0.250 6 June 2023 300 3-months Euribor +100 bps 22 November 2024 500 Non-interest bearing 14 January 2025 750 0.875 15 January 2026 700 Non-interest bearing 22 November 2026 750 0.875 6 December 2027 750 3.000 13 March 2028 750 1.500 15 January 2030 750 0.500 14 January 2031 750 1.375 21 April 2031 500 0.500 22 November 2033 750 4.500 13 March 2043 1,500 5.625 17 October 2042 1,500 2.241 7 July 2045 1,000 3.099 6 July 2047 600 5.100 30 January 2049 1,000 1.301 25 September 2049 1,000 2.121 8 July 2050 1,250 4.252 5 July 2052 1,500 4.750 Perpetual 1,500 3.375 Perpetual 1,500 3.875 Perpetual 1,250 2.625 Perpetual 1,250 3.500 Perpetual 1,250 2.600 Perpetual 1,250 3.200 Perpetual Interim Report for the First Half-Year of 2022 − Allianz Group 18 _ Equity Equity € mn As of 30 June 2022 As of 31 December 2021 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital 27,732 27,732 Undated subordinated bonds 4,892 4,699 Retained earnings1,2 31,740 32,784 Foreign currency translation adjustments (1,280) (3,223) Unrealized gains and losses (net)3 (7,862) 16,789 Subtotal 56,392 79,952 Non-controlling interests 3,892 4,270 Total 60,284 84,222 1_As of 30 June 2022, includes € (858) mn (31 December 2021: € (32) mn) related to treasury shares. 2_In February 2022, a share buy-back with an intended volume of € 1 bn was announced and executed from 8 March 2022. During the first half-year of 2022, Allianz SE purchased 3.8 million own shares for an amount of € 766 mn. 3_As of 30 June 2022, includes € 51 mn (31 December 2021: € 341 mn) related to cash flow hedges. In the second quarter of 2022, a total dividend of € 4,383 mn (2021: € 3,956 mn), or € 10.80 (2021: € 9.60) per qualifying share, was paid to the shareholders. Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 43 B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONSOLIDATED INCOME STATEMENT 19 _ Premiums earned (net) Premiums earned (net) € mn 21 _ Income from financial assets and liabilities carried at fair value through income (net) Six months ended 30 June 2022 Property- Casualty Life/Health Consolidation Group Income from financial assets and liabilities carried at fair value through income (net) € mn Premiums written Gross 36,486 13,509 (53) 49,942 Six months ended 30 June 2022 2021 Ceded (4,076) (517) 53 (4,539) Income from financial assets and liabilities held for trading (net) (14,716) (4,247) Net Change in unearned premiums (net) Premiums earned (net) 32,410 (3,964) 28,446 12,992 (311) 12,682 45,403 (4,275) 41,128 Income from financial assets and liabilities designated at fair value through income (net) Income from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net)1 (1,049) 404 4,400 378 (179) 2,087 2021 Total (10,959) (1,961) Premiums written 1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated Gross 32,750 12,870 (52) 45,569 in a foreign currency that are monetary items and not measured at fair value through income. Ceded (4,039) (368) 52 (4,355) Net 28,712 12,503 41,214 Change in unearned premiums (net) (3,091) (242) (3,333) 22 _ Realized gains/losses (net) Premiums earned (net) 25,620 12,261 37,881 Realized gains/losses (net) € mn Six months ended 30 June 2022 2021 20 _ Interest and similar income REALIZED GAINS Available-for-sale investments Equity securities 6,602 1,715 Interest and similar income € mn Debt securities 3,193 3,390 Subtotal 9,795 5,105 Six months ended 30 June 2022 2021 Other 886 680 Dividends from available-for-sale investments 1,885 1,630 Subtotal 10,681 5,785 Interest from available-for-sale investments 7,414 6,781 Interest from loans to banks and customers 1,798 1,798 REALIZED LOSSES Rent from real estate held for investment 608 543 Available-for-sale investments Other 691 477 Equity securities (572) (132) Total 12,397 11,229 Debt securities (2,853) (566) Subtotal (3,425) (698) Other (80) (114) Subtotal (3,506) (812) Total 7,176 4,973 44 Interim Report for the First Half-Year of 2022 − Allianz Group 23 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2022 PROPERTY-CASUALTY Fees from credit and assistance business 831 Service agreements 346 Subtotal 1,176 LIFE/HEALTH Investment advisory 858 Service agreements 105 Subtotal 963 ASSET MANAGEMENT Management and advisory fees 4,851 Loading and exit fees 169 Performance fees 130 Other 22 Subtotal 5,171 CORPORATE AND OTHER Service agreements 1,362 Investment advisory and banking activities 338 Subtotal 1,700 CONSOLIDATION (1,954) Total 7,057 24 _ Claims and insurance benefits incurred (net) Claims and insurance benefits incurred (net) € mn Six months ended 30 June Property- Casualty Life/Health Consolidation 2022 Gross (20,718) (11,324) 25 Ceded 1,607 583 (25) Net (19,110) (10,741) 2021 Gross (18,525) (10,727) 27 Ceded 1,418 362 (27) Net (17,107) (10,365) Interim Report for the First Half-Year of 2022 − Allianz Group 2021 635 225 860 772 81 852 4,536 175 180 18 4,910 1,069 325 1,394 (1,516) 6,500 Group (32,016) 2,165 (29,851) (29,225) 1,752 (27,473) B _ Condensed Consolidated Interim Financial Statements 25 _ Change in reserves for insurance and investment contracts (net) Change in reserves for insurance and investment contracts (net) € mn Six months ended 30 June Property- Casualty Life/Health Consolidation Group 2022 Gross (75) 489 (27) 386 Ceded 4 414 418 Net (71) 903 (27) 804 2021 Gross (185) (6,834) 15 (7,004) Ceded (14) 77 63 Net (199) (6,757) 15 (6,941) 26 _ Interest expenses Interest expenses € mn Six months ended 30 June 2022 2021 Liabilities to banks and customers (79) (61) Deposits retained for reinsurance ceded (337) (40) Certificated liabilities (64) (81) Subordinated liabilities (202) (257) Other (49) (46) Total (731) (485) 27 _ Impairments of investments (net) Impairments of investments (net) € mn Six months ended 30 June 2022 2021 Impairments Available-for-sale investments Equity securities (1,493) (303) Debt securities (1,736) (17) Subtotal (3,229) (320) Other (143) (12) Non-current assets and assets of disposal groups classified as held for sale Subtotal (3,372) (332) Reversals of impairments 53 19 Total (3,319) (313) 45 B _ Condensed Consolidated Interim Financial Statements 28 _ Investment expenses Investment expenses € mn Six months ended 30 June 2022 Investment management expenses (505) Expenses from real estate held for investment (317) Expenses from fixed assets from alternative investments (176) Total (998) 29 _ Acquisition and administrative expenses (net) Acquisition and administrative expenses (net) € mn Six months ended 30 June 2022 PROPERTY-CASUALTY Acquisition costs1 (5,719) Administrative expenses (1,956) Subtotal (7,675) LIFE/HEALTH Acquisition costs (2,358) Administrative expenses (1,021) Subtotal (3,378) ASSET MANAGEMENT Personnel expenses (1,560) Non-personnel expenses2 (2,771) Subtotal (4,331) CORPORATE AND OTHER Administrative expenses (605) Subtotal (605) CONSOLIDATION (9) Total (15,998) 1_Includes € 515 mn (2021: € 523 mn) ceded acquisition costs. 2_Includes in 2022 € 1,857 mn in connection with Structured Alpha. Please see note 33 for further details. 46 2021 (479) (268) (152) (899) 2021 (5,016) (1,818) (6,834) (2,610) (988) (3,598) (1,408) (854) (2,263) (480) (480) 1 (13,174) 30 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2022 2021 PROPERTY-CASUALTY Fees from credit and assistance business (845) (647) Service agreements (317) (201) Subtotal (1,162) (848) LIFE/HEALTH Investment advisory (361) (340) Service agreements (95) (56) Subtotal (456) (396) ASSET MANAGEMENT Commissions (1,071) (1,066) Other (7) (8) Subtotal (1,078) (1,074) CORPORATE AND OTHER Service agreements (1,337) (1,044) Investment advisory and banking activities (225) (211) Subtotal (1,562) (1,254) CONSOLIDATION 1,644 1,248 Total (2,613) (2,325) 31 _ Income taxes Income taxes € mn Six months ended 30 June 2022 2021 Current income taxes (1,393) (1,600) Deferred income taxes 512 26 Total (880) (1,573) For the six months ended 30 June 2022 and 2021, the income taxes on components of other comprehensive income consist of the following: Income taxes on components of other comprehensive income € mn Six months ended 30 June 2022 2021 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 124 62 Available-for-sale investments 7,996 1,814 Cash flow hedges 117 56 Share of other comprehensive income of associates and joint ventures 13 2 Miscellaneous 92 47 Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (881) (30) Total 7,460 1,951 Interim Report for the First Half-Year of 2022 − Allianz Group OTHER INFORMATION 32 _ Fair values and carrying amounts of financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts FINANCIAL LIABILITIES Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Financial liabilities for puttable financial instruments Certificated liabilities Subordinated liabilities As of 30 June 2022, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 122 mn (31 December 2021: € 110 mn). These investments are primarily investments in privately held corporations and partnerships. The following financial assets and liabilities are carried at fair value on a recurring basis: − − financial assets and liabilities held for trading, financial assets and liabilities designated at fair value through income, − available-for-sale investments, − − financial assets and liabilities for unit-linked contracts, and financial liabilities for puttable financial instruments. Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements As of 30 June 2022 As of 31 December 2021 Carrying amount Fair value Carrying amount Fair value 22,111 22,111 24,214 24,214 6,549 6,549 11,961 11,961 7,377 7,377 7,643 7,643 531,008 531,008 625,250 625,250 2,863 2,734 2,749 2,887 17,303 23,001 15,416 20,149 18,185 30,619 16,923 28,763 125,758 123,078 124,079 138,234 141,255 141,255 158,346 158,346 16,017 16,017 20,891 20,891 17,086 16,992 15,468 15,481 141,255 141,255 158,346 158,346 2,537 2,537 2,615 2,615 9,102 8,762 10,788 11,611 12,288 11,408 10,956 11,547 47 B _ Condensed Consolidated Interim Financial Statements The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2022 and 31 December 2021: Fair value hierarchy (items carried at fair value) € mn As of 30 June 2022 Level 11 Level 22 FINANCIAL ASSETS Financial assets carried at fair value through income Financial assets held for trading 2,515 4,009 Financial assets designated at fair value through income 5,450 838 Subtotal 7,964 4,847 Available-for-sale investments Corporate bonds 9,635 189,808 Government and government agency bonds 15,223 164,564 MBS/ABS 14 25,376 Other 377 1,106 Equity securities 35,490 377 Subtotal 60,739 381,230 Financial assets for unit-linked contracts 107,308 32,198 Total 176,012 418,275 FINANCIAL LIABILITIES Financial liabilities carried at fair value through income 535 4,046 Financial liabilities for unit-linked contracts 107,308 32,198 Financial liabilities for puttable financial instruments 1,972 50 Total 109,815 36,293 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, and the significant level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2021. No material changes have occurred since this report was published. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Transfers into/out of level 3 may occur due to a reassessment of the input parameters. 48 Level 33 26 1,089 1,115 35,235 685 1,451 12,715 38,951 89,038 1,749 91,902 11,436 1,749 515 13,700 Total 6,549 7,377 13,926 234,679 180,473 26,841 14,198 74,818 531,008 141,255 686,189 16,017 141,255 2,537 159,809 As of 31 December 2021 Level 11 Level 22 Level 33 Total 1,579 10,381 1 11,961 6,282 768 593 7,643 7,861 11,149 595 19,604 12,171 230,675 34,951 277,797 15,943 210,121 684 226,748 30 28,001 781 28,812 344 1,194 10,568 12,106 46,153 437 33,197 79,788 74,642 470,429 80,180 625,250 120,768 36,070 1,508 158,346 203,270 517,647 82,283 803,200 313 7,815 12,763 20,891 120,768 36,070 1,508 158,346 2,128 98 389 2,615 123,209 43,983 14,660 181,852 Interim Report for the First Half-Year of 2022 − Allianz Group Reconciliation of level-3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. Reconciliation of level-3 financial assets € mn Carrying value (fair value) as of 1 January 2022 Additions through purchases and issues Net transfers into (out of) level 3 Disposal through sales and settlements Net gains (losses) recognized in consolidated income statement Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2022 Net gains (losses) recognized in consolidated income statement held at the reporting date 1_Primarily includes corporate bonds. Reconciliation of level-3 financial liabilities € mn Carrying value (fair value) as of 1 January 2022 Additions through purchases and issues Net transfers into (out of) level 3 Disposal through sales and settlements Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Impairments Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2022 Net losses (gains) recognized in consolidated income statement held at the reporting date Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 27. Interim Report for the First Half-Year of 2022 − Allianz Group Financial assets carried at fair value through income 595 562 (239) 187 11 (2) 1,115 34 Available-for-sale investments – Debt securities1 46,983 7,802 230 (2,552) 4 (3,962) (200) 1,564 218 50,087 231 Financial liabilities carried at fair value through income 12,763 549 (847) (1,998) 969 11,436 (2,500) B _ Condensed Consolidated Interim Financial Statements Available-for-sale investments – Equity securities Financial assets for unit-linked contracts Total 33,197 1,508 82,283 3,770 307 12,442 (75) 6 160 (1,114) (70) (3,975) 40 (5) 226 3,300 (661) (159) (359) 254 (1) 1,829 (262) 3 (42) 38,951 1,749 91,902 (5) 259 Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total 1,508 389 14,660 307 127 984 6 6 (70) (13) (930) (5) 12 (1,992) (1) 969 3 3 1,749 515 13,700 (5) 12 (2,494) 49 B _ Condensed Consolidated Interim Financial Statements 33 _ Other information Allianz Group companies are involved in legal, regulatory, and arbitration proceedings in Germany and a number of foreign jurisdictions, including the United States. Such proceedings arise in the ordinary course of business, including, amongst others, their activities as insurance, banking and asset management companies, employers, investors and taxpayers. While it is not feasible to predict or determine the ultimate outcome of such proceedings, they may result in substantial damages or other payments or penalties, or result in adverse publicity and damage to the Allianz Group’s reputation. As a result, such proceedings could have an adverse effect on the Allianz Group’s business, financial condition and results of operations. Apart from the proceedings discussed below, Allianz SE is not aware of any regulatory or arbitration proceedings which may have, or have had in the recent past, significant effects on its and/or the Allianz Group’s financial position or profitability. Material proceedings in which Allianz Group companies are involved are in particular the following: threatened or pending legal, In September 2015, a class action complaint was filed against Allianz Life Insurance Company of North America ("Allianz Life") making allegations similar to those made in prior class actions regarding the sale of Allianz Life's annuity products, including allegations of breach of contract and violation of California’s unfair competition law. The action was certified as a class action, the parties reached a settlement agreement in the low two-digit million U.S. dollar range, and the Court granted preliminary approval of the settlement. Allianz Life has made a provision for the estimated cost of settlement. With respect to the multiple complaints which had been filed in U.S. Courts in connection with losses suffered by investors in AllianzGI U.S.’s Structured Alpha funds (“Funds”) during the COVID-19 related market downturn, in the meantime all actions regarding private funds have been dismissed after settlements were reached with the respective investors. Currently there is one putative class action pending in a U.S. Court filed by an investor in a mutual fund. In addition, as announced by ad-hoc disclosure on 17 May 2022, AllianzGI U.S. has entered into settlements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) in connection with the Structured Alpha matter. Pursuant to the DOJ resolution, AllianzGI U.S. pleaded guilty to one count of criminal securities fraud, and pursuant to the SEC resolution, the SEC found that AllianzGI U.S. violated relevant U.S. securities laws. These settlements fully resolve the U.S. governmental investigations of the Structured Alpha matter for Allianz. As announced by ad-hoc disclosures on 17 February 2022 and 11 May 2022, Allianz recognized a provision of € 3.7 bn for the fourth quarter of 2021 and an additional provision of € 1.9 bn for the first quarter of 2022 for the Structured Alpha matter. As of 30 June 2022, the majority of the amounts provisioned have been paid out already for settlements with investors in the Funds and for payments to the U.S. authorities according to the resolutions reached with them. Allianz SE believes that the remaining provision is a fair estimate of its financial exposure in relation to any remaining compensation payments to Structured Alpha investors. Allianz is seeking a timely resolution with remaining fund investors and expects that the disclosure of additional information could have a negative impact on its position in the ongoing discussions with investors and therefore, in accordance with 50 IAS 37.92, management refrains from providing further details on the provision recognized as well as on any contingent liabilities. The following table shows the composition of commitments as of 30 June 2022: Commitments € mn As of 30 June 2022 As of 31 December 2021 Commitments to acquire interests in associates and available- for-sale investments 34,158 30,604 Debt investments 8,656 6,087 Other 5,734 6,560 Total 48,548 43,251 Any material contingent liabilities resulting from litigation matters are captured in the litigation section above. All other contingent liabilities and commitments had no significant changes compared to the consolidated ended statements 31 December 2021. financial for the year Based on data published by the International Monetary Fund in April 2022, Türkiye is considered to be a hyperinflationary economy for financial reporting purposes since the second quarter of 2022. Consequently, operating entities with Turkish lira (TRY) as their functional currency have to apply hyperinflation accounting in accordance with IAS 29 for reporting periods ending on or after 30 June 2022. In addition, IAS 29 is already applied by subsidiaries of the Allianz Group that operate in Argentina and Lebanon. The identities and levels of the price indices applied by the operating entities concerned are as follows: Hyperinflationary economies Index As of 30 June 2022 As of 31 December 2021 Türkiye Consumer Price Index published by the Turkish Statistical Institute (TURKSTAT) 977.90 686.95 Lebanon Consumer Price Index published by the Central Administration of Statistics (Lebanese Republic) 1,286.76 921.40 Argentina Consumer Price Index published by the Argentinian Statistical Institute 794.57 582.46 Overall, for the six months ended 30 June 2022, the application of hyperinflation accounting according to IAS 29 had a negative impact on net income of € (149) mn. Interim Report for the First Half-Year of 2022 − Allianz Group Transactions between Allianz SE and its subsidiaries that are to be deemed related parties have been eliminated in the consolidation and are not disclosed in the notes. Business relations with joint ventures and associates are set on an arm’s length basis. Due to reinsurance agreements with the joint venture Enhanzed Reinsurance Ltd., Allianz SE recognized reinsurance assets and deposits retained for reinsurance ceded amounting to each € 2.1 bn in the first half-year of 2022. 34 _ Subsequent events The Allianz Group was not subject to any subsequent events that significantly impacted the Group’s financial result after the balance sheet date. Interim Report for the First Half-Year of 2022 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 51 B _ Condensed Consolidated Interim Financial Statements 52 This page intentionally left blank. Interim Report for the First Half-Year of 2022 − Allianz Group FURTHER INFORMATION C Interim Report for the First Half-Year of 2022 − Allianz Group 53 C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 3 August 2022 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Sirma Boshnakova Dr. Barbara Karuth-Zelle Dr. Klaus-Peter Röhler Ivan de la Sota Giulio Terzariol Dr. Günther Thallinger Christopher Townsend Renate Wagner Dr. Andreas Wimmer 54 Interim Report for the First Half-Year of 2022 − Allianz Group REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements - comprising the consolidated balance sheet, consolidated income income, statement, consolidated statement of comprehensive consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes – and the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2022 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. Interim Report for the First Half-Year of 2022 − Allianz Group C _ Further Information Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, 4 August 2022 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Wirtschaftsprüfer (German Public Auditor) Clemens Koch Wirtschaftsprüfer (German Public Auditor) 55 Financial calendar Important dates1 Financial Results 3Q Financial Results 2022 Annual Report 2022 Annual General Meeting Financial Results 1Q Financial Results 2Q/Interim Report 6M Financial Results 3Q 10 November 2022 17 February 2023 3 March 2023 4 May 2023 12 May 2023 10 August 2023 10 November 2023 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to immediately announce any information which may have a substantial price impact., irrespective of the communicated schedules. Therefore we cannot exclude having to announce key figures related to quarterly and financial year results ahead of the dates mentioned above. As we can never rule out changes to these dates, we recommend checking them online at Allianz company website. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone + 49 89 3800 0 – www.allianz.com Front page design: Radley Yeldar – Typesetting: Produced in-house with SmartNotes Interim Report online at: www.allianz.com/interim-report – Date of publication: 5 August 2022 This is a translation of the German Interim Report of the Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2022, Insurance, Allianz | write me a financial report |
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| Condensed C To go directly to any chapter, simply click on the headline or the page number. CONTENT A _ Interim Group Management Report 4 Executive Summary 6 Property-Casualty Insurance Operations 8 Life/Health Insurance Operations 10 Asset Management 12 Corporate and Other 13 Outlook 15 Balance Sheet Review 17 Reconciliations Pages 3 – 17 All references to chapters, notes, web pages, etc. within this report are also linked. B _ Condensed Consolidated Interim Financial Statements Pages 18 – 88 19 Consolidated Balance Sheet 20 Consolidated Income Statement 21 Consolidated Statement of Comprehensive Income 22 Consolidated Statement of Changes in Equity 23 Consolidated Statement of Cash Flows Notes to the Condensed Consolidated Interim Financial Statements 24 General Information 45 Insurance Operations 67 Financial Operations 85 Other Information C _ Further Information Pages 89 – 91 90 Responsibility Statement 91 Review Report INTERIM GROUP MANAGEMENT REPORT A 3 Interim Report for the First Half-Year of 2023 − Allianz Group A _ Interim Group Management Report EXECUTIVE SUMMARY Key figures Allianz Group1 Six months ended 30 June 2023 2022 Delta Total business volume1 € mn 85,588 81,663 3,926 Operating profit2 € mn 7,513 6,536 977 Net income2 € mn 4,647 2,675 1,972 thereof: attributable to shareholders € mn 4,369 2,452 1,917 Shareholders' core net income3 € mn 4,690 2,466 2,224 Solvency II capitalization ratio4 % 208 201 7 %-p Core return on equity5 % 16.7 12.7 4.0 %-p Core earnings per share6 € 11.40 5.77 5.63 Core diluted earnings per share7 € 11.38 5.67 5.72 1_Total business volume in the Allianz Group comprises: gross premiums written as well as fee and commission income in Property-Casualty; statutory gross premiums written in Life/Health; and operating revenues in Asset Management. 2_The Allianz Group uses operating profit, net income and shareholder's core net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 3_Presents the portion of shareholders’ net income before non-operating market movements and before amortization of intangible assets from business combinations (including any related income tax effects). 4_2022 figures as of 31 December 2022. 2023 figures as of 30 June 2023. Figures exclude the application of transitional measures for technical provisions. 5_Represents the annualized ratio of shareholders’ core net income to the average shareholders' equity at the beginning and at the end of the period. Shareholders’ core net income is adjusted for net financial charges related to undated subordinated bonds classified as shareholders’ equity. From the average shareholders’ equity undated subordinated bonds classified as shareholders’ equity and net OCI are excluded. 6_Calculated by dividing the respective period’s core net income attributable to shareholders, adjusted for net financial charges related to undated subordinated bonds classified as shareholders' equity, by the weighted average number of shares outstanding (basic core EPS). 7_From basic core EPS, the number of common shares outstanding and the core net income attributable to shareholders are adjusted to include the effects of potentially dilutive common shares that could still be exercised. Potentially dilutive common shares result from share-based compensation plans (diluted core EPS). 1_For further information on Allianz Group figures, please refer to note 5 to the condensed consolidated interim financial statements. The financial results are based on the new IFRS 9 (Financial Instruments) and IFRS 17 (Insurance Contracts) accounting standards, which have been adopted as of 1 January 2023. Comparative periods have been adjusted to reflect the application of these new accounting standards. 4 Earnings summary Economic growth continued to weaken in the first half of 2023, but the decline was somewhat less pronounced than expected at the beginning of the year. The U.S. economy avoided recession thanks to a robust labor market. The lifting of the COVID-19 restrictions gave the Chinese economy a strong boost at the beginning of the year, although this impetus was much weaker in the second quarter. In Europe, the picture is mixed. The weakness in industry hit Germany particularly hard and resulted in a recession in the first half of 2023. Southern Europe, in contrast, was able to benefit from the still strong demand for services. As expected, overall inflation fell significantly, mainly driven by falling energy prices. The decline in the core rate of inflation (excluding energy and food), on the other hand, was much slower; the, in part, strong increase in wages played a decisive role here. The financial markets continued to be strongly influenced by monetary policy. The question of how high key interest rates must rise in order to get inflation under control again led to high volatility in the fixed-income markets. Despite strong fluctuations, however, the yield level hardly changed in the first half of 2023. The stock markets were able to record significant gains over the same time period. Even the temporary concerns about financial market stability, triggered by the collapse of some regional banks in the United States, led to only short- term setbacks. The insurance industry proved resilient, even in this difficult economic environment, which was also characterized by elevated insured losses caused by natural catastrophes. Further price increases in property-casualty insurance contributed significantly to premium growth. Investment income also continued to benefit from higher interest rates. In contrast, demand in the life insurance business declined significantly in some areas, such as single-premium business and unit-linked products. This decline was driven by the cost-of-living crisis affecting many households. Overall, however, the demand for risk protection and retirement provisions remains high. 2_Internal total business volume growth, excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total business volume growth to internal total business volume growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. After a long period of accommodating monetary policies, globalization, political liberalization, and dampened inflation, the macro environment has changed significantly since the beginning of the year. In the first six months of 2023, revenues in the asset management industry were affected by rapidly rising interest rates, while the central banks were trying to balance taming inflation and avoiding recession. Due to increased interest rates, bonds offer appealing yields and continue to present opportunities for active managers to demonstrate added value by drawing on their investment processes. However, passive investments are becoming increasingly popular and continue to gain market share. Despite the market turmoil, alternatives – and especially private investments – remain an attractive asset class, having proved their relative overall stability the current challenging market environment. in Across all asset classes, there is strong demand from investors for ESG (environmental, social and governance) and sustainability- related investment strategies. Our total business volume increased by 6.4 % on an internal basis2, compared to the same period of the previous year. This was mostly driven by our Property-Casualty business segment due to positive price effects (mainly in Germany, Latin America, Türkiye, Allianz Global Corporate & Specialty (AGCS)), and volume effects, largely from Allianz Partners and Türkiye. This internal growth was supported by positive internal growth in the Life/Health business segment, which in the Asset was partly offset by negative Management business segment. internal growth Our operating profit increased significantly in comparison to the first half of 2022. This was due to higher operating profit in the Life/Health business and Property-Casualty segment, partly offset by the Asset Management business segment. The increase was mainly driven by a higher operating investment result from our United States operations in the Life/Health business segment, and a stronger Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report insurance service result in the Property-Casualty business. However, operating profit fell in the Asset Management business segment, due to reduced AuM-driven revenues not fully compensated by cost containment. Our operating investment result increased by € 680 mn to € 2.1 bn, compared to the previous year’s period. This was largely driven by the United States due to an accounting mismatch in the prior year. The volatility impact from hedging has been reduced significantly in 2023 after aligning our hedging strategy with IFRS 17 accounting. Our non-operating result improved by € 1.1 bn to a loss of € 1.6 bn. This was mostly due to the Structured Alpha provision booked in the first quarter of 2022. That increase was partially offset by lower non- operating net investment income in the first half of 2023. Income taxes increased by € 91mn to € 1.3 bn, due to higher profit before tax. The effective tax rate decreased to 21.7 % (31.0 %), due to higher non-tax-deductible expenses in the prior year. The increase in net income was largely driven by the Structured Alpha provision booked in the first quarter of 2022, as well as the higher operating profit. Shareholders’ core net income was strong at € 4.7 bn. Our shareholders’ equity1 decreased by € 98 mn to € 54.3 bn, compared to 31 December 2022. This decrease was mainly driven by the dividend payout and share-buy-back program, mainly offset by positive net income and positive net OCI. Over the same period, our Solvency II capitalization ratio increased to 208 %2. For a more detailed description of the results generated by each individual business segment (Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other), please consult the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2022, we described our risk and opportunity profile and addressed potential risks that could adversely affect both our business and our risk profile. The statements contained in that report remain largely unchanged. Overall, we continue to closely monitor the evolution of the war in Ukraine, related geopolitical conflicts, their impacts on the global economy, on financial markets 1_For further information on shareholders‘ equity, please refer to the Balance Sheet Review. 2_Including the application of transitional measures for technical provisions, the Solvency II capitalization ratio amounted to 235 % as of 30 June 2023. For further information, please refer to the Balance Sheet Review. 5 and on the Allianz Group, so that we can react in a timely and appropriate manner, should the need arise. The risks are managed via our continuous own risk and solvency management processes. For further information, please refer to the chapter Outlook. Events after the balance sheet date For information on any events occurring after the balance sheet date, please refer to note 8.13 to the condensed consolidated interim financial statements. Other information Effective 1 January 2023, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The insurance activities in Iberia & Latin America have been included in the reportable segment Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa. Greece was moved into the reportable segment Western & Southern Europe, Allianz Direct and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. The Allianz Group’s strategy is described in the Risk and Opportunity Report that forms part of our Annual Report 2022. There have been no material changes to our Group strategy. For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Operations chapter in our Annual Report 2022. The Allianz Group operates and manages its activities through the four business insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other. For further information, please refer to note 5 to the condensed consolidated interim financial statements, or to the Business Operations chapter in our Annual Report 2022. segments: Property-Casualty Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report PROPERTY-CASUALTY INSURANCE OPERATIONS Key figures Property-Casualty1, Most of our operations contributed positively to internal growth, there were no significant negative contributions. The following entities contributed positively to internal growth: Six months ended 30 June Total business volume1 Operating profit Net income thereof: attributable to shareholders Shareholders‘ core net income € mn € mn € mn € mn € mn 2023 41,729 3,855 2,503 2,432 2,556 2022 38,010 3,316 1,775 1,721 1,852 Delta 3,719 539 728 711 704 Allianz Partners: Total business volume increased to € 5,182 mn, an internal growth of 20.0 %. Much of this was due to favorable volume effects in our health business as well as in our travel insurance business. Türkiye: Total business volume amounted to € 718 mn – up 151.1 % on an internal basis. Strong volume and price increases, predominantly in motor and health, were key drivers for this development. Loss ratio2 % 67.2 68.1 (0.9) %-p Expense ratio3 % 24.8 25.0 (0.2) %-p AGCS: Total business volume increased to € 6,594 mn, an Combined ratio4 % 92.0 93.2 (1.1) %-p internal growth of 8.3 %, driven by positive price and volume effects. 1_Total business volume in Property-Casualty comprises gross written premiums and fee and commission income. 2_Represents claims and benefits and the reinsurance result, divided by insurance revenue. 3_Represents operating acquisition and administrative expenses including non-attributable Germany: Total business volume went up 5.7 % on an internal basis, totaling € 7,501 mn. This was mainly caused by price increases, predominantly from motor and property. acquisition and administrative expenses, divided by insurance revenue. 4_Represents the total of claims and benefits, operating acquisition and administrative expenses including non-attributable acquisition and administrative expenses, and the reinsurance result, divided by insurance revenue. Operating profit Operating profit € mn Total business volume Six months ended 30 June 2023 2022 Delta Operating insurance service result 2,656 2,095 561 On a nominal basis, we recorded a rise of 9.8 % in total business volume compared to the first six months of the previous year. Operating investment result Operating fee and other result 1,240 (41) 1,192 29 48 (71) This included unfavorable foreign currency translation effects of € 1,054 mn2 and positive (de)consolidation effects of € 274 mn. On an internal basis3, our total business volume increased by 11.8 %. This was driven by a positive price effect of 6.4 %, a positive volume effect of 5.4 %, and a positive service effect of 0.1 %. Operating profit 3,855 3,316 Our operating profit increase was driven by a strong insurance service result and a slightly better operating investment result, partly offset by a decrease in our operating fee and other result. 539 The rise in our operating insurance service result was a result of our strong insurance revenue growth as well as an improvement in our accident year loss ratio and expense ratio. This development was 1_For further information on Property-Casualty figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Based on average exchange rates in 2023 compared to 2022 and based on spat rates in countries with hyperinflation (Türkiye, Argentina, Lebanon). 3_Internal total business volume growth, excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total business volume growth to internal total business volume growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. 6 partly offset by a lower contribution from run-off result. Overall, our combined ratio decreased by 1.1 percentage points to 92.0 %. Operating insurance service result € mn Six months ended 30 June 2023 2022 Delta Insurance revenue 33,338 30,749 2,589 Claims and benefits including reinsurance result (22,409) (20,953) (1,456) Acquisition and administrative expenses (8,276) (7,693) (583) Other insurance service result 3 (9) 12 Operating insurance service result 2,656 2,095 561 Our accident year loss ratio4 stood at 69.4 % – a decrease of 3.4 percentage points compared to the first six months of the previous year, which was mainly due to lower claims from natural catastrophes. The impact of claims from natural catastrophes on our combined ratio decreased by 3.0 percentage points to 0.8 %. Leaving aside losses from natural catastrophes, our accident year loss ratio improved by 0.4 percentage points to 68.5 %. This was mainly due to a positive discounting impact of 3.1 %, an improvement of 1.9 percentage points compared to the first six months of the previous year due to the high interest rate environment. This positive effect was, however, partially offset by higher inflation. Most of our operations contributed positively to the development of our accident year loss ratio, with no significant negative contributions. The main positive contributors were: Reinsurance: 0.8 percentage points. This was driven by a high level of claims from natural catastrophes in the first six months of 2022. France: 0.6 percentage points. This was mostly due to higher claims from natural catastrophes, especially in May and June 2022. Germany: 0.3 percentage points. The biggest driver was a high level of claims from natural catastrophes in the first six months of 2022, 4_Represents the loss ratio excluding the net result of the previous year claims (run-off). Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report which was partially offset by a higher level of large losses in the first six months of 2023. Allianz Trade: 0.2 percentage points. This was driven by a higher level of large losses in the first six months of 2022. Our run-off ratio1 reduced to 2.1 % – compared to 4.7 % in the first six months of 2022. Most of our operations contributed positively to our run-off result. Acquisition and administrative expenses amounted to € 8,276 mn in the first six months of 2023, compared to € 7,693 mn in the same period of 2022. Our expense ratio improved by 0.2 percentage points to 24.8 %. Operating investment result € mn Six months ended 30 June 2023 2022 Interest and similar income (net of interest expenses) 2,013 1,714 Interest accretion (401) (227) Valuation results & other (372) (295) thereof: Investment expenses (232) (224) Operating investment result1 1,240 1,192 1_For further information please refer to note 6.4 to the condensed consolidated interim financial statements. 'Valuation results & other' comprises realized gains/ losses (net), investment expenses, foreign exchange gains/ losses (net) on (re-)insurance contracts issued and held, and other items. Our operating investment result increased slightly, mainly driven by higher interest and similar income (net of interest expenses), partially offset by a higher impact from interest accretion. 1_Represents the net result of the previous year claims (run-off) as a percentage of insurance revenue. 7 Delta 299 (174) (77) (8) 48 Operating fee and other result € mn Six months ended 30 June 2023 2022 Fee and commission income 1,217 1,216 Other income 3 5 Fee and commission expenses (1,241) (1,182) Other expenses (20) (10) Operating fee and other result (41) 29 Our operating fee and other result declined, driven by an unfavorable fee and commission result, especially at Allianz Partners. Net income Our net income increased by € 728 mn, as both our operating and our non-operating results improved. The € 416 mn rise in our non- operating result was largely due to the higher non-operating investment result, which increased by € 272 mn. The non-operating other result also contributed to the increase, mainly due to lower restructuring expenses. Shareholders’ core net income Compared to the previous year period our shareholders’ core net income rose by € 704 mn to € 2,556 mn, a development in line with our net income. Delta 1 (2) (59) (10) (71) Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report LIFE/HEALTH INSURANCE OPERATIONS higher sales in the fixed index annuities business as a result of sales promotions. Key figures Life/Health1, Six months ended 30 June 2023 2022 Delta In Italy, total business volume declined to € 5,373 mn, a 16.6 % decrease on an internal basis, mainly due to lower unit-linked business without guarantees. Total business volume1 Operating profit Net income € mn € mn € mn 40,410 2,521 1,738 39,909 1,787 1,318 501 734 420 In France, total business volume fell slightly to € 3,586 mn, a 0.5 % decrease on an internal basis. thereof: attributable to shareholders Shareholders' core net income Core return on equity2 € mn € mn % 1,640 1,638 14.7 1,247 1,317 13.7 393 322 1.1 %-p In the Asia-Pacific region, total business volume decreased across the region, except for Thailand, to € 3,020 mn, a 12.5 % decrease, on an internal basis. Value of new business (VNB)3 € mn 2,107 2,066 41 Contractual service margin (CSM)4 € mn 52,854 52,227 1_Total business volume in Life/Health comprises statutory gross premiums written. 2_Represents the annualized ratio of core net income to the average total equity excluding net OCI at the beginning and at the end of the period. 3_VNB is the additional value to shareholders that results from the writing of new business. The VNB is determined as the present value of pre-tax future profits, adjusted for acquisition expenses overrun or underrun and non-attributable costs, minus a risk adjustment, all determined at issue date. Value of new business is calculated at point of sale, interpreted as at the beginning of each quarter assumptions. 4_2022 figures as of 31 December 2022. 2023 figures as of 30 June 2023. 628 Present value of new business premiums (PVNBP)3 Our PVNBP decreased. This is predominantly driven by a decrease in unit-linked products in Italy and by a decrease in capital-efficient products in Germany Life, slightly offset by an increase in US Life and protection business in Allianz Reinsurance. Unit-linked and capital- efficient products are affected by reclassifications in Germany Life and Mexico. Total business volume Present value of new business premiums (PVNBP) by lines of business € mn On a nominal basis, total business volume increased by 1.3 % in the first half-year 2023. This includes both unfavorable foreign currency translation effects of € 319 mn and negative (de-)consolidation effects of € 64 mn. On an internal basis2, total business volume increased by 2.2 % – or € 883 mn – to € 40,652 mn. Six months ended 30 June Capital-efficient products1 Unit-linked without guarantee1 Protection & health Guaranteed savings & annuities 2023 15,178 8,975 9,345 2,686 2022 16,687 8,957 8,471 3,485 In the German life business, total business volume increased to € 12,170 mn, a 1.1 % increase on an internal basis, mainly driven by higher single premium sales in investment products. In the German health business, total business volume reached € 2,057 mn, a 3.4 % increase on an internal basis, mainly driven by premium adjustments. increased to € 9,426 mn, a 24.9 % increase on an internal basis. This was due to In the United States, total business volume Total 36,185 37,600 1_Selected business in Germany Life and Mexico, with PVNBP of € 1.8 bn and VNB of € 163 mn, was reclassified from capital-efficient to unit-linked in 2023. 1_For further information on Allianz Life/Health figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Internal total business volume growth, excludes the effects of foreign currency translation as well as acquisitions and disposals. For a reconciliation of nominal total business volume growth to internal total 8 Delta (1,510) 19 874 (799) (1,416) Value of new business (VNB) Our VNB increased. This is driven by higher volume in protection & health and improved margin in guaranteed savings & annuities, partially offset by lower volume in Germany Life. The increase of VNB in unit-linked is driven by reclassification of selected products in Germany Life and Mexico from capital-efficient to unit-linked products, partially offset by decrease in unit-linked volume in Italy. Value of new business by lines of business € mn Six months ended 30 June 2023 2022 Capital-efficient products1 892 1,042 Unit-linked without guarantee1 386 278 Protection & health 677 631 Guaranteed savings & annuities 152 115 Total 2,107 2,066 1_Selected business in Germany Life and Mexico, with PVNBP of € 1.8 bn and VNB of € 163 mn, was reclassified from capital-efficient to unit-linked in 2023. business volume growth for each of our business segments and the Allianz Group as a whole, please refer to the chapter Reconciliations. 3_PVNBP before non-controlling interests. Interim Report for the First Half-Year of 2023 – Allianz Group Delta (149) 107 45 38 41 A _ Interim Group Management Report Operating profit Operating profit by profit sources € mn Six months ended 30 June 2023 2022 CSM release1 2,460 2,355 Release of risk adjustment1 257 275 Variances from claims & expenses2 (158) (153) Losses and reversals of losses on onerous contracts3 5 (61) Non-attributable expenses4 (524) (474) Operating investment result5 351 (336) Other operating result6 129 181 Operating profit 2,521 1,787 1_Please refer to note 6.1 to the condensed consolidated interim financial statements. 2_Including reinsurance result. 3_Excluding amortization of loss component. For further information please refer to note 6.6 to the condensed consolidated interim financial statements. The figure there includes amortization of loss component. 4_For further information, please refer to note 8.3 to the condensed consolidated interim financial statements. Non-attributable expenses are the sum of non-attributable acquisition costs, non- attributable administrative expenses and non-attributable settlement costs. The above view includes insurance entities only. 5_For further information, please refer to note 5 to the condensed consolidated interim financial statements. 6_For further information, please refer to note 5 to the condensed consolidated interim financial statements. Other operating result represents the sum of Operating result from investment contracts, Operating fee and commission result and Operating other result. Operating profit was strong at € 2.5 bn, up 41.1 %, mainly due to a higher operating investment result. The main drivers of the increase in operating profit are described below: Contractual Service Margin (CSM) release is the main source of profit. The increase is driven by France with low level prior year and Italy mainly due to increased CSM. Release of risk adjustment decreased, mainly driven by the United States and Germany in line with a lower risk adjustment as a result of increasing discount rates. Variance from claims and expenses decreased slightly, with various less material offsetting impacts. Losses and reversals of losses on onerous contracts increased slightly, driven by prior year negative impacts with unprofitable unit- linked and protection business in France, credit losses in Russia 1_The purpose of Life/Health operating profit presentation is to explain movements in IFRS results by focusing on underlying drivers of performance, consolidated for the Life/Health business segment. 9 Delta 105 (18) (5) 67 (50) 688 (52) 734 following the war in Ukraine, and reversal of prior-year loss component in Taiwan. Non-attributable expenses increased. This is driven by Germany Life, mainly due to higher marketing costs, and France as a result of the lower prior year level. Operating investment result increased, mainly from our business in the United States due to negative hedge impacts on variable annuities in 2022, which turned positive. The volatility of impact from hedging has been reduced significantly in 2023 after aligning our hedging strategy with IFRS 17 accounting. In addition, we recorded a positive contribution from Central and Eastern Europe due to a better economic environment. Other operating result decreased. This is driven by a lower fee result in Poland, mainly as a result of fee commission correction, partly offset by a higher fee result from investment contracts in Mexico due to the first time application of IFRS 9 for investment contracts. Contractual service margin (CSM) development The CSM increased by 1.2 %, compared to 31 December 2022, from € 52.2 bn to € 52.9 bn. The drivers of the € 628 mn increase were as follows: New business contribution strong at € 2,450 mn, mostly driven by the United States with € 673 mn, Germany Life € 479 mn, France € 317 mn, Asia-Pacific € 299 mn, and Italy € 237 mn. Expected in-force return of € 1,411 mn is in line with expectations, mainly driven by positive unwinding of € 1,069 mn, and positive over- returns of € 342 mn. Economic variances of € 211 mn were driven by favorable market movements especially in the first quarter of 2023. CSM increased by € 536 mn, mainly from lower interest rates and higher equity, slightly offset by negative development of real estate markets. The main contributors were Germany Life, and France. This was partly offset by negative foreign currency translation effects of € 324 mn, largely from the United States and Asia-Pacific. Non-economic variances reduced CSM by € 984 mn, mainly driven by the classification transfer of investment business to IFRS 9 in Mexico of (€ 667 mn). Remaining non-economic variances include in risk adjustment running through CSM with part of change (€ 120 mn), assumption updates especially on expenses and other experience variances, partly offset by positive impacts from model changes. CSM release of € 2,460 mn is largely stable. Net income Our net income increased by € 420 mn, driven by the increase in the operating profit, which was partly offset by a lower non-operating result. The latter was largely driven by tax reclassification in Germany and France, offset by lower income taxes. In addition, we recorded a negative contribution from non-operating in Lebanon, mainly due to the recognition of an onerous contract provision for the expected disposal loss from the sale of our Lebanese business operations. investment result Shareholders‘ core net income Shareholders’ core net income increased by € 322 mn to € 1,638 mn, which is in line with the development of the net income. Core return on equity Our core return on equity increased by 1.1 percentage points to 14.7 %, mainly as a result of the increase in shareholders’ core net income. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report ASSET MANAGEMENT Key figures Asset Management1 Six months ended 30 June 2023 2022 Operating revenues € mn 3,778 4,084 Operating profit € mn 1,426 1,605 Cost-income ratio1 % 62.3 60.7 Net income (loss) € mn 1,054 (509) thereof: attributable to shareholders € mn 966 (597) Shareholders' core net income (loss) € mn 961 (592) Total assets under management as of 30 June2 € bn 2,163 2,141 thereof: Third-party assets under management as of 30 June2 € bn 1,662 1,635 1_Represents operating expenses divided by operating revenues. 2_2022 figure as of 31 December 2022. Assets under management2 Composition of total assets under management € bn Type of asset class As of 30 June 2023 As of 31 December 2022 Fixed income 1,589 1,580 Equities 160 148 Multi-assets1 182 179 Alternatives 231 235 Total 2,163 2,141 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash, and real property) used as an investment. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments over several asset classes. 1_For further information on our Asset Management figures, please refer to note 5 to the condensed consolidated interim financial statements. 2_Assets under management include portfolios sub-managed by third-party investment firms. 10 Delta (306) (179) 1.6 %-p 1,562 1,563 1,553 21 27 Delta 9 12 4 (3) 21 In the first half-year of 2023, net inflows3 of total assets under management (AuM) amounted to € 5.6 bn, driven by third-party AuM net inflows of € 17.5 bn. PIMCO contributed to this inflow development (€ 7.1 bn total / € 17.6 bn third-party), while AllianzGI recorded net outflows of € 1.5 bn in total AuM and nearly no movement in third- party AuM. Positive effects from market and dividends4 totaled € 53.3 bn. Thereby, positive effects of € 33.6 bn came from PIMCO and were mainly related to fixed-income assets, while € 19.7 bn positive effects stemmed from AllianzGI and were attributable to all asset classes, but mainly to equities. Negative effects from consolidation, deconsolidation, and other adjustments amounted to € 1.4 bn and mainly resulted from adjustments related to the Voya partnership. Unfavorable foreign currency translation effects amounted to € 36.1 bn and were mainly related to PIMCO’s AuM. 3_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from and termination of client accounts, and distributions to investors. Third-party assets under management As of 30 June 2023 As of 31 December 2022 Delta Third-party assets under management € bn 1,662 1,635 1.7% Business units' share PIMCO % 78.7 79.2 (0.5) %-p AllianzGI % 21.3 20.8 0.5 %-p Asset classes split Fixed income % 75.9 76.3 (0.4) %-p Equities % 8.9 8.4 0.5 %-p Multi-assets % 10.3 10.3 Alternatives % 4.9 5.0 (0.1) %-p Investment vehicle split Mutual funds % 58.4 58.2 0.2 %-p Separate accounts % 41.6 41.8 (0.2) %-p Regional allocation1 America % 50.2 50.5 (0.3) %-p Europe % 34.3 33.5 0.8 %-p Asia Pacific % 15.5 16.0 (0.5) %-p Overall three-year rolling investment outperformance2 % 82 79 3 %-p 1_As a consequence of the transfer of U.S. portfolio management activities to an external asset manager, the regional presentation of assets under management now shows the region where the respective assets are distributed. 2_Three-year rolling investment outperformance reflects the mandate-based and volume- weighted three-year investment success of all third-party assets. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). 4_Market and dividends represents current income earned on the securities held in client accounts as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report Operating revenues Our operating revenues decreased by 7.5 % on a nominal basis. This development was driven by lower AuM driven revenues at both PIMCO and AllianzGI due to lower AuM levels. On an internal basis1, operating revenues decreased by 5.1 %. Net fee and commission income declined, driven by a lower recorded higher third-party AuM average performance fees – mainly at PIMCO. level, while we Operating profit Our operating profit decreased by 11.1 % on a nominal basis, as the decline in operating revenues far exceeded a decrease in operating expenses. On an internal basis1, our operating profit went down by 11.5 %. The nominal decrease in administrative expenses was driven by both PIMCO and AllianzGI. Our cost-income ratio went up as a consequence of lower operating revenues and a smaller decrease in operating expenses, compared to the previous year. Asset Management business segment information € mn Six months ended 30 June 2023 2022 Net fee and commission income excl. performance fees 3,531 3,963 Performance fees 202 130 Other operating revenues 46 (10) Operating revenues 3,778 4,084 Administrative expenses (net), excluding acquisition-related expenses (2,352) (2,479) Operating expenses (2,352) (2,479) Operating profit 1,426 1,605 1_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. 11 Delta (433) 71 56 (306) 127 127 (179) Net income The increase of € 1.6 bn in our net income was driven by a provision for litigation expenses for Structured Alpha2 booked in the prior year period. Shareholders’ core net income Our shareholders’ core net income increased by € 1.6 bn compared to the previous year, a development in line with the net income. 2_For further information on Structured Alpha, please refer to note 8.10 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report CORPORATE AND OTHER Key figures Corporate and Other1 € mn Six months ended 30 June 2023 2022 Delta Operating investment result 201 201 Operating administrative expenses1 (604) (605) 2 Operating fee and commission result 116 138 (23) Operating result (287) (265) (22) Net income (loss) (647) 23 (670) thereof: attributable to shareholders (668) 12 (680) Shareholders‘ core net income (loss) (466) (179) (287) 1_The position operating administrative expenses is part of the operating other result. For further information, please refer to note 5 to the condensed consolidated interim financial statements. Earnings summary Our operating result worsened, compared to the first six months of the previous year. This was due to our lower operating fee and commission result. Our net income turned into a loss, mainly driven by the decrease in our non-operating investment result, which was burdened by lower income from derivatives as well as lower non-operating realized gains and losses (net). Our shareholders’ core net loss increased by € 287 mn to € 466 mn compared to the prior year period‚ mainly driven by a decline of our operating result and lower non-operating realized gains and losses (net). 1_For further information on Corporate and Other figures, please refer to note 5 to the condensed consolidated interim financial statements. 12 Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report OUTLOOK Economic outlook1 The somewhat more stable development in the first half of the year has slightly improved the growth outlook for the year 2023 as a whole – even if the risks of recession have still not been averted. However, we now expect growth of 0.5 % in the eurozone and 1.5 % in the U.S. Among the major industrialized countries, we expect a decline of just 0.1 % for Germany for the year as a whole. Due to the lifting of the COVID-19 restrictions, China is expected to achieve a 5.8 % increase in economic activity. The picture for headline inflation is now also more stable due to the sharp drop in energy prices: on average for the year, we expect inflation to fall below 6 % in the eurozone and below 5 % in the United States. However, this does not mean that the central banks are slackening their fight against inflation. Not only is the high core inflation rate still a concern, but the higher resilience of the real economy also gives the central banks more leeway to raise interest rates. At the end of the year, key rates are therefore likely to be slightly higher than at present. We expect 4.0 % in the eurozone and 5.75 % in the United States. This could still put pressure on the equity markets. In fixed-income markets, on the other hand, we expect the yield level to remain unchanged – albeit with continued high volatility. Nevertheless, there are some potentially significant risks to this outlook. Even if the real economy – especially the labor market – has coped relatively well with the sharp interest rate hikes so far, this is no guarantee for the future: there are often long time lags before monetary policy takes effect. The turbulence at U.S. regional banks and the weak real-estate markets are examples of the stress caused by the interest rate turnaround, which could still endanger financial market stability. In addition, it is important to monitor political risks, especially social unrest as a result of the significant rise in the cost of living. This applies even more to a possible escalation and expansion of the war in Ukraine. 1_The information presented in the sections “Economic Outlook”, “Insurance Industry Outlook”, and “Asset Management Industry Outlook” is based on our own estimates. 13 Insurance industry outlook The situation in the insurance industry has hardly changed since the beginning of the year. High inflation and the resultant premium increases continue to be the dominant theme. This pressure is only likely to ease gradually over the next few years. The demand impulses from the real economy are likely to remain weak overall in 2023. On level offers better the other hand, the current opportunities for higher investment returns in new investments, as expected. interest rate In the property-casualty insurance sector, premium growth will be driven primarily by rising prices. Investment income is expected to increase. At the same time, the promising development of generative artificial intelligence (AI) is giving new momentum to the digitalization of processes along the value chain. In the life insurance sector, the reluctance of households to invest in savings products is hampering the development of premium income. Targeted offers to secure retirement income are becoming increasingly important. In the commercial business, this includes the outsourcing of pension obligations, referred to as pension buy-outs. Asset management industry outlook In 2023, the asset management industry continues to face multiple challenges, ranging from inflation and interest rate movements to higher market volatility and geopolitical tensions. Outperforming benchmarks will remain a top priority for active managers. In fixed income, after a year of resolute rate hikes, yield levels in public markets appear much more attractive. Equity markets have largely rebounded, especially after some initial heightened volatility. Demand for alternatives – and especially private investments – remains high, supported by investors looking for diversification, as well as higher returns or protection against inflation. Infrastructure – including renewable energy – is expected to be further supported by governments who are driving significant climate policy initiatives. In this context, ESG-oriented investments and sustainability have become an increasingly important topic for the asset management industry. The expected further increase of heterogenous ESG regulation will create further challenges. Technology continues to be a priority for the industry across the value chain. If firms are to remain competitive, they must leverage advanced data and analytics in order to support investment decisions and client interactions as well as an efficient operation setup. Margin pressure is expected to persist, further driven by passive products and fierce competition. Despite this multifaceted situation, the industry meets all the prerequisites to remain attractive and return to a growth path. Firms that effectively leverage technology such as generative AI, build meaningful inroads to new and existing customers, and deliver exceptional client experiences will be well-positioned to thrive. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report Outlook for the Allianz Group At the end of the first half-year of 2023 the Allianz Group operating profit amounted to € 7.5 bn. We are on track to meet the 2023 Allianz Group operating profit outlook of € 14.2 bn, plus or minus € 1 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements may severely affect the operating profit and/or net income of our operations and the results of the Allianz Group. Cautionary note regarding forward- looking statements This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in Allianz’s core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies, and the financial services industry generally, (iv) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (v) mortality and morbidity levels and trends, (vi) persistency levels, (vii) the extent of credit defaults, (viii) interest rate levels, (ix) currency exchange rates, most notably the EUR/USD exchange rate, (x) changes in laws and regulations, including tax regulations, (xi) the impact of acquisitions, including and related to integration issues and reorganization measures, and (xii) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. 14 No duty to update Allianz assumes no obligation to update any information or forward- looking statement contained herein, save for any information we are required to disclose by law. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report BALANCE SHEET REVIEW Shareholders’ equity1 Shareholders’ equity € mn As of 30 June 2023 As of 31 December 2022 Delta Paid-in capital 28,902 28,902 Undated subordinated bonds 4,792 4,843 (51) Retained earnings 27,928 29,354 (1,426) Foreign currency translation adjustments (3,211) (3,048) (163) Unrealized gains and losses from insurance contracts (net) 48,660 54,854 (6,194) Other unrealized gains and losses (net) (52,754) (60,490) 7,736 Total 54,318 54,415 (98) Compared to 31 December 2022, shareholders’ equity changed only slightly. Nevertheless, single components changed. The dividend payout in May 2023 (€ 4.5 bn) was nearly offset by the net income attributable to shareholders of € 4.4 bn for the six months ended 30 June 2023. The retained earnings were mainly decreased by the share buy-back program with an amount of € 1.1 bn. The increase in other unrealized gains and losses (net) of € 7.7 bn was partly offset by the decrease of unrealized gains and loss from insurance contracts (net) with an amount of € 6.2 bn. 1_This does not include non-controlling interests of € 4,506 mn and € 4,320 mn as of 30 June 2023 and 31 December 2022, respectively. For further information, please refer to note 8.9 to the condensed consolidated interim financial statements. 15 Regulatory capital adequacy The Allianz Group’s own funds and capital requirements are based on the market value balance sheet2 and our approved Solvency II internal model. Our regulatory capitalization is shown in the following table. Solvency II regulatory capital adequacy As of 30 June 2023 As of 31 December 2022 Eligible own funds € bn 80.7 77.9 Capital requirement € bn 38.7 38.8 Capitalization ratio % 208 201 Our Solvency II capitalization ratio increased by 7 percentage points from 201 % to 208 % 3 over the first six months of 2023. The rise was predominantly driven by a strong Solvency II capital generation (net of tax and dividends), as well as by positive impacts from capital market developments and the net impact of the issuance of a subordinated bond. It was partially compensated by negative effects, e.g., from the € 1.5 bn share buy-back announced in May. 2_Own funds are calculated under consideration of volatility adjustment and yield curve extension, as described on page 113 in the Allianz Group Annual Report 2022. Delta 2.8 (0.1) 7 %-p Total assets and total liabilities As of 30 June 2023, total assets amounted to € 957.7 bn and total liabilities were € 898.9 bn. Compared to year-end 2022, total assets and total liabilities increased by € 21.8 bn and € 21.7 bn, respectively. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses. 3_Eligible own funds excluding the application of transitional measures for technical provisions. Including the application of transitional measures for technical provisions, the Solvency II ratio amounted to 235 % as of 30 June 2023. Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report Asset allocation and fixed income portfolio overview Type of investment Debt instruments, thereof: Government bonds Covered bonds Corporate bonds Other Equities Funds Real estate Other Total Compared to year-end 2022, our overall asset portfolio increased by € 10.8 bn, mainly in our equities and cash included in Other. Our well-diversified exposure to debt instruments is almost stable compared to year-end 2022. About 94 % of the debt portfolio was invested in investment-grade bonds and loans.1 Our government bonds portfolio contained bonds from France, Germany, Italy and United States, representing 13.7 %, 13.3 %, 9.9 % and 8.9 % of our portfolio shares. Our corporate bonds portfolio contained bonds from the United States, eurozone, and Europe excl. eurozone. They represented 41.9 %, 31.0 % and 12.3 % of our portfolio shares. Our exposure to equities increased mainly due to market movements. 1_Excluding self-originated German private retail mortgage loans. For 1 %, no ratings were available. 16 As of 30 June 2023 € bn 537.5 182.0 43.7 191.2 120.7 50.4 70.5 26.5 29.2 714.2 As of 31 December 2022 € bn 534.8 182.2 45.3 190.2 117.1 49.1 66.6 27.6 25.2 703.3 Delta € bn 2.7 (0.2) (1.6) 0.9 3.6 1.3 3.9 (1.1) 4.0 10.8 As of 30 June 2023 As of 31 December 2022 Delta % % %-p 75.3% 76.0% (0.8) 33.9% 34.1% (0.2) 8.1% 8.5% (0.3) 35.6% 35.6% 22.5% 21.9% 0.6 7.1% 7.0% 0.1 9.9% 9.5% 0.4 3.7% 3.9% (0.2) 4.1% 3.6% 0.5 100.0% 100.0% Interim Report for the First Half-Year of 2023 – Allianz Group A _ Interim Group Management Report RECONCILIATIONS The analysis in the previous chapters is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRS), the Allianz Group uses operating profit, shareholders’ core net income, and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 5 to the condensed consolidated interim financial statements. Total business volume Total business volume comprises gross premiums written as well as fee in Property-Casualty, statutory gross and commission in Asset premiums Management. income in Life/Health, and operating revenues 17 Composition of total business volume € mn Six months ended 30 June PROPERTY-CASUALTY Total business volume consisting of: Gross premiums written Fee and commission income LIFE/HEALTH Statutory gross premiums ASSET MANAGEMENT Operating revenues consisting of: Net fee and commission income Net investment result Other income and expenses CONSOLIDATION Allianz Group total business volume 2023 41,729 40,512 1,217 40,410 3,778 3,732 30 16 (329) 85,588 2022 38,010 36,794 1,216 39,909 4,084 4,094 (10) (341) 81,663 Internal growth We believe that an understanding of our total business volume performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total business volume growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total business volume growth to internal total business volume growth % Six months ended 30 June 2023 Internal Growth Changes in scope of conso- lidation Foreign currency translation Nominal Growth Property-Casualty 11.8 0.7 (2.8) 9.8 Life/Health 2.2 (0.2) (0.8) 1.3 Asset Management (5.1) (3.0) 0.5 (7.5) Allianz Group 6.4 0.1 (1.7) 4.8 Interim Report for the First Half-Year of 2023 – Allianz Group CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS B 18 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED BALANCE SHEET Consolidated balance sheet € mn ASSETS Cash and cash equivalents Investments Financial assets for unit-linked contracts Insurance contract assets Reinsurance contract assets Deferred tax assets Other assets Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities Insurance contract liabilities Reinsurance contract liabilities Investment contract liabilities Deferred tax liabilities Other liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity Supplementary information Contractual service margin (CSM) Risk adjustment The Annual Report 2022 was released in March 2023 and included a preliminary version of the IFRS 9/17 opening balance sheet for 2022 based on assessments made until mid-February 2023 with the aim of illustrating the possible impacts of IFRS 9/17. After the release of the Annual Report 2022, the Allianz Group continued with the preparation of the IFRS 9/17 opening balance sheet and made some non-material adjustments. 19 Rep Note 4 7.2 8.5 6.6 6.7 8.4 8.6 8.8 7.3 6.6 6.7 8.5 8.4 8.7 8.9 8.9 As of 30 June 2023 As of 31 December 2022 As of 1 January 2022 25,612 22,896 24,247 701,292 690,991 837,869 148,892 141,034 158,359 477 327 36 25,294 25,605 26,141 5,890 6,369 4,709 31,606 30,234 27,222 18,664 18,442 18,186 957,728 935,897 1,096,770 55,133 51,310 50,877 754,829 740,799 883,250 1,024 257 55 51,435 47,827 55,872 1,982 2,158 2,368 34,501 34,810 38,956 898,904 877,163 1,031,378 54,318 54,415 61,157 4,506 4,320 4,235 58,823 58,735 65,392 957,728 935,897 1,096,770 54,055 53,382 59,381 7,256 7,219 8,875 As such, the final version of the IFRS 9/17 opening balance sheet for 2022 is slightly different from the preliminary version in the Annual Report 2022. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED INCOME STATEMENT Consolidated income statement € mn Six months ended 30 June Note 2023 2022 Insurance revenue 6.1 44,481 42,055 Insurance service expenses 6.2 (36,810) (35,710) Reinsurance result 6.3 (1,377) (811) Insurance service result 6,293 5,534 Interest result1 7.1 12,282 11,996 Realized gains/losses (net) 7.1 (2,860) 1,227 Valuation result 7.1 5,876 (27,575) Investment expenses 7.1 (884) (858) Net investment income 14,414 (15,211) Finance income (expenses) from insurance contracts (net) 6.4 (13,720) 15,497 Finance income from reinsurance contracts (net) 6.4 300 1,053 Net insurance finance expenses (13,421) 16,550 Investment result 994 1,339 Fee and commission income 8.1 6,516 6,607 Fee and commission expenses 8.2 (2,710) (2,482) Net result from investment contracts2 (97) (38) Acquisition and administrative expenses 8.3 (4,612) (6,357) Other income 20 9 Other expenses (169) (10) Amortization of intangible assets (159) (162) Restructuring and integration expenses (139) (566) Income before income taxes 5,936 3,874 Income taxes 8.4 (1,290) (1,199) Net income 4,647 2,675 Net income attributable to: Non-controlling interests 278 223 Shareholders 4,369 2,452 Basic earnings per share (€)3 10.59 5.73 Diluted earnings per share (€)3 10.58 5.63 1_Includes interest expenses from external debt. 2_Excluding investment result and fee income. 3_According to IFRS, the net income attributable to shareholders was adjusted for net financial charges related to undated subordinated bonds classified as shareholders’ equity. For the six months ended 30 June 2023, the Allianz Group recognized net financial charges of € (142) mn (2022: € (119) mn). 20 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income € mn Six months ended 30 June 2023 2022 Six months ended 30 June 2023 2022 Net income 4,647 2,675 Items that may be reclassified to profit or loss in future periods (continued) Reinsurance assets Other comprehensive income Reclassifications to net income Items that may be reclassified to profit or loss in future periods Changes arising during the period (99) (2,171) Foreign currency translation adjustments Subtotal (99) (2,171) Reclassifications to net income 375 Miscellaneous Changes arising during the period (610) 1,694 Reclassifications to net income Subtotal (235) 1,694 Changes arising during the period 27 108 Debt investments at fair value through OCI Subtotal 27 108 Reclassifications to net income 2,033 3 Items that may never be reclassified to profit or loss Changes arising during the period 4,223 (78,594) Changes in actuarial gains and losses on defined benefit plans (71) 1,938 Subtotal 6,256 (78,591) Equity investments at fair value through OCI 1,601 (8,386) Cash flow hedges Insurance liabilities (1,404) 4,386 Reclassifications to net income (37) (187) Miscellaneous (35) 181 Changes arising during the period (22) (1,451) Total other comprehensive income 1,228 (3,611) Subtotal (59) (1,638) Share of other comprehensive income of associates and joint ventures Total comprehensive income 5,875 (936) Reclassifications to net income (6) Changes arising during the period 5 3 Total comprehensive income attributable to: Subtotal 5 (3) Non-controlling interests 232 91 Insurance liabilities Shareholders 5,643 (1,026) Reclassifications to net income 4,679 (4,469) Changes arising during the period (9,436) 83,340 Subtotal (4,757) 78,871 For further information on the income taxes associated with different components of other comprehensive income, please see note 8.4. 21 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity € mn Paid-in capital Undated subordinated bonds1 Retained earnings Foreign currency translation adjustments Unrealized gains and losses from insurance contracts Other unrealized gains and losses Shareholders' equity Non-controlling interests Total equity Balance as of 31 December 2021 28,902 4,699 32,784 (3,223) 16,789 79,952 4,270 84,222 Adjustments of initial application of IFRS 9 and 17, net of tax (5,393) (251) (46,554) 33,403 (18,795) (35) (18,830) Restated balance as of 1 January 2022 28,902 4,699 27,391 (3,474) (46,554) 50,192 61,157 4,235 65,392 Total comprehensive income 193 4,682 1,497 80,478 (87,831) (982) 91 (891) thereof net income 2,452 2,452 223 2,675 Purchase, sale, use and cancellation of treasury shares2 (826) (826) (826) Changes in scope of consolidation 152 152 Changes in ownership interests in subsidiaries (29) (29) (1) (30) Capital increases and decreases 25 25 Other changes 36 36 (4) 32 Dividends paid (4,383) (4,383) (309) (4,692) Other distributions (59) (59) (59) Balance as of 30 June 2022 28,902 4,892 26,812 (1,977) 33,924 (37,639) 54,914 4,188 59,102 Balance as of 31 December 2022 28,902 4,843 35,350 (2,406) (15,215) 51,474 3,768 55,242 Adjustments of initial application of IFRS 9 and 17, net of tax (5,995) (642) 54,854 (45,275) 2,941 552 3,493 Restated balance as of 1 January 2023 28,902 4,843 29,354 (3,048) 54,854 (60,490) 54,415 4,320 58,735 Total comprehensive income (51) 4,314 (163) (6,194) 7,736 5,643 232 5,875 thereof net income 4,369 4,369 278 4,647 Purchase, sale, use and cancellation of treasury shares2 (1,069) (1,069) (1,069) Changes in scope of consolidation 67 67 Changes in ownership interests in subsidiaries 3 3 (7) (5) Capital increases and decreases 140 140 Other changes 9 9 (9) Dividends paid (4,541) (4,541) (237) (4,778) Other distributions (142) (142) (142) Balance as of 30 June 2023 28,902 4,792 27,928 (3,211) 48,660 (52,754) 54,318 4,506 58,823 1_For further information regarding the undated subordinated bonds, please refer to note 7.3.2. 2_In November 2022, a share buy-back with an intended volume of € 1 bn was announced and completed with the second tranche on 17 March 2023. In total, Allianz SE purchased 4.7 million own shares. On 10 May 2023, a further share buy-back with an intended volume of € 1.5 bn was announced which is intended to be completed until 31 December 2023. Up to 30 June 2023, Allianz SE purchased 1.8 million own shares with a volume of € 369 mn. 22 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows1 € mn Six months ended 30 June 2023 2022 SUMMARY Net cash flow provided by operating activities 14,360 10,952 Net cash flow used in investing activities (4,696) (8,942) Net cash flow used in financing activities (6,565) (4,255) Effect of exchange rate changes on cash and cash equivalents (411) 537 Change in cash and cash equivalents 2,688 (1,708) Cash and cash equivalents at beginning of period 22,896 24,247 Cash and cash equivalents reclassified to assets of disposal groups held for sale in 2022 (324) Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2023 28 Cash and cash equivalents at end of period 25,612 22,215 CASH FLOW FROM OPERATING ACTIVITIES Net income 4,647 2,675 Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures (37) 8 Realized gains/losses (net), impairments of investments (net), valuation result (net) Investments at fair value through profit and loss/other comprehensive income and at amortized costs, investments in associates and joint ventures, real estate held for investments, non-current assets and disposal groups classified as held for sale 4,256 (686) Other investments, mainly derivatives (2,566) 16,954 Depreciation and amortization 1,091 1,081 Other non-cash income/expenses 1,112 (3,534) Net change in: Reinsurance contract assets and liabilities 450 (839) Insurance contract assets and liabilities 12,356 (11,953) Investment contract liabilities 1,995 (4,771) Financial assets for unit-linked contracts (8,259) 17,155 Deferred tax assets/liabilities 325 (14) Other (net) (1,010) (5,125) Subtotal 9,713 8,277 Net cash flow provided by operating activities 14,360 10,952 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from the sale/maturity/repayment of: Investments at fair value through profit and loss 9,729 13,302 Investments at fair value through other comprehensive income 89,734 143,093 Investments at amortized cost 119 426 Investments in associates and joint ventures 156 327 Non-current assets and disposal groups classified as held for sale 72 35 23 Rep Six months ended 30 June 2023 2022 Real estate held for investment 235 105 Fixed assets from alternative investments Property and equipment 53 43 Subtotal 100,097 157,332 Payments for the purchase or origination of: Investments at fair value through profit and loss (15,232) (16,485) Investments at fair value through other comprehensive income (89,059) (127,019) Investments at amortized cost (855) (2,211) Investments in associates and joint ventures (403) (1,807) Non-current assets and disposal groups classified as held for sale (150) Real estate held for investment (413) (1,227) Fixed assets from alternative investments (71) (44) Property and equipment (639) (603) Subtotal (106,823) (149,396) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed (27) Acquisitions of subsidiaries, net of cash acquired (57) Net change from derivative assets and liabilities 2,191 (16,813) Other (net) (78) (64) Net cash flow used in investing activities (4,696) (8,942) CASH FLOW FROM FINANCING ACTIVITIES Net change in liabilities to banks and customers and other financial liabilities (391) 1,809 Proceeds from the issuance of certificated liabilities and subordinated liabilities 2,871 3,026 Repayments of certificated liabilities and subordinated liabilities (3,048) (3,394) Proceeds from the issuance of undated subordinated bonds classified as shareholders' equity Net change in lease liabilities (191) (205) Transactions between equity holders 127 8 Dividends paid to shareholders (4,778) (4,692) Net cash from sale or purchase of treasury stock (1,069) (826) Other (net) (85) 18 Net cash flow used in financing activities (6,565) (4,255) 1_As of 1 January 2023, some changes have been made to the classification of cash flows from operating, investing and financing activities to reflect the cash flows in the most appropriate manner for the Allianz Group. These changes have also been reflected in comparative periods. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS GENERAL INFORMATION 1 _ Nature of operations and basis of presentation The Allianz Group’s condensed consolidated financial statements are presented in accordance with the requirements of IAS 34 and have been prepared in conformity with International Financial Reporting Standards (IFRSs) applicable to interim financial reporting, as adopted under European Union regulations. interim In these condensed consolidated interim financial statements, the Allianz Group has applied IFRS 9 and IFRS 17 for the first time. The related changes in significant accounting policies are described in note 2. For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation, and presentation as applied in the consolidated financial statements for the year ended 31 December 2022. Amounts are rounded to millions of euro (€ mn), unless otherwise stated. 2 _ Accounting policies, significant estimates, and new accounting pronouncements The following paragraphs describe important accounting policies as well as significant estimates and assumptions that are relevant for the Allianz Group’s consolidated financial statements. Estimates and assumptions particularly influence the inclusion method as well as the accounting treatment of financial instruments and insurance contracts, goodwill, obligations, and deferred assumptions are explained in the respective paragraphs. litigation provisions, pension liabilities and similar taxes. Significant estimates and The Allianz Group’s consolidated balance sheet is not presented using a current/non-current classification. The following balances are generally considered to be current: cash and cash equivalents, non- current assets and assets of disposal groups classified as held for sale, and liabilities of disposal groups classified as held for sale. The following balances are generally considered to be non- current: investments, deferred tax assets, intangible assets, and deferred tax liabilities. All other balances are mixed in nature (including both current and non-current portions). Principles of consolidation Scope of consolidation and consolidation procedures In accordance with IFRS 10, the Allianz Group’s consolidated financial statements include the financial statements of Allianz SE and its subsidiaries. Subsidiaries are generally entities where Allianz SE, directly or indirectly, owns more than half of the voting rights or similar rights with the ability to affect the returns of these entities for its own benefit. Entities where the Allianz Group does not hold a majority stake are if the included Allianz Group controls these entities based on either distinctive rights stipulated by shareholder agreements between the Allianz Group and the other shareholders in these companies or voting rights held by the Allianz Group which are sufficient to direct the relevant activities unilaterally. in the consolidated financial statements Entities where the Allianz Group holds a majority stake are not included in the consolidated financial statements if the Allianz Group it has no majority does not control these entities because representation in the governing bodies and/or it requires at least the confirmative vote of another investor to pass any decisions over relevant activities. For certain entities, voting or similar rights are not the dominant factor of control, such as when voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, as is the case mainly for investment funds managed by Allianz Group funds managed by Allianz Group entities on the basis of contractual arrangements, the Allianz Group considers an exposure to variability from the aggregate economic interests (consisting of fees and direct interests in the investments funds) of more than 30 % as indicative for control, unless there is evidence to the contrary, for example if the investment funds’ financial and operating policies are largely predetermined or other parties engaged in the investment funds have substantive spin-off rights. internal asset managers. For investment Initial accounting for business combinations and measurement of non-controlling interests Where newly acquired subsidiaries are subject to business combination accounting, the provisions of IFRS 3 are applied. During the IFRS 3 measurement period, which is for a maximum of one year post the acquisition date, it may be necessary to adjust existing or recognize additional assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquiree's net assets in the event of liquidation are generally measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. 24 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Associates and joint arrangements Associates are entities over which the Allianz Group can exercise significant influence. In general, if the Allianz Group holds 20 % or more of the voting power in an investee but does not control the investee, it is assumed to have significant influence. Although the Allianz Group’s share in some entities is below 20 %, management has assessed that the Allianz Group has significant influence over these entities because it is sufficiently represented in the governing bodies that decide on the relevant activities of these entities. For certain investment funds in which the Allianz Group holds a stake of above 20 %, management has assessed that the Allianz Group has no significant influence because it is not represented in the governing bodies of these investment funds or their investment activities are largely predetermined. Pursuant to IFRS 11, investments in joint arrangements have to be classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The Allianz Group has assessed the nature of all its joint arrangements and determined them to be joint ventures in most cases. Generally, these investments in associates and joint ventures are accounted for using the equity method, which may imply a time lag of up to three months. Income from investments in associates and joint arrangements – excluding distributions – is included in the interest result. Accounting policies of associates and joint arrangements are generally adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. However, if investments in associates or joint ventures are held as the underlying items for a group of insurance contracts with direct participation features, the Allianz Group elects the exemption from applying the equity method and measures these investments at fair value through profit and loss in accordance with IFRS 9 instead. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. For further information, please refer to note 7.2. Foreign currency translation Foreign currency translation generally follows the guidance set forth in IAS 21. Income and expenses from subsidiaries that have a functional currency other than the Allianz Group’s presentation currency (euro) are translated to euro at the quarterly average exchange rate, unless the subsidiary’s functional currency is that of a hyperinflationary economy, in which case the closing rate is applied in accordance with IAS 21.42. Foreign currency gains and losses arising from foreign 25 Rep currency transactions are reported in the valuation result in the consolidated income statement, unless they relate to the foreign exchange component of fair value changes that are recognized in other comprehensive income. In the latter case, the foreign exchange component is also recognized in other comprehensive income. Financial instruments Recognition and derecognition Financial assets are generally recognized and derecognized on the trade date, i.e., when the Allianz Group commits to purchase or sell securities. Classification and measurement of financial assets Based on the applicable business model and the respective contractual cash flow characteristics, the Allianz Group classifies a financial asset on initial recognition into one of the three measurement categories: − amortized cost, − − fair value through other comprehensive income, or fair value through profit and loss. At the Allianz Group, financial assets that are backing insurance liabilities are generally considered to be held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (“hold and sell” business model). in equity financial instruments are accounted at fair value. The Allianz Group generally initial recognition to present uses the subsequent changes in other fair value comprehensive income, provided that the instrument is not held for trading nor contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies. Measurement at fair value through profit and loss is only applied in exceptional cases, e.g. in order to reduce an accounting mismatch that would otherwise arise or if the above-mentioned preconditions for fair value through other comprehensive income measurement are not fulfilled. In accordance with IFRS 9, investments irrevocable election at in the instrument’s Classification and measurement of financial liabilities In general, financial liabilities are classified as subsequently measured at amortized cost, except for: − Financial liabilities that are classified as measured at fair value through profit and loss, either because they are held for trading (including derivatives) or irrevocably designated to be measured at fair value through profit or loss upon initial recognition in accordance with IFRS 9.4.2.2. − Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. These liabilities are measured in accordance with paragraphs 3.2.15 and 3.2.17 of IFRS 9. − Financial guarantee contracts. Provided that the measurement rules in any of the first two points above do not apply, financial guarantee contracts are measured at the higher of the amount of the loss allowance determined in accordance with IFRS 9 and the amount the cumulative amount of income recognized in accordance with the principles of IFRS 15. initially recognized less (where appropriate) − Contingent consideration recognized by an acquirer in a business combination such contingent consideration shall subsequently be measured at fair value through profit and loss. to which IFRS 3 applies; Measurement at fair value The Allianz Group carries certain financial instruments at fair value and discloses the fair value of all financial instruments. Assets and liabilities measured or disclosed at fair value in the consolidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS 13, which categorizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs of financial instruments traded in active markets are based on unadjusted quoted market prices or dealer price quotations for identical assets or liabilities on the last exchange trading day prior to or at the reporting date, if the latter is a trading day. Level 2 applies if the market for a financial instrument is not active or when the fair value is determined by using valuation techniques based on observable input parameters. Level 3 applies if not all input parameters that are significant to the entire measurement are observable in the market. Accordingly, the is based on valuation techniques using non-market fair value include the discounted observable inputs. Valuation techniques cashflow method, comparison to similar instruments for which observable market prices exist, and other valuation models. Appropriate adjustments are made, for example, for credit risks. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements For fair value measurements categorized as level 2 and level 3, the Allianz Group uses valuation techniques consistent with the three widely used valuation techniques listed in IFRS 13: − Market approach: Prices and other relevant generated by market comparable assets or liabilities. transactions involving information identical or − Cost approach: Amount that would currently be required to replace the service capacity of an asset (current replacement cost). Income approach: Conversion of future amounts such as cash flows or income to a single current amount (present value technique). − There is no one-to-one connection between valuation technique and hierarchy level. Depending on whether valuation techniques are based on significant observable or unobservable inputs, financial instruments are classified in the fair value hierarchy. Estimates and assumptions of fair values and hierarchies are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified as level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. The degree of judgment used in measuring the fair value of financial instruments closely correlates with the use of non-market observable inputs. The Allianz Group uses a maximum of observable inputs and a minimum of non-market observable inputs when measuring fair value. Observability of input parameters is influenced by various factors such as type of the financial instrument, whether a market is established for the particular instrument, specific transaction characteristics, liquidity, and general market conditions. If the fair value cannot be measured reliably, amortized cost is used as a proxy for determining fair values. In discharging its responsibilities in the area of the fair value measurement of illiquid investments (level 3), the Allianz Group has set up an independent Group Valuation Committee (GVC). The GVC is a cross functional body which includes representation from the Allianz Group’s accounting and reporting, risk, and, investment management functions as well as major operating entities. The GVC’s objectives are the establishment and maintenance of appropriate market valuation standards as well as checks and balances in order to successfully 26 Rep manage the risks inherent in the internal and external fair valuation of illiquid investments. In this regard, the GVC initiates, approves, and maintains documented valuation best practices by illiquid asset cluster. Furthermore, the GVC is responsible for performing regular independent price verifications, onsite visits of operating entities, and for requiring the implementation of best practices in the area of the illiquid assets valuation. It also has prerogatives to implement measures to resolve any related findings and valuation disputes. For further information with regards to the measurement at fair value, please refer to note 7.5. Impairments The Allianz Group’s central risk framework under Solvency II serves as the basis for IFRS 9 impairment calculations. In regard of credit ratings which represent a central parameter of credit risk, the Allianz Group re- uses the Solvency II assessment of the long-term creditworthiness of its debtors. In detail, the Solvency II rating assignment for the investment portfolio of the Allianz Group is based on external agency ratings enhanced by the Group’s internal credit assessment. The internal credit assessment is used to add a point-in-time component to long-term ratings in order to capture current market information and to add forward-looking information. The Allianz Group uses hurdle ratings that indicate a significant increase in credit risk and consequently a transfer from Stage 1 to Stage 2 on a notch-by-notch basis. In addition, the rating hurdle is dependent on the expected maturity of the investment. A transfer to Stage 3 is triggered by a D rating or when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The loss-given default assignment is performed based on the established methods applied for Solvency II purposes. The Allianz Group follows a cash-flow-based approach for the expected credit loss (ECL) calculation. In order to calculate the ECL, the Allianz Group uses transition matrices that take into account the probability of default (PD) as a quantitative measure of the credit quality of a financial instrument or counterparty assigned per rating notch as well as the transition probabilities quantifying the likelihood of rating changes over time. Hedge accounting The Allianz Group has chosen as its accounting policy to apply the IFRS 9 hedge accounting requirements, except for fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities, which continue to be accounted for in accordance with IAS 39. instruments designated as hedging instruments in hedge accounting relationships are included in the line items Investments at fair value through profit and loss and Financial liabilities at fair value through profit and loss. Freestanding derivatives are included in the same line items. Derivative financial For further information on derivatives, please refer to note 7.4. Cash and cash equivalents Cash and cash equivalents comprise balances with banks payable on demand, balances with central banks, cash on hand, and treasury bills to the extent they are not included in investments at fair value through profit and loss. Furthermore, this balance sheet item contains checks and bills of exchange that are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition as well as reverse purchase agreements that are due within three months. Investments Investments at fair value through profit and loss Investments at fair value through profit and loss comprise debt instruments that are classified as measured at fair value through profit and loss based on the underlying business model or cash flow characteristics as well as financial assets that are irrevocably designated to be measured at fair value through profit and loss at inception. Equity instruments are included in this line item if Allianz deviates from its general approach to designate them as measured at fair value through other comprehensive income or if they do not fulfill the prerequisites for such a designation. Investments at fair value through other comprehensive income These investments include debt financial assets that are held within a “hold and sell” business model and whose contractual cash flows are solely payments of principal and interest on the principal amount outstanding (“SPPI”). In addition, investments in equity instruments that are designated to be measured at fair value through other comprehensive income are presented in this line item. As prescribed by IFRS 9, amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Instead, the Allianz Group accounting policies foresee that the cumulative amounts are transferred directly within equity upon derecognition of an investment in an equity instrument that is measured at fair value through other comprehensive income. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Investments at amortized cost Investments at amortized cost relate to debt financial assets that are held within a “hold to collect” business model and whose contractual cash flows are solely payments of principal and interest on the principal amount outstanding (“SPPI”). Investments in associates and joint ventures For details on the accounting for investments in associates and joint ventures, please see the section “Principles of consolidation”. Real estate held for investment Real estate held for investment is initially measured at cost, including directly attributable transaction costs. For the subsequent measurement, the Allianz Group applies the fair value model in accordance with IAS 40.33 if the property is held as an underlying item for insurance contracts with direct participation features and investment contracts with discretionary participation features. In all other cases, the Allianz Group applies the cost model pursuant to IAS 40.56 and carries real estate held for investment at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is recognized on a straight-line basis over the property’s useful life, with a maximum of 50 years. Furthermore, real estate held for investment is regularly tested for impairment. Fixed assets from alternative investments These assets are carried at cost less accumulated depreciation and impairments in accordance with IAS 16. They are depreciated on a straight-line basis over their useful life, with a maximum of 35 years, and regularly tested for impairment. Reinsurance contract assets To measure a group of reinsurance contracts held, the Allianz Group applies the same accounting policies that are applied to insurance contracts issued without direct participation features, with the following modifications: The Allianz Group measures the estimates of the present value of future cash flows using assumptions that are consistent with those used to measure the estimates of the present value of future cash flows for the underlying insurance contracts, with an adjustment for any risk of non-performance by the reinsurer. The effect of the non-performance 27 Rep risk of the reinsurer is assessed at each reporting date and the effect of changes in the non-performance risk is recognized in profit or loss. Other assets Other assets primarily consist of leased or own used real estate, software and equipment, receivables, non-current assets and assets of disposal groups classified as held for sale, and deferred compensation amounts. The Allianz Group has elected the fair value model in accordance with IAS 40 as its accounting policy to measure properties held for own use that are underlying items of (a group of) insurance contracts with direct participation features. For the purpose of this election, insurance contracts include investment contracts with discretionary participation features. All other items of property, plant and equipment are subsequently measured based on the cost model pursuant to IAS 16.30. When applying the cost model, depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. The right-of-use assets related to leased property and equipment are depreciated generally over the lease term. The table below summarizes estimated useful lives for real estate held for own use, software, and equipment. Estimated useful lives (in years) Years Real estate held for own use max. 50 Software 2-13 Equipment 2-10 Intangible assets and goodwill Intangible assets with finite useful lives are measured at cost less accumulated amortization and impairments. The table below summarizes estimated useful lives and the amortization methods for each material class of intangible assets with finite useful lives. Estimated useful lives (in years) and amortization methods Useful lives Amortization method Long-term distribution agreements 10 – 20 straight-line considering contractual terms Customer relationships 4 – 40 straight-line or in relation to customer churn rates Goodwill arising from business combinations is recognized in the amount of the consideration transferred plus the amount of any noncontrolling interest in the acquiree held by the direct parent in excess of the fair values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is generally carried in the acquiree’s functional currency. An evaluation of whether the goodwill is deemed recoverable takes place at least once a year. Financial liabilities Financial liabilities for puttable financial instruments The Allianz Group records financial liabilities where non-controlling shareholders have the right to put their financial instruments back to the Allianz Group (puttable instruments). If these non-controlling shareholders still have present access to the risks and rewards associated with the underlying ownership interests, the non-controlling interests remain recognized, and profit and loss is allocated between controlling and non-controlling interests. The financial liabilities for puttable instruments are generally required to be recorded at the redemption amount. The Allianz Group recognizes valuation changes in equity where the non-controlling shareholders have present access to risks and rewards of ownership. In all other cases, valuation changes are recognized in the income statement. As an exception, for puttable instruments that are to be classified as equity instruments in the separate or individual financial statements of the issuer in accordance with IAS 32.16A-16B and are to be presented as liabilities in the consolidated financial statements of the Allianz Group instead of noncontrolling interests, valuation changes of these liabilities are always recognized in the income statement. This is the case for puttable instruments issued by mutual funds controlled but not wholly owned by the Allianz Group. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Certificated liabilities and subordinated liabilities Certificated liabilities and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability. Insurance contract liabilities Insurance and investment contracts Insurance contracts and investment contracts with discretionary participation features are accounted for under the insurance Investment contracts without accounting provisions of discretionary participation features are accounted for as financial instruments in accordance with IFRS 9, please see section “Investment contracts liabilities”. IFRS 17 includes three measurement models, reflecting a different extent of policyholder participation in investment performance or overall insurance entity performance: the general measurement model (GMM, also known as the building block approach), the variable fee approach (VFA), and the premium allocation approach (PAA). IFRS 17. Insurance contracts are classified as direct participating contracts or contracts without direct participation features. Direct participating contracts are contracts for which, at inception: − − − the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items; the Allianz Group expects to pay the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and the Allianz Group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. As IFRS 17 does not provide any threshold for determining whether a share or proportion is substantial, this assessment requires judgment. Allianz has set up a group-wide process for assessing insurance contracts based on qualitative and quantitative criteria in order to appropriately reflect the individual contract specifics. For this assessment, the terms “substantial share“ and “substantial proportion” have been applied by using 50 % as rebuttable presumption. Insurance contracts with direct participation features are accounted for under the VFA. Insurance contracts without direct participation features are 28 Rep measured under the GMM or the PAA, if the respective eligibility criteria for the PAA are fulfilled. The Allianz Group generally applies the same accounting policies and rules to reinsurance contracts issued as to insurance contracts issued. Separation of components IFRS 17 requires the separation of embedded derivatives, investment components, and performance obligations to provide non-insurance goods and services at inception of a contract, if certain conditions are met. The separated components need to be accounted for separately according to IFRS 9 (embedded derivatives, investment components) or IFRS 15 (non-insurance goods and services). The Allianz Group has not in identified material performance obligations embedded insurance contracts to provide non-insurance goods and services. The Allianz Group applies IFRS 9 to determine whether there is an embedded derivative to be separated and, if so, how to account for that derivative, unless the derivative is itself a contract within the scope of IFRS 17. The majority of embedded derivatives identified in insurance contracts issued by the Allianz Group have been considered closely related or to include significant insurance risk, because there are usually strong interdependencies with other components of the contract such as contractual options, policyholder behavior, contractual surplus sharing, and mortality. IFRS 17 defines investment components as the amounts that an insurance contract requires the entity to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. The Allianz Group identifies the investment component of a contract by determining the amount that it would be required to repay to the policyholder in all scenarios with commercial substance. These include circumstances in which an insured event occurs or the contract matures or is terminated without an insured event occurring. An investment component is classified as being distinct or non- identified material distinct distinct. The Allianz Group has not investment components. Investment components that are non-distinct are not to be separated from the host insurance contract but are excluded from insurance revenue and insurance service expenses. For most common life insurance products, the Allianz Group defines the cash surrender value as the non-distinct investment component. Generally, property- casualty contracts do not have a surrender or maturity value and only have a benefit payment when a claim occurs. Therefore, a standard property-casualty contract without additional guaranteed payment features does not include any investment component. However, it is common with property-casualty contracts that they have other explicit guaranteed payments, for example a low or no claim bonus or profit the Allianz Group defines as non-distinct participation, which investment components, if all respective criteria are met. Level of aggregation Measurement is not carried out at the level of individual contracts, but on the basis of groups of contracts. To allocate individual insurance contracts to groups of contracts, the Allianz Group first needs to define portfolios which include contracts with similar risks that are managed together. These portfolios are to be subdivided into groups of contracts on the basis of profitability and annual cohorts. Based on these requirements, portfolios and groups of insurance contracts are always determined by the individual operating entities, considering their respective circumstances. The requirement to form annual cohorts that prevents contracts issued more than one year apart from being included in the same group (IFRS 17.22) is subject to an optional exemption in the EU endorsement of IFRS 17. The EU Commission grants EU users the right to choose whether or not to apply the requirement in IFRS 17.22 for certain contracts. The Allianz Group does not make use of this exemption. fulfill the standard requirements of similar risks that are managed together. At the Allianz Group, there is one calculation currency per Group of Contract (GoC). In case of a GoC with contracts with different transaction currencies, a leading currency (GoC currency) is determined. Contracts in different currencies can Liability for remaining coverage under the GMM/VFA The liability for remaining coverage (LRC) under the GMM consists of the fulfillment cash flows related to future services and the contractual service margin (CSM). The fulfillment cash flows represent the risk- adjusted present value of Allianz’s rights and obligations to the policyholders, comprising the building blocks of estimates of expected future cash flows, discounting, and an explicit risk adjustment for non- financial risk. The CSM represents the unearned profit from in-force contracts that an entity will recognize as it provides services over the coverage period. Each building block is measured separately, both on initial recognition and for subsequent measurement. The estimates of future cash flows comprise all cash flows expected to arise as the insurance contract is fulfilled. In estimating these future Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements cash flows, the Allianz Group incorporates, in an unbiased way, all reasonable and supportable information that is available without undue cost or effort at the reporting date. Cash flows within the boundary of a contract relate directly to the fulfillment of the contract, including those for which the Allianz Group has discretion over the amount or timing. These include premiums from policyholders, payments to (or on behalf of) policyholders, insurance acquisition cash flows and other costs that are incurred in fulfilling the contracts. Insurance acquisition cash flows arise from the activities of selling, underwriting and starting a group of contracts that are directly attributable to the portfolio of contracts to which the group belongs. Depending on the type of services provided, other costs that are incurred in fulfilling the contracts include: − claims handling, maintenance and administration costs; − recurring commissions payable on receivable within the contract boundary; instalment premiums − costs that the Allianz Group will incur in providing investment services; − costs that the Allianz Group will incur in performing investment activities to the extent that the Allianz Group performs them to enhance benefits from insurance coverage for policyholders by generating an investment return from which policyholders will benefit if an insured event occurs; and income tax and other costs specifically chargeable to the policyholders under the terms of the contracts. − According to IFRS 17, all future cash flows must be discounted. The IFRS 17 requirements for the interest curves used in the discounting are principle based. An entity should use observable market data based on a risk-free base curve and portfolio-specific adjustments to reflect the illiquidity of insurance obligations in determining the interest curves. The Allianz Group applies a bottom-up approach in which the basic risk-free liquid yield curves are usually derived from swap rates or government yields for the specific currency and adjusted for remaining credit risk. These risk-free liquid yield curves are then adjusted to reflect illiquidity of the underlying insurance liabilities based on reference portfolios. In case of participating business, the reference portfolio reflects own assets and it is a currency-specific portfolio for non-participating business. The table below sets out the continuously compounded rates used to discount the cash flows of insurance contracts for major currencies: Discount rates in % As of 30 June 2023 As of 31 December 2022 As of 1 January 2022 1 year 5 years 10 years 20 years 30 years 1 year 5 years 10 years 20 years 30 years 1 year 5 years 10 years 20 years 30 years Unit-linked contracts EUR 4.00 3.18 2.93 2.72 2.73 3.20 3.16 3.12 2.80 2.74 (0.49) 0.02 0.31 0.56 1.12 USD 5.23 3.81 3.46 3.32 3.27 4.96 3.88 3.69 3.57 3.30 0.49 1.32 1.53 1.70 1.82 Immediate fixed annuity and property-casualty liability for incurred claims EUR 4.21 3.39 3.15 2.93 2.91 3.41 3.36 3.33 3.01 2.91 (0.49) 0.02 0.31 0.56 1.12 USD 6.01 4.59 4.25 4.11 3.96 5.73 4.66 4.47 4.35 4.05 0.79 1.61 1.83 2.00 2.10 Traditional participating and other insurance contracts EUR 4.13-4.57 3.31-3.75 3.07-3.51 2.85-3.30 2.84-3.21 3.35-3.84 3.31-3.80 3.27-3.76 2.95-3.45 2.87-3.27 (0.32) -0.19 0.19-0.70 0.48-0.99 0.73-1.24 1.25-1.67 USD 5.82-6.23 4.41-4.82 4.06-4.48 3.93-4.35 3.80-4.17 5.54-6.06 4.47-4.99 4.28-4.80 4.16-4.69 3.87-4.37 0.99-1.07 1.81-1.89 2.03-2.11 2.19-2.28 2.29-2.36 The risk adjustment reflects the compensation an entity would require for bearing non-financial risks, i.e. the uncertainty of cash flows that arise from insurance contracts, other than the uncertainty arising from financial risks. Such non-financial risks include insurance risks, lapse and expense risk. IFRS 17 does not prescribe a specific approach for determining the risk adjustment. Allianz applies a Cost of Capital approach with a Cost of Capital rate of currently 6 % as under Solvency II. The main differences in terms of disclosure are that IFRS 17 requires a separate presentation of the risk adjustment for non- financial risk for gross and ceded business, as well as a split for LRC and LIC. The main valuation differences are the reflection of diversification across Group subsidiaries in the risk adjustment of individual entities which is not allowed in the Solvency II risk margin, the exclusion of operational risk in the risk adjustment, differences in discounting, and the smoothing of risk inputs to address cross effects with financial risks not in scope of the risk adjustment. The risk adjustment for LIC for property-casualty corresponds to a confidence level in the range of 65 % to 70 %; the risk adjustment for LRC for life/health corresponds to a confidence level of 72 % to 77 %. Both property-casualty and levels are calculated based on distribution assumptions consistent to Solvency II (where applicable). For property-casualty, this is based on the ultimate distribution underlying the Solvency II one-year-view used in the Cost of Capital methodology for the calculation of the risk adjustment for the LIC, aggregated and diversified at Group level. Likewise, for life/health confidence 29 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements life/health an ultimate distribution is estimated based on the Solvency II one-year-view used in the Cost of Capital methodology for calculation of the risk adjustment for the LRC, projected to ultimate horizon per entity and aggregated to diversified group level. Both for property-casualty and life/health respectively, the confidence level is derived as the quantile of the Group net of reinsurance risk adjustment in the ultimate distribution of the Group. At initial recognition, the CSM is measured to result in no income or expenses arising from the fulfillment cash flows, any cash flows arising from the contracts in the group at that date, and the derecognition at the date of initial recognition of any asset for insurance acquisition cash flows and any other asset. If the fulfillment cash flows lead to a negative CSM at inception, it will be set to zero and the negative amount will be recorded immediately in the statement of profit and loss. At subsequent measurement, the CSM gets adjusted for changes in cash flows related to future services and for the interest accretion at interest rates locked-in at initial recognition of the group of contracts. A release from the CSM is recognized in profit or loss each period to reflect the services provided in that period based on “coverage units”. IFRS 17 only provides principle-based guidance on how to determine these coverage units. Generally, the Allianz Group has defined the account value for the reflection of investment services and the sum at risk for insurance services as the default approach to determine these coverage units. If multiple services are provided in one contract, a weighting is determined by the respective operational entity based on the respective features of the contract. is applied, which The VFA is a mandatory modification of the GMM regarding the treatment of the CSM in order to accommodate direct participating contracts. The assessment of whether an insurance contract meets the VFA eligibility criteria is made at inception of the contract and not revised subsequently, except in case of a substantial modification of the contract. For contracts with direct participation features, the CSM is adjusted for changes in the amount of the entity’s share of the fair value of the underlying items. No explicit interest accretion is required since the CSM is effectively remeasured when it is adjusted for changes in financial risks. An additional CSM release is considered to avoid a delayed profit recognition by systematic real-world returns of direct participating business measured with the VFA. This adjustment reflects the expected real-world returns in relation to the risk-neutral returns applied in IFRS 17 measurement for a more appropriate allocation of the 30 Rep services provided in the current period, i.e. the relating income in the P&L is based on real-world assumptions. The adjustment is applied by the life/health entities in Germany, France, Italy, and Switzerland. Expected real-world returns are updated once a year based on a fundamental analysis of long-term expectations. If certain criteria are met, an entity may apply the so-called risk mitigation option when it uses a derivative, a non-derivative financial instrument measured at fair value through profit or loss, or a reinsurance contract held to mitigate financial risk. The entity may then choose to exclude from the CSM some or all of the changes in the effect of the time value of money and financial risk on the amount of the entity’s share of the underlying items, if the entity mitigates the effect of financial risk on that amount using derivatives or reinsurance contracts held; and changes in the effect of the time value of money and financial risks not arising from the underlying items, if the entity mitigates the effect of financial risk on those fulfillment cash flows using derivatives, non-derivative financial instruments measured at fair value through profit or loss, or reinsurance contracts held. The Allianz Group applies the risk mitigation option only for a limited number of portfolios in the Life/Health segment. LRC under the PAA The Allianz Group uses the PAA for measuring contracts with a coverage period of one year or less. In addition to the contracts with coverage of less than one year, the PAA is applied for the measurement of groups of contracts where it is reasonably expected that the measurement of the LRC does not differ materially from the one that would be produced by applying the GMM or the VFA. The PAA eligibility per Group of Contract is regularly assessed at OE level. This assessment takes into account qualitative and quantitative factors which are determined at the Group level. The qualitative factors include but are not limited to the volatility of financial variables, related embedded derivatives, and the average length of the coverage period. For the quantitative test, the Allianz Group provides detailed scenarios including interest rate shocks per selected currency. Overall, the PAA is applied for the vast majority of the Allianz Group’s property-casualty business (gross and ceded). If facts and circumstances (e.g. an expected combined ratio above 100 %) indicate that a group of insurance contracts measured under the PAA is onerous on initial recognition or subsequently becomes onerous, the Allianz Group increases the carrying amount of the LRC to the amounts of the fulfillment cash flows determined under the GMM with the amount of such an increase recognized in insurance service expenses and a loss component established for the amount of the loss recognized. Subsequently, the loss component is remeasured at each reporting date as the difference between the amounts of the fulfillment cash flows determined under the GMM relating to the future service and the carrying amount of the LRC without the loss component. Insurance acquisition cash flow asset At the Allianz Group, insurance acquisition cash flows are not expensed as incurred, but deferred over the coverage period for all measurement models. IFRS 17 foresees two levels of deferral (pre- coverage DAC and in-coverage DAC, DAC = deferred acquisition costs). Firstly, when insurance acquisition cash flows are incurred before the group of contract is recognized (pre-coverage), and secondly, when the contracts are recognized following IFRS 17.38 (c) and IFRS 17.B125, where the insurance acquisition cash flows are implicitly deferred over the coverage period of the contracts to which the insurance acquisition cash flows relate. Regarding the pre- coverage DAC, a four-step approach applies to ensure standard compliant measurement: 1. Identify and allocate insurance acquisition cash flows that relate to expected contract renewals and recognize those insurance acquisition CFs as an asset (pre-coverage DAC). 2. As soon as the expected contract renewals turn into insurance contracts, the pre-coverage DAC has to be transferred into in- coverage DAC and included in the contractual cash flows. 3. Regular assumption review of pre-coverage DAC per reporting period. 4. Perform an assessment regarding the recoverability of the pre- coverage DAC, if facts and circumstances indicate potential impairment. Payables and receivables IFRS 17 is conceptually based on a prospective cash view. All expected future cash flows arising from the contract are considered and reflected in one position, the insurance contract asset or liability. Therefore, payables and receivables from insurance contracts as well as any deposits are part of the insurance contract asset or liability. Liability for incurred claims (LIC) The LIC is measured at the fulfillment cash flows relating to incurred claims. It comprises the fulfillment cash flows related to past service at Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements the reporting date. It is calculated at a level of aggregation, which is determined at the local level based on relevant factors, e.g. line of business, region or distribution channel. The LIC consists of the present value of future cash flows relating to incurred claims and the risk adjustment for non-financial risk, applying the same principles for the estimates of future cash flows, the discount rate and the risk adjustment for non-financial risk that apply to the LRC. For the insurance contracts measured under the PAA, the Allianz Group decided to discount the future cash flows relating to incurred claims, even if those cash flows are expected to be paid or received in one year or less from the date the claims are incurred. Reserving process In the following, the term reserves is meant to include the present value of future cash flows, the risk adjustment and the CSM. For the business segments Life/Health and Property-Casualty, the central oversight process around reserve estimates includes the setting of group-wide standards and guidelines, regular site visits, as well as regular quantitative and qualitative reserve monitoring. The oversight and monitoring of the Allianz Group’s reserves in quarterly meetings of the Allianz Group Reserve culminate Committee, which is the supervising body that governs all significant reserves. It particularly monitors key developments across the Allianz Group affecting the level of the best estimate reserves. Life/Health reserves are subject to estimates and assumptions, especially on the life expectancy and health of an insured individual (mortality, longevity, and morbidity risk), on portfolio persistency (surrender and premium increase), and on the development of interest rates and investment returns (including asset-liability mismatch risk). These assumptions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition cash flows). To ensure consistency in the application of actuarial methods the the Life/Health and assumptions Allianz Group has designed a two-stage reserving process: in reserving process, Stage one: Life/Health reserves are calculated by qualified local staff experienced in the subsidiaries’ business. The process follows group-wide standards for applying consistent and reasonable assumptions. The appropriateness of the best-estimate reserves and their compliance with group-wide standards is confirmed by the local actuary. Stage two: The Allianz Group actuarial function regularly evaluates the local reserving processes as well as reserving results, including the appropriateness and consistency of the assumptions, 31 Rep monitors and approves the validation of the actuarial models, and analyzes the movements of the reserves. Any adjustments to the reserves and other insurance-related reporting items are reported to and analyzed together with the Allianz Group Reserve Committee. Property-Casualty reserves are set by leveraging the use of actuarial techniques and educated judgment. These include the best estimate of the cash flows (e.g. claims, premiums and expenses) and the discounting of the claims. A two-stage process exists for the setting of the Property-Casualty reserves in the Allianz Group: Stage one: Property-Casualty reserves are calculated by local reserving actuaries at the Allianz subsidiaries. The reserves are set on a best-estimate level based on a thorough analysis of historical data, enhanced by interactions with other business functions (e.g., Underwriting, Claims and Reinsurance). Actuarial judgment is applied where necessary, especially in cases where data is unreliable, scanty, or unavailable. The judgment of Property-Casualty actuaries is based on past experience of the characteristics of each line of business, the current stage of the underwriting cycle, and the external environment in which the subsidiary operates. The reserves are proposed to a local reserve committee, where the rationale of the selections is discussed and subsequently documented. A final decision on the reserve selection is made in the reserve committee. Local reserving models are validated periodically. Local actuaries are responsible for their compliance with the Group Actuarial Standards and Guidelines. Stage two: The Allianz Group Actuarial function forms an opinion on the best estimate level of the reserves proposed by the local entities. The Allianz Group Actuarial function challenges the operating entities’ selection through their continuous interaction with local teams and quarterly attendance in the local reserve committees. The ability to form a view on the reserve best-estimate level is further enabled by regular reviews of the local reserving practices. Such reviews consist of an evaluation of the appropriateness of models, methods, and assumptions, and an analysis of the movements of the reserves. Significant findings from these reviews are communicated in the Allianz Group Reserve Committee to initiate actions where necessary. The Allianz Group Actuarial function monitors and assesses the documentation of the validation work performed by the Allianz subsidiaries. the reserving process as well as of Distinction between financial and non-financial risk In general, the Allianz Group recognizes inflation as a financial risk for claims benefits and other insurance expenses (e.g. claims handling) only when inflation is contractually linked to an index. There are insurance products where the amounts to be paid are legally or contractually linked to an inflation-index such as a consumer price index. Interim reporting For the interim financial reporting, the Allianz Group chooses to change the treatment of accounting estimates made in previous interim financial statements when applying IFRS 17 in subsequent interim financial statements and in the annual reporting period, i.e. to apply the year-to-date approach. Investment contract liabilities Investment contract liabilities include financial liabilities of investment contracts without discretionary participation features accounted for under IFRS 9. The financial liabilities for those contracts are initially recognized at fair value, or the amount of the deposit by the contract holder, net of the transaction costs, that are directly attributable to the issuance of the contract. Subsequently, the non-unit-linked investment contracts are measured at amortized cost using the effective interest method, while the unit-linked contracts are recorded at fair value with changes in fair value recognized in the income statement. Other liabilities Pensions and similar obligations Pensions and similar obligations are measured at present value and presented net of plan assets by applying the provisions of IAS 19. For a reliable estimate of the obligations owed to employees, the Allianz Group makes separate estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as discount rates, inflation rates, compensation increases, pension increases, and rates of medical cost trends) for each material pension plan, considering the circumstances in the individual countries. Share-based compensation plans The share-based compensation plans of the Allianz Group are classified as either equity-settled or cash-settled plans. Where equity- settled plans involve equity instruments of Allianz SE, a corresponding increase in shareholders’ equity is recognized. Where equity-settled plans involve equity instruments of subsidiaries of the Allianz Group, the corresponding increase is recognized in non-controlling interests. Where expected tax deductions differ, in terms of amount and timing, Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements from the cumulative share-based payment expense recognized in profit or loss, deferred taxes are recognized on temporary differences. Lease liabilities The Allianz Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases and leases of low-value assets. Furthermore, the Allianz Group does not recognize right-of-use assets and lease liabilities for car leases. The expenses relating to the short- term leases and leases of low-value assets including car leases are expensed on a straight-line basis over the lease term. Equity Issued capital represents the mathematical per-share value received at the issuance of shares. Additional paid-in capital represents the premium exceeding the issued capital received at the issuance of shares. Retained earnings comprise the net income of the current year and of prior years not yet distributed, treasury shares, amounts recognized in other comprehensive income, and any amounts directly recognized in equity according to IFRS. Please refer to the section above for an explanation of foreign currency changes that are recognized in equity. The effective portion of gains and losses of hedging instruments designated as hedges of a net investment in a foreign operation is recognized in foreign currency translation adjustments. Other unrealized gains and losses (net) include unrealized gains and losses from investments at fair value through other comprehensive income and from derivative financial instruments that either meet the criteria for cash flow hedge accounting or, in the case of a fair value hedging relationship, hedge equity financial instruments that are designated to be measured at fair value through other comprehensive income. Undated subordinated debt comprises Restricted Tier 1 notes that qualify as equity instruments pursuant to IAS 32. The instruments are presented within shareholders’ equity and any related interest charges are classified as distributions from shareholders’ equity, without affecting profit and loss. The notes are measured at their historical value. In addition, notes denominated in foreign currencies are translated to Euro at the quarterly closing exchange rate. The corresponding foreign exchange differences are recognized as foreign currency translation adjustments in equity. Non-controlling interests represent equity in subsidiaries, not attributable directly or indirectly, to Allianz SE as parent. 32 Rep Insurance revenue Insurance revenue under the GMM/VFA The Allianz Group recognizes insurance revenue as it provides services under groups of insurance contracts. For contracts measured under the GMM or VFA, the insurance revenue relating to services provided for each reporting period represents the total of the changes in the LRC that relate to services for which the Allianz Group expects to receive consideration, and comprises the following items: − A release of the CSM, measured based on coverage units provided. − Changes in the risk adjustment for non-financial risk relating to current services. − Claims and other insurance service expenses incurred in the year, generally measured at the amounts expected at the beginning of the year, excluding amounts allocated to a potential loss component, repayments of investment components, insurance acquisition expenses, and amounts that relate to transaction- based taxes collected on behalf of third parties. − Other amounts, including experience adjustments for premium receipts for current or past services. Insurance revenue under the PAA In applying the PAA, insurance revenue for the period is the amount of expected premium receipts (excluding any investment component and adjusted to reflect the time value of money and the effect of financial risk, if applicable) allocated to the period. As such, for contracts measured under the PAA at the Allianz Group, the expected premium receipts are allocated to insurance revenue based on the passage of time, unless the expected pattern of incurring the insurance service expenses differs significantly from the passage of time, in which case the latter should be used. Insurance service expenses These expenses consist of claims and other insurance service expenses incurred during the period as well as the amortization of insurance acquisition cash flows, but exclude repayments of investment components. Furthermore, they include the changes in the fulfillment cash flows relating to the LIC, the losses on onerous groups of contracts and reversals of such losses and the impairment loss on the assets for the pre-coverage acquisition cash flows and the reversals of such losses. For the insurance contracts with direct participation features, it also includes an adjustment for experience adjustments of the non- financial underlying items. Insurance service expenses include only costs that relate directly to the fulfillment of the insurance contracts. The Allianz Group furthermore distinguishes between direct costs and overhead costs. Reinsurance result The Allianz Group applies the accounting policy option outlined in IFRS 17.86 to present income and expenses from a group of reinsurance contracts held, other than insurance finance income and expenses, as a single amount. Interest result Interest result is recognized on an accrual basis using the effective interest method. This line item also includes dividends from equity securities as well as income from investments in associates and joint ventures measured using the equity method. Dividends are recognized in income when the right to receive the dividend is established. Valuation result Valuation result includes all investment income and expenses as well as realized and unrealized gains and losses from financial assets and liabilities carried at fair value through profit and loss. In addition, commissions attributable to trading operations and related interest expenses, as well as refinancing and transaction costs are included in this line item. Foreign currency gains and losses on monetary items are also reported within valuation result. Net insurance finance expenses Net insurance finance expenses consist of finance income or expenses from insurance contracts issued and the finance income or expenses from reinsurance contracts held including the effect of time value of money and the effect of financial risk. It includes the interest accretion of the fulfillment cash flows and the CSM as well as the changes in the fulfillment cash flows due to changes in financial assumptions. For groups of insurance contracts with direct participation features, changes in the value of underlying items excluding additions and withdrawals are included in net insurance finance expense. Generally, the Allianz Group chooses to disaggregate the insurance finance income or expenses other than those arising from the risk mitigation option between profit or loss and other comprehensive income (OCI) based on a systematic allocation. Furthermore, the Allianz Group chooses to disaggregate the change in Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements risk adjustment for non-financial risk between a change related to non-financial risk and the effect of the time value of money and changes in the time value of money, which are included in net insurance finance expenses. For groups of insurance contracts accounted for under the GMM, the systematic allocation for the finance income or expenses is determined using the discount rates by which estimated future cash flows have been discounted on initial recognition, i.e. the “locked-in” interest rate. For Life/Health entities, the Allianz Group applies a cash- flow-weighted average of interest curves through the quarters. It means averaging each quarterly interest curve for each maturity over the cash flows with maturity over the quarters. For the indirect participating insurance contracts accounted for under the GMM, for which changes in assumptions that relate to financial risk have a substantial effect on the amounts paid to the policyholder, the systematic allocation for the finance income or expenses arising from the future cash flows is determined by using the effective yield approach or expected crediting rate approach for contracts that use a crediting rate to determine amounts due to the policyholders. An expected crediting rate approach uses an allocation that is based on the amounts credited in the period and expected to be credited in future periods based on the crediting strategy of the operating entities and under the contractual features. For the finance income or expenses arising from the CSM, a systematic allocation is determined using the “locked-in rate”. For groups of insurance contracts with direct participation features accounted for under the VFA, the Allianz Group generally holds the underlying items. The insurance finance income or expense included in profit or loss is the amount that exactly matches the income or expenses included in profit or loss for the underlying items (i.e., the current period book yield of the underlying items), resulting in the net of the separately presented items being nil. For groups of insurance contracts accounted for under the PAA, the systematic allocation for the finance income or expenses is determined using the discount rates at the date of the incurred claim, i.e. the “locked-in” interest rate based on accident year. For Property- Casualty entities, the Allianz approach is the simple average of interest curves through the quarters weighted by ¼ each. Net result from investment contracts The net result from investment contracts consists of changes to the investment contracts liabilities, benefits paid to the policyholders, acquisition costs, settlement costs and administrative expenses from 33 Rep unit-linked investment investment contracts and non-unit-linked contracts without discretionary participation features as well as investment investment income and expenses from unit-linked contracts. Fee and commission income Fee and commission income primarily consists of asset management fees which are recognized when the service is provided. For those fees, the service is considered to be provided periodically. Performance fees may not be recognized as fee income before the respective benchmark period is completed. Before its completion, the obligation to pay the fee is conditional, the fund performance is regularly not reliably estimable, and the related service is not fully performed. Carried interest is generally recognized as revenue on the date of the formal declaration of distribution by the investee and only earlier if sufficient evidence exists to support that it is highly probable that a significant reversal of carried interest revenue will not occur. The transaction price for asset management services is determined by the fees contractually agreed. Lease income Lease income from operating leases (excluding receipts for services provided such as insurance and maintenance, which are recognized directly as income) is recognized on a straight line basis over the lease term, even if the receipts are not on such a basis, for example upfront payments. Income taxes Current income taxes are calculated based on the respective local taxable income and local tax rules for the period. In addition, current income taxes presented for the period include adjustments for uncertain tax payments or tax refunds for periods not yet finally assessed, excluding interest expenses and penalties on the underpayment of taxes. In the event that amounts included in the tax return are considered unlikely to be accepted by the tax authorities (uncertain tax positions), a provision for income taxes is recognized. The amount is based on the best possible assessment of the tax payment expected. Tax refund claims from uncertain tax positions are recognized when it is probable that they can be realized. Deferred tax assets and liabilities are calculated for temporary differences between the tax bases and the financial statement carrying amounts, including differences from consolidation, unused tax loss carry- forwards, and unused tax credits. The measurement of deferred tax assets has to take into account estimates on the availability of future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur, and the availability of tax planning opportunities. The Allianz Group recognizes a valuation allowance for deferred tax assets when it is unlikely that a corresponding amount of future taxable profit will be available against which the deductible temporary differences, tax loss carry forwards, and tax credits can be utilized. First application of IFRS 9 and 17 General information The Allianz Group has initially applied IFRS 17 and IFRS 9, including any consequential amendments to other standards, from 1 January 2023. These standards have brought significant changes to the accounting for insurance contracts and financial instruments. IFRS 17 supersedes IFRS 4 and establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued, reinsurance contracts held, and investment contracts with discretionary participation features. Detailed qualitative and quantitative descriptions of the effects from the initial application of IFRS 17 on the Allianz Group’s financial statements have been included in Note 2 of the Annual Report 2022. IFRS 17 has to be applied retrospectively unless this is impracticable. Fulfillment cash flows are determined prospectively at every reporting date, including the date of initial application. However, the contractual service margin is rolled- forward over time, a split of profits between equity (“earned profits”) and contractual service margin (“unearned profits”) is required but is often judgmental. If a full retrospective application is impracticable, an entity can choose between a modified retrospective approach or a fair value approach. This accounting policy choice for the transition approach was made on a Group of Contract level. The decision involved the consideration of multiple criteria, such as availability of reliable and objective information, operational complexity, or the reasonableness of the split between earned and unearned profits. For contracts measured under the variable fee approach, the Allianz Group has generally applied the modified retrospective approach using the fair value of the underlying items as the basis from which to determine the contractual service margin at transition. The most significant portion of insurance contracts measured under the fair value approach is the life business in the U.S. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements The Allianz Group applied modifications under the modified retrospective approach only to the extent that it did not have reasonable and supportable information available to apply IFRS 17 retrospectively. Under the fair value approach, the contractual service margin of a group of contracts at transition is determined as the difference between the fair value of this group at transition determined in accordance with IFRS 13 and the corresponding IFRS 17 fulfillment cash flows measured at transition. Conceptually, the contractual service margin usually reflects the insurer’s expected future profits from writing business (entry price concept). Under the fair value approach, however, the contractual service margin reflects the margin an average market participant would require taking over the contracts (exit price concept). Therefore, when determining the fair value of a group of contracts, the Allianz Group replaces entity-specific assumptions with objective assumptions that an 34 Rep average market participant would use for pricing the liability. For this, the Allianz Group has determined the exit price either based on a real-world projection of the present value of future profits of the group of contracts or using an internal rate of return methodology based on distributable earnings. For most groups of contracts for which the internal rate of return methodology was applied, the Allianz Group used an internal rate of return of 13 %. Besides the determination of the contractual service margin, another crucial key topic at transition is the determination of historic interest rates. The Allianz Group makes use of the introduction of Solvency II, which is the general basis for the interest rates. IFRS 9, Financial Instruments, issued by the IASB in July 2014, fully replaces IAS 39 and provides a new approach on how to classify financial instruments based on their cash flow characteristics and the business model under which they are managed. Furthermore, the standard introduces a new for debt instruments and provides new rules for hedge accounting. forward-looking impairment model Given the strong interrelation between the measurement of direct participating insurance contracts and the underlying assets held, the Allianz Group decided to use the option to defer the full implementation of IFRS 9 until annual reporting periods beginning on or after 1 January 2023 when IFRS 17 came into effect. Upon transition to IFRS 17 and IFRS 9, the Allianz Group has elected to restate the comparative information of financial assets for IFRS 9. This includes the application of the classification overlay to all financial assets in the comparative period. In connection with the derecognized classification overlay, the Allianz Group also applies the impairment requirements of IFRS 9 to all financial assets in scope. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Transition from IAS 39 to IFRS 9 Transition from IAS 39 to IFRS 9 € mn FAIR VALUE THROUGH PROFIT OR LOSS From available for sale (IAS 39) From held to maturity (IAS 39) From fair value through profit or loss (IAS 39) From loans and advances to banks and customers (IAS 39) Total fair value through profit or loss FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME From available for sale (IAS 39) From held to maturity (IAS 39) From fair value through profit or loss (IAS 39) From loans and advances to banks and customers (IAS 39) Total fair value through other comprehensive income AMORTIZED COST From available for sale (IAS 39) From held to maturity (IAS 39) From fair value through profit or loss (IAS 39) From loans and advances to banks and customers (IAS 39) Total amortized cost OTHER ASSETS From receivables (in Other assets) (IAS 39) To receivables (in Other assets) at fair value through profit or loss CATEGORIES ACCORDING TO IAS 39 Fair value through profit or loss (IAS 39) Available for sale (IAS 39) Held to maturity (IAS 39) Loans and advances to banks and customers (IAS 39) Receivables (in Other assets) (IAS 39) Total financial assets balances (affected by IFRS 9) 35 Rep IAS 39 carrying amount 31 December 2022 (i) 17,254 499,044 2,867 125,975 586 645,726 Reclassifications (ii) 69,193 4 15,680 3,256 88,133 426,970 1,804 1,595 118,289 548,659 2,881 1,059 (21) 4,430 8,349 586 586 645,726 Remeasurements Accrued Interest IFRS 9 carrying amount 1 January 2023 (iii) (iv) (v) = (i) + (ii) + (iii)+(iv) 46 69,239 4 360 16,040 (1,069) 28 2,215 (1,069) 434 87,498 3,161 430,131 (165) 19 1,658 16 1,611 (8,509) 1,712 111,492 (8,675) 4,908 544,892 22 1 2,904 2 1,062 (20) (444) 10 3,996 (421) 14 7,942 (167) (2) 417 (167) (2) 417 (10,332) 5,353 640,748 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Further recently adopted accounting pronouncements In addition to the new accounting standards IFRS 9 and IFRS 17, the following amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2023: − − − − IAS 1, Disclosure of Accounting Policies, and Statement 2, Making Materiality Judgements, IAS 8, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates, IAS 12, Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction, IAS 12, International Tax Reform – Pillar Two Model Rules1. IFRS Practice These changes had no material impact on the Allianz Group's financial results or financial position. Recently issued accounting pronouncements The to standards and interpretations have been issued by the IASB but are not yet effective for or have not been adopted early by the Allianz Group. following amendments and revisions Standard/Interpretation Effective date IAS 1, Classification of Liabilities as Current or Non-current Annual periods beginning on or after 1 January 2024 IAS 1, Non-current Liabilities with Covenants Annual periods beginning on or after 1 January 2024 IFRS 16, Lease Liability in a Sale and Leaseback Annual periods beginning on or after 1 January 2024 IAS 7 and IFRS 7, Supplier Finance Arrangements Annual periods beginning on or after 1 January 2024 These amendments are not expected to have a material impact on the financial position and financial results of the Allianz Group. Early adoption is generally allowed but not intended by the Allianz Group. 1_Endorsement in the EU is still outstanding. 36 Rep 3 _ Consolidation and classification as held for sale Innovation Group Holdings Ltd., Whiteley On 12 January 2023, the Allianz Group completed the acquisition of 100 % of the shares of Innovation Group Holdings Ltd., Whiteley, a leading global provider of claims and technology solutions to the insurance and automotive sectors. Innovation Group’s capabilities will complement the Allianz Group’s existing claims management options. For example, Innovation Group operates a proprietary software platform to outsource claims management which enables largely automated claims management through a simple, intuitive user interface and connects all relevant participants, including data providers, in the claims process. The Allianz Group acquired identifiable assets and liabilities with a fair value of € 259 mn and € 402 mn, respectively. Expected cost synergies and future revenues from operating Innovation Group independently serving all customers are the main factors that make up the goodwill recognized in an amount of € 270 mn. Non-current assets and disposal groups classified as held for sale € mn As of 30 June 2023 As of 31 December 2022 Assets of disposal groups classified as held for sale African business operations1 2,298 2,549 Russian insurance operations 484 Allianz Lebanon 225 Other disposal groups 279 27 Subtotal 2,802 3,061 Non-current assets classified as held for sale Real estate held for investment 1 Real estate held for own use 1 1 Subtotal 2 1 Total 2,804 3,062 Liabilities of disposal groups classified as held for sale African business operations1 1,698 1,907 Russian insurance operations 775 Allianz Lebanon 316 Other disposal groups 37 160 Total 2,051 2,842 1_African business of the Global Insurance Lines is not affected. African business operations On 4 May 2022, the Allianz Group announced the conclusion of agreements to form a partnership with Sanlam Ltd., Cape Town, a non- banking financial service company in Africa, by contributing its African business operations and further capital contributions in consideration for a minority shareholding in the partnership. The assets and liabilities of the affected operations across Africa classified as held for sale are allocated to the reportable segments Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa (Property-Casualty and Life/Health). Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reclassified assets and liabilities € mn Cash and cash equivalents Investments Financial assets for unit-linked contracts Reinsurance contract assets Deferred tax assets Other assets Intangible assets Total assets Financial liabilities Insurance contract liabilities Deferred tax liabilities Other liabilities Total liabilities As of 30 June 2023, cumulative losses of € 191 mn were reported in other comprehensive income relating to the disposal group classified as held for sale mainly attributable to foreign currency translation effects. The disposal group is measured at its carrying amount. The formation of the partnership is subject to certain conditions precedent that Sanlam and/or the Allianz Group would be required to fulfill for each jurisdiction. The completion of the transaction is expected for the third quarter of 2023. Allianz Lebanon On 24 February 2023, the Allianz Group signed an agreement to dispose of 100 % of its Lebanese business operations to GGC SNA Holdings Limited. The sale was completed on 3 July 2023. The assets and liabilities of the Lebanese business operations classified as held for sale are allocated to the reportable segments Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa (Property-Casualty and Life/Health). 37 Rep 152 1,448 376 65 10 130 117 2,298 2 1,537 22 137 1,698 Reclassified assets and liabilities € mn Cash and cash equivalents Investments Financial assets for unit-linked contracts Reinsurance contract assets Other assets Total assets Insurance contract liabilities Other liabilities Total liabilities As of 30 June 2023, cumulative losses of € 136 mn were reported in other comprehensive income relating to the disposal group classified as held for sale mainly attributable to foreign currency translation effects of the hyperinflationary economy. The disposal group is measured at its carrying amount. On completion of the sale in the third quarter of 2023, in particular the required reclassification of the cumulative losses from other comprehensive income to profit or loss significantly contributed to the loss on disposal of € 142 mn, fully anticipated by the recognition of an onerous contract provision (included in other liabilities) in the second quarter of 2023. Sale of Russian business operations to Interholding LLC, Moscow Effective 17 May 2023, the Allianz Group disposed of 50 % plus one share in its Russian insurance operations to Interholding LLC, Moscow. The assets and liabilities of the Russian insurance operations classified as held for sale were allocated to the reportable segments German Speaking Countries and Central & Eastern Europe (Property- Casualty and Life/Health). On completion of the sale in the second quarter of 2023, in particular the required reclassification of the cumulative losses, largely consisting of foreign currency translation effects from the past, from other comprehensive income to profit or loss significantly contributed to the loss on disposal of € 435 mn, which was almost completely anticipated by the recognition of an onerous contract provision in the fourth quarter of 2022. 10 137 36 14 27 225 151 165 316 The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the six months ended 2023 was as follows: Impact of the disposal € mn Investments Reinsurance contract assets Deferred tax assets Other assets Insurance contract liabilities Deferred tax liabilities Other liabilities IFRS 5 impairment recognized in 2022 Release of onerous contract provision Loss on disposal Consideration received (non-cash) Proceeds from sale of the subsidiary, net of cash disposed1 1_Includes cash and cash equivalents at an amount of € 27 mn which were disposed of with the entity. Interim Report for the First Half-Year of 2023 − Allianz Group 355 16 10 20 (308) (5) (9) (28) 409 (435) (52) (27) B _ Condensed Consolidated Interim Financial Statements 4 _ Supplementary information on the consolidated statement of cash flows Supplementary information on the consolidated statement of cash flows € mn Six months ended 30 June 2023 Income taxes paid (from operating activities) (1,826) Dividends received (from operating activities) 2,164 Interest received (from operating activities) 9,831 Interest paid (from operating activities) (558) Changes in liabilities arising from financing activities € mn As of 1 January 2022 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2022 As of 1 January 2023 Net cash flows Non-cash transactions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Fair value and other changes As of 30 June 2023 38 Rep 2022 (1,872) 2,771 9,088 (467) Cash and cash equivalents € mn Balances with banks payable on demand Balances with central banks Cash on hand Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks Reverse repurchase agreements (due in three months or less) Expected credit losses Total Liabilities to banks and customers Certificated and sub- ordinated liabilities 17,270 21,988 1,809 (368) (2) 464 18 412 66 19,954 21,703 21,101 21,215 (391) (177) 1 (167) (6) 243 132 20,787 21,163 As of 30 June 2023 10,359 2,315 33 6,367 6,542 (4) 25,612 Lease liabilities 2,790 (205) 1 77 52 2,715 2,740 (191) 9 (23) 234 2,769 As of 31 December 2022 10,670 2,423 46 7,009 2,751 (3) 22,896 Total 42,047 1,237 (1) 560 530 44,373 45,057 (759) 10 (197) 609 44,719 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 5 _ Segment reporting The business activities of the Allianz Group are organized by product and type of service: insurance activities, asset management activities, and corporate and other activities. Due to differences in the nature of products, risks, and capital allocation, insurance activities are further divided into the business segments Property-Casualty and Life/Health. In accordance with the responsibilities of the Board of Management, each of the insurance business segments is grouped into the following reportable segments: − German Speaking Countries and Central & Eastern Europe, − Western & Southern Europe, Allianz Direct and Allianz Partners, − Asia Pacific, − USA (Life/Health only), − Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa. Both asset management as well as corporate and other activities represent separate reportable segments. In total, the Allianz Group has identified 11 reportable segments in accordance with IFRS 8. The types of products and services from which the reportable segments derive revenues are described below. Property-Casualty In the business segment Property-Casualty, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit, and travel insurance. Life/Health In the business segment Life/Health, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annuities, endowment and term insurance, unit-linked and investment-oriented products, as well as full private health, supplemental health, and long-term care insurance. Asset Management The reportable segment Asset Management operates as a global provider of institutional and retail asset management products and investment services to third-party investors. It also provides 39 Rep management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed- income funds as well as multi-assets and alternative products. The United States, Canada, Europe, and the Asia-Pacific region represent the primary asset management markets. Corporate and Other the The reportable segment Corporate and Other management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology, and other functions. Furthermore, it includes the banking activities in France, Italy, and Bulgaria, as well as digital investments. includes Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. Lease transactions are accounted for in accordance with IFRS, except for intra-group lease transactions which are classified as operating leases (i.e., off-balance sheet treatment by lessee) for internal and segment reporting purposes. Transactions between reportable segments are eliminated in the consolidation. Financial information is recorded based on reportable segments; cross-segmental country- specific information is not determined. The Allianz Group uses operating profit and shareholders’ core net income to evaluate the performance of its reportable segments as well as of the Allianz Group as a whole. Operating profit highlights the portion of income before income taxes that is attributable to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s underlying operating performance and the comparability of its operating performance over time. To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: − realized gains/losses (net), − expected credit loss allowance, − income from derivatives (net), − interest expenses from external debt, − impairments of investments (net), − valuation result from investments and other assets and financial − liabilities measured at FV-PL, specific acquisition and administrative expenses, consisting of acquisition-related expenses (from business combinations), income taxes related incidental benefits/expenses, litigation expenses, and one-time effects from significant reinsurance transactions with disposal character, − amortization of intangible assets, − − restructuring and integration expenses, and income and expenses from the application of hyperinflation accounting. The following exceptions apply to this general rule: In all reportable segments, the valuation result from investments and other assets and financial liabilities measured at FV-PL is treated as operating profit if it relates to operating business. − For life/health insurance business and property-casualty insurance products with policyholder participation, all items listed above are included in operating profit if the profit sources are shared with policyholders. − Shareholders’ core net income presents the shareholders’ portion of income before market movements and amortization of specific intangible assets from business combinations (including any related tax effects). The Allianz Group considers the presentation of shareholders’ core net income to be useful because it reduces the volatility and impact caused by non-operating items which are not attendant to the Allianz Group’s sustainable performance. the Allianz Group generally excludes the following non-operating items (including any related tax effects): When determining shareholders’ core net income, − Non-operating market movements: − valuation result from investments and other assets and − financial liabilities measured at FV-PL, and income from derivatives. − Non-operating amortization and impairments of intangible assets from business combinations except for insurance, investment or service contracts or agreements for the distribution of such contracts. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Operating profit and shareholders’ core net income should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as determined in accordance with IFRS. Business segment information – consolidated balance sheet € mn Property-Casualty As of 30 June 2023 As of 31 December 2022 ASSETS Cash and cash equivalents 5,584 5,342 Investments 112,396 110,442 Financial assets for unit-linked contracts Insurance contract assets 426 285 Reinsurance contract assets 10,237 10,173 Deferred tax assets 1,758 1,781 Other assets 22,336 22,211 Intangible assets 6,276 6,202 Total assets 159,013 156,436 LIABILITIES AND EQUITY Financial liabilities 1,640 2,004 Insurance contract liabilities 94,232 91,641 Reinsurance contract liabilities 77 19 Investment contract liabilities Deferred tax liabilities 1,743 1,661 Other liabilities 15,344 15,806 Total liabilities 113,035 111,130 Shareholders’ equity 44,549 43,848 Non-controlling interests 1,429 1,459 Total equity 45,978 45,306 Total liabilities and equity 159,013 156,436 40 Rep Effective 1 January 2023, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The insurance activities in Iberia & Latin America have been included in the reportable segment Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East Life/Health Asset Management As of 30 June 2023 As of 31 December 2022 As of 30 June 2023 As of 31 December 2022 15,359 12,040 1,129 1,290 561,674 550,968 1,012 1,046 148,892 141,034 51 42 15,068 15,450 4,649 4,914 359 307 15,581 17,599 5,777 5,687 4,555 4,517 7,528 7,615 765,828 746,563 15,805 15,945 19,705 16,185 106 135 660,614 649,184 947 239 51,435 47,827 1,982 2,482 121 125 9,402 10,196 5,197 5,542 744,085 726,112 5,424 5,802 20,136 18,923 10,272 10,024 1,607 1,528 109 119 21,743 20,451 10,381 10,143 765,828 746,563 15,805 15,945 and Africa. Greece was moved into the reportable segment Western & Southern Europe, Allianz Direct and Allianz Partners. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. Corporate and Other Consolidation Group As of 30 June 2023 As of 31 December 2022 As of 30 June 2023 As of 31 December 2022 As of 30 June 2023 As of 31 December 2022 3,748 4,515 (208) (292) 25,612 22,896 124,946 127,855 (98,735) (99,319) 701,292 690,991 148,892 141,034 477 327 (10) (18) 25,294 25,605 1,447 1,859 (2,323) (2,492) 5,890 6,369 8,822 8,422 (20,911) (23,686) 31,606 30,234 302 106 3 3 18,664 18,442 139,265 142,757 (122,184) (125,804) 957,728 935,897 40,876 39,675 (7,193) (6,689) 55,133 51,310 (16) (26) 754,829 740,799 1,024 257 51,435 47,827 466 363 (2,330) (2,472) 1,982 2,158 25,480 26,870 (20,922) (23,603) 34,501 34,810 66,822 66,908 (30,462) (32,790) 898,904 877,163 70,854 74,408 (91,493) (92,788) 54,318 54,415 1,589 1,441 (229) (227) 4,506 4,320 72,443 75,849 (91,722) (93,015) 58,823 58,735 139,265 142,757 (122,184) (125,804) 957,728 935,897 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group Six months ended 30 June 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Total business volume1 41,729 38,010 40,410 39,909 3,778 4,084 (329) (341) 85,588 81,663 Total revenues2 34,555 31,965 11,183 11,354 3,778 4,084 (315) (338) 49,201 47,065 Operating insurance service result Insurance revenue 33,338 30,749 11,183 11,354 (40) (48) 44,481 42,055 Claims and benefits (21,114) (20,309) (6,316) (6,395) 23 14 (27,407) (26,690) Acquisition and administrative expenses (8,276) (7,693) (2,788) (2,789) 41 27 (11,023) (10,455) Reinsurance result (1,295) (644) (90) (198) 7 32 (1,377) (811) Other insurance service result 3 (9) 51 (29) 1 54 (37) Subtotal 2,656 2,095 2,041 1,942 31 26 4,728 4,063 Operating investment result Operating net investment income, excluding interest expenses from external debt 1,509 1,602 13,585 (17,282) 30 (10) 201 201 269 364 15,594 (15,125) Net operating (re)insurance finance income (expenses) (269) (410) (13,234) 16,946 (13,504) 16,536 Subtotal 1,240 1,192 351 (336) 30 (10) 201 201 268 364 2,091 1,411 Operating result from investment contracts 97 95 33 43 130 138 Operating fee and commission result (24) 34 90 128 3,732 4,094 116 138 (376) (414) 3,537 3,980 Operating other result3 (17) (5) (57) (41) (2,336) (2,478) (604) (605) 42 75 (2,972) (3,055) Operating profit 3,855 3,316 2,521 1,787 1,426 1,605 (287) (265) (2) 94 7,513 6,536 Non-operating investment result Non-operating investment income (net) (228) (500) (218) 267 6 (7) (407) 392 1 (4) (846) 147 Interest expenses from external debt (291) (264) (291) (264) Subtotal (228) (500) (218) 267 6 (7) (698) 128 1 (4) (1,137) (117) Non-operating other result4 (264) (407) (125) (74) (18) (2,009) (33) (56) (440) (2,546) Income (loss) before income taxes 3,363 2,408 2,178 1,980 1,414 (411) (1,018) (193) (1) 90 5,936 3,874 Income taxes (859) (633) (440) (662) (361) (98) 371 217 (1) (23) (1,290) (1,199) Net income (loss) 2,503 1,775 1,738 1,318 1,054 (509) (647) 23 (2) 67 4,647 2,675 Net income (loss) attributable to: Non-controlling interests 71 54 98 71 88 88 21 11 (1) 278 223 Shareholders 2,432 1,721 1,640 1,247 966 (597) (668) 12 (2) 68 4,369 2,452 1_Total business volume comprises gross written premiums and fee and commission income in Property-Casualty, statutory gross premiums in Life/Health, and operating revenues in Asset Management. The definition of total business volume is comparable to the definition of total revenues previously used within the Allianz Group. The revenues from the banking business are, however, not part of the total business volume anymore as the remaining banking activities can be considered immaterial. Moreover, in Property-Casualty and in Life/Health, smaller adjustments to premiums at some entities are applied, following some interpretation/presentation changes. 2_Total revenues comprise insurance revenue and fee and commission income in Property-Casualty, insurance revenue in Life/Health, and operating revenues in Asset Management. 3_Includes acquisition and administrative expenses, other income, and other expenses. 4_Includes, if applicable, acquisition-related expenses, income taxes related incidental benefits/expenses, litigation expenses, one-time effects from significant reinsurance transactions with disposal character, and income and expenses from the application of hyperinflation accounting. Until 2022, the effects from the application of hyperinflation accounting were included in non-operating investment income (net). 41 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Business segment information – reconciliation of income (loss) before income taxes to shareholders’ core net income (loss) € mn Property-Casualty Life/Health Asset Management Six months ended 30 June 2023 2022 2023 2022 2023 2022 Income (loss) before income taxes 3,363 2,408 2,178 1,980 1,414 (411) Adjustment for non-operating market movements 105 237 (15) 73 (7) 4 Adjustment for amortization of intangible assets from business combinations 41 41 6 5 1 2 Core income (loss) before income taxes 3,509 2,686 2,169 2,057 1,408 (405) Income taxes related to core income (loss) (881) (766) (439) (675) (359) (98) Core net income (loss) 2,628 1,920 1,730 1,382 1,050 (503) thereof: Shareholders' core net income (loss) 2,556 1,852 1,638 1,317 961 (592) For steering purposes, the Allianz Group classifies certain income and expenses differently than required by IFRS as this is considered to provide more meaningful information. The main line items affected are the operating insurance service result, the operating net result from investment contracts, and the operating net investment income. The Allianz Group uses operating insurance service result as a performance indicator. In contrast to the IFRS 17 definition of insurance service result, the following components not included in the IFRS insurance service result are included in the operating insurance service result: − non-attributable acquisition, administrative, and claims expenses which under IFRS 4 were also included in the underwriting result. These expenses are line acquisition and administrative expenses in the consolidated income statement1; − adjustments for experience variances at claims and expenses if the technical result the consolidated income statement, these experience variances are part of the net insurance finance expenses; specific restructuring charges and amortization of intangible assets which are shared with the policyholders. included in the is shared with the policyholders. In − 1_For the following reconciliation, non-attributable acquisition, administrative, and claims expenses and restructuring charges and amortization of intangible assets are included in the line Other result. 42 Rep Corporate and Other Consolidation Group 2023 2022 2023 2022 2023 2022 (1,018) (193) (1) 90 5,936 3,874 295 (298) 1 (1) 379 15 6 4 53 52 (717) (487) 90 6,369 3,941 294 321 (1) (23) (1,385) (1,241) (423) (166) (1) 67 4,983 2,700 (466) (179) (1) 67 4,690 2,466 For a better analysis of the result from investment contracts, all related income and expenses are included in the line operating result from investment contracts. For this, fee and commission income and expenses as well as net investment income are reclassified from the respective line items in the Group income statement. Fee and commission income and expenses are reclassified to operating net investment income if they are related to insurance contracts. The following table reconciles the amounts in the consolidated group the reconciliation of operating profit (loss) to net income (loss) (OP reconciliation). income statement to the amounts presented in Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation for special line items between Group income statement and reconciliation of operating profit to net income € mn Consolidated income statement line items Consolidated income statement Reclassification of non- attributable expenses Reclassification of variances and restructuring expenses Six months ended 30 June 2023 2022 2023 2022 2023 2022 Insurance revenue 44,481 42,055 Insurance service expenses (36,810) (35,710) thereof incurred claims and other insurance service expenses (27,360) (26,669) (47) (21) thereof acquisition and administrative expenses (9,451) (9,041) (1,572) (1,414) Reinsurance result (1,377) (811) 54 (37) Insurance service result 6,293 5,534 (1,619) (1,435) 54 (37) Net investment income 14,414 (15,211) Net insurance finance expenses (13,421) 16,550 (83) (14) Fee and commission income and expenses (net) 3,807 4,125 Net result from investment contracts (97) (38) Other result1 (5,060) (7,086) 1,619 1,435 29 51 Income before income taxes 5,936 3,874 Income taxes (1,290) (1,199) Net income 4,647 2,675 1_Includes acquisition and administrative expenses, other income, other expenses, amortization of intangible assets, and restructuring and integration expenses. 43 Rep Reclassification of income related to investment contracts 2023 2022 (140) (63) (87) (113) 227 176 Reclassification of fee income related to insurance contracts 2023 2022 182 32 (182) (32) OP reconciliation OP reconciliation line items 2023 2022 44,481 42,055 Insurance revenue Claims and benefits (27,407) (26,690) (11,023) (10,455) Acquisition and administrative expenses (1,377) (811) Reinsurance result 54 (37) Other insurance service result 4,728 4,063 Operating insurance service result 14,457 (15,242) Net investment income 15,594 (15,125) thereof operating net investment income (846) 147 thereof non-operating net investment income (291) (264) thereof interest expenses from external debt (13,504) 16,536 Net insurance finance income (expenses) 3,537 3,980 Operating fee and commission income and expenses (net) 130 138 Operating net result from investment contracts (3,411) (5,600) Other result (2,972) (3,055) thereof operating other result (440) (2,546) thereof non-operating other result 5,936 3,874 Income before income taxes (1,290) (1,199) Income taxes 4,647 2,675 Net income Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of reportable segments to Allianz Group figures € mn Total business volume Six months ended 30 June 2023 2022 German Speaking Countries and Central & Eastern Europe 11,284 10,668 Western & Southern Europe, Allianz Direct and Allianz Partners 12,216 10,753 Asia Pacific 3,251 2,947 Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa 17,925 16,156 Consolidation (2,946) (2,515) Total Property-Casualty 41,729 38,010 German Speaking Countries and Central & Eastern Europe 16,485 16,313 Western & Southern Europe 10,356 11,402 Asia Pacific 3,020 3,585 USA 9,427 7,481 Global Insurance Lines & Anglo Markets, Iberia & Latin America, Middle East and Africa 1,225 1,260 Consolidation and Other (103) (132) Total Life/Health 40,410 39,909 Asset Management 3,778 4,084 Corporate and Other Consolidation (329) (341) Group 85,588 81,663 44 Rep Operating profit (loss) 2023 1,274 977 152 1,452 3,855 903 703 299 535 106 (24) 2,521 1,426 (287) (2) 7,513 2022 1,153 804 179 1,179 3,316 895 671 245 (81) 80 (22) 1,787 1,605 (265) 94 6,536 Shareholders' core net income (loss) 2023 2022 861 674 665 378 95 105 935 695 2,556 1,852 632 630 438 448 206 181 440 (7) (57) 81 (20) (16) 1,638 1,317 961 (592) (466) (179) (1) 67 4,690 2,466 Net income (loss) 2023 845 648 115 895 2,503 644 470 246 452 (52) (20) 1,738 1,054 (647) (2) 4,647 2022 658 338 99 680 1,775 618 468 217 (41) 72 (16) 1,318 (509) 23 67 2,675 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6 _ INSURANCE OPERATIONS 6.1 _ Insurance revenue Insurance revenue € mn Six months ended 30 June Insurance revenue from contracts measured under the PAA Insurance revenue from contracts not measured under the PAA Amounts relating to changes in the liability for remaining coverage Insurance service expenses incurred CSM recognized for services provided Change in the risk adjustment Other Recovery of insurance acquisition cash flows Subtotal Total 6.2 _ Insurance service expenses Insurance service expenses € mn Six months ended 30 June Incurred claims Acquisition and administrative expenses Total 45 Rep Property-Casualty 2023 33,163 93 55 2 5 20 175 33,338 Property-Casualty 2023 (21,077) (7,228) (28,305) 2022 30,524 145 51 3 4 21 225 30,749 2022 (20,296) (6,760) (27,056) Life/Health 2023 537 6,663 2,460 257 (25) 1,291 10,646 11,183 Life/Health 2023 (6,306) (2,274) (8,580) 2022 475 6,761 2,355 275 110 1,377 10,879 11,354 2022 (6,387) (2,324) (8,711) Consolidation 2023 (17) (26) (11) 13 (24) (40) Consolidation 2023 23 51 74 Group 2022 2023 2022 (14) 33,683 30,986 (37) 6,730 6,870 (8) 2,504 2,398 259 279 11 (6) 125 1,310 1,398 (34) 10,798 11,070 (48) 44,481 42,055 Group 2022 2023 2022 14 (27,360) (26,669) 43 (9,451) (9,041) 57 (36,810) (35,710) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.3 _ Reinsurance result Reinsurance result € mn Six months ended 30 June Allocation of reinsurance premiums Amounts recoverable from reinsurers for incurred claims Total 46 Rep Property-Casualty 2023 (3,098) 1,804 (1,295) 2022 (2,616) 1,972 (644) Life/Health 2023 (1,521) 1,431 (90) 2022 (1,405) 1,206 (198) Consolidation 2023 29 (22) 7 Group 2022 2023 2022 52 (4,590) (3,968) (20) 3,213 3,157 32 (1,377) (811) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.4 _ Total investment result The following table analyzes the Allianz Group’s total investment result recognized in profit or loss and OCI in the period: Total investment result € mn Six months ended 30 June 2023 2022 Property-Casualty Life/Health Consolidation Total Property-Casualty Life/Health Consolidation Total Total investment income Interest result 2,013 10,210 12,223 1,714 10,282 11,996 Realized gains/losses (net) (160) (2,676) (2,836) 1,067 1,067 Valuation result (340) 6,635 6,295 (389) (27,482) (27,870) Investment expenses (232) (879) 1 (1,110) (224) (850) 1 (1,074) Amounts recognized in OCI 1,167 8,722 9,889 (9,450) (103,866) (113,316) Subtotal 2,448 22,013 1 24,461 (8,348) (120,850) 1 (129,197) Net insurance finance result Finance income (expenses) from insurance contracts (net) Interest accreted (510) (3,047) (3,556) (315) (2,686) 1 (3,000) Effect of changes in interest rates and other financial assumptions (373) (3,257) (1) (3,631) 5,522 28,347 (1) 33,868 Change in fair value of underlying items (137) (15,173) (15,310) 1,470 93,378 94,848 Effects of risk mitigation option 421 421 1,008 1,008 Foreign exchange gains (losses) (net)1 18 (53) (35) (171) (121) (292) Subtotal (1,002) (21,108) (1) (22,111) 6,507 119,925 126,432 Recognized in profit or loss (405) (13,315) (13,720) (560) 16,055 2 15,497 Recognized in OCI (597) (7,793) (1) (8,391) 7,066 103,870 (2) 110,934 Finance income (expenses) from reinsurance contracts (net) Interest accreted 109 226 335 88 256 343 Effect of changes in interest rates and other finance income (expenses) (net) 127 (250) (11) (135) (751) (1,986) 2 (2,735) Foreign exchange gains (losses) (net)1 23 23 41 41 Subtotal 258 (24) (11) 223 (622) (1,730) 2 (2,350) Recognized in profit or loss 139 161 300 141 913 1,053 Recognized in OCI 120 (185) (11) (76) (763) (2,642) 2 (3,403) Total 1,704 880 (11) 2,573 (2,464) (2,654) 3 (5,116) Amounts recognized in P&L 1,014 136 1 1,151 682 (16) 2 669 Amounts recognized in OCI 690 744 (12) 1,422 (3,147) (2,638) (5,785) 1_Foreign exchange gains(losses) (net) are included in the line foreign currency translation adjustments for the analysis of movements in insurance and reinsurance contract balances in notes 6.6 and 6.7. The remaining deviation from the amounts disclosed as finance income (expenses) (net) in notes 6.6 and 6.7 results from different exchange rates used for the translation of profit and loss and balance sheet amounts. 47 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.5 _ Insurance and reinsurance contract balances The following tables show the composition of reinsurance contract balances. insurance and Insurance contracts1 € mn Property-Casualty Liability for remaining coverage Contracts measured under the PAA 23,663 Receivables (15,509) Payables and deposits 1,580 Subtotal 9,734 Contracts not measured under the PAA1 Present value of future cash 2 6,773 Risk adjustment 73 CSM 1,220 Receivables (178) Payables and deposits 35 Subtotal 7,924 Subtotal 17,657 thereof asset for acquisition cash flows (1,219) Liability for incurred claims Contracts measured under the PAA Present value of future cash flows 72,952 Risk adjustment 1,843 Receivables (368) Payables and deposits 1,453 Subtotal 75,880 Contracts not measured under the PAA1 Present value of future cash flows 214 Risk adjustment 54 Receivables Payables and deposits Subtotal 268 Subtotal 76,148 Total 93,806 1_Amounts relevant for the analysis by measurement component in note 6.6. 2_Includes € 108,122 mn future discretionary benefits. 1_Insurance contract liabilities net of insurance contract assets. 48 Rep As of 30 June 2023 Life/Health 1,295 (290) 8 1,012 593,999 5,227 52,854 (2,889) 1,814 651,005 652,017 (36) 323 1 189 513 7,662 60 311 8,033 8,546 660,563 Consolidation (4) (1) (2) (8) 20 (1) (19) 25 (1) 24 15 (13) (2) (15) (25) 8 (17) (31) (16) Total 24,953 (15,801) 1,586 10,738 600,791 5,298 54,055 (3,042) 1,849 658,952 669,690 (1,255) 73,262 1,844 (368) 1,640 76,379 7,850 114 319 8,284 84,662 754,352 Property-Casualty 18,872 (12,473) 1,734 8,133 7,023 65 1,172 (126) 43 8,176 16,309 (1,258) 71,906 1,862 (212) 1,230 74,786 205 58 262 75,048 91,356 As of 31 December 2022 Life/Health Consolidation Total 1,381 (1) 20,251 (4) (4) (12,481) 11 (6) 1,739 1,387 (11) 9,509 582,698 3 589,724 5,194 (5) 5,255 52,227 (16) 53,382 (2,738) 29 (2,835) 2,163 (1) 2,205 639,544 11 647,731 640,931 657,240 (36) (1,294) 298 (7) 72,197 1 (1) 1,862 (212) 129 (1) 1,358 428 (9) 75,204 7,489 (26) 7,667 44 1 102 251 8 259 7,783 (17) 8,028 8,211 (26) 83,232 649,142 (26) 740,472 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reinsurance contracts1 € mn Asset for remaining coverage Contracts measured under the PAA Deposits Receivables Payables Subtotal Contracts not measured under the PAA1 Present value of future cash flows Risk adjustment CSM Deposits Receivables Payables Subtotal Subtotal Asset for incurred claims Contracts measured under the PAA Present value of future cash flows Risk adjustment Deposits Receivables Payables Subtotal Contracts not measured under the PAA1 Present value of future cash flows Risk adjustment Deposits Receivables Payables Subtotal Subtotal Total 1_Amounts relevant for the analysis by measurement component in note 6.7. 1_Reinsurance contract assets net of reinsurance contract liabilities. 49 Rep Property-Casualty 2,738 (186) (20) (3,577) (1,044) (12) 6 17 (1) (18) (9) (1,053) 10,652 333 (1,270) 266 (36) 9,944 774 26 488 (19) 1,269 11,213 10,160 As of 30 June 2023 Life/Health 1,561 (11) 1,550 33,151 1,186 1,916 (23,585) 65 (925) 11,808 13,359 39 116 156 469 9 (173) 305 (3) 606 762 14,121 Consolidation (4) (6) 46 36 (8) 6 10 6 14 50 (39) 5 (79) (112) (5) 58 52 (60) (10) Total 4,295 (191) (20) (3,542) 543 33,131 1,191 1,940 (23,577) 65 (937) 11,813 12,356 10,652 333 (1,265) 303 (36) 9,988 1,238 34 (174) 851 (22) 1,927 11,915 24,271 Property-Casualty 1,953 (257) 44 (2,583) (843) (15) 4 19 (7) 1 (841) 10,245 344 (1,280) 900 (67) 10,141 831 29 (1) 2 (7) 855 10,996 10,155 As of 31 December 2022 Life/Health Consolidation Total 880 (4) 2,830 5 (252) (4) 41 6 9 (2,568) 887 6 50 35,013 (7) 34,991 1,275 (1) 1,279 1,950 6 1,976 (24,061) (24,061) 48 49 (534) 24 (518) 13,692 23 13,716 14,579 29 13,767 43 (36) 10,252 (1) 342 5 (1,275) 118 (12) 1,006 (1) 3 (65) 160 (41) 10,260 369 (6) 1,195 (7) 1 23 (175) (175) 290 (1) 291 (6) (12) 472 (6) 1,321 632 (47) 11,581 15,211 (18) 25,347 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.6 _ Movements in insurance contract balances The following tables analyze the movements in the net insurance contract liabilities during the reporting period. Analysis by remaining coverage and incurred claims – Allianz Group € mn Insurance contract assets as of 1 January Insurance contract liabilities as of 1 January Net insurance contract liabilities as of 1 January Insurance revenue Insurance service expenses Incurred claims and other incurred insurance service expenses Amortization of insurance acquisition cash flows Changes in the liability for incurred claims Losses on onerous groups of contracts and reversals of such losses Impairments of assets for insurance acquisition cash flows Subtotal Investment component Cash flows in the period Premiums received Insurance acquisition cash flows Incurred claims paid and other insurance service expenses paid Deposits Receivables and payables (net) Subtotal Finance income and expenses from insurance contracts (net) Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes Net insurance contract liabilities as of 30 June/31 December Insurance contract assets as of 30 June/31 December Insurance contract liabilities as of 30 June/31 December 50 Rep The first set of tables analyzes the movements in the liability for remaining coverage and incurred claims for the liability for Allianz Group and the reportable segments. The second set analyzes the movements of contracts not measured under the PAA by 2023 Liability for remaining coverage Liability for incurred claims Total Contracts measured under the PAA Excluding loss component Loss component Contracts not measured under the PAA Present value of future cash flows Risk adjustment (534) 207 (327) 657,213 560 8,028 73,136 1,862 740,799 656,680 560 8,028 73,342 1,862 740,472 (44,481) (44,481) (814) 9,104 8,939 17,228 4,274 4,274 1,416 14,001 (9) 15,407 (101) (101) 1 1 3,461 (101) 10,519 22,940 (9) 36,810 (23,098) 22,588 510 75,641 75,641 (9,197) (9,197) (32,979) (23,130) (56,109) 35 4 9 48 (4,001) 81 145 (3,776) 62,479 (32,894) (22,976) 6,609 21,075 65 892 23 22,055 (3,826) (26) (412) (13) (4,277) 5 (8) 5 19 21 (76) (10) (4) (90) (2,958) (22) 9 223 (19) (2,768) 669,261 429 8,284 74,535 1,844 754,352 (671) 12 182 (477) 669,931 429 8,272 74,353 1,844 754,829 measurement components. The corresponding analyses reinsurance contracts are included in note 6.7. for 2022 Liability for remaining coverage Liability for incurred claims Total Contracts measured under the PAA Excluding loss component Loss component Contracts not measured under the PAA Present value of future cash flows Risk adjustment (50) 14 (36) 795,468 434 8,459 76,616 2,273 883,250 795,418 434 8,459 76,630 2,273 883,214 (86,985) (86,985) 5,825 10,670 23,327 39,821 8,972 8,972 3,437 21,709 (154) 24,992 86 86 40 40 14,837 86 14,107 45,036 (154) 73,911 (46,270) 45,150 1,120 137,216 137,216 (17,275) (17,275) (59,052) (43,634) (102,686) 19 (4) (38) (23) (875) (187) 49 (1,013) 119,085 (59,243) (43,624) 16,219 (147,552) (380) (6,472) (201) (154,605) 11,362 9 4 472 11 11,859 63 6 69 (1,893) (50) (444) (3) (2,390) (1,322) 32 (19) 562 (71) (818) 656,680 560 8,028 73,342 1,862 740,472 (534) 207 (327) 657,213 560 8,028 73,136 1,862 740,799 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by remaining coverage incurred claims – Property-Casualty € mn Insurance contract assets as of 1 January Insurance contract liabilities as of 1 January Net insurance contract liabilities as of 1 January Insurance revenue Insurance service expenses Incurred claims and other incurred insurance service expenses Amortization of insurance acquisition cash flows Changes in the liability for incurred claims Losses and reversal of losses on onerous groups of contracts Impairments of assets for insurance acquisition cash flows Subtotal Investment component Cash flows in the period Premiums received Insurance acquisition cash flows Incurred claims paid and other insurance service expenses paid Deposits Receivables and payables (net) Subtotal Finance income and expenses from insurance contracts (net) Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes Net insurance contract liabilities as of 30 June/31 December Insurance contract assets as of 30 June/31 December Insurance contract liabilities as of 30 June/31 December 51 Rep Liability for remaining coverage Excluding loss component Loss component (475) 16,388 395 15,914 395 (33,338) 2,356 3,224 (82) 1 5,580 (82) (966) 39,848 (6,150) 36 (3,209) 30,526 136 (4) 1 (102) (384) (18) 17,363 295 (602) 17,965 295 2023 Liability for incurred claims Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 190 262 72,734 1,862 262 72,924 1,862 115 8,604 132 13,965 (9) 247 22,569 (9) 456 510 (701) (22,796) 9 4 86 (697) (22,701) 2 891 22 (1) (408) (13) 3 19 (3) (8) (1) 242 (19) 268 74,038 1,843 176 268 73,861 1,843 Total (285) 91,641 91,356 (33,338) 11,075 3,224 14,088 (82) 1 28,305 39,848 (6,150) (23,497) 45 (3,119) 7,128 1,051 (427) 23 (113) (180) 93,806 (426) 94,232 Liability for remaining coverage Excluding loss component Loss component (5) 18,402 288 18,396 288 (63,963) 4,344 6,737 78 26 11,107 78 (1,941) 68,168 (11,525) (76) (1,036) 55,530 (1,865) (5) (221) (1,125) 29 15,914 395 (475) 16,388 395 2022 Liability for incurred claims Total Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment (5) 384 76,279 2,275 97,627 384 76,279 2,275 97,622 (63,963) 294 23,009 27,647 6,737 7 21,697 (156) 21,547 78 26 301 44,705 (156) 56,035 929 1,012 68,168 (11,525) (1,434) (43,199) (44,632) (38) (114) 10 1 (1,027) (1,424) (43,238) 10,868 (26) (6,469) (201) (8,560) 11 474 11 491 63 6 69 (10) (432) (2) (665) 97 529 (71) (541) 262 72,924 1,862 91,356 190 (285) 262 72,734 1,862 91,641 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by remaining coverage and incurred claims – Life/Health € mn Insurance contract assets as of 1 January Insurance contract liabilities as of 1 January Net insurance contract liabilities as of 1 January Insurance revenue Insurance service expenses Incurred claims and other incurred insurance service expenses Amortization of insurance acquisition cash flows Changes in the liability for incurred claims Losses and reversal of losses on onerous groups of contracts Impairments of assets for insurance acquisition cash flows Subtotal Investment component Cash flows in the period Premiums received Insurance acquisition cash flows Incurred claims paid and other insurance service expenses paid Deposits Receivables and payables (net) Subtotal Finance income and expenses from insurance contracts (net) Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes Net insurance contract liabilities as of 30 June/31 December Insurance contract assets as of 30 June/31 December Insurance contract liabilities as of 30 June/31 December 52 Rep Liability for remaining coverage Excluding loss component Loss component (59) 640,813 177 640,754 177 (11,183) (3,168) 1,052 (18) (2,116) (18) (22,136) 35,844 (3,049) (1) (795) 31,999 20,938 (3,822) 4 (8) 26 (2,582) (15) 651,882 135 (68) 651,951 135 2023 Liability for incurred claims Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 17 7,783 410 1 7,783 427 1 9,034 340 1,313 27 (1) 10,348 366 (1) 22,136 (32,355) (332) 4 77 60 (32,274) (272) 63 2 (25) (4) 2 (7) 4 6 (11) 8,033 512 1 12 6 8,021 507 1 Total (42) 649,184 649,142 (11,183) 6,207 1,052 1,339 (18) 8,580 35,844 (3,049) (32,687) 3 (658) (547) 21,002 (3,851) (2) 23 (2,601) 660,563 (51) 660,614 Liability for remaining coverage Excluding loss component Loss component (45) 777,046 158 777,001 158 (23,114) 1,482 2,236 7 14 3,732 7 (44,331) 69,131 (5,752) 95 167 63,641 (145,688) 11,366 9 (1,674) (180) 3 640,754 177 (59) 640,813 177 2022 Liability for incurred claims Total Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 13 (31) 8,108 343 2 785,656 8,108 356 2 785,625 (23,114) 10,462 345 12,290 2,236 3,458 20 3,478 7 14 13,920 366 18,026 44,223 107 69,131 (5,752) (57,746) (466) (58,212) (3) 93 (203) 54 19 (57,951) (411) 5,278 (357) (3) (146,048) (7) (1) 11,367 (40) (12) (1) (1,727) (114) 26 (266) 7,783 427 1 649,142 17 (42) 7,783 410 1 649,184 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Allianz Group € mn 2023 Present value of future cash flows Risk adjustment Insurance contract assets as of 1 January (1) Insurance contract liabilities as of 1 January 597,022 5,357 Net insurance contract liabilities as of 1 January 597,021 5,357 Changes that relate to current service CSM recognized for the services provided Change in RA, that does not relate to future or past service (259) Experience adjustments (108) Subtotal (108) (259) Changes that relate to future service Changes in estimates that adjust CSM (1,505) 129 Changes in estimates that do not adjust CSM (losses on groups of onerous contracts and reversals of such losses) (18) Effects of contracts initially recognized in the period (2,678) 196 Subtotal (4,202) 325 Changes that relate to past service Changes in fulfillment cash flows relating to incurred claims (changes in the liability for incurred claims) 121 13 Cash flows in the period Premiums received for insurance contracts issued 35,473 Insurance acquisition cash flows (2,783) Incurred claims paid and other insurance service expenses paid, including Investment component (32,916) Deposits 3 Receivables and payables (net) (493) Subtotal (715) Finance income and expenses from insurance contracts (net) 20,802 42 Foreign currency translation adjustments (3,305) (62) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes (1,815) (4) Net insurance contract liabilities as of 30 June/31 December 607,799 5,412 Insurance contract assets as of 30 June/31 December (31) Insurance contract liabilities as of 30 June/31 December 607,830 5,412 53 Rep CSM 53,382 53,382 (2,504) (2,504) 1,376 2,483 3,859 295 (322) (655) 54,055 54,055 Total (1) 655,761 655,760 (2,504) (259) (108) (2,871) (18) (18) 134 35,473 (2,783) (32,916) 3 (493) (715) 21,140 (3,688) (2,475) 667,267 (31) 667,297 Present value of future cash flows 727,909 727,909 171 171 7,416 12 (5,083) 2,345 218 68,436 (5,214) (59,011) 91 (491) 3,811 (147,755) 10,861 (262) (277) 597,021 (1) 597,022 2022 Risk adjustment CSM Total 6,602 59,381 793,892 6,602 59,381 793,892 (5,117) (5,117) (573) (573) 171 (573) (5,117) (5,519) (605) (6,749) 62 12 506 4,577 (99) (2,172) 75 (17) 201 68,436 (5,214) (59,011) 91 (491) 3,811 (721) 544 (147,933) 261 694 11,816 (2) (17) (281) (95) 69 (303) 5,357 53,382 655,760 (1) 5,357 53,382 655,761 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Property-Casualty € mn 2023 Present value of future cash flows Risk adjustment Insurance contract assets as of 1 January Insurance contract liabilities as of 1 January 7,144 123 Net insurance contract liabilities as of 1 January 7,144 123 Changes that relate to current service CSM recognized for the services provided Change in RA, that does not relate to future or past service (2) Experience adjustments 114 Subtotal 114 (2) Changes that relate to future service Changes in estimates that adjust CSM (66) 5 Changes in estimates that do not adjust CSM (losses on groups of onerous contracts and reversals of such losses) Effects of contracts initially recognized in the period (47) 5 Subtotal (113) 10 Changes that relate to past service Changes in fulfillment cash flows relating to incurred claims (changes in the liability for incurred claims) 7 (2) Cash flows in the period Premiums received for insurance contracts issued 324 Insurance acquisition cash flows (57) Incurred claims paid and other insurance service expenses paid, including investment component (653) Deposits Receivables and payables (net) (58) Subtotal (444) Finance income and expenses from insurance contracts (net) 138 1 Foreign currency translation adjustments (1) (1) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes (1) Net insurance contract liabilities as of 30 June/31 December 6,844 127 Insurance contract assets as of 30 June/31 December Insurance contract liabilities as of 30 June/31 December 6,844 127 54 Rep CSM 1,172 1,172 (55) (55) 60 43 103 1,220 1,220 Total 8,438 8,438 (55) (2) 114 57 5 324 (57) (653) (58) (444) 139 (2) (1) 8,192 8,192 Present value of future cash flows 9,667 9,667 246 246 172 5 (93) 83 (101) 675 (98) (1,421) (28) (872) (1,884) 11 (6) 7,144 7,144 2022 Risk adjustment CSM Total 139 1,351 11,157 139 1,351 11,157 (107) (107) (9) (9) 246 (9) (107) 130 (195) 23 5 193 (100) (2) (76) 5 (6) (107) 675 (98) (1,421) (28) (872) (6) (1,891) 4 14 3 4 1 123 1,172 8,438 123 1,172 8,438 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Life/Health € mn Present value of future cash flows Insurance contract assets as of 1 January (1) Insurance contract liabilities as of 1 January 589,864 Net insurance contract liabilities as of 1 January 589,863 Changes that relate to current service CSM recognized for the services provided Change in RA, that does not relate to future or past service Experience adjustments (159) Subtotal (159) Changes that relate to future service Changes in estimates that adjust CSM (1,442) Changes in estimates that do not adjust CSM (losses on groups of onerous contracts and reversals of such losses) (18) Effects of contracts initially recognized in the period (2,641) Subtotal (4,101) Changes that relate to past service Changes in fulfillment cash flows relating to incurred claims (changes in the liability for incurred claims) 114 Cash flows in the period Premiums received for insurance contracts issued 35,187 Insurance acquisition cash flows (2,726) Incurred claims paid and other insurance service expenses paid, including Investment component (32,339) Deposits 3 Receivables and payables (net) (431) Subtotal (306) Finance income and expenses from insurance contracts (net) 20,664 Foreign currency translation adjustments (3,303) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes (1,844) Net insurance contract liabilities as of 30 June/31 December 600,927 Insurance contract assets as of 30 June/31 December (31) Insurance contract liabilities as of 30 June/31 December 600,958 55 Rep 2023 Risk adjustment 5,238 5,238 (257) (257) 120 192 312 17 41 (61) (4) 5,287 5,287 CSM 52,227 52,227 (2,460) (2,460) 1,321 2,450 3,771 295 (323) (655) 52,854 52,854 Total (1) 647,329 647,328 (2,460) (257) (159) (2,876) (18) (18) 131 35,187 (2,726) (32,339) 3 (431) (306) 21,000 (3,687) (2,503) 659,068 (31) 659,099 Present value of future cash flows 718,219 718,219 51 51 7,232 7 (5,008) 2,231 318 67,812 (5,116) (57,738) 93 (447) 4,603 (145,875) 10,850 (262) (272) 589,863 (1) 589,864 2022 Risk adjustment CSM Total 6,464 58,052 782,735 6,464 58,052 782,735 (5,043) (5,043) (564) (564) 51 (564) (5,043) (5,557) (409) (6,760) 62 7 317 4,691 (93) (2,069) 70 (11) 306 67,812 (5,116) (57,738) 93 (447) 4,603 (715) 545 (146,045) 257 694 11,801 (2) (17) (281) (98) 65 (305) 5,238 52,227 647,327 (1) 5,238 52,227 647,329 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.7 _ Movements in reinsurance contract balances Analysis by remaining coverage and incurred claims – Allianz Group € mn Asset for remaining coverage Excluding loss recovery component Loss recovery component Reinsurance contract assets as of 1 January 14,053 18 Reinsurance contracts liabilities as of 1 January (305) Net reinsurance contract assets as of 1 January 13,749 18 Allocation of reinsurance premiums (4,590) Amounts recoverable from reinsurers Incurred claims recovered and other expenses recovered 129 Changes in the asset for incurred claims Recoveries and reversals of recoveries of losses on onerous underlying contracts 2 Subtotal 129 2 Investment component (526) Cash flows in the period Premiums paid, including amounts held in deposits 5,672 Amounts received (155) Deposits 135 Receivables and payables (net) (1,463) Subtotal 4,190 Finance income and expenses from reinsurance contracts (net) (31) thereof effect of changes in the risk of reinsurers’ non-performance Foreign currency translation adjustments (332) Changes in the consolidated subsidiaries of the Allianz Group (11) Reclassification into assets of disposal groups classified as held for sale 42 Other changes (282) Net reinsurance contract assets as of 30 June/31 December 12,336 20 Reinsurance contract assets as of 30 June/31 December 13,463 20 Reinsurance contract liabilities as of 30 June/31 December (1,127) 56 Rep 2023 Asset for incurred claims Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 1,273 9,918 342 48 1,321 9,918 342 1,166 81 12 1,821 2 1,178 1,902 2 514 11 (1,966) (1,613) 2 57 555 (674) (1,410) (2,230) 32 196 6 7 (25) (83) (6) (18) (1) (21) 319 (21) (11) 1,927 9,654 333 1,820 9,658 333 107 (4) Total 25,605 (257) 25,347 (4,590) 1,376 1,835 2 3,213 5,672 (3,733) 194 (1,582) 550 202 7 (446) (29) 20 3 24,271 25,294 (1,024) Asset for remaining coverage Excluding loss recovery component Loss recovery component 14,501 21 (76) 14,425 21 (8,165) 244 (13) 244 (13) (1,012) 8,149 (360) 2,220 580 10,589 (2,010) 813 (3) 77 (1,210) 10 13,749 18 14,053 18 (305) 2022 Asset for incurred claims Total Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 1,484 9,625 511 26,141 21 (55) 1,505 9,625 511 26,086 (8,165) 1,805 596 2,645 188 3,432 (178) 3,442 (13) 1,993 4,028 (178) 6,074 849 164 8,149 (2,861) (3,327) (6,548) (8) 141 2,354 (20) (438) 122 (2,888) (3,625) 4,076 (173) (695) (20) (2,898) 3 32 35 72 (14) 13 884 10 8 56 107 1 240 (92) 318 16 (958) 1,321 9,918 342 25,347 1,273 9,918 342 25,605 48 (257) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by remaining coverage and incurred claims – Property-Casualty € mn Reinsurance contract assets as of 1 January Reinsurance contracts liabilities as of 1 January Net reinsurance contract assets as of 1 January Allocation of reinsurance premiums Amounts recoverable from reinsurers Incurred claims recovered and other expenses recovered Changes in the asset for incurred claims Recoveries and reversals of recoveries of losses on onerous underlying contracts Subtotal Investment component Cash flows in the period Premiums paid, including amounts held in deposits Amounts received Deposits Receivables and payables (net) Subtotal Finance income or expenses from reinsurance contracts (net) thereof effect of changes in the risk of reinsurers’ non-performance Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes Net reinsurance contract liabilities as of 30 June/31 December Reinsurance contract assets as of 30 June/31 December Reinsurance contract liabilities as of 30 June/31 December 57 Rep Asset for remaining coverage Excluding loss recovery component Loss recovery component (859) 18 (859) 18 (3,098) 62 2 62 2 (19) 4,023 (64) 71 (1,096) 2,934 (2) (3) (7) 45 (124) (1,072) 20 (1,018) 20 (55) 2023 Asset for incurred claims Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 874 9,797 344 (19) 855 9,797 344 9 70 (61) 1,720 2 (52) 1,790 2 9 10 (283) (1,497) 57 478 (603) 194 (2,043) 27 205 4 7 (19) (84) (6) (18) (1) (20) 255 (26) (11) 1,269 9,611 333 1,287 9,615 333 (18) (4) Total 10,173 (19) 10,155 (3,098) 142 1,660 2 1,804 4,023 (1,844) 128 (1,221) 1,085 234 7 (111) (25) 24 93 10,160 10,237 (77) Asset for remaining coverage Excluding loss recovery component Loss recovery component (1,588) 21 (1,588) 21 (5,760) 213 (13) 213 (13) (161) 7,001 (212) (61) 556 7,284 57 (904) 10 (859) 18 (859) 18 2022 Asset for incurred claims Total Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 1,104 9,533 515 9,585 1,104 9,533 515 9,585 (5,760) (6) 589 796 (199) 3,440 12 3,253 (13) (205) 4,028 12 4,035 161 7,001 1 (3,323) (3,534) 136 75 (54) (464) 39 (53) (3,651) 3,580 (148) (705) (20) (873) 3 32 35 74 2 13 88 9 1 9 45 105 1 207 38 315 (177) (717) 855 9,797 344 10,155 874 9,797 344 10,173 (19) (19) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by remaining coverage and incurred claims – Life/Health € mn Reinsurance contract assets as of 1 January Reinsurance contract liabilities as of 1 January Net reinsurance contract assets as of 1 January Allocation of reinsurance premiums Amounts recoverable from reinsurers Incurred claims recovered and other expenses recovered Changes in the asset for incurred claims Recoveries and reversals of recoveries of losses on onerous underlying contracts Subtotal Investment component Cash flows in the period Premiums paid, including amounts held in deposits Amounts received Deposits Receivables and payables (net) Subtotal Finance income and expenses from reinsurance contracts (net) thereof effect of changes in the risk of reinsurers’ non-performance Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes Net reinsurance contract liabilities as of 30 June/31 December Reinsurance contract assets as of 30 June/31 December Reinsurance contract liabilities as of 30 June/31 December 58 Rep Asset for remaining coverage Excluding loss recovery component Loss recovery component 14,884 (305) 14,579 (1,521) 69 69 (511) 1,695 (92) 64 (389) 1,278 (29) (329) (4) (3) (171) 13,359 14,431 (1,072) 2023 Asset for incurred claims Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 406 160 66 472 160 1,154 13 196 (1) 1,350 12 509 2 (1,806) (15) 2 18 (1) (1,786) (16) 4 (7) (1) (1) 63 606 156 481 156 125 Total 15,450 (239) 15,211 (1,521) 1,236 195 1,431 1,695 (1,913) 66 (372) (525) (24) (336) (4) (4) (108) 14,121 15,068 (947) Asset for remaining coverage Excluding loss recovery component Loss recovery component 16,052 (76) 15,976 (2,499) 37 37 (849) 1,238 (154) 2,281 34 3,399 (2,010) 813 (3) 20 (305) 14,579 14,884 (305) 2022 Asset for incurred claims Total Contracts measured under the PAA Contracts not measured under the PAA Present value of future cash flows Risk adjustment 387 149 16,588 21 (55) 408 149 16,533 (2,499) 1,820 19 1,877 210 22 232 2,030 41 2,109 847 3 1,238 (2,885) (40) (3,080) (8) 2,274 32 11 77 (2,861) (29) 509 (25) (2,036) (2) (1) 811 1 (2) 13 2 35 62 (5) (249) 472 161 15,211 406 160 15,450 66 (239) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Allianz Group € mn Present value of future cash flows Reinsurance contract assets as of 1 January 12,274 Reinsurance contract liabilities as of 1 January (257) Net reinsurance contract assets as of 1 January 12,017 Changes that relate to current service CSM recognized for the services provided Change in risk adjustment Experience adjustments 1,112 Subtotal 1,112 Changes that relate to future service Changes in estimates that adjust CSM (108) Changes in estimates that do not adjust CSM (loss recovery component) Effects of contracts initially recognized in the period 5 Subtotal (103) Changes that relate to past service Changes in the asset for incurred claims (22) Cash flows in the period Premiums paid 647 Amounts received (1,973) Deposits 76 Receivables and payables (net) 147 Subtotal (1,103) Finance income and expenses from reinsurance contracts (net) (51) thereof effect of changes in the risk of reinsurers’ non-performance 1 Foreign currency translation adjustments (279) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes 1 Net reinsurance contract assets as of 30 June/31 December 11,573 Reinsurance contract assets as of 30 June/31 December 12,541 Reinsurance contract liabilities as of 30 June/31 December (968) 59 Rep 2023 Risk adjustment 1,302 1,302 (64) (64) (7) (7) 10 12 (26) (2) 1,226 1,226 CSM 1,976 1,976 (139) (139) 115 (5) 109 39 (36) (11) 1,940 1,940 Total 15,551 (257) 15,294 (139) (64) 1,112 909 (11) 647 (1,973) 76 147 (1,103) 1 (340) (12) 14,738 15,706 (968) Present value of future cash flows 13,591 (55) 13,535 19 19 (71) (430) (501) (92) 1,118 (3,003) 2,274 113 502 (1,989) 3 721 (3) 1 (177) 12,017 12,274 (257) 2022 Risk adjustment CSM Total 1,720 1,561 16,871 (55) 1,720 1,561 16,816 (340) (340) (146) (146) 19 (146) (340) (467) (125) 206 9 26 405 1 (99) 610 10 (12) (104) 1,118 (3,003) 2,274 113 502 (263) 70 (2,182) 3 119 10 850 (3) 1 (17) 65 (129) 1,302 1,976 15,294 1,302 1,976 15,551 (257) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Property-Casualty € mn Present value of future cash flows Reinsurance contract assets as of 1 January 840 Reinsurance contract liabilities as of 1 January (19) Net reinsurance contract assets as of 1 January 822 Changes that relate to current service CSM recognized for the services provided Change in risk adjustment Experience adjustments 200 Subtotal 200 Changes that relate to future service Changes in estimates that adjust CSM 5 Changes in estimates that do not adjust CSM (loss recovery component) Effects of contracts initially recognized in the period (3) Subtotal 1 Changes that relate to past service Changes in the asset for incurred claims (63) Cash flows in the period Premiums paid 4 Amounts received (201) Deposits Receivables and payables (net) 463 Subtotal 266 Finance income and expenses from reinsurance contracts (net) 24 thereof effect of changes in the risk of reinsurers’ non-performance 1 Foreign currency translation adjustments (18) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes (3) Net reinsurance contract assets as of 30 June/31 December 1,229 Reinsurance contract assets as of 30 June/31 December 1,248 Reinsurance contract liabilities as of 30 June/31 December (18) 60 Rep 2023 Risk adjustment 34 34 1 1 (4) 1 (1) 31 31 CSM 19 19 (5) 2 (3) 17 17 Total 893 (19) 875 200 200 (66) 4 (201) 463 266 25 1 (19) (3) 1,278 1,296 (18) Present value of future cash flows 1,058 1,058 (8) (8) (2) (8) (10) (143) 7 8 23 37 (142) 2 71 (41) 822 840 (19) 2022 Risk adjustment CSM Total 41 (2) 1,097 41 (2) 1,097 (1) (1) (8) (1) (9) (1) 3 2 5 2 9 (6) (149) 7 8 23 37 (4) (146) 2 2 73 13 (29) 34 19 875 34 19 893 (19) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Analysis by measurement component – contracts not measured under the PAA – Life/Health € mn Present value of future cash flows Reinsurance contract assets as of 1 January 11,423 Reinsurance contract liabilities as of 1 January (239) Net reinsurance contract assets as of 1 January 11,184 Changes that relate to current service CSM recognized for the services provided Change in risk adjustment Experience adjustments 1,022 Subtotal 1,022 Changes that relate to future service Changes in estimates that adjust CSM (107) Changes in estimates that do not adjust CSM (loss recovery component) Effects of contracts initially recognized in the period 9 Subtotal (98) Changes that relate to past service Changes in the asset for incurred claims 41 Cash flows in the period Premiums paid 654 Amounts received (1,896) Deposits 66 Receivables and payables (net) (356) Subtotal (1,533) Finance income and expenses from reinsurance contracts (net) (75) thereof effect of changes in the risk of reinsurers’ non-performance Foreign currency translation adjustments (261) Changes in the consolidated subsidiaries of the Allianz Group Reclassification into assets of disposal groups classified as held for sale Other changes 4 Net reinsurance contract assets as of 30 June/31 December 10,283 Reinsurance contract assets as of 30 June/31 December 11,233 Reinsurance contract liabilities as of 30 June/31 December (950) 61 Rep 2023 Risk adjustment 1,268 1,268 (63) (63) (8) (1) (9) 15 11 (25) (2) 1,195 1,195 CSM 1,950 1,950 (135) (135) 116 (8) 107 39 (35) (11) 1,916 1,916 Total 14,641 (239) 14,403 (135) (63) 1,022 824 56 654 (1,896) 66 (356) (1,533) (25) (321) (9) 13,395 14,344 (950) Present value of future cash flows 12,518 (55) 12,463 36 36 (70) (415) (485) 52 1,128 (3,034) 2,274 87 454 (1,847) 650 (3) 1 (136) 11,184 11,423 (239) 2022 Risk adjustment CSM Total 1,679 1,569 15,766 (55) 1,679 1,569 15,710 (345) (345) (145) (145) 36 (145) (345) (454) (124) 203 9 25 391 1 (99) 594 10 (8) 44 1,128 (3,034) 2,274 87 454 (259) 70 (2,036) 117 10 776 (3) 1 (17) 52 (100) 1,268 1,950 14,403 1,268 1,950 14,641 (239) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.8 _ Assets for insurance acquisition cash flows Assets for insurance acquisition cash flows € mn Balance as of 1 January 2022 Cash flows recognized as an asset during the year Amounts derecognized on initial recognition of groups of insurance contracts Impairment losses recognized during the year Reversal of impairment losses recognized in prior periods Foreign currency translation adjustments Other changes Balance as of 31 December 2022 Balance as of 1 January 2023 Cash flows recognized as an asset during the year Amounts derecognized on initial recognition of groups of insurance contracts Impairment losses recognized during the year Reversal of impairment losses recognized in prior periods Foreign currency translation adjustments Other changes Balance as of 30 June 2023 The following table sets out when the Allianz Group expects to derecognize assets for insurance acquisition cash flows and include them in the measurement of the group of insurance contracts to which they are allocated: Derecognition of assets for insurance acquisition cash flows € mn As of 30 June/31 December 2023 Property-Casualty Life/Health Total 2022 Property-Casualty Life/Health Total 62 Rep Property- Casualty 1,215 3,713 (3,658) (26) 9 6 1,258 1,258 1,961 (2,018) (1) (2) 21 1,219 Up to 1 year 237 1 238 236 1 236 Life/Health Consolidation 8 43 (1) (14) 36 36 4 (2) (2) 36 1 - 2 years 215 29 244 224 7 230 2 - 3 years 172 173 182 5 187 Group 1,222 3,756 (3,659) (40) 9 6 1,294 1,294 1,965 (2,021) (1) (3) 21 1,255 3 - 4 years 149 149 149 4 153 4 - 5 years Over 5 years Total 108 337 1,219 5 36 108 343 1,255 118 350 1,258 3 16 36 121 366 1,294 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.9 _ Contracts initially recognized in the period The effects on the measurement components arising from contracts initially recognized in the period which are not measured under the PAA are summarized in the following tables. Contracts initially recognized in the period – Allianz Group € mn Present value of future cash outflows Claims and other insurance expenses payable Insurance acquisition cash flows Subtotal Present value of future cash inflows Risk adjustment CSM Contracts initially recognized in the period – Allianz Group € mn Present value of future cash outflows Present value of future cash inflows Risk adjustment CSM 63 Rep Six months ended 30 June 2023 Contracts issued Contracts acquired Total 29,519 29,519 (7,133) (7,133) 22,386 22,386 (25,064) (25,064) 196 196 2,483 2,483 Six months ended 30 June 2023 Contracts originated Contracts acquired Total 157 157 (152) (152) (5) (5) Twelve months ended 31 December 2022 Contracts issued Contracts acquired Total 53,552 53,552 2,670 2,670 56,222 56,222 (61,305) (61,305) 506 506 4,577 4,577 Twelve months ended 31 December 2022 Contracts originated Contracts acquired Total 483 483 (913) (913) 26 26 405 405 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 6.10 _ Insurance revenue and CSM by transition method The following table sets out insurance revenue and the CSM per transition approach. Insurance revenue and CSM by transition method – Allianz Group € mn Contracts measured under the modified retrospective transition approach Insurance revenue 7,425 CSM as of 1 January 32,572 Changes that relate to current service CSM recognized for services provided (1,384) Changes that relate to future service Changes in estimates that adjust CSM 1,568 Effects of contracts initially recognized in the period Subtotal 1,568 Finance income or expenses from insurance contracts issued (net) 17 Currency translation adjustments (22) Other changes 24 CSM as of 30 June/31 December 32,774 64 Rep 2023 Contracts measured under the fair value transition approach New contracts and contracts measured under the full retrospective transition approach 1,924 35,132 14,130 6,680 (697) (422) (28) (163) 2,483 (28) 2,319 230 48 (234) (65) (123) (556) 13,278 8,004 Total 44,481 53,382 (2,504) 1,376 2,483 3,859 295 (322) (655) 54,055 Contracts measured under the modified retrospective transition approach 16,398 41,175 (2,823) (6,427) (6,427) 26 156 464 32,572 2022 Contracts measured under the fair value transition approach New contracts and contracts measured under the full retrospective transition approach Total 3,736 67,851 87,985 14,374 3,832 59,381 (1,386) (908) (5,117) (40) (282) (6,749) 4,577 4,577 (40) 4,295 (2,172) 485 32 544 672 (134) 694 24 (436) 52 14,130 6,680 53,382 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements CSM by transition method – Allianz Group € mn 2023 Contracts measured under the modified retrospective transition approach Contracts measured under the fair value transition approach New contracts and contracts measured under the full retrospective transition approach Total CSM as of 1 January 140 1,777 59 1,976 Changes that relate to current service CSM recognized for services provided (76) (42) (21) (139) Changes that relate to future service Changes in estimates that adjust CSM (10) 9 116 115 Effects of contracts initially recognized in the period (5) (5) Subtotal (10) 9 111 109 Finance income or expenses from reinsurance contracts held(net) 3 36 39 Currency translation adjustments 11 (17) (30) (36) Other changes 74 (74) (11) (11) CSM as of 30 June/31 December 142 1,690 108 1,940 6.11 _ CSM release projection The following table sets out when the Allianz Group expects to recognize the CSM as of 1 January 2023 in profit or loss for contracts not measured under the PAA. The pattern of recognition does not contain unwinding of valuation rates and expected over-return of assets for contracts measured using the VFA and interest accretion of the CSM arising from unwind of locked-in rates for contracts using the building block approach. Furthermore, the future CSM release will also include in future periods. amounts related to new contracts written CSM release projection € mn As of 1 January 2023 Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Insurance contracts issued 4,051 3,689 3,396 3,134 2,894 Reinsurance contracts held (160) (83) (79) (78) (78) 6.12 _ Fair values of underlying items Underlying items determine some of the amounts payable to policyholders. They can comprise any items; for example, a reference portfolio of assets, the net assets of the entity, or a specified subset of the net assets of the entity. The underlying items are determined from a single entity view, i.e. not from a consolidated Allianz Group view, and are based on the specific contractual terms including applicable rules imposed by law or regulation. This includes underlying items that are not solely financial in nature, e.g. an entity’s profit based on local accounting principles. 65 Rep 2022 Contracts measured under the modified retrospective transition approach Contracts measured under the fair value transition approach New contracts and contracts measured under the full retrospective transition approach Total 75 1,430 56 1,561 (202) (95) (43) (340) 118 164 (76) 206 405 405 118 164 329 611 3 161 (94) 70 (6) 5 11 10 152 112 (199) 65 140 1,777 59 1,976 Consequently, the CSM release should be not interpreted as the CSM release expected for future periods. 5 – 10 years 10 – 20 years Over 20 years Total 11,451 13,238 11,530 53,382 (300) (588) (611) (1,976) The composition of underlying items for contracts with direct participation features and their fair values are disclosed in the following table: Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Fair values of underlying items € mn Equities Debt securities Investment funds Real estate Fixed assets of alternative investments Derivatives Financial assets for unit-linked contracts Other Total 1_Consists mainly of the underlying items of the accident insurance with premium refunds. 66 Rep As of 30 June 2023 Property- Casualty1 Life/Health 1,978 109,017 7,052 278,226 23 12,551 159 10,198 234 660 109,121 (83) 9,212 519,923 Total 110,995 285,278 12,574 10,356 234 660 109,121 (83) 529,135 As of 31 December 2022 Property- Casualty1 Life/Health 2,011 112,475 7,141 269,365 21 13,446 110 10,815 246 417 102,894 64 204 9,347 509,863 Total 114,486 276,506 13,466 10,926 246 417 102,894 267 519,209 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 7 _ FINANCIAL OPERATIONS 7.1 _ Net investment income Net investment income € mn Six months ended 30 June 2023 2022 Interest result 12,282 11,996 Realized gains / losses (net) (2,860) 1,227 Valuation result 5,876 (27,575) Investment expenses (884) (858) Total 14,414 (15,211) 67 Rep Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Net investment income by measurement categories € mn Six months ended 30 June Fair value through profit and loss 2023 Interest result Interest income 1,868 Interest expenses Subtotal 1,868 Realized gains / losses (net) Realized gains Realized losses Subtotal Valuation result Expected credit loss allowance Impairments (net) Impairments Reversal of impairment Subtotal Income from derivatives 2,680 Valuation result on investments at fair value through profit and loss 44 Foreign currency gains / losses Investment result from unit-linked assets (net) Subtotal 2,724 Investment expenses Total 4,592 1_Mainly investments in wind parks. 68 Rep Financial instruments Fair value through other comprehensive income 9,394 9,394 330 (3,224) (2,894) 220 220 6,721 Amortized cost 162 162 (1) (1) (1) (1) 160 according to IAS 28 Associates and joint ventures 37 37 26 (6) 20 (37) (37) (446) (484) (426) Other investments according to IAS 40 according to IAS 16 Real estate Alternative investments1 616 312 616 312 9 8 (27) (37) 1 (26) (37) (1,029) (1,055) (37) (178) (193) (609) 83 Other Financial liabilities Total 422 12,812 (126) (404) (530) 296 (404) 12,282 8 373 (1) (3,232) 7 (2,860) 219 (194) (295) 1 (194) (295) 2,680 (3) (119) (1,554) (1,264) (1,264) 6,089 6,089 4,627 (119) 5,876 (513) (884) 4,417 (522) 14,414 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Net investment income by measurement categories (continued) € mn Six months ended 30 June Fair value through profit and loss 2022 Interest result Interest income 2,287 Interest expenses Subtotal 2,287 Realized gains / losses (net) Realized gains Realized losses Subtotal Valuation result Expected credit loss allowance Impairments (net) Impairments Reversal of impairment Subtotal Income from derivatives (16,990) Valuation result on investments at fair value through profit and loss (994) Foreign currency gains / losses Investment result from unit-linked assets (net) Subtotal (17,984) Investment expenses Total (15,697) 1_Mainly investments in wind parks. 69 Rep Financial instruments Fair value through other comprehensive income 9,044 9,044 3,697 (2,692) 1,004 (759) (759) 9,289 Amortized cost 45 45 1 (21) (21) (2) (2) 23 according to IAS 28 Associates and joint ventures (8) (8) 194 (3) 191 (26) (26) 902 876 1,058 Other investments according to IAS 40 according to IAS 16 Real estate Alternative investments1 607 335 607 335 51 51 (9) 7 7 (9) 382 389 (9) (174) (176) 873 150 Other Financial liabilities Total 75 12,383 (65) (323) (388) 10 (323) 11,996 1 3,943 (2,716) 1 1,227 (761) (35) 7 (28) (16,990) (3) 287 573 4,818 4,818 (15,187) (15,187) (10,372) 287 (27,575) (508) (858) (10,870) (36) (15,211) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 7.2 _ Investments Investments € mn As of 30 June 2023 As of 31 December 2022 Investments at fair value through profit and loss1 96,658 87,498 Investments at fair value through other comprehensive income2 547,935 544,892 Investments at amortized cost3 8,621 7,870 Investments in associates and joint ventures4 20,942 22,437 Real estate held for investment5 24,789 25,861 Fixed assets from alternative investments 2,346 2,433 Total 701,292 690,991 1_Includes derivative financial instruments of € 13,452 mn (31 December 2022: € 9,547 mn). 2_As of 30 June 2023, fair value and gross carrying amount with a contractual life of less than one year amounted to € 42,053 mn (31 December 2022: € 47,139 mn) and € 38,984 mn (31 December 2022: € 47,472 mn), respectively. 3_As of 30 June 2023, fair value and gross carrying amount with a contractual life of less than one year amounted to € 2,249 mn (31 December 2022: € 2,763 mn) and € 2,225 (31 December 2022: € 2,760 mn), respectively. 4_Includes investments in associates and joint ventures accounted for using the equity method of € 2,055 mn (31 December 2022: € 2,100 mn). 5_Consists of real estate held for investment measured at fair value of € 22,165 mn (31 December 2022: € 23,314 mn) and measured at amortized cost of € 2,625 mn (31 December 2022: € 2,546 mn). 70 Rep 7.2.2.1 Debt investments Debt investments – Fair value € mn 30 June 2023 Government bonds Corporate bonds Covered bonds ABS/MBS Loans Alternative debt Other Total 31 December 2022 Government bonds Corporate bonds Covered bonds ABS/MBS Loans Alternative debt Other Total Gross carrying amount 205,164 211,234 45,081 27,879 80,255 13,668 2,012 585,292 210,925 214,270 46,859 27,202 78,498 13,542 2,807 594,101 Unrealized gains Unrealized losses Accrued interest Fair value 2,796 (33,540) 2,044 176,464 773 (29,142) 2,328 185,193 743 (4,159) 537 42,202 79 (2,449) 330 25,838 102 (8,114) 196 72,439 32 (1,796) 83 11,986 22 (19) 74 2,089 4,547 (79,220) 5,593 516,213 2,428 (38,048) 1,838 177,143 678 (32,918) 2,427 184,456 818 (4,498) 679 43,858 56 (2,504) 243 24,996 73 (8,167) 174 70,578 25 (1,911) 82 11,738 9 (6) 62 2,872 4,087 (88,052) 5,504 515,641 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of gross carrying amount and expected credit loss per stage as of 30 June 2023 and 31 December 2022 € mn 12-month Gross carrying amount Expected credit loss 1 January 2023 584,434 420 Additions 75,782 42 Changes in the consolidated subsidiaries of the Allianz Group (650) (9) Changes in models and risk parameters and due to modifications Matured or sold (75,952) (47) Reclassification into non-current assets and assets of disposal groups classified as held for sale (1,141) 1 Transfer to 12-month 1,864 5 Transfer to lifetime, but not credit impaired (1,214) (3) Transfer to credit impaired (75) (2) Write-offs Amortization (704) (25) Foreign currency translation adjustments (1,860) (11) Other changes (3,710) 5 30 June 2023 576,773 376 1 January 2022 567,613 410 Additions 166,491 118 Changes in the consolidated subsidiaries of the Allianz Group (493) (1) Changes in models and risk parameters and due to modifications2 5 (1) Matured or sold (166,791) (75) Reclassification into non-current assets and assets of disposal groups classified as held for sale (1,987) (11) Transfer to 12-month 16,123 48 Transfer to lifetime, but not credit impaired (10,801) (48) Transfer to credit impaired (797) (20) Write-offs 2 Amortization 546 (21) Foreign currency translation adjustments 11,254 10 Other changes 3,270 9 31 December 2022 584,434 420 1_Includes also purchased or originated credit-impaired assets. 71 Rep Lifetime, but not credit impaired Gross carrying amount Expected credit loss 7,022 220 117 3 5 (1) 1 (771) (52) (85) 1 (1,864) (36) 1,214 36 (1) (2) 19 (92) (12) 83 23 5,625 202 24,048 417 44,450 7 (12) (1) (49,063) (99) (214) (5) (16,083) (511) 10,844 1,103 (1,841) (620) 17 800 (158) 259 65 (6,168) 6 7,022 220 Credit impaired1 Total Gross carrying amount Expected credit loss Gross carrying amount Expected credit loss 3,104 796 594,560 1,436 68 (2) 75,967 43 (645) (10) (2) (1) (731) (155) (77,455) (254) 4 (8) (1,222) (6) (31) 34 77 11 9 1 (22) (706) (27) (79) (32) (2,030) (55) 450 (5) (3,176) 23 2,893 582 585,292 1,160 157 17 591,818 843 64 2 211,005 127 (505) 32 5 30 (682) (212) (216,536) (386) 163 (2,037) (16) (41) (5) (468) (44) (3) 1,053 2,638 686 46 25 44 10 155 1,356 (24) 216 5 11,730 80 623 93 (2,275) 108 3,104 796 594,560 1,436 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements The gross carrying amount represents the maximum exposure to credit risk. The following table presents this maximum exposure per investment grade and stage: Maximum exposure to credit risk per investment grade € mn As of 30 June 2023 AAA AA A BBB Non-investment grade Not rated Total As of 31 December 2022 AAA AA A BBB Non-investment grade Not rated Total 7.2.2.2 Equity investments designated at fair value through OCI Equity investments designated at fair value through OCI € mn As of 30 June 2023 As of 31 December 2022 Listed shares 23,971 21,205 Non-redeemable preferred shares 262 262 Unlisted shares 2,299 2,114 Infrastucture 1,627 1,714 Other 1,309 1,334 Total 29,469 26,628 72 Rep 12-month Lifetime, but not credit impaired Credit impaired Purchased or originated credit impaired Total 109,334 109,334 141,764 141,764 145,010 145,010 154,816 154,816 21,016 5,111 1,848 166 28,141 4,833 514 843 35 6,226 576,773 5,625 2,692 202 585,292 113,956 113,956 144,976 144,976 141,735 141,735 163,849 163,849 16,124 6,437 2,083 178 24,822 3,336 585 810 34 4,764 583,975 7,022 2,892 212 594,101 For the six months ended 30 June 2023, the dividend income for equity investments designated at fair value through OCI without recycling amounted to € 539 mn (for the year 2022: € 1,132 mn), thereof € 43 mn (for the year 2022: € 514 mn) for derecognized investments. The fair value of these derecognized instruments was € 2,402 mn (31 December 2022: € 25,761 mn). The Allianz Group realized a loss of € 118 mn for the six months ended 30 June 2023 (for the year 2022: a gain of € 6,021 mn). Disposals of equity investments are driven by sensitivity overall considerations as well as changed market conditions such as higher interest rate levels. Equity investments are held by insurance-focused Allianz entities to diversify the portfolios and to take advantage of expected long-term returns. risk management considerations including Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Investments at amortized cost – Fair value € mn As of 30 June 2023 Government bonds Corporate bonds Covered bonds ABS/MBS Loans Other debt Other Total As of 31 December 2022 Government bonds Corporate bonds Covered bonds ABS/MBS Loans Other debt Other Total 73 Rep Gross carrying amount 4,407 41 4,161 48 13 8,670 3,934 27 3,927 27 15 7,930 Unrealized gains 29 63 92 Unrealized losses (20) (6) (26) Accrued interest 2 1 14 4 20 2 10 12 Fair value 4,437 42 4,238 52 13 8,782 3,915 21 3,936 27 15 7,915 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of gross carrying amount and expected credit loss as of 30 June 2023 and 31 December 2022 € mn As of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Changes in models and risk parameters and due to modifications Matured or sold Reclassifications between stages Write-offs Amortization Foreign currency translation adjustments Other changes As of 30 June/31 December 1_Consists mainly of financial instruments in stage "12-month". 2_Consists mainly of financial instruments in stages "12-month" and "credit impaired". 74 Rep 2023 Gross carrying amount1 7,930 1,833 (1,143) (1) 34 17 8,670 Expected credit loss2 72 4 (7) 2 71 2022 Gross carrying amount1 5,427 3,101 (476) (61) (1) (60) 7,930 Expected credit loss2 77 10 (8) (6) 72 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Real estate held for investment € mn Cost as of 1 January Accumulated depreciation as of 1 January Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale Reclassifications Foreign currency translation adjustments Depreciation Impairments Reversals of impairments Changes in fair value Other changes Carrying amount as of 30 June/31 December Accumulated depreciation as of 30 June/31 December Cost as of 30 June/31 December 75 Rep At amortized cost 2023 2022 3,674 3,798 (1,128) (1,164) 2,546 2,634 138 91 66 50 (11) (167) (63) (62) 2 58 (28) (60) (27) (21) 1 24 2,625 2,546 1,172 1,128 3,797 3,674 At fair value 2023 23,314 208 (461) 70 (19) (955) 7 22,165 2022 22,771 1,802 68 (1,219) 101 290 (498) 23,314 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 7.3 _ Financial liabilities 7.3.1 Overview Financial liabilities € mn As of 30 June 2023 Financial liabilities at fair value through profit and loss Mandatory at fair value through profit and loss Derivatives 10,648 Puttable instruments 2,535 Subtotal 13,183 Designated at fair value through profit and loss Subtotal 13,183 Financial liabilities at amortized cost Liabilities to banks 6,782 Liabilities to customers 11,242 Certificated liabilities1 8,304 Subordinated liabilities2 12,859 Other 2,763 Subtotal 41,950 Total 55,133 1_As of 30 June 2023, includes accrued interests of € 37 mn (31 December 2022: € 79 mn). 2_As of 30 June 2023, includes accrued interests of € 298 mn (31 December 2022: € 149 mn). 76 Rep As of 31 December 2022 6,586 2,408 8,994 8,994 8,283 10,936 9,126 12,089 1,882 42,316 51,310 7.3.2 Certificated and subordinated liabilities Certificated and subordinated liabilities € mn As of 30 June 2023 As of 31 December 2022 Senior bonds 7,371 8,132 Money market securities 1,053 1,123 Fair value hedge effects related to certificated liabilities (119) (130) Total certificated liabilities1 8,304 9,126 Subordinated bonds 12,910 12,145 Subordinated loans2 45 45 Fair value hedge effects related to subordinated liabilities (96) (101) Total subordinated liabilities3 12,859 12,089 1_As of 30 June 2023, includes accrued interests of € 37 mn (31 December 2022: € 79 mn). 2_Relates to subordinated loans issued by subsidiaries. 3_As of 30 June 2023, includes accrued interests of € 298 mn (31 December 2022: € 149 mn). Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Bonds outstanding as of 30 June 2023 mn Certificated liabilities Allianz Finance II B.V., Amsterdam Subordinated liabilities Allianz SE, Munich 77 Rep ISIN DE000A3KY367 DE000A28RSQ8 DE000A2RWAX4 DE000A3KY342 DE000A19S4V6 DE000A1HG1K6 DE000A2RWAY2 DE000A28RSR6 DE000A180B80 DE000A3KY359 DE000A1HG1L4 DE000A30VTT8 DE000A14J9N8 DE000A2DAHN6 XS1556937891 DE000A2YPFA1 DE000A254TM8 DE000A30VJZ6 DE000A351U49 DE000A1YCQ29 DE000A13R7Z7 XS1485742438 DE000A289FK7 US018820AA81/ USX10001AA78 DE000A3E5TR0 US018820AB64/ USX10001AB51 Year of issue 2021 2020 2019 2021 2017 2013 2019 2020 2016 2021 2013 2022 2015 2017 2017 2019 2020 2022 2023 2013 2014 2016 2020 2020 2021 2021 Currency EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR USD EUR EUR EUR EUR EUR EUR USD EUR USD EUR USD Notional amount Coupon in % Maturity date 300 3-months Euribor +100 bps 22 November 2024 500 Non-interest bearing 14 January 2025 750 0.875 15 January 2026 700 Non-interest bearing 22 November 2026 750 0.875 6 December 2027 750 3.000 13 March 2028 750 1.500 15 January 2030 750 0.500 14 January 2031 750 1.375 21 April 2031 500 0.500 22 November 2033 750 4.500 13 March 2043 1,250 4.597 7 September 2038 1,500 2.241 7 July 2045 1,000 3.099 6 July 2047 600 5.100 30 January 2049 1,000 1.301 25 September 2049 1,000 2.121 8 July 2050 1,250 4.252 5 July 2052 1,250 5.824 25 July 2053 912.5 4.750 Perpetual 1,500 3.375 Perpetual 1,500 3.875 Perpetual 1,250 2.625 Perpetual 1,250 3.500 Perpetual 1,250 2.600 Perpetual 1,250 3.200 Perpetual Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 7.4 _ Hedge accounting Derivatives held for risk management per instrument type € mn As of 30 June Interest rate contracts Equity/index contracts Foreign exchange contracts Total thereof fair value hedges1 thereof cash flow hedges2 thereof net investment hedges3 1_Consists mainly of interest rate contracts 2_Consists mainly of equity/index contracts and foreign exchange contracts. 3_Consists solely of foreign exchange contracts Derivatives which form part of hedge accounting relationships are liabilities, included respectively. The table shows the notional amounts of all derivatives for which hedge accounting is applied by the Allianz Group as of 30 June 2023. The notional principal amounts indicated in the table are cumulative, as they include the absolute value of the notional principal amounts of derivatives with positive and negative fair values. Although these notional principal amounts the Allianz Group’s involvement in derivative transactions, they do not represent amounts exposed to risk. in the line items investments and financial reflect the degree of Fair value hedges The Allianz Group uses fair value hedges to hedge the exposure to changes in the fair value of financial assets and financial liabilities due to movements in interest or exchange rates, and to hedge its equity portfolio against equity market risk. As of 30 June 2023, the derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value of € 913 mn. The ineffectiveness that arises from fair value hedges amounted to € (2) mn for the six months ended 30 June 2023. Cash flow hedges Cash flow hedges were used to hedge the exposure to the variability of cash flows arising from interest rate or exchange rate fluctuations 78 Rep 2023 Maturity by notional amount Up to 1 year 1-5 years Over 5 years Notional principal amounts Assets Liabilities 1,653 2,401 1,021 5,075 14 (999) 1,107 1,107 4 (802) 5,054 1,566 2,063 8,683 328 (136) 7,814 3,967 3,084 14,865 346 (1,937) 896 1,653 871 3,420 9 (922) 2,152 1,676 2,213 6,041 294 (922) 4,766 638 5,404 44 (93) as well as inflation. As of 30 June 2023, the derivative instruments utilized had a total negative fair value of € 628 mn. The ineffectiveness that arises from cash flow hedges amounted to € 12 mn for the six months ended 30 June 2023. The change in the value of the hedging instrument recognized in other comprehensive income was € (88) mn for the six months ended 30 June 2023. Hedges of net investment in foreign operations As of 30 June 2023, the Allianz Group hedged part of its foreign currency net investments through the issuance of several foreign currency denominated liabilities and the use of forward contracts. The total negative fair value was € 49 mn for the six months ended 30 June 2023. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 7.5 _ Fair values and carrying amounts of financial instruments The following table compares the carrying amount and fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts of financial instruments € mn FINANCIAL ASSETS Cash and cash equivalents Financial assets at fair value through profit and loss Financial assets at fair value through other comprehensive income Financial assets at amortized costs Investments in associates and joint ventures at equity Investments in associates and joint ventures at fair value Real estate held for investment at fair value Real estate held for investment at cost Financial assets for unit-linked contracts FINANCIAL LIABILITIES Financial liabilities at fair value through profit and loss Liabilities to banks and customers Certificated liabilities Subordinated liabilities Other (Financial liabilities at amortized costs) Unit-linked investment contracts at fair value Non-unit-linked investment contracts at cost 79 Rep As of 30 June 2023 Carrying amount 25,612 96,658 547,935 8,621 2,055 18,888 22,165 2,625 148,892 13,183 18,023 8,304 12,859 2,763 39,063 12,372 As of 31 December 2022 Fair value Carrying amount Fair value 25,612 22,896 22,896 96,658 87,498 87,498 547,935 544,892 544,892 8,782 7,870 7,915 2,448 2,100 2,481 18,888 20,337 20,337 22,165 23,314 23,314 5,785 2,546 5,812 148,892 141,034 141,034 13,183 8,994 8,994 17,879 19,219 19,063 7,747 9,126 8,490 11,876 12,089 10,937 2,763 1,882 1,882 39,063 37,510 37,510 12,378 10,317 10,317 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements The following financial assets and liabilities are carried at fair value on a recurring basis: − − financial assets at fair value through profit and loss, financial assets at fair value through other comprehensive income, Fair value hierarchy (items carried at fair value) € mn FINANCIAL ASSETS Financial assets at fair value through profit and loss Debt investments Equity investments Funds Derivatives Subtotal Financial assets at fair value through other comprehensive income Corporate bonds Government and government agency bonds MBS/ABS Covered Bonds Loans Other Equity investments Subtotal Investments in associates and joint ventures Real estate held for investment Financial assets for unit-linked contracts Total FINANCIAL LIABILITIES Financial liabilities at fair value through profit and loss Unit-linked investment contracts at fair value Total 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. 80 Rep − − − − − unit-linked investment contracts investments in associates and joint ventures (under the VFA), real estate held for investment, financial assets for unit-linked contracts financial liabilities at fair value through profit and loss, As of 30 June 2023 Level 11 Level 22 Level 33 Total 121 9,512 3,082 12,716 1 3 4 8,181 4,646 57,660 70,486 1,150 12,029 273 13,452 9,453 26,187 61,019 96,658 3,999 160,095 21,100 185,193 11,354 163,634 1,477 176,464 124 23,011 2,703 25,838 4,292 37,901 9 42,202 3,043 4,518 64,878 72,439 2,618 1,352 12,360 16,330 23,359 769 5,341 29,469 48,789 391,280 107,866 547,935 177 18,711 18,888 22,165 22,165 114,784 31,742 2,366 148,892 173,026 449,386 212,126 834,538 2,793 9,980 410 13,183 27,049 12,009 6 39,063 29,841 21,989 416 52,246 The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheet: As of 31 December 2022 Level 11 Level 22 Level 33 Total 436 9,017 1,852 11,304 1 3 12 15 9,631 4,313 52,688 66,632 1,479 7,716 352 9,547 11,547 21,048 54,903 87,498 3,248 160,352 20,856 184,456 11,242 164,340 1,561 177,143 125 21,858 3,014 24,996 4,175 39,674 10 43,858 3,093 4,541 62,943 70,578 3,459 1,453 12,322 17,234 20,950 393 5,285 26,628 46,293 392,610 105,989 544,892 181 20,155 20,337 23,314 23,314 108,032 30,792 2,210 141,034 165,871 444,632 206,572 817,075 2,715 5,895 384 8,994 24,521 12,983 6 37,510 27,236 18,878 390 46,504 Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3: Reconciliation of level 3 financial assets € mn Financial assets at fair value through profit and loss Carrying value (fair value) as of 1 January 2023 54,903 Additions through purchases and issues 7,540 Net transfers into (out of) level 3 (50) Disposals through sales and settlements (1,310) Reclassifications Net gains (losses) recognized in consolidated income statement (268) Net gains (losses) recognized in other comprehensive income Impairments Foreign currency translation adjustments (128) Changes in the consolidated subsidiaries of the Allianz Group2 396 Change in accrued interest recognized in consolidated income statement (33) Change in accrued interest recognized in other comprehensive income - cash settlement (32) Carrying value (fair value) as of 30 June 2023 61,019 Net gains (losses) recognized in consolidated income statement held at the reporting date (213) 1_Primarily include loans. 2_Include for real estate held for investment reclassifications into non-current assets and assets of disposal groups classified as held for sale of € (246) mn. 81 Rep Financial assets at fair value through other comprehensive income – Debt securities1 100,704 9,931 (728) (5,090) (66) (959) (4) (913) (461) 1,312 (1,232) 102,495 (69) Financial assets at fair value through other comprehensive income – Equity securities 5,285 244 7 (68) (4) (42) (16) (66) 5,341 2 Investments in associates and joint ventures 20,155 323 37 (1,242) (403) (160) 18,711 (407) Real estate held for investment Financial assets for unit-linked contracts Total 23,314 2,210 206,572 208 373 18,619 15 (720) (215) (123) (8,048) 70 70 (948) 17 (1,671) (1,000) (3) (19) 1 (1,235) (246) (127) (503) 1,279 (1,264) 22,165 2,366 212,095 (946) 17 (1,617) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of level 3 financial liabilities € mn Carrying value (fair value) as of 1 January 2023 Additions through purchases and issues Net transfers into (out of) level 3 Disposals through sales and settlements Net losses (gains) recognized in consolidated income statement Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Change in accrued interest recognized in consolidated income statement Change in accrued interest recognized in other comprehensive income - cash settlement Carrying value (fair value) as of 30 June 2023 Net losses (gains) recognized in consolidated income statement held at the reporting date Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 7.1. 82 Rep Financial liabilities at fair value through profit and loss 384 24 (12) 13 (1) 1 (6) 7 410 (1) Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Fair value hierarchy (items not carried at fair value) € mn FINANCIAL ASSETS Financial assets at amortized costs Investments in associates and joint ventures at equity Real estate held for investment Total FINANCIAL LIABILITIES Financial liabilities at amortized costs Liabilities to banks and customers Certificated liabilities Subordinated liabilities Other (Financial liabilities at amortized costs) Non-unit-linked investment contracts Total 1_Quoted prices in active markets. 2_Market observable inputs. 3_Non-market observable inputs. Debt investments in fair value through profit and loss and in fair value through other comprehensive income Debt investments are part of financial assets at fair value through profit and loss and financial assets at fair value through other comprehensive income which include corporate and government and government agency bonds, MBS/ABS, covered bonds, and other debt investments. The valuation techniques for these debt investments are similar. The fair value is determined using the market and the income approach. Primary inputs for the market approach are quoted prices for in active markets, where comparability between the security and the benchmark defines the fair value level. The income approach in most cases means that a present value technique is applied where either the cash flows or the discount curve are adjusted to reflect credit risk and/or liquidity risk. identical or comparable assets 83 Rep As of 30 June 2023 Level 1 1 Level 2 2 Level 3 3 Total 4,409 212 4,161 8,782 344 2,104 2,448 5,785 5,785 4,409 556 12,050 17,016 9,418 5,609 2,851 17,879 7,547 200 7,747 11,876 11,876 2,763 2,763 718 11,601 59 12,378 10,136 39,397 3,111 52,643 Depending on the observability of these risk parameters in the market, the security is classified as level 2 or level 3. Level 3 investments are mainly priced based on the income approach. The primary non-market observable input used in the discounted cash flow method is an option-adjusted spread taken from a set of benchmark securities with similar characteristics. A significant yield increase of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs has only immaterial impact on fair value. Equity investments in fair value through other comprehensive income For level 2, the fair value is mainly determined using the market approach or net asset value techniques for funds. For certain private equity investments, the funds are priced based on transaction prices using the cost approach. As there are only a few holders of these funds, As of 31 December 2022 Level 1 1 Level 22 Level 33 Total 3,915 63 3,936 7,915 398 2,083 2,481 5,812 5,812 3,915 462 11,831 16,208 10,333 4,249 4,481 19,063 8,287 203 8,490 10,937 10,937 1,882 1,882 2,771 7,546 10,317 10,333 28,126 12,230 50,689 the market participants. is not liquid and transactions are only known to Funds Level 3 mainly comprises private equity fund investments as well as alternative investments of the Allianz Group, and in most cases these are delivered as net asset values by the fund managers. These net asset values are calculated using material, non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund managers, hence a sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines, using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the capital invested is considered to be a reasonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Derivatives The fair value of these derivatives is mostly determined based on the income approach, using present value techniques and the Black- Scholes-Merton model. Primary inputs for the valuation include volatilities, interest rates, yield curves and foreign exchange rates observable at commonly quoted intervals. In some cases, it is determined based on the market approach. Loans at fair value through other comprehensive income For loans at fair value through other comprehensive income, quoted market prices are rarely available. Level 1 mainly consists of highly liquid advances, e.g., short-term investments. The fair value for assets in level 2 and level 3 is mainly derived based on the income approach using deterministic discounted cash flow models. Associates and joint ventures For level 2 and level 3, fair values are mainly based on the income approach, using a discounted cash flow method or net asset values as provided by third-party vendors. Real estate held for investment Fair values are mostly determined using the market or the income approach. Valuation techniques applied for the market approach include market prices of comparable assets in markets that are not active. The fair values are either calculated internally and validated by external experts or derived from expert appraisals with internal controls in place to monitor these valuations. Financial liabilities at fair value through profit and loss This position mainly includes derivative financial instruments. For level 2, the fair value is determined using the income or the market approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the Black- Scholes-Merton model. Main observable input parameters include volatilities, yield curves observable at commonly quoted intervals, and credit spreads observable in the market. For level 3, the fair value is determined using the income or the market approach. Valuation techniques applied for the income approach mainly include discounted cash flow models. A significant proportion of level 3 liabilities represent derivatives embedded in certain life insurance and annuity contracts. Significant non-market 84 Rep observable input parameters include mortality rates and surrender rates. A significant decrease (increase) in surrender rates, in mortality rates, or in the utilization of annuitization benefits could result in a higher (lower) fair value. For products with a high death benefit, surrender rates may show an opposite effect. Financial assets at amortized cost Financial assets at amortized costs only include debt investments. For the valuation measurement please refer to the passage debt investments. Liabilities to banks and customers Level 1 mainly consists of highly liquid liabilities, e.g., payables on demand. The fair value for liabilities in level 2 and level 3 is mainly derived based on the income approach, using future cash flows rates. Main non-market discounted with observable inputs include credit spreads. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate of the fair value. risk-specific interest Certificated and subordinated liabilities For level 2, the fair value is mainly determined based on the market approach, using quoted market prices, and based on the income approach, using present value techniques. For level 3, fair values are mainly derived based on the income approach, using deterministic cash flows with credit spreads as primary non-market observable inputs. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value. Financial assets for unit-linked contracts For level 2, the fair value is determined using the market or the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the Black- Scholes-Merton model. Financial liabilities for unit-linked contracts are valued based on their corresponding assets. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 8 _ OTHER INFORMATION 8.1 _ Fee and commission income Fee and commission income € mn Six months ended 30 June 2023 PROPERTY-CASUALTY Fees from credit and assistance business 872 Service agreements 314 Investment advisory 32 Subtotal 1,217 LIFE/HEALTH Investment advisory 564 Service agreements 101 Subtotal 665 ASSET MANAGEMENT Management and advisory fees 4,369 Performance fees 202 Loading and exit fees 160 Other 33 Subtotal 4,764 CORPORATE AND OTHER Service agreements 1,941 Investment advisory and banking activities 318 Subtotal 2,259 CONSOLIDATION (2,389) Total 6,516 85 Rep 2022 831 385 1,216 402 72 473 4,851 130 169 22 5,171 1,362 338 1,700 (1,955) 6,607 8.2 _ Fee and commission expenses Fee and commission expenses € mn Six months ended 30 June 2023 PROPERTY-CASUALTY Fees from credit and assistance business (922) Service agreements (301) Other (18) Subtotal (1,241) LIFE/HEALTH Investment advisory (203) Service agreements (101) Subtotal (304) ASSET MANAGEMENT Commissions (1,019) Other (12) Subtotal (1,031) CORPORATE AND OTHER Service agreements (1,933) Investment advisory and banking activities (210) Subtotal (2,144) CONSOLIDATION 2,011 Total (2,710) 8.3 _ Acquisition and administrative expenses The acquisition and administrative expenses disclosed in the following table are the administrative expenses of the Allianz Group’s non- insurance entities and the acquisition and administrative expenses, as well as settlement costs of the Allianz Group’s insurance entities that are not directly attributable to fulfilling insurance contracts. Expenses 2022 (844) (338) (1,182) (158) (84) (242) (1,071) (7) (1,078) (1,337) (225) (1,562) 1,582 (2,482) which are directly attributable to fulfilling insurance contracts are included in insurance service expenses. Acquisition and administrative expenses € mn Six months ended 30 June 2023 2022 PROPERTY-CASUALTY Non-attributable acquisition costs (525) (475) Non-attributable and non-insurance administrative expenses (501) (469) Non-attributable settlement costs (37) (12) Subtotal (1,064) (956) LIFE/HEALTH Non-attributable acquisition costs (245) (220) Non-attributable and non-insurance administrative expenses (349) (299) Non-attributable settlement costs (10) (8) Subtotal (604) (527) ASSET MANAGEMENT Personnel expenses (1,435) (1,560) Non-personnel expenses1,2 (926) (2,770) Subtotal (2,362) (4,330) CORPORATE AND OTHER Administrative expenses (616) (606) Subtotal (616) (606) CONSOLIDATION 33 62 Total (4,612) (6,357) 1_Includes € 103 mn (2022: € (174) mn) changes in assets and € (103) mn (2022: € 174 mn) changes in liabilities related to certain deferred compensation programs, entirely offsetting each other. 2_Includes for 2022 € (1,857) mn for a litigation provision for Structured Alpha. For further information, please refer to note 8.10. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements 8.4 _ Income taxes Income taxes € mn Six months ended 30 June 2023 Current income taxes (1,196) Deferred income taxes (94) Total (1,290) For the six months ended 30 June 2023 and 2022, the income taxes relating to components of other comprehensive income consist of the following: Income taxes relating to components of other comprehensive income € mn Six months ended 30 June 2023 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments (3) Debt investments measured at fair value through OCI (2,241) Cash flow hedges 32 Share of other comprehensive income of associates and joint ventures 1 Insurance liabilities 2,213 Reinsurance assets (4) Miscellaneous 166 Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans 48 Equity investments measured at fair value through OCI (590) Insurance liabilities 438 Miscellaneous 5 Total 64 86 Rep 2022 (1,388) 189 (1,199) 2022 270 29,001 677 (1) (30,502) 1,160 (17) (847) 3,145 (1,176) (16) 1,695 8.5 _ Financial assets for unit-linked contracts and investment contract liabilities Financial assets for unit-linked contracts € mn As of 30 June 2023 Financial assets for unit-linked insurance contracts 109,829 Financial assets for unit-linked investment contracts 39,063 Total 148,892 Investment contract liabilities € mn As of 30 June 2023 Unit-linked investment contracts 39,063 Non-unit-linked investment contracts 12,372 Total 51,435 As of 31 December 2022 103,524 37,510 141,034 As of 31 December 2022 37,510 10,317 47,827 8.6 _ Other assets Other assets € mn As of 30 June 2023 As of 31 December 2022 Property and equipment Real estate held for own use1 3,448 3,520 Software 3,469 3,457 Equipment 1,074 1,108 Right-of-use assets 2,291 2,269 Subtotal 10,282 10,354 Receivables Gross receivables 7,900 7,189 Expected credit loss (92) (91) Subtotal 7,808 7,098 Tax receivables Income taxes 2,989 2,345 Other taxes 2,185 2,525 Subtotal 5,174 4,870 Prepaid expenses 1,201 921 Non-current assets and assets of disposal groups classified as held for sale 2,804 3,062 Other assets2 4,337 3,930 Total 31,606 30,234 1_As of 30 June 2023, consists of real estate held for own use measured at fair value of € 1,702 mn (31 December 2022: € 1,762 mn) and of real estate held for own use measured at amortized cost of € 1,746 mn (31 December 2022: € 1,757 mn). 2_As of 30 June 2023, includes € 1,383 mn (31 December 2022: € 1,295 mn) assets for deferred compensation programs which are mainly level 2 for fair value measurement. Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements Reconciliation of gross carrying amount for trade and lease receivables as of 30 June 2023 and 31 December 2022 € mn 2023 1 January 6,039 Additions 521 Changes in the consolidated subsidiaries of the Allianz Group 558 Changes in models and risk parameters and due to modifications (21) Matured or sold (246) Reclassification into non-current assets and assets of disposal groups classified as held for sale 107 Write-offs Amortization Foreign currency translation adjustments (47) Other changes 1,268 30 June/31 December 8,179 As of 30 June 2023, the corresponding expected credit loss amounted to € 92 mn (31 December 2022: € 91 mn). 87 Rep 2022 6,860 1,105 34 (23) (692) (1,959) 161 552 6,039 8.7 _ Other liabilities Other liabilities € mn As of 30 June 2023 As of 31 December 2022 Tax payables Income taxes 1,771 1,743 Other taxes, interest, and penalties 2,350 2,115 Subtotal 4,121 3,858 Payables for social security and other payables 736 804 Unearned income 772 610 Provisions Pensions and similar obligations 8,109 7,994 Employee related 2,822 3,092 Share-based compensation plans 357 369 Restructuring plans 226 309 Other provisions 2,566 2,654 Subtotal 14,080 14,418 Liabilities of disposal groups held for sale 2,051 2,842 Other liabilities 12,741 12,278 Total 34,501 34,810 8.8 _ Intangible assets Intangible assets € mn As of 30 June 2023 As of 31 December 2022 Goodwill 16,550 16,255 Distribution agreements1 1,091 1,176 Customer relationships2 689 691 Other2 333 320 Total 18,664 18,442 1_Primarily includes the long-term distribution agreements with Banco Bilbao Vizcaya Argentaria, S.A., and Santander Aviva Life. 2_Primarily results from business combinations. 8.9 _ Equity Equity € mn As of 30 June 2023 As of 31 December 2022 Shareholders' equity Issued capital 1,170 1,170 Additional paid-in capital 27,732 27,732 Undated subordinated bonds 4,792 4,843 Retained earnings1 27,928 29,354 Foreign currency translation adjustments (3,211) (3,048) Unrealized gains and losses from insurance contracts (net) 48,660 54,854 Other unrealized gains and losses (net)2,3 (52,754) (60,490) Subtotal 54,318 54,415 Non-controlling interests 4,506 4,320 Total 58,823 58,735 1_As of 30 June 2023, includes € (1,403) mn (31 December 2022: € (333) mn) related to treasury shares. 2_As of 30 June 2023, includes € 886 mn (31 December 2022: € 1,059 mn) related to expected credit losses. 3_As of 30 June 2023, includes € (1,517) mn (31 December 2022: € (1,460) mn) related to cash flow hedges. In the second quarter of 2023, a total dividend of € 4,541 mn (2022: € 4,383 mn), or € 11.40 (2022: € 10.80) per qualifying share, was paid to the shareholders. 8.10 _ Litigation, contingent liabilities and commitments in legal, regulatory, and Allianz Group companies are in Germany and a number of foreign arbitration proceedings jurisdictions, including the United States. Such proceedings arise in the ordinary course of business, including, amongst others, their activities as insurance, banking and asset management companies, employers, investors and taxpayers. While it is not feasible to predict or determine the ultimate outcome of such proceedings, they may result in substantial damages or other payments or penalties, or result in involved Interim Report for the First Half-Year of 2023 − Allianz Group B _ Condensed Consolidated Interim Financial Statements adverse publicity and damage to the Allianz Group’s reputation. As a result, such proceedings could have an adverse effect on the Allianz Group’s business, financial condition and results of operations. Apart from the proceedings discussed below, Allianz SE is not aware of any regulatory or arbitration proceedings which may have, or have had in the recent past, significant effects on its and/or the Allianz Group’s financial position or profitability. Material proceedings in which Allianz Group companies are involved are in particular the following: threatened or pending legal, With respect to the multiple complaints which had been filed in U.S. Courts in connection with losses suffered by investors in AllianzGI U.S.’s Structured Alpha funds (“Funds”) during the COVID-19 related market downturn, in the meantime all actions regarding private and mutual funds have been dismissed after settlements were reached with the respective investors. In addition, as announced by ad-hoc disclosure on 17 May 2022, AllianzGI U.S. has entered into settlements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) in connection with the Structured Alpha matter. Pursuant to the DOJ resolution, AllianzGI U.S. pleaded guilty to one count of criminal securities fraud, and pursuant to the SEC resolution the SEC found that AllianzGI U.S. violated relevant U.S. securities laws. These settlements fully resolve the U.S. governmental investigations of the Structured Alpha matter for Allianz. As announced by ad-hoc disclosures on 17 February 2022 and 11 May 2022, Allianz recognized a provision of € 3.7 bn for the fourth quarter of 2021 and an additional provision of € 1.9 bn for the first quarter of 2022 for the Structured Alpha matter. As of 30 June 2023, the majority of the amounts provisioned have been paid out already for settlements with investors in the Funds and for payments to the U.S. authorities according to the resolutions reached with them. Allianz SE believes that the remaining provision is a fair estimate of its financial exposure in relation to any remaining compensation payments to Structured Alpha investors in mutual funds. Allianz is seeking a timely resolution with remaining fund investors and expects that the disclosure of additional information could have a negative impact on its position in the ongoing discussions with investors and therefore, in accordance with IAS 37.92, management refrains from providing further details on the provision recognized as well as on any contingent liabilities. In January 2023, a putative class action complaint has been filed against Allianz SE and its CEO in the United States District Court for the Central District of California. The complaint alleges violation of 88 Rep Federal U.S. Securities Laws by making false or misleading statements in public disclosures such as the annual reports of Allianz in the period between March 2018 and May 2022 regarding the AllianzGI U.S. Structured Alpha matter and internal controls. Allianz SE considers the action to be unfounded. The following table shows the composition of commitments as of 30 June 2023: Commitments € mn As of 30 June 2023 As of 31 December 2022 Commitments to acquire interests in joint ventures, associates and equity investments 36,246 36,605 Commitments to purchase debt investments 8,606 8,072 Other commitments 4,212 4,164 Total 49,064 48,841 Any material contingent liabilities resulting from litigation matters are captured in the litigation section above. All other contingent liabilities and commitments had no significant changes compared to the consolidated ended statements 31 December 2022. financial for the year 8.11 _ Hyperinflationary economies Subsidiaries of the Allianz Group that operate in Türkiye, Argentina and Lebanon have to apply hyperinflation accounting in accordance with IAS 29. In applying IAS 29, the Allianz Group has adopted the accounting policy to present the combined effect of the restatement in accordance with IAS 29 and the translation according to IAS 21 as a net change for the year in other comprehensive income. The identities and levels of the price indices applied by the operating entities concerned are as follows: Hyperinflationary economies Index As of 30 June 2023 As of 31 December 2022 Türkiye Consumer Price Index published by the Turkish Statistical Institute (TURKSTAT) 1,351.59 1,128.45 Lebanon Consumer Price Index published by the Central Administration of Statistics (Lebanese Republic) 4,549.38 2,045.46 Argentina Consumer Price Index published by the Argentinian Statistical Institute 1,709.61 1,134.59 Overall, for the six months ended 30 June 2023, the application of hyperinflation accounting according to IAS 29 had a negative impact on net income of € (148) mn (30 June 2022: € (215) mn). 8.12 _ Related party transactions Transactions between Allianz SE and its subsidiaries that are to be deemed related parties have been eliminated in the consolidation and are not disclosed in the notes. Business relations with joint ventures and associates are set on an arm’s length basis. 8.13 _ Subsequent events The Allianz Group was not subject to any subsequent events that significantly impacted the Group’s financial result after the balance sheet date and before the financial statements were authorized for issue. Interim Report for the First Half-Year of 2023 − Allianz Group FURTHER INFORMATION C 89 Interim Report for the First Half-Year of 2023− Allianz Group C _ Further Information RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 8 August 2023 Allianz SE The Board of Management Oliver Bäte Sirma Boshnakova Dr. Barbara Karuth-Zelle Dr. Klaus-Peter Röhler Giulio Terzariol Dr. Günther Thallinger Christopher Townsend Renate Wagner Dr. Andreas Wimmer 90 Interim Report for the First Half-Year of 2023 − Allianz Group C _ Further Information REVIEW REPORT To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements - comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes – and the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2023 which are part of the half-year financial report pursuant to § (Article) 115 WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. 91 Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Munich, 9 August 2023 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Florian Möller Wirtschaftsprüfer (German Public Auditor) Clemens Koch Wirtschaftsprüfer (German Public Auditor) Interim Report for the First Half-Year of 2023 − Allianz Group Financial calendar Important dates1 Financial Results 3Q ______________________________________________ 10 November 2023 Financial Results 2023 ______________________________________________ 23 February 2024 Annual Report 2023 ___________________________________________________ 7 March 2024 Annual General Meeting _________________________________________________ 8 May 2024 Financial Results 1Q ___________________________________________________ 15 May 2024 Financial Results 2Q/Interim Report 6M __________________________________ 8 August 2024 Financial Results 3Q ______________________________________________ 13 November 2024 1_The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes to these dates, we recommend checking them online on the Allianz company website. Imprint Allianz SE Königinstrasse 28 80802 Munich Germany Phone + 49 89 3800 0 www.allianz.com Interim Report online: www.allianz.com/interim-report Date of publication: 10 August 2023 This is a translation of the German Interim Report of the Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2023, Insurance, Allianz | write me a financial report |
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| 6M Allianz Group Interim Report for the First Half-Year of 2016 To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. Content A InterIm Group mAnAGement report pAGes 1 - 18 2 4 6 9 Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management 11 12 14 16 Corporate and Other Outlook Balance Sheet Review Reconciliations B Condensed ConsolIdAted InterIm FInAnCIAl stAtements pAGes 19 - 45 20 21 22 23 24 Consolidated Balance Sheets Consolidated Income Statements Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows 26 26 33 37 40 Notes to the Condensed Consolidated Interim Financial Statements General Information Notes to the Consolidated Balance Sheets Notes to the Consolidated Income Statements Other Information Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of Euros (€ MN) unless otherwise stated. Due to rounding, numbers presented may not add up pre- cisely to the totals provided and percentages may not precisely reflect the absolute figures. Guideline on Alternative Performance Measures For further information on the definition of our Alternative Performance Measures and their components, as well as the basis of calculation adopted, please refer to www.allianz.com/en/ investor_relations/results-reports/results. Further Information Following the change in the E.U. Transparency Directive, Allianz Group adjusted its reporting. As the First Quarter and Third Quarter Interim Reports have been discontinued as from 2016, this Interim Report for the First Half-Year of 2016 no longer contains quarterly information. Also, we have taken this opportunity to enhance transparency, streamline our disclosures, and remove redundancies wherever possible. In general this Interim Report should be read in conjunction with our Annual Report 2015, which includes a detailed analysis of our operations and activities. INtERIM GROuP MANAGEMENt REPORt A Interim Report for the First Half-Year of 2016 Allianz Group 1 A Interim Group Management Report Executive Summary Key figures kEy figurEs allianz group1 € mn six months ended 30 June 2016 2015 Delta Total revenues2 64,759 67,939 (3,179) Operating profit3 5,109 5,697 (588) Net income3 3,479 4,048 (570) thereof: attributable to shareholders 3,284 3,839 (555) Solvency ii capitalization ratio4,5 in % 186 200 (14) % -p Return on equity6 in % 12.0 12.5 (0.5) % -p Earnings per share in € 7.22 8.45 (1.23) Diluted earnings per share in € 7.04 8.45 (1.40) Earnings summary123456 Economic and industry EnvironmEnt Overall, global economic activity continued to trend moderately upwards in the first half of 2016. Most industrialized countries regis- tered fairly solid growth. Following only subdued growth in the first quarter of 2016, the U.S. economy firmed up somewhat in the second quarter. The economic recovery in the Eurozone continued, benefiting from low oil prices and the relatively low valuation of the Euro. By contrast, major emerging markets provided a rather mixed picture. Brazil remained caught in a severe recession, while in Russia the eco- nomic situation stabilized somewhat following the sharp contraction in 2015. In China, economic growth continued to decelerate. Financial markets experienced two major episodes of consider- ably increased volatility in the first half of 2016. At the beginning of the year, fears that the Chinese economy might slow down faster than expected and that the Yuan could depreciate considerably prompted some turmoil on the equity markets. In late June, the Brexit vote sent shock waves around the global financial markets. In March, the European Central Bank eased its monetary policy stance further with a bundle of measures, in particular an extension of its bond purchasing program and a further lowering of its key interest rate to 0.0 % and of its deposit rate to (0.4) %. Yields on 10-year German government bonds declined significantly and closed the second quarter at (0.1) %, 70 basis points lower than at the beginning of the year. Spreads on government bonds in most of the Eurozone 1 2 3 4 5 6 For further information on Allianz Group figures, please refer to note 4 to the condensed consolidated interim financial statements. Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole. 2015 figures as of 31 December 2015, 2016 figures as of 30 June 2016. Changed regulatory tax treatment of German life sector reduced year-end Solvency II capitalization ratio from 200 % to 196 % on 1 January 2016. Represents the annualized ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow DAC, at beginning of the period and at end of the period. Annualized figures are not a forecast for full year numbers. For 2015, the return on equity for the full year is shown. 2 periphery countries tightened. U.S. bond yields declined as investors shifted their portfolios away from low-yielding non-U.S. sovereign debt. The performance of major stock market indices was mixed, with gains in the United States and emerging markets and losses in Europe and Japan. The Euro moved more or less sideways against the U.S. Dollar in the first half of 2016. The U.S. Dollar to Euro exchange rate was 1.11 at the end of the second quarter (end of 2015: 1.09). From an insurance industry point of view, the macro environ- ment was challenging: Organic growth remained subdued, financial markets volatile and yields suppressed. Furthermore, earnings were depressed by increased catastrophe losses: Insured losses were a third higher than last year, due to earthquakes in Japan and Ecuador, wildfires in Canada, and heavy storms in the United States and Europe. Then came the Brexit vote. Although operational implica- tions are expected to remain limited, the industry was hit by second- order effects such as plunging yields. As a result, liability matching has become even harder. The industry continues to diversify its invest- ments, for example into infrastructure. managEmEnt’s assEssmEnt Our total revenues declined by 4.7 % compared to the first half-year of 2015. On an internal basis7, revenues dropped by 2.5 %. This was largely due to our Life/Health business segment recording a reduction in unit-linked single premiums business in Italy and Taiwan as well as a decrease in our traditional business. Furthermore, our other net fee and commission income in our Asset Management business seg- ment decreased – mainly driven by third-party net outflows. Internal premium growth in particular for Turkey, Germany and AGCS, in our Property-Casualty business segment, had a partly offsetting effect. Overall, our operating investment result decreased by € 1,895 MN to € 12,174 MN. Operating realized gains/losses (net) decreased from a relatively high level, as the previous half-year figure had benefited from higher realizations in order to manage duration and the overall asset allocation. In addition, we recorded higher impairments on equities which resulted from the downturn of some of the major equity markets in the first half of 2016. We recorded a decrease in operating profit this reporting period, primarily due to a lower underwriting result and operating invest- ment income in our Property-Casualty business segment. In addi- tion, the first half-year of 2015 included a € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business. Another contributing factor was the decline in average third-party assets under management in our Asset Management business segment. Our Life/Health business segment also reported a slightly lower oper- ating profit, which is largely attributable to the traditional variable annuity business in the United States and lower unit-linked perfor- mance fees in Italy. Our Corporate and Other business segment’s operating result remained stable. 7 Internal total revenue growth excludes the effects of foreign-currency translation as well as acquisitions and disposals. Please refer to page 16 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and for the Allianz Group as a whole. Internal revenue growth on business segment level will be explained in the following chapters. Interim Report for the First Half-Year of 2016 Allianz Group Our non-operating result decreased by € 371 MN to a loss of € 295 MN. This was largely caused by an impairment loss1 on our South Korean Life/Health business upon its classification as held for sale in the second quarter of 2016. Moreover, the negative result of that busi- ness for the second quarter of 2016 was considered as non-operating as it is no longer seen as part of the ongoing core operations of the Allianz Group. Income taxes were down by € 390 MN to € 1,335 MN, mainly driven by higher tax-exempt income compared to the first six months of 2015. The effective tax rate decreased to 27.7 % (6M 2015: 29.9 %). Our net income went down, largely due to our lower operating performance and weaker non-operating result. An improved effective tax rate had a partly offsetting effect. Our shareholders’ equity rose by € 4.6 BN to € 67.7 BN, compared to 31 December 2015. Over the same period our Solvency II capitalization ratio weakened from 200 %2 to 186 %. A more detailed description of the results generated by our busi- ness segments – specifically, Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other – can be found in the respective chapters on the following pages. Risk and opportunity management In our Annual Report 2015, we described our opportunity and risk profile and addressed potential risks that could adversely affect both our business and our risk profile. The statements contained in that report remain materially unchanged. For the reporting period covered in this present report, there are some additional points to be men- tioned with respect to potential risks and opportunities from political or financial market developments: − The United Kingdom referendum on European Union member- ship (“Brexit” vote): Depending on the timing and results of negotiations, this matter could negatively affect financial markets and lead to discussions on the future stability of the European Union at large. − The upcoming elections in key European countries may nega- tively impact European sovereign debt markets. − The latest developments in Turkey. Consequently, we continue to monitor developments in order to be able to react in a timely and appropriate manner. For further infor- mation, please refer to the Outlook starting on page 12. 1 2 For further information on the impairment loss of our Life/Health business in South Korea, please refer to note 3 to the condensed consolidated interim financial statements. Changed regulatory tax treatment of German life sector reduced year-end Solvency II capitalization ratio from 200 % to 196 % on 1 January 2016. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report Events after the balance sheet date For information on events after the balance sheet date, please refer to note 34 to the condensed consolidated interim financial statements. Other information rEcEnt organizational changEs The organizational structure described in our Annual Report 2015 remains materially unchanged. Some minor reallocations between the reportable segments have been made. stratEgy The Allianz Group’s strategy is described in the Strategy and Steering chapter in our Annual Report 2015. There have been no material changes to our Group strategy. products, sErvicEs and salEs channEls For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Oper- ations and Markets chapter in our Annual Report 2015. Information on our brand can also be found in the Progress in Sustainable Devel- opment chapter in our Annual Report 2015. allianz group and BusinEss sEgmEnts The Allianz Group operates and manages its activities through four business segments, which have all been mentioned above. For further information, please refer to note 4 to the condensed consolidated interim financial statements or to the Business Operations and Markets chapter in our Annual Report 2015. 3 A Interim Group Management Report Property-Casualty Insurance Operations The following operations contributed negatively to internal growth: Key figures Italy: Gross premiums went down to € 2,268 mN – a decrease of 4.7 % on an internal basis. This was mainly due to negative price and volume effects in our motor business. key figUres prOperty-casUalty1 € mn six months ended 30 June Gross premiums written 2016 28,856 2015 29,182 Delta (326) United Kingdom: Gross premiums decreased to € 1,410 mN. The internal decrease of 3.7 % largely resulted from negative volume effects in our motor retail business. Positive price developments in our pet insurance business had slightly offsetting effects. Operating profit Net income Loss ratio2 in % 2,539 1,922 66.4 3,030 2,266 66.1 (491) (344) 0.4 % -p Credit Insurance: Gross premiums amounted to € 1,175 mN. The decline of 2.5 % on an internal basis resulted from unfavorable price and volume effects. Expense ratio3 in % 28.4 28.0 0.5 % -p Combined ratio4 in % 94.9 94.1 0.8 % -p Operating profit Operating prOfit Gross premiums1234written5 € mn six months ended 30 June Underwriting result 2016 1,045 2015 1,249 Delta (204) Operating investment income (net) 1,473 1,649 (176) On a nominal basis, we recorded a decrease in gross premiums written compared to the first six months of the previous year. Other result1 Operating profit 21 2,539 132 3,030 (111) (491) Unfavorable foreign-currency translation effects amounted to € 795 mN, mainly resulting from the depreciation of the Argentine Peso, the British Pound, and the Turkish Lira against the Euro.6 1 Consists of fee and commission income/expenses, other income/expenses, and restructuring charges. Consolidation/deconsolidation effects were negative at € 433 mN, largely due to the sale of the Fireman’s Fund personal insurance busi- ness to ACE Limited and the transfer of a health insurance portfolio in Russia to our Life/Health segment. On an internal basis, our growth was strong at 3.1 %, driven by a positive volume effect of 2.2 % and a positive price effect of 0.9 %. The following operations contributed positively to internal growth: The operating profit decrease was driven by all profit sources. After a benign natural catastrophe environment in the first quarter of the current year, the underwriting result suffered from higher claims from natural catastrophe events and higher large losses in the second quarter. Furthermore, the first half-year 2015 included a € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business to ACE Limited, which was partially offset by the related restructuring charges of € 0.1 BN. Our operating investment income (net) worsened, compared to the same period of the prior year. Turkey: Gross premiums grew to € 849 mN – an increase of 54.2 % on an internal basis. This resulted from positive price and volume effects in our motor third-party liability insurance business. Underwriting resUlt Germany: Gross premiums amounted to € 6,142 mN. The internal growth of 2.8 % was mainly due to positive price effects in our motor insurance business. € mn six months ended 30 June Premiums earned (net) 2016 22,823 2015 23,072 Delta (249) AGCS: Gross premiums stood at € 4,247 mN – up 3.9 % on an inter- nal basis. This was driven by positive volume effects at Allianz Risk Transfer, which were partly offset by negative price effects in our energy and aviation lines of business. Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (16,302) 1,141 (15,162) (6,492) (16,004) 761 (15,243) (6,456) (298) 380 81 (35) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (124) (123) (1) Underwriting result 1,045 1,249 (204) 1 2 3 4 5 For further information on Allianz Property-Casualty figures, please refer to note 4 to the condensed consolidated interim financial statements. Represents claims and insurance benefits incurred (net), divided by premiums earned (net). Represents acquisition and administrative expenses (net), excluding one-off effects from pension revalua tion divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effects from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). We comment on the development of our gross premiums written on an internal basis, which means figures have been adjusted for foreign-currency translation and (de-)consolidation effects in order to provide more comparable information. Based on the average exchange rates in 2016 compared to 2015. 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. 6 4 Interim Report for the First Half-Year of 2016 Allianz Group Due to higher claims from natural catastrophe events, large losses, and expenses, which were only partially mitigated by a higher con- tribution from run-off, our underwriting result dropped and our combined ratio deteriorated. Our accident year loss ratio1 stood at 71.4 % – a deterioration of 2.1 percentage points, compared to the first half-year 2015. This was driven by an increase in losses from natural catastrophes from € 345 mN to € 522 mN, resulting in a higher impact on our combined ratio of 2.3 percentage points, compared to 1.5 percentage points in the same period of 2015. Excluding losses from natural catastrophes, our accident year loss ratio worsened to 69.1 %. This was mainly due to a higher impact from both large losses and numerous smaller weather-related events. The following operations contributed negatively to the development of our accident year loss ratio: AGCS: 0.6 percentage points. This was heavily driven by higher losses from natural catastrophes in North America and Europe. In addition, large losses were above last year’s level. France: 0.6 percentage points. This deterioration predominantly resulted from a combination of a higher impact from natural catas- trophes including the floods in May, and higher large losses compared to the previous year. Reinsurance: 0.5 percentage points. This was because of a higher impact from natural catastrophes, smaller and mid-sized weather- related events, and large losses. Our run-off ratio increased by 1.7 percentage points compared to the first half-year of 2015, resulting in a higher run-off ratio amounting to 5.0 %. This was driven by reserve releases across most of the portfolio, while 2015 included a negative impact of 0.6 percentage points from the strengthening of reserves for the former Fireman’s Fund portfolio in the second quarter. Total expenses amounted to € 6,492 mN in the first half-year of 2016 compared to € 6,456 mN in the same period of the previous year. The increase in our expense ratio was driven by both a worse admin- istrative and a higher acquisition expense ratio. Operating investment incOme (net)1 € mn six months ended 30 June 2016 2015 Interest and similar income (net of interest expenses) 1,688 1,828 Operating income from financial assets and liabilities carried at fair value through income (net) (25) 33 Operating realized gains (net) 157 138 Operating impairments of investments (net) (43) (7) Investment expenses (175) (176) Expenses for premium refunds (net)2 (129) (168) Operating investment income (net) 1,473 1,649 1 2 The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial state- ments – and expenses for premium refunds (net) (policyholder participation). Refers to policyholder participation, mainly from APR (accident insurance with premium refunds) busi- ness, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 25 to the condensed consolidated interim financial statements. 1 Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned (net). Interim Report for the First Half-Year of 2016 Allianz Group Delta (141) (58) 19 (36) – 39 (176) A Interim Group Management Report The decline in operating investment income (net) was mainly due to lower interest and similar income and an unfavorable foreign-cur- rency translation result net of hedging. Interest and similar income (net of interest expenses) decreased largely driven by debt securities due to reduced interest rates. Other resUlt € mn six months ended 30 June 2016 2015 Delta Fee and commission income 759 715 44 Other income 1 227 (226) Fee and commission expenses (706) (680) (26) Other expenses – – – Restructuring charges (33) (130) 97 Other result 21 132 (111) In the first six months of 2015, we recorded a € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business, which is reported as other income. Net income Net income fell largely due to the decline in operating profit, partly offset by lower income taxes. 5 A Interim Group Management Report Life/Health Insurance Operations Key figures In France, statutory premiums dropped to € 3,878 MN. This decrease, 5.3 % on an internal basis, was mainly due to a decline in our individual life business. Key figures life/health1 € mn six months ended 30 June 2016 2015 Delta In the Asia Pacific region, statutory premiums declined to € 2,349 MN, down 31.1 % on an internal basis. This was largely driven by a decrease in sales of single premium unit-linked products, dis- tributed via bancassurance in Taiwan. Statutory premiums 32,968 35,540 (2,572) Operating profit 2 Net income 1,936 995 1,957 1,401 (20) (406) Premiums earned (net) Return on equity3 in % 8.0 10.8 (2.8) % -p Premiums earned (net) went down by € 706 MN to € 11,757 MN. The main reason was a decline in our business with traditional life prod- ucts in Germany. Statutory123premiums4,5 On a nominal basis, statutory premiums decreased by 7.2 %. This includes unfavorable foreign-currency translation effects of € 324 MN and positive (de-)consolidation effects of € 78 MN. On an internal basis5, statutory premiums decreased by € 2,326 MN – or 6.5 % – to € 33,286 MN, largely due to lower unit-linked single pre- miums in Italy and Taiwan, as well as to a decline in our traditional business. The increased fixed-indexed annuity sales in the United States partly compensated for this development. In line with our changed product strategy, premiums continued to shift towards capital-efficient products. Present value of new business premiums (PVnBP)6,7,8 PVNBP fell by € 3,633 MN to € 29,713 MN, largely due to declining sales both in our traditional business with high guarantees and in our business with unit-linked insurance products without guarantees in Italy. Present value of new business Premiums (PvnbP) in % by lines of business1 % six months ended 30 June 2016 2015 Delta Guaranteed savings & annuities 29.3 37.1 (7.9) In the German life business, we recorded statutory premiums of € 8,923 MN. This increase of 0.8 % on an internal basis was due to growth in the business with capital-efficient products. It more than offset the decline in sales of traditional life products, which include long-term interest rate guarantees. Statutory premiums in the German health business went up to € 1,644 MN – a rise of 0.9 % on an internal basis, largely resulting from the acquisition of new customers in the supplementary health care coverage. Protection & health 16.0 13.4 Unit-linked without guarantee 19.4 25.7 Capital-efficient products 35.3 23.8 Total 100.0 100.0 1 Current and prior year figures are presented excluding effects from the South Korean business. 2.6 (6.3) 11.5 – In the United States, statutory premiums climbed to € 6,575 MN, representing a growth of 24.3 % on an internal basis. We experienced higher fixed-indexed annuity sales mainly as a result of our marketing activities in the first quarter of 2016. Statutory premiums in Italy amounted to € 5,141 MN, down 27.3 % on an internal basis. This development was largely due to lower unit- linked single premium sales – as a result of higher financial market volatility – and a decrease in traditional life business. Operating profit At the beginning of the second quarter of 2016, all requirements were fulfilled to present our South Korean business as held for sale. Con- sequently, the negative result of € 247 MN that the South Korean busi- ness generated in the second quarter of 2016 was considered as non- operating, as the entity is no longer part of our ongoing core operations. In order to better reflect the true underlying drivers of our operating profit, we report it by profit sources and by lines of business for the first six months of both 2015 and 2016, excluding South Korea, and specify the South Korean operating loss as a separate item. 1 2 3 4 5 For further information on Allianz Life/Health figures, please refer to note 4 to the condensed consolidated interim financial statements. Following the classification of the South Korean business (assets and liabilities) as held for sale, the negative result of € 247 mn for the second quarter of 2016 was considered as non-operating. Represents annualized ratio of net income to the average total equity, excluding unrealized gains/losses on bonds net of shadow DAC at the beginning of the period and at the end of period. Annualized figures are not a forecast for full year numbers. For 2015, the return on equity for the full year is shown. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign-currency translation and (de-) consolidation effects, in order to provide more comparable information. 6 7 8 PVnBP before non-controlling interests. Prior year figures changed in order to reflect the roll out of profit source reporting to China and the inclusion of the capital-efficient products line of business. Current and prior year figures are presented excluding effects from the South Korean business. 6 Interim Report for the First Half-Year of 2016 Allianz Group oPerating Profit by Profit sources1,2 oPerating Profit by Profit sources € mn six months ended 30 June 2016 2015 Loadings and fees 2,718 2,758 Investment margin 1,963 1,948 Expenses (3,299) (3,173) Technical margin 449 538 Impact of change in Dac 187 (22) Operating loss - South Korea1 (82) (92) Operating profit 1,936 1,957 1 The 2016 figure represents the operating loss of the first quarter only, as the negative result for the second quarter of 2016 was considered as non-operating. Our operating profit decreased slightly, mainly due to the traditional variable annuity business in the United States – which was impacted by the unfavorable interest rates movements – and lower unit-linked performance fees in Italy. A higher investment margin in Germany partly compensated for the negative development. Loadings and fees3 loaDings anD fees1 € mn six months ended 30 June 2016 2015 Loadings from premiums 1,814 1,799 Loadings from reserves 550 562 Unit-linked management fees 354 397 Loadings and fees 2,718 2,758 Loadings from premiums as % of statutory premiums 5.6 5.2 Loadings from reserves as % of average reserves2,3 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves3,4 0.3 0.3 1 2 3 4 Current and prior year figures are presented excluding effects from the South Korean business. Aggregate policy reserves and unit-linked reserves. Yields are pro rata. Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves. The drop in loadings and fees was primarily driven by the decreased unit-linked management fees in Italy. 1 2 3 Prior year figures changed in order to reflect the roll out of profit source reporting to China and the inclusion of the capital-efficient products line of business. The purpose of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. Loadings and fees include premium and reserve based fees, unit-linked management fees, and policy- holder participation in expenses. Interim Report for the First Half-Year of 2016 Allianz Group Delta (40) 16 (126) (89) 209 10 (20) Delta 15 (12) (43) (40) 0.4 – (0.1) A Interim Group Management Report Investment margin4 investment margin1 € mn six months ended 30 June 2016 2015 Delta Interest and similar income 8,905 9,118 (213) Operating income from financial assets and liabilities carried at fair value through income (net) (474) (687) 213 Operating realized gains/losses (net) 3,112 4,045 (932) Interest expenses (56) (51) (6) Operating impairments of investments (net) (934) (195) (739) Investment expenses (544) (519) (25) Other2 65 172 (107) Technical interest (4,358) (4,363) 6 Policyholder participation (3,754) (5,572) 1,818 Investment margin 1,963 1,948 16 Investment margin3,4 in basis points 48 50 (2) 1 2 3 Current and prior year figures are presented excluding effects from the South Korean business. Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees. Investment margin divided by the average of current end-of-period and previous end-of-period aggre- gate policy reserves. Yields are pro rata. 4 Our investment margin rose slightly. This increase was largely driven by a lower policyholder participation compared to a high base in the first-half year of 2015. Lower realizations on equity investments, pre- dominantly in Germany, France and Italy, and higher impairments on equities – mainly in the German life business – as a result of vola- tile equity markets, contributed negatively. Expenses5 exPenses1 € mn six months ended 30 June 2016 2015 Delta Acquisition expenses and commissions (2,434) (2,354) (80) Administrative and other expenses (865) (820) (46) Expenses (3,299) (3,173) (126) Acquisition expenses and commissions as % of PvnbP2 (8.2) (7.1) (1.1) Administrative and other expenses as % of average reserves3,4 (0.2) (0.2) – 1 2 3 4 Current and prior year figures are presented excluding effects from the South Korean business. PVnBP before non-controlling interests. Aggregate policy reserves and unit-linked reserves. Yields are pro rata. Our acquisition expenses and commissions increased, mainly because a sales growth in the fixed-income annuity business in the United States drove up acquisition expenses. 4 5 The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 7 A Interim Group Management Report Administrative and other expenses increased predominantly because of the German life and French businesses. Technical margin1 Our technical margin declined, driven by changes in the French indi- vidual health portfolio which resulted from amendments in local legislation. Additional reserving and an unfavorable disability result in Switzerland also contributed to this development. Impact of change in Deferred Acquisition Costs (Dac)2 imPact of change in Dac1 € mn six months ended 30 June 2016 2015 Capitalization of Dac 995 888 Amortization, unlocking and true-up of Dac (808) (910) Impact of change in DAC 187 (22) 1 Current and prior year figures are presented excluding effects from the South Korean business. The impact of change in DAC turned positive. This was largely due to lower DAC amortization associated with our variable annuity busi- ness, and higher capitalization of DAC resulting from increased sales of fixed-indexed and non-traditional variable annuities in the United States. 1 2 Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the IFRS financial statements. 8 Delta 107 102 209 oPerating Profit by lines of business3 oPerating Profit by lines of business € mn six months ended 30 June 2016 2015 Delta Guaranteed savings & annuities 1,102 1,055 47 Protection & health 304 422 (118) Unit-linked without guarantee 172 219 (47) Capital-efficient products 440 352 87 Operating loss – South Korea1 (82) (92) 10 Operating profit 1,936 1,957 (20) 1 The 2016 figure represents the operating loss of the first quarter only, as the negative result for the second quarter of 2016 was considered as non-operating. The operating profit increase in our guaranteed savings & annuities line of business was largely driven by a higher investment margin in Germany. Operating profit in the protection & health line of business declined, mainly as a result of the French individual and the German health businesses. Operating profit in the unit-linked without guar- antee line of business dropped, which was primarily due to a reduction of unit-linked performance fees in Italy. The rise in operating profit in the capital-efficient products line was mainly due to a higher spread margin in the United States. Return on equity From 2016 onwards, margin on reserves was replaced by return on equity to better reflect the internal steering of our Life/Health insur- ance operations. The return on equity decreased by 2.8 percentage points to 8.0 % in the first six months of 2016 consistent with the net income development. Net income Our net income decreased, largely due to the negative net impact of € 352 MN from our business in South Korea in the second quarter of 2016. 3 Prior year figures changed in order to reflect the roll out of profit source reporting to China and the inclusion of the capital-efficient products line of business. Interim Report for the First Half-Year of 2016 Allianz Group Asset Management Key figures key figures asset management1 € mn six months ended 30 June 2016 2015 Delta Operating revenues 2,827 3,121 (293) Operating profit 961 1,060 (99) Cost-income ratio2 in % 66.0 66.0 – Net income 615 658 (43) Total assets under manage ment as of 30 June in € Bn3 1,830 1,763 67 thereof: Third-party assets under manage ment as of 30 June in € Bn3 1,307 1,276 31 Assets under management 123 Composition of total assets under management € Bn Type of asset class as of 30 June 2016 as of 31 December 2015 Delta Other1 57 51 6 Multi-assets2 151 151 – Equities 156 176 (20) Fixed income 1,466 1,385 82 Total 1,830 1,763 67 1 2 Other is composed of other asset classes than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc. Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by distributing investments throughout several asset classes. Net outflows4 of total assets under management (AuM) amounted to € 27 bn in the first half of 2016. Third-party AuM net outflows of € 28 bn were largely attributable to PIMCO in the United States and Europe. However, Allianz Global Investors (AllianzGI) also recorded minor third-party AuM net outflows of € 0.1 bn in a difficult market environ- ment. 1 2 3 4 For further information on Allianz Asset Management figures, please refer to note 4 to the condensed consolidated interim financial statements. Represents operating expenses divided by operating revenues. 2015 figure as of 31 December 2015. Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. Reinvested dividends amounted to € 4 bn. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report Favorable effects from Market and Other5 amounting to € 79 bn were the main contributor to the increase in total AuM. This was driven by PIMCO where we recorded a plus of € 80 bn mainly in fixed income assets. An upswing of total AuM of € 31 bn from consolidation, decon- solidation and other adjustments was driven by the acquisition of Rogge Global Partners (Rogge) by AllianzGI. Mainly as a result of the slight appreciation of the Euro against the U.S. Dollar since the beginning of the year, we recorded unfavor- able foreign-currency translation effects of € 15 bn. In the following section we focus on the development of third-party assets under management. As of 30 June 2016, the share of third-party AuM by business unit was 76.2 % (31 December 2015: 77.3 %) attributable to PIMCO and 23.8 % (31 December 2015: 22.7 %) attributable to AllianzGI. The share of fixed income assets rose from 74.0 % to 75.7 %, com- pared to the beginning of the year, mainly due to market effects on fixed income assets and consolidation effects from the Rogge acqui- sition. The share of equities declined from 11.8 % to 10.2 %, primarily driven by third-party AuM net outflows and negative effects from equity markets. The shares of multi-assets and other were roughly stable at 10.2 % and 3.9 %, respectively, as of 30 June 2016. The share of third-party assets between mutual funds and sepa- rate accounts6 changed in favor of separate accounts, compared to the end of 2015, with mutual funds at 57.4 % (31 December 2015: 58.3 %) and separate accounts at 42.6 % (31 December 2015: 41.7 %) As for the regional allocation of third-party AuM7, shares were 55.0 % for America, 33.0 % for Europe and 12.0 % for the Asia-Pacific region (31 December 2015: 56.0 %, 32.7 % and 11.3 %, respectively). They shifted in favor of the Asia-Pacific region, mainly due to positive for- eign-currency translation effects at PIMCO in Japan. They also shifted – albeit to a lesser extent – in favor of Europe, especially because of the acquisition of Rogge by AllianzGI and market effects at PIMCO in the United Kingdom. The latter shift was only partially offset by third- party AuM net outflows and negative foreign-currency translation effects at PIMCO in the United Kingdom. 5 6 Market and Other represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds. Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates). Based on the location of the asset management company. 7 9 A Interim Group Management Report three-year rolling investment performanCe of pimCo and allianzgi1 % PIMCO AllianzGI 80 60 40 69 62 70 68 20 0 31 38 30 32 20 40 31/12/2015 30/6/2016 31/12/2015 30/6/2016 Outperforming third-party assets under management Underperforming third-party assets under management 1 Three-year rolling investment performance reflects the mandate-based and volume-weighted three- year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective Morningstar peer group (a position in the first and second quartile is equivalent to outperformance). The overall three-year rolling investment performance of our Asset Management business decreased, with 63 % of third-party assets out- performing their respective benchmarks (31 December 2015: 69 %). The decrease was mainly driven by PIMCO’S rolling investment perfor- mance, which was impacted by strong quarters of 2013 rolling off and more challenging quarters of 2016 rolling in. 62 % of PIMCO third-party assets outperformed their respective benchmarks. AllianzGI slightly decreased, with 68 % of third-party assets outperforming their respec- tive benchmarks. Operating revenues The decrease in operating revenues of 9.4 % on a nominal basis cor- responds to a drop of 9.5 % on an internal basis1. The increase in performance fees can mostly be attributed to carried interest from a large private fund at PIMCO. Other net fee and commission income decreased, mainly due to lower average third-party AuM that primarily resulted from outflows at PIMCO. A decreased third-party AuM-driven margin also contributed to this development, which occurred at both, PIMCO and AllianzGI. This was largely driven by outflows from higher-margin assets, pri- marily at PIMCO. 1 Operating revenues/operating profit adjusted for foreign-currency translation and (de-)consolidation effects. 10 Operating profit The decline of our operating profit on a nominal basis is in accordance with a decrease on an internal basis1 of 9.4 %. This was mainly due to a decrease in other net fee and commission income, which was only partially compensated by lower administrative expenses. Administrative expenses were considerably reduced, largely due to lower personnel expenses. The main reason was a 17.1 % drop in variable compensation, mainly reflecting reduced expenses associ- ated with the Special Performance Award (SPA). The SPA was intro- duced in the fourth quarter of 2014 at PIMCO to secure performance and retain talent. Lower non-personnel expenses also contributed to the decrease of administrative expenses. Our cost-income ratio was flat, as administrative expenses decreased in accordance with operating revenues. The SPA effect con- tributed 0.9 percentage points2 to our cost-income ratio. asset management Business segment information € mn six months ended 30 June 2016 2015 Delta Performance fees 127 111 15 Other net fee and commission income1 2,702 3,015 (313) Other operating revenues (1) (5) 4 Operating revenues 2,827 3,121 (293) Administrative expenses (net), excluding acquisition-related expenses (1,868) (2,060) 193 Other operating expenses 2 – 2 Operating expenses (1,866) (2,060) 195 Operating profit 961 1,060 (99) 1 Also referred to as AuM-driven revenues. Net income Our net income decreased by 6.6 %, mainly reflecting the drop in other net fee and commission income. 2 Net of the impact on variable compensation. Interim Report for the First Half-Year of 2016 Allianz Group Corporate and Other Key figures Key figures Corporate and other1 € mn six months ended 30 June 2016 2015 Delta Operating revenues 1,174 967 207 Operating expenses (1,497) (1,297) (199) Operating result (323) (331) 8 Net income (loss) (188) (254) 67 Key figures reportable segments € mn six months ended 30 June 2016 2015 Delta holding & treasury Operating revenues 544 302 242 Operating expenses (928) (709) (219) Operating result (384) (407) 23 banKing Operating revenues 519 563 (44) Operating expenses (483) (506) 22 Operating result 36 58 (22) alternative investments Operating revenues 111 101 11 Operating expenses (87) (82) (5) Operating result 24 19 6 1 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report Earnings summary Our operating result remained stable, as improvements in Hold- ing & Treasury were offset by the decrease in Banking. Our net loss improved due to a higher non-operating investment result and lower income taxes resulting from higher tax exempted income. To a large extent, these positive effects were offset by the absence of positive one-off effects from a pensions revaluation with our German subsidiaries. In Holding & Treasury, the improvement of our operating result was mainly related to our internal IT service provider which had recorded higher strategic IT investment costs in the comparison period. The operating profit decrease in Banking was predominantly driven by higher expenses for deposit protection funds and bank levies. Lower performance fees in Italy also contributed negatively. Further- more, the low interest yield environment continued to put pressure on our interest margin in almost all Banking units. Our loan loss pro- visions remained unchanged. In Alternative Investments, our operating profit increased as a result of higher fee and commission income and favorable currency effects. 11 A Interim Group Management Report Outlook Economic outlook1 As we move into the second half of 2016, the global economy remains on a moderate upward trend. As expected, emerging market econo- mies are on track for somewhat higher growth this year. The reason for this is not a general growth acceleration across all emerging mar- kets but rather a gradual stabilization in major emerging market economies, such as Russia, which had experienced a severe recession last year. In particular in Europe, the general uncertainty about future economic and financial market developments has increased consid- erably following the Brexit vote in late June. In a first reaction to the Brexit vote, we have slightly reduced this year’s economic growth forecasts: for the Eurozone from 1.7 % to 1.5 % and for Germany from 2.2 % to 1.8 %. Our forecast for the United Kingdom has been cut sig- nificantly from 1.9 % to almost 1.5 %. In the United States, prospects for this year’s growth have deteriorated, following only subdued growth in preceding quarters. Overall, we estimate global output to expand by 2.4 % this year (previous forecast: 2.7 %). For the remainder of this year, financial markets will probably stand under the twin spell of monetary policy and further political developments such as the Brexit process. Uncertainties can also be triggered by the developments in Turkey and by the outcome of a ref- erendum on constitutional amendments in Italy. On the monetary policy front, the Federal Reserve is likely to hike interest rates once before the end of this year. By contrast, the European Central Bank is expected to keep key interest rates at the current very low levels for the foreseeable future. We do not see any changes in the European Central Bank’s unconventional measures before spring 2017. The Brexit vote has raised additional pressure on the European Central Bank to expand and/or to prolong its bond purchasing program. In response to the European Central Bank’s monetary policy steps in March as well as the Brexit vote in June, we have lowered our year-end forecast for yields on 10-year German government bonds to 0.3 %. Expected higher inflation rates towards the year end will exert some upward pressure on European government benchmark bond yields. However, with short-term rates at zero, there are limited pros- pects of markedly higher yields on longer-term bonds. In the coming months we expect the Euro to move more or less sideways against the U.S. Dollar. We see the U.S. Dollar to Euro exchange rate standing at 1.10 by the end of 2016, only marginally below the second quarter’s closing level of 1.11. 1 The Information presented in the sections “Economic outlook”, “Insurance industry outlook” and “Asset management industry outlook” is based on our own estimates. 12 Insurance industry outlook We confirm our outlook for premium growth in 2016. Despite the Brexit vote, the big picture has not changed materially, although the risks of ultra-low interest rates and volatile financial markets have been accentuated. Thus, we still expect modest premium growth in the property-casualty and the life sector, as the implications of the United Kingdom leaving the European Union are, at most, marginal for global premium growth. In the property-casualty sector, growth in advanced markets should remain roughly stable, with the ongoing recovery supporting demand but pricing becoming a growing concern. The outlook for Emerging Markets will remain rather mixed, with Asia growing robustly but other regions – notably Latin America – showing signs of weakness. Overall, we continue to expect global premium revenue to rise between 4.0 % and 5.0 % in 2016 (in nominal terms, adjusted for foreign currency translation effects). In the life sector, the overall picture is quite similar. Specifically, we expect sustained strong performance in emerging Asia and a more volatile environment in other emerging regions. As far as advanced markets are concerned, we anticipate only modest growth in Europe and North America but a fairly strong recovery in Oceania. All in all, we continue to expect global premium revenue to rise by 4.0 % to 5.0 % in 2016 (in nominal terms, adjusted for foreign currency translation effects). Industry profitability will remain under pressure. The Brexit vote has made a bad situation worse by causing a further plunge in yields. Falling investment returns are the inevitable consequence. On top, a demanding pricing outlook, increased costs due to natural catastro- phes, stricter regulation, and last but not least, the digital transfor- mation are all ingredients in the cocktail of strategic and operational challenges weighing on overall profitability. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report Asset management industry outlook Markets were very volatile in the first half of 2016. Stock markets stum- bled especially in the second quarter as a reaction to the Brexit vote, further lowering expectations for European and in particular U.K. equity. As a consequence, U.S. and European investors redeemed assets from equity funds in the course of the period. However, the implications of the Brexit may become even more visible in the second half of 2016. Given the market environment, we expect that global economic and political divergence will continue to create uncertainty and vola- tility, which involves both risks and opportunities. In June, the U.S. Federal Reserve decided to keep interest rates unchanged, but sig- naled intentions to increase interest rates in the second half of the year. Bonds should remain attractive, if longer-term trends towards moderately higher interest rates continue, especially in the United States, and the global demographic trends remain unchanged. Bonds are particularly interesting for the growing number of retirees in developed countries who are looking for a stable stream of income, as well as for liability-driven investors. After a difficult first half of 2016, we also see a challenging envi- ronment for the asset management industry for the rest of the year. In addition to market volatility, profitability in the industry remains under pressure from both continuous flows into passive products and rising distribution costs. Moreover, measures aimed at strength- ening regulatory oversight and reporting could also affect profitability in the asset management sector. In order to continue growing, it is vital for asset managers to maintain sufficient business volumes, ensure efficient operations, and keep investment results above benchmark levels. Outlook for the Allianz Group We are confident about staying on course during the rest of 2016, and confirm our published Allianz Group operating profit outlook for 2016 of € 10.5 bn, plus or minus € 0.5 bn. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations, and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance, or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Interim Report for the First Half-Year of 2016 Allianz Group 13 A Interim Group Management Report Balance Sheet Review Shareholders’ equity 1 ShareholderS’ equity € mn as of 30 June 2016 as of 31 December 2015 Shareholders’ equity Paid-in capital 28,928 28,928 Retained earnings 23,451 24,222 Foreign-currency translation adjustments (1,242) (926) Unrealized gains and losses (net) 16,606 10,920 Total 67,744 63,144 The increase in shareholders’ equity was largely driven by higher unrealized gains, mainly on debt securities, which resulted from a further decrease in interest rates. To a lesser extent, our net income attributable to shareholders of € 3,284 mn contributed to the increase. The dividend payout in May 2016 and the increase in actuarial losses on defined benefit plans reduced the shareholders’ equity by € 3,320 mn and € 592 mn, respectively. Regulatory capital adequacy With the approval of our partial internal model and as Solvency II became the binding regulatory regime on 1 January 2016, risk is mea- sured and steered based on the risk profile underlying our capital requirements under this regulation. By this, we ensure a consistent perspective on both risk steering and capitalization in line with the Solvency II framework. Consequently, we focus our external reporting on the capitalization according to Solvency II rather than the data collected for the purposes of financial conglomerates supervision. aSSet allocation and fixed-income portfolio overview Type of investment Debt instruments; thereof: Government bonds Covered bonds Corporate bonds (excl. banks) Banks Other Equities Real estate Cash/other Total 1 This does not include non-controlling interests of € 3,044 mn and € 2,955 mn as of 30 June 2016 and 31 December 2015, respectively. For further information, please refer to note 17 to the condensed con- solidated interim financial statements. 14 Delta – (771) (315) 5,686 4,599 as of 30 June 2016 € bn 598.1 230.0 97.0 183.3 32.9 54.8 42.9 11.7 13.6 666.2 Solvency ii regulatory capitalization as of 30 June 2016 as of 31 December 2015 Delta Eligible own funds € bn 70.6 72.7 (2.1) Capital requirement € bn 38.0 36.4 1.6 Capitalization ratio1 % 186 200 (14) % -p 1 Changed regulatory tax treatment of German life sector reduced year-end Solvency II capitalization ratio from 200 % to 196 % on 1 January 2016. Over the first six months, our Solvency II capitalization ratio decreased, with the main effect coming from the first quarter, while the ratio for the second quarter of 2016 remained stable. Overall, our eligible own funds decreased due to the net effect of market impacts, the dividend accrual, regulatory changes and operating Solvency II earnings. The increase in the capital requirement was largely triggered by the further decline in interest rates, which could be only partially compensated for by management actions to improve the interest rate sensitivity. To a lesser extent, higher market volatility also contributed to the rise in the capital requirement. Total assets and total liabilities As of 30 June 2016, total assets amounted to € 889.9 bn and total liabil- ities were € 819.1 bn. Compared to year-end 2015, total assets and total liabilities increased by € 40.9 bn and € 36.2 bn, respectively. The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base. Structure of inveStmentS – portfolio overview The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance busi- nesses. as of 31 December 2015 Delta as of 30 June 2016 as of 31 December 2015 Delta € bn € bn % % %-p 568.1 29.9 89.8 88.8 1.0 217.5 12.5 38.5 38.3 0.2 98.7 (1.7) 16.2 17.4 (1.2) 164.9 18.5 30.7 29.0 1.6 31.3 1.6 5.5 5.5 – 55.7 (0.9) 9.2 9.8 (0.6) 45.7 (2.8) 6.4 7.1 (0.7) 12.0 (0.3) 1.8 1.9 (0.1) 14.3 (0.7) 2.0 2.2 (0.2) 640.1 26.2 100.0 100.0 – Interim Report for the First Half-Year of 2016 Allianz Group Compared to year-end 2015, our overall asset allocation remained rather stable with a modest increase in the share of debt securities and a slight decrease in equities. These developments largely reflect the general market developments in the first half of this year. The increase in our well-diversified exposure to debt instruments was largely driven by fair-value increases, triggered by the further slump of interest rates over the first six months from their already low previous levels. About 94 % of this portfolio was invested in invest- ment-grade bonds and loans.1 Of the covered bonds portfolio, 41 % (31 December 2015: 42 %) was German Pfandbriefe, backed by either public-sector loans or mortgage loans. Another 16 %, 10 % and 8 % – values consistent with year-end figures – were attributable to France, Spain, and Italy. Our government bonds portfolio comprised – amongst others – exposures to Italy, Spain, and Great Britain, equaling 5.0 %, 2.1 % and 0.2 % of our fixed income portfolio with corresponding unre- alized gains (gross) of € 6,001 mn, € 1,615 mn and € 58 mn, respectively. Our government bond exposure in Portugal amounted to € 213 mn with unrealized gains (gross) of € 11 mn. We continued to have virtu- ally no exposure to Greek or Ukrainian government bonds. The respective exposure to Russia totaled to € 406 mn (unrealized gains (gross) of € 16 mn) and was relatively small in the context of our overall portfolio. The greatest part of the Russia exposure was denominated in U.S. Dollar. liabilitieS Property-Casualty liabilities As of 30 June 2016, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 65.0 bn – almost unchanged compared to year-end 2015. On a net basis, our reserves, including discounted loss reserves, decreased from € 57.5 bn to € 56.4 bn.2 Life/Health liabilities Life/Health reserves for insurance and investment contracts increased by € 15.1 bn to € 487.1 bn in the first six months of 2016. The € 0.7 bn decrease in aggregate policy reserves and other reserves was driven by the classification of the South Korean business as held for sale (€ (10.8) bn), which could not quite be balanced despite strong growth in Germany (€ 4.3 bn), the United States (€ 3.9 bn before cur- rency effects), and Switzerland (€ 0.5 bn before currency effects). Reserves for premium refunds increased by € 17.6 bn, due to higher unrealized gains to be shared with policyholders. Currency impacts mainly resulted from the weaker U.S. Dollar (€ (1.8) bn). Corporate and Other liabilities In comparison to year-end 2015, other liabilities increased by € 2.6 bn to € 26.8 bn, resulting from higher liabilities from cash pooling and other provisions mainly related to pension and similar obligations. Certificated liabilities increased by € 0.7 bn to € 12.8 bn, while subor- dinated bonds remained almost unchanged at € 12.3 bn. 1 2 Excluding self-originated German private retail mortgage loans. For 2 % no ratings were available. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 13 to the condensed consolidated interim fin an cial statements. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report 15 A Interim Group Management Report Reconciliations The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Property- Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn six months ended 30 June 2016 property-Casualty Gross premiums written 28,856 life/HealtH Statutory premiums 32,968 asset management Operating revenues 2,827 consisting of: Net fee and commission income 2,828 Net interest income1 (3) Income from financial assets and liabilities carried at fair value through income (net) 1 Other income 1 Corporate and otHer thereof: Total revenues (Banking) 272 consisting of: Interest and similar income 249 Income from financial assets and liabilities carried at fair value through income (net)2 6 Fee and commission income 264 Interest expenses, excluding interest expenses from external debt (90) Fee and commission expenses (160) Consolidation effects within Corporate and Other 3 Consolidation (165) Allianz Group total revenues 64,759 1 2 Represents interest and similar income less interest expenses. Includes trading income. 16 2015 29,182 35,540 3,121 3,126 (3) (4) 2 270 275 9 280 (112) (182) 2 (175) 67,939 Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign-currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. reConCiliation of nominal total revenue growtH to internal total revenue growtH in % % six months ended 30 June 2016 Internal growth Changes in scope of consoli- dation Foreign currency translation Nominal growth Property-Casualty 3.1 (1.5) (2.7) (1.1) Life/Health (6.5) 0.2 (0.9) (7.2) Asset Management (9.5) 0.1 – (9.4) Corporate and Other 0.7 – – 0.7 Allianz Group (2.5) (0.5) (1.6) (4.7) Life/Health Insurance Operations operating profit The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 20 entities comprising 97.4 % of Life/Health total statutory premiums are in scope. Expenses Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta referred to as definitions under “Acquisition expenses and commissions” represents commission clawbacks, which are allo- cated to the technical margin. The delta referred to as definitions under “Administrative and other expenses” mainly represents restructuring charges, which are stated in a separate line item in the group income statement. Interim Report for the First Half-Year of 2016 Allianz Group aCquisition, administrative, Capitalization, and amortization of daC1 € mn six months ended 30 June 2016 2015 Acquisition expenses and commissions2 (2,434) (2,354) Definitions 6 8 Scope (192) (279) Acquisition costs incurred (2,619) (2,624) Capitalization of daC2 995 888 Definition: urr capitalized 242 274 Definition: policyholder participation4 475 426 Scope 84 141 Capitalization of DAC 1,796 1,730 Amortization, unlocking and true-up of daC2 (808) (910) Definition: urr amortized (22) (160) Definition: policyholder participation4 (270) (520) Scope (329) (138) Amortization, unlocking and true-up of DAC (1,430) (1,728) Commissions and profit received on reinsurance business ceded 28 54 Acquisition costs3 (2,225) (2,568) Administrative and other expenses2 (865) (820) Definitions 89 57 Scope (123) (92) Administrative expenses on reinsurance business ceded 1 3 Administrative expenses3 (899) (851)5 1 2 3 4 5 Prior year figures changed in order to reflect the roll out of profit source reporting to China. As per Interim Group Management Report. As per notes to the condensed consolidated interim financial statements. For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/ amortization. Excluding one-off effects from pension revaluation. Impact of change in Deferred Acquisition Costs (daC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA) and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes scheduled URR amortization, true-up and unlocking. Both capitalization and amortization are included in the line item “Premiums earned (net)” in the group income statement. Policyholder participation is included in “Change in reserves for insurance and investment contracts (net)” in the group income state- ment. Interim Report for the First Half-Year of 2016 Allianz Group A Interim Group Management Report reConCiliation to notes1 € mn six months ended 30 June 2016 2015 Acquisition expenses and commissions2 (2,434) (2,354) Administrative and other expenses2 (865) (820) Capitalization of daC2 995 888 Amortization, unlocking and true-up of daC2 (808) (910) Acquisition and administrative expenses (3,112) (3,195) Definitions 520 85 Scope (560) (367) Commissions and profit received on reinsurance business ceded 28 54 Administrative expenses on reinsurance business ceded 1 3 Acquisition and administrative expenses (net)3 (3,123) (3,420)4 1 2 3 4 Prior year figures changed in order to reflect the roll-out of profit source reporting to China. As per Interim Group Management Report. As per notes to the condensed consolidated interim financial statements. Excluding one-off effects from pension revaluation. 17 A 18 Interim Group Management Report This page intentionally left blank Interim Report for the First Half-Year of 2016 Allianz Group condensed consolidated interim financial statements B interim report for the first Half-Year of 2016 allianz Group 19 B Condensed Consolidated Interim Financial Statements Consolidated balanCe sheets consolidated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets liabilities and eQUitY Financial liabilities carried at fair value through income1 Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1 Include mainly derivative financial instruments. 20 note as of 30 June 2016 14,573 5 8,161 6 540,091 7 115,522 104,927 8 15,931 9 22,635 1,051 10 38,553 3 15,004 11 13,420 889,868 11,334 12 24,758 24,250 13 71,559 14 501,592 104,927 6,069 15 39,323 3 13,335 16 9,603 16 12,331 819,080 67,744 3,044 17 70,788 889,868 Interim Report for the First Half-Year of 2016 as of 31 December 2015 14,842 7,268 511,257 117,630 105,873 14,843 25,234 1,394 37,050 109 13,443 848,942 9,207 25,531 20,660 72,003 486,222 105,873 4,003 38,686 18 8,383 12,258 782,843 63,144 2,955 66,099 848,942 Allianz Group Consolidated inCome statements consolidated income statements € mn six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums (net) Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Income from fully consolidated private equity investments Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements note 2016 2015 41,140 42,124 (2,993) (3,504) (3,567) (3,086) 18 34,580 35,535 19 11,115 11,489 20 (414) (758) 21 4,144 4,931 22 5,107 5,317 23 11 235 – 355 54,543 57,103 (26,797) (26,475) 1,511 1,377 24 (25,286) (25,098) 25 (7,534) (9,699) 26 (606) (624) (24) (24) 27 (1,421) (265) 28 (601) (560) 29 (12,173) (12,579) 30 (1,923) (1,890) (67) (77) (94) (151) (1) (2) – (359) (49,729) (51,330) 4,814 5,773 31 (1,335) (1,725) 3,479 4,048 194 209 3,284 3,839 7.22 8.45 7.04 8.45 21 B Condensed Consolidated Interim Financial Statements Consolidated statements of Comprehensive inCome consolidated statements of comprehensive income € mn six months ended 30 June 2016 Net income 3,479 Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign-currency translation adjustments Reclassifications to net income (6) Changes arising during the period (320) Subtotal (326) Available-for-sale investments Reclassifications to net income (748) Changes arising during the period 6,229 Subtotal 5,481 Cash flow hedges Reclassifications to net income (8) Changes arising during the period 285 Subtotal 277 Share of other comprehensive income of associates and joint ventures Reclassifications to net income – Changes arising during the period (51) Subtotal (51) Miscellaneous Reclassifications to net income – Changes arising during the period (34) Subtotal (34) Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (604) Total other comprehensive income 4,743 Total comprehensive income 8,221 Total comprehensive income attributable to: Non-controlling interests 296 Shareholders 7,925 For further details concerning income taxes relating to components of the other comprehensive income, please see note 31. 22 Interim Report for the First Half-Year of 2016 2015 4,048 – 1,146 1,146 (955) (1,405) (2,360) (3) (137) (140) 7 89 96 – 5 5 277 (977) 3,071 241 2,830 Allianz Group Consolidated statements of Changes in equity consolidated statements of changes in eQUitY € mn Paid-in capital Retained earnings Foreign- currency translation adjustments Unrealized gains and losses (net) Balance as of 1 January 2015 28,928 19,878 (1,977) 13,917 Total comprehensive income1 – 4,205 1,095 (2,470) Paid-in capital – – – – Treasury shares – 6 – – Transactions between equity holders – 219 (3) – Dividends paid – (3,112) – – Balance as of 30 June 2015 28,928 21,196 (885) 11,447 Balance as of 1 January 2016 28,928 24,222 (926) 10,920 Total comprehensive income1 – 2,555 (319) 5,690 Paid-in capital – – – – Treasury shares – 7 – – Transactions between equity holders – (12)2 4 (4) Dividends paid – (3,320) – – Balance as of 30 June 2016 28,928 23,451 (1,242) 16,606 1 2 Total comprehensive income in shareholders’ equity for the six months ended 30 June 2016 comprises net income attributable to shareholders of € 3,284 mn (2015: € 3,839 mn). Includes income taxes. Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements Shareholders’ equity Non- controlling interests Total equity 60,747 2,955 63,702 2,830 241 3,071 – – – 6 – 6 216 (190) 26 (3,112) (183) (3,295) 60,687 2,824 63,511 63,144 2,955 66,099 7,925 296 8,221 – – – 7 – 7 (12) 15 3 (3,320) (222) (3,543) 67,744 3,044 70,788 23 B Condensed Consolidated Interim Financial Statements Consolidated statements of Cash flows consolidated statements of cash flows € mn six months ended 30 June sUmmarY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities 24 2016 15,527 (13,891) (1,787) (117) (269) 14,842 14,573 3,479 (132) (2,724) (442) 622 24 2,283 1,307 (458) (905) (1,390) (649) 3,859 529 10,434 (56) (253) 12,048 15,527 Interim Report for the First Half-Year of 2016 2015 13,908 (13,006) (3,045) 541 (1,604) 13,863 12,259 4,048 (162) (4,666) 2,471 684 24 3,026 (2,813) (542) 2,016 (1,495) (264) 4,015 1,563 10,262 380 (4,640) 9,859 13,908 Allianz Group B Condensed Consolidated Interim Financial Statements Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn six months ended 30 June 2016 2015 cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 1,028 701 Available-for-sale investments 77,973 85,219 Held-to-maturity investments 163 1,539 Investments in associates and joint ventures 710 868 Non-current assets and disposal groups classified as held for sale 63 128 Real estate held for investment 141 160 Fixed assets of renewable energy investments – 1 Loans and advances to banks and customers (purchased loans) 3,593 6,195 Property and equipment 43 58 Subtotal 83,714 94,868 Payments for the purchase or origination of: Financial assets designated at fair value through income (1,012) (1,251) Available-for-sale investments (92,294) (99,556) Held-to-maturity investments (120) (1,378) Investments in associates and joint ventures (413) (839) Non-current assets and disposal groups classified as held for sale – (2) Real estate held for investment (324) (495) Fixed assets of renewable energy investments (165) (300) Loans and advances to banks and customers (purchased loans) (1,539) (2,611) Property and equipment (506) (750) Subtotal (96,373) (107,181) Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed – – Acquisitions of subsidiaries, net of cash acquired – – Change in other loans and advances to banks and customers (originated loans) (1,329) (317) Other (net) 97 (376) Net cash flow used in investing activities (13,891) (13,006) cash flow from financing activities Net change in liabilities to banks and customers 383 (202) Proceeds from the issuance of certificated liabilities and subordinated liabilities 3,864 3,181 Repayments of certificated liabilities and subordinated liabilities (2,477) (2,652) Cash inflow from capital increases – – Transactions between equity holders 3 26 Dividends paid to shareholders (3,543) (3,295) Net cash from sale or purchase of treasury shares 8 8 Other (net) (25) (111) Net cash flow used in financing activities (1,787) (3,045) sUpplementarY information on the consolidated statements of cash flows Income taxes paid (1,465) (1,345) Dividends received 1,026 1,095 Interest received 10,853 10,392 Interest paid (485) (559) Interim Report for the First Half-Year of 2016 Allianz Group 25 B Condensed Consolidated Interim Financial Statements Notes to the Condensed Consolidated Interim Financial Statements General InformatIon 3 – Classification as held for sale NoN-curreNt assets aNd disposal groups classified as held for sale 1 – Basis of presentation € mN The condensed consolidated interim financial statements of the Allianz Group are presented in accordance with the requirements of IAS 34, Interim Financial Reporting, and have been prepared in con- formity with International Financial Reporting Standards (IFRSs), as adopted under European Union regulations. Assets of disposal groups classified as held for sale Bürgel Wirschaftsinformationen, Hamburg agf Insurance Limited, Guildford as of 30 June 2016 – 259 as of 31 December 2015 35 – Allianz Life Insurance Co. Ltd., Seoul 14,352 – For existing and unchanged IFRSs, the condensed consolidated interim financial statements use the same accounting policies for recognition, measurement, consolidation and presentation as applied in the consolidated financial statements for the year ended 31 December 2015. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2015. Allianz Global Investors Korea Limited, Seoul Allianz Life & Annuity Company, Minneapolis Subtotal Non-current assets classified as held for sale Real estate held for investment Real estate held for own use Subtotal 27 13 14,651 290 64 353 – 11 46 – 63 63 In accordance with the provisions of IFRS 4, Insurance Contracts, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005. Amounts are rounded to millions of Euro (€ mn), unless other- Total Liabilities of disposal groups classified as held for sale Bürgel Wirschaftsinformationen, Hamburg agf Insurance Limited, Guildford Allianz Life Insurance Co. Ltd., Seoul 15,004 – 234 13,096 109 15 – – wise stated. Allianz Global Investors Korea Limited, Seoul 3 – These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Manage- ment on 4 August 2016. Allianz Life & Annuity Company, Minneapolis Total 3 13,335 3 18 2 – Recently adopted accounting pronouncements The following amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial state- ments as of 1 January 2016: Allianz Life Insurance Co. Ltd., Seoul At the beginning of the second quarter of 2016, all requirements were fulfilled to present Allianz Life Insurance Co. Ltd., Seoul, as a disposal group. Thus, the assets and liabilities of this consolidated entity, which are allocated to the reportable segment Asia Pacific (Life/ Health), were classified as held for sale. − IAS 1, Disclosure initiative, − IFRS 11, Accounting for Acquisitions of Interests in Joint Operations, − Annual Improvements to IFRSs 2012 – 2014 Cycle, − IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation. No material impact arose on the financial results or the financial position of the Allianz Group. 26 Interim Report for the First Half-Year of 2016 Allianz Group reclassified assets aNd liabilities € mN Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Total assets Financial liabilities carried at fair value through income Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investments contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Total liabilities As of 30 June 2016, cumulative gains of € 1,298 mn were recorded in other comprehensive income relating to the disposal group classified as held for sale. The sale is expected to occur during the second half- year of 2016. Upon measurement of the disposal group at fair value less costs to sell, an impairment loss of € 209 mn before taxes was recognized for the six months ended 30 June 2016. 4 – Segment reporting The business activities of the Allianz Group, the business segments as well as the reportable segments and the products and services from which they derive revenue are consistent with the ones that have been described in the consolidated financial statements for the year ended 31 December 2015. The therein contained statements regarding general segment reporting information and the reportable segments measure of profit or loss are still applicable and valid. receNt orgaNizatioNal chaNges Some minor reallocations between the reportable segments have been made. Interim Report for the First Half-Year of 2016 Allianz Group 10 4 10,010 1,950 1,436 5 387 46 504 14,352 4 74 381 10,832 1,436 200 168 13,096 B Condensed Consolidated Interim Financial Statements 27 B Condensed Consolidated Interim Financial Statements Business segment information – Consolidated BalanCe sheets Business segment information – Consolidated BalanCe sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets € mn liaBilities and eQuitY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities 28 Property-Casualty as of 30 June 2016 3,567 474 102,376 12,196 – 10,721 4,939 1,011 22,862 367 2,751 161,264 Property-Casualty as of 30 June 2016 178 973 20,528 61,012 14,722 – 2,836 17,313 247 12 – 117,821 Life/Health as of 31 December 2015 as of 30 June 2016 3,635 8,004 643 7,267 100,026 415,825 13,781 92,392 – 104,927 9,265 5,275 4,647 17,696 1,107 752 23,112 19,030 37 14,695 2,781 3,050 159,034 688,913 Life/Health as of 31 December 2015 as of 30 June 2016 112 11,005 901 5,703 17,071 3,748 61,169 10,574 14,407 487,089 – 104,927 2,482 5,319 19,533 13,189 15 13,102 12 12 – 95 115,702 654,761 Interim Report for the First Half-Year of 2016 as of 31 December 2015 8,467 6,431 392,171 95,138 105,873 5,632 20,587 310 17,406 72 2,998 655,086 as of 31 December 2015 8,834 5,807 3,605 10,857 472,010 105,873 3,137 14,856 3 12 95 625,088 Allianz Group Asset Management as of 30 June 2016 1,002 59 126 28 – – – 234 2,765 27 7,609 11,851 Asset Management as of 30 June 2016 – 174 – – – – 27 2,594 3 – – 2,797 as of 31 December 2015 1,329 64 230 99 – – – 294 2,677 – 7,653 12,348 as of 31 December 2015 – 174 – – – – 16 2,750 – – – 2,940 Corporate and Other as of 30 June 2016 2,246 688 110,852 16,621 – – – 1,285 6,883 – 10 138,586 Corporate and Other as of 30 June 2016 485 20,053 – – (30) – 117 26,814 – 12,779 12,286 72,504 as of 31 December 2015 1,952 625 127,284 15,591 – – – 1,395 9,626 – 11 156,483 as of 31 December 2015 750 21,777 – – – – 80 24,256 – 12,054 12,213 71,130 Consolidation as of 30 June 2016 (246) (328) (89,088) (5,714) – (66) – (2,230) (12,987) (85) – (110,746) Consolidation as of 30 June 2016 (333) (2,144) (27) (26) (190) – (2,230) (20,588) (16) (3,201) (50) (28,804) Total equity Total liabilities and equity as of 31 December 2015 (541) (495) (108,454) (6,980) – (54) – (1,712) (15,772) – – (134,008) as of 31 December 2015 (489) (3,127) (15) (23) (195) – (1,712) (22,710) – (3,695) (50) (32,018) Group as of 30 June 2016 14,573 8,161 540,091 115,522 104,927 15,931 22,635 1,051 38,553 15,004 13,420 889,868 Group as of 30 June 2016 11,334 24,758 24,250 71,559 501,592 104,927 6,069 39,323 13,335 9,603 12,331 819,080 70,788 889,868 as of 31 December 2015 14,842 7,268 511,257 117,630 105,873 14,843 25,234 1,394 37,050 109 13,443 848,942 as of 31 December 2015 9,207 25,531 20,660 72,003 486,222 105,873 4,003 38,686 18 8,383 12,258 782,843 66,099 848,942 Condensed Consolidated Interim Financial Statements B Business segment information – Consolidated BalanCe sheets Business segment information – Consolidated BalanCe sheets € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of as of 30 June 2016 as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 30 June 31 December 30 June 31 December 2016 2015 2016 2015 assets 1,002 1,329 2,246 1,952 (246) (541) 14,573 14,842 Cash and cash equivalents 3,567 3,635 8,004 8,467 Financial assets carried at fair value through income 474 643 7,267 6,431 59 64 688 625 (328) (495) 8,161 7,268 Investments 102,376 100,026 415,825 392,171 126 230 110,852 127,284 (89,088) (108,454) 540,091 511,257 Loans and advances to banks and customers 12,196 13,781 92,392 95,138 28 99 16,621 15,591 (5,714) (6,980) 115,522 117,630 Financial assets for unit-linked contracts – – 104,927 105,873 – – – – – – 104,927 105,873 Reinsurance assets 10,721 9,265 5,275 5,632 – – – – (66) (54) 15,931 14,843 Deferred acquisition costs 4,939 4,647 17,696 20,587 – – – – – – 22,635 25,234 Deferred tax assets 1,011 1,107 752 310 234 294 1,285 1,395 (2,230) (1,712) 1,051 1,394 Other assets 22,862 23,112 19,030 17,406 2,765 2,677 6,883 9,626 (12,987) (15,772) 38,553 37,050 Non-current assets and assets of disposal groups classified as held for sale 367 37 14,695 72 27 – – – (85) – 15,004 109 Intangible assets 2,751 2,781 3,050 2,998 7,609 7,653 10 11 – – 13,420 13,443 Total assets 161,264 159,034 688,913 655,086 11,851 12,348 138,586 156,483 (110,746) (134,008) 889,868 848,942 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 as of 30 June 2016 as of 31 December 2015 as of as of 30 June 2016 31 December 30 June 31 December 30 June 2015 2016 2015 2016 liaBilities and eQuitY – – 485 750 (333) (489) 11,334 9,207 Financial liabilities carried at fair value through income 178 112 11,005 8,834 Liabilities to banks and customers 973 901 5,703 5,807 174 174 20,053 21,777 (2,144) (3,127) 24,758 25,531 Unearned premiums 20,528 17,071 3,748 3,605 – – – – (27) (15) 24,250 20,660 Reserves for loss and loss adjustment expenses 61,012 61,169 10,574 10,857 – – – – (26) (23) 71,559 72,003 Reserves for insurance and investment contracts 14,722 14,407 487,089 472,010 – – (30) – (190) (195) 501,592 486,222 Financial liabilities for unit-linked contracts – – 104,927 105,873 – – – – – – 104,927 105,873 Deferred tax liabilities 2,836 2,482 5,319 3,137 27 16 117 80 (2,230) (1,712) 6,069 4,003 Other liabilities 17,313 19,533 13,189 14,856 2,594 2,750 26,814 24,256 (20,588) (22,710) 39,323 38,686 Liabilities of disposal groups classified as held for sale 247 15 13,102 3 3 – – – (16) – 13,335 18 Certificated liabilities 12 12 12 12 – – 12,779 12,054 (3,201) (3,695) 9,603 8,383 Subordinated liabilities – – 95 95 – – 12,286 12,213 (50) (50) 12,331 12,258 Total liabilities 117,821 115,702 654,761 625,088 2,797 2,940 72,504 71,130 (28,804) (32,018) 819,080 782,843 Total equity 70,788 66,099 Total liabilities and equity 889,868 848,942 29 Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements Business segment information – total revenues and reConCiliation of operating profit (loss) to net inCome (loss) Business segment information – total revenues and reConCiliation of operating profit (loss) to net inCome (loss) € mn Property-Casualty Life/Health six months ended 30 June 2016 2015 2016 2015 Total revenues1 28,856 29,182 32,968 35,540 Premiums earned (net) 22,823 23,072 11,757 12,463 Operating investment result Interest and similar income 1,736 1,871 9,128 9,370 Operating income from financial assets and liabilities carried at fair value through income (net) (25) 33 (473) (688) Operating realized gains/losses (net) 157 138 3,114 4,044 Interest expenses, excluding interest expenses from external debt (48) (43) (57) (52) Operating impairments of investments (net) (43) (7) (934) (195) Investment expenses (175) (176) (551) (527) Subtotal 1,602 1,817 10,226 11,953 Fee and commission income 759 715 679 679 Other income 1 227 9 8 Claims and insurance benefits incurred (net) (15,162) (15,243) (10,127) (9,858) Change in reserves for insurance and investment contracts (net)2 (254) (291) (7,207) (9,394) Loan loss provisions – – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (6,492) (6,456) (3,123) (3,420) Fee and commission expenses (706) (680) (305) (296) Operating amortization of intangible assets – – (9) (9) Restructuring charges (33) (130) (63) (20) Other expenses – – (149) (148) Reclassifications3 – – 247 – Operating profit (loss) 2,539 3,030 1,936 1,957 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (21) (38) 11 (11) Non-operating realized gains/losses (net) 327 434 21 100 Non-operating impairments of investments (net) (168) (56) (218) (5) Subtotal 138 340 (186) 84 Income from fully consolidated private equity investments (net) – – – – Interest expenses from external debt – – – – Acquisition-related expenses – – – – One-off effects from pension revaluation – (181) – (13) Non-operating amortization of intangible assets (26) (30) (21) (28) Reclassifications3 – – (247) – Non-operating items 112 130 (455) 43 Income (loss) before income taxes 2,651 3,160 1,482 2,000 Income taxes (729) (894) (487) (599) Net income (loss) 1,922 2,266 995 1,401 Net income (loss) attributable to: Non-controlling interests 84 89 73 78 Shareholders 1,838 2,177 921 1,323 1 2 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). For the six months ended 30 June 2016, includes expenses for premium refunds (net) in Property-Casualty of € (129) mn (2015: € (168) mn). 3 The result of the South Korean business for the three months ended 30 June 2016 is considered as non- operating since it has been classified as held for sale. Furthermore minor tax reclassifications are included in this line. 30 Interim Report for the First Half-Year of 2016 Allianz Group Asset Management 2016 2,827 – 2 1 – (6) – – (2) 3,496 1 – – – (1,868) (668) – 2 – – 961 – – – – – – – – (6) – (6) 956 (340) 615 29 586 2015 3,121 – 3 (4) – (6) – – (7) 3,914 2 – – – (2,060) (788) – – – – 1,060 – – – – – – 9 (31) (5) – (27) 1,034 (375) 658 32 626 Corporate and Other 2016 272 – 370 12 – (194) – (40) 148 643 148 – – (24) (699) (540) – – – – (323) 79 354 (58) 375 – (418) – – (4) – (47) (371) 183 (188) 8 (196) 2015 270 – 412 – – (241) – (37) 134 407 148 – – (24) (652) (340) – (1) (2) – (331) (55) 207 (1) 151 (7) (425) 1 224 (4) – (62) (393) 138 (254) 10 (264) Consolidation 2016 (165) – (121) – 38 118 – 166 200 (471) (149) 3 (74) – 8 296 – – 148 34 (5) 4 132 – 136 – – – – – (34) 101 97 39 135 – 135 2015 (175) – (167) 12 7 143 – 179 174 (398) (150) 3 (13) – (1) 214 – – 148 5 (19) (8) 1 – (7) 3 – – – – (5) (9) (28) 6 (22) – (22) Group 2016 64,759 34,580 11,115 (485) 3,310 (188) (977) (601) 12,174 5,107 11 (25,286) (7,534) (24) (12,173) (1,923) (9) (94) (1) 281 5,109 71 835 (444) 462 – (418) – – (58) (281) (295) 4,814 (1,335) 3,479 194 3,284 2015 67,939 35,535 11,489 (647) 4,189 (199) (202) (560) 14,070 5,317 235 (25,098) (9,699) (24) (12,590) (1,890) (9) (151) (2) 5 5,697 (112) 742 (63) 568 (4) (425) 10 – (68) (5) 76 5,773 (1,725) 4,048 209 3,839 Condensed Consolidated Interim Financial Statements B Business segment information – total revenues and reConCiliation of operating profit (loss) to net inCome (loss) Business segment information – total revenues and reConCiliation of operating profit (loss) to net inCome (loss) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group six months ended 30 June 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Total revenues1 28,856 29,182 32,968 35,540 2,827 3,121 272 270 (165) (175) 64,759 67,939 Premiums earned (net) 22,823 23,072 11,757 12,463 – – – – – – 34,580 35,535 Operating investment result 2 3 370 412 (121) (167) 11,115 11,489 Interest and similar income 1,736 1,871 9,128 9,370 Operating income from financial assets and liabilities carried at fair value 1 (4) 12 – – 12 (485) (647) through income (net) (25) 33 (473) (688) Operating realized gains/losses (net) 157 138 3,114 4,044 – – – – 38 7 3,310 4,189 Interest expenses, excluding interest expenses from external debt (48) (43) (57) (52) (6) (6) (194) (241) 118 143 (188) (199) Operating impairments of investments (net) (43) (7) (934) (195) – – – – – – (977) (202) Investment expenses (175) (176) (551) (527) – – (40) (37) 166 179 (601) (560) Subtotal 1,602 1,817 10,226 11,953 (2) (7) 148 134 200 174 12,174 14,070 Fee and commission income 759 715 679 679 3,496 3,914 643 407 (471) (398) 5,107 5,317 Other income 1 227 9 8 1 2 148 148 (149) (150) 11 235 Claims and insurance benefits incurred (net) (15,162) (15,243) (10,127) (9,858) – – – – 3 3 (25,286) (25,098) Change in reserves for insurance and investment contracts (net)2 (254) (291) (7,207) (9,394) – – – – (74) (13) (7,534) (9,699) Loan loss provisions – – – – – – (24) (24) – – (24) (24) Acquisition and administrative expenses (net), (1,868) (2,060) (699) (652) 8 (1) (12,173) (12,590) excluding acquisition-related expenses and one-off effects from pension revaluation (6,492) (6,456) (3,123) (3,420) Fee and commission expenses (706) (680) (305) (296) (668) (788) (540) (340) 296 214 (1,923) (1,890) Operating amortization of intangible assets – – (9) (9) – – – – – – (9) (9) Restructuring charges (33) (130) (63) (20) 2 – – (1) – – (94) (151) Other expenses – – (149) (148) – – – (2) 148 148 (1) (2) Reclassifications3 – – 247 – – – – – 34 5 281 5 Operating profit (loss) 2,539 3,030 1,936 1,957 961 1,060 (323) (331) (5) (19) 5,109 5,697 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value – – 79 (55) 4 (8) 71 (112) through income (net) (21) (38) 11 (11) Non-operating realized gains/losses (net) 327 434 21 100 – – 354 207 132 1 835 742 Non-operating impairments of investments (net) (168) (56) (218) (5) – – (58) (1) – – (444) (63) Subtotal 138 340 (186) 84 – – 375 151 136 (7) 462 568 Income from fully consolidated private equity investments (net) – – – – – – – (7) – 3 – (4) Interest expenses from external debt – – – – – – (418) (425) – – (418) (425) Acquisition-related expenses – – – – – 9 – 1 – – – 10 One-off effects from pension revaluation – (181) – (13) – (31) – 224 – – – – Non-operating amortization of intangible assets (26) (30) (21) (28) (6) (5) (4) (4) – – (58) (68) Reclassifications3 – – (247) – – – – – (34) (5) (281) (5) Non-operating items 112 130 (455) 43 (6) (27) (47) (62) 101 (9) (295) 76 Income (loss) before income taxes 2,651 3,160 1,482 2,000 956 1,034 (371) (393) 97 (28) 4,814 5,773 Income taxes (729) (894) (487) (599) (340) (375) 183 138 39 6 (1,335) (1,725) Net income (loss) 1,922 2,266 995 1,401 615 658 (188) (254) 135 (22) 3,479 4,048 Net income (loss) attributable to: 29 32 8 10 – – 194 209 Non-controlling interests 84 89 73 78 Shareholders 1,838 2,177 921 1,323 586 626 (196) (264) 135 (22) 3,284 3,839 3 The result of the South Korean business for the three months ended 30 June 2016 is considered as non- 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). operating since it has been classified as held for sale. Furthermore minor tax reclassifications are included 2 For the six months ended 30 June 2016, includes expenses for premium refunds (net) in Property-Casualty in this line. of € (129) mn (2015: € (168) mn). 31 Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements reConCiliation of reportaBle segments to allianz group figures reConCiliation of reportaBle segments to allianz group figures € mn Total revenues Operating profit (loss) six months ended 30 June 2016 2015 2016 2015 German Speaking Countries and Central & Eastern Europe 8,925 8,711 728 840 Western & Southern Europe, Middle East, Africa, India 6,392 6,281 726 884 Iberia & Latin America 2,353 2,440 92 112 Global Insurance Lines & Anglo Markets 12,490 12,162 905 1,086 Asia Pacific 367 426 33 43 Allianz Worldwide Partners 2,479 2,453 55 65 Consolidation (4,149) (3,290) – – Total Property-Casualty 28,856 29,182 2,539 3,030 German Speaking Countries and Central & Eastern Europe 12,305 12,486 793 750 Western & Southern Europe, Middle East, Africa, India 10,832 13,190 606 606 Iberia & Latin America 1,015 1,071 113 112 USA 6,575 5,291 384 461 Global Insurance Lines & Anglo Markets 321 317 15 34 Asia Pacific 2,350 3,635 191 6 Consolidation (431) (451) 6 (12) Total Life/Health 32,968 35,540 1,936 1,957 Asset Management 2,827 3,121 961 1,060 Holding & Treasury – – (384) (407) Banking 270 269 36 58 Alternative Investments – – 24 19 Consolidation 2 2 – – Total Corporate and Other 272 270 (323) (331) Consolidation (165) (175) (5) (19) Group 64,759 67,939 5,109 5,697 1 The result of the South Korean business for the three months ended 30 June 2016 is considered as non-operating since it has been classified as held for sale. 32 Income (loss) before income taxes Net income (loss) 2016 2015 2016 2015 825 803 608 603 713 945 483 627 65 122 55 94 964 1,186 724 864 33 42 24 31 55 62 30 47 (4) – (2) – 2,651 3,160 1,922 2,266 791 739 543 478 603 641 413 478 105 104 79 76 394 484 274 339 17 34 13 27 (435) 10 (335) 14 7 (12) 7 (12) 1,482 2,000 995 1,401 956 1,034 615 658 (448) (467) (244) (306) 49 69 35 47 23 6 16 4 5 – 5 – (371) (393) (188) (254) 97 (28) 135 (22) 4,814 5,773 3,479 4,048 Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements Notes to the coNsolidated balaNce sheets 5 – Financial assets carried at fair value through income 6 – Investments investments Financial assets carried at Fair value through income € mn as of 30 June 2016 as of 31 December 2015 € mn Available-for-sale investments as of 30 June 2016 517,843 as of 31 December 2015 488,365 Held-to-maturity investments 2,664 2,745 Financial assets held for trading Debt securities 470 489 Funds held by others under reinsurance contracts assumed 1,107 1,349 Equity securities 179 187 Investments in associates and joint ventures 4,905 5,056 Derivative financial instruments 2,650 1,582 Real estate held for investment 11,681 11,977 Subtotal 3,299 2,258 Fixed assets of renewable energy investments 1,891 1,763 Financial assets designated at fair value through income Total 540,091 511,257 Debt securities 2,504 2,645 Equity securities 2,358 2,365 Subtotal 4,861 5,010 Total 8,161 7,268 available-For-sale investments available-For-sale investments € mn as of 30 June 2016 as of 31 December 2015 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value Debt securities Corporate bonds 220,246 20,669 (846) 240,069 211,835 12,681 (4,149) 220,367 Government and government agency bonds France 30,728 13,846 (33) 44,542 31,039 8,052 (70) 39,021 Italy 23,657 5,978 (9) 29,625 23,459 5,521 (54) 28,926 Germany 14,045 2,838 (2) 16,881 13,081 1,919 (52) 14,948 United States 13,636 1,478 (10) 15,104 14,248 645 (82) 14,810 Spain 11,196 1,613 (1) 12,808 9,119 829 (152) 9,795 Belgium 8,496 2,602 (1) 11,098 7,412 1,589 (59) 8,942 Austria 6,252 2,156 (1) 8,408 5,442 1,246 (10) 6,678 Switzerland 5,299 994 – 6,293 5,015 698 (2) 5,711 Netherlands 3,468 592 (1) 4,059 3,599 374 (10) 3,963 Ireland 2,144 204 – 2,347 1,352 37 (23) 1,365 Hungary 821 103 – 924 821 98 – 918 Korea 476 31 – 507 7,430 1,190 – 8,619 Russia 389 19 (3) 404 380 2 (18) 365 Portugal 202 12 – 213 158 29 – 187 Greece 1 2 – 3 1 2 – 3 Supranationals 17,659 3,991 (1) 21,649 16,899 2,577 (64) 19,412 All other countries 37,836 2,550 (304) 40,082 37,632 1,592 (865) 38,359 Subtotal 176,304 39,007 (365) 214,947 177,087 26,398 (1,462) 202,023 mbs/abs 19,917 826 (173) 20,570 21,042 609 (236) 21,414 Other 3,530 764 (10) 4,285 3,357 588 (7) 3,938 Subtotal 419,997 61,267 (1,394) 479,871 413,320 40,276 (5,854) 447,742 Equity securities 28,356 10,013 (396) 37,972 28,906 12,119 (402) 40,624 Total 448,353 71,280 (1,791) 517,843 442,226 52,396 (6,256) 488,365 Interim Report for the First Half-Year of 2016 Allianz Group 33 B Condensed Consolidated Interim Financial Statements 7 – Loans and advances to banks and customers loans and advances to banKs and customers € mn Short-term investments and certificates of deposit Loans Other Subtotal Loan loss allowance Total 8 – Reinsurance assets reinsurance assets € mn Unearned premiums Reserves for loss and loss adjustment expenses Aggregate policy reserves Other insurance reserves Total 9 – Deferred acquisition costs deFerred acquisition costs € mn Deferred acquisition costs Property-Casualty Life/Health Subtotal Present value of future profits Deferred sales inducements Total 34 as of 30 June 2016 2,437 111,703 1,692 115,833 (311) 115,522 as of 30 June 2016 2,067 8,804 4,955 105 15,931 as of 30 June 2016 4,939 16,542 21,480 593 561 22,635 as of 31 December 2015 3,106 113,573 1,258 117,936 (307) 117,630 as of 31 December 2015 1,655 7,712 5,366 110 14,843 as of 31 December 2015 4,647 18,941 23,588 613 1,033 25,234 10 – Other assets other assets € mn as of 30 June 2016 as of 31 December 2015 Receivables Policyholders 6,387 6,013 Agents 5,028 4,379 Reinsurers 3,080 2,264 Other 4,972 4,340 Less allowance for doubtful accounts (643) (647) Subtotal 18,824 16,349 Tax receivables Income taxes 1,473 1,698 Other taxes 1,465 1,512 Subtotal 2,938 3,210 Accrued dividends, interest and rent 6,631 7,887 Prepaid expenses 446 328 Derivative financial instruments, used for hedging that meet the criteria for hedge accounting, and firm commitments 1,033 565 Property and equipment Real estate held for own use 3,116 3,261 Software 2,451 2,361 Equipment 1,438 1,426 Subtotal 7,004 7,048 Other 1,678 1,664 Total 38,553 37,050 11 – Intangible assets intangible assets € mn as of 30 June 2016 as of 31 December 2015 Goodwill 12,038 12,101 Distribution agreements1 946 899 Acquired business portfolios2 177 186 Customer relationships 123 116 Other3 136 141 Total 13,420 13,443 1 2 3 Include primarily the long-term distribution agreements with Commerzbank aG of € 279 mN (2015: € 298 mN), Banco Popular s.a. of € 380 mN (2015: € 389 mN), Yapı ve Kredi Bankası a.s. of € 116 mN (2015: € 122 mN), Philippine National Bank of € 86 mN (2015: € – mN) and hsbc Asia, hsbc Turkey and btPN Indonesia of € 75 mN (2015: € 79 mN). Includes primarily the acquired business portfolio of Allianz Yasam ve Emeklilik a.s. of € 116 mN (2015: € 120 mN). Include primarily heritable building rights, land use rights, lease rights and brand names. Interim Report for the First Half-Year of 2016 Allianz Group 12 – Liabilities to banks and customers LiabiLities tO baNKs aND CUstOMeRs € MN as of 30 June 2016 as of 31 December 2015 Payable on demand and other deposits 10,606 10,305 Repurchase agreements and collateral received from securities lending transactions and derivatives 5,537 6,495 Other 8,616 8,730 Total 24,758 25,531 13 – Reserves for loss and loss adjustment expenses The following table reconciles the beginning and ending reserves for the Property-Casualty business segment for the half-years ended 30 June 2016 and 2015. ChaNge iN the ReseRves fOR LOss aND LOss aDjUstMeNt expeNses iN the pROpeRty-CasUaLty bUsiNess segMeNt € MN 2016 2015 As of 1 January 61,169 58,925 Balance carry forward of discounted loss reserves 3,882 3,597 Subtotal 65,051 62,522 Loss and loss adjustment expenses incurred Current year 17,797 17,371 Prior years (1,378) (945) Subtotal 16,419 16,426 Loss and loss adjustment expenses paid Current year (6,395) (6,313) Prior years (9,563) (9,312) Subtotal (15,958) (15,625) Foreign-currency trans lation adjustments and other changes (532) 2,076 Subtotal 64,981 65,398 Ending balance of discounted loss reserves (3,969) (3,814) As of 30 June 61,012 61,584 14 – Reserves for insurance and investment contracts ReseRves fOR iNsURaNCe aND iNvestMeNt CONtRaCts € MN as of 30 June 2016 as of 31 December 2015 Aggregate policy reserves 423,076 425,312 Reserves for premium refunds 77,600 59,732 Other insurance reserves 916 1,178 Total 501,592 486,222 Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements 15 – Other liabilities OtheR LiabiLities € MN as of 30 June 2016 as of 31 December 2015 Payables Policyholders 4,242 5,006 Reinsurance 2,249 1,413 Agents 1,560 1,625 Subtotal 8,052 8,043 Payables for social security 420 428 Tax payables Income taxes 1,541 1,732 Other taxes 1,442 1,450 Subtotal 2,983 3,181 Accrued interest and rent 687 579 Unearned income 402 374 Provisions Pensions and similar obligations 10,007 9,149 Employee related 2,332 2,599 Share-based compensation plans 301 527 Restructuring plans 113 112 Other 1,695 1,840 Subtotal 14,448 14,227 Deposits retained for reinsurance ceded 2,309 1,636 Derivative financial instruments, used for hedging that meet the criteria for hedge accounting, and firm commitments 260 472 Financial liabilities for puttable equity instruments 2,489 2,585 Other 7,272 7,159 Total 39,323 38,686 16 – Certificated and subordinated liabilities CeRtifiCateD LiabiLities € MN as of 30 June 2016 as of 31 December 2015 Allianz se1 Senior bonds2 8,093 6,711 Money market securities 1,208 1,276 Subtotal 9,301 7,987 Banking subsidiaries Senior bonds 302 395 Subtotal 302 395 Total 9,603 8,383 1 2 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. Change due to the issuance of € 1.5 BN bonds in the first half-year of 2016. 35 B Condensed Consolidated Interim Financial Statements sUbORDiNateD LiabiLities € MN as of 30 June 2016 Allianz se1 Subordinated bonds 12,036 Subtotal 12,036 Banking subsidiaries Subordinated bonds 249 Subtotal 249 All other subsidiaries Hybrid equity 45 Subtotal 45 Total 12,331 1 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. bONDs OUtstaNDiNg as Of 30 jUNe 2016 € MN Certificated liabilities Allianz Finance ii b.v., Amsterdam Subordinated liabilities Allianz se, Munich Allianz Finance ii b.v., Amsterdam 17 – Equity eqUity € MN as of 30 June 2016 Shareholders’ equity Issued capital 1,170 Additional paid-in capital 27,758 Retained earnings1 23,451 Foreign-currency translation adjustments (1,242) Unrealized gains and losses (net)2 16,606 Subtotal 67,744 Non-controlling interests 3,044 Total 70,788 1 2 As of 30 June 2016, include € (152) mN (2015: € (159) mN) related to treasury shares. As of 30 June 2016, include € 512 mN (2015: € 239 mN) related to cash flow hedges. 36 as of 31 December 2015 11,962 11,962 251 251 45 45 12,258 isiN Year of Issue Currency Notional amount Coupon in % Maturity date XS0275880267 2006 EUR 1,500 4.000 23 November 2016 DE000A1HG1J8 2013 EUR 500 1.375 13 March 2018 DE000A1AKHB8 2009 EUR 1,500 4.750 22 July 2019 DE000A180B72 2016 EUR 750 0.000 21 April 2020 DE000A1G0RU9 2012 EUR 1,500 3.500 14 February 2022 DE000A1HG1K6 2013 EUR 750 3.000 13 March 2028 DE000A180B80 2016 EUR 750 1.375 21 April 2031 DE000A1HG1L4 2013 GBP 750 4.500 13 March 2043 DE000A1RE1Q3 2012 EUR 1,500 5.625 17 October 2042 DE000A14J9N8 2015 EUR 1,500 2.241 7 July 2045 XS0857872500 2012 USD 1,000 5.500 Perpetual DE000A1YCQ29 2013 EUR 1,500 4.750 Perpetual CH0234833371 2014 CHF 500 3.250 Perpetual DE000A13R7Z7 2014 EUR 1,500 3.375 Perpetual DE000A1GNAH1 2011 EUR 2,000 5.750 8 July 2041 XS0211637839 2005 EUR 1,400 4.375 Perpetual DE000A0GNPZ3 2006 EUR 800 5.375 Perpetual DiviDeNDs In the second quarter of 2016, a total dividend of € 3,320 MN (2015: € 3,112 MN) or € 7.30 (2015: € 6.85) per qualifiying share was paid to the shareholders. as of 31 December 2015 1,170 27,758 24,222 (926) 10,920 63,144 2,955 66,099 Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements Notes to the CoNsolidated iNCome statemeNts 18 – Premiums earned (net) Premiums earned (net) € mn 20 – Income from financial assets and liabilities carried at fair value through income (net) six months ended 30 June 2016 Property- Casualty Life/Health Consoli- dation Group income from financial assets and liabilities carried at fair value through income (net) Premiums written Gross 28,856 12,357 (73) 41,140 € mn six months ended 30 June 2016 2015 Ceded Net (2,743) 26,113 (323) 12,034 73 – (2,993) 38,147 Income (expenses) from financial assets and liabilities held for trading (net) (244) (2,471) Change in unearned premiums (net) Premiums earned (net) (3,290) 22,823 (277) 11,757 – – (3,567) 34,580 Income (expenses) from financial assets and liabilities designated at fair value through income (net) (109) 166 2015 Income (expenses) from financial liabilities for puttable equity instruments (net) 134 (106) Premiums written Foreign-currency gains and losses (net) (195) 1,653 Gross 29,182 12,999 (57) 42,124 Total (414) (758) Ceded (3,159) (401) 57 (3,504) Net 26,023 12,598 – 38,621 Change in unearned premiums (net) (2,951) (135) – (3,086) Premiums earned (net) 23,072 12,463 – 35,535 21 – Realized gains/losses (net) realized gains/losses (net) 19 – Interest and similar income € mn six months ended 30 June realized gains 2016 2015 Available-for-sale investments interest and similar income Equity securities 1,319 2,345 € mn six months ended 30 June 2016 2015 Debt securities Subtotal 2,972 4,291 2,503 4,847 Dividends from available-for-sale investments 1,023 1,108 Other 581 526 Interest from available-for-sale investments 6,939 7,104 Subtotal 4,872 5,373 Interest from loans to banks and customers 2,274 2,376 realized losses Other 879 901 Available-for-sale investments Total 11,115 11,489 Equity securities (257) (113) Debt securities (469) (323) Subtotal (726) (435) Other (1) (7) Subtotal (728) (442) Total 4,144 4,931 Interim Report for the First Half-Year of 2016 Allianz Group 37 B Condensed Consolidated Interim Financial Statements 22 – Fee and commission income fee and commission income € mn six months ended 30 June 2016 ProPerty-casualty Fees from credit and assistance business 516 Service agreements 243 Subtotal 759 life/health Service agreements 64 Investment advisory 615 Subtotal 679 asset management Management fees 3,122 Loading and exit fees 231 Performance fees 127 Other 17 Subtotal 3,496 corPorate and other Service agreements 288 Investment advisory and banking activities 355 Subtotal 643 consolidation (471) Total 5,107 23 – Other income other income € mn six months ended 30 June 2016 Income from real estate held for own use 10 Other 1 Total 11 1 Includes a net gain of € 0.2 bN on the sale of the personal insurance business of Fireman’s Fund Insurance Company to aCe Limited. The sale was an integral part of the reorganization of Allianz Group’s Property- Casualty insurance business in the United States. 38 2015 491 225 715 46 633 679 3,472 314 111 17 3,914 41 365 407 (398) 5,317 2015 11 2241 235 24 – Claims and insurance benefits incurred (net) claims and insurance benefits incurred (net) € mn six months ended 30 June Property- Casualty Life/Health Consoli- dation 2016 Gross (16,419) (10,416) 39 Ceded 1,258 289 (36) Net (15,162) (10,127) 3 2015 Gross (16,426) (10,085) 36 Ceded 1,183 227 (33) Net (15,243) (9,858) 3 25 – Change in reserves for insurance and investment contracts (net) change in reserves for insurance and investment contracts (net) € mn six months ended 30 June Property- Casualty Life/Health Consoli- dation 2016 Gross (256) (7,366) (74) Ceded 3 160 – Net (254) (7,207) (74) 2015 Gross (295) (9,650) (13) Ceded 3 256 – Net (291) (9,394) (13) 26 – Interest expenses interest exPenses € mn six months ended 30 June 2016 Liabilities to banks and customers (89) Deposits retained for reinsurance ceded (34) Certificated liabilities (142) Subordinated liabilities (286) Other (55) Total (606) Interim Report for the First Half-Year of 2016 Group (26,797) 1,511 (25,286) (26,475) 1,377 (25,098) Group (7,696) 163 (7,534) (9,958) 259 (9,699) 2015 (110) (28) (148) (290) (49) (624) Allianz Group 27 – Impairments of investments (net) ImpaIrments of Investments (net) € mn six months ended 30 June 2016 Impairments Available-for-sale investments Equity securities (1,175) Debt securities (42) Subtotal (1,217) Other (9) Non-current assets and assets of disposal groups classified as held for sale (226) Subtotal (1,451) Reversals of impairments 31 Total (1,421) 28 – Investment expenses Investment expenses € mn six months ended 30 June 2016 Investment management expenses (344) Expenses from real estate held for investment (193) Expenses from fixed assets of renewable energy investments (64) Total (601) 29 – Acquisition and administrative expenses (net) acquIsItIon and admInIstratIve expenses (net) € mn six months ended 30 June 2016 property-casualty Acquisition costs (5,023) Administrative expenses (1,469) Subtotal (6,492) lIfe/HealtH Acquisition costs (2,225) Administrative expenses (899) Subtotal (3,123) asset management Personnel expenses (1,131) Non-personnel expenses (736) Subtotal (1,868) corporate and otHer Administrative expenses (698) Subtotal (698) consolIdatIon 8 Total (12,173) 1 Include one-off effects from pension revaluation. Interim Report for the First Half-Year of 2016 Allianz Group 2015 (151) (93) (244) (24) – (268) 3 (265) 2015 (308) (195) (58) (560) 2015 (5,039) (1,598)1 (6,637) (2,568) (864)1 (3,432) (1,294)1 (788) (2,082) (427)1 (427) (1) (12,579) B Condensed Consolidated Interim Financial Statements 30 – Fee and commission expenses fee and commIssIon expenses € mn six months ended 30 June 2016 2015 property-casualty Fees from credit and assistance business (506) (507) Service agreements (199) (173) Subtotal (706) (680) lIfe/HealtH Service agreements (28) (21) Investment advisory (277) (275) Subtotal (305) (296) asset management Commissions (637) (731) Other (31) (58) Subtotal (668) (788) corporate and otHer Service agreements (384) (160) Investment advisory and banking activities (156) (180) Subtotal (540) (340) consolIdatIon 296 214 Total (1,923) (1,890) 31 – Income taxes Income taxes € mn six months ended 30 June 2016 2015 Current income taxes (1,462) (1,307) Deferred income taxes 127 (418) Total (1,335) (1,725) For the six months ended 30 June 2016 and 2015, the income taxes relating to components of other comprehensive income consist of the following: Income taxes relatIng to components of otHer compreHensIve Income € mn six months ended 30 June 2016 2015 Items that may be reclassified to profit or loss in future periods Foreign-currency translation adjustments (37) 113 Available-for-sale investments (2,835) 1,450 Cash flow hedges (109) 65 Share of other comprehensive income of associates and joint ventures 7 (3) Miscellaneous (12) (10) Items that may never be reclassified to profit or loss Actuarial gains (losses) on defined benefit plans 293 (142) Total (2,694) 1,473 39 B Condensed Consolidated Interim Financial Statements Other InfOrmatIOn 32 – Financial instruments and fair value measurement Fair values and carrying amounts oF Financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts oF Financial instruments € mn Financial assets Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Financial liabilities Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities As of 30 June 2016, fair values could not be reliably measured for equity investments whose carrying amounts totaled € 113 mn (31 December 2015: € 216 mn). These investments are primarily investments in pri- vately held corporations and partnerships. 40 as of 30 June 2016 as of 31 December 2015 Carrying amount Fair value Carrying amount Fair value 14,573 14,573 14,842 14,842 3,299 3,299 2,258 2,258 4,861 4,861 5,010 5,010 517,843 517,843 488,365 488,365 2,664 3,150 2,745 3,165 4,905 6,497 5,056 6,207 11,681 17,520 11,977 17,810 115,522 139,921 117,630 136,397 104,927 104,927 105,873 105,873 1,033 1,033 565 565 11,334 11,334 9,207 9,207 24,758 25,045 25,531 25,563 104,927 104,927 105,873 105,873 260 260 472 472 2,489 2,489 2,585 2,585 9,603 10,715 8,383 9,208 12,331 13,035 12,258 13,100 Fair value measurement on a recurring basis The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, − Derivative financial instruments and firm commitments included in other assets and other liabilities, and − Financial liabilities for puttable equity instruments. Interim Report for the First Half-Year of 2016 Allianz Group The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2016 and 31 December 2015. Fair value hierarchy (items carried at Fair value) € mn as of 30 June 2016 Level 11 Level 22 Financial assets Financial assets carried at fair value through income Financial assets held for trading 278 2,953 Financial assets designated at fair value through income 3,742 986 Subtotal 4,020 3,939 Available-for-sale investments Corporate bonds 29,410 198,020 Government and government agency bonds 41,085 173,741 mbs/abs 308 19,735 Other 806 1,636 Equity securities 30,032 822 Subtotal 101,641 393,954 Financial assets for unit-linked contracts 101,934 2,680 Derivative financial instruments and firm commitments included in other assets – 1,033 Total 207,595 401,606 Financial liabilities Financial liabilities held for trading 24 1,666 Financial liabilities for unit-linked contracts 101,934 2,680 Derivative financial instruments and firm commitments included in other liabilities – 260 Financial liabilities for puttable equity instruments 2,431 55 Total 104,388 4,662 1 2 3 Quoted prices in active markets Market observable inputs Non-market observable inputs The valuation methodologies used for financial instruments carried at fair value, the policy for determining the levels within the fair value hierarchy, as well as the significant Level-3 portfolios, including the respective narratives and sensitivities, are described in the Allianz Group’s Annual Report 2015. No material changes have occurred since this report was published. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Interim Report for the First Half-Year of 2016 Allianz Group Level 33 68 133 201 12,638 122 527 1,843 7,117 22,247 314 – 22,762 9,644 314 – 3 9,961 Total 3,299 4,861 8,161 240,069 214,947 20,570 4,285 37,972 517,843 104,927 1,033 631,964 11,334 104,927 260 2,489 119,011 B Condensed Consolidated Interim Financial Statements as of 31 December 2015 Level 11 Level 22 Level 33 Total 192 2,018 47 2,258 3,836 1,037 137 5,010 4,027 3,055 184 7,268 28,428 182,185 9,754 220,367 41,977 159,999 47 202,023 210 20,673 532 21,414 627 1,762 1,548 3,938 32,932 776 6,915 40,624 104,174 365,396 18,796 488,365 102,954 2,755 164 105,873 – 565 – 565 211,155 371,770 19,145 602,071 28 1,046 8,134 9,207 102,954 2,755 164 105,873 – 472 – 472 2,496 71 19 2,585 105,478 4,343 8,317 118,137 41 B Condensed Consolidated Interim Financial Statements Reconciliation of level 3 financial instruments The following tables show reconciliations of the financial instruments carried at fair value and classified as level 3. reconciliation oF level 3 Financial assets € mn Financial assets carried at fair value through income Carrying value (fair value) as of 1 January 2016 184 Additions through purchases and issues 8 Net transfers into (out of) Level 3 (30) Disposals through sales and settlements 105 Net gains (losses) recognized in consolidated income statement (64) Net gains (losses) recognized in other comprehensive income – Impairments – Foreign-currency translation adjustments (4) Changes in the consolidated subsidiaries of the Allianz Group 3 Carrying value (fair value) as of 30 June 2016 201 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date 55 1 Primarily include corporate bonds. reconciliation oF level 3 Financial liabilities € mn Carrying value (fair value) as of 1 January 2016 Additions through purchases and issues Net transfers into (out of) Level 3 Disposals through sales and settlements Net gains (losses) recognized in consolidated income statement Net gains (losses) recognized in other comprehensive income Impairments Foreign-currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 30 June 2016 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date Fair value measurement on a non-recurring basis Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 27 – Impairments of investments (net). 42 Available-for-sale investments – Debt securities1 11,881 2,862 (42) (482) (65) 954 (11) (127) 159 15,130 (43) Financial liabilities held for trading 8,134 1,576 (26) (903) 1,024 1 – (163) – 9,644 2,043 Available-for-sale investments – Equity securities Financial assets for unit-linked contracts 6,915 164 852 32 99 (1) (533) (1) 22 1 16 1 (96) – (10) – (148) 117 7,117 314 2 2 Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments 164 19 32 1 (1) – (1) (18) 1 – 1 – – – – – 117 – 314 3 2 – Interim Report for the First Half-Year of 2016 Total 19,145 3,755 26 (911) (106) 971 (106) (142) 132 22,762 16 Total 8,317 1,611 (28) (921) 1,026 2 – (163) 117 9,961 2,045 Allianz Group 33 – Other information number oF employees As of 30 June 2016, the Allianz Group employed 142,697 (31 December 2015: 142,459) people. contingent liabilities and commitments As of 30 June 2016, there were no significant changes in contingent liabilities compared to the consolidated financial statements for the year ended 31 December 2015. As of 30 June 2016, outstanding commitments to invest in private equity funds and similar financial instruments amounted to € 9,856 mn (31 December 2015: € 5,460 mn) and outstanding commit- ments to invest in real estate and infrastructure amounted to € 2,680 mn (31 December 2015: € 1,958 mn). All other commitments showed no significant changes. insurance laws (amendment) bill in india The Insurance Laws (Amendment) Bill has become legally effective in the first quarter of 2015 and provides for raising the foreign invest- ment cap in India from 26 % to 49 %. As per the 2001 joint venture agree- ment between the Allianz Group and Bajaj, the Allianz Group has the right to increase the stakes in Bajaj at pre-determined prices, if allowed under applicable laws, and subject to regulatory approvals. The Allianz Group is currently in the process of evaluating the con- tractual situation against the prevailing regulatory background. Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements 34 – Subsequent events The Allianz Group was not subject to any subsequent events that sig- nificantly impacted the Group’s financial results after the balance sheet date and before the condensed consolidated interim financial statements were authorized for issue. Munich, 4 August 2016 Allianz SE The Board of Management 43 B Condensed Consolidated Interim Financial Statements respOnsIbIlIty statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group. Munich, 4 August 2016 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Dr. Helga Jung Dr. Christof Mascher Dr. Dieter Wemmer Dr. Werner Zedelius 44 Jacqueline Hunt Dr. Axel Theis Maximilian Zimmerer Interim Report for the First Half-Year of 2016 Allianz Group revIew repOrt To Allianz SE, Munich, We have reviewed the condensed interim consolidated financial statements of Allianz SE, Munich – comprising the consolidated bal- ance sheets, consolidated income statements, consolidated state- ments of comprehensive income, consolidated statements of chang- es in equity, consolidated statements of cash flows and selected explanatory notes – together with the interim group management report of Allianz SE, Munich, for the period from January 1 to June 30, 2016 that are part of the semi annual financial report according to § 37w WpHG [“Wertpapierhandelsgesetz”: “German Securities Trading Act”]. The preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard IAS 34 “Interim Financial Reporting” as adopted by the EU, and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on the condensed interim consoli- dated financial statements and on the interim group management report based on our review. We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed interim con- solidated financial statements have not been prepared, in material respects, in accordance with IAS 34 “Interim Financial Reporting” as adopted by the EU, and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employ- ees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accor- dance with our engagement, we have not performed a financial state- ment audit, we cannot issue an auditor’s report. Interim Report for the First Half-Year of 2016 Allianz Group B Condensed Consolidated Interim Financial Statements Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated finan- cial statements have not been prepared, in material respects, in accordance with IAS 34, “Interim Financial Reporting” as adopted by the EU, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, 4 August 2016 KPmG AG Wirtschaftsprüfungsgesellschaft Klaus Becker Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 45 1 FInanCIal CalendaR Important dates for shareholders and analysts1 Financial Results 3Q ____________________________________ 11 November 2016 Financial Results 2016 ____________________________________ 17 February 2017 Annual Report 2016 _______________________________________ 10 March 2017 Annual General Meeting ______________________________________ 3 May 2017 Financial Results 1Q _________________________________________ 12 May 2017 Financial Results 2Q/Interim Report 6M _________________________ 4 August 2017 Financial Results 3Q ____________________________________ 10 November 2017 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone +49.89.3800-0 – info@allianz.com – www.allianz.com Interim Report on the internet – www.allianz.com/interim-report – Design / Concept: hw.design GmbH – Date of publication: 5 August 2016 this is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2016, Insurance, Allianz | write me a financial report |
Semestriel | 2,015 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| 2Q Allianz Group Interim Report Second Quarter and First Half Year of 2015 Allianz at a glance Quarterly and half-year results Income statement Total revenues1 € mn Operating profit2 € mn Net income2 € mn thereof: attributable to shareholders € mn Business segments3 Property-Casualty Gross premiums written € mn Operating profit2 € mn Net income2 € mn Combined ratio % Life/Health Statutory premiums € mn Operating profit2 € mn Net income2 € mn Margin on reserves bps Asset Management Operating revenues € mn Operating profit2 € mn Net income2 € mn Cost-income ratio % Corporate and Other Total revenues € mn Operating result2 € mn Net income (loss)2 € mn Balance sheet as of 30 June4 Total assets € mn Shareholders’ equity € mn Non-controlling interests € mn Share information Basic earnings per share € Diluted earnings per share € Share price as of 30 June4 € Market capitalization as of 30 June4 € mn Other data Standard & Poor’s rating5 Conglomerate solvency ratio4,6 % Total assets under management as of 30 June4 € bn thereof: third-party assets under management as of 30 June4 € bn 1 2 3 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). The Allianz Group uses operating profit and net income as key financial indicators to assess the perfor- mance of its business segments and the Group as a whole. The Allianz Group operates and manages its activities through four business segments: Property-Casualty, Life/Health, Asset Management and Corporate and Other. For further information, please refer to note 4 to the condensed consolidated interim financial statements. three months ended 30 June six months ended 30 June 2015 2014 Change from previous year 2015 2014 Change from previous year More details on page 30,170 29,457 2.4 % 67,939 63,420 7.1 % 6 2,842 2,770 2.6 % 5,697 5,494 3.7 % 7 2,112 1,858 13.6 % 4,048 3,598 12.5 % 8 2,018 1,755 15.0 % 3,839 3,395 13.1 % 8 11,843 10,846 9.2 % 29,182 26,063 12.0 % 12 1,745 1,345 29.7 % 3,030 2,835 6.9 % 13 1,344 969 38.6 % 2,266 1,614 40.3 % 15 93.5 94.6 (1.1) %-p 94.1 93.6 0.4 %-p 13 16,719 16,961 (1.4) % 35,540 34,124 4.2 % 20 853 985 (13.4) % 1,957 1,864 5.0 % 22 662 731 (9.5) % 1,401 1,360 3.0 % 25 58 79 (20) 70 76 (6) 24 1,548 1,607 (3.6) % 3,121 3,124 (0.1) % 31 505 676 (25.2) % 1,060 1,321 (19.8) % 32 329 419 (21.4) % 658 825 (20.2) % 32 67.4 57.9 9.4 %-p 66.0 57.7 8.3 %-p 32 131 132 (0.8) % 270 270 – – (230) (219) (4.7) % (331) (442) 25.1 % 34 (205) (249) 17.4 % (254) (117) (116.6) % 34 841,648 805,787 4.5 % 841,648 805,787 4.5 % 39 60,687 60,747 (0.1) % 60,687 60,747 (0.1) % 38 2,824 2,955 (4.4) % 2,824 2,955 (4.4) % 38 4.44 3.87 14.8 % 8.45 7.48 12.9 % 108 4.38 3.84 14.0 % 8.45 7.41 14.0 % 108 139.70 137.35 1.7 % 139.70 137.35 1.7 % 1 63,843 62,769 1.7 % 63,843 62,769 1.7 % – AA Stable outlook AA Stable outlook – AA Stable outlook AA Stable outlook – – 192 181 12 %-p 192 181 12 %-p 38 1,811 1,801 0.5 % 1,811 1,801 0.5 % 29 1,323 1,313 0.8 % 1,323 1,313 0.8 % 29 4 5 6 2014 figures as of 31 December 2014. Insurer financial strength rating, affirmed on 22 December 2014. Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2015 would be 184 % (31 December 2014: 172 %). To go directly to any chapter, simply click on the headline or the page number All references to chapters, pages, notes, internet pages, etc. within this report are also linked. Content 3 4 5 12 20 29 33 36 38 45 a Content Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations interim Group manaGement report 49 b condensed consolidated interim financial statements 50 Content 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 Consolidated Statements of Cash Flows 57 Notes to the Condensed Consolidated Interim Financial Statements Allianz Share deVelopment of the allianz share price Versus stoXX europe 600 insurance and euro stoXX 50 indexed to the Allianz share price in € 180 160 € 161.85 (31/3/2015) 140 € 139.70 (30/6/2015) € 137.35 (31/12/2014) Jan Feb Mar Apr May Jun Allianz STOXX Europe 600 Insurance Source: Thomson Reuters Datastream EURO STOXX 50 Allianz Share price (6m 2015): High: € 169.70 (10 April 2015) Low: € 133.35 (5 January 2015) basic share information Security codes WKn 840 400 isin de 000 840 400 5 Disclaimer regarding roundings The condensed consolidated interim financial statements are presented in millions of Euros (€ MN), unless otherwise stated. Due to rounding, numbers presented may not add up pre- cisely to the totals provided and percentages may not precisely reflect the absolute figures. Previously published figures have been adjusted accordingly. Bloomberg alV Gr Reuters 0#alVG.deu Interim Report Second Quarter and First Half Year of 2015 Allianz Group 1 2 Interim Report Second Quarter and First Half Year of 2015 Allianz Group INTERIM GROuP MANAGEMENT REPORT A Interim Report Second Quarter and First Half Year of 2015 Allianz Group 3 INTERIM GROuP MANAGEMENT REPORT 5 12 20 29 33 36 38 45 Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations 4 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Pages 4 – 48 A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Executive Summary Second quarter 2015 − Total revenues of € 30.2 BN – an increase of 2.4 %. − Operating profit rose 2.6 % to € 2,842 MN. − Net income grew to € 2,112 MN. − Conglomerate solvency ratio strengthened from 181 % to 192 %.1 Allianz Group overview Key figures Allianz SE and its subsidiaries (the Allianz Group) have opera- tions in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other. key figureS allianz group € mn three months ended 30 June Total revenues Operating profit 2015 30,170 2,842 2014 29,457 2,770 Net income 2,112 1,858 Conglomerate solvency ratio1,2 in % 192 181 Earnings summary economic and induStry environment in the Second quarter of 2015 Growth dynamics in the global economy took different directions in the first half of this year. Most of the industrialized countries regis- tered fairly solid growth. Following a weak start to the year, the U.S. economy got back into stride in the second quarter. The Eurozone experienced an acceleration in economic activity, benefiting from lower oil prices and the depreciation of the Euro. By contrast, major emerging markets like China showed signs of weakness or, in the case of Brazil and Russia, actually slipped into recession. Overall, global economic activity continued to trend moderately upwards. Despite the European Central Bank’s (ECB) ongoing bond pur- chasing program, yields on 10-year German government bonds rose significantly and closed the second quarter at 0.8 %, 60 basis points higher than at the beginning of the quarter. Spreads on government bonds in the Eurozone periphery widened. This was most pro- nounced in Greece amid the standstill in negotiations with the ECB, the European Commission and the International Monetary Fund, the end of the second bail-out program on 30 June and the call for a ref- erendum in Greece. The negotiations between Greece and its credi- tors were also reflected in increased volatility in equity markets. While many equity markets outside Europe registered gains in the second quarter, most markets in Europe declined. Additionally Asian emerging market equities were impacted by a plunge in Chinese indices. Following preceding strong losses, influenced not least by the divergent monetary policies of the ECB and the Federal Reserve Bank, the Euro stabilized in the second quarter. The U.S. Dollar to Euro exchange rate was 1.11 at the end of the second quarter (end of first quarter: 1.07). 1 2 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios as of 30 June 2015 and 31 December 2014 would be 184 % and 172 %, respectively. 2014 figure as of 31 December 2014. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 5 From an insurance industry point of view, the first half of 2015 was rather mixed. On the one hand, loss activity was generally modest as global catastrophe losses were benign; top-line growth was more or less stable. On the other hand, despite the recent pickup, yields remained very low, keeping reinvestment yields well below running yields. Furthermore, pricing pressure continued to grow. The upshot is an increasing need to manage expenses. Unsurprisingly, industry consolidation is already in full swing. ManageMent’s assessMent of second quarter 2015 results Our total revenues increased 2.4 % to € 30.2 BN (internal growth1: (3.8) %). The increase in total revenues was driven by our Property- Casualty business segment. However, developments in our business segments Life/Health and Asset Management partly offset this growth. Our operating profit grew € 72 mN – or 2.6 % – to € 2,842 mN. This was mainly due to a strong underwriting result, as well as a net gain from the sale of the Fireman’s Fund personal insurance business in our Property-Casualty business segment. Mainly a lower investment margin and reserve strengthening in South Korea in our Life/Health business segment as well as an increase in operating expenses – which was strongly driven by foreign currency translation effects – in our Asset Management business segment lowered the upswing. Net income was up 13.6 % to € 2,112 mN – a strong increase primar- ily due to an improvement in our non-operating result. Net income attributable to shareholders and non-controlling interests were at € 2,018 mN (2Q 2014: € 1,755 mN) and € 94 mN (2Q 2014: € 103 mN), respectively. Our shareholders’ equity was stable at € 60.7 BN, compared to 31 December 2014. In the same period, our conglomerate solvency ratio strengthened from 181 % to 192 %2. 1 2 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 46 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios as of 30 June 2015 and 31 December 2014 would be 184 % and 172 %, respectively. 6 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Total revenues3 2015 to 2014 second quarter comparison total revenues – BusIness segMents � Mn (3.8) % 40,000 30,000 29,4571 132 1,607 + 0.0 % (17.7) % 30,1701 131 1,548 20,000 16,961 (6.0) % 16,719 10,000 10,846 + 1.6 % 11,843 2Q 2014 2Q 2015 Property-Casualty Internal growth Life/Health Asset Management Corporate and Other 1 Total revenues include € (72) mn (2Q 2014: € (89) mn) from consolidation for 2Q 2015. Property-Casualty gross premiums written amounted to € 11.8 BN – an increase of € 1.0 BN compared to the second quarter of 2014. This equals a growth of 1.6 % on an internal basis1, driven by favorable vol- ume effects. We recorded strong growth at Allianz Worldwide Part- ners, in Turkey and at AGCS excl. Fireman’s Fund. Life/Health statutory premiums amounted to € 16.7 BN, a decrease of 6.0 % on an internal basis1. An increase in unit-linked busi- ness stemming from Taiwan and Italy partly offset the drop in fixed- indexed annuity sales in the United States and the decrease in tradi- tional life business in Germany, as a result of the change in product strategy. Asset Management operating revenues dropped by € 59 mN to € 1,548 mN. On an internal basis1, excluding the strong effects from foreign currency translation, mainly resulting from the appreciation of the U.S. Dollar against the Euro, operating revenues decreased by 17.7 %. The main cause for this was a drop in our third-party assets under management (AuM) and the corresponding AuM-related income. Total revenues in our Banking operations (reported in our Corpo- rate and Other business segment) were almost flat at € 131 mN. 3 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, oper- ating revenues in Asset Management, and total revenues in Corporate and Other (Banking). A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations 2015 to 2014 first half-year comparison In the first six months of 2015, our total revenues grew 7.1 % compared to the corresponding period in 2014 and amounted to € 67.9 BN. On an internal basis1 total revenues increased slightly by 0.2 %. Volume driven growth in our Property-Casualty business segment was most- ly offset by lower third-party AuM-driven revenues from our Asset Management business segment, and – to a lesser extent – by a decline in our Life/Health statutory premiums. Operating profit Life/Health operating profit decreased by € 132 MN to € 853 MN. This was driven by the German life business, mainly due to a lower investment margin as a result of negative fair value changes, and reserve strengthening in South Korea. It was partly offset by a higher investment spread margin due to an increased asset base in the United States and favorable foreign currency translation effects. Asset Management operating profit went down 25.2 % to € 505 MN, which is a contraction of 36.9 % on an internal basis2, mainly due to lower third-party AuM-related revenues and – to a lesser extent – a dip of our third-party AuM margin. We also recorded a slight drop in administrative expenses, which was mostly driven by lower personnel expenses. 2015 to 2014 second quarter comparison operating profit – BuSineSS SegmentS � mn Our operating result in Corporate and Other decreased by € 10 MN to a loss of € 230 MN. An increase in the operating result of our Banking operations could only partially compensate for the drop of € 19 MN in Holding & Treasury. 4,000 3,000 2,000 1,000 0 2,7701 676 985 1,345 (219) + 2.6 % (25.2) % (13.4) % + 29.7 % (4.7) % 2,8421 505 853 1,745 (230) 2015 to 2014 first half-year comparison Operating profit went up € 204 MN – or 3.7 % – to € 5,697 MN. The main drivers for this were higher loadings and fees and a better investment margin in our Life/Health business segment and – in the second quarter – a strong underwriting result and a net gain from the sale of the Fireman’s Fund personal insurance business in our Property- Casualty business segment. An improvement in the result of our Cor- porate and Other business segment also contributed to this develop- ment. However, operating profit in our Asset Management business segment declined, largely reflecting an increase in operating expenses, which was strongly driven by foreign currency translation effects. 2Q 2014 2Q 2015 Property-Casualty Life/Health Asset Management Corporate and Other Growth 1 Total operating profit includes € (32) mn (2Q 2014: € (16) mn) from consolidation for 2Q 2015. Our Property-Casualty operating profit increased by € 400 MN to € 1,745 MN, largely due to the strong underwriting result compared to the second quarter of 2014 and a net gain from the sale of the Fireman’s Fund personal insurance business. Our investment result improved by € 35 MN to € 840 MN. 1 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 46 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. 2 Operating profit adjusted for foreign currency translation and (de-)consolidation effects. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 7 Non-operating result 2015 to 2014 second quarter comparison Our non-operating result increased by € 174 MN to € 137 MN, mainly driven by a higher non-operating investment result due to increased non-operating realized gains and losses (net) and higher non-oper- ating income from financial assets and liabilities carried at fair value through income (net). Non-operating income from financial assets and liabilities carried at fair value through income (net) increased by € 44 MN to € 13 MN, mainly due to favorable impacts from hedging-related activities. Non-operating realized gains and losses (net) increased by € 181 MN to € 424 MN, driven by higher realized gains on equity invest- ments and debt securities. Non-operating impairments of investments (net) increased by € 20 MN to € 43 MN, mainly due to impairments on debt funds. 2015 to 2014 first half-year comparison Our non-operating result increased by € 230 MN to € 76 MN. This was mainly driven by higher non-operating realized gains and losses (net) partly offset by the absence of a positive one-off effect from a pension revaluation of € 117 MN, as reported in the first quarter of 2014. Income taxes 2015 to 2014 second quarter comparison Income taxes decreased by € 7 MN to € 867 MN and the effective tax rate amounted to 29.1 % (2Q 2014: 32.0 %). This was mostly due to higher tax exempt income. 2015 to 2014 first half-year comparison Income taxes were down by € 17 MN to € 1,725 MN, driven by higher tax exempt income compared to the first six months of 2014. The effective tax rate decreased to 29.9 % (6M 2014: 32.6 %). 8 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Net income 2015 to 2014 second quarter comparison Net income increased by € 254 MN to € 2,112 MN, driven primarily by our higher non-operating result. Net income attributable to share- holders and non-controlling interests amounted to € 2,018 MN (2Q 2014: € 1,755 MN) and € 94 MN (2Q 2014: € 103 MN), respectively. The largest non-controlling interests in net income related to Euler Hermes and PIMCO. Basic earnings per share increased from € 3.87 to € 4.44 and diluted earnings per share increased from € 3.84 to € 4.38. For further information on earnings per share, please refer to note 39 to the con- densed consolidated interim financial statements. 2015 to 2014 first half-year comparison Net income grew by € 450 MN to € 4,048 MN, driven by both our higher non-operating result and operating result. Net income attributable to shareholders and non-controlling interests amounted to € 3,839 MN (6M 2014: € 3,395 MN) and € 209 MN (6M 2014: € 203 MN), respectively. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations total revenueS and reconciliation of operating profit (loSS) to net income € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Total revenues1 30,170 29,457 67,939 63,420 Premiums earned (net) 17,263 16,700 35,535 33,386 Operating investment result Interest and similar income 5,964 5,538 11,368 10,677 Operating income from financial assets and liabilities carried at fair value through income (net) (1,330) (22) (647) (272) Operating realized gains/losses (net) 1,670 783 4,189 1,563 Interest expenses, excluding interest expenses from external debt (96) (102) (199) (199) Operating impairments of investments (net) (113) (50) (202) (347) Investment expenses (265) (232) (502) (431) Subtotal 5,830 5,914 14,007 10,991 Fee and commission income 2,673 2,537 5,317 4,945 Other income 279 46 356 123 Claims and insurance benefits incurred (net) (12,294) (12,257) (25,098) (24,066) Change in reserves for insurance and investment contracts (net)2 (3,560) (3,598) (9,699) (7,038) Loan loss provisions (17) (15) (24) (24) Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (6,286) (5,704) (12,590) (11,156) Fee and commission expenses (949) (830) (1,890) (1,613) Operating amortization of intangible assets (5) (5) (9) (9) Restructuring charges (61) 9 (151) 9 Other expenses (32) (26) (60) (56) Reclassification of tax benefits – – 5 – Operating profit 2,842 2,770 5,697 5,494 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 13 (31) (112) (101) Non-operating realized gains/losses (net) 424 243 742 369 Non-operating impairments of investments (net) (43) (24) (63) (89) Subtotal 393 188 568 179 Income from fully consolidated private equity investments (net) (6) – (4) (5) Interest expenses from external debt (213) (206) (425) (411) Acquisition-related expenses 3 1 10 6 One-off effects from pension revaluation – – – 117 Non-operating amortization of intangible assets (41) (20) (68) (39) Reclassification of tax benefits – – (5) – Non-operating items 137 (37) 76 (154) Income before income taxes 2,979 2,733 5,773 5,339 Income taxes (867) (875) (1,725) (1,741) Net income 2,112 1,858 4,048 3,598 Net income attributable to: Non-controlling interests 94 103 209 203 Shareholders 2,018 1,755 3,839 3,395 Basic earnings per share in € 4.44 3.87 8.45 7.48 Diluted earnings per share in € 4.38 3.84 8.45 7.41 1 2 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). For the three months ended 30 June 2015, expenses for premium refunds (net) in Property-Casualty of € (59) mn (2Q 2014: € (72) mn) are included. For the six months ended 30 June 2015, expenses for premium refunds (net) in the business segment Property-Casualty of € (168) mn (6m 2014: € (131) mn) are included. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 9 Risk management Risk management is an integral part of our business and supports our value-based management. For further information about our approach, please refer to the Risk and Opportunity Report in our Annual Report 2014. The Allianz Group’s management feels comfort- able with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challeng- es of a rapidly changing environment as well as day-to-day business needs. The risk profile described in the latest Risk and Opportunity Report remains largely unchanged. We consider the current state of the economy, combined with the persisting low interest rate environ- ment in the Euro zone –fueled by an expansive monetary policy – as a rising risk for achieving our investment targets. Also, continuing geopolitical uncertainties represent risks we are monitoring closely. In addition, Allianz continues to be exposed to regulatory develop- ments – especially the European solvency directive ( Solvency II) and the designation of Allianz as a global systemically important insurer (a so-called G-SIIs). financial market and operating environment developmentS Many countries within the Eurozone currently face weak economic growth and low inflation rates. However, there is a fair chance of eco- nomic recovery. The economic malaise is being addressed by the European Central Bank through its expansive monetary policy. As a result, financial markets are characterized by historically low interest rates and risk premia, prompting investors to look for higher yielding – and potentially higher risk – investments. In addition to sustained low interest rates, the challenges of implementing long-term struc- tural reforms in key Eurozone countries, ongoing discussions about Greece and the uncertainty about the future path of monetary policy may lead to higher market volatility accompanied by a flight to quality and a scenario with falling equity and bond prices due to rising spread levels accompanied by even lower interest rates. Also, the potential for asset bubbles (as observed in the Chinese equity market) might spill over to other markets, contributing to increasing volatility. The persisting geopolitical risks, including the conflicts in the Middle East as well as between Russia and Ukraine and the resulting international sanctions against Russia, are manageable for the Allianz Group since our direct investment exposure to this region remains relatively small in the context of our overall investment port- folio. Nevertheless, we are monitoring these developments since a 10 Interim Report Second Quarter and First Half Year of 2015 Allianz Group significant deterioration may lead to spillover effects on global finan- cial markets, triggering indirect effects that may have a negative impact on our business and risk profile. Over the past years, Allianz Group and its operating entities have developed operational contin- gency plans for various crisis scenarios. We continue to conduct scenario analyses on a regular basis to bolster our financial and operational resilience to strong shock scenarios. In addition, we con- tinue to optimize our product design and pricing in the Life/Health business segment with respect to guarantees and surrender condi- tions. Continuous monitoring as well as prudent risk positions and contingency planning remain priorities for our management. regulatory developmentS In March 2014, the European Parliament approved the Solvency II “Omnibus II” directive, allowing the new risk-based solvency capital framework for the E.U. to proceed with a planned introduction date of January 2016. Although the European Commission’s draft for the del- egated regulation of Solvency II was approved and published in Janu- ary 2015, the interpretation of some of the important final require- ments remains unclear. This situation creates some uncertainty regarding Allianz’s ultimate Solvency II capital requirements, espe- cially under the application of our internal model in case the final rules deviate from our current understanding of these rules, e.g. the application of third country equivalence for the United States. Also the possibility of regulatory capital add-ons in the context of the approval process for Allianz’s internal model, which was submitted to regulators in the second quarter, increases the uncertainty sur- rounding future Solvency capital requirements. In addition to Solvency II uncertainty, the future capital require- ments applicable for G-SIIs are also unclear, contributing to uncer- tainty in terms of the ultimate capital requirements for Allianz. Finally, the potential for a multiplicity of different regulatory regimes, capital standards and reporting requirements will increase opera- tional complexity and costs. In any case, the Solvency II regime will lead to higher volatility in solvency ratios compared to Solvency I, due to the market value bal- ance sheet approach. Events after the balance sheet date For information on events after the balance sheet date, please refer to note 41 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook Other information recent organizational changeS For more information on recent organizational changes, please refer to note 4 to the condensed consolidated interim financial statements. Strategy The Allianz Group’s strategy is described in the Strategy and Steering chapter in our Annual Report 2014. There have been no material changes to our Group strategy. productS, ServiceS and SaleS channelS For an overview of the products and services offered by the Allianz Group as well as of sales channels, please refer to the Business Oper- ations and Markets chapter in our Annual Report 2014. Information on our brand can also be found in the Progress in Sustainable Devel- opment chapter in our Annual Report 2014. Sale of fireman’S fund perSonal inSurance BuSineSS On 1 April 2015, the Allianz Group closed the sale of the Fireman’s Fund personal insurance business to ACE Limited. The sale was an integral part of the reorganization of Allianz Group’s Property-Casu- alty insurance business in the United States. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations 11 Property-Casualty Insurance Operations second quarter 2015 − Gross premiums written up by 9.2 % to € 11.8 BN. − Operating profit grew 29.7 % to € 1,745 MN due to a strong underwriting result and the net gain from the sale of the Fireman’s Fund personal insurance business. − Combined ratio improved to 93.5 %. Business segment overview Key figures Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as motor, accident/disability, property and general liability. We conduct business worldwide in more than 70 countries. We are also a global leader in travel insurance, assistance services and credit insurance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels. key figures property-casualty € mn three months ended 30 June Gross premiums written Operating profit Net income Loss ratio in % Expense ratio in % 2015 11,843 1,745 1,344 65.7 27.8 2014 10,846 1,345 969 66.2 28.4 Combined ratio in % 93.5 94.6 Gross premiums written1 growth at Allianz Worldwide Partners, in Turkey and at AGCS excl. Fireman’s Fund. 2015 to 2014 second quarter comparison On a nominal basis, gross premiums written amounted to € 11,843 MN. Compared to the second quarter of 2014, we recorded a plus of € 997 MN, or 9.2 %. Favorable foreign currency effects were at € 574 MN, mainly due to the appreciation of the U.S. Dollar, the British Pound and the Swiss Franc against the Euro.2 Consolidation/deconsolida- tion effects were positive at € 253 MN, largely due to the acquisition of a part of the insurance business of UnipolSai and the takeover of the Property-Casualty insurance business of the Territory Insurance Office in Australia. Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2Q 2015 internal growth over 2Q 2014: Cluster 1: Overall growth – both price and volume effects are positive. Cluster 2: Overall growth – either price or volume effects are positive. On an internal basis, our gross premiums written increased by 1.6 %. We experienced a positive volume effect of 1.7 %, which was partly offset by a negative price effect of 0.2 %. We recorded strong Cluster 3: Overall decline – either price or volume effects are negative. Cluster 4: Overall decline – both price and volume effects are negative. 1 2 We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. Based on the average exchange rates in 2015 compared to 2014. 12 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook cluster 1 In Asia-Pacific, gross premiums increased to € 214 MN. The strong growth of 15.5 % on an internal basis was mainly driven by higher volumes in our motor and fire insurance business in Malaysia. At Allianz Worldwide Partners, we recorded gross premiums of € 852 MN – up 9.4 % on an internal basis. This mainly reflected positive volume effects in all our lines of business, in particular the U.S. travel business. In Portugal, gross premiums went up to € 70 MN. The internal growth of 4.6 % was largely due to positive price effects particularly in our workers compensation and motor business. In Australia, gross premiums were at € 783 MN. The main con- tributors to the 2.7 % increase on an internal basis were positive effects from our domestic motor and property business. cluster 2 In Turkey, gross premiums grew to € 309 MN. We expanded by 22.8 % on an internal basis, driven by a strong volume growth in our motor third-party liability insurance business and favorable effects in our health insurance business. In Latin America, gross premiums were at € 554 MN. The increase of 8.7 % on an internal basis was largely due to strong volume growth in our motor business in Argentina. Lower volumes in our health business in Brazil partly offset these effects. In Switzerland, gross premiums rose to € 189 MN. The internal growth of 5.9 % resulted from positive volume effects in our motor and legal assistance businesses. In Credit Insurance, gross premiums were at € 575 MN – an increase of 3.5 % on an internal basis. Positive volume effects in our growth markets were partly offset by negative price effects. At AGCS incl. FFIC, gross premiums stood at € 2,098 MN. The inter- nal growth of 2.0 % was entirely driven by positive volume effects, par- ticularly from new business in our engineering lines and at ART. This was burdened by negative volume impacts from the former Fireman’s Fund business portfolio. cluster 3 In Central and Eastern Europe, gross premiums declined by 14.8 % to € 465 MN on an internal basis. This was mostly driven by negative vol- ume effects due to the downscaling of our motor business in Russia. In Germany, gross premiums went down to € 1,755 MN. The decrease of 1.4 % on an internal basis was mainly caused by volume losses in our APR (accident insurance with premium refunds) busi- ness. However, this was partially offset by price effects in our motor business. cluster 4 In Italy, gross premiums decreased by 1.9 % to € 1,204 MN on an inter- nal basis. The main drivers were negative price and volume impacts from our motor and non-motor business, respectively. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations 2015 to 2014 first half-year comparison On a nominal basis, gross premiums written grew by 12.0 %. Adjusted for foreign currency translation and (de-)consolidation effects, this represents an increase of 2.8 %. This included a positive volume effect of 2.4 % and a positive price effect of 0.4 %. Operating profit operating profit € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Underwriting result 694 516 1,249 1,220 Operating investment income (net) 840 805 1,638 1,552 Other result1 212 24 143 62 Operating profit 1,745 1,345 3,030 2,835 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. 2015 to 2014 second quarter comparison Operating profit increased by € 400 MN to € 1,745 MN. This was mainly driven by a higher underwriting result and the net gain of € 0.2 BN from the sale of the Fireman’s Fund personal insurance business to ACE Limited. Based on lower losses from natural catastrophes and lower administrative expenses, our underwriting result grew by € 178 MN to € 694 MN and our combined ratio improved by 1.1 percentage points to 93.5 %. underwriting result € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Premiums earned (net) 11,553 10,701 23,072 21,111 Accident year claims (7,980) (7,453) (16,004) (14,432) Previous year claims (run-off) 388 367 761 619 Claims and insurance benefits incurred (net) (7,592) (7,086) (15,243) (13,813) Acquisition and administrative expenses (net) (3,208) (3,036) (6,456) (5,948) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (59) (63) (123) (129) Underwriting result 694 516 1,249 1,220 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. 13 Our accident year loss ratio stood at 69.1 % – a 0.6 percentage point improvement compared to the previous year’s second quarter. This was driven by a decrease in losses from natural catastrophes from € 172 MN to € 122 MN resulting in a lower impact on our combined ratio amounting to 1.1 percentage points compared to 1.6 percentage points in the same period of 2014. Excluding losses from natural catastrophes, our accident year loss ratio was stable at 68.0 %. This was the result of favorable develop- ments in our global lines and Central and Eastern Europe, offset by an attritional loss ratio deterioration in our Property-Casualty port- folios in Australia and the United Kingdom. The following operations contributed positively to the development of our accident year loss ratio: Germany: 0.7 percentage points. This was heavily driven by lower losses from natural catastrophes, as the second quarter of 2014 had been affected by losses caused by the storm Ela. In addition, large losses remained below last year’s level. Reinsurance: 0.4 percentage points. This improvement was due to a lower impact from natural catastrophes and large single losses. AGCS excl. FFIC: 0.4 percentage points. This was largely because of a lower impact from large losses that compensated for the higher losses from natural catastrophes. Credit Insurance: 0.3 percentage points. This improvement was the result of an overall favorable loss development due to the absence of larger single losses. The following operations contributed negatively to the development of our accident year loss ratio: Australia: 0.9 percentage points. Australia’s accident year loss ratio was heavily affected by claims from natural catastrophes, including storms and hail. Furthermore, attritional severity deterio- rated in motor and property. United Kingdom: 0.5 percentage points. This stemmed from an increased attritional severity in our motor portfolio and a higher impact from natural catastrophes compared to the second quarter of 2014. Latin America: 0.2 percentage points. This was mainly driven by Brazil, but a comprehensive turn-around program is ongoing. Our run-off result amounted to € 388 MN, compared to € 367 MN in the previous year’s second quarter – resulting in an unchanged run-off ratio of 3.4 %. This includes reserve releases across most of the port- folio and an offsetting 1.2 % negative impact from a strengthening of reserves for the former Fireman’s Fund portfolio – which is now inte- grated into AGCS. 14 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Total expenses amounted to € 3,208 MN in the second quarter of 2015 compared to € 3,036 MN in the same period of the previous year. Our expense ratio improved significantly by 0.6 percentage points to 27.8 %. This was mainly driven by a lower administrative expense ratio and partly due to one-off effects. operating investment income (net)1 € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Interest and similar income (net of interest expenses) 961 922 1,804 1,762 Operating income from financial assets and liabilities carried at fair value through income (net) (29) 1 33 16 Operating realized gains/losses (net) 58 29 138 55 Operating impairments of investments (net) (5) (1) (7) (6) Investment expenses (87) (74) (162) (144) Expenses for premium refunds (net)2 (59) (72) (168) (131) Operating investment income (net) 840 805 1,638 1,552 1 2 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial state- ments – and expenses for premium refunds (net) (policyholder participation) as shown in note 29 to the condensed consolidated interim financial statements. Refers to policyholder participation, mainly from APR (accident insurance with premium refunds) busi- ness, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. Operating investment income (net) increased by € 35 MN to € 840 MN due to higher interest and similar income, partly offset by a less favor- able foreign currency result net of hedging. Interest and similar income (net of interest expenses) grew by € 39 MN to € 961 MN. This was mainly driven by higher income from equities. The average asset base1 grew by 9.1 % from € 103.9 BN in the second quarter of 2014 to € 113.4 BN in the second quarter of 2015. Operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 30 MN to a loss of € 29 MN following a negative development in the foreign currency result net of hedging. Operating realized gains and losses (net) went up by € 29 MN to € 58 MN, largely due to higher realizations on debt instruments from the APR business in Germany compared to the second quarter in the previous year. Expenses for premium refunds (net) were down by € 13 MN to € 59 MN compared to the second quarter of the previous year. This improvement was mainly generated by lower policyholder participa- tion from our APR business. 1 Including French health business, excluding fair value option and trading. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations other result property-casualty Business segment information € mn € mn three months ended 30 June six months ended 30 June three months ended 30 June six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Fee and commission income 358 302 715 608 Gross premiums written1 11,843 10,846 29,182 26,063 Other income 237 11 251 39 Ceded premiums written (1,660) (936) (3,159) (2,163) Fee and commission expenses (336) (280) (680) (571) Change in unearned premiums 1,369 791 (2,951) (2,789) Other expenses (7) (8) (14) (14) Premiums earned (net) 11,553 10,701 23,072 21,111 Restructuring charges (40) – (130) (1) Interest and similar income 983 939 1,847 1,792 Other result 212 24 143 62 Operating income from financial assets and liabilities carried at fair value through income (net) (29) 1 33 16 Operating realized gains/losses (net) 58 29 138 55 Fee and commission income 358 302 715 608 We recorded a € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business, which is reported as other income. Other income Operating revenues 237 13,159 11 11,983 251 26,056 39 23,621 2015 to 2014 first half-year comparison Operating profit rose by € 195 MN to € 3,030 MN, which includes the aforementioned net sales gain of € 0.2 BN in the second quarter of 2015, partly offset by restructuring charges of € 93 MN for the Fireman’s Fund reorganization, mainly in the first quarter of 2015. The operating investment income (net) increased by € 86 MN to € 1,638 MN. Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) (7,592) (118) (21) (5) (7,086) (135) (17) (1) (15,243) (291) (43) (7) (13,813) (260) (29) (6) Our combined ratio worsened by 0.4 percentage points to 94.1 %. This was the result of a 0.4 percentage points higher impact from natural catastrophes as well as a deterioration in the attritional loss ratio. This negative development in the combined ratio was partially compensated for by a lower expense ratio and a higher contribution from run-off. Investment expenses Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation Fee and commission expenses Restructuring charges Other expenses (87) (3,208) (336) (40) (7) (74) (3,036) (280) – (8) (162) (6,456) (680) (130) (14) (144) (5,948) (571) (1) (14) Operating expenses (11,413) (10,638) (23,026) (20,787) Operating profit 1,745 1,345 3,030 2,835 Net income Non-operating items 130 85 130 (491) 2015 to 2014 second quarter comparison Net income was at € 1,344 MN – an increase of € 374 MN – mostly driven by the strong operating profit growth. Income before income taxes Income taxes Net income 1,876 (532) 1,344 1,430 (461) 969 3,160 (894) 2,266 2,343 (729) 1,614 2015 to 2014 first half-year comparison Net income grew by € 651 MN to € 2,266 MN benefiting from a lower one-off expense from the pension revaluation. Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 65.7 27.8 93.5 66.2 28.4 94.6 66.1 28.0 94.1 65.4 28.2 93.6 1 2 3 4 For the Property-Casualty business segment, total revenues are measured based upon gross premiums written. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Represents acquisition and administrative expenses (net), excluding one-off effects from pension revalua tion, divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effects from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). Interim Report Second Quarter and First Half Year of 2015 Allianz Group 15 Property-Casualty insurance operations by reportable segments – second quarter ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal1 three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 Germany Switzerland Austria German Speaking Countries 1,755 189 222 2,166 1,784 153 222 2,159 1,760 162 222 2,143 1,784 153 222 2,159 1,958 411 208 2,577 1,972 350 209 2,531 385 47 23 455 Italy2 France Benelux Turkey Greece Africa Western & Southern Europe3 1,204 913 263 309 26 18 2,734 1,012 904 261 257 27 14 2,475 992 913 263 316 26 18 2,528 1,012 904 261 257 27 14 2,475 1,182 993 267 235 21 16 2,714 970 976 267 227 22 14 2,475 263 131 31 21 5 – 452 Latin America Spain Portugal Iberia & Latin America 554 518 70 1,142 524 501 67 1,092 569 518 70 1,157 524 501 67 1,092 407 470 71 948 437 454 68 959 (22) 60 7 44 Allianz Global Corporate & Specialty4 AGCS excl. Fireman’s Fund Fireman’s Fund Reinsurance PC 5 Reinsurance PC excl. San Francisco RE San Francisco RE United Kingdom Credit Insurance Ireland United States6 Global Insurance Lines & Anglo Markets 2,098 1,534 564 936 936 – 808 575 123 – 4,540 1,265 1,265 – 684 684 – 694 530 116 497 3,785 1,795 1,340 455 918 918 – 716 549 123 – 4,101 1,760 1,263 497 684 684 – 694 530 116 – 3,783 1,166 874 292 1,023 1,023 – 583 390 104 – 3,265 744 744 – 756 756 – 587 365 94 420 2,968 227 125 102 227 219 9 37 123 (5) – 608 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe7 Asia-Pacific Australia8 Middle East and North Africa Growth Markets 46 103 62 77 80 51 26 19 1 465 214 783 23 1,485 148 103 61 74 74 46 23 22 4 555 165 704 19 1,442 56 101 62 77 80 51 26 19 1 473 190 723 19 1,405 148 103 61 74 74 46 23 22 4 555 165 704 19 1,442 65 88 57 66 69 42 18 17 1 422 131 593 15 1,162 139 87 57 67 61 38 14 19 2 484 107 536 12 1,140 3 4 8 13 7 5 2 3 – 43 28 80 4 155 Allianz Worldwide Partners9 852 689 753 689 887 628 31 Consolidation10 Total (1,075) 11,843 (795) 10,846 (1,071) 11,016 (792) 10,846 – 11,553 – 10,701 – 1,745 1 2 3 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. Effective 1 July 2014, the Allianz Group acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A., Bologna. Contains € 1 MN and € 2 MN operating profit for 2015 and 2014, respectively, from a management holding located in Luxembourg. 4 5 Effective 1 January 2015, Fireman’s Fund Insurance Company was integrated into AGCS Group. Previous period figures were not adjusted. The sale of the renewal rights for the personal insurance business was effective 1 April 2015. 2Q 2015 figures include the net gain on the sale of the personal insurance business to ACE Limited of € 0.2 BN. The results from the run-off portfolio included in San Francisco Reinsurance Company Corp., a former sub- sidiary of Fireman’s Fund Insurance Company, have been reported within Reinsurance PC since 1 January 2015. 16 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 324 48 25 397 245 108 20 15 3 (1) 393 4 64 7 75 102 102 – 130 130 – 49 124 8 (32) 382 (83) 5 7 11 6 2 1 2 – (52) 16 105 2 71 28 – 1,345 A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations % Combined ratio Loss ratio Expense ratio three months ended 30 June 2015 2014 2015 2014 2015 Germany Switzerland Austria German Speaking Countries 86.3 93.4 92.5 87.9 92.0 91.8 91.8 92.0 62.9 69.0 66.5 64.2 66.6 68.4 66.0 66.8 23.4 24.4 26.0 23.7 Italy2 France Benelux Turkey Greece Africa Western & Southern Europe3 85.8 95.3 97.9 99.8 78.4 105.1 91.7 82.8 97.0 100.3 101.2 91.5 112.9 92.2 59.2 66.8 69.9 76.4 50.0 60.4 64.4 55.9 67.0 69.8 78.6 55.5 56.8 63.8 26.6 28.6 28.0 23.4 28.4 44.7 27.3 Latin America Spain Portugal Iberia & Latin America 111.9 91.0 94.5 100.2 104.4 90.0 94.3 96.9 74.4 70.5 70.6 72.2 72.7 69.5 70.9 71.1 37.5 20.5 23.9 28.0 Allianz Global Corporate & Specialty4 AGCS excl. Fireman’s Fund Fireman’s Fund Reinsurance PC 5 Reinsurance PC excl. San Francisco RE San Francisco RE United Kingdom Credit Insurance Ireland United States6 Global Insurance Lines & Anglo Markets 110.9 94.8 159.0 83.2 82.9 – 98.4 75.7 110.7 – 95.8 97.4 97.4 – 86.4 86.4 – 96.4 75.0 98.3 121.1 95.1 80.6 67.4 120.3 55.6 55.6 – 68.6 45.2 82.7 – 66.5 70.3 70.3 – 59.1 59.1 – 63.9 44.4 68.5 81.9 64.6 30.3 27.4 38.8 27.6 27.3 – 29.8 30.5 28.0 – 29.4 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe7 Asia-Pacific Australia8 Middle East and North Africa Growth Markets 106.7 100.4 99.5 83.5 91.0 93.5 92.7 88.5 115.8 96.0 91.5 95.3 90.3 95.1 165.3 99.0 100.7 87.9 93.2 100.8 96.9 95.0 116.3 116.0 93.4 90.7 98.4 101.8 60.9 66.7 59.6 51.9 63.9 64.0 56.6 53.9 63.0 60.8 57.9 68.5 60.6 64.4 118.1 64.2 63.1 57.4 64.5 71.6 68.1 53.8 58.4 79.0 64.3 65.4 67.1 71.1 45.9 33.7 39.9 31.6 27.1 29.5 36.2 34.6 52.8 35.2 33.6 26.9 29.7 30.7 Allianz Worldwide Partners9 97.0 96.5 66.1 64.6 30.9 Consolidation10 Total – 93.5 – 94.6 – 65.7 – 66.2 – 27.8 6 7 8 Previous period figures for United States were not adjusted and include the prior year’s business of Fireman’s Fund Insurance Company. Contains income and expense items from a management holding and consolidations between countries in this region. Effective 1 January 2015, the Allianz Group acquired the Property-Casualty insurance business of the Territory Insurance Office (TIO business), Darwin. 9 10 The reportable segment Allianz Worldwide Partners includes the Global Assistance business as well as the business of Allianz Worldwide Care and the reinsurance business of Allianz Global Automotive in addition to income and expenses from a management holding. At year-end 2014, our French International Health business was reclassified from Life/Health to the Property-Casualty business segment. Represents elimination of transactions between Allianz Group companies in different geographic regions. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 25.4 23.5 25.8 25.1 27.0 30.0 30.5 22.7 36.0 56.2 28.4 31.7 20.5 23.4 25.8 27.1 27.1 – 27.3 27.3 – 32.5 30.6 29.9 39.2 30.5 47.2 34.8 37.5 30.5 28.6 29.2 28.8 41.2 57.9 37.0 29.1 25.3 31.3 30.7 31.9 – 28.4 17 Property-Casualty insurance operations by reportable segments – first half year ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal1 six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Germany Switzerland Austria German Speaking Countries 5,974 1,259 574 7,806 5,874 1,096 572 7,543 5,956 1,098 574 7,628 5,874 1,096 572 7,543 3,867 833 412 5,113 3,842 719 418 4,980 603 116 45 764 654 109 41 805 Italy2 France Benelux Turkey Greece Africa Western & Southern Europe3 2,379 2,443 668 627 54 63 6,233 1,973 2,346 660 547 58 56 5,639 1,951 2,436 668 605 54 63 5,776 1,973 2,412 660 547 58 56 5,705 2,358 1,986 533 474 41 34 5,426 1,928 1,952 534 441 45 30 4,928 511 247 48 46 8 5 867 459 235 42 39 10 3 792 Latin America Spain Portugal Iberia & Latin America 1,071 1,173 196 2,440 923 1,115 184 2,221 1,077 1,173 196 2,445 923 1,115 184 2,221 821 933 140 1,894 846 894 135 1,875 (16) 116 12 112 45 130 12 187 Allianz Global Corporate & Specialty4 AGCS excl. Fireman’s Fund Fireman’s Fund Reinsurance PC 5 Reinsurance PC excl. San Francisco RE San Francisco RE United Kingdom Credit Insurance Ireland United States6 Global Insurance Lines & Anglo Markets7 4,480 3,454 1,026 3,040 3,040 – 1,555 1,226 262 – 10,564 2,853 2,853 – 2,252 2,252 – 1,332 1,142 235 912 8,727 3,902 3,066 836 3,012 3,012 – 1,388 1,172 262 – 9,735 3,759 2,847 912 2,252 2,252 – 1,332 1,142 235 – 8,721 2,491 1,722 769 2,011 2,011 – 1,144 793 206 – 6,645 1,465 1,465 – 1,504 1,504 – 1,147 744 184 825 5,870 272 282 (10) 349 332 16 77 239 39 – 974 245 245 – 292 292 – 78 236 14 (9) 856 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe8 Asia-Pacific Australia9 Middle East and North Africa Growth Markets 127 212 148 183 161 106 43 53 3 1,034 426 1,469 48 2,977 379 215 149 181 148 99 39 51 9 1,268 348 1,278 39 2,933 173 210 148 183 161 106 43 53 4 1,081 378 1,343 40 2,843 379 215 149 181 148 99 39 51 9 1,268 348 1,278 39 2,933 133 171 110 132 130 81 36 36 2 830 259 1,178 31 2,299 290 173 111 131 118 73 30 38 4 967 207 1,056 24 2,255 – 5 12 29 16 8 5 5 – 76 54 112 6 248 (133) 9 11 30 20 4 6 5 (1) (53) 39 156 3 146 Allianz Worldwide Partners10 2,453 1,474 2,246 2,059 1,696 1,204 65 49 Consolidation11 Total (3,290) 29,182 (2,473) 26,063 (3,283) 27,389 (2,533) 26,648 – 23,072 – 21,111 – 3,030 – 2,835 1 2 3 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. Effective 1 July 2014, the Allianz Group acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A., Bologna. Contains € 3 MN and € 4 MN operating profit for 2015 and 2014, respectively, from a management holding located in Luxembourg. 4 5 Effective 1 January 2015, Fireman’s Fund Insurance Company was integrated into AGCS Group. Previous period figures were not adjusted. The sale of the renewal rights for the personal insurance business was effective 1 April 2015. 6M 2015 figures include the net gain on the sale of the personal insurance business to ACE Limited of € 0.2 BN. The results from the run-off portfolio included in San Francisco Reinsurance Company Corp., a former sub- sidiary of Fireman’s Fund Insurance Company, have been reported within Reinsurance PC since 1 January 2015. 18 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations % Combined ratio Loss ratio Expense ratio six months ended 30 June 2015 2014 2015 2014 2015 Germany Switzerland Austria German Speaking Countries 92.1 91.3 93.4 92.1 91.3 90.4 93.9 91.4 67.6 68.1 66.8 67.7 65.7 67.6 67.4 66.1 24.4 23.2 26.6 24.4 Italy2 France Benelux Turkey Greece Africa Western & Southern Europe3 84.6 95.0 97.6 100.4 85.2 92.2 91.2 83.3 95.3 99.2 98.7 81.1 93.5 91.2 58.0 66.7 69.1 76.6 53.1 58.4 63.9 56.7 67.0 69.1 75.8 47.3 55.3 63.8 26.6 28.3 28.5 23.8 32.1 33.8 27.3 Latin America Spain Portugal Iberia & Latin America 108.9 91.3 95.2 99.2 103.0 89.6 95.3 96.0 73.4 70.7 71.8 72.0 71.4 69.1 72.5 70.4 35.5 20.5 23.4 27.2 Allianz Global Corporate & Specialty4 AGCS excl. Fireman’s Fund Fireman’s Fund Reinsurance PC 5 Reinsurance PC excl. San Francisco RE San Francisco RE United Kingdom Credit Insurance Ireland United States6 Global Insurance Lines & Anglo Markets7 104.9 93.6 130.1 87.3 87.1 – 98.0 77.0 87.9 – 94.6 94.7 94.7 – 84.1 84.1 – 98.0 76.4 99.6 114.3 93.3 73.5 65.5 91.4 58.5 58.5 – 67.7 48.1 58.8 – 64.5 67.4 67.4 – 56.2 56.2 – 66.0 46.8 67.8 76.4 62.9 31.4 28.2 38.7 28.8 28.6 – 30.3 29.0 29.0 – 30.1 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe8 Asia-Pacific Australia9 Middle East and North Africa Growth Markets 108.8 101.8 101.3 83.2 91.2 95.7 89.9 93.3 110.5 97.1 91.8 99.2 91.8 97.5 152.0 99.3 102.9 82.0 84.9 101.5 83.7 93.0 122.2 111.0 89.0 95.1 98.5 101.4 68.3 68.1 59.8 52.5 64.1 66.1 56.6 56.7 58.9 62.7 60.0 72.7 59.6 67.5 104.3 64.9 62.6 51.4 56.8 71.6 57.6 54.1 60.7 73.5 59.6 70.3 64.2 70.6 40.6 33.7 41.5 30.7 27.1 29.6 33.3 36.6 51.6 34.4 31.8 26.5 32.1 30.0 Allianz Worldwide Partners10 97.1 96.6 66.1 64.4 31.0 Consolidation11 Total – 94.1 – 93.6 – 66.1 – 65.4 – 28.0 6 7 8 9 Previous period figures for United States were not adjusted and include the prior year’s business of Fireman’s Fund Insurance Company. Contains € (2) MN and € 0 MN operating loss for 2015 and 2014, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. Effective 1 January 2015, the Allianz Group acquired the Property-Casualty insurance business of the Territory Insurance Office (TIO business), Darwin. 10 11 The reportable segment Allianz Worldwide Partners includes the Global Assistance business as well as the business of Allianz Worldwide Care and the reinsurance business of Allianz Global Automotive in addition to income and expenses from a management holding. At year-end 2014, our French International Health business was reclassified from Life/Health to the Property-Casualty business segment. Represents elimination of transactions between Allianz Group companies in different geographic regions. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 25.6 22.8 26.6 25.3 26.6 28.3 30.1 22.9 33.7 38.3 27.4 31.5 20.5 22.7 25.6 27.3 27.3 – 28.0 28.0 – 32.0 29.6 31.8 37.8 30.4 47.7 34.5 40.3 30.6 28.1 29.8 26.1 38.8 61.5 37.6 29.4 24.8 34.3 30.8 32.2 – 28.2 19 Life/Health Insurance Operations second quarter 2015 − Statutory premiums decreased 1.4 % to € 16.7 bn. − Operating profit decreased by € 132 mn to € 853 mn. Business segment overview Key figures Allianz offers a broad range of life, health, savings and invest- ment-oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products to both retail and corporate clients. As one of the worldwide market leaders in life business, we serve customers in more than 45 countries. Key figures life/health € mn three months ended 30 June Statutory premiums1 Operating profit1 Net income1 2015 16,719 853 662 2014 16,961 985 731 Margin on reserves (bps)1,2 58 79 Statutory premiums3,4 2015 to 2014 second quarter comparison In the second quarter of 2015, our statutory premiums amounted to € 16,719 mn, a decrease of € 242 mn. On an internal basis4, premiums decreased by 6.0 % or € 1,013 mn. This excludes favorable foreign cur- rency translation effects of € 907 mn and adverse consolidation/ deconsolidation effects of € 137 mn from the transfer – effective 1 Jan- uary 2014 – of our French International Health business to the report- able segment Allianz Worldwide Partners in the business segment Property-Casualty in the fourth quarter of 2014. Overall, we recorded a drop in fixed-indexed annuity premiums in the United States and lower premiums in the traditional life busi- ness in Germany. This more than offset the premium growth in the unit-linked business stemming from Taiwan and Italy. As a result of the change in product strategy, premiums shifted towards unit- linked and capital efficient products. In our German life business, premiums decreased 8.7 % to € 4,063 mn. This was due to lower single premium business, with reduced sales of traditional life products – comprising interest rate guarantees – and capitalization products partly offset by slightly increased business with regular premiums. Statutory premiums in our German health business grew 0.4 % to € 816 mn. This was mainly because of premium rate increases in full health care coverage in January 2015 and was supported by a slight increase in our supple- mentary coverage insurance. Premiums in the United States amounted to € 2,592 mn, repre- senting a decline of 37.6 %. This was driven by lower fixed-indexed annuity sales due to the impact of pricing changes in response to the decreasing interest rate environment in the first half of 2015. We also recorded exceptionally high premiums resulting from an innovative index strategy and strong penetration into the broker and dealer channel in the second quarter of 2014. 1 2 In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners effective 1 January 2014. Represents annualized operating profit divided by the average of the current quarter-end and previous quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information. 20 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook Premiums in Italy increased 9.7 % to € 3,366 mn. This was particu- larly due to the strong growth of our unit-linked business across all distribution channels. Along with a decrease in traditional life busi- ness, the share of unit-linked premiums of total statutory premiums increased significantly. Premiums in France increased 0.9 % to € 1,955 mn. This was largely attributable to our individual life business where we recorded growth in unit-linked products, while business resulting from cooperation between Allianz companies in France and Luxembourg decreased compared to the second quarter of 2014. In Asia-Pacific, premiums grew 23.0 % to € 1,931 mn. This was mainly due to increased sales of single premium unit-linked products distributed via bancassurance in Taiwan. In Switzerland, premiums totaled € 262 mn. The decrease of 18.7 % was primarily driven by lower single premium business in group life. In Benelux, we recorded premiums of € 543 mn, a decrease of 4.9 %. This was mainly because of lower single premium business associated with the cooperation between Allianz companies in France and Luxembourg. Premiums in Spain increased 19.1 % to € 345 mn. We recorded strong growth in regular premiums in all business lines mainly driven by traditional life products distributed via the bancassurance channel. This growth was also supported by risk and unit-linked products. Premiums in Central and Eastern Europe decreased 10.5 % to € 219 mn. This was mainly driven by lower unit-linked business in the Czech Republic and Hungary, partly offset by higher unit-linked busi- ness in Poland. 2015 to 2014 first half-year comparison Statutory premiums were 4.2 % above the first half year of 2014 and amounted to € 35,540 mn. This represents a decrease of 0.5 % on an internal basis. It was largely driven by decreased single premium fixed-indexed annuity sales in the United States, lower traditional life business in Germany and reduced business resulting from coopera- tion between Allianz companies in France and Luxembourg. This was largely offset by increased unit-linked business in Italy and Taiwan. Premiums earned (net) 2015 to 2014 second quarter comparison Premiums earned (net) decreased by € 288 mn to € 5,710 mn. This was in particular due to lower business with traditional life products in Germany and the transfer of our French International Health busi- ness to the reportable segment Allianz Worldwide Partners. Favorable foreign currency translation effects from most major currencies (U.S. Dollar and Asian currencies) partly compensated for the decrease. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations 2015 to 2014 first half-year comparison Premiums earned (net) increased by € 188 mn to € 12,463 mn. This was mainly due to higher sales in Asia-Pacific. Favorable foreign currency translation effects from most major currencies also contributed to this growth. Present value of new business premiums (PVNBP)1 2015 to 2014 second quarter comparison PVNBP decreased by € 984 mn to € 15,170 mn. This was driven by a drop in our guaranteed savings & annuities line of business primarily due to some large contracts in the second quarter of 2014 in Italy and decreased fixed-indexed annuity sales in the United States. The PVnbP share of guaranteed savings & annuities decreased mainly in favor of the unit- linked without guarantee line of business, where we recorded an increase mainly in Italy. present value of new business premiums (pvnbp) by lines of business three months ended 30 June 2015 [30 June 2014] in % Unit-linked without guarantee 28.5 [18.0] Protection & health 9.2 [7.5] Guaranteed savings & annuities 62.3 [74.6] 2015 to 2014 first half-year comparison PVNBP increased by € 2,890 mn to € 34,145 mn. This was mainly driven by an increase in our unit-linked without guarantee line of business, where we recorded higher single premiums in Italy and Asia-Pacific. This was partly offset by a decrease in our guaranteed savings & annu- ities line of business in the second quarter of 2015. The PVnbP share of unit-linked without guarantee line of business increased to 25.1 % of total PVnbP. 1 PVNBP before non-controlling interests. 21 Operating profit operating profit by profit sources The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. operating profit by profit sources € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Loadings and fees 1,411 1,287 2,852 2,559 Investment margin 834 922 1,836 1,592 Expenses (1,624) (1,657) (3,283) (3,178) Technical margin 295 269 596 539 Impact of change in dac (63) 163 (44) 352 Operating profit 853 985 1,957 1,864 2015 to 2014 second quarter comparison Our operating profit decreased by € 132 mn to € 853 mn. This was driven by the German life business, mainly due to a lower investment margin as a result of negative fair value changes, and reserve strengthening in South Korea. It was partly offset by a higher investment spread margin due to an increased asset base in the United States and favor- able foreign currency translation effects. 2015 to 2014 first half-year comparison Our operating profit increased by € 92 mn to € 1,957 mn. This was mainly due to higher loadings and fees in the first half year of 2015 – a result of increased sales in Asia-Pacific and increased fees earned in Italy. It was also because of a higher investment spread margin, due to an increased asset base, and favorable interest rate movements in the United States. Unfavorable impacts of change in DAC – largely due to the higher DAC amortization associated with our variable annuity business in the United States – partly offset this increase. 22 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Loadings and fees Loadings and fees includes premium and reserve based fees, unit- linked management fees and policyholder participation in expenses. loadings and fees € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Loadings from premiums 932 865 1,883 1,723 Loadings from reserves 287 266 571 532 Unit-linked management fees 192 156 398 303 Loadings and fees 1,411 1,287 2,852 2,559 Loadings from premiums as % of statutory premiums 5.6 5.1 5.3 5.0 Loadings from reserves as % of average reserves1,2 0.1 0.1 0.1 0.1 Unit-linked management fees as % of average unit-linked reserves2,3 0.2 0.1 0.3 0.3 1 2 3 Aggregate policy reserves and unit-linked reserves. Yields are pro-rata. Unit-linked management fees, excluding Asset Management fees, divided by unit-linked reserves. 2015 to 2014 second quarter comparison Our loadings and fees increased by € 124 mn to € 1,411 mn. This was driven by favorable foreign currency translation effects, sales growth in Taiwan and increased unit-linked management fees in Italy. The increase in loadings from premiums by € 67 mn to € 932 mn was largely due to increased premiums in Taiwan, favorable foreign currency translation effects and the positive impact of lower volumes of products with sales inducements in the United States. Loadings from premiums as a percentage of statutory premiums increased by 47 basis points, mainly due to a higher weight of regular premiums in Germany. The increase in loadings from reserves by € 21 mn to € 287 mn was primarily due to favorable foreign currency translation effects. The growth in unit-linked management fees by € 36 mn to € 192 mn was largely driven by higher assets under management in Italy. 2015 to 2014 first half-year comparison Our loadings and fees increased by € 293 mn to € 2,852 mn. This was primarily due to higher sales in Asia-Pacific, the positive impact of lower volumes of products with sales inducements in the United States and increased unit-linked management fees earned in Italy. Favorable foreign currency translation effects supported the increase. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Investment margin The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder par- ticipation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business). 2015 to 2014 first half-year comparison Our investment margin increased by € 244 mn to € 1,836 mn. This was largely driven by a higher investment spread margin, due to an increased asset base, and favorable interest rate movements in the United States, aside from positive foreign currency translation effects. investment margin € mn three months ended 30 June six months ended 30 June Expenses Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. 2015 2014 2015 2014 Interest and similar income 4,846 4,472 9,272 8,631 expenses Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) (1,272) 1,606 (37) 754 (688) 4,044 (305) 1,581 € mn three months ended 30 June six months ended 30 June Interest expenses (25) (24) (52) (48) 2015 2014 2015 2014 Operating impairments of investments (net) (108) (49) (195) (340) Acquisition expenses and commissions Administrative and other expenses (1,185) (439) (1,238) (419) (2,434) (849) (2,389) (789) Investment expenses (245) (232) (472) (427) Expenses (1,624) (1,657) (3,283) (3,178) Other1 (33) 112 191 219 Technical interest Policyholder participation (2,379) (1,556) (2,161) (1,913) (4,661) (5,604) (4,323) (3,394) Acquisition expenses and commissions as % of pvnbp1 (7.8) (7.7) (7.1) (7.6) Investment margin 834 922 1,836 1,592 Administrative and other expenses as % of average reserves2,3 (0.1) (0.1) (0.2) (0.2) Investment margin2,3 in basis points 21 25 46 1 2 3 Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income and expenses excluding unit-linked management fees. Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves. Yields are pro-rata. 2015 to 2014 second quarter comparison Our investment margin decreased by € 88 mn to € 834 mn. This was mainly due to a lower operating investment result and higher policy- holder participation ratio in Germany as well as reserve strengthen- ing in South Korea. Partly offset by a higher investment spread margin due to an increased asset base in the United States and positive for- eign currency translation effects this resulted in a decrease to 21 basis points in the investment margin as a percentage of reserves. 44 1 2 3 PVNBP before non-controlling interests. Aggregate policy reserves and unit-linked reserves. Yields are pro-rata. 2015 to 2014 second quarter comparison Our expenses decreased by € 33 mn to € 1,624 mn. Lower expenses due to decreased business in the United States and fewer expenses in France more than offset higher expenses due to increased sales in Taiwan and adverse foreign currency translation effects. 2015 to 2014 first half-year comparison Our expenses increased by € 105 mn to € 3,283 mn. This was largely due to an increase in line with sales growth in Italy and Taiwan. In Germany, higher realized gains on debt and equity invest- ments partly compensated for a negative valuation impact related to duration management derivatives due to increased interest rates and unfavorable impacts from the net of foreign currency effects and financial derivatives to manage respective foreign currency fluctua- tions. In addition, a different pattern of investment result led to a higher policyholder participation ratio in our German life business. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 23 Technical margin Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. 2015 to 2014 second quarter comparison Our technical margin improved from € 269 mn to € 295 mn. This was driven by a favorable development of the disability result in Switzer- land and a positive base effect – the total effect of the first six months of 2014 was recorded in the second quarter of 2014 – of a regulatory change (“Lebensversicherungsreformgesetz”) for the German life business to increase policyholder participation in the technical mar- gin. 2015 to 2014 first half-year comparison Our technical margin increased from € 539 mn to € 596 mn, mainly driven by an improved risk margin in Switzerland. Impact of change in dac Impact of change in DAC (deferred acquisition costs) includes effects of change in DAC, unearned revenue reserves (URR) and value of busi- ness acquired (VObA), and is the net impact of deferral and amortiza- tion of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements. impact of change in dac € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Capitalization of dac 440 558 897 1,004 Amortization, unlocking and true-up of dac (503) (395) (941) (652) Impact of change in DAC (63) 163 (44) 352 2015 to 2014 second quarter comparison The impact of change in DAC turned from € 163 mn to minus € 63 mn. This was primarily driven by our business in the United States, with lower capitalization of DAC due to decreased sales in our fixed- indexed annuity business and a higher DAC amortization in relation to our variable annuity business as a result of increased interest rates. 24 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2015 to 2014 first half-year comparison The impact of change in DAC turned from € 352 mn to minus € 44 mn. This change was largely due to higher DAC amortization associated with our variable annuity business and a lower capitalization of DAC in the fixed-indexed annuity business in the United States. operating profit by lines of business operating profit by lines of business € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Guaranteed savings & annuities 643 727 1,401 1,358 Protection & health 119 177 343 353 Unit-linked without guarantee 91 81 214 154 Operating profit 853 985 1,957 1,864 2015 to 2014 second quarter comparison The operating profit decrease in the guaranteed savings & annuities line of business was largely driven by a lower operating investment result in Germany. Operating profit in the protection & health line of business declined, mainly driven by South Korea. Operating profit in the unit-linked without guarantee line of business increased, primarily due to higher fees earned in Italy. 2015 to 2014 first half-year comparison Our operating profit in the unit-linked without guarantee line of busi- ness increased, primarily due to higher unit-linked management fees in Italy. Growth in the guaranteed savings & annuities line of business was mainly driven by Italy, due to higher realized gains. margin on reserves 2015 to 2014 second quarter comparison In the second quarter of 2015, our annualized margin on reserves dropped from 79 to 58 basis points. This was mainly due to the decreased investment margin. 2015 to 2014 first half-year comparison Our annualized margin on reserves decreased to 70 basis points (6m 2014: 76 basis points) in the first six months of 2015. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook Net income 2015 to 2014 second quarter comparison Our net income decreased by € 70 mn to € 662 mn. This was mainly driven by lower operating profit and slightly offset by higher non- operating income due to a risk capital hedge in the United States. The effective tax rate was 29.2 % (2Q 2014: 29.6 %). 2015 to 2014 first half-year comparison Our net income increased by € 41 mn to € 1,401 mn. This was mainly driven by higher operating profit in the first quarter of 2015. The effective tax rate was 29.9 % (6m 2014: 29.3 %). Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations life/health business segment information1 € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Statutory premiums2 16,719 16,961 35,540 34,124 Ceded premiums written (263) (225) (417) (386) Change in unearned premiums (62) (57) (135) (240) Statutory premiums (net) 16,394 16,679 34,989 33,497 Deposits from insurance and investment contracts (10,684) (10,680) (22,526) (21,222) Premiums earned (net) 5,710 5,999 12,463 12,275 Loadings and fees 1,411 1,287 2,852 2,559 Loadings from premiums 932 865 1,883 1,723 Loadings from reserves 287 266 571 532 Unit-linked management fees 192 156 398 303 Investment margin (net of policyholder participation) 834 922 1,836 1,592 Expenses (1,624) (1,657) (3,283) (3,178) Acquisition expenses and commissions (1,185) (1,238) (2,434) (2,389) Administrative and other expenses (439) (419) (849) (789) Technical margin 295 269 596 539 Operating profit before change in DAC 916 822 2,001 1,512 Impact of change in DAC3 (63) 163 (44) 352 Capitalization of dac 440 558 897 1,004 Amortization, unlocking and true-up of dac (503) (395) (941) (652) Operating profit 853 985 1,957 1,864 Non-operating items 81 54 43 58 Income before income taxes 935 1,039 2,000 1,923 Income taxes (273) (308) (599) (562) Net income 662 731 1,401 1,360 Margin on reserves4 in basis points 58 79 70 76 1 2 3 4 Profit sources are based on in-scope operating entities with coverage of 97.0 % of statutory premiums in the first half year of 2015. Operating profit from operating entities that are not in scope is included in investment margin. Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Impact of change in DAC includes effects of change in DAC, URR and VOBA, and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the financial statements. Represents annualized operating profit divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 25 life/health operating profit by profit sources and lines of business1 € mn Life/Health three months ended 30 June 2015 Loadings from premiums 932 Loadings from reserves 287 Unit-linked management fees 192 Loadings and fees 1,411 Investment margin (net of policyholder participation) 834 Acquisition expenses and commissions (1,185) Administrative and other expenses (439) Expenses (1,624) Technical margin 295 Operating profit before change in DAC 916 Capitalization of dac 440 Amortization, unlocking and true-up of dac (503) Impact of change in DAC2 (63) Operating profit 853 1 Profit sources are based on in-scope operating entities with coverage of 97.0 % of statutory premiums in the first half year of 2015. Operating profit from operating entities that are not in scope is included in investment margin. life/health operating profit by profit sources and lines of business1 € mn Life/Health six months ended 30 June 2015 Loadings from premiums 1,883 Loadings from reserves 571 Unit-linked management fees 398 Loadings and fees 2,852 Investment margin (net of policyholder participation) 1,836 Acquisition expenses and commissions (2,434) Administrative and other expenses (849) Expenses (3,283) Technical margin 596 Operating profit before change in DAC 2,001 Capitalization of dac 897 Amortization, unlocking and true-up of dac (941) Impact of change in DAC2 (44) Operating profit 1,957 1 Profit sources are based on in-scope operating entities with coverage of 97.0 % of statutory premiums in the first half year of 2015. Operating profit from operating entities that are not in scope is included in investment margin. 26 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Guaranteed savings & annuities Protection & health Unit-linked without guarantee 2014 2015 2014 2015 2014 2015 2014 865 449 416 408 385 75 65 266 244 236 25 19 18 11 156 81 63 – – 110 93 1,287 774 714 433 404 203 169 922 857 857 (38) 48 15 18 (1,238) (722) (829) (317) (314) (146) (95) (419) (279) (286) (120) (99) (40) (34) (1,657) (1,001) (1,114) (438) (413) (185) (129) 269 121 128 150 123 25 18 822 751 585 107 162 58 75 558 276 401 99 127 66 31 (395) (383) (259) (87) (112) (33) (25) 163 (108) 142 12 15 33 6 985 643 727 119 177 91 81 2 Impact of change in DAC includes effects of change in DAC, URR and VOBA, and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the financial statements. Guaranteed savings & annuities Protection & health Unit-linked without guarantee 2014 2015 2014 2015 2014 2015 2014 1,723 939 861 794 737 150 124 532 487 472 50 39 34 21 303 159 125 – – 239 179 2,559 1,585 1,458 844 776 423 324 1,592 1,772 1,492 32 74 32 26 (2,389) (1,519) (1,600) (634) (607) (281) (183) (789) (542) (534) (225) (189) (81) (66) (3,178) (2,062) (2,133) (859) (796) (362) (249) 539 238 238 306 261 52 40 1,512 1,533 1,055 323 315 145 142 1,004 572 741 199 204 127 59 (652) (705) (439) (179) (166) (58) (48) 352 (133) 302 20 38 69 12 1,864 1,401 1,358 343 353 214 154 2 Impact of change in DAC includes effects of change in DAC, URR and VOBA, and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the financial statements. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Life/Health insurance operations by reportable segments – second quarter Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps) internal3 three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 Germany Life Germany Health Switzerland Austria German Speaking Countries 4,063 816 262 92 5,232 4,448 813 275 89 5,624 4,063 816 224 92 5,194 4,448 813 275 89 5,624 2,364 815 87 65 3,331 2,658 812 120 65 3,654 95 55 24 (2) 172 321 52 21 11 405 18 76 56 (12) 26 Italy France4 Benelux Greece Turkey Africa Western & Southern Europe 3,366 1,955 543 27 243 19 6,153 3,069 2,075 571 22 205 14 5,955 3,366 1,955 543 27 248 19 6,158 3,069 1,938 571 22 205 14 5,818 111 785 123 15 47 11 1,093 108 911 130 13 35 6 1,203 102 165 34 (4) 14 1 312 77 93 36 (1) 8 2 215 66 75 80 (573) 187 161 73 Latin America Spain Portugal Iberia & Latin America 106 345 44 494 90 289 72 452 102 345 44 491 90 289 72 452 57 129 21 207 50 123 21 193 2 49 6 57 2 46 6 54 84 236 377 227 United States USA 2,592 2,592 3,352 3,352 2,092 2,092 3,352 3,352 286 286 232 232 297 297 202 202 117 117 Reinsurance LH Global Insurance Lines & Anglo Markets 158 158 142 142 90 90 142 142 96 96 102 102 13 13 18 18 295 295 South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific5 Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe5 Middle East and North Africa Global Life Growth Markets 469 867 176 115 – 303 1,931 53 61 28 28 16 16 11 7 219 51 – 2,201 410 436 170 106 – 206 1,329 37 63 43 56 13 18 10 7 248 39 – 1,615 404 717 161 105 – 248 1,634 52 61 28 28 19 16 11 7 222 43 – 1,899 410 436 170 106 – 206 1,329 37 63 43 56 13 18 10 7 248 39 – 1,615 137 69 78 50 2 179 514 22 51 13 16 16 16 10 4 146 38 – 698 134 42 86 48 2 135 446 17 50 12 18 13 18 8 3 141 27 – 614 (94) 1 20 4 – 26 (39) 7 5 5 3 1 5 2 2 28 7 (1) (4) 10 – 16 3 – 18 47 14 8 3 4 – 5 3 1 37 6 – 90 (291) 7 498 94 –6 226 (53) 460 146 457 224 132 519 544 782 304 335 –6 (5) Consolidation7 Total (111) 16,719 (179) 16,961 (111) 15,811 (179) 16,824 – 5,710 – 5,999 6 853 – 985 –6 58 1 2 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents annualized operating profit divided by the average of the current quarter-end and previous quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 5 6 7 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casualty effective 1 January 2014. Contains income and expense items from management holdings, an associated entity in Asia-Pacific and consolidations between countries in these regions. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geographic regions. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 67 78 61 99 68 59 46 91 (107) 144 240 57 94 253 411 247 108 108 380 380 40 –6 525 95 –6 214 82 1,060 247 348 243 –6 569 732 685 422 357 –6 133 –6 79 27 Life/Health insurance operations by reportable segments – first half year Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps) internal3 six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 Germany Life Germany Health Switzerland Austria German Speaking Countries 8,851 1,630 1,369 210 12,060 9,427 1,621 1,226 206 12,480 8,851 1,630 1,195 210 11,885 9,427 1,621 1,226 206 12,480 5,501 1,630 327 168 7,625 5,588 1,621 354 154 7,717 519 108 41 21 688 596 76 42 23 737 50 76 53 84 53 Italy France4 Benelux Greece Turkey Africa Western & Southern Europe 7,072 4,095 1,330 54 503 34 13,088 5,438 4,547 1,654 46 366 30 12,082 7,072 4,095 1,330 54 485 34 13,070 5,438 4,265 1,654 46 366 30 11,800 237 1,638 254 29 93 17 2,269 239 1,751 260 27 66 14 2,356 185 299 72 (6) 24 3 577 124 237 67 (1) 12 3 444 62 70 87 (402) 168 176 70 Latin America Spain Portugal Iberia & Latin America 194 747 130 1,071 162 642 124 928 185 747 130 1,062 162 642 124 928 84 230 41 355 77 224 41 342 7 95 10 112 3 94 9 106 130 238 333 232 United States USA 5,291 5,291 5,908 5,908 4,308 4,308 5,908 5,908 567 567 459 459 461 461 372 372 97 97 Reinsurance LH Global Insurance Lines & Anglo Markets 293 293 267 267 142 142 267 267 212 212 184 184 30 30 29 29 329 329 South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific5 Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe5 Middle East and North Africa Global Life Growth Markets 915 1,529 358 230 – 602 3,634 103 124 57 62 24 39 28 13 451 103 2 4,189 802 938 304 202 – 422 2,668 86 128 81 89 28 41 19 12 483 79 2 3,231 780 1,287 323 208 – 495 3,093 102 124 57 63 33 39 28 13 459 89 2 3,643 802 938 304 202 – 422 2,668 86 128 81 89 28 41 19 12 483 79 2 3,231 270 135 150 110 4 398 1,065 42 100 24 33 24 39 19 7 289 78 2 1,435 254 82 139 98 3 296 872 35 99 23 37 28 40 16 7 285 58 1 1,216 (92) 6 37 11 1 52 21 12 16 9 7 4 10 7 4 66 14 – 101 15 3 33 9 – 38 98 18 16 7 7 – 8 6 3 64 11 – 173 (152) 19 500 155 7 240 15 397 247 454 233 414 566 741 1,010 363 344 –6 63 Consolidation7 Total (451) 35,540 (773) 34,124 (451) 33,660 (773) 33,842 – 12,463 – 12,275 (12) 1,957 3 1,864 –6 70 1 2 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents annualized operating profit divided by the average of the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 5 6 7 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casualty effective 1 January 2014. Contains income and expense items from management holdings, an associated entity in Asia-Pacific and consolidations between countries in these regions. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geographic regions. 28 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 63 58 63 105 63 48 60 87 (70) 112 228 60 63 265 317 247 100 100 302 302 30 11 568 161 –6 229 86 658 258 365 256 –6 527 830 776 365 345 –6 128 –6 76 A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Asset Management second quarter 2015 − Operating profit of € 505 MN – a decrease of 25.2 %. − Cost-income ratio at 67.4 %. − Third-party net outflows of € 23 BN, significantly lower than in the first quarter of 2015. − Total assets under management almost flat at € 1,811 BN. Business segment overview Key figures Allianz offers asset management products and services for third- party investors and the Allianz Group’s insurance operations. We serve a wide range of retail and institutional clients world- wide with investment and distribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world that manage third- party assets with active investment strategies. key figures asset management € mn three months ended 30 June Operating revenues Operating profit Cost-income ratio in % Net income 2015 1,548 505 67.4 329 2014 1,607 676 57.9 419 Total assets under manage ment as of 30 June in € bn 1,811 1,814 thereof: Third-party assets under manage ment as of 30 June in € bn 1,323 1,373 Assets under management Total assets under management (AuM) amounted to € 1,811 BN as of 30 June 2015. Of this, € 1,323 BN related to third-party AuM and € 488 BN to Allianz Group assets. We recorded net outflows of total AuM of € 88 BN in the first six months of 2015. Net outflows from third-party AuM amounted to € 85 BN, strongly driven by PIMCO in the United States, primarily from traditional fixed income products. However, since the end of 2014, third-party AuM net outflows have significantly decreased, amount- ing to € 62 BN in the first quarter and € 23 BN in the second quarter of 2015. AllianzGI recorded strong third-party net inflows in Europe, resulting in third-party net inflows for the tenth consecutive quarter. Market and Other contributed € 6 BN to total AuM, with negative effects of € 12 BN at PIMCO and positive effects of € 18 BN at AllianzGI. Third-party AuM were adjusted for AuM related to a joint ven- ture. This was the main cause of the decline in total AuM of € 6 BN, which is reported as consolidation, deconsolidation and other adjust- ments. We recorded favorable foreign currency translation effects of € 98 BN, mainly as a result of the depreciation of the Euro to the U.S. Dollar, which declined from 1.21 at the beginning of the year to 1.11 at the end of the second quarter. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 29 development of total assets under management € bn Total AuM (as of 12/31/2014) 1,5721 Net flows 2 Market and Other 3 Consolidation, deconsoli- dation and other adjustments F/X effects Total AuM (as of 6/30/2015) 1,420 0 500 Fixed income Equities Multi-assets Other Changes 1 2 3 Fixed income and equity definitions based on legal entity view as of 31 December 2014. Therefore, 2014 and 2015 figures are not comparable. From the first quarter of 2015, net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. Reinvested dividends amounted to € 4.4 bn. From the first quarter of 2015, Market and Other represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds. In the following section we focus on the development of third-party AuM. As of 30 June 2015, the share of third-party AuM by business unit was 78.0 % attributable to PIMCO and 22.0 % to AllianzGI. At the beginning of 2015 we enhanced our asset class reporting from a legal entity view to a more granular asset class split composed of fixed income, equities, multi-assets, and other. Furthermore, we replaced the retail and institutional asset split by an investment vehicle view, comprised of mutual funds and separate accounts.1 Based on the asset class split on 30 June 2015, the share of fixed income amounted to 74 %, reflecting the high share of fixed income assets at PIMCO. 12 % in equity assets was due to the notable equity share at AllianzGI. Multi-assets and other accounted for 11 % and 4 %, respectively. 1 Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals and corporates). 30 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2291 01 1,801 (88) + 6 (6) + 98 181 1634 475 1,811 1,000 1,500 2,000 4 5 Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by dis- tributing investments throughout several asset classes. Other is composed of other asset classes than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc. third-party assets under management by region/country1 as of 30 June 2015 [31 December 2014] in % Asia-Pacific 10.7 [10.8] Europe 31.5 [29.2] America 2 57.8 [60.0] 1 2 Based on the location of the asset management company. “America” consists of the United States, Canada and Brazil (approximately € 747 bn, € 16 bn and € 2 bn third-party AuM as of 30 June 2015, respectively). The regional allocation of third-party AuM shifted slightly in favor of Europe, mainly due to strong net outflows at PIMCO in the United States, combined with a negative market effect. This was only par- tially offset by positive foreign currency translation effects in the first six months of 2015. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations three-year rolling investment performance of pimco and allianzgi1 Operating revenues % 100 80 60 40 PIMCO 88 84 AllianzGI 55 64 2015 to 2014 second quarter comparison Our operating revenues declined by € 59 MN – or 3.6 % – to € 1,548 MN. Before the positive effect from foreign currency translation, which was mainly driven by the sharp appreciation of the U.S. Dollar against the Euro, operating revenues decreased by 17.7 % on an internal basis1. Compared to the second quarter of 2014, average third-party AuM were almost flat, but fell by 16.4 % if we exclude the positive for- eign currency translation effect. 20 0 (12) (16) (20) (40) 12/31/2014 6/30/2015 Outperforming third-party assets under management Underperforming third-party assets under management (45) 12/31/2014 (36) 6/30/2015 Net fee and commission income was down by € 42 MN – or 2.6 % – to € 1,559 MN. This equals a decrease of 17.7 % before foreign currency translation effects. The downturn was mostly driven by our AuM- driven revenues, which dropped by 16.9 % before foreign currency translation effects. This was mostly due to lower average third-party AuM and – to a lesser extent – a slight decline in our third-party AuM- driven margin. Our performance fees fell by € 15 MN – or € 23 MN excluding foreign currency translation effects. This was driven by PIMCO, while AllianzGI recorded an increase in performance fees. 1 The investment performance is based on Allianz Asset Management account-based, asset-weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by portfolio managers of Allianz Asset Management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding Morningstar peer group (first and second quartile mean outperformance). For all other retail funds and for all institutional accounts, the gross of fee perfor mance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics. Our income from financial assets and liabilities carried at fair value through income (net) was down by € 13 MN, mainly due to valu- ation effects, mostly driven by foreign currency translation on certain assets. The overall three-year rolling investment performance of our Asset Management business remained at a high level, with 81 % of our third- party assets outperforming their respective benchmarks (31 Decem- ber 2014: 84 %). 84 % of PIMCO third-party assets and 64 % of AllianzGI third-party assets outperformed their respective benchmarks. 2015 to 2014 first half-year comparison Operating revenues went down slightly by € 3 MN – or 0.1 % – to € 3,121 MN. On an internal basis1, operating revenues fell by 14.3 %, mainly because of a decline of 15.4 % in third-party AuM-driven reve- nues but also by a slight dip in our third-party AuM-driven margin. 1 Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. In the second quarter of 2015 the average exchange rate of the U.S. Dollar to Euro was 1.11 (2Q 2014: 1.37), in the first six months of 2015, the average exchange rate was 1.12 (first six months of 2014: 1.37). Interim Report Second Quarter and First Half Year of 2015 Allianz Group 31 Operating profit 2015 to 2014 second quarter comparison Our operating profit reduced by € 171 MN – or 25.2 % – to € 505 MN. Before positive foreign currency translation effects, operating profit dropped by 36.9 % on an internal basis1. This was mainly due to decreased AuM-driven revenues and – to a lesser extent – lower mar- gins and performance fees. In the fourth quarter of 2014, PIMCO intro- duced the Special Performance Award (SPA) to secure performance and retain talent. Therefore the SPA also had an impact on operating profit in the second quarter of 2015. Administrative expenses rose by € 111 MN – or 11.9 % – to € 1,043 MN, only driven by foreign currency translation effects. Adjusted for these, administrative expenses decreased by 5.7 %. The main cause for this development were lower personnel expenses, driven by a drop of 16.2 % in variable compensation, despite the impact of the SPA in the second quarter of 2015. Our cost-income ratio went up 9.4 percentage points to 67.4 %. However, adjusted for foreign currency translation effects and the effect from the SPA, our cost-income ratio would be at 65.1 %. Before foreign currency translation effects, this reflects a decrease in operat- ing expenses, which is overcompensated by the drop in operating revenues. 2015 to 2014 first half-year comparison Operating profit decreased by € 261 MN – or 19.8 % – to € 1,060 MN, which equals a drop of 31.9 % on an internal basis1. This was mainly due to lower AuM-driven revenues and the impact of the SPA on our operating expenses. Our cost-income ratio rose by 8.3 percentage points. 1 Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects. In the second quarter of 2015 the average exchange rate of the U.S. Dollar to Euro was 1.11 (2Q 2014: 1.37), in the first six months of 2015, the average exchange rate was 1.12 (first six months of 2014: 1.37). 32 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Net income In the second quarter of 2015, our net income dropped by € 90 MN – or 21.4 % – to € 329 MN. For the first half of 2015, the decrease was € 167 MN – or 20.2 %. Before foreign currency translation effects, this equals a drop of 33.6 % for the second quarter and 32.6 % for the first half of 2015, respectively. These developments are largely consistent with our operating profit development. asset management business segment information € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Management and loading fees 1,915 1,891 3,786 3,716 Performance fees 52 67 111 86 Other 8 15 17 31 Fee and commission income 1,975 1,972 3,914 3,833 Commissions (377) (313) (731) (620) Other (39) (58) (58) (95) Fee and commission expenses (416) (371) (788) (716) Net fee and commission income 1,559 1,601 3,126 3,117 Net interest income1 (2) (1) (3) (1) Income from financial assets and liabilities carried at fair value through income (net) (9) 5 (4) 3 Other income 1 2 2 4 Operating revenues 1,548 1,607 3,121 3,124 Administrative expenses (net), excluding acquisition-related expenses (1,043) (932) (2,060) (1,805) Restructuring charges – 1 – 3 Operating expenses (1,043) (931) (2,060) (1,802) Operating profit 505 676 1,060 1,321 Non-operating items – (3) (27) (17) Income before income taxes 505 673 1,034 1,304 Income taxes (176) (254) (375) (479) Net income 329 419 658 825 Cost-income ratio2 in % 67.4 57.9 66.0 57.7 1 2 Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Corporate and Other second quarter 2015 Operating loss increased by € 10 mn to € 230 mn, driven by Holding & Treasury. Business segment overview Key figures Corporate and Other encompasses the reportable segments Holding & Treasury, Banking and Alternative Invest ments. Hold- ing & Treasury includes the management of and support for the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communica- tion, legal, human resources, technology and other functions. Our banking products offered in Germany, Italy, France, the Nether lands and Bulgaria complement our insurance product port folio. We also provide global alternative investment man- agement services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group. Key figures corporate and other1 € mn three months ended 30 June Operating revenues Operating expenses Operating result Net income (loss) 2015 416 (646) (230) (205) Key figures reportable segments € mn three months ended 30 June 2015 holding & treasury Operating revenues 87 Operating expenses (351) Operating result (264) banKing Operating revenues 280 Operating expenses (254) Operating result 26 alternative investments Operating revenues 48 Operating expenses (40) Operating result 8 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 416 (635) (219) (249) 2014 95 (340) (245) 277 (260) 17 45 (36) 8 33 Earnings summaries 2015 to 2014 second quarter comparison Our operating result decreased by € 10 mn to a loss of € 230 mn. A € 19 mn decline in our operating result in Holding & Treasury was only partly compensated for by a € 9 mn improvement in Banking. Alter- native Investments’ operating profit remained unchanged at € 8 mn. Our net loss improved by € 43 mn to a loss of € 205 mn due to higher realized gains. 2015 to 2014 first half-year comparison Our operating result strengthened by € 111 mn to a loss of € 331 mn. This improvement was primarily due to a € 148 mn increase in other income recorded in the first quarter and was related to the adapted cost allocation scheme for the pension provisions between the Ger- man subsidiaries and Allianz SE.1 Our net loss more than doubled from € 117 mn to € 254 mn, mainly due to lower positive one-off effects from a pensions revaluation with our German subsidiaries,2 which were only partly offset by higher realized gains. Operating earnings summaries by reportable segments holding & treasury 2015 to 2014 second quarter comparison Our operating loss increased by € 19 mn to € 264 mn. Unfavorable developments in administrative expenses and operating income from financial assets and liabilities carried at fair value through income (net) were only partly offset by a decrease in interest expenses and an improvement in our net fee and commission result. Administrative expenses (net), excluding acquisition-related expenses, were up by € 47 mn to € 208 mn. A large part of this increase was related to higher pension costs induced by lower discount rates, while the remainder was driven by numerous smaller effects. Operating income from financial assets and liabilities carried at fair value through income (net) dropped by € 20 mn to a loss of € 13 mn. This decrease was equally driven by both lower fair values of certain fund investments and a negative net effect (after hedges) resulting from foreign currency movements. 1 2 For further information on the adapted cost allocation scheme for the pension provisions, please refer to note 4 to the condensed consolidated interim financial statements. Respective offsetting effects were recorded within our other business segments, mainly within Property- Casualty. For further information on the one-off effects from pension revaluation, please refer to note 4 to the condensed consolidated interim financial statements. 34 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Our net interest result turned from a loss of € 10 mn to income of € 21 mn. Interest and similar income increased by € 4 mn to € 78 mn. The absence of income from associated companies, which is recog- nized within the insurance business segments from 2015 onwards as well as a decrease in interest income from debt securities were more than offset by higher dividend income. Our interest expenses, excluding interest expenses from external debt, decreased by € 28 mn to € 57 mn as a result of lower internal borrowing and lower interest rates. Our net fee and commission result increased by € 17 mn to a loss of € 47 mn. This reduction in losses was mainly due to higher revenues generated by our internal IT service provider. Investment expenses remained unchanged at € 17 mn. 2015 to 2014 first half-year comparison Our operating result improved by € 85 mn to a loss of € 407 mn. This improvement was driven by the first quarter benefiting from a posi- tive effect of € 148 mn in other income, as described earlier. Lower interest expenses – down from € 162 mn to € 128 mn – also contributed to this improved operating result. These positive effects were partly offset by an increase in administrative expenses from € 316 mn to € 390 mn. This was mainly due to higher pension costs as a result of lower discount rates. banKing 2015 to 2014 second quarter comparison Our operating result increased by € 9 mn to € 26 mn. This increase was largely driven by lower expenses for variable remuneration schemes. Our net interest, fee and commission result remained flat at € 125 mn (2Q 2014: € 128 mn). Our net interest result dipped by € 2 mn to € 82 mn as a € 13 mn decrease in interest and similar income was largely offset by decreased interest expenses. Both developments reflect lower interest yields. Our fee and commission result stood unchanged at € 44 mn. Administrative expenses were down by € 16 mn to € 84 mn, mainly due to lower expenses for variable remuneration schemes. Our loan loss provisions remained rather flat at € 17 mn (2Q 2014: € 15 mn). Our operating income from financial assets and liabilities carried at fair value through income (net), including trading income, remained the same at € 3 mn. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 2015 to 2014 first half-year comparison Our operating result increased by € 23 mn to € 58 mn. While the first quarter contributed with a higher operating profit due to higher man- agement and performance fees – which were driven by growth in assets under management and positive market developments – the second quarter benefited from lower administrative expenses. alternative investments 2015 to 2014 second quarter comparison Our operating profit stood unchanged at € 8 mn as an uptick in administrative expenses was offset by an increase in fee and commis- sion income. Both developments were in line with increased assets under management. 2015 to 2014 first half-year comparison Our operating profit went up from € 16 mn to € 19 mn. This was mainly due to the net effect of € 17 mn higher fee and commission income and € 12 mn increased administrative expenses. Both developments were in line with increased assets under management. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations 35 Outlook − Global economic activity is likely to expand moderately in 2015. − Operating profit outlook expected to be at upper end of target range. Economic outlook 20151 As we move into the second half of 2015, the economic picture is somewhat mixed. On the one hand, economic activity in industrial- ized countries is likely to remain quite solid. In the United States, private consumption is being boosted by the improved labor market situation. In the Eurozone, the economic recovery is likely to continue this year, supported by the depreciation of the Euro and lower energy prices. We expect growth in most member states to outpace last year’s performance. Supported by brighter economic conditions in the Eurozone and a favorable environment for private consumption, the German economy could expand by 2 % in 2015. On the other hand, growth prospects for many major emerging market countries remain subdued – in many cases not solely for cyclical, but also for struc- tural reasons. The Brazilian and Russian economies will shrink in real terms this year. Overall, global output is likely to grow by about 2.5 % in 2015 – as in 2014. Industrialized countries will register GDP growth of close to 2 %, while emerging markets will see their lowest economic expansion since the Great Recession of 2009, with a GDP increase of just below 4 %. Inflation is likely to remain subdued at a global level, not least due to the still dire unemployment situation in many indus- trialized countries, which keeps the lid on wages. its bond purchasing program with a monthly volume of € 60 BN. With short-term rates practically at zero and the ECB’s bond purchasing program exerting downward pressure on European government benchmark bond yields, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year Ger- man and U.S. government bonds to climb only modestly to slightly above 1 % and 2.5 %, respectively, by the end of 2015. In the second half of 2015 a number of factors, including a rate hike by the Fed, will weigh on the Euro. However, with the economic recovery in the Euro- zone on a firmer footing, the Euro will gain support. All in all, we expect the Euro to move sideways against the U.S. Dollar. Insurance industry outlook 2015 is on course to be another year of solid growth for the insurance industry. In advanced markets, economic activity is gaining momen- tum, boosting demand for insurance; and in emerging markets, despite more challenging economic conditions than in the past, pent-up demand for insurance underpins strong growth. However, the outlook for profitability remains subdued as the headwinds of low investment returns and regulatory changes continue to blow. For the remainder of this year, financial markets will primarily be driven by monetary policy, further developments in the Greek debt crisis, and geopolitical tensions. Despite lowering the probability of Grexit, the third bailout program is unlikely to draw a line under the Greek crisis as too many pitfalls remain. At the end of the day it is by no means certain that, when the bailout program expires in 2018, Greece will have regained access to the capital market on the scale needed. Risks stemming from the instability of Greek politics are even more serious. Flawed implementation of the reform and consolida- tion program would once again raise the question of whether Greece can stay in the Euro. Regarding monetary policy, barring major downside surprises in economic data, the Federal Reserve Bank is likely to start pushing up interest rates later this year. In contrast, the European Central Bank will most likely stick to its very expansionary monetary policy stance, keeping key interest rates at the very low current levels and continuing In the property-casualty sector, 2014 was a solid year. Global pre- mium revenue grew by 4.5 % (in nominal terms, adjusted for foreign currency translation effects) with the notable exception of Western Europe where markets barely grew at all. For 2015, we expect growth to strengthen in Western Europe, too, as almost all markets will return to positive growth. Most other markets will continue to expand solidly, with an improved economy as a supporting factor but rate developments as a possible drag. As in previous years, we expect very strong performances in emerging Asia where governments’ efforts, particularly in China, to raise insurance penetration across the board pay off. Overall, we expect global premium revenue to rise by 4 – 5 % in 2015 (in nominal terms, adjusted for foreign currency translation effects). Underwriting profitability should remain more or less stable as reduced pricing power is offset by low claims inflation. However, low investment returns will have a negative impact on overall profit- ability. 1 The Information presented in the sections Economic outlook, Insurance industry outlook and Asset management industry outlook is based on our own estimates. 36 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations In 2014, the life sector registered its highest growth since the out- break of the financial crisis: Global premium revenue grew by 7.1 % (in nominal terms, adjusted for foreign currency translation effects). However, this growth was rather uneven and driven by exceptional momentum in some markets such as Italy and Australia. This year, we expect premium growth to be more moderate but also more broad-based. In particular, we expect that growth in Eastern Europe will resume – albeit at a low level. However, emerging Asia will see another year of high, double-digit growth with China in the lead: Rising incomes and social security reforms remain strong engines for rising insurance demand. All in all, we expect global premium revenue to expand by 4 – 5 % in 2015 (in nominal terms, adjusted for foreign currency translation effects). A continuing improvement in economic conditions – in particu- lar in the United States – as well as trends in client demand still rep- resent a positive environment for further asset management industry growth. Nevertheless, the industry has to deal with several challenges that will also put pressure on profitability: flows into passive products as well as rising distribution or marketing costs will tighten operating margins. Increased regulatory oversight and reporting will also take their toll. Therefore, several factors are of vital importance for an asset manager’s ability to grow – notably above benchmark investment results and innovative client-focused investment solutions and prod- ucts. In addition, appropriate responses to clients’ needs as well as efficient operations and a sufficient business volume are important. Looking at profitability, the insurance industry faces some head- winds in 2015. Low yields continue to impact savings behaviors, investment returns remain under pressure, and regulatory burdens will increase further. Therefore, companies cannot afford to relax their efforts to adapt their business models to the new environment. Asset management industry outlook Markets have shown some volatility in recent months, a trend exacer- bated by the ongoing Greek government debt crisis. With investors also anticipating an increase in U.S. interest rates we expect this volatility to continue in equity as well as in fixed income markets. However, if the longer-term trend is indeed towards moderately higher interest rates – especially in the United States – coupled with global demographic developments, bonds should remain attractive. This holds true in particular for liability-driven investors and for the grow- ing number of retirees in the developed world looking for a stable stream of income. Due to continuous inflows, equities reached all- time highs in the first half of 2015 in many countries, making them vulnerable to negative economic developments. Outlook for the Allianz Group We are confident about staying on course towards profitable growth during the rest of 2015. Currently, we see no need to adjust our pub- lished Allianz Group operating profit outlook for 2015 of € 10.4 BN, plus or minus € 0.4 BN – but we expect it to be at the upper end of the target range at € 10.8 BN. However, unfavorable developments in the busi- ness environment can have adverse impacts on aspects of our perfor- mance. It would therefore be inappropriate to simply annualize the current half year’s operating profit and net income to arrive at an expected result for the full year. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 37 Balance Sheet Review − Shareholders’ equity stable at € 60.7 bn. − Conglomerate solvency ratio up from 181 % to 192 %.1 Shareholders’1equity 2 Regulatory capital adequacy ShareholderS’ equity € mn (0.1) % The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital available to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”. (11.3) % 80,000 60,747 68,397 60,687 Conglomerate SolvenCy1 60,000 13,917 18,197 11,447 € bn 40,000 17,901 21,272 20,311 190 % 192 % 60 181 % 20,000 28,928 28,928 28,928 50 12/31/2014 3/31/2015 6/30/2015 40 Paid-in capital Unrealized gains/losses (net) Retained earnings (includes foreign currency translation adjustments) 30 49.8 54.7 55.7 20 27.6 28.8 29.0 Compared to year-end, shareholders’ equity decreased by € 60 mn to € 60,687 mn as of 30 June 2015. Mainly as a result of the higher interest rates in the second quarter, the fair value of debt securities decreased and led to € 2,470 mn lower unrealized gains in shareholders’ equity. Realizations on both debt securities and equities also contributed to this development. In addition, shareholders’ equity was lowered by the € 3,112 mn dividend payout in May 2015. However, these effects were largely offset by our net income attributable to shareholders of € 3,839 mn and the € 1,092 mn increase in foreign currency translation adjustments that resulted from the depreciation of the Euro against various currencies – in particular the U.S. Dollar, but also the Swiss Franc – over the first half of 2015. 1 2 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios as of 30 June 2015 and 31 December 2014 would be 184 % and 172 %, respectively. This does not include non-controlling interests of € 2,824 mn, € 3,103 mn and € 2,955 mn as of 30 June 2015, 31 March 2015 and 31 December 2014, respectively. For further information, please refer to note 20 to the condensed consolidated interim financial statements. Retained earnings include foreign currency trans- lation adjustments of € (885) mn, € (219) mn and € (1,977) mn as of 30 June 2015, 31 March 2015 and 31 December 2014, respectively. 10 12/31/2014 3/31/2015 6/30/2015 Conglomerate solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratio would be 184 % as of 30 June 2015 (31 March 2015: 182 %; 31 December 2014: 172 %). Compared to 31 December 2014, our conglomerate solvency ratio strengthened from 181 % to 192 %. The Group’s eligible capital for sol- vency purposes went up by € 5.8 bn to € 55.7 bn, including off-balance sheet reserves of € 2.4 bn (31 December 2014: € 2.3 bn). This increase was mainly driven by our net income (net of accrued dividends) of € 1.9 bn and the issuance of a new subordinated bond (€ 1.5 bn). To a lesser extent, favorable foreign currency translation adjustments also contributed to this. The required funds were up by € 1.4 bn to € 29.0 bn, mainly because of higher aggregate policy reserves in the Life/Health business segment, but also due to the strong nominal growth in our Property-Casualty business segment. As a result, our eligible capital surpassed the minimum legally stipulated level by € 26.7 bn. 38 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Total assets and total liabilities As of 30 June 2015, total assets amounted to € 841.6 bn and total liabil- ities were € 778.1 bn. Compared to year-end 2014, total assets and total liabilities increased by € 35.9 bn and € 36.1 bn, respectively. Our exposure to debt instruments increased by € 12.3 bn to € 562.0 bn. Positive foreign currency effects, new investments and reinvested interest flows more than offset fair value declines triggered by higher interest rates in the second quarter of 2015. This exposure still represented 89 % of our investment portfolio. The following section mainly focuses on our financial invest- ments in debt instruments, equities, real estate and cash, since these reflect the major developments in our asset base. fixed inCome portfolio Total fixed income portfolio as of 30 June 2015: € 562.0 bn [as of 31 December 2014: € 549.8 bn] in % StruCture of inveStmentS – portfolio overview The following portfolio overview covers the Allianz Group assets held for investment, which are mainly driven by our insurance businesses. Banks 6 [6] Other 10 [10] Government bonds 38 [38] aSSet alloCation Investment portfolio as of 30 June 2015: € 631.6 bn [as of 31 December 2014: € 614.6 bn] in % Other corporate bonds 28 [26] Covered bonds 18 [20] Real estate 2 [2] Cash/Other 2 [2] Equities 7 [7] Debt instruments 89 [89] The allocation of our well-diversified fixed income portfolio remained rather stable, with a modest increase in the share of corporate bonds accompanied by a minor reduction in the portion of covered bonds. About 94 % of this portfolio of debt instruments was invested in invest- ment-grade bonds and loans.2 Compared to year-end 2014, our investment portfolio grew by € 17.0 bn to € 631.6 bn as of 30 June 2015, with no relative change in our overall asset allocation despite some major realizations. Our direct gross exposure to equities amounted to € 46.5 bn – up by € 5.3 bn – as fair value increases resulting from the very positive market developments in the first quarter of 2015 more than offset realizations. The overall upswing in equity markets over the first six months of 2015 was accompanied by an increased hedged portion of this grown direct gross exposure against share price declines. Against the background of a virtually unchanged shareholders’ equity these effects almost offset each other leading to a one percentage point downtick in equity gearing1, which amounted to 23 %. Our direct exposure to real estate increased by € 0.5 bn to € 11.8 bn mainly due to new investments. Our cash and other investments decreased by € 1.0 bn to € 11.2 bn. Over the first half year, our government bond exposure was up by € 6.4 bn to € 215.7 bn and still accounted for 38 % of our fixed income portfolio. The fair value increases seen in the first quarter largely dis- appeared over the second quarter as a result of the increase in inter- est rates. The slight increase in absolute terms was mainly driven by new investments and positive foreign currency effects. The allocation of our government and government-related direct bond exposure showed marginal changes in the portfolio weightings, all of which were below two percentage points. The portfolio shares of Italian, French and German government bonds decreased marginally, while the share of government bonds from Spain and the United States increased marginally. Our sovereign debt exposure in Italy and Spain equaled 5.1 % and 1.6 % of our fixed income portfolio, respectively. The corresponding unrealized gains (gross) amounted to € 3,916 mn in Italy and to € 212 mn in Spain. Our government bond exposure in Por- tugal remained limited, with small unrealized gains. We continued to have virtually no exposure to Greek or Ukrainian government bonds. The respective exposure to Russia was relatively small in the context of our overall portfolio and the greatest part of this exposure was denominated in U.S. Dollar. 1 Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill. 2 Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 39 Our covered bond exposure decreased by € 5.7 bn to € 102.0 bn, representing 18 % (31 December 2014: 20 %) of our fixed income port- folio. This decrease was mainly due to matured bonds which have not been reinvested within this asset class. It was also driven by lower fair values resulting from the increase in interest rates. 43 % (31 December 2014: 44 %) of this portfolio was German Pfandbriefe, backed by either public sector loans or mortgage loans. Almost unchanged, another 17 %, 9 % and 7 % of the covered bonds were attributable to France, Spain and Italy, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and overcollateralization. The value of our corporate bonds increased by € 9.8 bn to € 154.9 bn and in relative terms one percentage point to 28 %. This was primarily driven by positive currency effects as well as new invest- ments. The slight regional shift from Eurozone corporate bonds to North-American ones, as reported for 2014, continued in the first half year of 2015. This was again mainly driven by value increases in U.S. Dollar-denominated exposures due to the respective exchange rate movement and new investments. Our exposure to bank securities – including exposure to subordi- nated securities in banks – remained almost unchanged at € 32.8 bn (31 December 2014: € 32.4 bn) and still represented 6 % of our fixed income portfolio. The exposure to subordinated securities in banks decreased from € 5.3 bn to € 4.9 bn. Our exposure to asset-backed securities (AbS) remained almost unchanged at € 23.2 bn (31 December 2014: € 22.9 bn). This exposure still accounted for 4 % of our fixed income portfolio. About 71 % of our AbS portfolio was related to mortgage backed securities (mbS). mbS issued by U.S. agencies, which are backed by the U.S. government, accounted for 16 % of the AbS portfolio. Overall, 97 % of the AbS portfolio received an investment grade rating, with 87 % rated “AA” or better. 40 Interim Report Second Quarter and First Half Year of 2015 Allianz Group inveStment reSult inveStment inCome (net) € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Operating investment result Interest and similar income (net)1 5,868 5,436 11,169 10,478 Operating income from financial assets and liabilities carried at fair value through income (net) (1,330) (22) (647) (272) Operating realized gains/losses (net) 1,670 783 4,189 1,563 Operating impairments of investments (net) (113) (50) (202) (347) Investment expenses (265) (232) (502) (431) Subtotal 5,830 5,914 14,007 10,991 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 13 (31) (112) (101) Non-operating realized gains/losses (net) 424 243 742 369 Non-operating impairments of investments (net) (43) (24) (63) (89) Subtotal 393 188 568 179 Total investment income (net) 6,224 6,102 14,574 11,170 1 Net of interest expenses (excluding interest expenses from external debt). 2015 to 2014 second quarter comparison Our total investment income (net) increased by € 122 mn to € 6,224 mn as a significant decrease in the operating income from financial assets and liabilities carried at fair value through income (net) was more than offset by increases in realized gains and interest and similar income (net)1. 2015 to 2014 first half-year comparison Our total investment income (net) increased by € 3,404 mn to € 14,574 mn. This increase was mainly related to first quarter developments. In total, operating and non-operating realized gains contributed most to this growth. In addition, the total investment income (net) benefited from higher interest and similar income (net)1. Operating investment result 2015 to 2014 second quarter comparison Our operating investment income (net) declined by € 84 mn – or 1.4 % – to € 5,830 mn. This was the net effect of a decrease in operating income from financial assets and liabilities carried at fair value 1 Net of interest expenses (excluding interest expenses from external debt). A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook through income (net) and an increase in realized gains and, to a lesser extent, in interest and similar income (net)1. Operating income from financial assets and liabilities carried at fair value through income (net) fell by € 1,308 mn to a loss of € 1,330 mn. This was mainly due to losses from the net of foreign currency trans- lation effects and financial derivatives that are used to protect against equity and foreign currency fluctuations as well as to manage dura- tion and other interest rate-related exposures. To a large extent, the deterioration was related to the increase in interest rates and only to a lesser extent to the appreciation of the Euro against the U.S. Dollar and several emerging market currencies. Operating realized gains and losses (net) more than doubled to € 1,670 mn. This was due to higher realizations on both debt securities and equities to manage duration and the overall asset allocation. Interest and similar income (net)1 increased by € 432 mn to € 5,868 mn. This increase was almost equally driven by higher interest income from debt securities, as a result of favorable currency effects and supported by a higher asset base, as well as by increased divi- dend income. Our operating impairments of investments (net) increased from a low level of € 50 mn to € 113 mn. These impairments were largely related to equities. Investment expenses were up by € 32 mn to € 265 mn. This was mainly due to higher management fees resulting from increased asset values. 2015 to 2014 first half-year comparison Our operating investment income (net) went up by € 3,015 mn to € 14,007 mn. Of this increase, € 2,626 mn was attributable to higher operating realized gains while the remainder was driven by increased interest and similar income (net)1 and lower operating impairments of investments (net). These effects were only partly offset by a wors- ening in operating income from financial assets and liabilities car- ried at fair value through income (net) for the reasons described above. Non-operating investment result 2015 to 2014 second quarter comparison Our non-operating investment income (net) more than doubled from € 188 mn to € 393 mn, primarily as a result of higher non-operating realized gains, mainly on equities. 2015 to 2014 first half-year comparison Our non-operating investment income (net) grew by € 389 mn to € 568 mn, mainly because of higher non-operating realized gains. 1 Net of interest expenses (excluding interest expenses from external debt). Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations aSSetS and liabilitieS of the property-CaSualty buSineSS Segment Property-Casualty assets Compared to year-end, the Property-Casualty asset base increased by € 2.1 bn to € 111.3 bn. This was largely driven by higher debt securi- ties and to a lesser extent by equities. It was partly offset by slight decreases in cash and cash pool assets as well as loans and advances. CompoSition of aSSet baSe – fair valueS1 € bn as of 30 June 2015 as of 31 December 2014 Financial assets and liabilities carried at fair value through income Equities 0.4 0.4 Debt securities 0.1 0.1 Other2 – – Subtotal 0.5 0.5 Investments3 Equities 7.0 6.3 Debt securities 75.5 72.4 Cash and cash pool assets4 4.6 5.6 Other 9.8 9.5 Subtotal 96.9 93.8 Loans and advances to banks and customers 14.0 15.0 Property-Casualty asset base 111.3 109.2 1 2 3 4 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage. This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 30 June 2015 and 31 December 2014, respectively. These do not include affiliates of € 9.0 bn and € 8.9 bn as of 30 June 2015 and 31 December 2014, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet of € 3.3 bn and € 3.7 bn and receivables from cash pooling amounting to € 3.0 bn and € 4.2 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.1) bn, as well as liabilities from cash pooling of € (1.7) bn and € (2.1) bn as of 30 June 2015 and 31 December 2014, respectively. AbS within the Property-Casualty business segment asset base decreased by € 0.3 bn to € 3.7 bn as of 30 June 2015 and represented 3.3 % (31 December 2014: 3.7 %) of the business segment’s asset base. 41 Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 € bn Gross Ceded Net As of 1 January 2015 58.9 (6.6) 52.3 Balance carry forward of discounted loss reserves2 3.6 (0.3) 3.3 Subtotal 62.5 (6.9) 55.6 Loss and loss adjustment expenses paid in current year relating to previous years (9.3) 0.8 (8.5) Loss and loss adjustment expenses incurred in previous years (0.9) 0.2 (0.8) Foreign currency translation adjustments and other changes 2.1 (0.6) 1.5 Changes in reserves for loss and loss adjustment expenses in current year 11.1 (1.1) 9.9 Subtotal 65.4 (7.6) 57.8 Ending balance of discounted loss reserves2 (3.8) 0.3 (3.5) As of 30 June 2015 61.6 (7.3) 54.3 1 2 For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 15 to the condensed consolidated interim fin an cial statements. Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses and in the loss ratio and is therefore included in the development of the reserves above. As of 30 June 2015, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 65.4 bn – an increase of € 2.9 bn compared to year-end 2014. On a net basis, our reserves – including discounted loss reserves – increased from € 55.6 bn to € 57.8 bn. Foreign currency translation effects and other changes amounted to € 1.5 bn on a net basis. aSSetS and liabilitieS of the life/health buSineSS Segment Life/Health assets The Life/Health business segment asset base increased by € 23.1 bn to € 588.5 bn. This was largely driven by an increased volume of debt securities and financial assets for unit-linked contracts and was also supported by higher equities. Lower cash and cash pool assets only marginally offset those developments. 42 Interim Report Second Quarter and First Half Year of 2015 Allianz Group CompoSition of aSSet baSe – fair valueS € bn as of 30 June 2015 as of 31 December 2014 Financial assets and liabilities carried at fair value through income Equities 2.5 1.8 Debt securities 2.5 2.0 Other1 (6.9) (6.8) Subtotal (1.9) (3.0) Investments2 Equities 36.8 32.2 Debt securities 340.0 331.8 Cash and cash pool assets3 6.0 8.0 Other 10.5 10.4 Subtotal 393.4 382.4 Loans and advances to banks and customers 92.1 91.4 Financial assets for unit-linked contracts4 104.9 94.6 Life/Health asset base 588.5 565.4 1 2 3 4 This comprises assets of € 1.4 bn and € 1.4 bn and liabilities (including the market value lia bility option) of € (8.3) bn and € (8.2) bn as of 30 June 2015 and 31 December 2014, respectively. These do not include affiliates of € 0.2 bn and € 0.2 bn as of 30 June 2015 and 31 December 2014, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 6.4 bn and € 7.6 bn and receivables from cash pooling amounting to € 2.1 bn and € 3.1 bn, net of liabilities from securities lending and derivatives of € (2.1) bn and € (2.6) bn, as well as liabilities from cash pooling of € (0.3) bn and € (0.0) bn as of 30 June 2015 and 31 December 2014, respectively. Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Reporting Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. AbS within the Life/Health business segment asset base was up by € 0.6 bn to € 17.4 bn and represented an unchanged 3.0 % of the busi- ness segment’s asset base. finanCial aSSetS for unit-linked ContraCtS1 € bn Unit-linked insurance contracts Unit-linked investment contracts Total As of 1 January 2015 62.7 31.9 94.6 Net premium inflows (outflows) 1.7 3.7 5.4 Changes in fund value 2.3 1.0 3.3 Foreign currency translation adjustments 3.0 – 3.0 Other changes (1.5) 0.2 (1.3) As of 30 June 2015 68.1 36.8 104.9 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Report- ing Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook Financial assets for unit-linked contracts increased by € 10.4 bn – or 11.0 % – to € 104.9 bn. Unit-linked insurance contracts increased by € 5.4 bn to € 68.1 bn due to good fund performance (€ 2.3 bn) and pre- mium inflows exceeding outflows by € 1.7 bn. This was partly offset by transfers to the general account in France (€ (0.6) bn). Unit-linked investment contracts were up by € 4.9 bn to € 36.8 bn, with premium inflows significantly exceeding outflows (net € 3.7 bn). Currency effects were driven by the stronger U.S. Dollar (€ 2.2 bn) and Asian cur- rencies (€ 0.7 bn).1 Life/Health liabilities Life/Health reserves for insurance and investment contracts increased by € 15.4 bn – or 3.4 % – to € 464.6 bn in the first six months of 2015. The € 10.3 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 5.1 bn), the United States (€ 3.1 bn before currency effects) and Switzerland (€ 0.7 bn before cur- rency effects). Reserves for premium refund decreased by € 3.9 bn as higher interest rates led to lower unrealized gains to be shared with policyholders. Currency impacts resulted from the stronger U.S. Dollar (€ 5.8 bn), Swiss Franc (€ 1.9 bn) and Asian currencies (€ 1.1 bn).1 aSSetS and liabilitieS of the aSSet management buSineSS Segment Asset Management assets The Asset Management business segment’s results are derived pri- marily from asset management for third-party investors and the Allianz Group’s insurance operations.2 In this section, we refer only to the business segment’s own assets. The business segment’s asset base decreased from € 2.6 bn to € 2.4 bn, mainly due to lower cash and cash pool assets – the main component of the business segment’s asset base. Asset Management liabilities Liabilities in our Asset Management business segment increased by € 0.6 bn to € 3.0 bn. 1 2 Based on the closing rates on the respective balance sheet dates. For further information on the development of these assets, please refer to the Asset Management chapter. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 38 Balance Sheet Review 45 Reconciliations aSSetS and liabilitieS of the Corporate and other buSineSS Segment Corporate and Other assets The Corporate and Other asset base increased by € 3.0 bn to € 47.7 bn. A slight decrease in loans and advances to banks and customers was more than offset by an increase in debt securities and a lower negative synthetic cash position. CompoSition of aSSet baSe – fair valueS € bn as of 30 June 2015 as of 31 December 2014 Financial assets and liabilities carried at fair value through income Equities 0.1 0.1 Debt securities 0.2 0.2 Other1 (0.5) (0.5) Subtotal (0.2) (0.1) Investments2 Equities 2.7 2.7 Debt securities 30.6 28.4 Cash and cash pool assets3 (2.2) (4.1) Other 0.3 0.3 Subtotal 31.4 27.3 Loans and advances to banks and customers 16.5 17.5 Corporate and Other asset base 47.7 44.7 1 2 3 This comprises assets of € 0.1 bn and € 0.2 bn and liabilities of € (0.7) bn and € (0.6) bn as of 30 June 2015 and 31 December 2014, respectively. These do not include affiliates of € 76.4 bn and € 77.2 bn as of 30 June 2015 and 31 December 2014, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 1.4 bn and € 2.0 bn and receivables from cash pooling amounting to € 1.6 bn and € 1.7 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.0) bn, as well as liabilities from cash pooling of € (5.2) bn and € (7.9) bn as of 30 June 2015 and 31 December 2014, respectively. AbS remained almost unchanged at € 2.1 bn (31 December 2014: € 2.0 bn) and represented 4.3 % of the segment’s asset base, a down- tick of 0.2 percentage points compared to year-end 2014. Corporate and Other liabilities In comparison to year-end 2014, other liabilities decreased by € 3.9 bn to € 24.1 bn, resulting from lower liabilities from cash pooling and other provisions mainly related to pension obligations. Subordinated liabilities increased by € 0.2 bn to € 12.2 bn. This was mainly related to the net effect of the issuance and redemptions of subordinated bonds.3 Certificated liabilities dipped by € 0.2 bn to € 12.0 bn.4 3 4 This net effect also includes the redemption of a subordinated bond of € 400 mn issued by Allianz France S.A., which was and is not listed separately in the bonds table shown on the next page. For further information on Allianz SE debt as of 30 June 2015, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. 43 allianz Se bondS1 outStanding aS of 30 june 2015 and intereSt expenSeS for the firSt Six monthS of 2015 1. Senior bondS2 4.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 1.375 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for senior bonds € 1.5 bn 2006 11/23/2016 xS 027 588 026 7 € 0.5 bn 2013 3/13/2018 de 000 a1h g1j 8 € 1.5 bn 2009 7/22/2019 de 000 a1a khb 8 € 1.5 bn 2012 2/14/2022 de 000 a1g 0ru 9 € 0.75 bn 2013 3/13/2028 de 000 a1h g1k 6 gbp 0.75 bn 2013 3/13/2043 de 000 a1h g1l 4 € 31 mn € 4 mn € 36 mn € 27 mn € 12 mn € 27 mn € 136 mn 2. Subordinated bondS3 5.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.625 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 2 2. Subordinated bondS3 5.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.625 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 2 € 2.0 bn 2011 7/8/2041 de 000 a1g nah 1 € 1.5 bn 2012 10/17/2042 de 000 a1r e1q 3 For further information on Allianz SE debt (issued or guaranteed) as of 30 June 2015, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. Senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency. € 58 mn 2.241 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 4.375 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.375 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.5 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 4.75 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 3.25 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 3.375 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for subordinated bonds € 1.5 bn 2015 7/7/2045 de 000 a14 j9n 8 € 1.4 bn 2005 perpetual bond xS 021 163 783 9 € 0.8 bn 2006 perpetual bond de 000 a0g npz 3 uSd 1.0 bn 2012 perpetual bond xS 085 787 250 0 € 1.5 bn 2013 perpetual bond de 000 a1y Cq2 9 Chf 0.5 bn 2014 perpetual bond Ch 023 483 337 1 € 1.5 bn 2014 perpetual bond de 000 a13 r7z 7 € 8 mn € 31 mn € 21 mn € 27 mn € 36 mn € 9 mn € 26 mn € 258 mn 3. iSSueS redeemed in 2015 6.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Sum of interest expenses1 Interest expenses from external debt not presented in the table Total interest expenses from external debt 3 3. iSSueS redeemed in 2015 6.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Sum of interest expenses1 Interest expenses from external debt not presented in the table Total interest expenses from external debt 3 € 1.0 bn 2002 1/13/2025 xS 015 952 750 5 € 2 mn € 397 mn The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. 44 Interim Report Second Quarter and First Half Year of 2015 Allianz Group A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Reconciliations The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our stated figures according to the International Finan- cial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complemen- tary to, rather than a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Property- Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn three months ended 30 June 2015 Property-Casualty Gross premiums written 11,843 Life/Health Statutory premiums 16,719 Asset Management Operating revenues 1,548 consisting of: Net fee and commission income 1,559 Net interest income1 (2) Income from financial assets and liabilities carried at fair value through income (net) (9) Other income 1 Corporate and Other thereof: Total revenues (Banking) 131 consisting of: Interest and similar income 136 Income from financial assets and liabilities carried at fair value through income (net)2 3 Fee and commission income 141 Interest expenses, excluding interest expenses from external debt (54) Fee and commission expenses (97) Consolidation effects within Corporate and Other 2 Consolidation (72) Allianz Group total revenues 30,170 1 2 Represents interest and similar income less interest expenses. Includes trading income. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 10,846 16,961 1,607 1,601 (1) 5 2 132 148 3 125 (64) (81) – (89) 29,457 six months ended 30 June 2015 29,182 35,540 3,121 3,126 (3) (4) 2 270 275 9 280 (112) (182) 2 (175) 67,939 2014 26,063 34,124 3,124 3,117 (1) 3 4 270 298 6 241 (131) (146) 2 (161) 63,420 45 Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. reConCiliation of nominal total revenue growth to internal total revenue growth % three months ended 30 June 2015 Internal growth Changes in scope of consolidation Foreign currency translation Property-Casualty 1.6 2.3 5.3 Life/Health (6.0) (0.8) 5.3 Asset Management (17.7) – 14.1 Corporate and Other – (0.8) – Allianz Group (3.8) 0.4 5.8 Life/Health Insurance Operations operating profit The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 20 entities comprising 97.0 % of Life/Health total statutory premiums are in scope. Expenses Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and com- missions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income statement. 46 Interim Report Second Quarter and First Half Year of 2015 Allianz Group six months ended 30 June 2015 Nominal growth Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth 9.2 2.8 4.3 4.9 12.0 (1.4) (0.5) (0.8) 5.5 4.2 (3.6) (14.3) – 14.2 (0.1) (0.8) 0.7 (0.7) – – 2.4 0.2 1.3 5.7 7.1 aCquisition, administrative, Commissions and other expenses € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Acquisition expenses and commissions1 (1,185) (1,238) (2,434) (2,389) Definitions 8 7 15 15 Scope (122) (101) (205) (172) Acquisition costs incurred2 (1,299) (1,331) (2,624) (2,547) Administrative and other expenses1 (439) (419) (849) (789) Definitions (37) (22) (65) (53) Scope 39 14 60 45 Administrative expenses on reinsurance business ceded 1 4 3 6 Administrative and other expenses (net)2,3 (436) (424) (851) (791) 1 2 3 As per Interim Group Management Report. As per notes to the condensed consolidated interim financial statements. Excluding one-off effect from pension revaluation. For further details, please refer to note 4 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 12 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 29 Asset Management 33 Corporate and Other 36 Outlook 38 Balance Sheet Review 45 Reconciliations Impact of change in Deferred Acquisition Costs (daC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA) and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. reConCiliation to notes € mn three months ended 30 June 2015 2014 six months ended 30 June 2015 2014 URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- Acquisition expenses and commissions1 Administrative and other expenses1 Capitalization of daC1 (1,185) (439) 440 (1,238) (419) 558 (2,434) (849) 897 (2,389) (789) 1,004 uled URR amortization, true-up and unlocking. Both capitalization and amortization is included in the line item Amortization, unlocking and true-up of daC1 (503) (395) (941) (652) premiums earned (net) in the group income statement. Policyholder participation is included within change in reserves for insurance and investment contracts (net) in the group income statement. Acquisition and administrative expenses Definitions Scope Commissions and profit received on reinsurance business ceded (1,687) 15 (55) 28 (1,494) 87 (66) 22 (3,327) (35) (114) 54 (2,826) 178 (106) 46 Capitalization and amortization of daC Administrative expenses on reinsurance business ceded 1 4 3 6 € mn three months ended 30 June six months ended 30 June Acquisition and administrative expenses (net)2,3 (1,698) (1,447) (3,420) (2,701) Capitalization of daC1 2015 440 2014 558 2015 897 2014 1,004 1 2 3 As per Interim Group Management Report. As per notes to the condensed consolidated interim financial statements. Excluding one-off effect from pension revaluation. For further details, please refer to note 4 to the condensed consolidated interim financial statements. Definition: urr capitalized 158 125 314 245 Definition: policyholder participation2 169 184 426 427 Scope 58 46 93 72 Capitalization of DAC3 825 914 1,730 1,748 Amortization, unlocking and true-up of daC1 (503) (395) (941) (652) Definition: urr amortized (74) (39) (206) (55) Definition: policyholder participation2 (209) (168) (520) (399) Scope (30) (25) (62) (51) Amortization, unlocking and true-up of DAC3 (816) (628) (1,728) (1,157) 1 2 3 As per Interim Group Management Report. For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/ amortization. As per notes to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 47 48 Interim Report Second Quarter and First Half Year of 2015 Allianz Group condenSed conSolIdAted InteRIm FInAncIAl StAtementS b Interim Report Second Quarter and First Half Year of 2015 Allianz Group 49 condenSed conSolIdAted InteRIm FInAncIAl StAtementS 51 Consolidated BalanCe sheets 52 Consolidated inCome statements 53 Consolidated statements of Comprehensive inCome 54 Consolidated statements of Changes in equity 55 Consolidated statements of Cash flows 57 notes to the Condensed Consolidated interim finanCial statements General Information Notes to the Consolidated Income Statements 57 57 57 59 1 Basis of presentation 2 Recently adopted accounting pronouncements 3 Consolidation 4 Segment reporting 90 91 91 21 Premiums earned (net) 22 23 Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Notes to the Consolidated Balance Sheets 82 82 84 84 84 84 85 85 86 86 87 88 88 89 89 89 5 6 7 8 Reinsurance assets 9 Deferred acquisition costs 10 Other assets 11 12 13 14 15 Reserves for loss and loss adjustment expenses 16 Reserves for insurance and investment contracts 17 Other liabilities 18 Certificated liabilities 19 20 Financial assets carried at fair value through income Investments Loans and advances to banks and customers Non-current assets and disposal groups classified as held for sale Intangible assets Financial liabilities carried at fair value through income Liabilities to banks and customers Subordinated liabilities Equity 92 93 93 93 24 Realized gains/losses (net) 25 26 Other income 27 Fee and commission income Income and expenses from fully consolidated private equity investments 94 95 96 96 96 96 97 97 97 98 28 Claims and insurance benefits incurred (net) 29 Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses 30 31 32 33 34 Acquisition and administrative expenses (net) 35 36 Other expenses 37 Income taxes Fee and commission expenses Other Information 99 108 109 110 Financial instruments and fair value measurement 38 39 Earnings per share 40 Other information 41 Subsequent events 111 112 Responsibility statement Review report 50 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Pages 50 – 112 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income Consolidated balanCe sheets consolidated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets liabilities and eQUitY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes note as of 30 June 2015 12,259 5 7,121 6 505,930 7 115,796 104,944 8 15,695 9 24,455 1,184 10 39,831 11 165 12 14,266 841,648 13 8,633 14 25,373 24,281 15 72,101 16 478,874 104,944 4,199 17 38,747 11 – 18 8,777 19 12,208 778,137 60,687 2,824 20 63,511 841,648 as of 31 December 2014 13,863 5,875 486,445 117,075 94,564 13,587 22,262 1,046 37,080 235 13,755 805,787 8,496 23,015 19,800 68,989 463,334 94,564 4,932 38,609 102 8,207 12,037 742,085 60,747 2,955 63,702 805,787 51 Consolidated inCome statements consolidated income statements € mn Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Income from fully consolidated private equity investments Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) 52 Interim Report Second Quarter and First Half Year of 2015 Allianz Group note 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 27 37 39 39 three months ended 30 June 2015 2014 17,849 17,096 (1,893) (1,130) 1,307 734 17,263 16,700 5,964 5,538 (1,317) (53) 2,094 1,026 2,673 2,537 279 46 184 174 27,139 25,967 (13,130) (12,962) 835 705 (12,294) (12,257) (3,560) (3,598) (309) (308) (17) (15) (156) (74) (265) (232) (6,283) (5,703) (949) (830) (45) (24) (61) 9 (32) (26) (190) (174) (24,160) (23,235) 2,979 2,733 (867) (875) 2,112 1,858 94 103 2,018 1,755 4.44 3.87 4.38 3.84 six months ended 30 June 2015 2014 42,124 38,908 (3,504) (2,492) (3,086) (3,030) 35,535 33,386 11,368 10,677 (758) (373) 4,931 1,932 5,317 4,945 356 123 355 343 57,103 51,035 (26,475) (25,294) 1,377 1,228 (25,098) (24,066) (9,699) (7,038) (624) (610) (24) (24) (265) (436) (502) (431) (12,579) (11,034) (1,890) (1,613) (77) (49) (151) 9 (60) (56) (359) (348) (51,330) (45,695) 5,773 5,339 (1,725) (1,741) 4,048 3,598 209 203 3,839 3,395 8.45 7.48 8.45 7.41 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes Consolidated statements of Comprehensive inCome consolidated statements of comprehensive income € mn three months ended 30 June six months ended 30 June 2015 2014 2015 Net income 2,112 1,858 4,048 Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income – – – Changes arising during the period (707) 231 1,146 Subtotal (707) 231 1,146 Available-for-sale investments Reclassifications to net income (448) (177) (955) Changes arising during the period (6,110) 2,375 (1,405) Subtotal (6,557) 2,197 (2,360) Cash flow hedges Reclassifications to net income (2) 15 (3) Changes arising during the period (228) 30 (137) Subtotal (230) 45 (140) Share of other comprehensive income of associates and joint ventures Reclassifications to net income 7 – 7 Changes arising during the period (39) (8) 89 Subtotal (33) (8) 96 Miscellaneous Reclassifications to net income – – – Changes arising during the period 5 12 5 Subtotal 5 12 5 Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans 661 (334) 277 Total other comprehensive income (6,861) 2,143 (977) Total comprehensive income (4,749) 4,002 3,071 Total comprehensive income attributable to: Non-controlling interests 65 136 241 Shareholders (4,814) 3,865 2,830 For further details concerning income taxes relating to components of the other comprehensive income, please see note 37. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 3,598 – 248 248 (272) 4,688 4,416 13 35 48 – 1 1 – (16) (17) (691) 4,007 7,605 278 7,327 53 Consolidated statements of Changes in equity consolidated statements of changes in eQUitY € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Balance as of 1 January 2014 28,869 17,786 (3,313) 6,742 Total comprehensive income1 – 2,693 234 4,399 Paid-in capital – – – – Treasury shares – 4 – – Transactions between equity holders – (32) 1 – Dividends paid – (2,405) – – Balance as of 30 June 2014 28,869 18,046 (3,078) 11,141 Balance as of 1 January 2015 28,928 19,878 (1,977) 13,917 Total comprehensive income1 – 4,205 1,095 (2,470) Paid-in capital – – – – Treasury shares – 6 – – Transactions between equity holders – 219 (3) – Dividends paid – (3,112) – – Balance as of 30 June 2015 28,928 21,196 (885) 11,447 1 Total comprehensive income in shareholders’ equity for the six months ended 30 June 2015 comprises net income attributable to shareholders of € 3,839 mn (2014: € 3,395 mn). 54 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Shareholders’ equity 50,083 7,327 – 4 (31) (2,405) 54,979 60,747 2,830 – 6 216 (3,112) 60,687 Non- controlling interests 2,765 278 – – (5) (205) 2,833 2,955 241 – – (190) (183) 2,824 Total equity 52,849 7,605 – 4 (36) (2,610) 57,812 63,702 3,071 – 6 26 (3,295) 63,511 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated statements of Cash flows consolidated statements of cash flows € mn six months ended 30 June sUmmarY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities Interim Report Second Quarter and First Half Year of 2015 Allianz Group Consolidated Statements of Cash Flows Notes 2015 13,908 (13,006) (3,045) 541 (1,604) 13,863 12,259 4,048 (162) (4,666) 2,471 684 24 3,026 (2,813) (542) 2,016 (1,495) (264) 4,015 1,563 10,262 380 (4,640) 9,859 13,908 2014 19,210 (13,339) (4,420) 44 1,497 11,207 12,704 3,598 (94) (1,496) 185 579 24 2,061 984 475 284 (601) (980) 3,351 721 11,986 56 (1,923) 15,612 19,210 55 Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn six months ended 30 June 2015 2014 cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 701 415 Available-for-sale investments 85,219 65,247 Held-to-maturity investments 1,539 379 Investments in associates and joint ventures 868 257 Non-current assets and disposal groups classified as held for sale 128 16 Real estate held for investment 160 210 Loans and advances to banks and customers (purchased loans) 6,195 5,602 Property and equipment 58 76 Subtotal 94,868 72,203 Payments for the purchase or origination of: Financial assets designated at fair value through income (1,251) (587) Available-for-sale investments (99,556) (80,041) Held-to-maturity investments (1,378) (218) Investments in associates and joint ventures (839) (333) Non-current assets and disposal groups classified as held for sale (2) (21) Real estate held for investment (495) (365) Loans and advances to banks and customers (purchased loans) (2,611) (2,297) Property and equipment (1,050) (628) Subtotal (107,181) (84,491) Business combinations (note 3)1: Proceeds from sale of subsidiaries, net of cash disposed – – Acquisitions of subsidiaries, net of cash acquired – – Change in other loans and advances to banks and customers (originated loans) (317) (952) Other (net) (376) (99) Net cash flow used in investing activities (13,006) (13,339) cash flow from financing activities Net change in liabilities to banks and customers (202) (696) Proceeds from the issuance of certificated liabilities and subordinated liabilities 3,181 1,387 Repayments of certificated liabilities and subordinated liabilities (2,652) (2,463) Cash inflow from capital increases – – Transactions between equity holders 26 (36) Dividends paid to shareholders (3,295) (2,610) Net cash from sale or purchase of treasury shares 8 5 Other (net) (111) (7) Net cash flow used in financing activities (3,045) (4,420) sUpplementarY information on the consolidated statements of cash flows Income taxes paid (1,345) (1,312) Dividends received 1,095 891 Interest received 10,392 10,068 Interest paid (559) (622) 1 The consideration for the Property-Casualty business of the Territory Insurance Office (tio) in Darwin has already been paid in 2014 and was therefore already included in the consolidated statement of cash flows for the year ended 31 December 2014. As a consequence, the cash flow for the six months ended 30 June 2015 included in the line “Acquisition of subsidiaries, net of cash acquired” is not reconcilable with note 3. 56 Interim Report Second Quarter and First Half Year of 2015 Allianz Group B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes Notes to the Condensed Consolidated Interim Financial Statements General InformatIon 1 – Basis of presentation The condensed consolidated interim financial statements are presented in millions of Euros (€ mn), unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute fig- ures. Previously published figures have been adjusted accordingly. The condensed consolidated interim financial statements of the Allianz Group – comprising the consolidated balance sheets, con- solidated income statements, consolidated statements of compre- hensive income, consolidated statements of changes in equity, con- solidated statements of cash flows and selected explanatory notes – are presented in accordance with the requirements of IAS 34, Inter- im Financial Reporting, and have been prepared in conformity with International Financial Reporting Standards (IFRSs), as adopted under European Union (E.U.) regulations in accordance with § 315a of the German Commercial Code (HGB). IFRSs comprise the Inter- national Financial Reporting Standards (IFRSs), the International Accounting Standards (IASs) and the interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC). These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Manage- ment on 6 August 2015. 2 – Recently adopted accounting pronouncements recently adopted accounting pronouncements effective 1 January 2015 The following interpretation as well as the amendments to and revi- sions of existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2015: Within these condensed consolidated interim financial state- ments, the Allianz Group has applied all IFRSs issued by the IASB that are endorsed by the E.U. and are compulsory as of 1 January 2015. For further information, please see note 2. − IFRIC 21, Levies, − IAS 19, Defined Benefit Plan: Employee Contributions, − Annual Improvements to IFRSs 2010 – 2012 Cycle, − Annual Improvements to IFRSs 2011 – 2013 Cycle. For existing and unchanged IFRSs, the accounting policies for rec og nition, measurement, consolidation and presentation applied in the preparation of the condensed consolidated interim financial statements are consistent with the accounting policies that have been applied in the preparation of the consolidated financial state- ments for the year ended 31 December 2014. These condensed con- solidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Allianz Group Annual Report 2014. These changes had no material impact on the financial results or financial position of the Allianz Group. 3 – Consolidation significant acquisition IFRSs do not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsur- ance contracts and investment contracts with discretionary partici- pation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts, the provisions embodied under accounting principles generally accept- ed in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005 have been applied. Property-Casualty insurance business of the Territory Insurance Office (tio), Darwin Effective 1 January 2015, the Allianz Group acquired the Property- Casualty insurance business of the Territory Insurance Office (TIO business), Darwin, and entered into a 10-year agreement to manage the compulsory motor accidents compensation scheme (mAC con- tract). The acquired TIO business includes, inter alia, all relevant insurance assets and liabilities, operations, employees and the brand name related to the TIO business. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 57 The acquired TIO business represents insurance activities with premiums equal to approximately € 88 mn (for the year 2014). As a result of the acquisition, the Allianz Group expects to increase its presence in the Australian market. It also expects to reduce costs through economies of scale and through synergies in the reinsurance area. The final consideration paid in cash amounts to € 150 mn. The following table summarizes the recognized amounts of assets acquired and liabilities assumed in the context of the TIO busi- ness and the mAC contract: property-casualty insurance business of the territory insurance office (tio) – identifiable assets and liabilities € mn Fair value Cash and cash equivalents 11 Financial assets carried at fair value through income 79 Investments 50 Loans and advances to banks and customers 2 Reinsurance assets 32 Deferred tax assets 2 Other assets 72 Intangible assets 37 Total assets 285 Unearned premiums (45) Reserves for loss and loss adjustment expenses (107) Deferred tax liabilities (18) Other liabilities (13) Total liabilities (183) Total net identifiable assets 102 58 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Intangible assets mainly consist of the fair values of the mAC contract, the TIO brand name, the customer relationships related to the acquired insurance portfolio and the present value of the transferred in-force business. The fair values of other assets, intangible assets, deferred taxes and goodwill are provisional as the receipt of the final valuations for those assets is still pending. The acquired TIO business comprises a preliminary goodwill which was determined as follows as of 1 January 2015: property-casualty insurance business of the territory insurance office (tio) – determination of goodwill € mn Fair value Consideration transferred 150 Total net identifiable assets 102 Goodwill 48 The goodwill of € 48 mn of the business combination largely reflects the benefits associated with cost and reinsurance synergies as well as the ability to revert to an existing infrastructure in a new geograph- ical market. None of this goodwill is expected to be deductible for income tax purposes. In administrative expenses, acquisition-related costs in the amount of € 1 mn were included in fiscal year 2014 and in the amount of € 3 mn in fiscal year 2015. The impact of the acquired Property-Casualty insurance busi- ness of the Territory Insurance Office on the Allianz Group’s total rev- enues and net income since the acquisition was € 46 mn and € (2) mn, respectively. B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 4 – Segment reporting IdentIfIcatIon of reportable segments The business activities of the Allianz Group are first organized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided into the business segments Property-Casualty and Life/Health. In accordance with the responsibilities of the Board of Management, each of the insurance business segments is grouped into the following reportable segments: − German Speaking Countries, − Western & Southern Europe, − Iberia & Latin America, − USA (Life/Health only), − Global Insurance Lines & Anglo Markets, − Growth Markets, − Allianz Worldwide Partners (Property-Casualty only). Asset management activities represent a separate reportable seg- ment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In total, the Allianz Group has identified 16 reportable segments in accordance with IFRS 8, Operating Segments. The types of products and services from which the reportable segments derive revenues are described below. Property-Casualty In the business segment Property-Casualty, reportable segments offer a wide variety of insurance products to both private and corpo- rate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. Life/Health In the business segment Life/Health, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annuities, endowment and term insurance, unit-linked and investment-oriented products, as well as full private health, supplemental health and long-term care insurance. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes Asset Management The reportable segment Asset Management operates as a global pro- vider of institutional and retail asset manage ment products and ser- vices to third-party investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed- income funds as well as alternative products. The United States and Germany as well as France, Italy and the Asia-Pacific region represent the primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the manage- ment and support of the Allianz Group’s businesses through its strat- egy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology and other func- tions. The reportable segment Banking consists of the banking activ- ities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a primary focus on the latter. The reportable segment Alterna- tive Investments provides global alternative investment manage- ment services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group’s insur- ance operations. The reportable segment Alternative Investments also includes a fully consolidated private equity investment. The income and expenses of this investment are included in the non- operating result. general segment reportIng InformatIon Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to trans actions with third par- ties. Transactions between reportable segments are eliminated in the Consolidation. For the reportable segment Asset Management, interest revenues are reported net of interest expenses. Financial infor mation is recorded based on reportable segments. Cross-seg- mental country-specific information is not determined. reportable segments measure of profIt or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments as well as of the Allianz Group as a whole. Operating profit highlights the portion of income before income taxes that is attributable to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s underlying operating per- formance and the comparability of its operating performance over time. 59 To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: − acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations, − interest expenses from external debt, as these relate to the capital structure of the Allianz Group, − income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is out- side the Allianz Group’s normal scope of operating business, − income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s long-term performance, − realized capital gains and losses (net) or impairments of invest- ments (net), as the timing of sales that would result in such real- ized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control and which can vary, sometimes materially, over time, − one-off effects from pension revaluation. Allianz SE has a joint liability for a large part of the pension provisions of its German subsidiaries. Service costs incurred in this context are borne by the German subsidiaries and disbursed to Allianz SE. In the financial year 2014, the German subsidiaries of Allianz SE changed the application of the option provided by article 67 (1) sentence 1 of the Introductory Act to the German Commercial Code (EGHGB) to distribute the conversion expenses due to the first-time application of the German Accounting Law Modern- ization Act ( BilMoG) in 2010 over a period of up to 15 years in the way that the conversion expenses were fully recognized in the first quarter of 2014. Additionally, effective 1 January 2015, the cost allocation scheme for the pension provisions between the German subsidiaries and Allianz SE was adapted to reflect the changed interest rate environment. For both effects, the result- ing one-off expenses at the German subsidiaries and one-off income at Allianz SE are shown as non-operating items. In case of policyholder participation within the Life/Health insurance business, the one-off expenses and the corresponding one-off income at Allianz SE are presented within operating profit. On the Allianz Group level, the one-off expenses and income offset each other. The only impact on the Allianz Group level is the related policyholder participation, which had a positive impact on income before income taxes of € 148 mn in 2015 and of € 116 mn in 2014. 60 Interim Report Second Quarter and First Half Year of 2015 Allianz Group The following exceptions apply to this general rule: − In all reportable segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income relates to operating business. − For life/health insurance business and property-casualty insur- ance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also applicable to tax benefits, which are shared with policyholders. IFRS requires that the consolidated income statements present all tax benefits in the income taxes line item, even though these belong to policyholders. In the seg- ment reporting, the tax benefits are reclassified and shown within operating profit in order to adequately reflect the policy- holder participation in tax benefits. Operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as deter- mined in accordance with IFRS. recent organIzatIonal changes Effective 1 January 2015, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The property-casualty insurance opera- tions of the former reportable segment USA have been allocated to the reportable segment Global Insurance Lines & Anglo Markets. Fur- thermore, Australia has been reallocated from the reportable seg- ment Global Insurance Lines & Anglo Markets to the reportable seg- ment Growth Markets. Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 61 busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon – consolIdated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets € mn lIabIlItIes and eQuItY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities 62 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Property-Casualty as of 30 June 2015 3,333 568 101,262 13,965 – 10,048 4,962 1,163 23,894 165 2,810 162,169 Property-Casualty as of 30 June 2015 84 970 20,833 61,584 14,458 – 2,403 17,687 – 13 – 118,032 as of 31 December 2014 3,668 601 97,129 14,963 – 8,466 4,595 1,013 23,494 61 2,722 156,710 as of 31 December 2014 129 878 16,595 58,925 14,276 – 2,681 19,445 – 38 – 112,969 Life/Health as of 30 June 2015 6,388 6,431 387,507 92,069 104,944 5,716 19,493 347 17,895 – 3,219 644,008 Life/Health as of 30 June 2015 8,283 4,134 3,471 10,542 464,620 104,944 3,672 14,605 – 13 95 614,380 as of 31 December 2014 7,555 5,238 374,589 91,411 94,564 5,176 17,667 240 18,723 92 3,063 618,318 as of 31 December 2014 8,240 4,273 3,222 10,081 449,263 94,564 4,226 13,739 – 13 95 587,714 Asset Management as of 30 June 2015 1,662 39 238 101 – – – 362 2,463 – 7,566 12,431 Asset Management as of 30 June 2015 – 174 – – – – 6 2,838 – – – 3,018 as of 31 December 2014 1,449 46 106 72 – – – 177 2,951 – 7,286 12,087 as of 31 December 2014 – 174 – – – – 2 2,231 – – – 2,407 Corporate and Other as of 30 June 2015 1,436 516 110,030 16,522 – – – 1,381 8,080 – 672 138,636 Corporate and Other as of 30 June 2015 697 23,571 – – – – 185 24,113 – 12,047 12,163 72,777 as of 31 December 2014 2,028 511 108,669 17,547 – – – 1,782 8,595 83 685 139,900 as of 31 December 2014 648 20,749 – – – – 189 28,028 102 12,231 11,992 73,938 Consolidation as of 30 June 2015 (559) (433) (93,107) (6,861) – (68) – (2,068) (12,500) – – (115,596) Consolidation as of 30 June 2015 (431) (3,476) (23) (25) (203) – (2,068) (20,496) – (3,296) (50) (30,070) Total equity Total liabilities and equity as of 31 December 2014 (838) (521) (94,048) (6,917) – (55) – (2,167) (16,684) – – (121,229) as of 31 December 2014 (521) (3,057) (17) (18) (205) – (2,167) (24,834) – (4,075) (50) (34,943) Group as of 30 June 2015 12,259 7,121 505,930 115,796 104,944 15,695 24,455 1,184 39,831 165 14,266 841,648 Group as of 30 June 2015 8,633 25,373 24,281 72,101 478,874 104,944 4,199 38,747 – 8,777 12,208 778,137 63,511 841,648 as of 31 December 2014 13,863 5,875 486,445 117,075 94,564 13,587 22,262 1,046 37,080 235 13,755 805,787 as of 31 December 2014 8,496 23,015 19,800 68,989 463,334 94,564 4,932 38,609 102 8,207 12,037 742,085 63,702 805,787 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon – consolIdated balance sheets € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of as of 30 June 2015 as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 30 June 31 December 30 June 31 December 2015 2014 2015 2014 assets 1,662 1,449 1,436 2,028 (559) (838) 12,259 13,863 Cash and cash equivalents 3,333 3,668 6,388 7,555 Financial assets carried at fair value through income 568 601 6,431 5,238 39 46 516 511 (433) (521) 7,121 5,875 Investments 101,262 97,129 387,507 374,589 238 106 110,030 108,669 (93,107) (94,048) 505,930 486,445 Loans and advances to banks and customers 13,965 14,963 92,069 91,411 101 72 16,522 17,547 (6,861) (6,917) 115,796 117,075 Financial assets for unit-linked contracts – – 104,944 94,564 – – – – – – 104,944 94,564 Reinsurance assets 10,048 8,466 5,716 5,176 – – – – (68) (55) 15,695 13,587 Deferred acquisition costs 4,962 4,595 19,493 17,667 – – – – – – 24,455 22,262 Deferred tax assets 1,163 1,013 347 240 362 177 1,381 1,782 (2,068) (2,167) 1,184 1,046 Other assets 23,894 23,494 17,895 18,723 2,463 2,951 8,080 8,595 (12,500) (16,684) 39,831 37,080 Non-current assets and assets of disposal groups classified as held for sale 165 61 – 92 – – – 83 – – 165 235 Intangible assets 2,810 2,722 3,219 3,063 7,566 7,286 672 685 – – 14,266 13,755 Total assets 162,169 156,710 644,008 618,318 12,431 12,087 138,636 139,900 (115,596) (121,229) 841,648 805,787 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 as of 30 June 2015 as of 31 December 2014 as of as of 30 June 2015 31 December 30 June 31 December 30 June 2014 2015 2014 2015 lIabIlItIes and eQuItY – – 697 648 (431) (521) 8,633 8,496 Financial liabilities carried at fair value through income 84 129 8,283 8,240 Liabilities to banks and customers 970 878 4,134 4,273 174 174 23,571 20,749 (3,476) (3,057) 25,373 23,015 Unearned premiums 20,833 16,595 3,471 3,222 – – – – (23) (17) 24,281 19,800 Reserves for loss and loss adjustment expenses 61,584 58,925 10,542 10,081 – – – – (25) (18) 72,101 68,989 Reserves for insurance and investment contracts 14,458 14,276 464,620 449,263 – – – – (203) (205) 478,874 463,334 Financial liabilities for unit-linked contracts – – 104,944 94,564 – – – – – – 104,944 94,564 Deferred tax liabilities 2,403 2,681 3,672 4,226 6 2 185 189 (2,068) (2,167) 4,199 4,932 Other liabilities 17,687 19,445 14,605 13,739 2,838 2,231 24,113 28,028 (20,496) (24,834) 38,747 38,609 Liabilities of disposal groups classified as held for sale – – – – – – – 102 – – – 102 Certificated liabilities 13 38 13 13 – – 12,047 12,231 (3,296) (4,075) 8,777 8,207 Subordinated liabilities – – 95 95 – – 12,163 11,992 (50) (50) 12,208 12,037 Total liabilities 118,032 112,969 614,380 587,714 3,018 2,407 72,777 73,938 (30,070) (34,943) 778,137 742,085 Total equity 63,511 63,702 Total liabilities and equity 841,648 805,787 63 Interim Report Second Quarter and First Half Year of 2015 Allianz Group busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) € mn Property-Casualty Life/Health three months ended 30 June 2015 2014 2015 Total revenues1 11,843 10,846 16,719 Premiums earned (net) 11,553 10,701 5,710 Operating investment result Interest and similar income 983 939 4,846 Operating income from financial assets and liabilities carried at fair value through income (net) (29) 1 (1,272) Operating realized gains/losses (net) 58 29 1,606 Interest expenses, excluding interest expenses from external debt (21) (17) (25) Operating impairments of investments (net) (5) (1) (108) Investment expenses (87) (74) (245) Subtotal 899 877 4,802 Fee and commission income 358 302 332 Other income 237 11 42 Claims and insurance benefits incurred (net) (7,592) (7,086) (4,703) Change in reserves for insurance and investment contracts (net)2 (118) (135) (3,433) Loan loss provisions – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses (3,208) (3,036) (1,698) Fee and commission expenses (336) (280) (145) Operating amortization of intangible assets – – (5) Restructuring charges (40) – (20) Other expenses (7) (8) (29) Operating profit (loss) 1,745 1,345 853 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (20) (3) 39 Non-operating realized gains/losses (net) 207 114 64 Non-operating impairments of investments (net) (39) (20) (3) Subtotal 147 91 100 Income from fully consolidated private equity investments (net) – – – Interest expenses from external debt – – – Acquisition-related expenses – – – Non-operating amortization of intangible assets (17) (6) (19) Non-operating items 130 85 81 Income (loss) before income taxes 1,876 1,430 935 Income taxes (532) (461) (273) Net income (loss) 1,344 969 662 Net income (loss) attributable to: Non-controlling interests 37 42 37 Shareholders 1,306 928 624 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the three months ended 30 June 2015, includes expenses for premium refunds (net) in Property- Casualty of € (59) mn (2014: € (72) mn). 64 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 16,961 5,999 4,472 (37) 754 (24) (49) (232) 4,884 261 33 (5,173) (3,457) – (1,447) (93) (5) 8 (26) 985 (25) 90 (3) 63 – – – (8) 54 1,039 (308) 731 32 699 Asset Management 2015 1,548 – 1 (9) – (3) – – (11) 1,975 1 – – – (1,043) (416) – – – 505 – – – – – – 3 (3) – 505 (176) 329 16 314 2014 1,607 – 2 5 – (3) – – 4 1,972 2 – – – (932) (371) – 1 – 676 – – – – – – – (3) (3) 673 (254) 419 23 396 Corporate and Other 2015 131 – 219 (11) – (111) – (19) 78 207 – – – (17) (331) (166) – (1) (1) (230) (15) 152 (1) 136 (10) (213) 1 (2) (89) (318) 113 (205) 4 (209) 2014 132 – 230 9 – (149) – (19) 71 177 – – – (15) (294) (158) – – – (219) (1) 38 (1) 36 (5) (206) 1 (2) (177) (397) 148 (249) 6 (255) Consolidation 2015 (72) – (85) (9) 6 65 – 86 62 (199) (1) 1 (9) – (7) 114 – – 6 (32) 9 – – 10 4 – – – 14 (18) 1 (17) – (17) 2014 (89) – (105) – – 91 – 93 79 (174) (1) 2 (6) – 5 72 – – 7 (16) (2) 1 – (1) 5 – – – 4 (13) (1) (13) – (13) Group 2015 30,170 17,263 5,964 (1,330) 1,670 (96) (113) (265) 5,830 2,673 279 (12,294) (3,560) (17) (6,286) (949) (5) (61) (32) 2,842 13 424 (43) 393 (6) (213) 3 (41) 137 2,979 (867) 2,112 94 2,018 2014 29,457 16,700 5,538 (22) 783 (102) (50) (232) 5,914 2,537 46 (12,257) (3,598) (15) (5,704) (830) (5) 9 (26) 2,770 (31) 243 (24) 188 – (206) 1 (20) (37) 2,733 (875) 1,858 103 1,755 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Total revenues1 11,843 10,846 16,719 16,961 1,548 1,607 131 132 (72) (89) 30,170 29,457 Premiums earned (net) 11,553 10,701 5,710 5,999 – – – – – – 17,263 16,700 Operating investment result 1 2 219 230 (85) (105) 5,964 5,538 Interest and similar income 983 939 4,846 4,472 Operating income from financial assets and liabilities carried at fair value (9) 5 (11) 9 (9) – (1,330) (22) through income (net) (29) 1 (1,272) (37) Operating realized gains/losses (net) 58 29 1,606 754 – – – – 6 – 1,670 783 Interest expenses, excluding interest expenses from external debt (21) (17) (25) (24) (3) (3) (111) (149) 65 91 (96) (102) Operating impairments of investments (net) (5) (1) (108) (49) – – – – – – (113) (50) Investment expenses (87) (74) (245) (232) – – (19) (19) 86 93 (265) (232) Subtotal 899 877 4,802 4,884 (11) 4 78 71 62 79 5,830 5,914 Fee and commission income 358 302 332 261 1,975 1,972 207 177 (199) (174) 2,673 2,537 Other income 237 11 42 33 1 2 – – (1) (1) 279 46 Claims and insurance benefits incurred (net) (7,592) (7,086) (4,703) (5,173) – – – – 1 2 (12,294) (12,257) Change in reserves for insurance and investment contracts (net)2 (118) (135) (3,433) (3,457) – – – – (9) (6) (3,560) (3,598) Loan loss provisions – – – – – – (17) (15) – – (17) (15) Acquisition and administrative expenses (net), excluding acquisition-related expenses (3,208) (3,036) (1,698) (1,447) (1,043) (932) (331) (294) (7) 5 (6,286) (5,704) Fee and commission expenses (336) (280) (145) (93) (416) (371) (166) (158) 114 72 (949) (830) Operating amortization of intangible assets – – (5) (5) – – – – – – (5) (5) Restructuring charges (40) – (20) 8 – 1 (1) – – – (61) 9 Other expenses (7) (8) (29) (26) – – (1) – 6 7 (32) (26) Operating profit (loss) 1,745 1,345 853 985 505 676 (230) (219) (32) (16) 2,842 2,770 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value – – (15) (1) 9 (2) 13 (31) through income (net) (20) (3) 39 (25) Non-operating realized gains/losses (net) 207 114 64 90 – – 152 38 – 1 424 243 Non-operating impairments of investments (net) (39) (20) (3) (3) – – (1) (1) – – (43) (24) Subtotal 147 91 100 63 – – 136 36 10 (1) 393 188 Income from fully consolidated private equity investments (net) – – – – – – (10) (5) 4 5 (6) – Interest expenses from external debt – – – – – – (213) (206) – – (213) (206) Acquisition-related expenses – – – – 3 – 1 1 – – 3 1 Non-operating amortization of intangible assets (17) (6) (19) (8) (3) (3) (2) (2) – – (41) (20) Non-operating items 130 85 81 54 – (3) (89) (177) 14 4 137 (37) Income (loss) before income taxes 1,876 1,430 935 1,039 505 673 (318) (397) (18) (13) 2,979 2,733 Income taxes (532) (461) (273) (308) (176) (254) 113 148 1 (1) (867) (875) Net income (loss) 1,344 969 662 731 329 419 (205) (249) (17) (13) 2,112 1,858 Net income (loss) attributable to: 16 23 4 6 – – 94 103 Non-controlling interests 37 42 37 32 Shareholders 1,306 928 624 699 314 396 (209) (255) (17) (13) 2,018 1,755 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating 2 For the three months ended 30 June 2015, includes expenses for premium refunds (net) in Property- revenues in Asset Management and total revenues in Corporate and Other (Banking). Casualty of € (59) mn (2014: € (72) mn). 65 Interim Report Second Quarter and First Half Year of 2015 Allianz Group busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) € mn Property-Casualty Life/Health six months ended 30 June 2015 2014 2015 2014 Total revenues1 29,182 26,063 35,540 34,124 Premiums earned (net) 23,072 21,111 12,463 12,275 Operating investment result Interest and similar income 1,847 1,792 9,272 8,631 Operating income from financial assets and liabilities carried at fair value through income (net) 33 16 (688) (305) Operating realized gains/losses (net) 138 55 4,044 1,581 Interest expenses, excluding interest expenses from external debt (43) (29) (52) (48) Operating impairments of investments (net) (7) (6) (195) (340) Investment expenses (162) (144) (472) (427) Subtotal 1,806 1,683 11,910 9,091 Fee and commission income 715 608 679 490 Other income 251 39 105 82 Claims and insurance benefits incurred (net) (15,243) (13,813) (9,858) (10,254) Change in reserves for insurance and investment contracts (net)2 (291) (260) (9,394) (6,771) Loan loss provisions – – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (6,456) (5,948) (3,420) (2,701) Fee and commission expenses (680) (571) (296) (180) Operating amortization of intangible assets – – (9) (9) Restructuring charges (130) (1) (20) 8 Other expenses (14) (14) (203) (166) Reclassification of tax benefits – – – – Operating profit (loss) 3,030 2,835 1,957 1,864 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (38) (62) (11) (25) Non-operating realized gains/losses (net) 434 197 100 116 Non-operating impairments of investments (net) (56) (77) (5) (8) Subtotal 340 58 84 82 Income from fully consolidated private equity investments (net) – – – – Interest expenses from external debt – – – – Acquisition-related expenses – – – – One-off effects from pension revaluation (181) (537) (13) (7) Non-operating amortization of intangible assets (30) (13) (28) (17) Reclassification of tax benefits – – – – Non-operating items 130 (491) 43 58 Income (loss) before income taxes 3,160 2,343 2,000 1,923 Income taxes (894) (729) (599) (562) Net income (loss) 2,266 1,614 1,401 1,360 Net income (loss) attributable to: Non-controlling interests 89 85 78 63 Shareholders 2,177 1,529 1,323 1,297 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the six months ended 30 June 2015, includes expenses for premium refunds (net) in Property-Casualty of € (168) mn (2014: € (131) mn). 66 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Asset Management 2015 3,121 – 3 (4) – (6) – – (7) 3,914 2 – – – (2,060) (788) – – – – 1,060 – – – – – – 9 (31) (5) – (27) 1,034 (375) 658 32 626 2014 3,124 – 4 3 – (5) – – 2 3,833 4 – – – (1,805) (716) – 3 – – 1,321 – (1) – (1) – – 3 (14) (5) – (17) 1,304 (479) 825 45 781 Corporate and Other 2015 270 – 412 – – (241) – (37) 134 407 148 – – (24) (652) (340) – (1) (2) – (331) (55) 207 (1) 151 (7) (425) 1 224 (4) – (62) (393) 138 (254) 10 (264) 2014 270 – 438 11 – (293) – (34) 121 344 – – – (24) (590) (293) – – – – (442) (8) 56 (4) 44 (11) (411) 3 675 (4) – 294 (147) 30 (117) 10 (127) Consolidation 2015 (175) – (167) 12 7 143 – 168 163 (398) (150) 3 (13) – (1) 214 – – 159 5 (19) (8) 1 – (7) 3 – – – – (5) (9) (28) 6 (22) – (22) 2014 (161) – (187) 4 (73) 176 – 174 94 (330) (3) 1 (6) – (112) 146 – – 124 – (85) (6) 1 – (5) 6 – – – – – 1 (84) (1) (84) – (84) Group 2015 67,939 35,535 11,368 (647) 4,189 (199) (202) (502) 14,007 5,317 356 (25,098) (9,699) (24) (12,590) (1,890) (9) (151) (60) 5 5,697 (112) 742 (63) 568 (4) (425) 10 – (68) (5) 76 5,773 (1,725) 4,048 209 3,839 2014 63,420 33,386 10,677 (272) 1,563 (199) (347) (431) 10,991 4,945 123 (24,066) (7,038) (24) (11,156) (1,613) (9) 9 (56) – 5,494 (101) 369 (89) 179 (5) (411) 6 117 (39) – (154) 5,339 (1,741) 3,598 203 3,395 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Total revenues1 29,182 26,063 35,540 34,124 3,121 3,124 270 270 (175) (161) 67,939 63,420 Premiums earned (net) 23,072 21,111 12,463 12,275 – – – – – – 35,535 33,386 Operating investment result 3 4 412 438 (167) (187) 11,368 10,677 Interest and similar income 1,847 1,792 9,272 8,631 Operating income from financial assets and liabilities carried at fair value (4) 3 – 11 12 4 (647) (272) through income (net) 33 16 (688) (305) Operating realized gains/losses (net) 138 55 4,044 1,581 – – – – 7 (73) 4,189 1,563 Interest expenses, excluding interest expenses from external debt (43) (29) (52) (48) (6) (5) (241) (293) 143 176 (199) (199) Operating impairments of investments (net) (7) (6) (195) (340) – – – – – – (202) (347) Investment expenses (162) (144) (472) (427) – – (37) (34) 168 174 (502) (431) Subtotal 1,806 1,683 11,910 9,091 (7) 2 134 121 163 94 14,007 10,991 Fee and commission income 715 608 679 490 3,914 3,833 407 344 (398) (330) 5,317 4,945 Other income 251 39 105 82 2 4 148 – (150) (3) 356 123 Claims and insurance benefits incurred (net) (15,243) (13,813) (9,858) (10,254) – – – – 3 1 (25,098) (24,066) Change in reserves for insurance and investment contracts (net)2 (291) (260) (9,394) (6,771) – – – – (13) (6) (9,699) (7,038) Loan loss provisions – – – – – – (24) (24) – – (24) (24) Acquisition and administrative expenses (net), (2,060) (1,805) (652) (590) (1) (112) (12,590) (11,156) excluding acquisition-related expenses and one-off effects from pension revaluation (6,456) (5,948) (3,420) (2,701) Fee and commission expenses (680) (571) (296) (180) (788) (716) (340) (293) 214 146 (1,890) (1,613) Operating amortization of intangible assets – – (9) (9) – – – – – – (9) (9) Restructuring charges (130) (1) (20) 8 – 3 (1) – – – (151) 9 Other expenses (14) (14) (203) (166) – – (2) – 159 124 (60) (56) Reclassification of tax benefits – – – – – – – – 5 – 5 – Operating profit (loss) 3,030 2,835 1,957 1,864 1,060 1,321 (331) (442) (19) (85) 5,697 5,494 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (38) (62) (11) (25) – – (55) (8) (8) (6) (112) (101) Non-operating realized gains/losses (net) 434 197 100 116 – (1) 207 56 1 1 742 369 Non-operating impairments of investments (net) (56) (77) (5) (8) – – (1) (4) – – (63) (89) Subtotal 340 58 84 82 – (1) 151 44 (7) (5) 568 179 Income from fully consolidated private equity investments (net) – – – – – – (7) (11) 3 6 (4) (5) Interest expenses from external debt – – – – – – (425) (411) – – (425) (411) Acquisition-related expenses – – – – 9 3 1 3 – – 10 6 One-off effects from pension revaluation (181) (537) (13) (7) (31) (14) 224 675 – – – 117 Non-operating amortization of intangible assets (30) (13) (28) (17) (5) (5) (4) (4) – – (68) (39) Reclassification of tax benefits – – – – – – – – (5) – (5) – Non-operating items 130 (491) 43 58 (27) (17) (62) 294 (9) 1 76 (154) Income (loss) before income taxes 3,160 2,343 2,000 1,923 1,034 1,304 (393) (147) (28) (84) 5,773 5,339 Income taxes (894) (729) (599) (562) (375) (479) 138 30 6 (1) (1,725) (1,741) Net income (loss) 2,266 1,614 1,401 1,360 658 825 (254) (117) (22) (84) 4,048 3,598 Net income (loss) attributable to: Non-controlling interests 89 85 78 63 32 45 10 10 – – 209 203 Shareholders 2,177 1,529 1,323 1,297 626 781 (264) (127) (22) (84) 3,839 3,395 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating 2 For the six months ended 30 June 2015, includes expenses for premium refunds (net) in Property-Casualty revenues in Asset Management and total revenues in Corporate and Other (Banking). of € (168) mn (2014: € (131) mn). 67 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – propertY-casualtY reportable segments – propertY-casualtY € mn three months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 1 2 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. Previously reported information for the three months ended 30 June 2014 was not adjusted. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 68 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 3 4 5 German Speaking Countries Western & Southern Europe 2015 2014 2015 2014 2,166 2,159 2,734 2,475 (340) (334) (159) (165) 752 707 139 166 2,577 2,531 2,714 2,475 284 299 259 238 (32) 4 8 1 58 29 – – 35 31 – 9 8 7 4 2 2,932 2,902 2,985 2,725 (1,655) (1,692) (1,749) (1,580) (101) (120) (10) (9) (2) (1) (3) (4) (5) (1) – – (29) (22) (28) (25) (612) (636) (741) (703) (33) (28) – (9) (35) – – – (6) (5) (2) (1) (2,477) (2,505) (2,533) (2,332) 455 397 452 393 (2) (8) – 5 63 16 63 42 (14) (5) (19) (10) (1) (1) (11) (3) 48 3 33 34 502 400 485 427 (140) (108) (157) (165) 362 292 328 262 (1) (1) 3 3 363 293 325 259 64.2 66.8 64.4 63.8 23.7 25.1 27.3 28.4 87.9 92.0 91.7 92.2 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. Iberia & Latin America 2015 2014 1,142 1,092 (203) (158) 8 25 948 959 50 50 1 – – – – – 1 – 1,000 1,009 (684) (682) (1) (1) – (1) – – (4) (3) (266) (247) – – – – – – (955) (934) 44 75 (1) 1 4 2 – – – – 3 3 48 78 (6) (21) 42 57 2 2 40 55 72.2 71.1 28.0 25.8 100.2 96.9 Global Insurance Lines & Anglo Markets 2015 2014 4,540 3,785 (1,719) (780) 444 (38) 3,265 2,968 282 250 (4) (1) – – 117 112 224 – 3,884 3,328 (2,170) (1,916) (4) (4) (17) (9) – – (12) (11) (959) (906) (110) (100) (5) – – – (3,276) (2,947) 608 382 (11) (2) 34 46 (6) (4) (2) (1) 15 38 623 420 (172) (126) 451 294 24 31 427 264 66.5 64.6 29.4 30.5 95.8 95.1 Growth Markets 2015 1,485 (288) (35) 1,162 100 1 – 53 – 1,315 (748) (2) (1) – (13) (357) (39) – – (1,160) 155 (7) 43 – (4) 32 187 (49) 138 8 130 64.4 30.7 95.1 2014 1,442 (275) (28) 1,140 94 (1) – 48 1 1,282 (810) (2) (1) – (13) (350) (34) – (1) (1,211) 71 – 8 – (2) 6 77 (34) 43 6 37 71.1 30.7 101.8 Allianz Worldwide Partners1 2015 2014 852 689 (25) (19) 61 (41) 887 628 11 9 (3) (2) – – 174 126 – – 1,069 762 (586) (406) – – (1) – – – – – (274) (200) (176) (127) – – – – (1,038) (734) 31 28 (1) 1 – – – – – – (1) 1 30 28 (7) (8) 23 20 2 2 21 19 66.1 64.6 30.9 31.9 97.0 96.5 Consolidation 2015 (1,075) 1,075 – – (4) – – (22) – (26) – – 3 – – 1 22 – – 26 – – – – – – – – – – – –5 –5 –5 2014 (795) 795 – – – – – (25) – (25) – – – – – 7 18 – – 25 – – – – 1 1 1 – 1 – 1 –5 –5 –5 Property-Casualty 2015 2014 11,843 10,846 (1,660) (936) 1,369 791 11,553 10,701 983 939 (29) 1 58 29 358 302 237 11 13,159 11,983 (7,592) (7,086) (118) (135) (21) (17) (5) (1) (87) (74) (3,208) (3,036) (336) (280) (40) – (7) (8) (11,413) (10,638) 1,745 1,345 (20) (3) 207 114 (39) (20) (17) (6) 130 85 1,876 1,430 (532) (461) 1,344 969 37 42 1,306 928 65.7 66.2 27.8 28.4 93.5 94.6 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – propertY-casualtY reportable segments – propertY-casualtY € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America Growth Markets Allianz Worldwide Partners1 Consolidation Property-Casualty three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Gross premiums written 2,166 2,159 2,734 2,475 1,142 1,092 4,540 3,785 1,485 1,442 852 689 (1,075) (795) 11,843 10,846 Ceded premiums written (340) (334) (159) (165) (203) (158) (1,719) (780) (288) (275) (25) (19) 1,075 795 (1,660) (936) Change in unearned premiums 752 707 139 166 8 25 444 (38) (35) (28) 61 (41) – – 1,369 791 Premiums earned (net) 2,577 2,531 2,714 2,475 948 959 3,265 2,968 1,162 1,140 887 628 – – 11,553 10,701 Interest and similar income 284 299 259 238 50 50 282 250 100 94 11 9 (4) – 983 939 Operating income from financial assets and liabilities carried at fair value through income (net) (32) 4 8 1 1 – (4) (1) 1 (1) (3) (2) – – (29) 1 Operating realized gains/losses (net) 58 29 – – – – – – – – – – – – 58 29 Fee and commission income 35 31 – 9 – – 117 112 53 48 174 126 (22) (25) 358 302 Other income 8 7 4 2 1 – 224 – – 1 – – – – 237 11 Operating revenues 2,932 2,902 2,985 2,725 1,000 1,009 3,884 3,328 1,315 1,282 1,069 762 (26) (25) 13,159 11,983 Claims and insurance benefits incurred (net) (1,655) (1,692) (1,749) (1,580) (684) (682) (2,170) (1,916) (748) (810) (586) (406) – – (7,592) (7,086) Change in reserves for insurance and investment contracts (net) (101) (120) (10) (9) (1) (1) (4) (4) (2) (2) – – – – (118) (135) Interest expenses (2) (1) (3) (4) – (1) (17) (9) (1) (1) (1) – 3 – (21) (17) Operating impairments of investments (net) (5) (1) – – – – – – – – – – – – (5) (1) Investment expenses (29) (22) (28) (25) (4) (3) (12) (11) (13) (13) – – – – (87) (74) Acquisition and administrative expenses (net) (612) (636) (741) (703) (266) (247) (959) (906) (357) (350) (274) (200) 1 7 (3,208) (3,036) Fee and commission expenses (33) (28) – (9) – – (110) (100) (39) (34) (176) (127) 22 18 (336) (280) Restructuring charges (35) – – – – – (5) – – – – – – – (40) – Other expenses (6) (5) (2) (1) – – – – – (1) – – – – (7) (8) Operating expenses (2,477) (2,505) (2,533) (2,332) (955) (934) (3,276) (2,947) (1,160) (1,211) (1,038) (734) 26 25 (11,413) (10,638) Operating profit 455 397 452 393 44 75 608 382 155 71 31 28 – – 1,745 1,345 Non-operating income from financial assets and liabilities carried at fair value through income (net) (2) (8) – 5 (1) 1 (11) (2) (7) – (1) 1 – – (20) (3) Non-operating realized gains/losses (net) 63 16 63 42 4 2 34 46 43 8 – – – – 207 114 Non-operating impairments of investments (net) (14) (5) (19) (10) – – (6) (4) – – – – – – (39) (20) Amortization of intangible assets (1) (1) (11) (3) – – (2) (1) (4) (2) – – – 1 (17) (6) Non-operating items 48 3 33 34 3 3 15 38 32 6 (1) 1 – 1 130 85 Income before income taxes 502 400 485 427 48 78 623 420 187 77 30 28 – 1 1,876 1,430 Income taxes (140) (108) (157) (165) (6) (21) (172) (126) (49) (34) (7) (8) – – (532) (461) Net income 362 292 328 262 42 57 451 294 138 43 23 20 – 1 1,344 969 Net income attributable to: 2 2 24 31 8 6 2 2 – – 37 42 Non-controlling interests (1) (1) 3 3 Shareholders 363 293 325 259 40 55 427 264 130 37 21 19 – 1 1,306 928 Loss ratio2 in % 64.2 66.8 64.4 63.8 72.2 71.1 66.5 64.6 64.4 71.1 66.1 64.6 –5 –5 65.7 66.2 Expense ratio3 in % 23.7 25.1 27.3 28.4 28.0 25.8 29.4 30.5 30.7 30.7 30.9 31.9 –5 –5 27.8 28.4 Combined ratio4 in % 87.9 92.0 91.7 92.2 100.2 96.9 95.8 95.1 95.1 101.8 97.0 96.5 –5 –5 93.5 94.6 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 1 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable 4 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. incurred (net) divided by premiums earned (net). Previously reported information for the three months ended 30 June 2014 was not adjusted. 5 Presentation not meaningful. 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 69 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – propertY-casualtY (contInued) reportable segments – propertY-casualtY (contInued) € mn six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) One-off effects from pension revaluation Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 1 2 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. Previously reported information for the six months ended 30 June 2014 was not adjusted. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 70 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 3 4 5 German Speaking Countries Western & Southern Europe 2015 2014 2015 2014 7,806 7,543 6,233 5,639 (1,184) (1,151) (456) (410) (1,509) (1,412) (351) (301) 5,113 4,980 5,426 4,928 554 582 454 432 14 8 6 1 138 55 – – 68 60 22 19 19 16 6 4 5,906 5,700 5,913 5,384 (3,459) (3,291) (3,465) (3,142) (259) (226) (20) (22) (8) (4) (8) (8) (7) (6) – – (51) (45) (51) (47) (1,248) (1,261) (1,480) (1,352) (64) (55) (19) (18) (35) – – – (11) (9) (3) (2) (5,142) (4,896) (5,047) (4,592) 764 805 867 792 (42) (33) 24 (18) 199 51 77 60 (27) (14) (20) (54) (166) (530) – – (1) (1) (19) (6) (37) (526) 61 (18) 726 279 928 774 (185) (63) (317) (290) 542 216 612 484 (2) (1) 6 8 544 217 606 476 67.7 66.1 63.9 63.8 24.4 25.3 27.3 27.4 92.1 91.4 91.2 91.2 Represents acquisition and administrative expenses (net), excluding one-off effects from pension revalu- ation, divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effects from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. Iberia & Latin America 2015 2014 2,440 2,221 (417) (326) (130) (20) 1,894 1,875 104 99 4 8 – – – – 1 17 2,002 1,999 (1,363) (1,320) (3) (2) (1) (1) – – (8) (7) (516) (481) – – – – – (1) (1,890) (1,812) 112 187 1 2 10 5 – (1) – – (1) (1) 10 6 122 193 (28) (55) 94 139 3 3 91 136 72.0 70.4 27.2 25.6 99.2 96.0 Global Insurance Lines & Anglo Markets 2015 2014 10,564 8,727 (3,618) (2,111) (301) (746) 6,645 5,870 520 482 13 – – – 229 223 224 – 7,630 6,575 (4,283) (3,693) (8) (8) (29) (13) – – (24) (20) (2,003) (1,783) (213) (199) (95) (1) – – (6,656) (5,719) 974 856 (14) (11) 89 71 (8) (8) (13) (7) (3) (3) 51 42 1,026 898 (272) (254) 753 644 65 58 688 585 64.5 62.9 30.1 30.4 94.6 93.3 Growth Markets 2015 2,977 (621) (58) 2,299 199 1 – 98 1 2,598 (1,551) (1) (1) – (27) (690) (78) – – (2,350) 248 (6) 60 – – (6) 47 296 (77) 218 15 203 67.5 30.0 97.5 2014 2,933 (589) (89) 2,255 184 – – 100 3 2,541 (1,592) (3) (2) – (25) (695) (76) – (2) (2,395) 146 (2) 10 (1) – (4) 3 149 (54) 95 15 81 70.6 30.8 101.4 Allianz Worldwide Partners1 2015 2014 2,453 1,474 (154) (49) (603) (221) 1,696 1,204 22 15 (3) (1) – – 346 242 – – 2,061 1,459 (1,121) (775) – – (1) – – – (1) – (527) (388) (346) (247) – – – – (1,996) (1,410) 65 49 (1) – – – – – (1) – – – (3) – 62 49 (16) (14) 47 35 2 2 44 33 66.1 64.4 31.0 32.2 97.1 96.6 Consolidation 2015 2014 (3,290) (2,473) 3,290 2,473 – – – – (6) (1) – – – – (48) (36) – – (54) (36) – – – – 5 1 – – – – 7 12 41 24 – – – – 54 36 – – – – – – – – – – – 2 – 2 – 2 – – – 2 – – – 2 –5 –5 –5 –5 –5 –5 Property-Casualty 2015 2014 29,182 26,063 (3,159) (2,163) (2,951) (2,789) 23,072 21,111 1,847 1,792 33 16 138 55 715 608 251 39 26,056 23,621 (15,243) (13,813) (291) (260) (43) (29) (7) (6) (162) (144) (6,456) (5,948) (680) (571) (130) (1) (14) (14) (23,026) (20,787) 3,030 2,835 (38) (62) 434 197 (56) (77) (181) (537) (30) (13) 130 (491) 3,160 2,343 (894) (729) 2,266 1,614 89 85 2,177 1,529 66.1 65.4 28.0 28.2 94.1 93.6 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – propertY-casualtY (contInued) reportable segments – propertY-casualtY (contInued) € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America Growth Markets Allianz Worldwide Partners1 Consolidation Property-Casualty six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Gross premiums written 7,806 7,543 6,233 5,639 2,440 2,221 10,564 8,727 2,977 2,933 2,453 1,474 (3,290) (2,473) 29,182 26,063 Ceded premiums written (1,184) (1,151) (456) (410) (417) (326) (3,618) (2,111) (621) (589) (154) (49) 3,290 2,473 (3,159) (2,163) Change in unearned premiums (1,509) (1,412) (351) (301) (130) (20) (301) (746) (58) (89) (603) (221) – – (2,951) (2,789) Premiums earned (net) 5,113 4,980 5,426 4,928 1,894 1,875 6,645 5,870 2,299 2,255 1,696 1,204 – – 23,072 21,111 Interest and similar income 554 582 454 432 104 99 520 482 199 184 22 15 (6) (1) 1,847 1,792 Operating income from financial assets and liabilities carried at fair value through income (net) 14 8 6 1 4 8 13 – 1 – (3) (1) – – 33 16 Operating realized gains/losses (net) 138 55 – – – – – – – – – – – – 138 55 Fee and commission income 68 60 22 19 – – 229 223 98 100 346 242 (48) (36) 715 608 Other income 19 16 6 4 1 17 224 – 1 3 – – – – 251 39 Operating revenues 5,906 5,700 5,913 5,384 2,002 1,999 7,630 6,575 2,598 2,541 2,061 1,459 (54) (36) 26,056 23,621 Claims and insurance benefits incurred (net) (3,459) (3,291) (3,465) (3,142) (1,363) (1,320) (4,283) (3,693) (1,551) (1,592) (1,121) (775) – – (15,243) (13,813) Change in reserves for insurance and investment contracts (net) (259) (226) (20) (22) (3) (2) (8) (8) (1) (3) – – – – (291) (260) Interest expenses (8) (4) (8) (8) (1) (1) (29) (13) (1) (2) (1) – 5 1 (43) (29) Operating impairments of investments (net) (7) (6) – – – – – – – – – – – – (7) (6) Investment expenses (51) (45) (51) (47) (8) (7) (24) (20) (27) (25) (1) – – – (162) (144) Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (1,248) (1,261) (1,480) (1,352) (516) (481) (2,003) (1,783) (690) (695) (527) (388) 7 12 (6,456) (5,948) Fee and commission expenses (64) (55) (19) (18) – – (213) (199) (78) (76) (346) (247) 41 24 (680) (571) Restructuring charges (35) – – – – – (95) (1) – – – – – – (130) (1) Other expenses (11) (9) (3) (2) – (1) – – – (2) – – – – (14) (14) Operating expenses (5,142) (4,896) (5,047) (4,592) (1,890) (1,812) (6,656) (5,719) (2,350) (2,395) (1,996) (1,410) 54 36 (23,026) (20,787) Operating profit 764 805 867 792 112 187 974 856 248 146 65 49 – – 3,030 2,835 Non-operating income from financial assets and liabilities carried at fair value through income (net) (42) (33) 24 (18) 1 2 (14) (11) (6) (2) (1) – – – (38) (62) Non-operating realized gains/losses (net) 199 51 77 60 10 5 89 71 60 10 – – – – 434 197 Non-operating impairments of investments (net) (27) (14) (20) (54) – (1) (8) (8) – (1) – – – – (56) (77) One-off effects from pension revaluation (166) (530) – – – – (13) (7) – – (1) – – – (181) (537) Amortization of intangible assets (1) (1) (19) (6) (1) (1) (3) (3) (6) (4) – – – 2 (30) (13) Non-operating items (37) (526) 61 (18) 10 6 51 42 47 3 (3) – – 2 130 (491) Income before income taxes 726 279 928 774 122 193 1,026 898 296 149 62 49 – 2 3,160 2,343 Income taxes (185) (63) (317) (290) (28) (55) (272) (254) (77) (54) (16) (14) – – (894) (729) Net income 542 216 612 484 94 139 753 644 218 95 47 35 – 2 2,266 1,614 Net income attributable to: 3 3 65 58 15 15 2 2 – – 89 85 Non-controlling interests (2) (1) 6 8 Shareholders 544 217 606 476 91 136 688 585 203 81 44 33 – 2 2,177 1,529 Loss ratio2 in % 67.7 66.1 63.9 63.8 72.0 70.4 64.5 62.9 67.5 70.6 66.1 64.4 –5 –5 66.1 65.4 Expense ratio3 in % 24.4 25.3 27.3 27.4 27.2 25.6 30.1 30.4 30.0 30.8 31.0 32.2 –5 –5 28.0 28.2 Combined ratio4 in % 92.1 91.4 91.2 91.2 99.2 96.0 94.6 93.3 97.5 101.4 97.1 96.6 –5 –5 94.1 93.6 3 Represents acquisition and administrative expenses (net), excluding one-off effects from pension revalu- 1 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable ation, divided by premiums earned (net). segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. 4 Represents the total of acquisition and administrative expenses (net), excluding one-off effects from Previously reported information for the six months ended 30 June 2014 was not adjusted. pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Presentation not meaningful. 71 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – lIfe/health reportable segments – lIfe/health € mn three months ended 30 June Statutory premiums2 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Non-operating amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Margin on reserves3 in basis points 1 2 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. Previously reported information for the three months ended 30 June 2014 was not adjusted. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 72 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 3 4 German Speaking Countries Western & Southern Europe1 2015 2014 2015 2014 5,232 5,624 6,153 5,955 (35) (34) (85) (184) (63) (48) 16 4 5,134 5,542 6,083 5,776 (1,804) (1,888) (4,990) (4,574) 3,331 3,654 1,093 1,203 2,468 2,397 1,059 1,047 (1,133) 157 (7) (24) 1,330 603 263 144 26 21 189 129 36 27 6 5 6,056 6,859 2,603 2,505 (3,117) (3,498) (943) (1,052) (2,017) (2,329) (681) (594) (19) (20) (4) (4) (93) (36) (12) (12) (160) (151) (62) (63) (418) (384) (486) (504) (11) (9) (98) (58) (5) (5) – – (20) – – – (25) (21) (5) (4) (5,884) (6,453) (2,291) (2,290) 172 405 312 215 – – (2) – – – 34 88 – – (3) (2) – – (12) (3) – – 17 84 172 405 329 298 (77) (141) (74) (74) 95 264 255 224 – – 13 12 95 264 242 212 26 68 73 57 Represents annualized operating profit divided by the average of the current quarter-end and previous quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Iberia & Latin America 2015 2014 494 452 (2) (4) 3 4 496 451 (289) (258) 207 193 87 91 8 16 8 2 47 35 – – 357 336 (168) (157) (52) (51) – – – – (2) (2) (52) (54) (26) (17) – – – – – – (300) (282) 57 54 – – – – – – (4) (4) (4) (4) 53 50 (15) (15) 38 36 11 9 27 26 227 247 USA 2015 2,592 (36) (6) 2,550 (2,264) 286 953 (136) 2 31 – 1,136 (28) (371) (3) – (13) (416) (7) – – – (839) 297 41 23 – – 64 361 (109) 252 – 252 117 2014 3,352 (27) (3) 3,322 (3,090) 232 709 (183) 2 28 – 788 (21) (305) (2) – (9) (246) (5) – – – (586) 202 (25) – – – (25) 177 (54) 123 – 123 108 Global Insurance Lines & Anglo Markets 2015 2014 158 142 (68) (46) 6 7 96 102 – – 96 102 15 14 – – – – – – – – 111 116 (71) (78) 2 (1) – – – – – – (29) (19) – – – – – – – – (98) (98) 13 18 – – – – – – – – – – 13 18 (2) (4) 11 14 – – 11 14 295 380 Growth Markets 2015 2,201 (149) (17) 2,035 (1,336) 698 275 (11) 4 41 – 1,007 (376) (314) (9) (2) (9) (298) (4) – – – (1,011) (4) – 7 – (2) 5 1 5 5 14 (8) (5) 2014 1,615 (108) (21) 1,486 (872) 614 224 (2) 3 48 1 889 (367) (178) (8) (1) (7) (241) (4) – 8 (2) (799) 90 – 2 – (2) – 90 (20) 70 11 60 133 Consolidation 2015 (111) 111 – – – – (11) 6 – (1) – (6) – – 11 – – – 1 – – – 12 6 – – – – – 6 – 6 – 6 –4 2014 (179) 179 – – – – (10) (1) 1 – – (11) – – 10 – – – – – – – 11 – – – – – – – – – – – –4 Life/Health 2015 2014 16,719 16,961 (263) (225) (62) (57) 16,394 16,679 (10,684) (10,680) 5,710 5,999 4,846 4,472 (1,272) (37) 1,606 754 332 261 42 33 11,265 11,482 (4,703) (5,173) (3,433) (3,457) (25) (24) (108) (49) (245) (232) (1,698) (1,447) (145) (93) (5) (5) (20) 8 (29) (26) (10,411) (10,497) 853 985 39 (25) 64 90 (3) (3) (19) (8) 81 54 935 1,039 (273) (308) 662 731 37 32 624 699 58 79 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – lIfe/health reportable segments – lIfe/health € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe1 Iberia & Latin America USA Growth Markets Consolidation Life/Health three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Statutory premiums2 5,232 5,624 6,153 5,955 494 452 2,592 3,352 158 142 2,201 1,615 (111) (179) 16,719 16,961 Ceded premiums written (35) (34) (85) (184) (2) (4) (36) (27) (68) (46) (149) (108) 111 179 (263) (225) Change in unearned premiums (63) (48) 16 4 3 4 (6) (3) 6 7 (17) (21) – – (62) (57) Statutory premiums (net) 5,134 5,542 6,083 5,776 496 451 2,550 3,322 96 102 2,035 1,486 – – 16,394 16,679 Deposits from insurance and investment contracts (1,804) (1,888) (4,990) (4,574) (289) (258) (2,264) (3,090) – – (1,336) (872) – – (10,684) (10,680) Premiums earned (net) 3,331 3,654 1,093 1,203 207 193 286 232 96 102 698 614 – – 5,710 5,999 Interest and similar income 2,468 2,397 1,059 1,047 87 91 953 709 15 14 275 224 (11) (10) 4,846 4,472 Operating income from financial assets and liabilities carried at fair value through income (net) (1,133) 157 (7) (24) 8 16 (136) (183) – – (11) (2) 6 (1) (1,272) (37) Operating realized gains/losses (net) 1,330 603 263 144 8 2 2 2 – – 4 3 – 1 1,606 754 Fee and commission income 26 21 189 129 47 35 31 28 – – 41 48 (1) – 332 261 Other income 36 27 6 5 – – – – – – – 1 – – 42 33 Operating revenues 6,056 6,859 2,603 2,505 357 336 1,136 788 111 116 1,007 889 (6) (11) 11,265 11,482 Claims and insurance benefits incurred (net) (3,117) (3,498) (943) (1,052) (168) (157) (28) (21) (71) (78) (376) (367) – – (4,703) (5,173) Changes in reserves for insurance and investment contracts (net) (2,017) (2,329) (681) (594) (52) (51) (371) (305) 2 (1) (314) (178) – – (3,433) (3,457) Interest expenses (19) (20) (4) (4) – – (3) (2) – – (9) (8) 11 10 (25) (24) Operating impairments of investments (net) (93) (36) (12) (12) – – – – – – (2) (1) – – (108) (49) Investment expenses (160) (151) (62) (63) (2) (2) (13) (9) – – (9) (7) – – (245) (232) Acquisition and administrative expenses (net) (418) (384) (486) (504) (52) (54) (416) (246) (29) (19) (298) (241) – – (1,698) (1,447) Fee and commission expenses (11) (9) (98) (58) (26) (17) (7) (5) – – (4) (4) 1 – (145) (93) Operating amortization of intangible assets (5) (5) – – – – – – – – – – – – (5) (5) Restructuring charges (20) – – – – – – – – – – 8 – – (20) 8 Other expenses (25) (21) (5) (4) – – – – – – – (2) – – (29) (26) Operating expenses (5,884) (6,453) (2,291) (2,290) (300) (282) (839) (586) (98) (98) (1,011) (799) 12 11 (10,411) (10,497) Operating profit (loss) 172 405 312 215 57 54 297 202 13 18 (4) 90 6 – 853 985 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (2) – – – 41 (25) – – – – – – 39 (25) Non-operating realized gains/losses (net) – – 34 88 – – 23 – – – 7 2 – – 64 90 Non-operating impairments of investments (net) – – (3) (2) – – – – – – – – – – (3) (3) Non-operating amortization of intangible assets – – (12) (3) (4) (4) – – – – (2) (2) – – (19) (8) Non-operating items – – 17 84 (4) (4) 64 (25) – – 5 – – – 81 54 Income before income taxes 172 405 329 298 53 50 361 177 13 18 1 90 6 – 935 1,039 Income taxes (77) (141) (74) (74) (15) (15) (109) (54) (2) (4) 5 (20) – – (273) (308) Net income 95 264 255 224 38 36 252 123 11 14 5 70 6 – 662 731 Net income attributable to: 11 9 – – – – 14 11 – – 37 32 Non-controlling interests – – 13 12 Shareholders 95 264 242 212 27 26 252 123 11 14 (8) 60 6 – 624 699 Margin on reserves3 in basis points 26 68 73 57 227 247 117 108 295 380 (5) 133 –4 –4 58 79 3 Represents annualized operating profit divided by the average of the current quarter-end and previous 1 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves Previously reported information for the three months ended 30 June 2014 was not adjusted. for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance 2 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well assets. as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with 4 Presentation not meaningful. the statutory accounting practices applicable in the insurer’s home jurisdiction. 73 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – lIfe/health (contInued) reportable segments – lIfe/health (contInued) € mn six months ended 30 June Statutory premiums2 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) One-off effects from pension revaluation Non-operating amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Margin on reserves3 in basis points 1 2 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. Previously reported information for the six months ended 30 June 2014 was not adjusted. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 74 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 3 4 German Speaking Countries Western & Southern Europe1 2015 2014 2015 2014 12,060 12,480 13,088 12,082 (65) (74) (392) (780) (61) (109) 29 (10) 11,934 12,297 12,724 11,292 (4,309) (4,580) (10,455) (8,937) 7,625 7,717 2,269 2,356 4,720 4,662 1,952 1,938 (239) 188 (43) (73) 3,215 1,100 779 451 47 41 405 247 92 69 14 10 15,459 13,775 5,376 4,928 (6,675) (7,017) (1,908) (2,050) (6,355) (4,595) (1,569) (1,083) (38) (45) (8) (9) (180) (149) (11) (188) (307) (280) (117) (113) (970) (769) (969) (924) (21) (19) (208) (111) (9) (9) – – (20) – – – (195) (155) (8) (6) (14,771) (13,038) (4,798) (4,484) 688 737 577 444 – – – (5) 2 – 55 113 – – (5) (7) (13) (7) – – – – (15) (5) (11) (8) 34 97 677 730 611 540 (249) (249) (157) (132) 428 480 455 408 – – 29 21 428 480 426 387 53 63 70 60 Represents annualized operating profit divided by the average of the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Iberia & Latin America 2015 2014 1,071 928 (8) (8) (30) (31) 1,034 889 (679) (546) 355 342 177 185 25 16 26 5 86 69 – – 668 618 (333) (296) (69) (73) (1) (1) – (1) (3) (3) (103) (104) (47) (34) – – – – – – (556) (512) 112 106 – – – – – – – – (8) (8) (8) (8) 104 98 (28) (29) 76 69 20 18 56 51 232 247 USA 2015 5,291 (71) (14) 5,206 (4,638) 567 1,876 (412) 8 58 – 2,098 (58) (769) (6) (1) (26) (764) (14) – – – (1,637) 461 (11) 34 – – – 23 484 (146) 339 – 339 97 2014 5,908 (56) (7) 5,846 (5,386) 459 1,401 (428) 11 52 – 1,495 (46) (642) (4) – (18) (404) (9) – – – (1,123) 372 (21) – – – – (21) 351 (108) 243 – 243 100 Global Insurance Lines & Anglo Markets 2015 2014 293 267 (84) (59) 3 (24) 212 184 – – 212 184 29 34 (1) (5) – – – – – – 241 213 (139) (153) (20) 14 (1) (1) – – – – (51) (43) – – – – – – – – (211) (183) 30 29 – – – – – – – – – – – – 30 29 (6) (7) 24 22 – – 24 22 329 302 Growth Markets 2015 2014 4,189 3,231 (248) (182) (62) (60) 3,879 2,989 (2,444) (1,773) 1,435 1,216 539 438 (6) (5) 16 14 84 83 – 3 2,068 1,749 (744) (692) (613) (392) (19) (15) (3) (2) (17) (13) (563) (458) (8) (7) – – – 8 – (5) (1,967) (1,576) 101 173 – – 9 3 – (1) – – (5) (3) 4 (2) 105 171 (13) (37) 92 135 29 23 63 111 63 128 Consolidation 2015 (451) 451 – – – – (21) (12) – (1) – (34) – – 21 – – – – – – – 22 (12) – – – – – – (12) – (12) – (12) –4 2014 (773) 773 – – – – (26) 2 1 (1) – (24) – – 26 – – – 1 – – – 27 3 – – – – – – 3 – 3 – 3 –4 Life/Health 2015 2014 35,540 34,124 (417) (386) (135) (240) 34,989 33,497 (22,526) (21,222) 12,463 12,275 9,272 8,631 (688) (305) 4,044 1,581 679 490 105 82 25,876 22,753 (9,858) (10,254) (9,394) (6,771) (52) (48) (195) (340) (472) (427) (3,420) (2,701) (296) (180) (9) (9) (20) 8 (203) (166) (23,919) (20,889) 1,957 1,864 (11) (25) 100 116 (5) (8) (13) (7) (28) (17) 43 58 2,000 1,923 (599) (562) 1,401 1,360 78 63 1,323 1,297 70 76 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – lIfe/health (contInued) reportable segments – lIfe/health (contInued) € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe1 Iberia & Latin America USA Growth Markets Consolidation Life/Health six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Statutory premiums2 12,060 12,480 13,088 12,082 1,071 928 5,291 5,908 293 267 4,189 3,231 (451) (773) 35,540 34,124 Ceded premiums written (65) (74) (392) (780) (8) (8) (71) (56) (84) (59) (248) (182) 451 773 (417) (386) Change in unearned premiums (61) (109) 29 (10) (30) (31) (14) (7) 3 (24) (62) (60) – – (135) (240) Statutory premiums (net) 11,934 12,297 12,724 11,292 1,034 889 5,206 5,846 212 184 3,879 2,989 – – 34,989 33,497 Deposits from insurance and investment contracts (4,309) (4,580) (10,455) (8,937) (679) (546) (4,638) (5,386) – – (2,444) (1,773) – – (22,526) (21,222) Premiums earned (net) 7,625 7,717 2,269 2,356 355 342 567 459 212 184 1,435 1,216 – – 12,463 12,275 Interest and similar income 4,720 4,662 1,952 1,938 177 185 1,876 1,401 29 34 539 438 (21) (26) 9,272 8,631 Operating income from financial assets and liabilities carried at fair value through income (net) (239) 188 (43) (73) 25 16 (412) (428) (1) (5) (6) (5) (12) 2 (688) (305) Operating realized gains/losses (net) 3,215 1,100 779 451 26 5 8 11 – – 16 14 – 1 4,044 1,581 Fee and commission income 47 41 405 247 86 69 58 52 – – 84 83 (1) (1) 679 490 Other income 92 69 14 10 – – – – – – – 3 – – 105 82 Operating revenues 15,459 13,775 5,376 4,928 668 618 2,098 1,495 241 213 2,068 1,749 (34) (24) 25,876 22,753 Claims and insurance benefits incurred (net) (6,675) (7,017) (1,908) (2,050) (333) (296) (58) (46) (139) (153) (744) (692) – – (9,858) (10,254) Changes in reserves for insurance and investment contracts (net) (6,355) (4,595) (1,569) (1,083) (69) (73) (769) (642) (20) 14 (613) (392) – – (9,394) (6,771) Interest expenses (38) (45) (8) (9) (1) (1) (6) (4) (1) (1) (19) (15) 21 26 (52) (48) Operating impairments of investments (net) (180) (149) (11) (188) – (1) (1) – – – (3) (2) – – (195) (340) Investment expenses (307) (280) (117) (113) (3) (3) (26) (18) – – (17) (13) – – (472) (427) Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (970) (769) (969) (924) (103) (104) (764) (404) (51) (43) (563) (458) – – (3,420) (2,701) Fee and commission expenses (21) (19) (208) (111) (47) (34) (14) (9) – – (8) (7) – 1 (296) (180) Operating amortization of intangible assets (9) (9) – – – – – – – – – – – – (9) (9) Restructuring charges (20) – – – – – – – – – – 8 – – (20) 8 Other expenses (195) (155) (8) (6) – – – – – – – (5) – – (203) (166) Operating expenses (14,771) (13,038) (4,798) (4,484) (556) (512) (1,637) (1,123) (211) (183) (1,967) (1,576) 22 27 (23,919) (20,889) Operating profit 688 737 577 444 112 106 461 372 30 29 101 173 (12) 3 1,957 1,864 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – – (5) – – (11) (21) – – – – – – (11) (25) Non-operating realized gains/losses (net) 2 – 55 113 – – 34 – – – 9 3 – – 100 116 Non-operating impairments of investments (net) – – (5) (7) – – – – – – – (1) – – (5) (8) One-off effects from pension revaluation (13) (7) – – – – – – – – – – – – (13) (7) Non-operating amortization of intangible assets – – (15) (5) (8) (8) – – – – (5) (3) – – (28) (17) Non-operating items (11) (8) 34 97 (8) (8) 23 (21) – – 4 (2) – – 43 58 Income before income taxes 677 730 611 540 104 98 484 351 30 29 105 171 (12) 3 2,000 1,923 Income taxes (249) (249) (157) (132) (28) (29) (146) (108) (6) (7) (13) (37) – – (599) (562) Net income 428 480 455 408 76 69 339 243 24 22 92 135 (12) 3 1,401 1,360 Net income attributable to: 20 18 – – – – 29 23 – – 78 63 Non-controlling interests – – 29 21 Shareholders 428 480 426 387 56 51 339 243 24 22 63 111 (12) 3 1,323 1,297 Margin on reserves3 in basis points 53 63 70 60 232 247 97 100 329 302 63 128 –4 –4 70 76 3 Represents annualized operating profit divided by the average of the current quarter-end and previous 1 In the fourth quarter of 2014, the French International Health business was reclassified from the reportable year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners. Previously reported information for the six months ended 30 June 2014 was not adjusted. for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance 2 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well assets. as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with 4 Presentation not meaningful. the statutory accounting practices applicable in the insurer’s home jurisdiction. 75 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – asset management reportable segments – asset management € mn three months ended 30 June Net fee and commission income1 Net interest income2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Acquisition-related expenses Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. 76 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2015 1,559 (2) (9) 1 1,548 (1,043) – (1,043) 505 3 (3) – 505 (176) 329 16 314 67.4 2014 1,601 (1) 5 2 1,607 (932) 1 (931) 676 – (3) (3) 673 (254) 419 23 396 57.9 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity reportable segments – asset management (contInued) reportable segments – asset management (contInued) € mn six months ended 30 June Net fee and commission income1 Net interest income2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation Restructuring charges Operating expenses Operating profit Realized gains/losses (net) Acquisition-related expenses One-off effects from pension revaluation Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 55 57 Consolidated Statements of Cash Flows Notes 2015 3,126 (3) (4) 2 3,121 (2,060) – (2,060) 1,060 – 9 (31) (5) (27) 1,034 (375) 658 32 626 66.0 2014 3,117 (1) 3 4 3,124 (1,805) 3 (1,802) 1,321 (1) 3 (14) (5) (17) 1,304 (479) 825 45 781 57.7 77 reportable segments – corporate and other reportable segments – corporate and other € mn three months ended 30 June Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Operating revenues Interest expenses, excluding interest expenses from external debt Loan loss provisions Investment expenses Administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Impairments of investments (net) Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, restructuring charges and other expenses divided by interest and similar income, operating income from 78 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Holding & Treasury 2015 78 (13) 22 87 (57) – (17) (208) (69) – – (351) (264) (14) 147 (1) – (213) 1 (2) (82) (346) 122 (224) – (224) financial assets and liabilities carried at fair value through income (net), fee and commission income, interest expenses, excluding interest expenses from external debt, and fee and commission expenses. 2014 74 7 14 95 (85) – (17) (161) (77) – – (340) (245) (1) 34 (1) – (206) 1 (2) (177) (421) 163 (258) – (258) Banking 2015 136 3 141 280 (54) (17) – (84) (97) (1) (1) (254) 26 – 5 – – – – – 5 31 (9) 22 2 20 67.0 2014 148 3 125 277 (64) (15) – (100) (81) – – (260) 17 – 5 – – – – – 4 21 (7) 14 2 12 75.8 Alternative Investments 2015 5 (1) 44 48 – – (2) (37) – – – (40) 8 (1) – – (10) – – – (11) (3) (1) (3) 2 (5) 2014 8 (2) 39 45 (1) – (2) (34) – – – (36) 8 – – – (5) – – – (5) 3 (7) (4) 5 (9) Consolidation 2015 – – 1 1 – – 1 (1) – – – (1) – – – – – – – – – – – – – – 2014 – – – (1) – – – – – – – 1 – – – – – – – – – – – – – – Corporate and Other 2015 219 (11) 207 416 (111) (17) (19) (331) (166) (1) (1) (646) (230) (15) 152 (1) (10) (213) 1 (2) (89) (318) 113 (205) 4 (209) 2014 230 9 177 416 (149) (15) (19) (294) (158) – – (635) (219) (1) 38 (1) (5) (206) 1 (2) (177) (397) 148 (249) 6 (255) B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – corporate and other reportable segments – corporate and other € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other three months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Interest and similar income 78 74 136 148 5 8 – – 219 230 Operating income from financial assets and liabilities carried at fair value through income (net) (13) 7 3 3 (1) (2) – – (11) 9 Fee and commission income 22 14 141 125 44 39 1 – 207 177 Operating revenues 87 95 280 277 48 45 1 (1) 416 416 Interest expenses, excluding interest expenses from external debt (57) (85) (54) (64) – (1) – – (111) (149) Loan loss provisions – – (17) (15) – – – – (17) (15) Investment expenses (17) (17) – – (2) (2) 1 – (19) (19) Administrative expenses (net), excluding acquisition-related expenses (208) (161) (84) (100) (37) (34) (1) – (331) (294) Fee and commission expenses (69) (77) (97) (81) – – – – (166) (158) Restructuring charges – – (1) – – – – – (1) – Other expenses – – (1) – – – – – (1) – Operating expenses (351) (340) (254) (260) (40) (36) (1) 1 (646) (635) Operating profit (loss) (264) (245) 26 17 8 8 – – (230) (219) Non-operating income from financial assets and liabilities carried at fair value through income (net) (14) (1) – – (1) – – – (15) (1) Realized gains/losses (net) 147 34 5 5 – – – – 152 38 Impairments of investments (net) (1) (1) – – – – – – (1) (1) Income from fully consolidated private equity investments (net) – – – – (10) (5) – – (10) (5) Interest expenses from external debt (213) (206) – – – – – – (213) (206) Acquisition-related expenses 1 1 – – – – – – 1 1 Amortization of intangible assets (2) (2) – – – – – – (2) (2) Non-operating items (82) (177) 5 4 (11) (5) – – (89) (177) Income (loss) before income taxes (346) (421) 31 21 (3) 3 – – (318) (397) Income taxes 122 163 (9) (7) (1) (7) – – 113 148 Net income (loss) (224) (258) 22 14 (3) (4) – – (205) (249) Net income (loss) attributable to: 2 2 2 5 – – 4 6 Non-controlling interests – – Shareholders (224) (258) 20 12 (5) (9) – – (209) (255) Cost-income ratio1 for the reportable segment Banking in % 67.0 75.8 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, financial assets and liabilities carried at fair value through income (net), fee and commission income, restructuring charges and other expenses divided by interest and similar income, operating income from interest expenses, excluding interest expenses from external debt, and fee and commission expenses. 79 Interim Report Second Quarter and First Half Year of 2015 Allianz Group reportable segments – corporate and other (contInued) reportable segments – corporate and other (contInued) € mn Holding & Treasury six months ended 30 June 2015 Interest and similar income 127 Operating income from financial assets and liabilities carried at fair value through income (net) (7) Fee and commission income 35 Other income 148 Operating revenues 302 Interest expenses, excluding interest expenses from external debt (128) Loan loss provisions – Investment expenses (33) Administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (390) Fee and commission expenses (158) Restructuring charges – Other expenses – Operating expenses (709) Operating profit (loss) (407) Non-operating income from financial assets and liabilities carried at fair value through income (net) (55) Realized gains/losses (net) 195 Impairments of investments (net) (1) Income from fully consolidated private equity investments (net) – Interest expenses from external debt (425) Acquisition-related expenses 1 One-off effects from pension revaluation 230 Amortization of intangible assets (4) Non-operating items (60) Income (loss) before income taxes (467) Income taxes 161 Net income (loss) (306) Net income (loss) attributable to: Non-controlling interests – Shareholders (306) Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt, and fee and commission expenses. 80 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 2014 128 7 29 – 164 (162) – (31) (316) (147) – – (656) (493) (7) 52 (4) – (411) 3 679 (4) 307 (185) 49 (136) – (136) Banking 2015 275 9 280 – 563 (112) (24) – (184) (182) (1) (2) (506) 58 – 12 – – – – (1) – 11 69 (21) 47 4 43 69.5 2014 298 6 241 – 545 (131) (24) – (210) (146) – – (510) 35 – 4 – – – – (1) – 3 37 (13) 25 4 21 78.3 Alternative Investments 2015 11 (2) 92 – 101 (1) – (4) (77) – – – (82) 19 – – – (7) – – (5) – (13) 6 (2) 4 5 (1) 2014 12 (2) 75 – 85 (1) – (4) (65) – – – (69) 16 (1) – – (11) – – (4) – (16) – (6) (6) 6 (12) Consolidation 2015 – – – – – – – 1 (1) – – – – – – – – – – – – – – – – – – – 2014 (1) – (1) – (1) 1 – 1 – – – – 1 – – – – – – – – – – – – – – – Corporate and Other 2015 412 – 407 148 967 (241) (24) (37) (652) (340) (1) (2) (1,297) (331) (55) 207 (1) (7) (425) 1 224 (4) (62) (393) 138 (254) 10 (264) 2014 438 11 344 – 793 (293) (24) (34) (590) (293) – – (1,235) (442) (8) 56 (4) (11) (411) 3 675 (4) 294 (147) 30 (117) 10 (127) B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity reportable segments – corporate and other (contInued) reportable segments – corporate and other (contInued) € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other six months ended 30 June 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Interest and similar income 127 128 275 298 11 12 – (1) 412 438 Operating income from financial assets and liabilities carried at fair value through income (net) (7) 7 9 6 (2) (2) – – – 11 Fee and commission income 35 29 280 241 92 75 – (1) 407 344 Other income 148 – – – – – – – 148 – Operating revenues 302 164 563 545 101 85 – (1) 967 793 Interest expenses, excluding interest expenses from external debt (128) (162) (112) (131) (1) (1) – 1 (241) (293) Loan loss provisions – – (24) (24) – – – – (24) (24) Investment expenses (33) (31) – – (4) (4) 1 1 (37) (34) Administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (390) (316) (184) (210) (77) (65) (1) – (652) (590) Fee and commission expenses (158) (147) (182) (146) – – – – (340) (293) Restructuring charges – – (1) – – – – – (1) – Other expenses – – (2) – – – – – (2) – Operating expenses (709) (656) (506) (510) (82) (69) – 1 (1,297) (1,235) Operating profit (loss) (407) (493) 58 35 19 16 – – (331) (442) Non-operating income from financial assets and liabilities carried at fair value through income (net) (55) (7) – – – (1) – – (55) (8) Realized gains/losses (net) 195 52 12 4 – – – – 207 56 Impairments of investments (net) (1) (4) – – – – – – (1) (4) Income from fully consolidated private equity investments (net) – – – – (7) (11) – – (7) (11) Interest expenses from external debt (425) (411) – – – – – – (425) (411) Acquisition-related expenses 1 3 – – – – – – 1 3 One-off effects from pension revaluation 230 679 (1) (1) (5) (4) – – 224 675 Amortization of intangible assets (4) (4) – – – – – – (4) (4) Non-operating items (60) 307 11 3 (13) (16) – – (62) 294 Income (loss) before income taxes (467) (185) 69 37 6 – – – (393) (147) Income taxes 161 49 (21) (13) (2) (6) – – 138 30 Net income (loss) (306) (136) 47 25 4 (6) – – (254) (117) Net income (loss) attributable to: 4 4 5 6 – – 10 10 Non-controlling interests – – Shareholders (306) (136) 43 21 (1) (12) – – (264) (127) Cost-income ratio1 for the reportable segment Banking in % 69.5 78.3 income (net), fee and commission income, other income, interest expenses, excluding interest expenses 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses from external debt, and fee and commission expenses. and one-off effects from pension revaluation, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through 81 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Notes to the coNsolidated balaNce sheets 5 – Financial assets carried at fair value through income Financial assets carried at Fair value through income € mn as of 30 June 2015 as of 31 December 2014 Financial assets held for trading Debt securities 491 402 Equity securities 222 195 Derivative financial instruments 1,613 1,618 Subtotal 2,327 2,214 Financial assets designated at fair value through income Debt securities 2,404 1,887 Equity securities 2,390 1,773 Subtotal 4,794 3,660 Total 7,121 5,875 6 – Investments investments € mn as of 30 June 2015 as of 31 December 2014 Available-for-sale investments 484,261 465,914 Held-to-maturity investments 3,993 3,969 Funds held by others under reinsurance contracts assumed 1,311 1,154 Investments in associates and joint ventures 4,536 4,059 Real estate held for investment 11,829 11,349 Total 505,930 486,445 82 Interim Report Second Quarter and First Half Year of 2015 Allianz Group B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes available-For-sale investments available-For-sale investments € mn as of 30 June 2015 as of 31 December 2014 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Debt securities Government and agency mortgage-backed securities (residential and commercial) 3,858 161 (12) 4,008 3,548 192 (2) Corporate mortgage-backed securities (residential and commercial) 14,129 418 (90) 14,457 13,685 546 (44) Other asset-backed securities 4,336 261 (73) 4,524 4,313 284 (46) Government and government agency bonds France 31,366 7,630 (83) 38,913 31,113 9,509 (21) Italy 24,211 4,094 (206) 28,099 25,203 5,557 (5) Germany 12,489 1,792 (61) 14,221 12,900 2,152 (5) United States 12,812 596 (90) 13,318 10,574 875 (34) South Korea 7,169 982 (3) 8,147 6,156 882 – Belgium 6,836 1,550 (85) 8,300 5,866 1,818 – Austria 5,346 1,290 (13) 6,622 5,476 1,698 (1) Spain 8,817 631 (421) 9,027 5,055 944 (1) Switzerland 5,337 722 (5) 6,055 4,695 610 – Netherlands 4,384 425 (24) 4,786 4,102 506 (1) Hungary 864 93 (1) 956 868 105 – Ireland 1,302 10 (71) 1,242 620 28 – Russia 370 2 (30) 342 472 – (71) Portugal 215 27 – 242 198 29 – Greece 1 1 – 2 1 2 – Supranationals 16,256 2,731 (76) 18,911 15,726 3,202 (3) All other countries 39,079 1,641 (472) 40,247 33,401 2,013 (196) Subtotal 176,854 24,216 (1,641) 199,429 162,426 29,928 (338) Corporate bonds1 204,278 14,201 (2,380) 216,099 193,315 18,807 (837) Other 3,290 481 (32) 3,739 2,471 499 (2) Subtotal 406,745 39,740 (4,229) 442,256 379,757 50,255 (1,269) Equity securities2 29,065 13,234 (294) 42,005 26,113 11,313 (255) Total 435,810 52,974 (4,523) 484,261 405,870 61,568 (1,524) 1 Include bonds issued by Spanish banks with a fair value of € 611 MN (2014: € 472 MN), thereof subordinated bonds with a fair value of € 141 MN (2014: € 134 MN). 2 Include shares invested in Spanish banks with a fair value of € 470 MN (2014: € 408 MN). Interim Report Second Quarter and First Half Year of 2015 Allianz Group Fair Value 3,738 14,186 4,552 40,601 30,755 15,048 11,415 7,038 7,684 7,173 5,997 5,305 4,607 972 648 401 227 3 18,925 35,217 192,016 211,284 2,968 428,744 37,171 465,914 83 7 – Loans and advances to banks and customers loans and advances to banks and customers € mn Banks Short-term investments and certificates of deposit 3,435 Loans 52,9761 Other 1,819 Subtotal 58,230 Loan loss allowance – Total 58,230 1 Primarily include covered bonds. 8 – Reinsurance assets reinsurance assets € mn as of 30 June 2015 as of 31 December 2014 Unearned premiums 2,367 1,519 Reserves for loss and loss adjustment expenses 7,702 6,947 Aggregate policy reserves 5,512 4,998 Other insurance reserves 115 123 Total 15,695 13,587 9 – Deferred acquisition costs deFerred acquisition costs € mn as of 30 June 2015 as of 31 December 2014 Deferred acquisition costs Property-Casualty 4,962 4,595 Life/Health 17,879 16,089 Subtotal 22,842 20,685 Present value of future profits1 689 870 Deferred sales inducements 925 708 Total 24,455 22,262 1 In the second quarter of 2015, € 145 MN were reclassified from present value of future profits to intangible assets. 84 Interim Report Second Quarter and First Half Year of 2015 Allianz Group as of 30 June 2015 as of 31 December 2014 Customers Total Banks Customers – 3,435 3,622 – 57,861 110,838 56,4141 55,950 12 1,832 1,372 16 57,874 116,104 61,407 55,966 (308) (308) – (298) 57,566 115,796 61,407 55,668 10 – Other assets other assets € mn as of 30 June 2015 Receivables Policyholders 6,480 Agents 5,081 Reinsurers 2,531 Other 5,423 Less allowance for doubtful accounts (685) Subtotal 18,829 Tax receivables Income taxes 1,693 Other taxes 1,499 Subtotal 3,192 Accrued dividends, interest and rent 7,323 Prepaid expenses Interest and rent 22 Other prepaid expenses 363 Subtotal 385 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 336 Property and equipment Real estate held for own use 2,751 Software 2,215 Equipment 1,385 Fixed assets of alternative investments 1,712 Subtotal 8,063 Other assets 1,704 Total 39,831 Total 3,622 112,363 1,388 117,373 (298) 117,075 as of 31 December 2014 5,846 4,348 1,951 4,711 (693) 16,163 1,996 1,426 3,422 7,836 25 256 281 477 2,566 2,142 1,291 1,465 7,464 1,437 37,080 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 11 – Non-current assets and disposal groups classified as held for sale 12 – Intangible assets intangible assets non-current assets and disposal groups classiFied as held For sale € mn as of 30 June 2015 as of 31 December 2014 € mn Intangible assets with indefinite useful lives as of 30 June 2015 as of 31 December 2014 Goodwill 12,555 12,166 Assets of disposal groups classified as held for sale Münsterländische Bank Thie & Co. kg, Münster Subtotal Non-current assets classified as held for sale Real estate held for investment Real estate held for own use Subtotal Total Liabilities of disposal groups classified as held for sale – – 83 82 165 165 83 83 92 61 152 235 Brand names1 Subtotal Intangible assets with finite useful lives Distribution agreements2 Customer relationships3 Other4 Subtotal Total 294 12,849 902 201 314 1,417 14,266 289 12,455 948 231 121 1,300 13,755 Münsterländische Bank Thie & Co. kg, Münster – Total – disposal groups classiFied as held For sale In May 2015, the Allianz Group completed the sale of Münsterlän- dische Bank Thie & Co. KG, Münster, which was classified as a dispos- al group held for sale during the fourth quarter of 2014. Upon mea- surement of the disposal group at fair value less costs to sell, no impairment losses were recognized until the disposal. 102 102 1 2 3 4 Include primarily the brand name of Selecta aG, Muntelier. Include primarily the long-term distribution agreements with Commerzbank aG of € 317 MN (2014: € 335 MN), Banco Popular s.a. of € 345 MN (2014: € 353 MN), Yapı Kredi Bank of € 134 MN (2014: € 147 MN) and hsbc Asia, hsbc Turkey and btPN Indonesia of € 87 MN (2014: € 90 MN). Include primarily customer relationships from acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A. of € 88 MN (2014: € 100 MN), and from the acquisition of Selecta of € 69 MN (2014: € 85 MN), Assurances Médicales s.a. of € 17 MN (2014: € 18 MN) and Yapı Kredi of € 7 MN (2014: € 8 MN). Include primarily acquired business portfolios of € 209 MN (2014: € 64 MN), heritable building rights of € 39 MN (2014: € 17 MN) and lease rights of € 10 MN (2014: € – MN). In the second quarter of 2015, € 145 MN were reclassified from present value of future profits to intangible assets. intangible assets with indeFinite useFul lives Goodwill non-current assets classiFied as held For sale Real estate held for investment classified as held for sale comprised as of 31 December 2014 several office buildings allocated to the reportable segment German Speaking Countries (Life/Health), which were sold as expected during the first quarter of 2015. goodwill € mn Cost as of 1 January 2015 13,156 2014 12,534 As of 30 June 2015, real estate held for investment (€ 83 mn) and held for own use (€ 19 mn) classified as held for sale comprised a large number of buildings in different portfolios allocated to the reportable segment Western & Southern Europe (Property-Casualty). Upon mea- surement of these buildings at fair value less costs to sell, no impair- ment losses were recognized for the six months ended 30 June 2015. The sale of these buildings will be completed by the end of the third quarter of 2015. Accumulated impairments as of 1 January Carrying amount as of 1 January Additions Disposals Foreign currency translation adjustments Impairments Carrying amount as of 30 June Accumulated impairments as of 30 June (990) 12,166 67 – 323 – 12,555 990 (990) 11,544 6 – 24 – 11,574 990 In addition, real estate held for own use (€ 63 mn) classified as held for sale comprised several office buildings allocated to the reportable segment Global Insurance Lines & Anglo Markets (Property- Casualty). Upon measurement of these buildings at fair value less costs to sell, no further impairment losses were recognized for the six months ended 30 June 2015. The sale of these buildings will be completed by the end of the third and fourth quarter of 2015, respectively. Cost as of 30 June 13,545 For the six months ended 30 June 2015, additions are mainly related to goodwill arising from the acquisition of the Property-Casualty insurance business of the Territory Insurance Office, Darwin, as well as from the acquisition of several windparks. For further information, please refer to note 3. 12,564 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 85 13 – Financial liabilities carried at fair value through income Financial liabilities carried at Fair value through income € mn as of 30 June 2015 Financial liabilities held for trading Derivative financial instruments 8,631 Other trading liabilities 2 Total 8,633 14 – Liabilities to banks and customers liabilities to banks and customers € mn Payable on demand Savings deposits Term deposits and certificates of deposit Repurchase agreements Collateral received from securities lending transactions and derivatives Other Total 86 Interim Report Second Quarter and First Half Year of 2015 as of 31 December 2014 8,493 3 8,496 Banks 200 – 1,069 3,781 2,315 4,314 11,678 Allianz Group as of 30 June 2015 Customers 5,208 2,492 1,374 – – 4,620 13,695 Total 5,408 2,492 2,443 3,781 2,315 8,934 25,373 as of 31 December 2014 Banks Customers 69 4,803 – 2,846 971 1,946 1,197 – 2,715 – 4,278 4,191 9,230 13,786 Total 4,872 2,846 2,916 1,197 2,715 8,469 23,015 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 15 – Reserves for loss and loss adjustment expenses reserves For loss and loss adjustment expenses € mn as of 30 June 2015 as of 31 December 2014 Property-Casualty 61,584 58,925 Life/Health 10,542 10,081 Consolidation (25) (18) Total 72,101 68,989 change in the reserves For loss and loss adjustment expenses The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, for the Property-Casualty business segment for the six months ended 30 June 2015 and 2014. change in the reserves For loss and loss adjustment expenses in the property-casualty business segment € mn 2015 Gross Ceded As of 1 January 58,925 (6,577) Balance carry forward of discounted loss reserves 3,597 (326) Subtotal 62,522 (6,903) Loss and loss adjustment expenses incurred Current year 17,371 (1,367) Prior years (945) 184 Subtotal 16,426 (1,183) Loss and loss adjustment expenses paid Current year (6,313) 252 Prior years (9,312) 780 Subtotal (15,625) 1,032 Foreign currency trans lation adjustments and other changes 2,076 (565) Subtotal 65,398 (7,619) Ending balance of discounted loss reserves (3,814) 344 As of 30 June 61,584 (7,275) Interim Report Second Quarter and First Half Year of 2015 Allianz Group 55 57 Consolidated Statements of Cash Flows Notes 2014 Net Gross Ceded 52,348 56,614 (6,070) 3,271 3,207 (306) 55,619 59,821 (6,376) 16,004 15,515 (1,083) (761) (703) 84 15,243 14,812 (999) (6,061) (5,853) 222 (8,532) (8,709) 672 (14,593) (14,562) 894 1,510 717 (127) 57,779 60,787 (6,608) (3,470) (3,449) 300 54,309 57,339 (6,308) Net 50,544 2,901 53,445 14,432 (619) 13,813 (5,631) (8,037) (13,668) 590 54,180 (3,149) 51,031 87 16 – Reserves for insurance and investment contracts reserves For insurance and investment contracts € mn as of 30 June 2015 Aggregate policy reserves 418,242 Reserves for premium refunds 59,444 Other insurance reserves 1,188 Total 478,874 88 Interim Report Second Quarter and First Half Year of 2015 as of 31 December 2014 399,227 63,026 1,081 463,334 Allianz Group 17 – Other liabilities other liabilities € mn as of 30 June 2015 as of 31 December 2014 Payables Policyholders 4,008 4,934 Reinsurance 1,642 1,460 Agents 1,713 1,615 Subtotal 7,363 8,009 Payables for social security 405 420 Tax payables Income taxes 1,390 1,801 Other taxes 1,498 1,387 Subtotal 2,888 3,187 Accrued interest and rent 688 613 Unearned income Interest and rent 24 24 Other 509 283 Subtotal 533 307 Provisions Pensions and similar obligations 9,400 9,765 Employee related 2,353 2,327 Share-based compensation plans 398 606 Restructuring plans 209 109 Loan commitments 8 12 Contingent losses from non-insurance business 150 134 Other provisions 1,489 1,684 Subtotal 14,007 14,637 Deposits retained for reinsurance ceded 1,923 1,843 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 702 281 Financial liabilities for puttable equity instruments 2,526 1,793 Other liabilities 7,713 7,520 Total 38,747 38,609 The change in the restructuring provisions is mainly driven by the reorganization of Fireman’s Fund Insurance Company (FFIC) in the United States, started in the first quarter of 2015, and by a new restruc- turing program at Allianz Beratungs- und Vertriebs-AG, Germany (ABV), started in the second quarter of 2015. For the reorganization of FFIC, restructuring charges of € 93 MN, thereof restructuring provisions of € 73 MN, were recorded in the Global Insurance Lines & Anglo Markets (Property-Casualty) report- able segment for the six months ended 30 June 2015. B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes ABV reorganizes its sales and distribution organization to meet changing client expectations as well as new regulatory requirements and to strengthen sustainability and competitiveness. In this regard, restructuring charges of € 53 MN, which were fully recognized in restructuring provisions, were recorded for the six months ended 30 June 2015. 20 – Equity equity € mn as of 30 June 2015 as of 31 December 2014 Shareholders’ equity 18 – Certificated liabilities Issued capital Additional paid-in capital 1,170 27,758 1,170 27,758 Retained earnings1 21,196 19,878 certiFicated liabilities Foreign currency translation adjustments (885) (1,977) € mn Unrealized gains and losses (net)2 11,447 13,917 as of 30 June 2015 as of 31 December 2014 Subtotal Non-controlling interests Total 60,687 2,824 63,511 60,747 2,955 63,702 Allianz se1 Senior bonds Money market securities 6,748 1,573 6,653 1,041 1 2 As of 30 June 2015, include € (216) mn (2014: € (222) mn) related to treasury shares. As of 30 June 2015, include € 149 mn (2014: € 288 mn) related to cash flow hedges. Subtotal 8,321 7,694 Banking subsidiaries Senior bonds Subtotal Total 456 456 8,777 513 513 8,207 dividends In the second quarter of 2015, a total dividend of € 3,112 MN (2014: € 2,405 MN) or € 6.85 (2014: € 5.30) per qualifiying share was paid to the shareholders. 1 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE as well as money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. 19 – Subordinated liabilities subordinated liabilities € mn as of 30 June 2015 as of 31 December 2014 Allianz se1 Subordinated bonds2 11,923 11,371 Subtotal 11,923 11,371 Banking subsidiaries Subordinated bonds 241 221 Subtotal 241 221 All other subsidiaries Subordinated bonds3 – 400 Hybrid equity 45 45 Subtotal 45 445 Total 12,208 12,037 1 2 3 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. Change due to the redemption of a € 1.0 Bn bond and the issuance of a € 1.5 Bn bond in the first quarter of 2015. Change due to the redemption of a € 0.4 Bn bond in the second quarter of 2015. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 89 Notes to the CoNsolidated iNCome statemeNts 21 – Premiums earned (net) Premiums earned (net) Premiums earned (net) (continued) € mn € mn three months ended 30 June Property- Casualty Life/Health Consoli- dation Group six months ended 30 June 2015 2015 Premiums written Premiums written Direct 10,824 5,840 – 16,663 Direct Assumed 1,020 188 (21) 1,186 Assumed Subtotal 11,843 6,027 (21) 17,849 Subtotal Ceded (1,660) (255) 21 (1,893) Ceded Net 10,184 5,772 – 15,956 Net Change in unearned premiums Change in unearned premiums Direct 1,155 (63) – 1,092 Direct Assumed (135) 1 (9) (144) Assumed Subtotal 1,019 (62) (9) 948 Subtotal Ceded 349 – 9 359 Ceded Net 1,369 (62) – 1,307 Net Premiums earned Premiums earned Direct 11,978 5,777 – 17,755 Direct Assumed 884 188 (30) 1,042 Assumed Subtotal 12,863 5,965 (30) 18,797 Subtotal Ceded (1,310) (255) 30 (1,534) Ceded Net 11,553 5,710 – 17,263 Net 2014 2014 Premiums written Premiums written Direct 10,102 6,053 – 16,155 Direct Assumed 745 220 (24) 941 Assumed Subtotal 10,846 6,274 (24) 17,096 Subtotal Ceded (936) (218) 24 (1,130) Ceded Net 9,910 6,056 – 15,966 Net Change in unearned premiums Change in unearned premiums Direct 953 (71) – 883 Direct Assumed (222) 6 4 (213) Assumed Subtotal 731 (65) 4 670 Subtotal Ceded 60 7 (4) 64 Ceded Net 791 (57) – 734 Net Premiums earned Premiums earned Direct 11,055 5,983 – 17,038 Direct Assumed 523 226 (20) 728 Assumed Subtotal 11,577 6,209 (20) 17,766 Subtotal Ceded (876) (210) 20 (1,066) Ceded Net 10,701 5,999 – 16,700 Net 90 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Property- Casualty 26,936 2,246 29,182 (3,159) 26,023 (3,324) (463) (3,787) 836 (2,951) 23,612 1,783 25,395 (2,323) 23,072 24,556 1,507 26,063 (2,163) 23,900 (2,866) (316) (3,182) 393 (2,789) 21,690 1,191 22,882 (1,771) 21,111 Life/Health 12,668 331 12,999 (401) 12,598 (140) (1) (141) 6 (135) 12,528 330 12,858 (395) 12,463 12,507 382 12,889 (373) 12,516 (228) (19) (247) 7 (240) 12,279 363 12,642 (366) 12,275 Consoli- dation – (57) (57) 57 – – 13 13 (13) – – (44) (44) 44 – – (45) (45) 45 – – 7 7 (7) – – (37) (37) 37 – Group 39,604 2,520 42,124 (3,504) 38,621 (3,464) (451) (3,915) 829 (3,086) 36,140 2,069 38,209 (2,675) 35,535 37,063 1,845 38,908 (2,492) 36,416 (3,094) (328) (3,422) 392 (3,030) 33,969 1,516 35,486 (2,099) 33,386 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 22 – Interest and similar income interest and similar income € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Interest from held-to-maturity investments 38 39 78 83 Dividends from available-for-sale investments 766 594 1,108 892 Interest from available-for-sale investments 3,632 3,364 7,104 6,659 Share of earnings from investments in associates and joint ventures 85 56 162 94 Rent from real estate held for investment 221 215 438 422 Interest from loans to banks and customers 1,174 1,219 2,376 2,435 Other interest income 49 51 102 93 Total 5,964 5,538 11,368 10,677 23 – Income from financial assets and liabilities carried at fair value through income (net) income from financial assets and liabilities carried at fair value through income (net) € mn three months ended 30 June Property- Casualty Life/Health Asset Management Corporate and Other Consolidation 2015 Income (expenses) from financial assets and liabilities held for trading (net) 41 (416) (1) 41 – Income (expenses) from financial assets and liabilities designated at fair value through income (net) – (122) (1) (9) – Income (expenses) from financial liabilities for puttable equity instruments (net) – 116 – 1 – Foreign currency gains and losses (net) (90) (812) (8) (59) – Total (49) (1,234) (9) (26) – 2014 Income (expenses) from financial assets and liabilities held for trading (net) (19) (292) – 8 (1) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 1 90 3 2 – Income (expenses) from financial liabilities for puttable equity instruments (net) – (50) – – – Foreign currency gains and losses (net) 17 191 1 (3) – Total (2) (62) 5 7 (2) Interim Report Second Quarter and First Half Year of 2015 Allianz Group Group (334) (132) 117 (968) (1,317) (305) 95 (50) 206 (53) 91 income from financial assets and liabilities carried at fair value through income (net) (continued) € mn six months ended 30 June Property- Casualty Life/Health Asset Management Corporate and Other Consolidation Group 2015 Income (expenses) from financial assets and liabilities held for trading (net) (135) (2,173) – (167) 5 (2,471) Income (expenses) from financial assets and liabilities designated at fair value through income (net) – 156 3 6 (1) 166 Income (expenses) from financial liabilities for puttable equity instruments (net) – (106) – – – (106) Foreign currency gains and losses (net) 130 1,424 (7) 105 – 1,653 Total (5) (698) (4) (55) 4 (758) 2014 Income (expenses) from financial assets and liabilities held for trading (net) (77) (664) (1) 9 (1) (735) Income (expenses) from financial assets and liabilities designated at fair value through income (net) – 142 3 2 (1) 148 Income (expenses) from financial liabilities for puttable equity instruments (net) 1 (78) – – – (78) Foreign currency gains and losses (net) 30 269 1 (8) – 292 Total (46) (331) 3 3 (2) (373) Further explanations for the three months ended 30 June Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net) (2015: expenses of € 968 MN; 2014: income of € 206 MN). These foreign currency gains and losses arise subsequent to initial recogni- tion on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income. The Allianz Group uses freestanding derivatives, included in the line item income (expenses) from financial assets and liabilities held for trading (net), to hedge against foreign currency fluctuations (2015: income of € 678 MN; 2014: expenses of € 204 MN). 24 – Realized gains/losses (net) realized gains/losses (net) € mn three months ended 30 June 2015 2014 realized gains Available-for-sale investments Equity securities Debt securities Subtotal 941 1,144 2,084 415 499 914 six months ended 30 June 2015 2014 2,345 2,503 4,847 837 974 1,811 Additionally included in the business segment Life/Health are derivative financial instruments from German entities which relate to duration management (2015: expenses of € 877 MN; 2014: income of € 148 MN) and protection against equity fluctuations (2015: income of € 27 MN; 2014: expenses of € 27 MN), as well as from U.S. entities which relate to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts (2015: expenses of € 99 MN; 2014: expens- es of € 218 MN). Investments in associates and joint ventures1 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal 32 22 218 – 2,356 11 66 113 1 1,104 32 71 394 29 5,373 20 83 183 1 2,098 realized losses Available-for-sale investments Equity securities Debt securities Subtotal (54) (202) (256) (26) (49) (75) (113) (323) (435) (51) (104) (155) Investments in associates and joint ventures2 Real estate held for investment Loans and advances to banks and customers Subtotal Total (4) – (1) (262) (1) (2) (1) (78) (4) (1) (2) (442) (5) (5) (1) (166) 2,094 1,026 4,931 1,932 1 2 For the three and the six months ended 30 June 2015, include realized gains from the disposal of sub- sidiaries and businesses of € 1 mN (2014: € – mN). For the three and the six months ended 30 June 2015, include no realized losses from the disposal of subsidiaries and businesses. 92 Interim Report Second Quarter and First Half Year of 2015 Allianz Group B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 25 – Fee and commission income fee and commission income € mn three months ended 30 June 2015 2014 ProPerty-casualty Fees from credit and assistance business 254 192 Service agreements 104 109 Subtotal 358 302 life/health Service agreements 24 28 Investment advisory 308 232 Other – 1 Subtotal 332 261 asset management Management fees 1,745 1,701 Loading and exit fees 170 190 Performance fees 52 67 Other 8 15 Subtotal 1,975 1,972 corPorate and other Service agreements 25 16 Investment advisory and banking activities 182 161 Subtotal 207 177 consolidation (199) (174) Total 2,673 2,537 Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 26 – Other income other income € mn six months ended 30 June three months ended 30 June six months ended 30 June 2015 2014 2015 2014 2015 2014 Income from real estate held for own use 491 225 389 219 Realized gains from disposals of real estate held for own use 1 2 9 22 715 608 Other income from real estate held for own use 1 – 1 – Subtotal 3 2 11 22 46 633 – 679 51 438 1 490 Income from non-current assets classified as held for sale Income from alternative investments Other Total – 52 2241 279 1 41 2 46 – 121 2241 356 1 98 2 123 3,472 314 111 3,356 360 86 1 Includes for the three and the six months ended 30 June 2015 a net gain of € 0.2 bN on the sale of the personal insurance business of Firemans’s Fund Insurance Company to aCe Limited. The sale was an integral part of the reorganization of Allianz Group’s Property-Casualty insurance business in the United States. 17 31 3,914 3,833 41 33 27 – Income and expenses from fully consolidated private equity investments 365 311 407 344 income and exPenses from fully consolidated Private equity investments (398) (330) € mn 5,317 4,945 three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Income Sales and service revenues 184 174 355 343 Subtotal 184 174 355 343 Expenses Cost of goods sold (57) (53) (110) (107) General and administrative expenses (117) (118) (207) (233) Interest expenses (20) (7) (45) (15) Subtotal (194) (179) (362) (355) Consolidation1 4 5 3 6 Total (6) – (4) (5) 1 This consolidation effect results from the deferred policyholder participation recognized in the result from fully consolidated private equity investments within operating profit in the Life/Health business segment that was reclassified to expenses from fully consolidated private equity investments in non- operating profit to ensure the consistent presentation of the Allianz Group’s operating profit. 93 28 – Claims and insurance benefits incurred (net) Claims and insuranCe benefits inCurred (net) € mn three months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2015 Gross Claims and insurance benefits paid (7,978) (4,688) 14 (12,651) Change in loss and loss adjustment expenses (338) (144) 4 (478) Subtotal (8,316) (4,832) 18 (13,130) Ceded Claims and insurance benefits paid 687 98 (13) 771 Change in loss and loss adjustment expenses 38 31 (4) 64 Subtotal 724 128 (17) 835 Net Claims and insurance benefits paid (7,291) (4,590) 1 (11,880) Change in loss and loss adjustment expenses (300) (114) – (414) Total (7,592) (4,703) 1 (12,294) 2014 Gross Claims and insurance benefits paid (7,252) (5,071) 12 (12,310) Change in loss and loss adjustment expenses (427) (224) (1) (652) Subtotal (7,679) (5,295) 11 (12,962) Ceded Claims and insurance benefits paid 492 114 (11) 595 Change in loss and loss adjustment expenses 101 8 1 110 Subtotal 593 122 (10) 705 Net Claims and insurance benefits paid (6,760) (4,957) 1 (11,715) Change in loss and loss adjustment expenses (326) (216) – (542) Total (7,086) (5,173) 2 (12,257) 94 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Claims and insuranCe benefits inCurred (net) (Continued) € mn six months ended 30 June Property- Casualty Life/Health 2015 Gross Claims and insurance benefits paid (15,625) (9,928) Change in loss and loss adjustment expenses (801) (157) Subtotal (16,426) (10,085) Ceded Claims and insurance benefits paid 1,032 188 Change in loss and loss adjustment expenses 151 40 Subtotal 1,183 227 Net Claims and insurance benefits paid (14,593) (9,740) Change in loss and loss adjustment expenses (650) (117) Total (15,243) (9,858) 2014 Gross Claims and insurance benefits paid (14,562) (10,255) Change in loss and loss adjustment expenses (250) (249) Subtotal (14,812) (10,504) Ceded Claims and insurance benefits paid 894 228 Change in loss and loss adjustment expenses 105 22 Subtotal 999 250 Net Claims and insurance benefits paid (13,668) (10,027) Change in loss and loss adjustment expenses (145) (227) Total (13,813) (10,254) Consoli- dation 27 9 36 (24) (9) (33) 3 – 3 21 1 22 (18) (3) (21) 3 (1) 1 Group (25,526) (949) (26,475) 1,195 182 1,377 (24,331) (767) (25,098) (24,796) (498) (25,294) 1,104 124 1,228 (23,693) (374) (24,066) B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 29 – Change in reserves for insurance and investment contracts (net) Change in reserves for insuranCe and investment ContraCts (net) € mn three months ended 30 June Property- Casualty Life/Health Consoli- dation 2015 Gross Aggregate policy reserves (61) (2,012) – Other insurance reserves – (132) – Expenses for premium refunds (59) (1,452) (8) Subtotal (120) (3,596) (8) Ceded Aggregate policy reserves 2 160 – Other insurance reserves – 1 – Expenses for premium refunds – 1 – Subtotal 2 163 – Net Aggregate policy reserves (59) (1,852) – Other insurance reserves – (130) – Expenses for premium refunds (59) (1,451) (8) Total (118) (3,433) (9) 2014 Gross Aggregate policy reserves (64) (1,709) (1) Other insurance reserves (1) (36) – Expenses for premium refunds (72) (1,801) (5) Subtotal (137) (3,546) (6) Ceded Aggregate policy reserves 1 82 – Other insurance reserves – 3 – Expenses for premium refunds – 4 – Subtotal 1 89 – Net Aggregate policy reserves (63) (1,627) (1) Other insurance reserves (1) (33) – Expenses for premium refunds (72) (1,797) (5) Total (135) (3,457) (6) Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes Change in reserves for insuranCe and investment ContraCts (net) (Continued) € mn six months ended 30 June Property- Casualty Life/Health Consoli- dation 2015 Gross Group Aggregate policy reserves (127) (4,324) (1) Other insurance reserves – (135) – (2,074) (132) Expenses for premium refunds Subtotal Ceded (168) (295) (5,191) (9,650) (12) (13) (1,519) Aggregate policy reserves 3 250 – (3,725) Other insurance reserves – 3 – 162 2 Expenses for premium refunds Subtotal Net – 3 3 256 – – 1 Aggregate policy reserves (123) (4,074) (1) 165 Other insurance reserves – (131) – (1,912) (130) Expenses for premium refunds Total (168) (291) (5,189) (9,394) (12) (13) 2014 (1,518) (3,560) Gross Aggregate policy reserves (129) (3,703) (1) Other insurance reserves (4) (90) – (1,774) (37) Expenses for premium refunds Subtotal Ceded (131) (263) (3,124) (6,917) (6) (7) (1,877) Aggregate policy reserves 3 133 1 (3,689) Other insurance reserves – 6 – 84 3 Expenses for premium refunds Subtotal Net – 3 5 145 – – 4 Aggregate policy reserves (126) (3,569) – 90 Other insurance reserves (4) (83) – (1,691) (34) Expenses for premium refunds Total (131) (260) (3,119) (6,771) (6) (6) (1,874) (3,598) Group (4,452) (134) (5,372) (9,958) 253 3 3 259 (4,199) (131) (5,369) (9,699) (3,832) (94) (3,261) (7,187) 137 6 6 149 (3,695) (87) (3,256) (7,038) 95 30 – Interest expenses interest expenses € mn three months ended 30 June 2015 2014 Liabilities to banks and customers (52) (62) Deposits retained for reinsurance ceded (16) (10) Certificated liabilities (73) (71) Subordinated liabilities (147) (141) Other interest expenses (21) (24) Total (309) (308) 31 – Loan loss provisions loan loss provisions € mn three months ended 30 June 2015 2014 Additions to allowances including direct impairments (32) (45) Amounts released 15 23 Recoveries on loans previously impaired 1 7 Total (17) (15) 96 Interim Report Second Quarter and First Half Year of 2015 six months ended 30 June 2015 2014 (110) (123) (28) (22) (148) (138) (290) (282) (49) (45) (624) (610) six months ended 30 June 2015 2014 (69) (73) 43 36 2 14 (24) (24) Allianz Group 32 – Impairments of investments (net) impairments of investments (net) € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 impairments Available-for-sale investments Equity securities (117) (53) (151) (188) Debt securities (32) (18) (93) (244) Subtotal (149) (72) (244) (432) Investments in associates and joint ventures (4) – (4) – Real estate held for investment (1) (1) (5) (1) Loans and advances to banks and customers (5) (1) (16) (2) Non-current assets classified as held for sale – (1) – (2) Subtotal (158) (74) (268) (436) reversals of impairments Real estate held for investment 1 – 1 – Loans and advances to banks and customers 1 – 2 – Subtotal 2 – 3 1 Total (156) (74) (265) (436) 33 – Investment expenses investment expenses € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Investment management expenses (163) (138) (308) (251) Depreciation of real estate held for investment (62) (56) (123) (112) Other expenses from real estate held for investment (40) (38) (72) (68) Total (265) (232) (502) (431) B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 34 – Acquisition and administrative expenses (net) 35 – Fee and commission expenses fee and Commission expenses aCquisition and administrative expenses (net) € mn € mn three months ended 30 June three months ended 30 June six months ended 30 June 2015 2014 property-Casualty 2015 2014 2015 2014 property-Casualty Fees from credit and assistance business (261) (198) Acquisition costs Service agreements (74) (82) Incurred (2,566) (2,330) (5,674) (5,095) Subtotal (336) (280) Commissions and profit received on reinsurance business ceded 141 76 249 193 life/health Deferrals of acquisition costs 1,560 1,433 3,657 3,261 Service agreements (9) (10) Amortization of deferred acquisition costs (1,656) (1,513) (3,271) (2,934) Investment advisory Subtotal (137) (145) (82) (93) Subtotal (2,521) (2,333) (5,039) (4,574) Administrative expenses (686) (703) (1,598)1 (1,910)1 asset management Subtotal (3,208) (3,036) (6,637) (6,485) Commissions (377) (313) Other (39) (58) life/health Subtotal (416) (371) Acquisition costs Incurred (1,299) (1,331) (2,624) (2,547) Corporate and other Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs 28 825 22 914 54 1,730 46 1,748 Service agreements Investment advisory and banking activities (70) (96) (79) (80) Amortization of deferred acquisition costs (816) (628) (1,728) (1,157) Subtotal (166) (158) Subtotal (1,262) (1,024) (2,568) (1,910) Consolidation 114 72 Administrative expenses (436) (424) (864)1 (799)1 Total (949) (830) Subtotal (1,698) (1,447) (3,432) (2,709) asset management Personnel expenses (621) (592) (1,294)1 (1,167)1 Non-personnel expenses Subtotal (419) (1,040) (340) (932) (788) (2,082) (649) (1,816) 36 – Other expenses Corporate and other other expenses Administrative expenses (330) (293) (427)1 871 Subtotal Consolidation (330) (7) (293) 5 (427) (1) 87 (112)1 € mn three months ended 30 June Total (6,283) (5,703) (12,579) (11,034) 2015 2014 1 Include one-off effects from pension revaluation. Please refer to note 4 for further details. Realized losses from disposals of real estate held for own use – (3) Expenses from alternative investments (31) (23) Expenses from non-current assets classified as held for sale – – Other (1) – Total (32) (26) Interim Report Second Quarter and First Half Year of 2015 Allianz Group six months ended 30 June 2015 2014 (507) (401) (173) (169) (680) (571) (21) (22) (275) (158) (296) (180) (731) (620) (58) (95) (788) (716) (160) (149) (180) (144) (340) (293) 214 146 (1,890) (1,613) six months ended 30 June 2015 2014 – (7) (58) (48) – (1) (2) – (60) (56) 97 37 – Income taxes inCome taxes € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Current income taxes (580) (803) (1,307) (1,791) Deferred income taxes (287) (71) (418) 50 Total (867) (875) (1,725) (1,741) For the three and the six months ended 30 June 2015 and 2014, the income taxes relating to components of other comprehensive income consist of the following: inCome taxes relating to Components of other Comprehensive inCome € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments (35) 12 113 13 Available-for-sale investments 2,719 (896) 1,450 (1,816) Cash flow hedges 106 (18) 65 (20) Share of other comprehensive income of associates and joint ventures (1) (1) (3) (2) Miscellaneous (3) 3 (10) (27) Items that may never be reclassified to profit or loss Actuarial gains (losses) on defined benefit plans (301) 137 (142) 296 Total 2,485 (763) 1,473 (1,555) 98 Interim Report Second Quarter and First Half Year of 2015 Allianz Group B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income Other InfOrmatIOn 38 – Financial instruments and fair value measurement Fair values and carrying amounts oF Financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts oF Financial instruments € mn Financial assets Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Real estate held for own use Financial liabilities Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities The Allianz Group carries certain financial instruments at fair value and discloses the fair value of most other assets and liabilities. The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The maximum exposure to credit risk of financial assets, without taking collateral into account, is represented by their carrying amount, except for available-for-sale financial assets, for which it is repre- sented by the amortized cost amount. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes as of 30 June 2015 as of 31 December 2014 Carrying amount Fair value Carrying amount Fair value 12,259 12,259 13,863 13,863 2,327 2,327 2,214 2,214 4,794 4,794 3,660 3,660 484,261 484,261 465,914 465,914 3,993 4,649 3,969 4,710 4,536 5,500 4,059 4,820 11,829 17,065 11,349 16,323 115,796 135,231 117,075 140,238 104,944 104,944 94,564 94,564 336 336 477 477 2,751 3,880 2,566 3,646 8,633 8,633 8,496 8,496 25,373 25,692 23,015 23,607 104,944 104,944 94,564 94,564 702 702 281 281 2,526 2,526 1,793 1,793 8,777 9,621 8,207 9,293 12,208 13,130 12,037 13,253 The degree of judgment used in measuring the fair value of financial instruments closely correlates with the level of non-market observable inputs. The Allianz Group maximizes the use of observ- able inputs and minimizes the use of non-market observable inputs when measuring fair value. Observability of input parameters is influenced by various factors such as type of the financial instru- ment, whether a market is established for the particular instrument, specific transaction characteristics, liquidity as well as general market conditions. 99 If the fair value cannot be measured reliably, amortized cost is used as a proxy for determining fair values. As of 30 June 2015, fair values could not be reliably measured for equity investments with carrying amounts totaling € 202 mn (31 December 2014: € 189 mn). These investments are primarily investments in privately held corpo- rations and partnerships. Fair value hierarchy Assets and liabilities measured or disclosed at fair value in the con- solidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS 13, which categorizes the inputs to valuation techniques used to measure fair value into three levels. In general, the subsidiaries assume responsibility for assessing fair values and hierarchies of assets and liabilities. This is consistent with the decentralized organizational structure of the Allianz Group and reflects market insights of local managers. Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). The availability of market information is deter- mined by the relative trading levels of identical or similar instru- ments in the market, with emphasis placed on information that rep- resents actual market activity or binding quotations from brokers or dealers. If no sufficient market information is available, manage- ment’s best estimate of a particular input is used to determine the value. Quoted prices in active markets – Fair value level 1: The level 1 inputs of financial instruments that are traded in active markets are based on unadjusted quoted market prices or dealer price quotations for identical assets or liabilities on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. 100 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Valuation techniques – Market observable inputs – Fair value level 2: Level 2 applies if the market for a financial instrument is not active or when the fair value is determined by using valuation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liability and include references to formerly quoted prices for identical instru- ments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instruments from inac- tive markets. Market observable inputs also include interest rate yield curves, volatilities and foreign currency exchange rates. Valuation techniques – Non-market observable inputs – Fair value level 3: Where observable market inputs are not available, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, com- parison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are made for credit risks. In particular, when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. Fair value measurement on a recurring basis The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, − Derivative financial instruments and firm commitments included in other assets and other liabilities, and − Financial liabilities for puttable equity instruments. B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2015 and 31 December 2014. Fair value hierarchy as oF 30 June 2015 (items carried at Fair value) € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total Financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity Level 1 – Quoted prices in active markets 127 65 141 332 1,478 2,246 3,724 4,056 15 59 196 43,740 26,885 532 34,156 105,582 101,800 – 211,438 19 – 19 101,800 – 2,439 104,258 55 57 Consolidated Statements of Cash Flows Notes Level 2 – Market observable inputs Level 3 – Non-market observable inputs 364 – 142 16 1,362 110 1,869 126 902 25 34 110 935 135 2,804 261 3,993 – 14,346 52 4,060 268 155,654 35 181,327 7,886 1,875 1,333 1,012 6,839 362,267 16,414 2,982 163 336 – 368,388 16,838 1,415 7,197 2 – 1,417 7,197 2,982 163 702 – 68 19 5,168 7,379 Total 491 222 1,613 2,327 2,404 2,390 4,794 7,121 4,008 14,457 4,524 199,429 216,099 3,739 42,005 484,261 104,944 336 596,663 8,631 2 8,633 104,944 702 2,526 116,805 101 Fair value hierarchy as oF 31 december 2014 (items carried at Fair value) € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total Financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total 102 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Level 1 – Quoted prices in active markets 79 47 260 385 887 1,624 2,512 2,897 43 – 259 29,810 15,885 273 30,077 76,347 91,885 2 171,131 49 – 49 91,885 – 1,754 93,688 Level 2 – Market observable inputs 323 133 1,336 1,792 981 38 1,018 2,810 3,695 14,146 4,075 162,166 188,946 1,966 868 375,862 2,511 476 381,659 1,315 3 1,319 2,511 281 24 4,135 Level 3 – Non-market observable inputs – 15 22 38 19 110 129 167 – 40 218 39 6,452 729 6,226 13,704 166 – 14,037 7,129 – 7,129 166 – 15 7,310 Total 402 195 1,618 2,214 1,887 1,773 3,660 5,875 3,738 14,186 4,552 192,016 211,284 2,968 37,171 465,914 94,564 477 566,830 8,493 3 8,496 94,564 281 1,793 105,134 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income Valuation methodologies of financial instruments carried at fair value For fair value measurements categorized within level 2 and level 3, the Allianz Group uses valuation techniques consistent with the three widely used classes of valuation techniques listed in IFRS 13: − Market approach: Prices and other relevant information gener- ated by market transactions involving identical or comparable assets or liabilities. − Cost approach: Amount that would currently be required to replace the service capacity of an asset (replacement cost). − Income approach: Conversion of future amounts such as cash flows or income to a single current amount (present value technique). There is no one-to-one connection between valuation technique and hierarchy level. Depending on whether the valuation techniques are based on significant observable or unobservable inputs, financial instruments are classified in the fair value hierarchy. Financial assets carried at fair value through income Financial assets held for trading – Debt and equity securities The fair value is mainly determined using the market approach. In some cases, the fair value is determined based on the income approach using interest rates and yield curves observable at com- monly quoted intervals. Financial assets held for trading – Derivative financial instruments For level 2, the fair value is mainly determined based on the income approach using present value techniques and the Black-Scholes- Merton model. Primary inputs to the valuation include volatilities, interest rates, yield curves, and foreign exchange rates observable at commonly quoted intervals. For level 3, derivatives are mainly priced by third-party vendors. Controls are in place to monitor the valuations of these derivatives. Valuations are mainly derived based on the income approach. Financial assets designated at fair value through income – Debt securities The fair value is mainly determined using net asset value techniques for funds and the market approach. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes Financial assets designated at fair value through income – Equity securities For level 2, the fair value is determined using the market approach. For level 3, equity securities mainly represent unlisted equity securi- ties measured at cost. Available-for-sale investments Available-for-sale investments – Debt securities Debt securities include: − Government and agency mortgage-backed securities (residential and commercial), − Corporate mortgage-backed securities (residential and commercial), − Other asset-backed securities, − Government and government agency bonds, − Corporate bonds, and − Other debt securities. The valuation techniques for these debt securities are similar. For level 2 and level 3, the fair value is determined using the market and the income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a present value technique where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk. Depending on the observability of these risk parameters in the market, the security is classified as level 2 or level 3. Available-for-sale investments – Equity securities For level 2, the fair value is mainly determined using the market approach or net asset value techniques for funds. For certain pri vate equity investments, the funds are priced based on transaction prices using the cost approach. As there are only few holders of these funds, the market is not liquid and transactions are only known to partici- pants. For level 3, the fair value is mainly determined using net asset values. The net asset values are based on the fair value meas urement of the underlying investments and are mainly provided by fund man- agers. For certain level 3 equity securities, the capital invested is con- sidered to be a reasonable proxy for the fair value. 103 Financial assets for unit-linked contracts For level 2, the fair value is determined using the market or the income approach. For the income approach, primary observable inputs include yield curves observable at commonly quoted intervals. For level 3, the fair value is mainly determined based on the net asset value. Financial liabilities for unit-linked contracts are valued based on their corresponding assets. Derivative financial instruments and firm commitments included in other assets The fair value of the derivatives is mainly determined based on the income approach using present value techniques. Primary inputs include yield curves observable at commonly quoted intervals. The derivatives are mainly used for hedging purposes. Certain derivatives are priced by Bloomberg functions, such as Black-Scholes Option Pricing or the swap manager tool. Financial liabilities held for trading – Derivative financial instruments For level 2, the fair value is mainly determined using the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the Black- Scholes-Merton model. Main observable input parameters include volatilities, yield curves observable at commonly quoted intervals and credit spreads observable in the market. For level 3, the fair value is mainly determined based on the income approach using deterministic discounted cash flow models. A significant proportion of derivative liabilities represent derivatives embedded in certain life insurance and annuity contracts. Significant non-market observable input parameters include mortality rates and surrender rates. Financial liabilities held for trading – Other trading liabilities The fair value is mainly determined based on the income approach using present value techniques. Primary inputs comprise swap curves, share prices and dividend estimates. Derivative financial instruments and firm commitments included in other liabilities For level 2, the fair value is mainly determined using the income approach. Primary inputs include interest rates and yield curves observable at commonly quoted intervals. 104 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments are generally required to be recorded at the redemption amount with changes recognized in income. For level 2, the fair value is mainly determined using net asset value techniques. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. Significant level 3 portfolios – Narrative description and sensitivity analysis Available-for-sale investments – Equity securities Equity securities within available-for-sale investments classified as level 3 mainly comprise private equity fund investments as well as alternative investments of the Allianz Group and are in most cases delivered as net asset values by the fund managers (€ 5.8 bn). The net asset values are calculated using material, non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund man- agers and hence a narrative sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the capital invested is considered to be a rea- sonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable. Available-for-sale investments – Corporate bonds Corporate bonds within available-for-sale investments classified as level 3 are mainly priced based on the income approach (€ 5.4 bn). The primary non-market observable input used in the discounted cash flow method is an option adjusted spread taken from a bench- mark security. A significant yield increase of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs has only an imma- terial impact on fair value. B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity Financial liabilities held for trading Financial liabilities held for trading mainly include embedded de rivative financial instruments relating to annuity products that are priced internally using discounted cash flow models (€ 7.0 bn). A sig- nificant decrease (increase) in surrender rates, mortality rates or the utilization of annuitization benefits could result in a higher (lower) fair value. For products with a high death benefit, surrender rates may show an opposite effect. However, a 10 % stress of the main non- market observable inputs has only an immaterial impact on fair value. Quantification of significant non-market observable inputs The following table shows the quantitative description of valuation technique(s) and input(s) used for the level 3 portfolios described above. Quantitative description oF valuation techniQue(s) and non-market observable input(s) used € mn Fair value as of Description 30 June 2015 Valuation technique(s) Available-for-sale investments Equity securities 5,758 Net asset value Corporate bonds 5,397 Discounted cash flow method Financial liabilities held for trading Derivative financial instruments 6,987 Fixed-indexed annuities 5,562 Discounted cash flow method Variable annuities 1,425 Discounted cash flow method 1 Presentation not meaningful. Mortality assumptions are mainly derived from the Annuity 2000 Mortality Table. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 55 57 Consolidated Statements of Cash Flows Notes Non-market observable input(s) n/a Option adjusted spread Annuitizations Surrenders Mortality Withdrawal benefit election Volatility Surrenders Mortality Range n/a 16 bps – 800 bps 0 % – 25 % 0 % – 25 % n/a1 0 % – 50 % n/a 0.5 % – 35 % n/a1 105 Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. reconciliation oF level 3 Financial assets € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Available-for-sale investments Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Total financial assets at fair value reconciliation oF level 3 Financial liabilities € mn Financial liabilities Financial liabilities held for trading Derivative financial instruments Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total financial liabilities at fair value 106 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Carrying value (fair value) as of 1 January 2015 – 15 22 38 19 110 129 40 218 39 6,452 729 6,226 13,704 166 14,037 Carrying value (fair value) as of 1 January 2015 7,129 166 15 7,310 Additions through purchases and issues – – 17 17 7 – 7 – 53 3 1,372 585 571 2,585 2 2,610 Additions through purchases and issues 875 2 4 881 Net transfers into (out of) level 3 – – – – – – – – – – (10) – – (9) – (9) Net transfers into (out of) level 3 22 – – 22 Disposals through sales and settlements – – (89) (89) (2) – (2) (2) (63) (11) (190) (24) (487) (776) (3) (870) Disposals through sales and settlements (400) (3) (1) (403) Net gains (losses) recognized in consolidated income statement – 1 157 158 – – – 3 18 – 15 1 11 48 (2) 204 Net losses (gains) recognized in consolidated income statement (1,029) (2) 1 (1,030) Net gains (losses) recognized in other comprehensive income – – – – – – – – (6) – (181) 36 495 344 – 344 Net losses (gains) recognized in other comprehensive income – – – – Impairments – – – – – – – – – – – (1) (37) (38) – (38) Impairments – – – – Foreign currency transla tion adjustments – – 3 3 – – – 3 13 3 428 2 28 477 – 481 Foreign currency transla tion adjustments 600 – – 600 Changes in the consolidated subsidiaries of the Allianz Group – – – – – – – 8 35 – – 3 32 79 – 79 Changes in the consolidated subsidiaries of the Allianz Group – – – – Carrying value (fair value) as of 30 June 2015 – 16 110 126 25 110 135 52 268 35 7,886 1,333 6,839 16,414 163 16,838 Carrying value (fair value) as of 30 June 2015 7,197 163 19 7,379 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date – – 22 22 – – – – – – – – – – – 22 Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date (253) – – (253) B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes 55 57 Consolidated Statements of Cash Flows Notes in Equity Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. reconciliation oF level 3 Financial assets € mn Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date Net gains (losses) recognized in consolidated income statement Changes in the consolidated subsidiaries of the Allianz Group Carrying value Net gains (losses) recognized in other comprehensive income Carrying value (fair value) as of 30 June 2015 (fair value) as of Additions through Net transfers Disposals through Foreign currency transla tion adjustments 1 January 2015 purchases and issues into (out of) level 3 sales and settlements Impairments Financial assets Financial assets carried at fair value through income Financial assets held for trading – – – – – – – Debt securities – – – – Equity securities 15 – – – 1 – – – – 16 – Derivative financial instruments 22 17 – (89) 157 – – 3 – 110 22 Subtotal 38 17 – (89) 158 – – 3 – 126 22 Financial assets designated at fair value through income – – – – – 25 – Debt securities 19 7 – (2) Equity securities 110 – – – – – – – – 110 – Subtotal 129 7 – (2) – – – – – 135 – Available-for-sale investments 3 – – 3 8 52 – Corporate mortgage-backed securities (residential and commercial) 40 – – (2) Other asset-backed securities 218 53 – (63) 18 (6) – 13 35 268 – Government and government agency bonds 39 3 – (11) – – – 3 – 35 – Corporate bonds 6,452 1,372 (10) (190) 15 (181) – 428 – 7,886 – Other debt securities 729 585 – (24) 1 36 (1) 2 3 1,333 – Equity securities 6,226 571 – (487) 11 495 (37) 28 32 6,839 – Subtotal 13,704 2,585 (9) (776) 48 344 (38) 477 79 16,414 – Financial assets for unit-linked contracts 166 2 – (3) (2) – – – – 163 – Total financial assets at fair value 14,037 2,610 (9) (870) 204 344 (38) 481 79 16,838 22 reconciliation oF level 3 Financial liabilities € mn Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date Net losses (gains) recognized in consolidated income statement Changes in the consolidated subsidiaries of the Allianz Group Carrying value Disposals Net losses (gains) recognized in other comprehensive income Foreign currency transla tion adjustments Carrying value (fair value) as of 30 June 2015 (fair value) as of Additions through Net transfers through sales and 1 January 2015 purchases and issues into (out of) level 3 settlements Impairments Financial liabilities Financial liabilities held for trading (1,029) – – 600 – 7,197 (253) Derivative financial instruments 7,129 875 22 (400) Financial liabilities for unit-linked contracts 166 2 – (3) (2) – – – – 163 – Financial liabilities for puttable equity instruments 15 4 – (1) 1 – – – – 19 – Total financial liabilities at fair value 7,310 881 22 (403) (1,030) – – 600 – 7,379 (253) 107 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Fair value measurement on a non-recurring basis Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 32 – Impairments of investments (net) or note 36 – Other expenses. reclassiFication oF Financial assets On 31 January 2009, certain U.S. Dollar denominated CDOs were reclas- sified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. As of 31 December 2014, the carrying amount and fair value of the CDOs was € 167 mn and € 169 mn, respectively. As of 30 June 2015, the carrying amount and fair value of the CDOs was reduced to € 4 mn and € 5 mn, respectively. This reduction was driven by the circumstance that one CDO vehicle was restructured during the second quarter of 2015. In the course of this, the underlying assets of the CDO vehicle were recognized as available-for-sale investments. For the six months ended 30 June 2015, the net profit related to the CDOs was € 18 mn. 39 – Earnings per share basic earnings per share Basic earnings per share are calculated by dividing net income attrib- utable to shareholders by the weighted average number of common shares outstanding for the period. basic earnings per share € mn Net income attributable to shareholders used to calculate basic earnings per share Weighted average number of common shares outstanding Basic earnings per share (€) diluted earnings per share Diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. These effects arise from various share-based compensation plans of the Allianz Group. 108 Interim Report Second Quarter and First Half Year of 2015 Allianz Group three months ended 30 June 2015 2014 2,018 1,755 454,278,679 453,761,276 4.44 3.87 six months ended 30 June 2015 2014 3,839 3,395 454,265,060 453,750,731 8.45 7.48 B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes diluted earnings per share € mn three months ended 30 June six months ended 30 June 2015 2014 2015 2014 Net income attributable to shareholders 2,018 1,755 3,839 3,395 Effect of potentially dilutive common shares (19) (10) (1) (11) Net income used to calculate diluted earnings per share 1,998 1,745 3,838 3,385 Weighted average number of common shares outstanding 454,278,679 453,761,276 454,265,060 453,750,731 Potentially dilutive common shares resulting from assumed conversion of: Share-based compensation plans 2,095,413 715,550 192,840 3,006,849 Weighted average number of common shares outstanding after assumed conversion 456,374,091 454,476,826 454,457,901 456,757,580 Diluted earnings per share (€) 4.38 3.84 8.45 7.41 For the six months ended 30 June 2015, the weighted average number of common shares excludes 2,734,940 (2014: 2,749,269) treasury shares. 40 – Other information number oF employees insurance laws (amendment) bill in india The Insurance Laws (Amendment) Bill has become legally effective in the first quarter of 2015 and provides for raising the foreign invest- ment cap in India from 26 % to 49 %. As per the 2001 joint venture agree- ment between the Allianz Group and Bajaj, the Allianz Group has the right to increase the stakes in Bajaj at pre-determined prices, if allowed under applicable laws, and subject to regulatory approvals. The Allianz Group is currently in the process of evaluating the con- tractual situation against the prevailing regulatory background. number oF employees as of 30 June 2015 as of 31 December 2014 Germany 40,589 40,692 Other countries 107,173 106,733 Total 147,762 147,425 contingent liabilities and commitments As of 30 June 2015, there were no significant changes in contingent liabilities compared to the consolidated financial statements for the year ended 31 December 2014. As of 30 June 2015, outstanding commitments to invest in private equity funds and similar financial instruments amounted to € 5,101 mn (31 December 2014: € 4,388 mn) and outstanding commit- ments to invest in real estate and infrastructure amounted to € 2,300 mn (31 December 2014: € 1,209 mn). Other commit ments – mainly referring to sponsoring – decreased from € 743 mn as of 31 December 2014 to € 506 mn as of 30 June 2015. All other commit- ments showed no significant changes. Interim Report Second Quarter and First Half Year of 2015 Allianz Group 109 41 – Subsequent events The Allianz Group was not subject to any subsequent events that sig- nificantly impacted the Group financial results after the balance sheet date and before the financial statements were authorized for issue. Munich, 6 August 2015 Allianz SE The Board of Management 110 Interim Report Second Quarter and First Half Year of 2015 Allianz Group B Condensed Consolidated Interim Financial Statements 51 Consolidated Balance Sheets 52 Consolidated Income Statements 53 Consolidated Statements of Comprehensive Income respOnsIbIlIty statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group in accordance with generally accepted accounting principles, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 6 August 2015 Allianz SE The Board of Management Interim Report Second Quarter and First Half Year of 2015 Allianz Group 54 Consolidated Statements of Changes in Equity 55 57 Consolidated Statements of Cash Flows Notes 111 revIew repOrt To Allianz SE, Munich We have reviewed the condensed interim consolidated financial statements of Allianz SE, Munich – comprising the consolidated bal- ance sheets, consolidated income statements, consolidated state- ments of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and selected explan- atory notes – together with the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2015 that are part of the semi annual financial report according to § 37w WpHG [„Wertpapierhandelsgesetz“: „German Securities Trading Act“]. The preparation of the condensed interim consolidated financial state- ments in accordance with those IFRS applicable to interim financial reporting as adopted by the EU, and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the company’s management. Our responsibility is to issue a report on the condensed interim consolidated financial statements and on the interim group management report based on our review. We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evalua- tion, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, and that the interim group manage- ment report has not been prepared, in material respects, in accor- dance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not per- formed a financial statement audit, we cannot issue an auditor’s report. 112 Interim Report Second Quarter and First Half Year of 2015 Allianz Group Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated finan- cial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, 6 August 2015 KPmG AG Wirtschaftsprüfungsgesellschaft Klaus Becker Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 1 Financial calendar Important dates for shareholders and analysts1 Interim Report/Financial Results 3Q ________________________ 6 November 2015 Financial Results 2015 ____________________________________ 19 February 2016 Annual Report 2015 _______________________________________ 11 March 2016 Annual General Meeting ______________________________________ 4 May 2016 Interim Report/Financial Results 1Q ____________________________ 11 May 2016 Interim Report/Financial Results 2Q ___________________________ 5 August 2016 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone +49.89.3800-0 – info@allianz.com – www.allianz.com Interim Report on the internet – www.allianz.com/interim-report – Design / Concept: hw.design GmbH – Date of publication: 7 August 2015 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2015, Insurance, Allianz | write me a financial report |
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| 2Q Allianz Group Interim Report Second Quarter and First Half Year of 2014 Allianz at a glance Quarterly aND HalF year results three months ended 30 June six months ended 30 June 2014 2013 Change from previous year 2014 2013 Change from previous year More details on page Income statement Total revenues1 € mN 29,456 26,776 10.0 % 63,420 58,824 7.8 % 6 Operating profit2 € mN 2,771 2,367 17.1 % 5,494 5,164 6.4 % 7 Net income2 € mN 1,858 1,675 10.9 % 3,598 3,476 3.5 % 8 thereof: attributable to shareholders € mN 1,755 1,588 10.5 % 3,395 3,295 3.0 % 8 Business segments3 Property-Casualty Gross premiums written € mN 10,846 10,754 0.9 % 26,063 25,951 0.4 % 11 Operating profit2 € mN 1,346 1,179 14.2 % 2,835 2,498 13.5 % 12 Net Income2 € mN 969 1,001 (3.2) % 1,614 2,018 (20.0) % 14 Combined ratio % 94.6 96.0 (1.4) %-p 93.6 95.1 (1.5) %-p 13 Life/Health4 Statutory premiums € mN 16,961 14,125 20.1 % 34,124 28,962 17.8 % 20 Operating profit2 € mN 984 669 47.1 % 1,864 1,524 22.3 % 21 Net Income2 € mN 731 474 54.2 % 1,360 1,102 23.4 % 22 Margin on reserves bps 79 58 21 76 66 10 23 Asset Management4 Operating revenues € mN 1,606 1,815 (11.5) % 3,123 3,726 (16.2) % 28 Operating profit2 € mN 675 804 (16.0) % 1,321 1,704 (22.5) % 28 Net Income2 € mN 419 488 (14.1) % 825 1,056 (21.9) % 28 Cost-income ratio % 58.0 55.7 2.3 %-p 57.7 54.3 3.4 %-p 28 Corporate and Other Total revenues € mN 132 132 – 271 280 (3.2) % – Operating result2 € mN (219) (274) 20.1 % (441) (513) 14.0 % 31 Net Income2 € mN (248) (277) 10.5 % (117) (674) 82.6 % 31 Balance sheet as of 30 June5 Total assets6 € mN 754,330 711,079 6.1 % 754,330 771,079 6.1 % 36 Shareholders’ equity € mN 54,979 50,084 9.8 % 54,979 50,084 9.8 % 35 Non-controlling interests € mN 2,833 2,765 2.5 % 2,833 2,765 2.5 % 35 Share information Basic earnings per share € 3.87 3.50 10.6 % 7.48 7.27 2.9 % 104 Diluted earnings per share € 3.84 3.47 10.7 % 7.41 7.18 3.2 % 104 Share price as of 30 June5 € 121.70 130.35 (6.6) % 121.70 130.35 (6.6) % 1 Market capitalization as of 30 June5 € mN 55,556 59,505 (6.6) % 55,556 59,505 (6.6) % – Other data Standard & Poor's rating7 AA Stable Outlook AA Stable Outlook – AA Stable Outlook AA Stable Outlook – – Conglomerate solvency ratio5,8 % 185 182 3.0 %-p 185 182 3.0 %-p 35 Total assets under management as of 30 June4,5 € bN 1,814 1,770 2.5 % 1,814 1,770 2.5 % 26 thereof: third-party assets under management as of 30 June5 € bN 1,373 1,361 0.9 % 1,373 1,361 0.9 % 27 1 2 3 4 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). The Allianz Group uses operating profit and net income as key financial indicators to assess the perfor- mance of its business segments and the Group as a whole. The Allianz Group operates and manages its activities through four business segments: Property-Casualty, Life/Health, Asset Management and Corporate and Other. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 5 6 7 8 2013 figures as of 31 December 2013. Prior year figure has been restated to reflect the implementation of IFRS 10. For further information, please refer to note 2 to the condensed consolidated interim financial statements. Insurer financial strength rating, affirmed on 4 November 2013. Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2014 would be 177 % (31 December 2013: 173 %). To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. Content 3 4 5 11 20 26 30 33 35 42 a Content Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations iNterim Group maNaGemeNt report 45 b coNDeNseD coNsoliDateD iNterim FiNaNcial statemeNts 46 Content 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 Consolidated Statements of Cash Flows 53 Notes Allianz Share DeVelopmeNt oF tHe alliaNz sHare price Versus stoXX europe 600 iNsuraNce aND euro stoXX 50 indexed to the Allianz share price in € 140 120 € 130.35 (12/30/2013) 100 € 104.80 (12/28/2012) 1Q 2Q 3Q 4Q 1Q 2013 2014 Allianz STOXX Europe 600 Insurance Source: Thomson Reuters Datastream EURO STOXX 50 Allianz Share price (6m 2014): High: € 133.90 (1/17/2014) Low: € 117.20 (4/15/2014) basic sHare iNFormatioN Security codes WKN 840 400 isiN De 000 840 400 5 Bloomberg alV Gr Reuters 0#alVG.Deu Interim Report Second Quarter and First Half Year of 2014 Allianz Group € 121.70 (6/30/2014) 2Q 1 2 Interim Report Second Quarter and First Half Year of 2014 Allianz Group INTERIM GROuP MANAGEMENT REPORT A Interim Report Second Quarter and First Half Year of 2014 Allianz Group 3 INTERIM GROuP MANAGEMENT REPORT 5 11 20 26 30 33 35 42 Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations 4 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Pages 4 – 44 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Executive Summary second quarter 2014 − Revenues grew 10.0 % to € 29.5 bn. − Operating profit increased 17.1 % to € 2,771 mn. − Net income strong at € 1,858 mn, up by 10.9 %. − Solvency ratio at 185 %.1 Allianz Group overview Key figures Allianz SE and its subsidiaries (the Allianz Group) have opera- tions in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance operations, Life/Health insurance operations, Asset Management and Corporate and Other. key figures allianz group € mn three months ended 30 June Total revenues Operating profit 2014 29,456 2,771 2013 26,776 2,367 Net income 1,858 1,675 Solvency ratio1,2 in % 185 182 Earnings summary economic and industry environment in the second quarter of 2014 Overall, the global economy provided a mixed picture in the second quarter of 2014 but continued to expand at a moderate pace. Eco- nomic data, such as industrial production figures, point to slightly weaker growth momentum than previously expected. This holds true not only for the Eurozone, but also for major emerging markets like Brazil. However, overall still favorable sentiment indicators – such as the purchasing managers’ index – conflict somewhat with the weaker hard macro data. Yields on 10-year German government bonds closed the quarter at 1.3 %, 60 basis points lower than at the beginning of the year. Fol- lowing a pronounced tightening in the preceding quarters, spreads on government bonds in the Eurozone periphery moved more or less sideways in the second quarter of 2014. This was in spite of lower benchmark bond yields and doubts about the robustness of the eco- nomic recovery in some major industrialized and emerging market economies, as well as geopolitical risks related to the Ukraine and the Middle East. Equity markets in both emerging and mature markets edged upwards. In Europe, the European Central Bank (ECb) announced further monetary easing measures, cut the main refinancing rate from 0.25 % to 0.15 % and forced the deposit rate into negative territory. Despite an expected return to growth in the second quarter of 2014, the U.S. central bank continued to convey a very dovish message. Despite the ECb’s actions, the Euro proved resilient against the U.S. Dollar. Supportive economic conditions and only minor natural catas- trophes helped the insurance industry to register a good first half- year. In particular, insured natural catastrophe losses were markedly below the long-term average. However, low investment yields are persisting, price competition increasing and regulation is being tightened still further. Thus, overall insurance market conditions continue to remain challenging. 1 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2014 would be 177 % (31 December 2013: 173 %). 2 2013 figure as of 31 December 2013. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 5 management’s assessment of second quarter 2014 results Our total revenues grew 10.0 % to € 29.5 bn. On an internal basis1, rev- enues increased by 11.5 %. This favorable development was driven by the continued strong revenue growth in our Life/Health business seg- ment and supported by stable revenues in our Property-Casualty business segment. Lower operating revenues in our Asset Manage- ment business segment partly offset this growth. Our operating profit increased 17.1 % to € 2,771 mn. Our Life/ Health business recorded strong operating profit growth due to an improved operating investment result. Our Property-Casualty busi- ness recorded a higher underwriting result largely due to an improve- ment in the accident year loss ratio. The operating profit decline in our Asset Management business segment resulted primarily from lower average assets under management. The operating result from the Corporate and Other business segment improved in all of its three reportable segments. Our net income increased 10.9 % to € 1,858 mn. This was mainly driven by our higher operating result but partly offset by lower non- operating realized gains. Net income attributable to shareholders and non-controlling interests amounted to € 1,755 mn (2Q 2013: € 1,588 mn) and € 103 mn (2Q 2013: € 87 mn), respectively. Our capitalization remained strong and shareholders’ equity increased by € 4.9 bn to € 55.0 bn compared to 31 December 2013. Our conglomerate solvency ratio strengthened by three percentage points to 185 %. 1 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 43 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole. 6 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Total revenues2 2014 to 2013 second quarter comparison total revenues – Business segments � mn + 11.5 % 40,000 30,000 26,7761 132 1,815 (2.3) % (5.8) % 29,4561 132 1,606 20,000 14,125 + 20.9 % 16,961 10,000 10,754 + 2.6 % 10,846 2Q 2013 2Q 2014 Property-Casualty Internal growth Life/Health Asset Management Corporate and Other 1 Total revenues include € (89) mn (2Q 2013: € (50) mn) from consolidation for 2Q 2014. Property-Casualty gross premiums written were up 0.9 % to € 10.8 bn. On an internal basis, gross premiums written increased by 2.6 % driven by a positive volume effect. Internal growth was supported mainly by our subsidiaries in Germany, in the United Kingdom, at AGCS and Allianz Worldwide Partners. Life/Health statutory premiums amounted to € 17.0 bn, a strong increase of 20.9 % on an internal basis and driven by single premium savings products, mainly in the United States, Germany and Italy. Asset Management operating revenues declined by € 209 mn to € 1,606 mn. The main drivers were lower average third-party assets under management and a slight decrease in margins, but also the allocation of certain entities to other business segments.3 We recorded third-party net outflows of € 17 bn in the second quarter of 2014. Total revenues from our Banking operations (reported in our Corporate and Other business segment) remained flat at € 132 mn. 2 3 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations 2014 to 2013 first half year comparison We generated total revenues of € 63.4 bn, an increase of 7.8 % com- pared to the first six months of 2013. On an internal basis, revenues grew by 9.3 %. We recorded remarkable growth in savings products premiums in our Life/Health business, which more than offset the lower operating revenues due to decreased performance fees and lower third party-assets under management in the Asset Manage- ment business segment. Total revenue growth was supported by higher gross premiums written in our Property-Casualty business segment. Operating profit 2014 to 2013 second quarter comparison Asset Management operating profit declined by 16.0 % to € 675 mn. On an internal basis, operating profit declined by 9.7 % driven by lower average assets under management. Our cost-income ratio increased by 2.3 percentage points. In Corporate and Other the operating loss decreased by € 55 mn to € 219 mn, with all three reportable segments contributing to the improvement. 2014 to 2013 first half year comparison Operating profit increased by € 330 mn to € 5,494 mn. This increase was driven by our Life/Health business segment due to an improved operating investment result and our Property-Casualty business seg- ment driven by the strong underwriting result. This was partly offset by the operating profit decline in our Asset Management business segment as a result of decreased performance fees and lower average assets under management. operating profit – Business segments � mn Non-operating result 4,000 3,000 2,000 1,000 0 2,3671 804 669 1,179 (274) + 17.1 % 2,7711 675 984 1,346 (219) 2014 to 2013 second quarter comparison Our non-operating result decreased by € 171 mn to a loss of € 39 mn, mainly driven by lower non-operating realized gains. Non-operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 40 mn to a loss of € 33 mn. This was mainly due to unfavorable impacts from hedging- related activities. Non-operating realized gains and losses (net) decreased from € 458 mn to € 243 mn due to major realizations in the previous year’s quarter. Property-Casualty Life/Health 2Q 2013 Asset Management Corporate and Other 2Q 2014 Non-operating impairments of investments (net) decreased from € 64 mn to € 23 mn, mainly as a result of higher impairments on invest- ments in financial sector assets in the second quarter of 2013. 1 Total operating profit includes € (15) mn (2Q 2013: € (11) mn) from consolidation for 2Q 2014. Our Property-Casualty operating profit grew by € 167 mn or 14.2 % to € 1,346 mn. The underwriting result increased by € 159 mn to € 516 mn, largely due to an improvement in our accident year loss ratio, which benefited from lower natural catastrophe losses. Our operating investment income (net) rose by € 22 mn to € 806 mn. Life/Health operating profit increased by € 315 mn or 47.1 % to € 984 mn. This was mainly driven by an improved operating invest- ment result which was burdened by higher losses from the net of foreign currency translation effects and financial derivatives in the second quarter of 2013. Non-operating interest expenses from external debt improved from € 233 mn to € 207 mn. New issuances have had lower funding costs compared to bonds that matured or were redeemed. 2014 to 2013 first half year comparison Our non-operating result decreased by € 168 mn to a loss of € 155 mn. This was largely driven by the lower non-operating investment result due to lower non-operating realized gains and higher unfavorable hedging-related impacts in the first six months of 2014 partly offset by the one-off effect from pension revaluation1 in the first quarter of 2014. 1 For further information on the one-off effect from pension revaluation, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 7 Income taxes 2014 to 2013 second quarter comparison Income taxes increased by € 50 mn to € 874 mn, driven by a € 233 mn higher income before income taxes compared to the second quarter of 2013. The effective tax rate decreased to 32.0 % (2Q 2013: 33.0 %), mainly due to lower trade tax expenses in the second quarter of 2014. 2014 to 2013 first half year comparison Income taxes were up by € 40 mn to € 1,741 mn, driven by a € 162 mn higher income before income taxes compared to the first six months of 2013. The effective tax rate was relatively stable at 32.6 % (6m 2013: 32.9 %). Net income 2014 to 2013 second quarter comparison Net income increased by € 183 mn to € 1,858 mn, driven primarily by our higher operating result. Net income attributable to shareholders and non-controlling interests amounted to € 1,755 mn (2Q 2013: € 1,588 mn) and € 103 mn (2Q 2013: € 87 mn), respectively. The largest non-controlling interests in net income related to Euler Hermes and PImCO. Basic earnings per share increased from € 3.50 to € 3.87 and diluted earnings per share increased from € 3.47 to € 3.84. For further informa- tion on earnings per share, please refer to note 39 to the condensed consolidated interim financial statements. 2014 to 2013 first half year comparison Net income grew by € 122 mn to € 3,598 mn, driven primarily by our higher operating result. Net income attributable to shareholders and non-controlling interests amounted to € 3,395 mn (6m 2013: € 3,295 mn) and € 203 mn (6m 2013: € 181 mn), respectively. 8 Interim Report Second Quarter and First Half Year of 2014 Allianz Group A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook total revenues and reconciliation of operating profit to net income (loss) € mn Total revenues1 Premiums earned (net) Operating investment result Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Interest expenses, excluding interest expenses from external debt Operating impairments of investments (net) Investment expenses Subtotal Fee and commission income Other income Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net)2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating profit (loss) Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Subtotal Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses One-off effect from pension revaluation Non-operating amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Basic earnings per share in € Diluted earnings per share in € 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations three months ended 30 June six months ended 30 June 2014 2013 2014 2013 29,456 26,776 63,420 58,824 16,700 16,291 33,386 32,963 5,538 5,413 10,677 10,580 (20) (708) (271) (929) 783 733 1,563 1,612 (101) (102) (199) (212) (51) (118) (347) (181) (232) (217) (431) (425) 5,917 5,001 10,992 10,445 2,538 2,679 4,946 5,433 45 42 123 102 (12,257) (11,972) (24,066) (23,610) (3,598) (3,071) (7,038) (7,170) (15) (15) (24) (29) (5,706) (5,786) (11,156) (11,250) (831) (788) (1,613) (1,566) (4) – (9) – 8 (6) 9 (100) (26) (8) (56) (54) 2,771 2,367 5,494 5,164 (33) 7 (101) 3 243 458 369 725 (23) (64) (89) (135) 187 401 179 593 – (4) (5) (8) (207) (233) (411) (474) 2 (16) 6 (41) – – 116 – (21) (16) (40) (57) (39) 132 (155) 13 2,732 2,499 5,339 5,177 (874) (824) (1,741) (1,701) 1,858 1,675 3,598 3,476 103 87 203 181 1,755 1,588 3,395 3,295 3.87 3.50 7.48 7.27 3.84 3.47 7.41 7.18 2 For the three months ended 30 June 2014, expenses for premium refunds (net) in the business segment Property-Casualty of € (72) mn (2Q 2013: € (37) mn) are included. For the six months ended 30 June 2014, expenses for premium refunds (net) in the business segment Property-Casualty of € (131) mn (6m 2013: € (100) mn) are included. 9 Risk management Risk management is an integral part of our business and supports our value-based management. For further information, please refer to the Risk and Opportunity Report in our Annual Report 2013. The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. The risk profile described in the latest Risk and Opportunity Report remains unchanged. As a reminder, Allianz continues to be exposed to two external forces which affect our risk profile and would not normally be associated with our core operating activities: the European sovereign debt crisis and regulatory developments – especially the European solvency directive, Solvency II. The current crisis in the Ukraine and prolonged instability in the region have only limited impact on Allianz’s risk profile. Allianz’s exposure to the Ukraine is immaterial, while Allianz’s exposure to Russia is within our risk appetite and manageable, given that the Russian exposure is to a large extent currency hedged. Therefore, the Ukrainian crisis may only have a material negative impact on Allianz’s risk profile in case of a signifi- cant escalation of the crisis with subsequent strong spillover effects onto global markets. the european sovereign deBt crisis The European sovereign debt crisis remained subdued and the Euro- zone continued its moderate growth. In the second quarter, several European sovereign ratings or rating outlooks improved, following the continuing economic and fiscal stabilization of some member states. Against this backdrop, a stabilization of several peripheral government spreads was observable. Despite the recent calming of financial markets, many of the root causes of the sovereign debt crisis remain unresolved and markets could fluctuate widely again in the future, having adverse implications for Allianz’s balance sheet. Our management is continuously monitoring and responding to these external developments. This is supported by operational contingency planning for Allianz SE and its operating entities, with scenario analysis being conducted regularly. In addition, we further seek to optimize our product design and pricing in the Life/Health business segment with respect to guarantees and surrender condi- tions. Looking forward, our robust actions to deal with the various crisis scenarios have bolstered our financial and operational resil- ience to strong shock scenarios. Continuous monitoring remains a priority to ensure the sustained effectiveness of our contingency measures. 10 Interim Report Second Quarter and First Half Year of 2014 Allianz Group regulatory developments In July 2013, the Financial Stability Board designated Allianz as one of nine G-SII firms (Global Systemically Important Insurers). In November 2013, the European Trialogue process involving the Council of the European Union and the European Parliament came to an agreement on the Solvency II “Omnibus II” directive, allowing the new risk-based solvency capital framework for the E.U. to proceed with a planned introduction date of January 2016. This was approved by the European Parliament in March 2014. Although details of future regulatory requirements, especially Solvency II and those applying to G-SIIs, are becoming clearer, the final rules are still evolving. This creates some uncertainties in terms of the ultimate capital requirements for Allianz. In addition, due to the market value balance sheet approach, the Solvency II regime will lead to higher volatility in regulatory capital requirements compared to Solvency I. Finally, the multiplicity of dif- ferent regulatory regimes, capital standards and reporting require- ments will increase operational costs. Events after the balance sheet date For information on events after the balance sheet date, please refer to note 41 to the condensed consolidated interim financial statements. Other information Business operations and group structure The Allianz Group’s business operations and structure are described in the Business Operations and Markets chapter in our Annual Report 2013. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. strategy The Allianz Group’s strategy is described in the Strategy and Steering chapter in our Annual Report 2013. There have been no material changes to our Group strategy. products, services and sales channels For an overview of the products and services offered by the Allianz Group, as well as sales channels, please refer to the Business Opera- tions and Markets chapter in our Annual Report 2013. Information on our brand can also be found in the Progress in Sustainable Develop- ment chapter in our Annual Report 2013. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Property-Casualty Insurance Operations second quarter 2014 − Gross premiums written at € 10.8 BN. − Operating profit grew 14.2 % to € 1,346 MN, benefiting from a strong underwriting result. − Combined ratio at 94.6 %. Business segment overview Key figures Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offer- ings cover many insurance classes such as motor, accident/ disability, property and general liability. We conduct business worldwide in more than 50 countries. We are also a global leader in travel insurance, assistance services and credit insur- ance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels. key figures property-casualty € mn three months ended 30 June Gross premiums written Operating profit Net income Loss ratio in % Expense ratio in % Combined ratio in % 2014 10,846 1,346 969 66.2 28.4 94.6 2013 10,754 1,179 1,001 67.3 28.7 96.0 Gross premiums written1 To analyze internal premium growth in terms of price and volume, we use four clusters based on 2Q 2014 internal growth over 2Q 2013: 2014 to 2013 second quarter comparison On a nominal basis, we recorded gross premiums written of € 10,846 MN, up € 92 MN – or 0.9 % – compared to the second quarter of 2013. Unfa- vorable foreign currency translation effects were € 284 MN, largely due to the depreciation of the Australian Dollar, the Argentine Peso, the Brazilian Real and the Turkish Lira against the Euro.2 Consolida- tion/deconsolidation effects were positive and amounted to € 95 MN. These mainly stemmed from our acquisition of Yapı Kredi Sigorta in Turkey in the third quarter of 2013. Cluster 1: Overall growth – both price and volume effects are positive. Cluster 2: Overall growth – either price or volume effects are positive. Cluster 3: Overall decline – either price or volume effects are negative. On an internal basis, our gross premiums written increased by 2.6 %. The negative price effect of 0.4 % was more than offset by the positive volume effect of 3.0 %. We experienced solid growth in Ger- many, in the United Kingdom, at AGCS and Allianz Worldwide Partners. Cluster 4: Overall decline – both price and volume effects are negative. 1 2 We comment on the development of our gross premiums written on an internal basis; i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. Based on the quarterly average exchange rates in 2014 compared to 2013. Cluster 4 is not shown in this quarter as none of our operating enti- ties represented here recorded both negative price and volume effects. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 11 cluster 1 In the United Kingdom gross premiums increased to € 694 MN. The strong growth of 15.5 % on an internal basis was largely due to higher volumes in our motor business and tariff increases in most of our lines. At Allianz Worldwide Partners gross premiums totaled € 689 MN. The rise of 7.0 % on an internal basis benefited from volume increases in our U.S., French, German and U.K. travel business. In Germany gross premiums went up to € 1,785 MN. The internal growth of 6.0 % stemmed mainly from our motor and commercial non-motor business with positive volume and price impacts. In Asia-Pacific gross premiums amounted to € 165 MN. The main contributor to the 5.2 % increase on an internal basis was a strong growth in our motor business in Malaysia. In Spain gross premiums climbed to € 500 MN, up 2.9 % on an internal basis. This reflected both higher volumes and tariff increases across all lines of business. cluster 2 At AGCS gross premiums grew to € 1,264 MN – an increase of 3.8 % on an internal basis. This was supported by higher volumes in our engi- neering and marine insurance business. Price decreases, in particular in our aviation and energy lines, had a partly offsetting effect. In Australia gross premiums stood at € 704 MN. The internal growth of 2.3 % was largely attributable to higher volumes in our motor business, which more than compensated for declining tariffs in most of our lines. In France we recorded gross premiums of € 903 MN. We expanded by 1.0 % on an internal basis benefiting from price increases across all lines of business. In Central and Eastern Europe gross premiums amounted to € 555 MN. On an internal basis, we grew by 0.9 % with our motor busi- ness in the Czech Republic being the main driver. The overall price effect was negative. In the United States we recorded gross premiums of € 496 MN. The increase of 0.4 % on an internal basis was driven by tariff increases in our retail lines. Volume declines in our commercial lines, which continued to be impacted by our strict underwriting discipline, had a partially offsetting effect. In Switzerland gross premiums were flat at € 152 MN. Although we generated higher volumes, particularly in our motor business, these could not overcompensate for the overall negative price effect. 12 Interim Report Second Quarter and First Half Year of 2014 Allianz Group cluster 3 In Italy gross premiums decreased to € 1,011 MN – a drop of 2.2 % on an internal basis. This was largely attributable to falling prices, mainly in our motor business. Despite regulatory changes weighing on vol- umes, increases in our motor business – in particular in our direct channel – led to a positive volume effect. In Turkey gross premiums amounted to € 257 MN. The decrease of 11.1 % on an internal basis was due to volume decreases in our motor business impacted by tax changes negatively affecting car sales. In Latin America gross premiums went down to € 524 MN – a decline of 1.3 % on an internal basis. We experienced volume reduc- tions mainly in Brazil due to the ongoing stabilization phase of a new IT platform. In Credit Insurance gross premiums decreased to € 530 MN, down 0.6 % on an internal basis. Main drivers were increased competition for new business and flat turnover volumes in a soft market. 2014 to 2013 first half year comparison On a nominal basis, gross premiums written increased by 0.4 %. Adjusted for foreign currency translation and (de-)consolidation effects, this represents a rise of 2.2 %. This was comprised of a positive volume effect of 2.1 % and a positive price effect of 0.1 %. Operating profit operating profit € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Underwriting result 516 357 1,221 897 Operating investment income (net) 806 784 1,553 1,547 Other result1 24 38 61 54 Operating profit 1,346 1,179 2,835 2,498 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations 2014 to 2013 second quarter comparison Operating profit increased by € 167 MN or 14.2 % to € 1,346 MN driven by a strong underwriting result. Reinsurance: 0.5 percentage points. The development resulted from lower losses from natural catastrophes, despite an increased impact from large losses. Our underwriting result grew by € 159 MN to € 516 MN. This was largely due to an improvement in our accident year loss ratio, which was supported by a lower impact from natural catastrophes. This result was partially offset by higher large losses and by a less favor- able run-off compared to the second quarter of 2013. The combined ratio improved by 1.4 percentage points to 94.6 %. Switzerland: 0.4 percentage points. This was due to lower natural catastrophe losses and large claims than in the second quarter of the previous year. France: 0.2 percentage points. This was supported by an improvement in the attritional losses – including a lower impact from large claims – despite the higher burden from natural catastro- phes driven by storm Ela in the second quarter of 2014. underwriting result € mn Premiums earned (net) three months ended 30 June 2014 2013 10,701 10,379 six months ended 30 June 2014 2013 21,111 20,691 The following operations contributed negatively to the development of our accident year loss ratio: United States: 0.4 percentage points. The negative impact stemmed mainly from higher weather-related claims and large losses in our property business. Accident year claims (7,452) (7,579) (14,432) (14,543) Previous year claims (run-off) Claims and insurance benefits incurred (net) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 Underwriting result 366 (7,086) (3,036) (63) 516 595 (6,984) (2,976) (62) 357 619 (13,813) (5,948) (129) 1,221 746 (13,797) (5,885) (112) 897 Our run-off result decreased by € 229 MN to € 366 MN – resulting in a run-off ratio of 3.4 %. This change primarily reflects the previous year quarter’s rather high level of run-off and reserve strengthening in certain operating entities in the second quarter of 2014. In the second quarter of 2014, total expenses amounted to € 3,036 MN, compared to € 2,976 MN in the same period of 2013. Our expense ratio improved by 0.3 percentage points to 28.4 %. This mainly resulted from an increased premium base, the absence of the fire levy in Australia and improvements in productivity. 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. operating investment income (net)1 € mn Our accident year loss ratio stood at 69.6 % – a 3.4 percentage point improvement compared to the previous year’s figure. After the heavily burdened second quarter of the previous year, net losses from natural catastrophes dropped from € 549 MN to € 172 MN, decreasing their impact by 3.7 percentage points to 1.6 %. Interest and similar income (net of interest expenses) three months ended 30 June 2014 923 2013 925 six months ended 30 June 2014 2013 1,763 1,797 Excluding losses from natural catastrophes, our accident year loss ratio was at 68.0 %, a 0.3 percentage point deterioration from the second quarter of 2013. This was mainly driven by higher large losses in our global lines which offset the favorable development in the attritional losses in our European core markets. Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Operating impairments of investments (net) 2 29 (1) (35) 15 (7) 16 55 (6) (27) 30 (8) Investment expenses (75) (77) (144) (145) Expenses for premium refunds (net)2 (72) (37) (131) (100) The following operations contributed positively to the development of our accident year loss ratio: Operating investment income (net) 806 784 1,553 1,547 Germany: 2.9 percentage points. This was largely attributable to a reduced burden from natural catastrophes compared to the second quarter of the previous year which was severely impacted by the Frederic flood and the Manni/Norbert storm. The improvement was further supported by lower attritional claims and a favorable price momentum, particularly in our motor and commercial non-motor business. 1 2 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial state- ments – and expenses for premium refunds (net) (policyholder participation) as shown in note 29 to the condensed consolidated interim financial statements. Refers to policyholder participation, mainly from APR (accident insurance with premium refunds) busi- ness, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 13 Operating investment income (net) increased by € 22 MN to € 806 MN. This was largely driven by an improved foreign currency result. Interest and similar income (net of interest expenses) remained flat, as the lower income on debt securities was compensated for by increased income on equities. The average asset base1 decreased by 1.6 % from € 105.6 BN in the second quarter of 2013 to € 103.9 BN in the second quarter of 2014. Operating income from financial assets and liabilities carried at fair value through income (net) rose by € 37 MN to a profit of € 2 MN. The increase was mainly because of a positive development in the foreign currency result. Operating realized gains and losses (net) grew by € 14 MN to € 29 MN reflecting the higher realization on equities in the second quarter of 2014 compared to previous year’s figure. Expenses for premium refunds (net) increased by € 35 MN to € 72 MN due to a higher policyholder participation, mainly from our APR (accident insurance with premium refunds) business. other result € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Fee and commission income 302 307 608 597 Other income 10 11 39 19 Fee and commission expenses (279) (273) (570) (548) Other expenses (8) (6) (14) (11) Restructuring charges (1) (1) (2) (3) Other result 24 38 61 54 2014 to 2013 first half year comparison Operating profit rose by € 337 MN to € 2,835 MN. This improvement was driven by our strong underwriting result. The operating investment income (net) remained stable at € 1,553 MN. Our combined ratio improved by 1.5 percentage points to 93.6 % benefiting from a 2.0 percentage points lower accident year loss ratio. This favorable development was largely due to a lower impact from natural catastrophes and an improvement in our underlying claims development, which more than offset higher large losses. The improvement in the combined ratio was further supported by a lower expense ratio despite a 0.7 percentage point decrease due to an unfavorable movement in our run-off ratio. 1 Including French health business, excluding fair value option and trading. 14 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Net income 2014 to 2013 second quarter comparison Net income decreased by € 32 MN to € 969 MN driven mainly by some major realizations from the previous year’s quarter that did not reoc- cur and by the increased effective tax rate. This was because of the higher tax-exempt income in the second quarter of the previous year. 2014 to 2013 first half year comparison Net income fell by € 404 MN to € 1,614 MN largely due to the one-off effect from the inter-segment pension revaluation2 recorded in the first quarter of 2014. 2 For further information on the one-off effect from pension revaluation, please refer to note 4 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook property-casualty Business segment information € mn Gross premiums written1 Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Non-operating items Income before income taxes Income taxes Net income Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 1 2 For the Property-Casualty business segment, total revenues are measured based upon gross premiums written. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations three months ended 30 June six months ended 30 June 2014 2013 2014 2013 10,846 10,754 26,063 25,951 (936) (1,121) (2,163) (2,431) 791 746 (2,789) (2,829) 10,701 10,379 21,111 20,691 939 932 1,792 1,819 2 (35) 16 (27) 29 15 55 30 302 307 608 597 10 11 39 19 11,983 11,609 23,621 23,129 (7,086) (6,984) (13,813) (13,797) (135) (99) (260) (212) (16) (7) (29) (22) (1) (7) (6) (8) (75) (77) (144) (145) (3,036) (2,976) (5,948) (5,885) (279) (273) (570) (548) (1) (1) (2) (3) (8) (6) (14) (11) (10,637) (10,430) (20,786) (20,631) 1,346 1,179 2,835 2,498 84 212 (492) 340 1,430 1,391 2,343 2,838 (461) (390) (729) (820) 969 1,001 1,614 2,018 66.2 67.3 65.4 66.7 28.4 28.7 28.2 28.4 94.6 96.0 93.6 95.1 3 4 Represents acquisition and administrative expenses (net), excluding one-off effect from pension revalu- ation, divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). 15 Property-Casualty insurance operations by reportable segments – second quarter ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal1 three months ended 30 June 2014 2013 2014 2013 2014 2013 2014 Germany2 Switzerland Austria German Speaking Countries2 1,785 152 222 2,159 1,669 151 216 2,055 1,785 151 222 2,158 1,684 151 216 2,051 1,971 352 209 2,532 1,860 348 202 2,426 324 49 25 398 Italy France Benelux3 Turkey4 Greece Africa Western & Southern Europe5 1,011 903 261 257 27 15 2,474 1,034 894 262 225 26 16 2,457 1,011 903 261 200 27 15 2,417 1,034 894 259 225 26 16 2,454 969 975 267 227 23 14 2,475 993 951 268 146 21 13 2,392 246 107 20 16 3 (1) 393 Latin America Spain Portugal Iberia & Latin America 524 500 68 1,092 630 486 66 1,182 622 500 68 1,190 630 486 66 1,182 436 454 69 959 444 452 67 963 4 64 7 75 United States USA6 496 496 520 520 522 522 520 520 420 420 461 461 (33) (33) Allianz Global Corporate & Specialty Reinsurance PC Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets7 1,264 684 704 694 530 115 3,991 1,237 661 767 576 539 112 3,892 1,284 684 785 665 531 115 4,064 1,237 661 767 576 534 112 3,887 744 756 537 586 366 94 3,083 708 724 560 523 377 94 2,986 102 130 105 48 124 9 519 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe8 Asia-Pacific Middle East and North Africa Growth Markets 148 102 62 74 74 46 23 23 4 555 165 19 739 180 110 59 72 69 44 22 24 3 582 174 18 774 172 102 64 74 78 47 23 23 6 587 183 20 790 180 110 59 72 69 44 22 24 3 582 174 18 774 139 87 58 67 61 37 14 19 2 484 107 12 603 142 85 57 65 54 37 14 19 1 474 95 12 581 (82) 5 6 10 5 2 1 2 – (52) 15 2 (35) Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners9 530 139 689 483 119 640 526 139 685 483 119 640 494 118 629 458 102 570 29 9 28 Consolidation10 Total (794) 10,846 (766) 10,754 (798) 11,028 (760) 10,748 – 10,701 – 10,379 1 1,346 1 2 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. Starting from 2014 “Münchener und Magdeburger Agrarversicherung AG” is included in Germany with gross premiums written of € 30 mn, premiums earned (net) of € 14 mn and operating profit of € 10 mn. Prior period figures were not adjusted. Contribution to German Speaking Countries before consolidation in 2Q 2013 was gross written premiums of € 19 mn, premiums earned (net) of € 16 mn and operating profit of € 8 mn. 3 4 5 6 Belgium and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. On 12 July 2013, Allianz Group acquired Yapı Kredi Bank’s shareholding in the Turkish property-casualty insurance company Yapı Kredi Sigorta. Contains € 2 mn and € 3 mn operating profit for 2Q 2014 and 2Q 2013, respectively, from a management holding located in Luxembourg. The reserve strengthening for asbestos risks in 2Q 2014 at Fireman’s Fund Insurance company of € 79 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. 16 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 (53) 30 10 (5) 322 120 31 13 4 3 496 34 63 6 103 56 56 86 66 133 46 116 14 461 (6) 1 2 13 6 1 4 3 – 23 19 2 44 22 9 24 – 1,179 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations % Combined ratio Loss ratio Expense ratio three months ended 30 June 2014 2013 2014 2013 2014 Germany2 Switzerland Austria German Speaking Countries2 92.0 91.8 91.8 91.9 110.6 97.2 99.0 107.3 66.7 68.3 66.0 66.8 82.9 74.1 71.9 80.5 25.3 23.5 25.8 25.1 Italy France Benelux3 Turkey4 Greece Africa Western & Southern Europe5 82.8 97.0 100.3 101.2 91.5 112.9 92.2 76.4 96.3 96.4 96.8 81.1 92.8 87.9 55.8 67.0 69.8 78.5 55.5 56.7 63.8 51.6 67.1 66.5 72.0 46.9 41.4 60.6 27.0 30.0 30.5 22.7 36.0 56.2 28.4 Latin America Spain Portugal Iberia & Latin America 104.4 90.0 94.3 96.9 98.7 90.0 94.4 94.3 72.7 69.5 70.9 71.1 65.2 68.2 70.9 67.0 31.7 20.5 23.4 25.8 United States USA6 121.2 121.2 100.2 100.2 81.9 81.9 64.4 64.4 39.3 39.3 Allianz Global Corporate & Specialty Reinsurance PC Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets7 97.4 86.4 90.7 96.4 75.0 98.3 90.8 98.1 95.1 86.8 96.3 77.8 91.5 92.2 70.3 59.1 65.4 63.9 44.4 68.4 62.4 69.1 68.2 60.6 65.9 47.8 61.5 63.8 27.1 27.3 25.3 32.5 30.6 29.9 28.4 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe8 Asia-Pacific Middle East and North Africa Growth Markets 165.3 99.0 100.7 87.9 93.2 100.8 96.9 95.0 116.3 116.0 93.4 98.4 111.8 111.7 103.3 106.7 86.7 92.2 104.3 79.7 91.6 127.0 102.1 88.4 95.8 99.7 118.1 64.2 63.2 57.4 64.6 71.6 68.1 53.8 58.4 79.0 64.3 67.1 76.1 69.6 67.9 67.9 56.2 61.2 73.1 48.8 52.0 66.9 65.2 57.6 61.5 63.9 47.2 34.8 37.5 30.5 28.6 29.2 28.8 41.2 57.9 37.0 29.1 31.3 35.7 Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners9 95.5 92.4 96.5 96.8 91.8 97.0 62.2 72.1 64.5 61.5 72.5 63.8 33.3 20.3 32.0 Consolidation10 Total – 94.6 – 96.0 – 66.2 – 67.3 – 28.4 7 8 9 Contains € 1 mn and € 0 mn operating profit for 2Q 2014 and 2Q 2013, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. The reportable segment Allianz Worldwide Partners includes the business of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. The set-up of this division will be further enhanced during 10 the following quarters. The reinsurance business of Allianz Global Automotive contributed with gross premiums written of € 20 mn, premiums earned (net) of € 17 mn and an operating loss of € 0.4 mn for 2Q 2014 and with gross premiums written of € 38 mn, premiums earned (net) of € 10 mn and an operating loss of € 6 mn for 2Q 2013. Represents elimination of transactions between Allianz Group companies in different geographic regions. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 27.7 23.1 27.1 26.8 24.8 29.2 29.9 24.8 34.2 51.4 27.3 33.5 21.8 23.5 27.3 35.8 35.8 29.0 26.9 26.2 30.4 30.0 30.0 28.4 42.1 35.4 38.8 30.5 31.0 31.2 30.9 39.6 60.1 36.9 30.8 34.3 35.8 35.3 19.3 33.2 – 28.7 17 Property-Casualty insurance operations by reportable segments – first half year ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal1 six months ended 30 June 2014 2013 2014 2013 2014 2013 2014 Germany2,3 Switzerland Austria German Speaking Countries3 5,875 1,096 572 7,543 5,669 1,103 566 7,365 5,875 1,091 572 7,538 5,690 1,103 566 7,359 3,842 720 418 4,980 3,711 717 401 4,849 654 110 41 805 Italy France Benelux4 Turkey5 Greece Africa Western & Southern Europe6 1,972 2,346 660 547 58 56 5,639 2,012 2,359 676 436 56 54 5,593 1,972 2,346 660 447 58 56 5,539 2,012 2,359 673 436 56 54 5,590 1,927 1,951 534 441 45 30 4,928 1,959 1,885 542 276 41 27 4,730 459 235 42 39 10 3 792 Latin America Spain Portugal Iberia & Latin America 923 1,114 184 2,221 1,197 1,100 183 2,480 1,127 1,114 184 2,425 1,197 1,100 183 2,480 846 894 135 1,875 884 899 132 1,915 45 131 12 188 United States USA7 912 912 972 972 953 953 972 972 825 825 924 924 (9) (9) Allianz Global Corporate & Specialty Reinsurance PC2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets8 2,853 2,252 1,278 1,332 1,142 235 9,092 2,803 2,115 1,452 1,171 1,138 224 8,903 2,890 2,252 1,475 1,285 1,144 235 9,281 2,803 2,113 1,452 1,171 1,129 224 8,892 1,465 1,504 1,057 1,147 744 184 6,101 1,438 1,458 1,159 1,040 721 187 6,003 245 292 155 78 236 14 1,020 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe9 Asia-Pacific Middle East and North Africa Growth Markets 379 215 149 181 148 99 39 51 9 1,268 348 39 1,655 400 219 145 177 143 93 37 52 9 1,274 354 38 1,666 447 215 154 181 158 101 39 51 12 1,358 387 41 1,786 400 219 145 177 143 93 37 52 9 1,274 354 38 1,666 289 173 111 131 118 73 30 38 4 967 207 24 1,198 288 170 113 131 111 73 31 38 3 958 184 24 1,166 (133) 9 11 30 20 4 6 5 (1) (52) 39 3 (10) Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners10 1,096 341 1,474 1,009 296 1,360 1,091 341 1,469 1,009 296 1,360 948 230 1,204 893 199 1,104 51 19 49 Consolidation11 Total (2,473) 26,063 (2,388) 25,951 (2,478) 26,513 (2,379) 25,940 – 21,111 – 20,691 – 2,835 1 2 3 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. The combined ratio at Germany and Reinsurance PC was impacted by a one-off effect related to the com- mutation of internal reinsurance resulting in a 1.8 percentage point improvement in the combined ratio for Germany and an increase of 4.5 percentage points in Reinsurance PC. This had no impact at Group level. Starting from 2014 “Münchener und Magdeburger Agrarversicherung AG” is included in Germany with gross premiums written of € 32 mn, premiums earned (net) of € 17 mn and operating profit of € 11 mn. 4 5 Prior period figures were not adjusted. Contribution to German Speaking Countries before consolidation in 6m 2013 was gross written premiums of € 27 mn, premiums earned (net) of € 20 mn and operating profit of € 10 mn. Belgium and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. On 12 July 2013, Allianz Group acquired Yapı Kredi Bank’s shareholding in the Turkish property-casualty insurance company Yapı Kredi Sigorta. 18 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 266 89 28 393 528 223 50 30 8 4 850 73 114 10 197 103 103 178 110 198 101 204 21 812 (6) 4 8 26 12 2 9 6 1 59 38 4 101 36 17 42 – 2,498 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook % six months ended 30 June Germany2,3 Switzerland Austria German Speaking Countries3 Italy France Benelux4 Turkey5 Greece Africa Western & Southern Europe6 Latin America Spain Portugal Iberia & Latin America United States USA7 Allianz Global Corporate & Specialty Reinsurance PC2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets8 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe9 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners10 Consolidation11 Total 6 7 8 9 Contains € 4 mn and € 7 mn operating profit for 6m 2014 and 6m 2013, respectively, from a management holding located in Luxembourg. The reserve strengthening for asbestos risks in 6m 2014 at Fireman’s Fund Insurance company of € 79 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. Contains € 0.3 mn and € 0.2 mn operating loss for 6m 2014 and 6m 2013, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations Combined ratio Loss ratio Expense ratio 2014 2013 2014 2013 2014 91.3 90.4 93.9 91.4 101.1 93.3 97.7 99.4 65.7 67.6 67.3 66.1 75.7 71.2 70.4 74.4 25.6 22.8 26.6 25.3 83.3 95.3 99.2 98.7 81.1 93.5 91.2 80.9 96.4 97.4 94.5 82.6 94.3 89.9 56.7 67.0 69.1 75.8 47.4 55.2 63.8 56.4 68.5 68.2 69.3 48.1 54.0 63.3 26.6 28.3 30.1 22.9 33.7 38.3 27.4 103.0 89.6 95.3 96.0 98.1 91.5 96.8 94.9 71.5 69.1 72.6 70.4 65.2 70.6 73.3 68.3 31.5 20.5 22.7 25.6 114.2 114.2 100.9 100.9 76.4 76.4 65.1 65.1 37.8 37.8 94.7 84.1 95.1 98.0 76.4 99.6 90.8 97.7 95.7 93.4 95.8 81.1 95.2 94.1 67.4 56.1 70.3 66.0 46.8 67.8 62.4 69.3 61.1 67.4 64.7 52.5 63.1 64.0 27.3 28.0 24.8 32.0 29.6 31.8 28.4 152.0 99.3 102.9 82.0 84.9 101.5 83.7 93.0 122.2 111.0 89.0 98.5 107.0 108.5 102.1 105.3 87.0 91.2 102.9 75.1 91.3 116.8 100.2 88.1 95.6 98.2 104.3 64.8 62.6 51.4 56.8 71.7 57.6 54.2 60.7 73.4 59.6 64.2 70.9 67.1 67.3 65.7 56.8 62.6 72.4 44.4 53.3 61.1 64.1 57.4 62.2 63.0 47.7 34.5 40.3 30.6 28.1 29.8 26.1 38.8 61.5 37.6 29.4 34.3 36.1 95.7 92.2 96.6 97.7 92.0 97.6 61.6 73.7 64.4 62.5 73.9 64.6 34.1 18.5 32.2 – 93.6 – 95.1 – 65.4 – 66.7 – 28.2 10 11 The reportable segment Allianz Worldwide Partners includes the business of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. The set-up of this division will be further enhanced during the following quarters. The reinsurance business of Allianz Global Automotive contributed with gross premiums written of € 37 mn, premiums earned (net) of € 26 mn and an operating loss of € 8 mn for 6m 2014 and with gross premiums written of € 55 mn, premiums earned (net) of € 12 mn and an operating loss of € 9 mn for 6m 2013. Represents elimination of transactions between Allianz Group companies in different geographic regions. 2013 25.4 22.1 27.3 25.0 24.5 27.9 29.2 25.2 34.5 40.3 26.6 32.9 20.9 23.5 26.6 35.8 35.8 28.4 34.6 26.0 31.1 28.6 32.1 30.1 41.4 34.8 39.6 30.2 28.6 30.5 30.7 38.0 55.7 36.1 30.7 33.4 35.2 35.2 18.1 33.0 – 28.4 19 Life/Health Insurance Operations Second quarter 2014 − Statutory premiums grew 20.1 % to € 17.0 bn. − Operating profit increased 47.1 % to € 984 mn. Business segment overview Key figures Allianz offers a broad range of life, health, savings and invest- ment-oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products to both private and corporate clients. As one of the worldwide market leaders in life business we serve customers in more than 45 countries. Key figureS life/health € mn three months ended 30 June Statutory premiums Operating profit1 Net income1 2014 16,961 984 731 2013 14,125 669 474 Margin on reserves (bpS)1,2 79 58 Statutory premiums3,4 2014 to 2013 Second quarter compariSon On a nominal basis, statutory premiums amounted to € 16,961 mn, an increase of € 2,836 mn. Excluding unfavorable foreign currency trans- lation effects of € 280 mn and positive consolidation/deconsolidation effects of € 166 mn – largely from our acquisition of Yapı Kredi in Turkey in the third quarter of 2013 – premiums increased by 20.9 %, or € 2,950 mn, on an internal basis. Premiums in the United States increased to € 3,352 mn, representing growth of 96.9 %. This was driven by stronger fixed-indexed annuity sales as a result of an innovative index strategy and higher penetra- tion into the broker and dealer channel. This growth was partly offset by a decrease in the variable annuity business. Premiums in Central and Eastern Europe increased to € 247 mn, representing growth of 34.0 %. This largely relates to stronger sales of single premium investment-oriented products in the Czech Republic, Hungary and Poland. We recorded premium growth across most core markets – largely driven by our single premium business. Premium growth was par- ticularly strong in the United States, Germany and Italy. These favor- able developments were mainly due to the successful cooperation with and distribution via our bancassurance channel in many Euro- pean markets and our broker channel in the United States. In our German life business, premiums grew 21.0 % to € 4,447 mn. This was driven by a strong increase in our single premium business with savings products while regular premiums were relatively flat. In particular the product Perspektive – which was launched in the second quarter of 2013 and balances reduced guarantees and higher expected returns for the policyholder with lower capital requirements for the shareholder – contributed a meaningful share to premium growth. Statutory premiums in our German health business decreased 2.3 % to € 813 mn due to a lower contribution from full health care coverage business. 1 2 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. Represents annualized operating profit divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 20 Interim Report Second Quarter and First Half Year of 2014 Allianz Group A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook Premiums in Italy increased 17.1 % to € 3,069 mn. This growth was mainly driven by our single premium savings business via bancas- surance. This was partly offset by a decrease in single premium unit- linked business via the financial advisors channel. In Switzerland, premiums totaled € 275 mn. The increase of 8.3 % was primarily driven by our single premium group life business. This was partly offset by a more selective growth focus in our indi- vidual life business that resulted in a decrease of single and regular premiums. In Asia-Pacific, premiums amounted to € 1,328 mn, a growth of 5.3 %. This was largely driven by South Korea where we recorded higher sales of single premium investment-oriented products via the bancassurance channel. This growth was partly compensated by lower single premium unit-linked business in Taiwan. Premiums in France decreased to € 2,076 mn, down 2.9 %. This was mainly due to higher business volumes with Luxembourg as well as some large single premium contracts in our group pension busi- ness in the second quarter of 2013. However, the positive trend in terms of business mix continued with an increasing share of unit- linked products in our individual life business. In Benelux1, we recorded premiums of € 570 mn, a decrease of 15.8 %. This was mainly due to lower sales of investment-oriented products in Luxembourg after a strong second quarter in 2013. Premiums in Spain dropped 26.8 % to € 289 mn, mainly as the second quarter of 2013 witnessed exceptionally strong sales of unit- linked and other investment-oriented products. 2014 to 2013 firSt half year compariSon Statutory premiums were 17.8 % above the first half year of 2013 and amounted to € 34,124 mn. This represents an increase of 18.6 % on an internal basis and was largely driven by our strong single premium fixed-indexed annuity business in the United States, and, to a lesser extent, by an increase in the savings product business in Germany and Italy. 1 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations Operating profit 2014 to 2013 Second quarter compariSon Operating profit increased by € 315 mn to € 984 mn. This was mainly driven by an improved operating investment result, which was bur- dened by higher losses from the net of foreign currency translation effects and financial derivatives in the second quarter of 2013. Interest and similar income (net of interest expenses) increased by € 100 mn and amounted to € 4,448 mn, driven by higher dividend income as well as higher interest income from debt investments as a result of an increased asset base. Operating income from financial assets and liabilities carried at fair value through income (net) improved by € 651 mn to a loss of € 36 mn. This was largely due to significantly higher losses in the second quarter of 2013 from the net of foreign currency translation effects and financial derivatives used to manage duration and other interest rate-related exposures as well as to protect against equity and foreign currency fluctuations. Operating realized gains and losses (net) increased by € 36 mn to € 754 mn. This was mainly the result of higher realizations on equity and real estate investments. Lower realizations on debt securities compared to the second quarter of 2013 partly compensated the increase. Operating impairments of investments (net) improved by € 82 mn to € 50 mn. This was largely due to lower equity impairments – in line with favorable equity market developments. Fee and commission income increased by € 93 mn to € 261 mn, mainly due to income generated by entities transferred from the business segment Asset Management. Claims and insurance benefits incurred (net) increased by € 183 mn to € 5,173 mn, largely because of higher payments for matur- ities in Germany. Change in reserves for insurance and investment contracts (net) increased by € 529 mn to € 3,457 mn. Largely related to Germany, this increase was driven by a higher change in reserves for premium refunds due to the improved investment result. We also had a lower increase in aggregate policy reserves because of higher maturities and lower net premiums earned. Investment expenses increased by € 39 mn to € 232 mn. This was mainly due to investment management performance fees. Acquisition and administrative expenses (net) amounted to € 1,448 mn, an improvement of € 30 mn. This was primarily a result of lower acquisition costs due to lower amortization of deferred acquisi- tion costs in the United States. These were partly offset by higher administrative costs mainly related to the entities transferred from the business segment Asset Management. 21 Margin on reserves improved from 58 to 79 basis points. This was primarily driven by the increased operating investment result. Overall, the increase in operating profit was mainly driven by an increased investment margin in Germany. Additionally, increased interest rates in the second quarter of 2013 led to higher deferred acquisition cost amortization in the United States in the previous year’s quarter. Our investment margin (i.e. investment income, net of hedged item movements and policyholder participation) improve- ment was driven by gains from the duration strategy and a recovery in the foreign currency result after the losses in the second quarter of 2013 on partially hedged emerging markets bonds. Strong fixed- indexed annuity business in the United States resulted in increased acquisition expenses which were largely offset by higher capitaliza- tion of deferred acquisition costs. 2014 to 2013 firSt half year compariSon Operating profit increased by € 340 mn to € 1,864 mn. This was mainly driven by the improved operating investment result, which was bur- dened by higher losses from the net of foreign currency translation effects and financial derivatives in the second quarter of 2013. Addi- tionally, the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/ Health contributed to this increase. Net income In the second quarter of 2014, net income increased by € 257 mn to € 731 mn mainly due to strong operating performance. This strong operating performance is also the driver for the increase of € 258 mn to € 1,360 mn in the first six months of 2014. The effective tax rate amounted to 29.6 % (2Q 2013: 30.3 %) in the second quarter of 2014 and 29.2 % (6m 2013: 30.0 %) in the first six months of 2014. 22 Interim Report Second Quarter and First Half Year of 2014 Allianz Group A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook life/health buSineSS Segment information € mn Statutory premiums1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit Non-operating items Income before income taxes Income taxes Net income Margin on reserves2 in basis points 1 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations three months ended 30 June six months ended 30 June 2014 2013 2014 2013 16,961 14,125 34,124 28,962 (224) (151) (386) (308) (58) (50) (241) (164) 16,679 13,924 33,497 28,490 (10,680) (8,012) (21,222) (16,218) 5,999 5,912 12,275 12,272 4,471 4,369 8,630 8,446 (36) (687) (305) (931) 754 718 1,581 1,617 261 168 490 308 33 31 82 80 11,482 10,511 22,753 21,792 (5,173) (4,990) (10,254) (9,816) (3,457) (2,928) (6,771) (6,929) (23) (21) (48) (40) (50) (132) (341) (194) (232) (193) (427) (383) (1,448) (1,478) (2,701) (2,726) (93) (74) (180) (130) (4) – (9) – 8 (1) 8 (2) (26) (25) (166) (48) (10,498) (9,842) (20,889) (20,268) 984 669 1,864 1,524 54 11 58 51 1,038 680 1,922 1,575 (307) (206) (562) (473) 731 474 1,360 1,102 79 58 76 66 2 Represents annualized operating profit divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 23 Life/Health insurance operations by reportable segments – second quarter Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps) internal3 three months ended 30 June 2014 2013 2014 2013 2014 2013 20144 2013 20144 Germany Life Germany Health Switzerland Austria German Speaking Countries 4,447 813 275 89 5,624 3,674 832 252 87 4,845 4,447 813 273 89 5,622 3,674 832 252 87 4,845 2,657 812 120 65 3,654 2,605 831 86 62 3,584 320 52 21 11 404 162 53 21 11 247 67 78 61 99 68 Italy France Benelux5 Greece Turkey6 Africa Western & Southern Europe 3,069 2,076 570 22 205 14 5,956 2,620 2,139 677 23 43 12 5,514 3,069 2,076 570 22 51 14 5,802 2,620 2,139 677 23 43 12 5,514 108 911 130 13 35 6 1,203 109 849 131 14 10 6 1,119 78 93 35 (1) 8 2 215 74 123 33 – (1) 1 230 59 46 91 (107) 144 240 57 Latin America Spain Portugal Iberia & Latin America 91 289 72 452 113 392 52 557 99 287 72 458 113 392 52 557 49 125 20 194 66 160 21 247 2 46 6 54 2 34 5 41 94 253 411 247 United States USA 3,352 3,352 1,788 1,788 3,520 3,520 1,788 1,788 232 232 220 220 203 203 100 100 108 108 Reinsurance LH Global Insurance Lines & Anglo Markets 141 141 134 134 141 141 134 134 102 102 110 110 18 18 (15) (15) 380 380 South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe7 Middle East and North Africa Global Life Growth Markets 409 435 170 107 – 207 1,328 37 62 43 56 13 19 10 7 247 39 1 1,615 318 520 190 91 – 227 1,346 21 59 31 30 20 15 8 7 191 40 1 1,578 395 462 212 118 – 230 1,417 37 62 45 60 16 19 10 7 256 41 1 1,715 318 520 190 91 – 227 1,346 21 59 31 30 20 15 8 7 191 40 1 1,578 134 42 86 48 2 134 446 17 50 12 18 14 18 8 4 140 28 – 614 124 40 86 53 2 159 464 6 48 12 20 20 16 7 4 133 34 1 632 10 – 16 2 1 18 47 15 8 3 3 – 4 2 1 37 6 – 90 2 (3) 16 6 1 17 39 4 9 3 5 – 1 1 1 23 4 – 66 40 –8 525 95 6 214 82 1,060 247 348 243 –8 569 732 685 422 357 –8 132 Consolidation9 Total (179) 16,961 (291) 14,125 (183) 17,075 (291) 14,125 – 5,999 – 5,912 – 984 – 669 –8 79 1 2 3 4 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents annualized operating profit (loss) divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and invest- ment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 5 6 7 8 9 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. On 12 July 2013, the Allianz Group acquired Yapı Kredi Bank’s 93.94 % shareholding in the Turkish property- casualty insurance company Yapı Kredi Sigorta, including its life and pension insurance subsidiary Yapı Kredi Emeklilik. Contains income and expense items from a management holding and consolidations between countries in this region. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geographic regions. 24 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 36 85 62 103 45 63 67 92 –8 (87) 179 67 102 214 400 215 56 56 (320) (320) 7 (17) 467 194 21 203 70 380 295 281 301 –8 189 274 182 272 283 –8 99 –8 58 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Life/Health insurance operations by reportable segments – first half year Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps) internal3 six months ended 30 June 2014 2013 2014 2013 2014 2013 20144 2013 20144 Germany Life Germany Health Switzerland Austria German Speaking Countries 9,427 1,621 1,226 206 12,480 8,140 1,663 1,169 201 11,173 9,427 1,621 1,220 206 12,474 8,140 1,663 1,169 201 11,173 5,588 1,621 354 154 7,717 5,658 1,663 318 149 7,788 596 76 42 23 737 506 84 41 20 651 63 58 63 105 63 Italy France Benelux5 Greece Turkey6 Africa Western & Southern Europe 5,439 4,548 1,654 46 366 30 12,083 4,715 4,407 1,366 48 76 30 10,642 5,439 4,548 1,654 46 96 30 11,813 4,715 4,407 1,366 48 76 30 10,642 239 1,750 260 27 66 14 2,356 240 1,673 263 28 19 14 2,237 125 238 67 (1) 12 3 444 155 238 59 (1) (1) 2 452 48 60 87 (70) 112 228 60 Latin America Spain Portugal Iberia & Latin America 162 642 124 928 189 705 100 994 177 636 124 937 189 705 100 994 77 225 41 343 92 245 41 378 3 94 9 106 3 67 10 80 63 265 317 247 United States USA 5,908 5,908 3,350 3,350 6,170 6,170 3,350 3,350 459 459 428 428 372 372 201 201 100 100 Reinsurance LH Global Insurance Lines & Anglo Markets 267 267 266 266 267 267 266 266 184 184 231 231 29 29 (8) (8) 302 302 South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe7 Middle East and North Africa Global Life Growth Markets 802 937 304 202 – 422 2,667 85 128 81 89 28 41 19 12 483 79 2 3,231 679 1,006 347 176 – 438 2,646 48 120 109 74 36 32 16 13 448 80 2 3,176 797 997 382 224 – 466 2,866 85 128 84 95 33 41 19 12 497 84 2 3,449 679 1,006 347 176 – 438 2,646 48 120 109 74 36 32 16 13 448 80 2 3,176 254 82 139 98 3 296 872 35 99 23 37 28 40 16 7 285 58 1 1,216 254 67 120 108 3 324 876 18 98 25 39 36 32 14 7 269 64 1 1,210 15 3 33 9 – 38 98 18 16 7 7 – 8 6 3 64 11 – 173 7 – 38 10 5 42 102 8 17 4 10 (1) 2 2 1 42 8 – 152 30 11 568 161 –8 229 86 658 258 365 256 –8 527 830 776 365 345 –8 128 Consolidation9 Total (773) 34,124 (639) 28,962 (773) 34,337 (639) 28,962 – 12,275 – 12,272 3 1,864 (4) 1,524 –8 76 1 2 3 4 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents annualized operating profit (loss) divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and invest- ment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 5 6 7 8 9 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. On 12 July 2013, the Allianz Group acquired Yapı Kredi Bank’s 93.94 % shareholding in the Turkish property- casualty insurance company Yapı Kredi Sigorta, including its life and pension insurance subsidiary Yapı Kredi Emeklilik. Contains income and expense items from a management holding and consolidations between countries in this region. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geographic regions. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 57 68 62 95 60 67 64 83 (58) (48) 192 67 95 207 410 209 58 58 (81) (81) 14 –8 575 174 47 245 90 304 289 219 345 (85) 156 263 216 252 282 –8 114 –8 66 25 Asset Management Second quarter 2014 − Operating profit of € 675 mn. − Cost-income ratio at 58.0 %. − Third-party net outflows of € 37 bn in the first six months of 2014, with reduced net outflows of € 17 bn in the second quarter. − Total assets under management at € 1,814 bn. Business segment overview Key figures Allianz offers Asset Management products and services for third-party investors and the Allianz Group’s insurance opera- tions. We serve a wide range of retail and institutional clients worldwide with investment and distribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world that manages third-party assets with active investment strategies. key figureS aSSet management € mn three months ended 30 June Operating revenues1 Operating profit1 Cost-income ratio1 in % Net income1 2014 1,606 675 58.0 419 Total assets under manage ment1 as of 30 June in € bn 1,814 thereof: Third-party assets under manage ment1 as of 30 June in € bn 1,373 Assets under management development of total aSSetS under management1 € bn Total AuM (as of 12/31/2013) 1,571 197 2 1,770 Net flows (35) Market effects + 90 Consolidation, deconsoli- dation and other effects (23) F/X effects + 12 Total AuM (as of 6/30/2014) 1,600 214 0 1,814 0 500 1,000 1,500 Fixed income Equities Other Changes 1 Based on legal entity view. 1 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 26 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 1,815 804 55.7 488 1,863 1,456 2,000 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations As of 30 June 2014, total assets under management amounted to € 1,814 bn. Of this, € 1,373 bn related to our third-party assets under management and € 441 bn to Allianz group assets. In the first six months of 2014, we recorded net outflows of total assets under management of € 35 bn, of which € 37 bn related to third- party assets under management. PImCO experienced third-party net outflows strongly driven by the United States, while AllianzGI recorded notable third-party net inflows. Market effects contributed € 90 bn to total assets under manage- ment, with € 72 bn at PImCO and € 18 bn at AllianzGI. The regional allocation of third-party assets under management also shifted slightly due to the allocation of certain entities to other busi- ness segments. Europe’s share rose by 1.7 percentage points, driven by positive market effects and also because of the change in reporting of fund of fund assets. Mainly due to the impact of market return and by the change in reporting to include third-party fund of fund assets under manage- ment, the share of our third-party assets under management increased by one percentage point in favor of equities. This resulted in 86 % attributable to fixed income and 14 % to equities. These positive effects were partly offset by negative effects of € 23 bn. This was due to the allocation of certain entities to other busi- ness segments which resulted in a decrease of € 33 bn in assets under management. This was partially offset by a change in reporting to include third-party fund of fund assets under management. The share of third-party assets under management between our retail and institutional clients2 changed slightly – down one percent- age point for retail clients (36 %) and up one percentage point for institutional clients (64 %). We recorded favorable foreign currency translation effects of € 12 bn, in particular on our fixed income assets, mainly resulting from the appreciation of the U.S. Dollar against the Euro.1 three-year rolling inveStment performance of pimco and allianzgi1 % pimco AllianzGI In the following section, we focus on the development of third-party assets under management. 100 As of 30 June 2014, the share of third-party assets under manage- ment by business unit was 82.7 % attributable to PImCO and 17.3 % to AllianzGI. 80 60 90 89 40 55 51 third-party aSSetS under management by region/country1 ,2,3 20 as of 30 June 2014 [31 December 2013] in % 0 (10) (11) Other 3 0.0 [2.3] (20) (45) (49) Asia-Pacific 9.8 [9.8] Europe 28.1 [26.4] (40) 12/31/2013 6/30/2014 12/31/2013 6/30/2014 Outperforming third-party assets under management Underperforming third-party assets under management America 62.1 [61.5] 1 The investment performance is based on Allianz Asset Management account-based, asset-weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by portfolio managers of Allianz Asset Management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding Morningstar peer group (first and second quartile mean outperformance). For all other retail funds and for all institutional accounts, the gross of fee perfor mance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics. 1 2 3 Based on the location of the asset management company. “America” consists of the United States, Canada and Brazil (approximately € 838 bn, € 14 bn and € 1 bn third-party assets under management as of 30 June 2014, respectively). “Other” consists of third-party assets managed by other Allianz Group companies which were allocated to other business segments as of 1 January 2014. The overall three-year rolling investment performance of our Asset Management business remained on a high level, with 84 % of our assets outperforming their respective benchmarks (31 December 2013: 85 %). 89 % of PImCO assets outperformed their respective bench- marks while 51 % of AllianzGI assets outperformed their respective benchmarks. 1 Based on the closing rate on the respective balance sheet date. 2 Client group classification is driven by investment vehicle types. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 27 Operating revenues 2014 to 2013 Second quarter compariSon Operating revenues declined by € 209 mn, or 11.5 % to € 1,606 mn. This was mainly driven by lower average third-party assets under man- agement, but also reflects the allocation of certain entities to other business segments. On an internal basis1, operating revenues went down by 5.8 %. Net fee and commission income fell by € 208 mn, or 11.5 % to € 1,601 mn. This was largely a result of a decrease in management fees, mainly resulting from lower average third-party assets under man- agement and – to a smaller extent – lower margins. Our performance fees went down by € 11 mn to € 67 mn. Our income from financial assets and liabilities carried at fair value through income (net) was up € 4 mn due to mark-to-market valuation of investments in funds, favorable foreign currency effects and positive effects from seed money. 2014 to 2013 firSt half year compariSon Our operating revenues declined by € 603 mn, or 16.2 % to € 3,123 mn. On an internal basis1, operating revenues fell by 11.2 %. This was because of a € 268 mn decrease in performance fees – which were exceptionally high in the first quarter of 2013 – and lower average assets under management. 1 Operating revenues/operating profit adjusted for foreign currency translation and (de-) consolidation effects. 28 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Operating profit 2014 to 2013 Second quarter compariSon Our operating profit declined by € 129 mn to € 675 mn. On an internal basis1, operating profit fell by 9.7 % due to lower management fees. Administrative expenses decreased by € 77 mn to € 932 mn, reflect- ing the decline in operating revenues and lower assets under man- agement related expenses. Our cost-income ratio increased by 2.3 percentage points mainly as a result of a reduction in management fees. 2014 to 2013 firSt half year compariSon Due to lower operating revenues, our operating profit decreased by € 383 mn, or 22.5 % to € 1,321 mn (internal growth: (17.2 %)). Our cost-income ratio increased by 3.4 percentage points mainly due to the decrease in performance fees. Net income In the second quarter of 2014, our net income decreased by € 69 mn, or 14.1 % to € 419 mn. This is largely consistent with our operating profit development, and also applies to the first six months of 2014 where our net income went down by € 231 mn to € 825 mn. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook aSSet management buSineSS Segment information € mn Management and loading fees Performance fees Other Fee and commission income Commissions Other Fee and commission expenses Net fee and commission income Net interest income1 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Non-operating items Income before income taxes Income taxes Net income Cost-income ratio2 in % 1 2 Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations three months ended 30 June 2014 1,891 67 14 1,972 (313) (58) (371) 1,601 (1) 4 2 1,606 (932) 1 (931) 675 (3) 672 (253) 419 58.0 2013 2,089 78 12 2,179 (349) (21) (370) 1,809 4 – 2 1,815 (1,009) (2) (1,011) 804 (23) 781 (293) 488 55.7 six months ended 30 June 2014 3,716 86 31 3,833 (620) (96) (716) 3,117 (1) 3 4 3,123 (1,805) 3 (1,802) 1,321 (17) 1,304 (479) 825 57.7 2013 4,072 354 39 4,465 (725) (34) (759) 3,706 8 7 5 3,726 (2,017) (5) (2,022) 1,704 (54) 1,650 (594) 1,056 54.3 29 Corporate and Other second quarter 2014 Operating loss decreased by € 55 mn to € 219 mn, with improvements across all three reportable segments. Business segment overview Key figures Corporate and Other encompasses the reportable segments Holding & Treasury, Banking and Alternative Invest ments. Hold ing & Treasury includes the management of and support for Allianz Group businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communica tion, legal, human resources and technology functions. Our banking products offered in Germany, Italy, France, the Nether lands and Bulgaria complement our insurance product port folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group. Key figures corporate and other1 € mn three months ended 30 June Operating revenues Operating expenses Operating result Net income (loss) 2014 417 (636) (219) (248) Key figures reportable segments € mn three months ended 30 June 2014 holding & treasury Operating revenues 96 Operating expenses (340) Operating result (244) banKing Operating revenues 278 Operating expenses (261) Operating result 17 alternative investments Operating revenues 45 Operating expenses (37) Operating result 8 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 4 to the condensed consolidated interim financial statements. 30 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 391 (665) (274) (277) 2013 70 (347) (277) 280 (281) (1) 42 (38) 4 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook Earnings summaries 2014 to 2013 second quarter comparison Our operating result improved by € 55 mn to a loss of € 219 mn. This positive development was driven by all three of its reportable seg- ments. Holding & Treasury contributed € 33 mn, Banking € 18 mn and Alternative Investments € 4 mn to this increase. Our net result also improved from a loss of € 277 mn to a loss of € 248 mn over the same period. Significantly lower non-operating realized gains were more than offset by the favorable development of our operating result and positive tax effects. 2014 to 2013 first half year comparison Our operating result increased by € 72 mn to a loss of € 441 mn. A higher loss in Holding & Treasury was more than offset by the recovery of our Banking result, which benefited from the closure of the Allianz Bank’s business operations in mid-2013. Our net result improved by € 557 mn to a loss of € 117 mn. This was primarily driven by a one-off benefit from pension revaluation with our German subsidiaries1 and was partly offset by lower non-operating realized gains. Operating earnings summaries by reportable segment holding & treasury 2014 to 2013 second quarter comparison Our operating loss decreased from € 277 mn to € 244 mn. A higher net interest result and reduced administrative expenses more than offset a decline in the net fee and commission result. Our net interest result increased by € 23 mn to a loss of € 10 mn as interest and similar income rose while interest expenses, excluding interest expenses from external debt, remained stable. Interest and similar income went up from € 53 mn to € 74 mn. This was mainly due to higher income from an increased volume of debt instruments but also from associates and equities. Interest expenses, excluding interest expenses from external debt, remained almost unchanged at € 84 mn (2Q 2013: € 86 mn) as the effects of lower interest expenses on internal debt and higher expenses related to a higher cash pool balanced each other out. Administrative expenses (net), excluding acquisition-related expenses, decreased from € 184 mn to € 161 mn. This was driven by a number of various minor effects. 1 For further information on the one-off effect from pension revaluation, please refer to note 4 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Balance Sheet Review 42 Reconciliations Our net fee and commission result worsened by € 16 mn to a loss of € 63 mn as a result of higher IT project startup costs – in particular related to our global data center consolidation project. Investment expenses remained almost stable at € 17 mn (2Q 2013: € 20 mn). 2014 to 2013 first half year comparison Our operating loss increased by € 48 mn to € 492 mn due to a worsen- ing of both net interest result and net fee and commission result. This was only partly compensated for by lower administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation,1 and decreased investment expenses. The decrease in the net interest result was mainly driven by lower interest and similar income, as the previous year’s figures had benefited from interest payments on our silent participation in Commerzbank, which was redeemed in 2013. The net fee and commission result was down because of higher IT project startup costs. banKing2 2014 to 2013 second quarter comparison Our operating result turned from a loss of € 1 mn into a profit of € 17 mn. This recovery was mainly attributable to the closure of the Allianz Bank’s business operations in mid-2013. In the following sections, we focus on the development of our ongoing Banking business. To make the figures comparable, we have excluded the closed business operations of Allianz Bank. Excluding these operations, the operating profit in Banking improved by € 2 mn to € 15 mn. Our net interest, fee and commission result increased by € 9 mn to € 125 mn. The net interest result slightly increased from € 79 mn to € 82 mn due to lower interest expenses triggered by lower interest rates offsetting increased deposit volume. Our net fee and commission result improved by € 6 mn to € 43 mn. This was driven by increased management fee income in line with the growth in assets under management. Administrative expenses increased by € 6 mn to € 97 mn. This was primarily a result of higher provisions paid to financial agents in Italy and, to a lesser extent, slightly increased costs in Germany. The allocation of a former Asset Management entity to the reportable seg- ment Banking in Italy also contributed to this development. Our loan loss provisions remained almost stable at € 17 mn (2Q 2013: € 14 mn). Our operating income from financial assets and liabilities carried at fair value through income (net) stood almost unchanged at € 3 mn. 2 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 31 2014 to 2013 first half year comparison Our operating result increased by € 119 mn to a profit of € 35 mn. Excluding the closed business operations of Allianz Bank, our operat- ing result improved from € 30 mn to € 33 mn. Similar to the second quarter comparison, the € 11 mn increase in our net interest, fee and commission result was largely offset by higher administrative expenses while the loan loss provisions remained stable at € 26 mn (6m 2013: € 27 mn). alternative investments 2014 to 2013 second quarter comparison Our operating result doubled from € 4 mn to € 8 mn. This was mainly due to a € 7 mn increase in the net interest result which was only partly offset by a € 2 mn lower net fee and commission income. 2014 to 2013 first half year comparison Our operating result remained almost flat at € 16 mn (6m 2013: € 15 mn) as an upturn in the net interest result was almost offset by a decrease in the net fee and commission income and by higher investment expenses. 32 Interim Report Second Quarter and First Half Year of 2014 Allianz Group A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Outlook − Higher global economic growth in 2014, thanks to industrialized countries. − Operating profit outlook unchanged – we expect the upper end of target range to be in reach. Economic outlook1 In the first six months of 2014, global economic momentum was somewhat less pronounced than originally expected. The slowdown in the first quarter was partly due to disappointing developments in the United States, where curbs on production and demand because of the severe winter contributed to a decline in overall output. Weaker growth in emerging market heavyweights like Brazil and Russia also contributed to lower-than-expected economic momentum in the first half of the year. However, there is a good chance that the global economy will reaccelerate in the second half of 2014. This view is sup- ported by the favorable readings of the purchasing managers’ indices for the manufacturing industry, in particular in industrialized coun- tries. Given higher expected growth in the industrialized world than in 2013, global output is likely to expand by 2.7 % in 2014. Fears that economic development in emerging markets would deteriorate sub- stantially look unfounded. Nevertheless, they have lost steam since 2012 and will not return to their pre-crisis growth rates, not least due to structural problems in some major emerging market economies. However, with an expected real GDP increase of 4.4 % in 2014, growth in these countries will still be considerably higher than in the indus- trialized world, where we expect an increase of 1.7 %. In the Eurozone, the economy is also starting to get back on its feet in crisis-ridden member states, narrowing the “north-south divide”. Current eco- nomic indicators suggest the economic recovery is set to continue, albeit at a moderate pace. For 2014 as a whole, we expect real GDP growth of 1.2 %. Supported by brighter economic conditions in the Eurozone, the German economy could expand by about 2 % this year. Inflation is likely to remain subdued on a global level, not least due to the dire unemployment situation in many industrialized countries, which keeps the lid on wages. Despite the overall favorable growth picture, risks for the global economy have recently increased. In this respect, a further escalation of the conflict between Russia and Ukraine, combined with a spiral of far-reaching economic sanctions and corresponding counter-sanctions, ranks first on the list. For the remainder of this year, financial markets will probably remain under the twin spell of monetary policy and geopolitical ten- sions. Regarding the former, we expect to see a gradual exit from crisis mode, led by the U.S. central bank reining in its asset purchases. Given its concerns about low inflation, banking liquidity and lending growth, the European Central Bank will most likely stick to its very expansionary policy stance before eventually starting to exit from crisis mode in 2015. Even though monetary policy would still remain highly accommodative, cautious steps towards an exit could well be accompanied by sharp swings in the equity, bond and currency mar- kets. Although the effects of the sovereign debt crisis in the Eurozone are still being felt, we expect further normalization. With short-term rates close to zero, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb only modestly until the end of this year. With growth in the United States set to out- pace that in the Eurozone, the U.S. Dollar is likely to appreciate mod- erately against the Euro. Insurance industry outlook Global economic expansion is set to continue in 2014. Therefore, the macroeconomic environment will be in general supportive of world premium growth. However, differences in growth levels between markets will become wider, reflecting specific political, regulatory and economic conditions. The outlook for profitability remains chal- lenging, as investment returns are expected to stay low and the regu- latory environment continues to become more demanding in terms of capital and reserve requirements. In the property-casualty sector, we anticipate stable premium growth in 2014 as the increase in economic activity bolsters demand for insurance coverage. In particular, the recovery in Europe should pave the way for a return to positive premium growth in almost all parts of the region. Emerging markets should display robust growth rates, which in part are also the result of increasing insurance pen- etration. However, in some markets tighter regulation and political instability might lead to a more moderate expansion. The increase in 1 The information presented in the sections Economic outlook, Insurance industry outlook and Asset management industry outlook is based on our own estimates. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 33 premium rates on the other hand may slow down somewhat in 2014. Overall, we expect global premium revenue to rise by around 4 % in 2014 (adjusted for foreign currency translation effects). After gradual improvements over the last years, property-casu- alty profitability is expected to remain stable in 2014. Low yields are working their way through to earnings as price increases slow down and reserve releases dwindle. In the life sector, we expect premium growth to recover. In mature markets, better economic prospects and a new product mix will help to support top-line growth. In emerging markets, strong growth will be mainly driven by rising incomes and social security reforms. All in all, we expect that global premium revenue will rise in the 3.5 % – 4.5 % range in 2014 (adjusted for foreign currency translation effects). With interest rates remaining at low levels, companies will con- tinue to adapt their business models to the challenging environment. Besides a stronger focus on the protection business – including health – new and more flexible guarantee concepts are set to come to the forefront in the savings business. At the same time, insurers will continue to look for new, long-term investment opportunities, paying special attention to infrastructure investments. But despite progress on these fronts, profitability will remain under pressure, not least because of more stringent capital and reserve requirements. Although equities may remain vulnerable to setbacks in the near future due to increased valuations, higher interest rates and global demographic trends on the other hand, will increase the attractive- ness of bonds. This holds true in particular for liability-driven inves- tors and for the growing number of retirees in the developed world looking for a stable stream of income. Improving economic conditions in certain developed markets as well as trends in client demand represent a positive environment for further asset management industry growth. At the same time, industry profitability is expected to remain challenged as asset flows into passive products and growing expenses from higher distribution or marketing costs put pressure on operating margins, and the effects of increased regulatory oversight and reporting take their toll. In such an environment a money manager’s ability to grow is dependent on providing innovative client-focused investment solu- tions, delivering above-benchmark investment results, offering com- prehensive investment products and services, its ability to prudently and holistically respond to client needs and upping the scale and efficiency of operations. Outlook for the Allianz Group Asset management industry outlook Increasing asset valuations for equities and decreasing bond-yields in developed markets have provided a tailwind for the asset manage- ment industry so far in 2014. Nevertheless, considerable downside risks remain and could materialize if global growth fails to meet expectations or political uncertainties come to the fore. A reduction of the currently highly supportive monetary policy may also put the positive trends in financial markets at risk. The further development of regulatory activities – particularly in the consumer protection and transparency fields – is an additional source of uncertainty for the asset management industry. We are confident about staying on course towards profitable growth during the rest of 2014. Currently, we see no need to adjust our pub- lished Allianz Group operating profit outlook for 2014 of € 10.0 BN, plus or minus € 0.5 BN but we expect the upper end of the target range to be in reach. However, as we witnessed in 2013, unfavorable devel- opments in the business environment can have adverse impacts on aspects of our performance. It would therefore be inappropriate to simply annualize the current half year’s operating profit and net income to arrive at an expected result for the full year. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assump- tions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. 34 Interim Report Second Quarter and First Half Year of 2014 Allianz Group A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Balance Sheet Review − Shareholders’ equity increased by € 4.9 bn to € 55.0 bn. − Solvency ratio strong at 185 %.1 Shareholders’1equity2 Regulatory capital adequacy ShareholderS’ equity € mn + 9.8 % The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital available to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”. 70,000 + 2.7 % 60,000 50,084 53,525 54,979 Conglomerate SolvenCy1 50,000 6,741 8,926 11,140 € bn 40,000 14,473 15,729 14,969 30,000 20,000 28,870 28,870 28,870 50 182 % 184 % 185 % 10,000 40 12/31/2013 3/31/2014 6/30/2014 30 Paid-in-capital Unrealized gains/losses (net) Retained earnings (includes foreign currency translation adjustments) 20 46.5 47.8 48.9 25.6 26.0 26.4 Compared to year-end 2013, shareholders’ equity grew by € 4,895 mn – or 9.8 % – and amounted to € 54,979 mn as of 30 June 2014. Net income attributable to shareholders contributed € 3,395 mn to this growth. In addition, unrealized gains increased by € 4,399 mn, mainly due to higher fair values of debt securities triggered by the declines in all major government bond yields – in particular within the Eurozone. A € 235 mn increase in foreign currency translation adjustments, mainly driven by the depreciation of the Euro against several currencies – in particular the U.S. Dollar and British Pound but also the Australian Dollar – further contributed to the growth. These effects were only partly offset by the € 2,405 mn dividend payout in May 2014. 1 2 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2014 would be 177 % (31 March 2014: 175 %; 31 December 2013: 173 %). This does not include non-controlling interests of € 2,833 mn, € 2,835 mn and € 2,765 mn as of 30 June 2014, 31 March 2014 and 31 December 2013, respectively. For further information, please refer to note 20 to the condensed consolidated interim financial statements. Retained earnings include foreign currency translation adjustments of € (3,077) mn, € (3,297) mn and € (3,312) mn as of 30 June 2014, 31 March 2014 and 31 December 2013, respectively. 10 12/31/2013 3/31/2014 6/30/2014 Solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2014 would be 177 % (31 March 2014: 175 %; 31 December 2013: 173 %). Compared to 31 December 2013, our conglomerate solvency ratio increased three percentage points to 185 %. The Group’s eligible cap- ital for solvency purposes went up by € 2.4 bn to € 48.9 bn, including off-balance sheet reserves of € 2.2 bn (31 December 2013: € 2.3 bn). This increase was mainly driven by our net income (net of accrued dividends) of € 2.0 bn. To a lesser extent, it was due to the issuance of a subordinated bond in the first quarter and higher unrealized gains on equities. These positive effects were only partly offset by higher actuarial losses on the valuation of our pension benefit obligation following a decrease in discount rates. The required funds increased by € 0.8 bn to € 26.4 bn, mainly due to higher aggregate policy reserves in Life/Health. As a result, our eligible capital surpassed the mini- mum legally stipulated level by € 22.5 bn. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 35 Total assets and total liabilities As of 30 June 2014, total assets amounted to € 754.3 bn and total liabil- ities were € 696.5 bn. Compared to year-end 2013, total assets and total liabilities increased by € 43.2 bn and € 38.3 bn, respectively. The following section mainly focuses on our financial invest- ments in debt instruments, equities, real estate and cash since these reflect the major developments in our asset base. StruCture of inveStmentS – portfolio overview The following portfolio overview covers the Allianz Group assets held for investment, which are mainly driven by our insurance business.1 aSSet alloCation Investment portfolio as of 30 June 2014: € 572.9 bn [as of 31 December 2013: € 536.8 bn] in % Real estate 2 [2] Cash/Other 2 [2] Equities 7 [7] Debt instruments 89 [89] Compared to year-end 2013, our investment portfolio grew by € 36.1 bn to € 572.9 bn as of 30 June 2014. This was mainly due to debt securities. Our gross exposure to equities increased by € 2.7 bn to € 38.3 bn due to new investments and positive equity market developments. This exposure still accounted for 7 % of our investment portfolio. Given the upswing in shareholders’ equity, our equity gearing2 decreased one percentage point to 24 %. Our exposure to real estate stood almost unchanged at € 10.9 bn (31 December 2013: € 10.8 bn) and still accounted for 2 % of our invest- ment portfolio. 1 2 Effective from the Annual Report 2013, we changed the presentation of our investment portfolio in our Group Management Report. This also applies to our Interim Group Management Reports. Now, we also include investments of banking and asset management, which were excluded in the former presentation. We believe this will simplify a comparison with the figures presented in the notes to the condensed consolidated interim financial statements. Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill. 36 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Our cash and other investments increased by € 1.4 bn to € 11.2 bn. Our diversified exposure to debt instruments increased by € 31.9 bn to € 512.5 bn, but still represented 89 % of our investment portfolio. The increase in absolute terms was driven by higher fair values as a result of lower interest rates and, to a lesser extent, new investments. fixed inCome portfolio Total fixed income portfolio as of 30 June 2014: € 512.5 bn [as of 31 December 2013: € 480.6 bn] in % Banks 6 [7] Other 10 [11] Government bonds 38 [37] Other corporate bonds 25 [24] Covered bonds 21 [21] The allocation of our well-diversified fixed income portfolio remained stable, with marginal increases in the share of corporate and govern- ment bonds and minor reductions in the portion of banks and other. About 95 % of this portfolio of debt instruments was invested in invest- ment-grade bonds and loans.3 Compared to year-end, our government bond exposure increased by € 14.3 bn to € 193.9 bn and accounted for 38 % (31 December 2013: 37 %) of our fixed income portfolio. The allocation of our government and government-related bond exposure remained almost unchanged. The overall increase of the government bond exposure was primarily driven by positive market effects. Our sovereign debt exposure in Italy and Spain equaled 6.1 % and 1.0 % of our fixed income portfolio, respectively. The corresponding unrealized gains (gross) amounted to € 4,094 mn in Italy and € 554 mn in Spain. Our government bond exposure in Portugal remained limited with small unrealized gains. Our covered bonds increased by € 3.6 bn to € 106.1 bn and still accounted for 21 % of our fixed income portfolio. 45 % of this portfolio, down by two percentage points, was German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 % and 10 % of the covered bonds were attributable to France and Spain, respectively. Covered bonds provide a cushion against real estate price deterio- ration and payment defaults through minimum required security buffers and over-collateralization. 3 Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Our corporate bond portfolio increased by € 13.8 bn to € 130.1 bn and accounted for 25 % of our fixed income portfolio. The increase was driven by both new investments and lower yields leading to fair value increases. Our exposure to bank securities decreased by € 1.5 bn to € 31.6 bn, mainly due to matured investments. This exposure represented 6 % of our fixed income portfolio, down one percentage point. Thereof, the exposure to subordinated securities in banks slightly increased from € 4.8 bn as of 31 December 2013 to € 5.3 bn. Our exposure to asset-backed securities (AbS) increased by € 1.6 bn to € 20.0 bn and still accounted for 4 % of our fixed income portfolio. The increase was mainly related to new investments. About 73 % of our AbS portfolio was related to mortgage backed securities (mbS). mbS issued by U.S. agencies, which are backed by the U.S. govern- ment, increased by two percentage points and accounted for 15 % of the AbS portfolio. Overall, 98 % of the AbS portfolio received an invest- ment grade rating, with 87 % rated “AA” or better. effects and financial derivatives, mainly within our German Life/ Health business. Derivatives are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures. The recovery in this quarter was mainly due to the absence of foreign currency losses, which were primarily related to depreciations of selected emerging markets cur- rencies in the second quarter of 2013. Our interest and similar income (net)1 increased by € 126 mn to € 5,437 mn. Higher income from equities contributed € 106 mn to this increase. Income from debt instruments remained rather stable as the higher asset base compensated for slightly lower interest yields. Realized gains and losses (net) contracted by € 165 mn to € 1,026 mn. This was driven by both lower realized gains on equities and debt instruments as some major realizations from the previous year’s quarter did not reoccur, which were only partly offset by higher real- ized gains on real estate. inveStment reSult inveStment inCome (net) Impairments (net) more than halved from € 182 mn to a compar- atively low level of € 74 mn thanks to favorable market developments. Investment expenses increased from € 217 mn to € 232 mn mainly due to higher management expenses as well as higher expenses related to real estate investments. € mn Interest and similar income (net)1 Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) three months ended 30 June 2014 2013 5,437 5,311 (53) (701) 1,026 1,191 six months ended 30 June 2014 2013 10,478 10,368 (372) (926) 1,932 2,337 2014 to 2013 first half year comparison Our investment income (net) improved only slightly from € 11,038 mn to € 11,171 mn due to the positive development of the second quarter of 2014 compared to previous year’s quarter. The improvement in income from financial assets and liabilities carried at fair value through income (net) and the slight increase in interest and similar income (net)1 were partly counterbalanced by lower realized gains and moderately increased impairments. Impairments of investments (net) (74) (182) (436) (316) Investment expenses (232) (217) Investment income (net) 6,104 5,402 1 Net of interest expenses (excluding interest expenses from external debt). (431) 11,171 (425) 11,038 Income from financial assets and liabilities carried at fair value through income (net) improved by € 554 mn to a loss of € 372 mn and our interest and similar income (net)1 increased by € 110 mn to € 10,478 mn. Both increases were primarily driven by the second quarter developments mentioned above. 2014 to 2013 second quarter comparison Our investment income (net) increased by € 702 mn – or 13.0 % – to € 6,104 mn. A recovery of our income from financial assets and liabili- ties carried at fair value through income (net) was the main driver of this increase. Income from financial assets and liabilities carried at fair value through income (net) recovered from a loss of € 701 mn to a loss of € 53 mn. In the previous year’s quarter, the result was considerably impacted by losses from the net of foreign currency translation Realized gains and losses (net) decreased by € 405 mn to € 1,932 mn – primarily as a result of lower realizations on equities but also lower realizations on debt instruments compared to the first six months of 2013. Driven by higher impairments in the first quarter, mainly related to emerging market debt funds triggered by unfavorable currency movements, impairments (net) increased from € 316 mn to € 436 mn. Investment expenses remained almost unchanged at € 431 mn (6m 2013: € 425 mn). 1 Net of interest expenses (excluding interest expenses from external debt). Interim Report Second Quarter and First Half Year of 2014 Allianz Group 37 aSSetS and liabilitieS of the property-CaSualty buSineSS Segment Property-Casualty assets Compared to year-end, the Property-Casualty asset base increased by € 3.1 bn to € 104.2 bn. This was primarily driven by higher debt securi- ties and equities. CompoSition of aSSet baSe – fair valueS1 € bn as of 30 June 2014 as of 31 December 2013 Financial assets and liabilities carried at fair value through income Equities 0.4 0.5 Debt securities 0.1 0.1 Other2 – – Subtotal 0.5 0.6 Investments3 Equities 6.0 5.0 Debt securities 69.5 67.0 Cash and cash pool assets4 5.0 4.9 Other 7.9 7.5 Subtotal 88.4 84.4 Loans and advances to banks and customers 15.3 16.1 Property-Casualty asset base 104.2 101.1 1 2 3 4 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage. This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 30 June 2014 and 31 December 2013, respectively. These do not include affiliates of € 8.9 bn and € 8.9 bn as of 30 June 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet of € 3.6 bn and € 2.8 bn and receivables from cash pooling amounting to € 3.8 bn and € 3.4 bn, net of liabilities from securities lending and derivatives of € (0.2) bn and € (0.3) bn, as well as liabilities from cash pooling of € (2.2) bn and € (1.0) bn as of 30 June 2014 and 31 December 2013, respectively. As of 30 June 2014, AbS within the Property-Casualty asset base amounted to € 3.8 bn (31 December 2013: € 3.7 bn), representing 3.6 % (31 December 2013: 3.7 %) of this asset base. 38 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 € bn Gross Ceded As of 1 January 2014 56.6 (6.1) Balance carry forward of discounted loss reserves2 3.2 (0.3) Subtotal 59.8 (6.4) Loss and loss adjustment expenses paid in current year relating to previous years (8.7) 0.7 Loss and loss adjustment expenses incurred in previous years (0.7) 0.1 Foreign currency translation adjustments and other changes 0.7 (0.1) Changes in reserves for loss and loss adjustment expenses in current year 9.7 (0.9) Subtotal 60.8 (6.6) Ending balance of discounted loss reserves2 (3.5) 0.3 As of 30 June 2014 57.3 (6.3) 1 2 For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 15 to the condensed consolidated interim financial statements. Although discounted loss reserves have been reclassified to ‘Reserves for insurance and investment contracts’ in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses and in the loss ratio and is therefore included in the development of the reserves above. As of 30 June 2014, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 60.8 bn – an increase of € 1.0 bn compared to year-end. On a net basis, our reserves – including discounted loss reserves – increased from € 53.4 bn to € 54.2 bn. Foreign currency translation effects and other changes amounted to a plus of € 0.6 bn on a net basis. Net 50.5 2.9 53.4 (8.0) (0.6) 0.6 8.8 54.2 (3.2) 51.0 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations aSSetS and liabilitieS of the life/health buSineSS Segment finanCial aSSetS for unit-linked ContraCtS1 € bn Life/Health assets The Life/Health asset base grew by € 38.8 bn – or 8.0 % – to € 525.3 bn. This was mainly due to the increased exposure to debt securities but also to higher equities and cash and cash pool assets for the same reasons as those for the developments within our overall investment portfolio. As of 1 January 2014 Net premium inflows (outflows) Changes in fund value Foreign currency translation adjustments Unit-linked insurance contracts 55.4 1.3 2.7 0.3 Unit-linked investment contracts 25.7 1.7 1.0 – Other changes (1.3) 0.1 CompoSition of aSSet baSe – fair valueS As of 30 June 2014 58.4 28.5 € bn Financial assets and liabilities carried at fair value through income as of 30 June 2014 as of 31 December 2013 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Report- ing Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. Equities 1.9 1.4 Debt securities 2.3 2.5 Other1 Subtotal Investments2 Equities Debt securities Cash and cash pool assets3 Other Subtotal Loans and advances to banks and customers (4.9) (0.7) 30.4 300.6 8.7 10.1 349.8 89.3 (4.2) (0.3) 28.9 269.4 7.5 10.0 315.8 89.9 Financial assets for unit-linked contracts increased by € 5.8 bn – or 7.2 % – to € 86.9 bn. Unit-linked insurance contracts increased by € 3.0 bn to € 58.4 bn due to good fund performance (€ 2.7 bn) and pre- mium inflows exceeding outflows by € 1.3 bn, partly offset by transfers to the general account in France (€ (0.6) bn). Unit-linked investment contracts increased by € 2.8 bn to € 28.5 bn, with premium inflows significantly exceeding outflows (net € 1.7 bn). Currency effects reflected the stronger U.S. Dollar (€ 0.1 bn) and Asian currencies (€ 0.2 bn).1 Financial assets for unit-linked contracts4 86.9 81.1 Life/Health asset base 525.3 486.5 1 2 3 4 This comprises assets of € 1.3 bn and € 1.7 bn and liabilities (including the market value lia bility option) of € (6.2) bn and € (5.9) bn as of 30 June 2014 and 31 December 2013, respectively. These do not include affiliates of € 0.1 bn and € 0.8 bn as of 30 June 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 7.5 bn and € 5.8 bn and receivables from cash pooling amounting to € 3.6 bn and € 3.4 bn, net of liabilities from securities lending and derivatives of € (2.3) bn and € (1.7) bn, as well as liabilities from cash pooling of € (0.1) bn and € (0.0) bn as of 30 June 2014 and 31 December 2013, respectively. Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Report- ing Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. Life/Health liabilities Life/Health reserves for insurance and investment contracts increased by € 26.6 bn – or 6.8 % – to € 417.5 bn in the first six months of 2014. The € 13.2 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 5.4 bn), the United States (€ 4.1 bn before currency effects), Italy (€ 1.0 bn), Luxembourg (€ 0.6 bn) and Switzerland (€ 0.6 bn before currency effects). Reserves for pre- mium refund increased by € 12.4 bn due to higher unrealized gains to be shared with policyholders. Currency effects resulted from the stronger U.S. Dollar (€ 0.4 bn), Asian currencies (€ 0.5 bn) and the Swiss Franc (€ 0.1 bn).1 AbS within the Life/Health business segment increased by € 1.1 bn to € 14.9 bn, mainly due to new investments. This exposure still repre- sented 2.8 % of the business segment’s asset base. 1 Based on the closing rate on the respective balance sheet dates. Interim Report Second Quarter and First Half Year of 2014 Allianz Group Total 81.1 3.0 3.7 0.3 (1.2) 86.9 39 aSSetS and liabilitieS of the aSSet management buSineSS Segment Asset Management assets The Asset Management business segment’s results are derived pri- marily from third-party asset management. In this section, we refer only to the business segment’s own assets.1 The business segment’s asset base decreased from € 4.4 bn to € 2.4 bn – mainly from debt securities as a result of the allocation of certain entities to other reportable segments. Cash and cash pool assets are now the remaining main component of the business seg- ment’s asset base. Asset Management liabilities Liabilities in our Asset Management business segment almost halved from € 4.0 bn to € 2.1 bn, primarily due to the above-mentioned allocation. aSSetS and liabilitieS of the Corporate and other buSineSS Segment Corporate and Other assets The Corporate and Other asset base increased by € 1.1 bn to € 42.4 bn. A slight decrease in loans and advances to banks and customers was more than compensated for by an increased volume of debt securities and, to a lesser extent, equities. 1 For further information on the development of these third-party assets, please refer to the Asset Manage- ment chapter. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 40 Interim Report Second Quarter and First Half Year of 2014 Allianz Group CompoSition of aSSet baSe – fair valueS € bn as of 30 June 2014 as of 31 December 2013 Financial assets and liabilities carried at fair value through income Equities 0.1 – Debt securities 0.3 – Other1 (0.4) (0.2) Subtotal – (0.2) Investments2 Equities 1.9 1.7 Debt securities 27.9 26.3 Cash and cash pool assets3 (4.7) (5.0) Other 0.3 0.3 Subtotal 25.4 23.3 Loans and advances to banks and customers 17.0 18.2 Corporate and Other asset base 42.4 41.3 1 2 3 This comprises assets of € 0.1 bn and € 0.3 bn and liabilities of € (0.5) bn and € (0.5) bn as of 30 June 2014 and 31 December 2013, respectively. These do not include affiliates of € 77.0 bn and € 75.4 bn as of 30 June 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 1.3 bn and € 1.5 bn and receivables from cash pooling amounting to € 1.8 bn and € 0.7 bn, net of liabilities from securities lending and derivatives of € 0.0 bn and € (0.2) bn, as well as liabilities from cash pooling of € (7.8) bn and € (7.0) bn as of 30 June 2014 and 31 December 2013, respectively. AbS amounted to € 1.3 bn as of 30 June 2014, up by € 0.4 bn compared to year-end. This represented 3.1 % (31 December 2013: 2.2 %) of the Corporate and Other’s asset base. Corporate and Other liabilities Compared to year-end, subordinated liabilities decreased by € 1.1 bn to € 10.4 bn as of 30 June 2014 as the redemption of a € 1.5 bn perpetual bond was only partly offset by the issuance of an undated subordi- nated bond with a volume of CHF 500 mn in the first quarter of 2014. Other liabilities increased by € 1.5 bn to € 25.1 bn. This was driven by higher liabilities from cash pooling and other provisions mainly related to pension obligations. Certificated liabilities were down by € 0.4 bn to € 12.8 bn.2 2 For further information on Allianz SE debt as of 30 June 2014, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations allianz Se bondS1 outStanding aS of 30 june 2014 and intereSt expenSeS for the firSt Six monthS of 2014 1. Senior bondS2 5.625 % bond issued by Allianz Se 4.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 1.5 bn Volume € 1.5 bn Year of issue 2012 Year of issue 2006 Maturity date 10/17/2042 Maturity date 11/23/2016 iSin de 000 a1r e1q 3 iSin xS 027 588 026 7 Interest expenses € 42.7 mn Interest expenses € 30.8 mn 4.375 % bond issued by Allianz Finance ii b.v., Amsterdam 1.375 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 1.4 bn Volume € 0.5 bn Year of issue 2005 Year of issue 2013 Maturity date perpetual bond Maturity date 3/13/2018 iSin xS 021 163 783 9 iSin de 000 a1h g1j 8 Interest expenses € 31.5 mn Interest expenses € 3.5 mn 5.375 % bond issued by Allianz Finance ii b.v., Amsterdam 4.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 0.8 bn Volume € 1.5 bn Year of issue 2006 Year of issue 2009 Maturity date perpetual bond Maturity date 7/22/2019 iSin de 000 a0g npz 3 iSin de 000 a1a khb 8 Interest expenses € 21.3 mn Interest expenses € 36.5 mn 5.5 % bond issued by Allianz Se 3.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume uSd 1.0 bn Volume € 1.5 bn Year of issue 2012 Year of issue 2012 Maturity date perpetual bond Maturity date 2/14/2022 iSin xS 085 787 250 0 iSin de 000 a1g 0ru 9 Interest expenses € 20.7 mn Interest expenses € 26.8 mn 4.75 % bond issued by Allianz Se 3.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 1.5 bn Volume € 0.75 bn Year of issue 2013 Year of issue 2013 Maturity date perpetual bond Maturity date 3/13/2028 iSin de 000 a1y Cq2 9 iSin de 000 a1h g1k 6 Interest expenses € 35.7 mn Interest expenses € 11.8 mn 3.25 % bond issued by Allianz Se 4.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Chf 0.5 bn Volume gbp 0.75 bn Year of issue 2014 Year of issue 2013 Maturity date perpetual bond Maturity date 3/13/2043 iSin Ch 023 483 337 1 iSin de 000 a1h g1l 4 Interest expenses € 5.7 mn Interest expenses € 20.7 mn Total interest expenses for subordinated bonds € 248.2 mn Total interest expenses for senior bonds € 130.1 mn 3. iSSueS redeemed in 2014 2. Subordinated bondS3 5.5 % bond issued by Allianz Se 6.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 1.5 bn Volume € 1.0 bn Year of issue 2004 Year of issue 2002 Maturity date perpetual bond Maturity date 1/13/2025 iSin xS 018 716 232 5 iSin xS 015 952 750 5 Interest expenses € 3.2 mn Interest expenses € 32.9 mn Sum of interest expenses1 € 381.5 mn 5.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume € 2.0 bn Interest expenses from external debt not presented in the table € 29.4 mn Year of issue 2011 Total interest expenses from external debt € 410.9 mn Maturity date iSin Interest expenses 7/8/2041 de 000 a1g nah 1 € 57.7 mn 3 The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. 1 2 For further information on Allianz SE debt (issued or guaranteed) as of 30 June 2014, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. Senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 41 Reconciliations The previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our stated figures according to the International Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complemen- tary to, and not as a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the condensed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Property- Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn Property-Casualty Gross premiums written Life/Health Statutory premiums Asset Management Operating revenues consisting of: Net fee and commission income Net interest income Income from financial assets and liabilities carried at fair value through income (net) Other income Corporate and Other Total revenues (Banking) consisting of: Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Interest expenses, excluding interest expenses from external debt Fee and commission expenses Consolidation effects (Banking within Corporate and Other) Consolidation Allianz Group total revenues 42 Interim Report Second Quarter and First Half Year of 2014 Allianz Group three months ended 30 June 2014 10,846 16,961 1,606 1,601 (1) 4 2 132 149 4 125 (65) (81) – (89) 29,456 2013 10,754 14,125 1,815 1,809 4 – 2 132 154 3 125 (72) (74) (4) (50) 26,776 six months ended 30 June 2014 26,063 34,124 3,123 3,117 (1) 3 4 271 299 6 241 (131) (146) 2 (161) 63,420 2013 25,951 28,962 3,726 3,706 8 7 5 280 311 5 245 (145) (134) (2) (95) 58,824 A Interim Group Management Report 5 Executive Summary 11 Property-Casualty Insurance Operations 20 Life/Health Insurance Operations 26 Asset Management 30 Corporate and Other 33 Outlook 35 Balance Sheet Review 42 Reconciliations Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. reConCiliation of nominal total revenue growth to internal total revenue growth % three months ended 30 June Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth Internal growth Property-Casualty 2.6 0.9 (2.6) 0.9 2.2 Life/Health 20.9 1.2 (2.0) 20.1 18.6 Asset Management (5.8) (2.2) (3.5) (11.5) (11.2) Corporate and Other (2.3) 2.3 – – (6.1) Allianz Group 11.5 0.8 (2.3) 10.0 9.3 Interim Report Second Quarter and First Half Year of 2014 Allianz Group six months ended 30 June Changes in scope of consolidation Foreign currency translation 0.8 (2.6) 1.0 (1.8) (2.3) (2.7) 2.9 – 0.7 (2.2) Nominal growth 0.4 17.8 (16.2) (3.2) 7.8 43 44 Interim Report Second Quarter and First Half Year of 2014 Allianz Group condenSed conSolIdAted InteRIm FInAncIAl StAtementS b Interim Report Second Quarter and First Half Year of 2014 Allianz Group 45 condenSed conSolIdAted InteRIm FInAncIAl StAtementS 47 Consolidated BalanCe sheets 48 Consolidated inCome statements 49 Consolidated statements of Comprehensive inCome 50 Consolidated statements of Changes in equity 51 Consolidated statements of Cash flows 53 notes General Information Notes to the Consolidated Income Statements 53 53 54 55 1 Basis of presentation 2 Recently adopted accounting pronouncements 3 Consolidation 4 Segment reporting 86 87 87 21 Premiums earned (net) 22 23 Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Notes to the Consolidated Balance Sheets 78 78 80 80 80 80 81 81 82 82 83 84 84 85 85 85 5 6 7 8 Reinsurance assets 9 Deferred acquisition costs 10 Other assets 11 12 13 14 15 Reserves for loss and loss adjustment expenses 16 Reserves for insurance and investment contracts 17 Other liabilities 18 Certificated liabilities 19 20 Financial assets carried at fair value through income Investments Loans and advances to banks and customers Non-current assets classified as held for sale Intangible assets Financial liabilities carried at fair value through income Liabilities to banks and customers Subordinated liabilities Equity 89 89 89 90 24 Realized gains/losses (net) 25 26 Other income 27 Fee and commission income Income and expenses from fully consolidated private equity investments 90 91 92 92 93 93 93 94 94 94 28 Claims and insurance benefits incurred (net) 29 Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses 30 31 32 33 34 Acquisition and administrative expenses (net) 35 36 Other expenses 37 Income taxes Fee and commission expenses Other Information 95 104 105 105 Financial instruments and fair value measurement 38 39 Earnings per share 40 Other information 41 Subsequent events 106 107 Responsibility statement Review report 46 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Pages 46 – 107 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income Consolidated balanCe sheets consolidated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets classified as held for sale Intangible assets Total assets liabilities and eQUitY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes note as of 30 June 2014 12,704 5 6,242 6 448,429 7 114,370 86,895 8 13,311 9 21,772 1,606 10 35,634 11 285 12 13,082 754,330 13 6,351 14 22,650 21,715 15 67,692 16 431,134 86,895 4,842 17 36,674 18 8,090 19 10,475 696,518 54,979 2,833 20 57,812 754,330 as of 31 December 2013 11,207 6,661 411,148 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,079 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,432 8,030 11,554 658,230 50,084 2,765 52,849 711,079 47 Consolidated inCome statements consolidated income statements € mn Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Income from fully consolidated private equity investments Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) 48 Interim Report Second Quarter and First Half Year of 2014 Allianz Group note 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 27 37 39 39 three months ended 30 June 2014 2013 17,097 16,848 (1,130) (1,252) 733 695 16,700 16,291 5,538 5,413 (53) (701) 1,026 1,191 2,538 2,679 45 42 174 184 25,968 25,099 (12,962) (12,877) 705 905 (12,257) (11,972) (3,598) (3,071) (308) (335) (15) (15) (74) (182) (232) (217) (5,704) (5,802) (831) (788) (25) (16) 8 (6) (26) (8) (174) (188) (23,236) (22,600) 2,732 2,499 (874) (824) 1,858 1,675 103 87 1,755 1,588 3.87 3.50 3.84 3.47 six months ended 30 June 2014 2013 38,908 38,653 (2,492) (2,697) (3,030) (2,993) 33,386 32,963 10,677 10,580 (372) (926) 1,932 2,337 4,946 5,433 123 102 343 362 51,035 50,851 (25,294) (25,059) 1,228 1,449 (24,066) (23,610) (7,038) (7,170) (610) (686) (24) (29) (436) (316) (431) (425) (11,034) (11,291) (1,613) (1,566) (49) (57) 9 (100) (56) (54) (348) (370) (45,696) (45,674) 5,339 5,177 (1,741) (1,701) 3,598 3,476 203 181 3,395 3,295 7.48 7.27 7.41 7.18 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Consolidated statements of Comprehensive inCome consolidated statements of comprehensive income € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Net income 1,858 1,675 3,598 3,476 Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income – – – – Changes arising during the period 232 (525) 248 (236) Subtotal 232 (525) 248 (236) Available-for-sale investments Reclassifications to net income (177) (380) (271) (557) Changes arising during the period 2,374 (2,701) 4,688 (2,977) Subtotal 2,197 (3,081) 4,417 (3,534) Cash flow hedges Reclassifications to net income 15 – 13 (1) Changes arising during the period 30 (69) 35 (62) Subtotal 45 (69) 48 (63) Share of other comprehensive income of associates Reclassifications to net income – – – – Changes arising during the period (8) (36) 1 (15) Subtotal (8) (36) 1 (15) Miscellaneous Reclassifications to net income – – – – Changes arising during the period 12 4 (17) 88 Subtotal 12 4 (17) 88 Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans (334) 17 (690) (24) Total other comprehensive income 2,144 (3,690) 4,007 (3,784) Total comprehensive income 4,002 (2,015) 7,605 (308) Total comprehensive income attributable to: Non-controlling interests 136 32 278 168 Shareholders 3,866 (2,047) 7,327 (476) For further details concerning income taxes relating to components of the other comprehensive income, please see note 37 – Income Taxes. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 49 Consolidated statements of Changes in equity consolidated statements of changes in eQUitY € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Balance as of 1 January 2013 28,815 13,524 (2,073) 10,122 Total comprehensive income1 – 3,319 (231) (3,564) Paid-in capital – – – – Treasury shares – 3 – – Transactions between equity holders – (11) – 1 Dividends paid – (2,039) – – Balance as of 30 June 2013 28,815 14,796 (2,304) 6,559 Balance as of 1 January 2014 28,870 17,785 (3,312) 6,741 Total comprehensive income1 – 2,694 234 4,399 Paid-in capital – – – Treasury shares – 4 – – Transactions between equity holders – (32) 1 – Dividends paid – (2,405) – – Balance as of 30 June 2014 28,870 18,046 (3,077) 11,140 1 Total comprehensive income in shareholders’ equity for the six months ended 30 June 2014 comprises net income attributable to shareholders of € 3,395 mn (2013: € 3,295 mn). 50 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Shareholders’ equity 50,388 (476) – 3 (10) (2,039) 47,866 50,084 7,327 – 4 (31) (2,405) 54,979 Non- controlling interests 2,575 168 – – 21 (206) 2,558 2,765 278 – – (5) (205) 2,833 Total equity 52,963 (308) – 3 11 (2,245) 50,424 52,849 7,605 – 4 (36) (2,610) 57,812 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated statements of Cash flows consolidated statements of cash flows € mn six months ended 30 June sUmmarY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities Interim Report Second Quarter and First Half Year of 2014 Allianz Group Consolidated Statements of Cash Flows Notes 2014 19,212 (13,339) (4,420) 44 1,497 11,207 12,704 3,598 (94) (1,496) 185 579 24 2,061 984 475 284 (601) (980) 3,351 721 11,986 56 (1,921) 15,614 19,212 2013 13,119 (8,437) (4,136) (14) 532 12,437 12,969 3,476 (46) (2,021) 1,262 528 29 1,798 9 16 640 (910) (618) 3,441 (280) 5,841 257 (303) 9,643 13,119 51 Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn six months ended 30 June cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal Payments for the purchase or origination of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal Business combinations: Proceeds from sale of subsidiaries, net of cash disposed Acquisitions of subsidiaries, net of cash acquired Change in other loans and advances to banks and customers (originated loans) Other (net) Net cash flow used in investing activities cash flow from financing activities Net change in liabilities to banks and customers Proceeds from the issuance of certificated liabilities and subordinated liabilities Repayments of certificated liabilities and subordinated liabilities Cash inflow from capital increases Transactions between equity holders Dividends paid to shareholders Net cash from sale or purchase of treasury shares Other (net) Net cash flow used in financing activities sUpplementarY information to the consolidated statements of cash flows Income taxes paid Dividends received Interest received Interest paid 52 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2014 415 65,247 379 257 16 210 5,602 76 72,202 (587) (80,041) (218) (333) (21) (365) (2,297) (628) (84,490) – – (952) (99) (13,339) (696) 1,387 (2,463) – (36) (2,610) 5 (7) (4,420) (1,312) 891 10,068 (622) 2013 872 59,948 385 196 24 170 3,768 87 65,450 (467) (68,879) (162) (388) – (362) (3,358) (574) (74,190) – – 269 34 (8,437) (716) 3,607 (4,806) – 11 (2,245) 6 7 (4,136) (1,895) 822 10,120 (728) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Notes to the Condensed Consolidated Interim Financial Statements General InformatIon These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Manage ment on 7 August 2014. 1 – Basis of presentation The condensed consolidated interim financial statements of the Allianz Group – comprising the consolidated balance sheets, con solidated income statements, consolidated statements of compre hensive income, consolidated statements of changes in equity, con solidated statements of cash flows and selected explanatory notes – are presented in accordance with the requirements of IAS 34, Interim Financial Reporting, and have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315a of the German Commercial Code (HGB). IFRS comprise the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS) and the interpretations developed by the IFRS Inter pretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC). Within these condensed consolidated interim financial state ments, the Allianz Group has applied all IFRS issued by the IASB that are endorsed by the E.U. and are compulsory as of 1 January 2014. For further information please see note 2. 2 – Recently adopted accounting pronouncements recently adopted accounting pronouncements effective 1 January 2014 iFrss 10, 11, 12, Amendments to ias 27 and 28 – Consolidation As of 1 January 2014 the Allianz Group implemented IFRSs 10 and 11 as well as amendments to IAS 27 and IAS 28. IFRS 10, Consolidated Financial Statements, superseded the requirements of IAS 27, Consolidated and Separate Financial State ments and SIC12, Consolidation – Special Purpose Entities. IFRS 10 establishes a single control concept as the basis for determining which entities are to be included in the consolidated financial state ments because they are controlled by the reporting entity. The exis tence of control is based on the following three elements: For existing and unchanged IFRS, the accounting policies for rec og nition, measurement, consolidation and presentation applied in the preparation of the condensed consolidated interim financial statements are consistent with the accounting policies that have been applied in the preparation of the consolidated financial state ments for the year ended 31 December 2013. These condensed con solidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Allianz Group Annual Report 2013. − power over the investee, − exposure, or rights, to variable returns from the involvement with the investee, and − the ability to use power over the investee to affect the amount of the investor’s returns. The following table presents the impacts of the implementation of IFRS 10 on the consolidated balance sheet as of 31 December 2013. IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts, the provisions embodied under accounting principles generally accepted in the United States of America (US GAAP) as at firsttime adoption of IFRS 4 on 1 January 2005, have been applied. cHange oF consolidated Balance sHeet as oF 31 decemBer 2013 relating to tHe implementation oF iFrs 10 € mn as of 31 December 2013 As previously reported Adoption of iFrs 10 Financial assets carried at fair value through income 7,245 (584) Investments 411,015 133 Total assets 711,530 (451) Other liabilities 36,883 (451) As reported 6,661 411,148 711,079 36,432 The condensed consolidated interim financial statements are Total liabilities 658,681 (451) 658,230 presented in millions of Euros (€ mn), unless otherwise stated. Total liabilities and equity 711,530 (451) 711,079 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 53 The adoption of IFRS 10 required the additional consolidation of cer tain investment funds, where the Allianz Group has the ability to direct the relevant asset management activities, without having a majority investment. In contrast, numerous thirdparty managed investment funds in which the Allianz Group has invested were deconsolidated to the extent that the Allianz Group cannot exercise power. Furthermore, IFRS 10 led to the deconsolidation of certain investment funds which mainly hold assets related to unitlinked contracts because investment decisions over these assets are not in the discretion of the Allianz Group. In total, these changes in the scope of consolidation led to a reduction of the balance sheet total of € 451 mn as of the date IFRS 10 was adopted. The impact of the adoption of IFRS 10 on the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consoli dated statements of cash flows is immaterial. IFRS 11, Joint Arrangements, superseded IAS 31, Interests in Joint Ventures, and SIC13, Jointly Controlled Entities – NonMonetary Con tributions by Ventures. The IFRS requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement. The IFRS classifies joint arrangements into two types: joint operations and joint ventures. For joint operations the reporting entity has to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the par ticular assets, liabilities, revenues and expenses. In contrast, for joint ventures the reporting entity has to recognize an investment and to account for that investment using the equity method in accordance with IAS 28. The application of IFRS 11 had no material impact on the financial position and the financial results of the Allianz Group. The revised version of IAS 28, Investments in Associates and Joint Ventures, superseded the former IAS 28, Investments in Associates. It defines ‘significant influence’, provides guidance on the application of the equity method of accounting and describes how impairment is assessed in associates and joint ventures. The adoption of the revised version of IAS 28 had no material impact on the financial posi tion and financial results of the Allianz Group. IFRS 12, Disclosure of Interests in Other Entities, contains disclo sure requirements previously set out in IASs 27, 28 and 31. Further more, the new standard includes disclosure requirements regarding interests in unconsolidated structured entities. The disclosure requirements defined by IFRS 12 are initially to be presented in the Annual Report 2014. otHer reclassiFications Certain priorperiod amounts have been reclassified to conform to the current period presentation. 54 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 3 – Consolidation signiFicant acquisition aFter tHe Balance sHeet date Distribution activities of the Property-Casualty insurance branch of UnipolSai Assicurazioni S.p.A. Effective 1 July 2014, the Allianz Group acquired in a first step the dis tribution activities of the PropertyCasualty insurance branch of Uni polSai Assicurazioni S.p.A., Bologna, which includes, inter alia, a network of 725 agencies and 470 employees dedicated to the manage ment of such activities. In a second step as part of the transaction, the PropertyCasualty insurance portfolio managed by the transferred agencies, with premiums equal to approximately € 1.1 Bn will be acquired. This second step shall become effective on 31 Decem ber 2014, subject to the approval by the Italian insurance regulator Istituto per la Vigilanza sulle Assicurazioni (IVASS). The acquired distribution activities including the insurance portfolio allow the Allianz Group to take a unique opportunity to fur ther increase market share in a key profitable market. The aggregate consideration to be paid amounts to a maximum of € 440 mn. It includes a oneoff payment of € 200 mn plus a contin gent consideration arrangement which requires the Allianz Group to pay the seller a certain multiple of the premiums attributable to policies renewed and transferred during a specified period after the acquisition date up to a maximum of € 240 mn. The potential amount of the future payment that the Allianz Group could be required to make under the contingent consideration arrangement is between € 0 mn and € 240 mn and is expected to be paid in January 2015. Acquisitionrelated costs in the amount of € 15 mn (including € 6 mn registration taxes and € 3 mn legal and consulting fees) are included in administrative expenses. Any resulting goodwill of the acquired business is expected to be deductible for income tax purposes. At the time the condensed consolidated interim financial state ments were authorized for issue, the initial accounting for the busi ness combination was incomplete due to the pending valuations for intangible assets, receivables from agents, other assets, agent liabil ities, current and deferred tax liabilities, other liabilities and goodwill. In addition, the Allianz Group has not yet received access to the figures relating to the purchased business for the six months ended 30 June 2014. Accordingly, at this stage, it is not possible to provide pro forma consolidated figures for gross premiums written, total reve nues and net income of the combined entity (Allianz Group includ ing the distribution activities of the PropertyCasualty insurance branch of UnipolSai Assicurazioni S.p.A.) for the six months ended 30 June 2014, as though the acquisition date had occurred on 1 Janu ary 2014. B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 4 – Segment reporting identiFication oF reportaBle segments The business activities of the Allianz Group are first organized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided into the business segments PropertyCasualty and Life/Health. In accordance with the responsibilities of the Board of Management, each of the insurance business segments is grouped into the following reportable segments: − German Speaking Countries, − Western & Southern Europe, − Iberia & Latin America, − USA, − Global Insurance Lines & Anglo Markets, − Growth Markets, − Allianz Worldwide Partners (PropertyCasualty only). Asset management activities represent a separate reportable seg ment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In total, the Allianz Group has identified 17 reportable segments in accordance with IFRS 8, Operating Segments. The types of products and services from which the reportable segments derive revenue are described below. Property-Casualty In the business segment PropertyCasualty, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, gen eral liability, fire and property, legal expense, credit and travel insurance. Life/Health In the business segment Life/Health, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annuities, endowment and term insurance, unitlinked and investmentoriented products, as well as full private health and supplemental health and longterm care insurance. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Asset Management The reportable segment Asset Management operates as a global pro vider of institutional and retail asset manage ment products and ser vices to thirdparty investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the AsiaPacific region represent the primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions. The reportable segment Banking consists of the banking activities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a pri mary focus on the latter. The reportable segment Alternative Invest ments provides global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group’s insurance operations. The reportable segment Alternative Investments also includes a fully consolidated private equity investment. The income and expenses of this investment are included in the nonoperating result. general segment reporting inFormation Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to trans actions with third par ties. Transactions between reportable segments are eliminated in the Consolidation. For the reportable segment Asset Management, inter est revenues are reported net of interest expenses. Financial infor mation is recorded based on reportable segments. Crosssegmental countryspecific information is not determined. reportaBle segments measure oF proFit or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments and the Allianz Group as a whole. Operating profit highlights the portion of income before income taxes attribut able to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s underlying operating performance and the com parability of its operating performance over time. 55 To better understand the ongoing operations of the business, the Allianz Group generally excludes the following nonoperating effects: − acquisitionrelated expenses and the amortization of intangible assets, as these relate to business combinations, − interest expenses from external debt, as these relate to the capital structure of the Allianz Group, − income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is out side the Allianz Group’s normal scope of operating business, − income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s longterm performance, − realized capital gains and losses (net) or impairments of invest ments (net), as the timing of sales that would result in such real ized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuerspecific events over which the Allianz Group has little or no control and which can and do vary, sometimes materially, through time. − oneoff effect from pension revaluation. Allianz SE has a joint liability for a large part of the pension provisions of its German subsidiaries. Service costs incurred in this context are reim bursed by the German subsidiaries of Allianz SE, resulting in corresponding service revenues at Allianz SE. Effective 1 January 2014, the German subsidiaries of Allianz SE changed the applica tion of the option provided by article 67 (1) sentence 1 of the Introductory Act to German Commercial Code (EGHGB) to dis tribute the conversion expenses due to the firsttime application of the German Accounting Law Modernization Act ( BilMoG) in 2010 over a period of up to 15 years in the way that the conversion expenses were fully recognized in the first quarter of 2014. The resulting oneoff expenses at the German subsidiaries and one off income at Allianz SE are shown as nonoperating items. In case of policyholder participation within the Life/Health insur ance business, this oneoff effect is presented within operating profit. On the Allianz Group level, the oneoff expenses and income offset each other. The only impact on the Allianz Group level is the related policyholder participation, which had a posi tive impact of € 116 mn on income before income taxes for the six months ended 30 June 2014. 56 Interim Report Second Quarter and First Half Year of 2014 Allianz Group The following exceptions apply to this general rule: − In all reportable segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income relates to operating business. − For Life/Health insurance business and PropertyCasualty insur ance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. Operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as deter mined in accordance with IFRS. recent organizational cHanges Effective 1 January 2014, the Allianz Group prospectively allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 57 Business segment inFormation – consolidated Balance sHeets Business segment inFormation – consolidated Balance sHeets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets classified as held for sale Intangible assets Total assets € mn liaBilities and equity Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities 58 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Property-Casualty as of 30 June 2014 3,621 629 92,316 15,251 – 8,542 4,692 1,195 22,467 155 2,464 151,332 Property-Casualty as of 30 June 2014 85 973 18,739 57,339 13,853 – 2,420 16,545 37 – 109,991 as of 31 December 2013 2,773 639 88,432 16,131 – 7,922 4,354 1,083 21,664 131 2,478 145,607 as of 31 December 2013 78 1,189 15,367 56,614 13,389 – 2,154 17,128 37 – 105,956 Life/Health as of 30 June 2014 7,463 5,524 341,310 89,248 86,895 4,818 17,080 234 17,595 126 3,011 573,304 Life/Health as of 30 June 2014 6,208 4,072 2,994 10,370 417,475 86,895 3,653 13,466 13 109 545,255 as of 31 December 2013 5,828 5,548 309,037 89,922 81,064 4,717 17,690 261 17,850 – 2,640 534,557 as of 31 December 2013 5,869 2,260 2,855 9,961 390,873 81,064 2,420 14,008 12 95 509,417 Asset Management as of 30 June 2014 1,382 72 115 133 – – – 158 2,562 – 6,905 11,327 Asset Management as of 30 June 2014 – 187 – – – – 2 1,928 – – 2,117 as of 31 December 2013 1,861 635 1,141 449 – – 159 167 2,188 16 7,268 13,884 as of 31 December 2013 1 1,314 – – – – 124 2,591 – 14 4,044 Corporate and Other as of 30 June 2014 1,318 464 107,048 17,014 – – – 1,445 6,690 4 702 134,685 Corporate and Other as of 30 June 2014 505 20,420 – – – – 193 25,112 12,846 10,430 69,506 as of 31 December 2013 1,497 307 103,727 18,166 – – – 1,681 7,457 – 714 133,549 as of 31 December 2013 534 21,337 – – – – 164 23,605 13,186 11,509 70,335 Consolidation as of 30 June 2014 (1,080) (447) (92,360) (7,276) – (49) – (1,426) (13,680) – – (116,318) Consolidation as of 30 June 2014 (447) (3,002) (18) (17) (194) – (1,426) (20,377) (4,806) (64) (30,351) Total equity Total liabilities and equity as of 31 December 2013 (752) (468) (91,189) (7,868) – (30) – (1,684) (14,527) – – (116,518) as of 31 December 2013 (469) (2,991) (10) (9) (190) – (1,684) (20,900) (5,205) (64) (31,522) Group as of 30 June 2014 12,704 6,242 448,429 114,370 86,895 13,311 21,772 1,606 35,634 285 13,082 754,330 Group as of 30 June 2014 6,351 22,650 21,715 67,692 431,134 86,895 4,842 36,674 8,090 10,475 696,518 57,812 754,330 as of 31 December 2013 11,207 6,661 411,148 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,079 as of 31 December 2013 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,432 8,030 11,554 658,230 52,849 711,079 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity Business segment inFormation – consolidated Balance sHeets Business segment inFormation – consolidated Balance sHeets € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 30 June 31 December 30 June 31 December 2014 2013 2014 2013 assets 1,382 1,861 1,318 1,497 (1,080) (752) 12,704 11,207 Cash and cash equivalents 3,621 2,773 7,463 5,828 Financial assets carried at fair value through income 629 639 5,524 5,548 72 635 464 307 (447) (468) 6,242 6,661 Investments 92,316 88,432 341,310 309,037 115 1,141 107,048 103,727 (92,360) (91,189) 448,429 411,148 Loans and advances to banks and customers 15,251 16,131 89,248 89,922 133 449 17,014 18,166 (7,276) (7,868) 114,370 116,800 Financial assets for unit-linked contracts – – 86,895 81,064 – – – – – – 86,895 81,064 Reinsurance assets 8,542 7,922 4,818 4,717 – – – – (49) (30) 13,311 12,609 Deferred acquisition costs 4,692 4,354 17,080 17,690 – 159 – – – – 21,772 22,203 Deferred tax assets 1,195 1,083 234 261 158 167 1,445 1,681 (1,426) (1,684) 1,606 1,508 Other assets 22,467 21,664 17,595 17,850 2,562 2,188 6,690 7,457 (13,680) (14,527) 35,634 34,632 Non-current assets classified as held for sale 155 131 126 – – 16 4 – – – 285 147 Intangible assets 2,464 2,478 3,011 2,640 6,905 7,268 702 714 – – 13,082 13,100 Total assets 151,332 145,607 573,304 534,557 11,327 13,884 134,685 133,549 (116,318) (116,518) 754,330 711,079 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of as of as of as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 as of as of 30 June 2014 31 December 30 June 31 December 30 June 2013 2014 2013 2014 liaBilities and equity – 1 505 534 (447) (469) 6,351 6,013 Financial liabilities carried at fair value through income 85 78 6,208 5,869 Liabilities to banks and customers 973 1,189 4,072 2,260 187 1,314 20,420 21,337 (3,002) (2,991) 22,650 23,109 Unearned premiums 18,739 15,367 2,994 2,855 – – – – (18) (10) 21,715 18,212 Reserves for loss and loss adjustment expenses 57,339 56,614 10,370 9,961 – – – – (17) (9) 67,692 66,566 Reserves for insurance and investment contracts 13,853 13,389 417,475 390,873 – – – – (194) (190) 431,134 404,072 Financial liabilities for unit-linked contracts – – 86,895 81,064 – – – – – – 86,895 81,064 Deferred tax liabilities 2,420 2,154 3,653 2,420 2 124 193 164 (1,426) (1,684) 4,842 3,178 Other liabilities 16,545 17,128 13,466 14,008 1,928 2,591 25,112 23,605 (20,377) (20,900) 36,674 36,432 Certificated liabilities 37 37 13 12 – – 12,846 13,186 (4,806) (5,205) 8,090 8,030 Subordinated liabilities – – 109 95 – 14 10,430 11,509 (64) (64) 10,475 11,554 Total liabilities 109,991 105,956 545,255 509,417 2,117 4,044 69,506 70,335 (30,351) (31,522) 696,518 658,230 Total equity 57,812 52,849 Total liabilities and equity 754,330 711,079 59 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) € mn Property-Casualty Life/Health three months ended 30 June 2014 2013 2014 Total revenues1 10,846 10,754 16,961 Premiums earned (net) 10,701 10,379 5,999 Operating investment result Interest and similar income 939 932 4,471 Operating income from financial assets and liabilities carried at fair value through income (net) 2 (35) (36) Operating realized gains/losses (net) 29 15 754 Interest expenses, excluding interest expenses from external debt (16) (7) (23) Operating impairments of investments (net) (1) (7) (50) Investment expenses (75) (77) (232) Subtotal 878 821 4,884 Fee and commission income 302 307 261 Other income 10 11 33 Claims and insurance benefits incurred (net) (7,086) (6,984) (5,173) Change in reserves for insurance and investment contracts (net)2 (135) (99) (3,457) Loan loss provisions – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses (3,036) (2,976) (1,448) Fee and commission expenses (279) (273) (93) Operating amortization of intangible assets – – (4) Restructuring charges (1) (1) 8 Other expenses (8) (6) (26) Operating profit (loss) 1,346 1,179 984 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (3) 23 (25) Non-operating realized gains/losses (net) 114 229 90 Non-operating impairments of investments (net) (20) (35) (2) Subtotal 91 217 63 Income from fully consolidated private equity investments (net) – – – Interest expenses from external debt – – – Acquisition-related expenses – – – Non-operating amortization of intangible assets (7) (5) (9) Non-operating items 84 212 54 Income (loss) before income taxes 1,430 1,391 1,038 Income taxes (461) (390) (307) Net income (loss) 969 1,001 731 Net income (loss) attributable to: Non-controlling interests 41 45 32 Shareholders 928 956 699 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the three months ended 30 June 2014, includes expenses for premium refunds (net) in Property- Casualty of € (72) mn (2013: € (37) mn). 60 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 14,125 5,912 4,369 (687) 718 (21) (132) (193) 4,054 168 31 (4,990) (2,928) – (1,478) (74) – (1) (25) 669 (5) 24 (6) 13 – – – (2) 11 680 (206) 474 20 454 Asset Management 2014 1,606 – 2 4 – (3) – – 3 1,972 2 – – – (932) (371) – 1 – 675 – (1) – (1) – – – (2) (3) 672 (253) 419 24 395 2013 1,815 – 10 – – (6) – – 4 2,179 2 – – – (1,009) (370) – (2) – 804 – – – – – – (16) (7) (23) 781 (293) 488 22 466 Corporate and Other 2014 132 – 230 9 – (149) – (18) 72 178 – – – (15) (295) (159) – – – (219) (2) 39 (1) 36 (5) (207) 2 (3) (177) (396) 148 (248) 6 (254) 2013 132 – 207 10 – (158) – (20) 39 175 (1) – – (15) (338) (131) – (2) (1) (274) (9) 206 (23) 174 (7) (233) – (3) (69) (343) 66 (277) – (277) Consolidation 2014 (89) – (104) 1 – 90 – 93 80 (175) – 2 (6) – 5 71 – – 8 (15) (3) 1 – (2) 5 – – – 3 (12) (1) (13) – (13) 2013 (50) – (105) 4 – 90 21 73 83 (150) (1) 2 (44) – 15 60 – – 24 (11) (2) (1) – (3) 3 – – 1 1 (10) (1) (11) – (11) Group 2014 29,456 16,700 5,538 (20) 783 (101) (51) (232) 5,917 2,538 45 (12,257) (3,598) (15) (5,706) (831) (4) 8 (26) 2,771 (33) 243 (23) 187 – (207) 2 (21) (39) 2,732 (874) 1,858 103 1,755 2013 26,776 16,291 5,413 (708) 733 (102) (118) (217) 5,001 2,679 42 (11,972) (3,071) (15) (5,786) (788) – (6) (8) 2,367 7 458 (64) 401 (4) (233) (16) (16) 132 2,499 (824) 1,675 87 1,588 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group three months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Total revenues1 10,846 10,754 16,961 14,125 1,606 1,815 132 132 (89) (50) 29,456 26,776 Premiums earned (net) 10,701 10,379 5,999 5,912 – – – – – – 16,700 16,291 Operating investment result 2 10 230 207 (104) (105) 5,538 5,413 Interest and similar income 939 932 4,471 4,369 Operating income from financial assets and liabilities carried at fair value 4 – 9 10 1 4 (20) (708) through income (net) 2 (35) (36) (687) Operating realized gains/losses (net) 29 15 754 718 – – – – – – 783 733 Interest expenses, excluding interest expenses from external debt (16) (7) (23) (21) (3) (6) (149) (158) 90 90 (101) (102) Operating impairments of investments (net) (1) (7) (50) (132) – – – – – 21 (51) (118) Investment expenses (75) (77) (232) (193) – – (18) (20) 93 73 (232) (217) Subtotal 878 821 4,884 4,054 3 4 72 39 80 83 5,917 5,001 Fee and commission income 302 307 261 168 1,972 2,179 178 175 (175) (150) 2,538 2,679 Other income 10 11 33 31 2 2 – (1) – (1) 45 42 Claims and insurance benefits incurred (net) (7,086) (6,984) (5,173) (4,990) – – – – 2 2 (12,257) (11,972) Change in reserves for insurance and investment contracts (net)2 (135) (99) (3,457) (2,928) – – – – (6) (44) (3,598) (3,071) Loan loss provisions – – – – – – (15) (15) – – (15) (15) Acquisition and administrative expenses (net), excluding acquisition-related expenses (3,036) (2,976) (1,448) (1,478) (932) (1,009) (295) (338) 5 15 (5,706) (5,786) Fee and commission expenses (279) (273) (93) (74) (371) (370) (159) (131) 71 60 (831) (788) Operating amortization of intangible assets – – (4) – – – – – – – (4) – Restructuring charges (1) (1) 8 (1) 1 (2) – (2) – – 8 (6) Other expenses (8) (6) (26) (25) – – – (1) 8 24 (26) (8) Operating profit (loss) 1,346 1,179 984 669 675 804 (219) (274) (15) (11) 2,771 2,367 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value – – (2) (9) (3) (2) (33) 7 through income (net) (3) 23 (25) (5) Non-operating realized gains/losses (net) 114 229 90 24 (1) – 39 206 1 (1) 243 458 Non-operating impairments of investments (net) (20) (35) (2) (6) – – (1) (23) – – (23) (64) Subtotal 91 217 63 13 (1) – 36 174 (2) (3) 187 401 Income from fully consolidated private equity investments (net) – – – – – – (5) (7) 5 3 – (4) Interest expenses from external debt – – – – – – (207) (233) – – (207) (233) Acquisition-related expenses – – – – – (16) 2 – – – 2 (16) Non-operating amortization of intangible assets (7) (5) (9) (2) (2) (7) (3) (3) – 1 (21) (16) Non-operating items 84 212 54 11 (3) (23) (177) (69) 3 1 (39) 132 Income (loss) before income taxes 1,430 1,391 1,038 680 672 781 (396) (343) (12) (10) 2,732 2,499 Income taxes (461) (390) (307) (206) (253) (293) 148 66 (1) (1) (874) (824) Net income (loss) 969 1,001 731 474 419 488 (248) (277) (13) (11) 1,858 1,675 Net income (loss) attributable to: 24 22 6 – – – 103 87 Non-controlling interests 41 45 32 20 Shareholders 928 956 699 454 395 466 (254) (277) (13) (11) 1,755 1,588 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating 2 For the three months ended 30 June 2014, includes expenses for premium refunds (net) in Property- revenues in Asset Management and total revenues in Corporate and Other (Banking). Casualty of € (72) mn (2013: € (37) mn). 61 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) (continued) Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) (continued) € mn Property-Casualty Life/Health six months ended 30 June 2014 2013 2014 2013 Total revenues1 26,063 25,951 34,124 28,962 Premiums earned (net) 21,111 20,691 12,275 12,272 Operating investment result Interest and similar income 1,792 1,819 8,630 8,446 Operating income from financial assets and liabilities carried at fair value through income (net) 16 (27) (305) (931) Operating realized gains/losses (net) 55 30 1,581 1,617 Interest expenses, excluding interest expenses from external debt (29) (22) (48) (40) Operating impairments of investments (net) (6) (8) (341) (194) Investment expenses (144) (145) (427) (383) Subtotal 1,684 1,647 9,090 8,515 Fee and commission income 608 597 490 308 Other income 39 19 82 80 Claims and insurance benefits incurred (net) (13,813) (13,797) (10,254) (9,816) Change in reserves for insurance and investment contracts (net)2 (260) (212) (6,771) (6,929) Loan loss provisions – – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation (5,948) (5,885) (2,701) (2,726) Fee and commission expenses (570) (548) (180) (130) Operating amortization of intangible assets – – (9) – Restructuring charges (2) (3) 8 (2) Other expenses (14) (11) (166) (48) Operating profit (loss) 2,835 2,498 1,864 1,524 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (62) 14 (25) 8 Non-operating realized gains/losses (net) 197 385 116 58 Non-operating impairments of investments (net) (77) (51) (8) (10) Subtotal 58 348 83 56 Income from fully consolidated private equity investments (net) – – – – Interest expenses from external debt – – – – Acquisition-related expenses – – – – One-off effect from pension revaluation (537) – (8) – Non-operating amortization of intangible assets (13) (8) (17) (5) Non-operating items (492) 340 58 51 Income (loss) before income taxes 2,343 2,838 1,922 1,575 Income taxes (729) (820) (562) (473) Net income (loss) 1,614 2,018 1,360 1,102 Net income (loss) attributable to: Non-controlling interests 85 88 63 43 Shareholders 1,529 1,930 1,297 1,059 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the six months ended 30 June 2014, includes expenses for premium refunds (net) in Property-Casualty of € (131) mn (2013: € (100) mn). 62 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Asset Management 2014 3,123 – 4 3 – (5) – – 2 3,833 4 – – – (1,805) (716) – 3 – 1,321 – (1) – (1) – – 3 (14) (5) (17) 1,304 (479) 825 45 780 2013 3,726 – 21 7 – (13) – – 15 4,465 5 – – – (2,017) (759) – (5) – 1,704 – – – – – – (41) – (13) (54) 1,650 (594) 1,056 48 1,008 Corporate and Other 2014 271 – 438 11 – (293) – (34) 122 345 – – – (24) (591) (293) – – – (441) (8) 56 (4) 44 (12) (411) 3 675 (5) 294 (147) 30 (117) 10 (127) 2013 280 – 489 19 – (321) – (39) 148 343 1 – – (29) (641) (243) – (90) (2) (513) (17) 288 (74) 197 (14) (474) – – (53) (344) (857) 183 (674) 2 (676) Consolidation 2014 (161) – (187) 4 (73) 176 – 174 94 (330) (2) 1 (7) – (111) 146 – – 124 (85) (6) 1 – (5) 7 – – – – 2 (83) (1) (84) – (84) 2013 (95) – (195) 3 (35) 184 21 142 120 (280) (3) 3 (29) – 19 114 – – 7 (49) (2) (6) – (8) 6 – – – 22 20 (29) 3 (26) – (26) Group 2014 63,420 33,386 10,677 (271) 1,563 (199) (347) (431) 10,992 4,946 123 (24,066) (7,038) (24) (11,156) (1,613) (9) 9 (56) 5,494 (101) 369 (89) 179 (5) (411) 6 116 (40) (155) 5,339 (1,741) 3,598 203 3,395 2013 58,824 32,963 10,580 (929) 1,612 (212) (181) (425) 10,445 5,433 102 (23,610) (7,170) (29) (11,250) (1,566) – (100) (54) 5,164 3 725 (135) 593 (8) (474) (41) – (57) 13 5,177 (1,701) 3,476 181 3,295 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) (continued) Business segment inFormation – total revenues and reconciliation oF operating proFit (loss) to net income (loss) (continued) € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group six months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Total revenues1 26,063 25,951 34,124 28,962 3,123 3,726 271 280 (161) (95) 63,420 58,824 Premiums earned (net) 21,111 20,691 12,275 12,272 – – – – – – 33,386 32,963 Operating investment result 4 21 438 489 (187) (195) 10,677 10,580 Interest and similar income 1,792 1,819 8,630 8,446 Operating income from financial assets and liabilities carried at fair value 3 7 11 19 4 3 (271) (929) through income (net) 16 (27) (305) (931) Operating realized gains/losses (net) 55 30 1,581 1,617 – – – – (73) (35) 1,563 1,612 Interest expenses, excluding interest expenses from external debt (29) (22) (48) (40) (5) (13) (293) (321) 176 184 (199) (212) Operating impairments of investments (net) (6) (8) (341) (194) – – – – – 21 (347) (181) Investment expenses (144) (145) (427) (383) – – (34) (39) 174 142 (431) (425) Subtotal 1,684 1,647 9,090 8,515 2 15 122 148 94 120 10,992 10,445 Fee and commission income 608 597 490 308 3,833 4,465 345 343 (330) (280) 4,946 5,433 Other income 39 19 82 80 4 5 – 1 (2) (3) 123 102 Claims and insurance benefits incurred (net) (13,813) (13,797) (10,254) (9,816) – – – – 1 3 (24,066) (23,610) Change in reserves for insurance and investment contracts (net)2 (260) (212) (6,771) (6,929) – – – – (7) (29) (7,038) (7,170) Loan loss provisions – – – – – – (24) (29) – – (24) (29) Acquisition and administrative expenses (net), excluding acquisition-related expenses (1,805) (2,017) (591) (641) (111) 19 (11,156) (11,250) and one-off effect from pension revaluation (5,948) (5,885) (2,701) (2,726) Fee and commission expenses (570) (548) (180) (130) (716) (759) (293) (243) 146 114 (1,613) (1,566) Operating amortization of intangible assets – – (9) – – – – – – – (9) – Restructuring charges (2) (3) 8 (2) 3 (5) – (90) – – 9 (100) Other expenses (14) (11) (166) (48) – – – (2) 124 7 (56) (54) Operating profit (loss) 2,835 2,498 1,864 1,524 1,321 1,704 (441) (513) (85) (49) 5,494 5,164 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value – – (8) (17) (6) (2) (101) 3 through income (net) (62) 14 (25) 8 Non-operating realized gains/losses (net) 197 385 116 58 (1) – 56 288 1 (6) 369 725 Non-operating impairments of investments (net) (77) (51) (8) (10) – – (4) (74) – – (89) (135) Subtotal 58 348 83 56 (1) – 44 197 (5) (8) 179 593 Income from fully consolidated private equity investments (net) – – – – – – (12) (14) 7 6 (5) (8) Interest expenses from external debt – – – – – – (411) (474) – – (411) (474) Acquisition-related expenses – – – – 3 (41) 3 – – – 6 (41) One-off effect from pension revaluation (537) – (8) – (14) – 675 – – – 116 – Non-operating amortization of intangible assets (13) (8) (17) (5) (5) (13) (5) (53) – 22 (40) (57) Non-operating items (492) 340 58 51 (17) (54) 294 (344) 2 20 (155) 13 Income (loss) before income taxes 2,343 2,838 1,922 1,575 1,304 1,650 (147) (857) (83) (29) 5,339 5,177 Income taxes (729) (820) (562) (473) (479) (594) 30 183 (1) 3 (1,741) (1,701) Net income (loss) 1,614 2,018 1,360 1,102 825 1,056 (117) (674) (84) (26) 3,598 3,476 Net income (loss) attributable to: 45 48 10 2 – – 203 181 Non-controlling interests 85 88 63 43 Shareholders 1,529 1,930 1,297 1,059 780 1,008 (127) (676) (84) (26) 3,395 3,295 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating 2 For the six months ended 30 June 2014, includes expenses for premium refunds (net) in Property-Casualty revenues in Asset Management and total revenues in Corporate and Other (Banking). of € (131) mn (2013: € (100) mn). 63 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – property-casualty reportaBle segments – property-casualty € mn three months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 1 2 3 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IfrS. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Represents acquisition and administrative expenses (net) divided by premiums earned (net). 64 Interim Report Second Quarter and First Half Year of 2014 Allianz Group German Speaking Countries Western & Southern Europe Iberia & Latin America 2014 2013 2014 2013 2014 2013 2,159 2,055 2,474 2,457 1,092 1,182 (334) (350) (165) (139) (157) (207) 707 721 166 74 24 (12) 2,532 2,426 2,475 2,392 959 963 299 289 238 245 49 52 4 (23) – 3 – 1 29 15 – – – – 31 26 9 6 – – 7 7 2 2 – – 2,902 2,740 2,724 2,648 1,008 1,016 (1,692) (1,953) (1,580) (1,449) (682) (645) (119) (81) (9) (10) – (1) (2) (4) (5) (2) – – (1) (7) – – – – (22) (22) (25) (25) (4) (4) (636) (651) (703) (654) (247) (263) (27) (22) (8) (11) – – – (1) – – – – (5) (4) (1) (1) – – (2,504) (2,745) (2,331) (2,152) (933) (913) 398 (5) 393 496 75 103 (8) 18 5 (1) 1 2 16 22 42 132 2 6 (6) (6) (10) (11) – (11) (1) – (3) (1) (1) (1) 1 34 34 119 2 (4) 399 29 427 615 77 99 (107) (9) (166) (176) (21) (29) 292 20 261 439 56 70 (1) – 2 4 2 2 293 20 259 435 54 68 66.8 80.5 63.8 60.6 71.1 67.0 25.1 26.8 28.4 27.3 25.8 27.3 91.9 107.3 92.2 87.9 96.9 94.3 4 5 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. USA1 2014 496 (29) (47) 420 58 1 – – – 479 (344) (2) – – (1) (165) – – – (512) (33) – 3 – – 3 (30) 12 (18) – (18) 81.9 39.3 121.2 2013 520 (34) (25) 461 61 – – – – 522 (297) (3) – – (1) (165) – – – (466) 56 – 2 – – 2 58 (7) 51 – 51 64.4 35.8 100.2 Global Insurance Lines & Anglo Markets 2014 2013 3,991 3,892 (885) (946) (23) 40 3,083 2,986 246 240 (2) (14) – – 149 149 – – 3,476 3,361 (1,923) (1,905) (3) (3) (9) (2) – – (21) (23) (876) (849) (124) (118) (1) – – – (2,957) (2,900) 519 461 (2) 4 49 58 (4) (7) (1) (2) 42 53 561 514 (171) (146) 390 368 30 32 360 336 62.4 63.8 28.4 28.4 90.8 92.2 Growth Markets 2014 739 (141) 5 603 40 – – 11 2 656 (459) (2) (1) – (2) (215) (10) – (2) (691) (35) – 2 – (2) – (35) – (35) 6 (41) 76.1 35.7 111.8 2013 774 (182) (11) 581 40 (2) – 21 2 642 (371) – – – (2) (208) (16) – (1) (598) 44 – 5 – (2) 3 47 (13) 34 7 27 63.9 35.8 99.7 Allianz Worldwide Partners 2014 2013 689 640 (19) (26) (41) (44) 629 570 9 8 (1) – – – 127 122 (1) – 763 700 (406) (364) – (1) – (1) – – – – (201) (189) (128) (121) – – – – (735) (676) 28 24 1 – – 4 – – – – 1 4 29 28 (8) (10) 21 18 2 – 19 18 64.5 63.8 32.0 33.2 96.5 97.0 Consolidation 2014 (794) 794 – – – – – (25) – (25) – – 1 – – 7 18 – – 26 1 – – – 1 1 2 – 2 – 2 –5 –5 –5 2013 (766) 763 3 – (3) – – (17) – (20) – – 2 – – 3 15 – – 20 – – – – 1 1 1 – 1 – 1 –5 –5 –5 Property-Casualty 2014 2013 10,846 10,754 (936) (1,121) 791 746 10,701 10,379 939 932 2 (35) 29 15 302 307 10 11 11,983 11,609 (7,086) (6,984) (135) (99) (16) (7) (1) (7) (75) (77) (3,036) (2,976) (279) (273) (1) (1) (8) (6) (10,637) (10,430) 1,346 1,179 (3) 23 114 229 (20) (35) (7) (5) 84 212 1,430 1,391 (461) (390) 969 1,001 41 45 928 956 66.2 67.3 28.4 28.7 94.6 96.0 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – property-casualty reportaBle segments – property-casualty € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America USA1 Growth Markets Allianz Worldwide Partners Consolidation Property-Casualty three months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Gross premiums written 2,159 2,055 2,474 2,457 1,092 1,182 496 520 3,991 3,892 739 774 689 640 (794) (766) 10,846 10,754 Ceded premiums written (334) (350) (165) (139) (157) (207) (29) (34) (885) (946) (141) (182) (19) (26) 794 763 (936) (1,121) Change in unearned premiums 707 721 166 74 24 (12) (47) (25) (23) 40 5 (11) (41) (44) – 3 791 746 Premiums earned (net) 2,532 2,426 2,475 2,392 959 963 420 461 3,083 2,986 603 581 629 570 – – 10,701 10,379 Interest and similar income 299 289 238 245 49 52 58 61 246 240 40 40 9 8 – (3) 939 932 Operating income from financial assets and liabilities carried at fair value 1 – (2) (14) – (2) (1) – – – 2 (35) through income (net) 4 (23) – 3 – 1 Operating realized gains/losses (net) 29 15 – – – – – – – – – – – – – – 29 15 Fee and commission income 31 26 9 6 – – – – 149 149 11 21 127 122 (25) (17) 302 307 Other income 7 7 2 2 – – – – – – 2 2 (1) – – – 10 11 Operating revenues 2,902 2,740 2,724 2,648 1,008 1,016 479 522 3,476 3,361 656 642 763 700 (25) (20) 11,983 11,609 Claims and insurance benefits incurred (net) (1,692) (1,953) (1,580) (1,449) (682) (645) (344) (297) (1,923) (1,905) (459) (371) (406) (364) – – (7,086) (6,984) Change in reserves for insurance and investment contracts (net) (119) (81) (9) (10) – (1) (2) (3) (3) (3) (2) – – (1) – – (135) (99) Interest expenses (2) (4) (5) (2) – – – – (9) (2) (1) – – (1) 1 2 (16) (7) Operating impairments of investments (net) (1) (7) – – – – – – – – – – – – – – (1) (7) Investment expenses (22) (22) (25) (25) (4) (4) (1) (1) (21) (23) (2) (2) – – – – (75) (77) Acquisition and administrative expenses (net) (636) (651) (703) (654) (247) (263) (165) (165) (876) (849) (215) (208) (201) (189) 7 3 (3,036) (2,976) Fee and commission expenses (27) (22) (8) (11) – – – – (124) (118) (10) (16) (128) (121) 18 15 (279) (273) Restructuring charges – (1) – – – – – – (1) – – – – – – – (1) (1) Other expenses (5) (4) (1) (1) – – – – – – (2) (1) – – – – (8) (6) Operating expenses (2,504) (2,745) (2,331) (2,152) (933) (913) (512) (466) (2,957) (2,900) (691) (598) (735) (676) 26 20 (10,637) (10,430) Operating profit (loss) 398 (5) 393 496 75 103 (33) 56 519 461 (35) 44 28 24 1 – 1,346 1,179 Non-operating income from financial assets and liabilities carried at fair value – – (2) 4 – – 1 – – – (3) 23 through income (net) (8) 18 5 (1) 1 2 Non-operating realized gains/losses (net) 16 22 42 132 2 6 3 2 49 58 2 5 – 4 – – 114 229 Non-operating impairments of investments (net) (6) (6) (10) (11) – (11) – – (4) (7) – – – – – – (20) (35) Amortization of intangible assets (1) – (3) (1) (1) (1) – – (1) (2) (2) (2) – – 1 1 (7) (5) Non-operating items 1 34 34 119 2 (4) 3 2 42 53 – 3 1 4 1 1 84 212 Income (loss) before income taxes 399 29 427 615 77 99 (30) 58 561 514 (35) 47 29 28 2 1 1,430 1,391 Income taxes (107) (9) (166) (176) (21) (29) 12 (7) (171) (146) – (13) (8) (10) – – (461) (390) Net income (loss) 292 20 261 439 56 70 (18) 51 390 368 (35) 34 21 18 2 1 969 1,001 Net income (loss) attributable to: – – 30 32 6 7 2 – – – 41 45 Non-controlling interests (1) – 2 4 2 2 Shareholders 293 20 259 435 54 68 (18) 51 360 336 (41) 27 19 18 2 1 928 956 Loss ratio2 in % 66.8 80.5 63.8 60.6 71.1 67.0 81.9 64.4 62.4 63.8 76.1 63.9 64.5 63.8 –5 –5 66.2 67.3 Expense ratio3 in % 25.1 26.8 28.4 27.3 25.8 27.3 39.3 35.8 28.4 28.4 35.7 35.8 32.0 33.2 –5 –5 28.4 28.7 Combined ratio4 in % 91.9 107.3 92.2 87.9 96.9 94.3 121.2 100.2 90.8 92.2 111.8 99.7 96.5 97.0 –5 –5 94.6 96.0 4 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits 1 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had incurred (net) divided by premiums earned (net). no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IfrS. 5 Presentation not meaningful. 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 65 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – property-casualty (continued) reportaBle segments – property-casualty (continued) € mn six months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) One-off effect from pension revaluation Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % 1 2 3 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IfrS. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Represents acquisition and administrative expenses (net), excluding one-off effect from pension revalu- ation, divided by premiums earned (net). 66 Interim Report Second Quarter and First Half Year of 2014 Allianz Group German Speaking Countries Western & Southern Europe Iberia & Latin America 2014 2013 2014 2013 2014 2013 7,543 7,365 5,639 5,593 2,221 2,480 (1,151) (1,152) (410) (378) (326) (385) (1,412) (1,364) (301) (485) (20) (180) 4,980 4,849 4,928 4,730 1,875 1,915 581 579 432 441 99 106 8 (19) 1 10 8 3 55 30 – – – – 60 59 19 12 – – 16 13 4 3 17 – 5,700 5,511 5,384 5,196 1,999 2,024 (3,291) (3,610) (3,142) (2,993) (1,320) (1,307) (225) (171) (22) (21) (2) (2) (4) (13) (9) (5) (1) (1) (6) (8) – – – – (45) (41) (47) (48) (7) (7) (1,261) (1,211) (1,352) (1,258) (480) (510) (54) (55) (18) (19) – – – (1) – – – – (9) (8) (2) (2) (1) – (4,895) (5,118) (4,592) (4,346) (1,811) (1,827) 805 393 792 850 188 197 (33) 9 (18) (1) 2 2 51 52 60 172 5 16 (14) (11) (54) (20) (1) (12) (530) – – – – – (1) (1) (6) (4) (1) (1) (527) 49 (18) 147 5 5 278 442 774 997 193 202 (62) (128) (290) (313) (55) (63) 216 314 484 684 138 139 (1) 1 8 8 3 3 217 313 476 676 135 136 66.1 74.4 63.8 63.3 70.4 68.3 25.3 25.0 27.4 26.6 25.6 26.6 91.4 99.4 91.2 89.9 96.0 94.9 4 5 Represents the total of acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. USA1 2014 912 (60) (27) 825 114 – – – – 939 (630) (4) – – (2) (312) – – – (948) (9) (1) 4 – – – 3 (6) 7 1 – 1 76.4 37.8 114.2 2013 972 (63) 15 924 119 (1) – – – 1,042 (601) (5) – – (2) (331) – – – (939) 103 – 6 – – – 6 109 (21) 88 – 88 65.1 35.8 100.9 Global Insurance Lines & Anglo Markets 2014 2013 9,092 8,903 (2,287) (2,406) (704) (494) 6,101 6,003 472 487 – (19) – – 294 295 – – 6,867 6,766 (3,806) (3,837) (4) (12) (14) (9) – – (39) (43) (1,733) (1,809) (249) (242) (2) (2) – – (5,847) (5,954) 1,020 812 (11) 4 74 128 (8) (7) (7) – (3) – 45 125 1,065 937 (310) (251) 755 686 58 61 697 625 62.4 64.0 28.4 30.1 90.8 94.1 Growth Markets 2014 2013 1,655 1,666 (353) (380) (104) (120) 1,198 1,166 79 81 – (1) – – 29 38 3 2 1,309 1,286 (849) (735) (3) (1) (2) (1) – – (4) (4) (433) (410) (26) (33) – – (2) (1) (1,319) (1,185) (10) 101 (1) – 3 7 – (1) – – (4) (4) (2) 2 (12) 103 (5) (30) (17) 73 15 14 (32) 59 70.9 63.0 36.1 35.2 107.0 98.2 Allianz Worldwide Partners 2014 2013 1,474 1,360 (49) (52) (221) (204) 1,204 1,104 15 15 (1) – – – 242 233 (1) 1 1,459 1,353 (775) (714) – – – (1) – – – – (388) (364) (247) (232) – – – – (1,410) (1,311) 49 42 – – – 4 – – – – – – – 4 49 46 (14) (14) 35 32 2 1 33 31 64.4 64.6 32.2 33.0 96.6 97.6 Consolidation 2014 2013 (2,473) (2,388) 2,473 2,385 – 3 – – – (9) – – – – (36) (40) – – (36) (49) – – – – 1 8 – – – – 11 8 24 33 – – – – 36 49 – – – – – – – – – – 2 2 2 2 2 2 – – 2 2 – – 2 2 –5 –5 –5 –5 –5 –5 Property-Casualty 2014 2013 26,063 25,951 (2,163) (2,431) (2,789) (2,829) 21,111 20,691 1,792 1,819 16 (27) 55 30 608 597 39 19 23,621 23,129 (13,813) (13,797) (260) (212) (29) (22) (6) (8) (144) (145) (5,948) (5,885) (570) (548) (2) (3) (14) (11) (20,786) (20,631) 2,835 2,498 (62) 14 197 385 (77) (51) (537) – (13) (8) (492) 340 2,343 2,838 (729) (820) 1,614 2,018 85 88 1,529 1,930 65.4 66.7 28.2 28.4 93.6 95.1 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – property-casualty (continued) reportaBle segments – property-casualty (continued) € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America USA1 Growth Markets Allianz Worldwide Partners Consolidation Property-Casualty six months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Gross premiums written 7,543 7,365 5,639 5,593 2,221 2,480 912 972 9,092 8,903 1,655 1,666 1,474 1,360 (2,473) (2,388) 26,063 25,951 Ceded premiums written (1,151) (1,152) (410) (378) (326) (385) (60) (63) (2,287) (2,406) (353) (380) (49) (52) 2,473 2,385 (2,163) (2,431) Change in unearned premiums (1,412) (1,364) (301) (485) (20) (180) (27) 15 (704) (494) (104) (120) (221) (204) – 3 (2,789) (2,829) Premiums earned (net) 4,980 4,849 4,928 4,730 1,875 1,915 825 924 6,101 6,003 1,198 1,166 1,204 1,104 – – 21,111 20,691 Interest and similar income 581 579 432 441 99 106 114 119 472 487 79 81 15 15 – (9) 1,792 1,819 Operating income from financial assets and liabilities carried at fair value – (1) – (19) – (1) (1) – – – 16 (27) through income (net) 8 (19) 1 10 8 3 Operating realized gains/losses (net) 55 30 – – – – – – – – – – – – – – 55 30 Fee and commission income 60 59 19 12 – – – – 294 295 29 38 242 233 (36) (40) 608 597 Other income 16 13 4 3 17 – – – – – 3 2 (1) 1 – – 39 19 Operating revenues 5,700 5,511 5,384 5,196 1,999 2,024 939 1,042 6,867 6,766 1,309 1,286 1,459 1,353 (36) (49) 23,621 23,129 Claims and insurance benefits incurred (net) (3,291) (3,610) (3,142) (2,993) (1,320) (1,307) (630) (601) (3,806) (3,837) (849) (735) (775) (714) – – (13,813) (13,797) Change in reserves for insurance and investment contracts (net) (225) (171) (22) (21) (2) (2) (4) (5) (4) (12) (3) (1) – – – – (260) (212) Interest expenses (4) (13) (9) (5) (1) (1) – – (14) (9) (2) (1) – (1) 1 8 (29) (22) Operating impairments of investments (net) (6) (8) – – – – – – – – – – – – – – (6) (8) Investment expenses (45) (41) (47) (48) (7) (7) (2) (2) (39) (43) (4) (4) – – – – (144) (145) Acquisition and administrative expenses (net), excluding one-off effect (312) (331) (1,733) (1,809) (433) (410) (388) (364) 11 8 (5,948) (5,885) from pension revaluation (1,261) (1,211) (1,352) (1,258) (480) (510) Fee and commission expenses (54) (55) (18) (19) – – – – (249) (242) (26) (33) (247) (232) 24 33 (570) (548) Restructuring charges – (1) – – – – – – (2) (2) – – – – – – (2) (3) Other expenses (9) (8) (2) (2) (1) – – – – – (2) (1) – – – – (14) (11) Operating expenses (4,895) (5,118) (4,592) (4,346) (1,811) (1,827) (948) (939) (5,847) (5,954) (1,319) (1,185) (1,410) (1,311) 36 49 (20,786) (20,631) Operating profit (loss) 805 393 792 850 188 197 (9) 103 1,020 812 (10) 101 49 42 – – 2,835 2,498 Non-operating income from financial assets and liabilities carried at fair value (1) – (11) 4 (1) – – – – – (62) 14 through income (net) (33) 9 (18) (1) 2 2 Non-operating realized gains/losses (net) 51 52 60 172 5 16 4 6 74 128 3 7 – 4 – – 197 385 Non-operating impairments of investments (net) (14) (11) (54) (20) (1) (12) – – (8) (7) – (1) – – – – (77) (51) One-off effect from pension revaluation (530) – – – – – – – (7) – – – – – – – (537) – Amortization of intangible assets (1) (1) (6) (4) (1) (1) – – (3) – (4) (4) – – 2 2 (13) (8) Non-operating items (527) 49 (18) 147 5 5 3 6 45 125 (2) 2 – 4 2 2 (492) 340 Income (loss) before income taxes 278 442 774 997 193 202 (6) 109 1,065 937 (12) 103 49 46 2 2 2,343 2,838 Income taxes (62) (128) (290) (313) (55) (63) 7 (21) (310) (251) (5) (30) (14) (14) – – (729) (820) Net income (loss) 216 314 484 684 138 139 1 88 755 686 (17) 73 35 32 2 2 1,614 2,018 Net income (loss) attributable to: Non-controlling interests (1) 1 8 8 3 3 – – 58 61 15 14 2 1 – – 85 88 Shareholders 217 313 476 676 135 136 1 88 697 625 (32) 59 33 31 2 2 1,529 1,930 Loss ratio2 in % 66.1 74.4 63.8 63.3 70.4 68.3 76.4 65.1 62.4 64.0 70.9 63.0 64.4 64.6 –5 –5 65.4 66.7 Expense ratio3 in % 25.3 25.0 27.4 26.6 25.6 26.6 37.8 35.8 28.4 30.1 36.1 35.2 32.2 33.0 –5 –5 28.2 28.4 Combined ratio4 in % 91.4 99.4 91.2 89.9 96.0 94.9 114.2 100.9 90.8 94.1 107.0 98.2 96.6 97.6 –5 –5 93.6 95.1 4 Represents the total of acquisition and administrative expenses (net), excluding one-off effect from 1 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IfrS. 5 Presentation not meaningful. 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents acquisition and administrative expenses (net), excluding one-off effect from pension revalu- ation, divided by premiums earned (net). 67 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – liFe/HealtH reportaBle segments – liFe/HealtH € mn three months ended 30 June Statutory premiums1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Non-operating amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Margin on reserves2 in basis points 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 68 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2 3 German Speaking Countries Western & Southern Europe 2014 2013 2014 2013 5,624 4,845 5,956 5,514 (35) (43) (183) (273) (47) (41) 4 12 5,542 4,761 5,777 5,253 (1,888) (1,177) (4,574) (4,134) 3,654 3,584 1,203 1,119 2,397 2,323 1,047 1,053 157 (508) (23) 59 602 519 144 122 21 14 129 111 27 27 5 4 6,858 5,959 2,505 2,468 (3,498) (2,996) (1,052) (1,073) (2,329) (2,020) (594) (579) (20) (28) (3) (8) (36) (101) (12) (29) (152) (127) (64) (49) (384) (412) (504) (439) (10) (5) (58) (58) (4) – – – – – – (1) (21) (23) (3) (2) (6,454) (5,712) (2,290) (2,238) 404 247 215 230 – – – (5) – – 88 18 – – (2) (4) – (1) (3) – – (1) 83 9 404 246 298 239 (140) (96) (74) (58) 264 150 224 181 – – 12 7 264 150 212 174 68 45 57 67 Represents annualized operating profit divided by the average of the current quarter-end and previous quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Iberia & Latin America 2014 2013 452 557 (4) (3) 3 5 451 559 (257) (312) 194 247 91 91 15 (4) 1 4 35 1 – – 336 339 (157) (198) (51) (45) – – (1) (1) (2) (2) (54) (52) (17) – – – – – – – (282) (298) 54 41 – – – – – – (4) – (4) – 50 41 (15) (13) 35 28 9 5 26 23 247 215 USA 2014 3,352 (27) (4) 3,321 (3,089) 232 709 (183) 2 29 – 789 (21) (304) (2) – (8) (246) (5) – – – (586) 203 (25) – – – (25) 178 (54) 124 – 124 108 2013 1,788 (29) (3) 1,756 (1,536) 220 691 (177) 62 21 – 817 (22) (346) (1) – (9) (329) (10) – – – (717) 100 – 1 – – 1 101 (23) 78 – 78 56 Global Insurance Lines & Anglo Markets 2014 2013 141 134 (46) (20) 7 (4) 102 110 – – 102 110 14 22 – (36) – – – – – – 116 96 (78) (84) (1) – – (1) – – – – (19) (26) – – – – – – – – (98) (111) 18 (15) – – – – – – – – – – 18 (15) (4) 1 14 (14) – – 14 (14) 380 (320) Growth Markets 2014 1,615 (108) (21) 1,486 (872) 614 223 (1) 4 48 1 889 (367) (178) (8) (1) (6) (242) (3) – 8 (2) (799) 90 – 2 – (2) – 90 (20) 70 11 59 132 2013 1,578 (74) (19) 1,485 (853) 632 207 (19) 11 22 – 853 (617) 62 (2) (1) (6) (222) (1) – – – (787) 66 – 5 (2) (1) 2 68 (17) 51 8 43 99 Consolidation 2014 (179) 179 – – – – (10) (1) 1 (1) – (11) – – 10 – – 1 – – – – 11 – – – – – – – – – – – –3 2013 (291) 291 – – – – (18) (2) – (1) – (21) – – 19 – – 2 – – – – 21 – – – – – – – – – – – –3 Life/Health 2014 16,961 (224) (58) 16,679 (10,680) 5,999 4,471 (36) 754 261 33 11,482 (5,173) (3,457) (23) (50) (232) (1,448) (93) (4) 8 (26) (10,498) 984 (25) 90 (2) (9) 54 1,038 (307) 731 32 699 79 2013 14,125 (151) (50) 13,924 (8,012) 5,912 4,369 (687) 718 168 31 10,511 (4,990) (2,928) (21) (132) (193) (1,478) (74) – (1) (25) (9,842) 669 (5) 24 (6) (2) 11 680 (206) 474 20 454 58 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – liFe/HealtH reportaBle segments – liFe/HealtH € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health three months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Statutory premiums1 5,624 4,845 5,956 5,514 452 557 3,352 1,788 141 134 1,615 1,578 (179) (291) 16,961 14,125 Ceded premiums written (35) (43) (183) (273) (4) (3) (27) (29) (46) (20) (108) (74) 179 291 (224) (151) Change in unearned premiums (47) (41) 4 12 3 5 (4) (3) 7 (4) (21) (19) – – (58) (50) Statutory premiums (net) 5,542 4,761 5,777 5,253 451 559 3,321 1,756 102 110 1,486 1,485 – – 16,679 13,924 Deposits from insurance and investment contracts (1,888) (1,177) (4,574) (4,134) (257) (312) (3,089) (1,536) – – (872) (853) – – (10,680) (8,012) Premiums earned (net) 3,654 3,584 1,203 1,119 194 247 232 220 102 110 614 632 – – 5,999 5,912 Interest and similar income 2,397 2,323 1,047 1,053 91 91 709 691 14 22 223 207 (10) (18) 4,471 4,369 Operating income from financial assets and liabilities carried at fair value through income (net) 157 (508) (23) 59 15 (4) (183) (177) – (36) (1) (19) (1) (2) (36) (687) Operating realized gains/losses (net) 602 519 144 122 1 4 2 62 – – 4 11 1 – 754 718 Fee and commission income 21 14 129 111 35 1 29 21 – – 48 22 (1) (1) 261 168 Other income 27 27 5 4 – – – – – – 1 – – – 33 31 Operating revenues 6,858 5,959 2,505 2,468 336 339 789 817 116 96 889 853 (11) (21) 11,482 10,511 Claims and insurance benefits incurred (net) (3,498) (2,996) (1,052) (1,073) (157) (198) (21) (22) (78) (84) (367) (617) – – (5,173) (4,990) Change in reserves for insurance and investment contracts (net) (2,329) (2,020) (594) (579) (51) (45) (304) (346) (1) – (178) 62 – – (3,457) (2,928) Interest expenses (20) (28) (3) (8) – – (2) (1) – (1) (8) (2) 10 19 (23) (21) Operating impairments of investments (net) (36) (101) (12) (29) (1) (1) – – – – (1) (1) – – (50) (132) Investment expenses (152) (127) (64) (49) (2) (2) (8) (9) – – (6) (6) – – (232) (193) Acquisition and administrative expenses (net) (384) (412) (504) (439) (54) (52) (246) (329) (19) (26) (242) (222) 1 2 (1,448) (1,478) Fee and commission expenses (10) (5) (58) (58) (17) – (5) (10) – – (3) (1) – – (93) (74) Operating amortization of intangible assets (4) – – – – – – – – – – – – – (4) – Restructuring charges – – – (1) – – – – – – 8 – – – 8 (1) Other expenses (21) (23) (3) (2) – – – – – – (2) – – – (26) (25) Operating expenses (6,454) (5,712) (2,290) (2,238) (282) (298) (586) (717) (98) (111) (799) (787) 11 21 (10,498) (9,842) Operating profit (loss) 404 247 215 230 54 41 203 100 18 (15) 90 66 – – 984 669 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – – (5) – – (25) – – – – – – – (25) (5) Non-operating realized gains/losses (net) – – 88 18 – – – 1 – – 2 5 – – 90 24 Non-operating impairments of investments (net) – – (2) (4) – – – – – – – (2) – – (2) (6) Non-operating amortization of intangible assets – (1) (3) – (4) – – – – – (2) (1) – – (9) (2) Non-operating items – (1) 83 9 (4) – (25) 1 – – – 2 – – 54 11 Income (loss) before income taxes 404 246 298 239 50 41 178 101 18 (15) 90 68 – – 1,038 680 Income taxes (140) (96) (74) (58) (15) (13) (54) (23) (4) 1 (20) (17) – – (307) (206) Net income (loss) 264 150 224 181 35 28 124 78 14 (14) 70 51 – – 731 474 Net income (loss) attributable to: 9 5 – – – – 11 8 – – 32 20 Non-controlling interests – – 12 7 Shareholders 264 150 212 174 26 23 124 78 14 (14) 59 43 – – 699 454 Margin on reserves2 in basis points 68 45 57 67 247 215 108 56 380 (320) 132 99 –3 –3 79 58 2 Represents annualized operating profit divided by the average of the current quarter-end and previous 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with quarter-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, the statutory accounting practices applicable in the insurer’s home jurisdiction. reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 Presentation not meaningful. 69 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – liFe/HealtH (continued) reportaBle segments – liFe/HealtH (continued) € mn six months ended 30 June Statutory premiums1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) One-off effect from pension revaluation Non-operating amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Margin on reserves2 in basis points 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 70 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2 3 German Speaking Countries Western & Southern Europe 2014 2013 2014 2013 12,480 11,173 12,083 10,642 (74) (88) (780) (617) (109) (71) (10) (1) 12,297 11,014 11,293 10,024 (4,580) (3,226) (8,937) (7,787) 7,717 7,788 2,356 2,237 4,661 4,526 1,938 1,944 188 (532) (73) 101 1,100 1,233 450 264 40 26 247 203 69 60 10 20 13,775 13,101 4,928 4,769 (7,017) (6,193) (2,050) (2,047) (4,595) (4,994) (1,083) (1,146) (45) (51) (8) (14) (149) (140) (189) (52) (280) (250) (113) (99) (769) (766) (924) (848) (19) (12) (111) (105) (9) – – – – (1) – (1) (155) (43) (6) (5) (13,038) (12,450) (4,484) (4,317) 737 651 444 452 – – (4) (1) – – 113 39 – – (7) (7) (8) – – – – (1) (6) – (8) (1) 96 31 729 650 540 483 (249) (244) (132) (116) 480 406 408 367 – – 21 13 480 406 387 354 63 60 60 67 Represents annualized operating profit divided by the average of the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Iberia & Latin America 2014 2013 928 994 (8) (13) (31) (25) 889 956 (546) (578) 343 378 185 183 16 2 5 6 69 2 – – 618 571 (296) (337) (73) (49) (1) (1) (1) (1) (3) (3) (104) (100) (34) – – – – – – – (512) (491) 106 80 – – – – – – – – (8) – (8) – 98 80 (29) (24) 69 56 18 11 51 45 247 209 USA 2014 5,908 (56) (7) 5,845 (5,386) 459 1,401 (428) 11 52 – 1,495 (46) (642) (4) – (18) (404) (9) – – – (1,123) 372 (21) – – – – (21) 351 (108) 243 – 243 100 2013 3,350 (59) (4) 3,287 (2,859) 428 1,369 (428) 81 37 – 1,487 (44) (663) (3) – (17) (546) (13) – – – (1,286) 201 9 1 – – – 10 211 (53) 158 – 158 58 Global Insurance Lines & Anglo Markets 2014 2013 267 266 (59) (31) (24) (4) 184 231 – – 184 231 33 41 (5) (54) – – – – – – 212 218 (153) (182) 14 5 (1) (1) – – – – (43) (48) – – – – – – – – (183) (226) 29 (8) – – – – – – – – – – – – 29 (8) (7) (1) 22 (9) – – 22 (9) 302 (81) Growth Markets 2014 2013 3,231 3,176 (182) (139) (60) (59) 2,989 2,978 (1,773) (1,768) 1,216 1,210 438 417 (5) (14) 14 33 83 42 3 – 1,749 1,688 (692) (1,013) (392) (82) (15) (4) (2) (1) (13) (14) (458) (421) (7) (1) – – 8 – (5) – (1,576) (1,536) 173 152 – – 3 18 (1) (3) – – (3) (4) (1) 11 172 163 (37) (35) 135 128 24 19 111 109 128 114 Consolidation 2014 (773) 773 – – – – (26) 2 1 (1) – (24) – – 26 – – 1 – – – – 27 3 – – – – – – 3 – 3 – 3 –3 2013 (639) 639 – – – – (34) (6) – (2) – (42) – – 34 – – 3 1 – – – 38 (4) – – – – – – (4) – (4) – (4) –3 Life/Health 2014 2013 34,124 28,962 (386) (308) (241) (164) 33,497 28,490 (21,222) (16,218) 12,275 12,272 8,630 8,446 (305) (931) 1,581 1,617 490 308 82 80 22,753 21,792 (10,254) (9,816) (6,771) (6,929) (48) (40) (341) (194) (427) (383) (2,701) (2,726) (180) (130) (9) – 8 (2) (166) (48) (20,889) (20,268) 1,864 1,524 (25) 8 116 58 (8) (10) (8) – (17) (5) 58 51 1,922 1,575 (562) (473) 1,360 1,102 63 43 1,297 1,059 76 66 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – liFe/HealtH (continued) reportaBle segments – liFe/HealtH (continued) € mn Global Insurance Lines & Anglo Markets German Speaking Countries Western & Southern Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health six months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Statutory premiums1 12,480 11,173 12,083 10,642 928 994 5,908 3,350 267 266 3,231 3,176 (773) (639) 34,124 28,962 Ceded premiums written (74) (88) (780) (617) (8) (13) (56) (59) (59) (31) (182) (139) 773 639 (386) (308) Change in unearned premiums (109) (71) (10) (1) (31) (25) (7) (4) (24) (4) (60) (59) – – (241) (164) Statutory premiums (net) 12,297 11,014 11,293 10,024 889 956 5,845 3,287 184 231 2,989 2,978 – – 33,497 28,490 Deposits from insurance and investment contracts (4,580) (3,226) (8,937) (7,787) (546) (578) (5,386) (2,859) – – (1,773) (1,768) – – (21,222) (16,218) Premiums earned (net) 7,717 7,788 2,356 2,237 343 378 459 428 184 231 1,216 1,210 – – 12,275 12,272 Interest and similar income 4,661 4,526 1,938 1,944 185 183 1,401 1,369 33 41 438 417 (26) (34) 8,630 8,446 Operating income from financial assets and liabilities carried at fair value through income (net) 188 (532) (73) 101 16 2 (428) (428) (5) (54) (5) (14) 2 (6) (305) (931) Operating realized gains/losses (net) 1,100 1,233 450 264 5 6 11 81 – – 14 33 1 – 1,581 1,617 Fee and commission income 40 26 247 203 69 2 52 37 – – 83 42 (1) (2) 490 308 Other income 69 60 10 20 – – – – – – 3 – – – 82 80 Operating revenues 13,775 13,101 4,928 4,769 618 571 1,495 1,487 212 218 1,749 1,688 (24) (42) 22,753 21,792 Claims and insurance benefits incurred (net) (7,017) (6,193) (2,050) (2,047) (296) (337) (46) (44) (153) (182) (692) (1,013) – – (10,254) (9,816) Change in reserves for insurance and investment contracts (net) (4,595) (4,994) (1,083) (1,146) (73) (49) (642) (663) 14 5 (392) (82) – – (6,771) (6,929) Interest expenses (45) (51) (8) (14) (1) (1) (4) (3) (1) (1) (15) (4) 26 34 (48) (40) Operating impairments of investments (net) (149) (140) (189) (52) (1) (1) – – – – (2) (1) – – (341) (194) Investment expenses (280) (250) (113) (99) (3) (3) (18) (17) – – (13) (14) – – (427) (383) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation (769) (766) (924) (848) (104) (100) (404) (546) (43) (48) (458) (421) 1 3 (2,701) (2,726) Fee and commission expenses (19) (12) (111) (105) (34) – (9) (13) – – (7) (1) – 1 (180) (130) Operating amortization of intangible assets (9) – – – – – – – – – – – – – (9) – Restructuring charges – (1) – (1) – – – – – – 8 – – – 8 (2) Other expenses (155) (43) (6) (5) – – – – – – (5) – – – (166) (48) Operating expenses (13,038) (12,450) (4,484) (4,317) (512) (491) (1,123) (1,286) (183) (226) (1,576) (1,536) 27 38 (20,889) (20,268) Operating profit (loss) 737 651 444 452 106 80 372 201 29 (8) 173 152 3 (4) 1,864 1,524 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (4) (1) – – (21) 9 – – – – – – (25) 8 Non-operating realized gains/losses (net) – – 113 39 – – – 1 – – 3 18 – – 116 58 Non-operating impairments of investments (net) – – (7) (7) – – – – – – (1) (3) – – (8) (10) One-off effect from pension revaluation (8) – – – – – – – – – – – – – (8) – Non-operating amortization of intangible assets – (1) (6) – (8) – – – – – (3) (4) – – (17) (5) Non-operating items (8) (1) 96 31 (8) – (21) 10 – – (1) 11 – – 58 51 Income (loss) before income taxes 729 650 540 483 98 80 351 211 29 (8) 172 163 3 (4) 1,922 1,575 Income taxes (249) (244) (132) (116) (29) (24) (108) (53) (7) (1) (37) (35) – – (562) (473) Net income (loss) 480 406 408 367 69 56 243 158 22 (9) 135 128 3 (4) 1,360 1,102 Net income (loss) attributable to: 18 11 – – – – 24 19 – – 63 43 Non-controlling interests – – 21 13 Shareholders 480 406 387 354 51 45 243 158 22 (9) 111 109 3 (4) 1,297 1,059 Margin on reserves2 in basis points 63 60 60 67 247 209 100 58 302 (81) 128 114 –3 –3 76 66 2 Represents annualized operating profit divided by the average of the current quarter-end and previous 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance the statutory accounting practices applicable in the insurer’s home jurisdiction. assets. 3 Presentation not meaningful. 71 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – asset management reportaBle segments – asset management € mn three months ended 30 June Net fee and commission income1 Net interest income2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding aquisition-related expenses Restructuring charges Operating expenses Operating profit Realized gains/losses (net) Acquisition-related expenses Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. 72 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2014 1,601 (1) 4 2 1,606 (932) 1 (931) 675 (1) – (2) (3) 672 (253) 419 24 395 58.0 2013 1,809 4 – 2 1,815 (1,009) (2) (1,011) 804 – (16) (7) (23) 781 (293) 488 22 466 55.7 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity reportaBle segments – asset management (continued) reportaBle segments – asset management (continued) € mn six months ended 30 June Net fee and commission income1 Net interest income2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding aquisition-related expenses and one-off effect from pension revaluation Restructuring charges Operating expenses Operating profit Realized gains/losses (net) Acquisition-related expenses One-off effect from pension revaluation Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 51 53 Consolidated Statements of Cash Flows Notes 2014 3,117 (1) 3 4 3,123 (1,805) 3 (1,802) 1,321 (1) 3 (14) (5) (17) 1,304 (479) 825 45 780 57.7 2013 3,706 8 7 5 3,726 (2,017) (5) (2,022) 1,704 – (41) – (13) (54) 1,650 (594) 1,056 48 1,008 54.3 73 reportaBle segments – corporate and otHer reportaBle segments – corporate and otHer € mn three months ended 30 June Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Other income Operating revenues Interest expenses, excluding interest expenses from external debt Loan loss provisions Investment expenses Administrative expenses (net), excluding aquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Impairments of investments (net) Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, 74 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Holding & Treasury 2014 74 7 15 – 96 (84) – (17) (161) (78) – – (340) (244) (2) 34 (1) – (207) 2 (3) (177) (421) 163 (258) – (258) other income, interest expenses, excluding interest expenses from external debt, and fee and commission expenses. 2013 53 7 10 – 70 (86) – (20) (184) (57) – – (347) (277) (10) 201 (22) – (233) – (3) (67) (344) 64 (280) – (280) Banking 2014 149 4 125 – 278 (65) (15) – (100) (81) – – (261) 17 – 5 – – – – – 5 22 (8) 14 2 12 75.8 2013 154 3 125 (2) 280 (72) (15) – (117) (74) (2) (1) (281) (1) – 5 (1) – – – – 4 3 – 3 1 2 89.6 Alternative Investments 2014 8 (2) 39 – 45 (1) – (2) (34) – – – (37) 8 – – – (5) – – – (5) 3 (7) (4) 4 (8) 2013 – – 41 1 42 – – (1) (37) – – – (38) 4 1 – – (7) – – – (6) (2) 2 – (1) 1 Consolidation 2014 (1) – (1) – (2) 1 – 1 – – – – 2 – – – – – – – – – – – – – – 2013 – – (1) – (1) – – 1 – – – – 1 – – – – – – – – – – – – – – Corporate and Other 2014 230 9 178 – 417 (149) (15) (18) (295) (159) – – (636) (219) (2) 39 (1) (5) (207) 2 (3) (177) (396) 148 (248) 6 (254) 2013 207 10 175 (1) 391 (158) (15) (20) (338) (131) (2) (1) (665) (274) (9) 206 (23) (7) (233) – (3) (69) (343) 66 (277) – (277) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – corporate and otHer reportaBle segments – corporate and otHer € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other three months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Interest and similar income 74 53 149 154 8 – (1) – 230 207 Operating income from financial assets and liabilities carried at fair value through income (net) 7 7 4 3 (2) – – – 9 10 Fee and commission income 15 10 125 125 39 41 (1) (1) 178 175 Other income – – – (2) – 1 – – – (1) Operating revenues 96 70 278 280 45 42 (2) (1) 417 391 Interest expenses, excluding interest expenses from external debt (84) (86) (65) (72) (1) – 1 – (149) (158) Loan loss provisions – – (15) (15) – – – – (15) (15) Investment expenses (17) (20) – – (2) (1) 1 1 (18) (20) Administrative expenses (net), excluding aquisition-related expenses (161) (184) (100) (117) (34) (37) – – (295) (338) Fee and commission expenses (78) (57) (81) (74) – – – – (159) (131) Restructuring charges – – – (2) – – – – – (2) Other expenses – – – (1) – – – – – (1) Operating expenses (340) (347) (261) (281) (37) (38) 2 1 (636) (665) Operating profit (loss) (244) (277) 17 (1) 8 4 – – (219) (274) Non-operating income from financial assets and liabilities carried at fair value through income (net) (2) (10) – – – 1 – – (2) (9) Realized gains/losses (net) 34 201 5 5 – – – – 39 206 Impairments of investments (net) (1) (22) – (1) – – – – (1) (23) Income from fully consolidated private equity investments (net) – – – – (5) (7) – – (5) (7) Interest expenses from external debt (207) (233) – – – – – – (207) (233) Acquisition-related expenses 2 – – – – – – – 2 – Amortization of intangible assets (3) (3) – – – – – – (3) (3) Non-operating items (177) (67) 5 4 (5) (6) – – (177) (69) Income (loss) before income taxes (421) (344) 22 3 3 (2) – – (396) (343) Income taxes 163 64 (8) – (7) 2 – – 148 66 Net income (loss) (258) (280) 14 3 (4) – – – (248) (277) Net income (loss) attributable to: 2 1 4 (1) – – 6 – Non-controlling interests – – Shareholders (258) (280) 12 2 (8) 1 – – (254) (277) Cost-income ratio1 for the reportable segment Banking in % 75.8 89.6 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, other income, interest expenses, excluding interest expenses from external debt, and fee and commission restructuring charges and other expenses divided by interest and similar income, operating income from expenses. financial assets and liabilities carried at fair value through income (net), fee and commission income, 75 Interim Report Second Quarter and First Half Year of 2014 Allianz Group reportaBle segments – corporate and otHer (continued) reportaBle segments – corporate and otHer (continued) € mn Holding & Treasury six months ended 30 June 2014 Interest and similar income 128 Operating income from financial assets and liabilities carried at fair value through income (net) 7 Fee and commission income 29 Other income – Operating revenues 164 Interest expenses, excluding interest expenses from external debt (162) Loan loss provisions – Investment expenses (31) Administrative expenses (net), excluding aquisition-related expenses and one-off effect from pension revaluation (316) Fee and commission expenses (147) Restructuring charges – Other expenses – Operating expenses (656) Operating profit (loss) (492) Non-operating income from financial assets and liabilities carried at fair value through income (net) (7) Realized gains/losses (net) 52 Impairments of investments (net) (4) Income from fully consolidated private equity investments (net) – Interest expenses from external debt (411) Acquisition-related expenses 3 One-off effect from pension revaluation 679 Amortization of intangible assets (5) Non-operating items 307 Income (loss) before income taxes (185) Income taxes 49 Net income (loss) (136) Net income (loss) attributable to: Non-controlling interests – Shareholders (136) Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt, and fee and commission expenses. 76 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 174 14 20 – 208 (175) – (38) (330) (109) – – (652) (444) (17) 253 (73) – (474) – – (7) (318) (762) 167 (595) – (595) Banking 2014 299 6 241 – 546 (131) (24) – (210) (146) – – (511) 35 – 4 – – – – (1) – 3 38 (13) 25 4 21 78.1 2013 311 5 245 – 561 (145) (29) – (245) (134) (90) (2) (645) (84) – 8 (1) – – – – – 7 (77) 24 (53) 3 (56) 119.5 Alternative Investments 2014 12 (2) 76 – 86 (1) – (4) (65) – – – (70) 16 (1) – – (12) – – (3) – (16) – (6) (6) 6 (12) 2013 4 – 80 2 86 (1) – (2) (68) – – – (71) 15 – – – (14) – – – (46) (60) (45) (3) (48) (1) (47) Consolidation 2014 (1) – (1) – (2) 1 – 1 – – – – 2 – – – – – – – – – – – – – – – 2013 – – (2) (1) (3) – – 1 2 – – – 3 – – 27 – – – – – – 27 27 (5) 22 – 22 Corporate and Other 2014 438 11 345 – 794 (293) (24) (34) (591) (293) – – (1,235) (441) (8) 56 (4) (12) (411) 3 675 (5) 294 (147) 30 (117) 10 (127) 2013 489 19 343 1 852 (321) (29) (39) (641) (243) (90) (2) (1,365) (513) (17) 288 (74) (14) (474) – – (53) (344) (857) 183 (674) 2 (676) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reportaBle segments – corporate and otHer (continued) reportaBle segments – corporate and otHer (continued) € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other six months ended 30 June 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Interest and similar income 128 174 299 311 12 4 (1) – 438 489 Operating income from financial assets and liabilities carried at fair value through income (net) 7 14 6 5 (2) – – – 11 19 Fee and commission income 29 20 241 245 76 80 (1) (2) 345 343 Other income – – – – – 2 – (1) – 1 Operating revenues 164 208 546 561 86 86 (2) (3) 794 852 Interest expenses, excluding interest expenses from external debt (162) (175) (131) (145) (1) (1) 1 – (293) (321) Loan loss provisions – – (24) (29) – – – – (24) (29) Investment expenses (31) (38) – – (4) (2) 1 1 (34) (39) Administrative expenses (net), excluding aquisition-related expenses and one-off effect from pension revaluation (316) (330) (210) (245) (65) (68) – 2 (591) (641) Fee and commission expenses (147) (109) (146) (134) – – – – (293) (243) Restructuring charges – – – (90) – – – – – (90) Other expenses – – – (2) – – – – – (2) Operating expenses (656) (652) (511) (645) (70) (71) 2 3 (1,235) (1,365) Operating profit (loss) (492) (444) 35 (84) 16 15 – – (441) (513) Non-operating income from financial assets and liabilities carried at fair value through income (net) (7) (17) – – (1) – – – (8) (17) Realized gains/losses (net) 52 253 4 8 – – – 27 56 288 Impairments of investments (net) (4) (73) – (1) – – – – (4) (74) Income from fully consolidated private equity investments (net) – – – – (12) (14) – – (12) (14) Interest expenses from external debt (411) (474) – – – – – – (411) (474) Acquisition-related expenses 3 – – – – – – – 3 – One-off effect from pension revaluation 679 – (1) – (3) – – – 675 – Amortization of intangible assets (5) (7) – – – (46) – – (5) (53) Non-operating items 307 (318) 3 7 (16) (60) – 27 294 (344) Income (loss) before income taxes (185) (762) 38 (77) – (45) – 27 (147) (857) Income taxes 49 167 (13) 24 (6) (3) – (5) 30 183 Net income (loss) (136) (595) 25 (53) (6) (48) – 22 (117) (674) Net income (loss) attributable to: 4 3 6 (1) – – 10 2 Non-controlling interests – – Shareholders (136) (595) 21 (56) (12) (47) – 22 (127) (676) Cost-income ratio1 for the reportable segment Banking in % 78.1 119.5 income (net), fee and commission income, other income, interest expenses, excluding interest expenses 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses from external debt, and fee and commission expenses. and one-off effect from pension revaluation, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through 77 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Notes to the coNsolidated balaNce sheets 5 – Financial assets carried at fair value through income Financial assets carried at Fair value through income € mn as of 30 June 2014 as of 31 December 2013 Financial assets held for trading Debt securities 395 360 Equity securities 158 139 Derivative financial instruments 1,415 2,013 Subtotal 1,968 2,512 Financial assets designated at fair value through income Debt securities 2,353 2,279 Equity securities 1,921 1,870 Subtotal 4,274 4,149 Total 6,242 6,661 6 – Investments investments € mn as of 30 June 2014 as of 31 December 2013 Available-for-sale investments 429,237 392,233 Held-to-maturity investments 4,020 4,140 Funds held by others under reinsurance contracts assumed 1,052 894 Investments in associates and joint ventures 3,177 3,098 Real estate held for investment 10,943 10,783 Total 448,429 411,148 78 Interim Report Second Quarter and First Half Year of 2014 Allianz Group B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes available-For-sale investments available-For-sale investments € mn as of 30 June 2014 as of 31 December 2013 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Debt securities Government and agency mortgage-backed securities (residential and commercial) 3,021 152 (4) 3,169 2,515 103 (16) Corporate mortgage-backed securities (residential and commercial) 11,893 647 (52) 12,488 11,226 693 (86) Other asset-backed securities 3,674 248 (36) 3,886 3,460 210 (40) Government and government agency bonds France 30,905 5,438 (20) 36,323 31,410 2,471 (177) Italy 26,502 4,063 (3) 30,562 26,304 2,001 (91) Germany 12,607 1,423 (4) 14,026 14,852 918 (46) United States 9,017 599 (41) 9,575 8,411 239 (171) Belgium 5,880 1,158 (1) 7,037 5,968 613 (3) Korea 6,014 602 (6) 6,610 5,798 427 (26) Austria 5,493 929 (1) 6,421 4,941 468 (23) Spain 4,752 553 (1) 5,304 2,813 178 (35) Switzerland 4,642 447 (22) 5,067 4,376 330 (80) Netherlands 3,743 287 (1) 4,029 3,627 159 (26) Hungary 819 94 – 913 773 60 – Portugal 197 23 – 220 196 2 (2) Ireland 50 – – 50 38 1 – Greece 1 2 – 3 1 2 – Supranationals 14,566 1,780 (3) 16,343 14,571 663 (56) All other countries 32,970 1,684 (221) 34,433 30,854 944 (723) Subtotal 158,158 19,082 (324) 176,916 154,933 9,476 (1,459) Corporate bonds1 180,446 15,020 (306) 195,160 168,353 9,212 (1,397) Other 2,088 399 (4) 2,483 2,230 324 (4) Subtotal 359,280 35,548 (726) 394,102 342,717 20,018 (3,002) Equity securities2 24,684 10,605 (154) 35,135 23,022 9,624 (146) Total 383,964 46,153 (880) 429,237 365,739 29,642 (3,148) 1 Includes bonds issued by Spanish banks with a fair value of € 504 mN (2013: € 418 mN), thereof subordinated bonds with a fair value of € 137 mN (2013: € 115 mN). 2 Includes shares invested in Spanish banks with a fair value of € 470 mN (2013: € 402 mN). Interim Report Second Quarter and First Half Year of 2014 Allianz Group Fair Value 2,602 11,833 3,630 33,704 28,214 15,724 8,479 6,578 6,199 5,386 2,956 4,626 3,760 833 196 39 3 15,178 31,075 162,950 176,168 2,550 359,733 32,500 392,233 79 7 – Loans and advances to banks and customers loans and advances to banks and customers € mn Banks Short-term investments and certificates of deposit 3,202 Reverse repurchase agreements 89 Collateral paid for securities borrowing transactions and derivatives 364 Loans 57,4211 Other 571 Subtotal 61,647 Loan loss allowance – Total 61,647 1 Primarily include covered bonds. 8 – Reinsurance assets reinsurance assets € mn as of 30 June 2014 as of 31 December 2013 Unearned premiums 1,932 1,537 Reserves for loss and loss adjustment expenses 6,755 6,494 Aggregate policy reserves 4,507 4,463 Other insurance reserves 117 115 Total 13,311 12,609 9 – Deferred acquisition costs deFerred acquisition costs € mn as of 30 June 2014 as of 31 December 2013 Deferred acquisition costs Property-Casualty 4,692 4,354 Life/Health 15,486 15,837 Asset Management1 – 159 Subtotal 20,178 20,350 Present value of future profits 948 1,046 Deferred sales inducements 646 807 Total 21,772 22,203 1 The respective entities have been prospectively reclassified, effective 1 January 2014, from the business segment Asset Management to the business segment Life/Health. For further information, please see note 4. 80 Interim Report Second Quarter and First Half Year of 2014 Allianz Group as of 30 June 2014 as of 31 December 2013 Customers Total Banks Customers – 3,202 3,275 – – 89 613 – – 364 315 – 52,860 110,281 60,5111 51,595 13 584 670 15 52,873 114,520 65,384 51,610 (150) (150) – (194) 52,723 114,370 65,384 51,416 10 – Other assets other assets € mn as of 30 June 2014 Receivables Policyholders 5,627 Agents 4,987 Reinsurers 2,102 Other 5,094 Less allowance for doubtful accounts (653) Subtotal 17,157 Tax receivables Income taxes 1,316 Other taxes 1,240 Subtotal 2,556 Accrued dividends, interest and rent 6,968 Prepaid expenses Interest and rent 18 Other prepaid expenses 304 Subtotal 322 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 239 Property and equipment Real estate held for own use 2,374 Software 1,963 Equipment 1,218 Fixed assets of alternative investments 1,325 Subtotal 6,880 Other assets 1,512 Total 35,634 Total 3,275 613 315 112,106 685 116,994 (194) 116,800 as of 31 December 2013 5,489 4,424 1,844 4,160 (720) 15,197 2,159 1,215 3,374 7,706 13 255 268 75 2,423 1,832 1,173 1,304 6,732 1,280 34,632 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 11 – Non-current assets classified as held for sale 12 – Intangible assets intangible assets non-current assets classiFied as held For sale € mn as of 30 June 2014 as of 31 December 2013 € mn Intangible assets with indefinite useful lives as of 30 June 2014 as of 31 December 2013 Goodwill 11,574 11,544 Investments in associates and joint ventures Real estate held for investment Real estate held for own use Total 281 4 – 285 131 – 16 147 Brand names1 Subtotal Intangible assets with finite useful lives Distribution agreements2 293 11,867 964 296 11,840 995 Customer relationships3 129 149 Other4 122 116 Investments in associates and joint ventures comprised an investment of € 151 mn in an associated Italian real estate company allocated to the reportable segment Western and Southern Europe (Property- Casualty). Furthermore, two investments of € 112 mn in total in U.S. real estate companies allocated to the reportable segment German Speaking Countries (Life/Health) were classified as held for sale. Additionally, the investments in associates and joint ventures com- prised an investment of € 18 mn in an associated French media group allocated to the reportable segment German Speaking Countries (Property-Casualty and Life/Health). Upon measurement of the investments in associates and joint ventures classified as held for sale at fair value less costs to sell, an impairment of € 1 mn in total was recognized for the three and six months ended 30 June 2014. The sales of the investments in these associates and joint ventures will be completed during the year ended 31 December 2014. Subtotal 1,215 Total 13,082 1 2 3 4 Includes primarily the brand name of Selecta aG, Muntelier. Includes primarily the long-term distribution agreements with Commerzbank aG of € 354 mN (2013: € 373 mN), Banco Popular s.a. of € 361 mN (2013: € 369 mN), Yapı Kredi Bank of € 149 mN (2013: € 151 mN) and hsbc in Asia and Turkey of € 76 mN (2013: € 78 mN). Includes primarily customer relationships from the acquisition of Selecta of € 101 mN (2013: € 118 mN) and Yapı Kredi of € 10 mN (2013: € 10 mN) and renewal rights acquired in the context of a business com- bination of € 15 mN (2013: € 19 mN). Includes primarily acquired business portfolios of € 64 mN (2013: € 76 mN) and heritable building rights of € 17 mN (2013: € 17 mN). intangible assets with indeFinite useFul lives Goodwill 1,260 13,100 As of 30 June 2014, real estate held for investment classified as held for sale comprised of an office building allocated to the report- able segment Holding & Treasury. The sale of this building is expected to be completed during the third quarter of 2014. Upon measurement of the non-current asset at fair value less costs to sell, no impairment loss was recognized for the three and the six months ended 30 June 2014. goodwill € mn Cost as of 1 January Accumulated impairments as of 1 January Carrying amount as of 1 January Additions 2014 12,534 (990) 11,544 6 2013 12,573 (894) 11,679 2 Real estate held for own use comprised as of 31 December 2013 an office building allocated to the reportable segment Asset Manage- ment which was sold as expected during the first quarter of 2014. Disposals Foreign currency translation adjustments Impairments – 24 – – 4 (46) Carrying amount as of 30 June 11,574 11,639 Accumulated impairments as of 30 June 990 940 Cost as of 30 June 12,564 12,579 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 81 13 – Financial liabilities carried at fair value through income Financial liabilities carried at Fair value through income € mn as of 30 June 2014 Financial liabilities held for trading Derivative financial instruments 6,348 Other trading liabilities 3 Subtotal 6,351 Financial liabilities designated at fair value through income – Total 6,351 14 – Liabilities to banks and customers liabilities to banks and customers € mn Payable on demand Savings deposits Term deposits and certificates of deposit Repurchase agreements Collateral received from securities lending transactions and derivatives Other Total 82 Interim Report Second Quarter and First Half Year of 2014 as of 31 December 2013 6,010 3 6,013 – 6,013 Banks 241 – 958 1,041 2,499 4,617 9,356 Allianz Group as of 30 June 2014 Customers 4,630 2,842 1,957 1 – 3,864 13,294 Total 4,871 2,842 2,915 1,042 2,499 8,481 22,650 as of 31 December 2013 Banks Customers 696 4,473 – 2,873 979 2,157 1,028 3 2,216 – 5,050 3,634 9,969 13,140 Total 5,169 2,873 3,136 1,031 2,216 8,684 23,109 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 15 – Reserves for loss and loss adjustment expenses reserves For loss and loss adjustment expenses € mn as of 30 June 2014 as of 31 December 2013 Property-Casualty 57,339 56,614 Life/Health 10,370 9,961 Consolidation (17) (9) Total 67,692 66,566 change in the reserves For loss and loss adjustment expenses in the property-casualty business segment The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, in the Property-Casualty business segment for the six months ended 30 June 2014 and 2013. Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses as well as in the loss ratio and is, therefore, included in the development of the reserves below. change in the reserves For loss and loss adjustment expenses in the property-casualty business segment € mn 2014 Gross Ceded As of 1 January 56,614 (6,071) Balance carry forward of discounted loss reserves 3,207 (306) Subtotal 59,821 (6,377) Loss and loss adjustment expenses incurred Current year 15,515 (1,083) Prior years (703) 84 Subtotal 14,812 (999) Loss and loss adjustment expenses paid Current year (5,853) 222 Prior years (8,709) 672 Subtotal (14,562) 894 Foreign currency trans lation adjustments and other changes 717 (127) Changes in the consolidated subsidiaries of the Allianz Group – – Subtotal 60,788 (6,609) Ending balance of discounted loss reserves (3,449) 300 As of 30 June 57,339 (6,309) Interim Report Second Quarter and First Half Year of 2014 Allianz Group 51 53 Consolidated Statements of Cash Flows Notes 2013 Net Gross Ceded 50,543 62,711 (6,905) 2,901 – – 53,444 62,711 (6,905) 14,432 15,939 (1,396) (619) (918) 172 13,813 15,021 (1,224) (5,631) (5,831) 197 (8,037) (9,793) 938 (13,668) (15,624) 1,135 590 (491) 67 – (20) – 54,179 61,597 (6,927) (3,149) (3,207) 280 51,030 58,390 (6,647) Net 55,806 – 55,806 14,543 (746) 13,797 (5,634) (8,855) (14,489) (424) (20) 54,670 (2,927) 51,743 83 16 – Reserves for insurance and investment contracts reserves For insurance and investment contracts € mn as of 30 June 2014 as of 31 December 2013 Aggregate policy reserves1 379,902 365,519 Reserves for premium refunds 50,431 37,772 Other insurance reserves 801 781 Total 431,134 404,072 1 Includes discounted loss reserves of € 3,449 mn (2013: € 3,207 mn) in the Property-Casualty business segment. 84 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 17 – Other liabilities other liabilities € mn Payables Policyholders Reinsurance Agents Subtotal Payables for social security Tax payables Income taxes Other taxes Subtotal Accrued interest and rent Unearned income Interest and rent Other Subtotal Provisions Pensions and similar obligations Employee related Share-based compensation plans Restructuring plans Loan commitments Contingent losses from non-insurance business Other provisions Subtotal Deposits retained for reinsurance ceded Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Financial liabilities for puttable equity instruments Other liabilities Total as of 30 June 2014 4,072 1,412 1,540 7,024 406 2,239 1,354 3,593 663 24 289 313 8,470 2,097 481 123 26 121 1,414 12,732 1,995 197 2,578 7,173 36,674 as of 31 December 2013 4,911 1,170 1,604 7,685 395 2,580 1,269 3,849 681 16 261 277 7,594 2,104 685 214 42 130 1,617 12,386 1,874 158 2,613 6,514 36,432 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 18 – Certificated liabilities 20 – Equity certiFicated liabilities equity € mn € mn as of 30 June 2014 as of 31 December 2013 as of 30 June 2014 as of 31 December 2013 Allianz se1 Shareholders’ equity Senior bonds 6,620 6,581 Issued capital 1,169 1,169 Money market securities 939 869 Capital reserves 27,701 27,701 Subtotal 7,559 7,450 Retained earnings1 18,046 17,785 Banking subsidiaries Foreign currency translation adjustments (3,077) (3,312) Senior bonds 531 580 Unrealized gains and losses (net)2 11,140 6,741 Subtotal 531 580 Subtotal 54,979 50,084 Total 8,090 8,030 Non-controlling interests 2,833 2,765 Total 57,812 52,849 1 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. 1 2 As of 30 June 2014, includes € (216) mn (2013: € (220) mn) related to treasury shares. As of 30 June 2014, includes € 251 mn (2013: € 203 mn) related to cash flow hedges. 19 – Subordinated liabilities subordinated liabilities dividends In the second quarter of 2014, a total dividend of € 2,405 MN (2013: € 2,039 MN) or € 5.30 (2013: € 4.50) per qualifiying share was paid to the shareholders. € mn as of 30 June 2014 as of 31 December 2013 Allianz se1 Subordinated bonds2 9,776 10,856 Subtotal 9,776 10,856 Banking subsidiaries Subordinated bonds 254 254 Subtotal 254 254 All other subsidiaries Subordinated bonds 400 399 Hybrid equity 45 45 Subtotal 445 444 Total 10,475 11,554 1 2 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. Change due to redemption of a € 1.5 Bn bond and the issuance of a CHF 0.5 Bn bond in the first quarter of 2014. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 85 Notes to the CoNsolidated iNCome statemeNts 21 – Premiums earned (net) Premiums earned (net) Premiums earned (net) (Continued) € mn € mn three months ended 30 June Property- Casualty Life/Health Consoli- dation Group six months ended 30 June 2014 2014 Premiums written Premiums written Direct 10,102 6,054 – 16,156 Direct Assumed 744 220 (23) 941 Assumed Subtotal 10,846 6,274 (23) 17,097 Subtotal Ceded (936) (217) 23 (1,130) Ceded Net 9,910 6,057 – 15,967 Net Change in unearned premiums Change in unearned premiums Direct 953 (71) – 882 Direct Assumed (222) 6 4 (212) Assumed Subtotal 731 (65) 4 670 Subtotal Ceded 60 7 (4) 63 Ceded Net 791 (58) – 733 Net Premiums earned Premiums earned Direct 11,055 5,983 – 17,038 Direct Assumed 522 226 (19) 729 Assumed Subtotal 11,577 6,209 (19) 17,767 Subtotal Ceded (876) (210) 19 (1,067) Ceded Net 10,701 5,999 – 16,700 Net 2013 2013 Premiums written Premiums written Direct 10,049 5,961 – 16,010 Direct Assumed 705 144 (11) 838 Assumed Subtotal 10,754 6,105 (11) 16,848 Subtotal Ceded (1,121) (142) 11 (1,252) Ceded Net 9,633 5,963 – 15,596 Net Change in unearned premiums Change in unearned premiums Direct 837 (46) – 791 Direct Assumed (132) (4) – (136) Assumed Subtotal 705 (50) – 655 Subtotal Ceded 41 (1) – 40 Ceded Net 746 (51) – 695 Net Premiums earned Premiums earned Direct 10,886 5,915 – 16,801 Direct Assumed 573 140 (11) 702 Assumed Subtotal 11,459 6,055 (11) 17,503 Subtotal Ceded (1,080) (143) 11 (1,212) Ceded Net 10,379 5,912 – 16,291 Net 86 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Property- Casualty 24,556 1,507 26,063 (2,163) 23,900 (2,866) (316) (3,182) 393 (2,789) 21,690 1,191 22,881 (1,770) 21,111 24,565 1,386 25,951 (2,431) 23,520 (3,006) (243) (3,249) 420 (2,829) 21,559 1,143 22,702 (2,011) 20,691 Life/Health 12,507 382 12,889 (373) 12,516 (228) (19) (247) 6 (241) 12,279 363 12,642 (367) 12,275 12,421 306 12,727 (291) 12,436 (165) 1 (164) – (164) 12,256 307 12,563 (291) 12,272 Consoli- dation – (44) (44) 44 – – 7 7 (7) – – (37) (37) 37 – – (25) (25) 25 – – (1) (1) 1 – – (26) (26) 26 – Group 37,063 1,845 38,908 (2,492) 36,416 (3,094) (328) (3,422) 392 (3,030) 33,969 1,517 35,486 (2,100) 33,386 36,986 1,667 38,653 (2,697) 35,956 (3,171) (243) (3,414) 421 (2,993) 33,815 1,424 35,239 (2,276) 32,963 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 22 – Interest and similar income interest and similar inCome € mn three months ended 30 June six months ended 30 June 2014 2013 2014 Interest from held-to-maturity investments 40 46 83 Dividends from available-for-sale investments 594 524 892 Interest from available-for-sale investments 3,363 3,334 6,659 Share of earnings from investments in associates and joint ventures 57 19 94 Rent from real estate held for investment 214 202 421 Interest from loans to banks and customers 1,219 1,261 2,435 Other interest 51 27 93 Total 5,538 5,413 10,677 23 – Income from financial assets and liabilities carried at fair value through income (net) inCome from finanCial assets and liabilities Carried at fair value through inCome (net) € mn three months ended 30 June Property- Casualty Life/Health Asset Management Corporate and Other Consolidation 2014 Income (expenses) from financial assets and liabilities held for trading (net) (19) (292) – 8 (1) Income (expenses) from financial assets and liabilities designated at fair value through income (net) – 91 3 2 (1) Income (expenses) from financial liabilities for puttable equity instruments (net) 1 (51) – – – Foreign currency gains and losses (net) 17 191 1 (3) – Total (1) (61) 4 7 (2) 2013 Income (expenses) from financial assets and liabilities held for trading (net) 31 (156) – (95) 3 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 26 (3) (1) (1) (1) Income (expenses) from financial liabilities for puttable equity instruments (net) (25) (3) 1 – – Foreign currency gains and losses (net) (44) (530) – 97 – Total (12) (692) – 1 2 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 2013 93 823 6,615 46 393 2,544 66 10,580 Group (304) 95 (50) 206 (53) (217) 20 (27) (477) (701) 87 inCome from finanCial assets and liabilities Carried at fair value through inCome (net) (Continued) € mn six months ended 30 June Property- Casualty Life/Health Asset Management Corporate and Other Consolidation 2014 Income (expenses) from financial assets and liabilities held for trading (net) (77) (664) (1) 9 (1) Income (expenses) from financial assets and liabilities designated at fair value through income (net) – 143 3 2 (1) Income (expenses) from financial liabilities for puttable equity instruments (net) 1 (78) – – – Foreign currency gains and losses (net) 30 269 1 (8) – Total (46) (330) 3 3 (2) 2013 Income (expenses) from financial assets and liabilities held for trading (net) (14) (812) – (55) 2 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 24 84 18 – (1) Income (expenses) from financial liabilities for puttable equity instruments (net) (19) (41) (12) – – Foreign currency gains and losses (net) (4) (154) 1 57 – Total (13) (923) 7 2 1 inCome (exPenses) from finanCial assets and liabilities held for trading (net) Business segment Life/Health For the three months ended 30 June 2014, income and expenses from financial assets and liabilities held for trading (net) in the business segment Life/Health includes expenses of € 302 mn (2013: € 153 mn) from derivative financial instruments. Included in this are expenses of € 59 mn (2013: income of € 36 mn) from financial derivative posi- tions of German entities, of which income of € 148 mn (2013: expenses of € 199 mn) relates to duration management, expenses of € 27 mn (2013: € 22 mn) relate to protection against equity fluctuations and expenses of € 188 mn (2013: income of € 247 mn) relate to protection against foreign exchange rate fluctuations. Also included are expenses related to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts of € 218 mn (2013: € 179 mn) from U.S. entities. foreign CurrenCy gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through profit or loss. The Allianz Group uses freestanding derivatives, included in the line item income (expenses) from finan- cial assets and liabilities held for trading (net), to hedge against for- eign currency fluctuations. For these derivatives, expenses in the amount of € 204 mn (2013: income of € 167 mn) were recognized for the three months ended 30 June 2014. inCome (exPenses) from finanCial assets and liabilities designated at fair value through inCome (net) For the three months ended 30 June 2014, income and expenses from financial assets and liabilities designated at fair value through income (net) in the business segment Life/Health includes income from equity investments of € 57 mn (2013: expenses of € 6 mn) and income of € 34 mn (2013: € 3 mn) from debt investments. 88 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Group (734) 147 (77) 292 (372) (879) 125 (72) (100) (926) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 24 – Realized gains/losses (net) 25 – Fee and commission income realized gains/losses (net) fee and Commission inCome € mn € mn three months ended 30 June six months ended 30 June three months ended 30 June 2014 2013 2014 2013 2014 2013 realized gains ProPerty-Casualty Available-for-sale investments Equity securities 415 547 837 1,144 Fees from credit and assistance business 193 196 Debt securities 499 596 974 1,133 Service agreements 109 111 Subtotal 914 1,143 1,811 2,277 Subtotal 302 307 Investments in associates and joint ventures1 10 2 20 39 life/health Real estate held for investment 66 29 83 78 Service agreements 28 21 Loans and advances to banks and customers 114 140 183 186 Investment advisory Other 232 1 147 – Non-current assets classified as held for sale 1 – 1 12 Subtotal 261 168 Subtotal 1,105 1,314 2,098 2,592 asset management Management fees 1,701 1,895 realized losses Loading and exit fees 190 194 Available-for-sale investments Performance fees 67 78 Equity securities (26) (34) (51) (90) Other 14 12 Debt securities (49) (86) (104) (154) Subtotal 1,972 2,179 Subtotal (75) (120) (155) (244) Investments in associates and joint ventures2 (1) – (5) (3) CorPorate and other Service agreements 16 12 Real estate held for investment Loans and advances to banks and customers (2) (1) (1) (2) (5) (1) (3) (2) Investment advisory and banking activities Subtotal 162 178 163 175 Non-current assets classified as held for sale – – – (3) Consolidation (175) (150) Subtotal (79) (123) (166) (255) Total 2,538 2,679 Total 1,026 1,191 1,932 2,337 1 2 For the three and the six months ended 30 June 2014, includes realized gains from the disposal of subsidiaries and businesses of € – mN (2013: € 2 mN) and € – mN (2013: € 39 mN), respectively. For the three and the six months ended 30 June 2014, includes realized losses from the disposal of subsidiaries of € – mN (2013: € – mN) and € – mN (2013: € 3 mN), respectively. 26 – Other income other inCome € mn three months ended 30 June 2014 2013 Realized gains from disposals of real estate held for own use 3 2 Income from alternative investments 41 39 Other 1 1 Total 45 42 Interim Report Second Quarter and First Half Year of 2014 Allianz Group six months ended 30 June 2014 2013 389 379 219 218 608 597 51 39 438 269 1 – 490 308 3,356 3,698 360 374 86 354 31 39 3,833 4,465 33 25 312 318 345 343 (330) (280) 4,946 5,433 six months ended 30 June 2014 2013 23 17 98 81 2 4 123 102 89 27 – Income and expenses from fully consolidated private equity investments inCome and expenses from fully Consolidated private equity investments € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Income Sales and service revenues 174 184 343 362 Subtotal 174 184 343 362 Expenses Cost of goods sold (53) (54) (107) (109) General and administrative expenses (119) (128) (233) (250) Interest expenses (7) (9) (15) (17) Subtotal (179) (191) (355) (376) Consolidation1 5 3 7 6 Total – (4) (5) (8) 1 This consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the Life/Health business segment, that was reclassified into expenses from fully consolidated private equity investments in non- operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit. 90 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 28 – Claims and insurance benefits incurred (net) Claims and insuranCe benefits inCurred (net) € mn three months ended 30 June Property- Casualty Life/Health 2014 Gross Claims and insurance benefits paid (7,251) (5,071) Change in reserves for loss and loss adjustment expenses (428) (223) Subtotal (7,679) (5,294) Ceded Claims and insurance benefits paid 492 114 Change in reserves for loss and loss adjustment expenses 101 7 Subtotal 593 121 Net Claims and insurance benefits paid (6,759) (4,957) Change in reserves for loss and loss adjustment expenses (327) (216) Total (7,086) (5,173) 2013 Gross Claims and insurance benefits paid (7,474) (4,948) Change in reserves for loss and loss adjustment expenses (329) (132) Subtotal (7,803) (5,080) Ceded Claims and insurance benefits paid 474 93 Change in reserves for loss and loss adjustment expenses 345 (3) Subtotal 819 90 Net Claims and insurance benefits paid (7,000) (4,855) Change in reserves for loss and loss adjustment expenses 16 (135) Total (6,984) (4,990) Consoli- dation 12 (1) 11 (10) 1 (9) 2 – 2 5 1 6 (3) (1) (4) 2 – 2 Group (12,310) (652) (12,962) 596 109 705 (11,714) (543) (12,257) (12,417) (460) (12,877) 564 341 905 (11,853) (119) (11,972) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income Claims and insuranCe benefits inCurred (net) (Continued) € mn six months ended 30 June Property- Casualty Life/Health Consoli- dation 2014 Gross Claims and insurance benefits paid (14,562) (10,255) 21 Change in reserves for loss and loss adjustment expenses (250) (249) 1 Subtotal (14,812) (10,504) 22 Ceded Claims and insurance benefits paid 894 228 (18) Change in reserves for loss and loss adjustment expenses 105 22 (3) Subtotal 999 250 (21) Net Claims and insurance benefits paid (13,668) (10,027) 3 Change in reserves for loss and loss adjustment expenses (145) (227) (2) Total (13,813) (10,254) 1 2013 Gross Claims and insurance benefits paid (15,624) (9,998) 14 Change in reserves for loss and loss adjustment expenses 603 (54) – Subtotal (15,021) (10,052) 14 Ceded Claims and insurance benefits paid 1,135 252 (11) Change in reserves for loss and loss adjustment expenses 89 (16) – Subtotal 1,224 236 (11) Net Claims and insurance benefits paid (14,489) (9,746) 3 Change in reserves for loss and loss adjustment expenses 692 (70) – Total (13,797) (9,816) 3 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 29 – Change in reserves for insurance and investment contracts (net) Group Change in reserves for insuranCe and investment ContraCts (net) € mn (24,796) three months ended 30 June Property- Casualty Life/Health Consoli- dation 2014 (498) Gross (25,294) Aggregate policy reserves (64) (1,709) (2) Other insurance reserves – (36) – 1,104 Expenses for premium refunds (72) (1,801) (5) Subtotal (136) (3,546) (7) 124 1,228 Ceded Aggregate policy reserves Other insurance reserves 1 – 82 3 1 – (23,692) Expenses for premium refunds Subtotal – 1 4 89 – 1 Net (374) Aggregate policy reserves (63) (1,627) (1) (24,066) Other insurance reserves – (33) – Expenses for premium refunds (72) (1,797) (5) Total (135) (3,457) (6) (25,608) 2013 Gross 549 Aggregate policy reserves (62) (1,805) (1) (25,059) Other insurance reserves (1) (7) – Expenses for premium refunds (37) (1,178) (42) 1,376 Subtotal (100) (2,990) (43) Ceded Aggregate policy reserves 1 59 (1) 73 Other insurance reserves – 1 – 1,449 Expenses for premium refunds – 2 – (24,232) Subtotal Net 1 62 (1) Aggregate policy reserves (61) (1,746) (2) 622 Other insurance reserves (1) (6) – (23,610) Expenses for premium refunds (37) (1,176) (42) Total (99) (2,928) (44) Group (1,775) (36) (1,878) (3,689) 84 3 4 91 (1,691) (33) (1,874) (3,598) (1,868) (8) (1,257) (3,133) 59 1 2 62 (1,809) (7) (1,255) (3,071) 91 Change in reserves for insuranCe and investment ContraCts (net) (Continued) € mn six months ended 30 June Property- Casualty Life/Health Consoli- dation Group 2014 Gross Aggregate policy reserves (129) (3,702) (1) (3,832) Other insurance reserves (3) (90) – (93) Expenses for premium refunds (131) (3,124) (7) (3,262) Subtotal (263) (6,916) (8) (7,187) Ceded Aggregate policy reserves 3 133 1 137 Other insurance reserves – 6 – 6 Expenses for premium refunds – 6 – 6 Subtotal 3 145 1 149 Net Aggregate policy reserves (126) (3,569) – (3,695) Other insurance reserves (3) (84) – (87) Expenses for premium refunds (131) (3,118) (7) (3,256) Total (260) (6,771) (7) (7,038) 2013 Gross Aggregate policy reserves (111) (3,831) (1) (3,943) Other insurance reserves (2) (51) – (53) Expenses for premium refunds (100) (3,096) (27) (3,223) Subtotal (213) (6,978) (28) (7,219) Ceded Aggregate policy reserves 2 41 (1) 42 Other insurance reserves (1) 4 – 3 Expenses for premium refunds – 4 – 4 Subtotal 1 49 (1) 49 Net Aggregate policy reserves (109) (3,790) (2) (3,901) Other insurance reserves (3) (47) – (50) Expenses for premium refunds (100) (3,092) (27) (3,219) Total (212) (6,929) (29) (7,170) 92 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 30 – Interest expenses interest expenses € mn three months ended 30 June 2014 2013 Liabilities to banks and customers (62) (66) Deposits retained on reinsurance ceded (10) (11) Certificated liabilities (71) (68) Subordinated liabilities (141) (169) Other (24) (21) Total (308) (335) 31 – Loan loss provisions loan loss provisions € mn three months ended 30 June 2014 2013 Additions to allowances including direct impairments (45) (32) Amounts released 23 11 Recoveries on loans previously impaired 7 6 Total (15) (15) six months ended 30 June 2014 2013 (123) (134) (22) (23) (138) (136) (282) (344) (45) (49) (610) (686) six months ended 30 June 2014 2013 (73) (80) 35 39 14 12 (24) (29) B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes 32 – Impairments of investments (net) 34 – Acquisition and administrative expenses (net) impairments of investments (net) € mn three months ended 30 June six months ended 30 June aCquisition and administrative expenses (net) € mn 2014 2013 2014 2013 three months ended 30 June six months ended 30 June impairments Available-for-sale investments 2014 2013 2014 2013 Equity securities (54) (145) (188) (259) property-Casualty Debt securities (18) (21) (244) (25) Acquisition costs Subtotal (72) (166) (432) (284) Incurred (2,330) (2,361) (5,095) (5,073) Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale (1) – (1) (10) (8) – (1) (1) (2) (22) (12) – Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs Gross amortization of deferred acquisition costs 76 1,433 (1,512) 112 1,392 (1,434) 193 3,261 (2,934) 220 3,143 (2,770) Subtotal (74) (184) (436) (318) Subtotal (2,333) (2,291) (4,575) (4,480) reversals of impairments Administrative expenses (703) (685) (1,910)1 (1,405) Available-for-sale investments Subtotal (3,036) (2,976) (6,485) (5,885) Debt securities – 2 – 2 life/health Subtotal – 2 – 2 Acquisition costs Total (74) (182) (436) (316) Incurred (1,332) (1,135) (2,547) (2,256) Commissions and profit received on reinsurance business ceded 22 4 46 29 33 – Investment expenses Deferrals of acquisition costs Gross amortization of deferred acquisition costs 914 (628) 732 (719) 1,748 (1,157) 1,468 (1,276) investment expenses Subtotal Administrative expenses (1,024) (424) (1,118) (360) (1,910) (799) (2,035) (691) € mn Subtotal (1,448) (1,478) (2,709) (2,726) three months ended 30 June six months ended 30 June asset management 2014 2013 2014 2013 Personnel expenses (592) (651) (1,167)1 (1,360) Investment management expenses (138) (129) (251) (257) Non-personnel expenses Subtotal (340) (932) (374) (1,025) (649) (1,816) (698) (2,058) Depreciation of real estate held for investment (56) (51) (112) (101) Corporate and other Other expenses from real estate held for investment (38) (37) (68) (67) Administrative expenses Subtotal (293) (293) (338) (338) 871 87 (641) (641) Total (232) (217) (431) (425) Consolidation 5 15 (111)1 19 Total (5,704) (5,802) (11,034) (11,291) 1 Including one-off effect from pension revaluation. Please refer to note 4 for further details. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 93 35 – Fee and commission expenses fee and Commission expenses € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 property-Casualty Fees from credit and assistance business (198) (193) (401) (372) Service agreements (81) (79) (169) (175) Investment advisory – (1) – (1) Subtotal (279) (273) (570) (548) life/health Service agreements (11) (15) (22) (27) Investment advisory (82) (59) (158) (103) Subtotal (93) (74) (180) (130) asset management Commissions (313) (349) (620) (725) Other (58) (21) (96) (34) Subtotal (371) (370) (716) (759) Corporate and other Service agreements (79) (57) (149) (109) Investment advisory and banking activities (80) (74) (144) (134) Subtotal (159) (131) (293) (243) Consolidation 71 60 146 114 Total (831) (788) (1,613) (1,566) 36 – Other expenses other expenses € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Realized losses from disposals of real estate held for own use (3) (1) (7) (1) Expenses from alternative investments (23) (23) (48) (44) Other – 16 (1) (9) Total (26) (8) (56) (54) 94 Interim Report Second Quarter and First Half Year of 2014 Allianz Group 37 – Income taxes inCome taxes € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Current income taxes (803) (678) (1,791) (1,468) Deferred income taxes (71) (146) 50 (233) Total (874) (824) (1,741) (1,701) For the three and the six months ended 30 June 2014 and 2013, the income taxes relating to components of other comprehensive income consist of the following: inCome taxes relating to Components of other Comprehensive inCome € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments 12 12 13 23 Available-for-sale investments (896) 1,187 (1,816) 1,432 Cash flow hedges (17) 8 (19) 7 Share of other comprehensive income of associates (1) 4 (2) 4 Miscellaneous 3 29 (27) 132 Items that may never be reclassified to profit or loss Actuarial gains (losses) on defined benefit plans 137 (13) 296 1 Total (762) 1,227 (1,555) 1,599 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income other information 38 – Financial instruments and fair value measurement Fair values and carrying amounts oF Financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: Fair values and carrying amounts oF Financial instruments € mn Financial assets Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Real estate held for own use Financial liabilities Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities Subordinated liabilities The Allianz Group carries certain financial instruments at fair value and discloses the fair value of most other assets and liabilities. The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The maximum exposure to credit risk of financial assets, without taking collateral into account, is represented by their carrying amount except for available-for-sale financial assets, for which it is represented by the amortized cost amount. The degree of judgment used in measuring the fair value of financial instruments closely correlates with the level of non-market observable inputs. The Allianz Group maximizes the use of observable Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes as of 30 June 2014 as of 31 December 2013 Carrying amount Fair value Carrying amount Fair value 12,704 12,704 11,207 11,207 1,968 1,968 2,512 2,512 4,274 4,274 4,149 4,149 429,237 429,237 392,233 392,233 4,020 4,619 4,140 4,647 3,177 3,746 3,098 3,597 10,943 15,792 10,783 15,625 114,370 132,038 116,800 129,528 86,895 86,895 81,064 81,064 239 239 75 75 2,374 3,563 2,423 3,626 6,351 6,351 6,013 6,013 22,650 22,973 23,109 23,282 86,895 86,895 81,064 81,064 197 197 158 158 2,578 2,578 2,613 2,613 8,090 8,869 8,030 8,576 10,475 11,552 11,554 12,323 inputs and minimizes the use of non-market observable inputs when measuring fair value. Observability of input parameters is influenced by various factors such as type of the financial instrument, whether a market is established for the particular instrument, specific trans- action characteristics, liquidity as well as general market conditions. If the fair value cannot be measured reliably, amortized cost is used as a proxy for determining fair values. As of 30 June 2014, fair values could not be reliably measured for equity investments with carrying amounts totaling € 213 mn (31 December 2013: € 214 mn). These investments are primarily investments in privately held corpo- rations and partnerships. 95 Fair value hierarchy Assets and liabilities measured or disclosed at fair value in the con- solidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS 13, which categorizes the inputs to valuation techniques used to measure fair value into three levels. In general, the subsidiaries assume responsibility for assessing fair values and hierarchies of assets and liabilities. This is consistent with the decentralized organizational structure of the Allianz Group and reflects market insights of local managers. Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instru- ments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. If no sufficient market information is available, manage- ment’s best estimate of a particular input is used to determine the value. Quoted prices in active markets – Fair value level 1: The level 1 inputs of financial instruments that are traded in active markets are based on unadjusted quoted market prices or dealer price quotations on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. Valuation techniques – Market observable inputs – Fair value level 2: At the end of 2013, the Institute of Public Auditors in Germany (IDW) published an interpretation of IFRS 13 (IDW RS HFA 47). For prices pro- vided by third parties, HFA 47 states that composite prices gen erally have to be classified in level 2 of the fair value hierarchy and only single (unadjusted) quotes could qualify for level 1. As the Allianz Group uses prices provided by service agencies on a consensus level, beginning 4Q 2013 the Allianz Group shifted most fixed-income secu- rities from level 1 to level 2 due to this new interpretation. However, the interpretation is still subject to discussion and, depending on the final outcome, re-transfers are possible in subsequent reporting periods. 96 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Furthermore, level 2 applies if the market for a financial instru- ment is not active or when the fair value is determined by using valu- ation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liability and include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities and foreign currency exchange rates. Valuation techniques – Non-market observable inputs – Fair value level 3: Where observable market inputs are not available, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are made for credit risks. In particular, when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. Fair value measurement on a recurring basis The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, − Derivative financial instruments and firm commitments included in other assets and other liabilities and − Financial liabilities for puttable equity instruments. B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 30 June 2014 and 31 December 2013. Fair value hierarchy as oF 30 June 2014 (items carried at Fair value) € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total Financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity Level 1 – Quoted prices in active markets 102 34 214 350 1,004 1,811 2,815 3,165 39 – 197 27,446 15,765 243 28,260 71,950 84,268 63 159,446 48 – 48 84,268 – 2,386 86,702 51 53 Consolidated Statements of Cash Flows Notes Level 2 – Market observable inputs Level 3 – Non-market observable inputs 293 – 109 15 1,172 29 1,574 44 1,348 1 – 110 1,348 111 2,922 155 3,130 – 12,456 32 3,483 206 149,403 67 175,657 3,738 1,592 648 772 6,103 346,493 10,794 2,450 177 176 – 352,041 11,126 1,198 5,102 3 – 1,201 5,102 2,450 177 197 – 192 – 4,040 5,279 Total fair value 395 158 1,415 1,968 2,353 1,921 4,274 6,242 3,169 12,488 3,886 176,916 195,160 2,483 35,135 429,237 86,895 239 522,613 6,348 3 6,351 86,895 197 2,578 96,021 97 Fair value hierarchy as oF 31 december 2013 (items carried at Fair value) € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total Financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total 98 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Level 1 – Quoted prices in active markets – 22 284 306 – 1,867 1,867 2,173 – – – 35,570 18,939 – 26,013 80,522 78,230 – 160,925 136 – 136 78,230 – 2,595 80,961 Level 2 – Market observable inputs 360 103 1,691 2,154 2,278 – 2,278 4,432 2,602 11,800 3,418 127,324 154,080 1,777 765 301,766 2,655 75 308,928 1,447 3 1,450 2,655 158 18 4,281 Level 3 – Non-market observable inputs – 14 38 52 1 3 4 56 – 33 212 56 3,149 773 5,722 9,945 179 – 10,180 4,427 – 4,427 179 – – 4,606 Total fair value 360 139 2,013 2,512 2,279 1,870 4,149 6,661 2,602 11,833 3,630 162,950 176,168 2,550 32,500 392,233 81,064 75 480,033 6,010 3 6,013 81,064 158 2,613 89,848 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income Valuation methodologies of financial instruments carried at fair value The Allianz Group follows the interpretation of IFRS 13 (IDW RS HFA 47) by the Institute of Public Auditors in Germany (IDW) and classifies composite prices in level 2 of the fair value hierarchy. As the Allianz Group uses prices provided by pricing agencies on a consensus level, beginning 4Q 2013 the Allianz Group shifted most fixed-income secu- rities from level 1 to level 2 due to this new interpretation. Furthermore, the Allianz Group uses valuation techniques con- sistent with the three widely used classes of valuation techniques listed in IFRS 13: − Market approach: Prices and other relevant information gener- ated by market transactions involving identical or comparable assets or liabilities. − Cost approach: Amount that would be currently required to replace the service capacity of an asset (replacement cost). − Income approach: Conversion of future amounts such as cash flows or income to a single current amount (present value technique). There is no one-to-one connection between valuation technique and hierarchy level. Depending on whether the valuation techniques are based on significant observable or unobservable inputs, financial instruments are classified in the fair value hierarchy. Financial assets carried at fair value through income Financial assets held for trading – Debt and equity securities The fair value is mainly determined using the market approach. In some cases, the fair value is determined based on the income approach using interest rates and yield curves observable at com- monly quoted intervals. Financial assets held for trading – Derivative financial instruments For level 2, the fair value is mainly determined based on the income approach using present value techniques and the Black-Scholes- Merton model. Primary inputs to the valuation include volatilities, interest rates, yield curves, and foreign exchange rates observable at commonly quoted intervals. For level 3, derivatives are mainly priced by third-party vendors. Controls are in place to monitor the valuations of these derivatives. Valuations are mainly derived based on the income approach. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Financial assets designated at fair value through income – Debt securities The fair value is determined using the market approach. Financial assets designated at fair value through income – Equity securities For level 2, the fair value is determined using the market approach. For level 3, equity securities mainly represent newly acquired unlisted equity securities measured at cost. Available-for-sale investments Available-for-sale investments – Debt securities Debt securities include: − Government and agency mortgage-backed securities (residential and commercial), − Corporate mortgage-backed securities (residential and com- mercial), − Other asset-backed securities, − Government and government agency bonds, − Corporate bonds and − Other debt securities. The valuation techniques for these debt securities are similar. For level 2 and level 3, the fair value is determined using the market and the income approach. Primary inputs to the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means a present value technique where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk. Depending on the observability of these risk parameters in the market, the security is classified in level 2 or level 3. Available-for-sale investments – Equity securities For level 2, the fair value is mainly determined using the market approach or net asset value techniques for funds. For certain pri vate equity investments, the funds are priced based on transaction prices using the cost approach. As there are only few holders of these funds, the market is not liquid and transactions are only known to partici- pants. For level 3, the fair value is mainly determined using net asset values. The net asset values are based on the fair value meas urement of the underlying investments and are mainly provided by fund managers. For certain level 3 equity securities, the invested capital is considered to be a reasonable proxy for the fair value. 99 Financial assets for unit-linked contracts For level 2, the fair value is determined using the market or the income approach. For the income approach, primary observable inputs include yield curves observable at commonly quoted intervals. For level 3, the fair value is mainly determined based on the net asset value. Financial liabilities for unit-linked contracts are valued based on their corresponding assets. Derivative financial instruments and firm commitments included in other assets The fair value of the derivatives is mainly determined based on the income approach using present value techniques. Primary inputs include yield curves observable at commonly quoted intervals. The derivatives are mainly used for hedging purposes. Certain derivatives are priced by Bloomberg functions, such as Black-Scholes Option Pricing or the swap manager tool. Financial liabilities held for trading – Derivative financial instruments For level 2, the fair value is mainly determined using the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the Black- Scholes-Merton model. Main observable input parameters include volatilities, yield curves observable at commonly quoted intervals and credit spreads observable in the market. For level 3, the fair value is mainly determined based on the income approach using deter- ministic discounted cash flow models. A significant proportion of derivative liabilities represent derivatives embedded in certain life insurance and annuity contracts. Significant non-market observable input parameters include mortality rates and surrender rates. Financial liabilities held for trading – Other trading liabilities The fair value is mainly determined based on the income approach using present value techniques. Primary inputs comprise swap curves, share prices and dividend estimates. Derivative financial instruments and firm commitments included in other liabilities For level 2, the fair value is mainly determined using the income approach. Primary inputs include interest rates and yield curves observable at commonly quoted intervals. 100 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments are generally required to be recorded at the redemption amount with changes recognized in income. For level 2, the fair value is mainly determined based on the market approach and the income approach. For level 3, equity securities mainly represent private equity funds. The fair value is in most cases derived from the net asset value based on the valua- tion of the underlying private equity companies as provided by third- party vendors. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. At the end of 2013, the Allianz Group followed an interpretation of IFRS 13 (IDW RS HFA 47) by the Institute of Public Auditors in Germany (IDW) and transferred most fixed-income securities from level 1 to level 2. Re-transfers in subsequent reporting periods are possible given that the interpretation is still under discussion. Significant level 3 portfolios – Narrative description and sensitivity analysis Available-for-sale investments – Equity securities Equity securities within available-for-sale investments classified as level 3 mainly comprise private equity fund investments as well as alternative investments of the Allianz Group and are in most cases delivered as net asset values by the fund managers (€ 5.2 bn). The net asset values are calculated using material, non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund man- agers and hence a narrative sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the invested capital is considered to be a rea- sonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable. B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Available-for-sale investments – Corporate bonds Corporate bonds within available-for-sale investments classified as level 3 are mainly priced based on the income approach (€ 3.3 bn). The primary non-market observable input used in the discounted cash flow method is an option adju sted spread taken from a bench- mark security. A significant yield increase of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs only has an imma- terial impact on fair value. Financial liabilities held for trading Financial liabilities held for trading mainly include embedded de rivative financial instruments relating to annuity products that are priced internally using discounted cash flow models (€ 5.0 bn). A sig- nificant decrease (increase) in surrender rates, mortality rates or the utilization of annuitization benefits could result in a higher (lower) fair value. For products with a high death benefit, surrender rates may show an opposite effect. However, a 10 % stress of the main non- market observable inputs only has an immaterial impact on fair value. Quantification of significant non-market observable inputs The following table shows the quantitative description of valuation technique(s) and input(s) used for the level 3 portfolios described above. Quantitative description oF valuation techniQue(s) and non-market observable input(s) used € mn Description Fair value as of 30 June 2014 Valuation technique(s) Non-market observable input(s) Range Available-for-sale investments Equity securities 5,002 Net asset value n/a n/a Corporate bonds 3,267 Discounted cash flow method Option adjusted spread 36 bps – 604 bps Financial liabilities held for trading Derivative financial instruments 4,998 Fixed-indexed annuities 4,447 Present value of insurance cash flow Annuitizations 0 % – 25 % Surrenders 0 % – 25 % Mortality 0 % – 100 % Withdrawal benefit election 0 % – 50 % Volatility n/a Variable annuities 551 Deterministic discounted cash flow Surrenders 0.5 % – 35 % Mortality 0 % – 100 % Interim Report Second Quarter and First Half Year of 2014 Allianz Group 101 Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. reconciliation oF level 3 Financial assets € mn Financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Available-for-sale investments Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity securities Subtotal Financial assets for unit-linked contracts Total financial assets at fair value reconciliation oF level 3 Financial liabilities € mn Financial liabilities Financial liabilities held for trading Derivative financial instruments Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total financial liabilities at fair value 102 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Carrying value (fair value) as of 1 January 2014 – 14 38 52 1 3 4 33 212 56 3,149 773 5,722 9,945 179 10,180 Carrying value (fair value) as of 1 January 2014 4,427 179 – 4,606 Additions through purchases and issues – – 5 5 – 110 110 – – 22 436 59 469 986 27 1,128 Additions through purchases and issues 617 27 – 644 Net transfers into (out of) level 3 – – – – – – – – – – 31 – – 31 – 31 Net transfers into (out of) level 3 – – – – Disposals through sales and settlements – – (55) (55) – – – (2) (25) (13) (65) (62) (399) (566) (29) (650) Disposals through sales and settlements (254) (29) – (283) Net gains (losses) recognized in consolidated income statement – 1 41 42 – – – 1 3 – 2 – – 6 – 48 Net losses (gains) recognized in consolidated income statement 283 – – 283 Net gains (losses) recognized in other comprehensive income – – – – – – – – 15 2 166 (44) 282 421 – 421 Net losses (gains) recognized in other comprehensive income – – – – Impairments – – – – – – – – – – – (7) (56) (63) – (63) Impairments – – – – Foreign currency transla tion adjustments – – – – – – – – 1 – 19 1 2 23 – 23 Foreign currency transla tion adjustments 29 – – 29 Changes in the consolidated subsidiaries of the Allianz Group – – – – – (3) (3) – – – – (72) 83 11 – 8 Changes in the consolidated subsidiaries of the Allianz Group – – – – Carrying value (fair value) as of 30 June 2014 – 15 29 44 1 110 111 32 206 67 3,738 648 6,103 10,794 177 11,126 Carrying value (fair value) as of 30 June 2014 5,102 177 – 5,279 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date – – – – – – – – – – – – – – – – Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 790 – – 790 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes 51 53 Consolidated Statements of Cash Flows Notes in Equity reconciliation oF level 3 Financial assets € mn Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date Net gains (losses) recognized in consolidated income statement Changes in the consolidated subsidiaries of the Allianz Group Carrying value Net gains (losses) recognized in other comprehensive income Carrying value (fair value) as of 30 June 2014 (fair value) as of Additions through Net transfers Disposals through Foreign currency transla tion adjustments 1 January 2014 purchases and issues into (out of) level 3 sales and settlements Impairments Financial assets Financial assets carried at fair value through income Financial assets held for trading – – – – – – – Debt securities – – – – Equity securities 14 – – – 1 – – – – 15 – Derivative financial instruments 38 5 – (55) 41 – – – – 29 – Subtotal 52 5 – (55) 42 – – – – 44 – Financial assets designated at fair value through income – – – – – 1 – Debt securities 1 – – – Equity securities 3 110 – – – – – – (3) 110 – Subtotal 4 110 – – – – – – (3) 111 – Available-for-sale investments 1 – – – – 32 – Corporate mortgage-backed securities (residential and commercial) 33 – – (2) Other asset-backed securities 212 – – (25) 3 15 – 1 – 206 – Government and government agency bonds 56 22 – (13) – 2 – – – 67 – Corporate bonds 3,149 436 31 (65) 2 166 – 19 – 3,738 – Other debt securities 773 59 – (62) – (44) (7) 1 (72) 648 – Equity securities 5,722 469 – (399) – 282 (56) 2 83 6,103 – Subtotal 9,945 986 31 (566) 6 421 (63) 23 11 10,794 – Financial assets for unit-linked contracts 179 27 – (29) – – – – – 177 – Total financial assets at fair value 10,180 1,128 31 (650) 48 421 (63) 23 8 11,126 – reconciliation oF level 3 Financial liabilities € mn Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date Net losses (gains) recognized in consolidated income statement Changes in the consolidated subsidiaries of the Allianz Group Carrying value Disposals Net losses (gains) recognized in other comprehensive income Foreign currency transla tion adjustments Carrying value (fair value) as of 30 June 2014 (fair value) as of Additions through Net transfers through sales and 1 January 2014 purchases and issues into (out of) level 3 settlements Impairments Financial liabilities Financial liabilities held for trading 283 – – 29 – 5,102 790 Derivative financial instruments 4,427 617 – (254) Financial liabilities for unit-linked contracts 179 27 – (29) – – – – – 177 – Financial liabilities for puttable equity instruments – – – – – – – – – – – Total financial liabilities at fair value 4,606 644 – (283) 283 – – 29 – 5,279 790 103 Interim Report Second Quarter and First Half Year of 2014 Allianz Group Fair value measurement on a non-recurring basis Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, corresponding disclosures can be found in note 32 – Impairments of investments (net). If fair value less cost to sell is used as the measurement basis under IFRS 5, corre- sponding disclosures can be found in note 11 – Non-current assets classified as held for sale. reclassiFication oF Financial assets On 31 January 2009, certain USD-denominated CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. As of 31 December 2013, the carrying amount and fair value of the CDOs was € 166 mn and € 156 mn, respectively. As of 30 June 2014, the carrying amount and fair value of the CDOs was € 165 mn and € 158 mn, respectively. For the three months ended 30 June 2014, the net profit related to the CDOs was not significant. 39 – Earnings per share basic earnings per share Basic earnings per share are calculated by dividing net income attrib- utable to shareholders by the weighted average number of common shares outstanding for the period. basic earnings per share € mn Net income attributable to shareholders used to calculate basic earnings per share Weighted average number of common shares outstanding Basic earnings per share (€) diluted earnings per share Diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of com- mon shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares arise from various share-based compensation plans of the Allianz Group. 104 Interim Report Second Quarter and First Half Year of 2014 Allianz Group three months ended 30 June 2014 1,755 453,761,276 3.87 2013 1,588 453,196,657 3.50 six months ended 30 June 2014 3,395 453,750,731 7.48 2013 3,295 453,186,268 7.27 B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes diluted earnings per share € mn three months ended 30 June six months ended 30 June 2014 2013 2014 2013 Net income attributable to shareholders 1,755 1,588 3,395 3,295 Effect of potentially dilutive common shares (10) (17) (11) (36) Net income used to calculate diluted earnings per share 1,745 1,571 3,384 3,259 Weighted average number of common shares outstanding 453,761,276 453,196,657 453,750,731 453,186,268 Potentially dilutive common shares resulting from assumed conversion of: Share-based compensation plans 715,550 57,240 3,006,849 479,639 Weighted average number of common shares outstanding after assumed conversion 454,476,826 453,253,897 456,757,580 453,665,907 Diluted earnings per share (€) 3.84 3.47 7.41 7.18 For the six months ended 30 June 2014, the weighted average number of common shares excludes 2,749,269 (2013: 2,763,732) treasury shares. 41 – Subsequent events 40 – Other information allianz acQuires distribution activities oF the property-casualty insurance branch oF unipolsai assicurazioni s.p.a. For further information please refer to note 3 – Consolidation. number oF employees number oF employees Munich, 7 August 2014 as of 30 June 2014 as of 31 December 2013 Allianz SE The Board of Management Germany 40,066 40,537 Other countries 107,371 107,090 Total 147,437 147,627 contingent liabilities and commitments As of 30 June 2014, there were no significant changes in contingent liabilities compared to the consolidated financial statements for the year ended 31 December 2013. As of 30 June 2014, commitments outstanding to invest in private equity funds and similar financial instruments amounted to € 3,223 mn (31 December 2013: € 2,978 mn) and commitments out- standing to invest in real estate and infrastructure amounted to € 1,093 mn (31 December 2013: € 860 mn). Other commit ments – mainly referring to a purchase obligation and sponsoring – increased from € 477 mn as of 31 December 2013 to € 706 mn as of 30 June 2014. All other commitments showed no significant changes. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 105 responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the condensed consolidated interim financial statements, which are prepared in accordance with generally accepted accounting principles, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Munich, 7 August 2014 Allianz SE The Board of Management 106 Interim Report Second Quarter and First Half Year of 2014 Allianz Group B Condensed Consolidated Interim Financial Statements 47 Consolidated Balance Sheets 48 Consolidated Income Statements 49 Consolidated Statements of Comprehensive Income review report To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements of Allianz SE, Munich – comprising the consolidated bal- ance sheets, consolidated income statements, consolidated state- ments of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and selected explan- atory notes – together with the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2014 that are part of the semi annual financial report according to § 37w WpHG [„Wertpapierhandelsgesetz“: „German Securities Trading Act“]. The preparation of the condensed consolidated interim financial state- ments in accordance with those International Financial Reporting Standards (IFRS) applicable to interim financial reporting as adopted by the E.U., and of the interim group management report in accor- dance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We performed our review of the condensed consolidated interim financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., and that the interim group manage- ment report has not been prepared, in material respects, in accor- dance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not per- formed a financial statement audit, we cannot issue an auditor’s report. Interim Report Second Quarter and First Half Year of 2014 Allianz Group 50 Consolidated Statements of Changes in Equity 51 53 Consolidated Statements of Cash Flows Notes Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in material respects, in accor- dance with the IFRS applicable to interim financial reporting as adopted by the E.U., or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, 7 August 2014 KPmG AG Wirtschaftsprüfungsgesellschaft Klaus Becker Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 107 1 Financial calendar Important dates for shareholders and analysts1 Interim Report/Financial Results 3Q ______________________ 7 November 2014 Financial Results 2014 __________________________________ 26 February 2015 Annual Report 2014 ___________________________________ 13 March 2015 Annual General Meeting _______________________________ 6 May 2015 Interim Report/Financial Results 1Q ______________________ 12 May 2015 Interim Report/Financial Results 2Q ______________________ 7 August 2015 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Koeniginstrasse 28 – 80802 Munich – Germany – Telephone +49.89.3800-0 – info@allianz.com – www.allianz.com Interim Report on the internet – www.allianz.com/interim-report – Design / Concept: hw.design GmbH – Date of publication: 8 August 2014 This is a translation of the German Interim Report of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2014, Insurance, Allianz | write me a financial report |
Semestriel | 2,013 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| 2Q Allianz Group Interim Report Second Quarter and First Half Year of 2013 Allianz at a glance Quarterly and half year results 01 three months ended 30 June six months ended 30 June 2013 2012 Change from previous year 2013 2012 Change from previous year More details on page Income statement Total revenues 1 € mn 26,776 25,196 6.3 % 58,824 55,249 6.5 % 7 Operating profit 2,3,4 € mn 2,367 2,250 5.2 % 5,164 4,583 12.7 % 7 Net income 2 € mn 1,675 1,338 25.2 % 3,476 2,789 24.6 % 9 thereof: attributable to shareholders 2 € mn 1,588 1,252 26.8 % 3,295 2,629 25.3 % 9 Segments 5 Property-Casualty Gross premiums written € mn 10,754 10,726 0.3 % 25,951 25,523 1.7 % 14 Operating profit 4 € mn 1,179 1,050 12.3 % 2,498 2,233 11.9 % 16 Combined ratio % 96.0 97.2 (1.2) %-p 95.1 96.7 (1.6) %-p 16 Life/Health Statutory premiums € mn 14,125 12,861 9.8 % 28,962 26,560 9.0 % 25 Operating profit 4 € mn 669 818 (18.2) % 1,524 1,643 (7.2) % 26 Margin on reserves bps 58 75 (17) 66 77 (11) 24 Asset Management Operating revenues € mn 1,815 1,497 21.2 % 3,726 2,936 26.9 % 32 Operating profit 4 € mn 804 575 39.8 % 1,704 1,188 43.4 % 33 Cost-income ratio % 55.7 61.6 (5.9) %-p 54.3 59.5 (5.2) %-p 33 Corporate and Other Total revenues € mn 132 141 (6.4) % 280 296 (5.4) % – Operating result 4 € mn (274) (180) (52.2) % (513) (454) (13.0) % 35 Balance sheet 2,6 Total assets € mn 698,220 694,447 0.5 % 698,220 694,447 0.5 % 40 Shareholders’ equity € mn 47,866 50,388 (5.0) % 47,866 50,388 (5.0) % 39 Non-controlling interests € mn 2,558 2,575 (0.7) % 2,558 2,575 (0.7) % 39 Share information Basic earnings per share 2 € 3.50 2.77 26.4 % 7.27 5.81 25.1 % 120 Diluted earnings per share 2 € 3.47 2.72 27.6 % 7.18 5.78 24.2 % 120 Share price as of 30 June 6 € 112.25 104.80 7.1 % 112.25 104.80 7.1 % 1 Market capitalization 6 € mn 51,180 47,784 7.1 % 51,180 47,784 7.1 % – Other data Standard & Poor's rating 7 AA Stable Outlook AA Negative Outlook – AA Stable Outlook AA Negative Outlook – – Conglomerate solvency ratio 6,8 % 177 197 (20.0) %-p 177 197 (20.0) %-p 39 Total assets under management 6 € bn 1,863 1,852 0.6 % 1,863 1,852 0.6 % 31 thereof: Third-party assets under management 6 € bn 1,456 1,438 1.3 % 1,456 1,438 1.3 % 31 1 2 3 4 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). All prior period figures herein and throughout the entire Interim Report Second Quarter and First Half Year of 2013 have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. As of the first quarter of 2013, all restructuring charges are presented within operating profit. All prior period figures herein and throughout the entire Interim Report Second Quarter and First Half Year of 2013 have been adjusted to conform to the current accounting presentation. The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 5 6 7 8 The Allianz Group operates and manages its activities through four segments: Property- Casualty, Life/Health, Asset Management and Corporate and Other. For further information, please refer to note 4 to the condensed consolidated interim financial statements. 2012 figures as of 31 December 2012. Insurer financial strength rating, outlook changed on 20 March 2013. Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not sub- mitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2013 would be 168 % (31 December 2012: 188 %). The conglomerate solvency ratio de- creased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19. To go directly to any chapter, simply click on the head- line or the page number All references to chapters, pages, notes to the condensed consolidated interim financial statements, internet pages, etc. within this report are also linked. Content 2 3 4 5 13 24 30 34 36 39 48 Services for Allianz Investors a Content Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations interim GroUp manaGement report 51 B conDenseD consoLiDateD interim financiaL statements 52 Content 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 56 Consolidated Statements of Changes in Equity 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 125 Glossary 128 Index of Tables and Graphs Allianz Share DeVeLopment of the aLLianz share price VersUs eUro stoXX 50 anD stoXX eUrope 600 insUrance indexed to the Allianz share price in € 120 100 80 60 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2011 2012 2013 Allianz STOXX Europe 600 Insurance EURO STOXX 50 Source: Thomson Reuters Datastream Allianz Share price: 6M 2013 High: € 121.80 31 December 2012: € 104.80 6M 2013 Low: € 101.75 30 June 2013: € 112.25 Multi-channel reporting Basic share information 03 Security codes WKn 840 400 Bloomberg isin De 000 840 400 5 aLV Gr Download as PDF iPad 1 Reuters 0#aLVG.DeU www.allianz.com/ interim-report www.allianz.com/ zwischenbericht 1 You can also scan the QR code to go directly to the specific Allianz App you wish to download from the Apple App Store. 02 1 2 Services for Allianz Investors Decide for yourself how you want to be kept up to date. With our corporate website allianz.com, two iPad apps, an iPhone app and the mobile website m.allianz.com, our IR information is easily accessible wherever you are and whatever device you are working on. allianz inVestor relations Website allianz inVestor relations apps On the IR website, you can find all the latest press releases, presentations, and quarterly and annual comparisons at a glance. You can also find audio and video recordings of press and analysts’ conferences, as well as video interviews with our Board of Management members. We provide our apps to ensure that even readers who are in a hurry or want to stay up to date while on the move can access the most important investor information about Allianz quickly and easily. www.allianz.com/results Simply visit the Apple App Store and download the apps from there, or scan the QR code: “Allianz Investor Relations HD” for iPad allianz financial reports app “Allianz Investor Relations” for iPhone Our Allianz Financial Reports iPad App allows you to read our annual and interim reports in a digital magazine format. The user-friendly navigation means that the information you are looking for is just a few finger taps away. You decide whether you want to see a summarized overview or detailed informa- tion (charts, tables, footnotes, etc.). “Allianz Financial Reports” for iPad Allianz SE Investor Relations Königinstrasse 28 80802 Munich, Germany Allianz Investor Line Mon – Fri: 8 a.m. – 8 p.m. CET Phone: +49 89 3800 7555 Fax: +49 89 3800 3899 Email: investor.relations@allianz.com www.allianz.com/investor-relations Important dates for shareholders and analysts see financial calendar (back cover) Interim Report Second Quarter and First Half Year of 2013 Allianz Group INTERIM GROuP MANAGEMENT REPORT A Interim Report Second Quarter and First Half Year of 2013 Allianz Group Pages 3 – 50 3 4 Interim Group Management Report 5 13 24 30 34 36 39 48 Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Outlook Balance Sheet Review Reconciliations Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Executive Summary second quarter 2013 − Revenues grew by 6.3 % to € 26.8 bn. − Operating profit at € 2,367 mn, up 5.2 %. − Net income rose by 25.2 % to € 1,675 mn. − Solvency ratio at 177 %.1 Segment overview Allianz SE and its subsidiaries (the Allianz Group) have operations in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insur- ance, Life/Health insurance, Asset Management and Corporate and Other activities. Earnings summary Total revenues increased 6.3 % to € 26.8 bn, driven by robust revenue growth in our Life/Health and Asset Management businesses. Property-Casualty revenues were stable. On an internal basis 2, revenues rose by 6.5 %. Operating profit grew by 5.2 % to € 2,367 mn thanks to a strong increase in our Asset Management and Property- Casualty business performance. Our Life/Health operating profit was solid but decreased due to a lower investment result and higher deferred acquisition expenses. Net income amounted to € 1,675 mn, benefiting from strong growth in operating profit, a positive non-operating result and a lower effective tax rate. Our solvency ratio fell by 20 percentage points to 177 % 1 compared to year-end 2012. Excluding the negative impact of a change in the accounting for pensions, our solvency ratio would have decreased by 4 percentage points over the year- end figure. 1 2 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not sub- mitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2013 would be 168 % (31 December 2012: 188 %; 31 December 2011: 170 %). The con- glomerate solvency ratio decreased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19. Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 48 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Operating profit + 5.2 % operating profit allianz group A 01 � mn 3,000 (2.0) % + 5.2 % 2,500 2,000 1,500 2,297 2,250 2,367 1,000 500 2Q 2011 2Q 2012 2Q 2013 Key figures key figures allianz group A 02 � mn three months ended 30 June 2013 2012 2011 Total revenues 26,776 25,196 24,574 Operating profit 3,4 2,367 2,250 2,297 Net income 3 1,675 1,338 1,094 Solvency ratio 1,5 177 % 197 % 179 % 3 4 5 Previous period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. As of the first quarter of 2013, all restructuring charges are presented within operating profit and all previous periods have been adjusted to conform to the current accounting presentation. 2012 and 2011 solvency figures as of 31 December 2012 and 2011, respectively. 5 6 Earnings Summary economic and industry environment in the second quarter of 2013 In the latter half of the second quarter of 2013, a strong increase in the volatility and sensitivity in the financial markets pushed positive indicators signaling a stabiliza- tion of the Eurozone economy into the background. Grow- ing fears that the Federal Reserve might start to exit from quantitative easing sooner rather than later led to a sharp increase in yields on U.S. and German government bonds and widening spreads on both government bonds from the Eurozone periphery and A-rated U.S. and European corpo- rate bonds. This put pressure on the insurance industry’s balance sheet and earnings. The rise in interest rates in key markets fueled a high level of asset redemptions, especial- ly in fixed income. While U.S. equity markets showed slight- ly more positive performance, European markets were negatively affected. In addition, capital flows to emerging economies saw significant declines, which – coupled with fundamental changes in Japan’s monetary policy – led to weakening markets and softening currencies in emerging countries. Despite the rise in interest rates, which is generally positive for the insurance industry, the levels of key yields at the end of the second quarter of 2013 were still remarkably low in historical terms and therefore the low interest rate environ- ment continued to present its challenges. After several quarters with relatively benign conditions, the second quarter of 2013 saw an increased impact from natu- ral catastrophes, with Canada and in particular Europe struck by severe floods and thunderstorms. Interim Report Second Quarter and First Half Year of 2013 Allianz Group management’s assessment of second quarter 2013 results We recorded total revenues of € 26.8 bn. This was driven by a return to strong growth in our Life/Health business and continued strong growth in Asset Management. In addition, we experienced stable revenues in our Property-Casualty business. On an internal basis, revenues rose by 6.5 %. Our operating profit increased 5.2 % to € 2,367 mn. Asset Man- agement again contributed strongly, driven by the increase in revenues and our operational efficiency while our Prop- erty-Casualty segment benefited from an improved under- writing result. Life/Health operating profit was negatively impacted by the effects of market volatility on our invest- ment result and higher deferred acquisition expenses. The operating result from the Corporate and Other segment worsened, driven by a higher loss in Holding & Treasury. Net income increased 25.2 % to € 1,675 mn, reflecting our solid operating performance, a higher non-operating result as well as a 3.3 percentage point decrease in the effective tax rate. Shareholders’ equity amounted to € 47,866 mn as of 30 June 2013, a decrease of € 2,522 mn compared to 31 December 2012 (as restated). This fall was largely driven by lower unrealized gains on debt securities. The conglomerate sol- vency ratio was down 20 percentage points to 177 %. This decrease was mainly due to the decline in shareholder’s equity as of 1 January 2013 as a result of the retrospective application of the amendments to IAS 19. 1 Excluding this impact, our solvency ratio would have decreased by 4 per- centage points over the year-end figure driven primarily by the redemption of a subordinated bond. 1 In contrast to the reported IFRS figures, the conglomerate solvency figures have not been restated for the previous reporting year(s). For further details on the amendments to IAS 19, please refer to note 2 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Total revenues 1 2013 to 2012 second quarter comparison total revenues – segments A 03 € mn + 0.0 % + 6.5 % 30,000 24,5741 137 1,303 25,1961 141 1,497 (6.4) % + 23.1 % 26,7761 132 1,815 20,000 12,978 12,861 + 10.3 % 14,125 10,000 10,194 10,726 + 0.0 % 10,754 2Q 2011 2Q 2012 2Q 2013 Property-Casualty Internal growth Life/Health Asset Management Corporate and Other 1 Total revenues include € (50) mn, € (29) mn and € (38) mn from consolidation for 2Q 2013, 2012 and 2011, respectively. Property-Casualty gross premiums written grew to € 10,754 mn. On an internal basis, gross premiums were stable as the positive price effect of 0.8 % was entirely offset by the negative volume effect. However, we experienced growth in our subsidiaries in Turkey, Latin America and Australia which partly offset declines at AGCS and in the United States. Excluding the decline due to the expected reduction in our U.S. crop business, our internal growth amounted to 2.3 %. Life/Health statutory premiums grew by 10.3 % to € 14,125 mn, on an internal basis. This increase was driven by strong unit- linked sales, predominantly in single premium products. 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Interim Report Second Quarter and First Half Year of 2013 Allianz Group Asset Management generated internal revenue growth of 23.1 %, largely benefiting from the increase in net fee and commission income, which was driven by strong growth in average assets under management and higher margins. As of 30 June 2013, we had total assets under management of € 1,863 bn. Third-party net flows were positive at € 7 bn in the second quarter of 2013. 2013 to 2012 first half year comparison We generated total revenues of € 58,824 mn, up 6.5 % com- pared to the first half year of 2012. On an internal basis, revenues rose by 6.3 %. Operating profit 2013 to 2012 second quarter comparison operating profit – segments A 04 € mn (2.0) % + 5.2 % 3,000 2,2971 2,2501 2,3671 527 575 804 2,000 678 818 669 1,000 1,303 1,050 1,179 (180) (180) (274) 2Q 2011 2Q 2012 2Q 2013 Property-Casualty Life/Health Asset Management Corporate and Other 1 Total operating profit includes € (11) mn, € (13) mn and € (31) mn from consolidation in 2Q 2013, 2012 and 2011, respectively. Operating profit from our Property-Casualty business increased by € 129 mn to € 1,179 mn. This was driven by our strong underwriting result, which grew by € 123 mn to € 357 mn, benefiting from an improvement in our claims development and continued positive price momentum. The combined ratio improved by 1.2 percentage points to 96.0 %. 7 8 Life/Health operating profit was solid, but decreased by € 149 mn to € 669 mn. This was due to a lower investment result and higher deferred acquisition expenses. Our Asset Management segment achieved a strong operat- ing profit of € 804 mn, up 39.8 %, supported by an increase in revenues, our operational efficiency and a decline in restructuring charges. Excluding restructuring charges, our cost-income ratio improved by 1.9 percentage points to 55.6 %. Corporate and Other operating loss worsened by € 94 mn to a loss of € 274 mn. This was mainly driven by a higher loss in Holding & Treasury, where we had higher pension costs and new Group IT projects. 2013 to 2012 first half year comparison Operating profit increased by € 581 mn to € 5,164 mn sup- ported by strong growth in our Asset Management and Property-Casualty business. The Life/Health contribution remained strong, but was impacted by ongoing market volatility and low interest rate levels. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Non-operating result 2013 to 2012 second quarter comparison Our non-operating result improved by € 283 mn to a profit of € 132 mn. This was due to the better non-operating invest- ment result, largely as a result of lower impairments and, to a lesser extent, higher realizations. Non-operating income from financial assets and liabilities carried at fair value through income (net) fell by € 21 mn to € 7 mn including various offsetting effects from derivatives and hedging related activities. Non-operating realized gains and losses (net) rose by € 88 mn to € 458 mn mainly driven by higher realizations on equities (up by € 94 mn). Of this increase, € 90 mn was due to realized gains on the disposal of The Hartford shares. Non-operating impairments of investments (net) dropped from € 207 mn to € 64 mn because of lower impairments on equities. In the second quarter of 2012, we recorded higher impairments on our equity investments in the financial sector resulting from unfavorable equity market develop- ments. Non-operating interest expenses from external debt were down by € 18 mn to € 233 mn. Due to the lower interest rate environment, bonds issued since the second quarter of 2012 have a lower yield than those subsequently matured or redeemed. Non-operating income from fully consolidated private and equity investments (net) improved from a loss of € 47 mn to a loss of € 4 mn, mainly due to a consolidation effect in the second quarter of 2012 related to a private equity parti- cipation. 2013 to 2012 first half year comparison Our non-operating result improved by € 252 mn to a profit of € 13 mn, reflecting the improvement in our non-operating investment result. The half year comparison benefited from lower impairments on equity investments than in the first six months of 2012. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Income taxes 2013 to 2012 second quarter comparison Income tax expenses rose by €63 mn to € 824 mn. This was primarily driven by the higher pre-tax income partly offset by the positive effect of an improved effective tax rate. Com- pared to the second quarter of last year, when non tax- deductible impairments and previous year taxes led to a rate of 36.3 %, the effective tax rate improved by 3.3 percent- age points in the current quarter. 2013 to 2012 first half year comparison Income taxes were up by € 146 mn to € 1,701 mn for the first six months of 2013. The increase was primarily because of higher pre-tax income. The effective tax rate improved to 32.9 % (6m 2012: 35.8 %) due to the effect of previous year tax- es and a higher tax charge from non-tax effective losses in the first half of 2012. Net income net income A 05 � mn + 25.2 % 2,000 + 22.3 % 1,500 1,000 1,675 1,338 1,094 500 2Q 2011 2Q 2012 2Q 2013 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2013 to 2012 second quarter comparison Due to our strong operational performance, an improved non-operating investment result – which benefited from lower impairments – and a lower effective tax rate our net income increased from € 1,338 mn to € 1,675 mn. Net income attributable to shareholders and non-controlling interests amounted to € 1,588 mn (2Q 2012: € 1,252 mn) and € 87 mn (2Q 2012: € 86 mn), respectively. The net income attributable to non-controlling interests related mainly to Euler Hermes and PImCO. 2013 to 2012 first half year comparison Our net income rose from € 2,789 mn to € 3,476 mn. This was driven by our strong operational performance and improved non-operating investment result which – relative to the previous half year – was less burdened by impairments. Net income attributable to shareholders and non-controlling interests amounted to € 3,295 mn (6m 2012: € 2,629 mn) and € 181 mn (6m 2012: € 160 mn), respectively. 9 10 total revenues and reconciliation of operating profit to net income € mn Total revenues 1 Premiums earned (net) Operating investment result Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Interest expenses, excluding interest expenses from external debt Operating impairments of investments (net) Investment expenses Subtotal Fee and commission income Other income Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) 2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Reclassification of tax benefits Operating profit Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Subtotal Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Reclassification of tax benefits Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share in € Diluted earnings per share in € 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 06 three months ended 30 June six months ended 30 June 2013 2012 2013 2012 26,776 25,196 58,824 55,249 16,291 15,800 32,963 32,242 5,412 5,488 10,579 10,620 (707) (212) (928) (346) 733 745 1,612 1,817 (102) (117) (212) (240) (118) (215) (181) (280) (217) (216) (425) (413) 5,001 5,473 10,445 11,158 2,679 2,285 5,433 4,430 42 58 102 109 (11,972) (11,689) (23,610) (23,680) (3,071) (3,551) (7,170) (7,358) (15) (42) (29) (88) (5,786) (5,237) (11,250) (10,679) (788) (686) (1,566) (1,370) (6) (139) (100) (147) (8) (25) (54) (44) – 3 – 10 2,367 2,250 5,164 4,583 7 28 3 256 458 370 725 486 (64) (207) (135) (330) 401 191 593 412 (4) (47) (8) (53) (233) (251) (474) (510) (16) (10) (41) (22) (16) (31) (57) (56) – (3) – (10) 132 (151) 13 (239) 2,499 2,099 5,177 4,344 (824) (761) (1,701) (1,555) 1,675 1,338 3,476 2,789 87 86 181 160 1,588 1,252 3,295 2,629 3.50 2.77 7.27 5.81 3.47 2.72 7.18 5.78 2 For the three months ended 30 June 2013 expenses for premium refunds (net) in Property- Casualty of € (37) mn (2012: € (25) mn) are included. For the six months ended 30 June 2013, expenses for premium refunds (net) in Property-Casualty of € (100) mn (2012: € (51) mn) are included. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Risk Management Risk management is an integral part of our business and supports our value-based management. For further infor- mation we refer you to the Risk Report in our 2012 Annual Report. The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. The risk profile described in the latest Risk Report remains unchanged. However, Allianz continues to be exposed to two external forces that adversely affect our risk profile and would not normally be associated with our core operating activities: the European sovereign debt crisis and regulatory developments – especially the European solvency directive, Solvency II. the european sovereign debt crisis Overall conditions continued to improve in the Eurozone, supported by the approval of the loan extension granted to Ireland and Portugal and the Cypriot parliament’s approval of the E.U. bailout deal. However, low interest rates and market volatility may continue to negatively impact Allianz’s risk profile through our business development, asset values and the value of our liabilities. There has been a significant easing of the European sover- eign debt crisis and markets have regained momentum. However, some underlying issues of the Eurozone sover- eigns remain unsolved and the crisis may re-surface again. The fragmentation of the Eurozone credit markets continues to be a key focus. European cooperation and alignment on bank resolution powers and the creation of a banking union also remain high on the E.U. agenda. Even though long-term yields of major Eurozone sover- eigns were converging during the second quarter of 2013, European credit markets continue to remain volatile due to uncertainties about future central bank policies affecting especially the riskier part of the credit spectrum. The Euro- pean Central Bank provided forward guidance in the first days of July by committing itself to maintain low interest rates for an extended period of time. This should contribute to the further stabilization of the Eurozone. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Looking ahead, our robust action plan to deal with the Euro crisis has bolstered our financial and operational resilience to strong shock scenarios. Continuous monitoring remains a priority to ensure the effectiveness of our contingency measures. regulatory developments Although details of future regulatory requirements – espe- cially Solvency II and those defining systemically relevant financial institutions – are becoming clearer, the final rules are still evolving. As well as leading to delays in the intro- duction of the Solvency II framework, the lack of final rules for both these regulations creates uncertainties for our business and for Allianz’s ultimate capital requirements. In addition, due to the market value balance sheet approach, the Solvency II regime is expected to lead to higher volatility in regulatory capital requirements com- pared to Solvency I, specifically with regard to long-term asset accumulation and savings products in the life insur- ance segment. Therefore, it is likely that product design, investment strategies and hedging programs will need to be adapted throughout the industry to mitigate this volatility. Events after the balance sheet date allianz closes yapi kredi transaction in turkey On 12 July 2013, Allianz completed the acquisition of Yapi Kredi Sigorta. For further information on the acquisition and the related mandatory tender offer, please refer to note 3 to the condensed consolidated interim financial statements. hailstorm andreas in germany At the end of July 2013, hailstorm Andreas caused severe damage in some parts of Germany. As of today, the Allianz Group expects losses of approximately € 200 mn. 11 12 Other information Business operations and group structure The Allianz Group’s business operations and structure are described in the Business Operations and Markets chapter starting on page 93 of our Annual Report 2012. strategy The Allianz Group’s strategy is described in the Our Strategy chapter starting on page 106 of our Annual Report 2012. There have been no material changes to our Group strategy since. products, services and sales channels For an overview of the products and services offered by the Allianz Group, as well as sales channels, please refer to the Business Operations and Markets chapter starting on page 93 of our Annual Report 2012. Information on our brand can also be found in the Our Progress in Sustainable Develop- ment chapter on page 110 of our Annual Report 2012. Allianz introduced two new products for the German market in the second quarter of 2013: As a part of our new modular product range for private customers in the Property-Casualty segment, we intro- duced PrivatSchutz (Allianz Personal Cover). This product includes modular rates for liability, household, residential buildings and legal expenses insurance. In the Life/Health segment we launched the Perspektive (Perspective) product to supplement traditional pension insurance. The Perspektive product balances the combina- tion of reduced guarantees with higher expected returns for the policyholder resulting in lower capital requirements for the shareholder. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Property-Casualty Insurance Operations second quarter 2013 − Gross premiums written were stable at € 10.8 bn. − Operating profit grew by 12.3 % to € 1,179 mn, benefiting from a strong underwriting result. − Combined ratio at 96.0 %. Segment overview Operating profit + 12.3 % Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as accident/disability, property, general liability and motor. We conduct business worldwide in more than 50 countries. We are also a global leader in travel insurance, assistance services and credit insurance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels. operating profit property-casualty € mn (19.4) % 1,500 1,250 1,000 + 12.3 % A 07 750 1,303 1,050 1,179 Earnings summary 500 250 Gross premiums written were up 0.3 % to € 10.8 bn, sup- ported by growth in Turkey, Latin America and Australia. On an internal basis 1, gross premiums were stable. Excluding the decline due to the expected reduction in our U.S. crop busi- ness, our internal growth amounted to 2.3 %. 2Q 2011 2Q 2012 2Q 2013 Key figures Our operating profit grew by 12.3 % to € 1,179 mn. The under- writing result increased by € 123 mn to € 357 mn. This was mainly due to an improvement in our claims ratio and the positive price environment. Our investment income de- creased by € 77 mn to € 784 mn substantially offsetting the benefit of lower restructuring charges. key figures property-casualty € mn three months ended 30 June Gross premiums written Operating profit 2,3 2013 10,754 1,179 2012 10,726 1,050 A 08 2011 10,194 1,303 Loss ratio in % 67.3 69.4 67.0 The combined ratio decreased 1.2 percentage points to 96.0 % in the second quarter of 2013 largely supported by the improvement in the underlying accident year loss ratio. Expense ratio in % Combined ratio 2 in % 28.7 96.0 27.8 97.2 27.9 94.9 1 2 Gross premiums written adjusted for foreign currency translation and (de-)consolidation effects. Prior period figures have been restated to reflect the retrospective application of the amend- ed standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. 3 As of the first quarter of 2013, all restructuring charges are presented within operating profit and all prior periods have been adjusted to conform to the current accounting presentation. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 13 14 Gross premiums written 1 2013 to 2012 second quarter comparison Gross premiums written were stable as the positive price effect of 0.8 % was entirely offset by the negative volume effect. However, we experienced growth in our subsidiaries in Turkey, Latin America and Australia which partly com- pensated for declines at AGCS and in the United States. Excluding the decline due to the expected reduction in our U.S. crop business, our internal growth amounted to 2.3 %. On a nominal basis, we recorded gross premiums written of € 10,754 mn, up 0.3 %. Consolidation/deconsolidation effects amounted to € 178 mn. Unfavorable foreign currency translation effects accounted for € 147 mn, mainly due to the depreciation of the Brazilian Real, the Australian Dollar and the British Pound against the Euro.2 Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2Q 2013 internal growth over 2Q 2012: Cluster 1: Overall growth – both price and volume effects are positive. Cluster 2: Overall growth – either price or volume effects are positive. Cluster 3: Overall decline – either price or volume effects are positive. Cluster 4: Overall decline – both price and volume effects are negative. Cluster 4 is not shown in this quarter as none of our operat- ing entities represented here recorded both negative price and volume effects. 1 2 We comment on the development of our gross premiums written on an internal basis, meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. Based on the quarterly average exchange rates in 2013 compared to 2012. Interim Report Second Quarter and First Half Year of 2013 Allianz Group gross premiums written by operating entity – internal growth rates1 % 56.0 Turkey 10.9 12.7 Latin America 33.0 Allianz Global Assistance 5.6 12.0 Australia 8.1 7.2 6.9 Credit Insurance 1.6 Asia-Pacific 17.6 15.3 7.6 Switzerland 3.0 5.0 CEE (6.1) 1.9 Spain (1.0) France 1.4 0.4 Italy 0.2 1.1 (0.3) U.K. 4.5 (0.5) Germany 3.3 (15.7) AGCS 6.8 (34.2) USA 4.1 (40) (20) 0 20 40 60 2Q 2013 over 2Q 2012 2Q 2012 over 2Q 2011 Cluster 1 Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. cluster 1 In Turkey gross premiums climbed to € 225 mn. Our internal growth of 56.0 % largely stemmed from our motor business through tied agents. In Latin America gross premiums increased to € 630 mn. On an internal basis we grew by 12.7 %, driven by a strong con- tribution from our motor business in Brazil and growth in Argentina. A 09 1 2 3 A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations In Allianz Global Assistance gross premiums grew to € 483 mn, up 12.0 % on an internal basis. We experienced positive price and volume increases mainly in our Brazilian, U.S. and German business. In Australia gross premiums rose to € 767 mn. On an inter- nal basis we grew by 8.1 %, benefiting from new customers in our motor lines and price increases in our retail and motor business. In our Credit Insurance business, we recorded gross premi- ums of € 539 mn. On an internal basis gross premiums grew by 6.9 %, supported by volume increases in growth markets. Overall, the price effect was slightly positive. cluster 2 In Asia-Pacific gross premiums amounted to € 174 mn. The internal growth of 17.6 % was driven by strong growth in our Malaysian motor business. The overall price effect was slightly negative. In Switzerland gross premiums increased to € 151 mn. The internal growth of 7.6 % was driven by a volume rise in our motor business. This was partly offset by a negative price effect. In Central and Eastern Europe we recorded gross premiums of € 582 mn. On an internal basis, gross premiums rose by 5.0 % – largely due to strong volume growth in our motor and health business in Russia. The overall price effect was negative. In Spain gross premiums were up 1.9 % to € 486 mn benefit- ing from volume growth in our motor and non-motor busi- ness. Due to difficult market conditions, prices declined in our motor and commercial lines. In France gross premiums grew to € 894 mn, up 1.4 % on an internal basis. This growth was due to price increases in most lines of business which more than offset volume losses. In Italy gross premiums slightly increased by 0.2 % to € 1,034 mn. This was mainly because of price increases in our motor business. Interim Report Second Quarter and First Half Year of 2013 Allianz Group cluster 3 In the United Kingdom gross premiums decreased to € 576 mn, down by 0.3 % on an internal basis. The decline in gross premiums was mainly due to lower prices in our motor business through our broker and direct channels. In Germany gross premiums decreased to € 1,669 mn. On an internal basis, gross premiums declined by 0.5 %. This was mainly due to volume decreases in our non-motor busi- ness which could not be offset by tariff increases in our motor and property business. At AGCS we recorded gross premiums of € 1,237 mn, down by 15.7 % on an internal basis. This was mainly due to volume effects in our Allianz Risk Transfer (ART) business. Price decreases in our aviation business entirely offset price increases in our property and marine lines. In the United States gross premiums amounted to € 520 mn, down by 34.2 % on an internal basis. This decrease was largely due to the expected reduction in our crop business and, to a lesser extent, to volume declines in our commer- cial lines which were impacted by our strict underwriting discipline. The price effect was positive due to strong price increases in our commercial lines. 2013 to 2012 first half year comparison On an internal basis, gross premiums written increased by 0.7 %. This was comprised of a positive price effect of 1.0 % and a negative volume effect of 0.3 %. On a nominal basis, gross premiums grew by 1.7 % to € 25,951 mn. Excluding the decline due to the reduction in our U.S. crop business, our internal growth amounted to 2.3 %. 15 16 Operating profit operating profit A 10 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Underwriting result 357 234 897 567 Operating investment income 784 861 1,547 1,700 Other result 1 38 (45) 54 (34) Operating profit 1,179 1,050 2,498 2,233 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. We analyze the operating profit in the Property-Casualty segment in terms of underwriting result, operating invest- ment income and other result 1. 2013 to 2012 second quarter comparison Operating profit increased by € 129 mn to € 1,179 mn driven by an improved underwriting result. Our underwriting result grew by € 123 mn to € 357 mn benefit- ing from an improvement in our underlying claims develop- ment (accident year loss ratio excluding natural catastro- phes) and continued positive price momentum. This was slightly offset by higher expenses. The combined ratio improved by 1.2 percentage points to 96.0 %. 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. Interim Report Second Quarter and First Half Year of 2013 Allianz Group underwriting result A 11 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Premiums earned (net) 10,379 10,266 20,691 20,347 Accident year claims (7,579) (7,340) (14,543) (14,486) Previous year claims (run-off) 595 221 746 485 Claims and insurance benefits incurred (net) (6,984) (7,119) (13,797) (14,001) Acquisition and administrative expenses (net) (2,976) (2,862) (5,885) (5,674) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 (62) (51) (112) (105) Underwriting result 357 234 897 567 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. Our accident year loss ratio was 73.0 %, up 1.5 percentage points compared to the previous year. This was driven by higher natural catastrophe losses which more than offset the benefit of lower underlying losses. Due to a rather active second quarter in 2013, compared to the second quarter of 2012 which was relatively benign, our net losses from natural catastrophes increased by € 375 mn to € 549 mn. The impact from natural catastrophes grew by 3.6 percentage points to 5.3 %. The most significant natural catastrophes were the floods in Central and Eastern Europe (Frederik) with net claims of € 329 mn. Excluding natural catastrophes, our accident year loss ratio was 67.7 %, a 2.1 percentage point improvement com- pared to the second quarter of 2012. Favorable develop- ments in these underlying losses were recorded across the portfolio in all our core markets. This was due to a positive price momentum and a reduction in claims frequency/ severity. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations The following operations contributed positively to the development of our accident year loss ratio: Italy: 0.7 percentage points. This was driven by an ongoing low frequency environment, stable average premiums and lower impacts from claims in our motor third party liability. We also benefited from favorable weather conditions com- pared to the second quarter of 2012, which was further impacted by the earthquake in Emilia Romagna. USA: 0.6 percentage points. This improvement was driven by the positive development in our commercial accident year loss ratio following both price and loss-related initia- tives, lower natural catastrophe losses and a reduced share of crop business. Credit: 0.5 percentage points. This resulted from a growth in premiums and a better claims experience, including fewer large losses. The following operations contributed negatively to the development of our accident year loss ratio: Germany: 2.2 percentage points. The negative impact was driven by a higher burden from natural catastrophes which more than offset the benefit of lower underlying losses. In the second quarter of 2013, we were affected by the Frederik flood and the Manni / Norbert storm, while in the second quarter of 2012 we recorded claims from the Lisa storm. Reinsurance: 0.8 percentage points. This increase was attributable to higher losses in our catastrophe lines of business, which were particularly impacted by the Frederik flood and the Manni / Norbert storm. Central and Eastern Europe: 0.3 percentage points. This mainly resulted from a higher level of natural catastrophe claims at our operations in the Czech Republic and higher weather related claims in Poland and Slovakia along with an increase in motor severity in Russia. Switzerland: 0.3 percentage points. This increase was mainly driven by natural catastrophe and large claims, which more than offset the positive impact from improve- ments in the underlying loss ratio. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Our run-off result grew by € 374 mn to € 595 mn, which led to a favorable development of 3.6 percentage points in the run-off ratio. This benefited from the absence of some neg- ative effects reported in the second quarter of 2012 includ- ing: an increase in the estimated ultimate loss for the 2011 Thailand floods of € 120 mn and € 89 mn of reserve strength- ening in the United States. In the second quarter of 2013, total expenses stood at € 2,976 mn, compared to € 2,862 mn in the second quarter of 2012. Our expense ratio increased by 0.9 percentage points to 28.7 %. The vast majority of this increase includes the impact of regulatory changes at our business in Brazil (policy collection fee), structural changes in our portfolio in the United States (reduced crop business), the acquisition of the Gan Eurocourtage business in France (distribution exclusively via brokers carrying higher acquisition costs) and the decrease in the premium base at AGCS. operating investment income1 A 12 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Interest and similar income (net of interest expenses) 925 965 1,797 1,893 Operating income from financial assets and liabilities carried at fair value through income (net) (35) (7) (27) (5) Operating realized gains/ losses (net) 15 9 30 14 Operating impairments of investments (net) (7) (11) (8) (14) Investment expenses (77) (70) (145) (137) Expenses for premium refunds (net) 2 (37) (25) (100) (51) Operating investment income 784 861 1,547 1,700 1 2 The operating investment income for our Property-Casualty segment consists of the operating investment result – as shown in note 4 to the condensed consolidated interim financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 29 to the condensed consolidated interim financial statements. Refers to policyholder participation, mainly from UbR (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 29 to the condensed consolidated interim financial statements. 17 18 Operating investment income declined by € 77 mn to € 784 mn. This was mainly driven by lower interest and similar income (net of interest expenses) and an unfavorable net foreign currency result. Interest and similar income (net of interest expenses) fell by € 40 mn to € 925 mn due to lower income on equity and debt securities. The total average asset base grew by 4.8 %, from € 100.8 bn in the second quarter of 2012 to € 105.6 bn in the second quarter of 2013. This growth could not offset the negative effect of decreasing yields. Operating income from financial assets and liabilities car- ried at fair value through income (net) resulted in a loss of € 35 mn. The decrease of € 28 mn was mainly due to an unfa- vorable foreign currency result including related hedging transactions. other result A 13 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Fee and commission income 307 291 597 581 Other income 11 10 19 17 Fee and commission expenses (273) (264) (548) (540) Other expenses (6) (6) (11) (10) Restructuring charges (1) (76) (3) (82) Other result 38 (45) 54 (34) Our other result increased by € 83 mn to € 38 mn, primarily due to the near absence of restructuring charges compared to the second quarter of 2012. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2013 to 2012 first half year comparison Operating profit rose by € 265 mn to € 2,498 mn. This improve- ment was mainly driven by our strong underwriting result and lower restructuring costs. The investment result decreased by € 153 mn to € 1,547 mn, primarily affected by the current low yield environment and less dividend income. Our combined ratio improved by 1.6 percentage points to 95.1 %. This was supported by an improvement in our acci- dent year loss ratio of 0.9 percentage points and a 1.2 per- centage point improvement in our run-off ratio despite an increase in net losses from natural catastrophes of € 404 mn to € 619 mn and higher expenses compared to the first half of 2012. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations property-casualty segment information € mn Gross premiums written 1 Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % 1 2 For the Property-Casualty segment, total revenues are measured based upon gross premiums written. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 14 three months ended 30 June six months ended 30 June 2013 2012 2013 2012 10,754 10,726 25,951 25,523 (1,121) (1,161) (2,431) (2,624) 746 701 (2,829) (2,552) 10,379 10,266 20,691 20,347 932 976 1,819 1,915 (35) (7) (27) (5) 15 9 30 14 307 291 597 581 11 10 19 17 11,609 11,545 23,129 22,869 (6,984) (7,119) (13,797) (14,001) (99) (76) (212) (156) (7) (11) (22) (22) (7) (11) (8) (14) (77) (70) (145) (137) (2,976) (2,862) (5,885) (5,674) (273) (264) (548) (540) (1) (76) (3) (82) (6) (6) (11) (10) (10,430) (10,495) (20,631) (20,636) 1,179 1,050 2,498 2,233 67.3 69.4 66.7 68.8 28.7 27.8 28.4 27.9 96.0 97.2 95.1 96.7 3 4 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net) and claims and insur- ance benefits incurred (net) divided by premiums earned (net). 19 20 Property-Casualty insurance operations by reportable segment – second quarter ProPerty-Casualty insuranCe oPerations by rePortable segment € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal 1 three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 Germany Switzerland Austria German Speaking Countries 2 1,669 151 216 2,055 1,690 144 214 2,070 1,669 155 216 2,059 1,677 144 214 2,057 1,860 348 202 2,426 1,851 357 197 2,422 (53) 30 10 (5) 122 56 19 203 Italy France 3 Netherlands Turkey Belgium 4 Greece Africa Western & Southern Europe 5 1,034 894 154 225 108 26 16 2,457 1,032 736 168 150 79 29 17 2,211 1,034 746 154 234 83 26 16 2,293 1,032 736 168 150 79 29 17 2,211 993 951 162 146 106 21 13 2,392 971 781 169 98 75 23 11 2,128 322 120 15 13 16 4 3 496 202 91 17 4 12 6 1 337 Latin America Spain Portugal Iberia & Latin America 630 486 66 1,182 598 477 66 1,141 674 486 66 1,226 598 477 66 1,141 444 452 67 963 388 461 66 915 34 63 6 103 26 53 10 89 United States USA 520 520 805 805 530 530 805 805 461 461 603 603 56 56 (78) (78) Allianz Global Corporate & Specialty Reinsurance PC Australia United Kingdom Credit Insurance Ireland 6 Global Insurance Lines & Anglo Markets 7 1,237 661 767 576 539 112 3,892 1,480 692 737 606 500 111 4,126 1,248 661 797 604 525 112 3,947 1,480 692 737 606 491 111 4,117 708 724 560 523 377 94 2,986 774 816 521 539 338 99 3,087 86 66 133 46 116 14 461 75 50 104 64 118 6 416 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 8 Asia-Pacific Middle East and North Africa Growth Markets 180 110 59 72 69 44 22 24 3 582 174 18 774 155 105 60 76 69 46 27 22 3 562 148 20 730 186 108 59 72 70 44 22 24 4 590 174 20 784 155 105 60 76 69 46 27 22 3 562 148 20 730 142 85 57 65 54 37 14 19 1 474 95 12 581 162 87 58 70 55 36 14 19 1 502 81 12 595 (6) 1 2 13 6 1 4 3 – 23 19 2 44 (2) 7 (7) 19 8 1 – 3 2 27 14 2 43 Allianz Global Assistance Allianz Worldwide Care 6 Allianz Worldwide Partners 9 483 119 640 432 91 523 484 119 641 432 91 537 458 102 570 428 88 516 22 9 24 35 5 40 Consolidation and Other 10 Total (766) 10,754 (880) 10,726 (767) 10,713 (881) 10,717 – 10,379 – 10,266 – 1,179 – 1,050 1 2 3 This reflects gross premiums written on an internal basis (adjusted for foreign currency trans- lation and (de-)consolidation effects). Includes “Münchener und Magdeburger Agrarversicherung AG” with gross premiums written of € 19 mn, premiums earned (net) of € 16 mn and operating profit of € 8 mn for 2Q 2013 and gross premiums written of € 22 mn, premiums earned (net) of € 17 mn and operating profit of € 6 mn for 2Q 2012. Effective as of 1 October 2012, Allianz France acquired the Property-Casualty brokerage port- folio-related activities (excluding transport) of Gan Eurocourtage. 4 5 6 Effective as of 1 August 2012, Allianz Belgium acquired the assets and assumed the liabilities related to the insurance activities of Mensura. Contains € 3 mn and € 4 mn operating profit for 2Q 2013 and 2Q 2012, respectively, from a management holding located in Luxembourg. From the third quarter of 2012 onwards, Allianz Worldwide Care was transferred from Global Insurance Lines & Anglo Markets to Allianz Worldwide Partners. Prior year figures have been adjusted. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations % three months ended 30 June Germany Switzerland Austria German Speaking Countries 2 Italy France 3 Netherlands Turkey Belgium 4 Greece Africa Western & Southern Europe 5 Latin America Spain Portugal Iberia & Latin America United States USA Allianz Global Corporate & Specialty Reinsurance PC Australia United Kingdom Credit Insurance Ireland 6 Global Insurance Lines & Anglo Markets 7 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 8 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care 6 Allianz Worldwide Partners 9 Consolidation and Other 10 Total 7 8 9 Contains € 0 mn and € (1) mn operating profit (loss) for 2Q 2013 and 2012, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. The business division Allianz Worldwide Partners includes the legal entities of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. The set-up of this division will be further enhanced during the following quarters. The reinsurance business of Allianz Interim Report Second Quarter and First Half Year of 2013 Allianz Group Combined ratio Loss ratio Expense ratio 2013 2012 2013 2012 2013 110.6 97.2 99.0 107.3 99.6 91.5 96.1 97.9 82.9 74.1 71.9 80.5 72.0 67.8 69.7 71.2 27.7 23.1 27.1 26.8 76.4 96.3 96.6 96.8 96.1 81.1 92.8 87.9 89.0 98.0 96.8 102.6 95.3 77.5 101.2 93.8 51.6 67.1 66.1 72.0 67.0 46.9 41.4 60.6 64.5 71.3 69.7 74.6 62.0 39.8 44.5 67.4 24.8 29.2 30.5 24.8 29.1 34.2 51.4 27.3 98.7 90.0 94.4 94.3 100.2 91.3 91.7 95.1 65.2 68.2 70.9 67.0 68.4 69.8 69.4 69.2 33.5 21.8 23.5 27.3 100.2 100.2 122.6 122.6 64.4 64.4 90.6 90.6 35.8 35.8 98.1 95.1 86.8 96.3 77.8 91.5 92.2 99.6 97.9 94.1 93.7 79.3 101.5 95.1 69.1 68.2 60.6 65.9 47.8 61.5 63.8 73.7 71.3 65.5 65.1 53.5 71.9 67.9 29.0 26.9 26.2 30.4 30.0 30.0 28.4 111.7 103.3 106.7 86.7 92.2 104.3 79.7 91.6 127.0 102.1 88.4 95.8 99.7 104.3 96.8 124.6 81.5 90.6 106.5 99.9 90.9 48.4 100.3 89.9 103.3 99.2 69.6 67.9 67.9 56.2 61.2 73.1 48.8 52.0 66.9 65.2 57.6 61.5 63.9 63.6 64.3 65.4 51.6 64.8 77.4 68.0 52.2 9.1 62.8 57.8 70.1 62.4 42.1 35.4 38.8 30.5 31.0 31.2 30.9 39.6 60.1 36.9 30.8 34.3 35.8 96.8 91.8 97.0 94.3 94.9 94.4 61.5 72.5 63.8 58.3 75.6 61.4 35.3 19.3 33.2 – 96.0 – 97.2 – 67.3 – 69.4 – 28.7 10 Global Automotive contributes with gross premiums written of € 38 mn, premiums earned (net) of € 10 mn and an operating profit (loss) of € (6) mn for 2Q 2013. Represents elimination of transactions between Allianz Group companies in different geo- graphic regions. A 15 2012 27.6 23.7 26.4 26.7 24.5 26.7 27.1 28.0 33.3 37.7 56.7 26.4 31.8 21.5 22.3 25.9 32.0 32.0 25.9 26.6 28.6 28.6 25.8 29.6 27.2 40.7 32.5 59.2 29.9 25.8 29.1 31.9 38.7 39.3 37.5 32.1 33.2 36.8 36.0 19.3 33.0 – 27.8 21 22 Property-Casualty insurance operations by reportable segment – first half year ProPerty-Casualty insuranCe oPerations by rePortable segment € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal 1 six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 Germany 2 Switzerland Austria German Speaking Countries 3 5,669 1,103 566 7,365 5,583 1,120 552 7,284 5,669 1,123 566 7,385 5,570 1,120 552 7,271 3,711 717 401 4,849 3,654 732 389 4,796 266 89 28 393 317 110 35 469 Italy France 4 Netherlands Turkey Belgium 5 Greece Africa Western & Southern Europe 6 2,012 2,359 424 436 252 56 54 5,593 1,985 1,874 419 296 188 59 53 4,874 2,012 1,906 424 445 193 56 54 5,090 1,985 1,874 416 296 185 59 53 4,868 1,959 1,885 332 276 210 41 27 4,730 1,929 1,582 343 189 148 46 24 4,261 528 223 25 30 25 8 4 850 365 187 15 7 21 12 3 618 Latin America Spain Portugal Iberia & Latin America 1,197 1,100 183 2,480 1,164 1,084 186 2,434 1,302 1,100 183 2,585 1,163 1,084 186 2,433 884 899 132 1,915 768 911 129 1,808 73 114 10 197 65 128 19 212 United States USA 972 972 1,461 1,461 985 985 1,461 1,461 924 924 1,131 1,131 103 103 (42) (42) Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland 7 Global Insurance Lines & Anglo Markets 8 2,803 2,115 1,452 1,171 1,138 224 8,903 3,104 2,182 1,412 1,174 1,091 232 9,195 2,822 2,075 1,498 1,212 1,114 224 8,945 3,104 2,182 1,412 1,174 1,067 232 9,171 1,438 1,458 1,159 1,040 721 187 6,003 1,598 1,582 1,065 1,057 660 197 6,159 178 110 198 101 204 21 812 192 114 171 97 218 23 814 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 9 Asia-Pacific Middle East and North Africa Growth Markets 400 219 145 177 143 93 37 52 9 1,274 354 38 1,666 360 214 174 185 147 93 42 51 7 1,272 300 38 1,610 410 215 146 177 146 93 37 53 9 1,286 358 41 1,685 360 214 174 185 147 93 42 51 7 1,272 300 38 1,610 288 170 113 131 111 73 31 38 3 958 184 24 1,166 317 178 116 134 112 72 31 38 3 1,001 157 24 1,182 (6) 4 8 26 12 2 9 6 1 59 38 4 101 (3) 11 5 34 15 2 4 6 2 71 29 2 102 Allianz Global Assistance Allianz Worldwide Care 7 Allianz Worldwide Partners 10 1,009 296 1,360 905 231 1,136 1,011 296 1,362 905 231 1,150 893 199 1,104 837 173 1,010 36 17 42 49 11 60 Consolidation and Other 11 Total (2,388) 25,951 (2,471) 25,523 (2,349) 25,688 (2,465) 25,499 – 20,691 – 20,347 – 2,498 – 2,233 1 2 3 This reflects gross premiums written on an internal basis (adjusted for foreign currency trans- lation and (de-)consolidation effects). The combined ratio at Germany and Reinsurance PC was impacted by a one-off effect related to the commutation of internal reinsurance resulting in a 1.8 percentage point improvement in the combined ratio for Germany and an increase of 4.5 percentage points in Reinsurance PC. This had no impact at Group level. Includes “Münchener und Magdeburger Agrarversicherung AG” with gross premiums written of € 27 mn, premiums earned (net) of € 20 mn and operating profit of € 10 mn for 6m 2013 and 4 5 6 gross premiums written of € 29 mn, premiums earned (net) of € 21 mn and operating profit of € 7 mn for 6m 2012. Effective as of 1 October 2012, Allianz France acquired the Property-Casualty brokerage port- folio-related activities (excluding transport) of Gan Eurocourtage. Effective as of 1 August 2012, Allianz Belgium acquired the assets and assumed the liabilities related to the insurance activities of Mensura. Contains € 7 mn and € 8 mn operating profit for 6m 2013 and 2012, respectively, from a manage- ment holding located in Luxembourg. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations % six months ended 30 June Germany 2 Switzerland Austria German Speaking Countries 3 Italy France 4 Netherlands Turkey Belgium 5 Greece Africa Western & Southern Europe 6 Latin America Spain Portugal Iberia & Latin America United States USA Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland 7 Global Insurance Lines & Anglo Markets 8 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 9 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care 7 Allianz Worldwide Partners 10 Consolidation and Other 11 Total 7 8 9 From the third quarter of 2012 onwards, Allianz Worldwide Care was transferred from Global Insurance Lines & Anglo Markets to Allianz Worldwide Partners. Prior year figures have been adjusted. Contains € (0.2) mn and € (1) mn operating profit (loss) for 6m 2013 and 2012, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Combined ratio Loss ratio Expense ratio 2013 2012 2013 2012 2013 101.1 93.3 97.7 99.4 98.8 91.9 97.1 97.5 75.7 71.2 70.4 74.4 71.3 69.9 70.3 71.0 25.4 22.1 27.3 25.0 80.9 96.4 98.3 94.5 95.9 82.6 94.3 89.9 90.3 98.3 100.8 103.0 97.4 77.8 95.3 94.8 56.4 68.5 68.6 69.3 67.6 48.1 54.0 63.3 66.0 72.3 72.6 75.0 63.6 43.9 54.3 68.9 24.5 27.9 29.7 25.2 28.3 34.5 40.3 26.6 98.1 91.5 96.8 94.9 98.9 90.4 91.7 94.1 65.2 70.6 73.3 68.3 68.1 69.7 69.0 69.0 32.9 20.9 23.5 26.6 100.9 100.9 114.6 114.6 65.1 65.1 81.3 81.3 35.8 35.8 97.7 95.7 93.4 95.8 81.1 95.2 94.1 97.5 96.8 97.1 96.3 78.0 97.0 95.0 69.3 61.1 67.4 64.7 52.5 63.1 64.0 70.3 69.2 70.8 64.6 51.9 67.7 67.1 28.4 34.6 26.0 31.1 28.6 32.1 30.1 108.5 102.1 105.3 87.0 91.2 102.9 75.1 91.3 116.8 100.2 88.1 95.6 98.2 103.4 98.4 107.8 82.3 91.5 104.4 89.9 91.7 62.9 98.1 90.0 107.1 97.3 67.1 67.3 65.7 56.8 62.6 72.4 44.4 53.3 61.1 64.1 57.4 62.2 63.0 61.9 65.7 58.9 52.3 64.2 78.3 58.4 54.2 18.4 61.8 59.6 73.6 61.8 41.4 34.8 39.6 30.2 28.6 30.5 30.7 38.0 55.7 36.1 30.7 33.4 35.2 97.7 92.0 97.6 96.3 94.1 95.9 62.5 73.9 64.6 60.2 75.7 62.8 35.2 18.1 33.0 – 95.1 – 96.7 – 66.7 – 68.8 – 28.4 10 11 The business division Allianz Worldwide Partners includes the legal entities of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. The set-up of this division will be further enhanced during the following quarters. The reinsurance business of Allianz Global Automotive contributes with gross premiums written of € 55 mn, premiums earned (net) of € 12 mn and an operating profit (loss) of € (9) mn for 6m 2013. Represents elimination of transactions between Allianz Group companies in different geo- graphic regions. A 16 2012 27.5 22.0 26.8 26.5 24.3 26.0 28.2 28.0 33.8 33.9 41.0 25.9 30.8 20.7 22.7 25.1 33.3 33.3 27.2 27.6 26.3 31.7 26.1 29.3 27.9 41.5 32.7 48.9 30.0 27.3 26.1 31.5 37.5 44.5 36.3 30.4 33.5 35.5 36.1 18.4 33.1 – 27.9 23 24 Life/Health Insurance Operations second quarter 2013 − Statutory premium growth returns, up by 10.3 % 1 to € 14.1 bn. − Operating profit solid at € 669 mn, but impacted by lower investment result. Segment overview Operating profit (18.2) % Allianz offers a broad range of life, health, savings and investment-oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partner- ships – we offer life and health products to both private and corporate clients. As one of the worldwide market leaders in life business we serve customers in more than 45 countries. operating profit life/HealtH € mn 900 750 + 20.6 % (18.2) % A 17 600 Earnings summary 450 678 818 669 300 Statutory premiums grew to € 14.1 bn – an increase of 10.3 % on an internal basis 1. Growth was driven by strong unit-linked sales, predominantly in single premium products. We saw considerable statutory premium growth especially in Italy, Germany and Taiwan. 150 2Q 2011 2Q 2012 2Q 2013 Our operating profit performance was solid at € 669 mn. Compared to the second quarter of 2012, however, it de- creased € 149 mn due to an unfavorable investment result, with Germany experiencing hedging related losses and an improved investment result in the United States triggering higher deferred acquisition expenses. Key figures Key figures life/HealtH € mn three months ended 30 June 2013 2012 A 18 2011 Statutory premiums 14,125 12,861 12,978 Our margin on reserves 2 decreased from 75 to 58 basis points driven by direct and indirect effects of recent market volatility. Operating profit 3, 4 Margin on reserves (bps) 669 58 818 75 678 66 1 2 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. Represents operating profit divided by the average of (a) the current quarter-end and previ- ous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 Prior period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. As of the first quarter of 2013, all restructuring charges are presented within operating profit and all prior periods have been adjusted to conform to the current accounting presentation. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Statutory premiums 1 2013 to 2012 second quarter comparison In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more compa- rable information. statutory premiums – internal growtH rates in selected marKets1 A 19 % 83.1 Latin America 14.3 45.2 Spain 13.0 36.7 Italy 5.6 Belgium/ Luxembourg 12.3 64.5 11.2 Asia-Pacific (9.5) France 10.4 7.2 9.9 Germany Life (8.4) Germany Health 1.8 1.9 (7.8) United States (14.9) (23.0) Switzerland 11.5 Central and Eastern Europe (36.9) (2.5) (60) (40) (20) 0 20 40 60 80 2Q 2013 over 2Q 2012 2Q 2012 over 2Q 2011 1 Before elimination of transactions between Allianz Group companies in different geographic regions, countries and different segments. Statutory premiums in Latin America increased 83.1 % on an internal basis to reach € 113 mn. This growth was largely driven by higher sales of single premium investment- oriented products and a new annuity contract with a major client in Mexico. In Colombia, premiums remained broadly stable. 1 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Interim Report Second Quarter and First Half Year of 2013 Allianz Group In Spain, premiums increased by 45.2 % to € 392 mn. This was mainly driven by strong sales of unit-linked products through the bancassurance channel and higher invest- ment-oriented sales distributed through the agent channel. In Italy, premiums increased 36.7 % to € 2,620 mn. The con- tinued strong growth of unit-linked premiums was largely because of a successful product launch via our financial advisors channel in late 2012 as well as a recovery of the bancassurance sales channel from the low level of 2012. The share of unit-linked premiums grew further to 73.2 % (2Q 2012: 52.3 %) of total statutory premiums. In Belgium/Luxembourg, premiums increased 12.3 % to € 613 mn. This growth mainly resulted from an investment- oriented product largely distributed via our bancassurance channel in Belgium. In Asia-Pacific, we recorded statutory premiums of € 1,346 mn, an increase of 11.2 % on an internal basis. An increase in unit-linked premiums in Taiwan was driven by strong single premium sales through the bancassurance channel. This more than compensated for the decrease of single premium investment-oriented business in South Korea, where we stopped selling one of our major products in the third quarter of 2012. In Indonesia traditional business stayed firm, while we saw a moderate decrease in the single pre- mium investment-oriented business. In France, we recorded a premium increase of 10.4 % to € 2,139 mn. The overall growth of € 201 mn was supplemented by a large single premium group pension contract. In our German life business, premiums increased 9.9 % to € 3,674 mn. Single premium business with savings products as well as traditional endowment and annuity products increased, while business with regular premiums largely remained stable. Premiums in our German health business increased 1.8 % to € 832 mn, benefiting in part from price increases and new business in supplementary coverage. In the United States, statutory premiums were down 7.8 % on an internal basis to € 1,788 mn. This was primarily due to fixed-indexed annuity products. Low interest rates, product and commission changes for fixed-indexed and variable annuity products in 2012 resulted in a decrease in sales in both business lines. 25 26 In Switzerland, premiums totaled € 252 mn, a decline of 23.0 %. Our single premium group life business was the pri- mary driver of this development, where we have main- tained a more selective growth focus. In individual life busi- ness, traditional products – as well as investment-oriented products – were stable. Statutory premiums in Central and Eastern Europe decreased to € 191 mn, down 36.9 % on an internal basis. This decrease largely relates to Poland, where regulatory restric- tions led to a significant decrease in premiums from deposit business. The decrease in single premiums invest- ment-oriented business in the Czech Republic was partly offset by growth in the traditional business. 2013 to 2012 first Half year comparison Statutory premiums were 9.0 % above the first half year of 2012 and amounted to € 28,962 mn. This represents an increase of 9.4 % on an internal basis. This growth was largely driven by our unit-linked business, supported by an increase in traditional business. The drop in sales due to product and commission changes in the United States, curtailed sales in South Korea and regulatory restrictions in Poland were more than compen- sated for by significantly higher premiums from our invest- ment-oriented business in Italy, Germany and Taiwan. Operating profit 2013 to 2012 second quarter comparison Operating profit decreased by € 149 mn to € 669 mn due to a lower investment result and higher deferred acquisition expenses. Interest and similar income net of interest expenses decreased by € 55 mn and amounted to € 4,347 mn. This was mainly because of a decrease in interest income from debt investments as well as lower dividend income. Operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 481 mn to a loss of € 686 mn. This decrease was mainly due to losses from the net of foreign currency translation effects and financial derivatives in Germany. These derivatives are used to manage duration and other interest rate-related exposures as well as to protect against equity and foreign Interim Report Second Quarter and First Half Year of 2013 Allianz Group currency fluctuations. This decrease was partly offset by less unfavorable impacts related to annuity and guaran- teed benefit features in the United States as well as the favorable impacts of equity market performance on our Fair Value Option assets primarily in France. Operating realized gains and losses (net) decreased by € 15 mn to € 718 mn. Higher realized gains on equities almost compensated for lower realizations on debt investments. Operating impairments of investments (net) amounted to € 132 mn. This represents an improvement of € 72 mn as the second quarter of 2012 was burdened by equity impair- ments – mainly on our investments in financial sector assets. Claims and insurance benefits incurred (net) increased € 420 mn to € 4,990 mn mainly because of higher maturities in Thailand and France, partly offset by lower claims for maturities in Germany. Changes in reserves for insurance and investment contracts (net) decreased by € 589 mn to € 2,928 mn. This was largely driven by a lower allocation of premiums to policy reserves due to the negative revaluation impact of decreased invest- ment income in Germany and the offsetting impact from higher maturities in Thailand. This was partly offset by higher reserve allocations driven by the increased premi- ums in Germany and the favorable development of finan- cial income in France. Acquisition and administrative expenses (net) amounted to € 1,478 mn, an increase of € 225 mn. This was mainly driven by higher acquisition expenses due to increased deferred acquisition cost amortization and true-ups, largely in the United States. Overall, our investment margin (i.e. investment income, net of hedged item movements and policyholder participa- tion) was significantly impacted by the lower investment margin in Germany – driven by hedging and foreign cur- rency related losses. This lower margin was just more than offset by higher investment margins from other countries, in particular in the United States. However, the latter recorded higher amortization and true-ups of deferred acquisition costs as a result, substantially offsetting the benefits of the higher investment margins. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations 2013 to 2012 first Half year comparison Operating profit decreased by € 119 mn to € 1,524 mn, mainly as a result of a lower investment result. While this decrease largely relates to the negative effects of the operating income from financial assets and liabilities carried at fair value through income in the second quarter of 2013, the overall decrease was also impacted by lower net realized gains in the first quarter of 2013. life/HealtH segment information € mn Statutory premiums 1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Margin on reserves 2 in basis points 1 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 20 three months ended 30 June six months ended 30 June 2013 2012 2013 2012 14,125 12,861 28,962 26,560 (151) (179) (308) (333) (50) (51) (164) (118) 13,924 12,631 28,490 26,109 (8,012) (7,097) (16,218) (14,214) 5,912 5,534 12,272 11,895 4,368 4,423 8,445 8,485 (686) (205) (930) (367) 718 733 1,617 1,800 168 131 308 258 31 37 80 79 10,511 10,653 21,792 22,150 (4,990) (4,570) (9,816) (9,679) (2,928) (3,517) (6,929) (7,231) (21) (21) (40) (41) (132) (204) (194) (266) (193) (191) (383) (353) (1,478) (1,253) (2,726) (2,774) (74) (55) (130) (118) (1) (2) (2) (4) (25) (22) (48) (41) (9,842) (9,835) (20,268) (20,507) 669 818 1,524 1,643 58 75 66 77 2 Represents operating profit divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 27 28 Life/Health insurance operations by reportable segments – second quarter Life/HeaLtH insurance operations by reportabLe segments A 21 € mn Statutory premiums 1 Premiums earned (net) Operating profit (loss) Margin on reserves 2 (bps) internal 3 three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Germany Life Germany Health Switzerland Austria German Speaking Countries 3,674 832 252 87 4,845 3,342 817 335 91 4,585 3,674 832 258 87 4,851 3,342 817 335 91 4,585 2,605 831 86 62 3,584 2,401 818 133 62 3,414 162 53 21 11 247 316 40 20 – 376 36 85 62 103 45 76 69 61 – 73 Italy France Belgium/Luxembourg Netherlands Turkey Greece Africa Western & Southern Europe 2,620 2,139 613 64 43 23 12 5,514 1,916 1,938 546 69 27 25 11 4,532 2,620 2,139 613 64 44 23 12 5,515 1,916 1,938 546 69 27 25 11 4,532 109 849 99 32 10 14 6 1,119 123 727 105 34 10 14 5 1,018 74 123 22 11 (1) – 1 230 63 124 29 12 2 (1) 1 230 63 67 87 102 (87) – 179 67 58 72 124 124 211 (54) 99 73 Latin America Spain Portugal Iberia & Latin America 113 392 52 557 59 270 45 374 108 392 52 552 59 270 45 374 66 160 21 247 27 114 21 162 2 34 5 41 2 29 5 36 102 214 400 215 115 199 460 209 United States USA 1,788 1,788 1,976 1,976 1,821 1,821 1,976 1,976 220 220 198 198 100 100 127 127 56 56 76 76 Reinsurance LH Global Insurance Lines & Anglo Markets 134 134 120 120 134 134 120 120 110 110 107 107 (15) (15) (5) (5) (320) (320) (97) (97) South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe 4 Middle East and North Africa Global Life Growth Markets 318 520 190 91 – 227 1,346 21 59 31 30 20 15 8 7 191 40 1 1,578 503 225 243 79 – 178 1,228 94 60 29 71 24 14 7 7 306 41 1 1,576 315 533 205 91 – 222 1,366 20 59 32 31 21 16 8 6 193 44 1 1,604 503 225 243 79 – 178 1,228 94 60 29 71 24 14 7 7 306 41 1 1,576 124 40 86 53 2 159 464 6 48 12 20 20 16 7 4 133 34 1 632 140 46 62 49 2 150 449 32 49 12 17 23 13 6 4 154 32 – 635 2 (3) 16 6 1 17 39 4 9 3 5 – 1 1 1 23 4 – 66 11 2 10 5 (9) 16 35 4 8 (1) 8 (1) – 1 – 19 5 – 59 7 (17) 467 194 21 203 70 380 295 281 301 – 189 274 182 272 283 –5 99 50 16 356 186 (152) 183 66 238 288 (124) 573 (290) – 436 – 224 408 –5 93 Consolidation 6 Total (291) 14,125 (302) 12,861 (290) 14,187 (302) 12,861 – 5,912 – 5,534 – 669 (5) 818 –5 58 –5 75 1 2 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents operating profit (loss) divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 5 6 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. Contains income and expense items from a management holding and consolidations between countries in this region. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geo- graphic regions. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Life/Health insurance operations by reportable segments – first half year Life/HeaLtH insurance operations by reportabLe segments A 22 € mn Statutory premiums 1 Premiums earned (net) Operating profit (loss) Margin on reserves 2 (bps) internal 3 six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Germany Life Germany Health Switzerland Austria German Speaking Countries 8,140 1,663 1,169 201 11,173 7,282 1,635 1,365 225 10,507 8,140 1,663 1,191 201 11,195 7,282 1,635 1,365 225 10,507 5,658 1,663 318 149 7,788 5,338 1,636 432 162 7,568 506 84 41 20 651 558 83 40 19 700 57 68 62 95 60 68 72 63 99 69 Italy France Belgium/Luxembourg Netherlands Turkey Greece Africa Western & Southern Europe 4,715 4,407 1,227 139 76 48 30 10,642 3,183 3,956 920 143 50 51 29 8,332 4,715 4,407 1,227 139 77 48 30 10,643 3,183 3,956 920 143 50 51 29 8,332 240 1,673 194 69 19 28 14 2,237 271 1,498 211 67 18 30 12 2,107 155 238 37 22 (1) (1) 2 452 136 209 45 24 3 1 2 420 67 64 73 105 (48) (58) 192 67 63 62 99 122 152 79 171 68 Latin America Spain Portugal Iberia & Latin America 189 705 100 994 124 520 84 728 183 705 100 988 124 520 84 728 92 245 41 378 60 265 43 368 3 67 10 80 5 60 (6) 59 95 207 410 209 166 207 (246) 172 United States USA 3,350 3,350 3,999 3,999 3,391 3,391 3,999 3,999 428 428 398 398 201 201 293 293 58 58 87 87 Reinsurance LH Global Insurance Lines & Anglo Markets 266 266 240 240 266 266 240 240 231 231 215 215 (8) (8) 8 8 (81) (81) 70 70 South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe 4 Middle East and North Africa Global Life Growth Markets 679 1,006 347 176 – 438 2,646 48 120 109 74 36 32 16 13 448 80 2 3,176 965 503 424 155 1 344 2,392 309 123 98 103 44 27 14 12 730 80 2 3,204 664 1,017 373 177 – 429 2,660 47 120 110 75 37 32 16 13 450 88 2 3,200 965 503 424 155 1 344 2,392 309 123 98 103 44 27 14 12 730 80 2 3,204 254 67 120 108 3 324 876 18 98 25 39 36 32 14 7 269 64 1 1,210 285 75 125 100 3 288 876 58 95 25 33 42 26 12 7 296 67 – 1,239 7 – 38 10 5 42 102 8 17 4 10 (1) 2 2 1 42 8 – 152 54 4 26 8 (4) 32 120 8 16 – 11 (2) 1 3 1 38 7 – 165 14 – 575 174 47 245 90 304 289 219 345 (85) 156 263 216 252 282 –5 114 120 16 448 169 (31) 182 111 262 280 – 416 (293) 108 477 220 236 295 –5 130 Consolidation 6 Total (639) 28,962 (450) 26,560 (638) 29,045 (450) 26,560 – 12,272 – 11,895 (4) 1,524 (2) 1,643 –5 66 –5 77 1 2 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents operating profit (loss) divided by the average of (a) the current quarter-end and previous quarter-end net reserves and (b) the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 4 5 6 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. Contains income and expense items from a management holding and consolidations between countries in this region. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geo- graphic regions. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 29 30 Asset Management second quarter 2013 − Strong operating profit of € 804 mn. − Third-party net inflows of € 7 bn in the second quarter and € 50 bn for the first half of 2013. − Total assets under management amounted to € 1,863 bn. − Cost-income ratio at 55.7 %. Segment overview Operating profit + 39.8 % Allianz offers Asset Management products and services for third-party investors and the Allianz Group’s insur- ance operations. We serve a wide range of retail and institutional clients worldwide with investment and dis- tribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world that manages third-party assets with active investment strategies. We are particu- larly strong in the United States and growing in Europe and the Asia-Pacific region. operating profit asset management € mn 1,000 800 + 9.1 % + 39.8 % A 23 600 400 804 Earnings summary 200 527 575 Our operating revenues went up by € 318 mn to € 1,815 mn, of which € 292 mn were due to increased net fee and commis- sion income excluding performance fees. This was driven by the strong growth in average assets under management as well as higher margins compared to the second quarter of 2012. Our performance fees rose by € 23 mn to € 78 mn. Despite volatile fixed income markets in the second quarter of 2013, third-party net flows were positive and amounted to € 7 bn. 2Q 2011 Key figures key figures asset management 2Q 2012 2Q 2013 A 24 € mn three months ended 30 June 2013 2012 2011 We achieved a strong operating profit of € 804 mn – a growth of 39.8 %, or € 229 mn, supported by an increase in revenues, operational efficiency and a decline in restructuring charges. Operating revenues Operating profit 1,2 Cost-income ratio 1,2 in % 1,815 804 55.7 1,497 575 61.6 1,303 527 59.6 Excluding restructuring charges, our cost-income ratio im- proved by 1.9 percentage points from 57.5 % to 55.6 %. Total assets under manage - ment as of 30 June in € bn thereof: Third-party assets under man - agement as of 30 June in € bn 1,863 1,456 1,748 1,354 1,508 1,151 1 Prior period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. 2 As of the first quarter of 2013, all restructuring charges are presented within operating profit and all prior periods have been reclassified to conform to the current accounting presentation. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Assets under management As of 30 June 2013, total assets under management amount- ed to € 1,863 bn. Of this, € 1,456 bn related to our third-party development of total assets under management € bn Total AuM (as of 12/31/2012) Net inflows Market effects Consolidation, deconsoli- dation and other effects F/X effects Total AuM (as of 6/30/2013) 0 500 Fixed income Equities Other Changes Despite volatile fixed income markets at the end of May and in June 2013, net inflows of total assets under management amounted to € 49 bn in the first six months of 2013. This was driven by third-party assets under management. Negative market effects, primarily driven by rising interest rates, resulted in a decline of € 42 bn in total assets under management. Of this, fixed income assets contributed € 50 bn whereas equities had a € 8 bn positive impact. We experienced favorable foreign currency translation effects of € 6 bn, mainly on fixed income assets, resulting from the slight appreciation of the U.S. Dollar against the Euro. 1 1 Based on the closing rate on the respective balance sheet date. Interim Report Second Quarter and First Half Year of 2013 Allianz Group assets under management and € 407 bn to Allianz Group assets. We show the development of total assets under management based on asset classes as they are rele vant for the segment’s business development. A 25 1,681 169 2 1,852 + 49 (42) (2) + 6 1,684 178 1 1,863 1,000 1,500 2,000 In the following section, we focus on the development of third-party assets under management. third-party assets under management by business unit A 26 as of 30 June 2013 [31 December 2012] in % Other 2.0 [2.0] AllianzGI 13.0 [12.4] PIMCO 85.0 [85.6] 31 32 third-party assets under management by region/country 1,2,3 A 27 as of 30 June 2013 [31 December 2012] in % Other 2.0 [2.0] Asia-Pacific 10.1 [10.4] Europe 25.6 [23.0] America 62.3 [64.6] 1 2 3 Based on the location of the asset management company. “America” consists of the United States, Canada and Brazil (approximately € 894 bn, € 11 bn and € 3 bn third party assets under management as of 30 June 2013, respectively). “Other” consists of third-party assets managed by other Allianz Group companies (approxi- mately € 29 bn as of 30 June 2013 and € 28 bn as of 31 December 2012, respectively). The regional allocation of third-party assets under man- agement shifted slightly: Europe’s share increased by 2.6 percentage points benefiting from strong organic growth and a reallocation of some third-party assets under man- agement from the United States to Europe. The reallocation of assets and the comparably stronger market-related depreciation in the United States led to a 2.3 percentage points lower share in third-party assets under manage- ment in America, despite third-party net inflows. As of 30 June 2013, the split of third-party assets under management remained unchanged compared to 31 De cem- ber 2012, with 89 % attributable to fixed income and 11 % to equities. The ratio of third-party assets under management between retail and institutional clients 1 shifted slightly with a one percentage point increase in favor of our retail clients resulting in a split of 37 % versus 63 % for institutional clients. 1 Client group classification is driven by investment vehicle types. Interim Report Second Quarter and First Half Year of 2013 Allianz Group three-year rolling investment performance of pimco and allianzgi1 A 28 % PIMCO AllianzGI 100 80 60 96 94 40 62 59 20 0 (4) (6) (20) (38) (41) (40) 12/31/2012 6/30/2013 12/31/2012 6/30/2013 Outperforming third-party assets under management Underperforming third-party assets under management 1 The investment performance is based on Allianz Asset Management account-based, asset- weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by portfolio managers of Allianz Asset Management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding Morningstar peer group (first and second quartile mean outperfor- mance). For all other retail funds and for all institutional accounts, the gross of fee perfor- mance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics. The overall investment performance of our Asset Manage- ment business was excellent with 90 % outperforming their respective benchmarks (31 December 2012: 92 %). PImCO recorded a further outstanding performance of 94 % versus its respective benchmarks. AllianzGI outperformed 59 % of its benchmarks. Operating revenues 2013 to 2012 second quarter comparison Operating revenues rose by € 318 mn, or 21.2 % (internal growth 2: 23.1 %) to € 1,815 mn. This was driven by higher aver- age assets under management and margins. Net fee and commission income went up by € 315 mn or 21.1 %, to € 1,809 mn. This was largely supported by an increase in management fees resulting from a higher asset base and higher margins. Our performance fees rose by € 23 mn, or 41.8 % to € 78 mn. 2 Operating revenues adjusted for foreign currency translation and (de-)consolidation effects. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Our income from financial assets and liabilities carried at fair value through income (net) improved by € 7 mn due to reduced levels of seed money in the second quarter of 2013. 2013 to 2012 first half year comparison Our operating revenues grew by € 790 mn, or 26.9 % (internal growth 1: 28.4 %), to € 3,726 mn, benefiting from higher total assets under management and margins as well as increased performance fees. Operating profit 2013 to 2012 second quarter comparison We achieved an operating profit of € 804 mn, an increase of € 229 mn, or 39.8 % (internal growth 1: 41.9 %). This improve- ment demonstrates the positive operating leverage of our business development and the comparative benefit of lower restructuring charges versus those incurred in the second quarter of 2012. asset management segment information € mn Management and loading fees Performance fees Other Fee and commission income Commissions Other Fee and commission expenses Net fee and commission income Net interest income 1 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Cost-income ratio 2 in % 1 2 Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenue. 1 Operating revenues/operating profit adjusted for foreign currency translation and (de-) consolidation effects. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Administrative expenses rose by € 148 mn to € 1,009 mn, mainly driven by higher personnel expenses in line with our business growth. Our cost-income ratio improved by 5.9 percentage points to 55.7 %. In the second quarter of 2012 the cost-income ratio was burdened by € 61 mn restructuring charges compared to € 2 mn in the same period in 2013. Excluding restructuring charges, the cost-income ratio improved by 1.9 percentage points. Stronger growth in net fee and commission income than in our operating expenses resulted in a further improvement of our cost-income ratio. 2013 to 2012 first half year comparison Mainly benefiting from higher operating revenues, our operating profit increased by € 516 mn, or 43.4 %, to € 1,704 mn (internal growth 1: 45.1 %). Our cost-income ratio improved by 5.2 percentage points to 54.3 %. Adjusted for restructuring charges, the cost-income ratio improved by 3.4 percentage points. A 29 three months ended 30 June six months ended 30 June 2013 2012 2013 2012 2,089 1,739 4,072 3,350 78 55 354 99 12 31 39 68 2,179 1,825 4,465 3,517 (349) (318) (725) (592) (21) (13) (34) (16) (370) (331) (759) (608) 1,809 1,494 3,706 2,909 4 6 8 12 – (7) 7 7 2 4 5 8 1,815 1,497 3,726 2,936 (1,009) (861) (2,017) (1,687) (2) (61) (5) (61) (1,011) (922) (2,022) (1,748) 804 575 1,704 1,188 55.7 61.6 54.3 59.5 33 34 Corporate and Other second quarter 2013 Operating loss increased by € 94 mn to € 274 mn, driven by Holding & Treasury. Segment overview Key figures Corporate and Other encompasses the operations of Holding & Treasury, Banking and Alternative Invest ments. Holding & Treasury includes the management of and support for Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions. Our banking prod ucts offered in Germany, Italy, France, the Netherlands and Bulgaria complement our insurance product port folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group. Key figures corporate and other1 € Mn three months ended 30 June 2013 Operating revenues 391 Operating expenses 2,3 (665) Operating result 2,3 (274) Key figures corporate and other – in detail € Mn three months ended 30 June 2013 2012 431 (611) (180) 2012 A 30 2011 495 (675) (180) A 31 2011 holding & treasury Operating revenues 70 102 167 Operating expenses 2,3 (347) (275) (310) Earnings summary Operating result 2,3 (277) (173) (143) BanKing Our operating result worsened by € 94 mn to a loss of € 274 mn. This was driven by a € 104 mn higher loss in Holding & Treasury. The operating result in Banking improved by € 20 mn to a loss of € 1 mn, whereas the operating result in Alternative Investments decreased from € 13 mn to € 4 mn. Operating revenues Operating expenses 2,3,4 Operating result 2,3 alternative investMents 280 (281) (1) 289 (310) (21) 295 (321) (26) Operating revenues 42 43 35 Operating expenses 2,3 (38) (30) (46) Operating result 2,3 4 13 (11) 1 2 Consolidation included. For further information about our Corporate and Other segment, please refer to note 4 to the condensed consolidated interim financial statements. Prior period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. 3 4 As of the first quarter of 2013, all restructuring charges are presented within operating profit and all prior periods have been adjusted to conform to the current accounting presentation. Include loan loss provisions. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Earnings summaries by operations holding & treasury 2013 to 2012 second quarter comparison Our operating loss increased from € 173 mn to € 277 mn, driven by higher administrative expenses and a lower net fee and commission result. Administrative expenses (net), excluding acquisition-related expenses increased by € 60 mn to € 184 mn. This was mainly because of higher pension costs as a result of lower annual discount rates as well as an increase in other personnel costs. Our net fee and commission result dropped by € 44 mn to a loss of € 47 mn due to new IT projects. Holding & Treasury’s net interest result was roughly stable at a loss of € 33 mn (2Q 2012: € (31) mn) as lower yields resulted in a decline in both interest income and interest expenses. Our interest and similar income was down by € 19 mn to € 53 mn. Interest expenses, excluding interest expenses from external debt, decreased by € 17 mn to € 86 mn. 2013 to 2012 first half year comparison Our operating loss within the Holding & Treasury segment increased from € 430 mn to € 444 mn. An increased net inter- est result was more than offset by higher administrative expenses and a deterioration in our net fee and commis- sion result. Our net interest result benefited from a resump- tion of interest payments on our silent participation in Commerz bank in the first quarter as well as lower interest expenses for internal debt due to lower yields. Administra- tive expenses increased mainly because of higher pension costs, while our net fee and commission result declined because of costs related to new IT-projects incurred by our internal IT service provider. BanKing 2013 to 2012 second quarter comparison The operating loss decreased from € 21 mn to € 1 mn due to lower loan loss provisions. This was partly offset by a decline in the net interest result. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Our loan loss provisions were down from € 42 mn to € 15 mn, as the previous year’s figure was burdened by increased loan loss provisions due to financial guarantees within cer- tain unit-linked products related to peripheral sovereign bonds (which matured or were sold by the end of 2012). Our net interest, fee and commission result decreased by € 8 mn to € 133 mn. Our net interest result deteriorated by € 14 mn to € 82 mn because of the low interest yield environ- ment and a reduction in our exposure to government bonds. This decline was only partially compensated for by the € 6 mn improvement in our net fee and commission income to € 51 mn, which benefited from increased sales of insurance and investment-oriented products. Administration expenses remained almost stable at € 117 mn (2Q 2012: € 118 mn). 2013 to 2012 first half year comparison Our operating loss increased by € 48 mn to € 84 mn. The six- month development of our Banking segment was mainly driven by higher restructuring charges, which were only partly offset by lower loan loss provisions. The result suf- fered from restructuring charges of € 90 mn related to the closure of the Allianz Bank’s business operations. In this context, it is worth mentioning again that our restructuring charges have been presented within operating profit since the beginning of 2013. Excluding these charges, the operat- ing profit in Banking would have improved from a loss of € 36 mn in the first half year of 2012 to a profit of € 6 mn. alternative investMents 2013 to 2012 second quarter comparison Our operating result declined from € 13 mn to € 4 mn mainly due to € 6 mn higher administrative expenses compared to the second quarter of 2012. A € 4 mn lower net interest result also contributed to this development. 2013 to 2012 first half year comparison Our operating result improved by € 3 mn to € 15 mn, driven by the first quarter. 35 36 Outlook − Global economic picture remains mixed. − Eurozone economy expected to stabilize. − Our outlook for the Allianz Group’s operating profit is unchanged at € 9.2 BN plus or minus € 0.5 BN. Economic outlook 1 As we move into the second half of 2013, the global economic picture remains mixed. Overall, global output is expected to grow moderately by 2.4 % this year, following a rise of 2.3 % in 2012. However, different regions are advancing at very different speeds. Although emerging market economies have lost steam in recent quarters, with an increase in GDP of just below 5 %, real growth in these countries will still be considerably higher than in the industrialized world. In the Eurozone, we expect to see the economy stabilize during the course of the year. Sentiment indices now paint a friendlier picture, the drop in inflation is buoying private consumption, substantial macroeconomic adjustments are evident in peripheral countries and there are signs of an economic acceleration in Germany. All these factors point to a recovery. The economic rebound in the Eurozone is likely to continue well into 2014, leading to real GDP growth of 1.5 % for 2014 as a whole. Supported by brighter economic conditions in the single currency zone, the Ger- man economy could expand by about 2 % next year. Overall, we see global output increasing by slightly more than 3 % in 2014. Given modest growth perspectives worldwide and taking into account the dire unemployment situation in many industrialized countries – which dampens wage pressure – inflation is likely to remain subdued on a global level both this year and next. financial markets, jitters returned and volatility rose mark- edly. There are two major reasons for this anxiety: The risky Japanese monetary policy experiment to double the mon- etary base with its knock-on impact on exchange rates, and the rumblings about an imminent Federal Reserve exit from quantitative easing. Yields on U.S. and German gov- ernment bonds increased considerably, reaching 1.8 % and 2.7 % respectively in June. Spreads on government bonds from the Eurozone periphery widened, too. As of late, yields have again retreated somewhat, helped by the European Central Bank (ECB) announcement in early July that it would keep key interest rates at current or lower levels for an extended period. Although recent political turmoil in Portugal and Greece has shown that the Euro crisis is not yet over, we expect it to continue to abate. With short-term rates close to zero, there are limited prospects of a sharp rise in yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds merely to climb to slightly above 2 % and close to 3 % respectively by the end of 2014. With growth in the United States set to out- pace that in the Eurozone and the expectation that the Fed- eral Reserve will exit from its very expansionary monetary policy earlier than the ECB, the Dollar is likely to appreciate against the Euro in the coming months. However, in the course of 2014, with growth in Europe catching up, the Euro should move up again. We expect to see a gradual exit from crisis mode in mone- tary policy led by the U.S. central bank reining in its asset purchases. Although monetary policy is expected to remain highly accommodative, financial markets are likely to react with increased uncertainty and volatility. The return to nor- mality could well be accompanied by some turbulent swings in equity, bonds or commodity markets – as we wit- nessed in May when, after several promising weeks on the Besides a possible renewed escalation of the Eurozone sov- ereign debt crisis, there are other negative factors that could jeopardize the global outlook. The key hotspots remain the political situation in North Africa and the Middle East. Rising geopolitical tensions could exert a consider- able drag on the global economy, not least if these spark a sharp rise in crude oil prices. 1 The information presented in the sections Economic outlook, Insurance industry outlook and Asset management industry outlook is based on our own estimates. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Insurance industry outlook While financial markets remain volatile, economic growth is set to accelerate in 2013 and particularly in 2014. This is good news for insurance markets. However, growth momentum in industrialized countries will remain moder- ate. We expect that insurance markets in Western Europe, after two consecutive years of falling premiums, will stabi- lize in 2013 and return to modest growth in 2014. The U.S. market should also continue its slow upswing. On the other hand, in 2013 and 2014 we expect to see double-digit growth in emerging markets. Against this backdrop, we forecast that insurance profits will stay under pressure, as the effects of a lower investment yield environment as well as volatile financial markets take their toll. However, in the longer term there is the potential for growth and improved earnings should interest rates and yields increase. In the property-casualty sector, relatively stable premium growth should continue both in the second half of 2013 and in 2014. However, while growth in the previous year was mainly driven by rising premium rates, for the rest of 2013 and 2014 the main driver will be the expected uptick in eco- nomic activity which bolsters demand for insurance cover- age. In particular in the emerging markets, robust economic advances, rising household incomes and heightened risk awareness will drive stronger premium growth for the fore- seeable future leading to double-digit rises in emerging Asia and Latin America. Globally, we expect nominal pre- mium revenue to climb in the 3–5 % range per annum in 2013 and 2014. The life sector was severely hit by the unfavorable market conditions of recent years, particularly in Europe. In 2013, we expect premium growth to recover across the board. Western Europe will remain the weakest region in terms of growth with some markets still shrinking. Not until 2014 will all European markets start to advance. Resumed growth will go hand in hand with a changing business mix which is set to evolve towards more attractive unit-linked and protection business if interest rates stay at their low levels – as anticipated. On the other hand, growth in emerg- ing markets – which is driven by higher incomes and the rising demand for social protection – is likely to accelerate considerably. Again emerging Asia and Latin America are the growth champions with double-digit growth expected in the course of 2013 and 2014. All in all, we expect that global nominal premium revenue will rise in the 4–6 % range per annum in 2013 and 2014. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Asset management industry outlook The outlook for the asset management industry for 2013 and beyond remains uncertain. Although there are signs of a slow recovery in the global economy and of a gradually receding European sovereign debt crisis, helped by massive liquidity support from major central banks, financial mar- kets in developed countries are still plagued by uncertainty and capital markets are expected to be vulnerable to poten- tial setbacks in the near future. The recent sharp rise in yields on U.S. Treasuries was a timely reminder of the high uncertainty surrounding the unwinding of quantitative easing. Therefore, net inflows are expected to stay volatile as investors are likely to remain cautious, shifting their funds between high- and low-risk assets as sentiment ebbs and flows. The upside potential for market-driven growth in the asset management industry will be limited in both the fixed income and the equity areas for as long as GDP growth rates in major developed countries continue to lag behind long- term trends. Besides the uncertainty in the investment climate, the wave of regulatory change – particularly in the consumer protection and transparency fields – will put further pres- sure on the industry and may even trigger changes in busi- ness models and the way funds are sold. Furthermore, complying with increased regulatory oversight and report- ing requirements risks pushing up operational costs, amplifying the need for strict cost control. Fierce competi- tion between money managers is only going to increase. Given this batch of challenges, we expect the industry’s profitability to remain under pressure. In such an environment, money managers’ ability to grow is dependent on achieving above benchmark investment results, offering diverse and comprehensive investment products and upping the scale and efficiency of their operations. 37 38 Outlook for the Allianz Group We are confident about staying on course towards profit- able growth during the rest of 2013. However, as we wit- nessed in the first six months, unfavorable developments in the business environment can have adverse impacts on aspects of our performance. It would therefore be inappro- priate to simply annualize the current half year’s operating profit and net income to arrive at an expected result for the full year. Although we believe we are well prepared to meet the potential challenges – and the strong half year results might lead us to feel overall more optimistic – due to the volatile capital markets and the low interest rate environ- ment we see no need for an adjustment of our published Allianz Group operating profit outlook for 2013 of € 9.2 BN plus or minus € 0.5 BN. As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cau- tionary note regarding forward-looking statements, may severely affect the results of our operations. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Balance Sheet Review − Shareholders’ equity decreased by € 2.5 bn to € 47.9 bn.1 − Solvency ratio still strong at 177 %, but impacted by redemption of a subordinated bond.2 Shareholders’1equity 1, 3 23 ShareholderS’ equity A 32 foreign currency translation adjustments of € 231 mn was mainly driven by the strengthening of the Euro against the Australian Dollar and British Pound. € mn (5.0) % Regulatory capital adequacy 70,000 60,000 50,000 40,000 50,388 10,122 11,451 51,950 9,672 13,463 (7.9) % 47,866 6,559 12,492 The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital avail- able to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”. 30,000 20,000 28,815 28,815 28,815 Conglomerate SolvenCy 1 A 33 10,000 € bn 12/31/2012 3/31/2013 6/30/2013 Paid-in-capital Unrealized gains/losses (net) Retained earnings (includes foreign currency effects) 50 197 % 181 % 183 % 177 % As of 30 June 2013, shareholders’ equity amounted to € 47,866 mn, a decrease of € 2,522 mn compared to 31 December 2012 (as restated).1 This decrease was largely driven by a € 3,563 mn decrease in unrealized gains – predominantly on debt securities – due to a rise in interest yields and, to a much lesser extent, realizations. The payout of dividends of € 2,039 mn was more than offset by the net income attributable to shareholders of € 3,295 mn in the first six months of 2013. The decline in equity from negative 40 30 20 10 48.4 24.6 12/31/2012 as published 44.4 45.7 24.6 12/31/2012 pro forma restated 25.0 3/31/2013 44.6 25.2 6/30/2013 Solvency ratio Eligible capital Requirement 1 2 3 As of 1 January 2013, our shareholders’ equity decreased by € 3.2 bn due to the amendments to IAS 19. Prior period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further in- formation, please refer to note 2 to the condensed consolidated interim financial statements. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2013 would be 168 % (31 March 2013: 174 %; 31 Decem- ber 2012 (pro forma restated): 171 %, 31 December 2012 (as published): 188 %). This does not include non-controlling interests of € 2,558 mn, € 2,671 mn and € 2,575 mn as of 30 June 2013, 31 March 2013 and 31 December 2012, respectively. For further information, please refer to note 20 to the condensed consolidated interim financial statements. Retained earnings include foreign currency translation effects of € (2,304) mn, € (1,801) mn and € (2,073) mn as of 30 June 2013, 31 March 2013 and 31 December 2012, respectively. 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 30 June 2013 would be 168 % (31 March 2013: 174 %; 31 De- cember 2012 (pro forma restated): 171 %, 31 December 2012 (as published): 188 %). Interim Report Second Quarter and First Half Year of 2013 Allianz Group 39 40 Compared to 31 December 2012, our conglomerate solvency ratio dropped from 197 % to 177 %. The Group’s eligible capi- tal for solvency purposes decreased by € 3.8 bn to € 44.6 bn, including off-balance sheet reserves of € 2.3 bn (31 Decem- ber 2012: € 2.2 bn). Of this, € 4.0 bn was related to amend- ments to IAS 19, effective from 1 January 2013. The redemp- tion of a subordinated bond led to a further decline of € 1.5 bn. These effects could only be partially compensated for by our net income (net of accrued dividends) of € 2.0 bn. The required funds went up by € 0.6 bn to € 25.2 bn, due to higher aggregate policy reserves in Life/Health and growth in our Asset Management business. As a result, our eligible capital exceeded the minimum legally stipulated level by € 19.4 bn. Total assets and total liabilities 1 In the following sections, we show the asset allocation for our insurance portfolio and analyze important develop- ments in the balance sheets of our segments. As of 30 June 2013, total assets amounted to € 698.2 bn and total liabilities were € 647.8 bn. Compared to year-end 2012, total assets and total liabilities increased by € 3.8 bn and € 6.3 bn, respectively. intereSt rateS development in 2012 and the firSt Six monthS of 2013 10-year German government bond % 3.0 2.5 2.0 2.0 1.8 1.8 1.7 1.6 1.7 1.8 1.5 1.0 1.1 1.2 1.3 1.3 1.2 0.5 0 1Q 2Q 3Q 4Q 1Q 2012 2013 High/low Yield at end of period 1 Prior period figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 2 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2Q This section mainly focuses on our financial investments in debt instruments, equities, real estate and cash and other as well as our insurance reserves and external financing, since these reflect the major developments in our balance sheet. market environment of different aSSet ClaSSeS In the second quarter of 2013 we saw significant increases in many major bond yields. 10-year German and U.S. gov- ernment bond yields increased by 45 bpS and 63 bpS, respec- tively. By contrast, Spanish and Italian government bond yields declined in the same period by 21 bpS and 33 bpS, respectively. During the first quarter of 2013 almost all major equity markets developed positively. However, equity markets developed non-uniformly in the second quarter. During the first six months of 2013 credit spreads for A-rated debtors in the Eurozone and the United States widened. A 34 10-year u.S. government bond % 3.0 2.5 2.0 2.4 2.3 1.9 1.8 2.1 2.6 1.5 1.8 1.5 1.4 1.6 1.8 1.6 1.0 0.5 0 1Q 2Q 3Q 4Q 1Q 2Q 2012 2013 A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Credit SpreadS development in 2012 and the firSt Six monthS of 2013 Spread Europe “A” % 3.0 2.5 2.0 1.5 1.0 1.0 0.6 0.5 0.5 0.3 0.2 0.1 0.1 0.2 0 (0.2) (0.1) (0.1) 0.0 1Q 2Q 3Q 4Q 1Q 2Q 2012 2013 High/low Spread at end of period StruCture of inveStmentS – portfolio overview The Allianz Group’s investment portfolio is mainly deter- mined by our core business of insurance. The following portfolio overview covers the insurance segments and the non-banking assets of the Corporate and Other segment. aSSet alloCation A 36 Investment portfolio as of 30 June 2013: € 504.1 bn [as of 31 December 2012: € 507.5 bn] in % Real estate 2 [2] Cash/Other 2 [1] Equities 6 [6] Debt instruments 90 [91] Compared to 31 December 2012, our investment portfolio had decreased by € 3.4 bn to € 504.1 bn as of 30 June 2013. This was mainly due to declines in the fair values of bonds as a result of increased interest rates and was partly offset by reinvested interest payments. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 35 Spread u.S. “A” % 3.0 2.5 2.4 2.3 2.0 2.0 1.8 1.8 1.5 1.4 1.6 1.5 1.5 1.3 1.2 1.3 1.0 0.5 0 1Q 2Q 3Q 4Q 1Q 2Q 2012 2013 Our gross exposure to equities accounted for 6 % of our investment portfolio and increased slightly to € 30.4 bn (31 December 2012: € 29.6 bn). Realizations were more than compensated for by positive market developments in the first half of 2013. Our equity gearing – a ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off- balance sheet reserves less goodwill – increased one per- centage point to 24 %. The vast majority (90 %) of our investment portfolio is com- prised of diversified debt instruments, which amounted to € 456.1 bn as of 30 June 2013. Compared to year-end 2012, our debt instruments decreased by € 4.7 bn, primarily driven by declines in the fair values of bonds as a result of rising inter- est rates. About 95 % of our portfolio of debt instruments 1 was invested in investment-grade bonds and loans. Our exposure to real estate held for investment slightly increased from € 9.7 bn as of 31 December 2012 to € 9.9 bn at the end of the reporting period due to additional invest- ments. 1 Excluding self-originated private retail mortgage loans. For 2 %, no ratings were available. 41 42 fixed inCome portfolio A 37 Total fixed income portfolio as of 30 June 2013: € 456.1 bn [as of 31 December 2012: € 460.8 bn] in % Banks 7 [8] Other 9 [9] Government bonds 37 [38] Other corporate bonds 24 [22] Covered bonds 23 [23] Compared to the end of 2012, the allocation of our fixed income portfolio – totaling € 456.1 bn – remained quite stable, with a slight increase in corporate bonds driven by new investments. Our government bond exposure amounted to € 169.6 bn as of 30 June 2013. This represented a decline of € 4.6 bn and was driven by market effects. This exposure was 37 % of our fixed income portfolio. Our sovereign exposure in Italy and Spain equaled 6.3 % and 0.5 % of our fixed income portfolio, respectively. The corresponding unrealized gains (gross) amounted to € 1,207 mn in Italy and € 48 mn in Spain. Our government bond exposure in Portugal remained limited and we reduced substantially all our exposure in Greece and Ireland. Our covered bonds totaled € 103.7 bn, representing 23 % of our fixed income portfolio. Of this, 49 % was allocated to Ger- man Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 % and 9 % of the covered bonds portfolio were allocated to France and Spain, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization. We reduced our exposure to subordinated securities in banks by € 1.5 bn to € 5.2 bn, in both Tier 1 and Tier 2 shares. 4 % of our fixed income portfolio was invested in asset- backed securities (AbS), which amounted to € 18.5 bn (31 December 2012: € 19.5 bn). The decrease of € 1.0 bn was mainly due to sales of mortgage-backed securities (mbS) issued by U.S. agencies within our U.S. Life/Health segment. Interim Report Second Quarter and First Half Year of 2013 Allianz Group These are backed by the U.S. government, and represented 17 % of AbS securities – down by 4 percentage points. In total, 77 % of our AbS were related to mbS. 96 % of the total AbS port- folio received an investment grade rating, with 88 % rated “AA” or better (31 December 2012: 88 %). inveStment reSult net inveStment inCome A 38 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Interest and similar income (net) 1 5,310 5,371 10,367 10,380 Income from financial assets and liabilities carried at fair value through income (net) (700) (184) (925) (90) Realized gains/losses (net) 1,191 1,115 2,337 2,303 Impairments of investments (net) (182) (422) (316) (610) Investment expenses (217) (216) (425) (413) Net investment income 5,402 5,664 11,038 11,570 1 Net of interest expenses (excluding interest expenses from external debt). 2013 to 2012 second quarter comparison Our net investment income declined 4.6 % to € 5,402 mn. Lower impairments on investments and slightly increased realized gains were more than offset by a negative develop- ment in our income from financial assets and liabilities carried at fair value through income (net). Income from financial assets and liabilities carried at fair value through income (net) decreased by € 516 mn to a loss of € 700 mn. This decrease was predominantly due to losses from the net of foreign currency translation effects and financial derivatives that are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures mainly within our German Life/Health business. This drop was partly offset by a less unfavorable impact related to annuity and guaranteed benefit features in the United States and a more favorable impact of equity market performance on our Fair Value Option assets, primarily in France. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Impairments (net) more than halved from € 422 mn to € 182 mn in the second quarter of 2013 as the previous year’s quarter was burdened by higher impairments of our equity investments in the financial sector. Realized gains and losses (net) increased by € 76 mn to € 1,191 mn due to higher equity realizations which were only partly offset by decreased realized gains on debt instru- ments, mainly within our Life/Health segment and to a lesser extent on real estate held for investment. Our interest and similar income (net)1 decreased only 1.1 % to € 5,310 mn and held up well in a low-yield environment. Investment expenses (net) remained almost unchanged at € 217 mn (2Q 2012: € 216 mn). 2013 to 2012 first half year comparison As in the second quarter comparison, our net investment income declined on a six-month basis by 4.6 % due to a sig- nificant decrease in income from financial assets and lia- bilities carried at fair value through income (net). This was only partly compensated for by lower impairments on investments. Several effects led to a € 835 mn decrease in income from financial assets and liabilities carried at fair value through income (net) to a loss of € 925 mn. € 180 mn of the decrease relates to income from The Hartford warrants recorded in the first quarter of 2012, which were sold in April 2012. The rest of the decrease was primarily attributable to losses from the net of foreign currency translation effects and financial derivatives that are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures mainly within our German Life/Health business. Impairments (net) decreased from € 610 mn to € 316 mn as the previous year had a higher burden of impairments of financial sector investments. Interest and similar income (net)1, realized gains and losses (net) and investment expenses (net) were roughly stable. 1 Net of interest expenses (excluding interest expenses from external debt). Interim Report Second Quarter and First Half Year of 2013 Allianz Group aSSetS and liabilitieS of the property-CaSualty Segment Property-Casualty assets The segment’s asset base was down by € 2.1 bn to € 103.2 bn as of 30 June 2013. This was mainly due to a decline in loans and advances to banks and customers and to a lesser extent to decreased debt securities. CompoSition of aSSet baSe – fair valueS1 A 39 € bn as of 30 June 2013 as of 31 December 2012 Financial assets and liabilities carried at fair value through income Equities 0.3 0.3 Debt securities 0.1 0.2 Other 2 0.1 – Subtotal 0.5 0.5 Investments 3 Equities 4.5 3.9 Debt securities 68.9 69.8 Cash and cash pool assets 4 5.0 5.1 Other 7.9 7.7 Subtotal 86.3 86.5 Loans and advances to banks and customers 16.4 18.3 Property-Casualty asset base 103.2 105.3 1 2 3 4 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage. This comprises assets of € 0.2 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 30 June 2013 and 31 December 2012, respectively. These do not include affiliates of € 8.8 bn and € 8.8 bn as of 30 June 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our segment balance sheet of € 3.7 bn and € 2.7 bn and receivables from cash pooling amounting to € 2.9 bn and € 2.8 bn, net of liabilities from securities lending and derivatives of € (0.4) bn and € (0.2) bn, as well as liabilities from cash pooling of € (1.2) bn and € (0.2) bn as of 30 June 2013 and 31 December 2012, respectively. As of 30 June 2013, AbS investments within our Property- Casualty asset base amounted to € 3.7 bn, representing 3.6 % of its asset base. 43 44 Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 € bn 55.8 6.9 12/31/2012 62.7 a (8.9) b (0.7) c (3.4) d + 8.9 6/30/2013 58.4 51.7 6.7 0 50 100 150 a Loss and loss adjustment expenses paid in current year relating to previous years b Loss and loss adjustment expenses incurred in previous years c Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications d Reserves for loss and loss adjustment expenses in current year Reserves net Reserves ceded Changes 1 After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment, please refer to note 15 to the condensed consolidated interim financial statements. Compared to 31 December 2012, the segment’s gross reserves for loss and loss adjustment expenses had decreased by € 4.3 bn to € 58.4 bn as of 30 June 2013. On a net basis, our reserves amounted to € 51.7 bn, down by € 4.1 bn. A reclassification effect due to changes in our presentation contributed € 2.9 bn to the decrease. Effective from 1 Janu- ary 2013, the Allianz Group changed its presentation of dis- counted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. 1 Foreign currency translation effects amounted to € (0.4) bn. Excluding both effects, the net reserves decreased € 0.8 bn. 1 For further information on the changes in presentation, please refer to note 2 to the condensed consolidated interim financial statements. Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 40 aSSetS and liabilitieS of the life/health Segment Life/Health assets In total, our Life/Health asset base remained almost unchanged at € 473.5 bn (31 December 2012: € 472.3 bn). CompoSition of aSSet baSe – fair valueS A 41 € bn as of 30 June 2013 as of 31 December 2012 Financial assets and liabilities carried at fair value through income Equities 1.8 2.1 Debt securities 2.3 2.3 Other 1 (4.5) (3.5) Subtotal (0.4) 0.9 Investments 2 Equities 24.7 24.1 Debt securities 265.4 266.4 Cash and cash pool assets 3 7.1 5.7 Other 9.2 9.9 Subtotal 306.4 306.1 Loans and advances to banks and customers 92.1 94.1 Financial assets for unit-linked contracts 4 75.4 71.2 Life/Health asset base 473.5 472.3 1 2 3 4 This comprises assets of € 1.1 bn and € 1.7 bn and liabilities (including the market value lia bility option) of € (5.6) bn and € (5.2) bn as of 30 June 2013 and 31 December 2012, respectively. These do not include affiliates of € 0.8 bn and € 0.7 bn as of 30 June 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our segment balance sheet, of € 6.7 bn and € 5.6 bn and receivables from cash pooling amounting to € 2.0 bn and € 2.6 bn, net of liabilities from securities lending and derivatives of € (1.5) bn and € (1.5) bn, as well as liabilities from cash pooling of € (0.1) bn and € (1.0) bn as of 30 June 2013 and 31 December 2012, respectively. Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit- linked contracts in our balance sheet corresponds to the value of financial liabilities for unit- linked contracts. The International Financial Reporting Standards (IFRS) require the classifica- tion of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This re- quirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. As of 30 June 2013, the Life/Health asset base included AbS of € 14.3 bn, representing 3.0 % of its asset base. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations finanCial aSSetS for unit-linked ContraCtS1 € bn 12/31/2012 71.2 a + 2.6 b + 1.7 c (0.1) 6/30/2013 75.4 0 50 100 150 a Change in unit-linked insurance contracts b Change in unit-linked investment contracts c Foreign currency translation adjustments Financial assets for unit-linked contracts Changes 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Reporting Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an invest- ment contract, depending on whether an insurance component is included. This require- ment also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. development of reServeS for inSuranCe and inveStment ContraCtS € bn 12/31/2012 a b c 6/30/2013 0 50 100 150 a Change in aggregate policy reserves b Change in reserves for premium refunds c Foreign currency translation adjustments Reserves Changes Interim Report Second Quarter and First Half Year of 2013 Allianz Group A 42 Financial assets for unit-linked contracts increased by € 4.2 bn, or 5.9 %, to € 75.4 bn. Unit-linked insurance contracts increased by € 2.6 bn to € 52.6 bn due to good fund perfor- mance (€ 1.6 bn) and premium inflows exceeding outflows by € 1.8 bn. Unit-linked investment contracts increased by € 1.7 bn to € 22.8 bn, with € 1.9 bn net premium inflows. The main drivers of currency effects were the stronger U.S. Dollar (€ 0.3 bn), offset by weaker Asian currencies (€ (0.4) bn). 1 Life/Health liabilities Life/Health reserves for insurance and investment con- tracts increased by € 2.9 bn, or 0.8 %, to € 383.9 bn in the first half of 2013. The € 6.6 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 4.5 bn), Switzerland (€ 0.6 bn before currency effects), the United States (€ 0.4 bn before currency effects), Luxem- bourg (€ 0.4 bn) and Belgium (€ 0.3 bn). Reserves for premium refunds decreased by € 3.7 bn due to lower unrealized gains to be shared with policyholders. In terms of the currency impact, the stronger U.S. Dollar (€ 0.7 bn) was offset by the weakening of Asian currencies (€ (0.5) bn) and the Swiss Franc (€ (0.2) bn).1 381.0 + 6.6 (3.7) (0.0) 383.9 200 250 300 350 400 1 Based on the closing rate of the respective balance sheet dates. A 43 45 46 aSSetS and liabilitieS of the aSSet management Segment Asset Management assets Our Asset Management segment’s results are derived pri- marily from third-party asset management. In this section, we refer only to the segment’s own assets.1 The main components of the Asset Management segment’s asset base were cash and cash pool assets and debt securi- ties. The segment’s asset base had increased by € 0.8 bn to € 4.6 bn as of 30 June 2013 compared to 31 December 2012. This increase was completely due to higher cash and cash pool assets. Asset Management liabilities Liabilities in our Asset Management segment decreased from € 4.4 bn to € 4.2 bn. aSSetS and liabilitieS of the Corporate and other Segment Corporate and Other assets Compared to 31 December 2012 our Corporate and Other segment’s asset base decreased by € 2.0 bn to € 40.0 bn. This decline was mainly driven by a decrease in debt securities and cash and cash pool assets, but also by lower equities. This was only partially offset by higher loans and advances to banks and customers. 1 For further information on the development of these third-party assets, please refer to the Asset Management chapter. Interim Report Second Quarter and First Half Year of 2013 Allianz Group CompoSition of aSSet baSe – fair valueS A 44 € bn as of 30 June 2013 as of 31 December 2012 Financial assets and liabilities carried at fair value through income Equities – – Debt securities – – Other 1 (0.5) (0.2) Subtotal (0.5) (0.2) Investments 2 Equities 1.3 1.7 Debt securities 22.5 23.8 Cash and cash pool assets 3 (1.4) (0.4) Other 0.2 0.2 Subtotal 22.6 25.3 Loans and advances to banks and customers 17.9 16.9 Corporate and Other asset base 40.0 42.0 1 2 3 This comprises assets of € 0.1 bn and € 0.2 bn and liabilities of € (0.6) bn and € (0.4) bn as of 30 June 2013 and 31 December 2012, respectively. These do not include affiliates of € 74.5 bn and € 74.3 bn as of 30 June 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our segment balance sheet, of € 3.1 bn and € 4.2 bn and receivables from cash pooling amounting to € 0.6 bn and € 0.2 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.1) bn, as well as liabilities from cash pooling of € (5.0) bn and € (4.7) bn as of 30 June 2013 and 31 December 2012, respectively. As of 30 June 2013, the Corporate and Other segment’s asset base included AbS of € 0.5 bn, which represents 1.3 % of the segment’s asset base. Corporate and Other liabilities Participation certificates and subordinated liabilities decreased by € 1.5 bn to € 10.1 bn as Allianz SE called for redemption and repaid a subordinated bond with a nominal amount of U.S. Dollar 2.0 bn and a coupon of 8.375 % in the second quarter. Certificated liabilities declined from € 14.7 bn to € 14.0 bn. Other liabilities decreased by € 0.5 bn to € 21.3 bn. 2 2 For further information on Allianz SE debt as of 30 June 2013, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations allianz Se bondS1 outStanding aS of 30 june 2013 and intereSt expenSeS for the firSt Six monthS of 2013 A 45 1. Senior bondS2 4.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 1.375 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.75 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.5 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for senior bonds € 1.5 bn 2006 11/23/2016 xS 027 588 026 7 € 0.5 bn 2013 3/13/2018 de000a1hg1j8 € 1.5 bn 2009 7/22/2019 de 000 a1a khb 8 € 1.5 bn 2012 2/14/2022 de 000 a1g 0ru 9 € 0.75 bn 2013 3/13/2028 de000a1hg1k6 gbp 0.75 bn 2013 3/13/2043 de000a1hg1l4 € 30.8 mn € 2.1 mn € 36.5 mn € 26.8 mn € 7.1 mn 5.625 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 5.5 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses 4.375 % bond issued by Allianz Finance ii b. v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.375 % bond issued by Allianz Finance ii b. v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.5 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for subordinated bonds 3. iSSueS redeemed in 2013 8.375 % bond issued by Allianz Se Volume Year of issue Maturity date iSin Interest expenses € 1.5 bn 2012 10/17/2042 de 000 a1re1q3 € 1.5 bn 2004 perpetual bond xS 018 716 232 5 € 1.4 bn 2005 perpetual bond xS 021 163 783 9 € 0.8 bn 2006 perpetual bond de 000 a0g npz 3 uSd 1.0 bn 2012 perpetual bond xS 085 787 2500 uSd 2.0 bn 2008 perpetual bond uS 018 805 200 7 € 42.7 mn € 41.9 mn € 31.5 mn € 21.3 mn € 22.1 mn € 250.1 mn € 62.6 mn € 12.0 mn 2. Subordinated bondS3 6.5 % bond issued by Allianz Finance ii b. v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.75 % bond issued by Allianz Finance ii b. v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses € 1.0 bn 2002 1/13/2025 xS 015 952 750 5 € 2.0 bn 2011 7/8/2041 de 000 a1gnah1 € 115.3 mn € 32.9 mn € 57.7 mn 4. iSSueS matured in 2013 5.0 % bond issued by Allianz Finance ii b.v., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Sum of interest expenses 1 Interest expenses from external debt not presented in the table Total interest expenses from external debt € 1.5 bn 2008 3/6/2013 de 000 a0t r7k 7 € 13.5 mn € 441.5 mn € 32.5 mn € 474.0 mn 1 2 3 For further information on Allianz SE debt (issued or guaranteed) as of 30 June 2013, please refer to notes 18 and 19 to the condensed consolidated interim financial statements. Senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency. The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 47 48 Reconciliations The previous analysis is based on our condensed consoli- dated interim financial statements and should be read in conjunction with them. In addition to our stated figures according to the Inter national Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, and not as a substitute for, our figures determined according to IFRS. For further information, please refer to note 4 to the con- densed consolidated interim financial statements. Composition of total revenues Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). Composition of total revenues € mn Property-Casualty Gross premiums written Life/Health Statutory premiums Asset Management Operating revenues consisting of: Net fee and commission income Net interest income Income from financial assets and liabilities carried at fair value through income (net) Other income Corporate and Other Total revenues (Banking) consisting of: Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Interest expenses, excluding interest expenses from external debt Fee and commission expenses Consolidation effects (Banking within Corporate and Other) Consolidation Allianz Group total revenues Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 10,754 14,125 1,815 1,809 4 – 2 132 154 3 125 (72) (74) (4) (50) 26,776 2012 10,726 12,861 1,497 1,494 6 (7) 4 141 183 (1) 107 (87) (62) 1 (29) 25,196 six months ended 30 June 2013 25,951 28,962 3,726 3,706 8 7 5 280 311 5 245 (145) (134) (2) (95) 58,824 A 46 2012 25,523 26,560 2,936 2,909 12 7 8 296 373 7 219 (178) (125) – (66) 55,249 A Interim Group Management Report 5 Executive Summary 13 Property-Casualty Insurance Operations 24 Life/Health Insurance Operations 30 Asset Management 34 Corporate and Other 36 Outlook 39 Balance Sheet Review 48 Reconciliations Composition of total revenue growth We believe that an understanding of our total revenue per- formance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total reve- nue growth, we also present internal total revenue growth, which excludes these effects. reConCiliation of nominal total revenue growth to internal total revenue growth % three months ended 30 June 2013 Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth Property-Casualty – 1.7 (1.4) 0.3 Life/Health Asset Management 10.3 23.1 – – (0.5) (1.9) 9.8 21.2 Corporate and Other (6.4) – – (6.4) Allianz Group 6.5 0.7 (0.9) 6.3 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Internal growth 0.7 9.4 28.4 (5.4) 6.3 six months ended 30 June 2013 Changes in scope of consolidation Foreign currency translation 2.0 (1.0) – (0.4) (0.1) (1.4) – – 0.9 (0.7) A 47 Nominal growth 1.7 9.0 26.9 (5.4) 6.5 49 50 Interim Report Second Quarter and First Half Year of 2013 Allianz Group condensed consolidated interim financial statements b interim report second Quarter and first Half Year of 2013 allianz Group Pages 51 – 123 51 52 Condensed Consolidated Interim Financial Statements 53 Consolidated BalanCe sheets 54 Consolidated inCome statements 55 Consolidated statements of Comprehensive inCome 56 Consolidated statements of Changes in equity 57 Condensed Consolidated statements of Cash flows 59 notes to the Condensed Consolidated interim finanCial statements General information notes to the consolidated income statements 59 59 1 basis of presentation 2 recently adopted accounting pronouncements and changes in the presentation of the condensed consolidated interim financial statements 94 96 96 21 Premiums earned (net) 22 interest and similar income 23 income from financial assets and liabilities carried at fair value through income (net) 62 63 3 consolidation 4 segment reporting notes to the consolidated balance sheets 98 99 99 100 24 realized gains/losses (net) 25 fee and commission income 26 other income 27 income and expenses from fully consolidated 86 86 87 88 88 88 89 89 90 90 90 91 92 92 92 93 5 financial assets carried at fair value through income 6 investments 7 loans and advances to banks and customers 8 reinsurance assets 9 deferred acquisition costs 10 other assets 11 non-current assets classified as held for sale 12 intangible assets 13 financial liabilities carried at fair value through income 14 liabilities to banks and customers 15 reserves for loss and loss adjustment expenses 16 reserves for insurance and investment contracts 17 other liabilities 18 certificated liabilities 19 Participation certificates and subordinated liabilities 20 equity private equity investments 101 103 28 claims and insurance benefits incurred (net) 29 change in reserves for insurance and investment 105 105 105 106 106 107 107 108 contracts (net) 30 interest expenses 31 loan loss provisions 32 impairments of investments (net) 33 investment expenses 34 acquisition and administrative expenses (net) 35 fee and commission expenses 36 other expenses 37 income taxes other information 109 120 121 121 38 fair value measurement 39 earnings per share 40 other information 41 subsequent events 122 123 responsibility statement review report interim report second Quarter and first Half Year of 2013 allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Consolidated BalanCe sheets consolidated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets classified as held for sale Intangible assets Total assets liabilities and eQUitY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Participation certificates and subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity Interim Report Second Quarter and First Half Year of 2013 Allianz Group Note 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 as of 30 June 2013 12,969 6,010 399,199 118,545 75,368 13,714 21,912 2,176 35,150 117 13,060 698,220 5,836 22,334 21,005 68,106 397,032 75,368 3,448 36,272 8,287 10,108 647,796 47,866 2,558 50,424 698,220 B 01 as of 31 December 2012 12,437 7,283 401,628 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,447 5,397 22,425 17,939 72,540 390,985 71,197 4,035 37,392 7,960 11,614 641,484 50,388 2,575 52,963 694,447 53 54 Consolidated inCome statements consolidated income statements € mn Note Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) 21 Interest and similar income 22 Income from financial assets and liabilities carried at fair value through income (net) 23 Realized gains/losses (net) 24 Fee and commission income 25 Other income 26 Income from fully consolidated private equity investments 27 Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) 28 Change in reserves for insurance and investment contracts (net) 29 Interest expenses 30 Loan loss provisions 31 Impairments of investments (net) 32 Investment expenses 33 Acquisition and administrative expenses (net) 34 Fee and commission expenses 35 Amortization of intangible assets Restructuring charges Other expenses 36 Expenses from fully consolidated private equity investments 27 Total expenses Income before income taxes Income taxes 37 Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) 39 Diluted earnings per share (€) 39 Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 16,848 16,467 (1,252) (1,317) 695 650 16,291 15,800 5,412 5,488 (700) (184) 1,191 1,115 2,679 2,285 42 58 184 198 25,099 24,760 (12,877) (12,282) 905 593 (11,972) (11,689) (3,071) (3,551) (335) (368) (15) (42) (182) (422) (217) (216) (5,802) (5,247) (788) (686) (16) (31) (6) (139) (8) (25) (188) (245) (22,600) (22,661) 2,499 2,099 (824) (761) 1,675 1,338 87 86 1,588 1,252 3.50 2.77 3.47 2.72 B 02 six months ended 30 June 2013 2012 38,653 37,826 (2,697) (2,914) (2,993) (2,670) 32,963 32,242 10,579 10,620 (925) (90) 2,337 2,303 5,433 4,430 102 109 362 393 50,851 50,007 (25,059) (24,891) 1,449 1,211 (23,610) (23,680) (7,170) (7,358) (686) (750) (29) (88) (316) (610) (425) (413) (11,291) (10,701) (1,566) (1,370) (57) (56) (100) (147) (54) (44) (370) (446) (45,674) (45,663) 5,177 4,344 (1,701) (1,555) 3,476 2,789 181 160 3,295 2,629 7.27 5.81 7.18 5.78 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Consolidated statements of Comprehensive inCome consolidated statements of comprehensive income € mn three months ended 30 June six months ended 30 June 2013 2012 2013 Net income 1,675 1,338 3,476 Other comprehensive income Items that may be reclassified to profit and loss in future periods Foreign currency translation adjustments Reclassifications to net income – – – Changes arising during the period (525) 653 (236) Subtotal (525) 653 (236) Available-for-sale investments Reclassifications to net income (380) (102) (557) Changes arising during the period (2,701) 81 (2,977) Subtotal (3,081) (21) (3,534) Cash flow hedges Reclassifications to net income – (1) (1) Changes arising during the period (69) 17 (62) Subtotal (69) 16 (63) Share of other comprehensive income of associates Reclassifications to net income – – – Changes arising during the period (36) (1) (15) Subtotal (36) (1) (15) Miscellaneous Reclassifications to net income – – – Changes arising during the period 4 20 88 Subtotal 4 20 88 Items that may never be reclassified to profit and loss Actuarial gains and losses on defined benefit plans (see note 2) 17 17 (24) Total other comprehensive income (3,690) 684 (3,784) Total comprehensive income (2,015) 2,022 (308) Total comprehensive income attributable to: Non-controlling interests 32 131 168 Shareholders (2,047) 1,891 (476) For further details concerning income taxes relating to components of the other comprehensive income, please see note 37 – Income taxes. Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 03 2012 2,789 – 440 440 (142) 2,269 2,127 (1) 28 27 – 5 5 – 91 91 (235) 2,455 5,244 278 4,966 55 56 Consolidated statements of Changes in equity consolidated statements of changes in eQUitY € mn Paid-in capital Retained earnings Foreign currency translation adjustments Unrealized gains and losses (net) Shareholders’ equity Balance as of 1 January 2012, as previously reported 28,763 13,522 (1,996) 4,626 44,915 Adjustments (see note 2) – (1,457) (1) – (1,458) Balance as of 1 January 2012, as reported 28,763 12,065 (1,997) 4,626 43,457 Total comprehensive income 1 – 2,442 428 2,096 4,966 Paid-in capital – – – – – Treasury shares – 12 – – 12 Transactions between equity holders – (64) 14 2 (48) Dividends paid – (2,037) – – (2,037) Balance as of 30 June 2012 28,763 12,418 (1,555) 6,724 46,350 Balance as of 1 January 2013, as previously reported 28,815 16,689 (2,073) 10,122 53,553 Adjustments (see note 2) – (3,165) – – (3,165) Balance as of 1 January 2013, as reported 28,815 13,524 (2,073) 10,122 50,388 Total comprehensive income 1 – 3,319 (231) (3,564) (476) Paid-in capital – – – – – Treasury shares – 3 – – 3 Transactions between equity holders – (11) – 1 (10) Dividends paid – (2,039) – – (2,039) Balance as of 30 June 2013 28,815 14,796 (2,304) 6,559 47,866 1 Total comprehensive income in shareholders’ equity for the six months ended 30 June 2013 comprises net income attributable to shareholders of € 3,295 mn (2012: € 2,629 mn). Interim Report Second Quarter and First Half Year of 2013 Allianz Group Non- controlling interests 2,338 (48) 2,290 278 – – (93) (138) 2,337 2,665 (90) 2,575 168 – – 21 (206) 2,558 B 04 Total equity 47,253 (1,506) 45,747 5,244 – 12 (141) (2,175) 48,687 56,218 (3,255) 52,963 (308) – 3 11 (2,245) 50,424 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Condensed Consolidated statements of Cash flows condensed consolidated statements of cash flows € mn six months ended 30 June 2013 sUmmarY Net cash flow provided by operating activities 13,121 Net cash flow used in investing activities (8,438) Net cash flow used in financing activities (4,137) Effect of exchange rate changes on cash and cash equivalents (14) Change in cash and cash equivalents 532 Cash and cash equivalents at beginning of period 12,437 Cash and cash equivalents at end of period 12,969 cash flow from operating activities Net income 3,476 Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures (45) Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers (2,021) Other investments, mainly financial assets held for trading and designated at fair value through income 1,260 Depreciation and amortization 528 Loan loss provisions 29 Interest credited to policyholder accounts 2,267 Net change in: Financial assets and liabilities held for trading 9 Reverse repurchase agreements and collateral paid for securities borrowing transactions 16 Repurchase agreements and collateral received from securities lending transactions 640 Reinsurance assets (910) Deferred acquisition costs (618) Unearned premiums 3,441 Reserves for loss and loss adjustment expenses (280) Reserves for insurance and investment contracts 5,372 Deferred tax assets/liabilities 257 Other (net) (300) Subtotal 9,645 Net cash flow provided by operating activities 13,121 Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 05 2012 12,320 (9,541) (2,772) 124 131 10,492 10,623 2,789 (45) (1,693) 319 514 88 1,933 (1,009) 262 656 (559) (379) 3,312 872 6,109 37 (886) 9,531 12,320 57 58 Condensed Consolidated statements of Cash flows (Continued) condensed consolidated statements of cash flows € mn six months ended 30 June 2013 cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 912 Available-for-sale investments 59,853 Held-to-maturity investments 385 Investments in associates and joint ventures 165 Non-current assets classified as held for sale 24 Real estate held for investment 170 Loans and advances to banks and customers (purchased loans) 3,768 Property and equipment 87 Subtotal 65,364 Payments for the purchase or origination of: Financial assets designated at fair value through income (510) Available-for-sale investments (68,781) Held-to-maturity investments (162) Investments in associates and joint ventures (358) Non-current assets classified as held for sale – Real estate held for investment (362) Loans and advances to banks and customers (purchased loans) (3,358) Property and equipment (574) Subtotal (74,105) Business combinations: Proceeds from sale of subsidiaries, net of cash disposed – Acquisitions of subsidiaries, net of cash acquired – Change in other loans and advances to banks and customers (originated loans) 269 Other (net) 34 Net cash flow used in investing activities (8,438) cash flow from financing activities Net change in liabilities to banks and customers (716) Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 3,607 Repayments of certificated liabilities, participation certificates and subordinated liabilities (4,806) Cash inflow from capital increases – Transactions between equity holders 11 Dividends paid to shareholders (2,245) Net cash from sale or purchase of treasury shares 6 Other (net) 6 Net cash flow used in financing activities (4,137) sUpplementarY information to the condensed consolidated statements of cash flows Income taxes paid (1,895) Dividends received 822 Interest received 10,120 Interest paid (728) Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 05 2012 1,085 61,251 373 149 112 113 6,298 149 69,530 (553) (72,084) (720) (178) (223) (265) (3,517) (737) (78,277) – – (701) (93) (9,541) (177) 4,401 (4,567) – (141) (2,175) 11 (124) (2,772) (1,044) 672 10,402 (827) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Notes to the Condensed Consolidated Interim Financial Statements General InformatIon 1 – Basis of presentation The condensed consolidated interim financial statements of the Allianz Group – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated state- ments of changes in equity, condensed consolidated state- ments of cash flows and selected explanatory notes – are presented in accordance with the requirements of IAS 34, Interim Financial Reporting, and have been prepared in conformity with International Financial Reporting Stan- dards (IFRS), as adopted under European Union (E.U.) regu- lations in accordance with § 315a of the German Commer- cial Code (HGB). IFRS comprise the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS) and the interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC). IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance con- tracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to those aspects where specific guidance is not provided by IFRS 4, Insurance Con- tracts, the provisions embodied under accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005, have been applied. The condensed consolidated interim financial statements are presented in millions of Euros (€), unless otherwise stated. These condensed consolidated interim financial state- ments of the Allianz Group were authorized for issue by the Board of Management on 1 August 2013. Within these condensed consolidated interim financial statements, the Allianz Group has applied all IFRS issued by the IASB that are endorsed by the E.U. and are compulsory as of 1 January 2013. See note 2 for further details. For existing and unchanged IFRS, the accounting policies for recognition, measurement, consolidation and presen- tation applied in the preparation of the condensed con- solidated interim financial statements are generally con- sistent with the accounting policies that have been applied in the preparation of the consolidated financial statements for the year ended 31 December 2012. See note 2 for further details. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Allianz Group Annual Report 2012. 2 – Recently adopted accounting pronouncements and changes in the presentation of the condensed consolidated interim financial statements recently adopted accounting pronouncements effective 1 January 2013 Amendments to ias 19 – Employee Benefits The amendments eliminate the corridor approach and require all actuarial gains and losses to be recognized immediately in other comprehensive income (OCI). While all remeasurements need to be recognized in OCI, service and interest costs have to be recognized in the profit and loss account. The long-term return on plan assets has to be calculated using the same interest rate used to discount the defined benefit obligation (DBO). The amendments to IAS 19 are applied retrospectively. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 59 60 The following table presents the impacts of the adoption of the amendments to IAS 19 on the consolidated balance sheet. cHange oF consolidated Balance sHeet relating to amendments to ias 19 – employee BeneFits B 06 € mn as of 31 December 2012 As previously reported Amend- ments to ias 19 As reported Deferred tax assets 1,270 256 1,526 Other assets 35,626 (430) 35,196 Total assets 694,621 (174) 694,447 Reserves for insurance and investment contracts 390,987 (2) 390,985 Deferred tax liabilities 5,169 (1,134) 4,035 Other liabilities 33,175 4,217 37,392 Total liabilities 638,403 3,081 641,484 Shareholders’ equity 53,553 (3,165) 50,388 Non-controlling interests 2,665 (90) 2,575 Total equity 56,218 (3,255) 52,963 Total liabilities and equity 694,621 (174) 694,447 The impact of the adoption of the amendments to IAS 19 on the consolidated income statement for the three and the six months ended 30 June 2012 led to a € 25 mn and € 35 mn decrease of acquisition and administrative expenses (net) and a € 7 mn and € 11 mn increase in income taxes. This resulted in a 4 cent and a 5 cent increase in earnings per share for the three and the six months ended 30 June 2012. For the year ended 31 December 2012, the adoption led to an increase in income before income taxes of € 88 mn and an increase in income taxes of € 21 mn. This resulted in an increase of the earnings per share of 14 cents. The impact on the total other comprehensive income was € 22 mn and € (233) mn for the three and the six months ended 30 June 2012 and € (1,816) mn for the year ended 31 December 2012. The impact on the condensed consolidated statements of cashflows is immaterial. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Further adopted accounting pronouncements In addition to the amendments to IAS 19 Employee Benefits, the following new standard, amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2013: − IAS 1, Presentation of Financial Statements – Amend- ment to Presentation of Items of Other Comprehensive Income − IFRS 7, Financial Instruments: Disclosures – Amend- ments to Offsetting Financial Assets and Financial Liabilities − IFRS 13, Fair Value Measurement − Annual Improvements to IFRSs 2009-2011 The Allianz Group adopted the new standard, the revisions, amendments and interpretations as of 1 January 2013, with no material impact on its financial results or financial posi- tion. cHanges in tHe presentation oF tHe condensed consolidated interim Financial statements Change in presentation of discounted loss reserves in the business segment Property-Casualty Effective 1 January 2013, the Allianz Group prospectively changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. In the consolidated income statement, the unwinding of the dis- counted loss reserves is now presented in “Change in reserves for insurance and investment contracts (net)”. The Allianz Group believes this change in presentation results in information that is more relevant to the econom- ic decision-making needs of users of financial statements as it better reflects the nature of the reserves in the finan- cial statements. In addition, the key performance indicator “combined ratio” reflects the net underwriting result. B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity The following tables present the impacts of the change in presentation of discounted loss reserves. cHange oF consolidated Balance sHeet relating to cHange in presentation oF discounted loss reserVes B 07 € mn as of 30 June 2013 Before change in presen- tation Change in presen- tation As reported Reserves for loss and loss adjustment expenses 71,313 (3,207) 68,106 Reserves for insurance and investment contracts 393,825 3,207 397,032 Total liabilities 647,796 – 647,796 cHange oF consolidated income statements relating to cHange in presentation oF discounted loss reserVes B 08 € mn three months ended 30 June 2013 six months ended 30 June 2013 Before change in presentation Change in presentation As reported Before change in presentation Change in presentation As reported Claims and insurance benefits incurred (net) (11,998) 26 (11,972) (23,657) 47 (23,610) Change in reserves for insurance and investment contracts (net) (3,045) (26) (3,071) (7,123) (47) (7,170) Net income 1,675 – 1,675 3,476 – 3,476 Loss ratio in % 67.5 (0.2) 67.3 67.0 (0.3) 66.7 Combined ratio in % 96.2 (0.2) 96.0 95.4 (0.3) 95.1 Change in presentation of condensed consolidated statements of cash flows The Allianz Group has changed the presentation of policy- holders’ account deposits and withdrawals in its con- densed consolidated statements of cash flows from cash flow from financing activities to cash flow from operating activities. The change in presentation has been applied ret- rospectively. The following table presents the impact of the change in presentation of policyholders’ account deposits and with- drawals on the consolidated statements of cash flows. cHange oF consolidated statement oF casH FloWs relating to cHange in presentation oF policyHolders’ account deposits and WitHdraWals € mn B 09 The Allianz Group believes this change in presentation results in information that is more relevant to the economic decision-making needs of users of financial statements as those cash flows relate to the insurance activities of Allianz Group. The change in presentation results in a consistent presentation of all cash flows from insurance activities as cash flows from operating activities. six months ended 30 June 2012 Net cash flow provided by operating activities Net cash flow used in financing activities Cash and cash equivalents at end of period As previously reported 11,288 (1,740) 10,623 Change in presen- tation 1,032 (1,032) – As reported 12,320 (2,772) 10,623 otHer reclassiFications Certain prior-period amounts have been reclassified to conform to the current period presentation. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 61 62 3 – Consolidation signiFicant acquisitions Yapı Kredi Sigorta A.Ş. and Yapı Kredi Emeklilik A.Ş. On 12 July 2013, the Allianz Group acquired Yapı Kredi Bank’s 93.94 % shareholding in the Turkish property-casual- ty insurance company Yapı Kredi Sigorta, including its life and pension insurance subsidiary Yapı Kredi Emeklilik. The transaction includes a 15 year exclusive distribution agree- ment with Yapı Kredi Bank. Yapı Kredi Bank retains a 20 % stake in Yapı Kredi Emeklilik to support the long-term stra- tegic partnership with Allianz. This transaction is consis- tent with the Allianz strategy to access growth through strategic relationships in high-growth insurance markets. The transaction was approved by the Turkish Competition Authority on 26 June 2013 and by the Republic of Turkey Prime Ministry Undersecretariat of Treasury on 5 July 2013. The total gross consideration paid in cash to Yapı Kredi Bank amounted to € 714 mn (TYL 1,791 mn), while net of pro- ceeds received from the sale of the Yapı Kredi Emeklilik stake to Yapı Kredi Bank, the consideration to Yapi Kredi Bank amounted to € 639 mn (TYL 1,603 mn). At the time the condensed consolidated interim financial statements were authorized for issue, the reconciliation from local GAAP to IFRS, including the change in accounting for insurance and investment contracts, was not complete and as a result the purchase accounting for the business combination was not fully completed. Therefore, informa- tion about the total assets acquired and liabilities assumed as well as total revenues, net income and the impact on the respective consolidated figures for the Allianz Group were not available. Effective 1 July 2013, the entities will be included in the con- densed consolidated interim financial statements for the third quarter and first nine months of 2013. As a result of the purchase of shares representing 93.94 % of the share capital of Yapı Kredi Sigorta on 12 July 2013, the Allianz Group duly filed on 22 July 2013 an application to the Turkish Capital Market Board to pursue a mandatory tender offer with respect to the remaining shares of Yapı Kredi Sigorta. Interim Report Second Quarter and First Half Year of 2013 Allianz Group HSBC Taiwan Life branch On 21 June 2013, the Allianz Group acquired the assets and assumed the liabilities of the Taiwan branch of HSBC Life (International) Limited as part of the regional cooperation with HSBC and integrated it into Allianz Taiwan. The total consideration paid in cash amounted to € 14 mn. The following table summarizes the consideration trans- ferred and amounts recognized for major classes of identi- fiable assets acquired and liabilities assumed: HsBc taiWan liFe BrancH – consideration transFerred and identiFiaBle assets and liaBilities B 10 € mn Fair value Consideration transferred Cash consideration transferred 14 Purchase price adjustment (14) Total consideration transferred – Identifiable assets acquired and liabilities assumed Cash and cash equivalents 6 Investments 69 Loans and advances to banks and customers 3 Financial assets for unit-linked contracts 35 Deferred acquisition costs 15 Reserves for insurance and investment contracts (90) Financial liabilities for unit-linked contracts (35) Deferred tax liabilities (2) Other liabilities (1) Total net identifiable assets – The impact of the acquisition of the HSBC Taiwan Life branch on the total revenues and net income of the Allianz Group, since the acquisition date as well as if the acquisi- tion date had been 1 January 2013, was not material. B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 4 – Segment reporting IdentIfIcatIon of reportable segments The business activities of the Allianz Group are first orga nized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided into the PropertyCasualty and Life/Health cat egories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into the following reportable segments: − German Speaking Countries − Western & Southern Europe − Iberia & Latin America − USA − Global Insurance Lines & Anglo Markets − Growth Markets − Allianz Worldwide Partners (PropertyCasualty only). Asset management activities represent a separate report able segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Trea sury, Banking and Alternative Investments. In total, the Allianz Group has identified 17 reportable segments in accordance with IFRS 8, Operating Segments. The types of products and services from which reportable segments derive revenue are described below. Property-Casualty In the PropertyCasualty category, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annui ties, endowment and term insurance, unitlinked and investmentoriented products as well as full private health and supplemental health and longterm care insurance. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Asset Management The reportable segment Asset Management operates as a global provider of institutional and retail asset manage ment products and services to thirdparty investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the AsiaPacific region represent the primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, finan cial reporting, controlling, communication, legal, human resources and technology functions. The reportable seg ment Banking consists of the banking activities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a primary focus on the latter. The reportable segment Alternative Investments provides global alternative invest ment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group’s insurance operations. The reportable segment Alternative Investments also includes a fully consolidated private equity investment. The income and expenses of this investment are included in the non operating result. Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transac tions with third parties. Transactions between reportable segments are eliminated in Consolidation. For the report able segment Asset Management, interest revenues are reported net of interest expenses. 63 64 reportable segments measure of profIt or loss The Allianz Group uses operating profit to evaluate the per formance of its reportable segments and the Allianz Group as a whole. Operating profit highlights the portion of income before income taxes attributable to the ongoing core operations of the Allianz Group. The Allianz Group con siders the presentation of operating profit to be useful and meaningful to investors because it enhances the under standing of the Allianz Group’s underlying operating perfor mance and the comparability of its operating performance over time. To better understand the ongoing operations of the busi ness, the Allianz Group generally excludes the following nonoperating effects: − acquisitionrelated expenses and the amortization of intangible assets, as these relate to business combi nations; − interest expenses from external debt, as these relate to the capital structure of the Allianz Group; − income from fully consolidated private equity invest ments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; − income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s longterm performance; − realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuerspecific events over which the Allianz Group has little or no con trol and which can and do vary, sometimes materially, through time. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Against this general rule, the following exceptions apply: − in all reportable segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income relates to operating business; − for Life/Health insurance business and PropertyCasualty insurance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also appli cable to tax benefits, which are shared with policyhold ers. IFRS requires that the consolidated income state ments present all tax benefits in the income taxes line item, even though these belong to policyholders. In the segment reporting, the tax benefits are reclassified and shown within operating profit in order to adequately reflect the policyholder participation in tax benefits. Operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as determined in accordance with IFRS. Effective 1 January 2013, all restructuring charges are pre sented within operating profit. This change does not impact recognition and measurement of the restructuring charges, shareholders’ equity and net income. B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Interim Report Second Quarter and First Half Year of 2013 Allianz Group 65 66 busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon - consolIdated balance sheets € mn Property-Casualty as of 30 June 2013 as of 31 December 2012 assets Cash and cash equivalents 3,648 2,707 Financial assets carried at fair value through income 570 624 Investments 90,104 90,168 Loans and advances to banks and customers 16,427 18,331 Financial assets for unit-linked contracts – – Reinsurance assets 8,885 8,432 Deferred acquisition costs 4,584 4,323 Deferred tax assets 1,174 1,096 Other assets 21,547 21,633 Non-current assets classified as held for sale – – Intangible assets 2,284 2,336 Total assets 149,223 149,650 € mn Property-Casualty as of 30 June 2013 as of 31 December 2012 lIabIlItIes and eQuItY Financial liabilities carried at fair value through income 90 100 Liabilities to banks and customers 1,416 1,146 Unearned premiums 18,222 15,328 Reserves for loss and loss adjustment expenses 58,390 62,711 Reserves for insurance and investment contracts 13,359 10,174 Financial liabilities for unit-linked contracts – – Deferred tax liabilities 2,134 2,562 Other liabilities 16,557 16,887 Certificated liabilities 38 25 Participation certificates and subordinated liabilities – – Total liabilities 110,206 108,933 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Life/Health as of 30 June 2013 6,662 5,160 300,132 92,079 75,368 4,857 17,191 259 16,009 117 2,555 520,389 Life/Health as of 30 June 2013 5,533 2,208 2,793 9,723 383,861 75,368 2,520 13,018 14 95 495,133 as of 31 December 2012 5,574 6,150 301,111 94,080 71,197 4,858 14,990 245 16,753 12 2,207 517,177 as of 31 December 2012 5,255 1,972 2,618 9,854 380,993 71,197 3,276 14,107 – 95 489,367 Asset Management as of as of 30 June 31 December 2013 2012 1,799 1,514 556 699 1,106 1,116 378 395 – – – – 137 139 194 257 2,558 2,316 – – 7,437 7,407 14,165 13,843 Asset Management as of as of 30 June 31 December 2013 2012 1 – 1,270 1,398 – – – – – – – – 122 174 2,782 2,780 – – 14 14 4,189 4,366 Corporate and Other as of as of 30 June 31 December 2013 2012 3,100 4,209 128 170 98,560 100,082 17,948 16,896 – – – – – – 2,038 2,217 5,747 5,570 – 3 784 1,140 128,305 130,287 Corporate and Other as of as of 30 June 31 December 2013 2012 615 403 21,949 22,791 – – – – – – – – 161 312 21,261 21,753 13,977 14,675 10,063 11,569 68,026 71,503 Consolidation as of 30 June 2013 (2,240) (404) (90,703) (8,287) – (28) – (1,489) (10,711) – – (113,862) Consolidation as of 30 June 2013 (403) (4,509) (10) (7) (188) – (1,489) (17,346) (5,742) (64) (29,758) Total equity Total liabilities and equity as of 31 December 2012 (1,567) (360) (90,849) (10,333) – (36) – (2,289) (11,076) – – (116,510) as of 31 December 2012 (361) (4,882) (7) (25) (182) – (2,289) (18,135) (6,740) (64) (32,685) Group as of 30 June 2013 12,969 6,010 399,199 118,545 75,368 13,714 21,912 2,176 35,150 117 13,060 698,220 Group as of 30 June 2013 5,836 22,334 21,005 68,106 397,032 75,368 3,448 36,272 8,287 10,108 647,796 50,424 698,220 B 11 as of 31 December 2012 12,437 7,283 401,628 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,447 as of 31 December 2012 5,397 22,425 17,939 72,540 390,985 71,197 4,035 37,392 7,960 11,614 641,484 52,963 694,447 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon - consolIdated balance sheets B 11 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of 31 December 2012 as of 30 June 2013 as of 31 December 2012 as of 30 June 2013 as of 31 December 2012 as of as of 30 June 2013 as of as of as of 31 December 2012 as of as of 30 June 2013 31 December 30 June 31 December 30 June 2012 2013 2012 2013 assets Cash and cash equivalents 1,799 1,514 3,100 4,209 (2,240) (1,567) 12,969 12,437 3,648 2,707 6,662 5,574 Financial assets carried at fair value through income 570 624 5,160 6,150 556 699 128 170 (404) (360) 6,010 7,283 Investments 90,104 90,168 300,132 301,111 1,106 1,116 98,560 100,082 (90,703) (90,849) 399,199 401,628 Loans and advances to banks and customers 16,427 18,331 92,079 94,080 378 395 17,948 16,896 (8,287) (10,333) 118,545 119,369 Financial assets for unit-linked contracts – – 75,368 71,197 – – – – – – 75,368 71,197 Reinsurance assets 8,885 8,432 4,857 4,858 – – – – (28) (36) 13,714 13,254 Deferred acquisition costs 4,584 4,323 17,191 14,990 137 139 – – – – 21,912 19,452 Deferred tax assets 1,174 1,096 259 245 194 257 2,038 2,217 (1,489) (2,289) 2,176 1,526 Other assets 21,547 21,633 16,009 16,753 2,558 2,316 5,747 5,570 (10,711) (11,076) 35,150 35,196 Non-current assets classified as held for sale – – 117 12 – – – 3 – – 117 15 Intangible assets 2,284 2,336 2,555 2,207 7,437 7,407 784 1,140 – – 13,060 13,090 Total assets 149,223 149,650 520,389 517,177 14,165 13,843 128,305 130,287 (113,862) (116,510) 698,220 694,447 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group as of 31 December 2012 as of 30 June 2013 as of 31 December 2012 as of 30 June 2013 as of as of 31 December 2012 as of as of 30 June 2013 as of as of 31 December 2012 as of as of 30 June 2013 31 December 30 June 31 December 30 June 2012 2013 2012 2013 lIabIlItIes and eQuItY 1 – 615 403 (403) (361) 5,836 5,397 Financial liabilities carried at fair value through income 90 100 5,533 5,255 Liabilities to banks and customers 1,416 1,146 2,208 1,972 1,270 1,398 21,949 22,791 (4,509) (4,882) 22,334 22,425 Unearned premiums 18,222 15,328 2,793 2,618 – – – – (10) (7) 21,005 17,939 Reserves for loss and loss adjustment expenses 58,390 62,711 9,723 9,854 – – – – (7) (25) 68,106 72,540 Reserves for insurance and investment contracts 13,359 10,174 383,861 380,993 – – – – (188) (182) 397,032 390,985 Financial liabilities for unit-linked contracts – – 75,368 71,197 – – – – – – 75,368 71,197 Deferred tax liabilities 2,134 2,562 2,520 3,276 122 174 161 312 (1,489) (2,289) 3,448 4,035 Other liabilities 16,557 16,887 13,018 14,107 2,782 2,780 21,261 21,753 (17,346) (18,135) 36,272 37,392 Certificated liabilities 38 25 14 – – – 13,977 14,675 (5,742) (6,740) 8,287 7,960 Participation certificates and subordinated liabilities – – 95 95 14 14 10,063 11,569 (64) (64) 10,108 11,614 Total liabilities 110,206 108,933 495,133 489,367 4,189 4,366 68,026 71,503 (29,758) (32,685) 647,796 641,484 Total equity 50,424 52,963 Total liabilities and equity 698,220 694,447 67 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 68 busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) € mn Property-Casualty Life/Health three months ended 30 June 2013 2012 2013 2012 Total revenues 1 10,754 10,726 14,125 12,861 Premiums earned (net) 10,379 10,266 5,912 5,534 Operating investment result Interest and similar income 932 976 4,368 4,423 Operating income from financial assets and liabilities carried at fair value through income (net) (35) (7) (686) (205) Operating realized gains/losses (net) 15 9 718 733 Interest expenses, excluding interest expenses from external debt (7) (11) (21) (21) Operating impairments of investments (net) (7) (11) (132) (204) Investment expenses (77) (70) (193) (191) Subtotal 821 886 4,054 4,535 Fee and commission income 307 291 168 131 Other income 11 10 31 37 Claims and insurance benefits incurred (net) (6,984) (7,119) (4,990) (4,570) Change in reserves for insurance and investment contracts (net) 2 (99) (76) (2,928) (3,517) Loan loss provisions – – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses (2,976) (2,862) (1,478) (1,253) Fee and commission expenses (273) (264) (74) (55) Restructuring charges (1) (76) (1) (2) Other expenses (6) (6) (25) (22) Reclassification of tax benefits – – – – Operating profit (loss) 1,179 1,050 669 818 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 23 (82) (5) 4 Non-operating realized gains/losses (net) 229 354 24 (10) Non-operating impairments of investments (net) (35) (120) (6) (22) Subtotal 217 152 13 (28) Income from fully consolidated private equity investments (net) – – – – Interest expenses from external debt – – – – Acquisition-related expenses – – – – Amortization of intangible assets (5) (11) (2) (1) Reclassification of tax benefits – – – – Non-operating items 212 141 11 (29) Income (loss) before income taxes 1,391 1,191 680 789 Income taxes (390) (374) (206) (282) Net income (loss) 1,001 817 474 507 Net income (loss) attributable to: Non-controlling interests 45 49 20 21 Shareholders 956 768 454 486 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the three months ended 30 June 2013, includes expenses for premium refunds (net) in Property-Casualty of € (37) mn (2012: € (25) mn). Interim Report Second Quarter and First Half Year of 2013 Allianz Group Asset Management 2013 1,815 – 10 – – (6) – – 4 2,179 2 – – – (1,009) (370) (2) – – 804 – – – – – – (16) (7) – (23) 781 (293) 488 22 466 2012 1,497 – 12 (7) – (6) – – (1) 1,825 4 – – – (861) (331) (61) – – 575 – – (1) (1) – – (8) (12) – (21) 554 (209) 345 10 335 Corporate and Other 2013 132 – 207 10 – (158) – (20) 39 175 (1) – – (15) (338) (131) (2) (1) – (274) (9) 206 (23) 174 (7) (233) – (3) – (69) (343) 66 (277) – (277) 2012 141 – 259 10 – (189) – (25) 55 161 1 – – (42) (272) (82) – (1) – (180) 109 26 (64) 71 (1) (251) (2) (7) – (190) (370) 104 (266) 6 (272) Consolidation 2013 (50) – (105) 4 – 90 21 73 83 (150) (1) 2 (44) – 15 60 – 24 – (11) (2) (1) – (3) 3 – – 1 – 1 (10) (1) (11) – (11) 2012 (29) – (182) (3) 3 110 – 70 (2) (123) 6 – 42 – 11 46 – 4 3 (13) (3) – – (3) (46) – – – (3) (52) (65) – (65) – (65) Group 2013 26,776 16,291 5,412 (707) 733 (102) (118) (217) 5,001 2,679 42 (11,972) (3,071) (15) (5,786) (788) (6) (8) – 2,367 7 458 (64) 401 (4) (233) (16) (16) – 132 2,499 (824) 1,675 87 1,588 B 12 2012 25,196 15,800 5,488 (212) 745 (117) (215) (216) 5,473 2,285 58 (11,689) (3,551) (42) (5,237) (686) (139) (25) 3 2,250 28 370 (207) 191 (47) (251) (10) (31) (3) (151) 2,099 (761) 1,338 86 1,252 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) B 12 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Total revenues 1 10,754 10,726 14,125 12,861 1,815 1,497 132 141 (50) (29) 26,776 25,196 Premiums earned (net) 10,379 10,266 5,912 5,534 – – – – – – 16,291 15,800 Operating investment result 10 12 207 259 (105) (182) 5,412 5,488 Interest and similar income 932 976 4,368 4,423 Operating income from financial assets and liabilities carried – (7) 10 10 4 (3) (707) (212) at fair value through income (net) (35) (7) (686) (205) Operating realized gains/losses (net) 15 9 718 733 – – – – – 3 733 745 Interest expenses, excluding interest expenses from external debt (7) (11) (21) (21) (6) (6) (158) (189) 90 110 (102) (117) Operating impairments of investments (net) (7) (11) (132) (204) – – – – 21 – (118) (215) Investment expenses (77) (70) (193) (191) – – (20) (25) 73 70 (217) (216) Subtotal 821 886 4,054 4,535 4 (1) 39 55 83 (2) 5,001 5,473 Fee and commission income 307 291 168 131 2,179 1,825 175 161 (150) (123) 2,679 2,285 Other income 11 10 31 37 2 4 (1) 1 (1) 6 42 58 Claims and insurance benefits incurred (net) (6,984) (7,119) (4,990) (4,570) – – – – 2 – (11,972) (11,689) Change in reserves for insurance and investment contracts (net) 2 (99) (76) (2,928) (3,517) – – – – (44) 42 (3,071) (3,551) Loan loss provisions – – – – – – (15) (42) – – (15) (42) Acquisition and administrative expenses (net), (1,009) (861) (338) (272) 15 11 (5,786) (5,237) excluding acquisition-related expenses (2,976) (2,862) (1,478) (1,253) Fee and commission expenses (273) (264) (74) (55) (370) (331) (131) (82) 60 46 (788) (686) Restructuring charges (1) (76) (1) (2) (2) (61) (2) – – – (6) (139) Other expenses (6) (6) (25) (22) – – (1) (1) 24 4 (8) (25) Reclassification of tax benefits – – – – – – – – – 3 – 3 Operating profit (loss) 1,179 1,050 669 818 804 575 (274) (180) (11) (13) 2,367 2,250 Non-operating investment result Non-operating income from financial assets and liabilities carried – – (9) 109 (2) (3) 7 28 at fair value through income (net) 23 (82) (5) 4 Non-operating realized gains/losses (net) 229 354 24 (10) – – 206 26 (1) – 458 370 Non-operating impairments of investments (net) (35) (120) (6) (22) – (1) (23) (64) – – (64) (207) Subtotal 217 152 13 (28) – (1) 174 71 (3) (3) 401 191 Income from fully consolidated private equity investments (net) – – – – – – (7) (1) 3 (46) (4) (47) Interest expenses from external debt – – – – – – (233) (251) – – (233) (251) Acquisition-related expenses – – – – (16) (8) – (2) – – (16) (10) Amortization of intangible assets (5) (11) (2) (1) (7) (12) (3) (7) 1 – (16) (31) Reclassification of tax benefits – – – – – – – – – (3) – (3) Non-operating items 212 141 11 (29) (23) (21) (69) (190) 1 (52) 132 (151) Income (loss) before income taxes 1,391 1,191 680 789 781 554 (343) (370) (10) (65) 2,499 2,099 Income taxes (390) (374) (206) (282) (293) (209) 66 104 (1) – (824) (761) Net income (loss) 1,001 817 474 507 488 345 (277) (266) (11) (65) 1,675 1,338 Net income (loss) attributable to: 22 10 – 6 – – 87 86 Non-controlling interests 45 49 20 21 Shareholders 956 768 454 486 466 335 (277) (272) (11) (65) 1,588 1,252 2 For the three months ended 30 June 2013, includes expenses for premium refunds (net) in 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Property-Casualty of € (37) mn (2012: € (25) mn). Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 69 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 70 busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) € mn Property-Casualty Life/Health six months ended 30 June 2013 2012 2013 2012 Total revenues 1 25,951 25,523 28,962 26,560 Premiums earned (net) 20,691 20,347 12,272 11,895 Operating investment result Interest and similar income 1,819 1,915 8,445 8,485 Operating income from financial assets and liabilities carried at fair value through income (net) (27) (5) (930) (367) Operating realized gains/losses (net) 30 14 1,617 1,800 Interest expenses, excluding interest expenses from external debt (22) (22) (40) (41) Operating impairments of investments (net) (8) (14) (194) (266) Investment expenses (145) (137) (383) (353) Subtotal 1,647 1,751 8,515 9,258 Fee and commission income 597 581 308 258 Other income 19 17 80 79 Claims and insurance benefits incurred (net) (13,797) (14,001) (9,816) (9,679) Change in reserves for insurance and investment contracts (net) 2 (212) (156) (6,929) (7,231) Loan loss provisions – – – – Acquisition and administrative expenses (net), excluding acquisition-related expenses (5,885) (5,674) (2,726) (2,774) Fee and commission expenses (548) (540) (130) (118) Restructuring charges (3) (82) (2) (4) Other expenses (11) (10) (48) (41) Reclassification of tax benefits – – – – Operating profit (loss) 2,498 2,233 1,524 1,643 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 14 (62) 8 17 Non-operating realized gains/losses (net) 385 366 58 13 Non-operating impairments of investments (net) (51) (166) (10) (27) Subtotal 348 138 56 3 Income from fully consolidated private equity investments (net) – – – – Interest expenses from external debt – – – – Acquisition-related expenses – – – – Amortization of intangible assets (8) (16) (5) (2) Reclassification of tax benefits – – – – Non-operating items 340 122 51 1 Income (loss) before income taxes 2,838 2,355 1,575 1,644 Income taxes (820) (702) (473) (512) Net income (loss) 2,018 1,653 1,102 1,132 Net income (loss) attributable to: Non-controlling interests 88 89 43 43 Shareholders 1,930 1,564 1,059 1,089 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the six months ended 30 June 2013, includes expenses for premium refunds (net) in Property-Casualty of € (100) mn (2012: € (51) mn). Interim Report Second Quarter and First Half Year of 2013 Allianz Group Asset Management 2013 3,726 – 21 7 – (13) – – 15 4,465 5 – – – (2,017) (759) (5) – – 1,704 – – – – – – (41) (13) – (54) 1,650 (594) 1,056 48 1,008 2012 2,936 – 24 7 – (12) – – 19 3,517 8 – – – (1,687) (608) (61) – – 1,188 – – (1) (1) – – (19) (23) – (43) 1,145 (421) 724 21 703 Corporate and Other 2013 280 – 489 19 – (321) – (39) 148 343 1 – – (29) (641) (243) (90) (2) – (513) (17) 288 (74) 197 (14) (474) – (53) – (344) (857) 183 (674) 2 (676) 2012 296 – 509 20 – (391) – (48) 90 323 1 – – (88) (572) (207) – (1) – (454) 309 107 (136) 280 (13) (510) (3) (15) – (261) (715) 73 (642) 7 (649) Consolidation 2013 (95) – (195) 3 (35) 184 21 142 120 (280) (3) 3 (29) – 19 114 – 7 – (49) (2) (6) – (8) 6 – – 22 – 20 (29) 3 (26) – (26) 2012 (66) – (313) (1) 3 226 – 125 40 (249) 4 – 29 – 28 103 – 8 10 (27) (8) – – (8) (40) – – – (10) (58) (85) 7 (78) – (78) Group 2013 58,824 32,963 10,579 (928) 1,612 (212) (181) (425) 10,445 5,433 102 (23,610) (7,170) (29) (11,250) (1,566) (100) (54) – 5,164 3 725 (135) 593 (8) (474) (41) (57) – 13 5,177 (1,701) 3,476 181 3,295 B 13 2012 55,249 32,242 10,620 (346) 1,817 (240) (280) (413) 11,158 4,430 109 (23,680) (7,358) (88) (10,679) (1,370) (147) (44) 10 4,583 256 486 (330) 412 (53) (510) (22) (56) (10) (239) 4,344 (1,555) 2,789 160 2,629 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) (contInued) B 13 € mn Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Total revenues 1 25,951 25,523 28,962 26,560 3,726 2,936 280 296 (95) (66) 58,824 55,249 Premiums earned (net) 20,691 20,347 12,272 11,895 – – – – – – 32,963 32,242 Operating investment result 21 24 489 509 (195) (313) 10,579 10,620 Interest and similar income 1,819 1,915 8,445 8,485 Operating income from financial assets and liabilities carried 7 7 19 20 3 (1) (928) (346) at fair value through income (net) (27) (5) (930) (367) Operating realized gains/losses (net) 30 14 1,617 1,800 – – – – (35) 3 1,612 1,817 Interest expenses, excluding interest expenses from external debt (22) (22) (40) (41) (13) (12) (321) (391) 184 226 (212) (240) Operating impairments of investments (net) (8) (14) (194) (266) – – – – 21 – (181) (280) Investment expenses (145) (137) (383) (353) – – (39) (48) 142 125 (425) (413) Subtotal 1,647 1,751 8,515 9,258 15 19 148 90 120 40 10,445 11,158 Fee and commission income 597 581 308 258 4,465 3,517 343 323 (280) (249) 5,433 4,430 Other income 19 17 80 79 5 8 1 1 (3) 4 102 109 Claims and insurance benefits incurred (net) (13,797) (14,001) (9,816) (9,679) – – – – 3 – (23,610) (23,680) Change in reserves for insurance and investment contracts (net) 2 (212) (156) (6,929) (7,231) – – – – (29) 29 (7,170) (7,358) Loan loss provisions – – – – – – (29) (88) – – (29) (88) Acquisition and administrative expenses (net), (2,017) (1,687) (641) (572) 19 28 (11,250) (10,679) excluding acquisition-related expenses (5,885) (5,674) (2,726) (2,774) Fee and commission expenses (548) (540) (130) (118) (759) (608) (243) (207) 114 103 (1,566) (1,370) Restructuring charges (3) (82) (2) (4) (5) (61) (90) – – – (100) (147) Other expenses (11) (10) (48) (41) – – (2) (1) 7 8 (54) (44) Reclassification of tax benefits – – – – – – – – – 10 – 10 Operating profit (loss) 2,498 2,233 1,524 1,643 1,704 1,188 (513) (454) (49) (27) 5,164 4,583 Non-operating investment result Non-operating income from financial assets and liabilities carried – – (17) 309 (2) (8) 3 256 at fair value through income (net) 14 (62) 8 17 Non-operating realized gains/losses (net) 385 366 58 13 – – 288 107 (6) – 725 486 Non-operating impairments of investments (net) (51) (166) (10) (27) – (1) (74) (136) – – (135) (330) Subtotal 348 138 56 3 – (1) 197 280 (8) (8) 593 412 Income from fully consolidated private equity investments (net) – – – – – – (14) (13) 6 (40) (8) (53) Interest expenses from external debt – – – – – – (474) (510) – – (474) (510) Acquisition-related expenses – – – – (41) (19) – (3) – – (41) (22) Amortization of intangible assets (8) (16) (5) (2) (13) (23) (53) (15) 22 – (57) (56) Reclassification of tax benefits – – – – – – – – – (10) – (10) Non-operating items 340 122 51 1 (54) (43) (344) (261) 20 (58) 13 (239) Income (loss) before income taxes 2,838 2,355 1,575 1,644 1,650 1,145 (857) (715) (29) (85) 5,177 4,344 Income taxes (820) (702) (473) (512) (594) (421) 183 73 3 7 (1,701) (1,555) Net income (loss) 2,018 1,653 1,102 1,132 1,056 724 (674) (642) (26) (78) 3,476 2,789 Net income (loss) attributable to: 48 21 2 7 – – 181 160 Non-controlling interests 88 89 43 43 Shareholders 1,930 1,564 1,059 1,089 1,008 703 (676) (649) (26) (78) 3,295 2,629 2 For the six months ended 30 June 2013, includes expenses for premium refunds (net) in 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Property-Casualty of € (100) mn (2012: € (51) mn). Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 71 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 72 reportable segments – propertY-casualtY reportable segments – propertY-casualtY € mn three months ended 30 June Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % 1 2 From the third quarter of 2012 on, Allianz Worldwide Care is shown in Allianz Worldwide Partners instead of in Global Insurance Lines & Anglo Markets. Prior year figures have been adjusted. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Interim Report Second Quarter and First Half Year of 2013 Allianz Group German Speaking Countries Western & Southern Europe Iberia & Latin America 2013 2012 2013 2012 2013 2012 2,055 2,070 2,457 2,211 1,182 1,141 (350) (350) (139) (124) (207) (212) 721 702 74 41 (12) (14) 2,426 2,422 2,392 2,128 963 915 289 315 245 235 52 53 (23) (2) 3 (5) 1 5 15 9 – – – – 26 37 6 4 – 1 7 8 2 1 – – 2,740 2,789 2,648 2,363 1,016 974 (1,953) (1,723) (1,449) (1,434) (645) (633) (81) (68) (10) – (1) – (4) (19) (2) (2) – (1) (7) (11) – – – – (22) (26) (25) (18) (4) (4) (651) (648) (654) (561) (263) (237) (22) (35) (11) (8) – – (1) (51) – (2) – (10) (4) (5) (1) (1) – – (2,745) (2,586) (2,152) (2,026) (913) (885) (5) 203 496 337 103 89 18 (26) (1) (43) 2 (1) 22 158 132 85 6 (11) (6) (60) (11) (48) (11) (8) – – (1) (2) (1) (1) 34 72 119 (8) (4) (21) 29 275 615 329 99 68 (9) (71) (176) (157) (29) (21) 20 204 439 172 70 47 – 2 4 4 2 3 20 202 435 168 68 44 80.5 71.2 60.6 67.4 67.0 69.2 26.8 26.7 27.3 26.4 27.3 25.9 107.3 97.9 87.9 93.8 94.3 95.1 3 4 5 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net) and claims and insur- ance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. USA 2013 520 (34) (25) 461 61 – – – – 522 (297) (3) – – (1) (165) – – – (466) 56 – 2 – – 2 58 (7) 51 – 51 64.4 35.8 100.2 2012 805 (164) (38) 603 59 – – – – 662 (546) – – – – (193) – (1) – (740) (78) (13) 41 – – 28 (50) 20 (30) – (30) 90.6 32.0 122.6 Global Insurance Lines & Anglo Markets 1 2013 2012 3,892 4,126 (946) (1,013) 40 (26) 2,986 3,087 240 283 (14) (9) – – 149 145 – – 3,361 3,506 (1,905) (2,095) (3) (10) (2) (5) – – (23) (19) (849) (840) (118) (112) – (9) – – (2,900) (3,090) 461 416 4 2 58 78 (7) (3) (2) (3) 53 74 514 490 (146) (124) 368 366 32 35 336 331 63.8 67.9 28.4 27.2 92.2 95.1 Growth Markets 2013 774 (182) (11) 581 40 (2) – 21 2 642 (371) – – – (2) (208) (16) – (1) (598) 44 – 5 – (2) 3 47 (13) 34 7 27 63.9 35.8 99.7 2012 730 (170) 35 595 40 3 – 21 1 660 (371) 2 – – (3) (219) (23) (3) – (617) 43 – 2 (1) (7) (6) 37 (9) 28 5 23 62.4 36.8 99.2 Allianz Worldwide Partners 1 2013 2012 640 523 (26) (8) (44) 1 570 516 8 8 – 1 – – 122 111 – – 700 636 (364) (317) (1) – (1) (1) – – – – (189) (170) (121) (108) – – – – (676) (596) 24 40 – (1) 4 1 – – – – 4 – 28 40 (10) (12) 18 28 – – 18 28 63.8 61.4 33.2 33.0 97.0 94.4 Consolidation and Other 2013 2012 (766) (880) 763 880 3 – – – (3) (17) – – – – (17) (28) – – (20) (45) – – – – 2 17 – – – – 3 6 15 22 – – – – 20 45 – – – – – – – – 1 2 1 2 1 2 – – 1 2 – – 1 2 – 5 – 5 – 5 – 5 –5 –5 B 14 Property-Casualty 2013 2012 10,754 10,726 (1,121) (1,161) 746 701 10,379 10,266 932 976 (35) (7) 15 9 307 291 11 10 11,609 11,545 (6,984) (7,119) (99) (76) (7) (11) (7) (11) (77) (70) (2,976) (2,862) (273) (264) (1) (76) (6) (6) (10,430) (10,495) 1,179 1,050 23 (82) 229 354 (35) (120) (5) (11) 212 141 1,391 1,191 (390) (374) 1,001 817 45 49 956 768 67.3 69.4 28.7 27.8 96.0 97.2 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – propertY-casualtY reportable segments – propertY-casualtY B 14 € mn Global Insurance Lines & Anglo Markets 1 Allianz Worldwide Partners 1 Consolidation and Other USA Growth Markets Property-Casualty German Speaking Countries Western & Southern Europe Iberia & Latin America three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Gross premiums written 2,055 2,070 2,457 2,211 1,182 1,141 520 805 3,892 4,126 774 730 640 523 (766) (880) 10,754 10,726 Ceded premiums written (350) (350) (139) (124) (207) (212) (34) (164) (946) (1,013) (182) (170) (26) (8) 763 880 (1,121) (1,161) Change in unearned premiums 721 702 74 41 (12) (14) (25) (38) 40 (26) (11) 35 (44) 1 3 – 746 701 Premiums earned (net) 2,426 2,422 2,392 2,128 963 915 461 603 2,986 3,087 581 595 570 516 – – 10,379 10,266 Interest and similar income 289 315 245 235 52 53 61 59 240 283 40 40 8 8 (3) (17) 932 976 Operating income from financial assets and liabilities – – (14) (9) (2) 3 – 1 – – (35) (7) carried at fair value through income (net) (23) (2) 3 (5) 1 5 Operating realized gains/losses (net) 15 9 – – – – – – – – – – – – – – 15 9 Fee and commission income 26 37 6 4 – 1 – – 149 145 21 21 122 111 (17) (28) 307 291 Other income 7 8 2 1 – – – – – – 2 1 – – – – 11 10 Operating revenues 2,740 2,789 2,648 2,363 1,016 974 522 662 3,361 3,506 642 660 700 636 (20) (45) 11,609 11,545 Claims and insurance benefits incurred (net) (1,953) (1,723) (1,449) (1,434) (645) (633) (297) (546) (1,905) (2,095) (371) (371) (364) (317) – – (6,984) (7,119) Change in reserves for insurance and investment contracts (net) (81) (68) (10) – (1) – (3) – (3) (10) – 2 (1) – – – (99) (76) Interest expenses (4) (19) (2) (2) – (1) – – (2) (5) – – (1) (1) 2 17 (7) (11) Operating impairments of investments (net) (7) (11) – – – – – – – – – – – – – – (7) (11) Investment expenses (22) (26) (25) (18) (4) (4) (1) – (23) (19) (2) (3) – – – – (77) (70) Acquisition and administrative expenses (net) (651) (648) (654) (561) (263) (237) (165) (193) (849) (840) (208) (219) (189) (170) 3 6 (2,976) (2,862) Fee and commission expenses (22) (35) (11) (8) – – – – (118) (112) (16) (23) (121) (108) 15 22 (273) (264) Restructuring charges (1) (51) – (2) – (10) – (1) – (9) – (3) – – – – (1) (76) Other expenses (4) (5) (1) (1) – – – – – – (1) – – – – – (6) (6) Operating expenses (2,745) (2,586) (2,152) (2,026) (913) (885) (466) (740) (2,900) (3,090) (598) (617) (676) (596) 20 45 (10,430) (10,495) Operating profit (loss) (5) 203 496 337 103 89 56 (78) 461 416 44 43 24 40 – – 1,179 1,050 Non-operating income from financial assets and liabilities – (13) 4 2 – – – (1) – – 23 (82) carried at fair value through income (net) 18 (26) (1) (43) 2 (1) Non-operating realized gains/losses (net) 22 158 132 85 6 (11) 2 41 58 78 5 2 4 1 – – 229 354 Non-operating impairments of investments (net) (6) (60) (11) (48) (11) (8) – – (7) (3) – (1) – – – – (35) (120) Amortization of intangible assets – – (1) (2) (1) (1) – – (2) (3) (2) (7) – – 1 2 (5) (11) Non-operating items 34 72 119 (8) (4) (21) 2 28 53 74 3 (6) 4 – 1 2 212 141 Income (loss) before income taxes 29 275 615 329 99 68 58 (50) 514 490 47 37 28 40 1 2 1,391 1,191 Income taxes (9) (71) (176) (157) (29) (21) (7) 20 (146) (124) (13) (9) (10) (12) – – (390) (374) Net income (loss) 20 204 439 172 70 47 51 (30) 368 366 34 28 18 28 1 2 1,001 817 Net income (loss) attributable to: – – 32 35 7 5 – – – – 45 49 Non-controlling interests – 2 4 4 2 3 Shareholders 20 202 435 168 68 44 51 (30) 336 331 27 23 18 28 1 2 956 768 Loss ratio 2 in % 80.5 71.2 60.6 67.4 67.0 69.2 64.4 90.6 63.8 67.9 63.9 62.4 63.8 61.4 – 5 – 5 67.3 69.4 Expense ratio 3 in % 26.8 26.7 27.3 26.4 27.3 25.9 35.8 32.0 28.4 27.2 35.8 36.8 33.2 33.0 – 5 – 5 28.7 27.8 Combined ratio 4 in % 107.3 97.9 87.9 93.8 94.3 95.1 100.2 122.6 92.2 95.1 99.7 99.2 97.0 94.4 –5 –5 96.0 97.2 1 From the third quarter of 2012 on, Allianz Worldwide Care is shown in Allianz Worldwide 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Partners instead of in Global Insurance Lines & Anglo Markets. Prior year figures have been 4 Represents the total of acquisition and administrative expenses (net) and claims and insur- adjusted. ance benefits incurred (net) divided by premiums earned (net). 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Presentation not meaningful. 73 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 74 reportable segments – propertY-casualtY (contInued) reportable segments – propertY-casualtY (contInued) € mn German Speaking Countries Western & Southern Europe Iberia & Latin America six months ended 30 June 2013 2012 2013 2012 2013 2012 Gross premiums written 7,365 7,284 5,593 4,874 2,480 2,434 Ceded premiums written (1,152) (1,155) (378) (343) (385) (437) Change in unearned premiums (1,364) (1,333) (485) (270) (180) (189) Premiums earned (net) 4,849 4,796 4,730 4,261 1,915 1,808 Interest and similar income 579 601 441 451 106 109 Operating income from financial assets and liabilities carried at fair value through income (net) (19) 3 10 (1) 3 14 Operating realized gains/losses (net) 30 14 – – – – Fee and commission income 59 75 12 10 – 1 Other income 13 14 3 2 – – Operating revenues 5,511 5,503 5,196 4,723 2,024 1,932 Claims and insurance benefits incurred (net) (3,610) (3,402) (2,993) (2,936) (1,307) (1,247) Change in reserves for insurance and investment contracts (net) (171) (129) (21) – (2) – Interest expenses (13) (40) (5) (4) (1) (2) Operating impairments of investments (net) (8) (14) – – – – Investment expenses (41) (43) (48) (37) (7) (7) Acquisition and administrative expenses (net) (1,211) (1,272) (1,258) (1,105) (510) (454) Fee and commission expenses (55) (73) (19) (16) – – Restructuring charges (1) (53) – (5) – (10) Other expenses (8) (8) (2) (2) – – Operating expenses (5,118) (5,034) (4,346) (4,105) (1,827) (1,720) Operating profit (loss) 393 469 850 618 197 212 Non-operating income from financial assets and liabilities carried at fair value through income (net) 9 (22) (1) (35) 2 – Non-operating realized gains/losses (net) 52 149 172 82 16 (8) Non-operating impairments of investments (net) (11) (79) (20) (67) (12) (15) Amortization of intangible assets (1) (1) (4) (3) (1) (1) Non-operating items 49 47 147 (23) 5 (24) Income (loss) before income taxes 442 516 997 595 202 188 Income taxes (128) (137) (313) (258) (63) (59) Net income (loss) 314 379 684 337 139 129 Net income (loss) attributable to: Non-controlling interests 1 2 8 7 3 4 Shareholders 313 377 676 330 136 125 Loss ratio 2 in % 74.4 71.0 63.3 68.9 68.3 69.0 Expense ratio 3 in % 25.0 26.5 26.6 25.9 26.6 25.1 Combined ratio 4 in % 99.4 97.5 89.9 94.8 94.9 94.1 1 2 From the third quarter of 2012 on, Allianz Worldwide Care is shown in Allianz Worldwide Partners instead of in Global Insurance Lines & Anglo Markets. Prior year figures have been adjusted. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 4 5 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net) and claims and insur- ance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. Interim Report Second Quarter and First Half Year of 2013 Allianz Group USA 2013 972 (63) 15 924 119 (1) – – – 1,042 (601) (5) – – (2) (331) – – – (939) 103 – 6 – – 6 109 (21) 88 – 88 65.1 35.8 100.9 2012 1,461 (288) (42) 1,131 124 1 – – – 1,256 (919) – – – (1) (377) – (1) – (1,298) (42) (13) 40 2 – 29 (13) 10 (3) – (3) 81.3 33.3 114.6 Global Insurance Lines & Anglo Markets 1 2013 2012 8,903 9,195 (2,406) (2,464) (494) (572) 6,003 6,159 487 568 (19) (21) – – 295 285 – – 6,766 6,991 (3,837) (4,132) (12) (29) (9) (10) – – (43) (44) (1,809) (1,720) (242) (234) (2) (8) – – (5,954) (6,177) 812 814 4 7 128 98 (7) (6) – (7) 125 92 937 906 (251) (215) 686 691 61 63 625 628 64.0 67.1 30.1 27.9 94.1 95.0 Growth Markets 2013 2012 1,666 1,610 (380) (382) (120) (46) 1,166 1,182 81 81 (1) (1) – – 38 30 2 1 1,286 1,293 (735) (730) (1) 2 (1) (1) – – (4) (5) (410) (420) (33) (32) – (5) (1) – (1,185) (1,191) 101 102 – 1 7 4 (1) (1) (4) (8) 2 (4) 103 98 (30) (25) 73 73 14 13 59 60 63.0 61.8 35.2 35.5 98.2 97.3 Allianz Worldwide Partners 1 2013 2012 1,360 1,136 (52) (26) (204) (100) 1,104 1,010 15 17 – – – – 233 215 1 – 1,353 1,242 (714) (635) – – (1) (1) – – – – (364) (334) (232) (212) – – – – (1,311) (1,182) 42 60 – – 4 1 – – – – 4 1 46 61 (14) (18) 32 43 1 – 31 43 64.6 62.8 33.0 33.1 97.6 95.9 Consolidation and Other 2013 2012 (2,388) (2,471) 2,385 2,471 3 – – – (9) (36) – – – – (40) (35) – – (49) (71) – – – – 8 36 – – – – 8 8 33 27 – – – – 49 71 – – – – – – – – 2 4 2 4 2 4 – – 2 4 – – 2 4 – 5 – 5 – 5 – 5 –5 –5 B 15 Property-Casualty 2013 2012 25,951 25,523 (2,431) (2,624) (2,829) (2,552) 20,691 20,347 1,819 1,915 (27) (5) 30 14 597 581 19 17 23,129 22,869 (13,797) (14,001) (212) (156) (22) (22) (8) (14) (145) (137) (5,885) (5,674) (548) (540) (3) (82) (11) (10) (20,631) (20,636) 2,498 2,233 14 (62) 385 366 (51) (166) (8) (16) 340 122 2,838 2,355 (820) (702) 2,018 1,653 88 89 1,930 1,564 66.7 68.8 28.4 27.9 95.1 96.7 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – propertY-casualtY (contInued) reportable segments – propertY-casualtY (contInued) B 15 € mn Global Insurance Lines & Anglo Markets 1 Allianz Worldwide Partners 1 Consolidation and Other USA Growth Markets Property-Casualty German Speaking Countries Western & Southern Europe Iberia & Latin America six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Gross premiums written 7,365 7,284 5,593 4,874 2,480 2,434 972 1,461 8,903 9,195 1,666 1,610 1,360 1,136 (2,388) (2,471) 25,951 25,523 Ceded premiums written (1,152) (1,155) (378) (343) (385) (437) (63) (288) (2,406) (2,464) (380) (382) (52) (26) 2,385 2,471 (2,431) (2,624) Change in unearned premiums (1,364) (1,333) (485) (270) (180) (189) 15 (42) (494) (572) (120) (46) (204) (100) 3 – (2,829) (2,552) Premiums earned (net) 4,849 4,796 4,730 4,261 1,915 1,808 924 1,131 6,003 6,159 1,166 1,182 1,104 1,010 – – 20,691 20,347 Interest and similar income 579 601 441 451 106 109 119 124 487 568 81 81 15 17 (9) (36) 1,819 1,915 Operating income from financial assets and liabilities (1) 1 (19) (21) (1) (1) – – – – (27) (5) carried at fair value through income (net) (19) 3 10 (1) 3 14 Operating realized gains/losses (net) 30 14 – – – – – – – – – – – – – – 30 14 Fee and commission income 59 75 12 10 – 1 – – 295 285 38 30 233 215 (40) (35) 597 581 Other income 13 14 3 2 – – – – – – 2 1 1 – – – 19 17 Operating revenues 5,511 5,503 5,196 4,723 2,024 1,932 1,042 1,256 6,766 6,991 1,286 1,293 1,353 1,242 (49) (71) 23,129 22,869 Claims and insurance benefits incurred (net) (3,610) (3,402) (2,993) (2,936) (1,307) (1,247) (601) (919) (3,837) (4,132) (735) (730) (714) (635) – – (13,797) (14,001) Change in reserves for insurance and investment contracts (net) (171) (129) (21) – (2) – (5) – (12) (29) (1) 2 – – – – (212) (156) Interest expenses (13) (40) (5) (4) (1) (2) – – (9) (10) (1) (1) (1) (1) 8 36 (22) (22) Operating impairments of investments (net) (8) (14) – – – – – – – – – – – – – – (8) (14) Investment expenses (41) (43) (48) (37) (7) (7) (2) (1) (43) (44) (4) (5) – – – – (145) (137) Acquisition and administrative expenses (net) (1,211) (1,272) (1,258) (1,105) (510) (454) (331) (377) (1,809) (1,720) (410) (420) (364) (334) 8 8 (5,885) (5,674) Fee and commission expenses (55) (73) (19) (16) – – – – (242) (234) (33) (32) (232) (212) 33 27 (548) (540) Restructuring charges (1) (53) – (5) – (10) – (1) (2) (8) – (5) – – – – (3) (82) Other expenses (8) (8) (2) (2) – – – – – – (1) – – – – – (11) (10) Operating expenses (5,118) (5,034) (4,346) (4,105) (1,827) (1,720) (939) (1,298) (5,954) (6,177) (1,185) (1,191) (1,311) (1,182) 49 71 (20,631) (20,636) Operating profit (loss) 393 469 850 618 197 212 103 (42) 812 814 101 102 42 60 – – 2,498 2,233 Non-operating income from financial assets and liabilities – (13) 4 7 – 1 – – – – 14 (62) carried at fair value through income (net) 9 (22) (1) (35) 2 – Non-operating realized gains/losses (net) 52 149 172 82 16 (8) 6 40 128 98 7 4 4 1 – – 385 366 Non-operating impairments of investments (net) (11) (79) (20) (67) (12) (15) – 2 (7) (6) (1) (1) – – – – (51) (166) Amortization of intangible assets (1) (1) (4) (3) (1) (1) – – – (7) (4) (8) – – 2 4 (8) (16) Non-operating items 49 47 147 (23) 5 (24) 6 29 125 92 2 (4) 4 1 2 4 340 122 Income (loss) before income taxes 442 516 997 595 202 188 109 (13) 937 906 103 98 46 61 2 4 2,838 2,355 Income taxes (128) (137) (313) (258) (63) (59) (21) 10 (251) (215) (30) (25) (14) (18) – – (820) (702) Net income (loss) 314 379 684 337 139 129 88 (3) 686 691 73 73 32 43 2 4 2,018 1,653 Net income (loss) attributable to: – – 61 63 14 13 1 – – – 88 89 Non-controlling interests 1 2 8 7 3 4 Shareholders 313 377 676 330 136 125 88 (3) 625 628 59 60 31 43 2 4 1,930 1,564 Loss ratio 2 in % 74.4 71.0 63.3 68.9 68.3 69.0 65.1 81.3 64.0 67.1 63.0 61.8 64.6 62.8 – 5 – 5 66.7 68.8 Expense ratio 3 in % 25.0 26.5 26.6 25.9 26.6 25.1 35.8 33.3 30.1 27.9 35.2 35.5 33.0 33.1 – 5 – 5 28.4 27.9 Combined ratio 4 in % 99.4 97.5 89.9 94.8 94.9 94.1 100.9 114.6 94.1 95.0 98.2 97.3 97.6 95.9 –5 –5 95.1 96.7 1 From the third quarter of 2012 on, Allianz Worldwide Care is shown in Allianz Worldwide 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). Partners instead of in Global Insurance Lines & Anglo Markets. Prior year figures have been 4 Represents the total of acquisition and administrative expenses (net) and claims and insur- adjusted. ance benefits incurred (net) divided by premiums earned (net). 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Presentation not meaningful. 75 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 76 reportable segments – lIfe/health reportable segments – lIfe/health € mn German Speaking Countries Western & Southern Europe three months ended 30 June 2013 2012 2013 2012 Statutory premiums 1 4,845 4,585 5,514 4,532 Ceded premiums written (43) (43) (273) (310) Change in unearned premiums (41) (42) 12 16 Statutory premiums (net) 4,761 4,500 5,253 4,238 Deposits from insurance and investment contracts (1,177) (1,086) (4,134) (3,220) Premiums earned (net) 3,584 3,414 1,119 1,018 Interest and similar income 2,322 2,323 1,053 1,106 Operating income from financial assets and liabilities carried at fair value through income (net) (507) 139 59 (80) Operating realized gains/losses (net) 519 533 122 144 Fee and commission income 14 13 111 82 Other income 27 33 4 4 Operating revenues 5,959 6,455 2,468 2,274 Claims and insurance benefits incurred (net) (2,996) (3,026) (1,073) (930) Changes in reserves for insurance and investment contracts (net) (2,020) (2,368) (579) (534) Interest expenses (28) (27) (8) (5) Operating impairments of investments (net) (101) (106) (29) (94) Investment expenses (127) (131) (49) (44) Acquisition and administrative expenses (net) (412) (398) (439) (392) Fee and commission expenses (5) (3) (58) (42) Restructuring charges – – (1) (1) Other expenses (23) (20) (2) (2) Operating expenses (5,712) (6,079) (2,238) (2,044) Operating profit (loss) 247 376 230 230 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (5) 7 Non-operating realized gains/losses (net) – – 18 (10) Non-operating impairments of investments (net) – – (4) (22) Amortization of intangible assets (1) (1) – – Non-operating items (1) (1) 9 (25) Income (loss) before income taxes 246 375 239 205 Income taxes (96) (128) (58) (93) Net income (loss) 150 247 181 112 Net income (loss) attributable to: Non-controlling interests – – 7 5 Shareholders 150 247 174 107 Margin on reserves 2 in basis points 45 73 67 73 1 Statutory premiums are gross premiums written from sales of life and health insurance poli- cies, as well as gross receipts from sales of unit-linked and other investment-oriented prod- ucts, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 3 Represents operating profit (loss) divided by the average of the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjust- ment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Iberia & Latin America 2013 2012 557 374 (3) (13) 5 – 559 361 (312) (199) 247 162 91 88 (4) – 4 (3) 1 2 – – 339 249 (198) (160) (45) (5) – (1) (1) – (2) (1) (52) (45) – – – (1) – – (298) (213) 41 36 – – – – – – – – – – 41 36 (13) (10) 28 26 5 6 23 20 215 209 USA 2013 1,788 (29) (3) 1,756 (1,536) 220 691 (177) 62 21 – 817 (22) (346) (1) – (9) (329) (10) – – (717) 100 – 1 – – 1 101 (23) 78 – 78 56 2012 1,976 (31) – 1,945 (1,747) 198 701 (255) 49 16 – 709 (25) (392) (1) 1 (9) (146) (10) – – (582) 127 (3) – – – (3) 124 (39) 85 – 85 76 Global Insurance Lines & Anglo Markets 2013 2012 134 120 (20) (13) (4) – 110 107 – – 110 107 22 19 (36) 2 – – – – – – 96 128 (84) (90) – (15) (1) (1) – – – – (26) (27) – – – – – – (111) (133) (15) (5) – – – – – – – – – – (15) (5) 1 – (14) (5) – – (14) (5) (320) (97) Growth Markets 2013 2012 1,578 1,576 (74) (71) (19) (25) 1,485 1,480 (853) (845) 632 635 207 203 (19) (7) 11 10 22 18 – – 853 859 (617) (339) 62 (203) (2) (2) (1) (5) (6) (6) (222) (245) (1) – – – – – (787) (800) 66 59 – – 5 – (2) – (1) – 2 – 68 59 (17) (12) 51 47 8 10 43 37 99 93 Consolidation 2013 2012 (291) (302) 291 302 – – – – – – – – (18) (17) (2) (4) – – (1) – – – (21) (21) – – – – 19 16 – – – – 2 – – – – – – – 21 16 – (5) – – – – – – – – – – – (5) – – – (5) – – – (5) –3 –3 B 16 Life/Health 2013 2012 14,125 12,861 (151) (179) (50) (51) 13,924 12,631 (8,012) (7,097) 5,912 5,534 4,368 4,423 (686) (205) 718 733 168 131 31 37 10,511 10,653 (4,990) (4,570) (2,928) (3,517) (21) (21) (132) (204) (193) (191) (1,478) (1,253) (74) (55) (1) (2) (25) (22) (9,842) (9,835) 669 818 (5) 4 24 (10) (6) (22) (2) (1) 11 (29) 680 789 (206) (282) 474 507 20 21 454 486 58 75 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – lIfe/health reportable segments – lIfe/health B 16 € mn German Speaking Western & Southern Global Insurance Lines & Anglo Markets Countries Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Statutory premiums 1 4,845 4,585 5,514 4,532 557 374 1,788 1,976 134 120 1,578 1,576 (291) (302) 14,125 12,861 Ceded premiums written (43) (43) (273) (310) (3) (13) (29) (31) (20) (13) (74) (71) 291 302 (151) (179) Change in unearned premiums (41) (42) 12 16 5 – (3) – (4) – (19) (25) – – (50) (51) Statutory premiums (net) 4,761 4,500 5,253 4,238 559 361 1,756 1,945 110 107 1,485 1,480 – – 13,924 12,631 Deposits from insurance and investment contracts (1,177) (1,086) (4,134) (3,220) (312) (199) (1,536) (1,747) – – (853) (845) – – (8,012) (7,097) Premiums earned (net) 3,584 3,414 1,119 1,018 247 162 220 198 110 107 632 635 – – 5,912 5,534 Interest and similar income 2,322 2,323 1,053 1,106 91 88 691 701 22 19 207 203 (18) (17) 4,368 4,423 Operating income from financial assets and liabilities carried at fair value through income (net) (507) 139 59 (80) (4) – (177) (255) (36) 2 (19) (7) (2) (4) (686) (205) Operating realized gains/losses (net) 519 533 122 144 4 (3) 62 49 – – 11 10 – – 718 733 Fee and commission income 14 13 111 82 1 2 21 16 – – 22 18 (1) – 168 131 Other income 27 33 4 4 – – – – – – – – – – 31 37 Operating revenues 5,959 6,455 2,468 2,274 339 249 817 709 96 128 853 859 (21) (21) 10,511 10,653 Claims and insurance benefits incurred (net) (2,996) (3,026) (1,073) (930) (198) (160) (22) (25) (84) (90) (617) (339) – – (4,990) (4,570) Changes in reserves for insurance and investment contracts (net) (2,020) (2,368) (579) (534) (45) (5) (346) (392) – (15) 62 (203) – – (2,928) (3,517) Interest expenses (28) (27) (8) (5) – (1) (1) (1) (1) (1) (2) (2) 19 16 (21) (21) Operating impairments of investments (net) (101) (106) (29) (94) (1) – – 1 – – (1) (5) – – (132) (204) Investment expenses (127) (131) (49) (44) (2) (1) (9) (9) – – (6) (6) – – (193) (191) Acquisition and administrative expenses (net) (412) (398) (439) (392) (52) (45) (329) (146) (26) (27) (222) (245) 2 – (1,478) (1,253) Fee and commission expenses (5) (3) (58) (42) – – (10) (10) – – (1) – – – (74) (55) Restructuring charges – – (1) (1) – (1) – – – – – – – – (1) (2) Other expenses (23) (20) (2) (2) – – – – – – – – – – (25) (22) Operating expenses (5,712) (6,079) (2,238) (2,044) (298) (213) (717) (582) (111) (133) (787) (800) 21 16 (9,842) (9,835) Operating profit (loss) 247 376 230 230 41 36 100 127 (15) (5) 66 59 – (5) 669 818 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (5) 7 – – – (3) – – – – – – (5) 4 Non-operating realized gains/losses (net) – – 18 (10) – – 1 – – – 5 – – – 24 (10) Non-operating impairments of investments (net) – – (4) (22) – – – – – – (2) – – – (6) (22) Amortization of intangible assets (1) (1) – – – – – – – – (1) – – – (2) (1) Non-operating items (1) (1) 9 (25) – – 1 (3) – – 2 – – – 11 (29) Income (loss) before income taxes 246 375 239 205 41 36 101 124 (15) (5) 68 59 – (5) 680 789 Income taxes (96) (128) (58) (93) (13) (10) (23) (39) 1 – (17) (12) – – (206) (282) Net income (loss) 150 247 181 112 28 26 78 85 (14) (5) 51 47 – (5) 474 507 Net income (loss) attributable to: 5 6 – – – – 8 10 – – 20 21 Non-controlling interests – – 7 5 Shareholders 150 247 174 107 23 20 78 85 (14) (5) 43 37 – (5) 454 486 Margin on reserves 2 in basis points 45 73 67 73 215 209 56 76 (320) (97) 99 93 –3 –3 58 75 2 Represents operating profit (loss) divided by the average of the current quarter-end and 1 Statutory premiums are gross premiums written from sales of life and health insurance poli- previous year-end net reserves, where net reserves equal reserves for loss and loss adjust- cies, as well as gross receipts from sales of unit-linked and other investment-oriented prod- ment expenses, reserves for insurance and investment contracts and financial liabilities for ucts, in accordance with the statutory accounting practices applicable in the insurer’s home unit-linked contracts less reinsurance assets. jurisdiction. 3 Presentation not meaningful. 77 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 78 reportable segments – lIfe/health (contInued) reportable segments – lIfe/health (contInued) € mn German Speaking Countries Western & Southern Europe six months ended 30 June 2013 2012 2013 2012 Statutory premiums 1 11,173 10,507 10,642 8,332 Ceded premiums written (88) (85) (617) (473) Change in unearned premiums (71) (76) (1) 18 Statutory premiums (net) 11,014 10,346 10,024 7,877 Deposits from insurance and investment contracts (3,226) (2,778) (7,787) (5,770) Premiums earned (net) 7,788 7,568 2,237 2,107 Interest and similar income 4,525 4,396 1,944 2,088 Operating income from financial assets and liabilities carried at fair value through income (net) (531) 81 101 (5) Operating realized gains/losses (net) 1,233 1,438 264 255 Fee and commission income 26 22 203 165 Other income 60 73 20 6 Operating revenues 13,101 13,578 4,769 4,616 Claims and insurance benefits incurred (net) (6,193) (6,566) (2,047) (1,879) Changes in reserves for insurance and investment contracts (net) (4,994) (4,942) (1,146) (1,165) Interest expenses (51) (51) (14) (12) Operating impairments of investments (net) (140) (131) (52) (138) Investment expenses (250) (234) (99) (86) Acquisition and administrative expenses (net) (766) (904) (848) (826) Fee and commission expenses (12) (12) (105) (84) Restructuring charges (1) (1) (1) (2) Other expenses (43) (37) (5) (4) Operating expenses (12,450) (12,878) (4,317) (4,196) Operating profit (loss) 651 700 452 420 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (1) 8 Non-operating realized gains/losses (net) – – 39 8 Non-operating impairments of investments (net) – – (7) (27) Amortization of intangible assets (1) (2) – – Non-operating items (1) (2) 31 (11) Income (loss) before income taxes 650 698 483 409 Income taxes (244) (240) (116) (122) Net income (loss) 406 458 367 287 Net income (loss) attributable to: Non-controlling interests – – 13 17 Shareholders 406 458 354 270 Margin on reserves 2 in basis points 60 69 67 68 1 Statutory premiums are gross premiums written from sales of life and health insurance poli- cies, as well as gross receipts from sales of unit-linked and other investment-oriented prod- ucts, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 3 Represents operating profit (loss) divided by the average of the current quarter-end and previous year-end net reserves, where net reserves equal reserves for loss and loss adjust- ment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Iberia & Latin America 2013 2012 994 728 (13) (26) (25) (1) 956 701 (578) (333) 378 368 183 184 2 5 6 (19) 2 3 – – 571 541 (337) (301) (49) (77) (1) (2) (1) – (3) (3) (100) (98) – – – (1) – – (491) (482) 80 59 – – – – – – – – – – 80 59 (24) (16) 56 43 11 7 45 36 209 172 USA 2013 3,350 (59) (4) 3,287 (2,859) 428 1,369 (428) 81 37 – 1,487 (44) (663) (3) – (17) (546) (13) – – (1,286) 201 9 1 – – 10 211 (53) 158 – 158 58 2012 3,999 (61) – 3,938 (3,540) 398 1,405 (423) 72 31 – 1,483 (47) (680) (3) 8 (17) (429) (22) – – (1,190) 293 9 5 – – 14 307 (99) 208 – 208 87 Global Insurance Lines & Anglo Markets 2013 2012 266 240 (31) (25) (4) – 231 215 – – 231 215 41 36 (54) (21) – – – – – – 218 230 (182) (167) 5 (9) (1) (1) – – – – (48) (45) – – – – – – (226) (222) (8) 8 – – – – – – – – – – (8) 8 (1) (3) (9) 5 – – (9) 5 (81) 70 Growth Markets 2013 2012 3,176 3,204 (139) (113) (59) (59) 2,978 3,032 (1,768) (1,793) 1,210 1,239 417 408 (14) (3) 33 54 42 37 – – 1,688 1,735 (1,013) (719) (82) (358) (4) (4) (1) (5) (14) (13) (421) (471) (1) – – – – – (1,536) (1,570) 152 165 – – 18 – (3) – (4) – 11 – 163 165 (35) (32) 128 133 19 19 109 114 114 130 Consolidation 2013 2012 (639) (450) 639 450 – – – – – – – – (34) (32) (6) (1) – – (2) – – – (42) (33) – – – – 34 32 – – – – 3 (1) 1 – – – – – 38 31 (4) (2) – – – – – – – – – – (4) (2) – – (4) (2) – – (4) (2) –3 –3 B 17 Life/Health 2013 2012 28,962 26,560 (308) (333) (164) (118) 28,490 26,109 (16,218) (14,214) 12,272 11,895 8,445 8,485 (930) (367) 1,617 1,800 308 258 80 79 21,792 22,150 (9,816) (9,679) (6,929) (7,231) (40) (41) (194) (266) (383) (353) (2,726) (2,774) (130) (118) (2) (4) (48) (41) (20,268) (20,507) 1,524 1,643 8 17 58 13 (10) (27) (5) (2) 51 1 1,575 1,644 (473) (512) 1,102 1,132 43 43 1,059 1,089 66 77 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – lIfe/health (contInued) reportable segments – lIfe/health (contInued) B 17 € mn German Speaking Western & Southern Global Insurance Lines & Anglo Markets Countries Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Statutory premiums 1 11,173 10,507 10,642 8,332 994 728 3,350 3,999 266 240 3,176 3,204 (639) (450) 28,962 26,560 Ceded premiums written (88) (85) (617) (473) (13) (26) (59) (61) (31) (25) (139) (113) 639 450 (308) (333) Change in unearned premiums (71) (76) (1) 18 (25) (1) (4) – (4) – (59) (59) – – (164) (118) Statutory premiums (net) 11,014 10,346 10,024 7,877 956 701 3,287 3,938 231 215 2,978 3,032 – – 28,490 26,109 Deposits from insurance and investment contracts (3,226) (2,778) (7,787) (5,770) (578) (333) (2,859) (3,540) – – (1,768) (1,793) – – (16,218) (14,214) Premiums earned (net) 7,788 7,568 2,237 2,107 378 368 428 398 231 215 1,210 1,239 – – 12,272 11,895 Interest and similar income 4,525 4,396 1,944 2,088 183 184 1,369 1,405 41 36 417 408 (34) (32) 8,445 8,485 Operating income from financial assets and liabilities carried at fair value through income (net) (531) 81 101 (5) 2 5 (428) (423) (54) (21) (14) (3) (6) (1) (930) (367) Operating realized gains/losses (net) 1,233 1,438 264 255 6 (19) 81 72 – – 33 54 – – 1,617 1,800 Fee and commission income 26 22 203 165 2 3 37 31 – – 42 37 (2) – 308 258 Other income 60 73 20 6 – – – – – – – – – – 80 79 Operating revenues 13,101 13,578 4,769 4,616 571 541 1,487 1,483 218 230 1,688 1,735 (42) (33) 21,792 22,150 Claims and insurance benefits incurred (net) (6,193) (6,566) (2,047) (1,879) (337) (301) (44) (47) (182) (167) (1,013) (719) – – (9,816) (9,679) Changes in reserves for insurance and investment contracts (net) (4,994) (4,942) (1,146) (1,165) (49) (77) (663) (680) 5 (9) (82) (358) – – (6,929) (7,231) Interest expenses (51) (51) (14) (12) (1) (2) (3) (3) (1) (1) (4) (4) 34 32 (40) (41) Operating impairments of investments (net) (140) (131) (52) (138) (1) – – 8 – – (1) (5) – – (194) (266) Investment expenses (250) (234) (99) (86) (3) (3) (17) (17) – – (14) (13) – – (383) (353) Acquisition and administrative expenses (net) (766) (904) (848) (826) (100) (98) (546) (429) (48) (45) (421) (471) 3 (1) (2,726) (2,774) Fee and commission expenses (12) (12) (105) (84) – – (13) (22) – – (1) – 1 – (130) (118) Restructuring charges (1) (1) (1) (2) – (1) – – – – – – – – (2) (4) Other expenses (43) (37) (5) (4) – – – – – – – – – – (48) (41) Operating expenses (12,450) (12,878) (4,317) (4,196) (491) (482) (1,286) (1,190) (226) (222) (1,536) (1,570) 38 31 (20,268) (20,507) Operating profit (loss) 651 700 452 420 80 59 201 293 (8) 8 152 165 (4) (2) 1,524 1,643 Non-operating income from financial assets and liabilities carried at fair value through income (net) – – (1) 8 – – 9 9 – – – – – – 8 17 Non-operating realized gains/losses (net) – – 39 8 – – 1 5 – – 18 – – – 58 13 Non-operating impairments of investments (net) – – (7) (27) – – – – – – (3) – – – (10) (27) Amortization of intangible assets (1) (2) – – – – – – – – (4) – – – (5) (2) Non-operating items (1) (2) 31 (11) – – 10 14 – – 11 – – – 51 1 Income (loss) before income taxes 650 698 483 409 80 59 211 307 (8) 8 163 165 (4) (2) 1,575 1,644 Income taxes (244) (240) (116) (122) (24) (16) (53) (99) (1) (3) (35) (32) – – (473) (512) Net income (loss) 406 458 367 287 56 43 158 208 (9) 5 128 133 (4) (2) 1,102 1,132 Net income (loss) attributable to: 11 7 – – – – 19 19 – – 43 43 Non-controlling interests – – 13 17 Shareholders 406 458 354 270 45 36 158 208 (9) 5 109 114 (4) (2) 1,059 1,089 Margin on reserves 2 in basis points 60 69 67 68 209 172 58 87 (81) 70 114 130 –3 –3 66 77 2 Represents operating profit (loss) divided by the average of the current quarter-end and 1 Statutory premiums are gross premiums written from sales of life and health insurance poli- previous year-end net reserves, where net reserves equal reserves for loss and loss adjust- cies, as well as gross receipts from sales of unit-linked and other investment-oriented prod- ment expenses, reserves for insurance and investment contracts and financial liabilities for ucts, in accordance with the statutory accounting practices applicable in the insurer’s home unit-linked contracts less reinsurance assets. jurisdiction. 3 Presentation not meaningful. 79 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 80 reportable segments – asset management reportable segments – asset management € mn three months ended 30 June Net fee and commission income 1 Net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Impairments of investments (net) Acquisition-related expenses Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio 3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2013 1,809 4 – 2 1,815 (1,009) (2) (1,011) 804 – (16) (7) (23) 781 (293) 488 22 466 55.7 B 18 2012 1,494 6 (7) 4 1,497 (861) (61) (922) 575 (1) (8) (12) (21) 554 (209) 345 10 335 61.6 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – asset management (contInued) reportable segments – asset management (contInued) € mn six months ended 30 June Net fee and commission income 1 Net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Impairments of investments (net) Acquisition-related expenses Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio 3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2013 3,706 8 7 5 3,726 (2,017) (5) (2,022) 1,704 – (41) (13) (54) 1,650 (594) 1,056 48 1,008 54.3 B 19 2012 2,909 12 7 8 2,936 (1,687) (61) (1,748) 1,188 (1) (19) (23) (43) 1,145 (421) 724 21 703 59.5 81 82 reportable segments – corporate and other reportable segments – corporate and other € mn Holding & Treasury three months ended 30 June 2013 2012 Interest and similar income 53 72 Operating income from financial assets and liabilities carried at fair value through income (net) 7 12 Fee and commission income 10 18 Other income – – Operating revenues 70 102 Interest expenses, excluding interest expenses from external debt (86) (103) Loan loss provisions – – Investment expenses (20) (27) Administrative expenses (net), excluding acquisition-related expenses (184) (124) Fee and commission expenses (57) (21) Restructuring charges – – Other expenses – – Operating expenses (347) (275) Operating profit (loss) (277) (173) Non-operating income from financial assets and liabilities carried at fair value through income (net) (10) 110 Realized gains/losses (net) 201 12 Impairments of investments (net) (22) (64) Income from fully consolidated private equity investments (net) – – Interest expenses from external debt (233) (251) Acquisition-related expenses – (2) Amortization of intangible assets (3) (7) Non-operating items (67) (202) Income (loss) before income taxes (344) (375) Income taxes 64 112 Net income (loss) (280) (263) Net (income) loss attributable to: Non-controlling interests – – Shareholders (280) (263) Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-re- lated expenses, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Banking 2013 154 3 125 (2) 280 (72) (15) – (117) (74) (2) (1) (281) (1) – 5 (1) – – – – 4 3 – 3 1 2 89.6 2012 183 (1) 107 – 289 (87) (42) – (118) (62) – (1) (310) (21) – 14 – – – – – 14 (7) (2) (9) 2 (11) 85.0 Alternative Investments 2013 – – 41 1 42 – – (1) (37) – – – (38) 4 1 – – (7) – – – (6) (2) 2 – (1) 1 2012 4 (1) 39 1 43 – – 1 (31) – – – (30) 13 – – – (1) – – – (1) 12 (6) 6 4 2 Consolidation 2013 – – (1) – (1) – – 1 – – – – 1 – – – – – – – – – – – – – – 2012 – – (3) – (3) 1 – 1 1 1 – – 4 1 (1) – – – – – – (1) – – – – – Corporate and Other 2013 207 10 175 (1) 391 (158) (15) (20) (338) (131) (2) (1) (665) (274) (9) 206 (23) (7) (233) – (3) (69) (343) 66 (277) – (277) B 20 2012 259 10 161 1 431 (189) (42) (25) (272) (82) – (1) (611) (180) 109 26 (64) (1) (251) (2) (7) (190) (370) 104 (266) 6 (272) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – corporate and other reportable segments – corporate and other B 20 € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other three months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Interest and similar income 53 72 154 183 – 4 – – 207 259 Operating income from financial assets and liabilities carried at fair value through income (net) 7 12 3 (1) – (1) – – 10 10 Fee and commission income 10 18 125 107 41 39 (1) (3) 175 161 Other income – – (2) – 1 1 – – (1) 1 Operating revenues 70 102 280 289 42 43 (1) (3) 391 431 Interest expenses, excluding interest expenses from external debt (86) (103) (72) (87) – – – 1 (158) (189) Loan loss provisions – – (15) (42) – – – – (15) (42) Investment expenses (20) (27) – – (1) 1 1 1 (20) (25) Administrative expenses (net), excluding acquisition-related expenses (184) (124) (117) (118) (37) (31) – 1 (338) (272) Fee and commission expenses (57) (21) (74) (62) – – – 1 (131) (82) Restructuring charges – – (2) – – – – – (2) – Other expenses – – (1) (1) – – – – (1) (1) Operating expenses (347) (275) (281) (310) (38) (30) 1 4 (665) (611) Operating profit (loss) (277) (173) (1) (21) 4 13 – 1 (274) (180) Non-operating income from financial assets and liabilities carried at fair value through income (net) (10) 110 – – 1 – – (1) (9) 109 Realized gains/losses (net) 201 12 5 14 – – – – 206 26 Impairments of investments (net) (22) (64) (1) – – – – – (23) (64) Income from fully consolidated private equity investments (net) – – – – (7) (1) – – (7) (1) Interest expenses from external debt (233) (251) – – – – – – (233) (251) Acquisition-related expenses – (2) – – – – – – – (2) Amortization of intangible assets (3) (7) – – – – – – (3) (7) Non-operating items (67) (202) 4 14 (6) (1) – (1) (69) (190) Income (loss) before income taxes (344) (375) 3 (7) (2) 12 – – (343) (370) Income taxes 64 112 – (2) 2 (6) – – 66 104 Net income (loss) (280) (263) 3 (9) – 6 – – (277) (266) Net (income) loss attributable to: 1 2 (1) 4 – – – 6 Non-controlling interests – – Shareholders (280) (263) 2 (11) 1 2 – – (277) (272) Cost-income ratio 1 for the reportable segment Banking in % 89.6 85.0 1 Represents investment expenses, administrative expenses (net), excluding acquisition-re- income (net), fee and commission income, other income, interest expenses, excluding interest lated expenses, restructuring charges and other expenses divided by interest and similar expenses from external debt and fee and commission expenses. income, operating income from financial assets and liabilities carried at fair value through 83 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 84 reportable segments – corporate and other (contInued) reportable segments – corporate and other (contInued) € mn Holding & Treasury six months ended 30 June 2013 2012 Interest and similar income 174 127 Operating income from financial assets and liabilities carried at fair value through income (net) 14 14 Fee and commission income 20 31 Other income – – Operating revenues 208 172 Interest expenses, excluding interest expenses from external debt (175) (212) Loan loss provisions – – Investment expenses (38) (47) Administrative expenses (net), excluding acquisition-related expenses (330) (260) Fee and commission expenses (109) (83) Restructuring charges – – Other expenses – – Operating expenses (652) (602) Operating profit (loss) (444) (430) Non-operating income from financial assets and liabilities carried at fair value through income (net) (17) 308 Realized gains/losses (net) 253 93 Impairments of investments (net) (73) (136) Income from fully consolidated private equity investments (net) – – Interest expenses from external debt (474) (510) Acquisition-related expenses – (3) Amortization of intangible assets (7) (15) Non-operating items (318) (263) Income (loss) before income taxes (762) (693) Income taxes 167 74 Net loss (595) (619) Net loss attributable to: Non-controlling interests – – Shareholders (595) (619) Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-re- lated expenses, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Banking 2013 311 5 245 – 561 (145) (29) – (245) (134) (90) (2) (645) (84) – 8 (1) – – – – 7 (77) 24 (53) 3 (56) 119.5 2012 373 7 219 – 599 (178) (88) – (243) (125) – (1) (635) (36) – 14 – – – – – 14 (22) 3 (19) 3 (22) 82.4 Alternative Investments 2013 4 – 80 2 86 (1) – (2) (68) – – – (71) 15 – – – (14) – – (46) (60) (45) (3) (48) (1) (47) 2012 10 (1) 78 2 89 (2) – (2) (73) – – – (77) 12 1 – – (13) – – – (12) – (4) (4) 4 (8) Consolidation 2013 – – (2) (1) (3) – – 1 2 – – – 3 – – 27 – – – – – 27 27 (5) 22 – 22 2012 (1) – (5) (1) (7) 1 – 1 4 1 – – 7 – – – – – – – – – – – – – – Corporate and Other 2013 489 19 343 1 852 (321) (29) (39) (641) (243) (90) (2) (1,365) (513) (17) 288 (74) (14) (474) – (53) (344) (857) 183 (674) 2 (676) B 21 2012 509 20 323 1 853 (391) (88) (48) (572) (207) – (1) (1,307) (454) 309 107 (136) (13) (510) (3) (15) (261) (715) 73 (642) 7 (649) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity reportable segments – corporate and other (contInued) reportable segments – corporate and other (contInued) B 21 € mn Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other six months ended 30 June 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Interest and similar income 174 127 311 373 4 10 – (1) 489 509 Operating income from financial assets and liabilities carried at fair value through income (net) 14 14 5 7 – (1) – – 19 20 Fee and commission income 20 31 245 219 80 78 (2) (5) 343 323 Other income – – – – 2 2 (1) (1) 1 1 Operating revenues 208 172 561 599 86 89 (3) (7) 852 853 Interest expenses, excluding interest expenses from external debt (175) (212) (145) (178) (1) (2) – 1 (321) (391) Loan loss provisions – – (29) (88) – – – – (29) (88) Investment expenses (38) (47) – – (2) (2) 1 1 (39) (48) Administrative expenses (net), excluding acquisition-related expenses (330) (260) (245) (243) (68) (73) 2 4 (641) (572) Fee and commission expenses (109) (83) (134) (125) – – – 1 (243) (207) Restructuring charges – – (90) – – – – – (90) – Other expenses – – (2) (1) – – – – (2) (1) Operating expenses (652) (602) (645) (635) (71) (77) 3 7 (1,365) (1,307) Operating profit (loss) (444) (430) (84) (36) 15 12 – – (513) (454) Non-operating income from financial assets and liabilities carried at fair value through income (net) (17) 308 – – – 1 – – (17) 309 Realized gains/losses (net) 253 93 8 14 – – 27 – 288 107 Impairments of investments (net) (73) (136) (1) – – – – – (74) (136) Income from fully consolidated private equity investments (net) – – – – (14) (13) – – (14) (13) Interest expenses from external debt (474) (510) – – – – – – (474) (510) Acquisition-related expenses – (3) – – – – – – – (3) Amortization of intangible assets (7) (15) – – (46) – – – (53) (15) Non-operating items (318) (263) 7 14 (60) (12) 27 – (344) (261) Income (loss) before income taxes (762) (693) (77) (22) (45) – 27 – (857) (715) Income taxes 167 74 24 3 (3) (4) (5) – 183 73 Net loss (595) (619) (53) (19) (48) (4) 22 – (674) (642) Net loss attributable to: 3 3 (1) 4 – – 2 7 Non-controlling interests – – Shareholders (595) (619) (56) (22) (47) (8) 22 – (676) (649) Cost-income ratio 1 for the reportable segment Banking in % 119.5 82.4 1 Represents investment expenses, administrative expenses (net), excluding acquisition-re- income (net), fee and commission income, other income, interest expenses, excluding interest lated expenses, restructuring charges and other expenses divided by interest and similar expenses from external debt and fee and commission expenses. income, operating income from financial assets and liabilities carried at fair value through 85 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 86 Notes to the CoNsolidated BalaNCe sheets 5 – Financial assets carried at fair value through income FInancIal assets carrIed at FaIr value through Income B 22 € mn as of 30 June 2013 as of 31 December 2012 Financial assets held for trading Debt securities 338 328 Equity securities 122 153 Derivative financial instruments 1,244 1,865 Subtotal 1,704 2,346 Financial assets designated at fair value through income Debt securities 2,082 2,349 Equity securities 2,224 2,588 Subtotal 4,306 4,937 Total 6,010 7,283 6 – Investments Investments B 23 € mn as of 30 June 2013 as of 31 December 2012 Available-for-sale investments 380,823 383,254 Held-to-maturity investments 4,092 4,321 Funds held by others under reinsurance contracts assumed 895 1,188 Investments in associates and joint ventures 3,508 3,219 Real estate held for investment 9,881 9,646 Total 399,199 401,628 Interim Report Second Quarter and First Half Year of 2013 Allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity avaIlable-For-sale Investments avaIlable-For-sale Investments € mn as of 30 June 2013 Amortized cost Unrealized gains Unrealized losses Fair value Debt securities Government and agency mortgage-backed securities (residential and commercial) 3,125 144 (8) 3,261 Corporate mortgage-backed securities (residential and commercial) 11,002 850 (87) 11,765 Other asset-backed securities 2,676 225 (22) 2,879 Government and government agency bonds Germany 13,350 1,163 (34) 14,479 Italy 27,630 1,391 (185) 28,836 France 31,950 2,766 (232) 34,484 United States 8,690 418 (144) 8,964 Spain 2,333 107 (60) 2,380 Belgium 8,630 879 (5) 9,504 Greece 1 1 – 2 Portugal 252 1 (5) 248 Ireland 28 1 – 29 Hungary 763 43 (1) 805 All other countries 53,880 3,399 (609) 56,670 Subtotal 147,507 10,169 (1,275) 156,401 Corporate bonds 1 168,906 9,780 (1,823) 176,863 Other 2,407 239 (9) 2,637 Subtotal 335,623 21,407 (3,224) 353,806 Equity securities 2 19,146 8,075 (204) 27,017 Total 354,769 29,482 (3,428) 380,823 1 2 Includes bonds issued by Spanish banks with a fair value of € 467 mN (2012: € 508 mN), thereof subordinated bonds with a fair value of € 102 mN (2012: € 107 mN). Includes shares invested in Spanish banks with a fair value of € 228 mN (2012: € 279 mN). 7 – Loans and advances to banks and customers loans and advances to banks and customers € mn as of 30 June 2013 Banks Customers Short-term investments and certificates of deposit 2,997 – Reverse repurchase agreements 660 – Collateral paid for securities borrowing transactions and derivatives 478 – Loans 63,560 50,682 Other 289 35 Subtotal 67,984 50,717 Loan loss allowance – (156) Total 67,984 50,561 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Amortized cost 4,026 10,778 2,532 13,066 29,762 31,384 8,489 2,582 8,537 7 251 76 662 51,213 146,029 161,150 2,574 327,089 17,950 345,039 Total 2,997 660 478 114,242 324 118,701 (156) 118,545 as of 31 December 2012 Unrealized gains Unrealized losses 291 (2) 1,202 (107) 276 (27) 1,521 (5) 1,483 (206) 4,431 (34) 851 (10) 32 (136) 1,372 (1) 4 – 1 (11) 3 – 42 – 5,329 (52) 15,069 (455) 14,142 (954) 266 (23) 31,246 (1,568) 8,632 (95) 39,878 (1,663) as of 31 December 2012 Banks Customers 4,207 – 789 – 365 – 64,049 49,633 436 42 69,846 49,675 – (152) 69,846 49,523 B 24 Fair value 4,315 11,873 2,781 14,582 31,039 35,781 9,330 2,478 9,908 11 241 79 704 56,490 160,643 174,338 2,817 356,767 26,487 383,254 B 25 Total 4,207 789 365 113,682 478 119,521 (152) 119,369 87 88 loans and advances to customers by type oF customer loans and advances to customers by type oF customer B 26 € mn as of 30 June 2013 as of 31 December 2012 Corporate customers 19,099 18,126 Private customers 24,135 24,024 Public customers 7,483 7,525 Total 50,717 49,675 8 – Reinsurance assets reInsurance assets B 27 € mn as of 30 June 2013 as of 31 December 2012 Unearned premiums 1,957 1,546 Reserves for loss and loss adjustment expenses 7,061 7,318 Aggregate policy reserves 4,589 4,295 Other insurance reserves 107 95 Total 13,714 13,254 9 – Deferred acquisition costs deFerred acquIsItIon costs B 28 € mn as of 30 June 2013 as of 31 December 2012 Deferred acquisition costs Property-Casualty 4,584 4,323 Life/Health 15,459 13,521 Asset Management 137 139 Subtotal 20,180 17,983 Present value of future profits 932 945 Deferred sales inducements 800 524 Total 21,912 19,452 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 10 – Other assets other assets € mn Receivables Policyholders Agents Reinsurers Other Less allowance for doubtful accounts Subtotal Tax receivables Income taxes Other taxes Subtotal Accrued dividends, interest and rent Prepaid expenses Interest and rent Other prepaid expenses Subtotal Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Property and equipment Real estate held for own use Software Equipment Fixed assets of Alternative Investments Subtotal Other assets Total as of 30 June 2013 5,768 5,186 1,608 5,322 (722) 17,162 1,442 1,137 2,579 7,008 16 336 352 114 2,604 1,627 1,030 1,230 6,491 1,444 35,150 B 29 as of 31 December 2012 6,005 4,497 2,421 4,054 (730) 16,247 1,363 1,278 2,641 7,780 17 300 317 129 2,885 1,590 967 1,225 6,667 1,415 35,196 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 11 – Non-current assets classified as held for sale non-current assets classIFIed as held For sale B 30 € mn as of 30 June 2013 as of 31 December 2012 Non-current assets classified as held for sale Real estate held for investment 117 15 Total 117 15 For the year ended 31 December 2012, the non-current assets classified as held for sale comprised only real estate held for investment which, as expected, were sold during the first quarter of 2013. As of 30 June 2013, the non-current assets classified as held for sale of € 117 mn comprise an office building allocated to the business segment Life/Health in Germany. The sale of this investment is expected to be completed during the year ended 31 December 2013. Upon measurement of the non-current assets at fair value less costs to sell no impair- ment was recognized for the three and the six months ended 30 June 2013. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 12 – Intangible assets IntangIble assets B 31 € mn as of 30 June 2013 as of 31 December 2012 Intangible assets with indefinite useful lives Goodwill 11,639 11,679 Brand names 1 299 302 Subtotal 11,938 11,981 Intangible assets with finite useful lives Distribution agreements 2 875 826 Customer relationships 137 152 Other 3 110 131 Subtotal 1,122 1,109 Total 13,060 13,090 1 2 3 Includes primarily the brand name of Selecta aG, Muntelier. Includes primarily the long-term distribution agreements with Commerzbank aG of € 391 mN (2012: € 410 mN), Banco Popular s.a. of € 378 mN (2012: € 386 mN) and hsBC Asia of € 77 mN (2012: € – mN). Includes primarily acquired business portfolios and renewal rights of € 59 mN (2012: € 67 mN) and heritable building rights of € 17 mN (2012: € 15 mN). The other distribution rights of € 20 mN (2012: € 20 mN) and the bancassurance agreements of € 9 mN (2012: € 10 mN) were reclassified from line item “Other” into line item “Distribution agreements”. goodwIll goodwIll B 32 € mn 2013 Cost as of 1 January 12,573 Accumulated impairments as of 1 January (894) Carrying amount as of 1 January 11,679 Additions 2 Disposals – Foreign currency translation adjustments 4 Impairments (46) Carrying amount as of 30 June 11,639 Accumulated impairments as of 30 June 940 Cost as of 30 June 12,579 In the first quarter of 2013, the Goodwill of a fully consoli- dated private equity investment was impaired by € 46 mn in the business segment Corporate and Other. 89 90 13 – Financial liabilities carried at fair value through income Financial liabilities carried at Fair value through income B 33 € mn as of 30 June 2013 as of 31 December 2012 Financial liabilities held for trading Derivative financial instruments 5,833 5,395 Other trading liabilities 3 2 Subtotal 5,836 5,397 Financial liabilities designated at fair value through income – – Total 5,836 5,397 14 – Liabilities to banks and customers liabilities to banks and customers € mn Payable on demand Savings deposits Term deposits and certificates of deposit Repurchase agreements Collateral received from securities lending transactions and derivatives Other Total 15 – Reserves for loss and loss adjustment expenses reserves For loss and loss adjustment expenses B 35 € mn as of 30 June 2013 as of 31 December 2012 Property-Casualty 58,390 62,711 Life/Health 9,723 9,854 Consolidation (7) (25) Total 68,106 72,540 Interim Report Second Quarter and First Half Year of 2013 Allianz Group as of 30 June 2013 Banks Customers 191 4,294 – 2,858 941 1,615 1,820 1 2,016 – 5,126 3,472 10,094 12,240 Total 4,485 2,858 2,556 1,821 2,016 8,598 22,334 as of 31 December 2012 Banks Customers 135 4,724 – 2,897 986 1,651 743 656 1,793 – 5,420 3,420 9,077 13,348 B 34 Total 4,859 2,897 2,637 1,399 1,793 8,840 22,425 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity change in the reserves For loss and loss adjustment expenses in the business segment property-casualty change in the reserves For loss and loss adjustment expenses in the business segment property-casualty B 36 € mn 2013 2012 Gross Ceded Net Gross Ceded Net As of 1 January 62,711 (6,905) 55,806 59,493 (6,658) 52,835 Loss and loss adjustment expenses incurred Current year 15,939 (1,396) 14,543 15,540 (1,054) 14,486 Prior years (918) 172 (746) (599) 114 (485) Subtotal 15,021 (1,224) 13,797 14,941 (940) 14,001 Loss and loss adjustment expenses paid Current year (5,831) 197 (5,634) (5,631) 298 (5,333) Prior years (9,793) 938 (8,855) (8,753) 742 (8,011) Subtotal (15,624) 1,135 (14,489) (14,384) 1,040 (13,344) Foreign currency trans lation adjustments and other changes (491) 67 (424) 548 (87) 461 Changes in the consolidated subsidiaries of the Allianz Group (20) – (20) – – – Reclassifications 1 (3,207) 280 (2,927) – – – As of 30 June 58,390 (6,647) 51,743 60,598 (6,645) 53,953 1 Effective 1 January 2013, the Allianz Group changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. For further information please see note 2. 16 – Reserves for insurance and investment contracts reserves For insurance and investment contracts B 37 € mn as of 30 June 2013 as of 31 December 2012 Aggregate policy reserves 360,062 350,244 Reserves for premium refunds 36,250 40,031 Other insurance reserves 720 710 Total 397,032 390,985 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 91 92 17 – Other liabilities other liabilities B 38 € mn as of 30 June 2013 as of 31 December 2012 Payables Policyholders 3,889 4,710 Reinsurance 1,333 1,845 Agents 1,657 1,529 Subtotal 6,879 8,084 Payables for social security 370 458 Tax payables Income taxes 2,377 2,680 Other taxes 1,308 1,143 Subtotal 3,685 3,823 Accrued interest and rent 627 671 Unearned income Interest and rent 17 5 Other 296 288 Subtotal 313 293 Provisions Pensions and similar obligations 8,113 8,069 Employee related 2,165 2,100 Share-based compensation plans 589 558 Restructuring plans 317 304 Loan commitments 56 67 Contingent losses from non-insurance business 140 166 Other provisions 1,440 1,632 Subtotal 12,820 12,896 Deposits retained for reinsurance ceded 1,916 1,834 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 198 462 Financial liabilities for puttable equity instruments 2,409 2,601 Other liabilities 7,055 6,270 Total 36,272 37,392 The change in the restructuring provisions is mainly driven by the closure of Allianz Bank by 30 June 2013. In this regard, restructuring charges of € 90 mn, thereof restructuring pro- visions of € 86 mn, were recorded in the reportable segment banking in the first six months of 2013. The use of the provisions as well as the transfers to other provisions of other restructuring programs almost com- pletely offset this increase. There were no other significant changes in the estimates for restructuring provisions as described in the Allianz Group Annual Report 2012. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 18 – Certificated liabilities certiFicated liabilities B 39 € mn as of 30 June 2013 as of 31 December 2012 Allianz se 1 Senior bonds 2 6,551 5,942 Money market securities 1,119 1,180 Subtotal 7,670 7,122 Banking subsidiaries Senior bonds 592 813 Subtotal 592 813 All other subsidiaries Certificated liabilities 25 25 Subtotal 25 25 Total 8,287 7,960 1 2 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE, and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. Change due to the issuance of senior bonds in the amount of € 2.1 Bn in the first quarter of 2013 and the repayment of a € 1.5 Bn bond in the first quarter of 2013. 19 – Participation certificates and subordinated liabilities participation certiFicates and subordinated liabilities B 40 € mn as of 30 June 2013 as of 31 December 2012 Allianz se 1 Subordinated bonds 2 9,400 10,896 Subtotal 9,400 10,896 Banking subsidiaries Subordinated bonds 264 274 Subtotal 264 274 All other subsidiaries Subordinated bonds 399 399 Hybrid equity 45 45 Subtotal 444 444 Total 10,108 11,614 1 2 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. Change due to redemption of a USD 2.0 Bn bond in the second quarter of 2013. B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 20 – Equity equity B 41 € mn as of 30 June 2013 as of 31 December 2012 Shareholders’ equity Issued capital 1,167 1,167 Capital reserves 27,648 27,648 Retained earnings 1 14,796 13,524 Foreign currency translation adjustments (2,304) (2,073) Unrealized gains and losses (net) 2 6,559 10,122 Subtotal 47,866 50,388 Non-controlling interests 2,558 2,575 Total 50,424 52,963 1 2 As of 30 June 2013, includes € (215) mn (2012: € (218) mn) related to treasury shares. As of 30 June 2013, includes € 193 mn (2012: € 256 mn) related to cash flow hedges. dividends In the second quarter of 2013, a total dividend of € 2,039 mn (2012: € 2,037 mn) or € 4.50 (2012: € 4.50) per qualifying share was paid to the shareholders. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 93 94 Notes to the CoNsolidated iNCome statemeNts 21 – Premiums earned (net) Premiums earned (net) € mn three months ended 30 June Property-Casualty Life/Health 2013 Premiums written Direct 10,049 5,961 Assumed 705 144 Subtotal 10,754 6,105 Ceded (1,121) (142) Net 9,633 5,963 Change in unearned premiums Direct 837 (46) Assumed (132) (4) Subtotal 705 (50) Ceded 41 (1) Net 746 (51) Premiums earned Direct 10,886 5,915 Assumed 573 140 Subtotal 11,459 6,055 Ceded (1,080) (143) Net 10,379 5,912 2012 Premiums written Direct 9,841 5,603 Assumed 885 148 Subtotal 10,726 5,751 Ceded (1,161) (166) Net 9,565 5,585 Change in unearned premiums Direct 735 (51) Assumed (202) 2 Subtotal 533 (49) Ceded 168 (2) Net 701 (51) Premiums earned Direct 10,576 5,552 Assumed 683 150 Subtotal 11,259 5,702 Ceded (993) (168) Net 10,266 5,534 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Consolidation – (11) (11) 11 – – – – – – – (11) (11) 11 – – (10) (10) 10 – – – – – – – (10) (10) 10 – B 42 Group 16,010 838 16,848 (1,252) 15,596 791 (136) 655 40 695 16,801 702 17,503 (1,212) 16,291 15,444 1,023 16,467 (1,317) 15,150 684 (200) 484 166 650 16,128 823 16,951 (1,151) 15,800 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 21 – Premiums earned (net) (continued) Premiums earned (net) (continued) € mn six months ended 30 June Property-Casualty 2013 Premiums written Direct 24,565 Assumed 1,386 Subtotal 25,951 Ceded (2,431) Net 23,520 Change in unearned premiums Direct (3,006) Assumed (243) Subtotal (3,249) Ceded 420 Net (2,829) Premiums earned Direct 21,559 Assumed 1,143 Subtotal 22,702 Ceded (2,011) Net 20,691 2012 Premiums written Direct 23,851 Assumed 1,672 Subtotal 25,523 Ceded (2,624) Net 22,899 Change in unearned premiums Direct (2,848) Assumed (350) Subtotal (3,198) Ceded 646 Net (2,552) Premiums earned Direct 21,003 Assumed 1,322 Subtotal 22,325 Ceded (1,978) Net 20,347 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Life/Health 12,421 306 12,727 (291) 12,436 (165) 1 (164) – (164) 12,256 307 12,563 (291) 12,272 12,041 283 12,324 (311) 12,013 (118) 1 (117) (1) (118) 11,923 284 12,207 (312) 11,895 Consolidation – (25) (25) 25 – – (1) (1) 1 – – (26) (26) 26 – – (21) (21) 21 – – 2 2 (2) – – (19) (19) 19 – B 43 Group 36,986 1,667 38,653 (2,697) 35,956 (3,171) (243) (3,414) 421 (2,993) 33,815 1,424 35,239 (2,276) 32,963 35,892 1,934 37,826 (2,914) 34,912 (2,966) (347) (3,313) 643 (2,670) 32,926 1,587 34,513 (2,271) 32,242 95 96 22 – Interest and similar income interest and similar income B 44 € mn three months ended 30 June six months ended 30 June 2013 2012 2013 2012 Interest from held-to-maturity investments 46 50 93 102 Dividends from available-for-sale investments 524 505 823 673 Interest from available-for-sale investments 3,334 3,351 6,615 6,655 Share of earnings from investments in associates and joint ventures 18 36 45 45 Rent from real estate held for investment 202 187 393 368 Interest from loans to banks and customers 1,261 1,329 2,544 2,711 Other interest 27 30 66 66 Total 5,412 5,488 10,579 10,620 23 – Income from financial assets and liabilities carried at fair value through income (net) income from financial assets and liabilities carried at fair value through income (net) B 45 € mn three months ended 30 June Property- Casualty Life/Health Asset Manage- ment Corporate and Other Consoli- dation Group 2013 Income (expenses) from financial assets and liabilities held for trading (net) 31 (156) – (95) 3 (217) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 1 (7) (1) (1) (1) (9) Income (expenses) from financial liabilities for puttable equity instruments (net) – 2 1 – – 3 Foreign currency gains and losses (net) (44) (530) – 97 – (477) Total (12) (691) – 1 2 (700) 2012 Income (expenses) from financial assets and liabilities held for trading (net) (124) (447) (5) 129 (6) (453) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 11 (63) (9) (1) – (62) Income (expenses) from financial liabilities for puttable equity instruments (net) (10) 32 7 – – 29 Foreign currency gains and losses (net) 34 277 – (9) – 302 Total (89) (201) (7) 119 (6) (184) Interim Report Second Quarter and First Half Year of 2013 Allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 23 – Income from financial assets and liabilities carried at fair value through income (net) (continued) income from financial assets and liabilities carried at fair value through income (net) (continued) € mn six months ended 30 June Property- Casualty Life/Health Asset Manage- ment Corporate and Other Consoli- dation 2013 Income (expenses) from financial assets and liabilities held for trading (net) (14) (812) – (55) 2 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 7 105 18 – (1) Income (expenses) from financial liabilities for puttable equity instruments (net) (2) (61) (12) – – Foreign currency gains and losses (net) (4) (154) 1 57 – Total (13) (922) 7 2 1 2012 Income (expenses) from financial assets and liabilities held for trading (net) (96) (686) (4) 356 (8) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 28 156 31 (2) (1) Income (expenses) from financial liabilities for puttable equity instruments (net) (13) (82) (20) – – Foreign currency gains and losses (net) 14 262 – (25) – Total (67) (350) 7 329 (9) income (exPenses) from financial assets and liabilities held for trading (net) Business segment Life/Health For the six months ended 30 June 2013, income and expenses from financial assets and liabilities held for trad- ing (net) in the business segment Life/Health includes expenses of € 822 mn (2012: € 706 mn) from derivative finan- cial instruments. Included in this are expenses of € 329 mn (2012: € 193 mn) from financial derivative positions of Ger- man entities, of which expenses of € 197 mn (2012: income of € 304 mn) relate to duration management, income of € 17 mn (2012: expenses of € 124 mn) relates to protection against equity fluctuations and expenses of € 147 mn (2012: € 335 mn) relate to protection against foreign exchange rate fluctuations. Also included are expenses related to fixed- indexed annuity products and guaranteed benefits under unit-linked contracts of € 430 mn (2012: € 438 mn) from U.S. entities. Business segment Corporate and Other For the six months ended 30 June 2013, income and expens- es from financial assets and liabilities held for trading (net) in the business segment Corporate and Other includes expenses of € 12 mn (2012: income of € 375 mn) from deriva- tive financial instruments. This includes expenses of € 42 mn (2012: income of € 31 mn) from financial derivative instruments to protect investments and liabilities against foreign exchange rate fluctuations. In 2013, hedging of stra- tegic equity investments not designated for hedge account- ing produced no income (2012: income of € 6 mn). Financial derivatives related to the Hartford investment produced no income (2012: income of € 180 mn) as the Hartford Warrants were sold by the Allianz Group in April 2012. Expenses of € 46 mn (2012: € 27 mn) from the hedges of share-based com- pensation plans (restricted stock units) are also included. income (exPenses) from financial assets and liabilities designated at fair value through income (net) For the six months ended 30 June 2013, income and expenses from financial assets and liabilities designated at fair value through income (net) in the business segment Life/Health includes income from equity investments of € 60 mn (2012: € 87 mn) and income of € 45 mn (2012: € 69 mn) from debt investments. Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 46 Group (879) 129 (75) (100) (925) (438) 212 (115) 251 (90) 97 98 foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, that are monetary items. This excludes exchange differ- ences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed separately. The Allianz Group uses freestanding derivatives, included in the line item Income (expenses) from financial assets and liabilities held for trading (net), to hedge against foreign currency fluctuations. For these derivatives, expenses in the amount of € 196 mn (2012: € 284 mn) were recognized for the six months ended 30 June 2013. 24 – Realized gains/losses (net) realized gains/losses (net) € mn realized gains Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures 1 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal realized losses Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures 2 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal Total 1 For the three and the six months ended 30 June 2013, includes realized gains from the disposal of subsidiaries and businesses of € 2 mN (2012: € – mN) and €39 mN (2012: € – mN), respectively. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 2 three months ended 30 June six months ended 30 June 2013 2012 2013 547 425 1,144 596 500 1,133 1,143 925 2,277 2 1 39 29 46 78 140 474 186 – – 12 1,314 1,446 2,592 (34) (74) (90) (86) (258) (154) (120) (332) (244) – – (3) (1) – (3) (2) 1 (2) – – (3) (123) (331) (255) 1,191 1,115 2,337 For the three and the six months ended 30 June 2013, includes realized losses from the disposal of subsidiaries of € – mN (2012: € – mN) and € 3 mN (2012: € – mN), respectively. B 47 2012 1,388 955 2,343 2 61 606 8 3,020 (128) (587) (715) – (1) (1) – (717) 2,303 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 25 – Fee and commission income fee and commission income € mn ProPerty-casualty Fees from credit and assistance business Service agreements Subtotal life/health Service agreements Investment advisory Subtotal asset management Management fees Loading and exit fees Performance fees Other Subtotal corPorate and other Service agreements Investment advisory and banking activities Subtotal consolidation Total 26 – Other income other income € mn Realized gains from disposals of real estate held for own use Income from alternative investments Other Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 196 174 111 117 307 291 21 18 147 113 168 131 1,895 1,578 194 161 78 55 12 31 2,179 1,825 12 19 163 142 175 161 (150) (123) 2,679 2,285 three months ended 30 June 2013 2012 2 7 39 46 1 5 42 58 six months ended 30 June 2013 379 218 597 39 269 308 3,698 374 354 39 4,465 25 318 343 (280) 5,433 six months ended 30 June 2013 17 81 4 102 B 48 2012 363 218 581 37 221 258 3,085 265 99 68 3,517 32 291 323 (249) 4,430 B 49 2012 14 88 7 109 99 100 27 – Income and expenses from fully consolidated private equity investments income and exPenses from fully consolidated Private equity investments € mn three months ended 30 June six months ended 30 June 2013 2012 2013 Income Sales and service revenues 184 198 362 Other operating revenues – – – Interest income – – – Subtotal 184 198 362 Expenses Cost of goods sold (54) (64) (109) Commissions – – – General and administrative expenses (128) (128) (250) Other operating expenses – – – Interest expenses (9) (7) (17) Subtotal 1 (191) (199) (376) Total 1 (7) (1) (14) 1 The presented subtotal for expenses and total income and expenses from fully consolidated private equity investments for the three and the six months ended 30 June 2013 differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 3 mN (2012: € (46) mN) and € 6 mN (2012: € (40) mN) for the three and six months ended 30 June 2013, respectively. This consolidation effect results from the de- ferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the business segment Life/Health, that was reclassified into expenses from fully consolidated private equity investments in non-operat- ing profit to ensure a consistent presentation of the Allianz Group‘s operating profit. Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 50 2012 393 – – 393 (126) – (258) – (22) (406) (13) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 28 – Claims and insurance benefits incurred (net) Claims and insuranCe benefits inCurred (net) € mn three months ended 30 June Property-Casualty 2013 Gross Claims and insurance benefits paid (7,474) Change in reserves for loss and loss adjustment expenses (329) Subtotal (7,803) Ceded Claims and insurance benefits paid 474 Change in reserves for loss and loss adjustment expenses 345 Subtotal 819 Net Claims and insurance benefits paid (7,000) Change in reserves for loss and loss adjustment expenses 16 Total (6,984) 2012 Gross Claims and insurance benefits paid (7,103) Change in reserves for loss and loss adjustment expenses (467) Subtotal (7,570) Ceded Claims and insurance benefits paid 479 Change in reserves for loss and loss adjustment expenses (28) Subtotal 451 Net Claims and insurance benefits paid (6,624) Change in reserves for loss and loss adjustment expenses (495) Total (7,119) Interim Report Second Quarter and First Half Year of 2013 Allianz Group Life/Health (4,948) (132) (5,080) 93 (3) 90 (4,855) (135) (4,990) (4,561) (164) (4,725) 130 25 155 (4,431) (139) (4,570) Consolidation 5 1 6 (3) (1) (4) 2 – 2 12 1 13 (12) (1) (13) – – – B 51 Group (12,417) (460) (12,877) 564 341 905 (11,853) (119) (11,972) (11,652) (630) (12,282) 597 (4) 593 (11,055) (634) (11,689) 101 102 28 – Claims and insurance benefits incurred (net) (continued) Claims and insuranCe benefits inCurred (net) (Continued) € mn six months ended 30 June Property-Casualty Life/Health 2013 Gross Claims and insurance benefits paid (15,624) (9,998) Change in reserves for loss and loss adjustment expenses 603 (54) Subtotal (15,021) (10,052) Ceded Claims and insurance benefits paid 1,135 252 Change in reserves for loss and loss adjustment expenses 89 (16) Subtotal 1,224 236 Net Claims and insurance benefits paid (14,489) (9,746) Change in reserves for loss and loss adjustment expenses 692 (70) Total (13,797) (9,816) 2012 Gross Claims and insurance benefits paid (14,384) (9,689) Change in reserves for loss and loss adjustment expenses (557) (279) Subtotal (14,941) (9,968) Ceded Claims and insurance benefits paid 1,040 237 Change in reserves for loss and loss adjustment expenses (100) 52 Subtotal 940 289 Net Claims and insurance benefits paid (13,344) (9,452) Change in reserves for loss and loss adjustment expenses (657) (227) Total (14,001) (9,679) Interim Report Second Quarter and First Half Year of 2013 Allianz Group Consolidation 14 – 14 (11) – (11) 3 – 3 16 2 18 (16) (2) (18) – – – B 52 Group (25,608) 549 (25,059) 1,376 73 1,449 (24,232) 622 (23,610) (24,057) (834) (24,891) 1,261 (50) 1,211 (22,796) (884) (23,680) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 29 – Change in reserves for insurance and investment contracts (net) Change in reserves for insuranCe and investment ContraCts (net) € mn three months ended 30 June Property-Casualty Life/Health Consolidation 2013 Gross Aggregate policy reserves (62) (1,805) (1) Other insurance reserves (1) (7) – Expenses for premium refunds (37) (1,178) (42) Subtotal (100) (2,990) (43) Ceded Aggregate policy reserves 1 59 (1) Other insurance reserves – 1 – Expenses for premium refunds – 2 – Subtotal 1 62 (1) Net Aggregate policy reserves (61) (1,746) (2) Other insurance reserves (1) (6) – Expenses for premium refunds (37) (1,176) (42) Total (99) (2,928) (44) 2012 Gross Aggregate policy reserves (51) (1,836) – Other insurance reserves – (27) – Expenses for premium refunds (25) (1,679) 42 Subtotal (76) (3,542) 42 Ceded Aggregate policy reserves – 26 – Other insurance reserves – 2 – Expenses for premium refunds – (3) – Subtotal – 25 – Net Aggregate policy reserves (51) (1,810) – Other insurance reserves – (25) – Expenses for premium refunds (25) (1,682) 42 Total (76) (3,517) 42 Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 53 Group (1,868) (8) (1,257) (3,133) 59 1 2 62 (1,809) (7) (1,255) (3,071) (1,887) (27) (1,662) (3,576) 26 2 (3) 25 (1,861) (25) (1,665) (3,551) 103 104 29 – Change in reserves for insurance and investment contracts (net) (continued) Change in reserves for insuranCe and investment ContraCts (net) (Continued) € mn six months ended 30 June Property-Casualty Life/Health Consolidation 2013 Gross Aggregate policy reserves (111) (3,831) (1) Other insurance reserves (2) (51) – Expenses for premium refunds (100) (3,096) (27) Subtotal (213) (6,978) (28) Ceded Aggregate policy reserves 2 41 (1) Other insurance reserves (1) 4 – Expenses for premium refunds – 4 – Subtotal 1 49 (1) Net Aggregate policy reserves (109) (3,790) (2) Other insurance reserves (3) (47) – Expenses for premium refunds (100) (3,092) (27) Total (212) (6,929) (29) 2012 Gross Aggregate policy reserves (105) (3,877) – Other insurance reserves – (61) – Expenses for premium refunds (51) (3,343) 29 Subtotal (156) (7,281) 29 Ceded Aggregate policy reserves – 50 – Other insurance reserves – 3 – Expenses for premium refunds – (3) – Subtotal – 50 – Net Aggregate policy reserves (105) (3,827) – Other insurance reserves – (58) – Expenses for premium refunds (51) (3,346) 29 Total (156) (7,231) 29 Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 54 Group (3,943) (53) (3,223) (7,219) 42 3 4 49 (3,901) (50) (3,219) (7,170) (3,982) (61) (3,365) (7,408) 50 3 (3) 50 (3,932) (58) (3,368) (7,358) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 30 – Interest expenses interest expenses € mn Liabilities to banks and customers Deposits retained on reinsurance ceded Certificated liabilities Participation certificates and subordinated liabilities Other Total 31 – Loan loss provisions loan loss provisions € mn Additions to allowances including direct impairments Amounts released Recoveries on loans previously impaired Total 32 – Impairments of investments (net) impairments of investments (net) € mn impairments Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Subtotal reversals of impairments Available-for-sale investments Debt securities Loans and advances to banks and customers Subtotal Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 (66) (85) (11) (11) (68) (89) (169) (164) (21) (19) (335) (368) three months ended 30 June 2013 2012 (32) (58) 11 9 6 7 (15) (42) three months ended 30 June 2013 2012 (145) (410) (21) (10) (166) (420) – (1) (10) (2) (8) (1) (184) (424) 2 – – 2 2 2 (182) (422) six months ended 30 June 2013 (134) (23) (136) (344) (49) (686) six months ended 30 June 2013 (80) 39 12 (29) six months ended 30 June 2013 (259) (25) (284) – (22) (12) (318) 2 – 2 (316) B 55 2012 (178) (24) (170) (337) (41) (750) B 56 2012 (121) 21 12 (88) B 57 2012 (619) (13) (632) (1) (2) (3) (638) 15 13 28 (610) 105 106 33 – Investment expenses investment expenses € mn Investment management expenses Depreciation of real estate held for investment Other expenses from real estate held for investment Total 34 – Acquisition and administrative expenses (net) aCquisition and administrative expenses (net) € mn property-Casualty Acquisition costs Incurred Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs Amortization of deferred acquisition costs Subtotal Administrative expenses Subtotal life/health Acquisition costs Incurred Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs Amortization of deferred acquisition costs Subtotal Administrative expenses Subtotal asset management Personnel expenses Non-personnel expenses Subtotal Corporate and other Administrative expenses Subtotal Consolidation Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 (129) (128) (51) (47) (37) (41) (217) (216) three months ended 30 June 2013 2012 (2,361) (2,246) 112 118 1,392 1,339 (1,434) (1,382) (2,291) (2,171) (685) (691) (2,976) (2,862) (1,135) (1,085) 4 31 732 705 (719) (564) (1,118) (913) (360) (340) (1,478) (1,253) (651) (548) (374) (321) (1,025) (869) (338) (274) (338) (274) 15 11 (5,802) (5,247) B 58 six months ended 30 June 2013 2012 (257) (251) (101) (91) (67) (71) (425) (413) B 59 six months ended 30 June 2013 2012 (5,073) (4,802) 220 217 3,143 3,055 (2,770) (2,727) (4,480) (4,257) (1,405) (1,417) (5,885) (5,674) (2,256) (2,233) 29 54 1,468 1,440 (1,276) (1,349) (2,035) (2,088) (691) (686) (2,726) (2,774) (1,360) (1,090) (698) (616) (2,058) (1,706) (641) (575) (641) (575) 19 28 (11,291) (10,701) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 35 – Fee and commission expenses fee and Commission expenses € mn property-Casualty Fees from credit and assistance business Service agreements Investment advisory Subtotal life/health Service agreements Investment advisory Subtotal asset management Commissions Other Subtotal Corporate and other Service agreements Investment advisory and banking activities Subtotal Consolidation Total 36 – Other expenses other expenses € mn Realized losses from disposals of real estate held for own use Expenses from alternative investments Other Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 (193) (161) (79) (103) (1) – (273) (264) (15) (8) (59) (47) (74) (55) (349) (318) (21) (13) (370) (331) (57) (20) (74) (62) (131) (82) 60 46 (788) (686) three months ended 30 June 2013 2012 (1) (1) (23) (23) 16 (1) (8) (25) B 60 six months ended 30 June 2013 2012 (372) (350) (175) (190) (1) – (548) (540) (27) (25) (103) (93) (130) (118) (725) (592) (34) (16) (759) (608) (109) (82) (134) (125) (243) (207) 114 103 (1,566) (1,370) B 61 six months ended 30 June 2013 2012 (1) (1) (44) (42) (9) (1) (54) (44) 107 108 37 – Income taxes inCome taxes € mn Current income taxes Deferred income taxes Total For the three and six months ended 30 June 2013 and 2012, the income taxes relating to components of other compre- hensive income consist of the following: inCome taxes relating to Components of other Comprehensive inCome € mn Items that may be reclassified to profit and loss in future periods Foreign currency translation adjustments Available-for-sale investments Cash flow hedges Share of other comprehensive income of associates Miscellaneous Items that may never be reclassified to profit and loss Actuarial gains (losses) on defined benefit plans Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 (678) (512) (146) (249) (824) (761) three months ended 30 June 2013 2012 12 – 1,187 (47) 8 (6) 4 (2) 29 8 (13) (9) 1,227 (56) B 62 six months ended 30 June 2013 2012 (1,468) (1,572) (233) 17 (1,701) (1,555) B 63 six months ended 30 June 2013 2012 23 (2) 1,432 (897) 7 (11) 4 (1) 132 17 1 101 1,599 (793) B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Other InfOrmatIOn 38 – Fair value measurement The Allianz Group carries certain financial instruments at fair value and discloses the fair value of most other assets and liabilities. The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments closely correlates with the level of non-market observable inputs. The Allianz Group maxi- mizes the use of observable inputs and minimizes the use of non-market observable inputs when measuring fair value. Observability of input parameters is influenced by various factors such as the type of the financial instrument, whether a market is established for the particular instru- ment, specific transaction characteristics, liquidity as well as general market conditions. If the fair value cannot be measured reliably, amortized cost is used as a proxy for determining fair values. As of 30 June 2013, fair values could not be reliably measured for equity investments with carrying amounts totaling € 205 mn (31 December 2012: € 223 mn). These investments are pri- marily investments in privately held corporations and part- nerships. Fair value hierarchy Assets and liabilities measured or disclosed at fair value in the consolidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS 13, which consists of three levels based on the observ- ability of inputs within the corresponding valuation tech- niques used. In general, the subsidiaries assume responsibility for assessing fair values of assets and liabilities. This is consis- tent with the decentralized organizational structure and reflects market insights of local managers. Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). Interim Report Second Quarter and First Half Year of 2013 Allianz Group The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that rep- resents actual market activity or binding quotations from brokers or dealers. If no sufficient market information is available, management’s best estimate of a particular input is used to determine the value. Active markets – Quoted market price – Fair value level 1: The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. No active markets – Valuation techniques – Fair value level 2: If the market for a financial instrument is not active, the fair value is determined by using valuation techniques. The valuation techniques used are mainly based on market observable inputs. Such market inputs include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instru- ments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities and for- eign currency exchange rates. No active markets – Valuation techniques – Fair value level 3: Where observable market inputs are not available, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the dis- counted cash flow method, comparison to similar instru- ments for which observable market prices exist and other valuation models. Appropriate adjustments are made for credit risks. In particular, when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. 109 110 Fair value MeaSureMeNT ON a recurriNG BaSiS The following financial assets and liabilities are carried at fair value on a recurring basis: − Financial assets and liabilities held for trading − Financial assets and liabilities designated at fair value through income − Available-for-sale investments Fair value hierarchy aS OF 30 JuNe 2013 (iTeMS carried aT Fair value) € MN FiNaNcial aSSeTS Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Equity securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total FiNaNcial liaBiliTieS Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total Interim Report Second Quarter and First Half Year of 2013 Allianz Group − Financial assets and liabilities for unit-linked contracts − Derivative financial instruments and firm commit- ments included in other assets and other liabilities − Financial liabilities for puttable equity instruments. The following tables present the fair value hierarchy for finan cial instruments carried at fair value in the consoli- dated balance sheets as of 30 June 2013 and 31 December 2012. B 64 Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs Total fair value 102 236 – 338 29 93 – 122 148 983 113 1,244 279 1,312 113 1,704 1,655 405 22 2,082 1,966 – 258 2,224 3,621 405 280 4,306 3,900 1,717 393 6,010 20,416 1,398 5,203 27,017 34 3,227 – 3,261 71 11,660 34 11,765 241 2,415 223 2,879 135,373 20,971 57 156,401 42,387 131,332 3,144 176,863 1,255 896 486 2,637 199,777 171,899 9,147 380,823 72,627 2,558 183 75,368 5 109 – 114 276,309 176,283 9,723 462,315 56 1,241 4,536 5,833 – 3 – 3 56 1,244 4,536 5,836 72,627 2,558 183 75,368 – 198 – 198 2,298 19 92 2,409 74,981 4,019 4,811 83,811 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Fair value hierarchy aS OF 31 deceMBer 2012 (iTeMS carried aT Fair value) € MN Level 1 – Quoted prices in active markets FiNaNcial aSSeTS Financial assets carried at fair value through income Financial assets held for trading Debt securities 102 Equity securities 69 Derivative financial instruments 36 Subtotal 207 Financial assets designated at fair value through income Debt securities 1,945 Equity securities 2,355 Subtotal 4,300 Subtotal 4,507 Available-for-sale investments Equity securities 19,933 Government and agency mortgage-backed securities (residential and commercial) 37 Corporate mortgage-backed securities (residential and commercial) 26 Other asset-backed securities 80 Government and government agency bonds 138,690 Corporate bonds 33,512 Other debt securities 1,390 Subtotal 193,668 Financial assets for unit-linked contracts 68,508 Derivative financial instruments and firm commitments included in other assets – Total 266,683 FiNaNcial liaBiliTieS Financial liabilities held for trading Derivative financial instruments 58 Other trading liabilities – Subtotal 58 Financial liabilities for unit-linked contracts 68,508 Derivative financial instruments and firm commitments included in other liabilities – Financial liabilities for puttable equity instruments 2,495 Total 71,061 Interim Report Second Quarter and First Half Year of 2013 Allianz Group Level 2 – Market observable inputs 226 84 1,670 1,980 404 – 404 2,384 1,291 4,278 11,817 2,465 21,915 137,705 960 180,431 2,504 129 185,448 756 2 758 2,504 462 26 3,750 Level 3 – Non-market observable inputs – – 159 159 – 233 233 392 5,263 – 30 236 38 3,121 467 9,155 185 – 9,732 4,581 – 4,581 185 – 80 4,846 B 65 Total fair value 328 153 1,865 2,346 2,349 2,588 4,937 7,283 26,487 4,315 11,873 2,781 160,643 174,338 2,817 383,254 71,197 129 461,863 5,395 2 5,397 71,197 462 2,601 79,657 111 112 Valuation methodologies of financial instruments carried at fair value The Allianz Group uses valuation techniques consistent with one or more of the three widely used classes of valua- tion techniques listed in IFRS 13 to measure fair value: − Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. − Cost approach: Amount that would be currently required to replace the service capacity of an asset (replacement cost). − Income approach: Conversion of future amounts such as cash flows or income to a single current (i.e. dis- counted) amount. There is no one-to-one connection between valuation tech- nique and hierarchy level. The hierarchy level is defined via the significance of non-market observable inputs for these valuation techniques. Financial assets and liabilities carried at fair value through income Financial assets held for trading – Debt and equity securities The fair value is mainly determined using the market approach. In some cases, the fair value is determined based on the income approach using interest rates and yield curves observable at commonly quoted intervals. Financial assets held for trading – Derivative financial instruments For level 2, the fair value is mainly determined based on the income approach using deterministic or stochastic dis- counted cash flow models. Primary inputs to the valuation include volatilities, interest rates, yield curves, credit spreads, dividend estimates and foreign exchange rates observable at commonly quoted intervals. For level 3, derivatives are mainly priced by third-party vendors. Controls are in place to monitor the valuations of these derivatives. Valuations are mainly derived based on the income approach. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Financial assets designated at fair value through income – Debt securities The fair value is determined using the market approach. Financial assets designated at fair value through income – Equity securities For level 2, the fair value is determined using the market approach. For level 3, equity securities mainly represent private equity funds. The fair value is in most cases derived from the net asset value based on the valuation of the underlying portfolio companies as provided by third-party vendors. The fair value of the underlying companies is mainly determined using multiple approaches. Available-for-sale investments Available-for-sale investments – Equity securities For level 2, the fair value is mainly determined using the market approach. For certain private equity investments, the funds are priced based on transaction prices using the cost approach. As there are only few holders of these funds, the market is not liquid and transactions are only known to participants. For level 3, the fair value is mainly determined using net asset values. The net asset values are based on the fair value measurement of the underlying investments and are mainly provided by fund managers. For certain level 3 equity securities, the invested capital is considered to be a reasonable proxy for the fair value. Available-for-sale investments – Debt securities Debt securities include − Government and agency mortgage-backed securities (residential and commercial), − Corporate mortgage-backed securities (residential and commercial), − Other asset-backed securities, − Government and government agency bonds, − Corporate bonds and − Other debt securities. The valuation techniques for these debt securities are sim- ilar. For level 2 and level 3, the fair value is determined using the market and the income approach. Primary inputs to the market approach are quoted prices for identical or compa- rable assets in active markets where the comparability between security and benchmark defines the fair value B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity level. The income approach in most cases means a dis- counted cash flow method where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk. Depending on the observability of these risk parameters in the market, the security is classified in level 2 or level 3. Financial assets for unit-linked contracts For level 2, the fair value is determined using the market or the income approach. For the income approach, primary observable inputs include yield curves observable at com- monly quoted intervals. For level 3, the fair value is deter- mined based on the net asset value provided by third-party vendors. For financial liabilities for unit-linked contracts the same valuation techniques apply as for financial assets for unit- linked contracts. Derivative financial instruments and firm commitments included in other assets The fair value of the derivatives is mainly determined based on the income approach using present value techniques. Primary inputs include yield curves observable at com- monly quoted intervals. The derivatives are mainly used for hedging purposes. Certain derivatives are priced by Bloom- berg functions, such as Black-Scholes Option Pricing or the swap manager tool. Financial liabilities held for trading – Derivative financial instruments For level 2, the fair value is mainly determined using the market approach or the income approach. Valuation tech- niques applied for the income approach mainly include discounted cash flow models as well as the Black-Scholes model. Main observable input parameters include implied volatilities, yield curves observable at commonly quoted intervals and credit spreads observable in the market. For level 3, the fair value is mainly determined based on the income approach using deterministic discounted cash flow models. A significant proportion of derivative liabili- ties represent derivatives embedded in certain life and annuity contracts. Significant non-market observable input parameters include mortality rates and surrender rates. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Financial liabilities held for trading – Other trading liabilities The fair value is mainly determined based on the income approach using present value techniques. Primary inputs comprise swap curves, share prices and dividend estimates. Derivative financial instruments and firm commitments included in other liabilities For level 2, the fair value is mainly determined using the income approach. Primary inputs include interest rates and credit spreads observable at commonly quoted intervals. Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments are generally required to be recorded at the redemption amount with changes recognized in income. For level 2, the fair value is mainly determined based on the income approach using present value techniques. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency and activity are no longer indicative of an active market. Con- versely, the same policy applies for transfers from level 2 to level 1. Certain available-for-sale government and government agency bonds in the amount of € 0.1 Bn as well as corporate bonds in the amount of € 1.7 Bn were transferred from level 1 to level 2 during the six months ended 30 June 2013. Additionally, available-for-sale government and govern- ment agency bonds in the amount of € 0.7 Bn as well as cer- tain corporate bonds in the amount of € 3.7 Bn were trans- ferred from level 2 to level 1 during the six months ended 30 June 2013. There were no significant transfers into or out of level 3 dur- ing the six months ended 30 June 2013. 113 114 Significant level 3 portfolios – Narrative description and sensitivity analysis Available-for-sale investments – Equity securities Equity securities within available-for-sale investments classified as level 3 mainly comprise private equity fund investments as well as alternative investments of the Allianz Group and are in most cases delivered as net asset values by the fund managers (€ 4.6 Bn). The net asset values are calculated using material non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund managers and hence a narrative sensitivity analysis is not applicable. The fund asset manager gener- ally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple approaches (market approach). For certain investments, the invested capital is considered to be a reasonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable. approach using matrix pricing (€ 2.8 Bn). The primary non- market observable input used in the matrix pricing model is a yield taken from a benchmark security. A significant yield increase of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. A 10 % stress of the main non-market observable inputs only has an immaterial impact on fair value. Financial liabilities held for trading Financial liabilities held for trading mainly include embed- ded derivative financial instruments relating to annuity products that are priced internally using discounted cash flow models (€ 4.5 Bn). A significant increase (decrease) in the utilization of annuitization benefits could result in a higher (lower) fair value. A significant decrease (increase) in mortality rates, surrender rates, or utilization of lifetime income benefits could result in a higher (lower) fair value. However, a 10 % stress of the main non-market observable inputs only has an immaterial impact on fair value. Available-for-sale investments – Corporate bonds Corporate bonds within available-for-sale investments classified as level 3 are mainly priced based on the market Quantification of significant non-market observable inputs The following table shows the quantitative description of valuation technique(s) and input(s) used for the level 3 portfolios described above. QuaNTiTaTive deScripTiON OF valuaTiON TechNiQue(S) aNd NON-MarkeT OBServaBle iNpuT(S) uSed B 66 € MN Description Fair value as of 30 June 2013 Valuation technique(s) Non-market observable input(s) Range Available-for-sale investments Equity securities 4,610 Net asset value n/a n/a Corporate bonds 2,833 Matrix pricing Credit spread (225) BpS – 431 BpS Financial liabilities held for trading Derivative financial instruments 4,458 Fixed indexed annuities 3,915 Present value of Annuitizations 0 % – 25 % insurance cash flow Surrenders 0 % – 25 % Mortality 0 % – 100 % Withdrawal benefit election 0 % – 50 % Volatility n/a Non-performance risk n/a Variable annuities 543 Deterministic Surrenders 0.5 % – 35 % discounted cash flow Mortality 0 % – 100 % Interim Report Second Quarter and First Half Year of 2013 Allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Interim Report Second Quarter and First Half Year of 2013 Allianz Group 115 116 Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. recONciliaTiON OF level 3 FiNaNcial aSSeTS € MN FiNaNcial aSSeTS Financial assets carried at fair value through income Financial assets held for trading Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Available-for-sale investments Equity securities Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Total financial assets at fair value recONciliaTiON OF level 3 FiNaNcial liaBiliTieS € MN FiNaNcial liaBiliTieS Financial liabilities held for trading Derivative financial instruments Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total financial liabilities at fair value Interim Report Second Quarter and First Half Year of 2013 Allianz Group Carrying value (fair value) as of 1 January 2013 159 159 – 233 233 5,263 30 236 38 3,121 467 9,155 185 9,732 Carrying value (fair value) as of 1 January 2013 4,581 185 80 4,846 Additions through purchases and issues 13 13 1 12 13 424 2 – 25 237 28 716 2 744 Additions through purchases and issues 479 2 – 481 Net transfers into (out of) level 3 – – – 80 80 (81) 1 (1) – – 4 (77) 14 17 Net transfers into (out of) level 3 – 14 – 14 Disposals through sales and settlements (384) (384) – (81) (81) (318) (2) (29) (3) (76) (4) (432) (17) (914) Disposals through sales and settlements (370) (17) – (387) Net gains (losses) recognized in consolidated income statement 326 326 – 14 14 (48) 1 4 – (2) (45) – 295 Net losses (gains) recognized in consolidated income statement (216) – (1) (217) Net gains (losses) recognized in other comprehensive income – – – – – 53 2 12 (3) (176) 2 (110) – (110) Net losses (gains) recognized in other comprehensive income – – 9 9 Impairments – – – – – (52) – (1) – – (5) (58) (1) (59) Impairments – (1) – (1) Foreign currency transla tion adjustments (1) (1) – – – (47) – 2 – 40 (5) – (6) Foreign currency transla tion adjustments 62 – – 62 Changes in the consolidated subsidiaries of the Allianz Group – – 21 – 21 9 – – – – (6) 3 – 24 Changes in the consolidated subsidiaries of the Allianz Group – – 4 4 Carrying value (fair value) as of 30 June 2013 113 113 22 258 280 5,203 34 223 57 3,144 486 9,147 183 9,723 Carrying value (fair value) as of 30 June 2013 4,536 183 92 4,811 B 67 Net gains (losses) in profit and loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date 11 11 – – – – – – – – – – – 11 B 68 Net losses (gains) in profit and loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 208 – – 208 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. recONciliaTiON OF level 3 FiNaNcial aSSeTS B 67 € MN Net gains (losses) in profit and loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date Carrying value (fair value) as of 30 June 2013 Changes in the consolidated subsidiaries of the Allianz Group Additions Net gains (losses) recognized in other comprehensive income Carrying value Net gains (losses) recognized in consolidated income statement Disposals Net transfers Foreign currency transla tion adjustments through (fair value) through sales and into (out of) purchases as of settlements level 3 and issues Impairments 1 January 2013 FiNaNcial aSSeTS Financial assets carried at fair value through income Financial assets held for trading 326 – – (1) – 113 11 Derivative financial instruments 159 13 – (384) Subtotal 159 13 – (384) 326 – – (1) – 113 11 Financial assets designated at fair value through income – – – – 21 22 – Debt securities – 1 – – Equity securities 233 12 80 (81) 14 – – – – 258 – Subtotal 233 13 80 (81) 14 – – – 21 280 – Available-for-sale investments (48) 53 (52) (47) 9 5,203 – Equity securities 5,263 424 (81) (318) Corporate mortgage-backed securities (residential and commercial) 30 2 1 (2) 1 2 – – – 34 – Other asset-backed securities 236 – (1) (29) 4 12 (1) 2 – 223 – Government and government agency bonds 38 25 – (3) – (3) – – – 57 – Corporate bonds 3,121 237 – (76) (2) (176) – 40 – 3,144 – Other debt securities 467 28 4 (4) 2 (5) (6) 486 – Subtotal 9,155 716 (77) (432) (45) (110) (58) (5) 3 9,147 – Financial assets for unit-linked contracts 185 2 14 (17) – – (1) – – 183 – Total financial assets at fair value 9,732 744 17 (914) 295 (110) (59) (6) 24 9,723 11 recONciliaTiON OF level 3 FiNaNcial liaBiliTieS B 68 € MN Net losses (gains) in profit and loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date Carrying value (fair value) as of 30 June 2013 Changes in the consolidated subsidiaries of the Allianz Group Net losses (gains) recognized in other comprehensive income Additions Net losses (gains) recognized in consolidated income statement Carrying value Disposals Foreign currency transla tion adjustments Net transfers through (fair value) through sales and into (out of) purchases as of settlements level 3 Impairments and issues 1 January 2013 FiNaNcial liaBiliTieS Financial liabilities held for trading (216) – – 62 – 4,536 208 Derivative financial instruments 4,581 479 – (370) Financial liabilities for unit-linked contracts 185 2 14 (17) – – (1) – – 183 – Financial liabilities for puttable equity instruments 80 – – – (1) 9 – – 4 92 – Total financial liabilities at fair value 4,846 481 14 (387) (217) 9 (1) 62 4 4,811 208 117 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 118 Fair value MeaSureMeNT ON a NON-recurriNG BaSiS Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circum- stances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non- recurring basis at the time of impairment, corresponding disclosures can be found in note 32 – Impairments of investments (net). If fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclo- sures can be found in note 11 – Non-current assets classi- fied as held for sale. Fair value iNFOrMaTiON aBOuT FiNaNcial aSSeTS aNd liaBiliTieS NOT carried aT Fair value Fair value hierarchy aS OF 30 JuNe 2013 (iTeMS NOT carried aT Fair value) B 69 € MN Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs Total fair value FiNaNcial aSSeTS Held-to-maturity investments 2,208 2,410 3 4,621 Investments in associates and joint ventures 452 650 2,804 3,906 Real estate held for investment – – 14,540 14,540 Loans and advances to banks and customers 6,015 90,556 36,638 133,209 Real estate held for own use – – 3,853 3,853 Total assets 8,675 93,616 57,838 160,129 FiNaNcial liaBiliTieS Liabilities to banks and customers 5,611 2,418 14,636 22,665 Certificated liabilities 7,107 984 723 8,814 Participation certificates and subordinated liabilities 6,491 3,882 286 10,659 Total liabilities 19,209 7,284 15,645 42,138 Held-to-maturity investments For level 2, the fair value is mainly determined based on the income approach using deterministic discounted cash flow models. For level 3, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value. Investments in associates and joint ventures For level 2, fair values are mainly derived based on the mar- ket approach using multiple approaches. For level 3, fair values are mainly based on net asset values as provided by third-party vendors. In some cases, the proportion of the equity included in the at-equity measurement (carrying amount) is considered to be a reasonable estimate of the fair value. Real estate Fair values are mainly determined based on the income approach. In some cases, a market approach is applied using market prices of identical or comparable assets in markets which are not active. The fair values are either cal- culated internally and validated by external experts or derived from expert appraisals with internal controls in place to monitor these valuations. Loans and advances to banks and customers For loans and advances to banks and customers, quoted market prices are not available as there are no active mar- kets in which these instruments are traded. For level 2, the fair value for these assets is mainly derived based on the income approach using deterministic discounted cash flow models. For level 3, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value. Interim Report Second Quarter and First Half Year of 2013 Allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity Liabilities to banks and customers For level 2, the fair value is mainly derived based on the market approach – in some cases using matrix pricing – or the income approach using future cash flows discounted with risk-specific interest rates. For level 3, fair values are determined based on the income approach using deter- ministic discounted cash flow models. Main non-market observable inputs include credit spreads. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate of the fair value. Certificated liabilities, participation certificates and subordinated liabilities The fair value is determined using quoted market prices, if available. For level 2, the fair value is mainly determined based on the income approach using deterministic dis- counted cash flow models. For level 3, fair values are mainly derived based on the income approach using deterministic cash flows with credit spreads as primary non-market observable inputs. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value. reclaSSiFicaTiON OF FiNaNcial aSSeTS On 31 January 2009, certain USD-denominated CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. As of 31 December 2012, the carrying amount and fair value of the CDOs was € 370 mn and € 366 mn, respectively. As of 30 June 2013, the carrying amount and fair value of the CDOs was € 362 mn and € 349 mn, respectively. For the six months ended 30 June 2013, the net profit related to the CDOs was not significant. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 119 120 39 – Earnings per share BaSic earNiNGS per Share Basic earnings per share are calculated by dividing net income attributable to shareholders by the weighted aver- age number of common shares outstanding for the period. BaSic earNiNGS per Share € MN Net income attributable to shareholders used to calculate basic earnings per share Weighted average number of common shares outstanding Basic earnings per share (€) diluTed earNiNGS per Share Diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted aver- age number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares arise from various share-based compensation plans of the Allianz Group. diluTed earNiNGS per Share € MN Net income attributable to shareholders Effect of potentially dilutive common shares Net income attributable to shareholders used to calculate diluted earnings per share Weighted average number of common shares outstanding Potentially dilutive common shares resulting from assumed conversion of: Share-based compensation plans Weighted average number of common shares outstanding after assumed conversion Diluted earnings per share (€) For the six months ended 30 June 2013, the weighted aver- age number of common shares excludes 2,763,732 (2012: 2,763,036) treasury shares. Interim Report Second Quarter and First Half Year of 2013 Allianz Group three months ended 30 June 2013 2012 1,588 1,252 453,196,657 452,510,887 3.50 2.77 three months ended 30 June 2013 2012 1,588 1,252 (17) (14) 1,571 1,238 453,196,657 452,510,887 57,240 1,897,953 453,253,897 454,408,840 3.47 2.72 B 70 six months ended 30 June 2013 2012 3,295 2,629 453,186,268 452,536,964 7.27 5.81 B 71 six months ended 30 June 2013 2012 3,295 2,629 (36) (4) 3,259 2,625 453,186,268 452,536,964 479,639 1,293,091 453,665,907 453,830,055 7.18 5.78 B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity 40 – Other information NuMBer OF eMplOyeeS NuMBer OF eMplOyeeS B 72 as of 30 June 2013 as of 31 December 2012 Germany 40,592 40,882 Other countries 104,946 103,212 Total 145,538 144,094 cONTiNGeNT liaBiliTieS aNd cOMMiTMeNTS As of 30 June 2013, there were no significant changes in con- tingent liabilities compared to the consolidated financial statements for the year ended 31 December 2012. As of 30 June 2013, commitments outstanding to invest in private equity funds and similar financial instruments amounted to € 2,703 mn (31 December 2012: € 2,507 mn) and commitments outstanding to invest in real estate and infrastructure amounted to € 1,501 mn (31 December 2012: € 962 mn). Other commitments – mainly referring to spon- soring – increased from € 241 mn as of 31 December 2012 to € 460 mn as of 30 June 2013. All other commitments showed no significant changes. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 41 – Subsequent events alliaNz clOSeS yapi kredi TraNSacTiON iN Turkey On 12 July 2013, Allianz completed the acquisition of Yapı Kredi Sigorta. For further information on the acquisition and the related mandatory tender offer, please refer to note 3 – Consolidation. hailSTOrM aNdreaS iN GerMaNy At the end of July 2013, hailstorm Andreas caused severe damage in some parts of Germany. As of today, the Allianz Group expects losses of approximately € 200 mn. Munich, 1 August 2013 Allianz SE The Board of Management 121 122 respOnsIbIlIty statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial report- ing, the condensed consolidated interim financial state- ments, in accordance with generally accepted accounting principles, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Munich, 1 August 2013 Allianz SE The Board of Management Interim Report Second Quarter and First Half Year of 2013 Allianz Group B Condensed Consolidated Interim Financial Statements 53 Consolidated Balance Sheets 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 57 Condensed Consolidated Statements of Cash Flows 59 Notes to the Condensed Consolidated Interim Financial Statements 56 Consolidated Statements of Changes in Equity revIew repOrt To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements of Allianz SE, Munich – comprising the consolidated balance sheets, consolidated income state- ments, consolidated statements of comprehensive income, consolidated statements of changes in equity, condensed consolidated statements of cash flows and selected explan- atory notes – together with the interim group management report of Allianz SE, Munich, for the period from 1 January to 30 June 2013 that are part of the semi annual financial report according to § 37 w WpHG [„Wertpapierhandels- gesetz“: „German Securities Trading Act“]. The preparation of the condensed consolidated interim financial state- ments in accordance with those International Financial Reporting Standards (IFRS) applicable to interim financial reporting as adopted by the E.U., and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s manage- ment. Our responsibility is to issue a report on the con- densed consolidated interim financial statements and on the interim group management report based on our review. We performed our review of the condensed consolidated interim financial statements and the interim group man- agement report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDw). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed con- solidated interim financial statements have not been pre- pared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assess- ments and therefore does not provide the assurance attain- able in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report. Interim Report Second Quarter and First Half Year of 2013 Allianz Group Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, 1 August 2013 KPmG AG Wirtschaftsprüfungsgesellschaft Dr. Frank Ellenbürger Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 123 Glossary Glossary The accounting terms explained here are intended to help the reader under stand this Interim Report. Most of these terms concern the balance sheet or the income statement. Terminology relating to particular segments has not been included. A Acquisition cost The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition. At Amortized cost Under this accounting principle the difference between the acquisition cost and redemption value (of an investment) is added to or subtracted from the original cost figure over the period from acquisition to maturity and credited or charged to income over the same period. combined rAtio Represents the total of acquisition and adminis- trative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). AffiliAted enterprises The parent company of the Group and all consoli- dated subsidiaries. Subsidiaries are enterprises where the parent company can exercise a signifi- cant influence over their corporate strategy in accordance with the control concept. This is possible, for example, where the parent company holds, directly or indirectly, a majority of the voting rights, has the power to appoint or remove a majority of the members of the Board of Man- agement or equivalent governing body, or where there are contractual rights of control. AggregAte policy reserves Policies in force – especially in life, health, and personal accident insurance – give rise to poten- tial liabilities for which funds have to be set aside. The amount required is calculated actuarially. Assets under mAnAgement The total of all investments, valued at current market value, which the Group has under man- agement with responsibility for maintaining and improving their performance. In addition to the Group’s own investments, they include invest- ments held under management for third parties. AvAilAble-for-sAle investments Available-for-sale investments are securities which are neither held to maturity nor have been acquired for sale in the near term; available-for- sale investments are carried at fair value in the balance sheet. B business combinAtion A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the acquisition method. C cAsh flow stAtement Statement showing movements of cash and cash equivalents during an accounting period, classi- fied by three types of activity, operating activities, investing activities, financing activities. contingent liAbilities Financial obligations not shown as liabilities on the balance sheet because the probability of a liability actually being incurred is low. Example: guarantee obligations. corridor ApproAch With defined benefit plans, differences come about between the actuarial gains and losses which, when the corridor approach is applied, are not immediately recognized as income or expenses as they occur. Only when the cumulative actuarial gains or losses fall outside the corridor is recogni- tion made from the following year onwards. The corridor is 10 % of the present value of the pension rights accrued or of the market value of the pen- sion fund assets, if this is higher. cost-income rAtio Represents operating expenses divided by oper- ating revenues. credit risk The risk that one party to a contract will fail to discharge its obligations and thereby cause the other party to incur financial loss. AssociAted enterprises All enterprises, other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20 % and 50 %, regardless of whether a significant influence is actually exercised or not. certificAted liAbilities Certificated liabilities comprise debentures and other liabilities for which transferable certificates have been issued. collAterAlized debt obligAtion (cdo) A way of packaging credit risk. Several classes of securities (known as tranches) are created from a portfolio of bonds and there are rules for deter- mining how the cost of defaults are allocated to classes. D deferred Acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing poli- cies. They include commissions paid, underwriting expenses and policy issuance costs. Interim Report Second Quarter and First Half Year of 2013 Allianz Group 125 126 deferred tAx Assets/ liAbilities The calculation of deferred tax is based on tax loss carry forwards, tax credit carry forwards and tem- porary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the con- solidation; changes to tax rates already adopted on the balance sheet date are taken into account. defined benefit plAns For defined benefit plans, the participant is granted a defined benefit by the employer or via an exter- nal entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance. To determine the expense over the period, accounting regulations require that actu- arial calculations are carried out according to a fixed set of rules. derivAtive finAnciAl instruments Financial contracts, the values of which move in relationship to the price of an underlying asset. Derivative financial instruments can be classified in relation to their underlying assets (e. g. interest rates, share prices, foreign currency exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps. E eArnings per shAre (bAsic/ diluted) Ratio calculated by dividing the net income for the year attributable to share holders by the weighted average number of shares outstanding. For calcu- lating diluted earnings per share the number of shares and the net income for the year attributable to shareholders are adjusted by the dilutive effects of any rights to subscribe for shares which have been or can still be exercised. Subscription rights arise in connection with participation cer- tificates and share based compensation plans. expense rAtio Represents acquisition and administrative expens- es (net) divided by premiums earned (net). Interim Report Second Quarter and First Half Year of 2013 F fAir vAlue The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. fAir vAlue options Options valued at market value. finAnciAl Assets cArried At fAir vAlue through income Financial assets carried at fair value through income include financial assets held for trading and financial assets designated at fair value through income. finAnciAl liAbilities cArried At fAir vAlue through income Financial liabilities carried at fair value through income include financial liabilities held for trading and financial liabilities designated at fair value through income. funds held by/for others under reinsurAnce contrActs Funds held by others are funds to which the rein- surer is entitled but which the ceding insurer retains as collateral for future obligations of the reinsurer. The ceding insurer shows these amounts as “funds held under reinsurance business ceded.” G goodwill Difference between the cost of acquisition and the fair value of the net assets acquired. gross/net In insurance terminology the terms gross and net mean before and after deduction of reinsurance, respectively. In the investment terminology the term “net” is used where the relevant expenses (e. g. depreciations and losses on the disposal of assets) have already been deducted. H hedging The use of special financial contracts, especially derivative financial instruments, to reduce losses which may arise as a result of unfavorable move- ments in rates or prices. Allianz Group held for sAle A non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than though continuing use. On the date a non-current asset meets the criteria as held for sale, it is measured at the lower of its carrying amount and fair value less costs to sell. held-to-mAturity investments Held-to-maturity investments comprise debt securities held with the intent and ability that they will be held-to-maturity. They are valued at amor- tized cost. I iAs International Accounting Standards. ifrs International Financial Reporting Standards. Since 2002, the designation ifrs applies to the overall framework of all standards approved by the Inter- national Accounting Standards Board. Already approved standards will continue to be cited as International Accounting Standards (iAs). ifrs frAmework The framework for International Financial Report- ing Standards (ifrs) which sets out the concepts that underlie the preparation and presentation of financial statements for external users. income from finAnciAl Assets And liAbilities cArried At fAir vAlue through income (net) Income from financial assets and liabilities carried at fair value through income (net) includes all realized and unrealized gains and losses including interest and dividend income from financial assets and financial liabilities carried at fair value through income, the income (net) from financial liabilities for puttable equity instruments and the foreign currency gains and losses (net). issued cApitAl And cApitAl reserves This heading comprises the capital stock, the premium received on the issue of shares, and amounts allocated when option rights are exercised. Glossary J Joint venture An enterprise which is managed jointly by an enterprise in the Group and one or more enter- prises not included in the consolidation. The extent of joint management control is more than the significant influence exercised over associated enterprises and less than the control exercised over affiliated enterprises. L loss rAtio Represents claims and insurance benefits incurred (net) divided by premiums earned (net). M mArket vAlue The amount obtainable from the sale of an invest- ment in an active market. N non-controlling interests Those parts of the equity of affiliated enterprises which are not owned by companies in the Group. net income AttributAble to non-controlling interests That part of net income for the year which is not attributable to the share holders of the Allianz Group but to other third parties who hold shares in affiliated enterprises. P pArticipAting certificAtes Amount payable on redemption of participating certificates issued. The participating certificates of Allianz se carry distribution rights based on the dividends paid, and subscription rights when the capital stock is increased; but they carry no voting rights, no rights to participate in any proceeds of liquidation, and no rights to be converted into shares. pensions And similAr obligAtions Reserves for current and future post-employment benefits formed for the defined benefit plans of active and former employees. These also include reserves for health care benefits and processing payments. Interim Report Second Quarter and First Half Year of 2013 premiums written/eArned Premiums written represent all premium rev- enues in the year under review. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance products where the policy- holder carries the investment risk (e. g. variable annuities), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income. R reinsurAnce Where an insurer transfers part of the risk which he has assumed to another insurer. repurchAse And reverse repurchAse Agreements A repurchase (repo) transaction involves the sale of securities by the Group to a counterparty, sub- ject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for financial assets carried at fair value through income or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appropriate. A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date, at an agreed price. Such transactions are reported in loans and advances to banks, or loans and advances to customers, respectively. Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest and similar income or interest expenses. reserves for loss And loss AdJustment expenses Reserves for the cost of insurance claims incurred by the end of the year under review but not yet settled. reserve for premium refunds That part of the operating surplus which will be distributed to policy holders in the future. This refund of premiums is made on the basis of statu- tory, contractual, or company by-law obligations, or voluntary undertaking. Allianz Group retAined eArnings In addition to the reserve required by law in the financial statements of the Group parent company, this item consists mainly of the undistributed prof- its of Group enterprises and amounts transferred from consolidated net income. S segment reporting Financial information based on the consolidated financial statements, reported by business seg- ments (Property-Casualty, Life/Health, Asset Management and Corporate and Other) as well as by reportable segments. subordinAted liAbilities Liabilities which, in the event of liquidation or bankruptcy, are not settled until after all other liabilities. U uneArned premiums Premiums written attributable to income of future years. The amount is calculated separately for each policy and for every day that the premium still has to cover. unrecognized gAins/losses Amount of actuarial gains or losses, in connection with defined benefit pension plans, which are not yet recognized as income or expenses (see also “corridor approach”). us gAAp Generally Accepted Accounting Principles in the United States of America. V vAriAble Annuities The benefits payable under this type of life insur- ance depend primarily on the performance of the investments in a mutual fund. The policyholder shares equally in the profits or losses of the under- lying investments. 127 128 Index of Tables and Graphs 01 02 03 Quarterly and half year results Development of the Allianz share price versus EURO STOXX 50 and STOXX Europe 600 Insurance Basic share information cORPORaTE and OTHER A 30 A 31 Key figures Corporate and Other 34 Key figures Corporate and Other – In detail 34 BalancE SHEET REviEw A – Group MAnAGeMent report EXEcUTivE SUmmaRy A 01 A 02 A 03 A 04 A 05 A 06 Operating profit Allianz Group 5 Key figures Allianz Group 5 Total revenues – Segments 7 Operating profit – Segments 7 Net income 9 Total revenues and reconciliation of operating profit to net income 10 PROPERTy-caSUalTy inSURancE OPERaTiOnS A 07 A 08 A 09 A 10 A 11 A 12 A 13 A 14 A 15 A 16 Operating profit Property-Casualty 13 Key figures Property-Casualty 13 Gross premiums written by operating entity – Internal growth rates 14 Operating profit 16 Underwriting result 16 Operating investment income 17 Other result 18 Property-Casualty segment information 19 Property-Casualty insurance operations by reportable segments – Second quarter 20 Property-Casualty insurance operations by reportable segments – First half year 22 lifE/HEalTH inSURancE OPERaTiOnS A 32 A 33 A 34 A 35 A 36 A 37 A 38 A 39 A 40 A 41 A 42 A 43 A 44 A 45 Shareholders’ equity 39 Conglomerate solvency 39 Interest rates development in 2012 and the first six months of 2013 40 Credit spreads development in 2012 and the first six months of 2013 41 Asset allocation 41 Fixed income portfolio 42 Net investment income 42 Composition of asset base – Fair values 43 Development of reserves for loss and loss adjustment expenses 44 Composition of asset base – Fair values 44 Financial assets for unit-linked contracts 45 Development of reserves for insurance and investment contracts 45 Composition of asset base – Fair values 46 Allianz SE bonds outstanding as of 30 June 2013 and interest expenses for the first six months of 2013 47 REcOnciliaTiOnS A 46 A 47 Composition of total revenues 48 Reconciliation of nominal total revenue growth to internal total revenue growth 49 A 17 A 18 A 19 A 20 A 21 A 22 Operating profit Life/Health 24 Key figures Life/Health 24 Statutory premiums – Internal growth rates in selected markets 25 Life/Health segment information 27 Life/Health insurance operations by reportable segment – Second quarter 28 Life/Health insurance operations by reportable segment – First half year 29 aSSET managEmEnT B – Condensed ConsolidAted interiM FinAnCiAl stAteMents B 01 B 02 B 03 B 04 B 05 Consolidated balance sheets 53 Consolidated income statements 54 Consolidated statements of compre- hensive income 55 Consolidated statements of changes in equity 56 Condensed consolidated statements of cash flows 57 A 23 A 24 A 25 A 26 A 27 A 28 A 29 Operating profit Asset Management 30 Key figures Asset Management 30 Development of total assets under management 31 Third-party assets under management by business unit 31 Third-party assets under management by region/country 32 Three-year rolling investment perfor- mance of PimcO and Allianzgi 32 Asset Management segment information 33 gEnERal infORmaTiOn B 06 B 07 B 08 B 09 Change of consolidated balance sheet relating to amendments to iaS 19 – Employee benefits 60 Change of consolidated balance sheet relating to change in presentation of discounted loss reserves 61 Change of consolidated income state- ments relating to change in presentation of discounted loss reserves 61 Change of consolidated statements of cash flows relating to change in presenta- tion of policyholders’ account deposits and withdrawals 61 Interim Report Second Quarter and First Half Year of 2013 Allianz Group B 10 B 11 B 12 B 13 B 14 B 15 B 16 B 17 B 18 B 19 B 20 HSBC Taiwan Life branch – Consideration transferred and identifiable assets and liabilities 62 Business segment information – Consoli- dated balance sheets 66 Business segment information – Total revenues and reconciliation of operating profit (loss) to net income (loss) 68 Business segment information – Total revenues and reconciliation of operating profit (loss) to net income (loss) (continued) 70 Reportable segments – Property- Casualty 72 Reportable segments – Property-Casualty (continued) 74 Reportable segments – Life/Health 76 Reportable segments – Life/Health (continued) 78 Reportable segments – Asset Management 80 Reportable segments – Asset Management (continued) 81 Reportable segments – Corporate and Other 82 Reportable segments – Corporate and Other (continued) 84 B 21 nOTES TO THE cOnSOlidaTEd BalancE SHEETS B 22 B 23 B 24 B 25 B 26 B 27 B 28 B 29 B 30 B 31 B 32 B 33 B 34 B 35 B 36 B 37 B 38 B 39 B 40 Financial assets carried at fair value through income 86 Investments 86 Available-for-sale investments 87 Loans and advances to banks and customers 87 Loans and advances to customers by type of customer 88 Reinsurance assets 88 Deferred acquisition costs 88 Other assets 88 Non-current assets classified as held for sale 89 Intangible assets 89 Goodwill 89 Financial liabilities carried at fair value through income 90 Liabilities to banks and customers 90 Reserves for loss and loss adjustment expenses 90 Change in the reserves for loss and loss adjustment expenses for the business segment Property-Casualty 91 Reserves for insurance and investment contracts 91 Other liabilities 92 Certificated liabilities 92 Participation certificates and subordi- nated liabilities 92 Equity 93 B 41 Index of Tables and Graphs nOTES TO THE cOnSOlidaTEd incOmE STaTEmEnTS B 42 B 43 B 44 B 45 B 46 B 47 B 48 B 49 B 50 B 51 B 52 B 53 B 54 B 55 B 56 B 57 B 58 B 59 B 60 B 61 B 62 B 63 Premiums earned (net) 94 Premiums earned (net) (continued) 95 Interest and similar income 96 Income from financial assets and liabilities carried at fair value through income (net) 96 Income from financial assets and liabilities carried at fair value through income (net) (continued) 97 Realized gains/losses (net) 98 Fee and commission income 99 Other income 99 Income and expenses from fully consoli- dated private equity investments 100 Claims and insurance benefits incurred (net) 101 Claims and insurance benefits incurred (net) (continued) 102 Change in reserves for insurance and investment contracts (net) 103 Change in reserves for insurance and investment contracts (net) (continued) 104 Interest expenses 105 Loan loss provisions 105 Impairments of investments (net) 105 Investment expenses 106 Acquisition and administrative expenses (net) 106 Fee and commission expenses 107 Other expenses 107 Income taxes 108 Income taxes relating to components of other comprehensive income 108 OTHER infORmaTiOn B 64 B 65 B 66 B 67 B 68 B 69 B 70 B 71 B 72 Fair value hierarchy as of 30 June 2013 (Items carried at fair value) 110 Fair value hierarchy as of 31 December 2012 (Items carried at fair value) 111 Quantitative description of valuation technique(s) and non-market observable input(s) used 114 Reconciliation of level 3 financial assets 116 Reconciliation of level 3 financial liabilities 116 Fair value hierarchy as of 30 June 2013 (Items not carried at fair value) 118 Basic earnings per share 120 Diluted earnings per share 120 Number of employees 121 Interim Report Second Quarter and First Half Year of 2013 Allianz Group 129 1 Financial calendar Important dates for shareholders and analysts 1 Interim Report 3Q ____________________________________ 8 November 2013 Financial Results 2013 __________________________________ 27 February 2014 Annual Report 2013 ___________________________________ 14 March 2014 Annual General Meeting _______________________________ 7 May 2014 Interim Report 1Q ____________________________________ 14 May 2014 Interim Report 2Q ____________________________________ 8 August 2014 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Telephone +49. 89. 3800 0 – info@allianz.com – www.allianz.com Interim Report on the internet – www.allianz.com/interim-report – Design / Concept: hw.design GmbH – Date of publication: 2 August 2013 This is a translation of the German Interim Report Second Quarter and First Half Year of 2013 of Allianz Group. In case of any divergences, the German original is legally binding. | Semestriel, 2013, Insurance, Allianz | write me a financial report |
Semestriel | 2,012 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
### Subject:
Insurance
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Allianz
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| Allianz Group Interim Report Second Quarter and First Half Year of 2012 Allianz at a Glance Three months ended 30 June Six months ended 30 June 2012 2011 Change from previous year 2012 2011 Change from previous year I N C O M E S TAT E M E N T Total revenues 1 Operating profit 2 € mn € mn 25,196 2,364 24,574 2,300 2.5 % 2.8 % 55,249 4,694 54,479 3,960 1.4 % 18.5 % Net income € mn 1,320 1,071 23.2 % 2,765 1,986 39.2 % S E G M E N T S 3 P r O P E r T y - CA S u A LT y Gross premiums written Operating profit 2 € mn € mn 10,726 1,112 10,194 1,329 5.2 % (16.3) % 25,523 2,301 24,445 1,992 4.4 % 15.5 % Combined ratio % 97.4 95.0 2.4 pts 96.8 98.1 (1.3) pts L I F E/ HE A LT H Statutory premiums Operating profit 2 € mn € mn 12,861 821 12,978 679 (0.9) % 20.9 % 26,560 1,647 27,248 1,381 (2.5) % 19.3 % Margin on reserves bps 76 66 10 77 67 10 A S S E T M A N A G E M E N T Operating revenues Operating profit 2 € mn € mn 1,497 635 1,303 528 14.9 % 20.3 % 2,936 1,248 2,576 1,056 14.0 % 18.2 % Cost-income ratio % 57.6 59.5 (1.9) pts 57.5 59.0 (1.5) pts C O r P Or A T E A N D OT H E r Total revenues Operating result 2 € mn € mn 141 (191) 137 (205) 2.9 % 6.8 % 296 (475) 288 (428) 2.8 % (11.0) % Cost-income ratio (Banking) % 85.0 93.4 (8.4) pts 82.4 90.6 (8.2) pts B A L A N C E S H E E T Total assets as of 30 June 4 Shareholders’ equity as of 30 June 4 Non-controlling interests as of 30 June 4 € mn € mn € mn 668,960 48,013 2,389 641,472 44,915 2,338 4.3 % 6.9 % 2.2 % 668,960 48,013 2,389 641,472 44,915 2,338 4.3 % 6.9 % 2.2 % S H Ar E I N F Or M AT I O N Basic earnings per share € 2.73 2.21 23.5 % 5.76 4.11 40.1 % Diluted earnings per share Share price as of 30 June 4 Market capitalization as of 30 June 4 € € € mn 2.68 79.11 36,019 2.17 73.91 33,651 23.5 % 7.0 % 7.0 % 5.73 79.11 36,019 4.07 73.91 33,651 40.8 % 7.0 % 7.0 % OT H Er DATA Total assets under management as of 30 June 4 € bn 1,748 1,657 5.5 % 1,748 1,657 5.5 % thereof: Third-party assets under management as of 30 June 4 € bn 1,354 1,281 5.7 % 1,354 1,281 5.7 % 1 | Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 | The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 3 | The Allianz Group operates and manages its activities through four segments: Property-Casualty, Life/Health, Asset Management and Corporate and Other. For further information, please refer to note 3 of our condensed consolidated interim financial statements. 4 | 2011 figures as of 31 December 2011. More details on page ▶ 3 ▶ 4 ▶ 6 ▶ 12 ▶ 14 ▶ 15 ▶ 23 ▶ 25 ▶ 25 ▶ 32 ▶ 33 ▶ 33 ▶ 4 ▶ 36 ▶ 81 ▶ 41 ▶ 40 ▶ 40 ▶ 102 ▶ 102 ▶ 1 ▶ – ▶ 31 ▶ 31 1 Content I. G rO u P M A N A G E M E N T r E P O r T 2 11 22 30 35 38 Outlook 40 50 Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Asset Management Corporate and Other Balance Sheet review reconciliations II. C O N D E N S E D CO N S O L I D AT E D t h e N a N D N o W Ever since it was established in 1890, Allianz has consistently geared its portfolio to meet the needs of its customers. We operate around the world and millions of people still place their trust in us. Our selected marketing motifs take up the spirit of the various epochs and form a bridge from the pioneering days at the beginning of the 20th century to the knowledge I N T E r I M F I N A N C I A L S TAT E M E N T S Content Consolidated Balance Sheets Consolidated Income Statements Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Condensed Consolidated Statements of Cash Flows 53 54 55 56 57 58 60 Notes to the Condensed Consolidated Interim Financial Statements society of tomorrow. 1986: Allianz developed targeted information for schoolchildren, students and young professionals to provide them with information on asset forma- tion and suitable insurance coverage. ▶ To go directly to any chapter, simply click on the headline or the page number B A S I C A L L I A N z S H A r E I N F O r M A T I O N Security Codes WKN 840 400 ISIN DE 000 840 400 5 N av i g at i o N h e l p Bloomberg ALV Gy Allianz Group Property-Casualty Asset Management reuters ALVG.DE Share type registered share with restricted transfer Life/Health Corporate & Other D e v e lo p m e N t o f t h e a l l i aN z s h a r e p r i c e v e r s u s e u ro s toX X 5 0 a N D s toX X e u ro p e 6 0 0 i N s u r a N c e Inde xe d on the A llianz share pr ice in € 100 90 80 Allianz (XET) 70 STOXX Europe 600 Insurance EURO STOXX 50 60 Jan Feb Mar Apr May Jun 2012 Source: Thomson reuters Data stream. up-to-date information on the development of the Allianz share price is available at W W W . a l l i a N z . c o m / s h a r e . c o N t ac t iN v e s t o r r e l at i o N s i m p r i N t Allianz SE Investor relations Königinstrasse 28 80802 Munich, Germany Allianz Investor Line Mon - Fri: 8 a.m. - 8 p.m. Phone: + 49. 89. 3800 7555 Fax: + 49. 89. 3800 3899 Design / Concept Photo Story Allianz SE – Group Management reporting Allianz SE – Group Management reporting and Allianz Center for Corporate History Email: investor.relations@allianz.com | www.allianz.com/investor-relations Date of publication 3 August 2012 GRoup MAnAGeMenT RepoRT 2 executive Summary 11 property-Casualty Insurance operations 22 Life/Health Insurance operations 30 Asset Management 35 Corporate and other 38 outlook 40 Balance Sheet Review 50 Reconciliations 1976: Research from the Allianz Center for Technology strongly contributes to make wearing seat belts in Germany compulsory. 2003: Seat belt legislation has cut the number of casualties in road accidents significantly. Wearing a seatbelt reduces the risk of a fatality in crashes on public roads by 40 – 50 %. 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. executive Summary s ec o n d q u a r t e r 2012 ◾ revenues increased to € 25.2 bn. ◾ operating profit grew to € 2,364 mn. ◾ net income at € 1,320 mn, up 23 %. ◾ Strong solvency ratio at 186 %.1 ◼ S e g m e n t o v e r v I e w the allianz group consists of its operating subsidiaries in about 70 countries and the parent company, allianz Se. the group’s results are reported by business segment: property-casualty insurance, life/Health insurance, asset management and corporate and other activities. although the majority of profits are still derived from our insurance operations, contributions from asset management have grown steadily over recent years. In response to the significant scale of our asset management business, we implemented, as of 1 January 2012, a new structure with our pImco and allianz global Investors (agI) business units under the common roof of allianz asset management Holding (aam). ◼ k eY F I gur e S three months ended 30 June total revenues € mn operating profit € mn ∆ | d I F F e r e n c e Q u a r t e r o v e r Q u a r t e r net income € mn 2012 25,196 2,364 1,320 ∆ +2.8 % 2011 24,574 2,300 1,071 ∆ (0.1)% 2010 25,389 2,302 1,157 ◼ e a r nIn gS Summ a rY Fo r t He Seco nd Qua rt er 2012 even though natural catastrophes rose to a more normal – albeit still moderate – level and market conditions remained unsettled, our performance in the second quarter of 2012 remained strong. o p e r atI n g e n v I ro n m e n t the impact from natural catastrophes in the second quarter of 2012 was in line with the level we experienced in the previous year’s quarter, increasing after the benign first quarter in 2012. nevertheless, claims from natural catastrophes for the first half year of 2012 still remained significantly lower than in the previous year period, which was burdened by severe losses in the first quarter. the european sovereign debt crisis returned to prominence after the apparent lull in the first quarter. the upswing in almost all major equity markets in the first quarter of 2012 reversed strongly in the second and both equity and debt markets became more volatile. Yet, in the current quarter, we experienced no major debt impairments, in stark contrast to the previous year’s second quarter which was heavily affected by impairments on greek sovereign bonds. 1 | Solvency according to the e.u. Financial conglomerates directive. off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz Se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio as of 30 June 2012 would be 177 % (31 december 2011: 170 %; 31 december 2010: 164 %). 2 | 2011 and 2010 solvency ratio figures as of 31 december 2011 and 2010, respectively. Solvency ratio 1, 2 % 186 179 173 e x e c u t I v e S u m m a r Y throughout 2011, many issuers’ credit spreads widened as a reaction to the european sovereign debt crisis. during the first quarter of 2012, affected sovereign and corporate credit spreads narrowed but then retraced some of that improve- ment in the second quarter. while the difficult environment has challenged us – for example, demand for investment-oriented products remains muted – we have managed through the turbulence with overall positive results. m a n ag e m e n t ’S a S Se S Sm e n t o F r e Su lt S t o ta l r e v e n u e s increased from € 24.6 bn to € 25.2 bn, an increase of 2.5 %. this positive development stemmed largely from higher property-casualty and asset management revenues whereas life/Health remained stable. total revenue growth was flat on an internal basis 1. our o p e r at i n g p r o f i t increased 2.8 % to € 2,364 mn. life/Health contributed strongly, supported by a higher operating investment result. asset management again showed strong operating profit growth in line with the positive business development. property-casualty declined due to a lower underwriting result but this was primarily impacted by a few effects driving the less favorable run-off development. we recorded an increase in n e t i n c o m e of 23.2 % to € 1,320 mn, reflecting our solid operating performance in the challenging environment as well as an improved non-operating result. compared to 31 december 2011, our c a p i ta l i z at i o n remained strong with an increase in shareholders’ equity of 6.9 % to € 48,013 mn and a further strengthening in conglomerate solvency by 7 percentage points to 186 % 2. total revenues 3 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n t o ta l r e v e n u e s – s eg m e n t s 4 | in � mn (0.9) % + 0.0 % 25,389 24,574 + 3.0 % + 3.8 % 25,196 (3.0) % Internal growth 138 137 141 Corporate and Other 1,188 1,303 + 3.2 % 1,497 Asset Management 14,124 12,978 12,861 Life/Health 9,951 10,194 10,726 Property-Casualty 2Q 2010 2Q 2011 2Q 2012 In p r o p e r t y-c a s u a lt y gross premiums written grew by 5.2 % to € 10,726 mn. the internal growth was 3.2 %, supported by positive volume and pricing effects of 1.8 % and 1.4 %, respectively. the largest contributors to this growth were latin america, allianz global corporate & Speciality (agcS), germany and australia. 1 | Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. please refer to page 51 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the allianz group as a whole. 2 | Solvency according to the e.u. Financial conglomerates directive. off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz Se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio as of 30 June 2012 would be 177 %. 3 | total revenues comprise statutory gross premiums written in property-casualty and in life/Health, operating revenues in asset management and total revenues in corporate and other (Banking). For further information, please refer to page 50. 4 | total revenues include € (29) mn, € (38) mn and € (12) mn from consolidation for 2Q 2012, 2011 and 2010, respectively. 3 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t l i f e /H e a ltH statutory premiums remained almost flat at € 12,861 mn. on an internal basis, premiums declined by 3.0 %. revenues were impacted by the effects of the difficult market environment and our continued efforts to protect our margins through pricing actions. overall, lower sales of investment-oriented products accounted for nearly all of the premium decrease while our traditional business remained stable. a s s e t m a n ag e m e n t generated internal revenue growth of 3.8 %, mainly related to the increase in assets under manage- ment. In the second quarter of 2012, we recorded third-party net inflows of € 19 bn. as of 30 June 2012, total assets under management amounted to € 1,748 bn. on a nominal basis, our operating revenues grew by 14.9 %. total revenues from our Banking operations (reported in our c o r p o r at e a n d o t H e r segment) stood at € 141 mn, an internal growth of 3.0 %. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n we generated total revenues of € 55,249 mn, up 1.4 % compared to the same period last year (6m 2011: € 54,479 mn). on an internal basis, revenues were almost flat, down by 0.5 %. operating profit 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n o p e r at i n g p ro f i t – s eg m e n t s 1 | in � mn (0.1) % + 2.8 % 2,302 2,300 2,364 516 528 635 Asset Management 824 679 821 Life/Health 1,147 1,329 1,112 Property-Casualty (155) (205) (191) Corporate and Other 2Q 2010 2Q 2011 2Q 2012 p r o p e r t y- c a s ua lt y operating profit decreased by € 217 mn to € 1,112 mn mainly due to the decline in the underwriting result of € 226 mn which was driven by less favorable net run-off. In this respect, like many other insurers in the current quarter, we experienced an increase in the estimated ultimate loss related to the 2011 thailand floods. of the 2.4 per- centage points increase in the combined ratio to 97.4 %, the run-off development accounted for 1.9 percentage points. our operating investment income remained almost flat. our l i f e /H e a ltH operating profit improved by € 142 mn to € 821 mn. this was supported by a higher operating invest- ment result, which benefited from realized gains on the sale of the Hartford debentures 2 as well as the absence of impairments on greek sovereign bonds recorded in the second quarter of 2011. 1 | operating profit for the allianz group includes € (13) mn, € (31) mn and € (30) mn from consolidation in 2Q 2012, 2011 and 2010, respectively. 2 | For further information about the Hartford transaction, please refer to page 44 in the Balance Sheet chapter. e x e c u t I v e S u m m a r Y the excellent performance from a s s e t m a n a g e m e n t continued and operating profit grew by € 107 mn to € 635 mn. positive foreign currency effects, higher assets under management as well as the further improved efficiency of our operational business were the main drivers of this positive development. c o r p o r at e a n d o t H e r operating loss decreased by € 14 mn to a loss of € 191 mn. the improvement came from our alternative Investments and was partly offset by Holding & treasury. Banking operations remained almost stable. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n operating profit increased by € 734 mn to € 4,694 mn, supported by high growth in all our operating segments. non-operating result 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n our n o n - o p e r at i n g r e s u lt amounted to a loss of € 290 mn compared to a loss of € 686 mn in the second quarter of 2011. this improvement resulted almost entirely from a € 527 mn increase in our n o n - o p e r at i n g i n v e s t m e n t r e s u lt. n o n - o p e r at i n g r e a l i z e d g a i n s a n d l o s s e s (n e t ) increased by € 224 mn to € 370 mn. of this increase, € 142 mn was attributable to realized gains on debt securities, primarily from the € 196 mn non-operating gain on disposal of the Hartford debentures 1. Higher realized gains on equities contributed a further € 82 mn. n o n - o p e r at i n g i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d at fa i r va l u e t H r o u g H i n c o m e (n e t ) amounted to € 28 mn, up by € 81 mn from a loss of € 53 mn. this increase was partly related to the negative impact of the valuation of the Hartford warrants in the second quarter of 2011 which we sold in april 2012 with no additional valuation adjustments during the current quarter. n o n - o p e r at i n g i m pa i r m e n t s o f i n v e s t m e n t s (n e t ) decreased from € 429 mn to € 207 mn. debt impairments declined by € 363 mn as the second quarter of 2011 was affected by € 365 mn of non-operating impairments on greek sovereign bonds. In contrast, we did not have any major debt impairments in the current quarter. However, due to the negative equity market developments, equity impairments increased by € 151 mn, mainly from our investments in the financial sector. a c q u i s i t i o n - r e l at e d e x p e n s e s decreased from € 34 mn to € 10 mn, largely due to lower pImco B-unit expenses 2. no B-units were purchased in the second quarters of 2012 and 2011. as of 30 June 2012, we have acquired 93.8 % of all B-units, with only 9,305 B-units still outstanding. the fair value adjustments to the provision for future repurchases as well as distribution expenses decreased to € 2 mn (2Q 2011: € 25 mn) and € 6 mn (2Q 2011: € 11 mn), respectively. this decrease was mainly due to the strong decline in the number of B-units outstanding (by 47 %) compared to 30 June 2011. n o n - o p e r at i n g r e s t r u c t u r i n g c H a rg e s increased by € 102 mn to € 139 mn, mainly driven by restructuring programs at agI and allianz Beratungs- und vertriebs-ag (aBv). agI intends to create a global investment platform with the purpose of improving efficiency and positioning for growth. aBv is undergoing a reorganization of the bancassurance operations.3 1 | the total gain on disposal of the Hartford debentures amounted to € 407 mn. For further information about the Hartford transaction, please refer to page 44 in the Balance Sheet chapter. 2 | when pImco was acquired, B-units were created, entitling senior management to profit participation. under the B-unit plan, allianz has the right to call, while pImco senior management has the right to put those B-units over several years. Fair value changes due to changes in operating earnings are reflected in acquisition-related expenses. the marginal difference between a higher call versus the put price upon any exercise, which is partially linked to the adherence to certain parameters, and distributions received by the senior management B-unit holders, is also included in our acquisition- related expenses. 3 | For further information about this reorganization please refer to note 16 to the condensed consolidated interim financial statements. 5 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n our n o n - o p e r at i n g r e s u lt improved from a loss of € 860 mn to a loss of € 385 mn. this was mainly thanks to a higher non-operating investment result (up € 541 mn) and lower acquisition-related expenses (down € 113 mn). Income tax 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n i n c o m e ta x e s increased by € 211 mn to € 754 mn primarily due to higher pre-tax income. the effective tax rate amounted to 36.3 % (2Q 2011: 33.6 %) and was above the expected level mainly due to trade and prior year taxes as well as non tax-deductible impairments on equities. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n i n c o m e ta x e s amounted to € 1,554 mn compared to € 1,114 mn for the first six months of 2011, an effective tax rate of 35.8 % (6m 2011: 35.9 %). net Income 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n thanks to the improvement in our non-operating result as well as higher operating profit, n e t i n c o m e increased from € 1,071 mn to € 1,320 mn. In the second quarter of 2011, our operating results were heavily impacted by the european sovereign debt crisis, including the impairments on greek sovereign bonds. n e t i n c o m e at t r i b u ta b l e t o sH a r e H o l d e r s and n o n - c o n t r o l l i n g i n t e r e s t s amounted to € 1,234 mn (2Q 2011: € 1,000 mn) and € 86 mn (2Q 2011: € 71 mn), respectively. the net income attributable to non-controlling interests related mainly to euler Hermes. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n n e t i n c o m e increased from € 1,986 mn to € 2,765 mn mainly due to our solid operating performance and significantly higher non-operating investment result. In the first six months of 2011, our results were heavily impacted by both the european sovereign debt crisis and related effects as well as one of our most loss intensive quarters with respect to natural catastrophes. key Figures Quarterly overview t o ta l r e v e n u e s | in � bn 30.6 25.4 24.5 26.0 1Q 10 2Q 10 3Q 10 4Q 10 o p e r at i n g p ro f i t | in � mn 2,302 2,055 2,154 1,732 1Q 10 2Q 10 3Q 10 4Q 10 n e t i n c o m e | in � mn 1,603 1,157 1,268 1,181 1Q 10 2Q 10 3Q 10 4Q 10 29.9 1Q 11 1,660 1Q 11 915 1Q 11 24.6 2Q 11 2,300 2Q 11 1,071 2Q 11 24.1 3Q 11 1,906 3Q 11 258 3Q 11 + 0.0 % 25.0 4Q 11 + 2.8 % 2,000 4Q 11 + 23.2 % 560 4Q 11 30.1 1Q 12 2,330 1Q 12 1,445 1Q 12 25.2 2Q 12 2,364 2Q 12 1,320 2Q 12 e x e c u t I v e S u m m a r Y Internal growth 7 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t t o ta l r e v e n u e s a n d r ec o n c i l i at i o n o f o p e r at i n g p ro f i t t o n e t i n c o m e (lo s s) three months ended 30 June Six months ended 30 June In € mn 2012 2011 2012 2011 total revenues 1 25,196 24,574 55,249 54,479 premiums earned (net) 15,800 15,322 32,242 31,183 operating investment result Interest and similar income 5,488 5,350 10,620 10,244 operating income from financial assets and liabilities carried at fair value through income (net) (212) (102) (346) (231) operating realized gains/losses (net) 745 339 1,817 1,067 Interest expenses, excluding interest expenses from external debt (117) (128) (240) (253) operating impairments of investments (net) (215) (391) (280) (453) Investment expenses (216) (208) (413) (410) subtotal 5,473 4,860 11,158 9,964 Fee and commission income 2,285 2,038 4,430 4,025 other income 58 33 109 64 claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) 2 loan loss provisions (11,689) (3,551) (42) (11,343) (2,836) (33) (23,680) (7,358) (88) (23,321) (6,598) (49) acquisition and administrative expenses (net), excluding acquisition-related expenses (5,262) (5,075) (10,714) (9,990) Fee and commission expenses (686) (657) (1,370) (1,306) operating restructuring charges – (1) (1) (1) other expenses (25) (16) (44) (31) reclassification of tax benefits 3 8 10 20 operating profit 2,364 2,300 4,694 3,960 non-operating investment result non-operating income from financial assets and liabilities carried at fair value through income (net) 28 (53) 256 (149) non-operating realized gains/losses (net) 370 146 486 532 non-operating impairments of investments (net) (207) (429) (330) (512) subtotal 191 (336) 412 (129) Income from fully consolidated private equity investments (net) (47) (13) (53) (32) Interest expenses from external debt (251) (239) (510) (464) acquisition-related expenses (10) (34) (22) (135) amortization of intangible assets (31) (19) (56) (41) non-operating restructuring charges (139) (37) (146) (39) reclassification of tax benefits (3) (8) (10) (20) non-operating items (290) (686) (385) (860) income before income taxes 2,074 1,614 4,309 3,100 Income taxes (754) (543) (1,544) (1,114) net income 1,320 1,071 2,765 1,986 net income attributable to non-controlling interests 86 71 160 129 Shareholders 1,234 1,000 2,605 1,857 Basic earnings per share in € 2.73 2.21 5.76 4.11 diluted earnings per share in € 2.68 2.17 5.73 4.07 1 | total revenues comprise statutory gross premiums written in property-casualty and in life/Health, operating revenues in asset management and total revenues in corporate and other (Banking). 2 | For the three months ended 30 June 2012, expenses for premium refunds (net) in property-casualty of € (25) mn (2011: € (32) mn) are included. For the six months ended 30 June 2012, expenses for premium refunds (net) in property-casualty of € (51) mn (2011: € (77) mn) are included. e x e c u t I v e S u m m a r Y risk management risk management is an integral part of our business processes and supports our value-based management. For further information we refer you to the risk report in our 2011 annual report. the allianz group’s management feels comfort- able with the group’s overall risk profile and is confident that the group’s risk management framework can meet the challenges of a rapidly changing environment as well as day-to-day business needs. the risk profile described in the latest risk report remains unchanged. while markets deteriorated again in the second quarter of 2012, the fundamental or underlying risks described therein remain much the same, especially those associated with the european sovereign debt crisis, which continues to cause a higher level of volatility for sovereign spreads and the markets in general. Specifically Spain and several of its banks continued to experience financial market stress and received rating agency downgrades based on the declines in bank asset quality and, for Spain, the contingent fiscal costs that would stem from re-capitalizing the banking sector. Spain has approached european partners for bail-out assistance, intended to support the Spanish banking sector. In addition, with the exception of the affected sovereign issuers, interest rates have generally fallen as a consequence of accommodative monetary policies. credit and equity market risk perceptions also remain volatile, especially for those financial issuers which are potentially most affected by the crisis. For sovereigns considered a “safe haven”, yields have continued to decline and some hover around all time lows. depending on the individual investment strategy, a continuation of the low interest rate environment creates challenges for some life insurance companies, especially in delivering sufficient investment income to meet policyholders’ future expectations and the long-term guarantees embedded in individual life insurance products. these factors may continue to have adverse implications on our business development, existing asset values and the theoretical value of our liabilities. In addition to continuously monitoring these developments, management has responded decisively to the external events by, for example, further adjusting new business pricing in the life/Health segment, selectively reducing non-domestic sovereign bond exposures and reducing exposure limits for potentially affected financial services bond issuers, amongst other actions. In this context, we continue to de-risk our portfolios focusing on exposures to peripheral borrowers and financial institutions as well as our non-domestic investment port- folios. we further de-risked our portfolio to increase our resilience to even remote shock event scenarios. 9 1 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t events after the Balance Sheet date ◼ n at u r a l c ataS t ro pHe S wo r ldw Id e Since the beginning of July 2012, several countries and regions, including germany, Switzerland, russia and china, were hit by severe thunderstorms and floodings. as of today, the allianz group expects that losses could approximate € 100 mn. Furthermore, the ongoing drought in the united States could lead to losses in the crop business. Based on current information, the expected losses cannot be reliably estimated. ◼ acQu ISI t I o nS o F InSu r a n ce ac t I v I t Ie S In BelgIum a nd F r a n ce after the approval of the general assembly of mensura cca (caisse commune d’assurances) on 13 July 2012, the Belgian national Bank gave their final approval for the acquisition of mensura’s property-casualty insurance activities by allianz Belgium on 25 July 2012. as a result, allianz Belgium will acquire approximately € 1 bn assets and € 1 bn liabilities of mensura. as the effective date of this transaction was 1 august 2012 and the condensed consolidated interim financial statements of the allianz group were authorized for issue on 2 august 2012, further disclosures for this transaction according to IFrS 3 cannot be made. on 24 July 2012, the european commission approved the acquisition of a property-casualty portfolio of gan euro- courtage by allianz France. until now, the acquisition still needs the approval of the autorité de contrôle prudentiel. we expect that the transaction will be closed before the end of this year. other Information B u S In eS S o p e r at I o n S a n d g r o u p S t ru c t u r e the allianz group’s business operations and structure are described in the Business operations and markets chapter starting on page 56 of our annual report 2011. For further information about recent organizational changes, please refer to note 3 of the condensed consolidated interim financial statements and to our asset management chapter starting on page 30. S t r at e g Y the allianz group’s strategy is described in the our Strategy chapter starting on page 69 of our annual report for 2011. there have been no material changes to our group strategy since. p r o d u c tS , S e r v I c e S a n d S a l e S c H a n n e l S For an overview of the products and services offered by the allianz group, as well as sales channels, please refer to the Business operations and markets chapter starting on page 56 of our annual report 2011. Information on our brand can also be found in the our progress in Sustainable development chapter on page 74 of our annual report 2011. i. e x e c u t i v e s u m m a r y , P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s Property-casualty insurance operations s ec o n d q u a r t e r 2012 ◾ Gross premiums up 5.2 % to € 10.7 bn. ◾ operating profit decreased to € 1,112 mn due to less favorable run-off. ◾ combined ratio at 97.4 %. ◼ s e G m e n t o v e r v i e w our Property-casualty business offers a broad range of products and services for both private and corporate clients. our offerings cover many insurance classes such as accident/disability, property, general liability and motor. we conduct business worldwide in more than 50 countries. we are also a global leader in travel insurance and assistance services and credit insurance. we distribute our products via a broad network of agents, brokers, banks and direct channels. ◼ k e y f iGu r es three months ended 30 June Gross premiums written € mn operating profit € mn ∆ | D i f f e r e n c e q u a r t e r o v e r q u a r t e r loss ratio % expense ratio % combined ratio % 2012 10,726 1,112 69.4 28.0 97.4 ∆ (16.3) % 2011 10,194 1,329 67.0 28.0 95.0 ∆+ 15.9 % 2010 9,951 1,147 68.6 27.7 96.3 ◼ e a r ninGs summ a ry fo r t he seco nD q ua rt er 2012 G r o s s p r e m i u m s w r i t t e n increased 5.2 % to € 10,726 mn benefiting from both positive price and volume effects. the internal growth of 3.2 % originated primarily from our subsidiaries in latin america, allianz Global corporate & specialty (aGcs)and our subsidiaries in australia and Germany. our o p e r at i n G p r o f i t amounted to € 1,112 mn – a decrease of € 217 mn or 16.3 % compared to the second quarter of 2011. unlike the variability we have seen in recent quarters, the losses from natural catastrophes were stable between the second quarters. the underwriting result declined by € 226 mn, mainly driven by a less favorable run-off development. in this respect, like many other insurers in the current quarter, we experienced an increase in the estimated ultimate loss related to the 2011 thailand floods. our operating investment income stood at € 861 mn, essentially flat compared to the previous year quarter. the c o m b i n e d r at i o was 97.4 % compared to 95.0 % in the second quarter of 2011. the overall positive price development was more than offset by increased losses in our credit insurance business and a less favorable run-off. 1 1 1 2 i n t e r i m r e P o r t s e c o n D q u a r t e r a n D f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a n z G r o u P G r o u P m a n a G e m e n t r e P o r t Gross Premiums written 1 2012 to 2011 s e c o n D q u a r t e r c o m Pa r i s o n G r o s s p r e m i u m s w r i t t e n grew by 3.2 % supported by a positive volume effect of 1.8 % and a positive price effect of 1.4 %. on a nominal basis, we recorded gross premiums written of € 10,726 mn – up € 532 mn or 5.2 %. foreign currency translation effects had a favorable impact of € 217 mn, primarily because of the appreciation of the u.s. Dollar, the British Pound and the australian Dollar against the euro.2 analyzing internal premium growth in terms of price and volume, we use four clusters based on 2q 2012 internal growth over 2q 2011: ◼ c l u s t e r 1: overall growth – both price and volume effects are positive. ◼ c l u s t e r 2: overall growth – either price or volume effects are positive. ◼ c l u s t e r 3: overall decline – either price or volume effects are positive. ◼ c l u s t e r 4: overall decline – both price and volume effects are negative. cluster 4 is not shown in this quarter as none of our operating entities represented here recorded both negative price and volume effects. G ro s s p r e m i u m s w r i t t e n by o p e r at i n G e n t i t y – i n t e r n a l G ro w t h r at e s 3 , 4 | in % 0 3 3 . a b Latin America Asia-Pacific 8 9 1 . c Australia d United Kingdom 3 5 1 . 2 5 1 . e United States f AGCS 5 0 1 . g Germany 9 5 . 5 8 . 2 7 . 5 4 . 5 4 . 1 4 . 8 6 . 4 0 . 3 3 . 0 3 . 6 1 . 1 1 . 7 2 . 4 0 . 5 1 . 3 3 . h k Switzerland Credit Insurance Italy France Spain ) 9 1 ( . ) 0 4 ( . ) 2 0 ( . ) 0 1 ( . ) 1 6 ( . m Central and Eastern Europe 2Q 2011 over 2Q 2010 a b c d e f g h j k m 2Q 2012 over 2Q 2011 1 2 3 Cluster 1 | we comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)conso lidation effects in order to provide more comparable information. 2 | Based on the quarterly average exchange rates of 2012 compared to 2011. 3 | Before elimination of transactions between allianz Group companies in different geographic regions and different segments. 4 | allianz risk transfer (art) now shown within aGcs. Previous years were adjusted accordingly. P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s c lu s t e r 1 in l a t i n a m e r i c a we recorded gross premiums of € 598 mn. our growth of 33.0 % was largely driven by our Brazilian business, mainly in motor. in a s i a -pa c i f i c gross premiums increased to € 148 mn. we grew by 15.3 % benefiting from the strong volume develop- ment in our malaysian motor business. the price effect was slightly positive at about 0.2 %. in a u s t r a l i a gross premiums amounted to € 737 mn, including € 46 mn of favorable foreign currency translation effects. we achieved strong growth of 7.2 % thanks to both volume and price increases in our property business through agent and broker distribution channels. the positive price effect was approximately 5.2 %. in the u n i t e d K i nG d o m gross premiums grew to € 606 mn, including positive foreign currency translation effects of € 50 mn. the growth of 4.5 % resulted from an increase in volume mainly stemming from our motor business. tariff increases led to a positive price effect of around 0.9 %. in the u n i t e d s tat e s gross premiums totaled € 805 mn. excluding € 88 mn of favorable foreign currency translation effects, we grew by 4.1 %. the strong volume driven growth of our crop business – thanks to higher commodity prices – more than compensated for declines in our commercial and personal lines. in addition, we increased tariffs resulting in a positive price effect of about 1.9 %. c lu s t e r 2 supported by a positive volume effect, gross premiums at a G c s increased 6.8 % to € 1,480 mn. our spanish branch and our marine line contributed most to the volume growth. we estimate a negative price effect of about 0.4 %. in G e r m a n y gross premiums stood at € 1,690 mn, up 3.3 %. we benefited from a positive price effect of around 4.0 % stemming from our motor and non-motor business. this was partly offset by a small decline in volume caused by non-motor. in s w i t z e r l a n d gross premiums totaled € 144 mn, including positive foreign currency translation effects of € 6 mn. continuous growth in our motor business lines contributed to the growth of 3.0 %. the price effect was negative at around 2.8 %. in our c r e d i t i n s u r a n c e business, gross premiums amounted to € 500 mn, up 1.6 %. Given the market environment, we not only achieved high retention rates and insured turnover, but also acquired new customers, especially in growth markets. the overall price effect was negative at approximately 1.5 %. in i ta ly we recorded gross premiums of € 1,032 mn which grew by 1.1 % as strong tariff increases in our motor business more than offset volume losses. our non-motor business slightly decreased reflecting the difficult operating environment but also the execution of our tight underwriting rules. we estimate the positive price effect to be 2.4 %. in f r a n c e gross premiums were slightly higher at € 736 mn. we benefited from a positive price effect of about 4.1 %, in particular from our retail lines, which exceeded the volume losses. 1 3 1 4 i n t e r i m r e P o r t s e c o n D q u a r t e r a n D f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a n z G r o u P G r o u P m a n a G e m e n t r e P o r t c lu s t e r 3 Despite the ongoing economic recession in s pa i n , gross premiums decreased only 1.0 % to € 477 mn. adverse price effects accounted for approximately 6.5 % due to lower average premiums in our commercial lines and our motor business. in c e n t r a l a n d e a s t e r n e u r o p e gross premiums declined to € 562 mn, including unfavorable foreign currency trans- lation effects of € 19 mn. this decrease of 6.1 % mainly stemmed from volume losses in our health business in russia, due to selective underwriting, and our motor business in russia, Poland and hungary. the price effect was positive at around 1.0 %. 2012 to 2011 f i r s t h a l f y e a r c o m Pa r i s o n on an internal basis, G r o s s p r e m i u m s w r i t t e n grew by 2.8 %, benefiting from a positive volume effect of 1.5 % and a positive price effect of 1.3 %. on a nominal basis, gross premiums increased 4.4 % to € 25,523 mn. operating Profit o p e r at i nG p ro f i t | in � mn (16.3) % 1,323 1,329 1,147 1,122 1,111 1,093 1,189 1,112 712 663 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 we analyze the operating profit in the Property-casualty segment in terms of underwriting result, operating investment income and other result.1 three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 underwriting result 220 446 553 operating investment income other result 1 operating profit 861 31 1,112 865 18 1,329 1,700 48 2,301 1 | consists of fee and commission income/expenses and other income/expenses. 2011 266 1,688 38 1,992 P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s 2012 to 2011 s e c o n D q u a r t e r c o m Pa r i s o n o p e r at i n G p r o f i t amounted to € 1,112 mn, down € 217 mn. the majority of this decrease related to our u n d e r w r i t i n G r e s u lt which declined by € 226 mn to € 220 mn. this decrease was mainly due to a less favorable run-off compared to the second quarter of last year. further upward adjust- ments on the 2011 thailand flood’s loss estimates, together with a slight increase in our accident year losses more than offset the positive impact from favorable price movements and a strengthening of our business in Germany and italy. our o p e r at i n G i n V e s t m e n t i n c o m e remained essentially flat at € 861 mn. the c o m b i n e d r at i o stood at 97.4 %, compared to 95.0 % in the second quarter of 2011. the positive price development was more than offset by less favorable run-off. losses from natural catastrophes and the expense ratio were rather stable. u n d e r w r i t i nG r e s u lt three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Premiums earned (net) 10,266 9,878 20,347 19,554 accident year claims (7,340) (7,015) (14,486) (14,484) Previous year claims (run-off) 221 396 485 775 claims and insurance benefits incurred (net) (7,119) (6,619) (14,001) (13,709) acquisition and administrative expenses (net) (2,876) (2,768) (5,688) (5,476) change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 underwriting result (51) 220 (45) 446 (105) 553 (103) 266 our a c c i d e n t y e a r l o s s r at i o was 71.5 %, up 0.5 percentage points on the previous year. the impact from natural catastrophes of 1.7 percentage points was largely in line with the 2011 level. net losses from natural catastrophes amounted to € 174 mn, mainly resulting from the earthquake in northern italy, thunderstorms in Germany and a tornado in the united states. excluding natural catastrophes, our accident year loss ratio was 69.8 %, up 0.6 percentage points compared to the second quarter of 2011. this was mainly attributable to an unfavorable increase in claims frequency / severity and higher large losses in our credit insurance business. this was partly compensated for by positive price trends and improvements in the accident year loss ratio in Germany, italy and reinsurance. the following operations contributed positively to the development of our accident year loss ratio: ◾ G e r m a n y: 0.4 percentage points. the positive impact was mainly due to favorable price trends and fewer large claims. ◾ r e i n s u r a n c e : 0.3 percentage points. this improvement was primarily because of the lower burden of losses from natural catastrophes compared to the previous year. ◾ i t a ly: 0.3 percentage points. this was supported by price increases and a positive trend in claims frequency, in particular in third-party motor liability – as well as strict profitability management. this was partly offset by large claims and a higher level of natural catastrophe losses due to the earthquake in northern italy. the following operations contributed negatively to the development of the accident year loss ratio: ◾ c r e d i t i n s u r a n c e : 0.6 percentage points. compared to 2011, the second quarter of 2012 was affected by an unfavor able development of claims severity and an increase in claims frequency, especially in southern europe. ◾ aG c s: 0.3 percentage points. this reflects an overall higher burden of natural catastrophes compared to the previous year mainly due to a tornado in the united states and the earthquake in northern italy. ◾ f r a n c e : 0.2 percentage points. this was driven by higher losses from severe weather events and large claims. ◾ s w i t z e r l a n d : 0.2 percentage points. this is mainly attributable to an increase in claims frequency and to more severe weather related claims than in the previous year. 1 | consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. for further information, please refer to note 28 of our condensed consolidated interim financial statements. 1 5 1 6 i n t e r i m r e P o r t s e c o n D q u a r t e r a n D f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a n z G r o u P G r o u P m a n a G e m e n t r e P o r t our ru n - o f f r e s u lt declined by € 175 mn to € 221 mn, which led to an unfavorable development of 1.9 percentage points. this was partly attributable to an increase in the estimated ultimate loss for the 2011 thailand floods of approximately € 120 mn and, to a lesser extent, by € 20 mn due to additional reserve strengthening in the united states in the second quarter of 2012 of € 89 mn. furthermore, the second quarter of 2011 benefited from the favorable settlement of large losses in the previous year. total expenses stood at € 2,876 mn, compared to € 2,768 mn in the previous year. our e X p e n s e r at i o was stable at 28.0 %. o p e r at i nG i n V e s t m e n t i n c o m e 1 three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 interest and similar income (net of interest expenses) 965 953 1,893 operating income from financial assets and liabilities carried at fair value through income (net) (7) 9 (5) operating realized gains/losses (net) 9 3 14 operating impairments of investments (net) (11) (7) (14) investment expenses expenses for premium refunds (net) 2 operating investment income (70) (25) 861 (61) (32) 865 (137) (51) 1,700 o p e r at i n G i n V e s t m e n t i n c o m e remained essentially flat at € 861 mn. i n t e r e s t a n d s i m i l a r i n c o m e (n e t o f i n t e r e s t eX p e n s e s) increased by € 12 mn to € 965 mn driven by an increase in income on debt instruments. the total average asset base 3 grew by 5.2 % from € 95.8 bn in the second quarter of 2011 to € 100.8 bn in the second quarter of 2012. this growth offsets the effect from decreasing yields. o p e r at i nG i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d at fa i r Va l u e t h r o u G h i n c o m e (n e t ) resulted in a loss of € 7 mn. the decrease of € 16 mn was mainly due to negative developments on hedging transactions compared to the previous year. o p e r at i n G r e a l i z e d G a i n s/l o s s e s (n e t ) increased by € 6 mn to € 9 mn. o t h e r r e s u lt three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 fee and commission income 291 289 581 other income 10 7 17 fee and commission expenses (264) (275) (540) other expenses (6) (3) (10) other result 31 18 48 1 | the “operating investment income” for our Property-casualty segment consists of the “operating investment result” – as shown in note 3 of the condensed consolidated interim financial statements – and “expenses for premium refunds (net)” (policyholder participation) as shown in note 28 of the condensed consolidated interim financial statements. 2 | refers to policyholder participation, mainly from uBr (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. for further information, please refer to note 28 of our condensed consolidated interim financial statements. 3 | as of 1 January 2012, the asset base changed as liabilities from cash pooling are now included. Previous years were adjusted accordingly. 2011 1,849 28 12 (7) (117) (77) 1,688 2011 562 11 (529) (6) 38 P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s 2012 to 2011 f i r s t h a l f y e a r c o m Pa r i s o n o p e r at i n G p ro f i t increased by € 309 mn to € 2,301 mn. this improvement was driven by higher profitability in our core european markets of italy and Germany, but also in australia and in our reinsurance business. a partial negative offsetting effect came from an overall unfavorable run-off. however, overall, our c o m b i n e d r at i o improved by 1.3 percentage points to 96.8 % mainly due to a lower burden from natural catastrophe claims. the first half year of 2011 was heavily impacted by extraordinary losses that amounted to € 910 mn. in contrast, in the current half year natural catastrophe losses amounted to only € 215 mn. additionally, our combined ratio also improved due to a favorable pricing environment. a slight increase in large losses and a less favorable run-off had a partly offsetting effect. o p e r at i nG i n V e s t m e n t i n c o m e and o t h e r r e s u lt remained rather stable. p r o p e r t y-c a s ua lt y s eG m e n t i n f o r m at i o n three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Gross premiums written 1 10,726 10,194 25,523 24,445 ceded premiums written (1,161) (1,123) (2,624) (2,469) change in unearned premiums 701 807 (2,552) (2,422) premiums earned (net) 10,266 9,878 20,347 19,554 interest and similar income 976 967 1,915 1,876 operating income from financial assets and liabilities carried at fair value through income (net) (7) 9 (5) 28 operating realized gains/losses (net) 9 3 14 12 fee and commission income 291 289 581 562 other income 10 7 17 11 operating revenues 11,545 11,153 22,869 22,043 claims and insurance benefits incurred (net) (7,119) (6,619) (14,001) (13,709) change in reserves for insurance and investment contracts (net) (76) (77) (156) (180) interest expenses (11) (14) (22) (27) operating impairments of investments (net) (11) (7) (14) (7) investment expenses (70) (61) (137) (117) acquisition and administrative expenses (net) (2,876) (2,768) (5,688) (5,476) fee and commission expenses (264) (275) (540) (529) other expenses (6) (3) (10) (6) operating expenses (10,433) (9,824) (20,568) (20,051) operating profit 1,112 1,329 2,301 1,992 loss ratio 2 in % expense ratio 3 in % combined ratio 4 in % 69.4 28.0 97.4 67.0 28.0 95.0 68.8 28.0 96.8 70.1 28.0 98.1 1 | for the Property-casualty segment, total revenues are measured based upon gross premiums written. 2 | represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 | represents acquisition and administrative expenses (net) divided by premiums earned (net). 4 | represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 1 7 1 8 i n t e r i m r e P o r t s e c o n D q u a r t e r a n D f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a n z G r o u P G r o u P m a n a G e m e n t r e P o r t Property-casualty operations by Business Divisions Gross premiums written Premiums earned (net) operating profit (loss) internal 1 three months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 2012 2011 Germany 1,690 1,636 1,690 1,636 1,851 1,813 173 143 switzerland 144 134 138 134 357 344 59 60 austria German speaking countries 2 214 2,070 205 1,975 214 2,064 205 1,995 197 2,422 186 2,343 19 257 23 226 italy 1,032 1,021 1,032 1,021 971 963 206 136 france 736 733 736 733 781 773 91 117 netherlands 168 195 168 191 169 195 16 17 turkey 150 138 153 138 98 84 4 – Belgium 79 82 79 76 75 71 12 11 Greece 29 32 29 32 23 24 6 5 africa western & southern europe 3 17 2,211 17 2,218 17 2,214 17 2,208 11 2,128 12 2,122 1 340 – 287 south america 511 407 534 407 360 308 24 40 mexico 87 62 90 62 28 27 2 3 latin america 598 469 624 469 388 335 26 43 spain Portugal4 iberia & latin america 477 66 1,141 482 67 1,018 477 73 1,174 482 67 1,018 461 66 915 472 63 870 63 10 99 76 11 130 united states 805 689 717 689 603 548 (77) (74) usa 805 689 717 689 603 548 (77) (74) allianz Global corporate & specialty 1,480 1,387 1,480 1,386 774 767 79 264 reinsurance Pc 692 662 692 662 816 819 50 77 australia 737 642 688 642 521 461 103 102 united kingdom 606 533 557 533 539 450 50 49 credit insurance 500 492 500 492 338 316 120 163 ireland Global insurance lines & anglo markets 5 202 4,217 179 3,895 202 4,119 179 3,894 187 3,175 166 2,979 11 412 26 681 russia 155 185 153 185 162 151 1 (4) Poland 105 124 113 124 87 95 7 (1) hungary 60 70 66 70 58 75 (7) 2 slovakia 76 76 76 76 70 69 19 29 czech republic 69 71 71 71 55 57 8 8 romania 46 43 49 43 36 43 1 1 Bulgaria 27 26 27 26 14 14 – 3 croatia 22 22 23 22 19 18 3 3 ukraine kazakhstan 6 3 – 3 4 2 – 3 – 1 – 1 2 2 – – 1 central and eastern europe 7 asia-Pacific 562 148 624 118 581 136 619 118 502 81 525 69 30 14 36 13 middle east and north africa 20 18 17 17 12 12 2 2 Growth markets 730 760 734 754 595 606 46 51 assistance 432 408 432 409 428 394 35 25 consolidation and other 8 total (880) 10,726 (769) 10,194 (939) 10,515 (779) 10,188 – 10,266 16 9,878 – 1,112 3 1,329 1 | this reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2 | in 2012, “münchener und magdeburger agrarversicherung aG” was transferred from consolidation and other to German speaking countries. Prior year figures were not adjusted. the three months ended 30 June 2012 contain € 22 mn gross premiums written, € 17 mn premiums earned (net) and € 6 mn operating profit. 3 | contains € 4 mn and € 1 mn operating profit for 2q 2012 and 2q 2011, respectively, from a management holding located in luxembourg. 4 | in 4q 2011 the premium accounting method changed which is adjusted in the internal growth. 5 | contains € (1) mn and € (0.4) mn operating profit for 2q 2012 and 2q 2011, respectively, from aGf uk. 6 | in 2011, the allianz Group sold its subsidiary in kazakhstan. 7 | contains income and expense items from a management holding and consolidations between countries in this region. 8 | represents elimination of transactions between allianz Group companies in different geographic regions. three months ended 30 June | in % Germany switzerland austria German speaking countries 2 italy france netherlands turkey Belgium Greece africa western & southern europe 3 south america mexico latin america spain Portugal4 iberia & latin america united states usa allianz Global corporate & specialty reinsurance Pc australia united kingdom credit insurance ireland Global insurance lines & anglo markets 5 russia Poland hungary slovakia czech republic romania Bulgaria croatia ukraine kazakhstan 6 central and eastern europe 7 asia-Pacific middle east and north africa Growth markets assistance consolidation and other 8 total combined ratio 2012 99.6 90.8 96.1 97.8 89.0 98.0 96.9 102.6 95.3 77.5 101.2 93.7 100.5 96.5 100.2 91.3 91.7 95.1 122.6 122.6 99.7 97.9 94.1 96.4 79.6 99.1 95.6 104.3 96.8 124.6 81.5 90.6 106.5 99.9 90.9 48.4 – 100.3 89.9 103.3 99.2 94.4 – 97.4 2011 101.8 88.5 92.5 99.1 96.5 96.4 98.6 108.5 98.3 85.2 103.6 97.1 95.8 95.1 95.8 89.9 91.8 92.3 125.7 125.7 76.3 93.9 92.0 95.4 58.7 92.2 85.5 105.8 106.0 107.6 62.8 90.1 104.2 82.1 91.5 113.5 24.0 97.6 89.7 97.9 96.7 94.7 – 95.0 P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s loss ratio expense ratio 2012 2011 2012 2011 72.0 74.7 27.6 27.1 67.8 66.1 23.0 22.4 69.7 65.7 26.4 26.8 71.2 72.7 26.6 26.4 64.5 71.6 24.5 24.9 71.3 67.7 26.7 28.7 69.6 68.5 27.3 30.1 74.6 80.9 28.0 27.6 62.0 64.3 33.3 34.0 39.8 55.3 37.7 29.9 44.5 56.9 56.7 46.7 67.4 69.8 26.3 27.3 68.1 64.5 32.4 31.3 72.2 67.9 24.3 27.2 68.4 64.8 31.8 31.0 69.8 69.2 21.5 20.7 69.4 68.2 22.3 23.6 69.2 67.5 25.9 24.8 90.6 92.9 32.0 32.8 90.6 92.9 32.0 32.8 73.7 50.0 26.0 26.3 71.3 66.0 26.6 27.9 65.5 65.3 28.6 26.7 65.1 62.6 31.3 32.8 53.6 33.5 26.0 25.2 73.7 67.3 25.4 24.9 68.1 57.9 27.5 27.6 63.6 65.7 40.7 40.1 64.3 72.4 32.5 33.6 65.4 62.4 59.2 45.2 51.6 35.3 29.9 27.5 64.8 61.6 25.8 28.5 77.4 70.6 29.1 33.6 68.0 47.8 31.9 34.3 52.2 53.8 38.7 37.7 9.1 51.3 39.3 62.2 – 18.3 – 5.7 62.8 61.4 37.5 36.2 57.8 59.5 32.1 30.2 70.1 70.2 33.2 27.7 62.4 61.4 36.8 35.3 58.4 58.4 36.0 36.3 – – – – 69.4 67.0 28.0 28.0 1 9 2 0 i n t e r i m r e P o r t s e c o n D q u a r t e r a n D f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a n z G r o u P G r o u P m a n a G e m e n t r e P o r t Property-casualty operations by Business Divisions Gross premiums written Premiums earned (net) operating profit (loss) internal 1 six months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 2012 2011 Germany 5,583 5,500 5,583 5,500 3,654 3,606 369 329 switzerland 1,120 1,047 1,053 1,047 732 699 109 101 austria German speaking countries 2 552 7,284 541 7,088 552 7,217 541 7,115 389 4,796 363 4,668 35 520 35 465 italy 1,985 1,960 1,985 1,960 1,929 1,916 369 244 france 1,874 1,871 1,874 1,871 1,582 1,574 187 217 netherlands 419 490 419 486 343 392 16 24 turkey 296 275 313 275 189 168 7 1 Belgium 188 184 188 178 148 139 21 20 Greece 59 64 59 64 46 46 12 7 africa western & southern europe 3 53 4,874 50 4,894 53 4,891 50 4,884 24 4,261 24 4,259 3 623 2 520 south america 1,025 904 1,048 904 710 605 55 75 mexico 139 109 143 109 58 53 10 6 latin america 1,164 1,013 1,191 1,013 768 658 65 81 spain Portugal4 iberia & latin america 1,084 186 2,434 1,113 153 2,279 1,084 163 2,438 1,113 153 2,279 911 129 1,808 919 124 1,701 138 19 222 154 21 256 united states 1,461 1,295 1,346 1,294 1,131 1,078 (42) (12) usa 1,461 1,295 1,346 1,294 1,131 1,078 (42) (12) allianz Global corporate & specialty 3,104 2,818 3,104 2,816 1,598 1,496 195 320 reinsurance Pc 2,182 2,112 2,182 2,112 1,582 1,572 114 (218) australia 1,412 1,184 1,301 1,184 1,065 929 171 125 united kingdom 1,174 1,052 1,111 1,052 1,057 910 92 89 credit insurance 1,091 1,027 1,091 1,027 660 607 219 257 ireland Global insurance lines & anglo markets 5 463 9,426 409 8,602 463 9,252 409 8,600 370 6,332 323 5,837 32 822 34 608 russia 360 402 356 402 317 305 2 (3) Poland 214 235 230 235 178 186 11 – hungary 174 207 191 207 116 151 5 17 slovakia 185 190 185 190 134 138 34 44 czech republic 147 153 152 153 112 112 15 16 romania 93 98 97 98 72 89 2 1 Bulgaria 42 43 42 43 31 31 4 8 croatia 51 49 52 49 38 37 6 6 ukraine kazakhstan 6 7 – 7 14 7 – 7 – 3 – 3 3 2 – – 1 central and eastern europe 7 asia-Pacific 1,272 300 1,398 250 1,311 282 1,383 250 1,001 157 1,055 138 76 29 82 26 middle east and north africa 38 37 35 35 24 24 2 1 Growth markets 1,610 1,685 1,628 1,668 1,182 1,217 107 109 assistance 905 868 905 869 837 774 49 41 consolidation and other 8 total (2,471) 25,523 (2,266) 24,445 (2,563) 25,114 (2,281) 24,428 – 20,347 20 19,554 – 2,301 5 1,992 1 | this reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2 | in 2012, “münchener und magdeburger agrarversicherung aG” was transferred from consolidation and other to German speaking countries. Prior year figures were not adjusted. the first six months of 2012 contain € 29 mn gross premiums written, € 21 mn premiums earned (net) and € 7 mn operating profit. 3 | contains € 8 mn and € 5 mn operating profit for 6m 2012 and 6m 2011, respectively, from a management holding located in luxembourg. 4 | in 4q 2011 the premium accounting method changed which is adjusted in the internal growth. 5 | contains € (1) mn and € 1 mn operating profit for 6m 2012 and 6m 2011, respectively, from aGf uk. 6 | in 2011, the allianz Group sold its subsidiary in kazakhstan. 7 | contains income and expense items from a management holding and consolidations between countries in this region. 8 | represents elimination of transactions between allianz Group companies in different geographic regions. six months ended 30 June | in % Germany switzerland austria German speaking countries 2 italy france netherlands turkey Belgium Greece africa western & southern europe 3 south america mexico latin america spain Portugal4 iberia & latin america united states usa allianz Global corporate & specialty reinsurance Pc australia united kingdom credit insurance ireland Global insurance lines & anglo markets 5 russia Poland hungary slovakia czech republic romania Bulgaria croatia ukraine kazakhstan 6 central and eastern europe 7 asia-Pacific middle east and north africa Growth markets assistance consolidation and other 8 total combined ratio 2012 98.8 92.1 97.1 97.5 90.3 98.3 100.9 103.0 97.4 77.8 95.3 94.8 99.7 88.9 98.9 90.4 91.7 94.1 114.7 114.7 97.6 96.8 97.1 96.8 78.3 96.4 95.2 103.4 98.4 107.8 82.3 91.5 104.4 89.9 91.7 62.9 – 98.1 90.0 107.1 97.3 96.3 – 96.8 2011 100.2 91.1 93.9 98.3 97.2 97.0 99.6 106.4 98.3 91.9 99.0 97.7 96.2 95.4 96.1 89.3 91.4 92.1 114.3 114.3 89.4 117.2 100.8 96.2 67.8 96.8 98.0 103.6 103.9 98.9 74.6 89.9 103.1 76.5 92.0 112.1 54.5 96.6 89.0 107.2 96.0 96.1 – 98.1 P r o P e r t y - c a s u a l t y i n s u r a n c e o P e r a t i o n s loss ratio expense ratio 2012 2011 2012 2011 71.2 72.8 27.6 27.4 69.9 69.6 22.2 21.5 70.3 67.1 26.8 26.8 70.9 71.8 26.6 26.5 66.0 72.6 24.3 24.6 72.3 70.3 26.0 26.7 72.6 69.2 28.3 30.4 75.0 78.2 28.0 28.2 63.6 64.5 33.8 33.8 43.9 56.7 33.9 35.2 54.3 57.2 41.0 41.8 68.9 71.1 25.9 26.6 68.4 64.8 31.3 31.4 64.2 69.0 24.7 26.4 68.1 65.1 30.8 31.0 69.7 69.0 20.7 20.3 69.0 67.6 22.7 23.8 69.0 67.4 25.1 24.7 81.3 79.5 33.4 34.8 81.3 79.5 33.4 34.8 70.3 61.5 27.3 27.9 69.2 89.2 27.6 28.0 70.8 75.6 26.3 25.2 64.7 63.9 32.1 32.3 52.0 41.0 26.3 26.8 71.6 72.0 24.8 24.8 67.4 70.1 27.8 27.9 61.9 64.9 41.5 38.7 65.7 70.4 32.7 33.5 58.9 56.4 48.9 42.5 52.3 46.7 30.0 27.9 64.2 63.7 27.3 26.2 78.3 72.2 26.1 30.9 58.4 44.5 31.5 32.0 54.2 54.9 37.5 37.1 18.4 39.2 44.5 72.9 – 17.3 – 37.2 61.8 61.6 36.3 35.0 59.6 59.4 30.4 29.6 73.6 73.5 33.5 33.7 61.8 61.7 35.5 34.3 60.2 60.1 36.1 36.0 – – – – 68.8 70.1 28.0 28.0 2 1 2 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. life/Health Insurance operations s ec o n d q u a r t e r 2012 ◾ Statutory premiums almost flat at € 12.9 bn. ◾ operating profit increased by € 142 mn supported by a higher operating investment result. ◼ S e g m e n t o v e r v I e w allianz offers a broad range of life, savings and investment-oriented products, including individual and group life insurance contracts. via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products for both private and corporate clients. as one of the worldwide market leaders in life business we serve customers in more than 45 countries. In 17 countries, we are one of the market leaders based on premiums. ◼ k eY F I gur e S three months ended 30 June Statutory premiums operating profit margin on reserves 1 € mn € mn ∆ | d I F F e r e n c e Q u a r t e r o v e r Q u a r t e r bps 2012 12,861 821 76 ∆ +20.9 % 2011 12,978 679 66 ∆ (17.6) % 2010 14,124 824 83 ◼ e a r nIn gS Summ a rY Fo r t He Seco nd Q ua rt er 2012 s tat u t o rY P r e m i u m s remained almost flat at € 12,861 mn, supported by positive foreign currency effects of € 298 mn. on an internal basis 2, premiums were down by 3.0 %, which was broadly in line with our expectations. revenues were impacted by the effects of the difficult market environment and our continued efforts to protect our margin through pricing actions. we saw a decline in investment-oriented single premiums in germany, the united States and taiwan. this decrease also reflects the discontinuation of selling new business in Japan. these decreases were offset in part by growth in both traditional and investment-oriented products across a number of our markets. o P e r at i n g P r o f i t increased by € 142 mn to € 821 mn, supported by a higher operating investment result. m a r g i n o n r e s e r v e s increased from 66 to 76 basis points, driven by an improved operating profit. 1 | represents operating profit (loss) divided by the average of current quarter end and prior quarter end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 2 | S tatutory premiums adjusted for foreign currency translation and (de-)consolidation effects. l I F e / H e a l t H I n S u r a n c e o p e r a t I o n S Statutory premiums1 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n In the following section, we comment on the development of our statutory premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. s t at u t o rY P r e m i u m s – i n t e r n a l g ro w t h r at e s i n s e l ec t e d m a r k e t s 2, 3 | in % 5 4 6 . 5 7 1 . 0 3 1 . 7 4 1 . 5 1 1 . 2 7 . 6 5 . 5 0 . 9 1 . 7 6 1 . 1 4 1 . a b c Belgium/Luxembourg Spain Switzerland d France ) 4 4 ( . ) 4 4 ( . ) 5 2 ( . ) 4 8 ( . ) 4 8 ( . ) 5 0 1 ( . ) 5 9 ( . ) 9 4 1 ( . e g h Italy Germany Health Central and Eastern Europe Germany Life ) 8 7 2 ( . Asia-Pacific United States 2Q 2011 over 2Q 2010 a b c d e g h 2Q 2012 over 2Q 2011 In B e l g i u m / l u x e m B o u r g we recorded premiums of € 546 mn, an increase of 64.5 %, mainly stemming from our investment-oriented products in luxembourg. this was marginally offset by a decrease in employee benefit product sales in Belgium to sustain profitability. despite a highly difficult market environment, including the continuing recession and austerity measures, premiums in s Pa i n increased 13.0 % to € 270 mn. we saw a positive trend in traditional life products supported by an increase in investment-oriented sales, with a shift towards longer-term investments. In s w i t z e r l a n d premiums totaled € 335 mn. adjusting for positive foreign currency translation effects of € 13 mn, premiums grew by 11.5 %. our group life business was the primary contributor to this development. In individual life business, traditional life products with regular premiums increased while single premium unit-linked products declined due to negative market developments. premiums in f r a n c e amounted to € 1,938 mn, an increase of 7.2 %. this growth was mainly attributable to our internal reinsurance of partnership business with our Belgium/luxembourg operations which more than offset the decrease in single premium traditional products distributed by tied agents and other partnerships. In i ta lY premiums increased 5.6 % to € 1,916 mn. this was in spite of a difficult market environment characterized by weak saving propensity, low disposable incomes and banks focused on selling their own products. we saw a significant improvement in investment-oriented product sales and benefited from a large single premium contract as well as higher sales of savings products. 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 | Before elimination of transactions between allianz group companies in different geographic regions and different segments. 3 | Starting from the first quarter of 2010, luxembourg life was consolidated into Belgium for reporting purposes. 2 3 2 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t In our g e r m a n life business, premiums declined 8.4 % to € 3,342 mn. the decrease was driven by lower sales of single premium investment-oriented products, where we have reinforced strict margin discipline. this decline was only partially offset by higher sales of higher margin regular premium products in our corporate business. overall, we saw a positive product mix shift to more profitable traditional life products. premiums in our german health business increased 1.9 % to € 817 mn, benefiting in part from price increases. premiums in c e n t r a l a n d e a s t e r n e u r oP e decreased 2.5 % to € 306 mn, excluding € 13 mn adverse foreign currency translation effects. this was mainly driven by lower sales in poland due to the focus on higher margin products as well as the base effect from a strong second quarter in 2011 driven by sales campaigns in Hungary. the launch of new investment-oriented products in the czech republic nearly offset this decrease. In a s i a -Pa c i f i c premiums decreased 9.5 %, or € 121 mn, after adjusting for € 77 mn positive foreign currency translation effects, to € 1,228 mn. this result was mainly affected by the discontinuation of new sales in Japan and slower sales in taiwan. consequently, premiums dropped by € 204 mn in taiwan and by € 141 mn in Japan. the decrease in taiwan was mainly due to the declining unit-linked business without guarantees through agency and bancassurance channels, as competitors offered what we believe were unsustainable guaranteed product benefits. In South korea and Indonesia, we saw strong growth in our single premium investment-oriented business. premiums in the u n i t e d s tat e s declined 14.9 % to € 1,976 mn, excluding positive foreign currency translation effects of € 215 mn. we expect this trend to remain as we continue to take repricing actions in order to maintain acceptable margins. the quarter over quarter decline was primarily driven by a drop in fixed-indexed annuity sales as a result of the low interest rate environment, difficult economic conditions and the base effect from a strong second quarter in 2011 driven by sales promotions. variable annuity sales were down slightly, following repricing actions in may 2012. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n s tat u t o rY P r e m i u m s were 2.5 % below the first half year of 2011 and amounted to € 26,560 mn. on an internal basis, premiums decreased by 4.1 %. the decline in premiums in Italy, taiwan, the united States and german life was largely offset by higher sales in Belgium/luxembourg, poland, Indonesia and South korea. l I F e / H e a l t H I n S u r a n c e o p e r a t I o n S operating profit o P e r at i n g P ro f i t | in � mn + 20.9 % 835 824 826 821 655 702 679 554 520 519 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n our o P e r at i n g P r o f i t amounted to € 821 mn, an increase of € 142 mn, supported by a higher operating investment result. this result benefited from a realized gain of € 211 mn on the Hartford debenture 1 sale in the second quarter of 2012 and the absence of impairments on greek sovereign bonds of € 279 mn recorded in the second quarter of 2011. i n t e r e s t a n d s i m i l a r i n c o m e n e t o f i n t e r e s t e xP e n s e s increased by € 226 mn and amounted to € 4,402 mn. we recorded growth in interest income from debt investments due to a higher asset base – more than offsetting the modest decline in yield – as well as growth in income from equities, including affiliates. o P e r at i n g i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i aB i l i t i e s c a r r i e d at fa i r va l u e t h r o u g h i n c o m e (n e t ) decreased by € 95 mn to a loss of € 205 mn. this decrease was mainly attributable to the impact of debt and equity market performance on our investment product related derivatives in the united States and Fair value option assets, primarily in France. offsetting some of this decrease was overall positive performance from derivatives and foreign currency translation gains related to the german life business. o P e r at i n g r e a l i z e d g a i n s a n d lo s s e s (n e t ) increased by € 398 mn to € 733 mn. this positive development was driven by higher realized gains from debt investments, while realized gains from equity investments remained stable. o P e r at i n g i mPa i r m e n t s o n i n v e s t m e n t s (n e t ) amounted to € 204 mn, a decrease of € 180 mn. Increased equity impairments were more than offset by lower impairments on debt investments compared to the second quarter of 2011, which was burdened by greek sovereign bond impairments. c l a i m s a n d i n s u r a n c e B e n e f i t s i n c u r r e d (n e t ) declined by € 154 mn to € 4,570 mn mainly due to higher maturities in the previous year. c h a n g e s i n r e s e r v e s f o r i n s u r a n c e a n d i n v e s t m e n t c o n t r a c t s (n e t ) significantly increased by € 779 mn to € 3,517 mn. this was driven by policyholder participation stemming from the higher operating investment result. the increase was further impacted by a lower reserve release than last year related to the lower maturities in our traditional business. this effect was partially offset by positive impacts from adjustments and other effects. i n v e s t m e n t e xP e n s e s increased from € 183 mn to € 191 mn as a result of growth in the asset base. ac q u i s i t i o n a n d a d m i n i s t r at i v e e xP e n s e s (n e t ) increased 1.5 % to € 1,252 mn. the decrease in administrative expenses only partially offset higher acquisition costs. m a r g i n o n r e s e r v e s increased from 66 to 76 basis points, following an improvement in the operating profit. 1 | For further information about the Hartford transaction, please refer to page 44 in the Balance Sheet chapter. 2 5 2 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n we recorded o P e r at i n g P r o f i t of € 1,647 mn, an increase of € 266 mn, mainly as a result of a higher operating invest- ment result. although premium development was weaker, line item movements were broadly consistent with the developments in the second quarter of 2012. compared to the first half year of 2011, this positive development was supported by realized equity investment gains and higher interest from debt investments – reflecting our higher asset base – partly offset by higher acquisition costs. m a r g i n o n r e s e r v e s improved from 67 to 77 basis points, mainly as a result of a higher operating profit. l i f e /h e a lt h s eg m e n t i n f o r m at i o n three months ended 30 June Six months ended 30 June In € mn 2012 2011 2012 statutory premiums 1 ceded premiums written 12,861 (179) 12,978 (115) 26,560 (333) change in unearned premiums (51) (55) (118) Statutory premiums (net) 12,631 12,808 26,109 deposits from insurance and investment contracts (7,097) (7,364) (14,214) Premiums earned (net) 5,534 5,444 11,895 Interest and similar income 4,423 4,197 8,485 operating income from financial assets and liabilities carried at fair value through income (net) (205) (110) (367) operating realized gains/losses (net) 733 335 1,800 Fee and commission income 131 138 258 other income 37 22 79 operating revenues 10,653 10,026 22,150 claims and insurance benefits incurred (net) (4,570) (4,724) (9,679) changes in reserves for insurance and investment contracts (net) (3,517) (2,738) (7,231) Interest expenses (21) (21) (41) loan loss provisions – – – operating impairments of investments (net) (204) (384) (266) Investment expenses (191) (183) (353) acquisition and administrative expenses (net) (1,252) (1,233) (2,773) Fee and commission expenses (55) (46) (118) operating restructuring charges – (1) (1) other expenses (22) (17) (41) operating expenses (9,832) (9,347) (20,503) operating profit 821 679 1,647 margin on reserves 2 in basis points 76 66 77 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 | represents operating profit divided by the average of (a) current quarter end and prior quarter end net reserves and (b) current quarter end and prior year end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 2011 27,248 (282) (144) 26,822 (15,193) 11,629 8,030 (272) 1,053 268 45 20,753 (9,612) (6,367) (47) – (446) (361) (2,402) (105) (1) (31) (19,372) 1,381 67 l I F e / H e a l t H I n S u r a n c e o p e r a t I o n S 2 7 2 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t life/Health operations by Business divisions Statutory premiums 1 premiums earned (net) operating profit (loss) margin on reserves 2 internal 3 three months ended 30 June in € mn 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 germany life 3,342 3,650 3,342 3,650 2,401 2,445 316 209 76 53 germany Health 817 802 817 802 818 802 40 39 69 70 Switzerland 335 289 321 288 133 130 20 19 61 65 austria 91 101 91 101 62 65 – 7 3 81 german speaking countries 4,585 4,842 4,571 4,841 3,414 3,442 376 274 73 57 Italy France 4 Belgium/luxembourg 1,916 1,938 546 1,814 1,828 329 1,916 1,938 546 1,814 1,807 332 123 727 105 157 760 105 63 124 29 66 115 22 58 72 127 58 67 110 netherlands 69 76 69 73 34 32 13 12 124 120 greece 25 28 25 28 14 16 (1) 1 (54) 62 turkey 27 24 27 24 10 9 2 1 211 105 africa 11 11 11 11 5 4 1 1 99 212 western & southern europe 4,532 4,110 4,532 4,089 1,018 1,083 231 218 73 69 South america 23 14 20 14 22 11 2 2 188 211 mexico 36 35 36 35 5 10 – 1 32 122 latin america 59 49 56 49 27 21 2 3 115 173 Spain 270 238 270 239 114 92 30 28 209 202 portugal 45 46 45 46 21 22 5 4 460 350 iberia & latin america 374 333 371 334 162 135 37 35 217 210 united States 1,976 2,069 1,761 2,069 198 166 127 131 76 91 usa 1,976 2,069 1,761 2,069 198 166 127 131 76 91 reinsurance lH 120 94 120 94 107 80 (5) (1) (97) (18) global insurance lines & anglo markets 120 94 120 94 107 80 (5) (1) (97) (18) South korea 503 387 477 387 140 145 11 (4) 50 (19) taiwan 225 410 206 410 46 22 2 2 16 15 Indonesia 243 122 234 122 62 44 10 7 356 352 malaysia 79 65 73 65 49 45 5 4 186 180 Japan – 141 – 141 2 3 (9) (8) (153) (189) other 178 147 161 147 148 122 17 (1) 183 (20) asia-pacific 1,228 1,272 1,151 1,272 447 381 36 – 66 – poland 94 117 101 117 32 24 4 5 238 290 Slovakia 60 64 60 64 49 47 8 7 288 236 Hungary 29 59 32 59 12 14 (1) 1 (124) 128 czech republic 71 47 73 47 17 15 8 3 573 258 russia 24 14 24 14 23 13 (1) – (290) 368 croatia 14 12 14 12 13 11 – 1 24 241 Bulgaria 7 7 7 7 6 5 1 2 436 580 romania 7 6 7 6 4 3 – – 53 57 central and eastern europe 306 326 318 326 156 132 19 19 224 249 middle east and north africa global life growth markets 41 1 1,576 31 1 1,630 37 1 1,507 28 1 1,627 32 – 635 25 – 538 5 – 60 2 – 21 408 – 5 93 452 – 5 38 consolidation 6 total (302) 12,861 (100) 12,978 (299) 12,563 (99) 12,955 – 5,534 – 5,444 (5) 821 1 679 – 5 76 – 5 66 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 | represents operating profit divided by the average of (a) current quarter end and prior quarter end net reserves and (b) current quarter end and prior year end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 | Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 4 | In december 2011, the allianz group sold the subsidiary coparc. 5 | presentation not meaningful. 6 | represents elimination of transactions between allianz group companies in different geographic regions. Six months ended 30 June in € mn germany life germany Health Switzerland austria german speaking countries Italy France 4 Belgium/luxembourg netherlands greece turkey africa western & southern europe South america mexico latin america Spain portugal iberia & latin america united States usa reinsurance lH global insurance lines & anglo markets South korea taiwan Indonesia malaysia Japan other asia-pacific poland Slovakia Hungary czech republic russia croatia Bulgaria romania central and eastern europe middle east and north africa global life growth markets consolidation 6 total 2012 7,282 1,635 1,365 225 10,507 3,183 3,956 920 143 51 50 29 8,332 54 70 124 520 84 728 3,999 3,999 240 240 965 503 424 155 1 344 2,392 309 123 98 103 44 27 14 12 730 80 2 3,204 (450) 26,560 Statutory premiums 1 internal 3 2011 2012 7,569 7,282 1,600 1,635 1,216 1,287 216 225 10,601 10,429 3,812 3,183 3,786 3,956 646 920 180 143 57 51 51 53 23 29 8,555 8,335 28 49 74 72 102 121 494 520 91 84 687 725 4,008 3,691 4,008 3,691 193 240 193 240 854 925 816 475 248 411 130 146 345 1 291 320 2,684 2,278 219 331 125 123 108 108 84 106 24 43 23 28 14 14 12 13 609 766 84 76 2 2 3,379 3,122 (175) (452) 27,248 26,090 2011 7,569 1,600 1,214 216 10,599 3,812 3,742 652 174 57 51 23 8,511 28 74 102 496 91 689 4,008 4,008 193 193 854 816 248 130 345 291 2,684 219 125 108 84 24 23 14 12 609 78 2 3,373 (174) 27,199 l I F e / H e a l t H I n S u r a n c e o p e r a t I o n S premiums earned (net) operating profit (loss) margin on reserves 2 2012 2011 2012 2011 2012 2011 5,338 5,371 558 454 68 58 1,636 1,601 83 63 72 58 432 398 40 38 63 64 162 153 19 18 99 97 7,568 7,523 700 573 69 59 271 302 136 134 63 60 1,498 1,521 210 223 62 66 211 234 45 36 101 89 67 88 26 24 129 113 30 33 1 2 79 105 18 17 3 2 152 91 12 10 2 2 171 187 2,107 2,205 423 423 68 67 50 21 3 5 184 317 10 26 2 2 144 170 60 47 5 7 166 256 265 201 61 55 212 196 43 42 (6) 9 (246) 394 368 290 60 71 176 215 398 333 293 223 87 77 398 333 293 223 87 77 215 172 8 4 70 41 215 172 8 4 70 41 285 311 54 36 120 87 75 56 4 (21) 16 (77) 125 92 26 22 448 545 100 96 8 8 169 199 3 5 (4) (14) (34) (155) 286 220 32 6 182 30 874 780 120 37 111 35 58 44 8 9 262 249 95 93 16 15 280 260 25 29 – 3 16 160 33 29 11 6 416 265 42 22 (2) – (293) 63 26 22 1 2 108 188 12 11 3 3 477 511 7 6 1 1 220 258 298 256 38 39 236 245 67 – 1,239 70 – 1,106 7 – 165 5 – 81 295 – 5 130 410 – 5 69 – 11,895 – 11,629 (2) 1,647 6 1,381 – 5 77 – 5 67 2 9 3 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. asset management s ec o n d q u a r t e r 2012 ◾ total assets under management grew to € 1,748 bn. ◾ third-party net inflows of € 19 bn in the second quarter of 2012. ◾ Strong operating profit of € 635 mn. ◾ cost-Income ratio at 57.6 %. ◼ S e g m e n t o v e r v I e w allianz offers asset management products and services for third-party investors and the allianz group’s insurance operations. we serve a wide range of retail and institutional clients worldwide with investment and distribution capacities in all major markets. our particular strongholds are in the united States, europe and the asia-pacific region. Based on total assets under management, we are one of the four largest asset managers in the world managing third-party assets with active investment strategies. on 1 January 2012, we brought our pImco and allianz global Investors (agI) business units under the common gover- nance of allianz asset management Holding (aam). therefore, we show the rolling investment performance of pImco and agI versus their respective benchmarks. In addition, we enhanced our investment performance methodology. For comparability, the enhanced methodology is applied retrospectively. ◼ k eY F I gur e S three months ended 30 June total assets under management operating revenues operating profit cost-income ratio € bn € mn € mn ∆ | d I F F e r e n c e Q u a r t e r o v e r Q u a r t e r % 2012 1,748 1,497 635 57.6 ∆ + 20.3 % 2011 1,508 1,303 528 59.5 ∆ + 2.3 % 2010 1,430 1,188 516 56.6 ◼ e a r nIn gS Summ a rY Fo r t He Seco nd Q ua rt er 2012 our o p e r at i n g r e v e n u e s rose by € 194 mn – or 14.9 % – to € 1,497 mn. on an internal basis, operating revenues increased by 3.8 % compared to the second quarter of 2011, supported by the growth in assets under management. net inflows of third-party assets under management amounted to € 19 bn in the second quarter of 2012. the strong performance continued with a 20.3 % increase in o p e r at i n g p r o f i t to € 635 mn, 7.2 % on an internal basis. the c o s t- i n c o m e r at i o improved to 57.6 % compared to 59.5 % in the second quarter of 2011, a further demonstration of the efficiency of our operational business. a S S e t m a n a g e m e n t assets under management as of 30 June 2012, total assets under management reached € 1,748 bn, consisting of third-party assets of € 1,354 bn and € 394 bn of allianz group assets. we show the development of total assets under management based on asset classes as they are relevant for the segment’s business development. d e v e lo p m e n t o f to ta l a s s e t s u n d e r m a n ag e m e n t | in € bn Total AuM (as of 12/31/2011) 1,491 164 2 1,657 Net inflows + 41 Market effects + 80 Consolidation, deconsoli- dation and other effects (55) F/X effects + 25 Fixed income Equities Total AuM (as of 6/30/2012) 1,584 162 2 1,748 Other Changes we recorded strong growth with net inflows of € 41 bn for the first six months of 2012. of this, € 42 bn related to third- party net inflows and € 1 bn related to allianz group assets’ net outflows. this positive development was driven by our fixed income business with net inflows of € 44 bn while equity business saw net outflows of € 3 bn. Fixed income flows were strong in the united States and in europe. In addition, favorable market effects contributed a further € 80 bn. this was driven by fixed income – with € 72 bn – and equities with € 8 bn. these positive effects were partly offset by negative consolidation effects of € 55 bn mainly attributable to the refinement of the definition of assets under management. this resulted in a reclassification from assets under management to assets under administration with no impact on our revenue base. total assets grew by € 25 bn thanks to a higher appreciation of the u.S. dollar versus the euro.1 In the following section, we focus on the development of third-party assets under management. t h i r d -pa r t y a s s e t s u n d e r m a n ag e m e n t | in % ◼ BY B u S I n e S S u n I t a S o F 3 0 J u n e 2012 2 ◼ BY r e g I o n /c o u n t rY a S o F 3 0 J u n e 2012 [31 d e c e m B e r 2011] 3 , 4 Non-AAM: 2.0 Germany: 7.3 [9.3] AGI: 12.6 Other: 2.0 [2.0] Rest of Europe: 14.9 [15.6] Asia-Pacific: 9.9 [9.9] PIMCO: 85.4 United States: 65.9 [63.2] Based on a regional split of third-party assets under management, the united States further increased its share by 2.7 percentage points to 65.9 %. this result was supported by net inflows from our fixed income business. germany decreased 2.0 percentage points to 7.3 %, largely due to the reclassification of “assets under management” to “assets under administration”. the ratio of third-party assets from fixed income and equity amounted to 89 % (2Q 2011: 87 %) and 11 % (2Q 2011: 13 %) respectively, as a result of continued strong growth of fixed income. 1 | Based on the closing rate on the respective balance sheet dates. 2 | retrospective figures as of 31 december 2011 are not provided since the composition of total assets under management is impacted by the new structure for asset management in effect since 1 January 2012. 3 | Based on the origin of assets by the asset management company. 4 | the region “other” consists of third-party assets managed by other allianz group companies (approximately € 27 bn as of 30 June 2012 and € 26 bn as of 31 december 2011, respectively). 3 1 3 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t the split of third-party assets under management between retail and institutional clients remained almost unchanged, up one percentage point for our retail clients (to 35 %) and down one percentage point for our institutional clients (to 65 %). ro l l i n g i n v e s t m e n t p e r f o r m a n c e o f p i m c o a n d ag i 1 | in % PIMCO AGI 93 96 61 56 (7) (4) (39) (44) Outperforming assets under management Underperforming assets under management 12/31/2011 6/30/2012 12/31/2011 6/30/2012 the overall investment performance of our aam business was excellent with 91 % outperforming their respective benchmarks (31 december 2011: 89 %). pImco recorded an outstanding performance of 96 % versus its respective benchmarks, with agI outperforming 56 % of its benchmarks. operating revenues 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n our o p e r at i n g r e v e n u e s amounted to € 1,497 mn – up € 194 mn or 14.9 % – reflecting our higher assets under manage- ment. on an internal basis, operating revenues increased by 3.8 %. our n e t f e e a n d c o m m i s s i o n i n c o m e grew by € 197 mn to € 1,494 mn. this growth was mainly driven by an increase in management fees as a result of the higher asset base. we recorded € 55 mn in p e r f o r m a n c e f e e s – a lower level compared to € 81 mn in the second quarter of 2011, mainly due to carried interest from private funds. i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d at fa i r va l u e t h r o u g h i n c o m e (n e t ) was a loss of € 7 mn compared to a € 3 mn loss in the previous year’s quarter. this was largely driven by lower mark-to-market valuation of seed money in the united States. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n our o p e r at i n g r e v e n u e s increased by € 360 mn to € 2,936 mn, up 14.0 %. on an internal basis, operating revenues grew by 6.1 %. 1 | allianz asset management account-based, asset-weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by equity and fixed income managers of allianz asset management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding morningstar peer group (first and second quartile mean outperformance). For all other retail funds and for all institutional accounts, the gross of fee performance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics. a S S e t m a n a g e m e n t operating profit 2012 to 2011 S e c o n d Q u a r t e r c o m pa r I S o n o p e r at i n g p ro f i t | in € mn + 20.3 % 663 613 635 516 521 557 528 528 537 466 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 Benefiting from higher assets under management, the efficiency of our operational business as well as positive foreign currency translation effects, we achieved a strong o p e r at i n g p r o f i t of € 635 mn – up 20.3 %. excluding the impact of foreign currency effects of € 58 mn and consolidation/deconsolidation effects of € 14 mn, internal growth amounted to 7.2 %.1 a d m i n i s t r at i v e e x p e n s e s increased to € 862 mn mainly driven by unfavorable foreign currency translation effects largely due to the appreciation of the u.S. dollar against the euro. on an internal growth basis, administrative expenses increased by 1.6 %. revenues continued to grow at a stronger rate than our operational cost base – which resulted in a 1.9 percentage point improvement in our c o s t- i n c o m e r at i o to 57.6 %. 2012 to 2011 F I r S t H a l F Y e a r c o m pa r I S o n our o p e r at i n g p r o f i t amounted to € 1,248 mn, an increase of 18.2 %. on an internal basis, operating profit grew by 8.7 %. this outstanding growth was primarily driven by our higher assets under management and the resulting increase in fee and commission income. the c o s t- i n c o m e r at i o improved by 1.5 percentage points to 57.5 % compared to the first half year of 2011. 1 | Based on the quarterly average exchange rates of 2012 compared to 2011. 3 3 3 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t a s s e t m a n ag e m e n t s eg m e n t i n f o r m at i o n three months ended 30 June In € mn 2012 management and loading fees 1,739 performance fees 55 other income 31 fee and commission income 1,825 commissions (318) other expenses (13) fee and commission expenses (331) net fee and commission income net interest income 1 Income from financial assets and liabilities carried at fair value through income (net) 1,494 6 (7) other income 4 operating revenues 1,497 administrative expenses (net), excluding acquisition-related expenses (862) operating expenses (862) operating profit 635 cost-income ratio 2 in % 57.6 1 | represents interest and similar income less interest expenses. 2 | represents operating expenses divided by operating revenue. 2011 1,445 81 51 1,577 (273) (7) (280) 1,297 4 (3) 5 1,303 (775) (775) 528 59.5 Six months ended 30 June 2012 3,350 99 68 3,517 (592) (16) (608) 2,909 12 7 8 2,936 (1,688) (1,688) 1,248 57.5 2011 2,876 137 95 3,108 (545) (10) (555) 2,553 11 3 9 2,576 (1,520) (1,520) 1,056 59.0 A s s e t m A n A g e m e n t , C o r p o r A t e A n d o t h e r I. Corporate and other s ec o n d q u a r t e r 2012 operating loss reduced by € 14 mn to € 191 mn. ◼ s e g m e n t o v e r v I e w Corporate and other encompasses the operations of holding & treasury, Banking and Alternative Investments. holding & treasury includes the management and support of the Allianz group’s businesses through its strategy, risk manage- ment, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. our banking products offered in germany, Italy, France, the netherlands and Bulgaria complement our insurance pro duct portfolio. we also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz group.1 ◼ k e y F I gur e s Co r p o rAt e A n d ot h e r 2 three months ended 30 June operating revenues operating expenses operating result € mn € mn € mn ∆ | d I F F e r e nC e Q u A r t e r o v e r Q u A r t e r 2012 431 (622) (191) ∆ + 6.8 % 2011 495 (700) (205) ∆ (32.3) % 2010 468 (623) (155) H o l d i n g & t r e a s u ry 2012 102 (286) (184) 2011 167 (337) (170) 2010 157 (295) (138) b a n k i n g 2012 289 (310) (21) 2011 295 (319) (24) 2010 277 (292) (15) a lt e r n at i v e i n v e s t m e n t s 2012 43 (30) 13 2011 35 (46) (11) 2010 36 (38) (2) 1 | For further information on private equity investments, please refer to note 26 to the condensed consolidated interim financial statements. 2 | Consolidation included. For further information about our Corporate and other segment, please refer to note 3 to the condensed consolidated interim financial statements. Banking figures include loan loss provisions in operating expenses. 3 5 3 6 I n t e r I m r e p o r t s e C o n d Q u A r t e r A n d F I r s t h A l F y e A r o F 2 0 1 2 | A l l I A n z g r o u p g r o u p m A n A g e m e n t r e p o r t ◼ e Ar nIn gs su mm A ry Fo r t he seCo nd Q uA rt er 2012 our o p e r at i n g r e s u lt improved by € 14 mn to a loss of € 191 mn. Alternative Investments accounted for € 24 mn of this improvement, which was partly offset by a € 14 mn higher operating loss in holding & treasury. the operating loss in our Banking operation was almost unchanged from the previous year’s level. earnings summary – holding & treasury 2012 to 2011 s e C o n d Q u A r t e r C o m pA r I s o n holding & treasury’s o p e r at i n g r e s u lt weakened by € 14 mn to a loss of € 184 mn. the decline in operating revenues – mostly attributable to lower interest and similar income – could not be fully compensated for by a reduction in operating expenses. our n e t i n t e r e s t r e s u lt amounted to negative € 31 mn, compared to a gain of € 21 mn in the second quarter of 2011. i n t e r e s t a n d s i m i l a r i n c o m e almost halved to € 72 mn, mainly as a result of lower equity related returns – both dividends and income from associates – and to a lesser extent due to lower yields. i n t e r e s t e x p e n s e s , e xc l u d i n g i n t e r e s t e x p e n s e s f r o m e x t e r n a l d e b t, were down by € 10 mn to € 103 mn, also driven by lower rates. our n e t f e e a n d c o m m i s s i o n r e s u lt improved by € 14 mn to a loss of € 3 mn. the increase of the net fee and commission result was attributable to our internal It service provider, which increased cost recovery from other group companies and reduced expenses. Because of a higher foreign currency result, o p e r at i n g i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d at fa i r va l u e t H r o u g H i n c o m e was up by € 16 mn to € 12 mn. a d m i n i s t r at i v e e x p e n s e s (n e t ), e xc l u d i n g a c q u i s i t i o n - r e l at e d e x p e n s e s, decreased by € 12 mn to € 135 mn. this decrease was primarily also due to cost recoveries from other group companies. 2012 to 2011 F I r s t h A l F y e A r C o m pA r I s o n the o p e r at i n g l o s s increased by € 60 mn to € 451 mn. this development stemmed largely from a lower net interest result, which was a further consequence of € 62 mn lower equity related returns – both dividends and income from associates. other drivers of our operating loss remained almost stable. C o r p o r A t e A n d o t h e r earnings summary – Banking 2012 to 2011 s e C o n d Q u A r t e r C o m pA r I s o n overall, the o p e r at i n g r e s u lt was about at the previous year’s level with a loss of € 21 mn (2Q 2011: € (24) mn). the positive developments of our net interest result and lower administrative expenses were offset to a great extent by an increase in our loan loss provisions. our n e t i n t e r e s t, f e e a n d c o m m i s s i o n r e s u lt amounted to € 141 mn compared to € 135 mn in the second quarter of the previous year. the net interest result grew by € 8 mn to € 96 mn as a result of lower costs of funding and short-term investments in bonds offering higher yields. net fee and commission income remained stable at € 45 mn. a d m i n i s t r at i v e e x p e n s e s declined by € 8 mn to € 118 mn. this was mainly driven by lower personnel expenses. our l oa n l o s s p r o v i s i o n s increased by € 9 mn to € 42 mn, primarily due to financial guarantees within certain unit- linked products related to peripheral sovereign bonds, which were sold. 2012 to 2011 F I r s t h A l F y e A r C o m pA r I s o n our o p e r at i n g r e s u lt worsened by € 14 mn to a loss of € 36 mn. An € 11 mn increase in our net interest, fee and commission result and € 16 mn lower administrative expenses were more than offset by the negative development of our loan loss provisions, which were up by € 39 mn. earnings summary – Alternative Investments 2012 to 2011 s e C o n d Q u A r t e r C o m pA r I s o n Alternative Investments’ o p e r at i n g r e s u lt increased by € 24 mn to € 13 mn. this positive development was driven by both lower administrative expenses and higher fee and commission income (net). 2012 to 2011 F I r s t h A l F y e A r C o m pA r I s o n the o p e r at i n g r e s u lt improved from a loss of € 15 mn to a profit of € 12 mn, largely as a result of higher fee and commission income. lower acquisition and administrative expenses further contributed to this recovery. 3 7 3 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. outlook ◾ economic growth to continue at an even more moderate pace. ◾ our outlook for the allianz group’s 2012 operating profit is unchanged at € 8.2 bn, plus or minus € 0.5 bn. economic outlook the world economy is likely to continue to grow moderately in the second half of this year. global output is expected to expand by 2.6 % in 2012 and by 3.2 % next year (2011: 2.9 %). Both in the united States and europe, public and private sector efforts to rein in high debt levels will continue to restrain economic activity. monetary policy, however, is still very accommodative in the united States, Japan and in europe and favorable financing conditions are providing eco- nomic impetus for private households and the corporate sector. monetary tightening is unlikely to materialize before late 2013 in the eurozone. In the united States it might take even longer. Falling energy prices in the second quarter have also provided an economic stimulus as lower energy costs boost the purchasing power of both private households and the corporate sector. although growth in emerging market economies is unlikely to reach pre-crisis levels in the foreseeable future, these countries remain key drivers of global growth and their importance in the world economy continues to rise. We expect emerging markets to grow by 5.0 % this year and 5.8 % in 2013. the u.S. economy has stabilized and will probably record higher growth rates in 2012 than in 2011. We forecast real gdp growth of 2.3 % for this and next year (2011: 1.7 %). In the eurozone, economic activity is likely to stagnate in 2012. While fiscal austerity will act as a headwind, moderate global growth, a weaker currency and supportive monetary policy should foster economic activity. economies with high consolidation needs are likely to shrink. Following zero growth in the eurozone as a whole this year, growth is expected to increase to 1.3 % in 2013 as the dampening effect of fiscal consolidation fades. the german economy will outperform the eurozone average thanks to robust domestic demand, a stable labor market and comparatively lower public sector consolidation needs. Following real gdp growth of 1.0 % this year, we expect an increase to 2.0 % next year. a further escalation of the european sovereign debt crisis poses the biggest single risk to the economic outlook. the decisions taken at the european summit in late June represent an intermediate step towards overcoming the debt crisis. Summit outcomes such as the plan to establish a single european banking supervisory regime are to be welcomed. However, pivotal elements for the future of the euro – fleshing out a potential banking union, establishing of a fiscal and political union – still have to be worked out. For the debt crisis to abate, it is also essential that structural reforms in over-indebted countries make progress, public finances continue to consolidate and ecB measures prove effective in preventing a credit crunch. Financial market jitters related to the european sovereign debt crisis have increased again in recent weeks. german government bonds continue to be considered a “safe haven”, with yields on 10-year bonds nearing 1.0 %. provided that the debt crisis abates, the “safe haven” effect will start to fade somewhat and yields on german government bonds are likely to creep up modestly. the picture is the same for 10-year u.S. treasury yields, which are currently only slightly higher than those on german bonds. When the debt crisis abates, spreads on other emu government bonds will likely narrow gradually, although their level will remain high. as far as the stock market is concerned, overall solid corporate earnings, low interest rates and relatively attractive price/earnings-ratios provide a sound foundation for a recovery of equities. However, as we have seen repeatedly in recent months, a further pick-up in risk aversion can easily send stock markets down again, no matter how positive corporate sector fundamentals appear to be. other risks that could dampen the economic outlook are a possible disruption to global oil supplies due to geopolitical tensions – triggering a steep increase in oil prices – as well as a hard landing of the chinese economy. Industry outlook With moderate global economic growth during 2012 and 2013, we also expect growth in the insurance industry to remain subdued. the underlying dynamics affecting the industry remain the same as described on pages 121 and 122 of the allianz group annual report 2011. outlook for the allianz group the allianz group remains strongly capitalized with a solvency ratio of 186 % 1, an improvement of 7 percentage points compared to 31 december 2011. our operating profit grew by 18.5 % to € 4,694 mn in the first half year of 2012, supported by the solid performance of all our operating segments. life/Health operating profit was strong mainly thanks to a high operating investment result. In property-casualty we also achieved stronger operating profit benefiting from lower losses from natural catastrophes. asset management performance and growth continued to be outstanding. despite the challenging operating environment, we are on track to reach our published outlook for the allianz group operating profit for 2012 of € 8.2 bn, plus or minus € 0.5 bn. given the risks related to the european sovereign debt crisis and the ongoing challenges in our operating environment as well as natural catastrophe losses to date, it would be inappropriate to simply annualize the current half year’s operating profit and net income to arrive at an expected result for the full year. For full details of the assumptions and sensitivities on which this outlook is based, please refer to pages 122 to 130 of the allianz group annual report 2011. as always, natural catastrophes, adverse developments in the capital markets as well as factors stated in our cautionary note regarding forward-looking statements, may also affect the results of our operations. Cautionary note regarding forward-looking statements the statements contained herein may include prospects, future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. actual results, performance or events may differ materially from those expressed in such forward-looking statements. Such deviations may arise, without limitation, because of changes in the general economic condition and competitive situation, particularly in the allianz group’s core business and core markets, or the impact of acquisitions, related inte- gration issues and reorganization measures. deviations may also arise from the frequency and severity of insured loss events, including natural catastrophes, and from the development of loss expenses, mortality and morbidity levels and trends, persistency levels, and, particularly in our banking business, the extent of credit defaults. In addition, the performance of the financial markets (particularly market volatility, liquidity and credit defaults) as well as changes in interest rate levels, currency exchange rates and changes in national and international laws and regulations, particularly tax regulation, may have a relevant impact. many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. the company assumes no obligation to update any forward-looking statement. 1 | Solvency according to the e.u. Financial conglomerates directive. off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz Se has not submitted an appli cation so far. excluding off-balance sheet reserves, the solvency ratio as of 30 June 2012 would be 177% (31 december 2011: 170 %). o u t l o o k 3 9 4 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. Balance Sheet review ◾ Shareholders’ equity increased 6.9 % to € 48.0 bn, despite dividend payments of over € 2.0 bn. ◾ Strong solvency ratio of 186 %, up by 7 percentage points.1 Shareholders’ equity 2 S h a r e h o l d e r S ’ eq u i t y | in € mn + 6.9 % (0.5) % 44,915 48,245 48,013 4,626 6,726 6,724 Unrealized gains/losses (net) 11,526 12,756 12,526 Retained earnings (includes foreign currency effects) 28,763 28,763 28,763 Paid-in-capital 12/31/2011 3/31/2012 6/30/2012 For the six month ended 30 June 2012, S h a r e h o l d e rS ’ e q u i t y increased by € 3,098 mn to € 48,013 mn, despite the payout of dividends of € 2,037 mn. net income attributable to shareholders contributed € 2,605 mn to this growth. In addition, unrealized gains increased by € 2,098 mn. In particular, this was driven by debt securities, which benefited from lower interest rates. the most significant other driver of the increase was positive foreign currency translation effects of € 441 mn, primarily attributable to the strengthening of the u.S. dollar against the euro.3 regulatory capital adequacy the allianz group is a financial conglomerate within the scope of the e.u. Financial conglomerates directive and the related german law in force since 2005. the law requires that financial conglomerates calculate the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. 1 | off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz Se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio as of 30 June 2012 would be 177 % (31 march 2012: 174 %, 31 december 2011: 170 %). 2 | this does not include non-controlling interests of € 2,389 mn, € 2,444 mn and € 2,338 mn as of 30 June 2012, 31 march 2012 and 31 december 2011, respectively. For further information, please refer to note 19 to the condensed consolidated interim financial statements. retained earnings include foreign currency translation effects of € (1,555) mn, € (2,205) mn and € (1,996) mn as of 30 June 2012, 31 march 2012 and 31 december 2011, respectively. 3 | Based on the closing rate on the respective balance sheet dates. B a l a n c e S H e e t r e v I e w C o n g lo m e r at e S o lv e n C y 1 | in € bn 42.6 179 % 43.8 183 % 44.9 186 % 23.8 23.9 24.2 Solvency ratio Available funds Requirement 12/31/2011 3/31/2012 6/30/2012 Since the end of 2011 our C o n g l o m e r at e S o lv e n C y r at i o strengthened by 7 percentage points to 186 %. as of 30 June 2012, the group’s eligible capital for solvency purposes amounted to € 44.9 bn (31 december 2011: € 42.6 bn), including an off-balance sheet reserve of € 2.2 bn (31 december 2011: € 2.2 bn). the increase of € 2.3 bn was mainly driven by our net income (net of accrued dividends) of € 1.6 bn and positive currency translation effects. the required funds were up by € 0.4 bn to € 24.2 bn, largely due to higher aggregate policy reserves in our life/Health business. as a result, our eligible capital exceeded the minimum legally stipulated level by € 20.7 bn, further improving our solvency position. total assets and total liabilities In the following sections, we show our insurance portfolio’s asset allocation and analyze important developments in the balance sheets of our segments. as of 30 June 2012, total assets amounted to € 669.0 bn and total liabilities were € 618.6 bn. compared to year-end 2011, total assets and total liabilities increased by € 27.5 bn and € 24.3 bn, respectively. this section mainly focuses on our financial investments – debt instruments, equities, real estate, cash and other – along with insurance reserves and external financing, since these reflect the major developments in our balance sheet. m a r k e t e n vI r o n m e n t o F d I F F e r e n t a S S e t c l a S S e S the positive F i n a n C i a l m a r k e t trends of the first quarter of 2012 did not continue in the second quarter. almost all major equity markets showed a negative development with single-digit percentage downturns predominating in the second quarter. Sovereign bond yields revealed a mixed picture. german and u.S. government bond yields declined in the second quarter as market uncertainty returned. likewise, after contracting in the first months of 2012, yields on Italian government bonds increased in the second quarter but did not reach the levels seen on 31 december 2011. i n t e r eS t r at e S a n d C r e d i t S p r e a d S d e v e lo p m e n t | in % 5 4 3 10-year U.S. government bond 2 10-year German government bond Spread U.S. A 1 Spread Europe A EONIA 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2011 2012 while european corporate C r e d i t S p r e a d S narrowed, they widened slightly in the u.S. during the second quarter. 1 | off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz Se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio as of 30 June 2012 would be 177 % (31 march 2012: 174 %, 31 december 2011: 170 %). 4 1 4 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t S t ru c t u r e o F I n v e S t m e n t S – p o r t F o l I o o v e r v I e w the allianz group’s investment portfolio is mainly determined by our core business of insurance. the following asset allocation covers the insurance segments and the corporate and other segment. a S S e t a l lo C at i o n 1 | in % Allianz Group's investment portfolio as of 30 June 2012: (cid:6) 481.9 bn [as of 31 December 2011: (cid:6) 461.1 bn] Real estate: 2 [2] Cash/Other: 1 [2] Equities: 6 [6] Debt instruments: 91 [90] the group’s investment portfolio grew by € 20.8 bn, or 4.5 %, to € 481.9 bn. this increase was mainly due to the invest- ment performance of our underlying operating businesses. overall, asset allocation remained stable and our balance sheet strength improved further. our gross exposure to eq u i t i e S decreased by € 0.9 bn, driven by the downturn in equity markets and by realizations. consequently, our equity gearing – a ratio of our equity holdings allocated to the shareholder after policyholder partici pation and hedges to shareholder’s equity plus off-balance sheet reserves less goodwill – decreased 4 percentage points to 27 %. although our C a S h a n d o t h e r holdings declined by one percentage point relative to our investment portfolio, we increased our net cash investments from € 6.0 bn to € 6.3 bn in absolute terms. the vast majority of our investment portfolio is made up of d e b t i n S t r u m e n t S. our investments in this asset class grew from € 416.5 bn to € 437.8 bn, largely because of lower interest rates and credit spreads as well as reinvested interest flows. our exposure in this asset class was well diversified, with 60 % in government and covered bonds. In line with our operating business profile, 61 % of our fixed income portfolio was invested in eurozone bonds and loans. about 95 % of our portfolio of debt instruments 2 was invested in investment-grade bonds and loans. F i x e d i n C o m e p o r t F o l i o | in % Total fixed income portfolio as of 30 June 2012: (cid:7) 437.8 bn [as of 31 December 2011: (cid:7) 416.5 bn] Banks: 9 [9] Government bonds: 36 [36] Other: 10 [10] Other corporate bonds: 21 [20] Covered bonds: 24 [25] 1 | this does not include our banking operations. 2 | excluding self-originated german private retail mortgage loans. For 2 %, no ratings were available. B a l a n c e S H e e t r e v I e w our total S o v e r e i g n e x p oS u r e amounted to € 158.5 bn, which equaled 36 % of our fixed income portfolio. as of 30 June 2012, our sovereign bond exposure in Spain, greece, Ireland, portugal and Italy comprised approximately 8.0 % of our fixed income portfolio, of which 0.8 % in Spain and 7.1 % in Italy. thereby, investments in Spanish, greek, Irish and portuguese sovereign bonds decreased from € 6,195 mn as of 31 december 2011 to € 3,775 mn, mainly due to sales. C a r ry i n g va lu e S a n d u n r e a l ize d lo S S e S i n S pa n i S h , g r e e k , i r i S h , p o r t u g u e S e a n d i ta l i a n S ov e r e i g n b o n d S as of 30 June 2012 | in € mn carrying value unrealized loss (gross) 1 unrealized loss (net) 2 Spain 3,405 (442) (108) greece 23 (15) (8) Ireland 151 (8) (4) portugal 196 (54) (33) Subtotal 3,775 (519) (153) Italy 31,111 (1,997) (333) total 34,886 (2,516) (486) unrealized losses (gross) on the above-mentioned exposures decreased from € 3,713 mn as of 31 december 2011 to € 2,516 mn by the end of the second quarter of 2012. this drop was largely attributable to Italian government bonds, reflecting declining yields when compared to year-end 2011, but partly offset by an increase related to Spanish government bonds. 53 % of the C o v e r e d b o n d S were german pfandbriefe, backed by either public sector loans or mortgage loans. covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization. an additional 15 % and 9 % were French and Spanish covered bonds, respectively. 9 % of our fixed income portfolio was made up of globally diversified b a n k S e C u r i t i e S. the amount of subordinated securities in banks decreased from € 8.4 bn to € 7.7 bn, predominantly due to sales and, to a lesser extent, maturities. Furthermore, our portfolio included asset-backed securities (aBS) of € 20.8 bn (31 december 2011: € 19.9 bn), of which more than 80 % were related to mortgage backed securities (mBS). around 26 % of our aBS securities are made up of mBS issued by u.S. agencies and backed by the u.S. government. overall, 96 % of the total aBS portfolio received an investment grade rating, with 88 % rated “aa” or better (31 december 2011: 84 %). our exposure to real eState held for investment remained almost stable and totaled € 8.8 bn (31 december 2011: € 8.7 bn). overall, the reduction of our exposure to equities and bonds of selected european peripheral countries together with an increase of our net cash holdings leaves us better prepared to withstand further adverse effects of the european sovereign debt crisis and related market turmoil. I n v e S t m e n t r eS u lt n e t i n v e S t m e n t i n C o m e three months ended 30 June Six months ended 30 June In € mn 2012 2011 2012 2011 Interest and similar income (net) 3 Income from financial assets and liabilities carried at fair value through income (net) 5,371 (184) 5,222 (155) 10,380 (90) 9,991 (380) realized gains/losses (net) 1,115 485 2,303 1,599 Impairments of investments (net) (422) (820) (610) (965) Investment expenses (216) (208) (413) (410) net investment income 5,664 4,524 11,570 9,835 1 | Before policyholder participation and taxes. 2 | after policyholder participation and taxes; based on 30 June 2012, balance sheet figures reflected in accumulated other comprehensive income. 3 | net of interest expenses (excluding interest expenses from external debt). 4 3 4 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t ◼ 2 012 to 2011 Seco nd Q ua rt er co mpa r IS o n In the second quarter of 2012 our n e t i n v e S t m e n t i n C o m e increased by € 1,140 mn, or 25.2 %, to € 5,664 mn. this improvement was largely driven by higher realized gains as well as by lower impairments and, to a lesser extent, by a higher interest and similar income. mainly as a result of a growing asset base, in particular within our life/Health segment, i n t e r eS t a n d S i m i l a r i n C o m e (n e t ) 1 rose by € 149 mn to € 5,371 mn. lower equity related returns, both dividends and income from associates, were more than offset by higher interest income on debt securities. i n C o m e F r o m F i n a n C i a l a S S e t S a n d l i a b i l i t i e S C a r r i e d at Fa i r va l u e t h r o u g h i n C o m e (n e t ) worsened by € 29 mn to a loss of € 184 mn. this decrease was mainly attributable to the impact of debt and equity market performance on our investment product related derivatives in the united States and Fair value option assets, primarily in France. offset- ting some of this decrease was overall positive performance from derivatives and foreign currency translation gains related to the german life business. Financial derivatives are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures. In addition, the comparison figures were affected by prior year valuation effects on the Hartford warrants, which were sold in april 2012.2 r e a l i z e d g a i nS a n d l o S S e S (n e t ) more than doubled to € 1,115 mn in the second quarter of 2012. this increase was primarily attributable to higher realizations on debt securities but also, to a lesser extent, to equities. this growth includes a gain from the disposal of the Hartford debentures of € 407 mn.2 i m pa i r m e n t S (n e t ) almost halved to € 422 mn. we recorded an increase of impairments on equity investments of € 261 mn following more adverse equity market developments compared to the second quarter of the previous year. these impairments were mainly related to our investments in the financial sector. In contrast, impairments on debt securities fell by € 648 mn, since we hardly had any impairments on debt investments in the second quarter. In addition, the previous year’s quarter was heavily impacted by € 644 mn of impairments on greek sovereign bonds. i n v eS t m e n t e x p e nS e S (n e t ) amounted to € 216 mn, compared to € 208 mn in the previous year’s quarter. ◼ 2 012 to 2011 F Ir S t H a lF Y e a r co mpa r IS o n our n e t i n v e S t m e n t i n C o m e amounted to € 11,570 mn, up by € 1,735 mn. r e a l i z e d g a i nS a n d lo S S e S (n e t ) contributed € 704 mn to this increase, driven by realizations of both equities and debt instruments, while i m pa i r m e n t S (n e t ) were down by € 355 mn. our i n t e r e S t a n d S i m i l a r i n C o m e (n e t ) rose by € 389 mn to € 10,380 mn, largely as a result of our higher asset base. i n C o m e F r o m F i n a n C i a l a S S e t S a n d l i a b i l i t i e S C a r r i e d at Fa i r va l u e t h r o u g h i n C o m e (n e t ) improved by € 290 mn. i n v eS t m e n t e x p e nS e S remained stable. 1 | net of interest expenses (excluding interest expenses from external debt). 2 | on 30 march 2012, allianz Se entered into a transaction to sell the warrants and debentures back to the Hartford which closed on 17 april 2012. the warrants are classified as financial assets carried at fair value through income and therefore any related gain was already included in the first quarter of 2012. In the second quarter of 2012, the difference between the sale proceeds and the carrying amount of the debentures was recognized as a gain. B a l a n c e S H e e t r e v I e w a S S e tS a n d l I a B I l I t I e S o F t H e p r o p e r t Y- c a S u a lt Y S e g m e n t ◼ p r o p e r tY- c a S u a lt Y a S S e t S our property-casualty asset base increased by € 3.6 bn to € 101.8 bn during the first six months of 2012. cash and cash pool assets were up by € 2.8 bn to € 6.9 bn and debt securities by € 1.9 bn to € 65.1 bn, respectively. C o m p o S i t i o n oF a S S e t b a S e | fair values 1 In € bn as of 30 June 2012 as of 31 december 2011 Financial assets and liabilities carried at fair value through income equities 0.3 0.2 debt securities other 2 Subtotal investments 3 equities 0.4 – 0.7 4.1 0.9 – 1.1 4.9 debt securities cash and cash pool assets 4 other 65.1 6.9 7.3 63.2 4.1 7.1 Subtotal 83.4 79.3 loans and advances to banks and customers 17.7 17.8 property-Casualty asset base 101.8 98.2 within our property-casualty asset base, aBS amounted to € 4.0 bn as of 30 June 2012. this was approximately 3.9 % of its asset base. ◼ pr o pertY- c a Sua lt Y lI a BIlI t Ie S d e v e lo p m e n t oF r e S e r v e S F o r lo S S a n d lo S S a d J u S t m e n t e x p e n S e S 5 | in € bn 59.5 60.6 + 9.2 (8.0) (0.5) + 0.5 a b Loss and loss adjustment expenses paid in current year relating to prior years Loss and loss adjustment expenses incurred in prior years c Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications d Reserves for loss and loss adjustment expenses in current year Reserves ceded 6.7 6.6 Reserves net 52.8 54.0 Changes Gross 12/31/2011 a b c d Gross 6/30/2012 as of 30 June 2012, the segment’s gross reserves for loss and loss adjustment expenses increased by € 1.1 bn to € 60.6 bn. on a net basis, reserves grew by € 1.2 bn to € 54.0 bn. Foreign currency translation effects and other changes accounted for € 0.5 bn. 1 | loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage. 2 | this comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 30 June 2012 and 31 december 2011, respectively. 3 | these do not include affiliates of € 8.8 bn and € 9.1 bn as of 30 June 2012 and 31 december 2011, respectively. 4 | Including cash and cash equivalents, as stated in our segment balance sheet of € 4.6 bn and € 2.4 bn and receivables from cash pooling amounting to € 2.7 bn and € 2.1 bn, net of liabilities from securities lending and derivatives of € (0.3) bn and € (0.3) bn, as well as liabilities from cash pooling of € (0.1) bn and € (0.1) bn as of 30 June 2012 and 31 december 2011, respectively. as of 1 January 2012, the definition of cash and cash pool assets has changed. now, they also include liabilities from cash pooling. therefore the previous year’s figures have been adjusted accordingly. 5 | after group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the property-casualty segment, please refer to note 14 to the condensed consolidated interim financial statements. 4 5 4 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t a S S e tS a n d l I a B I l I t I e S o F t H e l I F e /H e a lt H S e g m e n t ◼ l I Fe / H e a ltH a S S e t S In the first six months of 2012, the life/Health asset base grew 4.9 % to € 448.5 bn. of this total, € 67.4 bn were financial assets for unit-linked contracts. the increase of the segment’s asset base was almost completely driven by our debt investments, up by € 19.2 bn, primarily due to investment performance. C o m p o S i t i o n oF a S S e t b a S e | fair values In € bn as of 30 June 2012 as of 31 december 2011 Financial assets and liabilities carried at fair value through income equities debt securities other 1 Subtotal investments 2 2.3 2.1 (4.0) 0.4 2.1 2.5 (4.4) 0.2 equities debt securities cash and cash pool assets 3 other Subtotal loans and advances to banks and customers Financial assets for unit-linked contracts 4 life/health asset base 22.1 248.8 4.4 9.0 284.3 96.4 67.4 448.5 22.1 229.6 5.1 9.0 265.8 98.0 63.5 427.5 as of 30 June 2012, our life/Health asset base included aBS of € 16.5 bn. this represents 3.7 % of its asset base. F i n a n C i a l aS S e t S F o r u n i t- l i n k e d C o n t r aC t S 4 | in € bn 63.5 + 3.3 + 0.0 + 0.6 67.4 a Change in unit-linked insurance contracts b Change in unit-linked investment contracts c Foreign currency translation adjustments Financial assets for unit-linked contracts Changes 12/31/2011 a b c 6/30/2012 Financial assets for unit-linked contracts increased by € 3.9 bn, or 6.1 %. unit-linked insurance contracts were up by € 3.3 bn due to good fund performance (€ 2.0 bn) and premium inflows exceeding outflows by € 2.0 bn. unit-linked investment contracts remained flat as net outflows offset the good fund performance of € 0.7 bn. the net outflows from the first quarter (mainly in Italy) stabilized in the second quarter 2012. the main drivers of currency effects were the stronger u.S. dollar (€ 0.4 bn) and asian currencies (€ 0.1 bn).5 1 | this comprises assets of € 1.8 bn and € 1.9 bn and liabilities (including the market value liability option) of € (5.8) bn and € (6.3) bn as of 30 June 2012 and 31 december 2011, respectively. 2 | these do not include affiliates of € 1.3 bn and € 1.4 bn as of 30 June 2012 and 31 december 2011, respectively. 3 | Including cash and cash equivalents, as stated in our segment balance sheet, of € 4.7 bn and € 5.3 bn and receivables from cash pooling amounting to € 2.4 bn and € 2.5 bn, net of liabilities from securities lending and derivatives of € (1.7) bn and € (1.8) bn, as well as liabilities from cash pooling of € (1.0) bn and € (0.9) bn as of 30 June 2012 and 31 december 2011, respectively. 4 | Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the allianz group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. as a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. the International Financial reporting Standards (IFrS) require to classify any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. this requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include a coverage for significant mortality or morbidity risk. 5 | Based on the closing rate on the respective balance sheet dates. B a l a n c e S H e e t r e v I e w ◼ l IFe /He a ltH lI a BIlI t Ie S d e v e lo p m e n t oF r e S e r v e S F o r i n S u r a n C e a n d i n v e S t m e n t C o n t r aC t S | in € bn 352.6 + 6.2 + 5.8 + 1.7 366.3 a Change in aggregate policy reserves b Change in reserves for premium refunds c Foreign currency translation adjustments Reserves Changes 12/31/2011 a b c 6/30/2012 life/Health reserves for insurance and investment contracts increased by € 13.7 bn, or 3.9 %, in the first six months of 2012. the € 6.2 bn increase in aggregate policy reserves was mainly driven by our operations in germany (€ 3.8 bn), Switzerland (€ 0.7 bn excluding currency effects), luxembourg and Belgium (each € 0.3 bn). reserves for premium refunds increased by € 5.8 bn as the policyholders’ share in net unrealized gains on bonds grew significantly (€ 4.4 bn). Foreign currency translation adjustments resulted mainly from the stronger u.S. dollar (€ 1.2 bn), asian currencies (€ 0.3 bn) and the Swiss Franc (€ 0.1 bn).1 a S S e tS a n d l I a B I l I t I e S o F t H e a S S e t m a n a g e m e n t S e g m e n t ◼ a S Se t m a n a g e m e n t a S S e t S our asset management segment’s results are derived primarily from third-party asset management. In this section, we refer only to the segment’s own assets.2 the main components of the asset management segment’s asset base were cash and cash pool assets, loans and advances and debt securities. overall, as of 30 June 2012, the segment’s asset base remained stable at € 4.5 bn. a slight increase in cash and cash pool assets offset a decrease in loans and receivables. ◼ a S Se t m a n agemen t l I a BIlI t Ie S liabilities in our asset management segment were down from € 5.7 bn to € 4.8 bn, reflecting decreases in provisions and other liabilities, which were partly driven by a decline in group internal financing. Furthermore, the figures have been affected by changes in segment allocation. as reported in our first quarter interim report, a former entity of the asset management segment in the netherlands is now assigned to the corporate and other segment.3 1 | Based on the closing rate on the respective balance sheet dates. 2 | For further information on the development of these third-party assets, please refer to the asset management chapter. 3 | please refer to the corporate and other chapter (earnings Summary – Banking) on page 30 of the interim report for the first quarter of 2012 for details regarding the change in the segment assignment. 4 7 4 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t a S S e tS a n d l I a B I l I t I e S o F t H e c o r p o r at e a n d ot H e r S e g m e n t ◼ c o r p o r at e a n d o t H e r a S S e t S as of 30 June 2012, our asset base for corporate and other amounted to € 38.4 bn, representing an increase of € 2.6 bn. a reduction in cash and cash pools assets was more than offset by an increase in debt securities while equities remained almost unchanged. C o m p o S i t i o n oF a S S e t b a S e | fair values In € bn as of 30 June 2012 as of 31 december 2011 Financial assets and liabilities carried at fair value through income equities debt securities other 1 Subtotal investments 2 – – (0.2) (0.2) 0.1 – (0.3) (0.2) equities debt securities cash and cash pool assets 3 other Subtotal loans and advances to banks and customers 1.7 21.7 (3.3) 0.3 20.4 18.2 38.4 1.9 18.1 (1.9) 0.2 18.3 17.7 Corporate and other asset base 35.8 as of 30 June 2012, aBS amounted to € 0.3 bn, which is around 0.8 % of our corporate and other asset base. ◼ co r p o r at e a nd ot Her l I a BIlI t Ie S other liabilities increased by € 0.8 bn to € 16.6 bn. the growth in certificated liabilities from € 13.8 bn to € 15.4 bn was primarily driven by a senior bond of € 1.5 bn issued in February 2012. participation certificates and subordinated liabilities decreased by € 1.9 bn, reflecting the redemption of a subordinated bond of € 2.0 bn in may 2012.4 1 | this comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.4) bn and € (0.5) bn as of 30 June 2012 and 31 december 2011, respectively. 2 | these do not include affiliates of € 73.9 bn and € 73.4 bn as of 30 June 2012 and 31 december 2011, respectively. 3 | Including cash and cash equivalents, as stated in our segment balance sheet, of € 1.3 bn and € 1.8 bn and receivables from cash pooling amounting to € 0.2 bn and € 0.5 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € 0.0 bn, as well as liabilities from cash pooling of € (4.7) bn and € (4.2) bn as of 30 June 2012 and 31 december 2011, respectively. 4 | For further information on allianz Se debt as of 30 June 2012, please refer to notes 17 and 18 of our condensed consolidated interim financial statements. B a l a n c e S H e e t r e v I e w a l l i a n z S e b o n d S 1 o u t S t a n d i n g aS o F 3 0 J u n e 2012 a n d i n t e r e S t e x p e n S e S F o r t h e F i r S t S i x m o n t h S 1. S e n I o r B o n d S 2 5.625 % bond issued by allianz Finance II B.v., amsterdam volume Year of issue maturity date € 0.9 bn 2002 11/29/2012 5.5 % bond issued by allianz Se volume Year of issue maturity date ISIn Interest expense € 1.5 bn 2004 perpetual Bond XS 018 716 232 5 € 42.0 mn ISIn XS 015 879 238 1 Interest expense 5.0 % bond issued by allianz Finance II B.v., amsterdam volume Year of issue maturity date € 1.5 bn 2008 3/6/2013 € 25.5 mn 4.375 % bond issued by allianz Finance II B. v., amsterdam volume Year of issue maturity date ISIn Interest expense € 1.4 bn 2005 perpetual Bond XS 021 163 783 9 € 31.6 mn ISIn de 000 a0t r7k 7 Interest expense 4.0 % bond issued by allianz Finance II B.v., amsterdam volume Year of issue € 1.5 bn 2006 € 38.1 mn 5.375 % bond issued by allianz Finance II B. v., amsterdam volume Year of issue maturity date ISIn Interest expense € 0.8 bn 2006 perpetual Bond de 000 a0g npz 3 maturity date 11/23/2016 € 21.2 mn ISIn XS 027 588 026 7 Interest expense 4.75 % bond issued by allianz Finance II B.v., amsterdam volume Year of issue maturity date ISIn Interest expense 3.5 % bond issued by allianz Finance II B.v., amsterdam volume Year of issue maturity date ISIn Interest expense € 1.5 bn 2009 7/22/2019 de 000 a1a kHB 8 € 1.5 bn 2012 2/14/2022 de 000 a1g 0ru 9 € 30.9 mn € 36.5 mn € 20.4 mn 8.375 % bond issued by allianz Se volume Year of issue maturity date ISIn Interest expense 5.75 % bond issued by allianz Finance II B. v., amsterdam volume Year of issue maturity date ISIn Interest expense total interest expense for subordinated bonds uSd 2.0 bn 2008 perpetual Bond uS 018 805 200 7 € 2.0 bn 2011 7/8/2041 de 000 a1gnaH1 € 70.7 mn € 57.9 mn € 256.4 mn total interest expense for senior bonds 2. S u B o r d I n at e d B o n d S 3 6.5 % bond issued by allianz Finance II B. v., amsterdam volume Year of issue maturity date ISIn Interest expense € 1.0 bn 2002 1/13/2025 XS 015 952 750 5 € 151.4 mn 3 . I S S u e S m at u r e d I n 2012 6.125 % bond issued by allianz Finance II B. v., amsterdam volume Year of issue maturity date ISIn Interest expense € 2.0 bn 2002 5/31/2022 XS 014 888 756 4 € 47.7 mn € 33.0 mn total interest expense € 455.5 mn 1 | this does not include, among others, the € 0.5 bn 30-year convertible subordinated note issued in July 2011. For further information on allianz Se debt (issued or guaranteed) as of 30 June 2012, please refer to notes 17 and 18 of our condensed consolidated interim financial statements. 2 | Senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor ( allianz Se). 3 | the terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. 4 9 5 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p g r o u p m a n a g e m e n t r e p o r t I. reconciliations the previous analysis is based on our condensed consolidated interim financial statements and should be read in conjunction with them. In addition to our stated figures according to the International Financial reporting Standards (IFrS), the allianz group uses operating profit and internal growth to enhance the understanding of our results. these additional measures should be viewed as complementary to, and not as a substitute for, our figures determined according to IFrS. For further information, please refer to note 3 of the condensed consolidated interim financial statements. composition of total revenues total revenues comprise statutory gross premiums written in property-casualty and life/Health, operating revenues in asset management, and total revenues in corporate and other (Banking). C o m p o s i t i o n o f to ta l r e v e n u e s three months ended 30 June Six months ended 30 June In € mn 2012 2011 2012 property-Casualty Gross premiums written 10,726 10,194 25,523 life/Health statutory premiums 12,861 12,978 26,560 asset management operating revenues 1,497 1,303 2,936 consisting of: net fee and commission income 1,494 1,297 2,909 net interest income 6 4 12 Income from financial assets and liabilities carried at fair value through income (net) (7) (3) 7 other income 4 5 8 Corporate and other total revenues (Banking) 141 137 296 consisting of: Interest and similar income 183 183 373 Income from financial assets and liabilities carried at fair value through income (net) (1) 1 7 Fee and commission income 107 111 219 Interest expenses (87) (95) (178) Fee and commission expenses (62) (64) (125) consolidation effects (Banking within corporate and other) 1 1 – Consolidation (29) (38) (66) allianz Group total revenues 25,196 24,574 55,249 2011 24,445 27,248 2,576 2,553 11 3 9 288 361 10 218 (184) (117) – (78) 54,479 r e c o n c I l I a t I o n S composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are separately analyzed. accordingly, in addition to presenting “nominal growth”, we also present “internal growth”, which excludes these effects. r eC o nC i l i at i o n o f n o m i n a l to ta l r e v e n u e G ro w t H to i n t e r n a l t o ta l r e v e n u e G ro w t H three months ended 30 June 2012 Six months ended 30 June 2012 In % Internal growth changes in scope of consolidation Foreign currency translation nominal growth Internal growth changes in scope of consolidation Foreign currency translation nominal growth property-casualty 3.2 (0.1) 2.1 5.2 2.8 0.0 1.6 4.4 life/Health (3.0) (0.2) 2.3 (0.9) (4.1) (0.2) 1.8 (2.5) asset management 3.8 0.7 10.4 14.9 6.1 0.8 7.1 14.0 corporate and other 3.0 (0.1) 0.0 2.9 2.8 0.0 0.0 2.8 allianz Group 0.0 (0.1) 2.6 2.5 (0.5) 0.0 1.8 1.4 5 1 COndensed COnsOlidATed inTerim FinAnCiAl sTATemenTs 53 Content 54 Consolidated Balance sheets 55 Consolidated income statements 56 Consolidated statements of Comprehensive income 57 Consolidated statements of Changes in equity 58 Condensed Consolidated statements of Cash Flows 60 notes to the Condensed Consolidated interim Financial statements 2009: The then recent financial crisis created a critical need for us to not only claim but to prove that, in the moments when our clients need us most, we are a trusted partner; for all our customers in all the markets we operate in. 2012: Today, while the financial industry is still working hard to regain trust from the public, Allianz continues to build strong and long-lasting relationships with our customers. The current “One” communication concept has enabled us to create a sense of community based on sharing knowledge and experience. 5 2 II. C o n t e n t Condensed Consolidated Interim Financial Statements C o n S o l I d a t e d B a l a n C e S h e e t S C o n S o l I d a t e d I n C o m e S t a t e m e n t S C o n S o l I d a t e d S t a t e m e n t S o F C o m P R e h e n S I v e I n C o m e C o n S o l I d a t e d S t a t e m e n t S o F C h a n g e S I n e q u I t y C o n d e n S e d C o n S o l I d a t e d S t a t e m e n t S o F C a S h F l o w S n o t e S t o t h e C o n d e n S e d C o n S o l I d a t e d I n t e R I m F I n a n C I a l g e n e R a l I n F o R m at I o n n o t eS t o t h e C o n S o l I d at e d I n C o m e S tat e m e n t S 60 61 1 Basis of presentation 2 Recently adopted accounting pronouncements and changes in the presentation of the condensed consolidated interim financial statements 89 20 Premiums earned (net) 90 21 Interest and similar income 91 22 Income from financial assets and liabilities carried at fair value through income (net) 61 3 Segment reporting n o t e S t o t h e C o nS o l I d at e d B a l a n C e S h e e t S 92 23 Realized gains/losses (net) 93 24 Fee and commission income 94 25 other income 94 26 Income and expenses from fully consolidated 82 82 83 84 84 84 85 10 non-current assets and assets and liabilities of disposal 4 Financial assets carried at fair value through income 5 Investments 6 loans and advances to banks and customers 7 Reinsurance assets 8 deferred acquisition costs 9 other assets groups classified as held for sale 85 11 Intangible assets 86 12 Financial liabilities carried at fair value through income 86 13 liabilities to banks and customers 86 14 Reserves for loss and loss adjustment expenses 87 15 Reserves for insurance and investment contracts 87 16 other liabilities 88 17 Certificated liabilities 88 18 Participation certificates and subordinated liabilities 88 19 equity private equity investments 95 27 Claims and insurance benefits incurred (net) 96 28 Change in reserves for insurance and investment contracts (net) 97 29 Interest expenses 98 30 loan loss provisions 98 31 Impairments of investments (net) 98 32 Investment expenses 99 33 acquisition and administrative expenses (net) 100 34 Fee and commission expenses 101 35 other expenses 101 36 Income taxes 102 37 earnings per share o t h eR I nF o R m at I o n 103 38 Financial instruments 103 39 other information 104 40 Subsequent events 105 106 Responsibility statement Review report 54 55 56 57 58 60 5 3 5 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S consolidated Balance Sheets In € mn a S Se tS cash and cash equivalents Financial assets carried at fair value through income Investments loans and advances to banks and customers Financial assets for unit-linked contracts reinsurance assets deferred acquisition costs deferred tax assets other assets non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets In € mn l I a B I l I t I e S a n d e Q u I t Y Financial liabilities carried at fair value through income liabilities to banks and customers unearned premiums reserves for loss and loss adjustment expenses reserves for insurance and investment contracts Financial liabilities for unit-linked contracts deferred tax liabilities other liabilities liabilities of disposal groups classified as held for sale certificated liabilities participation certificates and subordinated liabilities Total liabilities Shareholders’ equity non-controlling interests Total equity Total liabilities and equity note 4 5 6 7 8 9 10 11 note 12 13 14 15 16 10 17 18 19 As of 30 June 2012 10,623 7,634 374,376 123,280 67,400 13,634 20,269 2,219 36,045 148 13,332 668,960 As of 30 June 2012 6,087 22,714 20,683 70,206 375,997 67,400 4,662 32,080 – 9,299 9,430 618,558 48,013 2,389 50,402 668,960 as of 31 december 2011 10,492 8,466 350,645 124,738 63,500 12,874 20,772 2,321 34,346 14 13,304 641,472 as of 31 december 2011 6,610 22,155 17,255 68,832 361,954 63,500 3,881 31,210 – 7,649 11,173 594,219 44,915 2,338 47,253 641,472 consolidated Income Statements In € mn Premiums written ceded premiums written change in unearned premiums Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) realized gains/losses (net) Fee and commission income other income Income from fully consolidated private equity investments Total income claims and insurance benefits incurred (gross) claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) Interest expenses loan loss provisions Impairments of investments (net) Investment expenses acquisition and administrative expenses (net) Fee and commission expenses amortization of intangible assets restructuring charges other expenses expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: non-controlling interests Shareholders In € Basic earnings per share diluted earnings per share c o n S o l I d a t e d B a l a n c e S H e e t S , c o n S o l I d a t e d I n c o m e S t a t e m e n t S three months ended 30 June Six months ended 30 June note 2012 2011 2012 2011 16,467 15,803 37,826 36,477 (1,317) (1,233) (2,914) (2,728) 650 752 (2,670) (2,566) 20 15,800 15,322 32,242 31,183 21 5,488 5,350 10,620 10,244 22 (184) (155) (90) (380) 23 1,115 485 2,303 1,599 24 2,285 2,038 4,430 4,025 25 58 33 109 64 26 198 456 393 849 24,760 23,529 50,007 47,584 (12,282) (12,018) (24,891) (24,472) 593 675 1,211 1,151 27 (11,689) (11,343) (23,680) (23,321) 28 (3,551) (2,836) (7,358) (6,598) 29 (368) (367) (750) (717) 30 (42) (33) (88) (49) 31 (422) (820) (610) (965) 32 (216) (208) (413) (410) 33 (5,272) (5,109) (10,736) (10,125) 34 (686) (657) (1,370) (1,306) (31) (19) (56) (41) (139) (38) (147) (40) 35 (25) (16) (44) (31) 26 (245) (469) (446) (881) (22,686) (21,915) (45,698) (44,484) 2,074 1,614 4,309 3,100 36 (754) (543) (1,544) (1,114) 1,320 1,071 2,765 1,986 86 71 160 129 1,234 1,000 2,605 1,857 three months ended 30 June Six months ended 30 June note 2012 2011 2012 2011 37 2.73 2.21 5.76 4.11 37 2.68 2.17 5.73 4.07 5 5 5 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S consolidated Statements of comprehensive Income three months ended 30 June Six months ended 30 June In € mn 2012 2011 2012 2011 Net income 1,320 1,071 2,765 1,986 Other comprehensive income Foreign currency translation adjustments reclassifications to net income – – – – changes arising during the period 653 (150) 439 (945) Subtotal 653 (150) 439 (945) Available-for-sale investments reclassifications to net income (102) 131 (142) (180) changes arising during the period 81 133 2,269 (638) Subtotal (21) 264 2,127 (818) Cash flow hedges reclassifications to net income (1) – (1) (1) changes arising during the period 17 1 28 (6) Subtotal 16 1 27 (7) Share of other comprehensive income of associates reclassifications to net income – – – – changes arising during the period (1) 7 5 57 Subtotal (1) 7 5 57 Miscellaneous reclassifications to net income – – – – changes arising during the period 15 3 90 (2) Subtotal 15 3 90 (2) Total other comprehensive income 662 125 2,688 (1,715) Total comprehensive income 1,982 1,196 5,453 271 Total comprehensive income attributable to: non-controlling interests 131 112 282 120 Shareholders 1,851 1,084 5,171 151 For further details concerning income taxes relating to components of the other comprehensive income, please see note 36. c o n S o l I d a t e d S t a t e m e n t S o F c o m p r e H e n S I v e I n c o m e , c o n S o l I d a t e d S t a t e m e n t S o F c H a n g e S I n e Q u I t Y consolidated Statements of changes in equity In € mn paid-in capital retained earnings Foreign currency translation adjustments unrealized gains and losses (net) Share- holders’ equity non- controlling interests Balance as of 1 January 2011 total comprehensive income 1 paid-in capital 28,685 – – 13,088 1,838 – (2,339) (911) – 5,057 (776) – 44,491 151 – 2,071 120 – treasury shares – 9 – – 9 – transactions between equity holders – (4) – – (4) 4 dividends paid – (2,032) – – (2,032) (121) Balance as of 30 June 2011 28,685 12,899 (3,250) 4,281 42,615 2,074 Balance as of 1 January 2012 total comprehensive income 1 paid-in capital 28,763 – – 13,522 2,648 – (1,996) 427 – 4,626 2,096 – 44,915 5,171 – 2,338 282 – treasury shares – 12 – – 12 – transactions between equity holders – (64) 14 2 (48) (93) dividends paid – (2,037) – – (2,037) (138) Balance as of 30 June 2012 28,763 14,081 (1,555) 6,724 48,013 2,389 1 | total comprehensive income in shareholders’ equity for the six months ended 30 June 2012, comprises net income attributable to shareholders of € 2,605 mn (2011: € 1,857 mn). total equity 46,562 271 – 9 – (2,153) 44,689 47,253 5,453 – 12 (141) (2,175) 50,402 5 7 5 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S condensed consolidated Statements of cash Flows Six months ended 30 June | in € mn S u m m a r Y net cash flow provided by operating activities net cash flow used in investing activities net cash flow used in financing activities effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents cash and cash equivalents at beginning of period Cash and cash equivalents at end of period c a S H F l o w F r o m o p e r at I n g a c t I v I t I e S Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures realized gains/losses (net) and impairments of investments (net) of: available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers other investments, mainly financial assets held for trading and designated at fair value through income depreciation and amortization loan loss provisions Interest credited to policyholder accounts net change in: Financial assets and liabilities held for trading reverse repurchase agreements and collateral paid for securities borrowing transactions repurchase agreements and collateral received from securities lending transactions reinsurance assets deferred acquisition costs unearned premiums reserves for loss and loss adjustment expenses reserves for insurance and investment contracts deferred tax assets/liabilities other (net) Subtotal Net cash flow provided by operating activities c a S H F l o w F r o m I n v e S t I n g a c t I v I t I e S Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures non-current assets and assets of disposal groups classified as held for sale real estate held for investment loans and advances to banks and customers (purchased loans) property and equipment Subtotal 2012 11,288 (9,541) (1,740) 124 131 10,492 10,623 2,765 (45) (1,693) 319 514 88 1,933 (1,009) 262 656 (559) (379) 3,312 872 5,077 37 (862) 8,523 11,288 1,085 61,251 373 149 112 113 6,298 149 69,530 2011 11,836 (10,935) (172) (242) 487 8,747 9,234 1,986 (84) (634) (351) 528 49 2,116 242 (303) 1,179 72 (725) 3,009 544 4,079 (65) 194 9,850 11,836 4,914 62,465 93 112 142 338 3,407 49 71,520 c o n d e n S e d c o n S o l I d a t e d S t a t e m e n t S o F c a S H F l o w S condensed consolidated Statements of cash Flows (continued) Six months ended 30 June | in € mn 2012 2011 Payments for the purchase or origination of: Financial assets designated at fair value through income (553) (4,193) available-for-sale investments (72,084) (73,867) Held-to-maturity investments (720) (124) Investments in associates and joint ventures (178) (66) non-current assets and assets of disposal groups classified as held for sale (223) – real estate held for investment (265) (163) loans and advances to banks and customers (purchased loans) (3,517) (3,693) property and equipment (737) (571) Subtotal (78,277) (82,677) Business combinations proceeds from sale of subsidiaries, net of cash disposed – – acquisitions of subsidiaries, net of cash acquired – – Change in loans and advances to banks and customers (originated loans) (701) 73 Other (net) (93) 149 Net cash flow used in investing activities (9,541) (10,935) c a S H F l o w F r o m F I n a n c I n g a c t I v I t I e S policyholders’ account deposits 9,298 9,161 policyholders’ account withdrawals (8,266) (7,271) net change in liabilities to banks and customers (177) (792) proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 4,401 4,345 repayments of certificated liabilities, participation certificates and subordinated liabilities (4,567) (3,465) cash inflow from capital increases – – transactions between equity holders (141) – dividends paid to shareholders (2,175) (2,153) net cash flow from sale or purchase of treasury shares 11 8 other (net) (124) (5) Net cash flow used in financing activities (1,740) (172) S u p p l e m e n ta rY I n F o r m at I o n to t H e c o n d e n S e d c o n S o l I dat e d S tat e m e n t S o F c a S H F lo w S Income taxes paid (1,044) (1,008) dividends received 672 696 Interest received 10,402 9,748 Interest paid (827) (855) 5 9 6 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S II. notes to the condensed consolidated Interim Financial Statements 1 Basis of presentation the condensed consolidated interim financial statements of the allianz group – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, condensed consolidated statements of cash flows and selected explanatory notes – are presented in accordance with the requirements of IaS 34, Interim Financial reporting, and have been prepared in conformity with International Financial reporting Standards (IFrS), as adopted under european union (e.u.) regulations in accordance with § 315 a of the german commercial code (HgB). IFrS comprise the International Financial reporting Standards (IFrS), the International accounting Standards (IaS), and the interpretations developed by the IFrS Interpretations committee (formerly called the IFrIc) or the former Standing Interpretations committee (SIc). Within these condensed consolidated interim financial statements, the allianz group has applied all IFrS issued by the IaSB and endorsed by the e.u. that are compulsory as of 1 January 2012 or adopted earlier. See note 2 for further details. For existing and unchanged IFrS, the accounting policies for recognition, measurement, consolidation and presen tation applied in the preparation of the condensed consol idated interim financial statements are consistent with the accounting policies that have been applied in the preparation of the consolidated financial statements for the year ended 31 december 2011. these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial state ments included in the allianz group annual report 2011. IFrS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. therefore, as envisioned in IaS 8, accounting policies, changes in accounting estimates and errors, the provisions embodied under accounting principles generally accepted in the united States of america (uS gaap) have been applied to those aspects where specific guidance is not provided by IFrS 4, Insurance contracts. the condensed consolidated interim financial statements are presented in millions of euros (€ mn), unless otherwise stated. these condensed consolidated interim financial statements of the allianz group were authorized for issue by the Board of management on 2 august 2012. 2 3 n o t e S 1 , 2 , 3 g e n e r a l I n F o r m a t I o n recently adopted accounting pronouncements and changes in the presentation of the condensed consolidated interim financial statements ◼ re cen t lY a d o p t ed acco u n t In g pro n o un cemen t S | ef fe c ti ve 1 Januar y 2012 the following amendments to standards have become effective for the allianz group’s consolidated financial statements as of 1 January 2012: ◾ ◾ IFrS 7 Financial Instruments: disclosures – amendment for transfers of Financial assets IaS 12 Income taxes – amendment for deferred tax: recovery of underlying assets the allianz group adopted the amendments as of 1 January 2012, with no material impact on its financial results or financial position. ◼ ot He r r ecl aS SIF I c at I o nS certain prior period amounts have been reclassified to conform to the current period presentation. Segment reporting ◼ I d en tI F Ic at I o n o F r ep o rta Ble Segmen t S the business activities of the allianz group are first organized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between property-casualty and life/Health cat egories. In accordance with the responsibilities of the Board of management, each of the insurance categories is grouped into the following reportable segments: ◾ german Speaking countries ◾ Western & Southern europe Iberia & latin america ◾ ◾ uSa ◾ global Insurance lines & anglo markets ◾ growth markets ◾ assistance (property-casualty only) asset management activities represent a separate reportable segment. due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & treasury, Banking and alternative Investments. In total, the allianz group has identified 17 reportable segments in accordance with IFrS 8, operating Segments. 6 1 6 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S the types of products and services from which reportable segments derive revenue are described below. p ro p e rt Y- c a Sua lt Y In the property-casualty category, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. l I Fe /H e a ltH In the life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annuity, endowment and term insurance, unit-linked and investment- oriented products as well as full private health and supplemental health and long-term care insurance. a S Se t m a n ag e m e n t the reportable segment asset management operates as a global provider of institutional and retail asset manage ment products and services to third-party investors and provides investment management services to the allianz group’s insurance operations. the products for retail and institutional customers include equity and fixed income funds as well as alternative products. the united States and germany as well as France, Italy and the asia-pacific region represent the primary asset management markets. co r p o r at e a n d ot H e r the reportable segment Holding & treasury includes the management and support of the allianz group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions. the reportable segment Banking consists of the banking activities in germany, France, Italy, the netherlands and Bulgaria. the banks offer a wide range of products for corporate and retail clients with the main focus on the latter. the reportable segment alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the allianz group’s insurance operations. the alternative Investments reportable segment also includes a fully consolidated private equity investment. the income and expenses of this investment are included in the non-operating result. For further details, please see note 26. prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. transactions between reportable segments are eliminated in consolidation. For the reportable segment asset management, interest revenues are reported net of interest expenses. n o t e 3 g e n e r a l I n F o r m a t I o n ◼ r e p o rtaBle Segmen t S me a Su r e o F pro F I t o r loS S the allianz group uses operating profit to evaluate the performance of its reportable segments and the allianz group as a whole. operating profit highlights the portion of income before income taxes attributable to the ongoing core operations of the allianz group. the allianz group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the allianz group’s underlying operating perfor- mance and the comparability of its operating performance over time. to better understand the ongoing operations of the business, the allianz group generally excludes the following non- operating effects: ◾ acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; ◾ restructuring charges, because the timing of these is largely at the discretion of the allianz group, and accordingly, their exclusion provides additional insight into the operating trends of the underlying business; ◾ interest expenses from external debt, as these relate to the capital structure of the allianz group; ◾ income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is outside the allianz group’s normal scope of operating business; ◾ income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the allianz group’s long-term performance; ◾ realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at the discretion of the allianz group and impairments are largely dependent on market cycles or issuer-specific events over which the allianz group has little or no control and which can and do vary, sometimes materially, through time. against this general rule the following exceptions apply: ◾ in all segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income refers to operating business; ◾ for life/Health insurance business and property-casualty insurance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. this is also applicable to tax benefits, which are shared with policyholders. IFrS requires that the consolidated income statements present all tax benefits in the income taxes line item, even though these belong to policyholders. In the segment reporting, the tax benefits are reclassified and shown within operating profit in order to properly reflect the policyholder participation in tax benefits. operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as determined in accordance with IFrS. ◼ r e cen t o rg a nIz at I o n a l cH a n ge S at the beginning of 2012, the allianz group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of management. the insurance activities of Spain, portugal, mexico and South america were combined in the newly created reportable segment Iberia & latin america. as a consequence, the former europe incl. South america was renamed into Western & Southern europe and naFta markets was reduced to uSa. previously reported information has been adjusted to reflect this change in the composition of the allianz group’s reportable segments. additionally, some minor reallocations between the reportable segments have been made. 6 3 6 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S Business Segment Information – consolidated Balance Sheets property-casualty In € mn As of 30 June 2012 as of 31 december 2011 a S S e t S cash and cash equivalents 4,527 2,405 Financial assets carried at fair value through income 801 1,187 Investments 85,364 84,195 loans and advances to banks and customers 17,677 17,842 Financial assets for unit-linked contracts – – reinsurance assets 8,709 8,050 deferred acquisition costs 4,504 4,197 deferred tax assets 799 1,050 other assets 23,279 20,772 non-current assets and assets of disposal groups classified as held for sale 3 3 Intangible assets 2,237 2,232 Total assets 147,900 141,933 property-casualty In € mn As of 30 June 2012 as of 31 december 2011 l I a B Il I t I e S a n d e Q u I t Y Financial liabilities carried at fair value through income 135 122 liabilities to banks and customers 1,591 1,488 unearned premiums 18,081 14,697 reserves for loss and loss adjustment expenses 60,598 59,493 reserves for insurance and investment contracts 9,794 9,520 Financial liabilities for unit-linked contracts – – deferred tax liabilities 2,244 2,246 other liabilities 15,416 14,999 liabilities of disposal groups classified as held for sale – – certificated liabilities 25 25 participation certificates and subordinated liabilities – – Total liabilities 107,884 102,590 life/Health As of 30 June 2012 4,705 6,261 281,147 96,446 67,400 4,951 15,624 256 15,751 145 2,202 494,888 life/Health As of 30 June 2012 5,854 2,094 2,608 9,627 366,326 67,400 2,642 13,414 – – 95 470,060 as of 31 december 2011 5,301 6,518 262,126 98,019 63,500 4,846 16,429 236 16,085 4 2,195 475,259 as of 31 december 2011 6,302 2,348 2,562 9,357 352,558 63,500 2,186 13,077 – – 65 451,955 asset management As of 30 June 2012 as of 31 december 2011 1,341 1,406 718 726 919 1,087 1,187 1,443 – – – – 141 146 263 262 2,080 1,889 – 7 7,548 7,498 14,197 14,464 asset management As of 30 June 2012 as of 31 december 2011 – – 1,747 2,231 – – – – – – – – 163 168 2,835 3,237 – – – – 14 14 4,759 5,650 corporate and other As of 30 June 2012 as of 31 december 2011 1,256 1,846 134 312 97,595 93,665 18,222 17,717 – – – – – – 1,480 1,657 4,449 5,066 – – 1,345 1,379 124,481 121,642 corporate and other As of 30 June 2012 as of 31 december 2011 372 516 22,227 20,112 – – – – – – – – 192 165 16,592 15,822 – – 15,443 13,845 9,385 11,349 64,211 61,809 consolidation As of 30 June 2012 as of 31 december 2011 (1,206) (466) (280) (277) (90,649) (90,428) (10,252) (10,283) – – (26) (22) – – (579) (884) (9,514) (9,466) – – – – (112,506) (111,826) consolidation As of 30 June 2012 as of 31 december 2011 (274) (330) (4,945) (4,024) (6) (4) (19) (18) (123) (124) – – (579) (884) (16,177) (15,925) – – (6,169) (6,221) (64) (255) (28,356) (27,785) Total equity Total liabilities and equity n o t e 3 g e n e r a l I n F o r m a t I o n group As of 30 June 2012 as of 31 december 2011 10,623 10,492 7,634 8,466 374,376 350,645 123,280 124,738 67,400 63,500 13,634 12,874 20,269 20,772 2,219 2,321 36,045 34,346 148 14 13,332 13,304 668,960 641,472 group As of 30 June 2012 as of 31 december 2011 6,087 6,610 22,714 22,155 20,683 17,255 70,206 68,832 375,997 361,954 67,400 63,500 4,662 3,881 32,080 31,210 – – 9,299 7,649 9,430 11,173 618,558 594,219 50,402 47,253 668,960 641,472 6 5 6 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S Business Segment Information – total revenues and reconciliation of operating profit (loss) to net Income (loss) property-casualty life/Health three months ended 30 June | in € mn 2012 2011 2012 Total revenues 1 10,726 10,194 12,861 premiums earned (net) 10,266 9,878 5,534 Operating investment result Interest and similar income 976 967 4,423 operating income from financial assets and liabilities carried at fair value through income (net) (7) 9 (205) operating realized gains/losses (net) 9 3 733 Interest expenses, excluding interest expenses from external debt (11) (14) (21) operating impairments of investments (net) (11) (7) (204) Investment expenses (70) (61) (191) Subtotal 886 897 4,535 Fee and commission income 291 289 131 other income 10 7 37 claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) 2 loan loss provisions (7,119) (76) – (6,619) (77) – (4,570) (3,517) – acquisition and administrative expenses (net), excluding acquisition-related expenses (2,876) (2,768) (1,252) Fee and commission expenses (264) (275) (55) operating restructuring charges – – – other expenses (6) (3) (22) reclassification of tax benefits – – – Operating profit (loss) 1,112 1,329 821 Non-operating investment result non-operating income from financial assets and liabilities carried at fair value through income (net) (82) (14) 4 non-operating realized gains/losses (net) 354 123 (10) non-operating impairments of investments (net) (120) (83) (22) Subtotal 152 26 (28) Income from fully consolidated private equity investments (net) – – – Interest expenses from external debt – – – acquisition-related expenses – – – amortization of intangible assets (11) (1) (1) non-operating restructuring charges (76) (34) (2) reclassification of tax benefits – – – Non-operating items 65 (9) (31) Income (loss) before income taxes 1,177 1,320 790 Income taxes (370) (368) (284) Net income (loss) 807 952 506 Net income (loss) attributable to: non-controlling interests 50 60 20 Shareholders 757 892 486 1 | total revenues comprise statutory gross premiums written in property-casualty and life/Health, operating revenues in asset management and total revenues in corporate and other (Banking). 2 | during the three months ended 30 June 2012, includes expenses for premium refunds (net) in property-casualty of € (25) mn (2011: € (32) mn). 2011 12,978 5,444 4,197 (110) 335 (21) (384) (183) 3,834 138 22 (4,724) (2,738) – (1,233) (46) (1) (17) – 679 (3) (129) (195) (327) – – – (1) (1) – (329) 350 (136) 214 11 203 asset management 2012 1,497 – 12 (7) – (6) – – (1) 1,825 4 – – – (862) (331) – – – 635 – – (1) (1) – – (8) (12) (61) – (82) 553 (208) 345 10 335 2011 1,303 – 14 (3) – (10) – – 1 1,577 5 – – – (775) (280) – – – 528 – – (2) (2) – – (37) (7) (1) – (47) 481 (192) 289 4 285 corporate and other 2012 141 – 259 10 – (189) – (25) 55 161 1 – – (42) (283) (82) – (1) – (191) 109 26 (64) 71 (1) (251) (2) (7) – – (190) (381) 108 (273) 6 (279) 2011 137 – 320 (2) – (207) – (25) 86 175 2 – – (33) (317) (117) – (1) – (205) (33) 22 (19) (30) (26) (239) 3 (10) (1) – (303) (508) 145 (363) (4) (359) consolidation 2012 (29) – (182) (3) 3 110 – 70 (2) (123) 6 – 42 – 11 46 – 4 3 (13) (3) – – (3) (46) – – – – (3) (52) (65) – (65) – (65) 2011 (38) – (148) 4 1 124 – 61 42 (141) (3) – (21) – 18 61 – 5 8 (31) (3) 130 (130) (3) 13 – – – – (8) 2 (29) 8 (21) – (21) n o t e 3 g e n e r a l I n F o r m a t I o n group 2012 2011 25,196 24,574 15,800 15,322 5,488 5,350 (212) (102) 745 339 (117) (128) (215) (391) (216) (208) 5,473 4,860 2,285 2,038 58 33 (11,689) (11,343) (3,551) (2,836) (42) (33) (5,262) (5,075) (686) (657) – (1) (25) (16) 3 8 2,364 2,300 28 (53) 370 146 (207) (429) 191 (336) (47) (13) (251) (239) (10) (34) (31) (19) (139) (37) (3) (8) (290) (686) 2,074 1,614 (754) (543) 1,320 1,071 86 71 1,234 1,000 6 7 6 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S Business Segment Information – total revenues and reconciliation of operating profit (loss) to net Income (loss) (continued) property-casualty life/Health Six months ended 30 June | in € mn 2012 2011 2012 Total revenues 1 25,523 24,445 26,560 premiums earned (net) 20,347 19,554 11,895 Operating investment result Interest and similar income 1,915 1,876 8,485 operating income from financial assets and liabilities carried at fair value through income (net) (5) 28 (367) operating realized gains/losses (net) 14 12 1,800 Interest expenses, excluding interest expenses from external debt (22) (27) (41) operating impairments of investments (net) (14) (7) (266) Investment expenses (137) (117) (353) Subtotal 1,751 1,765 9,258 Fee and commission income 581 562 258 other income 17 11 79 claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) 2 loan loss provisions (14,001) (156) – (13,709) (180) – (9,679) (7,231) – acquisition and administrative expenses (net), excluding acquisition-related expenses (5,688) (5,476) (2,773) Fee and commission expenses (540) (529) (118) operating restructuring charges – – (1) other expenses (10) (6) (41) reclassification of tax benefits – – – Operating profit (loss) 2,301 1,992 1,647 Non-operating investment result non-operating income from financial assets and liabilities carried at fair value through income (net) (62) (12) 17 non-operating realized gains/losses (net) 366 332 13 non-operating impairments of investments (net) (166) (116) (27) Subtotal 138 204 3 Income from fully consolidated private equity investments (net) – – – Interest expenses from external debt – – – acquisition-related expenses – – – amortization of intangible assets (16) (5) (2) non-operating restructuring charges (82) (35) (3) reclassification of tax benefits – – – Non-operating items 40 164 (2) Income (loss) before income taxes 2,341 2,156 1,645 Income taxes (698) (647) (513) Net income (loss) 1,643 1,509 1,132 Net income (loss) attributable to: non-controlling interests 89 98 43 Shareholders 1,554 1,411 1,089 1 | total revenues comprise statutory gross premiums written in property-casualty and life/Health, operating revenues in asset management and total revenues in corporate and other (Banking). 2 | during the six months ended 30 June 2012, includes expenses for premium refunds (net) in property-casualty of € (51) mn (2011: € (77) mn). 2011 27,248 11,629 8,030 (272) 1,053 (47) (446) (361) 7,957 268 45 (9,612) (6,367) – (2,402) (105) (1) (31) – 1,381 (12) (119) (199) (330) – – – (2) (1) – (333) 1,048 (352) 696 32 664 asset management 2012 2,936 – 24 7 – (12) – – 19 3,517 8 – – – (1,688) (608) – – – 1,248 – – (1) (1) – – (19) (23) (61) – (104) 1,144 (420) 724 21 703 2011 2,576 – 27 3 – (16) – – 14 3,108 9 – – – (1,520) (555) – – – 1,056 – 3 (2) 1 – – (132) (14) (1) – (146) 910 (312) 598 7 591 corporate and other 2012 296 – 509 20 – (391) – (48) 90 323 1 – – (88) (593) (207) – (1) – (475) 309 107 (136) 280 (13) (510) (3) (15) – – (261) (736) 80 (656) 7 (663) 2011 288 – 565 5 – (397) – (48) 125 357 2 – – (49) (624) (237) – (2) – (428) (121) 174 (65) (12) (63) (464) (3) (20) (2) – (564) (992) 177 (815) (8) (807) consolidation 2012 (66) – (313) (1) 3 226 – 125 40 (249) 4 – 29 – 28 103 – 8 10 (27) (8) – – (8) (40) – – – – (10) (58) (85) 7 (78) – (78) 2011 (78) – (254) 5 2 234 – 116 103 (270) (3) – (51) – 32 120 – 8 20 (41) (4) 142 (130) 8 31 – – – – (20) 19 (22) 20 (2) – (2) n o t e 3 g e n e r a l I n F o r m a t I o n group 2012 2011 55,249 54,479 32,242 31,183 10,620 10,244 (346) (231) 1,817 1,067 (240) (253) (280) (453) (413) (410) 11,158 9,964 4,430 4,025 109 64 (23,680) (23,321) (7,358) (6,598) (88) (49) (10,714) (9,990) (1,370) (1,306) (1) (1) (44) (31) 10 20 4,694 3,960 256 (149) 486 532 (330) (512) 412 (129) (53) (32) (510) (464) (22) (135) (56) (41) (146) (39) (10) (20) (385) (860) 4,309 3,100 (1,544) (1,114) 2,765 1,986 160 129 2,605 1,857 6 9 7 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – property-casualty german Speaking countries 1 Western & Southern europe 2 Iberia & latin america three months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 Gross premiums written ceded premiums written change in unearned premiums Premiums earned (net) Interest and similar income operating income from financial assets and liabilities carried at fair value through income (net) operating realized gains/losses (net) Fee and commission income other income Operating revenues 2,070 (350) 702 2,422 315 (2) 9 37 8 1,975 (345) 713 2,343 311 1 3 35 4 2,211 (124) 41 2,128 235 (5) – 4 1 2,218 (134) 38 2,122 245 9 – 7 – 1,141 (212) (14) 915 53 5 – 1 – 1,018 (172) 24 870 44 21 – – 2 2,789 2,697 2,363 2,383 974 937 claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) Interest expenses operating impairments of investments (net) Investment expenses acquisition and administrative expenses (net) Fee and commission expenses other expenses Operating expenses (1,723) (68) (19) (11) (26) (645) (35) (5) (1,705) (68) (17) (7) (19) (618) (34) (3) (1,434) – (2) – (18) (560) (8) (1) (1,480) – (3) – (25) (580) (8) – (633) – (1) – (4) (237) – – (587) – (1) – (3) (216) – – (2,532) (2,471) (2,023) (2,096) (875) (807) Operating profit (loss) 257 226 340 287 99 130 loss ratio 3 in % expense ratio 4 in % Combined ratio 5 in % 71.2 26.6 97.8 72.7 26.4 99.1 67.4 26.3 93.7 69.8 27.3 97.1 69.2 25.9 95.1 67.5 24.8 92.3 1 | In 2012, münchener und magdeburger agrarversicherung ag was transferred from consolidation and other to german Speaking countries. prior year figures have not been adjusted. 2 | From 2012 on, agF uK is shown in global Insurance lines & anglo markets instead of Western & Southern europe. prior year figures have been adjusted. 3 | represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4 | represents acquisition and administrative expenses (net) divided by premiums earned (net). 5 | represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6 | presentation not meaningful. uSa 2012 805 (164) (38) 603 59 – – – – 662 (546) – – – – (193) – – (739) (77) 90.6 32.0 122.6 2011 689 (109) (32) 548 69 (1) – – – 616 (509) – – – (1) (180) – – (690) (74) 92.9 32.8 125.7 global Insurance lines & anglo markets 2 2012 2011 4,217 3,895 (1,014) (986) (28) 70 3,175 2,979 283 271 (9) (21) – – 148 163 – – 3,597 3,392 (2,162) (1,725) (10) (8) (5) (7) – – (19) (10) (874) (823) (115) (138) – – (3,185) (2,711) 412 681 68.1 57.9 27.5 27.6 95.6 85.5 growth markets 2012 2011 730 760 (170) (157) 35 3 595 606 40 39 3 – – – 21 13 1 – 660 658 (371) (372) 2 (1) – (3) – – (3) (3) (219) (214) (23) (14) – – (614) (607) 46 51 62.4 61.4 36.8 35.3 99.2 96.7 assistance 2012 432 (7) 3 428 8 1 – 108 – 545 (250) – (1) – – (154) (105) – (510) 35 58.4 36.0 94.4 2011 408 (5) (9) 394 6 – – 94 2 496 (230) – (1) – – (143) (97) – (471) 25 58.4 36.3 94.7 consolidation and other 1 2012 2011 (880) (769) 880 785 – – – 16 (17) (18) – – – – (28) (23) – (1) (45) (26) – (11) – – 17 18 – – – – 6 6 22 16 – – 45 29 – 3 – 6 – 6 – 6 – 6 – 6 – 6 n o t e 3 g e n e r a l I n F o r m a t I o n property-casualty 2012 2011 10,726 10,194 (1,161) (1,123) 701 807 10,266 9,878 976 967 (7) 9 9 3 291 289 10 7 11,545 11,153 (7,119) (6,619) (76) (77) (11) (14) (11) (7) (70) (61) (2,876) (2,768) (264) (275) (6) (3) (10,433) (9,824) 1,112 1,329 69.4 67.0 28.0 28.0 97.4 95.0 7 1 7 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – property-casualty (continued) german Speaking countries 1 Western & Southern europe 2 Iberia & latin america Six months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 Gross premiums written ceded premiums written change in unearned premiums Premiums earned (net) Interest and similar income operating income from financial assets and liabilities carried at fair value through income (net) operating realized gains/losses (net) Fee and commission income other income Operating revenues 7,284 (1,155) (1,333) 4,796 601 3 14 75 14 7,088 (1,151) (1,269) 4,668 607 1 12 70 8 4,874 (343) (270) 4,261 451 (1) – 10 2 4,894 (348) (287) 4,259 449 25 – 15 – 2,434 (437) (189) 1,808 109 14 – 1 – 2,279 (470) (108) 1,701 87 40 – – 2 5,503 5,366 4,723 4,748 1,932 1,830 claims and insurance benefits incurred (net) change in reserves for insurance and investment contracts (net) Interest expenses operating impairments of investments (net) Investment expenses acquisition and administrative expenses (net) Fee and commission expenses other expenses Operating expenses (3,402) (129) (40) (14) (43) (1,274) (73) (8) (3,355) (150) (39) (7) (40) (1,235) (69) (6) (2,936) – (4) – (37) (1,105) (16) (2) (3,031) – (6) – (45) (1,131) (15) – (1,247) – (2) – (7) (454) – – (1,146) – (2) – (6) (420) – – (4,983) (4,901) (4,100) (4,228) (1,710) (1,574) Operating profit (loss) 520 465 623 520 222 256 loss ratio 3 in % expense ratio 4 in % Combined ratio 5 in % 70.9 26.6 97.5 71.8 26.5 98.3 68.9 25.9 94.8 71.1 26.6 97.7 69.0 25.1 94.1 67.4 24.7 92.1 1 | In 2012, münchener und magdeburger agrarversicherung ag was transferred from consolidation and other to german Speaking countries. prior year figures have not been adjusted. 2 | From 2012 on, agF uK is shown in global Insurance lines & anglo markets instead of Western & Southern europe. prior year figures have been adjusted. 3 | represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4 | represents acquisition and administrative expenses (net) divided by premiums earned (net). 5 | represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6 | presentation not meaningful. uSa 2012 1,461 (288) (42) 1,131 124 1 – – – 1,256 (919) – – – (1) (378) – – (1,298) (42) 81.3 33.4 114.7 2011 1,295 (224) 7 1,078 144 – – – – 1,222 (857) – – – (2) (375) – – (1,234) (12) 79.5 34.8 114.3 global Insurance lines & anglo markets 2 2012 2011 9,426 8,602 (2,477) (2,192) (617) (573) 6,332 5,837 569 536 (21) (32) – – 288 305 – – 7,168 6,646 (4,263) (4,092) (29) (30) (10) (12) – – (44) (18) (1,763) (1,627) (237) (259) – – (6,346) (6,038) 822 608 67.4 70.1 27.8 27.9 95.2 98.0 growth markets 2012 2011 1,610 1,685 (382) (363) (46) (105) 1,182 1,217 81 77 (1) (5) – – 30 26 1 – 1,293 1,315 (730) (750) 2 – (1) (4) – – (5) (6) (420) (418) (32) (28) – – (1,186) (1,206) 107 109 61.8 61.7 35.5 34.3 97.3 96.0 assistance 2012 905 (13) (55) 837 16 – – 212 – 1,065 (504) – (1) – – (302) (209) – (1,016) 49 60.2 36.1 96.3 2011 868 (7) (87) 774 13 (1) – 184 2 972 (465) – (1) – – (279) (186) – (931) 41 60.1 36.0 96.1 consolidation and other 1 2012 2011 (2,471) (2,266) 2,471 2,286 – – – 20 (36) (37) – – – – (35) (38) – (1) (71) (56) – (13) – – 36 37 – – – – 8 9 27 28 – – 71 61 – 5 – 6 – 6 – 6 – 6 – 6 – 6 n o t e 3 g e n e r a l I n F o r m a t I o n property-casualty 2012 2011 25,523 24,445 (2,624) (2,469) (2,552) (2,422) 20,347 19,554 1,915 1,876 (5) 28 14 12 581 562 17 11 22,869 22,043 (14,001) (13,709) (156) (180) (22) (27) (14) (7) (137) (117) (5,688) (5,476) (540) (529) (10) (6) (20,568) (20,051) 2,301 1,992 68.8 70.1 28.0 28.0 96.8 98.1 7 3 7 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – life/Health german Speaking countries Western & Southern europe Iberia & latin america three months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 Statutory premiums 1 ceded premiums written 4,585 (43) 4,842 (42) 4,532 (310) 4,110 (77) 374 (13) 333 (12) change in unearned premiums (42) (34) 16 20 – 1 Statutory premiums (net) 4,500 4,766 4,238 4,053 361 322 deposits from insurance and investment contracts (1,086) (1,324) (3,220) (2,970) (199) (187) Premiums earned (net) 3,414 3,442 1,018 1,083 162 135 Interest and similar income 2,323 2,203 1,106 1,098 88 86 operating income from financial assets and liabilities carried at fair value through income (net) 139 17 (80) 6 – (1) operating realized gains/losses (net) 533 190 144 113 (3) 1 Fee and commission income 13 9 82 95 2 1 other income 33 21 4 1 – – Operating revenues 6,455 5,882 2,274 2,396 249 222 claims and insurance benefits incurred (net) (3,026) (3,168) (930) (970) (160) (137) change in reserves for insurance and investment contracts (net) (2,368) (1,730) (534) (482) (5) (7) Interest expenses (27) (30) (5) (4) (1) (2) operating impairments of investments (net) (106) (181) (94) (199) – (1) Investment expenses (131) (110) (44) (54) (1) (1) acquisition and administrative expenses (net) (398) (369) (392) (433) (45) (39) Fee and commission expenses (3) (3) (42) (35) – – operating restructuring charges – (1) – – – – other expenses (20) (16) (2) (1) – – Operating expenses (6,079) (5,608) (2,043) (2,178) (212) (187) Operating profit (loss) 376 274 231 218 37 35 Margin on reserves 2 in basis points 73 57 73 69 217 210 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 | represents operating profit (loss) divided by the average of the current quarter end and prior quarter end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 | presentation not meaningful. uSa 2012 1,976 (31) – 1,945 (1,747) 198 701 (255) 49 16 – 709 (25) (392) (1) 1 (9) (146) (10) – – (582) 127 76 2011 2,069 (30) 1 2,040 (1,874) 166 619 (112) 17 14 – 704 (18) (381) (1) (4) (10) (151) (8) – – (573) 131 91 global Insurance lines & anglo markets 2012 2011 120 94 (13) (14) – – 107 80 – – 107 80 19 21 2 (19) – – – – – – 128 82 (90) (86) (15) 18 (1) (1) – – – (1) (27) (13) – – – – – – (133) (83) (5) (1) (97) (18) growth markets 2012 2011 1,576 1,630 (71) (40) (25) (43) 1,480 1,547 (845) (1,009) 635 538 203 189 (7) (3) 10 14 18 19 – – 859 757 (339) (345) (203) (156) (2) (3) (5) 1 (6) (7) (244) (226) – – – – – – (799) (736) 60 21 93 38 consolidation 2012 (302) 302 – – – – (17) (4) – – – (21) – – 16 – – – – – – 16 (5) – 3 2011 (100) 100 – – – – (19) 2 – – – (17) – – 20 – – (2) – – – 18 1 – 3 n o t e 3 g e n e r a l I n F o r m a t I o n life/Health 2012 2011 12,861 12,978 (179) (115) (51) (55) 12,631 12,808 (7,097) (7,364) 5,534 5,444 4,423 4,197 (205) (110) 733 335 131 138 37 22 10,653 10,026 (4,570) (4,724) (3,517) (2,738) (21) (21) (204) (384) (191) (183) (1,252) (1,233) (55) (46) – (1) (22) (17) (9,832) (9,347) 821 679 76 66 7 5 7 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – life/Health (continued) german Speaking countries Western & Southern europe Iberia & latin america Six months ended 30 June | in € mn 2012 2011 2012 2011 2012 2011 Statutory premiums 1 ceded premiums written 10,507 (85) 10,601 (84) 8,332 (473) 8,555 (167) 728 (26) 687 (25) change in unearned premiums (76) (80) 18 8 (1) – Statutory premiums (net) 10,346 10,437 7,877 8,396 701 662 deposits from insurance and investment contracts (2,778) (2,914) (5,770) (6,191) (333) (372) Premiums earned (net) 7,568 7,523 2,107 2,205 368 290 Interest and similar income 4,396 4,186 2,088 2,039 184 175 operating income from financial assets and liabilities carried at fair value through income (net) 81 (65) (5) 87 5 1 operating realized gains/losses (net) 1,438 589 255 362 (19) 2 Fee and commission income 22 14 165 186 3 2 other income 73 43 6 2 – – Operating revenues 13,578 12,290 4,616 4,881 541 470 claims and insurance benefits incurred (net) (6,566) (6,682) (1,879) (1,829) (301) (278) change in reserves for insurance and investment contracts (net) (4,942) (3,802) (1,165) (1,360) (77) (38) Interest expenses (51) (62) (12) (14) (2) (2) operating impairments of investments (net) (131) (218) (138) (225) – (1) Investment expenses (234) (217) (86) (105) (3) (3) acquisition and administrative expenses (net) (904) (699) (825) (840) (98) (77) Fee and commission expenses (12) (7) (84) (83) – – operating restructuring charges (1) (1) – – – – other expenses (37) (29) (4) (2) – – Operating expenses (12,878) (11,717) (4,193) (4,458) (481) (399) Operating profit 700 573 423 423 60 71 Margin on reserves 2 in basis points 69 59 68 67 176 215 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 | represents operating profit divided by the average of the current quarter end and prior year end net reserves, whereby net reserves equals reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 | presentation not meaningful. uSa 2012 3,999 (61) – 3,938 (3,540) 398 1,405 (423) 72 31 – 1,483 (47) (680) (3) 8 (17) (429) (22) – – (1,190) 293 87 2011 4,008 (61) (1) 3,946 (3,613) 333 1,256 (266) 28 27 – 1,378 (37) (781) (3) (4) (20) (295) (15) – – (1,155) 223 77 global Insurance lines & anglo markets 2012 2011 240 193 (25) (21) – – 215 172 – – 215 172 36 44 (21) (32) – – – – – – 230 184 (167) (169) (9) 18 (1) (1) – – – (2) (45) (26) – – – – – – (222) (180) 8 4 70 41 growth markets 2012 2011 3,204 3,379 (113) (99) (59) (71) 3,032 3,209 (1,793) (2,103) 1,239 1,106 408 368 (3) (4) 54 72 37 39 – – 1,735 1,581 (719) (617) (358) (404) (4) (5) (5) 2 (13) (13) (471) (463) – – – – – – (1,570) (1,500) 165 81 130 69 consolidation 2012 (450) 450 – – – – (32) (1) – – – (33) – – 32 – – (1) – – – 31 (2) – 3 2011 (175) 175 – – – – (38) 7 – – – (31) – – 40 – (1) (2) – – – 37 6 – 3 n o t e 3 g e n e r a l I n F o r m a t I o n life/Health 2012 2011 26,560 27,248 (333) (282) (118) (144) 26,109 26,822 (14,214) (15,193) 11,895 11,629 8,485 8,030 (367) (272) 1,800 1,053 258 268 79 45 22,150 20,753 (9,679) (9,612) (7,231) (6,367) (41) (47) (266) (446) (353) (361) (2,773) (2,402) (118) (105) (1) (1) (41) (31) (20,503) (19,372) 1,647 1,381 77 67 7 7 7 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – asset management three months ended 30 June | in € mn net fee and commission income 1 net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) other income Operating revenues administrative expenses (net), excluding acquisition-related expenses Operating expenses Operating profit Cost-income ratio 3 in % 1 | represents fee and commission income less fee and commission expenses. 2 | represents interest and similar income less interest expenses. 3 | represents operating expenses divided by operating revenues. Six months ended 30 June | in € mn net fee and commission income 1 net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) other income Operating revenues administrative expenses (net), excluding acquisition-related expenses Operating expenses Operating profit Cost-income ratio 3 in % 1 | represents fee and commission income less fee and commission expenses. 2 | represents interest and similar income less interest expenses. 3 | represents operating expenses divided by operating revenues. 2012 1,494 6 (7) 4 1,497 (862) (862) 635 57.6 2012 2,909 12 7 8 2,936 (1,688) (1,688) 1,248 57.5 2011 1,297 4 (3) 5 1,303 (775) (775) 528 59.5 2011 2,553 11 3 9 2,576 (1,520) (1,520) 1,056 59.0 n o t e 3 g e n e r a l I n F o r m a t I o n 7 9 8 0 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S reportable Segments – corporate and other Holding & treasury three months ended 30 June | in € mn 2012 Interest and similar income 72 operating income from financial assets and liabilities carried at fair value through income (net) 12 Fee and commission income 18 other income – Operating revenues 102 Interest expenses, excluding interest expenses from external debt (103) loan loss provisions – Investment expenses (27) administrative expenses (net), excluding acquisition-related expenses (135) Fee and commission expenses (21) other expenses – Operating expenses (286) Operating profit (loss) (184) Cost-income ratio 1 for the reportable segment Banking in % 1 | represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. Holding & treasury Six months ended 30 June | in € mn 2012 Interest and similar income 127 operating income from financial assets and liabilities carried at fair value through income (net) 14 Fee and commission income 31 other income – Operating revenues 172 Interest expenses, excluding interest expenses from external debt (212) loan loss provisions – Investment expenses (47) administrative expenses (net), excluding acquisition-related expenses (281) Fee and commission expenses (83) other expenses – Operating expenses (623) Operating profit (loss) (451) Cost-income ratio 1 for the reportable segment Banking in % 1 | represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. 2011 134 (4) 37 – 167 (113) – (23) (147) (54) – (337) (170) 2011 199 (5) 83 – 277 (214) – (46) (287) (121) – (668) (391) Banking 2012 183 (1) 107 – 289 (87) (42) – (118) (62) (1) (310) (21) 85.0 Banking 2012 373 7 219 – 599 (178) (88) – (243) (125) (1) (635) (36) 82.4 2011 183 1 111 – 295 (95) (33) – (126) (64) (1) (319) (24) 93.4 2011 361 10 218 – 589 (184) (49) – (259) (117) (2) (611) (22) 90.6 alternative Investments 2012 4 (1) 39 1 43 – – 1 (31) – – (30) 13 alternative Investments 2012 10 (1) 78 2 89 (2) – (2) (73) – – (77) 12 2011 4 – 29 2 35 1 – (2) (45) – – (46) (11) 2011 6 – 59 3 68 – – (2) (81) – – (83) (15) consolidation 2012 – – (3) – (3) 1 – 1 1 1 – 4 1 consolidation 2012 (1) – (5) (1) (7) 1 – 1 4 1 – 7 – 2011 (1) 1 (2) – (2) – – – 1 1 – 2 – 2011 (1) – (3) (1) (5) 1 – – 3 1 – 5 – n o t e 3 g e n e r a l I n F o r m a t I o n corporate and other 2012 2011 259 320 10 (2) 161 175 1 2 431 495 (189) (207) (42) (33) (25) (25) (283) (317) (82) (117) (1) (1) (622) (700) (191) (205) corporate and other 2012 2011 509 565 20 5 323 357 1 2 853 929 (391) (397) (88) (49) (48) (48) (593) (624) (207) (237) (1) (2) (1,328) (1,357) (475) (428) 8 1 8 2 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S II. Supplementary Information to the consolidated Balance Sheets 4 Financial assets carried at fair value through income In € mn As of 30 June 2012 as of 31 december 2011 Financial assets held for trading debt securities 184 238 equity securities 143 135 derivative financial instruments 1,945 2,096 Subtotal 2,272 2,469 Financial assets designated at fair value through income debt securities 2,570 3,375 equity securities 2,792 2,622 Subtotal 5,362 5,997 Total 7,634 8,466 5 Investments In € mn As of 30 June 2012 as of 31 december 2011 available-for-sale investments 357,018 333,880 Held-to-maturity investments 4,612 4,220 Funds held by others under reinsurance contracts assumed 1,122 1,123 Investments in associates and joint ventures 2,856 2,758 real estate held for investment 8,768 8,664 Total 374,376 350,645 6 n o t e S 4 , 5 , 6 n o t e S t o t H e c o n S o l I d a t e d B a l a n c e S H e e t S ◼ av aIl aB le- Fo r-S a le In v e S t men t S As of 30 June 2012 as of 31 december 2011 In € mn amortized cost unrealized gains unrealized losses Fair value amortized cost unrealized gains unrealized losses Fair value Debt securities government and agency mortgage- backed securities (residential and commercial) 5,357 328 (2) 5,683 5,095 300 (1) 5,394 corporate mortgage-backed securities (residential and commercial) 11,049 1,096 (131) 12,014 10,868 863 (182) 11,549 other asset-backed securities 2,416 248 (26) 2,638 2,393 196 (30) 2,559 Government and government agency bonds germany 12,493 1,375 (4) 13,864 11,988 1,269 (3) 13,254 Italy 34,263 42 (2,056) 32,249 30,158 4 (3,263) 26,899 France 26,535 2,186 (24) 28,697 25,326 1,531 (45) 26,812 united States 8,111 848 (8) 8,951 7,202 704 (3) 7,903 Spain 3,845 3 (446) 3,402 5,097 46 (286) 4,857 Belgium 7,809 579 (4) 8,384 5,801 175 (25) 5,951 greece 38 – (15) 23 303 – – 303 portugal 250 – (53) 197 761 – (209) 552 Ireland 160 – (8) 152 439 – (51) 388 Hungary 722 3 (11) 714 723 – (60) 663 all other countries 44,925 3,697 (146) 48,476 41,887 2,903 (155) 44,635 Subtotal 139,151 8,733 (2,775) 145,109 129,685 6,632 (4,100) 132,217 corporate bonds 1 other 156,967 2,448 9,679 214 (2,777) (75) 163,869 2,587 151,481 2,045 6,571 190 (4,298) (16) 153,754 2,219 Subtotal equity securities 2 Total 317,388 17,578 334,966 20,298 7,666 27,964 (5,786) (126) (5,912) 331,900 25,118 357,018 301,567 18,746 320,313 14,752 7,623 22,375 (8,627) (181) (8,808) 307,692 26,188 333,880 1 | Includes bonds issued by Spanish banks with a fair value of € 476 mn (2011: € 1,115 mn), thereof subordinated bonds with a fair value of € 150 mn (2011: € 322 mn). 2 | Includes shares invested in Spanish banks with a fair value of € 275 mn (2011: € 521 mn). loans and advances to banks and customers As of 30 June 2012 as of 31 december 2011 In € mn Banks customers total Banks customers total Short-term investments and certificates of deposit 6,085 – 6,085 6,341 – 6,341 reverse repurchase agreements 918 – 918 1,147 – 1,147 collateral paid for securities borrowing transactions and derivatives 231 – 231 264 – 264 loans 66,645 48,279 114,924 67,442 48,393 115,835 other 1,302 37 1,339 1,310 38 1,348 Subtotal 75,181 48,316 123,497 76,504 48,431 124,935 loan loss allowance – (217) (217) – (197) (197) Total 75,181 48,099 123,280 76,504 48,234 124,738 ◼ lo a nS a nd a dva n ce S to cuS to mer S BY t Y pe o F cuS to mer In € mn As of 30 June 2012 as of 31 december 2011 corporate customers 17,303 17,354 private customers 23,461 23,430 public customers 7,552 7,647 Total 48,316 48,431 8 3 8 4 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S 7 reinsurance assets In € mn unearned premiums reserves for loss and loss adjustment expenses aggregate policy reserves other insurance reserves Total 8 deferred acquisition costs In € mn Deferred acquisition costs property-casualty life/Health asset management Subtotal present value of future profits deferred sales inducements Total 9 other assets In € mn Receivables policyholders agents reinsurers other less allowance for doubtful accounts Subtotal Tax receivables Income taxes other taxes Subtotal accrued dividends, interest and rent Prepaid expenses Interest and rent other prepaid expenses Subtotal derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Property and equipment real estate held for own use Software equipment Fixed assets of alternative Investments Subtotal other assets Total As of 30 June 2012 2,076 7,048 4,414 96 13,634 As of 30 June 2012 4,504 13,979 141 18,624 987 658 20,269 As of 30 June 2012 6,135 4,857 3,069 4,242 (676) 17,627 1,509 1,036 2,545 6,859 17 325 342 253 2,882 1,515 863 1,203 6,463 1,956 36,045 as of 31 december 2011 1,394 7,006 4,364 110 12,874 as of 31 december 2011 4,197 14,579 146 18,922 1,053 797 20,772 as of 31 december 2011 5,653 4,352 2,497 3,405 (669) 15,238 1,708 1,150 2,858 7,672 18 286 304 430 2,806 1,393 849 1,113 6,161 1,683 34,346 10 11 n o t e S 7 - 1 1 n o t e S t o t H e c o n S o l I d a t e d B a l a n c e S H e e t S non-current assets and assets and liabilities of disposal groups classified as held for sale In € mn As of 30 June 2012 as of 31 december 2011 Assets of disposal groups classified as held for sale llc allianz life, moscow – 4 Seed money investments 145 7 Subtotal 145 11 Non-current assets classified as held for sale real estate held for investment 3 3 Subtotal 3 3 Total 148 14 as of 30 June 2012, the allianz group owned a seed money investment for which a sale is expected to occur within one year. this seed money investment pertains to allianz life Insurance company of north america, which made the invest- ment to launch a new investment fund for its variable annuity business. the assets in the amount of € 145 mn relating to this investment fund have been classified as a disposal group held for sale and pertain to the segment life/Health. the investment fund is primarily comprised of equity and debt securities. upon measurement of the disposal group at fair value less costs to sell, no impairment loss was recognized in the consolidated income statement for the six months ended 30 June 2012. Intangible assets In € mn As of 30 June 2012 as of 31 december 2011 Intangible assets with indefinite useful lives goodwill Brand names 1 Subtotal 11,819 304 12,123 11,722 310 12,032 Intangible assets with finite useful lives long-term distribution agreements 2 customer relationships other 3 Subtotal 911 179 119 1,209 941 207 124 1,272 Total 13,332 13,304 1 | Includes primarily the brand name of Selecta ag, muntelier. 2 | consists of the long-term distribution agreements with commerzbank ag of € 517 mn (2011: € 539 mn) and Banco popular S.a. of € 394 mn (2011: € 402 mn). 3 | Includes primarily acquired business portfolios and renewal rights of € 40 mn (2011: € 44 mn), other distribution rights of € 22 mn (2011: € 22 mn), bancassurance agreements of € 11 mn (2011: € 12 mn) and research and development costs of € 13 mn (2011: € 9 mn). ◼ go o dw Ill In € mn 2012 cost as of 1 January 12,527 accumulated impairments as of 1 January (805) Carrying amount as of 1 January 11,722 additions 1 disposals – Foreign currency translation adjustments 96 Impairments – Carrying amount as of 30 June 11,819 accumulated impairments as of 30 June 805 cost as of 30 June 12,624 8 5 8 6 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S 12 Financial liabilities carried at fair value through income In € mn As of 30 June 2012 as of 31 december 2011 Financial liabilities held for trading derivative financial instruments 6,085 6,608 other trading liabilities 2 2 Subtotal 6,087 6,610 Financial liabilities designated at fair value through income – – Total 6,087 6,610 13 liabilities to banks and customers As of 30 June 2012 as of 31 december 2011 In € mn Banks customers total Banks customers total payable on demand 65 4,541 4,606 409 4,138 4,547 Savings deposits – 2,963 2,963 – 2,879 2,879 term deposits and certificates of deposit 1,036 2,084 3,120 1,107 2,234 3,341 repurchase agreements 806 317 1,123 229 106 335 collateral received from securities lending transactions and derivatives 2,046 – 2,046 2,151 – 2,151 other 5,555 3,301 8,856 5,693 3,209 8,902 Total 9,508 13,206 22,714 9,589 12,566 22,155 14 reserves for loss and loss adjustment expenses In € mn As of 30 June 2012 as of 31 december 2011 property-casualty 60,598 59,493 life/Health 9,627 9,357 consolidation (19) (18) Total 70,206 68,832 ◼ cHa n ge In t He r e Serv e S Fo r loS S a nd loS S a dj uS t men t e x penSe S Fo r t He pro pert Y- c a Sua lt Y Segmen t 2012 2011 In € mn gross ceded net gross ceded net As of 1 January 59,493 (6,658) 52,835 57,509 (6,659) 50,850 Loss and loss adjustment expenses incurred current year 15,540 (1,054) 14,486 15,817 (1,333) 14,484 prior years (599) 114 (485) (1,188) 413 (775) Subtotal 14,941 (940) 14,001 14,629 (920) 13,709 Loss and loss adjustment expenses paid current year (5,631) 298 (5,333) (5,251) 193 (5,058) prior years (8,753) 742 (8,011) (8,747) 801 (7,946) Subtotal (14,384) 1,040 (13,344) (13,998) 994 (13,004) Foreign currency trans lation adjustments and other changes 548 (87) 461 (1,088) 310 (778) changes in the consolidated subsidiaries of the allianz group – – – 20 (8) 12 reclassifications – – – (6) 3 (3) As of 30 June 60,598 (6,645) 53,953 57,066 (6,280) 50,786 15 16 n o t e S 1 2 - 1 6 n o t e S t o t H e c o n S o l I d a t e d B a l a n c e S H e e t S reserves for insurance and investment contracts In € mn As of 30 June 2012 as of 31 december 2011 aggregate policy reserves 346,322 338,318 reserves for premium refunds 28,900 22,868 other insurance reserves 775 768 Total 375,997 361,954 other liabilities In € mn As of 30 June 2012 as of 31 december 2011 Payables policyholders 4,198 4,979 reinsurance 2,588 1,990 agents 1,518 1,443 Subtotal 8,304 8,412 payables for social security 393 469 Tax payables Income taxes 1,951 1,504 other taxes 1,175 1,086 Subtotal 3,126 2,590 accrued interest and rent 618 695 Unearned income Interest and rent 15 6 other 281 268 Subtotal 296 274 Provisions pensions and similar obligations 3,778 3,754 employee related 1,902 1,901 Share-based compensation plans 561 792 restructuring plans 341 280 loan commitments 85 24 contingent losses from non-insurance business 182 374 other provisions 1,335 1,430 Subtotal 8,184 8,555 deposits retained for reinsurance ceded 1,853 1,760 derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 243 237 Financial liabilities for puttable equity instruments 2,674 2,881 other liabilities 6,389 5,337 Total 32,080 31,210 ◼ r e S t ru c t urIn g pl a nS the increase in the restructuring provisions is mainly driven by two new restructuring programs. allianz global Inves- tors (agI) recorded restructuring provisions of € 59 mn and restructuring charges of € 60 mn in order to create a global investment platform with the purpose of improving efficiency and positioning for growth. the restructuring measures primarily comprise reductions in headcount. In addition, allianz Beratungs- und vertriebs-ag recorded restructuring provisions as well as restructuring charges of € 52 mn in order to reduce staff in the bancassurance operations. the usage of the provisions as well as the transfers to other provisions of other restructuring programs partially offset this increase. there were no other significant changes in the estimates for restructuring charges as described in the allianz group annual report 2011. 8 7 8 8 I n t e r I m r e p o r t S e c o n d Q u a r t e r a n d F I r S t H a l F Y e a r o F 2 0 1 2 | a l l I a n z g r o u p c o n d e n S e d c o n S o l I d a t e d I n t e r I m F I n a n c I a l S t a t e m e n t S 17 certificated liabilities In € mn As of 30 June 2012 as of 31 december 2011 Allianz SE 1 Senior bonds 2 money market securities 6,824 1,318 5,343 1,119 Subtotal 8,142 6,462 Banking subsidiaries Senior bonds 1,132 1,162 Subtotal 1,132 1,162 All other subsidiaries certificated liabilities 25 25 Subtotal 25 25 Total 9,299 7,649 1 | Includes senior bonds issued by allianz Finance II B.v., guaranteed by allianz Se, and money market securities issued by allianz Finance corporation, a wholly-owned subsidiary of allianz Se, which are fully and unconditionally guaranteed by allianz Se. 2 | change due to the issuance of a € 1.5 bn bond in the first quarter of 2012. 18 participation certificates and subordinated liabilities In € mn As of 30 June 2012 as of 31 december 2011 Allianz SE 1 Subordinated bonds 2 Subtotal 8,712 8,712 10,456 10,456 Banking subsidiaries Subordinated bonds 274 274 Subtotal 274 274 All other subsidiaries Subordinated bonds 399 398 Hybrid equity 45 45 Subtotal 444 443 Total 9,430 11,173 1 | Includes subordinated bonds issued by allianz Finance II B.v. and guaranteed by allianz Se. 2 | change due to redemption of a € 2 bn subordinated bond in the second quarter of 2012. 19 equity In € mn As of 30 June 2012 as of 31 december 2011 Shareholders’ equity Issued capital 1,166 1,166 capital reserves retained earnings 1 Foreign currency translation adjustments unrealized gains and losses (net) 2 Subtotal 27,597 14,081 (1,555) 6,724 48,013 27,597 13,522 (1,996) 4,626 44,915 non-controlling interests 2,389 2,338 Total 50,402 47,253 1 | Include € (211) mn (2011: € (223) mn) related to treasury shares. 2 | Include € 218 mn (2011: € 191 mn) related to cash flow hedges. ◼ d Iv Id endS In the second quarter of 2012, a total dividend of € 2,037 mn (2011: € 2,032 mn) or € 4.50 (2011: € 4.50) per qualifying share was paid to the shareholders. ii. 20 N o t e s 1 7 - 2 0 N o t e s t o t h e C o N s o l i d a t e d B a l a N C e s h e e t s , N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s supplementary information to the Consolidated income statements Premiums earned (net) three months ended 30 June | in € mn Property-Casualty life/health Consolidation 2012 Premiums written direct 9,841 5,603 – assumed 885 148 (10) Subtotal 10,726 5,751 (10) Ceded (1,161) (166) 10 Net 9,565 5,585 – Change in unearned premiums direct 735 (51) – assumed (202) 2 – Subtotal 533 (49) – Ceded 168 (2) – Net 701 (51) – Premiums earned direct 10,576 5,552 – assumed 683 150 (10) Subtotal 11,259 5,702 (10) Ceded (993) (168) 10 Net 10,266 5,534 – 2011 Premiums written direct 9,368 5,499 – assumed 826 116 (6) Subtotal 10,194 5,615 (6) Ceded (1,123) (116) 6 Net 9,071 5,499 – Change in unearned premiums direct 791 (54) – assumed (173) – – Subtotal 618 (54) – Ceded 189 (1) – Net 807 (55) – Premiums earned direct 10,159 5,445 – assumed 653 116 (6) Subtotal 10,812 5,561 (6) Ceded (934) (117) 6 Net 9,878 5,444 – Group 15,444 1,023 16,467 (1,317) 15,150 684 (200) 484 166 650 16,128 823 16,951 (1,151) 15,800 14,867 936 15,803 (1,233) 14,570 737 (173) 564 188 752 15,604 763 16,367 (1,045) 15,322 8 9 9 0 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 20 Premiums earned (net) (continued) six months ended 30 June | in € mn Property-Casualty 2012 Premiums written direct 23,851 assumed 1,672 Subtotal 25,523 Ceded (2,624) Net 22,899 Change in unearned premiums direct (2,848) assumed (350) Subtotal (3,198) Ceded 646 Net (2,552) Premiums earned direct 21,003 assumed 1,322 Subtotal 22,325 Ceded (1,978) Net 20,347 2011 Premiums written direct 22,961 assumed 1,484 Subtotal 24,445 Ceded (2,469) Net 21,976 Change in unearned premiums direct (2,714) assumed (279) Subtotal (2,993) Ceded 571 Net (2,422) Premiums earned direct 20,247 assumed 1,205 Subtotal 21,452 Ceded (1,898) Net 19,554 21 interest and similar income in € mn interest from held-to-maturity investments dividends from available-for-sale investments interest from available-for-sale investments share of earnings from investments in associates and joint ventures rent from real estate held for investment interest from loans to banks and customers other interest Total life/health Consolidation Group 12,041 – 35,892 283 (21) 1,934 12,324 (21) 37,826 (311) 21 (2,914) 12,013 – 34,912 (118) – (2,966) 1 2 (347) (117) 2 (3,313) (1) (2) 643 (118) – (2,670) 11,923 – 32,926 284 (19) 1,587 12,207 (19) 34,513 (312) 19 (2,271) 11,895 – 32,242 11,812 – 34,773 232 (12) 1,704 12,044 (12) 36,477 (271) 12 (2,728) 11,773 – 33,749 (145) – (2,859) 1 – (278) (144) – (3,137) – – 571 (144) – (2,566) 11,667 – 31,914 233 (12) 1,426 11,900 (12) 33,340 (271) 12 (2,157) 11,629 – 31,183 three months ended 30 June six months ended 30 June 2012 2011 2012 2011 50 44 102 90 505 546 673 693 3,351 3,106 6,655 6,200 36 65 45 84 187 187 368 379 1,329 1,373 2,711 2,728 30 29 66 70 5,488 5,350 10,620 10,244 22 N o t e s 2 0 , 2 1 , 2 2 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s income from financial assets and liabilities carried at fair value through income (net) three months ended 30 June | in € mn Property- Casualty life/health asset management Corporate and other Consoli- dation Group 2012 income (expenses) from financial assets and liabilities held for trading (net) (124) (447) (5) 129 (6) (453) income (expenses) from financial assets and liabilities designated at fair value through income (net) 11 (63) (9) (1) – (62) income (expenses) from financial liabilities for puttable equity instruments (net) (10) 32 7 – – 29 Foreign currency gains and losses (net) 34 277 – (9) – 302 Total (89) (201) (7) 119 (6) (184) 2011 income (expenses) from financial assets and liabilities held for trading (net) (5) 17 1 (9) 5 9 income (expenses) from financial assets and liabilities designated at fair value through income (net) 33 (34) – (1) – (2) income (expenses) from financial liabilities for puttable equity instruments (net) (4) 64 2 – – 62 Foreign currency gains and losses (net) (29) (160) (6) (25) (4) (224) Total (5) (113) (3) (35) 1 (155) six months ended 30 June | in € mn Property- Casualty life/health asset management Corporate and other Consoli- dation Group 2012 income (expenses) from financial assets and liabilities held for trading (net) (96) (686) (4) 356 (8) (438) income (expenses) from financial assets and liabilities designated at fair value through income (net) 28 156 31 (2) (1) 212 income (expenses) from financial liabilities for puttable equity instruments (net) (13) (82) (20) – – (115) Foreign currency gains and losses (net) 14 262 – (25) – 251 Total (67) (350) 7 329 (9) (90) 2011 income (expenses) from financial assets and liabilities held for trading (net) 41 243 2 (113) 1 174 income (expenses) from financial assets and liabilities designated at fair value through income (net) 44 46 5 (6) – 89 income (expenses) from financial liabilities for puttable equity instruments (net) 6 45 3 – – 54 Foreign currency gains and losses (net) (75) (618) (7) 3 – (697) Total 16 (284) 3 (116) 1 (380) ◼ iN Co me (e xPeNse s) F ro m F iN a N Ci a l a s se t s a Nd li a Bili t ie s held F o r t r a d iN G (Ne t ) l i F e /h e a lt h seG m e N t For the six months ended 30 June 2012, income (expenses) from financial assets and liabilities held for trading (net) in the life/health segment includes expenses of € 706 mn (2011: income of € 235 mn) from derivative financial instruments. this includes expenses of € 193 mn (2011: income of € 534 mn) of German entities from financial derivative positions held for duration management and protection against equity and foreign exchange rate fluctuations. also included are expenses related to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts of € 438 mn (2011: € 275 mn) from u.s. entities. 9 1 9 2 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s C o rP o r at e aN d ot h e r seG m e N t For the six months ended 30 June 2012 income (expenses) from financial assets and liabilities held for trading (net) in the Corporate and other segment includes income of € 375 mn (2011: expenses of € 92 mn) from derivative financial instruments. this includes income of € 31 mn (2011: expenses of € 5 mn) from financial derivative instruments to protect investments and liabilities against foreign exchange rate fluctuations. in 2012, hedging of equity investments not designated for hedge accounting induced income of € 6 mn (2011: expenses of € 17 mn). Financial derivatives related to investment strategies generated income of € 180 mn (2011: expenses of € 109 mn). expenses of € 27 mn (2011: € 31 mn) from the hedges of share based compensation plans (restricted stock units) are also included. ◼ iN Co me (e xPeNse s) F ro m F iN a N Ci a l a s se t s a Nd li a Bili t ie s d e si GN at ed at Fa ir va lu e t hro u Gh iN Co me (Ne t ) For the six months ended 30 June 2012, income (expenses) from financial assets and liabilities designated at fair value through income (net) in the life/health segment includes income from equity investments of € 87 mn (2011: € 65 mn) and income of € 69 mn (2011: expenses of € 19 mn) from debt investments. ◼ F o r eiG N Cur r eN C Y G a iNs a Nd los se s (Ne t ) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). these foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, that are monetary items. this excludes exchange differences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed separately. the allianz Group uses freestanding derivatives to hedge against foreign currency fluctuations, for which it recognized expenses of € (284) mn (2011: income of € 506 mn) for the six months ended 30 June 2012. 23 realized gains/losses (net) three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 r e a l i z e d G a i N s Available-for-sale investments equity securities 425 321 1,388 1,024 debt securities 500 336 955 781 Subtotal 925 657 2,343 1,805 investments in associates and joint ventures 1 real estate held for investment 1 46 3 66 2 61 3 139 loans and advances to banks and customers 474 29 606 88 Non-current assets and assets and liabilities of disposal groups classified as held for sale – – 8 76 Subtotal 1,446 755 3,020 2,111 r e a l i z e d lo s s e s Available-for-sale investments equity securities (74) (40) (128) (83) debt securities (258) (207) (587) (404) Subtotal (332) (247) (715) (487) investments in associates and joint ventures 2 real estate held for investment – – (16) (1) – (1) (16) (1) loans and advances to banks and customers 1 (6) (1) (6) Non-current assets and assets and liabilities of disposal groups classified as held for sale – – – (2) Subtotal (331) (270) (717) (512) Total 1,115 485 2,303 1,599 1 | during the three and six months ended 30 June 2012 and 2011, includes no realized gains from the disposal of subsidiaries. 2 | during the three and six months ended 30 June 2012, includes realized losses from the disposal of subsidiaries and businesses of € – mn (2011: € 14 mn). 24 Fee and commission income three months ended 30 June | in € mn P r o P e r tY- C a s u a lt Y Fees from credit and assistance business service agreements Subtotal l i F e /h e a lt h service agreements investment advisory Subtotal a s s e t m a N a G e m e N t management fees loading and exit fees Performance fees other Subtotal C o r P o r at e aN d ot h e r service agreements investment advisory and Banking activities Subtotal Total six months ended 30 June | in € mn P r o P e r tY- C a s u a lt Y Fees from credit and assistance business service agreements Subtotal l i F e /h e a lt h service agreements investment advisory Subtotal a s s e t m a N a G e m e N t management fees loading and exit fees Performance fees other Subtotal C o r P o r at e aN d ot h e r service agreements investment advisory and Banking activities Subtotal Total segment 174 117 291 18 113 131 1,578 161 55 31 1,825 19 142 161 2,408 segment 363 218 581 37 221 258 3,085 265 99 68 3,517 32 291 323 4,679 2012 Consoli- dation (2) (13) (15) (1) (14) (15) (32) – (1) (3) (36) (3) (54) (57) (123) 2012 Consoli- dation (3) (28) (31) (2) (26) (28) (66) – (1) (7) (74) (6) (110) (116) (249) N o t e s 2 2 , 2 3 , 2 4 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s 2011 Group segment Consoli- dation Group 172 174 (2) 172 104 115 (15) 100 276 289 (17) 272 17 22 (5) 17 99 116 (13) 103 116 138 (18) 120 1,546 1,353 (36) 1,317 161 92 – 92 54 81 1 82 28 51 (3) 48 1,789 1,577 (38) 1,539 16 36 (3) 33 88 139 (65) 74 104 175 (68) 107 2,285 2,179 (141) 2,038 2011 Group segment Consoli- dation Group 360 338 (2) 336 190 224 (30) 194 550 562 (32) 530 35 39 (9) 30 195 229 (22) 207 230 268 (31) 237 3,019 2,689 (70) 2,619 265 187 – 187 98 137 1 138 61 95 (7) 88 3,443 3,108 (76) 3,032 26 82 (7) 75 181 275 (124) 151 207 357 (131) 226 4,430 4,295 (270) 4,025 9 3 9 4 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 25 other income three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 realized gains from disposals of real estate held for own use 7 1 14 2 income from alternative investments 46 27 88 53 other 5 5 7 9 Total 58 33 109 64 26 income and expenses from fully consolidated private equity investments three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Income sales and service revenues 198 442 393 832 other operating revenues – 13 – 16 interest income – 1 – 1 Subtotal 198 456 393 849 Expenses Cost of goods sold (64) (265) (126) (483) Commissions – (24) – (50) General and administrative expenses (128) (156) (258) (307) other operating expenses – (23) – (39) interest expenses Subtotal 1 (7) (199) (14) (482) (22) (406) (33) (912) Total 1 (1) (26) (13) (63) 1 | the presented subtotal for expenses and total income and expenses from fully consolidated private equity investments for the three and the six months ended 30 June 2012 differs from the amounts presented in the “Consolidated income statements” and in “total revenues and reconciliation of operating Profit (loss) to Net income (loss)”. this difference is due to a consolidation effect of € (46) mn (2011: € 13 mn) and € (40) mn (2011: € 31 mn) for the three and the six months ended 30 June 2012, respectively. this consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the life/health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the allianz Group‘s operating profit. 27 Claims and insurance benefits incurred (net) three months ended 30 June | in € mn Property-Casualty 2012 Gross Claims and insurance benefits paid (7,103) Change in reserves for loss and loss adjustment expenses (467) Subtotal (7,570) Ceded Claims and insurance benefits paid 479 Change in reserves for loss and loss adjustment expenses (28) Subtotal 451 Net Claims and insurance benefits paid (6,624) Change in reserves for loss and loss adjustment expenses (495) Total (7,119) 2011 Gross Claims and insurance benefits paid (6,981) Change in reserves for loss and loss adjustment expenses (208) Subtotal (7,189) Ceded Claims and insurance benefits paid 589 Change in reserves for loss and loss adjustment expenses (19) Subtotal 570 Net Claims and insurance benefits paid (6,392) Change in reserves for loss and loss adjustment expenses (227) Total (6,619) six months ended 30 June | in € mn Property-Casualty 2012 Gross Claims and insurance benefits paid (14,384) Change in reserves for loss and loss adjustment expenses (557) Subtotal (14,941) Ceded Claims and insurance benefits paid 1,040 Change in reserves for loss and loss adjustment expenses (100) Subtotal 940 Net Claims and insurance benefits paid (13,344) Change in reserves for loss and loss adjustment expenses (657) Total (14,001) 2011 Gross Claims and insurance benefits paid (13,998) Change in reserves for loss and loss adjustment expenses (631) Subtotal (14,629) Ceded Claims and insurance benefits paid 994 Change in reserves for loss and loss adjustment expenses (74) Subtotal 920 Net Claims and insurance benefits paid (13,004) Change in reserves for loss and loss adjustment expenses (705) Total (13,709) N o t e s 2 5 , 2 6 , 2 7 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s life/health Consolidation Group (4,561) 12 (11,652) (164) 1 (630) (4,725) 13 (12,282) 130 (12) 597 25 (1) (4) 155 (13) 593 (4,431) – (11,055) (139) – (634) (4,570) – (11,689) (4,708) 4 (11,685) (126) 1 (333) (4,834) 5 (12,018) 125 (4) 710 (15) (1) (35) 110 (5) 675 (4,583) – (10,975) (141) – (368) (4,724) – (11,343) life/health Consolidation Group (9,689) 16 (24,057) (279) 2 (834) (9,968) 18 (24,891) 237 (16) 1,261 52 (2) (50) 289 (18) 1,211 (9,452) – (22,796) (227) – (884) (9,679) – (23,680) (9,710) 8 (23,700) (140) (1) (772) (9,850) 7 (24,472) 233 (8) 1,219 5 1 (68) 238 (7) 1,151 (9,477) – (22,481) (135) – (840) (9,612) – (23,321) 9 5 9 6 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 28 Change in reserves for insurance and investment contracts (net) three months ended 30 June | in € mn Property-Casualty life/health Consolidation 2012 Gross aggregate policy reserves (51) (1,836) – other insurance reserves – (27) – expenses for premium refunds (25) (1,679) 42 Subtotal (76) (3,542) 42 Ceded aggregate policy reserves – 26 – other insurance reserves – 2 – expenses for premium refunds – (3) – Subtotal – 25 – Net aggregate policy reserves (51) (1,810) – other insurance reserves – (25) – expenses for premium refunds (25) (1,682) 42 Total (76) (3,517) 42 2011 Gross aggregate policy reserves (41) (1,714) – other insurance reserves 2 (19) – expenses for premium refunds (43) (994) (21) Subtotal (82) (2,727) (21) Ceded aggregate policy reserves (7) (15) – other insurance reserves 1 3 – expenses for premium refunds 11 1 – Subtotal 5 (11) – Net aggregate policy reserves (48) (1,729) – other insurance reserves 3 (16) – expenses for premium refunds (32) (993) (21) Total (77) (2,738) (21) Group (1,887) (27) (1,662) (3,576) 26 2 (3) 25 (1,861) (25) (1,665) (3,551) (1,755) (17) (1,058) (2,830) (22) 4 12 (6) (1,777) (13) (1,046) (2,836) 28 29 N o t e s 2 8 , 2 9 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s Change in reserves for insurance and investment contracts (net) (continued) six months ended 30 June | in € mn Property-Casualty life/health Consolidation Group 2012 Gross aggregate policy reserves (105) (3,877) – (3,982) other insurance reserves – (61) – (61) expenses for premium refunds (51) (3,343) 29 (3,365) Subtotal (156) (7,281) 29 (7,408) Ceded aggregate policy reserves – 50 – 50 other insurance reserves – 3 – 3 expenses for premium refunds – (3) – (3) Subtotal – 50 – 50 Net aggregate policy reserves (105) (3,827) – (3,932) other insurance reserves – (58) – (58) expenses for premium refunds (51) (3,346) 29 (3,368) Total (156) (7,231) 29 (7,358) 2011 Gross aggregate policy reserves (90) (4,039) – (4,129) other insurance reserves 2 (65) – (63) expenses for premium refunds (88) (2,283) (51) (2,422) Subtotal (176) (6,387) (51) (6,614) Ceded aggregate policy reserves (16) 11 – (5) other insurance reserves 1 6 – 7 expenses for premium refunds 11 3 – 14 Subtotal (4) 20 – 16 Net aggregate policy reserves (106) (4,028) – (4,134) other insurance reserves 3 (59) – (56) expenses for premium refunds (77) (2,280) (51) (2,408) Total (180) (6,367) (51) (6,598) interest expenses three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 liabilities to banks and customers (85) (98) (178) (190) deposits retained on reinsurance ceded (11) (7) (24) (21) Certificated liabilities (89) (74) (170) (147) Participation certificates and subordinated liabilities (164) (168) (337) (315) other (19) (20) (41) (44) Total (368) (367) (750) (717) 9 7 9 8 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 30 loan loss provisions three months ended 30 June in € mn 2012 additions to allowances including direct impairments (58) amounts released 9 recoveries on loans previously impaired 7 Total (42) 31 impairments of investments (net) three months ended 30 June in € mn 2012 i m Pa i r m eN t s Available-for-sale investments equity securities (410) debt securities (10) Subtotal (420) held-to-maturity investments – investments in associates and joint ventures (1) real estate held for investment (2) loans and advances to banks and customers (1) Non-current assets and assets and liabilities of disposal groups classified as held for sale – Subtotal (424) r e v e r s a l s oF i m Pa i r m e N t s Available-for-sale investments debt securities – loans and advances to banks and customers 2 Subtotal 2 Total (422) 32 investment expenses three months ended 30 June in € mn 2012 investment management expenses (128) depreciation of real estate held for investment (47) other expenses from real estate held for investment (41) Total (216) 2011 (58) 21 4 (33) 2011 (148) (629) (777) (23) – (8) (5) (8) (821) 1 – 1 (820) 2011 (117) (46) (45) (208) six months ended 30 June 2012 (121) 21 12 (88) six months ended 30 June 2012 (619) (13) (632) – (1) (2) (3) – (638) 15 13 28 (610) six months ended 30 June 2012 (251) (91) (71) (413) 2011 (95) 36 10 (49) 2011 (244) (653) (897) (23) – (18) (6) (24) (968) 1 2 3 (965) 2011 (232) (92) (86) (410) 33 acquisition and administrative expenses (net) three months ended 30 June | in € mn 2012 segment Consolidation P r o P e r tY- C a s u a lt Y Acquisition costs incurred (2,247) – Commissions and profit received on reinsurance business ceded 118 (3) deferrals of acquisition costs 1,339 – amortization of deferred acquisition costs (1,382) – Subtotal (2,172) (3) administrative expenses (704) (34) Subtotal (2,876) (37) l i F e /h e a lt h Acquisition costs incurred (1,085) 3 Commissions and profit received on reinsurance business ceded 31 (1) deferrals of acquisition costs 705 – amortization of deferred acquisition costs (564) – Subtotal (913) 2 administrative expenses (339) 5 Subtotal (1,252) 7 a s s e t m a N a G e m e N t Personnel expenses (549) – Non-personnel expenses (321) – Subtotal (870) – C o r P o r at e aN d ot h e r administrative expenses (285) 41 Subtotal (285) 41 Total (5,283) 11 N o t e s 3 0 - 3 3 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s 2011 Group segment Consolidation Group (2,247) (2,165) 2 (2,163) 115 130 (1) 129 1,339 1,229 – 1,229 (1,382) (1,293) – (1,293) (2,175) (2,099) 1 (2,098) (738) (669) (6) (675) (2,913) (2,768) (5) (2,773) (1,082) (1,079) 1 (1,078) 30 21 (2) 19 705 813 – 813 (564) (622) – (622) (911) (867) (1) (868) (334) (366) 21 (345) (1,245) (1,233) 20 (1,213) (549) (512) – (512) (321) (300) 8 (292) (870) (812) 8 (804) (244) (314) (5) (319) (244) (314) (5) (319) (5,272) (5,127) 18 (5,109) 9 9 1 0 0 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 33 acquisition and administrative expenses (net) (continued) six months ended 30 June | in € mn 2012 segment Consolidation Group P r o P e r tY- C a s u a lt Y Acquisition costs incurred (4,803) – (4,803) Commissions and profit received on reinsurance business ceded 217 (5) 212 deferrals of acquisition costs 3,055 – 3,055 amortization of deferred acquisition costs (2,727) – (2,727) Subtotal (4,258) (5) (4,263) administrative expenses (1,430) 3 (1,427) Subtotal (5,688) (2) (5,690) l i F e /h e a lt h Acquisition costs incurred (2,233) 6 (2,227) Commissions and profit received on reinsurance business ceded 54 (1) 53 deferrals of acquisition costs 1,440 (1) 1,439 amortization of deferred acquisition costs (1,349) – (1,349) Subtotal (2,088) 4 (2,084) administrative expenses (685) (15) (700) Subtotal (2,773) (11) (2,784) a s s e t m a N a G e m e N t Personnel expenses (1,091) – (1,091) Non-personnel expenses (616) 12 (604) Subtotal (1,707) 12 (1,695) C o r P o r at e aN d ot h e r administrative expenses (596) 29 (567) Subtotal (596) 29 (567) Total (10,764) 28 (10,736) 34 Fee and commission expenses three months ended 30 June | in € mn 2012 segment Consolidation Group P r o P e r tY- C a s u a lt Y Fees from credit and assistance business (161) (1) (162) service agreements (103) 12 (91) Subtotal (264) 11 (253) l i F e /h e a lt h service agreements (8) 1 (7) investment advisory (47) 2 (45) Subtotal (55) 3 (52) a s s e t m a N a G e m e N t Commissions (318) 24 (294) other (13) – (13) Subtotal (331) 24 (307) C o r P o r at e aN d ot h e r service agreements (20) 2 (18) investment advisory and Banking activities (62) 6 (56) Subtotal (82) 8 (74) Total (732) 46 (686) segment (4,652) 206 2,844 (2,508) (4,110) (1,366) (5,476) (2,170) 46 1,584 (1,135) (1,675) (727) (2,402) (1,084) (568) (1,652) (627) (627) (10,157) segment (164) (111) (275) (8) (38) (46) (273) (7) (280) (53) (64) (117) (718) 2011 Consolidation 3 (2) – – 1 31 32 2 (3) – – (1) 25 24 – 12 12 (36) (36) 32 2011 Consolidation – 13 13 – 1 1 43 1 44 2 1 3 61 Group (4,649) 204 2,844 (2,508) (4,109) (1,335) (5,444) (2,168) 43 1,584 (1,135) (1,676) (702) (2,378) (1,084) (556) (1,640) (663) (663) (10,125) Group (164) (98) (262) (8) (37) (45) (230) (6) (236) (51) (63) (114) (657) N o t e s 3 3 - 3 6 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s 34 Fee and commission expenses (continued) six months ended 30 June | in € mn 2012 2011 segment Consolidation Group segment Consolidation Group P r o P e r tY- C a s u a lt Y Fees from credit and assistance business (350) – (350) (312) – (312) service agreements (190) 27 (163) (217) 28 (189) Subtotal (540) 27 (513) (529) 28 (501) l i F e /h e a lt h service agreements (25) 2 (23) (14) 1 (13) investment advisory (93) 2 (91) (91) 3 (88) Subtotal (118) 4 (114) (105) 4 (101) a s s e t m a N a G e m e N t Commissions (592) 58 (534) (545) 81 (464) other (16) – (16) (10) 1 (9) Subtotal (608) 58 (550) (555) 82 (473) C o r P o r at e aN d ot h e r service agreements (82) 3 (79) (120) 5 (115) investment advisory and Banking activities (125) 11 (114) (117) 1 (116) Subtotal (207) 14 (193) (237) 6 (231) Total (1,473) 103 (1,370) (1,426) 120 (1,306) 35 other expenses three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 realized losses from disposals of real estate held for own use (1) – (1) – expenses from alternative investments (23) (15) (42) (29) other (1) (1) (1) (2) Total (25) (16) (44) (31) 36 income taxes three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Current income taxes (513) (522) (1,572) (1,175) deferred income taxes (241) (21) 28 61 Total (754) (543) (1,544) (1,114) For the three and six months ended 30 June 2012 and 2011, respectively, the income taxes relating to components of the other comprehensive income consist of the following: three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Foreign currency translation adjustments – 1 (2) (15) available-for-sale investments (48) (250) (898) 155 Cash flow hedges (6) 1 (11) 4 share of other comprehensive income of associates (2) (2) (1) – miscellaneous 9 7 17 49 Total (47) (243) (895) 193 1 0 1 1 0 2 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d F i r s t h a l F Y e a r o F 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m F i N a N C i a l s t a t e m e N t s 37 earnings per share ◼ Ba siC e a r NiN Gs Per sh a r e Basic earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period. three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Net income attributable to shareholders used to calculate basic earnings per share 1,234 1,000 2,605 1,857 Weighted average number of common shares outstanding 452,510,887 451,622,459 452,536,964 451,590,305 Basic earnings per share (in €) 2.73 2.21 5.76 4.11 ◼ d i lu t ed e a rNiN Gs Per sh a r e diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares arise from various share-based compensation plans of the allianz Group. three months ended 30 June six months ended 30 June in € mn 2012 2011 2012 2011 Net income attributable to shareholders 1,234 1,000 2,605 1,857 effect of potentially dilutive common shares (14) (15) (4) (18) Net income used to calculate diluted earnings per share 1,220 985 2,601 1,839 Weighted average number of common shares outstanding 452,510,887 451,622,459 452,536,964 451,590,305 Potentially dilutive common shares resulting from assumed conversion of: share-based compensation plans 1,897,953 1,302,331 1,293,091 620,641 Weighted average number of common shares outstanding after assumed conversion 454,408,840 452,924,790 453,830,055 452,210,946 Diluted earnings per share (in €) 2.68 2.17 5.73 4.07 For the six months ended 30 June 2012, the weighted average number of common shares excludes 2,763,036 (2011: 2,909,695) treasury shares. N o t e s 3 7 , 3 8 , 3 9 N o t e s t o t h e C o N s o l i d a t e d i N C o m e s t a t e m e N t s , o t h e r i N f o r m a t i o N ii other information 38 financial instruments ◼ r eCl a s sif iC at i o N o f f iN a N Ci a l a s se t s on 31 January 2009, the Cdos were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with ias 39. the fair value of € 1.1 bn became the new carrying amount of the Cdos at the reclassification date. for 2011, the carrying amount and fair value of the Cdos significantly declined due to the liquidation of the Palmer square 2 Cdo tranche, which resulted in direct ownership of the underlying collateral securities. as of 31 december 2011, the carrying amount and fair value of the Cdos was € 431 mn and € 428 mn, respectively. as of 30 June 2012, the carrying amount and fair value of the Cdos was € 415 mn and € 416 mn, respectively. for the six months ended 30 June 2012, the net profit related to the Cdos was not significant. ◼ fa i r va lue hier a rCh y o f f iN a N Ci a l iNs t rumeN t s as of 30 June 2012, there were no significant changes in the fair value hierarchy of financial instruments and no signif icant transfers of financial instruments between the levels of the fair value hierarchy compared to the consolidated financial statements for the year ended 31 december 2011. 39 other information ◼ emPl oy ee iNfo r m at i o N As of 30 June 2012 as of 31 december 2011 Germany 40,577 40,837 other countries 101,450 101,101 Total 142,027 141,938 ◼ C oN t iN GeN t li a bili t ie s a N d Co mmi t meN t s as of 30 June 2012, there were no significant changes in contingent liabilities compared to the consolidated financial statements for the year ended 31 december 2011. as of 30 June 2012, commitments outstanding to invest in private equity funds and similar financial instruments amounted to € 3,959 mn (31 december 2011: € 3,536 mn) and commitments outstanding to invest in real estate and infrastructure amounted to € 927 mn (31 december 2011: € 1,565 mn). all other commitments showed no significant changes. 1 0 3 1 0 4 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m f i N a N C i a l s t a t e m e N t s 40 subsequent events ◼ N a t u r a l C ata s t ro Phe s wo r ldw id e since the beginning of July 2012, several countries and regions, including Germany, switzerland, russia and China, were hit by severe thunderstorms and floodings. as of today, the allianz Group expects that losses could approximate € 100 mn. furthermore, the ongoing drought in the united states could lead to losses in the crop business. based on current information, the expected losses cannot be reliably estimated. ◼ a CQu isi t i o Ns o f iNsu r a N Ce aC t i v i t ie s iN belGium a Nd f r a N Ce after the approval of the General assembly of mensura CCa (Caisse Commune d’assurances) on 13 July 2012, the belgian National bank gave their final approval for the acquisition of mensura’s property-casualty insurance activities by allianz belgium on 25 July 2012. as a result, allianz belgium will acquire approximately € 1 bn assets and € 1 bn liabilities of mensura. as the effective date of this transaction was 1 august 2012 and the condensed consolidated interim financial statements of the allianz Group were authorized for issue on 2 august 2012, further disclosures for this transaction according to ifrs 3 cannot be made. on 24 July 2012, the european Commission approved the acquisition of a property-casualty portfolio of Gan euro- courtage by allianz france. until now, the acquisition still needs the approval of the autorité de Contrôle Prudentiel. we expect that the transaction will be closed before the end of this year. munich, 2 august 2012 allianz se the board of management N o t e 4 0 , r e s P o N s i b i l i t y s t a t e m e N t o t h e r i N f o r m a t i o N responsibility statement to the best of our knowledge, and in accordance with the applicable reporting principles, the condensed consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. munich, 2 august 2012 allianz se the board of management 1 0 5 1 0 6 i N t e r i m r e P o r t s e C o N d Q u a r t e r a N d f i r s t h a l f y e a r o f 2 0 1 2 | a l l i a N z G r o u P C o N d e N s e d C o N s o l i d a t e d i N t e r i m f i N a N C i a l s t a t e m e N t s review report to allianz se, munich we have reviewed the condensed consolidated interim financial statements of allianz se, munich – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, condensed consolidated statements of cash flows as well as selected explanatory notes – together with the interim group management report of allianz se, munich, for the period from 1 January to 30 June, 2012 that are part of the semi annual report according to § 37 w German securities trading act (“wertpapierhandelsgesetz – wphG”). the preparation of the condensed consolidated interim financial statements in accordance with those international financial reporting standards (ifrs) applicable to interim financial reporting as adopted by the e.u., and of the interim group management report in accordance with the requirements of the wphG applicable to interim group management reports, is the responsibility of the Company’s management. our responsibility is to issue a report on the condensed consolidated interim financial statements and on the interim group management report based on our review. we performed our review of the condensed consolidated interim financial statements and the interim group manage- ment report in accordance with the German generally accepted standards for the review of financial statements promulgated by the institute of Public auditors in Germany (“institut der wirtschaftsprüfer – idw”). those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the ifrs applicable to interim financial reporting as adopted by the e.u., and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the wphG applicable to interim group management reports. a review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report. based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the ifrs applicable to interim financial reporting as adopted by the e.u., or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the wphG applicable to interim group management reports. munich, 2 august 2012 KPmG aG wirtschaftsprüfungsgesellschaft Johannes Pastor wirtschaftsprüfer (independent auditor) dr. frank Pfaffenzeller wirtschaftsprüfer (independent auditor) A L L I A N z AP P S Since there is a trend towards the use of iPhones and iPads among our shareholders, investors and analysts, our current Investor relations information as well as Allianz Financial reports are available as Apps. you can find our iPhone and iPad Apps in the Apple App store. To get directly to the specific Allianz App, you can also scan the respective Qr Code below. a l l i a N z i N v e s to r r e l at i o N s h D a l l i a N z f i N a N c i a l r e p o r t s Qr-Code | iPad App Qr-Code | iPhone App Qr-Code | iPad App FINANCIAL CALENDAr importa Nt Dates for sharehol D ers a N D a N aly sts 1 Interim report 3Q 9 November 2012 Financial results 2012 21 February 2013 Annual General Meeting 7 May 2013 Allianz SE | Königinstrasse 28 | 80802 Munich | Germany | Telephone +49. 89. 3800 0 | Fax | info@allianz.com | www.allianz.com Interim report on the internet – www.allianz.com/interim-report | Design/Concept: Allianz SE – Group Management reporting | Photo Story: Allianz SE – Group Management reporting and Allianz Center for Corporate History | Photo iPad: © manaemedia/fotolia.com This is a translation of the German Interim report Second Quarter and First Half year of 2012 of the Allianz Group. In case of any divergences, the German original is legally binding. +49. 89. 3800 3425 1 | The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures of quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. | Semestriel, 2012, Insurance, Allianz | write me a financial report |
Semestriel | 2,011 | Insurance | Allianz | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| Allianz Group Interim Report Second Quarter and First Half Year of 2011 Content Group Management Report 2 Executive Summary 10 Property-Casualty Insurance Operations 22 Life/Health Insurance Operations 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Condensed Consolidated Interim Financial Statements for the Second Quarter and the First Half Year of 2011 47 Detailed Index 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements To go directly to any chapter, simply click on the head line or the page number Vienna, the Prater In the fall of 2010, we launched the “One” campaign, which focuses on sharing the knowledge and experience of real people in authentic situations. The campaign will be active in more than 20 countries around the world by the end of this year. This report includes a selection of images that have already appeared. Allianz Share Development of the Allianz share price since January 1, 2011 indexed on the Allianz share price in € 110 100 90 80 Jan Feb Mar Apr May Allianz EURO STOXX 50 STOXX Europe 600 Insurance Source: Thomson Reuters Datastream Up-to-date information on the development of the Allianz share price is available at www.allianz.com/share. Basic share information Share type Registered share with restricted transfer Security Codes WKN 840 400 ISIN DE 000 840 400 5 Bloomberg ALV GY Reuters ALVG.DE Contact Investor Relations We strive to keep our shareholders up-to-date on all company developments. Our Investor Relations team is pleased to answer any questions you may have. Allianz SE, Investor Relations Koeniginstrasse 28, 80802 Munich Phone: +49 1802 2554269 Allianz Investor Line, Mo-Fr 8 a.m.-8 p.m. CET, 6 cents per call from a German landline network, max. 42 cents per minute from German mobile networks Fax: +49 89 3800 3899 E-mail: investor.relations@ allianz.com Internet: www.allianz.com/investor-relations Jun 1 Allianz Group Key Data Three months ended June 30, Six months ended June 30, 2011 2010 Change from previous year 2011 2010 Change from previous year INCOME STATEMENT 1 Total revenues 2 Operating profit 3 Net income € mn € mn € mn 24,574 2,300 1,071 25,389 2,302 1,157 (3.2) % (0.1) % (7.4) % 54,479 3,960 1,986 55,956 4,034 2,760 (2.6) % (1.8) % (28.0) % SEGMENTS 4 Property-Casualty Gross premiums written Operating profit 3 Combined ratio € mn € mn % 10,194 1,329 95.0 9,951 1,147 96.3 2.4 % 15.9 % (1.3) pts 24,445 1,992 98.1 23,945 1,859 98.4 2.1 % 7.2 % (0.3) pts Life/Health 1 Statutory premiums Operating profit 3 Cost-income ratio € mn € mn % 12,978 679 95.9 14,124 824 95.4 (8.1) % (17.6) % 0.5 pts 27,248 1,381 96.0 29,480 1,659 95.6 (7.6) % (16.8) % 0.4 pts Asset Management Operating revenues Operating profit 3 Cost-income ratio € mn € mn % 1,303 528 59.5 1,188 516 56.6 9.7 % 2.3 % 2.9 pts 2,576 1,056 59.0 2,304 982 57.4 11.8 % 7.5 % 1.6 pts Corporate and Other Total revenues Operating profit 3 Cost-income ratio (Banking) € mn € mn % 137 (205) 93.4 138 (155) 103.7 (0.7) % 32.3 % (10.3) pts 288 (428) 90.6 266 (406) 105.7 8.3 % 5.4 % (15.1) pts BALANCE SHEET 1 Total assets as of June 30, 5 Shareholders’ equity as of June 30, 5 Non-controlling interests as of June 30, 5 € mn € mn € mn 627,407 42,615 2,074 624,945 44,491 2,071 0.4 % (4.2) % 0.1 % 627,407 42,615 2,074 624,945 44,491 2,071 0.4 % (4.2) % 0.1 % SHARE INFORMATION Basic earnings per share 1 Diluted earnings per share 1 Share price as of June 30, 5 Market capitalization as of June 30, 5 € € € € bn 2.21 2.17 96.33 43.8 2.41 2.37 88.93 40.4 (8.3) % (8.4) % 8.3 % 8.3 % 4.11 4.07 96.33 43.8 5.88 5.84 88.93 40.4 (30.1) % (30.3) % 8.3 % 8.3 % OTHER DATA Total assets under management as of June 30, 5 thereof: Third-party assets under management as of June 30, 5 € bn € bn 1,508 1,151 1,518 1,164 (0.7) % (1.1) % 1,508 1,151 1,518 1,164 (0.7) % (1.1) % 1 2 Figures for the second quarter and first half of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 3 The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 4 The Allianz Group operates and manages its activities through four segments: Property-Casualty, Life/Health, Asset Management and Corporate and Other. For further information please refer to note 3 of our condensed consolidated interim financial statements. 5 2010 figures as of December 31, 2010. 2 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Executive Summary – Revenues at € 24.6 billion. – Operating profit of € 2,300 million. – Net income of € 1,071 million, despite impact of Greek sovereign bond impairments. – Solvency ratio strong at 180 %. 1 Allianz Group Overview Key Figures – The Group’s results are reported by business Three months ended June 30, Six months ended June 30, segment: Property-Casualty insurance, Life/Health insurance, Asset Management and Corporate and Other activities. – Although the majority of profits are still derived Total revenues Operating profit 2 Net income 2 2011 € mn 24,574 2,300 1,071 2010 € mn 25,389 2,302 1,157 2009 € mn 22,170 1,762 1,872 2011 € mn 54,479 3,960 1,986 2010 € mn 55,956 4,034 2,760 2009 € mn 49,890 3,075 2,227 3 from our insurance operations, our Asset Management contributions have grown steadily over recent years. Solvency ratio in % 1, 4 180 173 164 180 173 164 Operating profit 2 in € mn € 2,300 mn Summary: second quarter of 2011 2,009 1,960 2,302 2,055 (0.1) % 2,154 2,300 Management’s assessment of 2011 second quarter result We generated total revenues of € 24.6 billion. On an internal basis 5 revenues declined by 0.9 % because higher Property-Casualty and Asset Management revenues did not compensate for the broadly expected decline in Life/Health sales. 1,762 1,732 1,660 The profitability of the second quarter of 2011 was impacted by the need to impair all Greek sovereign bonds to current market values. 6 Three months ended June 30, 2011 Group € mn 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 Operating profit (gross impairments) (279) Policyholder participation 203 Impact on operating profit (net) (76) Non-operating impairments / result (365) Income tax 115 1 2 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 171 % (2010: 164 %, 2009: 155 %). Figures prior to the third quarter of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. 3 Net income from continuing operations. 4 2010 and 2009 figures as of December 31. 5 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. For further information please refer to the ‘Reconciliations’ chapter. In accordance with IAS 39, our investments in Greek sovereign bonds were con- sidered impaired and written down to current market value as of June 30, 2011. For further information please refer to note 31 of our condensed consolidated interim financial statements. 6 Impact on net income Despite the difficult economic environment and the ongoing sovereign debt crisis, we achieved a strong operating profit of € 2,300 million. Property-Casualty and Asset Management delivered operating profit growth, while nearly half of the decrease in Life/Health was directly attributable to the net effect of the Greek sovereign bond impairments (of € 76 million). Net income decreased by € 86 million – or 7.4 % – to € 1,071 million, and was burdened by the net impact of the Greek sovereign bond impairments of € 326 million. (326) 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Total Revenues 1 2011 to 2010 second quarter comparison Total revenues in � bn (3.2) % internal growth: (0.9) % 30.6 29.9 22.2 22.0 25.5 25.4 24.5 26.0 24.6 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 Total revenues – Segments in � mn + 10.8 % (0.9) % 22,170 2 124 780 11,766 25,389 2 138 1,188 14,124 + 3.0 % + 21.8 % 24,574 2 137 1,303 12,978 (5.9) % 9,522 9,951 + 3.7 % 10,194 2Q 2009 2Q 2010 2Q 2011 Property-Casualty Corporate and Other Life/Health Internal growth Asset Management 1 2 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Total revenues include € (38) mn, € (12) mn and € (22) mn from consolidation for 2Q 2011, 2010 and 2009, respectively. Gross premiums written from the Property-Casualty business increased by 3.7 % on an internal basis. Both volume and pricing effects were positive at 2.7 % and 1.0 % respectively. However, this growth was supported by a single large premium. Statutory premiums from our Life/Health business declined by 5.9 % on an internal basis, which is broadly in line with our expectations. Last year’s sales were exceptionally high as our traditional business had benefited from large single premium contracts from the corporate business. Sales of investment-oriented products in Italy and Asia also suffered primarily from tough market conditions and lower bancassurance sales partially offset by continued strong volumes in our U.S. business. Our Asset Management business achieved internal growth of 21.8 %, largely attributable to the growth in average assets under management. We recorded net inflows of € 31 billion for the first half of 2011. As of June 30, 2011 total assets under management amounted to € 1,508 billion. Total revenues from our Banking operations (reported in our Corporate and Other segment) grew by 3.0 % on an internal basis as a result of higher net interest income in Italy and an increase in trading income. 2011 to 2010 first half year comparison We generated total revenues of € 54,479 million com- pared to € 55,956 million for the first half of 2010. On an internal basis total revenues declined by 2.4 %. Lower revenues from investment-oriented Life/Health products could not be fully compensated for by the positive contribution from our other segments. 3 4 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Operating Profit 1 2011 to 2010 second quarter comparison Operating profit – Segments in � mn + 30.6 % (0.1) % 1,762 2 2,302 2 2,300 2 516 528 246 966 824 679 1,329 1,147 895 (313) (155) (205) 2Q 2009 2Q 2010 2Q 2011 Property-Casualty Asset Management Life/Health Corporate and Other Property-Casualty operating profit grew by 15.9 % to € 1,329 million largely due to a higher underwriting result (up € 160 million). This resulted from lower losses from natural catastrophes as well as positive price momentum and volume growth. Our combined ratio improved by 1.3 percentage points to 95.0 %. The operating investment result (after expenses for premium refunds) also grew, by € 21 million. Life/Health operating profit of € 679 million was € 145 million below last year’s high level of € 824 million. Operating profit was impacted by a lower investment result, driven by a decrease in income from financial assets and liabilities carried at fair value and the net effect of impairments on Greek sovereign bonds of € 76 million 3 (after policyholder participation). 1 2 3 Figures prior to the third quarter of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. Includes € (31) mn, € (30) mn and € (32) mn from consolidation for 2Q 2011, 2010 and 2009, respectively. In accordance with IAS 39, our investments in Greek sovereign bonds were con sidered impaired and written down to current market value as of June 30, 2011. We also booked impairments in the non-operating investment result. For further information please refer to note 31 of our condensed consolidated interim financial statements. The strong performance in our Asset Management segment continued with a 2.3 % increase in operating profit to € 528 million (including a negative foreign currency effect of € 59 million). The cost-income ratio remained low at 59.5 %. The Corporate and Other operating loss increased by € 50 million to € 205 million mostly attributable to Holding & Treasury due to higher pension costs and lower interest and similar income (net). 2011 to 2010 first half year comparison Operating profit amounted to € 3,960 million com- pared to € 4,034 million for the first half of 2010. Property-Casualty and Asset Management operating profit increased by € 133 million and € 74 million respectively, while Life-Health operating profit de- clined by € 278 million. The Corporate and Other operating loss increased slightly. Non-operating Result 2011 to 2010 second quarter comparison Our non-operating result declined by € 89 million to a loss of € 686 million, mostly attributable to a lower non-operating investment result. Realized gains and losses (net) declined from € 181 million to € 146 million. In the second quarter of 2010 we had benefited from the sale of shares in the Industrial and Commercial Bank of China (ICBC) with a gain of € 115 million. The lack of these gains was partially offset by lower losses from debt securities in the current quarter. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Non-operating income from financial assets and liabilities carried at fair value through income (net) improved by € 132 million to a net loss of € 53 million as valuation losses on The Hartford warrants decreased from € 167 million to € 26 million. Impairments (net) increased by € 242 million to € 429 million, largely due to € 365 million of Greek sovereign bond impairments 1 partly offset by lower impairments on equities. Acquisition-related expenses decreased by € 76 million to € 34 million – mainly resulting from lower PIMCO B-unit expenses 2. No B-units were actually purchased in the second quarter of 2011 nor in the second quarter of 2010. We have now acquired 88.4 % of all B-units: 17,415 are still outstanding. Due to higher operating profit, the value of the outstanding B-units increased resulting in fair value adjustments to the provision for future repurchases of B-units. However, the decline in the number of B-units outstanding by 44 % compared to June 30, 2010 resulted in a decrease of fair value expenses by € 70 million and distribution expenses by € 7 million compared to the second quarter of 2010. 2011 to 2010 first half year comparison Our non-operating result deteriorated by € 522 mil- lion to negative € 860 million. The non-operating investment result accounted for € 732 million of this decline and amounted to negative € 129 million. This was mainly due to lower realized gains and higher impairments (net). 1 2 In accordance with IAS 39, our investments in Greek sovereign bonds were con- sidered impaired and written down to current market value as of June 30, 2011. For further information please refer to note 31 of our condensed consolidated interim financial statements. When PIMCO was acquired, B-units were created entitling senior management to profit participation. Under the B-unit plan, Allianz has the right to call, while PIMCO senior management has the right to put, those B-units over several years. Fair value changes due to changes in operating earnings are reflected in acquisition- related expenses. The marginal difference between a higher call versus the put price upon any exercise, and distributions received by the senior management B-unit holders, are also included. Income Taxes 2011 to 2010 second quarter comparison Income tax was almost unchanged at € 543 million; the effective tax rate was 33.6 % (2Q 2010: 32.1 %). 2011 to 2010 first half year comparison Income tax increased by € 178 million to € 1,114 million in the first half year of 2011 driven by higher tax expenses in the first quarter of 2011. This was primarily because of losses from natural catastrophes incurred in jurisdictions with low effective tax rates. In addition, the first half of 2010 benefited from tax exempt gains on the sale of ICBC shares. Net Income 3 2011 to 2010 second quarter comparison Net income in � mn 1,872 (7.4) % 1,603 1,390 1,033 1,157 1,268 1,181 915 1,071 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 Net income decreased by € 86 million to € 1,071 mil- lion, largely due to a lower non-operating result, which was burdened by Greek sovereign bond impairments of € 326 million, partly offset by lower valuation losses on The Hartford warrants as well as a decrease in B-unit expenses. Net income attributable to shareholders amounted to € 1,000 million. 3 Figures prior to the third quarter of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. 5 6 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Earnings per share 1 in � Basic Diluted 4.89 5.88 4.11 4.86 5.84 4.07 2.41 2.37 4.11 4.09 2.21 2.17 3.47 3.46 1.90 1.88 0.79 2009 2 2010 2011 0.76 2009 2 2010 2011 1Q 2Q 2011 to 2010 first half year comparison Net income of € 1,986 million was below the previous year’s result of € 2,760 million and was mainly driven by a lower non-operating investment result (due to Greek sovereign bond impairments), a higher effective tax rate, as well as a € 99 million increase in losses from natural catastrophes. 1 For further information please refer to note 37 of our condensed consolidated interim financial statements. 2 Earnings per share from continuing operations. Shareholders’ Equity Shareholders’ equity 3 in � mn (4.2) % (2.2) % 44,491 43,560 42,615 5,057 4,000 4,281 10,749 10,875 9,649 28,685 28,685 28,685 12/31/2010 3/31/2011 6/30/2011 Paid-in-capital Retained earnings (includes foreign currency effects)4 Unrealized gains/losses (net) Please refer to the ’Balance Sheet Review’ chapter for further information on the development of share- holders’ equity. Conglomerate solvency 5 in € bn 173 % 180 % 180 % 39.6 41.3 41.4 22.9 22.9 23.0 12/31/2010 3/31/2011 6/30/2011 Solvency ratio Requirement Eligible capital Please refer to the ’Balance Sheet Review’ chapter for further information on the development of con- glomerate solvency. 3 4 5 This does not include non-controlling interests. This includes foreign currency translation effects of € (3,250) mn, € (3,115) mn and € (2,339) mn as of June 30, 2011, March 31, 2011 and December 31, 2010, respectively. Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 171 % (March 31, 2011: 171 %, December 31, 2010: 164 %). 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations 7 Total revenues and reconciliation of operating profit to net income (loss) 1 Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Total revenues 2 24,574 25,389 54,479 55,956 Premiums earned (net) 15,322 15,485 31,183 30,773 Operating investment result Interest and similar income 5,350 5,169 10,244 9,748 Operating income from financial assets and liabilities carried at fair value through income (net) (102) 213 (231) 333 Operating realized gains/losses (net) 339 215 1,067 762 Interest expenses, excluding interest expenses from external debt (128) (139) (253) (268) Operating impairments of investments (net) (391) (190) (453) (229) Investment expenses (208) (215) (410) (392) Subtotal 4,860 5,053 9,964 9,954 Fee and commission income 2,038 1,909 4,025 3,710 Other income 33 36 64 65 Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) 3 Loan loss provisions (11,343) (2,836) (33) (11,096) (3,517) (9) (23,321) (6,598) (49) (22,763) (6,743) (21) Acquisition and administrative expenses (net), excluding acquisition-related expenses (5,075) (4,903) (9,990) (9,696) Fee and commission expenses (657) (629) (1,306) (1,228) Operating restructuring charges (1) — (1) (1) Other expenses (16) (29) (31) (32) Reclassification of tax benefits 8 2 20 16 Operating profit 2,300 2,302 3,960 4,034 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (53) (185) (149) (102) Non-operating realized gains/losses (net) 146 181 532 944 Non-operating impairments of investments (net) (429) (187) (512) (239) Subtotal (336) (191) (129) 603 Income from fully consolidated private equity investments (net) (13) (15) (32) (52) Interest expenses from external debt (239) (220) (464) (442) Acquisition-related expenses (34) (110) (135) (308) Amortization of intangible assets (19) (17) (41) (34) Non-operating restructuring charges (37) (42) (39) (89) Reclassification of tax benefits (8) (2) (20) (16) Non-operating items (686) (597) (860) (338) Income (loss) before income taxes 1,614 1,705 3,100 3,696 Income taxes (543) (548) (1,114) (936) Net income (loss) 1,071 1,157 1,986 2,760 Net income (loss) attributable to: Non-controlling interests 71 68 129 106 Shareholders 1,000 1,089 1,857 2,654 1 2 3 Figures prior to the third quarter of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). For the three months ended June 30, 2011, expenses for premium refunds (net) in Property-Casualty of € (32) mn (2010: € (19) mn) are included. For the six months ended June 30, 2011, expenses for premium refunds (net) in Property-Casualty of € (77) mn (2010: € (62) mn) are included. 8 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Risk Management Risk management is an integral part of our business processes and supports our value-based management. For further information, we refer you to the ‘Risk Report’ in our 2010 Annual Report. The risks described therein essentially remain unchanged. However, recent events have led management to assign a higher probability to a Greek sovereign bond restructuring, consistent with the impairment conclusion. Nonetheless, the Allianz Group’s management feels comfortable with the Group’s overall risk profile and is confident the Group’s risk management framework can meet the challenges of a rapidly changing environ- ment as well as day-to-day business needs. Events After the Balance Sheet Date Placement of a € 500 million convertible subordinated bond On July 5, 2011, the Allianz Group announced the placement of a € 500 million convertible subordinated bond. Thunderstorms in Switzerland At the beginning of July 2011, thunderstorms caused damages throughout Switzerland. Based on current information, net claims are expected to amount to approximately Swiss Franc 49 million before income taxes. Hail storms and heavy rain in Germany Between July 7 and July 13, 2011, severe hail storms and heavy rain caused damages throughout Germany. Based on current information, net claims are expected to amount to approximately € 50 million before in- come taxes. Damage to power station through an explosion at adjacent naval basis in Cyprus On July 11, 2011 the explosion of an adjacent naval basis caused severe damage to a power station in Cyprus. Based on current information the net claims cannot be reliably estimated. Decision on second bailout package for Greece on July 21, 2011 On July 21, 2011, European policymakers announced a new debt reorganization plan for Greece that in- cludes, among other features, a voluntary refinancing program involving private investors currently holding Greek sovereign bonds. Under the terms of the volun- tary refinancing program, investors will be able to choose among a variety of bond exchanges, rollovers and buybacks. The Allianz Group supports this voluntary refinan cing program. Based on current information, the Allianz Group cannot yet estimate the expected financial impact of the voluntary refinancing program on future period results. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Sale of Industrial and Commercial Bank of China (ICBC) shares In July 2011, the Allianz Group sold 0.4 billion ICBC shares with a realized gain of approximately € 0.2 billion. Allianz extends real estate investments In July 2011, Allianz Real Estate GmbH entered on behalf of various German Allianz-insurance compa- nies into a number of strategic real estate invest- ments in the U.S. and Germany with a total volume of around € 200 million. New venture Allianz Popular in Spain On March 24, 2011, Allianz SE and Banco Popular agreed to form “ Allianz Popular” in Spain to strengthen the existing partnership and unite all existing ventures under one roof. Allianz SE will own 60 % of Allianz Popular. In this context, EUROPENSIONES S.A., Madrid, which is currently accounted for at equity, will be accounted for as a fully consolidated subsidiary of the Allianz Group. As a result, a revaluation gain of approximately € 100 million is expected to be recog- nized during the third quarter of 2011. All regulatory approvals have been granted so that the transaction will be approved by the boards of the companies during the third quarter of 2011. Other Information Business operations and Group Structure The Allianz Group business operations and structure are described in the ‘Worldwide Presence and Business Divisions’ and ‘Our Business’ chapters of our Annual Report 2010. There have been no organi- zational changes during the first half of 2011. Strategy The Allianz Group strategy is described in the ‘Our Strategy’ chapter of our Annual Report 2010. There have been no material changes to our strategy since. Products, services and sales channels For an overview of the products and services offered by the Allianz Group, as well as the sales channels, please refer to the ‘Worldwide Presence and Business Divisions’ and ‘Our Business’ chapters of our Annual Report 2010. Information on our brand can also be found in the ‘Allianz Brand’ chapter. 9 10 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Property-Casualty Insurance Operations – Revenues at € 10.2 billion, up by 2.4 %. – Operating profit increased by 15.9 % to € 1,329 million. – Combined ratio at 95.0 %. Segment Overview Key Figures – Our Property-Casualty business offers a broad range of products and services for both private and corporate clients. Three months ended June 30, 2011 € mn 2010 € mn 2009 € mn Six months ended June 30, 2011 € mn 2010 € mn 2009 € mn – Our product and service offering covers many insurance classes such as accident/disability, property, general liability, and motor. Gross premiums written Operating profit Loss ratio in % Expense ratio in % 10,194 1,329 67.0 28.0 9,951 1,147 68.6 27.7 9,522 895 70.6 28.3 24,445 1,992 70.1 28.0 23,945 1,859 70.5 27.9 23,408 1,864 70.8 28.0 – We conduct business worldwide in more than Combined ratio in % 95.0 96.3 98.9 98.1 98.4 98.8 55 countries. – We are also a global leader for travel and assistance services and for credit insurance. – We distribute our products via a broad network of self-employed agents, brokers, banks and direct channels. Summary: second quarter of 2011 Gross premiums written amounted to € 10,194 million, an increase of € 243 million. On an internal basis gross premiums increased by 3.7 %. Operating profit in € mn € 1,329 mn Our operating profit increased by 15.9 % to € 1,329 million, mainly due to a higher underwriting result. Benefiting from lower losses from natural catastrophes as well as positive price momentum and volume growth, our underwriting result increased by 55.9 %. Our operating investment result (after expenses for premium refunds) also improved, up by 2.5 %. 1,031 1,169 1,147 1,122 + 15.9 % 1,323 1,329 The combined ratio was 95.0 % compared to 96.3 % in the previous year. This decrease was driven by a lower level of natural catastrophes and an overall positive price and volume development, partly offset by slightly higher expenses and less favorable run-off. 895 712 663 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Gross Premiums Written 1 2011 to 2010 second quarter comparison Gross premiums written increased by 3.7 %, supported by a positive volume effect of 2.7 % and a positive price effect of 1.0 %. The growth in gross premiums stemmed mainly from AGCS, our Credit Insurance business as well as South America and Australia, which was partially offset by reductions in Reinsur- ance. On a nominal basis, gross premiums written increased by 2.4 % or € 243 million to € 10,194 million. Foreign currency translation effects had a negative impact on our nominal growth of € 121 million, primarily because of the depreciation of the U.S. Dollar, Turkish Lira and the British Pound against the Euro. In analyzing internal premium growth in terms of “price” and “volume” effects, we use four clusters based on the internal growth 2Q 2011 over 2Q 2010: Cluster 1: Overall positive growth; both price and volume effects are positive. Cluster 2: Overall positive growth; either price or volume effects are positive. Cluster 3: Overall negative growth; either price or volume effects are positive. Cluster 4: Overall negative growth; both price and volume effects are negative. In this quarter, Cluster 4 was not populated as none of our operating entities represented here recorded both negative price and volume effects. 1 We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. Gross premiums written by operating entity – Internal growth rates 2 in % Cluster 1 AGCS 3 14.5 South America 9.4 Australia 8.5 8.5 Asia-Pacific 1.8 5.9 Cluster 2 Credit Insurance 1.4 15.2 United Kingdom 4.3 4.5 Central and Eastern Europe (12.7) 3.3 France (2.7) 2.7 Spain 1.5 6.9 Allianz Sach (2.4) 0.4 Cluster 3 Italy (5.4) (0.2) United States (3.6) (1.9) 2Q 2010 over 2Q 2009 2Q 2011 over 2Q 2010 2 3 Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. Allianz Risk Transfer (ART) business now shown within AGCS. Prior years were adjusted accordingly. 11 19.8 18.9 12 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Cluster 1 At AGCS gross premiums amounted to € 1,387 mil- lion. Adjusting for several portfolio transfers to AGCS within the Property-Casualty segment, our internal growth was 19.8 %. This increase includes € 108 mil- lion from the insurance-linked market activities of ART. In addition, we saw volume growth in various lines of business, mainly marine and liability. In South America gross premiums grew by 9.4 % with all countries in the region contributing positively. Brazil contributed most to the positive growth, largely driven by its motor and health businesses. Gross pre- miums totaled € 407 million. In Australia gross premiums were € 642 million, in- cluding positive foreign currency translation effects of € 39 million. Both retail and commercial lines, in particular our motor and agricultural businesses, contributed to the strong positive internal growth of 8.5 %. We estimate the positive price effect to be 2.8 %. In Asia-Pacific gross premiums amounted to € 118 mil lion. Internal growth was 5.9 %. A strong increase in commercial property business and continued strong volume growth in the Malaysian motor busi- ness were the main drivers of our growth. The price effect was overall positive at around 0.8 %. Cluster 2 In our Credit Insurance business, gross premiums increased by 15.2 % to € 492 million. This was attribut- able to a strong positive volume effect due to an in- crease in our customers’ business volumes as a result of economic recovery. We recorded an overall nega- tive price effect of about 6.7 %, following two years of tariff increases and higher rebates to our customers due to a lower claims environment. In the United Kingdom gross premiums stood at € 533 million. Excluding € 19 million of unfavorable foreign currency translation effects, gross premiums increased by 4.5 %. This growth resulted from a positive price effect of about 4.6 % following tariff increases, particularly in our motor business. In addition, we continued to grow our private household business through further expansion of our distribution network. In Central and Eastern Europe gross premiums amounted to € 624 million. Excluding unfavorable foreign currency trans lation effects of € 4 million, we achieved positive internal growth of 3.3 %. The in- crease in gross premiums was driven mainly by a positive volume effect as our motor and health busi- nesses in Russia picked up in line with economic recovery. However, other countries in the region were still affected by a difficult economic environment. This resulted in lower renewal tariffs, in particular in our motor businesses in Hungary and Romania. We estimate the overall negative price effect to be 5.9 %. In France gross premiums were € 733 million, an increase of 2.7 % and mostly driven by tariff increases in our personal lines. Our growth also benefited from a slight recovery of the commercial lines compared to the previous year’s quarter which had been af- fected by portfolio cleaning, in particular in motor fleets. Overall we estimate a positive price effect of 3.5 %. In Spain gross premiums amounted to € 481 million, an increase of 1.5 %. Despite higher VAT and the end of car scrapping incentives, we managed to increase volume especially in our motor business thanks to good cycle management. Due to the ongoing economic recession we continued to suffer from a soft pricing environment, particularly in commercial lines, resulting in a negative price effect of approximately 2.3 %. At Allianz Sach gross premiums were € 1,636 million. Adjusting for the transfer of our China branch to Asia- Pacific, gross premiums increased by 0.4 %. The growth resulted from our motor business supported by the successful introduction of a new insurance product. The positive price effect was estimated at 2.2 %. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Cluster 3 In Italy gross premiums were at € 1,021 million, a slight decrease of 0.2 %. Double-digit growth in our direct channel and strong tariff increases, particularly in our motor business, almost offset the decline in gross premiums in our non-motor business. However, our non-motor business was still affected by the eco- nomic recession and our application of strict under- writing rules. We estimate the overall positive price effect to be 5.1 %. In the United States gross premiums amounted to € 690 million. Adjusting for the transfer of our marine business to AGCS and unfavorable foreign currency translation effects of € 91 million, gross premiums declined by 1.9 %. This decrease stemmed largely from volume losses in our commercial and personal lines, reflecting the continuing soft market conditions. Positive growth in our crop business as a result of increasing commodity prices partly offset this decline. Tariff increases in our personal lines led to an overall positive price effect of about 2.1 %. 2011 to 2010 first half year comparison On an internal basis, gross premiums written increased by 1.7 %, driven by a positive volume effect of 0.8 % and a positive price effect of 0.9 %. On a nominal basis gross premiums were up by 2.1 % or € 500 million to € 24,445 million. Favorable foreign currency trans- lation effects accounted for € 152 million of this increase. (De-)consolidation effects mainly from two Swiss subsidiaries had an offsetting effect of minus € 50 million. 13 Operating Profit We analyze the operating profit in the Property- Casualty segment in terms of underwriting result, operating investment result (after expenses for premium refunds) and other result 1. Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Underwriting result 446 286 266 203 Operating investment result (after expenses for premium refunds) 865 844 1,688 1,618 Other result 18 17 38 38 Operating profit 1,329 1,147 1,992 1,859 2011 to 2010 second quarter comparison Operating profit increased by 15.9 % or € 182 million to € 1,329 million. The underwriting result improved by € 160 million to € 446 million benefiting from lower losses from natural catastrophes. By taking advantage of positive price momentum and a further recovery of our Credit Insurance business, we were able to partially compen- sate the negative impact from slightly higher expenses. Our run-off result was almost flat but remained at a high level due to the favorable settlement of prior year large losses and the release of reserves built during the financial crisis. The operating investment result (after expenses for premium refunds) improved by € 21 million to € 865 million. This was mostly attributable to higher interest and similar income net of interest expenses due to growth in the asset base and an increase in operating income from financial assets and liabilities carried at fair value through income (net). The combined ratio was 95.0 % compared to 96.3 % in the previous year. This improvement was driven by a lower level of natural catastrophes and an overall positive price and volume development, partly offset by slightly higher expenses and less favorable run-off. 1 Consists of fee and commission income/expenses and other income/expenses. 14 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Underwriting result Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Premiums earned (net) 9,878 9,689 19,554 19,102 Accident year claims (7,015) (7,049) (14,484) (14,202) Previous year claims (run-off) 396 404 775 735 Claims and insurance benefits incurred (net) (6,619) (6,645) (13,709) (13,467) Acquisition and adminis- trative expenses (net) (2,768) (2,688) (5,476) (5,321) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 Underwriting result (45) 446 (70) 286 (103) 266 (111) 203 Our accident year loss ratio stood at 71.0 %. Compared to the first quarter of this year, the impact from natural catastrophes was lower, at 1.8 percentage points. The second quarter net losses from natural catastrophes amounted to € 174 million, largely driven by the series of tornados in the United States and thunderstorms in Germany. By comparison, in the second quarter of 2010, natural catastrophes represented 2.6 percent- age points of the accident year loss ratio of 72.8 %. Excluding natural catastrophes, our accident year loss ratio improved by 1.0 percentage points mainly due to an overall higher average annual premium. The changes in claims frequency and severity fully compensated each other and had no impact on our accident year loss ratio. The following operations contributed positively to the development of the Property-Casualty segment accident year loss ratio: – France 0.7 percentage points. We had tariff in- creases – mainly in our personal lines – and a lower level of large claims. Furthermore, no major natural catastrophe events were recorded in the second quarter of 2011 compared to the high losses from flash floods and hailstorms in 2010. 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of ‘Change in reserves for insurance and investment contracts (net)’. – Italy 0.7 percentage points. This was mainly due to price increases, in particular in third-party motor liability, as well as strict profitability management. Also, in third-party motor liability, the overall posi- tive trend in claims frequency offset the increase in severity. – Central and Eastern Europe 0.7 percentage points. This was mostly attributable to a lower level of losses from natural catastrophes compared to the second quarter of 2010 which was impacted by floodings in Poland, Slovakia, Hungary and the Czech Republic. In addition, we recorded less large losses. – Credit Insurance 0.2 percentage points. This was driven by a further decline in claims frequency due to de-risking measures taken since the beginning of the global economic crisis and an overall better macro-economic environment. The following operations contributed negatively to the development of the Property-Casualty segment accident year loss ratio: – United States 0.5 percentage points. This was mainly due to the high losses from the series of tornados in April and May of this year. – Germany 0.4 percentage points. This was primarily driven by a higher volume of large losses, especially in our property business. Losses from natural catastrophes were almost at the same level as in the previous year. Total expenses stood at € 2,768 million compared to € 2,688 million in 2010. The expense ratio went up by 0.3 percentage points to 28.0 %. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Operating investment result (after expenses for premium refunds) Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Interest and similar income (net of interest expenses) 953 941 1,849 1,795 Operating income from financial assets and liabilities carried at fair value through income (net) 9 (21) 28 (12) Operating realized gains/losses (net) 3 3 12 12 Operating impairments of investments (net) (7) (6) (7) (6) Investment expenses (61) (54) (117) (109) Operating investment result 897 863 1,765 1,680 Expenses for premium refunds (net) 1 Operating investment result (after expenses for premium refunds) (32) 865 (19) 844 (77) 1,688 (62) 1,618 The operating investment result (after expenses for premium refunds) improved by € 21 million to € 865 million. This was mostly attributable to higher interest and similar income net of interest expenses and an increase in operating income from financial assets and liabilities carried at fair value through in- come (net). Interest and similar income (net of interest expenses) increased by € 12 million to € 953 million. Higher income from debt investments, cash and real estate as well as lower interest expenses accounted for most of this positive development. Income from equity investments was below the previous year’s level as in the second quarter of 2010 we recorded higher income from associated entities. The total average asset base increased by 2.1 % from € 94.9 billion in the second quarter of 2010, to € 96.9 billion in the second quarter of 2011. 1 Consists of the investment-related part (expenses for premium refunds) of ‘Change in reserves for insurance and investment contracts (net)’. 15 Operating income from financial assets and liabilities carried at fair value through income (net) improved by € 30 million to € 9 million. Operating realized gains/losses (net) remained stable at € 3 million. Other result Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Fee and commission income 289 282 562 536 Other income 7 4 11 8 Fee and commission expenses (275) (264) (529) (501) Other expenses (3) (5) (6) (5) Other result 18 17 38 38 2011 to 2010 first half year comparison Operating profit increased by € 133 million to € 1,992 million. This improvement was driven by higher prof- itability in France, Italy, our Credit Insurance business and AGCS, partly offset by higher losses from natural catastrophes at our Reinsurance operations. The combined ratio decreased by 0.3 percentage points to 98.1 %, despite higher losses from natural catastrophes. Although the impact of natural catas- trophes was rather normal in the second quarter, we were burdened by severe losses in the first quarter of 2011 (mainly in Japan, New Zealand and Australia). Overall the impact from natural catastrophes ac- counted for 4.7 percentage points of our combined ratio (6M 2010: 4.3 percentage points). Excluding natural catastrophes, our combined ratio dropped 0.7 percentage points due to an overall higher average annual premium, the further recovery of our credit insurance business and favorable frequency/severity development. The expense ratio increased slightly by 0.1 percentage points to 28.0 %. 16 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Property-Casualty segment information Three months ended June 30, 2011 € mn 2010 € mn Gross premiums written 1 10,194 9,951 Ceded premiums written (1,123) (1,076) Change in unearned premiums 807 814 Premiums earned (net) 9,878 9,689 Interest and similar income 967 960 Operating income from financial assets and liabilities carried at fair value through income (net) 9 (21) Operating realized gains/losses (net) 3 3 Fee and commission income 289 282 Other income 7 4 Operating revenues 11,153 10,917 Claims and insurance benefits incurred (net) (6,619) (6,645) Change in reserves for insurance and investment contracts (net) (77) (89) Interest expenses (14) (19) Operating impairments of investments (net) (7) (6) Investment expenses (61) (54) Acquisition and administrative expenses (net) (2,768) (2,688) Fee and commission expenses (275) (264) Other expenses (3) (5) Operating expenses (9,824) (9,770) Operating profit 1,329 1,147 Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % 67.0 28.0 95.0 68.6 27.7 96.3 1 For the Property-Casualty segment, total revenues are measured based upon gross premiums written. 2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). Six months ended June 30, 2011 € mn 2010 € mn 24,445 23,945 (2,469) (2,425) (2,422) (2,418) 19,554 19,102 1,876 1,839 28 (12) 12 12 562 536 11 8 22,043 21,485 (13,709) (13,467) (180) (173) (27) (44) (7) (6) (117) (109) (5,476) (5,321) (529) (501) (6) (5) (20,051) (19,626) 1,992 1,859 70.1 70.5 28.0 27.9 98.1 98.4 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations 17 18 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Property-Casualty Operations by Business Divisions Gross premiums written Premiums earned (net) Operating profit (loss) internal 1 Three months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn Germany 2 Switzerland 3 Austria 1,636 134 205 1,642 137 199 1,636 119 205 1,630 124 199 1,813 344 186 1,809 339 176 143 60 23 149 50 20 German Speaking Countries 1,975 1,978 1,960 1,953 2,343 2,324 226 219 Italy France Spain 4 South America Netherlands 5 Turkey Belgium 5 Portugal 1,021 733 481 407 195 138 82 1,023 714 474 383 203 131 85 1,021 733 481 419 195 159 82 1,023 714 474 383 192 131 74 963 773 472 307 195 85 71 984 768 460 272 201 85 68 136 117 76 40 17 — 10 82 42 68 25 24 4 13 67 67 67 67 63 60 10 9 Greece 32 27 32 27 24 21 5 4 Africa Europe incl. South America 17 3,173 19 3,126 17 3,206 19 3,104 12 2,965 11 2,930 — 414 6 1 277 6 United States 690 805 780 795 548 643 (74) 40 Mexico 62 56 66 56 27 22 3 2 NAFTA Markets 752 861 846 851 575 665 (71) 42 Allianz Global Corporate & Specialty (AGCS) 4, 5, 7 Reinsurance PC 1,387 662 1,138 730 1,378 662 1,150 730 767 819 737 784 264 77 120 119 United Kingdom 533 528 552 528 450 438 49 49 Credit Insurance 492 427 492 427 316 285 163 123 Australia 642 555 602 555 461 403 102 117 Ireland 179 173 179 173 166 146 26 14 Global Insurance Lines & Anglo Markets 3,895 3,551 3,865 3,563 2,979 2,793 681 542 Russia 185 165 194 165 151 145 (4) (2) Hungary 70 83 68 83 75 91 2 10 Poland 124 111 122 111 95 83 (1) (7) Slovakia 76 76 76 76 69 72 29 4 Romania 43 57 43 57 43 40 1 — Czech Republic 71 64 67 64 57 51 8 7 Croatia 22 22 23 22 18 18 3 2 Bulgaria 26 26 27 26 14 14 3 3 Kazakhstan 4 2 5 2 2 2 1 (1) Ukraine 3 2 3 2 1 1 — — Central and Eastern Europe 8 Asia-Pacific (excl. Australia) 2, 5 Middle East and North Africa 624 118 18 608 130 21 628 126 21 608 119 21 525 69 12 517 73 11 36 13 2 11 10 1 Growth Markets 760 759 775 748 606 601 51 22 Assistance 408 376 408 376 394 364 25 24 Consolidation 4, 7, 9 Total (769) 10,194 (700) 9,951 (754) 10,306 (658) 9,937 16 9,878 12 9,689 3 1,329 21 1,147 1 This reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2 In 2011, Allianz China General Insurance Company Ltd., a former branch of Allianz Versicherungs-AG, was transferred from Germany to Asia-Pacific (excl. Australia). Prior year figures have not been adjusted. In November 2010, the Allianz Group sold the subsidiaries Alba and Phenix Iart. Corporate customer business in Spain transferred to AGCS in 2010. Prior year figures have been adjusted accordingly. Corporate customer business in the Netherlands and Belgium as well as Allianz Insurance (Hong Kong) Ltd. and Allianz Insurance Company of Singapore Pte. Ltd. were transferred to AGCS in 2010 and 2011. Prior year figures have not been adjusted. 3 4 5 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Combined ratio Loss ratio Three months ended June 30, 2011 % 2010 % 2011 % 2010 % Germany 2 Switzerland 3 Austria 101.8 88.5 92.5 100.4 91.9 93.5 74.7 66.1 65.7 72.3 72.8 67.9 German Speaking Countries 99.1 98.6 72.7 72.1 Italy France Spain 4 South America Netherlands 5 Turkey Belgium 5 Portugal 96.5 96.4 89.9 95.8 98.6 108.5 98.3 100.7 103.8 90.5 98.4 93.8 102.4 93.9 71.6 67.7 69.2 64.5 68.5 80.9 64.3 77.4 76.8 70.0 65.7 63.4 75.1 61.3 91.8 92.1 68.2 68.0 Greece 85.2 84.9 55.3 52.3 Africa 103.6 99.6 56.9 55.9 Europe incl. South America 95.8 98.9 69.2 73.2 United States 125.9 107.3 93.0 73.8 Mexico 95.1 99.5 67.9 67.7 NAFTA Markets 124.2 106.9 91.7 73.5 Allianz Global Corporate & Specialty (AGCS) 4, 5, 7 Reinsurance PC 76.3 93.9 93.6 89.3 50.0 66.0 63.9 66.4 United Kingdom 95.4 94.2 62.6 59.6 Credit Insurance 58.7 67.4 33.5 36.9 Australia 92.0 85.0 65.3 59.2 Ireland 92.2 99.6 67.3 77.6 Global Insurance Lines & Anglo Markets 85.5 88.9 57.9 61.2 Russia 105.8 107.8 65.7 66.3 Hungary 107.6 99.0 62.4 62.5 Poland 106.0 111.8 72.4 74.2 Slovakia 62.8 101.9 35.3 73.2 Romania 104.2 109.3 70.6 89.6 Czech Republic 90.1 92.2 61.6 64.9 Croatia 91.5 94.2 53.8 59.2 Bulgaria 82.1 83.5 47.8 52.9 Kazakhstan 24.0 134.6 18.3 54.8 Ukraine 113.5 105.0 51.3 4.8 Central and Eastern Europe 8 Asia-Pacific (excl. Australia) 2, 5 Middle East and North Africa 97.6 89.7 97.9 103.7 91.7 104.6 61.4 59.5 70.2 68.8 62.5 69.8 Growth Markets 96.7 102.2 61.4 68.1 Assistance 94.7 95.6 58.4 59.9 Consolidation 4, 7, 9 Total — 95.0 — 96.3 — 67.0 — 68.6 6 Contains € 2 mn and € 4 mn for 2Q 2011 and 2Q 2010, respectively, from a management holding located in Luxembourg and also € 1 mn and € 1 mn for 2Q 2011 and 2Q 2010, respectively, from AGF UK. Allianz Risk Transfer (ART) business now shown within AGCS. Prior year figures have been adjusted accordingly. 7 8 Contains income and expense items from a management holding. 9 Represents elimination of transactions between Allianz Group companies in different geographic regions. Expense ratio 2011 % 27.1 22.4 26.8 26.4 24.9 28.7 20.7 31.3 30.1 27.6 34.0 23.6 29.9 46.7 26.6 32.9 27.2 32.5 26.3 27.9 32.8 25.2 26.7 24.9 27.6 40.1 45.2 33.6 27.5 33.6 28.5 37.7 34.3 5.7 62.2 36.2 30.2 27.7 35.3 36.3 — 28.0 19 2010 % 28.1 19.1 25.6 26.5 23.3 27.0 20.5 32.7 30.4 27.3 32.6 24.1 32.6 43.7 25.7 33.5 31.8 33.4 29.7 22.9 34.6 30.5 25.8 22.0 27.7 41.5 36.5 37.6 28.7 19.7 27.3 35.0 30.6 79.8 100.2 34.9 29.2 34.8 34.1 35.7 — 27.7 20 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Gross premiums written Premiums earned (net) Operating profit (loss) internal 1 Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn Germany 2 Switzerland 3 Austria 5,500 1,047 541 5,542 1,001 531 5,500 924 541 5,525 924 531 3,606 699 363 3,596 683 349 329 101 35 318 82 41 German Speaking Countries 7,088 7,074 6,965 6,980 4,668 4,628 465 441 Italy France Spain 4 South America Netherlands 5 Turkey Belgium 5 Portugal 1,960 1,871 1,113 904 490 275 184 1,968 1,860 1,111 716 529 268 195 1,960 1,871 1,113 886 490 300 184 1,968 1,860 1,106 716 499 268 165 1,916 1,574 919 604 392 169 139 1,969 1,547 907 513 407 160 133 244 217 154 75 24 1 19 151 51 138 49 25 8 21 153 152 153 152 124 121 21 16 Greece 64 58 64 58 46 40 7 8 Africa Europe incl. South America 50 7,064 47 6,904 50 7,071 47 6,839 24 5,907 19 5,816 2 771 6 3 479 6 United States 1,295 1,443 1,379 1,411 1,078 1,222 (12) 80 Mexico 109 98 109 98 53 42 6 4 NAFTA Markets 1,404 1,541 1,488 1,509 1,131 1,264 (6) 84 Allianz Global Corporate & Specialty (AGCS) 4, 5, 7 Reinsurance PC 2,818 2,112 2,519 2,378 2,805 2,112 2,560 2,378 1,496 1,572 1,480 1,579 320 (218) 255 60 United Kingdom 1,052 991 1,052 991 910 848 89 91 Credit Insurance 1,027 939 1,027 939 607 552 257 174 Australia 1,184 995 1,072 995 929 756 125 137 Ireland 409 367 409 367 323 281 34 8 Global Insurance Lines & Anglo Markets 8,602 8,189 8,477 8,230 5,837 5,496 607 725 Russia 402 362 404 362 305 275 (3) (3) Hungary 207 246 207 246 151 188 17 26 Poland 235 214 233 214 186 165 — (4) Slovakia 190 194 190 194 138 146 44 20 Romania 98 119 99 119 89 78 1 1 Czech Republic 153 139 145 139 112 101 16 13 Croatia 49 49 50 49 37 37 6 4 Bulgaria 43 43 44 43 31 34 8 8 Kazakhstan 14 20 15 20 3 4 1 1 Ukraine 7 4 7 4 3 2 — — Central and Eastern Europe 8 Asia-Pacific (excl. Australia) 2, 5 Middle East and North Africa 1,398 250 37 1,390 252 40 1,394 246 40 1,390 222 40 1,055 138 24 1,030 135 21 82 26 1 56 21 — Growth Markets 1,685 1,682 1,680 1,652 1,217 1,186 109 77 Assistance 868 773 868 773 774 697 41 42 Consolidation 4, 7, 9 Total (2,266) 24,445 (2,218) 23,945 (2,284) 24,265 (2,116) 23,867 20 19,554 15 19,102 5 1,992 11 1,859 1 This reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2 In 2011, Allianz China General Insurance Company Ltd., a former branch of Allianz Versicherungs-AG, was transferred from Germany to Asia-Pacific (excl. Australia). Prior year figures have not been adjusted. In November 2010, the Allianz Group sold the subsidiaries Alba and Phenix Iart. Corporate customer business in Spain transferred to AGCS in 2010. Prior year figures have been adjusted accordingly. Corporate customer business in the Netherlands and Belgium as well as Allianz Insurance (Hong Kong) Ltd. and Allianz Insurance Company of Singapore Pte. Ltd. were transferred to AGCS in 2010 and 2011. Prior year figures have not been adjusted. 3 4 5 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Combined ratio Loss ratio Six months ended June 30, 2011 % 2010 % 2011 % 2010 % Germany 2 Switzerland 3 Austria 100.2 91.1 93.9 100.1 93.9 94.3 72.8 69.6 67.1 72.2 73.8 68.2 German Speaking Countries 98.3 98.7 71.8 72.1 Italy France Spain 4 South America Netherlands 5 Turkey Belgium 5 Portugal 97.2 97.0 89.3 96.2 99.6 106.4 98.3 100.9 105.3 89.9 98.2 99.5 102.9 97.9 72.6 70.3 69.0 64.8 69.2 78.2 64.5 76.5 78.5 69.6 66.0 69.5 75.5 63.7 91.4 94.1 67.6 69.7 Greece 91.9 86.7 56.7 54.2 Africa 99.0 96.0 57.2 59.4 Europe incl. South America 96.2 99.8 70.2 73.9 United States 114.3 107.0 79.5 70.8 Mexico 95.4 99.5 69.0 69.1 NAFTA Markets 113.4 106.7 79.0 70.7 Allianz Global Corporate & Specialty (AGCS) 4, 5, 7 Reinsurance PC 89.4 117.2 92.9 99.1 61.5 89.2 65.5 76.1 United Kingdom 96.2 95.3 63.9 61.1 Credit Insurance 67.8 79.1 41.0 47.1 Australia 100.8 96.8 75.6 71.4 Ireland 96.8 106.5 72.0 85.1 Global Insurance Lines & Anglo Markets 97.9 94.9 70.0 67.8 Russia 103.6 106.7 64.9 64.1 Hungary 98.9 95.9 56.4 62.4 Poland 103.9 105.8 70.4 71.1 Slovakia 74.6 92.9 46.7 65.3 Romania 103.1 103.8 72.2 82.9 Czech Republic 89.9 92.1 63.7 68.3 Croatia 92.0 95.1 54.9 61.1 Bulgaria 76.5 79.8 44.5 48.9 Kazakhstan 54.5 77.6 17.3 24.6 Ukraine 112.1 110.7 39.2 28.7 Central and Eastern Europe 8 Asia-Pacific (excl. Australia) 2,5 Middle East and North Africa 96.6 89.0 107.2 99.8 91.5 110.9 61.6 59.4 73.5 66.1 61.7 75.5 Growth Markets 96.0 99.1 61.7 65.8 Assistance 96.1 96.3 60.1 60.7 Consolidation 4, 7, 9 Total — 98.1 — 98.4 — 70.1 — 70.5 6 Contains € 5 mn and € 8 mn for 6M 2011 and 6M 2010, respectively, from a management holding located in Luxembourg and also € 2 mn and € 1 mn for 6M 2011 and 6M 2010, respectively, from AGF UK. Allianz Risk Transfer (ART) business now shown within AGCS. Prior year figures have been adjusted accordingly. 7 8 Contains income and expense items from a management holding. 9 Represents elimination of transactions between Allianz Group companies in different geographic regions. Expense ratio 2011 % 27.4 21.5 26.8 26.5 24.6 26.7 20.3 31.4 30.4 28.2 33.8 23.8 35.2 41.8 26.0 34.8 26.4 34.4 27.9 28.0 32.3 26.8 25.2 24.8 27.9 38.7 42.5 33.5 27.9 30.9 26.2 37.1 32.0 37.2 72.9 35.0 29.6 33.7 34.3 36.0 — 28.0 21 2010 % 27.9 20.1 26.1 26.6 24.4 26.8 20.3 32.2 30.0 27.4 34.2 24.4 32.5 36.6 25.9 36.2 30.4 36.0 27.4 23.0 34.2 32.0 25.4 21.4 27.1 42.6 33.5 34.7 27.6 20.9 23.8 34.0 30.9 53.0 82.0 33.7 29.8 35.4 33.3 35.6 — 27.9 22 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Life/Health Insurance Operations – Statutory premiums amounted to € 12,978 million. – Operating profit of € 679 million. Segment Overview Key Figures – Allianz offers a broad range of life, savings and Three months ended June 30, Six months ended June 30, investment-oriented products including individual and group life insurance contracts. 2011 € mn 2010 € mn 2009 € mn 2011 € mn 2010 € mn 2009 € mn – Via our distribution channels (mainly tied agents, brokers and bank partnerships) we offer life and health products for both private and corporate clients. Statutory premiums Operating profit 1 Cost-income ratio1 in % 12,978 679 95.9 14,124 824 95.4 11,766 966 93.9 27,248 1,381 96.0 29,480 1,659 95.6 24,779 1,262 95.9 – As one of the worldwide market leaders in life business we serve clients in more than 45 countries. – In 12 countries we are one of the market leaders Summary: second quarter of 2011 based on premiums. Statutory premiums reached € 12,978 million after an exceptional prior quarter (2Q 2010: € 14,124 million). This development represents a decrease of 5.9 % on an internal basis, which is broadly in line with our expectations. We had a decline in premiums at our Italian operations and, to a lesser extent, our German traditional life business which benefited from large single premium contracts on corporate business in the second quarter of 2010. Partly offsetting was the continued strong growth in our U.S. business. Operating profit 1 in € mn 966 939 835 824 € 679 mn (17.6) % Operating profit decreased from last year’s high level by € 145 million to € 679 million, largely due to a lower investment result which was im- pacted by lower income from financial assets and liabilities carried at fair value, mainly from our business in Germany and the United States, as well as impairments on Greek sovereign bonds 2. 655 702 679 554 469 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 1 Figures prior to the third quarter of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. In accordance with IAS 39, our investments in Greek sovereign bonds were considered impaired and written. down to current market value as of June 30, 2011. We also booked impairments in the non-operating investment result. For further information please refer to note 31 of our condensed consolidated interim financial statements. 2 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Statutory Premiums 1 2011 to 2010 second quarter comparison Statutory premiums decreased by 5.9 % on an internal basis to € 12,978 million which is broadly in line with our expectations. Statutory premiums – Internal growth rates 2 in % Belgium/Luxembourg 17.5 34.6 Central and Eastern Europe 16.7 26.0 Switzerland (16.9) 14.7 United States 17.5 14.1 Germany Health 0.8 0.5 France (4.4) 7.4 Spain (4.4) 16.4 Germany Life (8.4) 16.0 Asia-Pacific (10.5) 32.7 Italy (27.8) 28.7 2Q 2010 over 2Q 2009 2Q 2011 over 2Q 2010 Total premiums in Belgium/Luxembourg increased by 17.5 % on an internal basis to € 329 million mainly driven by increasing premiums from our investment- oriented products but also from our traditional busi- ness. In Luxembourg, growth was largely due to an increase in single premium business. In Belgium the premium increase primarily came from personal lines as well as employee benefits. 1 2 We comment on the development of our statutory premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)conso lidation effects in order to provide more comparable information. Before elimination of transactions between the Allianz Group companies in different geographic regions and different segments. Premiums in Central and Eastern Europe grew by 16.7 % on an internal basis and amounted to € 326 million, largely driven by Poland and Russia. In Poland revenues increased due to higher sales of life deposits as well as unit-linked products. In Russia revenues went up driven by an investment product launched in 2010 which is still developing strongly. Revenues in Hungary declined compared to the second quarter of 2010, which benefited from a single premium invest- ment product campaign that will be relaunched later in 2011. Premiums in Switzerland increased by 14.7 % on an internal basis to € 289 million as we recorded an increase in premiums from our investment-related products as well as traditional business. Premium growth in our individual life business was driven by our single premium traditional life business. In the United States, premiums amounted to € 2,069 million with internal growth of 14.1 %. Sales of fixed index annuity products continued to develop strongly following a sales promotion in March and April 2011. Strong sales of our new variable annuity products led to premium levels well above the second quarter of 2010. In our German life business, premiums amounted to € 3,650 million, a decrease of € 336 million, or 8.4 % on an internal basis. This was primarily driven by a decline in single premiums in comparison to the second quarter of 2010 which benefited from large contracts from corporate clients. Regular premiums increased slightly. In our German Health business, premiums increased slightly to € 802 million. Net production and the number of new supplementary insurance customers were stronger, partially offset by a decrease in the number of new full coverage insur- ance customers. Premiums in France decreased by 4.4 % on an internal basis and amounted to € 1,828 million, largely ex- plained by the reduction of investment contracts. The decline in premiums was mostly driven by single premium business while recurrent premium business was almost flat. 23 24 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report In Spain premiums amounted to € 238 million. Despite a very difficult economic environment including high unemployment, we recorded only a slight decrease in premiums of € 11 million. Overall traditional products declined whereas premiums for our investment- oriented products grew slightly. Premiums in the Asia-Pacific region decreased by 10.5 % on an internal basis to € 1,272 million mainly due to the sales slowdown in South Korea and Japan. In South Korea, premiums decreased by € 93 million to € 387 million as the bancassurance market was challenged with new regulations, affecting both our traditional and investment-oriented business. Premi- ums of equity-indexed products and annuity products decreased, both of which are main products of the bancassurance sales channel in South Korea. In Japan premiums decreased by € 113 million to € 141 million due to a shrinking variable annuity market. In Italy premiums amounted to € 1,814 million, a decrease of 27.8 % on an internal basis, explained by current difficult market conditions and, to a lesser extent, by exceptional premium revenue last year due to tax incentives on repatriated foreign investments. The stagnating economic environment and strong competition, as banks hoarded liquidity, translated into the strong bancassurance-driven market decline. As a result, premiums for our investment-oriented products decreased significantly whereas traditional business premiums were only slightly down. 2011 to 2010 first half year comparison Statutory premiums decreased by 7.3 % on an internal basis and amounted to € 27,248 million. Strong growth in the United States and Belgium was not enough to compensate for reductions in other major markets such as Italy, France, Germany and the Asia-Pacific. Operating Profit 2011 to 2010 second quarter comparison Operating profit decreased by € 145 million to € 679 million, the majority of which related to lower income from financial assets and liabilities carried at fair value and the net effect (after policyholder participation) of Greek sovereign bond impairments of € 76 million 1. Interest and similar income net of interest expenses amounted to € 4,176 million, an increase of € 202 million. This positive development resulted largely from higher interest income due to a higher asset base as well as higher income from equities. Net gains from financial assets and liabilities carried at fair value decreased by € 355 million to a loss of € 110 million. Our Fair Value Bond portfolio was sold in the United States in 2010 and reinvested in assets classified as available-for-sale. In addition, we were impacted negatively by a decrease in the fair value of derivatives in Germany, used to manage our eco- nomic interest rate related exposures. Realized gains and losses (net) increased by 58.0 % to € 335 million, mainly driven by realizations of equity investments in France and Germany. Net impairments on investments increased by € 200 million to € 384 million. Lower impairments of equities and real estate of € 90 million were more than offset by the gross impairment of Greek sovereign bonds of € 279 million 1. Claims and insurance benefits incurred (net) increased by € 273 million to € 4,724 million mostly due to higher payments for maturing traditional life products in Germany. 1 In accordance with IAS 39, our investments in Greek sovereign bonds were considered impaired and written down to current market value as of June 30, 2011. We also booked impairments in the non-operating investment result. For further information please refer to note 31 of our condensed consolidated interim financial statements. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations 25 Change in reserves for insurance and investment contracts (net) decreased from € 3,409 million to € 2,738 million. The main drivers of the decrease were a lower allocation of premiums to aggregate policy reserves and policyholder participation in the lower investment result. Also contributing was a decrease in expenses for premium refunds. Acquisition and administrative expenses (net) de- creased by 1.1 % to € 1,233 million. Acquisition costs decreased by € 23 million to € 867 million due to lower deferred acquisition cost amortization in the United States. This was partially offset by a € 9 million increase in administrative expenses. 2011 to 2010 first half year comparison Operating profit amounted to € 1,381 million, a decrease of € 278 million. Line item movements were largely consistent with the developments in the second quarter. Life/Health segment information 1 Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Statutory premiums 2 Ceded premiums written 12,978 (115) 14,124 (129) 27,248 (282) 29,480 (263) Change in unearned premiums (55) (55) (144) (108) Statutory premiums (net) 12,808 13,940 26,822 29,109 Deposits from insurance and investment contracts (7,364) (8,144) (15,193) (17,438) Premiums earned (net) 5,444 5,796 11,629 11,671 Interest and similar income 4,197 4,005 8,030 7,550 Operating income from financial assets and liabilities carried at fair value through income (net) (110) 245 (272) 391 Operating realized gains/losses (net) 335 212 1,053 750 Fee and commission income 138 129 268 247 Other income 22 29 45 49 Operating revenues 10,026 10,416 20,753 20,658 Claims and insurance benefits incurred (net) (4,724) (4,451) (9,612) (9,296) Change in reserves for insurance and investment contracts (net) (2,738) (3,409) (6,367) (6,505) Interest expenses (21) (31) (47) (54) Loan loss provisions — 1 — 2 Operating impairments of investments (net) (384) (184) (446) (223) Investment expenses (183) (184) (361) (329) Acquisition and administrative expenses (net) (1,233) (1,247) (2,402) (2,450) Fee and commission expenses (46) (63) (105) (117) Operating restructuring charges (1) — (1) (1) Other expenses (17) (24) (31) (26) Operating expenses (9,347) (9,592) (19,372) (18,999) Operating profit 679 824 1,381 1,659 Cost-income ratio 3 in % 95.9 95.4 96.0 95.6 1 2 3 Figures for the second quarter and the first half of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment- oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 26 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Life/Health Operations by Business Divisions 1 Statutory premiums 2 Premiums earned (net) Operating profit (loss) Cost-income ratio Three months ended June 30, 2011 € mn 2010 € mn internal 3 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 % 2010 % Germany Life 4 Germany Health 5 Switzerland Austria German Speaking Countries 3,650 802 289 101 4,842 3,985 798 233 89 5,105 3,650 802 257 101 4,810 3,986 798 224 89 5,097 2,445 802 130 65 3,442 2,795 798 107 63 3,763 209 39 19 7 274 255 48 18 5 326 96.1 96.2 94.8 94.0 96.0 95.6 95.5 94.2 94.9 95.5 Italy 4 France 4 Spain South America Netherlands Turkey Belgium/Luxembourg Portugal Greece Africa Europe incl. South America 1,814 1,828 238 14 76 24 329 46 28 11 2,491 1,876 249 12 77 25 280 46 30 11 1,814 1,828 238 14 76 29 329 46 28 11 2,513 1,913 249 12 77 25 280 46 30 11 157 761 90 11 32 9 105 22 16 4 154 745 105 10 31 9 96 20 18 6 66 115 28 2 12 1 22 4 1 1 73 123 27 2 12 1 23 4 2 2 96.8 95.4 90.8 91.6 86.7 96.2 94.1 91.5 98.0 91.2 97.4 94.7 91.1 88.5 87.4 97.4 93.8 90.5 93.2 89.6 4,408 5,097 4,413 5,156 1,207 1,194 252 269 95.4 95.5 United States Mexico NAFTA Markets 2,069 35 2,104 2,053 24 2,077 2,342 37 2,379 2,053 24 2,077 167 10 177 165 16 181 131 1 132 164 — 164 94.9 97.7 94.9 94.1 99.6 94.2 Reinsurance LH Global Insurance Lines & Anglo Markets 94 94 56 56 94 94 56 56 80 80 58 58 (1) (1) (2) (2) 101.3 101.3 104.2 104.2 South Korea Taiwan Malaysia Indonesia Other Asia-Pacific Hungary Slovakia Czech Republic Poland Romania Croatia Bulgaria Russia Central and Eastern Europe Middle East and North Africa Global Life 4 Growth Markets 387 410 65 122 288 1,272 59 64 47 117 6 12 7 14 326 31 1 1,630 501 420 58 106 396 1,481 63 60 46 74 6 12 6 8 275 33 61 1,850 408 421 68 130 298 1,325 57 64 45 115 6 12 7 15 321 36 1 1,683 501 420 58 106 396 1,481 63 60 46 74 6 12 6 8 275 33 1 1,790 145 22 45 44 125 381 14 47 15 24 3 11 5 13 132 25 — 538 193 36 46 40 119 434 17 46 13 30 2 12 6 7 133 31 2 600 (3) 2 4 7 (10) — 1 7 3 5 — 1 2 — 19 2 — 21 24 25 3 10 (14) 48 5 8 3 5 1 1 3 (2) 24 4 (1) 75 100.8 99.5 94.3 94.0 103.6 100.1 97.8 90.9 93.6 95.6 98.7 90.1 80.1 95.5 94.2 94.7 537.1 98.8 95.8 94.3 94.9 90.7 103.4 96.9 92.8 89.8 93.7 93.5 77.4 92.5 74.9 123.6 92.3 90.3 103.3 96.3 Consolidation 6 Total (100) 12,978 (61) 14,124 (101) 13,278 (61) 14,115 — 5,444 — 5,796 1 679 (8) 824 — 95.9 — 95.4 1 2 3 Figures for the second quarter and the first half of 2010 have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 2 of our condensed consolidated interim financial statements. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment- oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations 27 Statutory premiums 2 Premiums earned (net) Operating profit (loss) Cost-income ratio Six months ended June 30, 2011 € mn 2010 € mn internal 3 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 % 2010 % Germany Life 4 Germany Health 5 Switzerland Austria German Speaking Countries 7,569 1,600 1,216 216 10,601 7,904 1,601 1,039 211 10,755 7,569 1,600 1,074 216 10,459 7,905 1,601 1,021 211 10,738 5,371 1,601 398 153 7,523 5,477 1,602 346 156 7,581 454 63 38 18 573 510 94 39 18 661 95.9 96.9 97.2 93.5 96.1 95.5 95.6 96.7 93.4 95.6 Italy 4 France 4 Spain South America Netherlands Turkey Belgium/Luxembourg Portugal Greece Africa Europe incl. South America 3,812 3,786 494 28 180 51 646 91 57 23 5,331 4,347 447 24 162 48 534 81 60 18 3,812 3,786 494 28 180 56 646 91 57 23 5,375 4,419 447 24 162 48 534 81 60 18 302 1,522 199 21 88 17 234 42 33 10 311 1,511 212 18 65 18 194 40 34 11 134 223 55 5 24 2 36 9 2 2 145 301 55 4 26 3 44 9 2 — 96.9 95.7 91.2 87.4 88.7 96.7 95.4 90.5 96.7 92.9 97.5 94.4 90.3 88.4 87.2 95.6 93.8 89.2 96.5 101.1 9,168 11,052 9,173 11,168 2,468 2,414 492 589 95.7 95.5 United States Mexico NAFTA Markets 4,008 74 4,082 3,704 48 3,752 4,263 73 4,336 3,704 48 3,752 334 26 360 318 29 347 223 2 225 266 2 268 95.5 97.5 95.5 94.6 96.4 94.6 Reinsurance LH Global Insurance Lines & Anglo Markets 193 193 150 150 193 193 150 150 172 172 150 150 4 4 8 8 97.8 97.8 95.1 95.1 South Korea Taiwan Malaysia Indonesia Other Asia-Pacific Hungary Slovakia Czech Republic Poland Romania Croatia Bulgaria Russia Central and Eastern Europe Middle East and North Africa Global Life 4 Growth Markets 854 816 130 248 636 2,684 108 125 84 219 12 23 14 24 609 84 2 3,379 943 1,066 110 185 802 3,106 131 124 75 218 12 23 12 13 608 63 117 3,894 863 781 126 251 616 2,637 107 124 80 217 12 24 14 24 602 96 2 3,337 943 1,066 110 185 802 3,106 131 124 75 218 12 23 12 13 608 63 1 3,778 311 56 96 92 225 780 29 93 29 44 6 22 11 22 256 70 — 1,106 365 83 91 74 224 837 32 90 28 79 5 22 12 12 280 59 3 1,179 37 (21) 8 22 (9) 37 3 15 6 9 1 2 3 — 39 5 — 81 57 35 6 24 (23) 99 8 16 6 10 1 2 4 (2) 45 6 (2) 148 96.6 102.5 94.2 91.2 101.5 98.8 97.1 89.8 92.8 95.9 93.5 92.1 79.8 99.1 93.9 94.2 581.2 97.8 95.0 96.8 94.7 87.6 102.7 97.0 94.4 89.3 93.1 95.6 87.8 90.7 79.8 114.7 93.3 92.0 102.2 96.5 Consolidation 6 Total (175) 27,248 (123) 29,480 (178) 27,320 (124) 29,462 — 11,629 — 11,671 6 1,381 (15) 1,659 — 96.0 — 95.6 4 5 From the first quarter of 2011 on, the variable annuity business of Allianz Global Life is shown within Germany, France and Italy, respectively. Prior year figures have not been adjusted. Loss ratios were 72.5 % and 69.2 % for the three months ended June 30, 2011 and 2010, respectively, and 78.0 % and 74.4 % for the six months ended June 30, 2011 and 2010, respectively. 6 Represents elimination of transactions between Allianz Group companies in different geographic regions. 28 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Asset Management – Total assets under management amounted to € 1,508 billion. – Net inflows of € 31 billion in the first six months of 2011. – Quarterly operating profit of € 528 million. Segment Overview Key Figures – Allianz offers asset management products and services for third-party investors and the Allianz Group’s insurance operations. Three months ended June 30, 2011 € mn 2010 € mn 2009 € mn Six months ended June 30, 2011 € mn 2010 € mn 2009 € mn – We serve a comprehensive range of retail and institutional clients worldwide. Operating revenues Operating profit Cost-income ratio in % 1,303 528 59.5 1,188 516 56.6 780 246 68.5 2,576 1,056 59.0 2,304 982 57.4 1,496 457 69.5 – We operate on a global basis with investment and distribution capacities in all major markets with particular strongholds in the United States, Europe and the Asia-Pacific region. Total assets under management in € bn 1 1,508 1,518 1,202 1,508 1,518 1,202 – Based on total assets under management we are one of the four largest active asset managers in the world. Summary: second quarter of 2011 Operating profit in € mn € 528 mn On an internal basis, we saw strong revenue and operating profit growth. Our operating revenues increased by € 115 million to € 1,303 million in the second quarter of 2011. On an internal basis, operating revenues increased by 21.8 % compared to the second quarter of 2010. 576 516 521 + 2.3 % 557 528 528 The strong performance continued with a 2.3 % increase in operating profit to € 528 million (including negative foreign currency translation effects of € 59 million mostly due to the depreciation of the U.S. Dollar against the Euro). 466 368 Our cost-income ratio stood at 59.5 % (2Q 2010: 56.6 %). 246 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 1 2010 and 2009 figures as of December 31. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Assets under Management As of June 30, 2011, total assets under management amounted to € 1,508 billion. Of this, third-party assets under management accounted for € 1,151 billion and Allianz Group assets for € 357 billion. Development of total assets under management in € bn Total AuM (as of 12/31/2010) 1,336 180 2 1,518 Net inflows + 31 Market effects + 31 Consolidation and deconsolidation effects + 0 F/X effects (72) Total AuM (as of 6/30/2011) 1,333 174 1 1,508 Fixed income Equities Other We had strong internal growth with net inflows of € 31 billion for the first six months of 2011. This positive development derived from fixed income assets with net inflows of € 33 billion, whereas our equity business saw net outflows of € 2 billion. Positive market effects contributed a further € 31 billion with € 28 billion from fixed income and € 3 billion from equity. The negative foreign currency effect of € 72 billion more than offset the increase in assets under management resulting in a net decline of assets under management of € 10 billion. However, when adjusting for this effect, internal growth in total assets under management amounted to 4.1 %. 29 In the following section we focus on the develop- ment of third-party assets under management since December 31, 2010. Third-party assets under management by regions/ countries as of June 30, 2011 (December 31, 2010) 1 in % Other 2: 1.5 (1.6) Asia-Pacific: 9.9 (10.0) Germany: 10.8 (11.2) Rest of Europe: 15.2 (15.1) United States: 62.6 (62.1) The regional split between third-party assets under management has remained stable with a slight shift between the United States (up 0.5 %) and Germany (down 0.4 %). The ratio of third-party assets from fixed income and equities was almost unchanged at 87 % and 13 %, respectively. The institutional (66 %) and retail clients’ (34 %) share of third-party assets under management remained unchanged. 1 Based on the origination of assets. 2 Consists of third-party assets managed by other Allianz Group companies (approximately € 17 bn as of June 30, 2011 and € 19 bn as of December 31, 2010, respectively). 30 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Rolling investment performance of Allianz Global Investors 1 in % Fixed income Equity 90 94 63 65 (10) (6) (37) (35) 12/31/2010 6/30/2011 12/31/2010 6/30/2011 Outperforming assets under management Underperforming assets under management Allianz Global Investors continued their outstanding investment performance with 90 % of assets under management outperforming their respective bench- marks (December 31, 2010: 87 %). Fixed income assets recorded an extraordinary performance of 94 % versus their respective benchmarks. 65 % of our equity assets outperformed their respective benchmarks, which is an increase by 2 percentage points compared to December 31, 2010. 1 AllianzGI account-based, asset-weighted 3-year investment performance of third-party assets vs. benchmark including all accounts managed by equity and fixed income managers of AllianzGI. For some retail equity funds the net of fee performance is compared to the median performance of an appropriate peer group (Morningstar or Lipper; first and second quartile mean out-performance). For all other retail funds and for all institutional accounts performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS (Global Investment Performance Standards), the performance of closed funds/ accounts is not included in the analysis. Accounts at AllianzGI Investments Europe, Zurich Branch and Joint-Venture GTJA China and in parts WRAP accounts are not considered. Operating Revenues 2011 to 2010 second quarter comparison Operating revenues amounted to € 1,303 million, an increase of € 115 million, largely driven by higher average assets under management (up 19 %, adjusted for foreign currency effects). On an internal basis, operating revenues increased by 21.8 %. Net fee and commission income improved by € 109 million to € 1,297 million. We earned strong perfor- mance fees of € 81 million (2Q 2010: € 88 million). Management fees increased by € 105 million resulting in an overall positive impact on our net fee and com- mission income. 2011 to 2010 first half year comparison Our operating revenues increased by € 272 million to € 2,576 million, up 18.0 % on an internal basis. Operating Profit 2011 to 2010 second quarter comparison Operating profit increased by € 12 million to € 528 million, despite a negative foreign currency effect (largely related to the U.S. Dollar depreciation versus the Euro) of € 59 million , mainly due to our higher asset base and the resulting increase in fees driven by assets under management. Administrative expenses amounted to € 775 million, an increase of 27.5 % on an internal basis. This was driven by the positive business development resulting in higher performance-related personnel expenses as well as increased non-personnel expenses due to higher average asset under management and, in particular, from investments in our U.S. business. Our cost-income ratio increased by 2.9 percentage points to 59.5 %. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations 2011 to 2010 first half year comparison Our operating profit increased by 7.5 % to € 1,056 million, supported by growth in average assets under management and outbalanced by negative foreign currency effects of € 54 million. Asset Management segment information Management and loading fees Performance fees Other income Fee and commission income Commissions Other expenses Fee and commission expenses Net fee and commission income Net interest income 1 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Operating expenses Operating profit Cost-income ratio 2 in % 1 Represents interest and similar income less interest expenses. 2 Represents operating expenses divided by operating revenues. Three months ended June 30, 2011 € mn 2010 € mn 1,445 1,339 81 88 51 31 1,577 1,458 (273) (266) (7) (4) (280) (270) 1,297 1,188 4 (1) (3) (4) 5 5 1,303 1,188 (775) (672) (775) (672) 528 516 59.5 56.6 31 Six months ended June 30, 2011 € mn 2010 € mn 2,876 2,532 137 216 95 63 3,108 2,811 (545) (517) (10) (9) (555) (526) 2,553 2,285 11 8 3 1 9 10 2,576 2,304 (1,520) (1,322) (1,520) (1,322) 1,056 982 59.0 57.4 32 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Corporate and Other – Operating loss increased by € 50 million, mostly driven by Holding & Treasury. – Increase in operating loss of Holding & Treasury mostly attributable to higher pension costs and lower interest and similar income (net). Segment Overview Key Figures – Corporate and Other encompasses operations of Holding & Treasury, Banking and Alternative Investments business. Three months ended June 30, 2011 € mn 2010 € mn 2009 € mn Six months ended June 30, 2011 € mn 2010 € mn 2009 € mn – Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk management, corporate finance, treasury, financial control, communi cation, legal, human resources and technology functions. Corporate and Other 1 Operating revenues Operating expenses Operating loss Holding & Treasury Operating revenues Operating expenses 495 (700) (205) 167 (337) 468 (623) (155) 157 (295) 382 (695) (313) 104 (314) 929 (1,357) (428) 277 (668) 859 (1,265) (406) 250 (614) 825 (1,322) (497) 241 (621) Operating loss (170) (138) (210) (391) (364) (380) – Our banking products offering in Germany, Italy, France and Central and Eastern Europe complement our insurance product portfolio. Banking Operating revenues Operating expenses 2 Operating loss 295 (319) (24) 277 (292) (15) 255 (348) (93) 589 (611) (22) 542 (580) (38) 532 (634) (102) – We provide global alternative investment Alternative Investments management services in the private equity, real estate, renewable energy and infrastructure sectors mainly on behalf of the Allianz Group. Operating revenues Operating expenses Operating loss 35 (46) (11) 36 (38) (2) 26 (35) (9) 68 (83) (15) 71 (75) (4) 57 (71) (14) Summary: second quarter of 2011 Operating loss increased by € 50 million to € 205 million largely driven by Holding & Treasury with a € 32 million higher operating loss. Banking and Alternative Investments also recorded an increase in operating loss. 1 2 Consolidation included; for further information about our Corporate and Other segment please refer to note 3 to the consolidated financial statements. Including loan loss provisions. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Earnings Summary Holding & Treasury 2011 to 2010 second quarter comparison The Holding & Treasury’s operating loss increased by € 32 million to € 170 million mostly attributable to lower interest and similar income (net) and higher administrative expenses. Interest and similar income grew by € 9 million driven by higher interest received. Interest expenses, exclud- ing interest expenses from ex ternal debt increased by € 17 million to € 113 million mainly due to group internal financing. Administrative expenses (net), excluding acquisition- related expenses rose by € 14 million to € 147 million. Higher pension costs, due to actuarial related chang- es, were the main contributor to this development. Operating income from financial assets and liabilities carried at fair value (net) decreased by € 9 million to a loss of € 4 million due to a lower foreign currency result. Our net fee and commission result was almost un- changed at negative € 17 million. 2011 to 2010 first half year comparison The operating loss increased by € 27 million to € 391 million. This development stemmed largely from higher administrative expenses (net), driven by pen- sion costs (due to changes in actuarial assumptions). Earnings Summary Banking 2011 to 2010 second quarter comparison Our net interest, fee and commission result was almost unchanged at € 135 million in the second quarter of 2011, compared to € 139 million in the second quarter of the previous year. Our operating income from financial assets and liabilities carried at fair value through income (trading income) improved by € 4 million to € 1 million due to higher interest rate levels. Administrative expenses amounted to € 126 million, compared to € 141 million in the same period in the previous year. The reduction includes € 14 million attributable to our disposed banking businesses in Hungary and Poland. Our loan loss provisions increased by € 23 million to € 33 million. Overall, our Banking business operating loss increased by € 9 million to € 24 million. The cost income ratio amounted to 93.4 %. 2011 to 2010 first half year comparison The operating loss reduced to € 22 million compared to € 38 million in the first half 2010. A better trading result and reduced administrative expenses – due to the disposal of our Banking business in Poland and Hungary – were the main drivers. Our increased loan loss provisions partly compensated this effect. Earnings Summary Alternative Investments 2011 to 2010 second quarter comparison Alternative Investment’s operating loss stood at € 11 million compared to a loss of € 2 million in the second quarter of the previous year. This change was due to higher administrative expenses and lower net fee and commission income. 2011 to 2010 first half year comparison The operating loss went up by € 11 million to € 15 million due to higher administrative expenses and lower net fee and commission income. 33 34 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Outlook – Although the global economy cooled in the recent quarter, the global economic upswing is expected to continue for the rest of 2011 and 2012. – Our published outlook for Allianz Group operating profit for 2011 remains unchanged at € 8.0 billion, plus or minus € 0.5 billion. Economic Outlook After a robust start to the current year, the global economy lost momentum in the second quarter. Two factors are chiefly to blame. Firstly, the natural and nuclear catastrophe in Japan temporarily disrupted supply chains around the globe. Secondly, the steep rise in commodity prices took a chunk out of the real incomes of both households and businesses. Although we see the economic upswing continuing around the globe, it is expected to be more moderate than in the past 1½ years. World trade will continue to expand but not at the pace seen in the immediate aftermath of the global economic slump. And the ongoing con- solidation drives in many industrial countries are likely to weigh on growth there, at least in the short and medium term. All told, global output is set to increase at a pace of between 3 and 3.5 % both this year and next (2010: +4.1 %). Growth in the emerging market countries, and in particular in Emerging Asia, continues to outpace growth in the industrialized world consid- erably, further pushing up their share in global output. Without doubt the risks to the global economy have risen in recent months. These include an escalation of the sovereign debt crisis in Europe and in the United States, and a renewed surge in oil prices as a result of the upheaval in North Africa and the Middle East. The U.S. economy is expected to grow by a good 2 % on average both this year and next. Not least due to declining government expenditures, we expect to see only a moderate upward economic trend. The same is true for the eurozone, with increasingly restrictive fiscal policy set to dampen economic momentum. GDP is expected to rise by between 1.5 and 2 % both in 2011 and in 2012. The German economy looks poised to record above-average growth of more than 3 % in 2011, before falling back more or less into line with the European average again in 2012. Over recent months, the sovereign debt crisis in Europe has escalated with investors in other eurozone countries that have so far not been at the centre of attention fleeing to safer havens. This has led to a sharp increase in the respective bond spreads. The conclusions of the eurozone emergency summit, that took place on July 21, have so far helped to calm the markets to a limited extent. The outcome of the sum- mit marks clear progress, some of the former major barriers to a sensible solution have been lifted. The plan addresses the issue of solvency of the Greek government and is more than a fix of its liquidity shortage. It is now vital that the rescue measures be put into practice swiftly. After a downward move- ment until mid-July – caused by the escalation in the debt crisis both in the Euro area and the United States – yields on German and U.S. bonds are likely to creep up once again in view of a gradual normalization of monetary policy (in particular at the ECB) and an at least somewhat fading “safe haven” effect. As far as the stock market is concerned, further increases in corporate earnings should mean that the overall environment in 2011, and presumably also in 2012, will remain broadly benign, despite the existing risks. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Outlook for the Allianz Group The Allianz Group remains strongly capitalized with a solvency ratio of 180 % 1 at the end of the second quarter of 2011 compared to 173 % at the end of the fourth quarter of 2010. Our operating profit for the first half of 2011 of € 3,960 million was only slightly below the first half of 2010 and despite high losses from natural catastrophes in the first quarter our results in Property-Casualty improved compared to last year. Life/Health operating profit was in line with expectations, but stands below last year’s extraordinary level. Asset Management continued to perform strongly. We have once again demonstrated that we can balance the earnings volatility in individual business segments. Despite the difficult operating environment and the sovereign debt crisis we are on track to achieve our target. Our published outlook for Allianz Group operating profit for 2011 remains unchanged at € 8.0 billion, plus or minus € 0.5 billion. For full details of the assumptions and sensitivities on which this outlook is based upon, please refer to the Allianz Group Annual Report 2010. As always, natural catastrophes and adverse develop- ments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations. 1 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 171 % (2010: 164 %). Cautionary note regarding forward-looking statements The statements contained herein may include prospects, future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed in such forward-looking statements. Such deviations may arise, without limitation, because of changes in the general economic condition and competitive situation, particularly in the Allianz Group’s core business and core markets or the impact of acquisitions, related integration issues and reorganization measures. Deviations may also arise from the frequency and severity of insured loss events, including from natural catas- trophes, and from the development of loss expenses, mortality and morbidity levels and trends, persistency levels, and particularly in our banking business, the extent of credit defaults. In addition, the performance of the financial markets (particularly market volatility, liquidity and credit defaults) as well as changes in interest rate levels, currency exchange rates and changes in national and international laws and regula- tions, particularly tax regulation, may have a relevant impact. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward- looking statement. 35 36 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Balance Sheet Review – Shareholders’ equity decreased by 4.2 % to € 42.6 billion including dividend payments of € 2.0 billion. – Solvency ratio up 7 percentage points to a strong 180 %.1 Shareholders’ Equity 2 Regulatory Capital Adequacy Shareholders’ equity in € mn (4.2) % (2.2) % The Allianz Group is a financial conglomerate within the scope of the Financial Conglomerates Directive and the related German law in force since January 1, 2005. The law requires that a financial conglomerate calculate the capital needed to meet the respective solvency requirements on a consolidated basis. 44,491 43,560 42,615 5,057 4,000 4,281 10,749 10,875 9,649 Conglomerate solvency 1 in € bn 28,685 28,685 28,685 173 % 180 % 180 % 39.6 41.3 41.4 12/31/2010 3/31/2011 6/30/2011 Paid-in-capital Retained earnings (includes foreign currency effects)3 22.9 22.9 23.0 Unrealized gains/losses (net) As of June 30, 2011, shareholders’ equity amounted to € 42,615 million, a decrease of € 1,876 million compared to December 31, 2010. Net income attrib- utable to shareholders contributed € 1,857 million while negative foreign currency translation effects led to a € 911 million reduction. Dividend payments of € 2,032 million further reduced equity. Unrealized gains declined by € 776 million. This is mainly driven by a decline in value of available-for-sale equities. 1 2 3 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 171 % (March 31, 2011: 171 %, December 31, 2010: 164 %). This does not include non-controlling interests of € 2,074 mn, € 2,055 mn and € 2,071 mn as of June 30, 2011, March 31, 2011 and December 31, 2010, respectively. For further information, please refer to note 19 of the condensed consolidated interim financial statements. This includes foreign currency translation effects of € (3,250) mn, € (3,115) mn and € (2,339) mn as of June 30, 2011, March 31 2011 and December 31, 2010, respectively. 12/31/2010 3/31/2011 6/30/2011 Solvency ratio Requirement Eligible capital The conglomerate solvency ratio 4 strengthened by 7 percentage points to 180 % (2010: 173 %) mainly due to the issuance of subordinated debt of € 2.0 billion and net income (net of accrued dividends) of € 1.1 billion. These effects were partially offset by negative foreign currency effects and lower unreal- ized gains on available-for-sale equity securities, which both decreased eligible capital. As of June 30, 2011, our eligible capital for solvency purposes, required for our insurance segments and our Banking and Asset Management businesses, was € 41.4 billion, including off-balance sheet reserves of € 2.1 billion. 4 Solvency according to the E.U. Financial Conglomerates Directive. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Eligible capital surpassed the minimum legally stipulated level by € 18.4 billion. Eligible capital as of June 30, 2011 also includes a deduction for accrued dividends of € 0.7 billion for the first half of 2011, which represents 40 % of net income attributable to shareholders. Our solvency position thus remains very strong. Total Assets and Total Liabilities In the following sections, we show the asset allocation for our insurance portfolio and analyze important developments within the balance sheets of our Property-Casualty, Life/Health, Asset Management and Corporate and Other segments. As of June 30, 2011, total assets amounted to € 627.4 billion and total liabilities amounted to € 582.7 billion. When compared to year-end 2010, total assets and total liabilities increased by € 2.5 billion and by € 4.3 billion, respectively. Market environment for different asset classes While the first quarter of 2011 showed a positive trend for most equity markets, the development during the second quarter was overall negative. Interest rates and credit spreads development in % 4 3 2 1 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Spread U.S.A. A 10-year European Government Bond Spread Europe area A 10-year U.S. Government Bond EONIA 37 10-year interest rates of major countries decreased slightly after the upward trend during the two previous quarters. The EONIA – almost constant in the first quarter of 2011 – increased in the second quarter. Credit spreads widened in the United States, whereas spreads narrowed in Europe during the second quarter. Structure of investments – portfolio overview Allianz Group’s asset portfolio is mainly determined by our core business of insurance. The following asset allocation covers the insurance segments and the Corporate and Other segment. Asset allocation 1 in % Allianz Group's asset portfolio as of June 30, 2011: � 448.4 billion (as of December 31, 2010: � 444.9 billion) Real estate: 2 ( 2) Cash/Other: 2 (2) Equities: 7 (7) Debt instruments: 89 (89) The Group’s investment portfolio grew slightly by € 3.5 billion or 0.8 % compared to the end of 2010. Equities During the first six months of 2011, our gross exposure to equities increased slightly from € 33.0 billion to € 33.4 billion driven by new investments. Our equity gearing after policyholder participation and hedges – which is a ratio of our equity holdings allocated to the shareholder to shareholder’s equity plus off-balance sheet reserves less goodwill – remained stable at 0.4. Debt instruments The vast majority of our investment portfolio com- prises debt instruments. Our investments in this asset class increased slightly from € 395.6 billion to € 399.6 billion in the first six months of 2011. Net inflows, 1 Does not include our banking operations. 38 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report primarily from our life-health business, were partially offset by lower market values and foreign currency effects. Our exposure in this asset class is well-diver- sified with around 60 % allocated to governments and covered bonds. In line with our operating business profile, 66 % of our fixed income portfolio is invested in eurozone bonds and loans. Approximately 94 % of this portfolio is invested in investment-grade bonds and loans. Our government exposure accounts for 35 % of our investments in debt instruments. As of June 30, 2011 our sovereign bond exposure in Spain (1.2 %), Ireland (0.2 %), Greece (0.2 %) and Portugal (0.2 %) comprised less than 2 % of our investments in debt instruments. Fixed income portfolio in % Total fixed income portfolio as of June 30, 2011: � 399.6 billion Other: 10 Banks: 10 Corporate bonds: 19 Covered bonds: 26 Government bonds: 35 thereof: 1.8 Spain 1.2 Portugal 0.2 Greece 0.2 Ireland 0.2 In absolute terms (carrying values) our exposure de creased from € 8.1 billion as of December 31, 2010 to € 7.3 billion as of June 30, 2011. We booked a gross impairment of Greek sovereign bonds of € 644 million1. The (gross) unrealized losses related to these sovereign bond holdings were € 0.7 billion 2 as of June 30, 2011. 1 2 In accordance with IAS 39, our investments in Greek sovereign bonds were con- sidered impaired and written down to current market value as of June 30, 2011. For further information please refer to note 31 of our condensed consolidated interim financial statements. Before policyholder participation and taxes. Carrying values and unrealized losses in Spanish, Greek, Irish and Portuguese sovereign bonds As of June 30, 2011 Carrying value € mn Unrealized loss (gross) 2 € mn Unrealized loss (net) 3 € mn Spain Greece 4 Ireland 5,077 782 646 (280) (6) (195) (72) (4) (58) Portugal 780 (245) (102) Total 7,285 (726) (236) Nearly 60 % of the covered bonds are German Pfand- briefe backed by either public sector loans or mortgage loans. On these as well as on other covered bond exposures, a cushion against real estate price deterio- ration and payment defaults is provided by minimum required security buffers and over-collateralization. Our portfolio includes asset-backed securities (ABS) of € 18.6 billion. Around 25 % or € 4.5 billion of our ABS securities are made up of U.S. agency mortgage- backed securities (MBS) which are backed by the U.S. government. Our exposure in subordinated securities in banks amounted to € 9.8 billion. The tier 1 share, however, remains low at € 1.8 billion. Real Estate Our exposure to real estate held for investment remained stable at € 8.6 billion. Investment result Net investment income Three months ended June 30, 2011 € mn 2010 € mn Interest and similar income (net) 5 Income from financial assets and liabilities carried at fair value through income (net) 5,222 (155) 5,030 28 Realized gains/losses (net) 485 396 Impairments of investments (net) (820) (377) Investment expenses (208) (215) Net investment income 4,524 4,862 3 After policyholder participation and taxes; based on June 30, 2011 balance sheet figures reflected in accumulated other comprehensive income. 4 After impairments. 5 Net of interest expenses (excluding interest expenses from external debt). 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations In the second quarter, our total net investment result amounted to € 4,524 million. The decrease of 7.0 % was mainly driven by impairments on investments. Interest and similar income (net) 1 increased by € 192 million largely due to a growing asset base, especially in our insurance businesses. Income from investments held on fair value option and trading (net) declined from € 28 million to a loss of € 155 million. In the United States we sold assets which were designated at fair value through income and reinvested them in assets classified as available for sale. Another main impact stemmed from our life business in France, where we reduced the assets clas- sified as Fair Value Option and from a direct impact of mark to market valuation of various funds. Positive effects from lower valuation losses on The Hartford warrants partly offset this effect. Furthermore, losses from foreign currencies were partly compensated by increased income from financial derivative positions. Financial derivatives are used to protect against equity and foreign currency fluctuations as well as to man- age duration and other interest rate-related exposures. Realized gains and losses (net) amounted to € 485 million, an increase of € 89 million, primarily related to higher gains on debt securities. Impairments (net) increased from € 377 million to € 820 million, of which € 644 million related to the impairment on Greek sovereign bonds 2 partly offset by lower impairments on equities. 1 Net of interest expenses (excluding interest expenses from external debt). 2 In accordance with IAS 39, our investments in Greek sovereign bonds were consid- ered impaired and written down to current market value as of June 30, 2011. For further information please refer to note 31 of our condensed consolidated interim financial statements. 39 Assets and liabilities of the Property- Casualty segment Property-Casualty assets During the first six months of 2011, our Property- Casualty asset base increased slightly by € 1.2 billion or 1.2 % to € 98.5 billion. Our debt securities rose by € 0.6 billion. The increase of other investments amounted to € 0.4 billion. Equity investments and our cash and cash pool assets both contributed € 0.2 billion to this development. Composition of asset base fair values 3 As of June 30, 2011 € bn As of December 31, 2010 € bn Financial assets and liabilities carried at fair value through income Equities 0.3 0.2 Debt securities Other 4 Subtotal Investments 5 Equities 1.3 0.1 1.7 5.6 1.5 0.1 1.8 5.4 Debt securities Cash and cash pool assets 6 Other 61.0 5.5 7.1 60.4 5.3 6.7 Subtotal 79.2 77.8 Loans and advances to banks and customers 17.6 17.7 Property-Casualty asset base 98.5 97.3 Of our Property-Casualty asset base, ABS made up € 3.7 billion as of June 30, 2011, which is approximately 3.8 % of its asset base. 3 4 5 6 Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associ- ates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. This comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.1) bn and € (0.1) bn as of June 30, 2011 and December 31, 2010 respectively. These do not include affiliates of € 10.2 bn and € 10.3 bn as of June 30, 2011 and December 31, 2010, respectively. Including cash and cash equivalents as stated in our segment balance sheet of € 2.9 bn and € 2.5 bn and receivables from cash pooling amounting to € 2.9 bn and € 3.0 bn net of liabilities from securities lending and derivatives of € (0.3) bn and € (0.2) bn as of June 30, 2011 and December 31, 2010, respectively. 40 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Property-Casualty liabilities Development of reserves for loss and loss adjustment expenses 1 in € bn 57.5 57.1 6.7 + 9.5 6.3 50.8 50.8 (7.9) (0.8) (0.8) Gross 12/31/2010 A B C D Gross 6/30/2011 Reserves net Reserves ceded Changes A Loss and loss adjustment expenses paid in current year relating to prior years B Loss and loss adjustment expenses incurred in prior years C Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications D Reserves for loss and loss adjustment expenses in current year As of June 30, 2011, the segment’s gross reserves for loss and loss adjustment expenses decreased by € 0.4 billion to € 57.1 billion. On a net basis, reserves were unchanged at € 50.8 billion. Foreign currency trans- lation effects and other changes accounted for nega- tive € 0.8 billion. 1 After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment, please refer to note 14 of the condensed consolidated interim financial statements. Assets and liabilities of the Life/Health segment Life/Health assets During the first six months of 2011, the Life/Health asset base grew slightly by 0.4 % to € 419.2 billion. Of this total, € 64.8 billion were financial assets for unit- linked contracts. Overall, our debt investments in- creased by € 3.2 billion whereas cash and cash pool assets were down by € 0.8 billion to € 6.6 billion. Composition of asset base fair values As of June 30, 2011 € bn As of December 31, 2010 € bn Financial assets and liabilities carried at fair value through income Equities 2.2 2.7 Debt securities Other 2 Subtotal Investments 3 Equities 2.5 (3.4) 1.3 24.7 3.2 (3.9) 2.0 24.4 Debt securities Cash and cash pool assets 4 Other 216.0 6.6 8.7 212.8 7.4 8.8 Subtotal 256.0 253.4 Loans and advances to banks and customers 97.1 97.4 Financial assets for unit-linked contracts 5 Life/Health asset base 64.8 419.2 64.8 417.6 2 3 4 5 This comprises assets of € 1.4 bn and € 1.0 bn and liabilities (including the market value liability option) of € (4.8) bn and € (4.9) bn as of June 30, 2011 and Decem- ber 31, 2010 respectively. These do not include affiliates of € 1.6 bn and € 1.6 bn as of June 30, 2011 and December 31, 2010, respectively. Including cash and cash equivalents as stated in our segment balance sheet of € 4.7 bn and € 4.4 bn and receivables from cash pooling amounting to € 3.3 bn and € 3.3 bn net of liabilities from securities lending and derivatives of € (1.4) bn and € (0.3) bn as of June 30, 2011 and December 31, 2010, respectively. Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and deprecia- tion in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations ABS amounted to € 14.5 billion as of June 30, 2011, which is less than 4 % of total Life/Health assets. Financial assets for unit-linked contracts in € bn 64.8 + 2.3 64.8 (0.7) (1.6) 12/31/2010 A B C 6/30/2011 Financial assets for unit-linked contracts Changes A Change in unit-linked insurance contracts B Change in unit-linked investment contracts C Foreign currency translation adjustments Financial assets for unit-linked contracts remained unchanged at € 64.8 billion. Unit-linked insurance contracts increased by € 2.3 billion mainly due to premium inflows exceeding outflows. The most sig- nificant contributions came from our operations in the United States (€ 1.3 billion) and France (€ 0.7 billion). Unit-linked investment contracts decreased by € 0.7 billion, mainly driven by Italy. The majority of currency effects resulted from the weaker U.S. Dollar (€ (1.1) billion) and Asian currencies (€ (0.4) billion). Life/Health liabilities Development of reserves for insurance and investment contracts in € bn 340.5 + 7.4 343.5 (0.4) (4.0) 12/31/2010 A B C 6/30/2011 Reserves Changes A Change in aggregate policy reserves B Change in reserves for premium refunds C Foreign currency translation adjustments Life/Health reserves for insurance and investment contracts increased by € 3.0 billion or 0.9 % in the first six months of 2011. The € 7.4 billion increase in aggre- gate policy reserves was largely driven by our opera- tions in Germany (€ 3.8 billion), the United States (€ 1.7 billion, excluding currency effects), Switzerland (€ 0.6 billion, excluding currency effects) and Italy (€ 0.6 billion). Impacted by the lower investment result reserves for premium refunds decreased slightly by € 0.4 billion. Significant currency effects resulted mainly from the weaker U.S. Dollar (€ (3.7) billion) and Asian currencies (€ (0.5) billion), partly compen- sated by the strong Swiss Franc (€ 0.2 billion). 41 42 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Assets and liabilities of the Asset Management segment Asset Management assets Our Asset Management segment’s results of operations are derived primarily from its management of third- party assets. 1 In this section we refer only to the seg- ment’s own assets. The main components of the Asset Management segment’s asset base are cash and cash pool assets and debt securities. In the first half of 2011 the asset base increased by € 0.2 billion to € 3.5 billion driven by higher cash and cash pool assets. Asset Management liabilities Liabilities in our Asset Management segment amounted to € 4.0 billion (down € 0.3 billion or 7.0 %). Assets and liabilities of the Corporate and Other segment Corporate and Other assets Our asset base for Corporate and Other was up by € 0.7 billion or 1.8 % in the first six months of 2011 to € 39.8 billion. Loans and advances to banks and cus- tomers were up by € 0.9 billion to € 17.3 billion. Our investments remained largely unchanged since year- end 2010. 1 For further information on the development of these third-party assets, please refer to the ‘Asset Management’ chapter. Composition of asset base fair values As of June 30, 2011 € bn As of December 31, 2010 € bn Financial assets and liabilities carried at fair value through income Equities 0.1 0.1 Debt securities Other 2 Subtotal Investments 3 Equities 0.1 (0.1) 0.1 3.1 0.2 0.0 0.3 3.3 Debt securities Cash and cash pool assets 4 Other 18.1 1.0 0.2 17.3 1.6 0.2 Subtotal 22.4 22.4 Loans and advances to banks and customers 17.3 16.4 Corporate and Other asset base 39.8 39.1 ABS in our Corporate and Other asset base amounted to € 0.4 billion as of June 30, 2011, which is around 1.0 % of our Corporate and Other asset base. Corporate and Other liabilities Other liabilities increased by € 0.5 billion to € 15.8 billion. The development of certificated liabilities from € 14.4 billion to € 13.6 billion was driven by a decrease of Allianz SE’s outstanding issued debt of € 0.7 billion 5. The increase in participation certificates and subordinated liabilities by € 1.9 billion to € 10.7 billion was mostly attributable to a Subordinated Bond issued by Allianz Finance II B.V. 2 3 4 5 This comprises assets of € 0.4 bn and € 0.5 bn and liabilities of € (0.5) bn and € (0.5) bn as of June 30, 2011 and December 31, 2010, respectively. These do not include affiliates of € 69.7 bn and € 69.2 bn as of June 30, 2011 and December 31, 2010, respectively. Including cash and cash equivalents as stated in our segment balance sheet of € 0.9 bn and € 1.1 bn and receivables from cash pooling amounting to € 0.1 bn and € 0.5 bn net of liabilities from securities lending and derivatives of € 0 bn and € 0 bn as of June 30, 2011 and December 31, 2010, respectively. For further information on Allianz SE debt as of June 30, 2011, please refer to note 17 and 18 of our condensed interim financial statements. 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Allianz SE bonds outstanding as of June 30, 2011 1 1. Senior bonds 2 5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue € 0.9 bn 2002 Maturity date ISIN Interest expense 11/29/2012 XS 015 879 238 1 5.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 1.5 bn 2008 3/6/2013 DE 000 A0T R7K 7 4.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 1.5 bn 2006 11/23/2016 XS 027 588 026 7 4.75 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense Total interest expense for senior bonds € 1.5 bn 2009 7/22/2019 DE 000 A1A KHB 8 2. Subordinated bonds 3 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 2.0 bn 2002 5/31/2022 XS 014 888 756 4 € 1.0 bn 2002 1/13/2025 XS 015 952 750 5 5.5 % bond issued by Allianz SE Volume Year of issue Maturity date ISIN Interest expense € 1.5 bn 2004 Perpetual Bond XS 018 716 232 5 Interest expense in 2Q 2011 € 25.4 mn € 37.8 mn € 30.7 mn € 36.3 mn € 130.2 mn € 57.9 mn € 32.8 mn € 40.9 mn 43 Interest expense in 2Q 2011 4.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 1.4 bn 2005 Perpetual Bond XS 021 163 783 9 € 31.4 mn 5.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 0.8 bn 2006 Perpetual Bond DE 000 A0G NPZ 3 € 21.9 mn 8.375 % bond 4 issued by Allianz SE Volume Year of issue Maturity date ISIN Interest expense USD 2.0 bn 2008 Perpetual Bond US 018 805 200 7 € 59.0 mn 5.75 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense Total interest expense for subordinated bonds € 2.0 bn 2011 7/8/2041 DE 000 A1GNAH1 € 36.6 mn € 280.5 mn 3. Issues matured in 2011 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense Total interest expense USD 0.5 bn 2002 Perpetual Bond XS 015 915 072 0 € 11.3 mn € 422.0 mn 1 2 3 4 For further information on Allianz SE debt (issued or guaranteed) as of June 30, 2011, please refer to note 17 and 18 to our consolidated financial statements. Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor ( Allianz SE). The same applies to one subordinated bond issued in 2002. The terms of the subordinated bonds (except for the one subordinated bond men- tioned in footnote 2 above) do not explicitly provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. On October 23, 2009 the 8.375 % subordinated bond was traded on the New York Stock Exchange for the last time. The bond is now traded in the U.S. OTC market and information on traded prices can be obtained from the website of FINRA (U.S. Financial Industry Regulatory Authority, Inc.). 44 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Group Management Report Reconciliations The previous analysis is based on our consolidated financial statements and should be read in conjunction with them. In addition to our stated figures according to the International Financial Reporting Standards (IFRS), Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as com- plementary to, and not a substitute for our figures determined according to IFRS. Composition of total revenues Property-Casualty Gross premiums written Life/Health Statutory premiums Asset Management Operating revenues consisting of: Net fee and commission income Net interest income Income from financial assets and liabilities carried at fair value through income (net) Other income Corporate and Other Total revenues consisting of: Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Interest expenses, excluding interest expenses from external debt Fee and commission expenses Consolidation effects (Banking within Corporate and Other) Consolidation Allianz Group For further information, please refer to note 3 to the condensed consolidated interim financial statements. Composition of Total Revenues Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn 10,194 9,951 24,445 23,945 12,978 14,124 27,248 29,480 1,303 1,188 2,576 2,304 1,297 1,188 2,553 2,285 4 (1) 11 8 (3) (4) 3 1 5 5 9 10 137 138 288 266 183 173 361 342 1 (3) 10 (9) 111 107 218 209 (95) (83) (184) (167) (64) (58) (117) (110) 1 2 — 1 (38) (12) (78) (39) 24,574 25,389 54,479 55,956 2 10 22 28 Asset Management 32 Corporate and Other 34 Outlook 36 Balance Sheet Review 44 Reconciliations Executive Summary Property-Casualty Insurance Operations Life/Health Insurance Operations Composition of Total Revenue Growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or changes in scope of consolidation) are separately analyzed. Accordingly, in addition to presenting nominal growth, we also present internal growth, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth Three months ended June 30, 2011 Internal growth % Changes in scope of consoli dation % Foreign currency translation % Nominal growth % Property-Casualty 3.7 — (1.3) 2.4 Life/Health (5.9) (0.1) (2.1) (8.1) Asset Management 21.8 (0.4) (11.7) 9.7 Corporate and Other 3.0 (3.7) — (0.7) Allianz Group (0.9) (0.1) (2.2) (3.2) Internal growth % 1.7 (7.3) 18.0 12.1 (2.4) Six months ended June 30, 2011 Changes in scope of consoli dation % Foreign currency translation % (0.2) 0.6 (0.1) (0.2) (0.7) (5.5) (3.8) — (0.1) (0.1) 45 Nominal growth % 2.1 (7.6) 11.8 8.3 (2.6) Budapest, Bajcsy-Zsilinszky út Barcelona, Plaça de Colón Allianz Group Condensed Consolidated Interim Financial Statements Detailed Index 48 Consolidated Balance Sheets 49 Consolidated Income Statements 50 Consolidated Statements of Comprehensive Income Supplementary Information to the Consolidated Income Statements 87 20 Premiums earned (net) 51 Consolidated Statements of Changes in Equity 89 21 Interest and similar income 52 Condensed Consolidated Statements of Cash Flows 89 22 Income from financial assets and liabilities carried at fair value through income (net) Notes to the Condensed Consolidated Interim Financial Statements 54 1 Basis of presentation 91 23 Realized gains/losses (net) 92 24 Fee and commission income 93 25 Other income 55 2 Recently adopted accounting pronouncements, 93 26 Income and expenses from fully consolidated changes in accounting policies and changes in private equity investments the presentation of the condensed consolidated 94 27 Claims and insurance benefits incurred (net) interim financial statements 96 28 Change in reserves for insurance and 57 3 Segment reporting investment contracts (net) 97 29 Interest expenses Supplementary Information to the Consolidated Balance Sheets 78 4 Financial assets carried at fair value through income 78 5 Investments 79 6 Loans and advances to banks and customers 79 7 Reinsurance assets 79 8 Deferred acquisition costs 80 9 Other assets 80 10 Non-current assets and assets and liabilities of 98 30 Loan loss provisions 98 31 Impairments of investments (net) 99 32 Investment expenses 99 33 Acquisition and administrative expenses (net) 101 34 Fee and commission expenses 102 35 Other expenses 102 36 Income taxes 103 37 Earnings per share 82 11 disposal groups classified as held for sale Intangible assets Other Information 104 38 Financial instruments 83 12 Financial liabilities carried at fair value through income 104 39 Other information 83 13 Liabilities to banks and customers 104 40 Subsequent events 83 14 Reserves for loss and loss adjustment expenses 84 15 Reserves for insurance and investment contracts 106 Responsibility statement 85 16 Other liabilities 107 Review report 85 17 Certificated liabilities 85 18 Participation certificates and subordinated liabilities 86 19 Equity 47 48 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Balance Sheets ASSETS Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets and assets of disposal groups classified as held for sale Intangible assets Total assets LIABILITIES AND EQUITY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Liabilities of disposal groups classified as held for sale Certificated liabilities Participation certificates and subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity Note 4 5 6 7 8 9 10 11 Note 12 13 14 15 16 10 17 18 19 As of June 30, 2011 € mn 9,234 8,799 339,244 122,860 64,835 12,553 20,876 2,618 33,233 103 13,052 627,407 As of June 30, 2011 € mn 4,898 21,440 19,224 66,247 352,914 64,835 3,753 31,417 32 7,428 10,530 582,718 42,615 2,074 44,689 627,407 As of December 31, 2010 € mn 8,747 9,843 334,618 122,678 64,847 13,135 20,733 2,663 34,001 299 13,381 624,945 As of December 31, 2010 € mn 5,013 21,155 16,497 66,474 349,793 64,847 3,976 33,213 188 8,229 8,998 578,383 44,491 2,071 46,562 624,945 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Income Statements Premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Income from fully consolidated private equity investments Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share Diluted earnings per share Note 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 26 36 Note 37 37 Three months ended June 30, 2011 € mn 2010 € mn 15,803 15,934 (1,233) (1,208) 752 759 15,322 15,485 5,350 5,169 (155) 28 485 396 2,038 1,909 33 36 456 398 23,529 23,421 (12,018) (11,632) 675 536 (11,343) (11,096) (2,836) (3,517) (367) (359) (33) (9) (820) (377) (208) (215) (5,109) (5,013) (657) (629) (19) (17) (38) (42) (16) (29) (469) (413) (21,915) (21,716) 1,614 1,705 (543) (548) 1,071 1,157 71 68 1,000 1,089 Three months ended June 30, 2011 € 2010 € 2.21 2.41 2.17 2.37 49 Six months ended June 30, 2011 € mn 2010 € mn 36,477 35,977 (2,728) (2,678) (2,566) (2,526) 31,183 30,773 10,244 9,748 (380) 231 1,599 1,706 4,025 3,710 64 65 849 766 47,584 46,999 (24,472) (23,620) 1,151 857 (23,321) (22,763) (6,598) (6,743) (717) (710) (49) (21) (965) (468) (410) (392) (10,125) (10,004) (1,306) (1,228) (41) (34) (40) (90) (31) (32) (881) (818) (44,484) (43,303) 3,100 3,696 (1,114) (936) 1,986 2,760 129 106 1,857 2,654 Six months ended June 30, 2011 € 2010 € 4.11 5.88 4.07 5.84 50 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Statements of Comprehensive Income Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Net income 1,071 1,157 1,986 2,760 Other comprehensive income Foreign currency translation adjustments Reclassifications to net income — 2 — 2 Changes arising during the period (150) 1,462 (945) 2,399 Subtotal (150) 1,464 (945) 2,401 Available-for-sale investments Reclassifications to net income 131 (86) (180) (818) Changes arising during the period 133 (211) (638) 1,331 Subtotal 264 (297) (818) 513 Cash flow hedges Reclassifications to net income — (1) (1) (1) Changes arising during the period 1 (21) (6) (18) Subtotal 1 (22) (7) (19) Share of other comprehensive income of associates Reclassifications to net income — — — — Changes arising during the period 7 9 57 32 Subtotal 7 9 57 32 Miscellaneous Reclassifications to net income — — — — Changes arising during the period 3 16 (2) 34 Subtotal 3 16 (2) 34 Total other comprehensive income 125 1,170 (1,715) 2,961 Total comprehensive income 1,196 2,327 271 5,721 Total comprehensive income attributable to: Non-controlling interests 112 110 120 206 Shareholders 1,084 2,217 151 5,515 For further details concerning income taxes relating to components of the other comprehensive income, please see note 36. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Statements of Changes in Equity Paid-in capital € mn Retained earnings € mn Foreign currency translation adjustments € mn Unrealized gains and losses (net) € mn Balance as of January 1, 2010 28,635 9,642 (3,626) 5,457 Total comprehensive income — 2,722 2,325 468 Paid-in capital — — — — Treasury shares — 4 — — Transactions between equity holders — 20 (10) — Dividends paid — (1,850) — — Balance as of June 30, 2010 28,635 10,538 (1,311) 5,925 Balance as of January 1, 2011 28,685 13,088 (2,339) 5,057 Total comprehensive income — 1,838 (911) (776) Paid-in capital — — — — Treasury shares — 9 — — Transactions between equity holders — (4) — — Dividends paid — (2,032) — — Balance as of June 30, 2011 28,685 12,899 (3,250) 4,281 Share- holders’ equity € mn 40,108 5,515 — 4 10 (1,850) 43,787 44,491 151 — 9 (4) (2,032) 42,615 Non- controlling interests € mn 2,121 206 — — (55) (103) 2,169 2,071 120 — — 4 (121) 2,074 51 Total equity € mn 42,229 5,721 — 4 (45) (1,953) 45,956 46,562 271 — 9 — (2,153) 44,689 52 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Allianz Group Condensed Consolidated Statements of Cash Flows Six months ended June 30, Summary Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities Cash flow from investing activities Proceeds from the sale, maturity or repayment of Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and assets of disposal groups classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 2011 € mn 11,836 (10,935) (172) (242) 487 8,747 9,234 1,986 (84) (634) (351) 528 49 2,116 242 (303) 1,179 72 (725) 3,009 544 4,079 (65) 194 9,850 11,836 4,914 62,465 93 112 142 338 3,407 49 71,520 2010 € mn 9,256 (10,469) 2,019 318 1,124 6,089 7,213 2,760 (116) (1,238) 383 499 21 2,261 (1,687) (41) 167 331 (731) 2,942 151 5,276 35 (1,757) 6,496 9,256 7,088 57,873 123 419 — 247 3,239 129 69,118 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Condensed Consolidated Statements of Cash Flows (continued) Six months ended June 30, 2011 € mn Payments for the purchase or origination of Financial assets designated at fair value through income (4,193) Available-for-sale investments (73,867) Held-to-maturity investments (124) Investments in associates and joint ventures (66) Non-current assets and assets of disposal groups classified as held for sale — Real estate held for investment (163) Loans and advances to banks and customers (purchased loans) (3,693) Property and equipment (571) Subtotal (82,677) Business combinations Proceeds from sale of subsidiaries, net of cash disposed — Acquisitions of subsidiaries, net of cash acquired — Change in loans and advances to banks and customers (originated loans) 73 Other (net) 149 Net cash flow used in investing activities (10,935) Cash flow from financing activities Policyholders’ account deposits 9,161 Policyholders’ account withdrawals (7,271) Net change in liabilities to banks and customers (792) Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 4,345 Repayments of certificated liabilities, participation certificates and subordinated liabilities (3,465) Cash inflow from capital increases — Transactions between equity holders — Dividends paid to shareholders (2,153) Net cash flow from sale or purchase of treasury shares 8 Other (net) (5) Net cash flow provided by (used in) financing activities (172) Supplementary information on the condensed consolidated statements of cash flows Income taxes paid (1,008) Dividends received 696 Interest received 9,748 Interest paid (855) 53 2010 € mn (4,665) (75,080) (213) (267) (232) (511) (3,198) (521) (84,687) — — 5,264 (164) (10,469) 11,351 (6,391) (934) 3,878 (3,747) — (45) (1,953) 5 (145) 2,019 (605) 646 9,053 (967) 54 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Allianz Group Notes to the Condensed Consolidated Interim Financial Statements 1 Basis of presentation The condensed consolidated interim financial state ments of the Allianz Group – comprising the consoli dated balance sheets, consolidated income statements, consolidated statements of comprehensive income, con solidated statements of changes in equity, condensed consolidated statements of cash flows and selected explanatory notes – are presented in accordance with the requirements of IAS 34, Interim Financial Reporting, and have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315 a of the German Commercial Code (HGB). IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the for mer Standing Interpretations Committee (SIC). Within these condensed consolidated interim financial statements, the Allianz Group has applied all IFRS issued by the IASB and endorsed by the E.U., that are compulsory as of January 1, 2011 or adopted early. See note 2 for further details. For existing and unchanged IFRS the accounting policies for recognition, measurement, consolidation and presen tation applied in the preparation of the condensed consol idated interim financial statements are consistent with the accounting policies that have been applied in the prep aration of the consolidated financial statements for the year ended December 31, 2010. These condensed con solidated interim financial statements should be read in conjunction with the audited consolidated financial state ments included in the Allianz Group Annual Report 2010. IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insur ance contracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the provi sions embodied under accounting principles generally accepted in the United States of America (US GAAP) have been applied to those aspects where specific guid ance is not provided by IFRS 4, Insurance Contracts. The condensed consolidated interim financial state ments are presented in millions of Euro (€ mn), unless otherwise stated. These condensed consolidated interim financial state ments of the Allianz Group were authorized for issue by the Board of Management on August 4, 2011. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 2 Recently adopted accounting pronouncements, changes in accounting policies and changes in the presentation of the condensed consolidated interim financial statements Recently adopted accounting pronouncements (effective January 1, 2011) The following amendments and revisions to standards as well as interpretations have become effective for the Allianz Group’s consolidated financial statements as of January 1, 2011: – IAS 32, Financial Instruments: Presentation – Amendments relating to classification of rights issues – IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments – IAS 24, Related Party Disclosures – revised – IFRIC 14, IAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Inter action – Amendments – Annual Improvements to IFRSs 2010 The Allianz Group adopted the revisions, amendments and interpretations as of January 1, 2011, with no material impact on its financial results or financial position. Changes in accounting policies of the consoli- dated financial statements Change in accounting policy for fixed-indexed annuities Future policy benefits of the fixedindexed annuity busi ness implicitly include a series of annual market value liability options (MVLO) that are accounted for as deriva tives at fair value. These embedded derivatives have been separated from the related policy reserves and presented within financial liabilities carried at fair value through income in the consolidated balance sheet. His torically, once the annual index option was credited to the policyholder’s account, this benefit continued to be classified as a derivative at fair value. As such, the MVLO would continually grow over time. Effective July 1, 2010, the Allianz Group voluntarily changed its accounting policy with regard to the valua tion of the MVLO. Specifically, the fixed benefit accruing to the policyholder’s account balance is reclassified back to policyholder reserves upon crediting. In addition, the fair value of the MVLO has been refined to incorporate a discount rate that is more consistent with the returns on the assets used to fund these derivative liabilities. The effects of these changes are that the portion of the policyholder’s account balance representing a credited amount will no longer be accounted for at fair value and the ongoing valuation of the MVLO will better reflect the indexed returns being offered to policyholders. The Allianz Group believes these changes mitigate artificial accounting volatility and better reflect the economics of the fixedindexed annuity business, consequently re sulting in the presentation of more relevant and reliable financial information. The voluntary change in accounting policy is applied retrospectively and results in changes in the presentation as described in the following table. Other reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. 55 56 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Impacts of the changes in accounting policies on the Allianz Group’s consolidated income statements The following table summarizes the impacts on the consolidated income statements for the three months and the six months ended June 30, 2010 relating to the change in accounting policy for fixedindexed annuities: Three months ended June 30, 2010 Six months ended June 30, 2010 As previously reported € mn Change in accounting policy for fixed indexed annuities € mn As reported € mn As previously reported € mn Change in accounting policy for fixed indexed annuities € mn As reported € mn Premiums written 15,945 (11) 15,934 35,997 (20) 35,977 Ceded premiums written (1,208) — (1,208) (2,678) — (2,678) Change in unearned premiums 759 — 759 (2,526) — (2,526) Premiums earned (net) 15,496 (11) 15,485 30,793 (20) 30,773 Interest and similar income 5,169 — 5,169 9,748 — 9,748 Income from financial assets and liabilities carried at fair value through income (net) (235) 263 28 (116) 347 231 Realized gains/losses (net) 396 — 396 1,706 — 1,706 Fee and commission income 1,909 — 1,909 3,710 — 3,710 Other income 36 — 36 65 — 65 Income from fully consolidated private equity investments 398 — 398 766 — 766 Total income 23,169 252 23,421 46,672 327 46,999 Claims and insurance benefits incurred (gross) (11,632) — (11,632) (23,620) — (23,620) Claims and insurance benefits incurred (ceded) 536 — 536 857 — 857 Claims and insurance benefits incurred (net) (11,096) — (11,096) (22,763) — (22,763) Change in reserves for insurance and investment contracts (net) (3,473) (44) (3,517) (6,649) (94) (6,743) Interest expenses (359) — (359) (710) — (710) Loan loss provisions (9) — (9) (21) — (21) Impairments of investments (net) (377) — (377) (468) — (468) Investment expenses (215) — (215) (392) — (392) Acquisition and administrative expenses (net) (4,916) (97) (5,013) (9,905) (99) (10,004) Fee and commission expenses (629) — (629) (1,228) — (1,228) Amortization of intangible assets (17) — (17) (34) — (34) Restructuring charges (42) — (42) (90) — (90) Other expenses (29) — (29) (32) — (32) Expenses from fully consolidated private equity investments (413) — (413) (818) — (818) Total expenses (21,575) (141) (21,716) (43,110) (193) (43,303) Income before income taxes 1,594 111 1,705 3,562 134 3,696 Income taxes (509) (39) (548) (889) (47) (936) Net income 1,085 72 1,157 2,673 87 2,760 Net income attributable to: Noncontrolling interests 68 — 68 106 — 106 Shareholders 1,017 72 1,089 2,567 87 2,654 Basic earnings per share (in €) 2.25 0.16 2.41 5.69 0.19 5.88 Diluted earnings per share (in €) 2.21 0.16 2.37 5.65 0.19 5.84 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 3 Segment reporting Identification of reportable segments The business activities of the Allianz Group are first orga- nized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between Property-Casualty and Life/Health cat egories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into the following reportable segments: – German Speaking Countries – Europe incl. South America – NAFTA Markets – Global Insurance Lines & Anglo Markets – Growth Markets – Assistance (Property-Casualty only) Asset management activities represent a separate repor- table segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In total, the Allianz Group has identified 15 reportable segments in accordance with IFRS 8, Operating Segments. The types of products and services from which report- able segments derive revenue are described below. Property-Casualty In the Property-Casualty category, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both individual and group basis, including annuity, endowment and term insurance, unit-linked and investment-oriented products as well as full private health and supplemental health and long-term care insurance. Asset Management The reportable segment Asset Management operates as a global provider of institutional and retail asset manage- ment products and services to third-party investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the Asia-Pacific region represent the primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. The reportable segment Banking consists of the banking activities in Germany, France, Italy and Central and Eastern Europe. The banks offer a wide range of products for corporate and retail clients with the main focus on the latter. The reportable segment Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors mainly on behalf of the Allianz Group’s insurance operations. The Alternative Invest- ments reportable segment also includes certain fully consolidated private equity investments. Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. Transactions between reportable segments are eliminated in Consolidation. For the reportable segment Asset Management, interest revenues are reported net of interest expenses. 57 58 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments measure of profit or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments and the Allianz Group as a whole. Operating profit highlights the portion of income before income taxes attributable to the on- going core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s under- lying operating performance and the comparability of its operating performance over time. To better understand the ongoing operations of the busi- ness, the Allianz Group generally excludes the following non-operating effects: – acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; – restructuring charges, because the timing of these is largely at the discretion of the Allianz Group, and accordingly their exclusion provides additional insight into the operating trends of the underlying business; – interest expenses from external debt, as these relate to the capital structure of the Allianz Group; – income from fully consolidated private equity invest- ments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; – income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s long-term performance; – realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control and which can and do vary, sometimes mate- rially, through time. Against this general rule the following exceptions apply: – in all segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income refers to operating business; – for Asset Management and Banking, income from financial assets and liabilities held for trading (net) is generally treated as operating income; – for Life/Health insurance business and Property- Casualty insurance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also applicable to tax benefits, which are shared with policyholders. IFRS requires that the consolidated income statements present all tax benefits in the income taxes line item, even though these belong to policyholders. In the segment reporting, the tax benefits are reclassified and shown within operating profit in order to properly reflect the policyholder participation in tax benefits. Operating profit should be viewed as complementary to, and not a substitute for, income before income taxes or net income as determined in accordance with IFRS. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 59 60 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Business Segment Information – Consolidated Balance Sheets Property-Casualty Life/Health As of June 30, 2011 € mn As of December 31, 2010 € mn As of June 30, 2011 € mn ASSETS Cash and cash equivalents 2,919 2,520 4,740 Financial assets carried at fair value through income 1,770 1,852 6,132 Investments 83,832 82,786 250,909 Loans and advances to banks and customers 17,615 17,697 97,140 Financial assets for unit-linked contracts — — 64,835 Reinsurance assets 8,104 8,365 4,467 Deferred acquisition costs 4,375 4,121 16,349 Deferred tax assets Other assets 1 Non-current assets and assets of disposal groups classified as held for sale 2 Intangible assets 1,021 20,765 58 2,277 1,110 21,738 28 2,308 242 15,954 34 2,330 Total assets 142,736 142,525 463,132 Property-Casualty Life/Health As of June 30, 2011 € mn As of December 31, 2010 € mn As of June 30, 2011 € mn LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 52 79 4,789 Liabilities to banks and customers 1,163 1,368 1,917 Unearned premiums 16,793 14,206 2,431 Reserves for loss and loss adjustment expenses 57,066 57,509 9,198 Reserves for insurance and investment contracts 9,472 9,338 343,531 Financial liabilities for unit-linked contracts — — 64,835 Deferred tax liabilities 2,375 2,461 1,535 Other liabilities Liabilities of disposal groups classified as held for sale 3 Certificated liabilities 15,599 30 25 16,756 — — 13,513 — — Participation certificates and subordinated liabilities — 398 65 Total liabilities 102,575 102,115 441,814 1 2 3 Includes a change of € 1.9 bn in Asset Management and Consolidation resulting from a harmonization of the consolidation logic as of June 30, 2011. Comprise as of June 30, 2011, the assets from the disposal group Allianz Kazakhstan ZAO, Almaty, in Property-Casualty, the assets from the disposal group Allianz Asset Management a.s., Bratislava, in Asset Management and other non-current assets classified as held for sale in Property-Casualty, Life/Health and Corporate and Other. See note 10 for further information. Comprise as of June 30, 2011, the liabilities from the disposal group Allianz Kazakhstan ZAO, Almaty, in Property-Casualty and the liabilities from the disposal group Allianz Asset Management a.s., Bratislava, in Asset Management. See note 10 for further information. As of December 31, 2010 € mn 4,482 6,867 247,568 97,377 64,847 4,793 16,460 208 16,424 24 2,346 461,396 As of December 31, 2010 € mn 4,905 796 2,291 8,984 340,539 64,847 1,559 15,124 — 2 65 439,112 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Asset Management Corporate and Other As of June 30, 2011 € mn As of December 31, 2010 € mn As of June 30, 2011 € mn As of December 31, 2010 € mn 1,060 899 889 1,045 735 729 634 826 1,109 1,208 91,116 90,039 384 358 17,342 16,443 — — — — — — — — 152 152 — — 240 271 1,514 1,372 1,732 3,725 4,608 5,525 3 — 8 248 6,828 7,065 1,617 1,662 12,243 14,407 117,728 117,160 Asset Management Corporate and Other As of June 30, 2011 € mn As of December 31, 2010 € mn As of June 30, 2011 € mn As of December 31, 2010 € mn 2 — 530 461 1,022 876 20,476 20,499 — — — — — — — — — — 35 42 — — — — 51 80 191 174 2,944 3,364 15,786 15,333 2 — — 241 — — 13,624 14,448 14 14 10,708 8,778 4,035 4,334 61,350 59,976 Consolidation As of June 30, 2011 € mn (374) (472) (87,722) (9,621) — (18) — (399) (9,826) — — (108,432) Consolidation As of June 30, 2011 € mn (475) (3,138) — (17) (124) — (399) (16,425) — (6,221) (257) (27,056) Total equity Total liabilities and equity As of December 31, 2010 € mn (199) (431) (86,983) (9,197) — (23) — (298) (13,411) (1) — (110,543) As of December 31, 2010 € mn (432) (2,384) — (19) (126) — (298) (17,364) (53) (6,221) (257) (27,154) Group As of June 30, 2011 € mn 9,234 8,799 339,244 122,860 64,835 12,553 20,876 2,618 33,233 103 13,052 627,407 Group As of June 30, 2011 € mn 4,898 21,440 19,224 66,247 352,914 64,835 3,753 31,417 32 7,428 10,530 582,718 44,689 627,407 61 As of December 31, 2010 € mn 8,747 9,843 334,618 122,678 64,847 13,135 20,733 2,663 34,001 299 13,381 624,945 As of December 31, 2010 € mn 5,013 21,155 16,497 66,474 349,793 64,847 3,976 33,213 188 8,229 8,998 578,383 46,562 624,945 62 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Business Segment Information – Total revenues and reconciliation of Operating profit (loss) to Net income (loss) Property-Casualty Life/Health Three months ended June 30, 2011 € mn 2010 € mn 2011 € mn Total revenues 1 10,194 9,951 12,978 Premiums earned (net) 9,878 9,689 5,444 Operating investment result Interest and similar income 967 960 4,197 Operating income from financial assets and liabilities carried at fair value through income (net) 9 (21) (110) Operating realized gains/losses (net) 3 3 335 Interest expenses, excluding interest expenses from external debt (14) (19) (21) Operating impairments of investments (net) (7) (6) (384) Investment expenses (61) (54) (183) Subtotal 897 863 3,834 Fee and commission income 289 282 138 Other income 7 4 22 Claims and insurance benefits incurred (net) (6,619) (6,645) (4,724) Change in reserves for insurance and investment contracts (net) 2 Loan loss provisions (77) — (89) — (2,738) — Acquisition and administrative expenses (net), excluding acquisition-related expenses (2,768) (2,688) (1,233) Fee and commission expenses (275) (264) (46) Operating restructuring charges — — (1) Other expenses (3) (5) (17) Reclassification of tax benefits — — — Operating profit (loss) 1,329 1,147 679 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (14) 4 (3) Non-operating realized gains/losses (net) 123 93 (129) Non-operating impairments of investments (net) (83) (85) (195) Subtotal 26 12 (327) Income from fully consolidated private equity investments (net) — — — Interest expenses from external debt — — — Acquisition-related expenses — — — Amortization of intangible assets (1) (4) (1) Non-operating restructuring charges (34) (15) (1) Reclassification of tax benefits — — — Non-operating items (9) (7) (329) Income (loss) before income taxes 1,320 1,140 350 Income taxes (368) (303) (136) Net income (loss) 952 837 214 Net income (loss) attributable to: Non-controlling interests 60 51 11 Shareholders 892 786 203 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 During the three months ended June 30, 2011, includes expenses for premium refunds (net) in Property-Casualty of € (32) mn (2010: € (19) mn). 2010 € mn 14,124 5,796 4,005 245 212 (31) (184) (184) 4,063 129 29 (4,451) (3,409) 1 (1,247) (63) — (24) — 824 26 13 (10) 29 — — — — (6) — 23 847 (287) 560 19 541 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Asset Management Corporate and Other 2011 € mn 2010 € mn 2011 € mn 1,303 1,188 137 — — — 14 12 320 (3) (4) (2) — — — (10) (13) (207) — — — — — (25) 1 (5) 86 1,577 1,458 175 5 5 2 — — — — — — — — (33) (775) (672) (317) (280) (270) (117) — — — — — (1) — — — 528 516 (205) — — (33) — — 22 (2) — (19) (2) — (30) — — (26) — — (239) (37) (114) 3 (7) (7) (10) (1) (7) (1) — — — (47) (128) (303) 481 388 (508) (192) (158) 145 289 230 (363) 4 3 (4) 285 227 (359) 2010 € mn 138 — 297 2 — (179) — (23) 97 169 — — — (10) (309) (102) — — — (155) (224) 71 (92) (245) (32) (220) 4 (6) (14) — (513) (668) 197 (471) (5) (466) Consolidation 2011 € mn (38) — (148) 4 1 124 — 61 42 (141) (3) — (21) — 18 61 — 5 8 (31) (3) 130 (130) (3) 13 — — — — (8) 2 (29) 8 (21) — (21) 2010 € mn (12) — (105) (9) — 103 — 46 35 (129) (2) — (19) — 13 70 — — 2 (30) 9 4 — 13 17 — — — — (2) 28 (2) 3 1 — 1 Group 2011 € mn 24,574 15,322 5,350 (102) 339 (128) (391) (208) 4,860 2,038 33 (11,343) (2,836) (33) (5,075) (657) (1) (16) 8 2,300 (53) 146 (429) (336) (13) (239) (34) (19) (37) (8) (686) 1,614 (543) 1,071 71 1,000 63 2010 € mn 25,389 15,485 5,169 213 215 (139) (190) (215) 5,053 1,909 36 (11,096) (3,517) (9) (4,903) (629) — (29) 2 2,302 (185) 181 (187) (191) (15) (220) (110) (17) (42) (2) (597) 1,705 (548) 1,157 68 1,089 64 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Business Segment Information – Total revenues and reconciliation of Operating profit (loss) to Net income (loss) (continued) Property-Casualty Life/Health Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn Total revenues 1 24,445 23,945 27,248 Premiums earned (net) 19,554 19,102 11,629 Operating investment result Interest and similar income 1,876 1,839 8,030 Operating income from financial assets and liabilities carried at fair value through income (net) 28 (12) (272) Operating realized gains/losses (net) 12 12 1,053 Interest expenses, excluding interest expenses from external debt (27) (44) (47) Operating impairments of investments (net) (7) (6) (446) Investment expenses (117) (109) (361) Subtotal 1,765 1,680 7,957 Fee and commission income 562 536 268 Other income 11 8 45 Claims and insurance benefits incurred (net) (13,709) (13,467) (9,612) Change in reserves for insurance and investment contracts (net) 2 Loan loss provisions (180) — (173) — (6,367) — Acquisition and administrative expenses (net), excluding acquisition-related expenses (5,476) (5,321) (2,402) Fee and commission expenses (529) (501) (105) Operating restructuring charges — — (1) Other expenses (6) (5) (31) Reclassification of tax benefits — — — Operating profit (loss) 1,992 1,859 1,381 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (12) (19) (12) Non-operating realized gains/losses (net) 332 294 (119) Non-operating impairments of investments (net) (116) (84) (199) Subtotal 204 191 (330) Income from fully consolidated private equity investments (net) — — — Interest expenses from external debt — — — Acquisition-related expenses — — — Amortization of intangible assets (5) (7) (2) Non-operating restructuring charges (35) (42) (1) Reclassification of tax benefits — — — Non-operating items 164 142 (333) Income (loss) before income taxes 2,156 2,001 1,048 Income taxes (647) (573) (352) Net income (loss) 1,509 1,428 696 Net income (loss) attributable to: Non-controlling interests 98 82 32 Shareholders 1,411 1,346 664 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 During the six months ended June 30, 2011, includes expenses for premium refunds (net) in Property-Casualty of € (77) mn (2010: € (62) mn). 2010 € mn 29,480 11,671 7,550 391 750 (54) (223) (329) 8,085 247 49 (9,296) (6,505) 2 (2,450) (117) (1) (26) — 1,659 (12) 31 (8) 11 — — — (1) (22) — (12) 1,647 (511) 1,136 40 1,096 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Asset Management Corporate and Other 2011 € mn 2010 € mn 2011 € mn 2,576 2,304 288 — — — 27 25 565 3 1 5 — — — (16) (17) (397) — — — — — (48) 14 9 125 3,108 2,811 357 9 10 2 — — — — — — — — (49) (1,520) (1,322) (624) (555) (526) (237) — — — — — (2) — — — 1,056 982 (428) — — (121) 3 1 174 (2) — (65) 1 1 (12) — — (63) — — (464) (132) (310) (3) (14) (15) (20) (1) (11) (2) — — — (146) (335) (564) 910 647 (992) (312) (274) 177 598 373 (815) 7 (3) (8) 591 376 (807) 2010 € mn 266 — 526 (23) — (358) — (44) 101 356 — — — (23) (626) (213) — (1) — (406) (97) 564 (147) 320 (102) (442) 2 (11) (14) — (247) (653) 406 (247) (13) (234) Consolidation 2011 € mn (78) — (254) 5 2 234 — 116 103 (270) (3) — (51) — 32 120 — 8 20 (41) (4) 142 (130) 8 31 — — — — (20) 19 (22) 20 (2) — (2) 2010 € mn (39) — (192) (24) — 205 — 90 79 (240) (2) — (65) — 23 129 — — 16 (60) 26 54 — 80 50 — — — — (16) 114 54 16 70 — 70 Group 2011 € mn 54,479 31,183 10,244 (231) 1,067 (253) (453) (410) 9,964 4,025 64 (23,321) (6,598) (49) (9,990) (1,306) (1) (31) 20 3,960 (149) 532 (512) (129) (32) (464) (135) (41) (39) (20) (860) 3,100 (1,114) 1,986 129 1,857 65 2010 € mn 55,956 30,773 9,748 333 762 (268) (229) (392) 9,954 3,710 65 (22,763) (6,743) (21) (9,696) (1,228) (1) (32) 16 4,034 (102) 944 (239) 603 (52) (442) (308) (34) (89) (16) (338) 3,696 (936) 2,760 106 2,654 66 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Property-Casualty business German Speaking Countries 1 Europe incl. South America 2, 3 Three months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Gross premiums written 1,975 1,978 3,173 3,126 Ceded premiums written (345) (357) (269) (300) Change in unearned premiums 713 703 61 104 Premiums earned (net) 2,343 2,324 2,965 2,930 Interest and similar income 311 300 290 294 Operating income from financial assets and liabilities carried at fair value through income (net) 1 (3) 30 (16) Operating realized gains/losses (net) 3 3 — — Fee and commission income 35 32 7 7 Other income 4 5 2 — Operating revenues 2,697 2,661 3,294 3,215 Claims and insurance benefits incurred (net) (1,705) (1,675) (2,050) (2,144) Change in reserves for insurance and investment contracts (net) (68) (71) — (2) Interest expenses (17) (20) (4) (11) Operating impairments on investments (net) (7) (6) — — Investment expenses (19) (17) (28) (21) Acquisition and administrative expenses (net) (618) (617) (790) (753) Fee and commission expenses (34) (32) (8) (7) Other expenses (3) (4) — — Operating expenses (2,471) (2,442) (2,880) (2,938) Operating profit (loss) 226 219 414 277 Loss ratio 4 in % Expense ratio 5 in % Combined ratio 6 in % 72.7 26.4 99.1 72.1 26.5 98.6 69.2 26.6 95.8 73.2 25.7 98.9 1 2 3 In 2011, Allianz China General Insurance Company Ltd., a former branch of Allianz Versicherungs-AG, was transferred from German Speaking Countries to Growth Markets. Prior year figures have not been adjusted. Corporate customer business in Spain transferred to AGCS in 2010. Prior year figures have been adjusted accordingly. Corporate customer business in the Netherlands and Belgium as well as Allianz Insurance (Hong Kong) Ltd. and Allianz Insurance Company of Singapore Pte. Ltd. were transferred to AGCS in 2010 and 2011. Prior year figures have not been adjusted. 4 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 6 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 7 Presentation not meaningful. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements NAFTA Markets Global Insurance Lines & Anglo Markets 2, 3 Growth Markets 1, 3 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 752 861 3,895 3,551 760 759 (146) (187) (986) (785) (157) (156) (31) (9) 70 27 3 (2) 575 665 2,979 2,793 606 601 70 89 269 255 39 42 (1) (1) (21) (5) — 4 — — — — — — — — 162 153 13 11 — — — — — (1) 644 753 3,389 3,196 658 657 (527) (489) (1,724) (1,709) (372) (409) — 1 (8) (18) (1) 1 — — (7) (8) (3) (1) — — — — — — (1) (1) (10) (12) (3) (4) (187) (222) (822) (775) (214) (205) — — (137) (132) (14) (16) — — — — — (1) (715) (711) (2,708) (2,654) (607) (635) (71) 42 681 542 51 22 91.7 73.5 57.9 61.2 61.4 68.1 32.5 33.4 27.6 27.7 35.3 34.1 124.2 106.9 85.5 88.9 96.7 102.2 Assistance 2011 € mn 408 (5) (9) 394 6 — — 94 2 496 (230) — (1) — — (143) (97) — (471) 25 58.4 36.3 94.7 2010 € mn 376 (3) (9) 364 5 (1) — 94 — 462 (218) — — — — (130) (90) — (438) 24 59.9 35.7 95.6 Consolidation 2 2011 € mn (769) 785 — 16 (18) — — (22) (1) (25) (11) — 18 — — 6 15 — 28 3 — 7 — 7 — 7 2010 € mn (700) 712 — 12 (25) 1 — (15) — (27) (1) — 21 — 1 14 13 — 48 21 — 7 — 7 — 7 67 Property-Casualty 2011 € mn 2010 € mn 10,194 9,951 (1,123) (1,076) 807 814 9,878 9,689 967 960 9 (21) 3 3 289 282 7 4 11,153 10,917 (6,619) (6,645) (77) (89) (14) (19) (7) (6) (61) (54) (2,768) (2,688) (275) (264) (3) (5) (9,824) (9,770) 1,329 1,147 67.0 68.6 28.0 27.7 95.0 96.3 68 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Property-Casualty business (continued) German Speaking Countries 1 Europe incl. South America 2, 3 Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Gross premiums written 7,088 7,074 7,064 6,904 Ceded premiums written (1,151) (1,180) (760) (708) Change in unearned premiums (1,269) (1,266) (397) (380) Premiums earned (net) 4,668 4,628 5,907 5,816 Interest and similar income 607 589 537 536 Operating income from financial assets and liabilities carried at fair value through income (net) 1 — 65 4 Operating realized gains/losses (net) 12 12 — — Fee and commission income 70 63 15 15 Other income 8 6 2 1 Operating revenues 5,366 5,298 6,526 6,372 Claims and insurance benefits incurred (net) (3,355) (3,339) (4,144) (4,299) Change in reserves for insurance and investment contracts (net) (150) (134) — (4) Interest expenses (39) (44) (8) (28) Operating impairments on investments (net) (7) (6) — — Investment expenses (40) (37) (51) (42) Acquisition and administrative expenses (net) (1,235) (1,231) (1,537) (1,506) Fee and commission expenses (69) (62) (15) (14) Other expenses (6) (4) — — Operating expenses (4,901) (4,857) (5,755) (5,893) Operating profit (loss) 465 441 771 479 Loss ratio 4 in % Expense ratio 5 in % Combined ratio 6 in % 71.8 26.5 98.3 72.1 26.6 98.7 70.2 26.0 96.2 73.9 25.9 99.8 1 2 3 In 2011, Allianz China General Insurance Company Ltd., a former branch of Allianz Versicherungs-AG, was transferred from German Speaking Countries to Growth Markets. Prior year figures have not been adjusted. Corporate customer business in Spain transferred to AGCS in 2010. Prior year figures have been adjusted accordingly. Corporate customer business in the Netherlands and Belgium as well as Allianz Insurance (Hong Kong) Ltd. and Allianz Insurance Company of Singapore Pte. Ltd. were transferred to AGCS in 2010 and 2011. Prior year figures have not been adjusted. 4 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 6 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 7 Presentation not meaningful. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements NAFTA Markets Global Insurance Lines & Anglo Markets 2, 3 Growth Markets 1, 3 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2011 € mn 2010 € mn 1,404 1,541 8,602 8,189 1,685 1,682 (282) (323) (2,192) (2,065) (363) (377) 9 46 (573) (628) (105) (119) 1,131 1,264 5,837 5,496 1,217 1,186 147 171 532 494 77 83 — (1) (32) (16) (5) 1 — — — — — — — — 304 283 26 27 — — — — — 1 1,278 1,434 6,641 6,257 1,315 1,298 (893) (894) (4,089) (3,729) (750) (780) — 1 (30) (36) — — — — (12) (15) (4) (2) — — — — — — (2) (2) (18) (21) (6) (7) (389) (455) (1,627) (1,488) (418) (395) — — (258) (243) (28) (36) — — — — — (1) (1,284) (1,350) (6,034) (5,532) (1,206) (1,221) (6) 84 607 725 109 77 79.0 70.7 70.0 67.8 61.7 65.8 34.4 36.0 27.9 27.1 34.3 33.3 113.4 106.7 97.9 94.9 96.0 99.1 Assistance 2011 € mn 868 (7) (87) 774 13 (1) — 184 2 972 (465) — (1) — — (279) (186) — (931) 41 60.1 36.0 96.1 2010 € mn 773 (5) (71) 697 12 (2) — 179 — 886 (423) — — — — (248) (173) — (844) 42 60.7 35.6 96.3 Consolidation 2 2011 € mn 2010 € mn (2,266) (2,218) 2,286 2,233 — — 20 15 (37) (46) — 2 — — (37) (31) (1) — (55) (60) (13) (3) — — 37 45 — — — — 9 2 27 27 — — 60 71 5 11 — 7 — 7 — 7 — 7 — 7 — 7 69 Property-Casualty 2011 € mn 2010 € mn 24,445 23,945 (2,469) (2,425) (2,422) (2,418) 19,554 19,102 1,876 1,839 28 (12) 12 12 562 536 11 8 22,043 21,485 (13,709) (13,467) (180) (173) (27) (44) (7) (6) (117) (109) (5,476) (5,321) (529) (501) (6) (5) (20,051) (19,626) 1,992 1,859 70.1 70.5 28.0 27.9 98.1 98.4 70 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Life/Health business German Speaking Countries 1 Europe incl. South America 1 Three months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Statutory premiums 2 Ceded premiums written 4,842 (42) 5,105 (47) 4,408 (83) 5,097 (70) Change in unearned premiums (34) (34) 21 1 Statutory premiums (net) 4,766 5,024 4,346 5,028 Deposits from insurance and investment contracts (1,324) (1,261) (3,139) (3,834) Premiums earned (net) 3,442 3,763 1,207 1,194 Interest and similar income 2,203 2,120 1,183 1,097 Operating income from financial assets and liabilities carried at fair value through income (net) 17 179 5 (137) Operating realized gains/losses (net) 190 122 113 79 Fee and commission income 9 9 96 94 Other income 21 26 1 — Operating revenues 5,882 6,219 2,605 2,327 Claims and insurance benefits incurred (net) (3,168) (3,018) (1,102) (1,077) Change in reserves for insurance and investment contracts (net) (1,730) (2,353) (486) (374) Interest expenses (30) (22) (6) (7) Loan loss provisions — — — — Operating impairments of investments (net) (181) (119) (200) (57) Investment expenses (110) (101) (55) (54) Acquisition and administrative expenses (net) (369) (248) (468) (443) Fee and commission expenses (3) (8) (35) (46) Operating restructuring charges (1) — — — Other expenses (16) (24) (1) — Operating expenses (5,608) (5,893) (2,353) (2,058) Operating profit (loss) 274 326 252 269 Cost-income ratio 3 in % 96.0 95.5 95.4 95.5 1 2 3 From 2011 on, the variable annuity business of Allianz Global Life is shown within Germany, France and Italy, respectively. Prior year figures have not been adjusted. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment- oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 4 Presentation not meaningful. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements NAFTA Markets Global Insurance Lines & Anglo Markets 2011 € mn 2010 € mn 2011 € mn 2010 € mn 2,104 2,077 94 56 (36) (43) (14) (1) 1 2 — 3 2,069 2,036 80 58 (1,892) (1,855) — — 177 181 80 58 620 584 21 13 (112) 228 (19) (22) 18 3 — — 14 13 — — — — — — 717 1,009 82 49 (23) (27) (86) (60) (384) (473) 18 24 (1) (2) (1) — — — — — (4) (5) — — (10) (14) (1) (1) (155) (312) (13) (14) (8) (12) — — — — — — — — — — (585) (845) (83) (51) 132 164 (1) (2) 94.9 94.2 101.3 104.2 Growth Markets 1 2011 € mn 1,630 (40) (43) 1,547 (1,009) 538 189 (3) 14 19 — 757 (345) (156) (3) — 1 (7) (226) — — — (736) 21 98.8 2010 € mn 1,850 (29) (27) 1,794 (1,194) 600 178 11 8 17 3 817 (269) (232) (2) 1 (3) (6) (231) — — — (742) 75 96.3 Consolidation 2011 € mn (100) 100 — — — — (19) 2 — — — (17) — — 20 — — — (2) — — — 18 1 — 4 2010 € mn (61) 61 — — — — 13 (14) — (4) — (5) — (1) 2 — — (8) 1 3 — — (3) (8) — 4 Life/Health 2011 € mn 12,978 (115) (55) 12,808 (7,364) 5,444 4,197 (110) 335 138 22 10,026 (4,724) (2,738) (21) — (384) (183) (1,233) (46) (1) (17) (9,347) 679 95.9 71 2010 € mn 14,124 (129) (55) 13,940 (8,144) 5,796 4,005 245 212 129 29 10,416 (4,451) (3,409) (31) 1 (184) (184) (1,247) (63) — (24) (9,592) 824 95.4 72 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Life/Health business (continued) German Speaking Countries 1 Europe incl. South America 1 Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Statutory premiums 2 Ceded premiums written 10,601 (84) 10,755 (90) 9,168 (185) 11,052 (162) Change in unearned premiums (80) (53) 8 (14) Statutory premiums (net) 10,437 10,612 8,991 10,876 Deposits from insurance and investment contracts (2,914) (3,031) (6,523) (8,462) Premiums earned (net) 7,523 7,581 2,468 2,414 Interest and similar income 4,186 3,988 2,209 2,060 Operating income from financial assets and liabilities carried at fair value through income (net) (65) 293 88 (51) Operating realized gains/losses (net) 589 502 363 200 Fee and commission income 14 12 188 191 Other income 43 35 2 — Operating revenues 12,290 12,411 5,318 4,814 Claims and insurance benefits incurred (net) (6,682) (6,435) (2,096) (2,147) Change in reserves for insurance and investment contracts (net) (3,802) (4,311) (1,385) (913) Interest expenses (62) (52) (16) (15) Loan loss provisions — — — — Operating impairments of investments (net) (218) (133) (226) (85) Investment expenses (217) (183) (108) (99) Acquisition and administrative expenses (net) (699) (600) (910) (874) Fee and commission expenses (7) (11) (83) (92) Operating restructuring charges (1) (1) — — Other expenses (29) (24) (2) — Operating expenses (11,717) (11,750) (4,826) (4,225) Operating profit 573 661 492 589 Cost-income ratio 3 in % 96.1 95.6 95.7 95.5 1 2 3 From 2011 on, the variable annuity business of Allianz Global Life is shown within Germany, France and Italy, respectively. Prior year figures have not been adjusted. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment- oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 4 Presentation not meaningful. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements NAFTA Markets Global Insurance Lines & Anglo Markets 2011 € mn 2010 € mn 2011 € mn 2010 € mn 4,082 3,752 193 150 (68) (78) (21) (3) (1) 3 — 3 4,013 3,677 172 150 (3,653) (3,330) — — 360 347 172 150 1,261 1,133 44 38 (266) 166 (32) (23) 29 14 — — 27 22 — — — — — — 1,411 1,682 184 165 (48) (53) (169) (146) (794) (841) 18 22 (3) (3) (1) (1) — 1 — — (4) (5) — — (20) (24) (2) (2) (302) (468) (26) (30) (15) (21) — — — — — — — — — — (1,186) (1,414) (180) (157) 225 268 4 8 95.5 94.6 97.8 95.1 Growth Markets 1 2011 € mn 3,379 (99) (71) 3,209 (2,103) 1,106 368 (4) 72 39 — 1,581 (617) (404) (5) — 2 (13) (463) — — — (1,500) 81 97.8 2010 € mn 3,894 (53) (47) 3,794 (2,615) 1,179 336 25 34 28 14 1,616 (515) (462) (3) 1 — (12) (475) — — (2) (1,468) 148 96.5 Consolidation 2011 € mn (175) 175 — — — — (38) 7 — — — (31) — — 40 — — (1) (2) — — — 37 6 — 4 2010 € mn (123) 123 — — — — (5) (19) — (6) — (30) — — 20 — — (9) (3) 7 — — 15 (15) — 4 Life/Health 2011 € mn 27,248 (282) (144) 26,822 (15,193) 11,629 8,030 (272) 1,053 268 45 20,753 (9,612) (6,367) (47) — (446) (361) (2,402) (105) (1) (31) (19,372) 1,381 96.0 73 2010 € mn 29,480 (263) (108) 29,109 (17,438) 11,671 7,550 391 750 247 49 20,658 (9,296) (6,505) (54) 2 (223) (329) (2,450) (117) (1) (26) (18,999) 1,659 95.6 74 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Asset Management business Three months ended June 30, Net fee and commission income 1 Net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Operating expenses Operating profit Cost-income ratio 3 in % 1 Represents fee and commission income less fee and commission expenses. 2 Represents interest and similar income less interest expenses. 3 Represents operating expenses divided by operating revenues. Six months ended June 30, Net fee and commission income 1 Net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Operating expenses Operating profit Cost-income ratio 3 in % 1 Represents fee and commission income less fee and commission expenses. 2 Represents interest and similar income less interest expenses. 3 Represents operating expenses divided by operating revenues. 2011 € mn 1,297 4 (3) 5 1,303 (775) (775) 528 59.5 2011 € mn 2,553 11 3 9 2,576 (1,520) (1,520) 1,056 59.0 2010 € mn 1,188 (1) (4) 5 1,188 (672) (672) 516 56.6 2010 € mn 2,285 8 1 10 2,304 (1,322) (1,322) 982 57.4 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 75 76 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Reportable segments – Corporate and Other business Holding & Treasury Three months ended June 30, 2011 € mn Interest and similar income 134 Operating income from financial assets and liabilities carried at fair value through income (net) (4) Fee and commission income 37 Other income — Operating revenues 167 Interest expenses, excluding interest expenses from external debt (113) Loan loss provisions — Investment expenses (23) Administrative expenses (net), excluding acquisition-related expenses (147) Fee and commission expenses (54) Other expenses — Operating expenses (337) Operating loss (170) Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. Holding & Treasury Six months ended June 30, 2011 € mn Interest and similar income 199 Operating income from financial assets and liabilities carried at fair value through income (net) (5) Fee and commission income 83 Other income — Operating revenues 277 Interest expenses. excluding interest expenses from external debt (214) Loan loss provisions — Investment expenses (46) Administrative expenses (net), excluding acquisition-related expenses (287) Fee and commission expenses (121) Other expenses — Operating expenses (668) Operating loss (391) Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. 2010 € mn 125 5 27 — 157 (96) — (22) (133) (44) — (295) (138) 2010 € mn 178 (14) 86 — 250 (191) — (43) (277) (103) — (614) (364) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Banking Alternative Investments 2011 € mn 2010 € mn 2011 € mn 183 173 4 1 (3) — 111 107 29 — — 2 295 277 35 (95) (83) 1 (33) (10) — — — (2) (126) (141) (45) (64) (58) — (1) — — (319) (292) (46) (24) (15) (11) 93.4 103.7 Banking Alternative Investments 2011 € mn 2010 € mn 2011 € mn 361 342 6 10 (9) — 218 209 59 — — 3 589 542 68 (184) (167) — (49) (23) — — — (2) (259) (279) (81) (117) (110) — (2) (1) — (611) (580) (83) (22) (38) (15) 90.6 105.7 2010 € mn (1) (1) 37 1 36 — — (1) (37) — — (38) (2) 2010 € mn 7 (1) 64 1 71 — — (1) (74) — — (75) (4) Consolidation 2011 € mn (1) 1 (2) — (2) — — — 1 1 — 2 — Consolidation 2011 € mn (1) — (3) (1) (5) 1 — — 3 1 — 5 — 2010 € mn — 1 (2) (1) (2) — — — 2 — — 2 — 2010 € mn (1) 1 (3) (1) (4) — — — 4 — — 4 — Corporate and Other 2011 € mn 320 (2) 175 2 495 (207) (33) (25) (317) (117) (1) (700) (205) Corporate and Other 2011 € mn 565 5 357 2 929 (397) (49) (48) (624) (237) (2) (1,357) (428) 77 2010 € mn 297 2 169 — 468 (179) (10) (23) (309) (102) — (623) (155) 2010 € mn 526 (23) 356 — 859 (358) (23) (44) (626) (213) (1) (1,265) (406) 78 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Supplementary Information to the Consolidated Balance Sheets 5 Investments 4 Financial assets carried at fair value through income Available-for-sale investments Financial assets held for trading As of June 30, 2011 € mn As of December 31, 2010 € mn Held-to-maturity investments Funds held by others under reinsurance contracts assumed Investments in associates and joint ventures Debt securities 312 546 Real estate held for investment Equity securities 131 139 Total Derivative financial instruments 1,730 1,416 Subtotal 2,173 2,101 Financial assets designated at fair value through income Debt securities 3,762 4,430 Equity securities 2,864 3,312 Subtotal 6,626 7,742 Total 8,799 9,843 Available-for-sale investments As of June 30, 2011 Amortized Cost € mn Unrealized Gains € mn Unrealized Losses € mn Fair Value € mn Amortized Cost € mn Debt securities Government and agency mortgage-backed securities (residential and commercial) 4,604 222 (2) 4,824 5,043 Corporate mortgage-backed securities (residential and commercial) 9,793 688 (139) 10,342 10,023 Other asset-backed securities 2,607 160 (22) 2,745 3,501 Government and government agency bonds Germany 12,958 503 (50) 13,411 14,475 Italy 30,300 129 (867) 29,562 29,242 France 18,281 882 (182) 18,981 18,248 United States 6,196 234 (40) 6,390 6,667 Spain 5,299 25 (309) 5,015 5,142 Belgium 5,157 68 (116) 5,109 4,466 Greece 772 — (6) 766 1,815 Portugal 1,021 — (243) 778 1,148 Ireland 799 — (197) 602 990 All other countries 41,729 1,705 (171) 43,263 41,533 Subtotal 122,512 3,546 (2,181) 123,877 123,726 Corporate bonds 146,559 4,131 (2,551) 148,139 138,576 Other 1,933 131 (14) 2,050 1,723 Subtotal 288,008 8,878 (4,909) 291,977 282,592 Equity securities 21,335 10,094 (433) 30,996 19,893 Total 309,343 18,972 (5,342) 322,973 302,485 As of June 30, 2011 € mn 322,973 4,060 1,089 2,548 8,574 339,244 As of December 31, 2010 Unrealized Gains € mn Unrealized Losses € mn 235 (6) 625 (174) 186 (34) 740 (24) 183 (778) 1,194 (73) 197 (97) 31 (332) 102 (56) — (554) 1 (90) 3 (136) 1,888 (113) 4,339 (2,253) 4,786 (2,743) 123 (9) 10,294 (5,219) 10,903 (148) 21,197 (5,367) As of December 31, 2010 € mn 318,315 3,987 1,117 2,527 8,672 334,618 Fair Value € mn 5,272 10,474 3,653 15,191 28,647 19,369 6,767 4,841 4,512 1,261 1,059 857 43,308 125,812 140,619 1,837 287,667 30,648 318,315 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 79 6 Loans and advances to banks and customers As of June 30, 2011 As of December 31, 2010 Banks € mn Customers € mn Total € mn Banks € mn Customers € mn Total € mn Short-term investments and certificates of deposit 5,038 — 5,038 5,216 — 5,216 Reverse repurchase agreements 1,561 — 1,561 1,018 — 1,018 Collateral paid for securities borrowing transactions and derivatives 58 — 58 38 — 38 Loans 67,808 46,403 114,211 67,303 46,575 113,878 Other 2,105 40 2,145 2,605 69 2,674 Subtotal 76,570 46,443 123,013 76,180 46,644 122,824 Loan loss allowance — (153) (153) — (146) (146) Total 76,570 46,290 122,860 76,180 46,498 122,678 Loans and advances to customers by type of customer 8 Deferred acquisition costs As of June 30, 2011 € mn As of December 31, 2010 € mn As of June 30, 2011 € mn As of December 31, 2010 € mn Corporate customers 16,289 16,303 Private customers 23,331 23,433 Deferred acquisition costs Public customers 6,823 6,908 Property-Casualty 4,375 4,121 Total 46,443 46,644 Life/Health 14,450 14,459 Asset Management 152 152 Subtotal 18,977 18,732 Present value of future profits 1,090 1,180 7 Reinsurance assets Deferred sales inducements Total 809 20,876 821 20,733 As of June 30, 2011 € mn As of December 31, 2010 € mn Unearned premiums 1,828 1,372 Reserves for loss and loss adjustment expenses 6,603 6,986 Aggregate policy reserves 4,017 4,674 Other insurance reserves 105 103 Total 12,553 13,135 80 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 9 Other assets As of June 30, 2011 € mn Receivables Policyholders 5,277 Agents 4,528 Reinsurers 2,108 Other 3,663 Less allowance for doubtful accounts (660) Subtotal 14,916 Tax receivables Income taxes 1,510 Other taxes 942 Subtotal 2,452 Accrued dividends, interest and rent 6,699 Prepaid expenses Interest and rent 17 Other prepaid expenses 325 Subtotal 342 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 487 Property and equipment Real estate held for own use 2,946 Software 1,351 Equipment 782 Fixed assets of Alternative Investments 1,121 Subtotal 6,200 Other assets 2,137 Total 33,233 As of December 31, 2010 € mn 5,322 4,129 2,581 3,515 (629) 14,918 1,691 1,043 2,734 7,356 16 334 350 452 3,075 1,287 735 1,117 6,214 1,977 34,001 10 Non-current assets and assets and liabilities of disposal groups classified as held for sale As of June 30, 2011 € mn As of December 31, 2010 € mn Non-current assets and assets of disposal groups classified as held for sale Allianz Bank Polska S.A. — 247 Allianz Kazakhstan ZAO 31 — Allianz Asset Management a.s. 3 — Real estate held for investment (Property-Casualty) 27 22 Real estate held for investment (Life/Health) 34 24 Real estate held for investment (Corporate and Other) 8 — Real estate held for own use (Property-Casualty) — 6 Total 103 299 Liabilities of disposal groups classified as held for sale Allianz Bank Polska S.A. — 188 Allianz Kazakhstan ZAO 30 — Allianz Asset Management a.s. 2 — Total 32 188 Non-current assets and assets and liabilities of disposal groups classified as held for sale as of June 30, 2011 Allianz Kazakhstan ZAO, Almaty During the first quarter of 2011, the Allianz Group de- cided to dispose of Allianz Kazakhstan ZAO. Thus, the assets and liabilities related to the Allianz Group’s 100 % ownership of Allianz Kazakhstan ZAO and allocated to the segment Property-Casualty, were reclassified as disposal group held for sale. As of June 30, 2011, cumulative losses recognized in other comprehensive income relating to the disposal group classified as held for sale amounted to € 3 mn. The sale is expected to occur during the year 2011. Upon measurement of the disposal group at fair value less costs to sell an impairment loss of € 16 mn was recog- nized in the consolidated income statement for the six months ended June 30, 2011. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Allianz Asset Management a.s., Bratislava During the second quarter of 2011, the Allianz Group decided to dispose of Allianz Asset Management a.s. Thus, the assets and liabilities related to the Allianz Group’s 100 % ownership of Allianz Asset Management a.s. and allocated to the segment Asset Management, were reclassified as disposal group classified as held for sale. The following table presents the classes of assets and liabilities reclassified as held for sale: As of June 30, 2011 Allianz Asset Management a.s., Bratislava € mn Loans and advances to banks and customers 1 Other assets 2 Total assets of disposal groups classified as held for sale 3 Other liabilities 2 Total liabilities of disposal groups classified as held for sale 2 As of June 30, 2011, cumulative gains recognized in other comprehensive income relating to the disposal group classified as held for sale amounted to € 0.5 mn. The sale is expected to occur during the second half year of 2011. Upon measurement of the disposal group at fair value less costs to sell, an impairment loss of € 2 mn was recognized in the consolidated income statement for the six months ended June 30, 2011. Real estate held for investment classified as held for sale During the second quarter of 2011, the Allianz Group contractually agreed to dispose of an office building held by Allianz Deutschland AG. Further, during the second quarter of 2011, the Allianz Group decided to dispose of several office buildings held by Allianz Life Insurance of America and the German Real Estate Equity Fund. Thus, the assets allocated to the segments Property-Casualty, Life/Health and Corporate and Other, respectively, and previously classified as real estate held for investment were reclassified and presented as non-current assets held for sale. The sales of these buildings are expected to occur during the second half year of 2011. Upon remeasurement of the non-current assets at fair value less costs to sell, an impairment loss of € 6 mn for the reclassified building held by the German Real Estate Equity Fund was recognized for the six months ended June 30, 2011. For the other buildings no impairment loss was recognized for the six months ended June 30, 2011. Disposals during the first half year of 2011 Allianz Bank Polska S.A., Warsaw In May 2011, the Allianz Group completed the sale of Allianz Polska S.A., Warsaw, which was classified as disposal group held for sale during the fourth quarter of 2010. The disposal resulted in realized losses of € 4 mn which were recognized in the consolidated income statement. Total impairment losses from the measurement at fair value less costs to sell until disposal amounted to € 34 mn which were recorded in the fourth quarter of 2010. Real estate held for investment classified as held for sale During the fourth quarter of 2010, the Allianz Group contractually agreed to dispose of various residential properties of Allianz IARD S.A. and Allianz Vie S.A. in Paris on an individual basis. Thus, the assets allocated to the segments Property-Casualty and Life/Health and pre- viously classified as real estate held for investment were reclassified and presented as non-current assets held for sale. The individual sales were completed during the first quarter of 2011. Real estate held for own use classified as held for sale During the fourth quarter of 2010, the Allianz Group contractually agreed to dispose of one commercial property of Allianz Hungaria in Budapest. Thus, the asset allocated to the segment Property-Casualty and previously classified as real estate held for own use was reclassified and presented as non-current assets held for sale. The sale was completed in the second quarter of 2011. 81 82 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 11 Intangible assets As of June 30, 2011 € mn As of December 31, 2010 € mn Intangible assets with indefinite useful lives Goodwill Brand names 1 Subtotal 11,750 311 12,061 12,020 311 12,331 Intangible assets with finite useful lives Long-term distribution agreement with Commerzbank AG 562 585 Customer relationships Other 2 Subtotal 258 171 991 287 178 1,050 Total 13,052 13,381 1 2 Includes primarily the brand name of Selecta AG, Muntelier. Includes primarily research and development costs of € 60 mn (2010: € 67 mn) and bancassurance agreements of € 13 mn (2010: € 14 mn). Goodwill 2011 € mn Cost as of January 1, 12,603 Accumulated impairments as of January 1, (583) Carrying amount as of January 1, 12,020 Additions 1 Foreign currency translation adjustments (264) Reclassification into non-current assets and assets of disposal groups classified as held for sale (7) Carrying amount as of June 30, 11,750 Accumulated impairments as of June 30, 583 Cost as of June 30, 12,333 The goodwill of Allianz Kazakhstan ZAO, Almaty, was reclassified to disposal groups classified as held for sale. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 12 Financial liabilities carried at fair value through income As of June 30, 2011 € mn As of December 31, 2010 € mn Financial liabilities held for trading Derivative financial instruments 4,896 5,012 Other trading liabilities 2 1 Subtotal 4,898 5,013 Financial liabilities designated at fair value through income — — Total 4,898 5,013 13 Liabilities to banks and customers As of June 30, 2011 Banks € mn Customers € mn Payable on demand 326 4,623 Savings deposits — 2,753 Term deposits and certificates of deposit 994 1,901 Repurchase agreements 872 113 Collateral received from securities lending transactions and derivatives 1,780 — Other 5,470 2,608 Total 9,442 11,998 14 Reserves for loss and loss adjustment expenses As of June 30, 2011 € mn As of December 31, 2010 € mn Property-Casualty 57,066 57,509 Life/Health 9,198 8,984 Consolidation (17) (19) Total 66,247 66,474 Total € mn 4,949 2,753 2,895 985 1,780 8,078 21,440 As of December 31, 2010 Banks € mn Customers € mn 68 4,110 — 2,504 1,328 2,301 867 129 591 — 6,278 2,979 9,132 12,023 83 Total € mn 4,178 2,504 3,629 996 591 9,257 21,155 84 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Change in reserves for loss and loss adjustment expenses for the Property-Casualty segment 2011 Gross € mn Ceded € mn Net € mn Gross € mn As of January 1, 57,509 (6,659) 50,850 55,715 Loss and loss adjustment expenses incurred Current year 15,817 (1,333) 14,484 15,582 Prior years (1,188) 413 (775) (1,502) Subtotal 14,629 (920) 13,709 14,080 Loss and loss adjustment expenses paid Current year (5,251) 193 (5,058) (5,437) Prior years (8,747) 801 (7,946) (8,930) Subtotal (13,998) 994 (13,004) (14,367) Foreign currency trans lation adjustments and other changes (1,088) 310 (778) 2,889 Changes in the consolidated subsidiaries of the Allianz Group Reclassifications 1 As of June 30, 20 (6) 57,066 (8) 3 (6,280) 12 (3) 50,786 — — 58,317 1 In the first quarter of 2011, Allianz Kazakhstan ZAO was classified as held for sale. See note 10 for further information. 15 Reserves for insurance and investment contracts As of June 30, 2011 € mn As of December 31, 2010 € mn Aggregate policy reserves 327,685 324,189 Reserves for premium refunds 24,438 24,802 Other insurance reserves 791 802 Total 352,914 349,793 2010 Ceded € mn (7,175) (1,380) 767 (613) 295 877 1,172 (636) — — (7,252) Net € mn 48,540 14,202 (735) 13,467 (5,142) (8,053) (13,195) 2,253 — — 51,065 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 16 Other liabilities As of June 30, 2011 € mn Payables Policyholders 4,234 Reinsurers 1,959 Agents 1,448 Subtotal 7,641 Payables for social security 411 Tax payables Income taxes 1,679 Other taxes 1,146 Subtotal 2,825 Accrued interest and rent 519 Unearned income Interest and rent 12 Other 295 Subtotal 307 Provisions Pensions and similar obligations 3,966 Employee-related 1,792 Share-based compensation plans 752 Restructuring plans 350 Loan commitments 19 Contingent losses from non- insurance business 170 Other provisions 1,293 Subtotal 8,342 Deposits retained for reinsurance ceded 2,264 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 273 Financial liabilities for puttable equity instruments 2,653 Other liabilities 6,182 Total 31,417 As of December 31, 2010 € mn 4,855 1,813 1,471 8,139 434 1,661 1,086 2,747 659 13 293 306 3,925 1,887 1,099 409 7 155 1,564 9,046 2,320 225 3,111 6,226 33,213 85 17 Certificated liabilities As of June 30, 2011 € mn As of December 31, 2010 € mn Allianz SE 1 Senior bonds 5,339 5,336 Money market securities 951 1,791 Subtotal 6,290 7,127 Banking subsidiaries Senior bonds 1,113 1,099 Subtotal 1,113 1,099 All other subsidiaries Certificated liabilities 25 3 Subtotal 25 3 Total 7,428 8,229 1 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. 18 Participation certificates and subordinated liabilities As of June 30, 2011 € mn As of December 31, 2010 € mn Allianz SE 1 Subordinated bonds 2 Subtotal 9,813 9,813 8,301 8,301 Banking subsidiaries Subordinated bonds 274 254 Subtotal 274 254 All other subsidiaries Subordinated bonds 398 398 Hybrid equity 45 45 Subtotal 443 443 Total 10,530 8,998 1 2 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. Change due to the issuance of a € 2.0 bn subordinated bond in the first quarter of 2011 and the repayment of a USD 0.5 bn subordinated bond in the second quarter of 2011. 86 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 19 Equity As of June 30, 2011 € mn As of December 31, 2010 € mn Shareholders’ equity Issued capital 1,164 1,164 Capital reserves Retained earnings 1 Foreign currency translation adjustments Unrealized gains and losses (net) 2 Subtotal 27,521 12,899 (3,250) 4,281 42,615 27,521 13,088 (2,339) 5,057 44,491 Non-controlling interests 2,074 2,071 Total 44,689 46,562 1 2 As of June 30, 2011, includes € (228) mn (2010: € (237) mn) related to treasury shares. As of June 30, 2011, includes € 189 mn (2010: € 196 mn) related to cash flow hedges. Dividends In the second quarter of 2011, a total dividend of € 2,032 mn (2010: € 1,850 mn) or € 4.50 (2010: € 4.10) per qualifying share was paid to the shareholders. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Supplementary Information to the Consolidated Income Statements 20 Premiums earned (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2011 Premiums written Direct 9,368 5,499 — Assumed 826 116 (6) Subtotal 10,194 5,615 (6) Ceded (1,123) (116) 6 Net 9,071 5,499 — Change in unearned premiums Direct 791 (54) — Assumed (173) — — Subtotal 618 (54) — Ceded 189 (1) — Net 807 (55) — Premiums earned Direct 10,159 5,445 — Assumed 653 116 (6) Subtotal 10,812 5,561 (6) Ceded (934) (117) 6 Net 9,878 5,444 — 2010 Premiums written Direct 9,170 5,893 — Assumed 781 96 (6) Subtotal 9,951 5,989 (6) Ceded (1,076) (138) 6 Net 8,875 5,851 — Change in unearned premiums Direct 874 (56) — Assumed (62) 2 — Subtotal 812 (54) — Ceded 2 (1) — Net 814 (55) — Premiums earned Direct 10,044 5,837 — Assumed 719 98 (6) Subtotal 10,763 5,935 (6) Ceded (1,074) (139) 6 Net 9,689 5,796 — 87 Group € mn 14,867 936 15,803 (1,233) 14,570 737 (173) 564 188 752 15,604 763 16,367 (1,045) 15,322 15,063 871 15,934 (1,208) 14,726 818 (60) 758 1 759 15,881 811 16,692 (1,207) 15,485 88 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 20 Premiums earned (net) (continued) Six months ended June 30, 2011 Premiums written Direct Assumed Subtotal Ceded Net Change in unearned premiums Direct Assumed Subtotal Ceded Net Premiums earned Direct Assumed Subtotal Ceded Net 2010 Premiums written Direct Assumed Subtotal Ceded Net Change in unearned premiums Direct Assumed Subtotal Ceded Net Premiums earned Direct Assumed Subtotal Ceded Net Property- Casualty € mn 22,961 1,484 24,445 (2,469) 21,976 (2,714) (279) (2,993) 571 (2,422) 20,247 1,205 21,452 (1,898) 19,554 22,273 1,672 23,945 (2,425) 21,520 (2,528) (275) (2,803) 385 (2,418) 19,745 1,397 21,142 (2,040) 19,102 Life/Health € mn 11,812 232 12,044 (271) 11,773 (145) 1 (144) — (144) 11,667 233 11,900 (271) 11,629 11,840 202 12,042 (263) 11,779 (110) 2 (108) — (108) 11,730 204 11,934 (263) 11,671 Consolidation € mn — (12) (12) 12 — — — — — — — (12) (12) 12 — — (10) (10) 10 — — (2) (2) 2 — — (12) (12) 12 — Group € mn 34,773 1,704 36,477 (2,728) 33,749 (2,859) (278) (3,137) 571 (2,566) 31,914 1,426 33,340 (2,157) 31,183 34,113 1,864 35,977 (2,678) 33,299 (2,638) (275) (2,913) 387 (2,526) 31,475 1,589 33,064 (2,291) 30,773 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 21 Interest and similar income Three months ended June 30, 2011 € mn 2010 € mn Interest from held-to-maturity investments 44 42 Dividends from available-for-sale investments 546 511 Interest from available-for-sale investments 3,106 2,933 Share of earnings from investments in associates and joint ventures 65 67 Rent from real estate held for investment 187 189 Interest from loans to banks and customers 1,373 1,396 Other interest 29 31 Total 5,350 5,169 22 Income from financial assets and liabilities carried at fair value through income (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Asset Management € mn Corporate and Other € mn 2011 Income (expenses) from financial assets and liabilities held for trading (net) (5) 17 1 (9) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 33 (34) — (1) Income (expenses) from financial liabilities for puttable equity instruments (net) (4) 64 2 — Foreign currency gains and losses (net) (29) (160) (6) (25) Total (5) (113) (3) (35) 2010 Income (expenses) from financial assets and liabilities held for trading (net) (30) (274) (2) (203) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 12 145 (22) (1) Income (expenses) from financial liabilities for puttable equity instruments (net) — (54) 13 — Foreign currency gains and losses (net) 1 454 7 (18) Total (17) 271 (4) (222) 89 Six months ended June 30, 2011 € mn 2010 € mn 90 86 693 632 6,200 5,704 84 116 379 351 2,728 2,788 70 71 10,244 9,748 Consoli- dation € mn Group € mn 5 9 — (2) — 62 (4) (224) 1 (155) 1 (508) — 134 — (41) (1) 443 — 28 90 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 22 Income from financial assets and liabilities carried at fair value through income (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn Asset Management € mn Corporate and Other € mn Consoli- dation € mn 2011 Income (expenses) from financial assets and liabilities held for trading (net) 41 243 2 (113) 1 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 44 46 5 (6) — Income (expenses) from financial liabilities for puttable equity instruments (net) 6 45 3 — — Foreign currency gains and losses (net) (75) (618) (7) 3 — Total 16 (284) 3 (116) 1 2010 Income (expenses) from financial assets and liabilities held for trading (net) (103) (732) (1) (86) 4 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 40 468 (9) 1 — Income (expenses) from financial liabilities for puttable equity instruments (net) (5) (136) 2 — — Foreign currency gains and losses (net) 37 779 9 (35) (2) Total (31) 379 1 (120) 2 Income (expenses) from financial assets and liabilities held for trading (net) Life/Health segment For the six months ended June 30, 2011, income (expenses) from financial assets and liabilities held for trading (net) in the Life/Health segment includes in- come of € 235 mn (2010: expenses of € 741 mn) from derivative financial instruments. This includes income of € 534 mn (2010: expenses of € 475 mn) in German entities from financial derivative positions held for dura- tion management and protection against equity and foreign exchange rate fluctuations. Also included are expenses related to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts of € 275 mn (2010: € 183 mn) from U.S. entities. Expenses of € 31 mn (2010: income of € 3 mn) from the hedges of share based compensation plans (restricted stock units) are also included. Foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, that are monetary items. The Allianz Group is hedged against foreign currency fluctuations with free- standing derivatives resulting in an offsetting effect of € 506 mn (2010: € (672) mn) on the foreign currency gains and losses (net) for the six months ended June 30, 2011. Corporate and Other segment For the six months ended June 30, 2011, income (expenses) from financial assets and liabilities held for trading (net) in the Corporate and Other segment in- cludes expenses of € 92 mn (2010: € 103 mn) from derivative financial instruments. This includes expenses of € 5 mn (2010: € 3 mn) from financial derivative in- struments to protect investments and liabilities against foreign exchange rate fluctuations. In 2011, hedging of strategic equity investments not designated for hedge accounting induced expenses of € 17 mn (2010: € 31 mn). Financial derivatives related to investment strategies exhibited expenses of € 109 mn (2010: € 13 mn). Group € mn 174 89 54 (697) (380) (918) 500 (139) 788 231 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 91 23 Realized gains/losses (net) Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Realized gains Available-for-sale investments Equity securities 321 348 1,024 1,285 Debt securities 336 461 781 859 Subtotal 657 809 1,805 2,144 Investments in associates and joint ventures 1 Real estate held for investment 3 66 19 45 3 139 24 120 Loans and advances to banks and customers 29 22 88 63 Non-current assets and assets and liabilities of disposal groups classified as held for sale — — 76 — Subtotal 755 895 2,111 2,351 Realized losses Available-for-sale investments Equity securities (40) (51) (83) (85) Debt securities (207) (415) (404) (525) Subtotal (247) (466) (487) (610) Investments in associates and joint ventures 2 Real estate held for investment (16) (1) (4) (1) (16) (1) (4) (3) Loans and advances to banks and customers (6) (28) (6) (28) Non-current assets and assets and liabilities of disposal groups classified as held for sale — — (2) — Subtotal (270) (499) (512) (645) Total 485 396 1,599 1,706 1 2 During the three and the six months ended June 30, 2011 and 2010, includes realized gains from the disposal of subsidiaries of € — mn (2010: € 16 mn) and € — mn (2010: € 16 mn), respectively. During the three and the six months ended June 30, 2011 and 2010, includes realized losses from the disposal of subsidiaries of € 14 mn (2010: € 4 mn) and € 14 mn (2010: € 4 mn), respectively. 92 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 24 Fee and commission income Three months ended June 30, Property-Casualty Fees from credit and assistance business Service agreements Subtotal Life/Health Service agreements Investment advisory Subtotal Asset Management Management fees Loading and exit fees Performance fees Other Subtotal Corporate and Other Service agreements Investment advisory and Banking activities Subtotal Total Six months ended June 30, Property-Casualty Fees from credit and assistance business Service agreements Subtotal Life/Health Service agreements Investment advisory Subtotal Asset Management Management fees Loading and exit fees Performance fees Other Subtotal Corporate and Other Service agreements Investment advisory and Banking activities Subtotal Total Segment € mn 174 115 289 22 116 138 1,353 92 81 51 1,577 36 139 175 2,179 Segment € mn 338 224 562 39 229 268 2,689 187 137 95 3,108 82 275 357 4,295 2011 Consoli- dation € mn (2) (15) (17) (5) (13) (18) (36) — 1 (3) (38) (3) (65) (68) (141) 2011 Consoli- dation € mn (2) (30) (32) (9) (22) (31) (70) — 1 (7) (76) (7) (124) (131) (270) Group € mn 172 100 272 17 103 120 1,317 92 82 48 1,539 33 74 107 2,038 Group € mn 336 194 530 30 207 237 2,619 187 138 88 3,032 75 151 226 4,025 Segment € mn 176 106 282 25 104 129 1,248 91 88 31 1,458 27 142 169 2,038 Segment € mn 333 203 536 42 205 247 2,352 180 216 63 2,811 86 270 356 3,950 2010 Consoli- dation € mn (1) (11) (12) (7) (8) (15) (26) — — (3) (29) (11) (62) (73) (129) 2010 Consoli- dation € mn (2) (23) (25) (11) (15) (26) (52) — — (5) (57) (17) (115) (132) (240) Group € mn 175 95 270 18 96 114 1,222 91 88 28 1,429 16 80 96 1,909 Group € mn 331 180 511 31 190 221 2,300 180 216 58 2,754 69 155 224 3,710 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 93 25 Other income Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Realized gains from disposals of real estate held for own use 1 3 2 15 Income from alternative investments 27 31 53 41 Other 5 2 9 9 Total 33 36 64 65 26 Income and expenses from fully consolidated private equity investments Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Income Sales and service revenues 442 394 832 760 Other operating revenues 13 3 16 5 Interest income 1 1 1 1 Subtotal 456 398 849 766 Expenses Cost of goods sold (265) (232) (483) (458) Commissions (24) (31) (50) (58) General and administrative expenses (156) (134) (307) (280) Other operating expenses (23) (10) (39) (29) Interest expenses Subtotal Total (14) (482) 1 (26) 1 (23) (430) 1 (32) 1 (33) (912) 1 (63) 1 (43) (868) 1 (102) 1 1 The presented subtotal for expenses and total income and expenses from fully consolidated private equity investment for the three and the six months ended June 30, 2011 differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 13 mn (2010: € 17 mn) and € 31 mn (2010: € 50 mn) for the three and the six months ended June 30, 2011, respectively. This consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the Life/Health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit. 94 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 27 Claims and insurance benefits incurred (net) Three months ended June 30, 2011 Gross Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Subtotal Ceded Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Subtotal Net Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Total 2010 Gross Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Subtotal Ceded Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Subtotal Net Claims and insurance benefits paid Change in reserves for loss and loss adjustment expenses Total Property- Casualty € mn (6,981) (208) (7,189) 589 (19) 570 (6,392) (227) (6,619) (7,235) 175 (7,060) 577 (162) 415 (6,658) 13 (6,645) Life/Health € mn (4,708) (126) (4,834) 125 (15) 110 (4,583) (141) (4,724) (4,490) (80) (4,570) 118 1 119 (4,372) (79) (4,451) Consolidation € mn 4 1 5 (4) (1) (5) — — — 1 (3) (2) (1) 3 2 — — — Group € mn (11,685) (333) (12,018) 710 (35) 675 (10,975) (368) (11,343) (11,724) 92 (11,632) 694 (158) 536 (11,030) (66) (11,096) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 27 Claims and insurance benefits incurred (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn 2011 Gross Claims and insurance benefits paid (13,998) (9,710) Change in reserves for loss and loss adjustment expenses (631) (140) Subtotal (14,629) (9,850) Ceded Claims and insurance benefits paid 994 233 Change in reserves for loss and loss adjustment expenses (74) 5 Subtotal 920 238 Net Claims and insurance benefits paid (13,004) (9,477) Change in reserves for loss and loss adjustment expenses (705) (135) Total (13,709) (9,612) 2010 Gross Claims and insurance benefits paid (14,367) (9,439) Change in reserves for loss and loss adjustment expenses 287 (104) Subtotal (14,080) (9,543) Ceded Claims and insurance benefits paid 1,172 234 Change in reserves for loss and loss adjustment expenses (559) 13 Subtotal 613 247 Net Claims and insurance benefits paid (13,195) (9,205) Change in reserves for loss and loss adjustment expenses (272) (91) Total (13,467) (9,296) Consolidation € mn 8 (1) 7 (8) 1 (7) — — — 4 (1) 3 (4) 1 (3) — — — 95 Group € mn (23,700) (772) (24,472) 1,219 (68) 1,151 (22,481) (840) (23,321) (23,802) 182 (23,620) 1,402 (545) 857 (22,400) (363) (22,763) 96 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 28 Change in reserves for insurance and investment contracts (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn 2011 Gross Aggregate policy reserves (41) (1,714) Other insurance reserves 2 (19) Expenses for premium refunds (43) (994) Subtotal (82) (2,727) Ceded Aggregate policy reserves (7) (15) Other insurance reserves 1 3 Expenses for premium refunds 11 1 Subtotal 5 (11) Net Aggregate policy reserves (48) (1,729) Other insurance reserves 3 (16) Expenses for premium refunds (32) (993) Total (77) (2,738) 2010 Gross Aggregate policy reserves (70) (1,968) Other insurance reserves (4) (26) Expenses for premium refunds (18) (1,392) Subtotal (92) (3,386) Ceded Aggregate policy reserves 4 (31) Other insurance reserves — 4 Expenses for premium refunds (1) 4 Subtotal 3 (23) Net Aggregate policy reserves (66) (1,999) Other insurance reserves (4) (22) Expenses for premium refunds (19) (1,388) Total (89) (3,409) Consolidation € mn — — (21) (21) — — — — — — (21) (21) 1 — (19) (18) (1) — — (1) — — (19) (19) Group € mn (1,755) (17) (1,058) (2,830) (22) 4 12 (6) (1,777) (13) (1,046) (2,836) (2,037) (30) (1,429) (3,496) (28) 4 3 (21) (2,065) (26) (1,426) (3,517) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 97 28 Change in reserves for insurance and investment contracts (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn Group € mn 2011 Gross Aggregate policy reserves (90) (4,039) — (4,129) Other insurance reserves 2 (65) — (63) Expenses for premium refunds (88) (2,283) (51) (2,422) Subtotal (176) (6,387) (51) (6,614) Ceded Aggregate policy reserves (16) 11 — (5) Other insurance reserves 1 6 — 7 Expenses for premium refunds 11 3 — 14 Subtotal (4) 20 — 16 Net Aggregate policy reserves (106) (4,028) — (4,134) Other insurance reserves 3 (59) — (56) Expenses for premium refunds (77) (2,280) (51) (2,408) Total (180) (6,367) (51) (6,598) 2010 Gross Aggregate policy reserves (112) (3,830) 1 (3,941) Other insurance reserves (4) (154) — (158) Expenses for premium refunds (61) (2,518) (65) (2,644) Subtotal (177) (6,502) (64) (6,743) Ceded Aggregate policy reserves 6 (15) (1) (10) Other insurance reserves (1) 7 — 6 Expenses for premium refunds (1) 5 — 4 Subtotal 4 (3) (1) — Net Aggregate policy reserves (106) (3,845) — (3,951) Other insurance reserves (5) (147) — (152) Expenses for premium refunds (62) (2,513) (65) (2,640) Total (173) (6,505) (65) (6,743) 29 Interest expenses Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn Liabilities to banks and customers (98) (95) (190) (189) Deposits retained on reinsurance ceded (7) (17) (21) (36) Certificated liabilities (74) (77) (147) (152) Participation certificates and subordinated liabilities (168) (140) (315) (278) Other (20) (30) (44) (55) Total (367) (359) (717) (710) 98 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 30 Loan loss provisions Additions to allowances including direct impairments Amounts released Recoveries on loans previously impaired Total 31 Impairments of investments (net) Impairments Available-for-sale investments Equity securities Debt securities Subtotal Held-to-maturity investments Real estate held for investment Loans and advances to banks and customers Non-current assets and assets and liabilities of disposal groups classified as held for sale Subtotal Reversals of impairments Available-for-sale investments Debt securities Real estate held for investment Loans and advances to banks and customers Subtotal Total Impairments of Greek sovereign bond portfolio As of June 30, 2011, Greek sovereign bonds were im- paired and consequently written down to the current market value in accordance with IFRS impairment rules for available-for-sale debt securities. The following table provides an overview of the gross and net impact of the impairment losses on operating profit and non-operating result as well as on net income for the three months ended June 30, 2011: Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn (58) (26) (95) (56) 21 12 36 25 4 5 10 10 (33) (9) (49) (21) Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn (148) (302) (244) (311) (629) (46) (653) (127) (777) (348) (897) (438) (23) — (23) — (8) (19) (18) (19) (5) (11) (6) (12) (8) (34) (24) (34) (821) (412) (968) (503) 1 33 1 33 — 2 — 2 — — 2 — 1 35 3 35 (820) (377) (965) (468) Greek sovereign bond impairments Three months ended June 30, 2011 Total € mn Gross impact (before policyholder participation) Operating profit (279) Non-operating result (365) Total gross impairments (644) Net impact (after policyholder participation) Operating profit (76) Non-operating result (365) Total net impairments (441) Income taxes 115 Impact on net income (326) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 32 Investment expenses Three months ended June 30, 2011 € mn 2010 € mn Investment management expenses (117) (108) Depreciation of real estate held for investment (46) (54) Other expenses for real estate held for investment (45) (53) Total (208) (215) 33 Acquisition and administrative expenses (net) Three months ended June 30, 2011 Segment € mn Consoli- dation € mn Group € mn Segment € mn Property-Casualty Acquisition costs Incurred (2,165) 2 (2,163) (2,126) Commissions and profit received on reinsurance business ceded 130 (1) 129 94 Deferrals of acquisition costs 1,229 — 1,229 1,230 Amortization of deferred acquisition costs (1,293) — (1,293) (1,278) Subtotal (2,099) 1 (2,098) (2,080) Administrative expenses (669) (6) (675) (608) Subtotal (2,768) (5) (2,773) (2,688) Life/Health Acquisition costs Incurred (1,079) 1 (1,078) (1,056) Commissions and profit received on reinsurance business ceded 21 (2) 19 22 Deferrals of acquisition costs 813 — 813 752 Amortization of deferred acquisition costs (622) — (622) (608) Subtotal (867) (1) (868) (890) Administrative expenses (366) 21 (345) (357) Subtotal (1,233) 20 (1,213) (1,247) Asset Management Personnel expenses (512) — (512) (535) Non-personnel expenses (300) 8 (292) (251) Subtotal (812) 8 (804) (786) Corporate and Other Administrative expenses (314) (5) (319) (305) Subtotal (314) (5) (319) (305) Total (5,127) 18 (5,109) (5,026) 99 Six months ended June 30, 2011 € mn 2010 € mn (232) (210) (92) (92) (86) (90) (410) (392) 2010 Consoli- dation € mn Group € mn — (2,126) (1) 93 — 1,230 — (1,278) (1) (2,081) 12 (596) 11 (2,677) 2 (1,054) — 22 — 752 — (608) 2 (888) 15 (342) 17 (1,230) — (535) (1) (252) (1) (787) (14) (319) (14) (319) 13 (5,013) 100 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 33 Acquisition and administrative expenses (net) (continued) Six months ended June 30, 2011 Segment € mn Consoli- dation € mn Group € mn Property-Casualty Acquisition costs Incurred (4,652) 3 (4,649) Commissions and profit received on reinsurance business ceded 206 (2) 204 Deferrals of acquisition costs 2,844 — 2,844 Amortization of deferred acquisition costs (2,508) — (2,508) Subtotal (4,110) 1 (4,109) Administrative expenses (1,366) 31 (1,335) Subtotal (5,476) 32 (5,444) Life/Health Acquisition costs Incurred (2,170) 2 (2,168) Commissions and profit received on reinsurance business ceded 46 (3) 43 Deferrals of acquisition costs 1,584 — 1,584 Amortization of deferred acquisition costs (1,135) — (1,135) Subtotal (1,675) (1) (1,676) Administrative expenses (727) 25 (702) Subtotal (2,402) 24 (2,378) Asset Management Personnel expenses (1,084) — (1,084) Non-personnel expenses (568) 12 (556) Subtotal (1,652) 12 (1,640) Corporate and Other Administrative expenses (627) (36) (663) Subtotal (627) (36) (663) Total (10,157) 32 (10,125) Segment € mn (4,583) 250 2,798 (2,466) (4,001) (1,320) (5,321) (2,101) 47 1,491 (1,153) (1,716) (734) (2,450) (1,162) (470) (1,632) (624) (624) (10,027) 2010 Consoli- dation € mn — (2) — — (2) 11 9 2 — — 1 3 30 33 — (2) (2) (17) (17) 23 Group € mn (4,583) 248 2,798 (2,466) (4,003) (1,309) (5,312) (2,099) 47 1,491 (1,152) (1,713) (704) (2,417) (1,162) (472) (1,634) (641) (641) (10,004) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 34 Fee and commission expenses Three months ended June 30, Property-Casualty Fees from credit and assistance business Service agreements Subtotal Life/Health Service agreements Investment advisory Subtotal Asset Management Commissions Other Subtotal Corporate and Other Service agreements Investment advisory and Banking activities Subtotal Total Six months ended June 30, Property-Casualty Fees from credit and assistance business Service agreements Subtotal Life/Health Service agreements Investment advisory Subtotal Asset Management Commissions Other Subtotal Corporate and Other Service agreements Investment advisory and Banking activities Subtotal Total Segment € mn (164) (111) (275) (8) (38) (46) (273) (7) (280) (53) (64) (117) (718) Segment € mn (312) (217) (529) (14) (91) (105) (545) (10) (555) (120) (117) (237) (1,426) 2011 Consoli- dation € mn — 13 13 — 1 1 43 1 44 2 1 3 61 2011 Consoli- dation € mn — 28 28 1 3 4 81 1 82 5 1 6 120 Group € mn (164) (98) (262) (8) (37) (45) (230) (6) (236) (51) (63) (114) (657) Group € mn (312) (189) (501) (13) (88) (101) (464) (9) (473) (115) (116) (231) (1,306) Segment € mn (158) (106) (264) (13) (50) (63) (266) (4) (270) (44) (58) (102) (699) Segment € mn (304) (197) (501) (18) (99) (117) (517) (9) (526) (103) (110) (213) (1,357) 2010 Consoli- dation € mn — 11 11 3 — 3 46 1 47 9 — 9 70 2010 Consoli- dation € mn — 23 23 4 2 6 84 2 86 14 — 14 129 101 Group € mn (158) (95) (253) (10) (50) (60) (220) (3) (223) (35) (58) (93) (629) Group € mn (304) (174) (478) (14) (97) (111) (433) (7) (440) (89) (110) (199) (1,228) 102 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements 35 Other expenses Realized losses from disposals of real estate held for own use Expenses for alternative investments Other Total 36 Income taxes Current income taxes Deferred income taxes Total For the three and the six months ended June 30, 2011 and 2010, the income taxes relating to components of the other comprehensive income consist of the following: Foreign currency translation adjustments Available-for-sale investments Cash flow hedges Share of other comprehensive income of associates Miscellaneous Total Three months ended June 30, 2011 € mn 2010 € mn — (1) (15) (28) (1) — (16) (29) Three months ended June 30, 2011 € mn 2010 € mn (522) (612) (21) 64 (543) (548) Three months ended June 30, 2011 € mn 2010 € mn 1 16 (250) (144) 1 7 (2) 1 7 (12) (243) (132) Six months ended June 30, 2011 € mn 2010 € mn — (3) (29) (28) (2) (1) (31) (32) Six months ended June 30, 2011 € mn 2010 € mn (1,175) (1,050) 61 114 (1,114) (936) Six months ended June 30, 2011 € mn 2010 € mn (15) 46 155 (649) 4 — — (4) 49 (10) 193 (617) 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements 37 Earnings per share Basic earnings per share Basic earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period. Net income attributable to shareholders used to calculate basic earnings per share Weighted average number of common shares outstanding Basic earnings per share (in €) Diluted earnings per share Diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted Net income attributable to shareholders Effect of potentially dilutive common shares Net income used to calculate diluted earnings per share Weighted average number of common shares outstanding Potentially dilutive common shares resulting from assumed conversion of: Share-based compensation plans Subtotal Weighted average number of common shares outstanding after assumed conversion Diluted earnings per share (in €) For the six months ended June 30, 2011, the weighted average number of common shares excludes 2,909,695 (2010: 2,685,026) treasury shares. 103 Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn 1,000 1,089 1,857 2,654 451,622,459 451,230,566 451,590,305 451,214,974 2.21 2.41 4.11 5.88 average number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. These effects are derived from various share-based compensation plans of the Allianz Group. Three months ended June 30, Six months ended June 30, 2011 € mn 2010 € mn 2011 € mn 2010 € mn 1,000 1,089 1,857 2,654 (15) (15) (18) (12) 985 1,074 1,839 2,642 451,622,459 451,230,566 451,590,305 451,214,974 1,302,331 1,411,254 620,641 1,236,671 1,302,331 1,411,254 620,641 1,236,671 452,924,790 452,641,820 452,210,946 452,451,645 2.17 2.37 4.07 5.84 104 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Other Information 38 Financial instruments Reclassification of financial assets In January 2009, certain U.S. Dollar-denominated CDOs with a fair value of € 1.1 bn (notional amount of € 2.2 bn) were retained from Dresdner Bank. On January 31, 2009, subsequent to the derecognition of Dresdner Bank, the CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. The fair value of € 1.1 bn became the new carrying amount of the CDOs at the reclassification date. The expected recoverable cash flows as of the date of reclassification were € 1.8 bn, leading to an effective interest rate of approximately 7 %. In mid-2009, the CDOs were transferred to one of the Allianz Group’s U.S. Dollar functional currency subsidiaries. As of December 31, 2010, the carrying amount and fair value of the CDOs were € 808 mn and € 810 mn, respec- tively. As of June 30, 2011, the carrying amount and fair value of the CDOs were € 722 mn and € 728 mn, respectively. For the six months ended June 30, 2011, the changes in carrying amount and fair value were primarily impacted by cash receipts and the depreciation of the U.S. Dollar. The foreign currency effects were recognized in other comprehensive income. The net profit related to the CDOs was not significant. Fair value hierarchy of financial instruments As of June 30, 2011, there were no significant changes in the fair value hierarchy of financial instruments and no significant transfers of financial instruments between the levels of the fair value hierarchy compared to the consolidated financial statements for the year ended December 31, 2010. 39 Other information Number of employees As of June 30, 2011 As of December 31, 2010 Germany 46,892 47,889 Other countries 103,278 103,449 Total 150,170 151,338 40 Subsequent events Placement of a € 500 mn convertible subordinated bond On July 5, 2011, the Allianz Group announced the place- ment of a € 500 mn convertible subordinated bond. Thunderstorms in Switzerland At the beginning of July 2011, thunderstorms caused damages throughout Switzerland. Based on current information, net claims are expected to amount to approximately CHF 49 mn before income taxes. Hail storms and heavy rain in Germany Between July 7 and July 13, 2011, severe hail storms and heavy rain caused damages throughout Germany. Based on current information, net claims are expected to amount to approximately € 50 mn before income taxes. Damage to power station through an explosion at adjacent naval basis in Cyprus On July 11, 2011 the explosion of an adjacent naval basis caused severe damage to a power station in Cyprus. Based on current information the net claims cannot be reliably estimated. 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Decision on second bailout package for Greece on July 21, 2011 On July 21, 2011, European policymakers announced a new debt reorganization plan for Greece that includes, among other features, a voluntary refinancing program involving private investors currently holding Greek sovereign bonds. Under the terms of the voluntary refi- nancing program, investors will be able to choose among a variety of bond exchanges, rollovers and buybacks. The Allianz Group supports this voluntary refinan cing pro- gram. Based on current information, the Allianz Group cannot yet estimate the expected financial impact of the voluntary refinancing program on future period results. Sale of Industrial and Commercial Bank of China (ICBC) shares In July 2011, the Allianz Group sold 0.4 bn ICBC shares with a realized gain of approximately € 0.2 bn. Allianz extends real estate investments In July 2011, Allianz Real Estate GmbH entered on behalf of various German Allianz-insurance companies into a number of strategic real estate investments in the U.S. and Germany with a total volume of around € 200 mn. New venture Allianz Popular in Spain On March 24, 2011, Allianz SE and Banco Popular agreed to form “ Allianz Popular” in Spain to strengthen the existing partnership and unite all existing ventures under one roof. Allianz SE will own 60 % of Allianz Popular. In this context, EUROPENSIONES S.A., Madrid, which is currently accounted for at equity, will be accounted for as a fully consolidated subsidiary of the Allianz Group. As a result, a revaluation gain of approximately € 100 mn is expected to be recognized during the third quarter of 2011. All regulatory approvals have been granted so that the transaction will be approved by the boards of the companies during the third quarter of 2011. Munich, August 4, 2011 Allianz SE The Board of Management 105 106 Allianz Group Interim Report Second Quarter and First Half Year of 2011 Condensed Consolidated Interim Financial Statements Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group. Munich, August 4, 2011 Allianz SE The Board of Management 48 Condensed Consolidated Interim Financial Statements 54 Notes to the Condensed Consolidated Interim Financial Statements Review report To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements of Allianz SE, Munich – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, condensed consolidated statements of cash flows and selected explanatory notes – together with the interim group management report of Allianz SE, Munich, for the period from January 1 to June 30, 2011 that are part of the semi annual report according to § 37w WpHG [„Wertpapierhandelsgesetz“: „German Securities Trading Act“]. The preparation of the condensed consolidated interim financial statements in accordance with those International Financial Reporting Standards (IFRS) appli- cable to interim financial reporting as adopted by the E.U., and of the interim group management report in accordance with the requirements of the WpHG appli- cable to interim group management reports, is the responsibility of the Company’s management. Our respon- sibility is to issue a report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We performed our review of the condensed consolidated interim financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschafts- prüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed consolidated interim financial state- ments have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial state- ment audit, we cannot issue an auditor’s report. Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Munich, August 4, 2011 KPMG AG Wirtschaftsprüfungsgesellschaft Johannes Pastor Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 107 Financial Calendar Important dates for shareholders and analysts November 11, 2011 Interim Report 3rd quarter 2011 Financial press conference for February 23, 2012 2011 financial year Analysts’ conference for 2011 financial year Annual Report 2011 Annual General Meeting February 24, 2012 March 23, 2012 May 9, 2012 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures of quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar Imprint Design Anzinger | Wüschner | Rasp Photography Christian Höhn Date of publication August 5, 2011 Allianz SE Koeniginstrasse 28 80802 Munich Germany Telephone +49 89 38 00 0 Fax +49 89 38 00 3425 info@allianz.com www.allianz.com Interim Report on the internet www.allianz.com/interim-report | Semestriel, 2011, Insurance, Allianz | write me a financial report |
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| Allianz Group Interim Report Second Quarter and First Half Year of 2010 Content Group Management Report 2 10 18 24 Asset Management 28 Corporate and Other Balance Sheet Review 31 Reconciliations 39 Executive Summary and Outlook Property-Casualty Insurance Operations Life/Health Insurance Operations Allianz Share Development of the Allianz share price since January 1, 2010 indexed on the Allianz share price in € 100 95 90 85 80 75 70 Jan Feb Mar Apr May Allianz EURO STOXX 50 STOXX Europe 600 Insurance Source: Thomson Reuters Datastream Up-to-date information on the development of the Allianz share price is available at www.allianz.com/share. Jun To go directly to any chapter, simply click on the head line or the page number Condensed Consolidated Interim Financial Statements for the Second Quarter and the First Half Year of 2010 43 Detailed Index 44 Condensed Consolidated Interim Financial Statements 50 Notes to the Condensed Consolidated Interim Financial Statements Basic Allianz share information Share type Registered share with restricted transfer Security Codes WKN 840 400 ISIN DE 000 840 400 5 Bloomberg ALV GY Reuters ALVG.DE Investor Relations We strive to keep our shareholders up-to-date on all com- pany developments. Our Investor Relations team is pleased to answer any questions you may have. Allianz SE Investor Relations Koeniginstrasse 28 80802 Muenchen Germany Fax: + 49 89 3800 3899 E-Mail: investor.relations@allianz.com www.allianz.com/investor-relations Our Allianz Investor Line is available for telephone inquiries from 8 a.m. to 8 p.m. CET Monday to Friday. + 49 1802 2554269 + 49 1802 ALLIANZ Allianz Group Key Data Three months ended June 30, Six months ended June 30, 2010 2009 Change from previous year 2010 2009 INCOME STATEMENT Total revenues 1) Operating profit 2) Net income from continuing operations Net income (loss) from discontinued operations, net of income taxes 3) Net income € mn € mn € mn € mn € mn 25,389 2,191 1,085 — 1,085 22,170 1,786 1,887 — 1,887 14.5 % 22.7 % (42.5) % — (42.5) % 55,956 3,900 2,673 — 2,673 49,890 3,205 2,311 (395) 1,916 SEGMENTS4) Property-Casualty Gross premiums written Operating profit 2) Combined ratio € mn € mn % 9,951 1,147 96.3 9,522 895 98.9 4.5 % 28.2 % (2.6) pts 23,945 1,859 98.4 23,408 1,864 98.8 Life/Health Statutory premiums Operating profit 2) Cost-income ratio € mn € mn % 14,124 713 96.0 11,766 990 93.8 20.0 % (28.0) % 2.2 pts 29,480 1,525 95.9 24,779 1,392 95.5 Asset Management Operating revenues Operating profit 2) Cost-income ratio € mn € mn % 1,188 516 56.6 780 246 68.5 52.3 % 109.8 % (11.9) pts 2,304 982 57.4 1,496 457 69.5 Corporate and Other Total revenues Operating profit 2) Cost-income ratio (Banking) € mn € mn % 138 (155) 103.7 124 (313) 166.9 11.3 % (50.5) % (63.2) pts 266 (406) 105.7 241 (497) 135.3 BALANCE SHEET Total assets as of June 30, 5) Shareholders’ equity as of June 30, 5) Non-controlling interests as of June 30, 5) € mn € mn € mn 621,839 43,764 2,169 584,045 40,166 2,121 6.5 % 9.0 % 2.3 % 621,839 43,764 2,169 584,045 40,166 2,121 SHARE INFORMATION Basic earnings per share € 2.25 4.14 (45.7) % 5.69 4.21 Diluted earnings per share Share price as of June 30, 5) Market capitalization as of June 30, 5) € € € bn 2.21 81.85 37.2 4.13 87.15 39.6 (46.5) % (6.1) % (6.1) % 5.65 81.85 37.2 4.17 87.15 39.6 OTHER DATA Third-party assets under management as of June 30, 5) € bn 1,139 926 23.0 % 1,139 926 1) Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2) The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 3) Following the announcement of the sale on August 31, 2008, Dresdner Bank was classified as held for sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on January 12, 2009. Assets and liabilities of Dresdner Bank have been deconsolidated in the first quarter 2009. The loss from derecognition of discontinued operations amounted to € 395 mn and represents mainly the recycling of components of other comprehensive income. All income and expenses relating to the discontinued operations of Dresdner Bank have been reclassified and presented in a separate line item “Net loss from discontinued operations, net of income taxes” in the condensed consolidated income statements for all years presented in accordance with IFRS 5. 4) The Allianz Group operates and manages its activities through four segments: Property-Casualty, Life/Health, Asset Management and Corporate and Other. For further information please refer to note 3 of our condensed consolidated interim financial statements. 5) 2009 figures as of December 31, 2009. Change from previous year 12.2 % 21.7 % 15.7 % n.m. 39.5 % 2.3 % (0.3) % (0.4) pts 19.0 % 9.6 % 0.4 pts 54.0 % 114.9 % (12.1) pts 10.4 % (18.3) % (29.6) pts 6.5 % 9.0 % 2.3 % 35.2 % 35.5 % (6.1) % (6.1) % 23.0 % 1 Executive Summary and Outlook – Revenues up 10.8 % 1) to € 25.4 billion. – Strong operating profit of € 2,191 million. – Net income at € 1.1 billion, reflecting low harvesting. – Capital position strong, with 170 % 2) solvency ratio. In the second quarter of 2010, we generated total revenues of € 25,389 million, representing growth of 10.8 % on an internal basis 1). Operating profit increased by € 405 million to € 2,191 million, reaching its highest level since the second quarter of 2008. Net income amounted to € 1,085 million, a decrease of 42.5 % compared to € 1,887 million in 2009, largely due to lower realized gains in the current period. Life/Health, with internal growth of 16.2 %, delivered the majority of the total revenue growth. Asset Management continued to deliver outstanding growth with 43.7 %, while Property-Casualty premiums were flat. Total revenues – Segments 4) in � mn 30,000 25,3894) Earnings Summary Total revenues 3) 25,000 20,000 21,5094) 156 738 10,729 22,1704) 124 780 11,766 + 11.3 % + 43.7 % 138 1,188 14,124 2010 to 2009 second quarter comparison 15,000 + 16.2 % Total revenues in � bn 10,000 9,842 9,522 + 0.5 % 9,951 + 14.5 % internal growth: + 10.8 % 5,000 35 30.6 30 25 21.5 21.1 23.0 27.7 22.2 22.0 25.5 25.4 0 2Q 2008 2Q 2009 2Q 2010 Property-Casualty Corporate and Other 20 Life/Health Internal growth 15 Asset Management 10 5 0 2Q 3Q 2008 4Q 1Q 2Q 2009 3Q 4Q 1Q 2010 2Q Gross written premiums from Property-Casualty operations were up 0.5 % on an internal basis, comprising a negative volume effect of 0.1 % and a positive price effect of 0.6 %, reflecting selective underwriting. 1) Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 42 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. We grew Life/Health statutory premiums by 16.2 % on an internal basis, driven by a recovery of unit-linked sales and strong demand for traditional life products. 2) Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 161 % (2009: 155 %). Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 3) 4) Total revenues include € (12) mn, € (22) mn and € 44 mn from consolidation for 2Q 2010, 2009 and 2008, respectively. 2 Executive Summary and Outlook Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Due to an exceptional performance, our Asset Management segment achieved very high revenue growth of 43.7 % on an internal basis, largely due to higher management and performance fees. Third-party assets under management amounted to € 1,139 billion, up € 213 billion compared to December 31, 2009. This growth resulted from high net inflows of € 60 billion, positive market effects of € 44 billion, and favorable foreign currency translation effects of € 118 billion. Total assets under management have now reached € 1,430 billion. Operating profit – Segments in � mn 3,000 2,500 2,6591) 6 281 703 2,000 1,500 1,681 1,7861) 246 990 2,1911) 516 713 1,000 1,147 895 Total revenues from our Banking operations (reported in our Corporate and Other segment), increased by € 14 mil- lion to € 138 million on a nominal basis (internal growth of 11.3 %). The Allianz Bank in Germany, launched in June 2009, contributed to this development. 500 0 (500) 2Q 2008 (313) 2Q 2009 (155) 2Q 2010 Property-Casualty Asset Management 2010 to 2009 first half year comparison Total revenues amounted to € 55,956 million and increased by 10.0 % on an internal basis. While all segments contrib- uted positively, Life/Health delivered the majority of this growth (€ 4,701 million) following strong demand for in- vestment-oriented products combined with an increase in traditional life business revenues. Life/Health Corporate and Other Operating profit from the Property-Casualty business of € 1,147 million was 28.2 % above the same period in the previous year. This positive development was due to an improved underwriting result and higher investment result. Our combined ratio improved by 2.6 percentage points to 96.3 %. Operating profit 2010 to 2009 second quarter comparison Operating profit in � mn 3,000 2,659 + 22.7 % At € 713 million, Life/Health segment operating profit reached a strong level, and is fully in line with our expecta- tions. Compared to the second quarter of 2009, which was our strongest ever quarter, 2010 was lower by 28.0 %. Last year’s result was exceptionally high as positive market developments in the United States and France resulted in a higher fair value income. 2,500 2,000 1,500 1,000 1,563 881 1,419 1,786 1,929 2,048 1,709 2,191 Asset Management operating profit more than doubled, by 109.8 % to € 516 million. Strong growth in performance fees helped reduce the cost-income ratio by 11.9 percentage points to 56.6 %. 500 0 2Q 3Q 2008 4Q 1Q 2Q 2009 3Q 4Q 1Q 2010 Operating profit increased by 22.7 % from € 1,786 million to € 2,191 million. 2Q In the Corporate and Other segment, we recorded an oper- ating loss of € 155 million compared to a loss of € 313 mil- lion for the second quarter of 2009. Part of this improve- ment is due to non-recurring Allianz Bank set-up costs in the second quarter of 2009 of € 84 million, combined with a higher foreign currency result. 1) Includes € (30) mn, € (32) mn and € (12) mn from consolidation for 2Q 2010, 2009 and 2008, respectively. 3 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Executive Summary and Outlook 2010 to 2009 first half year comparison Operating profit increased by 21.7 % to € 3,900 million (first half 2009: € 3,205 million). This was largely attributable to an additional contribution of € 525 million from Asset Man- agement operating profit, and an increase in Life/Health operating profit of € 133 million. Corporate and Other oper- ating loss also declined, while the Property-Casualty operat- ing profit was flat. Allianz has the right to call, while PIMCO senior manage- ment has the right to put, those B-units over several years. Fair value changes due to changes in underlying earnings are reflected in acquisition-related expenses. Distributions received by the senior management B-Unit holders are also included. With the acquisition of 24,993 B-units in 2010 we have now acquired 79.3 % of all outstanding B-units, reducing the number outstanding to 30,990. Non-operating result 2010 to 2009 second quarter comparison Non-operating items amounted to a loss of € 597 million, compared to a profit of € 548 million in the second quarter of 2009. 2010 to 2009 first half year comparison For the first six months of 2010 we recorded a non-operat- ing loss of € 338 million compared to a loss of € 426 million for the same period in 2009. Capital markets recovery led to much lower impairments. This was partly offset by lower realized gains and an increase in PIMCO B-unit expenses following outstanding performance in Asset Management. Non-operating income from financial assets and liabilities carried at fair value through income was down € 323 mil- lion, largely due to a € 264 million difference in the fair value measurement of The Hartford warrants. In October 2008 Allianz invested U.S. Dollar 2.5 billion in The Hartford, in the form of subordinated debentures, shares and warrants, which currently entitle Allianz to purchase 18 % of The Hartford. Since the warrants represent a freestanding finan- cial derivative they are measured at fair value through in- come. A decrease in the price of the underlying The Hartford shares in the second quarter of 2010 led to a negative fair value impact of € 167 million, compared to a positive im- pact of € 97 million in the previous quarter. Net income 2010 to 2009 second quarter comparison Net income (loss) from continuing operations/Net income in � mn Net income (loss) from continuing operations Net income (42.5) % 2,500 2,306 1,887 2,000 1,588 1,500 1,339 1,090 1,085 Realized gains decreased by € 778 million to € 181 million. In the second quarter of 2009 we booked gains of € 666 million from the sale of shares in the Industrial and Com- mercial Bank of China (ICBC) compared to € 115 million in the current quarter. As of June 30, 2010, gross ICBC unreal- ized gains amounted to € 628 million. 1,000 500 0 (500) 2Q 579 3Q 2008 (145) 4Q 424 1Q 2Q 2009 3Q 4Q 1Q 2010 2Q Expenses from fully consolidated private equity investments improved by € 86 million to € 15 million, mostly due to a one-off expense in the prior year on one of our fully consoli- dated private equity investments. Net income amounted to € 1,085 million, compared to € 1,887 million in the second quarter of 2009. Net income attributable to shareholders decreased by € 852 million to € 1,017 million. The outstanding performance in our Asset Management segment is the main driver of the € 65 million increase in acquisition-related expenses to € 110 million. When PIMCO was acquired, B-units were created entitling senior man- agement to profit participation. Under the B-Unit plan, Despite a lower pre-tax income, the income tax expense increased by € 62 million to € 509 million. The effective tax rate of 32.0 % was impacted mainly by lower tax-exempted income. 4 Executive Summary and Outlook Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Earnings per share 1) in � basic 15 9.53 10 2.39 (5.43) 2.94 5.69 (5.47) diluted 9.50 2.38 2.94 5.65 As of June 30, 2010, shareholders’ equity amounted to € 43,764 million, up 9.0 % from December 31, 2009. Net in- come attributable to shareholders and positive foreign currency translation effects increased our equity by € 2,567 million and € 2,331 million respectively. Unrealized gains grew by € 468 million. In the second quarter of 2010, Allianz SE paid dividends of € 1,850 million for the fiscal year 2009, which reduced equity. 5 3.44 4.14 2.25 3.39 4.13 2.21 0 2.55 0.06 3.44 2.48 0.04 3.43 Conglomerate solvency 3) in € bn (4.49) (4.48) (5) 40 164 % 170 % 37.6 (10) (6.92) (6.96) 30 34.8 (15) 2008 2009 2010 2008 2009 2010 20 21.2 22.1 1Q 3Q 2Q 4Q 10 0 12/31/2009 6/30/2010 2010 to 2009 first half year comparison Net income of € 2,673 million exceeded the prior year’s net result by € 757 million. € 395 million of this difference was attributable to the loss from discontinued operations due to the sale and deconsolidation of Dresdner Bank, recorded in the first quarter of 2009. Shareholders’ equity Shareholders’ equity 2) in � mn 50,000 + 9.0 % 43,764 40,000 40,166 Solvency ratio Requirement Available funds As of June 30, 2010, our eligible capital for solvency purposes, required for our insurance segments and our banking and asset management business, was € 37.6 billion, including off-balance sheet reserves of € 2.0 billion, surpassing the minimum legally stipulated level by € 15.5 billion. This margin resulted in a cover ratio of 170 % at June 30, 2010. Eligible capital at June 30, 2010 also includes a deduction for accrued dividends of € 1.0 billion for the first six months of 2010, which represents 40 % of net income attributable to shareholders. Our solvency position remains strong. 30,000 20,000 10,000 0 12/31/2009 6/30/2010 1) For further information please refer to note 37 of our condensed consolidated interim financial statements. 2) Does not include non-controlling interests. 3) Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 161 % (2009: 155 %). 5 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Executive Summary and Outlook Total revenues and reconciliation of operating profit to net income (loss) Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Total revenues 1) 25,389 22,170 55,956 49,890 Premiums earned (net) 15,496 14,477 30,793 29,157 Operating investment result Interest and similar income 5,169 4,800 9,748 9,214 Operating income from financial assets and liabilities carried at fair value through income (net) (50) 505 (14) 505 Operating realized gains/losses (net) 215 659 762 824 Interest expenses, excluding interest expenses from external debt (139) (131) (268) (303) Operating impairments of investments (net) (190) (271) (229) (1,409) Investment expenses (215) (185) (392) (353) Subtotal 4,790 5,377 9,607 8,478 Fee and commission income 1,909 1,426 3,710 2,762 Other income 36 15 65 19 Claims and insurance benefits incurred (net) (11,096) (11,105) (22,763) (22,884) Change in reserves for insurance and investment contracts (net) (3,473) (2,684) (6,649) (3,305) Loan loss provisions (9) (24) (21) (39) Acquisition and administrative expenses (net), excluding acquisition-related expenses (4,806) (5,167) (9,597) (9,967) Fee and commission expenses (629) (552) (1,228) (1,043) Operating restructuring charges — 4 (1) 3 Other expenses (29) (1) (32) (2) Reclassification of tax benefits 2 20 16 26 Operating profit (loss) 2,191 1,786 3,900 3,205 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (185) 138 (102) 38 Non-operating realized gains/losses (net) 181 959 944 1,213 Non-operating impairments of investments (net) (187) (144) (239) (896) Subtotal (191) 953 603 355 Income from fully consolidated private equity investments (net) (15) (101) (52) (157) Interest expenses from external debt (220) (214) (442) (452) Acquisition-related expenses (110) (45) (308) (54) Amortization of intangible assets (17) (11) (34) (15) Non-operating restructuring charges (42) (14) (89) (77) Reclassification of tax benefits (2) (20) (16) (26) Non-operating items (597) 548 (338) (426) Income (loss) from continuing operations before income taxes 1,594 2,334 3,562 2,779 Income taxes (509) (447) (889) (468) Net income (loss) from continuing operations 1,085 1,887 2,673 2,311 Net income (loss) from discontinued operations, net of income taxes — — — (395) Net income (loss) 1,085 1,887 2,673 1,916 Net income (loss) attributable to: Non-controlling interests 68 18 106 18 Shareholders 1,017 1,869 2,567 1,898 1) Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 6 Executive Summary and Outlook Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Risk Management Outlook Risk management is an integral part of our business pro- cesses and supports our value-based management. Economic Outlook For further information, we refer you to the risk report in our 2009 Annual Report. Events After the Balance Sheet Date In July 2010, the Allianz Group sold 0.3 billion ICBC shares with a capital gain of approximately € 0.1 billion. Between July 13 and July 15, 2010, the thunderstorms “Norina” and “Olivia” caused damages in parts of western Europe, mainly in France, Benelux and northern and western Germany. Based on the current information, net claims are expected to amount to approximately € 35 million before income taxes. On July 16 and 17, 2010, the hail storm “Petra” hit parts of southern Germany and Austria. Based on current informa- tion, net claims are expected to amount to approximately € 30 million before income taxes. Emerging from the crisis Thanks to expansionary monetary and fiscal policies that have been unparalleled on a global scale, the world econo- my freed itself from recession last year and gained growth momentum in the first half of 2010. Although economic dynamics are very disparate across different regions, the economic recovery is set to continue in the remainder of 2010. However, in a host of countries it will take several years before output is back to pre-crisis levels. The financial markets are likely to remain susceptible to noise and the ongoing need for adjustment and consolidation, meaning that financial service providers will continue to operate in an uncertain environment. More moderate economic growth as base scenario The first half of 2010 was overshadowed by the Euro area sovereign debt crisis. The widening of credit spreads seen in individual member countries (first and foremost in Greece, Portugal, Ireland and Spain) was, at least in the early stages, mainly driven by uncertainties surrounding Greece’s fiscal austerity measures and the support efforts by the IMF and the E.U. In spite of the commitment to provide up to € 110 billion to support Greece, and the much less problematic fiscal and credibility picture in other Euro area countries, risk premiums have remained at very high levels. The Greek debt crisis was increasingly threatening to become a Euro crisis, with unforeseeable repercussions for the European economy as a whole. That is why, in May, 2010, the Eurozone member countries together with the E.U. and the IMF agreed on a € 750 billion rescue package. However, the huge sum involved will not itself be the key to its success. Above all, it is essential now that, firstly, the debt-laden countries forge ahead with rigorous and credible reforms and, sec- ondly, that the European Union gives its fiscal discipline an institutional anchor. It must be plain that the Stability and Growth Pact will be massively reinforced. A deficit cap, medium-term spending rules and swifter deficit procedures spring to mind. If the will for fiscal discipline in the E.U. is supported by credible actions, long-term confidence in the Euro will be restored. 7 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Executive Summary and Outlook Our base scenario is that in the coming years the necessary consolidation efforts of the highly indebted countries – not only those within the Euro area, but also outside – will weigh on the economic prospects and as a consequence growth will be more moderate than in the years before the crisis. Current economic data such as industrial production point to a quite strong economic performance on a global level in the second quarter of 2010. However, the second quarter might already have represented the peak in quarterly GDP growth rates. In the coming quarters we expect a more moderate economic development, but no relapse into recession. The world economy is likely to see growth in the region of 3.5 % in 2010. The picture in the industrial coun- tries is not quite so favorable. Growth of 2 to 2.5 % this year will still not fully offset last year’s drop of almost 3.5 %. The importance of the emerging markets in the world economy has continued to grow, even throughout the crisis. They have become the global growth engine. Their overall output is set to rise by almost 6.5 % in 2010 following an increase of close to 1 % in 2009. The sovereign debt crisis in several Euro area countries considerably increased the uncertainty on financial markets. First and foremost, the flight to safety triggered a further slide in German government bond yields. We do not expect yields to languish permanently at historically low levels: we anticipate a slight pickup in inflation, government bond issuance weighing heavily on capital markets and a gradual reining in of expansionary monetary policy. In an overall friendly economic environment, all of this will serve to push up capital market yields, once risk aversion has declined. In the case of the Euro area, we expect to see 10-year govern- ment benchmark bond yields rising to slightly above 3 % by the end of this year. On the back of higher capacity utiliza- tion in the corporate sector, rising profits will help to under- pin the stock market. However, uncertainty about the me- dium term economic growth outlook can dampen strong stock market gains. Outlook for the Allianz Group The Allianz Group remains strongly capitalized, with a solvency ratio of 170 %. Economies without seriously over-indebted private and public sectors will tend to recover more quickly than coun- tries where consolidation is of the essence. This also ex- plains why the emerging but, in some cases, heavily indebted economies of Eastern Europe are getting back into stride more slowly than the Asian emerging markets with their surpluses. The robust performance in key Latin American countries such as Brazil is a positive surprise. The U.S. econ- omy shook off the crisis in the second half of 2009 and has recorded moderate growth in the first half of 2010. In Europe, the German economy is likely to record a considerably above- average performance this year, with particularly strong growth to be expected in the second and third quarters. Based on the strong results we posted for the first half, we are well on track to achieve our published outlook for Allianz Group operating profit for 2010 of around € 7.2 bil- lion, plus or minus € 0.5 billion. However, it would be inappropriate to predict operating profit for the whole year by simply doubling the first half year operating profit of € 3.9 billion. Positive and negative busi- ness developments that significantly exceeded expecta tions in the first half of 2010 may not recur or continue at the same levels in the second half. Despite our Property-Casualty business being burdened with an unusually high level of losses from natural catastro- phes in the first six months and challenging market condi- tions in a number of our core markets, there was a positive development in our underlying accident year loss ratio excluding natural catastrophes that keeps achievement of our targets for 2010 within reach. 8 Executive Summary and Outlook Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 In Life/Health, we benefited from strong top line growth that might not continue in the second half of this year, and the segment faces a challenging low interest rate environ- ment. We believe that the operating profit for the whole year will reach the expected range, although results in the seg- ment can still be significantly impacted by capital market volatility. In Asset Management, third-party assets under manage- ment and operating profit grew strongly in the first six months. Due to the volatility in the capital markets we can- not forecast a repeat of this outstanding performance in the second half of 2010. The operating profit outlook for the Corporate and Other segment together with consolidation effects remain consis- tent with the original guidance. For full details of the as- sumptions and sensitivities on which our outlook is based, please refer to the Allianz Group Annual Report 2009. As always, natural catastrophes and adverse developments in the capital markets, as well as the factors stated in our cautionary note regarding forward-looking statements, may severely impact the results of our operations. 9 Property-Casualty Insurance Operations – Gross premiums written increased slightly to € 9,951 million. – Operating profit was up by 28.2 % to € 1,147 million. – Combined ratio improved by 2.6 percentage points to 96.3 %. Earnings Summary Gross premiums written 1) We analyze our property-casualty internal premium growth according to ‘price’ and ‘volume’ effects. This produces the following clusters: 2010 to 2009 second quarter comparison Gross premiums written increased by 0.5 % on an internal basis, predominantly driven by a favorable price effect of 0.6 %. This effect stemmed mainly from the credit insurance business (up by 14.8 %), the United Kingdom (up by 3.5 %) and Australia (up by 3.0 %). The positive price effect was partially offset by a 0.1 % decline in volume, largely attribut- able to our operations in Italy (down by 6.4 %), Central and Eastern Europe (down by 11.6 %) and the credit insurance business (down by 13.4 %). Cluster 1: Both price and volume effects are positive Cluster 2: Either price or volume effects are positive Cluster 3: Both price and volume effects are negative Gross premiums written – Internal growth rates 2) in % Cluster 1 South America 15.1 On a nominal basis, revenues increased by 4.5 % or € 429 million, of which € 378 million were attributable to a posi- tive foreign currency translation effect, largely due to the weakening of the Euro versus the Australian Dollar, the Brazilian Real and the U.S. Dollar. United Kingdom Australia Asia-Pacific Cluster 2 1.8 4.3 4.3 8.5 6.8 7.4 Allianz Sach (2.4) (3.0) Italy (5.4) (5.4) France (2.7) (2.3) Spain 3.8 6.9 United States (7.1) (3.6) AGCS (1.7) 3.7 Credit Insurance (1.4) 1.4 Cluster 3 Central and Eastern Europe (12.7) (5.4) (20) (10) 0 10 20 2Q 2010 over 2Q 2009 1H 2010 over 1H 2009 1) We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 2) Before elimination of transactions between Allianz Group companies in different geo- graphic regions and different segments. 10 18.9 Property-Casualty Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Cluster 1 In South America, gross premiums written stood at € 383 million. All countries contributed positively to the premium growth of 18.9 %. Growth in Brazil mainly stemmed from health, which is reported within the Property-Casualty busi- ness, and other non-motor commercial business (marine, aviation, transport, fire and engineering insurance). Includ- ing positive foreign currency translation effects of € 68 mil- lion, premiums grew by 44.5 % on an nominal basis. In the United Kingdom we recorded revenues of € 528 mil- lion. Adjusted for a positive foreign currency effect of € 16 million, premiums went up by 4.3 % on an internal basis. This was mainly driven by an increase in policy count in commercial lines and new corporate partnerships. Higher rates in the retail business partially offset a lower policy count due to ongoing portfolio cleaning. We estimate the positive price effect to be 3.5 %. Gross premiums written in Australia amounted to € 555 million. Internal growth, excluding a favorable foreign cur- rency translation effect of € 109 million, was 8.5 %. Volumes increased, in particular in our motor and property business and prices were higher following 2009 rate increases. We estimate the positive price effect to be 3.0 %. Gross premiums written in Asia-Pacific amounted to € 130 million. Growth of 1.8 % was mostly volume driven, and stemmed largely from our Malaysian operations (particularly from the motor business). The positive price effect amounted to 0.7 %. On a nominal basis, premiums increased by 4.0 %, including the effect of the transfer of Allianz Fire and Marine Insurance Japan from Asia-Pacific to AGCS, which was more than compensated by a positive foreign currency translation effect. Cluster 2 At Allianz Sach revenues fell by 2.4 % to € 1,642 million. Despite a positive volume development, the overall decline was mainly driven by our non-motor business, particularly attributable to our liability and commercial property insur- ance business. Motor business also declined, mainly due to ongoing portfolio cleaning in fleets and reduced car pools in commercial lines. We estimate the negative price effect to be 3.4 %, predominantly driven by non-motor commercial business. In Italy we recorded revenues of € 1,023 million. The decline in premiums of 5.4 % was predominantly driven by a de- crease in our non-motor business as small- and medium- sized commercial businesses continued to be burdened by the effects of the economic recession. We strictly observed our selective underwriting approach and undertook further portfolio cleaning and re-pricing, which resulted in some volume decrease. In motor business, significant tariff in- creases were implemented in the last quarter of 2009 to compensate for the impacts of the so-called “Bersani law” and “Milan tables” (new tables for bodily injury claims). However, these price increases could not compensate for declining volume. The estimated positive price effect on premiums written was 1.0 %. We recorded gross premiums written of € 714 million in France, down by 2.7 %. The decrease was mostly volume driven, largely attributable to our commercial lines, in par- ticular due to portfolio cleaning in fleets business. In per- sonal lines premiums grew due to strong price increases. Overall, we estimate the positive price effect on premiums written to be 2.4 %. In Spain, revenues increased by 6.9 % to € 526 million. This stemmed from higher volume resulting from good cycle management and the recovery of private car sales sup- ported by car scrapping incentives from the end of 2009. Rates fell however, as economic recession continued to put prices under pressure, especially in the highly competitive commercial lines. Despite the negative price impact – which we estimate at around 0.9 % – our Spanish operation is one of our most profitable businesses. In the United States revenues amounted to € 805 million. Adjusting for a positive foreign currency translation impact of € 54 million, revenues declined by 3.6 % on an internal basis. This development was driven by lower volume, mainly observed in our commercial and personal business lines due to continued soft market conditions, the economic recession and selective underwriting. The decrease in vol- ume was partially offset by our crop insurance business which contributed positively. We estimate the overall price effect to be positive at 1.3 %, due to rate increases in per- sonal lines. 11 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Property-Casualty Insurance Operations At AGCS, premiums were € 952 million. Overall, the price effect was negative at around 2.2 %, with almost all of our business lines being affected. On a nominal basis revenues increased by 6.8 %, including the transfer of Allianz Fire and Marine Insurance in Japan from Asia-Pacific to AGCS. Operating profit 2010 to 2009 second quarter comparison Operating profit in € mn + 28.2 % In our credit insurance business premiums increased by 1.4 % to € 427 million. Volume was down by 13.4 % following a deliberate and drastic reduction of our exposure in high- risk classes as well as a fall in the business turnover of our customers. At the same time, we increased prices, and esti- mate this positive effect to be 14.8 %. 2,000 1,500 1,000 500 1,681 1,261 1,209 969 895 1,031 1,169 712 1,147 Cluster 3 In Central and Eastern Europe, revenues amounted to € 608 million. On an internal basis, excluding a positive foreign currency translation impact of € 36 million, the decrease was 12.7 %. Motor business declined due to high competi- tion in the market combined with selective underwriting and the ongoing effects of the economic recession, mainly observed in the Hungarian and the Czech markets. In addi- tion, we discontinued some large industrial contracts in Russia where we also suffered from a fall in new car sales and reduced premium levels. Overall, the price effect was negative at 1.1 %. 0 2Q 3Q 2008 4Q 1Q 2Q 2009 3Q 4Q 1Q 2010 Operating profit increased by 28.2 %, or € 252 million, to € 1,147 million. This development was attributable to a higher underwriting and a higher investment result. The underwriting result increased by € 217 million to € 286 million. Here we benefited from a favorable premium devel- opment and a favorable prior year claims development, which more than offset the much higher losses from natural catastrophes compared to the previous year. 2Q 2010 to 2009 first half year comparison Gross premiums written on an internal basis remained largely flat (down by 0.1 %). This is explained by a 0.5 % re- duction in volume and a positive price effect of 0.4 %. On a nominal basis, revenues increased by 2.3 % mainly driven by favorable foreign currency translation effects amounting to € 563 million. We recorded no changes in the scope of consolidation. Net investment income increased by 7.9 % to € 844 million, primarily driven by higher income from equities. The combined ratio decreased by 2.6 percentage points and stood at 96.3 % compared to 98.9 % in 2009. Our accident year loss ratio increased slightly by 0.1 percentage points to 72.8 %, while the expense ratio declined by 0.6 percentage points to 27.7 %. We recorded a favorable run-off ratio of 4.2 %. The accident year loss ratio amounted to 72.8 %. Of this, 2.6 percentage points (€ 255 million) were due to natural catas- trophes, in particular from the tornado in Saxony (Germany), flooding in Central and Eastern Europe and a hailstorm and flash floods in France. Natural catastrophes in the previous year period accounted for 1.1 percentage points of the 72.7 % accident year loss ratio. Without the impact of natural catastrophes, our accident year loss ratio decreased by 1.4 percentage points. This mainly reflected the impact of favorable development in our credit insurance business, lower level of large claims and a reduction in frequency and severity in total. 12 Property-Casualty Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Contributions to the adverse development of our accident year loss ratio came mainly from: Our businesses in Central and Eastern Europe accounted for 0.8 percentage points of negative impact on the acci- dent year loss ratio development. This was largely driven by bad weather conditions mainly in Hungary, Poland, Slovakia and the Czech Republic. The credit insurance business also contributed positively to our accident year loss ratio development. We again recorded a sharp decline in claims frequency following the drastic risk and commercial actions taken since the end of 2007. In addition, there were no large claims. The impact on our accident year loss ratio development was a reduction of 0.7 percentage points. Our reinsurance business added 0.6 percentage points to the increase in our accident year loss ratio. This was mainly driven by the extraordinarily high level of ceded claims from our operating entities due to natural catas- trophes. The Italian business contributed a favorable impact of 0.2 percentage points to our accident year loss ratio de- velopment, reflecting losses from the earthquake in the Abruzzo mountains from April 2009, as well as strong price increases in our motor third-party liability. Whereas, the so-called “Milan tables” had a negative impact of 2.5 percentage points on the local accident year loss ratio. France contributed to the accident year loss ratio devel- opment with 0.4 percentage points. The hailstorm and flash floods caused high net losses. Moreover, 2009 aver- age claims costs were rather low and returned in 2010 to the 2008 level. Both effects were partly offset by a lower impact from large and weather-related claims. In the United States we recorded a higher level of natural catastrophe losses, including losses from the Nashville flood and Midwest winds. In addition, we recorded a slight increase in claims cost for general third-party liability which was not compensated by price increases. Our crop insurance business contributed positively. Overall, this added 0.4 percentage points to our accident year loss ratio development. The expense ratio decreased by 0.6 percentage points to 27.7 %. Acquisition and administrative expenses increased only on a nominal basis by 1.2 % or € 31 million to € 2,688 million. Adjusted for an unfavorable foreign currency translation effect of € 88 million, overall costs were down as we reduced our administrative expenses especially in France, Italy and Germany. Positive contributions to the accident year loss ratio devel- opment came from the following operating entities: Our operations in Germany contributed 0.7 percentage points to the development of our accident year loss ratio. The local accident year loss ratio in Germany decreased by 3.9 percentage points due to an overall lower level of losses from natural catastrophes – even taking into ac- count the tornado in Saxony – and large claims. Also, average claims costs in 2009 were higher due to tap water claims recorded in the second quarter. 13 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Property-Casualty Insurance Operations Operating net investment income Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Interest and similar income 960 932 1,839 1,865 Operating income from financial assets and liabilities carried at fair value through income (net) (21) (14) (12) 48 Operating realized gains/losses (net) 3 20 12 16 Interest expenses (19) (26) (44) (60) Operating impairments of investments (net) (6) (4) (6) (66) Investment expenses (54) (62) (109) (116) Change in reserves for insurance and investment contracts (premium refunds) (19) (64) (62) (54) Operating net investment income 844 782 1,618 1,633 Net investment income increased by 7.9 % to € 844 million. Interest and similar income exceeded the previous year’s result by € 28 million and amounted to € 960 million. The development was mainly driven by higher income on equi- ties, mostly from associated entities. The development of interest income on debt securities was flat as the decline in yields was compensated by the increase in our debt portfo- lio value. Net of lower interest expenses, the increase was € 35 million. 2010 to 2009 first half year comparison Operating profit was basically flat with a decline of 0.3 % to € 1,859 million. On a six-month basis we recorded a higher underwriting result, up by € 50 million to € 203 million, and lower operating net investment income, down by € 15 mil- lion to € 1,618 million. Our combined ratio was down by 0.4 percentage points to 98.4 %. Here, 4.3 percentage points were related to the excep- tionally high load from natural catastrophes. A large number of weather-related losses amounted to additional 0.5 per- centage points. Overall we benefited from favorable releases of prior years’ loss reserves to the tune of 3.9 percentage points effect. The expense ratio decreased by 0.1 percentage points to 27.9 %. 14 Property-Casualty Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Property-Casualty segment information Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Gross premiums written 1) Ceded premiums written 9,951 (1,076) 9,522 (985) 23,945 (2,425) 23,408 (2,355) Change in unearned premiums 814 828 (2,418) (2,356) Premiums earned (net) 9,689 9,365 19,102 18,697 Interest and similar income 960 932 1,839 1,865 Operating income from financial assets and liabilities carried at fair value through income (net) (21) (14) (12) 48 Operating realized gains/losses (net) 3 20 12 16 Fee and commission income 282 270 536 542 Other income 4 5 8 8 Operating revenues 10,917 10,578 21,485 21,176 Claims and insurance benefits incurred (net) (6,645) (6,608) (13,467) (13,241) Change in reserves for insurance and investment contracts (net) (89) (95) (173) (125) Interest expenses (19) (26) (44) (60) Loan loss provisions — (2) — (8) Operating impairments of investments (net) (6) (4) (6) (66) Investment expenses (54) (62) (109) (116) Acquisition and administrative expenses (net) (2,688) (2,657) (5,321) (5,232) Fee and commission expenses (264) (229) (501) (463) Other expenses (5) — (5) (1) Operating expenses (9,770) (9,683) (19,626) (19,312) Operating profit 1,147 895 1,859 1,864 Loss ratio 2) in % Expense ratio 3) in % Combined ratio 4) in % 68.6 27.7 96.3 70.6 28.3 98.9 70.5 27.9 98.4 70.8 28.0 98.8 1) For the Property-Casualty segment, total revenues are measured based upon gross premiums written. 2) Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3) Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 15 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Property-Casualty Insurance Operations Property-Casualty Operations by Business Divisions Gross premiums written Premiums earned (net) Operating profit/ loss Combined ratio Loss ratio Expense ratio Three months ended June 30, Germany Switzerland Austria German Speaking Countries 2010 € mn 1,642 137 199 1,978 2009 € mn 1,682 126 198 2,006 internal 1) 2010 € mn 2009 € mn 1,642 128 199 1,682 126 198 1,969 2,006 2010 € mn 1,809 339 176 2,324 2009 € mn 1,820 312 169 2,301 2010 € mn 149 50 20 219 2009 € mn 54 38 20 112 2010 % 100.4 2) 91.9 93.5 98.6 2009 % 106.2 91.5 95.1 103.3 2010 % 72.3 2) 72.8 67.9 72.1 2009 % 77.7 68.0 73.3 76.1 2010 % 28.1 19.1 25.6 26.5 2009 % 28.5 23.5 21.8 27.2 Italy France Spain South America Netherlands Turkey Belgium Portugal Greece Africa Europe incl. South America 1,023 714 526 383 203 131 85 67 27 19 1,085 734 492 265 214 103 76 66 24 17 1,023 714 526 315 203 120 85 67 27 19 1,081 734 492 265 214 103 76 66 24 17 984 768 458 272 201 85 68 60 21 11 1,054 776 447 200 199 64 67 59 17 11 82 42 58 25 24 4 13 9 4 1 94 4 74 14 12 1 16 11 3 1 100.7 103.8 92.7 98.4 93.8 102.4 93.9 92.1 84.9 99.6 100.9 106.2 89.4 99.8 99.9 108.0 92.1 90.8 90.7 96.1 77.4 76.8 72.2 65.7 63.4 75.1 61.3 68.0 52.3 55.9 74.9 76.5 68.5 64.8 68.6 81.5 56.3 65.6 56.9 51.1 23.3 27.0 20.5 32.7 30.4 27.3 32.6 24.1 32.6 43.7 26.0 29.7 20.9 35.0 31.3 26.5 35.8 25.2 33.8 45.0 3,178 3,076 3,099 3,072 2,928 2,894 266 3) 234 3) 99.2 100.1 73.5 72.6 25.7 27.5 United States 4) Mexico NAFTA Markets 805 56 861 786 50 836 751 49 800 779 50 829 643 22 665 702 20 722 40 2 42 88 1 89 107.3 99.5 106.9 99.7 90.1 99.4 73.8 67.7 73.5 67.5 65.0 67.4 33.5 31.8 33.4 32.2 25.1 32.0 Allianz Global Corporate & Specialty 5) Reinsurance PC United Kingdom Credit Insurance Australia Ireland ART Global Insurance Lines & Anglo Markets 952 730 528 427 555 173 156 891 810 491 421 411 154 75 952 730 512 427 446 173 146 918 810 491 421 411 154 75 710 784 438 285 403 146 29 557 780 406 293 291 145 49 120 119 49 123 117 14 11 149 112 53 (33) 71 — 14 93.5 89.3 94.2 67.4 85.0 99.6 68.0 88.0 90.7 94.0 118.9 88.6 110.4 108.5 65.2 66.4 59.6 36.9 59.2 77.6 3.6 62.9 66.2 60.5 92.9 63.4 82.9 60.6 28.3 22.9 34.6 30.5 25.8 22.0 64.4 25.1 24.5 33.5 26.0 25.2 27.5 47.9 3,521 3,253 3,386 3,280 2,795 2,521 553 366 88.6 95.2 60.9 68.2 27.7 27.0 Russia Hungary Poland Slovakia Romania Czech Republic Croatia Bulgaria Kazakhstan Ukraine Central and Eastern Europe 6) Asia-Pacific (excl. Australia) 5) Middle East and North Africa Growth Markets 165 83 111 76 57 64 22 26 2 2 608 130 21 759 196 97 94 81 73 63 22 26 2 1 655 125 16 796 146 80 100 76 57 62 21 26 2 2 572 112 18 702 196 97 94 81 73 63 22 26 2 1 655 110 14 779 145 91 83 72 40 51 18 14 2 1 517 73 11 601 132 104 71 79 37 55 20 14 2 1 515 62 9 586 (2) 10 (7) 4 — 7 2 3 (1) — 11 10 1 22 12 20 3 21 1 8 1 — (1) (1) 59 6 2 67 107.8 99.0 111.8 101.9 109.3 92.2 94.2 83.5 134.6 105.0 103.7 91.7 104.6 102.2 94.1 80.1 101.8 75.0 98.4 82.4 99.3 104.6 236.2 140.0 89.6 97.8 134.3 91.1 66.3 62.5 74.2 73.2 89.6 64.9 59.2 52.9 54.8 4.8 68.8 62.5 69.8 68.1 53.3 51.6 65.4 48.6 70.1 60.0 62.2 61.2 95.9 35.0 56.4 66.3 71.2 57.7 41.5 36.5 37.6 28.7 19.7 27.3 35.0 30.6 79.8 100.2 34.9 29.2 34.8 34.1 40.8 28.5 36.4 26.4 28.3 22.4 37.1 43.4 140.3 105.0 33.2 31.5 63.1 33.4 Assistance (Mondial) 376 345 376 346 364 327 24 27 95.6 98.8 59.9 60.9 35.7 37.9 Consolidation 7) Total (722) 9,951 (790) 9,522 (759) 9,573 (791) 9,521 12 9,689 14 9,365 21 1,147 — 895 — 96.3 — 98.9 — 68.6 — 70.6 — 27.7 — 28.3 1) Reflect gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2) Net change of reserves related to savings component of UBR-business now included in claims (claims reduction of € 17 mn for 6M 2010 and of € 6 mn for 2Q 2010). Prior periods have not been retrospectively adjusted. Contains € 7 mn and € 7 mn for 6M 2010 and 6M 2009, respectively from a management holding located in Luxembourg (€ 3 mn and € 4 mn for 2Q 2010 and 2Q 2009, respectively) and also € 1 mn and € 1 mn for 6M 2010 and 6M 2009, respectively from AGF UK (€ 1 mn and € — mn for 2Q 2010 and 2Q 2009, respectively). 3) 16 Property-Casualty Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Gross premiums written Premiums earned (net) Operating profit/ loss Combined ratio Loss ratio Expense ratio Six months ended June 30, Germany Switzerland Austria German Speaking Countries 2010 € mn 5,542 1,001 531 7,074 2009 € mn 5,716 959 537 7,212 internal 1) 2010 € mn 2009 € mn 5,542 971 531 5,716 959 537 7,044 7,212 2010 € mn 3,596 683 349 4,628 2009 € mn 3,598 652 350 4,600 2010 € mn 318 82 41 441 2009 € mn 332 84 38 454 2010 % 100.1 2) 93.9 94.3 98.7 2009 % 100.6 92.6 95.4 99.0 2010 % 72.2 2) 73.8 68.2 72.1 2009 % 72.4 70.3 71.4 72.0 2010 % 27.9 20.1 26.1 26.6 2009 % 28.2 22.3 24.0 27.0 Italy France Spain South America Netherlands Turkey Belgium Portugal Greece Africa Europe incl. South America 1,968 1,860 1,194 716 529 268 195 152 58 47 2,088 1,904 1,150 523 526 227 190 147 47 44 1,968 1,860 1,194 602 529 252 195 152 58 47 2,081 1,904 1,150 523 526 227 190 147 47 44 1,969 1,547 909 513 407 160 133 121 40 19 2,117 1,558 899 383 397 127 131 119 29 18 151 51 130 49 25 8 21 16 8 3 205 (67) 150 31 27 2 23 21 6 3 100.9 105.3 90.8 98.2 99.5 102.9 97.9 94.1 86.7 96.0 99.9 110.1 89.5 100.1 99.6 110.7 96.0 90.9 88.4 94.7 76.5 78.5 70.7 66.0 69.5 75.5 63.7 69.7 54.2 59.4 75.3 81.8 69.3 66.4 69.1 84.4 60.3 65.3 57.2 59.2 24.4 26.8 20.1 32.2 30.0 27.4 34.2 24.4 32.5 36.6 24.6 28.3 20.2 33.7 30.5 26.3 35.7 25.6 31.2 35.5 6,987 6,846 6,857 6,839 5,818 5,778 470 3) 409 3) 99.9 101.0 74.0 74.7 25.9 26.3 United States 4) Mexico NAFTA Markets 1,443 98 1,541 1,574 100 1,674 1,429 89 1,518 1,539 100 1,639 1,222 42 1,264 1,464 40 1,504 80 4 84 190 5 195 107.0 99.5 106.7 99.0 91.1 98.8 70.8 69.1 70.7 65.9 66.2 65.9 36.2 30.4 36.0 33.1 24.9 32.9 Allianz Global Corporate & Specialty 5) Reinsurance PC United Kingdom Credit Insurance Australia Ireland ART Global Insurance Lines & Anglo Markets 2,129 2,378 991 939 995 367 346 2,084 2,294 924 952 738 344 155 2,129 2,378 964 939 788 367 331 2,165 2,294 924 952 738 344 155 1,400 1,579 848 552 756 281 78 1,138 1,552 790 603 544 287 94 243 60 91 174 137 8 21 303 115 98 (24) 100 (5) 27 93.5 99.1 95.3 79.1 96.8 106.5 72.9 86.0 98.2 95.0 116.7 96.8 111.4 96.0 66.9 76.1 61.1 47.1 71.4 85.1 29.1 63.0 71.3 61.8 88.5 71.9 83.8 53.4 26.6 23.0 34.2 32.0 25.4 21.4 43.8 23.0 26.9 33.2 28.2 24.9 27.6 42.6 8,145 7,491 7,896 7,572 5,494 5,008 734 614 94.8 97.7 67.7 70.4 27.1 27.3 Russia Hungary Poland Slovakia Romania Czech Republic Croatia Bulgaria Kazakhstan Ukraine Central and Eastern Europe 6) Asia-Pacific (excl. Australia) 5) Middle East and North Africa Growth Markets 362 246 214 194 119 139 49 43 20 4 1,390 252 40 1,682 365 244 180 203 149 140 49 45 4 4 1,383 251 35 1,669 330 229 192 194 117 132 48 43 20 4 1,309 231 38 1,578 365 244 180 203 149 140 49 45 4 4 1,383 215 31 1,629 275 188 165 146 78 101 37 34 4 2 1,030 135 21 1,186 264 205 141 155 72 106 39 33 3 4 1,022 126 17 1,165 (3) 26 (4) 20 1 13 4 8 1 — 56 21 — 77 19 37 7 42 1 21 2 5 (2) (1) 121 11 2 134 106.7 95.9 105.8 92.9 103.8 92.1 95.1 79.8 77.6 110.7 99.8 91.5 110.9 99.1 95.5 91.9 100.5 77.1 102.4 81.2 101.5 88.6 186.2 132.6 92.1 98.7 136.9 93.5 64.1 62.4 71.1 65.3 82.9 68.3 61.1 48.9 24.6 28.7 66.1 61.7 75.5 65.8 54.5 64.4 63.7 49.5 77.4 60.2 64.5 53.5 66.5 44.2 59.5 62.9 68.6 60.0 42.6 33.5 34.7 27.6 20.9 23.8 34.0 30.9 53.0 82.0 33.7 29.8 35.4 33.3 41.0 27.5 36.8 27.6 25.0 21.0 37.0 35.1 119.7 88.4 32.6 35.8 68.3 33.5 Assistance (Mondial) 773 695 773 695 697 622 42 40 96.3 98.1 60.7 61.1 35.6 37.0 Consolidation 7) Total (2,284) (2,179) (2,257) 23,945 23,408 23,382 20 (2,179) 23,407 19,102 18,697 15 11 1,859 18 1,864 — 98.4 — 98.8 — 70.5 — 70.8 — 27.9 — 28.0 4) Fireman’s Fund’s reserve strengthening for asbestos and environmental risks of U.S. Dollar 301 mn (Euro equivalent € 237 mn converted at the average exchange rate of the second quarter) has no impact on the financial results of Allianz Group and Fireman’s Fund’s combined ratio under IFRS. 5) From 1Q 2010 onwards, Allianz Fire and Marine Insurance Japan Ltd. is shown within AGCS. Prior year balances have not been adjusted. 6) Contains income and expense items from a management holding. 7) Represents elimination of transactions between Allianz Group companies in different geographic regions. 17 Life/Health Insurance Operations – Strong revenue growth of 16.2 % 1). – Operating profit of € 713 million, down 28.0 % compared to an exceptional prior year quarter. Earnings Summary Statutory premiums 1) 2010 to 2009 second quarter comparison Statutory premiums grew by 16.2 % on an internal basis. The recovery of unit-linked sales and a return in demand for traditional life products continued to drive growth in our major markets. Approximately one-third of the total growth of € 2.4 billion stemmed from traditional life business. Consumers are also showing an increased appetite for investment products in general with continued preference for investment contracts with guarantees. In Asia-Pacific, we benefited from an ongoing high demand for pure unit-linked and investment-oriented products. Premiums grew by 32.7 % on an internal basis to € 1,481 million due to a significant increase in sales in Japan and South Korea. Our new bank partnerships in Japan were successfully selling our variable annuity products and as a result premiums grew from € 12 million to € 255 million. Growth in South Korea was driven by our investment-ori- ented business with guarantees, with strong demand for our single premium equity index and other investment prod- ucts sold via the bancassurance channel. Premiums in Taiwan declined by 10.5 % on an internal basis. In the sec- ond quarter of 2009, we had a marked increase in sales of structured products due to regulatory changes. Statutory premiums – Internal growth rates 2) in % Asia-Pacific Italy Central and Eastern Europe 10.9 32.7 28.7 27.3 26.0 62.4 Premiums in Italy were up by 28.7 % to € 2,491 million. The first quarter trend carried over into the second quarter, with a continued increase in consumer demand for unit-linked products, after a crisis-dominated first half of 2009. This development drove the strong sales in both our financial advisors and bancassurance channels. United States Spain Germany Life South America France (2.1) (2.6) 0.0 17.5 16.4 16.0 14.3 11.1 7.4 23.1 In Central and Eastern Europe, our premiums grew by 26.0 % on an internal basis to € 275 million. Major drivers were positive developments in Czech Republic and Hungary based on successful sales campaigns for index-linked and unit-linked products. While our premiums from invest- ment-oriented products profited from this development, the traditional business decreased slightly. Germany Health 0.8 1.1 Switzerland 2Q 2010 over 2Q 2009 1H 2010 over 1H 2009 (16.9) (20) 0 5.1 20 40 60 In the United States, the increase in variable annuity sales led to a total premium of € 2,053 million, resulting in an internal growth rate of 17.5 %. Our new variable annuity riders, which we repriced the year before, are selling well and we see continued strong demand for our fixed index annuities. 1) We comment on the development of our statutory premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 2) Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. 18 Life/Health Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Premiums in our German life business grew by 16.0 % to € 3,985 million. This development is mainly driven by con- tinued growth in single premiums from traditional life Group pension products. Recurring premiums decreased slightly. The German health business recorded revenue growth of 0.8 %. Operating profit Operating profit in € mn 1,200 (28.0) % 990 In France, our premiums increased by 7.4 % to € 1,876 mil- lion. After a campaign in the last quarter, sales of invest- ment-oriented products through our partnerships distribu- tion channel increased steadily. The other driver for growth was the ongoing increase in single premiums from pure unit-linked contracts. 1,000 800 600 400 703 218 402 859 557 812 200 In Switzerland, premiums were down by 16.9 % to € 233 million, mainly due to lower single premiums from invest- ment-oriented contracts and less traditional business. 0 (200) (302) (400) 2010 to 2009 first half year comparison In the first six months of 2010, our statutory premiums grew by 16.8 % on an internal basis to € 29,480 million. On a no minal basis, growth amounted to 19.0 %. Last year’s devel- opment was affected by the financial markets crisis. In 2010, our premium growth reflects the ongoing return of con- sumer demand for investment and traditional products. This development is in line with the effects described for the second quarter. (600) 2Q 3Q 2008 4Q 1Q 2Q 2009 3Q 4Q 1Q 2010 2010 to 2009 second quarter comparison Operating profit decreased from € 990 million to € 713 mil - lion. Last year’s result was exceptionally high as positive market developments in the United States and France re- sulted in a higher fair value income 1). In the second quarter 2010, we saw the same developments, but in the opposite direction. In addition, our level of net harvesting was lower in the second quarter of this year. Interest and similar income amounted to € 4,005 million, which is an increase of € 367 million. This resulted mainly from higher income from debt securities with a corres- ponding quarterly yield of 1.1 % 2). The growth-driven in- crease of our debt portfolio more than compensated the decline in yields from lower interest rates. Net gains from financial assets and liabilities carried at fair value decreased by € 580 million to a loss of € 18 mil- lion. The change is mainly driven by the comparatively higher gains in the second quarter of 2009 from credit 1) Recorded in net gain from financial assets and liabilities carried at fair value through income. 2) On debt securities including cash components, based on an average asset base of € 308.5 bn. 713 2Q 19 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Life/Health Insurance Operations spread narrowing in the United States and an increase in fair value option results in France. In the second quarter of this year, lower interest rates and higher capital market volatility impacted both the United States and France. Investment expenses increased by € 32 million and stood at € 184 million. Realized gains and losses (net) decreased from € 639 mil- lion to € 212 million. Net harvesting was lower this quarter, as we had major realizations in the second quarter of 2009. 2010 to 2009 first half year comparison Operating profit reached € 1,525 million in the first six months of 2010 and is 9.6 % higher than the same period in 2009. The increase in premiums and general capital market recovery outweighed the impact from credit spreads widen- ing on our United States business and the negative fair value option result in France. In addition, this result reflects the sound underlying profitability of our Life/Health busi- ness. Line item movements were largely consistent with the developments in the second quarter. Net impairments on investments decreased from € 267 million to € 184 million. Change in reserves for insurance and investment con- tracts (net) amounted to € 3,365 million, € 910 million higher than in the second quarter of 2009. The rise is ex- plained by two factors: increased reserves as a consequence of higher traditional sales in Germany and higher variable annuity reserves in the United States where interest rates were lower. Net claims and insurance benefits incurred decreased by 1.0 % to € 4,451 million. Acquisition and administrative expenses (net) amounted to € 1,150 million, down 29.5 %. Administration expenses decreased by 8.7 %, while acquisition costs fell by 35.9 %. Higher profit from spread related recovery in the second quarter of 2009 led to higher amortization of deferred acqui sition costs in the United States. In Germany, lower amortization of deferred acquisition costs from a model true-up was offset by the reserves increase in reserves for insurance and investment contracts. Our cost-income ratio increased by 2.2 percentage points to 96.0 % due to lower investment performance compared to the premiums generated in the period. 20 Life/Health Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Life/Health segment information Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Statutory premiums 1) Ceded premiums written 14,124 (129) 11,766 (127) 29,480 (263) 24,779 (270) Change in unearned premiums (55) (24) (108) (53) Statutory premiums (net) 13,940 11,615 29,109 24,456 Deposits from insurance and investment contracts (8,133) (6,503) (17,418) (13,996) Premiums earned (net) 5,807 5,112 11,691 10,460 Interest and similar income 4,005 3,638 7,550 6,943 Operating income from financial assets and liabilities carried at fair value through income (net) (18) 562 44 503 Operating realized gains/losses (net) 212 639 750 810 Fee and commission income 129 122 247 241 Other income 29 6 49 9 Operating revenues 10,164 10,079 20,331 18,966 Claims and insurance benefits incurred (net) (4,451) (4,497) (9,296) (9,643) Change in reserves for insurance and investment contracts (net) (3,365) (2,455) (6,411) (3,040) Interest expenses (31) (27) (54) (71) Loan loss provisions 1 (12) 2 (14) Operating impairments of investments (net) (184) (267) (223) (1,343) Investment expenses (184) (152) (329) (290) Acquisition and administrative expenses (net) (1,150) (1,631) (2,351) (3,060) Fee and commission expenses (63) (52) (117) (116) Operating restructuring charges — 4 (1) 3 Other expenses (24) — (26) — Operating expenses (9,451) (9,089) (18,806) (17,574) Operating profit 713 990 1,525 1,392 Cost-income ratio 2) in % 96.0 93.8 95.9 95.5 1) Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2) Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 21 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Life/Health Insurance Operations Life/Health Operations by Business Divisions Statutory premiums 1) Premiums earned (net) Operating profit (loss) Cost-income ratio Three months ended June 30, 2010 € mn 2009 € mn internal 2) 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 % 2009 % Germany Life Germany Health 3) Switzerland Austria German Speaking Countries 3,985 798 233 89 5,105 3,436 792 260 131 4,619 3,985 798 216 89 5,088 3,436 792 260 131 4,619 2,795 798 107 63 3,763 2,255 792 120 62 3,229 255 48 18 5 326 185 27 30 6 248 95.6 95.5 94.2 94.9 95.5 96.4 97.2 91.0 95.9 96.2 Italy France Spain South America Netherlands Turkey Belgium/Luxembourg Portugal Greece Africa Europe incl. South America 2,491 1,876 249 12 77 25 280 46 30 11 1,935 1,746 214 9 88 21 208 35 30 9 2,491 1,876 249 10 77 23 280 46 30 11 1,935 1,746 214 9 88 21 208 35 30 9 154 745 105 10 31 9 96 20 18 6 187 748 109 7 33 9 82 20 15 5 73 123 27 2 12 1 23 4 2 2 86 235 26 — 5 2 25 4 — 1 97.4 94.7 91.1 88.5 89.6 97.4 93.8 90.5 93.2 104.8 96.2 90.8 90.6 96.4 90.7 93.3 91.7 89.6 98.4 90.9 5,097 4,295 5,093 4,295 1,194 1,215 269 384 95.5 93.2 United States Mexico NAFTA Markets 2,053 24 2,077 1,630 10 1,640 1,915 22 1,937 1,630 10 1,640 176 16 192 170 8 178 53 — 53 305 — 305 99.6 3.3 97.9 94.2 28.2 87.8 Reinsurance LH Global Insurance Lines & Anglo Markets 56 56 71 71 56 56 71 71 58 58 67 67 (2) (2) 8 8 104.2 104.2 90.6 90.6 South Korea Taiwan Malaysia Indonesia Other Asia-Pacific Hungary Slovakia Czech Republic Poland Romania Croatia Bulgaria Russia 501 420 58 106 396 1,481 63 60 46 74 6 12 6 8 339 421 41 42 63 906 23 61 24 72 6 11 6 5 424 377 50 86 265 1,202 61 60 43 67 6 12 6 7 339 421 41 42 63 906 23 61 24 72 6 11 6 5 193 36 46 40 119 434 17 46 13 30 2 12 6 7 158 12 37 21 35 263 17 44 11 44 3 10 5 4 24 25 3 10 (14) 48 5 8 3 5 1 1 3 (2) 19 1 3 4 (7) 20 3 8 3 4 1 2 2 (2) 97.5 94.9 90.7 103.4 92.3 89.8 89.8 93.7 93.5 77.4 74.9 123.6 92.5 90.3 100.0 93.5 90.1 111.8 90.9 88.8 88.8 87.9 93.9 89.6 73.6 118.7 88.3 98.1 Central and Eastern Europe Middle East and North Africa Global Life Growth Markets 275 33 61 1,850 208 24 53 1,191 262 28 61 1,553 208 23 53 1,190 133 31 2 600 138 21 1 423 24 4 (1) 75 21 — — 41 103.3 103.3 97.9 96.3 100.6 100.6 87.8 96.8 Consolidation 4) Total (61) 14,124 (50) 11,766 (58) 13,669 (49) 11,766 — 5,807 — 5,112 (8) 713 4 990 — 96.0 — 93.8 1) Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2) Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 3) Loss ratios were 69.2 % and 69.1 % for the three months ended June 30, 2010 and 2009, respectively, and 74.4 % and 74.3 % for the six months ended June 30, 2010 and 2009, respectively. 4) Represents elimination of transactions between Allianz Group companies in different geographic regions. 22 Life/Health Insurance Operations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Statutory premiums 1) Premiums earned (net) Operating profit (loss) Cost-income ratio Six months ended June 30, 2010 € mn 2009 € mn internal 2) 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 % 2009 % Germany Life Germany Health 3) Switzerland Austria German Speaking Countries 7,904 1,601 1,039 211 10,755 6,915 1,583 953 249 9,700 7,904 1,601 1,002 211 10,718 6,915 1,583 953 249 9,700 5,477 1,602 346 156 7,581 4,615 1,584 356 151 6,706 510 94 39 18 661 350 46 38 10 444 95.5 95.6 96.7 93.4 95.6 96.3 97.6 96.4 96.4 96.5 Italy France Spain South America Netherlands Turkey Belgium/Luxembourg Portugal Greece Africa Europe incl. South America 5,331 4,347 447 24 162 48 534 81 60 18 4,189 3,530 459 20 193 42 375 70 60 20 5,331 4,347 447 20 162 45 534 81 60 18 4,189 3,530 459 20 193 42 375 70 60 20 311 1,511 212 18 65 18 194 40 34 11 374 1,457 219 16 81 18 176 40 33 11 145 301 55 4 26 3 44 9 2 — 95 358 53 5 15 3 34 9 1 2 97.5 94.4 90.3 88.4 87.2 95.6 93.8 89.2 96.5 101.1 98.0 92.0 90.8 83.9 93.3 94.7 93.5 88.7 97.5 91.3 11,052 8,958 11,045 8,958 2,414 2,425 589 575 95.5 94.6 United States Mexico NAFTA Markets 3,704 48 3,752 3,760 23 3,783 3,682 44 3,726 3,760 23 3,783 338 29 367 340 15 355 132 2 134 308 1 309 97.1 96.4 97.1 93.9 94.5 93.9 Reinsurance LH Global Insurance Lines & Anglo Markets 150 150 144 144 150 150 144 144 150 150 143 143 8 8 9 9 95.1 95.1 94.8 94.8 South Korea Taiwan Malaysia Indonesia Other Asia-Pacific Hungary Slovakia Czech Republic Poland Romania Croatia Bulgaria Russia 943 1,066 110 185 802 3,106 131 124 75 218 12 23 12 13 638 719 79 81 134 1,651 45 129 64 221 12 22 12 9 803 1,017 101 152 609 2,682 123 124 70 195 11 23 12 12 638 719 79 81 134 1,651 45 129 64 221 12 22 12 9 365 83 91 74 224 837 32 90 28 79 5 22 12 12 311 41 71 38 53 514 32 85 24 84 7 20 11 8 57 35 6 24 (23) 99 8 16 6 10 1 2 4 (2) 35 6 5 8 (27) 27 8 17 4 6 1 2 2 (3) 95.0 96.8 94.7 87.6 102.7 94.4 94.4 89.3 93.1 95.6 87.8 90.7 79.8 114.7 95.4 99.2 93.9 89.7 120.9 84.8 84.8 88.3 93.4 97.2 91.6 93.3 85.9 128.1 Central and Eastern Europe Middle East and North Africa Global Life Growth Markets 608 63 117 3,894 514 48 92 2,305 570 56 117 3,425 514 48 92 2,305 280 59 3 1,179 271 45 1 831 45 6 (2) 148 37 (9) — 55 92.0 92.0 102.2 96.5 120.4 120.4 100.0 97.8 Consolidation 4) Total (123) 29,480 (111) 24,779 (114) 28,950 (111) 24,779 — 11,691 — 10,460 (15) 1,525 — 1,392 — 95.9 — 95.5 23 Asset Management – Third-party assets under management reached € 1,139 billion. – Strong net inflows of € 23 billion in the second quarter of 2010 leading to € 60 billion for the first half year of 2010. – Quarterly operating profit more than doubled to € 516 million. Assets under Management As of June 30, 2010, total assets under management amounted to € 1,430 billion, an increase of € 228 billion compared to December 31, 2009. Of the total, € 1,139 billion related to third-party assets under management and € 291 billion to Allianz Group assets. Third-party assets increased by € 213 billion. Third-party assets under management by geographic region as of June 30, 2010 (December 31, 2009) 1) in % Other2): 1.5 (2.6) Germany: 11.1 (13.6) Asia-Pacific: 8.8 (8.0) Development of third-party assets under management in € bn United States: 63.5 (59.4) Rest of Europe: 15.1 (16.4) Third-party AuM (as of 12/31/2009) 785 140 1 926 Net inflows Market effects Consolidation and deconsolidation effects F/X effects + 60 (9) + 44 + 118 We observed a shift between the share of third-party assets under management in the United States (up by 4.1 percent- age points) and in Europe (down by 3.8 percentage points). The United States accounted for 63.5 % of third-party assets as a result of strong net inflows to our fixed-income business and positive foreign currency effects from the U.S. Dollar. Third-party AuM (as of 6/30/2010) 992 145 2 1,139 Fixed income Equities 0 … 700 800 900 1,000 1,100 1,200 The split between fixed-income and equity assets changed slightly: fixed-income assets increased from 85 % to 87 % and equity assets decreased from 15 % to 13 %. Other More than half of the growth in third-party assets resulted from positive foreign currency translation effects of € 118 billion. These were mainly due to the strengthening U.S. Dollar versus the Euro. In addition, we recorded net inflows of € 60 billion for the first six months of 2010: fixed- income products contributed € 63 billion, while equity products recorded a net outflow of € 3 billion. The € 44 bil- lion contribution from market effects was driven by our fixed-income securities (up by € 47 billion); equity values, however, decreased by € 3 billion. The share of retail assets rose by 1.0 percentage point in the second quarter compared to the same period in 2009. This increase contributed to higher asset management driven margins (excluding performance fees). Compared to De- cember 31, 2009, the split between institutional and retail third-party assets remained largely unaltered, at 67 % and 33 %, respectively. 1) Based on the origination of assets. 2) Consists of third-party assets managed by other Allianz Group companies (approximately € 18 bn as of June 30, 2010 and € 24 bn as of December 31, 2009, respectively). 24 Asset Management Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Rolling investment performance of Allianz Global Investors 1) in % Earnings Summary Fixed income Equity Operating revenues 100 80 60 40 71 90 63 62 2010 to 2009 second quarter comparison Operating revenues amounted to € 1,188 million. Adjusting for positive foreign currency effects of € 65 million, revenues increased by 43.7 % on an internal basis. The main drivers of this outstanding performance were higher management and performance fees. 20 0 (20) (40) (60) (29) 6/30/2009 (10) 6/30/2010 (37) 6/30/2009 (38) 6/30/2010 Net fee and commission income rose by € 436 million to € 1,188 million. Management and loading fees grew by € 396 million to € 1,339 million primarily due to a strong increase in average assets under management. The shift to retail assets and products with a higher profit margin com- pared to the second quarter 2009 was also a positive factor. Outperforming assets under management Underperforming assets under management The overall performance of Allianz Global Investors’ assets under management was outstanding at 87 % (June 30, 2009: 70 %) as 90 % (June 30, 2009: 71 %) of our fixed-income prod- ucts outperformed their benchmarks. Our equity perfor- mance remained stable at 62 % (June 30, 2009: 63 %) and improved by 1 percentage point against the previous quarter (March 31, 2010: 61 %). Performance fees were up € 68 million to € 88 million, the majority of which came from our fixed-income products. The level of performance fees is driven by the parameters of the applied fee measurement approach and investment performance of the individual mandates and funds. As a result, the order of magnitude of performance fees can vary considerably. The decrease to € (4) million in income from financial assets and liabilities carried at fair value through income (net) was driven by a negative swing in seed money invest- ments. In the previous period, we recorded a positive result of € 24 million. 2010 to 2009 first half year comparison Operating revenues increased by 52.7 %, on an internal basis, to € 2,304 million. Favorable foreign currency trans- lation effects amounted to € 12 million. 1) AGI account-based, asset-weighted 3-year investment performance of third-party assets vs. benchmark including all equity and fixed-income accounts managed by equity and fixed-income managers of AGI. For some retail funds the net of fee perfor- mance is compared to the median performance of an appropriate peer group (Morn- ingstar or Lipper; 1st and 2nd quartile mean out-performance). For all other retail funds and for all institutional accounts, performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS (Global Investment Perfor- mance Standards), the performance of closed funds/accounts is not included in the analysis. Also not included: in parts WRAP accounts and accounts of Joint-Venture GTJA China. 25 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Operating profit 2010 to 2009 second quarter comparison Operating profit in € mn + 109.8 % 700 600 576 516 500 466 400 368 281 300 186 218 211 246 200 100 0 2Q 3Q 2008 4Q 1Q 2Q 2009 3Q 4Q 1Q 2010 2Q Operating profit of € 516 million more than doubled (up by 109.8 %). This reflects higher management and performance fees, supported by positive foreign currency effects. Administrative expenses increased by € 138 million (up by 25.8 %) to € 672 million, of which € 35 million was due to the stronger U.S. Dollar. Strong profit growth led to an increase in performance-related personnel expenses. Non-personnel expenses went up in line with business development. Our cost-income ratio continued to improve, down by 11.9 percentage points to 56.6 %, supported by the increase in performance fees. 2010 to 2009 first half year comparison Operating profit of € 982 million was up nearly 115 %. The developments in the respective positions were consistent overall with the 2010 to 2009 second quarter comparison. 26 Asset Management Asset Management Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Asset Management segment information Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Management and loading fees 1,339 943 2,532 1,822 Performance fees 88 20 216 34 Other income 31 8 63 22 Fee and commission income 1,458 971 2,811 1,878 Commissions (266) (213) (517) (406) Other expenses (4) (6) (9) (11) Fee and commission expenses (270) (219) (526) (417) Net fee and commission income Net interest income 1) Income from financial assets and liabilities carried at fair value through income (net) 1,188 (1) (4) 752 (2) 24 2,285 8 1 1,461 10 16 Other income 5 6 10 9 Operating revenues 1,188 780 2,304 1,496 Administrative expenses (net), excluding acquisition-related expenses (672) (534) (1,322) (1,039) Operating expenses (672) (534) (1,322) (1,039) Operating profit 516 246 982 457 Cost-income ratio 2) in % 56.6 68.5 57.4 69.5 1) Represents interest and similar income less interest expenses. 2) Represents operating expenses divided by operating revenues. 27 Corporate and Other – Operating loss down by € 158 million to € 155 million, largely due to Banking set-up costs in the prior period and a higher foreign currency result. Corporate and Other segment information Holding & Treasury Banking 1) Alternative Investments Corporate and Other 2) 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn Three months ended June 30, Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Other income Operating revenues 125 5 27 — 157 122 (83) 65 — 104 173 (3) 107 — 277 163 5 87 — 255 (1) (1) 37 1 36 (1) — 24 3 26 297 2 169 — 468 283 (78) 174 3 382 Interest expenses, excluding interest expenses from external debt Loan loss provisions Investment expenses Administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Other expenses Operating expenses (96) — (22) (133) (44) — (295) (112) — (18) (121) (63) — (314) (83) (10) — (141) (58) — (292) (87) (10) — (206) (44) (1) (348) — — (1) (37) — — (38) — — — (32) (3) — (35) (179) (10) (23) (309) (102) — (623) (199) (10) (17) (358) (110) (1) (695) Operating loss (138) (210) (15) (93) (2) (9) (155) (313) Cost-income ratio 3) in % 103.7 166.9 1) Total revenues in the Corporate and Other segment refer to the total revenues of the Banking business only. For further information on the reconciliation of total revenues, please refer to page 41. 2) Including consolidation in between the Corporate and Other segment as recorded in the segment information in note 3 of the condensed consolidated interim financial statements. 3) Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt, fee and commission expenses. 28 Corporate and Other Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Holding & Treasury Banking 1) Alternative Investments Corporate and Other 2) 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn Six months ended June 30, Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Other income Operating revenues 178 (14) 86 — 250 238 (97) 100 — 241 342 (9) 209 — 542 363 6 163 — 532 7 (1) 64 1 71 (2) (1) 57 3 57 526 (23) 356 — 859 597 (92) 317 3 825 Interest expenses, excluding interest expenses from external debt Loan loss provisions Investment expenses Administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Other expenses Operating expenses (191) — (43) (277) (103) — (614) (238) — (38) (274) (71) — (621) (167) (23) — (279) (110) (1) (580) (206) (17) — (325) (85) (1) (634) — — (1) (74) — — (75) — — — (65) (6) — (71) (358) (23) (44) (626) (213) (1) (1,265) (443) (17) (36) (663) (162) (1) (1,322) Operating loss (364) (380) (38) (102) (4) (14) (406) (497) Cost-income ratio 3) in % 105.7 135.3 Holding & Treasury 2010 to 2009 second quarter comparison The operating loss for Holding & Treasury was € 138 million compared to a loss of € 210 million in 2009, mainly attribut- able to a higher foreign currency result. Interest expenses, excluding interest expenses from ex ternal debt benefited from lower interest rates with a decrease of € 16 million to € 96 million. Net fee and commission result was down by € 19 million due to a reduction in net fees generated by our internal IT service provider. We recorded an increase of € 3 million to € 125 million in interest and similar income. Higher income from associated enterprises compensated for still lower short-term interest yields, affecting interest income. Operating income from financial assets and liabilities carried at fair value (net) improved by € 88 million to € 5 million. This was primarily due to an improvement in the foreign currency result. 2010 to 2009 first half year comparison We recorded an operating loss of € 364 million (down from € 380 million). This result was driven by an improvement in operating income from financial assets and liabilities carried at fair value, nearly offset by a lower net interest and net fee and commission result. 1) Total revenues in the Corporate and Other segment refer to the total revenues of the Banking business only. For further information on the reconciliation of total revenues, please refer to page 41. 2) Including consolidation in between the Corporate and Other segment as recorded in the segment information in note 3 of the condensed consolidated interim financial statements. 3) Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt, fee and commission expenses. 29 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Corporate and Other Banking Alternative Investments 2010 to 2009 second quarter comparison Operating revenues increased by € 22 million to € 277 mil- lion largely driven by the Banking business in Germany (Allianz Bank was launched in June 2009). The increase in operating revenues can be attributed in particular to higher fee and commission income and interest income, partially offset by lower operating income from financial assets carried at fair value. 2010 to 2009 second quarter comparison The operating loss declined by € 7 million to € 2 million. This improvement was driven by a € 16 million increase in net fee and commission result to € 37 million, partially offset by € 5 million higher administrative expenses. The earnings of Alternative Investments derive from the alterna- tive investments of Allianz SE and from the activities of the managers of Allianz Capital Partners and Allianz Real Estate. The operating loss amounted to € 15 million compared to a loss of € 93 million in 2009. Operating expenses fell by € 56 million to € 292 million. Administrative expenses de- clined by 31.6 % to € 141 million as the second quarter of 2009 included Allianz Bank set-up costs of € 84 million. Fee and commission expenses increased by € 14 million in line with business development. 2010 to 2009 first half year comparison The operating loss declined from € 14 million to € 4 million. The increase in net interest and in net fee and commission results was partially offset by the increase in administrative expenses. 2010 to 2009 first half year comparison The operating loss decreased by € 64 million to € 38 million: improved net interest and net fee and commission results, as well as lower administrative expenses due to non-recur- ring Allianz Bank set-up costs, contributed to this positive development. 30 Balance Sheet Review – Shareholders’ equity increased by 9.0 % to € 43.8 billion. – Solvency ratio of 170 %. Shareholders’ Equity 1) Regulatory Capital Adequacy Shareholders’ equity in € mn 50,000 40,166 40,000 5,457 6,074 30,000 28,635 + 9.0 % 43,764 5,925 9,204 28,635 Allianz Group is a financial conglomerate within the scope of the Financial Conglomerates Directive and the related German law effective since January 1, 2005. Under this direc tive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries has significant crossborder and crosssector activities. The law requires that a financial conglomerate calculates the capital needed to meet the respective solvency requirements on a consolidated basis. 20,000 10,000 Conglomerate solvency 3) in € bn 40 164 % 170 % 0 12/31/2009 6/30/2010 37.6 34.8 Paid-in-capital 30 Revenue reserves2) Unrealized gains/losses (net) 20 21.2 22.1 As of June 30, 2010, shareholders’ equity amounted to € 43,764 million, up 9.0 % from December 31, 2009. Net income attributable to shareholders and positive foreign currency translation effects increased our equity by € 2,567 million and € 2,331 million respectively. Unrealized gains grew by € 468 million. In the second quarter of 2010, Allianz SE paid dividends of € 1,850 million for the fiscal year 2009, which reduced equity. 10 0 Solvency ratio Requirement Available funds 12/31/2009 6/30/2010 As of June 30, 2010, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the asset management and banking business, was € 37.6 billion (2009: € 34.8 billion) including offbalance sheet reserves 3) of € 2.0 billion (2009: € 2.0 billion), and surpassing the minimum legally stipulated level by € 15.5 billion (2009: € 13.6 billion). This margin resulted in a cover ratio of 170 % (2009: 164 %) as of June 30, 2010. Eligible capi tal also includes a deduction for accrued dividends of € 1.0 billion for the first half of 2010. Our solvency position re mains strong. 1) Does not include non-controlling interests of € 2,169 mn and € 2,121 mn as of June 30, 2010 and December 31, 2009, respectively. For further information, please refer to note 19 of the condensed consolidated interim financial statements. 2) Includes foreign currency translation effects. 3) Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 161 % (2009: 155 %). 31 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Balance Sheet Review Total Assets and Total Liabilities Structure of investments – Portfolio overview In the following sections, we show the asset allocation for our insurance portfolio and analyze important develop- ments within the balance sheets of our Property-Casualty, Life/Health, Asset Management and Corporate and Other segments. Allianz Group’s asset portfolio mainly derives from our core business of insurance. The following asset allocation covers the insurance segments together with the Corporate and Other segment. Asset allocation 1) As of June 30, 2010, total assets amounted to € 621.8 billion and total liabilities amounted to € 575.9 billion. When com- pared to the year-end 2009 total assets and total liabilities increased by € 37.8 billion and by € 34.1 billion, respectively. in % Allianz Group's asset portfolio as of June 30, 2010: � 440.3 billion (as of December 31, 2009: � 408.7 billion) Real estate: 2 (2) Cash/Other: 1 (1) Equities: 7 (8) Market environment of different asset classes During the first half of 2010, we saw volatile equity markets. After a positive start in the first quarter, equity markets turned and all major markets showed a negative develop- ment in the second quarter of 2010, resulting in a slightly negative six months development. Debt instruments: 90 (89) Interest rates and credit spreads development in % 6 5 Overall, the Group’s investment portfolio grew by € 31.6 billion compared to the end of 2009 and by € 13.7 billion compared to the end of the first quarter of 2010. These in- creases were both market-driven as well as through inflows provided by our underlying operating businesses, primarily from the Life/Health entities. 4 3 2 1 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Equities During the first half of 2010, our gross exposure to equities decreased slightly by € 0.3 billion to € 30.3 billion as market developments were slightly negative and we had net equity divestments. During this half year, our equity gearing after policyholder participation and hedges – which is a ratio of our equity holdings allocated to the shareholder to share- holder’s equity plus off-balance sheet reserves less goodwill – remained stable at 0.4. Spread USA A 10-year European Government Bond Spread Europe area A 10-year U.S. Government Bond EONIA 10-year interest rates of all major countries decreased during the first half of 2010. Overall, interest rate levels are below end of second quarter 2009 levels. Debt instruments The vast majority of our investment portfolio – a 90 % share – comprises debt instruments. Our investments in this asset class rose from € 364.8 billion to € 396.0 billion during the first half of 2010, mainly driven by new net investments, especially from our Life business. For the first time since the second quarter of 2009, credit spreads widened in the United States whilst in Europe, the trend was relatively stable. 1) Does not include our banking operations. 32 Balance Sheet Review Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 From our well-diversified exposure in this asset class, a share of more than 60 % relates to governments and covered bonds. In line with our operating business profile 65 % of our fixed-income portfolio is invested in Eurozone bonds and loans. Similarly, approximately 95 % is invested in invest- ment-grade bonds and loans. Investment result Net investment income Three months ended June 30, 2010 € mn More than 75 % of our government exposure is located in the Eurozone, where some governments experienced the threat of a liquidity shortage in recent quarters. Combined support efforts by other E.U. members and the International Monetary Fund could help to ensure financial stability. Interest and similar income 1) Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Impairments of investments (net) Investment expenses Net investment income 5,030 (235) 396 (377) (215) 4,599 As of June 30, 2010 our sovereign bond exposure (market values) towards Portugal, Ireland, Greece and Spain (PIGS) amounted to € 9.4 billion. This exposure varies due to port- folio optimization strategies. The current unrealized losses of the PIGS sovereign bond holding were € 0.9 billion as of June 30, 2010. In the second quarter of 2010, our total investment result (net) amounted to € 4,599 million, a decrease of 27.3 % com- pared to last year’s second quarter. The positive effect from a higher asset base and lower impairments from equities was offset by significantly lower realized gains and loss from fair value option results and trading. Last year’s result was exceptionally high due to positive effects from credit spread narrowing in the United States and a positive fair value option result in France. Nearly 60 % of covered bonds are German Pfandbriefe backed by either public sector loans or mortgage loans. On these as well as on all other covered bond exposures, a cushion against house price deterioration and payment defaults is provided by minimum required security buffers and voluntary over-collateralization. A lower yield on debt securities in the second quarter of 2010 was more than compensated by an increased volume on debt investments with the effect that interest and simi- lar income 1) rose by € 361 million. Our portfolio includes ABS securities of € 23.9 billion. We closely monitor this exposure and feel comfortable with our holdings in this sector. We have seen rating downgrades in our ABS portfolio, mainly from AAA to AA or A, but we did not record significant impairments in this asset class. Around 34 % or € 8.2 billion of our ABS securities are made up of U.S. agency MBS which were backed by the U.S. government. Our exposure in subordinated securities in banks amounted to € 11.0 billion. Our tier 1 share remains low at 0.4 % of our total exposure to debt instruments. Volatile income drivers such as income from investments held on fair value option and trading (net) were negatively affected by widened credit spreads. Realized gains and losses (net) decreased significantly com- pared to the second quarter of 2009, standing at € 396 million this quarter. This is partly attributable to one-off effects such as the sale of ICBC shares last year (realized gain of more than € 0.7 billion of which nearly € 0.7 billion was non-operat- ing result). Real Estate Our exposure to real estate held for investment increased by 6.7 % to € 8.0 billion. Impairments (net) decreased. In the second quarter of 2009, we booked total impairments of € 415 million, compared to € 377 million in the second quarter of 2010. 1) Net of interest expenses (excluding interest expenses from external debt). 2009 € mn 4,669 643 1,618 (415) (185) 6,330 33 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Balance Sheet Review Assets and liabilities of the Property-Casualty segment Property-Casualty assets During the first six months of 2010, our Property-Casualty asset base increased by € 4.5 billion to € 96.7 billion. This was primarily attributable to positive net inflows and favor- able foreign currency translation effects, mainly in debt securities which rose by € 4.1 billion in total. Equity invest- ments increased by € 0.2 billion to € 5.2 billion. Our cash and cash pool assets were stable and amounted to € 4.3 billion. Property-Casualty liabilities Development of reserves for loss and loss adjustment expenses 5) in € bn 70 60 55.7 7.2 + 9.1 50 48.5 + 2.3 40 (8.1) (0.7) 58.3 7.2 51.1 30 Composition of asset base fair values 1) 20 10 As of June 30, 2010 € bn As of December 31, 2009 € bn 0 Gross 12/31/2009 Reserves net A B C D Gross 6/30/2010 Financial assets and liabilities carried at fair value through income Reserves ceded Changes Equities 0.2 0.2 Debt securities Other 2) Subtotal Investments 3) Equities 1.4 0.1 1.7 5.2 1.7 0.1 2.0 5.0 A B C D Loss and loss adjustment expenses paid in current year relating to prior years Loss and loss adjustment expenses incurred in prior years Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications Reserves for loss and loss adjustment expenses in current year Debt securities Cash and cash pool assets 4) Other Subtotal Loans and advances to banks and customers 62.1 4.3 6.7 78.3 16.7 58.0 4.4 6.5 73.9 16.3 As of June 30, 2010, the segment’s gross reserves for loss and loss adjustment expenses increased by 4.7 % to € 58.3 bil- lion. On a net basis, reserves were up 5.4 % to € 51.1 billion. Foreign currency translation effects and other changes accounted for a € 2.3 billion increase. Property-Casualty asset base 96.7 92.2 Of our Property-Casualty asset base, asset-backed securities (ABS) made up € 5.2 billion as of June 30, 2010, which is approximately 5 % of our asset-base. CDOs accounted for only € 56 million of this amount. At Fireman’s Fund in the U.S., reserves for asbestos and environmental risks on a stand-alone statutory basis were increased by 301 million U.S. Dollar (recorded in the local statutory books). 6) This followed the completion of a regular independent external asbestos exposure review. The in- crease of reserves at Fireman’s Fund insurance company had no impact on the financial results of Allianz Group. 1) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. 2) Comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.1) and € (0.1) bn as of June 30, 2010 and December 31, 2009 respectively. 3) Does not include affiliates of € 11.0 bn and € 10.9 bn as of June 30, 2010 and Decem- ber 31, 2009, respectively. 4) Including cash and cash equivalents as stated in our segment balance sheet of € 2.5 bn and € 2.3 bn and receivables from cash pooling amounting to € 2.0 bn and € 2.1 bn net of liabilities from securities lending of € (0.2) bn and € 0 bn as of June 30, 2010 and December 31, 2009, respectively. 5) After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment, please refer to note 14 of the condensed consolidated interim financial statements. 6) Euro equivalent € 246 million converted at the period end exchange rate. 34 Balance Sheet Review Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Assets and liabilities of the Life/Health segment Life/Health assets In the first six months of 2010, the Life/Health asset base increased by 7.4 % to € 407.5 billion. Thereof € 61.0 billion are financial assets for unitlinked contracts. In our asset base without unitlinked contracts we recorded a significant increase in debt investments from € 182.5 billion to € 208.5 billion. This development was driven by strong net inflows from our Life insurance business, which outweighed credit spread widening, resulting in a decrease in the value of our corporate bonds. Our equity investments increased by € 0.5 billion to € 21.4 billion. Cash and cash pool assets were down by € 1.8 billion to € 4.2 billion following our strategy of reducing our cash position in favor of other asset classes. Within our Life/Health asset base, ABS amounted to € 18.2 billion as of June 30, 2010, which is less than 5 % of total Life/ Health assets. Of these, € 1.1 billion are CDOs. Financial assets for unit-linked contracts in € bn 70 60 57.0 + 1.1 (0.1) + 3.0 61.0 50 40 30 20 Composition of asset base fair values 10 0 12/31/2009 A B C 6/30/2010 As of June 30, 2010 € bn As of December 31, 2009 € bn A Financial assets for unit-linked contracts Changes Change in unit-linked insurance contracts Financial assets and liabilities carried at fair value through income B C Change in unit-linked investment contracts Foreign currency translation adjustments Equities 2.5 2.8 Debt securities Other 1) Subtotal Investments 2) Equities Debt securities Cash and cash pool assets 3) Other Subtotal 6.0 (6.4) 2.1 21.4 208.5 4.2 8.4 242.5 7.3 (5.4) 4.7 20.9 182.5 6.0 7.9 217.3 Financial assets for unitlinked contracts grew by € 4.0 billion to € 61.0 billion. Unitlinked insurance contracts increased by € 1.1 billion due to solid fund performance and recovering premium inflows exceeding outflows by € 1.5 billion. Unitlinked investment contracts decreased by € 0.1 billion, mainly driven by AZ Italy. Positive currency transla tion effects resulted mainly from the stronger U.S. Dollar (€ 1.9 billion) and Asian currencies (€ 1.0 billion). Loans and advances to banks and customers Financial assets for unit-linked contracts 4) Life/Health asset base 101.9 61.0 407.5 100.3 57.0 379.3 1) Comprises assets of € 1.5 bn and € 1.2 bn and liabilities of € (7.9) bn and € (6.6) bn as of June 30, 2010 and December 31, 2009 respectively. 2) Do not include affiliates of € 1.6 bn and € 1.8 bn as of June 30, 2010 and December 31, 2009, respectively. 3) Including cash and cash equivalents as stated in our segment balance sheet of € 2.9 bn and € 2.5 bn and receivables from cash pooling amounting to € 1.8 bn and € 3.5 bn net of liabilities from securities lending of € (0.5) bn and € 0 bn as of June 30, 2010 and December 31, 2009, respectively. 4) Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. 35 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Balance Sheet Review Life/Health liabilities Development of reserves for insurance and investment contracts in € bn 400 313.0 + 10.7 + 2.3 + 9.8 300 335.8 Assets and liabilities of the Asset Management segment Asset Management assets Our Asset Management segment’s results of operations stem primarily from its management of thirdparty assets. 1) In this section we refer only to our own assets. In the first six months of 2010, our own asset base of the Asset Manage ment segment without thirdparty assets increased by € 0.6 billion to € 3.6 billion. 200 100 Asset Management liabilities Our liabilities amounted to € 4.6 billion (up by 8.9 %), mainly driven by higher liabilities to banks and customers. 0 12/31/2009 A B C 6/30/2010 Reserves Changes Assets and liabilities of the Corporate and Other segment A Change in aggregate policy reserves B Change in reserves for premium refunds C Foreign currency translation adjustments Life/Health reserves for insurance and investment contracts increased by € 22.8 billion or 7 % in the first half of 2010. € 10.6 billion of the increase was driven by higher aggregate policy reserves, main contributors were our operations in Germany (€ 4.2 billion), Italy (€ 2.0 billion), the United States (€ 1.4 billion, excluding currency effects) and France (€ 1.3 billion). Reserves for premium refund were up by € 2.3 billion due to recovering capital markets. Significant posi tive currency effects resulted mainly from the stronger U.S. Dollar (€ 7.0 billion), Asian currencies (€ 1.6 billion) and the Swiss Franc (€ 1.0 billion). Corporate and Other assets In the first six months of 2010, our Corporate and Other asset base was down by 6.2 % to € 37.9 billion due to repay ments of loans and a decrease in reverse repos. Investments in debt securities increased by € 3.3 billion due to a shift within our portfolio. In contrast, loans and advances to banks and customers decreased by € 5.2 billion to € 15.5 billion. Our equity investments also declined by € 1.0 billion as we recorded net outflows and negative market effects. 1) For further information on the development of these third-party assets, please refer to page 24. 36 Balance Sheet Review Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Composition of asset base fair values As of June 30, 2010 € bn As of December 31, 2009 € bn Financial assets and liabilities carried at fair value through income Equities 0.0 0.0 Debt securities Other 1) Subtotal Investments 2) Equities 0.4 0.0 0.4 3.8 0.1 0.0 0.1 4.8 Debt securities Cash and cash pool assets 3) Other 16.6 1.4 0.2 13.3 1.3 0.2 Subtotal 22.0 19.6 Loans and advances to banks and customers 15.5 20.7 Corporate and Other asset base 37.9 40.4 ABS in our Corporate and Other asset base, amounted to € 0.5 billion as of June 30, 2010, which is around 1.4 % of our Corporate and Other asset base. Corporate and Other liabilities Our liabilities to banks and customers amounted to € 19.2 billion after € 21.2 billion at yearend 2009. This develop ment was mainly driven by a decrease in liabilities from short term deposits and a lower usage of repurchase opera tions at our Banking entities. Other liabilities decreased by € 1.5 billion to € 14.6 billion. The increase within the certificated liabilities from € 14.1 billion to € 14.9 billion was mainly driven by an increase of the Allianz SE issued debt outstanding4) in this investment category of € 0.7 billion. 1) Comprises assets of € 0.5 bn and € 0.5 bn and liabilities of € (0.5) bn and € (0.5) bn as of June 30, 2010 and December 31, 2009 respectively. 2) Do not include affiliates of € 68.2 bn and € 67.5 bn as of June 30, 2010 and December 31, 2009, respectively. 3) Including cash and cash equivalents as stated in our segment balance sheet of € 1.2 bn and € 1.1 bn and receivables from cash pooling amounting to € 0.2 bn and € 0.2 bn net of liabilities from securities lending of € 0 bn and € 0 bn as of June 30, 2010 and De- cember 31, 2009, respectively. 4) For further information on Allianz SE issued debt outstanding as of June 30, 2010, please refer to note 17 and 18 of our condensed consolidated interim financial statements. 37 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Balance Sheet Review Allianz SE bonds outstanding as of June 30, 2010 1) Interest expense in 2Q 2010 Interest expense in 2Q 2010 1. Senior bonds 2) 5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense 5.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 0.9 bn 2002 11/29/2012 XS 015 879 238 1 € 1.5 bn 2008 03/06/2013 DE 000 A0T R7K 7 € 12.4 mn 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense 5.5 % bond issued by Allianz SE Volume Year of issue Maturity date ISIN Interest expense USD 0.5 bn 2002 Perpetual Bond XS 015 915 072 0 € 1.5 bn 2004 Perpetual Bond XS 018 716 232 5 € 7.7 mn € 21.2 mn € 19.1 mn 4.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 1.5 bn 2006 11/23/2016 XS 027 588 026 7 € 15.4 mn 4.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 1.4 bn 2005 Perpetual Bond XS 021 163 783 9 € 15.7 mn 4.75 % bond issued by Allianz Finance II B.V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense Total interest expense for senior bonds € 1.5 bn 2009 7/22/2019 DE 000 A1A KHB 8 € 17.9 mn € 64.8 mn 2. Subordinated bonds 3) 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 2.0 bn 2002 5/31/2022 XS 014 888 756 4 € 1.0 bn 2002 1/13/2025 XS 015 952 750 5 € 26.8 mn € 16.5 mn 1) For further information on Allianz SE debt as of June 30, 2010, please refer to notes 17 5.375 % bond 4) issued by Allianz Finance II B. V., Amsterdam Volume Year of issue Maturity date ISIN Interest expense € 0.8 bn 2006 Perpetual Bond DE 000 A0G NPZ 3 € 11.6 mn 8.375 % bond issued by Allianz SE Volume Year of issue Maturity date ISIN Interest expense Total interest expense for subordinated bonds USD 2.0 bn 2008 Perpetual Bond US 018 805 200 7 € 37.6 mn € 137.1 mn Total interest expense € 201.9 mn 3) The terms of the subordinated bonds (except for the two subordinated bonds men- tioned in footnote 2 above) do not explicitly provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. Pursuant to the terms and conditions the trigger with respect to a potential mandatory coupon deferral has been breached as of September 30, 2009. In case this trigger breach is not cured in time, Allianz intends to continue to timely pay relevant coupons by making use of certain mechanisms as provided for in the terms and conditions. 4) and 18 of our financial statements. 2) Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor (Allianz SE). The same applies to two subordinated bonds issued in 2002. 38 Reconciliations The previous analysis is based on our consolidated financial statements and should be read in conjunction with them. In addition to our stated figures in accord with the Internation- al Financial Reporting Standards (IFRS), Allianz Group uses operating profit and internal growth to enhance under- standing of our results. These additional values should be viewed as complementary to, and not a substitute for, our figures determined in accordance with IFRS. Reconciliation of Income from Continuing Operations before Income Taxes to Operating Profit 1) The Allianz Group uses operating profit to evaluate the performance of its business segments and the Group as a whole. Operating profit highlights the portion of income before income taxes attributable to the ongoing core operations of the Allianz Group. The Allianz Group consid- ers the presentation of operating profit to be useful and meaningful to investors because it enhances understand- ing of the Allianz Group’s underlying operating perfor- mance and the comparability of its operating performance over time. To better understand the ongoing operations of the business, we exclude the following non-operating effects: acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; restructuring charges, because the timing of these re structuring charges is largely at our discretion, and their exclusion provides additional insight into the oper- ating trends of the underlying business. This differen- tiation is not made if the profit sources are shared with policyholders; 1) For further information please refer to note 3 of our condensed consolidated interim financial statements. interest expenses from external debt, as these relate to our capital structure; income from fully consolidated private equity invest- ments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; income from financial assets and liabilities held for trading (net) as part of the income from financial assets and liabilities carried at fair value through income (net) for the Property-Casualty insurance operations and the Corporate and Other activities (except for certain items for the Holding & Treasury activities and Banking ope- rations where the trading income refers to operating business). For the Life/Health insurance and Asset Man- agement operations, this item is treated as operating business and is therefore not excluded; realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at our discretion and impairments are largely dependent on market cycles or issuer-specific events over which we have little or no control and which can and do vary, sometimes materially, through time. This exclusion does not apply to Life/Health insurance operations, where the expenses for premium refunds in the operating profit correlate with realized gains and losses and impairments of investments. 39 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Reconciliations The definitions for non-operating income from financial assets and liabilities held for trading (net), realized capital gains and losses (net) and impairments of investments (net) state the general treatment in the segments. However, there are special cases which are different from this general treatment: Life/Health insurance business: the line items are gener- ally booked within operating profit; they can be classified as non-operating items if they stem from an investment where the results are not shared with the policyholders, for example strategic investments. Property-Casualty insurance business: the line items are generally booked within the non-operating items; they can be classified as operating items if they are shared with the policyholders in the context of a casualty insur- ance product with premium refunds issued in the German market. In certain cases the policyholders participate in the tax benefits of the Allianz Group. IFRS requires that the consoli- dated income statements present all tax benefits in the income tax line item, even though these belong to policy- holders. In the segment reporting, the tax benefits are re- classified and shown within operating profit in order to properly reflect the policyholder participation in tax benefits. Reconciliation of operating profit to the Allianz Group’s income from continuing operations before income taxes Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Operating profit 2,191 1,786 3,900 3,205 Non-operating realized gains/losses (net) and impairments of investments (net) (6) 815 705 317 Non-operating income from financial assets and liabilities carried at fair value through income (net) (185) 138 (102) 38 Income (loss) from fully consolidated private equity investments (net) (15) (101) (52) (157) Interest expenses from external debt (220) (214) (442) (452) Non-operating restructuring charges (42) (14) (89) (77) Acquisition-related expenses (110) (45) (308) (54) Amortization of intangible assets (17) (11) (34) (15) Reclassification of tax benefits (2) (20) (16) (26) Income from continuing operations before income taxes 1,594 2,334 3,562 2,779 40 Reconciliations Group Management Report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Composition of Total Revenues Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Composition of total revenues Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Property-Casualty Gross premiums written 9,951 9,522 23,945 23,408 Life/Health Statutory premiums 14,124 11,766 29,480 24,779 Asset Management Operating revenues 1,188 780 2,304 1,496 consisting of: Net fee and commission income 1,188 752 2,285 1,461 Net interest income (1) (2) 8 10 Income from financial assets and liabilities carried at fair value through income (net) (4) 24 1 16 Other income 5 6 10 9 Corporate and Other Total revenues 138 124 266 241 consisting of: Interest and similar income 173 163 342 363 Income from financial assets and liabilities carried at fair value through income (net) (3) 5 (9) 6 Fee and commission income 107 87 209 163 Interest expenses (83) (87) (167) (206) Fee and commission expenses (58) (44) (110) (85) Consolidation effects (Banking within Corporate and Other) 2 — 1 — Consolidation (12) (22) (39) (34) Allianz Group 25,389 22,170 55,956 49,890 41 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Group Management Report Composition of Total Revenue Growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign cur- rency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are excluded. Accordingly, in addition to presenting “nominal growth”, we also present “internal growth”, which excludes these effects. Reconciliation of nominal total revenue growth to internal total revenue growth Three months ended June 30, 2010 Internal growth % Changes in scope of consolidation % Foreign currency translation % Nominal growth % Property-Casualty 0.5 — 4.0 4.5 Life/Health 16.2 0.8 3.0 20.0 Asset Management 43.7 0.4 8.2 52.3 Corporate and Other 11.3 — — 11.3 Allianz Group 10.8 0.4 3.3 14.5 42 Reconciliations Six months ended June 30, 2010 Internal growth % Changes in scope of consolidation % Foreign currency translation % (0.1) — 2.4 16.8 0.7 1.5 52.7 0.5 0.8 10.8 — (0.4) 10.0 0.4 1.8 Nominal growth % 2.3 19.0 54.0 10.4 12.2 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Allianz Group Condensed Consolidated Interim Financial Statements 44 Consolidated Balance Sheets 45 Consolidated Income Statements 46 Consolidated Statements of Comprehensive Income 47 Consolidated Statements of Changes in Equity 48 Condensed Consolidated Statements of Cash Flows Notes to the Condensed Consolidated Interim Financial Statements 50 50 1 2 Basis of presentation Recently adopted accounting pronouncements, changes in accounting policies and changes in the presentation of the condensed consolidated interim financial statements Segment reporting 54 3 Supplementary Information to the Consolidated Balance Sheets 4 74 Financial assets carried at fair value through income Investments 5 Loans and advances to banks and customers 6 Reinsurance assets 7 8 Deferred acquisition costs 9 Other assets 74 75 75 75 75 76 10 Non-current assets and assets and liabilities of disposal groups classified as held for sale Intangible assets Financial liabilities carried at fair value through income Liabilities to banks and customers Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts 76 11 77 12 77 13 77 14 78 15 78 16 Other liabilities 78 17 Certificated liabilities 78 18 79 19 Participation certificates and subordinated liabilities Equity Supplementary Information to the Consolidated Income Statements 80 20 82 21 82 22 Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income 83 23 84 24 85 25 Other income 85 26 Income and expenses from fully consolidated private equity investments 86 27 Claims and insurance benefits incurred (net) 88 28 Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses 89 29 90 30 90 31 90 32 91 33 Acquisition and administrative expenses (net) 93 34 94 35 94 36 Fee and commission expenses Income taxes Net income (loss) from discontinued operations, net of income taxes Earnings per share 95 37 Other Information 96 38 96 39 Financial instruments Supplementary information on the condensed consolidated statements of cash flows 96 40 Other information Subsequent events 97 41 98 99 Responsibility statement Review report 43 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Balance Sheets Note ASSETS Cash and cash equivalents Financial assets carried at fair value through income 4 Investments 5 Loans and advances to banks and customers 6 Financial assets for unit-linked contracts Reinsurance assets 7 Deferred acquisition costs 8 Deferred tax assets Other assets 9 Non-current assets and assets of disposal groups classified as held for sale 10 Intangible assets 11 Total assets Note LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 12 Liabilities to banks and customers 13 Unearned premiums Reserves for loss and loss adjustment expenses 14 Reserves for insurance and investment contracts 15 Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities 16 Liabilities of disposal groups classified as held for sale 10 Certificated liabilities 17 Participation certificates and subordinated liabilities 18 Total liabilities Shareholders’ equity Non-controlling interests Total equity 19 Total liabilities and equity 44 As of June 30, 2010 € mn 7,213 13,123 328,002 125,478 61,008 14,508 21,456 2,560 33,568 829 14,094 621,839 As of June 30, 2010 € mn 8,155 20,566 19,388 67,152 345,030 61,008 4,226 32,000 554 8,729 9,098 575,906 43,764 2,169 45,933 621,839 As of December 31, 2009 € mn 6,089 14,321 294,252 128,996 56,963 13,559 20,623 2,719 33,047 — 13,476 584,045 As of December 31, 2009 € mn 6,743 21,248 15,676 64,441 322,188 56,963 3,905 33,285 — 7,962 9,347 541,758 40,166 2,121 42,287 584,045 Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Allianz Group Consolidated Income Statements Three months ended June 30, Six months ended June 30, Note 2010 € mn 2009 € mn 2010 € mn 2009 € mn Premiums written 15,945 14,770 35,997 34,160 Ceded premiums written (1,208) (1,098) (2,678) (2,594) Change in unearned premiums 759 805 (2,526) (2,409) Premiums earned (net) 20 15,496 14,477 30,793 29,157 Interest and similar income 21 5,169 4,800 9,748 9,214 Income from financial assets and liabilities carried at fair value through income (net) 22 (235) 643 (116) 543 Realized gains/losses (net) 23 396 1,618 1,706 2,037 Fee and commission income 24 1,909 1,426 3,710 2,762 Other income 25 36 15 65 19 Income from fully consolidated private equity investments 26 398 489 766 958 Total income 23,169 23,468 46,672 44,690 Claims and insurance benefits incurred (gross) (11,632) (11,480) (23,620) (23,871) Claims and insurance benefits incurred (ceded) 536 375 857 987 Claims and insurance benefits incurred (net) 27 (11,096) (11,105) (22,763) (22,884) Change in reserves for insurance and investment contracts (net) 28 (3,473) (2,684) (6,649) (3,305) Interest expenses 29 (359) (345) (710) (755) Loan loss provisions 30 (9) (24) (21) (39) Impairments of investments (net) 31 (377) (415) (468) (2,305) Investment expenses 32 (215) (185) (392) (353) Acquisition and administrative expenses (net) 33 (4,916) (5,212) (9,905) (10,021) Fee and commission expenses 34 (629) (552) (1,228) (1,043) Amortization of intangible assets (17) (11) (34) (15) Restructuring charges (42) (10) (90) (74) Other expenses (29) (1) (32) (2) Expenses from fully consolidated private equity investments 26 (413) (590) (818) (1,115) Total expenses (21,575) (21,134) (43,110) (41,911) Income from continuing operations before income taxes 1,594 2,334 3,562 2,779 Income taxes 35 (509) (447) (889) (468) Net income from continuing operations 1,085 1,887 2,673 2,311 Net income (loss) from discontinued operations, net of income taxes 36 — — — (395) Net income 1,085 1,887 2,673 1,916 Net income attributable to: Non-controlling interests 68 18 106 18 Shareholders 1,017 1,869 2,567 1,898 Three months ended June 30, Six months ended June 30, Note 2010 € 2009 € 2010 € 2009 € Basic earnings per share 37 2.25 4.14 5.69 4.21 from continuing operations 2.25 4.14 5.69 5.08 from discontinued operations — — — (0.87) Diluted earnings per share 37 2.21 4.13 5.65 4.17 from continuing operations 2.21 4.13 5.65 5.04 from discontinued operations — — — (0.87) 45 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Condensed Consolidated Interim Financial Statements Allianz Group Consolidated Statements of Comprehensive Income Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn Net income 1,085 1,887 2,673 Other comprehensive income Foreign currency translation adjustments Reclassifications to net income 2 (26) 2 Changes arising during the period 1,465 (220) 2,405 Subtotal 1,467 (246) 2,407 Available-for-sale investments Reclassifications to net income (86) (742) (818) Changes arising during the period (211) 2,340 1,331 Subtotal (297) 1,598 513 Cash flow hedges Reclassifications to net income (1) (5) (1) Changes arising during the period (21) 9 (18) Subtotal (22) 4 (19) Share of other comprehensive income of associates Reclassifications to net income — 5 — Changes arising during the period 9 22 32 Subtotal 9 27 32 Miscellaneous Reclassifications to net income — — — Changes arising during the period 16 9 34 Subtotal 16 9 34 Total other comprehensive income 1,173 1,392 2,967 Total comprehensive income 2,258 3,279 5,640 Total comprehensive income attributable to: Non-controlling interests 110 38 206 Shareholders 2,148 3,241 5,434 For further details concerning income taxes relating to components of other comprehensive income, please see note 35. 46 2009 € mn 1,916 522 (69) 453 (391) 685 294 (4) (25) (29) 5 31 36 — (63) (63) 691 2,607 36 2,571 Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Allianz Group Consolidated Statements of Changes in Equity Paid-in capital € mn Revenue reserves € mn Foreign currency translation adjustments € mn Unrealized gains and losses (net) € mn Shareholders’ equity € mn Non- controlling interests € mn Balance as of January 1, 2009 28,569 7,110 (4,006) 2,011 33,684 3,564 Total comprehensive income — 1,865 450 256 2,571 36 Paid-in capital — — — — — — Treasury shares Transactions between equity holders 1) Dividends paid — — — (137) (8) (1,580) — — — — — — (137) (8) (1,580) — (1,431) (88) Balance as of June 30, 2009 28,569 7,250 (3,556) 2,267 34,530 2,081 Balance as of January 1, 2010 28,635 9,689 (3,615) 5,457 40,166 2,121 Total comprehensive income — 2,635 2,331 468 5,434 206 Paid-in capital — — — — — — Treasury shares — 4 — — 4 — Transactions between equity holders — 20 (10) — 10 (55) Dividends paid — (1,850) — — (1,850) (103) Balance as of June 30, 2010 28,635 10,498 (1,294) 5,925 43,764 2,169 1) Includes € (1,738) mn changes in non-controlling interests from the derecognition of Dresdner Bank and € 307 mn related to capital movements of subsidiaries in whom the Allianz Group owns less than 100 %. Total equity € mn 37,248 2,607 — (137) (1,439) (1,668) 36,611 42,287 5,640 — 4 (45) (1,953) 45,933 47 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Condensed Consolidated Interim Financial Statements Allianz Group Condensed Consolidated Statements of Cash Flows Six months ended June 30, Summary Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period of continuing operations Cash and cash equivalents at beginning of period reclassified to assets of disposal groups classified as held for sale Cash and cash equivalents at end of period Cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities Cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and assets of disposal groups classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal 48 2010 € mn 9,130 (10,469) 2,145 318 1,124 6,089 — 7,213 2,673 (116) (1,238) 730 499 21 1,724 (1,390) (41) 167 331 (830) 2,942 151 5,276 (12) (1,757) 6,457 9,130 7,088 57,873 123 419 — 247 3,239 129 69,118 2009 € mn 5,744 (37,630) (727) 11 (32,602) 8,958 30,238 6,594 1,916 25 268 (354) 289 39 1,696 (481) 144 (540) 419 126 2,811 (382) 1,183 (215) (1,200) 3,828 5,744 1,919 53,481 123 1,636 — 64 5,348 103 62,674 Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Allianz Group Condensed Consolidated Statements of Cash Flows (continued) Six months ended June 30, 2010 € mn Payments for the purchase or origination of: Financial assets designated at fair value through income (4,665) Available-for-sale investments (75,080) Held-to-maturity investments (213) Investments in associates and joint ventures (267) Non-current assets and assets of disposal groups classified as held for sale (232) Real estate held for investment (511) Loans and advances to banks and customers (purchased loans) (3,198) Property and equipment (521) Subtotal (84,687) Business combinations Proceeds from sale of subsidiaries, net of cash disposed — Acquisitions of subsidiaries, net of cash acquired — Change in other loans and advances to banks and customers (originated loans) 5,264 Other (net) (164) Net cash flow used in investing activities (10,469) Cash flow from financing activities Policyholders’ account deposits 11,351 Policyholders’ account withdrawals (6,265) Net change in liabilities to banks and customers (934) Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 3,878 Repayments of certificated liabilities, participation certificates and subordinated liabilities (3,747) Cash inflow from capital increases — Transactions between equity holders (45) Dividends paid to shareholders (1,953) Net cash from sale or purchase of treasury shares 5 Other (net) (145) Net cash flow provided by (used in) financing activities 2,145 2009 € mn (745) (60,384) (93) (757) (36) (84) (14,056) (329) (76,484) (26,975) 77 2,659 419 (37,630) 10,525 (6,298) (499) 7,624 (10,375) — 258 (1,668) (213) (81) (727) 49 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Notes to the Condensed Consolidated Interim Financial Statements The condensed consolidated interim financial statements are presented in millions of Euro (€ mn), unless otherwise stated. 1 Basis of presentation These condensed consolidated interim financial statements of the Allianz Group were authorized for issue by the Board of Management on August 5, 2010. The condensed consolidated interim financial statements of the Allianz Group – comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated state- ments of changes in equity, condensed consolidated state- ments of cash flows and selected explanatory notes – are presented in accordance with the requirements of IAS 34, Interim Financial Reporting, and have been prepared in conformity with International Financial Reporting Stan- dards (“IFRS”), as adopted under European Union (“E.U.”) regulations in accordance with section 315 a of the German Commercial Code (“HGB”). IFRS comprise International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”), and interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing Interpretations Committee (“SIC”). 2 Recently adopted accounting pronouncements, changes in accounting policies and changes in the presentation of the condensed consolidated interim financial statements Recently adopted accounting pronouncements (effective January 1, 2010) IFRS 3, Business Combinations – revised and IAS 27, Consolidated and Separate Financial Statements – amended In January 2008, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements. The revised version of IFRS 3 contains the following major changes: Within these condensed consolidated interim financial statements, the Allianz Group has applied all IFRS issued by the IASB and endorsed by the E.U., that are compulsory as of January 1, 2010, or adopted early. See note 2 for further details. The scope of IFRS 3 has been extended and applies now also to combinations of mutual entities and to combi- nations achieved by contract alone. For each business combination, non-controlling inter- ests are measured at their proportionate share of the acquiree’s net identifiable assets or at fair value . For existing and unchanged IFRS the accounting policies for recognition, measurement, consolidation and presentation applied in the preparation of the condensed consolidated interim financial statements are consistent with the account- ing policies that have been applied in the preparation of the consolidated financial statements for the year ended December 31, 2009. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Allianz Group Annual Report 2009. Under the former IFRS 3, if control was achieved in stages, it was required to measure at fair value every asset and liability at each step for the purpose of calculating a portion of goodwill. The revised version requires that goodwill is measured as the difference at the acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired. The acquirer remeasures any previously-held equity interest to fair value at the date of obtaining control with the difference being recorded in the consolidated income statement. IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance con- tracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envi- sioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the provisions embodied under accounting principles generally accepted in the United States of America (“US GAAP”) have been applied to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts. Acquisition-related costs are generally recognized as expenses and are not included in goodwill. Contingent consideration must be recognized and mea- sured at fair value at the acquisition date. Subsequent changes in fair value are recognized in accordance with other IFRSs, usually in profit or loss. Goodwill is no longer adjusted for those changes. 50 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 The amended version of IAS 27 includes the following changes: Changes in accounting policies and changes in the presen- tation of the condensed consolidated interim financial state- ments with impact on the consolidated income statements Transactions with non-controlling interests, i. e., changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions. Losses are allocated to a non-controlling interest even if they exceed the non-controlling interest’s share of equity in the subsidiary. Any retained non-controlling investment at the date control is lost is remeasured to fair value. The revised IFRS 3 applies prospectively for financial years beginning on or after July 1, 2009. The carrying amounts of any assets and liabilities that arose under business combi- nations prior to the application of the revised IFRS 3 are not adjusted. The amendments to IAS 27 need to be applied retrospectively with certain exceptions. Both standards have to be applied together. The Allianz Group adopted the revised IFRS 3 and the amended IAS 27 as of January 1, 2010. The adoption did not have a material impact on the con- densed consolidated interim financial statements for the first half of 2010. Further adopted accounting pronouncements In addition to the above mentioned recently adopted accounting pronouncements, the following amendments and revisions to standards and the following interpretation have been adopted by the Allianz Group as of January 1, 2010: IAS 39, Financial Instruments: Recognition and Measure- ment – Amendments for eligible hedged items IFRS 2, Share-based Payment – Amendments relating to group cash-settled share-based payment transactions Improvements to IFRSs issued in May 2008 and April 2009 with an effective date as of January 1, 2010 Reclassification of foreign currency gains and losses Until the third quarter of 2009, the Allianz Group reported foreign currency gains and losses arising from foreign cur- rency transactions within “Investment expenses”. With year-end reporting 2009, the Allianz Group voluntarily changed its accounting policy with regard to the presenta- tion of foreign currency gains and losses. Those are now reported within “Income from financial assets and liabili- ties carried at fair value through income (net)”. The Allianz Group believes that this presentation is more relevant and gives a clearer picture of investment expenses by excluding the distorting effects arising from foreign currency fluctua- tions. In addition, the Allianz Group is hedged substantially against foreign currency fluctuations with freestanding derivatives. Therefore, the recognition of foreign currency fluctuations within the line item “Income from financial assets and liabilities carried at fair value through income (net)” better reflects the results of the Allianz Group. The change in accounting policy is applied retrospectively and results in changes in the presentation as described in the table on page 52. There is no impact on recognition, initial or subsequent measurement, net income or operat- ing profit arising from this reclassification of foreign cur- rency gains and losses. Change in presentation of “Net income” Until the third quarter of 2009, non-controlling interests (minority interests) were not included in “Net income” but were shown separately in the line item “Non-controlling interests (Minority interests in earnings)”. Non-controlling interests were significantly larger in prior years. With year- end reporting 2009, the Allianz Group now includes all interests in “Net income”. The allocation attributable to shareholders and attributable to non-controlling interests is presented just below “Net income”. The change in presen- tation is applied retrospectively and results in changes in presentation as described in the table on page 52. There is no impact on recognition, initial or subsequent measure- ment or operating profit arising from this change in presen- tation. IFRIC 17, Distributions of Non-cash Assets to Owners The Allianz Group adopted the revisions, amendments and interpretation as of January 1, 2010, with no material impact on its financial result or financial position. Other reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. 51 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Impact of the changes in accounting policies and changes in presentation on the Allianz Group’s consolidated income statements The following table summarizes the impacts on the consolidated income statements for the three and six months ended June 30, 2009, relating to the reclassification of foreign currency gains and losses and the change in presentation of net income: Three months ended June 30, 2009 Six months ended June 30, 2009 As previously reported € mn Reclassifi- cation of foreign currency gains and losses € mn As reported € mn As previously reported € mn Reclassifi- cation of foreign currency gains and losses € mn As reported € mn Premiums written 14,770 — 14,770 34,160 — 34,160 Ceded premiums written (1,098) — (1,098) (2,594) — (2,594) Change in unearned premiums 805 — 805 (2,409) — (2,409) Premiums earned (net) 14,477 — 14,477 29,157 — 29,157 Interest and similar income 4,800 — 4,800 9,214 — 9,214 Income from financial assets and liabilities carried at fair value through income (net) 887 (244) 643 557 (14) 543 Realized gains/losses (net) 1,618 — 1,618 2,037 — 2,037 Fee and commission income 1,426 — 1,426 2,762 — 2,762 Other income 15 — 15 19 — 19 Income from fully consolidated private equity investments 489 — 489 958 — 958 Total income 23,712 (244) 23,468 44,704 (14) 44,690 Claims and insurance benefits incurred (gross) (11,480) — (11,480) (23,871) — (23,871) Claims and insurance benefits incurred (ceded) 375 — 375 987 — 987 Claims and insurance benefits incurred (net) (11,105) — (11,105) (22,884) — (22,884) Change in reserves for insurance and investment contracts (net) (2,684) — (2,684) (3,305) — (3,305) Interest expenses (345) — (345) (755) — (755) Loan loss provisions (24) — (24) (39) — (39) Impairments of investments (net) (415) — (415) (2,305) — (2,305) Investment expenses (429) 244 (185) (367) 14 (353) Acquisition and administrative expenses (net) (5,212) — (5,212) (10,021) — (10,021) Fee and commission expenses (552) — (552) (1,043) — (1,043) Amortization of intangible assets (11) — (11) (15) — (15) Restructuring charges (10) — (10) (74) — (74) Other expenses (1) — (1) (2) — (2) Expenses from fully consolidated private equity investments (590) — (590) (1,115) — (1,115) Total expenses (21,378) 244 (21,134) (41,925) 14 (41,911) Income from continuing operations before income taxes 2,334 — 2,334 2,779 — 2,779 Income taxes (447) — (447) (468) — (468) Net income from continuing operations 1,887 — 1,887 2,311 — 2,311 Net income (loss) from discontinued operations, net of income taxes — — — (395) — (395) Net income 1,887 — 1,887 1,916 — 1,916 Net income attributable to: Non-controlling interests 18 18 Shareholders 1,869 1,898 52 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 53 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 3 Segment reporting Identification of reportable segments The business activities of the Allianz Group are first orga nized by product and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between PropertyCasualty and Life/Health categories. In accordance with the responsibilities of the Board of Man agement, the insurance categories are grouped into the following reportable segments: PropertyCasualty • German Speaking Countries • Europe incl. South America • NAFTA Markets • Global Insurance Lines & Anglo Markets • Growth Markets • Assistance (Mondial) endowment and term insurance, unitlinked and invest mentoriented products as well as full private health and supplemental health and care insurance. Asset Management The reportable segment Asset Management operates as a global provider of institutional and retail asset manage ment products and services to thirdparty investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the AsiaPacific region represent the primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, finan cial control, communication, legal, human resources and technology functions. Life/Health • German Speaking Countries • Europe incl. South America • NAFTA Markets • Global Insurance Lines & Anglo Markets • Growth Markets The reportable segment Banking consists of the banking activities in Germany, France, Italy and Central and Eastern Europe. The banks offer a wide range of products for corpo rate and retail clients with the main focus on the latter. Asset management activities represent a separate report able segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In sum, the Allianz Group has identified 15 reportable segments in accordance with IFRS 8, Operating Segments. The reportable segment Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy and infra structure sectors mainly on behalf of Allianz Group. The Alternative Investments reportable segment also includes certain fully consolidated private equity investments. The types of products and services from which reportable segments derive revenue are listed below. Property-Casualty In the PropertyCasualty category, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both individual and group basis, including annuity, Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to trans actions with third parties. Transactions between reportable segments are eliminated in the consolidation. For the re portable segment Asset Management interest revenues are reported net of interest expenses. Reportable segments measure of profit or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments and the Group as a whole. Operating profit highlights the portion of income before income taxes attributable to the ongoing core opera tions of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaning ful to investors because it enhances the understanding of the Allianz Group’s underlying operating performance and the comparability of its operating performance over time. 54 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 To better understand the ongoing operations of the business, the Allianz Group excludes the following nonoperating effects: acquisitionrelated expenses and the amortization of intangible assets, as these relate to business combinations; The definitions for nonoperating income from financial assets and liabilities held for trading (net), realized gains/ losses (net) and impairments of investments (net) state the general treatment in the segments. However, there are special cases which are different from this general treatment: restructuring charges, because the timing of these are largely at the discretion of the Allianz Group, and accord ingly their exclusion provides additional insight into the operating trends of the underlying business. This differ entiation is not made if the profit sources are shared with policyholders; PropertyCasualty insurance business: the line items are generally booked within the nonoperating items; they can be classified as operating items if they are shared with the policyholders, which occurs in the context of a casualty insurance product with premium refunds issued in the German market. interest expenses from external debt, as these relate to the capital structure of the Allianz Group; income from fully consolidated private equity invest ments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; income from financial assets and liabilities held for trading (net) as part of the income from financial assets and liabilities carried at fair value through income (net) for the PropertyCasualty insurance operations and the Corporate and Other activities (except for certain items for the Holding & Treasury activities and Banking opera tions where the trading income refers to operating business). For the Life/Health insurance and Asset Man agement operations, this item is treated as operating business and is therefore not excluded; Life/Health insurance business: the line items are gener ally booked within operating profit; they can be classified as nonoperating items if they stem from an investment where the results are not shared with the policyholders, for example strategic investments. In certain cases the policyholders participate in the tax benefits of the Allianz Group. IFRS requires that the consoli dated income statements present all tax benefits in the income tax line item, even though these belong to policy holders. In the segment reporting, the tax benefits are re classified and shown within operating profit in order to properly reflect the policyholder participation in tax benefits. Operating profit should be viewed as complementary to, and not a substitute for income from continuing operations before income taxes or net income as determined in accor dance with IFRS. realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would re sult in such realized gains or losses is largely at the dis cretion of the Allianz Group and impairments are largely dependent on market cycles or issuerspecific events over which the Allianz Group has little or no control and which can and do vary, sometimes materially, through time. This exclusion applies not for Life/Health insurance operations, where the expenses for premium refunds in the operating profit are correlating with realized gains and losses and impairments of investments. Recent Organizational Changes At the beginning of 2010, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. European insurance operations are shown together while Global Insurance Lines & Anglo Markets are shown separately from NAFTA Markets, respectively for both PropertyCasualty and Life/Health insurance activities. Furthermore, Assistance (Mondial) now comprises a separate reportable segment within PropertyCasualty insurance activities. Previously reported information has been restated to reflect this change in the composition of the Allianz Group’s reportable segments. 55 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Business Segment Information – Consolidated Balance Sheets Property-Casualty Life/Health As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn ASSETS Cash and cash equivalents 2,553 2,281 2,857 Financial assets carried at fair value through income 1,858 2,100 10,006 Investments 84,922 80,401 239,901 Loans and advances to banks and customers 16,687 16,325 101,953 Financial assets for unit-linked contracts — — 61,008 Reinsurance assets 9,466 8,885 5,057 Deferred acquisition costs 4,309 3,789 17,003 Deferred tax assets 1,198 1,329 248 Other assets Non-current assets and assets from disposal groups classified as held for sale 1) Intangible assets 20,902 — 2,497 19,980 — 2,361 14,365 549 2,357 Total assets 144,392 137,451 455,304 Property-Casualty Life/Health As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 122 68 7,911 Liabilities to banks and customers 982 426 1,420 Unearned premiums 17,093 13,471 2,296 Reserves for loss and loss adjustment expenses 58,317 55,715 8,847 Reserves for insurance and investment contracts 9,301 9,159 335,808 Financial liabilities for unit-linked contracts — — 61,008 Deferred tax liabilities 2,685 2,656 1,923 Other liabilities Liabilities from disposal groups classified as held for sale 2) Certificated liabilities 14,747 — 156 15,642 — 139 13,364 324 2 Participation certificates and subordinated liabilities 398 846 65 Total liabilities 103,801 98,122 432,968 1) Comprises the assets from the disposal groups Porta di Roma, Rome, in Life/Health and Allianz Bank Zrt., Budapest, in Corporate and Other. See note 10 for further information. 2) Comprises the liabilities from the disposal groups Porta di Roma, Rome, in Life/Health and Allianz Bank Zrt., Budapest, in Corporate and Other. See note 10 for further information. 56 As of December 31, 2009 € mn 2,478 11,269 213,036 100,316 56,963 4,691 16,685 316 16,024 — 2,306 424,084 As of December 31, 2009 € mn 6,541 861 2,210 8,738 313,018 56,963 1,317 14,131 — 2 65 403,846 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Asset Management Corporate and Other Consolidation Group As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn 997 701 1,161 1,089 (355) (460) 7,213 783 731 917 621 (441) (400) 13,123 1,244 1,103 88,801 85,732 (86,866) (86,020) 328,002 356 276 15,468 20,745 (8,986) (8,666) 125,478 — — — — — — 61,008 — — — — (15) (17) 14,508 144 149 — — — — 21,456 312 169 1,458 1,272 (656) (367) 2,560 3,646 3,770 4,631 5,636 (9,976) (12,363) 33,568 — — 289 — (9) — 829 7,366 6,901 1,874 1,908 — — 14,094 14,848 13,800 114,599 117,003 (107,304) (108,293) 621,839 Asset Management Corporate and Other Consolidation Group As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn — — 565 534 (443) (400) 8,155 1,010 739 19,218 21,236 (2,064) (2,014) 20,566 — — — — (1) (5) 19,388 — — — — (12) (12) 67,152 — — 72 161 (151) (150) 345,030 — — — — — — 61,008 91 93 183 206 (656) (367) 4,226 3,503 3,396 14,556 16,108 (14,170) (15,992) 32,000 — — 312 — (82) — 554 — — 14,901 14,134 (6,330) (6,313) 8,729 14 14 8,878 8,679 (257) (257) 9,098 4,618 4,242 58,685 61,058 (24,166) (25,510) 575,906 Total equity 45,933 Total liabilities and equity 621,839 As of December 31, 2009 € mn 6,089 14,321 294,252 128,996 56,963 13,559 20,623 2,719 33,047 — 13,476 584,045 As of December 31, 2009 € mn 6,743 21,248 15,676 64,441 322,188 56,963 3,905 33,285 — 7,962 9,347 541,758 42,287 584,045 57 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Business Segment Information – Total revenues and reconciliation of Operating profit (loss) to Net income (loss) Property-Casualty Life/Health Three months ended June 30, 2010 € mn 2009 € mn 2010 € mn Total revenues 1) 9,951 9,522 14,124 Premiums earned (net) 9,689 9,365 5,807 Operating investment result Interest and similar income 960 932 4,005 Operating income from financial assets and liabilities carried at fair value through income (net) (21) (14) (18) Operating realized gains/losses (net) 3 20 212 Interest expenses, excluding interest expenses from external debt (19) (26) (31) Operating impairments of investments (net) (6) (4) (184) Investment expenses (54) (62) (184) Subtotal 863 846 3,800 Fee and commission income 282 270 129 Other income 4 5 29 Claims and insurance benefits incurred (net) (6,645) (6,608) (4,451) Change in reserves for insurance and investment contracts (net) (89) (95) (3,365) Loan loss provisions — (2) 1 Acquisition and administrative expenses (net), excluding acquisition-related expenses (2,688) (2,657) (1,150) Fee and commission expenses (264) (229) (63) Operating restructuring charges — — — Other expenses (5) — (24) Reclassification of tax benefits — — — Operating profit (loss) 1,147 895 713 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 4 (35) 26 Non-operating realized gains/losses (net) 93 355 13 Non-operating impairments of investments (net) (85) (118) (10) Subtotal 12 202 29 Income from fully consolidated private equity investments (net) — — — Interest expenses from external debt — — — Acquisition-related expenses — — — Amortization of intangible assets (4) (4) — Non-operating restructuring charges (15) (2) (6) Reclassification of tax benefits — — — Non-operating items (7) 196 23 Income (loss) from continuing operations before income taxes 1,140 1,091 736 Income taxes (303) (333) (248) Net income (loss) from continuing operations 837 758 488 Net income (loss) from discontinued operations, net of income taxes — — — Net income (loss) 837 758 488 Net income (loss) attributable to: Non-controlling interests 51 9 19 Shareholders 786 749 469 1) Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 58 2009 € mn 11,766 5,112 3,638 562 639 (27) (267) (152) 4,393 122 6 (4,497) (2,455) (12) (1,631) (52) 4 — — 990 15 17 (9) 23 3 — — — (5) — 21 1,011 (332) 679 — 679 18 661 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Asset Management Corporate and Other Consolidation Group 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 1,188 780 138 124 (12) (22) 25,389 — — — — — — 15,496 12 10 297 283 (105) (63) 5,169 (4) 24 2 (78) (9) 11 (50) — — — — — — 215 (13) (12) (179) (199) 103 133 (139) — — — — — — (190) — — (23) (17) 46 46 (215) (5) 22 97 (11) 35 127 4,790 1,458 971 169 174 (129) (111) 1,909 5 6 — 3 (2) (5) 36 — — — — — — (11,096) — — — — (19) (134) (3,473) — — (10) (10) — — (9) (672) (534) (309) (358) 13 13 (4,806) (270) (219) (102) (110) 70 58 (629) — — — — — — — — — — (1) — — (29) — — — — 2 20 2 516 246 (155) (313) (30) (32) 2,191 — — (224) 206 9 (48) (185) — 3 71 616 4 (32) 181 — — (92) (17) — — (187) — 3 (245) 805 13 (80) (191) — — (32) (219) 17 115 (15) — — (220) (214) — — (220) (114) (44) 4 (1) — — (110) (7) — (6) (7) — — (17) (7) (6) (14) (1) — — (42) — — — — (2) (20) (2) (128) (47) (513) 363 28 15 (597) 388 199 (668) 50 (2) (17) 1,594 (158) (88) 197 286 3 20 (509) 230 111 (471) 336 1 3 1,085 — — — — — — — 230 111 (471) 336 1 3 1,085 3 1 (5) (18) — 8 68 227 110 (466) 354 1 (5) 1,017 2009 € mn 22,170 14,477 4,800 505 659 (131) (271) (185) 5,377 1,426 15 (11,105) (2,684) (24) (5,167) (552) 4 (1) 20 1,786 138 959 (144) 953 (101) (214) (45) (11) (14) (20) 548 2,334 (447) 1,887 — 1,887 18 1,869 59 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Business Segment Information – Total revenues and reconciliation of Operating profit (loss) to Net income (loss) (continued) Property-Casualty Life/Health Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn Total revenues 1) 23,945 23,408 29,480 Premiums earned (net) 19,102 18,697 11,691 Operating investment result Interest and similar income 1,839 1,865 7,550 Operating income from financial assets and liabilities carried at fair value through income (net) (12) 48 44 Operating realized gains/losses (net) 12 16 750 Interest expenses, excluding interest expenses from external debt (44) (60) (54) Operating impairments of investments (net) (6) (66) (223) Investment expenses (109) (116) (329) Subtotal 1,680 1,687 7,738 Fee and commission income 536 542 247 Other income 8 8 49 Claims and insurance benefits incurred (net) (13,467) (13,241) (9,296) Change in reserves for insurance and investment contracts (net) (173) (125) (6,411) Loan loss provisions — (8) 2 Acquisition and administrative expenses (net), excluding acquisition-related expenses (5,321) (5,232) (2,351) Fee and commission expenses (501) (463) (117) Operating restructuring charges — — (1) Other expenses (5) (1) (26) Reclassification of tax benefits — — — Operating profit (loss) 1,859 1,864 1,525 Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (19) (59) (12) Non-operating realized gains/losses (net) 294 546 31 Non-operating impairments of investments (net) (84) (450) (8) Subtotal 191 37 11 Income from fully consolidated private equity investments (net) — 1 — Interest expenses from external debt — — — Acquisition-related expenses — — — Amortization of intangible assets (7) (7) (1) Non-operating restructuring charges (42) (28) (22) Reclassification of tax benefits — — — Non-operating items 142 3 (12) Income (loss) from continuing operations before income taxes 2,001 1,867 1,513 Income taxes (573) (666) (464) Net income (loss) from continuing operations 1,428 1,201 1,049 Net income (loss) from discontinued operations, net of income taxes — — — Net income (loss) 1,428 1,201 1,049 Net income (loss) attributable to: Non-controlling interests 82 21 40 Shareholders 1,346 1,180 1,009 1) Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 60 2009 € mn 24,779 10,460 6,943 503 810 (71) (1,343) (290) 6,552 241 9 (9,643) (3,040) (14) (3,060) (116) 3 — — 1,392 8 15 (68) (45) 9 — — (1) (9) — (46) 1,346 (341) 1,005 — 1,005 23 982 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Asset Management Corporate and Other Consolidation Group 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2,304 1,496 266 241 (39) (34) 55,956 — — — — — — 30,793 25 27 526 597 (192) (218) 9,748 1 16 (23) (92) (24) 30 (14) — — — — — (2) 762 (17) (17) (358) (443) 205 288 (268) — — — — — — (229) — — (44) (36) 90 89 (392) 9 26 101 26 79 187 9,607 2,811 1,878 356 317 (240) (216) 3,710 10 9 — 3 (2) (10) 65 — — — — — — (22,763) — — — — (65) (140) (6,649) — — (23) (17) — — (21) (1,322) (1,039) (626) (663) 23 27 (9,597) (526) (417) (213) (162) 129 115 (1,228) — — — — — — (1) — — (1) (1) — — (32) — — — — 16 26 16 982 457 (406) (497) (60) (11) 3,900 — — (97) 124 26 (35) (102) 1 3 564 681 54 (32) 944 — (6) (147) (372) — — (239) 1 (3) 320 433 80 (67) 603 — — (102) (282) 50 115 (52) — — (442) (452) — — (442) (310) (55) 2 1 — — (308) (15) — (11) (7) — — (34) (11) (39) (14) (1) — — (89) — — — — (16) (26) (16) (335) (97) (247) (308) 114 22 (338) 647 360 (653) (805) 54 11 3,562 (274) (157) 406 670 16 26 (889) 373 203 (247) (135) 70 37 2,673 — — — (395) — — — 373 203 (247) (530) 70 37 2,673 (3) 2 (13) (36) — 8 106 376 201 (234) (494) 70 29 2,567 2009 € mn 49,890 29,157 9,214 505 824 (303) (1,409) (353) 8,478 2,762 19 (22,884) (3,305) (39) (9,967) (1,043) 3 (2) 26 3,205 38 1,213 (896) 355 (157) (452) (54) (15) (77) (26) (426) 2,779 (468) 2,311 (395) 1,916 18 1,898 61 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Property-Casualty business German Speaking Countries Europe incl. South America NAFTA Markets 1) Three months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn Gross premiums written 1,978 2,006 3,178 3,076 861 Ceded premiums written (357) (402) (348) (317) (187) Change in unearned premiums 703 697 98 135 (9) Premiums earned (net) 2,324 2,301 2,928 2,894 665 Interest and similar income 300 304 294 266 89 Operating income from financial assets and liabilities carried at fair value through income (net) (3) 5 (16) 14 (1) Operating realized gains/losses (net) 3 20 — — — Fee and commission income 32 39 7 17 — Other income 5 — — 3 — Operating revenues 2,661 2,669 3,213 3,194 753 Claims and insurance benefits incurred (net) (1,675) (1,750) (2,153) (2,100) (489) Change in reserves for insurance and investment contracts (net) (71) (98) (2) 2 1 Interest expenses (20) (21) (11) (21) — Loan loss provisions — (1) — — — Operating impairments of investments (net) (6) (4) — — — Investment expenses (17) (22) (21) (28) (1) Acquisition and administrative expenses (net) (617) (628) (753) (797) (222) Fee and commission expenses (32) (33) (7) (16) — Other expenses (4) — — — — Operating expenses (2,442) (2,557) (2,947) (2,960) (711) Operating profit 219 112 266 234 42 Loss ratio 3) in % Expense ratio 4) in % Combined ratio 5) in % 72.1 26.5 98.6 76.1 27.2 103.3 73.5 25.7 99.2 72.6 27.5 100.1 73.5 33.4 106.9 1) Fireman’s Fund’s reserve strengthening for asbestos and environmental risks of USD 301 mn (Euro equivalent € 237 mn converted at the average exchange rate of the second quarter) has no impact on the financial results of Allianz Group and Fireman’s Fund’s combined ratio under IFRS. 2) From 2010 on Allianz Fire and Marine Insurance Japan Ltd. is shown within AGCS. Prior year balances have not been adjusted. 3) Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4) Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6) Presentation not meaningful. 62 2009 € mn 836 (140) 26 722 89 (2) — — — 809 (487) — — — — (2) (231) — — (720) 89 67.4 32.0 99.4 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Global Insurance Lines & Anglo Markets 2) Growth Markets 2) Assistance (Mondial) Consolidation Property-Casualty 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 3,521 3,253 759 796 376 345 (722) (790) 9,951 9,522 (759) (727) (156) (202) (3) (1) 734 804 (1,076) (985) 33 (5) (2) (8) (9) (17) — — 814 828 2,795 2,521 601 586 364 327 12 14 9,689 9,365 255 248 42 42 5 6 (25) (23) 960 932 (5) (17) 4 (15) (1) 1 1 — (21) (14) — — — — — — — — 3 20 153 135 11 13 94 86 (15) (20) 282 270 — — (1) 2 — — — — 4 5 3,198 2,887 657 628 462 420 (27) (29) 10,917 10,578 (1,700) (1,719) (409) (338) (218) (199) (1) (15) (6,645) (6,608) (18) 6 1 (5) — — — — (89) (95) (8) (7) (1) (3) — — 21 26 (19) (26) — — — (1) — — — — — (2) — — — — — — — — (6) (4) (12) (8) (4) (1) — — 1 (1) (54) (62) (775) (680) (205) (196) (130) (124) 14 (1) (2,688) (2,657) (132) (113) (16) (17) (90) (70) 13 20 (264) (229) — — (1) — — — — — (5) — (2,645) (2,521) (635) (561) (438) (393) 48 29 (9,770) (9,683) 553 366 22 67 24 27 21 — 1,147 895 60.9 27.7 88.6 68.2 27.0 95.2 68.1 34.1 102.2 57.7 33.4 91.1 59.9 35.7 95.6 60.9 37.9 98.8 — 6) — 6) — 6) — 6) — 6) — 6) 68.6 27.7 96.3 70.6 28.3 98.9 63 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Property-Casualty business (continued) German Speaking Countries Europe incl. South America NAFTA Markets 1) Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn Gross premiums written 7,074 7,212 6,987 6,846 1,541 1,674 Ceded premiums written (1,180) (1,289) (788) (762) (323) (293) Change in unearned premiums (1,266) (1,323) (381) (306) 46 123 Premiums earned (net) 4,628 4,600 5,818 5,778 1,264 1,504 Interest and similar income 589 620 536 520 171 182 Operating income from financial assets and liabilities carried at fair value through income (net) — 27 3 44 (1) (2) Operating realized gains/losses (net) 12 16 — — — — Fee and commission income 63 74 15 28 — — Other income 6 1 1 3 — — Operating revenues 5,298 5,338 6,373 6,373 1,434 1,684 Claims and insurance benefits incurred (net) (3,339) (3,312) (4,310) (4,314) (894) (991) Change in reserves for insurance and investment contracts (net) (134) (114) (4) (1) 1 — Interest expenses (44) (44) (28) (49) — — Loan loss provisions — (1) — — — — Operating impairments of investments (net) (6) (66) — — — — Investment expenses (37) (41) (42) (50) (2) (3) Acquisition and administrative expenses (net) (1,231) (1,244) (1,505) (1,521) (455) (495) Fee and commission expenses (62) (62) (14) (29) — — Other expenses (4) — — — — — Operating expenses (4,857) (4,884) (5,903) (5,964) (1,350) (1,489) Operating profit 441 454 470 409 84 195 Loss ratio 3) in % Expense ratio 4) in % Combined ratio 5) in % 72.1 26.6 98.7 72.0 27.0 99.0 74.0 25.9 99.9 74.7 26.3 101.0 70.7 36.0 106.7 65.9 32.9 98.8 1) Fireman’s Fund’s reserve strengthening for asbestos and environmental risks of USD 301 mn (Euro equivalent € 237 mn converted at the average exchange rate of the second quarter) has no impact on the financial results of Allianz Group and Fireman’s Fund’s combined ratio under IFRS. 2) From 2010 on Allianz Fire and Marine Insurance Japan Ltd. is shown within AGCS. Prior year balances have not been adjusted. 3) Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4) Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6) Presentation not meaningful. 64 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Global Insurance Lines & Anglo Markets 2) Growth Markets 2) Assistance (Mondial) Consolidation Property-Casualty 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 8,145 7,491 1,682 1,669 773 695 (2,257) (2,179) 23,945 23,408 (2,024) (1,777) (377) (429) (5) (4) 2,272 2,199 (2,425) (2,355) (627) (706) (119) (75) (71) (69) — — (2,418) (2,356) 5,494 5,008 1,186 1,165 697 622 15 20 19,102 18,697 494 495 83 82 12 15 (46) (49) 1,839 1,865 (15) (20) 1 (4) (2) 2 2 1 (12) 48 — — — — — — — — 12 16 283 266 27 28 179 172 (31) (26) 536 542 — — 1 4 — — — — 8 8 6,256 5,749 1,298 1,275 886 811 (60) (54) 21,485 21,176 (3,718) (3,526) (780) (699) (423) (380) (3) (19) (13,467) (13,241) (36) (3) — (6) — (1) — — (173) (125) (15) (17) (2) (4) — — 45 54 (44) (60) — — — (7) — — — — — (8) — — — — — — — — (6) (66) (21) (17) (7) (3) — — — (2) (109) (116) (1,489) (1,368) (395) (390) (248) (230) 2 16 (5,321) (5,232) (243) (204) (36) (31) (173) (160) 27 23 (501) (463) — — (1) (1) — — — — (5) (1) (5,522) (5,135) (1,221) (1,141) (844) (771) 71 72 (19,626) (19,312) 734 614 77 134 42 40 11 18 1,859 1,864 67.7 27.1 94.8 70.4 27.3 97.7 65.8 33.3 99.1 60.0 33.5 93.5 60.7 35.6 96.3 61.1 37.0 98.1 — 6) — 6) — 6) — 6) — 6) — 6) 70.5 27.9 98.4 70.8 28.0 98.8 65 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Life/Health business German Speaking Countries Europe incl. South America Three months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Statutory premiums 1) Ceded premiums written 5,105 (47) 4,619 (50) 5,097 (70) 4,295 (76) Change in unearned premiums (34) (18) 1 27 Statutory premiums (net) 5,024 4,551 5,028 4,246 Deposits from insurance and investment contracts (1,261) (1,322) (3,834) (3,031) Premiums earned (net) 3,763 3,229 1,194 1,215 Interest and similar income 2,120 1,983 1,097 1,019 Operating income from financial assets and liabilities carried at fair value through income (net) 179 (147) (137) 284 Operating realized gains/losses (net) 122 522 79 112 Fee and commission income 9 7 94 87 Other income 26 4 — 2 Operating revenues 6,219 5,598 2,327 2,719 Claims and insurance benefits incurred (net) (3,018) (3,075) (1,077) (1,135) Change in reserves for insurance and investment contracts (net) (2,353) (1,655) (374) (527) Interest expenses (22) (27) (7) (10) Loan loss provisions — (6) — — Operating impairments of investments (net) (119) (198) (57) (36) Investment expenses (101) (85) (54) (54) Acquisition and administrative expenses (net) (248) (301) (443) (536) Fee and commission expenses (8) (7) (46) (37) Operating restructuring charges — 4 — — Other expenses (24) — — — Operating expenses (5,893) (5,350) (2,058) (2,335) Operating profit (loss) 326 248 269 384 Cost-income ratio 2) in % 95.5 96.2 95.5 93.2 1) Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2) Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 3) Presentation not meaningful. 66 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 NAFTA Markets Global Insurance Lines & Anglo Markets Growth Markets Consolidation Life/Health 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2,077 1,640 56 71 1,850 1,191 (61) (50) 14,124 (43) (33) (1) (2) (29) (16) 61 50 (129) 2 4 3 (2) (27) (35) — — (55) 2,036 1,611 58 67 1,794 1,140 — — 13,940 (1,844) (1,433) — — (1,194) (717) — — (8,133) 192 178 58 67 600 423 — — 5,807 584 505 13 21 178 125 13 (15) 4,005 (35) 422 (22) (3) 11 — (14) 6 (18) 3 3 — — 8 2 — — 212 13 10 — — 17 20 (4) (2) 129 — — — 1 3 (1) — — 29 757 1,118 49 86 817 569 (5) (11) 10,164 (27) (18) (60) (82) (269) (187) — — (4,451) (429) (125) 24 14 (232) (162) (1) — (3,365) (2) (2) — — (2) (2) 2 14 (31) — (5) — (1) 1 — — — 1 (5) (34) — — (3) 1 — — (184) (14) (9) (1) — (6) (4) (8) — (184) (215) (610) (14) (9) (231) (174) 1 (1) (1,150) (12) (10) — — — — 3 2 (63) — — — — — — — — — — — — — — — — — (24) (704) (813) (51) (78) (742) (528) (3) 15 (9,451) 53 305 (2) 8 75 41 (8) 4 713 97.9 87.8 104.2 90.6 96.3 96.8 — 3) — 3) 96.0 2009 € mn 11,766 (127) (24) 11,615 (6,503) 5,112 3,638 562 639 122 6 10,079 (4,497) (2,455) (27) (12) (267) (152) (1,631) (52) 4 — (9,089) 990 93.8 67 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Life/Health business (continued) German Speaking Countries Europe incl. South America Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Statutory premiums 1) Ceded premiums written 10,755 (90) 9,700 (101) 11,052 (162) 8,958 (177) Change in unearned premiums (53) (41) (14) 35 Statutory premiums (net) 10,612 9,558 10,876 8,816 Deposits from insurance and investment contracts (3,031) (2,852) (8,462) (6,391) Premiums earned (net) 7,581 6,706 2,414 2,425 Interest and similar income 3,988 3,755 2,060 1,906 Operating income from financial assets and liabilities carried at fair value through income (net) 293 7 (51) 41 Operating realized gains/losses (net) 502 455 200 349 Fee and commission income 12 10 191 177 Other income 35 6 — 2 Operating revenues 12,411 10,939 4,814 4,900 Claims and insurance benefits incurred (net) (6,435) (6,785) (2,147) (2,250) Change in reserves for insurance and investment contracts (net) (4,311) (1,799) (913) (457) Interest expenses (52) (61) (15) (32) Loan loss provisions — (6) — — Operating impairments of investments (net) (133) (890) (85) (384) Investment expenses (183) (162) (99) (95) Acquisition and administrative expenses (net) (600) (785) (874) (1,024) Fee and commission expenses (11) (10) (92) (83) Operating restructuring charges (1) 3 — — Other expenses (24) — — — Operating expenses (11,750) (10,495) (4,225) (4,325) Operating profit 661 444 589 575 Cost-income ratio 2) in % 95.6 96.5 95.5 94.6 1) Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2) Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), change in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses. 3) Presentation not meaningful. 68 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 NAFTA Markets Global Insurance Lines & Anglo Markets Growth Markets Consolidation Life/Health 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 3,752 3,783 150 144 3,894 2,305 (123) (111) 29,480 (78) (75) (3) 1 (53) (29) 123 111 (263) 3 — 3 (2) (47) (45) — — (108) 3,677 3,708 150 143 3,794 2,231 — — 29,109 (3,310) (3,353) — — (2,615) (1,400) — — (17,418) 367 355 150 143 1,179 831 — — 11,691 1,133 1,033 38 40 336 239 (5) (30) 7,550 (181) 456 (23) (10) 25 8 (19) 1 44 14 4 — — 34 2 — — 750 22 19 — — 28 38 (6) (3) 247 — — — 1 14 — — — 49 1,355 1,867 165 174 1,616 1,118 (30) (32) 20,331 (53) (38) (146) (169) (515) (401) — — (9,296) (747) (512) 22 25 (462) (297) — — (6,411) (3) (3) (1) (1) (3) (4) 20 30 (54) 1 (8) — (1) 1 1 — — 2 (5) (68) — — — (1) — — (223) (24) (18) (2) — (12) (14) (9) (1) (329) (369) (885) (30) (19) (475) (347) (3) — (2,351) (21) (26) — — — — 7 3 (117) — — — — — — — — (1) — — — — (2) — — — (26) (1,221) (1,558) (157) (165) (1,468) (1,063) 15 32 (18,806) 134 309 8 9 148 55 (15) — 1,525 97.1 93.9 95.1 94.8 96.5 97.8 — 3) — 3) 95.9 2009 € mn 24,779 (270) (53) 24,456 (13,996) 10,460 6,943 503 810 241 9 18,966 (9,643) (3,040) (71) (14) (1,343) (290) (3,060) (116) 3 — (17,574) 1,392 95.5 69 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Asset Management business Three months ended June 30, 2010 € mn Net fee and commission income 1) Net interest income 2) Income from financial assets and liabilities carried at fair value through income (net) 1,188 (1) (4) Other income 5 Operating revenues 1,188 Administrative expenses (net), excluding acquisition-related expenses (672) Operating expenses (672) Operating profit 516 Cost-income ratio 3) in % 56.6 1) Represents fee and commission income less fee and commission expenses. 2) Represents interest and similar income less interest expenses. 3) Represents operating expenses divided by operating revenues. Six months ended June 30, 2010 € mn Net fee and commission income 1) Net interest income 2) Income from financial assets and liabilities carried at fair value through income (net) 2,285 8 1 Other income 10 Operating revenues 2,304 Administrative expenses (net), excluding acquisition-related expenses (1,322) Operating expenses (1,322) Operating profit 982 Cost-income ratio 3) in % 57.4 1) Represents fee and commission income less fee and commission expenses. 2) Represents interest and similar income less interest expenses. 3) Represents operating expenses divided by operating revenues. 70 2009 € mn 752 (2) 24 6 780 (534) (534) 246 68.5 2009 € mn 1,461 10 16 9 1,496 (1,039) (1,039) 457 69.5 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 71 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Reportable segments – Corporate and Other business Holding & Treasury Three months ended June 30, 2010 € mn Interest and similar income 125 Operating income from financial assets and liabilities carried at fair value through income (net) 5 Fee and commission income 27 Other income — Operating revenues 157 Interest expenses, excluding interest expenses from external debt (96) Loan loss provisions — Investment expenses (22) Administrative expenses (net), excluding acquisition-related expenses (133) Fee and commission expenses (44) Other expenses — Operating expenses (295) Operating loss (138) Cost-income ratio 1) for the reportable segment Banking in % 1) Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. Holding & Treasury Six months ended June 30, 2010 € mn Interest and similar income 178 Operating income from financial assets and liabilities carried at fair value through income (net) (14) Fee and commission income 86 Other income — Operating revenues 250 Interest expenses, excluding interest expenses from external debt (191) Loan loss provisions — Investment expenses (43) Administrative expenses (net), excluding acquisition-related expenses (277) Fee and commission expenses (103) Other expenses — Operating expenses (614) Operating loss (364) Cost-income ratio 1) for the reportable segment Banking in % 1) Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. 72 2009 € mn 122 (83) 65 — 104 (112) — (18) (121) (63) — (314) (210) 2009 € mn 238 (97) 100 — 241 (238) — (38) (274) (71) — (621) (380) Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Banking Alternative Investments Consolidation Corporate and Other 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 173 163 (1) (1) — (1) 297 (3) 5 (1) — 1 — 2 107 87 37 24 (2) (2) 169 — — 1 3 (1) — — 277 255 36 26 (2) (3) 468 (83) (87) — — — — (179) (10) (10) — — — — (10) — — (1) — — 1 (23) (141) (206) (37) (32) 2 1 (309) (58) (44) — (3) — — (102) — (1) — — — — — (292) (348) (38) (35) 2 2 (623) (15) (93) (2) (9) — (1) (155) 103.7 166.9 Banking Alternative Investments Consolidation Corporate and Other 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 2009 € mn 2010 € mn 342 363 7 (2) (1) (2) 526 (9) 6 (1) (1) 1 — (23) 209 163 64 57 (3) (3) 356 — — 1 3 (1) — — 542 532 71 57 (4) (5) 859 (167) (206) — — — 1 (358) (23) (17) — — — — (23) — — (1) — — 2 (44) (279) (325) (74) (65) 4 1 (626) (110) (85) — (6) — — (213) (1) (1) — — — — (1) (580) (634) (75) (71) 4 4 (1,265) (38) (102) (4) (14) — (1) (406) 105.7 135.3 2009 € mn 283 (78) 174 3 382 (199) (10) (17) (358) (110) (1) (695) (313) 2009 € mn 597 (92) 317 3 825 (443) (17) (36) (663) (162) (1) (1,322) (497) 73 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Supplementary Information to the Consolidated Balance Sheets 5 Investments 4 Financial assets carried at fair value through income As of June 30, 2010 € mn Available-for-sale investments 312,277 Held-to-maturity investments 3,761 As of June 30, 2010 € mn As of December 31, 2009 € mn Funds held by others under reinsurance contracts assumed Investments in associates and joint ventures 1,175 2,836 Financial assets held for trading Real estate held for investment 7,953 Debt securities 785 363 Total 328,002 Equity securities 131 105 Derivative financial instruments 1,902 1,663 Subtotal 2,818 2,131 Financial assets designated at fair value through income Debt securities 7,258 8,814 Equity securities 3,047 3,376 Subtotal 10,305 12,190 Total 13,123 14,321 Available-for-sale investments As of June 30, 2010 As of December 31, 2009 Amortized Cost € mn Unrealized Gains € mn Unrealized Losses € mn Fair Value € mn Amortized Cost € mn Unrealized Gains € mn Unrealized Losses € mn Debt securities Government and agency mortgage-backed securities (residential and commercial) 8,272 432 (1) 8,703 8,202 209 (53) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds 9,965 3,849 121,279 481 238 6,328 (204) (51) (1,286) 10,242 4,036 126,321 8,116 3,878 110,550 76 119 4,069 (444) (110) (667) Corporate bonds 129,082 6,441 (1,882) 133,641 113,338 4,338 (1,902) Other 1,577 100 (3) 1,674 1,570 66 (34) Subtotal 274,024 14,020 (3,427) 284,617 245,654 8,877 (3,210) Equity securities 18,547 9,384 (271) 27,660 17,647 10,227 (150) Total 292,571 23,404 (3,698) 312,277 263,301 19,104 (3,360) 74 As of December 31, 2009 € mn 279,045 3,475 1,193 3,025 7,514 294,252 Fair Value € mn 8,358 7,748 3,887 113,952 115,774 1,602 251,321 27,724 279,045 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 6 Loans and advances to banks and customers As of June 30, 2010 As of December 31, 2009 Banks € mn Customers € mn Total € mn Banks € mn Customers € mn Total € mn Short-term investments and certificates of deposit 6,449 — 6,449 10,530 — 10,530 Reverse repurchase agreements 907 — 907 848 19 867 Collateral paid for securities borrowing transactions 1 — 1 — — — Loans 69,431 46,453 115,884 69,845 44,313 114,158 Other 2,316 59 2,375 3,525 60 3,585 Subtotal 79,104 46,512 125,616 84,748 44,392 129,140 Loan loss allowance — (138) (138) — (144) (144) Total 79,104 46,374 125,478 84,748 44,248 128,996 Loans and advances to customers by type of customer 9 Other assets As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn Corporate customers 15,481 13,722 Receivables Private customers 24,138 23,743 Policyholders 4,997 4,865 Public customers 6,893 6,927 Agents 4,635 3,922 Total 46,512 44,392 Reinsurers 2,324 2,437 Other 4,142 3,480 Less allowance for doubtful accounts (596) (564) 7 Reinsurance assets Subtotal Tax receivables 15,502 14,140 Income taxes 1,446 2,277 As of June 30, 2010 € mn As of December 31, 2009 € mn Other taxes Subtotal Accrued dividends, interest and rent 813 2,259 6,605 950 3,227 6,865 Prepaid expenses Unearned premiums Reserves for loss and loss adjustment expenses Aggregate policy reserves Other insurance reserves Total 1,907 7,565 4,945 91 14,508 1,424 7,456 4,613 66 13,559 Interest and rent Other prepaid expenses Subtotal Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 21 354 375 512 20 284 304 304 Property and equipment 8 Deferred acquisition costs Real estate held for own use Software 3,149 1,302 2,916 1,297 Equipment 760 803 As of June 30, 2010 € mn As of December 31, 2009 € mn Fixed assets of Alternative Investments Subtotal Other assets 907 6,118 2,197 822 5,838 2,369 Deferred acquisition costs Total 33,568 33,047 Property-Casualty 4,309 3,789 Life/Health 14,957 14,748 Asset Management 144 149 Subtotal 19,410 18,686 Present value of future profits 1,201 1,212 Deferred sales inducements 845 725 Total 21,456 20,623 75 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 10 Non-current assets and assets and liabilities of disposal groups classified as held for sale As of June 30, 2010 € mn As of December 31, 2009 € mn In accordance with IFRS 5, the assets, including goodwill, and liabilities within the segment Life/Health relating to the Allianz Group’s 100 % ownership of Galleria Commerciale Porta di Roma were classified and presented as disposal groups held for sale at the acquisition date. No gain or loss was recognized on initial or subsequent measurement of the disposal group to fair value less costs to sell. Non-current assets and assets of disposal groups classified as held for sale Allianz Bank Zrt., Budapest Porta di Roma, Rome 280 549 — — 11 Intangible assets Total 829 — Liabilities of disposal groups classified as held for sale Allianz Bank Zrt., Budapest 237 — As of June 30, 2010 € mn As of December 31, 2009 € mn Porta di Roma, Rome Total 317 554 — — Intangible assets with indefinite useful lives Allianz Bank Zrt., Budapest During the second quarter 2010, the Allianz Group reclassi- fied the assets and liabilities related to its 100 % ownership of Allianz Bank Zrt., Budapest, within the segment Corpo- rate and Other to disposal groups held for sale in accor- dance with IFRS 5. The sale of Allianz Bank Zrt. is expected to occur in the third quarter 2010. Goodwill Brand names 1) Subtotal Intangible assets with finite useful lives Long-term distribution agreements with Commerzbank AG Customer relationships Other 2) Subtotal 12,664 313 12,977 607 316 194 1,117 12,014 309 12,323 620 352 181 1,153 Total 14,094 13,476 As of June 30, 2010 € mn 1) Includes primarily the brand name of Selecta AG, Muntelier. 2) Includes primarily research and development costs of € 73 mn and bancassurance agreements of € 16 mn. Cash and cash equivalents Investments 11 103 Changes in goodwill for the six months ended June 30, 2010, were as follows: Loans and advances to banks and customers 160 Other assets 6 Total assets of disposal groups classified as held for sale 280 2010 € mn Financial liabilities carried at fair value through income Liabilitites to banks and customers Deferred tax liabilities Other liabilities Total liabilities of disposal groups classified as held for sale 6 181 2 48 237 Cost as of January 1, Accumulated impairments as of January 1, Carrying amount as of January 1, Additions Foreign currency translation adjustments 12,291 (277) 12,014 42 608 Carrying amount as of June 30, 12,664 Accumulated impairments as of June 30, 277 Due to the remeasurement of the disposal group Allianz Bank Zrt. to fair value less costs to sell at the reclassification date, an impairment loss of € 34 mn was recognized in the consolidated income statements for the three and six months ended June 30, 2010. Also see note 31 “Impairments of investments (net)”. Cost as of June 30, 12,941 Additions include goodwill from the acquisition of a 100 % participation in Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt, in the first quarter 2010. Galleria Commerciale Porta di Roma S.p.A., Rome During the second quarter 2010, the Allianz Group acquired 100 % of the Galleria Commerciale Porta di Roma S.p.A. shopping mall in Rome, Italy. At the same time, the Allianz Group agreed to sell a 50 % stake, which is subject to ap- proval of the E.U. antitrust authority. The approval is ex- pected during the third quarter 2010. 76 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 12 Financial liabilities carried at fair value through income As of June 30, 2010 € mn As of December 31, 2009 € mn Financial liabilities held for trading Derivative financial instruments 8,109 6,660 Other trading liabilities 46 83 Subtotal 8,155 6,743 Financial liabilities designated at fair value through income — — Total 8,155 6,743 13 Liabilities to banks and customers As of June 30, 2010 As of December 31, 2009 Banks € mn Customers € mn Total € mn Banks € mn Customers € mn Payable on demand 357 4,163 4,520 366 4,106 Savings deposits — 2,454 2,454 — 1,980 Term deposits and certificates of deposit 1,172 1,731 2,903 1,188 2,185 Repurchase agreements 505 140 645 1,025 172 Collateral received from securities lending transactions 765 — 765 44 — Other 6,571 2,708 9,279 6,885 3,297 Total 9,370 11,196 20,566 9,508 11,740 14 Reserves for loss and loss adjustment expenses As of June 30, 2010 € mn As of December 31, 2009 € mn Property-Casualty 58,317 55,715 Life/Health 8,847 8,738 Consolidation (12) (12) Total 67,152 64,441 Change in reserves for loss and loss adjustment expenses for the Property-Casualty segment 2010 2009 Gross € mn Ceded € mn Net € mn Gross € mn Ceded € mn As of January 1, 55,715 (7,175) 48,540 55,616 (7,820) Loss and loss adjustment expenses incurred Current year 15,582 (1,380) 14,202 14,853 (1,204) Prior years (1,502) 767 (735) (835) 427 Subtotal 14,080 (613) 13,467 14,018 (777) Loss and loss adjustment expenses paid Current year (5,437) 295 (5,142) (5,232) 247 Prior years (8,930) 877 (8,053) (9,465) 1,146 Subtotal (14,367) 1,172 (13,195) (14,697) 1,393 Foreign currency trans lation adjustments and other changes 2,889 (636) 2,253 740 (205) As of June 30, 58,317 (7,252) 51,065 55,677 (7,409) Total € mn 4,472 1,980 3,373 1,197 44 10,182 21,248 Net € mn 47,796 13,649 (408) 13,241 (4,985) (8,319) (13,304) 535 48,268 77 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 15 Reserves for insurance and investment contracts 17 Certificated liabilities As of June 30, 2010 € mn As of December 31, 2009 € mn As of June 30, 2010 € mn As of December 31, 2009 € mn Aggregate policy reserves 317,374 297,112 Allianz SE 1) Reserves for premium refunds 26,859 24,430 Senior bonds 5,333 5,330 Other insurance reserves 797 646 Money market securities 2,249 1,504 Total 345,030 322,188 Subtotal 7,582 6,834 Banking subsidiaries Senior bonds 1,120 1,100 16 Other liabilities Subtotal All other subsidiaries 1,120 1,100 Certificated liabilities 27 28 Payables As of June 30, 2010 € mn As of December 31, 2009 € mn Subtotal 27 Total 8,729 1) Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. 28 7,962 Policyholders 4,242 4,798 Reinsurers 1,813 1,804 Agents Subtotal Payables for social security 1,489 7,544 405 1,407 8,009 398 18 Participation certificates and subordinated liabilities Tax payables Income taxes Other taxes Subtotal 1,423 1,082 2,505 1,890 1,028 2,918 As of June 30, 2010 € mn As of December 31, 2009 € mn Accrued interest and rent 462 715 Unearned income Allianz SE 1) Interest and rent 14 9 Subordinated bonds 8,465 8,162 Other 342 316 Participation certificates — 121 Subtotal 356 325 Subtotal 8,465 8,283 Provisions Banking subsidiaries Pensions and similar obligations 3,863 3,819 Subordinated bonds 190 173 Employee related 1,789 1,887 Subtotal 190 173 Share-based compensation plans 1,061 1,296 All other subsidiaries Restructuring plans Loan commitments 302 7 346 8 Subordinated liabilities Hybrid equity 398 2) 45 846 45 Contingent losses from non- insurance business 120 137 Subtotal Total 443 9,098 891 9,347 Other provisions Subtotal 1,265 8,407 1,395 8,888 1) Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. 2) Early redemption of subordinated bonds amounting to € 450 mn issued by Allianz France. Deposits retained for reinsurance ceded 2,591 2,547 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 374 310 Financial liabilities for puttable equity instruments 2,661 3,451 Other liabilities 6,695 5,724 Total 32,000 33,285 78 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 19 Equity As of June 30, 2010 € mn As of December 31, 2009 € mn Shareholders’ equity Issued capital 1,162 1,162 Capital reserves 27,473 27,473 Revenue reserves 10,707 9,902 Treasury shares (209) (213) Foreign currency translation adjustments Unrealized gains and losses (net) 1) Subtotal (1,294) 5,925 43,764 (3,615) 5,457 40,166 Non-controlling interests 2,169 2,121 Total 45,933 42,287 1) As of June 30, 2010, includes € 168 mn (2009: € 187 mn) related to cash flow hedges. Dividends In the second quarter of 2010 a total dividend of € 1,850 mn (2009: € 1,580 mn) or € 4.10 (2009: € 3.50) per qualifying share was paid to the shareholders. 79 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Supplementary Information to the Consolidated Income Statements 20 Premiums earned (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2010 Premiums written Direct 9,170 5,904 — Assumed 781 96 (6) Subtotal 9,951 6,000 (6) Ceded (1,076) (138) 6 Net 8,875 5,862 — Change in unearned premiums Direct 874 (56) — Assumed (62) 2 — Subtotal 812 (54) — Ceded 2 (1) — Net 814 (55) — Premiums earned Direct 10,044 5,848 — Assumed 719 98 (6) Subtotal 10,763 5,946 (6) Ceded (1,074) (139) 6 Net 9,689 5,807 — 2009 Premiums written Direct 8,855 5,168 — Assumed 667 85 (5) Subtotal 9,522 5,253 (5) Ceded (985) (118) 5 Net 8,537 5,135 — Change in unearned premiums Direct 892 (20) — Assumed (34) (2) 2 Subtotal 858 (22) 2 Ceded (30) (1) (2) Net 828 (23) — Premiums earned Direct 9,747 5,148 — Assumed 633 83 (3) Subtotal 10,380 5,231 (3) Ceded (1,015) (119) 3 Net 9,365 5,112 — 80 Total € mn 15,074 871 15,945 (1,208) 14,737 818 (60) 758 1 759 15,892 811 16,703 (1,207) 15,496 14,023 747 14,770 (1,098) 13,672 872 (34) 838 (33) 805 14,895 713 15,608 (1,131) 14,477 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 20 Premiums earned (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2010 Premiums written Direct 22,273 11,860 — Assumed 1,672 202 (10) Subtotal 23,945 12,062 (10) Ceded (2,425) (263) 10 Net 21,520 11,799 — Change in unearned premiums Direct (2,528) (110) — Assumed (275) 2 (2) Subtotal (2,803) (108) (2) Ceded 385 — 2 Net (2,418) (108) — Premiums earned Direct 19,745 11,750 — Assumed 1,397 204 (12) Subtotal 21,142 11,954 (12) Ceded (2,040) (263) 12 Net 19,102 11,691 — 2009 Premiums written Direct 21,972 10,597 — Assumed 1,436 166 (11) Subtotal 23,408 10,763 (11) Ceded (2,355) (250) 11 Net 21,053 10,513 — Change in unearned premiums Direct (2,570) (51) — Assumed (131) (2) (1) Subtotal (2,701) (53) (1) Ceded 345 — 1 Net (2,356) (53) — Premiums earned Direct 19,402 10,546 — Assumed 1,305 164 (12) Subtotal 20,707 10,710 (12) Ceded (2,010) (250) 12 Net 18,697 10,460 — Total € mn 34,133 1,864 35,997 (2,678) 33,319 (2,638) (275) (2,913) 387 (2,526) 31,495 1,589 33,084 (2,291) 30,793 32,569 1,591 34,160 (2,594) 31,566 (2,621) (134) (2,755) 346 (2,409) 29,948 1,457 31,405 (2,248) 29,157 81 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 21 Interest and similar income Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Interest from held-to-maturity investments 42 43 86 86 Dividends from available-for-sale investments 511 531 632 669 Interest from available-for-sale investments 2,933 2,633 5,704 5,272 Share of earnings from investments in associates and joint ventures 67 10 116 (25) Rent from real estate held for investment 189 171 351 336 Interest from loans to banks and customers 1,396 1,370 2,788 2,797 Other interest 31 42 71 79 Total 5,169 4,800 9,748 9,214 22 Income from financial assets and liabilities carried at fair value through income (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Asset Management € mn Corporate and Other € mn Consoli- dation € mn Group € mn 2010 Income (expenses) from financial assets and liabilities held for trading (net) (30) (537) (2) (203) 1 (771) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 12 145 (22) (1) — 134 Income (expenses) from financial liabilities for puttable equity instruments (net) — (54) 13 — — (41) Foreign currency gains and losses (net) 1 454 7 (18) (1) 443 Total (17) 8 (4) (222) — (235) 2009 Income (expenses) from financial assets and liabilities held for trading (net) (13) 149 3 245 (38) 346 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 31 665 63 8 — 767 Income (expenses) from financial liabilities for puttable equity instruments (net) (1) (184) (42) — — (227) Foreign currency gains and losses (net) (66) (53) — (125) 1 (243) Total (49) 577 24 128 (37) 643 Six months ended June 30, Property- Casualty € mn Life/Health € mn Asset Management € mn Corporate and Other € mn Consoli- dation € mn Group € mn 2010 Income (expenses) from financial assets and liabilities held for trading (net) (103) (1,079) (1) (86) 4 (1,265) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 40 468 (9) 1 — 500 Income (expenses) from financial liabilities for puttable equity instruments (net) (5) (136) 2 — — (139) Foreign currency gains and losses (net) 37 779 9 (35) (2) 788 Total (31) 32 1 (120) 2 (116) 2009 Income (expenses) from financial assets and liabilities held for trading (net) (80) 129 1 164 (4) 210 Income (expenses) from financial assets and liabilities designated at fair value through income (net) 61 355 38 11 — 465 Income (expenses) from financial liabilities for puttable equity instruments (net) (2) (92) (24) (1) — (119) Foreign currency gains and losses (net) 10 119 1 (142) (1) (13) Total (11) 511 16 32 (5) 543 82 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 Income from financial assets and liabilities held for trading (net) Life/Health Income from financial assets and liabilities held for trading for the six months ended June 30, 2010, includes in the Life/ Health segment expenses of € 1,079 mn (2009: income of € 122 mn) from derivative financial instruments. This in- cludes expenses of € 463 mn (2009: € 108 mn) of German entities from financial derivative positions to protect against equity and foreign exchange rate fluctuations as well as for duration management. Also included are expenses from U.S. entities amongst others from embedded deriva- tives required to be separated related to equity-indexed annuity contracts and guaranteed benefits under unit- linked contracts of € 536 mn (2009: income of € 284 mn). Corporate and Other Income from financial assets and liabilities held for trading for the six months ended June 30, 2010, includes in the Corporate and Other segment expenses of € 103 mn (2009: income of € 129 mn) from derivative financial instruments. This includes expenses of € 3 mn (2009: income of € 91 mn) from financial derivative instruments to protect invest- ments and liabilities against foreign exchange rate fluctua- tions. In 2010, hedging of strategic equity investments not designated for hedge accounting resulted in expenses of € 31 mn (2009: € 170 mn). Financial derivatives related to investment strategies had expenses of € 13 mn (2009: in- come of € 134 mn). Additionally, income from financial assets and liabilities held for trading for the six months ended June 30, 2010, includes income of € 3 mn (2009: € 31 mn) from hedges of share based compensation plans (restricted stock units). Foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, excluding exchange differences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed separately. The Allianz Group is substantially hedged against foreign currency fluctuations with freestanding derivatives resulting in an offsetting effect of € (672) mn (2009: € 13 mn) for the six months ended June 30, 2010. 23 Realized gains/losses (net) Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Realized gains Available-for-sale investments Equity securities 348 2,211 1,285 2,963 Debt securities 461 362 859 869 Subtotal 809 2,573 2,144 3,832 Investments in associates and joint ventures 1) Real estate held for investment 19 45 7 15 24 120 13 27 Loans and advances to banks and customers 22 79 63 104 Subtotal 895 2,674 2,351 3,976 Realized losses Available-for-sale investments Equity securities (51) (722) (85) (1,310) Debt securities (415) (328) (525) (614) Subtotal (466) (1,050) (610) (1,924) Investments in associates and joint ventures 2) Real estate held for investment (4) (1) (2) — (4) (3) (5) (3) Loans and advances to banks and customers (28) (4) (28) (7) Subtotal (499) (1,056) (645) (1,939) Total 396 1,618 1,706 2,037 1) 2) During the three and six months ended June 30, 2010 and 2009, includes realized gains from the disposal of subsidiaries of € 16 mn (2009: € 2 mn) and € 16 mn (2009: € 2 mn) respectively. During the three and six months ended June 30, 2010 and 2009, includes realized losses from the disposal of subsidiaries of € 4 mn (2009: € — mn) and € 4 mn (2009: € — mn) respectively. 83 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 24 Fee and commission income Three months ended June 30, 2010 Segment € mn Consoli- dation € mn Group € mn Segment € mn Property-Casualty Fees from credit and assistance business 176 (1) 175 177 Service agreements 106 (11) 95 90 Investment advisory — — — 3 Subtotal 282 (12) 270 270 Life/Health Service agreements 25 (7) 18 24 Investment advisory 104 (8) 96 97 Other — — — 1 Subtotal 129 (15) 114 122 Asset Management Management fees 1,248 (26) 1,222 877 Loading and exit fees 91 — 91 66 Performance fees 88 — 88 20 Other 31 (3) 28 8 Subtotal 1,458 (29) 1,429 971 Corporate and Other Service agreements 27 (11) 16 64 Investment advisory and Banking activities 142 (62) 80 110 Subtotal 169 (73) 96 174 Total 2,038 (129) 1,909 1,537 Six months ended June 30, 2010 Segment € mn Consoli- dation € mn Group € mn Segment € mn Property-Casualty Fees from credit and assistance business 333 (2) 331 356 Service agreements 203 (23) 180 180 Investment advisory — — — 6 Subtotal 536 (25) 511 542 Life/Health Service agreements 42 (11) 31 44 Investment advisory 205 (15) 190 194 Other — — — 3 Subtotal 247 (26) 221 241 Asset Management Management fees 2,352 (52) 2,300 1,697 Loading and exit fees 180 — 180 125 Performance fees 216 — 216 34 Other 63 (5) 58 22 Subtotal 2,811 (57) 2,754 1,878 Corporate and Other Service agreements 86 (17) 69 99 Investment advisory and Banking activities 270 (115) 155 218 Subtotal 356 (132) 224 317 Total 3,950 (240) 3,710 2,978 84 2009 Consoli- dation € mn (1) (15) — (16) (8) (6) (1) (15) (25) (1) — 1 (25) (7) (48) (55) (111) 2009 Consoli- dation € mn (1) (29) — (30) (15) (11) (3) (29) (50) (1) — — (51) (12) (94) (106) (216) Group € mn 176 75 3 254 16 91 — 107 852 65 20 9 946 57 62 119 1,426 Group € mn 355 151 6 512 29 183 — 212 1,647 124 34 22 1,827 87 124 211 2,762 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 25 Other income Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Income from real estate held for own use Realized gains from disposals of real estate held for own use 3 2 15 3 Other income from real estate held for own use — 5 — 5 Subtotal 3 7 15 8 Income from alternative investments 31 — 41 — Other 2 8 9 11 Total 36 15 65 19 26 Income and expenses from fully consolidated private equity investments Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Income Sales and service revenues 394 487 760 951 Other operating revenues 3 2 5 6 Interest income 1 — 1 1 Subtotal 398 489 766 958 Expenses Cost of goods sold (232) (323) (458) (627) Commissions (31) (31) (58) (65) General and administrative expenses (134) (279) (280) (396) Other operating expenses (10) (50) (29) (96) Interest expenses Subtotal Total (23) (430) 1) (32) 1) (22) (705) 1) (216) 1) (43) (868) 1) (102) 1) (46) (1,230) 1) (272) 1) 1) The presented subtotal for expenses and total income and expenses from fully consolidated private equity investments for the three and six months ended June 30, 2010, differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 17 mn (2009: € 115 mn) and € 50 mn (2009: € 115 mn) for the three and six months ended June 30, 2010, respectively. This consoli dation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the business segment Life/Health, that was reclassi fied into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit. 85 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 27 Claims and insurance benefits incurred (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2010 Gross Claims and insurance benefits paid (7,235) (4,490) 1 Change in loss and loss adjustment expenses 175 (80) (3) Subtotal (7,060) (4,570) (2) Ceded Claims and insurance benefits paid 577 118 (1) Change in loss and loss adjustment expenses (162) 1 3 Subtotal 415 119 2 Net Claims and insurance benefits paid (6,658) (4,372) — Change in loss and loss adjustment expenses 13 (79) — Total (6,645) (4,451) — 2009 Gross Claims and insurance benefits paid (6,864) (4,496) 3 Change in loss and loss adjustment expenses (18) (106) 1 Subtotal (6,882) (4,602) 4 Ceded Claims and insurance benefits paid 434 107 (3) Change in loss and loss adjustment expenses (160) (2) (1) Subtotal 274 105 (4) Net Claims and insurance benefits paid (6,430) (4,389) — Change in loss and loss adjustment expenses (178) (108) — Total (6,608) (4,497) — 86 Total € mn (11,724) 92 (11,632) 694 (158) 536 (11,030) (66) (11,096) (11,357) (123) (11,480) 538 (163) 375 (10,819) (286) (11,105) Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 27 Claims and insurance benefits incurred (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2010 Gross Claims and insurance benefits paid (14,367) (9,439) 4 Change in loss and loss adjustment expenses 287 (104) (1) Subtotal (14,080) (9,543) 3 Ceded Claims and insurance benefits paid 1,172 234 (4) Change in loss and loss adjustment expenses (559) 13 1 Subtotal 613 247 (3) Net Claims and insurance benefits paid (13,195) (9,205) — Change in loss and loss adjustment expenses (272) (91) — Total (13,467) (9,296) — 2009 Gross Claims and insurance benefits paid (14,697) (9,730) 8 Change in loss and loss adjustment expenses 679 (132) 1 Subtotal (14,018) (9,862) 9 Ceded Claims and insurance benefits paid 1,393 234 (8) Change in loss and loss adjustment expenses (616) (15) (1) Subtotal 777 219 (9) Net Claims and insurance benefits paid (13,304) (9,496) — Change in loss and loss adjustment expenses 63 (147) — Total (13,241) (9,643) — Total € mn (23,802) 182 (23,620) 1,402 (545) 857 (22,400) (363) (22,763) (24,419) 548 (23,871) 1,619 (632) 987 (22,800) (84) (22,884) 87 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 28 Change in reserves for insurance and investment contracts (net) Three months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn 2010 Gross Aggregate policy reserves (70) (1,924) 1 Other insurance reserves (4) (26) — Expenses for premium refunds (18) (1,392) (19) Subtotal (92) (3,342) (18) Ceded Aggregate policy reserves 4 (31) (1) Other insurance reserves — 4 — Expenses for premium refunds (1) 4 — Subtotal 3 (23) (1) Net Aggregate policy reserves (66) (1,955) — Other insurance reserves (4) (22) — Expenses for premium refunds (19) (1,388) (19) Total (89) (3,365) (19) 2009 Gross Aggregate policy reserves (30) (1,034) 1 Other insurance reserves (40) (36) — Expenses for premium refunds (65) (1,407) (135) Subtotal (135) (2,477) (134) Ceded Aggregate policy reserves 3 22 — Other insurance reserves 36 2 — Expenses for premium refunds 1 (2) — Subtotal 40 22 — Net Aggregate policy reserves (27) (1,012) 1 Other insurance reserves (4) (34) — Expenses for premium refunds (64) (1,409) (135) Total (95) (2,455) (134) 88 Total € mn (1,993) (30) (1,429) (3,452) (28) 4 3 (21) (2,021) (26) (1,426) (3,473) (1,063) (76) (1,607) (2,746) 25 38 (1) 62 (1,038) (38) (1,608) (2,684) Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 28 Change in reserves for insurance and investment contracts (net) (continued) Six months ended June 30, Property- Casualty € mn Life/Health € mn Consolidation € mn Total € mn 2010 Gross Aggregate policy reserves (112) (3,736) 1 (3,847) Other insurance reserves (4) (154) — (158) Expenses for premium refunds (61) (2,518) (65) (2,644) Subtotal (177) (6,408) (64) (6,649) Ceded Aggregate policy reserves 6 (15) (1) (10) Other insurance reserves (1) 7 — 6 Expenses for premium refunds (1) 5 — 4 Subtotal 4 (3) (1) — Net Aggregate policy reserves (106) (3,751) — (3,857) Other insurance reserves (5) (147) — (152) Expenses for premium refunds (62) (2,513) (65) (2,640) Total (173) (6,411) (65) (6,649) 2009 Gross Aggregate policy reserves (74) (1,651) 1 (1,724) Other insurance reserves (1) (20) — (21) Expenses for premium refunds (54) (1,394) (141) (1,589) Subtotal (129) (3,065) (140) (3,334) Ceded Aggregate policy reserves 4 24 — 28 Other insurance reserves — 3 — 3 Expenses for premium refunds — (2) — (2) Subtotal 4 25 — 29 Net Aggregate policy reserves (70) (1,627) 1 (1,696) Other insurance reserves (1) (17) — (18) Expenses for premium refunds (54) (1,396) (141) (1,591) Total (125) (3,040) (140) (3,305) 29 Interest expenses Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Liabilities to banks and customers (95) (120) (189) (258) Deposits retained on reinsurance ceded (17) (15) (36) (35) Certificated liabilities (77) (64) (152) (140) Participation certificates and subordinated liabilities (140) (139) (278) (279) Other (30) (7) (55) (43) Total (359) (345) (710) (755) 89 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 30 Loan loss provisions Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Additions to allowances including direct impairments (26) (36) (56) (72) Amounts released 12 6 25 19 Recoveries on loans previously impaired 5 6 10 14 Total (9) (24) (21) (39) 31 Impairments of investments (net) Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Impairments Available-for-sale investments Equity securities (302) (304) (311) (2,107) Debt securities (46) (101) (127) (183) Subtotal (348) (405) (438) (2,290) Investments in associates and joint ventures — (4) — (4) Real estate held for investment (19) (7) (19) (13) Loans and advances to banks and customers (11) — (12) — Non-current assets and assets and liabilities of disposal groups classified as held for sale (34) — (34) — Subtotal (412) (416) (503) (2,307) Reversals of impairments Available-for-sale investments Debt securities 33 1 33 1 Real estate held for investment 2 — 2 1 Subtotal 35 1 35 2 Total (377) (415) (468) (2,305) 32 Investment expenses Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Investment management expenses (108) (106) (210) (191) Depreciation of real estate held for investment (54) (39) (92) (87) Other expenses for real estate held for investment (53) (40) (90) (75) Total (215) (185) (392) (353) 90 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 33 Acquisition and administrative expenses (net) Three months ended June 30, 2010 2009 Segment € mn Consoli- dation € mn Group € mn Segment € mn Consoli- dation € mn Property-Casualty 1) Acquisition costs Incurred (2,126) — (2,126) (1,861) — Commissions and profit received on reinsurance business ceded 94 (1) 93 152 (1) Deferrals of acquisition costs 1,230 — 1,230 1,144 — Amortization of deferred acquisition costs (1,278) — (1,278) (1,254) — Subtotal (2,080) (1) (2,081) (1,819) (1) Administrative expenses (608) 12 (596) (838) (3) Subtotal (2,688) 11 (2,677) (2,657) (4) Life/Health Acquisition costs Incurred (1,056) 2 (1,054) (891) 1 Commissions and profit received on reinsurance business ceded 22 — 22 18 (1) Deferrals of acquisition costs 752 — 752 549 — Amortization of deferred acquisition costs (511) — (511) (916) — Subtotal (793) 2 (791) (1,240) — Administrative expenses (357) 15 (342) (391) 2 Subtotal (1,150) 17 (1,133) (1,631) 2 Asset Management Personnel expenses (535) — (535) (402) — Non-personnel expenses (251) (1) (252) (176) 3 Subtotal (786) (1) (787) (578) 3 Corporate and Other Administrative expenses (305) (14) (319) (359) 12 Subtotal (305) (14) (319) (359) 12 Total (4,929) 13 (4,916) (5,225) 13 1) The allocation of overhead expenses between functional areas in the business segment Property-Casualty was prospectively changed in 2010. The change led to a reclassification of € 204 mn from administrative expenses into acquisition costs. Group € mn (1,861) 151 1,144 (1,254) (1,820) (841) (2,661) (890) 17 549 (916) (1,240) (389) (1,629) (402) (173) (575) (347) (347) (5,212) 91 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 33 Acquisition and administrative expenses (net) (continued) Six months ended June 30, 2010 2009 Segment € mn Consoli- dation € mn Group € mn Segment € mn Consoli- dation € mn Property-Casualty 1) Acquisition costs Incurred (4,583) — (4,583) (4,095) — Commissions and profit received on reinsurance business ceded 250 (2) 248 246 (2) Deferrals of acquisition costs 2,798 — 2,798 2,610 — Amortization of deferred acquisition costs (2,466) — (2,466) (2,330) — Subtotal (4,001) (2) (4,003) (3,569) (2) Administrative expenses (1,320) 11 (1,309) (1,663) 5 Subtotal (5,321) 9 (5,312) (5,232) 3 Life/Health Acquisition costs Incurred (2,101) 2 (2,099) (1,855) 2 Commissions and profit received on reinsurance business ceded 47 — 47 38 (1) Deferrals of acquisition costs 1,491 — 1,491 1,105 — Amortization of deferred acquisition costs (1,054) 1 (1,053) (1,601) — Subtotal (1,617) 3 (1,614) (2,313) 1 Administrative expenses (734) 30 (704) (747) 7 Subtotal (2,351) 33 (2,318) (3,060) 8 Asset Management Personnel expenses (1,162) — (1,162) (723) — Non-personnel expenses (470) (2) (472) (371) 4 Subtotal (1,632) (2) (1,634) (1,094) 4 Corporate and Other Administrative expenses (624) (17) (641) (662) 12 Subtotal (624) (17) (641) (662) 12 Total (9,928) 23 (9,905) (10,048) 27 1) The allocation of overhead expenses between functional areas in the business segment Property-Casualty was prospectively changed in 2010. The change led to a reclassification of € 380 mn from administrative expenses into acquisition costs. 92 Group € mn (4,095) 244 2,610 (2,330) (3,571) (1,658) (5,229) (1,853) 37 1,105 (1,601) (2,312) (740) (3,052) (723) (367) (1,090) (650) (650) (10,021) Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 34 Fee and commission expenses Three months ended June 30, 2010 2009 Segment € mn Consoli- dation € mn Group € mn Segment € mn Consoli- dation € mn Property-Casualty Fees from credit and assistance business (158) — (158) (125) — Service agreements (106) 11 (95) (104) 15 Subtotal (264) 11 (253) (229) 15 Life/Health Service agreements (13) 3 (10) (13) 5 Investment advisory (50) — (50) (39) (4) Subtotal (63) 3 (60) (52) 1 Asset Management Commissions (266) 46 (220) (213) 33 Other (4) 1 (3) (6) 1 Subtotal (270) 47 (223) (219) 34 Corporate and Other Service agreements (44) 9 (35) (63) 7 Investment advisory and Banking activities (58) — (58) (47) 1 Subtotal (102) 9 (93) (110) 8 Total (699) 70 (629) (610) 58 Six months ended June 30, 2010 2009 Segment € mn Consoli- dation € mn Group € mn Segment € mn Consoli- dation € mn Property-Casualty Fees from credit and assistance business (304) — (304) (266) — Service agreements (197) 23 (174) (197) 27 Subtotal (501) 23 (478) (463) 27 Life/Health Service agreements (18) 4 (14) (23) 9 Investment advisory (99) 2 (97) (93) 2 Subtotal (117) 6 (111) (116) 11 Asset Management Commissions (517) 84 (433) (406) 63 Other (9) 2 (7) (11) 1 Subtotal (526) 86 (440) (417) 64 Corporate and Other Service agreements (103) 14 (89) (71) 12 Investment advisory and Banking activities (110) — (110) (91) 1 Subtotal (213) 14 (199) (162) 13 Total (1,357) 129 (1,228) (1,158) 115 Group € mn (125) (89) (214) (8) (43) (51) (180) (5) (185) (56) (46) (102) (552) Group € mn (266) (170) (436) (14) (91) (105) (343) (10) (353) (59) (90) (149) (1,043) 93 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements 35 Income taxes Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn Current income taxes (573) (556) (1,003) Deferred income taxes 64 109 114 Total (509) (447) (889) For the three and six months ended June 30, 2010 and 2009, the income taxes relating to components of other comprehen- sive income consist of the following: Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn Foreign currency translation adjustments 16 (32) 46 Available-for-sale investments (144) (698) (649) Cash flow hedges 7 (4) — Share of other comprehensive income of associates 1 — (4) Miscellaneous (12) — (10) Total (132) (734) (617) 36 Net income (loss) from discontinued operations, net of income taxes Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn Net income (loss) from discontinued operations, net of income taxes — — — On January 12, 2009, the Allianz Group completed the trans- fer of ownership of Dresdner Bank AG to Commerzbank AG. Accordingly, assets and liabilities of Dresdner Bank AG, that were classified as held for sale as of December 31, 2008, have been deconsolidated in the first quarter 2009. The loss from derecognition of discontinued operations amounts to € 395 mn and represents mainly the reclassification of components of other comprehensive income to net income. 94 2009 € mn (713) 245 (468) 2009 € mn (1) (288) 9 1 3 (276) 2009 € mn (395) Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 37 Earnings per share Basic earnings per share Basic earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period. Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Net income (loss) attributable to shareholders used to calculate basic earnings per share 1,017 1,869 2,567 1,898 from continuing operations 1,017 1,869 2,567 2,293 from discontinued operations — — — (395) Weighted average number of common shares outstanding 451,230,566 451,024,346 451,214,974 451,360,017 Basic earnings per share (in €) 2.25 4.14 5.69 4.21 from continuing operations 2.25 4.14 5.69 5.08 from discontinued operations — — — (0.87) Diluted earnings per share Diluted earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares arise from the assumed conversion of participation certificates issued by Allianz SE and share-based compensation plans into Allianz shares. Three months ended June 30, Six months ended June 30, 2010 € mn 2009 € mn 2010 € mn 2009 € mn Net income attributable to shareholders 1,017 1,869 2,567 1,898 Effect of potentially dilutive common shares (15) 2 (12) (4) Net income (loss) used to calculate diluted earnings per share 1,002 1,871 2,555 1,894 from continuing operations 1,002 1,871 2,555 2,289 from discontinued operations — — — (395) Weighted average number of common shares outstanding 451,230,566 451,024,346 451,214,974 451,360,017 Potentially dilutive common shares resulting from assumed conversion of: Participation certificates — 1,469,443 — 1,469,443 Share-based compensation plans 1,411,254 909,844 1,236,671 1,372,452 Subtotal 1,411,254 2,379,287 1,236,671 2,841,895 Weighted average number of common shares outstanding after assumed conversion 452,641,820 453,403,633 452,451,645 454,201,912 Diluted earnings per share (in €) 2.21 4.13 5.65 4.17 from continuing operations 2.21 4.13 5.65 5.04 from discontinued operations — — — (0.87) For the six months ended June 30, 2010, the weighted average number of common shares excludes 2,685,026 (2009: 1,689,983) treasury shares. 95 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Notes to the Condensed Consolidated Interim Financial Statements Other Information 39 Supplementary information on the condensed consolidated statements of cash flows 38 Financial instruments Reclassification of financial assets In January 2009, certain USD denominated CDOs with a fair value of € 1.1 bn (notional amount of € 2.2 bn) were retained from Dresdner Bank. On January 31, 2009, subsequent to the derecognition of Dresdner Bank, these CDOs were reclassi- fied from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. The fair value of € 1.1 bn became the new carrying amount of the CDOs at the reclassification date. The expected recover- able cash flows as of the date of reclassification were € 1.8 bn, leading to an effective interest rate of approximately 7 %. Six months ended June 30, Income taxes paid Dividends received Interest received Interest paid Significant non-cash transactions Effects from deconsolidation of Dresdner Bank Commerzbank shares Available-for-sale investments Assets of disposal groups classified as held for sale 2010 € mn (558) 646 9,053 (967) — — 2009 € mn (313) 591 8,053 (1,022) 746 (746) Distribution channel During mid-2009, these CDOs were transferred to one of the Allianz Group’s USD functional currency subsidiaries. As of December 31, 2009, the carrying amount and fair value of the CDOs was € 863 mn and € 856 mn, respectively. As of June 30, 2010, the carrying amount and fair value of the CDOs were both € 952 mn. For the sixth months ended June 30, 2010, the change in carrying amount and fair value was especially impacted by cash receipts and the appreciation of the USD. For the sixth months ended June 30, 2010, the foreign currency effects were recognized in other compre- hensive income and the net profit related to these CDOs was not significant. Intangible assets Assets of disposal groups classified as held for sale Cominvest Available-for-sale investments Loans and advances to banks and customers Deferred tax assets Intangible assets Property and equipment Other assets Assets of disposal groups classified as held for sale Liabilities to banks and customers — — — — — — — — — — 480 (480) 179 7 6 602 3 38 (835) 1 Deferred tax liabilities — (1) Certificated liabilities, participation certificates and subordinated liabilities — (50) Other liabilities — (133) Liabilities of disposal groups classified as held for sale — 183 40 Other Information Number of employees As of June 30, 2010 As of December 31, 2009 Germany 47,769 49,051 Other countries 104,301 104,152 Total 152,070 153,203 96 Notes to the Condensed Consolidated Interim Financial Statements Allianz Group Interim Report Second Quarter and First Half Year of 2010 41 Subsequent events In July 2010, the Allianz Group sold 0.3 bn ICBC shares with a capital gain of approximately € 0.1 bn. Between July 13 and July 15, 2010, the thunderstorms “Norina” and “Olivia” caused damages in parts of western Europe, mainly in France, Benelux and northern and western Germany. Based on the current information, net claims are expected to amount to approximately € 35 mn before income taxes. On July 16 and 17, 2010, the hail storm “Petra” hit parts of southern Germany and Austria. Based on current informa- tion, net claims are expected to amount to approximately € 30 mn before income taxes. Munich, August 5, 2010 Allianz SE The Board of Management 97 Allianz Group Interim Report Second Quarter and First Half Year of 2010 Responsibility statement Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial report- ing, the condensed consolidated interim financial state- ments give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the ex- pected development of the group for the remaining months of the financial year. Munich, August 5, 2010 Allianz SE The Board of Management 98 Review report Allianz Group Interim Report Second Quarter and First Half Year of 2010 Review report To Allianz SE, Munich We have reviewed the condensed consolidated interim financial statements of the Allianz SE, Munich - comprising the consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, condensed consolidated statements of cash flows and se- lected explanatory notes - together with the interim group management report of the Allianz SE, Munich, for the period from January 1 to June 30, 2010 that are part of the semi annual financial report according to § 37 w WpHG [„Wertpapierhandelsgesetz“: „German Securities Trading Act“]. The preparation of the condensed consolidated in- terim financial statements in accordance with those IFRS applicable to interim financial reporting as adopted by the E.U., and of the interim group management report in accor- dance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on the condensed consolidated interim financial statements and on the interim group management report based on our review. with a certain level of assurance, that the condensed con- solidated interim financial statements have not been pre- pared, in material aspects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., and that the interim group management report has not been prepared, in material aspects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to in- quiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report. Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the E.U., or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. We performed our review of the condensed consolidated interim financial statements and the interim group man- agement report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, Munich, August 6, 2010 KPMG AG Wirtschaftsprüfungsgesellschaft Dr. Frank Ellenbürger Wirtschaftsprüfer (Independent Auditor) Johannes Pastor Wirtschaftsprüfer (Independent Auditor) 99 Allianz SE Koeniginstrasse 28 80802 Muenchen Germany Telephone +49 89 38 00 0 Telefax +49 89 38 00 3425 info@allianz.com www.allianz.com Interim Report on the Internet www.allianz.com/interim-report | Semestriel, 2010, Insurance, Allianz | write me a financial report |
Semestriel | 2,007 | Insurance | AXA | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| ________________________________________________________________________________________ AXA – Half Year Financial Report – June 30, 2007 Half Year Financial Report June 30, 2007 ________________________________________________________________________________________ AXA – Half Year Financial Report – June 30, 2007 Table of contents I Activity report II Consolidated financial statements III Half Year financial report Statement IV Report of Statutory Auditors on the Half Year consolidated financial statements AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Activity report Half Year 2007 Page 1 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Cautionary statements concerning the use of non-GAAP measures and forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of, or indicate, future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and AXA’s plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). These risks and uncertainties include, without limitation, the risk of future catastrophic events including possible future weather-related catastrophic events or terrorist related incidents. Please refer to AXA's Annual Report on Form 20-F and AXA’s Document de Reference for the year ended December 31, 2006, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Market conditions in the first-half year 2007 .................................................................................................... 3 June 30, 2007 operating highlights .................................................................................................................... 4 Events subsequent to June 30, 2007 .................................................................................................................. 7 Consolidated Operating results .......................................................................................................................... 8 Life & Savings Segment .................................................................................................................................. 18 Property & Casualty Segment .......................................................................................................................... 42 International Insurance Segment...................................................................................................................... 59 Asset Management Segment ............................................................................................................................ 62 Other Financial Services Segment ................................................................................................................... 66 Holding Companies ......................................................................................................................................... 68 Outlook ............................................................................................................................................................ 71 Glossary ........................................................................................................................................................... 72 Page 2 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Market conditions in the first-half year 2007 Financial markets The defining event in the first half of 2007 was the sudden financial market correction. In particular, the late February- early March correction in the equity markets, followed more recently by new concerns about the subprime lending market in the United States, marked the return of an aversion to risk and volatility that have weighed on the performances of the most risky asset classes. Although the global economy continued to post sustained growth, a marked slowdown was visible in the United States, with GDP growth barely reaching 0.7% in 1Q07. However, things turned around in 2Q07. As we reach mid-year, the US economy has probably grown close to trend again. China’s economy continued to astonish (+11.1% GDP growth in 1Q07). In Europe, robust growth also came as an upside surprise (particularly in Germany). Over the same period, Japan showed that its economy was capable of returning to a sustained domestic growth dynamic, and becoming in the process less dependent on the global trade cycle. Against this backdrop, the round of monetary tightening that began in 2005 continued, with many central banks jumping on the bandwagon. While the US Federal Reserve Bank has left its rates unchanged for the past 12 months (Fed Funds at 5.25%), with risks to growth and of inflation currently balancing one another out, the central banks in Europe have pursued their round of tightening. The ECB has taken advantage of a strong Euro area economy to continue normalising its monetary policy and bring the repo to a level closer to neutrality (4% in June 2007). In the United Kingdom, where inflation was getting out of hand, the BoE had to tighten its policy ahead of schedule (base interest rate at 5.75% in July 2007). Finally, in Japan, the very gradual move to normalise monetary policy continues (0.5% in July 2007). BOND MARKETS In the bond markets, during the first two months of the year, rates relaxed significantly in the United States as well as in the Euro area, driven by fears that the US economy was in for a hard landing. In early March, 10-year treasuries dropped by a base point to 4.5%. Then fears about growth subsided and, with inflation pressures still strong, US yields were pushed back up to 5.30% in June. A similar movement was seen in Europe, especially since the European Central Bank continued to raise its rates over the period. Overall, government bonds turned in negative performances. On the corporate bond side, performances were also disappointing but a little better than for government issues, with not much of a trend emerging on credit spreads in this first part of the year. Globally, sustained growth, low volatility, solid credit quality, and positive technical support combined to help corporate bonds make the most of a tough situation, with the exception of the recent period, where the rise in volatility and aversion to risk have clearly weighed adversely on the performances of this asset class. STOCK MARKETS The equity markets made solid gains in the first six months of this year, especially in 2Q07. The MSCI Global Index advanced by 8.5% over the period. Asia and the Euro area largely outperformed the United States, the United Kingdom and Japan, with respective gains of 16.3% and 12.8%, compared with gains of 4 to 6% for the others. With the economic cycle rebound and higher commodity prices, the best performances came from stocks in the energy, basic materials and manufacturing sectors (15.7%, 21.4% and 15.8%, respectively). Among the disappointments, financials (1.9% for 1H07) suffered from higher rates and the fallout from the subprime crisis in the United States. EXCHANGE RATES Compared to December 31, 2006, the Dollar lost nearly 2% against the Euro (Closing exchange rate moved from 1.32$ at the end of 2006 to 1.35$ at the end of June 2007). The same was true for the yen against the Euro at March 2007 (Closing exchange rate moved from 149.3 yens at the end of September 2006 used for Full Year 2006 accounts to 157.3 yens at the end of March 2007 used for half year 2007 accounts). The Swiss Franc lost 3% against the euro (Closing exchange rate moved from 1.61 CHF at the end of 2006 to 1.66 CHF at the end of June 2007). On an average rate basis, the Dollar lost 8% against the Euro in first half year 2007 (from 1.23$ over first half year 2006 to 1.33$ over first half year 2007), whereas the yen lost 10% against the Euro (from 139.9 yens over the six months to March 31, 2006 used for half year 2006 accounts to 154.2 over the six months to March 31, 2007 used for half year 2007 accounts). The Swiss Franc lost 4% against the Euro in first half year 2007 (from 1.56 CHF over first half year 2006 to 1.63 CHF over first half year 2007) Page 3 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 June 30, 2007 operating highlights Significant acquisitions and disposals ACQUISITIONS On January 12, 2007 (closing date), AXA U.K. announced that it had reached an agreement with insurance brokers Stuart Alexander and Layton Blackham to acquire both businesses. AXA U.K. has acquired both firms through its subsidiary Venture Preference Ltd, (VPL) which already owned 38.9% of Layton Blackham. The two companies are to be combined and will have considerable autonomy to develop the business and will maintain independent broking status. Quality accounts with current insurers will be maintained and grown. The total cash consideration paid for 61.1% of Layton Blackham and 100% of Stuart Alexander amounts to £58.5 million. On February 7, 2007, AXA U.K. announced that it was to acquire the U.K.’s only 100% online insurer, Swiftcover, jointly owned by international insurer Primary Group and Swiftcover’s management. The transaction was closed on March 22, 2007. Swiftcover is a business on the U.K. personal direct market, with net inflows of 120,000 policies in 2006. The upfront cash consideration for Swiftcover amounts to £75 million, with an additional potential earn-out of £195 million maximum over the next 4 years, based on policy volume and combined ratio level. In connection with AllianceBernstein’s acquisition of the business of Sanford C. Bernstein, Inc. in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition. As of the end of 2006, AXA Financial, either directly or indirectly through wholly owned subsidiaries, had acquired a total of 24.5 million AllianceBernstein Units for an aggregate price of approximately $885.4 million through several purchases made pursuant to the Put. AXA Financial completed the purchase of another tranche of 8.16 million AllianceBernstein Units pursuant to the Put on February 23, 2007 for a total price of approximately $746 million. This purchase increased the consolidated economic interest of AXA Financial, Inc. and its subsidiaries in AllianceBernstein L.P. by approximately 3% from 60.3% to 63.2%. On March 16, 2007, AXA reached an agreement with Kyobo Life to acquire its 75% stake in Kyobo Auto which has a leading position in the South Korean direct motor insurance market with revenues of KRW 346 billion (€278 million) and a market share above 30%. Following this acquisition, the AXA Group will serve over 2 million clients through its direct distribution P&C operations worldwide. This transaction was closed on May 22, 2007. On March 17, 2007, AXA Holdings Belgium SA reached an agreement with ELLA Holdings S.A. and its main shareholder Royalton Capital Investors to acquire 100% of the Hungarian retail bank ELLA and its affiliates. Originally specialized in on-line banking and today the fastest growing bank in Hungary, ELLA is the 6th largest supplier of mortgage loans in the country with total assets of €375 million. The combination of AXA Hungary’s operations, the 5th largest company in the pensions market, with those of ELLA Bank shall duplicate the successful business model of AXA in Belgium. The transaction was closed on July 27, 2007. On March 23, 2007, AXA and BMPS reached an agreement for the establishment of a long-term strategic partnership in life and non-life bancassurance as well as pensions business. AXA will acquire: – 50% of MPS Vita (life and savings) and MPS Danni (P&C); – 50% of BMPS open pension funds business; – management of insurance companies’ assets (€13 billion as of year-end 2006) and open pension funds assets (€0.3 billion as of year-end 2006). The partnership will be a platform for developing AXA’s and BMPS’s operations in the Italian bancassurance and pensions market including any new distribution channel. Total cash consideration to be paid by AXA in this transaction is €1,150 million and will be financed with internal resources. The closing of the transaction is subject to regulatory approvals and should take place in the second half of 2007. On April 23, 2007 (closing date), AXA U.K. announced the acquisition of a leading independent commercial broker, Smart & Cook. The purchase of Smart & Cook completed a trio of acquisitions in recent months by AXA as it realised a strategic intent to become a national force in commercial broking. Page 4 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AXA U.K. bought the entire share capital of Smart & Cook through its subsidiary Venture Preference Ltd, (VPL) which also houses recently acquired Stuart Alexander and Layton Blackham, purchased in January 2007. The three companies will operate under the same structure, retaining independent broking status. The enlarged business will operate from 40 offices employing some 1,200 people. On June 8, 2007, AXA and BNP Paribas announced they had reached an agreement for the establishment of a partnership on the Ukrainian property & casualty insurance market. AXA will acquire from BNP Paribas’ subsidiary UkrSibbank, a 50% stake in its insurance subsidiary: Ukrainian Insurance Alliance (UIA). AXA will have management control of the joint company, which will benefit from an exclusive bancassurance distribution agreement with UkrSibbank for an initial period of 10 years. Completion of the transaction is subject to customary regulatory approvals and is expected to take place before year-end 2007. DISPOSALS On January 4, 2007, AXA reached an agreement with QBE Insurance Group for the sale of Winterthur’s U.S. operations for US$1,156 million (€920 million taking into account hedges put in place by AXA for this transaction at 1 Euro = 1.26 US$), and successfully completed the sale on May 31, 2007. In addition, Winterthur U.S. repaid US$636 million, of which US$79 million had already been repaid in Q4 2006 (€506 million taking into account hedges put in place by AXA for this transaction at 1 Euro = 1.26 US$) of intercompany loans to Winterthur Group. This transaction follows AXA’s decision to put Winterthur U.S. operations under strategic review, as initially announced on June 14, 2006. On June 4, 2007, AXA announced that it had entered into a memorandum of understanding with SNS Reaal with a view to finalizing discussions on the sale of its Dutch insurance operations, comprising 100% of AXA Netherlands, Winterthur Netherlands and DBV Netherlands, for a total cash consideration of €1,750 million, after consultation with trade unions and workers’ councils. AXA contemplated exiting the Dutch insurance market given the limited possibilities to reach a leading position through organic growth in the foreseeable future as this market is highly competitive and dominated by large local players. AXA’s Dutch operations concerned by this proposed transaction will be treated as discontinued operations (held for sale) in AXA’s 2007 consolidated financial statements. As a consequence, their earnings until closing will be accounted for in net income. Their sale should generate an exceptional capital gain of approximately €400 million, which will also be accounted for in 2007 net income. A further announcement will be made upon execution of definitive transaction documents following completion of required consultations with trade unions and workers’ councils. The parties contemplate that the definitive transaction documents will include customary closing conditions for a transaction of this type including receipt of customary regulatory approvals and expect the transaction to close before year-end 2007. Capital and financing operations CAPITAL OPERATIONS During the first semester of 2007, AXA pursued its share purchase program to control dilution arising from share- based compensation and employee Shareplan program and purchased 19.5 million shares for a total amount of €648 million. On January 11, 2007, meetings of holders of AXA’s 2014 and 2017 convertible bonds were held to vote on an amendment of the final conversion dates of the bonds to January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option. The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The meeting of holders of the 2017 convertible bonds did not approve the amendment. Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds, AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Page 5 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share; the issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA shares created by the convertible bond conversion. For AXA shareholders, these transactions resulted in the elimination, from an economic point of view, of the potential dilutive impact of the 2014 and 2017 convertible bonds (i.e. a maximum of 65.8 million shares). The total cash consideration paid by AXA amounts to €245 million. Page 6 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Events subsequent to June 30, 2007 On July 1, 2007, 50 free shares were allocated to each AXA employee worldwide. More than 100,000 AXA Group employees in 54 countries, will become shareholders and – depending on the country – will own the shares after two years (with a two year holding period) or after four years (without any holding period), providing they are still employed by AXA. Approved by AXA’s shareholders during the annual shareholder’s meeting on May 14, the resolution pertaining to the “AXA Miles” program allowed the Management Board to distribute free AXA shares to all AXA employees, representing up to 0.7% of AXA’s share capital (or around 14 million shares based on AXA’s current share capital). This allocation of 50 free shares constitutes the first step in the “AXA Miles” program which is one of several key human resources initiatives of AXA’s company-wide project “Ambition 2012”. On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio. This transaction aimed at transferring to the financial markets the deviation above a certain level of the cost of claims on the underlying liabilities: over 6 million individual motor contracts underwritten through multi-distribution channels and representing €2.6 billion of premiums in 2006, spread across a diversified portfolio covering 4 countries (Belgium, Germany, Italy and Spain). On July 5, 2007, AXA finalized definitive settlements with all claimants in litigations seeking nullity and avoidance (Nichtigkeits- und Anfechtungsklagen) of the squeeze-out resolutions adopted by the general meetings of AXA Konzern AG and Kölnische Verwaltungs-AG für Versicherungswerte on July 20 and July 21 2006, respectively. Following the completion of these settlements, the squeeze-out resolutions have been registered in the commercial register of AXA Konzern AG and Kölnische Verwaltungs-AG für Versicherungswerte on July 5, 2007. Thus, these squeeze-out resolutions are now effective and AXA holds 100% of the shares of these two subsidiaries. Following registration of these squeeze-outs, further litigation with minority shareholders on valuation issues is expected in a compensation review procedure (Spruchverfahren) under German law. On July 23, AXA Investment Managers (AXA IM) announced that, based on the assessement that the US Mortgage- Backed and Structured Securities' markets were experiencing a liquidity crisis, AXA IM had taken exceptional and temporary steps in order to ensure that redemptions incurred by the US Libor Plus strategy would not induce further pressure, by ensuring liquidity in the funds. In particular, AXA IM will match all redemptions that will be carried out by clients in these funds in subscribing a number of shares equal to the number redeemed at the prevailing NAV, and that up until market liquidity gets back to normal. At August 3, AXA IM marked to market investment in Libor Plus was €281 million. On July 25, 2007, AXA announced it has reached an agreement with China Life Insurance Co Ltd., a life insurance company incorporated in Taiwan, for the sale of Winterthur Life Taiwan Branch (WLTB). In 2006, WLTB had a premium volume of circa €100 million (US GAAP) and a 0.35% market share. The transaction is subject to customary regulatory approvals and is expected to close by year end 2007. On July 27, 2007, AXA and UkrSibbank, the Ukrainian banking subsidiary of BNP Paribas, announced that they reached an agreement to acquire 99% of the share capital of Vesko, Ukraine’s 6th largest P&C insurer. Vesko’s revenues for 2006 of $28 million were well balanced between individual and commercial lines and between proprietary and non-proprietary distribution. Completion of this transaction is subject to the customary regulatory approvals and expected to take place before year-end 2007. The combination of Vesko with Ukrainian Insurance Alliance will form the 3rd largest Property & Casualty insurer in Ukraine. Page 7 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Consolidated Operating results Consolidated gross revenues Consolidated Gross Revenues (a) HY 2007 HY 2006 Pro forma (c) HY 2006 Published FY 2006 Pro forma (c) FY 2006 Published Life & Savings 31 555 25 434 25 732 49 952 50 479 of which Gross written premiums 30 516 24 626 24 920 48 268 48 786 of which Fees and revenues from investment contracts with no participating feature 381 289 289 608 608 Property & Casualty 14 195 10 637 10 815 19 510 19 793 International Insurance 2 489 2 520 2 520 3 716 3 716 Asset Management 2 407 2 090 2 090 4 406 4 406 Other Financial services (Net banking revenues) (b) 156 181 181 381 381 TOTAL 50 801 40 863 41 338 77 966 78 775 (a) Net of intercompany eliminations (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €163 million and €50,811 million for the period of June 30, 2007. (c) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE in this document means including Winterthur in both periods. Consolidated gross revenues for first half 2007 reached €50,801 million, up 24% compared to first half 2006. Excluding the restatements to comparable basis, mainly the impact of restating first half 2006 for Winterthur (€8,920 million or -22.9 points) and the appreciation of the Euro against other currencies (€1,353 million or +3.3 points, mainly from the Japanese Yen and US Dollar), gross consolidated revenues were up 5% on a comparable basis. Total Life & Savings New Business APE1 reached €3,877 million, up 28% compared to first half 2006. On a comparable basis, New Business APE increased by 11%, mainly driven by the United Kingdom and the United States, partly offset by Japan and Southern Europe. France APE increased by €11 million (+2%) to €642 million on a comparable basis, especially thanks to Group life and health (€+12 million or +10% to €137 million), Group retirement (€+45 million or +83% to €99 million) and individual Health (€+8 million or +25% to €42 million) whereas individual savings APE decreased by €54 million (- 13%) to €350 million. The United States APE increased by €115 million (+12%) to €1,107 million or +21% on a comparable basis, with strong growth in Variable Annuities (to €608 million, up €87 million or 15%) and Life products (to €244 million, up €103 million or 64%). The United Kingdom APE increased by €342 million (+72%) on a reported basis to €819 million or +26% on a comparable basis, due to high volumes of low margin wholesale offshore bonds in 1Q07 prior to a change in tax 1 Annual premium equivalent is New regular premiums, plus one tenth of Single premium, in line with Group EEV methodology. APE is Group Share. Page 8 of 76 (in euro million) HY 2007/2006 24,1% 23,9% 32,2% 33,4% ‐1,2% 15,1% ‐14,0% 24,3% AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 legislation which has removed the tax advantages of some of these products, and 15% growth in Pensions primarily due to the strength of the combined AXA and Winterthur Individual Pensions proposition. Japan APE declined by €30 million (-9%) to €308 million on a reported basis, or by €62 million (-16%) on a comparable basis. APE was mainly driven by individual business that decreased by €-58 million (-15%) to €300 million, with Life APE down -42% or €-108 million, as the sales of LTPA, Term products sold through independent financial advisors and Increasing Term have declined due notably to tax changes on some of these products and the company’s strategy of growing more profitable medical products; partly offset by Health APE up +77% or €+58 million reflecting the implementation of that strategy. Germany APE increased by €80 million (+63%) to €207 million on a reported basis or +2% on a comparable basis, mainly driven by strong growth in individual investment & savings unit-linked products (especially "TwinStar” product) and an increase in Health insurance, partly offset by negative Riester impact (increase of the premium level of “Riester”- contracts in 2006 as a result of fiscal incentive). Switzerland APE decreased by €4 million or -3% to €147 million on a comparable basis. Group Life decreased by €4 million or -3% to €121 million in line with the evolution of gross revenues and Individual Life remained stable at €26 million driven by strong growth in unit-linked business of +117% to €7 million partly offset by a reduction in Traditional business of -16% to €19 million. Belgium APE increased by €20 million to €183 million on a reported basis or +8% on a comparable basis, due to the increase in individual business (+5% to €168 million), mainly driven by non unit-linked products (mainly Crest 40), and group life (+81% to €15 million). Southern Europe APE increased by €19 million to €84 million on a reported basis or declined by 6% or €-6 million on a comparable basis driven by the non-recurrence of a 2006 pension fund outsourcing premium (€12 million) at Winterthur. Australia/New Zealand APE, excluding the Joint Venture with AllianceBernstein, increased by €60 million to €188 million due to continued strong inflows into the mezzanine ‘global equity value fund’ and into Summit and Generations superannuation products. Including AllianceBernstein flows, which were flat year on year as the strong flows in the first half of 2006 were repeated, APE increased by €61 million (+28%). Property & Casualty gross revenues were up 33% to €14,195 million, or +4% on a comparable basis mainly driven by United Kingdom & Ireland (+8% to €2,723 million), Southern Europe (+4% to €2,290 million), Belgium (+3% to €1,155 million) and France (+2% to 2,895 million). Personal lines (59% of P&C premiums) were up 5% on a comparable basis, stemming from both Motor (+5%) and Non-Motor (+5%). Motor revenues grew +5%, mainly driven by Southern Europe (+7%, recording strong net inflows of 250,200 policies despite the hardening market conditions), United Kingdom & Ireland (+22% principally arising from an increased share of business through the acquired Swiftcover intermediary and new business growth in the UK), Germany (+1% with strong positive net inflows of 97,101 policies despite a shrinking market due to price softening), and Belgium (+4% following portfolio increases). Japan (+18%) and Turkey (+21%) also contributed to motor revenue growth. Non-motor revenues increased by 5% mainly driven by the United Kingdom & Ireland (+9%, with property up +6% from new business growth in the UK and Health up +11% from higher inflows and average premiums), France (+2% driven by positive net inflows in Household of +17,700 new contracts), Belgium (+6% due to the implementation of the Natural Disaster guarantee in the household policies), Southern Europe (+8% driven by strong net inflows in Household of +54,600 policies) and Germany (+2% owing to the successful launch of the new packaged product 'Profischutz' for SMEs). Page 9 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Commercial lines (40% of P&C premiums) recorded a +3% growth on a comparable basis mainly driven by Non-Motor (+3%). Motor revenues were up 1% on a comparable basis, mainly as positive evolutions in France (+2%, reflecting positive rate increase offset by negative net inflow trend), Germany (+7%, as a result of higher average number of vehicles in existing fleets), and the United Kingdom & Ireland (+3% reflecting volume and average premium growth despite a reduction in Ireland due to high competition), were partly offset by Southern Europe (-8% following some fleet cancellations). Non-motor revenues were up 3% on a comparable basis, mainly driven by the United Kingdom & Ireland (+5%, mainly in property and health), France (+5% driven by Construction and buildings), and Switzerland (+1% mainly in workers’ compensation and property reflecting tariffs increase, partly offset by health and transport). International Insurance revenues were down -1% or up 7% on a comparable basis to €2,489 million attributable to both AXA Corporate Solutions Assurance and AXA Assistance. AXA Corporate Solutions Assurance revenues were up +9% or +8% on a comparable basis to €1,196 million, driven by portfolio development in property, motor and marine. AXA Assistance revenues were up +13% or +11% on a comparable basis to €350 million mainly due to home insurance in the United Kingdom and travel insurance development. Asset management revenues increased by 15% or +22% on a comparable basis to €2,407 million driven by higher average Assets under Management (+22% on a comparable basis). AllianceBernstein revenues were up +10% or 19% on a comparable basis to €1,552 million due to +25% higher investment advisory fees driven by 23% higher average AUM from strong financial markets and net new business inflows. AUM increased by €43 billion to €587 billion driven by €17 billion net inflows across all client categories and €40 billion favorable market impact, partly offset by €15 billion unfavorable exchange rate impact. AXA Investment Managers revenues increased by 27% or +28% on a comparable basis to €855 million driven by higher average AUM (+22%) and a positive client and product mix evolution. AUM increased by €81 billion to €566 billion mainly driven by €15 billion positive net inflows, mainly from third- party institutional and retail clients, €8 billion favorable market impact, and €61 billion related to the integration of Winterthur, partly offset by €-3 billion foreign exchange rate impact. Net banking revenues in Other Financial Services were down -14% or -5% on a comparable basis to €156 million, mainly attributable to AXA Bank Belgium (-11% on a comparable basis to €116 million) in the context of an unfavorable yield curve and of an increase of short term interest rates. Page 10 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Consolidated underlying, adjusted earnings and net income HY 2007 HY 2006 Restated (b) HY 2006 Published FY 2006 Pro forma (c) Gross written premiums 47 089 37 696 38 167 71 299 Fees and revenues from investment contracts with no participating feature 384 289 289 608 Revenues from insurance activities 47 474 37 985 38 456 71 907 Net revenues from banking activities 163 200 200 393 Revenues from other activities 3 174 2 700 2 704 5 684 TOTAL REVENUES 50 811 40 884 41 360 77 984 Change in unearned premium reserves net of unearned revenues and fees (3 829) (1 927) (1 974) (474) Net investment result excluding financing expenses (a) 17 423 9 443 9 610 30 286 Technical charges relating to insurance activities (a) (49 989) (36 342) (36 779) (83 115) Net result of reinsurance ceded (609) (493) (497) (1 450) Bank operating expenses (24) (38) (38) (78) Insurance Acquisition expenses (4 131) (3 387) (3 426) (7 079) Amortization of value of purchased life business in force (202) (151) (154) (232) Administrative expenses (5 001) (4 179) (4 220) (8 668) Valuation allowances on tangibles assets 3 (1) (1) 18 Other (225) (319) (320) (448) Other operating income and expenses (60 178) (44 910) (45 435) (101 052) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 4 227 3 490 3 561 6 745 Net income from investments in affiliates and associates 13 12 12 21 Financing expenses (229) (256) (316) (473) OPERATING INCOME GROSS OF TAX EXPENSE 4 011 3 246 3 258 6 293 Income tax expenses (1 014) (886) (888) (1 754) Minority interests in income or loss (311) (280) (280) (620) Other 2 ‐ ‐ ‐ UNDERLYING EARNINGS 2 688 2 079 2 090 3 919 Net realized capital gains attributable to shareholders 736 751 826 1 107 ADJUSTED EARNINGS 3 424 2 830 2 916 5 026 Profit or loss on financial assets (under fair value option) & derivatives (182) (248) (275) (228) Exceptional operations (including discontinued operations) 57 154 92 311 Goodwill and other related intangible impacts (55) (4) (4) (24) Integration costs (64) ‐ ‐ ‐ NET INCOME 3 180 2 732 2 729 5 085 (a) For the periods ended June 30, 2007 and June 30, 2006, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €8,773 million and €2,184 million, and benefits and claims by the offsetting amounts respectively. (b) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders' equity for all periods presented with impact on net income, and (iii) the restatement of The Netherlands' activities as discontinued businesses. (c) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. Page 11 of 76 (in euro million) FY 2006 Published 72 099 608 72 707 393 5 693 78 793 (498) 30 774 (84 074) (1 455) (78) (7 162) (241) (8 751) 18 (451) (102 193) 6 876 21 (474) 6 423 (1 793) (620) ‐ 4 010 1 130 5 140 (226) 196 (24) ‐ 5 085 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 (in euro million) HY 2006 Published Transfer of foreign exchange impact from adjusted earnings to net income TSDI reclassification impact The Netherlands Restatement HY 2006 Restated (**) Underlying earnings 2 090 ‐ 39 (49) 2 079 Net realized capital gains attributable to shareholders (*) 826 (62) ‐ (13) 751 Adjusted earnings 2 916 (62) 39 (63) 2 830 Profit or loss on financial assets (under Fair Value option) & derivatives (275) 62 (36) 1 (248) Exceptional operations (including discontinued operations) 92 ‐ ‐ 62 154 Goodwill and related intangibles (4) ‐ ‐ ‐ (4) Net Income 2 729 ‐ 3 (0) 2 732 (*) €62 million includes €36 million related to foreign exchange impact on TSDI (**) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders' equity for all periods presented with impact on net income, and (iii) the restatement of The Netherlands' activities as discontinued businesses. (in euro million) FY 2006 Published The Netherlands Restatement FY 2006 Pro forma (*) Underlying earnings 4 010 (91) 3 919 Net realized capital gains attributable to shareholders 1 130 (23) 1 107 Adjusted earnings 5 140 (114) 5 026 Profit or loss on financial assets (under Fair Value option) & derivatives (226) (1) (228) Exceptional operations (including discontinued operations) 196 115 311 Goodwill and related intangibles (24) ‐ (24) Net Income 5 085 ‐ 5 085 (*) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. Underlying, Adjusted earnings and Net Income (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) FY 2006 Published Life & Savings 1 489 1 193 1 224 2 270 2 325 Property & Casualty 963 762 780 1 417 1 453 International Insurance 119 64 64 131 131 Asset Management 286 233 233 508 508 Other Financial Services 13 33 33 51 51 Holding companies (183) (206) (244) (457) (457) UNDERLYING EARNINGS 2 688 2 079 2 090 3 919 4 010 Net realized capital gains attributable to shareholders 736 751 826 1 107 1 130 ADJUSTED EARNINGS 3 424 2 830 2 916 5 026 5 140 Profit or loss on financial assets (under Fair Value option) & derivatives (182) (248) (275) (228) (226) Exceptional operations (including discontinuted operations) 57 154 92 311 196 Goodwill and related intangibles impacts (55) (4) (4) (24) (24) Integration costs (64) ‐ ‐ ‐ ‐ NET INCOME 3 180 2 732 2 729 5 085 5 085 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders' equity for all periods presented with impact on net income, and (iii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. Page 12 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Group underlying earnings amounted to €2,688 million. Excluding the contribution of Winterthur in first half 2007 (€288 million) and on a constant exchange rate basis, underlying earnings grew by €393 million, attributable mainly to Life & Savings and Asset Management. Life & Savings underlying earnings amounted to €1,489 million. Excluding the contribution of Winterthur (€123 million) and on a constant exchange rate basis, Life & Savings underlying earnings were up €+229 million mainly attributable to the United Kingdom (€+52 million), France (€+45 million), the United States (€+40 million), Germany (€+28 million), and Belgium (€+33 million). Excluding the contribution of Winterthur and on a constant exchange rate basis, underlying earnings increased by €229 million mainly resulting from: (i). An improved investment margin (€+78 million), primarily in France (€+28 million in line with asset base evolution), Belgium (€+22 million due to the decrease of the credited rate driven by a product mix shift towards Crest 30 and 40 while the average rate of return increased), Japan (€+17 million due to higher income from the fixed maturity portfolio and strong returns from the alternative investments partly offset by higher interest credited), Germany (€+13 million mainly driven by higher return on fixed income investments), and Southern Europe (€+10 million due to higher investment income from a larger asset base combined with a lower policyholder distribution rate), partly compensated by the United States (€-18 million primarily due to lower General Accounts asset levels, and lower prepayments partially offset by higher distributions from private equity investments). (ii). Higher Fees and Revenues (€+448 million) principally pulled up by the United States (€+164 million mainly due to higher separate account fees resulting from positive net cash flows and the impact of the market appreciation on separate account balances), France (€+61 million due to higher loadings on increased Life & Health sales and increased fees based on unit-linked asset base), Australia / New Zealand (€+49 million reflecting higher inflows and growth of funds under management and administration, following strong market performance), the United Kingdom (€+48 million principally due to Thinc Group for €32 million), Hong Kong (€+39 million as a result of both improved new sales and a growing in-force portfolio), and Japan (€+35 million consistent with the inforce growth especially in Increasing Term and Medical lines). (iii). An improved net technical margin (€+34 million) mainly driven by France (€+86 million mainly due to the 2006 one off negative impact of additional annuity reserves in retirement following change in regulatory mortality tables and to an increasing technical result in life and health), partly offset by the United States (€-27 million mainly from higher fixed life’s no lapse guarantee reserves due to a change in business mix, and lower GMDB/IB margins, partially offset by improved reinsurance assumed margins) and Australia / New Zealand (€-21 million due to a less favorable claims termination experience in individual income protection and a non- recurring increase in provisions in the group risk business). This was partly offset by: (i). Higher expenses including Deferred Acquisition Costs (€-327 million impact), mainly in the United States (€-101 million mainly driven by higher DAC amortization reflecting lower DAC unlocking in 2007 and higher revenues from separate account fees), France (€-97 million from increased commissions due to a volume effect in health and life as well as to unit-linked reserves growth in savings, higher general expenses primarily as a result of new IT projects, and lower level of deferred acquisition costs capitalization net of amortization), the United Kingdom (€-45 million mainly driven by the inclusion of the Thinc Group for €-39 million), Australia / New Zealand (€-28 million reflecting higher commissions associated with increased fees and revenues) and Japan (€-26 million mainly due to higher commissions as a result of variable annuity sales growth, Medical sales incentives and the business mix shift to more profitable and higher commission-paying medical products). (ii). A higher level of VBI amortization (€-2 million) mainly attributable to Japan (€-17 million driven by a combination of the one time 1Q07 old Medical Whole Life policies upgrade program and higher Term & Whole Life surrenders), partly offset by France (€+10 million following the full amortization of a segment of the UAP portfolio in 2006). (iii). Slightly higher tax and minority interests (€-1 million) as the €17 million increase in minority interests (€18 million attributable to Hong Kong driven by higher earnings) were offset by the €16 million decrease in income tax mainly attributable to the United Kingdom (€55 million reduction due to €32 million adverse non recurring tax adjustment in the first half of 2006 and €28 million reduction in deferred tax following the decrease in the Corporate Tax rate enacted in June 2007), Belgium (€20 million decrease due to a €26 million 2006 tax refund as a result of the 2007 favorable court decision for insurance companies), and the United States (€16 million reduction mainly due to €24 million release of tax reserves), partly offset by France (€42 Page 13 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 million increase mainly due to increased taxable income and as 2006 benefited from an exceptionally low tax rate). Property & Casualty underlying earnings amounted to €963 million. Excluding the contribution of Winterthur in first half 2007 (€160 million), Property and Casualty underlying earnings increased by €41 million driven by almost all countries except the United Kingdom (€-52 million): (i) Higher investment income (€+74 million) mainly driven by France (€+31 million), the United Kingdom (€+18 million) and Southern Europe (€+15 million). (ii) Lower income tax expense and minority interests (€+126 million) mainly due to €85 million tax one offs attributable to the United Kingdom (€33 million tax benefit arising on settlement of prior years’ tax), Germany (€42 million release of tax provision after the positive outcome of a tax audit on the ex-Albingia portfolio), and Belgium (€10 million tax refund as a result of the 2007 favorable court decision for insurance companies), Partly compensated by: (iii) A lower net technical result (€-19 million), with an all year loss ratio increasing by 1.5 points to 70.2% of which 3.3 points related to major losses (Kyrill: 2.1 points and floods in the UK: 1.2 points). (iv) Higher expenses (€-140 million) equivalent to 0.2 point deterioration of the expense ratio to 28.4 % driven by the United Kingdom (+0.5 point), Germany (+0.5 point), France (+0.3 point) party offset by Belgium (-0.5 point) and Canada (-1.3 points). As a consequence, excluding Winterthur, the combined ratio increased by 1.6 points to 98.6%. International Insurance underlying earnings amounted to €119 million. Excluding the contribution of Winterthur in first half 2007 (€12 million) and on a constant exchange rate basis, International insurance underlying earnings increased by €45 million mainly attributable to Other international activities (€+32 million), mainly due to the favorable loss reserve development on some run-off portfolios (€+27 million) and despite some reserve reinforcement on Asbestos. Asset Management underlying earnings amounted to €286 million. Excluding the contribution of Winterthur in first half 2007 (€5 million) and on a constant exchange rate basis, asset management underlying earnings increased by €63 million attributable to both AllianceBernstein (€+28 million) and AXA Investment Managers (€+35 million), following: (i) higher average Assets Under Management (+22% of which +23% at AllianceBernstein and +22% at AXA Investment Managers), (ii) positive client and product mix evolution, (iii) increased efficiency (cost income ratio improved by 1.4 points to 67.6%). Other Financial Services underlying earnings decreased by €20 million to €13 million, mainly due to non recurring one offs in 2006 in Compagnie Financière de Paris and Sofinad (€-18 million). Holdings underlying earnings amounted to €-183 million. Excluding the contribution of Winterthur in first half 2007 (€-13 million) and on a constant exchange rate basis, holdings underlying earnings increased by €31 million due to: (i) AXA SA (€+38 million) mainly due to a €31 million profit linked to foreign currency options hedging AXA Group underlying earnings denominated in foreign currencies, a lower €32 million finance charge mainly related to a strengthening of the Euro and a €32 million profit related to an internal equity swap, partly offset by €-14 million higher expenses mostly related to AXA brand scope extension to Winterthur and a €-39 million non recurring tax benefit in the first half year 2006. Partly offset by, (ii) AXA France Assurance (€-10 million) as a result of higher tax expenses resulting from higher dividends (eliminated in consolidation) received from operational entities. Group net capital gains attributable to shareholders amounted to €736 million. Excluding the contribution of Winterthur in first half 2007 (€0 million) and on a constant exchange rate basis, group net capital gains attributable to shareholders were down €-4 million mainly due to Belgium (€-84 million to €264 million, of which €-32 million in Page 14 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings and €-52 million in Property and Casualty), partly offset by France (€+77 million to €157 million, of which €+74 million in Life & Savings and €+3 million in Property & Casualty). Adjusted earnings amounted to €3,424 million. Excluding the contribution of Winterthur in first half 2007 (€288 million) and on a constant exchange rate basis, adjusted earnings were up €+393 million as a result of higher underlying earnings partly offset by lower net capital gains. Net Income amounted to €3,180 million. Excluding the contribution of Winterthur in first half 2007 (€262 million) and on a constant exchange rate basis, net income increased by €+264 million. This growth was the result of: (i) Higher adjusted earnings (€+393 million excluding Winterthur and on a constant exchange rate basis) (ii) Improved result on financial assets accounted for under Fair Value Option and derivatives including foreign exchange impact (€+66 million or €+59 million excluding Winterthur and on a constant exchange rate basis to €-182 million) principally attributable to France (€+48 million to €-52 million) following an increase of change in fair value of fixed maturities included in mutual funds, partly offset by a decrease of change in fair value of derivatives, and AXA SA (€+28 million to €-88 million) as a result of the change of the mark-to-market on foreign exchange and interest rate derivatives. (iii) Higher goodwill and other related intangible impacts (€-51 million or €-28 million excluding Winterthur and on a constant exchange rate basis to €-55 million) of which €-25 million at Winterthur related to amortization of customer intangible and €-30 million at AXA mainly attributable to the United States following management’s decision to wind down operations at USFL. (iv) Lower exceptional operations result including discontinued operations (€-97 million or €-106 million excluding Winterthur and on a constant exchange rate basis to €57 million in first half 2007, of which €-17 million related to exceptional operations and €74 million related to discontinued operations). − Following the June 4, 2007 announcement of the Dutch activities' sale to SNS REAAL, the Group has classified The Netherlands as a discontinued operation, i.e. impacting net income only with a retroactive application. The contribution to net income of The Netherlands in first half 2007 amounted to €74 million, of which €16 million from Winterthur, versus €69 million in first half year 2006. − Half year 2007 Exceptional operations (€-17 million) are related to (i) €-7 million in AXA Financial related to the transfer of Enterprise Capital activities, (ii) €-9 million dilution losses and €2 million related to the sale of cash Management in AllianceBernstein, and (iii) €-3 million in Switzerland related to tax on foreign exchange impact on sale of United States Property & Casualty business. − Half-Year 2006 exceptional operations (€+85 million) mainly related in AllianceBernstein from the sale in 2005 of Alliance cash management services (€4 million net), dilution gain from the issuance of Alliance Holding units and related adjustment of deferred tax liability also resulting from dilution gain from prior period (€81 million), (iii) a release of contingency provision related to the sale of Advest (€+3 million) and a reversal of a deferred tax adjustment related to Sanford Bernstein acquisition (€+9 million) in Axa Financial Holding, and (iv) €2 million effect related to the finalization of the impact of the 2005 settlement with Nationwide in AXA France Assurance and UK holding, partly offset by (v) €-10 million in AXA SA representing a charge for real estate transfer tax, following exceeding the 95% threshold of AXA Konzern ownership, and (vi) Citadel's restructuring costs in Canada (€-4 million). to (i) on-going fees (v) Winterthur Integration costs of €-64 million of which €-45 million at AXA and €-19 million at Winterthur. Consolidated Shareholders’ Equity As of June 30, 2007, consolidated shareholders' equity totaled €45.7 billion. The movement in shareholders' equity since December 31, 2006 is presented in the table below: Page 15 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 (in euro million) Shareholders' Equity At December 31, 2006 Share Capital Capital in excess of nominal value Equity‐share based compensation Treasury shares sold or bought in open market Change in equity component of compound financial instruments Super subordinated debt (including accrued interests) Fair value recorded in shareholders' equity Impact of currency fluctuations Cash dividend Other Net income for the period 47 226 11 42 21 (645) (109) (183) (1 794) (259) (2 218) (62) 3 180 Actuarial gains and losses on pension benefits 516 At June 30, 2007 45 725 At June 30, 2007, AXA's invested assets included a low exposure to US subprime residential and Alt A mortgage loans of approximately €2.3 billion (92% equaling or above AA rating and 55% estimated policyholders participation). Shareholder Value EARNINGS PER SHARE (“EPS”) (in euro million except ordinary shares in millions) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Proforma (b) FY 2006 Published Var. HY 2007 versus HY 2006 Restated Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted numbers of shares (c) 2 061,3 2 082,7 1 863,9 1 946,3 1 828,4 1 910,8 1 947,8 2 031,7 1 947,8 2 031,7 Net income 3 180 3 180 2 732 2 789 2 729 2 786 5 085 5 199 5 085 5 199 Net income (Euro per Ordinary Share) 1,54 1,53 1,47 1,43 1,49 1,46 2,61 2,56 2,61 2,56 5,2% 6,5% Adjusted earnings 3 424 3 424 2 830 2 887 2 916 2 973 5 026 5 140 5 140 5 254 Adjusted earnings (Euro per Ordinary Share) 1,66 1,64 1,52 1,48 1,59 1,56 2,58 2,53 2,64 2,59 9,4% 10,8% Underling earnings 2 688 2 688 2 079 2 136 2 090 2 147 3 919 4 032 4 010 4 124 Underling earnings (Euro per Ordinary Share) 1,30 1,29 1,12 1,10 1,14 1,12 2,01 1,98 2,06 2,03 16,9% 17,6% (a) restated means: (i) transfer of the forex impact from adjusted earnings to net income, (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders' equity for all periods presented in the 2006 financial statements with impact on net income and (iii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (c) Following the capital increase related to Winterthur acquisition, the weighted average number of shares has been restated (IAS 33 §26) in HY 2006 and FY 2006 by using an adjustment factor of 1,019. Page 16 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 RETURN ON EQUITY (“ROE”) A new calculation has been implemented at HY 2007 closing, with the following principles: − For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (TSS / TSDI) and OCI, and net income not reflecting any interest charges on TSS / TSDI. − For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. (in euro million) Period ended , June 30, 2007 Period ended , June 30, 2006 Change in % points ROE 14,3% 18,8% 4,5% Net income 3 180 2 732 Average shareholders' equity 44 565 29 110 Adjusted ROE 21,6% 23,1% 1,4% Adjusted earnings (a) 3 285 2 777 Average shareholders' equity (b) 30 358 24 085 Underlying ROE 16,8% 16,8% 0,0% Underlying earnings (a) 2 549 2 026 Average shareholders' equity (b) 30 358 24 085 Important note : annualized ROE. (a) Including adjustement to reflect financial charges related to perpetual debt (recorded through shareholders' equity). (b) Excluding change in fair value on invested assets and derivatives (recorded through shareholders equity), and excluding perpetual debt (recorded through shareholders' equity). Page 17 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated Life & Savings Segment (a) HY 2007 HY 2006 Restated (c) HY 2006 Published FY 2006 Pro forma (d) Gross written premiums 30 540 24 628 24 922 48 275 Fees and revenues from investment contracts without participating feature 381 289 289 608 Revenues from insurance activities 30 922 24 917 25 211 48 883 Net revenues from banking activities ‐ ‐ ‐ ‐ Revenues from other activities 658 519 524 1 076 TOTAL REVENUES 31 580 25 436 25 735 49 959 Change in unearned premium reserves net of unearned revenues and fees (1 038) (137) (144) (250) Net investment result excluding financing expenses (b) 15 926 8 322 8 475 28 198 Technical charges relating to insurance activities (b) (40 658) (28 752) (29 113) (68 236) Net result of reinsurance ceded (29) (24) (26) (27) Bank operating expenses ‐ ‐ ‐ ‐ Insurance Acquisition expenses (1 767) (1 491) (1 504) (3 065) Amortization of value of purchased life business in force (202) (151) (154) (232) Administrative expenses (1 648) (1 328) (1 350) (2 814) Valuation allowances on tangible assets 0 (0) (0) 7 Other (39) (72) (72) (110) Other operating income and expenses (44 344) (31 820) (32 220) (74 477) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 2 123 1 801 1 846 3 430 Net income from investments in affiliates and associates 7 6 6 12 Financing expenses (30) (41) (41) (76) OPERATING INCOME GROSS OF TAX EXPENSE 2 101 1 766 1 811 3 366 Income tax expenses (508) (484) (499) (903) Minority interests in income or loss (103) (89) (89) (193) Other ‐ ‐ ‐ ‐ UNDERLYING EARNINGS 1 489 1 193 1 224 2 270 Net realized capital gains attributable to shareholders 416 406 440 575 ADJUSTED EARNINGS 1 905 1 599 1 664 2 845 Profit or loss on financial assets (under fair value option) & derivatives (61) (85) (107) 48 Exceptional operations (including discontinued operations) 46 43 ‐ 74 Goodwill and other related intangible impacts (29) (2) (2) (10) Integration costs (13) ‐ ‐ ‐ NET INCOME 1 849 1 555 1 555 2 957 (a) before intercompany transactions (b) For the periods ended June 30, 2007 and June 30, 2006, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €8,773 million and €2,184 million, and benefits and claims by the offsetting amounts respectively. (c) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (d) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. Page 18 of 76 (in euro million) FY 2006 Published 48 793 608 49 401 ‐ 1 084 50 485 (271) 28 656 (69 052) (28) ‐ (3 073) (241) (2 863) 7 (111) (75 361) 3 509 12 (76) 3 445 (928) (193) ‐ 2 325 597 2 921 49 (3) (10) ‐ 2 957 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Consolidated Gross Revenues HY 2007 HY 2006 Pro forma (a) HY 2006 Published FY 2006 Pro forma (a) France 7 798 7 620 7 620 14 802 United States 8 206 7 948 7 948 15 390 United Kingdom 2 388 2 071 2 071 4 292 Japan 2 663 2 714 2 714 5 027 Germany 2 986 1 701 1 701 3 681 Switzerland 3 240 84 84 141 Belgium 1 629 1 307 1 307 2 512 Southern Europe (b) 876 680 680 1 357 Other countries 1 794 1 312 1 610 2 756 TOTAL 31 580 25 436 25 735 49 959 Intercompany transactions (24) (2) (2) (7) Contribution to consolidated gross revenues 31 555 25 434 25 732 49 952 (a) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (b) Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece. Underlying, Adjusted earnings and Net Income HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) France 353 308 308 462 United States 488 488 488 1 000 United Kingdom 136 80 80 155 Japan 133 130 130 256 Germany 73 28 28 69 Switzerland 82 3 3 3 Belgium 72 35 35 65 Southern Europe (c) 35 25 25 50 Other countries 118 97 128 210 UNDERLYING EARNINGS 1 489 1 193 1 224 2 270 Net realized capital gains attributable to shareholders 416 406 440 575 ADJUSTED EARNINGS 1 905 1 599 1 664 2 845 Profit or loss on financial assets (under Fair Value option) & derivatives ‐61 ‐85 ‐107 48 Exceptional operations (including discontinuted operations) 46 43 0 74 Goodwill and related intangible impacts ‐29 ‐2 ‐2 ‐10 Integration costs ‐13 0 0 0 NET INCOME 1 849 1 555 1 555 2 957 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (c) Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece. Page 19 of 76 (in euro million) FY 2006 Published 14 802 15 390 4 292 5 027 3 681 141 2 512 1 357 3 283 50 485 (7) 50 479 (in euro million) FY 2006 Published 462 1 000 155 256 69 3 65 50 265 2 325 597 2 921 49 ‐3 ‐10 0 2 957 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – France (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published Gross revenues 7 798 7 620 7 620 14 802 APE (group share) 642 630 630 1 231 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 516 717 150 ‐921 ‐21 489 656 65 ‐823 ‐31 489 656 65 ‐823 ‐31 890 1 345 88 ‐1 680 ‐68 Underlying operating earnings before tax 442 355 355 575 Income tax expenses / benefits Minority interests ‐87 ‐1 ‐45 ‐1 ‐45 ‐1 ‐111 ‐2 Underlying earnings group share 353 308 308 462 Net capital gains attributable to shareholders net of income tax 125 51 60 204 Adjusted earnings group share 478 359 368 666 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs ‐38 ‐ ‐ ‐ ‐80 ‐ ‐ ‐ ‐89 ‐ ‐ ‐ 110 ‐ ‐ ‐ Net income group share 440 279 279 776 (a) Restated means : transfer of the forex impact from adjusted earnings to net income. Gross revenues increased by €178 million (+2%) to €7,798 million. Net of intercompany transactions, gross revenues increased by €174 million (+2%) to €7,791 million in the context of a decreasing French life insurance market following a very strong 2006 year: − Investment & Savings premiums decreased by €15 million to €5,367 million resulting from the decrease in individual savings (€-386 million or -8% to €4,316 million) in the context of a decreasing French market after strong growth in 2006, partly offset by a strong increase in group retirement (€+371 million or €+55% to €1,051 million) resulting from new business inflows. − Life & Health premiums increased by €188 million (+8%) to €2,424 million driven by increased new business in both Individual and Group lines. APE increased by €11 million (+2%) to €642 million on a comparable basis, especially thanks to Group life and health (€+12 million or +10% to €137 million), Group retirement (€+45 million or +83% to €99 million) and individual Health (€+8 million) whereas individual savings APE decreased by €54 million (-13%) to €350 million. Investment margin increased by €28 million (+6%) to €516 million in line with asset base evolution. Fees & revenues were up €61 million (+9%) to €717 million resulting from the impact of higher sales on life & health products (€+32 million) and increased fees based on unit-linked asset base (€+18 million). Net technical margin rose by €86 million to €150 million mainly due to the 2006 one off negative impact of additional annuity reserves in retirement following change in regulatory mortality tables (€+33 million) and to an increasing technical result in life and health (€+27 million) benefiting from both volume effect and a sustained level of favourable prior year reserve developments. Expenses were up €97 million to €-921 million mainly due to (i) increased commissions (€+38 million to €-399 million) due to a volume effect in health and life as well as to unit-linked reserves growth in savings, (ii) higher general expenses (€+34 million or +6%) primarily as a result of new IT projects, and (iii) a €25 million lower level of deferred acquisition costs capitalization net of amortization. Page 20 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Amortization of VBI decreased by €10 million to €-21 million following the full amortization of a segment of the UAP portfolio in 2006. Underlying cost income ratio improved by 2.6 points to 68.1%. Income tax expenses increased by €42 million to €-87 million mainly due to increased taxable income (€30 million) and as 2006 benefited from an exceptionally low tax rate. As a consequence, underlying earnings improved by €45 million to €353 million. Adjusted earnings increased by €119 million to €478 million resulting from higher underlying earnings and a €74 million increase in capital gains attributable to shareholders to €125 million, mainly on real estate and equities. Net income was up €161 million to €440 million due to higher adjusted earnings and a €+71 million increase of change in fair value of fixed maturities included in mutual funds resulting from a lower increase of interest rate, partly offset by a €-21 million decrease of change in fair value of derivatives and a €-7 million decrease of foreign exchange gains. Page 21 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations - United States HY 2007 HY 2006 Gross revenues 8 206 7 948 APE (group share) 1 107 993 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 368 887 292 (835) (26) 416 796 344 (803) (34) Underlying operating earnings before tax 686 719 Income tax expenses / benefits Minority interests (198) (0) (231) (0) Underlying earnings group share 488 488 Net capital gains attributable to shareholders net of income tax (0) (0) Adjusted earnings group share 488 488 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 7 (7) (20) ‐ 9 ‐ (2) ‐ Net income group share 468 495 Average exchange rate : 1.00 € = $ 1,3298 1,2285 Gross revenues increased by €257 million (+3%) to €8,206 million on a reported basis. On a comparable basis, gross revenues increased by €934 million (+12%) primarily driven by increases in First Year Variable Annuity premiums (up 15%) and First Year life premiums (up 47%). Other revenues were up 22% on a comparable basis due primarily to higher asset management fees. APE increased by €115 million (+12%) to €1,107 million on a reported basis. On a comparable basis, APE increased by €207 million (+21%), with strong growth in Variable Annuities (to €608 million, up €87 million or 15% ) and Life products (to €244 million, up €103 million or 64%) including Wholesale Life growth of €104 million (+139%) to €164 million partially offset by slight Retail Life declines of €1 million to €80 million. Investment margin decreased by €48 million (-12%) to €368 million. On a constant exchange rate basis, investment margin decreased by €18 million (4%). Investment income decreased by €23 million to €1,205 million primarily due to lower General Accounts asset levels, and lower prepayments partially offset by higher distributions from private equity investments. Interests and bonus credited decreased by €5 million due to lower balances. Fees & revenues increased by €91 million (+11%) to €887 million. On a constant exchange rate basis, fees & revenues increased by €164 million (+21%), due to higher fees earned on separate account business (€+141 million) resulting from positive net cash flows and the impact of the market appreciation on separate account balances, and higher mutual fund fees. Net technical margin decreased by €52 million (-15%) to €292 million. On a constant exchange rate basis, net technical margin decreased by €27 million (-8%) mainly attributable to higher fixed life’s no lapse guarantee reserves due to a change in business mix, and lower GMDB/IB margins, partially offset by improved reinsurance assumed margins. Page 22 of 76 (in euro million) FY 2006 15 390 1 922 858 1 632 634 (1 725) (65) 1 333 (334) (0) 1 000 30 1 029 0 ‐ (10) ‐ 1 020 1,2563 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Expenses (including commissions and DAC) increased by €32 million (4%) to €-835 million. On a constant exchange rate basis, expenses increased by €101 million (13%) due to: Expenses, net of capitalization (including commissions and DAC capitalization), increased by €26 million on a constant exchange rate basis principally due to higher commissions and a 3% increase in general expenses partially offset by increased DAC capitalization. - DAC amortization increased by €75 million on a constant exchange rate basis reflecting lower DAC unlocking in 2007 and higher revenues from separate account fees. VBI amortization decreased by €8 million (-23%) to €-26 million. On a constant exchange rate basis, VBI amortization decreased by €5 million (-16%). Underlying cost income ratio increased to 55.7% versus 53.8% in 2006, as the strong improvement in fees & revenues was more than offset by lower DAC unlocking, lower technical margin, higher expenses net of DAC capitalization, and lower investment margin. Income tax expenses decreased by €33 million (-14%) to €-198 million. On a constant exchange rate basis, income tax expenses decreased by €16 million (-7%), mainly due to a €24 million release of tax reserves. Underlying earnings of €488 million remained flat. On a constant exchange rate basis, underlying earnings increased by €40 million (+8%). This increase primarily reflected an increase in fees and revenues and lower income tax expense, partially offset by lower DAC unlocking and technical margin. Adjusted earnings of €488 million remained flat. On a constant exchange rate basis, adjusted earnings increased by €40 million (+8%) due to higher underlying earnings. Net income decreased by €27 million (-5%) to €468 million. On a constant exchange rate basis, net income increased by €12 million (+2%), primarily due to the increase in adjusted earnings partially offset by a €15 million impairment of intangibles related to management's decision to wind down operations at USFL, €7 million in restructuring charges associated with the transfer of the Enterprise retail mutual funds (ex-Mony) to Goldman Sachs, and a decrease in the positive mark to market of investments under fair value option. Page 23 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations - United Kingdom HY 2007 HY 2006 Restated (a) HY 2006 Published Gross revenues 2 388 2 071 2 071 APE (group share) 819 477 477 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 121 372 64 (411) (23) 103 286 64 (318) (15) 103 286 64 (318) (15) Underlying operating earnings before tax 123 120 120 Income tax expenses / benefits Minority interests 13 (0) (40) (0) (40) (0) Underlying earnings group share 136 80 80 Net capital gains attributable to shareholders net of income tax (23) 11 13 Adjusted earnings group share 112 91 93 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (11) ‐ (6) (5) 1 ‐ ‐ ‐ (2) ‐ ‐ ‐ Net income group share 90 91 91 Average exchange rate : 1.00 € = £ 0,6748 0,6873 0,6873 (a) Restated means : transfer of the forex impact from adjusted earnings to net income. Gross Revenues increased by €317 million (+15%) on a reported basis to €2,388 million, of which €33 million was due to Thinc Group (formerly Thinc Destini, a financial intermediary business). On a comparable basis, including Winterthur in both periods and excluding Thinc Group in 2007, the increase was €119 million (+5%): - Investment & Savings (77% of gross revenues): • Margins on Investment Products (14% of gross revenues) increased by 16%, primarily due to increased Front- End Fees due to higher Offshore Bond and Individual Pensions new business volumes. Insurance Premiums (63% of gross revenues) remained stable. Life Insurance Premiums (23% of gross revenues) increased by 16% primarily due to increased volumes of Creditor Insurance single premiums. APE increased by €342 million (+72%) on a reported basis to €819 million. On a comparable basis, APE increased by €167 million (+26%) due to high volumes of low margin wholesale offshore bonds in 1Q07 prior to a change in tax legislation which has removed the tax advantages of some of these products, and 15% growth in Pensions primarily due to the strength of the combined AXA and Winterthur Individual Pensions proposition. Investment Margin increased by €17 million (+17%) to €121 million. Excluding Winterthur and on a constant exchange rate basis, the total increase was €2 million (+2%) primarily due to shareholders' participation in higher With Profit bonuses (annual and Terminal bonuses) as a result of improved stock market performance and higher surrenders following the fifth anniversary of a large number of policies. Winterthur contribution amounted to €13 million. Page 24 of 76 (in euro million) FY 2006 Published 4 292 1 134 198 591 160 (645) (7) 297 (142) (0) 155 10 165 (27) ‐ ‐ ‐ 138 0,6817 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Fees & Revenues increased by €87 million (+30%) to €372 million. Excluding Winterthur and on a constant exchange rate basis, Fees & Revenues increased by €48 million (+17%) driven by: Thinc Group revenues & fees of €32 million, and - An increase of €19 million (+11%) in loadings on premiums primarily due to higher volumes of Offshore and Onshore Bonds, partly offset by A decrease of €3 million (-2%) in fees on Account Balances as higher management fees as a result of growth in the unit-linked inforce portfolio through positive net new money flows and market appreciation, were offset by €15 million of surrender charges on unit-linked investment products which have been reclassified to Technical Margin. Winterthur contribution amounted to €32 million. Net Technical Margin remained unchanged at €64 million. Excluding Winterthur and on a constant exchange rate basis, net technical margin decreased by €4 million (-6%). Excluding the impact of the change in the allocation methodology with fees and revenues (€+15 million as mentioned above), the net technical margin decreased by €19 million mainly due to the non recurrence of a favorable €51 million adjustment to unit-linked reserves related to prior years booked in 2006 following a resolution of tax matters, partly offset by a reduction in other reserves. Winterthur contribution amounted to €3 million. Expenses net of policyholder allocation1 increased by €93 million (+29%) to €-411 million. Excluding Winterthur and on a constant exchange rate basis, expenses increased by €45 million (+14%) principally driven by the inclusion of the Thinc Group (€39 million). Winterthur contribution amounted to €-41 million. VBI Amortization increased by €8 million (+51%) to €-23 million. Excluding Winterthur and on a constant exchange rate basis, the VBI amortization increased by €5 million (+32%) notably due to the higher annual bonus rates. Winterthur contribution amounted to €-3 million. Underlying cost income ratio increased from 73.6% to 76.7%, of which 3.4 points related to the inclusion of the Thinc Group. Income Tax Expenses decreased by €53 million on a reported basis to a profit of €13 million. Excluding Winterthur and on a constant exchange rate basis, the reduction of €55 million was due to a €32 million adverse non recurring tax adjustment in the first half of 2006 and €28 million reduction in deferred tax following the decrease in the Corporate Tax rate, enacted in June 2007. Winterthur contribution amounted to €-3 million. Underlying Earnings increased by €56 million (+70%) to €136 million. Excluding Winterthur and on a constant exchange rate basis, underlying earnings increased by €52 million (+65%) due to growth in Fees & Revenues driven by higher volumes of offshore and onshore bonds, one off tax benefits and improved With Profits bonus payments. Winterthur contribution amounted to €2 million. Adjusted Earnings increased by €21 million (+24%) to €112 million. Excluding Winterthur and on a constant exchange rate basis, adjusted earnings increased by €18 million (20%) reflecting the increase in underlying earnings partly offset by realized losses from disposals of some corporate bonds in 2007. Winterthur contribution amounted to €2 million. Net Income decreased by €1 million (-1%) to €90 million. Excluding Winterthur and on a constant exchange rate basis, the net income decreased by €-2 million (-2%) as the €+18 million increase in adjusted earnings was more than offset by a €-12 million change in fair value of assets under fair value option, of which €6 million increase in 1 Part of these expenses are located in the With-Profit funds and therefore are borne by policyholders. Page 25 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 undiscounted tax adjustment on unrealized gains attributable to policyholders in unit-linked life funds2, and €-9 million related to Winterthur integration costs (€-5 million) and amortization of intangible assets (€-4 million). Winterthur contribution amounted to €-1 million of which €-2 million amortization of intangible assets. 2 Undiscounted deferred tax provided on unit-linked assets while the unit liability reflects the expected timing of the payment of future tax therefore using a discounted basis. Page 26 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – Japan HY 2007 HY 2006 Restated (a) HY 2006 Published Gross revenues 2 663 2 714 2 714 APE (group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 308 24 502 80 (317) (74) 337 7 473 71 (299) (40) 337 7 473 71 (299) (40) Underlying operating earnings before tax 215 212 212 Income tax expenses / benefits Minority interests (79) (3) (78) (3) (78) (3) Underlying earnings group share 133 130 130 Net capital gains attributable to shareholders net of income tax 80 89 97 Adjusted earnings group share 212 219 227 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (23) ‐ ‐ (0) 4 ‐ ‐ ‐ (4) ‐ ‐ ‐ Net income group share 188 223 223 Average exchange rate : 1.00 € = Yen 154,164 139,960 139,960 (a) Restated means : transfer of the forex impact from adjusted earnings to net income. Gross Revenues declined by 2% to €2,663 million on a reported basis. On a comparable basis, and excluding group pension transfers (€29 million versus €251 million last year) and the conversion program started in January 2003 towards Life (€13 million versus €21 million last year) and Health (€16 million versus €44 million last year), revenues increased by €142 million (+5%) to €2,610 million, driven by: − Life (43% of gross revenues excluding conversions): Revenues decreased by 2% (€-31 million) to €1,119 million driven by lower Endowment, Whole Life, Term Rider and LTPA regular premiums (€-72 million), partially offset by higher Increasing Term revenue (€+47 million) reflecting the inforce block growth following strong sales of this regular premium product in the second half of 2006 − Health (26% of gross revenues excluding conversions): Revenues increased by 32% (€+180 million) to €679 million predominantly due to a one time 1Q07 program which upgraded selected old Medical Whole Life policies to more recent product generations and, to a lesser extent, an increase in the inforce block following strong sales in 4Q06, combined with higher Winterthur's revenues driven by Cancer sales; Investment & Savings (31% of gross revenues excluding group pension transfers): Revenues decreased by 1% (€-7 million) to €812 million with higher revenues from the launch of the Accumulator type products (both Yen and Dollar VA) (€+255 million) being more than offset by (i) lower SPA sales captured by salaried salesforce following high first half year 2006 “post-launch” levels (€-161 million) and (ii) lower regular premium individual fixed annuities (€-106 million) as the inforce block runs off (not actively promoted for new business). − APE declined by €30 million (-9%) to €308 million on a reported basis, or by €62 million (-16%) on a comparable basis. APE was mainly driven by individual business that decreased by €-58 million (-15%) to €300 million, notably: − Life: APE decreased by €-108 million (-42%) to €136 million, as the sales of LTPA (€-28 million), Term products sold through independent financial advisors (€-35 million) and Increasing Term (€-35 million) have declined due notably to tax changes on some of these products and the company’s focus towards more profitable medical products; Page 27 of 76 (in euro million) FY 2006 Published 5 027 651 (0) 931 130 (604) (31) 426 (164) (6) 256 38 293 (37) ‐ ‐ ‐ 256 142,949 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 − Health: APE grew by €+58 million (+77%) to €121 million reflecting the implementation of the strategy that aims − at growing more profitable medical products (mainly Medical Rider and Medical Whole Life); Investments & Savings: APE decreased by €-8 million (-14%) to €43 million, as the decrease of SPA sales sold by salaried salesforce (€-22 million), following high first half year 2006 “post-launch” levels, and of regular premium individual fixed annuities (€-12 million - not actively promoted) was not fully offset in the first semester by the recent launch of the Yen VA and Accumulator products (€+25 million). Investment Margin increased by €17 million to €24 million. Excluding Winterthur and on a constant exchange rate basis, investment margin increased by €17 million stemming from: − Higher investment income up €+39 million to €316 million driven by higher income from the fixed maturity portfolio and strong returns from the alternative investments; partly offset by − Higher interest credited up €+21 million on a constant exchange rate basis (volume effect) to €294 million. Winterthur contributed €2 million. Fees & Revenues increased by €29 million (+6%) to €502 million. Excluding Winterthur and on a constant exchange rate basis, fees & revenues were up €+35 million (+7%) to €461 million, consistent with the inforce growth, especially in Increasing Term and Medical lines, partially offset by the decline of Endowment and Fixed Annuity. Winterthur contributed €41 million. Net technical margin increased by €9 million (+13%) to €80 million. Excluding Winterthur and on a constant exchange rate basis, technical margin decreased by €4 million (-6%) to €60 million: − Mortality margin was stable at €52 million; − Surrender margin decreased by €5 million to €9 million, following a one time 1Q07 program which upgraded selected old Medical Whole Life policies to more recent product generations and the stabilization of Safety-Plus surrenders from high 2006 levels. This was partially offset by higher surrender margin on Term, and Annuity products. Winterthur contributed €19 million. Expenses increased by €18 million (+6%) to €-317 million. Excluding Winterthur and on a constant exchange rate basis, expenses increased by €26 million (+9%) to €-295 million mainly driven by: − €20 million higher commissions as a result of variable annuity sales growth, Medical sales incentives and the business mix shift to more profitable and higher commission-paying medical products; and − The combined result of a commission-driven increase in DAC capitalization (€+29 million) and higher DAC amortization (€-36 million) mainly due to DAC balance growth and the one time 1Q07 old Medical Whole Life policies upgrade program. Winterthur contributed €-22 million. VBI amortization increased by €34 million (+87%) to €-74 million. Excluding Winterthur and on a constant exchange rate basis, VBI amortization increased by €17 million (+43%) to €-51 million driven by a combination of the one time 1Q07 old Medical Whole Life policies upgrade program and higher Term & Whole Life surrenders. Winterthur contributed €-23 million. Underlying cost income ratio amounted to 64.5% in first half 2007. Excluding Winterthur and on a constant exchange rate basis, underlying cost income ratio increased from 61.6% to 63.8% as higher fees & revenues were more than offset by higher expenses, lower technical margin and higher DAC & VBI amortization. Income tax expenses increased by €1 million (+2%) to €-79 million. Excluding Winterthur and on a constant exchange rate basis, income tax expenses increased by €2 million to €-73 million in line with higher taxable results. Winterthur contributed €-7 million. Underlying earnings increased by €3 million (+2%) to €133 million. Excluding Winterthur and on a constant exchange rate basis, underlying earnings increased by €3 million to €121 million. Winterthur contributed €11 million. Adjusted earnings decreased by €7 million (-3%) to €212 million. Excluding Winterthur and on a constant exchange rate basis, adjusted earnings increased by €2 million (+1%), totaling €200 million as similar levels of net capital gains were realized in first half year 2006 and 2007. Page 28 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Winterthur contributed €12 million. Net income decreased by €-35 million (-16%) to €188 million. Excluding Winterthur and on a constant exchange rate basis, net income declined by €28 million (-13%) to €177 million reflecting €+2 million higher adjusted earnings more than offset, in particular, by losses arising from derivatives mainly following the adverse yen to euro/US dollar exchange rate movement (€-43 million) and the change of fair value of assets designated at fair value through P&L mostly invested in fixed income (€-9 million). DAC and VBI reactivity, combined with tax effects, had a positive €+17 million impact. Winterthur contributed €11 million. Page 29 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – Germany HY 2007 HY 2006 Restated (a) HY 2006 Published Gross revenues 2 986 1 701 1 701 APE (group share) 207 127 127 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 67 119 43 (46) (9) 44 68 22 (47) (5) 44 68 22 (47) (5) Underlying operating earnings before tax 174 81 81 Income tax expenses / benefits Minority interests (99) (3) (52) (1) (52) (1) Underlying earnings group share 73 28 28 Net capital gains attributable to shareholders net of income tax 2 4 5 Adjusted earnings group share 75 32 33 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 4 ‐ ‐ (0) (2) ‐ ‐ ‐ (3) ‐ ‐ ‐ Net income group share 78 30 30 a) Restated means : transfer of the forex impact from adjusted earnings to net income. Gross revenues increased by €1,285 million (+76%) to €2,986 million on a reported basis. On a comparable basis, revenues were up €79 million (+3%) mainly driven by Investment & Savings both unit-linked (especially “TwinStar” product) and non unit-linked premiums ("WinCash" product) as well as continuous growth in Health, partly offset by lower traditional endowment business. APE increased by €80 million (+63%) to €207 million on a reported basis. On a comparable basis, APE was up €3 million (+2%) mainly driven by strong growth in individual investment & savings unit-linked products (especially "TwinStar” product (from €10 million in first half 2006 to €27 million in first half 2007)) and an increase in Health insurance (€+4 million), partly offset by negative Riester impact (increase of the premium level of “Riester”- contracts in 2006 as a result of fiscal incentive). Investment Margin increased by €24 million to €67 million. Excluding the contribution of Winterthur, investment margin was up €13 million to €57 million mainly due to higher return on fixed income investments. Winterthur contribution amounted to €10 million, mainly resulting from the Life segment. Fees & revenues were up by €51 million to €119 million. Excluding the contribution of Winterthur, fees & revenues increased by €25 million to €93 million, mainly driven by the growth in Health business and lower policyholder participation in Life. Winterthur fees & revenues of €26 million were stemming from both non unit-linked fees in Life and fees in Health. Net Technical Margin increased by €21 million to €43 million. Excluding the contribution of Winterthur, net technical margin was up €+11 million (+49%) due to improved technical result in Health and reduction of policyholder bonus in Life business. Winterthur net technical margin of €10 million was mainly attributable to the Health business. Page 30 of 76 (in euro million) FY 2006 Published 3 681 287 96 127 50 (92) (9) 171 (99) (3) 69 6 75 6 ‐ ‐ ‐ 81 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Expenses decreased by €1 million to €-46 million. Excluding the contribution of Winterthur, expenses decreased by €5 million to €-43 million mainly due to lower non-commission expenses in Life partly offset by higher commissions in Health due to strong new business. Winterthur expenses amounted to €-4 million, stemming from both Life and Health businesses. Amortization of VBI increased by €4 million to €-9 million. Underlying cost income ratio amounted to 24.2% in first half year 2007. Excluding Winterthur, the ratio was down to 26.0% from 39.3% in prior year due to improvement in all margins while expenses decreased. Income tax expenses increased by €47 million to €-99 million. Excluding the contribution of Winterthur, income tax expenses increased by €25 million to €-77 million due to higher pre-tax income. Winterthur contribution amounted to €-22 million. Underlying Earnings increased by €45 million to €73 million. Excluding the contribution of Winterthur, underlying earnings increased by €28 million to €56 million. Winterthur contributed €17 million. Adjusted Earnings increased by €42 million to €75 million in line with underlying earnings. Excluding the contribution of Winterthur, adjusted earnings increased by €28 million to €59 million in line with underlying earnings. Winterthur contributed €16 million. Net Income increased by €49 million to €78 million in line with adjusted earnings. Excluding the contribution of Winterthur, net income increased by €30 million to €59 million in line with adjusted earnings. Winterthur contributed €19 million. Page 31 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – Switzerland (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 3 240 84 141 APE (group share) (a) 147 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 22 118 71 (84) (17) 2 6 1 (6) ‐ 3 11 2 (13) ‐ Underlying operating earnings before tax 110 3 3 Income tax expenses / benefits Minority interests (28) ‐ (0) ‐ (0) ‐ Underlying earnings group share 82 3 3 Net capital gains attributable to shareholders net of income tax (1) 4 4 Adjusted earnings group share 81 7 7 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 18 ‐ (2) (1) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net income group share 96 7 7 (a) AXA Switzerland was not in the scope of APE in 2006. Starting 2007, and as a result of the Winterthur acquisition AXA Switzerland is in the scope of APE. Gross revenues decreased by 2% to €3,232 million on a comparable basis. Gross of intercompany transactions, gross revenues decreased by €100 million or -3% to €3,240 million on a comparable basis: Group Life decreased by €103 million or -3% to €2,893 million as 2006 recorded a non-recurring high level of premiums related to the transfer of vested benefits on new contracts. Individual Life increased by €3 million or +1% to €347 million, mainly due to strong growth in unit-linked business of €35 million (122%) to €61 million whereas Traditional business decreased by €32 million or -10% to €286 million mainly due to lower single premiums. APE decreased by €4 million or -3% to €147 million on a comparable basis: Group Life decreased by €4 million or -3% to €121 million in line with the evolution of gross revenues. - Individual Life remained stable at €26 million driven by strong growth in unit-linked business of +117% to €7 million partly offset by a reduction in Traditional business of -16% to €19 million. The share in unit-linked business strongly increased from 12% to 27%. 2006 numbers are for AXA Switzerland before the Winterthur acquisition. As this acquisition increased dramatically the size of AXA in Switzerland, the following comments focus only on overall Switzerland numbers in 2007, without comparison to 2006. Investment margin amounted to €22 million of which €9 million in Group life. The remaining part was mainly due to investment income in shareholders’ funds. Fees & revenues (mainly loadings on premiums) amounted to €118 million, including €58 million in Group Life. Page 32 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Net technical margin reached €71 million, showing a strong contribution of mortality and disability technical result. Group Life net technical margin amounted to €30 million. Expenses amounted to €-84 million, of which €-54 million in Group Life (mainly non-commissions expenses reflecting the predominance of direct distribution). Other expenses (mainly related to Individual Life) amounted to €- 30 million, including €-16 million of non-commissions expenses and €-14 million of commissions. As a result and taking into account a VBI amortization of €-17 million (of which €-9 million in Group Life), Underlying cost income ratio was 47.8%. Underlying earnings reached €82 million, taking into account Income tax expenses of €-28 million. Adjusted earnings reached €81 million, in line with the Underlying earnings. Net income amounted to €96 million including: (i) adjusted earnings of €81 million, (ii) change in fair value of assets under fair value option, mainly mutual funds, for €11 million, (iii) the impact of foreign exchange net of related derivatives for €7 million, (iv) amortization of customer intangible for €-2 million, and (v) integration costs for €-1 million. Page 33 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – Belgium (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 1 629 1 307 2 512 APE (group share) 183 163 300 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 84 77 33 (124) (1) 55 68 31 (98) (1) 86 146 56 (194) (7) Underlying operating earnings before tax 69 54 87 Income tax expenses / benefits Minority interests 3 (0) (19) (0) (22) (0) Underlying earnings group share 72 35 65 Net capital gains attributable to shareholders net of income tax 188 219 255 Adjusted earnings group share 260 254 320 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (20) ‐ ‐ (2) (17) ‐ ‐ ‐ (10) ‐ ‐ ‐ Net income group share 237 236 310 Gross revenues increased by €323 million (+25%) to €1629 million on a reported basis. On a comparable basis, gross revenues increased by €208 million (+15%) due to the increase in both individual (+15%) and group Life (+15%) Individual Life & Savings revenues increased by 15% to €1,343 million due to the growth of non unit-linked products (mainly Crest 40) by +22% to €995 million. Traditional Life products decreased by 5% to €135 million and Unit-linked products remained stable at €213 million. Group Life & Savings revenues increased by 15% to €286 million mainly due to the subscription of significant contracts on Belgian market (of which a transfer of a €17 million contract). APE increased by €20 million (+12%) to €183 million on a reported basis. On a comparable basis, APE increased by €14 million (+8%) due to the increase in individual business (+5% to €168 million), mainly driven by non unit-linked products (mainly Crest 40), and group life (+81% to €15 million). Investment margin increased by €30 million (+55%) to €84 million. Excluding Winterthur, investment margin increased by €22 million (+41%) to €77 million mainly due to a decrease by 16bps to 3.82% of the credited rate driven by the increased share of lower guaranteed rate products (Crest 30 and Crest 40) while the average rate of return of the assets increased slightly by 2bps to 4.71%. Winterthur Investment margin amounted to €7 million. Fees & revenues increased by €10 million (+14%) to €77 million. Excluding the contribution of Winterthur, fees & revenues increased by €3 million (+4%) to €70 million. Winterthur Fees & revenues of €7 million consisted in €4 million in Individual life and €3 million in Group life. Page 34 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Net technical margin increased by €2 million (+6%) to €33 million. Excluding the contribution of Winterthur, the net technical margin remained stable at €31 million. Winterthur net technical margin of €2 million consisted mainly in the mortality margin. Expenses increased by €26 million (+26%) to €-124 million. Excluding the contribution of Winterthur, expenses increased by €12 million (+12%) to €-110 million principally due to commissions linked to account balances (€+8 million) and overhead costs as a result of the increasing business. Winterthur expenses of €-14 million consisted in commissions expenses of €-3 million and in overhead costs (mainly staff costs) of €-11 million. Underlying cost income ratio amounted to 64.3% in first half 2007. Excluding Winterthur, it improved to 62.4% from 64.6% in 2006 due to the strong increase in the underlying investment margin. Income tax expenses decreased by €22 million to a profit of €3 million. Excluding the contribution of Winterthur, the decrease by €20 million to a profit of €1 million was principally due to a €26 million 2006 tax refund as a result of the 2007 favorable court decision for insurance companies on RDT ("Revenus Définitivement Taxés" : tax exemption on 95% of dividends on equities newly extended to insurance companies). Winterthur contributed €+2 million. Underlying earnings increased by €37 million (+106%) to €72 million. Excluding the contribution of Winterthur, underlying earnings increased by €33 million (+93%). This increase primarily reflected higher underlying investment margin (€+22 million) and the 2006 tax refund (€+26 million). Winterthur contributed €5 million. Adjusted earnings increased by €6 million (+2%) to €260 million. Excluding the contribution of Winterthur, adjusted earnings were stable as the increase of underlying earnings (€33 million) was offset by lower net realized capital gains (€-32 million to €188 million following a very high level in the first half year 2006 (€219 million)). Winterthur contributed €6 million. Net income increased by €1 million to €237 million. Excluding the contribution of Winterthur, net income rose by €6 million due to less negative mark to market mainly on derivatives partly offset by €-1 million integration costs. Winterthur contributed €-5 million (including €-1 million integration costs) mainly due to €-9 million loss on financial assets under fair value option. Page 35 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings operations – Southern Europe (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 876 680 1 357 APE (group share) 84 63 143 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 43 74 25 (88) (5) 31 42 17 (52) (2) 67 88 23 (103) (5) Underlying operating earnings before tax 48 36 68 Income tax expenses / benefits Minority interests (13) (0) (11) (0) (18) (1) Underlying earnings group share 35 25 50 Net capital gains attributable to shareholders net of income tax 8 4 7 Adjusted earnings group share 43 29 57 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 0 ‐ (0) (4) (2) ‐ ‐ ‐ (0) ‐ ‐ ‐ Net income group share 40 27 57 Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece (except for APE). Gross revenues increased by 28% to €876 million on a reported basis or €869 million net of intercompany transactions. On a comparable basis (including Winterthur in Spain and Alpha Insurance in Greece for both periods), revenues were down -14% (€-137 million) mainly due to a non recurring single premium related to the outsourcing of pension funds in Winterthur in 2006 (€-116 million), as well as a lower amount of activity with institutional clients (€- 28 million). These were partly offset by the commercial success of the new Accumulator product launched mid March in Spain and early June in Italy (€45 million). APE increased by €19 million (+32%) to €84 million on a reported basis. On a comparable basis, (including Winterthur in Spain), APE was down €6 million (-6%) to €84 million driven by the non-recurrence of a pension fund outsourcing premium in Winterthur. For AXA alone (i.e. excluding Winterthur), APE grew €10 million (+16%) to €74 million, following an increase of €6 million (+10%) to €64 million in the individual segment driven by the Accumulator product (€4 million), and €4 million (+69%) to €10 million in Group products mainly attributable to a new agreement with a credit card issuer. Investment margin increased by €12 million to €43 million. Excluding the contribution of Winterthur, investment margin increased by €10 million to €40 million thanks to higher investment income coming from a larger asset base combined with a lower policyholder distribution rate. Winterthur contribution to investment margin was €3 million. Fees & revenues increased by €32 million to €74 million. Excluding the contribution of Winterthur, fees & revenues were up €+21 million to €63 million, benefiting from the Alpha Insurance contribution in 2007 (€12 million). The residual €9 million increase was driven by the new business as well as a more favorable business mix. Winterthur contribution to fees & revenues was €11 million. Page 36 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Net technical margin increased by €7 million to €25 million. Excluding the contribution of Winterthur, it decreased by €5 million to €12 million. This decrease was notably attributable to a non-recurring release of claims reserves in 2006 (€3 million) as well as a €1 million lower surrender margin. Winterthur contribution to technical margin was €12 million. Expenses increased by €36 million to €-88 million. Excluding the contribution of Winterthur, expenses increased by €19 million to €-71 million mainly due to Alpha Insurance contribution (€-12 million) as well as to staff cost and additional marketing investment to support the launch of the Accumulator product. Winterthur contribution to expenses was €-16 million. VBI amortization expense increased by € 2 million to €-5 million. Excluding Winterthur, it was stable at €2 million. Underlying cost income ratio amounted to 65.8% in first half 2007. Excluding Winterthur, the Underlying cost income ratio deteriorated by 3.2 points to 63.7% due to 3.9 points from Alpha Insurance. Income tax expenses increased by €3 million to €-13 million. Excluding Winterthur, income tax expenses increased by €1 million to €-11 million, in line with the evolution of pre-tax earnings. Winterthur contribution to tax expenses was €-2 million. Underlying earnings increased by €10 million (+42%) to €35 million. Excluding Winterthur, underlying earnings increased by €5 million (+22%). Winterthur contributed €5 million. Adjusted earnings were €43 million, up €+14 million (+50%). Excluding Winterthur, adjusted earnings increased by €10 million (+34%) driven by higher underlying earnings as well as higher capital gains on equities. Winterthur contributed €5 million. Net income increased by €13 million (+49%) to €40 million. Excluding Winterthur, net income increased by €10 million (+36%) and included integration costs of Winterthur in Spain (€-1 million) and Alpha Insurance in Greece (€- 1 million). Winterthur contributed €3 million. Page 37 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2007 HY 2006 Pro forma (a) HY 2006 Published FY 2006 Pro forma (a) Australia / New Zealand 678 641 641 1 254 Hong Kong 616 438 438 1 041 The Netherlands ‐ ‐ 298 ‐ Central and Eastern Europe 202 ‐ ‐ ‐ Other countries 298 233 233 462 Singapore 95 86 86 156 Canada 59 56 56 115 Morocco 19 24 24 49 Luxembourg 30 25 25 48 Turkey 43 41 41 70 South East Asia (b) 53 ‐ ‐ 24 TOTAL 1 794 1 312 1 610 2 756 Intercompany transactions (0) ‐ ‐ ‐ Contribution to consolidated gross revenues 1 794 1 312 1 610 2 756 (a) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (b) Includes Indonesia. Underlying, Adjusted earnings and Net Income HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) Australia / New Zealand 47 45 45 83 Hong Kong 59 42 42 111 The Netherlands ‐ ‐ 31 ‐ Central and Eastern Europe 2 ‐ ‐ ‐ Other countries 10 9 9 15 Singapore (1) 0 0 0 Canada 2 3 3 4 Morocco 3 3 3 4 Luxembourg 2 2 2 5 Turkey 2 2 2 2 South East Asia (c) 1 ‐ ‐ (0) UNDERLYING EARNINGS 118 97 128 210 Net realized capital gains attributable to shareholders 38 25 38 21 ADJUSTED EARNINGS 156 122 166 231 Profit or loss on financial assets (under Fair Value option) & derivatives 3 2 1 6 Exceptional operations (including discontinuted operations) 54 43 ‐ 74 Goodwill and related intangibles impacts (1) ‐ ‐ ‐ Integration costs (1) ‐ ‐ ‐ NET INCOME 211 167 167 311 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (c) Includes Indonesia, Thailand and Philippines. Page 38 of 76 (in euro million) FY 2006 Published 1 254 1 041 527 ‐ 462 156 115 49 48 70 24 3 283 ‐ 3 283 (in euro million) FY 2006 Published 83 111 55 ‐ 15 0 4 4 5 2 (0) 265 42 307 7 (3) ‐ ‐ 311 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AUSTRALIA AND NEW ZEALAND 3 Mutual fund retail net sales of €1,479 million increased by €532 million (+55%) on a comparable basis. This is a key area of growth in Australia and reflects continued strong inflows into the mezzanine ‘global equity fund’ as well as personal superannuation sold through Summit and Generations platforms. Furthermore, recent legislative changes in Australia have led to a one-time spike in superannuation contributions in the first half of 2007 as clients took advantage of transitional superannuation concessions. As a result, gross revenues of €678 million were €37 million (+6% or +3% on a comparable basis) higher than last year, given that: Revenues from mutual fund and advice business increased by €45 million (+23% on a comparable basis) to €174 million due to continuing growth in funds under management, as mentioned above. Gross written premiums and fees of €504 million slightly decreased compared to last year, reflecting the impact of the shift from old to new style superannuation products that offset the growth in individual life. As a reminder, new superannuation products are now predominantly sold through the Summit and Generations platforms and are thus accounted for on a fee basis - in contrast to old style superannuation products that were treated as insurance contracts. APE, excluding the Joint Venture with AllianceBernstein, increased by €60 million (+46%) to €188 million due to continued strong inflows into the mezzanine ‘global equity value fund’ and into Summit and Generations superannuation products. Including Alliance Bernstein flows, which were flat year on year as the strong flows in the first half of 2006 were repeated, APE increased by €61 million (+28%). Underlying Earnings were up €1 million (+3%) to €47 million. On a 100% ownership basis, the evolution of underlying earnings was as follows: − Investment margin was down €3 million to €12 million mainly due to higher investment management fees due to higher funds under management. − Fees & revenues were up €49 million to €354 million, reflecting higher inflows and growth of funds under management and administration, following strong market performance. − The net technical margin was down €21 million to €-7 million, due to less favorable claims termination experience in individual income protection as well as non-recurring refinements in the group risk business. − Expenses (including amortization of VBI) were up €22 million to €-265 million, reflecting higher commissions associated with increased fees and revenue. − Tax expense was down €2 million to €-6 million. Overall, the underlying cost to income ratio increased slightly from 72.7% to 73.7% due to lower investment and net technical margins. Adjusted Earnings were up €10 million (+18%) to €66 million, reflecting the increase in underlying earnings and the realization of equity capital gains. Net Income was up €11 million (+19%) to €69 million, mainly reflecting the increase in adjusted earnings. 3 AXA interest in AXA Asia Pacific Group is 53.2% broken down into 52.3% direct interest holding and an additional 0.9% owned by the AAPH Executive plan trust Page 39 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 HONG-KONG4 Gross revenues of €616 million were €179 million (+41%) higher than 2006 on a reported basis. This included €55 million from MLC and €124 million from Winterthur in first half 2007. On a comparable basis - excluding the impact of MLC but including Winterthur in both periods, and on constant exchange rate basis - gross revenues were 8% higher than in 2006, reflecting strong growth in sales, especially life sales from tied agents and salaried salesforce and an increasingly large portfolio of retirement products. APE of €69 million was +59% higher than last year on a reported basis, mainly due to the inclusion of sales by former MLC agents (€+6 million) and the contribution from the Winterthur business of €15 million in first half 2007. On a comparable basis, APE was 15% higher than last year, reflecting the increase in sales driven by the launch of ‘Signature Saver’ in April 2007, a new unit-linked product. Group retirement and investment products were also up as a result of the buoyant economic environment and strong sales through the broker channel. Underlying earnings increased by €17 million (+40%) to €59 million. Excluding Winterthur and on a constant exchange rate basis, underlying earnings were €21 million higher than last year mainly due to an increase in fees and revenues as a result of both improved new sales and a growing in-force portfolio; this was partially offset by higher expenses as a result of increased strategic development costs to support the development of new distribution channels and wealth management infrastructure. Winterthur and MLC contributions amounted to €1 million and €6 million, respectively. Underlying cost to income ratio amounted to 35.2% in first half 2007. Excluding Winterthur, the underlying cost income ratio was 33.5%. Adjusted earnings of €73 million increased by €17 million (+30%). Excluding Winterthur contribution and on a constant exchange rate basis, adjusted earnings increased by €23 million driven by the increase in underlying earnings. Winterthur and MLC contributions amounted to €1 million and €7 million, respectively. Net income of €72 million increased by €15 million (+27%). Excluding Winterthur and on a constant exchange rate basis, net income increased by €21 million. Winterthur and MLC contributions amounted to €1 million and €7 million, respectively. CENTRAL AND EASTERN EUROPE Gross revenues increased by 12% on a comparable basis to €202 million driven by positive contribution of all countries. APE increased by 32% on a comparable basis to €44 million mainly driven by Czech Republic (+51% to €16 million) and Hungary (+70% to €11 million), benefiting across the board from strong unit-linked sales (+75% to €15 million) and Pension Fund transfers (+19% to €28 million). Underlying earnings amounted to €2 million, as the positive investment margin, fees & revenues, and net technical margins (respectively €11 million, €37 million and €5 million, on a 100% basis), were partly offset by expenses (€-49 million on a 100% basis including €-6 million VBI amortization and €-8 million investments to accelerate growth and to develop AXA brand). Overall, the underlying cost to income ratio was 93.2% in first half 2007. Adjusted earnings amounted to €4 million, driven by underlying earnings and €2 million capital gains attributable to shareholders. Net income amounted to €2 million, as the adjusted earnings were partly offset by the €-1 million integration costs of Winterthur (mainly rebranding costs) and €-1 million amortization of customer intangible assets. 4 AXA interest in AXA Asia Pacific Group is 53.2% broken down into 52.3% direct interest holding and an additional 0.9% owned by the AAPH Executive plan trust Page 40 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 MOROCCO5 Gross revenues were down 21% on a constant exchange rate basis to €19 million mainly due to the termination of an important group contract. Excluding this contract, gross revenues would have increased by +11%. Underlying earnings, adjusted earnings and net income were stable at €3 million. TURKEY6 Gross revenues were up 9% on a constant exchange rate basis to €43 million driven by traditional life and health. Underlying earnings, adjusted earnings and net income were stable at €2 million. 5 AXA Assurance Maroc is 100% owned by AXA since 2007. In 2006 it was 51% owned by AXA. 6 AXA Oyak Hayat is 50% owned by AXA. Page 41 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment (a) HY 2007 HY 2006 Restated (b) HY 2006 Published FY 2006 Pro forma (c) Gross written premiums 14 328 10 686 10 863 19 548 Fees and revenues from investment contracts without participating feature ‐ ‐ ‐ ‐ Revenues from insurance activities 14 328 10 686 10 863 19 548 Net revenues from banking activities ‐ ‐ ‐ ‐ Revenues from other activities 36 26 26 52 TOTAL REVENUES 14 363 10 711 10 889 19 600 Change in unearned premium reserves net of unearned revenues and fees (2 260) (1 165) (1 205) (139) Net investment result excluding financing expenses 1 113 865 879 1 564 Technical charges relating to insurance activities (8 266) (6 231) (6 307) (12 697) Net result of reinsurance ceded (263) (325) (327) (629) Bank operating expenses ‐ ‐ ‐ ‐ Insurance Acquisition expenses (2 202) (1 741) (1 768) (3 712) Amortization of value of purchased life business in force ‐ ‐ ‐ ‐ Administrative expenses (1 172) (951) (971) (1 817) Valuation allowances on tangible assets 3 (1) (1) 11 Other (10) (2) (3) (18) Other operating income and expenses (11 910) (9 251) (9 376) (18 863) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 1 307 1 160 1 186 2 162 Net income from investments in affiliates and associates 6 3 3 9 Financing expenses (5) (4) (4) (8) OPERATING INCOME GROSS OF TAX EXPENSE 1 308 1 159 1 185 2 163 Income tax expense (324) (371) (379) (704) Minority interests in income or loss (21) (26) (26) (42) Other ‐ ‐ ‐ ‐ UNDERLYING EARNINGS 963 762 780 1 417 Net realized capital gains attributable to shareholders 296 336 348 440 ADJUSTED EARNINGS 1 259 1 098 1 129 1 857 Profit or loss on financial assets (under fair value option) & derivatives (27) (49) (61) 70 Exceptional operations (including discontinued operations) 17 22 3 51 Goodwill and other related intangible impacts (26) (1) (1) (2) Integration costs (25) ‐ ‐ ‐ NET INCOME 1 198 1 069 1 069 1 977 (a) Before intercompany transactions (b) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (c) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. Page 42 of 76 (in euro million) FY 2006 Published 19 830 ‐ 19 830 ‐ 52 19 882 (142) 1 594 (12 841) (632) ‐ (3 787) ‐ (1 851) 11 (20) (19 120) 2 213 9 (8) 2 214 (719) (42) ‐ 1 453 441 1 895 71 13 (2) ‐ 1 977 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Consolidated Gross Revenues HY 2007 HY 2006 Pro forma (a) HY 2006 Published FY 2006 Pro forma (a) France 2 945 2 860 2 860 5 219 United Kingdom & Ireland 2 758 2 487 2 487 4 742 Germany 2 227 1 812 1 812 2 759 Belgium 1 174 805 805 1 520 Southern Europe (b) 2 311 1 579 1 579 3 160 Switzerland 1 800 61 61 95 Other countries 1 148 1 107 1 284 2 106 TOTAL 14 363 10 711 10 889 19 600 Intercompany transactions (169) (74) (74) (89) Contribution to consolidated gross revenues 14 195 10 637 10 815 19 510 (a) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (b) Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece. Underlying, Adjusted earnings and Net Income HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) France 237 207 207 382 United Kingdom & Ireland 129 181 181 386 Germany 158 117 117 181 Belgium 108 90 90 147 Southern Europe (c) 162 79 79 148 Switzerland 73 3 3 7 Other countries 96 85 103 166 UNDERLYING EARNINGS 963 762 780 1 417 Net realized capital gains attributable to shareholders 296 336 348 440 ADJUSTED EARNINGS 1 259 1 098 1 129 1 857 Profit or loss on financial assets (under Fair Value option) & derivatives (27) (49) (61) 70 Exceptional operations (including discontinuted operations) 18 22 3 51 Goodwill and related intangibles impacts (26) (1) (1) (2) Integration costs (25) ‐ ‐ ‐ NET INCOME 1 198 1 069 1 069 1 977 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (c) Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece entities. Page 43 of 76 (in euro million) FY 2006 Published 5 219 4 742 2 759 1 520 3 160 95 2 388 19 882 (89) 19 793 (in euro million) FY 2006 Published 382 386 181 147 148 7 202 1 453 441 1 895 71 13 (2) ‐ 1 977 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations – France (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published Gross revenues 2 945 2 860 2 860 5 219 Current accident year loss ratio (net) All accident year loss ratio (net) 76,1% 73,0% 76,3% 73,8% 76,3% 73,8% 74,6% 73,5% Net technical result 705 672 672 1 390 Expense ratio Net underlying investment result 24,2% 293 23,9% 263 23,9% 263 24,1% 464 Underlying operating earnings before tax 367 322 322 592 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (129) ‐ (0) (115) ‐ (0) (115) ‐ (0) (210) ‐ (0) Underlying earnings group share 237 207 207 382 Net capital gains attributable to shareholders net of income tax 32 29 35 70 Adjusted earnings group share 269 236 243 452 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (14) ‐ ‐ ‐ (21) ‐ ‐ ‐ (28) ‐ ‐ ‐ 64 ‐ ‐ ‐ Net income group share 255 215 215 515 (a) Restated means : transfer of the forex impact from adjusted earnings to net income Gross revenues increased by 3% to €2,945 million or by 2% to €2,895 million, net of intercompany transactions and on a comparable basis: Personal lines (59% of gross written premiums) increased by 1% to €1,702 million, mainly reflecting (i) positive net inflows in Household (+17,700 new contracts) combined with an increase in the average premium and (ii) positive net inflows in Motor (+53,600 new contracts) offset by lower average premium in the context of a still very competitive market. - The 4% increase in Commercial lines (41% of gross written premiums) to €1,194 million was driven by Construction and buildings. Net technical result improved by €33 million to €705 million driven by the 0.8 point improvement of the all year net loss ratio to 73.0%: − Current accident year net loss ratio improved by €18 million or 0.2 point to 76.1%, reflecting the favorable claims experience in Property (both personal and commercial lines) and natural events (despite 1.5 point Kyrill storm impact mainly stemming from the retrocession of AXA Cessions pool) . − Prior accident year net technical result increased by €15 million to €82 million, mainly due to a higher level of positive loss reserves development in property. Expense ratio increased by 0.3 point to 24.2% mainly driven by higher tied agents commissions as a result of better underwriting result and slightly higher general expenses (notably IT costs and property lease expense). As a consequence, the combined ratio improved by 0.5 point to 97.2%. Net investment result improved by €31 million to €293 million driven by higher income from fixed maturities following the 2006 portfolio restructuring and higher asset base. Page 44 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Income tax expenses were up €15 million to €-129 million in line with increased taxable operating income. Underlying earnings increased by €30 million to €237 million reflecting an improved combined ratio and the rise in net investment result. Adjusted earnings improved by €33 million to €269 million resulting from the underlying earnings increase (€+30 million) and from higher net realized capital gains notably on equities (€+3 million to €32 million). Net income increased by €40 million to €255 million under the combined effect of higher adjusted earnings (€+33 million), a favorable change in fair value on assets under fair value option (€+12 million) partly compensated by negative impact of foreign exchange on a currency macro hedge on equities (€-5 million to 2 million). Page 45 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations - United Kingdom & Ireland (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published Gross revenues 2 758 2 487 2 487 4 742 Current accident year loss ratio (net) All accident year loss ratio (net) 72,7% 68,3% 64,2% 63,2% 64,2% 63,2% 63,6% 61,8% Net technical result 780 836 836 1 790 Expense ratio Net underlying investment result 34,0% 185 33,6% 167 33,6% 167 34,7% 338 Underlying operating earnings before tax 127 241 241 501 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests 1 ‐ (0) (61) ‐ (0) (61) ‐ (0) (114) ‐ (0) Underlying earnings group share 129 181 181 386 Net capital gains attributable to shareholders net of income tax 26 58 53 75 Adjusted earnings group share 154 239 234 461 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 0 ‐ (4) ‐ (5) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (9) ‐ ‐ ‐ Net income group share 150 234 234 451 Average exchange rate : 1.00 € = £ 0,6748 0,6873 0,6873 0,6817 (a) Restated means : transfer of the forex impact from adjusted earnings to net income Gross Revenues increased by €271 million (+11%) to €2,758 million on a reported basis (net of intercompany transactions, gross revenues increased by 10% to €2,723 million) or +8% on a constant exchange rate basis. Personal Lines (51% of the P&C premiums) increased by 13% on a constant exchange rate basis, driven essentially by Motor growth of 22% principally arising from an increased share of business through the acquired Swiftcover intermediary and new business growth in the UK. Property growth of 6% resulted from increased volumes from delegated authority business. The 34% growth in Travel was mainly due to account growth on particular schemes and increased volumes from delegated authority business. Health revenues growth of 11% was driven by increased volumes across all classes. Commercial Lines (49% of the P&C premiums) increased by 5% on a constant exchange rate basis predominantly reflecting volume and premium growth across all lines in Health. Net technical result decreased by €55 million: Current accident year loss ratio increased by 8.5 points to 72.7% mainly as a result of adverse weather events, including Kyrill storms (+2.1 points) and June floods (+4.7 points) and an increase in the Personal Lines current year loss ratios reflecting a change in business mix. All accident year loss ratio increased by 5.2 points to 68.3% reflecting the adverse current accident year loss ratio, partially offset by favorable development in prior years reserves (€+84 million). Expense ratio increased by 0.5 point to 34.0%, driven by a non-recurring adjustment to commissions (+1.1 points) which more than offset the volume impact. As a result, the combined ratio increased by 5.6 points to 102.4%. Page 46 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Net underlying investment result increased by €18 million (€16 million on a constant exchange rate basis), as a result of a higher asset base and improved bond reinvestment yields. Income tax expenses decreased by €62 million on both current and constant exchange rate bases reflecting the deterioration in the pre-tax result and a €33 million tax benefit arising on settlement of prior years’ tax. Underlying Earnings decreased by €52 million to €129 million (€-54 million on a constant exchange rate basis) driven predominantly by the adverse weather events experienced in the first half of the year including June floods (€- 115 million pre tax) and Kyrill storm (€-52 million pre tax), partially offset by favorable prior year reserves development and a reduction in income tax expenses. Adjusted Earnings decreased by €85 million to €154 million (€-86 million on a constant exchange rate basis) as a result of the decrease in underlying earnings together with lower net realized capital gains due to timing differences in the realization of gains compared to 2006. Net Income decreased by €84 million to €150 million (€-86 million on a constant exchange rate basis) in line with the adjusted earnings evolution. Page 47 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations – Germany (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published Gross revenues 2 227 1 812 1 812 2 759 Current accident year loss ratio (net) All accident year loss ratio (net) 78,9% 71,2% 75,9% 67,1% 75,9% 67,1% 74,2% 67,8% Net technical result 503 462 462 889 Expense ratio Net underlying investment result 29,7% 191 29,3% 142 29,3% 142 30,3% 239 Underlying operating earnings before tax 174 193 193 293 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (13) 3 (6) (74) 3 (4) (74) 3 (4) (108) 4 (7) Underlying earnings group share 158 117 117 181 Net capital gains attributable to shareholders net of income tax 76 63 70 77 Adjusted earnings group share 234 181 188 259 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 2 ‐ ‐ (1) (5) ‐ ‐ ‐ (12) ‐ ‐ ‐ 26 (3) ‐ ‐ Net income group share 235 175 175 282 (a) Restated means : transfer of the forex impact from adjusted earnings to net income Gross revenues increased by €415 million (+23%) to €2,227 million. Net of intercompany transactions, gross revenues increased by 22% to €2,202 million. On a comparable basis, gross revenues increased by +2%: Personal lines (64% of the P&C premiums) increased by 1% mainly driven by Motor lines up +1% due to strong positive net inflows (+97,101 contracts) despite a shrinking market due to price softening. Property and Liability increased by 2% and 3%, respectively, mainly following the successful launch of the new packaged product 'Profischutz' for professionals and craftsmen. Commercial lines (31% of the P&C premiums) increased by 2% mainly due to Motor as a result of higher average number of vehicles in existing fleets. Other lines (5% of the P&C premiums) increased by 13% mainly attributable to improved premiums within AXA ART (+10%) and Assumed Business. Net technical result increased by 9% to €503 million. Excluding the contribution of Winterthur, net technical result decreased by €52 million to €410 million. Winterthur net technical result amounted to €93 million. − Current accident year loss ratio increased by 3.0 points to 78.9%. Excluding the contribution of Winterthur, the current accident year loss ratio increased by 1.1 point to 77.0 % driven by the storm 'Kyrill' with an impact of +4.0 points, partly offset by the favorable attritional claims situation due to the relatively mild winter. Winterthur current accident year loss ratio amounted to 86.4%, of which 2.9 points due to 'Kyrill'. − All accident year loss ratio increased by 4.1 points to 71.2%. Excluding the contribution of Winterthur, the all accident year loss ratio increased by 3.6 points to 70.8% as a result of higher current year loss ratio and lower net technical result on previous years (€88 million in 2007 compared to €124 million in 2006) driven by last year's favorable run-off result, especially in Property and Personal Motor. Winterthur all accident year loss ratio amounted to 73.1%. Page 48 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Expense ratio slightly deteriorated by 0.5 point to 29.7%. Excluding the contribution of Winterthur, the expense ratio slightly increased by 0.5 point to 29.8% due to increased acquisition costs from a shift towards more broker business, notably in Property. Winterthur expense ratio amounted to 29.6%. As a result, the combined ratio deteriorated by 4.6 points to 101.0% including the 'Kyrill' impact of +3.8 points. Excluding the contribution of Winterthur, the combined ratio deteriorated by 4.1 points to 100.5% (including Kyrill impact of 4.0 points). Winterthur combined ratio amounted to 102.7% (including Kyrill impact of 2.9 points). Net underlying investment result increased by €48 million to €191 million. Excluding the contribution of Winterthur, net underlying investment result increased by €6 million. Winterthur contribution amounted to € 42 million. Income tax expenses decreased by €61 million to €-13 million. Excluding the contribution of Winterthur, income tax expenses decreased by €73 million, reflecting a €42 million release of tax provision after the positive outcome of a tax audit on the ex-Albingia portfolio, as well as lower taxable income. Winterthur contribution amounted to €-12 million. Underlying earnings increased by €41 million to €158 million. Excluding the contribution of Winterthur, underlying earnings increased by €20 million, largely resulting from the decrease of the tax. Winterthur contribution amounted to €20 million. Adjusted earnings increased by €53 million to €234 million. Excluding the contribution of Winterthur, adjusted earnings increased by €34 million driven by higher underlying earnings and higher net capital gains notably on equities and real estate. Winterthur contribution amounted to €20 million. Net income increased by €60 million to €235 million. Excluding the contribution of Winterthur, net income increased by €40 million driven by higher adjusted earnings and a positive development of change in fair value in equity funds partly offset by €1 million integration costs. Winterthur contribution amounted to €20 million. Page 49 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations – Belgium (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 1 174 805 1 520 Current accident year loss ratio (net) All accident year loss ratio (net) 79,6% 68,9% 80,2% 65,4% 78,1% 66,0% Net technical result 330 252 512 Expense ratio Net underlying investment result 29,5% 132 30,1% 104 29,3% 178 Underlying operating earnings before tax 148 135 245 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (39) ‐ (0) (45) ‐ (0) (98) ‐ (0) Underlying earnings group share 108 90 147 Net capital gains attributable to shareholders net of income tax 79 130 142 Adjusted earnings group share 187 220 290 Profit or loss on financial assets (under FV option) & derivatives (4) (11) (6) Exceptional operations (including discontinued operations) ‐ ‐ ‐ Goodwill and other related intangibles impacts Integration costs ‐ (6) ‐ ‐ ‐ ‐ Net income group share 177 209 283 Gross revenues increased by 46% to €1,174 million on a reported basis. Net of intercompany transactions, gross revenues increased by 45% to €1,155 million. On a comparable basis, gross revenues increased by 3%. Personal Lines (58% of the P&C premiums) revenues were up +5% due to the implementation of the Natural Disaster guarantee in the household policies and portfolio increases in motor. Commercial Lines (42% of the P&C premiums) revenues were down -1% reflecting the loss of two large contracts in the context of strong pressure on prices. Net Technical Result increased by €78 million to €330 million. Excluding the contribution of Winterthur, net technical result decreased by €20 million to €232 million. Winterthur net technical result amounted to €98 million. Current accident year loss ratio decreased by 0.6 point to 79.6%. Excluding the contribution of Winterthur, the current accident year loss ratio increased by 2.8 points to 83.0%, due to the Kyrill storm (4.5 points impact). Winterthur current accident loss ratio amounted to 70.9% (1.7 point Kyrill impact). - All accident year loss ratio increased by 3.5 points to 68.9%. Excluding the contribution of Winterthur, the all accident year loss ratio increased by 4.2 points to 69.5%, broadly reflecting the unfavorable current accident year loss ratio and a decrease in prior years’ results (€-6 million). Winterthur all accident year loss ratio amounted to 67.1%. Expense ratio decreased by 0.6 point to 29.5%. Excluding the contribution of Winterthur, the expense ratio improved by 0.5 point to 29.6% driven by administration costs (-0.9 point) mainly in staff costs. Winterthur expense ratio amounted to 29.4%. Page 50 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 As a result, the underlying combined ratio deteriorated by 2.9 points to 98.4%. Excluding the contribution of Winterthur, the underlying combined ratio deteriorated by 3.7 points to 99.2%. Winterthur underlying combined ratio amounted to 96.4%. Net underlying investment result increased by €28 million. Excluding the contribution of Winterthur, net underlying investments result decreased by €2 million to €101 million. Winterthur net underlying investment result amounted to €31 million. Income tax expenses decreased by €6 million. Excluding the contribution of Winterthur, income tax expenses decreased by €21 million, reflecting the decrease in pre-tax underlying earnings and a €10 million tax refund as a result of the 2007 favorable court decision for insurance companies on RDT ("Revenus Définitivement Taxés" : tax exemption on 95% of dividends on equities newly extended to insurance companies). Winterthur net income tax expenses amounted to €-16 million. Underlying Earnings increased by €18 million to €108 million. Excluding the contribution of Winterthur, underlying earnings decreased by €7 million, mainly due to the Kyrill storm. Winterthur underlying earnings amounted to €26 million. Adjusted Earnings decreased by €33 million to €187 million. Excluding the contribution of Winterthur, adjusted earnings decreased by €59 million resulting from a €7 million decrease in underlying earnings and a €52 million decrease in capital gains after a very high level in the first half year 2006 (€130 million). Winterthur adjusted earnings of €27 million consisted in €26 million underlying earnings and €1 million capital gains. Net income decreased by €32 million to €177 million. Excluding the contribution of Winterthur, net income decreased by €54 million resulting from a €59 million decrease in adjusted earnings, a €-2 million integration costs, partially offset by a €8 million increase in profit or losses on financial assets under fair value option & derivatives. Winterthur net income amounted to €22 million including €-4 million integration costs. Page 51 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations – Southern Europe (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 2 311 1 579 3 160 Current accident year loss ratio (net) All accident year loss ratio (net) 74,5% 71,0% 75,4% 74,4% 77,0% 74,7% Net technical result 632 388 789 Expense ratio Net underlying investment result 24,5% 150 24,4% 104 23,6% 184 Underlying operating earnings before tax 248 122 238 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (85) ‐ (0) (43) ‐ (0) (90) ‐ (0) Underlying earnings group share 162 79 148 Net capital gains attributable to shareholders net of income tax 29 35 42 Adjusted earnings group share 191 114 190 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (6) ‐ (14) (17) (7) ‐ ‐ ‐ (1) ‐ ‐ ‐ Net income group share 155 107 189 Following the acquisition of Alpha Insurance in Greece, Southern Europe region includes now Italy, Spain, Portugal and Greece. Gross revenues increased by 46% to €2,311 million on a reported basis or to €2,290 million net of inter-company transactions. On a comparable basis (in particular including Winterthur in Spain and Alpha Insurance in Greece for both periods), revenues were up 4%: - Personal Lines (72% of the P&C premiums) revenues were up +7%, boosted by strong net inflows in motor (+250,200 policies) and household (+54,600 policies), despite the hardening market conditions, especially on motor. Property lines and health business increased by 9% and 8%, respectively. Commercial Lines (27% of the P&C premiums) revenues were down -2% mainly due to the decrease in commercial motor (-8% following some fleet cancellations), which was offset by the good performance in construction (+19%), health (+8%) and liability (+4%). Net technical result increased by €243 million to €632 million, with an all year loss ratio improving by 3.4 points to 71.0%. Excluding the contribution of Winterthur, net technical result increased by €75 million to €463 million. − Current accident year loss ratio increased by 1.9 points to 77.2%, driven by personal motor reflecting hardening market conditions notably in Spain. Winterthur current year loss ratio amounted to 66.2%. − All accident year loss ratio improved by 2.7 points to 71.7% thanks to the favorable development of claims reserves on previous year (€+75 million) in commercial property and commercial liability business in Spain and Italy. Winterthur net technical result was €169 million. The all year loss ratio amounted to 68.7%. Expense ratio was stable at 24.5%. Excluding the contribution of Winterthur, the expense ratio increased by 0.2 point to 24.6% reflecting an increase in the commission ratio partly offset by a decrease in the administrative expense ratio. Winterthur expense ratio amounted to 24.4% Page 52 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 As a result, the combined ratio improved by 3.3 points to 95.5%. Excluding the contribution of Winterthur for 2007, the combined ratio improved by 2.5 points to 96.3%. Winterthur combined ratio amounted to 93.1%. Net underlying investment result increased by €46 million to €150 million. Excluding the contribution of Winterthur, net investment result increased by €15 million to €118 million, notably as a result of higher dividend yield. Winterthur net investment result amounted to €31 million. Income tax expenses increased by €42 million to €-85 million. Excluding the contribution of Winterthur, income tax expenses increased by €19 million to €-62 million, reflecting the improvement in pre-tax underlying earnings. Winterthur income tax expenses amounted to €-23 million. Underlying earnings increased by €83 million to €163 million. Excluding the contribution of Winterthur, underlying earnings increased by €38 million to €117 million, resulting from both combined ratio and investment income improvement. Winterthur underlying earnings amounted to €45 million. Adjusted earnings increased by €77 million to €191 million. Excluding the contribution of Winterthur, adjusted earnings increased by €31 million to €146 million resulting from higher underlying earnings, partly offset by lower capital gains on equities. Winterthur contribution amounted to €45 million. Net income increased by €48 million to €155 million. Excluding the contribution of Winterthur, net income increased by €25 million to €132 million and included €7 million integration costs (of which €1 million related to Alpha Inusrance) and €1 million amortization of customer intangibles in Greece. Winterthur contribution amounted to €23 million of which €9 million integration costs and €13 million amortization of customer intangibles. Page 53 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations – Switzerland (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 1 800 61 95 Current accident year loss ratio (net) All accident year loss ratio (net) 79,0% 74,4% 47,4% 70,5% 63,3% 72,2% Net technical result 259 14 27 Expense ratio Net underlying investment result 23,3% 71 27,1% 2 24,1% 4 Underlying operating earnings before tax 92 3 8 Underlying income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (19) ‐ (1) (0) ‐ ‐ (1) ‐ ‐ Underlying earnings group share 73 3 7 Net capital gains attributable to shareholders net of income tax 1 1 2 Adjusted earnings group share 74 4 9 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (6) (3) (6) (1) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net income group share 58 4 9 Gross revenues increased by €15 million or +1% on a comparable basis to €1,794 million. Gross of intercompany transactions, gross written premiums increased by €19 million or +1% on a comparable basis to €1,800 million: Personal Lines (50% of the P&C premiums) remained stable on a comparable basis in a context of soft market. Commercial Lines (50% of the P&C premiums) were up €+18 million or +2% on a comparable basis mainly in workers’ compensation and property reflecting tariffs increase partly offset by Health and transport reflecting fierce competition. 2006 numbers are for AXA Switzerland before the Winterthur acquisition. As this acquisition increased dramatically the size of AXA in Switzerland, the following comments focus only on overall Switzerland numbers in 2007 without comparison to 2006. Net Technical Result reached €259 million, with an all year net loss ratio at 74.4%: − Current accident year loss ratio stood at 79.0% impacted by large losses due to flood and hail events in June (€33 million gross and net of reinsurance) impacting both motor and property lines of business. − Prior years net technical result amounted to €47 million mainly driven by positive reserve development mainly in commercial health and personal motor. Expense ratio stood at 23.3% (commission rate was 8.6%). As a result, the combined ratio stood at 97.7%. Net investment result reached €71 million mainly on fixed income assets and loans. Income tax expenses amounted to €-19 million. Page 54 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Underlying earnings reached €73 million. Adjusted earnings amounted to €74 million reflecting net capital gains of €1 million. Net income reached €58 million reflecting unfavorable impact of foreign exchange net of related derivatives (€-12 million), integration costs (€-1 million), amortization of customer intangible assets (€-6 million) and tax on foreign exchange impact on sale of US P&C business (€-3 million), partly offset by unrealized gains on mutual funds (€+6 million). Page 55 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Property & Casualty Operations - Other Countries Consolidated Gross Revenues (in euro million) HY 2007 HY 2006 Pro forma (a) HY 2006 Published FY 2006 Pro forma (a) FY 2006 Published Canada The Netherlands Other countries Turkey Morocco Japan Asia (excluding Japan) (b) Luxembourg Central and Eastern Europe 520 ‐ 628 302 107 87 82 46 5 551 ‐ 556 262 90 85 78 41 ‐ 551 177 556 262 90 85 78 41 ‐ 1 059 ‐ 1 047 508 164 158 149 69 ‐ 1 059 282 1 047 508 164 158 149 69 ‐ TOTAL 1 148 1 107 1 284 2 106 2 388 Intercompany transactions (12) (4) (4) (5) (5) Contribution to consolidated gross revenues 1 136 1 103 1 280 2 101 2 383 (a) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (b) Includes Hong Kong and Singapore. Underlying, Adjusted earnings and Net Income (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) FY 2006 Published Canada 58 60 60 113 113 The Netherlands ‐ ‐ 18 ‐ 36 Other countries 38 24 24 53 53 Turkey 7 7 7 11 11 Morocco 22 10 10 14 14 Japan (2) (5) (5) 1 1 Asia (Excluding Japan) (c) 9 9 9 23 23 Luxembourg 6 4 4 9 9 Central and Eastern Europe (4) ‐ ‐ (6) (6) UNDERLYING EARNINGS 96 85 103 166 202 Net realized capital gains attributable to shareholders 53 20 22 32 33 ADJUSTED EARNINGS 150 104 125 197 234 Profit or loss on financial assets (under Fair Value option) & derivatives 0 (0) (3) (2) (1) Exceptional operations (including discontinuted operations) 20 22 3 54 16 Goodwill and related intangibles impacts (1) (1) (1) (2) (2) Integration costs (0) ‐ ‐ ‐ ‐ NET INCOME 169 125 125 247 247 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. (c) Includes Malaysia (newly consolidated in 2006 in equity method), Hong Kong and Singapore. Page 56 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 CANADA Gross revenues decreased by €-31 million to €520 million or +1% on a comparable basis resulting from the positive impact of the renewal of 24 month policies (€16 million) partly offset by a decrease in commercial lines following intense competition in the Quebec market. Underlying earnings increased by €2 million to €58 million mainly resulting from the 1.3 point improvement of the combined ratio to 89.5% (excluding restructuring costs in 2006 related to Citadel) partly offset by the favourable settlement of a tax court case in June 2006 (€1.3 million). Adjusted earnings increased by €9 million to €71 million due to increased net capital gains by €7 million. Net income increased by €15 million to €71 million as a result of higher adjusted earnings of €9 million, 2006 Citadel's restructuring costs of €4 million after tax and increased foreign exchange gains (€2 million). TURKEY7 Gross revenues increased by 22% on a constant exchange rate basis to €302 million driven by an increase in the individual motor and commercial property. Underlying earnings increased by €1 million to €7 million, the combined ratio deterioration (+1.3 points to 98.3% due to a large claim in 2007) being offset by higher investment income. Adjusted earnings were down €-1 million to €8 million, notably due to higher capital gains in 2006. Net income amounted to €7 million. MOROCCO8 Gross revenues were up 20% on a constant exchange rate basis to €107 million, driven by all lines of business. Underlying earnings were up €+12 million to €22 million, due to the combined ratio improvement (-3.7 points to 96.1%) as well as the increase in AXA ownership rate (€+9 million). Adjusted earnings and net income increased by €37 million to €56 million due to (i) the increase in underlying earnings (€+12 million) and (ii) higher capital gains on equities in 2007 (€+16 million) combined with the increase in AXA ownership rate (€+9 million). JAPAN Gross revenues increased by 15% on a comparable basis to €87 million, mainly driven by motor business growth. Total motor portfolio (498,000 contracts) continued to increase (+37,000 contracts compared to December 2006) thanks to competitive rates, as well as the contribution from the Motorcycle product. Underlying earnings improved by €3 million on a comparable basis to €-2 million, with an improvement of the combined ratio from 108.2% to 103.4%, mainly driven by expenses monitoring. Expense ratio decreased from 42.1 % to 37.1%, as marketing costs were kept at the same level, while other costs such as professional services were reduced. Adjusted earnings were equal to Underlying Earnings. Net income improved by €5 million to €-3 million reflecting €+3 million higher underlying earnings and lower unrealized losses on fixed maturity mutual funds under fair value option. 7 AXA Oyak is 35% owned by AXA. 8 AXA Assurance Maroc is 100% owned by AXA since 2007. In 2006 it was 51% owned by AXA. Page 57 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 ASIA (EXCLUDING JAPAN) SINGAPORE Gross revenues increased by 15% on a constant exchange rate basis to €49 million, thanks to some campaigns, new product launches and product enhancements. Underlying earnings remained stable at €5 million, due to lower underwriting results caused by an increasing number of large claims in commercial property business as well as an increase in frequency of claims in motor business. This led to a slight increase of the combined ratio (from 89.6% to 91.1%). Both adjusted earnings and net income increased by €1 million on a constant exchange rate basis to €6 million, notably due to higher realized capital gains, partly offset by lower underlying earnings. HONG KONG Gross revenues increased by 5% on a constant exchange rate basis to €32 million. Underlying earnings decreased by €2 million on a constant exchange rate basis to €2 million, mainly attributable to €3 million reduction in underwriting result due to several large claims. This led to an increase of the combined ratio (from 93.9% to 103.8%). Both adjusted earnings and net income remained stable at €6 million, as an increase in capital gains (€+2 million) was offset by the decrease in underlying earnings. Page 58 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in euro million) HY 2007 HY 2006 FY 2006 AXA Corporate Solutions Assurance 1 214 1 106 1 697 AXA Cessions 60 58 57 AXA Assistance 392 341 702 Other transnational activities (a) 887 1 057 1 355 TOTAL 2 553 2 561 3 811 Intercompany transactions (64) (42) (95) Contribution to consolidated gross revenues 2 489 2 520 3 716 (a) Including €826 million in first half 2007 (€978 million in first half 2006 and €1,217 million in full year 2006) of business fronted by AXA RE and fully reinsured by Paris RE (fronting arrangement set in place from January 1, 2006 to September 30, 2007 in the context of the sale od AXA RE's business to Paris RE). Underlying, Adjusted earnings and Net Income (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published AXA Corporate Solutions Assurance 58 44 44 84 AXA Cessions 1 4 4 15 AXA Assistance 10 9 9 21 Other transnational activities (b) 50 8 8 11 UNDERLYING EARNINGS 119 64 64 131 Net realized capital gains attributable to shareholders 20 6 15 60 ADJUSTED EARNINGS 139 70 79 191 Profit or loss on financial assets (under Fair Value option) & derivatives (13) 9 0 (1) Exceptional operations (including discontinuted operations) 1 ‐ ‐ 66 Goodwill and related intangibles impacts ‐ ‐ ‐ (12) Integration costs ‐ ‐ ‐ ‐ NET INCOME 127 79 79 244 (a) Restated means the transfer of the forex impact from adjusted earnings to net income. (b) Including AXA RE run off business, AXA RE Life and AXA Liabilities Managers. Page 59 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AXA Corporate Solutions Assurance (in euro million) HY 2007 HY 2006 Restated (b) HY 2006 Published FY 2006 Published Gross revenues 1 214 1 106 1 106 1 697 Current accident year loss ratio (net) (a) 91,2% 86,5% 86,5% 88,7% All accident year loss ratio (net) 88,1% 88,4% 88,4% 87,3% Net technical result 112 98 98 207 Expense ratio 12,4% 12,1% 12,1% 12,8% Net underlying investment result 97 84 84 144 Underlying operating earnings before tax 92 79 79 144 Income tax expenses / benefits (34) (35) (35) (59) Net income from investments in affiliates and associates ‐ ‐ ‐ ‐ Minority interests (1) (1) (1) (1) Underlying earnings group share 58 44 44 84 Net capital gains attributable to shareholders net of income tax 20 (1) (4) 32 Adjusted earnings group share 78 43 39 116 Profit or loss on financial assets (under FV option) & derivatives (9) (1) 2 1 Exceptional operations (including discontinued operation) ‐ ‐ ‐ ‐ Goodwill and other related intangibles impacts ‐ ‐ ‐ ‐ Integration costs ‐ ‐ ‐ ‐ Net income group share 70 41 41 117 (a) Current accident year claim charges (including claims handling expenses) / Current accident year earned revenues (excluding premium adjustments on previous years). (b) Restated means : transfer of the forex impact from adjusted earnings to net income. Gross revenues increased by €109 million (+10%) to €1,214 million or + 9% net of intercompany transactions to €1,196 million. On a comparable basis, revenues increased by 8% driven by portfolio developments in property, motor and marine. The net technical result increased by €14 million to €112 million: - Current accident year net technical result decreased by €29 million to €78 million mainly due to decreasing premium rates in aviation and in property and to the Kyrill storm impact of 1.3 point (or €13 million). Prior accident year net technical result increased by €43 million to €34 million due to positive reserve developments in marine and property. The first half year 2006 was negatively impacted by reserve strengthening in casualty and financial lines. As a consequence, the all accident year loss ratio improved by 0.4 point to 88.1 %. Expenses increased by €14 million (+14%) to €116 million resulting from a commission increase (€+8 million to €56 million) as half year 2006 had been favorably impacted by the non renewal of a large motor contract with high commission rate, and a general expenses increase (€+6 million) mainly due to staff costs. Expense ratio increased by 0.3 point to 12.4%. As a result, the combined ratio remained stable at 100.5 %. Net investment result increased by €13 million to €97 million driven by a higher asset base (€+3 million) and portfolio restructuring (€10 million). Income tax expenses decreased by €1 million to €-34 million due to the non recurrence of a 2006 negative tax adjustment. As a consequence, underlying earnings increased by €14 million to €58 million. Page 60 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Adjusted earnings increased by €36 million to €78 million resulting from the underlying earnings increase and higher realized capital gains (€+21 million), mainly on equities. Net income increased by €29 million to €70 million in line with the increase in adjusted earnings, partly offset by a decrease of fair value on equities and bonds held by full summary consolidated controlled investment funds. AXA Cessions Underlying earnings decreased by €3 million to €1 million as a result of Kyrill storm (€-3 million impact). AXA Assistance Gross revenues increased by 15% to €392 million, or +13% net of intercompany transactions to €350 million, or 11% on a comparable basis, mainly due to home services in UK (€+14 million gross of interco) and travel insurance development (€+6 million). Underlying earnings increased by €2 million to €10 million reflecting increasing activity combined with a better technical result. Adjusted earnings increased by €2 million to €10 million in line with higher underlying earnings. Net income increased by €3 million to €11 million in line with higher adjusted earnings. OTHER TRANSNATIONAL ACTIVITIES Underlying earnings increased by €42 million to €50 million. Excluding the contribution of Winterthur and on a constant exchange rate basis, underlying earnings increased by €32 million mainly due to the favorable loss reserve development on some run-off portfolios (€+27 million, of which €+13 million on AXA RE) and despite some reserve reinforcement on Asbestos. Winterthur contribution amounted to €12 million, notably stemming from the commutation of a large portfolio. Adjusted earnings increased by €34 million to €50 million. Excluding Winterthur contribution and on a constant exchange rate basis, adjusted earnings increased by €23 million reflecting the underlying positive impact (€+32 million), partly offset by lower net realized gains (€-8 million). Winterthur contribution amounted to €12 million. Net income increased by €19 million to €45 million. Excluding Winterthur contribution and on a constant exchange rate basis, net income increased by €8 million mainly reflecting the €+23 million improvement in adjusted earnings partly offset by a €-15 million foreign exchange negative impact (mainly due to the non recurrence of €9 million AXA RE foreign exchange gains in 2006). Winterthur contribution amounted to €12 million. Page 61 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in euro million) HY 2007 HY 2006 FY 2006 AllianceBernstein AXA Investment Managers 1 625 987 1 480 787 3 102 1 679 TOTAL 2 613 2 267 4 781 Intercompany transactions (206) (177) (375) Contribution to consolidated gross revenues 2 407 2 090 4 406 Underlying, Adjusted earnings and Net Income (in euro million) HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Published AllianceBernstein 151 135 135 302 AXA Investment Managers 136 98 98 206 UNDERLYING EARNINGS 286 233 233 508 Net realized capital gains attributable to shareholders 1 1 4 1 ADJUSTED EARNINGS 287 234 238 509 Profit or loss on financial assets (under Fair Value option) & derivatives 14 1 (2) 10 Exceptional operations (including discontinuted operations) (7) 85 85 91 Goodwill and related intangibles impacts ‐ ‐ ‐ ‐ Integration costs (2) ‐ ‐ ‐ NET INCOME 292 320 320 610 (a) Restated means the transfer of the forex impact from adjusted earnings to net income. Page 62 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AllianceBernstein (in euro million) HY 2007 HY 2006 FY 2006 Gross revenues 1 625 1 480 3 102 Net underlying investment result 22 (1) 23 Total revenues 1 648 1 479 3 125 General expenses (1 185) (1 076) (2 204) Underlying operating earnings before tax 463 402 921 Income tax expenses / benefits (143) (109) (260) Net income from investment in affiliates and associates ‐ ‐ ‐ Minority interests (169) (159) (359) Underlying earnings group share 151 135 302 Net capital gains attributable to shareholders net of income tax 1 1 1 Adjusted earnings group share 152 136 303 Profit or loss on financial assets (under FV option) & derivatives ‐ ‐ ‐ Exceptional operations (including discontinued operation) (7) 85 91 Goodwill and other related intangibles impacts ‐ ‐ ‐ Integration costs ‐ ‐ ‐ Net income group share 145 220 394 Average exchange rate : 1,00 € = $ 1,3298 1,2285 1,2563 Assets under Management (“AUM”) increased by €43 billion from year-end 2006 to €587 billion at the end of June 2007, driven by strong global net inflows of €17 billion across all client categories (€8 billion from institutional clients, €5 billion from retail and €4 billion from private clients) and €40 billion market appreciation, partly offset by a negative €15 billion exchange rate impact. Gross revenues increased by €145 million (+10%) to €1,625 million on reported basis. On a comparable basis, gross revenues increased by €279 million (+19%), due primarily to investment advisory fees up €255 million (+25% with Institutional fees up 29%, Retail up 20%, and Private Client up 24%) driven by 23% higher average AUM. Other revenues (distribution fees, institutional research services, performance fees and other revenues) increased by €24 million (+5%). General expenses increased by €109 million (+10%) to €-1,185 million. On a constant exchange rate basis, general expenses increased by €206 million (+19%), mainly due to higher compensation expense (€+144 million) from increased earnings, increased occupancy from expansion of offices in New York and overseas (€+12 million) and higher technology costs (€+15 million), offset by lower professional fees (€-15 million). The underlying cost income ratio improved by 0.7 point to 68.6%. Income tax expenses increased by €35 million (+32%) to €-143 million. On a constant exchange rate basis, income tax expenses increased by €46 million (+43%) due to higher pre tax-earnings and a higher effective tax rate resulting from increased earnings from foreign subsidiaries. Underlying earnings increased by €16 million (+12%) to €151 million. On a constant exchange rate basis, underlying earnings increased by €27 million (+21%). Adjusted earnings increased by €28 million (+21%) on a constant exchange rate basis to €152 million in line with the underlying earnings evolution. Net income decreased by €76 million (-34%) to €145 million. On a constant exchange rate basis, net income decreased by €64 million (-29%) as higher adjusted earnings were more than offset by the non recurrence of 2006 Page 63 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 one-time items of €85 million, mainly dilution gain from the issuance of AllianceBernstein Holding units and related reversal of deferred tax liability from prior period (€81 million). As a result of the acquisition of 8.16 million private units in February 2007, AXA Financial’s ownership interest in AllianceBernstein increased 3 points from approximately 60.3% at December 31, 2006 to 63.2% at June 30, 2007. Page 64 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AXA Investment Managers (“AXA IM”) HY 2007 HY 2006 Restated (a) HY 2006 Published Gross revenues 987 787 787 Net underlying investment result 24 16 16 Total revenues 1 011 803 803 General expenses (767) (625) (625) Underlying operating earnings before tax 244 178 178 Income tax expenses / benefits Net income from investment in affiliates and associates Minority interests (84) ‐ (24) (60) ‐ (19) (60) ‐ (19) Underlying earnings group share 136 98 98 Net capital gains attributable to shareholders net of income tax ‐ ‐ 3 Adjusted earnings group share 136 98 102 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operation) Goodwill and other related intangibles impacts Integration costs 14 ‐ ‐ (2) 1 ‐ ‐ ‐ (2) ‐ ‐ ‐ Net income group share 148 99 99 (a) Restated means : transfer of the forex impact from adjusted earnings to net income. Assets Under Management (“AUM”) increased by €81 billion to €566 billion from year-end 2006. This variation was explained by €15 billion Net New Money (including €9 billion from Third-party institutional clients and €6 billion from retail clients), €8 billion market appreciation, and €61 billion related to the integration of Winterthur (mostly in Main Funds), offset by €-3 billion unfavorable exchange rate variation. Gross revenues increased by €200 million (or 25%) to €987 million on a reported basis. On a comparable basis, gross revenues increased by 28% driven by higher average AUM (+22%) and a positive client and product mix evolution. General expenses increased by €142 million (or 23%) to €-767 million at a lower pace than revenues. This evolution was mainly explained by more commissions paid to third-party distributors (directly correlated with the increase in revenues), more staff to support the business development, and higher staff incentive. The Underlying cost income ratio improved by 2.9 points from 68.6% to 65.7%. Income tax expenses increased by €24 million to €-84 million largely driven by higher taxable income. Underlying and adjusted earnings increased by €37 million to €136 million. Net income increased by €48 million to €148 million driven by underlying earnings growth and fair value increase in Private equity and real estate carried interests owned by AXA IM. Page 65 of 76 (in euro million) FY 2006 1 679 30 1 709 (1 330) 379 (132) ‐ (41) 206 ‐ 206 10 ‐ ‐ ‐ 216 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Other Financial Services Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s Other Financial Services segment for the periods indicated: Consolidated Gross Revenues (in euro millions) HY 2007 HY 2006 FY 2006 AXA Bank (Belgium) 127 151 306 AXA Banque (France) 28 20 62 AXA Bank (Germany) 12 13 26 Other (a) 5 4 10 TOTAL 172 189 404 Intercompany transactions (16) (7) (22) Contribution to consolidated gross revenues 156 181 381 (a) Includes CFP, CDO's and Real Estate entities. Underlying, Adjusted earnings and Net Income (in euro million) HY 2007 HY 2006 Published FY 2006 Published Axa Bank (Belgium) 13 14 21 Axa Bank (France) 0 (1) 0 Axa Bank (Germany) 0 2 3 Others (a) (0) 18 27 UNDERLYING EARNINGS 13 33 51 Net realized capital gains attributable to shareholders 3 (0) 8 ADJUSTED EARNINGS 16 33 59 Profit or loss on financial assets (under Fair Value option) & derivatives (8) (13) (15) Exceptional operations (including discontinuted operations) ‐ ‐ (1) Goodwill and related intangibles impacts ‐ ‐ ‐ Integration costs (1) ‐ ‐ NET INCOME 7 20 43 (a) Includes CFP, CDO's and Real Estate entities. AXA Bank (Belgium) Net banking revenues were down €-24 million (-16%) to €127 million. On a comparable basis (since the first half year 2007, commissions paid on deposit accounts and current accounts are included in commercial margin and not anymore in Distribution commissions), net banking revenues were down €-7 million or 5% in the context of an unfavorable yield curve and of an increase of short term interest rates. Underlying earnings decreased by €1 million to €13 million mainly due to lower fixed income capital gains (€-6 million) offset by a decrease in commissions (€+4 million) and expenses (€+2 million). Adjusted earnings increased by €2 million to €16 million, as the decrease in underlying earnings (€-1 million) was more than offset by an increase in capital gains on equities (€3 million). Net income increased by €3 million to €19 million driven by the increase in adjusted earnings as well as the change in fair value on bonds under fair value option and derivatives (€+4 million ) partly offset by lower capital gains in trading equities (€-3 million). Page 66 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AXA Banque (France) Underlying and adjusted earnings increased by €1 million to breakeven. Net income increased by €4 million to €-12 million, positively impacted by the change in fair value of macro-hedge derivatives instruments (from €-16 million to €-12 million). AXA Bank (Germany) Gross revenues decreased by €1 million to €12 million mainly due to increasing refinancing expenses for the credit business. Underlying and adjusted earnings decreased by €2 million to breakeven due to lower revenues and higher expenses. Other CFP Underlying earnings decreased by €18 million to €2 million as the contribution of the run off portfolios was close to zero in half year 2007. Page 67 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Holding Companies The Holding companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific Holdings, AXA UK Holdings, AXA Germany Holdings and AXA Belgium Holdings. Underlying, Adjusted earnings and Net Income HY 2007 HY 2006 Restated (a) HY 2006 Published FY 2006 Pro forma (b) AXA ‐45 ‐86 ‐125 ‐219 Other French holdings companies ‐21 ‐10 ‐10 1 Foreign holdings companies ‐117 ‐110 ‐109 ‐233 UNDERLYING EARNINGS ‐183 ‐206 ‐244 ‐450 Net realized capital gains attributable to shareholders 1 2 19 23 ADJUSTED EARNINGS ‐182 ‐204 ‐225 ‐428 Profit or loss on financial assets (under Fair Value option) & derivatives ‐89 ‐111 ‐92 ‐341 Exceptional operations (including discontinuted operations) ‐1 4 4 24 Goodwill and related intangibles impacts 0 0 0 0 Integration costs ‐22 0 0 0 NET INCOME ‐294 ‐310 ‐313 ‐745 (a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders' equity for all periods presented with impact on net income, and (iii) the restatement of The Netherlands' activities as discontinued businesses. (b) Pro forma means the restatement of The Netherlands' activities as discontinued businesses. AXA9 Underlying earnings increased by €41 million to €-45 million mainly due to: a €31 million profit linked to foreign currency options hedging AXA Group underlying earnings denominated in foreign currencies, a lower €32 million finance charge mainly related to a strengthening of the Euro which reduced the interest charge denominated in foreign currencies and a positive carry on interest swaps backing debts, a €32 million profit related to an internal equity swap (expected result to be nil on a full year basis as dividends are completely paid during first half of the year and interest charge accrued throughout all year), partly offset by €-14 million higher expenses mostly related to AXA brand scope extension to Winterthur acquisition and a €-39 million non recurring tax benefit in the first half year 2006. Adjusted earnings increased by €42 million to €-44 million driven by underlying earnings evolution. Net income was up €+50 million to €-154 million due to adjusted earnings evolution and a €28 million profit due to the change of the mark-to-market on foreign exchange and interest rate derivatives partly compensated by €-22 million of Winterthur integration costs (wind down costs related to the head office). 9 All the figures are after tax Page 68 of 76 (in euro million) FY 2006 Published ‐219 1 ‐239 ‐457 23 ‐434 ‐341 30 0 0 ‐745 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Other French holding companies AXA France Assurance. Underlying earnings decreased by €10 million to €-25 million mainly due to higher tax expenses (€+11 million) resulting from higher dividends (eliminated in consolidation) received from operational entities. Adjusted earnings decreased by €12 million to €-25 million as a result of the underlying earnings decrease and non recurrent 2006 realized gains on equities (€2 million). Net income decreased by €15 million to €-25 million resulting from the adjusted earnings decrease and the non recurrent 2006 tax gain on Nationwide (€3 million). Foreign Holding Companies AXA Financial Inc. Underlying earnings decreased by €4 million to €-60 million. On a comparable basis, underlying earnings decreased by €8 million (-16%) due to an increase in interest expense relating to a short-term intercompany note from AXA issued in 2007 to fund the purchase of AllianceBernstein units and a decrease in interest income attributable to the repayment of one of the MONY intercompany surplus notes in June 2006. Adjusted earnings decreased by €4 million to €-61 million. On a comparable basis, adjusted earnings decreased by €9 million (-16%). Net income decreased by €22 million to €-59 million. On a comparable basis, net income decreased €27 million (- 72%) reflecting the non recurrence of an after-tax gain related to the sale of Advest and an exceptional adjustment to taxes both in 2006. AXA Asia Pacific Holdings10 11 Underlying earnings improved by €3 million to €-10 million due to a reduction in net interest expense. Adjusted earnings improved by €4 million to €-12 million in line with underlying earnings evolution. Net income improved by €9 million to €-7 million due to foreign exchange impacts. 10 All comparisons to prior year figures are on a constant exchange rate basis 11 AXA interest in AXA Asia Pacific Group is 53.2% broken down into 52.3% direct interest holding and an additional 0.9% owned by the AAPH Executive plan trust Page 69 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 AXA UK Holdings Underlying earnings increased by €6 million or €3 million excluding Winterthur and on a constant exchange rate basis to €-28 million principally arising from a reduction in tax provisions following a decrease in the corporate tax rate, together with an improved net investment result. Adjusted earnings were in line with underlying earnings. Net income increased by €11 million or €8 million excluding Winterthur and on a constant rate basis mainly due to favorable movements on foreign exchange rate and the absence of legal fees in connection with the Nationwide indemnity. Other foreign holding companies German Holding companies Underlying earnings declined by €8 million to €-3 million. Excluding Winterthur, underlying earnings increased by €11 million primarily driven by €+2 million higher tax benefits due to the fiscal union with AXA Versicherung and €+6 million higher investment result as well as lower interest expenses (€+2 million). Winterthur underlying earnings amounted to €-19 million. Adjusted earnings declined by €6 million to €-2 million. Excluding Winterthur, Adjusted earnings increased by €11 million as a result of underlying earnings development and gains on equities. Net income declined by €7 million to €-2 million. Excluding Winterthur, net income increased by €11 million in line with adjusted earnings development. Belgium Holding companies Underlying earnings, Adjusted earnings and Net income decreased by €4 million to €-9 million mainly due to the merger of one Belgian holding with AXA Luxembourg since 01/01/2007 and higher northern region expenses and taxes on higher received dividends. Page 70 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Outlook The current volatility on the credit markets should not have a material impact on our profitability, given the quality of our assets and the long term duration of our insurance liabilities. Assuming that the global economic environment continues and barring any new major catastrophic events and/or further financial market incidents, our expectations are: Life and Savings NBV should grow at high single / low double digit rate despite lower APE momentum than in 2006 P&C combined ratio should slightly improve versus first half baring any unforeseen catastrophic event Asset Management should continue its growth momentum We believe we will achieve a double digit growth in underlying earnings per share We intend to buy back up to 45 million AXA shares in 2H07 in line with our stated policy. Page 71 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Glossary COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before: (i) (ii) (iii) The impact of exceptional operations (primarily change in scope, including integration costs related to a newly acquired company during the considered full year accounting period). Goodwill and other related intangible impacts, and Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (including all impacts of foreign exchange in particular the ones related to currency options in earnings hedging strategies, but excluding derivatives related to insurance contracts evaluated according to the “selective unlocking “accounting policy). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders. Net realized gains or losses attributable to shareholders include realized gains and losses (on assets not designated under fair value option or trading assets) and change in impairment valuation allowance, net of tax, related impact on policyholder participation net of tax (Life business), - DAC and VBI amortization or other reactivity to those elements if any (Life business). EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated adjusted earnings, divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares provided that their impact is not anti-dilutive). LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Page 72 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 (ii) Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, that is primarily the “Investment Margin” and the “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve– capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loading on (or contractual charges included in) premiums / deposits received on all non unit-linked product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical result includes the following components: (i) (ii) (iii) (iv) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits, including changes in valuation assumptions and additional reserves for mortality risk. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, Policyholder bonuses if the policyholder participates in the risk margin, Other changes in insurance reserves and economic hedging strategy impacts related to insurance contracts valuated according to the "selective unlocking" accounting policy allowing liability adjustment so as to better reflect the current interest rates for these contracts, Ceded reinsurance result. (v) Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Page 73 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 (ii) Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the inforce business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses excludes customer intangible amortization and integration costs related to newly acquired company. Current accident year loss ratio net of reinsurance is the ratio of: (i) [current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves], to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) [ all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves ], to Earned revenues, gross of reinsurance. (ii) Page 74 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 The underlying combined ratio is the sum of (i) the underlying expense ratio and (ii) the loss ratio (all accident years). ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: general expenses including distribution revenues / gross revenues excluding distribution fees. Page 75 of 76 AXA – Activity Report __________________________________________________________________________________________________ Half Year 2007 Page 76 of 76 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Consolidated financial statements June 30, 2007 ___________________________________________________________________________________________________________________ Page 1 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 --- TABLE OF CONTENTS --- CONSOLIDATED BALANCE SHEET .................................................................................................... 3 CONSOLIDATED STATEMENT OF INCOME .................................................................................... 5 STATEMENT OF CONSOLIDATED CASH FLOWS ........................................................................... 6 STATEMENT OF RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD ......................... 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................................... 9 Note 1 : Accounting principles ............................................................................................................................................... 9 Note 2 : Scope of consolidation ............................................................................................................................................. 27 Note 3 : Segmental consolidated statement of income ........................................................................................................ 31 Note 4 : Adjustments to the opening balance sheet of the Winterthur acquisition .......................................................... 34 Note 5 : Acquisitions of the period ....................................................................................................................................... 35 Note 6 : Assets/Liabilities held for sale and Assets/Liabilities relating to discontinued operations ............................... 36 Note 7 : Investments .............................................................................................................................................................. 38 Note 8 : Shareholders’ equity, minority interests and other equity .................................................................................. 42 Note 9 : Financing debt ......................................................................................................................................................... 50 Note 10 : Net income per ordinary share .......................................................................................................................... 51 Note 11 : Events subsequent to June 30, 2007 .................................................................................................................. 52 ___________________________________________________________________________________________________________________ Page 2 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 CONSOLIDATED BALANCE SHEET Assets (in Euro million) Notes June 30, 2007 December 31, 2006 Restated (*) Goodwill 16.328 16.149 Value of purchased business in force (a) 4.615 5.050 Deferred acquisition costs and equivalent (b) 16.969 15.896 Other intangible assets 2.490 2.350 Intangible assets 40.402 39.445 Investments in real estate property 18.153 18.608 Invested financial assets (c) 350.024 358.718 Loans (d) 25.076 28.860 Assets backing contracts where the financial risk is borne by policyholders (e) 185.410 176.562 7 Investments from insurance activities (f) 578.663 582.748 7 Investments from banking and other activities (f) 14.074 16.295 Investments in associates ‐ Equity method 144 144 Reinsurers' share in insurance and investment contracts liabilities 12.763 12.038 Tangible assets 1.585 1.727 Other long term assets (g) 506 456 Deferred policyholders' participation asset 729 460 Deferred tax asset 3.188 3.141 Other assets 6.008 5.784 Receivables arising from direct insurance and inward reinsurance operations 13.588 11.873 Receivables arising from outward reinsurance operations 997 805 Receivables arising from banking activities 13.684 14.063 Receivables ‐ current tax 1.588 989 Other receivables (h) 18.370 18.919 Receivables 48.228 46.648 6 Assets held for sale or relating to discontinued operations (i) 17.501 3.330 Cash and cash equivalents 19.274 21.169 TOTAL ASSETS 737.056 727.600 (a) Amounts shown gross of tax. (b) Amounts gross of unearned revenue reserve and unearned fee reserves. (c) Financial assets excluding loans and assets backing contracts where the financial risk is borne by policyholders. Includes fixed maturities, equities, controlled and non controlled investment funds. (d) Includes policy loans. (e) Includes assets backing contracts with Guaranteed Minimum features. (f) Also includes trading financial assets and accrued interests. All financial amounts are shown net of derivatives impact. (g) Includes long term assets, i.e. when maturity is above 1 year. (h) Includes short term assets, i.e. when maturity is below 1 year. (i) Includes The Netherlands for an amount of €17,221 million excluding liaison account. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. ___________________________________________________________________________________________________________________ Page 3 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Liabilities (in Euro million) Notes June 30, 2007 December 31, 2006 Restated (*) Share capital and capital in excess of nominal value 22.098 22.670 Reserves and translation reserve 20.447 19.471 Net income for the period 3.180 5.085 Shareholders’ equity – Group share 45.725 47.226 Minority interests 2.810 2.942 8 TOTAL MINORITY INTERESTS AND SHAREHOLDERS' EQUITY 48.535 50.168 Liabilities arising from insurance contracts 320.308 323.232 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (a) 114.278 108.984 Total liabilities arising from insurance contracts (b) 434.586 432.216 Liabilities arising from investment contracts with discretionary participating features (h) 32.545 32.599 Liabilities arising from investment contracts with no discretionary participating features 1.039 1.121 Liabilities arising from investment contracts where the financial risk is borne by policyholders (c) 71.361 67.673 Total liabilities arising from investment contracts (b) 104.945 101.393 Unearned revenue and unearned fee reserves 2.235 2.080 Liabilities arising from policyholders' participation (d) 19.966 24.923 Derivatives relating to insurance and investment contracts (143) (163) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 561.588 560.448 Provisions for risks and charges 7.879 9.028 Subordinated debt 6.020 5.563 Financing debt instruments issued 3.107 3.688 Financing debt owed to credit institutions 126 95 9 Financing debt (e) 9.252 9.347 Deferred tax liability 5.910 6.821 Minority interests of controlled investment funds and puttable instruments held by minority interests holders (f) 7.736 7.224 Other debt instruments issued and bank overdrafts (g) 7.121 8.711 Payables arising from direct insurance and inward reinsurance operations 6.196 7.947 Payables arising from outward reinsurance operations 6.252 5.849 Payables arising from banking activities (g) 16.696 16.992 Payables – current tax 2.477 2.055 Derivatives relating to other financial liabilities 135 124 Other payables 41.491 41.074 Payables 88.104 89.976 6 Liabilities held for sale or relating to discontinued operations (h) 15.787 1.812 TOTAL LIABILITIES 737.056 727.600 (a) Also includes liabilities arising from contracts with Guaranteed Minimum features. (b) Amounts shown gross of reinsurers' share in liabilities arising from contracts. (c) Liabilities arising from investment contracts with discretionary participating features and investment contracts with no discretionary participating features where the financial risk is borne by policyholders. (d) Also includes liabilities arising from deferred policyholders' participation. (e) Financing debt amounts are shown net of effect of derivative instruments. (f) Mainly comprises minority interests of controlled mutual funds puttable at fair value – also includes put options granted to minority shareholders. (g) Includes effect of derivative instruments. (h) Includes The Netherlands for an amount of €15,773 million excluding shareholders' equity. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. Liabilities (in Euro million) June 30, 2007 December 31, 2006 Liabilities arising from insurance contracts with financial risk borne by the policyholders 114.278 108.984 Liabilities arising from investment contracts with financial risk borne by the policyholders 71.361 67.673 Total Liabilities arising from contracts with financial risk borne by the policyholders 185.639 176.657 Liabilities arising from insurance contracts 320.308 323.232 Liabilities arising from investment contracts with discretionary participating features 32.545 32.599 Liabilities arising from investment contracts with no discretionary participating features 1.039 1.121 Total Liabilities arising from insurance and investment contracts 353.893 356.952 ___________________________________________________________________________________________________________________ Page 4 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 CONSOLIDATED STATEMENT OF INCOME (In Euro million, except EPS in Euro) Notes June 30, 2007 June 30, 2006 Restated (*) Gross written premiums 47.089 37.696 Fees and charges relating to investment contracts with no participating features 384 289 Revenues from insurance activities 47.474 37.985 Net revenues from banking activities 154 179 Revenues from other activities (a) 3.174 2.700 Total revenues 50.801 40.863 Change in unearned premiums net of unearned revenues and fees (3.833) (1.934) Net investment income (b) 8.858 7.320 Net realized investment gains and losses (c) 1.675 2.212 Change in fair value of financial instruments at fair value through profit & loss (j) 8.160 556 Change in financial instruments' impairment (d) (236) (134) Net investment result excluding financing expenses 18.457 9.954 Technical charges relating to insurance activities (e ) (50.309) (36.274) Net result from outward reinsurance (608) (492) Bank operating expenses (24) (38) Acquisition costs (f) (4.128) (3.377) Amortization of the value of purchased business in force and of other intangible assets (207) (159) Administrative expenses (5.088) (4.188) Change in tangible assets' impairment 3 (1) Change in goodwill impairment (i) ‐ ‐ Other income and expenses (g) (322) (391) Other operating income and expenses (60.684) (44.920) Income from operating activities before tax 4.741 3.963 Income arising from investments in associates ‐ Equity method 13 12 Financing debt expenses (h) (j) (233) (256) Operating income before tax 4.521 3.719 Income tax (j) (1.055) (733) Net operating result 3.466 2.986 6 Result from discontinued operations net of tax 74 69 Net consolidated income 3.540 3.055 Split between: Net income Group share 3.180 2.732 Minority interests' share in net consolidated income 360 323 10 Net income Group share per share (k) 1,54 1,47 10 Fully diluted net income group share per share (k) 1,53 1,43 (a) Excludes insurance and banking activities. (b) Net of investment management costs. (c) Includes impairment releases on sold invested assets. (d) Excludes impairment releases on sold invested assets. (e) Includes changes in liabilities arising from insurance contracts and investment contracts (with or without participating features) where the financial risk is borne by policyholders for an amount of €8,773 million in first half 2007 as a balancing entry to the change in fair value of financial instruments at fair value through profit and loss (€2,184 million in first half 2006). (f) Includes acquisition costs and change in deferred acquisition costs relating to insurance contracts and investment contracts with discretionary participating features as well as change in net rights to future management fees relating to investment contracts with no discretionary participating features. (g) Notably includes financial charges in relation to other debt instruments issued and bank overdrafts. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (i) Includes change in goodwill impairment as well as negative goodwill. (j) As described in note 1.11.2, perpetual subordinated notes have been reclassified under shareholders' equity for all periods presented. Details are provided in note 8. (k) Basic and diluted net income per share from discontinued operations represent both €0.04 for first half 2006 and first half 2007. (*) As described in note 1.10, the contribution of discontinued operations is stated on a separate line of the income statement. ___________________________________________________________________________________________________________________ Page 5 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 STATEMENT OF CONSOLIDATED CASH FLOWS (in Euro million) (a) June 30, 2007 June 30, 2006 Restated Operating income before tax (b) (c) 4.521 3.719 Net amortization expense (d) Net change in deferred acquisition costs and equivalent Net increase / (write back) in impairment on investments, tangible and other intangible assets 452 (1.202) 234 314 (863) 135 Change in fair value of investments and financial instruments accounted for at fair value through profit & loss (8.128) (233) Net change in liabilities arising from insurance and investment contracts (e) Net increase / (write back) in other provisions (f) 19.848 9 11.591 (13) Income arising from investments in associates – Equity method (13) (12) Adjustment of non cash balances included in the operating income before tax 11.200 10.919 Net realized investment gains and losses (2.575) (2.234) Financing debt expenses 233 256 Adjustment of balances included in operating income before tax for reclassification to investing or financing activities (2.342) (1.978) Dividends recorded in profit & loss during the period (1.414) (1.157) Interests paid & received recorded in profit & loss during the period (8.142) (6.619) Adjustment of transactions from accrued to cash basis (9.555) (7.776) Net cash impact of deposit accounting 1.139 (528) Dividends and interim dividends collected 1.285 1.231 Interests collected 9.512 7.153 Interests paid (excluding financing debts and perpetual debts) (636) (456) Change in operating receivables and payables (g) (2.645) (452) Net cash provided by other assets and liabilities (h) Tax expenses paid (76) (1.285) 459 (549) Other operating cash impact and non cash adjustment (b) 1.111 (648) Net cash impact of transactions with cash impact not included in the operating income before tax 8.405 6.210 Net cash provided by operating activities 12.229 11.094 Purchase of subsidiaries and affiliated companies, net of cash acquired (2.176) (649) Disposal of subsidiaries and affiliated companies, net of cash ceded (n) 1.305 27 Net cash related to changes in scope of consolidation (870) (623) Sales of fixed maturities (h) Sales of equities and non consolidated investment funds (h) (i) Sales of investment properties held directly or not (h) 43.286 14.355 1.440 32.127 9.788 802 Sales and/or repayment of loans and other assets (h) (j) 20.859 7.850 Net cash related to sales and repayments of financial assets (h) (i) (j) 79.941 50.566 Purchases of fixed maturities (h) Purchases of equity securities and non consolidated investment funds (h) (i) Purchases of investment properties held directly or not (h) (49.455) (15.370) (606) (43.353) (8.625) (362) Purchases and/or issues of loans and other assets (h) (j) (25.453) (11.091) Net cash related to purchases and issuance of financial assets (h) (i) (j) (90.884) (63.431) Sales of tangible and intangible assets 16 4 Purchases of tangible and intangible assets (152) (145) Net cash related to sales and purchases of tangible and intangible assets (136) (141) Increase in collateral payable / Decrease in collateral receivable 2.530 3.879 Decrease in collateral payable / Increase in collateral receivable (998) ‐ Net cash impact of collateral receivables and payables related to assets lending and borrowing 1.532 3.879 Other investing cash impact and non cash adjustment (797) (343) Net cash provided by investing activities (11.213) (10.093) Issuance of equity instruments (k) (b) 158 134 Repayments of equity instruments (k) (b) Dividend payouts (123) (2.485) (16) (1.838) Interests on perpetual debt paid (b) (144) (86) Net cash related to transactions with shareholders (2.593) (1.805) Cash provided by financing debt issuances Cash used for financing debt repayments 186 (676) 13 (336) Interests on financing debt paid (l) (b) (283) (131) Net cash related to Group financing (772) (454) Other financing cash impact and non cash adjustment 21 (35) Net cash provided by financing activities (3.345) (2.295) Net cash provided by discontinued operations (m) 47 140 ___________________________________________________________________________________________________________________ Page 6 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Cash and cash equivalents as at January 1 27.790 20.640 Net cash provided by operating activities 12.229 11.094 Net cash provided by investing activities Net cash provided by financing activities Net cash provided by discontinued operations Impact of change in scope on cash and cash equivalents (11.213) (3.345) 47 13 (10.093) (2.295) 140 5 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (a) (112) 5.455 Cash and cash equivalents as at June 30 25.409 24.946 (a) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see note 1.7.2). However, from June 30, 2006, cash backing contracts where the financial risk is borne by policyholders (unit‐linked contracts) is regarded as an item of "Cash and cash equivalents" instead of a financial asset. At June 30, 2006, the reclassification of this cash under "Cash and cash equivalents" is presented in "Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents" for an amount of €5.9 billion. (b) As described in note 1.11.2, perpetual deeply subordinated notes have been transferred from the "subordinated debt" item to the "shareholders' equity" item, and so are treated similarly to deeply subordinated notes. At June 30, 2006, the effect on the cash flow statement of this reclassification is as follows: ‐ an increase of €4 million in operating income before tax, ‐ a reclassification of interest paid on perpetual deeply subordinated notes and deeply subordinated notes for an amount of €86 million, respectively €64 million and €42 million, from "Interests on financing debt paid" item to "Interests on perpetual debt paid" item. (c) As described in note 1.18, the statement of consolidated cash flows now starts from "Operating income before tax", whereas it used to start from "Income from operating activities, gross of tax expenses". (d) Includes the capitalization of premiums/discounts and related amortization and amortization of investment and owner occupied properties (held directly). (e) Includes the impact of reinsurance. This item also includes the change in liabilities arising from contracts where the financial risk is borne by policyholders. (f) Mainly includes changes in provisions for risks and charges, provisions for bad debts/doubtful receivables and change in impairment of assets held for sale. (g) Also includes changes relating to repository transactions and equivalent for banking activities. (h) Includes corresponding derivatives. (i) Includes equities held directly or by consolidated and non controlled investment funds. (j) Also includes purchases and sales of assets backing contracts where financial risk is borne by policyholders. (k) Also includes issues and repayments of perpetual debts. (l) Includes the net cash impact of interest margins relating to hedging derivatives on financing debts. (m) Net cash provided by operating, investing and financing activities related to discontinued operations are detailed in note 6. (n) At June 30, 2007, this item includes the disposal of Winterthur's US Property & Casualty subsidiary. Cash and cash equivalents (in Euro million) June 30, 2007 June 30, 2006 Cash and cash equivalents 19.274 19.756 Bank overdrafts (a) (1.843) (840) Cash backing contracts where the financial risk is borne by policyholders 7.458 6.030 Cash related to discontinued operations included in caption "Assets held for sale or relating to discontinued operations" 521 ‐ Cash and cash equivalents as at June 30 25.409 24.946 (a) Included in "Other debt instruments issued and bank overdrafts". ___________________________________________________________________________________________________________________ Page 7 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Statement of recognized income and expense for the period (in Euro million) June 30, 2007 June 30, 2006 Reserves relating to the change in fair value through shareholders' equity (1.957) (3.007) Translation reserves (280) (789) Employee benefits' actuarial gains and losses through OCI 533 574 Net gains and losses recognized directly through shareholders' equity (1.703) (3.221) Net income of the period 3.540 3.055 Total recognized income and expense for the period (SORIE) 1.837 (166) Split between : Group share in the total recognized income and expense for the period (SORIE) 1.644 (223) Minority interests' share in the total recognized income and expense for the period (SORIE) 193 58 The presentational amendments of the consolidated statement of shareholders’ equity which is replaced by the statement of recognized income and expense for the period are explained in note 1.18. The consolidated statement of shareholders’ equity is presented in note 8. ___________________________________________________________________________________________________________________ Page 8 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia-Pacific. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated financial statements. AXA operates in the following primary business segments: Life & Savings - Property & Casualty - International Insurance and - Asset Management and Other Financial Services. AXA has its primary listing on the Paris stock exchange's Eurolist market and has been listed since June 25, 1996 on the New York Stock Exchange. The consolidated financial statements were finalized by the Management Board on August 6, 2007 and examined by the Supervisory Board on August 8, 2007. 1.2. General accounting principles 1.2.1. Basis for preparation AXA's interim consolidated financial statements are prepared as at June 30. However, certain entities within AXA have a reporting half year end that does not coincide with June 30, in particular AXA Life Japan, which has a March 31 financial half year end. The interim consolidated financial statements were prepared in accordance with IFRS standards, including IAS 34 "Interim Financial Reporting" (see below) and IFRIC interpretations adopted by the European Commission as of June 30, 2007. However, the Group does not use the "carve out" option to avoid applying all the hedge accounting principles required by IAS 39. As regards the content of its interim financial statements, the Group, in accordance with IAS 34 "Interim Financial Reporting", uses the option of presenting a selection of explanatory notes alongside the mandatory summary statements, which are presented in the same format as the full-year financial statements. a) Standards published and effective at January 1, 2007 IFRS 7 - Financial Instruments: Disclosures and the amendment to IAS 1 - Capital Disclosures, both published in August 2005 and applicable from January 1, 2007, relate to additional information provided in the notes to the full- year consolidated financial statements on the Group's financial instruments, insurance contracts and capital. These two standards have no impact on the Group's income or financial position. The application of the following interpretations, as of January 1, 2007, has no significant impact on the Group's consolidated financial statements: IFRIC 7 - Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies ___________________________________________________________________________________________________________________ Page 9 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 IFRIC 8 - Scope of IFRS 2 IFRIC 9 - Reassessment of Embedded Derivatives, states that the identification and measurement of an embedded derivative may only take place after the implementation of the contract provided that the contract undergoes an alteration that leads to material changes in the cash flows of the contract, the embedded derivative or the whole. This interpretation is consistent with the accounting principles previously applied by the Group. IFRIC 10 - Interim Financial Reporting and Impairment states that impairment cannot be released when a company, in its interim financial statements, has recognised a loss of value on goodwill, an unlisted equity instrument or a financial asset recognised at cost. This interpretation is consistent with the accounting principles previously applied by the Group. b) Standards published but not yet effective IFRS 8 - Operating Segments, published in November 2006 and applicable from January 1, 2009, replaces IAS 14 - Segment Reporting. The new standard requires disclosed operating segments to be based on the segmentation used in the entity's internal reporting, on the basis of which operational heads allocate capital and resources to the various segments and assess the segments' performance. The standard requires the entity to explain the basis on which segments are determined, and provide a reconciliation between consolidated balance sheet and income statement amounts. The analysis of the potential impact on Group segment reporting is currently underway. The amendment to IAS 23 - Borrowing Costs, published on March 29, 2007 and applicable from January 1, 2009, makes it compulsory to capitalise borrowing costs and removes the option to expense these costs. The amendment also excludes eligible assets measured at fair value from the revised standard's scope of application. This amendment is unlikely to have a significant impact on the Group's consolidated financial statements. The Group has not elected for early adoption of IFRIC 11 - Group and Treasury Share Transactions, published on November 2, 2006 and applicable to full-year reporting periods starting on or after March 1, 2007, since the impact on the consolidated financial statements is estimated to be immaterial. c) Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non- current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts on the consolidated balance sheet, consolidated statement of income, statement of consolidated cash flows, consolidated statement of shareholders’ equity and in the notes are expressed in million of Euros, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group's transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date is January 1, 2005. __________________________________________________________________________________________________________________ Page 10 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 The AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial assets and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible have also been considered when assessing whether AXA controls another entity. Entities that are controlled in substance even without any ownership interest are also consolidated. In particular this relates to special purpose entities, such as securitization vehicles, for example resulting from sales of receivables transferred by entities outside the Group and with the purpose of issuing Collateralized Debt Obligations (CDOs), whose redemption is backed by the proceeds from acquired receivables. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant long-term influence are accounted under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post- acquisition movements in reserves is stated under "Other reserves". Investment and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions listed above they satisfy. For fully consolidated investment companies, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies' instruments can be redeemed at any time by the holder at fair value. Investment companies accounted for under the equity method are shown under the balance sheet caption "Invested financial assets". 1.3.2. Business combinations: purchase accounting and goodwill including minority interests buyout In accordance with the option made available by IFRS 1 - First-time adoption of IFRS, business combinations prior to 2004 have not been restated with respect to French accounting principles in force at the time. The principles described below apply to the business combinations that occurred after January 1, 2004 a) contingent liabilities Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and Upon first consolidation, all assets, liabilities and contingent liabilities of the acquired company are estimated at their fair value. However as permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from this exemption permitted by IFRS 4 in phase I of the IASB's insurance project, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment __________________________________________________________________________________________________________________ Page 11 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other intangible assets such as the value of customer relationships are recognized only if they can be measured reliably. The value of customer relationships intangible in this case represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, flexible premiums relating to acquired business are recognized in the "Value of purchased life business in force" item. To the extent that these other intangible assets can be estimated separately and reliably, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company's balance sheet at acquisition date. The cost of an acquisition is measured at the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at completion date, plus external fees directly attributable to the acquisition. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). b) Goodwill The excess of the cost of acquisition over the net fair value of the assets, liabilities and contingent liabilities acquired represents goodwill. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euros at the closing date. If the cost of acquisition is less than the net fair value of the assets, liabilities and contingent liabilities acquired, the difference is directly booked in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available. Goodwill is allocated across business segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Other Financial Services) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. c) Minority interests buyouts In the event of a minority interests buyout of a subsidiary, the new goodwill is recognized as the difference between the price paid for the additional shares and the shareholders' equity acquired (including changes in fair value posted through equity). d) Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. Where the contract involves an unconditional commitment exercisable at anytime by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRSs, and since IFRIC's Agenda Committee decided in 2006 not to take any position on the accounting treatment of these transactions, the Group's method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference as an addition to goodwill. Similarly, subsequent changes in the liability will be recorded against goodwill. __________________________________________________________________________________________________________________ Page 12 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 e) Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: - in full for wholly owned subsidiaries and; to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated, except for permanent losses, which are maintained. In the event of an internal sale of an asset that is not intended to be sold on the long term by the Group, deferred tax is recognized on the top of the current tax calculated on the realized gain or loss. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the balance sheet. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements since the related consolidated shares are held on a long-term basis. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the "Internal restructuring" item of the consolidated statement of shareholders' equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in million of Euros, the Euro being the Group’s functional and presentation currency. The results and financial position of all group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentation currency are translated as follows: - assets and liabilities of entities in a functional currency different from Euro are translated at closing rate revenues and expenses are translated at the average exchange rates over the period all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). Foreign currency transactions are translated into Euro using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the net investment. Foreign exchange differences arising from monetary financial assets available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. __________________________________________________________________________________________________________________ Page 13 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects both business lines (primary business segment) and geographical zones; it is based on four business lines: Life & Savings, Property & Casualty, International Insurance and Financial Services (including Asset Management). An additional "Holdings" segment includes all non-operational activities. 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an annual impairment test of goodwill based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. The analysis assumes a long-term holding, and excludes parameters affected by short-term market volatility. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of market value and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units' future cash flows. The value of future expected earnings is estimated on the basis of the insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Market values are based on various valuation multiples. 1.6.2. Value of purchased life insurance business inforce (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts portfolio. In conjunction with the liability adequacy test (see section 1.12.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Other intangible assets Other intangible assets include softwares developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets' estimated useful lives. They also include customer relationships intangibles recognized as a result of business combinations, provided that their fair value can be measured reliably and it is probable that future economic benefits attributable to the assets will benefit to the Group. If these assets have a finite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and market value. __________________________________________________________________________________________________________________ Page 14 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features - Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.12.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equities, fixed maturities and loans. 1.7.1. Investment properties Investment properties (excluding investment properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from “With-Profit” contracts) are recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. Any impairment is recorded as soon as a permanent unrealized loss is identified. When the estimated market value is 15% lower than the net carrying value, the present value of the asset’s future estimated cash flows is calculated. If the calculated amount is lower than the net carrying value, an impairment is recorded, corresponding to the difference between (a) the net book value and (b) the higher of the estimated market value and the discounted cash flow value. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment properties that totally or partially back liabilities arising from: contracts where the financial risk is borne by policyholders, “With-Profit” contracts where dividends are based on real estate assets, are recognized at fair value with changes in fair value taken to the statement of income. - 1.7.2. Financial instruments Classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: - assets held to maturity, accounted for at amortized cost; loans and receivables (including unquoted debt instruments) accounted for at amortized cost; __________________________________________________________________________________________________________________ Page 15 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 - trading assets and assets designated at fair value with change in fair value recognized through income statement; available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders' equity. The option to designate financial assets and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: financial assets when electing the fair value option allows the Group to solve accounting mismatch, and in particular: - - assets backing liabilities arising from contracts where the financial risk is borne by policyholders; assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; debts held by structured bond funds made up of CDOs (Collateralized Debt Obligations) and controlled by the Group. portfolios of managed financial assets whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below); In practice, assets held through investment funds are classified: either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA's ALM strategy; or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. The financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Loans are accounted at amortized cost, net of amortized premiums and discounts and impairment. Impairment of financial assets AXA assesses at each balance sheet date whether a financial asset or a group of financial assets at (amortized) cost or designated as “available for sale” is permanently impaired. For fixed maturities classified as “held to maturity” or “available for sale”, an impairment is recorded through the income statement for a decline in value of a security if the amounts may not be fully recoverable due to a credit event relating to the fixed maturity issuer. If this credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equities classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equities showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity securities impairment recognized in the income statement can not be reversed through the income statement until the asset is sold or derecognized. Loans impairments are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (on the loan’s observable market price), or on the fair value of the collateral. For financial assets accounted for at amortized cost, including loans and assets classified as “held to maturity”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local ALM strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ provided that they are used consistently at each entity level. __________________________________________________________________________________________________________________ Page 16 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment properties, fixed maturities or equities, etc). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity are recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is actually accounted). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial assets that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed significant. For balance sheet presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. __________________________________________________________________________________________________________________ Page 17 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.10. Assets held for sale and assets relating to discontinued operations They comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liabilities side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. Details on information presented in the balance sheet and income statement are provided in the notes to the consolidated financial statements. 1.11. Share capital and shareholders’ equity 1.11.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.11.2. Perpetual debts Perpetual debts and any related interest charges are classified either in shareholders’ equity (“in the other reserves aggregate”) or as liabilities depending on contract clauses. Before December 31, 2006, the Group classified within shareholders' equity only perpetual debts on which interest payments could be cancelled on the condition that no dividend be paid to shareholders nor any interest paid on other securities of the same type. Perpetual securities on which interest payments could be deferred while remaining due (cumulative interest) were recognized as liabilities under financing debts. These consisted mainly of perpetual subordinated notes issued by the Group. Following the publication of the IFRIC Agenda Committee's IFRIC Update in November 2006, based on the IASB's intervention on the matter, the Group reconsidered its accounting treatment of perpetual subordinated notes. Although interests remain due at maturity, instruments classification must be performed on a going concern basis. Only contractual obligations should be taken into consideration and not the prospect of redemption under economic constraints, (e.g. step up clauses or pressure from shareholders to pay a dividend). Taking into account the recent clarification, the Group has reclassified these instruments, previously recognized as liabilities and interest charges recognized in the statement of income, in shareholders' equity. This change in accounting treatment has been applied retrospectively to all periods presented. __________________________________________________________________________________________________________________ Page 18 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.11.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) are classified separately on the liability side of the balance sheet with the equity component reported in shareholders’ equity ("in the other reserves aggregate"). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.11.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.12. Liabilities arising from insurance and investment contracts 1.12.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on the top of these standard benefits : - - they are likely to represent a significant portion of the overall contractual benefits; their amount or timing is contractually at the discretion of the Group; and they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: - - - - liabilities arising from insurance contracts, liabilities arising from insurance contracts where the financial risk is borne by policyholders, liabilities arising from investment contracts with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features, liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. The two last categories are presented on a single line item in the balance sheet: "Liabilities arising from investment contracts where the financial risk is borne by policyholders". __________________________________________________________________________________________________________________ Page 19 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.12.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions and selective changes as permitted by IFRS 4 (see paragraph below on guaranteed benefits). Unearned premium reserves represent the prorated portion of written premiums that relates to unexpired risks at the balance sheet date. For traditional life insurance contracts (that is, contracts with significant mortality risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Additional reserves are booked if there are any adverse impact on reserves level caused by a change in mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called "savings contracts" in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception giving similar results to those obtained using a retrospective approach (earned savings valuation or "account balance"). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. The "Liabilities relating to policyholder bonuses" caption includes the entire "Fund for Future Appropriation" (FFA) relating to UK with-profit contracts, which principally covers future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profit contracts and the FFA varies in line with the market value of the assets supporting the participating with-profit funds. Provisions relating to with-profit contracts are measured "realistically" in accordance with UK accounting standard FRS 27, in line with the practice used by UK insurance companies with respect to these contracts. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed benefits relating to contracts where the financial risk is borne by policyholders and classified as insurance contracts because they include such guarantees or classified as investment contracts with discretionary participating features, are booked gradually based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns and related volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees emerge over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. __________________________________________________________________________________________________________________ Page 20 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Claims reserves (non-life insurance) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see section 1.6.4). Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business inforce to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is determined by applying an estimated participation rate to unrealized gains and losses. Deferred policyholders participation is fully classified as liabilities or assets. As a consequence, AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized losses is accounted, a deferred participating asset (DPA) should be recognized only to the extent that its recoverability toward future policyholders participation, by entity, is highly probable. That could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated as at fair value through profit or loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the statement of income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are also booked through shareholders’ equity. Liability adequacy test (LAT) At each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities also use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and they take into account embedded options and guarantees and investment yields relating to assets backing these contracts. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Any identified deficiency is charged to the income statement, initially by respectively writing off DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material if they are not considered as closely related to the host insurance contract or do not meet the definition of an insurance contract. __________________________________________________________________________________________________________________ Page 21 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.12.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using "deposit accounting", which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see "Revenue recognition" section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For unit-linked contracts, the liabilities recognized under existing accounting policies are valued according to the fair value of the financial assets backing those contracts at the balance sheet date. Unearned fees reserve Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs (see section 1.6.4). 1.13. Reinsurance: Ceded reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.14. Financing debts Financing debts issued to finance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specific balance sheet aggregate. 1.15. Other liabilities 1.15.1. Income taxes The half-year income tax charge is based on the best estimate of the expected weighted average full-year tax rate (if progressive tax rates based on income levels are in force) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and from tax loss carryforwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. Therefore, deferred tax assets that are not expected to be recovered are written off. A deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax asset or liability (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Following a business combination, a deferred tax liability or asset is also recognized on changes in the timing difference between the tax value and carrying value of a tax-deductible item of goodwill. This deferred tax is only released if the goodwill is impaired or if the corresponding consolidated shares are sold. __________________________________________________________________________________________________________________ Page 22 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. 1.15.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the PBO (Projected Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Projected Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment for any unrecognized losses or gains. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Past service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past service costs are amortized on a straight-line basis over the vesting period. 1.15.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled stock-option plans granted after November 7, 2002 and not fully vested as at January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled stock option plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged option. The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the CNC (Conseil National de la Comptabilité). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the opportunity cost implicitly borne by AXA by enabling its employees to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.16. Provisions for risks, charges and contingent liabilities 1.16.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. __________________________________________________________________________________________________________________ Page 23 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 1.16.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or implicit) as a result of past events, when it is more likely than not that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses or future losses associated with the ongoing activities of the company. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.17. Revenue recognition 1.17.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.17.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contract during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.12.3). 1.17.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: - the Group recognizes the consideration received as a deposit financial liability rather than as revenues, claims paid are recognized as withdrawals. 1.17.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met : the Group can measure separately the "deposit" component (including any embedded surrender option, i.e. without taking into account the "insurance" component); __________________________________________________________________________________________________________________ Page 24 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 - the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the "deposit" component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.17.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premiums reserves net of unearned revenues and fees include the change in the unearned premium reserve reported as a liability (see "Unearned premium reserves" in section 1.12.2) along with the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see "Provisions for unearned revenues" in section 1.12.2) and investment contracts with no discretionary participating features (see section 1.12.3 "Provisions for unearned fees"). 1.17.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item "Bank operating expenses". 1.17.7. Revenues from other activities Revenues from other activities mainly include: - - insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, commissions received and fees for services relating to asset management activities, rental income received by real estate management companies, and, sales proceeds received on buildings constructed or renovated and subsequently sold by real estate businesses. 1.17.8. Policyholders' participation The half-year policyholders' participation charge is based on the best estimate of the planned full-year distribution rate for each portfolio of contracts at each Group entity. 1.17.9. Net investment result excluding financing expenses The net investment result in respect of insurance activities includes: Investment income from investments from non banking activities, net of impairment expense on real estate investments (impairment expense relating to owner occupied properties is included in “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, __________________________________________________________________________________________________________________ Page 25 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 - Realized investment gains and losses net of releases of impairment following sales, - The change in unrealized gains and losses on invested assets measured at fair value through profit or loss, - The change in financial assets impairment (excluding releases of impairment following sales). Investment management expenses (excludes financing debt expenses), In respect of banking activities, interest income and financial charges including interest expenses are included in the "Net revenue from banking activities" item (see section 1.17.6). Any gain or loss arising from a change in AXA’s ownership interest in a subsidiary not wholly owned, following an issuance or redemption of equity instruments, is recorded in the net investment result. The gain or loss would correspond to the change in AXA's share of the subsidiary's shareholders’ equity before and after the operation. 1.18. Presentation of financial statements As part of its continuing review aimed at improving the presentation of its financial statements and to ensure that its accounting principles are consistent with those applied by its peers, the Group has amended some presentational aspects of its financial statements at December 31, 2006. Consolidated income statement The "Change in goodwill impairment" aggregate is now presented under "the other operating income and expenses” aggregate and is therefore included in "Income from operating activities before tax". It was previously presented after "Operating income before tax”. The group no longer reports “Net income Group share" (obtained by deducting minority interests from “Consolidated net income”). Net income is now broken down into “Minority interests share in net consolidated result” and “Net income Group share”. These two items are presented at the bottom of the income statement as an allocation of net income. Statement of consolidated cash flows Following the change in the consolidated income statement format regarding the "Change in goodwill impairment" item, and in order to make the presentation more consistent with that adopted by its peers, the Group has also changed the starting point of the statement of consolidated cash flows. The statement of consolidated cash flows now starts with "Net operating result before tax", whereas it used to start with "Income from operating activities, gross of tax expenses". As a result, the following income statement items are now included in the starting point of the statement of consolidated cash flows: "Change in goodwill impairment", "Income arising from investments in associates – Equity method" and "Financing debt expenses". Moreover, in accordance with amendments to IAS 1, the Statement of Recognised Income and Expense (SORIE) for the period is now part of the Group’s consolidated financial statements, while other changes in equity generated by transactions with shareholders are shown in the notes to the financial statements. Statement of Recognised Income and Expense for the period The Statement of Recognised Income and Expense for the period (SORIE) includes all gains and losses over the period, that is, in addition to net income for the period, any changes in unrealized gains and losses on available for sale securities, the reserve of cash flow hedging derivatives, reserves for currency translation and employee benefits’ actuarial gains and losses through OCI. This statement shows only changes in reserves over the period, in addition to net income. The reconciliation with the related reserves recognized through equity is shown in Note 8. That statement also shows transactions with shareholders and all changes in equity for the periods presented. __________________________________________________________________________________________________________________ Page 26 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2007 December 31, 2006 Parent and Holding Companies Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA Parent company Parent company AXA China 100,00 77,08 100,00 76,82 AXA France Assurance 100,00 100,00 100,00 100,00 Colisée Excellence 100,00 100,00 100,00 100,00 AXA Participations II 100,00 100,00 100,00 100,00 Mofipar 100,00 100,00 100,00 100,00 Oudinot Participation 100,00 100,00 100,00 100,00 Société Beaujon 99,99 99,99 99,99 99,99 AXA Technology Services 100,00 99,99 100,00 99,99 United States AXA Financial, Inc. 100,00 100,00 100,00 100,00 AXA America Holding Inc. 100,00 100,00 100,00 100,00 United Kingdom Guardian Royal Exchange Plc 100,00 99,99 100,00 99,99 AXA UK Plc 100,00 99,99 100,00 99,99 AXA Equity & Law Plc 99,96 99,96 99,96 99,96 Winterthur (UK) Holdings Ltd 100,00 99,99 100,00 100,00 Ireland AXA Life Europe 100,00 100,00 100,00 100,00 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100,00 53,22 100,00 52,69 AXA Life Singapore Holding 100,00 53,22 100,00 52,69 AXA Asia Pacific Holdings Ltd 54,02 53,22 53,71 52,69 Japan AXA Japan Holding 97,88 97,88 97,69 97,69 Germany Kölnische Verwaltungs AG für Versicherungswerte 99,56 98,76 99,56 98,76 AXA Konzern AG DBV‐Winterthur Holding AG WinCom Versicherungs‐Holding AG 96,84 96,69 100,00 96,52 96,60 99,90 96,84 96,69 100,00 96,52 96,69 100,00 Winterthur Beteiligungs‐Gesellschaft mbH 100,00 99,90 100,00 100,00 Belgium AXA Holdings Belgium 100,00 99,92 100,00 99,92 Royale Belge Investissement Merger with AXA Luxembourg SA ‐ ‐ 100,00 99,92 Luxembourg AXA Luxembourg SA 100,00 99,92 100,00 99,92 The Netherlands AXA Verzekeringen AXA Nederland BV Vinci BV DBV Holding N.V 100,00 100,00 100,00 100,00 99,92 99,92 100,00 96,60 100,00 100,00 100,00 100,00 99,92 99,92 100,00 96,69 Winterthur Verzekeringen Holding B.V. 100,00 100,00 100,00 100,00 Spain AXA Aurora S.A. Hispanowin, S.A. 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 Italy AXA Italia SpA 100,00 100,00 100,00 100,00 Switzerland Finance Solutions SARL 100,00 100,00 100,00 100,00 Morocco AXA Ona Minority interests' buyout 100,00 100,00 51,00 51,00 Turkey AXA Oyak Holding AS 50,00 50,00 50,00 50,00 __________________________________________________________________________________________________________________ Page 27 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 June 30, 2007 December 31, 2006 Life & Savings and Property & Casualty Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA France Iard Avanssur (formerly Direct Assurances Iard) AXA France Vie AXA Protection Juridique 99,92 100,00 99,77 98,51 99,92 100,00 99,77 98,51 99,92 100,00 99,77 98,51 99,92 100,00 99,77 98,51 United States AXA Financial (sub group) 100,00 100,00 100,00 100,00 Canada AXA Canada Inc. (sub group including Citadel) 100,00 100,00 100,00 100,00 United Kingdom AXA Insurance Plc AXA Sun Life Plc AXA PPP Group Plc AXA PPP Healthcare Limited Thinc Group Venture Preference Limited Winterthur Life UK Limited Acquisition Acquisition 100,00 100,00 100,00 100,00 100,00 95,40 100,00 99,99 99,99 99,99 99,99 99,99 95,40 99,99 100,00 100,00 100,00 100,00 ‐ ‐ 100,00 99,99 99,99 99,99 99,99 ‐ ‐ 100,00 Ireland AXA Insurance Limited 100,00 99,99 100,00 99,99 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA Australia New Zealand AXA China Region Limited (including MLC Hong‐Kong) AXA General Insurance Hong Kong Ltd AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia Kyobo Automobile Insurance Winterthur Life (Hong Kong) Ltd. Acquisition 100,00 100,00 100,00 100,00 100,00 80,00 100,00 74,74 100,00 53,22 53,22 53,22 100,00 100,00 42,57 53,22 74,74 53,22 100,00 100,00 100,00 100,00 100,00 80,00 100,00 ‐ 100,00 52,69 52,69 52,69 100,00 100,00 42,15 52,69 ‐ 100,00 Japan AXA Life Insurance AXA Non Life Insurance Co Ltd Winterthur Swiss Life Insurance Co., Ltd. 100,00 100,00 100,00 97,88 97,88 97,88 100,00 100,00 100,00 97,69 97,69 100,00 Germany AXA Versicherung AG AXA Art AXA Leben Versicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Kranken Versicherung AG DBV‐Winterthur Krankenversicherung AG DBV‐Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch‐Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten‐Versicherung AG DBV‐Winterthur Versicherung AG (DWS) DBV‐WinSelect Versicherung AG 100,00 100,00 100,00 100,00 97,87 99,69 100,00 99,74 100,00 100,00 100,00 100,00 100,00 96,52 96,52 96,52 96,52 94,47 96,23 96,60 96,34 96,34 96,60 96,60 96,60 96,60 100,00 100,00 100,00 100,00 97,87 99,69 100,00 99,74 100,00 100,00 100,00 100,00 100,00 96,52 96,52 96,52 96,52 94,47 96,23 96,69 96,44 96,44 96,69 96,69 96,69 96,69 Belgium Ardenne Prévoyante AXA Belgium SA Servis (formerly Assurance de la Poste) Assurances de la Poste Vie Winterthur Europe Assurance ‐ Vie Winterthur Europe Assurances ‐ Non Vie Les Assurés Réunis Touring Assurances SA 100,00 100,00 100,00 100,00 99,81 99,81 99,93 100,00 99,92 99,92 99,92 99,92 99,81 99,81 99,74 99,81 100,00 100,00 100,00 100,00 99,81 99,81 99,93 100,00 99,92 99,92 99,92 99,92 99,81 99,81 99,74 99,81 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100,00 100,00 99,92 99,92 100,00 100,00 99,92 99,92 The Netherlands AXA Leven N.V. AXA Schade N.V. Winterthur Leven NV DBV Leven N.V. DBV Schade DBV Finance BV Winterthur Schade N.V. 100,00 100,00 100,00 100,00 100,00 100,00 100,00 99,92 99,92 100,00 96,60 96,60 96,60 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 99,92 99,92 100,00 96,69 96,69 96,69 100,00 Spain Hilo Direct SA de Seguros y Reaseguros AXA Aurora SA Iberica de Seguros y Reaseguros AXA Aurora SA Vida de Seguros y Reaseguros AXA Aurora SA Vida Winterthur Vida y Pensiones Winterthur Seguros Generales, S.A. de Seguros y Reaseguros Winterthur Salud (SA de Seguros) 100,00 99,70 99,70 99,96 100,00 100,00 100,00 100,00 99,70 99,70 99,67 100,00 100,00 100,00 100,00 99,70 99,70 99,96 100,00 100,00 100,00 100,00 99,70 99,70 99,67 100,00 100,00 100,00 Italy AXA Interlife UAP Vita AXA Assicurazioni e Investimenti 100,00 100,00 100,00 100,00 100,00 99,99 100,00 100,00 100,00 100,00 100,00 99,99 Portugal AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA Seguro Directo 99,61 95,09 100,00 99,37 94,89 100,00 99,61 95,09 100,00 99,37 94,89 100,00 Morocco AXA Assurance Maroc Minority interests' buyout 100,00 100,00 100,00 51,00 Turkey AXA Oyak Hayat Sigorta AS AXA Oyak Sigorta AS 100,00 70,96 50,00 35,48 100,00 70,96 50,00 35,48 __________________________________________________________________________________________________________________ Page 28 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Switzerland AXA Compagnie d'Assurances sur la Vie AXA Compagnie d'Assurances Winterthur Life Winterthur‐ARAG Legal Assistance Winterthur Swiss Insurance Company Holding Winterthur Swiss Insurance P&C 100,00 100,00 100,00 66,67 100,00 100,00 100,00 100,00 100,00 66,67 100,00 100,00 100,00 100,00 100,00 66,67 100,00 100,00 100,00 100,00 100,00 66,67 100,00 100,00 Greece ALPHA Insurance Life ALPHA Insurance P&C Acquisition Acquisition 99,56 99,56 99,56 99,56 ‐ ‐ ‐ ‐ Eastern Europe Winterthur Czech Republic Pension Funds Winterthur Czech Republic Insurance Winterthur Hungary Winterthur Poland Winterthur Poland Pension Funds Winterthur Slovakia 79,97 65,01 65,00 65,00 70,00 100,00 79,97 65,01 65,00 65,00 70,00 100,00 79,97 65,01 65,00 65,00 70,00 88,21 79,97 65,01 65,00 65,00 70,00 88,21 June 30, 2007 December 31, 2006 International Insurance (entities having worldwide activities) Change in scope Voting rights Ownership interest Voting rights Ownership interest AXA Corporate Solutions Assurance (sub group) AXA Cessions AXA Assistance SA (sub group) AXA Global Risks UK Saint‐Georges Ré AXA LM Switzerland Winplan Harrington 98,75 100,00 100,00 100,00 100,00 100,00 100,00 100,00 98,75 100,00 100,00 100,00 100,00 100,00 100,00 100,00 98,75 100,00 100,00 100,00 100,00 100,00 100,00 100,00 98,75 100,00 100,00 100,00 100,00 100,00 100,00 100,00 'June 30, 2007 December 31, 2006 Asset Management (entities having worldwide activities) Change in scope Voting rights Ownership interest Voting rights Ownership interest AXA Investment Managers (sub group) (a) AllianceBernstein (sub group) Winterthur Investment Management AG 94,95 63,17 100,00 94,71 63,17 94,71 94,82 60,28 100,00 94,58 60,28 100,00 (a) Including Framlington. June 30, 2007 December 31, 2006 Other Financial Services Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA Banque AXA Banque Financement Compagnie Financière de Paris Sofinad Germany 100,00 65,00 100,00 100,00 99,89 64,93 100,00 99,99 100,00 65,00 100,00 100,00 99,92 64,95 100,00 99,99 AXA Bank AG 100,00 96,52 100,00 96,52 Belgium AXA Bank Belgium 100,00 99,92 100,00 99,92 The Netherlands Holland Homes I Holland Homes II Holland Homes III Holland Homes IV 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 The main entries into the scope of consolidation in the first half 2007 were Thinc Group (ex-Thinc Destini) and Venture Preference Ltd (Smart and Cook, Stuart Alexander and Layton Blackham) in the U.K., Alpha Insurance in Greece and Kyobo Automobile Insurance in Korea. The cumulative opening balance sheet for the entities acquired over the period is shown in Note 5. Winterthur’s U.S. Property and Casualty subsidiary, which was acquired at the end of 2006 with the intention of selling it within the following 12 months, was consolidated at December 31, 2006 and classified under “Assets held for sale”. The sale closed during the first half of 2007 and the subsidiary was no longer part of the scope of consolidation as of June 30, 2007. A memorandum of understanding on the disposal of AXA Netherlands, Winterthur Netherlands and DBV Netherlands was signed during the first half of 2007. The assets and liabilities of these companies, which were consolidated at June 30, 2007, are included under “Assets/liabilities held for sale and Assets/liabilities relating to discontinued operations” and are detailed in Note 6. The subsidiary Vinci BV is not part of this disposal agreement. __________________________________________________________________________________________________________________ Page 29 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Investment funds and other investments (excluding the Netherlands presented in Assets held for sale or relating to discontinued operations at June 30, 2007): Funds and other investments consolidated by AXA are as follows: At June 30, 2007, consolidated mutual funds represented a total investment of €92,759 million. This amount related to 255 funds, mainly in France, the UK, Germany, Australia and Japan. These funds were mainly in the Life & Savings business segment. At June 30, 2007, the 51 consolidated real estate companies represented a total investment of €21,471 million mainly in France, Germany and Japan. At June 30, 2007, the 6 consolidated CDOs represented a total investment of €1,222 million. In most investment funds (particularly open-ended mutual funds), minority interests do not meet the definition of shareholders’equity. They are therefore presented as liabilities under Minorities in controlled funds and other commitments to buy out minority interests. At June 30, 2007, minorities in controlled funds amounted to €7,085 million. 2.1.2. Proportionately consolidated companies June 30, 2007 December 31, 2006 Life & Savings and Property & Casualty Change in scope Voting rights Ownership interest Voting rights Ownership interest France Natio Assurances NSM Vie Fonds Immobiliers Paris Office Funds PT AXA Mandiri Financial Services 50,00 39,98 50,00 51,00 49,96 39,98 49,91 27,14 50,00 39,98 50,00 51,00 49,96 39,98 49,91 26,87 2.1.3. Investments in equity-accounted companies a) Equity-accounted companies excluding mutual funds and real estate entities June 30, 2007 December 31, 2006 Change in scope Voting rights Ownership interest Voting rights Ownership interest France Argovie Banque de Marchés et d'Arbitrages Asia/Pacific AXA AFFIN GENERAL INSURANCE BERHAD Philippine AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd 95,23 27,71 ‐ 50,48 45,00 50,00 95,01 27,70 ‐ 50,48 23,95 26,61 95,23 27,71 ‐ 50,48 44,98 50,00 95,01 27,70 ‐ 50,48 23,70 26,34 b) Equity-accounted mutual funds and real estate entities At June 30, 2007, equity-accounted real estate companies represented total assets of €772 million (€693 million at end-2006), and equity-accounted mutual funds represented total assets of €1,274 million (€1,376 million at end- 2006), mainly in France, the United States and Switzerland. 2.2. Consolidated entities relating to specific operations No significant vehicles relating to specific operations were created in the first half of 2007. __________________________________________________________________________________________________________________ Page 30 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 3 : Segmental consolidated statement of income AXA has five operating business segments: Life & Savings, Property & Casualty, International Insurance (including reinsurance operations), Asset Management and Other Financial Services. An additional "Holding companies" segment includes all non-operational activities. The financial information relating to AXA’s business segments and holding company activities is consistent with the presentation provided in the consolidated financial statements. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). Property & Casualty: This business segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. International Insurance: This segment's operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. The segment also includes assistance activities and the group's run-off management activities, managed by AXA Liabilities Managers, including risks underwritten by AXA RE relating to 2005 and prior underwriting years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Paris Ré. The Asset Management products and services include diversified asset management activities (including mutual fund management) and related services, which are provided to a variety of institutional clients and individuals, including AXA’s insurance companies. The Other Financial Services mainly include banking activities conducted primarily in France and Belgium, and financial vehicles including certain Special-Purpose Entities (CDOs and mortgage securitization vehicles). In this document, "Insurance" covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Other Financial Services segment. __________________________________________________________________________________________________________________ Page 31 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Segmental consolidated statement of income June 30, 2007 Life & savings Property & Casualty International Insurance Asset management Other financial services Holding companies Inter‐segment eliminations Gross written premiums Fees and charges relating to investment contracts with no participating features 30.540 381 14.328 ‐ 2.457 3 ‐ ‐ ‐ ‐ ‐ ‐ (236) ‐ Revenues from insurance activities 30.922 14.328 2.460 ‐ ‐ ‐ (236) Net revenues from banking activities ‐ ‐ ‐ ‐ 170 ‐ (16) Revenues from other activities 658 36 93 2.613 2 0 (228) TOTAL REVENUES 31.580 14.363 2.553 2.613 172 0 (479) Change in unearned premiums net of unearned revenues and fees Net investment income Net realized investment gains and losses Change in fair value of financial instruments at fair value through profit & loss Change in financial instruments' impairment (1.042) 7.386 1.302 8.293 (193) (2.260) 1.114 426 (98) (31) (616) 179 0 (12) (1) ‐ 62 (2) 30 ‐ ‐ 53 1 (3) (2) ‐ 302 (51) (42) (9) 84 (238) (0) (8) ‐ Net investment result excluding financing expenses 16.788 1.410 166 90 49 200 (246) Technical charges relating to insurance activities Net result from outward reinsurance Bank operating expenses Acquisition costs Amortization of the value of purchased business in force and of other intangible assets Administrative expenses Change in tangible assets' impairment Change in goodwill impairment 40.975 (29) ‐ (1.757) 207 (1.672) 0 ‐ 8.271 (263) ‐ (2.209) ‐ (1.193) 3 ‐ 1.241 (318) ‐ (164) ‐ (186) (0) ‐ ‐ ‐ ‐ ‐ ‐ (1.824) (0) ‐ ‐ ‐ (24) ‐ ‐ (155) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (219) (0) ‐ (177) 2 ‐ 2 ‐ 162 ‐ ‐ Other income and expenses (99) (50) (11) (139) (22) (55) 53 Other operating income and expenses (44.740) (11.983) (1.920) (1.963) (201) (273) 396 Income from operating activities before tax 2.586 1.531 183 741 20 (74) (245) Income arising from investments in associates – Equity method 7 6 0 ‐ (0) ‐ ‐ Financing debt expenses (44) (5) (11) (16) (13) (388) 245 Operating income before tax 2.549 1.531 172 724 7 (462) (0) Income tax (609) (331) (43) (236) 1 163 ‐ Net operating result 1.940 1.200 129 488 7 (299) (0) Result from discontinued operations net of tax 54 20 ‐ ‐ ‐ (0) 0 Net consolidated income 1.994 1.220 129 488 7 (299) (0) Split between : Net income Group share 1.849 1.198 127 292 7 (294) (0) Minority interests' share in net consolidated income 145 22 2 196 0 (6) ‐ __________________________________________________________________________________________________________________ Page 32 of 52 (In Euro million) TOTAL 47.089 384 47.474 154 3.174 50.801 (3.833) 8.858 1.675 8.160 (236) 18.457 50.309 (608) (24) (4.128) 207 (5.088) 3 ‐ (322) (60.684) 4.741 13 (233) 4.521 (1.055) 3.466 74 3.540 3.180 360 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 June 30, 2006 (restated*) Life & savings Property & Casualty International Insurance Asset management Other financial services Holding companies (a) Inter‐segment eliminations Gross written premiums Fees and charges relating to investment contracts with no participating features 24.628 289 10.686 ‐ 2.484 ‐ ‐ ‐ ‐ ‐ ‐ ‐ (102) ‐ Revenues from insurance activities 24.917 10.686 2.484 ‐ ‐ ‐ (102) Net revenues from banking activities ‐ ‐ ‐ ‐ 186 ‐ (7) Revenues from other activities 519 26 78 2.267 3 ‐ (193) TOTAL REVENUES 25.436 10.711 2.561 2.267 189 ‐ (302) Change in unearned premiums net of unearned revenues and fees Net investment income Net realized investment gains and losses Change in fair value of financial instruments at fair value through profit & loss (a) Change in financial instruments' impairment (144) 6.199 1.719 782 (104) (1.165) 864 405 (87) (27) (669) 210 32 26 (1) ‐ 25 48 4 (0) ‐ 54 (0) 15 1 ‐ 176 9 (184) (3) 44 (209) ‐ (0) ‐ Net investment result excluding financing expenses 8.597 1.156 267 76 69 (2) (209) Technical charges relating to insurance activities Net result from outward reinsurance Bank operating expenses Acquisition costs Amortization of the value of purchased business in force and of other intangible assets Administrative expenses Change in tangible assets' impairment Change in goodwill impairment (28.684) (24) ‐ (1.482) (159) (1.328) (0) ‐ (6.231) (325) ‐ (1.741) ‐ (959) (1) ‐ (1.362) (214) ‐ (162) ‐ (168) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (1.568) (0) ‐ ‐ ‐ (38) ‐ ‐ (156) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (141) ‐ ‐ 4 71 ‐ 7 ‐ 132 ‐ ‐ Other income and expenses (94) (2) (119) (133) (43) (66) 66 Other operating income and expenses (31.773) (9.259) (2.024) (1.701) (236) (207) 279 Income from operating activities before tax 2.116 1.444 135 642 22 (209) (188) Income arising from investments in associates – Equity method 6 3 0 ‐ 3 ‐ ‐ Financing debt expenses (a) (56) (4) (11) (11) (14) (349) 188 Operating income before tax 2.066 1.442 124 631 12 (558) 0 Income tax (a) (439) (358) (44) (129) 5 233 ‐ Net operating result 1.627 1.084 80 502 17 (324) 0 Result from discontinued operations net of tax 43 26 ‐ ‐ ‐ 0 ‐ Net consolidated income 1.670 1.110 80 502 17 (324) 0 Split between : Net income Group share 1.555 1.069 79 320 20 (310) 0 Minority interests' share in net consolidated income 115 41 1 182 (2) (14) ‐ (a) As described in note 1.11.2, perpetual deeply subordinated notes have been reclassified under shareholders' equity for all periods presented. Details are provided in note 8. (*) As described in note 1.10, the contribution of discontinued operations is stated on a separate line of the income statement. __________________________________________________________________________________________________________________ Page 33 of 52 (In Euro million) TOTAL 37.696 289 37.985 179 2.700 40.863 (1.934) 7.320 2.212 556 (134) 9.954 (36.274) (492) (38) (3.377) (159) (4.188) (1) ‐ (391) (44.920) 3.963 12 (256) 3.719 (733) 2.986 69 3.055 2.732 323 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 4 : acquisition Adjustments to the opening balance sheet of the Winterthur Acquisition of Winterthur In accordance with IFRS 3, all assets, liabilities and contingent liabilities of Winterthur were provisionally estimated at fair value based on the position at December 31, 2006. Winterthur was acquired shortly before the 2006 financial year-end and additional information obtained since the time of the acquisition has led to a review of certain items affecting the allocation of the purchase price during the first half of 2007, i.e. within 12 months following the acquisition as specified by IFRS 3. Provisional goodwill in the amount of €2,691 million was recognised at the time of the initial allocation of the purchase price. Based on new information obtained during the first half of 2007, goodwill was increased by €80 million, to €2,771 million at June 30, 2007. Most of this increase in goodwill was due to adjustments to employee benefits in the Swiss subsidiary and to deferred taxes in several subsidiaries. In accordance with IFRS 3, the allocation of the purchase price of Winterthur may be subject to further adjustment and will be finalized during the second half of 2007. __________________________________________________________________________________________________________________ Page 34 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 5 : Acquisitions of the period The main acquisitions made during the first half of 2007 were the following: Acquisition of 100% of Alpha Insurance (a subsidiary of Alpha Bank) for €255 million. AXA and Alpha Bank, Greece’s second largest bank, have signed a long–term exclusive agreement to pursue and strengthen the existing bancassurance partnership. The transaction closed on March 28, 2007. AXA UK completed the acquisition of Thinc Group (formerly Thinc Destini), by increasing its stake in Thinc Destini to 100%. This company’s main business is brokerage of Life & Savings. AXA UK acquired a 95.4% interest in insurance brokers Stuart Alexander, Layton Blackham and Smart & Cook. These three companies will operate under the same structure, Venture Preference Ltd, retaining their status as independent Property & Casualty insurance brokers. AXA signed an agreement with Kyobo Life to acquire its 75% stake in Kyobo Auto, the leader in the South Korean direct motor insurance market. The transaction closed on 22 May 2007. These acquisitions led to the recognition of a total of €265 million in intangible assets, primarily representing the value of distribution agreements, and a total goodwill of €490 million. (in Euro million) Purchase prise excluding related costs Costs attributable to the transaction 714 10 Total 724 (in Euro million) Fair value of assets and liabilities at June 30, 2007 Intangible assets Investments 265 379 Other assets 570 TOTAL ASSETS (excluding goodwill) 1.214 Liabilities arising from insurance and investment contracts 557 Provisions for risks and charges 24 Other payables 374 TOTAL LIABILITIES 955 Minority interests not acquired 25 Net acquired asset value 234 Goodwill 490 __________________________________________________________________________________________________________________ Page 35 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 6 : to discontinued operations Assets/Liabilities held for sale and Assets/Liabilities relating On June 4, 2007, AXA announced it had entered into a memorandum of understanding with SNS Reaal with a view to finalizing discussions on the sale of its Dutch insurance operations, comprising 100% of AXA Netherlands, Winterthur Netherlands and DBV Netherlands, for a total cash consideration of €1,750 million, after consultation with workers’ councils. The assets and liabilities of these operations are included under “Assets/Liabilities held for sale and Assets/Liabilities relating to discontinued operations” in the consolidated balance sheet. (in Euro million) June 30, 2007 Goodwill 227 Other intangible assets 601 Investments 15.386 Other assets 307 TOTAL ASSETS 16.521 The total of these assets includes €-701 million in liaison accounts that are not presented in the line item “Assets held for sale or relating to discontinued operations” in the consolidated balance sheet (page 3). This amount is included under “Other long-term assets” and “Other receivables” in the consolidated balance sheet. The line item “Assets held for sale or relating to discontinued operations” in the consolidated balance sheet also includes €271 million related to investment properties held for sale and €8 million in owner- occupied properties held for sale. (in Euro million) June 30, 2007 Shareholders’ equity – Group share 747 Minority interests 1 TOTAL MINORITY INTERESTS AND SHAREHOLDERS' EQUITY 748 Liabilities arising from insurance and investment contracts 11.588 Provisions for risks and charges 91 Other liabilities 4.094 TOTAL LIABILITIES 16.521 The line items “Assets/Liabilities held for sale or relating to discontinued operations” no longer include the assets and liabilities of Winterthur’s US Property & Casualty subsidiary (except €14 million relating to certain costs linked to the disposal of the company), which was sold during the first half of 2007. __________________________________________________________________________________________________________________ Page 36 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Consolidated statement of income (in Euro million) June 30, 2007 Total revenues 911 Change in unearned premiums net of unearned revenues and fees (65) Net investment result excluding financing expenses 455 Other operating income and expenses (1.187) Income from operating activities before tax 113 Income arising from investments in associates ‐ Equity method ‐ Financing debt expenses (14) Operating income before tax 100 Income tax (25) Net operating result 74 Net consolidated income 74 Split between: Net income Group share 74 Minority interests' share in net consolidated income 0 Statement of consolidated cash flows (in Euro million) June 30, 2007 Net cash provided by operating activities 217 Net cash provided by investing activities (95) Net cash provided by financing activities (75) Net cash provided by discontinued operations 47 __________________________________________________________________________________________________________________ Page 37 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 7 : Investments The method for determining the fair value of investments stated at acquisition cost or amortized cost is as follows: For real estate investments, fair value is usually based on studies conducted by qualified external appraisers. They are based on a multi-criteria approach, and their frequency and terms are based on local regulations. Fair values of mortgages, policy loans and other loans are estimated by discounting future contractual cash- flows using interest rates at which loans with similar characteristics and credit quality would be originated. Fair values of doubtful loans are limited to the estimated fair value of the underlying collateral, if lower than the estimated discounted cash flows. In other cases, fair value is estimated based on financial and other information available in the market, or estimated discounted cash flows, including a risk premium. Estimated fair values do not take into account supplemental charges or reductions due to selling costs that may be incurred, nor the tax impact of realizing unrealized capital gains and losses. 7.1. Breakdown of investments Each investment item is presented net of the effect of hedging derivatives (IAS 39) and economic hedging derivatives that do not form part of a hedge relationship under IAS 39 (excluding macro hedging derivatives and other derivatives). The Netherlands are excluded from the breakdown of investments at June 30, 2007. Decreases between December 31, 2006 and June 30, 2007 are mainly due to the contribution of the Netherlands at December 31, 2006: - - - - - €35 million of investment properties, €5,450 million of fixed maturities, €1,050 million of equity securities, €1 million of non controlled investment funds, €9 million of other assets held by controlled investment funds, €5,857 million of loans (of which €3,062 million of loans designated at fair value through profit and loss and €2,420 million of other loans) and, €2,953 million of assets backing contracts where the financial risk is borne by policyholders. At June 30, 2007, AXA’s invested assets included a low exposure to US subprime residential and Alt A mortgage loans of approximately €2.3 billion (92% equaling or above AA rating and 55% estimated policyholders’ participation). __________________________________________________________________________________________________________________ Page 38 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Breakdown of investments (in Euro million) Insurance June 30, 2007 Other activities Total Fair value Net book value % (value balance sheet) Fair value Net book value % (value balance sheet) Fair value Net book value % (value balance sheet) Investment properties at amortized cost 18.785 13.228 2,29% 1.479 1.407 10,00% 20.265 14.635 2,47% Investment properties at fair value through profit & loss (c) 4.925 4.925 0,85% ‐ ‐ ‐ 4.925 4.925 0,83% Macro hedge and other derivatives ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Investment properties 23.711 18.153 3,14% 1.479 1.407 10,00% 25.190 19.561 3,30% Fixed maturities held to maturity (0) (0) 0,00% ‐ ‐ ‐ (0) (0) 0,00% Fixed maturities available for sale 228.253 228.253 39,44% 5.650 5.650 40,15% 233.904 233.904 39,46% Fixed maturities at fair value through profit & loss (c) 51.812 51.812 8,95% 194 194 1,38% 52.006 52.006 8,77% Fixed maturities held for trading 73 73 0,01% 1.105 1.105 7,85% 1.178 1.178 0,20% Non quoted fixed maturities (amortized cost) ‐ ‐ ‐ 1 1 0,01% 1 1 0,00% Fixed maturities 280.139 280.139 48,41% 6.950 6.950 49,39% 287.089 287.089 48,43% Equity securities available for sale 37.245 37.245 6,44% 3.001 3.001 21,32% 40.246 40.246 6,79% Equity securities at fair value through profit & loss (c) 22.670 22.670 3,92% 167 167 1,18% 22.836 22.836 3,85% Equity securities held for trading 143 143 0,02% 450 450 3,20% 593 593 0,10% Equity securities 60.057 60.057 10,38% 3.618 3.618 25,71% 63.675 63.675 10,74% Non controlled investment funds available for sale 4.888 4.888 0,84% 219 219 1,55% 5.107 5.107 0,86% Non controlled investment funds at fair value through profit & loss (c) 2.297 2.297 0,40% 341 341 2,43% 2.639 2.639 0,45% Non controlled investment funds held for trading 104 104 0,02% 31 31 0,22% 135 135 0,02% Non controlled investment funds 7.290 7.290 1,26% 591 591 4,20% 7.881 7.881 1,33% Other assets held by consolidated investment funds designated at fair value through profit & loss 2.632 2.632 0,45% ‐ ‐ ‐ 2.632 2.632 0,44% Macro hedge and other derivatives (93) (93) N/A 1.214 1.214 8,63% 1.121 1.121 0,19% Financial investments 350.024 350.024 60,49% 12.374 12.374 87,92% 362.398 362.398 61,14% Loans held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Loans available for sale 1.002 1.002 0,17% 36 36 0,25% 1.037 1.037 0,17% Loans designated as at fair value through profit & loss (c) 59 59 0,01% 1 1 0,01% 61 61 0,01% Loans held for trading ‐ ‐ ‐ 131 131 0,93% 131 131 0,02% Mortgage loans 12.508 12.725 2,20% 2 2 0,01% 12.510 12.726 2,15% Other loans (a) 11.206 11.290 1,95% 113 113 0,80% 11.319 11.403 1,92% Macro hedge and other derivatives ‐ ‐ ‐ 10 10 0,07% 10 10 0,00% Loans 24.775 25.076 4,33% 292 293 2,08% 25.068 25.368 4,28% Assets backing contracts where the financial risk is borne by policyholders 185.410 185.410 32,04% 185.410 185.410 31,28% FINANCIAL ASSETS 583.920 578.663 100,00% 14.145 14.074 100,00% 598.066 592.737 100,00% Financial investments and loans (b) 374.799 375.099 64,82% 12.666 12.666 90,00% 387.465 387.766 65,42% ‐ of which quoted 292.895 292.895 50,62% 9.669 9.669 68,70% 302.564 302.564 51,05% ‐ of which unquoted 81.904 82.205 14,21% 2.997 2.997 21,29% 84.901 85.202 14,37% Financial assets (excluding those backing contracts where the financial risk is borne by policyholders) 398.510 393.252 67,96% Life and Savings 335.905 331.197 57,23% Property and Casualty 54.050 53.500 9,25% International Insurance 8.555 8.555 1,48% (a) Mainly includes policy loans. (b) Excluding investments backing contracts where the financial risk is borne by policyholders. (c) Use of fair value option. __________________________________________________________________________________________________________________ Page 39 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Breakdown of investments (in Euro million) Insurance December 31, 2006 (restated*) Other activities Total Fair value Net book value % (value balance sheet) Fair value Net book value % (value balance sheet) Fair value Net book value % (value balance sheet) Investment properties at amortized cost 18.218 13.243 2,27% 731 548 3,36% 18.949 13.791 2,30% Investment properties at fair value through profit & loss (c) 5.364 5.364 0,92% 608 608 3,73% 5.972 5.972 1,00% Macro hedge and other derivatives ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Investment properties 23.582 18.608 3,19% 1.339 1.156 7,09% 24.921 19.763 3,30% Fixed maturities held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Fixed maturities available for sale 241.258 241.258 41,40% 5.645 5.645 34,64% 246.903 246.903 41,22% Fixed maturities at fair value through profit & loss (c) 49.591 49.591 8,51% 182 182 1,11% 49.772 49.772 8,31% Fixed maturities held for trading 94 94 0,02% 1.203 1.203 7,38% 1.297 1.297 0,22% Non quoted fixed maturities (amortized cost) 10 10 0,00% 1 1 0,01% 11 11 0,00% Fixed maturities 290.953 290.953 49,93% 7.031 7.031 43,15% 297.984 297.984 49,74% Equity securities available for sale 35.604 35.604 6,11% 2.733 2.733 16,77% 38.337 38.337 6,40% Equity securities at fair value through profit & loss (c) 22.050 22.050 3,78% 123 123 0,75% 22.173 22.173 3,70% Equity securities held for trading 142 142 0,02% 332 332 2,04% 474 474 0,08% Equity securities 57.797 57.797 9,92% 3.187 3.187 19,56% 60.984 60.984 10,18% Non controlled investment funds available for sale 4.599 4.599 0,79% 226 226 1,39% 4.825 4.825 0,81% Non controlled investment funds at fair value through profit & loss (c) 2.319 2.319 0,40% 155 155 0,95% 2.474 2.474 0,41% Non controlled investment funds held for trading 80 80 0,01% 33 33 0,20% 113 113 0,02% Non controlled investment funds 6.998 6.998 1,20% 414 414 2,54% 7.412 7.412 1,24% Other assets held by consolidated investment funds designated at fair value through profit & loss 3.144 3.144 0,54% ‐ ‐ ‐ 3.144 3.144 0,52% Macro hedge and other derivatives (175) (175) N/A 875 875 5,37% 701 701 0,12% Financial investments 358.718 358.718 61,56% 11.507 11.507 70,62% 370.225 370.225 61,80% Loans held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Loans available for sale 824 824 0,14% 26 26 0,16% 850 850 0,14% Loans designated as at fair value through profit & loss (c) 378 378 0,06% 2.768 2.768 16,99% 3.146 3.146 0,53% Loans held for trading ‐ ‐ ‐ 227 227 1,39% 227 227 0,04% Mortgage loans 13.178 13.079 2,24% 13 13 0,08% 13.190 13.092 2,19% Other loans (a) 14.632 14.578 2,50% 592 591 3,63% 15.224 15.170 2,53% Macro hedge and other derivatives ‐ ‐ ‐ 8 8 0,05% 8 8 0,00% Loans 29.012 28.860 4,95% 3.632 3.632 22,29% 32.644 32.492 5,42% Assets backing contracts where the financial risk is borne by policyholders 176.562 176.562 30,30% 176.562 176.562 29,47% FINANCIAL ASSETS 587.874 582.748 100,00% 16.479 16.295 100,00% 604.353 599.042 100,00% Financial investments and loans (b) 387.730 387.578 66,51% 15.139 15.139 92,91% 402.869 402.717 67,23% ‐ of which quoted 298.078 298.078 51,15% 9.681 9.681 59,41% 307.759 307.759 51,38% ‐ of which unquoted 89.653 89.500 15,36% 5.458 5.458 33,49% 95.111 94.958 15,85% Financial assets (excluding those backing contracts where the financial risk is borne by policyholders) 411.308 406.182 69,70% Life and Savings 348.961 344.364 59,09% Property and Casualty 53.598 53.068 9,11% International Insurance 8.749 8.749 1,50% (a) Mainly includes policy loans. (b) Excluding investments backing contracts where the financial risk is borne by policyholders. (c) Use of fair value option. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. __________________________________________________________________________________________________________________ Page 40 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 7.2. Unrealized gains and losses on financial investments The table below sets out unrealized capital gains and losses on financial investments not already reflected in net income, exluding the effect of all derivatives. The Netherlands are excluded at June 30, 2007. The contribution of the Netherlands at December 31, 2006 was as follows: - €101 million of unrealized gains and €17 million of unrealized losses on fixed maturities available for sale. €153 million of unrealized gains and €1 million of unrealized losses on equity securities available for sale. Unrealized gains and losses on financial investments June 30, 2007 December 31, 2006 (restated*) Insurance Amortized cost (a) Fair value Net book value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Net book value (b) Unrealized gains Fixed maturities available for sale Non quoted fixed maturities (amortized cost) Equity securities available for sale Non consolidated investment funds available for sale (a) Net of impairment but includes premiums/discounts and cumulative amortization. (b) Net of impairment. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. 241.652 234.964 7.014 228.157 4.136 231.034 228.157 10 ‐ ‐ 10 ‐ ‐ ‐ 35.761 25.354 25.950 37.468 11.718 37.468 201 37 577 4.593 4.188 4.886 4.886 4.345 241.652 10 35.761 4.593 8.158 ‐ 10.551 428 Unrealized gains and losses on financial investments June 30, 2007 December 31, 2006 (restated*) Other activities Amortized cost (a) Fair value Net book value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Net book value (b) Unrealized gains Fixed maturities available for sale Non quoted fixed maturities (amortized cost) Equity securities available for sale Non consolidated investment funds available for sale (a) Net of impairment but includes premiums/discounts and cumulative amortization. (b) Net of impairment. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. 5.755 5.645 5.697 5.650 108 5.650 4 1 ‐ ‐ 1 1 1 1 448 3.009 3 3.009 2.450 2.564 2.744 226 219 0 225 215 219 4 5.645 1 2.744 226 5 ‐ 295 1 Unrealized gains and losses on financial investments June 30, 2007 December 31, 2006 (restated*) Total Amortized cost (a) Fair value Net book value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Net book value (b) Unrealized gains Fixed maturities available for sale Non quoted fixed maturities (amortized cost) Equity securities available for sale Non consolidated investment funds available for sale (a) Net of impairment but includes premiums/discounts and cumulative amortization. (b) Net of impairment. (*) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items affecting the allocation of Winterthur purchase price. See Note 4. 247.297 240.661 7.122 233.807 4.140 236.789 233.807 11 1 1 11 1 ‐ ‐ 38.505 27.804 28.514 40.477 12.166 40.477 203 37 581 4.819 4.414 5.105 5.105 4.560 247.297 11 38.505 4.819 8.163 ‐ 10.846 429 Excluding the Netherlands, total unrealized gains and losses on fixed maturities available for sale decreased by €9,534 million between December 31, 2006 and June 30, 2007. The change was mainly due to increased interest rates as most of these fixed maturities are fixed rate securities. The main contributors to the decrease belong to the Life and Savings segment and are: France for €2,987 million, - Germany for €1,971 million, - Switzerland for €968 million, - Belgium for €755 million, - United States for €562 million, and - Southern Europe for €425 million. __________________________________________________________________________________________________________________ Page 41 of 52 (in Euro million) Unrealized losses 1.470 ‐ 144 24 (in Euro million) Unrealized losses 57 ‐ 0 ‐ (in Euro million) Unrealized losses 1.527 ‐ 144 24 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 8 : Shareholders’ equity, minority interests and other equity Consolidated statements of changes in shareholders’ equity for the six-months periods ended June 30, 2007 and 2006 are shown at the end of this note. 8.1. Impact of transactions with shareholders 8.1.1. Changes in shareholders’ equity group share for the first half of 2007 a) Share capital and capital in excess of nominal value During the first half of 2007, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Exercise of stock options for a total of €82 million (including €11 million in nominal share capital), - Conversion of convertible bonds for €1 million, - Realized losses on AXA shares for €31 million, - Share-based payments for €21 million. b) Treasury shares At June 30, 2007, the Company and its subsidiaries owned approximately 44 million AXA shares, an increase of 15 million shares or €645 million compared to December 31, 2006, mainly resulting from the following: During the first half of 2007, AXA pursued its share purchase program to control dilution arising from share- based compensation and employee Shareplan program, and purchased 19.5 million shares for a total amount of €648 million (including “AXA Miles”). Other movements in treasury shares for a total net amount of €+99 million, mainly resulting from the attribution of AXA shares held for the hedging of (i) “performance share” plans and (iii) AXA ADR stock option programs at AXA Financial. Payment by AXA of a €96 million premium for call options on AXA shares with an automatic exercise feature, to fully neutralize the dilutive impact of the 2017 convertible bonds. c) Perpetual debts, related interest and equity component of convertible debt As described in paragraph 1.11.2 on accounting principles, the perpetual deeply subordinated notes issued by the Group do not qualify as liabilities under IFRS. Subordinated perpetual debt is classified in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2007, the change in other reserves was due to €–139 million in interest expense on the perpetual deeply subordinated perpetual notes and the deeply subordinated notes, and €–44 million in exchange rate differences. Following the decision taken during the meeting of holders of the 2014 AXA convertible bonds to have a final conversion date of the bonds on January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option, the equity component of the bond (i.e. the conversion option), representing an amount of €109 million, has been cancelled as a counterpart to the payment. __________________________________________________________________________________________________________________ Page 42 of 52 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 As of June 30, 2007, perpetual debts and equity component of convertible debts were as follows : Perpetual debts June 30, 2007 Value of the perpetual debt in currency of issuance Value of the perpetual debt in Euro million October 29, 2004 ‐ 375 M€ rate CMS 10 years ‐ in euro 375 375 December 22, 2004 ‐ 250 M€ 6% ‐ in euro 250 250 January 25, 2005 ‐ 250 M€ 6% in Euro 250 250 July 6, 2006 ‐ 1000 M€ 5.777% in Euro 1.000 994 July 6, 2006 ‐ 500 M£ 6.666% in GBP 500 736 July 6, 2006 ‐ 350 M£ 6.6862% in GBP 350 519 October 26, 2006 ‐ 300 M$AUD 7.5% & 300 M$AUD bankbill + 1.4% in AUD 600 375 November 7, 2006 ‐ 150 M$AUD 7.5% in AUD 150 94 750m $ (TSS) fixed 6.3979% non call 12 years, in USD 750 553 750m $ (TSS) fixed 6.463% non call 30 years, in USD 750 553 Sub‐total Deeply Subordinated notes ("TSS") 4.699 Perpetual notes ‐ variable 3.55% to 5% in EUR 1.404 1.404 Perpetual notes ‐ variable 3.55% to 5% in JPY 27.000 162 Perpetual notes ‐ variable 3.55% to 5% in USD 1.275 944 Sub‐total Perpetual Deeply Subordinated notes ("TSDI") 2.510 Equity component of convertible debt ‐ 95 TOTAL 7.303 In addition to the nominal amounts shown above, the debt component of shareholders’ equity included net accumulated interest of €-506 million at June 30, 2007, for total of €6,798 million. Some of these instruments are associated with: calls, the exercise of which is controlled by the Group, give AXA the option of repaying the principal in advance without penalty on certain dates; step-up clauses as from a given date. d) Dividends paid At the May 14, 2007 shareholders' meeting, shareholders approved a dividend distribution of €2,218 million with respect to the 2006 financial year. 8.1.2. Change in group shareholders’ equity for the first half of 2006 a) Share capital and capital in excess of nominal value In the first half of 2006, the increase in share capital and capital in excess of nominal value was mainly due to the exercise of stock options for a total of €16 million and share based payments of €19 million. b) Treasury shares At June 30, 2006, the Company and its subsidiaries held approximately 46.5 million AXA shares, an increase of 11 million shares or €284 million compared with December 31, 2005, primarily due to the purchase of 12.7 million shares for a total of €344 million under the share buyback program intended to control dilution resulting from the employee shareplan program. __________________________________________________________________________________________________________________ Page 43 of 52 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 c) Perpetual debts, related interest and equity component of convertible debts As described in paragraph 1.11.2 on accounting principles, the perpetual deeply subordinated notes issued by the Group do not qualify as liabilities under IFRS. The corresponding debt was reclassified in shareholders’ equity retrospectively for all of the periods presented, in the amount of €2,679 million at December 31, 2005 and €2,592 million at June 30, 2006. Following reclassification of the perpetual notes, the income statement for half year 2006 was adjusted as follows: €-55 million (foreign exchange impact) in “Change in fair value of financial instruments at fair value through profit or loss”; €+59 million in “Financing debt expenses”; and €-2 million in “Income tax”, resulting in a net increase of €3 million to “Net consolidated income”. The change in other reserves was mainly due to: The foreign exchange rates’ impact on perpetual notes of €86 million; and - The recognition of €53 million in interest on deeply subordinated notes (TSS) and perpetual deeply subordinated notes (TSDI) over the period. At June 30, 2006, perpetual debts included in shareholders’ equity and equity component of convertible debt was broken down as follows: Perpetual debts June 30, 2006 Value of the perpetual debt in currency of issuance Value of the perpetual debt in Euro million October 29, 2004 ‐ 375 M€ rate CMS 10 years ‐ in euro 375 375 December 22, 2004 ‐ 250 M€ rate CMS 10 years ‐ in euro 250 250 January 25, 2005 ‐ 250 M€ 6% in EUR 250 250 Sub‐total Deeply Subordinated notes ("TSS") 875 Perpetual notes ‐ variable 3.55% to 5% in EUR 1.404 1.404 Perpetual notes ‐ variable 3.55% to 5% in JPY 27.000 185 Perpetual notes ‐ variable 3.55% to 5% in USD 1.275 1.003 Sub‐total Perpetual Deeply Subordinated notes ("TSDI") 2.592 Equity component of convertible debt 203 203 TOTAL 3.670 In addition to the nominal amounts shown above, the debt component of shareholders’ equity includes net accumulated interest of €-260 million as of June 30, 2006, for a total of €3,411 million. d) Dividends paid At the May 4, 2006 shareholders' meeting, shareholders approved a dividend distribution of €1,647 million with respect to the 2005 financial year. 8.2. Recognized income and expense for the period In addition to net income for the period, the Statement of Recognised Income and Expense (SORIE), which is an integral part of the consolidated statement of shareholders’ equity, shows the reserve of unrealized gains and losses on available for sale securities, the reserve for currency translation and actuarial gains and losses. __________________________________________________________________________________________________________________ Page 44 of 52 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 8.2.1. Recognized income and expense for the first half of 2007 a) shareholders’equity Reserve related to changes in fair value of available for sale financial instruments included in The €1,724 million decline in the reserve related to changes in fair value of available for sale financial assets was primarily attributable to decreases in France (€-647 million), the United States (€-233 million), Belgium (€-324 million), the United Kingdom (€-221 million), Switzerland (€-153 million) and Southern Europe (€-100 million). The reconciliation of gross unrealized gains and losses on available for sale financial assets to the corresponding reserve included in shareholders’ equity is shown below: (in Euro million) June 30, 2007 December 31, 2006 Gross unrealized gains and losses (a) 9.536 17.751 Shadow accounting on policyholders' participation (b) (2.392) (7.242) Shadow accounting on Deferred Acquisition Costs (c) (109) (315) Shadow accounting on Value of purchased Business In force (290) (394) Unallocated unrealized gains and losses before tax 6.746 9.800 Deferred tax (729) (1.833) Unrealized gains and losses (net of tax) – 100% 6.017 7.966 Unrealized gains and losses (net of tax) – 100% ‐ on assets related to discontinued operations (not included in any of the lines above) 35 ‐ Unrealized gains and losses (net of tax) – 100% ‐ Total 6.052 7.966 Minority interests' share in unrealized gains and losses (d) (122) (273) Translation reserves (e) 109 71 Unrealized gains and losses (Net Group share) 6.039 7.763 (a) Unrealized gains on total available for sale invested assets including loans, and including assets held by equity accounted companies. (b) Including shadow accounting impact on premium deficiency liabilities, after revaluation of available for sale securities. (c) Net of Shadow accounting on unearned revenues and fees reserves. (d) Including currency impact attributable to minority interests. (e) Group share. The total €8,214 million decline in gross unrealized gains and losses on available for sale financial assets was mainly attributable to fixed maturities (a reduction of €9,618 million), following the increase in interest rates during the first half, since most bonds are at fixed rates. This was partially offset by a €1,403 million increase in unrealized gains on equities and mutual fund shares. b) Reserves related to the hedging of net investments in foreign operations and translation reserve The impact of exchange rate movement (€-259 million) was mainly attributable to the United States (€-280 million, primarily due to the difference between the closing dollar/euro exchange rates: $1.32 = €1 at December 31, 2006 compared to $1.35 = €1 at June 30, 2007), Japan (€-181 million) and Switzerland (€-174 million). This was partially offset by the change in fair value of currency hedges set up by AXA to hedge net investments in foreign operations (€240 million). c) Employee benefits’ actuarial gains and losses The €516 million increase in actuarial gains and losses on employee benefit obligations was primarily attributable to increases in the United Kingdom (€202 million), Switzerland (€90 million), Germany (€69 million), and the United States (€67 million), due to higher interest rates over the period. __________________________________________________________________________________________________________________ Page 45 of 52 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 8.2.2. Recognized income and expense for the first half of 2006 a) shareholders’equity Reserve related to changes in fair value of available for sale financial instruments included in The €2,887 million reduction in reserves related to changes in fair value of available for sale financial instruments was due to decreases in France (€-948 million), Belgium (€-564 million), the United States (€-528 million), Germany (€- 251 million), the United Kingdom (€-170 million) and Southern Europe (€-158 million). The €8,522 million decline in gross unrealized gains and losses on available for sale financial instruments was mainly attributable to fixed maturities, following the rise in interest rates during the period. b) Reserves related to the hedging of net investments in foreign operations and translation reserve The €611 million negative impact of exchange rate was mainly attributable to the United States (€-795 million, primarily due to the difference between the closing dollar/euro exchange rates: $1.27 = €1 at June 30, 2006 from $1.18 = €1 at December 31, 2005), Japan (€-142 million), Australia (€-81 million), the United Kingdom (€-48 million) and Canada (€-25 million). This was partially offset by the change in fair value of currency hedges set up by the Company to hedge net investments in foreign operations (€497 million). c) Employee benefits’ actuarial gains and losses A positive €574 million change in actuarial gains and losses on employee benefit obligations was recognized over the period, due to the rise in interest rates, primarily in the United Kingdom, the United States, Germany and France. 8.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the group invests consist of instruments that holders can redeem at will at fair value, and qualify as liabilities rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 8.3.1. Change in minority interests for the first half of 2007 The €132 million decline in minority interests to €2,810 million was mainly due to transactions with shareholders (€- 325 million), partlty offset by income and expenses recognized for the period (€+193 million). Transactions with shareholders included the following: - dividends paid to minority interests (€-297 million); changes in the scope of consolidation (€-62 million), mainly including the buyout of minority interests in AXA Assurances Maroc; other movements totaling €+34 million. Income and expenses recognized for the period are broken down as follows: - movements in reserves due to changes in the fair value of assets: €-163 million, primarily including €-121 million due to a change in the scope of consolidation following the buyout of minority interests in AXA Assurances Maroc; change in translation reserves: €-21 million; actuarial gains and losses on employee benefit obligations: €+17 million. net income for the period: €+360 million; - __________________________________________________________________________________________________________________ Page 46 of 52 ___________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 8.3.2. Change in minority interests for the first half of 2006 The €236 million decline in minority interests to €2,527 million was mainly due to transactions with shareholders (€- 293 million), partly offset by income and expenses recognized for the period (€+58 million). Transactions with shareholders include the following: - dividends paid to minority interests (€-230 million); changes in the scope of consolidation (€-82 million), mainly including the buyout of minority interests in AXA Colonia in Germany and the exit of six "Parallel Ventures Limited Partnership” entities; Other movements totaling €+19 million. Income and expenses recognized for the period are broken down as follows: - - net income for the period: €+323 million; change in translation reserves: €-180 million; other movements in reserves due to changes in the fair value of assets: €-86 million. __________________________________________________________________________________________________________________ Page 47 of 52 _____________________________________________________________________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 8.4. Consolidated statement of shareholders’equity 8.4.1. Change in shareholders’equity – 1st half of 2007 (In Euro million, except for number of shares and nominal value) Attibutable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in FV of financial instruments available for sale Reserves relating to the change in FV of hedge accounting derivatives (cash flow hedge) Reserves relating to revaluation of tangible assets Others (a) Translation reserve Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders' equity opening January 1, 2007 2.092.888 2,29 4.793 18.398 (521) 7.763 55 4 7.090 (86) 9.730 47.226 2.942 Capital 4.671 2,29 11 11 Capital in excess of nominal value 42 42 Equity ‐ share based compensation 21 21 Change in scope of consolidation 0 (0) ‐ 0 ‐ 0 (62) Treasury shares (645) (645) Equity component of compound financial instruments (109) (109) Perpetual debt (44) (44) Accrued interests ‐ Perpetual debt (139) (139) Others ‐ ‐ (0) (62) (62) (254) Income allocation ‐ ‐ (9) Dividends paid (2.218) (2.218) ‐ Impact of transactions with shareholders 4.671 2,29 11 63 (645) 0 (0) ‐ (292) (0) (2.280) (3.144) (325) Reserves relating to changes in fair value through shareholders' equity (1.724) (70) ‐ ‐ (1.794) (163) Translation reserves ‐ ‐ ‐ ‐ ‐ ‐ ‐ (259) ‐ (259) (21) Employee benefits actuarial gains and losses through OCI (b) 516 516 17 Net income of the period 3.180 3.180 360 Total recognised income and expense for the period (SORIE) ‐ ‐ ‐ (1.724) (70) ‐ ‐ (259) 3.696 1.644 193 Shareholders' equity closing June 30, 2007 2.097.559 2,29 4.803 18.461 (1.167) 6.039 (15) 4 6.798 (345) 11.146 45.725 2.810 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' benefit, deferred asquisition costs, and value of business in force. (a) Mainly perpetual debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds). (b) Actuarial gains and losses accrued since opening January 1, 2007. 12/9/2007 17:24 ___________________________________________________________________________________________________________________________________________________________________ Page 48 of 52 ____ ___ _____ ____________________________________________________________________ _ ____________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 8.4.2. Change in shareholders’equity – 1st half of 2006 (restated) (In Euro million, except for number of shares and nominal value) Attibutable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in FV of financial instruments available for sale Reserves relating to the change in FV of hedge accounting derivatives (cash flow hedge) Reserves relating to revaluation of tangible assets Others (a) Translation reserve Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders' equity opening January 1, 2006 1.871.605 2,29 4.286 14.492 (658) 8.111 75 3 3.550 681 5.985 36.525 2.763 Share capital 2.788 2,29 6 6 Capital in excess of nominal value 9 9 Equity ‐ share based compensation 19 19 Change in scope of consolidation (0) (0) ‐ 0 ‐ (0) (82) Treasury shares (284) (284) Equity component of compound financial instruments ‐ ‐ Perpetual debt (86) (86) Accrued interests ‐ Perpetual debt (53) (53) Others (0) (0) 16 16 (202) Income allocation ‐ ‐ (9) Dividends paid (1.647) (1.647) ‐ Impact of transactions with shareholders 2.788 2,29 6 28 (284) (0) (0) ‐ (139) (0) (1.631) (2.021) (293) Reserves relating to changes in fair value through shareholders' equity (2.887) (34) ‐ ‐ (2.921) (86) Translation reserves ‐ ‐ ‐ ‐ ‐ ‐ ‐ (611) 2 (609) (180) Employee benefits actuarial gains and losses through OCI (b) 574 574 ‐ Net income of the period Total recognised income and expense for the period (SORIE) ‐ ‐ ‐ (2.887) (34) ‐ (0) (611) 2.732 3.308 2.732 (223) 323 58 Shareholders' equity closing June 30, 2006 1.874.393 2,29 4.292 14.519 (942) 5.224 41 3 3.411 70 7.662 34.280 2.527 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' benefit, deferred asquisition costs, and value of business in force. The changes in minority interests over the period has been restated in accordance with the presentation principles described in note 1.18. (a) Mainly perpetual debt (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds). (b) Actuarial gains and losses accrued since opening January 1, 2006. 12/9/2007 17:24 ___________________________________________________________________________________________________________________________________________________________________ Page 49 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 9 : Financing debt Financing debt by issuance (in Euro million) June 30, 2007 December 31, 2006 Carrying value Carrying value AXA Debt component of subordinated notes due 2014 (euro) 2.5% Debt component of subordinated convertible notes, 3.75% due 2017 (euro) Subordinated convertible notes due 2020 (euro) U.S. registered redeemable subordinated debt, 8.60% 2030 (USD) U.S. registered redeemable subordinated debt, 7.125% 2020 (GBP) U.S. registered redeemable subordinated debt, 6.75% 2020 (euro) 5.349 1.686 1.190 180 873 482 1.066 4.908 1.660 1.168 180 960 484 1.062 Derivatives on subordinated debt (a) (127) (605) AXA Financial 149 153 Surplus Notes, 7.70 %, due 2015 148 152 MONY Life 11.25% Surplus Notes, due 2024 1 1 AXA Bank Belgium 429 416 Renewable subordinated notes, 2.80% to 5.91%, due 2017 429 416 Other subordinated debt (under €100 million) 92 86 SUBORDINATED DEBT 6.020 5.563 AXA 1.605 2.198 Euro Medium Term Notes due through 2013 and BMTN Commercial paper 948 723 971 1.350 Derivatives on financing debt instruments issued (a) (66) (124) AXA Financial 1.037 1.077 Senior notes , 7.75%, due 2010 Senior notes , 7%, due 2028 Senior notes , 6.5%, due 2008 Senior notes MONY, 8.35%, due 2010 354 258 185 240 363 264 190 250 Derivatives on financing debt instruments issued (a) ‐ 10 AXA UK Holdings 228 229 GRE : Loan Notes, 6.625%, due 2023 228 229 AXA Equitable 259 266 Mortgage notes, floating rate 259 266 Other financing debt instruments issued (under €100 million) (23) (81) Other financing debt instruments issued (under €100 million) 34 11 Derivatives on other financing debt instruments issued (a) (57) (92) FINANCING DEBT INSTRUMENTS ISSUED 3.107 3.688 The Netherlands Holdings (b) ‐ 85 Morocco 126 ‐ Other financing debts owed to credit intitutions (under €100 million) 0 10 FINANCING DEBT OWED TO CREDIT INSTITUTIONS 126 95 TOTAL FINANCING DEBT 9.252 9.347 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not qualifying as hedge under IAS 39. (b) This item includes the financing debt of Winterthur Leven NV (The Netherlands) presented at December 31, 2006 in the "Other financing debt owed to credit institutions" item for an amount of €75 million. Financing debt decreased by €95 million, or by €34 million at constant exchange rate. Movements in exchange rates therefore had a positive impact of €61 million, mainly on AXA SA redeemable subordinated notes denominated in foreign currencies and AXA Financial senior bonds. The decrease at constant exchange rate was mainly due to : i. a €485 million increase at constant exchange rates in subordinated debt (including derivative instruments) arising mainly from the decrease in market value of interest swap following the rise in variable rates in the Euro zone; ii. a €551 million decrease at constant exchange rates in financing debt instruments issued arising mainly from the repayment of commercial paper (€627 million) partially offset by the decrease in market value of interest swap following the rise in variable rates in the Euro zone (€58 million); iii. a €31 million increase at constant exchange rates in financing debt owed to credit institutions mainly arising from a new debt in Morocco to finance the minority interests’ buy out of AXA Ona (€126 million) partially offset by the decrease in the Netherlands debt following the repayment of €75 million by Winterthur Leven NV and the reclassification of the remaining debt (€10 million) in “Liabilities held for sale or relating to discontinued operations”. 12/9/2007 17:24 _____________________________________________________________________________________________________ Page 50 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 10 : Net income per ordinary share The Company calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. As of January 1, 2007, the effect of convertible bonds is no longer integrated in the calculation of diluted net income per ordinary share. On January 11, 2007, the meetings of holders of AXA’s 2014 and 2017 convertible bonds were held to vote on an amendment of the final conversion dates of the bonds to January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option. The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The meeting of holders of the 2017 convertible bonds did not approve the amendment. Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds, AXA purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on AXA shares with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share. The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA outstanding shares created by the convertible bond conversion. As a result, the fully diluted number of shares at June 30, 2007 was 2,083 million. Net income per share calculation was as follows: (in Euro million) (c) June 30, 2007 June 30, 2006 (restated*) (d) NET INCOME GROUP SHARE A 3.180 2.732 Weighted average number of ordinary shares (net of treasury shares) ‐ opening 2.063 1.871 Stock options exercised (a) 2 1 Treasury shares (a) 2 2 Share purchase program (a) (6) (10) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2.061 1.864 NET INCOME PER ORDINARY SHARE (e) C = A / B 1,54 1,47 Potentially dilutive instruments : ‐ Stock options 20 17 ‐ Subordinated convertible Notes ‐ February 8, 2000 due 2017 0 27 ‐ Subordinated convertible Notes ‐ February 8, 1999 due 2014 0 37 ‐ Other 1 1 FULLY DILUTED ‐ WEIGHTED AVERAGE NUMBER OF SHARES D 2.083 1.946 NET INCOME (b) E 3.180 2.789 FULLY DILUTED NET INCOME PER ORDINARY SHARE (e) F = E / D 1,53 1,43 (a) Weighted average. (b) Taking into account the impact of potentially dilutive instruments. (c) Except for number of shares (million of units) and earnings per share (euro). (d) Following any significant capital increase with a stock price lower than the market price, average number of shares and consequently net income per share over each period shall be restated to take into account this event (application of an adjustment factor of 1.019456). (e) Basic and diluted net income per share from discontinued operations represent both €0.04 for half year 2006 and half year 2007. (*) As described in note 1.11.2 perpetual deeply subordinated debts have been transferred to "shareholders' equity". Details are provided in note 8. 12/9/2007 17:24 _____________________________________________________________________________________________________ Page 51 of 52 __________________________________________________________________________________ AXA – Consolidated financial statements - June 30, 2007 Note 11 : Events subsequent to June 30, 2007 On July 1, 2007, 50 free shares were allocated to each AXA employee worldwide. More than 100,000 AXA Group employees in 54 countries, will become shareholders and – depending on the country – will own the shares after two years (with a two year holding period) or after four years (without any holding period), providing they are still employed by AXA. Approved by AXA’s shareholders during the annual shareholder’s meeting on May 14, the resolution pertaining to the “AXA Miles” program allowed the Management Board to distribute free AXA shares to all AXA employees, representing up to 0.7% of AXA’s share capital (or around 14 million shares based on AXA’s current share capital). This allocation of 50 free shares constitutes the first step in the “AXA Miles” program which is one of several key human resources initiatives of AXA’s company-wide project “Ambition 2012”. On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio. This transaction aimed at transferring to the financial markets the deviation above a certain level of the cost of claims on the underlying liabilities: over 6 million individual motor contracts underwritten through multi-distribution channels and representing €2.6 billion of premiums in 2006, spread across a diversified portfolio covering 4 countries (Belgium, Germany, Italy and Spain). On July 5, 2007, AXA finalized definitive settlements with all claimants in litigations seeking nullity and avoidance (Nichtigkeits- und Anfechtungsklagen) of the squeeze-out resolutions adopted by the general meetings of AXA Konzern AG and Kölnische Verwaltungs-AG für Versicherungswerte on July 20 and July 21 2006, respectively. Following the completion of these settlements, the squeeze-out resolutions have been registered in the commercial register of AXA Konzern AG and Kölnische Verwaltungs-AG für Versicherungswerte on July 5, 2007. Thus, these squeeze-out resolutions are now effective and AXA holds 100% of the shares of these two subsidiaries. Following registration of these squeeze-outs, further litigation with minority shareholders on valuation issues is expected in a compensation review procedure (Spruchverfahren) under German law. On July 23, AXA Investment Managers (AXA IM) announced that, based on the assessement that the US Mortgage-Backed and Structured Securities' markets were experiencing a liquidity crisis, AXA IM had taken exceptional and temporary steps in order to ensure that redemptions incurred by the US Libor Plus strategy would not induce further pressure, by ensuring liquidity in the funds. In particular, AXA IM will match all redemptions that will be carried out by clients in these funds in subscribing a number of shares equal to the number redeemed at the prevailing NAV, and that up until market liquidity gets back to normal. At August 3, AXA IM marked to market investment in Libor Plus was €281 million. On July 25, 2007, AXA announced it has reached an agreement with China Life Insurance Co Ltd., a life insurance company incorporated in Taiwan, for the sale of Winterthur Life Taiwan Branch (WLTB). In 2006, WLTB had a premium volume of circa €100 million (US GAAP) and a 0.35% market share. The transaction is subject to customary regulatory approvals and is expected to close by year end 2007. On July 27, 2007, AXA and UkrSibbank, the Ukrainian banking subsidiary of BNP Paribas, announced that they reached an agreement to acquire 99% of the share capital of Vesko, Ukraine’s 6th largest P&C insurer. Vesko’s revenues for 2006 of $28 million were well balanced between individual and commercial lines and between proprietary and non-proprietary distribution. Completion of this transaction is subject to the customary regulatory approvals and expected to take place before year-end 2007. The combination of Vesko with Ukrainian Insurance Alliance will form the 3rd largest Property & Casualty insurer in Ukraine. 12/9/2007 17:24 _____________________________________________________________________________________________________ Page 52 of 52 Half Year financial report Statement Half year financial report Statement I hereby certify that, to the best of my knowledge, the financial statements have been prepared in accordance with applicable accounting standards, that they fairly present, in all material respects, the financial condition, results of operations and cash flow of the issuer and its consolidated affiliates, and that the half year activity report presents a true and accurate picture of the significant events of the six months ended, as well as their impact on the half year financial statements for the same period. Paris, August 16, 2007 Mr. Denis Duverne Member of the Management Board, Chief Financial Officer Report of Statutory Auditors on the Half Year consolidated financial statements PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars & Guérard 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON FIRST HALF-YEAR FINANCIAL INFORMATION FOR 2007 (Period from January 1, 2007 to June 30, 2007) This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In our capacity as statutory auditors and in accordance with the requirements of article L 232-7 of French Commercial Law (“Code de Commerce”), we hereby report to you on: (cid:131) (cid:131) the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the period January 1 to June 30, 2007, the verification of information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. In accordance with professional standards applicable in France, we have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly sur Seine and Paris, August 16, 2007 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars & Guérard Yves Nicolas Eric Dupont Patrick de Cambourg Jean-Claude Pauly | Semestriel, 2007, Insurance, AXA | write me a financial report |
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| Half Year Financial Report June 30, 2008 TABLE OF CONTENTS I Activity report II Consolidated financial report III Half Year financial report Statement IV Report of Statutory Auditors on the Half Year consolidated financial statements ___________________________________________________________________________________________________ Half Year 2008 Activity Report Activity Report / Half Year 2008 Page 1 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA's Annual Report on Form 20-F and AXA’s Document de Référence for the year ended December 31, 2007, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Financial market conditions in the first-half year 2008 ..................................................................................... 3 Operating highlights........................................................................................................................................... 4 Consolidated gross revenues .............................................................................................................................. 6 Consolidated underlying, adjusted earnings and net income ........................................................................... 10 Life & Savings Segment .................................................................................................................................. 17 Property & Casualty Segment .......................................................................................................................... 39 International Insurance Segment...................................................................................................................... 55 Asset Management Segment ............................................................................................................................ 58 Banking ............................................................................................................................................................ 61 Holdings and other companies ......................................................................................................................... 63 Outlook ............................................................................................................................................................ 66 Glossary ........................................................................................................................................................... 67 Page 2 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Financial market conditions in the first-half year 2008 One year after the financial crisis erupted, initiated by the subprime crisis in the United States, the climate remained uncertain. Three-month inter-bank lending rates were still unusually high, and the riskier asset classes were struggling. From a macro-economic perspective, the questions relating to the impact of the financial crisis on the real economy continued to weigh, while in parallel the doubling of the oil price in one year and higher commodity prices had brought inflation back on the scene. The uptick in inflation since last summer was attributable to commodity prices, in particular the price per barrel of oil, which rose above $140 at the end of June. Inflation had not stopped its upward movement since last summer, and reached 4% yoy in both Europe and the United States. But the global economy continued to get support from emerging economies maintaining robust growth trends, however putting some pressure on commodity prices. Rising inflation was among the central preoccupations of the ECB (European Central Bank). It did not take part in the general move toward relaxed rates initiated by the Fed last summer, but finally announced in June that it was getting ready to raise its repo rate. US and UK monetary policies, which had been accommodating, also seemed about ready to turn a corner, and the emerging countries had resumed their rate hikes. STOCK MARKETS While the threat of bank failures receded with the bailout of Northern Rock and Bear Stearns, in the United Kingdom and the United States, respectively, financial stocks were impacted by the equity market drop. Monetary policy, even though fairly accommodative in the US, offered little help for the various stock markets. In June, the equity markets fell back to March lows. The Dow Jones and the S&P 500 depreciated by 11.4% and 9.4%, respectively, while in London, the FTSE lost 12.9% in the first half of 2008. The CAC 40 decreased by 21% in the first half of 2008. In the same trend, the Euro stoxx 50 decreased by 23.8%. The Nikkei decreased by 7.8%. The MSCI World Index decreased by 12.5% and the MSCI Emerging by 11.6% in the first half of the year. BOND MARKETS At the beginning of the year, bonds offered investors a safe haven in the face of plunging values for risky asset classes but rising concerns over inflation impacted negatively the bond markets. Over the first six months of 2008, the Fed, aware of the risk to growth, continued to reduce its key rates, lowering Fed Funds by a total of 225bps to 2%. At the same time, it multiplied unconventional lending measures to ensure that the financial system had adequate liquidity. In Continental Europe, while the ECB took part in the move to inject liquidities into the money market, it maintained rates unchanged at 4.0%. But on July 3, it announced an increase by 25 bps to 4.25%. In Japan, the Bank of Japan interrupted its bid to normalize key rates. The US 10-year T-bond ended the half year at 3.98%, a decline of nearly 6bps compared to December 31, 2007, while the Bund yield rose by 25bps to 4.58%. Credit spreads widened with the iTRAXX Main (Investment Grade) moving from 50bps to 105bps in the first half of 2008 while the iTRAXX Crossover (Below Investment Grade) increased from 338bps to 533bps. EXCHANGE RATES In the first half of 2008, the Dollar lost 7% against the Euro (Closing exchange rate moved from $1.47 at the end of 2007 to $1.58 at the end of June 2008). The Yen gained nearly 4% against the Euro at March 2008 (Closing exchange rate moved from Yen 163.6 at the end of September 2007 used for Full Year 2007 accounts to Yen 157.4 at the end of March 2008 used for half year 2008 accounts). The Pound Sterling lost nearly 8% against the Euro (Closing exchange rate moved from £0.733 at the end of 2007 to £0.792 at the end of June 2008). The Swiss Franc gained 3% against the Euro (Closing exchange rate moved from CHF 1.66 at the end of 2007 to CHF 1.61 at the end of June 2008). On an average rate basis, the Dollar fell by 15% against the Euro in the first half of 2008 (from $1.33 over the first half of 2007 to $1.53 over the first half of 2008), whereas, to a lesser extent, the Yen lost 4% against the Euro (from Yen 154.2 over the six months to March 31, 2007 used for half year 2007 accounts to Yen 160.8 over the six months to March 31, 2008 used for half year 2008 accounts). The Pound Sterling lost 15% against the Euro (from £0.675 over the first half of 2007 to £0.775 over the first half of 2008). The Swiss Franc gained 2% against the Euro in the first half of 2008 (from CHF 1.63 over the first half of 2007 to CHF 1.61 over the first half of 2008). Page 3 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Operating highlights Significant acquisitions and disposals On February 6, 2008, AXA announced it had entered into an agreement to acquire OYAK’s 50% share in AXA OYAK Holding A.Ş. («AXA OYAK»), a company established by AXA and OYAK in 1999. Under the terms of the agreement, AXA will pay a purchase price of $525 million (approximately €355 million) in cash for OYAK’s 50% share in AXA OYAK (in addition, according to the same agreement, AXA OYAK Holding will be buying, for $15 million (approximately €10 million), the 1.5% share that Mais Motors, an OYAK joint venture company, holds in AXA OYAK’s non-life subsidiary). AXA OYAK enjoys a leading position (10% total market share1) on the fast- growing Turkish insurance market. Mainly focused on non-life, especially motor and property, the company experienced strong top-line growth in the past years and is one of the most profitable players in the market. The transaction, which is subject to local regulatory approval, is expected to close by mid-August 2008. Following closing, the parties have agreed that AXA OYAK and its subsidiaries will no longer use the OYAK name or trademark. On February 12, 2008, AXA announced it had reached an agreement with ING for the acquisition of 100% of the share capital of its Mexican insurance subsidiary Seguros ING, for a consideration of $1.5 billion (approximately €1.0 billion). Seguros ING is the third largest Mexican insurer (12% total market share, 5.5 million clients), with leading positions in key markets, such as Motor (2nd largest player with a 17% market share) and Health (2nd largest player with a 19% market share). AXA intends to accelerate and complete the initiated turnaround of Seguros ING by dedicating seasoned management capabilities and leveraging the Group’s global platforms and expertise, notably in IT and reinsurance. Upon completion of the transaction, Seguros ING will be integrated to AXA’s Mediterranean Region unit and benefit from its know-how in underwriting, claims management, client segmentation, service and brand management. AXA will finance the transaction with internal resources. This acquisition closed on July 22, 2008. On March 19, 2008, AXA UK completed the purchase of 100% of the share capital of SBJ Group. The acquisition of SBJ will complement and enhance AXA’s UK advisory and broking capability, bringing a number of strengths to the Group, including increased scale, a wider national presence and access to new market areas. SBJ, with its strong management team and high quality staff, will represent significant progress towards AXA’s stated strategic aim of building a leading presence in the advisory and broking markets. The businesses will continue to operate independently of AXA’s insurance company interests. On June 17, 2008, AXA completed the acquisition of 36.7% of the share capital of RESO GARANTIA, Russia’s 2nd largest P&C insurer for a total cash consideration of around €810 million. As part of the agreement, AXA will have the option to buy out the remaining stake through calls exercisable in 2010 and 2011. Founded in 1991, RESO has built one of the leading P&C insurance franchises in Russia (7% market share), notably focused on retail Motor, and supported by a network of 18,000 agents, the 2nd largest in Russia. Under the terms of the agreement, RESO’s current management team will continue to run the company and roll-out its successful strategy. With this acquisition, AXA will further reinforce its growth profile and increase its exposure to emerging insurance markets. As part of the agreement, AXA granted a 6-year $1 billion credit facility to RESO’s main shareholder, fully secured by his shareholding in the company. Other In the United Kingdom, from January 31 2008, a temporary deferral period of up to six months was introduced for certain transactions involving the AXA Life Property Fund (£1.1 billion or €1.4 billion at June 30, 2008) and AXA Pension Property Fund (£0.8 billion or €1.0 billion at June 30, 2008), which is allowed under the terms of the customer’s policy in order to help manage liquidity. In the event that sufficient liquidity to honor all outstanding withdrawal requests by the end of the deferral period cannot be generated through the sale of properties held by the funds and other sources of liquidity available to the funds, AXA UK, as sponsor of the funds, will be required to provide the funds with sufficient liquidity to honor these withdrawal requests. As at June 30, 2008, liquidity in the funds has improved relative to when the deferral period was announced. The AXA Pension Property Fund has accelerated the payment of deferrals to four months due to its strengthened liquidity position. However, current market uncertainty and difficult selling conditions warrant a prudent approach and a deferral position is being kept in force within both funds. 1 As of June 30, 2007 - Source: Association of the Insurance and Reinsurance Companies of Turkey. Page 4 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Related-party transactions During the first half of the fiscal year 2008, there was (1) no modification regarding the related-party transactions, such as described in Note 27 "Related-Party transactions" of the audited consolidated financial statements of the fiscal year ended December 31, 2007 included in the Full Year 2007 Annual Report (pages 366 and 367) filed with the Autorité des marchés financiers and available on its website (www.amf‐france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2008, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company. Risk factors The main risks and uncertainties the Group is facing are described in Section 4.1 “Risk factors” and in Section 2.2 “Additional factors which may affect AXA’s business” of the Full Year 2007 Annual Report filed with the Autorité des marchés financiers and available on its website (www.amf‐france.org) as well as on the Company's website (www.axa.com). This description of the main risks remains valid on the date of this Report for the appreciation of the major risks and uncertainties which may affect the Group by the end of the current fiscal year and no significant risks or uncertainties other than those described in the Annual Report are anticipated. Page 5 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Consolidated gross revenues Consolidated Gross Revenues (a) (in Euro million) HY 2008 HY 2007 FY 2007 HY 2008/2007 Life & Savings 30,826 31,555 59,845 ‐2.3% of which Gross written premiums 29,884 30,516 57,773 ‐2.1% of which Fees and revenues from investment contracts with no participating feature 342 381 740 ‐10.3% Property & Casualty 14,519 14,195 25,016 2.3% International Insurance 1,673 2,489 3,568 ‐32.8% Asset Management 2,102 2,407 4,863 ‐12.6% Banking (b) 197 153 339 28.1% Holdings and other companies (c) 2 3 2 ‐27.0% TOTAL 49,319 50,801 93,633 ‐2.9% (a) Net of intercompany eliminations (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €191 million and €49,316 million for the period of June 30, 2008, €163 million and €50,811 million for the period of June 30, 2007, and €320 million and €93,617 million for the period of December 31, 2007. (c) Includes notably CDOs and real estate companies. On a comparable basis means that the data for the current year period were restated using the prevailing foreign exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). Consolidated gross revenues for first half 2008 reached €49,319 million, down -3% compared to first half 2007. Taking into account the restatements to comparable basis, mainly the appreciation of the Euro against other currencies (€2,126 million or +4.2 points, mainly from the US Dollar and the Pound Sterling), and the impact of the acquisition of MPS (€1,702 million or -3.3 points), gross consolidated revenues were down -0.4% on a comparable basis. Total Life & Savings New Business APE2 reached €3,611 million, down -7% compared to first half 2007. On a comparable basis, new Business APE decreased by 6%, mainly due to the United States, Australia and Japan, partly offset by Switzerland and Germany. The United States APE decreased by €150 million (-14%) to €808 million driven primarily by an anticipated decrease in Life APE for Fixed Universal Life products following price increases in 2007. Variable Annuities decreased by 6% reflecting challenging market conditions. France APE decreased by €21 million (-3%) to €690 million, especially due to Group business (-28% or €-66 million) impacted by a change in seasonality in Retirement contracts, partly offset by individual business performance (+10% or €46 million).. Japan APE decreased by €45 million (-15%) to €253 million mainly driven by individual business as a result of a continued focus on more profitable lines to offset the negative €-59 million volume effect following tax uncertainties on certain Term product sales. Consequently, the higher profitability margin "Long Term Term Product" benefited from a sales push which was combined with higher sales of Yen VA with secondary guaranties. Medical product sales continued to be strong at €122 million. 2 Annual premium Equivalent (APE) is new regular premiums plus one tenth of single premiums, in line with EEV methodology. APE is Group share. Page 6 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report United Kingdom APE decreased by €24 million (-3%) to €692 million primarily due to (i) lower investment & savings volumes (€-52 million or -18%), mainly resulting from the impact of changes in Capital Gains Tax and Inheritance Tax legislation on Onshore and Offshore Bond volumes, and (ii) a €31 million decrease (-13%) in Individual and Executive Pensions due to increased market competition. These decreases were partly offset by (iii) a €47 million increase (+23%) in Group Pension volumes, predominantly due to a large single premium of €32 million, and (iv) a €8 million increase (+21%) in Life Risk products reflecting the strengthening of the AXA Protection brand in the market, in particular with the IFA community. Germany APE increased by €22 million (+10%) to €236 million mainly due to Riester step-up (increase in premiums due to higher 2008 fiscal incentive for policyholders to invest in Riester retirement products) of €+30 million, as well as the strong sales in Individual Investment & Savings products notably from the unit-linked “TwinStar” product range (€+18 million excluding Riester step-up effect), which were partly offset by a decrease in the health business due to the 2007 Reform (waiting period for salaried employees to enter Private Health Insurance extended from one to three years). Switzerland APE increased by €29 million (+18%) to €193 million mainly driven by Group Life, up €23 million (+17%) to €161 million, mainly resulting from successful annual negotiations (€+52 million, including vested benefit premiums), partly offset by the non repeat of 2007 increase in coinsurance business (€-31 million). Individual Life improved by €5 million (+20%) to €32 million mainly reflecting the good development of unit-linked regular premiums, driven by AXA Comfort, and the positive impact of mutual fund sales launched late in 2007. Belgium APE decreased by €29 million (-16%) to €154 million due to a decrease in Individual Life sales (-19% to €136 million) for both unit-linked and non unit-linked products, partly offset by higher sales in Group Life (+23% to €18 million). Mediterranean Region APE decreased by €3 million (-2%) to €204 million notably due to (i) lower volumes from AXA MPS (down -13%), switching production from less profitable traditional products to more innovative unit-linked products (Accumulator and Double Engine) in a context of declining market, and (ii) lower sales of index-linked and lower activity with institutional clients in AXA Italy. This was partly offset by stronger sales in traditional savings products in Spain. Australia/New-Zealand APE decreased by €55 million (-21%) to €212 million mainly due to a drop in Mutual Fund net sales and Alliance Bernstein Joint Venture sales following current negative market conditions and thenon-repeat of a favorable legislation change in 2Q07 (peak in sales last year). These negative impacts were offset by the inclusion of some significant wholesale premiums (€+11 million) from institutional clients seeking more conservative investments, and by Accumulator product sales. Hong Kong APE decreased by €6 million (-8%) to €56 million due to a decrease in investment & savings products (€-7 million), mainly from lower single premium unit‐linked products, as a result of uncertain investment market conditions. Central & Eastern Europe APE increased by €25 million (+57%) to €76 million driven by Life & Savings business (€16 million), benefiting, despite the financial crisis, from the strong unit-linked sales (€26 million, +56%) and the positive contribution of pension funds business. Main countries contributing to the total APE were Poland (€45 million) and Czech Republic (€23 million). South East Asia & China3 APE increased by €11 million (+37%) to €36 million, reflecting both the growth in agency sales force numbers and improvements in productivity. Property & Casualty gross revenues were up +2%, both on reported and comparable bases, to €14,519 million, mainly driven by the Mediterranean Region (+7% to €2,984 million) and France (+3% to €3,021 million). 3 Indonesia, Singapore, Thailand, Philippines and China Page 7 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Personal lines (59% of P&C gross revenues) were up +2% on a comparable basis, stemming from both Motor (+2%) and non Motor (+3%). Motor revenues grew by 2% mainly driven by (i) the Mediterranean Region (+5%) benefiting from positive volume effect (net inflows of 230k contracts), notably in emerging countries and despite the drop of car sales,with a flat average premium in more mature markets, and (ii) France (+2%), largely as a result of higher net inflows (+74k new contracts) in a competitive market, partly offset by (iii) the United Kingdom & Ireland (-5%) due to increased competition in intermediated business, despite further growth in new business written through the internet platform Swiftcover, and competition in Ireland driving down average premiums and lowering renewals, and (iv) Germany (- 3%), as a result of contract losses in the context of market price pressure. Non Motor revenues increased by 3% mainly driven by (i) the Mediterranean Region (+7%) mainly due to Property and Health driven by the Spanish market, (ii) France (+3%) driven by positive net inflows in Household (+26k contracts) combined with an increase in the average premium, and (iii) Germany (+2%) due to growth in Property mainly due to the packaged product “Profischutz” for professionals as well as tariffs increase. Commercial lines (39% of P&C gross revenues) recorded a +2% growth on a comparable basis driven by a +1% increase in Motor and a +2% growth in non Motor. Motor revenues were up +1%, with a growth in (i) France (+2%) and (ii) Switzerland (+8%) driven by sales efforts (following Vento, a change in the remuneration scheme of general agents from fixed to variable remuneration from January 1, 2008), partly offset by (iii) the Mediterranean Region (-2%). Non Motor revenues were up 2%, with (i) the Mediterranean Region (+9%) driven by Health in the Gulf region and Property on SME’s business, partly offset by Construction in Spain, and (ii) France (+4%) driven by development in Construction while growth remained positive in Property and Liability despite competitive markets, partly offset by (iii) Switzerland (-3%) mainly driven by price pressure and the loss of some important contracts in Workers’ compensation, lower prices in Health and the liquidation of the Swiss aviation pool, and (iv) the United Kingdom & Ireland (-2%) with a deterioration across most business lines due to difficult market conditions, partly offset by volume growth in Health. International Insurance gross revenues were down -33%, due to the termination in October 2007 of the fronting agreement between AXA RE and Paris Ré, or up +5% on a comparable basis to €1,673 million mainly attributable to AXA Corporate Solutions Assurance, up +6% to €1,220 million, driven by positive volume effect in Marine, Construction, Liability and Property, partly offset by tariff pressure. Asset Management gross revenues decreased by 13% or -3% on a comparable basis to €2,102 million due to lower performance fees (-45%), partly offset by higher management fees (+1%), and higher AllianceBernstein Institutional Research Services revenues (+13%). AllianceBernstein gross revenues decreased by €10 million (-1%), as the increase in management fees up +1% (€+15 million), driven by higher average asset under management (+1%, of which Global & International services +11%) and a favorable client and product mix, was offset by a decrease in performance fees down -71% (€-21 million) and distribution fees down -6% (€-10 million). Institutional Research Services continued to grow with fees up +13% (€20 million). Assets under Management decreased by €89 billion from year-end 2007 to €455 billion at the end of June 2008, driven by net outflows of €-4 billion (€-5 billion for Retail, €1 billion for Institutional), market depreciation of €-51 billion and negative exchange rate impact of €-34 billion. AXA Investement Managers revenues decreased by €55 million (-6%). Excluding fees retroceded to distributors, gross revenues decreased by 1% as growth in average AUM (+3%) was more than offset by lower performance fees, Page 8 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report an unfavorable client and product mix (impact of the equity market turmoil and higher share of fixed income with Winterthur integration) and the decrease in retail business. Assets Under Management decreased by €22 billion to €527 billion from year-end 2007 as €6 billion net new money (including €9 billion in Main funds, €1 billion in Institutional and €-4 billion in retail clients), and €6 billion change in scope (AXA MPS for €10 billion and the Netherlands for €-4 billion), were more than offset by €-22 billion negative market impact due to the equity market turmoil, and €-10 billion unfavorable exchange rate impact. Banking revenues were up +28% to €197 million, or +17% on a comparable basis, with AXA Bank Europe (Belgium) up 10% to €138 million mainly due to higher net interest and fee income. Page 9 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Consolidated underlying, adjusted earnings and net income (in Euro million) HY 2008 HY 2007 FY 2007 Gross written premiums 45,942 47,089 86,116 Fees and revenues from investment contracts with no participating feature 342 384 740 Revenues from insurance activities 46,284 47,474 86,857 Net revenues from banking activities 191 163 320 Revenues from other activities 2,841 3,174 6,441 TOTAL REVENUES 49,316 50,811 93,617 Change in unearned premium reserves net of unearned revenues and fees (3,121) (3,829) (609) Net investment result excluding financing expenses (a) (7,663) 17,423 24,572 Technical charges relating to insurance activities (a) (24,312) (49,989) (88,961) Net result of reinsurance ceded (576) (609) (1,050) Bank operating expenses (23) (24) (57) Insurance acquisition expenses (4,062) (4,131) (8,669) Amortization of value of purchased life business in force (149) (202) (357) Administrative expenses (4,940) (5,001) (10,089) Valuation allowances on tangibles assets (2) 3 4 Change in value of goodwill (1) ‐ (1) Other (97) (225) (419) Other operating income and expenses (34,162) (60,178) (109,597) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 4,369 4,227 7,983 Net income from investments in affiliates and associates 18 13 29 Financing expenses (350) (229) (467) OPERATING INCOME GROSS OF TAX EXPENSE 4,038 4,011 7,545 Income tax expenses (964) (1,014) (1,941) Minority interests in income or loss (307) (311) (642) UNDERLYING EARNINGS 2,766 2,688 4,963 Net realized capital gains or losses attributable to shareholders 524 736 1,175 ADJUSTED EARNINGS 3,290 3,424 6,138 Profit or loss on financial assets (under fair value option) & derivatives (1,057) (182) (596) Exceptional operations (including discontinued operations) 13 57 482 Goodwill and other related intangible impacts (43) (55) (106) Integration costs (41) (64) (252) NET INCOME 2,162 3,180 5,666 (a) For the periods ended June 30, 2008, June 30, 2007 and December 31, 2007, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €‐14,755 million, €+8,773 million and €+7,476 million, and benefits and claims by the offsetting amounts respectively. Line items of this income statement are on an underlying earnings basis, and not on a net income basis. Underlying, Adjusted earnings and Net Income (in Euro million) Page 10 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report HY 2008 HY 2007 FY 2007 Life & Savings 1,396 1,489 2,670 Property & Casualty 1,133 963 1,863 International Insurance 172 119 218 Asset Management 285 286 590 Banking 24 11 36 Holdings and other companies (a) (245) (181) (414) UNDERLYING EARNINGS 2,766 2,688 4,963 Net realized capital gains or losses attributable to shareholders 524 736 1,175 ADJUSTED EARNINGS 3,290 3,424 6,138 Profit or loss on financial assets (under Fair Value option) & derivatives (1,057) (182) (596) Exceptional operations (including discontinued operations) 13 57 482 Goodwill and related intangibles impacts (43) (55) (106) Integration costs (41) (64) (252) NET INCOME 2,162 3,180 5,666 (a) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,766 million. On a constant exchange rate basis, underlying earnings grew by €192 million (+7%), attributable mainly to Property & Casualty. Life & Savings underlying earnings amounted to €1,396 million. On a constant exchange rate basis, Life & Savings underlying earnings were down €-16 million (-1%) mainly driven by the United States (€-113 million), partly offset by France (€+78 million). Excluding the contribution of MPS in half year 2008 (€12 million) and on a constant exchange rate basis, underlying earnings decreased by €-28 million mainly resulting from: (i) Lower net technical margin, down €-215 million or -27%. Excluding the €+53 million positive impact of the reclassification of charges from technical margin to commission expenses in the context of the renewal of some Group Life contracts in France, the net technical margin decreased by €-268 million or -34%, mainly driven by €-254 million lower profits from GMDB/IB in the United States, mainly explained by underperformance of certain Separate Account funds versus hedge indices and higher equity market volatility. (ii) Higher expenses (€-113 million or up 4%) with acquisition expenses up €-118 million (8%) and administrative expenses down €5 million (0%). Expenses were impacted by €-53 million reclassification of charges from technical margin to commission expenses in France, €-35 million change in accounting treatment offset in fees & revenues in the United Kingdom, and €24 million reclassification of Thinc acquisition expenses (from administration expenses to acquisition expenses). Excluding the impact of these reclassed items: a. Acquisition expenses up €-6 million (or 0%) mainly driven by France (up €-41 million mainly due to higher amortization of deferred acquisition costs offset by €44 million higher unearned revenue reserve release in fees & revenues) and the United Kingdom (up €-34 million notably due to lower net DAC capitalization), offset by the United States (down €-75 million driven by DAC amortization down €85 million reflecting reactivity to lower GMDB/IB margins). b. Administrative expenses up €-19 million (or 1%) mainly driven by the United Kingdom (up €-46 million resulting from an increase in strategic initiatives, including the wealth management wrap platform and Architas investment sub-advisory platform) and Germany (up €14 million resulting from higher project costs), partly offset by €+26 million change in employee benefit plans in the United States and €+15 million change in own pension scheme in Switzerland. This was partly offset by: (iii) Higher Fees and Revenues (€+149 million or up 4%) principally driven by: a. Unit-linked management fees up €+85 million (+8%) mainly driven by the United States and the United Kingdom (€+47 million and €+36 million, respectively) owing to higher average balances (up Page 11 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report 4% in the United States and up 3% in the United Kingdom) together with increased average fees (+3bps in the United States and +5bps in the United Kingdom) from improved business mix. b. Loadings on premiums and Mutual Funds were up €+74 million (+4%). Excluding a €+35 million change in accounting treatment in the United Kingdom offset in expenses, loadings on premiums and Mutual Funds increased by €39 million (+2%), mainly due to France (€+46 million mainly resulting from a €44 million higher unearned revenue reserve release offsetting the deferred acquisition costs amortization) and Japan (€+31 million due to an improved business mix, especially on medical products), partly offset by Australia & New Zealand (€-15 million from lower sales in Wealth Management). c. Other fees & revenues were down €-11 million (-3%) driven by Switzerland (€-18 million mainly due to higher policyholder bonus allocation in Group Life) and the United States (€-14 million due to Enterprise funds’ transfer to an external firm in mid 2007), partly offset by the United Kingdom (€+13 million mainly due to distribution revenues reflecting 38% growth in Thinc Group). (iv) An improved investment margin (€+49 million or up 4%), primarily driven by Investment income down €- 75 million (-1%) mainly in Japan (€-90 million), the United Kingdom (€-81 million) and the United States (€- 56 million), partly offset by France (€+175 million due to higher Private equity funds dividends coupled with a more favorable seasonality regarding Mutual Funds distribution), more than offset by €124 million lower Policyholders participation (-2%) mainly in the United Kingdom (€+111 million) and Japan (€+67 million), partly offset by France (€-88 million). (v) A lower level of VBI amortization (down €56 million or 28%) mainly attributable to a €33 million decrease in Japan driven by the combination of (i) the non-recurring impact of old Medical Whole Life upgrade program, (ii) the natural decline in VBI balance and (iii) reduced investment income. (vi) Lower tax expenses and minority interests (down €46 million or 8%). Excluding €46 million of lower positive tax one-offs (€12 million lower tax reserve release in the United States, €10 million lower one-offs in the United Kingdom and non-repeat of €26 million tax refund in half year 2007 in Belgium related to “Revenus Définitivement Taxés”), tax expenses and minority interests decreased by €92 million (-15%), mainly driven by lower pre-tax earnings in the United States, the United Kingdom, Germany, and the Mediterranean Region as well as the positive impact in Germany of the lower tax rate in 2008 compared to prior year (32% compared to 40%), partly offset by the increase of pre-tax earnings in France, Hong Kong, Australia, Belgium, Japan and Switzerland. Property & Casualty underlying earnings amounted to €1,133 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €191 million (+20%) fuelled by an improved combined ratio (down 1.9 points to 96.4%) owing to limited natural events in first half 2008 (Emma storm in Germany, 0.2 point of combined ratio), whereas first half 2007 was impacted by Kyrill storm (1.9 points of combined ratio) and floods in the United Kingdom (1.0 point of combined ratio). (i) Higher net technical result (including expenses) up €+263 million due to: a. An all year loss ratio improving by 2.2 points to 68.4%. Excluding the impacts of the natural events, the all year loss ratio deteriorated by 0.4 point, notably due to an increase in Motor current year loss ratio in France and the United Kingdom, partly offset by higher prior year positive reserves development in many countries. Partly offset by: b. Higher expenses (€-257 million) resulting in a 0.3 point increase in the expense ratio to 28.0% driven by the United Kingdom (due in part to growth in Swiftcover, including increased marketing spend) and the Mediterranean Region (notably due to marketing investments to support new business), partly offset by one time positive impact of the change in own pension scheme in Switzerland (ii) Higher investment result (€+70 million) reflecting higher asset base and asset yield, notably in Switzerland (€+23 million), France (€+14 million) and Germany (€+10 million). (iii) Higher tax expenses and minority interests (€-142 million) due to higher pre-tax earnings and lower positive tax one-offs in half year 2008 (€27 million due to Germany and the United Kingdom) than in first half 2007 (€76 million due to Germany, the United Kingdom and Belgium). International Insurance underlying earnings amounted to €172 million. On a constant exchange rate basis, International Insurance underlying earnings increased by €53 million (+44%), driven by the positive impact of Page 12 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report bookings of deferred tax assets on prior year tax losses on foreign branches at AXA Corporate Solutions Assurance and on past net operating losses in the US in other international activities, as well as favorable settlements with two large cases in other international activities. Asset Management underlying earnings amounted to €285 million. On a constant exchange rate basis, asset management underlying earnings increased by €26 million (+9%) driven by AXA Investment Managers (€+30 million or +22%), mainly due to a significant carried interest (€58 million pre-tax) related to the performance of a real estate fund, partly offset by AllianceBernstein (€-4 million or -3%). The underlying cost income ratio improved by 0.8 point to 66.8% mainly driven by AllianceBernstein (-1 point) due to a reduction in general expenses. Banking underlying earnings amounted to €24 million. On a constant exchange rate basis, banking underlying earnings increased by €13 million (+118%), mainly attributable to AXA Bank Europe (Belgium), mainly due to a higher interest margin. Holdings and other companies’ underlying earnings amounted to €-245 million. On a constant exchange rate basis, holdings underlying earnings decreased by €75 million, driven by AXA SA (€-69 million) mainly due to a higher financial charge notably related to external growth financing and internal refinancing. Net capital gains attributable to shareholders amounted to €524 million. On a constant exchange rate basis, Group net capital gains attributable to shareholders were down €-221 million due to: (i) €-862 million higher net impairments, to €-786 million in half year 2008, mainly on equity securities given equity price decrease Partly offset by: (ii) €+164 million higher net realized capital gains excluding impairments, to €834 million in half year 2008, mainly driven by gains on equity securities in Belgium, France and Germany.€+477 million increase in intrinsic value of equity and real estate derivatives in half year 2008, mainly driven by €+284 million in AXA SA due to equity derivatives set up in June 2008 to reduce the Group exposure to equities, €+129 million in France and €+50 million in Germany. Adjusted earnings amounted to €3,290 million. On a constant exchange rate basis, adjusted earnings were down €-29 million (-1%) as a result of higher underlying earnings more than offset by lower net capital gains attributable to shareholders. Net Income amounted to €2,162 million. On a constant exchange rate basis, net income decreased by €921 million (- 29%) as a result of: (i) Lower adjusted earnings (€-29 million) (ii) Lower result on financial assets accounted for under Fair Value Option and derivatives including foreign exchange impact: €-882 million to €-1,057 million. These €-1,057 million can be analyzed as follows: a. €+188 million corresponding to the cancellation of deferred tax liabilities on assets under fair value option overestimated in previous years in France b. €-577 million change in fair value and realized gains on Mutual Funds, mainly due to credit spread widening on fixed income assets c. €-184 million change in fair value and realized gains on other assets including (i) the negative change in fair value of “AWF and FIIS US” Libor Plus funds (€-64 million) as well as negative impacts coming from carried interest change in fair value of real estate funds at AXA Investment Managers, and (ii) a negative change in fair value in Japan of US corporate bonds (currency risk hedged), following deterioration of credit market conditions. Page 13 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report d. €-152 million time value of equity and real estate derivatives, of which €-122 million related to the decrease in the time value of equity derivatives set up at Group level to reduce the Group exposure to equities) e. €-101 million from negative change in fair value of Japan CDS due to widening of credit spread f. €-231 million from negative change in fair value of interest rates derivatives and foreign exchange impacts (including, foreign exchange derivatives). (iii) Lower exceptional operations result including discontinued operations: €-42 million to €13 million: - Half year 2008 Exceptional and discontinued operations (€+13 million) were mainly due to €+10 million at AllianceBernstein (additional impact of the sale of Cash Management Services and dilution gain). Half year 2007 Exceptional and discontinued operations (€+57 million) were mainly due to the €74 million net income of The Netherlands (classified as discontinued operation following the June 4, 2007 announcement of the Dutch activities' sale to SNS REAAL), partly offset by €-9 million at AllianceBernstein (additional impact of the sale of Cash Management Services and dilution gain). Partly offset by: (iv) Lower charges on goodwill and other related intangible: €+10 million to €-43 million, mainly driven by the impact of the first time consolidation of Gulf entities (one time recognition of past earnings, €+11 million) (v) Lower integration costs: €+22 million to €-41 million mainly driven AXA SA. Page 14 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Consolidated Shareholders’ Equity As of June 30, 2008, consolidated shareholders' equity totaled €40.5 billion. The movements in shareholders' equity since December 31, 2007 are presented in the table below: (in Euro million) Shareholders' Equity At December 31, 2007 Share Capital Capital in excess of nominal value Equity‐share based compensation Treasury shares sold or bought in open market Change in equity component of compound financial instruments Deeply subordinated debt (including accrued interests) Fair value recorded in shareholders' equity Impact of currency fluctuations Cash dividend Other Net income for the period 45,642 6 34 45 53 ‐ (403) (4,300) (455) (2,473) 379 2,162 Actuarial gains and losses on pension benefits (143) At June 30, 2008 40,547 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2008 HY 2007 FY 2007 Var. HY 2008 versus HY 2007 Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Weighted numbers of shares 2,032.1 2,042.8 2,061.3 2,082.7 2,042.7 2,060.8 Net income (Euro per Ordinary Share) 1.07 1.07 1.49 1.47 2.76 2.73 ‐27.9% ‐27.6% Adjusted earnings (Euro per Ordinary Share) 1.55 1.54 1.59 1.58 2.86 2.84 ‐3.0% ‐2.5% Underlying earnings (Euro per Ordinary Share) 1.29 1.28 1.24 1.22 2.29 2.27 4.2% 4.7% (a) From HY 2008, EPS calculation takes into account interest payments and foreign exchange impacts related to perpetual debts classified in equity with retrospective application. Page 15 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report RETURN ON EQUITY (“ROE”) A new calculation has been implemented since the first half year 2007 closing, with the following principles: − For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. − For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. (in Euro million) Period ended , June 30, 2008 Period ended , June 30, 2007 Change in % points ROE 10.2% 14.3% 4.1% Net income 2,162 3,180 Average shareholders' equity 42,329 44,565 Adjusted ROE 19.6% 21.6% 2.0% Adjusted earnings (a) 3,142 3,285 Average shareholders' equity (b) 32,065 30,358 Underlying ROE 16.3% 16.8% 0.5% Underlying earnings (a) 2,618 2,549 Average shareholders' equity (b) 32,065 30,358 (a) Including adjustement to reflect financial charges related to perpetual debt (recorded through shareholders' equity). (b) Excluding change in fair value on invested assets and derivatives (recorded through shareholders equity), and excluding perpetual debt (recorded through shareholders' equity). Page 16 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings Segment (a) (in Euro million) HY 2008 HY 2007 FY 2007 Gross written premiums 29,907 30,540 57,807 Fees and revenues from investment contracts without participating feature 342 381 740 Revenues from insurance activities 30,249 30,922 58,548 Net revenues from banking activities ‐ ‐ ‐ Revenues from other activities 602 658 1,332 TOTAL REVENUES 30,850 31,580 59,879 Change in unearned premium reserves net of unearned revenues and fees (1,014) (1,038) (275) Net investment result excluding financing expenses (b) (9,236) 15,926 21,857 Technical charges relating to insurance activities (b) (15,015) (40,658) (69,987) Net result of reinsurance ceded (46) (29) 33 Bank operating expenses ‐ ‐ ‐ Insurance acquisition expenses (1,675) (1,767) (3,726) Amortization of value of purchased life business in force (149) (202) (357) Administrative expenses (1,672) (1,648) (3,382) Valuation allowances on tangible assets (0) 0 1 Change in value of goodwill ‐ ‐ 0 Other (60) (39) (189) Other operating income and expenses (18,618) (44,344) (77,607) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 1,982 2,123 3,855 Net income from investments in affiliates and associates 16 7 22 Financing expenses (36) (30) (69) OPERATING INCOME GROSS OF TAX EXPENSE 1,963 2,101 3,808 Income tax expenses (445) (508) (924) Minority interests in income or loss (121) (103) (213) UNDERLYING EARNINGS 1,396 1,489 2,670 Net realized capital gains or losses attributable to shareholders 105 416 567 ADJUSTED EARNINGS 1,501 1,905 3,238 Profit or loss on financial assets (under fair value option) & derivatives (469) (61) (237) Exceptional operations (including discontinued operations) 1 46 (1) Goodwill and other related intangible impacts (12) (29) (39) Integration costs (13) (13) (63) NET INCOME 1,007 1,849 2,899 (a) before intercompany transactions (b) For the periods ended June 30, 2008, June 30, 2007, and December 31, 2007, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €‐14,755 million, €+8,773 million and €+7,468 million, and benefits and claims by the offsetting amounts respectively. Page 17 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 France 7,447 7,798 15,052 United States 6,733 8,206 16,244 United Kingdom 1,900 2,388 4,628 Japan 2,354 2,663 5,116 Germany 2,955 2,986 6,201 Switzerland 3,281 3,240 4,133 Belgium 1,602 1,629 3,075 Mediterranean Region (a) 2,794 937 1,924 Other countries 1,785 1,733 3,507 TOTAL 30,850 31,580 59,879 Intercompany transactions (24) (24) (35) Contribution to consolidated gross revenues 30,826 31,555 59,845 (a) Mediterranean Region includes Italy, Spain, Portugal, Greece, Turkey and Morocco. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 France 431 353 531 United States 326 488 883 United Kingdom 92 136 255 Japan 132 133 254 Germany 67 73 182 Switzerland 93 82 165 Belgium 84 72 90 Mediterranean Region (a) 43 40 73 Other countries 128 112 237 UNDERLYING EARNINGS 1,396 1,489 2,670 Net realized capital gains or losses attributable to shareholders 105 416 567 ADJUSTED EARNINGS 1,501 1,905 3,238 Profit or loss on financial assets (under Fair Value option) & derivatives (469) (61) (237) Exceptional operations (including discontinued operations) 1 46 (1) Goodwill and related intangible impacts (12) (29) (39) Integration costs (13) (13) (63) NET INCOME 1,007 1,849 2,899 (a) Mediterranean Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Gulf Region. Page 18 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – France (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 7,447 7,798 15,052 APE (group share) 690 642 1,360 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 603 749 219 (1,025) (15) 516 717 150 (921) (21) 937 1,463 265 (1,911) (43) Underlying operating earnings before tax 532 442 711 Income tax expenses / benefits Minority interests (99) (2) (87) (1) (178) (2) Underlying earnings group share 431 353 531 Net capital gains or losses attributable to shareholders net of income tax 279 125 269 Adjusted earnings group share 710 478 800 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (114) ‐ ‐ ‐ (38) ‐ ‐ ‐ (91) ‐ ‐ ‐ Net income group share 596 440 709 Gross revenues decreased by €350 million (-4%) to €7,447 million. On a comparable basis (excluding Neuflize Vie which is consolidated in equity method starting 01/01/08 versus proportionate before), gross revenues decreased by €157 million (-2%). This decrease was mainly driven by a change in seasonality of Retirement contracts (18% decrease in Group business), partly offset by a 9% increase in Individual Savings. APE increased by €48 million (+8%) to €690 million. On a comparable basis, APE decreased by €21 million (-3%), especially due to Group business (-28% or €-66 million) impacted by a change in seasonality in Retirement contracts, partly offset by individual business performance (+10% or €46 million). Investment margin increased by €86 million (+17%) to €603 million mainly due to higher asset yield stemming from Private equity funds dividends coupled with a more favorable seasonality regarding mutual funds distribution. Fees & revenues increased by €32 million (+4%) to €749 million mainly resulting from a €44 million higher URR (unearned revenue reserve) release offsetting the deferred acquisition costs amortization, partly offset by €18 million lower unit-linked management fees mainly due to Neuflize which is consolidated by equity method starting 2008. Net technical margin rose by €69 million (+46%) to €219 million due to (i) €53 million charge reclassified from technical margin to commission expenses in the context of the renewal of some Group Life contracts and (ii) a €16 million higher technical result in Group and Individual Life contracts. Expenses increased by €104 million (+11%) to €-1,025 million driven by (i) a €-53 million increase in commissions due to the reclassification of charge from technical items to commissions in the context of the renewal of some Group Life contracts, (ii) a €24 million increase of general expenses due to new IT projects and marketing and advertising costs, and (iii) higher amortization net of capitalization of deferred acquisition costs (€-27 million). Page 19 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Amortization of VBI improved by €7 million to €-15 million. Underlying cost income ratio improved by 1.9 points to 66.2%. Income tax expenses increased by €12 million (+14%) to €-99 million mainly due to the increase in taxable result (€- 31 million), partly offset by the increase of non taxable dividends which benefit from the “parent – subsidiary” regime. As a consequence, underlying earnings increased by €78 million (+22%) to €431 million. Adjusted earnings increased by €231 million (+48%) to €710 million resulting from the evolution of underlying earnings (€+78 million), €40 million higher net realized capital gains attributable to shareholders coupled with a €104 million positive impact of hedging derivatives portfolio and a €10 million lower charge of impairments. Net income increased by 156 million (+35%) to €596 million reflecting the improvement of the adjusted earnings by €231 million partly offset by (i) a €27 million negative impact of derivatives, and (ii) a €197 million unfavorable change in fair value of mutual funds mainly exposed to credit. These negative impacts were compensated by a €147 million gain corresponding to the cancellation of deferred tax liabilities on assets under fair value option overestimated in previous years. Page 20 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations - United States (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 6,733 8,206 16,244 APE (group share) 808 1,107 2,099 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 265 794 44 (628) (13) 368 887 292 (835) (26) 704 1,792 466 (1,647) (69) Underlying operating earnings before tax 462 686 1,247 Income tax expenses / benefits Minority interests (135) ‐ (198) (0) (363) (0) Underlying earnings group share 326 488 883 Net capital gains or losses attributable to shareholders net of income tax (20) (0) (32) Adjusted earnings group share 306 488 851 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (8) 1 (2) ‐ 7 (7) (20) ‐ 40 (7) (21) ‐ Net income group share 297 468 863 Average exchange rate : 1.00 € = $ 1.5309 1.3298 1.3699 Gross revenues decreased by €1,474 million (-18%) to €6,733 million. On a comparable basis, gross revenues decreased by €435 million (-5%): − Variable Annuity premiums (72% of gross revenues) decreased by 6% reflecting a slowdown of sales primarily related to challenging equity market conditions. − Life premiums (18% of gross revenues) decreased by 7% primarily driven by a decrease in First Year premiums from anticipated declines in Fixed Universal Life product sales following price increases in 2007. − Mutual Funds gross revenues (6% of gross revenues) increased by 3%. APE decreased by €300 million (-27%) to €808 million. On a comparable basis, APE decreased by €150 million (- 14%) driven primarily by an anticipated decrease in Life APE for Fixed Universal Life products following price increases in 2007. Variable Annuities decreased by 6% reflecting challenging market conditions. Investment margin decreased by €103 million (-28%) to €265 million. On a constant exchange rate basis, investment margin decreased by €63 million (-17%) mainly as a result of lower investment income reflecting lower asset levels and interest rates along with lower returns on private equity investments. Fees & revenues decreased by €93 million (-10%) to €794 million. On a constant exchange rate basis, fees & revenues increased by €27 million (+3%), primarily due to fees earned on higher separate account asset levels resulting from positive net cash flows. Net technical margin fell by €248 million (-85%) to €44 million. On a constant exchange rate basis, net technical margin decreased by €241 million (-83%) mainly attributable to €254 million lower profits from GMDB/IB mainly explained by underperformance of certain Separate Account funds versus hedge indices and higher equity market volatility. Expenses decreased by €207 million (-25%) to €-628 million. On a constant exchange rate basis, expenses decreased Page 21 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report by €112 million (-13%) due to: − Expenses, net of DAC capitalization (including commissions) decreased by €26 million with a 6% decrease in general expenses primarily due to expense management initiatives and changes to employee benefit plans. − DAC amortization decreased by €85 million, reflecting reactivity to lower GMDB/IB margins. Amortization of VBI decreased by €13 million (-51%) to €-13 million. On a constant exchange rate basis, amortization of VBI decreased by €11 million (-43%) primarily due to higher life mortality in 2008. The underlying cost income ratio increased by 2.5 points to 58.1%. Income tax expenses decreased by €63 million (-32%) to €-135 million. On a constant exchange rate basis, income tax expenses decreased by €42 million (-21%), principally due to lower pre-tax underlying earnings, partly offset by a €12 million lower tax reserve release. Underlying earnings decreased by €162 million (-33%) to €326 million. On a constant exchange rate basis, underlying earnings decreased by €113 million (-23%) mainly resulting from lower investment margin and technical margin partially offset by lower DAC and VBI amortization. Adjusted earnings decreased by €181 million (-37%) to €306 million. On a constant exchange rate basis, adjusted earnings decreased by €135 million (-28%), primarily due to lower underlying earnings and higher impairments on fixed income assets. Net income decreased by €171 million (-36%) to €297 million. On a constant exchange rate basis, net income decreased by €126 million (-27%), primarily due to the decrease in adjusted earnings and the non recurrence of 2007 exceptional items. Page 22 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations - United Kingdom (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 1,900 2,388 4,628 APE (group share) 692 819 1,588 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 131 403 13 (458) (22) 121 372 64 (411) (23) 258 889 90 (967) (46) Underlying operating earnings before tax 67 123 224 Income tax expenses / benefits Minority interests 26 (0) 13 (0) 31 (0) Underlying earnings group share 92 136 255 Net capital gains or losses attributable to shareholders net of income tax (16) (23) (26) Adjusted earnings group share 76 112 229 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs 44 ‐ (6) (2) (11) ‐ (6) (5) 21 ‐ (11) (23) Net income group share 113 90 216 Average exchange rate : 1.00 € = £ 0.7753 0.6748 0.6845 Gross revenues decreased by €488 million (-20%) to €1,900 million. On a comparable basis, gross revenues decreased by €205 million (-9%): − Investment & Savings (81% of gross revenues): - Insurance Premiums (67% of gross revenues) decreased by 4% primarily due to lower volumes of Onshore Bond business. Fees on Investment products (14% of gross revenues) decreased by 5%, primarily due to lower Offshore Bond premiums following large volumes of cash sales in 2007, partially offset by higher Group Pension new business volumes. − Life Insurance Premiums (17% of gross revenues) decreased by 27% due to lower volumes of Creditor Insurance single premiums partially offset by higher AXA Protection Account volumes. − Other revenues (2% of gross revenues) increased by 38% as a result of growth in distribution revenues. APE decreased by €127 million (-16%) to €692 million. On a comparable basis, APE decreased by €24 million (-3%). This was primarily due to: − Decrease in savings and investment volumes of €52 million (-18%) due to the impact of changes in Capital Gains Tax and Inheritance Tax legislation on Onshore and Offshore Bond volumes. − Decrease in Individual and Executive Pensions of €31 million (-13%) due to increased market − − competition. Increase in Group Pension volumes of €47 million (+23%) predominantly due to a large single premium of €32 million. Increase in Life Risk products volumes of €8 million (+21%) reflecting the strengthening of the AXA Protection brand in the market, in particular with the IFA community. Page 23 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Investment margin increased by €11 million (+9%) to €131 million. On a constant exchange rate basis, investment margin increased by €30 million (+25%). This was notably due to higher investment income benefiting from higher yield as well as increase in Shareholders’ participation in higher With Profit bonuses rates (annual and Terminal bonuses). Fees & revenues increased by €30 million (+8%) to €403 million. On a constant exchange rate basis, fees & revenues increased by €90 million (+24%) benefiting from a €35 million positive impact of change in accounting treatment offset in the expense margin. Excluding this impact, fees and revenues increased by €55 million mainly as a result of higher Fees on account balances of €18 million largely due to positive net new money into unit linked funds and increased establishment charges on regular premium Pensions business, an increase in distribution revenues of €13 million reflecting 38% growth in Thinc Group and the non recurrence of a 2007 €10 million negative adjustment in unit-linked balance. Net technical margin fell by €51 million (-80%) to €13 million. On a constant exchange rate basis, net technical margin decreased by €49 million (-77%) due to €18 million non-recurrence of favorable provision movements in 2007 as well as an additional €21 million provisions for potential policyholder compensation payments in Traditional Life business. Expenses increased by €47 million (+11%) to €-458 million. On a constant exchange rate basis, expenses increased by €115 million (+28%) notably due to the change in accounting treatment (€35 million offset in Fees & Revenues). Excluding this impact, the expenses increased by €80 million mainly due to an increase in management expenses of €55 million, resulting from an increase in strategic initiatives including the wealth management wrap platform and Architas investment sub-advisory platform. In addition, expenses increased €11 million due to expansion of the Life distribution business (Thinc Group). Amortization of VBI decreased by €1 million (-5%) to €-22 million. On a constant exchange rate basis, amortization of VBI increased by €2 million (+10%) mainly due to changes made in respect of increased surrender rates on With Profits business. The Underlying cost income ratio increased by 9.9 points to 87.8% as increased expenses (in particular due to the phasing of project spend) were only partially offset by growth in gross margin. Income tax benefits increased by €13 million (+102%) to €26 million. On a constant exchange rate basis, income tax benefits increased by €17 million, mainly due to lower taxable income. As the result of the above, underlying earnings decreased by €44 million (-32%) to €92 million. On a constant exchange rate basis, underlying earnings decreased by €30 million (-22%). Adjusted earnings decreased by €36 million (-32%) to €76 million. On a constant exchange rate basis, adjusted earnings decreased by €25 million (-22%), largely driven by the underlying earnings evolution as a €12 million impairment of equity holdings in 2008 was offset by the non-recurrence of €13 million realised losses in 2007. Net income increased by €23 million (+25%) to €113 million. On a constant exchange rate basis, net income increased by €40 million (+44%). In addition to the changes in adjusted earnings, net income included a €47 million increase in undiscounted tax adjustment on unrealised gains attributable to policyholders in unit-linked life funds4. 4 The deferred policyholder tax on unrealized gains is undiscounted when provided on Life unit linked assets and discounted when provided on unit linked liabilities. The IFRS restatement between discounted deferred tax provision and undiscounted amount flows through net income. Page 24 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – Japan (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 2,354 2,663 5,116 APE (group share) 253 308 567 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 1 514 43 (299) (40) 24 502 80 (317) (74) 3 992 135 (641) (76) Underlying operating earnings before tax 219 215 413 Income tax expenses / benefits Minority interests (85) (2) (79) (3) (154) (5) Underlying earnings group share 132 133 254 Net capital gains or losses attributable to shareholders net of income tax 24 80 65 Adjusted earnings group share 157 212 319 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (183) ‐ ‐ (2) (23) ‐ ‐ (0) (96) ‐ ‐ (4) Net income group share (28) 188 219 Average exchange rate : 1.00 € = Yen 160.772 154.164 158.255 Gross Revenues decreased by €309 million (-12%) to €2,354 million. On a comparable basis, and excluding group pension transfers (€12 million versus €27 million last year), revenues decreased by €193 million (-7%) to €2,343 million, driven by: − Life (43% of gross revenues): revenues decreased by 7% (€-77 million) to €1,010 million mainly due to €-45 million lower revenues from lower margin products not actively promoted (Endowment, Whole Life and Group) and €-23 million lower Term products revenues due to a regulator review of certain Term products’ tax deductibility; Investment & Savings (31% of gross revenues): revenues decreased by -11% (€-89 million) to €693 million driven by lower variable annuity sales due to heavier administrative constraints and turbulent market conditions, despite the contribution of Yen VA with secondary guarantees launched in 2Q07; − − Health (26% of gross revenues): revenues decreased by 4% (€-27 million) to €639 million. Excluding 1Q07 old Medical Whole Life conversion impact, revenues were up €+57 million on Medical Whole Life & Medical Rider. APE decreased by €54 million (-18%) to €253 million. On a comparable basis, APE decreased by €45 million (-15%), mainly driven by individual business as a result of a continued focus on more profitable lines to offset the negative €- 59 million volume effect following tax uncertainties on certain Term product sales. Consequently, the higher profitability margin "Long Term Term Product" benefited from a sales push, which was combined with higher sales of Yen VA with secondary guarantees. Medical products sales continued to be strong at €122 million. Investment Margin decreased by €23 million (-95%) to €1 million with lower investment income. Fees & revenues increased by €12 million (+2%) to €514 million. On a constant exchange rate basis, fees & revenues increased by €34 million (+7%), due to an improved business mix, especially on medical products. Net technical margin fell by €36 million (-46%) to €43 million. On a constant exchange rate basis, net technical margin decreased by €35 million (-43%): Page 25 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report − Surrender margin decreased by €12 million to €3 million mainly driven by the lower surrender margin on individual annuity, medical products and term products partly offset by the non recurrence of 2007 old Medical Whole Life upgrade program. − Mortality margin decreased by €20 million (-31%) to €42 million mainly due to less favorable experience. Expenses decreased by €18 million (-6%) to €-299 million. On a constant exchange rate basis, expenses decreased by €5 million (-2%) driven by; − €+17 million lower commission following lower new business sales; and − €-2 million higher non-commission expenses following increases in payroll and IT costs; − €-10 million lower net DAC capitalisation. Amortization of VBI decreased by €33 million (-44%) on a constant exchange rate basis to €-40 million, driven by the combination of (i) the non recurring impact of old Medical Whole Life upgrade program, (ii) the natural decline in VBI balance and (iii) reduced investment income. The Underlying cost income ratio improved by 3.8 points to 60.7% as lower expenses and VBI amortization more than offset the impact of lower technical and investment margins. Income tax expenses increased by €9 million (+11%) on a constant exchange rate basis to €-85 million in line with higher taxable results. Underlying earnings were stable at €132 million. On a constant exchange rate basis, underlying earnings increased by €5 million (+4%). Adjusted earnings decreased by €56 million (-26%) to €157 million. On a constant exchange rate basis, adjusted earnings decreased by €49 million (-23%) mainly due to (i) lower net capital gains attributable to shareholders as a result of higher interest credited to policyholders (€-84 million) partially offset by (ii) related tax and DAC/VBI reactivity (€+29 million) and (iii) improved underlying earnings. Net income decreased by €217 million to €-28 million. On a constant exchange rate basis, net income decreased by €218 million reflecting €-51 million lower adjusted earnings combined with negative change in fair value of (i) freestanding derivatives (mainly CDS) due to widening of credit spread (€-153 million), (ii) US corporate bonds (currency risk hedged) following deterioration of credit market conditions (€-61 million) and (iii) Hedge funds portfolio (€-50 million), partly offset by the related tax and DAC/VBI reactivity ( €+109 million). Page 26 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – Germany (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 2,955 2,986 6,201 APE (group share) 236 207 457 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 53 101 49 (69) (6) 67 119 43 (46) (9) 139 229 112 (136) (23) Underlying operating earnings before tax 129 174 321 Income tax expenses / benefits Minority interests (61) (1) (99) (3) (134) (4) Underlying earnings group share 67 73 182 Net capital gains or losses attributable to shareholders net of income tax (14) 2 (1) Adjusted earnings group share 53 75 182 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (9) ‐ ‐ (1) 4 ‐ ‐ (0) 3 ‐ ‐ (6) Net income group share 43 78 179 Gross revenues decreased by €31 million (-1%) to €2,955 million mainly due to lower traditional endowment business in line with market trend (shift from traditional Life products to Investment & Savings products), partly offset by Investment & Savings unit-linked business especially from “TwinStar” (Variable Annuities with secondary guarantee) product range. APE increased by €29 million (+14%) to €236 million. On a comparable basis, APE increased by €22 million (+10%), mainly due to Riester step-up effect (increase in premiums due to higher fiscal incentive for policyholders in 2008 in Riester retirement products) of €+30 million, as well as the strong sales in individual Investment & Savings products notably from the unit-linked “TwinStar” product range (€+18 million excluding Riester step-up effect), which were partly offset by a decrease in the health business due to the 2007 Reform (waiting period for salaried employees to enter Private Health Insurance extended to three years). Investment margin decreased by €15 million (-22%) to €53 million as higher income from fixed maturities was offset by lower dividends from equities as well as higher policyholder participation. Fees & revenues decreased by €18 million (-15%) to €101 million mainly due to the higher policyholder participation partly compensated by higher fees and revenues from TwinStar business. Net technical margin increased by €7 million (+16%) to €49 million. The non-recurrence of 2007 very strong disability Life result and higher Health claims paid in 2008 were offset by lower policyholder participation. Expenses increased by €22 million (+48%) to €-69 million mainly due to higher DAC amortization and higher administrative expenses resulting from higher project costs. VBI amortization decreased by €3 million (-34%) to €-6 million. Page 27 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Underlying cost income ratio increased by 12.4 points to 36.6%. Income tax expenses decreased by €37 million (-38%) to €-61 million driven by lower pre-tax income and the positive impact of the lower tax rate in 2008 compared to prior year (32% compared to 40%). Underlying earnings decreased by €6 million (-8%) to €67 million mainly due to the lower operating earnings partly offset by the lower taxes. Adjusted earnings decreased by €22 million (-29%) to €53 million due to higher impairments and realized losses on equities and fixed maturities. Net income decreased by €35 million (-45%) to €43 million mainly driven by adjusted earnings evolution and €-10 million lower change in fair value of financial assets. Page 28 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – Switzerland (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 3,281 3,240 4,133 APE (group share) 193 147 222 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 45 91 66 (71) (10) 23 117 71 (84) (17) 61 212 137 (167) (29) Underlying operating earnings before tax 121 110 214 Income tax expenses / benefits Minority interests (28) ‐ (28) ‐ (49) ‐ Underlying earnings group share 93 82 165 Net capital gains or losses attributable to shareholders net of income tax (63) (1) (15) Adjusted earnings group share 30 81 149 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (49) ‐ (2) (2) 18 ‐ (2) (1) (10) 7 (5) (7) Net income group share (24) 96 135 Average exchange rate : 1.00 € = Swiss Franc 1.6059 1.6313 1.6420 Gross revenues increased by €41 million (+1%) to €3,281 million. On a comparable basis, gross revenues increased by €124 million (+4%) to €3,274 million: − Group Life (90% of gross revenues) increased by €145 million or +5% to €2,951 million mainly due to strong increase in single premiums (+8%). Regular premiums kept on growing (+3%) driven by strong new business in the context of a still very competitive market. Individual Life (10% of gross revenues) decreased by €22 million or -6% to €330 million mainly driven by the peak of maturities of non unit-linked products (€-12 million or -4% to €279 million) as a consequence of the stamp duty introduced in 1998 and the drop in unit-linked single premiums (€-14 million) in a difficult financial market environment despite the launch of Twinstar Invest in 1Q08. Regular premiums on unit-linked products increased by €3 million mainly due to increased sales of AXA Comfort. − APE increased by €45 million (+31%) to €193 million. On a comparable basis5, APE increased by €29 million (+18%): − Group Life increased by €23 million (+17%) to €161 million resulting from successful annual negotiations (€+52 million, including vested benefit premiums) and voluntary additional pension scheme premiums (€+3 million) partly offset by the non repeat of 2007 increase in coinsurance business (€-31 million). − Individual Life improved by €5 million (+20%) to €32 million mainly reflecting the good development of unit-linked regular premiums (€+3 million) driven by AXA Comfort and the positive impact of mutual fund sales (€+1 million) launched late in 2007. 5 Change in recognition in APE of voluntary additional pension scheme premiums. Page 29 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Investment margin increased by €23 million (+98%) to €45 million. On a constant exchange rate basis, investment margin increased by €22 million (+95%) mainly due to lower policyholder bonus allocation and slightly higher investment income. Fees & revenues decreased by €27 million (-23%) to €91 million. On a constant exchange rate basis, fees & revenues decreased by €28 million (-24%) mainly due to Group Life (€-24 million) driven by higher policyholder bonus allocation and lower loadings on premiums due to tariff reduction. Net technical margin deteriorated by €5 million (-7%) to €66 million. On a constant exchange rate basis, net technical margin deteriorated by €6 million (-8%) mainly due to Individual Life (€-15 million or 35%), driven by the impact of strengthening on old age reserve (€-20 million), partly offset by Group Life higher technical margin (€+9 million or +29%) as consequence of good development in disability margin. Expenses decreased by €12 million (-14%) to €-71 million. On a constant exchange rate basis, expenses were down €- 13 million (-16%) mainly driven by the one-time impact of the change in own pension scheme (€15 million) partly offset by higher commissions resulting from a change to an independent sales organization for tied agents from January 1, 2008 and slightly increased commission rates for Group Life business. Amortization of VBI decreased by €8 million (-44%) to €-10 million. On a constant exchange rate basis, amortization of VBI decreased by €8 million (-45%) mainly attributable to Individual Life thanks to a positive unlocking effect of €5 million. The Underlying cost income ratio improved by 7.7 points to 40.1%. Income tax expenses remained stable at €-28 million. Underlying earnings increased by €11 million (+14%) to €93 million. On a constant exchange rate basis, underlying earnings increased by €10 million (+12%). Adjusted earnings decreased by €51 million (-63%) to €30 million. On a constant exchange rate basis, adjusted earnings decreased by €51 million (-64%), resulting from higher capital losses and impairments (€-61 million) mainly on equities partly offset by the increase in underlying earnings (€+10 million). Net income decreased by €120 million to €-24 million. On a constant exchange rate basis, net income decreased by €119 million, due to lower adjusted earnings (€-51 million), lower change in fair value of assets under fair value option (€-24 million) due to convertible bonds (€-10 million) and equities (€-14 million), and lower foreign currency impact and related derivatives (€-43 million). Page 30 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – Belgium (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 1,602 1,629 3,075 APE (group share) 154 183 340 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 100 76 37 (122) (2) 84 77 33 (124) (1) 143 162 57 (252) (3) Underlying operating earnings before tax 89 69 107 Income tax expenses / benefits Minority interests (5) (0) 3 (0) (17) (0) Underlying earnings group share 84 72 90 Net capital gains or losses attributable to shareholders net of income tax (32) 188 206 Adjusted earnings group share 52 260 297 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (133) ‐ (1) (4) (20) ‐ ‐ (2) (93) ‐ ‐ (13) Net income group share (85) 237 191 Gross revenues decreased by €27 million (-2%) to €1,602 million. On a comparable basis, gross revenues decreased by €26 million (-2%) to €1,600 million with a 6% fall in Individual life offset by a 19% increase in Group Life: − Individual Life and Savings revenues (79% of gross revenues) decreased by 6% to €1,264 million driven by unit- linked products (-36% to €136 million) due to the lower performance of the structured products. The non unit- linked products’revenues remained stable at €995 million. Traditional life products revenues fell by 2% to €132 million. − Group Life and Savings revenues (21% of gross revenues) increased by 19% to €338 million due to a non recurring premium of €50 million. APE decreased by €29 million (-16%) to €154 million due to a decrease in Individual life sales (-19% to €136 million) for both unit-linked and non unit-linked products partly offset by higher sales in Group Life (+23% to €18 million). Investment margin increased by €16 million (+19%) to €100 million due to the rise in underlying investment income driven by fixed maturities, and to a 10 bps decrease of the average credited rate, including policyholder bonus. Fees & revenues decreased by €1 million (-1%) to €76 million. Net technical margin rose by €4 million (+11%) to €37 million mainly due to a lower mortality policyholder bonus and the underlying result of the hedging program on Twinstar. Expenses decreased by €1 million (-1%) to €-122 million due to the drop of overhead costs (€+3 million) partly offset by the rise of the override commissions. Amortization of VBI increased by €1 million (+47%) to €-2 million. The Underlying cost income ratio improved by 5.9 points to 58.4% due to the rise of the underlying investment and technical margins. Page 31 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Income tax expenses increased by €8 million (-269%) to €-5 million. Underlying earnings increased by €11 million (+16%) to €84 million as a result of higher underlying investment margin (€+16 million) and technical margin (€+4 million) partly offset by higher taxes (€-8 million). Adjusted earnings decreased by €208 million (-80%) to €52 million mainly driven by a a strong increase of impairments on equities related to segregated funds as a consequence of the poor performance of stock market, partly offset by the rise in underlying earnings. Net income decreased by €323 million (-136%) to €-85 million mainly due to the decrease of the adjusted earnings (€- 208 million), and to unfavorable change in fair value on fixed income mutual funds under fair value option due to credit spread increase (€-99 million). Winterthur integration costs increased by €2 million to €-4 million. Page 32 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings operations – Mediterranean Region (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 2,794 937 1,924 APE (group share) 204 84 206 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI 92 120 25 (145) (12) 47 82 32 (97) (5) 91 172 52 (205) (9) Underlying operating earnings before tax 80 59 100 Income tax expenses / benefits Minority interests (22) (16) (16) (3) (21) (6) Underlying earnings group share 43 40 73 Net capital gains or losses attributable to shareholders net of income tax 10 8 19 Adjusted earnings group share 53 49 92 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (11) ‐ (0) (2) 0 ‐ (0) (4) (0) ‐ (0) (8) Net income group share 39 45 84 The scope of the following analysis includes Italy (AXA MPS with a P&L fully consolidated as of 01/01/2008 and an opening balance sheet as of 31/12/2007), Spain, Portugal, Greece, Turkey and Morocco. For volume indicators, the comparable basis reflects this scope, for both 2007 and 2008. Seguros ING is out of the scope for HY closing as it will be consolidated in the second half of 2008. Gross revenues increased by €1,856 million (+198%) to €2,794 million. On a comparable basis, gross revenues increased by €194 million (+7%) driven by individual lines (€+184 million) mainly investment & savings following the increase in unit-linked sales (€+272 million) driven by new products (including Accumulator €+132 million) launched in Italy and Greece. This was partly offset by lower performance of non unit-linked, down €-92 million (- 4%), notably with (i) AXA MPS lower sales, as a result of the strategy to focus on higher margin unit-linked products, (ii) lower sales of index-linked and lower activity with institutional clients in AXA Italy, and despite the good performance of traditional savings products in Spain. APE increased by €120 million (+143%) to €204 million. On a comparable basis, APE decreased by €3 million (-2%) notably due to (i) lower volumes from AXA MPS (down -13%), switching production from less profitable traditional products to more innovative unit-linked products (Accumulator and Double Engine) in a context of declining market, and (ii) lower sales of index-linked and lower activity with institutional clients in AXA Italy. This was partly offset by stronger sales in traditional savings products in Spain. Investment margin increased by €45 million (+97%) to €92 million of which €51 million from AXA MPS. Excluding AXA MPS, investment margin decreased by €-6 million (-12%) given slightly higher policyholder bonus rate driven by market competition. Fees & revenues increased by €37 million (+45%) to €120 million mostly due to AXA MPS scope entry (€34 million). Net technical margin fell by €7 million (-21%) to €25 million of which €3 million from AXA MPS. Excluding AXA MPS, net technical margin decreased by €-10 million, mainly driven by a less favorable mortality experience (€-8 million) notably on the Group life segment. Page 33 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Expenses increased by €-48 million (+49%) to €-145 million of which €-48 million from AXA MPS. Excluding AXA MPS, expenses were flat. Amortization of VBI increased by €7 million (+143%) to €-12 million, of which €-8 million from AXA MPS. The Underlying cost income ratio increased by 2.8 points to 66.2%. Excluding AXA MPS, the underlying cost income ratio increased by 4.1 points (to 67.6%). The cost income ratio in AXA MPS amounted to 63.8%. Income tax expenses increased by €5 million (+34%) to €-22 million of which €-8 million from AXA MPS. Excluding AXA MPS, income tax expenses decreased by €2 million (down to €-14 million), due to a lower pre-tax earnings and lower tax rates in Spain, Italy and Morocco. Minority Interests increased by €13 million (+38%) to €-16 million of which €12 million from AXA MPS. Underlying earnings increased by €3 million (+7%) to €43 million of which €12 million from AXA MPS. Adjusted earnings increased by €4 million (+9%) to €53 million of which €9 million from AXA MPS. Excluding AXA MPS, adjusted earnings decreased by €4 million (-9%) to €44 million driven by lower underlying earnings (€-9 million) partly offset by higher net capital gains (€+5 million). Net income decreased by €6 million (-13%) to €39 million of which €8 million from AXA MPS. Excluding AXA MPS, net income decreased by €-14 million (-31%) driven by lower adjusted earnings and the change in fair value on assets under fair value option. Page 34 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 Australia / New Zealand 801 678 1,384 Hong Kong 533 616 1,257 Central and Eastern Europe 230 202 423 Other countries 221 237 443 Canada 55 59 122 Luxembourg 32 30 64 South East Asia (a) 134 148 257 TOTAL 1,785 1,733 3,507 Intercompany transactions (1) (0) ‐ Contribution to consolidated gross revenues 1,784 1,733 3,507 (a) Includes Indonesia and Singapore. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 Australia / New Zealand 48 47 99 Hong Kong 64 59 126 Central and Eastern Europe 6 2 (0) Other countries 11 5 12 Canada 4 2 2 Luxembourg 2 2 4 South East Asia and China (a) 4 0 5 UNDERLYING EARNINGS 128 112 237 Net realized capital gains or losses attributable to shareholders (65) 38 83 ADJUSTED EARNINGS 63 150 319 Profit or loss on financial assets (under Fair Value option) & derivatives (6) 3 (10) Exceptional operations (including discontinued operations) ‐ 54 (0) Goodwill and related intangibles impacts (1) (1) (2) Integration costs ‐ (1) (3) NET INCOME 56 205 304 (a) South East Asia includes Indonesia, Thailand, Philippines and Singapore. Page 35 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report AUSTRALIA AND NEW ZEALAND 6 Gross revenues increased by €123 million (+18%) to €801 million. On a comparable basis, gross revenues increased by €128 million (+19%): − Gross written premiums and fees (79% of gross revenues) increased by €126 million (+26% on a comparable basis) to €629 million, mainly driven by significant wholesale single premiums in wealth management guaranteed savings products (within the life company) reflecting the recent investors’ trend to seek more conservative investments given market volatility; − Revenues from mutual fund and advice business (21% of gross revenues) decreased by €3 million (-1%) to €165million due to a decline in funds under management levels resulting from market volatility. APE decreased by €53 million (-20%) to €212 million. On a comparable basis, APE decreased by €55 million (-21%) mainly due to a drop in Mutual Fund net sales and Alliance Bernstein Joint Venture sales following current negative market conditions and the favorable legislation change in 2Q07 (peak in sales last year). These negative impacts were offset by the inclusion of some significant wholesale premiums (€+11 million) in 1H08 from institutional clients seeking more conservative investments, and by Accumulator product sales. Underlying earnings increased by 1% to €48 million. On a constant exchange rate basis, underlying earnings increased by €1 million (+2%). On a 100% ownership basis, the evolution of underlying earnings was as follows: − Investment margin decreased by €8 million (-59%) to €6 million. On a constant exchange rate basis, investment margin decreased by €8 million (-59%) due to lower returns on shareholders assets. − Fees & revenues were in line with last year at €354 million. On a constant exchange rate basis, fees & revenues increased by €2 million (+1%) due to higher revenues in financial protection, partially offset by lower fees from lower average funds under management and lower sales in Wealth Management, following changes in Superannuation legislation in 2007 and due to 2008 investment market volatility. − Net technical margin rose by €35 million from €-7 million to €28 million. On a constant exchange rate basis, net technical margin increased by €35 million driven by one-off actuarial refinements mainly in individual income protection liabilities, partially offset by less favorable claims experience. − Expenses increased by €4 million (+1%) to €-264 million. On a constant exchange rate basis, expenses increased by €5 million (+2%) mainly due to higher commissions on individual and Group life products, partially offset by higher deferred acquisition costs in income protection. − Amortization of VBI increased by €4 million (+93%) to €-9 million. On a constant exchange rate basis, amortization of VBI increased by €4 million (+94%) due to lower assets under management. Adjusted earnings decreased by €76 million (-114%) to €-9 million. On a constant exchange rate basis, adjusted earnings decreased by €76 million (-114%) due to higher realized losses and impairments driven by the recent market losses. Net income decreased by €82 million (-118%) to €-12 million. On a constant exchange rate basis, net income decreased by €82 million (-118%) driven by adjusted earnings and by assets under fair value option. HONG-KONG7 Gross revenues decreased by €84 million (-14%) to €533 million. On a comparable basis, gross revenues decreased by €6 million (-1%) mainly due to an increase in Life product sales (€21 million) and in Group Insurance products (€6 million), partly offset by a decrease in total investment & savings products (€-36 million) given market conditions. 6 AXA interest in AXA Asia Pacific Group is 53.91% broken down into 53.15% direct interest holding and an additional 0.77% owned by the AAPH Executive plan trust 7 AXA interest in AXA Asia Pacific Group is 53.91% broken down into 53.15% direct interest holding and an additional 0.77% owned by the AAPH Executive plan trust Page 36 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report APE decreased by €13 million (-19%) to €56 million. On a comparable basis, APE decreased by €6 million (-8%), due to a decrease in investment & savings products (€-7 million), mainly from lower single premium unit‐linked products, as a result of uncertain investment market conditions. Underlying earnings increased by €5 million (+8%) to €64 million. On a constant exchange rate basis, underlying earnings increased by €14 million (+23%). On a 100% ownership basis, the increase was mainly explained by (i) an increase of the investment margin (€8 million) as a result of higher remuneration of the shareholder’s assets, (ii) an increase of the net technical margin (€7 million), notably with the impact of the conversion of high guaranteed National Life products into other low guaranteed products and of a better claims experience, and (iii) a decrease in expenses (€+5 million) due to lower DAC net of commissions. Adjusted earnings decreased by €12 million (-17%) to €61 million. On a constant exchange rate basis, adjusted earnings decreased by €3 million (-5%) driven by higher impairments as a result of the adverse investment market. Net income decreased by €12 million (-16%) to €60 million. On a constant exchange rate basis, net income decreased by €3 million (-4%), in line with adjusted earnings. CENTRAL AND EASTERN EUROPE Gross revenues increased by €28 million (+14%) to €230 million. On a comparable basis, gross revenues increased by €10 million (+5%) mainly driven by Poland and Czech Republic. Including sales from investment contracts and off balance sheet businesses, total revenues increased by €298 million (+42%) to €847 million mainly driven (i) by Poland (€ 450 million; +90%), benefiting from a new appetite on short term tax wrapper product (€165 million) and (ii) by Czech Republic (€183 million, +24%) benefiting from Mutual funds sales (€32 million, +1,042%) launched in the second quarter of 2007. APE increased by €32 million (+72%) to €76 million. On a comparable basis, APE increased by €25 million (+57%) driven by Life & Savings business (€16 million), benefiting, despite the financial crisis, from the strong unit-linked sales (€26 million, +56%) and the positive contribution of pension funds business (€34 million, +12%). Main countries contributing to the growth were Poland (€45 million, +127%) and Czech Republic (€23 million, +33%). Underlying earnings increased by €4 million to €6 million, mainly due to an increase in fees and revenues (€+10 million), partly offset by higher administrative expenses (€-5 million) to develop distribution networks. Overall, the underlying cost income improved by 10.2 points to 83.1%. Adjusted earnings decreased by €1 million to €3 million, as higher underlying earnings and higher capital gains (€3 million) were more than offset by impairment on equities (€-8 million) mainly in Czech Republic. Net income was stable at €2 million as lower adjusted earnings were offset by lower Winterthur integration costs. CANADA Gross revenues decreased by €4 million (-6%) to €55 million. On a comparable basis, gross revenues decreased by €2 million (-4%) mainly due to lower revenues on mutual funds (€-4 million), following the sale of AXA Services Financiers in 2007, partly offset by growth in Group health (€+2 million). Underlying earnings increased by €2 million on a constant exchange rate basis to €4 million mainly due to higher investment margin and lower expenses. Adjusted earnings and net income remained stable on a constant exchange rate basis at €4 million, including €1 million impairments. Page 37 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report SOUTH EAST ASIA AND CHINA APE of South East Asia 8 entities increased by €11 million (+37%) on a comparable basis9 to €36 million, reflecting the growth in agency sales force numbers and improvements in productivity. Underlying earnings and adjusted earnings increased by €5 million on a constant exchange rate basis to €4 million. Excluding China, they increased by €7 million as a consequence of higher volume, product repricing, better claim experience and a reduction in expenses. Net income increased by €1 million (+66%) on a constant exchange rate basis to €2 million. Excluding China, net income increased by €3 million in line with underlying and adjusted earnings evolution. 8 The scope of the following analysis includes: Indonesia, Singapore, Thailand, Philippines and China. Thailand, Philippines, China and AXA Mandiri in Indonesia are consolidated with the equity method. China was not consolidated in HY 2007 but starting end of 2007. 9 All SEA entities reported APE for the first time end of 2007. Page 38 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment (a) (in Euro million) HY 2008 HY 2007 FY 2007 Gross written premiums 14,589 14,328 25,101 Fees and revenues from investment contracts without participating feature ‐ ‐ ‐ Revenues from insurance activities 14,589 14,328 25,101 Net revenues from banking activities ‐ ‐ ‐ Revenues from other activities 52 36 79 TOTAL REVENUES 14,641 14,363 25,180 Change in unearned premium reserves net of unearned revenues and fees (2,132) (2,260) (362) Net investment result excluding financing expenses 1,161 1,113 2,057 Technical charges relating to insurance activities (8,192) (8,266) (16,702) Net result of reinsurance ceded (360) (263) (599) Bank operating expenses ‐ ‐ ‐ Insurance acquisition expenses (2,239) (2,202) (4,634) Amortization of value of purchased life business in force ‐ ‐ ‐ Administrative expenses (1,266) (1,172) (2,274) Valuation allowances on tangible assets (1) 3 4 Change in value of goodwill ‐ ‐ ‐ Other 0 (10) (24) Other operating income and expenses (12,058) (11,910) (24,229) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 1,613 1,307 2,647 Net income from investments in affiliates and associates 3 6 5 Financing expenses (5) (5) (13) OPERATING INCOME GROSS OF TAX EXPENSE 1,610 1,308 2,639 Income tax expense (452) (324) (726) Minority interests in income or loss (25) (21) (50) UNDERLYING EARNINGS 1,133 963 1,863 Net realized capital gains or losses attributable to shareholders 136 296 562 ADJUSTED EARNINGS 1,269 1,259 2,425 Profit or loss on financial assets (under fair value option) & derivatives (192) (27) 4 Exceptional operations (including discontinued operations) 2 17 (2) Goodwill and other related intangible impacts (27) (26) (67) Integration costs (24) (25) (142) NET INCOME 1,028 1,198 2,218 (a) Before intercompany transactions Page 39 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 France 3,054 2,945 5,377 United Kingdom & Ireland 2,415 2,758 5,111 Germany 2,218 2,227 3,531 Belgium 1,165 1,174 2,130 Mediterranean Region (a) 3,004 2,719 5,298 Switzerland 1,811 1,800 1,981 Other countries 974 740 1,752 TOTAL 14,641 14,363 25,180 Intercompany transactions (122) (169) (164) Contribution to consolidated gross revenues 14,519 14,195 25,016 (a) Mediterranean Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Gulf Region. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 France 254 237 426 United Kingdom & Ireland 174 129 262 Germany 173 158 325 Belgium 107 108 216 Mediterranean Region (a) 243 191 362 Switzerland 131 73 125 Other countries 52 67 147 UNDERLYING EARNINGS 1,133 963 1,863 Net realized capital gains or losses attributable to shareholders 136 296 562 ADJUSTED EARNINGS 1,269 1,259 2,425 Profit or loss on financial assets (under Fair Value option) & derivatives (192) (27) 4 Exceptional operations (including discontinued operations) 2 18 (2) Goodwill and related intangibles impacts (27) (26) (67) Integration costs (24) (25) (142) NET INCOME 1,028 1,198 2,218 (a) Mediterranean Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Gulf Region. Page 40 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations – France (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 3,054 2,945 5,377 Current accident year loss ratio (net) All accident year loss ratio (net) 76.8% 71.9% 76.1% 73.0% 74.3% 72.7% Net technical result 756 705 1,467 Expense ratio Net investment result 25.0% 307 24.2% 293 24.2% 495 Underlying operating earnings before tax 390 367 657 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (136) ‐ (0) (129) ‐ (0) (230) ‐ (0) Underlying earnings group share 254 237 426 Net capital gains or losses attributable to shareholders net of income tax 24 32 93 Adjusted earnings group share 278 269 519 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (91) (4) ‐ ‐ (14) ‐ ‐ ‐ 34 ‐ ‐ ‐ Net income group share 184 255 553 Gross revenues increased by €109 million (+4%) to €3,054 million. On a comparable basis, gross revenues increased by €86 million or +3%: − Personal lines (59% of gross revenues) increased by 3% to €1,788 million mainly reflecting higher net inflows in Motor (+74 k new contracts) in a competitive market and positive net inflows in Household (+26 k) combined with an increase in the average premium. − Commercial lines (41% of gross revenues) increased by 3% to €1,233 million driven by development in Construction (+13%). In competitive markets, the increase in Property and Liability reached respectively +2% and +3%. Net Technical Result increased by €51 million (+7%) to €756 million: − Current accident year loss ratio increased by 0.7 point to 76.8% reflecting (i) the shift towards longer tail business (Construction and Liability) leading to higher claims handling costs and (ii) an increase in Personal Motor current accident year loss ratio due to pressures on tariffs while average claim costs slightly increased. − Prior accident year net technical result improved by €51 million to €132 million reflecting a higher prior year positive reserves development (Motor, Property, Construction) despite the strengthening of the reserves. As a consequence, the all accident year loss ratio improved by 1.1 points to 71.9%. Expense ratio rose by 0.8 point to 25.0% due to (i) change in business mix towards products with higher commission rate, (ii) reclassification of charges from technical result to commission expenses on Financial Guarantees contracts and (iii) Nationale Suisse Assurance integration costs. As a result, the combined ratio improved by 0.3 point to 96.9%. Net investment result increased by €14 million (+5%) to €307 million mainly driven by higher asset yield resulting from increased Private Equity fund dividends and higher bonds revenues. Page 41 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Income tax expenses were up €+6 million (+5%) to €-136 million in line with increased taxable operating income. Underlying earnings increased by €17 million (+7%) to €254 million as the result of an improved combined ratio and the rise in the net investment result. Adjusted earnings improved by €9 million (+4%) to €278 million reflecting the underlying earning increase and lower net realized gains. Net income decreased by €71 million (-28%) to €184 million despite the positive impact of adjusted earnings, driven mostly by a €-103 million unfavorable change in fair value, mainly on mutual funds exposed to credit, partly offset by a €35 million gain corresponding to the cancellation of deferred tax liabilities on assets under fair value option overestimated in previous years. Page 42 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 2,415 2,758 5,111 Current accident year loss ratio (net) All accident year loss ratio (net) 68.0% 62.5% 72.7% 68.3% 71.8% 66.4% Net technical result 856 780 1,663 Expense ratio Net investment result 35.7% 174 34.0% 185 35.0% 380 Underlying operating earnings before tax 216 127 311 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (42) ‐ (0) 1 ‐ (0) (49) ‐ (1) Underlying earnings group share 174 129 262 Net capital gains or losses attributable to shareholders net of income tax (55) 26 71 Adjusted earnings group share 118 154 333 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (4) ‐ (10) ‐ 0 ‐ (4) ‐ (5) ‐ (17) (4) Net income group share 105 150 307 Average exchange rate : 1.00 € = £ 0.7753 0.6748 0.6845 Gross revenues decreased by €344 million (-12%) to €2,415 million. On a comparable basis, gross revenues were down €-11 million (0%): − Personal lines (50% of gross revenues) were down -1% to €1,217 million. Motor was down -5% due to increased competition in intermediated business despite further growth in new business written through the internet platform Swiftcover and competition in Ireland driving down average premiums and lowering renewals. Non Motor was up +1% driven by +4% volume-related growth in Property and +3% in Health attributable to higher average premiums following rating increases in Private Medical Insurance, partly offset by a 9% reduction in Travel. − Commercial lines (47% of gross revenues) were down -2% to €1,144 million. Motor was broadly stable. Non Motor was down -2% reflecting a deterioration across most business lines due to difficult market conditions partly offset by volume growth in Health. − Other lines (2% of gross revenues) increased by €21 million to €54 million mainly reflecting growth in distribution business. Net Technical Result increased by €75 million (+10%) to €856 million. On a constant exchange rate basis, net technical result increased by €195 million (+25%): − Current accident year loss ratio decreased by 4.9 points to 68.0%, as a result of the non recurring 2007 adverse weather events, including the January storms (-2.1 points) and June floods (-4.7 points), notably offset by deterioration in Motor reflecting increased injury claims and inflation in third party damage claims in the UK, and the impact of lower average premiums in Ireland. − All accident year loss ratio decreased by 6.0 points to 62.5% reflecting the improvement in current accident year loss ratio combined with €33 million (1.1 point) favorable development in prior years reserves. Expense ratio rose by 1.8 point to 35.7% due to (i) growth in Swiftcover (+0.7 point) including increased marketing spend, (ii) legal fees relating to regulatory reviews (+0.6 point) and (iii) the impact of inflationary increases and higher IT spend (+0.5 point). Page 43 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report As a result, the combined ratio improved by 4.2 points to 98.2%. Net investment result decreased by €11 million (-6%) to €174 million. On a constant exchange rate basis, net investment result increased by €8 million (+4%) as a result of increased average returns (higher bond yields) partially offset by lower asset base following reduction in operational cash-flow due to the funding of claims from 2007 floods. Income tax expenses increased by €43 million to €-42 million. On a constant exchange rate basis, income tax expenses increased by €48 million reflecting the improvement in pre-tax earnings and a €20 million decrease in positive tax one off, offset by the reduction in the UK corporation tax rate. Underlying earnings increased by €45 million (+35%) to €174 million. On a constant exchange rate basis, underlying earnings increased by €65 million (+51%) primarily due to non recurrence of the adverse weather events experienced in half year 2007. Adjusted earnings decreased by €36 million (-23%) to €118 million. On a constant exchange rate basis, adjusted earnings decreased by €24 million (-15%) with the increase in underlying earnings being offset by a €6 million reduction in realized capital gains and an €83 million increase in impairment on equities and to a lower extent on real estate. Net income decreased by €46 million (30%) to €105 million. On a constant exchange rate basis, net income decreased by €35 million (-23%) reflecting adjusted earnings evolution and a €7 million higher customer intangible amortization related to brokers’ acquisition. Page 44 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations – Germany (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 2,218 2,227 3,531 Current accident year loss ratio (net) All accident year loss ratio (net) 76.7% 66.7% 78.9% 71.2% 78.7% 69.0% Net technical result 583 503 1,094 Expense ratio Net investment result 31.3% 201 29.7% 191 29.3% 339 Underlying operating earnings before tax 235 174 401 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (64) 3 (1) (13) 3 (6) (74) 5 (7) Underlying earnings group share 173 158 325 Net capital gains or losses attributable to shareholders net of income tax 72 76 92 Adjusted earnings group share 244 234 416 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (45) ‐ ‐ (6) 2 ‐ ‐ (1) 29 ‐ ‐ (36) Net income group share 194 235 410 Gross revenues decreased by €9 million (0%) to €2,218 million. On a comparable basis, gross revenues decreased by €2 million (0%): − Personal lines (63% of gross revenues) decreased by 1% as a result of contract losses in Motor in the context of market price pressure partly offset by growth in Property mainly due to the packaged product ‘Profischutz’ for professionals as well as tariffs increase. − Commercial lines (31% of gross revenues) decreased by 1% mainly due to price competition in Property. − Other lines (5% of gross revenues) increased by 14% due to growth in Assumed business and in AXA ART following the commercial success of the product Art Plus. Net Technical Result increased by €80 million (+16%) to €583 million: − Current accident year loss ratio decreased by 2.2 points to 76.7% driven by a lower impact of natural events as 1H08 impact of Emma storm amounted to 1.4 points while 1H07 Kyrill storm impact amounted to 3.8 points. − All accident year loss ratio decreased by 4.5 points to 66.7% due to the improved current accident year loss ratio and a positive prior year reserve development. Expense ratio rose by 1.6 points to 31.3% mainly as a result of higher acquisition costs (staff costs and marketing expenses) in order to sustain premium level in a shrinking market, and an insurance tax provision following a tax audit (€7 million). As a result, the combined ratio improved by 2.9 points to 98.0%. Net investment result rose by €10 million (+5%) to €201 million mainly explained by higher income from fixed maturities partly offset by lower dividends from equities. Income tax expenses increased by €51 million to €-64 million due to improved combined ratio and investment income, and the non repeat of the €42 million release of tax provision in 2007 after the positive outcome of a tax audit, partly offset by the lower tax rate in 2008 compared to prior year (32% compared to 40%). Underlying earnings increased by €15 million (+10%) to €173 million mainly driven by the positive development of combined ratio and investment income, partially offset by higher tax expenses. Adjusted earnings increased by €11 million (+5%) to €244 million due to higher underlying earnings partly offset by Page 45 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report lower net capital gains and losses. Net income decreased by €41 million (-18%) to €194 million due to unfavorable change in fair value of financial assets under fair value option, mainly due to increased interest rates and corporate spread widening, and negative impact of foreign exchange exposure, as well as higher Winterthur integration costs. Page 46 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations – Belgium (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 1,165 1,174 2,130 Current accident year loss ratio (net) All accident year loss ratio (net) 79.5% 69.5% 79.6% 68.9% 77.6% 67.5% Net technical result 324 330 693 Expense ratio Net investment result 28.5% 131 29.5% 132 29.8% 235 Underlying operating earnings before tax 151 148 290 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (43) ‐ (0) (39) ‐ (0) (73) ‐ (0) Underlying earnings group share 107 108 216 Net capital gains or losses attributable to shareholders net of income tax 86 79 119 Adjusted earnings group share 194 187 335 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (22) ‐ (0) (9) (4) ‐ ‐ (6) (29) ‐ ‐ (34) Net income group share 161 177 272 Gross revenues decreased by €8 million (-1%) to €1,165 million. On a comparable basis, gross revenues increased by €6 million (+1%) to €1,155 million: − Personal lines revenues (61% of gross revenues) were up +1% driven by +1% increase in non Motor mainly resulting from price increase and lower volume in Property. − Commercial lines revenues (39% of gross revenues) were stable at €446 million for both Motor and non Motor. Net Technical Result decreased by €6 million (-2%) to €324 million: − Current accident year loss ratio improved by 0.1 point to 79.5% mainly due to the non-recurrence of 2007 Kyrill storm partly offset by a deterioration in Motor. − All accident year loss ratio deteriorated by 0.7 point to 69.5% as a result of a lower prior years result (€-8 million) partly offset by the improvement of the current accident year loss ratio. Expense ratio improved by 1.1 point to 28.5% with an acquisition ratio down -0.8 point driven by lower non commission expenses, partly offset by higher override commissions, and an administrative expense ratio down -0.3 point. As a result, the combined ratio improved by 0.4 point to 98.0%. Net investment result decreased by €1 million (-1%) to €131 million driven by lower asset yield resulting from the change in assets mix. Income tax expenses increased by €4 million (+10%) to €-43 million. Underlying earnings decreased by €1 million (-1%) to €107 million. Adjusted earnings increased by €6 million (+3%) to €194 million as higher realized capital gains were offset by higher impairments. Net income decreased by €15 million (-9%) to €161 million mainly as a result of an unfavorable change in fair value Page 47 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report on fixed income mutual funds under fair value option due to credit spread increase (€-22 million). Property & Casualty Operations – Mediterranean Region (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 3,004 2,719 5,298 Current accident year loss ratio (net) All accident year loss ratio (net) 74.0% 69.0% 75.0% 71.8% 76.5% 72.1% Net technical result 868 713 1,453 Expense ratio Net investment result 24.7% 195 24.0% 194 23.3% 351 Underlying operating earnings before tax 369 300 591 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (105) ‐ (22) (94) ‐ (14) (195) ‐ (34) Underlying earnings group share 243 191 362 Net capital gains or losses attributable to shareholders net of income tax 38 63 172 Adjusted earnings group share 281 254 534 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (12) 6 (3) (5) (6) ‐ (14) (17) (16) (2) (28) (60) Net income group share 266 217 428 The scope of the following analysis includes Italy (AXA MPS with a P&L fully consolidated as of 01/01/2008 and an opening balance sheet as of 31/12/2007), Spain, Portugal, Greece, Turkey, Gulf region (consolidated as of 01/01/2008) and Morocco. For volume indicators the comparable basis reflects this scope, for both 2007 and 2008. Seguros ING is out of the scope for HY closing as it will be consolidated in the second half of 2008. Gross revenues increased by €285 million (+10%) to €3,004 million. On a comparable basis, gross revenues increased by €185 million (+7%) driven by the fast developing countries (Gulf Region and Turkey): − Personal lines (69% of gross revenues) increased by 6% to €2,087 million. Motor business (+5%) benefited from positive volume effect (net inflows amounted to 230k contracts) despite the drop of car sales in the main markets with a flat average premium impacted by the strong competition in Spain, Italy and Portugal. Non Motor lines were up +7%, mainly due to Property and Health driven by the Spanish market. − Commercial lines (31% of gross revenues) increased by 7% to €898 million driven by non motor lines (+9%), especially Health, up +43% (significant corporate contracts in the Gulf region) and Property, up +5% (SME’s business), partly offset by Construction (-29%) impacted by the economic slowdown in Spain. Net technical result increased by €155 million (+22%) to €868 million. On a constant exchange rate basis, net technical result increased by €163 million (+23%) driven by volume effect and the improvement of the loss ratio: Current accident year loss ratio decreased by 1.0 point to 74.0% driven by a better performance in (i) Commercial lines (notably lower large claims in Motor and Property) and (ii) Personal Motor mainly driven by repricing in Turkey and the actions to reduce claims cost in Italy. Aall accident year loss ratio decreased by 2.7 points to 69.0% thanks to the improvement of the current year loss ratio and to the favorable development of claims reserves from previous years (mainly Personal Motor lines) Expense ratio rose by 0.7 point to 24.7% driven by (i) the acquisition ratio, up +0.2 point, due to the increase in marketing investments to support new business in a competitive environment partially offset by the commission ratio and (ii) an administrative expense ratio, up +0.5 point, mainly driven by the increase in IT costs and the preparation of the launch of a direct channel in Italy. Page 48 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report As a result, the combined ratio improved by 2.0 points to 93.8%. Net investment result remained stable at €195 million as the higher bonds income (volume effect and interest rates increase) was offset by the financing of the purchase of the minority interests of our Turkish entities (effective in the second half of 2008) and lower equity dividends. Income tax expenses increased by €10 million (+11%) to €-105 million. On a constant exchange rate basis, income tax expenses increased by €11 million, as the increase in pre-tax earnings amounting to €73 million (increasing income tax expenses by €22 million) was partly offset by the tax rate decrease in Spain, Italy and Morocco (decreasing income tax expense by €11 million). Underlying earnings increased by €51 million (+27%) to €243 million. On a constant exchange rate basis, underlying earnings increased by €53 million. Adjusted earnings increased by €26 million (+10%) to €281 million. On a constant exchange rate basis adjusted earnings increased by €29 million as the increase in underlying earnings was partly offset by higher impairment on equities. Net income increased by €48 million (+22%) to €266 million. On a constant exchange rate basis, net income increased by €53 million mainly driven by (i) the increase in adjusted earnings (€+29 million), (ii) the impact of the first time consolidation of Gulf entities (one time recognition of past earnings, €+11 million) and (iii) the lower Winterthur integration costs (€+11 million). Page 49 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations – Switzerland (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 1,811 1,800 1,981 Current accident year loss ratio (net) All accident year loss ratio (net) 77.6% 74.5% 79.0% 74.4% 77.6% 75.2% Net technical result 258 259 490 Expense ratio Net investment result 18.3% 95 23.3% 71 24.0% 142 Underlying operating earnings before tax 168 92 159 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (36) ‐ (1) (19) ‐ (1) (33) ‐ (1) Underlying earnings group share 131 73 125 Net capital gains or losses attributable to shareholders net of income tax (32) 1 (6) Adjusted earnings group share 99 74 119 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (17) ‐ (10) (4) (6) (3) (6) (1) (10) (0) (17) (7) Net income group share 67 58 84 Average exchange rate : 1.00 € = Swiss Franc 1.6059 1.6313 1.6420 Gross revenues increased by €11 million (+1%) to €1,811 million. On a comparable basis, gross revenues decreased by €17 million (-1%): − Personal lines (50% of gross revenues) remained stable at €914 million reflecting the strong positive net new contracts partly offset by premium reduction in the context of a softening market. − Commercial lines (50% of gross revenues) decreased by 2% to €909 million mainly driven by price pressure in Workers' compensation and Health, the loss of some important contracts in Workers’ compensation and the liquidation of the Swiss aviation pool. Net technical result slightly decreased to €258 million. On a constant exchange rate basis, net technical result decreased by €4 million (-2%): − Current accident year loss ratio improved by 1.4 points to 77.6% mainly driven by non recurrence of large losses due to flood and hail events in June 2007. − All accident year net loss ratio increased by 0.1 point to 74.5% reflecting a lower current year loss ratio offset by a decrease in prior years’ results (€-16 million). Expense ratio improved by 5.0 points to 18.3%, mainly due the one time impact of the change in own pension scheme (€35 million) and higher DAC capitalization resulting from the change to an independent sales organization for tied agents from January 1, 2008. As a consequence, the combined ratio improved by 4.9 points to 92.8%. Net investment result improved by €24 million (+34%) to €95 million. On a constant exchange rate basis, net investment result increased by €23 million driven by higher volume and investment return, mainly on bonds. Income tax expenses were up €+17 million (+87%) to €-36 million. On a constant exchange rate basis, income tax expenses increased by €16 million driven by higher income. Page 50 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Underlying earnings increased by €58 million (+80%) to €131 million. On a constant exchange rate basis, underlying earnings increased by €56 million. Adjusted earnings improved by €25 million (+34%) to €99 million. On a constant exchange rate basis, adjusted earnings increased by €23 million reflecting higher underlying earnings partly offset by higher impairments (€-30 million) mainly on equities. Net income increased by €9 million (+16%) to €67 million. On a constant exchange rate basis, net income increased by €8 million including change in fair value on invested assets designated at fair value option (€-7 million) due to equities, foreign currency impact and related derivatives (€-5 million) and higher amortization of customer intangible (€-4 million). Page 51 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Property & Casualty Operations - Other Countries Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 Canada Others South Korea Japan Asia (excluding Japan) (a) Luxembourg Central and Eastern Europe 531 443 171 95 112 55 10 520 220 ‐ 87 82 46 5 1,085 667 203 167 205 80 12 TOTAL 974 740 1,752 Intercompany transactions (7) (9) (9) Contribution to consolidated gross revenues 966 731 1,743 (a) Includes Hong Kong, Singapore and Malaysia (Malaysia has been fully consolidated for the first time in 2007). Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 Canada 49 58 125 Others 3 9 22 South Korea (2) ‐ 3 Japan (1) (2) 0 Asia (excluding Japan) (a) 6 9 18 Luxembourg 6 6 12 Central and Eastern Europe (6) (4) (10) UNDERLYING EARNINGS 52 67 147 Net realized capital gains or losses attributable to shareholders 3 19 22 ADJUSTED EARNINGS 55 86 169 Profit or loss on financial assets (under Fair Value option) & derivatives 0 1 1 Exceptional operations (including discontinued operations) ‐ 20 ‐ Goodwill and related intangibles impacts (4) (1) (5) Integration costs ‐ (0) (1) NET INCOME 51 107 164 (a) Includes Malaysia, Hong Kong and Singapore. Page 52 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report CANADA Gross revenues were up €+11 million (+2%) to €531 million. On a comparable basis, gross revenues increased by €24 million (+5%) as a result of (i) €34 million growth in premiums mainly reflecting increased volume in personal motor and property lines partly offset by (ii) €-10 million resulting from the 24 month policies success in 2007 leading to less renewals in 2008. Underlying earnings decreased by €9 million (-16%) to €49 million. On a constant exchange rate basis, underlying earnings decreased by €8 million (-14%) mainly resulting from a deterioration of the combined ratio by 4.0 points to 93.5% driven by adverse weather conditions. Adjusted earnings decreased by €21 million (-30%) to €49 million. On a constant exchange rate basis, adjusted earnings decreased by €20 million (-29%) mainly reflecting lower underlying earnings (€-8 million), and €-12 million impairment on equities resulting from 2008 unfavorable financial market conditions. Net income decreased by €26 million (-36%) to €46 million. On a constant exchange rate basis, net income decreased by €25 million mainly as a result of lower adjusted earnings (€-20 million) and increased foreign exchange losses (€-4 million) in 2008. SOUTH KOREA Gross revenues amounted to €171 million. On a comparable basis (Kyobo AXA contributed to last 6 months of 2007), gross revenues increased by €33 million (+19%), mainly driven by the Motor business, following the strong growth of the portfolio and tariff increases. The combined ratio was 104.5%, with (i) an all accident year loss ratio at 80.6% including 4.1 points from unfavorable reserves development on prior years, and (ii) an expense ratio at 23.9%, benefiting from the tight monitoring of staff and administrative costs. Underlying earnings and adjusted earnings were €-2 million. Net income was €-4 million, including the amortization of the acquired portfolio. JAPAN Gross revenues increased by €8 million (+9%) to €95 million. On a comparable basis, gross revenues increased by €9 million (+10%), mainly driven by motor business growth (+12%). The combined ratio improved by 1.2 point to 102.2%, following a 4.1 points decrease in the all accident year loss ratio due to favorable reserve developments on previous year, partly offset by a 2.9 points increase in the expense ratio mainly driven by higher administrative and marketing costs. Underlying earnings and adjusted earnings increased by €1 million to €-1 million, in line with the improvement of the combined ratio. Net income increased by €2 million to €0 million, mainly due to higher underlying earnings, combined with gains on mutual funds under fair value option. ASIA (EXCLUDING JAPAN) SINGAPORE Gross revenues increased by €5 million (+9%) to €54 million. On a comparable basis, gross revenues increased by €7 million (+15%), mainly due to Private Motor. Other lines also benefited from some regulatory changes. Page 53 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Current accident year loss ratio improved by 3.5 points to 66.8%, mainly driven by a better claims experience in Property, partly offset by higher Motor claims. All accident year loss ratio increased by 5.1 points to 64.8%, due to less favorable reserves development in Motor business. As a result, the combined ratio deteriorated by 3.3 points to 94.4%. Underlying earnings decreased by €1 million (-29%) to €3 million. On a constant exchange rate basis, underlying earnings decreased by €1 million (-26%) due to lower underwriting results and a reduction in the investment income. Adjusted earnings decreased by €2 million (-28%) to €5 million. On a constant exchange rate basis, adjusted earnings decreased by €2 million (-25%) due to lower underlying earnings and lower capital gains. Net income decreased by €2 million (-28%) to €5 million. On a constant exchange rate basis, net income decreased by €2 million (-25%) in line with adjusted earnings. HONG KONG Gross revenues decreased by €6 million (-19%) to €26 million. On a comparable basis, gross revenues decreased by €2 million (-8%), mainly due to the Motor business following strong market competition. The combined ratio improved by 1.9 points to 101.9%, mainly due to a lower expense ratio in the Motor business and an improvement in underwriting results from the non recurrence of 2007 large claims partly offset by the 2008 ‘Black Rain’ claims. Underlying earnings were stable at €2 million. Adjusted earnings decreased by €2 million (-31%) to €4 million. On a constant exchange rate basis, adjusted earnings decreased by €1 million (-21%), mainly due to €1 million reduction in realized gains from equities. Net income decreased by €2 million (-33%) to €4 million. On a constant exchange rate basis, net income decreased by €1 million (-23%), in line with adjusted earnings. MALAYSIA Gross revenues amounted to €32 million. On a comparable basis, gross revenues increased by €4 million (+15%) mainly attributable to growth in Personal lines by €2 million and Commercial lines by €2 million. Combined ratio reached 93.6% with some negative prior year developments (mainly in Motor). Underlying earnings decreased by €2 million to €1 million, due to higher combined ratio. Adjusted earnings decreased by €1 million to €2 million following lower underlying earnings. Net income decreased by €1 million to €2 million, in line with adjusted earnings. CENTRAL AND EASTERN EUROPE (POLAND) Gross revenues increased by €4 million (+81%) to €10 million reflecting the positive development of the motor business. Underlying Earnings and Adjusted Earnings decreased by €3 million to €-6 million mainly due to an increase in general expenses resulting from the recent launch of the activity. Net income decreased by €1 million to €-5 million reflecting the underlying earnings evolution offset by a €1 million realized gain on foreign exchanges. Page 54 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 AXA Corporate Solutions Assurance 1,234 1,214 1,823 AXA Cessions 61 60 69 AXA Assistance 407 392 809 Other (a) 40 887 1,002 TOTAL 1,742 2,553 3,703 Intercompany transactions (69) (64) (135) Contribution to consolidated gross revenues 1,673 2,489 3,568 (a) Including €‐7 million in the first half 2008 (€826 million in the first half 2007 and €896 million in 2007) of business fronted by AXA RE and fully reinsured by Paris RE (fronting arrangement set in place from January 1, 2006 to September 30, 2007 in the context of the sale of AXA RE's business to Paris RE). Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 AXA Corporate Solutions Assurance 46 58 97 AXA Cessions 6 1 13 AXA Assistance 10 10 19 Other (a) 109 50 89 UNDERLYING EARNINGS 172 119 218 Net realized capital gains or losses attributable to shareholders 7 20 23 ADJUSTED EARNINGS 179 139 241 Profit or loss on financial assets (under Fair Value option) & derivatives (24) (13) (1) Exceptional operations (including discontinued operations) ‐ 1 3 Goodwill and related intangibles impacts ‐ ‐ ‐ Integration costs ‐ ‐ ‐ NET INCOME 155 127 243 (a) Including AXA RE and other non life run‐off businesses managed by AXA Liabilities Managers and AXA RE Life. Page 55 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report AXA Corporate Solutions Assurance (in Euro million) HY 2008 HY 2007 FY 2007 Gross revenues 1,234 1,214 1,823 Current accident year loss ratio (net) (a) All accident year loss ratio (net) 101.2% 88.8% 91.2% 88.1% 94.1% 87.8% Net technical result 112 112 220 Expense ratio Net investment result 13.1% 83 12.4% 97 12.3% 163 Underlying operating earnings before tax 64 92 161 Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests (17) ‐ (1) (34) ‐ (1) (63) ‐ (1) Underlying earnings group share 46 58 97 Net capital gains or losses attributable to shareholders net of income tax 2 20 27 Adjusted earnings group share 48 78 124 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (23) ‐ ‐ ‐ (9) ‐ ‐ ‐ 1 ‐ ‐ ‐ Net income group share (a) Current accident year claim charges (including claims handling expenses) / Current accident year earned revenues (excluding premium adjustments on previous years). 25 70 125 Gross revenues increased by €19 million (+2%) to €1,234 million. On a comparable basis, gross revenues increased by €66 million (+6%) driven by positive volume effect in Marine, Construction, Liability and Property, partly offset by tariff pressure. Net technical result remained stable at €112 million. − Current accident year net technical result decreased by €89 million to €-12 million reflecting several large losses in property (including natural events in China). Current year loss ratio reached 101.2% (+10 points). − The prior accident year net technical result increased by €89 million to €123 million due to positive reserve developments in all lines of business. As a consequence, the all accident year loss ratio increased by 0.8 point to 88.8%. Expense ratio increased by 0.7 point to 13.1% resulting from commission increase mainly due to a change in business mix towards products with higher commission rate. As a result, the combined ratio increased by 1.5 points to 101.9%. Net investment result decreased by €14 million (-14%) to €83 million mostly due to a lower asset yield. Income tax expenses decreased by €17 million (-50%) to €-17 million mainly reflecting the booking of deferred tax assets on prior year tax losses on foreign branches, together with a decrease in taxable result. As a consequence, underlying earnings decreased by €12 million (-20%) to €46 million. Adjusted earnings decreased by €30 million (-39%) to €48 million reflecting the underlying earnings decrease and €13 million lower net realized gains coupled with €6 million higher impairments in a context of volatile financial markets. Page 56 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Net income decreased by €45 million (-64%) to €25 million reflecting the adjusted earnings negative impact combined with a €-22 million change in fair value on mutual funds exposed to credit, partly offset by a €6 million gain corresponding to the cancellation of deferred tax liabilities on assets under fair value option overestimated in previous years. AXA Cessions Underlying earnings increased by €5 million to €6 million driven by the €5 million improvement on the technical margin (2007 Kyrill storm impact was €-3 million). Adjusted earnings increased by €5 million to €6 million in line with underlying earnings evolution. Net income increased by €4 million to €5 million. AXA Assistance Gross Revenues increased by €15 million (+4%) to €407 million. On a comparable basis, gross revenues increased by €24 million (+7%). Underlying Earnings and Adjusted Earnings were stable at €10 million while Net Income decreased by €3 million to €8 million. Other international activities Gross Revenues amounted to €40 million. On a comparable basis, gross revenues decreased by €6 million (-10%) mainly driven by the Life run-off activity (-6% to €35 million) and the Non-Life run-off activity (-24% to €2 million) managed by AXA Liabilities Managers. Underlying Earnings increased by €59 million to €109 million. On a constant exchange rate basis, underlying earnings increased by €63 million mainly driven by (i) a €51 million pre-tax profit on settlements with two large cases, (ii) a lower asbestos reserves strengthening (€+32 million pre tax), and (iii) a positive tax impact (up €+16 million to €4 million) notably due to the booking of a deferred tax asset on past net operating losses in the US, partly offset by (i) lower positive non asbestos reserves development (down €-42 million to €58 million pre-tax) and (ii) losses on the life run-off portfolio (from €+20 million to €-4 million ) driven by the stock market and unfavorable interest rate conditions on the Asset Based Reinsurance portfolio. Adjusted Earnings increased by €66 million to €115 million. On a constant exchange rate basis, adjusted earnings increased by €70 million reflecting the underlying earnings increase together with a €+6 million net realized gains. Net Income increased by €71 million to €116 million. On a constant exchange rate basis, net income increased by €75 million reflecting the adjusted earnings increase together with a €+6 million positive impact on foreign exchange. Page 57 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 AllianceBernstein AXA Investment Managers 1,402 891 1,625 987 3,277 2,006 TOTAL 2,293 2,613 5,283 Intercompany transactions (191) (206) (420) Contribution to consolidated gross revenues 2,102 2,407 4,863 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 AllianceBernstein 128 151 314 AXA Investment Managers 158 136 276 UNDERLYING EARNINGS 285 286 590 Net realized capital gains or losses attributable to shareholders ‐ 1 1 ADJUSTED EARNINGS 285 287 591 Profit or loss on financial assets (under Fair Value option) & derivatives (93) 14 3 Exceptional operations (including discontinued operations) 10 (7) (2) Goodwill and related intangibles impacts (4) ‐ ‐ Integration costs (1) (2) (5) NET INCOME 198 292 588 Page 58 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report AllianceBernstein HY 2008 HY 2007 (in Euro million) FY 2007 Gross revenues 1,402 1,625 3,277 Net investment result (26) 22 2 General expenses (977) (1,185) (2,306) Underlying operating earnings before tax 400 463 973 Income tax expenses / benefits Minority interests (132) (140) (143) (169) (313) (346) Underlying earnings group share 128 151 314 Net capital gains or losses attributable to shareholders net of income tax ‐ 1 1 Adjusted earnings group share 128 152 315 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (12) 10 (4) ‐ ‐ (7) ‐ ‐ ‐ (2) ‐ ‐ Net income group share 122 145 313 Average exchange rate : 1.00 € = $ 1.5309 1.3298 1.3699 Assets under Management ("AUM") decreased by €89 billion from year end 2007 to €455 billion at the end of June 2008, driven by net outflows of €-4 billion (€-5 billion for Retail, €1 billion for Institutional), market depreciation of €-51 billion and negative exchange rate impact of €-34 billion. Gross revenues decreased by €223 million (-14%) to €1,402 million. On a comparable basis, gross revenues decreased by €10 million (-1%), as the increase in management fees up +1% (€+15 million) driven by higher average asset under management (+0.5%, of which Global & International services +11%) and a favorable client and product mix, was offset by a decrease in performance fees down -71% (€-21 million) and distribution fees down -6% (€-10 million). Institutional Research Services continued to grow with fees up +13% (€20 million). Net Investment result decreased by €48 million to €-26 million. On a constant exchange rate basis, net investment result decreased by €52 million, notably as a result of a decrease of €41 million in deferred compensation investment market value which is offset by general expenses. General expenses decreased by €208 million (-18%) to €-977 million. On a constant exchange rate basis, general expenses decreased by €60 million (-5%) due to (i) compensation expenses (-6% or €-41 million) from deferred compensation market effect (which is offset by net investment result), and (ii) promotion and servicing (-6% or €-14 million) from lower sales. The Underlying cost income ratio decreased by 1.0 point to 67.6%. Income tax expenses decreased by €11 million (-8%) to €-132 million. On a constant exchange rate basis, income tax expenses increased by €9 million (+6%) due to a higher effective tax rate resulting from growth in earnings from foreign subsidiaries. Underlying earnings decreased by €23 million (-15%) to €128 million. On a constant exchange rate basis, underlying earnings decreased by €4 million (-3%). Adjusted earnings decreased by €24 million (-16%) to €128 million. On a constant exchange rate basis, adjusted earnings decreased by €5 million (-3%). Net income decreased by €23 million (-16%) to €122 million. On a constant exchange rate basis, net income decreased by €4 million (-3%). Page 59 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report AXA Investment Managers (“AXA IM”) HY 2008 HY 2007 (in Euro million) FY 2007 Gross revenues 891 987 2,006 Net investment result General expenses 66 (713) 24 (767) 38 (1,577) Underlying operating earnings before tax 244 244 466 Income tax expenses / benefits Minority interests (62) (25) (84) (24) (141) (49) Underlying earnings group share 158 136 276 Net capital gains or losses attributable to shareholders net of income tax ‐ ‐ ‐ Adjusted earnings group share 158 136 276 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs (81) ‐ ‐ (1) 14 ‐ ‐ (2) 3 ‐ ‐ (5) Net income group share 76 148 274 Assets Under Management (“AUM”) decreased by €22 billion to €527 billion from year-end 2007 as €6 billion net new money (including €9 billion in Main funds, €1 billion in Institutional and €-4 billion in retail clients), and €6 billion change in scope (AXA MPS for €10 billion and the Netherlands for €-4 billion), were more than offset by €-22 billion negative market impact due to the equity market turmoil, and €-10 billion unfavorable exchange rate impact. Gross revenues decreased by €96 million (-10%) to €891 million, or by €55 million (-6%) on a comparable basis. Excluding fees retroceded to distributors, gross revenues decreased by 1% as growth in average AUM (2.6% including Winterthur Integration) was more than offset by lower performance fees, an unfavorable client and product mix (impact of the equity market turmoil and higher share of fixed income with Winterthur integration) and the decrease in retail business. Net investment result increased by €42 million (+177%) to €66 million mainly due to a significant carried interest (€58 million) related to the performance of a real estate fund. General expenses decreased by €54 million (-7%) to €-713 million, mainly explained by lower commissions paid to third party distributors, in line with the gross revenues decrease, and lower staff incentive. Underlying cost income ratio improved by 0.3 point to 65.3%. Income tax decreased by €22 million (-26%) to €-62 million mainly driven by a non recurring tax impact from real estate funds. Underlying and adjusted earnings increased by €22 million (+16%) to €158 million. On a constant exchange rate basis, underlying earnings increased by €30 million (+22%). Net income decreased by €71 million (-48%) to €76 million. On a constant exchange rate basis, net income decreased by €63 million (-43%) as the increase in adjusted earnings was more than offset by negative change in fair value of “AWF and FIIS US” Libor plus funds (€-64 million) as well as negative impacts coming from carried interest change in fair value of real estate funds and foreign exchange. Page 60 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2008 HY 2007 FY 2007 Axa Bank Europe (Belgium) 138 127 246 AXA Banque (France) 35 26 85 Others (a) 34 14 43 TOTAL 206 168 374 Intercompany transactions (10) (14) (35) Contribution to consolidated gross revenues 197 153 339 (a) Includes notably German banks. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 Axa Bank Europe (Belgium) 35 13 40 Axa Banque (France) (8) 0 0 Others (a) (3) (2) (4) UNDERLYING EARNINGS 24 11 36 Net realized capital gains or losses attributable to shareholders (5) 3 (5) ADJUSTED EARNINGS 19 14 31 Profit or loss on financial assets (under Fair Value option) & derivatives (4) (8) (0) Exceptional operations (including discontinued operations) ‐ ‐ ‐ Goodwill and related intangibles impacts (0) ‐ (0) Integration costs (3) (1) (25) NET INCOME 11 5 6 (a) Includes notably German banks. AXA Bank Europe (Belgium) Net banking revenues increased by €11 million (+8%) to €138 million. On a comparable basis, net banking revenues increased by €11 million (+10%) mainly due to higher net interest and fee income, partly offset by lower realized Page 61 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report capital gains, mainly on equities, and lower unrealized capital gains driven by mutual funds and derivatives. Underlying earnings increased by €22 million (+167%) to €35 million mainly due to a higher interest margin (€+32 million) partly offset by an increase in expenses (€-6 million) following the expansion of the banking activity to other countries and lower reversal of provision on credit losses (€-5 million) further to the implementation of Basel II in 2007. Adjusted earnings increased by €14 million (+88%) to €30 million notably driven by the increase in underlying earnings (€+22 million) partly offset by a decrease in realized capital gains on equities (€-4 million) and higher impairments on equities (€-4 million). Net income increased by €4 million (+20%) to €23 million driven by the increase in adjusted earnings partly offset by mutual funds (€-8 million) and higher Winterthur integration costs (€-2 million). AXA Banque (France) Net banking revenues increased by €7 million (+24%) to €35 million. On a comparable basis, net banking revenues increased by €13 million (+55%). Underlying Earnings and adjusted Earnings decreased by €8 million to €-8 million, mainly driven by a €6 million expenses increase due to advertising campaigns, staff and moving costs . Net Income increased by €1 million to €-11 million, reflecting the underlying earnings evolution more than offset by the lower negative impact of the change in fair value of macro-hedge derivatives instruments (from €-12 million to €-3 million) due to a lower interest rate increase. Other AXA BANK (GERMANY) Net banking revenues decreased by €1 million (-12%) to €10 million. On a comparable basis, net banking revenues decreased by 4% due to a reduced commission margin mainly from lower fees on custody business. Underlying earnings, adjusted earnings and net income decreased by €1 million to €-1 million in line with lower net banking revenues. Page 62 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific Holdings, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgium Holdings, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2008 HY 2007 FY 2007 AXA (114) (45) (224) Other French holdings companies (5) (21) (9) Foreign holdings companies (134) (117) (202) Others (a) 8 2 20 UNDERLYING EARNINGS (245) (181) (414) Net realized capital gains or losses attributable to shareholders 282 1 27 ADJUSTED EARNINGS 37 (180) (388) Profit or loss on financial assets (under Fair Value option) & derivatives (275) (89) (365) Exceptional operations (including discontinued operations) 0 (1) 483 Goodwill and related intangibles impacts 0 0 0 Integration costs 0 (22) (17) NET INCOME (238) (292) (287) (a) Includes notably CDOs and Real Estate entities. AXA10 Underlying earnings decreased by €69 million to €-114 million mainly due to: − €-51 million due to a higher financial charge notably related to external growth financing and internal refinancing, − €-12 million due to the increase of the share based compensation costs to €-46 million, mainly due to the AXA Miles Program. Adjusted earnings increased by €191 million to €146 million driven by €+284 million increase in the intrinsic value of equity derivatives set up to reduce the Group exposure to equities partly offset by underlying earnings evolution. Net income increased by €63 million to €-91 million, mainly driven by: − €+191 million related to adjusted earnings evolution, − €+22 million stemming from the non-recurrence of half year 2007 Winterthur integration costs, partly offset by − €-27 million change in the mark to market of interest rate and foreign exchange derivatives instruments which are not eligible to hedge accounting (total of the change in mark to market amounted to €-115 million of which €-74 million on interest rate derivatives and €-41 million on foreign exchange instruments notably covering debt instruments accounted for in shareholders’ equity), and − €-122 million related to the decrease in the time value of equity derivatives set up to reduce the Group exposure to equities In order to reduce the exposure of AXA's shareholders equity to equity investments and to limit the Solvency I coverage ratio volatility, AXA decided to hedge its direct equity exposure on Property & Casualty businesses and non 10 All the figures are after tax Page 63 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report participating Life businesses. Hedges were set up in June with options through a put spread strategy financed by the sale of call options. At maturity, this will neutralize (i) the potential losses of the equity portfolio if the equity markets decrease below the strike prices of the put options bought (included in a [98.5%; 106.5%] range versus closing price as at June 30, 2008) but do not decrease below the strike price of the put options sold (included in a [80.1% ; 85.2%] range versus closing price as at June 30, 2008), and (ii) the potential upside above the strike prices of the call options sold (included in a [113.2%;124.8%] range versus closing price as at June 30, 2008). At June closing, €12 billion of hedges were implemented, mainly on the Euro stoxx 50 for €10,8 billion, and the mark- to-market of this strategy was €299 million including an intrinsic value of €434 million (€284 million after tax). The hedging program has been fully completed early July with a €2 billion additional amount. Maturity dates are from June 2009 to March 2010. Other French holding companies AXA France Assurance. Underlying Earnings, Adjusted Earnings and Net Income increased by €12 million to €-13 million, mainly due to lower tax expenses (€+10 million) resulting from lower dividends (eliminated in consolidation) received from operational entities. Other French holdings. Underlying earnings increased by €4 million to €8 million due to higher investment income. Adjusted earnings increased by €36 million to €40 million resulting from net realized capital gains (€32 million). Net income increased by €37 million to €31 million mainly driven by adjusted earnings. Foreign Holding Companies AXA Financial Inc. Underlying earnings increased by €12 million (+20%) to €-48 million. On a constant exchange rate basis, underlying earnings increased by €5 million (+8%) mainly due to a €5 million decrease in stock-based compensation expenses to €-9 million. Adjusted earnings increased by €12 million (+20%) to €-48 million. On a constant exchange rate basis, adjusted earnings increased by €5 million (+8%) in line with underlying earnings evolution. Net income increased by €10 million (+16%) to €-49 million. On a constant exchange rate basis, net income increased by €2 million (+4%) reflecting the higher adjusted earnings partially offset by a negative impact from the mark to market on interest rate swaps. AXA Asia Pacific Holdings 11 11 AXA interest in AXA Asia Pacific Group is 53.91% broken down into 53.15% direct interest holding and an additional 0.77% owned by the AAPH Executive plan trust. Page 64 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Underlying earnings increased by €3 million (+28%) to €-8 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+27%) to €-8 million mainly due to tax benefits recorded on Asian regional office costs. Adjusted earnings increased by €5 million (+38%) to €-8 million. On a constant exchange rate basis, adjusted earnings increased by €5 million (+38%) due to the non recurrence of a passive income tax incurred in 2007 in relation to investment portfolios in Hong Kong. Net income decreased by €2 million (-25%) to €-9 million. On a constant exchange rate basis, net income decreased by €2 million (-25%) due to unfavorable fair value movements on derivatives. AXA UK Holdings Underlying earnings decreased by €3 million (-9%) to €-30 million. On a constant exchange rate basis, underlying earnings decreased by €7 million (-25%) primarily resulting from increased financing costs, partially offset by favorable tax variances. Adjusted earnings decreased by €3 million (-10%) to €-30 million. On a constant exchange rate basis, adjusted earnings decreased by €7 million (-26%) in line with underlying earnings. Net income decreased by €31 million (-123%) to €-56 million. On a constant exchange rate basis, net income decreased by €39 million (-156%) reflecting adjusted earnings evolution together with a €33 million exchange rate loss primarily arising from the revaluation of Euro-denominated inter-company loans. German Holding companies Underlying earnings decreased by €20 million to €-24 million mainly driven by €17 million higher income taxes due to the use of the remaining tax loss carried forward in 2007. Adjusted earnings decreased by €33 million to €-35 million driven by lower underlying earnings and higher impairments on equities. Net income decreased by €32 million to €-35 million driven by adjusted earnings. Belgium Holding companies Underlying earnings decreased by €2 million (-28%) to €-11 million. Adjusted earnings decreased by €2 million (-29%) to €-11 million. Net income decreased by €2 million (-21%) to €-11 million. Other CFP Underlying earnings, Adjusted earnings and Net income increased by €7 million to €9 million due to a higher contribution of the run-off portfolios in 2008. Page 65 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Outlook Provided that market conditions do not deteriorate materially, AXA's FY08 underlying earnings should be in line with 2007 record performance. It is management’s current intention to propose a stable dividend for 200812 at €1.20 per share. 12 To be paid in 2009. Page 66 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Glossary COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before: (i) (ii) (iii) The impact of exceptional operations (primarily change in scope, including integration costs related to a newly acquired company). Goodwill and other related intangible impacts, and Profit and loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies, which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income. UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders. Net realized gains or losses attributable to shareholders include: realized gains and losses (on assets not designated under fair value option or trading assets) and change in impairment valuation allowance, net of tax, cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, net of tax, related impact on policyholder participation net of tax (Life business), - DAC and VBI amortization or other reactivity to those elements if any (Life business). EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated adjusted earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares provided that their impact is not anti-dilutive). Page 67 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, that is primarily the “Investment Margin” and the “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve– capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loading on (or contractual charges included in) premiums / deposits received on all non unit-linked product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical result includes the following components: (i) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits, including changes in valuation assumptions and additional reserves for mortality risk. This margin does not include the claims handling costs and change in claims handling cost reserves, Page 68 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report (ii) Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, Policyholder bonuses if the policyholder participates in the risk margin, Other changes in insurance reserves and economic hedging strategy impacts related to insurance contracts valuated according to the "selective unlocking" accounting policy allowing Liability adjustment so as to better reflect the current interest rates for these contracts, Ceded reinsurance result. (iii) (iv) (v) Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the inforce business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses excludes customer intangible amortization and integration costs related to newly acquired company. Page 69 of 70 ___________________________________________________________________________________________________ Half Year 2008 Activity Report Current accident year loss ratio net of reinsurance is the ratio of: (i) [current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves], to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) [ all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves ], to Earned revenues, gross of reinsurance. (ii) The underlying combined ratio is the sum of (i) the underlying expense ratio and (ii) the loss ratio (all accident years). ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: general expenses including distribution revenues / gross revenues excluding distribution fees. Page 70 of 70 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Consolidated financial statements June 30, 2008 ___________________________________________________________________________________________________________________ Page 1 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 --- TABLE OF CONTENTS --- CONSOLIDATED BALANCE SHEET ............................................................................................................... 4 CONSOLIDATED STATEMENT OF INCOME ................................................................................................ 7 CONSOLIDATED STATEMENT OF CASH FLOWS ...................................................................................... 8 CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD (SORIE) ............................................................................................................................................................ 10 Accounting principles......................................................................................................................................... 11 Note 1 : General information ........................................................................................................................................... 11 1.1. 1.2. General accounting principles ............................................................................................................................. 11 1.2.1. Basis for preparation .......................................................................................................................................... 11 First time adoption of IFRS.................................................................................................................................. 13 1.2.2. Consolidation ..................................................................................................................................................... 13 1.3. 1.3.1. Scope and basis of consolidation ........................................................................................................................ 13 1.3.2. Business combinations: purchase accounting and goodwill including minority interests buyout .......................... 14 Foreign currency translation of financial statements and transactions ................................................................ 15 1.4. Segment reporting ............................................................................................................................................. 16 1.5. 1.6. Intangible assets ................................................................................................................................................. 16 1.6.1. Goodwill and impairment of goodwill ................................................................................................................. 16 1.6.2. Value of purchased life insurance business inforce (VBI) ..................................................................................... 16 1.6.3. Other intangible assets ....................................................................................................................................... 16 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features - Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features ....................................................................................................................................................... 17 Investments from insurance, banking and other activities ................................................................................... 17 1.7. Investment properties ........................................................................................................................................ 17 1.7.1. Financial instruments ......................................................................................................................................... 17 1.7.2. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ....................... 18 1.8. Derivative instruments ....................................................................................................................................... 19 1.9. Assets / liabilities held for sale and assets / liabilities including discontinued operations ..................................... 19 1.10. Share capital and shareholders’ equity ............................................................................................................... 20 1.11. Share capital .................................................................................................................................................. 20 1.11.1. Perpetual debts ............................................................................................................................................. 20 1.11.2. Compound financial instruments ................................................................................................................... 20 1.11.3. 1.11.4. Treasury shares.............................................................................................................................................. 20 Liabilities arising from insurance and investment contracts ................................................................................. 20 1.12. Contracts classification .................................................................................................................................. 20 1.12.1. Insurance contracts and investment contracts with discretionary participating features ................................. 21 1.12.2. 1.12.3. Investment contracts with no discretionary participating features .................................................................. 23 Reinsurance: Ceded reinsurance ......................................................................................................................... 23 1.13. Financing debts .................................................................................................................................................. 23 1.14. Other liabilities ................................................................................................................................................... 23 1.15. Income taxes ................................................................................................................................................. 23 1.15.1. Pensions and other post-retirement benefits ................................................................................................. 24 1.15.2. Share-based compensation plans ................................................................................................................... 24 1.15.3. Provisions for risks, charges and contingent liabilities ......................................................................................... 24 1.16. Restructuring costs ........................................................................................................................................ 24 1.16.1. 1.16.2. Other provisions and contingencies ............................................................................................................... 24 Revenue recognition .......................................................................................................................................... 25 1.17. Gross written premiums ................................................................................................................................ 25 1.17.1. Fees and revenues from investment contracts with no discretionary participating features ............................ 25 1.17.2. Deposit accounting ........................................................................................................................................ 25 1.17.3. Unbundling .................................................................................................................................................... 25 1.17.4. Change in unearned premiums reserves net of unearned revenues and fees .................................................. 25 1.17.5. ___________________________________________________________________________________________________________________ Page 2 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.17.6. 1.17.7. 1.17.8. 1.17.9. 1.18. 1.19. Net revenues from banking activities ............................................................................................................. 25 Revenues from other activities ....................................................................................................................... 26 Policyholders’ participation ............................................................................................................................ 26 Net investment result excluding financing expenses ....................................................................................... 26 Subsequent events ............................................................................................................................................. 26 Presentation of the financial statements ............................................................................................................ 26 Scope of consolidation ....................................................................................................................................... 27 Note 2 : 2.1. Consolidated companies ..................................................................................................................................... 27 2.1.1. Main fully consolidated companies ..................................................................................................................... 27 Proportionately consolidated companies ............................................................................................................ 30 2.1.2. Investments in companies consolidated by equity method ................................................................................. 30 2.1.3. Post balance sheet closing .................................................................................................................................. 31 2.1.4. Consolidated entities relating to specific operations ........................................................................................... 31 2.2. Note 3 : Segmental information ...................................................................................................................................... 32 Investments ....................................................................................................................................................... 35 Note 4 : Breakdown of investments ................................................................................................................................. 36 4.1. Investment properties ........................................................................................................................................ 38 4.2. Unrealized gains and losses on financial investments .......................................................................................... 39 4.3. 4.4. Financial investements and loans subject to impairment .................................................................................... 40 4.4.1. Breakdown of financial investments and loans subject to impairment – All activities .......................................... 40 Change in impairment on financial investments and loans – All activities .......................................................................... 40 Financial investements and loans recognized at fair value excluding derivatives .................................................. 40 4.5. Shareholders’ equity, minority interests and other equity ................................................................................. 42 Note 5 : Impact of transactions with shareholders ........................................................................................................... 42 5.1. 5.1.1. Change in shareholders’ equity group share for the first half of 2008 .................................................................. 42 5.1.2. Changes in shareholders’ equity group share for the first half of 2007 ................................................................ 43 5.2. Recognized income and expense for the period .................................................................................................. 44 5.2.1. Recognized income and expense for the first half of 2008 ................................................................................... 44 5.2.2. Recognized income and expense for the first half of 2007 ................................................................................... 45 5.3. Change in minority interests ............................................................................................................................... 46 5.3.1. Change in minority interests for the first half of 2008 ......................................................................................... 46 5.3.2. Change in minority interests for the first half of 2007 ......................................................................................... 46 Consolidated statements of changes in shareholders’ equity .............................................................................. 47 5.4. Note 6 : Financing debt ................................................................................................................................................... 49 Note 7 : Net income per ordinary share .......................................................................................................................... 50 ___________________________________________________________________________________________________________________ Page 3 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 CONSOLIDATED BALANCE SHEET (in Euro million) Notes June 30, 2008 December 31, 2007 Goodwill 15,694 16,308 Value of purchased business In Force (a) 4,294 4,373 Deferred acquisition costs and equivalent 17,569 16,757 Other intangible assets 3,222 3,288 Intangible assets 40,778 40,726 Investments in real estate properties 15,945 16,182 Financial investments 341,045 360,051 Loans 24,922 25,177 Assets backing contracts where the financial risk is borne by policyholders (b) 160,108 182,827 4 Investments from insurance activities 542,020 584,237 4 Investments from banking and other activities 14,032 13,703 Investments in associates - Equity method 1,039 147 Reinsurers' share in insurance and investment contracts liabilities 10,881 11,315 Tangible assets 1,442 1,470 Other long-term assets 157 564 Deferred policyholders' participation assets 2,760 965 Deferred tax assets 3,532 3,151 Other assets 7,891 6,150 Receivables arising from direct insurance and inward reinsurance operations 13,222 12,140 Receivables arising from outward reinsurance operations 1,059 913 Receivables arising from banking activities 16,892 17,260 Receivables - current tax 1,866 1,314 Other receivables 15,416 15,658 Receivables 48,455 47,285 Assets held for sale including discontinued operations 921 680 Cash and cash equivalents 21,974 18,684 TOTAL ASSETS 687,992 722,927 All invested assets are shown net of related derivative instruments impact. (a) Amounts gross of tax. (b) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. ___________________________________________________________________________________________________________________ Page 4 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 (in Euro million) Notes June 30, 2008 December 31, 2007 Share capital and capital in excess of nominal value 21,504 21,080 Reserves and translation reserve 16,881 18,896 Net consolidated income for the period - Group share 2,162 5,666 Shareholders’ equity – Group share 40,547 45,642 Minority interests 3,105 3,272 5 TOTAL SHAREHOLDERS' EQUITY 43,652 48,913 Liabilities arising from insurance contracts 314,824 310,709 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (a) 99,248 113,654 Total liabilities arising from insurance contracts 414,072 424,363 Liabilities arising from investment contracts with discretionary participating features 38,734 40,121 Liabilities arising from investment contracts with no discretionary participating features 1,464 1,452 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 9,431 10,414 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 51,853 59,173 Total liabilities arising from investment contracts 101,482 111,161 Unearned revenue and unearned fee reserves 2,456 2,232 Liabilities arising from policyholders' participation 14,293 19,322 Derivative instruments relating to insurance and investment contracts (247) (187) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 532,055 556,892 Provisions for risks and charges 8,243 8,654 Subordinated debt 6,428 6,146 Financing debt instruments issued 5,484 4,535 Financing debt owed to credit institutions 1,275 175 6 Financing debt (b) 13,187 10,856 Deferred tax liabilities 4,054 5,534 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 5,623 7,751 Other debts instruments issued and bank overdrafts (b) 7,699 6,260 Payables arising from direct insurance and inward reinsurance operations 5,907 7,033 Payables arising from outward reinsurance operations 5,861 6,024 Payables arising from banking activities (b) 17,677 18,713 Payables – current tax 2,044 2,394 Derivative instruments relating to other financial liabilities 42 140 Other payables 41,947 43,693 Payables 86,801 92,008 Liabilities held for sale including discontinued operations 70 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 687,992 722,927 (a) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (b) Amounts are shown net of related derivative instruments impact. ___________________________________________________________________________________________________________________ Page 5 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 June 30, 2008 Liabilities arising from insurance contracts where the financial risk is borne by policyholders 99,248 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 9,431 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 51,853 Total Liabilities arising from contracts where the financial risk is borne by policyholders 160,532 Liabilities arising from insurance contracts 314,824 Liabilities arising from investment contracts with discretionary participating features 38,734 Liabilities arising from investment contracts with no discretionary participating features 1,464 Total Liabilities arising from other insurance and investment contracts 355,022 ___________________________________________________________________________________________________________________ Page 6 of 50 (in Euro million) December 31, 2007 113,654 10,414 59,173 183,241 310,709 40,121 1,452 352,283 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 CONSOLIDATED STATEMENT OF INCOME (In Euro million, except EPS in Euro) Notes June 30, 2008 June 30, 2007 Gross written premiums 45,942 47,089 Fees and charges relating to investment contracts with no participating features 342 384 Revenues from insurance activities 46,284 47,474 Net revenues from banking activities 194 154 Revenues from other activities 2,841 3,174 Revenues (a) 49,319 50,801 Change in unearned premiums net of unearned revenues and fees (3,158) (3,833) Net investment income (b) 9,481 8,858 Net realized investment gains and losses (c) 1,545 1,675 Change in fair value of investments at fair value through profit and loss (19,310) 8,160 Change in investments impairment (d) (1,546) (236) Net investment result excluding financing expenses (9,829) 18,457 Technical charges relating to insurance activities (e) (23,724) (50,309) Net result from outward reinsurance (573) (608) Bank operating expenses (23) (24) Acquisition costs (4,018) (4,128) Amortization of the value of purchased business in force (134) (207) Administrative expenses (4,981) (5,088) Change in tangible assets impairment (2) 3 Change in goodwill impairment and other intangible assets impairment (53) Other income and expenses (88) (322) Other operating income and expenses (33,596) (60,684) Income from operating activities before tax 2,735 4,741 Income arising from investments in associates - Equity method 18 13 Financing debts expenses (f) (350) (233) Operating income before tax 2,404 4,521 Income tax (g) (9) (1,055) Net operating income 2,395 3,466 Result from discontinued operations net of tax 74 Net consolidated income 2,395 3,540 Split between : Net consolidated income - Group share 2,162 3,180 Net consolidated income - Minority interests 234 360 6 Earnings per share 1.07 1.49 Fully diluted earnings per share 1.07 1.47 (a) Gross of reinsurance. (b) Net of investment management costs. (c) Includes impairment releases on invested assets sold. (d) Excludes impairment releases on invested assets sold. (e) Includes changes in liabilities arising from insurance contracts and investment contracts (with or no participating features) where the financial risk is borne by policyholders for an amount of € -14,755 million euro as a balancing entry to the change in fair value of investments at fair value through profit or loss (€8,773 million euro in june 30, 2007). (f) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (g) The Income tax line item as at June 30, 2008 includes an out-of-period adjustment related to the prior years’ double recognition of Deferred tax liabilities in relation with the changes in fair values of assets held by some consolidated investment funds (€ 188 million). The Group evaluated the impact for each individual year and in ag gregate and concluded that they were immaterial to the financial statements for all years in which they were included. The prior years’ Income tax expense recognised since the transition to IFRS was overstated by € 13 million as at December 31, 2004, € 51 million as December 31, 2005, € 36 million as at December 31, 2006, € 88 million as at December 31, 2007 (and € 6 million as at June 30, 2007). The June 2008 adjustment was recognised against Deferred tax liabilities (€ -188 million) on the balance sheet. ___________________________________________________________________________________________________________________ Page 7 of 50 Avec et sans PB discrétionnaire ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2008 June 30, 2007 Operating income before tax 2,404 4,521 Net amortization expense (b) Change in goodwill impairment and other intangible assets impairment Net change in deferred acquisition costs and equivalent Net increase / (write back) in impairment on investments, tangible and other intangible assets Change in fair value of investments at fair value through profit or loss Net change in liabilities arising from insurance and investment contracts (c) Net increase / (write back) in other provisions (d) 241 53 (1,116) 1,552 17,895 (6,210) (50) 452 - (1,202) 234 (8,128) 19,848 9 Income arising from investments in associates – Equity method (18) (13) Adjustment of non cash balances included in the operating income before tax 12,346 11,200 Net realized investment gains and losses (1,223) (2,575) Financing debt expenses 350 233 Adjustment of balances included in operating income before tax for reclassification to investing or financing activities (873) (2,342) Dividends recorded in the profit and loss during the period (1,291) (1,414) Interests paid & received recorded in profit and loss during the period (8,736) (8,142) Adjustment of transactions from accrued to cash basis (10,027) (9,555) Net cash impact of deposit accounting 6 1,139 Dividends and interim dividends collected 1,424 1,285 Interests collected 10,222 9,512 Interests paid (excluding interests on financing debts and perpetual debts) (1,052) (636) Change in operating receivables and payables (e) (3,118) (2,645) Net cash provided by other assets and liabilities (f) Tax expenses paid (1,005) (1,060) (76) (1,285) Other operating cash impact and non cash adjustment 1,440 1,111 Net cash impact of transactions with cash impact not included in the operating income before tax 6,857 8,405 NET CASH PROVIDED BY OPERATING ACTIVITIES 10,707 12,229 Purchase of subsidiaries and affiliated companies, net of cash acquired (83) (2,176) Disposal of subsidiaries and affiliated companies, net of cash ceded (26) 1,305 Net cash related to changes in scope of consolidation (109) (870) Sales of debt securities (f) Sales of equities and non controlled investment funds (f) (g) Sales of investment properties held directly or not (f) 26,620 13,533 803 43,286 14,355 1,440 Sales and/or repayment of loans and other assets (f) (h) 23,453 21,478 Net cash related to sales and repayments of investments (f) (g) (h) 64,410 80,560 Purchases of debt securities (f) Purchases of equity securities and non consolidated investment funds (f) (g) Purchases of investment properties held directly or not (f) (31,576) (13,922) (1,145) (49,455) (15,370) (606) Purchases and/or issues of loans and other assets (f) (h) (25,727) (25,766) Net cash related to purchases and issuance of investments (f) (g) (h) (72,371) (91,197) Sales of tangible and intangible assets 6 16 Purchases of tangible and intangible assets (233) (152) Net cash related to sales and purchases of tangible and intangible assets (226) (136) Increase in collateral payable / Decrease in collateral receivable 2,001 2,530 Decrease in collateral payable / Increase in collateral receivable (2,177) (998) Net cash impact of assets lending / borrowing collateral receivables and payables (176) 1,532 Other investing cash impact and non cash adjustment 1,590 (797) NET CASH PROVIDED BY INVESTING ACTIVITIES (6,882) (10,908) Issuance of equity instruments (i) Repayments of equity instruments (i) Transactions on treasury shares Dividends payout 155 (19) (5) (2,752) 158 (123) 0 (2,485) Interests on perpetual debt paid (119) (144) Net cash related to transactions with shareholders (2,740) (2,593) Cash provided by financial debt issuances Cash used for financing debt repayments 1,949 (89) 186 (676) Interests on financing debt paid (j) (171) (283) Net cash related to Group financing 1,689 (772) Other financing cash impact and non cash adjustment 59 21 ___________________________________________________________________________________________________________________ Page 8 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 NET CASH PROVIDED BY FINANCING ACTIVITIES (991) Net cash provided by discontinued operations (0) Cash and cash equivalents as at January 1 (a) 17,192 Net cash provided by operating activities 10,707 Net cash provided by investing activities Net cash provided by financing activities Net cash provided by discontinued operations Impact of change in scope on cash and cash equivalent (6,882) (991) (0) 38 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (457) Cash and cash equivalents as at June 30 (a) 19,645 (a) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see note 1.7.2). As described in note 1.19, the "Cash and cash equivalents" item in the statement of consolidated cash flows excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). The effect on the June 30, 2007 cash flow statement is as follows : - a €618 million increase of the "Sales and/or repayment of loans and other assets" item; - a €313 million decrease of the "Purchases and/or issues of loans and other assets" item; As a consequence of the three impacts detailed above, the "Net cash provided by investing activities" shows a increase of €305 million. The "Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents" item has also been increased by €4 million. The impact on the closing position of "Cash and cash equivalents" as at June 30, 2007 is a decrease of €7.649 billion. (b) Includes the capitalization of premiums/discounts and related amortization as well as amortization of investment and owner occupied properties (held directly). (c) Includes the impact of reinsurance. This item also includes the change in liabilities arising from contracts where the financial risk is borne by policyholders. (d) Mainly includes changes in provisions for risks and charges, provisions for bad debts/doubtful receivables and change in impairment of assets held for sale. (e) Also includes changes relating to repository transactions and equivalent for banking activities. (f) Includes corresponding derivatives. (g) Includes non controlled investments funds and equity instruments held directly or by consolidated funds. (h) Also includes purchases and sales of assets backing contracts where the financial risk is borne by policyholders. (i) Also includes issuance and repayments of perpetual debts. (j) Includes the net cash impact of interest margins relating to hedging derivatives on financing debts. June 30, 2008 Cash and cash equivalents as at December 31 21,974 Bank overdrafts (a) (2,329) Cash related to discontinued operations included in caption "Assets held for sale and relating to discontinued operations" Cash and cash equivalents as atJune 30 (b) 19,645 (a) Included in "Other debt instruments issued and bank overdrafts". (b) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investme nt funds from the Satellite Investment Portfolio (see note 1.7.2). As described in note 1.19, the "Cash and cash equivalents" item in the statement of consolidated cash flows excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). ___________________________________________________________________________________________________________________ Page 9 of 50 (3,345) 47 19,831 12,229 (10,908) (3,345) 47 13 (108) 17,760 (in Euro million) June 30, 2007 19,274 (1,843) 329 17,760 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD (SORIE) (in Euro million) June 30, 2008 June 30, 2007 Reserves relating to changes in fair value through shareholders' equity (4,356) (1,957) Translation reserves (585) (280) Employee benefits actuarial gains and losses through OCI (149) 533 Net gains and losses recognized directly through shareholders' equity (5,090) (1,703) Net consolidated income 2,395 3,540 Total recognized income and expense for the period (SORIE) (2,694) 1,837 Split between : SORIE - Group share (2,733) 1,644 SORIE - Minority interests' share 38 193 The consolidated statement of shareholders’ equity is presented in note 5. ___________________________________________________________________________________________________________________ Page 10 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 1 : Accounting principles 1.1. General information AXA SA, a French ―Société Anonyme‖ (the ―Company‖ and, together with its consolidated subsidiaries, ―AXA‖ or the ―Group‖), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia-Pacific. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated financial statements. AXA operates in the following primary business segments: Life & Savings - Property & Casualty - International Insurance - Asset Management - Banking AXA has its primary listing on the Paris stock exchange's Eurolist market and has been listed since June 25, 1996 on the New York Stock Exchange. The interim consolidated financial statements were finalized by the Management Board on August 4, 2008 and presented to the Supervisory Board on August 6, 2008. 1.2. General accounting principles 1.2.1. Basis for preparation AXA’s interim consolidated financial statements are prepared as at June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half year end. The interim consolidated financial statements were prepared in compliance with IFRS standards according to IAS 34 - Interim Financial Reporting and IFRIC interpretations that were definitive and effective as at June 30, 2008, as adopted by the European Commission before the balance sheet date. However, the Group does not use the ―carve out‖ option to avoid applying all the hedge accounting principles required by IAS 39. As a consequence, the consolidated financial statements also comply with IFRS as issued by the International Accounting Standards Board (―IASB‖). Regarding the content of its interim financial statements, the Group, in accordance with IAS 34 - Interim Financial Reporting, uses the option to disclose a selection of explanatory notes alongside the mandatory summary statements, which are presented in the same format as the full-year financial statements. Interpretations published and effective on January 1, 2008 The application of the following interpretations, as of January 1, 2008, had no significant impact on the Group’s consolidated financial statements: IFRIC 14 — IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, published on July 4, 2007; IFRIC 11 — Group and Treasury Share Transactions, published on November 2, 2006, that addresses the application of IFRS 2 to share-based payment arrangements in three cases. When an entity chooses or is required to buy its own equity instruments to settle the share-based payment obligation, the arrangement should be accounted for as equity-settled share- based payment transactions. When a parent company grants employees of a subsidiary rights to its equity instruments, assuming the transaction is recorded as an equity-settled transaction in the consolidated financial statements, the subsidiary would also record the transaction as an equity-settled transaction in its financial statements. When a subsidiary grants its employees rights to equity instruments of its parent company, the subsidiary should record the transaction as a cash-settled share-based payment transaction. On June 30, 2008, there is no standard or interpretation published by the IASB and effective as at January 1, 2008, but not yet endorsed by the European Commission, which is applicable to the Group, except for IFRIC 14, which has no impact on the Group’s consolidated financial statements. ___________________________________________________________________________________________________________________ Page 11 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Standards and interpretations published but not yet effective IFRS 8 — Operating Segments, published in November 2006 and applicable from January 1, 2009, replaces IAS 14 — Segment Reporting. The new standard requires disclosed operating segments to be based on the segmentation used in the entity’s internal reporting, on the basis of which operational heads allocate capital and resources to the various segments and assess the segments’ performance. The standard requires the entity to explain the basis on which segments are determined, and provide a reconciliation between consolidated balance sheet and income statement amounts. The standard is not expected to have a significant impact on the Group’s financial statements. The amendment to IAS 23 — Borrowing Costs, published on March 29, 2007 and applicable from January 1, 2009, makes it compulsory to capitalise borrowing costs and removes the option to expense these costs. The amendment excludes eligible assets measured at fair value from the revised standard’s scope of application. This amendment is not expected to have a significant impact on the Group’s consolidated financial statements. Revised IAS 1 – Presentation of financial statements, published on September 6, 2007 and applicable from January 1, 2009, represents the first step in the IASB’s comprehensive project on reporting financial information. The new standard requires to present all non-owner changes in equity either in one statement of comprehensive income or in two statements, to present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. It also requires to disclose income tax relating to each component of other comprehensive income and reclassification adjustments relating to components of other comprehensive income. Finally, revised IAS 1 changes the titles of financial statements. The standard is expected to have a limited impact on the presentation of the Group’s financial statements. Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, published on January 10, 2008 and effective for financial years beginning on or after July 1, 2009 with earlier adoption permitted, represent the second phase of the IASB business combination project. IFRS 3R introduces a number of changes in the accounting of business combinations that could impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. The changes will be applied prospectively to new acquisitions and transactions with minority interests after the adoption date. The amendment of IFRS 2 – Share based payments, published on January 17, 2008 and applicable from January 1, 2009, clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. This amendment is not expected to have a significant impact on the Group’s consolidated financial statements. The amendments to IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements – Puttable Financial Instruments with Obligations Arising on Liquidation, published on February 14, 2008 and applicable from January 1, 2009 respectively require i) certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met and ii) disclosure on these instruments. These amendments are not expected to have a significant impact on the Group’s consolidated financial statements. The Improvements to IFRSs, published on May 22, 2008 and applicable from January 1, 2009 unless otherwise specified, include amendments that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They involve accounting changes for presentation, recognition or measurement purposes and terminology or editorial changes with minimal effect on accounting. These amendments are not expected to have a significant impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts on the consolidated balance sheet, consolidated statement of income, consolidated statement of cash flows, consolidated statement of recognized income and expense for the period and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. ___________________________________________________________________________________________________________________ Page 12 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.2.2. First time adoption of IFRS The AXA Group's transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date is January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose to not restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: – goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS), and – any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. The AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant long-term influence are accounted under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post- acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under ―Other reserves‖. Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption ―Financial investments‖. ___________________________________________________________________________________________________________________ Page 13 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.3.2. Business combinations: purchase accounting and goodwill including minority interests buyout In accordance with the option made available by IFRS 1 - First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. The principles described below apply to the business combinations that occurred after January 1, 2004 Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities of the acquired company are estimated at their fair value. However as permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from this exemption permitted by IFRS 4 in phase I of the IASB's insurance project, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other intangible assets such as the value of customer relationships are recognized only if they can be measured reliably. The value of customer relationships intangible in this case represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the "Value of purchased business in force" item. To the extent that these other intangible assets can be estimated separately and reliably, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company's balance sheet at acquisition date. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at completion date, plus external fees directly attributable to the acquisition. The adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably. In the estimate of the contingent consideration, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. If the future events do not occur or the estimate needs to be revised, the cost of the business combination is adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill The excess of the cost of acquisition over the net fair value of the assets, liabilities and contingent liabilities acquired represents goodwill. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net fair value of the assets, liabilities and contingent liabilities acquired, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. ___________________________________________________________________________________________________________________ Page 14 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income; however, the impact is offset by a reduction in goodwill through net income. Goodwill is allocated across business segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Minority interests buyouts In the event of a minority interests buyout of a subsidiary, the new goodwill is recognized as the difference between the price paid for the additional shares and the shareholders' equity acquired (including changes in fair value posted through equity). Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, and since IFRIC’s Agenda Committee decided in 2006 not to take any position on the accounting treatment of these transactions, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference as an addition to goodwill. Similarly, subsequent changes in the liability will be recorded against goodwill. Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: - in full for controlled subsidiaries and; to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated, except for permanent losses, which are maintained. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the balance sheet. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the "other" changes of the consolidated statement of shareholders' equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: - - assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate revenues and expenses are translated at the average exchange rates over the period all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. ___________________________________________________________________________________________________________________ Page 15 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects both business lines (primary business segment) and geographical zones; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holdings" segment includes all non-operational activities. 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an annual impairment test of goodwill based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. The analysis assumes a long-term holding, and excludes parameters affected by short-term market volatility. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of market value and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units' future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Market values are based on various valuation multiples. 1.6.2. Value of purchased life insurance business inforce (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.12.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Other intangible assets Other intangible assets include softwares developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets' estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations, provided that their fair value can be measured reliably and it is probable that future economic benefits attributable to the assets will benefit to the Group. If these assets have a finite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and market value. ___________________________________________________________________________________________________________________ Page 16 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features - Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.12.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equities, debt securities and loans. 1.7.1. Investment properties Investment properties (excluding investment properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from ―With-Profit‖ contracts) are recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment properties that totally or partially back liabilities arising from: — — are recognized at fair value with changes in fair value through profit or loss. contracts where the financial risk is borne by policyholders, ―With-Profit‖ contracts where dividends are based on real estate assets, 1.7.2. Financial instruments Classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: — — — — equity. assets held to maturity, accounted for at amortized cost; loans and receivables (including unquoted debt instruments) accounted for at amortized cost; assets held for trading and assets designated as at fair value with change in fair value through profit or loss; available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: — particular: financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in ___________________________________________________________________________________________________________________ Page 17 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 • assets backing liabilities arising from contracts where the financial risk is borne by policyholders; • assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations). — portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (―Satellite Investment Portfolio‖, see definition below). In practice, assets held through consolidated investment funds are classified: — investment contracts, managed according to AXA’s ALM strategy; — management aimed at maximizing returns. either as assets of the ―Core Investment Portfolios‖ which include assets backing liabilities arising from insurance and or as assets of the ―Satellite Investment Portfolios‖, reflecting the strategic asset allocation based on a dynamic asset Underlying financial instruments held in the ―Core Investment Portfolios‖ are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the ―Satellite Investment Portfolios‖ are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy as detailed in Note 4. Loans which are not designated under the fair value option are accounted at amortized cost, net of amortized premiums and discounts and impairment. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as ―available for sale‖ is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as ―held to maturity‖ or ―available for sale‖, an impairment based on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity securities classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity securities showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement — is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity securities impairment recognized in the income statement can not be reversed through the income statement until the asset is sold or derecognized. Loans impairments are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as ―held to maturity‖, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local ALM strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS ___________________________________________________________________________________________________________________ Page 18 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment properties, debt securities or equity securities, etc). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed significant. For balance sheet presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that ___________________________________________________________________________________________________________________ Page 19 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the balance sheet and income statement are provided in the notes to the consolidated financial statements. 1.11. Share capital and shareholders’ equity 1.11.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.11.2. Perpetual debts Perpetual debts and any related interest charges are classified either in shareholders’ equity (in the ―other reserves‖ aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend). 1.11.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the ―other reserves‖ aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.11.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.12. Liabilities arising from insurance and investment contracts 1.12.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on the top of these standard benefits: - - they are likely to represent a significant portion of the overall contractual benefits; their amount or timing is contractually at the discretion of the Group; and they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: - liabilities arising from insurance contracts, ___________________________________________________________________________________________________________________ Page 20 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 - - - liabilities arising from insurance contracts where the financial risk is borne by policyholders, liabilities arising from investment contracts with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features, liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.12.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions and selective changes as permitted by IFRS 4 (see paragraph below on guaranteed benefits). Unearned premium reserves represent the prorated portion of written premiums that relates to unexpired risks at the balance sheet date. For traditional life insurance contracts (that is, contracts with significant mortality risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Additional reserves are booked if there are any adverse impacts on reserves level caused by a change in mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called ―savings contracts‖ in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. ―account balance‖ methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. The ―Liabilities arising from policyholders participation‖ caption includes the entire ―Fund for Future Appropriation‖ (FFA) relating to UK with-profit contracts, which principally covers future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profit contracts and the FFA varies in line with the market value of the assets supporting the participating with-profit funds. Technical reserves are measured on a ―realistic‖ basis in accordance with UK accounting standard FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. ___________________________________________________________________________________________________________________ Page 21 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Claims reserves (non-life insurance) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see section 1.6.4). Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is determined by applying an estimated participation rate to unrealized gains and losses. Deferred policyholders participation is fully classified as liabilities (or assets). As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss is accounted, a deferred participating asset (DPA) should be recognized only to the extent that its recoverability toward future policyholders participation, by entity, is highly probable. That could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit or loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the statement of income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are also booked through shareholders’ equity. Liability adequacy test (LAT) At each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities also use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and they take into account embedded options and guarantees and investment yields relating to assets backing these contracts. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Any identified deficiency is charged to the income statement, initially by respectively writing off DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. ___________________________________________________________________________________________________________________ Page 22 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.12.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using "deposit accounting", which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see "Revenue recognition" section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities recognized under existing accounting policies are valued based on the fair value of the financial investments backing those contracts at the balance sheet date. Unearned fees reserve Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs (see section 1.6.4). 1.13. Reinsurance: Ceded reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.14. Financing debts Financing debts issued to finance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specific balance sheet aggregate. 1.15. Other liabilities 1.15.1. Income taxes The half-year income tax charge is based on the best estimate of the expected full-year tax rate (if progressive tax rates based on income levels are in force) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carryforwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. Therefore, deferred tax assets that are not expected to be recovered are derecognized. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. ___________________________________________________________________________________________________________________ Page 23 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.15.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Recognized Income and Expense – SORIE) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Past service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past service costs are amortized on a straight-line basis over the vesting period. 1.15.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as at January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged option. The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the CNC (Conseil National de la Comptabilité). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.16. Provisions for risks, charges and contingent liabilities 1.16.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.16.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or implicit) as a result of past events, when it is more likely than not that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). ___________________________________________________________________________________________________________________ Page 24 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.17. Revenue recognition 1.17.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.17.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see ―Unearned fees reserves‖ section 1.12.3). 1.17.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: - the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.17.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: the Group can measure separately the "deposit" component (including any embedded surrender option, i.e. without taking into account the "insurance" component); the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the "deposit" component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.17.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premium reserve reported as a liability (see "Unearned premium reserves" in section 1.12.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see "Provisions for unearned revenues" in section 1.12.2) and investment contracts with no discretionary participating features (see section 1.12.3 "Provisions for unearned fees"). 1.17.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item "Bank operating expenses". ___________________________________________________________________________________________________________________ Page 25 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 1.17.7. Revenues from other activities Revenues from other activities mainly include: - insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, commissions received and fees for services relating to asset management activities, and, rental income received by real estate management companies. 1.17.8. Policyholders’ participation The half-year policyholders' participation charge is based on the best estimate of the planned full-year distribution rate for each portfolio of contracts at each Group entity level. 1.17.9. Net investment result excluding financing expenses The net investment result includes: - - - investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the ―administrative expenses‖ aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, investment management expenses (excludes financing debt expenses), realized investment gains and losses net of releases of impairment following sales, the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the "Net revenue from banking activities" item (see section 1.17.6). Any gain or loss arising from a decrease in AXA’s ownership interest in a consolidated entity is recorded in the net investment result, to the extent it does not result from an internal restructuring within the Group. The gain or loss corresponds to the change in AXA's share of the subsidiary's shareholders’ equity before and after the subsidiary equity transaction. 1.18. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: Such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, Such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. 1.19. Presentation of the financial statements Consolidated statement of cash flows While cash and cash equivalent balances backing contracts where the financial risk is borne by policyholders are not held within legally segregated ―separate accounts‖, the use of these cash balances is nevertheless subject to significant restrictions and these funds are not considered readily available for use by the Group. Accordingly, the Group has reconsidered the presentation of these amounts and decided to discontinue the presentation of cash backing unit-linked contracts in its consolidated statement of cash flows, for all periods presented. Segment reporting At June 30, 2008, the ―Holding companies‖ segment (that includes all non-operational activities), also includes some financial vehicles including certain Special-Purpose Entities such as consolidated CDOs, formely disclosed as part of the segment ―Others Financial Services‖ which has been renamed ―Banking‖. This change has been applied retrospectively to June 30, 2007. ___________________________________________________________________________________________________________________ Page 26 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2008 December 31, 2007 Parent and Holding Companies Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA Parent company Parent company AXA China 100.00 77.42 100.00 77.39 AXA France Assurance 100.00 100.00 100.00 100.00 Colisée Excellence 100.00 100.00 100.00 100.00 AXA Participations II 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 99.99 99.99 99.99 99.99 AXA Technology Services 100.00 99.99 100.00 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.99 100.00 99.99 AXA UK Plc 100.00 99.99 100.00 99.99 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Winterthur (UK) Holdings Ltd 100.00 99.99 100.00 99.99 Ireland AXA Life Europe 100.00 100.00 100.00 100.00 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd (1) 100.00 53.91 100.00 53.86 AXA Life Singapore Holding (1) 100.00 53.91 100.00 53.86 AXA Asia Pacific Holdings Ltd 53.91 53.91 53.00 53.86 Japan AXA Japan Holding 98.36 98.36 98.11 98.11 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG DBV-Winterthur Holding AG WinCom Versicherungs-Holding AG 100.00 96.69 100.00 100.00 96.69 100.00 100.00 96.69 100.00 100.00 96.69 100.00 Winterthur Beteiligungs-Gesellschaft mbH 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 99.92 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 99.92 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Spain AXA Mediterranean Holding SA 100.00 100.00 100.00 100.00 Italy AXA Italia SpA 100.00 100.00 100.00 100.00 Switzerland Finance Solutions SARL 100.00 100.00 100.00 100.00 Morocco AXA Ona 100.00 100.00 100.00 100.00 Turkey AXA Oyak Holding AS 50.00 50.00 50.00 50.00 (1) Wholly owned by AXA Asia Pacific Holdings Limited ___________________________________________________________________________________________________________________ Page 27 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 June 30, 2008 December 31, 2007 Life & Savings and Property & Casualty Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA France Iard Avanssur (formerly Direct Assurances Iard) AXA France Vie AXA Protection Juridique 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 United States AXA Financial (sub group) 100.00 100.00 100.00 100.00 Canada AXA Canada Inc. (sub group including Citadel) 100.00 100.00 100.00 100.00 United Kingdom AXA Insurance Plc AXA Sun Life Plc AXA PPP Healthcare Limited Thinc Group Venture Preference Limited Winterthur Life UK Limited Whale CDO Equity Fund 100.00 100.00 100.00 100.00 97.84 100.00 99.98 99.99 99.99 99.99 99.99 97.83 99.99 99.97 100.00 100.00 100.00 100.00 95.40 100.00 100.00 99.99 99.99 99.99 99.99 95.40 99.99 99.99 Ireland AXA Insurance Limited 100.00 99.99 100.00 99.99 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore (1) AXA Australia New Zealand AXA China Region Limited (including MLC Hong-Kong) (1) AXA General Insurance Hong Kong Ltd AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia Kyobo Automobile Insurance Winterthur Life (Hong Kong) Ltd. 100.00 100.00 100.00 100.00 100.00 80.00 100.00 90.08 - 53.91 53.91 53.91 100.00 100.00 43.13 53.91 90.08 - 100.00 100.00 100.00 100.00 100.00 80.00 100.00 90.08 100.00 53.86 53.86 53.86 100.00 100.00 43.09 53.86 90.08 53.86 Merged with AXA China Region Limited Axa Affin General Insurance Berhad 50.48 50.48 50.48 50.48 Japan AXA Life Insurance AXA Non Life Insurance Co Ltd Winterthur Swiss Life Insurance Co., Ltd. 100.00 100.00 100.00 98.36 98.36 98.36 100.00 100.00 100.00 98.11 98.11 98.11 Germany AXA Versicherung AG AXA Art AXA Leben Versicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Kranken Versicherung AG DBV-Winterthur Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG DBV-Winterthur Versicherung AG (DWS) DBV-WinSelect Versicherung AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 96.69 96.44 96.44 96.69 96.69 96.69 96.69 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 96.69 96.44 96.44 96.69 96.69 96.69 96.69 Belgium Ardenne Prévoyante AXA Belgium SA Servis (formerly Assurance de la Poste) Assurances de la Poste Vie Winterthur Europe Assurances - Vie Winterthur Europe Assurances - Non Vie Les Assurés Réunis Touring Assurances SA Merged with AXA Belgium SA Merged with AXA Belgium SA 100.00 100.00 100.00 100.00 - - 99.93 100.00 100.00 100.00 100.00 100.00 - - 99.93 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.93 100.00 99.92 99.92 99.92 99.92 100.00 100.00 99.93 100.00 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100.00 100.00 100.00 100.00 100.00 100.00 99.92 99.92 Spain Hilo Direct SA de Seguros y Reaseguros 100.00 100.00 100.00 100.00 AXA Aurora SA Iberica de Seguros y Reaseguros AXA Aurora SA Vida de Seguros y Reaseguros AXA Aurora SA Vida Winterthur Vida y Pensiones Winterthur Seguros Generales, S.A. de Seguros y Reaseguros Winterthur Salud (SA de Seguros) Italy AXA Interlife UAP Vita AXA Assicurazioni e Investimenti AXA-MPS Vita Merged with Winterthur Seguros Generales, S.A. de Seguros y Reaseguros Merged with Winterthur Vida y Pensiones Merged with Winterthur Vida y Pensiones - 99.80 99.89 100.00 100.00 100.00 100.00 50,00 + 1 voting right - 99.80 99.89 100.00 100.00 100.00 99.99 50.00 99.70 99.70 99.96 100.00 100.00 100.00 100.00 100.00 100.00 50,00 + 1 voting right 99.70 99.70 99.67 100.00 100.00 100.00 100.00 100.00 99.99 50.00 AXA-MPS Danni 50,00 + 1 voting right 50.00 50,00 + 1 voting right 50.00 Portugal AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA Seguro Directo 99.63 95.09 100.00 99.39 94.89 100.00 99.61 95.09 100.00 99.37 94.89 100.00 Morocco AXA Assurance Maroc 100.00 100.00 100.00 100.00 Turkey AXA Oyak Hayat Sigorta AS AXA Oyak Sigorta AS 100.00 70.96 50.00 35.48 100.00 70.96 50.00 35.48 ___________________________________________________________________________________________________________________ Page 28 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Gulf Region AXA Cooperative Insurance Company (Saudi Arabia) AXA Insurance (Gulf) B.S.C.c. 50.00 50.00 34.00 50.00 - - Switzerland Winterthur Life Winterthur-ARAG Legal Assistance Winterthur Swiss Insurance Company Holding Winterthur Swiss Insurance P&C Merged with Winterthur Swiss Insurance P&C 100.00 66.67 - 100.00 100.00 66.67 - 100.00 100.00 66.67 100.00 100.00 100.00 66.67 100.00 100.00 Greece AXA Insurance Life AXA Insurance P&C 99.89 99.89 99.89 99.89 99.57 99.57 99.57 99.57 Central and Eastern Europe Winterthur Czech Republic Pension Funds Winterthur Czech Republic Insurance Winterthur Hungary Winterthur Poland Winterthur Poland Pension Funds Winterthur Slovakia 84.59 65.01 65.00 65.00 70.00 100.00 84.59 65.01 65.00 65.00 70.00 100.00 79.97 65.01 65.00 65.00 70.00 100.00 79.97 65.01 65.00 65.00 70.00 100.00 (1) Wholly owned by AXA Asia Pacific Holdings Limited June 30, 2008 December 31, 2007 International Insurance (entities having worldwide activities) Change in scope Voting rights Ownership interest Voting rights Ownership interest AXA Corporate Solutions Assurance (sub group) AXA Cessions AXA Assistance SA (sub group) AXA Global Risks UK Saint-Georges Ré AXA LM Switzerland 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 June 30, 2008 December 31, 2007 Asset Management (entities having worldwide activities) Change in scope Voting rights Ownership interest Voting rights Ownership interest AXA Investment Managers (sub group) AllianceBernstein (sub group) Winterthur Investment Management AG 94.79 63.03 100.00 94.78 63.03 94.78 95.04 63.18 100.00 95.02 63.18 95.02 June 30, 2008 December 31, 2007 Banking Change in scope Voting rights Ownership interest Voting rights Ownership interest France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe 100.00 100.00 100.00 99.92 Hungary ELLA Bank 100.00 100.00 100.00 99.92 June 30, 2008 December 31, 2007 Other Financial Services Change in scope Voting rights Ownership interest Voting rights Ownership interest France Compagnie Financière de Paris Sofinad 100.00 100.00 100.00 99.99 100.00 100.00 100.00 99.99 The main acquisition to the Group scope of consolidation in the first semester 2008 is described below: On March 19, 2008, AXA UK completed the purchase of 100% of the share capital of SBJ Group. The acquisition of SBJ will complement and enhance AXA’s UK advisory and broking capability, bringing a number of strengths to the Group, including increased scale, a wider national presence and access to new market areas. SBJ, with its strong management team and high quality staff, will represent significant progress towards AXA’s stated strategic aim of building a leading presence in the advisory and broking markets. The businesses will continue to operate independently of AXA’s insurance company interests. ___________________________________________________________________________________________________________________ Page 29 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Consolidated investment and investment funds: At 30 June 2008, consolidated investment funds represented total invested assets of €99,864 million (€110,162 million at the end of 2007), corresponding to 324 investment funds (334 investment funds in December 31, 2007), mainly in France, Australia, the United Kingdom, Germany, Japan, Belgium and the Mediterranean Region, and in majority relating to the Life & Savings segment. At 30 June 2008, the 54 consolidated real estate companies (47 consolidated real estate companies in December 31, 2007) corresponded to total invested assets of €9,179 million (€9,226 million at the end of 2007), mainly in France, Australia and Germany. At 30 June 2008, the 6 consolidated CDOs represented total investments of €828 million (€1,024million at the end of 2007). These CDO's are consolidated in AXA's balance sheet in line with IFRS rules even though AXA 's investments in these CDO's assets represented only approximately €166 million out of the €868 million. Given the nature of the Group activities (no securitization of AXA's own invested assets), the current market conditions did not lead to the consolidation of off balance sheet special purpose vehicles originated by the Group. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under ―Minority interests of controlled investment funds and puttable instruments held by minority interest holders‖. At June 30, 2008 minority interests in controlled investment funds amounted to €5,861 million (€7,116 million at December 31, 2007). 2.1.2. Proportionately consolidated companies June 30, 2008 December 31, 2007 Life & Savings and Property & Casualty Change in scope Voting rights Ownership interest Voting rights Ownership interest France Natio Assurances NSM Vie Fonds Immobiliers Paris Office Funds Consolidated by equity method 50.00 - 50.00 49.96 - 49.91 50.00 39.98 50.00 49.96 39.98 49.91 2.1.3. Investments in companies consolidated by equity method Companies consolidated by equity method listed below exclude investment funds and real estate entities: June 30, 2008 December 31, 2007 Change in scope Voting rights Ownership interest Voting rights Ownership interest France Argovie Banque de Marchés et d'Arbitrages NSM Vie Asia/Pacific Previosly consolidated by proportional method 95.23 27.71 39.98 95.01 27.70 39.98 95.23 27.71 - 95.01 27.70 - Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd Axa Mimmetals Assurance Co Ltd PT AXA Mandiri Financial Services 45.00 50.00 51.00 51.00 24.26 26.96 39.48 27.50 45.00 50.00 51.00 51.00 24.24 26.93 39.47 27.47 AXA IM Asia Holding Private Ltd Entry 50.00 47.39 Russia RESO GARANTIA (a) Entry 36.70 36.70 (a) Given that the acquisition date (June 17, 2008), the goodwill did not be identified separately. On June 17, 2008, AXA completed the acquisition of 36.7% of the share capital of RESO GARANTIA, Russia’s 2nd largest P&C insurer for a total cash consideration of around €810 million. Investment funds and real estate entities consolidated by equity method At June 30, 2008, real estate companies consolidated by equity method represented total assets of €353 million (€338 million at the end of 2007) and investment funds consolidated by equity method represented total assets of €1,147 million (€1,234 million at the end of 2007), mainly in France, Germany and in the United States ___________________________________________________________________________________________________________________ Page 30 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 2.1.4. Post balance sheet closing On February 12, 2008, AXA announced it had reached an agreement with ING for the acquisition of 100% of the share capital of its Mexican insurance subsidiary Seguros ING, for a consideration of $1.5 billion (approximately €1.0 billion). Seguros ING is the third largest Mexican insurer (12% total market share, 5.5 million clients), with leading positions in key markets, such as Motor (2nd largest player with a 17% market share) and Health (2nd largest player with a 19% market share). AXA intends to accelerate and complete the initiated turnaround of Seguros ING by dedicating seasoned management capabilities and leveraging the Group’s global platforms and expertise, notably in IT and reinsurance. Upon completion of the transaction, Seguros ING will be integrated to AXA’s Mediterranean Region unit and benefit from its know-how in underwriting, claims management, client segmentation, service and brand management. AXA will finance the transaction with internal resources. This acquisition closed on July 22, 2008. 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV is consolidated within the operations of AXA France Vie. This structure was put in order to improve AXA France Vie assets/liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €250 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables. Securitization of motor insurance portfolios On December 9, 2005, AXA announced the closing of the €200 million securitization of its French motor insurance portfolio. Since the threshold for transferring risk to the financial markets was not reached, the recognition of this operation in AXA’s consolidated financial statements mainly involves the consolidation of the vehicle carrying the portion subscribed by AXA, and the recognition on the balance sheet under other liabilities of a €200 million deposit received from reinsurers. On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio (diversified portfolio spread across 4 countries: Belgium, Germany, Italy and Spain). AXA consolidated its €82 million stake in the vehicle carrying the junior tranches. Through securitization, AXA has transferred to the financial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds. AXA Japan In 2002, AXA Japan transferred 102 buidlings with a net book value of JPY 40 billion to a fund owned by a third party and AXA Japan for JPY 43 billion, with a view to sell the buildings to other parties. The remaining assets in the December 31, 2007 balance sheet relating to this transaction totaled JPY 7 billion (€44 million). During the first semester 2008, all assets has been sold for an amount of JPY 9.6 billion (€60 million) Matignon Finances AXA set up an intra-group financing and cash management company. This company entered the scope of consolidation in 2005. Arche Finance AXA France has invested €1.2 billion at the end of first semester 2008 in Arche Finance, a new investment vehicle dedicated to credit investment. This company is fully consolidated in June 2008 accounts. ___________________________________________________________________________________________________________________ Page 31 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 3 : Segmental information AXA has five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional ―Holding companies‖ segment includes all non-operational activities. The financial information relating to AXA’s business segments and holding company activities is consistent with the presentation provided in the consolidated financial statements. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). Property & Casualty: This business segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. International Insurance: This segment's operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. The segment also includes assistance activities and the group's run-off management activities, managed by AXA Liabilities Managers, including risks underwritten by AXA RE relating to 2005 and prior underwriting years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Paris Ré. The Asset Management segment’s include diversified asset management (including investment fund management) and related services, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities conducted primarily in France and Belgium. From 2007 on, the Holding companies segment (that includes all non-operational activities), also includes some financial vehicles including certain Special-Purpose Entities such as consolidated CDOs, formerly disclosed as part of the segment ―Other Financial Services‖ which has been renamed ―Banking‖. This change has been applied retrospectively to previous periods presented. In this document, ―Insurance‖ covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term ―Financial Services‖ includes both the Asset Management segment and the Banking segment. ___________________________________________________________________________________________________________________ Page 32 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 June 30, 2008 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 29,907 14,589 1,638 (192) Fees and charges relating to investment contracts with no participating features 342 Revenues from insurance activities 30,249 14,589 1,638 (192) Net revenues from banking activities 203 3 (12) Revenues from other activities 601 52 104 2,293 4 2 (215) TOTAL REVENUES 30,850 14,641 1,742 2,293 206 5 (419) Change in unearned premiums net of unearned revenues and fees (1,051) (2,132) (41) 66 Net investment income 7,783 1,160 219 207 (1) 432 (319) Net realized investment gains and losses 985 438 54 18 49 (0) Change in fair value of investments at fair value through profit or loss (18,802) (144) (67) (306) (0) 8 1 Change in investments impairment (1,002) (479) (10) (56) Net investment result excluding financing expenses (11,035) 976 196 (81) (1) 434 (318) Technical charges relating to insurance activities (14,422) (8,197) (1,187) 83 Net result from outward reinsurance (46) (360) (232) 64 Bank operating expenses (27) 4 Acquisition costs (1,620) (2,251) (150) 2 Amortization of the value of purchased business in force (134) Administrative expenses (1,694) (1,290) (184) (1,571) (175) (239) 172 Change in tangible assets impairment (0) (1) (0) (0) (1) (0) Change in goodwill impairment and other intangible assets impairment (14) (37) (1) Other income and expenses (71) 0 44 (110) 20 3 27 Other operating income and expenses (18,001) (12,136) (1,710) (1,681) (185) (232) 348 Income from operating activities before tax 762 1,350 187 531 20 207 (323) Income arising from investments in associates – Equity method 16 3 (0) (2) 1 Financing debts expenses (41) (5) (13) (23) (14) (579) 325 Operating income before tax 737 1,348 175 507 6 (371) 2 Income tax 330 (291) (19) (159) 6 126 (2) Net operating result 1,068 1,056 156 349 11 (245) (0) Result from discontinued operations net of tax Net consolidated income 1,068 1,056 156 349 11 (245) (0) Split between : Net consolidated income - Group share 1,007 1,028 155 198 11 (238) (0) Net consolidated income - Minority interests 61 28 1 150 1 (7) (a) Including SPEs and CDOs previously in the Other Financial Services segment which has been renamed "Banking". ___________________________________________________________________________________________________________________ Page 33 of 50 (In Euro million) TOTAL 45,942 342 46,284 194 2,841 49,319 (3,158) 9,481 1,545 (19,310) (1,546) (9,829) (23,724) (573) (23) (4,018) (134) (4,981) (2) (53) (88) (33,596) 2,735 18 (350) 2,404 (9) 2,395 2,395 2,162 234 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 June 30, 2007 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 30,540 14,328 2,457 (236) Fees and charges relating to investment contracts with no participating features 381 3 Revenues from insurance activities 30,922 14,328 2,460 (236) Net revenues from banking activities 167 3 (16) Revenues from other activities 658 36 93 2,613 2 0 (228) TOTAL REVENUES 31,580 14,363 2,553 2,613 169 3 (479) Change in unearned premiums net of unearned revenues and fees (1,042) (2,260) (616) 84 Net investment income 7,386 1,114 179 62 1 354 (238) Net realized investment gains and losses 1,302 426 0 (2) (51) Change in fair value of investments at fair value through profit or loss 8,293 (98) (12) 30 0 (45) (8) Change in investments impairment (193) (31) (1) (11) Net investment result excluding financing expenses 16,788 1,410 166 90 1 247 (246) Technical charges relating to insurance activities (40,975) (8,271) (1,241) 177 Net result from outward reinsurance (29) (263) (318) 2 Bank operating expenses (23) (1) Acquisition costs (1,757) (2,209) (164) 2 Amortization of the value of purchased business in force (207) Administrative expenses (1,672) (1,193) (186) (1,824) (148) (226) 162 Change in tangible assets impairment 0 3 (0) (0) (0) Change in goodwill impairment and other intangible assets impairment Other income and expenses (99) (50) (11) (139) 17 (93) 53 Other operating income and expenses (44,740) (11,983) (1,920) (1,963) (154) (320) 396 Income from operating activities before tax 2,586 1,531 183 741 17 (70) (245) Income arising from investments in associates – Equity method 7 6 0 (0) Financing debts expenses (44) (5) (11) (16) (13) (389) 245 Operating income before tax 2,549 1,531 172 724 4 (459) 0 Income tax (609) (331) (43) (236) 2 162 Net operating result 1,940 1,200 129 488 5 (297) 0 Result from discontinued operations net of tax 54 20 (0) 0 Net consolidated income 1,994 1,220 129 488 5 (297) 0 Split between : Net income Group share 1,849 1,198 127 292 5 (292) 0 Minority interests share in net consolidated result 145 22 2 196 0 (6) (a) Including SPEs and CDOs previously in the Other Financial Services segment which has been renamed "Banking". ___________________________________________________________________________________________________________________ Page 34 of 50 (In Euro million) TOTAL 47,089 384 47,474 154 3,174 50,801 (3,833) 8,858 1,675 8,160 (236) 18,457 (50,309) (608) (24) (4,128) (207) (5,088) 3 (322) (60,684) 4,741 13 (233) 4,521 (1,055) 3,466 74 3,540 3,180 360 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 4 : Investments Fair value measurement Certain real estate properties (see note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of real estate properties and financial investments held at cost. Real estate Fair value is usually based on valuations conducted by qualified property surveyors. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Financial instruments The Group applies the IAS39 fair value hierarchy as described below. Fair values of financial investments traded on active markets are determined using quoted market prices when available. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The fair values of financial instruments that are not traded in an active market are estimated: using external and independent pricing services such as brokers or arranging banks for example in the case of CDOs, or determined using valuation techniques. Valuation techniques are subjective in nature and significant judgement is involved in establishing fair values for financial investments. They involve various assumptions regarding the underlying price, yield curve, correlations, volatility, default rates and other factors. Unlisted equity securities are based on cross checks using different methodologies such as discounted cash flows techniques, price earning ratios multiples, adjusted net asset values, taking into account recent transactions on similar assets if any. The use of valuation techniques and assumptions could produce different estimates of fair value. However, valuations are determined using generally accepted models (discounted cash flows, Black&Scholes models,…) based on quoted market prices for similar instruments or underlyings (index, credit spread,…) whenever such directly observable data are available, and valuations are adjusted for liquidity and credit risk. Note 4.5 provides a detail of held assets measured at fair value valued by reference to an active market and those valued on the basis of valuation techniques. ___________________________________________________________________________________________________________________ Page 35 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 4.1. Breakdown of investments Each investment item is presented net of the effect of hedging derivatives (IAS 39) and economic hedging derivatives that do not form part of a hedge relationship as defined by IAS 39 (excluding macro hedging derivatives and other derivatives). (in Euro million) Insurance June 30, 2008 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 17,753 12,215 2.25% 2,336 2,161 15.40% 20,089 14,377 2.59% Investment in real estate properties designated as at fair value through profit or loss (b) 3,729 3,729 0.69% 3,729 3,729 0.67% Macro hedge and other derivatives Investment properties 21,482 15,945 2.94% 2,336 2,161 15.40% 23,818 18,106 3.26% Debt securities held to maturity 0 0 0.00% 0 0 0.00% Debt securities available for sale 236,102 236,102 43.56% 4,190 4,190 29.86% 240,292 240,292 43.21% Debt securities designated as at fair value through profit or loss (b) 50,781 50,781 9.37% 502 502 3.58% 51,283 51,283 9.22% Debt securities held for trading 98 98 0.02% 868 868 6.18% 966 966 0.17% Non quoted debt securities (amortized cost) Debt securities 286,982 286,982 52.95% 5,560 5,560 39.62% 292,541 292,541 52.61% Equity securities available for sale 24,894 24,894 4.59% 2,743 2,743 19.55% 27,637 27,637 4.97% Equity securities designated as at fair value through profit or loss (b) 16,175 16,175 2.98% 249 249 1.78% 16,425 16,425 2.95% Equity securities held for trading 57 57 0.01% 343 343 2.45% 400 400 0.07% Equity securities 41,126 41,126 7.59% 3,336 3,336 23.77% 44,462 44,462 8.00% Non controlled investment funds held for sale 5,557 5,557 1.03% 91 91 0.65% 5,647 5,647 1.02% Non controlled investment funds designated as at fair value through profit or loss (b) 2,062 2,062 0.38% 115 115 0.82% 2,177 2,177 0.39% Non controlled investment funds held for trading 218 218 0.04% 218 218 0.04% Non controlled investment funds 7,836 7,836 1.45% 206 206 1.47% 8,042 8,042 1.45% Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,014 5,014 0.93% 26 26 0.19% 5,040 5,040 0.91% Macro hedge and other derivatives 87 87 0.02% 1,765 1,765 12.58% 1,853 1,853 0.33% Financial investments 341,045 341,045 62.92% 10,892 10,892 77.62% 351,938 351,938 63.29% Loans held to maturity Loans available for sale 872 872 0.16% 56 56 0.40% 928 928 0.17% Loans designated as at fair value through profit or loss (b) 53 53 0.01% 53 53 0.01% Loans held for trading 49 49 0.35% 49 49 0.01% Mortgage loans 12,666 12,931 2.39% 1 1 0.01% 12,667 12,932 2.33% Other loans (1) (a) 10,943 11,067 2.04% 862 856 6.10% 11,805 11,923 2.14% Macro hedge and other derivatives 17 17 0.12% 17 17 0.00% Loans 24,534 24,923 4.60% 985 979 6.97% 25,520 25,902 4.66% Assets backing contracts where the financial risk is borne by policyholders 160,108 160,108 29.54% 160,108 160,108 28.79% INVESTMENTS 547,170 542,022 100.00% 14,214 14,032 100.00% 561,384 556,054 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 387,061 381,913 70.46% Life & Savings 327,135 322,598 59.52% Property & Casualty 51,559 50,952 9.40% International Insurance 8,367 8,361 1.54% (a) Mainly includes policy loans. (b) Use of fair value option. ___________________________________________________________________________________________________________________ Page 36 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 (in Euro million) Insurance December 31, 2007 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 17,778 12,045 2.06% 1,867 1,776 12.96% 19,645 13,821 2.31% Investment in real estate properties designated as at fair value through profit or loss (b) 4,137 4,137 0.71% 4,137 4,137 0.69% Macro hedge and other derivatives Investment properties 21,915 16,182 2.77% 1,867 1,776 12.96% 23,782 17,958 3.00% Debt securities held to maturity 0 0 0.00% 0 0 0.00% Debt securities available for sale 241,766 241,766 41.38% 4,935 4,935 36.01% 246,701 246,701 41.26% Debt securities designated as at fair value through profit or loss (b) 55,152 55,152 9.44% 822 822 6.00% 55,974 55,974 9.36% Debt securities held for trading 120 120 0.02% 1,019 1,019 7.44% 1,139 1,139 0.19% Non quoted debt securities (amortized cost) Debt securities 297,039 297,039 50.84% 6,775 6,775 49.44% 303,814 303,814 50.81% Equity securities available for sale 33,350 33,350 5.71% 2,546 2,546 18.58% 35,896 35,896 6.00% Equity securities designated as at fair value through profit or loss (b) 19,322 19,322 3.31% 271 271 1.98% 19,593 19,593 3.28% Equity securities held for trading 127 127 0.02% 325 325 2.37% 452 452 0.08% Equity securities 52,799 52,799 9.04% 3,141 3,141 22.92% 55,940 55,940 9.36% Non controlled investment funds held for sale 3,449 3,449 0.59% 142 142 1.03% 3,591 3,591 0.60% Non controlled investment funds designated as at fair value through profit or loss (b) 2,298 2,298 0.39% 134 134 0.98% 2,433 2,433 0.41% Non controlled investment funds held for trading 135 135 0.02% 8 8 0.06% 143 143 0.02% Non controlled investment funds 5,882 5,882 1.01% 284 284 2.07% 6,166 6,166 1.03% Other assets designated as at fair value through profit or loss, held by controlled investment funds 4,358 4,358 0.75% 166 166 1.21% 4,524 4,524 0.76% Macro hedge and other derivatives (27) (27) N/A 1,312 1,312 9.58% 1,285 1,285 0.21% Financial investments 360,051 360,051 61.63% 11,679 11,679 85.23% 371,730 371,730 62.17% Loans held to maturity 0 0 0.00% 0 0 0.00% Loans available for sale 926 926 0.16% 41 41 0.30% 968 968 0.16% Loans designated as at fair value through profit or loss (b) 39 39 0.01% 1 1 0.01% 40 40 0.01% Loans held for trading 0 0 0.00% 77 77 0.56% 77 77 0.01% Mortgage loans 12,738 12,817 2.19% 1 1 0.01% 12,740 12,818 2.14% Other loans (1) (a) 11,310 11,395 1.95% 121 121 0.88% 11,430 11,515 1.93% Macro hedge and other derivatives 7 7 0.05% 7 7 0.00% Loans 25,013 25,177 4.31% 248 248 1.81% 25,261 25,425 4.25% Assets backing contracts where the financial risk is borne by policyholders 182,827 182,827 31.29% 182,827 182,827 30.58% INVESTMENTS 589,806 584,237 100.00% 13,793 13,703 100.00% 603,599 597,939 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 406,979 401,410 68.71% Life & Savings 343,656 338,623 57.96% Property & Casualty 54,650 54,115 9.26% International Insurance 8,673 8,672 1.48% (a) Mainly includes policy loans. (b) Use of fair value option. ABS (Asset Backed Securities) held by the Group At June 30, 2008, the total amount of ABS (excluding Collateral Mortgage Obligations) was €14 billion. The negative mark-to-market evolution of the ABS assets at June 30, 2008 was evaluated at €1.6 billion (of which €1 billion was in the income statement and €0.6 billion was in shareholders’equity), or €0.6 billion net of policyholders participation, tax and VBI/DAC reactivity, of which €0.3 billion through the income statement and €0.3 billion through shareholders’equity. These figures represent 100% of assets held directly and in consolidated ―core block‖ funds (economic view) and the group share in instruments held in consolidated ―satellite funds‖ as defined in note 1.7.2 of note 1. They exclude instruments held by non consolidated funds. ___________________________________________________________________________________________________________________ Page 37 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Equity hedging At June 30, 2008, the Group hedged its equity portfolio using notably put spread and equity swap strategies for a total notional amount of €22.6 billion of which €12 billion in AXA SA and €10.6 billion in local entities (France, Germany, Switzerland and Japan). Additional hedges have been set up after the closing. CDS (Credit Default Swaps) held by the group The AXA Group, as part of its investment and credit risk management activities, may use strategies that involve credit derivatives (Credit Default Swaps or CDS), which are mainly used as an alternative to corporate bond portfolios when coupled with government bonds. At June 30, 2008, the nominal amount of positions taken trough credit derivatives was €21.7 billion1 including €3 billion of CDSs held through five of the six CDOs and €18.7 billion (or €17.5 net of hedges) of CDSs. For these €17.5 billion CDSs, the credit risk is taken by the AXA Group these instruments is included in analyses of bond portfolios as described in the previous section. Limits applied to issuers take into account these credit derivative positions. Credit risk relating to CDOs is monitored separately, depending on the tranches held, and regardless of the type of collateral (bonds or credit derivatives). Notes that the CDOs are consolidated in AXA’s investments in these CDO’s assets are limited. These figures represent 100% of assets held directly and in consolidated ―core block‖ funds (economic view) and the group share in instruments held in consolidated ―satellite funds‖ as defined in note 1.7.2 of note 1. They exclude instruments held by non consolidated funds. 4.2. Investment properties Investment in real estate properties include buildings owned directly and through consolidated real estate companies. Investment properties stated at fair value on the balance sheet mainly consist of assets backing UK with-profit contracts. They also include the unallocated portion of real estate companies, part of which is used to back unit-linked contracts (ie when the financial risk is borne by policyholders). Breakdown of the carrying value and fair value of investment properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2008 December 31, 2007 Gross value Amortization Impairment Carrying value (a) Fair value (a) Gross value Amortization Impairment Carrying value (a) Fair value (a) Investment in real estate properties at amortized cost Insurance 13,676 (1,335) (182) 12,159 17,753 13,548 (1,357) (166) 12,025 17,778 Other activities 2,163 (1) (0) 2,161 2,336 1,777 (1) (0) 1,776 1,867 All activities 15,839 (1,336) (182) 14,321 20,089 15,325 (1,358) (166) 13,801 19,645 (a) Amounts are presented excluding macro hedging and other reivatives but including the effect of hedging derivatives (IAS 3 9) and economic hedging derivatives that do not form part of a hadge relationship within the meaning of IAS 39. Change in impairment and amortization of investment in real estate properties at amortized cost (all activities): (in Euro million) Impairment Amortization June 30, 2008 December 31, 2007 June 30, 2008 December 31, 2007 January 1 166 197 1,358 1,490 Increase for the period 25 55 107 246 Write back following sale (10) (50) (30) (208) Write back following recovery in value (1) (17) Others (a) 2 (20) (99) (171) December 31 182 166 1,336 1,358 (a) Mainly includes change in scope of consolidation and the effect of changes in exchange rates. 1 Excluding, since June 30, 2008, structured derivatives in synthetic instruments, reported as ABS ___________________________________________________________________________________________________________________ Page 38 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 4.3. Unrealized gains and losses on financial investments Excluding the effect of all derivatives, the unrealized capital gains and losses on financial investments when not already reflected in the income statement is allocated as follows: INSURANCE (in Euro million) June 30, 2008 December 31, 2007 INSURANCE Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Debt securities available for sale Non quoted debt securities (amortized cost) Equity securities available for sale 242,627 - 19,166 235,297 - 24,338 235,297 - 24,338 3,413 - 5,872 10,743 - 701 242,608 - 24,320 241,220 - 33,249 241,220 - 33,249 4,762 - 9,413 6,150 - 484 Non controlled investment funds held for sale 5,153 5,556 5,556 552 149 3,109 3,446 3,446 368 31 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). OTHER ACTIVITIES (in Euro million) June 30, 2008 December 31, 2007 OTHER ACTIVITIES Amortized cost Fair value Carrying value Unrealized gains Unrealized losses Amortized cost Fair value Carrying value Unrealized gains Unrealized losses Debt securities available for sale Non quoted debt securities (amortized cost) Equity securities available for sale 4,366 - 2,796 4,183 - 2,351 4,183 - 2,351 8 - 127 191 - 573 5,037 - 2,575 4,933 - 2,550 4,933 - 2,550 2 - 133 106 - 158 Non controlled investment funds held for sale 90 91 91 1 0 142 142 142 1 1 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). TOTAL (in Euro million) June 30, 2008 December 31, 2007 TOTAL Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Debt securities available for sale Non quoted debt securities(amortized cost) Equity securities available for sale 246,993 - 21,962 239,480 - 26,689 239,480 - 26,689 3,421 - 6,000 10,934 - 1,273 247,645 - 26,896 246,153 - 35,799 246,153 - 35,799 4,764 - 9,545 6,256 - 642 Non controlled investment funds held for sale 5,243 5,647 5,647 552 149 3,251 3,588 3,588 369 33 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). See also table 4.4.1: Breakdown of financial investements subject to impairment. ___________________________________________________________________________________________________________________ Page 39 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 4.4. Financial investements and loans subject to impairment 4.4.1. Breakdown of financial investments and loans subject to impairment – All activities Each investment item is presented net of the effect of hedging derivatives (IAS 39) and economic hedging derivatives that do not form part of a hedge relationship under IAS 39 (excluding macro hedging derivatives and other derivatives). (in Euro million) June 30, 2008 December 31, 2006 Restated (*) Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Net book value (Carrying value) Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Net book value (Carrying value) Debt securities available for sale 248,128 (397) 247,730 (7,438) 240,292 248,507 (373) 248,133 (1,433) 246,701 Non quoted debt securities (amortized cost) Debt securities 248,128 (397) 247,731 (7,438) 240,292 248,507 (373) 248,134 (1,433) 246,701 Equity securities available for sale 25,248 (3,073) 22,175 5,462 27,637 29,287 (2,307) 26,980 8,916 35,896 Non controlled investment funds available for sale 5,540 (296) 5,244 403 5,647 3,352 (97) 3,254 337 3,591 Loans held to maturity Loans available for sale Mortgage loans Other loans ( c ) 1,014 12,942 11,938 (0) (10) (49) 1,014 12,932 11,890 (86) - 33 928 12,932 11,923 0 1,014 12,831 11,546 (0) (13) (53) 0 1,014 12,818 11,493 (46) - 23 0 968 12,818 11,515 Loans 25,895 (59) 25,835 (53) 25,782 25,391 (66) 25,325 (23) 25,301 TOTAL 304,810 (3,825) 300,985 (1,626) 299,359 306,536 (2,843) 303,693 7,796 311,489 (a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Including policy loans. Change in impairment on financial investments and loans – All activities (in Euro million) January 1, 2008 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) June 30, 2008 Impairment - debt securities 373 136 (60) (49) (3) 397 Impairment - equity securities 2,307 1,264 (498) 0 3,073 Impairment - non controlled investment funds 97 177 (16) 38 296 Impairment - loans 66 7 (5) (7) (2) 59 TOTAL 2,843 1,584 (579) (56) 33 3,825 (a) Changes in the scope of consolidation and impact of changes in exchange rates. The assessment of the significant and/or prolonged nature of the equity securities decline takes into account forex impacts in case of a prolonged decline in currency, such as the euro/dollar rate. (in Euro million) January 1, 2007 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2007 Impairment - debt securities Impairment - equity securities 138 2,504 401 465 (181) (511) (4) 19 (151) 373 2,307 Impairment - non controlled investment funds 77 38 (24) 7 97 Impairment - loans 99 8 (39) (15) 14 66 TOTAL 2,817 911 (755) (19) (112) 2,843 (a) Changes in the scope of consolidation and impact of changes in exchange rates. 4.5. Financial investements and loans recognized at fair value excluding derivatives ___________________________________________________________________________________________________________________ Page 40 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Amounts presented exclude the impact of derivatives and investment funds consolidated by equity method. Among invested financial investments measured at fair value in the financial statements excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders (€352 billion as June 30, 2008, €374 billion as December 31, 2007) : - €283 billion were determined directly by reference to an active market (1) (€307 billion at the end of 2007) and €69 billion were measured on the basis of valuation techniques (2) (€67 billion at the end of 2007) (1) Fair values determined directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. (2) Fair values estimated using valuation techniques include : Values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active, and Assets measured on the basis of internal models including assumptions supported by observable data or mark-to model valuations. The amount of assets measured at fair value using in whole or in part a valuation technique based on assumptions that are not supported by prices from current market transactions and not based on available observable market data is less than 2% of the Group’s financial investments excluding assets backing contracts where the financial risk is borne by policyholders as at June 30, 2008. When running this analysis, external valuations are considered as observable data determined by market participants. ___________________________________________________________________________________________________________________ Page 41 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 5 : Shareholders’ equity, minority interests and other equity 5.1. Impact of transactions with shareholders 5.1.1. Change in shareholders’ equity group share for the first half of 2008 a) Share capital and capital in excess of nominal value During the first half of 2008, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Exercise of stock options for a total of €58 million (including €6 million in nominal share capital), - - Realized losses on AXA shares for €18 million. Share-based payments for €45 million. b) Treasury shares At June 30, 2008, the Company and its subsidiaries owned approximately 28 million AXA shares, a decrease of 2 million shares or €53 million compared to December 31, 2007, mainly resulting from the following: During the first half of 2008, AXA purchased 2 million shares for a total amount of €33 million mainly as part of the share purchase program to control dilution. Other movements in treasury shares for a total net amount of €+86 million, or 4 million shares sold, mainly resulting from the attribution of AXA shares held for the hedging of (i) ―performance share‖ plans and (iii) AXA ADR stock option programs at AXA Financial. c) Perpetual debt and related interests As described in paragraph 1.11.2 on accounting principles, the perpetual deeply subordinated notes issued by the Group do not qualify as liabilities under IFRS. Subordinated perpetual debt is classified in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2008, the change in other reserves was due to €–148 million in interest expense on the deeply subordinated debt, and €–255 million in exchange rate differences. ___________________________________________________________________________________________________________________ Page 42 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 At June 30, 2008, December 31, 2007 and June 30, 2007, deeply subordinated debt recognized in shareholders’ equity broke down as follows: June 30, 2008 December 31, 2007 June 30, 2007 Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million October 29, 2004 - 375 M€ 6% 375 375 375 375 375 375 December 22, 2004 - 250 M€ 6% 250 250 250 250 250 250 January 25, 2005 - 250 M€ 6% 250 250 250 250 250 250 July 6, 2006 - 1000 M€ 5.777% 1,000 994 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.666% 500 626 500 676 500 736 July 6, 2006 - 350 M£ 6.6862% 350 442 350 477 350 519 October 26, 2006 - 600 M$AUD (of which 300M$AUD 7.5%) 600 364 600 355 600 375 November 7, 2006 - 150 M$AUD 7.5% 150 91 150 89 150 94 December 14, 2006 - 750M $ 6,4630% 750 473 750 507 750 553 December 14, 2006 - 750M $ 6,3790% 750 473 750 507 750 553 October 5, 2007 - 750 M€ 6.211 % 750 746 750 746 October 16, 2007 - 700 M£ 6.772 % 700 881 700 952 Sub-total Perpetual Deeply Subordinated notes ("TSS") 5,965 6,179 4,699 Perpetual notes - variables rates in EUR 844 844 844 844 1,404 1,404 Perpetual notes - 3.29% in JPY 27,000 162 27,000 164 27,000 162 Perpetual notes - (of which 500M$USD at 7,1%) in USD 875 555 875 594 1,275 944 Sub-total Deeply Subordinated notes ("TSDI") 1,561 1,602 2,510 Equity component of convertible debt (2017) 95 95 95 95 95 95 TOTAL 7,621 7,875 7,303 In addition to the nominal amounts shown above, the debt component of shareholders’ equity included related net financial expenses of : - - €-805 million at June 30, 2007, for total of €6,816 million; €-657 million at December 31, 2007, for total of €7,219 million; and €-506 million at June 30, 2007, for total of €6,798 million. Some of these instruments contained the following features: – Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before maturity without penalty on certain dates; Interest rate step-up clauses with effect from a given date. – d) Dividends paid At the April 22, 2008 shareholders' meeting, shareholders approved a dividend distribution of €2,473 million with respect to the 2007 financial year. 5.1.2. Changes in shareholders’ equity group share for the first half of 2007 a) Share capital and capital in excess of nominal value During the first half of 2007, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Exercise of stock options for a total of €82 million (including €11 million in nominal share capital), - Conversion of convertible bonds for €1 million, - Realized losses on AXA shares for €31 million, - Share-based payments for €21 million. b) Treasury shares At June 30, 2007, the Company and its subsidiaries owned approximately 44 million AXA shares, an increase of 15 million shares or €645 million compared to December 31, 2006, mainly resulting from the following: ___________________________________________________________________________________________________________________ Page 43 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 During the first half of 2007, AXA pursued its share purchase program to control dilution arising from share-based compensation and employee Shareplan program, and purchased 19.5 million shares for a total amount of €648 million (including ―AXA Miles‖). Other movements in treasury shares for a total net amount of €+99 million, mainly resulting from the attribution of AXA shares held for the hedging of (i) ―performance share‖ plans and (iii) AXA ADR stock option programs at AXA Financial. Payment by AXA of a €96 million premium for call options on AXA shares with an automatic exercise feature, to fully neutralize the dilutive impact of the 2017 convertible bonds. c) Perpetual debt and related interests During the first half of 2007, the change in other reserves was due to €–139 million in interest expense on the perpetual deeply subordinated perpetual notes and the deeply subordinated notes, and €–44 million in exchange rate differences. Following the decision taken during the meeting of holders of the 2014 AXA convertible bonds to have a final conversion date of the bonds on January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option, the equity component of the bond (i.e. the conversion option), representing an amount of €109 million, has been cancelled as a counterpart to the payment. d) Dividends paid At the May 14, 2007 shareholders' meeting, shareholders approved a dividend distribution of €2,218 million with respect to the 2006 financial year. 5.2. Recognized income and expense for the period The statement of recognized income and expense for the period (SORIE), which is a part of the consolidated statement of shareholders’ equity, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 5.2.1. Recognized income and expense for the first half of 2008 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The change in reserves for unrealized gains on assets available for sale totaled €-4,297 million, mainly attributable to France (€-1,089 million), Belgium (€-1,264 million), Germany (€-428 million), the United Kingdom (€-318 million), the United States (€-386 million), the Mediterrannean Region (€-318 million) and the Company (€-340 million). The reduction in gross unrealized gains of available for sale financial assets totaled €-10,164 million, mainly due to debt securities (€-6,014 million), as a consequence of a rise in interest rates during the period, since most of debt securities held are fixed-rates bonds, and to equity securities (€-4,177 million). The following table shows a reconciliation between gross unrealized gains and losses on available for sale financial investments and the corresponding reserve recognized in shareholders’ equity: ___________________________________________________________________________________________________________________ Page 44 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 (in euro million) June 30, 2008 December 31, 2007 Gross unrealized gains and losses (a) (2,462) 7,702 Less unrealized gains and losses attributable to: Shadow accounting on policyholder’s participation (b) 2,544 (1,832) Shadow accounting on Deferred Acquisition Costs (c) 69 (152) Shadow accounting on Value of purchased Business In force (165) (266) Unallocated unrealized gains and losses before tax (14) 5,452 Deferred tax 441 (698) Unrealized gains and losses (net of tax) – 100% - Total 426 4,753 Minority interests' share in unrealized gains and losses (d) 8 (48) Translation reserves (e) 114 140 Unrealized gains and losses (Net Group share) 549 4,846 (a) Unrealized gains on total available for sale investments including loans, and including assets held by equity accounted companies. (b) Including shadow accounting impact on premium deficiency liabilities, after revaluation of available for sale investments. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including foreign exchange impact attributable to minority interests. (e) Group share. The change in reserves relating to changes in fair value of investments at June 30, 2008 and December 31, 2007 broke down as follows: (in euro million) June 30, 2008 December 31, 2007 Unrealized gains and losses (net of tax) 100%, opening 4,753 7,966 Transfer in the profit or loss of the period (a) (524) (1,309) Investments bought in the current accounting period and changes in value (3,878) (1,659) Foreign exchange impact 26 (76) Change in scope and other changes 49 (166) Unrealized gains and losses (net of tax) 100%, closing 426 4,753 (a) Transfer induced by disposal of financial investments, impairment write-back following reevaluation, or tranfer of expenses following impairment charge during the period, and debt securities discount premium impacts. b) Translation reserve The impact of exchange rate movements (€-455 million) was mainly attributable the United States (€-712 million, principally due to the difference between the June 30 2008 closing exchange rate -USD1.58 for €1- and the December 31, 2007 closing exchange rate -USD1.47 for €1-) and the United Kingdom (€-384 million), partly offset by positive changes in Switzerland (€+159 million) and the change in fair value of currency hedges set up the the company to hedge net investments in foreign operations (€+423 million). c) Employee benefits actuarial gains and losses The main contributors to the €-143 million losses on employee benefits obligations were the United States (€-103 million) and the United Kingdom (€-101 million), partly offset by Germany (€+65 million). This resulted from the combination of interest rates increases and unfavourable equity markets. 5.2.2. Recognized income and expense for the first half of 2007 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The €1,724 million decline in the reserve related to changes in fair value of available for sale financial investments was primarily attributable to decreases in France (€-647 million), the United States (€-233 million), Belgium (€-324 million), the United Kingdom (€-221 million), Switzerland (€-153 million) and Southern Europe (€-100 million). ___________________________________________________________________________________________________________________ Page 45 of 50 ________________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 The total €8,214 million decline in gross unrealized gains and losses on available for sale financial investments was mainly attributable to debt securities (a reduction of €9,618 million), following the increase in interest rates during the first half, since most bonds are at fixed rates. This was partially offset by a €1,403 million increase in unrealized gains on equities and mutual fund shares. b) Translation reserve The impact of exchange rate movement (€-259 million) was mainly attributable to the United States (€-280 million, primarily due to the difference between the closing dollar/euro exchange rates: $1.32 = €1 at December 31, 2006 compared to $1.35 = €1 at June 30, 2007), Japan (€-181 million) and Switzerland (€-174 million). This was partially offset by the change in fair value of currency hedges set up by AXA to hedge net investments in foreign operations (€240 million). c) Employee benefits actuarial gains and losses The €516 million increase in actuarial gains and losses on employee benefit obligations was primarily attributable to increases in the United Kingdom (€202 million), Switzerland (€90 million), Germany (€69 million), and the United States (€67 million), due to higher interest rates over the period. 5.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 5.3.1. Change in minority interests for the first half of 2008 The €-167 million change in minority interests, to €3,105 million, was attributable to a €-206 million impact of transactions with shareholders, and a €+38 million recognized income for the period (SORIE). Transactions with shareholders include the following : Dividends paid to minority interests holders for €-307 million, - Other movements, for €+101 million, including notably €+40 million as a consequence of the consolidation of AXA Gulf, and €+43 million resulting from increases in chare capital in some real estate entities. The recognized income and expenses for the period include the following : - net income attributable to minority interests for €+234 million; - - - a €-55 million decrease in reserves relating to the change in fair value of available for sale financial instruments; a €-133 million negative change in translation reserves; and a €-7 million impact from employee benefits actuarial obligation. 5.3.2. Change in minority interests for the first half of 2007 The €132 million decline in minority interests to €2,808 was mainly due to transactions with shareholders (€-325 million), partly offset by income and expenses recognized for the period (€+193 million). Transactions with shareholders included the following : dividends paid to minority interests (€-297 million); - changes in the scope of consolidation (€-62 million), mainly including the buyout of minority interests in AXA Assurances Maroc; other movements totaling €+34 million. Income and expenses recognized for the period are broken down as follows: net income for the period : €+360 million; - movements in reserves due to the changes in fair value of assets : €-163 million, primarily including €-121 million due to a change in scope of consolidation following the buyout of minority interests in AXA Assurances Maroc; change in translation reserves : €-21 million; actuarial gains and losses on employee benefits obligations: €+17 million. - ___________________________________________________________________________________________________________________ Page 46 of 50 ______________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 5.4. Consolidated statements of changes in shareholders’ equity (In Euro million, except for number of shares and nominal value) Attibutable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Reserves relating to revaluation of tangible assets Other (a) Translation reserve Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders' equity as at January 1, 2008 2,060,753 2.29 4,719 17,363 (716) 4,846 (11) 4 7,219 (1,478) 13,697 45,642 3,272 Capital 2,702 2.29 6 6 Capital in excess of nominal value 34 34 Equity - share based compensation 45 45 Change in scope of consolidation 0 (3) 0 (3) 68 Treasury shares 53 53 Equity component of compound financial instruments Deeply subordinated debt (255) (255) Accrued interests - Deeply subordinated debt (148) (148) Other (b) (0) 379 379 (273) Dividends paid (2,473) (2,473) Impact of transactions with shareholders 2,702 2.29 6 79 53 0 (403) (3) (2,094) (2,362) (206) Reserves relating to changes in fair value through shareholders' equity (4,297) (3) (4,301) (55) Translation reserves (451) (451) (133) Employee benefits actuarial gains and losses through OCI (c) (143) (143) (7) Net income of the period 2,162 2,162 234 Total recognized income and expense for the period (SORIE) (4,297) (3) (451) 2,019 (2,733) 38 Shareholders' equity as at June 30, 2008 2,063,456 2.29 4,725 17,442 (663) 549 (15) 4 6,816 (1,933) 13,622 40,547 3,105 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' participation, deferred a cquisition costs, and value of business in force. (a) Mainly perpetual subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds). (b) Recognition of a €353 million receivable from the French Tresor Public (public rvenue department) as regards to the dividend withholding tax [precompte] paid in 2002, 2002 and 2003, in virtue of (i) its incompatibility with the regulation of the European Union, incompatibility confirmed by several judgments rendered during the first half of 2008, and (ii) the statement of case filed by AXA with the Tribunal Administratif (tribunal dealing with internal disputes in the French civil service). (c) Actuarial gains and losses accrued since opening January 1, 2008. 9/9/2008 11:35____________________________________________________________________________________________________ Page 47 of 50 ______________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Attibutable to shareholders Share Capital Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Shareholders' equity opening January 1, 2007 2,092,888 2.29 4,793 18,398 (521) 7,763 55 Capital 4,671 2.29 11 Capital in excess of nominal value 42 Equity - share based compensation 21 Change in scope of consolidation 0 (0) Treasury shares (645) Equity component of compound financial instruments Perpetual debt Accrued interests - Perpetual debt Others Income allocation Dividends paid Impact of transactions with shareholders 4,671 2.29 11 63 (645) 0 (0) Reserves relating to changes in fair value through shareholders' equity (1,724) (70) Translation reserves Employee benefits actuarial gains and losses through OCI (b) Net income of the period Total recognised income and expense for the period (SORIE) (1,724) (70) Shareholders' equity closing June 30, 2007 2,097,559 2.29 4,803 18,461 (1,167) 6,039 (15) NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Mainly perpetual debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds). (b) Actuarial gains and losses accrued since opening January 1, 2007. 9/9/2008 11:35____________________________________________________________________________________________________ Page 48 of 50 Other reserves Reserves relating to revaluation of tangible assets Others (a) 4 7,090 0 (109) (44) (139) (292) 4 6,798 (In Euro million, except for number of shares and nominal value) Translation reserve Undistributed profits and other reserves Shareholders' Equity Group share Minority interests (86) 9,730 47,226 2,940 11 42 21 0 (62) (645) (109) (44) (139) (0) (62) (62) (254) (9) (2,218) (2,218) (0) (2,280) (3,144) (325) (1,794) (163) (259) (259) (21) 516 516 17 3,180 3,180 360 (259) 3,696 1,644 193 (345) 11,146 45,725 2,808 ______________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 6 : Financing debt (in Euro million) June 30, 2008 December 31, 2007 Carrying value Carrying value AXA Debt component of subordinated convertible notes due 2014 (euro) Debt component of subordinated convertible notes, 3.75% due 2017 (euro) Subordinated convertible notes due 2020 (euro) U.S. registered redeemable subordinated debt, 8.60% 2030 (USD) U.S. registered redeemable subordinated debt, 7.125% 2020 (GBP) U.S. registered redeemable subordinated debt, 6.75% 2020 (euro) 5,653 1,743 1,235 180 742 410 1,070 5,381 1,714 1,212 180 797 443 1,062 Derivatives on debts instruments issued (a) 272 (27) AXA Financial 128 137 Surplus Notes, 7.70 %, due 2015 127 136 MONY Life 11.25% Surplus Notes due 2024 1 1 AXA Bank Belgium 447 466 Subordinated notes, 2.80% to 6.90%, due 2016 447 466 AXA-MPS Vita and Danni 134 134 Subordinated Notes, euribor 6 months + 81bp 134 134 Other subordinated debt (under €100 million) 66 28 SUBORDINATED DEBT 6,428 6,146 AXA 4,347 3,163 Euro Medium Term Notes, 6.0% due through 2013, and BMTN Commercial paper 933 3,472 955 2,311 Derivatives on financing debt instruments issued (a) (58) (103) AXA Financial 725 949 Senior notes , 7.75%, due 2010 Senior notes , 7%, due 2028 Senior notes , 6.5%, due 2008 304 221 - 325 236 170 Senior notes MONY, 8.35%, due 2010 200 218 AXA UK Holdings 194 210 GRE : Loan Notes, 6.625%, due 2023 194 210 AXA Equitable 222 238 Mortgage notes, floating rate 222 238 Other financing debt instruments issued (less than €100 million) (4) (25) Other financing debts instruments issued under euro 100 million 47 36 Derivatives relating to financing debts instruments issued (a) (51) (60) FINANCING DEBT INSTRUMENTS ISSUED 5,484 4,535 AXA 1,000 Morocco 123 124 Other financing debts owed to credit institutions (under €100 million) 153 51 FINANCING DEBT OWED TO CREDIT INSTITUTIONS 1,275 175 TOTAL FINANCING DEBT 13,187 10,856 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. Financing debt increased by €2,331 million, or by €2,431 million at constant exchange rate. Movements in exchange rates therefore had a negative impact of €100 million, mainly on AXA Financial senior bonds. The increase at constant exchange rate was mainly due to : i. €293 million increase at constant exchange rates in subordinated debt (including derivative instruments) arising mainly from the increase in derivatives on AXA SA debt; ii. €1,036 million increase at constant exchange rates in financing debt instruments issued arising mainly from the increase of commercial paper of AXA SA (€1,161 million); iii. €1,102 million increase at constant exchange rates in financing debt owed to credit institutions mainly arising from a new AXA SA credit line of €1,000 million for 5 years (―club deal‖ banking pool) in order to finance AXA development (of wich the acquisition of RESO GARANTIA). 9/9/2008 11:35____________________________________________________________________________________________________ Page 49 of 50 ______________________________________________________________________________ AXA - Consolidated financial statements - Half Year 2008 Note 7 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. As of January 1, 2007, the effect of convertible bonds is no longer integrated in the calculation of diluted net income per ordinary share. Indeed, to neutralize the dilutive impact of the 2017 convertible bonds, AXA purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on AXA shares with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share. The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA outstanding shares created by the convertible bond conversion. As a result, the fully diluted number of shares at June 30, 2008 was 2,043 million. (in Euro million) (c) June 30, 2008 June 30, 2007 NET INCOME GROUP SHARE 2,162 3,180 TSS and TSDI financial charge (148) (139) TSS and TSDI FX impact 167 29 NET INCOME INCLUDING IMPACT OF TSS/TSDI A 2,181 3,070 Weighted average number of ordinary shares (net of treasury shares) - opening 2,030 2,063 Stock options exercised (a) 1 2 Treasury shares (a) 1 2 Share purchase program (a) (6) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2,032 2,061 NET INCOME PER ORDINARY SHARE (d) C = A / B 1.07 1.49 Potentially dilutive instruments : Stock options 7 20 Other 3 1 FULLY DILUTED - WEIGHTED AVERAGE NUMBER OF SHARES D 2,043 2,083 NET INCOME (b) E 2,181 3,070 FULLY DILUTED NET INCOME PER ORDINARY SHARE (d) F = E / D 1.07 1.47 (a) Weighted average. (b) Taking into account the impact of potentially dilutive instruments. (c) Except for number of shares (million of units) and earnings per share (Euro). (d) Revised net income EPS taking into account interest payments related to perpetual debts classified in equity, including FOREX impacts. Previously disclosed EPS excluded such adjustments and, as at june 30,2007, basic net income EPS amounted to €1.54 and fully diluted net income EPS to €1.53. 9/9/2008 11:35____________________________________________________________________________________________________ Page 50 of 50 Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify, to the best of my knowledge, that the consolidated summarized financial statements for the first half of the fiscal year 2008 have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half-year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year and their impact on the half-year financial statements, the related-parties transactions and the main risks and uncertainties for the remaining six months of the fiscal year. Paris, August 8th, 2008 Henri de Castries Chairman of the AXA Management Board Person responsible for financial information Denis Duverne Member of the AXA Management Board, Group Chief Financial Officer Report of Statutory Auditors on the Half Year Consolidated Financial Statements PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars & Guérard 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2008 HALF- YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of articles L. 232-7 of the French Commercial Code (Code de commerce) and L. 451- 1-2 III of the French Monetary and Financial Code (Code monétaire et financier) , we hereby report to you on: (cid:131) (cid:131) the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2008 ; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements. Neuilly sur Seine and Courbevoie, August 08, 2008 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars & Guérard Yves Nicolas Eric Dupont Patrick de Cambourg Jean-Claude Pauly | Semestriel, 2008, Insurance, AXA | write me a financial report |
Semestriel | 2,009 | Insurance | AXA | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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| Half Year Financial Report June 30, 2009 Table of contents I Activity Report....................................................................... II Consolidated financial statements ...................................... III Statement of the person responsible for the Half Year Financial Report....................................................................... IV Statutory auditors’ review report on the 2009 Half Year Financial Information .................................................... Activity Report ______________________________________________________________________________________________________ Half Year 2009 Activity Report / Half Year 2009 Page 1 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA's Annual Report on Form 20-F and AXA’s Document de Référence for the year ended December 31, 2008, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Cautionary statements concerning forward-looking statements ..................................................................... 2 Financial market conditions in the first half of 2009...................................................................................... 3 Operating highlights ..................................................................................................................................... 5 Events subsequent to June 30, 2009 .............................................................................................................. 7 Consolidated gross revenues ......................................................................................................................... 8 Consolidated underlying, adjusted earnings and net income ........................................................................ 11 Life & Savings Segment ............................................................................................................................. 17 Property & Casualty Segment ..................................................................................................................... 39 International Insurance Segment ................................................................................................................. 56 Asset Management Segment ....................................................................................................................... 59 Banking ...................................................................................................................................................... 63 Holdings and other companies .................................................................................................................... 65 Outlook ...................................................................................................................................................... 68 Glossary ..................................................................................................................................................... 69 Page 2 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Financial market conditions in the first half of 2009 After a difficult end to 2008, economies went deeper into recession in the first quarter of 2009 before showing signs of recovery in the spring, helped by more favorable economic surveys, in particular for the corporate sector, and receding concerns about the financial system and banks’ solidity. As a result, investors began to show some renewed interest in risky assets (such as equities and credit) in the second quarter. From a macro-economic perspective, oil prices rose to exceed $70 per barrel in June 2009, compared to $36 at the start of the year. However, the weakness in energy demand drew inflation figures downwards with inflation falling to - 1.3% in the US in May and to -0.1% in Europe in June. Signs of economic stabilisation have increased in the US and Europe, although, households’ high debt levels, doubts concerning the real estate market and rising unemployment (at 9.5% in June 2009 in the US, its highest level in 25 years) preclude any hope of a recovery in the short term. The contrast is more marked with Asia which is being driven by the Chinese locomotive. Various governments have striven to clean up the situation in their domestic banking systems and to support their economy. The recovery plan presented by President Obama amounted to $787 billion, or 5.5 points of GDP, and is a massive support program for the US economy over two to three years. The Public-Private Investment Program (PPIP) proposed by the US Treasury Secretary entails buying banks’ toxic assets to clean up bank balance sheets, but has not yet achieved significant results. The zero interest rate monetary policy is now practically universal among developed economies, while central banks are beginning to apply measures to monetize debt. In the US, the Fed (Federal Reserve) kept the range of the Fed Funds at between 0 and 0.25% and announced quantitative measures to buy US Treasury bonds of up to $300 billion, as well as extending programs to acquire mortgage company debt (Freddie Mac, Fannie Mae) and Mortgage-Backed Securities (MBS). In Switzerland, the SNB (Swiss National Bank) further lowered its target range to 0-0.75% and also began buying Swiss private debt while injecting Swiss francs into the currency market. In Japan, the BoJ (Bank of Japan) kept its main rate unchanged at 0.1% and has committed to buy shares held by Japanese banks for ¥1 trillion. In Europe, the BoE (Bank of England) also followed the same trend by lowering its main rate to 0.5% in March and finally decided to buy back Gilts for an overall amount of £150 billion from March onwards. The ECB (European Central Bank) lowered its main rate to 1% in May 2009 and decided to extend its refinancing operations to 12 months, injecting approximately €442 billion in half year 2009. It also decided, through a program, to acquire covered bonds totaling €60 billion from July onwards. STOCK MARKETS Trends in equity markets varied significantly in the first two quarters of 2009. The decline of 9.5% in the first two months was followed by an improvement of the world’s stock markets, especially emerging markets, thanks to additional measures announced by the US Federal Reserve (including measures to buy long-term US Treasury bonds), the US Treasury (acquisition of “toxic” assets) and the publication of better economic indicators than in the first quarter. Finally, the end of the first half of 2009 witnessed a phase of profit-taking which prompted a 2% drop in Global equities in June. Overall, the Dow Jones in New York and the FTSE in London both depreciated by 4%, while the S&P 500 gained 2% in the first half of 2009. The CAC 40 and the DJ Euro stoxx 50 both decreased by 2% in the first half year of 2009. In Japan, the Nikkei increased by 12%. The MSCI World Index increased by 5% and the MSCI Emerging by 34% in the first half of the year. BOND MARKETS Trends in long rates also varied during the first half of 2009, with rates rising in the first two months and in May, while they decreased in March and June. Overall, the US 10-year T-bond ended the half year at 3.53%, an increase of 128bps compared to December 31, 2008 and the Bund yield rose by 44bps to 3.38%, while Euribor and Libor were both broadly flat at 3.65%. Regarding spreads, they widened considerably at the beginning of the year in Europe with the downgrading of sovereign debts in Spain, Greece and Portugal in January. Although they subsequently tightened, with the announcement of a budget solidarity program in the event of a problem within the European Union, they are still at Page 3 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 pre-Monetary Union levels. Overall, the iTRAXX Main (Investment Grade) moved from 178bps to 112bps in the first half of 2009 while the iTRAXX Crossover (Below Investment Grade) decreased from 1,029bps to 713bps. EXCHANGE RATES Compared to December 31, 2008, the Dollar remained stable against the Euro (closing exchange rate moved from $1.40 at the end of 2008 to $1.41 at the end of June 2009). The Euro gained 4% against the Yen in the six months ending March 31, 2009 (closing exchange rate moved from Yen 126.8 at the end of September 2008 used for Full Year 2008 accounts to Yen 131.4 at the end of March 2009 used for half year 2009 accounts). The Euro lost 11% against the Pound Sterling (closing exchange rate moved from £0.958 at the end of 2008 to £0.853 at the end of June 2009). The Euro gained 2% against the Swiss Franc (closing exchange rate moved from CHF 1.49 at the end of 2008 to CHF 1.52 at the end of June 2009). On an average rate basis, compared to the first half of 2008, the Euro lost 13% against the Dollar (from $1.53 over the first half of 2008 to $1.33 over the first half of 2009), and lost 23% against the Yen (from Yen 160.8 over the six months to March 31, 2008 used for half year 2008 accounts to Yen 124.5 over the six months to March 31, 2009 used for half year 2009 accounts). The Euro gained 15% against the Pound Sterling (from £0.775 over the first half of 2008 to £0.895 over the first half of 2009). The Euro lost 6% against the Swiss Franc in the first half of 2009 (from CHF 1.61 over the first half of 2008 to CHF 1.51 over the first half of 2009). Page 4 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Operating highlights Significant acquisitions In connection with AllianceBernstein’s acquisition of the business of Sanford C. Bernstein Inc. in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford C. Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition. As of the end of 2008, AXA Financial, either directly or indirectly through wholly owned subsidiaries, had acquired a total of 32.7 million AllianceBernstein units for an aggregate market price of $1,631 million through several purchases made pursuant to the Put. At December 31, 2008, AXA’s ownership in AllianceBernstein L.P. was 62.4%. On January 6, 2009, the purchase of the last tranche of 8.16 million AllianceBernstein Units was completed at $18.3 per unit for a total price of 150 million pursuant to the final installment of the Put. At June 30, 2009 the ownership of AXA in AllianceBernstein L.P. was 64.2%. Capital operations During the first semester 2009, AXA continued to dynamically manage its hedging program on its direct equity exposure on Property & Casualty businesses and non participating Life businesses. In January 2009, AXA unwound €11 billion out of the first €14 billion tranche and the €9 billion second tranche of the 2008 program in order to lock in the positive mark-to-market on the hedging program. In addition, €2.5 billion calls on remaining exposure were bought back. This resulted in a €46 million gain recorded in adjusted earnings. In addition, AXA supplemented its program in March 2009 with a new put spread strategy on €4 billion on Eurostoxx 50 maturing on June 30, 2009 and July 1, 2009. This resulted in a €66 million loss recorded in adjusted earnings. Then, following the equity market rally between March and May 2009, AXA lengthened its hedging programme in June 2009 by an additional €3.5 billion put spread strategy on Eurostoxx 50, maturing at December 30, 2009. The hedge is effective between 17% and 27% below June 30 Eurostoxx level. At June 2009 closing, AXA’s remaining position consisted of: €250 million put spreads financed by the sale of call options on FTSE 100 and €2.5 billion put spreads, both maturing in March 2010 with a mark-to-market of €496 million as of June 30, 2009. The difference with December 31, 2008 mark-to-market, i.e. €+57 million after tax, was recorded in adjusted earnings as AXA unwound its residual 2008 position, €4 billion put options with a strike price 24% below closing price as at December 30, 2008 on Eurostoxx 50 maturing on July 1, 2009 and €3.5 billion put spread options, maturing on December 30, 2009 with a hedge which is effective between 17% and 27% below June 30 Eurostoxx level: at June 30. The mark-to-market was €62 million and resulted in a €41 million gain recorded in net income. At June 30, 2009, AXA Equitable had $6.6 billion nominal of protection on the S&P index consisting of put spread collar strategies. These positions were implemented to mitigate the impact of a decline in equity markets on AXA Equitable's statutory liabilities. Total premium of this program amounted to $0.5 billion. The change in fair value of these derivatives was reflected through earnings with a €-0.2 billion negative impact net of tax recorded in half year 2009 earnings. Given improved market conditions, AXA issued in June 2009 a €1.0 billion senior debt (maturity 2015, 4.5% annual coupon, all-in issuance spread of 146bps over Euribor). In first half 2009, AXA subscribed for its share (approximately 53.1%) to the AUD 878 million capital increase of AXA Asia Pacific Holdings (AXA APH), corresponding to an amount of approximately €234 million for AXA SA. This operation had (i) no impact on the Group’s Solvency I ratio and (ii) no material impact on AXA SA’s liquidity position, because AXA APH used the proceeds from this capital increase to repay approximately €214 million of outstanding debts to AXA SA. Page 5 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Other In the United Kingdom, since January 31, 2008, a temporary deferral period of up to six months has been in place for certain transactions involving the AXA Life Property Fund (£0.7 billion or €0.8 billion at June 30, 2009) and AXA Pension Property Fund (£0.5 billion or €0.6 billion at June 30, 2009) which is allowed under the terms of the customer’s policy in order to help manage liquidity. In the event that sufficient liquidity to honor all outstanding withdrawal requests by the end of the deferral period cannot be generated through the sale of properties held by the funds and other sources of liquidity available to the funds, AXA UK, as sponsor of the funds, is required to provide the funds with sufficient liquidity to honor these withdrawal requests. As at June 30, 2009, liquidity in both funds has remained at levels consistent with the position at end December 2008. The AXA Pension Property Fund started accelerating the payment of deferrals during the last quarter of 2008 due to its strengthened liquidity position. However, current economic uncertainty, ongoing net outflows being experienced by the funds and difficult selling conditions warrant a prudent approach therefore both funds still keep in force the deferral notification (but continue to accelerate deferred payments where forecast liquidity permits). Related-party transactions During the first half of the fiscal year 2009, there were (1) no modifications to the related-party transactions described in Note 27 "Related-Party transactions" of the audited consolidated financial statements of the fiscal year ended December 31, 2008 included in the full year 2008 Annual Report (pages 402 and 403) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2009, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2009. Risk factors The principal risks and uncertainties facing the Group are described in detail in Section 4.1 "Risk factors" and in Section 2.2 "Additional factors which may affect AXA’s business" of the full year 2008 Annual Report (respectively on pages 192 to 195 and pages 40 to 46) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description in these Sections of the 2008 Annual Report remains valid in all material respects as of the date of this Report for the appreciation of the major risks and uncertainties affecting the Group at June 30, 2009 and which management expects may affect the Group during the remainder of 2009. Page 6 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Events subsequent to June 30, 2009 In July 2009, AXA unwound all its residual 2008 equity macrohedging position (€2,500 million on Eurostoxx50 and €250 million on FTSE 100), resulting in a €19 million loss. Page 7 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Consolidated gross revenues Consolidated Gross Revenues (a) (in Euro million) HY 2009 HY 2008 FY 2008 HY 2009/HY 2008 Life & Savings 30,065 30,826 57,977 2.5% of which Gross written premiums 29,254 29,884 56,071 2.1% of which Fees and revenues from investment contracts with no participating feature 274 342 662 20.0% Property & Casualty 14,919 14,519 26,039 2.8% International Insurance 1,731 1,673 2,841 3.5% Asset Management 1,503 2,102 3,947 28.5% Banking (b) 195 197 412 0.7% Holdings and other companies (c) 1 2 5 38.7% TOTAL 48,414 49,319 91,221 1.8% (a) Net of intercompany eliminations. (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €209 million and €48,431 million for first half 2009, €191 million and €49,316 million for first half 2008, and €473 million and €91,285 milli on for full year 2008. (c) Includes notably CDOs and real estate companies. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE in this document means including acquisitions, disposals and business transfers, and net of intercompany transactions in both periods. Consolidated gross revenues for first half year 2009 reached €48,414 million, down 2% compared to first half 2008. Taking into account the restatements to comparable basis, mainly the depreciation of the Euro against most currencies (€1,157 million or -2.3 points, mainly from the US Dollar and Japanese Yen), and the impact of the acquisition of Seguros ING in Mexico (€688 million or -1.3 points), gross consolidated revenues were down 6% on a comparable basis. Total Life & Savings gross revenues were down 2% to €30,065 million, or down 7% on a comparable basis mainly due to the United States, Belgium, the United Kingdom, and Japan, partly offset by France and Germany. Total Life & Savings New Business APE1 amounted to €3,111 million, down 14% compared to first half 2008. On a comparable basis, APE decreased by 16%, mainly due to the United States, the United Kingdom, Japan and Australia/New Zealand, partly offset by France. The United States APE decreased by €305 million (-38%) to €576 million driven by (i) Variable Annuities APE down 35%, primarily in the Wholesale channel, reflecting challenging market conditions and planned product actions, (ii) Life APE down 39% following planned product modifications in the first half of 2008 and the elimination of certain Universal Life guaranteed features in the first quarter of 2009, and (iii) Mutual Funds APE down 44% reflecting lower sales under challenging market conditions. United Kingdom APE decreased by €122 million (-18%) to €493 million, primarily due to (i) lower investment & savings volumes (€-92 million or -46%), due to the impact of economic uncertainty on consumer confidence, and (ii) a 1 Annual Premium Equivalent (APE) is new regular premium plus one tenth of single premiums, in line with EEV methodology. APE is Group Share. Page 8 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 €57 million decrease (-31%) in Individual and Executive Pensions as economic conditions have undermined savers’ confidence, partly offset by (iii) a €23 million increase (+10%) in Group Pension volumes, buoyed by winning large group pension scheme business in line with the recent strategic decision to reposition the business away from an initial commission to a fee based model, and (iv) a €7 million increase (+18%) in Life Risk products reflecting the strengthening of the AXA Protection brand in the market. Japan APE decreased by €59 million (-23%) to €254 million. Excluding the impact of the bankruptcy of a large independent agent (LINA) (€-36 million sales in Life and Medical), APE decreased by €22 million (-10%). This was driven by a €15 million decrease (-17%) in Life to €94 million mainly due to lower Term products sales and a €11 million decrease (-12%) in Health to €105 million following lower sales of Cancer products. This was partially compensated by a €4 million increase (+10%) of Investments & Savings sales to €55 million, mainly due to higher sales of Variable Annuity products. Australia/New-Zealand APE decreased by €76 million (-36%) to €129 million mainly due to a drop in mutual fund net sales and AllianceBernstein joint venture sales following negative market conditions. These negative impacts were partially offset by the wholesale single premiums in wealth management guaranteed savings accounts, and by Accumulator product sales. France APE increased by €86 million (+13%) to €776 million, mainly due to Group lines strong performance (+48%) with large contracts in Group lines and good sales in Group Protection, and also a positive contribution in Individual lines (+1%). Property & Casualty gross revenues were up 3% to €14,919 million, or +1% on a comparable basis mainly driven by Personal lines (+1%) especially in France and Belgium, partly offset by Germany and the Mediterranean & Latin American Region. Commercial lines remained stable. Personal lines (59% of P&C gross revenues) were up 1% on a comparable basis, stemming from both Motor (+1%) and Non-Motor (+1%). Motor revenues grew by 1% mainly driven by (i) the United Kingdom & Ireland (+19%), due to +59% growth in new business written through the internet platform Swiftcover, (ii) France (+3%) reflecting positive net inflows (+46,000 contracts) in a competitive market, and (iii) Canada (+21%) mainly driven by rate increases in Ontario, partly offset by (iv) the Mediterranean & Latin American Region (-4%) driven by difficult market conditions in Spain, Portugal, Turkey and the Gulf Region, partly compensated by strong performances in Mexico and Morocco, and (v) Germany (- 3%) as a result of contract losses and declining average premium in the context of market price pressure. Non-Motor revenues increased by 1% mainly driven by (i) France (+4%) driven by positive net inflows (+28,000 contracts) combined with an increase in average premium in Household, and (ii) Canada (+26%) mainly driven by Property in Quebec and Ontario, partly offset by (iii) the United Kingdom & Ireland (-7%) due to selective underwriting notably in travel, and despite Property up 8% benefiting from new deals from intermediary and corporate partners. Commercial lines (40% of P&C gross revenues) remained stable on a comparable basis with Motor down 1% while Non-Motor was stable. Motor revenues were down 1%, driven by (i) the United Kingdom & Ireland (-8%) due to continued focus on profitability with tariff increases affecting renewal retention, and (ii) France (-3%) due to negative premiums adjustements with a negative volume impact, partly offset by (iii) Asia (+31%) notably driven by tariff increase. Non-Motor revenues remained stable with notably the United Kingdom & Ireland down 3% in a soft market environment, while Switzerland increased by 3% mainly due to new large Health contracts. Page 9 _______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 International Insurance revenues were up 3% to €1,731 million or up 3% on a comparable basis mainly driven by AXA Corporate Solutions Assurance (up 3% to €1,256 million) due to portfolio development in Liability and Marine, and by premium adjustments on previous years in Construction. Asset management revenues decreased by 28% or -34% on a comparable basis to €1,503 million mainly driven by lower management fees (-36%) due to lower average Assets under Management (-26%) and lower average management fees (-4.1 bps). AllianceBernstein revenues were down 40% to €924 million due to advisory fees down 45% in line with 43% lower average AUM, distribution fees down 44% related to lower average mutual fund assets, and Institutional Research Services down 5% due to lower trading activity by hedge fund clients. Assets Under Management decreased by €13 billion from year-end 2008 to €318 billion at June 30, 2009 driven by net outflows of €-33 billion (€-24 billion from Institutional clients, €-5 billion from Retail and €-4 billion for Private Client) and negative exchange rate impact of €-2 billion, partly offset by market appreciation of €22 billion. AXA Investment Managers revenues decreased by €182 million (-24%) to €579 million. Excluding distribution fees (retroceded to distributors), net revenues decreased by €122 million (-19%) mainly due to lower management fees (€- 107 million), equally driven by lower average AUM and unfavorable client and product mix. Assets Under Management were flat from year-end 2008 to €485 billion at the end of June 2009 mainly as a result of (i) €-5 billion net outflows (mainly on main funds), and (ii) €-4 billion negative market impact (mostly on structured finance funds) partly offset by (iii) €+7 billion favorable exchange impact (mainly on Pound Sterling). Net banking revenues were down 1%, or up 1% on a comparable basis to €195 million, mainly attributable to AXA Banque (+8% mainly due to an increase in the commercial margin) and AXA Bank Zrt in Hungary (+55% mainly driven by higher interest margin), partly offset by AXA Bank Europe (-4% due to a decrease in net capital gains and impairments partly offset by a higher net interest and fee income). Page 10 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Consolidated underlying, adjusted earnings and net income HY 2009 HY 2008 Gross written premiums 45,770 45,942 Fees and revenues from investment contracts with no participating feature 274 342 Revenues from insurance activities 46,044 46,284 Net revenues from banking activities 209 191 Revenues from other activities 2,178 2,841 TOTAL REVENUES 48,431 49,316 Change in unearned premium reserves net of unearned revenues and fees (3,265) (3,121) Net investment result excluding financing expenses (a) 7,098 (7,663) Technical charges relating to insurance activities (a) (38,982) (24,312) Net result of reinsurance ceded (391) (576) Bank operating expenses (54) (23) Insurance acquisition expenses (4,445) (4,062) Amortization of value of purchased life business in force (142) (149) Administrative expenses (4,938) (4,940) Valuation allowances on tangibles assets (0) (2) Change in value of goodwill (8) (1) Other (136) (97) Other operating income and expenses (49,095) (34,162) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 3,169 4,369 Net income from investments in affiliates and associates 15 18 Financing expenses (250) (350) OPERATING INCOME GROSS OF TAX EXPENSE 2,933 4,038 Income tax expenses (657) (964) Minority interests in income or loss (161) (307) UNDERLYING EARNINGS 2,116 2,766 Net realized capital gains or losses attributable to shareholders (379) 524 ADJUSTED EARNINGS 1,736 3,290 Profit or loss on financial assets (under fair value option) & derivatives (335) (1,057) Exceptional operations (including discontinued operations) (10) 13 Goodwill and other related intangible impacts (42) (43) Integration costs (26) (41) NET INCOME 1,323 2,162 (a) For the periods ended June 30, 2009, June 30, 2008 and December 31, 2008, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €+3,132 million, €-14,755 million and €-43,687 million, and benefits and claims by the offsetting amounts respectively. NB: Line items of this income statement are on an underlying earnings basis, and not on a net income basis. Page 11 ______________________________________________________________________________________ (in Euro million) FY 2008 84,662 662 85,324 473 5,488 91,285 (208) (27,620) (37,493) (101) (59) (8,672) (473) (10,076) (1) (7) (181) (57,063) 6,394 23 (685) 5,732 (1,150) (538) 4,044 (345) 3,699 (2,501) (49) (99) (127) 923 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Underlying, Adjusted earnings and Net Income HY 2009 HY 2008 Life & Savings 1,232 1,396 Property & Casualty 986 1,133 International Insurance 122 172 Asset Management 176 285 Banking 15 24 Holdings and other companies (a) (415) (245) UNDERLYING EARNINGS 2,116 2,766 Net realized capital gains or losses attributable to shareholders (379) 524 ADJUSTED EARNINGS 1,736 3,290 Profit or loss on financial assets (under Fair Value option) & derivatives (335) (1,057) Exceptional operations (including discontinued operations) (10) 13 Goodwill and related intangibles impacts (42) (43) Integration costs (26) (41) NET INCOME 1,323 2,162 (a) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,116 million. On a constant exchange rate basis, underlying earnings decreased by €714 million (-26%), driven by all business lines. Life & Savings underlying earnings amounted to €1,232 million. On a constant exchange rate basis, Life & Savings underlying earnings were down €228 million (-16%) mainly attributable to France (€-166 million) and the United States (€-90 million), partly offset by the United Kingdom (€+62 million). Excluding the change in scope related to the acquisitions of Seguros ING in Mexico (€1 million), Quadrifoglio Vita (€5 million), the brokerage company SBJ in the United Kingdom (€1 million), and the financial advisor Genesys in Australia (€-4 million), as well as from the minority shareholders’ buyout in Turkey (€3 million), and on a constant exchange rate basis, Life & Savings underlying earnings decreased by €235 million (-17%) mainly resulting from: (i) Lower investment margin (€-320 million or down 24%). Investment margin was impacted by €-12 million reclassification to fees & revenues in the United Kingdom. Excluding this impact, investment margin was down €308 million (-23%) with Investment income down €270 million (-4%) mainly driven by lower yields while Policyholders’ participation was up €39 million (+1%) mainly due to higher policyholder allocation in France and Switzerland. (ii) Lower Fees & Revenues (€-300 million or -9%). Fees & Revenues were impacted by €+10 million of URR (Unearned Revenue Reserve) release in France (offset by DAC amortization) and €+12 million reclassification from investment margin in the United Kingdom. Excluding the impact of these items, Fees & Revenues decreased by €322 million (-10%) driven by: a. Loadings on premiums and Mutual Funds down €38 million (-2%), mainly due to the United Kingdom (€-39 million driven by lower volumes of Creditor and Offshore cash bonds) and Germany (€-29 million from lower loadings on unit-linked regular premiums in line with new business development), partly offset by Japan (€+26 million mainly due to €22 million higher URR amortization on Variable Annuity products, which was offset by higher DAC amortization). b. Unit-linked management fees down €212 million (-21%), mainly driven by the United States (€-143 million or -25%), France (€-49 million or -27%), and the United Kingdom (€-16 million or -8%), due to 18% lower average balances (down 25% in the United States, 27% in France and 12% in the United Kingdom) together with slightly lower average fees due to an unfavorable country mix. c. Other fees & revenues down €72 million (-24%) driven notably by Australia/New Zealand (€-40 million reflecting the impact on financial advisory fees of lower funds under management). Page 12 ______________________________________________________________________________________ (in Euro million) FY 2008 1,508 2,394 188 589 33 (668) 4,044 (345) 3,699 (2,501) (49) (99) (127) 923 Activity Report ______________________________________________________________________________________________________ Half Year 2009 (iii) Higher net technical margin, up €484 million (+85%), mainly driven by (i) €199 million higher profits from Variable Annuity guarantees in the United States (mainly due to significantly lower basis cost, credit spread narrowing and gains from interest rate hedging, partially offset by higher financial market volatility), (ii) €165 million one off gain in the United Kingdom as a result of a reduction in liabilities using a higher discount rate related to an internal restructuring of an annuity portfolio and (iii) €71 million higher prior year reserve development in Group Health and Life in France. (iv) Higher expenses (up €193 million or 6%). Expenses were impacted by €-10 million higher amortization of DAC offsetting higher unearned revenue reserve (URR) release in France. Excluding this impact, expenses increased by €183 million (+6%), with acquisition expenses up €145 million (+10%) mainly driven by DAC amortization (up €216 million or 31%) notably reflecting reactivity to higher margins on Variable Annuity guarantees, while administrative expenses increased by €38 million (+2%). (v) Lower tax expenses and minority interests (down €85 million or -15%). Excluding €24 million higher positive tax one-offs (€52 million in Belgium in half year 2009 on RDT (Revenus Définitivement Taxés: tax exemption on 95% of dividends on equities), versus €19 million in the United Kingdom in half year 2008), tax expenses and minority interests decreased by €61 million (-11%), driven by lower pre-tax earnings. Property & Casualty underlying earnings amounted to €986 million. On a constant exchange rate basis, Property & Casualty underlying earnings decreased by €141 million (-12%) mainly due to the combined ratio up 1.7 points to 98.0%. Excluding the change in scope related to the acquisition of Seguros ING in Mexico (€12 million) and Reso in Russia (€15 million, consolidated under equity method), as well as from the minority shareholders’ buyout in Turkey (€8 million), and on a constant exchange rate basis, Property & Casualty underlying earnings decreased by €181 million (-16%) mainly due to a higher combined ratio (up 1.5 points to 97.8%) in almost all countries. (i) Lower net technical result (including expenses) down €204 million (or down €183 million excluding Mexico) due to : a. An all year loss ratio increasing by 2.0 points to 70.3%. Excluding the contribution of Mexico, the all year loss ratio increased by 1.7 points to 70.0% mainly due to higher impact of natural events in 2009 (Klaus storm for 1.4 points and other natural events in France and the United Kingdom for 0.9 point) than in 2008 (storms in Germany for 0.2 point). Partly offset by: b. An expense ratio decreasing by 0.2 point to 27.7%. Excluding the contribution of Mexico, the expense ratio decreased by 0.2 point to 27.7% driven by the administrative ratio down 0.4 point to 9.8%, partly offset by the acquisition expense ratio up 0.2 point to 17.9% (mainly due to one-off change in own pension scheme in 2008 and sales structure in Switzerland). (ii) Lower investment result (€-35 million), or down €72 million (-7%) excluding the contribution of Mexico, driven by lower asset yields. (iii) Lower income tax expense and minority interests (down €98 million). Excluding Mexico, Reso and the impact of the minority shareholders’ buyout in Turkey, income tax expenses and minority interests decreased by €101 million. Excluding €4 million lower positive tax one-offs (€23 million in Belgium in half year 2009 mainly on RDT (Revenus Définitivement Taxés: tax exemption on 95% of dividends on equities), versus €13 million in the United Kingdom and €14 million in Germany in half year 2008), tax expenses and minority interests decreased by €105 million (-22%) due to lower pre-tax earnings. International Insurance underlying earnings amounted to €122 million. On a constant exchange rate basis, underlying earnings decreased by €52 million (-30%) mainly driven by lower non-life run-off results. Asset Management underlying earnings amounted to €176 million. On a constant exchange rate basis, asset management underlying earnings decreased by €120 million (-42%) mainly due to lower gross revenues (-34% mainly due to 36% lower management fees, driven by lower average AUM (-26%) and lower average fees (-4.1 basis points)) and the non recurrence of a €58 million carried interest on real estate in 2008 at AXA Investment Managers, only partly offset by lower general expenses (-22%, mainly from lower staff costs) and a one-time tax benefit of €65 Page 13 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 million at AllianceBernstein due primarily to the release of reserves relating to the tax treatment of compensation plans. Banking segment’s underlying earnings amounted to €15 million. On a constant exchange rate basis, banking underlying earnings decreased by €10 million (-40%), mainly due to AXA Bank Zrt (Hungary) down €11 million due to higher provision for doubtful receivables. Holdings and other companies’ underlying earnings amounted to €-415 million. On a constant exchange rate basis, holdings underlying earnings decreased by €164 million mainly due higher financial charges related to currency impacts and acquisitions done in the second half of 2008, lower result on hedging of earnings denominated in foreign currencies and higher administrative costs, partly offset by lower tax expenses. Group net capital losses attributable to shareholders amounted to €-379 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were down €926 million mainly due to: (i) €-614 million lower net realized gains excluding impairments, to €241 million in half year 2009, mainly driven by €591 million lower realized gains on equities. (ii) €94 million lower net impairments, to €-691 million in half year 2009 as lower impairments on equity securities were partly offset by higher impairments on debt securities and real estate. (iii) €-406 million decrease in impact of equity derivatives in first half 2009 mainly driven by AXA SA. Adjusted earnings amounted to €1,736 million. On a constant exchange rate basis, adjusted earnings were down €1,640 million (-50%) as a result of lower underlying earnings and lower net capital gains. Net Income amounted to €1,323 million. On a constant exchange rate basis, net income decreased by €821 million (- 38%) mainly as a result of: (i) Lower adjusted earnings: €-1,640 million, on a constant exchange rate basis, partly offset by (ii) Higher result on change in fair value of financial assets and derivatives including foreign exchange impacts: €+827 million to €-335 million in half year 2009. These €-335 million can be analyzed as follows: a. €-161 million change in fair value and realized gains on Mutual Funds and other assets, mainly driven by private equity investments, partly offset by favorable impact of credit spread tightening. b. €-156 million change in fair value of freestanding derivatives notably impacted by a decline in the fair value of equity derivatives related to the statutory liability hedge program in the United States (€-220 million), partly offset by the €106 million reversal of provisional loss for Japan fiscal first quarter 2009 which was included in full year 2008 net income. Page 14 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Consolidated Shareholders’ Equity As of June 30, 2009, consolidated shareholders' equity totaled €38.8 billion. The movements in shareholders' equity since December 31, 2008 are presented in the table below: (in Euro million) Shareholders' Equity At December 31, 2008 Share Capital Capital in excess of nominal value Equity-share based compensation Treasury shares sold or bought in open market Deeply subordinated debt (including accrued interests) Fair value recorded in shareholders' equity Impact of currency fluctuations Cash dividend Other Net income for the period 37,440 0 (14) 38 26 (62) 897 358 (836) 84 1,323 Actuarial gains and losses on pension benefits (442) At June 30, 2009 38,811 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2009 HY 2008 FY 2008 Var. HY 2009 versus HY 2008 Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Weighted average number of shares 2,060.8 2,064.8 2,032.1 2,042.8 2,035.4 2,043.6 Net income (Euro per Ordinary Share) 0.50 0.50 1.07 1.07 0.44 0.44 53.2% 53.1% Adjusted earnings (Euro per Ordinary Share) 0.77 0.77 1.55 1.54 1.67 1.66 50.2% 50.0% Underlying earnings (Euro per Ordinary Share) 0.95 0.95 1.29 1.28 1.84 1.83 25.9% 25.7% (a) EPS calculation takes into account interest payments and foreign exchange impacts related to perpetual debts classified in shareholders equity with retrospective application. Page 15 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 RETURN ON EQUITY (“ROE”) (in Euro million) Period ended , June 30, 2009 Period ended , June 30, 2008 Change in % points ROE 7.0% 10.2% 3.2% Net income group share 1,323 2,162 Average shareholders' equity 37,627 42,329 Adjusted ROE 10.7% 19.6% 8.9% Adjusted earnings (a) 1,588 3,142 Average shareholders' equity (b) 29,595 32,065 Underlying ROE 13.3% 16.3% 3.0% Underlying earnings (a) Average shareholders' equity (b) 1,968 29,595 2,618 32,065 (a) Including adjustement to reflect financial charges related to perpetual debt (recorded through shareholders' equity). (b) Excluding change in fair value on invested assets and derivatives (recorded through shareholders' equity), and excluding perpetual debt (recorded through shareholders' equity). Page 16 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings Segment (a) HY 2009 HY 2008 Gross written premiums 29,278 29,907 Fees and revenues from investment contracts without participating feature 274 342 Revenues from insurance activities 29,552 30,249 Net revenues from banking activities 0 Revenues from other activities 538 602 TOTAL REVENUES 30,090 30,850 Change in unearned premium reserves net of unearned revenues and fees (962) (1,014) Net investment result excluding financing expenses (b) 5,925 (9,236) Technical charges relating to insurance activities (b) (29,158) (15,015) Net result of reinsurance ceded (118) (46) Bank operating expenses Insurance acquisition expenses (1,969) (1,675) Amortization of value of purchased life business in force (142) (149) Administrative expenses (1,787) (1,672) Valuation allowances on tangible assets (0) (0) Change in value of goodwill (6) Other (76) (60) Other operating income and expenses (33,256) (18,618) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 1,796 1,982 Net income from investments in affiliates and associates (1) 16 Financing expenses (50) (36) OPERATING INCOME GROSS OF TAX EXPENSE 1,745 1,963 Income tax expenses (424) (445) Minority interests in income or loss (89) (121) UNDERLYING EARNINGS 1,232 1,396 Net realized capital gains or losses attributable to shareholders (178) 105 ADJUSTED EARNINGS 1,054 1,501 Profit or loss on financial assets (under fair value option) & derivatives (646) (469) Exceptional operations (including discontinued operations) (27) 1 Goodwill and other related intangible impacts (10) (12) Integration costs (6) (13) NET INCOME 364 1,007 (a) Before intercompany transactions. (b) For the periods ended June 30, 2009, June 30, 2008, and December 31, 2008, the change in fair value of assets backing con tracts with financial risk borne by policyholders impacted the net investment result for respectively € +3,132 million, € -14,755 million and €-43,687 million, and benefits and claims by the offsetting amounts respectively. Page 17 ______________________________________________________________________________________ (in Euro million) FY 2008 56,127 662 56,789 0 1,246 58,035 (235) (30,578) (18,380) 913 (3,622) (473) (3,481) 0 (4) (117) (25,164) 2,058 21 (63) 2,016 (314) (193) 1,508 (784) 725 (1,079) (29) (25) (38) (446) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Consolidated Gross Revenues HY 2009 HY 2008 France 8,033 7,447 United States 5,584 6,733 United Kingdom 1,292 1,900 Japan 2,909 2,354 Germany 3,055 2,955 Switzerland 3,396 3,281 Belgium 1,051 1,602 Mediterranean & Latin American Region (a) 2,958 2,794 Other countries 1,811 1,785 TOTAL 30,090 30,850 Intercompany transactions (25) (24) Contribution to consolidated gross revenues 30,065 30,826 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. Underlying, Adjusted earnings and Net Income HY 2009 HY 2008 France 264 431 United States 271 326 United Kingdom 133 92 Japan 168 132 Germany 29 67 Switzerland 84 93 Belgium 124 84 Mediterranean & Latin American Region (a) 64 43 Other countries 95 128 UNDERLYING EARNINGS 1,232 1,396 Net realized capital gains or losses attributable to shareholders (178) 105 ADJUSTED EARNINGS 1,054 1,501 Profit or loss on financial assets (under Fair Value option) & derivatives (646) (469) Exceptional operations (including discontinued operations) (27) 1 Goodwill and related intangible impacts (10) (12) Integration costs (6) (13) NET INCOME 364 1,007 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. Page 18 ______________________________________________________________________________________ (in Euro million) FY 2008 14,298 13,757 3,549 4,628 6,233 4,495 2,563 4,822 3,690 58,035 (59) 57,977 (in Euro million) FY 2008 675 (225) 122 238 43 218 136 108 192 1,508 (784) 725 (1,079) (29) (25) (38) (446) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – France HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 8,033 776 448 713 317 (1,082) (24) 3 375 (109) (1) 264 (42) 223 (10) - - - 213 7,447 690 603 749 219 (1,025) (15) - 532 (99) (2) 431 279 710 (114) - - - 596 Gross Revenues increased by €586 million (+8%) to €8,033 million2 mainly due to a few large contracts in Group lines subscribed in half year 2009 and a positive performance in Individual lines. APE increased by €86 million (+13%) to €776 million, mainly due to Group lines strong performance (+48%) with large contracts in Group lines and good sales in Group Protection, and also a positive contribution in Individual lines (+1%). Investment margin decreased by €155 million (-26%) to €448 million mainly due to a €-57 million decrease in investment income and a €-98 million increase in unallocated policyholder bonus reserve. Fees & revenues decreased by €36 million (-5%) to €713 million resulting from (i) €-65 million lower unit-linked management fees and loadings partly offset by (ii) €+23 million higher loadings in Health and Life activities and (iii) €+10 million higher URR (unearned revenues reserve). Net technical margin rose by €98 million to €317 million driven by (i) €71 million higher prior year reserve development in Group Health and Life, (ii) €+16 million due to higher volumes in Group Health and Life and (iii) €+10 million due to disability insurance improved loss ratio. Expenses increased by €57 million (+6%) to €1,082 million driven by (i) a €14 million increase in commissions due to volume effect in Group Health and Life, (ii) a €27 million increase in general expenses due to a significant increase in social taxes on health (offset by a tariff increase in the revenues line), and (iii) a €16 million increase in DAC amortization net of capitalization (partly offset by €+10 million higher URR). Amortization of VBI increased by €9 million (+62%) to €-24 million. 2 €8,024 million after intercompany eliminations. Page 19 ______________________________________________________________________________________ (in Euro million) FY 2008 14,298 1,347 1,022 1,516 467 (2,100) (50) 8 862 (185) (3) 675 311 986 (561) - - - 425 Activity Report ______________________________________________________________________________________________________ Half Year 2009 As a result, the underlying cost income ratio increased by 8.7 points to 74.8%. Income tax expenses increased by €10 million (+10%) to €-109 million resulting from a lower level of non taxable dividends partly offset by lower pre-tax earnings. Underlying earnings decreased by €166 million (-39%) to €264 million. Adjusted earnings decreased by €487 million (-69%) to €223 million resulting from (i) the evolution of underlying earnings (€-166 million), (ii) €-215 million lower net realized capital gains net of hedging derivatives, (iii) a €-105 million higher charge of impairments mostly on real estate and equities. Net income decreased by €383 million (-64%) to €213 million reflecting (i) €-487 million lower adjusted earnings and (ii) €-33 million unfavorable change in fair value of real estate funds, partly offset by (iii) €141 million positive impact of mutual funds and derivatives mainly due to credit spread tightening. Page 20 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations - United States HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = $ 5,584 576 227 749 317 (913) (14) - 366 (95) - 271 16 287 (418) - (1) - (131) 1.3349 6,733 808 265 794 44 (628) (13) - 462 (135) - 326 (20) 306 (8) 1 (2) - 297 1.5309 Gross revenues decreased by €1,148 million (-17%) to €5,584 million. On a comparable basis, gross revenues decreased by €1,863 million (-28%): Variable Annuity premiums (65% of gross revenues) decreased by 35% reflecting a slowdown in sales related to challenging market conditions and management repricing actions, including the new Accumulator product which has a lower GMIB rollup rate, Life premiums (23% of gross revenues) decreased by 6% primarily driven by market conditions, the impact on first year life premiums of planned product modifications in the first half of 2008 and the elimination of certain Universal Life guaranteed features, Mutual Funds gross revenues (6% of gross revenues) decreased by 27% driven by prevailing poor market conditions. APE decreased by €232 million (-29%) to €576 million. On a comparable basis, APE decreased by €305 million (- 38%): Variable Annuities APE decreased by 35%, primarily in the Wholesale channel, reflecting challenging market conditions and planned product actions, Life APE decreased by 39% following planned product modifications in the first half of 2008 and the elimination of certain Universal Life guaranteed features in the first quarter of 2009, Mutual Funds APE decreased by 44% reflecting lower sales under challenging market conditions. Investment margin decreased by €37 million (-14%) to €227 million. On a constant exchange rate basis, investment margin decreased by €66 million (-25%). Investment income decreased by €89 million primarily reflecting lower returns on alternative investments and lower prepayments. Interest and bonus credited decreased by €23 million primarily reflecting favorable reserve adjustments for pre-demutualization participating annuity business. Fees & revenues decreased by €45 million (-6%) to €749 million. On a constant exchange rate basis, fees & revenues decreased by €141 million (-18%) primarily due to lower fees earned on lower average separate account balances resulting from market depreciation. Page 21 ______________________________________________________________________________________ (in Euro million) FY 2008 13,757 1,540 487 1,595 (984) (1,433) (64) - (400) 175 - (225) (153) (378) 83 2 (2) - (296) 1.4706 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net technical margin rose by €273 million to €317 million. On a constant exchange rate basis, net technical margin increased by €232 million primarily due to €199 million higher GMxB margin to €28 million mainly due to significantly lower basis cost, credit spread narrowing and gains from interest rate hedging, partially offset by higher financial market volatility. Also impacting the increase in net technical margin was a slight improvement in life mortality margin. Expenses increased by €285 million (+45%) to €-913 million. On a constant exchange rate basis, expenses increased by €168 million (+27%) due to: Expenses, net of capitalization (including commissions and DAC capitalization) increased by €27 million primarily due to higher pension plan expenses partially offset by lower commissions and other expense reductions from management initiatives, including headcount reductions, DAC amortization increased by €141 million primarily reflecting higher GMxB margins and higher lapse rates on Variable Life products. Amortization of VBI increased by €1 million (+12%) to €-14 million. On a constant exchange rate basis, amortization of VBI was flat over the prior year. As a result, the underlying cost income ratio increased by 13.6 points to 71.7%. Income tax expense decreased by €41 million (-30%) to €-95 million. On a constant exchange rate basis, income tax expense decreased by €53 million (-39%). The effective tax rate declined from 29.3% to 25.9% in the first half of 2009, reflecting the beneficial impact of an increase in non-taxable investment income and lower interest on tax audit reserves. Underlying earnings decreased by €55 million (-17%) to €271 million. On a constant exchange rate basis, underlying earnings decreased by €90 million (-28%). Adjusted earnings decreased by €19 million (-6%) to €287 million. On a constant exchange rate basis, adjusted earnings decreased by €58 million (-19%) reflecting the decrease in underlying earnings partially offset by realized gains on the sale of fixed income investments. Net income decreased by €428 million (-144%) to €-131 million. On a constant exchange rate basis, net income decreased by €412 million (-139%). In addition to the decrease in adjusted earnings, net income decreased due to (i) a decline in the fair value of private equity investments (€-92 million net of DAC amortization and tax), (ii) a decline in the fair value of interest rate hedges (€-92 million net), and (iii) a decline in the fair value of equity derivatives related to the statutory liability hedge program (€-191 million net). Page 22 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations - United Kingdom HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = £ 1,292 493 67 307 168 (335) (13) - 193 (60) (0) 133 (45) 88 (122) (2) (6) (1) (43) 0.8945 1,900 692 131 403 13 (458) (22) - 67 26 (0) 92 (16) 76 44 - (6) (2) 113 0.7753 Gross revenues decreased by €608 million (-32%) to €1,292 million. On a comparable basis, gross revenues decreased by €432 million (-23%): Investment & Savings (75% of gross revenues): Insurance Premiums (60% of gross revenues) reduced by 30% primarily due to lower volumes of Onshore Bond business driven by the recessionary market conditions and the switch to mutual funds following the change of capital gain taxation, Fees on Investment products (15% of gross revenues) reduced by 13%, mainly driven by adverse stock market conditions, Life Insurance Premiums (21% of gross revenues) reduced by 1% with the rise in protection sales offset by the fall in Creditor business, - Other revenues (4% of gross revenues) decreased by 20% largely as a result of the impact of the economic situation. APE decreased by €198 million (-29%) to €493 million. On a comparable basis, APE decreased by €122 million (- 18%) primarily due to: Decrease in investment & savings volumes of €92 million (-46%) due to the impact of economic uncertainty on consumer confidence, Decrease in Individual and Executive Pensions of €57 million (-31%) as economic conditions have undermined savers’ confidence, Increase in Group Pension volumes of €23 million (+10%) buoyed by winning large group pension scheme business in line with the recent strategic decision to reposition the business away from an initial commission to a fee based model, Increase in Life Risk products of €7 million (+18%) reflecting the strengthening of the AXA Protection brand in the market. Investment margin decreased by €64 million (-49%) to €67 million. On a constant exchange rate basis, investment margin decreased by €54 million (-41%) primarily due to: Page 23 ______________________________________________________________________________________ (in Euro million) FY 2008 3,549 1,287 244 787 46 (924) (97) - 57 65 (0) 122 (71) 50 232 - (14) (12) 257 0.7970 Activity Report ______________________________________________________________________________________________________ Half Year 2009 - A €22 million decrease in shareholder participation in with-profit bonuses paid (annual and terminal) as a result of market conditions and lower asset base, Decrease in investment return on shareholder assets of €20 million due to lower asset yield, - A €12 million decrease as a result of a reclassification into fees & revenues. Fees & revenues decreased by €96 million (-24%) to €307 million. On a constant exchange rate basis and excluding fees & revenues relating to the 2008 acquisition of SBJ Holdings within the brokerage business (€23 million), fees & revenues decreased by €72 million (-18%) due to: Lower fund management charges of around €57 million largely due to lower fund values as a result of the depressed stock market conditions, A decrease in loadings of €25 million as a result of lower volumes of Creditor and Offshore cash bonds, offset in the expenses margin, A €12 million increase as a result of a reclassification from investment margin. Net technical margin increased by €155 million to €168 million. On a constant exchange rate basis, net technical margin increased by €180 million. This was mainly due to a €165 million one off gain as a result of reduction in liabilities using a higher discount rate related to an internal restructuring of an annuity portfolio. Expenses decreased by €123 million (-27%) to €-335 million. On a constant exchange rate basis and excluding expenses of SBJ Holdings within the brokerage business (€21 million), expenses decreased by €93 million (-20%) primarily due to: A decrease of €49 million mainly resulting from cost containment measures, including a one off positive impact of €33 million on employee pension scheme, A decrease of €25 million due to lower commission charge from reduced volumes of Creditor and Offshore cash bonds offset in the fees & revenues margin, A decrease of €15 million due to additional capitalisation of acquisition expenses as a result of the increased weighting of protection contracts in new business. Amortization of VBI decreased by €9 million (-41%). On a constant exchange rate basis, amortization of VBI decreased by €7 million (-32%) mainly due to decreased with-profit terminal bonuses. As a result, the underlying cost income ratio decreased by 23.6 points to 64.3%. Income tax expenses increased by €86 million to €-60 million. On a constant exchange rate basis, income tax expenses increased by €95 million largely driven by higher pre-tax earnings, along with non-recurrence of €19 million one off tax benefits in 2008. Underlying earnings increased by €41 million (+45%) to €133 million. On a constant exchange rate basis, underlying earnings increased by €62 million (+67%). Adjusted earnings increased by €12 million (+16%) to €88 million. On a constant exchange rate basis, adjusted earnings increased by €26 million (+33%), due to the underlying earnings evolution, partly offset by €29 million adverse movement in impairment charges on equities and bonds. Net income decreased by €155 million to €-42 million. On a constant exchange rate basis, net income decreased by €162 million. In addition to the changes in adjusted earnings, net income included a €71 million decrease in undiscounted tax adjustment on unrealised gains attributable to policyholders in unit-linked life funds3, a €57 million decrease on fixed income and equity derivatives and a €34 million decrease in relation to foreign exchange. 3 Undiscounted deferred tax provided on unit-linked assets while the unit-linked liability reflects the expected timing of the payment of future tax therefore using a discounted basis. Page 24 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – Japan HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Yen 2,909 254 (0) 699 74 (445) (45) (1) 282 (111) (3) 168 10 178 (170) - - (2) 7 124.4623 2,354 253 1 514 43 (299) (40) - 219 (85) (2) 132 24 157 (183) - - (2) (28) 160.7719 Gross revenues increased by €555 million (+24%) to €2,909 million. On a comparable basis and excluding the estimated €96 million impact caused by the bankruptcy of one large independent agent (LINA), revenues declined by €27 million (-1%). This was driven by €47 million (-5%) lower sales in Life, partly offset by €25 million higher revenues from Variable Annuity products. Health business remained stable over the period. APE was stable at €254 million. On a comparable basis and excluding the impact of LINA (€-36 million sales in Life and Medical), APE decreased by €22 million (-10%). This was driven by a €15 million decrease (-17%) in Life to €94 million mainly due to lower Term products sales and a €11 million decrease (-12%) in Health to €105 million following lower sales of Cancer products. This was partially compensated by a €4 million increase (+10%) of Investments & Savings sales to €55 million, mainly due to higher sales of Variable Annuity products. Investment Margin remained stable at €0 million. Fees & revenues increased by €185 million (+36%) to €699 million. On a constant exchange rate basis, fees & revenues increased by €27 million (+5%) mainly due to €22 million higher URR (Unearned Revenue Reserve) amortization on Variable Annuity products (this was offset by higher amortization of deferred acquisition costs). Excluding URR, fees and revenues slightly increased driven by the inforce growth. Net technical margin increased by €31 million (+68%) to €74 million. On a constant exchange rate basis, net technical margin increased by €14 million (+33%) mainly driven by: Surrender margin up €+36 million to €50 million following LINA’s shock lapses of Medical Rider and Medical Whole Life products (€+21 million) and model refinement (€+11 million), Margin on Variable Annuity guarantees down €-25 million to €-35 million due to higher volatility (notably in Q4 2008) and lower interest rate. Expenses increased by €146 million (+49%) to €-445 million. On a constant exchange rate basis, expenses increased by €45 million (+15%) driven by €52 million higher DAC amortization caused by the higher amortization on Variable Annuity products (€22 million), LINA's shock lapses (€14 million), and higher surrenders and model changes (€18 million). This was partially offset by lower non-payroll and project expenses (€4 million), and lower commissions net Page 25 ______________________________________________________________________________________ (in Euro million) FY 2008 4,628 482 (1) 1,013 98 (619) (99) - 392 (150) (4) 238 92 330 (478) - - (3) (151) 161.6709 Activity Report ______________________________________________________________________________________________________ Half Year 2009 of DAC capitalization (€4 million). VBI Amortization increased by €5 million (+14%) to €45 million. On a constant exchange rate basis, VBI amortization decreased by €5 million (-12%) driven by the natural decline in VBI balance that was partially offset by higher surrenders. As a consequence, the underlying cost income ratio increased by 2.6 points to 63.4%. Income tax expenses increased by €26 million (+31%) to €-111 million. On a constant exchange rate basis, income tax expenses remained flat. Underlying earnings increased by €36 million (+27%) to €168 million or remained flat on a constant exchange rate basis. Adjusted earnings increased by €21 million (+13%) to €178 million or decreased by €19 million (-12%) on a constant exchange rate basis, driven by €6 million higher impairments (mainly equities) and €10 million lower realized capital gains. Net income increased by €36 million to €7 million. As a reminder, AXA Japan closes its full year accounts at the end of September. According to IFRS principles, full year 2008 accounts were adjusted with a €106 million provisional loss reflecting the increase in credit spreads from October to December 2008. This adjustment was reversed in 2009. On a constant exchange rate basis and excluding the €+106 million reversal, net income decreased by €49 million, mainly due to €19 million lower adjusted earnings and the impact of the mark-to-market of the alternative portfolio and the widening of credit spreads on CDS. Page 26 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – Germany HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,055 218 45 73 (6) (50) (6) - 56 (27) (0) 29 (58) (28) 6 (7) - (2) (30) 2,955 236 53 101 49 (69) (6) - 129 (61) (1) 67 (14) 53 (9) - - (1) 43 Gross revenues increased by €100 million (+3%) to €3,055 million especially due to Health (€+57 million) driven by premium adjustment and the impact of high new business in prior year. In Life, gross revenues increased (€+44 million) due to the rise in single premiums from savings business including Variable Annuity products (TwinStar). APE decreased by €19 million (-8%) to €218 million. On a comparable basis, APE decreased by €25 million (-10%) mainly as a result of the non-recurring 2008 Riester step-up effect (increase in retirement premiums due to higher fiscal incentive for policyholders in 2008) and decreasing unit-linked sales, partly offset by an increase in the Health business boosted by legal changes in 2009. Investment margin decreased by €8 million (-15%) to €45 million driven by lower income from equities due to equity exposure reduction and lower dividends, partly offset by lower policyholder participation. Fees & revenues decreased by €28 million (-28%) to €73 million mainly driven by lower loadings on unit-linked regular premiums in line with new business development. Net technical margin decreased by €56 million to €-6 million mainly driven by a negative result from Variable Annuity products’ guarantees (€ -39 million) due to high interest rate volatility level. Expenses decreased by €18 million (-27%) to €-50 million primarily due to the realization of synergies in connection with Winterthur integration process and lower costs for projects, partly offset by higher DAC amortization. As a result, the underlying cost income ratio increased by 13.2 points to 49.8%. Income tax expenses decreased by €35 million (-57%) to €-27 million attributable to lower pre-tax earnings. Underlying earnings decreased by €37 million (-56%) to €29 million. Adjusted earnings decreased by €81 million to €-28 million mainly driven by the decrease in underlying earnings and higher realized losses and impairments on equities net of derivatives. Page 27 ______________________________________________________________________________________ (in Euro million) FY 2008 6,233 468 104 221 (24) (187) (8) - 106 (63) (1) 43 (41) 2 (59) (10) - (4) (70) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net income decreased by €73 million to €-30 million mainly driven by lower adjusted earnings. Page 28 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – Switzerland HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 3,396 170 9 101 100 (83) (19) - 108 (24) - 84 (15) 68 (17) (3) (3) - 46 1.5055 3,281 193 45 91 66 (71) (10) - 121 (28) - 93 (63) 30 (49) - (2) (2) (24) 1.6059 Gross revenues increased by €115 million (+4%) to €3,396 million. On a comparable basis, gross revenues decreased by €91 million (-3%): Group Life decreased by €64 million (-2%) to €3,080 million mainly due to lower single premiums (-10%) due to lower new business, partly offset by higher regular premiums (+4%) mainly attributable to salary increases, Individual Life decreased by €34 million (-10%) to €316 million due to the business shift from insurance products to Variable Annuity investment product (Twinstar Income). APE decreased by €23 million (-12%) to €170 million. On a comparable basis, APE decreased by €33 million (-17%): - Group Life decreased by €37 million (-23%) to €132 million after the strong new business in 2008. The slowdown in new business was a consequence of the financial crisis, where less cancellations on the market led to less new business opportunities at the end of 2008 (less cancellations in the market also due to underfunding in autonomous and semi-autonomous pension funds), Individual Life increased by €3 million (+10%) to €38 million driven by the Variable Annuity product Twinstar Income (€+9 million) partly offset by the decrease in unit-linked regular premiums. Investment margin decreased by €36 million (-80%) to €9 million. On a constant exchange rate basis, investment margin decreased by €37 million (-82%) mainly due to a higher policyholder bonus allocation. Fees & revenues increased by €10 million (+12%) to €101 million. On a constant exchange rate basis, fees & revenues increased by €4 million (+5%) due to lower policyholder bonus allocation. Net technical margin rose by €34 million (+51%) to €100 million. On a constant exchange rate basis, net technical margin increased by €28 million (+42%) due to the non-recurrence of a 2008 reserve strengthening in Individual Life (€-20 million). Page 29 ______________________________________________________________________________________ (in Euro million) FY 2008 4,495 280 109 190 145 (153) (11) - 281 (63) - 218 (245) (27) (56) - (5) (5) (93) 1.5866 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Expenses increased by €12 million (+16%) to €-83 million. On a constant exchange rate basis, expenses increased by €6 million (+9%) mainly due to the 2008 one-time positive impact of the change in own pension scheme. Amortization of VBI increased by €10 million (+102%) to €-19 million. On a constant exchange rate basis, amortization of VBI increased by €9 million (+90%) mainly due to a negative unlocking effect. As a result, the underlying cost income ratio increased by 8.7 points to 48.7%. Income tax expenses decreased by €4 million (-13%) to €-24 million. On a constant exchange rate basis, income tax expenses decreased by €5 million (-19%) in line with pre-tax earnings. Underlying earnings decreased by €10 million (-10%) to €84 million. On a constant exchange rate basis, underlying earnings decreased by €15 million (-16%). Adjusted earnings increased by €38 million to €68 million. On a constant exchange rate basis, adjusted earnings increased by €34 million, resulting from higher net realized capital gains on bonds and hedge funds. Net income increased by €69 million to €46 million. On a constant exchange rate basis, net income increased by €66 million due to higher adjusted earnings (€+34 million), lower foreign currency losses and a favorable change in fair value on convertible bonds. Page 30 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – Belgium HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,051 106 112 70 27 (120) - - 89 35 (0) 124 (9) 115 100 - - (2) 213 1,602 154 100 76 37 (122) (2) - 89 (5) (0) 84 (32) 52 (133) - (1) (4) (85) Gross revenues decreased by €551 million (-34%) to €1,051 million4: Individual Life & Savings revenues decreased by 39% to €766 million mainly due to the 40% drop in non unit-linked investment and savings products (notably Crest products) and to the 68% drop in unit-linked investment and savings products, while Traditional Life products were more resilient with a decrease of only 3% to €128 million. Group Life & Savings revenues decreased by 16% to €285 million mainly due to the non recurrence of a large contract sale in January 2008. APE decreased by €48 million (-31%) to €106 million. Individual Life & Savings decreased by 29% to €97 million mainly driven by Crest products. Group Life & Savings decreased by 47% to €10 million as a result of a non recurring premium in 2008. Investment margin increased by €12 million (+12%) to €112 million mainly due to €+16 million impact of assets transferred from the Property & Casualty segment. Fees & revenues decreased by €6 million (-8%) to €70 million as a result of the drop of loadings on sales. Net technical margin decreased by €10 million (-27%) to €27 million mainly driven by an unfavorable mortality experience. Expenses decreased by €3 million (-2%) to €-120 million driven by lower acquisition expenses (€+8 million) partly offset by higher administrative expenses (€-5 million) mainly due to salary increases linked to inflation indexation. Amortization of VBI decreased by €2 million to €0 million. As a consequence, the underlying cost income ratio decreased by 0.9 point to 57.5%. 4 €1,047 million after intercompany eliminations. Page 31 ______________________________________________________________________________________ (in Euro million) FY 2008 2,563 260 193 144 65 (228) (6) - 167 (30) (0) 136 (474) (338) (249) - (2) (10) (597) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Income tax benefits increased by €40 million to €35 million mainly resulting from the favorable court decision for insurance companies on RDT (Revenus Définitivement Taxés: tax exemption on 95% of dividends on equities) (€+52 million). Underlying earnings increased by €41 million (+48%) to €124 million. Adjusted earnings increased by €63 million (+121%) to €115 million mainly driven by (i) higher underlying earnings (+€41 million), and (ii) higher net capital gains (€+22 million) boosted by €+92 million lower policyholders’ participation. Net income increased by €299 million to €213 million driven by (i) higher adjusted earnings (€+63 million) and (ii) favorable net change in fair value (€+236 million) mainly on fixed income mutual funds due to (i) credit spread tightening and (ii) €+123 million lower policyholders’ participation. Page 32 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings operations – Mediterranean and Latin American Region HY 2009 HY 2008 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 2,958 219 111 151 58 (199) (18) - 103 (29) (11) 64 (10) 53 6 - (0) (0) 59 2,794 204 92 120 25 (145) (12) - 80 (22) (16) 43 10 53 (11) - (0) (2) 39 The Mediterranean and Latin American Region includes the following changes in scope : Mexico consolidated as of 01/07/08 Turkey buyout of minority shareholders as of 01/07/08 Quadrifoglio Vita consolidated as of 31/12/08 For volume indicators, the comparable basis reflects 2009 scope. Gross revenues increased by €164 million (+6%) to €2,958 million. On a comparable basis, gross revenues increased by €34 million (+1%) mainly driven by a strong growth in general account savings products in Italy (€+743 million or +82%), partly offset by lower sales in index-linked and unit-linked products in Italy (€-500 million or -47%) and in short term traditional savings products in Spain (€-104 million or -48%). APE increased by €15 million (+7%) to €219 million. On a comparable basis, APE decreased by €9 million (-4%) mainly driven by the lower contribution from index-linked and unit-linked products in Italy (€-27 million), and from short term traditional savings products in Spain (€-14 million), partly offset by the contribution of general account savings products in Italy (€+41 million or +69%). Investment margin increased by €19 million (+21%) to €111 million of which €23 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, investment margin decreased by €3 million (-3%) to €88 million mainly due to lower revenues on bonds. Fees & revenues increased by €32 million (+26%) to €151 million of which €39 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, fees & revenues decreased by €6 million (-5%) mainly driven by a change in business mix in Italy towards more non unit-linked products with a lower level of loadings. Page 33 ______________________________________________________________________________________ (in Euro million) FY 2008 4,822 406 254 266 68 (363) (41) - 185 (45) (32) 108 (40) 68 (12) - (0) (4) 52 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net technical margin rose by €33 million (+131%) to €58 million of which €5 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, net technical margin increased by €28 million (+110%) to €53 million due to the release of a risk reserve in Spain. Expenses increased by €54 million (+37%) to €-199 million of which €49 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, expenses increased by €5 million (+4%) to €-149 million mainly driven by higher net DAC expenses. Amortization of VBI increased by €6 million (+54%) to €-18 million of which €2 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, amortization of VBI increased by €4 million (+37%) to €-16 million. As a result, the underlying cost income ratio increased by 1.5 points to 67.7%. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, the underlying cost income ratio decreased by 1.0 point to 65.3%. Income tax expenses increased by €8 million (+35%) to €-29 million, of which €4 million from Mexico and Quadrifoglio Vita. On a constant exchange rate basis and excluding Mexico and Quadrifoglio Vita, income tax expenses increased by €4 million (+17%) to €-25 million mainly driven by higher pre-tax earnings. Underlying earnings increased by €21 million (+48%) to €64 million of which €9 million from Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey. On a constant exchange rate basis, excluding Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey, underlying earnings increased by €12 million (+28%) to €55 million. Adjusted earnings were stable at €53 million of which €9 million from Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey, adjusted earnings decreased by €9 million (-16%) to €44 million as the increase in underlying earnings was more than offset by lower equity realized capital gains. Net income increased by €19 million (+48%) to €59 million of which €8 million from Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding Mexico, Quadrifoglio Vita and the buyout of minority shareholders in Turkey, net income increased by €12 million (+30%) to €51 million driven by positive change in fair value of interest rate derivatives and mutual funds mainly due to credit spread tightening. Page 34 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2009 HY 2008 Australia / New Zealand 813 801 Hong Kong 607 533 Central and Eastern Europe 229 230 Other countries 164 221 o/w Canada 56 55 o/w Luxembourg 37 32 o/w South East Asia (a) 70 134 TOTAL 1,811 1,785 Intercompany transactions (1) (1) Contribution to consolidated gross revenues 1,810 1,784 (a) South East Asia gross revenues include Indonesia and Singapore. Underlying, Adjusted earnings and Net Income HY 2009 HY 2008 Australia / New Zealand 13 48 Hong Kong 76 64 Central and Eastern Europe 8 6 Other countries (3) 11 o/w Canada 2 4 o/w Luxembourg 3 2 o/w South East Asia and China (a) (5) 4 UNDERLYING EARNINGS 95 128 Net realized capital gains or losses attributable to shareholders (25) (65) ADJUSTED EARNINGS 69 63 Profit or loss on financial assets (under Fair Value option) & derivatives (23) (6) Exceptional operations (including discontinued operations) (15) Goodwill and related intangibles impacts (1) (1) Integration costs NET INCOME 30 56 (a) South East Asia earnings include Indonesia, Thailand, Philippines, Singapore and India. Page 35 ______________________________________________________________________________________ (in Euro million) FY 2008 1,719 1,126 467 378 108 60 210 3,690 (2) 3,688 (in Euro million) FY 2008 31 133 7 22 7 5 10 192 (161) 31 21 (21) (2) 29 Activity Report ______________________________________________________________________________________________________ Half Year 2009 AUSTRALIA AND NEW ZEALAND 5 Gross revenues increased by €12 million (+1%) to €813 million. On a comparable basis, gross revenues increased by €76 million (+9%): Gross written premiums and fees (80% of gross revenues) increased by €108 million (+17%) to €650 million, mainly driven by wholesale single premiums in wealth management guaranteed savings products (within the life company) reflecting the recent investors’ trend to seek more conservative investments given market volatility; Revenues from mutual fund and advice business (20% of gross revenues) decreased by €32 million (-19%) to €163 million due to a decline in funds under management levels resulting from market volatility and lower mutual fund net sales, which decreased by €459 million (-112%) to €-43 million driven by lower inflows partly offset by lower outflows. APE decreased by €83 million (-39%) to €129 million. On a comparable basis, APE decreased by €76 million (-36%) mainly due to a drop in mutual fund net sales and AllianceBernstein joint venture sales following negative market conditions. These negative impacts were partially offset by the wholesale single premiums in wealth management guaranteed savings accounts, and by Accumulator product sales. Underlying earnings decreased by €35 million (-73%) to €13 million. On a constant exchange rate basis, underlying earnings decreased by €33 million (-69%). Excluding Genesys, a financial advice business acquired on July 1, 2008, underlying earnings decreased by €29 million (-64%). On a 100% ownership basis, the evolution of underlyings earnings was as follows: Investment margin decreased by €3 million (-47%) to €3 million. On a constant exchange rate basis, investment margin decreased by €2 million (-40%) due to a lower asset base and lower returns on assets. - Fees & revenues decreased by €54 million (-15%) to €300 million. On a constant exchange rate basis, fees & revenues decreased by €13 million (-4%). Excluding Genesys, fees & revenues decreased by €52 million (- 4%), mainly due to lower average funds under management driven by the 2008 and 2009 investment market downturn. Net technical margin fell by €32 million to €-4 million. On a constant exchange rate basis, net technical margin decreased by €33 million driven by one-off actuarial refinements mainly in individual income protection in 2008 and a less favorable claims experience in Individual Income Protection in 2009. Expenses decreased by €3 million (-1%) to €-261 million. On a constant exchange rate basis, expenses increased by €32 million (+12%) mainly due to the acquisition of Genesys. Excluding Genesys, expenses decreased by €9 million or -3% due to achieved reduction of expenses across the business. Amortization of VBI increased by €1 million (+13%) to €-10 million. On a constant exchange rate basis, amortization of VBI increased by €3 million (+28%) due to the amortization of VBI relating to the acquisition of Genesys. As a consequence, the underlying cost income ratio increased by 20.2 points to 90.7%. Income tax expenses decreased by €23 million (-88%) to €-3 million. On a constant exchange rate basis, income tax expenses decreased by €22 million (-86%) mainly due to the decrease in pre-tax underlying earnings. Adjusted earnings increased by €4 million (+43%) to €-5 million. On a constant exchange rate basis, adjusted earnings increased by €3 million (+37%) as lower impairments more than offset the decrease in underlying earnings. Net income decreased by €11 million (-84%) to €-23 million. On a constant exchange rate basis, net income decreased by €14 million (-109%) as unrealized losses on interest rate swaps and equity puts more than offset the increase in adjusted earnings. 5 AXA interest in AXA Asia Pacific Group is 53.81% broken down into 53.59% direct interest holding and an additional 0.22% owne d by the AAPH Executive plan trust. Page 36 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 HONG-KONG6 Gross revenues increased by €74 million (+14%) to €607 million. On a comparable basis, gross revenues decreased by €6 million (-1%). APE increased by €4 million (+7%) to €60 million. On a comparable basis, APE decreased by €4 million (-7%) due to the reduction in unit-linked Investment & Savings products (€-9 million), partly offset by an increase (€+6 million) in Traditional Life sales. Underlying earnings increased by €12 million (+19%) to €76 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+3%), mainly driven by non-recurring favorable impacts on VBI amortization (€+22 million) (revised actuarial assumptions) and lower expenses, partly offset by lower underlying investment margin and lower fees & revenues due to poor investment market conditions. Adjusted Earnings increased by €10 million (+16%) to €71 million. On a constant exchange rate basis, adjusted earnings increased by €1 million (+1%). Net Income increased by €1 million (+2%) to €62 million. On a constant exchange rate basis, net income decreased by €7 million (-11%) mainly due to negative impacts on marked-to-market derivatives. CENTRAL AND EASTERN EUROPE Gross revenues were stable at €229 million. On a comparable basis, gross revenues increased by €25 million (+11%) driven by Czech Republic and Poland, partly offset by Hungary. APE decreased by €8 million (-11%) to €68 million. On a comparable basis, APE was stable driven by a 26% growth in Pension Funds offset by lower volumes on the Polish tax-wrapper product. Underlying earnings increased by €3 million to €8 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+60%) mainly due to higher net bond yields linked with the increase in interest rates notably in Czech Republic. Adjusted earnings and Net income increased by €3 million to respectively €6 million and €5 million in line with underlying earnings. CANADA Gross revenues increased by €1 million (+2%) to €56 million. On a comparable basis, gross revenues increased by €4 million (+7%) mainly due to an increase in Individual Life & Savings driven by €2 million from Variable Annuity products and €2 million from Term insurance & Universal Life. Underlying earnings decreased by €2 million (-54%) to €2 million. On a constant exchange rate basis, underlying earnings decreased by €2 million (-52%) mostly due to €2 million acquisition costs related to the increased new business. Adjusted earnings and Net Income were stable at €4 million on a constant exchange rate basis. SOUTH EAST ASIA AND CHINA Gross revenues7 decreased by €64 million (-48%) to €70 million. On a comparable basis, gross revenues decreased by €66 million (-49%) mainly due to a significant decrease of the individual life unit-linked products (€-62 million or - 61%) in Singapore and Indonesia due to the volatile stock market. 6 AXA interest in AXA Asia Pacific Group is 53.81% broken down into 53.59% direct interest holding and an additional 0.22% owned by the AAPH Executive plan trust. Page 37 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 APE7 increased by €4 million (+12%) to €40 million. On a comparable basis, APE decreased by €1 million (-2%) mainly due to adverse financial market conditions, especially in Philippines, Indonesia and Singapore resulting in a significant decrease in unit-linked Life products (€-9 million or -44%). This was partly offset by strong sales of unit- linked Life products in India (€+3 million or 80%), traditional life products in Thailand and China (€+4 million) and an overall increase in Group Life products (€+2 million). Underlying Earnings and Adjusted earnings both decreased by €10 million on a constant exchange rate basis to €-5 million, mainly driven by increase in losses in Singapore (€-2 million) with lower fees, Thailand (€-2 million) and India (€-5 million). Net Income decreased by €15 million on a constant exchange rate basis to €-19 million, mainly due to the impact of the entry of India in the scope of consolidation (one-time recognition of past losses, €-14 million). 7 Please note that only full consolidated entities (Singapore & Indonesia) report their gross revenues, while APE also includes Thailand, Philippines, China and India. Page 38 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment (a) HY 2009 HY 2008 Gross written premiums 15,033 14,589 Fees and revenues from investment contracts without participating feature Revenues from insurance activities 15,033 14,589 Net revenues from banking activities Revenues from other activities 39 52 TOTAL REVENUES 15,072 14,641 Change in unearned premium reserves net of unearned revenues and fees (2,130) (2,132) Net investment result excluding financing expenses 1,108 1,161 Technical charges relating to insurance activities (8,731) (8,192) Net result of reinsurance ceded (366) (360) Bank operating expenses Insurance acquisition expenses (2,330) (2,239) Amortization of value of purchased life business in force Administrative expenses (1,255) (1,266) Valuation allowances on tangible assets (1) Other (3) 0 Other operating income and expenses (12,684) (12,058) INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 1,366 1,613 Net income from investments in affiliates and associates 16 3 Financing expenses (3) (5) OPERATING INCOME GROSS OF TAX EXPENSE 1,379 1,610 Income tax expense (372) (452) Minority interests in income or loss (21) (25) UNDERLYING EARNINGS 986 1,133 Net realized capital gains or losses attributable to shareholders (210) 136 ADJUSTED EARNINGS 775 1,269 Profit or loss on financial assets (under fair value option) & derivatives (15) (192) Exceptional operations (including discontinued operations) 12 2 Goodwill and other related intangible impacts (32) (27) Integration costs (18) (24) NET INCOME 722 1,028 (a) Before intercompany transactions. Page 39 ______________________________________________________________________________________ (in Euro million) FY 2008 26,107 26,107 102 26,209 (244) 2,263 (16,649) (780) (4,776) (2,602) (1) (5) (24,812) 3,415 5 (10) 3,410 (967) (49) 2,394 (665) 1,729 (656) 1 (69) (78) 926 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Consolidated Gross Revenues HY 2009 HY 2008 France 3,127 3,054 United Kingdom & Ireland 2,086 2,415 Germany 2,228 2,218 Belgium 1,171 1,165 Mediterranean & Latin American Region (a) 3,426 3,004 Switzerland 1,964 1,811 Other countries 1,070 974 TOTAL 15,072 14,641 Intercompany transactions (153) (122) Contribution to consolidated gross revenues 14,919 14,519 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. Underlying, Adjusted earnings and Net Income HY 2009 HY 2008 France 230 254 United Kingdom & Ireland 87 174 Germany 166 173 Belgium 93 107 Mediterranean & Latin American Region (a) 217 243 Switzerland 123 131 Other countries 70 52 UNDERLYING EARNINGS 986 1,133 Net realized capital gains or losses attributable to shareholders (210) 136 ADJUSTED EARNINGS 775 1,269 Profit or loss on financial assets (under Fair Value option) & derivatives (15) (192) Exceptional operations (including discontinued operations) 12 2 Goodwill and related intangibles impacts (32) (27) Integration costs (18) (24) NET INCOME 722 1,028 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. Page 40 ______________________________________________________________________________________ (in Euro million) FY 2008 5,633 4,471 3,554 2,156 6,437 2,024 1,934 26,209 (170) 26,039 (in Euro million) FY 2008 623 306 355 181 557 238 134 2,394 (665) 1,729 (656) 1 (69) (78) 926 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations – France HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,127 85.0% 74.8% 690 24.7% 335 350 (120) - (0) 230 (35) 195 (27) - - - 168 3,054 76.8% 71.9% 756 25.0% 307 390 (136) - (0) 254 24 278 (91) (4) - - 184 Gross revenues increased by €73 million (+2%) to €3,127 million8: Personal lines (60% of gross revenues) increased by 3% to €1,851 million reflecting positive net inflows in Motor (+46,000 new contracts mainly stemming from Direct channel and agent’s network) in a competitive market, and positive net inflows (+28,000) in household combined with an increase in the average premium, - Commercial lines (40% of gross revenues) remained stable at €1,237 million. The increase in Property (+5%) and in Liability (+14%) in a context of competitive markets was partly offset by lower volumes in Construction (-12%) and in Motor (-3%). Net technical result decreased by €66 million (-9%) to €690 million: Current accident year loss ratio increased by 8.2 points to 85.0% due to Klaus storm (4.4 points), and winter adverse conditions and hail claims (3.7 points), All accident year loss ratio increased by 2.9 points to 74.8% as a result of the increase in current accident year loss ratio partly offset by higher prior year positive reserves development (+5.3 points) mainly in Construction and Property. Expense ratio decreased by 0.3 point to 24.7% reflecting a favorable commissions business mix partly offset by an increase in the Natural Catastrophe taxes. As a result, the combined ratio increased by 2.6 points to 99.4%. Net investment result increased by €28 million (+9%) to €335 million mainly driven by a higher net corporate bond yield. Income tax expenses decreased by €16 million (-12%) to €-120 million in line with lower pre-tax earnings. Underlying earnings decreased by €24 million (-10%) to €230 million. 8 €3,088 million after intercompany eliminations. Page 41 ______________________________________________________________________________________ (in Euro million) FY 2008 5,633 74.8% 68.5% 1,777 24.5% 569 962 (339) - (1) 623 (83) 539 (290) (4) - - 245 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Adjusted earnings decreased by €83 million (-30%) to €195 million as the consequence of the decrease in underlying earnings (€-24 million) and lower capital gains net of hedging derivatives (€-66 million) partly offset by lower impairment charges (€+7 million). Net income decreased by €16 million (-9%) to €168 million as the adjusted earnings decrease was more than offset by the favorable change in fair value of mutual funds and derivatives (€+53 million) mainly due to credit spread tightening and a positive impact on foreign exchange for €+10 million. Page 42 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations - United Kingdom & Ireland HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = £ 2,086 71.6% 68.9% 616 31.5% 119 113 (26) - (0) 87 (80) 6 1 - (3) - 5 0.8945 2,415 68.0% 62.5% 856 35.7% 174 216 (42) - (0) 174 (55) 118 (4) - (10) - 105 0.7753 Gross revenues decreased by €328 million (-14%) to €2,086 million9. On a comparable basis, gross revenues decreased by €47 million (-2%): Personal lines (52% of the P&C premiums) remained stable at €1,084 million. Motor was up 19% to €372 million mainly due to further growth in new business written through the internet platform Swiftcover (+59% to €137m). Non-Motor was down 7% to €712 million due to selective underwriting notably in travel. Property was up 8% to €263 million benefiting from new deals from intermediary and corporate partners. Health was down 4% to €285 million due to lower volume on Private Medical Insurance, Commercial lines (46% of the P&C premiums) were down 4% to €960 million. Motor was down 8% as the focus on profitability continued with tariff increases affecting renewal retention. Non-Motor was down 3% in a soft market environment. Net technical result decreased by €239 million (-28%) to €616 million. On a constant exchange rate basis, net technical result decreased by €153 million (-18%): Current accident year loss ratio increased by 3.4 points to 71.6% as a result of a very large Commercial Property claim (0.9 point), adverse weather events including Klaus storm (0.8 point) and January freeze in the United Kingdom and Ireland (0.9 point), All accident year loss ratio increased by 6.3 points to 68.9% reflecting the deterioration in current accident year loss ratio combined with a reduced level of favorable development in prior years reserves. Expense ratio decreased by 4.1 points to 31.5% with an acquisition ratio down 1.5 points following the renegotiation of broker commissions. The administrative expense ratio decreased by 2.6 points reflecting cost containment including a positive one off impact on employee pension scheme (€35 million or -1.8 points). As a result, the combined ratio was up by +2.2 points to 100.3%. Net investment result decreased by €55 million (-32%) to €119 million. On a constant exchange rate basis, net investment result decreased by €42 million (-24%) as a result of lower cash, equity and property income reflecting the current market conditions. 9 €2,048 million after intercompany eliminations. Page 43 ______________________________________________________________________________________ (in Euro million) FY 2008 4,471 69.3% 63.3% 1,643 35.7% 352 397 (90) - (1) 306 (227) 78 7 - (24) - 62 0.7970 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Income tax expenses decreased by €16 million (-38%) to €-26 million. On a constant exchange rate basis, income tax expenses decreased by €13 million (-31%) reflecting a lower pre-tax result partly offset by a €13 million decrease in positive tax one off. Underlying earnings decreased by €87 million (-50%) to €87 million. On a constant exchange rate basis, underlying earnings decreased by €79 million (-46%). Adjusted earnings decreased by €112 million (-95%) to €6 million. On a constant exchange rate basis, adjusted earnings decreased by €116 million (-98%) due to lower underlying earnings, lower realized gains on equities and higher fixed income impairments. Net income decreased by €100 million (-95%) to €5 million. On a constant exchange rate basis, net income decreased by €104 million (-99%) reflecting adjusted earnings evolution, exchange rate impacts and reduced amortization of intangible assets. Page 44 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations – Germany HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 2,228 77.0% 66.5% 591 30.6% 187 239 (74) 1 (0) 166 (23) 143 (18) 12 - (10) 127 2,218 76.7% 66.7% 583 31.3% 201 235 (64) 3 (1) 173 72 244 (45) - - (6) 194 Gross revenues increased by €10 million (+0%) to €2,228 million10: Personal lines (63% of gross written premiums) decreased by 2% as a result of (i) contract losses and declining average premium in Motor in the context of market price pressure, (ii) decreasing net production in Accident Risk insurance in most segments, and (iii) the sale of the Legal Protection business (€13 million), partly offset by (iv) new business in the packaged product “Profischutz” for professionals, Commercial lines (31% of gross written premiums) remained stable, - Other lines (6% of gross written premiums) increased by 33% due to a rise in the treaty segment in Assumed business, where AXA quota share reinsurance rose in legal protection insurance. Net technical result increased by €8 million (+1%) to €591 million: Current accident year loss ratio remained stable at 77.0%, - All accident year loss ratio remained stable at 66.5%. Expense ratio decreased by 0.8 point to 30.6% as the decrease in the non-commission expense ratio stemming from productivity gains was partly offset by a rise in the commission ratio resulting from a change in the portfolio and distribution mix. As a result, the combined ratio decreased by 1.0 point to 97.0%. Net investment result decreased by €14 million (-7%) to €187 million mainly due to lower dividends on equities and lower coupons on fixed income. Income tax expenses increased by €10 million (+15%) to €-74 million mostly due to €14 million non recurring favorable tax impacts in 2008. Underlying earnings decreased by €7 million (-4%) to €166 million. Adjusted earnings decreased by €102 million (-42%) to €143 million due to lower realized gains in equity investments. 10 €2,206 million after intercompany eliminations. Page 45 ______________________________________________________________________________________ (in Euro million) FY 2008 3,554 76.2% 66.1% 1,198 32.1% 394 458 (106) 5 (2) 355 (57) 298 (146) (1) - (25) 127 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net income decreased by €66 million (-34%) to €127 million mainly due to lower adjusted earnings partly compensated by positive effects from spread tightening on fixed income investments and 2008 non-recurring foreign exchange losses. Page 46 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations – Belgium HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,171 80.9% 69.0% 332 30.0% 94 103 (10) - 0 93 (16) 77 21 - (1) (5) 92 1,165 79.5% 69.5% 324 28.5% 131 151 (43) - (0) 107 86 194 (22) - (0) (9) 161 Gross revenues increased by €6 million (+1%) to €1,171 million11: Personal lines were up 2% driven by Non-Motor (+3%) mainly due to Property (+4%) reflecting the evolution of the ABEX household index partly offset by portfolio losses (due to lower number of guarantees), Commercial lines were up 1% as a result of increases in all lines except Workers’ Compensation and Group Accident. Net technical result increased by €8 million (+2%) to €332 million: Current accident year loss ratio increased by 1.3 points to 80.9% mainly resulting from an increase in attritional claims charge in most lines of business, All accident year loss ratio decreased by 0.6 point to 69.0% due to a higher prior year result following a low inflation rate in Workers’ Compensation and favorable claims evolution. Expense ratio rose by 1.6 points to 30.0% with an acquisition ratio up 0.9 point and an administrative expense ratio up 0.7 point mainly due to salary increases linked to inflation indexation. As a result, the combined ratio increased by 1.0 point to 99.0%. Underlying investment result decreased by €37 million (-28%) to €94 million mainly resulting from assets transferred to the Life & Savings segment (€-16 million) and lower asset yields. Income tax expenses decreased by €34 million (-77%) to €-10 million resulting from the favorable court decision for insurance companies on RDT (Revenus Définitivement Taxés: tax exemption on 95% of dividends on equities) (€+23 million), and lower pre-tax results. Underlying earnings decreased by €14 million (-13%) to €93 million. Adjusted earnings decreased by €117 million (-60%) to €77 million reflecting lower underlying earnings and lower net realized capital gains net of hedging derivatives. 11 €1,160 million after intercompany eliminations. Page 47 ______________________________________________________________________________________ (in Euro million) FY 2008 2,156 80.9% 69.0% 669 29.9% 235 255 (75) - (0) 181 (41) 140 (133) - (1) (24) (17) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net Income decreased by €70 million (-43%) to €92 million mainly reflecting lower adjusted earnings partly offset by a favorable change in fair value of fixed income mutual funds due to credit spread tightening. Page 48 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations – Mediterranean and Latin American Region HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,426 78.4% 72.2% 929 25.1% 228 317 (82) - (18) 217 (38) 180 5 - (12) (3) 170 3,004 74.0% 69.0% 868 24.7% 195 369 (105) - (22) 243 38 281 (12) 6 (3) (5) 266 The Mediterranean and Latin American Region includes the following changes in scope : Mexico consolidated as of 01/07/08 Turkey buyout of minority shareholders as of 01/07/08 For volume indicators, the comparable basis reflects 2009 scope. Gross revenues increased by €422 million (+14%) to €3,426 million12. On a comparable basis, gross revenues decreased by €48 million (-1%) driven by the difficult economic context in the Southern Europe countries, partly compensated by a good performance in emerging markets (Mexico +7%, Morocco +5%, Turkey +2%): Personal lines (63% of total revenues) were down 2% to €2,138 million mainly due to Motor, down 4% driven by difficult market conditions in Spain, Portugal, Turkey and the Gulf Region, partly compensated by strong performances in Mexico and Morocco. Non-Motor was up 2%, with Household developing positively in all the countries, Commercial lines (37% of total revenues) were stable at €1,258 million, with a stability in Motor and an increase in Property driven by Turkey and Mexico (thanks to new large contracts), partly offset by a decrease in Liability, directly correlated with the negative economic trend, especially for Construction in Spain. Net technical result increased by €61 million (+7%) to €929 million of which €128 million from Mexico. On a constant exchange rate basis and excluding Mexico, net technical result decreased by €65 million (-8%) to €801 million: Current accident year loss ratio increased by 4.4 points to 78.4%. On a constant exchange rate basis and excluding Mexico, the current accident year loss ratio increased by 4.9 points to 78.9% mainly due to Individual Motor and Commercial lines in most of the countries, and also to the cost of Klaus storm (+0.7 point), All accident year loss ratio increased by 3.3 points to 72.2 %. On a constant exchange rate basis and excluding Mexico, the all accident year loss ratio increased by 2.4 points to 71.4% mainly driven by the 12 €3,402 million after intercompany eliminations. Page 49 ______________________________________________________________________________________ (in Euro million) FY 2008 6,437 76.2% 68.5% 1,979 24.8% 414 833 (235) - (40) 557 (43) 515 (37) 6 (16) (20) 447 Activity Report ______________________________________________________________________________________________________ Half Year 2009 increase in the current accident year loss ratio, partly offset by favorable prior year reserves development notably in Liability and Motor. Expense ratio rose by 0.4 point to 25.1%. On a constant exchange rate basis and excluding Mexico, the expense ratio was flat at 24.8%. As a result, the combined ratio was up 3.8 points to 97.3%. On a constant exchange rate basis and excluding Mexico, the combined ratio was up 2.5 points to 96.2%. Net investment result increased by €33 million (+17%) to €228 million of which €33 million from Mexico. On a constant exchange rate basis and excluding Mexico, net investment result increased by €4 million (+2%) to €195 million. Income tax expenses decreased by €23 million (-22%) to €-82 million of which €-3 million from Mexico. On a constant exchange rate basis and excluding Mexico, income tax expenses decreased by €26 million (-24%) to €-78 million in line with lower pre-tax earnings. Underlying earnings decreased by €25 million (-10%) to €217 million of which €20 million from Mexico and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding Mexico and the buyout of minority shareholders in Turkey, underlying earnings decreased by €46 million (-19%) to €197 million. Adjusted earnings decreased by €101 million (-36%) to €180 million of which €18 million from Mexico and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding Mexico and the buyout of minority shareholders in Turkey, adjusted earnings decreased by €120 million (-43%) to €162 million mainly due to the decrease in underlying earnings and lower capital gains, partly offset by lower impairments on equities. Net income decreased by €96 million (-36%) to €170 million of which €17 million from Mexico and the buyout of minority shareholders in Turkey. On a constant exchange rate basis, excluding Mexico and the buyout of minority shareholders in Turkey, net income decreased by €114 million (-43%) to €153 million mainly due to lower adjusted earnings. Page 50 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations – Switzerland HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 1,964 79.1% 65.9% 366 28.0% 92 158 (34) - (1) 123 (19) 104 (1) (1) (12) - 90 1.5055 1,811 77.6% 74.5% 258 18.3% 95 168 (36) - (1) 131 (32) 99 (17) - (10) (4) 67 1.6059 Gross revenues increased by €152 million (+8%) to €1,964 million13. On a comparable basis, gross revenues increased by €29 million (+2%): Personal lines remained stable at €975 million, - Commercial lines increased by 2% to €994 million mainly due to new large Health contracts. Net technical result increased by €108 million (+42%) to €366 million. On a constant exchange rate basis, net technical result increased by €85 million (+33%): Current accident year loss ratio increased by 1.5 points to 79.1% driven by Commercial lines, - All accident year loss ratio decreased by 8.6 points to 65.9% reflecting the increase in prior year results (€+101 million) following the positive evolution of Motor Liability, Workers’ compensation and Commercial liability. Expense ratio increased by 9.7 points to 28.0% mainly due to the non recurrence of positive 1H08 impacts: acquisition ratio up 6.1 points, mainly as a result of a one-off change in own pension scheme in 2008 and sales structure, administration ratio up 3.6 points, mainly as a result of a one-off change in own pension scheme in 2008 and other miscellaneous items. As a result, the combined ratio increased by 1.1 points to 93.9%. Net investment result decreased by €3 million (-3%) to €92 million. On a constant exchange rate basis, net investment result decreased by €9 million (-9%) driven by lower income on cash. Income tax expenses decreased by €2 million (-5%) to €-34 million. On a constant exchange rate basis, income tax expenses decreased by €4 million (-11%) driven by lower pre-tax earnings. Underlying earnings decreased by €8 million (-6%) to €123 million. On a constant exchange rate basis, underlying earnings decreased by €16 million (-12%). 13 €1,957 million after intercompany eliminations. Page 51 ______________________________________________________________________________________ (in Euro million) FY 2008 2,024 73.7% 69.1% 627 24.5% 181 311 (70) - (2) 238 (170) 68 (52) - (21) (10) (14) 1.5866 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Adjusted earnings increased by €5 million (+5%) to €104 million. On a constant exchange rate basis, adjusted earnings decreased by €1 million (-1%) reflecting lower underlying earnings (€-16 million) partly offset by lower impairments mainly on equities. Net income increased by €22 million (+33%) to €90 million. On a constant exchange rate basis, net income increased by €17 million (+25%) mainly driven by a positive foreign exchange impact. Page 52 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Property & Casualty Operations - Other Countries Consolidated Gross Revenues (in Euro million) HY 2009 HY 2008 FY 2008 Canada Others o/w South Korea o/w Japan o/w Asia (excluding Japan) (a) o/w Luxembourg o/w Central and Eastern Europe 576 494 142 133 147 58 13 531 443 171 95 112 55 10 1,076 858 326 195 230 88 19 TOTAL 1,070 974 1,934 Intercompany transactions (13) (7) (9) Contribution to consolidated gross revenues 1,057 966 1,925 (a) Includes Hong Kong, Singapore and Malaysia (Malaysia was fully consolidated for the first time in 2007). Underlying, Adjusted earnings and Net Income (in Euro million) HY 2009 HY 2008 FY 2008 Canada 47 49 103 Others 23 3 31 o/w South Korea 2 (2) 4 o/w Japan (0) (1) 6 o/w Asia (excluding Japan) (a) 5 6 17 o/w Luxembourg 6 6 13 o/w Central and Eastern Europe (5) (6) (10) UNDERLYING EARNINGS 70 52 134 Net realized capital gains or losses attributable to shareholders 1 3 (44) ADJUSTED EARNINGS 71 55 90 Profit or loss on financial assets (under Fair Value option) & derivatives 4 0 (6) Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts (4) (4) (7) Integration costs NET INCOME 71 51 77 (a) Includes Malaysia, Hong Kong and Singapore. CANADA Gross revenues increased by €45 million (+8%). On a comparable basis, gross revenues increased by €67 million due to increased volumes in personal lines. Underlying earnings decreased by €2 million (-3%) to €47 million. On a constant exchange rate basis, underlying earnings were stable reflecting an improved combined ratio by 0.5 point to 93.0% partly offset by lower net investment income and higher effective income tax rate. Adjusted earnings decreased by €3 million (-7%) to €46 million. On a constant exchange rate basis, adjusted earnings decreased by €1 million (-3%) mostly due to lower capital gains, partly offset by lower impairments. Net income remained stable on a constant exchange rate basis at €44 million. Page 53 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 SOUTH KOREA Gross revenues decreased by €29 million (-17%) to €142 million. On a comparable basis, gross revenues decreased by €2 million (-1%), driven by the Motor business. The all accident year loss ratio increased by 2.9 points to 83.5%, following the increase in the current accident year loss ratio due to higher frequency and one large claim, partly offset by the favorable prior year reserves developments. Expense ratio decreased by 5.8 points to 18.2% following lower administrative and marketing costs. As a result, the combined ratio decreased by 2.9 points to 101.7% Underlying earnings increased by €4 million to €2 million. On a constant exchange rate basis, underlying earnings increased by €5 million. Adjusted earnings were in line with underlying earnings. Net income increased by €5 million on both current and constant exchange rate bases to €1 million. JAPAN Gross revenues increased by €38 million (+40%) to €133 million. On a comparable basis, gross revenues increased by €11 million (+11%) mainly driven by the growth in Motor business. The combined ratio improved by 2.0 points to 100.2%, as a result of an 8.3 points improved expense ratio driven by lower marketing costs and a favorable volume effect, partly offset by a 6.4 points increase in the loss ratio due to non- recurring favorable reserve developments last year and higher claims handling costs this year. Underlying earnings increased by €1 million to €0 million, reflecting the improvement of the combined ratio. Adjusted earnings and net income increased by €1 million, in line with underlying earnings. ASIA (EXCLUDING JAPAN) SINGAPORE Gross revenues increased by €21 million (+39%) to €75 million14. On a comparable basis, gross revenues increased by €15 million (+28%) mainly driven by the increase in premium rates. The all accident year loss ratio deteriorated by 6.3 points to 71.1%, mainly driven by an 8.6 points increase in the current accident year loss ratio in property and liability lines, partly offset by favorable reserve developments. The expense ratio decreased by 3.7 points to 26.0% benefiting from a volume effect. As a result, the combined ratio was up 2.7 points to 97.1%. Underlying earnings were stable at €3 million, as the better investment income offset the lower technical result. Adjusted earnings decreased by €1 million to €4 million due to lower realized capital gains. Net income was in line with adjusted earnings. 14 €72 million after intercompany eliminations. Page 54 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 HONG KONG Gross revenues increased by €10 million (+40%) to €36 million15. On a constant exchange rate basis, gross revenues increased by €4 million (+18%) mainly due to a €2 million growth in Motor business driven by the agent channel and the increase in premium rates, and a €2 million growth in Health business. The Combined Ratio deteriorated by 2.2% to 104.1%, mainly due to a €1 million loss incurred on the Klaus storm and the earthquake in Italy within AXA Group’s reinsurance pool. Underlying earnings decreased by €1 million to €0 million reflecting the deterioration of the combined ratio. Adjusted earnings decreased by €2 million to €2 million due to lower underlying earnings and lower realized gains from equities. Net income was in line with adjusted earnings. MALAYSIA Gross revenues increased by €4 million (+12%) to €36 million. On a comparable basis, gross revenues increased by €3 million (+9%) mainly attributable to the growth in Motor business as a result of the higher retention rate coupled with increase in new business. The all accident year loss ratio increased by 0.8 point to 67.1% mainly due to the unfavorable claims experience in Motor business. The expense ratio increased by 0.6 point to 27.9% mainly driven by higher general administrative costs. As a result, the combined ratio increased by 1.4 points to 95.0%. Underlying earnings were stable at €1 million. Adjusted earnings decreased by €1 million to €1 million, mainly due to lower capital gains. Net income decreased by €1 million to €1 million, in line with adjusted earnings. CENTRAL AND EASTERN EUROPE (POLAND) Gross revenues increased by €3 million (+34%) to €13 million. On a comparable basis, gross revenues increased by €8 million (+79%) reflecting higher net inflows in Motor (+35k new contracts). Underlying and adjusted earnings rose by €1 million to €-5 million. Net income increased by €3 million to €-2 million. 15 €33 million after intercompany eliminations. Page 55 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2009 HY 2008 FY 2008 AXA Corporate Solutions Assurance 1,270 1,234 1,970 AXA Cessions 58 61 51 AXA Assistance 432 407 870 Other (a) 52 40 89 TOTAL 1,813 1,742 2,980 Intercompany transactions (82) (69) (139) Contribution to consolidated gross revenues 1,731 1,673 2,841 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2009 HY 2008 FY 2008 AXA Corporate Solutions Assurance 48 46 113 AXA Cessions (3) 6 14 AXA Assistance 8 10 20 Other (a) 69 109 41 UNDERLYING EARNINGS 122 172 188 Net realized capital gains or losses attributable to shareholders 5 7 (16) ADJUSTED EARNINGS 127 179 172 Profit or loss on financial assets (under Fair Value option) & derivatives (10) (24) (71) Exceptional operations (including discontinued operations) 1 Goodwill and related intangibles impacts Integration costs NET INCOME 117 155 103 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Page 56 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 AXA Corporate Solutions Assurance HY 2009 HY 2008 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying operating earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,270 92.2% 88.7% 118 12.8% 96 79 (31) - (1) 48 9 56 (10) - - - 46 1,234 101.2% 88.8% 112 13.1% 83 64 (17) - (1) 46 2 48 (23) - - - 25 Gross revenues increased by €37 million (+3%) to €1,270 million16. On a comparable basis, gross revenues increased by €36 million (+3%) driven by portfolio development in Liability and Marine, and by positive premium adjustments on previous years in Construction. Net technical result increased by €7 million (+6%) to €118 million. On a constant exchange rate basis, net technical result increased by €9 million (+8%): Current accident year net technical result increased by €92 million on a constant exchange rate basis to €79 million reflecting a lower level of major losses in Property. Current year loss ratio reached 92.2% (-9.1 points), The prior accident year net technical result decreased by €83 million on a constant exchange rate basis to €39 million due to major losses on aviation line (Air France, Colgan Air) underwritten in 2008. As a consequence, the all accident year loss ratio decreased by 0.1 point to 88.7%. Expense ratio decreased by 0.3 point to 12.8% resulting from a decrease in general expenses on premises partly offset by staff costs on the new international branches, and also a decrease in commissions mainly due to higher fronting business with lower commission rates. As a result, the combined ratio was down by 0.4 point to 101.6%. Net investment result increased by €13 million (+15%) to €96 million. On a constant exchange rate basis, net investment result increased by €15 million (+18%) mainly driven by a higher net corporate bond yield and a higher asset base. Income tax expenses increased by €14 million (+84%) to €-31 million. On a constant exchange rate basis, income tax expenses increased by €15 million (+88%) reflecting the improvement of technical result and the 2008 non-recurrent positive past adjustment (€19 million). 16 €1,256 million after intercompany eliminations. Page 57 ______________________________________________________________________________________ (in Euro million) FY 2008 1,970 97.5% 88.2% 227 13.2% 190 163 (48) - (1) 113 (8) 105 (77) - - - 27 Activity Report ______________________________________________________________________________________________________ Half Year 2009 Underlying earnings increased by €1 million (+3%) to €48 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+7%). Adjusted earnings increased by €8 million (+17%) to €56 million. On a constant exchange rate basis, adjusted earnings increased by €10 million (+21%) reflecting the increase in underlying earnings and higher realized capital gains. Net income increased by €21 million (+83%) to €46 million. On a constant exchange rate basis, net income increased by €22 million (+90%) reflecting the increase in adjusted earnings (€+10 million) and a positive variation of the change in fair value of mutual funds (€+15 million) mainly due to credit spread tightening. AXA Cessions Underlying earnings decreased by €9 million (-142%) to €-3 million mainly impacted by Klaus storm and mali on Group Motor Liability Cover. Net income decreased by €6 million (-111%) to €-1 million with lower underlying earnings partly offset by positive impact of foreign exchange rates. AXA Assistance Gross revenues increased by €25 million (+6%) to €432 million. Underlying and adjusted earnings decreased by €2 million (respectively -19% and -20%) to €8 million due to adverse claims development. Net income decreased by €3 million (-31%) to €6 million. Other international activities Gross revenues increased by €13 million (+32%) to €52 million. On a comparable basis, gross revenues decreased by €6 million (-14%) mainly driven by higher advanced run-off status. Underlying earnings decreased by €40 million (-37%) to €69 million. On a constant exchange rate basis, underlying earnings decreased by €44 million (-40%) driven by non-life run-off portfolio due to (i) the non recurrence of the booking of deferred tax assets in half year 2008 and (ii) lower technical results in 2009, partly offset by higher life run-off result. Adjusted earnings decreased by €49 million (-43%) to €66 million. On a constant exchange rate basis, adjusted earnings decreased by €53 million (-46%) mainly driven by underlying earnings and lower net realized capital gains in non-life run-off business. Net income decreased by €50 million (-43%) to €67 million. On a constant exchange rate basis, net income decreased by €53 million (-46%) in line with adjusted earnings. Page 58 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2009 HY 2008 FY 2008 AllianceBernstein AXA Investment Managers 967 698 1,402 891 2,627 1,716 TOTAL 1,664 2,293 4,342 Intercompany transactions (161) (191) (395) Contribution to consolidated gross revenues 1,503 2,102 3,947 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2009 HY 2008 FY 2008 AllianceBernstein 95 128 318 AXA Investment Managers 81 158 271 UNDERLYING EARNINGS 176 285 589 Net realized capital gains or losses attributable to shareholders ADJUSTED EARNINGS 176 285 589 Profit or loss on financial assets (under Fair Value option) & derivatives 16 (93) (163) Exceptional operations (including discontinued operations) (5) 10 (22) Goodwill and related intangibles impacts (4) (5) Integration costs (0) (1) (2) NET INCOME 187 198 396 Page 59 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 AllianceBernstein (in Euro million) HY 2009 HY 2008 FY 2008 Gross revenues Net investment result General expenses Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = $ 967 2 (864) 105 29 (40) 95 - 95 5 (5) - - 95 1.3349 1,402 (26) (977) 400 (132) (140) 128 - 128 (12) 10 (4) - 122 1.5309 2,627 (125) (1,768) 734 (151) (265) 318 - 318 (45) (22) (5) - 245 1.4706 Assets under Management ("AUM") decreased by €13 billion from year-end 2008 to €318 billion at June 30, 2009 driven by net outflows of €-33 billion (€-24 billion from Institutional clients, €-5 billion from Retail and €-4 billion for Private Client) and negative exchange rate impact of €-2 billion, partly offset by market appreciation of €22 billion. Gross revenues decreased by €436 million (-31%) to €967 million17. On a comparable basis, gross revenues decreased by €534 million (-40%) due to advisory fees down 45% in line with 43% lower average AUM, distribution fees down 44% related to lower average mutual fund assets, and Institutional Research Services down 5% due to lower trading activity by hedge fund clients. Net investment result increased by €28 million to €2 million. On a constant exchange rate basis, net investment result increased by €28 million due to higher realized and unrealized gains on investments related to deferred compensation obligations. General expenses decreased by €113 million (-12%) to €-864 million. On a constant exchange rate basis, general expenses decreased by €224 million (-23%) primarily due to (i) lower compensation expenses (-26% or €146 million due to workforce reductions, partly offset by severance costs) and (ii) lower promotion and servicing expenses (-36% or €73 million) due to lower distribution plan payments (from lower average Retail AUM), lower amortization of deferred sales commission and lower travel and entertainment costs. As a result, the underlying cost income ratio increased by 20.4 points to 88.0%. Income tax expenses decreased by €161 million to a €29 million benefit. On a constant exchange rate basis, income tax expenses decreased by €158 million due to lower pre-tax earnings and one-time tax benefit of €65 million due primarily to the release of reserves relating to the tax treatment of compensation plans. Underlying and adjusted earnings decreased by €33 million (-26%) to €95 million. On a constant exchange rate basis, underlying and adjusted earnings decreased by €45 million (-35%). Note that earnings reflect the increase in ownership interest of approximately 3% due to the exercise of the final Bernstein put. AXA ownership of AllianceBernstein as of June 30, 2009 is 64.2%. 17 €924 million after intercompany eliminations. Page 60 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Net income decreased by €27 million (-22%) to €95 million. On a constant exchange rate basis, net income decreased by €39 million (-32%) as a result of adjusted earnings decrease partly offset by €17 million favorable change in fair value of assets. Page 61 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 AXA Investment Managers (“AXA IM”) (in Euro million) HY 2009 HY 2008 FY 2008 Gross revenues Net investment result General expenses Underlying operating earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 698 8 (565) 141 (48) (12) 81 - 81 11 - - (0) 92 891 66 (713) 244 (62) (25) 158 - 158 (81) - - (1) 76 1,716 101 (1,375) 442 (129) (42) 271 - 271 (118) - - (2) 151 Assets under management (“AUM”) were flat from year-end 2008 to €485 billion at the end of June 2009 mainly as a result of (i) €-5 billion net outflows (mainly on AXA main funds), and (ii) €-4 billion negative market impact (mostly on structured finance funds) partly offset by (iii) €+7 billion favorable exchange impact (mainly on Pound Sterling). Gross revenues decreased by €193 million (-22%) to €698 million18. On a comparable basis and excluding distribution fees (retroceded to distributors), net revenues decreased by €122 million (-19%) mainly due to lower management fees (€-107 million), equally driven by lower average AUM and unfavorable client and product mix. Net investment result decreased by €58 million (-88%) (both on current and constant exchange rate bases) to €8 million, mainly due to lower realized carried interest in 2009 (€58 million non recurring carried interest on real estate in 2008 versus €11million in 2009). General expenses decreased by €148 million (-21%) to €565 million. On a constant exchange rate basis, general expenses decreased by €141 million (-20%). Excluding distribution fees (commissions paid to third party distributors), general expenses decreased by €75 million (-16%) mainly as a result of lower variable compensation costs. As a result, the underlying cost income ratio increased by 7.7 points to 73.1%. Income tax expenses decreased by €14 million (-23%) to €48 million (both on current and constant exchange rate bases), in line with lower operating income. Underlying and adjusted earnings decreased by €77 million (-49%) to €81 million. On a constant exchange rate basis, underlying and adjusted earnings decreased by €75 million (-47%). Net income increased by €15 million (+20%) to €92 million. On a constant exchange rate basis, net income increased by €17 million (+22%), mainly driven by a positive change in fair value of “Libor plus” funds (€+3 million in 2009 versus €-64 million in 2008) and positive variation in unrealized Private Equity and Real Estate carried interests, more than offsetting the decrease in adjusted earnings. 18 €579 million after intercompany eliminations. Page 62 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2009 HY 2008 FY 2008 Axa Bank Europe (Belgium) 154 138 224 AXA Banque (France) 49 35 118 Others (a) 28 34 59 TOTAL 230 206 401 Intercompany transactions (35) (10) 11 Contribution to consolidated gross revenues 195 197 412 (a) Includes notably German banks. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2009 HY 2008 FY 2008 Axa Bank Europe (Belgium) 33 35 69 Axa Banque (France) (2) (8) (12) Others (a) (16) (3) (24) UNDERLYING EARNINGS 15 24 33 Net realized capital gains or losses attributable to shareholders (7) (5) (64) ADJUSTED EARNINGS 8 19 (32) Profit or loss on financial assets (under Fair Value option) & derivatives (10) (4) 4 Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts (0) (0) (0) Integration costs (1) (3) (10) NET INCOME (3) 11 (38) (a) Includes notably German banks. Page 63 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 AXA Bank Europe (Belgium) Net banking revenues increased by €16 million (+12%) to €154 million. On a comparable basis, net banking revenues decreased by €5 million (-4%) mainly due to a decrease of the net capital gains and impairments partly offset by a higher net interest and fee income. Underlying earnings decreased by €2 million (-5%) to €33 million mainly due to an increase in expenses (€-14 million) from the expansion of the banking activity to other countries, a higher provision on credit losses (€-6 million) and higher distribution commissions (€-4 million), partly offset by a higher interest margin (€+21 million) and higher realized capital gains on the bond portfolio (€+1 million). Adjusted earnings decreased by €3 million (-11%) to €26 million mainly due to the decrease in the underlying earnings (€-2 million) and a decrease in net realized capital gains net of impairments (€-2 million). Net income decreased by €9 million (-37%) to €15 million driven by the decrease in adjusted earnings (€-3 million), and the unfavorable change in fair value and capital gains of mutual funds and other assets (€-4 million) as well as freestanding derivatives (€-4 million). AXA Banque (France) Net banking revenues increased by €14 million (+41%) to €49 million. On a comparable basis, net banking revenues increased by €3 million (+8%) net of intercompany transactions mainly due to an increase in the commercial margin. Administrative expenses decreased by €5 million following a cost control program, whereas the cost of credit risk increased by €-7 million in a context of economic crisis. Underlying and adjusted earnings increased by €5 million to €-2 million. Net income increased by €9 million to €-2 million, reflecting a favorable net impact of the change in fair value of macro-hedge derivative instruments. Others AXA BANK (GERMANY) Net banking revenues decreased by €6 million (-61%) to €4 million. On a comparable basis, net banking revenues decreased by €7 million (-79%) mainly due to decreasing interest margin caused by higher interest paid for term accounts, and less commissions and interest received from credit business. Underlying earnings decreased by €3 million (+353%) to €-4 million due to lower commission margin mainly from lower fees in the credit business partly offset by lower expenses. Adjusted earnings and net income decreased by €3 million to €-4 million driven by lower underlying earnings. Page 64 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific Holdings, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgium Holdings, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income HY 2009 HY 2008 AXA (251) (114) Other French holdings companies (19) (5) Foreign holdings companies (146) (134) Others (a) 2 8 UNDERLYING EARNINGS (415) (245) Net realized capital gains or losses attributable to shareholders 11 282 ADJUSTED EARNINGS (404) 37 Profit or loss on financial assets (under Fair Value option) & derivatives 331 (275) Exceptional operations (including discontinued operations) 10 0 Goodwill and related intangibles impacts 0 0 Integration costs 0 0 NET INCOME (63) (238) (a) Includes notably CDOs and real estate entities. AXA19 Underlying earnings decreased by €137 million to €-251 million mainly due to: €-40 million higher financial charges mainly linked to higher US Dollar/Euro and Yen/Euro rates increasing the interest charge denominated in foreign currencies, €-33 million loss related to an internal swap (expected to be nil on a full year basis as dividends are completely paid during first half of the year and interest charge accrued throughout the year), €-33 million lower result on hedging of earnings denominated in foreign currencies. Adjusted earnings decreased by €367 million to €-221 million driven by the underlying earnings evolution and by the lower impact of equity derivatives from €+284 million in 2008 to €+34 million in 2009. Net income increased by €150 million to €59 million mainly driven by: - the adjusted earnings evolution of €-367 million, €+392 million change in the mark to market on interest rate and foreign exchange derivatives instruments which are not eligible to hedge accounting, €+115 million related to the decrease in the time value of equity derivatives. 19 All the figures are after tax. Page 65 ______________________________________________________________________________________ (in Euro million) FY 2008 (437) (4) (250) 22 (668) 1,185 517 (535) 0 0 0 (19) Activity Report ______________________________________________________________________________________________________ Half Year 2009 Other French holding companies AXA France Assurance. Underlying earnings, adjusted earnings and net income decreased by €10 million to €-23 million, mainly due to the increase in tax expenses (€9 million) resulting from higher dividends (eliminated in consolidation) received from operational entities. Other French holdings. Underlying earnings decreased by €4 million to €4 million mainly due to lower investment income. Adjusted earnings decreased by €40 million to €0 million mainly driven by €32 million lower net realized capital gains. Net income decreased by €33 million to €-2 million driven by adjusted earnings evolution partly offset by a favorable change in fair value of derivatives non eligible to hedge accounting (from a €9 million loss in 2008 to a €2 million loss in 2009). Foreign Holding Companies AXA Financial Inc. Underlying earnings decreased by €20 million (-41%) to €-68 million. On a constant exchange rate basis, underlying earnings decreased by €11 million (-23%) primarily due to a €27 million increase in net interest expenses partially offset by a higher income tax benefit ( €+14 million) reflecting a lower tax cost on stock based compensation. Adjusted earnings decreased by €20 million (-41%) to €-68 million. On a constant exchange rate basis, adjusted earnings decreased by €11 million (-23%) due to lower underlying earnings. Net income decreased by €14 million (-29%) to €-63 million. On a constant exchange rate basis, net income decreased by €6 million (-12%) due to lower adjusted earnings partially offset by an increase in the fair value of interest rate derivatives. AXA Asia Pacific Holdings 20 Underlying earnings increased by €4 million (+51%) to €-4 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+44%) due to lower interest expenses partially offset by higher Asian regional corporate expenses. Adjusted earnings increased by €6 million (+82%) to €-1 million. On a constant exchange rate basis, adjusted earnings increased by €6 million (+80%) driven by underlying earnings evolution and realized gains from interest rate swaps. Net income increased by €10 million (+113%) to €1 million. On a constant exchange rate basis, net income increased by €10 million (+114%) as a result of a foreign exchange revaluation gain on the US Dollar denominated debt. AXA UK Holdings Underlying earnings increased by €18 million (+59%) to €-13 million. On a constant exchange rate basis, underlying earnings increased by €16 million (+53%) principally reflecting a €13 million release of deferred tax provision held against an overseas dividend payment. 20 AXA interest in AXA Asia Pacific Group is 53.81% broken down into 53.59% direct interest holding and an additional 0.22% owne d by the AAPH Executive plan trust. Page 66 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Adjusted earnings increased by €18 million (+58%) to €-13 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+52%) in line with underlying earnings. Net income increased by €99 million (+177%) to €43 million. On a constant exchange rate basis, net income increased by €106 million (+189%) reflecting adjusted earnings evolution together with €90 million exchange rate gain primarily arising from the revaluation of Euro-denominated inter-company loans. German Holding companies Underlying earnings increased by €4 million (+16%) to €-20 million driven by €9 million lower net interest charges partly offset by increase in administrative expenses. Adjusted earnings decreased by €6 million (-18%) to €-41 million due to impairments on equities. Net income decreased by €6 million (-18%) to €-41 million due to adjusted earnings. Belgium Holding companies Underlying earnings increased by €9 million (+83%) to €-2 million mainly due to lower tax expenses resulting from lower dividends (eliminated in consolidation) received from operational entities. Adjusted earnings and net income increased by €9 million (+83%) to €-2 million in line with underlying earnings. Mediterranean and Latin American Region Holdings Underlying earnings decreased by €16 million to €-43 million. On a comparable exchange rate basis, underlying earnings decreased by €16 million due to higher interest charges resulting from the purchase of ING Seguros (Mexico). Adjusted earnings and net income decreased by €16 million to €-43 million. On a comparable exchange rate basis, adjusted earnings and net income decreased by €16 million in line with underlying earnings. Other CFP Underlying earnings, adjusted earnings and net income decreased by €-7 million (-83%) to €2 million driven by lower positive run-off developments. Page 67 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Outlook Our confidence in AXA Group’s strategy is supported by the solid performance recorded during the first half of 2009, as well as the efficiency of the risk management actions undertaken to mitigate the consequences of the crisis. The insurance sector and AXA were not immune to the adverse market environment. However, the Group demonstrated its capacity to act quickly and to take the necessary actions in order to preserve a solid balance sheet, manage business efficiently and maintain the trust of our customers. Going forward, we are prepared to withstand a further possible market downturn and we are well positioned to benefit from a market upturn: we have not stopped investing and focusing on our core business in a market with continuing growth potential. Page 68 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Glossary COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, related impact on policyholder participation (Life & Savings business), - DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all Page 69 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve– capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Page 70 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loading on (or contractual charges included in) premiums / deposits received on all non unit-linked product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) Active Financial Risk Management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the inforce business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Page 71 ______________________________________________________________________________________ Activity Report ______________________________________________________________________________________________________ Half Year 2009 PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses including distribution revenues) / (gross revenues excluding distribution revenues). Page 72 ______________________________________________________________________________________ Consolidated financial statements _______________________________________________________________________________________ Half Year 2009 Consolidated financial statements June 30, 2009 Page 1 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 --- TABLE OF CONTENTS --- CONSOLIDATED BALANCE SHEET ............................................................................................................... 4 CONSOLIDATED STATEMENT OF INCOME ................................................................................................ 6 CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD ........ 7 CONSOLIDATED STATEMENT OF CASH FLOWS ...................................................................................... 8 Accounting principles......................................................................................................................................... 10 Note 1 : General information ........................................................................................................................................... 10 1.1. 1.2. General accounting principles ............................................................................................................................. 10 1.2.1. Basis for preparation .......................................................................................................................................... 10 First time adoption of IFRS.................................................................................................................................. 12 1.2.2. Consolidation ..................................................................................................................................................... 12 1.3. 1.3.1. Scope and basis of consolidation ........................................................................................................................ 12 1.3.2. Business combinations: purchase accounting and goodwill including minority interests buyout .......................... 13 Foreign currency translation of financial statements and transactions ................................................................ 15 1.4. Segment reporting ............................................................................................................................................. 15 1.5. 1.6. Intangible assets ................................................................................................................................................. 15 1.6.1. Goodwill and impairment of goodwill ................................................................................................................. 15 1.6.2. Value of purchased life insurance business in force (VBI) .................................................................................... 16 1.6.3. Other intangible assets ....................................................................................................................................... 16 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features ....................................................................................................................................................... 16 Investments from insurance, banking and other activities ................................................................................... 16 1.7. Investment properties ........................................................................................................................................ 16 1.7.1. Financial instruments classification ..................................................................................................................... 17 1.7.2. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ....................... 18 1.8. Derivative instruments ....................................................................................................................................... 18 1.9. Assets / liabilities held for sale and assets / liabilities including discontinued operations ..................................... 19 1.10. Cash and cash equivalents .................................................................................................................................. 19 1.11. Share capital and shareholders’ equity ............................................................................................................... 19 1.12. Share capital .................................................................................................................................................. 19 1.12.1. Perpetual debts ............................................................................................................................................. 19 1.12.2. Compound financial instruments ................................................................................................................... 19 1.12.3. 1.12.4. Treasury shares.............................................................................................................................................. 20 Liabilities arising from insurance and investment contracts ................................................................................. 20 1.13. Contracts classification .................................................................................................................................. 20 1.13.1. Insurance contracts and investment contracts with discretionary participating features ................................. 20 1.13.2. 1.13.3. Investment contracts with no discretionary participating features .................................................................. 22 Reinsurance: Ceded reinsurance ......................................................................................................................... 22 1.14. Financing debts .................................................................................................................................................. 22 1.15. Other liabilities ................................................................................................................................................... 22 1.16. Income taxes ................................................................................................................................................. 22 1.16.1. Pensions and other post-retirement benefits ................................................................................................. 23 1.16.2. Share-based compensation plans ................................................................................................................... 23 1.16.3. Provisions for risks, charges and contingent liabilities ......................................................................................... 24 1.17. Restructuring costs ........................................................................................................................................ 24 1.17.1. 1.17.2. Other provisions and contingencies ............................................................................................................... 24 Revenue recognition .......................................................................................................................................... 24 1.18. Gross written premiums ................................................................................................................................ 24 1.18.1. Fees and revenues from investment contracts with no discretionary participating features ............................ 24 1.18.2. Deposit accounting ........................................................................................................................................ 24 1.18.3. Unbundling .................................................................................................................................................... 24 1.18.4. Page 2 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 1.18.5. 1.18.6. 1.18.7. 1.18.8. 1.18.9. 1.19. Change in unearned premiums reserves net of unearned revenues and fees .................................................. 25 Net revenues from banking activities ............................................................................................................. 25 Revenues from other activities ....................................................................................................................... 25 Policyholders’ participation ............................................................................................................................ 25 Net investment result excluding financing expenses ....................................................................................... 25 Subsequent events ............................................................................................................................................. 26 Scope of consolidation ....................................................................................................................................... 27 Note 2 : 2.1. Consolidated companies ..................................................................................................................................... 27 2.1.1. Main fully consolidated companies ..................................................................................................................... 27 Proportionately consolidated companies ............................................................................................................ 30 2.1.2. Investments in companies consolidated by equity method ................................................................................. 30 2.1.3. Consolidated entities relating to specific operations ........................................................................................... 30 2.2. Note 3 : Segmental information ...................................................................................................................................... 32 Investments ....................................................................................................................................................... 35 Note 4 : Breakdown of investments ................................................................................................................................. 35 4.1. Investment properties ........................................................................................................................................ 37 4.2. Unrealized gains and losses on financial investments .......................................................................................... 38 4.3. 4.4. Financial assets subject to impairment ............................................................................................................... 39 4.4.1. Breakdown of financial assets subject to impairment (excluding investment properties) ..................................... 39 4.4.2. Change in impairment on invested assets (excluding investment properties) ...................................................... 39 Financial assets recognized at fair value excluding derivatives ............................................................................. 40 4.5. Shareholders’ equity, minority interests and other equity ................................................................................. 41 Note 5 : 5.1. Impact of transactions with shareholders ........................................................................................................... 41 5.1.1. Change in shareholders’ equity Group share for the first half of 2009 ................................................................. 41 5.1.2. Change in shareholders’ equity Group share for the first half of 2008 ................................................................. 42 5.2. Recognized income and expense for the period .................................................................................................. 43 5.2.1. Recognized income and expense for the first half of 2009 ................................................................................... 43 5.2.2. Recognized income and expense for the first half of 2008 ................................................................................... 44 5.3. Change in minority interests ............................................................................................................................... 44 5.3.1. Change in minority interests for the first half of 2009 ......................................................................................... 45 5.3.2. Change in minority interests for the first half of 2008 ......................................................................................... 45 Consolidated statements of changes in shareholders’ equity .............................................................................. 46 5.4. Note 6 : Financing debt ................................................................................................................................................... 48 Note 7 : Net income per ordinary share .......................................................................................................................... 49 Note 8 : Subsequent events ............................................................................................................................................ 50 Page 3 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 CONSOLIDATED BALANCE SHEET Assets (in Euro million) Notes June 30, 2009 December 31, 2008 Restated (c) (d) Goodwill 16,999 16,998 Value of purchased business in force (a) 4,203 4,405 Deferred acquisition costs and equivalent 19,422 18,756 Other intangible assets 3,104 3,156 Intangible assets 43,728 43,315 Investments in real estate properties 15,414 15,256 Financial investments 339,491 341,170 Loans 25,326 25,706 Assets backing contracts where the financial risk is borne by policyholders (b) 141,482 131,990 4 Investments from insurance activities 521,713 514,123 4 Investments from banking and other activities 12,604 12,615 Investments in associates - Equity method 976 1,018 Reinsurers' share in insurance and investment contracts liabilities 11,549 11,745 Tangible assets 1,486 1,496 Other long-term assets 83 548 Deferred policyholders' participation assets 3,313 2,232 Deferred tax assets 4,803 5,396 Other assets 9,685 9,672 Receivables arising from direct insurance and inward reinsurance operations 13,899 12,629 Receivables arising from outward reinsurance operations 1,433 1,142 Receivables arising from banking activities 18,051 18,604 Receivables - current tax 1,948 2,524 Other receivables 12,176 13,531 Receivables 47,507 48,430 Assets held for sale including discontinued operations 414 415 Cash and cash equivalents 26,563 32,227 TOTAL ASSETS 674,739 673,560 All invested assets are shown net of related derivative instruments impact. (a) Amounts gross of tax. (b) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (c) AXA Japan's balances were translated using December 31, 2008 exchange rates. (d) In accordance with IFRS 3, i.e.within 12 months following the acquisition date, the Group adjusted certain items impactin g the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves. Page 4 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 Liabilities Notes June 30, 2009 Share capital and capital in excess of nominal value 21,841 Reserves and translation reserve 15,648 Net consolidated income for the period - Group share (c) 1,323 Shareholders’ equity – Group share 38,811 Minority interests 3,380 5 TOTAL SHAREHOLDERS' EQUITY 42,191 Liabilities arising from insurance contracts 333,443 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (a) 90,724 Total liabilities arising from insurance contracts 424,167 Liabilities arising from investment contracts with discretionary participating features 39,660 Liabilities arising from investment contracts with no discretionary participating features 1,026 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 8,587 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 42,431 Total liabilities arising from investment contracts 91,704 Unearned revenue and unearned fee reserves 2,633 Liabilities arising from policyholders' participation 12,651 Derivative instruments relating to insurance and investment contracts (534) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 530,621 Provisions for risks and charges 9,509 Subordinated debt 6,428 Financing debt instruments issued 5,047 Financing debt owed to credit institutions 186 6 Financing debt (b) 11,660 Deferred tax liabilities 3,814 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 4,408 Other debts instruments issued, notes and bank overdrafts (b) 6,165 Payables arising from direct insurance and inward reinsurance operations 5,872 Payables arising from outward reinsurance operations 5,973 Payables arising from banking activities (b) 21,262 Payables – current tax 1,542 Derivative instruments relating to other financial liabilities 235 Other payables (c) 31,486 Payables 76,945 Liabilities held for sale including discontinued operations TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 674,739 (a) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minim um features. (b) Amounts are shown net of related derivative instruments impact. (c) AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €-106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in half year 2009. (d) AXA Japan's balances were translated using December 31, 2008 exchange rates. (e) In accordance with IFRS 3, i.e.within 12 months following the acquisition date, the Group adjusted certain items impacti ng the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves. Liabilities June 30, 2009 Liabilities arising from insurance contracts where the financial risk is borne by policyholders 90,724 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 8,587 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 42,431 Total Liabilities arising from contracts where the financial risk is borne by policyholders 141,741 Liabilities arising from insurance contracts 333,443 Liabilities arising from investment contracts with discretionary participating features 39,660 Liabilities arising from investment contracts with no discretionary participating features 1,026 Total Liabilities arising from other insurance and investment contracts 374,130 (a) In accordance with IFRS 3, i.e.within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves. Page 5 (in Euro million) December 31, 2008 Restated (d) (e) 22,077 14,440 923 37,440 3,058 40,498 330,561 85,916 416,476 38,081 1,295 7,840 38,680 85,896 2,454 13,859 (1,176) 517,509 9,348 6,734 6,564 1,216 14,514 3,609 5,108 6,676 7,167 6,211 20,890 2,130 23 39,876 88,082 673,560 (in Euro million) December 31, 2008 Restated (a) 85,916 7,840 38,680 132,436 330,561 38,081 1,295 369,936 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 CONSOLIDATED STATEMENT OF INCOME (In Euro million, except EPS in Euro) Notes June 30, 2009 June 30, 2008 Gross written premiums 45,770 45,942 Fees and charges relating to investment contracts with no participating features 274 342 Revenues from insurance activities 46,044 46,284 Net revenues from banking activities 192 194 Revenues from other activities 2,178 2,841 Revenues (a) 48,414 49,319 Change in unearned premiums net of unearned revenues and fees (3,279) (3,158) Net investment income (b) 5,911 9,481 Net realized investment gains and losses (c) (541) 1,545 Change in fair value of other investments designated as at fair value through profit or loss (h) 1,832 (19,310) of which change in fair value of assets with financial risk borne by policyholders (e) 3,132 (14,755) Change in investments impairment (d) (1,464) (1,546) Net investment result excluding financing expenses 5,737 (9,829) Technical charges relating to insurance activities (e) (38,393) (23,724) Net result from outward reinsurance (387) (573) Bank operating expenses (54) (23) Acquisition costs (4,358) (4,018) Amortization of the value of purchased business in force (96) (134) Administrative expenses (4,990) (4,981) Change in tangible assets impairment (0) (2) Change in goodwill impairment and other intangible assets impairment (62) (53) Other income and expenses (254) (88) Other operating income and expenses (48,595) (33,596) Income from operating activities before tax 2,278 2,735 Income arising from investments in associates - Equity method (13) 18 Financing debts expenses (f) (250) (350) Operating income before tax 2,015 2,404 Income tax (g) (572) (9) Net operating income 1,443 2,395 Result from discontinued operations net of tax Net consolidated income 1,443 2,395 Split between : Net consolidated income - Group share 1,323 2,162 Net consolidated income - Minority interests 121 234 7 Earnings per share 0.50 1.07 Fully diluted earnings per share 0.50 1.07 (a) Gross of reinsurance. (b) Net of investment management costs. (c) Includes impairment releases on investments sold. (d) Excludes impairment releases on investments sold. (e) Offset by a balancing entry in technical charges relating to insurance activities. (f) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair val ue of these derivatives). (g) The Income tax line item as at June 30, 2008 includes an out-of-period adjustment related to the prior years’ double recognition of Deferred tax liabilities in relation with the changes in fair values of assets held by some consolidated investment funds (€188 million). The Group evaluated the impact for each individual year and in aggregate and concluded that they were immaterial to the financial statements for all years in which they were included. The prior years’ Income tax expense recognised since the transition to IFRS was overstated by €13 million as at December 31, 2004, €51 million as at December 31, 2005, €36 million as at December 31, 2006, €88 million as at December 31, 2007 (€6 million as at June 30,2007) . (h) AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €-106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in half year 2009. Page 6 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD (in Euro million) June 30, 2009 June 30, 2008 Reserves relating to changes in fair value through shareholders' equity 953 (4,356) Translation reserves 390 (585) Employee benefits actuarial gains and losses through OCI (439) (149) Net gains and losses recognized directly through shareholders' equity 904 (5,090) Net consolidated income (a) 1,443 2,395 Total recognized income and expense for the period (SORIE) 2,347 (2,694) Split between : SORIE - Group share 2,135 (2,733) SORIE - Minority interests 212 38 (a)AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the financial statem ents of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €-106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in half year 2009. The consolidated statement of shareholders’ equity is presented in Note 5. Page 7 Avec et sans PB discrétionnaire Consolidated financial statements______________________________________________________________________________________ Half Year 2009 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2009 June 30, 2008 Operating income before tax 2,015 2,404 Net amortization expense (a) 294 241 Change in goodwill impairment and other intangible assets impairment (c) 62 53 Net change in deferred acquisition costs and equivalent (600) (1,116) Net increase / (write back) in impairment on investments, tangible and other intangible assets 1,469 1,552 Change in fair value of investments at fair value through profit or loss (j) (1,389) 17,895 Net change in liabilities arising from insurance and investment contracts (b) 7,773 (6,210) Net increase / (write back) in other provisions (d) (28) (50) Income arising from investments in associates – Equity method 13 (18) Adjustment of non cash balances included in the operating income before tax 7,593 12,346 Net realized investment gains and losses 1,359 (1,223) Financing debt expenses 250 350 Adjustment for reclassification to investing or financing activities 1,609 (873) Dividends recorded in profit or loss during the period (664) (1,291) Interests paid & received recorded in profit or loss during the period (5,846) (8,736) Adjustment of transactions from accrued to cash basis (6,510) (10,027) Net cash impact of deposit accounting 121 6 Dividends and interim dividends collected 658 1,424 Interests collected 7,187 10,222 Interests paid (excluding interests on financing and perpetual debts) (659) (1,052) Change in operating receivables and payables (e) (2,263) (3,118) Net cash provided by other assets and liabilities (g) 238 (1,005) Tax expenses paid 248 (1,060) Other operating cash impact and non cash adjustment 380 1,440 Net cash impact of transactions with cash impact not included in the operating income before tax 5,910 6,857 Net cash provided by operating activities 10,617 10,707 Purchase of subsidiaries and affiliated companies, net of cash acquired (192) (83) Disposal of subsidiaries and affiliated companies, net of cash ceded (0) (26) Net cash related to changes in scope of consolidation (193) (109) Sales of debt securities (g) 29,008 26,620 Sales of equity securities and non controlled investment funds (f) (g) 7,425 13,533 Sales of investment properties held directly or not (g) 173 803 Sales and/or repayment of loans and other assets (g) (h) 19,611 23,453 Net cash related to sales and repayments of investments (f) (g) (h) 56,217 64,410 Purchases of debt securities (g) (36,098) (31,576) Purchases of equity securities and non controlled investment funds (f) (g) (6,401) (13,922) Purchases of investment properties held direct or not (g) (532) (1,145) Purchases and/or issues of loans and other assets (g) (h) (18,561) (25,727) Net cash related to purchases and issuance of investments (f) (g) (h) (61,592) (72,371) Sales of tangible and intangible assets 4 6 Purchases of tangible and intangible assets (153) (233) Net cash related to sales and purchases of tangible and intangible assets (149) (226) Increase in collateral payable / Decrease in collateral receivable 5,641 2,001 Decrease in collateral payable / Increase in collateral receivable (11,634) (2,177) Net cash impact of assets lending / borrowing collateral receivables and payables (5,994) (176) Other investing cash impact and non cash adjustment (340) 1,590 Net cash provided by investing activities (12,051) (6,882) Issuance of equity instruments 254 155 Repayments of equity instruments (132) (19) Transactions on treasury shares (106) (5) Dividends payout (929) (2,752) Interests on perpetual debts paid (120) (119) Net cash related to transactions with shareholders (1,033) (2,740) Cash provided by financial debts issuance 1,047 1,949 Cash used for financial debts repayments (3,561) (89) Interests on financing debt paid (i) (276) (171) Net cash related to Group financing (2,790) 1,689 Other financing cash impact and non cash adjustment (30) 59 Net cash provided by financing activities (3,853) (991) Page 8 Consolidated financial statements______________________________________________________________________________________ Half Year 2009 Net cash provided by discontinued operations (0) Cash and cash equivalent as at January 1 (j) 30,811 17,192 Net cash provided by operating activities 10,617 10,707 Net cash provided by investing activities (12,051) (6,882) Net cash provided by financing activities (3,853) (991) Net cash provided by discontinued operations (0) Impact of change in consolidation method 3 38 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (252) (457) Cash and cash equivalent as at June 30 (j) 25,277 19,645 (a) Includes premium/discount capitalization and relating amortization, amortization of investment and owner occupied properties (held dir ectly). (b) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by po licyholders. (c) Includes impairment and amortization of intangible assets booked during business combinations. (d) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (e) Includes impact of asset lending / borrowing and equivalent relating to banking activities. (f) Includes equity securities held directly or by controlled investment funds as well as non controlled investment funds. (g) Includes relating derivatives. (h) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyh olders. (i) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (j) Net of bank overdrafts. (in Euro million) June 30, 2009 June 30, 2008 Cash and cash equivalents as at June 30 26,563 21,974 Bank overdrafts (a) (1,286) (2,329) Net cash and cash equivalents as at June 30 (b) 25,277 19,645 (a) Included in "Other debt instruments issued and bank overdrafts". (b) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances o f consolidated investment funds from the Satellite Investment Portfolio (see note 1.7.2). The "Cash and cash equivalents" item in the statement of consolidated cash flows excludes cash backing contracts where th e financial risk is borne by policyholders (unit-linked contracts). Page 9 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia-Pacific. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the interim consolidated financial statements. AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, • Asset Management, • Banking. AXA has its primary listing on the Paris stock exchange’s Euronext market and has been listed since June 25, 1996 on the New York Stock Exchange. These interim consolidated financial statements including all Notes were finalized by the Management Board on July 31, 2009. 1.2. General accounting principles 1.2.1. Basis for preparation AXA’s interim consolidated financial statements are prepared as at June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half-year end. The interim consolidated financial statements were prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and IFRIC interpretations that were definitive and effective as at June 30, 2009, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option to avoid applying all the hedge accounting principles required by IAS 39. As a consequence, the consolidated financial statements also comply with IFRS as issued by the International Accounting Standards Board (“IASB”). Amendments to standards and Interpretations published and effective on January 1, 2009 The application of the following standards, amendments to standards and interpretation, as of January 1, 2009, had no significant impact on the Group’s consolidated financial statements: IFRS 8 – Operating Segments, published in November 2006 and the amendment to IFRS 8, published in April 2009, replaces IAS 14 – Segment Reporting. The new standard requires disclosed operating segments to be based on the segmentation used in the entity’s internal reporting, on the basis of which operational heads allocate capital and resources to the various segments and assess the segments’ performance. The standard requires the entity to explain the basis on which segments are determined, and provide a reconciliation between consolidated balance sheet and income statement amounts. The segmental information provided by AXA in its previous consolidated financial statements already complied, for the major part, with the IFRS 8 requirements. The amendment to IAS 23 – Borrowing Costs, published on March 29, 2007, makes it compulsory to capitalize borrowing costs and removes the option to expense these costs. The amendment excludes eligible assets measured at fair value from the revised standard’s scope of application. Revised IAS 1 – Presentation of financial statements, published on September 6, 2007, represents the first step in the IASB’s comprehensive project on reporting financial information. The new standard requires to present all non-owner changes in equity either in one statement of comprehensive income or in two statements, to present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. It also requires to disclose income tax relating to each component of other comprehensive income and reclassification adjustments relating to components of other comprehensive income. Finally, revised IAS 1 changes the titles of financial statements. Page 10 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 The amendment of IFRS 2 – Share based payments, published on January 17, 2008 clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendments to IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements – Puttable Financial Instruments with Obligations Arising on Liquidation, published on February 14, 2008 respectively require i) certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met and ii) disclosure on these instruments. The Improvements to IFRSs, published on May 22, 2008, include amendments that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They involve accounting changes for presentation, recognition or measurement purposes and terminology or editorial changes with minimal effect on accounting. IFRIC 15, Agreements for the Construction of Real Estate, published July 3, 2008, applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11, Construction Contracts or IAS18, Revenue, and when revenue from the construction should be recognized. IFRIC 16, Hedges of a Net Investment in a Foreign Operation, published July 3, 2008, provides guidance to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39. IFRIC 16 does not apply to other types of hedge accounting. The interpretation provides guidance on identifying the foreign currency risks that qualify for hedge accounting and where within a group, the hedging instrument can be held. The guidance is to be applied prospectively to transactions and hedging arrangements after the adoption date. The amendment to IFRS 7 Improving Disclosures about Financial Instruments, published March 5, 2009, introduces a three- level fair value disclosure hierarchy that distinguishes fair value measurements by the significance of the inputs used (such as quoted prices, observable market data, other inputs). It also enhances disclosure requirements on the nature and extent of liquidity risk arising from financial instruments to which the entity is exposed. The amendments to IFRIC 9 and IAS 39 related to Embedded Derivatives, published March 12, 2009, clarify that, on reclassification of a financial asset out of the “at fair value through profit or loss” category, all embedded derivatives have to be assessed and, if necessary, separately accounted for in the financial statements. No reclassification of financial assets, such as allowed by the amendments to IAS39 published in 2008, was made by the Group. On June 30, 2009, there is no standard or interpretation published by the IASB and effective as at January 1, 2009, but not yet endorsed by the European Union, which is applicable to the Group. Standards and interpretations published but not yet effective Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, published on January 10, 2008 and effective for financial years beginning on or after July 1, 2009 with earlier adoption permitted, represent the second phase of the IASB business combination project. Revised IFRS 3 introduces a number of changes in the accounting of business combinations that could impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. The changes will be applied prospectively to new acquisitions and transactions with minority interests after the adoption date. Eligible Hedged Items (an amendment to IAS 39 Financial Instruments: Recognition and Measurement), published on July 31, 2008 and applicable for the Group from January 1, 2010, clarifies how the existing principles underlying hedge accounting should be applied. Additional guidance is given to illustrate how hedge accounting should be applied in (a) a one-sided risk in a hedge item, and (b) inflation in a financial hedged item. These amendments are not expected to have a significant impact on the Group’s consolidated financial statements. IFRIC 17. Distribution of Non-cash Assets to Owners, published on November 27, 2008 and applicable to the Group from January 1, 2010, provides guidance on how an entity should measure distribution of assets other than cash when it pays dividends to its owners. The interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. The guidance is to be applied prospectively to distributions after the adoption date. The Improvements to IFRSs, published on April 16, 2009, include amendments that will not be part of another major project. They are presented in a single document rather than as a series of piecemeal changes. They are generally applicable from Page 11 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 January 1, 2010 unless otherwise specified. These amendments are not expected to have a significant impact on the Group’s consolidated financial statements. Regarding the amendment to IFRS 8 – Operating segment, that relates to the disclosure requirements on total assets, AXA decided, as permitted, to early adopt it from January 1, 2009, in order to be consistent with the first application of IFRS 8 that also starts from January 1, 2009. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated balance sheet, consolidated statement of income, consolidated statement of cash flows, consolidated statement of recognized income and expense for the period and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date is January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: • goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS), and • any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. As a result, the goodwill gross value represents the gross value of these goodwills net of cumulated amortization recognised in French GAAP as at December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. The AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the Page 12 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27 / SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant long-term influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post- acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27 / SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 1.3.2. Business combinations: purchase accounting and goodwill including minority interests buyout In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. The principles described below apply to the business combinations that occurred after January 1, 2004. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities of the acquired company are estimated at their fair value. However as permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from this exemption permitted by IFRS 4 in phase I of the IASB’s insurance project, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other intangible assets such as the value of customer relationships are recognized only if they can be measured reliably. The value of customer relationships intangible in this case represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of purchased business in force” item. To the extent that these other intangible assets can be estimated separately and reliably, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in Page 13 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 the acquired company’s balance sheet at acquisition date. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at completion date, plus external fees directly attributable to the acquisition. The adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably. In the estimate of the contingent consideration, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. If the future events do not occur or the estimate needs to be revised, the cost of the business combination is adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill The excess of the cost of acquisition over the net fair value of the assets, liabilities and contingent liabilities acquired represents goodwill. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net fair value of the assets, liabilities and contingent liabilities acquired, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income; however, the impact is offset by a reduction in goodwill through net income. Goodwill is allocated across business segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Minority interests buyouts In the event of a minority interests buyout of a subsidiary, the new goodwill is recognized as the difference between the price paid for the additional shares and the shareholders’ equity acquired (including changes in fair value posted through equity). Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, and since IFRIC’s Agenda Committee decided in 2006 not to take any position on the accounting treatment of these transactions, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference as an addition to goodwill. Similarly, subsequent changes in the liability will be recorded against goodwill. Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: • in full for controlled subsidiaries, and; • to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated, except for permanent losses, which are maintained. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the balance sheet. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership Page 14 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: • assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; • revenues and expenses are translated at the average exchange rates over the period; • all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects both business lines (primary business segment) and geographical zones; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of market value and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Market values are based on various valuation multiples. Page 15 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Other intangible assets Other intangible assets include softwares developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations, provided that their fair value can be measured reliably and it is probable that future economic benefits attributable to the assets will benefit to the Group. If these assets have a finite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and market value. 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equities, debt securities and loans. 1.7.1. Investment properties Investment properties (excluding investment properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from “With-Profit” contracts) are recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded Page 16 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment properties that totally or partially back liabilities arising from: • contracts where the financial risk is borne by policyholders, • “With-Profit” contracts where dividends are based on real estate assets, are recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: • assets held to maturity, accounted for at amortized cost; • loans and receivables (including unquoted debt instruments) accounted for at amortized cost; • assets held for trading and assets designated as at fair value with change in fair value through profit or loss; • available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: • financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: – assets backing liabilities arising from contracts where the financial risk is borne by policyholders; – assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; – debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); • portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: • either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; • or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. Loans which are not designated under the fair value option are accounted at amortized cost, net of amortized premiums and discounts and impairment. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity securities classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity securities showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the Page 17 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity securities impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local ALM strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment properties, debt securities or equity securities, etc). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. Page 18 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed significant. For balance sheet presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the balance sheet and income statement are provided in the notes to the consolidated financial statements. 1.11. Cash and cash equivalents Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. 1.12. Share capital and shareholders’ equity 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Perpetual debts Perpetual debts and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are Page 19 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. Liabilities arising from insurance and investment contracts 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on the top of these standard benefits: • they are likely to represent a significant portion of the overall contractual benefits; • their amount or timing is contractually at the discretion of the Group; and • they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: • liabilities arising from insurance contracts, • liabilities arising from insurance contracts where the financial risk is borne by policyholders, • liabilities arising from investment contracts with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features, • liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions and selective changes as permitted by IFRS 4 (see paragraph below on guaranteed benefits). Unearned premium reserves represent the prorated portion of written premiums that relates to unexpired risks at the balance sheet date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Additional reserves are booked if there are any adverse impacts on reserves level caused by a change in mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” Page 20 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. The “Liabilities arising from policyholders participation” caption includes the entire “Fund for Future Appropriation” (FFA) relating to UK with-profit contracts, which principally covers future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profit contracts and the FFA varies in line with the market value of the assets supporting the participating with-profit funds. Technical reserves are measured on a “realistic” basis in accordance with UK accounting standard FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. Claims reserves (non-life insurance) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see section 1.6.4). Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is determined by applying an estimated participation rate to unrealized gains and losses. Deferred policyholders participation is fully classified as liabilities (or assets). As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss is accounted, a deferred participating asset (DPA) should be recognized only to the extent that its recoverability toward future policyholders participation, by entity, is highly probable. That could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit or loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the statement of income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized Page 21 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are also booked through shareholders’ equity. Liability adequacy test (LAT) At each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation liability or asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities also use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and they take into account embedded options and guarantees and investment yields relating to assets backing these contracts. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Any identified deficiency is charged to the income statement, initially by respectively writing off DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities recognized under existing accounting policies are valued based on the fair value of the financial investments backing those contracts at the balance sheet date. Unearned fees reserves Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs (see section 1.6.4). 1.14. Reinsurance: Ceded reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. Financing debts Financing debts issued to finance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specific balance sheet aggregate. 1.16. Other liabilities 1.16.1. Income taxes Page 22 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 The half-year income tax charge is based on the best estimate of the expected full-year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carryforwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. Therefore, deferred tax assets that are not expected to be recovered are derecognized. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Recognized Income and Expense – SoRIE) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefits on the date of a change in the amount of benefits following an amendment to the plan. It is amortised on a straight-line basis over the average vesting period. 1.16.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as at January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged Page 23 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 option. The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the CNC (Conseil National de la Comptabilité). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.17. Provisions for risks, charges and contingent liabilities 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or implicit) as a result of past events, when it is more likely than not that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.18. Revenue recognition 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: • the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, • claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.18.4. Unbundling Page 24 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: • the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); • the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.18.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premium reserve reported as a liability (see “Unearned premium reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.13.2) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: • insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, • commissions received and fees for services relating to asset management activities, and • rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half-year policyholders’ participation charge is based on the best estimate of the planned full-year distribution rate for each portfolio of contracts at each Group entity level. 1.18.9. Net investment result excluding financing expenses The net investment result includes: • investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, • investment management expenses (excludes financing debt expenses), • realized investment gains and losses net of releases of impairment following sales, • the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, • the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see section 1.18.6). Any gain or loss arising from a decrease in AXA’s ownership interest in a consolidated entity is recorded in the net investment result, to the extent it does not result from an internal restructuring within the Group. The gain or loss corresponds to the change in AXA’s share of the subsidiary’s shareholders’ equity before and after the subsidiary equity transaction. Page 25 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 1.19. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: • such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, • such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. Page 26 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2009 December 31, 2008 Parent and Holding Companies Change in scope Voting rights percentage (d) Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA China 100.00 77.37 100.00 77.18 AXA France Assurance 100.00 100.00 100.00 100.00 Colisée Excellence 100.00 100.00 100.00 100.00 AXA Participations II 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 100.00 99.99 100.00 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.99 100.00 99.99 AXA UK Plc 100.00 99.99 100.00 99.99 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Ireland AXA Life Europe 100.00 100.00 100.00 100.00 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd (a) 100.00 53.81 100.00 53.42 AXA Life Singapore Holding (a) 100.00 53.81 100.00 53.42 AXA Asia Pacific Holdings Ltd (c) 53.81 53.81 53.15 53.42 Japan AXA Japan Holding 98.40 98.40 98.40 98.40 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG DBV-Winterthur Holding AG WinCom Versicherungs-Holding AG Minority interest buyout 100.00 100.00 100.00 100.00 100.00 100.00 100.00 98.81 100.00 100.00 98.81 100.00 Winterthur Beteiligungs-Gesellschaft mbH 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Spain (MedLA) (b) AXA Mediterranean Holding SA 100.00 100.00 100.00 100.00 Italy (MedLA) (b) AXA Italia SpA 100.00 100.00 100.00 100.00 Morocco (MedLA) (b) AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 Turkey (MedLA) (b) AXA Holding A.S. 100.00 100.00 100.00 100.00 Switzerland Finance Solutions SARL 100.00 100.00 100.00 100.00 (a) Wholly owned by AXA Asia Pacific Holdings Limited. (b) "MedLA" country is part of the Mediterranean and Latin American Region. (c) AXA interest in AXA Asia Pacific Group is 53.81% broken down into 53.59% direct interest holding and an additional 0.22% owned by the AAPH executive plan trust. (d) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. Page 27 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 June 30, 2009 December 31, 2008 Life & Savings and Property & Casualty Change in scope Voting rights percentage (c) Group share of interests Voting rights percentage Group share of interests France AXA France Iard Avanssur (formerly Direct Assurances Iard) AXA France Vie AXA Protection Juridique 100.00 100.00 100.00 99.99 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 United States AXA Financial (sub group) 100.00 100.00 100.00 100.00 Canada AXA Canada Inc. (sub group including Citadel) 100.00 100.00 100.00 100.00 United Kingdom AXA Insurance Plc AXA Sun Life Plc AXA PPP Healthcare Limited Bluefin Advisory Services Limited Bluefin Insurance Group Ltd Winterthur Life UK Limited Whale CDO Equity Fund Deconsolidated (below materiality threshold) 100.00 100.00 100.00 100.00 - 100.00 99.98 99.99 99.99 99.99 99.99 - 99.99 99.97 100.00 100.00 100.00 100.00 97.84 100.00 99.98 99.99 99.99 99.99 99.99 97.83 99.99 99.97 Ireland AXA Insurance Limited 100.00 99.99 100.00 99.99 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore (a) AXA Australia New Zealand AXA China Region Limited (including MLC Hong-Kong) (a) AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia Kyobo Automobile Insurance 100.00 100.00 100.00 100.00 100.00 80.00 100.00 92.36 53.81 53.81 53.81 100.00 100.00 43.05 53.81 92.36 100.00 100.00 100.00 100.00 100.00 80.00 100.00 92.36 53.42 53.42 53.42 100.00 100.00 42.74 53.42 92.36 AXA Affin General Insurance Berhad 50.48 50.48 50.48 50.48 Japan AXA Life Insurance AXA Non Life Insurance Co., Ltd. Winterthur Swiss Life Insurance Co., Ltd. 100.00 100.00 100.00 98.40 98.40 98.40 100.00 100.00 100.00 98.40 98.40 98.40 Germany AXA Versicherung AG AXA Art AXA Leben Versicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Kranken Versicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG DBV-Winterthur Versicherung AG (DWS) DBV-WinSelect Versicherung AG Minority interest buyout Minority interest buyout Merged with AXA Versicherung AG Merged with AXA Versicherung AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - - 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 - - 100.00 100.00 100.00 100.00 100.00 100.00 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.33 98.55 98.55 98.81 98.81 98.81 98.81 Belgium Ardenne Prévoyante AXA Belgium SA Servis (formerly Assurance de la Poste) Assurances de la Poste Vie Les Assurés Réunis Touring Assurances SA 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Spain (MedLA) (b) Hilo Direct SA de Seguros y Reaseguros Winterthur Vida y Pensiones Winterthur Seguros Generales, S.A. de Seguros y Reaseguros Winterthur Salud (SA de Seguros) 100.00 99.80 99.89 100.00 100.00 99.80 99.89 100.00 100.00 99.79 99.89 100.00 100.00 99.79 99.89 100.00 Italy (MedLA) (b) AXA Interlife AXA Assicurazioni e Investimenti AXA-MPS Vita 100.00 100.00 50,00 + 1 voting right 99.99 99.99 50.00 100.00 100.00 50,00 + 1 voting right 100.00 99.99 50.00 AXA-MPS Danni 50,00 + 1 voting right 50.00 50,00 + 1 voting right 50.00 Quadrifoglio 50,00 + 1 voting right 50.00 50,00 + 1 voting right 50.00 Portugal (MedLA) (b) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA Seguro Directo Morocco (MedLA) (b) 99.73 95.09 100.00 99.49 94.89 100.00 99.73 95.09 100.00 99.49 94.89 100.00 AXA Assurance Maroc 100.00 100.00 100.00 100.00 Turkey (MedLA) (b) AXA Oyak Hayat Sigorta AS AXA Oyak Sigorta AS Gulf Region (MedLA) (b) 100.00 72.55 100.00 72.55 100.00 72.55 100.00 72.55 AXA Cooperative Insurance Company (Saudi Arabia) AXA Insurance (Gulf) B.S.C.c. 50.00 50.00 34.00 50.00 50.00 50.00 34.00 50.00 Greece (MedLA) (b) Page 28 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 AXA Insurance Life AXA Insurance P&C 99.89 99.89 99.89 99.89 99.89 99.89 99.89 99.89 Mexico (MedLA) (b) Seguros ING Life Seguros ING P&C 99.94 99.94 99.94 99.94 99.94 99.94 99.94 99.94 Switzerland AXA Life (previously Winterthur Life) Winterthur-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 Central and Eastern Europe Winterthur Czech Republic Pension Funds Winterthur Czech Republic Insurance Winterthur Hungary Winterthur Poland Winterthur Poland Pension Funds Winterthur Slovakia 92.85 79.49 67.40 65.00 70.00 100.00 92.85 79.49 67.40 65.00 70.00 100.00 92.85 79.49 65.00 65.00 70.00 100.00 92.85 79.49 65.00 65.00 70.00 100.00 (a) Wholly owned by AXA Asia Pacific Holdings Limited. (b) "MedLA" country is part of the Mediterranean and Latin American Region. (c) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. June 30, 2009 December 31, 2008 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub group) AXA Cessions AXA Assistance SA (sub group) AXA Global Risks UK Saint-Georges Ré 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. June 30, 2009 December 31, 2008 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) 99.98 64.16 95.29 64.16 95.06 62.38 95.05 62.38 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. June 30, 2009 December 31, 2008 Banking Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe 100.00 100.00 100.00 100.00 Hungary ELLA Bank 100.00 100.00 100.00 100.00 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. June 30, 2009 December 31, 2008 Other Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests France Compagnie Financière de Paris Sofinad 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. Consolidated investments and investment funds At June 30, 2009, consolidated investment funds represented total invested assets of €91,791 million (€89,139 million at the end of 2008), corresponding to 320 investment funds mainly in France, Germany, Australia, Japan and the Mediterranean and Latin American Region and in majority relating to the Life & Savings segment. At June 30, 2009, the 34 consolidated real estate companies corresponded to total invested assets of €7,902 million (€7,740 million at the end of 2008), mainly in Germany and France. At June 30, 2009, the 7 consolidated CDOs represented total investments of €505 million (€417 million at the end of 2008). These CDO’s are consolidated in AXA’s balance sheet in line with IFRS rules even though AXA’s investments in these CDO’s assets represented only approximately €127 million out of the €505 million. Given the nature of the Group activities (no securitization of AXA’s own invested assets), the current market conditions did not lead to the consolidation of off balance sheet special purpose vehicles originated by the Group. Page 29 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of controlled investment funds and puttable instruments held by minority interest holders”. At June 30, 2009, minority interests in controlled investment funds amounted to €4,261 million (€4,847 million at December 31, 2008). 2.1.2. Proportionately consolidated companies June 30, 2009 December 31, 2008 Life & Savings and Property & Casualty Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests France Natio Assurances Fonds Immobiliers Paris Office Funds 50.00 50.00 49.96 49.91 50.00 50.00 49.96 49.91 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. 2.1.3. Investments in companies consolidated by equity method Companies consolidated by equity method listed below exclude investment funds and real estate entities: June 30, 2009 December 31, 2008 Change in scope Voting rights percentage (a) Group share of interests Voting rights percentage Group share of interests France Argovie Banque de Marchés et d'Arbitrages Neuflize Vie (previously NSM Vie) Deconsolidated (below materiality threshold) 100.00 - 40.00 95.01 - 39.98 95.23 27.71 39.98 95.01 27.70 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd AXA Mimmetals Assurance Co Ltd 45.00 50.00 51.00 24.22 26.90 39.46 45.00 50.00 51.00 24.04 26.71 39.36 PT AXA Mandiri Financial Services 51.00 27.44 51.00 27.25 Bharti AXA Life Newly consolidated 27.14 20.88 Russia RESO GARANTIA (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management AXA IM Asia Holding Private Ltd 50.00 47.65 50.00 47.53 Kyobo AXA Investment Managers Company Limited 50.00 47.65 50.00 47.53 (a) Starting half year 2009, the voting rights percentages include the AXA Mutuelles investors. Investment funds and real estate entities consolidated by equity method At June 30, 2009, real estate companies consolidated by equity method represented total assets of €358 million (€430 million at the end of 2008) and investment funds consolidated by equity method represented total assets of €3,273 million (€3,036 million at the end of 2008) mainly in the United Kingdom, the United States and France. 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV is consolidated within the operations of AXA France Vie. This structure was set up in order to improve AXA France Vie assets/liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €250 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables. Securitization of motor insurance portfolios On December 9, 2005, AXA announced the closing of the €200 million securitization of its French motor insurance portfolio. Since the threshold for transferring risk to the financial markets was not reached, the recognition of this operation in AXA’s consolidated financial statements mainly involves the consolidation of the vehicle carrying the portion subscribed by AXA, and the recognition on the balance sheet under other liabilities of a €200 million deposit received from reinsurers. On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio (diversified portfolio spread across 4 countries: Belgium, Germany, Italy and Spain). AXA consolidated its €96 million stake in the vehicle carrying the junior tranches. Page 30 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Through securitization, AXA transferred to the financial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds. Matignon Finances AXA set up an intra-group financing and cash management company, which entered the scope of consolidation in 2005. Arche Finance AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008. The investment amounted to €1.2 billion at June 30, 2009. Page 31 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 3 : Segmental information Given the activities of AXA, the operating results that are regularly reviewed by the Management Board of the Group for the assessment of the performance and for decisions purposes are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holding companies” segment includes all non-operational activities. The financial information relating to AXA’s business segments and holding company activities is consistent with the presentation provided in the consolidated financial statements. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium- sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components: France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries. International Insurance: This segment’s operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. The segment also includes assistance activities and the group’s run-off management activities, managed by AXA Liabilities Managers, including risks underwritten by AXA RE relating to 2005 and prior underwriting years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Paris Ré. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities conducted primarily in France and Belgium. The Holding companies segment (that includes all non-operational activities), also includes some financial vehicles including certain Special-Purpose Entities such as consolidated CDOs. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Page 32 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 June 30, 2009 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 29,278 15,033 1,684 (225) Fees and charges relating to investment contracts with no participating features 274 Revenues from insurance activities 29,552 15,033 1,684 (225) Net revenues from banking activities 227 2 (36) Revenues from other activities 538 39 129 1,664 4 (196) TOTAL REVENUES 30,090 15,072 1,813 1,664 230 2 (458) Change in unearned premiums net of unearned revenues and fees (976) (2,130) (243) 71 Net investment income 4,681 1,108 130 26 0 361 (395) Net realized investment gains and losses (480) 117 25 (374) 170 Change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 958 3,132 9 (14) 414 499 (34) Change in investments impairment (1,042) (363) (15) (0) (0) (43) Net investment result excluding financing expenses 4,117 871 126 66 0 987 (430) Technical charges relating to insurance activities (28,566) (8,734) (1,261) 168 Net result from outward reinsurance (118) (366) 90 7 Bank operating expenses (55) 1 Acquisition costs (1,879) (2,334) (149) 4 Amortization of the value of purchased business in force (96) Administrative expenses (1,816) (1,275) (201) (1,309) (181) (326) 117 Change in tangible assets impairment (0) (0) (0) (0) Change in goodwill impairment and other intangible assets impairment (19) (42) (1) Other income and expenses (87) 16 10 (121) 8 (74) (5) Other operating income and expenses (32,581) (12,735) (1,511) (1,430) (229) (399) 291 Income from operating activities before tax 650 1,077 184 301 2 590 (526) Income arising from investments in associates – Equity method (28) 16 0 (1) 0 Financing debts expenses (56) (3) (3) (17) (11) (680) 519 Operating income before tax 566 1,090 182 283 (9) (91) (6) Income tax (164) (347) (64) (37) 6 27 6 Net operating result 401 743 118 246 (3) (63) (0) Result from discontinued operations net of tax Net consolidated income 401 743 118 246 (3) (63) (0) Split between : Net consolidated income - Group share 363 722 117 187 (3) (63) (0) Net consolidated income - Minority interests 38 21 1 59 1 0 (a) Includes SPEs and CDOs. (b) AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €-106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in half year 2009. Page 33 (In Euro million) TOTAL 45,770 274 46,044 192 2,178 48,414 (3,279) 5,911 (541) 1,832 3,132 (1,464) 5,737 (38,393) (387) (54) (4,358) (96) (4,990) (0) (62) (254) (48,595) 2,278 (13) (250) 2,015 (572) 1,443 1,443 1,323 121 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 June 30, 2008 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 29,907 14,589 1,638 (192) Fees and charges relating to investment contracts with no participating features 342 Revenues from insurance activities 30,249 14,589 1,638 (192) Net revenues from banking activities 203 3 (12) Revenues from other activities 601 52 104 2,293 4 2 (215) TOTAL REVENUES 30,850 14,641 1,742 2,293 206 5 (419) Change in unearned premiums net of unearned revenues and fees (1,051) (2,132) (41) 66 Net investment income 7,783 1,160 219 207 (1) 432 (319) Net realized investment gains and losses 985 438 54 18 49 (0) Change in fair value of other investments at fair value through profit or loss of which change in fair value of assets with financial risk borne by policyholders (18,802) (14,755) (144) (67) (306) (0) 8 1 Change in investments impairment (1,002) (479) (10) (56) Net investment result excluding financing expenses (11,035) 976 196 (81) (1) 434 (318) Technical charges relating to insurance activities (14,422) (8,197) (1,187) 83 Net result from outward reinsurance (46) (360) (232) 64 Bank operating expenses (27) 4 Acquisition costs (1,620) (2,251) (150) 2 Amortization of the value of purchased business in force (134) Administrative expenses (1,694) (1,290) (184) (1,571) (175) (239) 172 Change in tangible assets impairment (0) (1) (0) (0) (1) (0) Change in goodwill impairment and other intangible assets impairment (14) (37) (1) Other income and expenses (71) 0 44 (110) 20 3 27 Other operating income and expenses (18,001) (12,136) (1,710) (1,681) (185) (232) 348 Income from operating activities before tax 762 1,350 187 531 20 207 (323) Income arising from investments in associates – Equity method 16 3 (0) (2) 1 Financing debts expenses (41) (5) (13) (23) (14) (579) 325 Operating income before tax 737 1,348 175 507 6 (371) 2 Income tax 330 (291) (19) (159) 6 126 (2) Net operating result 1,068 1,056 156 349 11 (245) 0 Result from discontinued operations net of tax Net consolidated income 1,068 1,056 156 349 11 (245) 0 Split between : Net income Group share 1,007 1,028 155 198 11 (238) 0 Minority interests share in net consolidated result 61 28 1 150 1 (7) (a) Includes SPEs and CDOs. Page 34 (In Euro million) TOTAL 45,942 342 46,284 194 2,841 49,319 (3,158) 9,481 1,545 (19,310) (14,755) (1,546) (9,829) (23,724) (573) (23) (4,018) (134) (4,981) (2) (53) (88) (33,596) 2,735 18 (350) 2,404 (9) 2,395 2,395 2,162 234 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 4 : Investments Certain investment properties (see note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value are described in Note 1 and further illustrated in note 4.5 by the classification of financial assets excluding derivatives held at fair value between (1) fair values determined directly by reference to an active market and (2) assets not quoted in an active market/no active market. 4.1. Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. (in Euro million) Insurance June 30, 2009 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 16,804 13,011 2.49% 3,027 2,721 21.59% 19,832 15,732 2.94% Investment in real estate properties designated as at fair value through profit or loss (b) 2,403 2,403 0.46% 2,403 2,403 0.45% Macro hedge and other derivatives Investment properties 19,207 15,414 2.95% 3,027 2,721 21.59% 22,234 18,135 3.39% Debt securities held to maturity Debt securities available for sale 258,638 258,638 49.57% 4,627 4,627 36.71% 263,265 263,265 49.27% Debt securities designated as at fair value through profit or loss (b) 43,440 43,440 8.33% 85 85 0.67% 43,525 43,525 8.15% Debt securities held for trading 95 95 0.02% 646 646 5.12% 741 741 0.14% Debt securities (at cost) that are not quoted in an active market 1,140 1,203 0.23% 1,140 1,203 0.23% Debt securities 303,314 303,376 58.15% 5,357 5,357 42.51% 308,671 308,734 57.78% Equity securities available for sale 12,925 12,925 2.48% 2,909 2,909 23.08% 15,834 15,834 2.96% Equity securities designated as at fair value through profit or loss (b) 9,693 9,693 1.86% 274 274 2.17% 9,967 9,967 1.87% Equity securities held for trading 30 30 0.01% 232 232 1.84% 262 262 0.05% Equity securities 22,648 22,648 4.34% 3,414 3,414 27.09% 26,063 26,063 4.88% Non controlled investment funds held for sale 5,263 5,263 1.01% 109 109 0.86% 5,372 5,372 1.01% Non controlled investment funds designated as at fair value through profit or loss (b) 1,923 1,923 0.37% 71 71 0.57% 1,995 1,995 0.37% Non controlled investment funds held for trading 293 293 0.06% 293 293 0.05% Non controlled investment funds 7,479 7,479 1.43% 180 180 1.43% 7,659 7,659 1.43% Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,865 5,865 1.12% 8 8 0.06% 5,873 5,873 1.10% Macro hedge and other derivatives 122 122 0.02% 22 22 0.17% 144 144 0.03% Financial investments 339,429 339,491 65.07% 8,982 8,982 71.26% 348,410 348,473 65.22% Loans held to maturity Loans available for sale 753 753 0.14% 0 0 0.00% 753 753 0.14% Loans designated as at fair value through profit or loss (b) 63 63 0.01% 63 63 0.01% Loans held for trading 10 10 0.08% 10 10 0.00% Mortgage loans 14,235 13,971 2.68% 1 1 0.01% 14,236 13,972 2.61% Other loans (a) 10,551 10,539 2.02% 858 855 6.78% 11,409 11,394 2.13% Macro hedge and other derivatives 35 35 0.27% 35 35 0.01% Loans 25,603 25,326 4.85% 904 901 7.15% 26,507 26,227 4.91% Assets backing contracts where the financial risk is borne by policyholders 141,482 141,482 27.12% 141,482 141,482 26.48% INVESTMENTS 525,721 521,713 100.00% 12,913 12,604 100.00% 538,633 534,317 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 384,239 380,231 72.88% Life & Savings 326,598 323,225 61.95% Property & Casualty 49,374 48,734 9.34% International Insurance 8,266 8,273 1.59% (a) Mainly includes policy loans. (b) Use of fair value option. Page 35 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 (in Euro million) Insurance December 31, 2008 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 18,165 12,859 2.50% 2,332 2,306 18.28% 20,497 15,165 2.88% Investment in real estate properties designated as at fair value through profit or loss (b) 2,398 2,398 0.47% 2,398 2,398 0.46% Macro hedge and other derivatives Investment properties 20,563 15,256 2.97% 2,332 2,306 18.28% 22,895 17,562 3.33% Debt securities held to maturity Debt securities available for sale 255,465 255,465 49.69% 3,894 3,894 30.87% 259,359 259,359 49.24% Debt securities designated as at fair value through profit or loss (b) 44,199 44,199 8.60% 57 57 0.45% 44,256 44,256 8.40% Debt securities held for trading 102 102 0.02% 875 875 6.94% 977 977 0.19% Debt securities (at cost) that are not quoted in an active market 1,132 1,212 0.24% 1,132 1,212 0.23% Debt securities 300,898 300,978 58.54% 4,826 4,826 38.26% 305,725 305,805 58.06% Equity securities available for sale 15,468 15,468 3.01% 3,959 3,959 31.38% 19,427 19,427 3.69% Equity securities designated as at fair value through profit or loss (b) 10,503 10,503 2.04% 259 259 2.05% 10,761 10,761 2.04% Equity securities held for trading 89 89 0.02% 179 179 1.42% 268 268 0.05% Equity securities 26,060 26,060 5.07% 4,396 4,396 34.85% 30,456 30,456 5.78% Non controlled investment funds held for sale 5,336 5,336 1.04% 76 76 0.61% 5,412 5,412 1.03% Non controlled investment funds designated as at fair value through profit or loss (b) 2,187 2,187 0.43% 63 63 0.50% 2,250 2,250 0.43% Non controlled investment funds held for trading 147 147 0.03% 147 147 0.03% Non controlled investment funds 7,670 7,670 1.49% 140 140 1.11% 7,810 7,810 1.48% Other assets designated as at fair value through profit or loss, held by controlled investment funds 6,353 6,353 1.24% 13 13 0.10% 6,365 6,365 1.21% Macro hedge and other derivatives 110 110 0.02% 4 4 0.03% 114 114 0.02% Financial investments 341,090 341,170 66.36% 9,380 9,380 74.35% 350,470 350,550 66.55% Loans held to maturity (0) (0) Loans available for sale 743 743 0.14% 64 64 0.51% 807 807 0.15% Loans designated as at fair value through profit or loss (b) 45 45 0.01% 45 45 0.01% Loans held for trading 7 7 0.06% 7 7 0.00% Mortgage loans 14,056 13,751 2.67% 1 1 0.01% 14,057 13,752 2.61% Other loans (a) 11,189 11,168 2.17% 854 849 6.73% 12,043 12,017 2.28% Macro hedge and other derivatives 8 8 0.06% 8 8 0.00% Loans 26,033 25,706 5.00% 934 929 7.37% 26,966 26,635 5.06% Assets backing contracts where the financial risk is borne by policyholders 131,990 131,990 25.67% 131,990 131,990 25.06% INVESTMENTS 519,676 514,123 100.00% 12,645 12,615 100.00% 532,321 526,738 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 387,685 382,133 74.33% Life & Savings 330,132 325,240 63.26% Property & Casualty 49,109 48,448 9.42% International Insurance 8,444 8,445 1.64% (a) Mainly includes policy loans. (b) Use of fair value option. ABS (Asset Backed Securities) held by the Group At June 30, 2009, the total amount of ABS (excluding Collateral Mortgage Obligations) was €10.7 billion (€11.8 billion as at December 31, 2008). The changes in fair value of the ABS in half year 2009 amounted to €56 million (of which €185 million through the income statement and €-129 million through shareholders’equity), or €-4 million net of policyholders participation, tax and VBI/DAC reactivity, of which €44 million through the income statement and €-48 million through shareholders’equity. These figures represent 100% of assets held directly and in consolidated “core block” funds, the group share in instruments held in consolidated “satellite funds” as defined in note 1.7.2 and instruments held by non consolidated funds (economic view). Equity hedging At June 30, 2009, the Group hedged its equity portfolio using put, put spread, future, collar and equity swap strategies for a total notional amount of €24.6 billion of which €10.2 billion in AXA SA and €14.4 billion in local entities (France, the United Page 36 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Kingdom, the United States, Belgium, Germany, Hong Kong, Australia, Mediterranean and Latin American Region, Switzerland and Japan). At December 31, 2008, the Group hedged its equity portfolio using notably put spread and equity swap strategies for a total notional amount of €32.6 billion of which €22.7 billion in AXA SA and €9.9 billion in local entities (France, Germany, the United States, Australia, Belgium, Japan, Switzerland, Mediterranean and Latin American Region and Hong Kong). CDS (Credit Default Swaps) held by the group The AXA Group, as part of its investment and credit risk management activities, uses strategies that involve selling protection credit derivatives, which are mainly used as an alternative to corporate bond portfolios when coupled with government bonds. At June 30, 2009, the nominal amount of positions taken through these credit derivatives was €23.4 billion1 including €7.8 billion of CDSs held through consolidated CDOs. Credit risk relating to CDOs is monitored separately, depending on the tranches held, and regardless of the type of collateral (bonds or credit derivatives). CDOs are consolidated in AXA’s balance sheet, in line with IFRS principles, even though AXA’s investments in these CDO’s assets are limited. The AXA Group also uses CDS to hedge corporate bonds portfolios and other credit positions. The notional amount of these derivatives amounted to €2.9 billion as at June 30, 2009. As a result, the net exposure of the Group to CDS excluding CDOs amounted to €12.7 billion as at June 30, 2009 (€19.1 billion as at December 31, 2008). These figures represent 100% of assets held directly and in consolidated “core block” funds, the group share in instruments held in consolidated “satellite funds” as defined in note 1.7.2 and instruments held by non consolidated funds (economic view). 4.2. Investment properties Investment properties include buildings owned directly and through real estate subsidiaries. Investment properties stated at fair value on the balance sheet mainly consist of assets backing UK with-profit contracts. Breakdown of the carrying value and fair value of investment properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2009 December 31, 2008 Gross value Amortization Impairment Carrying value Fair value Gross value Amortization Impairment Carrying value Fair value Investment properties at amortized cost Insurance 14,671 (1,370) (373) 12,928 16,722 14,526 (1,483) (250) 12,793 18,099 Other activities 2,918 (197) (0) 2,721 3,027 2,307 (1) (0) 2,306 2,332 All activities 17,589 (1,567) (373) 15,649 19,749 16,833 (1,484) (250) 15,099 20,431 Fair value is generally based on valuations performed by qualified property surveyors. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investment properties at amortized cost (all activities): (in Euro million) Impairment - Investment properties Amortization - Investment properties June 30, 2009 December 31, 2008 June 30, 2009 December 31, 2008 Opening value 250 166 1,484 1,358 Increase for the period 155 144 113 226 Write back following sale (0) (25) (27) (80) Write back following recovery in value (9) (7) Others (a) (23) (28) (4) (20) Closing value 373 250 1,567 1,484 (a) Mainly includes change in scope and the effect of changes in exchange rates. 1 Excluding structured derivatives in synthetic instruments, reported as ABS. Page 37 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 4.3. Unrealized gains and losses on financial investments Excluding the effect of all derivatives, the unrealized capital gains and losses on financial investments when not already reflected in the income statement is allocated as follows: INSURANCE (in Euro million) June 30, 2009 December 31, 2008 Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Debt securities available for sale Debt securities (at cost) that are not quoted in an active market Equity securities available for sale 259,106 1,203 10,169 258,083 1,140 12,780 258,083 1,203 12,780 8,499 - 2,929 9,521 63 1,072 254,174 1,212 12,509 254,720 1,132 14,768 254,720 1,212 14,768 10,405 - 1,753 9,858 80 478 Non controlled investment funds held for sale 4,819 5,157 5,157 592 253 5,153 5,336 5,336 346 163 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). OTHER ACTIVITIES (in Euro million) June 30, 2009 December 31, 2008 Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Debt securities available for sale Debt securities (at cost) that are not quoted in an active market Equity securities available for sale 4,964 - 2,881 4,640 - 2,273 4,640 - 2,273 46 - 146 371 - 0 4,155 - 2,638 3,913 - 1,457 3,913 - 1,457 43 - 117 285 - 314 Non controlled investment funds held for sale 109 109 109 0 77 76 76 0 0 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). TOTAL (in Euro million) June 30, 2009 December 31, 2008 Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Debt securities available for sale Debt securities (at cost) that are not quoted in an active market Equity securities available for sale 264,071 1,203 13,049 262,723 1,140 15,052 262,723 1,203 15,052 8,545 - 3,076 9,892 63 1,072 258,328 1,212 15,147 258,633 1,132 16,226 258,633 1,212 16,226 10,448 - 1,871 10,142 80 792 Non controlled investment funds held for sale 4,927 5,266 5,266 592 253 5,230 5,413 5,413 346 163 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in note 4.4). See also table 4.4.1. Breakdown of financial assets subject to impairment. Page 38 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 4.4. Financial assets subject to impairment 4.4.1. Breakdown of financial assets subject to impairment (excluding investment properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. (in Euro million) June 30, 2009 December 31, 2008 Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Carrying value Debt securities available for sale 266,041 (1,396) 264,645 (1,380) 263,265 260,469 (1,389) 259,080 279 259,359 Debt securities (at cost) that are not quoted in an active market 1,203 1,203 1,203 1,212 1,212 1,212 Debt securities 267,244 (1,396) 265,848 (1,380) 264,468 261,681 (1,389) 260,292 279 260,572 Equity securities available for sale 17,381 (4,264) 13,117 2,717 15,834 20,287 (5,019) 15,268 4,159 19,427 Non controlled investment funds available for sale 6,063 (1,031) 5,031 340 5,372 6,060 (834) 5,226 186 5,412 Loans held to maturity Loans available for sale Mortgage loans Other loans ( c ) 962 13,986 11,400 (23) (14) (51) 939 13,972 11,349 (186) - 45 753 13,972 11,394 1,130 13,762 12,008 (6) (9) (51) 1,124 13,752 11,957 (317) - 60 807 13,752 12,017 Loans 26,348 (89) 26,259 (141) 26,119 26,899 (66) 26,833 (257) 26,576 TOTAL 317,036 (6,780) 310,256 1,536 311,792 314,927 (7,307) 307,620 4,367 311,987 (a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets ava ilable for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Including policy loans. 4.4.2. Change in impairment on invested assets (excluding investment properties) (in Euro million) January 1, 2009 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) June 30, 2009 Impairment - debt securities 1,389 299 (288) (9) 6 1,396 Impairment - equity securities 5,019 710 (1,380) (84) 4,264 Impairment - non controlled investment funds 834 305 (85) (24) 1,031 Impairment - loans 66 29 (2) (3) (2) 89 TOTAL 7,307 1,342 (1,755) (12) (103) 6,780 (a) Changes in the scope of consolidation and impact of changes in exchange rates. (in Euro million) January 1, 2008 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2008 Impairment - debt securities Impairment - equity securities Impairment - non controlled investment funds 373 2,307 97 1,193 3,719 723 (142) (1,146) (61) (59) - - 23 139 75 1,389 5,019 834 Impairment - loans 66 18 (6) (11) (0) 66 TOTAL 2,843 5,652 (1,354) (71) 237 7,307 (a) Changes in the scope of consolidation and impact of changes in exchange rates. Page 39 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 4.5. Financial assets recognized at fair value excluding derivatives Amounts presented below exclude the impact of derivatives and investment funds consolidated by equity method. Among invested financial investments measured at fair value in the financial statements (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €349 billion at June 30, 2009 (€348 billion as December 31, 2008): - €196 billion were determined directly by reference to an active market (1) (€194 billion at the end of 2008) and €153 billion related to assets not quoted in an active market/no active market (2) (€154 billion at the end of 2008) (1) Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. (2) Fair values for assets not quoted in an active market/no active market include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active, and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. The amount of assets measured at fair value using in whole or in part a valuation technique based on assumptions that are not supported by prices from current market transactions and not based on available observable market data is less than 3% of the Group’s financial investments excluding assets backing contracts where the financial risk is borne by policyholders, at June 30, 2009 (3% at December 31, 2008) (including an estimation of the extent to which external quotes used in the valuation of assets in inactive markets are based on observable data). Page 40 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 5 : Shareholders’ equity, minority interests and other equity 5.1. Impact of transactions with shareholders 5.1.1. Change in shareholders’ equity Group share for the first half of 2009 a) Share capital and capital in excess of nominal value During the first half of 2009, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: - - Realized losses on AXA shares for €14 million. Share-based payments for €38 million. b) Treasury shares At June 30, 2009, the Company and its subsidiaries owned approximately 28 million AXA shares, a decrease of 1.7 million shares or €26 million compared to December 31, 2008. At June 30, 2009, the carrying value of treasury shares and related derivatives was €425 million, representing 1.30% of the share capital. This figure included €2.1 million relating to AXA shares held by consolidated mutual funds (0.1 million shares) not used to back contracts where the financial risk is borne by policyholders. This caption also included a €96 million premium paid in 2007 for call options on AXA shares. At June 30, 2009, 2.6 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity. Their total estimated historical cost was €53 million and their market value €35 million at the end of June 2009. c) Perpetual debt and related financial expenses As described in paragraph 1.12.2 of the accounting principles, the perpetual deeply subordinated notes issued by the Group do not qualify as liabilities under IFRS. Subordinated perpetual debt is classified in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2009, the change in other reserves was due to €-126 million repayment of deeply subordinated notes, €- 149 million in interest expense on the deeply subordinated debt, and €+213 million in exchange rate differences. Page 41 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 At June 30, 2009, December 31, 2008 and June 30, 2008, perpetual debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2009 December 31, 2008 June 30, 2008 Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million Value of the perpetual debt in currency of issuance (in million) Value of the perpetual debt in Euro million October 29, 2004 - 375 M€ 6% 375 375 375 375 375 375 December 22, 2004 - 250 M€ 6% 250 250 250 250 250 250 January 25, 2005 - 250 M€ 6% 250 250 250 250 250 250 July 6, 2006 - 1000 M€ 5.777% 1,000 994 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.666% 500 581 500 520 500 626 July 6, 2006 - 350 M£ 6.6862% 350 411 350 367 350 442 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 343 600 293 600 364 November 7, 2006 - 150 M A$ 7.5% 150 86 150 74 150 91 December 14, 2006 - 750 M US$ 6,4630% 750 528 750 536 750 473 December 14, 2006 - 750 M US$ 6,3790% 750 528 750 536 750 473 October 5, 2007 - 750 M€ 6.211 % 750 746 750 746 750 746 October 16, 2007 - 700 M£ 6.772 % 700 819 700 732 700 881 Sub-total Perpetual Deeply Subordinated notes ("TSS") 5,911 5,674 5,965 Perpetual notes - variables rates in € 718 718 844 844 844 844 Perpetual notes - 3.29% in JPY 27,000 199 27,000 214 27,000 162 Perpetual notes - (of which 500 M US$ at 7,1%) in US$ 875 619 875 629 875 555 Sub-total Deeply Subordinated notes ("TSDI") 1,536 1,687 1,561 Net Related Financial Expenses (1,104) (956) (805) Sub-Total Perpetual debt 6,343 6,405 6,721 Equity component of convertible debt (2017) 95 95 95 95 95 95 TOTAL 6,438 6,500 6,816 Some of these instruments contained the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates; Interest rate step-up clauses with effect from a given date. d) Dividends paid At the April 30, 2009 shareholders’ meeting, shareholders approved a dividend distribution of €836 million with respect to the 2008 financial year. 5.1.2. Change in shareholders’ equity Group share for the first half of 2008 a) Share capital and capital in excess of nominal value During the first half of 2008, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Exercise of stock options for a total of €58 million (including €6 million in nominal share capital), - - Realized losses on AXA shares for €18 million. Share-based payments for €45 million. b) Treasury shares At June 30, 2008, the Company and its subsidiaries owned approximately 28 million AXA shares, a decrease of 2 million shares or €53 million compared to December 31, 2007, mainly resulting from the following: During the first half of 2008, AXA purchased 2 million shares for a total amount of €33 million mainly as part of the share purchase program to control dilution. Other movements in treasury shares for a total net amount of €+86 million, or 4 million shares sold, mainly resulting from the attribution of AXA shares held for the hedging of (i) “performance share” plans and (ii) AXA ADR stock option programs at AXA Financial. Page 42 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 c) Perpetual debt and related interests During the first half of 2008, the change in other reserves was due to €-148 million in interest expense on the deeply subordinated debt, and €-255 million in exchange rate differences. d) Dividends paid At the April 22, 2008 shareholders' meeting, shareholders approved a dividend distribution of €2,473 million with respect to the 2007 financial year. 5.2. Recognized income and expense for the period The statement of recognized income and expense for the period (SoRIE), which is a part of the consolidated statement of shareholders’ equity, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 5.2.1. Recognized income and expense for the first half of 2009 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The change in reserves for unrealized gains and losses on assets available for sale totaled €+963 million (net Group share), mainly attributable to the Company (€+535 million) and the United States (€+501 million), partly offset by France (€-215 million). The reduction in gross unrealized gains and losses on assets available for sale totaled €-441 million, mainly due to debt securities (€-1,652 million) following the increases of long interest rates, partly offset by a €+925 million increase from equity securities. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2009 December 31, 2008 Gross unrealized gains and losses (a) 809 1,250 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (b) (194) (1,894) Shadow accounting on Deferred Acquisition Costs (c) 63 246 Shadow accounting on Value of purchased Business In force (260) (146) Unallocated unrealized gains and losses before tax 418 (544) Deferred tax 76 102 Unrealized gains and losses (net of tax) - Assets available for sale 494 (441) Unrealized gains and losses (net of tax) - Equity accounted companies 2 (1) Unrealized gains and losses (net of tax) – 100% - Total 496 (443) Minority interests' share in unrealized gains and losses (d) (19) 35 Translation reserves (e) 133 55 Unrealized gains and losses (Net Group share) 610 (353) (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Including shadow accounting impact on premium deficiency liabilities, after revaluation of available for sale investments. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including foreign exchange impact attributable to minority interests. (e) Group share. Note that, at the end of 2008, most of the unrealized gains on assets available for sale were observed in the Life & Savings segment, leading to a significant shadow accounting on policyholders’ participation, while most of the unrealized losses were observed in other segments, mainly Holdings, leading to a total net unrealized loss position. Page 43 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 The change in reserves relating to changes in fair value of assets in June 30, 2009 and December 31, 2008 broke down as follows: (in Euro million) June 30, 2009 December 31, 2008 Unrealized gains and losses (net of tax) 100%, as at January 1 (443) 4,753 Transfer in the income statement on the period (a) Investments bought in the current accounting period and changes in value Foreign exchange impact 152 999 (94) 1,665 (7,026) 152 Change in scope and other changes (119) 20 Unrealized gains and losses (net of tax) 100%, as at June 30 496 (443) (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and fixed maturity securities discount premium impacts. b) Translation reserve The impact of foreign exchange rate movements (€+358 million) was mainly due to the United Kingdom (€+461 million) and the Company (€+91 million driven by the change in fair value of currency hedges set up to hedge net investments in foreign operations (€+224 million), partly offset by the foreign exchange on perpetual debt (€-140 million)), partially offset by Japan (€-147 million). c) Employee benefits actuarial gains and losses The main contributor to the €-442 million decrease in actuarial gains and losses on employee benefit obligations was the United Kingdom (€–460 million) mainly coming from an increase in the long-term inflation rate. 5.2.2. Recognized income and expense for the first half of 2008 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The change in reserves for unrealized gains on assets available for sale totaled €-4,297 million, mainly attributable to France (€-1,089 million), Belgium (€-1,264 million), Germany (€-428 million), the United Kingdom (€-318 million), the United States (€-386 million), the Mediterranean Region (€-318 million) and the Company (€-340 million). The reduction in gross unrealized gains of available for sale financial assets totaled €-10,164 million, mainly due to debt securities (€-6,014 million), as a consequence of a rise in interest rates during the period, since most of debt securities held are fixed-rates bonds, and to equity securities (€-4,177 million). b) Translation reserve The impact of exchange rate movements (€-455 million) was mainly attributable to the United States (€-712 million, principally due to the difference between the June 30 2008 closing exchange rate -USD1.58 for €1- and the December 31, 2007 closing exchange rate -USD1.47 for €1-) and the United Kingdom (€-384 million), partly offset by positive changes in Switzerland (€+159 million) and the change in fair value of currency hedges set up the company to hedge net investments in foreign operations (€+423 million). c) Employee benefits actuarial gains and losses The main contributors to the €-143 million losses on employee benefits obligations were the United States (€-103 million) and the United Kingdom (€-101 million), partly offset by Germany (€+65 million). This resulted from the combination of interest rates increases and unfavorable equity markets. 5.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. Page 44 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 5.3.1. Change in minority interests for the first half of 2009 The €+321 million increase in minority interests to €3,380 million was mainly due to transactions with shareholders (€+109 million) and recognized income and expenses for the period (SORIE) (€+212 million). Transactions with shareholders included the following: Dividends paid to minority interests holders for €-103 million; - Other movements (€+214 million) mainly including capital raising of AXA Asia Pacific Holdings (€+247 million), partly offset by the buyout of minority interests at AXA Germany (€-14 million). The recognized income and expenses for the period included the following: - Net income attributable to minority interests for €+121 million; - - Change in translation reserved for €+32 million; and - Increase in reserve relating to the change in faire value of available for sale financial instruments (€+56 million); Impact of actuarial gains and losses on employee benefits for €+3 million. 5.3.2. Change in minority interests for the first half of 2008 The €-167 million change in minority interests, to €3,105 million, was attributable to a €-206 million impact of transactions with shareholders, and a €+38 million recognized income for the period (SORIE). Transactions with shareholders included the following: Dividends paid to minority interests holders for €-307 million, - Other movements, for €+101 million, including notably €+40 million as a consequence of the consolidation of AXA Gulf, and €+43 million resulting from increases in share capital in some real estate entities. The recognized income and expenses for the period included the following: - Net income attributable to minority interests for €+234 million; - A €-55 million decrease in reserves relating to the change in fair value of available for sale financial instruments; - A €-133 million negative change in translation reserves; and - A €-7 million impact from employee benefits actuarial obligation. Page 45 Consolidated financial statements____________________________________________________________________________________________________________________________________________________ Half Year 2009 5.4. Consolidated statements of changes in shareholders’ equity (In Euro million, except for number of shares and nominal value) Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Reserves relating to revaluation of tangible assets Other (a) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders' equity as at January 1, 2009 2,089,157 2.29 4,784 17,840 (547) (353) 100 4 6,500 (2,712) 11,824 37,440 3,058 Capital 17 2.29 0 0 Capital in excess of nominal value (14) (14) Equity - share based compensation 38 38 Change in scope of consolidation 0 (0) (0) 0 0 170 Treasury shares 26 26 Equity component of compound financial instruments Deeply subordinated debt 87 87 Accrued interests - Deeply subordinated debt (149) (149) Other (0) 84 84 (60) Dividends paid (836) (836) Impact of transactions with shareholders 17 2.29 0 24 26 0 (0) (62) (0) (752) (764) 109 Reserves relating to changes in fair value through shareholders' equity 963 (66) 897 56 Translation reserves 358 358 32 Employee benefits actuarial gains and losses through OCI (b) (442) (442) 3 Net income of the period 1,323 1,323 121 Total recognized income and expense for the period (SORIE) 963 (66) 358 881 2,135 212 Shareholders' equity as at June 30, 2009 2,089,175 2.29 4,784 17,864 (521) 610 34 4 6,438 (2,354) 11,953 38,811 3,380 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Perpetual subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see note 5.1.1.c). (b) Actuarial gains and losses accrued since opening January 1, 2009. Page 46 Consolidated financial statements____________________________________________________________________________________________________________________________________________________ Half Year 2009 (In Euro million, except for number of shares and nominal value) Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Reserves relating to revaluation of tangible assets Other (a) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders' equity as at January 1, 2008 2,060,753 2.29 4,719 17,363 (716) 4,846 (11) 4 7,219 (1,478) 13,697 45,642 3,272 Capital 2,702 2.29 6 6 Capital in excess of nominal value 34 34 Equity - share based compensation 45 45 Change in scope of consolidation 0 (3) 0 (3) 68 Treasury shares 53 53 Equity component of compound financial instruments Deeply subordinated debt (255) (255) Accrued interests - Deeply subordinated debt (148) (148) Other (0) 379 379 (273) Dividends paid (2,473) (2,473) Impact of transactions with shareholders 2,702 2.29 6 79 53 0 (403) (3) (2,094) (2,362) (206) Reserves relating to changes in fair value through shareholders' equity (4,297) (3) (4,301) (55) Translation reserves (451) (451) (133) Employee benefits actuarial gains and losses through OCI (b) (143) (143) (7) Net income of the period 2,162 2,162 234 Total recognized income and expense for the period (SORIE) (4,297) (3) (451) 2,019 (2,733) 38 Shareholders' equity as at June 30, 2008 2,063,456 2.29 4,725 17,442 (663) 549 (15) 4 6,816 (1,933) 13,622 40,547 3,105 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' benefit, deferred acquisi tion costs, and value of business in force. (a) Perpetual subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see note 5.1.2.c). (b) Actuarial gains and losses accrued since opening January 1, 2008. Page 47 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 6 : Financing debt (in Euro million) Carrying value June 30, 2009 December 31, 2008 AXA Debt component of subordinated notes due 2014 (euro) Debt component of subordinated convertible notes, 3.75% due 2017 (euro) Subordinated notes due 2020 (euro) U.S. registered redeemable subordinated debt, 8.60% 2030 (USD) U.S. registered redeemable subordinated debt, 7.125% 2020 (GBP) U.S. registered redeemable subordinated debt, 6.75% 2020 (euro) 5,719 1,804 1,284 180 836 381 1,070 5,998 1,773 1,259 180 848 341 1,070 Derivatives on debts instruments issued (a) 164 527 AXA Financial 144 145 Surplus Notes, 7.70 %, due 2015 142 143 MONY Life 11.25% Surplus Notes due 2024 1 1 AXA Bank Europe 396 423 Subordinated perpetual notes, variable 396 423 AXA-MPS Vita and Danni 135 135 Subordinated Notes, euribor 6 months + 81bp 135 135 Other subordinated debt (under €100 million) 34 34 SUBORDINATED DEBT 6,428 6,734 AXA 4,032 5,496 Euro Medium Term Notes, 6.0% due through 2013, and BMTN Commercial paper Euro Medium term Notes, due through 2015 969 2,097 1,000 912 4,635 - Derivatives on financing debt instruments issued (a) (34) (50) AXA Financial 808 817 Senior notes , 7.75%, due 2010 Senior notes , 7%, due 2028 341 248 344 250 Senior notes MONY, 8.35%, due 2010 219 223 AXA UK Holdings 180 160 GRE : Loan Notes, 6.625%, due 2023 180 160 Other financing debt instruments issued (less than €100 million) 27 91 Other financing debts instruments issued under euro 100 million 34 143 Derivatives relating to other financing debts instruments issued (1) (7) (52) FINANCING DEBT INSTRUMENTS ISSUED 5,046 6,564 AXA 1,000 Morocco 113 113 Other financing debts owed to credit institutions (under €100 million) 72 103 FINANCING DEBT OWNED TO CREDIT INSTITUTIONS 186 1,216 TOTAL FINANCING DEBT 11,660 14,514 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. Total financing debt decreased by €2,854 million between December 31, 2008 and June 30, 2009, or by €2,871 million at constant exchange rates, to €11,660 million. The decrease at constant exchange rates was mainly due to AXA SA with: i. ii. iii. a €2,538 million decrease in commercial paper; a repayment of a €1,000 million credit line (“club deal” banking pool) issued in 2008 to finance AXA development; a €363 million decrease from the change in fair value of currency and interest rate swaps. partly offset by; iv. a €1,000 million increase in financing debt instruments issued arising mainly from AXA SA’s issue of new senior notes taking advantage of more favorable market conditions. Page 48 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 7 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. (in Euro million) (c) June 30, 2009 June 30, 2008 NET INCOME GROUP SHARE 1,323 2,162 TSS and TSDI financial charge (149) (148) TSS and TSDI FX impact (140) 167 NET INCOME INCLUDING IMPACT OF TSS/TSDI A 1,035 2,181 Weighted average number of ordinary shares (net of treasury shares) - opening 2,060 2,030 Stock options exercised (a) 0 1 Treasury shares (a) 1 1 Share purchase program (a) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2,061 2,032 NET INCOME PER ORDINARY SHARE C = A / B 0.50 1.07 Potentially dilutive instruments : Stock options 1 7 Other 3 3 FULLY DILUTED - WEIGHTED AVERAGE NUMBER OF SHARES D 2,065 2,043 NET INCOME (b) E 1,035 2,181 FULLY DILUTED NET INCOME PER ORDINARY SHARE F = E / D 0.50 1.07 (a) Weighted average. (b) Taking into account the impact of potentially dilutive instruments. (c) Except for number of shares (million of units) and earnings per share (Euro). Page 49 Consolidated financial statements_______________________________________________________________________________________ Half Year 2009 Note 8 : Subsequent events In July 2009, AXA SA unwound all its residual 2008 equity macrohedging position (€2,500 million on Eurostoxx50 and €250 million on FTSE 100), resulting in a €19 million loss. Page 50 Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify, to the best of my knowledge, that the consolidated summarized financial statements for the first half of the fiscal year 2009 have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half- year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year and their impact on the financial statements, the related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 6, 2009. Henri de Castries Chairman of the AXA Management Board Person responsible for financial information Denis Duverne Member of the AXA Management Board, Group Chief Financial Officer Statutory auditors’ review report on the 2009 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2009 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of articles L. 232-7 of the French Commercial Code (Code de commerce) and L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier) , we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2009 ; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors considering the current economic and financial downturn, as stated in the interim activity report, illustrated by a high volatility of still active financial markets, fewer transactions on the financial markets that became inactive and by limited insight on future outcome similarly to December 31, 2008 year end. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 6, 2009 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Eric Dupont Philippe Castagnac Jean-Claude Pauly | Semestriel, 2009, Insurance, AXA | write me a financial report |
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| Half Year Financial Report June 30, 2010 Table of contents I Activity Report....................................................................... II Consolidated financial statements ...................................... III Statement of the person responsible for the Half Year Financial Report....................................................................... IV Statutory auditors’ review report on the 2010 Half Year Financial Information .................................................... Activity Report ________________________________________________________________________________________________________ Half Year 2010 Activity Report / Half Year 2010 Page 1 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Document de Référence for the year ended December 31, 2009, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Cautionary statements concerning forward-looking statements ........................................................................ 2 Financial market conditions in the first half of 2010 ......................................................................................... 3 Operating highlights........................................................................................................................................... 5 Events subsequent to June 30, 2010 .................................................................................................................. 8 Consolidated gross revenues .............................................................................................................................. 9 Consolidated underlying, adjusted earnings and net income ........................................................................... 12 Life & Savings Segment .................................................................................................................................. 18 Property & Casualty Segment .......................................................................................................................... 40 International Insurance Segment...................................................................................................................... 56 Asset Management Segment ............................................................................................................................ 59 Banking ............................................................................................................................................................ 64 Holdings and other companies ......................................................................................................................... 67 Outlook ............................................................................................................................................................ 70 Glossary ........................................................................................................................................................... 71 Page 2 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Financial market conditions in the first half of 2010 The economy recovery that began in the second half of 2009 was confirmed in the first half of 2010. Emerging economies led the global recovery in the first quarter, with industrial output exceeding pre-recession levels. Nevertheless, manufacturing activity slowed down in the course of June. In general, with the output gap closing and accommodative economic policies since the crisis, inflationary pressure has begun to materialise. Emerging markets’ central banks have started or are expected to continue to tighten their monetary conditions. In developed economies, monetary policies remained accommodative, on the back of lack of inflationary risk. Major central banks kept their main rates unchanged over the period. Uncertainties regarding sustainability of European debt levels have led Europe to implement a financing program of €750 billion, which can be drawn on, if necessary, by one or even several Eurozone countries, in addition to a specific financial support plan to aid Greece in conjunction with the IMF, announced in the first quarter. Moreover, European governments announced additional budget reduction measures. In the developed economies, economic data continued to rally at the start of the second quarter then it began to show signs of running out of steam. In the United States, with the tax credit for first time buyers no longer available, the residential real estate sector took a downturn again, wiping out the start of the recovery buoyed by the stimulus plans. Job creations in the private sector are still modest, while new public sector hiring dominated due to the census-related temporary recruitment. The ISM manufacturing Index, which in April (60.4) hit a six-year record high, lost steam falling over the next months to 56.2 in June. In Europe, although economic indicators increased once again in April, they then began to fall, particularly the Manufacturing PMI Index. In addition, according to retail sales data European consumption is flagging, slipping 0.4% in May. Against economic outlook uncertainties, financial markets were negatively impacted at the end of the first half of 2010. STOCK MARKETS After US and Japanese equities’ out-performance on world indices in the beginning of the year, global equity markets faced a rough ride in the second quarter. European stocks in particular have suffered due to market fears regarding the sustainability of European sovereign debt levels. Overall, the Dow Jones in New York depreciated by 6% while in Japan, the Nikkei dropped by 11% in the first half of 2010. The FTSE in London depreciated by 9% and the S&P 500 lost 8% in the first half of 2010. In the same trend, the CAC 40 decreased by 13%. The MSCI World Index decreased by 11% and emerging indices declined (MSCI Emerging down 7%) while MSCI G7 decreased by 10% in the first half of 2010 in common currency terms. The S&P 500 implied volatility index moved from 21.68% to 34.54% between December 31, 2009 and June 30, 2010. BOND MARKETS Long-term yields on developed economies government debts decreased in this first half of 2010. Overall, the US 10- year T-bond ended the half year at 2.94%, a decrease of 90 bps compared to December 31, 2009 and the Bund yield decreased by 81 bps to 2.57%. Spreads on European public debt widened in comparison to German government bonds, hitting record highs for Greece, Portugal, Ireland and Spain. In Europe, the iTRAXX Main spreads widened by 56 bps and moved from 73 bps to 129 bps, while the iTRAXX Crossover increased by 145 bps to 576 bps. In the United States, the CDX Main increased from 86 bps to 123 bps between December 31, 2009 and June 30, 2010. Page 3 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 EXCHANGE RATES Against this turbulent European market movements, the Euro was not spared, hitting a record low of 1.19 against the US Dollar on June 7, its lowest level for over four years. Thus, compared to December 31, 2009, the US Dollar gained 15% against the Euro (closing exchange rate moved from $1.43 at the end of 2009 to $1.22 at the end of June 2010). The Yen gained 17% against the Euro (closing exchange rate moved from Yen 131.3 at the end of 2009 to Yen 108.4 at half year of 2010). The Pound Sterling gained 8% against the Euro (closing exchange rate moved from £0.888 at the end of 2009 to £0.818 at the end of June 2010). The Swiss Franc gained 11% against the Euro (closing exchange rate moved from CHF 1.48 at the end of 2009 to CHF 1.32 at the end of June 2010). On an average rate basis, the US Dollar remained stable against the Euro (from $1.34 over the first half of 2009 to $ 1.33 over the first half of 2010). The Yen lost 4% against the Euro (from Yen 125.5 over the six months to March 31, 2009 used for half year 2009 accounts to Yen 129.2 over the six months to March 31, 2010 used for half year 2010 accounts). The Pound Sterling increased by 3% (from £0.895 over the first half of 2009 to £0.870 over the first half of 2010) and the Swiss Franc gained 5% against the Euro (from CHF 1.51 over the first half of 2009 to CHF 1.44 over the first half of 2010). Page 4 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Operating highlights Significant acquisitions On December 18, 2009, AXA announced the strengthening of its position in Central and Eastern Europe through the buyout of the non-controlling interests held by the European Bank for Reconstruction and Development (EBRD) for an amount of €147 million1 (ca. 0.9 x Embedded Value). This transaction has been funded internally. Following customary regulatory approval, this transaction has been completed in first half of 2010 in Hungary and the Czech Republic. The closing of the transaction in Poland took place on July 19, 2010. On January 15, 2010, AXA announced the acquisition of Omniasig Life. With this operation, AXA enters the Romanian Life insurance market, in line with its objective of accelerating the development of its activities in the emerging countries, notably in Central and Eastern Europe. Created in 1997, Omniasig Life sells protection products, representing premiums of €12 million in 2008, through a network of 1,400 agents. Omniasig Life ranks 10th in the Romanian Life market and holds a 2.55% market share. This transaction closed on July 6, 2010. On February 10, 2010, AXA and Banca Monte dei Paschi di Siena (BMPS) announced the extension of their bancassurance agreement in Italy to the 1,000 branches of former Banca Antonveneta following its acquisition by BMPS for a consideration of €240 million to be paid by AXA. The AXA MPS joint-venture extended its current reach from 2,000 to 3,000 branches in total, providing access to an additional 1.6 million potential customers. On June 9, 2010, AXA Investment Managers, Barr Rosenberg and Kenneth Reid (AXA Rosenberg co-founders) announced they had reached an agreement whereby AXA Investment Managers will purchase the remaining 25% equity interest in AXA Rosenberg from Barr Rosenberg and Kenneth Reid. On November 8, 2009, AXA announced a joint offer with AMP whereby AXA would acquire 100% of AXA APH’s Asian businesses while AMP would acquire 100% of AXA APH’s Australia & New Zealand businesses under an exclusive arrangement. Compared to the closing price of AXA APH share price on November 5, 2009, this offer provided a 31% premium to AXA APH’s shareholders. Under the terms of this proposal, net cash consideration for AXA would have been AUD 1.8 billion (or ca. €1.1 billion). On November 9, 2009, the independent committee of AXA APH’s Board of Directors rejected this joint proposal. On December 13, 2009, AXA announced that a revised joint offer was communicated by AXA and AMP to the AXA APH committee of independent directors. Compared to the closing price of AXA APH share price on November 5, 2009, this offer provided a 53% premium and represented a 16% improvement on the original proposal of November 8, 2009. Under the terms of this new proposal, net cash consideration for AXA would have been AUD 2.2 billion (or ca. €1.4 billion). On December 17, 2009, this new revised proposal was rejected by the same independent committee. At the same time, AXA took note of an offer made by National Australia Bank Limited (NAB), which was recommended by the AXA APH committee of independent directors. Under terms publicly disclosed by NAB, the offer made by NAB subject to AXA’s approval provided a 58% premium to AXA APH's shareholders compared the closing price of AXA APH share price on November 5, 2009 with an impact for AXA that would be comparable to the one under the terms of AXA/AMP revised offer. On March 30, 2010, AXA reached an agreement with NAB and AXA APH, whereby NAB would buy AXA’s shares in AXA APH for AUD 7.2 billion in cash and AXA would acquire from NAB 100% of AXA APH’s Asian operations for AUD 9.4 billion in cash. Net cash consideration to be paid by AXA would be equal to the one AXA would have paid in the former joint-offer with AMP on December 13, 2009. This transaction is subject to certain covenants and conditions customary for a transaction of this nature prior to the vote on the transaction by the AXA APH's minority shareholders. The main approvals or non-objections are those to be obtained from the antitrust authority (ACCC) and other Australian & New Zealand regulators as well as certain Asian regulators. 1 Based on foreign exchange rate as of December 5, 2009. Page 5 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 On April 19, 2010, AXA took note of the decision made by the Australian Competition and Consumer Commission ("ACCC") to oppose NAB Ltd’s proposed acquisition of AXA APH and not to oppose any proposed acquisition by AMP. AXA also notes the announcement by NAB of a review of the ACCC’s decision. On June 1, 2010, AXA, AXA APH and NAB have agreed to extend the period for NAB to satisfy the concerns raised by the ACCC until July 15, 2010 end of day. AXA understands that NAB continues to pursue its options in relation to the ACCC objections. On July 19, 2010, AXA, AXA APH and NAB have agreed to extend the period for NAB to satisfy the concerns raised by the ACCC until the end of day on August 31, 2010. AXA, AXA APH and NAB have also agreed the payment of an interim dividend to AXA APH shareholders of 9.25 cents (AUD) per share. The parties have also extended the end date for shareholder and court approval for the proposed transaction from October 31, 2010 to January 31, 2011. Significant disposals On June 24, 2010, AXA announced that it has agreed to sell to Resolution Ltd part of its UK Life operations including UK-based traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses for a consideration of £2.75 billion (or ca. €3.3 billion). This sale is consistent with AXA’s intention to focus on growing its wealth management business in the UK Life & Savings market, comprising the AXA wrap platform (“Elevate”), Architas Multi-Manager, AXA Wealth International and the AXA Winterthur Wealth Management specialist pensions and investments operations, as well as its AXA Direct Protection business. The Group also remains committed to all its other UK-based businesses including AXA Insurance, AXA PPP Healthcare, Bluefin and the UK operations of AXA Investment Managers. This transaction underlines AXA’s focus in Life & Savings on further optimizing capital allocation throughout the Group, towards identified business lines (including Health, Protection and unit-linked) and geographies (including high growth markets). The consideration of £2.75 billion (or ca. €3.3 billion) consists of £2.25 billion (or ca. €2.7 billion) in cash and £0.50 billion (or ca. €0.6 billion) of Resolution Ltd senior Deferred Considerations Notes, which bear an effective interest rate of 6.5% per annum and are repayable in instalments over an 8 year period (4 years duration). The face value of the Notes and consequently the consideration may be reduced by up to £0.15 billion depending on the amount of inherited estate. Based on its current expectations, management does not currently anticipate a price adjustment. The purchase price to be received by AXA corresponds to 0.86x full year 2009 Embedded Value of the sold business adjusted for AXA APH shares (£3.2 billion). After the buy-back of €0.9 billion of AXA APH shares currently held by AXA Life UK, net cash proceeds would be €1.7 billion for the AXA Group. These proceeds would be dedicated to funding the further development of the UK Wealth management business and to redeploying capital more efficiently throughout the AXA Group, while maintaining a strong balance sheet. This transaction had an impact on AXA Group half year financials of ca. €-1.5 billion exceptional capital loss accounted for in net income. This transaction received on July 20, 2010 the approval of the shareholders of Resolution Ltd and is subject to the receipt of regulatory approvals. The closing is expected to take place in the third quarter of 2010. Capital operations On April 14, 2010, AXA announced the issue of €1.3 billion subordinated debt (maturity 2040, 5.25% annual coupon, spread over swap is 205 bps), to anticipate the reimbursement before the end of 2010 of maturing subordinated debts. The transaction has been structured to comply with the latest Solvency II advice for Tier 2 capital treatment. During the first half of 2010, $6.6 billion equity protection program, designed to mitigate the potential impact of a decline in equity markets on AXA Equitable's statutory liabilities, expired. At June 30, 2010 AXA Equitable had $1.0 billion nominal of protection on the S&P index consisting of put spread collar strategies. Page 6 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Others On January 25, 2010, AXA announced its intention to voluntarily delist its ADSs from the New York Stock Exchange (“NYSE”) and to voluntarily deregister with the U.S. Securities and Exchange Commission (“SEC”). AXA’s delisting from the NYSE became effective on March 26, 2010. AXA filed its Form 15-F to deregister with the SEC on March 26, 2010 and its deregistration with the SEC became effective 90 days thereafter (on June 25, 2010). Following its delisting from the NYSE and deregistration (i) AXA’s ADRs trade in the United States on the OTCQX International Premier market in a “level one” program, and (ii) AXA intends to maintain its financial reporting discipline through an annual program to test the effectiveness of its internal controls going forward. Related-party transactions During the first half of the fiscal year 2010, there were (1) no modifications to the related-party transactions described in Note 27 "Related-Party transactions" of the audited consolidated financial statements of the fiscal year ended December 31, 2009 included in the full year 2009 Annual Report (pages 394 and 395) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2010, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2010. Risk factors The principal risks and uncertainties facing the Group are described in detail in Section 3.1 "Risk factors" and in Section 1.2 "Additional factors which may affect AXA’s business" of the full year 2009 Annual Report (respectively on pages 178 to 192 and pages 33 to 40) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description in these Sections of the 2009 Annual Report remains valid in all material respects as of the date of this Report for the appreciation of the major risks and uncertainties affecting the Group at June 30, 2010 and which management expects may affect the Group during the remainder of 2010. In April 2010, AXA Rosenberg, a quantitative asset manager owned 75% by AXA Investment Managers, communicated to its clients that a coding error in its risk model, corrected in November 2009, had not been reported in a timely manner. AXA Rosenberg's Board of Directors has hired an independent law firm to conduct an internal investigation into this matter and an independent consultant has been engaged to assist in assessing the impact of this error on the performance of each client’s account. This investigation and the determination of impact on individual client accounts is still on-going. However, AXA Rosenberg intends to compensate clients for amounts as deemed applicable market appropriate by its Board, based on practices, contractual provisions and regulators' review. For the period ended June 30, 2010, management recorded a net provision of €64 million which represents management’s current estimate, based on information presently available to it, of the net impact on AXA. Management expects to review this provision at year-end 2010 based on information available at that time. the conclusions and advice of its consultants, Page 7 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Events subsequent to June 30, 2010 Not applicable Page 8 _________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Consolidated gross revenues Consolidated Gross Revenues (a) HY 2010 HY 2009 FY 2009 Life & Savings 30,881 30,065 57,620 of which Gross written premiums 29,876 29,254 55,899 of which Fees and revenues from investment contracts with no participating feature 292 274 547 Property & Casualty 15,394 14,919 26,174 International Insurance 1,762 1,731 2,860 Asset Management 1,670 1,503 3,074 Banking (b) 218 195 395 Holdings and other companies (c) 0 1 0 TOTAL 49,925 48,414 90,124 (a) Net of intercompany eliminations. (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €212 million and €49,921 million for first half 2010, €209 million and €48,431 million for first half 2009, and €392 million and €90,128 million for full year 2009. (c) Includes notably CDOs and real estate companies. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE in this document means including acquisitions, disposals and business transfers, and net of intercompany transactions in both periods. Consolidated gross revenues for first half year 2010 reached €49,925 million, up 3% compared to first half year 2009. The restatements to a comparable basis were mainly driven by the evolution of Euro against other currencies (€752 million or -2 points). On a comparable basis, gross consolidated revenues were up 1%. Total Life & Savings gross revenues were up 3% to €30,881 million, or up 1% on a comparable basis mainly due to Mediterranean & Latin American Region, Germany and Belgium, partly offset by the United States and France. Total Life & Savings New Business APE2 amounted to €3,229 million, up 4% compared to half year 2009. On a comparable basis, APE increased by 1%, mainly due to Mediterranean & Latin American Region, Hong Kong, South- East Asia & China, Belgium and Germany, partly offset by France, the United States and Japan. Mediterranean & Latin American Region APE increased by €103 million (+48%) to €322 million mainly driven by higher contribution of general account savings products (€76 million or +57%) mainly in AXA MPS in Italy (€+61 million or +78%) reinforced by Antonveneta and higher sales of Variable Annuity products mainly in Spain and Group Life business mainly in Mexico. Germany APE increased by €16 million (+7%) to €247 million, mainly driven by an increase of single premiums in Investment & Savings business attributable to general account short term investment products and Annuities, partly offset by lower Health business. United Kingdom APE increased by €29 million (+6%) to €537 million, primarily due to (i) higher Investment & Savings sales (€+67 million or +28%), due to the increase in mutual funds sales with the success of the Elevate wrap 2 Annual Premium Equivalent (APE) is new regular premium plus one tenth of single premiums, in line with EEV methodology. APE is Group Share. Page 9 _________________________________________________________________________________________ (in Euro million) HY 2010/HY 2009 2.7% 2.1% 6.7% 3.2% 1.8% 11.1% 11.5% ‐89.0% 3.1% Activity Report ________________________________________________________________________________________________________ Half Year 2010 platform, partly offset by (ii) lower Group Pensions (€-42 million or -20%) mainly due to non-recurrence of a prior year large scheme and (iii) a decrease in Life products reflecting the increasing competition in the Protection market. Belgium APE increased by €16 million (+16%) to €123 million, mainly due to the increase in Individual Life sales (€+18 million) mainly driven by Investment & Savings products, partly offset by a decrease in Group Life & Savings products (€-2 million). Hong Kong APE increased by €11 million (+18%) to €72 million, mainly due to higher sales of Protection products (€+13 million), partly offset by lower sales of Variable Annuity products (€-3 million). South-East Asia & China APE increased by €31 million (+77%) to 78 million, driven by the growth in bancassurance (€+13 million) and tele-marketing (€+5 million) in Indonesia, new products in Thailand (€+5 million) and Group Life in China (€+4 million). France APE decreased by €95 million (-12%) to €681 million, mainly due to (i) lower volumes in Retirement following last year large contracts (€-44 million or -68%), (ii) a decrease in Individual Savings (€-57 million or -13%) in a context of aggressive competition on rates and a more selective approach focused on profitability partly offset by (iii) Protection and Health business increase (€+6 million or +2%) driven by Group business (€+11 million or +6%) partly offset by Individual business (€-5 million or -8%). The United States APE decreased by €74 million (-13%) to €505 million driven by (i) Variable Annuities APE down 38%, primarily in the Wholesale channel, reflecting repricing and redesign actions in 2009, (ii) Life up 4% reflecting increased Term Insurance sales partly offset by the impact of the removal of certain Universal Life guaranteed features in the first quarter of 2009, and (iii) mutual funds increased by 52% reflecting higher sales under improved market conditions. Japan APE decreased by €23 million (-9%) to €222 million. Excluding the Cancer product discontinuation impact (€- 31 million), APE increased by €8 million (+4%). This was driven by a €14 million increase (+26%) in Investments & Savings to €64 million due to significant sales of Variable Annuity products in advance of the new inheritance tax law enacted, partly offset by a €6 million decrease (-8%) in Health to €66 million, mainly due to lower sales of Medical Whole Life. Property & Casualty gross revenues were up 3% to €15,394 million, or remained stable on a comparable basis mainly driven by Personal lines (+4%) especially in France, the United Kingdom, & Ireland, Asia and Canada, partly offset by Germany. Commercial lines decreased by 4% especially in the United Kingdom & Ireland, the Mediterranean & Latin American Region and Belgium, partly offset by Canada. Personal lines (60% of P&C gross revenues) were up 4% on a comparable basis, stemming from both Motor (+4%) and Non-Motor (+3%), reflecting the strength of the AXA brand as well as the ability of AXA proprietary networks to retain their customers in a rising pricing environment. Motor revenues grew by 4% mainly driven by (i) the United Kingdom & Ireland (+34%), due to strong growth in new business and improved retention mainly within UK Direct, (ii) France (+5%) mostly due to tariff increase, (iii) Canada (+4%) due to increased average premium and (iv) Asia (+5%) mainly due to net new inflows in Japan and tariff increases in Singapore and Malaysia, partly offset by (v) the Mediterranean & Latin American Region (-1%) due to lower volumes following tariff increases in Spain, partly offset by a strong performance in Turkey, and (vi) Germany (-1%) as a result of a strong price competition. Non-Motor revenues increased by 3% mainly driven by (i) the Mediterranean & Latin American Region (+8%) mainly due to Property benefiting from the rebound on bank mortgage loan activity in Italy and Spain, as well as Health following segmented tariff increase in Mexico and volume growth in Spain, (ii) France (+5%) in Property mainly driven by both a positive price effect and higher volumes in Household, and (iii) the United Kingdom & Ireland (+3%) in Property mainly due to tariff increases in Ireland and growth in UK Direct business, partly offset by (iv) Germany (-3%) reflecting a focus on profitability in Medical Liability segment. Page 10 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Commercial lines (39% of P&C gross revenues) decreased by 4% on a comparable basis with Non-Motor down 5% while Motor remained stable. Non-Motor revenues were down 5%, with notably (i) the United Kingdom & Ireland down 13% in a soft market environment and the strategy to exit from unprofitable schemes, (ii) the Mediterranean & Latin American Region (- 6%) mainly reflecting current economic context and lower volumes in Property, (iii) Belgium down 5% due to a decrease in Workers’ Compensation negatively impacted by the economic slowdown and (iv) France (-1%) as a result of tariff increases in all lines of business and related negative impacts on volumes, while (v) Canada increased by 4% mainly in Property with higher volumes. Motor revenues remained stable, with (i) the United Kingdom & Ireland (+4%) reflecting new business and tariff increases, (ii) France (+2%) primarily as a result of tariff increases and positive prior years premium adjustments and (iii) the Mediterranean & Latin American Region (-4%) negatively impacted by current economic context as well as exit from unprofitable businesses. International Insurance revenues were up 2% to €1,762 million or remained stable on a comparable basis mainly driven by (i) AXA Corporate Solutions Assurance (down 1% to €1,271 million) driven by portfolio selection focused on profitability (Property, Liability, Aviation, Financial lines) partly offset by positive development in Motor (+9%) and Marine (+2%), and (ii) AXA Assistance up 5% to €392 million. Asset management revenues increased by 11% or 10% on a comparable basis to €1,670 million mainly driven by management fees (+11%) due to higher average Assets under Management (AUM) up 7% and higher average fees up +1.0 bp. AllianceBernstein revenues were up 15% to €1,065 million due to management fees up 16% in line with 12% higher average AUM, distribution fees up 34% following higher Retail sales, and Institutional Research services up 5% due to higher transaction charges. AUM increased by €28 billion from year-end 2009 to €374 billion at June 30, 2010 driven by positive exchange rate impact of €56 billion, partly offset by market depreciation of €20 billion and net outflows of €8 billion (€9 billion from Institutional clients, partly offset by €1 billion net inflows from Retail). AXA Investment Managers revenues increased by €22 million (+4%) to €605 million. Excluding distribution fees (retroceded to distributors), net revenues increased by €16 million (+3%) mainly due to higher management fees (€+20 million), driven by higher average AUM up 4%, partly offset by lower performance fees (€-4 million). AUM increased by €25 billion from year-end 2009 to €524 billion at the end of June 30, 2010 mainly as a result of €21 billion positive exchange rate impact and a positive €21 billion positive market impact partly offset by €17 billion net outflows, mostly driven by net outflows at AXA Rosenberg. Net banking revenues were up 12%, or up 10% on a comparable basis to €218 million, mainly driven by France (+42% mainly due to higher interest margin), Hungary (+11% mainly driven by higher credit production) partly offset by Belgium (-1%). Page 11 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Consolidated underlying, adjusted earnings and net income HY 2010 HY 2009 Gross written premiums 46,884 45,770 Fees and revenues from investment contracts with no participating feature 292 274 Revenues from insurance activities 47,177 46,044 Net revenues from banking activities 212 209 Revenues from other activities 2,533 2,178 TOTAL REVENUES 49,921 48,431 Change in unearned premium reserves net of unearned revenues and fees (3,504) (3,265) Net investment result excluding financing expenses (a) 8,323 7,098 Technical charges relating to insurance activities (a) (41,467) (38,982) Net result of reinsurance ceded (178) (391) Bank operating expenses (50) (54) Insurance acquisition expenses (4,219) (4,445) Amortization of value of purchased life business in force (148) (142) Administrative expenses (5,250) (4,938) Valuation allowances on tangibles assets (1) (0) Change in value of goodwill (1) (8) Other (104) (136) Other operating income and expenses (51,419) (49,095) OPERATING EARNINGS BEFORE TAX 3,321 3,169 Net income from investments in affiliates and associates 23 15 Financing expenses (219) (250) UNDERLYING EARNINGS BEFORE TAX 3,124 2,933 Income tax expenses (825) (657) Non‐controlling interests (217) (161) UNDERLYING EARNINGS 2,082 2,116 Net realized capital gains or losses attributable to shareholders 202 (379) ADJUSTED EARNINGS 2,284 1,736 Profit or loss on financial assets (under fair value option) & derivatives 255 (335) Exceptional operations (including discontinued operations) (1,552) (10) Goodwill and other related intangible impacts (43) (42) Integration costs ‐ (26) NET INCOME 944 1,323 (a) For the periods ended June 30, 2010, June 30, 2009 and December 31, 2009, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €‐2,306 million, €+3,132 million and €+23,861 million, and benefits and claims by the offsetting amounts respectively. NB: Line items of this income statement are on an underlying earnings basis, and not on a net income basis. Page 12 ________________________________________________________________________________________ (in Euro million) FY 2009 84,646 547 85,193 392 4,544 90,128 (238) 35,081 (98,458) (919) (89) (9,166) (365) (10,006) (2) (3) (151) (119,159) 5,812 20 (569) 5,262 (1,033) (375) 3,854 (386) 3,468 485 (202) (85) (60) 3,606 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2010 HY 2009 FY 2009 Life & Savings 1,325 1,232 2,336 Property & Casualty 923 986 1,670 International Insurance 144 122 286 Asset Management 150 176 355 Banking (22) 15 (2) Holdings and other companies (a) (438) (415) (793) UNDERLYING EARNINGS 2,082 2,116 3,854 Net realized capital gains or losses attributable to shareholders 202 (379) (386) ADJUSTED EARNINGS 2,284 1,736 3,468 Profit or loss on financial assets (under Fair Value option) & derivatives 255 (335) 485 Exceptional operations (including discontinued operations) (1,552) (10) (202) Goodwill and related intangibles impacts (43) (42) (85) Integration costs ‐ (26) (60) NET INCOME 944 1,323 3,606 (a) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,082 million. On a constant exchange rate basis, underlying earnings decreased by €73 million (-3%), driven by Property & Casualty, Asset Management, Banking, partly offset by an increase in Life & Savings. All comparative figures mentioned in the below paragraphs are presented at constant exchange rate basis and adjusted for reclassifications between margins. Life & Savings underlying earnings amounted to €1,325 million. On a constant exchange rate basis, Life & Savings underlying earnings were up €78 million (+6%) mainly attributable to France (€+80 million), Germany (€+66 million), Switzerland (€+28 million) and Australia/New Zealand (€+21 million), partly offset by the United States (€- 43 million) and Belgium (€-44 million) mainly resulting from: (i) Higher investment margin (€+221 million or up 21%) primarily as a result of higher asset base, notably in France (€+106 million), the Mediterranean & Latin American Region (€+13 million) and Belgium (€+13 million), as well as lower investment income allocated to policyholders, notably in Switzerland (€+37 million) and the United States (€+24 million). (ii) Higher fees & revenues increased by €308 million (+9%) mainly driven by: a. Loadings on premiums and mutual funds was up €92 million (+4%), mainly driven by France (€+61 million mainly driven by higher volumes in Group Protection and Health business) and Germany (€+65 million due to lower fees and revenues allocated to policyholders) partly offset by Japan (€-46 million) due to lower URR amortization on Variable Annuity products (fully offset by lower DAC amortization) and lower Health premiums. b. Unit-linked management fees up €173 million (+20%), mainly driven by higher average asset base following improved market conditions notably in the United States (€+135 million) and the United Kingdom (€+16 million). (iii) Net technical margin was down €589 million (-54%) mainly driven by (i) €331 million deterioration of the Variable Annuity products hedging margin, primarily as a result of the non repeat of interest rate hedging gains as well as unfavorable credit spread evolution in the United States partly offset by improved margins in Japan and Germany, (ii) non recurring prior year gain from the internal restructuring of an annuity portfolio in the United Kingdom (€165 million), and (iii) €73 million lower surrender margin in Japan mainly driven by the non repeat of last year high level of surrenders as well as review of actuarial assumptions. . Page 13 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 (iv) Lower expenses decreased by €206 million (-6%), with acquisition expenses down €210 million (-12%) mainly driven by lower DAC amortization notably reflecting lower technical margins in the United States, while administrative expenses were stable (€4 million or 0%). (v) Higher tax expenses and non-controlling interests (up €61 million or +12%) mainly driven by higher pre- tax underlying earnings movements. Property & Casualty underlying earnings amounted to €923 million. On a constant exchange rate basis, Property & Casualty underlying earnings decreased by €87 million (-9%) mainly due to: (i) Lower net technical result (including expenses) down €21 million (or -8%) due to : a. An all year loss ratio up 0.2 point to 70.4% mainly due to (i) 1.5 points lower current year loss ratio driven by 1.8 points reduction following tariff increases and a stable Nat Cat events charge (-0.1 point) and (ii) lower positive prior year developments (+1.7 points), b. An expense ratio stable at 27.7%. c. As a result, the combined ratio was up 0.2 point to 98.1%. (ii) Lower investment result (€-64 million or -6%) mainly driven by lower asset yields in France, the Mediterranean & Latin American Region and the United Kingdom, partly offset by higher investment income as a result of a favorable change in asset allocation in Belgium and Switzerland. (iii) Lower income tax expense and non-controlling interests (up €2 million). Excluding €22 million lower positive tax one-offs in Belgium on “Revenus Définitivement Taxés”, tax expenses and non-controlling interests decreased by €20 million driven by lower pre-tax underlying earnings. International Insurance underlying earnings amounted to €144 million. On a constant exchange rate basis, underlying earnings increased by €21 million (+17%) primarily as a result of (i) improved combined ratio following lower level of major losses in Property, portfolio selection and tariff increases at AXA Corporate Solutions Assurance, (ii) higher earnings from Group reinsurance operations (AXA Global Life and Global P&C, formerly AXA Cessions), partly offset by (iii) lower run-off results. Asset Management underlying earnings amounted to €150 million. On a constant exchange rate basis, underlying earnings decreased by €27 million (-15%). Excluding €65 million last year tax one-off at AllianceBernstein, underlying earnings increased by €38 million (+22%) mainly due to (i) higher revenues (€156 million) mainly driven by improved management fees (€120 million) following higher average AUM and higher average fee (+1 basis point), partly offset by (ii) €54 million higher general expenses, (iii) higher tax expenses (€19 million) and (v) higher non- controlling interests expenses (€29 million) following higher pre-tax underlying earnings. Banking segment’s underlying earnings amounted to €-22 million. On a constant exchange rate basis, banking underlying earnings decreased by €37 million, mainly driven by lower interest rates and higher expenses negatively impacting Belgium contribution (€39 million), while improved underlying earnings in Hungary (€5 million), France (€3 million) and Germany (€3 million) were partly offset by set-up costs in the Czech Republic and Slovakia (€8 million). Holdings and other companies’ underlying earnings amounted to €-438 million. On a constant exchange rate basis, holdings underlying earnings decreased by €21 million (-5%) as €-64 million net provision related to potential losses arising from AXA Rosenberg coding error were partly offset by lower net financial charges driven by lower interest rates in AXA SA. Group net capital gains attributable to shareholders amounted to €202 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were up €579 million mainly due to: (i) €491 million lower net impairments, to €-203 million in first half of 2010 mainly driven by lower impairments on equity securities, debt securities and real estate, (ii) €+234 million higher net realized gains excluding impairments, to €481 million in 2010, mainly driven by €278 million higher realized gains on equities, (iii) €-147 million related to an unfavorable impact of equity derivatives hedging programs. Page 14 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 As a result, adjusted earnings amounted to €2,284 million. On a constant exchange rate basis, adjusted earnings increased by €507 million (+29%). Net Income amounted to €944 million. Excluding the €1,478 million provision related to the announced disposal of part of the United Kingdom Life & Savings business and on a constant exchange rate basis, net income increased by €1,073 million (+81%) mainly as a result of: (i) Higher adjusted earnings: €+507 million to €2,284 million, (ii) Higher result on change in fair value of financial assets and derivatives including foreign exchange impacts: €+683 million to €+255 million. These €+255 million can be analyzed as follows: a. €+208 million positive impact of interest rate decrease partly offset by credit spreads movements, as well as positive performance from Asset Backed Securities, b. €+150 million positive performance from private equity, equities and hedge funds, c. €-133 million foreign exchange negative impact mainly in France and Switzerland, d. €+45 million in the United Kingdom reflecting an undiscounted tax adjustment on lower unrealized gains attributable to policyholders in unit-linked life funds, (iii) Other exceptional operations and intangible amortization for €-117 million. Page 15 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Consolidated Shareholders’ Equity As of June 30, 2010, consolidated shareholders' equity totaled €48,637 billion. The movements in shareholders' equity since December 31, 2009 are presented in the table below: (in Euro million) Shareholders' Equity At December 31, 2009 Share Capital Capital in excess of nominal value Equity‐share based compensation Treasury shares sold or bought in open market Deeply subordinated debt (including accrued interests) Fair value recorded in shareholders' equity Impact of currency fluctuations Cash dividend Other Net income for the period 46,229 0 (18) 23 (13) (188) 1,199 2,148 (1,259) 60 944 Actuarial gains and losses on pension benefits (487) At June 30, 2010 48,637 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2010 HY 2009 Restated (b) (c) HY 2009 Published FY 2009 Restated (c) FY 2009 Published Var. HY 2010 versus HY 2009 Restated Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Basic (a) Fully diluted (a) Weighted average number of shares 2,263.2 2,270.6 2,109.1 2,113.2 2,060.8 2,064.8 2,127.0 2,133.3 2,127.0 2,133.3 Net income (Euro per Ordinary Share) 0.35 0.35 0.56 0.56 0.50 0.50 1.56 1.56 1.51 1.51 ‐37.4% ‐37.5% Adjusted earnings (Euro per Ordinary Share) 0.94 0.94 0.75 0.75 0.77 0.77 1.50 1.49 1.50 1.49 25.0% 24.8% Underlying earnings (Euro per Ordinary Share) 0.85 0.85 0.93 0.93 0.95 0.95 1.68 1.67 1.68 1.67 ‐8.7% ‐8.9% (a) EPS calculation takes into account interest payments related to perpetual debts classified in shareholders equity with retrospective application. (b) Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.4 million shares in 2009. (c) Revised net income EPS takes into account interest payments related to undated subordinated debts classified in equity, excluding foreign exchange impacts. Previously disclosed EPS included foreign exchange adjustments and, as at June 30, 2009, basic net income EPS amounted to €0.50 and fully diluted net income EPS to €0.50. Excluding foreign exchange impact reflects implemented hedges which would qualify as net investment hedges with related changes in fair values recognised through translation reserves. Page 16 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 RETURN ON EQUITY (“ROE”) (in Euro million) Period ended , June 30, 2010 (c) Period ended , June 30, 2009 (c) Change in % points ROE 4.0% 7.0% 3.0% Net income group share 944 1,323 Average shareholders' equity 47,191 37,627 Adjusted ROE 12.4% 10.7% 1.7% Adjusted earnings (a) 2,129 1,588 Average shareholders' equity (b) 34,306 29,595 Underlying ROE 11.2% 13.3% 2.1% Underlying earnings (a) 1,927 1,967 Average shareholders' equity (b) 34,306 29,595 (a) Including adjustement to reflect net financial charges related to perpetual debt (recorded through shareholders' equity). (b) Excluding fair value of invested assets and derivatives and perpetual debt (both recorded through shareholders' equity). (c) Annualized. Page 17 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings Segment (a) HY 2010 HY 2009 Gross written premiums 29,914 29,278 Fees and revenues from investment contracts without participating feature 292 274 Revenues from insurance activities 30,206 29,552 Net revenues from banking activities ‐ 0 Revenues from other activities 714 538 TOTAL REVENUES 30,920 30,090 Change in unearned premium reserves net of unearned revenues and fees (1,168) (962) Net investment result excluding financing expenses (b) 7,097 5,925 Technical charges relating to insurance activities (b) (31,288) (29,158) Net result of reinsurance ceded 225 (118) Bank operating expenses ‐ ‐ Insurance acquisition expenses (1,677) (1,969) Amortization of value of purchased life business in force (148) (142) Administrative expenses (1,972) (1,787) Valuation allowances on tangible assets (1) (0) Change in value of goodwill ‐ (6) Other (46) (76) Other operating income and expenses (34,906) (33,256) OPERATING EARNINGS BEFORE TAX 1,943 1,796 Net income from investments in affiliates and associates 13 (1) Financing expenses (45) (50) UNDERLYING EARNINGS BEFORE TAX 1,911 1,745 Income tax expenses (461) (424) Non‐controlling interests (126) (89) UNDERLYING EARNINGS 1,325 1,232 Net realized capital gains or losses attributable to shareholders 8 (178) ADJUSTED EARNINGS 1,333 1,054 Profit or loss on financial assets (under fair value option) & derivatives 291 (646) Exceptional operations (including discontinued operations) (1,547) (27) Goodwill and other related intangible impacts (11) (10) Integration costs ‐ (6) NET INCOME 66 364 (a) Before intercompany transactions. (b) For the periods ended June 30, 2010, June 30, 2009, and December 31, 2009, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €‐2,306 million, € +3,132 million and €+23,861 million, and benefits and claims by the offsetting amounts respectively. Page 18 ________________________________________________________________________________________ (in Euro million) FY 2009 55,954 547 56,501 ‐ 1,176 57,677 (162) 33,058 (79,000) (74) ‐ (4,007) (365) (3,685) (1) ‐ (145) (87,277) 3,295 3 (98) 3,201 (670) (195) 2,336 (73) 2,263 (52) (105) (21) (11) 2,075 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Consolidated Gross Revenues HY 2010 HY 2009 France 7,336 8,033 United States 4,713 5,584 United Kingdom 1,398 1,292 Japan 2,816 2,909 Germany 3,494 3,055 Switzerland 3,643 3,396 Belgium 1,338 1,051 Mediterranean & Latin American Region (a) 4,243 2,958 Other countries 1,938 1,811 TOTAL 30,920 30,090 Intercompany transactions (39) (25) Contribution to consolidated gross revenues 30,881 30,065 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. Underlying, Adjusted earnings and Net Income HY 2010 HY 2009 France 345 264 United States 229 271 United Kingdom 119 133 Japan 150 168 Germany 96 29 Switzerland 117 84 Belgium 80 124 Mediterranean & Latin American Region (a) 67 64 Other countries 122 95 UNDERLYING EARNINGS 1,325 1,232 Net realized capital gains or losses attributable to shareholders 8 (178) ADJUSTED EARNINGS 1,333 1,054 Profit or loss on financial assets (under Fair Value option) & derivatives 291 (646) Exceptional operations (including discontinued operations) (1,547) (27) Goodwill and related intangible impacts (11) (10) Integration costs ‐ (6) NET INCOME 66 364 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. Page 19 ________________________________________________________________________________________ (in Euro million) FY 2009 16,353 9,386 2,783 5,438 6,715 4,442 2,519 6,483 3,557 57,677 (57) 57,620 (in Euro million) FY 2009 470 545 186 211 157 226 231 115 195 2,336 (73) 2,263 (52) (105) (21) (11) 2,075 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – France HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 7 336 681 553 779 316 (1 173) (7) 3 471 (126) (1) 345 (56) 288 (34) ‐ ‐ ‐ 255 8 033 776 448 713 317 (1 082) (24) 3 375 (109) (1) 264 (42) 223 (10) ‐ ‐ ‐ 213 Gross revenues decreased by €697 million (-9%) to €7,336 million3 mainly due to: Individual Savings decreasing by €602 million (-13%) especially on non proprietary network, mainly driven by a lower volume of large contracts (over €1 million premiums) notably on corporate clients, - Group Retirement decreasing by €385 million (-50%), as a consequence of large contracts in 2009, - partly offset by a rise in Protection and Health (€+293 million or +11%), as a result of positive portfolio developments in both Individual and Group businesses. APE decreased by €95 million (-12%) to €681 million: Individual Savings decreased by 13% or €-57 million driven by fewer large contracts (€-28 million) in a context of aggressive competition on rates and a more selective approach focused on profitability notably for Bank partnership channel, Group Retirement decreased by 68% or €-44 million mainly resulting from fewer large contracts, - Protection and Health increased by 2% or €+6 million driven by Group business (+6% or €+11 million) partly offset by Individual business (-8% or €-5 million) mainly due to Health explained by a marketing campaign conducted in 2009 and not repeated in 2010 partly offset by Life driven by positive portfolio development. Investment margin increased by €106 million (+23%) to €553 million mainly as a result of a higher asset base as well as lower investment income allocated to policyholders. Fees & revenues increased by €65 million (+9%) to €779 million mainly due to an increase of loadings on premiums from Group Protection and Health reflecting higher volumes (offset in commissions). Net technical margin decreased by €1 million (0%) to €316 million. Expenses increased by €91 million (+8%) to €-1,173 million driven by higher commissions in Group Protection and Health (€-77 million). 3 €7,326 million after intercompany eliminations. Page 20 ________________________________________________________________________________________ (in Euro million) FY 2009 16 353 1 602 884 1 430 762 (2 318) (77) (0) 680 (208) (1) 470 91 561 281 ‐ ‐ ‐ 842 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Amortization of VBI decreased by €17 million (-72%) to €-7 million due to an update of actuarial assumptions in second half of 2009. As a result, the underlying cost income ratio decreased by 3.3 points to 71.6%. Income tax expenses increased by €16 million (+15%) to €-126 million, driven by higher pre-tax underlying earnings, partly offset by a higher level of non taxable dividends. Underlying earnings increased by €80 million (+30%) to €345 million. Adjusted earnings increased by €65 million (+29%) to €288 million mainly driven by higher underlying earnings. Net income increased by €42 million (+20%) to €255 million reflecting higher adjusted earnings (€+65 million) and the favorable change in fair value of mutual funds and private equity funds (€+78 million), partly offset by the unfavorable change in fair value of freestanding derivatives (€-102 million) mainly driven by spread widening combined with decreasing interest rates. Page 21 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations - United States HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = $ 4,713 505 252 880 (142) (633) (32) ‐ 326 (96) ‐ 229 (25) 204 132 ‐ (1) ‐ 336 1.3278 5,584 576 227 749 317 (913) (14) ‐ 366 (95) ‐ 271 16 287 (418) ‐ (1) ‐ (131) 1.3349 Gross revenues decreased by €871 million (-16%) to €4,713 million. On a comparable basis, gross revenues decreased by €896 million (-16%): Variable Annuity premiums (54% of gross revenues) decreased by 31% reflecting repricing and redesign actions in 2009 of Variable Annuity products. In 2010, Variable Annuity premiums for Q2 were 10% higher than that for Q1, supported by the progressive launch of the new Retirement Cornerstone Variable Annuity. Retirement Cornerstone was introduced in proprietary channels in January, and was released within third- party channels beginning of March, - Life premiums (27% of gross revenues) decreased by 1% primarily reflecting the impact of the removal of certain Universal Life guaranteed features in the first quarter of 2009 partly offset by stronger Term Insurance sales in 2010, - Fees on Asset Management business (7% of gross revenues) increased by 26% driven by higher average separate account balances resulting from equity market increases over the past year, - Mutual funds gross revenues (1% of gross revenues) increased by 29% driven by improved equity market conditions compared to last year. APE decreased by €71 million (-12%) to €505 million. On a comparable basis, APE decreased by €74 million (-13%): - Variable Annuity APE decreased by 38% primarily in the Wholesale channel, reflecting repricing and redesign actions in 2009, - Life APE increased by 4% reflecting increased Term Insurance sales partly offset by the impact of the removal of certain Universal Life guaranteed features in the first quarter of 2009, - Mutual funds APE increased by 52% reflecting higher sales under improved market conditions. Investment margin increased by €25 million (+11%) to €252 million. On a constant exchange rate basis, investment margin increased by €24 million (+10%). Investment income decreased by €8 million reflecting lower revenues on real estate due to the transfer to AXA Financial of the 787 7th Avenue building in the first half of 2009 and lower return on fixed income assets partly offset by higher returns on alternative investments. Interests and bonus credited decreased by €32 million primarily reflecting lower balances and crediting levels. Page 22 ________________________________________________________________________________________ (in Euro million) FY 2009 9,386 994 450 1,554 500 (1,735) (39) ‐ 729 (184) (0) 545 (16) 529 (555) ‐ (1) ‐ (28) 1.3945 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Fees & revenues increased by €131 million (+18%) to €880 million. On a constant exchange rate basis, fees & revenues increased by €127 million (+17%) primarily due to higher fees earned on higher average separate account balances resulting from equity market appreciation compared to last year. Net technical margin decreased by €459 million to €-142 million. On a constant exchange rate basis, net technical margin decreased by €458 million (-144%) primarily due to negative GMxB margins reflecting the non repeat of interest rate hedging gains in 2009 and unfavorable credit spread evolution partly offset by lower volatility cost. Expenses decreased by €280 million (-31%) to €-633 million. On a constant exchange rate basis, expenses decreased by €284 million (-31%): Expenses, net of capitalization (including commissions and DAC capitalization) increased by €14 million primarily due to higher asset based commission expenses partly offset by other expense reductions; and DAC amortization decreased by €298 million, primarily reflecting lower GMxB margins. Amortization of VBI increased by €18 million (+126%) to €-32 million. On a constant exchange rate basis, amortization of VBI increased by €18 million (+124%) reflecting revised projections of future profits. As a result, the underlying cost income ratio improved by 4.6 points to 67.1%. Income tax expenses increased by €2 million (+2%) to €-96 million. On a constant exchange rate basis, income tax expenses increased by €1 million (+1%). The tax expense increase reflects the impact of lower pre-tax underlying earnings more than offset by lower tax benefits. Underlying earnings decreased by €42 million (-15%) to €229 million. On a constant exchange rate basis, underlying earnings decreased by €43 million (-16%). Adjusted earnings decreased by €83 million (-29%) to €204 million. On a constant exchange rate basis, adjusted earnings decreased by €84 million (-29%) reflecting the decrease in underlying earnings and lower realized capital gains on fixed income assets. Net income increased by €467 million to €336 million. On a constant exchange rate basis, net income increased by €465 million. Net income improved due to an increase in the fair value of interest rate hedges (€+221 million) and alternative investments (€+108 million) as well as a lower decrease in the fair value of equity derivatives related to a statutory liability hedge (€+220 million), partly offset by the decrease in adjusted earnings (€-84 million). Page 23 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations - United Kingdom HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = £ 1,398 537 81 327 45 (327) (2) ‐ 125 (6) (0) 119 (11) 108 50 (1,478) (7) ‐ (1,327) 0.8705 1,292 493 67 307 168 (335) (13) ‐ 193 (60) (0) 133 (45) 88 (122) (2) (6) (1) (43) 0.8945 Gross revenues increased by €106 million (+8%) to €1,398 million. On comparable basis, gross revenues increased by €36 million (+3%): - Investment & Savings (75% of gross revenues): • Insurance Premiums (57% of gross revenues) increased by 1% primarily due to higher volumes of Onshore Bond business partly offset by lower volumes on individual pension business, Fees on Investment products (18% of gross revenues) increased by 18%, mainly driven by improved stock market conditions, Life Insurance Premiums (22% of gross revenues) increased by 1% as a result of the growth of the IFA Protection products sales in recent years, partly offset by lower volumes in Creditors, Other revenues (3% of gross revenues) decreased by 18% largely as a result of the prior period restructuring of the advisory business. APE increased by €44 million (+9%) to €537 million. On a constant exchange rate basis, APE increased by €29 million (+6%) primarily due to: Increase in Individual Investment & Savings volumes of €67 million (+28%) largely as a result of the increase in mutual funds sales due to the success of the Elevate platform, Decrease in Group Pension volumes of €42 million (-20%) due to withdrawal from initial commission market and non recurrence of a prior year large scheme, Decrease in Life Risk volumes of €1 million (-2%) reflecting the increasing competition in the Protection market. Investment margin increased by €14 million (22%) to €81 million. On a constant exchange rate basis, investment margin increased by €12 million (18%) primarily due to a €6 million increase in shareholders with-profit bonuses and a €6 million investment return increase on shareholders assets. Fees & revenues increased by €20 million (+6%) to €327 million. On a constant exchange rate basis fees & revenues increased by €11 million (+4%) mainly due to: Page 24 ________________________________________________________________________________________ (in Euro million) FY 2009 2,783 926 133 609 243 (754) (5) ‐ 225 (39) (0) 186 (38) 148 (165) (3) (13) 0 (33) 0.8913 Activity Report ________________________________________________________________________________________________________ Half Year 2010 • A €24 million increase as a result of higher fees on unit-linked balances driven by improved market conditions, A €10 million decrease in loadings as a result of lower volumes of Creditor business offset in commissions. Net technical margin decreased by €122 million to €45 million. On a constant exchange rate basis, net technical margin decreased by €123 million mainly due to: A €165 million non recurring prior year gain from the internal restructuring of an annuity portfolio, • An increase of €11 million due to non recurring reserves release, • A €13 million increase from ongoing technical result of the restructured annuity portfolio. Expenses decreased by €8 million (-3%) to €-327 million. On a constant exchange rate basis expenses decreased by €17 million (-5%) primarily due to: A €46 million decrease due to a non recurring release of policyholder tax reserve, • A €10 million decrease due to lower commissions from lower volumes of Creditor business, • Offset by a €35 million non recurring employee pension scheme curtailment last year. Amortization of VBI decreased by €11 million (-85%) on a current and constant exchange rate basis mainly due to increased expectation of future with-profit bonuses. As a consequence, the underlying cost income ratio increased by 8.2 points to 72.5%. Income tax expenses decreased by €54 million to €-6 million. On a constant exchange rate basis, income tax expenses decreased by €55 million largely driven by lower pre-tax underlying earnings. Underlying earnings decreased by €15 million (-11%) to €119 million. On a constant exchange rate basis, underlying earnings decreased by €18 million (-13%). Adjusted earnings increased by €20 million (+22%) to €108 million. On a constant exchange rate basis, adjusted earnings increased by €17 million (+19%), largely due to a €23 million reduction in impairment charges, and a €12 million reduction in realized losses, offset by the decrease in underlying earnings. Net income decreased by €1,284 million to €-1,327 million. On a constant exchange rate basis, and excluding the €1,478 million provision related to the announced disposal of part of the Life & Savings business, net income increased by €190 million as a result of a €17 million increase in adjusted earnings, a €77 million increase in undiscounted tax adjustment on lower unrealized gains attributable to policyholders in unit-linked life funds4, a €61 million increase on fixed income and equity derivatives and a €34 million increase in relation to foreign exchange movements. 4 Undiscounted deferred tax provided on unit-linked assets while the unit-linked liability reflects the expected timing of the payment of future tax therefore using a discounted basis. Page 25 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – Japan HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Yen 2,816 222 (0) 631 21 (350) (50) ‐ 252 (100) (3) 150 28 178 36 ‐ ‐ ‐ 214 129.1769 2,909 254 (0) 699 74 (445) (45) (1) 282 (111) (3) 168 10 178 (170) ‐ ‐ (2) 7 124.4623 Gross revenues decreased by €93 million (-3%) to €2,816 million. On a comparable basis, revenues slightly increased by €14 million: Protection revenues (36% of gross revenues) decreased by €119 million (-10%) notably impacted by products not actively promoted (Endowment and Whole Life) and lower premiums of Increasing Term products, Investment & Savings revenues (36% of gross revenues) increased by €74 million (+8%) due to significant sales of Variable Annuity products (€+165 million) partly offset by declining revenues in Group Pension, - Health revenues (28% of gross revenues) increased by €59 million (+8%) resulting from a continued in-force growth in Nursing Care products and an improved retention in Medical Whole Life, partly offset by the discontinuation of Cancer product (€-13 million). APE decreased by €32 million (-13%) to €222 million. On a comparable basis and excluding the discontinuation of Cancer product impact (€31 million), APE increased by €8 million (+4%). This was driven by (i) a €14 million increase (+26%) in Investment & Savings to €64 million due to significant sales of Variable Annuity products in advance of the new inheritance tax law enacted (ii) partly offset by a €6 million decrease (-8%) in Health to €66 million driven by lower sales of Medical Whole Life. Protection remained stable at €92 million. Investment margin remained stable at €0 million. Fees & revenues decreased by €68 million (-10%) to €631 million. On a constant exchange rate basis, fees & revenues declined by €44 million (-6%) mainly due to €31 million lower URR (Unearned Revenue Reserve) amortization on Variable Annuity products (fully offset by lower amortization of deferred acquisition costs). Excluding this impact, fees and revenues declined by €13 million (-2%) mainly due to lower in-force of Term products. Net technical margin decreased by €53 million (-72%) to €21 million. On a constant exchange rate basis, net technical margin declined by €53 million (-71%) mainly driven by: Page 26 ________________________________________________________________________________________ (in Euro million) FY 2009 5,438 532 (0) 1,326 16 (851) (178) (2) 311 (97) (4) 211 20 231 191 ‐ ‐ (2) 420 129.6333 Activity Report ________________________________________________________________________________________________________ Half Year 2010 - Surrender margin down €73 million mainly driven by independent agent LINA’s shock lapses, model refinements in 2009 and improved retention, GMxB margin up €23 million reflecting a lower basis risk and improved market conditions. Expenses decreased by €95 million (-21%) to €-350 million. On a constant exchange rate basis, expenses decreased by €81 million (-18%) driven by (i) €68 million lower DAC amortization mainly driven by lower amortization on Variable Annuity products (€34 million offset by lower amortization of URR), lower surrenders and model changes (€37 million), (ii) €18 million lower staff expenses as a result of last year’s early retirement plan. Amortization of VBI increased by €4 million (+10%) to €50 million. On a constant exchange rate basis, VBI amortization increased by €6 million (+14%). As a result, the underlying cost income ratio decreased by 2 points to 61.3%. Income tax expenses decreased by €11 million (-10%) to €-100 million. On a constant exchange rate basis, income tax expenses declined by €7 million (-6%) due to lower pre-tax underlying earnings. Underlying earnings decreased by €18 million (-11%) to €150 million or declined by €12 million (-7%) on a constant exchange rate basis. Adjusted earnings remained flat at €178 million or increased by €7 million (+4%) on a constant exchange rate basis, driven by €12 million lower impairments combined with €7 million higher realized capital gains, partly offset by the €12 million decrease in underlying earnings. Net income increased by €207 million to €214 million. As a reminder, AXA Japan closes its full year accounts at the end of September. In accordance with IFRS principles, full year 2008 accounts were adjusted with a €106 million provisional loss reflecting the increase in credit spreads from October to December 2008. This adjustment was reversed in 2009. On a constant exchange rate basis and excluding the €106 million reversal in 2009, net income increased by €322 million, mainly due to €7 million higher adjusted earnings, in addition to improved market conditions, notably the tightening of credit spreads impact on corporate bonds and CDS investments. Page 27 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – Germany HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,494 247 50 140 41 (87) (5) ‐ 138 (42) (0) 96 (3) 93 27 ‐ ‐ ‐ 120 3,055 218 45 73 (6) (50) (6) ‐ 56 (27) (0) 29 (58) (28) 6 (7) ‐ (2) (30) Gross revenues increased by €439 million (+14%) to €3,494 million5: Life (67% of gross revenues) increased by €388 million (+17%) driven by an increase of single premiums in Investment and Savings business attributable to general account short term investment products and Annuity products; Health (33% of gross revenues) increased by €39 million (+4%) mainly deriving from premium indexation. APE increased by €29 million (+13%) to €247 million. On a comparable basis, APE increased by €16 million (+7%) due to an increase of single premiums in Investment & Savings business attributable to general account short term investment and Annuity products, partly offset by lower Health business in the broker channel. Investment margin increased by €5 million (+11%) to €50 million due to lower investment income allocated to policyholders partly offset by a decreasing investment income from fixed income assets as a result of both seasonality in funds distribution as well as lower yields. Fees & revenues increased by €67 million (+91%) to €140 million due to lower fees and revenues allocated to policyholders. Net technical margin rose by €47 million to €41 million due to lower hedging costs on Variable Annuity products (€+41 million). Expenses increased by €37 million (+75%) to €-87 million due to lower expenses allocated to policyholders partly offset by lower commissions in Health following new business development. Amortization of VBI decreased by €1 million (-13%) to €-5 million. As a result, the underlying cost income ratio decreased by 9.8 points to 40.0%. 5 €3,482 million after intercompany eliminations. Page 28 ________________________________________________________________________________________ (in Euro million) FY 2009 6,715 469 118 302 37 (228) (11) ‐ 218 (61) (0) 157 (145) 12 25 (84) ‐ (3) (50) Activity Report ________________________________________________________________________________________________________ Half Year 2010 Income tax expenses increased by €16 million (+59%) to €-42 million mainly due to higher pre-tax underlying earnings. Underlying earnings increased by €66 million to €96 million due to higher margin on Variable Annuity business (€+45 million) and lower underlying margin allocated to policyholders. Adjusted earnings increased by €121 million to €93 million attributable to higher underlying earnings, lower impairments as well as higher capital gains from equities and fixed income investments. Net income increased by €151 million to €120 million due to higher adjusted earnings, favorable change in fair value of private equity investments and the positive development in interest rate hedging instruments. Page 29 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – Switzerland HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 3,643 179 48 112 104 (93) (20) ‐ 151 (34) ‐ 117 28 146 46 (5) (3) ‐ 184 1.4357 3,396 170 9 101 100 (83) (19) ‐ 108 (24) ‐ 84 (15) 68 (17) (3) (3) ‐ 46 1.5055 Gross revenues increased by €247 million (+7%) to €3,643 million6. On a comparable basis, gross revenues increased by 75 million (+2%): Group Life increased by €69 million (+2%) to €3,303 million mainly due to higher regular premiums (€55 million) reflecting the low level of cancellations at the end of 2009, Individual Life increased by €9 million (+3%) to €340 million as a result of higher single and regular premiums on insurance products (€+7 million) and higher fees on investment products (€+2 million) driven by Twinstar Income Variable Annuity product. APE increased by €9 million (+5%) to € 179 million. On a comparable basis, APE was stable. Investment margin increased by €39 million to €48 million. On a constant exchange rate basis, investment margin increased by €37 million due to lower investment income allocated to policyholders. Fees & revenues increased by €11 million (+11%) to €112 million. On a constant exchange rate basis, fees & revenues increased by €6 million (+6%) mainly due to lower fees & revenues allocated to policyholders. Net technical margin increased by €3 million (+3%) to €104 million. On a constant exchange rate basis, net technical margin decreased by €1 million (-1%). Expenses increased by €10 million (+12%) to €-93 million. On a constant exchange rate basis, expenses increased by €6 million (+7%) mainly resulting from acquisition expenses increase by €5 million (+20%) reflecting volume increase and higher amortization of deferred acquisition costs following higher profits. Amortization of VBI increased by €1 million (+3%) to €-20 million. On a constant exchange rate basis, amortization of VBI was stable. 6 €3,639 million after intercompany eliminations. Page 30 ________________________________________________________________________________________ (in Euro million) FY 2009 4,442 255 92 208 163 (179) (28) ‐ 256 (30) ‐ 226 (1) 225 (19) (16) (5) ‐ 185 1.5096 Activity Report ________________________________________________________________________________________________________ Half Year 2010 As a result, the underlying cost income ratio decreased by 5.9 points to 42.8%. Income tax expenses increased by €10 million (+40%) to €-34 million. On a constant exchange rate basis, income tax expenses increased by €8 million (+33%) driven by higher pre-tax underlying earnings, partly offset by the 1 point lowering of corporate tax rate to 21% in 2010. Underlying earnings increased by €34 million (+40%) to €117 million. On a constant exchange rate basis, underlying earnings increased by €28 million (+34%). Adjusted earnings increased by €77 million (+113%) to €146 million. On a constant exchange rate basis, adjusted earnings increased by €71 million (+104%) driven by higher net realized capital gains mainly on equity securities (€+30 million) and higher underlying earnings. Net income increased by €139 million to €184 million. On a constant exchange rate basis, net income increased by €130 million mainly due to higher adjusted earnings and favorable gains in fair value on interest rate derivatives. Page 31 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – Belgium HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,338 123 125 74 41 (137) (2) ‐ 100 (19) (0) 80 13 93 41 (4) ‐ ‐ 130 1,051 106 112 70 27 (120) ‐ ‐ 89 35 (0) 124 (9) 115 100 ‐ ‐ (2) 213 Gross revenues increased by €287 million (+27%) to €1,338 million7. Individual Life & Savings revenues increased by €277 million (+36%) to 1,043 million stemming mostly from the launch of a new generation of Crest products, Group Life & Savings revenues increased by €10 million (+3%) to €295 million driven by a positive seasonality effect. APE increased by €16 million (+16%) to €123 million. Individual Life & Savings increased by €18 million (+19%) to €115 million mainly driven by Crest products while Group Life & Savings decreased by €2 million. Investment margin increased by €13 million (+11%) to €125 million mainly as a result of higher asset base and a decrease of the average credited rate to policyholders partly offset by a decrease of the investment return mainly due to non-recurring interest arrears received on last year income tax benefit. Fees & revenues increased by €4 million (+5%) to €74 million mainly due to an acceleration of URR (Unearned Revenues reserves) amortization offset by an acceleration of deferred acquisition cost amortization in expenses. Net technical margin increased by €14 million (+53%) to €41 million driven by a favorable mortality and morbidity experience in Individual Life and lower hedging costs on Variable Annuity products. Expenses increased by €17 million (+15%) to €-137 million driven by higher acquisition expenses in line with higher volumes as well as the acceleration of deferred acquisition cost amortization. Amortization of VBI increased by €2 million to €-2 million. As a result, the underlying cost income ratio increased by 0.8 point to 58.3%. 7 €1,337 million after intercompany eliminations. Page 32 ________________________________________________________________________________________ (in Euro million) FY 2009 2,519 264 228 159 95 (256) (0) ‐ 225 6 (0) 231 24 256 188 ‐ ‐ (4) 439 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Income tax expenses increased by €55 million to €-19 million resulting from the 2009 non recurring impact of the favorable court decision for insurance companies on RDT (Revenus Définitivement Taxés: €52 million). Underlying earnings decreased by €44 million (-35%) to €80 million. Excluding the impact of RDT in 2009, underlying earnings increased by €8 million (+11%). Adjusted earnings decreased by €21 million (-19%) to €93 million mainly driven by lower underlying earnings partly offset by higher net realized capital gains mainly on equities. Net income decreased by €83 million (-39%) to €130 million due to less positive marked to market impact driven by credit spread widening partly offset by interest rate decrease. Page 33 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings operations – Mediterranean and Latin American Region HY 2010 HY 2009 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 4,243 322 124 165 49 (217) (11) ‐ 110 (27) (17) 67 21 88 (3) ‐ (0) ‐ 85 2,958 219 111 151 58 (199) (18) ‐ 103 (29) (11) 64 (10) 53 6 ‐ (0) (0) 59 Gross revenues increased by €1,285 million (+43%) to €4,243 million. On a comparable basis, gross revenues increased by €1,283 million (+44%) mainly driven by a strong growth in general account savings products (€1,229 million or +63%) mainly in AXA MPS in Italy (€1,041 million or +71%), reinforced by Antonveneta and a favorable context notably fiscal amnesty until April 2010, and by higher sales of Variable Annuity products (€+110 million). APE increased by €104 million (+47%) to €322 million. On a comparable basis, APE increased by €103 million (+48%) mainly driven by higher contribution of general account savings products (€76 million or +57%) mainly in AXA MPS (€61 million or +78%) reinforced by Antonveneta, by higher sales of Variable Annuity products (€+9 million) mainly in Spain and Group Life business (€11 million or +52%) mainly in Mexico. Investment margin increased by €14 million (+12%) to €124 million. On a constant exchange rate basis, investment margin increased by €13 million (+12%) mainly due to higher level of in-force business despite lower yield mainly on fixed income. Fees & revenues increased by €13 million (+9%) to €165 million. On a constant exchange rate basis, fees & revenues increased by €10 million (+6%) as a result of volume growth in AXA MPS. Net technical margin decreased by €9 million (-16%) to €49 million. On a constant exchange rate basis, net technical margin decreased by €10 million (-17%) due to the release of a risk reserve in Spain in half year 2009 partly offset by more favorable mortality margin. Expenses increased by €18 million (+9%) to €-217 million. On a constant exchange rate basis, expenses increased by €13 million (+7%) reflecting business growth. Amortization of VBI decreased by €7 million (-41%) to €-11 million. On a constant exchange rate basis, amortization of VBI decreased by €8 million (-42%) mainly due to the natural decline of VBI balance in AXA MPS. Page 34 ________________________________________________________________________________________ (in Euro million) FY 2009 6,483 497 225 303 98 (406) (30) ‐ 189 (48) (27) 115 4 119 20 1 (0) (1) 139 Activity Report ________________________________________________________________________________________________________ Half Year 2010 As a result, the underlying cost income ratio decreased by 0.3 point to 67.4 %. On a constant exchange rate basis, underlying cost income ratio decreased by 0.7 point. Income tax expenses decreased by €2 million (-8%) to €-25 million on both current and constant exchange rate basis mainly driven by country mix impact. Underlying earnings increased by €3 million (+5%) to €67 million. On a constant exchange rate basis underlying earnings increased by €3 million (+4%). Adjusted earnings increased by €35 million (+65%) to €88 million. On a constant exchange rate basis, adjusted earnings increased by €34 million (+65%) mainly due to higher realized capital gains and to lower impairments on equities, as well as higher underlying earnings. Net income increased by €26 million (+44%) to €85 million. On a constant exchange rate basis, net income increased by €26 million (+44%) as a result of higher adjusted earnings partly offset by lower interest rates negative impact on derivatives. Page 35 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2010 HY 2009 Australia / New Zealand 811 813 Hong Kong 665 607 Central and Eastern Europe 239 229 Other countries 223 164 o/w Canada 69 56 o/w Luxembourg 43 37 o/w South East Asia (a) 111 70 TOTAL 1,938 1,811 Intercompany transactions (1) (1) Contribution to consolidated gross revenues 1,936 1,810 (a) South East Asia earnings include Indonesia and Singapore. Underlying, Adjusted earnings and Net Income HY 2010 HY 2009 Australia & New Zealand 43 13 Hong Kong 79 76 Central & Eastern Europe 5 8 Other countries (5) (3) o/w Canada 4 2 o/w Luxembourg 3 3 o/w South‐East Asia and China (a) (4) (5) o/w AXA Global Distributors (8) (3) UNDERLYING EARNINGS 122 95 Net realized capital gains or losses attributable to shareholders 13 (25) ADJUSTED EARNINGS 135 69 Profit or loss on financial assets (under Fair Value option) & derivatives (5) (23) Exceptional operations (including discontinued operations) (59) (15) Goodwill and related intangible impacts (1) (1) Integration costs ‐ ‐ NET INCOME 70 30 (a) South East Asia earnings include Indonesia, Thailand, Philippines, Singapore and India. Page 36 ________________________________________________________________________________________ (in Euro million) FY 2009 1,532 1,203 470 352 115 72 164 3,557 (2) 3,555 (in Euro million) FY 2009 46 135 16 (2) 5 5 (2) (9) 195 (12) 183 (17) (3) (2) ‐ 161 Activity Report ________________________________________________________________________________________________________ Half Year 2010 AUSTRALIA AND NEW ZEALAND 8 Gross revenues decreased by €2 million (0%) to €811 million. On a comparable basis, gross revenues decreased by €171 million (-21%): - Gross written premiums and fees (72% of gross revenues) decreased by €187 million (-29%) to €585 million, mainly driven by lower sales of guaranteed savings products (Guaranteed Savings Account, €-175 million), due to lower demand for conservative investment products than last year. Revenues from mutual funds and advice business (28% of gross revenues) increased by €16 million (+10%) to €226 million due to higher funds under management levels resulting from financial market conditions. APE increased by €23 million (+18%) to €153 million. On a comparable basis, APE decreased by €10 million (-7%), mainly due to lower sales of the Guaranteed Savings Account product, and the Variable Annuity product North, partly offset by an increase in AllianceBernstein joint venture sales. Underlying earnings increased by €29 million to €43 million. On a constant exchange rate basis, underlying earnings increased by €21 million. On a 100% ownership basis, the evolution of underlying earnings was as follows: Investment margin increased by €13 million to €16 million. On a constant exchange rate basis, investment margin increased by €9 million due to higher fixed income yield and the restructuring of intercompany loans. Fees & revenues increased by €108 million (+36%) to €408 million. On a constant exchange rate basis, fees & revenues increased by €23 million (+8%) reflecting the growth in average asset balances. Net technical margin rose by €5 million (110%) to €0 million. On a constant exchange rate basis, net technical margin increased by €5 million (108%) predominantly due to improved hedging margin on the Variable Annuity product North and net favorable claims experience across Protection portfolio. Expenses increased by €70 million (+27%) to €-331 million. On a constant exchange rate basis, expenses increased by €1 million (+1%) due to higher commission expenses as a result of higher fees & revenues offset by the non repeat of one-off expenses in 2009 related to Genesys integration costs. Amortization of VBI increased by €3 million (+25%) to €-13 million. On a constant exchange rate basis, amortization of VBI was flat. As a consequence, the underlying cost income ratio decreased by 9.7 points to 81.0%. Income tax expenses decreased by €2 million (-58%) to €-1 million. On a constant exchange rate basis, income tax expenses decreased by €2 million (-67%) due to a one-off tax benefit partly offset by an increase in pre-tax underlying earnings. Adjusted earnings increased by €44 million to €39 million. On a constant exchange rate basis, adjusted earnings increased by €36 million reflecting the increase in underlying earnings and higher net realized capital gains. Net income increased by €57 million to €34 million. On a constant exchange rate basis, net income increased by €50 million due to the increase in adjusted earnings as well as lower unrealized losses on derivatives. 8 AXA interest in AXA Asia Pacific Group is 54.04% broken down into 53.92% direct interest holding and an additional 0.12% owned by the AAPH Executive plan trust. Page 37 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 HONG-KONG9 Gross revenues increased by €58 million (+10%) to €665 million. On a comparable basis, gross revenues increased by €56 million (+9%) due to higher revenues from both Investment and Savings (€+28 million) and Protection (€+28 million) products. APE increased by €11 million (+19%) to €72 million. On a comparable basis, APE increased by €11 million (+18%) due to higher sales of Protection products (€+13 million), partly offset by lower sales of Variables Annuity products (€-3 million). Underlying earnings increased by €3 million (+4%) to €79 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+4%). Excluding a one-off adjustment on VBI amortization in 2009 (€10 million), underlying earnings increased by €13 million (+20%) reflecting in-force portfolio growth and new business sales. Adjusted earnings increased by €23 million (+32%) to €93 million. On a constant exchange rate basis, adjusted earnings increased by €23 million (+32%) due to the increase in underlying earnings and higher realized gains on equity and fixed income assets. Net income increased by €31 million (+50%) to €92 million. On a constant exchange rate basis, net income increased by €31 million (+50%) due to the increase in adjusted earnings and the non repeat of a negative marked to market impact on derivatives in 2009. CENTRAL AND EASTERN EUROPE Gross revenues increased by €10 million (+4%) to €239 million. On a comparable basis, gross revenues decreased by €5 million (-2%) driven by lower Pension Funds revenues in Czech Republic partly offset by the improvement of Traditional Group Life insurance contracts in Poland. APE increased by €41 million (+61%) to €109 million. On a comparable basis, APE increased by €20 million (+25%) driven by Pension funds (€+15 million, +37%) and Life and Savings (€+5 million, +13%) benefiting from a strong performance in unit-linked products. The main country contributing to growth was Poland (€+16 million, +47%) mainly Pension funds, and to a lower extend Hungary (€+6 million, +45%) partly offset by Czech Republic (€-2 million, -6%). Underlying earnings decreased by €3 million (-38%) to €5 million. On a constant exchange rate basis, underlying earnings decreased by €3 million (-41%) due to a reduction in pension funds fees as a result of regulatory changes partly offset by portfolio growth and cost savings. As a result, the underlying cost income ratio increased by 5.6 points to 91.4%. Adjusted earnings decreased by €1 million (-19%) to €5 million. On a constant exchange rate basis, adjusted earnings decreased by €1 million (-22%) as a result of lower underlying earnings partly offset by lower impairment on equity and fixed income securities. Net income decreased by €2 million (-32%) to €4 million. On a constant exchange rate basis, net income decreased by €2 million (-34%) driven by adjusted earnings. CANADA Gross revenues increased by €13 million (+23%) to €69 million. On a comparable basis, gross revenues increased by €3 million (+5%) mainly reflecting growth in Health. 9 AXA interest in AXA Asia Pacific Group is 54.04% broken down into 53.92% direct interest holding and an additional 0.12% owned by the AAPH Executive plan trust. Page 38 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Underlying earnings increased by €2 million (+129%) to €4 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+96%) as a result of lower acquisition costs. Adjusted earnings increased by €4 million (+107%) to €8 million. On a constant exchange rate basis, adjusted earnings increased by €3 million (+77%) driven by higher underlying earnings and realized capital gains. Net income increased by €3 million (+69%) to €7 million. On a constant exchange rate basis, net income increased by €2 million (+45%). SOUTH EAST ASIA AND CHINA Gross revenues increased by €41 million (+59%) to €111 million. On a comparable basis, gross revenues increased by €28 million (+41%) primarily driven by higher unit-linked sales in Indonesia (€16 million) and Singapore (€8 million) as a result of improved market conditions and new products launches. APE increased by €38 million (+95%) to €78 million. On a comparable basis, APE increased by €31 million (+77%) mainly driven by the growth in bancassurance (€+13 million) and tele-marketing (€+5 million) in Indonesia, new products in Thailand (€+5 million) and Group Life in China (€+4 million). Underlying earnings improved by +11% to €-4 million. On a constant exchange rate basis, underlying earnings increased by €1 million (+19%) driven by strong earnings improvement in Indonesia and Thailand (€+6 million), which was partly offset by higher operational losses in India (€-4 million). Adjusted earnings improved by €1 million (+18%) to €-4 million. On a comparable basis, adjusted earnings increased by €1 million (+25%) mainly driven by higher underlying earnings. Net income decreased by €46 million to €-62 million. On a comparable basis, net income decreased by €34 million mainly reflecting residual past losses in India (€-33 million) partly offset by growth in adjusted earnings. AXA GLOBAL DISTRIBUTORS Underlying earnings as well as adjusted earnings and net income amounted to €-8 million as of June 30, 2010 due to initiative set-up costs. Page 39 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment (a) HY 2010 HY 2009 Gross written premiums 15,570 15,033 Fees and revenues from investment contracts without participating feature ‐ ‐ Revenues from insurance activities 15,570 15,033 Net revenues from banking activities ‐ ‐ Revenues from other activities 39 39 TOTAL REVENUES 15,609 15,072 Change in unearned premium reserves net of unearned revenues and fees (2,199) (2,130) Net investment result excluding financing expenses 1,061 1,108 Technical charges relating to insurance activities (9,016) (8,731) Net result of reinsurance ceded (424) (366) Bank operating expenses ‐ ‐ Insurance acquisition expenses (2,366) (2,330) Amortization of value of purchased life business in force ‐ ‐ Administrative expenses (1,361) (1,255) Valuation allowances on tangible assets 0 ‐ Other 7 (3) Other operating income and expenses (13,161) (12,684) OPERATING EARNINGS BEFORE TAX 1,311 1,366 Net income from investments in affiliates and associates 11 16 Financing expenses (2) (3) OPERATING INCOME GROSS OF TAX EXPENSE 1,319 1,379 Income tax expense (378) (372) Non‐controlling interests (18) (21) UNDERLYING EARNINGS 923 986 Net realized capital gains or losses attributable to shareholders 207 (210) ADJUSTED EARNINGS 1,130 775 Profit or loss on financial assets (under fair value option) & derivatives (31) (15) Exceptional operations (including discontinued operations) 5 12 Goodwill and other related intangible impacts (32) (32) Integration costs ‐ (18) NET INCOME 1,072 722 (a) Before intercompany transactions. Page 40 ________________________________________________________________________________________ (in Euro million) FY 2009 26,291 ‐ 26,291 ‐ 77 26,368 (103) 2,068 (17,901) (710) ‐ (4,863) ‐ (2,517) (1) (7) (25,999) 2,334 18 (5) 2,347 (638) (39) 1,670 (264) 1,406 187 32 (64) (46) 1,516 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Consolidated Gross Revenues HY 2010 HY 2009 France 3,229 3,127 United Kingdom & Ireland 2,183 2,086 Germany 2,205 2,228 Belgium 1,154 1,171 Mediterranean & Latin American Region (a) 3,478 3,426 Switzerland 2,030 1,964 Other countries 1,330 1,070 TOTAL 15,609 15,072 Intercompany transactions (215) (153) Contribution to consolidated gross revenues 15,394 14,919 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. Underlying, Adjusted earnings and Net Income HY 2010 HY 2009 France 212 230 United Kingdom & Ireland 72 87 Germany 111 166 Belgium 75 93 Mediterranean & Latin American Region (a) 180 217 Switzerland 180 123 Other countries 92 70 UNDERLYING EARNINGS 923 986 Net realized capital gains or losses attributable to shareholders 207 (210) ADJUSTED EARNINGS 1,130 775 Profit or loss on financial assets (under Fair Value option) & derivatives (31) (15) Exceptional operations (including discontinued operations) 5 12 Goodwill and related intangibles impacts (32) (32) Integration costs ‐ (18) NET INCOME 1,072 722 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. Page 41 ________________________________________________________________________________________ (in Euro million) FY 2009 5,724 3,976 3,527 2,145 6,721 2,161 2,116 26,368 (194) 26,174 (in Euro million) FY 2009 406 100 283 168 326 260 126 1,670 (264) 1,406 187 32 (64) (46) 1,516 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations – France HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,229 80.2% 74.0% 735 25.1% 307 331 (118) ‐ (0) 212 71 284 (23) ‐ ‐ ‐ 260 3,127 85.0% 74.8% 690 24.7% 335 350 (120) ‐ (0) 230 (35) 195 (27) ‐ ‐ ‐ 168 Gross revenues increased by €102 million (+3%) to €3,229 million10. Personal lines (61% of gross revenues) increased by 5% to €1,945 million whereas Commercial lines (39% of gross revenues) were stable at €1,236 million, mainly as a result of tariff increases in all lines of business with limited negative impacts on volumes. Construction was negatively impacted by the slowdown of activity. Net technical result increased by €45 million (+7%) to €735 million: Current accident year loss ratio decreased by 4.8 points to 80.2% reflecting lower Nat Cat charge (-2.1 points, Klaus storm and May hails in 2009 and Xynthia in 2010), 0.7 point lower impact of winter adverse conditions and positive impact from tariff increase, - All accident year loss ratio decreased by 0.8 point to 74.0% as a result of the decrease in current accident year loss ratio partly offset by lower prior year positive reserve developments (+4.0 points). Expense ratio rose by 0.4 point to 25.1% mainly as a consequence of higher IT costs to improve future productivity combined with non recurring expenses. As a result, the combined ratio decreased by 0.3 point to 99.1%. Net investment result decreased by €28 million (-8%) to €307 million mainly explained by a seasonality effect on fixed income funds distribution. Income tax expenses remained stable at €-118 million. Underlying earnings decreased by €18 million (-8%) to €212 million. Adjusted earnings increased by €89 million (+46%) to €284 million as a consequence of €107 million higher net realized capital gains mainly on equities partly offset by lower underlying earnings. Net income increased by €92 million (+55%) to €260 million mainly due to higher adjusted earnings. 10 €3,181 million after intercompany eliminations. Page 42 ________________________________________________________________________________________ (in Euro million) FY 2009 5,724 81.5% 74.2% 1,473 24.9% 600 652 (245) ‐ (1) 406 (26) 380 65 ‐ ‐ ‐ 445 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations - United Kingdom & Ireland HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = £ 2,183 71.6% 70.3% 604 30.8% 104 82 (10) ‐ (0) 72 19 91 (13) ‐ (2) ‐ 75 0.8705 2,086 71.6% 68.9% 616 31.5% 119 113 (26) ‐ (0) 87 (80) 6 1 ‐ (3) ‐ 5 0.8945 Gross revenues increased by €96 million (+5%) to €2,183 million11. On a comparable basis, gross revenues increased by €26 million (+1%): Personal lines (58% of the gross revenues) were up 14% to €1,261 million. Motor was up 34% to €508 million due to the combination of tariff increases in a hardening market and increase in volumes, on both new business and renewals within the UK Direct (both Swiftcover and AXA branded products) and Intermediaries channels together with a strong performance in Northern Ireland. Non-Motor was up 3% to €753 million. Property was up 7% to €287 million following growth in UK Direct (AXA branded products), new schemes launched in second half of 2009 and implementation of tariff increases. Health was up 2% to €300 million reflecting improved retention. Personal Other was down 1% to €166 million mainly reflecting selective underwriting within Travel and Warranty, - Commercial lines (40% of the gross revenues) were down 11% to €881 million. Motor was up 4% to €140 million reflecting new business and tariff increases within the United Kingdom & Ireland. Non-Motor was down 13% following exit from unprofitable schemes and the continuing impact of soft market conditions. Health was down 2% to €356 million reflecting competitive environment on large corporates partly offset by growth in SMEs. Net technical result decreased by €13 million (-2%) to €604 million. On a constant exchange rate basis, net technical result decreased by €27 million (-4%): Current accident year loss ratio was in line with prior year at 71.6% reflecting a higher Nat Cat charge (+0.8 point), increase in both reinsurance covers (+1.2 points) and claims handling costs (+1 point). These increases were offset by further improvements across Commercial lines (-3.1points) driven by the implementation of rate increases, disciplined underwriting and favorable trend on Property large losses, All accident year loss ratio increased by 1.4 points to 70.3% reflecting stable current accident year loss ratio and lower favorable developments in prior year reserves (+1.4 points). 11 €2,125 million after intercompany eliminations. Page 43 ________________________________________________________________________________________ (in Euro million) FY 2009 3,976 74.1% 70.0% 1,202 32.3% 216 127 (26) ‐ (0) 100 (58) 42 7 ‐ (6) ‐ 44 0.8913 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Expense ratio decreased by 0.7 point to 30.8% with an acquisition ratio down 2 points to 22.4%, mainly reflecting a decrease in commissions (-2.4 points) driven by renegotiation of broker commission rates. The administrative expense ratio increased by 1.2 points due to the non repeat of a 2009 positive one off impact on employee pension scheme (+1.8 points) partly offset by cost containment measures. As a result, the combined ratio was up by 0.7 point to 101.1%. Net investment result decreased by €16 million (-13%) to €104 million. On a constant exchange rate basis, net investment result decreased by €18 million (-15%) mainly as a result of lower yields. Income tax expenses decreased by €16 million (-61%) to €-10 million. On a constant exchange rate basis, income tax expenses decreased by €16 million (-62%) principally reflecting lower pre-tax underlying earnings and a €8 million one-off tax benefit. Underlying earnings decreased by €15 million (-17%) to €72 million. On a constant exchange rate basis, underlying earnings decreased by €16 million (-18%). Adjusted earnings increased by €85 million to €91 million. On a constant exchange rate basis, adjusted earnings increased by €83 million. The decrease in underlying earnings was more than offset by €+28 million higher realized capital gains driven by equity (€+24 million) and €71 million lower impairment charges mainly due to fixed income (€+27 million) and equities (€+24 million). Net income increased by €71 million to €75 million. On a constant exchange rate basis, net income increased by €70 million reflecting higher adjusted earnings partly offset by an increase in foreign exchange losses. Page 44 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations – Germany HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 2,205 76.9% 70.4% 519 30.9% 174 152 (42) 1 (0) 111 8 119 29 ‐ ‐ ‐ 148 2,228 77.0% 66.5% 591 30.6% 187 239 (74) 1 (0) 166 (23) 143 (18) 12 ‐ (10) 127 Gross revenues decreased by €23 million (-1%) to €2,205 million12. On a comparable basis, gross revenues decreased by €40 million (-2%): Personal lines (64% of the gross revenues) were down 2% to €1,401 million due to lower net new contracts in Motor as a result of market price pressure and cancellations in Medical Liability partly offset by higher new business in Property and Liability, supported by the packaged product Box Plus. - Commercial lines (30% of the gross revenues) were down 1% to €652 million resulting from a lower insured basis and from cancellations reflecting a more selective underwriting policy in Industrial Liability. - Other lines (6% of the gross revenues) were down 7% to €124 million mainly due to a decrease in assumed legal protection business. Net technical result decreased by €72 million (-12%) to €519 million: Current accident year loss ratio decreased by 0.1 point to 76.9%. Excluding Nat Cat events (Xynthia in 2010), the current accident year loss ratio improved by 1.8 points. - All accident year loss ratio increased by 3.9 points to 70.4% due to lower positive prior year reserve developments. Expense ratio rose by 0.3 point to 30.9% driven by a change in distribution channel compensation schemes. As a result, the combined ratio was up by 4.2 points to 101.3%. Net investment result decreased by €13 million (-7%) to €174 million driven by lower investment income from fixed income assets as a result of both seasonality in funds distribution as well as lower yields. Income tax expenses decreased by €32 million (-44%) to €-42 million mainly due to lower pre-tax underlying earnings. Underlying earnings decreased by €55 million (-33%) to €111 million. 12 €2,177 million after intercompany eliminations. Page 45 ________________________________________________________________________________________ (in Euro million) FY 2009 3,527 76.4% 67.4% 1,148 31.4% 352 397 (112) (0) (1) 283 (105) 179 23 26 ‐ (21) 207 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Adjusted earnings decreased by €24 million (-17%) to €119 million due to decreased underlying earnings partly offset by lower impairments on equity securities. Net income increased by €21 million (+16%) to €148 million mainly due to favorable change in fair value of private equity funds and positive foreign exchange result partly offset by lower adjusted earnings. Page 46 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations – Belgium HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,154 81.2% 66.9% 349 31.6% 100 115 (40) ‐ 0 75 5 80 2 (2) (1) ‐ 79 1,171 80.9% 69.0% 332 30.0% 94 103 (10) ‐ 0 93 (16) 77 21 ‐ (1) (5) 92 Gross revenues decreased by €18 million (-2%) to €1,154 million13: Personal lines (48% of the gross revenues) were up 2% to €562 million driven by Motor (+2%) and Non- Motor (+1%) mainly Property as a result of tariff increases partly offset by portfolio losses, - Commercial lines (50% of the gross revenues) were down 4% to €586 million with Motor down 1% and Non-Motor down 5% mainly due to Workers’ Compensation (-12%) impacted negatively by the prevailing economic context and focus on profitability. Net technical result increased by €17 million (+5%) to €349 million: Current accident year loss ratio increased by 0.3 point to 81.2%. - All accident year loss ratio decreased by 2.1 points to 66.9% due to higher positive prior year reserve developments mainly in Workers’ Compensation. Expense ratio rose by 1.6 points to 31.6% mainly driven by higher administrative expenses (+1.5 points) reflecting early retirement plans and investments to further improve quality of service. As a result, the combined ratio decreased by 0.5 point to 98.5%. Net investment result increased by €6 million (+6%) to €100 million mainly as a result of higher asset base and a favorable change in asset allocation towards fixed income. Income tax expenses increased by €30 million to €-40 million resulting from the 2009 non recurring impact of the favorable court decision for insurance companies on RDT (Revenus Définitivement Taxés: €21 million) and higher pre-tax underlying earnings. Underlying earnings decreased by €18 million (-20%) to €75 million. Adjusted earnings increased by €3 million (+4%) to €80 million as a result of lower impairments mainly on equities, partly offset by lower underlying earnings and lower realized capital gains net of hedging derivatives. 13 €1,138 million after intercompany eliminations. Page 47 ________________________________________________________________________________________ (in Euro million) FY 2009 2,145 82.1% 69.7% 651 30.1% 196 197 (29) ‐ 0 168 (25) 143 62 ‐ (2) (18) 186 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Net income decreased by €13 million (-14%) to €79 million mainly due to unfavorable change in fair value on inflation derivatives partly offset by higher adjusted earnings. Page 48 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations – Mediterranean and Latin American Region HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 3,478 78.0% 72.8% 920 25.1% 209 279 (84) ‐ (15) 180 68 248 (8) (1) (12) ‐ 227 3,426 78.4% 72.2% 929 25.1% 228 317 (82) ‐ (18) 217 (38) 180 5 ‐ (12) (3) 170 Gross revenues increased by €52 million (+2%) to €3,478 million14. On a comparable basis, gross revenues decreased by €38 million (-1%): Personal lines (63% of the gross revenues) were up 2% to €2,210 million mainly driven by Non-Motor (+8%) due to Property (+7%) benefiting from the rebound on bank mortgage loan activity in AXA MPS and in Spain, and Health (+7%) driven by positive volume effect in Mexico, Spain and Turkey. This was partly offset by Motor (-1%) where tariff increases affected net new contracts in Spain (-7%), partly offset by good performance in Turkey (+19%) due to competitive Motor Third Party Liability products, - Commercial lines (35% of the gross revenues) were down 6% to €1,231 million mainly driven by Non- Motor (-6%) reflecting the economic context notably in Liability and Construction, as well as lower new business in Property mainly due to enhanced selection of risks in Mexico. Motor decreased by 4% reflecting the focus on profitable business. Net technical result decreased by €9 million (-1%) to €920 million. On a constant exchange rate basis, net technical result decreased by €27 million (-3%): Current accident year loss ratio decreased by 0.4 point to 78.0%, mainly driven by the focus on profitability on Commercial lines mainly on Motor, partly offset by higher claims frequency in Commercial Health in Spain and Mexico and the higher net impact of Nat Cat events (+0.5 point) notably snowstorm, floods and Xynthia in Spain, cyclone Phet in Oman and floods in Turkey, - All accident year loss ratio increased by 0.5 point to 72.8% mainly due to lower positive prior year reserve developments (0.8 point) mainly on Motor lines, partly offset by lower current accident year loss ratio. Expense ratio was stable at 25.1%. As a result, the combined ratio was up by 0.5 point to 97.9%. 14 €3,438 million after intercompany eliminations. Page 49 ________________________________________________________________________________________ (in Euro million) FY 2009 6,721 79.2% 73.3% 1,796 25.7% 415 482 (124) ‐ (32) 326 (44) 281 22 7 (25) (7) 277 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Net investment result decreased by €19 million (-8%) to €209 million. On a constant exchange rate basis, net investment result decreased by €23 million (-10%) mainly as a result of lower fixed income yield and lower equity dividends. Income tax expenses increased by €3 million (+3%) to €-84 million. On a constant exchange rate basis, income tax expenses increased by €2 million (+2%) mainly driven by a negative one-off impact in Italy in 2010 (€4 million) and a negative country mix. Underlying earnings decreased by €37 million (-17%) to €180 million. On a constant exchange rate basis, underlying earnings decreased by €39 million (-18%). Adjusted earnings increased by €69 million (+38%) to €248 million. On a constant exchange rate basis, adjusted earnings increased by €67 million (+38%) mainly driven by higher net realized capital gains (€+46 million) mainly on equities combined with lower impairments (€+40 million) mainly on equities and mutual funds, partly offset by lower underlying earnings. Net income increased by €58 million (+34%) to €227 million. On a constant exchange rate basis, net income increased by €57 million (+33%) reflecting the increase in adjusted earnings partly offset by the negative change in time value of the equity hedging program (€-10 million). Page 50 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations – Switzerland HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 2,030 75.7% 63.0% 415 25.7% 103 230 (48) ‐ (1) 180 25 206 (15) 8 (13) ‐ 186 1.4357 1,964 79.1% 65.9% 366 28.0% 92 158 (34) ‐ (1) 123 (19) 104 (1) (1) (12) ‐ 90 1.5055 Gross revenues increased by €66 million (+3%) to €2,030 million15. On a comparable basis, gross revenues decreased by €29 million (-2%) mainly due to: Personal lines (51% of the gross revenues) up 1% to €1,031 million driven by Non-Motor mainly due to Property reflecting higher insured sums and positive net new inflows while Motor business remained stable. - Commercial lines (49% of the gross revenues) down 4% to €1,004 million mainly resulting from a focus on profitability. Net technical result increased by €49 million (+13%) to €415 million. On a constant exchange rate basis, net technical result increased by €30 million (+8%): Current accident year loss ratio decreased by 3.4 points to 75.7% mainly driven by the improvements in commercial lines reflecting a selective underwriting policy, - All accident year loss ratio decreased by 2.9 points to 63.0% primarily reflecting the current year loss ratio improvement. Expense ratio decreased by 2.2 points to 25.7% mainly driven by acquisition cost decrease as a result of a change of agents’ commission structure. As a result, the combined ratio decreased by 5.1 points to 88.7%. Net investment result increased by €11 million (+12%) to €103 million. On a constant exchange rate basis, net investment result increased by €6 million (+7%) mainly due to an increase of fixed income return (€12 million) partly offset by lower income from intercompany loans (€9 million) reflecting lower interest rates. Income tax expenses increased by €14 million (+40%) to €-48 million. On a constant exchange rate basis, income tax expenses increased by €11 million (+33%) mainly driven by the higher pre-tax underlying earnings partly offset by the 1 point lower corporate tax rate to 21% in 2010. 15 €2,021 million after intercompany eliminations. Page 51 ________________________________________________________________________________________ (in Euro million) FY 2009 2,161 76.8% 66.3% 726 27.6% 186 316 (54) ‐ (2) 260 (13) 247 5 (1) (25) ‐ 227 1.5096 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Underlying earnings increased by €58 million (+47%) to €180 million. On a constant exchange rate basis, underlying earnings increased by €49 million (+40%). Adjusted earnings increased by €102 million (+98%) to €206 million. On a constant exchange rate basis, adjusted earnings increased by €92 million (+89%) driven by an increase of underlying earnings and higher net realized capital gains on equity securities (€+31 million). Net income increased by €97 million (+108%) to €186 million. On a constant exchange rate basis, net income increased by €88 million (+98%) mainly driven by higher adjusted earnings. Page 52 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Property & Casualty Operations - Other Countries Consolidated Gross Revenues HY 2010 HY 2009 Canada 711 576 Others 619 494 o/w Asia (a) 508 423 o/w Luxembourg 59 58 o/w Central and Eastern Europe 52 13 TOTAL 1,330 1,070 Intercompany transactions (16) (13) Contribution to consolidated gross revenues 1,314 1,057 (a) Includes Hong Kong, Singapore, South Korea, Malaysia and Japan. Underlying, Adjusted earnings and Net Income HY 2010 HY 2009 Canada 80 47 Others 12 23 o/w Asia (a) 3 7 o/w Luxembourg 3 6 o/w Central and Eastern Europe (4) (5) o/w Reso (Russia) 10 15 UNDERLYING EARNINGS 92 70 Net realized capital gains or losses attributable to shareholders 10 1 ADJUSTED EARNINGS 102 71 Profit or loss on financial assets (under Fair Value option) & derivatives (3) 4 Exceptional operations (including discontinued operations) ‐ ‐ Goodwill and related intangibles impacts (4) (4) Integration costs ‐ ‐ NET INCOME 95 71 (a) Includes Hong Kong, Singapore, South Korea, Malaysia and Japan. CANADA Gross revenues increased by €135 million (+23%) to €711 million16. On a comparable basis, gross revenues increased by €31 million (+6%) mainly as a result of higher volumes and increased average premium in personal lines. Underlying earnings increased by €33 million (+69%) to €80 million. On a constant exchange rate basis, underlying earnings increased by €21 million (+45%) reflecting an improvement of combined ratio by 3.9 points to 89.1% mainly as a result of good weather conditions during the winter 2009-2010 and a lower effective income tax rate. Adjusted earnings increased by €43 million (+93%) to €89 million. On a constant exchange rate basis, adjusted earnings increased by €30 million (+65%) due to €21 million higher underlying earnings, €6 million lower impairments and €3 million higher realized capital gains. 16 €702 million after intercompany eliminations. Page 53 ________________________________________________________________________________________ (in Euro million) FY 2009 1,174 941 819 91 31 2,116 (13) 2,103 (in Euro million) FY 2009 87 40 20 12 (10) 18 126 7 133 3 ‐ (6) ‐ 130 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Net income increased by €39 million (+89%) to €83 million. On a constant exchange rate basis, net income increased by €27 million (+61%) as the increase in adjusted earnings was partly offset by €3 million higher foreign exchange losses. ASIA17 Gross revenues increased by €86 million (+20%) to €508 million18. On a comparable basis, gross revenues increased by €31 million (+8%): Personal lines (78% of the gross revenues) were up 6% or €21 million due to €15 million in Motor benefiting from net new inflows in Japan, tariffs increase in Singapore and Malaysia, as well as €4 million increase in Health in South Korea, Commercial lines (21% of the gross revenues) were up 5% or €5 million attributable to Motor (€4 million) in Singapore and Malaysia. Net technical result increased by €12 million (+12%) to €113 million. On a constant exchange rate basis, net technical result increased by €4 million (+4%): Current accident year loss ratio remained flat at 75.6% mainly due to an improvement in Singapore and Hong Kong in Motor, offset by a deterioration in South Korea as a result of higher claims frequency, All accident year loss ratio increased by 1.8 points to 76.3% mainly due to unfavorable prior year reserve developments in Singapore and Malaysia as well as the strengthening of claims handling reserves in Japan and South Korea. Expense ratio decreased by 0.8 point to 24.9% with the acquisition ratio down 0.3 point and the administrative expense ratio down 0.5 point, reflecting a tight expenses control. As a result, the combined ratio was up by 0.9 point to 101.2%. Net investment result increased by €1 million (+8%) to €11 million. On a constant exchange rate basis, net investment result remained stable. Income tax expenses decreased by €1 million (-60%) to €-1 million. On a constant exchange rate basis, income tax expenses decreased by €1 million (-63%) due to lower pre-tax underlying earnings. Underlying earnings decreased by €4 million (-50%) to €3 million. On a constant exchange rate basis, underlying earnings decreased by €4 million (-50%). Adjusted earnings decreased by €5 million (-56%) to €4 million. On a constant exchange rate basis, adjusted earnings decreased by €5 million (-56%) due to lower underlying earnings. Net income decreased by €6 million (-67%) to €3 million. On a constant exchange rate basis, net income decreased by €6 million (-66%) in line with lower adjusted earnings. CENTRAL AND EASTERN EUROPE (POLAND AND UKRAINE) Gross revenues increased by €39 million to €52 million. On a comparable basis, gross revenues increased by €9 million driven by Poland (+36% or €+5 million) with continuing net inflows in Personal Motor (+27,000 in 2010 and +35,000 in 2009) and Ukraine (+17% or €+4 million) mainly in Motor despite a softening market and in Health. Underlying earnings and adjusted earnings increased by €1 million to €-4 million reflecting €1 million higher net technical result. Net income decreased by €2 million to €-4 million. 17 Includes Honk Kong, Singapore, South Korea, Malaysia and Japan. 18 €501 million after intercompany eliminations. Page 54 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 RESO GARANTIA (RUSSIA) Underlying earnings, adjusted earnings and net income decreased by €5 million (-32%) to €10 million. On a constant exchange rate basis, underlying earnings, adjusted earnings and net income decreased by €6 million driven by higher technical result due to both growth and improved loss ratio, more than offset by higher expenses and lower investment result including lower foreign exchange gains. Page 55 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2010 HY 2009 FY 2009 AXA Corporate Solutions Assurance 1,291 1,270 1,946 AXA Global Life and Global P&C (a) 47 58 59 AXA Assistance 459 432 883 Other (b) 53 52 108 TOTAL 1,850 1,813 2,996 Intercompany transactions (88) (82) (136) Contribution to consolidated gross revenues 1,762 1,731 2,860 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2010 HY 2009 FY 2009 AXA Corporate Solutions Assurance 84 48 132 AXA Global Life and Global P&C (a) 13 (3) (3) AXA Assistance 10 8 16 Other (b) 38 69 141 UNDERLYING EARNINGS 144 122 286 Net realized capital gains or losses attributable to shareholders (0) 5 19 ADJUSTED EARNINGS 144 127 306 Profit or loss on financial assets (under Fair Value option) & derivatives 14 (10) 20 Exceptional operations (including discontinued operations) 3 ‐ 1 Goodwill and related intangibles impacts ‐ ‐ (1) Integration costs ‐ ‐ ‐ NET INCOME 161 117 326 (a) Formerly AXA Cessions (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Page 56 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 AXA Corporate Solutions Assurance HY 2010 HY 2009 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,291 85.3% 81.8% 195 14.8% 95 132 (47) ‐ (1) 84 (2) 82 11 ‐ ‐ ‐ 92 1,270 92.2% 88.7% 118 12.8% 96 79 (31) ‐ (1) 48 9 56 (10) ‐ ‐ ‐ 46 Gross revenues increased by €20 million (+2%) to €1,291 million19. On a constant exchange rate basis, gross revenues decreased by €11 million (-1%) mainly due to portfolio selection focused on profitability (Property, Liability, Aviation, Financial lines) partly offset by positive development in Motor (+9%) and Marine (+2%). Tariff increases in all lines of business reached +1% on average. Net technical result increased by €76 million (+65%) to €195 million. On a constant exchange rate basis, net technical result increased by €76 million (+64%): Current accident year loss ratio decreased by 6.9 points to 85.3%. Excluding 2.0 points commissions reclassified from technical margin to expenses in assumed business, current year loss ratio decreased by 4.9 points following a lower level of major losses in Property, portfolio selection focused on profitability and tariff increase impacts. - Prior year technical result increased by €5 million as a result of prior year reserve and premium developments. As a consequence, all accident year loss ratio decreased by 6.9 points to 81.8%. Expense ratio rose by 1.9 points to 14.8%. Excluding reclassified commissions on assumed business from technical margin to expenses, expense ratio was stable at 12.8%. As a result, the combined ratio decreased by 4.9 points to 96.6%. Net investment result was stable at €95 million. Underlying earnings increased by €36 million (+75%) to €84 million. Adjusted earnings increased by €25 million (+45%) to €82 million mainly due to higher underlying earnings partly offset by lower net realized capital gains (€-11 million) mainly on equities. 19 €1,271 million after intercompany eliminations. Page 57 ________________________________________________________________________________________ (in Euro million) FY 2009 1,946 87.2% 84.0% 311 15.0% 186 205 (71) ‐ (2) 132 12 144 16 ‐ ‐ ‐ 160 Activity Report ________________________________________________________________________________________________________ Half Year 2010 Net income increased by €46 million to €92 million. On a constant exchange rate basis, net income increased by €46 million reflecting higher adjusted earnings as well as a positive performance in private equity funds. AXA Global Life and Global P&C20 Underlying earnings increased by €16 million to €13 million reflecting higher positive developments mainly in Group Motor Liability, Group Property pool results which were negatively impacted by Klaus storm in 2009, and in Life internal pool. Net income increased by €16 million to €15 million reflecting higher underlying earnings and positive impact of foreign exchange rates. AXA Assistance Gross revenues increased by €27 million (+6%) to €459 million21. On a comparable basis, gross revenues increased by €18 million (+5%) mainly due to the Travel development offset by the negative impact following the end of a joint venture in Japan and portfolio selection in legal protection. Underlying earnings increased by €1 million (+13%) to €10 million mainly driven by the Travel activity development. Adjusted earnings increased by €2 million (+25%) to €10 million mainly reflecting higher underlying earnings. Net income increased by €6 million to €12 million mainly reflecting higher adjusted earnings and the exceptional capital gain following the end of a joint venture in Japan. Other international activities Underlying earnings decreased by €31 million (-44%) to €38 million. On a constant exchange rate basis, underlying earnings decreased by €32 million (-46%) arising from higher unfavorable reserve developments in Life run-off portfolio driven by adverse market conditions and lower results in Property & Casualty run-off portfolio. Adjusted earnings decreased by €27 million (-40%). On a constant exchange rate basis, adjusted earnings decreased by €28 million (-42%) mainly driven by lower underlying earnings partly offset by lower impairments. Net income decreased by €25 million (-37%). On a constant exchange rate basis, net income decreased by €26 million (-40%) reflecting lower adjusted earnings partly offset by the positive impact of foreign exchange rate on Property & Casualty run-off activities. 20 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to existing Group reinsurance operations. 21 €392 million after intercompany eliminations. Page 58 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2010 HY 2009 FY 2009 AllianceBernstein AXA Investment Managers 1,111 742 967 698 1,973 1,445 TOTAL 1,854 1,664 3,419 Intercompany transactions (183) (161) (344) Contribution to consolidated gross revenues 1,670 1,503 3,074 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2010 HY 2009 FY 2009 AllianceBernstein 71 95 185 AXA Investment Managers 78 81 171 UNDERLYING EARNINGS 150 176 355 Net realized capital gains or losses attributable to shareholders (5) ‐ ‐ ADJUSTED EARNINGS 145 176 355 Profit or loss on financial assets (under Fair Value option) & derivatives (25) 16 49 Exceptional operations (including discontinued operations) 2 (5) 5 Goodwill and related intangibles impacts ‐ ‐ ‐ Integration costs ‐ (0) ‐ NET INCOME 122 187 409 Page 59 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 AllianceBernstein (in Euro million) HY 2010 HY 2009 FY 2009 Gross revenues Net investment result General expenses Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 1,111 (18) (896) 198 (53) (73) 71 ‐ 71 (7) 2 ‐ ‐ 66 967 2 (864) 105 29 (40) 95 ‐ 95 5 (5) ‐ ‐ 95 1,973 22 (1,665) 331 (26) (120) 185 ‐ 185 20 0 ‐ ‐ 205 Assets under Management ("AUM") increased by €28 billion from year-end 2009 to €374 billion at the end of June 2010 driven by €56 billion positive exchange rate impact partly offset by €20 billion market depreciation and net outflows of €8 billion (€9 billion from Institutional Clients, partly offset by €1 billion net inflows from Retail Clients), reflecting a significant sequential slowdown (€8 billion net outflows as of June 30, 2010 vs. €20 billion in the second half of 2009). Gross revenues increased by €145 million (+15%) to €1,111 million22. On a comparable basis, gross revenues increased by €135 million (+15%) driven by higher management fees (+16%) following 12% higher average AUM, distribution fees (+34%) due to higher Retail sales and Institutional Research services (+5%) due to higher transaction charges. Net investment result decreased by €20 million to €-18 million. On a constant exchange rate basis, net investment result decreased by €20 million due to higher realized and unrealized losses on investments related to deferred compensation obligations, offset in general expenses. General expenses increased by €32 million (+4%) to €-896 million. On a constant exchange rate basis, general expenses increased by €27 million (+3%) due to (i) higher employee compensation expenses (+ 3% or €16 million due to higher deferred compensation obligations partly offset by lower salaries) and (ii) higher promotion and servicing expenses (+16% or €26 million) due to higher distribution plan payments (from higher average retail AUM) partly offset by lower amortization of deferred sales commission. As a result, the underlying cost income ratio improved by 8.4 points to 79.6%. Income tax expenses increased by €82 million to €-53 million. On a constant exchange rate basis, income tax expenses increased by €82 million due to the non repeated 2009 one-time tax benefit of €65 million primarily due to a release of reserves relating to the tax treatment of compensation plans. Underlying and adjusted earnings decreased by €23 million (-25%) to €71 million. On a constant exchange rate basis, underlying earnings and adjusted earnings decreased by €24 million (-25%). Excluding the one-time tax benefit of €65 million recorded in 2009, underlying earnings were up €41 million. AXA ownership of AllianceBernstein as of June 30, 2010 was 62.5% compared to 62.2% at December 31, 2009. 22 €1,065 million after intercompany eliminations. Page 60 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Net income decreased by €29 million (-30%) to €66 million. On a constant exchange rate basis, net income decreased by €29 million (-31%) as a result of lower adjusted earnings combined to €12 million unfavorable change in fair value of assets, partly offset by €7 million exceptional operations primarily due to not repeated tax impact from AllianceBernstein unit transfer to AXA Bermuda. Page 61 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 AXA Investment Managers (“AXA IM”) (in Euro million) HY 2010 HY 2009 FY 2009 Gross revenues Net investment result General expenses Underlying earnings before tax Income tax expenses / benefits Non‐controlling interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration costs Net income Group share 742 (4) (601) 137 (51) (8) 78 (5) 74 (18) ‐ ‐ ‐ 56 698 8 (565) 141 (48) (12) 81 ‐ 81 11 ‐ ‐ (0) 92 1,445 (3) (1,158) 284 (87) (26) 171 ‐ 171 29 5 ‐ ‐ 204 Assets under Management ("AUM") increased by €25 billion from year-end 2009 to €524 billion at the end of June 2010 mainly as a result of €21 billion favorable market impact and €21 billion foreign exchange impact, partly offset by €17 billion negative net outflows, of which €21 billion on AXA Rosenberg products partly offset by €3 billion net inflows on fixed income products. Gross revenues increased by €45 million (+6%) to €742 million23. On a comparable basis and excluding distribution fees (retroceded to distributors), net revenues increased by €16 million (+3%) to €536 million mainly due to higher management fees (€+20 million or +4%) driven by higher average AUM (+4%), partly offset by lower performance fees (€-4 million). Net investment result decreased by €12 million to €-4 million both on current and constant exchange rate basis, mainly driven by lower realized carried interests (€-10 million). General expenses increased by €36 million (+6%) to €-601 million. On a constant exchange rate basis and excluding distribution fees, general expenses slightly increased by €9 million (+2%) to €394 million notably as a result of external fees at AXA Rosenberg. As a result, the underlying cost income ratio increased by 1.1 points to 74.2%. Income tax expenses increased by €3 million (+6%) to €-51 million, or by €2 million (+5%) on a constant exchange rate basis, due to lower research tax credit in 2010. Underlying earnings slightly decreased by €2 million (-3%) to €78 million, or by €3 million (-4%) on a constant exchange rate basis as the strong decrease in AXA Rosenberg contribution (€-13 million) was partly offset by higher earnings in most other businesses. Adjusted earnings decreased by €7 million (-9%) to €74 million. On a constant exchange rate basis, adjusted earnings decreased by €8 million (-10%), driven by lower underlying earnings and an impairment charge. Net income decreased by €36 million (-39%) to €56 million. On a constant exchange rate basis, net income decreased by €37 million (-40%), mainly driven by lower adjusted earnings and an unfavorable foreign exchange impact on 23 €605 million after intercompany eliminations. Page 62 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 USD-denominated intercompany debt (€-35 million), partly offset by a positive change in fair value of “Libor plus” funds (€+6 million). Page 63 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2010 HY 2009 FY 2009 AXA Bank Europe entities 237 227 472 o/w Belgium 139 154 301 o/w France 66 49 112 o/w Hungary 29 20 45 o/w Germany 7 4 15 o/w Switzerland (2) (0) (1) o/w Others (a) (1) ‐ (0) Others 3 4 8 TOTAL 241 230 480 Intercompany transactions (23) (35) (85) Contribution to consolidated gross revenues 218 195 395 (a) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2010 HY 2009 FY 2009 AXA Bank Europe entities (19) 17 3 o/w Belgium (5) 33 24 o/w France 1 (2) 0 o/w Hungary (0) (5) (2) o/w Germany (1) (4) (4) o/w Switzerland (5) (4) (11) o/w Others (a) (8) ‐ (3) Others (3) (2) (5) UNDERLYING EARNINGS (22) 15 (2) Net realized capital gains or losses attributable to shareholders 1 (7) (4) ADJUSTED EARNINGS (22) 8 (6) Profit or loss on financial assets (under Fair Value option) & derivatives 2 (10) (8) Exceptional operations (including discontinued operations) ‐ ‐ ‐ Goodwill and related intangibles impacts (0) (0) (0) Integration costs ‐ (1) (4) NET INCOME (20) (3) (17) (a) Includes Slovakia and Czech Republic. Page 64 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 AXA Bank Europe BELGIUM Net banking revenues decreased by €15 million (-10%) to €139 million. On a comparable basis24, net banking revenues decreased by €1 million (-1%) mainly due to a lower net interest and fee income offset by an increase of net capital gains and impairments. Underlying earnings decreased by €39 million to €-5 million mainly due to a lower interest and commission margin (€-31 million) and an increase in expenses (€-11 million including €-5 million related to an early retirement plan) partly offset by lower distribution commissions (€+4 million). Adjusted earnings decreased by €31 million to €-5 million mainly due to the decrease in underlying earnings partly offset by lower impairments on fixed income (€+8 million). Net income decreased by €21 million to €-6 million driven by the decrease in adjusted earnings partly offset by the favorable change in fair value and capital gains on mutual funds and other assets net of derivatives (€+10 million). FRANCE Net banking revenues increased by €16 million (+33%) to €66 million. On a comparable basis24, net banking revenues increased by €17 million (+42%) to €56 million driven by higher interest margin and fees on current account activity and including a positive change in fair value of macro-hedge derivatives on interest rates (€+7 million). Underlying and adjusted earnings increased by €3 million to €1 million, revenues growth being partly offset by €5 million higher administrative expenses resulting from investment program to support future growth. Net income increased by €7 million from €-2 million to €6 million, reflecting higher adjusted earnings and the favorable impact of the change in fair value of macro-hedge derivatives instruments, following long term interest rates decrease. HUNGARY Net banking revenues increased by €9 million (+45%) to €29 million. On a comparable basis24, net banking revenues increased by €3 million (+11%) driven by mortgage loans business. Underlying earnings increased by €5 million to €0 million driven by higher commercial margin partly offset by higher administrative expenses. Adjusted earnings and net income increased by €5 million to €0 million driven by higher underlying earnings. GERMANY Net banking revenues increased by €3 million (+68%) to €7 million. On a comparable basis24, net banking revenues increased by €4 million (+211%) driven by increased commercial margin and improved commission margin following higher fees received from the investment business. Underlying earnings as well as adjusted earnings and net income increased by €3 million to €-1 million driven by higher net banking revenues. 24 In banking segment “on a comparable basis” means after intercompany eliminations. Page 65 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 CZECH REPUBLIC Underlying earnings amounted to €-7 million mainly due to set-up costs driven by launch of the branch at the end of 2009. SWITZERLAND Underlying earnings as well as adjusted earnings and net income decreased by €1 million to €-5 million driven by lower commercial margin. Page 66 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific Holdings, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgium Holdings, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income HY 2010 HY 2009 AXA (251) (251) Other French holdings companies (23) (19) Foreign holdings companies (164) (146) Others (a) 1 2 UNDERLYING EARNINGS (438) (415) Net realized capital gains or losses attributable to shareholders (9) 11 ADJUSTED EARNINGS (447) (404) Profit or loss on financial assets (under Fair Value option) & derivatives 3 331 Exceptional operations (including discontinued operations) (15) 10 Goodwill and related intangibles impacts 0 0 Integration costs 0 0 NET INCOME (458) (63) (a) Includes notably CDOs and real estate entities. AXA25 Underlying earnings remained stable at €-251 million mainly due to an increase in general expenses by €59 million of which a €64 million net provision related to potential losses arising from AXA Rosenberg coding error, partly offset notably by a decrease of financial charges by €54 million mainly driven by lower interest rates. Adjusted earnings decreased by €34 million to €-255 million due to a €+34 million profit recorded in 2009 on macro hedges equity derivatives. Net income decreased by €250 million to €-190 million mainly driven by adjusted earnings evolution and a €-224 million change in the marked to market on interest rate and foreign exchange derivatives instruments which are not eligible to hedge accounting. Other French holding companies AXA France Assurance. Underlying earnings, adjusted earnings and net income increased by €14 million to €-9 million, mainly due to the decrease in income tax expenses (€13 million) resulting from lower intercompany dividends received. 25 All the figures are after tax. Page 67 ________________________________________________________________________________________ (in Euro million) FY 2009 (602) (24) (194) 28 (793) (64) (857) 288 (135) 0 0 (703) Activity Report ________________________________________________________________________________________________________ Half Year 2010 Other French holdings. Underlying earnings decreased by €18 million to €-14 million mainly reflecting €-12 million operational losses in India related to the Property & Casualty activity which is not consolidated. Adjusted earnings decreased by €17 million to €-17 million mainly driven by underlying earnings evolution. Net income decreased by €22 million to €-24 million driven by adjusted earnings evolution and residual past losses in India Property & Casualty operations (€-10 million). Foreign Holding Companies AXA Financial Inc. Underlying earnings decreased by €27 million (-40%) to €-95 million. On a constant exchange rate basis, underlying earnings decreased by €27 million (-39%) primarily due to a €48 million increase in interest expenses related to internal debt restructuring partly offset by higher investment margin as a consequence of 787 7th Avenue building transfer from AXA Equitable in first half of 2009. Adjusted earnings decreased by €27 million (-40%) to €-95 million. On a constant exchange rate basis, adjusted earnings decreased by €27 million (-39%), in line with underlying earnings evolution. Net income decreased by €106 million (-167%) to €-169 million. On a constant exchange rate basis, net income decreased by €105 million (-165%) due to lower adjusted earnings and an unfavorable fair value of a cross currency swap. AXA Asia Pacific Holdings 26 Underlying earnings decreased by €8 million to €-12 million. On a constant exchange rate basis, underlying earnings decreased by €6 million due to the restructuring of intercompany loans, higher Asian corporate expenses, and higher executive share plan costs, partly offset by lower interest expense on lower debt levels. Adjusted earnings decreased by €10 million to €-12 million. On a constant exchange rate basis, adjusted earnings decreased by €8 million mainly due to the decrease in underlying earnings and a non repeat of a realized internal gain on derivatives in 2009. Net income decreased by €13 million to €-12 million. On a constant exchange rate basis, net income decreased by €11 million due to the decrease in underlying earnings combined with foreign exchange losses on USD denominated intercompany debt and costs associated with the probable sale of the Australia & New Zealand operations. AXA UK Holdings Underlying earnings decreased by €5 million (-40%) to €-18 million. On a constant exchange rate basis, underlying earnings decreased by €5 million (-36%) due to a €13 million release of a deferred tax provision in 2009 partly offset by €10 million lower financial charges following a Euro-denominated intercompany debt repayment in July 2009. 26 AXA interest in AXA Asia Pacific Group is 54.04% broken down into 53.92% direct interest holding and an additional 0.12% owned by the AAPH Executive plan trust. Page 68 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Adjusted earnings decreased by €7 million (-57%) to €-20 million. On a constant exchange rate basis, adjusted earnings decreased by €7 million reflecting the decrease in underlying earnings. Net income decreased by €58 million (-134%) to €-15 million. On a constant exchange rate basis, net income decreased by €57 million (-133%) reflecting adjusted earnings evolution together with a significant decrease of €51 million on exchange rate gains following the repayment of a Euro-denominated intercompany debt. German Holding companies Underlying earnings increased by €2 million (+12%) to €-18 million mainly driven by lower administrative expenses partly offset by lower investment results from equities. Adjusted earnings increased by €24 million (+59%) to €-17 million due to the increase of underlying earnings and decrease of impairments by €20 million. Net income increased by €24 million (+59%) to €-17 million in line with adjusted earnings. Belgium Holding companies Underlying earnings increased by €7 million to €5 million reflecting higher income from internal loans set up at the end of March 2009. Adjusted earnings increased by €7 million to €5 million due to higher underlying earnings. Net income increased by €7 million to €5 million due to higher adjusted earnings. Mediterranean and Latin American Region Holdings Underlying earnings increased by €7 million to €-36 million. On a comparable exchange rate basis, underlying earnings increased by €7 million due to lower financial charges driven by lower interest rates. Adjusted earnings increased by €7 million to €-36 million. On a comparable exchange rate basis, adjusted earnings increased by €7 million in line with underlying earnings. Net income increased by €7 million to €-36 million. On a comparable exchange rate basis, net income increased by €7 million in line with adjusted earnings. Other CFP Underlying earnings, adjusted earnings and net income decreased by €1 million (-62%) to €1 million by less favorable run-off developments. Page 69 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Outlook In the first semester of 2010, we implemented active measures to improve margins with a strong focus on new business growth in some selected areas and new business profitability in others, be it on a country or business line level. We also continued to actively manage our portfolio of activities while maintaining our balance sheet strength. AXA’s performance in the first semester of 2010 provides a strong and sustainable basis which, together with an ongoing optimization of our capital allocation and a continued focus on operating efficiency, sharpens our rebound capacity when the economic outlook improves. Page 70 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Glossary COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, related impact on policyholder participation (Life & Savings business), - DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges and foreign exchange impacts related to perpetual debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all Page 71 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: − For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. − For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve– capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Page 72 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loading on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) Active Financial Risk Management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Page 73 ________________________________________________________________________________________ Activity Report ________________________________________________________________________________________________________ Half Year 2010 PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses including distribution revenues) / (gross revenues excluding distribution revenues). Page 74 ________________________________________________________________________________________ Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Consolidated financial statements / June 30, 2010 1 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 TABLE OF CONTENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION ........................................................................ 4 CONSOLIDATED STATEMENT OF INCOME .................................................................................................. 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ............................................................... 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .......................................................................... 8 CONSOLIDATED STATEMENT OF CASH FLOWS ..................................................................................... 10 Note 1 : 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. 1.16. 1.17. 1.18. 1.19. Accounting principles .................................................................................................................................... 12 General information .............................................................................................................................................. 12 General accounting principles ................................................................................................................................ 12 Consolidation ......................................................................................................................................................... 14 Foreign currency translation of financial statements and transactions .................................................................. 17 Segment reporting ................................................................................................................................................. 17 Intangible assets .................................................................................................................................................... 18 Investments from insurance, banking and other activities ..................................................................................... 18 Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ........................ 20 Derivative instruments........................................................................................................................................... 20 Assets / liabilities held for sale and assets / liabilities including discontinued operations ...................................... 21 Cash and cash equivalents ..................................................................................................................................... 21 Share capital and shareholders’ equity .................................................................................................................. 21 Liabilities arising from insurance and investment contracts ................................................................................... 22 Reinsurance: Ceded reinsurance ............................................................................................................................ 25 Financing debts ...................................................................................................................................................... 25 Other liabilities ...................................................................................................................................................... 25 Provisions for risks, charges and contingent liabilities ........................................................................................... 27 Revenue recognition .............................................................................................................................................. 27 Subsequent events ................................................................................................................................................ 28 Note 2 : 2.1. 2.2. Scope of consolidation ................................................................................................................................... 29 Consolidated companies ........................................................................................................................................ 29 Consolidated entities relating to specific operations ............................................................................................. 33 Note 3 : Segmental information .................................................................................................................................. 34 Note 4 : 4.1. 4.2. Assets and liabilities held for sale .................................................................................................................. 37 Australia and New Zealand .................................................................................................................................... 37 United Kingdom ..................................................................................................................................................... 38 Note 5 : 5.1. 5.2. 5.3. 5.4. 5.5. Investments .................................................................................................................................................. 39 Breakdown of investments .................................................................................................................................... 39 Investment in real estate properties ...................................................................................................................... 41 Unrealized gains and losses on financial investments ............................................................................................ 41 Financial assets subject to impairment .................................................................................................................. 42 Financial assets recognized at fair value ................................................................................................................ 43 Note 6 : 6.1. 6.2. 6.3. Shareholders’ equity and non‐controlling interests ........................................................................................ 45 Impact of transactions with shareholders .............................................................................................................. 45 Comprehensive income for the period ................................................................................................................... 47 Change in non‐controlling interests ....................................................................................................................... 49 Note 7 : Financing debt ............................................................................................................................................... 51 2 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 8 : Net income per ordinary share ...................................................................................................................... 52 Note 9 : Subsequent events ........................................................................................................................................ 53 3 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2010 (a) December 31, 2009 Goodwill 17,477 16,469 Value of purchased business in force (b) 3,444 3,617 Deferred acquisition costs and equivalent 19,865 18,789 Other intangible assets 3,214 3,143 Intangible assets 44,000 42,019 Investments in real estate properties 15,327 15,603 Financial investments 374,982 363,768 Loans 27,437 25,199 Assets backing contracts where the financial risk is borne by policyholders (c) 130,306 155,457 5 Investments from insurance activities 548,053 560,027 5 Investments from banking and other activities 9,234 12,323 Investments in associates ‐ Equity method 1,188 1,044 Reinsurers' share in insurance and investment contracts liabilities 11,686 11,320 Tangible assets 1,551 1,458 Other long‐term assets 568 386 Deferred policyholders' participation assets 196 678 Deferred tax assets 5,681 3,709 Other assets 7,996 6,231 Receivables arising from direct insurance and inward reinsurance operations 14,648 12,687 Receivables arising from outward reinsurance operations 1,493 1,116 Receivables arising from banking activities 20,542 18,478 Receivables ‐ current tax 1,566 1,789 Other receivables 14,443 10,094 Receivables 52,693 44,163 4 Assets held for sale including discontinued operations (d) 79,399 11,559 Cash and cash equivalents 23,814 19,565 TOTAL ASSETS 778,063 708,252 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan's balances were translated using June 30, 2010 exchange rates. (b) Amounts gross of tax. (c) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. 4 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 (in Euro million) Notes June 30, 2010 (a) December 31, 2009 Share capital and capital in excess of nominal value 24,331 24,339 Reserves and translation reserve 23,362 18,285 Net consolidated income ‐ Group share (b) 944 3,606 Shareholders’ equity – Group share 48,637 46,229 Non‐controlling interests 4,209 3,693 6 TOTAL SHAREHOLDERS' EQUITY 52,846 49,922 Liabilities arising from insurance contracts 345,465 330,016 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 103,204 103,281 Total liabilities arising from insurance contracts 448,669 433,297 Liabilities arising from investment contracts with discretionary participating features 37,347 39,650 Liabilities arising from investment contracts with no discretionary participating features 869 917 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,190 5,767 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 23,137 46,750 Total liabilities arising from investment contracts 65,542 93,083 Unearned revenue and unearned fee reserves 2,597 2,610 Liabilities arising from policyholders' participation 17,926 16,648 Derivative instruments relating to insurance and investment contracts (1,316) (321) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 533,419 545,317 Provisions for risks and charges 10,921 9,538 Subordinated debt 8,115 6,352 Financing debt instruments issued 2,920 2,937 Financing debt owed to credit institutions 957 921 7 Financing debt (d) 11,992 10,210 Deferred tax liabilities 5,926 4,934 Non‐controlling interests of controlled investment funds and puttable instruments held by non‐controlling interest holders 5,052 6,516 Other debts instruments issued, notes and bank overdrafts (d) 7,756 5,217 Payables arising from direct insurance and inward reinsurance operations 5,998 6,761 Payables arising from outward reinsurance operations 6,009 5,571 Payables arising from banking activities (d) 25,016 22,902 Payables – current tax 1,512 1,314 Derivative instruments relating to other financial liabilities 0 108 Other payables (b) 36,285 30,343 Payables 87,627 78,731 4 Liabilities held for sale including discontinued operations (e) 75,331 9,599 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 778,063 708,252 (a) AXA Japan's balances were translated using June 30, 2010 exchange rates. (b) AXA Japan closes its full year accounts as at September 30. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €‐106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in 2009. No adjustment was booked at the end of September 2009. (c) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Amounts are shown net of related derivative instruments impact. (e) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (in Euro million) June 30, 2010 (a) (b) December 31, 2009 (a) Liabilities arising from insurance contracts where the financial risk is borne by policyholders 103,204 103,281 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,190 5,767 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 23,137 46,750 Total Liabilities arising from contracts where the financial risk is borne by policyholders 130,531 155,797 Liabilities arising from insurance contracts 345,465 330,016 Liabilities arising from investment contracts with discretionary participating features 37,347 39,650 Liabilities arising from investment contracts with no discretionary participating features 869 917 Total Liabilities arising from other insurance and investment contracts 383,680 370,583 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) AXA Japan's balances were translated using June 30, 2010 exchange rates. 5 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 CONSOLIDATED STATEMENT OF INCOME (In Euro million, except EPS in Euro) Notes June 30, 2010 June 30, 2009 Gross written premiums 46,885 45,770 Fees and charges relating to investment contracts with no participating features 292 274 Revenues from insurance activities 47,177 46,044 Net revenues from banking activities 214 192 Revenues from other activities 2,533 2,178 Revenues (a) 49,925 48,414 Change in unearned premiums net of unearned revenues and fees (3,520) (3,279) Net investment income (b) 10,507 5,911 Net realized gains and losses relating to investments at cost and at fair value through OCI (c) 1,159 417 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (d) (1,981) 873 of which change in fair value of assets with financial risk borne by policyholders (e) (2,306) 3,132 Change in investments impairment (f) (541) (1,464) Net investment result excluding financing expenses 9,145 5,737 Technical charges relating to insurance activities (e) (41,686) (38,393) Net result from outward reinsurance (179) (387) Bank operating expenses (50) (54) Acquisition costs (4,312) (4,358) Amortization of the value of purchased business in force (158) (96) Administrative expenses (5,253) (4,990) Change in tangible assets impairment (1) (0) Change in goodwill impairment and other intangible assets impairment (58) (62) Other income and expenses (101) (254) 4 Charges related to the disposal of some UK Life operations (g) (1,478) ‐ Other operating income and expenses (53,276) (48,595) Income from operating activities before tax 2,274 2,278 Income arising from investments in associates ‐ Equity method 23 (13) Financing debts expenses (h) (219) (250) Net income from operating activities before tax 2,078 2,015 Income tax (936) (572) Net operating income 1,141 1,443 Result from discontinued operations net of tax ‐ ‐ Net consolidated income after tax 1,141 1,443 Split between : Net consolidated income ‐ Group share 944 1,323 Net consolidated income ‐ Non‐controlling interests 198 121 8 Earnings per share (i) & (j) 0.35 0.56 Fully diluted earnings per share (i) & (j) 0.35 0.56 (a) Gross of reinsurance. (b) Net of investment management costs. (c) Includes impairment releases on investments sold. (d) AXA Japan closes its full year accounts as at September 30. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €‐106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in 2009. No adjustment was booked at the end of September 2009. (e) Offset by a balancing entry in technical charges related to insurance activities. (f) Excludes impairment releases on investments sold. (g) As announced on June 24, 2010, the closing is expected to take place in the third quarter of 2010. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (i) Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.3 million shares as at June 30, 2009. (j) Revised net income EPS takes into account interest payments related to undated subordinated debts classified in equity, excluding FOREX impacts. Previously disclosed EPS included FOREX adjustments and, as at June 30, 2009, basic net income EPS amounted to €0.50 and fully diluted net income EPS to €0.50. Excluding FOREX reflects implemented hedges which would qualify as net investment hedges with related changes in fair value recognised through translation reserves. 6 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2010 (a) June 30, 2009 Reserves relating to changes in fair value through shareholders' equity 1,310 953 Translation reserves 2,025 390 Employee benefits actuarial gains and losses (496) (439) Net gains and losses recognized directly through shareholders' equity 2,839 904 Net consolidated income 1,141 1,443 Total Comprehensive Income (CI) 3,980 2,347 Split between : CI - Group share 3,268 2,135 CI - Non-controlling interests 712 212 (a) AXA Japan's balances were translated using June 30, 2010 exchange rates. 7 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Shareholders' equity as at January 1, 2010 2,289,965 2.29 5,244 19,886 (505) 4,691 61 Capital 33 2.29 0 ‐ ‐ ‐ ‐ Capital in excess of nominal value ‐ ‐ ‐ (18) ‐ ‐ ‐ Equity ‐ share based compensation ‐ ‐ ‐ 23 ‐ ‐ ‐ Change in scope or method of consolidation (b) ‐ ‐ ‐ ‐ ‐ 0 0 Treasury shares ‐ ‐ ‐ ‐ (13) ‐ ‐ Equity component of compound financial instruments ‐ ‐ ‐ ‐ ‐ ‐ ‐ Undated subordinated debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ Accrued interests ‐ Undated subordinated debt ‐ ‐ ‐ ‐ ‐ ‐ Other ‐ ‐ ‐ ‐ ‐ ‐ ‐ Dividends paid ‐ ‐ ‐ ‐ ‐ ‐ ‐ Impact of transactions with shareholders 33 2.29 0 5 (13) 0 0 Reserves relating to changes in fair value through shareholders' equity ‐ ‐ ‐ ‐ ‐ 1,177 22 Translation reserves ‐ ‐ ‐ ‐ ‐ ‐ ‐ Employee benefits actuarial gains and losses through CI ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net consolidated income ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total Comprehensive Income (CI) ‐ ‐ ‐ ‐ ‐ 1,177 22 Shareholders' equity closing June 30, 2010 2,289,998 2.29 5,244 19,891 (517) 5,868 82 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see note 6.1.1.c). (b) Including changes in ownership interest in consolidated subsidiaries without losing control. 8 Other reserves Reserves relating to revaluation of tangible assets Other (a) 4 6,208 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 502 ‐ (155) ‐ ‐ ‐ ‐ ‐ 347 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4 6,556 (In Euro million, except for number of shares and nominal value) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Non‐controlling interests (2,742) 13,383 46,229 3,693 ‐ ‐ 0 ‐ ‐ ‐ (18) ‐ ‐ ‐ 23 ‐ 0 ‐ 0 51 ‐ ‐ (13) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 502 ‐ ‐ ‐ (155) ‐ 0 60 60 (243) ‐ (1,259) (1,259) ‐ 0 (1,200) (860) (196) ‐ ‐ 1,199 111 1,613 ‐ 1,613 412 ‐ (487) (487) (10) ‐ 944 944 198 1,613 457 3,268 712 (1,129) 12,640 48,637 4,209 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Attributable to shareholders Share Capital Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Shareholders' equity opening January 1, 2009 2,089,157 2.29 4,784 17,840 (547) (353) 100 Capital 17 2.29 0 ‐ ‐ ‐ ‐ Capital in excess of nominal value ‐ ‐ ‐ (14) ‐ ‐ ‐ Equity ‐ share based compensation ‐ ‐ ‐ 38 ‐ ‐ ‐ Change in scope or method of consolidation ‐ ‐ ‐ ‐ ‐ (0) ‐ Treasury shares ‐ ‐ ‐ ‐ 26 ‐ ‐ Equity component of compound financial instruments ‐ ‐ ‐ ‐ ‐ ‐ ‐ Undated subordinated debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ Accrued interests ‐ Undated subordinated debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ Other ‐ ‐ ‐ ‐ ‐ ‐ ‐ Dividends paid ‐ ‐ ‐ ‐ ‐ ‐ ‐ Impact of transactions with shareholders 17 2.29 0 24 26 (0) ‐ Reserves relating to changes in fair value through shareholders' equity ‐ ‐ ‐ ‐ ‐ 963 (66) Translation reserves ‐ ‐ ‐ ‐ ‐ ‐ ‐ Employee benefits actuarial gains and losses through CI ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net consolidated income ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total Comprehensive Income (CI) ‐ ‐ ‐ ‐ ‐ 963 (66) Shareholders' equity closing June 30, 2009 2,089,175 2.29 4,784 17,864 (521) 610 34 NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see note 6.1.2.c). 9 Other reserves Reserves relating to revaluation of tangible assets Other (a) 4 6,500 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 87 ‐ (149) ‐ ‐ ‐ ‐ ‐ (62) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4 6,438 (In Euro million, except for number of shares and nominal value) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Non‐controlling interests (2,712) 11,824 37,440 3,058 ‐ ‐ 0 ‐ ‐ ‐ (14) ‐ ‐ ‐ 38 ‐ (0) 0 ‐ 170 ‐ ‐ 26 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 87 ‐ ‐ ‐ (149) ‐ 0 84 84 (60) ‐ (836) (836) ‐ (0) (752) (764) 109 ‐ ‐ 897 56 358 ‐ 358 32 ‐ (442) (442) 3 ‐ 1,323 1,323 121 358 881 2,135 212 (2,354) 11,953 38,811 3,380 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2010 June 30, 2009 Operating income before tax 2,078 2,015 Net amortization expense (a) 273 294 Change in goodwill impairment and other intangible assets impairment (c) 58 62 Charges related to the disposal of some UK Life operations (m) 1,478 ‐ Net change in deferred acquisition costs and equivalent (777) (600) Net increase / (write back) in impairment on investments, tangible and other intangible assets 542 1,469 Change in fair value of investments at fair value through profit or loss (k) 1,209 (1,389) Net change in liabilities arising from insurance and investment contracts (b) 10,542 7,773 Net increase / (write back) in other provisions (d) 49 (28) Income arising from investments in associates – Equity method (23) 13 Adjustment of non cash balances included in the operating income before tax 13,351 7,593 Net realized investment gains and losses (704) 1,359 Financing debt expenses 219 250 Adjustment for reclassification to investing or financing activities (484) 1,609 Dividends recorded in profit or loss during the period (643) (664) Investment income & expense recorded in profit or loss during the period (10,305) (5,846) Adjustment of transactions from accrued to cash basis (10,948) (6,510) Net cash impact of deposit accounting (110) 121 Dividends and interim dividends collected 1,170 658 Investment income 10,953 7,187 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (559) (659) Change in operating receivables and payables (e) 1,884 (2,263) Net cash provided by other assets and liabilities (g) (5,070) 238 Tax expenses paid (91) 248 Other operating cash impact and non cash adjustment (1,242) 380 Net cash impact of transactions with cash impact not included in the operating income before tax 6,934 5,910 Net cash provided / (used) by operating activities 10,931 10,617 Purchase of subsidiaries and affiliated companies, net of cash acquired (35) (192) Disposal of subsidiaries and affiliated companies, net of cash ceded 25 (0) Net cash related to changes in scope of consolidation (10) (193) Sales of debt instruments (g) 49,068 29,008 Sales of equity instruments and non controlled investment funds (f) (g) 9,136 7,425 Sales of investment properties held directly or not (g) 266 173 Sales and/or repayment of loans and other assets (g) (h) 21,692 19,611 Net cash related to sales and repayments of investments (f) (g) (h) 80,161 56,217 Purchases of debt instruments (g) (59,829) (36,098) Purchases of equity instruments and non controlled investment funds (f) (g) (9,646) (6,401) Purchases of investment properties held direct or not (g) (148) (532) Purchases and/or issues of loans and other assets (g) (h) (23,520) (18,561) Net cash related to purchases and issuance of investments (f) (g) (h) (93,143) (61,592) Sales of tangible and intangible assets (6) 4 Purchases of tangible and intangible assets (154) (153) Net cash related to sales and purchases of tangible and intangible assets (160) (149) Increase in collateral payable / Decrease in collateral receivable 14,389 5,641 Decrease in collateral payable / Increase in collateral receivable (13,116) (11,634) Net cash impact of assets lending / borrowing collateral receivables and payables 1,273 (5,994) Other investing cash impact and non cash adjustment (79) (340) Net cash provided / (used) by investing activities (11,958) (12,051) Issuance of equity instruments 27 254 Repayments of equity instruments (69) (132) Transactions on treasury shares (24) (106) Dividends payout (1,472) (929) Interests on undated subordinated debts paid (117) (120) Net cash related to transactions with shareholders (1,654) (1,033) Cash provided by financial debts issuance 3,673 1,047 Cash used for financial debts repayments (268) (3,561) Interests on financing debt paid (i) (295) (276) Net cash related to Group financing 3,110 (2,790) Other financing cash impact and non cash adjustment 38 (30) Net cash provided / (used) by financing activities 1,493 (3,853) 10 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Net cash provided by discontinued operations ‐ ‐ Cash and cash equivalent as at January 1 (j) 18,210 30,811 Net cash provided by operating activities 10,931 10,617 Net cash provided by investing activities (11,958) (12,051) Net cash provided by financing activities 1,493 (3,853) Net cash provided by discontinued operations ‐ ‐ Cash related to the disposal of some UK Life operations reclassified as held for sale (m) & (l) (1,167) Impact of change in consolidation method 47 3 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (l) 4,479 (252) Cash and cash equivalent as at June 30 (j) 22,035 25,277 (a) Includes premium/discount capitalization and relating amortization, amortization of investment and owner occupied properties (held directly). (b) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (c) Includes impairment and amortization of intangible assets booked during business combinations. (d) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (e) Includes impact of asset lending / borrowing and equivalent relating to banking activities. (f) Includes equity instruments held directly or by controlled investment funds as well as non controlled investment funds. (g) Includes related derivatives. (h) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (i) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (j) Net of bank overdrafts. (k) AXA Japan closes its full year accounts as at September 30. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognized with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €‐106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in 2009. No adjustment was booked at the end of September in 2009. (l) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (m) As announced on June 24, 2010, the closing is expected to take place in the third quarter of 2010. (in Euro million) June 30, 2010 June 30, 2009 (a) Cash and cash equivalents as at December 31 23,814 26,563 Bank overdrafts (b) (1,780) (1,286) Net cash and cash equivalents as at June 30 (c) 22,035 25,277 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Included in "Other debt instruments issued and bank overdrafts". (c) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see note 1.7.2). The "Cash and cash equivalents" item in the statement of consolidated cash flows excludes cash backing contracts where the financial risk is borne by policyholders (unit‐linked contracts). 11 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia-Pacific. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the interim consolidated financial statements. AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, • Asset Management, • Banking. AXA is listed on the Paris stock exchange’s Euronext market and had been listed since June 25, 1996 on the New York Stock Exchange (NYSE). On January 25, 2010, AXA announced its intention to voluntarily delist its American Depositary Shares (ADS) from the NYSE and to voluntarily deregister with the U.S. Securities and Exchange Commission (SEC). AXA’s delisting from the NYSE became effective on March 26, 2010. AXA filed its Form 15F to deregister with the SEC on March 26, 2010 and its deregistration with the SEC became effective 90 days thereafter on June 25, 2010. On April 29, 2010, the Shareholders' meeting approved the replacement of AXA's dual board structure (Supervisory Board and Management Board) with an unitary board structure in the form of a Board of Directors. Thus, these interim consolidated financial statements including all notes were approved by the Board of Directors on August 3, 2010. 1.2. General accounting principles 1.2.1 Basis for preparation AXA’s interim consolidated financial statements are prepared as at June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half year end. The interim consolidated financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and IFRIC interpretations that are definitive and effective as at June 30, 2010, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009 has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated financial statements also comply with IFRSs as issued by the International Accounting Standards Board (IASB). Amendments to standards and Interpretations published and adopted on January 1, 2010 The application of the following standards, amendments to standards and interpretations as at January 1, 2010, had no significant impact on the Group’s consolidated financial statements: Eligible Hedged Items (an amendment to IAS 39 Financial Instruments: Recognition and Measurement), published on July 31, 2008, clarifies how the existing principles underlying hedge accounting should be applied. Additional guidance is given to illustrate how hedge accounting should be applied in (a) a one-sided risk in a hedge item, and (b) inflation in a financial hedged item. IFRIC 17 – Distribution of Non-cash Assets to Owners, published on November 27, 2008, provides guidance on how an entity should measure distribution of assets other than cash when it pays dividends to its owners. The interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. The guidance is applied prospectively to distributions after the adoption date. 12 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 The Improvements to IFRSs, published on April 16, 2009, includes amendments that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They involve accounting changes for presentation, recognition or measurement purposes and terminology or editorial changes with minimal effect on accounting. Standards and amendments early adopted in the 2009 annual consolidated financial statements Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, published on January 10, 2008 and effective for financial years beginning on or after July 1, 2009 with earlier adoption permitted, represent the second phase of the IASB business combination project. In the context of its 2009 annual consolidated financial statements, the Group decided to early adopt it from January 1, 2009. The decision was not yet taken for the interim consolidated financial statements at June 30, 2009. Revised IFRS 3 introduces a number of changes in the accounting of business combinations that can impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. These new principles are detailed in § 1.3.2.. From 2009 annual consolidated financial statements, the changes apply prospectively for combinations (including step acquisition transactions) on or after January 1, 2009. Additionally, from 2009 annual consolidated financial statements, the new rules regarding the accounting for additional purchases and sales of non-controlling interests in a controlled subsidiary and the treatment of realizable deferred taxes subsequent to acquisition date are effective for transactions occurring after January 1, 2009 (even if the related original business combination was prior to that date). Standards and interpretations published but not yet effective Revised IAS 24 – Related party disclosures, published on November 4, 2009 and effective for annual periods beginning on or after January 1, 2011, with earlier application permitted, simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. These changes are not expected to have a significant impact on the Group’s consolidated financial statements. IFRIC 19 – Extinguishing financial liabilities with equity instruments, published on November 26, 2009 and effective for financial years beginning on or after July 1, 2010, with earlier application permitted, clarifies the requirements when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. This interpretation is not expected to have a significant impact on the Group’s consolidated financial statements. IFRS 9 - Financial instruments, published on November 12, 2009 and applicable to the Group from January 1, 2013 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting), its method of enforcement and its impact are currently being examined within the Group. The Improvements to IFRSs, published on May 6, 2010, includes amendments that will not be part of another major project. They are presented in a single document rather than as a series of piecemeal changes. They are generally applicable from January 1, 2011 unless otherwise specified. These amendments are not expected to have a significant impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of 13 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2 First time adoption of IFRS The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date is January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: • (transition to IFRS), and • reclassified into goodwill. goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was As a result, the goodwill gross value represents the gross value of these goodwills net of cumulated amortization recognized in French GAAP as at December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as at January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as at January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27 / SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. 14 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27 / SIC 12 listed above they satisfy. For fully consolidated investment funds, non-controlling interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 1.3.2. Business combinations and subsequent changes in the Group ownership interest In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, the principles described below are those that apply from the 2009 annual consolidated financial statements (the decision of early adoption was not yet taken for the interim consolidated financial statements at June 30, 2009) for transactions occurring after January 1, 2009. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate 15 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously non-controlling interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a change in the previous recognized amount of goodwill). According to a decision taken for each acquisition, any non-controlling interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of non-controlling interests in a controlled subsidiary Purchase and sale transactions of non-controlling interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over non-controlling interests When control over a subsidiary is acquired, a put option may be granted to non-controlling shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, and since IFRIC’s Agenda Committee decided in 2006 not to take any position on the accounting treatment of these transactions, the Group’s method is (i) to reclassify non-controlling interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer or risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. 16 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: • • The effect on net income of transactions between consolidated entities is always eliminated, except for permanent losses, which are maintained. in full for controlled subsidiaries, and; to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the balance sheet. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in non-controlling interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: • assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; • revenues and expenses are translated at the average exchange rates over the period; • all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step-by-step consolidation method (IFRIC 16). 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. 17 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Other intangible assets Other intangible assets include softwares developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations, provided that their fair value can be measured reliably and it is probable that future economic benefits attributable to the assets will benefit to the Group. If these assets have a finite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 18 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from “with-profit” contracts) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from: • contracts where the financial risk is borne by policyholders, • “with-profit” contracts where dividends are based on real estate assets, is recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: • assets held to maturity, accounted for at amortized cost; • loans and receivables (including unquoted debt instruments) accounted for at amortized cost; • assets held for trading and assets designated as at fair value with change in fair value through profit or loss; • available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: • financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: – assets backing liabilities arising from contracts where the financial risk is borne by policyholders; – assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; – debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); • portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: • either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; • or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. 19 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local ALM strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative 20 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed significant. For balance sheet presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the balance sheet and income statement are provided in the notes to the consolidated financial statements. 1.11. Cash and cash equivalents Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. 1.12. Share capital and shareholders’ equity 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debts Undated subordinated debts and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend). 21 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. Liabilities arising from insurance and investment contracts 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: • they are likely to represent a significant portion of the overall contractual benefits; • their amount or timing is contractually at the discretion of the Group; and • they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: • liabilities arising from insurance contracts, • liabilities arising from insurance contracts where the financial risk is borne by policyholders, • liabilities arising from investment contracts with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features, • liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where IAS 39 applies. The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: • Reserves must be sufficient, 22 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield, • Acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts, • Claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. Pre-claims reserves Unearned premium reserves represent the prorated portion of written premiums that relates to unexpired risks at the balance sheet date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Additional reserves are booked if there are any adverse impacts on reserves level caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. The “Fund for Future Appropriation” (FFA) relating to UK with-profit contracts principally covers future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profit contracts and the FFA varies in line with the market value of the assets supporting the participating with-profit funds. Technical reserves are measured on a “realistic” basis in accordance with UK accounting standard FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts. Liabilities within the UK with-profit funds are supported by assets designated as investments at fair value through profit or loss. When liabilities are transferred out of the UK with-profit fund along with the supporting assets, the group is not permitted to reclassify the assets as available for sale assets, which would represent the relevant category to match the traditional valuation of non profits UK liabilities. These assets instead retain their previous designation of fair value through profit and loss. In order to minimize the accounting mismatch between liabilities and supporting assets, the Group has elected to use the option allowed under IFRS 4.24 to re-measure its provision. This revaluation is carried out at each reporting date based on guarantee benefit projections and takes into account interest rates and other market assumptions. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. Post claims reserves Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. 23 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see section 1.6.4). Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where minimum are set to respectively 90%, 90% and 85% of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less developed in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation liability or asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business, they include projections of future investments sales according to estimated surrender patterns, and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. 24 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Depending on the type of business, the future investment cash flows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI) to a reserve directly by discounting the cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with deferred origination costs (see section 1.6.4). Unearned fees reserves Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs (see section 1.6.4). 1.14. Reinsurance: Ceded reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. Financing debts Financing debts issued to finance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specific balance sheet aggregate. 1.16. Other liabilities 1.16.1. Income taxes The half-year income tax charge is based on the best estimate of the expected full-year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carryforwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. 25 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Comprehensive Income) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefits on the date of a change in the amount of benefits following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period. The impact in the income statement mainly relates to the service cost (annually accruing employee benefit) and the interest cost (unwinding of discount applied to the liability), reduced by the expected return on assets dedicated to the plan. Past service costs, settlements and curtailments also have an impact in the income statement. 1.16.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as at January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged option. The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 26 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 1.17. Provisions for risks, charges and contingent liabilities 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.18. Revenue recognition 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: • the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, • claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: • the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); • the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 27 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 1.18.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premium reserve reported as a liability (see “Unearned premium reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.13.2) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: • insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, • commissions received and fees for services relating to asset management activities, and • rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half-year policyholders’ participation charge is based on the best estimate of the planned full-year distribution rate for each portfolio of contracts at each Group entity level. 1.18.9. Net investment result excluding financing expenses The net investment result includes: • investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, • investment management expenses (excludes financing debt expenses), • realized investment gains and losses net of releases of impairment following sales, • the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, • the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see section 1.18.6). Any gain or loss arising from a decrease in AXA’s ownership interest in a consolidated entity is recorded in the net investment result, to the extent it does not result from an internal restructuring within the Group. The gain or loss corresponds to the change in AXA’s share of the subsidiary’s shareholders’ equity before and after the subsidiary equity transaction. 1.19. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: • such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, • such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. 28 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2010 December 31, 2009 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA China 100.00 77.48 100.00 77.50 AXA France Assurance 100.00 100.00 100.00 100.00 Colisée Excellence 100.00 100.00 100.00 100.00 AXA Participations II 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 100.00 99.99 100.00 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.99 100.00 99.99 AXA UK Plc 100.00 99.99 100.00 99.99 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd (a) 100.00 54.04 100.00 54.07 AXA Financial Services (Singapore) (a) 100.00 54.04 100.00 54.07 AXA Asia Pacific Holdings Ltd (b) 54.08 54.04 54.08 54.07 AXA India Holding 100.00 77.02 100.00 77.04 Japan AXA Japan Holding 98.40 98.40 98.40 98.40 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG DBV‐Winterthur Holding AG WinCom Versicherungs‐Holding AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Winterthur Beteiligungs‐Gesellschaft mbH 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 Finance Solutions SARL 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Spain (MedLA) (c) AXA Mediterranean Holding SA 100.00 100.00 100.00 100.00 Italy (MedLA) (c) AXA Italia SpA 100.00 100.00 100.00 100.00 Morocco (MedLA) (c) AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 Turkey (MedLA) (c) AXA Turkey Holding A.S. 100.00 100.00 100.00 100.00 (a) Wholly owned by AXA Asia Pacific Holdings Limited. (b) AXA interest in AXA Asia Pacific Holding Ltd is 54.04% broken down into 53.92% direct interest holding and an additional 0.12% owned by the AAPH executive plan trust. (c) "MedLA" country is part of the Mediterranean and Latin American Region. 29 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 June 30, 2010 December 31, 2009 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA France Iard Avanssur (formerly Direct Assurances Iard) AXA France Vie AXA Protection Juridique 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 United States AXA Equitable Life Insurance Company Mony Life Insurance Company AXA Financial (Bermuda) Ltd 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Canada AXA Canada Inc. (sub group including Citadel) 100.00 100.00 100.00 100.00 United Kingdom AXA Insurance Plc AXA Sun Life Plc AXA PPP Healthcare Limited Bluefin Advisory Services Limited Winterthur Life UK Limited 100.00 100.00 100.00 100.00 100.00 99.99 99.99 99.99 99.99 99.99 100.00 100.00 100.00 100.00 100.00 99.99 99.99 99.99 99.99 99.99 Ireland AXA Insurance Limited AXA Life Europe 100.00 100.00 99.99 100.00 100.00 100.00 99.99 100.00 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore (a) AXA Australia New Zealand AXA China Region Limited (including MLC Hong‐Kong) (a) AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia Kyobo AXA General Insurance Co. Ltd. PT AXA Service Indonesia 100.00 100.00 100.00 100.00 100.00 100.00 100.00 92.82 100.00 54.04 54.04 54.04 100.00 100.00 54.04 54.04 92.82 54.04 100.00 100.00 100.00 100.00 100.00 100.00 100.00 92.73 100.00 54.07 54.07 54.07 100.00 100.00 54.08 54.07 92.73 54.07 AXA Affin General Insurance Berhad Dilution following a capital increase 42.41 42.41 50.48 50.48 IPAC Portfolio Management (Dublin) Limited 100.00 54.04 100.00 54.07 SINOPRO Securities Investment Consulting Enterprise 100.00 54.04 100.00 54.07 Japan AXA Life Insurance AXA Non Life Insurance Co. Ltd. AXA Financial Life Insurance Co. Ltd. Merged with AXA Life Japan 100.00 100.00 ‐ 98.40 98.40 ‐ 100.00 100.00 100.00 98.40 98.40 98.40 Germany AXA Versicherung AG AXA Art AXA Leben Versicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Kranken Versicherung AG DBV‐Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch‐Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten‐Versicherung AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 Belgium Ardenne Prévoyante AXA Belgium SA Servis (formerly Assurance de la Poste) Assurances de la Poste Vie Les Assurés Réunis Touring Assurances SA 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Spain (MedLA) (b) Hilo Direct SA de Seguros y Reaseguros AXA Vida, S. A. de seguros AXA Seguros Generales, S. A. AXA Salud, S. A. 100.00 99.81 99.89 100.00 100.00 99.81 99.89 100.00 100.00 99.81 99.89 100.00 100.00 99.81 99.89 100.00 Italy (MedLA) (b) AXA Interlife AXA Assicurazioni e Investimenti AXA‐MPS Vita 100.00 100.00 50.00 + 1 voting right 99.99 99.99 50.00 100.00 100.00 50.00 + 1 voting right 99.99 99.99 50.00 AXA‐MPS Danni 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Quadrifoglio 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Portugal (MedLA) (b) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA Seguro Directo Morocco (MedLA) (b) 99.73 95.09 100.00 99.49 94.89 100.00 99.73 95.09 100.00 99.49 94.89 100.00 AXA Assurance Maroc 100.00 100.00 100.00 100.00 Turkey (MedLA) (b) 30 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 AXA Hayat VE Emeklilik A.S. (Vie) AXA Sigorta AS (P&C) Gulf Region (MedLA) (b) 100.00 72.55 100.00 72.55 100.00 72.55 100.00 72.55 AXA Cooperative Insurance Company (Saudi Arabia) AXA Insurance (Gulf) B.S.C.c. 50.00 50.00 34.00 50.00 50.00 50.00 34.00 50.00 Greece (MedLA) (b) AXA Insurance A.E. Life AXA Insurance A.E. P&C 99.89 99.89 99.89 99.89 99.89 99.89 99.89 99.89 Mexico (MedLA) (b) AXA Seguros S.A.C.V. 99.94 99.94 99.94 99.94 Switzerland AXA Life (previously Winterthur Life) AXA‐ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland AXA Poland Pension Funds AXA Slovakia AXA Ukraine Non‐controlling interest buyout Non‐controlling interest buyout Non‐controlling interest buyout Newly consolidated 99.99 100.00 100.00 79.43 70.00 100.00 50.00 99.99 100.00 100.00 79.43 70.00 100.00 50.00 92.85 79.49 67.40 79.43 70.00 100.00 ‐ 92.85 79.49 67.40 79.43 70.00 100.00 ‐ (a) Wholly owned by AXA Asia Pacific Holdings Limited. (b) "MedLA" country is part of the Mediterranean and Latin American Region. The companies AXA Asia Pacific Holding, AXA Australia New Zealand and part of UK-Life companies AXA Sun Life Plc and Winterthur Life UK are accounted for as held for sale. More information is given in note 4. June 30, 2010 December 31, 2009 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance AXA Global P&C (previously AXA Cessions) AXA Global Life (previously Saint‐Georges Ré) AXA Assistance SA (sub group) Portman Insurance Ltd. (previously AXA Global Risks UK) Colisée Ré (previously AXA Ré Paris) AXA Corporate Solution Reinsurance Life company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2010 December 31, 2009 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) 95.29 62.52 95.27 62.52 95.29 62.15 95.27 62.15 June 30, 2010 December 31, 2009 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2010 December 31, 2009 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Compagnie Financière de Paris 100.00 100.00 100.00 100.00 31 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Consolidated investments and investment funds At June 30, 2010, consolidated investment funds represented total invested assets of €94 billion (€104 billion at the end of 2009), corresponding to 274 investment funds mainly in France, the United Kingdom, Germany, Japan and the Mediterranean and Latin American Region and in majority relating to the Life & Savings segment. At June 30, 2010, the 24 consolidated real estate companies corresponded to total invested assets of €7 billion (€7 billion at the end of 2009), mainly in Germany and France. At June 30, 2010, the 5 consolidated CDOs represented total investments of €0.3 billion (€0.4 billion at the end of 2009). The decrease mainly comes from the closing of one CDO. These CDOs are consolidated in AXA’s statement of financial position in line with IFRS rules even though AXA’s investments in these CDO’s assets represented only approximately €39 million out of the €0.3 billion. In most investment funds (particularly open-ended investment funds), non-controlling interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Non-controlling interests of controlled investment funds and puttable instruments held by non-controlling interest holders”. At June 30, 2010, non-controlling interests in controlled investment funds amounted to €5 billion (€6 billion at December 31, 2009). 2.1.2. Proportionately consolidated companies June 30, 2010 December 31, 2009 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances Fonds Immobiliers Paris Office Funds Deconsolidated 50.00 ‐ 49.96 ‐ 50.00 50.00 49.96 49.91 2.1.3. Investments in companies accounted for using the equity method Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2010 December 31, 2009 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Argovie Neuflize Vie (previously NSM Vie) 100.00 40.00 99.77 39.98 100.00 40.00 99.77 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd AXA Minmetals Assurance Co Ltd (a) PT AXA Mandiri Financial Services (a) 45.00 50.00 51.00 51.00 24.32 27.02 39.52 27.56 45.00 50.00 51.00 51.00 24.34 27.04 39.52 27.58 Bharti AXA Life 22.22 17.12 22.22 17.12 Russia Reso Garantia (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management AXA IM Asia Holding Private Ltd 50.00 47.64 50.00 47.63 Kyobo AXA Investment Managers Company Limited 50.00 47.64 50.00 47.63 (a) "AXA Minmetals Assurance Co Ltd" and "PT AXA Mandiri Financial Services" are accounted for using the equity method as their shareholders' agreements don't provide the Group with sufficient controlling power. Investment funds and real estate entities accounted for using the equity method. At June 30, 2010, real estate companies accounted for using the equity method represented total assets of €362 million (€371 million at the end of 2009) and investment funds accounted for using the equity method represented total assets of €3,068 million (€3,824 million at the end of 2009), mainly in France, the United States and the United Kingdom. 32 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV is consolidated within the operations of AXA France Vie. This structure was put in order to improve AXA France Vie assets/liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €191 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables. Securitization of motor insurance portfolios On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio (diversified portfolio spread across 4 countries: Belgium, Germany, Italy and Spain). AXA consolidated its €192 million stake in the vehicle carrying the junior tranches. Through securitization, AXA transferred to the financial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds. Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. The fair value of the vehicle was assessed at €974 million as at June 30, 2010. Hordle In 2009, AXA set up an intra-group financing and cash management company which benefited from a loan of £673 million. 33 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 3 : Segmental information Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holding companies" segment includes all non-operational activities. The Group governance, including the process of reviewing the Group's consolidated financial information, has been modified. On April 29, 2010, AXA's Shareholders approved the replacement of AXA's dual board structure (Supervisory Board and Management Board) with a unitary board structure in the form of a Board of Directors. AXA's Chief Executive Officer and Deputy Chief Executive officer, both of whom are members of the Board, are assisted by a Management Committee in the day-to-day operational management of the Group and by an Executive Committee to consider Group strategy. The financial information relating to AXA's business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium- sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components: France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries. International Insurance: This segment’s operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Reinsurance Life, and the group’s run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior underwriting years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Paris Ré. It also includes reinsurance activity managed by AXA Global Life and AXA Global P&C (ex AXA Cessions), which write reinsurance treaties of AXA entities after a selection of reinsurers. AXA Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes. Activity from both global lines of business are reported in international insurance. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgages loans, savings) conducted primarily in France, Belgium, Switzerland, Germany and Central and Eastern Europe (Hungary, Slovakia and the Czech Republic). The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles including certain Special-Purpose Entities (SPE) such as consolidated CDOs. The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. 34 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 June 30, 2010 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter‐segment eliminations Gross written premiums 29,914 15,570 1,710 ‐ ‐ ‐ (309) Fees and charges relating to investment contracts with no participating features 292 ‐ ‐ ‐ ‐ ‐ ‐ Revenues from insurance activities 30,206 15,570 1,710 ‐ ‐ ‐ (309) Net revenues from banking activities ‐ ‐ ‐ ‐ 237 0 (23) Revenues from other activities 714 39 140 1,854 3 ‐ (217) TOTAL REVENUES 30,920 15,609 1,850 1,854 241 0 (549) Change in unearned premiums net of unearned revenues and fees (1,183) (2,199) (245) ‐ ‐ ‐ 108 Net investment income 9,090 1,061 270 21 (1) 352 (287) Net realized investment gains and losses 792 351 12 5 ‐ 0 ‐ Change in fair value of other investments at fair value through profit or loss of which change in fair value of assets with financial risk borne by policyholders (1,703) (2,301) (33) ‐ 15 ‐ (84) ‐ ‐ ‐ (111) ‐ (64) (5) Change in investments impairment (419) (76) (9) (0) ‐ (37) ‐ Net investment result excluding financing expenses 7,760 1,302 288 (58) (1) 204 (351) Technical charges relating to insurance activities (31,506) (9,016) (1,328) ‐ ‐ ‐ 164 Net result from outward reinsurance 225 (424) (47) ‐ ‐ ‐ 68 Bank operating expenses ‐ ‐ ‐ ‐ (50) 0 ‐ Acquisition costs (1,770) (2,366) (182) ‐ ‐ ‐ 7 Amortization of the value of purchased business in force (158) ‐ ‐ ‐ ‐ ‐ ‐ Administrative expenses (1,972) (1,361) (119) (1,383) (205) (353) 141 Change in tangible assets impairment (1) 0 (0) (0) ‐ ‐ ‐ Change in goodwill impairment and other intangible assets impairment (15) (42) ‐ ‐ (1) ‐ ‐ Other income and expenses (58) 7 23 (111) 10 53 (25) Charges related to the disposal of some of UK Life operations (b) (1,478) ‐ ‐ ‐ ‐ ‐ ‐ Other operating income and expenses (36,734) (13,203) (1,654) (1,494) (247) (300) 355 Income from operating activities before tax 763 1,510 239 301 (7) (96) (437) Income arising from investments in associates – Equity method 13 11 0 (1) ‐ ‐ ‐ Financing debts expenses (46) (2) (2) (15) (10) (582) 438 Net income from operating activities before tax 730 1,518 237 285 (16) (677) 1 Income tax (551) (428) (75) (88) (2) 210 (1) Net income from operating activities after tax 178 1,090 162 197 (19) (468) 0 Result from discontinued operations net of tax ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net consolidated income after tax 178 1,090 162 197 (19) (468) 0 Split between : Net consolidated income ‐ Group share 66 1,072 161 122 (20) (458) 0 Net consolidated income ‐ Non‐controlling interests 112 18 1 75 1 (10) ‐ (a) Includes SPEs and CDOs. (b) As announced on June 24, 2010. The closing is expected to take place in the third quarter of 2010. 35 (In Euro million) TOTAL 46,885 292 47,177 214 2,533 49,925 (3,520) 10,507 1,159 (1,981) (2,306) (541) 9,145 (41,686) (179) (50) (4,312) (158) (5,253) (1) (58) (101) (1,478) (53,276) 2,274 23 (219) 2,078 (936) 1,141 ‐ 1,141 944 198 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 June 30, 2009 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter‐ segment eliminations Gross written premiums 29,278 15,033 1,684 ‐ ‐ ‐ (225) Fees and charges relating to investment contracts with no participating features 274 ‐ ‐ ‐ ‐ ‐ ‐ Revenues from insurance activities 29,552 15,033 1,684 ‐ ‐ ‐ (225) Net revenues from banking activities ‐ ‐ ‐ ‐ 227 2 (36) Revenues from other activities 538 39 129 1,664 4 ‐ (196) TOTAL REVENUES 30,090 15,072 1,813 1,664 230 2 (458) Change in unearned premiums net of unearned revenues and fees (976) (2,130) (243) ‐ ‐ ‐ 71 Net investment income 4,681 1,108 130 26 0 361 (395) Net realized investment gains and losses 268 101 34 9 ‐ 5 ‐ Change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 210 3,132 25 ‐ (23) ‐ 31 ‐ ‐ ‐ 664 ‐ (34) ‐ Change in investments impairment (1,042) (363) (15) (0) (0) (43) ‐ Net investment result excluding financing expenses 4,117 871 126 66 0 987 (430) Technical charges relating to insurance activities (28,566) (8,734) (1,261) ‐ ‐ ‐ 168 Net result from outward reinsurance (118) (366) 90 ‐ ‐ ‐ 7 Bank operating expenses ‐ ‐ ‐ ‐ (55) 1 ‐ Acquisition costs (1,879) (2,334) (149) ‐ ‐ ‐ 4 Amortization of the value of purchased business in force (96) ‐ ‐ ‐ ‐ ‐ ‐ Administrative expenses (1,816) (1,275) (201) (1,309) (181) (326) 117 Change in tangible assets impairment (0) ‐ (0) (0) ‐ (0) ‐ Change in goodwill impairment and other intangible assets impairment (19) (42) ‐ ‐ (1) ‐ ‐ Other income and expenses (87) 16 10 (121) 8 (74) (5) Other operating income and expenses (32,581) (12,735) (1,511) (1,430) (229) (399) 291 Income from operating activities before tax 650 1,077 184 301 2 590 (526) Income arising from investments in associates – Equity method (28) 16 0 (1) ‐ ‐ ‐ Financing debts expenses (56) (3) (3) (17) (11) (680) 519 Net income from operating activities before tax 566 1,090 182 283 (9) (91) (6) Income tax (164) (347) (64) (37) 6 27 6 Net income from operating activities after tax 401 743 118 246 (3) (63) (0) Result from discontinued operations net of tax ‐ ‐ ‐ ‐ ‐ ‐ ‐ Net consolidated income after tax 401 743 118 246 (3) (63) (0) Split between : Net consolidated income ‐ Group share 363 722 117 187 (3) (63) (0) Net consolidated income ‐ Non‐controlling interests 38 21 1 59 1 0 ‐ (a) Includes SPEs and CDOs. (b) AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan's 2008 accounts were adjusted by €‐106 million with the provisional loss reflecting the further increase of the credit spreads from October to December 2008 . This adjustment was reversed in 2009. 36 (In Euro million) TOTAL 45,770 274 46,044 192 2,178 48,414 (3,279) 5,911 417 873 3,132 (1,464) 5,737 (38,393) (387) (54) (4,358) (96) (4,990) (0) (62) (254) (48,595) 2,278 (13) (250) 2,015 (572) 1,443 ‐ 1,443 1,323 121 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 4 : Assets and liabilities held for sale 4.1. Australia and New Zealand On November 8, 2009, AXA announced an offer to the AXA APH board whereby AXA would acquire 100% of AXA APH’s Asian businesses while AMP would acquire 100% of AXA APH’s Australia & New Zealand businesses under an exclusive arrangement. After the independent committee of AXA APH’s Board of Directors rejected this joint proposal on November 9, 2009, AXA announced a revised joint offer to the AXA APH committee of independent directors on December 13, 2009. On December 17, 2009, the revised proposal was rejected by the same independent committee. At the same time, AXA took note of an offer made by National Australia Bank Limited (NAB), which has been recommended by the AXA APH committee of independent directors. On March 30, 2010 AXA reached an agreement with NAB and AXA APH, subject to the main approvals or non-objections from the antitrust authority (ACCC) and other local regulators. On April 19, 2010, AXA took note of the decision made by the ACCC to oppose NAB Ltd’s proposed acquisition of AXA APH and not to oppose any proposed acquisition by AMP. AXA also notes the announcement by NAB of a review of the ACCC’s decision and announcement indicating AMP’s continued interest in a potential transaction with AXA APH. On June 1, 2010, AXA, AXA APH and NAB have agreed to extend the period for NAB to satisfy the concerns raised by the ACCC until July 15, 2010 end of day. AXA understands that NAB continues to pursue its options in relation to the ACCC objections. On July 19, 2010, AXA, AXA APH and NAB have agreed to extend the period for NAB to satisfy the concerns raised by the ACCC until the end of day on August 31, 2010. The parties have also extended the end date for shareholder and court approval for the proposed transaction from October 31, 2010 to January 31, 2011. The assets (including goodwill) and liabilities of the Australian and New Zealand operations are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010. This classification already applied as at December 31, 2009. AXA SA also booked €145 million deferred tax expense, of which €141 million booked as at December 31, 2009 and €4 million as at June 30, 2010, on the temporary difference between the consolidated value and the tax base of the shares that it holds. As at June 30, 2010, comprehensive income and reserves relating to the change in fair value of financial intruments available for sale amounted to €93 million and €-8 million respectively, €332 million and €0.3 million as at December 31, 2009. The major classes of assets and liabilities of the Australian and New Zealand operations that are classified as held for sale include the following (amounts are presented net of inter-company balances with other AXA entities): (in Euro million) June 30, 2010 December 31, 2009 Goodwill XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Other intangible assets Investments 593 626 8,933 536 571 7,957 Other assets 1,669 2,131 TOTAl ASSETS HELD FOR SALE 11,820 11,195 (in Euro million) June 30, 2010 December 31, 2009 Liabilities arising from insurance and investment contracts Provisions for risks and charges 9,287 172 8,694 151 Other liabilities 759 754 TOTAL LIABILITIES HELD FOR SALE 10,218 9,599 37 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 4.2. United Kingdom On June 24, 2010, AXA announced that it has agreed to sell to Resolution Ltd its UK-based traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses for a consideration of €3.3 billion. The consideration of €3.3 billion consists of €2.7 billion in cash and €0.6 billion of Resolution Ltd senior Deferred Considerations Notes, which bear an effective interest rate of 6.5% per annum and are repayable in instalments over an 8 year period (4 years duration). This announced transaction has a €-1.5 billion exceptional loss on half year financial statements, coming mainly from intangibles impairment, of which goodwill €-0.8 billion, other intangibles net of tax €-0.6 billion as well as associated costs with the announced transaction €-0.1 billion. As of June 2010, reserves relating to the change in fair value of financial intruments available for sale amounted to €-35 million. This transaction received on July 20, 2010 the approval of the shareholders of Resolution Ltd and is subject to the receipt of regulatory approvals. The closing is expected to take place in the third quarter of 2010. The assets (including goodwill) and liabilities of the UK operations included in the deal are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010. The major classes of assets and liabilities of the United Kingdom operations that are classified as held for sale include the following (amounts are presented net of inter-company balances with other AXA entities): June 30, 2010 Goodwill XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Other intangible assets Investments Other assets TOTAl ASSETS HELD FOR SALE June 30, 2010 Liabilities arising from insurance and investment contracts Provisions for risks and charges Other liabilities TOTAL LIABILITIES HELD FOR SALE 38 (in Euro million) 120 1,043 63,254 2,785 67,203 (in Euro million) 63,698 50 1,365 65,114 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 5 : Investments Certain investment properties (see note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in note 1 are further detailed in note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. (in Euro million) Insurance June 30, 2010 (a) Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 18,041 14,264 2.60% 3,127 2,514 27.23% 21,168 16,778 3.01% Investment in real estate properties designated as at fair value through profit or loss (b) 1,064 1,064 0.19% ‐ ‐ ‐ 1,064 1,064 0.19% Macro hedge and other derivatives ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Investment in real estate properties 19,105 15,327 2.80% 3,127 2,514 27.23% 22,232 17,842 3.20% Debt instruments held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Debt instruments available for sale 306,750 306,750 55.97% 5,393 5,393 58.41% 312,143 312,143 56.01% Debt instruments designated as at fair value through profit or loss (b) 30,073 30,073 5.49% 116 116 1.26% 30,189 30,189 5.42% Debt instruments held for trading 491 491 0.09% 329 329 3.57% 820 820 0.15% Debt instruments (at cost) that are not quoted in an active market 1,774 1,808 0.33% ‐ ‐ ‐ 1,774 1,808 0.32% Debt instruments 339,087 339,122 61.88% 5,839 5,839 63.23% 344,926 344,960 61.90% Equity instruments available for sale 15,648 15,648 2.86% 2,344 2,344 25.39% 17,992 17,992 3.23% Equity instruments designated as at fair value through profit or loss (b) 4,566 4,566 0.83% 329 329 3.57% 4,895 4,895 0.88% Equity instruments held for trading 30 30 0.01% ‐ ‐ ‐ 30 30 0.01% Equity instruments 20,244 20,244 3.69% 2,674 2,674 28.95% 22,918 22,918 4.11% Non controlled investment funds held for sale 6,197 6,197 1.13% 204 204 2.21% 6,401 6,401 1.15% Non controlled investment funds designated as at fair value through profit or loss (b) 2,563 2,563 0.47% 95 95 1.03% 2,658 2,658 0.48% Non controlled investment funds held for trading 117 117 0.02% 376 376 4.07% 493 493 0.09% Non controlled investment funds 8,877 8,877 1.62% 675 675 7.31% 9,552 9,552 1.71% Other assets designated as at fair value through profit or loss, held by controlled investment funds 6,908 6,908 1.26% 0 0 0.00% 6,909 6,909 1.24% Macro hedge and other derivatives (168) (168) ‐0.03% (3,500) (3,500) ‐37.91% (3,668) (3,668) ‐0.66% Financial investments 374,948 374,982 68.42% 5,687 5,687 61.59% 380,635 380,669 68.31% Loans held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Loans available for sale 753 753 0.14% ‐ ‐ ‐ 753 753 0.14% Loans designated as at fair value through profit or loss (b) 0 0 0.00% 0 0 0.00% 0 0 0.00% Loans held for trading ‐ ‐ ‐ 7 7 0.07% 7 7 0.00% Mortgage loans 16,574 15,773 2.88% 2 2 0.02% 16,576 15,775 2.83% Other loans (c) 11,059 10,911 1.99% 1,001 996 10.78% 12,060 11,906 2.14% Macro hedge and other derivatives ‐ ‐ ‐ 28 28 0.30% 28 28 0.00% Loans 28,386 27,437 5.01% 1,037 1,032 11.18% 29,424 28,469 5.11% Assets backing contracts where the financial risk is borne by policyholders 130,306 130,306 23.78% 130,306 130,306 23.38% INVESTMENTS 552,746 548,053 100.00% 9,852 9,234 100.00% 562,597 557,286 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 422,439 417,746 76.22% Life & Savings 357,645 353,639 64.53% Property & Casualty 55,955 55,268 10.08% International Insurance 8,839 8,839 1.61% (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Use of fair value option. (c) Mainly relates to policy loans. 39 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 (in Euro million) Insurance December 31, 2009 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Investment in real estate properties at amortized cost 16,919 13,406 2.39% 2,896 2,456 19.93% 19,815 15,863 2.77% Investment in real estate properties designated as at fair value through profit or loss (a) 2,197 2,197 0.39% ‐ ‐ ‐ 2,197 2,197 0.38% Macro hedge and other derivatives ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Investment in real estate properties 19,116 15,603 2.79% 2,896 2,456 19.93% 22,011 18,059 3.16% Debt instruments held to maturity 0 ‐ ‐ ‐ ‐ ‐ 0 ‐ ‐ Debt instruments available for sale 275,487 275,487 49.19% 4,352 4,352 35.31% 279,839 279,839 48.89% Debt instruments designated as at fair value through profit or loss (a) 43,606 43,606 7.79% 84 84 0.68% 43,690 43,690 7.63% Debt instruments held for trading 490 490 0.09% 450 450 3.65% 940 940 0.16% Debt instruments (at cost) that are not quoted in an active market 1,758 1,804 0.32% ‐ ‐ ‐ 1,758 1,804 0.32% Debt instruments 321,341 321,387 57.39% 4,886 4,886 39.65% 326,228 326,274 57.01% Equity instruments available for sale 15,212 15,212 2.72% 2,730 2,730 22.16% 17,943 17,943 3.13% Equity instruments designated as at fair value through profit or loss (a) 10,329 10,329 1.84% 216 216 1.76% 10,546 10,546 1.84% Equity instruments held for trading 27 27 0.00% 251 251 2.03% 278 278 0.05% Equity instruments 25,569 25,569 4.57% 3,197 3,197 25.95% 28,766 28,766 5.03% Non controlled investment funds held for sale 5,588 5,588 1.00% 153 153 1.24% 5,741 5,741 1.00% Non controlled investment funds designated as at fair value through profit or loss (a) 2,096 2,096 0.37% 84 84 0.68% 2,181 2,181 0.38% Non controlled investment funds held for trading 71 71 0.01% ‐ ‐ ‐ 71 71 0.01% Non controlled investment funds 7,755 7,755 1.38% 237 237 1.93% 7,993 7,993 1.40% Other assets designated as at fair value through profit or loss, held by controlled investment funds 9,350 9,350 1.67% 7 7 0.05% 9,357 9,357 1.63% Macro hedge and other derivatives (294) (294) ‐0.05% 634 634 5.15% 340 340 0.06% Financial investments 363,722 363,768 64.96% 8,962 8,962 72.72% 372,684 372,730 65.12% Loans held to maturity ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Loans available for sale 749 749 0.13% ‐ ‐ ‐ 749 749 0.13% Loans designated as at fair value through profit or loss (a) 0 0 0.00% ‐ ‐ ‐ 0 0 0.00% Loans held for trading ‐ ‐ ‐ 8 8 0.06% 8 8 0.00% Mortgage loans 14,600 14,186 2.53% 2 2 0.02% 14,602 14,188 2.48% Other loans (b) 10,366 10,264 1.83% 867 865 7.02% 11,233 11,129 1.94% Macro hedge and other derivatives ‐ ‐ ‐ 31 31 0.25% 31 31 0.01% Loans 25,715 25,199 4.50% 908 906 7.35% 26,623 26,104 4.56% Assets backing contracts where the financial risk is borne by policyholders 155,457 155,457 27.76% 155,457 155,457 27.16% INVESTMENTS 564,010 560,027 100.00% 12,765 12,323 100.00% 576,775 572,350 100.00% Investments (excluding those backing contracts where the financial risk is borne by policyholders) 408,553 404,570 72.24% Life & Savings 347,023 343,644 61.36% Property & Casualty 53,291 52,680 9.41% International Insurance 8,240 8,246 1.47% (a) Use of fair value option. (b) Mainly relates to policy loans. 40 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 5.2. Investment in real estate properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2010 (a) December 31, 2009 (a) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization Impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 16,198 (1,487) (447) 14,264 18,041 15,199 (1,396) (430) 13,373 16,886 Other activities 2,920 (176) (230) 2,514 3,127 2,883 (200) (227) 2,456 2,896 All activities 19,118 (1,663) (677) 16,778 21,168 18,082 (1,596) (657) 15,829 19,781 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. Fair value is generally based on valuations performed by qualified property surveyors. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million) Impairment ‐ Investment in real estate properties Amortization ‐ Investment in real estate properties June 30, 2010 (a) December 31, 2009 (a) June 30, 2010 (a) December 31, 2009 (a) Opening value 657 250 1,596 1,484 Increase for the period 19 483 111 255 Write back following sale (0) (3) (4) (117) Write back following recovery in value (9) (48) Others (b) 9 (25) (40) (26) Closing value 677 657 1,663 1,596 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Mainly includes change in scope and the effect of changes in exchange rates. 5.3. Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: (in Euro million) June 30, 2010 (a) December 31, 2009 (a) INSURANCE Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 291,356 1,808 11,157 305,642 1,774 14,571 305,642 1,808 14,571 19,519 14 3,760 5,232 49 346 266,931 1,804 10,539 274,530 1,758 14,789 274,530 1,804 15,250 12,169 12 4,390 4,569 58 140 Non controlled investment funds held for sale 5,456 6,175 6,175 1,097 378 5,005 5,595 5,595 899 310 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Net of impairment ‐ including premiums/discounts and related accumulated amortization. (c) Net of impairment (details in note 5.4). 41 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 (in Euro million) June 30, 2010 (a) December 31, 2009 (a) OTHER ACTIVITIES Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 5,633 ‐ 2,897 5,437 ‐ 3,098 5,437 ‐ 3,098 36 ‐ 201 232 ‐ 0 4,567 ‐ 2,938 4,344 ‐ 3,125 4,344 ‐ 2,664 16 ‐ 188 239 ‐ 1 Non controlled investment funds held for sale 204 204 204 0 ‐ 153 153 153 1 0 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Net of impairment ‐ including premiums/discounts and related accumulated amortization. (c) Net of impairment (details in note 5.4). (in Euro million) June 30, 2010 (a) December 31, 2009 (a) TOTAL Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 296,989 1,808 14,054 311,079 1,774 17,669 311,079 1,808 17,669 19,555 14 3,961 5,464 49 346 271,498 1,804 13,477 278,875 1,758 17,915 278,875 1,804 17,915 12,184 12 4,578 4,807 58 141 Non controlled investment funds held for sale 5,660 6,380 6,380 1,097 378 5,158 5,748 5,748 900 310 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Net of impairment ‐ including premiums/discounts and related accumulated amortization. (c) Net of impairment (details in note 5.4). See also table 5.4.1. Breakdown of financial assets subject to impairement 5.4. Financial assets subject to impairment 5.4.1. Breakdown of financial assets subject to impairment (excluding investment in real estate properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. (in Euro million) June 30, 2010 (a) December 31, 2009 (a) Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Debt instruments available for sale 299,211 (1,425) 297,786 14,357 312,143 274,000 (1,551) 272,449 7,390 279,839 Debt instruments (at cost) that are not quoted in an active market 1,808 ‐ 1,808 ‐ 1,808 1,804 ‐ 1,804 ‐ 1,804 Debt instruments 301,019 (1,425) 299,594 14,357 313,951 275,804 (1,551) 274,253 7,390 281,643 Equity instruments available for sale 17,639 (3,462) 14,178 3,815 17,992 17,137 (3,659) 13,478 4,464 17,943 Non controlled investment funds available for sale 6,682 (1,001) 5,682 719 6,401 6,229 (1,077) 5,152 589 5,741 Loans held to maturity Loans available for sale Mortgage loans ‐ 813 15,828 ‐ (17) (35) ‐ 796 15,792 ‐ (43) (18) ‐ 753 15,775 ‐ 818 14,215 ‐ (17) (23) ‐ 801 14,193 ‐ (53) (5) ‐ 749 14,188 Other loans ( d ) 11,899 (33) 11,866 40 11,906 11,113 (33) 11,080 49 11,129 Loans 28,540 (85) 28,455 (21) 28,434 26,147 (73) 26,074 (9) 26,066 TOTAL 353,881 (5,972) 347,908 18,870 366,779 325,318 (6,360) 318,958 12,435 331,393 (a) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (c) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (d) Including policy loans. 42 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 5.4.2. Change in impairment on invested assets (excluding investment in real estate properties) (in Euro million) January 1, 2010 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) June 30, 2010 (b) Impairment ‐ Debt instruments 1,551 138 (280) (42) 58 1,425 Impairment ‐ Equity instruments 3,659 362 (708) ‐ 150 3,462 Impairment ‐ non controlled investment funds 1,077 48 (192) ‐ 68 1,001 Impairment ‐ loans 73 20 (3) (5) 0 85 TOTAL 6,360 567 (1,184) (47) 277 5,972 (a) Changes in the scope of consolidation and impact of changes in exchange rates. (b) Assets and liabilities related to the Australian and New Zealand operations, and the part of the UK Life & Savings operations to be disposed of are classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as at June 30, 2010 (see note 4). This classification already applied for Australian and New Zealand operations as at December 31, 2009. (in Euro million) January 1, 2009 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2009 Impairment ‐ Debt instruments Impairment ‐ Equity instruments Impairment ‐ non controlled investment funds 1,389 5,019 834 746 856 386 (549) (2,079) (156) (28) ‐ ‐ (6) (136) 13 1,551 3,659 1,077 Impairment ‐ loans 66 51 (10) (9) (25) 73 TOTAL 7,307 2,038 (2,794) (38) (154) 6,360 (a) Changes in the scope of consolidation and impact of changes in exchange rates. 5.5. Financial assets recognized at fair value Amounts presented below exclude the impact of derivatives and investment funds consolidated by equity method. Among invested financial investments measured at fair value in the financial statements (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €381.7 billion1 at June 30, 2010 (€371.3 billion as December 31, 2009): €265.1 billion2 were determined directly by reference to an active market (1) (€235.4 billion at the end of 2009), i.e. level 1 assets and €116.6 billion3 related to assets not quoted in an active market/no active market (2) (€135.8 billion at the end of 2009), i.e. level 2 and level 3 assets. (1) Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. (2) Fair values for assets not quoted in an active market/no active market include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active, and - assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. The assets measured at fair value using in whole or in part a valuation technique based on assumptions that are not supported by prices from current market transactions and not based on available observable market data, i.e. level 3 assets amounted to €10.0 bn (including an estimation of the extent to which external quotes used in the valuation of assets in inactive markets are based on observable data). 1 Assets related to part of UK Life operation reclassified as held for sale amounted to € 25.0 billion 2 Assets related to part of UK Life operation reclassified as held for sale amounted to to €18.6 billion 3 Assets related to part of UK Life operation reclassified as held for sale amounted to €6.4 billion 43 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 As at June 30, 2010, some corporate bonds were reclassified out of level 2 into level 1 because of the observed narrowing of bid/ask spreads for such bonds reflecting an increase in liquidity. At the same time, some government bonds (Greece, Ireland, Portugal, Spain) were transferred out from level 1 to level 2 because of an observed increased illiquidity in the market for such instruments. 44 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 6 : Shareholders’ equity and non- controlling interests 6.1. Impact of transactions with shareholders The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in note 1. 6.1.1. Change in shareholders’ equity Group share for the first half of 2010 a) Share capital and capital in excess of nominal value During the first half of 2010, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: - - Realized losses on AXA shares for €-18 million. Share-based payments for €23 million. b) Treasury shares At June 30, 2010, the Company and its subsidiaries owned approximately 27 million AXA shares, representing 1.2% of the share capital, an increase of 1 million shares or €13 million compared to December 31, 2009. At June 30, 2010, the carrying value of treasury shares and related derivatives was €421 million, This figure included €0.3 million relating to AXA shares held by consolidated mutual funds (15,492 shares) not used to back contracts where the financial risk is borne by policyholders. This caption also included a €96 million premium paid in 2007 for call options on AXA shares. At June 30, 2010, 2 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity. Their total estimated historical cost was €51 million and their market value €27 million at the end of June 2010. c) Undated subordinated debt and related financial expenses As described in paragraph 1.12.2 of the accounting principles, undated subordinated notes issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2010, the change in other reserves was due to the redemption of undated subordinated debt (€-33 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-155 million in interest expense on the undated subordinated debt (net of tax), and €+535 million in exchange rate differences. 45 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 At June 30, 2010 and December 31, 2009, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2010 December 31, 2009 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 ‐ 375 M€ 6.0% 375 375 375 375 December 22, 2004 ‐ 250 M€ 6.0% 250 250 250 250 January 25, 2005 ‐ 250 M€ 6.0% 250 250 250 250 July 6, 2006 ‐ 1000 M€ 5.8% 1,000 994 1,000 994 July 6, 2006 ‐ 500 M£ 6.7% 500 606 500 558 July 6, 2006 ‐ 350 M£ 6.7% 350 428 350 394 October 26, 2006 ‐ 600 M A$ (of which 300M A$ 7.5%) 600 414 600 372 November 7, 2006 ‐ 150 M A$ 7.5% 150 104 150 93 December 14, 2006 ‐ 750 M US$ 6.5% 750 608 750 518 December 14, 2006 ‐ 750 M US$ 6.4% 750 608 750 518 October 5, 2007 ‐ 750 M€ 6.2 % 750 746 750 746 October 16, 2007 ‐ 700 M£ 6.8 % 700 854 700 786 Undated notes ‐ variables rates in € 660 660 693 693 Undated notes ‐ 3.3% in JPY 27,000 248 27,000 203 Undated notes ‐ (of which 500 M US$ at 7.1%) in US$ 875 713 875 607 Sub‐Total undated subordinated debt ‐ 7,859 7,357 Equity component of convertible debt (2017) 95 95 95 95 TOTAL ‐ 7,954 ‐ 7,451 In addition to the nominal amounts shown above, shareholder’s equity included related net financial expenses of : - €-1,398 million at June 30, 2010, making a total of €6,556 million, €-1,243 million at December 31, 2009, making a total of €6,208 million, Some of these instruments contained the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates; Interest rate step-up clauses with effect from a given date. d) Dividends paid At the April 29, 2010 shareholders’ meeting, shareholders approved a dividend distribution of €1,259 million with respect to the 2009 financial year. 6.1.2. Change in shareholders’ equity Group share for the first half of 2009 a) Share capital and capital in excess of nominal value During the first half of 2009, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: - - Realized losses on AXA shares for €-14 million. Share-based payments for €38 million. b) Treasury shares At June 30, 2009, the Company and its subsidiaries owned approximately 28 million AXA shares, representing 1.3% of the share capital, a decrease of 1.7 million shares or €26 million compared to December 31, 2008. At June 30, 2009, the carrying value of treasury shares and related derivatives was €425 million. This figure included €2.1 million relating to AXA shares held by consolidated mutual funds (0.1 million shares) not used to back contracts where 46 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 financial risk is borne by policyholders. This caption also included €96 million premium paid in 2007 for call options on AXA shares. At June 30, 2009, 2.6 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity. Their total estimated historical cost was €53 million and their market value €35 million at the end of June 2009. c) Undated subordinated debt and related financial expenses During the first half of 2009, the change in other reserves was due to the redemption of undated subordinated debt (€-126 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-149 million in interest expense on the undated subordinated debt (net of tax), and €+213 million in exchange rate differences. d) Dividends paid At the April 30, 2009 shareholders’ meeting, shareholders approved a dividend distribution of €836 million with respect to the 2008 financial year. 6.2. Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2010 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The change in reserves for unrealized gains and losses on assets available for sale totaled €+1,177 million (net Group share), mainly attributable to the United States (€+448 million) France (€+263 million), Belgium (€+209 million) and Germany (€+192 million). The increase of gross unrealized gains and losses on assets available for sale totaled €+6,031 million, mainly due to debt securities (€+6,714 million) primarily following the decreases on interest rates, partly offset by a €-822 million decrease from equity securities. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: 47 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 (in Euro million) June 30, 2010 December 31, 2009 Gross unrealized gains and losses (a) 18,383 12,352 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (b) (9,031) (5,685) Shadow accounting on Deferred Acquisition Costs (c) (412) (227) Shadow accounting on Value of purchased Business In force (414) (369) Unallocated unrealized gains and losses before tax 8,525 6,071 Deferred tax (2,257) (1,395) Unrealized gains and losses (net of tax) ‐ Assets available for sale 6,268 4,676 Unrealized gains and losses (net of tax) ‐ Equity accounted companies (d) (0) 11 Unrealized gains and losses (net of tax) – 100% ‐ Total 6,267 4,687 Non‐controlling interests' share in unrealized gains and losses (e) (196) (75) Translation reserves (f) (203) 79 Unrealized gains and losses (Net Group share) (d) 5,868 4,691 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Including shadow accounting impact on premium deficiency liabilities, after revaluation of available for sale investments. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including unrealized gains and losses on assets held for sale. (e) Including foreign exchange impact attributable to non-controlling interests. (f) Group share. (in Euro million) June 30, 2010 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 7,162 1,791 2,085 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (b) (4,682) (1,553) (1,083) Shadow accounting on Deferred Acquisition Costs (c) (127) ‐ (3) Shadow accounting on Value of purchased Business In force (40) ‐ (29) Unallocated unrealized gains and losses before tax 2,313 238 970 Deferred tax (346) (72) (204) Unrealized gains and losses (net of tax) ‐ Assets available for sale 1,968 166 766 Unrealized gains and losses (net of tax) ‐ Equity accounted companies 4 ‐ ‐ Unrealized gains and losses (net of tax) – 100% ‐ Total 1,972 166 766 Non‐controlling interests' share in unrealized gains and losses (d) (5) 0 ‐ Translation reserves (e) ‐ ‐ (96) Unrealized gains and losses (Net Group share) 1,967 166 671 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Including shadow accounting impact on premium deficiency liabilities, after revaluation of available for sale investments. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including foreign exchange impact attributable to non-controlling interests. (e) Group share. The change in reserves relating to changes in fair value of assets in June 30, 2010 and December 31, 2009 broke down as follows: (in Euro million) June 30, 2010 December 31, 2009 Unrealized gains and losses (net of tax) 100%, opening 4,687 (443) Transfer in the income statement on the period (a) Investments bought in the current accounting period and changes in value Foreign exchange impact (627) 1,889 332 (214) 5,538 (56) Change in scope and other changes (14) (139) Unrealized gains and losses (net of tax) 100%, closing 6,267 4,687 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. 48 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 b) Translation reserve The total impact of foreign exchange rate movements was €+2,025 million (of which group share €+1,613 million). The group share translation reserve movement (€+1,613 million) was mainly driven by the United States (€+1,570 million), Japan (€+979 million), Switzerland (€+786 million), and the United Kingdom (€+354 million), which was partly offset by the Company (€-2,733 million driven by the change in fair value of currency hedges set up to hedge net investments in foreign operations). c) Employee benefits actuarial gains and losses The group share change in employee benefits actuarial losses for the fist half year 2010 amounted to €-487 million, mainly due to the decrease of discount rates especially in the United Kingdom (€-335 million) and in the United States (€-132 million), partly offset by lower long term inflation rates in the United Kingdom. 6.2.2. Comprehensive income for the first half of 2009 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The change in reserves for unrealized gains and losses on assets available for sale totaled €+963 million (net Group share), mainly attributable to the Company (€+535 million) and the United States (€+501 million), partly offset by France (€-215 million). The reduction in gross unrealized gains and losses on assets available for sale totaled €-441 million, mainly due to debt instruments (€-1,652 million) following the increase of long-term interest rates, partly offset by €+925 million increase from equity securities. b) Translation reserve The impact of foreign exchange rate movements (€+358 million) was mainly due to the United Kingdom (€+461 million), the Company (€+91 million mainly driven by change in fair value of derivatives hedging net investments in foreign operations (€+224 million), partly offset by the foreign exchange on undated subordinated debt (€-140 million)), partly offset by Japan (€- 147 million). c) Employee benefits actuarial gains and losses The main contributors to the €-442 million decrease in actuarial gains and losses on employee benefit obligations were the United Kingdom (€-460 million) mainly coming from an increase in the long-term inflation rate. 6.3. Change in non-controlling interests Under IFRS, non-controlling interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’equity items. The same is true for puttable instruments held by non-controlling interests holders. 6.3.1. Change in non-controlling interests for the first half of 2010 The €+516 million increase in non-controlling interests to €4,209 million was mainly due to transactions with shareholders for €-196 million, and comprehensive income for €+712 million. Transactions with shareholders included mainly dividends paid to non-controlling interests holders for €-227 million. The comprehensive income for the period notably included the following: Net income attributable to non-controlling interests for €+198 million; and - Change in translation reserves for €+412 million. 6.3.2. Change in non-controlling interests for the first half of 2009 The €+321 million increase in non-controlling interests to €3,380 million was mainly due to transactions with shareholders (€+109 million) and comprehensive income (€+212 million). Transactions with shareholders included the following: 49 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 - Dividends paid to non-controlling interests holders for €-103 million; - Other movements (€+214 million) mainly including capital raising of AXA Asia Pacific Holdings (€+247 million), partly offset by the buyout of non-controlling interests at AXA Germany (€-14 million). The comprehensive income for the period included the following: Net income attributable to non-controlling interests for €+121 million; - - Change in translation reserved for €+32 million; and - - Impact of actuarial gains and losses on employee benefits for €+3 million. Increase in reserve relating to the change in fair value of available for sale financial instruments (€+56 million); 50 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 7 : Financing debt (in Euro million) Carrying value June 30, 2010 December 31, 2009 AXA Debt component of subordinated notes due 2014 (€) Debt component of subordinated notes, 3.75% due 2017 (€) Subordinated convertible notes due 2020 (€) Subordinated convertible notes, 5.75% due 2040 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) U.S. registered redeemable subordinated debt, 6.75% 2020 (€) 7,403 1,868 1,333 180 1,300 972 398 1,070 5,685 1,835 1,306 180 ‐ 820 366 1,070 Derivatives on debts instruments issued (a) 282 108 AXA Financial 165 141 Surplus Notes, 7.70 %, due 2015 163 139 MONY Life 11.25% Surplus Notes due 2024 2 1 AXA Bank Europe 394 392 Subordinated undated notes, variable 394 392 AXA‐MPS Vita and Danni 108 108 Subordinated Notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 45 26 SUBORDINATED DEBT 8,115 6,352 AXA 1,892 1,859 Euro Medium Term Notes, 6.0% due through 2013, and BMTN Euro Medium term Notes, due through 2015 892 1,000 894 1,000 Derivatives on financing debt instruments issued (a) ‐ (36) AXA Financial 676 789 Senior notes , 7.75%, due 2010 Senior notes , 7%, due 2028 392 284 335 243 Senior notes MONY, 8.35%, due 2010 ‐ 211 AXA UK Holdings 187 173 GRE : Loan Notes, 6.625%, due 2023 187 173 Other financing debt instruments issued (less than €100 million) 165 116 Other financing debts instruments issued under euro 100 million 146 143 Derivatives relating to other financing debts instruments issued (a) 19 (27) FINANCING DEBT INSTRUMENTS ISSUED 2,920 2,937 AXA 822 758 Morocco 99 97 Other financing debts owed to credit institutions (under €100 million) 36 66 FINANCING DEBT OWNED TO CREDIT INSTITUTIONS 957 921 TOTAL FINANCING DEBT 11,992 10,210 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. Total financing debt increased by €1,782 million between December 31, 2009 and June 30, 2010 to €11,992 million. The increase was mainly due to: i. ii. iii. a €1,300 million increase arising from AXA SA’s issue of a dated subordinated debt in April 2010; a €174 million increase from the change in fair value of interest rate swaps at AXA SA; a €398 million increase arising from foreign currency translations; partly offset by; iv. a €211 million decrease in the United States reflecting MONY Senior Notes debt maturing in 2010. 51 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 8 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: • number of outstanding ordinary shares during the period. • The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average Following AXA’s rights issue in 4Q09, the average number of shares for June 30, 2009 has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.3 million shares in 2009. As at June 30, 2009, total net outstanding number of shares was 2,062 million and average fully diluted number of shares was 2,113 million. Revised net income EPS takes into account interest payments related to undated subordinated debts classified in equity, excluding FOREX impacts. Previously disclosed EPS included FOREX adjustments and, as at June 30, 2009, basic net income EPS amounted to €0.50 and fully diluted net income EPS to €0.50. Excluding FOREX reflects implemented hedges which would qualify as net investment hedges with related changes in fair value recognised through translation reserves. (in Euro million) (a) June 30, 2010 June 30, 2009 (b) NET INCOME GROUP SHARE 944 1,323 TSS and TSDI financial charge (155) (149) NET INCOME INCLUDING IMPACT OF TSS/TSDI A 789 1,174 Weighted average number of ordinary shares (net of treasury shares) ‐ opening 2,264 2,060 Increase in capital (excluding stock option exercised) (c) 0 48 Stock options exercised (c) 0 0 Treasury shares (c) (0) 1 Share purchase program (c) ‐ ‐ WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2,263 2,109 NET INCOME PER ORDINARY SHARE C = A / B 0.35 0.56 Potentially dilutive instruments : ‐ Stock options 3 1 ‐ Subordinated convertible Notes ‐ February 8, 2000 due 2017 0 0 ‐ Subordinated convertible Notes ‐ February 8, 1999 due 2014 0 0 ‐ Other 4 3 FULLY DILUTED ‐ WEIGHTED AVERAGE NUMBER OF SHARES D 2,271 2,113 NET INCOME (d) E 789 1,174 FULLY DILUTED NET INCOME PER ORDINARY SHARE F = E / D 0.35 0.56 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.3 million shares as at June 30, 2009. (c) Weighted average. (d) Taking into account the impact of potentially dilutive instruments. 52 Consolidated financial statements ________________________________________________________________________________________ Half Year 2010 Note 9 : Subsequent events None. 53 Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify, to the best of my knowledge, that the consolidated summarized financial statements for the first half of the fiscal year 2010 have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year and their impact on the financial statements, the related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 5, 2010. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations Statutory auditors’ review report on the 2010 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2010 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2010 ; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors considering the context, described in the interim activity report, of persistence of the economic environment and of the financial crisis’ aftermatches, context similar to the one which prevailed at the December 31, 2009 closing. This situation still gives rise to specific circumstances for the preparation of financial statements this period, in particular with respect to the accounting estimates required by accounting principles. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 4, 2010 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan | Semestriel, 2010, Insurance, AXA | write me a financial report |
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| Half Year Financial Report June 30, 2011 Table of contents I Activity Report....................................................................... II Consolidated financial statements ...................................... III Statutory auditors’ review report on the 2011 Half Year Financial Information .................................................... IV Statement of the person responsible for the Half Year Financial Report....................................................................... Activity Report______________________________________________________________________Half Year 2011 Activity Report // Half Year 2011 Page 1 Activity Report______________________________________________________________________Half Year 2011 Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2010, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Cautionary statements concerning forward-looking statements..................................................................... 2 Financial market conditions in first half of 2011........................................................................................... 3 Operating highlights..................................................................................................................................... 5 Consolidated gross revenues ........................................................................................................................ 7 Consolidated underlying earnings, adjusted earnings and net income ......................................................... 11 Life & Savings Segment ............................................................................................................................ 17 Property & Casualty Segment .................................................................................................................... 38 International Insurance Segment ................................................................................................................ 57 Asset Management Segment ...................................................................................................................... 60 Banking ..................................................................................................................................................... 64 Holdings and other companies.................................................................................................................... 67 Outlook...................................................................................................................................................... 70 Glossary..................................................................................................................................................... 71 Page 2 Activity Report______________________________________________________________________Half Year 2011 Financial market conditions in first half of 2011 In this first half of 2011, after an economic rebound in the first quarter, the economic recovery showed some signs of weakness. After the March Tohoku earthquake and tsunami in Japan, combined with uncertainties at the end of 2010 relative to political tensions in the Middle East, US economic indicators – in particular for the manufacturing sector – reversed in May the positive trend observed in the first months of the year, signaling a probable slowdown in activity. After a downward trend of the unemployment rate, job creations in the US were limited in May. In the Euro area, economic survey have also shown deterioration. However, German indicators showed greater resilience than those of other countries in the zone. In particular, the PMI manufacturing indices have once again fallen below the 50-mark in Spain, Italy, Greece and Ireland. A sign of these divergences in economic growth, the national labour markets at best are improving slightly and at worst continue to deteriorate. Only the German labour market is showing clear signs of improvement, as the country continues to benefit from promising internal dynamism. In addition, first signs of an economic slowdown in the emerging sphere (China, Brazil and Russia) appeared, partly explained by the inventory cycle in China. On the monetary policy front, divergences between the developed economies and the emerging ones remain: the former continue to run accommodative policies to support their economies, while the latter are pursuing tightening in order to fight against inflationary tensions. In Europe, the ECB initiated interest rate increases, with a first rate hike in April of 25bps. However, it has opted to maintain its non-conventional measures and has renewed its 3-months liquidity measures, fixed rate and quantities unlimited, until the end of 3Q11. The Bank of England left its rates unchanged, while inflation has been rising for more than one year now. In the United States, the Fed once again confirmed its decision to maintain its key rates low, and the end of QEII suggests that it is ready to start normalising its quantitative measures. Only the Bank of Japan renewed its liquidity program in light of the disaster that struck the country, doubling its public and private securities buyback program. The emerging countries – with China in the lead – have pursued ongoing monetary tightening over the course of this first half of the year, albeit at a slower pace than that of the rise in inflation. STOCK MARKETS Equity markets performed well in first half of 2011 thanks to economic growth at the turn of 2010-2011 and still abundant global liquidity, particularly the Fed's provision of liquidity to markets via its quantitative easing program. US overperformed Europe due to the persistent sovereign worries in the Euro area and the lackustre growth numbers in the UK. Japanese Nikkei suffered from the March earthquake. Overall, the Dow Jones in New York increased by 7% in the first half of 2011, as did the S&P 500 (+5%), the CAC 40 in Paris (+5%) and the FTSE in London (+1%), whereas the Nikkei in Tokyo depreciated by 4%. The MSCI World Index increased by 2% as well as MSCI G7 increased by 3% whereas the emerging indices depreciated by 3%. The S&P 500 implied volatility index decreased from 17.8% to 16.5% between December 31, 2010 and June 30, 2011. BOND MARKETS The US 10-year T-bond ended the half year at 3.16%, a decrease of 16 bps compared to December 31, 2010 whereas the 10-year German Bund yield increased by 6 bps to 3.02%. The 10-year Japanese Government Bond ended the half year at 1.26%, an increase of 32 bps. Regarding the evolution of 10-year government bonds on European peripheral countries: Italy ended the half year at 4.88% (an increase of 7 bps compared to December 31, 2010), Spain ended the half year at 5.45% (a decrease of 1 bps compared to December 31, 2010), Greece ended the half year at 16.34% (an increase of 387 bps compared to Page 3 Activity Report______________________________________________________________________Half Year 2011 December 31, 2010), Ireland ended the half year at 11.70% (an increase of 264 bps compared to December 31, 2010), Portugal ended the half year at 10.90% (an increase of 430 bps compared to December 31, 2010). In Europe, the iTRAXX Main spreads remained stable at 106 bps, while the iTRAXX Crossover decreased by 40 bps to 397 bps. In the United States, the CDX Main increased by 7 bps to 92 bps. EXCHANGE RATES Despite financial market turbulences in Europe, the Euro continued to appreciate against the main currencies during the first half of this year, except for the Swiss Franc. Compared to December 31, 2010, the US Dollar lost 8% against the Euro (closing exchange rate moved from $1.34 at the end of 2010 to $1.45 at the end of June 2011). The Yen lost 8% against the Euro (closing exchange rate moved from Yen 108.8 at the end of 2010 to Yen 117.6 at half year of 2011). The Pound Sterling lost 5% against the Euro (closing exchange rate moved from £0.857 at the end of 2010 to £0.903 at the end of June 2011). The Swiss Franc gained 2% against the Euro (closing exchange rate moved from CHF 1.25 at the end of 2010 to CHF 1.22 at the end of June 2011). On an average rate basis, the US Dollar lost 5% against the Euro (from $1.34 over the first half of 2010 to $ 1.40 over the first half of 2011). The Yen gained 8% against the Euro (from Yen 121.6 over the six months to March 31, 2010 used for half year 2010 accounts to Yen 112.3 over the six months to March 31, 2011 used for half year 2011). The Pound Sterling decreased by 1% (from £0.861 over the first half of 2010 to £0.869 over the first half of 2011) and the Swiss Franc gained 9% against the Euro (from CHF 1.39 over the first half of 2010 to CHF 1.27 over the first half of 2011). Page 4 Activity Report______________________________________________________________________Half Year 2011 Operating highlights Significant acquisitions On November 15, 2010, AXA announced a joint proposal with AMP to AXA APH whereby AXA dispose of its 54% stake in AXA APH to AMP and acquire AXA APH Asian operations. On April 1, 2011, after receiving the various shareholder approval, court approvals and regulatory approvals in Australia and New Zealand as well as regulator approvals in Asia, AXA announced that it has successfully completed the AXA APH transaction. This resulted in AMP acquiring AXA APH’s outstanding shares for AU$ 13.3 billion, of which AXA’ shares in AXA APH have been paid for AU$ 7.2 billion in cash, while AXA acquired from AMP 100% of AXA APH’s Asian operations for AU$ 9.8 billion in cash. AXA APH’s Australia & New Zealand businesses price was AU$ 3.5 billion. This transaction had an impact on AXA Group of €0.7 billion realized capital gains recorded for in net income regarding the sale of its Australia and New Zealand operation, €2.5 billion reduction in shareholders’ equity mainly relative to the buy-out of minority interests in AXA APH Asian operations, leading to an increase of +4 points on debt gearing and a decrease of -1 point of Solvency I ratio. On June 10, 2011, AXA, Bharti Entreprises (“Bharti”) and Reliance Industries Limited (“RIL”) announced having reached an understanding on the acquisition by RIL and its associate Reliance Industrial Infrastruce Limited (“RIIL”) of Bharti’s shareholding of 74% in Bharti AXA Life Insurance Co. Ltd (“Bharti AXA Life”) and Bharti AXA General Insurance Co. Ltd. (“Bharti AXA GI”). This transaction is subject to negotiation and entering into legally binding agreements between RIL, RIIL and AXA and obtaining necessary approvals from IRDA 1 and other applicable approvals. On completion of the proposed transaction, RIL and RIIL would effectively own respectively 57% and 17% in both insurance companies and would become AXA’s joint ventures partners in India. AXA would retain its current 26% shareholding and would continue to manage the day to day operations of the joint ventures. The proposed agreement contemplates an option by which AXA would acquire from RIL and RIIL up to 24% shareholding in both insurance companies in accordance with the applicable regulations as and when the FDI2 regulations permit such holding by AXA. Upon exercise of such option, RIL will effectively own 45%, RIIL will effectively own 5% and AXA the balance 50% in both insurance companies. RIL and AXA will join forces to create market leading Life and General Insurance businesses in India by leveraging their respective strengths and expertise. In fiscal year 20113, Bharti AXA Life collected premiums of INR 7.9 billion (or ca. Euro 132 million) and Bharti AXA GI collected gross direct premiums of INR 5.5 billion (or ca. Euro 92 million). Significant disposals On March 11, 2011, AXA announced the sale of 15.6% stake in Taikang Life. China Insurance Regulatory Commission («CIRC») has issued its approval in connection with the proposed transfer by AXA of its entire 15.6% interest in Taikang Life, China’s 4th largest life insurer, to a consortium of new and existing shareholders. The consideration for this transaction amounts to USD 1.2 billion (or ca. Euro 0.9 billion). This corresponds to implied 2009 multiples of 21x net earnings4 and 6x book value4. This transaction generated a positive impact of €0.7 billion in net income and reduced debt gearing by 2 points in the first half of 2011. On May 31, 2011, AXA announced that it has agreed to sell its Canadian operations in Property & Casualty and Life & Savings insurance to Intact Financial Corporation for a total cash consideration of CAD 2.6 billion (or ca. €1.9 billion). This corresponds to implied 2010 multiples of 13x underlying earnings and 1.9x book value. This transaction is expected to generate an exceptional capital gain of approximately €0.9 billion during the second semester, which will be accounted for in net income. In addition, AXA is entitled to receive up to CAD 100 million (or ca. €72 million) in contingent considerations based on profitability metrics over a period of 5 years. 1 Insurance Regulatory and Development Authority. 2 Foreign Direct Investment. 3 April 2010 – March 2011. Premiums are expressed in Indian GAAP. 4 Source : China Insurance Yearbook 2010. Page 5 Activity Report______________________________________________________________________Half Year 2011 AXA’s Canadian operations affected by this proposed transaction is treated as discontinued operations in AXA’s half year 2011 consolidated financial statements. As a consequence, their earnings are accounted for in net income. Estimated impacts on AXA expected at the closing date: Ca. +5 points on Solvency I ratio, which is 186% at June 30, 2011, - Ca. +6 points on Economic Capital ratio, which is 184% at June 30, 2011, - Ca. -3 points on debt gearing, which is 28% at June 30, 2011. The parties expect the sale to close before the end of 3Q 2011, subject to customary closing conditions and regulatory approvals for a transaction of this type. Other On February 3, 2011, the US Securities and Exchange Commission entered an order settling charges against three AXA Rosenberg companies in connection with a coding error in an investment model. Compensation payments have been made to clients and former clients of AXA Rosenberg Group, which were completed in the second quarter of 2011, and AXA Rosenberg Group also paid a civil monetary penalty. AXA previously established a €66 million net provision in its full year 2010 accounts related to this matter. In addition, the three AXA Rosenberg companies have been named as defendants in a putative class action lawsuit in California related to the coding error, which is pending as of the date of this report. Related-party transactions During the first half of the fiscal year 2011, there were (1) no modifications to the related-party transactions described in Note 28 "Related-Party transactions" of the audited consolidated financial statements for the fiscal year ended December 31, 2010 included in the full year 2010 Registration Document (pages 399 and 400) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2011, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2011. Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 "Risk factors" and in Section 1.2 "Additional factors which may affect AXA’s business" included in the full year 2010 Registration Document (respectively on pages 192 to 213 and pages 33 to 45) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2010 Registration Document remains valid in all material respects at the date of this Report regarding the appreciation of the major risks and uncertainties affecting the Group at June 30, 2011 and which management expects may affect the Group during the remainder of 2011. Page 6 Activity Report______________________________________________________________________Half Year 2011 Consolidated gross revenues Consolidated Gross Revenues (a) HY 2011 HY 2010 published HY 2010 restated (d) FY 2010 published FY 2010 restated (d) Life & Savings 27,841 30,881 30,812 56,923 56,792 of which Gross written premiums of which Fees and revenues from investment contracts with no participating feature Property & Casualty 27,010 182 15,350 29,876 292 15,394 29,809 292 14,691 54,962 518 27,413 54,834 518 25,986 International Insurance 1,739 1,762 1,762 2,847 2,847 Asset Management 1,658 1,670 1,670 3,328 3,328 Banking (b) 248 218 218 459 459 Holdings and other companies (c) 0 0 0 0 0 TOTAL 46,836 49,925 49,153 90,972 89,412 (a) Net of intercompany eliminations. (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €245 million and €46,835 million for first half 2011, €212 million and €49,921 million for first half 2010, and €444 million and €90,964 million for full year 2010. (c) Includes notably CDOs and real estate companies. (d) Restated means the restatement following classification of Canadian operations as discontinued business. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE5 in this document means including, in both periods, acquisitions, disposals and business transfers, and net of intercompany transactions. As a consequence of the partial sale of the United Kingdom Life & Savings operations, half year 2010 APE is based on retained business only. Consolidated gross revenues for first half year 2011 reached €46,836 million, down 5% compared to first half year 2010. The restatements to a comparable basis were mainly driven by the impact of the partial sale of UK Life & Savings operations (€+1,123 million or +2.2 points), the impact of AXA APH Asian entities minority interest buy-out and disposal of Australia and New Zealand operations (€+811 million or +0.9 point) and the appreciation of Euro against most of all major currencies (€-744 million or -1.5 points). On a comparable basis, gross consolidated revenues were down 3%. 5 Annual Premium Equivalent (APE) is a new regular premiums plus are tenth of single premiums, in line with EEV methodology. APE is Group share. Page 7 (in Euro million) HY 2011/HY 2010 6.6% 2.7% 0.6% 2.8% 13.0% n.a 3.0% Activity Report______________________________________________________________________Half Year 2011 Annual Premium Equivalent Annual Premium equivalent (in Euro million) HY 2011 HY 2010 FY 2010 HY 2011/HY 2010 (b) TOTAL France United States United Kingdom (a) Japan Germany Switzerland Belgium Mediterranean & Latin American Region Australia/New Zealand Hong Kong Central Eastern Europe South East Asia, India and China Mature markets High Growth markets 2,948 664 502 296 212 258 277 80 202 - 166 129 162 2,467 481 2,986 681 505 295 222 247 179 123 322 153 72 109 78 2,688 298 5,780 1,384 986 545 465 464 283 218 553 283 159 274 166 5,114 667 1.1% 0.0% 5.2% -0.0% -17.1% 4.5% 36.9% -35.0% -37.3% - 32.9% -3.5% 19.0% -3.3% 11.4% (a) Half year 2010 retained business only. (b) Changes are on a comparable basis. Total Life & Savings New Business APE amounted to €2,948 million, down 1% compared to half year 2010. On a comparable basis, APE decreased by 1%, mainly due to Mediterranean & Latin American Region, Belgium and Japan, partly offset by Switzerland, Hong Kong, South-East Asia & China and the United States, while France remained stable. Mediterranean & Latin American Region APE decreased by €120 million (-37%) to €202 million mainly due to mature markets (€-105 million or -37%) reflecting a significant decrease in general account savings products (€-119 million or -57%) notably in Italy (€-119 million of which €-101 million at AXA MPS) reflecting a more favorable context in 2010 notably a tax amnesty, slightly offset by an increased focus on unit-linked (€+12 million or +25%) and Individual Protection products (€+4 million or +50%). High growth markets decreased by €15 million (-38%) driven by Group Protection in Mexico (€-14 million) due to less large new contracts as a result of a stricter underwriting policy. Belgium APE decreased by €43 million (-35%) to €80 million, mainly driven by lower sales of Crest general account Savings products reflecting a conservative commercial policy in a highly competitive market. Japan APE decreased by €38 million (-17%) to €212 million, mainly due to (i) €24 million (-37%) decrease in Investment & Savings following the non-repeat of significant sales of Variable Annuity products in the first half of 2010 as a result of last year change in inheritance tax law, (ii) €11 million (-17%) decrease in Health as a result of a shift from lower margin to higher margin Medical products partly offset by the launch of Cancer Income Support products at the end of 2010. Switzerland APE increased by €66 million (+37%) to €277 million driven by (i) €+63 million (+45%) in Group Life driven by higher demand for full insurance contracts and (ii) €+3 million (+9%) in Individual Life mainly attributable to the new Protect Plan and Protect Invest products. Hong Kong APE increased by €44 million (+33%) to €166 million mainly driven by the successful launch of unit- linked Investment & Savings products and higher agent productivity. South East Asia, India & China increased by €26 million (+19%) to €162 million mainly driven by (i) Indonesia (€+19 million) with strong sales of unit-linked products through the bancassurance channel, (ii) China (€+8 million) primarily from higher sales of Group Protection & Health and Individual savings products and (iii) Thailand (€+3 million) mainly from higher sales of short term Savings products, partly offset by (iv) lower sales in India (€-4 million) mainly from unit-linked business following regulatory changes in September 2010. Page 8 Activity Report______________________________________________________________________Half Year 2011 The United States APE increased by €26 million (+5%) to €502 million mainly driven by (i) Variable Annuity up 5% reflecting higher sales of the Retirement Cornerstone and Structured Capital Strategies products and (ii) Life up 25% reflecting sales of the new Indexed Universal Life product. France APE remained stable at €664 million reflecting a significant change in business mix as (i) lower sales of general account Individual Savings (-13% or €-41 million) were offset by (ii) higher sales of unit-linked Individual Savings (+21% or €+15 million) and, (iii) an increase in general account Protection & Health and Group Retirement sales. As a result, High Growth markets APE increased by 11% mainly driven by Asia while Mature markets declined by 3%, mainly as a result of lower general account Savings products, partly offset by higher sales of general account Protection and Health. Property & Casualty Revenues Property & Casualty Revenues HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published FY 2010 restated (a) TOTAL . Mature markets Direct High Growth markets 15,350 12,726 1,059 1,564 15,394 13,015 962 1,417 14,691 12,313 962 1,417 27,413 22,495 1,928 2,990 25,986 21,067 1,928 2,990 (a) Restated means the restatement following classification of Canadian operations as discontinued business. Property & Casualty gross revenues were up 5% to €15,350 million or up 3% on a comparable basis mainly driven by Personal lines (+4%) especially in Germany, the Mediterranean & Latin American Region and Direct Business. Commercial lines increased by 1% especially in the United Kingdom & Ireland, France and the Mediterranean & Latin American Region partly offset by Germany and Switzerland. Personal lines (59% of P&C gross revenues) were up by 4% on a comparable basis, stemming from both Motor (+5%) and Non-Motor (+2%), primarily as a result of tariff increases in Mature markets and Direct business and higher volume in High Growth markets. Motor revenues grew by 5% mainly driven by (i) the Mediterranean & Latin American Region (+7%), primarily driven by positive volume effects in Turkey (+35%) in a context of car sales growth, in Mexico (+21%) supported by advertising campaigns and in Italy (+9%) benefiting from 2010 and 2011 tariff increases, partly offset by Spain (-8%), (ii) Direct business (+7% or €+65 million) driven by €+43 million in the UK as a result of tariff increases, €+27 million in continental Europe with strong growth in Italy and Poland as well as €+8 million in Japan driven by higher volumes partly offset by €-13 million decrease in South Korea as a result of a difficult market environment, and (iii) Germany (+9%) as a result of higher volumes and price increases, partly offset by (iv) France (-1%) as negative volumes were offset by tariff increases. Non-Motor revenues increased by 2% mainly driven by (i) Direct business (+30%) reflecting higher volumes in Household in the UK, (ii) France (+5%) mainly driven by tariff increase in Household (+6%), (iii) Belgium (+4%) mainly driven by Property following the increase in average premium, and (iv) Germany (+1%) mainly due to a positive net production in Property, partly offset by (v) the United Kingdom (-3%) mainly reflecting selective underwriting within Travel and Warranty lines. Commercial lines (40% of P&C gross revenues) increased by 1% on a comparable basis with both Motor and Non-Motor up by 1%. Motor revenues were up by 1%, mainly driven by (i) the United Kingdom (+16%) as a result of renewal and new business tariff increases, (ii) Belgium (+4%) reflecting tariff increases and new business and (iii) France (+2%) driven by tariff increases in a context of selective underwriting, partly offset by (iv) the Mediterranean & Latin American Region (-6%) mainly in Gulf, Italy and Spain as a result of selective underwriting. Page 9 (in Euro million) HY 2011/HY 2010 2.7% 1.2% 9.3% 11.0% Activity Report______________________________________________________________________Half Year 2011 Non-Motor revenues were up by 1% mainly driven by (i) the Mediterranean & Latin American Region (+4%) mainly on large accounts in high growth markets and (ii) France (+2%) reflecting price increases partly offset by lower volumes, partly offset by (iii) Germany (-1%) mainly due to Liability and Property negatively impacted by cancellations in Industrial business. International Insurance revenues were down 1% to €1,739 million or up 1% on a comparable basis mainly driven by (i) AXA Corporate Solutions (up 2% to €1,271 million) mainly driven by positive developments in Aviation & Space (+24%) and Motor (+10%) partly offset by a decrease in Property (-7%) and Liability (-3%), and (ii) AXA Assistance down 2% to €384 million. Asset management revenues decreased by 1% or increased by 3% on a comparable basis to €1,658 million mainly driven by (i) an increase in performance fees (€+15 million) and transaction fees at AXA IM, (ii) distribution fees at AllianceBernstein (€+13 million) and (iii) stable management fees (€+3 million). AllianceBernstein revenues were up 2% to €1,024 million driven by higher distribution fees (+11%) from higher retail AUM. Management fees were stable driven by higher Retail and Private clients fees offset by lower Institutional clients fees. AUM decreased by €39 billion from year end 2010 to €323 billion at the end of June, 2011 driven by net outflows of €24 billion mainly from Institutional clients, and negative exchange rate impact of €27 billion, partly offset by €11 billion market appreciation. AXA Investment Managers revenues increased by €28 million (+5%) to €634 million. Excluding distribution fees (retroceded to distributors), net revenues increased by €23 million (+4%) mainly driven by higher performance fees (€+15 million), driven by AXA Private Equity, and higher real estate transaction fees (€+7 million), while management fees remained stable as lower AXA Rosenberg management fees were compensated by an increase in management fees from other expertises. AUM decreased by €2 billion from year-end 2010 to €514 billion at the end of June, 2011 as a result of €5 billion unfavorable foreign exchange impact and €2 billion change in scope related to the partial sale of the UK Life & Savings operations, partly offset by €4 billion favorable market impact and €1 billion net inflows mainly driven by net inflows at AXA Fixed Income, AXA Framlington, AXA Private Equity and Money Markets products despite €3 billion net outflows on AXA Rosenberg products and the voluntary exit from unprofitable employee shareholding plans schemes (€-2 billion). Net banking revenues were up 14%, or up 13% on a comparable basis to €248 million, mainly driven by all AXA Bank Europe entities and especially by Belgium (+13% mainly driven by higher revenues on mortgage and consumer loans) and France (+6% driven by a strong increase in mortgage loans activity). Page 10 Activity Report______________________________________________________________________Half Year 2011 Consolidated underlying earnings, adjusted earnings and net income HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published Gross written premiums 43,959 46,884 46,115 84,946 Fees and revenues from investment contracts without participating feature 182 292 292 518 Revenues from insurance activities 44,141 47,177 46,407 85,464 Net revenues from banking activities 245 212 212 444 Revenues from other activities 2,449 2,533 2,531 5,055 TOTAL REVENUES 46,835 49,921 49,150 90,964 Change in unearned premium reserves net of unearned revenues and fees (3,740) (3,504) (3,467) (510) Net investment result excluding financing expenses (a) 11,065 8,323 8,274 30,576 Technical charges relating to insurance activities (a) (40,351) (41,467) (41,057) (94,351) Net result of reinsurance ceded (571) (178) (162) (819) Bank operating expenses (44) (50) (50) (96) Insurance acquisition expenses (4,345) (4,219) (4,093) (8,699) Amortization of value of purchased life business in force (87) (148) (148) (250) Administrative expenses (5,047) (5,250) (5,138) (10,783) Valuation allowances on tangible assets (0) (1) (1) (9) Change in value of goodwill (1) (1) (1) (3) Other (158) (104) (104) (62) Other operating income and expenses (50,605) (51,419) (50,754) (115,071) OPERATING EARNINGS BEFORE TAX 3,556 3,321 3,202 5,959 Net income from investments in affiliates and associates 46 23 23 71 Financing expenses (196) (219) (219) (488) UNDERLYING EARNINGS BEFORE TAX 3,406 3,124 3,006 5,542 Income tax expenses (1,040) (825) (791) (1,296) Minority interests (145) (217) (217) (366) UNDERLYING EARNINGS 2,222 2,082 1,997 3,880 Net realized capital gains or losses attributable to shareholders 171 202 190 437 ADJUSTED EARNINGS 2,393 2,284 2,187 4,317 Profit or loss on financial assets (under fair value option) & derivatives 165 255 258 210 Exceptional operations (including discontinued operations) 1,543 (1,552) (1,462) (1,616) Goodwill and other related intangible impacts (50) (43) (40) (87) Integration and restructuring costs (52) (76) NET INCOME 3,999 944 944 2,749 (a) For the periods ended June 30, 2011, June 30, 2010 and December 31, 2010 the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €+3,257 million, €-2,306 million and €+13,788, and benefits and claims by the offsetting amounts respectively. (b) Restated means the restatement following classification of Canadian operations as discontinued business. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published Life & Savings 1,310 1,325 1,320 2,455 Property & Casualty International Insurance 989 143 923 144 843 144 1,692 290 Asset Management Banking 157 8 150 (22) 150 (22) 269 9 Holdings and other companies (a) (384) (438) (438) (836) UNDERLYING EARNINGS 2,222 2,082 1,997 3,880 Net realized capital gains or losses attributable to shareholders 171 202 190 437 ADJUSTED EARNINGS 2,393 2,284 2,187 4,317 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts 165 1,543 (50) 255 (1,552) (43) 258 (1,462) (40) 210 (1,616) (87) Integration and restructuring costs (52) (76) NET INCOME 3,999 944 944 2,749 (a) Includes notably CDOs and real estate companies. (b) Restated means the restatement following classification of Canadian operations as discontinued business. Page 11 (in Euro million) FY 2010 restated (b) 83,390 518 83,908 444 5,052 89,404 (449) 30,473 (93,482) (786) (96) (8,425) (250) (10,566) (9) (3) (62) (113,679) 5,749 70 (488) 5,331 (1,235) (366) 3,731 419 4,150 212 (1,456) (81) (76) 2,749 (in Euro million) FY 2010 restated (b) 2,445 1,553 290 269 9 (836) 3,731 419 4,150 212 (1,456) (81) (76) 2,749 Activity Report______________________________________________________________________Half Year 2011 Group underlying earnings amounted to €2,222 million. On a constant exchange rate basis, underlying earnings increased by €192 million (+10%) driven by Property & Casualty, Holdings and Banking partly offset by a decrease in Life & Savings. Life & Savings underlying earnings amounted to €1,310 million. On a constant exchange rate basis Life & Savings underlying earnings were down €18 million (-1%). On a comparable scope basis, restated for partial sale of the UK Life & Savings operation and for the AXA APH Asian entities minority interest buy-out and disposal of Australia and New Zealand operations, Life & Savings underlying earnings were up €112 million (+9%) mainly attributable to the United States (€+135 million), France (€+35 million) and South East Asia, India & China (€+23 million), partly offset by Japan (€-34 million), Germany (€-14 million), Hong Kong (€-26 million), and the Mediterranean & Latin America Region (€-10 million) mainly resulting from: (i) Higher investment margin (€+63 million or up 5%) primarly as a result of (i) higher average asset base as well as lower investment income allocated to policyholders in France (€+34 million), (ii) higher investment income mainly driven by a higher average asset base in Belgium (€+23 million) and (iii) the Mediterranean & Latin American Region (€+13 million) mainly from mature markets driven by a higher average asset base, partly offset by (iv) Hong Kong (€-15 million) mainly due to higher credited interests to policyholders. (ii) Higher fees & revenues (€187 million or up 6%) mainly driven by: a. Unit-linked management fees up €132 million (+14%), mainly driven by the United States (€+78 million) with higher unit-linked management fees from higher Separate Account balances and France (€+28 million) driven by both business mix and positive market effects, b. Loadings on premiums and mutual funds was up €46 million mainly driven by the United States (€+ 98 million) due to higher Unearned Revenue Reserve amortization (€+104 million) reflecting lower projection of loadings, partly offset by France (€-61 million) mainly due to lower loadings on general account premiums (€-44 million), c. Other fees were up €9 million driven by the United States (€+15 million) following financial market improvement partly offset by CEE (€-3 million) (iii) Net technical margin was up €180 million (+38%) mainly driven by (i) the United States (€+340 million) primarly driven by lower GMxB losses (€+324 million) reflecting improvement in basis and volatility costs as well as increased interest rate hedging gains, partly offset by (ii) Japan (€-69 million) mainly due to lower mortality margin following the Tohoku earthquake (€-70 million), (iii) France (€-63 million) mainly as a result of regulatory changes on “CMU” levy (offset in expenses) and the new retirement law and (iv) Belgium (€-15 million) mainly due to less favorable mortality and disability experiences, (iv) Expenses increased by €336 million (or +11%) as a result of: a. an increase in acquisition expenses by €314 million (or +20%) following higher DAC amortization in the United States (€+333 million) mainly reflecting improved margins on Variable Annuities partly offset by prior year positive adjustement on commissions (€-20 million) in France, b. administration expenses slightly increasing (+1%). (v) Higher tax expenses and minority interests (up €62 million or +14%) driven by higher pre-tax underlying earnings movements, as well as negative tax one-off in Japan (€-15 million). Property & Casualty underlying earnings amounted to €989 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €124 million (+15%) mainly driven by: (i) Higher net technical result (including expenses) up €170 million (or +96%) driven by: a. Current year loss ratio down 3.1 points driven by lower Nat Cat charge (-1.5 points) and lower current year claims experience (-1.6 points), b. Lower positive prior year reserve development by 2.6 points, c. Lower expense ratio improving by 0.7 point to 26.8%, reflecting (i) 0.4 point reduction in acquisition ratio mainly driven by renegociation of brokers commission rates and reduced exposure to highly Page 12 Activity Report______________________________________________________________________Half Year 2011 commissioned business in the United Kingdom, and (ii) 0.3 point reduction in administrative expenses ratio benefiting from both positive one-off impacts and various productivity programs net of inflation. d. As a result, the combined ratio was down 1.3 points to 97.2%. (ii) Stable investment result, (iii) Higher income tax expense and minority interests (up €43 million) mainly driven by higher pre-tax underlying earnings and a non-recurring negative tax adjustment in the United Kingdom (€-9 million). International Insurance underlying earnings amounted to €143 million. On a constant exchange rate basis, underlying earnings decreased by €3 million (or -2%) mainly due to (i) AXA Corporate Solutions Assurance down (€- 3 million) with a slight deterioration of combined ratio (up 0.7 point) following a higher level of major losses on Property (€+20 million) notably Tohoku earthquake in Japan for €25 million partly offset by tariff increases in several lines of business. Asset Management underlying earnings amounted to €157 million. On a constant exchange rate basis, underlying earnings increased by €9 million (+6%) mainly driven by AXA IM (€+19 million or +25%) reflecting higher revenues and a contained expense base partly offset by AllianceBernstein (€-11 million or -15%) as a result of higher expenses due to promotion and services on new products partly offset by higher revenues. Banking segments’ underlying earnings amounted to €8 million. On a constant exchange rate basis, banking underlying earnings increased by €31 million, mainly driven by Belgium (€+33 million) driven by higher interest and commission margins. Holdings and other companies’ underlying earnings amounted to €-384 million. On a constant exchange rate basis, holdings underlying earnings increased by €50 million (+11%) or down €14 million excluding AXA Rosenberg provision booked in holdings in the first half of 2010 driven by (i) AXA SA (€-27 million) driven by higher investments and taxes following higher inter-company dividends, partly offset by (ii) US Holdings (€+19 million) due to lower interest expenses. Group net capital gains attributable to shareholders amounted to €171 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were down €34 million mainly due to: (i) €-39 million higher impairments, to €-238 million in the first half of 2011 mainly driven by (a) €-92 million net impairment charge on Greece government bonds subject to a global support plan (bonds with maturities below 2020) booked centrally at AXA SA level, partly offset by (b) lower impairments on equity and other fixed income assets, (ii) €+41 million higher realized capital gains, to €+500 million in the first half of 2011, mainly driven by higher realized gains on equities (€+39 million) and on real estate (€+97 million) partly offset by lower realized gains on fixed income (€-57 million), (iii) €-90 million related intrinsic value mainly related to equity derivatives premium amortization. As a result, adjusted earnings amounted to €2,393 million. On a constant exchange rate basis, adjusted earnings increased by €158 million (+7%). Net Income amounted to €3,999 million. On a constant exchange rate basis, net income increased by €2,908 million mainly as a result of: (i) Exceptional capital gains of €1,440 million, realized in the first half of 2011 on Taikang Life (€749 million) and on disposal of Australia and New Zealand operations (€691 million) compared with a net loss on the partial disposal of the UK Life & Savings business in the first half of 2010 (€1,462 million), (ii) Higher adjusted earnings: €+158 million to €2,393 million, (iii) Less favorable change in fair value of financial assets and derivatives: €-90 million to €+165 million. These €+165 million can be analyzed as follows: a. €+165 million positive performance from private equity, equity and hedge funds, net of derivatives, b. €+65 million positive change in fair value mainly from Asset Backed Securities mainly in France, c. €+57 million following foreign exchange movement mainly in France, Page 13 Activity Report______________________________________________________________________Half Year 2011 d. partly offset by €-148 million negative impact mainly from interest rates movements, mainly due to Euro swap rate increase in AXA SA and Belgium. (iv) Lower other operations results for €-52 million related to restructuring costs. Page 14 Activity Report______________________________________________________________________Half Year 2011 Consolidated Shareholders’ Equity As of June 30, 2011, consolidated shareholders' equity totaled €46.4 billion. The movements in shareholders' equity since December 31, 2010 are presented in the table below: (in Euro million) Shareholders' Equity At December 31, 2010 Share Capital Capital in excess of nominal value 49,698 1 3 Equity-share based compensation Treasury shares sold or bought in open market Deeply subordinated debt (including interests charges) Fair value recorded in shareholders' equity Impact of currency fluctuations Payment of N-1 dividend Other Net income for the period 22 107 (140) (1,614) (1,945) (1,601) (2,126) 3,999 Actuarial gains and losses on pension benefits 12 At June 30, 2011 46,416 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2011 HY 2010 Published HY 2010 Restated (a) FY 2010 Published FY 2010 Restated (a) Var. HY 2011 versus HY 2010 Restated (a) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,298.4 2,302.5 2,263.2 2,270.6 2,263.2 2,270.6 2,266.3 2,274.6 2,266.3 2,274.6 Net income (Euro per Ordinary Share) 1.68 1.68 0.35 0.35 0.35 0.35 1.08 1.08 1.08 1.08 382% 382% Adjusted earnings (Euro per Ordinary Share) 0.98 0.98 0.94 0.94 0.90 0.90 1.77 1.77 1.70 1.69 9% 9% Underlying earnings (Euro per Ordinary Share) 0.91 0.90 0.85 0.85 0.81 0.81 1.58 1.57 1.51 1.51 11% 11% (a) Restated in 2010 means the restatement of the Canadian activities as discontinued operations. Page 15 Activity Report______________________________________________________________________Half Year 2011 RETURN ON EQUITY (“ROE”) (in Euro million) Period ended , June 30, 2011 Period ended , June 30, 2010 published Period ended , June 30, 2010 restated ( c) Change in % points ROE 17.3% 4.0% 4.0% 13.3 pts Net income group share 3,999 944 944 Average shareholders' equity 46,349 47,191 47,191 Adjusted ROE 13.5% 12.4% 11.8% 1.7 pts Adjusted earnings (a) Average shareholders' equity (b) 2,253 33,356 2,129 34,306 2,032 34,306 Underlying ROE 12.5% 11.2% 10.7% 1.7 pts Underlying earnings (a) Average shareholders' equity (b) 2,081 33,356 1,927 34,306 1,843 34,306 (a) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (b) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders' equity). ( c) Restated in 2010 means the restatement of the Canadian activities as discontinued operations. Page 16 Activity Report______________________________________________________________________Half Year 2011 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings segment (a) HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published Gross revenues 27,879 30,920 30,851 56,988 APE (Group share) (c) 2,948 3,229 2,986 5,780 Investment margin 1,248 1,280 1,278 2,536 Fees & revenues 3,675 3,806 3,780 7,615 Net technical margin 645 527 521 767 Expenses (3,636) (3,566) (3,538) (7,190) Amortization of VBI (86) (148) (147) (250) Other 22 12 12 21 Underlying earnings before tax 1,867 1,911 1,904 3,500 Income tax expenses / benefits (495) (461) (459) (807) Minority interests (62) (126) (126) (238) Underlying earnings Group share 1,310 1,325 1,320 2,455 Net capital gains or losses attributable to shareholders net of income tax 243 8 5 279 Adjusted earnings Group share 1,553 1,333 1,325 2,734 Profit or loss on financial assets (under FV option) & derivatives 171 291 292 347 Exceptional operations (including discontinued operations) 763 (1,547) (1,539) (1,646) Goodwill and other related intangibles impacts (15) (11) (11) (23) Integration and restructuring costs (16) (16) Net income Group share 2,457 66 66 1,396 (a) Before intercompany transactions. (b) Restated means the restatement following classification of Canadian operations as discontinued business. (c ) Restated half year 2010 APE is based on UK retained business only. Consolidated Gross Revenues HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published France 7,105 7,336 7,336 14,650 United States 4,754 4,713 4,713 9,460 United Kingdom 327 1,398 1,398 2,040 Japan 2,865 2,816 2,816 5,560 Germany 3,328 3,494 3,494 6,880 Switzerland 4,544 3,643 3,643 5,090 Belgium 1,111 1,338 1,338 2,506 Mediterranean & Latin American Region (a) 2,338 4,243 4,243 6,955 Other countries 1,507 1,938 1,869 3,848 TOTAL 27,879 30,920 30,851 56,988 Intercompany transactions (38) (39) (39) (64) Contribution to consolidated gross revenues 27,841 30,881 30,812 56,923 of which High growth markets 1,296 1,212 1,212 2,485 of which Mature markets 26,544 29,668 29,599 54,439 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Restated means the restatement following classification of Canadian operations as discontinued business. Page 17 (in Euro million) FY 2010 restated (b) 56,856 5,780 2,528 7,569 751 (7,136) (250) 21 3,483 (801) (238) 2,445 276 2,721 347 (1,634) (22) (16) 1,396 (in Euro million) FY 2010 restated (b) 14,650 9,460 2,040 5,560 6,880 5,090 2,506 6,955 3,716 56,856 (64) 56,792 2,485 54,307 Activity Report______________________________________________________________________Half Year 2011 Underlying earnings HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published France 379 345 345 607 United States 345 229 229 478 United Kingdom (8) 119 119 134 Japan 133 150 150 335 Germany 82 96 96 174 Switzerland 125 117 117 212 Belgium 82 80 80 170 Mediterranean & Latin American Region (a) 56 67 67 117 Other countries 115 122 117 228 UNDERLYING EARNINGS 1,310 1,325 1,320 2,455 of which High growth markets 121 92 92 174 of which Mature markets 1,189 1,233 1,229 2,281 (a) Mediterranean & Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Restated means the restatement following classification of Canadian operations as discontinued business. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published UNDERLYING EARNINGS 1,310 1,325 1,320 2,455 Net realized capital gains or losses attributable to shareholders 243 8 5 279 ADJUSTED EARNINGS 1,553 1,333 1,325 2,734 Profit or loss on financial assets (under Fair Value option) & derivatives 171 291 292 347 Exceptional operations (including discontinued operations) 763 (1,547) (1,539) (1,646) Goodwill and related intangible impacts (15) (11) (11) (23) Integration and restructuring costs (16) (16) NET INCOME 2,457 66 66 1,396 (a) Restated means the restatement following classification of Canadian operations as discontinued business. Page 18 (in Euro million) FY 2010 restated (b) 607 478 134 335 174 212 170 117 218 2,445 174 2,271 (in Euro million) FY 2010 restated (a) 2,445 276 2,721 347 (1,634) (22) (16) 1,396 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – France HY 2011 HY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax 7,105 664 587 749 253 (1,097) (7) 4 489 7,336 681 553 779 316 (1,173) (7) 3 471 Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (109) (1) 379 144 523 35 - - - 558 (126) (1) 345 (56) 288 (34) - - - 255 Gross revenues decreased by €231 million (-3%) to €7,105 million 6 . On a comparable basis, gross revenues decreased by €197 million (-3%) mainly due to : Individual Savings revenues decreased by €271 million (or -7%, slightly better than the contracting market) due to lower general account Individual Savings (-12% or €-402 million) related to the uncertainties around individual tax environment partly offset by a strong increase of unit-linked Individual Savings premiums (+21% or €+131 million, also stronger than the market), Group Retirement revenues increased by €80 million (+20%) linked to positive portfolio developpement (new large contracts), Protection and Health revenues decreased by €3 million (-0%) mainly due to €-16 million in Group Protection and Health driven by less favorable prior year adjustements, offset by €+13 million in Individual Protection and Health driven by the success of Family Protection product. APE decreased by €17 million (-3%) to €664 million. On a comparable basis, APE was stable (+0%) : Individual Savings decreased by 7% or €26 million, due to market context driving lower general accounts APE (-13%) partly offset by higher unit-linked APE (+21%), Group Retirement increased by 55% or €11 million due to new large contracts, - Protection and Health increased by 6% or €15 million notably driven by a significant rise in Individual Protection notably driven by Family Protection product (€+6 million). Investment margin increased by €34 million (+6%) to €587 million mainly as a result of a higher asset base as well as lower investment income allocated to policyholders. Fees & revenues decreased by €29 million (-4%) to €749 million notably due to lower loadings on premiums in Group Protection (€-35 million, mainly due to prior year negative adjustments on loadings partly offset by prior year positive adjustments in commissions), lower loadings on general accounts savings (€-18 million) mainly from lower volumes, partly offset by higher unit-linked management fees (€+28 million) mainly driven by both favorable business mix and positive market effects. 6 €7,094 million after intercompany eliminations. Page 19 (in Euro million) FY 2010 14,650 1,384 1,105 1,513 561 (2,296) (13) 6 875 (266) (2) 607 247 854 63 - - - 917 Activity Report______________________________________________________________________Half Year 2011 Net technical margin decreased by €63 million (-20%) to €253 million mainly as a result of a €-21 million impact following a change in “CMU” levy (offset in expenses), €-14 million impact in Group Protection mainly following the new retirement law enacted in 2010, and €-6 million in Individual Protection. Expenses decreased by €76 million (-6%) to €-1,097 million mainly due to €+20 million on prior year positive commissions adjustment in 2011 in Group Protection and non-recurring positive impact on taxes (€+56 million of which €+21 million linked to a change in “CMU” levy regulation). Amortization of VBI was stable at €-7 million. As a result, the underlying cost income ratio improved by 2.1 points to 69.5%. Income tax expenses decreased by €17 million (-13%) to €-109 million mostly due to a higher contribution of non taxable dividends, partly offset by higher pre-tax underlying earnings. Underlying earnings increased by €35 million (+10%) to €379 million. Adjusted earnings increased by €235 million (+82%) to €523 million mainly driven by higher underlying earnings (€+35 million), higher realized capital gains mainly on real estate and equities (€+126 million), and the non recurrence of an unfavorable change in intrinsic value of equity hedging positions. Net income increased by €303 million (+119%) to €558 million reflecting higher adjusted earnings as well as €+52 million on change in fair value of freestandings derivatives mainly driven by the non recurrence of unfavourable credit spread impact in half year 2010 (€-45 million) and €+24 million favorable foreign exchange impact driven by an accounting mismatch on derivatives hedging foreign denominated equities. Page 20 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations - United States (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ 4,754 502 239 1,013 188 (945) 1 - 496 (151) - 345 (9) 335 48 - (1) (12) 370 1.4042 4,713 505 252 880 (142) (633) (32) - 326 (96) - 229 (25) 204 132 - (1) - 336 1.3278 9,460 986 505 1,804 (426) (1,278) (52) - 553 (75) - 478 (138) 340 73 - (1) (3) 410 1.3370 Gross revenues increased by €41 million (+1%) to €4,754 million. On a comparable basis, gross revenues increased by €314 million (+7%): Variable Annuity revenues (54% of gross revenues) increased by 7% reflecting the impact of the new Retirement Cornerstone and Structured Capital Strategies products launched in 2010, which represented a combined 53% of the first half of 2011 Variable Annuity sales. Life revenues (27% of gross revenues) increased by 3% primarily reflecting the impact of the new Indexed Universal Life product launched in August 2010 partly offset by lower Term Insurance and Interest Sensitive Life sales. Fees on Asset Management business (7% of gross revenues) increased by 10% driven by higher average separate account balances mainly resulting from equity market increases over the previous year. Mutual Funds revenues (1% of gross revenues) increased by 9% driven by improved equity market conditions compared to last year. APE decreased by €3 million (-1%) to €502 million. On a comparable basis, APE increased by €26 million (+5%): Variable Annuity increased by 5% to €228 million reflecting higher sales of the Retirement Cornerstone and Structured Capital Strategies products. Life increased by 25% to €105 million reflecting sales of the new Indexed Universal Life product. - Mutual Funds decreased by 3% to €167 million. Investment margin decreased by €14 million (-5%) to €239 million. On a constant exchange rate basis, investment margin was stable. Investment income decreased by €7 million reflecting lower yields on fixed income assets partly offset by higher income from alternative investments. Interest and bonus credited decreased by €7 million primarily reflecting lower crediting rates partly offset by higher balances. Fees & revenues increased by €133 million (+15%) to €1,013 million. On a constant exchange rate basis, fees & revenues increased by €191 million (+22%) primarily driven by higher unit-linked management fees (€+78 million) from higher Separate Account balances, and higher Unearned Revenue Reserve amortization (€+104 million) from revised projection of lower future cost of insurance charges (more than offset in DAC amortization). Page 21 Activity Report______________________________________________________________________Half Year 2011 Net technical margin increased by €330 million to €188 million. On a constant exchange rate basis, net technical margin increased by €340 million from €-142 million to €199 million, primarily driven by lower GMxB losses in the first half of 2011, reflecting improvements in basis and volatility costs, as well as increased interest rate hedging gains. Expenses increased by €312 million (+49%) to €-945 million. On a constant exchange rate basis, expenses increased by €366 million (+58%): Expenses, net of capitalization (including commissions and DAC capitalization) increased by €34 million (+6%) to €-570 million mainly due to higher asset based commission expenses. - DAC amortization increased by €333 million to €-429 million primarily due to higher Variable Annuity margins and the projection of lower future cost of insurance charges (partly offset in URR), partly offset by a favorable change in expected mortality. Amortization of VBI decreased by €34 million from €-32 million to €1 million. On a constant exchange rate basis, amortization of VBI decreased by €34 million following changes in assumptions reflecting higher expected margins on MONY in-force contracts, offsetting the annual amortization charge. As a result, the underlying cost income ratio decreased by 1.6 points to 65.5%. Income tax expenses increased by €55 million (+57%) to €-151 million. On a constant exchange rate basis, income tax expenses increased by €64 million (+66%). The tax expense increase mainly reflects higher pre-tax underlying earnings. Underlying earnings increased by €115 million (+50%) to €345 million. On a constant exchange rate basis, underlying earnings increased by €135 million (+59%). Adjusted earnings increased by €131 million (+64%) to €335 million. On a constant exchange rate basis, adjusted earnings increased by €150 million (+74%) mainly reflecting the increase in underlying earnings and lower impairments on fixed income assets. Net income increased by €35 million (+10%) to €370 million. On a constant exchange rate basis, net income increased by €56 million (+17%). Net income improved due to an increase in adjusted earnings, an increase in the fair value of alternative investments (€+28 million), partly offset by a less favorable change in the fair value of interest rate derivatives (€-109 million), and restructuring costs recorded in 2011 (€-12 million). Page 22 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations - United Kingdom HY 2011 HY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 327 296 6 185 (0) (219) (1) - (31) 23 0 (8) 2 (6) 3 17 (6) (0) 7 0.8686 1,398 295 81 327 45 (327) (2) - 125 (6) (0) 119 (11) 108 50 (1,478) (7) - (1,327) 0.8705 As a consequence of the partial sale of the Life & Savings business in second half of 2010, half year 2011 gross revenues, underlying earnings, adjusted earnings and net income do not include the sold business. For consistency, 2011 figures have been compared to the same scope for 2010, i.e including retained business as well as portfolios classified as held for sale expected to be transferred in the second half of 2011. This is referred to as comparable scope basis in the commentary below. Half year 2010 underlying earnings amounted to €119 million, corresponding approximately to €138 million, sold business and €-20 million retained business for the comparable scope. Half year 2010 and full year 2010 APE are based on retained business only. Gross revenues decreased by €1,071 million (-77%) to €327 million. On a constant exchange rate and comparable scope basis, gross revenues increased by €51 million (+19%) mainly attributable to €+39 million from unit-linked business mostly following the launch of the new Accumulator product in 2010, €12 million from Bancassurance business and €10 million from Sun Life Direct Protection business. APE decreased €242 million (-45%) to €296 million. On a constant exchange rate and on retained business only, APE was in line with prior year. Excluding the large corporate pension schemes, APE increased by €13 million (+5%) due to mutual funds sales through the Elevate wrap platform (€+46 million or +106%) as more advisers signed up to using the platform, partly offset by individual pensions where high volumes were achieved in the first quarter of 2010 as a result of the change in the minimum pension age. Investment margin decreased by €76 million (-93%) to €6 million. On a constant exchange rate and on a comparable scope basis, the investment margin remained stable. Fees & revenues decreased by €146 million (-44%) to €185 million. On a constant exchange rate and on a comparable scope basis, fees & revenues increased by €12 million (+9%) driven by €9 million increase in loadings on premiums reflecting portfolio growth, together with €3 million increase in unit-linked management fees driven by in- force growth and favorable market conditions. Page 23 (in Euro million) FY 2010 2,040 545 122 506 65 (577) (3) - 113 21 (0) 134 (6) 128 59 (1,642) (12) (1) (1,468) 0.8615 Activity Report______________________________________________________________________Half Year 2011 Net technical margin decreased by €46 million to €0 million. On a constant exchange rate and on a comparable scope basis, net technical margin remained stable. Expenses decreased by €112 million (-34%) to €219 million. On a constant exchange rate and on a comparable scope basis, expenses remained stable. Amortization of VBI decreased by €1 million (-32%) to €-1 million. On a constant exchange rate and on a comparable scope basis, amortization of VBI remained stable. As a consequence, the underlying cost income ratio increased by 43.3 points to 116.1%. On a constant exchange rate and on a comparable scope basis, the underlying cost income ratio decreased by 6.0 points. Income tax benefits increased by €28 million to €23 million. On a constant exchange rate and on a comparable scope basis, income tax benefits increased by €3 million driven by a positive tax adjustment following a corporate tax decrease offset by higher pre-tax underlying earnings evolution. Retained business underlying earnings benefited from a favorable tax situation in 2010 and 2011. Underlying earnings decreased by €126 million to €-8 million. On a constant exchange rate and on a comparable scope basis, underlying earnings increased by €12 million. Adjusted earnings decreased by €114 million to €-6 million. On a constant exchange rate and on a comparable scope basis, adjusted earnings increased by €13 million largely due to the underlying earnings movement. Net income increased by €1,334 million to €7 million. Excluding €1,478 million exceptional loss arising from the partial sale of the Life & Savings business, on a constant exchange rate and on a comparable scope basis, net income increased by €14 million. Page 24 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – Japan (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Yen 2,865 212 (0) 727 (55) (406) (25) - 242 (107) (2) 133 81 214 104 - - - 318 112.3500 2,816 222 (0) 631 21 (350) (50) - 252 (100) (3) 150 28 178 36 - - - 214 129.1769 5,560 465 (0) 1,356 43 (782) (66) - 550 (211) (4) 335 5 340 46 - - (9) 377 121.5997 Gross revenues increased by €48 million (+2%) to €2,865 million. On a comparable basis, gross revenues decreased by €325 million (-12%): Protection revenues (39% of gross revenues) decreased by €47 million (-5%) mainly resulting from the discontinuation of the Increasing Term Rider product (€-40 million) in 2010 as well as lower sales of Endowment and Whole Life products not actively promoted (€-8 million), Investment & Savings revenues (30% of gross revenues) decreased by €253 million (-25%) mainly due to non-repeat of significant sales of Variable Annuity products in the first half of 2010 driven by the change of inheritance tax law, Health revenues (31% of gross revenues) decreased by €24 million (-3%) mainly resulting from the Cancer product discontinuation (€-19 million) in 2010 and lower sales of Medical products (€-10 million), partly offset by the new Cancer Income Support product (€+4 million), launched in the second half year of 2010. APE decreased by €10 million (-4%) to €212 million. On a comparable basis, APE decreased by €38 million (-17%). This was mainly due to (i) €-24 million (-37%) decrease in Investment & Savings due to non-repeat of significant sales of Variable Annuity products in the first half of 2010, (ii) €-11 million (-17%) decrease in Health as a result of a shift from lower margin to higher margin Medical products partly offset by the new Cancer Income Support products, and (iii) €-2 million (-2%) decrease in Protection mainly driven by lower sales of Term product (€-12 million) partly offset by the new Whole Life product (€+9 million). Investment margin remained stable at €0 million. Fees & revenues increased by €96 million (+15%) to €727 million. On a constant exchange rate basis, fees & revenues were stable. Net technical margin decreased by €76 million to €-55 million. On a constant exchange rate basis, net technical margin decreased by €69 million mainly driven by: Page 25 Activity Report______________________________________________________________________Half Year 2011 Mortality margin down €81 million mainly driven by €-70 million from the Tohoku earthquake and €-15 million less favorable mortality experience mainly in Term products, Surrender margin up €10 million mainly driven by a lower retention of certain Protection products. Expenses increased by €55 million (+16%) to €-406 million. On a constant exchange rate basis, expenses increased by €3 million (+1%) mainly driven by (i) €7 million higher advertising expenses to support the new Cancer Income Support products, partly offset by (ii) €5 million lower commission expenses net of DAC capitalization as a result of lower new business. Amortization of VBI decreased by €25 million (-50%) to €-25 million. On a constant exchange rate basis, VBI amortization decreased by €28 million (-57%) mainly driven by the natural decline of VBI balance. As a result, the underlying cost income ratio increased by 2.7 points to 64.0%. Income tax expenses increased by €7 million to €-107 million. On a constant exchange rate basis, income tax expenses decreased by €7 million due to lower pre-tax underlying earnings partly offset by a negative tax one-off in 2011 (€-15 million). Underlying earnings decreased by €17 million (-11%) to €133 million or decreased by €34 million (-23%) on a constant exchange rate basis. Adjusted earnings increased by €36 million (+20%) to €214 million or increased by €8 million (+4%) on a constant exchange rate basis, driven by (i) €33 million higher realized capital gains on fixed income assets and, (ii) €9 million lower impairments, partly offset by (iii) lower underlying earnings. Net income increased by €104 million (+49%) to €318 million or increased by €63 million (+29%) on a constant exchange rate basis mainly due to €8 million higher adjusted earnings, favorable change in mark-to-market of interest rate derivatives (€+36 million) and the Japanese Yen appreciation against major currencies (€+24 million). Page 26 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – Germany (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,328 258 50 150 35 (108) (10) - 118 (35) (0) 82 (7) 75 8 - - - 83 3,494 247 50 140 41 (87) (5) - 138 (42) (0) 96 (3) 93 27 - - - 120 6,880 464 84 306 98 (225) (14) - 249 (75) (0) 174 11 185 29 1 - (0) 214 Gross revenues decreased by €167 million (-5%) to €3,328 million7: Life revenues (63% of gross revenues) decreased by €242 million (-10%) to €2,112 million due to lower single premiums from general account short term investment products and unit-linked Savings as well as lower regular premiums in Protection with Savings partly compensated by higher single premiums from general account Savings, Health revenues (37% of gross revenues) increased by €75 million (+7%) to €1,216 million mainly derived from premium indexation and higher new business. APE increased by €11 million (+4%) to €258 million due to: Life decreased by €21 million (-12%) mainly due to declining single premiums from general account short term investment products and lower unit-linked new business partly compensated by higher new business from general account Annuities, Health increased by €32 million (+43%) driven by a change in regulation and the launch of Long Term Care product. Investment margin remained stable at €50 million. Fees & revenues increased by €10 million (+7%) to €150 million mainly driven by higher loadings on Health business in line with portfolio growth. Net technical margin decreased by €6 million (-15%) to €35 million mainly due to a decrease in hedging margin on GMxB products (€-11 million) partly offset by improved claims experience in Health. Expenses increased by €21 million (+23%) to €-108 million mainly due to higher expenses in Health deriving from new business and portfolio growth, higher amortization of deferred acquisition expenses mainly driven by positive investment experience. Amortization of VBI increased by €5 million (+101%) to €-10 million driven by a positive experience on investment yields. 7 €3,319 million after intercompany eliminations. Page 27 Activity Report______________________________________________________________________Half Year 2011 As a result, the underlying cost income ratio increased by 10.0 points to 50.0% Income tax expenses decreased by €7 million (-17%) to €-35 million mainly due to lower pre-tax underlying earnings. Underlying earnings decreased by €14 million (-14%) to €82 million. Adjusted earnings decreased by €18 million (-19%) to €75 million due to higher net realized capital losses on equities and lower underlying earnings. Net income decreased by €38 million (-31%) to €83 million mainly due to lower adjusted earnings and less favorable change in fair value of fixed income assets due to higher interest rates. Page 28 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – Switzerland (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 4,544 277 52 131 130 (106) (35) - 172 (47) - 125 20 145 (1) 749 (3) - 890 1.2700 3,643 179 48 112 104 (93) (20) - 151 (34) - 117 28 146 46 (5) (3) - 184 1.4357 5,090 283 113 231 169 (194) (43) - 275 (63) - 212 34 247 69 51 (6) - 361 1.3910 Gross revenues increased by €901 million (+25%) to €4,544 million 8 . On a comparable basis, gross revenues increased by €375 million (+10%): Group Life revenues increased by €371 million (+11%) to €4,152 million mainly due to higher single premiums (€+288 million) and higher regular premiums (€+94 million) as a result of a strong positioning in a context of increased demand for full insurance contracts, Individual Life revenues increased by €6 million (+2%) to €392 million as a consequence of higher single premiums (€+5 million) mainly attributable to the new Protect Plan and Protect Invest products . APE increased by €98 million (+55%) to €277 million. On a comparable basis, APE increased by €66 million (+37%): Group Life increased by €63 million (+45%) driven by higher demand for full-protection schemes, - Individual Life increased by €3 million (+9%) mainly attributable to the new Protect Plan and Protect Invest products . Investment margin increased by €3 million (+6%) to €52 million. On a constant exchange rate basis, investment margin decreased by €3 million (-6%) mainly due to a slightly lower investment income. Fees & revenues increased by €19 million (+17%) to €131 million. On a constant exchange rate basis, fees & revenues increased by €4 million (+4%) mainly driven by the growth in Group Life. Net technical margin increased by €26 million (+25%) to €130 million. On a constant exchange rate basis, net technical margin increased by €11 million (+11%) driven by €8 million gain from the cancellation of a large internal co-insurance contract (offset by a corresponding VBI amortization) and a favorable mortality development in Individual Life. Expenses increased by €12 million (+13%) to €-106 million. On a constant exchange rate basis, expenses were stable. Higher portfolio commissions due to volume growth were compensated by lower general expenses reflecting ongoing cost management. 8 €4,537million after intercompany eliminations. Page 29 Activity Report______________________________________________________________________Half Year 2011 Amortization of VBI increased by €15 million (+76%) to €-35 million. On a constant exchange rate basis, amortization of VBI increased by €11 million (+56%) mainly impacted by the cancellation of above mentioned internal co-insurance contract and by changes in actuarial and economic assumptions in Individual Life. As a result, the underlying cost income ratio increased by 2.2 points to 45.0%. Income tax expenses increased by €13 million (+38%) to €-47 million. On a constant exchange rate basis, income tax expenses increased by €7 million (+22%) mainly due to dividends received from consolidated foreign subsidiaries and higher pre-tax underlying earnings. Underlying earnings increased by €8 million (+7%) to €125 million. On a constant exchange rate basis, underlying earnings decreased by €6 million (-5%) due to higher income tax. Adjusted earnings remained stable at €145 million. On a constant exchange rate basis, adjusted earnings decreased by €17 million (-12%) due to lower realized capital gains mainly on equities. Net income increased by €706 million to €890 million. On a constant exchange rate basis, net income increased by €603 million mainly driven by the sale of the stake in Taikang Life (€+749 million) partly offset by a non-recurring positive interest rate hedging gain in 2010. Page 30 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – Belgium (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,111 80 148 65 25 (131) (3) - 104 (22) (0) 82 0 82 (24) - - (3) 56 1,338 123 125 74 41 (137) (2) - 100 (19) (0) 80 13 93 41 (4) - - 130 2,506 218 262 153 67 (250) (4) - 227 (57) (0) 170 69 239 33 (4) - (3) 265 Gross revenues decreased by €227 million (-17%) to €1,111 million9 : Individual Life & Savings revenues decreased by 22% (or €-225 million) to €818 million mainly driven by strong decrease in both unit-linked and general account Savings products by €222 million (-24%) especially on Crest products in a competitive environment, Group Life & Savings revenues decreased by 1% (or €-2 million) to €292 million. APE decreased by €43 million (-35%) to €80 million. Individual Life & Savings APE decreased by 38 % (or €-44 million) mainly driven by Crest products reflecting a conservative commercial policy in a highly competitive market. Group Life & Savings APE increased by 9% (or €+1 million). Investment margin increased by €23 million (+18%) to €148 million mainly due to higher investment income mainly driven by a higher asset base and a decrease of the average credited rate to policyholders. Fees & revenues decreased by €9 million (-12%) to €65 million mainly due to lower fees and loadings (€-6 million) and a lower Unearned Revenue Reserve amortization (URR, €-3 million offset by lower DAC amortization). Net technical margin decreased by €15 million (-38%) to €25 million mainly due to a less favorable mortality and disability experiences. Expenses decreased by €6 million (-4%) to €-131 million. Excluding the reclassification of 2011 restructuring costs to net income, expenses decreased by €3 million mainly due to lower net deferred acquisition cost amortization (€-11 million) and lower general expenses (€-5 million) partly offset by the contribution to the new policyholder protection fund (€+13 million). Amortization of VBI increased by €1 million to €-3 million. As a result the underlying cost income ratio decreased by 1.9 points to 56.4%. Income tax expenses increased by €2 million to €-22 million. 9 €1,110 million after intercompany eliminations. Page 31 Activity Report______________________________________________________________________Half Year 2011 Underlying earnings increased by €2million to €82 million. Adjusted earnings decreased by €11 million (-12%) to €82 million mainly driven by lower realized capital gains on equities and realized losses on fixed income assets partly offset by lower impairment on equities. Net income decreased by €74 million to €56 million mainly due to a negative mark-to-market impact driven by interest rates increase. Page 32 Activity Report______________________________________________________________________Half Year 2011 Life & Savings operations – Mediterranean and Latin American Region HY 2011 HY 2010 Gross revenues APE (Group share) 2,338 202 4,243 322 Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 137 155 42 (219) (7) - 108 (30) (22) 56 4 60 (6) - (4) (1) 50 124 165 49 (217) (11) - 110 (27) (17) 67 21 88 (3) - (0) - 85 Gross revenues decreased by €1,905 million (-45%) to €2,338 million. On a comparable basis, gross revenues decreased by €1,904 million (-45%) mainly due to mature markets (€-1,896 million or -47%) reflecting a significant decrease in general account savings products (€-1,964 million or -62%) mainly in Italy (€-1,957 million of which AXA MPS €-1,803 million), reflecting a more favorable context in 2010 in Italy notably a tax amnesty. High growth markets decreased by €8 million (-4%) mainly driven by lower Group Protection new business in Mexico. APE decreased by €120 million (-37%) to €202 million. On a comparable basis, APE decreased by €120 million (- 37%) mainly due to mature markets (€-105 million or -37%) reflecting a strong drop in general account savings products (€-119 milllion or -57%) notably in Italy (€-119 million of which €-101 million in AXA MPS) reflecting a more favorable context in 2010 in Italy notably a tax amnesty, slightly offset by an increased focus on unit-linked (€+12 million or +25%) and Individual Protection products (€+4 million or +50%). High growth markets decreased by €15 million (-38%) driven by Group Protection in Mexico (€-14 million) due to less large new contracts as a result of a stricter underwriting policy. Investment margin increased by €12 million (+10%) to €137 million. On a constant exchange rate basis, investment margin increased by €13 million (+10%) mainly from mature markets driven by a higher average asset base. Fees & revenues decreased by €10 million (-6%) to €155 million. On a constant exchange rate basis, fees & revenues decreased by €10 million (-6%) due to mature markets (€-7 million or -6%) as a result of lower volumes in general account savings mainly in AXA MPS (€-6 million) and high growth markets (€-3 million or -6%) following lower volumes in Group Protection in Mexico (€-5 million). Net technical margin decreased by €7 million (-13%) to €42 million. On a constant exchange rate basis, net technical margin decreased by €6 million (-13%) mainly due to a lower mortality margin, notably in Spain (€-8 million). Expenses remained flat at €-219 million. On a constant exchange rate basis, expenses remained stable mainly driven by: €-3 million decrease in high growth markets mainly driven by lower commissions on Group Protection in Mexico, Page 33 (in Euro million) FY 2010 6,955 553 253 332 108 (455) (21) - 217 (70) (30) 117 35 152 (24) - (0) - 127 Activity Report______________________________________________________________________Half Year 2011 €+5 million increase in mature markets driven by higher DAC amortization (€+10 million) mainly due to in- force portfolio growth in Italy offset by lower commissions net of DAC capitalization and lower administrative expenses. Amortization of VBI decreased by €4 million (-34%) to €-7 million. On a constant exchange rate basis, amortization of VBI decreased by €4 million (-34%) mainly due to the natural decline of VBI balance at AXA MPS. As a result, the underlying cost income ratio increased by 0.2 point to 67.6%. Income tax expenses increased by €3 million (+11%) to €-30 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+11%) mainly driven by 2011 negative non-recurring impact at AXA MPS (€-4 million), partly offset by lower pre tax underlying earnings. Underlying earnings decreased by €11 million (-16%) to €56 million. On a constant exchange rate basis, underlying earnings decreased by €10 million (-15%). Adjusted earnings decreased by €28 million (-31%) to €60 million. On a constant exchange rate basis, adjusted earnings decreased by €27 million (-31%) mainly due to lower realized capital gains as well as lower underlying earnings. Net income decreased by €35 million (-41%) to €50 million. On a constant exchange rate basis, net income decreased by €34 million (-41%) mainly due to lower adjusted earnings and higher tax rate in Italy. Page 34 Activity Report______________________________________________________________________Half Year 2011 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2011 HY 2010 published HY 2010 restated (c) FY 2010 published Australia / New Zealand 352 811 811 1,551 Hong Kong 703 665 665 1,321 South East Asia (a) 128 111 111 244 Central and Eastern Europe (b) 277 239 239 515 Other countries 47 112 43 216 o/w Canada 69 0 132 o/w Luxembourg 46 43 43 82 o/w AXA Global Distributors 1 0 0 0 TOTAL 1,507 1,938 1,869 3,848 Intercompany transactions (2) (2) (2) (3) Contribution to consolidated gross revenues 1,505 1,936 1,867 3,844 (a) South East Asia revenues include Indonesia and Singapore. (b) Includes Poland, Hungary, Czech Republic and Slovakia. (c) Restated means the restatement following classification of Canadian operations as discontinued business. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 published HY 2010 restated (c) FY 2010 published Australia and New Zealand 12 43 43 82 Hong Kong 89 79 79 142 South-East Asia, India and China (a) 18 (4) (4) 3 Central Eastern Europe (b) 7 5 5 9 Other countries (11) (1) (6) (8) o/w Canada 4 10 o/w AXA Global Distributors (14) (8) (8) (22) o/w Luxembourg 3 3 3 5 UNDERLYING EARNINGS 115 122 117 228 Net realized capital gains or losses attributable to shareholders 9 13 10 22 ADJUSTED EARNINGS 124 135 127 250 Profit or loss on financial assets (under Fair Value option) & derivatives 5 (5) (4) (0) Exceptional operations (including discontinued operations) (2) (59) (52) (52) Goodwill and related intangible impacts (1) (1) (1) (3) Integration and restructuring costs 0 (0) NET INCOME 125 70 70 194 (a) South East Asia earnings include Indonesia, Thailand, Philippines and Singapore. (b) Includes Poland, Hungary, Czech Republic and Slovakia. (c) Restated means the restatement following classification of Canadian operations as discontinued business. HONG-KONG Gross revenues increased by €38 million (+6%) to €703 million. On a comparable basis, gross revenues increased by €126 million (+20%) mainly due to higher revenues from general account Protection and Health products (€+66 million) and unit-linked products (€+31 million). APE increased by €95 million (+132%) to €166 million. On a comparable basis, APE increased by €44 million (+33%) mainly driven by the successful launch of unit-linked Investment & Savings products and higher agent productivity. Page 35 (in Euro million) FY 2010 restated (c) 1,551 1,321 244 515 84 0 82 0 3,716 (3) 3,712 (in Euro million) FY 2010 restated (c) 82 142 3 9 (18) (22) 5 218 19 236 0 (40) (3) (0) 194 Activity Report______________________________________________________________________Half Year 2011 Investment margin decreased by €15 million (-71%) to €6 million. On a constant exchange rate basis, investment margin decreased by €15 million (-69%) mainly due to higher allocated bonus to policyholders. Fees & revenues increased by €3 million (+2%) to €170 million. On a constant exchange rate basis, fees & revenues increased by €13 million (+8%) mainly driven by an increase in loadings on premiums and mutual funds (€+8 million) thanks to higher in-force growth and to a lesser extent by unit-linked management fees growth (€+6 million). Net technical margin decreased by €18 million (-57%) to €14 million. On a constant exchange rate basis, net technical margin decreased by €18 million (-55%) mainly due to the early termination of an internal co-insurance treaty (€-8 million) and GMxB hedge reserve adjustment reflecting better persistency (€-3 million). Expenses increased by €14 million (+22%) to €-78 million. On a constant exchange rate basis, expenses increased by €18 million (+29%) mainly due to (i) higher acquisition expenses driven by new business growth and (ii) higher administrative expenses reflecting continuing investments in the business infrastructure. Amortization of VBI decreased from €-5 million to €7 million. On a constant exchange rate basis, amortization of VBI decreased by €12 million mainly reflecting revised projections of future profits (€+7 million) and the early termination of an internal co-insurance treaty (€+6 million). As a consequence, the underlying cost income ratio increased by 6.0 points to 37.3%. Income tax expenses increased by €1 million (+9%) to €-8 million. On a constant exchange rate basis, income tax expenses increased by €1 million (+16%). Underlying earnings increased by €10 million (+12%) to €89 million. On a constant exchange rate and scope basis, following the minority interests buy-out, underlying earnings decreased by €26 million. Adjusted earnings increased by €1 million (+1%) to €93 million. On a constant exchange rate and scope basis, adjusted earnings decreased by €29 million (-17%) mainly reflecting lower underlying earnings and lower net realized capital gains. Net income was flat at €92 million. On a constant exchange rate and scope basis, net income decreased by €29 million (-17%) mainly due to lower adjusted earnings. SOUTH EAST ASIA, INDIA AND CHINA Gross revenues increased by €17 million (+15%) to €128 million. On a comparable basis, gross revenues increased by €14 million (+13%) mainly due to strong unit-linked product sales in Indonesia and Singapore partially offset by a slowdown of Protection business in Singapore. APE increased by €83 million (+106%) to €162 million. On a comparable basis APE increased by €26 million (+19%) mainly driven by: - China (€+8 million) primarily from higher sales of Group Protection and Health and Individual savings products, Thailand (€+3 million) mainly from higher sales of short term Savings products. Indonesia (€+19 million) with strong sales of unit-linked products through the bancassurance channel, These increases were partly offset by lower sales in India (€-4 million), mainly from unit-linked business following regulatory changes in September 2010. Underlying earnings increased by €22 million to €18 million. On a constant exchange rate and scope basis, underlying earnings increased by €23 million reflecting earnings improvement in India (€+7 million), Indonesia (€+6 million), Thailand (€+5 million) and Singapore (€+4 million). Adjusted earnings increased by €23 million to €19 million. On a constant exchange rate and scope basis, adjusted earnings increased by €23 million primarily driven by growth in underlying earnings. Net income increased by €79 million to €16 million. On a constant exchange rate basis, net income increased by €96 million mainly reflecting growth in adjusted earnings and the non-repeat of residual past losses in India. Page 36 Activity Report______________________________________________________________________Half Year 2011 CENTRAL AND EASTERN EUROPE Gross revenues increased by €38 million (+16%) to €277 million. On a constant exchange rate and scope basis, gross revenues increased by €28 million (+12%) mainly driven by sustained developments in Life business. APE increased by €19 million (+18%) to €129 million. On a comparable basis, APE decreased by €5 million (-4%) due to the progressive run-off of the Pension Funds business (€-23 million or -30%) following regulatory changes in Hungary and Poland partly offset by Life & Savings APE (€+19 million or +37%) stemming from unit-linked product sales acceleration (€+17 million or +45%). Underlying earnings increased by €2 million (+30%) to €7 million. On a constant exchange rate basis, despite the quasi nationalization of the Mandatory Pension Funds in Hungary and regulatory reform in Poland, underlying earnings increased by €1 million (+22%) mainly driven by higher fees & revenues and net technical margin partly offset by higher administrative expenses. As a result, the underlying cost income ratio improved by 1.0 points to 90.4%. Adjusted earnings increased by €3 million to €8 million. On a constant exchange rate basis, adjusted earnings increased by €3 million mainly as a result of higher underlying earnings and €2 million higher net realized capital gains. Net income increased by €4 million to €7 million. On a constant exchange rate basis, net income increased by €3 million driven by higher adjusted earnings. AXA GLOBAL DISTRIBUTORS 10 Underlying earnings as well as adjusted earnings and net income decreased by €5 million (-66%) to €-14 million mainly due to higher administrative expenses reflecting business development in Europe. 10 AXA Global Distributors was formed in March 2009 and is 100% owned by AXA SA. The AXA Global Distributors’ initiative aim is to distribute variable annuity products through third party partnerships, specifically large banks. P&L excluding infrastructure costs are reflected within AXA France and AXA UK Life & Savings segments. Page 37 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Following the announcement of the sale of Canadian operations, half year 2010 and full year 2010 earnings were restated to reflect its reclassification as discontinued business. In addition, in order to improve visibility on Direct operations in P&C, this activity is now reported as a separate reporting unit and no longer included within countries or regions. Reported half year 2010 and full year 2010 figures by country were modified accordingly with this new presentation. The total gross revenues, combined ratio and earnings are not impacted by these two changes in presentation. The presentation between current and prior year loss ratio have been harmonized throughout the Group. Half year 2010 current accident year loss ratios by country presented hereafter incorporate such change11 to ensure sufficient comparability. The all accident year loss ratio, combined ratio, earnings and reserves are not impacted by this change in presentation. Property and Casualty Segment (a) HY 2011 HY 2010 published HY 2010 restated (b) FY 2010 published Gross revenues Current accident year loss ratio (net) (c) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 15,540 72.4% 70.4% 3,887 26.8% 1,025 1,392 (404) 21 (20) 989 111 1,100 82 93 (35) (29) 1,212 15,609 75.0% 70.4% 3,969 27.7% 1,059 1,308 (378) 11 (18) 923 207 1,130 (31) 5 (32) - 1,072 14,898 75.6% 71.1% 3,685 27.5% 1,020 1,196 (346) 11 (18) 843 198 1,041 (28) 88 (29) - 1,072 27,656 74.4% 71.1% 7,932 28.0% 2,115 2,357 (658) 33 (40) 1,692 111 1,803 27 6 (64) (22) 1,750 (a) Before intercompany transactions. (b) Restated means the restatement following classification of Canadian operations as discontinued business. (c) The half year 2010 published current accident year loss ratio was 76.9%. 11 Mainly current accident year loss ratios in Germany, Belgium, Switzerland and Mediterranean & Latin American Region. Page 38 (in Euro million) FY 2010 restated (b) 26,219 74.8% 71.7% 7,382 27.8% 2,035 2,165 (604) 32 (40) 1,553 96 1,649 29 153 (59) (22) 1,750 Activity Report______________________________________________________________________Half Year 2011 Consolidated Gross Revenues HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published France 3,078 3,229 3,026 5,896 United Kingdom & Ireland 1,975 2,183 1,928 4,229 Germany 2,271 2,205 2,205 3,489 Belgium 1,138 1,154 1,119 2,118 Mediterranean & Latin American Region (b) 3,402 3,478 3,348 6,928 Switzerland 2,309 2,030 2,030 2,336 Direct (c) 1,059 n.a 962 n.a Other countries 308 1,330 281 2,661 TOTAL 15,540 15,609 14,898 27,656 Intercompany transactions (190) (215) (207) (242) Contribution to consolidated gross revenues 15,350 15,394 14,691 27,413 of which High growth markets of which Direct of which Mature markets 1,564 1,059 12,726 1,417 962 13,015 1,417 962 12,313 2,990 1,928 22,495 (a) Direct P&C operations are now reported as a separate business. Half year 2010 and full year 2010 restated figures as reported were modified accordingly. Restated means also the restatement following classification of Canadian operation as discontinued business. (b) Mediterranean & Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. Combined Ratio Total HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published 97.2% 98.1% 98.6% 99.1% France 96.5% 99.1% 99.0% 99.1% United Kingdom & Ireland 100.0% 101.1% 100.5% 103.9% Germany 99.3% 101.3% 101.3% 104.6% Belgium 100.2% 98.5% 98.9% 98.5% Mediterranean & Latin American Region (b) 96.5% 97.9% 97.5% 97.7% Switzerland 87.4% 88.7% 88.7% 88.8% Central Eastern Europe 103.1% 120.3% 112.1% 115.9% Direct (c) 102.0% n.a 104.0% n.a Other countries 97.2% 94.3% 99.9% 96.6% Mature 97.0% 97.4% 97.9% 98.4% Direct High Growth 102.0% 96.0% n.a 100.3% 104.0% 100.3% n.a 99.3% (a) Direct P&C operations are now reported as a separate business. Half year 2010 and full year 2010 restated figures as reported were modified accordingly. Restated means also the restatement following classification of Canadian operation as discontinued business. (b) Mediterranean & Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. Page 39 (in Euro million) FY 2010 restated (a) 5,531 3,687 3,489 2,049 6,661 2,336 1,928 539 26,219 (234) 25,986 2,990 1,928 21,067 (in Euro million) FY 2010 restated (a) 99.5% 98.9% 102.1% 104.6% 98.8% 97.2% 88.8% 106.8% 108.3% 100.6% 98.8% 108.3% 99.3% Activity Report______________________________________________________________________Half Year 2011 Underlying earnings HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published France 240 212 208 432 United Kingdom & Ireland 78 72 75 50 Germany 145 111 111 177 Belgium 72 75 72 159 Mediterranean & Latin American Region (b) 202 180 185 358 Switzerland 209 180 180 359 Direct ( c) 14 n.a (3) n.a Other countries 29 92 15 157 UNDERLYING EARNINGS 989 923 843 1,692 of which High growth markets 112 67 67 147 of which Direct 14 (3) (3) (62) of which Mature markets 863 859 779 1,606 (a) Direct P&C operations are now reported as a separate business. Half year 2010 and full year 2010 restated figures as reported were modified accordingly. Restated means also the restatement following classification of Canadian operations as discontinued business. (b) Mediterranean & Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, and Mexico. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 published HY 2010 restated (a) FY 2010 published UNDERLYING EARNINGS 989 923 843 1,692 Net realized capital gains or losses attributable to shareholders 111 207 198 111 ADJUSTED EARNINGS 1,100 1,130 1,041 1,803 Profit or loss on financial assets (under Fair Value option) & derivatives 82 (31) (28) 27 Exceptional operations (including discontinued operations) 93 5 88 6 Goodwill and related intangibles impacts (35) (32) (29) (64) Integration and restructuring costs (29) 0 (22) NET INCOME 1,212 1,072 1,072 1,750 (a) Restated means the restatement following classification of Canadian operations as discontinued business. Page 40 (in Euro million) FY 2010 restated (a) 424 98 177 153 368 359 (62) 36 1,553 147 (62) 1,468 (in Euro million) FY 2010 restated (a) 1,553 96 1,649 29 153 (59) (22) 1,750 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – France (in Euro million) HY 2011 HY 2010 restated (a) FY 2010 restated (a) Gross revenues Current accident year loss ratio (net) (b) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,078 74.0% 71.8% 759 24.7% 282 378 (138) - (0) 240 10 250 37 - - - 287 3,026 80.0% 73.5% 702 25.4% 296 323 (115) - (0) 208 71 280 (23) - - - 256 5,531 76.2% 73.6% 1,453 25.3% 589 649 (224) - (0) 424 34 459 (7) - - - 452 (a) Restated in full year 2010 and in half year 2010 means the figures as reported were modified accordingly the Direct P&C operations reported as a separate reporting unit. (b) The half year and full year 2010 published current year loss ratio were respectively 80.2 % and 76.5 %. Gross revenues increased by €52 million (+2%) to €3,078 million12: Personal lines (58% of gross revenues) were up by 2% to €1,766 million mainly as a result of tariff increases in both Motor and Household, partly offset by negative net new contracts. Commercial lines (42% of gross revenues) were up by 2% to €1,271 million driven by tariff increases in a context of selective underwriting. Net technical result increased by €57 million (+8%) to €759 million: Current accident year loss ratio decreased by 6.0 points to 74.0% reflecting lower impact of Nat Cat events (3.5 points attributable to Xynthia in 2010) and a lower attritional claims ratio linked to tariff increases and more favorable claims frequency, All accident year loss ratio decreased by 1.7 points to 71.8% as a result of the decrease in current accident year loss ratio, partly offset by lower positive prior year reserve developments. Expense ratio decreased by 0.7 point to 24.7% mainly driven by a contained cost base and by non-recurring positive impacts on tax contributions (€+10 million). Enlarged expense ratio was down 0.5 point to 32.8%. As a result, the combined ratio was down 2.4 points to 96.5%. Net investment result decreased by €14 million (-5%) to €282 million mainly due to lower yields on fixed income assets. Income tax expenses increased by €23 million (+20%) to €-138 million mainly reflecting higher pre-tax underlying earnings. 12 €3,037 million after intercompany eliminations. Page 41 Activity Report______________________________________________________________________Half Year 2011 Underlying earnings increased by €32 million (+15%) to €240 million. Adjusted earnings decreased by €29 million (-10%) to €250 million as a consequence of lower net realized capital gains (€-61 million) mostly on equities partly offset by higher underlying earnings. Net income increased by €30 million (+12%) to €287 million mainly due to €+51 million favorable foreign exchange impact driven by an accounting mismatch on derivatives hedging foreign denominated assets and €+14 million more favorable change in fair value of mutual funds. This was partly offset by the decrease in adjusted earnings. Page 42 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2011 HY 2010 restated (a) FY 2010 restated (a) Gross revenues Current accident year loss ratio (net) (b) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ (a) Restated in full year 2010 and in half year 2010 means the figures as reported were modified accordingly to report the Direct P&C operations as a separate reporting unit. (b) The half year and full year 2010 published current accident year loss ratio were respectively 71.6 % and 74.4 %. 1,975 69.2% 68.8% 567 31.1% 108 109 (30) - (0) 78 (2) 77 (11) - (1) (7) 58 0.8686 1,928 70.1% 68.7% 576 31.7% 95 87 (11) - (0) 75 19 95 (13) - (1) - 80 0.8705 3,687 72.5% 69.9% 1,129 32.2% 196 118 (20) - (0) 98 (9) 89 5 - (1) (10) 83 0.8615 Gross revenues increased by €47 million (+2%) to €1,975 million13. On a comparable basis, gross revenues increased by €34 million (+2%): Personal lines (51% of the total premiums) were stable at €1,013 million. Motor was up 10% to €293 million primarily due to tariff increases within the UK and Ireland. Non-Motor was down 3% to €720 million. Property was down 1% to €247 million principally due to a reduction in new business within Ireland following significant tariff increases applied in 2010. Health was stable at €300 million. Other lines of business were down 9% to €173 million mainly reflecting selective underwriting within Travel and Warranty lines, Commercial lines (47% of the total premiums) were up 5% to €924 million. Motor was up 16% to €163 million driven by renewal and new business tariff increases in the UK. Non-Motor was up 2% to €761 million driven by (i) Health, up 10% to €392 million following volume growth in large corporate schemes and international, partly offset by (ii) a 5% decline within Property reflecting continuing soft market conditions. Net technical result decreased by €9 million (-2%) to €567 million. On a constant exchange rate basis, net technical result decreased by €10 million (-2%): Current accident year loss ratio decreased by 0.9 point to 69.2% reflecting tariff increases in the UK and Ireland across Personal Motor and Property and the absence of Nat Cat events, partly offset by the continuing difficult trading conditions in Commercial lines, All accident year loss ratio increased by 0.1 point to 68.8% reflecting the improvement in current year loss ratio offset by lower positive prior year reserve developments. Expense ratio decreased by 0.6 point to 31.1% with an acquisition expense ratio down 1.4 points to 21.6%, reflecting a decrease in commissions (-1.7 points) driven by renegotiation of broker commission rates and reduced exposure to highly commissioned Delegated Authority business, partly offset by a slight increase in other acquisition 13 €1,908 million after intercompany eliminations. Page 43 Activity Report______________________________________________________________________Half Year 2011 costs reflecting increased marketing activity. The administrative expense ratio increased by 0.8 point to 9.5% following the decommissioning of an IT platform (+0.7 point), inflationary pressure following VAT increases in the UK (+0.4 point), international expansion in Health (+0.3 point), partly offset by a reduction in Ireland (-0.5 point) reflecting a cost containment program. Enlarged expense ratio was down by 0.9 point to 34.2%. As a result, the combined ratio was down by 0.5 point to 100.0%. Net investment result increased by €13 million (+13%) to €108 million. On a constant exchange rate basis, net investment result increased by €12 million (+13%) mainly reflecting higher equity income (€+3 million), higher bond yields (€+5 million) and increased loan interest and other income (€+5 million). Income tax expenses increased by €19 million (+168%) to €-30 million. On a constant exchange rate basis, income tax expenses increased by €19 million (+167%) reflecting higher pre-tax underlying earnings and a combination of the non repeat of last year tax benefit (€-8 million) and a negative tax adjustment in the first half of 2011 following a corporate tax rate decrease (€-9 million). Underlying earnings increased by €3 million (+4%) to €78 million. On a constant exchange rate basis, underlying earnings increased by €3 million (+4%). Adjusted earnings decreased by €18 million (-19%) to €77 million. On a constant exchange rate basis, adjusted earnings decreased by €18 million (-19%) with €22 million lower realized capital gains net of impairment partly offset by higher underlying earnings. Net income decreased by €22 million (-28%) to €58 million. On a constant exchange rate basis, net income decreased by €20 million (-26%) mainly reflecting lower adjusted earnings combined with 2011 restructuring costs (€-7 million). Page 44 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – Germany (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Current accident year loss ratio (net) (a) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 2,271 70.5% 71.0% 518 28.4% 185 197 (53) 2 (0) 145 19 164 43 - (2) - 206 2,205 72.6% 70.4% 519 30.9% 174 152 (42) 1 (0) 111 8 119 29 - - - 148 3,489 74.3% 73.3% 930 31.3% 375 213 (38) 2 (0) 177 8 185 7 - (0) (3) 190 (a) The half year and full year 2010 published current accident year loss ratio were respectively 76.9% and 74.3%. Gross revenues increased by €66 million (+3%) to € 2,271 million14: Personal lines (56% of gross revenues) increased by 6% to € 1,265 million 15 driven by the successful development in Motor (€+60 million or +9%) following higher year-end renewal business and higher new business resulting from the improved price positioning in the market, Commercial lines (38% of gross revenues) were down 1% to €850 million due to higher cancellations in Property and Liability, partly offset by premium indexation and larger fleets in Motor, Other lines (6% of the gross revenues) grew by 7% to € 133 million driven by higher assumed Legal Protection business. Net technical result decreased by € 2 million to €518 million: Current accident year loss ratio decreased by 2.1 points to 70.5%, mainly driven by lower Nat Cat charge. - All accident year loss ratio increased by 0.6 point to 71.0% due to negative prior year reserve developments partly offset by improvement of current accident year loss ratio. Expense ratio decreased by 2.5 points to 28.4%, driven by 1.6 points mainly due to a decrease in general expenses resulting partly from productivity programs and 1.2 point from one-off benefits in 2011. Enlarged expense ratio was down by 2.6 points to 32.2%. As a result, the combined ratio was down by 1.8 points to 99.3%. Net investment result increased by €11 million (+6%) to €185 million mainly driven by higher revenues on fixed income assets partly offset by lower equity dividends. Income tax expenses increased by €12 million (+28%) to €-53 million mainly driven by higher pre-tax underlying earnings. Underlying earnings increased by €34 million (+31%) to €145 million. 14€ 2,245 million after intercompany eliminations. 15 On a comparable basis, after reclassification of small and medium enterprises from Commercial lines to Personal lines. Page 45 Activity Report______________________________________________________________________Half Year 2011 Adjusted earnings increased by €46 million (+38%) to €164 million driven by higher underlying earnings and higher realized capital gains net of impairments. Net income increased by €57 million (+39%) to €206 million mainly driven by higher adjusted earnings and more favorable change in fair value mainly on alternative funds. Page 46 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – Belgium (in Euro million) HY 2011 HY 2010 restated (a) FY 2010 restated (a) Gross revenues Current accident year loss ratio (net) (b) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,138 73.6% 70.2% 307 30.1% 99 96 (24) - 0 72 42 114 7 - (1) (7) 112 1,119 77.8% 67.1% 336 31.8% 100 110 (39) - 0 72 5 77 2 (2) (1) - 76 2,049 77.5% 67.3% 672 31.5% 198 220 (67) - 0 153 (15) 137 20 (2) (2) (9) 145 (a) Restated in full year 2010 and in half year 2010 means the figures as reported were modified accordingly to report the Direct P&C operations as a separate reporting unit. (b) The half year and full year 2010 published current accident year loss ratio were respectively 81.2% and 77.2%. Gross revenues increased by €19 million (+2%) to €1,138 million(16): Personal lines (47% of the gross revenues) were up 2% to €537 million following tariff increases partly offset by negative net new contracts, Commercial lines (51% of the gross revenues) were up 1% to €590 million with Motor up 4% reflecting tariff increases and new business. Net technical result decreased by €29 million (-9%) to €307 million: Current accident year loss ratio decreased by 4.2 points to 73.6% mainly driven by lower frequency in Personal Motor (-2.1 points) and tariff increases (-1.4 point), All accident year loss ratio increased by 3.1 points to 70.2% due to lower positive prior year reserve developments (mainly in Workers’ Compensation) partly offset by the improvement of current accident year loss ratio. Expense ratio decreased by 1.8 points to 30.1%. Excluding the reclassification of 2011 restructuring costs (€-7 million) to net income, expense ratio decreased by 1.2 point reflecting the decrease in commission rates in Commercial lines and lower staff costs. Enlarged expense ratio decreased by 2.6 points to 36.9%. Excluding the reclassification of 2011 restructuring costs (€-7 million) to net income, enlarged expense ratio decreased by 1.7 points. As a result, the combined ratio was up by 1.4 point to 100.2%. Net investment result slightly decreased by €1 million (-1%) to €99 million. Income tax expenses decreased by €14 million (-37%) to €-24 million mainly due to a positive non recurring tax impact in 2011 (€+6 million) and lower pre-tax underlying earnings. Underlying earnings remained stable at €72 million. 16 €1,124 million after intercompany eliminations. Page 47 Activity Report______________________________________________________________________Half Year 2011 Adjusted earnings increased by €37 million (+48%) to €114 million mainly driven by higher net realized capital gains on equities and real estate. Net income increased by €36 million (+47%) to €112 million reflecting higher adjusted earnings. Page 48 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – Mediterranean and Latin American Region (in Euro million) HY 2011 HY 2010 restated (a) FY 2010 restated (a) Gross revenues Current accident year loss ratio (net) (b) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result 3,402 73.4% 70.7% 957 25.8% 192 3,348 76.5% 72.4% 898 25.1% 204 6,661 74.8% 71.5% 1,883 25.7% 384 Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share 306 (88) 0 (16) 202 34 235 286 (86) - (15) 185 68 253 567 (166) - (33) 368 23 391 Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 12 - (14) (14) 220 (7) (1) (12) - 232 13 (1) (24) - 379 (a) Restated in full year 2010 and in half year 2010 means the figures as reported were modified accordingly to report the Direct P&C operations as a separate reporting unit. (b) The half year and full year 2010 published current year loss ratio were respectively 78.0% and 75.2%. Gross revenues increased by €54 million (+2%) to €3,402 million17. On a comparable basis, gross revenues increased by €107 million (+3%) driven by the positive performance in high growth markets (+14% or €+165 million) offset by the difficult economic environment in mature markets (-3% or €-58 million) mainly in Spain (-5%): Personal lines (63% of gross revenues) were up 4% to €2,142 million owing to Motor lines (+7% or €+89 million) primarily driven by positive volume effects. Overall, Turkey was up 35% (or €+77 million) in a context of growth in car sales, Mexico was up 21% (or €+14 million) supported by advertizing campaigns and Italy was up 9% (or €+35 million) also benefiting from 2010 and 2011 tariff increases, whilst Spain was down 8% (or €-41 million) still suffering from negative volume effect. Non-Motor lines revenues were stable (€+1 million), Commercial lines (36% of gross revenues) were up 1% to €1,232 million driven by Non-Motor (+4% or €+39 million) mainly on large accounts in high growth markets with Property in Turkey (+23% or €+14 million) and Mexico (+11% or €+6 million), and Health in Gulf (+29% or €+16 million, mostly in Qatar). Motor was down 6% (or €-22 million) mainly in the Gulf (-41% or €-12 million), Italy (-75% or €-6 million) and Spain (- 7% or €-6 million) as a result of selective underwriting, partly offset by Mexico (+2% or €+5 million) mainly driven by public sector new business. Net technical result increased by €59 million (+7%) to €957 million. On a constant exchange rate basis, net technical result grew by €68 million (+8%) driven by an increase in high growth markets (+32% or €+95 million) partly offset by a decrease in mature markets (-5% or €-27 million). Current year loss ratio decreased by 3.1 points to 73.4%, in both mature markets (-3.6 points to 72.8%) and high growth markets (-2.3 points to 74.4%). The decrease was driven by a lower Nat Cat charge (-0.7 point), tariff increases (-1.9 points), portfolio cleansing and lower amount of large losses, 17€3,371 million after intercompany eliminations. Page 49 Activity Report______________________________________________________________________Half Year 2011 All accident year loss ratio decreased by 1.6 points to 70.7% as a result of improvement in the current year loss ratio partly offset by lower positive prior year reserve developments. Expense ratio increased by 0.6 point to 25.8% (with acquisition ratio up 0.3 point and administrative expense ratio up 0.3 point) due to an increase in commission ratio in Italy and Portugal reflecting changes in product and distribution channels mix, as well as higher investments in high growth markets to support future growth. Enlarged expense ratio was up 0.8 point to 28.9%. As a result, the combined ratio was down 0.9 point to 96.5%. Net investment result decreased by €12 million (-6%) to €192 million. On a constant exchange rate basis, net investment result decreased by €10 million (-5%) due to a lower asset base in Spain (€-4 million) and a decrease in interest rates in high growth markets (€-7 million, mainly in Turkey and Mexico). Income tax expenses increased by €3 million (+3%) to €-88 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+3%) reflecting higher pre-tax underlying earnings and a negative country mix. Underlying earnings increased by €17 million (+9%) to €202 million. On a constant exchange rate basis, underlying earnings increased by €18 million (+10%). Adjusted earnings decreased by €17 million (-7%) to €235 million. On a constant exchange rate basis, adjusted earnings decreased by €16 million (-6%) reflecting higher impairment mainly on real estate funds combined with the less favorable change in intrinsic value of the equity hedging strategy, partly offset by higher underlying earnings. Net income decreased by €12 million (-5%) to €220 million. On a constant exchange rate basis, net income decreased by €11 million (-5%) reflecting lower adjusted earnings and 2011 restructuring costs (€-14 million), partly offset by a favorable change in fair value on both mutual funds and derivatives (€+15 million). Page 50 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – Switzerland (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Current accident year loss ratio (net) (a) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc (a) The half year and full year 2010 published current accident year loss ratio were respectively 75.7% and 68.5%. 2,309 69.4% 62.1% 486 25.4% 104 266 (55) - (2) 209 18 227 (5) - (14) - 207 1.2700 2,030 71.3% 63.0% 415 25.7% 103 230 (48) - (1) 180 25 206 (15) 8 (13) - 186 1.4357 2,336 68.5% 61.9% 892 26.9% 195 457 (95) - (2) 359 40 400 (12) 9 (26) - 370 1.3910 Gross revenues increased by €280 million (+14%) to €2,309 million 18. On a comparable basis, gross revenues increased by €17 million (+1%): Personal lines (51% of gross revenues) increased by 2% to €1,188 million driven by growth in Personal Motor and Property mainly as a result of positive net new contracts, Commercial lines (49% of gross revenues) decreased by 1% to €1,128 million mainly resulting from a focus on profitability. Net technical result increased by €71 million (+17%) to €486 million. On a constant exchange rate basis, net technical result increased by €15 million (+4%): Current accident year loss ratio decreased by 1.9 points to 69.4% mainly driven by Commercial lines reflecting selective underwriting, All accident year loss ratio decreased by 0.9 point to 62.1% reflecting the improvement of the current accident year loss ratio partly offset by lower positive prior year reserve developments. Expense ratio decreased by 0.4 point to 25.4% mainly driven by administrative expense ratio following the ongoing strict cost management. Enlarged expense ratio was down by 0.6 point to 29.2%. As a result, the combined ratio was down by 1.3 point to 87.4%. Net investment result increased by €1 million (+1%) to €104 million. On a constant exchange rate basis, net investment result decreased by €11 million (-10%) mainly from lower yields on fixed income assets. Income tax expenses increased by €7 million (+15%) to €-55 million. On a constant exchange rate basis, income tax expenses increased by €1 million (+2%) driven by higher pre-tax underlying earnings. 18 €2,304 million after intercompany eliminations. Page 51 Activity Report______________________________________________________________________Half Year 2011 Underlying earnings increased by €28 million (+16%) to €209 million. On a constant exchange rate basis, underlying earnings increased by €4 million (+2%). Adjusted earnings increased by €21 million (+10%) to €227 million. On a constant exchange rate basis, adjusted earnings decreased by €5 million (-3%) due to lower net realized capital gains (€-18 million) mainly on equities partly offset by lower impairments (€+8 million) and higher underlying earnings. Net income increased by €21 million (+11%) to €207 million. On a constant exchange rate basis, net income decreased by €3 million (-2%) mainly driven by lower adjusted earnings. Page 52 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations – Direct business (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,059 78.7% 80.0% 197 21.9% 43 23 (10) - (0) 14 3 16 (2) - (2) - 13 962 81.3% 80.8% 163 23.1% 33 (1) (2) - 0 (3) 0 (3) (0) - (3) - (6) 1,928 83.3% 85.5% 260 22.8% 71 (79) 16 - 1 (62) (0) (62) 2 - (5) - (65) Direct business includes operations in France, Belgium, Spain, Portugal, Italy, Poland, the UK, South Korea and Japan. Gross revenues increased by €98 million (+10%) to €1,059 million19. On a comparable basis, gross revenues increased by €89 million (+9%): Personal Motor (90% of gross revenues) was up €65 million (+7%) to €951 million driven by €+43 million in the UK as a result of higher volumes and tariffs increases, €+27 million in continental Europe with strong growth in Italy and Poland as well as €+8 million in Japan driven by higher volumes partly offset by €-13 million decrease in South Korea as a result of a difficult market environment, Personal Non-Motor (10% of gross revenues) was up €24 million (+30%) to €107 million mainly supported by Property products launched in 2010 in the UK. Net technical result increased by €35 million (+21%) to €197 million. On a constant exchange rate basis, net technical result increased by €32 million (+20%): Current accident year loss ratio decreased by 2.5 points to 78.7% mainly driven by tariffs increases in Motor in the UK and continental Europe and better weather conditions in the UK, All accident year loss ratio decreased by 0.7 point to 80.0% reflecting the improvement in the current accident year loss ratio partly offset by unfavorable prior year reserve developments in the UK. Expense ratio decreased by 1.4 points to 21.9% (with an acquisition ratio down 0.7 point and an administrative expense ratio down 0.6 point) reflecting lower commissions and operational leverage following portfolio growth. Enlarged expense ratio was down by 1.7 points to 27.4%. As a result, the combined ratio was down by 2.0 points to 102.0%. 19 €1,059 million after intercompany eliminations. Page 53 Activity Report______________________________________________________________________Half Year 2011 Net investment result increased by €10 million (+31%) to €43 million. On a constant exchange rate basis, net investment result increased by €10 million (+31%) mainly reflecting a higher asset base. Income tax expenses increased by €8 million to €10 million. On a constant exchange rate basis, income tax expenses increased by €7 million reflecting higher pre-tax underlying earnings and a negative tax adjustment in the first half of 2011 following a corporate tax rate decrease in the UK. Underlying earnings increased by €17 million to €14 million. On a constant exchange rate basis, underlying earnings increased by €17 million. Adjusted earnings increased by €19 million to €16 million. On a constant exchange rate basis, adjusted earnings increased by €19 million mainly due to higher underlying earnings and €3 million higher net realized capital gains mainly on equities. Net income increased by €19 million to €13 million. On a constant exchange rate basis, net income increased by €19 million due to higher adusted earnings. Page 54 Activity Report______________________________________________________________________Half Year 2011 Property & Casualty Operations - Other Countries Consolidated Gross Revenues HY 2011 HY 2010 published HY 2010 restated (c) FY 2010 published Canada 711 1,436 Asia (a) 218 508 190 1,023 Luxembourg 61 59 59 93 Central and Eastern Europe (b) 28 52 32 109 TOTAL 308 1,330 281 2,661 Intercompany transactions (6) (16) (8) (16) Contribution to consolidated gross revenues 302 1,314 273 2,645 (a) Includes Hong Kong, Singapore and Malaysia. (b) Includes Ukraine. (c) Restated means the restatement following classification of Canadian operations as discontinued business. Following the classification of the Direct P&C operations as a separate reporting unit, "restated" means also South Korea, Japan and Poland are not included anymore in P&C other countries scope. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 published HY 2010 restated (c) FY 2010 published Canada 80 139 Asia (a) 5 3 2 (13) Luxembourg 4 3 3 10 Central and Eastern Europe (b) 0 (4) 0 (8) Reso (Russia) 19 10 10 30 UNDERLYING EARNINGS 29 92 15 157 Net realized capital gains or losses attributable to shareholders (12) 10 1 28 ADJUSTED EARNINGS 17 102 16 185 Profit or loss on financial assets (under Fair Value option) & derivatives 1 (3) (0) (1) Exceptional operations (including discontinued operations) 93 83 Goodwill and related intangibles impacts (2) (4) 0 (7) Integration and restructuring costs 0 (0) NET INCOME 109 95 99 177 (a) Includes Hong Kong, Singapore and Malaysia. (b) Includes Ukraine. (c) Restated means the restatement following classification of Canadian operations as discontinued business. Following the classification of the Direct P&C operations as a separate reporting unit, "restated" means also South Korea, Japan and Poland are not included anymore in P&C other countries scope. ASIA20 Gross revenues increased by €28 million (+15%) to €218 million21. On a comparable basis, gross revenues decreased by €4 million (-2%): Personal lines (45% of gross revenues) were up 5% mainly due to growth in Private Motor mainly contributed by Hong Kong resulting from increase in third party cover policies partly offset by a slowdown in Singapore due to intensified competitive pressure on pricing, - Commercial lines (55% of gross revenues) were down 8% mainly due to a shortfall in Property resulting from more stringent underwriting process in Singapore, loss of some corporate accounts in Malaysia and a decrease in Motor due to the tightening of underwriting policy in Malaysia. Net technical result increased by €14 million (+28%) to €63 million. On a constant exchange rate basis, net technical result increased by €12 million (+25%): 20 Includes Hong Kong, Singapore and Malaysia. 21 €212 million after intercompany eliminations. Page 55 (in Euro million) FY 2010 restated (c) 379 93 67 539 (7) 532 (in Euro million) FY 2010 restated (c) (4) 10 0 30 36 13 49 (0) 147 (0) (0) 196 Activity Report______________________________________________________________________Half Year 2011 Current accident year loss ratio increased by 2.6 points to 68.3% mainly due to large motor claims arising from floods in June in Singapore as well as deterioration in claims experience for travel and Workers Compensation as a result of an increase in both frequency and severity, - All accident year loss ratio decreased by 2.7 points to 68.1% mainly driven by more favorable prior year reserve developments in Singapore. Expense ratio decreased by 0.2 point to 29.5% reflecting expenses containment measures. Enlarged expense ratio was down by 0.6 point to 32.0%. As a result, the combined ratio was down by 2.8 points to 97.7%. Net investment result remained stable at €5 million. On a constant exchange rate basis, net investment result increased 1% driven by an increased assets base in Malaysia. Income tax expenses increased by €2 million to €-2 million due to higher taxable pre-tax underlying earnings. Underlying earnings increased by €4 million to €5 million. On a constant exchange rate basis, underlying earnings increased by €3 million. Adjusted earnings increased by €4 million to €7 million. On a constant exchange rate basis, adjusted earnings increased by €4 million driven by higher underlying earnings and higher net realized capital gains, mainly on equity. Net income increased by €4 million to €7 million. CENTRAL AND EASTERN EUROPE (UKRAINE) Gross revenues decreased by €4 million (-12%) to €28 million. On a constant exchange rate basis, gross revenues decreased by €2 million (-7%) mainly due to defavorable market conditions. Underlying earnings, adjusted earnings and net income at break-even remained stable. RESO GARANTIA (RUSSIA) Underlying earnings increased by €9 million to €19 million. On a constant exchange rate basis, underlying earnings increased by €10 million driven by higher investment income and lower administrative expenses in a strong portfolio growth context, partly offset by a higher all accident year loss ratio. As a result, the combined ratio was down by 2.3 points to 98.7%. Adjusted earnings decreased by €4 million to €6 million driven by higher underlying earnings (€+10 million) more than offset by higher net realized capital losses (€-14 million) mainly on fixed income assets. Net income decreased by €6 million to €4 million mainly due to lower adjusted earnings. Page 56 Activity Report______________________________________________________________________Half Year 2011 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2011 HY 2010 FY 2010 AXA Corporate Solutions Assurance 1,286 1,291 1,951 AXA Global Life and AXA Global P&C (a) 51 47 50 AXA Assistance 460 459 929 Other (b) 34 53 95 TOTAL 1,831 1,850 3,025 Intercompany transactions (92) (88) (178) Contribution to consolidated gross revenues 1,739 1,762 2,847 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2011 HY 2010 FY 2010 AXA Corporate Solutions Assurance 81 84 161 AXA Global Life and AXA Global P&C (a) 10 13 17 AXA Assistance 11 10 16 Other (b) 42 38 95 UNDERLYING EARNINGS 143 144 290 Net realized capital gains or losses attributable to shareholders 3 (0) 53 ADJUSTED EARNINGS 146 144 343 Profit or loss on financial assets (under Fair Value option) & derivatives (7) 14 32 Exceptional operations (including discontinued operations) 0 3 3 Goodwill and related intangibles impacts Integration and restructuring costs NET INCOME 139 161 378 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Page 57 Activity Report______________________________________________________________________Half Year 2011 AXA Corporate Solutions Assurance (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,286 85.9% 82.9% 183 14.5% 99 128 (46) - (1) 81 (1) 79 (4) - - - 75 1,291 85.3% 81.8% 195 14.8% 95 132 (47) - (1) 84 (2) 82 11 - - - 92 1,951 85.6% 81.5% 364 15.4% 184 245 (81) - (2) 161 5 166 26 - - - 192 Gross revenues decreased by €5 million to € 1,286 million22. On a constant exchange rate basis, gross revenues increased by €26 million (+2%) mainly driven by positive developments in Aviation & Space (+ 24%) and Motor (+10%) partly offset by a decrease in Property (-7%) and Liability (-3%). Net technical result decreased by €12 million (-6%) to €183 million: Current accident year loss ratio increased by 0.6 point to 85.9%. On a comparable basis, current accident year loss ratio increased by 1.0 point mainly due to a higher level of major losses on Property (€+20 million notably Tohoku earthquake in Japan for €25 million), partly offset by tariff increases in several lines of business, - All accident year loss ratio increased by 1.1 point to 82.9%. Expense ratio decreased by 0.3 point to 14.5% mainly due to an unfavorable change in mix product on commissions. Enlarged expense ratio was down 0.4 point to 19.2%. As a result, the combined ratio was up 0.7 point to 97.3%. Net investment result increased by €4 million (+4%) to €99 million mainly due to a higher income from fixed income assets. Income tax expenses decreased by € 1 million (-1%) to €-46 million, mainly reflecting lower pre-tax underlying earnings. Underlying earnings decreased by €3 million (-4%) to € 81 million. Adjusted earnings decreased by €2 million (-3%) to €79 million in line with underlying earnings. Net income decreased by €17 million (-19%) to €75 million mainly due to a €-8 million foreign exchange impact, a €7 million less favorable change in fair value on mutual funds and lower adjusted earnings. 22 €1,271 million after intercompany eliminations. Page 58 Activity Report______________________________________________________________________Half Year 2011 AXA Global Life and AXA Global P&C23 Underlying earnings decreased by €3 million to €10 million mainly due to lower technical results in AXA Motor Liability cover and in AXA Life pool as well as higher administrative expenses partly offset by positive prior year developments on Nat Cat events. Adjusted earnings decreased by €3 million to €10 million mainly due to lower underlying earnings. Net income decreased by €6 million to €9 million mainly due to €3 million lower adjusted earnings and a €2 million unfavorable impact of foreign exchange movements. AXA Assistance Gross revenues increased by €1 million to €460 million24. On a comparable basis, gross revenues decreased by €8 million (-2%) mainly due to the end of a large contract partly offset by growth in the US and Mexico. Underlying earnings increased by €1 million (+10%) to €11 million mainly driven by positive developments in Italy and Turkey partly offset by deterioration on Travel business following the end of a large contract. Adjusted earnings increased by €1 million (+10%) to €11 million mainly driven by higher underlying earnings. Net income decreased by €2 million (-18%) mainly due to €1 million higher adjusted earnings more than offset by €3 million exceptional capital gain recorded in 2010 following the end of a joint venture in Japan. Other international activities Underlying earnings increased by €3 million (+9%) to €42 million. On a constant exchange basis, underlying earnings increased by €2 million (+6%) driven by lower losses on Life run-off portfolio. Adjusted earnings increased by €6 million (+16%) to €45 million. On a constant exchange basis, adjusted earnings increased by €5 million (+13%) as a result of €2 million higher underlying earnings, €1 million higher realized capital gains and €1 million lower impairment. Net income increased by €3 million (+8%) to €45 million. On a constant exchange basis, net income increased by €2 million (+5%) as a result of €5 million higher adjusted earnings partly offset by a €3 million unfavorable impact of foreign exchange movements. 23 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to existing Group reinsurance operations. 24 €384 million after intercompany eliminations. Page 59 Activity Report______________________________________________________________________Half Year 2011 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2011 HY 2010 FY 2010 AllianceBernstein AXA Investment Managers 1,064 759 1,111 742 2,203 1,482 TOTAL 1,823 1,854 3,685 Intercompany transactions (165) (183) (357) Contribution to consolidated gross revenues 1,658 1,670 3,328 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2011 HY 2010 FY 2010 AllianceBernstein 57 71 143 AXA Investment Managers 99 78 125 UNDERLYING EARNINGS 157 150 269 Net realized capital gains or losses attributable to shareholders (2) (5) (5) ADJUSTED EARNINGS 154 145 264 Profit or loss on financial assets (under Fair Value option) & derivatives 6 (25) 21 Exceptional operations (including discontinued operations) (0) 2 2 Goodwill and related intangibles impacts Integration and restructuring costs (0) (31) NET INCOME 160 122 255 Page 60 Activity Report______________________________________________________________________Half Year 2011 AllianceBernstein (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Net investment result General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ 1,064 (6) (892) 166 (44) (64) 57 0 57 (0) 0 0 0 57 1.4042 1,111 (18) (896) 198 (53) (73) 71 - 71 (7) 2 - - 66 1.3278 2,203 (3) (1,821) 379 (93) (142) 143 - 143 0 2 - (29) 116 1.3370 Assets under Management ("AUM") decreased by €39 billion from year end 2010 to €323 billion at the end of June, 2011 driven by net outflows of €24 billion (€-20 billion from Institutional clients, €-2 billion from Retail clients and €- 2 billion from Private clients) and negative exchange rate impact of €27 billion, partly offset by €11 billion market appreciation. Gross revenues decreased by €47 million (-4%) to €1,064 million25. On a comparable basis, gross revenues increased by €18 million (+2%) driven by higher distribution fees (+11%) from higher Retail AUM. Management fees were flat driven by higher Retail and Private clients fees offset by lower Institutional clients fees. Net investment result increased by €12 million (+67%) to €-6 million. On a constant exchange rate basis, net investment result increased by €12 million (+65%) due to higher realized and unrealized gains related to deferred compensation obligations, offset in general expenses. General expenses decreased by €3 million (0%) to €-892 million. On a constant exchange rate basis, general expenses increased by €48 million (+5%) mainly due to (i) higher compensation expenses (5% or €28 million) due to higher deferred compensation obligations and (ii) higher promotion and servicing expenses (12% or € 23 million) from higher average Retail AUM. As a result, the underlying cost income ratio increased by 2.6 points to 82.2%. Income tax expenses decreased by €9 million (-16%) to €-44 million. On a constant exchange rate basis, income tax expenses decreased by €6 million (-12%) due to lower pre-tax underlying earnings. Underlying and adjusted earnings decreased by €14 million (-20%) to €57 million. On a constant exchange rate basis, underlying and adjusted earnings decreased by €11 million (-15%). AXA ownership as of June 30, 2011 is 62.4% up by 0.9% due to repurchases of Alliance units as of June 30, 2011 vs. December 31, 2011. Net income decreased by €9 million (-14%) to €57 million. On a constant exchange rate basis, net income decreased by €6 million (-9%) as a result of lower adjusted earnings partly offset by less defavorable change in fair value of financial assets. 25 €1,024 million after intercompany eliminations. Page 61 Activity Report______________________________________________________________________Half Year 2011 AXA Investment Managers (“AXA IM”) (in Euro million) HY 2011 HY 2010 FY 2010 Gross revenues Net investment result General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share 759 (7) (601) 150 (46) (5) 99 742 (4) (601) 137 (51) (8) 78 1,482 18 (1,375) 124 (38) 39 125 Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (2) 97 6 (0) 0 (0) 103 (5) 74 (18) - - - 56 (5) 120 20 0 - (2) 139 Assets under Management ("AUM") decreased by €2 billion from year-end 2010 to €514 billion at the end of June, 2011 as a result of €5 billion unfavorable foreign exchange impact and €2 billion change in scope related to the partial sale of the UK Life & Savings operations, partly offset by €4 billion favorable market impact and €1 billion net inflows. Net inflows amounted to €1 billion in the first half of 2011 mainly driven by AXA Fixed Income, AXA Framlington, and AXA Private Equity, despite outflows on AXA Rosenberg products (€-3 billion) and the voluntary exit from unprofitable employee shareholding plans schemes (€-2 billion). Gross revenues increased by €17 million (+2%) to €759 million26. On a constant exchange rate basis and excluding distribution fees (retroceded to distributors), net revenues increased by €23 million (+4%) to €562 million mainly due to higher performance fees (€+15 million), driven by AXA Private Equity, and higher real estate transaction fees (€+7 million), while management fees remained flat as a drop in AXA Rosenberg management fees was compensated by an increase in management fees from other expertises. Net investment result decreased by €3 million to €-7 million. On a constant exchange rate basis, net investment result decreased by €2 million mainly driven by a higher interest charges. General expenses remained flat at €-601 million. On a constant exchange rate basis and excluding distribution fees, general expenses increased by €10 million (+3%) as €-3 million decrease in general expenses excluding variable compensation, mainly driven by downsizing at AXA Rosenberg, was more than offset by €+13 million higher variable compensation triggered by higher profits. As a result, the underlying cost income ratio improved by 1.3 points to 72.8%. Income tax expenses decreased by €5 million (-9%) to €-46 million or by €5 million (-10%) on a constant exchange rate basis driven by a decrease in effective tax rate due to a different country mix contributing to pre-tax underlying earnings. Minority interests decreased by €3 million to €-5 million due to AXA Rosenberg minority shareholders’ buyout in second half of 2010. Underlying earnings increased by €21 million (+27%) to €99 million. On a constant exchange rate basis, underlying earnings increased by €+19 million (+25%). Adjusted earnings increased by €23 million (+31%) to €97 million. On a constant exchange rate basis, adjusted earnings increased by €21 million (+29%) due to higher underlying earnings and €2 million lower impairment charge. 26 €634 million after intercompany eliminations. Page 62 Activity Report______________________________________________________________________Half Year 2011 Net income increased by €47 million (+83%) to €103 million. On constant exchange rate basis, net income increased by €45 million (+80%), mainly due to higher adjusted earnings and the non repeat of the 2010 unfavorable foreign exchange impact on USD-denominated inter-company debt (€+35 million). Page 63 Activity Report______________________________________________________________________Half Year 2011 Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2011 HY 2010 FY 2010 AXA Banks (a) 272 237 496 o/w Belgium (b) 169 139 311 o/w France 63 66 116 o/w Hungary 27 29 59 o/w Germany 12 7 15 o/w Switzerland (0) (2) (2) o/w Others (c) 1 (1) (3) Others 3 3 7 TOTAL 275 241 504 Intercompany transactions (26) (23) (44) Contribution to consolidated gross revenues 248 218 459 (a) Of which AXA Bank Europe and its branches: €197 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2011 HY 2010 FY 2010 AXA Banks (a) 10 (19) 15 o/w Belgium (b) 27 (5) 64 o/w France (0) 1 1 o/w Hungary (9) (0) (19) o/w Germany 2 (1) (0) o/w Switzerland (5) (5) (14) o/w Others (c) (5) (8) (16) Others (2) (3) (6) UNDERLYING EARNINGS 8 (22) 9 Net realized capital gains or losses attributable to shareholders (3) 1 (3) ADJUSTED EARNINGS 5 (22) 7 Profit or loss on financial assets (under Fair Value option) & derivatives 1 2 9 Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts (0) (0) (0) Integration and restructuring costs (7) (6) NET INCOME (1) (20) 9 (a) of which AXA Bank Europe and its branches: €9 million. (b) Includes commercial activities in Belgium for €17 million and shared services of AXA Bank Europe (treasury and support functions) for €10 million. (c) Includes Slovakia and Czech Republic. Page 64 Activity Report______________________________________________________________________Half Year 2011 AXA Banks BELGIUM Net banking revenues increased by €30 million (+22%) to €169 million. On a comparable basis27, net banking revenues increased by €16 million (+13%) mainly driven by higher revenues on mortgage and consumer loans (€+7 million) and lower interest paid on deposit account (€+8 million). Underlying earnings increased by €33 million to €27 million. On a comparable basis28, underlying earnings increased by €35 million mainly due to higher interest and commission margin (€+36 million), stable administrative expenses considering the reclassification of restructuring costs in net income in 2011 (€+3 million) partly offset by higher distribution commissions (€-4 million) and an increase of provision for loan losses (€-3 million). Adjusted earnings increased by €29 million to €24 million driven by the underlying earnings increase and higher impairments on fixed income assets (€-4 million). Net income increased by €26 million to €20 million driven by the increase of adjusted earnings and favorable change in mark-to-market on hedging instruments (€+4 million) partly offset by higher restructuring costs. FRANCE Net banking revenues decreased by €3 million to €63 million. On a comparable basis27, net banking revenues increased by €3 million (+6%) to €63 million mainly driven by (i) higher loan interest margin on mortgages mainly due to higher credit production, (ii) higher fees on current accounts partly offset by (iii) a negative change in fair value of macro-hedge derivatives on interest rates (€-10 million). Underlying and adjusted earnings decreased by €1 million to €0 million, revenue growth being more than offset by higher expenses (€-7 million) mainly due to higher marketing expenses to support growth. Net income decreased by €8 million to € -2 million mainly due to lower adjusted earnings and unfavorable change in mark-to-market on hedging instruments stemming from interest rates increase (€-7 million). HUNGARY Net banking revenues decreased by €2 million to €27 million. On a comparable basis27, net banking revenues increased by €9 million (-27%) mainly due to deposits portfolio growth partly offset by lower fees received from lower new credit production. Underlying and adjusted earnings decreased by €9 million to €-9 million. On a comparable basis, underlying and adjusted earnings decreased by €11 million mainly due to lower fee income (€-5 million) stemming from a lower new credit production, a new tax on financial sector (€-4 million) and a slightly higher provision for loan losses (€-1 million). Net income decreased by €7 million to €-9 million. GERMANY Net banking revenues increased by €5 million (+74%) to €12 million. On a comparable basis27, net banking revenues increased by €3 million mainly due to an improved interest margin stemming from higher interest received from bonds and money market investments and a higher commission margin. Underlying earnings as well as adjusted earnings and net income increased by €3 million to €2 million mainly driven by higher net banking revenues as well as lower expenses and lower allowance on provision for loan losses. 27 In banking segment, for net banking revenues, “on a comparable basis” means after intercompany eliminations. 28 In banking segment, for underlying earnings, adjusted earnings and net income, “on a comparable basis” means after allocation of central treasury results to the various branches of AXA Bank Europe in 2010. Page 65 Activity Report______________________________________________________________________Half Year 2011 CZECH REPUBLIC Underlying earnings, adjusted earnings and net income increased by €4 million to €-3 million mainly driven by an increase of commercial margin and a decrease in administrative expenses. SWITZERLAND Underlying earnings as well as adjusted earnings and net income were stable at €-5 million mainly driven by an increase of commercial margin offset by higher administrative expenses. Page 66 Activity Report______________________________________________________________________Half Year 2011 Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific Holdings, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income HY 2011 HY 2010 AXA (214) (251) Other French holdings companies (38) (23) Foreign holdings companies (134) (164) Others (a) 1 1 UNDERLYING EARNINGS (384) (438) Net realized capital gains or losses attributable to shareholders (180) (9) ADJUSTED EARNINGS (565) (447) Profit or loss on financial assets (under Fair Value option) & derivatives (89) 3 Exceptional operations (including discontinued operations) 687 (15) Goodwill and related intangibles impacts 0 0 Integration and restructuring costs (1) 0 NET INCOME 33 (458) (a) Includes notably CDOs and real estate entities. AXA29 Underlying earnings increased by €37 million to €-214 million. Excluding a €64 million net provision related to the AXA Rosenberg coding error booked in the parent company’s segment in June 2010, underlying earnings decreased by €27 million mainly due to: an increase in general expenses by €26 million linked to investments to deploy shared systems and support to the AXA Brand, a higher €13 million tax expense resulting from higher dividends received from consolidated foreign subsidiaries, partly offset by higher result (€+15 million) on hedging of earnings denominated in foreign currencies. Adjusted earnings decreased by €110 million to €-364 million mainly driven by €92 million net impairment charge on Greece government bonds held by operational entities and subject to a global plan (bonds with maturities below 2020), a €-52 million premium amortization on equity call options and by underlying earnings evolution. Net income increased by €365 million mainly driven by: €+682 million exceptional gain related to the disposal of the Australia & New Zealand operations, (€+691 million for the Group), €-194 million change on the mark-to-market on interest rate and foreign exchange derivatives instruments which are not eligible to hedge accounting mainly due to Euro interest rates movements and adjusted earnings evolution. The foreign currency hedging policy has been amended balancing various objectives between net asset value protection, financial charge, liquidity and Solvency positions. This new policy is implemented for US dollar hedging and is currently being implemented for other currencies hedging (mainly CHF and JPY). The impact was €-24 million after tax in net income. 29 All the figures are after tax. Page 67 (in Euro million) FY 2010 (553) (40) (251) 9 (836) 2 (834) (226) 20 0 (0) (1,040) Activity Report______________________________________________________________________Half Year 2011 Other French holding companies AXA France Assurance. Underlying earnings, adjusted earnings and net income decreased by €-9 million to €-18 million mainly due to higher tax expenses (€-8 million) resulting from higher inter-company dividends received. Other French holdings. Underlying earnings decreased by €5million to €-19 million mainly due to an increase in financial charges. Adjusted earnings decreased by €2 million to €-19 million mainly driven by underlying earnings evolution and lower impairments. Net income increased by €4 million to €-19 million and included a €9 million exceptional gain related to the disposal of the Australia & New Zealand operations. Foreign Holding Companies AXA Financial Inc. Underlying earnings increased by €23 million (+24%) to €-72 million. On a constant exchange rate basis, underlying earnings increased by €19 million (+20%) driven by a €10 million decrease in interest financial charges related to the repayment of public debt in the first half of 2010 and a €7 million increase in income earned on a cross currency swap. Adjusted earnings increased by €23 million (+24%) to €-72 million. On a constant exchange rate basis, adjusted earnings increased by €19 million (+20%), in line with underlying earnings evolution. Net income increased by €106 million (+63%) to €-63 million. On a constant exchange rate basis, net income increased by €102 million (+61%) driven by higher adjusted earnings and a favorable change in fair value of a cross currency swap. AXA UK Holdings Underlying earnings increased by €20 million (+117%) to €3 million. On a constant exchange rate basis, underlying earnings increased by €20 million (+117%) mainly due to the reallocation of the proceeds from the partial sale of the UK Life & Savings business in 2010 into intercompany loans (€18 million) and reimbursement of intercompany debts (€7 million) partly offset by increased pension costs (€4 million). Adjusted earnings increased by €23 million (+115%) to €3 million. On a constant exchange rate basis, adjusted earnings increased by €23 million reflecting the improvement in underlying earnings and lower realized capital losses. Net income increased by €4 million (+24%) to €-11 million. On a constant exchange rate basis, net income increased by €4 million (+25%) reflecting adjusted earnings evolution offset by a negative tax one-off (€-15 million) and lower foreign exchange gains (€-2 million). German Holding companies Underlying earnings remained stable at €-18 million. Adjusted earnings decreased by € 30 million to €-47 million mainly due to a higher impairment charge. Page 68 Activity Report______________________________________________________________________Half Year 2011 Net income decreased by € 26 million to €-43 million due to decrease in adjusted earnings by € 30 million partly compensated by a favorable change in fair value of derivatives. Belgian Holding company Underlying earnings and adjusted earnings decreased by €12 million to €-8 million mainly due to the lower net investment result following the early reimbursement of a subordinated loan granted to AXA Belgium. Net income decreased by €11 million to €-6 million mainly due to the adjusted earnings evolution. Mediterranean and Latin American Region Holdings Underlying earnings, adjusted earnings and net income increased by €1 million to €-35 million. On a comparable exchange rate basis, underlying earnings, adjusted earnings and net income increased by €1 million due to lower financial charges. Other CFP Underlying earnings, adjusted earnings and net income were stable at €1 million driven by stable positive run-off developments. Page 69 Activity Report______________________________________________________________________Half Year 2011 Outlook In a macro-environment which remains uncertain, we should continue to benefit from our selective approach in mature markets, an increased exposure to high growth markets and the ongoing efficiency programs which started to deliver. These three strategic priorities form the backbone of our company-wide plan Ambition AXA which was launched in 2011. In Life & Savings, new business should continue to be oriented towards selected profitable segments, notably Protection & Health and unit-linked products, and combined with ongoing efforts to maintain the administrative expenses stable, this should help achieve €1.7 billion of operating free cash flow generation for the year 2011. In Property & Casualty, we should maintain strong sales momentum in Direct business and high growth markets. Overall, the combination of our pricing actions and productivity gains should allow the current year combined ratio to remain below 100% for the full year. In Asset Management, the efforts will be on continuing to improve investment performance and broaden our distribution reach. Page 70 Activity Report______________________________________________________________________Half Year 2011 Glossary The new split between High Growth market and Mature Market is detailed below: The notion of High Growth market includes the following countries: Central and Eastern countries (Poland, Czech Republic, Slovakia, Hungary, Ukraine, Russia), Hong Kong, South East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia) India, China, and the Mediterranean & Latin America Region (Morocco, Turkey, Gulf, Mexico), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece, France, Canada. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, related impact on policyholder participation (Life & Savings business), - DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. Page 71 Activity Report______________________________________________________________________Half Year 2011 EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: − For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. − For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity o Interest charges on TSS / TSDI are deducted from earnings o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: Page 72 Activity Report______________________________________________________________________Half Year 2011 (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loading on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) Active Financial Risk Management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Page 73 Activity Report______________________________________________________________________Half Year 2011 PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only include funds and mandates which generate fees and exclude double counting. BANKING Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Page 74 Consolidated financial statements_______________________________________________________Half Year 2011 Consolidated financial statements / Half Year 2011 Page 1 Consolidated financial statements_______________________________________________________Half Year 2011 Contents CONSOLIDATED STATEMENT OF FINANCIAL POSITION .............................................................. 4 CONSOLIDATED STATEMENT OF INCOME ....................................................................................... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .................................................... 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................... 8 CONSOLIDATED STATEMENT OF CASH FLOWS............................................................................ 10 Note 1 : Accounting principles ............................................................................................................................. 12 General information .................................................................................................................................. 12 1.1. General accounting principles ................................................................................................................... 12 1.2. Consolidation ........................................................................................................................................... 15 1.3. Foreign currency translation of financial statements and transactions ......................................................... 17 1.4. Segment reporting ..................................................................................................................................... 18 1.5. Intangible assets........................................................................................................................................ 18 1.6. Investments from insurance, banking and other activities ........................................................................... 19 1.7. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ............. 21 1.8. Derivative instruments .............................................................................................................................. 21 1.9. Assets / liabilities held for sale and assets / liabilities including discontinued operations ............................. 21 1.10. Cash and cash equivalents ......................................................................................................................... 22 1.11. Share capital and shareholders’ equity ....................................................................................................... 22 1.12. Liabilities arising from insurance and investment contracts ........................................................................ 22 1.13. Reinsurance .............................................................................................................................................. 26 1.14. Financing debts ......................................................................................................................................... 26 1.15. Other liabilities ......................................................................................................................................... 26 1.16. Provisions for risks, charges and contingent liabilities ............................................................................... 27 1.17. Revenue recognition ................................................................................................................................. 27 1.18. Subsequent events ..................................................................................................................................... 29 1.19. Presentation of the financial statements ..................................................................................................... 29 1.20. Note 2 : 2.1. 2.1.1. 2.1.2. 2.1.3. 2.2. Scope of consolidation ............................................................................................................................. 30 Consolidated companies ............................................................................................................................ 30 Main fully consolidated companies ........................................................................................................... 30 Proportionately consolidated companies .................................................................................................... 33 Main investments in companies accounted for using the equity method...................................................... 33 Consolidated entities relating to specific operations ................................................................................... 33 Note 3 : 3.1. Segment information............................................................................................................................... 34 Segmental consolidated statement of income ............................................................................................. 35 Note 4 : Assets and liabilities held for sale including discontinued operations.................................................... 37 Australia and New Zealand ....................................................................................................................... 37 4.1.1. United Kingdom ....................................................................................................................................... 38 4.1.2. Canada ..................................................................................................................................................... 38 4.1.3. Note 5 : 5.1. 5.2. 5.3. 5.4. 5.4.1. 5.4.2. Investments ............................................................................................................................................. 40 Breakdown of investments ........................................................................................................................ 40 Investment in real estate properties ............................................................................................................ 42 Unrealized gains and losses on financial investments ................................................................................. 43 Financial assets subject to impairment ....................................................................................................... 44 Breakdown of financial assets subject to impairment (excluding investment in real estate properties) ......... 44 Change in impairment on invested assets (excluding investment in real estate properties) ........................... 45 Page 2 Consolidated financial statements_______________________________________________________Half Year 2011 5.5. Financial assets recognized at fair value .................................................................................................... 45 Note 6 : 6.1. 6.1.1. 6.1.2. 6.2. 6.2.1. 6.2.2. 6.3. 6.3.1. 6.3.2. Shareholders’ equity and minority interests .......................................................................................... 46 Impact of transactions with shareholders ................................................................................................... 46 Change in shareholders’ equity Group share for the first half of 2011......................................................... 46 Change in shareholders’ equity Group share for the first half of 2010......................................................... 47 Comprehensive income for the period ....................................................................................................... 48 Comprehensive income for the first half of 2011 ....................................................................................... 48 Comprehensive income for the first half of 2010 ....................................................................................... 50 Change in minority interests ...................................................................................................................... 50 Change in minority interests for the first half of 2011 ................................................................................ 50 Change in minority interests for the first half of 2010 ................................................................................ 50 Note 7 : Financing debt ........................................................................................................................................ 51 Note 8 : Net income per ordinary share ............................................................................................................... 52 Page 3 Consolidated financial statements_______________________________________________________Half Year 2011 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2011 (a) December 31, 2010 (a) (b) Goodwill 15,794 16,741 Value of purchased business in force (c) 3,153 3,105 Deferred acquisition costs and equivalent 19,333 19,641 Other intangible assets 3,492 3,648 Intangible assets 41,773 43,135 Investments in real estate properties 16,157 15,751 Financial investments 399,115 409,630 Assets backing contracts where the financial risk is borne by policyholders (d) 133,020 137,757 5 Investments from insurance activities 548,292 563,137 5 Investments from banking and other activities 32,242 31,416 Investments in associates - Equity method 1,206 1,168 Reinsurers' share in insurance and investment contracts liabilities 10,064 11,096 Tangible assets 1,411 1,517 Deferred policyholders' participation assets 1,161 636 Deferred tax assets 3,130 4,097 Other assets 5,702 6,250 Receivables arising from direct insurance and inward reinsurance operations 14,526 13,468 Receivables arising from outward reinsurance operations 814 1,008 Receivables - current tax 3,051 1,851 Other receivables 12,160 13,917 Receivables 30,551 30,244 4 Assets held for sale including discontinued operations (e) 13,258 22,848 Cash and cash equivalents 22,656 22,095 TOTAL ASSETS 705,744 731,390 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan closes its full year accounts at September 30, however balance sheet items have been translated using December 31, 2010 exchange rate, given significant movement in foreign exchange rates since end of September 2010. As of June 30, 2011, AXA Japan 's balances were translated using March 31, 2011 exchange rates. (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Amounts gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (e) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). Page 4 Consolidated financial statements_______________________________________________________Half Year 2011 Notes June 30, 2011 (a) (in Euro million) December 31, 2010 (a) (b) Share capital and capital in excess of nominal value 24,816 24,723 Reserves and translation reserve 17,601 22,226 Net consolidated income - Group share 3,999 2,749 Shareholders’ equity – Group share 46,416 49,698 Minority interests 2,476 4,170 6 TOTAL SHAREHOLDERS' EQUITY 48,892 53,868 Subordinated debt 7,131 7,066 Financing debt instruments issued 2,470 2,500 Financing debt owed to credit institutions 826 887 7 Financing debt 10,426 10,454 Liabilities arising from insurance contracts 340,611 342,576 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 104,136 108,570 Total liabilities arising from insurance contracts 444,747 451,146 Liabilities arising from investment contracts with discretionary participating features 38,224 37,233 Liabilities arising from investment contracts with no discretionary participating features 444 720 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,099 4,700 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 25,216 25,006 Total liabilities arising from investment contracts 67,982 67,659 Unearned revenue and unearned fee reserves 2,757 2,757 Liabilities arising from policyholders' participation 14,546 15,897 Derivative instruments relating to insurance and investment contracts (802) (742) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 529,230 536,717 Liabilities arising from banking activities 28,520 27,209 Provisions for risks and charges 9,797 10,495 Deferred tax liabilities 4,635 4,098 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 4,521 4,855 Other debts instruments issued, notes and bank overdrafts (d) 5,805 6,827 Payables arising from direct insurance and inward reinsurance operations 6,003 7,472 Payables arising from outward reinsurance operations 5,238 5,916 Payables – current tax 1,169 1,348 Collateral debts relating to investments under a lending agreement or equivalent 24,458 23,399 Other payables (c) 15,375 18,563 Payables 62,569 68,381 4 Liabilities held for sale including discontinued operations (e) 11,675 20,168 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 705,744 731,390 (a) AXA Japan closes its full year accounts at September 30, however balance sheet items have been translated using December 31, 2010 exchange rate, given significant movement in foreign exchange rates since end of September 2010. As of June 30, 2011, AXA Japan 's balances were translated using March 31, 2011 exchange rates. (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggreg ates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minim um features. (d) Amounts are shown net of related derivative instruments impact. (e) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (in Euro million) June 30, 2011 (a) December 31, 2010 (a) (b) Liabilities arising from insurance contracts where the financial risk is borne by policyholders 104,136 108,570 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,099 4,700 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 25,216 25,006 Total Liabilities arising from contracts where the financial risk is borne by policyholders 133,450 138,277 Liabilities arising from insurance contracts 340,611 342,576 Liabilities arising from investment contracts with discretionary participating features 38,224 37,233 Liabilities arising from investment contracts with no discretionary participating features 444 720 Total Liabilities arising from other insurance and investment contracts 379,279 380,528 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). Page 5 Consolidated financial statements_______________________________________________________Half Year 2011 CONSOLIDATED STATEMENT OF INCOME (In Euro million, except EPS in Euro) Notes June 30, 2011 June 30, 2010 Restated (a) Gross written premiums 43,959 46,115 Fees and charges relating to investment contracts with no participating features 182 292 Revenues from insurance activities 44,141 46,408 Net revenues from banking activities 246 214 Revenues from other activities 2,449 2,531 Revenues (b) 46,836 49,153 Change in unearned premiums net of unearned revenues and fees (3,727) (3,483) Net investment income (c) 7,582 10,458 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity (d) 2,360 1,140 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (e) 3,588 (1,984) of which change in fair value of assets with financial risk borne by policyholders (f) 3,257 (2,306) Change in investments impairment (g) (380) (539) Net investment result excluding financing expenses 13,149 9,075 Technical charges relating to insurance activities (f) (40,577) (41,268) Net result from outward reinsurance (571) (162) Bank operating expenses (44) (50) Acquisition costs (4,398) (4,186) Amortization of the value of purchased business in force (113) (158) Administrative expenses (5,045) (5,141) Change in tangible assets impairment (1) (1) Change in goodwill impairment and other intangible assets impairment (57) (55) Other income and expenses (91) (101) Charges related to the partial disposal of UK Life & Savings operations (1,478) Other operating income and expenses (50,897) (52,599) Income from operating activities before tax 5,361 2,146 Income arising from investments in associates - Equity method 31 23 Financing debts expenses (h) (320) (219) Net income from operating activities before tax 5,073 1,950 Income tax (963) (899) Net operating income 4,109 1,051 Result from discontinued operations net of tax 99 90 Net consolidated income after tax 4,208 1,141 Split between : Net consolidated income - Group share 3,999 944 Net consolidated income - Minority interests 209 198 Earnings per share 1.68 0.35 Fully diluted earnings per share 1.68 0.35 (a) As described in Note 1.10, the contribution of discontinued Canadian operations is stated on a separate line of the incom e statement in order to show a comparable basis. (b) Gross of reinsurance. (c) Net of investment management costs. (d) Includes impairment releases on investments sold. (e) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (f) Offset by a balancing entry in technical charges relating to insurance activities. (g) Excludes impairment releases on investments sold. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). Page 6 Consolidated financial statements_______________________________________________________Half Year 2011 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2011 (a) June 30, 2010 (a) Reserves relating to changes in fair value through shareholders' equity (1,796) 1,310 Translation reserves (2,069) 2,025 Employee benefits actuarial gains and losses 12 (496) Net gains and losses recognized directly through shareholders' equity (3,852) 2,839 Net consolidated income 4,208 1,141 Total Comprehensive Income (CI) 355 3,980 Split between : CI - Group share 452 3,268 CI - Minority interests (96) 712 (a) AXA Japan closes its half year accounts at March 31, however balances have been translated using June 30, 2010 exchange r ate, given significant movement in foreign exchange rates since end of March 2010. As of June 30, 2011, AXA Japan 's balances were translated using March 31, 2011 exchange rates. Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Page 7 Consolidated financial statements_______________________________________________________Half Year 2011 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (a) Shareholders 'equity opening January 1,2011 2,320,105 2.29 5,313 20,192 (495) 6,186 33 6,208 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (b) 327 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 3 22 0 0 0 0 0 0 0 0 0 107 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (0) 0 0 0 0 (35) 0 0 (140) 0 Dividends paid 0 0 0 0 0 0 0 0 Impact of transactions with shareholders 0 0 1 24 107 0 (0) (175) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (1,628) 0 0 0 13 0 0 0 0 (249) 0 0 Total Comprehensive Income (CI) 0 0 0 0 0 (1,628) 13 (249) Shareholders' equity closing June 30, 2011 2,320,432 2.29 5,314 20,216 (387) 4,558 46 5,784 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) Including changes in ownership interest in consolidated subsidiaries without losing control. Page 8 Translation reserves (2,075) 0 0 0 0 0 0 0 0 (0) 0 (0) 0 (1,697) 0 0 (1,697) (3,771) (In Euro million, except for number of shares and nominal value) Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 14,337 49,698 4,170 0 0 0 0 0 0 0 0 (2,091) 1 3 22 107 (35) 0 0 (140) (2,092) 0 0 0 0 0 0 0 0 (1,598) (1,601) (1,601) 0 (3,692) (3,735) (1,598) 0 (1,614) (181) 0 12 3,999 (1,945) 12 3,999 (124) 0 209 4,011 452 (96) 14,656 46,416 2,476 Consolidated financial statements_______________________________________________________Half Year 2011 Attributable to shareholders Share Capital Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Shareholders' equity opening January 1, 2010 2,289,965 2.29 5,244 19,886 (505) 4,691 61 Capital 33 2.29 0 Capital in excess of nominal value (18) Equity - share based compensation 23 Change in scope or method of consolidation (b) 0 0 Treasury shares (13) Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others Dividends paid Impact of transactions with shareholders 33 2.29 0 5 (13) 0 0 Reserves relating to changes in fair value through shareholders' equity 1,177 22 Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) 1,177 22 Shareholders' equity closing June 30, 2010 2,289,998 2.29 5,244 19,891 (517) 5,868 82 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acqu isition costs, and value of business in force. (a) Undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) Including changes in ownership interest in consolidated subsidiaries without losing control. Page 9 Other reserves Reserves relating to revaluation of tangible assets Other (a) 4 6,208 502 (155) 347 4 6,556 (In Euro million, except for number of shares and nominal value) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests (2,742) 13,383 46,229 3,693 0 (18) 23 0 0 0 51 (13) 502 (155) 0 60 60 (243) (1,259) (1,259) 0 (1,200) (860) (196) 1,199 111 1,613 1,613 412 (487) (487) (10) 944 944 198 1,613 457 3,268 712 (1,129) 12,640 48,637 4,209 Avec et sans PB discrétionnaire CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2011 (a) June 30, 2010 (a) Operating income before tax 5,073 2,078 Net amortization expense (b) 261 273 Change in goodwill impairment and other intangible assets impairment (d) 3 58 Charges related to the partial disposal of UK Life & Savings operations 1,478 Net change in deferred acquisition costs and equivalent (559) (777) Net increase / (write back) in impairment on investments, tangible and other intangible assets 394 542 Change in fair value of investments at fair value through profit or loss (581) 1,209 Net change in liabilities arising from insurance and investment contracts (c) 10,337 10,542 Net increase / (write back) in other provisions (e) (140) 49 Income arising from investments in associates – Equity method (29) (23) Adjustment of non cash balances included in the operating income before tax 9,686 13,351 Net realized investment gains and losses (5,342) (704) Financing debt expenses 325 219 Adjustment for reclassification to investing or financing activities (5,018) (484) Dividends recorded in profit or loss during the period (1,618) (643) Investment income & expense recorded in profit or loss during the period (6,429) (10,305) Adjustment of transactions from accrued to cash basis (8,047) (10,948) Net cash impact of deposit accounting (240) (110) Dividends and interim dividends collected 1,742 1,170 Investment income 8,221 10,953 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (1,333) (559) Change in operating receivables and payables and net operating cash from banking activities (f) (2,100) 1,884 Net cash provided by other assets and liabilities (h) (1,759) (5,070) Tax expenses paid (339) (91) Other operating cash impact and non cash adjustment (1,360) (1,242) Net cash impact of transactions with cash impact not included in the operating income before tax 2,831 6,934 Net cash provided / (used) by operating activities 4,526 10,931 Purchase of subsidiaries and affiliated companies, net of cash acquired (6,939) (35) Disposal of subsidiaries and affiliated companies, net of cash ceded 5,161 25 Net cash related to changes in scope of consolidation (1,779) (10) Sales of debt instruments (h) 40,985 49,068 Sales of equity instruments and non controlled investment funds (g) (h) 10,073 9,136 Sales of investment properties held directly or not (h) 392 266 Sales and/or repayment of loans and other assets (h) (i) 14,360 21,692 Net cash related to sales and repayments of investments (g) (h) (i) 65,809 80,161 Purchases of debt instruments (h) (45,367) (59,829) Purchases of equity instruments and non controlled investment funds (g) (h) (8,026) (9,646) Purchases of investment properties held direct or not (h) (467) (148) Purchases and/or issues of loans and other assets (h) (i) (12,735) (23,520) Net cash related to purchases and issuance of investments (g) (h) (i) (66,595) (93,143) Sales of tangible and intangible assets 8 (6) Purchases of tangible and intangible assets (166) (154) Net cash related to sales and purchases of tangible and intangible assets (159) (160) Increase in collateral payable / Decrease in collateral receivable 37,655 14,389 Decrease in collateral payable / Increase in collateral receivable (35,861) (13,116) Net cash impact of assets lending / borrowing collateral receivables and payables 1,794 1,273 Other investing cash impact and non cash adjustment (79) Net cash provided / (used) by investing activities (929) (11,958) Issuance of equity instruments (14) 27 Repayments of equity instruments (314) (69) Transactions on treasury shares 35 (24) Dividends payout (1,682) (1,472) Interests on undated subordinated debts paid (112) (117) Net cash related to transactions with shareholders (2,087) (1,654) Cash provided by financial debts issuance 26 3,673 Cash used for financial debts repayments (67) (268) Interests on financing debt paid (j) (352) (295) Net cash related to Group financing (392) 3,110 Other financing cash impact and non cash adjustment - 38 Page 10 Net cash provided / (used) by financing activities (2,479) 1,493 Net cash provided by discontinued operations (68) Cash and cash equivalent as of January 1 (k) 21,097 18,210 Net cash provided by operating activities 4,526 10,931 Net cash provided by investing activities (929) (11,958) Net cash provided by financing activities (2,479) 1,493 Net cash provided by discontinued operations (68) Cash related to some UK Life & Savings portfolios for which the disposal process is not finalized as of December 31, 2010 is classified as held for sale (1,167) Impact of change in consolidation method and of reclassifications as held for sale (l) (0) 47 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (320) 4,479 Cash and cash equivalent as of June 30 (k) 21,827 22,035 (a) AXA Japan closes its full year accounts at September 30, however balance sheet items have been translated using December 31, 2010 exchange rate, given significant movement in foreign exchange rates since end of September 2010. As of June 30, 2011, AXA Japan 's balances were translated using March 31, 2011 exchange rates. (b) Includes premiums/discounts capitalization and relating amortization, amortization of investment and owner occupied properties (held directly). (c) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by poli cyholders. (d) Includes impairment and amortization of intangible assets booked during business combinations. (e) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (f) Includes impact of asset lending / borrowing and equivalent relating to banking activities. (g) Includes equity instruments held directly or by controlled investment funds as well as non controlled investment funds. (h) Includes related derivatives. (i) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (j) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (k) Net of bank overdrafts. (l) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized as of June 30, 2011 are classified as held for sale including discontinued operations. As of December 31, 2010, this classification applied for Australian and New Zealand operations and for UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (in Euro million) June 30, 2011 (a) June 30, 2010 (a) Cash and cash equivalents 22,656 23,814 Bank overdrafts (b) (829) (1,780) Net cash and cash equivalents as of June 30 (c) 21,827 22,035 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Included in "Other debt instruments issued and bank overdrafts". (c) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances o f consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The "Cash and cash equivalents" item in the Statement of Consolidated Cash Flows excludes cash backing contracts wher e the financial risk is borne by policyholders (unit-linked contracts). Page 11 Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia-Pacific. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the interim consolidated financial statements. AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, • Asset Management, • Banking. AXA is listed on Euronext Paris Compartiment A. These interim consolidated financial statements including all notes were finalized by the Board of Directors on August 3, 2011. 1.2. General accounting principles 1.2.1 Basis for preparation AXA’s interim consolidated financial statements are prepared as of June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half year end. The interim consolidated financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and IFRIC interpretations that are definitive and effective as of June 30, 2011, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009 and amended in October 2010 has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the interim consolidated financial statements also comply with IFRSs as issued by the International Accounting Standards Board (IASB). Amendments to standards and interpretations published and adopted on January 1, 2011 The application of the following amendments to standards and interpretations as of January 1, 2011, had no material impact on the Group’s consolidated financial statements: Revised IAS 24 – Related Party Disclosures, published on November 4, 2009, simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments, published on November 26, 2009, clarifies the requirements when an entity renegotiates the terms of a financial liability with its creditors and the creditors agree to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. The Improvements to IFRSs, published on May 6, 2010, include amendments that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They involve accounting changes for presentation, recognition or measurement purposes and terminology or editorial changes with minimal effect on accounting. New standards amendments and interpretations published but not yet effective IFRS 9 - Financial instruments, published on November 12, 2009, amended on October 28, 2010 and applicable to the Group from January 1, 2013 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to Page 12 hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting), its method of enforcement and its impact are currently being examined within the Group. The amendment to IFRS 7 – Disclosures – Transfers of Financial Assets, published on October 7, 2010, increases the disclosure requirements for transactions involving transfers of financial assets. The amendment is intended to provide additional information regarding risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure to the asset. The amendment also requires disclosure where transfers of financial assets are not evenly distributed throughout the period. The disclosure amendment is effective for annual periods beginning on or after July 1, 2011. It is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 12 – Income Taxes, published on 20 December 2010 addresses the measurement of deferred tax liabilities and deferred tax assets, which depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is difficult and subjective to assess whether recovery will be through use or through sale. The amendment provides a practical approach in such cases, by introducing a presumption that an asset is recovered entirely through sale unless the entity has clear evidence that recovery will occur in another manner. The presumption would apply when investment properties, property, plant and equipment or intangible assets are remeasured at fair value or revalued at fair value. The amendment is effective for annual periods beginning on or after January 1, 2012 and is not expected to have a material impact on the Group’s consolidated financial statements. A package of five new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the five standards have an effective date for annual periods beginning on or after January 1, 2013, with earlier application permitted so long as each of the other standards in the package is also early applied. The analysis of the potential impact on the Group’s consolidated financial statements with regard to the package of five new and revised standards is currently underway. IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements and replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. IFRS 13 – Fair Value Measurement, published on May 12, 2011, defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 1 – Presentation of Financial Statements, published June 16, 2011, requires entities to group together items presented within other comprehensive income based on whether they are potentially reclassifiable to profit or loss in a subsequent period. The amendment also preserves the requirement that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The amendment is effective for annual periods beginning on or after July 1, 2012, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. Page 13 The amendment to IAS 19 – Employee Benefits, published June 16, 2011, addresses the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. The amendment also eliminates the corridor method deferral of recognition of gains and losses, which is not applied by the Group. The amendment is effective for annual periods beginning on or after January 1, 2013, with early application permitted. The analysis of the potential impact on the Group’s consolidated financial statements is currently underway. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2 First time adoption of IFRS The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date is January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: • (transition to IFRS), and • reclassified into goodwill. goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was As a result, the goodwill gross value corresponds to the gross value of these goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. Page 14 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27 / SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27 / SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 1.3.2. Business combinations and subsequent changes in the Group ownership interest In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. Page 15 To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a change in the previous recognized amount of goodwill). According to a decision taken for each acquisition, any minority interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of minority interests in a controlled subsidiary Page 16 Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: • • The effect on net income of transactions between consolidated entities is always eliminated, except for permanent losses, which are maintained. in full for controlled subsidiaries, and; to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: • assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; • revenues and expenses are translated at the average exchange rates over the period; • all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or Page 17 expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step-by-step consolidation method (IFRIC 16). 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Other intangible assets Other intangible assets include softwares developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of Page 18 the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from “with-profit” contracts) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. Until the sale operation on the UK Life and Savings business, fair value was also applied to real estate assets that were used as the dividend basis of “with-profit” contracts. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: • assets held to maturity, accounted for at amortized cost; • loans and receivables (including unquoted debt instruments) accounted for at amortized cost; • assets held for trading and assets designated as at fair value with change in fair value through profit or loss; • available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: • financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: – assets backing liabilities arising from contracts where the financial risk is borne by policyholders; – assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; – debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); • portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: • either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or • as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Page 19 Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local Assets and Liabilities Management (ALM) strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.7.3. Repurchase agreements and security lending The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported under other payables, except for transactions arising from banking activities, which are recorded as separate liabilities. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements. The Group is also party to reverse repurchase agreements under which financial assets are purchased from a counterparty, subject to a simultaneous agreement to return these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remains with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as financial assets of the Group. The amounts of cash disbursed are recorded under financial investments, except for transactions arising from banking activities, which are recorded as separate assets. Interest income on reverse repurchase agreements is accrued over the duration of the agreements. Page 20 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc.). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed material. For the statement of financial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. . 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a Page 21 subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the statement of financial position and statement of income are provided in the notes to the consolidated financial statements. 1.11. Cash and cash equivalents Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. 1.12. Share capital and shareholders’ equity 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debts Undated subordinated debts and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. Liabilities arising from insurance and investment contracts 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: Page 22 they are likely to represent a significant portion of the overall contractual benefits; • their amount or timing is contractually at the discretion of the Group; and • they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: • liabilities arising from insurance contracts, • liabilities arising from insurance contracts where the financial risk is borne by policyholders, • liabilities arising from investment contracts with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features, • liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where IAS 39 applies. The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: • Reserves must be sufficient, • Life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield, • Acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts, • Claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. Pre-claims reserves Unearned premiums reserves represent the prorated portion of written premiums that relates to unexpired risks at the closing date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Additional reserves are booked if there are any adverse impacts on reserves level caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. Until the sale operation on the UK Life and Savings business: the “Fund for Future Appropriation” (FFA) relating to UK with-profit contracts principally covered future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profit contracts and the FFA varied in line with the market value of the assets supporting the participating with-profit funds. Technical reserves were measured on a “realistic” basis in accordance with UK accounting standard FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts; liabilities within the UK with-profit funds were supported by assets designated as investments at fair value through profit or loss. When liabilities were transferred out of the UK with-profit fund along with the supporting assets, the group was not permitted to reclassify the assets as available for sale assets, which would had represented the relevant category to match the traditional valuation of non profits UK liabilities. These assets instead retained their previous designation of fair value through profit and loss. In order to minimize the accounting mismatch between liabilities and supporting assets, the Group Page 23 had elected to use the option allowed under IFRS 4.24 to re-measure its provision. This revaluation was carried out at each reporting date based on guarantee benefit projections and took into account interest rates and other market assumptions. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. Post claims reserves Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see section 1.6.4). Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where minimum are set to respectively 90%, 90% and 85% of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less developed in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ Page 24 equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; they include projections of future investments sales according to estimated surrender patterns; and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Depending on the type of business, the future investment cash flows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, …) to a reserve directly by discounting the cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in section 1.6.4). Unearned fees reserves Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs. Page 25 1.14. Reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. Financing debts Financing debts issued to finance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position. 1.16. Other liabilities 1.16.1. Income taxes The half-year income tax charge is based on the best estimate of the expected full-year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carry forwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Comprehensive Income) in full in the period in which they occur. Similarly, any adjustment arising from the asset Page 26 ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefits on the date of a change in the amount of benefits following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period. The impact in the income statement mainly relates to the service cost (annually accruing employee benefit) and the interest cost (unwinding of discount applied to the liability), reduced by the expected return on assets dedicated to the plan. Past service costs, settlements and curtailments also have an impact in the income statement. 1.16.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged option. The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.17. Provisions for risks, charges and contingent liabilities 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.18. Revenue recognition 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3). Page 27 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: • the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, • claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: • the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); • the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.18.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.13.2) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: • insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, • commissions received and fees for services relating to asset management activities, and • rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half-year policyholders’ participation charge is based on the best estimate of the planned full-year distribution rate for each portfolio of contracts at each Group entity level. 1.18.9. Net investment result excluding financing expenses The net investment result includes: • investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, • investment management expenses (excludes financing debt expenses), Page 28 realized investment gains and losses net of releases of impairment following sales, • the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, • the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see section 1.18.6). 1.19. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: • such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, • such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. 1.20. Presentation of the financial statements The Group proceeded to a refinement of its IFRS chart of accounts in 2011 for some limited areas of its consolidated financial statements (including the Notes). This process, also driven by the perspective of the upcoming Solvency II change in regulation, was applied to the 2011 opening balance sheet so that the December 31, 2010 statement of financial position is presented on comparable basis. The 2010 Half Year statement of income disclosed as at June 30, 2011 has not been adjusted as these changes do not materially affect the statement of income presentation. The main area of change relates to the implementation of a higher granularity to internal reportings on financial investments with limited impacts on disclosed aggregates. In parallel, a review of the main risk drivers of financial instruments was performed taking into account Solvency II principles and the characteristics determining the capital charges computations. o This resulted for example in disclosed loans now limited to debt instruments originated by the Group while other interest rates driven assets are shown as debt instruments. o Private equity assets held directly are now shown together with equity securities instead of being disclosed as other assets. Some accounts were also remapped from one aggregate of the statement of financial position to another to improve the consistency of presentation in the financial statements (e.g. accrued interests related to derivative instruments). The level of breakdown collected in relation to receivables and payables was also reviewed and rationalized, notably by natur e of business and activity type of counterparty. The gross-up of assets / liabilities transactions has been reviewed and further improved regarding transactions with double sided entries on the statement of financial position such as repurchased transactions. Overall, reclassifications do not materially affect the presentation of the statement of financial position and the notes to the financial statements. Shareholders equity and related components are unchanged. Total assets and liabilities has been reduced by €263 million from what was published in the 2010 annual report, principally because of gross-up actions described above. Page 29 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies Parent and Holding Companies Change in scope France AXA AXA China AXA France Assurance Colisée Excellence Complete transfer of assets and liabilities to AXA AXA Participations II Complete transfer of assets and liabilities to AXA Oudinot Participation Société Beaujon AXA Technology Services United States AXA Financial, Inc. AXA America Holding Inc. United Kingdom Guardian Royal Exchange Plc AXA UK Plc AXA Equity & Law Plc Asia/Pacific (excluding Japan) National Mutual International Pty Ltd Minority interests buyout AXA Financial Services (Singapore) Minority interests buyout AXA Asia Pacific Holdings Ltd Disposal of Australian and New Zealand operations AXA India Holding Minority interests buyout Japan AXA Japan Holding Germany Kölnische Verwaltungs AG für Versicherungswerte AXA Konzern AG WinCom Versicherungs-Holding AG AXA Beteiligungsgesellschaft mbH Belgium AXA Holdings Belgium Luxembourg AXA Luxembourg SA Finance Solutions SARL The Netherlands Vinci BV Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Italia SpA AXA Holding Maroc S.A. AXA Turkey Holding A.S. Page 30 June 30, 2011 Voting rights percentage Group share of interests Parent company 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 99.99 100.00 100.00 100.00 100.00 100.00 99.98 100.00 99.98 99.96 99.96 100.00 100.00 100.00 100.00 100.00 100.00 98.77 98.77 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 December 31, 2010 Voting rights percentage Group share of interests Parent company 100.00 77.47 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.98 100.00 99.98 99.96 99.96 100.00 54.03 100.00 54.03 54.03 54.03 100.00 77.01 98.72 98.72 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Life & Savings and Property & Casualty France AXA France IARD Avanssur AXA France Vie AXA Protection Juridique United States AXA Equitable Life Insurance Company Mony Life Insurance Company AXA Financial (Bermuda) Ltd Canada AXA Canada Inc. United Kingdom AXA Insurance Plc AXA PPP Healthcare Limited Bluefin Advisory Services Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited Winterthur Life UK Limited Ireland AXA Insurance Limited AXA Life Europe Limited Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA Australia New Zealand AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia Kyobo AXA General Insurance Co. Ltd. AXA Affin General Insurance Berhad Japan AXA Life Insurance AXA Non Life Insurance Co. Ltd. Germany AXA Versicherung AG AXA Art AXA Lebenversicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Servis Life SA Les Assurés Réunis Touring Assurances SA Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg Mediterranean and Latin American Region Hilo Direct SA de Seguros y Reaseguros AXA Vida, S. A. de seguros AXA Seguros Generales, S. A. AXA Salud, S. A. AXA Interlife AXA Assicurazioni e Investimenti AXA-MPS Vita AXA-MPS Danni Quixa S.p.A AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA Seguro Directo Gere Companhia de Seguros SA AXA Assurance Maroc AXA Hayat VE Emeklilik A.S. (Life) AXA Sigorta AS (P&C) AXA Cooperative Insurance Company (Saudi Arabia) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. Life AXA Insurance A.E. P&C AXA Seguros S.A.C.V. Switzerland AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland Page 31 Change in scope Minority interests buyout Disposal of Australian and New Zealand operations Minority interests buyout Minority interests buyout Minority interests buyout Minority interests buyout June 30, 2011 Voting rights percentage Group share of interests 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 99.98 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 94.13 100.00 - 100.00 100.00 100.00 100.00 100.00 94.13 42.41 42.41 100.00 100.00 98.77 98.77 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.90 99.90 100.00 100.00 50.00 + 1 voting right 100.00 99.82 99.90 99.90 99.99 99.99 50.00 50.00 + 1 voting right 50.00 100.00 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.89 99.89 99.94 99.99 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.89 99.89 99.94 100.00 66.67 100.00 100.00 66.67 100.00 99.99 100.00 100.00 100.00 99.99 100.00 100.00 100.00 December 31, 2010 Voting rights percentage Group share of interests 99.92 100.00 99.77 98.51 99.92 100.00 99.77 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 92.82 54.03 54.03 54.03 100.00 100.00 54.03 54.03 92.82 42.41 42.41 100.00 100.00 98.72 98.72 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.89 100.00 100.00 100.00 50.00 + 1 voting right 100.00 99.82 99.89 100.00 99.99 99.99 50.00 50.00 + 1 voting right 50.00 100.00 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.89 99.89 99.94 99.99 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.89 99.89 99.94 100.00 66.67 100.00 100.00 66.67 100.00 99.99 100.00 100.00 94.92 99.99 100.00 100.00 94.92 AXA Poland Pension Funds AXA Slovakia AXA Ukraine 100.00 100.00 50.00 100.00 100.00 50.00 100.00 100.00 50.00 100.00 100.00 50.00 The operations from Canada and some UK Life & Savings portfolios for which the disposal process is not finalized as of June 30, 2011 are classified as held for sale including discontinued operations. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized. Additional information is provided in Note 4. June 30, 2011 December 31, 2010 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (Sub-group) AXA Global P&C (previously AXA Cessions) AXA Global Life (previously Saint-Georges Ré) AXA Assistance SA (sub group) Portman Insurance Ltd. (previously AXA Global Risks UK) Colisée RE (previously AXA RE) AXA Corporate Solutions Life Reinsurance Company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2011 December 31, 2010 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) 95.64 62.37 95.63 62.37 95.29 61.43 95.27 61.43 June 30, 2011 December 31, 2010 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2011 December 31, 2010 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Compagnie Financière de Paris 100.00 100.00 100.00 100.00 Consolidated investments and investment funds As of June 30, 2011, consolidated investment funds represented total invested assets of €94,824 million (€95,045 million at the end of 2010), corresponding to 229 investment funds mainly in France, Germany and Japan and in majority relating to the Life & Savings segment. As of June 30, 2011, the 20 consolidated real estate companies corresponded to total invested assets of €6,993 million (€6,642 million at the end of 2010), mainly in France and Germany. As of June 30, 2011, the 4 consolidated CDOs represented total investments of €186 million (€202 million at the end of 2010). These CDOs are consolidated in AXA’s statement of financial position in line with IFRS rules even though AXA’s investments in these CDO’s assets represented €10 million out of €186 million. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of controlled investment funds and puttable instruments held by minority interest holders”. As of June 30, 2011, minority interests in controlled investment funds amounted to €4,468 million (€4,847 million as of December 31, 2010). Page 32 2.1.2. Proportionately consolidated companies June 30, 2011 December 31, 2010 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances 50.00 49.96 50.00 49.96 2.1.3. Main investments in companies accounted for using the equity method Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2011 December 31, 2010 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Argovie Neuflize Vie (previously NSM Vie) 100.00 39.98 99.77 39.98 100.00 39.98 99.77 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd AXA Minmetals Assurance Co Ltd (a) PT AXA Mandiri Financial Services (a) Minority interests buyout Minority interests buyout Minority interests buyout Minority interests buyout 45.01 50.00 51.00 49.00 45.01 50.00 51.00 49.00 45.00 50.00 51.00 49.00 24.31 27.01 39.51 26.47 Bharti AXA Life Minority interests buyout 26.00 26.00 22.22 17.11 Russia Reso Garantia (RGI Holdings B.V.) (b) 39.34 39.34 39.34 39.34 Asset Management AXA IM Asia Holding Private Ltd 50.00 47.81 50.00 47.64 Kyobo AXA Investment Managers Company Limited 50.00 47.81 50.00 47.64 (a) "AXA Minmetals Assurance Co Ltd" and "PT AXA Mandiri Financial Services" are accounted for using the equity method as their shareholders' agreements don't provide the Group with sufficient controlling power. (b) AXA's group share of interest in operating unit of Reso Garantia is 36.68% Investment funds and real estate entities accounted for using the equity method. As of June 30, 2011, real estate companies accounted for using the equity method represented total assets of €375 million (€392 million at the end of 2010) and investment funds accounted for using the equity method represented total assets of €3,624 million (€3,559 million at the end of 2010), mainly in the United States, the United Kingdom, Germany and Belgium. 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV is consolidated within the operations of AXA France Life & Savings. This structure was set up in order to improve AXA France Life & Savings assets / liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €162 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables as of June 30, 2011. Securitization of motor insurance portfolios On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio (diversified portfolio spread across 4 countries: Belgium, Germany, Italy and Spain). AXA consolidated its €225 million stake as of June 30, 2011 in the vehicle carrying the junior tranches. Through securitization, AXA transferred to the financial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds. Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. Held assets amounted to €1,203 million as of June 30, 2011. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Page 33 Note 3 : Segment information Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holding companies" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The AXA's Chief Executive Officer and the Deputy Chief Executive officer are both members of the Board of Directors. They are assisted by a Management Committee in the day-to-day operational management of the Group and by an Executive Committee to consider Group strategy. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium- sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries) and one operating component for the Direct business (previously included within countries and regions and now reported as a separate reporting unit). International Insurance: This segment’s operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company, and the group’s run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior accident years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Partner Re. It also includes reinsurance activity managed by AXA Global Life and AXA Global P&C (ex AXA Cessions), which write reinsurance treaties of AXA entities after a selection of reinsurers. AXA Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes. Activities from both global lines of business are reported in international insurance. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgages loans, savings) conducted primarily in France, Belgium, Switzerland, Germany and Central & Eastern Europe (Hungary, Slovakia and the Czech Republic). The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles including certain Special-Purpose Entities (SPE) such as consolidated CDOs. The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Page 34 3.1. Segmental consolidated statement of income Life & savings Property & Casualty International Insurance Gross written premiums 27,037 15,502 1,695 Fees and charges relating to investment contracts with no participating features 182 Revenues from insurance activities 27,220 15,502 1,695 Net revenues from banking activities Revenues from other activities 659 38 136 Revenues 27,879 15,540 1,831 Change in unearned premiums net of unearned revenues and fees (1,190) (2,393) (241) Net investment income 6,396 1,041 134 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 1,317 3,777 3,261 258 55 9 (6) Change in investments impairment (151) (91) (4) Net investment result excluding financing expenses 11,338 1,263 132 Technical charges relating to insurance activities (30,875) (8,785) (1,029) Net result from outward reinsurance (65) (469) (111) Bank operating expenses Acquisition costs (1,914) (2,319) (176) Amortization of the value of purchased business in force (113) Administrative expenses (1,869) (1,235) (190) Change in tangible assets impairment (1) 0 Change in goodwill impairment and other intangible assets impairment (16) (40) Other income and expenses (9) 0 2 Charges related to the partial disposal of UK Life & Savings operations Other operating income and expenses (34,861) (12,848) (1,504) Income from operating activities before tax 3,166 1,561 218 Income arising from investments in associates – Equity method 26 6 0 Financing debts expenses (48) (3) (4) Net income from operating activities before tax 3,143 1,564 213 Income tax (607) (429) (73) Net operating income 2,536 1,135 140 Result from discontinued operations net of tax 6 93 Net consolidated income after tax 2,542 1,228 140 Split between : Net consolidated income - Group share 2,457 1,212 139 Net consolidated income - Minority interests 85 17 1 (a) Includes SPEs and CDOs. (b) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders'equity. Page 35 June 30, 2011 Asset Management Banking 272 1,823 3 1,823 275 16 (1) (4) (3) 9 (1) (44) (1,391) (238) (0) (1) (104) 15 (1,496) (269) 337 5 (0) (17) (9) 320 (4) (91) 3 229 (0) 229 (0) 160 (1) 69 1 Holding companies (a) 0 0 348 780 (249) (134) 744 0 (283) 41 (241) 503 (676) (173) 243 69 69 33 37 Inter- segment eliminations (276) (276) (26) (209) (511) 97 (351) 0 15 (5) (336) 113 74 11 160 (35) 322 (428) 437 9 (9) 0 (0) (In Euro million) TOTAL 43,959 182 44,141 246 2,449 46,836 (3,727) 7,582 2,360 3,588 3,257 (380) 13,149 (40,577) (571) (44) (4,398) (113) (5,045) (1) (57) (91) (50,897) 5,361 31 (320) 5,073 (963) 4,109 99 4,208 3,999 209 June 30, 2010 Restated (a) Life & savings Property & Casualty International Insurance Asset Management Banking Gross written premiums 29,847 14,859 1,710 Fees and charges relating to investment contracts with no participating features 292 Revenues from insurance activities 30,139 14,859 1,710 Net revenues from banking activities 237 Revenues from other activities 712 39 140 1,854 3 Revenues 30,851 14,898 1,850 1,854 241 Change in unearned premiums net of unearned revenues and fees (1,183) (2,158) (245) Net investment income 9,079 1,022 270 21 (1) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 787 (1,710) (2,301) 337 (30) 12 15 5 (84) Change in investments impairment (419) (75) (9) (0) Net investment result excluding financing expenses 7,737 1,254 288 (58) (1) Technical charges relating to insurance activities (31,450) (8,650) (1,328) Net result from outward reinsurance 222 (405) (47) Bank operating expenses (50) Acquisition costs (1,755) (2,254) (182) Amortization of the value of purchased business in force (158) Administrative expenses (1,959) (1,262) (119) (1,383) (205) Change in tangible assets impairment (1) 0 (0) (0) Change in goodwill impairment and other intangible assets impairment (15) (39) (1) Other income and expenses (58) 7 23 (111) 10 Charges related to the partial disposal of UK Life & Savings operations (1,478) Other operating income and expenses (36,652) (12,602) (1,654) (1,494) (247) Income from operating activities before tax 753 1,392 239 301 (7) Income arising from investments in associates – Equity method 13 11 0 (1) Financing debts expenses (46) (2) (2) (15) (10) Net income from operating activities before tax 720 1,400 237 285 (16) Income tax (548) (394) (75) (88) (2) Net operating income 171 1,007 162 197 (19) Result from discontinued operations net of tax 7 83 Net consolidated income after tax 178 1,090 162 197 (19) Split between : Net consolidated income - Group share 66 1,072 161 122 (20) Net consolidated income - Minority interests 112 18 1 75 1 (a) As described in Note 1.10, the contribution of discontinued Canadian operations is stated on a separate line of the incom e statement in order to show a comparable basis. (b) Includes SPEs and CDOs. (c) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareh olders'equity. Page 36 Holding companies (b) 0 0 352 0 (111) (37) 204 0 (353) 53 (300) (96) (582) (677) 210 (468) (468) (458) (10) Inter- segment eliminations (300) (300) (23) (217) (540) 104 (286) 0 (64) (5) (350) 159 68 6 141 (0) (25) 349 (437) (0) 438 1 (1) (0) 0 0 0 (In Euro million) TOTAL 46,115 292 46,408 214 2,531 49,153 (3,483) 10,458 1,140 (1,984) (2,306) (539) 9,075 (41,268) (162) (50) (4,186) (158) (5,141) (1) (55) (101) (1,478) (52,599) 2,146 23 (219) 1,950 (899) 1,051 90 1,141 944 198 Note 4 : Assets and liabilities held for sale including discontinued operations 4.1.1. Australia and New Zealand On November 15, 2010, AXA announced a joint proposal with AMP to AXA APH whereby AXA disposed of its 54% stake in AXA APH to AMP and acquired AXA APH Asian operations. This joint offer resulted in AMP acquiring AXA APH’s outstanding shares for AU$ 13.3 billion (or €9.7 billion1), of which AXA’s shares in AXA APH have been paid for AU$ 7.2 billion (or €5.2 billion1) in cash, while AXA acquired from AMP 100% of AXA APH’s Asian operations for AU$ 9.8 billion (or €7.1 billion1) in cash. AXA APH’s Australia & New Zealand businesses price was AU$ 3.5 billion (or €2.6 billion1). On April 1, 2011, after receiving the various shareholders approval, court approvals and regulatory approvals in Australia and New Zealand as well as other regulators notably in Asia, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. The disposal of the Australian and New Zealand operations led to a net consolidated gain of €691 million in AXA Group’s net income as of June 30, 2011. The major classes of assets and liabilities of the Australian and New Zealand operations that were classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as of December 31, 2010 included the following (amounts are presented net of inter-company balances with other AXA entities): (in Euro million) June 30, 2011 December 31, 2010 Goodwill 660 Other intangible assets 697 Investments 9,805 Other assets 2,220 TOTAL ASSETS HELD FOR SALE 13,383 (in Euro million) June 30, 2011 December 31, 2010 Liabilities arising from insurance and investment contracts 10,339 Provisions for risks and charges 154 Other liabilities 953 TOTAL LIABILITIES HELD FOR SALE 11,446 As of December 31, 2010, comprehensive income amounted to €272 million. 1 Translated from Australian Dollar to Euro using exchange rate as of March 31, 2011. Page 37 4.1.2. United Kingdom On June 24, 2010, AXA announced that it had agreed to sell to Resolution Ltd its UK-based traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses for a consideration of €3.3 billion. The deal closed on September 15, 2010. However, certain portfolios will be transferred in the second semester of 2011 and are classified as “Held for sale” as of June 30, 2011 as well as of December 31, 2010. The transaction led to the recognition of a realized loss net of tax of €-1.6 billion as of December 31, 2010, coming mainly from intangible assets’ impairments, of which goodwill €-0.8 billion, other intangibles €-0.7 billion as well as €-0.1 billion costs associated with the sale. The major classes of assets and liabilities of the United Kingdom operations that were classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as of June 30, 2011 and December 31, 2010 included the following (amounts are presented net of inter-company balances with other AXA entities): (in Euro million) June 30, 2011 December 31, 2010 Goodwill 101 106 Other intangible assets 45 51 Investments 7,881 8,286 Other assets 540 606 TOTAL ASSETS HELD FOR SALE 8,568 9,049 (in Euro million) June 30, 2011 December 31, 2010 Liabilities arising from insurance and investment contracts 8,192 8,662 Provisions for risks and charges Other liabilities 64 60 TOTAL LIABILITIES HELD FOR SALE 8,256 8,722 As of June 30, 2011, comprehensive income amounted to €1m and €2 million as of December 31, 2010. 4.1.3. Canada On May 31, 2011, AXA announced that it has agreed to sell its Canadian operations in Property & Casualty and Life & Savings insurance to Intact Financial Corporation for a total cash consideration of CAD 2.6 billion (or ca. €1.9 billion2). In addition, AXA is entitled to receive up to CAD 100 million (or ca. €72 million3) in contingent considerations based on profitability metrics over a period of 5 years. The parties expect the sale to close before the end of the third quarter of 2011, subject to customary closing conditions and regulatory approvals for a transaction of this type. The major classes of assets and liabilities of the Canadian operations that were classified as discontinued operations separately from other assets and liabilities in the consolidated statement of financial position as of June 30, 2011 included the following (amounts are presented net of inter-company balances with other AXA entities): (in Euro million) June 30, 2011 Goodwill 140 Other intangible assets 211 Investments 3,093 Other assets 1,029 TOTAL ASSETS HELD FOR SALE 4,473 2 Amounts in Euro as published in press release on May 31, 2011 Page 38 Liabilities arising from insurance and investment contracts Provisions for risks and charges Other liabilities TOTAL LIABILITIES HELD FOR SALE As of June 30, 2011, comprehensive income amounted to €91 million. Revenues Change in unearned premiums net of unearned revenues and fees Net investment result excluding financing expenses Other operating income and expenses Income from operating activities before tax Income arising from investments in associates - Equity method Financing debts expenses (g) Income from operating activities before tax Income tax Net operating income Split between : Net consolidated income - Group share Net consolidated income - Minority interests Net cash provided / (used) by operating activities Net cash provided / (used) by investing activities Net cash provided / (used) by financing activities Net cash provided by discontinued operations Page 39 (in Euro million) June 30, 2011 3,066 65 288 3,419 (In Euro million) June 30, 2011 828 (44) 96 (756) 125 0 (0) 125 (26) 99 99 0 (in Euro million) June 30, 2011 61.935 (41.562) (6.872) 13.502 Note 5 : Investments Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Insurance June 30, 2011 (a) Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (b) Macro hedge and other derivatives 19,061 1,131 15,026 1,131 2.74% 0.21% 3,179 2,560 7.94% 22,240 1,131 17,587 1,131 Investment in real estate properties 20,191 16,157 2.95% 3,179 2,560 7.94% 23,371 18,717 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (b) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (c) 301,431 27,362 (39) 301,431 27,362 (39) 9,030 301,431 27,362 (39) 9,030 54.98% 4.99% -0.01% 1.65% 7,512 122 212 631 7,512 122 212 631 23.30% 0.38% 0.66% 1.96% 308,943 27,484 173 308,943 27,484 173 9,661 308,943 27,484 173 9,661 Debt instruments 337,732 337,784 61.61% 8,477 8,477 26.29% 346,209 346,261 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (b) 15,229 5,478 15,229 5,478 2.78% 1.00% 2,330 431 2,330 431 7.23% 1.34% 17,559 5,909 17,559 5,909 Equity instruments held for trading 35 35 0.01% 35 35 Equity instruments 20,743 20,743 3.78% 2,761 2,761 8.56% 23,504 23,504 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (b) Non controlled investment funds held for trading 6,835 4,917 6,835 4,917 1.25% 0.90% 183 207 353 183 207 353 0.57% 0.64% 1.09% 7,018 5,124 353 7,018 5,124 353 Non controlled investment funds 11,752 11,752 2.14% 742 742 2.30% 12,495 12,495 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,243 5,243 0.96% 1 1 0.00% 5,244 5,244 Macro hedge and other derivatives 601 601 0.11% (1,238) (1,238) 3.84% (636) (636) Financial investments 376,072 376,124 68.60% 10,743 10,743 33.32% 386,815 386,867 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (b) Loans held for trading Loans at cost (d) Macro hedge and other derivatives - 0 - 23,753 - 0 - 22,991 - 0.00% - 4.19% - - - 19,941 18 - - - 18,920 18 - - - 58.68% 0.06% - 0 - 43,694 18 - 0 - 41,911 18 Loans 23,753 22,991 4.19% 19,959 18,938 58.74% 43,711 41,929 Assets backing contracts where the financial risk is borne by policyholders 133,020 133,020 24.26% 133,020 133,020 INVESTMENTS 553,036 548,292 100.00% 33,881 32,242 100.00% 586,918 580,533 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 420,016 415,271 75.74% Life & Savings Property & Casualty 358,679 53,634 354,550 53,016 64.66% 9.67% International Insurance 7,703 7,705 1.41% (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized as of June 30, 2011 are classified as held for sale (see Note 4). (b) Use of fair value option. (c) Eligible to the IAS 39 Loans and Receivables measurement category (d) Mainly relates to policy loans. Page 40 (in Euro million) % (value balance sheet) 3.03% 0.19% 3.22% 53.22% 4.73% 0.03% 1.66% 59.65% 3.02% 1.02% 0.01% 4.05% 1.21% 0.88% 0.06% 2.15% 0.90% 0.11% 66.64% - 0.00% - 7.22% 0.00% 7.22% 22.91% 100.00% Insurance December 31, 2010 (a) (b) Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (c) Macro hedge and other derivatives 18,505 1,122 14,628 1,122 2.60% 0.20% 3,003 2,435 7.75% 21,509 1,122 17,063 1,122 Investment in real estate properties 19,628 15,751 2.80% 3,003 2,435 7.75% 22,631 18,185 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (c) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (d) 307,946 29,474 (17) 307,946 29,474 (17) 8,194 307,946 29,474 (17) 8,194 54.68% 5.23% 0.00% 1.46% 6,020 448 242 2,237 6,020 448 242 2,237 19.16% 1.43% 0.77% 7.12% 313,966 29,923 225 313,966 29,923 225 10,431 313,966 29,923 225 10,431 Debt instruments 345,601 345,598 61.37% 8,947 8,947 28.48% 354,548 354,545 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (c) 16,746 5,755 16,746 5,755 2.97% 1.02% 2,204 350 2,204 350 7.02% 1.11% 18,951 6,105 18,951 6,105 Equity instruments held for trading 32 32 0.01% 32 32 Equity instruments 22,533 22,533 4.00% 2,554 2,554 8.13% 25,088 25,088 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (c) Non controlled investment funds held for trading 6,998 4,990 6,998 4,990 1.24% 0.89% 237 106 347 237 106 347 0.75% 0.34% 1.11% 7,235 5,096 347 7,235 5,096 347 Non controlled investment funds 11,988 11,988 2.13% 690 690 2.20% 12,678 12,678 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,223 5,223 0.93% 1 1 0.00% 5,224 5,224 Macro hedge and other derivatives 570 570 0.10% (1,957) (1,957) 6.23% (1,387) (1,387) Financial investments 385,915 385,911 68.53% 10,235 10,235 32.58% 396,150 396,147 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (c) Loans held for trading Loans at cost (e) Macro hedge and other derivatives - 0 - 24,430 - 0 - 23,718 - 0.00% - 4.21% - 2 - 19,767 25 (0) - 2 - 18,719 25 0.00% - 0.01% - 59.58% 0.08% - 2 - 44,196 25 (0) - 2 - 42,438 25 Loans 24,430 23,718 4.21% 19,793 18,746 59.67% 44,223 42,464 Assets backing contracts where the financial risk is borne by policyholders 137,757 137,757 24.46% 137,757 137,757 INVESTMENTS 567,729 563,137 100.00% 33,032 31,416 100.00% 600,761 594,553 Investments (excluding those backing contracts where the financial risk is borne by policyholders) Life & Savings Property & Casualty 429,972 364,797 56,610 425,380 360,849 55,964 75.54% 64.08% 9.94% International Insurance 8,565 8,568 1.52% (a) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for w hich the disposal process was not finalized as of December 31, 2010 are classified as held for sale (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of Decem ber 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Use of fair value option. (d) Eligible to the IAS 39 Loans and Receivables measurement category (e) Mainly relates to policy loans. The exposure to sovereign debt securities issued by governments and related in Greece, Ireland and Portugal classified as available for sale as of June 30, 2011 (before impairment of the Greek maturities pre 2020) were as follows: IssuerFair valueAmortized costUnrealized losses (gross) June 30,2011Unrealized losses (net) June 30.2011GreeceMaturities < 2020336560-224-92GreeceMaturities > 2020430962-532-155Portugal1 4532 237-784-154Ireland8891 309-420-92Total3 1085 068-1 960-493(in Euro million) Amortized cost of securities issued by government and related in Ireland and Portugal with maturities below 10 years amounted to €2,361 million with a net unrealized loss of €170 million as of June 30, 2011. Page 41 (in Euro million) % (value balance sheet) 2.87% 0.19% 3.06% 52.81% 5.03% 0.04% 1.75% 59.63% 3.19% 1.03% 0.01% 4.22% 1.22% 0.86% 0.06% 2.13% 0.88% 0.23% 66.63% 0.00% - 0.00% - 7.14% 0.00% 7.14% 23.17% 100.00% The holdings in Greek sovereign debt scheduled to mature before 2020, subject to the private sector initiative to support Greece announced on July 21, 2011 involving voluntary exchanges and roll-overs of existing Greek government bonds into a combination of four instruments together with a Greek buyback facility, were impaired at fair value, resulted in €-92 million net charge for the period ended June 30, 2011. Net amounts may evolve depending on the timing of realization of these potential losses and on the local regulation environment. In addition debt securities issued by government and related in Greece, Ireland and Portugal classified under Fair value option amounted to €28 million as of June 30, 2011. 5.2. Investment in real estate properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2011 (a) December 31, 2010 (a) (b) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization Impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 17,141 (1,651) (463) 15,027 19,062 16,636 (1,569) (438) 14,628 18,505 Banking and other activities 2,959 (164) (235) 2,560 3,179 2,833 (169) (230) 2,435 3,003 All activities 20,100 (1,815) (697) 17,588 22,241 19,469 (1,737) (668) 17,063 21,509 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). Fair value is generally based on valuations performed by qualified property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million) Impairment - Investment in real estate properties Amortization - Investment in real estate properties June 30, 2011 (a) June 30, 2011 (a) Opening value 668 1,737 Increase for the period 39 121 Write back following sale (3) (7) Write back following recovery in value (2) Others (b) (6) (37) Closing value 697 1,815 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011 (see Note 4). (b) Mainly includes change in scope and the effect of changes in exchange rates. As of December 31, 2010, the end of year balance of impairment on investment in real estate properties amounted to €668 million and the amortization balance amounted to €1,737 million. Page 42 5.3. Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: June 30, 2011 (a) December 31, 2010 (a) (b) INSURANCE Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 294,510 9,028 11,526 5,679 300,905 8,977 14,582 6,703 300,905 9,028 14,582 6,703 13,095 35 3,477 1,482 6,700 86 421 458 296,425 8,227 11,335 5,672 306,408 8,230 15,900 6,621 306,408 8,227 15,900 6,621 15,973 71 4,702 1,037 June 30, 2011 (a) December 31, 2010 (a) (b) BANKING AND OTHER ACTIVITIES Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 7,708 629 2,685 7,584 629 2,912 7,584 629 2,912 112 - 234 236 - 7 6,326 2,235 2,635 6,099 2,235 2,860 6,099 2,235 2,860 26 - 226 Non controlled investment funds available for sale 173 183 183 10 0 227 237 237 13 June 30, 2011 (a) December 31, 2010 (a) (b) TOTAL Amortized cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses Amortized cost (c) Fair value Carrying value (d) Unrealized gains Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 302,218 9,657 14,211 5,852 308,490 9,606 17,494 6,886 308,490 9,657 17,494 6,886 13,207 35 3,711 1,493 6,936 86 428 458 302,751 10,462 13,970 5,900 312,507 10,465 18,760 6,858 312,507 10,462 18,760 6,858 15,999 71 4,928 1,050 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Net of impairment - including premiums/discounts and related accumulated amortization. (d) Net of impairment (details in Note 5.4). See also table 5.4.1 Breakdown of financial assets subject to impairment. Page 43 (in Euro million) Unrealized losses 5,990 67 137 88 (in Euro million) Unrealized losses 254 - 1 3 (in Euro million) Unrealized losses 6,244 67 138 92 5.4. Financial assets subject to impairment 5.4.1. Breakdown of financial assets subject to impairment (excluding investment in real estate properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2011 (a) December 31, 2010 (a) (b) Cost before impairment and revaluation to fair value (c) Impairment Cost after impairment but before revaluation to fair value (d) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (c) Impairment Cost after impairment but before revaluation to fair value (d) Revaluation to fair value Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market 303,229 9,658 (1,451) 301,778 9,658 7,165 3 308,943 9,661 305,083 10,424 (1,567) 303,516 10,424 10,450 8 Debt instruments 312,887 (1,451) 311,436 7,168 318,604 315,507 (1,567) 313,939 10,458 Equity instruments available for sale 16,748 (2,533) 14,214 3,345 17,559 16,604 (2,848) 13,757 5,194 Non controlled investment funds available for sale 6,931 (1,079) 5,852 1,166 7,018 6,517 (1,107) 5,410 1,825 Loans Held To Maturity (0) (0) Loans Available For Sale Loans at cost (e) 42,573 (553) 42,021 (109) 41,911 42,509 (521) 41,988 449 Loans 42,573 (553) 42,021 (109) 41,911 42,509 (521) 41,988 449 TOTAL 379,139 (5,615) 373,523 11,570 385,093 381,137 (6,043) 375,094 17,926 (a) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the disposal process is not finalized are classified as held for sale including discontinued operations as of June 30, 2011. As of December 31, 2010, this classification applied to Australian and New Zealand operations and to UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). (b) Following the refinement of the IFRS chart of accounts in 2011, in order to have a comparable basis, some aggregates of December 31, 2010 statement of financial position have been reclassified (see Note 1.20). (c) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (d) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (e) Including policy loans. (in Euro million) Carrying value 313,966 10,431 324,397 18,951 7,235 (0) 42,438 42,438 393,021 44 5.4.2. real estate properties) Change in impairment on invested assets (excluding investment in January 1, 2011 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 1,567 164 (211) (29) (40) Impairment - Equity instruments 2,848 237 (393) (158) Impairment - Non controlled investment funds 1,107 81 (31) (78) Impairment - Loans 521 31 (3) (13) 16 TOTAL 6,043 513 (638) (42) (260) (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (b) Assets and liabilities related to discontinued Canadian operations, and some UK Life & Savings portfolios for which the d isposal process is not finalized as of June 30, 2011 are classified as held for sale including discontinued operations. As of December 31, 2010, this classification applied for Australian and New Zealand operations and for UK Life & Savings portfolios for which the disposal process was not finalized (see Note 4). As of December 31, 2010, the end of year balance of impairment on invested assets excluding real estate properties amounted to €6,043 million. 5.5. Financial assets recognized at fair value Amounts presented below exclude the impact of derivatives and investment funds consolidated by equity method. Among invested financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €375.9 billion as of June 30, 2011 (€383.4 billion as of December 31, 2010): - €250.6 billion were determined directly by reference to an active market (€271.7 billion at the end of 2010), i.e. level 1 assets and - €125.2 billion related to assets not quoted in an active market/no active market (€111.8 billion at the end of 2010), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10.0 billion (€10.5 billion at the end of 2010). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: ■ values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and ■ assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: ■ assumed to be used by pricing services; or ■ used by the Group in the limited cases of application of mark to model valuations. As at June 30, 2011, some corporate bonds were reclassified out of level 1 into level 2 because of the widening of bid/ask spreads for such bonds reflecting a decrease in liquidity. Since June 30, 2010 some government bonds (Greece, Ireland, Portugal, Spain) have been transferred out of level 1 into level 2 because of an increased illiquidity observed in the market for such instruments. Further illiquidity was observed throughout the first half of year 2011 for most of these instruments, especially for Greek bonds. However, the pricing policy for such instruments was not modified so far (mark to market prices). Page 45 (in Euro million) June 30, 2011 (b) 1,451 2,533 1,079 553 5,615 Note 6 : Shareholders’ equity and minority interests 6.1. Impact of transactions with shareholders The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in note 1. 6.1.1. Change in shareholders’ equity Group share for the first half of 2011 a) Share capital and capital in excess of nominal value During the first half of 2011, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+22 million Realized losses on AXA shares for €-35 million b) Treasury shares As of June 30, 2011, the Company and its subsidiaries owned approximately 18 million AXA shares, representing 0.8% of the share capital, a decrease of 8 million shares compared to December 31, 2010, impacting shareholders’ equity by €+107 million. As of June 30, 2011, the carrying value of treasury shares and related derivatives was €388 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (51,158 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2011, 2.3 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €48 million and their market value €35 million at the end of June 2011. c) Undated subordinated debt and related financial expenses As described in note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2011, the change in other reserves was due to €-140 million in interest expense related to the undated subordinated debt (net of tax), and €-249 million in exchange rate differences. As of June 30, 2011 and December 31, 2010, undated subordinated debt recognized in shareholders’ equity broke down as follows: Page 46 (in Euro million) June 30, 2011 December 31, 2010 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M€ 6.0% 375 375 375 375 December 22, 2004 - 250 M€ 6.0% 250 250 250 250 January 25, 2005 - 250 M€ 6.0% 250 250 250 250 July 6, 2006 - 1000 M€ 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.7% 500 549 500 575 July 6, 2006 - 350 M£ 6.7% 350 388 350 407 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 442 600 454 November 7, 2006 - 150 M A$ 7.5% 150 111 150 114 December 14, 2006 - 750 M US$ 6.5% 750 516 750 559 December 14, 2006 - 750 M US$ 6.4% 750 516 750 559 October 5, 2007 - 750 M€ 6.2 % 750 746 750 746 October 16, 2007 - 700 M£ 6.8 % 700 773 700 811 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 232 27,000 249 Undated notes - (of which 500 M US$ at 7.1%) in US$ 875 605 875 655 Sub-Total undated subordinated debt 7,408 7,656 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 7,502 7,751 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-1,683 million as of June 30, 2011; €-1,543 million as of December 31, 2010. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At April 27, 2011 shareholders’ meeting, shareholders approved a dividend distribution of €1,601 million with respect to the 2010 financial year. e) Transaction AXA APH On April 1, 2011, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. This transaction had an impact on AXA Group of €0.7 billion realized capital gains recorded in net income regarding the sale of its Australian and New Zealand operations and €2.5 billion reduction in shareholders’ equity mainly related to the buy-out of minority interests in AXA APH Asian operations in accordance with the application of the new accounting principles on Business Combinations. The ownership increase in a controlled company while maintaining the control is accounted for in shareholders’ equity and no additional goodwill is recognized. 6.1.2. Change in shareholders’ equity Group share for the first half of 2010 a) Share capital and capital in excess of nominal value During the first half of 2010, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payments for €23 million, Realized losses on AXA shares for €-18 million. Page 47 b) Treasury shares As of June 30, 2010, the Company and its subsidiaries owned approximately 27 million AXA shares, representing 1.2% of the share capital, a decrease of 1 million shares or €13 million compared to December 31, 2009. As of June 30, 2010, the carrying value of treasury shares and related derivatives was €421 million. This figure included €0.3 million relating to AXA shares held by consolidated mutual funds (15,492 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2010, 2 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €51 million and their market value €27 million at the end of June 2010. c) Undated subordinated debt and related financial expenses During the first half of 2010, the change in other reserves was due to the redemption of undated subordinated debt (€-33 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-155 million in interest expense related to the undated subordinated debt (net of tax), and €+535 million in exchange rate differences. d) Dividends paid At the April 29, 2011 shareholders’ meeting, shareholders approved a dividend distribution of €1,259 million with respect to the 2009 financial year. 6.2. Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2011 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The decrease of gross unrealized gains and losses on assets available for sale totaled €-4,915 million, mainly due to €-1,516 million lower unrealized capital gains on equity securities, mainly driven by the sale of Taikang Life stake, as well as other realized capital gains; €-3,484 million on debt instruments primarily due to interest rates increase mainly impacting Japan, France, and Belgium. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2011 December 31, 2010 Gross unrealized gains and losses (a) 10,589 15,505 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (3,971) (5,801) Shadow accounting on Deferred Acquisition Costs (b) (378) (478) Shadow accounting on Value of purchased Business In force (363) (629) Unallocated unrealized gains and losses before tax 5,877 8,597 Deferred tax (1,299) (1,979) Unrealized gains and losses (net of tax) - Assets available for sale 4,578 6,618 Unrealized gains and losses (net of tax) - Equity accounted companies (c) 100 33 Unrealized gains and losses (net of tax) – 100% - Total 4,677 6,651 Minority interests' share in unrealized gains and losses (d) (17) (203) Translation reserves (e) (102) (262) Unrealized gains and losses (Net Group share) (c) 4,558 6,186 (a) Unrealized gains on total available for sale invested assets including loans and URGL on equity pick up but excluding URG L on CFH. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including unrealized gains and losses on assets from discontinued operations (d) Including foreign exchange impact attributable to minority interests. (e) Group share. Page 48 At June 30, 2011, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2011: (in Euro million) June 30, 2011 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 3,991 247 1,268 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (2,154) (202) (968) Shadow accounting on Deferred Acquisition Costs (b) (85) (6) Shadow accounting on Value of purchased Business In force (19) (39) Unallocated unrealized gains and losses before tax 1,732 45 255 Deferred tax (134) (13) (51) Unrealized gains and losses (net of tax) - Assets available for sale 1,598 33 204 Unrealized gains and losses (net of tax) - Equity accounted companies 4 Unrealized gains and losses (net of tax) – 100% - Total 1,602 33 204 Minority interests' share in unrealized gains and losses (c) (4) (0) Translation reserves (d) (148) Unrealized gains and losses (Net Group share) 1,598 33 56 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2011 and December 31, 2010 broke down as follows: (in Euro million) June 30, 2011 December 31, 2010 Unrealized gains and losses (net of tax) 100%, opening 6,651 4,687 Transfer in the income statement on the period (a) (906) (878) Investments bought in the current accounting period and changes in value (619) 2,519 Foreign exchange impact (278) 388 Change in scope and other changes (171) (66) Unrealized gains and losses (net of tax) 100%, closing 4,677 6,651 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €-2,069 million (of which €-1,945 million from group share and €- 124 million from minority interest rates) as of June 30, 2011. The group share translation reserves movement (€-1,945 million) was mainly driven by the United States (€-773 million), Japan (€-518 million), the United Kingdom (€-211 million), by the impact of the AXA APH transaction with AMP (€-471 million), partly offset by the Company (€+410 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. Page 49 c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2011 amounted to €+12 million net group share. 6.2.2. Comprehensive income for the first half of 2010 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The change in reserves for unrealized gains and losses on assets available for sale totaled €+1,177 million (net Group share), mainly attributable to the United States (€+448 million), France (€+263 million), Belgium (€+209 million) and Germany (€+192 million). The increase of gross unrealized gains and losses on assets available for sale totaled €+6,031 million, mainly due to debt securities (€+6,714 million) primarily following the decreases on interest rates, partly offset by a €-822 million decrease from equity securities. b) Translation reserve The total impact of foreign exchange rate movements was €+2,025 million (of which group share was €+1,613 million). The group share translation reserve movement (€+1,613 million) was mainly driven by the United States (€+1,570 million), Japan (€+979 million), Switzerland (€+786 million), and the United Kingdom (€+354 million), which was partly offset by the Company (€-2,733 million driven by the change in fair value of currency hedges set up to hedge net investments in foreign operations). c) Employee benefits actuarial gains and losses The group share change in employee benefits actuarial losses for the first half year 2010 amounted to €-487 million, mainly due to the decrease of discount rates especially in the United Kingdom (€-335 million) and in the United States (€-132 million), partly offset by lower long term inflation rates in the United Kingdom. 6.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2011 The €1,694 million decrease in minority interests to €2,476 million was due to transactions with shareholder for €-1,598 million as a result of AXA APH transaction and comprehensive income for €-96 million. The comprehensive income for the period notably included the following: - Net income attributable to minority interests for €+209 million; - Change in translation reserves for €-124 million, including €+248 million following the transaction with AXA APH - Reserves relating to changes in fair value through shareholders’ equity for €-181 million, including €-152 million following the transaction with AXA APH 6.3.2. Change in minority interests for the first half of 2010 The €+516 million increase in minority interests to €4,209 million was mainly due to transactions with shareholder for €-196 million, and comprehensive income for €+712 million. Transactions with shareholders included mainly dividends paid to minority interests holders for €-227 million. The comprehensive income for the period notably included the following: - Net income attributable to minority interests for €+198 million; and - Change in translation reserves for €+412 million. Page 50 Note 7 : Financing debt (in Euro million) Carrying value June 30, 2011 December 31, 2010 AXA Debt component of subordinated notes due 2014 (€) Debt component of subordinated notes, 3.75% due 2017 (€) Subordinated notes due 2020 (€) Subordinated notes, 5.75% due 2040 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) 6,467 1,935 1,390 - 1,300 821 360 6,401 1,901 1,360 50 1,300 890 378 Derivatives on debts instruments issued (a) 662 522 AXA Financial 139 150 Surplus Notes, 7.70 %, due 2015 138 149 MONY Life 11.25% Surplus Notes due 2024 1 1 AXA Bank Europe 389 366 Subordinated notes Subordinated undated notes, variable 145 219 366 Derivatives relating to subordinated debts 25 AXA-MPS Vita and Danni 108 108 Subordinated Notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 27 41 SUBORDINATED DEBT 7,131 7,066 AXA 1,910 1,892 Euro Medium Term Notes, 6.0% due through 2013, and BMTN Commercial paper 890 20 892 - Euro Medium Term Notes, due through 2015 1,000 1,000 AXA Financial 240 260 Senior notes, 7%, due 2028 240 260 AXA UK Holdings 169 178 GRE : Loan Notes, 6.625%, due 2023 169 178 Other financing debt instruments issued (less than €100 million) 150 170 Other financing debts instruments issued under euro 100 million 124 135 Derivatives relating to other financing debts instruments issued (a) 26 35 FINANCING DEBT INSTRUMENTS ISSUED 2,470 2,500 AXA 745 785 Morocco 67 68 Other financing debts owed to credit institutions (under €100 million) 13 34 FINANCING DEBT OWNED TO CREDIT INSTITUTIONS 825 887 TOTAL FINANCING DEBT 10,426 10,454 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. Total financing debt decreased by €28 million between December 31, 2010 and June 30, 2011, or increased by €57 million at constant exchange rates, to €10,426 million. The increase at constant exchange rates was mainly due to: i. €140 million increase in fair value of cross currency and interest rate swaps. Partly offset by: ii. iii. €50 million decrease following the early repayment of a subordinated debt; €32 million decrease in the Mediterranean and Latin America region reflecting repayment of financing debt owed to credit institutions. Page 51 Note 8 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: • number of outstanding ordinary shares during the period. • The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average (in Euro million) (a) June 30, 2011 June 30, 2010 NET INCOME GROUP SHARE 3,999 944 Undated subordinated debt financial charge (140) (155) NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT A 3,859 789 Weighted average number of ordinary shares (net of treasury shares) - opening 2,294 2,264 Increase in capital (excluding stock option exercised) (b) Stock options exercised (b) Treasury shares (b) 4 (0) Share purchase program (b) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES B 2,298 2,263 NET INCOME PER ORDINARY SHARE C = A / B 1.68 0.35 Potentially dilutive instruments : Stock options 3 3 Other 1 4 FULLY DILUTED - WEIGHTED AVERAGE NUMBER OF SHARES (c) D 2,302 2,271 NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT E 3,859 789 FULLY DILUTED NET INCOME PER ORDINARY SHARE F = E / D 1.68 0.35 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) Weighted average. (c) Taking into account the impact of potentially dilutive instruments. Page 52 Statutory auditors’ review report on the 2011 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2011 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2011 ; the verification of the information contained in the half-year management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors, in a context characterised by a public debt crisis in certain euro-zone countries and in particular in Greece, the effects of which are described in notes 5.1 and 5.5 to the financial statements.. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 4, 2011 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2011 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 5, 2011. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations | Semestriel, 2011, Insurance, AXA | write me a financial report |
Semestriel | 2,012 | Insurance | AXA | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
### Instruction:
Write a detailed financial report on the given subject and company.
### Subject:
Insurance
### Company:
AXA
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| Half Year Financial Report June 30, 2012 Table of contents I Activity Report ...................................................................... II Consolidated financial statements ...................................... III Statutory auditors’ review report on the 2012 Half Year Financial Information .................................................... IV Statement of the person responsible for the Half Year Financial Report ...................................................................... Activity Report______________________________________________________________________Half Year 2012 Activity Report / Half Year 2012 Page 1 Activity Report______________________________________________________________________Half Year 2012 Cautionary statements concerning forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2011, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Cautionary statements concerning forward-looking statements ..................................................................... 2 Financial market conditions in first half of 2012 ........................................................................................... 3 Operating highlights ..................................................................................................................................... 5 Consolidated gross revenues ......................................................................................................................... 6 Consolidated underlying earnings, adjusted earnings and net income .......................................................... 11 Life & Savings Segment ............................................................................................................................. 17 Property & Casualty Segment ..................................................................................................................... 41 International Insurance Segment ................................................................................................................. 61 Asset Management Segment ....................................................................................................................... 65 Banking ...................................................................................................................................................... 67 Holdings and other companies .................................................................................................................... 71 Outlook ...................................................................................................................................................... 74 Glossary ..................................................................................................................................................... 75 Page 2 Activity Report______________________________________________________________________Half Year 2012 Financial market conditions in first half of 2012 In the United States and in Europe, economic indicators generally improved over the first quarter of 2012. In the United States, the manufacturing ISM index continued to deliver an optimistic message of expansion with external demand showing strength. In Europe, the situation from one country to another was quite mixed with sharp recessions in most of the peripheral nations and better performances in France and Germany. Banking and sovereign tensions continued to dissipate in the Euro area due to injections of long term liquidity by the ECB and progress on the reform front. After an encouraging first quarter for the global state of the economy, in the second quarter, a generalized slowdown affected developed as well as developing economies. In the United States, poor prospects in domestic demand, along with uncertainties in global markets, took a toll on companies’ confidence. The manufacturing ISM index declined in June, below 50, for the first time in three years, showing contraction in the industrial production. In the Euro zone, after a calmer period, concerns about the political situation in Greece, and the possibility of that country exiting the Euro zone, added to difficulties in the Spanish banking sector, resulted in new tensions on bond markets and on credit conditions. Economic indicators deteriorated everywhere in Europe. Even Germany, a country which, so far, had succeeded in maintaining growth amid the current economic setback, recorded a slowdown in May and June, according to the IFO Index. In this environment, Japanese investors remained cautious and scaled down capital expenditure. After the resurgence of automobile sales during the first quarter, private expenditure slowed down. Indeed, the labour market remained weak as wages and employment were nearly stagnant. Against this unfavourable environment, emerging countries were also affected. China showed signs of slowdown, while Brazil and India registered disappointing growth rates. Poor economic performance in their main partner countries finally depressed economic activity in emerging countries, in particular on investment. STOCK MARKETS Equity markets performance was mixed during the first half of this year. The MSCI World Index increased by 5% with good performance in the United States and in Japan. However, in Europe the performance was weak and very contrasted from one country to another (negative performance in the periphery, especially in Spain and Italy). The Dow Jones Industrial Average Index in New York increased by 5% in the first half of 2012 and the S&P 500 Index by 8%. The FTSE 100 Index in London ended the first half of 2012 almost exactly flat compared to December 31, 2011. The CAC 40 Index in Paris increased by 1% and the Nikkei Index in Tokyo appreciated by 7%. The MSCI G7 Index increased by 6% and the MSCI Emerging Index appreciated by 3%. The S&P 500 implied volatility Index decreased from 23.4% to 17.1% between December 31, 2011 and June 30, 2012. BOND MARKETS The US 10-year T-bond ended the half year at 1.66%, a decrease of 22 bp compared to December 31, 2011. The 10- year German Bund yield decreased by 23 bp to 1.60%. The France 10-year government bond yield decreased by 46 bp to 2.69%. The 10-year Japanese government bond ended the half year at 0.85 %, a decrease of 14.5 bp. The 10-year Belgium government bond ended the half year at 3.03%, a 106 bp decrease compared to December 31, 2011. Regarding the evolution of 10-year government bonds on European peripheral countries: Italy ended the half year at 5.82% (a decrease of 120 bp compared to December 31, 2011), Spain ended the half year at 6.33% (an increase of 124 bp compared to December 31, 2011), Greece ended the half year at 25.83% (a decrease of 913 bp compared to December 31, 2011), Ireland ended the half year at 8.21% (stable compared to December 31, 2011), Portugal ended the half year at 10.16% (a decrease of 320 bp compared to December 31, 2011). In Europe, the iTRAXX Main spreads decreased by 7 bp compared to December 31, 2011 and ended half year at 166 bp while the iTRAXX Crossover decreased by 93 bp to 662 bp. In the United States, the CDX Main spread Index decreased by 8 bp to 112 bp. Page 3 Activity Report______________________________________________________________________Half Year 2012 EXCHANGE RATES In this context, the Euro decreased against the main currencies during the first half of 2012 reflecting fears that Greece exits from the monetary union, and disappointing economic results. Compared to December 31, 2011, the US Dollar gained 2% against the Euro (closing exchange rate moved from $1.30 at the end of 2011 to $1.27 at the end of June 2012). The Yen decreased by 1% against the Euro (closing exchange rate moved from Yen 99.88 at the end of 2011 to Yen 101.26 at the end of June 2012). The Pound Sterling gained 3% against the Euro (closing exchange rate moved from £0.835 at the end of 2011 to £0.809 at the end of June 2012). The Swiss Franc gained 1% against the Euro (closing exchange rate moved from CHF 1.21 at the end of 2011 to CHF 1.20 at the end of June 2012). On an average rate basis, the US Dollar gained 7% against the Euro (from $1.40 over the first half of 2011 to $1.30 over the first half of 2012). The Yen gained 8% against the Euro (from Yen 112.4 over the six months to March 31, 2011 used for half year 2011 accounts to Yen 103.4 over the first half of 2012). The Pound Sterling gained 5% (from £0.869 over the first half of 2011 to £0.823 over the first half of 2012) and the Swiss Franc gained 5% against the Euro (from CHF 1.27 over the first half of 2011 to CHF 1.20 over the first half of 2012). Page 4 Activity Report______________________________________________________________________Half Year 2012 Operating highlights Significant acquisitions AXA and HSBC long-term partnership in Property & Casualty in Asia and Latin America On March 7, 2012, AXA and HSBC announced they have entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in India, Indonesia and China. This transaction will position AXA as the number one P&C player in Hong Kong, and strengthen its leading positions in Mexico and Singapore. The Hong Kong and Singapore businesses to be acquired benefit from multi-channel distribution, including through HSBC Bank branches, as well as strong agent and broker networks. The net upfront cash consideration for AXA is USD 494 million or ca. Euro 374 million, and will be funded through internal resources. The closing of the transaction is subject to regulatory approvals and is expected in the course of the second half of 2012. Significant disposals There were no significant disposals in the first half of 2012. Other AXA Rosenberg In the first half of 2011 a number of class action law suits were filed against AXA Rosenberg on behalf of certain AXA Rosenberg clients. These suits made various allegations including breach of fiduciary duty, negligence/gross negligence in connection with the coding error and requested damages in an unspecified amount to be determined at trial. In the last quarter of 2011, the parties entered into a settlement agreement following a nonbinding mediation process. In March 2012, the Federal District Court for the North District of California approved a settlement of these class actions under the terms of which AXA Rosenberg paid USD 65 million. Launch of the Joint-Venture in China between ICBC, AXA and Minmetals On July 19, 2012, ICBC-AXA Life, a Life Insurance joint-venture between Industrial and Commercial Bank of China Co. Ltd (ICBC), AXA and China Minmetals Corporation (Minmetals), announced its official launch in China. It has received approval from China’s State Council and all relevant regulatory bodies. ICBC-AXA Life succeeds AXA-Minmetals Assurance (AXA-Minmetals), established in 1999. Following the equity transfer agreement reached on October 28, 2010 between ICBC , AXA and Minmetals, ICBC bought 60% of shares of AXA-Minmetals and became the majority shareholder of the company. AXA owns 27.5% and Minmetals owns 12.5%. AXA rating On January 27, 2012, S&P affirmed the 'AA-' long-term ratings on AXA Group, assigning a negative outlook, and removing the CreditWatch with negative implications under which AXA Group and other financial institutions were placed on December 9, 2011 following the rating actions on the Eurozone sovereigns. In February 2012, Moody’s Investors Services reaffirmed the Aa3 rating for counterparty credit and financial strength on AXA’s principal insurance subsidiaries, and A2 for counterparty credit rating on the Company, assigning a negative outlook. Related-party transactions During the first half of the fiscal year 2012, there were (1) no modifications to the related-party transactions described in Note 28 "Related-Party transactions" of the audited consolidated financial statements for the fiscal year ended December 31, 2011 included in the full year 2011 Registration Document (pages 392 and 393) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2012, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2012. Page 5 Activity Report______________________________________________________________________Half Year 2012 Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 "Risk factors" included in the full year 2011 Registration Document (respectively on pages 172 to 184 and pages 185 to 204) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2011 Registration Document remains valid in all material respects at the date of this Report regarding the appreciation of the major risks and uncertainties affecting the Group at June 30, 2012 and which management expects may affect the Group during the remainder of 2012. Page 6 Activity Report______________________________________________________________________Half Year 2012 Consolidated gross revenues Consolidated Gross Revenues (a) HY 2012 HY 2011 FY 2011 Life & Savings 28,607 27,841 52,431 of which Gross written premiums 27,889 27,010 50,918 of which Fees and revenues from investment contracts with no participating feature 164 182 350 Property & Casualty 16,173 15,350 27,046 International Insurance 1,825 1,739 2,876 Asset Management 1,575 1,658 3,269 Banking (b) 226 248 485 Holdings and other companies (c) 0 0 0 TOTAL 48,405 46,836 86,107 (a) Net of intercompany eliminations. (b) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of option s and derivatives, net banking revenues and total consolidated revenues would respectively amount to €224 million and €48,403 million for half year 2012 and €479 million and €86,101 million for full year 2011. (c) Includes notably CDOs and real estate companies. (d) Changes are on a comparable basis. On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE1 in this document means including, in both periods, acquisitions, disposals and business transfers, and net of intercompany transactions. Consolidated gross revenues for half year 2012 reached €48,405 million, up 3% compared to first half year 2011. The restatements to a comparable basis were mainly driven by the depreciation of Euro against most of major currencies (€+1,365 million or +2.9 points) and the impact of the disposal of Australia and New Zealand operations in 2011 (€-352 million or -0.8 point). On a comparable basis, gross consolidated revenues were up 1%. 1 Annual Premium Equivalent (APE) is a new regular premiums plus are tenth of single premiums, in line with EEV methodology. APE is Group share. Page 7 (in Euro million) HY 2012/ HY 2011 (d) 0.8% 3.7% 2.4% 10.1% 7.7% n.a. 1.4% Activity Report______________________________________________________________________Half Year 2012 Annual Premium Equivalent Annual Premium equivalent (in Euro million) HY 2012 HY 2011 FY 2011 HY 2012/HY 2011 (a) TOTAL France United States United Kingdom Japan Germany Switzerland Belgium Central & Eastern Europe Mediterranean and Latin American Region Hong Kong South-East Asia, India and China Mature markets High growth markets (a) Changes are on a comparable basis. 3,075 641 599 283 269 258 256 119 78 190 180 201 2,590 485 2,948 664 502 296 212 258 277 80 129 202 166 162 2,467 481 5,733 1,340 1,018 535 463 506 397 173 213 432 330 326 4,808 925 0.0% -5.2% 10.0% -9.3% 17.3% 0.2% -12.3% 49.6% -36.2% -6.0% -0.4% 18.0% 0.6% -3.0% Total Life & Savings New Business APE amounted to €3,075 million, up 4% on a reported basis or stable on a comparable basis. This was mainly driven by Belgium, South-East Asia, India and China, Japan and the United States, offset by Central & Eastern Europe, Switzerland, the United Kingdom, Mediterranean and Latin American Region and France. High growth markets decreased by 3% as strong growth in South-East Asia, India and China (€+29 million or +18%) was more than offset by Central & Eastern Europe (€-47 million or -36%), negatively impacted by regulatory developments in Poland. The United States APE increased by €50 million (+10%) to €599 million reflecting higher sales of unit-linked products (€+49 million) as a consequence of both higher (i) non GMxB Variable Annuity product sales (+31% or €+29 million) driven by the availability of Structured Capital Strategies product and the new Retirement Gateway product in the wholesale channel, and (ii) GMxB Variable Annuity product sales (+17% or €+20 million) mainly on new Accumulator 11 product. Belgium APE increased by €40 million (+50%) to €119 million, mainly driven by higher sales of Crest Classic G/A Savings product as a result of a two-month sales campaign in January and February, as well as G/A Protection & Health products reflecting the acquisition of a large Group contract. Japan APE increased by €37 million (+17%) to €269 million driven by higher sales of Variable Annuity products (€+18 million) as well as sales of G/A Protection & Health products (€+17 million) driven by Term Rider and LTTP products which were actively promoted. South-East Asia, India and China APE increased by €29 million (+18%) to €201 million mainly driven by (i) Thailand (€+15 million) reflecting higher sales of G/A Protection with Savings and G/A Pure Protection products, (ii) Indonesia (€+7 million) due to sales of unit-linked products through the bancassurance channel, and (iii) Singapore (€+4 million) driven by unit-linked products through the broker channel. Central & Eastern Europe APE decreased by 47 million (-36%) to €78 million. The decrease was driven by (i) Pension Funds (€- 32 million) as a result of the change in regulation in Poland and (ii) lower Life sales (€-15 million) mainly driven by unit-linked sales due to the end of cooperation with lower profitability brokers in the Czech Republic and Slovakia. Page 8 Activity Report______________________________________________________________________Half Year 2012 France APE decreased by €36 million (-5%) to €641 million mainly due to (i) lower sales of G/A Individual Savings (-10% or €-39 million) reflecting the negative trend in the French market, partly offset by (ii) an increase in G/A Protection & Health and Group retirement sales. Switzerland APE decreased by €34 million (-12%) to €256 million mainly driven by Group Life after exceptionally strong sales of full coverage insurance contracts in the first half of 2011. UK APE decreased by €28 million (-9%) to €283 million driven by unit-linked products (€-37 million) as a result of lower volumes in Individual Pension business and in Offshore Bond business written through Isle of Man. This was partly mitigated by Mutual Funds sales (€+10 million) through the Elevate wrap platform. Mediterranean and Latin American Region APE decreased by €12 million (-6%) to €190 million mainly due to mature markets (€-16 million) reflecting (i) a significant decrease in G/A Savings products (€-36 million or -38%) as a result of the increased focus on unit-linked products and high competitive environment from banks, partly offset by (ii) unit-linked products (€+21 million or +36%). Property & Casualty Revenues Property & Casualty Revenues (in Euro million) HY 2012 HY 2011 FY 2011 HY 2012/ HY 2011 (a) TOTAL . Mature markets Direct High growth markets 16,173 13,259 1,085 1,829 15,350 12,726 1,059 1,564 27,046 21,609 2,102 3,335 3.7% 2.4% -1.1% 17.4% (a) Changes are in comparable basis Property & Casualty gross revenues were up 5% to €16,173 million or up 4% on a comparable basis. Personal lines increased by 3% especially in Germany, the United Kingdom & Ireland, the Mediterranean and Latin American Region partly offset by Direct. Commercial lines increased by 5%, primarily in the Mediterranean and Latin American Region, the United Kingdom & Ireland, France and Asia. Personal lines (58% of P&C gross revenues) were up by 3% on a comparable basis, stemming from both Motor (+2%) and Non-Motor (+5%), primarily as a result of tariff increases in mature markets and higher volumes in high growth markets. Motor revenues grew by €105 million or +2% mainly driven by: Germany (+8%) mainly as a result of tariff increases and successful turn of year business, - the Mediterranean and Latin American Region (+4%), primarily driven by higher volumes in Turkey (+30%) and Mexico (+13%), tariff increases in Italy (+10%), partly offset by Spain (-9%) due to a competitive market in a depressed economic environment, Asia (+14%) driven by strong volume increase in Malaysia (+8%), - partly offset by Direct (-3%) reflecting a 35% decrease in the United Kingdom as a result of portfolio pruning and repricing with lower retention as well as lower new business, partly offset by significant growth in other countries (+10%) with Italy, Poland and France (+70%, +37% and +10% respectively) as well as higher volumes in Japan (+5%). Non-Motor revenues increased by €163 million or +5% mainly due to: the United Kingdom & Ireland (+8%) mainly in Household, driven by the United Kingdom with new partnerships and improved retention, Germany (+5%) and France (+2%) mainly due to tariff increases in Household. Commercial lines (41% of P&C gross revenues) increased by 5% on a comparable basis with Motor and Non- Motor up by 12% and 3% respectively. Motor revenues increased by €157 million or +12%, mainly driven by: the Mediterranean and Latin American Region (+23%) notably in Mexico (+40%) fuelled by positive portfolio developments, and in Turkey (+27%) reflecting more competitive products, - France (+14%) mainly as a result of both tariff increases and higher volumes, Page 9 Activity Report______________________________________________________________________Half Year 2012 - the United Kingdom (+14%) mainly driven by tariff increases and increased retained business in Motor fleet. Non-Motor revenues increased by €156 million or +3% reflecting growth in: the United Kingdom (+9%) primarily due to Health portfolio development in the United Kingdom and abroad, - France (+4%) mainly following tariff increases in Construction and Property, partly offset by lower volumes, - the Mediterranean and Latin American Region (+3%) mainly driven by new business in Health in the Gulf. International Insurance revenues International Insurance gross revenues were up 5% or 2% on comparable basis to €1,825 million mainly driven by (i) AXA Corporate Solutions up 2% to €1,334 million mainly as a result of positive portfolio developments and tariff increases in Construction, Property and Marine, partly offset by non renewal of a large contract in Liability and tariff decrease in Aviation, and (ii) AXA Assistance up 4% to €401 million. Asset management revenues Asset Management gross revenues decreased by 5% or 10% on a comparable basis to €1,575 million mainly driven by a decrease in management fees (€-117 million) at AllianceBernstein and lower performance fees and real estate transaction fees at AXA IM (€-35 million). AllianceBernstein revenues were down 13% to €965 million primarily due to lower management fees (-17%), resulting from lower bps (-3.6 bps) reflecting change in business mix, and lower average assets under management (-9%) versus 1H 2011. Assets Under Management (AUM) increased by 3% or €11 billion from year-end 2011 to €346 billion driven by (i) €+13 billion from market appreciation, (ii) €+8 billion favorable foreign rate exchange impact, partly offset by (iii) €- 5 billion net outflows (€5 billion net inflows from Retail clients offset by €-7 billion net outflows from Institutional clients and €-3 billion net outflows from Private Clients) and (iv) €-5 billion change in scope due to the disposal of AXA Canada and AXA Australia operations. AXA Investment Managers revenues were down 6% to €610 million. Excluding distribution fees (retroceded to distributors), net revenues decreased by €31 million (-6%) mainly resulting from lower performance and Real Estate transaction fees while management fees remained stable. AUM increased by 6% or +30 billion from year-end 2011 to €542 billion mainly as a result of (i) €+28 billion market appreciation, (ii) €+4 billion favorable foreign exchange rate impact, partly offset by (iii) €-2 billion outflows. Net outflows of €-2 billion were mainly driven by the voluntary exit from unprofitable employee shareholding plan schemes (€-4 billion) and outflows at AXA Rosenberg (€-1 billion), partly offset by net inflows mainly on AXA Private Equity, AXA Framlington and AXA Fixed Income. Net banking revenues Net banking revenues were down 9% to €226 million or down 8% on a comparable basis, mainly driven by France (- 43%) due to higher interest paid to customers on savings account as a result of the promotional campaign realized during the first half of 2012, while AXA Bank Belgium increased by 13% to €153 million mainly due to higher realized capital gains, partly offset by higher impairments on fixed income assets. Page 10 Activity Report______________________________________________________________________Half Year 2012 Consolidated underlying earnings, adjusted earnings and net income IASB and FASB deliberations regarding the Insurance Contracts Phase II project as well as change in USGAAP indicate that accounting standards are moving to lower capitalization and therefore less deferral of acquisition expenses. In this context, the Group changed its accounting policy on deferred acquisition costs as of January 1, 2012 and retrospectively restated comparative information related to previous periods. The impact of this change led to a reduction of total shareholders’ equity of €1,913 million (of which €1,910 million group share) as of January 1, 2011. In the tables of the document, “restated” refers to this voluntary change in accounting policy. HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Gross written premiums 45,749 43,959 43,959 80,570 Fees and revenues from investment contracts without participating feature 164 182 182 350 Revenues from insurance activities 45,913 44,141 44,141 80,920 Net revenues from banking activities 204 245 245 414 Revenues from other activities 2,268 2,449 2,449 4,708 TOTAL REVENUES 48,385 46,835 46,835 86,042 Change in unearned premium reserves net of unearned revenues and fees (4,069) (3,740) (3,740) (547) Net investment result excluding financing expenses (a) 14,209 11,065 11,065 15,114 Technical charges relating to insurance activities (a) (c) (45,494) (40,351) (40,351) (75,623) Net result of reinsurance ceded (572) (571) (571) (733) Bank operating expenses (47) (44) (44) (87) Insurance acquisition expenses (4,258) (4,345) (4,332) (8,160) Amortization of value of purchased life business in force (37) (87) (87) (241) Administrative expenses (c) (4,529) (5,047) (5,047) (9,552) Valuation allowances on tangible assets (0) (0) (0) 29 Change in value of goodwill (0) (1) (1) (0) Other (143) (158) (158) (388) Other operating income and expenses (55,081) (50,605) (50,592) (94,755) OPERATING EARNINGS BEFORE TAX 3,445 3,556 3,569 5,854 Net income from investments in affiliates and associates 44 46 46 85 Financing expenses (275) (196) (196) (360) UNDERLYING EARNINGS BEFORE TAX 3,214 3,406 3,420 5,579 Income tax expenses (791) (1,040) (1,048) (1,453) Minority interests (118) (145) (143) (224) Other UNDERLYING EARNINGS 2,305 2,222 2,228 3,901 Net realized capital gains or losses attributable to shareholders 123 171 174 (312) ADJUSTED EARNINGS 2,427 2,393 2,402 3,589 Profit or loss on financial assets (under fair value option) & derivatives 291 165 170 114 Exceptional operations (including discontinued operations) (8) 1,543 1,543 2,069 Goodwill and other related intangible impacts (56) (50) (50) (1,167) Integration and restructuring costs (69) (52) (52) (281) NET INCOME 2,586 3,999 4,013 4,324 (a) For the periods ended June 30, 2012 and December 31, 2011, the change in fair value of assets backing contracts with fin ancial risk borne by policyholders impacted the net investment result for respectively €+6,224 million and €+4,977 million, and benefits and claims by the offsetting amounts respectively. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) For the period ended December 31, 2011, €201 million have been reclassified from administrative expenses to technical charges relating to i nsurance activities to ensure consistency of the information. Page 11 (in Euro million) FY 2011 restated (b) 80,570 350 80,920 414 4,708 86,042 (547) 15,114 (75,623) (733) (87) (8,352) (241) (9,552) 29 (0) (388) (94,947) 5,662 85 (360) 5,386 (1,392) (222) 3,772 (312) 3,460 110 2,069 (1,167) (281) 4,190 Activity Report______________________________________________________________________Half Year 2012 Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Life & Savings 1,411 1,310 1,316 2,267 Property & Casualty International Insurance 1,044 118 989 143 989 143 1,848 276 Asset Management Banking 159 5 157 8 157 8 321 32 Holdings and other companies (a) (433) (384) (384) (843) UNDERLYING EARNINGS 2,305 2,222 2,228 3,901 Net realized capital gains or losses attributable to shareholders 123 171 174 (312) ADJUSTED EARNINGS 2,427 2,393 2,402 3,589 Profit or loss on financial assets (under Fair Value option) & derivatives 291 165 170 114 Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts (8) (56) 1,543 (50) 1,543 (50) 2,069 (1,167) Integration and restructuring costs (69) (52) (52) (281) NET INCOME 2,586 3,999 4,013 4,324 (a) Includes notably CDOs and real estate companies. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Group underlying earnings amounted to €2,305 million up 3% versus 1H 2011. On a constant exchange rate basis, underlying earnings remained stable driven by Property & Casualty and Life & Savings, partly offset by a decrease in Holdings and International Insurance. Life & Savings underlying earnings amounted to €1,411 million. On a constant exchange rate basis Life & Savings underlying earnings were up €40 million (+3%). On a comparable scope basis, restated for the sale of Bluefin and portfolios transferred in November 2011 to Resolution in the UK, and for the AXA APH Asian entities minority interest buy-out and disposal of Australia and New Zealand operations on April 2, 2011, Life & Savings underlying earnings were up €45 million (+3%) mainly attributable to Japan (€+135 million), Switzerland (€+23 million), the Mediterranean and Latin American Region (€+21 million), South-East Asia India and China (€+13 million), partly offset by the United States (€-156 million) mainly resulting from: (i) Lower Investment margin (€-25 million or -2%), mainly as a result of (i) lower investment income partly offset by lower allocation to policyholders in France (€-32 million), (ii) the United States (€-23 million) due to a decrease in investment income, partly offset by (iii) the Mediterranean and Latin American Region (€+8 million) mainly due to an exceptional release of policyholder bonus, and (iv) Switzerland (€+8 million) as a result of higher investment income mainly on real estate as well as lower interest credited. (ii) Higher fees & revenues (€+50 million or +1%) mainly driven by: a. Unit-linked management fees were down €27 million, mainly driven by France (€-18 million) due to lower average asset base and the United States (€-16 million) due to lower Separate Account balances, b. Loadings on premiums and mutual funds were up €75 million mainly driven by (i) France (€+100 million) due to an adjustment on Unearned Revenue Reserve (€+69 million) fully offset by DAC amortization, as well as higher loadings on premiums in Group Protection (€+23 million), (ii) Hong Kong (€+28 million) driven by higher new business and in-force growth, partly offset by (iii) the United States (€-69 million) due to the non repeat of a favourable change in assumptions in 1H 2011 related to Unearned Revenue Reserve amortization (€-71 million), c. Other fees were up €2 million. (iii) Net technical margin was down €608 million (or -93%) mainly driven by (i) the United States (€-724 million), primarily due to (a) higher Variable Annuity GMxB losses mainly resulting from reserve adjustments for lower partial withdrawal, partly offset by premium suspension on old contracts and other model and assumption refinements, as well as higher hedging losses, and due to (b) unfavorable mortality experience on Life products, partly offset by (ii) Japan (€+96 million) mainly due to the non repeat of the Great East Japan earthquake. (iv) Expenses decreased by €488 million (or -14%) as a result of: a. €393 million lower acquisition expenses, primarily driven by the United States (€+560 million) as a result of lower DAC amortization notably following the decrease in technical margin, partly offset by (i) France (€-64 million) mainly driven by higher DAC amortization (€-69 million) fully offset by Page 12 (in Euro million) FY 2011 restated (b) 2,138 1,848 276 321 32 (843) 3,772 (312) 3,460 110 2,069 (1,167) (281) 4,190 Activity Report______________________________________________________________________Half Year 2012 higher Unearned Revenue Reserve amortization, (ii) the Mediterranean and Latin American Region (€-33 million) due to higher DAC amortization reflecting increase in surrenders, b. €94 million lower administrative expenses reflecting both positive one-off impacts, as well as various efficiency programs net of inflation. (v) Lower tax expenses and minority interests (down €94 million) mainly driven by more favorable tax one-offs in Japan (€+59 million in 1H 2012 versus €-15 million in 1H 2011), as well as a change in country mix. Property & Casualty underlying earnings amounted to €1,044 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €41 million (+4%) mainly driven by: (i) Higher net technical result (including expenses) up €127 million (or +35%) driven by: a. Current year loss ratio improving by 0.2 point driven by tariff increases and lower claims frequency, partly offset by higher large claims, notably from freeze, and higher Nat Cat charge (+0.4 point), b. Higher positive prior year reserve developments by 0.1 point, c. Lower expense ratio improving by 0.5 point to 26.3%, reflecting (i) 0.4 point reduction in acquisition ratio mainly driven by productivity gains and a decrease in commission rate driven by a favorable product and business mix effect in the United Kingdom, and (ii) 0.1 point reduction in administrative expenses ratio benefiting from various efficiency programs net of inflation. d. As a result, the combined ratio improved by 0.8 point to 96.4%. (ii) Investment result remained stable at €1,033 million, as lower dividends in Germany and lower revenues on fixed rated bonds in France were offset by higher yields in Mediterranean and Latin American Region and the United Kingdom. (iii) Higher income tax expense and minority interests (up €76 million) mainly driven by higher pre-tax underlying earnings and unfavorable country mix while negative tax one-offs remained stable. International Insurance underlying earnings amounted to €118 million. On a constant exchange rate basis, underlying earnings decreased by €25 million (or -18%) mainly due to AXA Liabilities Managers, down €31 million, following lower favorable positive settlements on Property & Casualty run-off portfolios. Asset Management underlying earnings amounted to €159 million. On a constant exchange rate basis, underlying earnings decreased by €6 million (-4%) driven by (i) AXA IM (€-17 million or -17%) reflecting lower revenues partly offset by lower variable compensations, and partly offset by (ii) AllianceBernstein (€+11 million or +19%) as a result of lower variable compensations and staff reduction more than offsetting revenues decrease. Banking underlying earnings amounted to €5 million. On a constant exchange rate basis, underlying earnings decreased by €3 million (-39%). Holdings and other companies underlying earnings amounted to €-433 million. On a constant exchange rate basis, holdings underlying earnings decreased by €-48 million (12%) mainly driven by (i) AXA SA (€-69 million) due to an increase in financial charge and a lower income from net participation in BNP Paribas, partly offset by (ii) Other French Holdings (€+11 million) following an increase in operating profit of non consolidated entities. Group net capital gains attributable to shareholders amounted to €123 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were down €55 million mainly due to: (i) €-142 million lower realized capital gains, to €+369 million in the first half of 2012, mainly driven by lower realized gains on equities (€-134 million) and real estate (€-102 million), partly offset by higher realized gains on fixed income assets (€+80 million), (ii) €+58 million lower impairments to €-185 million in the first half of 2012, mainly driven by the non repeat of €-92 million net impairment charge on Greece government bonds, partly offset by higher impairments on equities and real estate, (iii) €+29 million higher intrinsic value related to equity hedging derivatives. As a result, adjusted earnings amounted to €2,427 million. On a constant exchange rate basis, adjusted earnings decreased by €56 million (-2%). Page 13 Activity Report______________________________________________________________________Half Year 2012 Net Income amounted to €2,586 million. On a constant exchange rate basis, net income decreased by €1,514 million (-38%) mainly as a result of: (i) Lower exceptional operations: down €1,550 million to €-8 million, mainly due to the non repeat of first half of 2011 exceptional capital gains of €1,440 million relating to the disposal of the stake in Taikang Life as well as Australia and New Zealand operations, (ii) Lower adjusted earnings : down €56 million, partly offset by (iii) More favorable change in fair value of financial assets and derivatives: up €114 million to €+291 million which can be analyzed as follows: a. €+191 million from decrease in interest rates and corporate spreads, b. €+99 million positive performance from private equity, equities and hedge funds, c. €+47 million positive change in fair value mainly from Asset Backed Securities mainly in Belgium, partly offset by d. €-47 million following foreign exchange rate movements, mainly on JPY. Page 14 Activity Report______________________________________________________________________Half Year 2012 Consolidated Shareholders’ Equity As of June 30, 2012, consolidated shareholders' equity totaled €48.7 billion. The movements in shareholders' equity since December 31, 2011 are presented in the table below: (in Euro million) FY 2011 published Change in DAC accounting methodology adopted retrospectively as at 01/01/2012 FY 2011 restated HY 2012 Shareholders' Equity 48,562 (2,104) 46,458 48,687 Shareholders' Equity At December 31, 2011 46,458 Share Capital 0 Capital in excess of nominal value 1 Equity-share based compensation 16 Treasury shares sold or bought in open market 17 Deeply subordinated debt (including interests charges) (148) Fair value recorded in shareholders' equity 1,788 Impact of currency fluctuations 609 Payment of N-1 dividend (1,626) Other (82) Net income for the period 2,586 Actuarial gains and losses on pension benefits (933) At June 30, 2012 48,687 Shareholder Value EARNINGS PER SHARE (“EPS”) (in Euro million except ordinary shares in million) HY 2012 HY 2011 published HY 2011 restated (a) FY 2011 published FY 2011 restated (a) Var. HY 2012 versus HY 2011 restated (a) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,340.3 2,343.3 2,298.4 2,302.5 2,298.4 2,302.5 2,301.0 2,305.0 2,301.0 2,305.0 Net income (Euro per Ordinary Share) 1.04 1.04 1.68 1.68 1.69 1.68 1.75 1.75 1.69 1.69 38% 38% Adjusted earnings (Euro per Ordinary Share) 0.97 0.97 0.98 0.98 0.98 0.98 1.43 1.43 1.38 1.37 1% 1% Underlying earnings (Euro per Ordinary Share) 0.92 0.92 0.91 0.90 0.91 0.91 1.57 1.57 1.51 1.51 1% 2% (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 15 Activity Report______________________________________________________________________Half Year 2012 RETURN ON EQUITY (“ROE”) (in Euro million) Period ended , June 30, 2012 Period ended , June 30, 2011 published Period ended , June 30, 2011 restated ( c) Change in % points ROE 11.1% 17.3% 18.0% 7.0 pts Net income group share 2,586 3,999 4,013 Average shareholders' equity 46,620 46,349 44,482 Adjusted ROE 13.8% 13.5% 14.3% 0.6 pts Adjusted earnings (a) Average shareholders' equity (b) 2,280 33,104 2,253 33,356 2,262 31,572 Underlying ROE 13.0% 12.5% 13.2% 0.2 pts Underlying earnings (a) Average shareholders' equity (b) 2,157 33,104 2,081 33,356 2,088 31,572 (a) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (b) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders' equity). (c) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 16 Activity Report______________________________________________________________________Half Year 2012 Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings segment HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published Gross revenues (a) 28,642 27,879 27,879 52,481 APE (Group share) 3,075 2,948 2,948 5,733 Investment margin 1,234 1,248 1,248 2,428 Fees & revenues 3,623 3,675 3,675 7,160 Net technical margin 16 645 645 (205) Expenses (3,001) (3,636) (3,623) (6,236) Amortization of VBI (37) (86) (86) (239) Other 25 22 22 43 Underlying earnings before tax 1,860 1,867 1,880 2,951 Income tax expenses / benefits (418) (495) (503) (597) Minority interests (31) (62) (61) (87) Underlying earnings Group share 1,411 1,310 1,316 2,267 Net capital gains or losses attributable to shareholders net of income tax 145 243 246 (35) Adjusted earnings Group share 1,556 1,553 1,562 2,232 Profit or loss on financial assets (under FV option) & derivatives 300 171 177 273 Exceptional operations (including discontinued operations) (26) 763 763 745 Goodwill and other related intangibles impacts (19) (15) (15) (1,015) Integration and restructuring costs (14) (16) (16) (42) Net income Group share 1,797 2,457 2,471 2,193 (a) Before intercompany eliminations. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Consolidated Gross Revenues HY 2012 HY 2011 France 6,754 7,105 United States 5,567 4,754 United Kingdom 317 327 Japan 3,180 2,865 Germany 3,290 3,328 Switzerland 4,838 4,544 Belgium 1,225 1,111 Central & Eastern Europe (d) 222 277 Mediterranean and Latin American Region (a) 2,258 2,338 Hong Kong 796 703 South-East Asia, India and China (c) 140 128 Other countries (b) 55 400 TOTAL 28,642 27,879 Intercompany transactions (35) (38) Contribution to consolidated gross revenues 28,607 27,841 of which high growth markets 1,350 1,296 of which mature markets 27,257 26,544 (a) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Other countries correspond to Australia / New Zealand, Luxembourg, AXA Global Distributors, AXA Life Europe, Architas and Family Protect . (c) South-East Asia revenues include Indonesia and Singapore. (d) Includes Poland, Hungary, Czech Republic and Slovakia. Page 17 (in Euro million) FY 2011 restated (b) 52,481 5,733 2,428 7,160 (205) (6,428) (239) 43 2,759 (536) (84) 2,138 (36) 2,102 269 745 (1,015) (42) 2,059 (in Euro million) FY 2011 13,658 9,657 651 5,747 7,001 6,158 2,142 514 4,796 1,465 255 436 52,481 (50) 52,431 2,617 49,814 Activity Report______________________________________________________________________Half Year 2012 Underlying earnings HY 2012 HY 2011 published HY 2011 restated (b) FY 2011 published France 375 379 374 632 United States 237 345 375 312 United Kingdom (13) (8) (8) (6) Japan 281 133 125 323 Germany 66 82 80 192 Switzerland 157 125 125 293 Belgium 77 82 82 155 Central & Eastern Europe (d) 17 7 7 9 Mediterranean and Latin American Region (a) 76 56 55 104 Hong Kong 119 89 83 224 South-East Asia, India and China (c) 35 18 18 50 Other countries (e) (14) 1 1 (19) UNDERLYING EARNINGS 1,411 1,310 1,316 2,267 of which high growth markets 178 121 115 295 of which mature markets 1,234 1,189 1,201 1,973 (a) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) South-East Asia earnings include Indonesia, Thailand, Philippines and Singapore. (d) Includes Poland, Hungary, Czech Republic and Slovakia. (e) Other countries correspond to Australia / New Zealand, Luxembourg, AXA Golbal Distributors, AXA Life Europe, Architas and Family Protect. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 published HY 2011 restated (a) FY 2011 published UNDERLYING EARNINGS 1,411 1,310 1,316 2,267 Net realized capital gains or losses attributable to shareholders 145 243 246 (35) ADJUSTED EARNINGS 1,556 1,553 1,562 2,232 Profit or loss on financial assets (under Fair Value option) & derivatives 300 171 177 273 Exceptional operations (including discontinued operations) (26) 763 763 745 Goodwill and related intangible impacts (19) (15) (15) (1,015) Integration and restructuring costs (14) (16) (16) (42) NET INCOME 1,797 2,457 2,471 2,193 (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Page 18 (in Euro million) FY 2011 restated (b) 620 235 (6) 303 188 293 155 9 102 210 50 (19) 2,138 281 1,857 (in Euro million) FY 2011 restated (a) 2,138 (36) 2,102 269 745 (1,015) (42) 2,059 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – France (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 6,754 641 554 828 273 (1,170) - 3 489 (113) (1) 375 49 424 77 - - - 7,105 664 587 749 253 (1,106) (7) 4 481 (106) (1) 374 146 520 37 - - - 13,658 1,340 1,111 1,520 449 (2,209) (69) 6 808 (187) (2) 620 193 812 (84) - - - Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 501 557 728 Gross revenues decreased by €352 million (-5%) to €6,754 million 1 . On a comparable basis, gross revenues decreased by €348 million (-5%) mainly due to: G/A Savings sales down €348 million (-11%) mainly driven by Individual Savings (-14%) affected by continued selective sales and negative performance of the French traditional savings market (-14%2), partly offset by higher large contracts in Group Retirement (+13%), Unit-Linked sales down €35 million (-4%) affected by the negative performance of the French Individual Unit-Linked Savings market (down 33%2). Unit-Linked share in Savings premiums increased by 1 point to 23% (above market of 13%2), G/A Protection and Health increased by €35 million (+1%) driven by €38 million in Group Protection and €8 million in Individual Protection both reflecting positive portfolio developments. Individual Health decreased by €10 million negatively impacted by the stop of assumed business with Mutuelle Mieux Etre. APE decreased by € 22 million (-3%) to €641 million. On a comparable basis, APE decreased by €36 million (-5%): G/A Savings sales down €36 million (-12%) driven down by Individual Savings (-14%) affected by continued selective sales and negative performance of the French traditional savings market, partly offset by higher large contracts in Group Retirement (+12%), Unit-Linked sales down € 7 million (-7%) affected by the negative performance of the French Individual Unit- Linked Savings market, G/A Protection and Health increased by €7 million (+3%) driven by €3 million in Group Protection and €4 million in Individual Protection both reflecting new long term care product success. Investment margin decreased by €32 million (-6%) to €554 million due to lower investment income (€-41 million), partly offset by lower amounts allocated to policyholders. Fees & revenues increased by €79 million (+11%) to €828 million. Excluding a €+69 million adjustment on URR reserves (fully offset in DAC), fees and revenues increased by €10 million driven by higher loadings on premiums in Group protection (€+25 million), partly offset by lower united-linked management fees due to a lower average asset base. 1 €6,746 million after intercompany eliminations. 2 Source: FFSA as of end of June 2012. Page 19 Activity Report______________________________________________________________________Half Year 2012 Net technical margin rose by €20 million (+8%) to €273 million driven by higher positive prior year reserve developments partly offset by lower current year result in Group Protection (€-24 million). Expenses increased by €64 million (+6%) to €-1,170 million. Excluding a €-69 million adjustment on DAC (fully offset in URR), expenses decreased by €-5 million driven by lower administrative expenses reflecting continuing efforts to contain expenses, while acquisition expenses remained stable. Amortization of VBI decreased by €7 million (-100%) to €0 million as a result of the accelerated amortization of the remaining balance of VBI in 2011. As a result, the underlying cost income ratio increased by 0.6 point to 70.6%. Excluding the above mentioned adjustment on DAC and URR, the underlying cost income ratio decreased by 0.6 point. Income tax expenses increased by €7 million (+7%) to €-113 million, mainly due to an increase in corporate tax rate (from 34.43% to 36.10%, enacted in the second half of 2011). As a result, underlying earnings marginally increased by €1 million (0%) to €375 million. Adjusted earnings decreased by €97 million (-19%), mainly due to lower realized capital gains (€-89 million) mostly on real estate and higher impairments (€-7 million) mainly on equities. Net income decreased by €56 million (-10%) to €501 million, reflecting lower adjusted earnings and lower foreign exchange rate impact (€-13 million), partly offset by the favorable change in fair value of freestanding derivatives and mutual funds (€+54 million) mainly driven by the credit spread tightening. Page 20 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations - United States (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,567 599 233 995 (580) (315) 7 - 340 (103) - 237 (26) 211 97 - (1) (8) 4,754 502 239 1,013 188 (898) 1 - 543 (168) - 375 (9) 365 51 - (1) (12) 9,657 1,018 474 1,931 (1,192) (1,028) (5) - 180 54 - 235 (11) 223 326 - (944) (29) Net income Group share 300 404 (424) Average exchange rate : 1.00 € = $ (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 1.2969 1.4042 1.3867 Gross revenues increased by €813 million (+17%) to €5,567 million 1. On a comparable basis, gross revenues increased by €388 million (+8%): Variable Annuity revenues (62% of gross revenues) increased by 25% reflecting strong sales results for non GMxB Variable Annuity Structured Capital Strategies and GMxB Accumulator products, as well as additional contributions received for certain old Accumulator contracts prompted by an announced deadline for acceptance of additional contributions, Life revenues (25% of gross revenues) increased by 1% driven by an increase in sales of the Indexed Universal Life (product launched in August 2010 and represents 43% of the half year 2012 Life sales) and an increase in renewal premiums reflecting strong first year sales last year, partially offset by lower Athena Universal Life and Term sales this year, Fees on Asset Management business (7% of gross revenues) decreased by 3% driven by lower average assets under management, Mutual Funds revenues (1% of gross revenues) increased by 5% reflecting higher advisory fees. APE increased by €96 million (+19%) to €599 million. On a comparable basis, APE increased by €50 million (+10%): Variable Annuity increased by 24% to €304 million reflecting higher sales of Accumulator mainly through the third party channels and non GMxB Structured Capital Strategies product partially offset by lower sales on GMxB Retirement Cornerstone. The new products launched in 2010, Retirement Cornerstone and Structured Capital Strategies, represented a combined 39% of the half year 2012 Variable Annuity APE, Life increased by 3% to €118 million reflecting increased sales of Indexed Universal Life primarily in third party channels, Mutual Funds decreased by 3% to €175 million. Investment margin decreased by €5 million (-2%) to €233 million. On a constant exchange rate basis, investment margin decreased by €23 million (-10%) driven by a decrease in investment income of €25 million reflecting lower yields on fixed income assets and alternative investments. Interest credited was flat reflecting higher balances offset by lower crediting rates. 1 €5,567 million after intercompany eliminations. Page 21 Activity Report______________________________________________________________________Half Year 2012 Fees & revenues decreased by €18 million (-2%) to €995 million. On a constant exchange rate basis, fees & revenues decreased by €94 million (-9%) primarily driven by the non repeat of 1H 2011 assumption change on Unearned Revenue Reserve (more than offset in DAC amortization) and by lower unit-linked management fees from lower average Separate Account balances. Net technical margin decreased by €768 million (-408%) to €-580 million. On a constant exchange rate basis, net technical margin decreased by €724 million (-385%) primarily due to GMxB reserve adjustments for partial withdrawals partially offset by premium suspension on old contracts, other model and assumption refinements, higher GMxB hedge losses resulting from increased volatility and basis losses, and the impact on life products of unfavorable mortality experience. Expenses decreased by €582 million (-65%) to €-315 million. On a constant exchange rate basis, expenses decreased by €607 million (-68%): Expenses, net of capitalization (including commissions and DAC capitalization) decreased by €60 million (- 10%) to €592 million mainly due to productivity actions (reduction of FTE, changes to benefit plan and staff relocation savings) implemented in 2011 and 2012, DAC amortization decreased by €547 million to €+277 million following higher GMxB losses partially offset by higher baseline amortization. Amortization of VBI decreased by €6 million to €7 million. On a constant exchange rate basis, amortization of VBI decreased by €5 million following a change in assumption reflecting higher expected margins on MONY in-force contracts. As a result, the underlying cost income ratio decreased by 14.7 points to 47.6%. Income tax expense decreased by €65 million to €-103 million. On a constant exchange rate basis, income tax expense decreased by €73 million which reflects lower underlying earnings. Underlying earnings decreased by €138 million (-37%) to €237 million. On a constant exchange rate basis, underlying earnings decreased by €156 million (-42%). Adjusted earnings decreased by €155 million (-42%) to €211 million. On a constant exchange rate basis, adjusted earnings decreased by €171 million (-47%) mainly reflecting the decrease in underlying earnings and higher impairments on fixed income assets. Net income decreased by €104 million (-26%) to €300 million. On a constant exchange rate basis, net income decreased by €127 million (-31%). This was primarily driven by lower adjusted earnings partially offset by higher gains on interest related derivatives due to lower interest rates. Page 22 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations - United Kingdom HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 317 283 2 168 1 (220) - - (49) 36 0 (13) - (13) 1 (0) (4) (3) (19) 0.8226 327 296 6 185 (0) (219) (1) - (31) 23 0 (8) 2 (6) 3 17 (6) (0) 7 0.8686 In the table above, HY 2011 and FY 2011 figures are not restated for scope effects. For consistency, 2012 figures have been compared to the same scope for 2011, i.e. excluding portfolios transferred to Resolution in November 2011 and Bluefin Corporate Consulting which was sold in April 2012. This is referred to as “comparable scope basis” in the commentary below. Half-year 2011 underlying earnings amounted to €-8 million, corresponding approximately to €18 million from the sold business and €-26 million from the retained business. Gross revenues decreased by €11 million (-3%) to €317 million1. On a constant exchange rate and comparable scope basis, gross revenues increased by €45 million (+18%) mainly attributable to €42 million premiums from Variable Annuity product sold through AXA Global Distributors, €10 million increased regular premiums on Sun Life Direct Protection business and €8 million increased revenues on the Elevate and Architas funds business. This was partially offset by €7 million lower revenues through the bancassurance channel. APE decreased by €13 million (-4%) to €283 million. On a constant exchange rate and comparable scope basis, APE was 9% (€-28 million) lower than prior year. New sales through the Elevate platform have increased significantly, up by €10 million (11%) as the platform continues to establish itself as one of the leaders in the growing UK platform market. This platform growth has been more than offset by reductions in sales of individual pensions due in part to the market shift to platforms. In addition economic uncertainty has led to a fall in sales of offshore business. Investment margin decreased by €4 million (-73%) to €2 million. On a constant exchange rate and on a comparable scope basis, the investment margin decreased by €2 million (-61%). Fees & revenues decreased by €17 million (-9%) to €168 million. On a constant exchange rate and on a comparable scope basis, fees & revenues increased by €3 million (2%) mainly due to an increase in Elevate revenues due to growth of new business. 1 €317 million after intercompany eliminations. Page 23 (in Euro million) FY 2011 651 535 15 375 23 (454) (2) - (43) 37 0 (6) 2 (5) 3 (37) (50) (3) (93) 0.8663 Activity Report______________________________________________________________________Half Year 2012 Net technical margin increased by €2 million to €1 million (384%). On a constant exchange rate and on a comparable scope basis, net technical margin remained stable. Expenses increased by €1 million (1%) to €220 million. On a constant exchange rate and on a comparable scope basis, expenses increased by €5 million (2%) due to investment in Wealth business growth and inflation, partly offset by expense savings reflecting continued cost management. As a consequence, the underlying cost income ratio increased by 12.8 points to 128.9%. On a constant exchange rate and on a comparable scope basis, the underlying cost income ratio increased by 2.1 points. Income tax benefits increased by €13 million to €36 million. On a constant exchange rate and on a comparable scope basis, income tax benefits increased by €17 million reflecting decrease in pre-tax underlying earnings as well as €19 million one-off tax benefit in 1H 2012. Underlying earnings decreased by €5 million to €-13 million. On a constant exchange rate and on a comparable scope basis, underlying earnings increased by €13 million. Adjusted earnings decreased by €7 million to €-13 million. On a constant exchange rate and on a comparable scope basis, adjusted earnings increased by €13 million due to the underlying earnings movement. Net income decreased by €26 million to €-19 million. On a constant exchange rate, net income decreased by €3 million. Page 24 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Japan (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 3,180 269 (0) 765 44 (447) (17) - 345 (61) (3) 281 67 348 41 - - - 2,865 212 (0) 727 (55) (418) (25) - 229 (103) (2) 125 81 206 105 - - - 5,747 463 0 1,456 (23) (890) (56) - 487 (180) (3) 303 12 315 19 - - - Net income Group share 389 310 335 Average exchange rate : 1.00 € = Yen (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 104.1900 112.3500 112.9700 Gross revenues increased by €315 million (+11%) to €3,180 million1. On a comparable basis, revenues increased by €84 million (+3%): Protection revenues (38% of gross revenues) decreased by €16 million (-2%) mainly due to lower Group Life sales (€-15m), lower Increasing Term Riders (€-44 million) due to a peak in surrenders partly offset by strong new business sales of LTTP (€+26 million) and increase in Whole Life products driven by better retention (€+27 million), Investment & Savings revenues (33% of gross revenues) increased by €109 million (+13%) mainly due to higher sales of Variable Annuity products driven by a continuous expansion of bank partnerships, Health revenues (29% of gross revenues) decreased by €8 million (-1%) driven by lower in-force not fully offset by new products notably in Cancer. APE increased by €57 million (+27%) to €269 million. On a comparable basis, APE increased by €37 million (+17%): - Protection (45% of APE) increased by €17 million (+16%) mainly supported by higher sales of LTTP products, - Investment & Savings (30% of APE) increased by €18 million (+39%) due to strong Variable Annuity sales. - Health (26% of APE) increased by €2 million (+3%) driven by the new Cancer product launched in 2011 and strongly promoted in all sales channels, partly offset by old products with lower profitability, Investment margin remained stable at €0 million. Fees & revenues increased by €37 million (+5%) to €765 million. On a constant exchange rate basis, fees & revenues remained stable. Net technical margin increased by €100 million to €44 million. On a constant exchange rate basis, net technical margin increased by €96 million mainly due to the 2011 impact of the Great East Japan earthquake (€+80 million) and better mortality experience (€+16 million). 1 € 3,180 million after intercompany eliminations. Page 25 Activity Report______________________________________________________________________Half Year 2012 Expenses increased by €29 million (+7%) to €-447 million. On a constant exchange rate basis, expenses decreased by €4 million (-1%) mainly due to lower advertising expenses. Amortization of VBI decreased by €7 million (-29%) to €-17 million. On a constant exchange rate basis, VBI amortization decreased by €8 million (-34%) mainly driven by the natural decline of VBI balance. As a result, the underlying cost income ratio improved by 8.5 points to 57.4%. Income tax expenses decreased by €40 million to €-61 million. On a constant exchange rate basis, income tax expenses decreased by €46 million due to a 2012 positive tax one-off (€+59 million) and non repeat of a 2011 negative tax one-off (€+15 million) partly offset by higher underlying pre-tax earnings (€-32 million). Underlying earnings increased by €156 million (+125%) to €281 million or increased by €135 million (+108%) on a constant exchange rate basis. Adjusted earnings increased by €142 million (+69%) to €348 million or increased by €117 million (+57%) on a constant exchange rate basis, due to higher underlying earnings, partly offset by lower realized capital gains on fixed income assets. Net income increased by €79 million to €389 million. On a constant exchange rate basis, net income increased by €51 million, due to higher adjusted earnings (€+116 million), partly offset by unfavorable change in mark-to-market of interest rate derivatives (€-14 million) and the Japanese Yen depreciation against major currencies (€-31 million). Page 26 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Germany (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 3,290 258 57 157 4 (102) (11) - 105 (39) (0) 66 (8) 57 24 - - - 3,328 258 50 150 35 (111) (10) - 114 (35) (0) 80 (7) 72 8 - - - 7,001 506 113 325 77 (260) (32) - 223 (34) (0) 188 (42) 147 2 - - (1) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 81 80 148 Gross revenues decreased by €37 million (-1%) to €3,290 million1: Life revenues (61% of gross revenues) decreased by €95 million (-4%) to €2,017 million due to lower single premiums from G/A short-term investment products and unit-linked Savings as well as lower regular premiums from Protection partly compensated by higher regular premiums from G/A Savings products, Health revenues (39% of gross revenues) increased by €57 million (+5%) to €1,273 million mainly from higher new business and premium adjustments. APE increased by €1 million (+0%) to €258 million: Life decreased by €15 million (-10%) mainly due to lower new business from unit-linked Savings attributable to prevailing market conditions and curtailment of “Twinstar” Variable Annuity product production, as well as decreasing single premiums from G/A short term investment products, partly compensated by higher new business from Pure Protection as well as G/A Savings, Health increased by €15 million (+14%) driven by strong sales supported by brokers’ anticipation of a change in regulation capping their commissions effective from April 1, 2012. Investment margin increased by €6 million (+13%) to €57 million due to a lower share allocated to policyholders, while investment income remained flat as higher distributions from private equity funds were offset by exceptional coupon payments in the previous year. Fees & revenues increased by €7 million (+5%) to €157 million mainly due to higher loadings on Health business in line with the portfolio growth. Net technical margin fell by €30 million (-87%) to €4 million mainly due to a decrease in the hedging margin on GMxB products (€-27 million) largely driven by higher interest rate volatility. Expenses decreased by €9 million (-8%) to €102 million due to productivity programs and lower amortization of deferred acquisition expenses due to one-off effects deriving from model refinements. 1 €3,281 million after intercompany eliminations. Page 27 Activity Report______________________________________________________________________Half Year 2012 Amortization of VBI increased by €1 million (+13%) to €-11 million. As a result, the underlying cost income ratio increased by 0.5 point to 52.0%. Income tax expenses increased by €4 million (+13%) to €-39 million due to higher effective tax rate as a result of a different legal entity mix. Underlying earnings decreased by €14 million (-18%) to €66 million. Adjusted earnings decreased by €15 million (-20%) to €57 million mainly due to lower underlying earnings. Net income increased by €1 million (+1%) to €81 million, as lower adjusted earnings were partly offset by favorable change in fair value of interest rate derivatives notably due to lower interest rates. Page 28 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Switzerland HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 4,838 256 63 141 111 (108) 1 - 208 (52) - 157 3 160 15 - (3) - 172 1.2046 4,544 277 52 131 130 (106) (35) - 172 (47) - 125 20 145 (1) 749 (3) - 890 1.2700 Gross revenues increased by €294 million (+6%) to €4,838 million1. On a comparable basis, gross revenues increased by €45 million (+1%): Group Life revenues increased by €23 million (+1%) to €4,402 million as a result of higher regular premiums from full protection schemes contracts (€+111 million) driven by lower surrenders and the strong new business written in prior year, Individual Life revenues increased by €22 million (+6%) to €437 million as a consequence of higher single premiums (€+25 million) mainly resulting from Protect Invest and the newly launched product Protect Star. APE decreased by €21 million (-8%) to €256 million. On a comparable basis, APE decreased by €34 million (-12%): Group Life decreased by €40 million (-17%) mainly due to the decrease of full-protection schemes (€-39 million) after the exceptional growth in prior year, Individual Life increased by €6 million (+12%) as a result of higher regular premiums mainly resulting from the success of the Protect Plan product. Investment margin increased by €11 million (+22%) to €63 million. On a constant exchange rate basis, investment margin increased by €8 million (+16%) as a result of a higher investment income mainly driven by income from real estate as well as lower interest credited. Fees & revenues increased by €10 million (+7%) to €141 million. On a constant exchange rate basis, fees & revenues increased by €2 million (+2%) mainly resulting from both Group Life and Individual Life. Net technical margin fell by €19 million (-14%) to €111 million. On a constant exchange rate basis, net technical margin decreased by €25 million (-19%) mainly driven by the non-recurrence of 1H 2011 favorable mortality margin in Individual Life as well as a gain of €8 million from the cancellation of a large internal co-insurance contract (offset by a corresponding VBI amortization). 1 €4,838 million after intercompany eliminations. Page 29 (in Euro million) FY 2011 6,158 397 118 265 270 (202) (59) - 392 (99) - 293 (13) 280 100 798 (7) - 1,172 1.2366 Activity Report______________________________________________________________________Half Year 2012 Expenses increased by €2 million (+2%) to €-108 million. On a constant exchange rate basis, expenses decreased by €3 million (-3%) mainly driven by lower administrative expenses (€-4 million) reflecting ongoing cost management and slightly higher acquisition costs (€+1 million). Amortization of VBI decreased by €36 million (-102%) to €1 million. On a constant exchange rate basis, amortization of VBI decreased by €36 million (-101%) mainly impacted by updated actuarial assumptions in Group and Individual Life (€+24 million) as well as the cancellation of the above-mentioned internal co-insurance contract in 1H 2011. As a result, the underlying cost income ratio decreased by 11.0 points to 34.0%. Income tax expenses increased by €5 million (+10%) to €-52 million. On a constant exchange rate basis, income tax expenses increased by €2 million (+4%) mainly due to higher pre-tax underlying earnings, partly offset by a lower withholding tax charge on dividends received from consolidated foreign subsidiaries. Underlying earnings increased by €31 million (+25%) to €157 million. On a constant exchange rate basis, underlying earnings increased by €23 million (+19%). Adjusted earnings increased by €15 million (+10%) to €160 million. On a constant exchange rate basis, adjusted earnings increased by €6 million (+4%) mainly driven by higher underlying earnings, partly offset by lower net realized capital gains mainly on equities. Net income decreased by €718 million (-81%) to €172 million. On a constant exchange rate basis, net income decreased by €727 million (-82%) mainly driven by the non-recurrence of the exceptional gain from the sale of the stake in Taikang Life (€+749 million) in 2011. Page 30 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Belgium (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 1,225 119 155 69 15 (129) (4) - 105 (28) (0) 77 44 121 59 (8) - (2) 1,111 80 148 65 25 (131) (3) - 104 (22) (0) 82 0 82 (24) - - (3) 2,142 173 288 163 34 (278) (5) - 203 (48) (0) 155 (88) 68 (70) - - (7) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 170 56 (9) Gross revenues increased by €114 million (+10%) to €1,225 million1: Individual Life & Savings increased by 11% (or €90 million) to €908 million mainly driven by the increase in G/A Investment & Savings products by €129 million (21%) mainly Crest Classic, partly offset by other Crest products, Group Life & Savings revenues increased by 8% (or €24 million) to €317 million. APE increased by €40 million (+50%) to €119 million: Individual Life & Savings APE increased by 36% (or €26 million) mainly driven by Crest Classic as a result of a two-month sales campaign in January and February, partly offset by other Crest products, - Group Life & Savings APE increased by 160% (or €14 million) to €23 million mainly driven by the acquisition of a large contract. Investment margin increased by €7 million (+5%) to €155 million mainly as a result of a higher asset base. Fees & revenues increased by €4 million (+6%) to €69 million mainly due to higher fees and loadings (+€3 million). Net technical margin decreased by €11 million (-43%) to €15 million mainly due to the contribution to the new policyholder protection fund (€-13 million) which was booked in expenses in 1H 2011. Excluding this impact, the net technical margin increased by €2 million due to a more favorable mortality experience. Expenses decreased by €2 million (-1%) to €-129 million mainly driven by the reclassification to technical margin of the contribution to the new policyholder protection fund (€+13 million). Excluding this impact, expenses increased by €11 million due to higher amortization of deferred acquisition costs following 2H 2011 update of actuarial assumptions (€-8 million) and higher general expenses (€-4 million), partly offset by lower commissions expenses (€+1 million). Amortization of VBI increased by €1 million to €-4 million. 1 €1,225 after intercompany eliminations. Page 31 Activity Report______________________________________________________________________Half Year 2012 As a result, the underlying cost income ratio improved by 0.4 point to 55.9%. Income tax expenses increased by €6 million to €-28 million due to lower equities dividends with a more favorable taxation rate. Underlying earnings decreased by €5 million to €77 million. Adjusted earnings increased by €38 million to €121 million, due to higher realized capital gains mainly on fixed income assets and a favourable change in intrinsic value of equity hedging derivatives, partly offset by lower underlying earnings. Net income increased by €114 million to €170 million mainly driven by higher adjusted earnings, a positive change in fair value on fixed income mutual funds and interest rate derivatives, partly offset by €-8 million from the disposal of “Vie Populaire” product portfolio. Page 32 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Central & Eastern Europe HY 2012 HY 2011 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 222 78 14 56 18 (68) (1) - 19 (2) (0) 17 2 19 0 - (1) - 18 277 129 14 65 16 (85) (1) - 9 (2) (0) 7 1 8 0 - (1) - 7 Gross revenues decreased by €54 million (-20%) to €222 million1. On a comparable basis, gross revenues decreased by €42 million (-15%), mainly driven by lower insurance revenues in Czech Republic, Slovakia and Hungary (€-36 million) and by the decrease in Pension Fund products sales in Poland (€-3 million) due to a change in regulation. APE decreased by €51 million (-40%) to €78 million. On a comparable basis, APE decreased by €47 million (-36%) due to the a change in regulation in Poland affecting pension fund new business (€- 32 million or -57%), and lower Life & Savings APE (€-15 million or -20%) primarily in unit-linked (€-11 million or -19%) mainly in Czech Republic and Slovakia as a result of the decision to stop the cooperation with low quality brokers. Underlying earnings increased by €10 million to €17 million. On a constant exchange rate basis, underlying earnings increased by €11 million mainly due to both positive one-offs and productivity actions, partly offset by lower fees and revenues (€-6 million). As a result, the underlying cost income ratio improved by 12.0 points to 78.1%. Adjusted earnings increased by €11 million to €19 million. On a constant exchange rate basis, adjusted earnings increased by €11 million driven by higher underlying earnings and higher realized capital gains (€+1 million) mainly in the Czech Pension Fund portfolio. Net income increased by €11 million to €18 million. On a constant exchange rate basis, net income increased by €11 million driven by higher adjusted earnings. 1 €222 million after intercompany eliminations. Page 33 (in Euro million) FY 2011 514 213 29 115 35 (162) (2) - 15 (6) (0) 9 (0) 8 (0) - (2) - 6 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Mediterranean and Latin American Region (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,258 190 144 178 73 (235) (7) - 153 (50) (27) 76 3 79 (11) (0) (10) (1) 2,338 202 137 155 42 (220) (7) - 106 (29) (22) 55 4 59 (6) - (4) (1) 4,796 432 264 320 73 (448) (14) - 195 (52) (41) 102 (80) 22 14 (0) (12) (2) Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 56 49 22 Gross revenues decreased by €80 million (-3%) or €75 million (-3%) on a comparable basis to €2,258 million1: Mature markets were down €81 million (-4%), mainly driven by a decrease of €507 million in G/A Savings products, mainly in Italy, in a context of high competitive environment from banks and the curtailment of Variable Annuity products (€-208 million), partly offset by higher sales in unit-linked Savings products (€+642 million), mainly driven by the success of new “Protected Unit” product at AXA MPS, High growth markets increased by €6 million (+3%) mainly driven by higher Group Protection new business in Morocco. APE decreased by €13 million (-6%) or €12 million (-6%) on a comparable basis to €190 million: Mature markets were down €16 million (-9%), mainly reflecting a strong decrease in G/A Savings products (€-36 million), partly offset by a better performance on unit-linked products (€+19 million), mainly at AXA MPS, in line with the strategy to focus on improving the business mix, High growth markets increased by €4 million (+15%) mainly driven by unit-linked Protection with Savings in Mexico (€+2 million). Investment margin increased by €7 million (+5%) or €8 million (+6%) on a comparable basis to €144 million, in both (i) mature markets (€+7 million) driven by non recurring policyholders bonus reserve release at AXA MPS and (ii) high growth markets (€+1 million) thanks to higher asset base. Fees & revenues increased by €23 million (+15%) or €24 million (+15%) on a comparable basis to €178 million: Mature markets up €23 million (+21%) notably at AXA MPS (€+24 million) driven by higher unearned revenues reserves amortization mainly reflecting higher surrenders combined with strong sales of new “Protected Unit” unit-linked product, High growth markets up €1 million (+2%) driven by Individual Protection with Savings in Mexico (€+1 million). Net technical margin rose by €30 million (+72%) or €31 million (+73%) on a comparable basis to €73 million: 1 €2,253 million after intercompany eliminations. Page 34 Activity Report______________________________________________________________________Half Year 2012 - Mature markets up €22 million mainly driven by higher GMxB margin (€+16 million) due to an improved basis risk as well as by an increase in surrender margin (€+5 million) mainly driven by Greece (€+4 million) due to a non-recurring favorable reserve development, High growth markets increased by €9 million reflecting improved mortality margin on Protection business in Mexico (€+5 million) and in Morocco (€+5 million). Expenses increased by €14 million (+7%) or €16 million (+7%) on a comparable basis to €-235 million: Mature markets up €5 million driven by AXA MPS reflecting higher deferred acquisition costs amortization following higher surrenders, High growth markets up €11 million mainly due to Mexico reflecting non recurring commission adjustments. Amortization of VBI decreased by €1 million (-8%) or €1 million (-8%) on a comparable basis to €-7 million, mainly due to the natural decline of VBI balance at AXA MPS. As a result, underlying cost income ratio decreased by 6.9 points to 61.2%. Income tax expenses increased by €21 million (+72%) or €21 million (+72%) on a comparable basis to €-50 million reflecting higher pre-tax underlying earnings. Underlying earnings increased by €21 million (+38%) or €21 million (+38%) on a comparable basis to €76 million. Adjusted earnings increased by €20 million (+33%) or €20 million (+33%) on a comparable basis to €79 million driven by equities due to higher realized capital gains, partly offset by higher impairment. Net income increased by €8 million (+16%) or €8 million (+16%) on a comparable basis to €56 million, reflecting unfavorable change in fair value of interest rate derivatives and accelerated amortization of the distribution agreement in Greece. Page 35 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – Hong Kong (in Euro million) HY 2012 HY 2011 restated (a) FY 2011 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 796 180 2 214 28 (107) (5) (4) 128 (9) - 119 11 130 (5) (13) - - 703 166 6 170 14 (85) 7 - 112 (7) (22) 83 4 87 (1) - - - 1,465 330 4 385 45 (185) 9 (7) 251 (17) (24) 210 (13) 197 (49) (1) - - Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. 113 86 147 Gross revenues increased by €93 million (+13%) to €7961 million. On a comparable basis, gross revenues increased by €31 million (+4%) mainly due to higher revenues from G/A Protection & Health products (€+51 million) driven by strong renewal and high agency focus partly offset by lower revenues from unit-linked products (€-12 million) in line with the Hong Kong market trend, as well as G/A Savings products (€-9 million) following the non repeat of some 2011 large cases. APE increased by €14 million (+8%) to €180 million. On a comparable basis, APE remained stable as the higher demand for G/A Protection & Health products was offset by lower unit-linked sales. Investment margin decreased by €4 million (-62%) to €2 million. On a constant exchange rate basis, investment margin decreased by €4 million (-65%) as average asset yield decreased while interest crediting rate to policyholders remained stable. Fees & revenues increased by €43 million (+25%) to €214 million. On a constant exchange rate basis, fees & revenues increased by €26 million (+15%) driven by an increase in loadings on premiums (€+28 million) stemming from new business and growing in-force. Net technical margin rose by €14 million (+101%) to €28 million. On a constant exchange rate basis, net technical margin increased by €12 million (+85%) mainly due to the non-repeat of 2011 exceptional items: - a €7 million loss from early termination of an internal co-insurance treaty (offset in amortization of VBI), a €4 million GMxB hedge reserve adjustment reflecting better persistency. Expenses increased by €22 million (+26%) to €-107 million. On a constant exchange rate basis, expenses increased by €13 million (+16%) mainly due to higher investments in business infrastructure and higher acquisition expenses driven by new business and in-force growth. 1 € 796 million after intercompany eliminations. Page 36 Activity Report______________________________________________________________________Half Year 2012 Amortization of VBI increased by €11 million to €-5 million. On a constant exchange rate basis, amortization of VBI increased by €11 million due to the non-repeat of 2011 exceptional items: - the revised projection of future profits (€7 million), the early termination of an internal co-insurance treaty (€6 million). As a consequence, the underlying cost income ratio increased by 4.7 points to 46.1%. Income tax expenses increased by €2 million (+21%) to €-9 million. On a constant exchange rate basis, income tax expenses increased by €1 million (+15%) reflecting a higher taxable income. Underlying earnings increased by €36 million (+43%) to €119 million. On a constant exchange rate and scope basis, following the AXA APH minority interests buy-out in April 2011, underlying earnings increased by €3 million (+3%). Adjusted earnings increased by €43 million (+50%) to €130 million. On a constant exchange rate and scope basis, adjusted earnings decreased by €7 million (-6%) as higher underlying earnings were more than offset by lower realized capital gains and higher impairments on equities. Net income increased by €27 million (+31%) to €113 million. On a constant exchange rate and scope basis, net income decreased by €23 million (-18%) mainly reflecting the closure of two distribution networks (€-12 million) and lower adjusted earnings (€-7 million). Page 37 Activity Report______________________________________________________________________Half Year 2012 Life & Savings operations – South-East Asia, India and China (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 140 201 35 (0) 35 (1) (4) - - 30 128 162 18 2 20 1 (4) - - 16 255 326 50 2 52 4 (17) - - 39 Gross Revenue increased by €12 million (+9%) to €140 million1. On a comparable basis, gross revenues increased by €7 million (+6%) mainly driven by higher revenues from unit-linked products in Singapore driven by higher new business, partly offset by a temporary slowdown in sales force recruitment in Indonesia. APE increased by €39 million (+24%) to €201 million. On a comparable basis, APE increased by €29 million (+18%) mainly driven by: - strong sales of G/A Protection with Savings and Whole Life products in Thailand (€+15 million), and higher sales of unit-linked products through the bancassurance channel in Indonesia (€+7 million) and through the broker channel in Singapore (€+4 million). Underlying earnings increased by €17 million (+97%) to €35 million. On a constant exchange rate and scope basis, following the AXA APH minority interests buy-out in April 2011, underlying earnings increased by €13 million mainly due to: - - China (€-10 million) due to a change in accounting methodology and unfavorable claims experience. Indonesia (€+11 million), Thailand (€+4 million) and Philippines (€+4 million) driven by growth in business, India (€+3 million) following lower operational losses, Adjusted earnings increased by €15 million (+77%) to €35 million. On a constant exchange rate and scope basis, adjusted earnings increased by €12 million primarily driven by underlying earnings growth. Net income increased by €14 million (+89%) to €30 million. On a constant exchange rate and scope basis, net income increased by €11 million mainly reflecting growth in adjusted earnings. 1 €140 million after intercompany eliminations. Page 38 Activity Report______________________________________________________________________Half Year 2012 Life & Savings Operations - Other Countries The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Australia / New Zealand 352 355 Luxembourg 41 46 78 AXA Global Distributors 13 1 3 Family protect 1 0 Other (0) (0) (0) TOTAL 55 400 436 Intercompany transactions (12) (2) (3) Contribution to consolidated gross revenues 44 399 433 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Australia and New Zealand 12 12 Luxembourg 3 3 4 AXA Global Distributors (7) (14) (27) Family Protect (9) (7) Other (1) (1) (2) UNDERLYING EARNINGS (14) 1 (19) Net realized capital gains or losses attributable to shareholders 0 2 2 ADJUSTED EARNINGS (13) 3 (18) Profit or loss on financial assets (under Fair Value option) & derivatives 0 5 5 Exceptional operations (including discontinued operations) 2 2 Goodwill and related intangible impacts Integration and restructuring costs (0) NET INCOME (13) 10 (11) AXA GLOBAL DISTRIBUTORS1 Underlying earnings as well as adjusted earnings and net income increased by €6 million to €-7 million due to higher commissions received and lower IT expenses. FAMILY PROTECT Direct protection activities were launched during the second semester of 2011. As a consequence, underlying earnings as well as adjusted earnings and net income reached €-9 million 1H 2012, reflecting continued investment in the transversal multi-country platform, progressive ramp-up of activity and direct marketing spend. 1 AXA Global Distributors was formed in March 2009 and is 100% owned by AXA SA. The AXA Global Distributors’ initiative aim is to distribute variable annuity products through third party partnerships, specifically large banks. P&L excluding infrastructure costs are reflected within AXA France and AXA UK Life & Savings segments. In the tables, AXA Global Distributors notably includes AXA Life Europe. Page 39 Activity Report______________________________________________________________________Half Year 2012 AUSTRALIA / NEW ZEALAND Following the disposal of the Australia and New Zealand operations on April 1 , 2011, Australia and New Zealand contributed only to the first quarter of 2011. Page 40 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. Property and Casualty Segment HY 2012 HY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 16,391 72.2% 70.1% 4,174 26.3% 1,033 1,533 (488) 16 (17) 1,044 45 1,089 (3) 8 (37) (41) 1,017 15,540 72.4% 70.4% 3,887 26.8% 1,025 1,392 (404) 21 (20) 989 111 1,100 82 93 (35) (29) 1,212 Page 41 (in Euro million) FY 2011 27,286 72.6% 70.9% 7,807 27.0% 2,034 2,591 (748) 38 (33) 1,848 (62) 1,786 (90) 147 (66) (78) 1,700 Activity Report______________________________________________________________________Half Year 2012 Consolidated Gross Revenues HY 2012 HY 2011 France 3,186 3,078 United Kingdom & Ireland 2,194 1,975 Germany 2,402 2,271 Switzerland 2,460 2,309 Belgium 1,146 1,138 Central & Eastern Europe (c) 35 28 Mediterranean and Latin American Region (a) 3,555 3,402 Direct (b) 1,085 1,059 Other countries (d) 329 279 TOTAL 16,391 15,540 Intercompany transactions (219) (190) Contribution to consolidated gross revenues 16,173 15,350 of which high growth markets of which Direct of which mature markets 1,829 1,085 13,259 1,564 1,059 12,726 (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (c) Includes Ukraine and Reso (Russia). (d) Other countries correspond to Luxembourg and Asia. Combined Ratio Total HY 2012 HY 2011 96.4% 97.2% France 94.8% 96.5% United Kingdom & Ireland 99.9% 100.0% Germany 97.4% 99.3% Switzerland 89.8% 87.4% Belgium 93.1% 100.2% Central & Eastern Europe 103.2% 98.7% Reso (Russia) 97.0% 103.1% Mediterranean and Latin American Region (a) 97.1% 96.5% Direct (b) 101.8% 102.0% Other countries ( c ) 95.8% 97.2% Mature Direct 95.7% 101.8% 97.0% 102.0% High growth 97.5% 96.0% (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (c) Other countries correspond to Luxembourg and Asia. Page 42 (in Euro million) FY 2011 (a) 5,596 3,772 3,638 2,643 2,100 65 6,848 2,102 522 27,286 (240) 27,046 3,335 2,102 21,609 (in Euro million) FY 2011 97.9% 95.7% 98.4% 103.2% 89.2% 99.1% 102.3% 97.7% 97.6% 105.4% 96.3% 97.2% 105.4% 98.2% Activity Report______________________________________________________________________Half Year 2012 Underlying earnings HY 2012 HY 2011 France 247 240 United Kingdom & Ireland 94 78 Germany 143 145 Switzerland 198 209 Belgium 114 72 Central & Eastern Europe ( c) 17 19 Mediterranean and Latin American Region (a) 198 202 Direct (b) 19 14 Other countries (d) 14 10 UNDERLYING EARNINGS 1,044 989 of which high growth markets 109 112 of which Direct 19 14 of which mature markets 916 863 (a) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, and Mexico. (b) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. (c) Includes Ukraine and Reso (Russia). (d) Other countries correspond to Luxembourg and Asia. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 UNDERLYING EARNINGS 1,044 989 Net realized capital gains or losses attributable to shareholders 45 111 ADJUSTED EARNINGS 1,089 1,100 Profit or loss on financial assets (under Fair Value option) & derivatives (3) 82 Exceptional operations (including discontinued operations) 8 93 Goodwill and related intangibles impacts (37) (35) Integration and restructuring costs (41) (29) NET INCOME 1,017 1,212 Page 43 (in Euro million) FY 2011 496 211 221 397 142 37 353 (33) 23 1,848 178 (33) 1,703 (in Euro million) FY 2011 1,848 (62) 1,786 (90) 147 (66) (78) 1,700 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – France (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,186 72.9% 70.7% 825 24.1% 270 417 (170) - (0) 247 16 263 (7) - - - 256 3,078 74.0% 71.8% 759 24.7% 282 378 (138) - (0) 240 10 250 37 - - - 287 5,596 73.5% 71.1% 1,609 24.6% 550 791 (294) - (1) 496 (52) 445 (14) - - - 431 Gross revenues increased by €108 million (+4%) to €3,186 million1: Personal lines (57% of gross revenues) were up 2% to €1,796 million as a consequence of tariff increases, partly offset by negative net new contracts notably in Motor and Household, Commercial lines (43% of the gross revenues) were up 6% to €1,342 million mainly driven by tariff increases partly offset by lower volumes in a context of selective underwriting. Net technical result increased by €66 million (+9%) to €825 million: Current accident year loss ratio decreased by 1.1 points to 72.9% mainly driven by tariff increases and more favorable claims frequency, partly offset by the higher attritional claims ratio due to climatic events, impacting especially Household, All accident year loss ratio decreased by 1.2 points to 70.7% as a result of the decrease in current accident year loss ratio, while positive prior year reserve developments were stable. Expense ratio decreased by 0.6 point to 24.1% mainly driven by a contained cost base as well as a higher non- recurring positive impact on tax contribution (€+23 million in 1H 2012 versus €+10 million in 1H 2011). Enlarged expense ratio was down 1.7 points to 31.1%, driven by the improvement in expense ratio as well as a decrease in claims handling costs which included some seasonality effects. As a consequence, the combined ratio was down 1.8 points to 94.8%. Net investment result decreased by €12 million (-4%) to €270 million mainly due to lower yields on fixed income assets, partly compensated by higher distribution of dividends from credit funds. Income tax expenses increased by €32 million (+23%) to €-170 million mainly reflecting higher pre-tax underlying earnings, a higher corporate tax rate (€-7 million) (from 34.43% to 36.10%, enacted in the second half of 2011), as well as a tax one-off of €-11 million. As a result, underlying earnings increased by €7 million (+3%) to €247 million. 1 €3,138 million after intercompany eliminations. Page 44 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €13 million (+5%) to €263 million as a consequence of higher realized capital gains on equities and fixed income assets (€+18 million), and a favorable change of the intrinsic value of equity hedging derivatives (€+10 million), partly offset by higher impairments (€-23 million) of equities and real estate and lower underlying earnings. Net income decreased by €31 million (-11%) to €256 million mainly due to a lower change in fair value of mutual funds (€-26 million), less favorable foreign exchange impact (€-18 million), partly compensated by higher adjusted earnings. Page 45 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,194 71.2% 71.1% 581 28.9% 121 123 (28) - (0) 94 21 116 (17) - (1) (5) 93 1,975 69.2% 68.8% 567 31.1% 108 109 (30) - (0) 78 (2) 77 (11) - (1) (7) 58 3,772 67.6% 68.0% 1,181 30.4% 225 284 (73) - (0) 211 (26) 184 (120) 53 (1) (20) 97 Gross revenues increased by €218 million (+11%) to €2,194 million 1. On a comparable basis, gross revenues increased by €109 million (+6 %) mainly driven by: Personal Lines (50% of the total premiums) were up 3% at €1,093 million. Motor was down 7% to €276 million due to a downturn in market conditions in the UK increasing competitiveness and resulting in lower new business volumes, a reduction in retention levels and lower average premiums. Non-Motor was up 8% to €817 million. Property was up 19% to €310 million principally due to new schemes, increased volumes and improved retention in the UK. Healthcare was up 2% at €323 million following further expansion of the International business. Personal Other was up 1% to €184 million due to a new travel scheme, partially offset by continuing difficult market conditions, Commercial Lines (49% of the total premiums) were up 10% to €1,068 million. Motor was up 14% to €194 million mainly driven by tariff increases and increased retained business in UK fleet. Non-Motor was up 9% to €874 million. Property was up 4% to €280 million reflecting strong performance in a highly competitive market. Health was up 13% to €469 million mainly reflecting continued growth in UK and International Corporate business. Net technical result increased by €14 million (+2%) to €581 million. On a constant exchange rate basis, net technical result decreased by €13 million (-2%): Current year loss ratio increased by 2.0 points to 71.2% due to the impact of 1H 2012 Nat Cat charge (+1.3 points) and increased reinsurance costs (+0.5 point) reflecting the change in business mix and increased coverage. Improvements in Motor and Property following tariff increases and underwriting activity were offset by a change in business mix and an increase in bodily injury costs, All accident year loss ratio increased by 2.2 points to 71.1% mainly reflecting the movement in current year loss ratio. Expense ratio decreased by 2.3 points to 28.9 %.The administrative expense ratio decreased by 1.4 points to 8.1%, largely due to the sale of Denplan in December 2011 and non repeat of 1H 2011 decommissioning of an IT platform. The acquisition ratio was down 0.9 point to 20.7% driven by efficiency programs and a decrease in commission rate driven by favorable product and business mix effects. Enlarged expense ratio was down 2.2 points to 32.1%. 1 €2,108 million after intercompany eliminations. Page 46 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down 0.1 point to 99.9%. Net investment result increased by €14 million (+13%) to €121 million. On a constant exchange rate basis, net investment result increased by €9 million (+8%) mainly due to higher bond yields as a result of a portfolio repositioning and increased income from equity funds and other alternative asset classes. Income tax expenses decreased by €2 million (-6%) to €-28 million. On a constant exchange rate basis, income tax expenses decreased by €3 million (-10%) reflecting higher pre-tax underlying earnings more than offset by a decrease in one-off tax charges (€5 million). Underlying earnings increased by €16 million (+21%) to €94 million. On a constant exchange rate basis, underlying earnings increased by €14 million (+17%). Adjusted earnings increased by €39 million (+51%) to €116 million. On a constant exchange rate basis, adjusted earnings increased by €37 million (+48%) reflecting higher underlying earnings (+17%) as well as higher realized capital gains mainly on fixed income assets. Net Income increased by €34 million (+59%) to €93 million. On a constant exchange rate basis, net income increased by €33 million (+56%) due to the improvement in adjusted earnings and a reduction in restructuring costs (€2 million), partly offset by unfavorable change in fair value of financial assets and derivatives (€-10 million). Page 47 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Germany (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,402 70.5% 67.8% 606 29.6% 162 211 (68) - (0) 143 (0) 142 24 - (2) - 164 2,271 70.5% 71.0% 518 28.4% 185 197 (53) 2 (0) 145 19 164 43 - (2) - 206 3,638 73.4% 73.0% 975 30.2% 369 253 (34) 2 (0) 221 (49) 172 25 - (4) (8) 186 Gross revenues increased by €130 million (+6%) to €2,402 million1 : Personal Lines (57% of gross revenues) increased by 7% to €1,352 million 2 driven by a successful development in Motor (+8 %) and Property (+9%) triggered by tariff increases for both in-force and new business as well as positive net new contracts, Commercial Lines (37% of gross revenues) rose by 2% to €866 million resulting from new business especially in Motor (+3%) and Property (+3%), Other Lines (6% of gross revenues) rose by 17% to €152 million, mainly driven by higher assumed business in Legal Protection and other treaty business. Net technical result: increased by €88 million to €606 million: Current accident year loss ratio remained stable at 70.5%, as tariff increases were offset by higher average costs in Motor, an increase in freeze claims in Property due to the severe winter, as well as higher large claims, All accident year loss ratio decreased by 3.2 points to 67.8% mainly due to higher positive prior year reserve developments. Expense ratio increased by 1.2 points to 29.6% due to the non-recurrence of a positive one-off impact in 1H 2011 as well as a change in the expense pattern over the year. Enlarged expense ratio was up 0.5 point to 32.7% due to a decrease in claims handling costs driven by productivity programs. As a result, the combined ratio was down 1.9 points to 97.4%. Net investment result decreased by €23 million (-13%) to €162 million mainly due to a lower distribution from private equity (€ -13 million) as well as the non-recurrence of exceptional coupon payments in the previous year (€5 million). 1 € 2,374 million after intercompany eliminations. 2 On a comparable basis, after reclassification of small and medium enterprises from Commercial lines to Personal lines Page 48 Activity Report______________________________________________________________________Half Year 2012 Income tax expenses increased by €15 million (+28%) to €-68 million mainly due to lower tax free investment income in 1H 2012 and lower tax loss carry forward. Underlying earnings decreased by €3 million (-2%) to €143 million. Adjusted earnings decreased by €22 million (-13%) to €142 million mainly due to lower realized capital gains on equities. Net income decreased by €42 million (-20%) to €164 million mainly due to lower adjusted earnings as well as less favorable change in fair value of equity and foreign exchange derivatives. Page 49 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Switzerland (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,460 72.2% 65.5% 475 24.4% 113 252 (52) - (2) 198 1 199 10 - (14) - 195 2,309 69.4% 62.1% 486 25.4% 104 266 (55) - (2) 209 18 227 (5) - (14) - 207 2,643 68.9% 63.1% 976 26.1% 217 503 (103) - (3) 397 5 402 2 - (29) - 375 Gross revenues increased by €151 million (+7%) to €2,460 million1. On a comparable basis, gross revenues increased by €21 million (+1%): Personal lines (52% of gross revenues) increased by 2% to €1,284 million as a consequence of volume increase in all major business lines, Commercial lines (48% of gross revenues) slightly decreased to €1,183 million mainly resulting from a focus on profitability. Net technical result decreased by €11 million (-2%) to €475 million. On a constant exchange rate basis, the net technical result decreased by €36 million (-7%): Current accident year loss ratio increased by 2.8 points to 72.2% mainly driven by a higher Nat Cat charge (+1.8 points), higher large claims (+0.5 point) and a higher number of freeze claims in Property (+0.6 point), - All accident year loss ratio increased by 3.4 points to 65.5% as a consequence of the current accident year loss ratio development and lower positive prior year reserve developments. Expense ratio decreased by 1.0 point to 24.4% driven by lower administrative expenses reflecting ongoing strict cost management as well as by lower acquisition expenses. Enlarged expense ratio was down 1.0 point to 28.2%. As a result, the combined ratio was up 2.4 points to 89.8%. Net investment result increased by €8 million (+8%) to €113 million. On a constant exchange rate basis, the net investment result increased by €2 million (+2%) mainly driven by higher income from fixed-income funds. Income tax expenses decreased by €3 million (-6%) to €-52 million. On a constant exchange rate basis, income tax expenses decreased by €6 million (-10%) driven by lower pre-tax underlying earnings. Underlying earnings decreased by €10 million (-5%) to €198 million. On a constant exchange rate basis, underlying earnings decreased by €21 million (-10%). 1 €2,452 million after intercompany eliminations. Page 50 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings decreased by €27 million (-12%) to €199 million. On a constant exchange rate basis, adjusted earnings decreased by €37 million (-17%) mainly driven by lower underlying earnings and lower net realized capital gains mainly on equities. Net income decreased by €12 million (-6%) to €195 million. On a constant exchange rate basis, net income decreased by €22 million (-11%) mainly driven by lower adjusted earnings, partly offset by higher foreign exchange impacts and a more favorable change in fair value of fixed income funds. Page 51 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Belgium (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,146 70.3% 63.6% 381 29.5% 97 170 (55) - (0) 114 (1) 114 (19) - (1) (5) 88 1,138 73.6% 70.2% 307 30.1% 99 96 (24) - 0 72 42 114 7 - (1) (7) 112 2,100 73.6% 68.5% 659 30.6% 185 204 (62) - 0 142 98 240 17 - (2) (22) 233 Gross revenues increased by €9 million (+1%) to €1,146 million1: Personal lines (47% of the gross revenues) were up +2% to €546 million following tariff increases for both Motor and Household partly offset by negative net new contracts, Commercial lines (51% of the gross revenues) were stable at €589 million, the decrease in Health (€-8 million) due to the non-renewal of a large portfolio was partly offset by an increase in Workers’ Compensation (€+6 million) mainly driven by tariff increases. Net technical result increased by €74 million (+24%) to €381 million: Current accident year loss ratio decreased by 3.3 points to 70.3% mainly driven by a tariff increase (-1.6 points) and a lower Nat Cat charge (-1.2 points), All accident year loss ratio decreased by 6.6 points to 63.6% due to higher positive prior year reserve developments (mainly in Motor and Property personal lines) and an improved current accident year loss ratio. Expense ratio decreased by 0.6 point to 29.5% due to a non-recurring reclassification from acquisition costs to claims handling costs (-0.3 point) as well as a decrease of commission rates (-0.3 point) following revision of commission schemes. Enlarged expense ratio decreased by 0.3 point to 36.7% due to the decrease of commission rates. As a result, the combined ratio was down by 7.2 points to 93.1%. Net investment result decreased by €2 million (-2%) to €97 million mainly due to a lower asset base. Income tax expenses increased by €31 million (+127%) to €-55 million due to higher pre-tax underlying earnings and the non-recurrence of a 1H 2011 positive tax impact (€6 million). Underlying earnings increased by €43 million (+59%) to €114 million. Adjusted earnings were stable at €114 million, as higher underlying earnings were offset by lower realized capital gains on real estate and equities as well as higher realized capital losses on fixed income assets. Net income decreased by €24 million (-22%) to €88 million mainly reflecting an unfavorable change in fair value of 1 € 1,129 million after intercompany eliminations. Page 52 Activity Report______________________________________________________________________Half Year 2012 inflation derivatives mainly on long term business. Page 53 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Central & Eastern Europe Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Ukraine Reso (Russia) TOTAL Intercompany transactions 35 - 35 - 28 - 28 - 65 - 65 - Contribution to consolidated gross revenues 35 28 65 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Ukraine Reso (Russia) (a) 1 16 0 19 1 36 UNDERLYING EARNINGS 17 19 37 Net realized capital gains or losses attributable to shareholders (5) (14) (19) ADJUSTED EARNINGS 12 6 18 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 5 - (2) - 0 - (2) - 2 - (3) - NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. 15 4 17 RESO Underlying earnings decreased by €3 million to €16 million on a constant exchange rate basis, driven by higher acquisition expenses in a strong portfolio growth context (+34% in GWP) and lower investment result, partly offset by a lower all year loss ratio. The combined ratio was down 1.7 points to 97.0%. Adjusted earnings increased by €6 million to €11 million on a constant exchange rate basis, driven by lower net realized capital losses (€+14 million) mainly on fixed income assets, partly offset by higher impairments (€-5 million) and lower underlying earnings (€-3 million). Net income increased by €10 million to €15 million on a constant exchange rate basis, mainly due to higher adjusted earnings (€+6 million). UKRAINE Gross revenues increased by €7 million (+24%) to €35 million. On a comparable basis, gross revenues increased by €4 million (+15%) driven by the positive development of proprietary network, partly offset by lower premiums in bancassurance channel. Underlying earnings as well as adjusted earnings and net income increased by €1 million to €1 million on a constant exchange rate basis, due to a higher net investment result from fixed-income assets while the combined ratio remained stable at 103.2%. Page 54 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Mediterranean and Latin American Region (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,555 72.3% 71.6% 980 25.5% 206 305 (96) - (11) 198 13 210 4 8 (15) (16) 192 3,402 73.4% 70.7% 957 25.8% 192 306 (88) 0 (16) 202 34 235 12 - (14) (14) 220 6,848 73.4% 71.6% 1,884 25.9% 378 540 (162) - (24) 353 (17) 336 14 - (22) (21) 306 Gross revenues increased by €153 million (+4%) to €3,555 million1. On a comparable basis, gross revenues increased by €186 million (+6%) driven by strong contribution from high growth markets (+18% or €+237 million), partly offset by mature markets (-2% or €-51 million), mainly in Spain and Portugal which suffer from a difficult environment: Personal lines (59% of the gross revenues) were up 4% to €2,091 million driven by Motor lines (+4% or €+59 million) mainly in high growth markets (€+75 million) coming from a positive volume effect principally in Turkey and Mexico, partly offset by mature markets (€-16 million) mainly in Spain. Non Motor lines (+2% or €+15 million) were mainly driven by tariff increase in Health in Mexico (€+10 million), Commercial lines (41% of the gross revenues) were up 9% to €1,451 million driven by Motor lines (+23% or €+93 million) in Mexico (€+76 million) and Turkey (€+21 million). Non Motor lines (€+31 million) were driven by an increase in high growth markets (€+52 million) mostly related to new business in Health in Gulf, partly offset by an overall mitigated performance in Spain (€-18 million) and Portugal (€-6 million). Net technical result increased by €23 million (+2%) to €980 million. On a constant exchange rate basis, net technical result increased by €28 million (+3%), with high growth markets up 6% (or €+23 million) mainly reflecting increase in volumes and mature markets up 1% (or €+5 million): Current accident year loss ratio decreased by 1.0 point to 72.3%, including a Nat Cat charge of 0.5 point, mainly in Italy and Turkey. Mature markets decreased by 2.2 points while high growth markets increased by +0.4 point. Excluding Nat Cat charge, decrease in mature markets was mainly driven by lower frequency in Motor lines and the decrease of average costs in Health, partly offset by higher large losses. All accident year loss ratio increased by 0.9 point to 71.6% as less favorable prior year reserve developments (€-63 million) mainly in Spain and Mexico more than offset the improvement in current accident year loss ratio. Expense ratio decreased by 0.2 point to 25.5% driven by a positive volume effect in high growth markets (-0.5 point). Mature markets expense ratio was flat reflecting benefits from productivity programs offsetting lower volumes. Enlarged expense ratio was down 0.4 point to 28.5%. 1 €3,530 million after intercompany eliminations. Page 55 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was up 0.7 point to 97.1%. Net investment result increased by €13 million (+7%) to €206 million. On a constant exchange rate basis, net investment result increased by €15 million (+8%) driven by higher yields on fixed income assets in Mexico (€+11 million) and Turkey (€+6 million), partly offset by a lower asset base in Spain (€-7 million). Income tax expenses increased by €8 million (+9%) to €-96 million. On a constant exchange rate basis, income tax expenses increased by €8 million (+9%) due to the increase of effective tax rate reflecting unfavorable country mix, partly offset by lower pre-tax underlying earnings. Underlying earnings decreased by €4 million (-2%) to €198 million. On a constant exchange rate basis, underlying earnings decreased by €5 million (-2%). Adjusted earnings decreased by €25 million (-11%) to €210 million. On a constant exchange rate basis, adjusted earnings decreased by €25 million (-11%), reflecting lower realized capital gains mainly on equities, unfavorable change in intrinsic value of equity hedges and lower underlying earnings, partly offset by lower impairments mainly on real estate funds. Net income decreased by €28 million (-13%) to €192 million. On a constant exchange rate basis, net income decreased by €29 million (-13%) mainly reflecting lower adjusted earnings combined with unfavorable foreign exchange impact (€-5 million), mainly in Turkey and Mexico. Page 56 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations – Direct business (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,085 78.3% 79.9% 216 21.9% 50 31 (12) - (0) 19 (2) 17 (1) - (2) - 14 1,059 78.7% 80.0% 197 21.9% 43 23 (10) - (0) 14 3 16 (2) - (2) - 13 2,102 80.5% 84.2% 321 21.2% 86 (25) (8) - 0 (33) (4) (36) (15) - (4) (7) (63) Direct business includes operations in France (22% of total Direct gross revenues), the UK (21%), Japan (18%), South Korea (16%), Spain (9%), Italy (5%), Belgium (4%), Poland (3%) and Portugal (1%). Gross revenues increased by €25 million (+2%) to €1,085 million1. On a comparable basis, gross revenues decreased by €12 million (-1%): Personal Motor (88% of gross revenues) was down €33 million (-4%) to €951 million driven by the UK (€-99 million) as a result of lower volumes and a change in business mix reflecting selective underwriting and portfolio pruning as well as increased competitiveness of the market, partly offset by significant growth in other countries (+10% or €+66 million) supported by higher net new contracts leading to €+45 million in continental Europe with strong growth in France, Italy and Poland, €+14 million in Japan and €+7 million in South Korea, Personal Non-Motor (12% of gross revenues) was up €21 million (+19 %) to €131 million mainly supported by growth in the UK and in France. Net technical result increased by €18 million (+9%) to €216 million. On a constant exchange rate basis, net technical result increased by €10 million (+5%): Current accident year loss ratio decreased by 0.3 point to 78.3% mainly driven by tariff increases in Motor partly offset by unfavorable weather conditions in the UK leading to a higher Nat Cat charge (+0.3 point), - All accident year loss ratio decreased by 0.2 point to 79.9% as a result of the decrease in current accident year loss ratio and broadly stable negative prior year reserve developments. Expense ratio was stable at 21.9% (with a stable acquisition ratio and an administrative expense ratio up 0.1 point) reflecting operational leverage outside the UK following portfolio growth offset by lower average premium and higher IT costs in the UK. Enlarged expense ratio was up by 0.3 point to 27.7%. 1 €1,085 million after intercompany eliminations. Page 57 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down by 0.2 point to 101.8%. UK combined ratio was up 7.3 points to 108.8%. Other countries combined ratio was down 2.8 points to 99.3%. Net investment result increased by €7 million (+17%) to €50 million. On a constant exchange rate basis, net investment result increased by €6 million (+14%) mainly reflecting a higher asset base. Income tax expenses increased by €2 million to €-12 million. On a constant exchange rate basis, income tax expenses increased by €2 million mainly reflecting higher pre-tax underlying earnings. Underlying earnings increased by €5 million to €19 million. On a constant exchange rate basis, underlying earnings increased by €5 million. Adjusted earnings increased by €1 million to €17 million. On a constant exchange rate basis, adjusted earnings increased by €1 million mainly due to higher underlying earnings, €2 million lower impairment charges, partly offset by €6 million lower realized capital gains mainly on equities. Net income increased by €1 million to €14 million. On a constant exchange rate basis, net income increased by €1 million due to higher adjusted earnings. Page 58 Activity Report______________________________________________________________________Half Year 2012 Property & Casualty Operations - Other Countries Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 Asia (a) 266 218 425 Luxembourg 63 61 97 TOTAL 329 279 522 Intercompany transactions (6) (6) (6) Contribution to consolidated gross revenues 323 273 516 (a) Includes Hong Kong, Singapore and Malaysia. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 Asia (a) 11 5 13 Luxembourg 3 4 10 UNDERLYING EARNINGS 14 10 23 Net realized capital gains or losses attributable to shareholders 1 2 2 ADJUSTED EARNINGS 15 11 25 Profit or loss on financial assets (under Fair Value option) & derivatives (0) 0 (0) Exceptional operations (including discontinued operations) 93 93 Goodwill and related intangibles impacts Integration and restructuring costs (14) NET INCOME 0 105 118 (a) Includes Hong Kong, Singapore and Malaysia. ASIA1 Gross revenues increased by €48 million (+22%) to €266 million2. On a comparable basis, gross revenues increased by €30 million (+14%): Personal lines (45% of the gross revenues) were up €12 million (+12%) mainly due to new business in personal motor in both Malaysia and Singapore, Commercial lines (55% of the gross revenues) were up €18 million (+15%) mainly due to growth in commercial motor (€7 million) and health (€7 million) with new large accounts in Malaysia and Singapore as well as in workers compensation (€5 million) in Singapore and Hong Kong mainly due to new large accounts. Net technical result increased by €16 million (+25%) to €78 million. On a constant exchange rate basis, net technical result increased by €10 million (+17%): Current accident year loss ratio was stable at 68.3%, - All accident year loss ratio decreased by 1.5 points to 66.7% due to more favorable prior year reserve developments in Hong Kong and Singapore. Expense ratio decreased by 1.0 point to 28.6% mainly driven by productivity gains with strong increase in volumes across the board as well as lower commission rate in Hong Kong. Enlarged expense ratio decreased by 0.8 point to 31.2%. 1 Includes Hong Kong, Singapore and Malaysia. 2 €260 million after intercompany eliminations. Page 59 Activity Report______________________________________________________________________Half Year 2012 As a result, the combined ratio was down by 2.4 points to 95.3%. Net investment result increased by €2 million to €6 million. On a constant exchange rate basis, net investment result increased by €1 million mainly from a higher asset base in Malaysia. Income tax expenses increased by €2 million to €-3 million. On a constant exchange rate basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €5 million to €11 million. On a constant exchange rate basis, underlying earnings increased by €5 million. Adjusted earnings increased by €5 million to €11 million. On a constant exchange rate basis, adjusted earnings increased by €4 million driven by higher underlying earnings partially offset by lower net realized capital gains on equity. Net income decreased by €10 million to €-4 million. On a constant exchange rate basis, net income decreased by €10 million driven by higher adjusted earnings more than offset by €14 million of costs incurred to date related to the future integration of portfolio transferred from HSBC1. 1 The closing of the transaction is subject to regulatory approvals and is expected in the course of the second half 2012. Page 60 Activity Report______________________________________________________________________Half Year 2012 International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AXA Corporate Solutions Assurance 1,339 1,286 2,003 AXA Global Life and AXA Global P&C (a) 53 51 73 AXA Assistance 474 460 911 Other (b) 38 34 70 TOTAL 1,904 1,831 3,057 Intercompany transactions (79) (92) (182) Contribution to consolidated gross revenues 1,825 1,739 2,876 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AXA Corporate Solutions Assurance 80 81 150 AXA Global Life and AXA Global P&C (a) 11 10 55 AXA Assistance 11 11 21 Other (b) 15 42 50 UNDERLYING EARNINGS 118 143 276 Net realized capital gains or losses attributable to shareholders 5 3 17 ADJUSTED EARNINGS 122 146 294 Profit or loss on financial assets (under Fair Value option) & derivatives 15 (7) (15) Exceptional operations (including discontinued operations) 0 1 Goodwill and related intangibles impacts Integration and restructuring costs (2) (4) NET INCOME 135 139 276 (a) Formerly AXA Cessions. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Page 61 Activity Report______________________________________________________________________Half Year 2012 AXA Corporate Solutions Assurance (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,339 82.3% 82.4% 200 15.1% 101 129 (47) - (1) 80 2 83 14 - - - 96 1,286 85.9% 82.9% 183 14.5% 99 128 (46) - (1) 81 (1) 79 (4) - - - 75 2,003 84.7% 82.1% 360 15.8% 199 242 (90) - (2) 150 5 155 (13) - - - 142 Gross revenues increased by €54 million (+4%) to €1,339 million1. On a comparable basis, gross revenues increased by €25 million (+2%) mainly driven by Construction (+22% mainly driven by portfolio development and tariff increases), Property (+6%) and Marine (+4%), partly offset by a decrease in Liability (-12% mainly due to the non- renewal of a large contract) and Aviation (-4% mainly due to tariff decrease following favorable trend on large claims). Net technical result increased by €17 million (+9%) to €200 million. On a constant exchange rate basis, net technical result increased by €16 million (+9%): Current accident year loss ratio improved by 3.6 points to 82.3%. Excluding a change in cost allocation from claims handling costs to commissions (-0.8 point), current accident year loss ratio improved by 2.8 points mainly driven by lower Nat Cat charges and positive price effect in all lines of business (except Aviation). - All accident year loss ratio improved by 0.5 point to 82.4% as a result of improvement in the current year loss ratio partly offset by lower prior year reserve developments. Expense ratio increased by 0.7 point to 15.1% explained by the above mentioned change in cost allocation from claims handling costs to commissions. On a comparable basis, expense ratio decreased by 0.1 point. Enlarged expense ratio was down 1.0 point to 18.2%. As a result, the combined ratio was up 0.2 point to 97.5%. Net investment result increased by €2 million (+2%) to €101 million. On a constant exchange rate basis, net investment result increased by €1 million (+1%) mainly driven by higher income from real estate and higher distributions from mutual funds, partly offset by lower income from fixed income assets. Income tax expenses increased by €1 million (+2%) to €-47 million mainly due to higher corporate tax rate in France (€-2 million). Underlying earnings remained stable at €80 million. 1 €1.334 million after intercompany eliminations. Page 62 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €4 million (+5%) to €83 million. On a constant exchange rate basis, adjusted earnings increased by €3 million (+4%) mainly driven by a favorable effect on intrinsic value of equity hedging derivatives. Net income increased by €21 million (+29%) to €96 million. On a constant exchange rate basis, net income increased by €21 million (+28%) driven by positive foreign exchange impact (€+8 million), higher adjusted earnings and favorable change in fair value on mutual funds (€+6 million). Page 63 Activity Report______________________________________________________________________Half Year 2012 AXA Global Life and AXA Global P&C1 Underlying earnings increased by €2 million to €11 million as a result of higher technical result in AXA Motor cover as well as higher result in AXA Global Life, partly offset by higher expenses. Adjusted earnings increased by €1 million to €11 million as a result of higher underlying earnings. Net income increased by €4 million to €13 million mainly due to higher adjusted earnings and a €3 million more favorable change in fair value of financial assets and derivatives. AXA Assistance Gross revenues increased by €13 million to €474 million2. On a comparable basis, gross revenues increased by €16 million (+4%) mainly driven by strong development in Travel activities, higher revenues from a large contract in Spain as well as growth in France, partly offset by lower revenues from a large contract in Mexico. Underlying earnings remained stable at €11 million mainly driven by positive developments in France and Spain and improvement on Travel business offset by higher development costs. Adjusted earnings remained stable at €10 million. Net income decreased by €4 million (-37%) to €6 million mainly due to €3 million lower realized capital gains on foreign exchange rates and €2 million restructuring costs in the first half 2012. Other international activities Underlying earnings decreased by €26 million (-63%) to €15 million. On a constant exchange rate basis, underlying earnings decreased by €26 million (-63%) driven by lower gains on the P&C run-off portfolio, partly offset by lower losses on the Life run-off portfolio. Adjusted earnings decreased by €27 million (-60%). On a constant exchange rate basis, adjusted earnings decreased by €27 million (-60%) as a consequence of lower underlying earnings. Net income decreased by €26 million, (-57%). On a constant exchange rate basis, net income decreased by €26 million (-57%) reflecting lower adjusted earnings. 1 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. 2 €401 million after intercompany eliminations. Page 64 Activity Report______________________________________________________________________Half Year 2012 Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AllianceBernstein AXA Investment Managers 1,004 730 1,064 759 2,038 1,563 TOTAL 1,734 1,823 3,601 Intercompany transactions (159) (165) (332) Contribution to consolidated gross revenues 1,575 1,658 3,269 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AllianceBernstein 74 57 106 AXA Investment Managers 85 99 215 UNDERLYING EARNINGS 159 157 321 Net realized capital gains or losses attributable to shareholders (1) (2) (2) ADJUSTED EARNINGS 159 154 318 Profit or loss on financial assets (under Fair Value option) & derivatives 3 6 (25) Exceptional operations (including discontinued operations) (0) (0) (3) Goodwill and related intangibles impacts Integration and restructuring costs (10) (0) (137) NET INCOME 152 160 153 Page 65 Activity Report______________________________________________________________________Half Year 2012 AllianceBernstein (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues 1,004 1,064 2,038 Net investment result 0 (6) (27) Total revenues 1,004 1,058 2,011 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : (826) 178 (40) (64) 74 0 74 2 0 0 (9) 67 1.297 (892) 166 (44) (64) 57 0 57 (0) 0 0 0 57 1.404 (1,738) 272 (68) (98) 106 0 106 (7) 0 0 (136) (38) 1.387 Assets under Management ("AUM") increased by €11 billion from year-end 2011 to €346 billion at June 30, 2012 as a result of €13 billion market appreciation and a €+8 billion favorable foreign exchange rate impact, partly offset by net outflows of €-5 billion (€5 billion net inflows from Retail clients offset by €-7 billion net outflows from Institutional clients and €-3 billion net outflows from Private Clients), and €-5 billion unfavorable change in scope due to the sale of AXA Australia and AXA Canada. Gross revenues decreased by €60 million (-6%) to €1,004 million1. On a comparable basis, gross revenues decreased by €133 million (-13%) primarily due to lower investment management fees resulting from a 9% decrease in average AUM combined with lower average bps (-3.6bps) reflecting a change in business mix from equity services to fixed income services. Net investment result increased by €6 million (+103%) to €0 million. On a constant exchange rate basis, net investment result increased by €6 million (+103%) due to higher unrealized gains related to deferred compensation obligations offset in general expenses, combined with a decrease in financing debt expenses. General expenses decreased by €67 million (-7%) to €-826 million. On a constant exchange rate basis, general expenses decreased by €130 million (-15%) due to lower compensation expenses resulting from lower revenues and staff reductions. As a result, the underlying cost income ratio improved by 2.8 points to 79.4%. Income tax expenses decreased by €4 million (-10%) to €-40 million. On a constant exchange rate basis, income tax expenses decreased by €8 million (-17%) due to a tax one-off of €8 million from a release of deferred taxes. Underlying and adjusted earnings increased by €17 million (+29%) to €74 million. On a constant exchange rate basis, underlying earnings increased by €11 million (+19%). AXA ownership of AllianceBernstein at June 30, 2012 is 63.5%, down 1.1% from December 31, 2011 due to the granting of units in 2012 for 2011 deferred compensation offset by repurchases of AllianceBernstein units during 2012 to fund deferred compensation plans. Net income increased by €9 million (+16%) to €67 million. On a constant exchange rate basis, net income increased by €4 million (+7%) due to the increase in adjusted earnings partly offset by restructuring costs (€-9 million). 1 965 million after intercompany eliminations. Page 66 Activity Report______________________________________________________________________Half Year 2012 AXA Investment Managers (“AXA IM”) (in Euro million) HY 2012 HY 2011 FY 2011 Gross revenues 730 759 1,563 Net investment result (11) (7) (20) Total revenues 718 751 1,543 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (579) 139 (50) (4) 85 (1) 85 1 (0) 0 (0) 85 (601) 150 (46) (5) 99 (2) 97 6 (0) 0 (0) 103 (1,239) 304 (79) (10) 215 (2) 212 (18) (3) 0 (1) 191 Assets under Management ("AUM") increased by €30 billion from year-end 2011 to €542 billion at the end of June 2012 as a result of €28 billion favorable market impact and €4 billion favorable foreign exchange impact, partly offset by €2 billion net outflows. Net outflows amounted to €-2 billion in the first half of 2012 mainly driven by the voluntary exit from unprofitable employee shareholding plan schemes (€-4 billion), and AXA Main Fund short term investments (€-2 billion), partly offset by net inflows on Retail (€+3 billion) and Institutional (€+1 billion) notably from AXA Fixed Income, AXA Framlington and AXA Private Equity. Gross revenues decreased by €29 million (-4%) to €730 million1. On a constant exchange rate basis and excluding distribution fees (retroceded to distributors), net revenues decreased by €31 million (-6%) to €541 million mainly due to lower performance fees (€-23 million) driven by AXA Private Equity, and lower AXA Real Estate transaction fees (€-12 million). Net investment result decreased by €4 million to €-11 million. On a constant exchange rate basis, net investment result decreased by €6 million mainly driven by higher interest charges. General expenses decreased by €22 million to €-579 million. On a constant exchange rate basis and excluding distribution fees, general expenses decreased by €21 million (-5%) mainly due to lower variable compensations triggered by lower profits. As a result, the underlying cost income ratio increased by 0.8 point to 73.7%. Income tax expenses increased by €4 million (+8%) to €-50 million. On a constant exchange rate basis, income tax expenses increased by €2 million (+4%) mainly due to a less favorable country mix contributing to pre-tax underlying earnings. Underlying earnings decreased by €14 million (-14%) to €85 million. On a constant exchange rate basis, underlying earnings decreased by €17 million (-17%). Adjusted earnings decreased by €12 million (-13%) to €85 million. On a constant exchange rate basis, adjusted earnings decreased by €15 million (-16%) due to lower underlying earnings and €2 million lower impairment charge. Net income decreased by €17 million (-17%) to €85 million. On a constant exchange rate basis, net income decreased by €20 million (-20%) mainly driven by lower adjusted earnings and a less favorable interest rate impact on internal derivatives. 1 €610 million after inter-company eliminations. Page 67 Activity Report______________________________________________________________________Half Year 2012 Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2012 HY 2011 FY 2011 AXA Banks (a) 233 272 523 o/w Belgium (b) 167 169 328 o/w France 36 63 116 o/w Hungary 15 27 54 o/w Germany 12 12 23 o/w Switzerland (0) 0 o/wOthers (c) 2 1 1 Others 2 3 6 TOTAL 236 275 529 Intercompany transactions (9) (26) (44) Contribution to consolidated gross revenues 226 248 485 (a) Of which AXA Bank Europe and its branches: €184 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2012 HY 2011 FY 2011 AXA Banks (a) 7 10 36 o/w Belgium (b) 27 27 55 o/w France (16) (0) 1 o/w Hungary (9) o/w Germany 2 2 4 o/w Switzerland (5) (11) o/w Others (c) (6) (5) (12) Others (2) (2) (4) UNDERLYING EARNINGS 5 8 32 Net realized capital gains or losses attributable to shareholders (11) (3) (5) ADJUSTED EARNINGS (6) 5 27 Profit or loss on financial assets (under Fair Value option) & derivatives 10 1 (13) Exceptional operations (including discontinued operations) (11) (144) Goodwill and related intangibles impacts (0) (86) Integration and restructuring costs (2) (7) (21) NET INCOME (9) (1) (237) (a) of which AXA Bank Europe and its branches: €21 million. (b) Includes commercial activities in Belgium for €7 million and shared services of AXA Bank Europe (treasury and support fun ctions) for €20 million. (c) Includes Slovakia and Czech Republic. Page 68 Activity Report______________________________________________________________________Half Year 2012 AXA Banks BELGIUM Net banking revenues decreased by €2 million (-1%) to €167 million. On a comparable basis1, net banking revenues increased by €17 million (+13%) mainly due to higher realized capital gains (€+20 million) and a lower funding cost (€+5 million), partly offset by higher impairments on fixed income assets (€-8 million). Revenues in retail banking activities remained stable at €169 million. Underlying earnings remained stable at €27 million with a lower commission margin from an internal business unit transfer (€-16 million) and higher taxes (€-8 million) compensating higher realized capital gains (€+20 million) and lower expenses (€+5 million). Adjusted earnings decreased by €8 million (-34%) to €16 million mainly due to above mentioned higher impairments on fixed income assets (€-8 million). Net income increased by €15 million (+78%) to €35 million mainly driven by higher foreign exchange result (€+11 million), deconsolidation of Switzerland (€ +8 million reflecting the transfer of the client portfolio to bank zweiplus on January 1, 2012) and lower restructuring costs (€+5 million), partly offset by lower adjusted earnings (€-8 million). FRANCE Net banking revenues decreased by €27 million (-42%) to €36 million. On a comparable basis1, net banking revenues decreased by €26 million (-43%) mainly due to higher interests paid to customers on savings accounts as a result of a promotional campaign during the first half of 2012 which led to a positive net new money collection of €1.0 billion, partly mitigated by higher interest revenues on mortgages as a result of an increase in new credit production despite a declining market trend. Underlying and adjusted earnings decreased by €15 million to €-16 million, following the decrease in net banking revenues, in a context of stable administrative expenses and cost of risk. Net income decreased by €17 million to €-19 million due to lower adjusted earnings and to unfavorable impact from interest-rate hedging instruments in a context of interest rates decrease. HUNGARY The Hungarian government enacted legislation in September 2011 allowing customers to redeem foreign currency denominated mortgages at non-market rates. In this context, Hungarian credit production has been stopped. Net banking revenues decreased by €12 million to €15 million. On a comparable basis1, net banking revenues decreased by €11 million mainly driven by lower interest income following the discontinuation of the lending activity and higher funding cost. Net income decreased by €11 million to €-20 million. On a constant exchange rate basis, net income decreased by €13 million mainly due to lower interest margin (€-9 million) following the discontinuation of the lending activities leading to a declining loan portfolio, higher provisions for loan losses (€-2 million) and lower foreign exchange result (€-2 million). The discontinuation of the lending activities together with new measures from the Hungarian government are expected to continue to negatively impact the Hungarian revenues and earnings. GERMANY Net banking revenues increased by €1 million (+4%) to €12 million. On a comparable basis1, net banking revenues increased by €2 million (+18%) especially due to an improved commercial margin mainly driven by lower interest paid for deposits and term accounts. Underlying earnings, adjusted earnings and net income remained stable at €2 million. 1 In banking segment, for net banking revenues, “on a comparable basis” means after intercompany eliminations, and other scope effects. Page 69 Activity Report______________________________________________________________________Half Year 2012 CZECH REPUBLIC Underlying earnings as well as adjusted earnings and net income remained stable at €-3 million on a constant exchange rate basis mainly driven by higher commercial margin (€+1 million) offset by higher administrative expenses (€-1 million). SLOVAKIA Underlying earnings as well as adjusted earnings and net income decreased by €1 million to €-3 million on a constant exchange rate basis mainly driven by higher expenses following marketing campaigns to support business growth. SWITZERLAND AXA Bank Switzerland closed its operations on January 1, 2012 following the transfer of its customer portfolio to bank zweiplus. The one-off costs associated with the closure of the Swiss branch booked in FY2011 amounted to €4 million. Page 70 Activity Report______________________________________________________________________Half Year 2012 Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income HY 2012 HY 2011 AXA (279) (214) Other French holdings companies (33) (38) Foreign holdings companies (122) (134) Others 1 1 UNDERLYING EARNINGS (433) (384) Net realized capital gains or losses attributable to shareholders (60) (180) ADJUSTED EARNINGS (493) (565) Profit or loss on financial assets (under Fair Value option) & derivatives (34) (89) Exceptional operations (including discontinued operations) 21 687 Goodwill and related intangibles impacts 0 0 Integration and restructuring costs (0) (1) NET INCOME (506) 33 AXA1 Underlying earnings decreased by €65 million to €-279 million mainly due to an increase in financial charge driven by €-32 million due to lower income on the net participation in BNP Paribas and by €-28 million as a result of the on- going amendment of the foreign currency hedging policy. Adjusted earnings increased by €26 million to €-339 million. Excluding the €92 million net impairment charge booked in 1H 2011 on Greece government bonds held by operational entities, adjusted earnings decreased by €66 million mainly driven by underlying earnings evolution. Net income decreased by €480 million to €-305 million. Excluding the €+682 million exceptional gain related to the disposal of the Australia & New Zealand operations in 1H 2011, net income increased by €202 million mainly driven by: - €+68 million linked to the sale of Canadian operations in respect of contingent consideration based on profitability metrics, €+68 million change of the mark to market on interest rate and foreign exchange derivatives which are not eligible to hedge accounting, €+38 million on time value related to equity derivatives, €+26 million increase in adjusted earnings. The foreign currency hedging policy has been amended balancing various objectives between net asset value protection, financial charge, liquidity and solvency positions. This new policy was implemented for US dollar and Swiss Franc and is currently being implemented for other currencies hedging (mainly Yen). The impact of this new policy was €-80 million after tax in 1H 2012 net income. 1 All the figures are after tax. Page 71 (in Euro million) FY 2011 (561) (47) (238) 2 (843) (224) (1,067) (17) 1,324 0 (0) 240 Activity Report______________________________________________________________________Half Year 2012 Other French holding companies AXA France Assurance Underlying earnings, adjusted earnings and net income decreased by €6 million to €-24 million mainly due to higher tax expenses resulting from higher inter-company dividends received. Other French holdings Underlying earnings increased by €10 million to €-9 million mainly due to an increase in operating profits from non consolidated entities. Adjusted earnings increased by €10 million to €-9 million mainly driven by underlying earnings evolution. Net income increased by €4 million to €-15 million. Excluding the €+9 million exceptional gain related to the disposal of the Australia & New Zealand operations in 1H 2011, net income increased by €13 million mainly driven by adjusted earnings evolution. Foreign Holding Companies AXA Financial Inc. Underlying earnings decreased by €5 million (-7%) to €-77 million. On a constant exchange rate basis, underlying earnings increased by €1 million (+2%). Adjusted earnings decreased by €5 million (-7%) to €-77 million. On a constant exchange rate basis, adjusted earnings increased by €1 million (+2%), in line with the underlying earnings evolution. Net income decreased by €38 million (-60%) to €-101 million. On a constant exchange rate basis, net income decreased by €30 million (-48%) driven by an unfavorable change in the fair value of the cross currency swaps. AXA UK Holdings Underlying earnings increased by €2 million (+85%) to €5 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+75%) mainly due to a decrease in pension costs (€10 million) offset by lower investment income (€-9 million) following a loan restructuring in 2H 2011. Adjusted earnings increased by €3 million (+85%) to €5 million. On a constant exchange rate basis, adjusted earnings increased by €2 million (+75%) due to the improvement in underlying earnings. Net income increased by €26 million to €15 million. On a constant exchange rate basis, net income increased by €25 million due to the improvement in adjusted earnings (€+2 million), favorable movement on derivatives (€+10 million) and non-repeat of a 1H 2011 tax one-off of €15 million. German Holding companies Underlying earnings remained stable. Adjusted earnings increased by €23 million (+48%) to €-24 million mainly due to a lower impairment charge. Net income increased by €14 million (+31%) to €-30 million mainly due to higher adjusted earnings, partly compensated by an unfavorable change in fair value of derivatives. Belgian Holding company Underlying earnings increased by €1 million (+17%) to €-6 million. Page 72 Activity Report______________________________________________________________________Half Year 2012 Adjusted earnings increased by €1 million (+18%) to €-6 million. Net income increased by €1 million (+9%) to €-5 million. Mediterranean and Latin American Region Holdings Underlying and adjusted earnings increased by €5 million (+13%) to €-30 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €5 million (+13%) reflecting lower financial charges. Net income increased by €3 million (+8%) to €-32 million. On a constant exchange rate basis, net income increased by €3 million (+8%) driven by the increase in adjusted earnings, partly offset by unfavorable change in financing hedges. Other CFP Underlying earnings, adjusted earnings and net income were stable at €1 million driven by stable positive run-off developments. Page 73 Activity Report______________________________________________________________________Half Year 2012 Outlook The macro economic environment will likely remain uncertain in the coming months and should continue to drive financial markets performance across the board. In this context, the Ambition AXA plan continues to be relevant despite the current market environment and AXA will continue to focus on its execution. Building on its financial strength and strong underlying fundamentals, AXA will continue to increase its exposure to the less market sensitive segments of Property & Casualty and Protection & Health. For the remainder of 2012, the business mix in Life & Savings will continue to shift towards more profitable segments, the favorable pricing environment will continue to support the Property & Casualty activity and the focus in Asset Management will be on further improving the investment performance. The delivery of the cost savings plan will also remain a priority, as well as the acceleration in high growth and direct markets. Page 74 Activity Report______________________________________________________________________Half Year 2012 Glossary The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Hungary, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia) India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece, France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow though adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, related impact on policyholder participation (Life & Savings business), - DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. Page 75 Activity Report______________________________________________________________________Half Year 2012 EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE : o All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Change in UFR (Unearned Fees Reserve - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) Underlying Investment margin includes the following items: Page 76 Activity Report______________________________________________________________________Half Year 2012 (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Page 77 Activity Report______________________________________________________________________Half Year 2012 PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. BANKING Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Page 78 Consolidated financial statements_______________________________________________________Half Year 2012 Consolidated financial statements / Half Year 2012 Page 1 Consolidated financial statements_______________________________________________________Half Year 2012 Contents CONSOLIDATED STATEMENT OF FINANCIAL POSITION .............................................................................. 4 CONSOLIDATED STATEMENT OF INCOME ....................................................................................................... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME..................................................................... 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................... 8 CONSOLIDATED STATEMENT OF CASH FLOWS .......................................................................................... 10 Note 1 : Accounting principles ............................................................................................................................. 12 General information .................................................................................................................................. 12 1.1. General accounting principles ................................................................................................................... 12 1.2. Consolidation ........................................................................................................................................... 15 1.3. Foreign currency translation of financial statements and transactions ......................................................... 18 1.4. Segment reporting ..................................................................................................................................... 18 1.5. Intangible assets........................................................................................................................................ 19 1.6. Investments from insurance, banking and other activities ........................................................................... 20 1.7. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders ............. 22 1.8. Derivative instruments .............................................................................................................................. 22 1.9. Assets / liabilities held for sale and assets / liabilities including discontinued operations ............................. 22 1.10. Cash and cash equivalents ......................................................................................................................... 23 1.11. Share capital and shareholders’ equity ....................................................................................................... 23 1.12. Liabilities arising from insurance and investment contracts ........................................................................ 23 1.13. Reinsurance .............................................................................................................................................. 26 1.14. Financing debt .......................................................................................................................................... 26 1.15. Other liabilities ......................................................................................................................................... 26 1.16. Provisions for risks, charges and contingent liabilities ............................................................................... 28 1.17. Revenue recognition ................................................................................................................................. 28 1.18. Subsequent events ..................................................................................................................................... 29 1.19. Note 2 : 2.1. 2.1.1. 2.1.2. 2.1.3. 2.2. Scope of consolidation ............................................................................................................................. 30 Consolidated companies ............................................................................................................................ 30 Main fully consolidated companies ........................................................................................................... 30 Proportionately consolidated companies .................................................................................................... 33 Main investments in companies accounted for using the equity method...................................................... 33 Consolidated entities relating to specific operations ................................................................................... 33 Note 3 : 3.1. Segment information............................................................................................................................... 34 Segmental consolidated statement of income ............................................................................................. 36 Note 4 : Assets and liabilities held for sale including discontinued operations.................................................... 38 Main Half Year 2012 transactions ............................................................................................................. 38 4.1. Main 2011 transactions ............................................................................................................................. 38 4.2. Note 5 : 5.1. 5.2. 5.3. 5.4. 5.4.1. 5.4.2. 5.5. Investments ............................................................................................................................................. 40 Breakdown of investments ........................................................................................................................ 40 Investment in real estate properties ............................................................................................................ 42 Unrealized gains and losses on financial investments ................................................................................. 43 Financial assets subject to impairment ....................................................................................................... 44 Breakdown of financial assets subject to impairment (excluding investment in real estate properties) ......... 44 Change in impairment on invested assets (excluding investment in real estate properties) ........................... 45 Financial assets recognized at fair value .................................................................................................... 45 Page 2 Consolidated financial statements_______________________________________________________Half Year 2012 Note 6 : 6.1. 6.1.1. 6.1.2. 6.2. 6.2.1. 6.2.2. 6.3. 6.3.1. 6.3.2. Shareholders’ equity and minority interests .......................................................................................... 47 Impact of transactions with shareholders ................................................................................................... 47 Change in shareholders’ equity Group share for the first half of 2012......................................................... 47 Change in shareholders’ equity Group share for the first half of 2011......................................................... 48 Comprehensive income for the period ....................................................................................................... 49 Comprehensive income for the first half of 2012 ....................................................................................... 49 Comprehensive income for the first half of 2011 ....................................................................................... 51 Change in minority interests ...................................................................................................................... 51 Change in minority interests for the first half of 2012 ................................................................................ 51 Change in minority interests for the first half of 2011 ................................................................................ 51 Note 7 : Financing debt ........................................................................................................................................ 52 Note 8 : Net income per ordinary share ............................................................................................................... 53 Page 3 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2012 (a) December 31, 2011 Restated (a) (b) January 1, 2011 Restated (a) (b) Goodwill 16,094 15,855 16,741 Value of purchased business in force (c) 3,026 3,074 3,105 Deferred acquisition costs and equivalent (b) 19,873 18,688 16,829 Other intangible assets 3,305 3,382 3,648 Intangible assets 42,298 40,999 40,322 Investments in real estate properties 16,208 16,061 15,751 Financial investments 432,239 418,765 409,630 Assets backing contracts where the financial risk is borne by policyholders (d) 142,850 134,230 137,757 5 Investments from insurance activities 591,296 569,056 563,137 5 Investments from banking and other activities 38,154 35,264 31,416 Investments in associates - Equity method 1,258 1,139 1,168 Reinsurers' share in insurance and investment contracts liabilities 10,857 10,698 11,096 Tangible assets 1,638 1,410 1,517 Deferred policyholders' participation assets 749 1,247 636 Deferred tax assets (b) 3,443 3,332 4,370 Other assets 5,831 5,990 6,524 Receivables arising from direct insurance and inward reinsurance operations 15,988 13,346 13,468 Receivables arising from outward reinsurance operations 789 671 1,008 Receivables - current tax 2,094 2,347 1,851 Other receivables 16,642 16,325 13,917 Receivables 35,514 32,689 30,244 4 Assets held for sale including discontinued operations 480 360 22,848 Cash and cash equivalents 30,417 31,072 22,095 TOTAL ASSETS 756,105 727,268 728,851 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movemen t in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Amounts gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. Page 4 Consolidated financial statements_______________________________________________________Half Year 2012 Notes June 30, 2012 (a) December 31, 2011 Restated (a) (b) Share capital and capital in excess of nominal value 25,206 25,188 Reserves and translation reserve (b) 20,895 17,080 Net consolidated income - Group share (b) 2,586 4,190 Shareholders’ equity – Group share 48,687 46,458 Minority interests 2,479 2,367 6 TOTAL SHAREHOLDERS' EQUITY 51,166 48,825 Subordinated debt 7,301 7,108 Financing debt instruments issued 2,492 2,506 Financing debt owed to credit institutions 833 807 7 Financing debt 10,627 10,421 Liabilities arising from insurance contracts 368,470 358,146 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 111,248 104,642 Total liabilities arising from insurance contracts 479,718 462,788 Liabilities arising from investment contracts with discretionary participating features 37,159 37,858 Liabilities arising from investment contracts with no discretionary participating features 403 380 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,803 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 28,180 26,336 Total liabilities arising from investment contracts 69,546 68,195 Unearned revenue and unearned fee reserves 2,993 2,975 Liabilities arising from policyholders' participation 22,597 17,938 Derivative instruments relating to insurance and investment contracts (2,514) (2,056) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 572,340 549,841 Liabilities arising from banking activities 35,721 34,023 Provisions for risks and charges 12,150 10,760 Deferred tax liabilities (b) 4,096 3,817 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 5,406 3,896 Other debts instruments issued, notes and bank overdrafts (d) 6,126 6,272 Payables arising from direct insurance and inward reinsurance operations 7,040 7,212 Payables arising from outward reinsurance operations 5,449 5,179 Payables – current tax 1,454 1,194 Collateral debts relating to investments under a lending agreement or equivalent 26,349 27,509 Other payables 17,857 18,130 Payables 69,680 69,391 4 Liabilities held for sale including discontinued operations 325 189 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 756,105 727,268 (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movemen t in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Amounts are shown net of related derivative instruments impact. June 30, 2012 (a) December 31, 2011 (a) Liabilities arising from insurance contracts where the financial risk is borne by policyholders (b) 111,248 104,642 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,803 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 28,180 26,336 Total Liabilities arising from contracts where the financial risk is borne by policyholders 143,231 134,599 Liabilities arising from insurance contracts 368,470 358,146 Liabilities arising from investment contracts with discretionary participating features 37,159 37,858 Liabilities arising from investment contracts with no discretionary participating features 403 380 Total Liabilities arising from other insurance and investment contracts 406,032 396,384 (a) AXA Japan closes its full year accounts at September 30 and its half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2010 and December 31, 2010, September 30, 2011 and December 31, 2011 and between March 31, 2012 and June 30, 2012, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) Also includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minim um features. Page 5 (in Euro million) January 1, 2011 Restated (a) (b) 24,723 23,065 0 47,788 4,167 51,955 7,066 2,500 887 10,454 342,559 108,587 451,146 37,233 720 4,700 25,006 67,659 2,757 15,897 (742) 536,717 27,532 10,495 3,473 4,855 6,504 7,472 5,916 1,348 23,399 18,562 68,058 20,168 728,851 (in Euro million) January 1, 2011 (a) 108,587 4,700 25,006 138,293 342,559 37,233 720 380,512 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2012 June 30, 2011 Restated (a) Gross written premiums 45,749 43,959 Fees and charges relating to investment contracts with no participating features 164 182 Revenues from insurance activities 45,913 44,141 Net revenues from banking activities 224 246 Revenues from other activities 2,268 2,449 Revenues (b) 48,405 46,836 Change in unearned premiums net of unearned revenues and fees (3,962) (3,727) Net investment income (c) 8,023 7,582 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity (d) (e) 770 2,360 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (f) 6,550 3,588 of which change in fair value of assets with financial risk borne by policyholders (g) 6,224 3,257 Change in investments impairment (h) (390) (380) Net investment result excluding financing expenses 14,953 13,149 Technical charges relating to insurance activities (g) (45,696) (40,577) Net result from outward reinsurance (572) (571) Bank operating expenses (64) (44) Acquisition costs (a) (4,293) (4,373) Amortization of the value of purchased business in force (47) (113) Administrative expenses (4,630) (5,045) Change in tangible assets impairment (0) (1) Change in goodwill impairment and other intangible assets impairment (67) (57) Other income and expenses (175) (91) Other operating income and expenses (55,544) (50,872) Income from operating activities before tax 3,852 5,387 Income arising from investments in associates - Equity method 42 31 Financing debts expenses (i) (289) (320) Net income from operating activities before tax 3,605 5,098 Income tax (a) (919) (976) Net operating income 2,687 4,122 4 Result from discontinued operations net of tax 99 Net consolidated income after tax 2,687 4,221 Split between : Net consolidated income - Group share 2,586 4,013 Net consolidated income - Minority interests 101 208 8 Earnings per share (j) 1.04 1.69 8 Fully diluted earnings per share (j) 1.04 1.68 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Gross of reinsurance. (c) Net of investment management costs. (d) Includes impairment releases on investments sold. (e) As of June 30, 2011, notably includes net realized gains on sale of Autralian and New Zealand operations (€695 million gr oss or €691 million net) and stake in Taikang Life (€779 million gross or €749 million net). (f) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (g) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (h) Excludes impairment releases on investments sold. (i) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (j) Refer to Note 8 for the split of earnings per share between continuing and discontinued operations. Page 6 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2012 (a) June 30, 2011 Restated (a) (b) Reserves relating to changes in fair value through shareholders' equity 1,810 (1,816) Translation reserves 647 (1,737) Employee benefits actuarial gains and losses (935) 12 Net gains and losses recognized directly through shareholders' equity 1,522 (3,541) Net consolidated income 2,687 4,221 TOTAL COMPREHENSIVE INCOME (CI) 4,209 680 Split between : CI - Group share 4,051 873 CI - Minority interests 158 (193) (a) AXA Japan closes its half year accounts at March 31. Given significant movement in foreign exchange rates since end of March, balance sheet items have been translated using June 30, 2012 exchange rates. As of June 30, 2011, Axa Japan's balance sheet was translated using March 31, 2011 exhange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Page 7 Consolidated financial statements_______________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (a) Shareholders 'equity opening January 1,2012 Restated (b) 2,357,198 2.29 5,398 20,471 (385) 4,838 50 6,059 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c ) 103 - - - - - - - - 2.29 - - - - - - - - 0 - - - - - - - - 1 16 - - - - - - - - 17 - - - - - - - - - - - - (0) - - - - - - - - - - - (16) - - (148) - Dividends paid Impact of transactions with shareholders 103 2.29 0 17 17 (0) (164) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses (d) Net consolidated income - - - - - - - - - - 1,725 - - 62 - - 135 - - Total Comprehensive Income (CI) 1,725 62 135 Shareholders' equity closing June 30, 2012 2,357,301 2.29 5,398 20,488 (368) 6,563 112 6,031 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Including changes in ownership interest in consolidated subsidiaries without losing control. (d) Actuarial gains and losses accrued since opening January 1, 2012. Page 8 Translation reserves (2,296) - - - - - - - 0 0 474 - - 474 (1,822) (in Euro million, except for number of shares and nominal value) Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 12,323 46,458 2,367 - - - - - - - (66) 0 1 16 17 (16) - - (148) (66) - - - - - - - (47) (1,626) (1,626) (1,692) (1,822) (47) 1,788 23 (933) 2,586 1,653 609 (933) 2,586 4,051 37 (3) 101 158 12,284 48,687 2,479 Consolidated financial statements_______________________________________________________Half Year 2012 Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (a) Shareholders 'equity opening January 1, 2011 Restated (b) 2,320,105 2.29 5,313 20,192 (495) 6,272 33 6,208 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 327 - - - - - - - - 2.29 - - - - - - - - 1 - - - - - - - - 3 22 - - - - - - - - 107 - - - - - - - - - - - - 152 - - - - - - - (0) - - - (35) - 0 (140) - Dividends paid Impact of transactions with shareholders 327 2.29 1 24 107 152 (0) (175) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses (d) Net consolidated income - - - - - - - - - - (1,800) - - 13 - - (249) - - Total Comprehensive Income (CI) (1,800) 13 (249) Shareholders' equity closing June 30, 2011 Restated (b) 2,320,432 2.29 5,314 20,216 (387) 4,623 46 5,784 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c)Including changes in ownership interest in consolidated subsidiaries without losing control. Notably include €2.5 billion reduction in shareholders' equity related to the buy-out of minority interests in AXA APH Asian operation. (d) Actuarial gains and losses accrued since opening January 1, 2011. Page 9 Translation reserves (2,075) - - - - - - - (478) (478) (1,117) - - (1,117) (3,669) (in Euro million, except for number of shares and nominal value) Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 12,341 47,788 4,167 - - - - - - - (2,093) (3,693) 1 3 22 107 (35) - 0 (140) (2,419) (1,601) - - - - - - - (1,501) (4,062) (1,501) (1,787) (29) 12 4,013 4,026 (1,365) 12 4,013 873 (372) 0 208 (193) 12,673 44,600 2,473 Avec et sans PB discrétionnaire Consolidated financial statements___________________________________________________Half Year 2012 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2012 (a) June 30, 2011 Restated (a) (b) Operating income including discontinued operation before tax 3,605 5,098 Net amortization expense (c) 305 261 Change in goodwill impairment and other intangible assets impairment (d) 12 3 Net change in deferred acquisition costs and equivalent (1,219) (584) Net increase / (write back) in impairment on investments, tangible and other intangible assets 427 394 Change in fair value of investments at fair value through profit or loss (8,265) (581) Net change in liabilities arising from insurance and investment contracts (e) 14,193 10,337 Net increase / (write back) in other provisions (f) (59) (140) Income arising from investments in associates – Equity method (42) (29) Adjustment of non cash balances included in the operating income before tax 5,353 9,661 Net realized investment gains and losses 859 (5,342) Financing debt expenses 287 325 Adjustment for reclassification to investing or financing activities 1,146 (5,018) Dividends recorded in profit or loss during the period (1,595) (1,618) Investment income & expense recorded in profit or loss during the period (6,959) (6,429) Adjustment of transactions from accrued to cash basis (8,553) (8,047) Net cash impact of deposit accounting 130 (240) Dividends and interim dividends collected 1,797 1,742 Investment income 8,961 8,221 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (1,279) (1,333) Change in operating receivables and payables and net operating cash from banking activities (3,322) (2,100) Net cash provided by other assets and liabilities (g) (804) (1,759) Tax expenses paid (563) (339) Other operating cash impact and non cash adjustment (1,599) (1,360) Net cash impact of transactions with cash impact not included in the operating income before tax 3,322 2,831 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 4,873 4,526 Purchase of subsidiaries and affiliated companies, net of cash acquired (13) 220 Disposal of subsidiaries and affiliated companies, net of cash ceded 178 1,293 Net cash related to changes in scope of consolidation 165 1,512 Sales of debt instruments (g) 34,363 40,985 Sales of equity instruments and non controlled investment funds (g) (h) 9,077 10,073 Sales of investment properties held directly or not (g) 182 392 Sales and/or repayment of loans and other assets (g) (i) 13,445 14,360 Net cash related to sales and repayments of investments (g) (h) (i) 57,067 65,809 Purchases of debt instruments (g) (36,603) (45,367) Purchases of equity instruments and non controlled investment funds (g) (h) (9,806) (8,026) Purchases of investment properties held direct or not (g) (545) (467) Purchases and/or issues of loans and other assets (g) (i) (14,357) (12,735) Net cash related to purchases and issuance of investments (g) (h) (i) (61,310) (66,595) Sales of tangible and intangible assets 3 8 Purchases of tangible and intangible assets (230) (166) Net cash related to sales and purchases of tangible and intangible assets (226) (159) Increase in collateral payable / Decrease in collateral receivable 29,894 37,655 Decrease in collateral payable / Increase in collateral receivable (29,881) (35,861) Net cash impact of assets lending / borrowing collateral receivables and payables 13 1,794 Other investing cash impact and non cash adjustment NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (4,291) 2,362 Issuance of equity instruments 266 (14) Repayments of equity instruments (88) (314) Transactions on treasury shares (8) 35 Dividends payout (1,688) (1,682) Interests on undated subordinated debts paid (115) (112) Acquisition / sale of interests in subsidiaries without change in control (76) (3,291) Net cash related to transactions with shareholders (1,708) (5,378) Page 10 Consolidated financial statements___________________________________________________Half Year 2012 Cash provided by financial debts issuance 0 Cash used for financial debts repayments (24) Interests on financing debt paid (j) (238) Net cash related to Group financing (262) Other financing cash impact and non cash adjustment NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (1,970) NET CASH PROVIDED BY DISCONTINUED OPERATIONS (0) CASH AND CASH EQUIVALENT AS OF JANUARY 1 (k) 30,033 Net cash provided by operating activities 4,873 Net cash provided by investing activities (4,291) Net cash provided by financing activities (1,970) Net cash provided by discontinued operations (0) Impact of change in consolidation method and of reclassifications as held for sale (322) Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents 358 CASH AND CASH EQUIVALENT AS OF JUNE 30 (k) 28,680 (a) AXA Japan closes its half year accounts at March 31. Given significant movement in foreign exchange rates since end of Ma rch, balance sheet items have been translated using June 30, 2012 exchange rates. As of June 30, 2011, Axa Japan's balance sheet was translated using March 31, 2011 exhange rates. (b) As described in note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Includes premiums/discounts capitalization and relating amortization, amortization of investment and owner occupied prope rties (held directly). (d) Includes impairment and amortization of intangible assets booked during business combinations. (e) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by poli cyholders. (f) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (g) Includes related derivatives. (h) Includes equity instruments held directly or by controlled investment funds as well as non controlled investment funds. (i) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (j) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (k) Net of bank overdrafts. June 30, 2012 June 30, 2011 Restated (a) Cash and cash equivalent 30,417 Bank overdrafts (b) (1,737) Cash and cash equivalent as of December 31 (c) 28,680 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Included in "Other debt instruments issued and bank overdrafts". (c) The "Cash and cash equivalents" balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from th e Satellite Investment Portfolio (see Note 1.7.2). The "Cash and cash equivalents" item in the Statement of Consolidated Cash Flows excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). Page 11 26 (67) (352) (392) (5,770) (68) 21,097 4,526 2,362 (5,770) (68) (0) (320) 21,827 (in Euro million) 22,656 (829) 21,827 Consolidated financial statements___________________________________________________Half Year 2012 Note 1 : Accounting principles 1.1. General information AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, • Asset Management, • Banking. AXA is listed on Euronext Paris Compartiment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on August 2, 2012. 1.2. General accounting principles 1.2.1. Basis for preparation AXA’s consolidated interim financial statements are prepared as of June 30. However, certain entities within AXA have a different reporting half year end, in particular AXA Life Japan, which has a March 31 financial half year end. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are definitive and effective as of June 30, 2012, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009, amended in October 2010 and December 2011, has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated interim financial statements also comply with IFRS as issued by the International Accounting Standards Board (IASB). Voluntary change in accounting policy on deferred acquisition costs (DAC) Deliberations at joint meetings of IASB and FASB regarding the Insurance Contracts Phase II project as well as change in USGAAP (ASU-2010-26) applicable as at January 1, 2012 for companies applying US GAAP indicate that accounting standards are moving to lower capitalization and therefore deferral of acquisition expenses. In this context, the Group changed its accounting policy on deferred acquisition costs as of January 1, 2012 and retrospectively restated comparative information related to previous periods. The change applied is in line with the updated draft wording provided at the IASB Insurance Working Group on October 24, 2011 around direct costs of acquiring a portfolio of insurance contracts which so far differs from ASU-2010-26 by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied (incremental direct cost of acquisition and specifying some other costs). The Group was seeking for better alignment with US GAAP applicants starting when the ASU-2010-26 change was applicable for such companies while conscious that the Group would be submitted to IFRS 4 Phase II whenever applicable. The impact of this change led to a reduction of total shareholders’ equity of €1, 913 million (of which €1,910 million group share) as of January 1, 2011. The adjustments on previous periods affected the following line items of the financial statements: Page 12 Consolidated financial statements___________________________________________________Half Year 2012 In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsDeferred acquisition costs and equivalents (a) 19,641 (2,813) 16,829 21,785 (3,097) 18,688 Deferred tax assets 4,097 273 4,370 3,052 280 3,332 Deferred tax liabilities (4,098) 626 (3,473) (4,526) 709 (3,817)NET EFFECT (1,913) (2,108)In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsAcquisition costs (4,398) 25 (4,373) (8,184) (199) (8,383)Income tax (963) (12) (976) (1,074) 63 (1,011)NET EFFECT 13 (136) June 30, 2011December 31, 2011(a) Corresponds to group Gross DAC amount. DAC assets should be looked at in conjunction with unearned revenues and reserves (URR: Revenues received at inception to cover furture services - see note 1.6.4), policyholder participation and tax. Life and Savings DAC net of URR, PB and tax amounted to €8,509 million as at December 31, 2011.Consolidated statement of financial positionConsolidated statement of incomeJanuary 1, 2011 December 31, 2011 Standards, amendments and interpretations published but not yet effective IFRS 9 - Financial instruments, published on November 12, 2009, amended on October 28, 2010 and December 16, 2011 and applicable to the Group from January 1, 2015 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting), its method of implementation and its impact are currently being examined within the Group. The amendment to IFRS 7 – Disclosures – Transfers of Financial Assets published on October 7, 2010, increases the disclosure requirements for transactions involving transfers of financial assets. The amendment is intended to provide additional information regarding risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure to the asset. The amendment also requires disclosure where transfers of financial assets are not evenly distributed throughout the period. The disclosure amendment is effective for annual periods beginning on or after July 1, 2011. It is not expected to have a material impact on the Group’s consolidated financial statements as of December 31, 2012. The amendment to IAS 12 – Income Taxes, published on 20 December 2010 addresses the measurement of deferred tax liabilities and deferred tax assets, which depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is difficult and subjective to assess whether recovery will be through use or through sale. The amendment provides a practical approach in such cases, by introducing a presumption that an asset is recovered entirely through sale unless the entity has clear evidence that recovery will occur in another manner. The presumption would apply when investment properties, property, plant and equipment or intangible assets are remeasured at fair value or revalued at fair value. The amendment is effective for annual periods beginning on or after January 1, 2012 and is not expected to have a material impact on the Group’s consolidated financial statements as of December 31, 2012. A package of five new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the five standards have an effective date for annual periods beginning on or after January 1, 2013, with earlier application permitted so long as each of the other standards in the package is also early applied. The analysis of the potential impact on the Group’s consolidated financial statements with regard to the package of five new and revised standards is currently underway. Page 13 Consolidated financial statements___________________________________________________Half Year 2012 IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements and replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. The application of the equity method instead of the proportional consolidation is not expected to have a material impact on the Group’s consolidated financial statements. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. IFRS 13 – Fair Value Measurement, published on May 12, 2011, defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 1 – Presentation of Financial Statements, published June 16, 2011, requires entities to group together items presented within other comprehensive income based on whether they are potentially reclassifiable to profit or loss in a subsequent period. The amendment also preserves the requirement that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The amendment is effective for annual periods beginning on or after July 1, 2012, with early application permitted, and it is not expected to have a material impact on the Group’s consolidated financial statements. The amendment to IAS 19 – Employee Benefits, published June 16, 2011, addresses the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. The amendment also eliminates the corridor method deferral of recognition of gains and losses, which is not applied by the Group. The amendment is effective for annual periods beginning on or after January 1, 2013, with early application permitted. The analysis of the potential impact on the Group’s consolidated financial statements is currently underway. The amendments to IAS 32 – Financial Instruments: Presentation, and the amendments to IFRS 7 – Financial Instruments Disclosure published December 16, 2011, provide clarifications of the application of the offsetting rules and amend the related disclosure requirements. The amendments to IAS 32 clarify that to result in offset of a financial asset and a financial liability, a right to set-off must be available today rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IFRS 7 require disclosure of information about rights of offset and related arrangements. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and the IFRS 7 disclosure amendments are required for annual periods beginning on or after January 1, 2013. The amendments are not expected to have a material impact on the Group’s consolidated financial statements. Annual Improvements 2009 – 2011 Cycle, published on May 17, 2012, includes amendments to IFRSs that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They are applicable for annual periods beginning on or after January 1, 2013. These amendments are not expected to have a material impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. Page 14 Consolidated financial statements___________________________________________________Half Year 2012 All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date was January 1, 2005. The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: Goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS), and • Any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. As a result, the goodwill gross value corresponds to the gross value of these goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. Consolidation 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27 / SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Page 15 Consolidated financial statements___________________________________________________Half Year 2012 Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27 / SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 1.3.2. Business combinations and subsequent changes in the Group ownership interest In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and reflecting the difference between the fair value and the carrying value of the liabilities). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Page 16 Consolidated financial statements___________________________________________________Half Year 2012 Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill). According to a decision taken for each acquisition, any minority interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of minority interests in a controlled subsidiary Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. Page 17 Consolidated financial statements___________________________________________________Half Year 2012 Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: • in full for controlled subsidiaries, and; • to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated. However, in case of a loss, an impairment test is performed in order to assess whether an impairment has to be booked. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position. In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. Foreign currency translation of financial statements and transactions The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: • assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; • revenues and expenses are translated at the average exchange rates over the period; • all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in section 1.9. As mentioned in section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step-by-step consolidation method (IFRIC 16). 1.5. Segment reporting The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. Page 18 Consolidated financial statements___________________________________________________Half Year 2012 1.6. Intangible assets 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value figures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as investment contracts with no discretionary Deferred origination costs (DOC) relating to participating features The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned. In Life, the asset is amortized based on the estimated gross profits emerging over the life of the contracts. In conjunction to the liability adequacy test (see section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profits is not deemed recoverable and expensed. For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.6.4. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs. 1.6.5. Other intangible assets Other intangible assets include software developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. Page 19 Consolidated financial statements___________________________________________________Half Year 2012 They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized on a straight-line basis over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.7. Investments from insurance, banking and other activities Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: • assets held to maturity, accounted for at amortized cost; • assets held for trading and assets designated as at fair value with change in fair value through profit or loss; • available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity; • loans and receivables (including some debt instruments not quoted in an active market) accounted for at amortized cost. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: • financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: – assets backing liabilities arising from contracts where the financial risk is borne by policyholders; – assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39; – debts held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: • either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Page 20 Consolidated financial statements___________________________________________________Half Year 2012 Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local Assets and Liabilities Management (ALM) strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.7.3. Repurchase agreements and security lending The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements. The Group is also party to reverse repurchase agreements under which financial assets are purchased from a counterparty, subject to a simultaneous agreement to return these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remain with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as financial assets of the Group. The amounts of cash disbursed are recorded under financial investments, except for transactions arising from banking activities, which are recorded as separate assets. Interest income on reverse repurchase agreements is accrued over the duration of the agreements. Page 21 Consolidated financial statements___________________________________________________Half Year 2012 1.8. Assets backing liabilities arising from contracts where the financial risk is borne by policyholders Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc.). Details of these assets are provided in the notes. 1.9. Derivative instruments Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Therefore, the gain or loss relating to any ineffective portion is directly recognized in the income statement. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed material. For the statement of financial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. Assets / liabilities held for sale and assets / liabilities including discontinued operations These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. Page 22 Consolidated financial statements___________________________________________________Half Year 2012 In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain / loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the statement of financial position and statement of income are provided in the notes to the consolidated financial statements. 1.11. Cash and cash equivalents Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. 1.12. Share capital and shareholders’ equity 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debt Undated subordinated debt and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or shareholders’ expectations). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. Liabilities arising from insurance and investment contracts 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: Page 23 Consolidated financial statements___________________________________________________Half Year 2012 they are likely to represent a significant portion of the overall contractual benefits; • their amount or timing is contractually at the discretion of the Group; and • they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually unit-linked contracts. The Group classifies its insurance and investment contracts into six categories: • liabilities arising from insurance contracts, • liabilities arising from insurance contracts where the financial risk is borne by policyholders, • liabilities arising from investment contracts with discretionary participating features, • liabilities arising from investment contracts with no discretionary participating features, • liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to unit-linked contracts or multi-funds contracts containing a non-unit-linked fund with discretionary participating features, liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. Insurance contracts and investment contracts with discretionary participating features According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where IAS 39 applies. The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: Reserves must be sufficient, Life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield, Acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts, Claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. Pre-claims reserves Unearned premiums reserves represent the prorated portion of written premiums that relates to unexpired risks at the closing date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Changes in reserves are booked if there are impacts caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve deficiency caused by insufficient future investment return is immediately booked. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Page 24 Consolidated financial statements___________________________________________________Half Year 2012 Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. Post claims reserves Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, and actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where minimum are set to respectively 90%, 90% and 85% of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less developed in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; Page 25 Consolidated financial statements___________________________________________________Half Year 2012 • they include projections of future investments sales according to estimated surrender patterns; and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Depending on the type of business, the future investment cash flows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, …) to a reserve directly by discounting the cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” section below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly unit-linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in section 1.6.3). Unearned fees reserves Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs. 1.14. Reinsurance Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. Financing debt Financing debts issued to finance the solvency requirements of operational entities or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position. 1.16. Other liabilities 1.16.1. Income taxes The half year income tax charge is based on the best estimate of the expected full year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carry forwards. Page 26 Consolidated financial statements___________________________________________________Half Year 2012 Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. The recoverability of deferred tax assets recognized in previous periods is re-assessed at each closing. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in the Statement of Comprehensive Income) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefits on the date of a change in the amount of benefits following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period. The impact in the income statement mainly relates to the service cost (annually accruing employee benefit) and the interest cost (unwinding of discount applied to the liability), reduced by the expected return on assets dedicated to the plan. Past service costs, settlements and curtailments also have an impact in the income statement. 1.16.3. Share-based compensation plans Group’s share-based compensation plans are predominantly equity-settled plans. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under specific French regulatory framework includes two options: traditional and leveraged options (with an application subject to specific local regulations within the Group). The cost of the traditional option Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. Page 27 Consolidated financial statements___________________________________________________Half Year 2012 1.17. Provisions for risks, charges and contingent liabilities 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see section 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation. 1.18. Revenue recognition 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. Fees and revenues from investment contracts with no discretionary participating features Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: • the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues, • claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: • the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. Page 28 Consolidated financial statements___________________________________________________Half Year 2012 1.18.5. Change in unearned premiums reserves net of unearned revenues and fees Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.6.4) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interest expenses not related to financing, banking fees, capital gains and losses on sales of financial assets, change in fair value of assets under fair value option and related derivatives. They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: • commissions received and fees for services relating to asset management activities • insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products, and rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half year policyholders’ participation charge is based on the best estimate of the planned full year distribution rate for each portfolio of contracts at each Group entity level. 1.18.9. Net investment result excluding financing expenses The net investment result includes: • investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments, investment management expenses (excludes financing debt expenses), • realized investment gains and losses net of releases of impairment following sales, • the change in unrealized gains and losses on invested assets measured at fair value through profit or loss, • the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see section 1.18.6). 1.19. Subsequent events Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: • such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. Page 29 Consolidated financial statements___________________________________________________Half Year 2012 Note 2 : Scope of consolidation 2.1. Consolidated companies 2.1.1. Main fully consolidated companies June 30, 2012 December 31, 2011 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA Asia 100.00 100.00 100.00 100.00 AXA China 100.00 100.00 100.00 100.00 AXA France Assurance 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.98 100.00 99.98 AXA UK Plc 100.00 99.98 100.00 99.98 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100.00 100.00 100.00 100.00 AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 100.00 100.00 Japan AXA Japan Holding 98.95 98.95 98.94 98.94 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG 100.00 100.00 100.00 100.00 AXA Beteiligungsgesellschaft mbH 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 Finance Solutions SARL 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Italia S.p.A. AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 100.00 100.00 Page 30 Consolidated financial statements___________________________________________________Half Year 2012 June 30, 2012 December 31, 2011 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA France IARD AXA France Vie AXA Protection Juridique 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 United States AXA Equitable Life Insurance Company Mony Life Insurance Company AXA Financial (Bermuda) Ltd 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited Bluefin Group Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 Ireland AXA Insurance Limited AXA Life Europe Limited AXA Reinsurance Ireland Limited 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 99.98 100.00 100.00 Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (a) 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 Japan AXA Life Insurance 100.00 98.95 100.00 98.94 Germany AXA Versicherung AG AXA Art AXA Lebenversicherung AG Pro Bav Pensionskasse Deutsche Aerzteversicherung AXA Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 100.00 Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Servis Life SA Les Assurés Réunis Merged with AXA Belgium SA 100.00 100.00 100.00 - 99.93 100.00 100.00 100.00 - 99.93 100.00 100.00 100.00 100.00 99.93 100.00 100.00 100.00 100.00 99.93 Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Salud, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) 99.82 99.96 99.90 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.90 99.99 99.99 50.00 99.82 99.82 99.90 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.82 99.90 99.90 99.99 99.99 50.00 AXA MPS Danni (Italy) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Al Amane Assurance (Morocco) AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) 50.00 + 1 voting right 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.98 99.94 50.00 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.98 99.94 50.00 + 1 voting right 99.73 95.09 100.00 100.00 100.00 72.59 50.00 50.00 99.89 99.94 50.00 99.49 94.89 100.00 100.00 100.00 72.59 34.00 50.00 99.89 99.94 Switzerland AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 100.00 66.67 100.00 Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland AXA Poland Pension Funds AXA Slovakia AXA Ukraine 99.99 100.00 100.00 100.00 100.00 100.00 50.17 99.99 100.00 100.00 100.00 100.00 100.00 50.17 99.99 100.00 100.00 100.00 100.00 100.00 50.00 99.99 100.00 100.00 100.00 100.00 100.00 50.00 Direct (b) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Minority interests buyout 100.00 98.67 100.00 100.00 100.00 98.67 98.95 100.00 100.00 94.13 100.00 100.00 100.00 94.13 98.94 100.00 Page 31 Consolidated financial statements___________________________________________________Half Year 2012 Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) Seguro Directo Gere Companhia de Seguros SA (Portugal) 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 (a) AXA Group has a full control given the shareholders' agreements. (b) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2012 December 31, 2011 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C (previously AXA Cessions) AXA Global Life (previously Saint-Georges Ré) AXA Assistance SA (sub group) Portman Insurance Ltd. (previously AXA Global Risks UK) Colisée RE (previously AXA RE) AXA Corporate Solutions Life Reinsurance Company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2012 December 31, 2011 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) (a) 95.83 63.49 95.82 63.49 95.55 64.60 95.54 64.60 (a) AXA also holds indirectly 100% of the general partner of AllianceBernstein L.P. June 30, 2012 December 31, 2011 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque AXA Banque Financement 100.00 65.00 99.89 64.93 100.00 65.00 99.89 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2012 December 31, 2011 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management (a) 100.00 100.00 100.00 100.00 (a) Formerly Compagnie Financière de Paris Consolidated investments and investment funds As of June 30, 2012, consolidated investment funds represented total invested assets of €104 billion (€96 billion at the end of 2011), corresponding to 236 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. As of June 30, 2012, the 21 consolidated real estate companies corresponded to total invested assets of €6,448 million (€6,689 million at the end of 2011), mainly in France and Germany. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of controlled investment funds and puttable instruments held by minority interest holders”. As of June 30, 2012, minority interests in controlled investment funds amounted to €5,406 million (€3,896 million as of December 31, 2011). Page 32 Consolidated financial statements___________________________________________________Half Year 2012 2.1.2. Proportionately consolidated companies June 30, 2012 December 31, 2011 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances 50.00 49.96 50.00 49.96 2.1.3. Main investments in companies accounted for using the equity method Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2012 December 31, 2011 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie (previously NSM Vie) 39.98 39.98 39.98 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd AXA Minmetals Assurance Co Ltd (a) PT AXA Mandiri Financial Services 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 45.00 50.00 51.00 49.00 Bharti AXA Life 26.00 26.00 26.00 26.00 Russia Reso Garantia (RGI Holdings B.V.) (b) 39.34 39.34 39.34 39.34 Asset Management Kyobo AXA Investment Managers Company Limited 50.00 47.91 50.00 47.77 (a) "AXA Minmetals Assurance Co Ltd" is accounted for using the equity method as its shareholders' agreements don't provide the Group with controlling power. (b) AXA's group share of interest in operating unit of Reso Garantia is 36.68% Investment funds and real estate entities accounted for using the equity method. As of June 30, 2012, real estate companies accounted for using the equity method represented total assets of €281 million (€306 million at the end of 2011) and investment funds accounted for using the equity method represented total assets of €3,697 million (€3,829 million at the end of 2011), mainly in the United States, Germany, Belgium, Switzerland and the United Kingdom. 2.2. Consolidated entities relating to specific operations Acacia The Acacia SPV was consolidated within the operations of AXA France Life & Savings. This structure was set up in order to improve AXA France Life & Savings assets / liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. This program was stopped in April 2012 and is no longer consolidated in AXA France Life & Savings operations. Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. Held assets amounted to €1,202 million as of June 30, 2012. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Page 33 Consolidated financial statements___________________________________________________Half Year 2012 Note 3 : Segment information Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holding companies" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The AXA's Chief Executive Officer and the Deputy Chief Executive Officer are both members of the Board of Directors. They are assisted by a Management Committee in the day-to-day operational management of the Group and by an Executive Committee to consider Group strategy. The Group has built up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium- sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries) and one operating component for the Direct business (previously included within countries and regions and now reported as a separate reporting unit). International Insurance: This segment’s operations include insurance products that specifically relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company, and the group Property & Casualty run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior accident years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to PartnerRe (ex Paris Ré). It also includes reinsurance activity managed by AXA Global Life and AXA Global P&C (ex AXA Cessions), which write reinsurance treaties of AXA entities after a selection of reinsurers. AXA Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes. Activities from both global lines of business are reported in International Insurance. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgages loans, savings) conducted primarily in France, Belgium, Switzerland, Germany and Central & Eastern Europe (Hungary, Slovakia and the Czech Republic). The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles including certain Special-Purpose Entities (SPE). Page 34 Consolidated financial statements___________________________________________________Half Year 2012 The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Page 35 Consolidated financial statements___________________________________________________Half Year 2012 3.1. Segmental consolidated statement of income June 30, 2012 Life & Savings Property & Casualty International Insurance Asset Management Banking Holding companies (a) Inter- segment eliminations Gross written premiums 27,903 16,363 1,759 (276) Fees and charges relating to investment contracts with no participating features 164 Revenues from insurance activities 28,067 16,363 1,759 (276) Net revenues from banking activities 233 0 (10) Revenues from other activities 575 28 146 1,734 2 (215) Revenues 28,642 16,391 1,904 1,734 236 0 (501) Change in unearned premiums net of unearned revenues and fees (1,353) (2,427) (276) 94 Net investment income 7,036 1,034 96 1 (1) 265 (408) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 496 6,659 6,227 189 (19) 7 27 (2) 21 80 (139) 0 2 (3) Change in investments impairment (269) (102) (5) (1) (14) Net investment result excluding financing expenses 13,922 1,103 125 19 (1) 192 (406) Technical charges relating to insurance activities (35,397) (9,272) (1,163) 135 Net result from outward reinsurance (106) (538) 5 66 Bank operating expenses (64) (0) Acquisition costs (1,712) (2,402) (189) 10 Amortization of the value of purchased business in force (47) Administrative expenses (1,386) (1,308) (198) (1,305) (205) (379) 152 Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (20) (47) (0) Other income and expenses (79) 4 5 (128) 22 64 (64) Other operating income and expenses (38,747) (13,563) (1,539) (1,433) (247) (316) 300 Income from operating activities before tax 2,464 1,504 215 319 (12) (124) (514) Income arising from investments in associates – Equity method 26 15 0 (0) 2 Financing debts expenses (77) (3) (1) (22) (9) (658) 481 Net income from operating activities before tax 2,413 1,516 213 297 (21) (780) (33) Income tax (595) (483) (77) (84) 12 274 33 Net operating income 1,818 1,033 137 213 (8) (506) Result from discontinued operations net of tax Net consolidated income after tax 1,818 1,033 137 213 (8) (506) Split between : Net consolidated income - Group share 1,797 1,017 135 152 (9) (506) Net consolidated income - Minority interests 21 16 1 61 1 (0) (a) Includes SPEs. (b) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders'equity. Page 36 (in Euro million) TOTAL 45,749 164 45,913 224 2,268 48,405 (3,962) 8,023 770 6,550 6,224 (390) 14,953 (45,696) (572) (64) (4,293) (47) (4,630) (0) (67) (175) (55,544) 3,852 42 (289) 3,605 (919) 2,687 2,687 2,586 101 Consolidated financial statements___________________________________________________Half Year 2012 June 30, 2011 Restated (a) Life & Savings Property & Casualty International Insurance Asset Management Banking Holding companies (b) Inter- segment eliminations Gross written premiums 27,037 15,502 1,695 (276) Fees and charges relating to investment contracts with no participating features 182 Revenues from insurance activities 27,220 15,502 1,695 (276) Net revenues from banking activities 272 0 (26) Revenues from other activities 659 38 136 1,823 3 (209) Revenues 27,879 15,540 1,831 1,823 275 0 (511) Change in unearned premiums net of unearned revenues and fees (1,190) (2,393) (241) 97 Net investment income 6,396 1,041 134 16 (1) 348 (351) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 1,317 3,777 3,261 258 55 9 (6) (4) (3) 780 (249) 0 15 (5) Change in investments impairment (151) (91) (4) (134) Net investment result excluding financing expenses 11,338 1,263 132 9 (1) 744 (336) Technical charges relating to insurance activities (30,875) (8,785) (1,029) 113 Net result from outward reinsurance (65) (469) (111) 74 Bank operating expenses (44) 0 Acquisition costs (a) (1,889) (2,319) (176) 11 Amortization of the value of purchased business in force (113) Administrative expenses (1,869) (1,235) (190) (1,391) (238) (283) 160 Change in tangible assets impairment (1) 0 (0) Change in goodwill impairment and other intangible assets impairment (16) (40) (1) Other income and expenses (9) 0 2 (104) 15 41 (35) Other operating income and expenses (34,836) (12,848) (1,504) (1,496) (269) (241) 322 Income from operating activities before tax 3,191 1,561 218 337 5 503 (428) Income arising from investments in associates – Equity method 26 6 0 (0) Financing debts expenses (48) (3) (4) (17) (9) (676) 437 Net income from operating activities before tax 3,168 1,564 213 320 (4) (173) 9 Income tax (a) (620) (429) (73) (91) 3 243 (9) Net operating income 2,549 1,135 140 229 (0) 69 Result from discontinued operations net of tax 6 93 Net consolidated income after tax 2,555 1,228 140 229 (0) 69 Split between : Net consolidated income - Group share 2,471 1,212 139 160 (1) 33 Net consolidated income - Minority interests 83 17 1 69 1 37 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Includes SPEs. (c) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareho lders'equity. Page 37 (in Euro million) TOTAL 43,959 182 44,141 246 2,449 46,836 (3,727) 7,582 2,360 3,588 3,257 (380) 13,149 (40,577) (571) (44) (4,373) (113) (5,045) (1) (57) (91) (50,872) 5,387 31 (320) 5,098 (976) 4,122 99 4,221 4,013 208 Consolidated financial statements___________________________________________________Half Year 2012 Note 4 : Assets and liabilities held for sale including discontinued operations 4.1. Main Half Year 2012 transactions AXA BANK SWITZERLAND AXA Bank Switzerland closed its operations on February, 29 2012 following the transfer of its customer portfolio to Bank zweiplus on January 1, 2012. The one-off costs associated with the closure of the Swiss branch booked as of December 31, 2011 amounted to €4 million. The costs of the 2012 residual activity were €1 million. Related assets and liabilities (€189 million) were classified as held for sale at December 31, 2011. “VIE POPULAIRE” PORTFOLIO Belgium Life & Savings agreed to sell its “Vie Populaire” portfolio to DELA. The deal, which is subject to regulatory approvals from the Netherland National Bank and the Belgium National Bank, is expected to be closed before the end of 2012. Related assets and liabilities (€325 million) are classified as held for sale at June 30, 2012. 4.2. Main 2011 transactions CANADA On September 23, 2011, AXA completed the disposal of its Canadian operations in Property & Casualty and Life & Savings insurance to Intact Financial Corporation for a total cash consideration of CAD 2.6 billion (or ca. €1.9 billion). In addition, AXA is entitled to receive up to CAD 100 million (or ca. €72 million) in contingent considerations based on profitability metrics over a period of 5 years. The disposal of the Canadian operations led to a net capital gain of €902 million (or €956 million gross of tax) in AXA Group’s net income as of December 31, 2011. At June 30, 2012, the Company received €+68 million linked to the sale of Canadian operations in respect of contingent consideration based on profitability metrics. The statement of income of the Canadian operations disposed was as follows as of June 30, 2011: (in Euro million) June 30, 2011 Revenues 828 Change in unearned premiums net of unearned revenues and fees (44) Net investment result excluding financing expenses 96 Other operating income and expenses (756) Income from operating activities before tax 125 Income arising from investments in associates - Equity method 0 Financing debts expenses (0) Income from operating activities before tax 125 Income tax (26) Net operating income 99 Split between : Net consolidated income - Group share 99 Net consolidated income - Minority interests 0 Page 38 Consolidated financial statements___________________________________________________Half Year 2012 The statement of cash flows of the Canadian operations disposed was as follows as of June 30, 2011: (in Euro million) June 30, 2011 Net cash provided / (used) by operating activities 62 Net cash provided / (used) by investing activities (42) Net cash provided / (used) by financing activities (7) NET CASH PROVIDED BY DISCONTINUED OPERATIONS 14 Page 39 Consolidated financial statements___________________________________________________Half Year 2012 Note 5 : Investments Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Insurance June 30, 2012 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro hedge and other derivatives 19,393 1,272 14,936 1,272 2.53% 0.22% 3,246 2,443 6.40% 22,639 1,272 17,379 1,272 Investment in real estate properties 20,665 16,208 2.74% 3,246 2,443 6.40% 23,911 18,651 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (a) (b) Debt instruments held for trading 335,507 29,559 293 335,507 29,559 293 56.74% 5.00% 0.05% 7,137 55 209 7,137 55 209 18.71% 0.14% 0.55% 342,645 29,615 502 342,645 29,615 502 Debt instruments (at cost) that are not quoted in an active market (c) 5,940 5,831 0.99% 7,121 7,121 18.66% 13,061 12,952 Debt instruments 371,300 371,190 62.78% 14,523 14,523 38.06% 385,823 385,713 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) 11,647 6,063 11,647 6,063 1.97% 1.03% 2,024 418 2,024 418 5.31% 1.09% 13,671 6,480 13,671 6,480 Equity instruments held for trading 40 40 0.01% 40 40 Equity instruments 17,750 17,750 3.00% 2,442 2,442 6.40% 20,192 20,192 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (a) Non controlled investment funds held for trading 6,468 4,638 6,468 4,638 1.09% 0.78% 189 149 373 189 149 373 0.50% 0.39% 0.98% 6,657 4,787 373 6,657 4,787 373 Non controlled investment funds 11,106 11,106 1.88% 711 711 1.86% 11,817 11,817 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,598 5,598 0.95% 1 1 0.00% 5,598 5,598 Macro hedge and other derivatives 1,206 1,206 0.20% (2,094) (2,094) 5.49% (888) (888) Financial investments 406,959 406,850 68.81% 15,583 15,583 40.84% 422,542 422,433 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro hedge and other derivatives 0 0 - 26,770 0 0 - 25,388 0.00% 0.00% - 4.29% - - - 21,300 8 - - - 20,120 8 - - - 52.73% 0.02% 0 0 - 48,070 8 0 0 - 45,508 8 Loans 26,771 25,389 4.29% 21,308 20,128 52.75% 48,079 45,517 Assets backing contracts where the financial risk is borne by policyholders 142,850 142,850 24.16% 142,850 142,850 INVESTMENTS 597,245 591,296 100.00% 40,137 38,154 100.00% 637,382 629,450 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 454,395 448,446 75.84% Life & Savings Property & Casualty 390,749 55,438 385,515 54,718 65.20% 9.25% International Insurance 8,209 8,214 1.39% (a) Use of fair value option. (b) Includes notably assets measured at fair value under the fair value option (c) Eligible to the IAS 39 Loans and Receivables measurement category (d) Mainly relates to mortgage loans and policy loans. Page 40 (in Euro million) % (value balance sheet) 2.76% 0.20% 2.96% 54.44% 4.70% 0.08% 2.06% 61.28% 2.17% 1.03% 0.01% 3.21% 1.06% 0.76% 0.06% 1.88% 0.89% 0.14% 67.11% 0.00% 0.00% - 7.23% 0.00% 7.23% 22.69% 100.00% Consolidated financial statements___________________________________________________Half Year 2012 Insurance December 31, 2011 Other activities Total Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro hedge and other derivatives 19,087 1,243 14,818 1,243 2.60% 0.22% 3,329 2,574 7.30% 22,417 1,243 17,392 1,243 Investment in real estate properties 20,330 16,061 2.82% 3,329 2,574 7.30% 23,660 18,635 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (a) (b) Debt instruments held for trading 325,510 25,775 188 325,510 25,775 188 57.20% 4.53% 0.03% 8,045 72 29 8,045 72 29 22.81% 0.20% 0.08% 333,554 25,847 217 333,554 25,847 217 Debt instruments (at cost) that are not quoted in an active market (c) 6,740 6,789 1.19% 4,364 4,364 12.37% 11,104 11,153 Debt instruments 358,213 358,262 62.96% 12,510 12,510 35.47% 370,723 370,772 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) 11,649 5,391 11,649 5,391 2.05% 0.95% 1,903 425 1,903 425 5.40% 1.21% 13,552 5,816 13,552 5,816 Equity instruments held for trading 35 35 0.01% 35 35 Equity instruments 17,075 17,075 3.00% 2,328 2,328 6.60% 19,404 19,404 Non controlled investment funds available for sale Non controlled investment funds designated as at fair value through profit or loss (a) Non controlled investment funds held for trading 6,672 5,010 6,672 5,010 1.17% 0.88% 179 166 374 179 166 374 0.51% 0.47% 1.06% 6,851 5,176 374 6,851 5,176 374 Non controlled investment funds 11,682 11,682 2.05% 719 719 2.04% 12,401 12,401 Other assets designated as at fair value through profit or loss, held by controlled investment funds 5,413 5,413 0.95% 1 1 0.00% 5,413 5,413 Macro hedge and other derivatives 1,283 1,283 0.23% (2,500) (2,500) 7.09% (1,218) (1,218) Financial investments 393,666 393,715 69.19% 13,057 13,057 37.03% 406,723 406,772 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro hedge and other derivatives - 0 - 26,107 - 0 - 25,050 - 0.00% - 4.40% - - - 21,406 12 - - - 19,621 12 - - - 55.64% 0.03% - 0 - 47,512 12 - 0 - 44,672 12 Loans 26,107 25,050 4.40% 21,418 19,634 55.68% 47,525 44,684 Assets backing contracts where the financial risk is borne by policyholders 134,230 134,230 23.59% 134,230 134,230 INVESTMENTS 574,333 569,056 100.00% 37,804 35,264 100.00% 612,137 604,321 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 440,103 434,826 76.41% Life & Savings Property & Casualty 378,060 53,759 373,471 53,070 65.63% 9.33% International Insurance 8,285 8,285 1.46% (a) Use of fair value option. (b) Includes notably assets measured at fair value under the fair value option (c) Eligible to the IAS 39 Loans and Receivables measurement category (d) Mainly relates to mortgage loans and policy loans. The exposure as of June 30, 2012 and December 31, 2011 to sovereign debt securities issued by governments and related in Greece, Ireland, Italy, Portugal and Spain, and classified as available for sale was as follows: (in Euro million)IssuerFair ValueAmortized Cost / Carrying valueUnrealized losses(Gross value)Unrealized losses (Net value)Fair ValueAmortized Cost / Carrying valueUnrealized losses (Gross value)Unrealized losses (Net value)Greece (a)- - - - 300 300 - - Ireland945 1,014 (69) (6) 970 1,112 (142) (24) Italy13,339 14,679 (1,341) (227) 13,883 16,136 (2,253) (400) Portugal573 942 (369) (54) 1,215 2,037 (822) (188) Spain6,470 7,729 (1,259) (308) 7,885 8,478 (592) (105) Total21,327 24,364 (3,038) (594) 24,255 28,064 (3,809) (716) June 30, 2012December 31, 2011(a) for controlled entities as of June 30, 2012 Net amounts correspond to amounts after the related impacts of deferred tax and shadow accounting on policyholders’ participation, deferred acquisition cost and value of purchased business in force and are presented at 100% share. Net amounts may evolve depending on the timing of realization of these potential losses and on the local regulatory environment. Greek government bonds that were subject to Private Sector Initiatives to support Greece were exchanged on March 12, 2012 against new Greek bonds representing 31.5% of initial nominal value, PSI notes, accrued interest notes and GDP-linked notes. The new Greek government bonds were disposed by the Group with no significant impacts. Page 41 (in Euro million) % (value balance sheet) 2.88% 0.21% 3.08% 55.19% 4.28% 0.04% 1.85% 61.35% 2.24% 0.96% 0.01% 3.21% 1.13% 0.86% 0.06% 2.05% 0.90% 0.20% 67.31% - 0.00% - 7.39% 0.00% 7.39% 22.21% 100.00% Consolidated financial statements___________________________________________________Half Year 2012 In addition debt securities issued by government and related in Greece, Ireland, Italy, Portugal and Spain classified under Fair value option amounted to €398 million as of June 30, 2012 and €737 million as of December 31, 2011. 5.2. Investment in real estate properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million) June 30, 2012 December 31, 2011 Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 17,211 (1,741) (534) 14,936 19,394 16,957 (1,656) (483) 14,818 19,088 Banking and other activities 3,011 (207) (361) 2,443 3,246 3,103 (191) (339) 2,574 3,329 All activities 20,223 (1,948) (895) 17,379 22,640 20,061 (1,847) (822) 17,392 22,417 Fair value is generally based on valuations performed by qualified property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million) Impairment - Investment in real estate properties Amortization - Investment in real estate properties June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011 Opening value 822 668 1,847 1,737 Increase for the period 73 163 123 248 Write back following sale or reimbursement (21) (0) (8) (143) Write back following recovery in value (10) (11) Others (a) 30 2 (13) 4 Closing value 895 822 1,948 1,847 (a) Includes change in scope and the effect of changes in exchange rates. Page 42 Consolidated financial statements___________________________________________________Half Year 2012 5.3. Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: June 30, 2012 December 31, 2011 INSURANCE Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 316,677 5,860 9,011 5,645 337,000 5,970 10,848 6,503 337,000 5,860 10,848 6,503 26,279 187 1,958 982 5,956 77 121 124 313,472 6,791 8,988 6,020 326,306 6,742 10,886 6,820 326,306 6,791 10,886 6,820 June 30, 2012 December 31, 2011 BANKING AND OTHER ACTIVITIES Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 7,432 7,121 2,795 7,240 7,121 2,838 7,240 7,121 2,838 78 - 288 269 - 244 8,489 4,364 2,762 8,184 4,364 2,750 8,184 4,364 2,750 Non controlled investment funds available for sale 187 189 189 2 0 175 180 180 June 30, 2012 December 31, 2011 TOTAL Amortized cost (a) Fair value Carrying value (b) Unrealized gains Unrealized losses Amortized cost (a) Fair value Carrying value (b) Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale Non controlled investment funds available for sale 324,109 12,981 11,805 5,832 344,240 13,091 13,686 6,692 344,240 12,981 13,686 6,692 26,356 187 2,246 984 6,226 77 365 124 321,961 11,155 11,749 6,195 334,490 11,106 13,636 7,000 334,490 11,155 13,636 7,000 (a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment (details in Note 5.4). See also table 5.4.1 Breakdown of financial assets subject to impairment. Page 43 Unrealized gains 20,749 97 2,010 895 Unrealized gains 36 - 281 5 Unrealized gains 20,785 97 2,291 900 (in Euro million) Unrealized losses 7,915 146 111 96 (in Euro million) Unrealized losses 340 - 293 0 (in Euro million) Unrealized losses 8,255 146 404 96 Consolidated financial statements___________________________________________________Half Year 2012 5.4. Financial assets subject to impairment 5.4.1. Breakdown of financial assets subject to impairment (excluding investment in real estate properties) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2012 December 31, 2011 Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (a) Impairment Cost after impairment but before revaluation to fair value (b) Debt instruments available for sale 324,723 (1,386) 323,337 19,308 342,645 323,801 (2,474) 321,327 Debt instruments (at cost) that are not quoted in an active market 12,957 12,957 (5) 12,952 11,144 11,144 Debt instruments 337,680 (1,386) 336,294 19,302 355,596 334,945 (2,474) 332,471 Equity instruments available for sale 14,524 (2,716) 11,808 1,863 13,671 14,635 (2,883) 11,752 Non controlled investment funds available for sale 6,938 (1,106) 5,832 825 6,657 7,336 (1,141) 6,195 Loans Held To Maturity Loans Available For Sale 0 0 Loans at cost (c) 46,600 (583) 46,017 (509) 45,508 45,658 (610) 45,048 Loans 46,600 (583) 46,017 (509) 45,508 45,658 (610) 45,048 TOTAL 405,742 (5,791) 399,951 21,482 421,432 402,575 (7,108) 395,467 (a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Including policy loans. Page 44 Revaluation to fair value 12,227 9 12,237 1,800 656 (377) (377) 14,316 (in Euro million) Carrying value 333,554 11,153 344,707 13,552 6,851 44,672 44,672 409,783 Consolidated financial statements___________________________________________________Half Year 2012 5.4.2. real estate properties) Change in impairment on invested assets (excluding investment in January 1, 2012 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 2,474 59 (1,160) (1) 14 Impairment - Equity instruments 2,883 276 (438) (5) Impairment - Non controlled investment funds 1,141 35 (48) (22) Impairment - Loans 610 115 (3) (99) (41) TOTAL 7,108 485 (1,649) (99) (54) (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. January 1, 2011 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) Impairment - Debt instruments 1,567 1,175 (240) (43) 15 Impairment - Equity instruments 2,848 773 (764) 26 Impairment - Non controlled investment funds 1,107 87 (76) 23 Impairment - Loans 521 239 (13) (87) (50) TOTAL 6,043 2,273 (1,092) (130) 14 (a) Mainly relates ot changes in the scope of consolidation and impact of changes in exchange rates. 5.5. Financial assets recognized at fair value Among invested financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €414.1 billion as of June 30, 2012 (€400.2 billion as of December 31, 2011): - €216.2 billion were determined directly by reference to an active market (€192.4 billion at the end of 2011), i.e. level 1 assets and - €197.9 billion related to assets not quoted in an active market/no active market (€207.8 billion at the end of 2011), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10.6 billion (€10.2 billion at the end of 2011). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. As of June 30, 2012, some assets were reclassified out of level 2 into level 1. This was mainly related to some corporate bonds for which bid ask spreads further narrowed throughout the period. Page 45 (in Euro million) June 30, 2012 1,386 2,716 1,106 583 5,791 (in Euro million) December 31, 2011 2,474 2,883 1,141 610 7,108 Consolidated financial statements___________________________________________________Half Year 2012 Since June 30, 2010, some government bonds have been transferred out of level 1 into level 2 because of an increased illiquidity observed in the market for such instruments. The Long Term Refinancing Operation launched in December 2011 by European Central Bank brought liquidity in the market. However, since it is a temporary policy, the classification as of June 30, 2012 of those government bonds was maintained similar to the one as of December 31, 2011, although the quantitative market indications have shown an improved liquidity. Therefore, government bonds issued by Ireland, Portugal, Spain, Italy and Belgium remained classified as level 2 as of June 30, 2012. Page 46 Consolidated financial statements___________________________________________________Half Year 2012 Note 6 : Shareholders’ equity and minority interests 6.1. Impact of transactions with shareholders The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in Note 1. 6.1.1. Change in shareholders’ equity Group share for the first half of 2012 a) Share capital and capital in excess of nominal value During the first half of 2012, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+16 million b) Treasury shares As of June 30, 2012, the Company and its subsidiaries owned approximately 16 million AXA shares, representing 0.7% of the share capital, a decrease of 1 million shares compared to December 31, 2011. As of June 30, 2012, the carrying value of treasury shares and related derivatives was €368 million. This figure included €1.0 million relating to AXA shares held by consolidated mutual funds (81,965 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2012, 2.0 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €43 million and their market value €21 million at the end of June 2012. c) Undated subordinated debt and related financial expenses As described in Note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2012, the change in other reserves was due to €-148 million in interest expense related to the undated subordinated debt (net of tax), and €+135 million in exchange rate differences. Page 47 Consolidated financial statements___________________________________________________Half Year 2012 As of June 30, 2012 and December 31, 2011, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2012 December 31, 2011 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M€ 6.0% 375 375 375 375 December 22, 2004 - 250 M€ 6.0% 250 250 250 250 January 25, 2005 - 250 M€ 6.0% 250 250 250 250 July 6, 2006 - 1000 M€ 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M£ 6.7% 500 614 500 593 July 6, 2006 - 350 M£ 6.7% 350 434 350 419 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 483 600 469 November 7, 2006 - 150 M A$ 7.5% 150 121 150 117 December 14, 2006 - 750 M US$ 6.5% 750 593 750 577 December 14, 2006 - 750 M US$ 6.4% 750 593 750 577 October 5, 2007 - 750 M€ 6.2 % 750 746 750 746 October 16, 2007 - 700 M£ 6.8 % 700 865 700 835 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 270 27,000 269 Undated notes - (of which 500 M US$ at 7.1%) in US$ 875 695 875 676 Sub-Total undated subordinated debt 7,944 7,809 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 8,038 7,903 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-1,982 million as of June 30, 2012; €-1,834 million as of December 31, 2011. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At the shareholders’ meeting held on April 25, 2012, shareholders approved a dividend distribution of €1,626 million with respect to the 2011 financial year. 6.1.2. Change in shareholders’ equity Group share for the first half of 2011 a) Share capital and capital in excess of nominal value During the first half of 2011, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+22 million b) Treasury shares As of June 30, 2011, the Company and its subsidiaries owned approximately 18 million AXA shares, representing 0.8% of the share capital, a decrease of 8 million shares compared to December 31, 2010, impacting shareholders’ equity by €+107 million. As of June 30, 2011, the carrying value of treasury shares and related derivatives was €388 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (51,158 shares) not backing contracts where financial risk is borne by policyholders. Page 48 Consolidated financial statements___________________________________________________Half Year 2012 As of June 30, 2011, 2.3 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €48 million and their market value €35 million at the end of June 2011. c) Undated subordinated debt and related financial expenses During the first half of 2011, the change in other reserves was due to €-140 million in interest expense related to the undated subordinated debt (net of tax), and €-249 million in exchange rate differences. d) Dividends paid At the shareholders’ meeting held on April 27, 2011, shareholders approved a dividend distribution of €1,601 million with respect to the 2010 financial year. e) Transaction AXA APH On April 1, 2011, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. This transaction had an impact on AXA Group of €0.7 billion realized capital gains recorded in net income regarding the sale of its Australian and New Zealand operations and €2.5 billion reduction in shareholders’ equity mainly related to the buy-out of minority interests in AXA APH Asian operations in accordance with the application of the new accounting principles on Business Combinations. The ownership increase in a controlled company while maintaining the control is accounted for in shareholders’ equity and no additional goodwill is recognized. 6.2. Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2012 a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The increase of gross unrealized gains and losses on assets available for sale totaled €+7,650 million, of which €+7,601 million higher unrealized capital gains on debt securities was mainly driven by interest rates and corporate spreads decrease. The following table shows reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2012 December 31, 2011 Restated (a) Gross unrealized gains and losses (b) 22,872 15,221 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (11,611) (6,855) Shadow accounting on Deferred Acquisition Costs (c) (633) (416) Shadow accounting on Value of purchased Business In force (579) (554) Unallocated unrealized gains and losses before tax 10,049 7,396 Deferred tax (3,026) (2,157) Unrealized gains and losses (net of tax) - Assets available for sale 7,023 5,239 Unrealized gains and losses (net of tax) - Equity accounted companies (d) (15) (21) UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 7,008 5,218 Minority interests' share in unrealized gains and losses (e) (16) 3 Translation reserves (f) (428) (384) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (d) 6,563 4,838 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Unrealized gains on total available for sale invested assets including loans. (c) Net of shadow accounting on unearned revenues and fees reserves. (d) Including unrealized gains and losses on assets from discontinued operations (e) Including foreign exchange impact attributable to minority interests. (f) Group share. Page 49 Consolidated financial statements___________________________________________________Half Year 2012 In the half year leading up to June 30, 2012, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2012: (in Euro million) June 30, 2012 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 6,471 3,943 2,753 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (4,151) (3,436) (2,250) Shadow accounting on Deferred Acquisition Costs (b) (81) (10) Shadow accounting on Value of purchased Business In force (61) Unallocated unrealized gains and losses before tax 2,238 507 432 Deferred tax (450) (162) (91) Unrealized gains and losses (net of tax) - Assets available for sale 1,788 344 341 Unrealized gains and losses (net of tax) - Equity accounted companies 4 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 1,792 344 341 Minority interests' share in unrealized gains and losses (c) (5) 0 Translation reserves (d) (174) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 1,787 345 167 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2012 and December 31, 2011 broke down as follows: (in Euro million) June 30, 2012 December 31, 2011 Restated (a) Unrealized gains and losses (net of tax) 100%, opening 5,218 6,736 Transfer in the income statement on the period (b) (189) (742) Investments bought in the current accounting period and changes in value 1,924 (533) Foreign exchange impact 51 59 Change in scope and other changes 4 (302) Unrealized gains and losses (net of tax) 100%, closing 7,008 5,218 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (b) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discou nt premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €+647 million (of which €+609 million from group share and €+37 million from minority interest rates) as of June 30, 2012. The group share translation reserves movement (€+609 million) was mainly driven by the United States (€+222 million), the United Kingdom (€+126 million), Switzerland (€+87 million), Mexico (€+67 million) and Hong Kong (€+54 million), partly offset by Japan (€-99m) and the Company (€-89 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. Page 50 Consolidated financial statements___________________________________________________Half Year 2012 c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2012 amounted to €-933 million net group share mostly due to the drop in discount rates. 6.2.2. Comprehensive income for the first half of 2011 As described in Note 1.2.1, comprehensive income for the first half of 2011 was retrospectively restated for the voluntary change in accounting policy of deferred acquisition costs. a) shareholders’ equity Reserve related to changes in fair value of available for sale financial instruments included in The decrease of gross unrealized gains and losses on assets available for sale totaled €-4,915 million, mainly driven by: €-1,516 million lower unrealized capital gains on equity securities, mainly from the sale of Taikang Life stake, as well as other realized capital gains; €-3,484 million on debt instruments primarily due to interest rates increase mainly impacting Japan, France, and Belgium. b) Translation reserve The total impact of foreign exchange rate movement was €-1,737 million (of which €-1,365 million from group share and €- 372 million from minority interest rates) as of June 30, 2011. The group share translation reserves movement (€-1,365 million) was mainly driven by the United States (€-699 million), Japan (€-506 million), the United Kingdom (€-211 million), partly offset by the Company (€+410 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2011 amounted to €+12 million net group share. 6.3. Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2012 Minority interests increased by €112 million to €2,479 million driven by: Movements in the comprehensive income for the period, mainly: Net income attributable to minority interests for €+101 million; - Change in translation reserves for €+37 million; - Reserves relating to changes in fair value through shareholders’ equity for €+23 million. Transaction with minority interests’ holders, mainly: - Dividend payout to minorities for €-72 million. 6.3.2. Change in minority interests for the first half of 2011 The €1,694 million decrease in minority interests to €2,473 million was due to transactions with shareholder for €-1,501 million mainly related to AXA APH transaction and comprehensive income for €-193 million. The comprehensive income for the period notably included the following: Net income attributable to minority interests for €+208 million; - Change in translation reserves for €-372 million; - Reserves relating to changes in fair value through shareholders’ equity for €-29 million. Page 51 Consolidated financial statements___________________________________________________Half Year 2012 Note 7 : Financing debt (in Euro million) Carrying value June 30, 2012 December 31, 2011 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated Notes, 5.25% due 2040 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus Notes, 7,70 %, due 2015 MONY Life 11,25% Surplus Notes due 2024 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 6,646 2,007 1,450 1,300 951 403 536 159 158 1 360 139 6,452 1,970 1,419 1,300 923 389 451 155 154 1 364 143 Undated Subordinated debt fixed rate 221 221 AXA-MPS Vita and Danni 108 108 Subordinated Notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 28 28 Subordinated debt 7,301 7,108 AXA Euro Medium term Notes, 6.0% due through 2013, and BMTN 1,850 850 1,866 866 Euro Medium term Notes, due through 2015 1,000 1,000 AXA Financial 275 268 Senior notes , 7%, due 2028 275 268 AXA UK Holdings GRE : Loan Notes, 6.625%, due 2023 188 188 183 183 Other financing debt instruments issued (less than €100 million) 176 189 Other financing debts instruments issued under euro 100 million 148 137 Derivatives relating to other financing debts instruments issued (a) 27 52 Financing debt instruments issued 2,489 2,506 AXA 832 806 Other financing debts owed to credit institutions (under €100 million) 1 2 Financing debt owned to credit institutions 833 807 TOTAL FINANCING DEBT (b) 10,624 10,421 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Page 52 Consolidated financial statements___________________________________________________Half Year 2012 Note 8 : Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: • number of outstanding ordinary shares during the period. • The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average (in Euro million) (a) June 30, 2012 June 30, 2011 Restated (b) Net income Group share 2,586 4,013 Undated subordinated debt financial charge (148) (140) Net income including impact of undated subordinated debt A 2,438 3,873 Weighted average number of ordinary shares (net of treasury shares) - opening 2,340 2,294 Increase in capital (excluding stock options exercised) (c) 0 0 Stock options exercised (c) 0 0 Treasury shares (c) 0 4 Share purchase program (c) Weighted average number of ordinary shares B 2,340 2,298 BASIC NET INCOME PER ORDINARY SHARE C = A / B 1.04 1.69 Potentially dilutive instruments : Stock options 1 3 Other 2 1 Fully diluted - weighted average number of shares (d) D 2,343 2,303 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 1.04 1.68 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the voluntary change in accounting policy on deferred acquisition costs. (c) Weighted average. (d) Taking into account the impact of potentially dilutive instruments. In 2012, net income per ordinary share stood at €1.04 on a basic calculation, as well as on a fully diluted basis. In 2011, net income per ordinary share stood at €1.69 on a basic calculation, of which €1.64 attributable to continuing operations and €0.04 from discontinued operations. Fully diluted net income per share stood at €1.68, of which at €1.64 and €0.04 respectively. Before the voluntary change in accounting policy on deferred acquisition costs, 2011 net income per ordinary share stood at €1.68 on a basic calculation, of which €1.64 attributable to continuing operations and €0.04 from discontinued operations. Fully diluted net income per share stood at €1.68, of which at €1.63 and €0.04 respectively. Page 53 Statutory auditors’ review report on the 2012 Half Year Financial Information PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2012 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2012 ; the verification of the information contained in the half-year management report. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 3, 2012 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Statement of the person responsible for the Half Year Financial Report Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2012 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 6, 2012. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations | Semestriel, 2012, Insurance, AXA | write me a financial report |
Semestriel | 2,013 | Insurance | AXA | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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| Half Year Financial Report June 30, 2013 Table of contents I Activity Report ............................................................. II Consolidated financial statements ............................ III Statutory auditors’ review report on the 2013 Half Year Financial Information ............................................ IV Statement of the person responsible for the Half Year Financial Report .................................................... I Activity Report / Half Year 2013 Half Year 2013 Financial Report ACTIVITY REPORT 1 I I ACTIVITY REPORT Cautionary statements concerning statements forward-looking This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2012, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. 2 Half Year 2013 Financial Report ACTIVITY REPORT Financial Market conditions in the first half of 2013 For much of the first half of 2013, global stock markets pushed ahead to deliver strong positive returns. Underpinning markets was a sense of growing optimism over economic prospects of the United States as well as a widespread feeling that policymakers were managing to contain the sovereign debt crisis in Europe. Emerging markets fared less well than developed, with the slowdown in China acting as a brake on growth. In the early hours of 2013, an agreement was reached over the extension of tax cuts and a delay of the US government debt ceiling negotiations – the first part of the so-called US “fiscal cliff”. This was the key upward driver of world equity markets early in the year. However, with several developed markets reaching multi-year highs in May, anxieties about the potential withdrawal of monetary stimulus in the US led to a sell-off later on in the month and into June, eroding some of the earlier year gains. In the US, the Federal Reserve’s Quantitative Easing program, robust corporate results and a recovering economy, propelled equity markets upwards for much of the period, with equity markets hitting a series of record highs. The European political backdrop was periodically negative for the markets. Italy was left without the formation of a government after its election and Cyprus was forced to negotiate a bailout with the European Union, the International Monetary Fund and the European Central Bank (ECB) as its banking system was close to collapse. Economic news remained very weak; however, investors seemed to look past the -0.2% contraction in Q1 GDP, encouraged by at least a more stable environment, as well as support in the form of an ECB interest rate cut. Japanese equities outperformed all other major markets over the period, boosted by a steady stream of action by Prime Minister Shinzo Abe, with a program aimed at tackling deflation being well received. The announcement of a US$116 billion spending program is hoped to raise Japan’s GDP by around 2%. After seeing steep rises and record highs, the Japanese equity suffered a steep sell-off toward the end of the period. This came as the Yen regained some of its earlier strength and exporters’ shares faced profit-taking. Emerging markets were affected by this environment. After showing signs of renewed vigor early in the year, China’s economic data disappointed during the second quarter. In particular, the manufacturing sector experienced a notable downturn in confidence. Meanwhile, growing signs of a credit crunch in China, causing interbank lending rates to spike, continued to be ignored by the People’s Bank of China. Stock Markets Equity markets performed well in the first half of this year. Earnings were recovering and ample liquidity encouraged repricing risk. The MSCI World Index increased by 10% with good performance in the United States and Japan which benefitted from both ultra-expansionary policies pursued by the central bank and the weak Yen. The Dow Jones Industrial Average Index in New York increased by 14% in the first half of 2013 and the S&P 500 index by 13%. The FTSE 100 Index in London increased by 5% in the first half of 2013. The CAC 40 index in Paris increased by 3% and the Nikkei index in Tokyo appreciated by 32%. The MSCI G7 Index increased by 12% and the MSCI Emerging Index decreased by 6%. The S&P 500 implied volatility Index decreased from 18.0% to 16.9% between December 31, 2012 and June 30, 2013. Bond Markets The US 10-year T-bond ended the half year at 2.52%, an increase of 74 bps compared to December 31, 2012. The 10-year German Bund yield increased by 41 bps to 1.73%. The France 10-year government bond yield increased by 35 bps to 2.35%. The 10-year Japanese government bond ended the first quarter of 2013 at 0.55%, a decrease of 22 bps compared to December 31, 2012. The 10-year Belgium government bond ended the half year at 2.64%, a 58 bps increase compared to December 31, 2012. Half Year 2013 Financial Report 3 I I ACTIVITY REPORT Regarding the evolution of 10-year government bonds on European peripheral countries: Italy ended the half year at 4.55% (an increase of 5 bps compared to December 31, 2012), Spain ended the half year at 4.77% (a decrease of 50 bps compared to December 31, 2012), Greece ended the half year at 10.5% (a decrease of 140 bps compared to December 31, 2012), Ireland ended the half year at 4.10% (a decrease of 100 bps compared to December 31, 2012), Portugal ended the half year at 6.45% (a decrease of 56 bps compared to December 31, 2012). In Europe, the iTRAXX Main spreads increased by 2 bps compared to December 31, 2012 and ended half year at 119 bps while the iTRAXX Crossover decreased by 5 bps to 477 bps. In the United States, the CDX Main spread Index decreased by 7 bps to 87 bps. Exchange rates In this context, the Euro appreciated against main currencies except the Dollar. On an average rate basis, the US Dollar decreased by 1% against the Euro (the US Dollar remained fairly stable at $1.30 over the first half of 2012 and 2013). The Yen decreased by 8% against the Euro (from Yen 104.2 over the six months to March 31, 2012 used for half year 2012 accounts to Yen 113.03 over the six months to March 31, 2013 used for half year 2013 accounts). The Pound Sterling decreased by 3.7% (from £0.82 over the first half of 2012 to £0.85 over the first half of 2013) and the Swiss Franc decreased by 2% against the Euro (from CHF 1.20 over the first half of 2012 to CHF 1.23 over the first half of 2013). 4 Half Year 2013 Financial Report ACTIVITY REPORT Operating highlights Significant acquisitions AXA AND HSBC LONG-TERM PARTNERSHIP IN PROPERTY & CASUALTY IN ASIA AND LATIN AMERICA On March 7, 2012, AXA and HSBC announced they had entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in China, India and Indonesia. On November 5, 2012, AXA announced it has completed the acquisition of HSBC’s P&C businesses in Hong Kong and Singapore, and that it has consequently launched its exclusive P&C bancassurance cooperation with HSBC in these countries. On April 1, 2013, AXA finalised the acquisition of HSBC’s P&C operations in Mexico and launched subsequently the exclusive P&C bancassurance cooperation in this country. The P&C bancassurance cooperation in China, India and Indonesia will be launched in due course. AXA TO BUY 50% OF TIAN PING On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited ("Tian Ping") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces. Under the terms of the agreement and subject to regulatory approval, AXA will buy 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 237 million1) and subscribe to a dedicated capital increase for RMB 2.0 billion (or Euro 248 million1) to support future growth. AXA and Tian Ping's current shareholders will jointly control Tian Ping. AXA’s existing Chinese P&C operations are expected to be integrated within the new joint venture. In addition, AXA expects to invest Euro Ca. 0.3 billion over the first 3 years of operations to help further develop the company. AXA should become the largest foreign Property & Casualty insurer in China and consolidate its position as largest international P&C insurer in Asia (excluding Japan). This transaction is subject to customary closing conditions, including the receipt of regulatory approval. Significant disposals AXA ENTERS INTO EXCLUSIVITY IN CONNECTION WITH THE POTENTIAL SALE OF A MAJORITY STAKE IN AXA PRIVATE EQUITY On March 22, 2013, AXA announced that its asset management subsidiary, AXA Investment Managers (“AXA IM”) had received an irrevocable offer from an investor group for its entire stake in AXA Investment Managers Private Equity SA (“AXA Private Equity”). 1 EUR 1 = RMB 8.072 as of April 22, 2013 Half Year 2013 Financial Report 5 I I ACTIVITY REPORT The transaction would enable AXA to monetize its interest in AXA Private Equity, a business successfully developed by the Group since 1996, and would provide a strong foundation for the next growth phase of one of Europe’s leading private equity firms. Upon the completion of the proposed transaction, AXA Private Equity’s voting share capital would be held as follows: AXA Private Equity’s management and employees: 40.00% External investors: 33.14% AXA Group: 26.86% The transaction would value AXA Private Equity at Euro 510 million for 100%. The sale of AXA IM’s entire stake would result in AXA IM receiving a total consideration up to Euro 488 million. The consideration would be divided into an upfront payment of approximately Euro 348 million and a deferred consideration up to Euro 140 million, to be paid in instalments subject to achieving certain targets and meeting certain conditions. The proposed transaction is subject to customary conditions, including obtaining required regulatory approvals and should be finalized before the end of Q3 2013. AXA FINANCIAL SIGNS CLOSED MONY PORTFOLIO TRANSACTION WITH PROTECTIVE FOR USD 1.06 BILLION On April 10, 2013, AXA announced it had entered into definitive agreements with Protective Life Corporation (“Protective”) to sell MONY Life Insurance Company (“MONY”) and to reinsure an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (“MLOA”) primarily prior to 2004. Under the terms of the agreements and assuming a closing date of October 1, 2013, the total cash consideration will be USD 1.06 billion (or Euro 0.82 billion1). This consideration corresponds to implied 2012 multiples of 12x IFRS underlying earnings and 1.7x IFRS TNAV2. In 2004, AXA Financial acquired The MONY Group Inc. and its subsidiaries, including MONY, MLOA, U.S. Financial Life Insurance Company and Advest3 for USD 1.5 billion. Subsequent to the acquisition, most new business was written out of other AXA Financial subsidiaries and MONY/MLOA were effectively placed in run- off, with the exception of some new business at MLOA, which is excluded from the transaction. AXA is therefore disposing of a run-off mortality book primarily underwritten before 2004, with USD 10.5 billion (or Euro 8.0 billion) of statutory liabilities as of end of 2012. Other SUBORDINATED DEBT On January 17, 2013, AXA announced the issuance of USD 850 million undated subordinated debt (5.50% annual coupon, fixed for life) and on January 18, 2013 the issuance of €1 billion subordinated debt due 2043 (5.125% annual coupon, fixed until the first call date in July 2023 and floating thereafter with a step up of 100 basis points), to anticipate the refinancing of part of subordinated debt instruments maturing on January 1, 2014. Both transactions have been structured to comply with the expected eligibility criteria for a Tier 2 capital treatment under Solvency II. 1 EUR 1 = USD 1.29, as of April 5, 2013. 2 IFRS Tangible Net Asset Value = IFRS shareholders’ equity + off balance sheet net unrealized capital gains and losses – net intangible assets. 3 In 2005, AXA sold MONY’s brokerage subsidiary Advest to Merrill Lynch for USD 0.4 billion. 6 Half Year 2013 Financial Report ACTIVITY REPORT AXA RATING On April 30, 2013, Moody’s Investors Services reaffirmed the Aa3 insurance financial strength ratings of AXA’s main operating subsidiaries, maintaining a negative outlook. On May 3, 2013, Fitch reaffirmed all AXA entities' Insurer Financial Strength ratings at 'AA-', maintaining a negative outlook. On May 22, 2013, S&P reaffirmed long-term ratings on AXA Group core subsidiaries at 'A+' with a stable outlook. Related-party transactions During the first half of the fiscal year 2013, there were (1) no modifications to the related-party transactions described in Note 28 "Related-Party transactions" of the audited consolidated financial statements for the fiscal year ended December 31, 2012 included in the full year 2012 Registration Document (pages 312 and 313) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2013, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2013. Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 "Risk factors" included in the full year 2012 Registration Document (respectively on pages 140 to 142 and pages 143 to 155) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2012 Registration Document remains valid in all material respects at the date of this Report regarding the appreciation of the major risks and uncertainties affecting the Group at June 30, 2013 and which management expects may affect the Group during the remainder of 2013. Events subsequent to June 30, 2013 There have been no subsequent events to June 30, 2013. Half Year 2013 Financial Report 7 I I ACTIVITY REPORT Revenues & Earnings summary Consolidated gross revenues HY 2013 HY 2012 FY 2012 Life & Savings 29,603 28,607 55,016 o/w. Gross written premiums o/w. Fees and revenues from investment contracts with no participating feature Property & Casualty 28,909 133 16,497 27,889 164 16,173 53,572 334 28,315 International Insurance 1,909 1,825 2,987 Asset Management 1,741 1,575 3,343 Banking (b) 293 226 466 Holdings and other companies (c) 0 0 0 TOTAL 50,044 48,405 90,126 Revenues are disclosed net of intercompany eliminations. (a) Changes are on a comparable basis. (b) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of options and derivatives, net banking revenues and total consolidated revenues would respectively amount to €291 million and €50,042 million for half year 2013 and €460 million and €90,120 million for full year 2012. (c) Includes notably CDOs and real estate companies. Consolidated gross revenues for half year 2013 reached €50,044 million, up 3.4% compared to half year 2012. The restatements to a comparable basis were mainly driven by the exclusion of the appreciation of Euro against most of major currencies (€-600 million or -1.2 points) and by the impact of the acquisition of ERGO DAUM in South Korea in 2012 (€+30 million or +0.1 point). On a comparable basis, gross consolidated revenues were up 4.4%. LIFE & SAVINGS ANNUAL PREMIUM EQUIVALENT HY 2013 HY 2012 FY 2012 TOTAL 3,310 3,064 6,170 France 690 641 1,378 United States 655 599 1,244 United Kingdom 365 283 535 Japan 240 269 598 Germany 218 258 454 Switzerland 310 256 374 Belgium 94 119 175 Central & Eastern Europe 55 78 136 Mediterranean and Latin American Region 227 190 402 Hong Kong 215 180 408 South-East Asia, India and China 237 190 463 Mature markets 2,773 2,590 5,109 High growth markets 537 474 1,061 (a) Changes are on a comparable basis. 8 Half Year 2013 Financial Report (in Euro million) HY 2013 / HY 2012 (a) 5.1% 2.2% 2.7% 11.8% 29.9% n.a. 4.4% (in Euro million) HY 2013/HY 2012 (a) 9.3% 5.4% 10.7% 33.4% 3.4% 15.6% 23.6% 20.9% 28.8% 19.4% 21.4% 27.4% 8.3% 14.8% ACTIVITY REPORT Total Life & Savings New Business APE amounted to €3,310 million, up 8% on a reported basis or up 9% on a comparable basis. This was mainly driven by the United Kingdom, the United States, Switzerland, South- East Asia, India and China, partly offset by Belgium, Germany and Central & Eastern Europe. High growth markets APE increased by 15% as strong growth in South-East Asia, India and China (+27% or €+52 million) and Hong Kong (+21% or €+38 million) was partly offset by Central & Eastern Europe (-29% or €-22 million), negatively impacted by regulatory developments in Poland and the focus on higher margin products in Czech Republic. The United Kingdom APE increased by €94 million (+33%) to €365 million reflecting higher sales of Unit- Linked products (+44% or €+68 million) as a consequence of large Corporate pension Investment schemes underwritten at the beginning of the year, as well as higher Mutual Fund sales through the Elevate wrap platform (+24% or €+25 million). The United States APE increased by €64 million (+11%) to €655 million reflecting higher sales of Unit-Linked products as a consequence of both higher (i) non GMxB investment only product sales (+21% or €+24 million) in the wholesale channel, and (ii) fixed and floating rate GMxB product sales (+23% or €+35 million). Switzerland APE increased by €61 million (+24%) to €310 million driven by strong G/A Protection & Health sales (+28% or €+66 million), in particular in Group Life business reflecting an exceptional growth in full coverage insurance contracts. South-East Asia, India and China APE increased by €52 million (+27%) to €237 million mainly driven by (i) China (+28 million) reflecting higher sales of G/A Protection & Health products mainly through the newly launched joint-venture ICBC-AXA Life and (ii) Thailand (€+19 million) driven by sales initiatives through the bancassurance channel. Hong Kong APE increased by €38 million (+21%) to €215 million mainly driven by higher sales of Unit-Linked products (+57% or €+31 million) reflecting the establishment of a wider active broker network, while G/A Protection & Health sales were stable demonstrating a shift in mix towards Pure Protection and Health products. Mediterranean and Latin American Region APE increased by €37 million (+19%) to €227 million mainly due to mature markets (€+34 million) reflecting a better performance of Unit-Linked products, mainly at AXA MPS, in line with the strategy to focus on improving the business mix. France APE increased by €36 million (+5%) mainly driven by (i) an increase in Unit-Linked sales (+50% or €+45 million) driven by Group Retirement and Individual Savings, (ii) higher sales of G/A Protection & Health products with the launch of new products and commercial campaigns, partly offset by (iii) lower G/A Savings sales (-5% or €-13 million) in line with the decline of the French traditional savings market. Belgium APE decreased by €25 million (-21%) to €94 million driven by (i) a decrease in G/A Savings (-55% or €-49 million) mainly due to lower “Crest Classic” sales in the context of focusing on improving business mix, partly offset by the launch of a new bundled product and (ii) lower sales in G/A Protection & Health (-66% or €-18 million) after the production of a large contract in June 2012. This was partly offset by the higher focus on Unit-Linked business with the launch of new products generating €42 million of APE. Germany APE decreased by €40 million (-16%) to €218 million driven by (i) G/A Protection & Health (-14% or €-17 million) due to the non-repeat of high Health sales in the first half of 2012 in anticipation of a change in regulation capping brokers’ commissions, (ii) G/A Savings (-24% or €-14 million) due to a decrease in single premium short term investment products and (iii) Unit-Linked (-9% or €-3 million) mainly due to the curtailment of “Twinstar” Variable Annuity product. Central & Eastern Europe APE decreased by €22 million (-29%) to €55 million. The decrease was driven by lower Unit-Linked sales (-49% or €-27 million) mainly as a result of the change in regulation of Pension fund business in Poland and the focus on higher margin products in Czech Republic where the decrease in Unit- Linked sales was partly offset by an increase in G/A Pure Protection business (+98% or €+4 million). Half Year 2013 Financial Report 9 I I ACTIVITY REPORT Japan APE decreased by €9 million (-3%) to €240 million driven by (i) lower Variable Annuity sales (-54% or €-37 million) following product redesign in a more competitive environment, partly offset by (ii) higher G/A Protection & Health sales (+14% or €+26 million) following the successful launch of a new disability product. PROPERTY & CASUALTY REVENUES (in Euro million) HY 2013 HY 2012 FY 2012 HY 2013 / HY 2012 (a) TOTAL . Mature markets Direct High growth markets 16,497 13,073 1,152 2,272 16,173 13,259 1,085 1,829 28,315 22,257 2,215 3,843 2.2% -0.1% 6.6% 14.8% (a) Changes are on a comparable basis. Property & Casualty gross revenues were up 2% on both reported and comparable basis to €16,497 million. Personal lines increased by 1% mainly driven by the Mediterranean and Latin American Region, Direct, Switzerland and Asia. Commercial lines increased by 4%, primarily in the Mediterranean and Latin American Region high growth markets, the United Kingdom & Ireland, France and Asia. Overall average tariff increases amounted to 3%. Personal lines (58% of P&C gross revenues) were up by 1% on a comparable basis, mainly stemming from Motor (+2%) as a result of higher volumes in high growth markets and Direct, and tariff increases across the board, partly offset by lower volumes in mature markets in a difficult economic environment. Motor revenues grew by €99 million or +2% mainly driven by: Mediterranean and Latin American Region (+4%), primarily driven by Turkey (+32%) with strong tariff increases on third party liability products, partly offset by Spain (-6%) due to a competitive market in a depressed economic environment; Direct (+6%) mainly driven by resumed growth in the UK reflecting higher new business and improved retention, as well as in France, Italy and Japan partly offset by Spain; Switzerland (+2%) driven by higher volumes and a higher average premium; Asia (+4%) due to a strong increase in car sales in Malaysia; partly offset by Germany (-2%) reflecting lower volumes following significant tariff increases and Belgium (-3%) driven by portfolio pruning and selective underwriting. Non-Motor revenues decreased by €10 million or -0% mainly driven by: the United Kingdom & Ireland (-10%) mainly in Household, driven by portfolio pruning through tariff increases and exiting of partnerships; partly offset by Germany (+4%) and France (+1%) mainly attributable to tariff increases in Household, and higher volumes in both Direct business (+10%) and high growth markets (+11%). Commercial lines (42% of P&C gross revenues) increased by 4% on a comparable basis mainly driven by tariff increases across the board as well as volume increases in high growth markets. Motor revenues increased by €48 million or +3%, mainly driven by: the Mediterranean and Latin American Region (+9%) notably in Turkey (+50%) and the Gulf Region (+106%) reflecting positive portfolio developments, partly offset by negative volumes in Mexico (-10%) due to a more competitive environment; the United Kingdom & Ireland (+7%) driven by tariff increases and increased retention in fleet. Non-Motor revenues increased by €210 million or +4% reflecting growth in: the United Kingdom (+9%) due to Health portfolio development in the United Kingdom and abroad as well as tariff increases and better retention in Property; Asia (+15%) primarily driven by tariff increases and a new Health large account in Hong Kong; France (+3%) mainly following tariff increases in Construction and Property, partly offset by lower volumes; 10 Half Year 2013 Financial Report ACTIVITY REPORT the Mediterranean and Latin American Region (+11%) mainly driven by positive portfolio developments in Health in the Gulf Region and in Mexico, as well as in Property in Turkey. INTERNATIONAL INSURANCE REVENUES International Insurance revenues were up 5% or 3% on a comparable basis to €1,909 million mainly driven by (i) AXA Assistance up 9% to €487 million driven by higher volumes and (ii) AXA Corporate Solutions up 1% to €1,337 million mainly as a result of positive portfolio developments in Motor and Property and tariff increases in Marine and Motor, partly offset by a decrease in Aviation and Construction. ASSET MANAGEMENT REVENUES AND ASSETS UNDER MANAGEMENT Asset Management revenues increased by 11% or 12% on a comparable basis to €1,741 million mainly driven by higher management fees at both AllianceBernstein and AXA Investment Managers as a result of higher average Assets Under Management (AUM), as well as higher distribution fees at AllianceBernstein and higher real estate transaction fees at AXA Investment Managers. AllianceBernstein revenues were up 10% to €1,047 million primarily due to higher Retail distribution fees (€+43 million) as well as higher management fees (€+36 million) resulting from higher average AUM (+6%). AUM increased by 1% or €+5 billion from year-end 2012 to €354 billion driven by (i) €+5 billion favorable foreign exchange rate impact and (ii) €+2 billion net inflows, partly offset by (iii) €-2 billion from market depreciation. AXA Investment Managers revenues were up 15% to €694 million. Excluding distribution fees (retroceded to distributors), and on a comparable basis, revenues increased by €96 million (+18%) mainly driven by (i) higher management fees (+13%) as a result of higher average AUM (+7%) combined with +0.9bp higher management fees bps and (ii) higher real estate transaction fees. AUM increased by 3% or €+15 billion from year-end 2012 to €568 billion as a result of (i) €+14 billion market appreciation and (ii) €+10 billion net inflows, partly offset by (iii) €-8 billion unfavorable foreign exchange rate impact and (iv) €-2 billion change in scope. NET BANKING REVENUES Net banking revenues increased by 30% on both a reported and a comparable basis to €293 million driven by (i) France (+90%) due to higher net banking product reflecting a softer promotional campaign compared to 2012 and (ii) AXA Bank Belgium (+25%) mainly driven by higher interest margin. Half Year 2013 Financial Report 11 I I ACTIVITY REPORT Consolidated underlying earnings, adjusted earnings and net income The amendment to IAS 19 – Employee Benefits, published on June 16, 2011, became effective since January 1, 2013, and the comparative information in respect of 2012, has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the revised standard. HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published Gross written premiums 47,168 45,749 45,749 84,592 Fees and revenues from investment contracts without participating feature 133 164 164 334 Revenues from insurance activities 47,301 45,913 45,913 84,926 Net revenues from banking activities 283 204 204 426 Revenues from other activities 2,451 2,268 2,268 4,741 TOTAL REVENUES 50,036 48,385 48,385 90,093 Change in unearned premium reserves net of unearned revenues and fees (c) (3,816) (3,970) (3,970) (441) Net investment result excluding financing expenses (b) (c) (d) 13,330 14,234 14,235 28,770 Technical charges relating to insurance activities (b) (c) (45,154) (45,593) (45,593) (91,734) Net result of reinsurance ceded (938) (572) (572) (1,323) Bank operating expenses (44) (47) (47) (96) Insurance acquisition expenses (4,738) (4,258) (4,275) (9,472) Amortization of value of purchased life business in force (50) (37) (37) (179) Administrative expenses (c) (4,491) (4,528) (4,569) (9,033) Valuation allowances on tangible assets (0) (0) 28 Change in value of goodwill (0) (0) (0) (0) Other (136) (143) (143) (293) Other operating income and expenses (55,551) (55,179) (55,237) (112,102) OPERATING EARNINGS BEFORE TAX 3,999 3,471 3,414 6,321 Net income from investments in affiliates and associates 53 44 44 136 Financing expenses (333) (275) (275) (587) UNDERLYING EARNINGS BEFORE TAX 3,719 3,240 3,183 5,870 Income tax expenses (d) (990) (817) (801) (1,409) Minority interests (150) (118) (118) (210) UNDERLYING EARNINGS 2,579 2,305 2,263 4,251 Net realized capital gains or losses attributable to shareholders 375 123 123 297 ADJUSTED EARNINGS 2,954 2,427 2,386 4,548 Profit or loss on financial assets (under fair value option) & derivatives (228) 291 291 45 Exceptional operations (including discontinued operations) (86) (8) (8) (94) Goodwill and other related intangible impacts (54) (56) (56) (103) Integration and restructuring costs (118) (69) (69) (244) NET INCOME 2,467 2,586 2,544 4,152 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) For the periods ended June 30, 2013 and December 31, 2012, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectivly €+8,070 million and €+14,186 million by the offsetting amounts respectively. (c) For the period ended June 30, 2012, €100 million have been reclassified from change in unearned premium reserve net of unearned revenues and fees to technical charges relating to insurance activities to ensure consistency of the information. (d) HY 2012 published was adjusted to reflect intercompany elimination of €26 million between net investment result and income tax expenses. 12 Half Year 2013 Financial Report (in Euro million) FY 2012 restated (a) 84,592 334 84,926 426 4,741 90,093 (441) 28,771 (91,734) (1,323) (96) (9,506) (179) (9,131) 28 (0) (293) (112,234) 6,189 136 (587) 5,738 (1,373) (210) 4,155 297 4,452 45 (94) (103) (244) 4,057 ACTIVITY REPORT GROUP UNDERLYING EARNINGS (in Euro million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Life & Savings 1,534 1,411 1,396 2,635 2,603 Property & Casualty 1,128 1,044 1,036 1,895 1,877 International Insurance 103 118 118 167 167 Asset Management 194 159 159 382 379 Banking 61 5 5 5 4 Holdings and other companies (b) (441) (433) (451) (833) (875) UNDERLYING EARNINGS 2,579 2,305 2,263 4,251 4,155 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,579 million up 14% versus half year 2012. On a constant exchange rate basis, underlying earnings increased by 16% driven by Life & Savings, Property & Casualty and Asset Management, partly offset by a decrease in International Insurance. Life & Savings underlying earnings amounted to €1,534 million. On a constant exchange rate basis Life & Savings underlying earnings were up €173 million (+12%) mainly attributable to the United States (€+93 million), Japan (€+36 million), South-East Asia, India and China (€+21 million), Hong Kong (€+15 million), Germany (€+14 million) and the Mediterranean and Latin American Region (€+13 million), partly offset by France (€-23 million) mainly resulting from: Higher investment margin (€+106 million or +9%), mainly as a result of (i) Switzerland (€+42 million) reflecting a policyholder bonus reserve release in Individual Life, (ii) Japan (€+40 million) mainly due to higher dividends from equity funds in a rising Japanese stock market, (iii) the United States (€+27 million) and France (€+14 million) as the decrease in investment income reflecting lower reinvestment yields on fixed income assets was more than offset by lower allocation to policyholders, partly offset by (iv) the Mediterranean and Latin American Region (€-14 million) mainly driven by lower average assets. Higher fees & revenues (€+239 million or +7%) mainly driven by: o Unit-linked management fees were up €100 million, mainly driven by the United States (€+59 million) due to higher Separate Account balances and France (€+22 million) due to a higher average assets base. o Loadings on premiums and mutual funds were up €132 million driven by (i) the United States (€+74 million) reflecting Unearned Revenue Reserve assumption updates, (ii) the Mediterranean and Latin American Region (€+32 million) due to strong Unit-Linked sales and increased surrenders, (iii) Japan (€+28 million) mainly driven by new business and inforce growth in Protection & Health, partly offset by France (€-56 million) mainly due to the non- repeat of 1H 2012 Unearned Revenue Reserve adjustment (fully offset by DAC amortization). o Other fees were up €7 million. Net technical margin was up €405 million mainly driven by the United States (€+497 million), primarily due to (i) higher GMxB margin resulting from the non-repeat of 1H 2012 GMxB reserve strengthening for policyholder behavior assumption changes, as well as lower volatility and basis losses, partly offset by (ii) an adverse mortality experience in the Life business. This was partly compensated by France (€-58 million) driven by lower positive prior year reserve developments. Expenses increased by €479 million (or +16%) as a result of: o €459 million higher acquisition expenses, primarily driven by (i) the United States (€-510 million) mainly as a result of higher DAC amortization notably following the improved GMxB margin, (ii) Central & Eastern Europe (€-24 million) due to higher DAC amortization, partly offset by (iii) France (€+66 million) mainly due to the non-repeat of a 1H 2012 DAC adjustment. Half Year 2013 Financial Report 13 I I ACTIVITY REPORT o €20 million higher administrative expenses mainly reflecting various efficiency programs net of inflation as well as negative one-offs, mainly on tax contributions in France. Higher tax expenses and minority interests, €-97 million, driven by higher pre-tax underlying earnings as well as lower favorable tax one-offs (€+31 million in Japan and €+10 million in Hong Kong in 1H 2013 vs. €+78 million in 1H 2012). Property & Casualty underlying earnings amounted to €1,128 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €99 million (+10%) mainly driven by: Higher net technical result (including expenses) up €120 million (or +24%) driven by: o Current year loss ratio improving by 1.0 point driven by tariff increases and lower claims frequency, partly offset by higher large claims, and higher Nat Cat charge (+0.2 point) mainly as a result of floods in Bavaria and Saxony (€73 million charge at Group level); o Lower positive prior year reserve developments by 0.3 point; o Lower expense ratio improving by 0.1 point to 26.2%, with (i) 0.2 point reduction in the administrative expense ratio benefiting from various efficiency programs, partly offset by (ii) 0.1 point increase in the acquisition ratio as productivity gains were more than offset by an unfavorable product and business mix effect; o As a result, the combined ratio improved by 0.8 point to 95.7%. Investment result decreased by €23 million to €1,005 million, mainly driven by lower revenues on fixed income assets in France, Switzerland and the UK & Ireland. Lower income tax expense and minority interests, €+11 million, mainly driven by favorable tax one-offs in the Mediterranean and Latin American Region (€+14 million) and a favorable country mix, partly offset by higher pre-tax underlying earnings. International Insurance underlying earnings amounted to €103 million. On a constant exchange rate basis, underlying earnings decreased by €14 million (or -12%) mainly due to (i) AXA Corporate Solutions, down €8 million, following a decrease in the investment result and (ii) AXA Global P&C, down €2 million, due to the non-repeat of 1H 2012 premium boni on Motor cover. Asset Management underlying earnings amounted to €194 million. On a constant exchange rate basis, underlying earnings increased by €38 million (+24%) mainly driven by (i) AXA IM (€+34 million) reflecting higher revenues from both higher average AUM and improved margins, partly offset by higher variable compensations, and (ii) AllianceBernstein (€+3 million) as a result of higher revenues net of variable compensations and lower general administrative expenses, partly offset by the non repeat of a 1H 2012 positive tax one-off. Banking underlying earnings amounted to €61 million. On a constant exchange rate basis, underlying earnings increased by €55 million driven by (i) Belgium, up €36 million, as a result of higher interest margin and (ii) France, up €16 million, following the rise in operating revenues, in a context of lower cost of risk and administrative expenses. Holdings and other companies underlying earnings amounted to €-441 million. On a constant exchange rate basis, holdings underlying earnings increased by €12 million (+3%) mainly driven by (i) Germany holdings (€+11 million) reflecting lower pension costs, (ii) Mediterranean and Latin American holdings (€+5 million) due to lower financial charges, partly offset by (iii) AXA SA (€-2 million) mainly due to the new French tax of 3% on dividends paid by the company (€-46 million), partly offset by an increase in dividends from non-consolidated subsidiaries and a gain related to the hedging program on Performance Units at Group level. GROUP UNDERLYING EARNINGS TO NET INCOME Group net capital gains attributable to shareholders amounted to €375 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were up €256 million mainly due to: €+187 million higher realized capital gains, to €555 million in the first half of 2013, mainly driven by higher realized gains on real estate (€+83 million), fixed income assets (€+76 million) and equities 14 Half Year 2013 Financial Report ACTIVITY REPORT (€+12 million), notably driven by the sale of a 2.4% equity stake in BNP Paribas generating a €151 million gain; €+25 million lower impairments to €-160 million in the first half of 2013, mainly driven by more favorable equity market conditions (€+18 million); €+41 million higher intrinsic value related to equity hedging derivatives. As a result, adjusted earnings amounted to €2,954 million. On a constant exchange rate basis, adjusted earnings increased by €618 million (+26%). Net income amounted to €2,467 million. On a constant exchange rate basis, net income decreased by €32 million (-1%) mainly as a result of: higher adjusted earnings: up €618 million, more than offset by an unfavorable change in fair value of financial assets and derivatives in 1H 2013 compared to a favorable change in 1H 2012 that was driven by a general decrease in interest rates: down €-520 million to €-228 million which can be analyzed as follows: o €+15 million from the change in fair value of assets under fair value option, o €-143 million from the change in fair value of hedging derivatives not eligible for hedge accounting under IAS 39, mainly attributable to interest rates increase, o €-100 million following foreign exchange rate movements, mainly from JPY and AUD depreciation, notably driven by an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting under IAS 39; lower impact from exceptional operations: down €78 million to €-86 million, mainly due to the estimated net loss associated with the “closed MONY portfolio transaction” (€-32 million). Half Year 2013 Financial Report 15 I I ACTIVITY REPORT Consolidated Shareholders’ Equity As of June 30, 2013, consolidated shareholders' equity totaled €51.5 billion. The movements in shareholders' equity since December 31, 2012 are presented in the table below: (in Euro million) FY 2012 published IAS 19 Restatement FY 2012 restated HY 2013 Shareholders' Equity 53,664 (58) 53,606 51,468 Shareholders' Equity At December 31, 2012 53,606 Share Capital 7 Capital in excess of nominal value 28 Equity-share based compensation 23 Treasury shares sold or bought in open market 165 Deeply subordinated debt (including interests charges) 108 Fair value recorded in shareholders' equity (2,519) Impact of currency fluctuations (1,003) Payment of N-1 dividend (1,720) Other (20) Net income for the period 2,467 Actuarial gains and losses on pension benefits 324 At June 30, 2013 51,468 Shareholder Value Earnings per share (“EPS”) (in Euro million except ordinary shares in million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Var. HY 2013 versus HY 2012 restated (a) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,380.6 2,388.1 2,340.3 2,343.3 2,340.3 2,343.3 2,342.5 2,348.9 2,342.5 2,348.9 Net income (Euro per Ordinary Share) 0.98 0.97 1.04 1.04 1.02 1.02 1.65 1.64 1.61 1.60 4% 5% Adjusted earnings (Euro per Ordinary Share) 1.18 1.18 0.97 0.97 0.96 0.96 1.82 1.81 1.78 1.77 23% 23% Underlying earnings (Euro per Ordinary Share) 1.02 1.02 0.92 0.92 0.90 0.90 1.69 1.69 1.65 1.64 14% 13% (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 16 Half Year 2013 Financial Report Return On Equity (“ROE”) Period ended , June 30, 2013 Period ended , June 30, 2012 published ROE 9.5% 11.1% Net income group share 2,467 2,586 Average shareholders' equity 51,714 46,620 Adjusted ROE 16.5% 13.8% Adjusted earnings (b) 2,810 2,280 Average shareholders' equity (c) 34,114 33,104 Underlying ROE 14.3% 13.0% Underlying earnings (b) 2,435 2,157 Average shareholders' equity (c) 34,114 33,104 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (c) Excluding fair value of invested assets and derivatives and excluding undated debt (both recorded through shareholders' equity). Half Year 2013 Financial Report ACTIVITY REPORT (in Euro million) Period ended , June 30, 2012 restated (a) Change in % points 10.9% 1.4 pts 2,544 46,561 13.5% 2.9 pts 2,238 33,045 12.8% 1.5 pts 2,115 33,045 17 I I ACTIVITY REPORT Life & Savings Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published Gross revenues (b) 29,643 28,642 28,642 55,084 APE (Group share) 3,310 3,075 3,064 6,170 Investment margin 1,327 1,234 1,234 2,697 Fees & revenues 3,753 3,623 3,626 7,323 Net technical margin 418 16 16 357 Expenses (3,427) (3,001) (3,027) (6,857) Amortization of VBI (49) (37) (37) (179) Other 44 25 25 86 Underlying earnings before tax 2,067 1,860 1,836 3,427 Income tax expenses / benefits (484) (418) (410) (713) Minority interests (50) (31) (31) (78) Underlying earnings Group share 1,534 1,411 1,395 2,635 Net capital gains or losses attributable to shareholders net of income tax 286 145 145 214 Adjusted earnings Group share 1,820 1,556 1,541 2,849 Profit or loss on financial assets (under FV option) & derivatives (200) 300 300 152 Exceptional operations (including discontinued operations) (24) (26) (26) (54) Goodwill and other related intangibles impacts (15) (19) (19) (34) Integration and restructuring costs (79) (14) (14) (40) Net income Group share 1,501 1,797 1,781 2,873 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Before intercompany eliminations. Consolidated Gross Revenues HY 2013 HY 2012 France 7,211 6,754 United States 5,567 5,567 United Kingdom 285 317 Japan 2,605 3,180 Germany 3,232 3,290 Switzerland 5,206 4,838 Belgium 1,151 1,225 Central & Eastern Europe (a) 195 222 Mediterranean and Latin American Region (b) 3,001 2,258 Hong Kong 983 796 South-East Asia, India and China (c) 133 140 Other (d) 74 55 TOTAL 29,643 28,642 Intercompany transactions (40) (35) Contribution to consolidated gross revenues 29,603 28,607 o/w. high growth markets 1,511 1,350 o/w. mature markets 28,092 27,257 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (c) South-East Asia, India and China revenues include Singapore and non bancassurance subsidiaries in Indonesia. (d) Other corresponds to Luxembourg, AXA Life Invest, Architas and Family Protect . 18 Half Year 2013 Financial Report (in Euro million) FY 2012 restated (a) 55,084 6,170 2,697 7,327 357 (6,910) (179) 86 3,377 (696) (78) 2,603 214 2,817 152 (54) (34) (40) 2,841 (in Euro million) FY 2012 13,751 11,229 648 6,725 6,655 6,551 2,088 472 4,836 1,723 295 112 55,084 (68) 55,016 2,887 52,129 Underlying earnings HY 2013 HY 2012 published France 353 375 United States 311 237 United Kingdom (9) (13) Japan 292 281 Germany 79 66 Switzerland 150 157 Belgium 81 77 Central & Eastern Europe (b) 15 17 Mediterranean and Latin American Region (c) 90 76 Hong Kong 132 119 South-East Asia, India and China (d) 54 35 Other (e) (13) (14) UNDERLYING EARNINGS 1,534 1,411 o/w. high growth markets 209 178 o/w. mature markets 1,325 1,234 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes Poland, Hungary, Czech Republic and Slovakia. (c) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (d) South-East Asia, India and China earnings include Indonesia, Thailand, Philippines, China, India and Singapore. (e) Other correspond to Luxembourg, AXA Life Invest, Architas and Family Protect. Half Year 2013 Financial Report HY 2012 restated (a) 376 222 (13) 281 66 155 77 17 76 119 35 (14) 1,396 178 1,218 ACTIVITY REPORT (in Euro million) FY 2012 published FY 2012 restated (a) 706 707 522 492 (17) (17) 374 374 120 120 317 314 150 150 1 1 162 162 252 252 86 86 (38) (38) 2,635 2,603 352 352 2,283 2,251 19 I I ACTIVITY REPORT Life & Savings operations – France (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 7,211 690 568 790 215 (1,124) - 4 454 (101) (1) 353 214 567 12 - (10) - 6,754 641 554 828 273 (1,169) - 3 490 (113) (1) 376 49 425 77 - - - 13,751 1,378 1,210 1,559 514 (2,297) - 7 993 (284) (2) 707 124 830 185 - - - Net income Group share 569 502 1,015 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues increased by €457 million (+7%) to €7,211 million1: Unit-Linked revenues (17% of gross revenues) rose by €406 million (+48%), mainly driven by €+137 million in Individual Savings following Unit-Linked oriented commercial efforts and €+269 million in Group Retirement boosted by several large contracts. Unit-Linked share in Individual Savings premiums increased by 4 points to 28%, 11 points above market average at 17%2; G/A Protection & Health revenues (45% of gross revenues) increased by €204 million (+7%) driven by a €+195 million increase in Group Protection & Health as a result of tariff increases upon renewals and net new business inflows and €+19 million increase in Individual Protection reflecting positive portfolio developments; G/A Savings revenues (37% of gross revenues) decreased by €153 million (-5%) driven by Individual Savings (€-83 million) following the focus on Unit-Linked oriented offers, and Group Retirement (€-70 million) due to fewer G/A large contracts. APE increased by €49 million (+8%) to €690 million. On a comparable basis, APE increased by €36 million (+5%): Unit-Linked sales (20% of APE) rose by €45 million (+50%) mainly driven by €+20 million in Individual Savings reflecting Unit-Linked oriented commercial efforts and €+25 million in Group Retirement boosted by several large contracts; G/A Protection & Health sales (44% of APE) increased by €4 million (+1%) driven by €8 million increase in Individual Health and Protection as a result of the success of new products in Health (Modulango) and in Pure Protection (Long Term Care and Funerals). Group Protection & Health sales 1 €7,202 million after intercompany eliminations. 2 Source FFSA June 2013. 20 Half Year 2013 Financial Report ACTIVITY REPORT decreased by €5 million, following a slowdown on the French market (€-20 million) while international business (Employee Benefits and Mortgage insurance) grew strongly (€+15 million). G/A Savings sales (37% of APE) decreased by €13 million (-5%) driven by Individual Savings (€- 7million) following the focus on Unit-Linked oriented offers, and Group Retirement (€-6 million) due to fewer G/A large contracts. Investment margin increased by €14 million (+3%) to €568 million as lower investment income (€-141 million) notably due to lower reinvestment yields and lower inflation rate on fixed income assets, was more than offset by lower amounts allocated to policyholders. Fees & revenues decreased by €38 million (-5%) to €790 million due to the non recurrence of a €-69 million URR reserve adjustment in 2012 (fully offset in DAC), partly offset by higher fees on both Unit-Linked business, in line with higher average asset base, and Protection business, in line with revenues growth. Net technical margin fell by €58 million (-21%) to €215 million mainly driven by Group Protection and Retirement business due to lower positive prior year reserve development. Expenses decreased by €45 million (-4%) to €-1,124 million: Acquisition expenses fell by €66 million (-9%) to €-693 million, mainly due to the non recurrence of a €+69 million DAC adjustment in 2012 (fully offset in URR); Administrative expenses rose by €20 million (+5%) to €-430 million as continuing efforts to contain expenses were more than offset by higher tax contributions. As a result, the underlying cost income ratio increased by 0.8 point to 71.4%. Income tax expenses decreased by €13 million (-11%) to €-101 million mainly due to lower pre-tax underlying earnings. Underlying earnings decreased by €23 million (-6%) to €353 million. Adjusted earnings increased by €142 million (+33%) to €567 million driven by higher net realized capital gains (€+174 million) mainly on equities and real estate, including a €+151 million realized gains relating to the sale of a 2.4% equity stake in BNP Paribas, partly offset by higher impairment charges and a decrease in the impact of equity hedging derivatives (€-9 million), as well as lower underlying earnings (€-23 million). Net income increased by €68 million (+13%) to €569 million driven by higher adjusted earnings (€+142 million), partly offset by an unfavorable change in the fair value of mutual funds and of economic hedge derivatives not eligible for hedge accounting (€-69 million) mainly driven by higher interest rates. Half Year 2013 Financial Report 21 I I ACTIVITY REPORT Life & Savings operations - United States (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,567 655 258 1,120 (82) (845) (11) - 441 (130) - 311 (24) 288 (218) (32) (1) (59) 5,567 599 233 995 (580) (338) 7 - 317 (95) - 222 (26) 196 97 - (1) (8) 11,229 1,244 541 1,993 (632) (1,296) (3) - 602 (110) - 492 (37) 455 (103) - (1) (20) Net income Group share (23) 285 331 Average exchange rate : 1.00 € = $ 1.3129 1.2969 1.2969 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues are level with prior year at €5,567 million 1 . On a comparable basis, gross revenues increased by €68 million (+1%): Variable Annuity revenues (63% of gross revenues) increased by 2% reflecting strong sales results for non GMxB investment only products, floating roll up rate GMxB and Employer Sponsored products, partially offset by lower renewal premiums (additional contributions were received for certain old GMxB fixed rate contracts prompted by the suspension of additional contributions in 1Q 2012); Life revenues (24% of gross revenues) decreased by 2% driven primarily by lower sales of non Unit- Linked life products, in particular the Indexed Universal Life product; Asset Management Fees (7% of gross revenues) increased by 5%, reflecting improvement in market conditions in 1H 2013; Mutual Funds revenues (1% of gross revenues) increased by 20%, reflecting higher advisory fees received and increases in sales volume. APE increased by €56 million (+9%) to €655 million. On a comparable basis, APE increased by €64 million (+11%): Variable Annuity APE increased by 16% to €347 million reflecting higher sales of non GMxB investment only, floating rate GMxB and Employer Sponsored products, partially offset by lower sales of fixed rate GMxB products. Non-GMxB investment only and floating rate GMxB products launched since 2010 represented a combined 60% of 1H 2013 Variable Annuity APE; 1 €5,566 million after intercompany eliminations. 22 Half Year 2013 Financial Report ACTIVITY REPORT Life decreased by 19% to €95 million driven primarily by lower sales of non Unit-Linked life products, in particular on Indexed Universal Life product due to increased competition; Mutual Funds increased by 22% to €211 million, reflecting increased advisory account sales. Investment margin increased by €24 million (10%) to €258 million. On a constant exchange rate basis, investment margin increased by €27 million (+12%) as the decrease in investment income reflecting lower yields on fixed income assets, was more than offset by lower crediting rates . Fees & revenues increased by €126 million (+13%) to €1,120 million. On a constant exchange rate basis, fees & revenues increased by €140 million (+14%) primarily due to higher fees earned on higher average separate account balances and assumption updates of Unearned Revenue Reserve. Net technical margin rose by €498 million to €-82 million. On a constant exchange rate basis, net technical margin increased by €497 million primarily due to higher GMxB margin resulting from the non-repeat of 1H 2012 GMxB reserve strengthening for policyholder behavior assumption changes, as well as lower volatility and basis losses. This was partially offset by an adverse mortality experience in the Life business. Expenses increased by €507 million to €-845 million. On a constant exchange rate basis, expenses increased by €517 million: Expenses, net of capitalization (including commissions and DAC capitalization) increased by €27 million (-4%) to €635 million mainly due to higher commissions net of capitalization from increased asset balances and higher mutual funds sales, partly offset by productivity actions (reduction of FTE, changes to variable compensation program, real estate optimization including staff relocation); DAC amortization increased by €490 million to €-210 million mainly following higher GMxB margin. Amortization of VBI increased by €18 million to €-11 million. On a constant exchange rate basis, amortization of VBI increased by €18 million due the non-repeat of 1H 2012 revisions reflecting higher expected margins on MONY in-force contracts. As a result, the underlying cost income ratio increased by 14.9 points to 66%. Income tax expense increased by €35 million (+36%) to €-130 million. On a constant exchange rate basis, income tax expense increased by €36 million reflecting higher pre-tax underlying earnings. Underlying earnings increased by €89 million (40%) to €311 million. On a constant exchange rate basis, underlying earnings increased by €93 million (42%). Adjusted earnings increased by €92 million (+47%) to €288 million. On a constant exchange rate basis, adjusted earnings increased by €95 million (+48%) mainly reflecting the increase in underlying earnings. Net income decreased by €308 million (-108%) to €-23 million. On a constant exchange rate basis, net income decreased by €308 million (-108%). This was primarily driven by (i) higher adjusted earnings, more than offset by (ii) an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting (compared to a favorable change in fair value in 1H 2012), mainly attributable to higher interest rates, (iii) an estimated net loss associated with the ”closed MONY portfolio transaction” (€-32 million) and (iv) higher restructuring costs (€-52 million) driven by a real estate lease write-off, generating relocation savings. Half Year 2013 Financial Report 23 I I ACTIVITY REPORT Life & Savings operations - United Kingdom HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 285 365 2 147 (0) (168) - - (19) 10 0 (9) - (9) (1) - - (18) (28) 0.8508 317 283 2 168 1 (220) - - (49) 36 0 (13) - (13) 1 (0) (4) (3) (19) 0.8226 For consistency, 2013 figures have been compared to the same scope for 2012, i.e. excluding Bluefin Corporate Consulting which was sold in April 2012. This is referred to as “comparable scope basis” in the commentary below. Half Year 2012 underlying earnings amounted to €-13 million, corresponding approximately to €-2 million for sold business, and €-11 million for retained business. Gross revenues decreased by €31 million (-10%) to €285 million 1. On a constant exchange rate and comparable scope basis, gross revenues increased by €2 million (+1%). This was driven by growth in funds under management on the Elevate platform, an increase in Variable Annuity premiums and increased revenues through the growth of the Architas business. This was partly offset by lower revenues from bancassurance with this channel now closed to new business. APE increased by €82 million (+29%) to €365 million. On a constant exchange rate and comparable scope basis, APE was up €94 million (+33%) over prior year. New sales through the Elevate platform continued to increase, with IFA sales up by €39 million (+52%) as the platform continues to establish itself as one of the leaders in the UK platform market. The other significant growth was on the Corporate Pension Investment business (€+83 million) reflecting two significant new schemes in 2013. This was partially offset by sales decrease in the individual pensions (€-14 million) and in bancassurance (€-14 million) following the closure of this channel to new business. Investment margin increased by €1 million (60%) to €2 million. On a constant exchange rate and comparable scope basis, the investment margin increased by €1 million. 1 €285 million after intercompany eliminations. 24 Half Year 2013 Financial Report (in Euro million) FY 2012 648 535 3 334 4 (411) - - (71) 54 0 (17) - (17) 2 (2) (4) (11) (33) 0.8138 ACTIVITY REPORT Fees & revenues decreased by €21 million (-13%) to €147 million. On a constant exchange rate and comparable scope basis, fees & revenues increased by €8 million due to the growth of the business, partly offset by a decrease in bancassurance revenues. Net technical margin decreased by €1 million (-106%) to €0 million. On a constant exchange rate and comparable scope basis, net technical margin decreased by €1 million. Expenses decreased by €52 million (-24%) to €-168 million. On a constant exchange rate basis and comparable scope basis, expenses decreased by €20 million due to a €11 million reduction in bancassurance general expenses and further expense savings across the rest of the business. As a consequence, the underlying cost income ratio improved significantly by 15.9 points to 113%. On a constant exchange rate and comparable scope basis, the underlying cost income ratio reduced by 19.1 points. Income tax benefits decreased by €26 million (-72%) to €10 million. On a constant exchange rate and comparable scope basis, income tax benefits decreased by €25 million due to the reduction in one-off tax benefits (€-18 million) and the impact of the lower pre-tax loss. Underlying earnings increased by €4 million to €-9 million. On a constant exchange rate and comparable scope basis, underlying earnings increased by €2 million. Adjusted earnings increased by €4 million to €-9 million. On a constant exchange rate and comparable scope basis, adjusted earnings increased by €2 million due to the underlying earnings movement. Net income decreased by €9 million to €-28 million. On a constant exchange rate, net income decreased by €10 million as a result of higher restructuring costs. Half Year 2013 Financial Report 25 I I ACTIVITY REPORT Life & Savings operations – Japan HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Yen 2,605 240 37 738 28 (390) (14) - 399 (105) (3) 292 33 324 13 - - - 337 113.0264 3,180 269 (0) 765 44 (447) (17) - 345 (61) (3) 281 67 348 41 - - - 389 104.1900 Gross revenues decreased by €574 million (-18%) to €2,605 million1. On a comparable basis, revenues decreased by €354 million (-11%): Protection revenues (44% of gross revenues) increased by €52 million (+4%) mainly due to increased new business sales of Whole Life products (€+62 million) and better retention of Term and Term Riders products (€+47 million), partly offset by lower revenues from Increasing Term products (€-39 million) and Group Life products (€-7 million) which were not actively promoted; Investment & Savings revenues (22% of gross revenues) decreased by €409 million (-39%) mainly due to lower sales of Variable Annuity products following product redesign and increased competition in the bancassurance channel; Health revenues (33% of gross revenues) increased by €3 million (+0%) as new business from Medical Whole Life and Nursing products, boosted by the successful launch of “Disability Income” offset lower retention of Medical Term products. APE decreased by €30 million (-11%) to €240 million. On a comparable basis, APE decreased by €9 million (- 3%): Protection sales (54% of APE) increased by €9 million (+7%) mainly supported by stronger sales of Whole Life products before the discontinuation of Single Premium Whole Life in March 2013; Investment and Savings sales (12% of APE) decreased by €37 million (-54%) due to decreased Variable Annuity sales in bancassurance channel following product redesigned and increased competition; Health sales (34% of APE) increased by €19 million (+28%) driven by the successful launch of Disability Income (€+9 million) and strong sales of the new Medical Whole Life product (€+10 million) launched mid-2012. 1 €2,605 million after intercompany eliminations. 26 Half Year 2013 Financial Report (in Euro million) FY 2012 6,725 598 0 1,606 (31) (994) (89) - 492 (115) (4) 374 13 387 28 - - - 414 102.3473 ACTIVITY REPORT Investment margin increased by €37 million to €37 million. On a constant exchange rate basis, investment margin increased by €40 million mainly due to higher dividend income from equity funds in a rising Japanese stock market. Fees & revenues decreased by €27 million (-3%) to €738 million. On a constant exchange rate basis, fees & revenues increased by €36 million mainly due to higher Unit-Linked management fees driven by increased Variable Annuity inforce and higher loadings coming from a better business mix and increased retention. Net technical margin decreased by €16 million (-36%) to €28 million. On a constant exchange rate basis, net technical margin decreased by €14 million mainly due to a lower surrender margin thanks to an overall better retention. Expenses decreased by €57 million (-13%) to €-390 million. On a constant exchange rate basis, expenses decreased by €24 million (-5%) mainly due to ongoing expense control management and positive one-off effects. Amortization of VBI decreased by €3 million (-17%) to €-14 million. On a constant exchange rate basis, VBI amortization decreased by €2 million (-10%). As a result, the underlying cost income ratio improved by 7.0 points to 50.3%. Income tax expenses increased by €43 million to €-105 million. On a constant exchange rate basis, income tax expenses increased by €52 million due to the non-repeat of a 2012 positive tax one-off (€-49 million) and higher pre-tax underlying earnings (€-29 million), partly offset by a 2013 positive tax one-off (€+31 million). Underlying earnings increased by €11 million (+4%) to €292 million or increased by €36 million (+13%) on a constant exchange rate basis. Adjusted earnings decreased by €24 million (-7%) to €324 million or increased by €4 million (+1%) on a constant exchange rate basis, due to higher underlying earnings partly offset by lower net realized capital gains on fixed income assets. Net income decreased by €52 million to €337 million. On a constant exchange rate basis, net income decreased by €23 million, due to higher adjusted earnings (€+4 million) more than offset by a negative impact from Yen depreciation (€-41 million) mainly against the US dollar, lower favorable change in fair value of credit derivatives (€-23 million), partly offset by a more favorable change in fair value of funds (€+36 million) mainly invested in equity. Half Year 2013 Financial Report 27 I I ACTIVITY REPORT Life & Savings operations – Germany HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,232 218 51 149 29 (100) (7) - 122 (42) (0) 79 17 96 11 2 - - 109 3,290 258 57 157 4 (102) (11) - 105 (39) (0) 66 (8) 57 24 - - - 81 Gross revenues decreased by €58 million (-2%) to €3,232 million1. Life revenues (59% of gross revenues) decreased by €108 million (-5%) to €1,908 million mainly due to lower single premiums from G/A short term investment products as well as lower regular premiums from G/A Protection products; Health revenues (41% of gross revenues) increased by €50 million (+4%) to €1,323 million due to premium adjustments due to medical inflation. APE decreased by €40 million (-16%) to €218 million. Life decreased by €23 million (-20%) to €114 million, mainly due to decreasing single premiums from G/A short term investment products and conventional annuities, as well as the curtailment of “Twinstar” Variable Annuity product production; Health decreased by €17 million (-14%) to €104 million, due to the non recurrence of strong sales in the previous year driven by brokers’ anticipation of a change in regulation capping their commissions effective April 2012. Investment margin decreased by €6 million (-10%) to €51 million due to a decrease in investment income, mainly on fixed income assets, as a result of lower reinvestment yields. Fees & revenues decreased by €8 million (-5%) to €149 million mainly due to lower loadings on Health business following new business sales decrease. Net technical margin rose by €25 million to €29 million mainly due to (i) an increase in the hedge margin on GMxB products (up €14 million to €-19 million) and (ii) a higher mortality margin in Health business. 1 €3,221 million after intercompany eliminations. 28 Half Year 2013 Financial Report (in Euro million) FY 2012 6,655 454 111 340 6 (267) (23) - 167 (46) (0) 120 5 125 (5) - - (1) 119 ACTIVITY REPORT Expenses decreased by €3 million (-3%) to €-100 million, mainly due to savings derived from productivity programs, partly offset by inflation. Amortization of VBI decreased by €4 million (-34%) to €-7 million. As a result, the underlying cost income ratio decreased by 5.2 points to 46.8%. Income tax expenses increased by €3 million (+8%) to €-42 million, mainly due to higher pre-tax underlying earnings. Underlying earnings increased by €14 million (+21%) to €79 million. Adjusted earnings increased by €39 million (+68%) to €96 million due to higher underlying earnings and higher realized capital gains on fixed income assets. Net income increased by €28 million (+34%) to €109 million as the increase in adjusted earnings was partly offset by a less favorable change in the fair value of fixed income mutual funds and of economic hedge derivatives not eligible for hedge accounting, mostly attributable to higher interest rates. Half Year 2013 Financial Report 29 I I ACTIVITY REPORT Life & Savings operations – Switzerland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 5,206 310 103 147 73 (125) (1) - 196 (46) - 150 21 170 (13) - (3) - 4,838 256 63 144 111 (112) 1 - 206 (51) - 155 3 158 15 - (3) - 6,551 374 193 283 195 (257) (18) - 396 (83) - 314 23 336 (4) - (7) - Net income Group share 154 170 326 Average exchange rate : 1.00 € = Swiss Franc 1.2295 1.2046 1.2046 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Gross revenues increased by €367 million (+8%) to €5,206 million1. On a comparable basis, gross revenues increased by €475 million (+10%) driven by both Group Life and Individual Life business: Group Life revenues increased by €444 million (+10%) to €4,748 million driven by premiums from full protection scheme contracts (€+467 million) as aresult of the strong business from both new and existing clients; Individual Life revenues increased by €31 million (+7%) to €458 million mainly due to higher single premiums (€+27 million) resulting from the continuing success of Protect Star product. APE increased by €54 million (+21%) to €310 million. On a comparable basis, APE increased by 61 million (+24%): Group Life increased by €66 million (+33%) driven by a strong growth in full protection scheme contracts (€+62 million); Individual Life decreased by €5 million (-9%) driven by lower Variable Annuity business demand. Investment margin increased by €40 million (+63%) to €103 million. On a constant exchange rate basis, investment margin increased by €42 million (+67%) as a result of a policyholder bonus reserve release on Individual Life (€+29 million), while lower investment income (€-25 million) mainly resulting from lower reinvestment yields on fixed income assets, was more than offset by lower policyholder participation (€+38 million). Fees & revenues increased by €3 million (+2%) to €147 million. On a constant exchange rate basis, fees & revenues increased by €6 million (+4%) mainly resulting from higher Group Life revenues. 1 €5,202 million after intercompany eliminations. 30 Half Year 2013 Financial Report ACTIVITY REPORT Net technical margin decreased by €38 million (-35%) to €73 million. On a constant exchange rate basis, net technical margin decreased by €37 million (-33%), mainly due to a deteriorated disability claims experience and a less favorable mortality margin. Expenses increased by €12 million (+11%) to €-125 million. On a constant exchange rate basis, expenses increased by €15 million (+13%) mainly driven by higher administrative expenses. Administrative expenses increased by €19 million (+26%) mainly driven by higher regulatory project costs and expenses related to new product launches. Amortization of VBI increased by €2 million to €-1 million. On a constant exchange rate basis, amortization of VBI increased by €2 million impacted by non-recurring 2012 positive assumption updates, partly offset by model refinements in Group Life (€+14 million). As a result, the underlying cost income ratio increased by 3.9 points to 39.1%. Income tax expenses decreased by €5 million (-9%) to €-46 million. On a constant exchange rate basis, income tax expenses decreased by €4 million (-7%) mainly driven by lower pre-tax underlying earnings. Underlying earnings decreased by €5 million (-3%) to €150 million. On a constant exchange rate basis, underlying earnings decreased by €2 million (-1%). Adjusted earnings increased by €12 million (+8%) to €170 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+10%) driven by higher realized capital gains mainly on hedge funds and fixed income assets. Net income decreased by €16 million (-9%) to €154 million. On a constant exchange rate basis, net income decreased by €12 million (-7%), mainly due to a negative change in the fair value of economic hedge derivatives not eligible for hedge accounting, partially offset by higher adjusted earnings. Half Year 2013 Financial Report 31 I I ACTIVITY REPORT Life & Savings operations – Belgium (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 1,151 94 162 61 12 (122) (2) - 110 (29) (0) 81 8 89 (19) - - (1) 1,225 119 155 69 15 (130) (4) - 105 (28) (0) 77 44 121 59 (8) - (2) 2,088 175 306 143 42 (265) (12) - 213 (63) (0) 150 52 201 87 (13) (0) (3) Net income Group share 69 170 272 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. For consistency, 2013 figures have been compared to the same scope for 2012, i.e. excluding “Vie Populaire” product portfolio which was sold in September 2012. This is referred to as “comparable scope basis” in the commentary below. Gross revenues decreased by €74 million (-6%) to €1,151 million1. On a comparable scope basis, gross revenues were €57 million (-5%) lower than prior year: G/A Protection & Health revenues (36% of gross revenues) decreased by €8 million (-2%) mainly due to run-off products in Individual Protection business (€-7 million); Unit-Linked revenues (34% of gross revenues) increased by €349 million mainly driven by the launch of Oxylife hybrid product (€+204 million) and the launch of two structured funds (€+97 million); G/A Savings revenues (31% of gross revenues) decreased by €398 million (-53%) mainly due to lower guaranteed rate on the run-off Crest product line (€-598 million), partly offset by the launch of Oxylife hybrid product (€+186 million). APE decreased by €25 million (-21%) to €94 million. On a comparable scope basis, APE was €23 million (- 20%) lower than prior year: G/A Protection & Health (10% of APE) decreased by €16 million (-63%) mainly due to the non-repeat of a 2012 large Corporate contract; Unit-Linked (48% of APE) increased by €42 million mainly driven by the launch of Oxylife hybrid product (€+28 million) and structured funds (€+10 million); G/A Savings (42% of APE) decreased by €49 million (-55%) mainly due to the curtailment of Crest product line (€-75 million), partly offset by the launch of Oxylife hybrid product (€+22 million). 1 €1,151 million after intercompany eliminiations. 32 Half Year 2013 Financial Report ACTIVITY REPORT Investment margin increased by €7 million (+4%) to €162 million. On a comparable scope basis, investment margin increased by €7 million (+4%). Fees & revenues decreased by €8 million (-12%) to €61 million. On a comparable scope basis, fees & revenues decreased by €4 million (-6%) mainly driven by a decrease in loadings on premiums as a result of lower gross revenues and a change in business mix. Net technical margin decreased by €3 million (-21%) to €12 million. On a comparable scope basis, net technical margin remained stable. Expenses decreased by €7 million (-6%) to €-122 million. On a comparable scope basis, expenses remained stable as lower commissions and expense savings reflecting continued cost management were offset by inflation. Amortization of VBI decreased by €2 million to €-2 million. On a comparable scope basis, VBI decreased by €2 million. As a result, the underlying cost income ratio improved by 2.8 points to 53.1%. On comparable scope basis, the underlying cost income ratio improved by 1.5 points. Income tax expenses increased by €-1 million (+4%) to €-29 million. On a comparable scope basis, income tax expenses increased by €-1 million due to the increase of pre-tax underlying earnings. Underlying earnings increased by €3 million (+5%) to €81 million. On a comparable scope basis, underlying earnings increased by €3 million. Adjusted earnings decreased by €32 million (-27%) to €89 million. On a comparable scope basis, adjusted earnings decreased by €32 million mainly due to lower realized capital gains (€-33 million) principally on fixed income assets and equities. Net income decreased by €101 million to €69 million. On comparable scope basis, net income decreased by €110 million mainly driven by lower adjusted earnings (€-32 million), the non repeat of 2012 favorable change in the fair value of mutual funds and others assets (€-45 million) and by an unfavorable change in fair value of interest rate hedging swaps not eligible for hedge accounting (€-33 million) as a result of the rise in interest rates. Half Year 2013 Financial Report 33 I I ACTIVITY REPORT Life & Savings operations – Central & Eastern Europe HY 2013 HY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 195 55 5 85 21 (92) (1) - 17 (2) (0) 15 (0) 15 (0) 11 (1) (0) 25 222 78 14 56 18 (68) (1) - 19 (2) (0) 17 2 19 0 - (1) - 18 Gross revenues decreased by €27 million (-12%) to €195 million1. On a comparable basis, gross revenues decreased by €26 million (-12%), mainly driven by the change in accounting (transfer to off-balance sheet) of the “Transformed Funds” in Czech Republic due to regulatory changes effective from January 1st 2013 (€-83 million), partly offset by higher Unit-Linked revenues in the Czech Republic (€+42 million) and from Protection in Poland (€+7 million). APE decreased by €23 million (-29%) to €55 million. On a comparable basis, APE decreased by €22 million (- 29%) driven by Pension Fund activities in quasi run-off following the regulatory changes in Poland and Hungary in the prior years (-45% to €12 million) and Life business (-22% to €43 million) driven by lower Unit- Linked products sales (-56% to €13 million), partly offset by higher Protection sales (+58% to €10 million). Underlying earnings decreased by €2 million (-11%) to €15 million. On a constant exchange rate basis, Underlying earnings decreased by €2 million mainly due to the lower contribution from Pension Fund business in Czech Republic following regulatory changes (€-4 million to €2 million), partly offset by higher contributions from the Polish and the Slovakian operations. Adjusted earnings decreased by €4 million (-20%) to €15 million. On a constant exchange rate basis, Adjusted earnings decreased by €4 million driven by lower underlying earnings and lower realized capital gains (€-2 million). Net income increased by €7 million (+39%) to €25 million. On a constant exchange rate basis, net income increased by €7 million driven by an exceptional result from the change in regulation in the Czech Pension Funds (€11 million), partly offset by lower adjusted earnings. 1 €195 million after intercompany eliminations. 34 Half Year 2013 Financial Report (in Euro million) FY 2012 472 136 28 131 44 (189) (7) - 8 (8) (0) 1 5 5 0 - (12) (1) (8) ACTIVITY REPORT Life & Savings operations – Mediterranean and Latin American Region (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,001 227 131 210 83 (245) (6) - 173 (37) (46) 90 11 100 (1) (2) (1) (1) 96 2,258 190 144 178 73 (235) (7) - 153 (50) (27) 76 3 79 (11) (0) (10) (1) 57 4,836 402 288 372 141 (507) (14) - 280 (53) (65) 162 9 171 (26) (3) (10) (3) 129 Gross revenues increased by €743 million (+33%) or €738 million (+33%) on a comparable basis to €3,001 million1: Mature markets were up €735 million (+36%) mainly driven by higher sales in Unit-Linked savings products (€+720 million), stemming from the success of “Protected Unit” product at AXA MPS; High growth markets increased by €3 million (+2%) mainly driven by higher Individual Protection and Pension new business in Turkey (€+12 million) as well as growth in G/A Savings in Morocco (€+7 million), partly offset by lower retention in Protection in Mexico (€-16 million). APE increased by €38 million (+20%) or €37 million (+19%) on a comparable basis to €227 million: Mature markets were up €34 million (+21%) to €197 million, principally reflecting a better performance on Unit-Linked products (€+34 million), mainly at AXA MPS; High growth markets increased by €+2 million (+9%) to €30 million, mainly driven by Turkey (€+5 million) due to a good performance in Pension business, partly compensated by Mexico (€-3 million) which is actively de-emphasizing Protection with Savings products with low profitability. Investment margin decreased by €14 million (-9%) to €131 million. On a constant exchange rate basis, investment margin decreased by €14 million (-10%) mainly due to AXA MPS (€-10 million) driven by lower average assets as a consequence of a high level of surrenders. Fees & revenues increased by €33 million (+19%) to €210 million. On a constant exchange rate basis, fees & revenues increased by €32 million (+18%) largely driven by AXA MPS (€+39 million) from higher unearned revenues reserves amortization (partly offset in deferred acquisition costs) mainly reflecting higher surrenders combined with strong sales of “Protected Unit” unit-linked product. 1 €2,996 million after intercompany eliminations. Half Year 2013 Financial Report 35 I I ACTIVITY REPORT Net technical margin rose by €10 million (+14%) to €83 million. On a constant exchange rate basis, net technical margin increased by €10 million (+14%) with a strong contribution from mature markets (€+11 million) driven by a higher mortality margin (€+8 million) due to better claims experience in protection business as well as by an improved GMxB margin (€+3 million) notably from higher surrenders. Expenses increased by €11 million (+4%) to €-245 million. On a constant exchange rate basis, expenses increased by €9 million (+4%): Mature markets were up €16 million, mainly driven by AXA MPS, reflecting higher deferred acquisition costs amortization in line with increased surrenders; High growth markets decreased by €7 million primarily due to Mexico (€-9 million) mainly from 2012 non recurring commission adjustments partly offset by higher marketing costs to promote pension business in Turkey. Amortization of VBI decreased by €1 million (-8%) to €-6 million. On a constant exchange rate basis, amortization of VBI decreased by €1 million (-9%). As a result, underlying cost income ratio decreased by 2.1 points to 59.2%. Income tax expenses decreased by €13 million (-25%) to €-37 million. On a constant exchange rate basis, income tax expenses decreased by €13 million (-26%), despite higher pre-tax underlying earnings, due to higher tax benefits from technical reserves evolution at AXA MPS. Underlying earnings increased by €13 million (+18%) to €90 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+17%). Adjusted earnings increased by €22 million (+27%) to €100 million. On a constant exchange rate basis, adjusted earnings increased by €21 million (+27%) driven by higher underlying earnings and higher realized capital gains. Net income increased by €39 million (+70%) to €96 million. On a constant exchange rate basis, net income increased by €39 million (+70%) mainly driven by higher adjusted earnings and a favorable change in the fair value of interest rates hedging derivatives not eligible for hedge accounting, mainly at AXA MPS, as well as the non repeat of 2012 accelerated amortization of a distribution agreement in Greece. 36 Half Year 2013 Financial Report ACTIVITY REPORT Life & Savings operations – Hong Kong (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Hong Kong Dollar 983 215 6 241 21 (132) (7) - 130 2 - 132 6 138 16 (0) - - 154 10.1862 796 180 2 214 28 (107) (5) (4) 128 (9) - 119 11 130 (5) (13) - - 113 10.0651 1,723 408 9 444 42 (229) (13) (1) 251 1 - 252 21 273 (10) (29) - - 235 9.9938 Gross revenues increased by €187 million (+23%) to €983 million1. On a comparable basis, gross revenues increased by €198 million (+25%) due to higher revenues from Unit-Linked products (€+99 million) driven by higher new business sales reflecting a wider broker network and some large contracts in 2013, higher revenues from G/A Protection & Health products (€+73 million) mainly driven by in-force growth, and G/A Savings (€+25 million) with higher sales of retirement products. APE increased by €36 million (+20%) to €215 million. On a comparable basis, APE increased by €38 million (+21%) mainly due to higher sales of Unit-Linked products (€+31 million) reflecting a wider broker network and some large contracts in 2013, while G/A Protection & Health sales were stable with a change in mix towards Pure Protection and Health. Investment margin increased by €4 million to €6 million. On a constant exchange rate basis, investment margin increased by €4 million driven by higher investment income from investing in longer-term fixed income securities. Fees & revenues increased by €27 million (+13%) to €241 million. On a constant exchange rate basis, fees & revenues increased by €30 million (+14%) mainly driven by an increase in loadings on premiums stemming from new business and in-force growth. Net technical margin fell by €7 million (-24%) to €21 million. On a constant exchange rate basis, net technical margin decreased by €6 million (-23%) mainly driven by lower surrender margin following improved retention. 1 €983 million after intercompany eliminations. Half Year 2013 Financial Report 37 I I ACTIVITY REPORT Expenses increased by €24 million (+22%) to €-132 million. On a constant exchange rate basis, expenses increased by €26 million (+24%) mainly due to higher investments in business infrastructure and higher acquisition expenses driven by new business and in-force growth. Amortization of VBI increased by €2 million (+39%) to €-7 million. On a constant exchange rate basis, amortization of VBI increased by €2 million (+41%). As a consequence, the underlying cost income ratio increased by 5.5 points to 51.6%. Income tax expenses decreased from €9 million charge in 1H 2012 to a €2 million benefit in 1H 2013. On a constant exchange rate basis, income tax expenses decreased by €12 million, mainly due to a tax benefit (€10 million) driven by a change in the tax base for a block of insurance business in the context of the merger of two insurance entities. Underlying earnings increased by €14 million (+11%) to €132 million. On a constant exchange rate basis, underlying earnings increased by €15 million (+13%). Adjusted earnings increased by €8 million (+7%) to €138 million. On a constant exchange rate basis, adjusted earnings increased by €10 million (+8%) driven by higher underlying earnings (€+15 million), partly offset by lower net realized capital gains, mainly on equities. Net income increased by €41 million (+37%) to €154 million. On a constant exchange rate basis, net income increased by €43 million (+38%) driven by a favorable change in the fair value of interest rate derivatives (€+23 million), the non-repeat of 2012 losses related to the closure of two distribution networks (€+12 million), and higher adjusted earnings (€+10 million). 38 Half Year 2013 Financial Report ACTIVITY REPORT Life & Savings operations – South-East Asia, India and China (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 133 237 54 0 54 0 (2) - (0) 52 140 190 35 (0) 35 (1) (4) - - 30 295 463 86 (1) 85 (1) (7) - - 77 Note: For consistency, 2013 figures have been compared to the same scope for 2012, i.e. adjusted for (i) Group share change in China from 51% to 27.5% as of July 2012, and (ii) alignment of reporting period with group calendar year in Indonesia, China and Thailand since full year 2012. Gross Revenues1,2 decreased by €6 million (-5%) to €133 million. On a comparable basis, gross revenues increased by €2 million (+1%) mainly driven by higher revenues from G/A Protection & Health mainly in Singapore with the launch of new products, partly offset by the slowdown in Unit-Linked business in both Indonesia and Singapore. APE2 increased by €47 million (+24%) to €237 million. On a comparable basis, APE increased by €52 million (+27%) mainly driven by sales growth in G/A Protection & Health business in particular in China with continued momentum (€+28 million) reflecting ICBC-AXA Life joint venture which commenced in July 2012, and Thailand (€+19 million) driven by sales initiatives through both the agency and bancassurance channels. Underlying earnings2 increased by €19 million (+54%) to €54 million. On a constant exchange rate and scope basis, underlying earnings increased by €14 million (+32%) mainly due to business growth in Indonesia (€+8 million), China (€+1 million) and Philippines (€+1 million). Adjusted earnings2 increased by €19 million (+56%) to €54 million. On a constant exchange rate and scope basis, adjusted earnings increased by €14 million (+33%), driven by underlying earnings growth. Net income2 increased by €22 million (+74%) to €52 million. On a constant exchange rate and scope basis, net income increased by €16 million (+42%), mainly reflecting growth in adjusted earnings. 1 Gross revenues of €133 million is after intercompany eliminations and include Singapore and non-bancassurance subsidiaries in Indonesia. 2 South-East Asia, India & China Life & Savings scope: (i) for gross revenues: Singapore and non-bancassurance subsidiaries in Indonesia, on a 100% share basis; (ii) for APE, NBV, underlying earnings, adjusted earnings and net income: China, India, Indonesia, Thailand, Philippines and Singapore, on a group share basis. Malaysia operations are not consolidated. Half Year 2013 Financial Report 39 I I ACTIVITY REPORT Life & Savings Operations - Other The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues HY 2013 HY 2012 Luxembourg 61 41 AXA Life Invest 11 13 Family protect 3 1 Other (0) (0) TOTAL 74 55 Intercompany transactions (10) (12) Contribution to consolidated gross revenues 64 44 Underlying, Adjusted earnings and Net Income HY 2013 HY 2012 Luxembourg 3 3 AXA Life Invest (7) (7) Family Protect (8) (9) Other (1) (1) UNDERLYING EARNINGS (13) (14) Net realized capital gains or losses attributable to shareholders 0 0 ADJUSTED EARNINGS (13) (13) Profit or loss on financial assets (under Fair Value option) & derivatives 0 0 Exceptional operations (including discontinued operations) (1) Goodwill and related intangible impacts Integration and restructuring costs NET INCOME (14) (13) FAMILY PROTECT Underlying earnings as well as adjusted earnings and net income reached €-8 million in 1H 2013, reflecting continued investments and direct marketing expenditure to ensure the progressive ramp-up of the activity. AXA LIFE INVEST Underlying earnings as well as adjusted earnings were stable at €-7 million following lower revenues offset by lower expenses. Net income decreased by €1 million to €-8 million due to exceptional compensation. 40 Half Year 2013 Financial Report (in Euro million) FY 2012 82 27 3 (0) 112 (24) 87 (in Euro million) FY 2012 6 (19) (22) (2) (38) 1 (37) 0 (37) ACTIVITY REPORT Property & Casualty Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. (in Euro million) HY 2013 HY 2012 published HY 2012 restated (a) FY 2012 published FY 2012 restated (a) Gross revenues (b) 16,693 16,391 16,391 28,559 28,559 Current accident year loss ratio (net) 71.3% 72.2% 72.2% 72.0% 72.0% All accident year loss ratio (net) 69.5% 70.1% 70.1% 70.8% 70.8% Net technical result before expenses 4,329 4,174 4,172 8,292 8,288 Expense ratio 26.2% 26.3% 26.4% 26.8% 26.9% Net investment result 1,005 1,033 1,033 2,007 2,006 Underlying earnings before tax 1,609 1,533 1,523 2,680 2,657 Income tax expenses / benefits (467) (488) (486) (838) (834) Net income from investments in affiliates and associates 7 16 16 43 43 Minority interests (22) (17) (17) 11 11 Underlying earnings Group share 1,128 1,044 1,036 1,895 1,877 Net capital gains or losses attributable to shareholders net of income tax 102 45 44 171 171 Adjusted earnings Group share 1,229 1,089 1,081 2,066 2,049 Profit or loss on financial assets (under FV option) & derivatives (35) (3) (3) 89 89 Exceptional operations (including discontinued operations) (1) 8 8 8 8 Goodwill and other related intangibles impacts (39) (37) (37) (70) (70) Integration and restructuring costs (24) (41) (41) (119) (119) Net income Group share 1,130 1,017 1,008 1,975 1,957 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Before intercompany eliminations. Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 France 3,188 3,186 5,730 United Kingdom & Ireland 2,109 2,194 4,150 Germany 2,386 2,402 3,824 Switzerland 2,425 2,460 2,744 Belgium 1,118 1,146 2,087 Central & Eastern Europe - Luxembourg (a) 97 99 173 Mediterranean and Latin American Region (b) 3,775 3,555 7,107 Direct (c) 1,152 1,085 2,215 Asia 444 266 529 TOTAL 16,693 16,391 28,559 Intercompany transactions (196) (219) (244) Contribution to consolidated gross revenues 16,497 16,173 28,315 o/w. high growth markets o/w. Direct o/w. mature markets 2,272 1,152 13,073 1,829 1,085 13,259 3,843 2,215 22,257 (a) Central & Eastern Europe includes Ukraine and Reso (Russia). (b) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (in Euro million) Half Year 2013 Financial Report 41 I I ACTIVITY REPORT Combined Ratio HY 2013 HY 2012 published HY 2012 restated (a) Total 95.7% 96.4% 96.5% France 92.9% 94.8% 94.7% United Kingdom & Ireland 98.2% 99.9% 99.9% Germany 97.4% 97.4% 97.4% Switzerland 90.5% 89.8% 90.7% Belgium 89.2% 93.1% 93.1% Central & Eastern Europe - Luxembourg (b) 102.0% 100.2% 100.2% Mediterranean and Latin American Region (c) 98.7% 97.1% 97.1% Direct (d) 99.3% 101.8% 101.8% Asia 93.2% 95.3% 95.3% Mature 95.0% 95.7% 95.8% Direct 99.3% 101.8% 101.8% High growth 97.6% 97.5% 97.5% (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Excluding RESO - RESO combined ratio amounted to 104.9% as of June 30, 2013. (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region and Mexico. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. Underlying earnings HY 2013 HY 2012 published HY 2012 restated (a) France 294 247 248 United Kingdom & Ireland 114 94 94 Germany 142 143 143 Switzerland 185 198 189 Belgium 143 114 114 Central & Eastern Europe - Luxembourg (b) 5 20 20 Mediterranean and Latin American Region (c) 173 198 198 Direct (d) 41 19 19 Asia 31 11 11 UNDERLYING EARNINGS 1,128 1,044 1,036 o/w. high growth markets 118 109 109 o/w. Direct 41 19 19 o/w. mature markets 969 916 908 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Central & Eastern Europe includes Ukraine and Reso (Russia). (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, and Mexico. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. 42 Half Year 2013 Financial Report FY 2012 published 97.6% 95.1% 100.7% 99.7% 88.7% 93.6% 99.6% 100.5% 100.6% 96.0% 96.3% 100.6% 104.2% FY 2012 published 486 154 251 420 222 52 232 54 23 1,895 77 54 1,763 FY 2012 restated (a) 97.7% 95.1% 100.7% 99.7% 89.6% 93.7% 99.6% 100.5% 100.6% 96.0% 96.4% 100.6% 104.2% (in Euro million) FY 2012 restated (a) 487 154 251 402 221 52 232 55 23 1,877 77 55 1,746 ACTIVITY REPORT Property & Casualty Operations – France (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 3,188 72.0% 69.2% 866 23.7% 261 462 (168) - (0) 294 (0) 293 (2) - (3) - 288 3,186 72.9% 70.6% 825 24.1% 270 418 (170) - (0) 248 16 264 (7) - - - 257 5,730 73.4% 70.9% 1,667 24.2% 513 793 (306) - (0) 487 58 545 39 - - - 584 Gross revenues increased by €+2 million to €3,188 million1. On a comparable basis, excluding the internal transfer to AXA Assistance of some service guarantees, gross revenues increased by 1% (or €+45 million): Personal lines (56% of gross revenues) were up 0.3% to €1,762 million mainly driven by tariff increases in all segments and positive net new contracts in Motor, despite negative net new contracts in Household; Commercial lines (44% of the gross revenues) were up by 3% to €1,382 million mainly driven by tariff increases, partly offset by lower volumes in a context of selective underwriting. Net technical result rose by €41 million (+5%) to €866 million: Current accident year loss ratio decreased by 0.9 point to 72.0%, mainly driven by tariff increases and lower frequency notably in Personal Motor and Household, especially related to climatic events; All accident year loss ratio decreased by 1.4 points to 69.2%, reflecting the improvement of current accident year loss ratio, as well as €14 million higher positive prior year reserve developments, notably in Liability. Expense ratio decreased by 0.4 point to 23.7% mainly driven by a contained cost base as well as a higher non recurring positive impact from tax contributions (€+24 million in 1H 2013 vs. €+16 million in 1H 2012). Enlarged expense ratio was down 0.8 point to 30.2%, driven by an improved expense ratio as well as lower claims handling costs. As a consequence, the combined ratio was down 1.8 points to 92.9%. 1 €3,143 million after intercompany eliminations. Half Year 2013 Financial Report 43 I I ACTIVITY REPORT Net investment result decreased by €9 million (-3%) to €261 million mainly due to lower yields on fixed income assets (€-8 million) as a result of lower reinvestment yields as well as a lower inflation rate. Income tax expenses decreased by €2 million (-1%) to €-168 million reflecting higher pre-tax underlying earnings, partly offset by the non repeat of 1H 2012 negative tax one-off (€+11 million). As a result, underlying earnings increased by €46 million (+18%) to €294 million. Adjusted earnings increased by €29 million (+11%) to €293 million as a consequence of higher underlying earnings and lower impairments (€+29 million) mainly on equities, reflecting the improved market conditions, partly offset by lower realized capital gains (€-27 million) on equities and by a decrease in the impact of equity hedging derivatives (€-19 million). Net income increased by €31 million (+12%) to €288 million in line with the increase in adjusted earnings. 44 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,109 69.1% 68.4% 621 29.8% 106 142 (28) - (0) 114 0 114 4 - (1) - 2,194 71.2% 71.1% 581 28.9% 121 123 (28) - (0) 94 21 116 (17) - (1) (5) 4,150 69.4% 70.5% 1,209 30.2% 233 203 (49) - (0) 154 41 195 (26) - (2) (13) Net income Group share 118 93 154 Average exchange rate : 1.00 € = £ (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 0.8508 0.8226 0.8138 Gross revenues decreased by €85m (-4%) to €2,109 million 1. On a comparable basis, gross revenues increased by €12 million (+1%): Personal lines (48% of gross revenues) were down 8% at €979 million. Motor was down 3% to €265 million due to adverse performance in Ireland as a result of decreases average premium. Non-Motor was down 10% to €714 million. Property was down 22% to €234 million principally due to unfavorable volume negatively impacted by tariff increases and exiting partnerships in the UK. Health was up 4% at €326 million following further growth in both the UK and International businesses. Other Personal lines were down 14% to €153 million following the continued exit from unprofitable schemes. Commercial lines (52% of gross revenues) were up 9% to €1,100 million. Motor was up 7% to €202 million mainly due to renewal tariff increases and higher retention within the UK. Non-Motor was up 9% to €898 million. Property was up 11% to €301 million reflecting improved retention, tariff increases and new e-partner deals. Health was up 7% to €461 million mainly due to continued growth in the UK and International Large Corporate business. Net technical result increased by €40 million (+7%) to €621 million. On a constant exchange rate basis, net technical result increased by €58 million (+10%). Current year loss ratio decreased by 2.1 points to 69.1% mainly driven by a lower Nat Cat charge (- 1.0 point), lower frequency especially in Property and continued price increases across all lines of business. All accident year loss ratio decreased by 2.7 points to 68.4% reflecting 2.1 points improvement of the current year loss ratio and higher positive prior year reserve developments. Expense ratio increased by 1.0 point to 29.8%. The administrative expense ratio was up 0.5 point to 8.6%, largely due to IT investments in Healthcare and the impact of the purchase of “Health on Line” partly offset by expense efficiencies across the UK & Ireland embedded through restructuring programs. The acquisition 1 €2,039 million after intercompany eliminations. Half Year 2013 Financial Report 45 I I ACTIVITY REPORT expense ratio was up 0.5 point to 21.2% mainly driven by 0.4 point increase in non-commission ratio due to the purchase of “Health on Line”, growth in Health International business, partly offset by restructuring programs across the UK and Ireland. Enlarged expense ratio was up 0.5 point to 32.5% as the increase in the expense ratio was partly offset by a 0.4 point improvement in the claims handling costs ratio due to a favorable business mix and lower claims frequency. As a result the combined ratio was down 1.7 points to 98.2%. Net investment result decreased by €15 million (-13%) to €106 million. On a constant exchange rate basis, net investment result decreased by €13 million (-10%) due to lower yields on fixed income assets and lower income from mutual funds. Income tax expenses were in line with the prior year at €-28 million. On a constant exchange rate basis, income tax expenses remained stable (+1%) reflecting higher pre-tax underlying earnings, partly offset by the non-repeat of 1H 2012 one off tax charges (€+5 million). Underlying earnings increased by €19 million (+20%) to €114 million. On a constant exchange rate basis, underlying earnings increased by €22 million (+23%). Adjusted earnings decreased by €2 million (-1%) to €114 million. On a constant exchange rate basis, adjusted earnings increased by €1 million (+1%) reflecting the increase in underlying earnings, and lower impairment charges (€+9 million), partly offset by a reduction in realized capital gains (€-28 million) mainly on fixed income assets. Net income increased by €25 million (+27%) to €118 million. On a constant exchange rate basis, net income increased by €27 million (+29%) due to the increase in adjusted earnings, an improvement in the change in fair value of interest rate derivatives mainly following the increase in interest rates (€+20 million), a reduction in restructuring costs (€+5 million) and a favorable foreign exchange rate impact (€+1 million). 46 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Germany (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 2,386 70.0% 68.6% 592 28.8% 159 207 (65) - (0) 142 38 180 (24) 3 (2) - 158 2,402 70.5% 67.8% 606 29.6% 162 211 (68) - (0) 143 (0) 142 24 - (2) - 164 3,824 71.3% 69.4% 1,163 30.4% 332 341 (91) - 0 251 5 255 53 - (4) (12) 292 Gross revenues decreased by € 16 million (-1%) to €2,386 million1: Personal Lines (57% of gross revenues) were stable at €1,355 million as tariff increases were offset by loss of contracts, mainly in Motor; Commercial Lines (36% of gross revenues) decreased by 1% to €858 million mainly in Commercial Motor and Liability, partly compensated by an increase in Property; Other Lines (6% of gross revenues) decreased by 3% to €150 million mainly driven by lower assumed business in Legal Protection. Net technical result decreased by €14 million to €592 million: Current accident year loss ratio decreased by 0.5 point to 70.0% due to improved attritional claims experience (-5.8 points) resulting from tariff increases and lower frequency, despite the floods in Bavaria and Saxony (€50 million), as well as hailstorm events; All accident year loss ratio increased by 0.8 point to 68.6% mainly due to lower positive prior year reserve developments. Expense ratio decreased by 0.8 point to 28.8% due to both lower general expenses as a result of productivity programs and lower commissions reflecting a favorable change in business mix. Enlarged expense ratio was down 0.6 point to 32.1%. As a result, the combined ratio was stable at 97.4%. Net investment result decreased by €3 million (-2%) to €159 million. Income tax expenses decreased by €3 million (-5%) to €-65 million due to a higher share of tax-free investment income. 1 €2,363 million after intercompany eliminations. Half Year 2013 Financial Report 47 I I ACTIVITY REPORT Underlying earnings remained stable at €142 million. Adjusted earnings increased by €38 million (+27%) to €180 million driven by higher realized capital gains mainly on equities. Net income decreased by €6 million (-4%) to €158 million, as increased adjusted earnings were more than offset by a negative change in the fair value of fixed income funds, mainly attributable to the rise in interest rates. 48 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Switzerland (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs 2,425 72.8% 65.8% 461 24.7% 106 234 (48) - (2) 185 13 198 (10) - (13) - 2,460 72.3% 65.6% 472 25.0% 113 241 (50) - (2) 189 1 191 10 - (14) - 2,744 69.3% 63.4% 1,006 26.2% 218 505 (99) - (3) 402 17 419 (13) - (28) - Net income Group share 175 186 378 Average exchange rate : 1.00 € = Swiss Franc (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1.2295 1.2046 1.2069 Gross revenues decreased by €35 million (-1%) to €2,425 million1. On a comparable basis, gross revenues increased by €17 million (+1%): Personal lines (53% of the gross revenues) were up 2% to €1,288 million as a consequence of volume growth in all major business lines; Commercial lines (47% of the gross revenues) were down 1% to €1,144 million mainly resulting from selective underwriting. Net technical result decreased by €12 million (-2%) to €461 million. On a constant exchange rate basis, net technical result decreased by €2 million (0%): Current accident year loss ratio increased by 0.5 point to 72.8% mainly driven by higher natural events charges (+1.5 points) caused by several hail storm events, partly compensated by an improved attritional claims experience, especially in Personal Property; All accident year loss ratio increased by 0.2 point to 65.8% as the slightly higher current accident year loss ratio was partly compensated by more favorable prior year reserve developments. Expense ratio decreased by 0.4 point to 24.7% driven by lower administrative expense ratio following continuing cost management discipline. Enlarged expense ratio was down by 0.7 point to 28.4%. As a result, the combined ratio was down by 0.2 point to 90.5%. 1 €2,418 million after intercompany eliminations. Half Year 2013 Financial Report 49 I I ACTIVITY REPORT Net investment result decreased by €7 million (-6%) to €106 million. On a constant exchange rate basis, net investment result decreased by €5 million (-4%) mainly attributable to a lower reinvestment yield on fixed income assets. Income tax expenses decreased by €2 million (-3%) to €-48 million. On a constant exchange rate basis, income tax expenses decreased by €1 million (-1%) driven by lower pre-tax underlying earnings. Underlying earnings decreased by €5 million (-3%) to €185 million. On a constant exchange rate basis, underlying earnings decreased by €1 million (-1%). Adjusted earnings increased by €7 million (+4%) to €198 million. On a constant exchange rate basis, adjusted earnings increased by €12 million (+6%) mainly driven by higher realized capital gains on fixed income assets. Net income decreased by €11 million (-6%) to €175 million. On a constant exchange rate basis, net income decreased by €8 million (-4%) as the increase in adjusted earnings was more than offset by an unfavorable change in the fair value of fixed income funds, mainly attributable to the rise in interest rates. 50 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Belgium (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,118 65.7% 58.5% 424 30.7% 103 213 (70) - - 143 29 172 (18) - (1) (3) 150 1,146 70.3% 63.6% 381 29.5% 97 169 (55) - (0) 114 (1) 114 (19) - (1) (5) 88 2,087 68.8% 63.4% 768 30.3% 196 329 (107) - (0) 221 11 232 8 - (2) (23) 214 Gross revenues decreased by €28 million (-2%) to €1,118 million1 : Personal lines (48% of the gross revenues) were down 1% to €538 million following negative net new contracts partly offset by tariff increases in both Motor and Household; Commercial lines (50% of the gross revenues) were down 4% to €565 million due to decreases in Motor (€-9 million) mainly following pruning actions, Workers’ Compensation (€-7 million) due to the economic environment, Health (€-6 million) due to portfolio losses and Marine (€-6 million) due to a transfer of a large contract to AXA Corporate Solutions. Net technical result increased by €43 million (+11%) to €424 million: Current accident year loss ratio decreased by 4.6 points to 65.7% mainly driven by an improved attritional claims experience (-3.4 points) resulting from tariff increases and lower frequency, as well as lower large claims (-1.7 points); All accident year loss ratio decreased by 5.1 points to 58.5% due to an improved current accident year loss ratio and higher positive prior year reserve developments, mainly on annuities. Expense ratio rose by 1.2 points to 30.7% due to lower revenues, higher non commission expenses and an increase in commission rates driven by a change in business mix. Enlarged expense ratio was up 1.6 points to 38.4%. As a result, the combined ratio was down 3.9 points to 89.2%. Net investment result increased by €6 million (+6%) to €103 million due to higher dividends following higher asset allocation in equities partially offset by lower reinvestment yields in fixed income assets. Income tax expenses increased by €15 million (+27%) to €-70 million due to higher pre-tax underlying earnings. 1 €1,098 million after intercompany eliminations. Half Year 2013 Financial Report 51 I I ACTIVITY REPORT Underlying earnings increased by €29 million (+26%) to €143 million. Adjusted earnings increased by €59 million (+52%) to €172 million mainly driven by higher underlying earnings and higher realized capital gains on fixed income assets. Net income increased by €63 million (+71%) to €150 million mainly driven by higher adjusted earnings and a favorable change in the fair value of inflation derivatives, partly offset by an unfavorable change in the fair value of mutual funds, mainly attributable to higher interest rates and widening credit spreads. 52 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Central & Eastern Europe and Luxembourg Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 Luxembourg Ukraine Reso (Russia) TOTAL Intercompany transactions Contribution to consolidated gross revenues 63 34 - 97 - 97 63 35 - 99 - 99 99 74 - 173 - 173 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 FY 2012 Luxembourg Ukraine Reso (Russia) (a) 2 1 1 3 1 16 8 1 43 UNDERLYING EARNINGS 5 20 52 Net realized capital gains or losses attributable to shareholders 8 (4) (4) ADJUSTED EARNINGS 12 16 49 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 1 - (1) - 5 - (2) - 10 - (2) - NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. 13 19 57 UKRAINE Gross revenues decreased by €1 million (-4%) to €34 million. On a comparable basis, gross revenues decreased by €1 million (-2%) driven by lower premiums in bancassurance channel, partly offset by positive developments in the proprietary network. Underlying earnings, adjusted earnings and net income were stable at €1 million on a constant exchange rate basis. RESO (RUSSIA) Underlying earnings decreased by €15 million to €1 million on a constant exchange rate basis, mainly driven by higher one-off expenses (€-13 million) and a deterioration in claims experience. As a result, the combined ratio was up 7.9 points to 104.9%. Adjusted earnings decreased by €3 million to €9 million on a constant exchange rate basis, driven by lower underlying earnings, partly offset by higher realized capital gains (€+9 million) and lower impairments (€+6 million). Half Year 2013 Financial Report 53 I I ACTIVITY REPORT Net income decreased by €6 million to €9 million on a constant exchange rate basis, mainly due to lower adjusted earnings. 54 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Mediterranean and Latin American Region (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,775 72.1% 73.6% 950 25.1% 202 250 (63) 1 (15) 173 15 188 13 (4) (10) (10) 176 3,555 72.3% 71.6% 980 25.5% 206 305 (96) - (11) 198 13 210 4 8 (15) (16) 192 7,107 73.0% 74.8% 1,775 25.7% 384 348 (138) 0 22 232 40 272 19 8 (24) (42) 233 Gross revenues increased by €221 million (+6%) to €3,775 million1. On a comparable basis, gross revenues increased by €204 million (+6%) driven by the acceleration of high growth markets (+16% or €+252 million), partly offset by mature markets (-2% or €-48 million) principally in Spain, continuing to suffer from a difficult economic environment. Personal lines (57% of the gross revenues) were up 3% to €2,152 million driven by Motor lines (+4% or €+58 million) reflecting growth in Turkey (€+81 million) from both tariff increases and positive volume effect, partly offset by a decrease in Spain (€-25 million) as positive net new contracts were more than offset by pricing and mix effects; Commercial lines (42% of the gross revenues) were up 10% to €1,613 million driven by Non-Motor lines (+11% or €+107 million) in high growth markets (€+108 million) with positive volume effect and tariff increases in Health in both the Gulf region (€+49 million) and Mexico (€+14 million) and new business in property in both Turkey (€+23 million) and Mexico (€+16 million). Motor lines were up 9% (or €+43 million) in Turkey (€+46 million) mainly from tariff increases and in the Gulf region (€+25 million) from a new large account, partly offset by high level of cancellations in both Mexico (€-26 million) and Spain (€-5 million); Other lines (1% of the gross revenues) were up 4% to €33 million. Net technical result decreased by €30 million (-3%) to €950 million. On a constant exchange rate basis, net technical result decreased by €36 million (-4%) due to Spain (€-105 million) and Morocco (€-22 million), partly offset by good results in Turkey (€+49 million) and Italy (€+47 million). Current accident year loss ratio decreased by 0.2 point to 72.1% including a 0.4 point Nat Cat charge. Mature markets increased by 0.5 point while high growth markets decreased by 1.3 points. Excluding 1 €3,748 million after intercompany eliminations. Half Year 2013 Financial Report 55 I I ACTIVITY REPORT the Nat Cat charge, improvement in high growth markets was mainly driven by tariff increases in Motor and Commercial Property in Turkey and in commercial health in Mexico. Deterioration in mature markets was mainly driven by an increase in average claim Motor costs in Spain, partly offset by Italy benefitting from lower frequency in personal Motor and Personal Property. All accident year loss ratio increased by 2.1 points to 73.6% with less favorable prior year reserve developments (€-79 million), mainly in Spain (€-52 million) due to an increase of average claim costs in both Motor and Household as well as in high growth markets (€-47 million), partly offset by more favorable prior year reserve developments in Motor in Italy (€+23 million). Expense ratio decreased by 0.5 point to 25.1% mainly driven by improved administrative expense ratio in high growth markets (-1.1 points) thanks to positive volume effect. Mature markets improved by 0.1 point reflecting benefits from productivity plans, partly offset by a negative volume effect. Enlarged expense ratio improved by 0.6 point to 28.0%. As a result, the combined ratio was up 1.5 points to 98.7%. Net investment result decreased by €4 million (-2%) to €202 million. On a constant exchange rate basis, net investment result decreased by €4 million (-2%) mainly driven by a lower asset base in mature markets. Income tax expenses decreased by €33 million (-34%) to €-63 million. On a constant exchange rate basis, income tax expenses decreased by €33 million (-35%) due to lower pre-tax underlying earnings and a decrease in the effective tax rate reflecting positive tax one-offs (€+14 million). Underlying earnings decreased 25 million (-12%) to €173 million. On a constant exchange rate basis, underlying earnings decreased by €25 million (-13%). Adjusted earnings decreased by €23 million (-11%) to €188 million. On a constant exchange rate basis, adjusted earnings decreased by €23 million (-11%) mainly driven by lower underlying earnings. Net income decreased by €16 million (-8%) to €176 million. On a constant exchange rate basis, net income decreased by €17 million (-9%) mainly reflecting lower adjusted earnings combined with lower restructuring costs in mature markets. 56 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations – Direct business (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,152 77.4% 76.8% 252 22.5% 51 58 (17) - (0) 41 (1) 41 1 - (1) (1) 39 1,085 78.3% 79.9% 216 21.9% 50 31 (12) - (0) 19 (2) 17 (1) - (2) - 14 2,215 78.9% 79.0% 459 21.6% 98 85 (30) - (0) 55 0 55 (1) - (4) (4) 46 Direct business includes operations in France (25% of total Direct gross revenues), the UK (20%), South Korea (19%), Japan (15%), Spain (8%), Italy (6%), Belgium (4%), Poland (3%) and Portugal (1%). Gross revenues increased by €67 million (+6%) to €1,152 million1. On a comparable basis, gross revenues increased by €72 million (+7%): Personal Motor (87% of gross revenues) was up €58 million (+6%) to €1,002 million mainly driven by higher new business and resilient retention in all markets but Spain (-11% or €-11 million), notably in France (+15% or €+27 million), Italy (+31% or €+15 million), Japan (+7% or €+13 million) and in the UK (+5% or €+10 million); Personal Non-Motor (13% of gross revenues) was up €14 million (+10%) to €148 million mainly supported by both higher volume and tariff increases in France and growth in South Korea. Net technical result increased by €36 million (+17%) to €252 million. On a constant exchange rate basis net technical result increased by €47 million (+22%): Current accident year loss ratio decreased by 1.1 points to 77.4% as a result of continued underwriting improvement, lower frequency in Motor together with a lower Nat Cat charge (-0.3 point) mainly driven by favorable weather conditions in the UK; All accident year loss ratio decreased by 3.2 points to 76.8% as a result of the decrease in current accident year loss ratio and favorable prior year reserve developments. Expense ratio increased by 0.5 point to 22.5%. Acquisition ratio increased by 0.2 point reflecting a lower average premium in the UK, and lower volumes in Spain. Administrative ratio increased by 0.3 point mainly due to the investment in South Korea to integrate the ERGO Datum Direct portfolio. Enlarged expense ratio was up by 0.3 point to 28.0%. 1 €1,152 million after intercompany eliminations. Half Year 2013 Financial Report 57 I I ACTIVITY REPORT As a result, the combined ratio was down by 2.5 points to 99.3%. Net investment result increased by €1 million (+2%) to €51 million. On a constant exchange rate basis, net investment result increased by €2 million (+4%) due to a higher asset base. Income tax expenses increased by €6 million to €-17 million. On a constant exchange rate basis, income tax expenses increased by €6 million reflecting higher pre-tax underlying earnings and an unfavorable country mix. Underlying earnings increased by €22 million to €41 million. On a constant exchange rate basis, underlying earnings increased by €24 million. Adjusted earnings increased by €24 million to €41 million. On a constant exchange rate basis, adjusted earnings increased by €25 million due to higher underlying earnings. Net income increased by €25 million to €39 million. On a constant exchange rate basis, net income increased by €26 million due to higher adjusted earnings. 58 Half Year 2013 Financial Report ACTIVITY REPORT Property & Casualty Operations - Asia (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 444 68.3% 65.7% 135 27.5% 9 36 (6) 5 (3) 31 (1) 30 0 - (6) (10) 14 266 68.3% 66.7% 78 28.6% 6 17 (3) - (3) 11 0 11 (0) - - (14) (4) 529 69.0% 67.6% 171 28.4% 14 36 (6) - (6) 23 3 27 (0) - (3) (25) (1) Note: Asia Property & Casualty scope (i) for gross revenues and combined ratio: Hong Kong, Malaysia and Singapore, on a 100% share basis; (ii) for underlying earnings, adjusted earnings and net income: India, Hong Kong, Malaysia, Singapore and Thailand, on a group share basis. China and Indonesia operations are not consolidated. Gross revenues increased by €178 million (+67%) to €444 million1. On a constant exchange rate and scope basis2 gross revenues increased by €41 million (+10%): Personal lines (46% of the gross revenues) were up €14 million (+7%) driven by Non Motor (€+10 million) with growth of Health business in Hong Kong notably through the HSBC bancassurance channel and by Motor (€+5 million) as a result of positive net new contracts mainly reflecting the increase in private car sales in Malaysia; Commercial lines (54% of the gross revenues) were up €28 million (+13%) mainly driven by (i) Health (€+16 million) from a large new client account and price increases in Hong Kong as well as volume growth in Singapore, (ii) Workers Compensation (€+4 million) due to price increases in Hong Kong and volume increase in Singapore, and (iii) Property (€+3 million) mainly driven by SME property business in Malaysia. Net technical result increased by €56 million (+72%) to €135 million. On a constant exchange rate and scope basis2, net technical result increased by €8 million (+6%). Current accident year loss ratio remained stable at 68.3%. On a constant scope basis, current accident year loss ratio increased by 0.6 point mainly due to (i) an increase in Personal Motor (+1.4 points to 72.4%) as Singapore suffered from a negative price effect and Malaysia from higher severity, while (ii) Commercial Lines loss ratio remained stable at 72.1% as Workers Compensation 1 €438 million after intercompany eliminations for Hong Kong, Singapore and Malaysia. 2 Restated for HSBC acquired portfolio in Hong Kong and Singapore starting November 2012. Half Year 2013 Financial Report 59 I I ACTIVITY REPORT deteriorated (+2.3 points to 77.5%) notably in Hong Kong, suffering from both higher frequency and severity and was offset by an improvement in Property (-1.4 points to 64.1%) driven by favorable claims experience in Malaysia. All accident year loss ratio decreased by 1.1 points to 65.7%. On a constant scope basis, all accident year loss ratio increased by 0.1 point due to the deterioration of current year loss ratio by +0.6 point, partly offset by higher positive favorable prior year reserve developments of -0.5 point mainly in Singapore. Expense ratio decreased by1.1 points to 27.5%. On a constant scope basis, the expense ratio decreased by 1.4 points mainly driven by lower acquisition expenses (-1.3 points) reflecting the lower commission paid to HSBC bank and a shift of business towards products with a lower commission rate. Enlarged expense ratio decreased by 1.3 points to 30.4% on a constant scope basis. As a result, the combined ratio was down 2.1 points to 93.2%. On a constant scope basis, combined ratio was down 1.2 points. Net investment result increased by €3 million to €9 million. On a constant exchange rate and scope basis, net investment result decreased by €1 million mainly from lower investment income in Hong Kong. Income tax expenses increased by €3 million to €-6 million. On a constant exchange rate and scope basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €20 million to €31 million1. On a constant exchange rate and scope basis, underlying earnings increased by €11 million. Adjusted earnings increased by €19 million to €30 million1. On a constant exchange rate and scope basis, adjusted earnings increased by €10 million driven by higher underlying earnings. Net income increased by €18 million to €14 million1. On a constant exchange rate basis, net income increased by €9 million driven by the increase in adjusted earnings and lower integration costs, partly offset by an amortization of the distribution agreement from the HSBC portfolio acquisition. 1 Thailand (Group share: 99.3%) and India (Group share : 26%) were consolidated for the first time in 2013. 60 Half Year 2013 Financial Report ACTIVITY REPORT International Insurance Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AXA Corporate Solutions Assurance 1,341 1,339 2,072 AXA Global Life and AXA Global P&C 57 53 60 AXA Assistance 555 474 984 Other (a) 28 38 31 TOTAL 1,980 1,904 3,148 Intercompany transactions (71) (79) (161) Contribution to consolidated gross revenues 1,909 1,825 2,987 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA Corporate Solutions Assurance 72 81 145 AXA Global Life and AXA Global P&C 8 11 22 AXA Assistance 9 11 20 Other (b) 14 15 (20) UNDERLYING EARNINGS 103 118 167 Net realized capital gains or losses attributable to shareholders 16 5 (7) ADJUSTED EARNINGS 119 122 160 Profit or loss on financial assets (under Fair Value option) & derivatives (11) 15 23 Exceptional operations (including discontinued operations) (24) (1) Goodwill and related intangibles impacts Integration and restructuring costs (1) (2) (4) NET INCOME 83 135 178 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Half Year 2013 Financial Report 61 I I ACTIVITY REPORT AXA Corporate Solutions Assurance (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) Gross revenues Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. 1,341 82.4% 81.8% 210 15.3% 90 124 (50) - (1) 72 6 78 (9) - - - 69 1,339 82.3% 82.4% 200 15.1% 101 129 (47) - (1) 81 2 83 14 - - - 97 2,072 83.6% 82.2% 363 15.6% 195 240 (93) - (2) 145 (3) 142 24 - - - 166 Gross revenues increased by €1 million to €1,341 million 1 . On a comparable basis, gross revenues increased by €15 million (+1%) notably in Motor (+12%), Marine (+6%) and Property (+4%), driven by portfolio developments and tariff increases. This growth was partly offset by a decrease in Aviation (-21%) mainly due to tariff decrease following the favorable claims developments in recent years and in Construction (-19%), mainly due to the non-renewal of a large captive contract. Net technical result increased by €10 million (+5%) to €210 million. On a constant exchange rate basis, net technical result increased by €11 million (+5%). Current accident year loss ratio increased by 0.1 point to 82.4% driven by an increase in the frequency of large losses in Construction, partly offset by lower large claims in Property; All accident year loss ratio improved by 0.6 point to 81.8% driven by higher positive prior year reserve developments in Marine and Aviation, partly offset by negative developments, mainly in Liability. Expense ratio increased by 0.2 point to 15.3%. The acquisition expense ratio was up 0.6 point reflecting a shift in the portfolio from captive business whilst the administrative expense ratio was down 0.4 point reflecting efficiency programs, notably on IT. Enlarged expense ratio increased by 1.2 points to 19.5%. As a result, the combined ratio improved by 0.4 point to 97.1%. On both current and constant exchange rate basis, net investment result decreased by €10 million (-10%) to €90 million mainly due to lower income from fixed income assets and mutual funds. 1 €1,337 million after intercompany eliminations. 62 Half Year 2013 Financial Report ACTIVITY REPORT Income tax expenses increased by €3 million (+6%) to €-50 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+7%) mainly due to higher taxes on prior year reserve developments and an unfavorable country mix. As a result, underlying earnings decreased by €8 million (-10%) to €72 million. Adjusted earnings decreased by €5 million (-6%) to €78 million. On a constant exchange rate basis, adjusted earnings decreased by €4 million (-5%) due to lower underlying earnings, partly offset by higher realized capital gains mainly on real estate assets. Net income decreased by €27 million (-28%) to €69 million, on both reported and constant exchange rate basis, due to an unfavorable change in the fair value of mutual funds mainly due to higher interest rates and credit spread widening, as well as a negative foreign exchange rate impact. Half Year 2013 Financial Report 63 I I ACTIVITY REPORT AXA Global Life and AXA Global P&C1 Underlying earnings decreased by €3 million to €8 million as a result of lower technical results in AXA Motor cover as well as a lower result in AXA Global Life and higher expenses. Adjusted earnings decreased by €3 million to €8 million as a result of lower underlying earnings. Net income decreased by €6 million to €7 million mainly due to lower adjusted earnings and a less favorable change in the fair value of financial assets and derivatives (€-2 million). AXA Assistance Gross revenues increased by €81 million (+17%) to €555 million 2 . On a comparable basis, primarily excluding the internal transfer from AXA France of some service guarantees, gross revenues increased by €32 million (+7%) to € 514 million mainly driven by strong developments in Travel and Motor activities, notably reflecting higher revenues from some large contracts in Spain and the US, combined with growth of the in- force base in France, despite lower revenues in the UK. Underlying earnings decreased by €2 million (-17%) to €9 million mainly driven by the non-repeat of a favorable impact in unexpired risk reserve release (€-4 million), partly offset by positive developments in France, new business growth in Spain and the US, and improvements on Auto and Travel businesses in Brazil, mitigated by higher development costs in high growth markets. Adjusted earnings decreased by €1 million to €9 million mainly driven by lower underlying earnings. Net income decreased by €23 million to €-17 million primarily reflecting a €24 million exceptional capital loss following the anticipated disposal of a French based company. Other international activities Underlying earnings decreased by €2 million to €14 million. On a constant exchange rate basis, underlying earnings decreased by €1 million. Adjusted earnings increased by €6 million to €24 million. On a constant exchange rate basis, adjusted earnings increased by €6 million mainly as a result of higher net realized capital gains due to Real Estate restructuring and on fixed maturities. Net income increased by €4 million to €24 million. On a constant exchange rate basis, net income increased by €5 million driven by higher adjusted earnings. 1 Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. 2 €487 million after intercompany eliminations. 64 Half Year 2013 Financial Report ACTIVITY REPORT Asset Management Segment The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AllianceBernstein 1,087 1,004 2,097 AXA Investment Managers 828 730 1,577 TOTAL 1,915 1,734 3,674 Intercompany transactions (174) (159) (332) Contribution to consolidated gross revenues 1,741 1,575 3,343 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AllianceBernstein 76 74 159 AXA Investment Managers 118 85 220 UNDERLYING EARNINGS 194 159 379 Net realized capital gains or losses attributable to shareholders (1) (1) (4) ADJUSTED EARNINGS 194 159 375 Profit or loss on financial assets (under Fair Value option) & derivatives 8 3 13 Exceptional operations (including discontinued operations) 0 (0) 0 Goodwill and related intangibles impacts Integration and restructuring costs (6) (10) (76) NET INCOME 196 152 311 (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Half Year 2013 Financial Report 65 I I ACTIVITY REPORT AllianceBernstein (in Euro million) HY 2013 HY 2012 FY 2012 Gross revenues 1,087 1,004 2,097 Net investment result (1) 0 2 Total revenues 1,086 1,004 2,100 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ (880) 205 (58) (71) 76 0 76 2 0 0 (2) 77 1.3129 (826) 178 (40) (64) 74 0 74 2 0 0 (9) 67 1.297 (1,737) 363 (76) (128) 159 0 159 4 0 0 (74) 88 1.288 Assets under Management ("AUM") increased by €5 billion from year-end 2012 to €354 billion at June 30, 2013 as a result of €5 billion favorable foreign exchange rate impact and net inflows of €2 billion (€6 billion net inflows from Institutional clients partly offset by €-2 billion net outflows from Private Clients and €-2 billion net outflows from Retail clients), partly offset by €-2 billion market depreciation. Gross revenues increased by €83 million (+8%) to €1,087 million1. On a comparable basis, gross revenues increased by €95 million (+10%) primarily due to higher investment management fees resulting from a 6% increase in average AUM, higher Institutional Research Services fees up 7%, and distribution fees up 30% due to higher Retail average AUM. Net investment result decreased by €1 million to €-1 million. On a constant exchange rate basis, net investment result decreased by €1 million. General expenses increased by €54 million (+7%) to €-880 million. On a constant exchange rate basis, general expenses increased by €65 million (+8%) due to higher compensation expenses resulting from increased revenues partly offset by lower general administrative expenses, primarily office and related expenses as well as professional fees. As a result, the underlying cost income ratio improved by 2.1 points to 77.3%. Income tax expenses increased by €18 million (+46%) to €-58 million. On a constant exchange rate basis, income tax expenses increased by €19 million (+48%) primarily due to higher pre-tax underlying earnings and the non repeat of 2012 positive tax one-offs (€-8 million). Underlying and adjusted earnings increased by €2 million (+3%) to €76 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €3 million (+5%). 1 €1,047 million after intercompany eliminations. 66 Half Year 2013 Financial Report ACTIVITY REPORT AXA ownership of AllianceBernstein at June 30, 2013 was 64.2%, down 1.3% from December 31, 2012 due to the granting of units in 2013 for 2012 deferred compensation, partly offset by repurchases of AllianceBernstein units during 2013 to fund deferred compensation plans. Net income increased by €11 million (+15%) to €77 million. On a constant exchange rate basis, net income increased by €11 million (+17%) due to the increase in adjusted earnings and lower restructuring costs. Half Year 2013 Financial Report 67 I I ACTIVITY REPORT AXA Investment Managers (“AXA IM”) HY 2013 HY 2012 restated (a) (in Euro million) FY 2012 restated (a) Gross revenues 828 730 1,577 Net investment result (9) (11) (17) Total revenues 819 718 1,560 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a)Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (631) 188 (65) (6) 118 (1) 117 6 0 0 (4) 120 (579) 139 (50) (4) 85 (1) 85 1 (0) 0 (0) 85 (1,219) 341 (111) (11) 220 (4) 216 9 0 0 (2) 223 Assets under Management ("AUM") increased by €15 billion from year-end 2012 to €568 billion at the end of June 2013 as a result of €14 billion favorable market impact and €10 billion net inflows, partly offset by €-8 billion unfavorable foreign exchange impact, mainly due to GBP weakening vs. the Euro, and €-2 billion negative scope impact, mainly related to the partial sale of the UK Life & Savings operations. Net inflows amounted to €10 billion over the first half of 2013, mainly driven by inflows on (i) Retail (€+4 billion) and (ii) Institutional (€+4 billion), notably from AXA Fixed Income, Asian Joint Ventures, AXA Framlington, AXA Private Equity and AXA Real Estate, as well as on (iii) Main Fund (€+3 billion). Gross revenues increased by €98 million (+13%) to €828 million1. On a constant exchange rate basis and excluding distribution fees (retroceded to distributors), net revenues increased by €96 million (+18%) to €631 million, mainly driven by (i) higher management fees (€+62 million or +13%), driven by +7% higher average AUM and +1.0 higher management fee bps, owing to an improved client and product mix, (ii) higher AXA Real Estate transaction fees (€+18 million) and (iii) higher performance fees (€+13 million) mainly from AXA Structured Finance. Net investment result improved by €2 million (+20%) to €-9 million. On a constant exchange rate basis, net investment result increased by €3 million (+23%) mainly driven by lower debt financing expense. General expenses increased by €51 million (+9%) to €-631 million. On a constant exchange rate basis and excluding distribution fees, general expenses increased by €48 million (+12%) to €-434 million mainly due to variable compensation increases, as well as higher expenses at AXA Private Equity. As a result, the underlying cost income ratio improved by 3.9 points to 69.8%. Income tax expenses increased by €15 million (+30%) to €-65 million. On a constant exchange rate basis, income tax expenses increased by €16 million (+32%) due to higher pre-tax earnings. Underlying earnings increased by €32 million (+38%) to €118 million. On a constant exchange rate basis, underlying earnings increased by €34 million (+40%). 1 €694 million after intercompany eliminations. 68 Half Year 2013 Financial Report ACTIVITY REPORT Adjusted earnings increased by €32 million (+38%) to €117 million. On a constant exchange rate basis, adjusted earnings increased by €34 million (+40%), in line with the improvement in underlying earnings. Net income increased by €34 million (+40%) to €120 million. On a constant exchange rate basis, net income increased by €36 million (+42%) in line with the improvement in adjusted earnings. Half Year 2013 Financial Report 69 I I ACTIVITY REPORT Banking The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking activities for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2013 HY 2012 FY 2012 AXA Banks (a) 287 233 468 Belgium (b) 189 167 312 France 66 36 94 Hungary 19 15 35 Germany 11 12 23 Other (c) 3 2 4 Other 2 2 6 TOTAL 290 236 474 Intercompany transactions 4 (9) (8) Contribution to consolidated gross revenues 293 226 466 (a) Of which AXA Bank Europe and its branches: €211 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA Banks (b) 62 7 8 Belgium (c) 63 27 31 France 0 (16) (15) Hungary Germany 2 2 3 Other (d) (3) (6) (12) Other (2) (2) (3) UNDERLYING EARNINGS 61 5 4 Net realized capital gains or losses attributable to shareholders 0 (11) (5) ADJUSTED EARNINGS 61 (6) (1) Profit or loss on financial assets (under Fair Value option) & derivatives (13) 10 (3) Exceptional operations (including discontinued operations) (27) (11) (30) Goodwill and related intangibles impacts Integration and restructuring costs (1) (2) (4) NET INCOME 20 (9) (38) (a) Restated means comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) of which AXA Bank Europe and its branches: €60 million. (c) Includes commercial activities in Belgium for €24 million and shared services of AXA Bank Europe (treasury and support functions) for €38 million. (d) Includes Slovakia and Czech Republic. 70 Half Year 2013 Financial Report ACTIVITY REPORT Belgium Net banking revenues increased by €22 million (+13%) to €189 million. Operating net banking revenues1 increased by €40 million (+27%) to €211 million mainly due to higher interest margin (€+39 million). Underlying earnings increased by €36 million (+132%) to €63 million due to higher operating net banking revenues (€+40 million), lower distribution commissions (€+4 million) and tight expense management (€+2 million), partly offset by an increase in provision for loan losses (€-7 million) due to growing loan portfolio and deterioration of the economic environment. Adjusted earnings increased by €48 million to €63 million mainly due to the increase in underlying earnings and the absence of impairments on fixed income assets (€+12 million). Net income increased by €12 million (+33%) to €47 million. Positive evolution of adjusted earnings (€+48 million) and the change in fair value of interest rate derivatives (€+14 million), was partly offset by a negative change in fair value of own debt due to decreasing liquidity spread (€-24 million), lower foreign exchange result (€-17 million) and the non repeat of the deconsolidation of Switzerland (€8 million reflecting the transfer of the client portfolio to Bank zweiplus in 2012). France Net banking revenues increased by €+29 million (+81%) to €66 million. Operating net banking revenues1 increased by €+21 million (+51%) mainly due to lower interests paid to customers on savings accounts following the non repeat of the promotional campaign during the first half of 2012, as well as higher interest income on retail loans (primarily mortgages) as a consequence of increasing new credit production. Underlying earnings and adjusted earnings increased by €+16 million to €+0 million, following the rise in operating net banking revenues, in a context of lower cost of risk and administrative expenses. Net income increased by €21 million to €+2 million as a result of the increase in underlying earnings and the favorable impact from interest-rate hedging instruments. Hungary Net income increased by €2 million to €-17 million due to an increased commercial margin mainly following the repricing of the mortgage book (€+5 million), decreased administrative expenses resulting from implemented cost-cutting program (€+2 million), higher fee income (€+1 million), compensated by an increased provision for loan losses (€-4 million) due to the deteriorating outstanding credit portfolio and the depreciation of Hungarian currency. 1 Before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2013 Financial Report 71 I I ACTIVITY REPORT Germany Net banking revenues decreased by €2 million (-14%) to €11 million1 mainly due to reduced commissions and less interest received from loan business, partly compensated by lower interest paid. Underlying earnings increased by €1 million (+44%) to €2 million resulting from lower administrative expenses and credit loss allowances, partly offset by lower revenues. Adjusted earnings and net income remained stable at €2 million. Czech Republic and Slovakia On May 21, 2013, AXA signed a partnership agreement with UniCredit Bank (UCB) in Czech Republic and Slovakia. Based on this partnership, AXA’s 120,000 banking clients in Czech Republic and Slovakia were invited to open an account with UCB, while UCB will distribute AXA’s insurance products through its network in both countries. As a result, AXA will cease banking operations in these two countries in the course of the second half of 2013. Net income decreased by €6 million to €-12 million mostly driven by one-off expenses related to the closure of banking activities (€9 million). 1 €15 million after intercompany eliminations. 72 Half Year 2013 Financial Report ACTIVITY REPORT Holdings and other companies The Holdings and other companies consist of AXA’s non-operating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2013 HY 2012 restated (a) FY 2012 restated (a) AXA (283) (279) (591) Other French holding companies (28) (33) (39) Foreign holding companies (130) (140) (245) Other 1 1 1 UNDERLYING EARNINGS (441) (451) (875) Net realized capital gains or losses attributable to shareholders (28) (60) (72) ADJUSTED EARNINGS (469) (511) (947) Profit or loss on financial assets (under Fair Value option) & derivatives 23 (34) (228) Exceptional operations (including discontinued operations) (10) 21 (17) Goodwill and related intangibles impacts 0 0 0 Integration and restructuring costs (7) (0) (1) NET INCOME (464) (523) (1,192) (a) Restated means comparative information related to previous periods was retrospectively restated for the IAS19 amendment. AXA1 Underlying earnings decreased by €5 million to €-283 million mainly due to the new French tax of 3% on dividend paid by the Company for €-46 million partly offset by €+17 million increase in dividends from non- consolidated subsidiaries and €+19 million gain related to the hedging program on Performance Units at Group holding level. Adjusted earnings increased by €51 million to €-288 million mainly driven by the end of the premium amortization on equity call options in 2012 (€-48 million in 1H 2012). Net income increased by €81 million to €-224 million. Excluding profits linked to the sale of the Group’s Canadian operations in respect of the deferred contingent consideration (€+8 million in 1H 2013 vs. €+68 million in 1H 2012), Net income increased by €141 million mainly driven by: €+51 million from adjusted earnings evolution; €+128 million from a change in mark to market of interest rate and foreign exchange derivatives which are not eligible to hedge accounting; and €-66 million from the non repeat of 1H 2012 time value of equity options. 1 All the figures are after tax. Half Year 2013 Financial Report 73 I I ACTIVITY REPORT Other French holding companies AXA FRANCE ASSURANCE Underlying earnings, adjusted earnings and net income increased by €1 million to €-23 million mainly due to lower tax expenses (€+2 million) resulting from lower inter-company dividends received. OTHER FRENCH HOLDINGS Underlying earnings increased by €4 million to €-5 million mainly due to lower financial expenses. Adjusted earnings increased by €4 million to €-5 million driven by underlying earnings evolution. Net income decreased by €11 million to €-26 million linked to the restructuring of the participation in Bharti AXA General Insurance (€-21 million vs. €-4 million), partly offset by adjusted earnings evolution. Foreign Holding Companies AXA FINANCIAL INC. Underlying earnings decreased by €1 million (-1%) to €-78 million. On a constant exchange rate basis, underlying earnings decreased by €2 million (-3%) mainly reflecting the impact of higher share-based compensation expenses. Adjusted earnings decreased by €1 million (-1%) to €-78 million. On a constant exchange rate basis, adjusted earnings decreased by €2 million (-3%), in line with underlying earnings evolution. Net income increased by €1 million (+1%) to €-100 million. On a constant exchange rate basis, net income remained stable reflecting adjusted earnings evolution offset by a more favorable change in the fair value of cross currency swaps. AXA UK HOLDINGS Underlying earnings increased by €1 million (+12%) to €-11 million. On a constant exchange rate basis, underlying earnings increased by €1 million. Adjusted earnings increased by €1 million (+11%) to €-11 million. On a constant exchange rate basis, adjusted earnings increased by €1 million in line with the improvement in underlying earnings. Net Income decreased by €18 million to €-20 million. On a constant exchange rate basis, net income decreased by €19 million as the improvement in adjusted earnings (€+1 million) was more than offset by the adverse movements in the fair value attributable to foreign exchange (€-14 million) due to adverse changes in exchange rates as well as higher restructuring costs (€-6 million) relating to central service teams. GERMAN HOLDING COMPANIES Underlying earnings increased by €11 million (+59%) to €-8 million mainly due to lower pension costs and general expenses. Adjusted earnings decreased by €8 million (-32%) to €-32 million mainly driven by higher impairment charges, notably on real estate funds, partly compensated by higher underlying earnings. 74 Half Year 2013 Financial Report ACTIVITY REPORT Net income decreased by €9 million (-31%) to €-39 million mainly due to lower adjusted earnings and an unfavorable change in the fair value of fixed income funds and derivatives. BELGIAN HOLDING COMPANY Underlying earnings were stable at €-6 million. Adjusted earnings increased by €1 million to €-6 million, mainly due to higher realized capital gains. Net income was stable at €-5 million mainly driven by adjusted earnings evolution. MEDITERRANEAN AND LATIN AMERICAN REGION HOLDINGS Underlying and adjusted earnings increased by €5 million (+16%) to €-25 million. On a constant exchange rate basis, underlying and adjusted earnings increased by €5 million (+16%) reflecting lower financial charges. Net income increased by €10 million (+31%) to €-22 million. On a constant exchange rate basis, net income increased by €10 million (+31%) driven by the increase in adjusted earning and a favorable change in fair value of financing hedges. Half Year 2013 Financial Report 75 I I ACTIVITY REPORT Outlook Despite early signs of global recovery in the first half of 2013, the short-term economic outlook remains challenging. In this context, the AXA Group carries on focusing its efforts towards the execution of its Ambition AXA plan whilst preparing for the world of tomorrow, by accelerating digital investments whilst maintaining our efficiency discipline, which will allow to better access and serve our clients. In the second half of 2013, the Life & Savings momentum will continue to be driven by the change in business mix towards selling more profitable Unit-Linked and Protection & Health products. In Property & Casualty, underwriting discipline and efficiency efforts should contribute to sustain profitability, whilst the pricing environment should continue to be supportive overall despite experiencing a slowdown in price increases in certain markets. The Asset Management business should continue to benefit from a good momentum driven by a favorable investment performance whilst remaining sensitive to the evolution of financial markets. 76 Half Year 2013 Financial Report ACTIVITY REPORT Glossary The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Hungary, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia) India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece and France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: (i) (ii) (iii) (iv) Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: Include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, Exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, And also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow through adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). UNDERLYING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: Realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), Cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, Related impact on policyholder participation (Life & Savings business), Half Year 2013 Financial Report 77 I I ACTIVITY REPORT DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. EARNINGS PER SHARE Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). RETURN ON EQUITY (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including undated subordinated debt (“Super Subordinated Debts” TSS / “Undated Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE: o All undated subordinated debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. LIFE & SAVINGS MARGIN ANALYSIS Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. o For insurance contracts and investment contracts with Discretionary Participation Features (DPF): (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. Change in URR (Unearned Revenue Reserve – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. (ii) (iii) (iv) o For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. 78 Half Year 2013 Financial Report ACTIVITY REPORT (ii) Change in UFR (Unearned Fees Reserve - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. Underlying Investment margin includes the following items: (i) (ii) Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: (i) (ii) (iii) (iv) Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. (v) Underlying Net Technical margin includes the following components: (i) (ii) (iii) (iv) (v) (vi) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. (ii) (iii) (iv) (v) (vi) Half Year 2013 Financial Report 79 I I ACTIVITY REPORT Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: (i) (ii) (iii) Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. (iv) (v) Current accident year loss ratio net of reinsurance is the ratio of: (i) current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. (ii) Underlying expense ratio is the ratio of: (i) (ii) Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. ASSET MANAGEMENT Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). 80 Half Year 2013 Financial Report ACTIVITY REPORT Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. BANKING Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Net operating revenues are disclosed before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2013 Financial Report 81 I II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II Consolidated financial statements / Half Year 2013 82 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Table of Contents II .1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .............................................................................. 85 II .2 CONSOLIDATED STATEMENT OF INCOME ..................................................................................................... 87 II .3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ..................................................................... 88 II .4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................... 89 II .5 CONSOLIDATED STATEMENT OF CASH FLOWS ........................................................................................... 91 Note 1 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. 1.16. 1.17. 1.18. 1.19. Accounting principles.................................................................................................................... 93 General information .......................................................................................................................... 93 General Accounting principles ......................................................................................................... 93 Consolidation .................................................................................................................................... 96 Foreign currency translation of financial statements and transactions ............................................ 99 Segment reporting ............................................................................................................................ 99 Intangible assets .............................................................................................................................. 99 Investments from insurance, banking and other activities ............................................................. 100 Assets backing liabilities arising from contracts where the financial risk is borne by policyholders 102 Derivative instruments .................................................................................................................... 102 Assets/liabilities held for sale and assets/liabilities including discontinued operations ................. 103 Cash and cash equivalents ............................................................................................................ 103 Share capital and shareholders’ equity .......................................................................................... 104 Liabilities arising from insurance and investment contracts ........................................................... 104 Reinsurance ................................................................................................................................... 107 Financing debt ................................................................................................................................ 107 Other liabilities ................................................................................................................................ 107 Provisions for risks, charges and contingent liabilities ................................................................... 109 Revenue recognition ...................................................................................................................... 109 Subsequent events......................................................................................................................... 111 Note 2 2.1. 2.2. Scope of consolidation ................................................................................................................ 112 Consolidated companies ................................................................................................................ 112 Consolidated entities relating to specific operations ...................................................................... 115 Note 3 3.1. Consolidated statement of income by segment ....................................................................... 116 Consolidated statement of income by segment ............................................................................. 117 Note 4 4.1. 4.2. 4.3. Transactions announced in consolidated entities ................................................................... 119 MONY Portfolio transaction ............................................................................................................ 119 HSBC Portfolio ............................................................................................................................... 119 AXA Bank Switzerland ................................................................................................................... 120 Note 5 5.1. 5.2. 5.3. 5.4. 5.5. Investments .................................................................................................................................. 121 Breakdown of investments ............................................................................................................. 121 Investment in real estate properties ............................................................................................... 123 Unrealized gains and losses on financial investments ................................................................... 123 Financial assets subject to impairment .......................................................................................... 124 Financial assets recognized at fair value ....................................................................................... 125 Note 6 6.1. 6.2. 6.3. Shareholders’ equity and minority interests ............................................................................. 126 Impact of transactions with shareholders ....................................................................................... 126 Comprehensive income for the period ........................................................................................... 128 Change in minority interests ........................................................................................................... 130 Half Year 2013 Financial Report 83 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 7 Financing debt .............................................................................................................................. 131 Note 8 Net income per ordinary share ................................................................................................... 132 84 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2013 (a) December 31, 2012 Restated (a) (b) January 1, 2012 Restated (a) (b) Goodwill 15,417 15,754 15,855 Value of purchased business in force (c) 2,458 2,685 3,074 Deferred acquisition costs and equivalent 20,038 19,047 18,624 Other intangible assets 3,271 3,349 3,382 Intangible assets 41,184 40,835 40,935 Investments in real estate properties 17,518 17,192 16,061 Financial investments 426,987 441,469 418,765 Assets backing contracts where the financial risk is borne by policyholders (d) 154,681 147,162 134,230 5 Investments from insurance activities 599,187 605,823 569,056 5 Investments from banking and other activities 38,589 35,199 35,264 Investments in associates - Equity method 1,388 1,312 1,139 Reinsurers' share in insurance and investment contracts liabilities 10,239 10,558 10,698 Tangible assets 1,296 1,457 1,410 Deferred policyholders' participation assets 96 4 1,247 Deferred tax assets 2,660 3,060 3,355 Other assets 4,051 4,522 6,012 Receivables arising from direct insurance and inward reinsurance operations 16,252 14,968 13,346 Receivables arising from outward reinsurance operations 1,002 746 671 Receivables - current tax 1,700 1,855 2,347 Other receivables 16,164 15,318 16,325 Receivables 35,118 32,887 32,689 4 Assets held for sale including discountinued operations (e) 7,054 181 360 Cash and cash equivalents 24,816 30,546 31,072 TOTAL ASSETS 761,627 761,862 727,226 All invested assets are shown net of related derivative instruments impact. (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Amounts are gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (e) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). Half Year 2013 Financial Report 85 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) Notes June 30, 2013 (a) December 31, 2012 Restated (a) (b) January 1, 2012 Restated (a) (b) Share capital and capital in excess of nominal value 25,753 25,549 25,188 Reserves and translation reserve 23,247 24,001 21,189 Net consolidated income - Group share 2,467 4,057 n/a Shareholders’ equity – Group share 51,468 53,606 46,377 Minority interests 2,353 2,355 2,367 6 TOTAL SHAREHOLDERS' EQUITY 53,820 55,961 48,745 Subordinated debt 8,197 7,317 7,108 Financing debt instruments issued 1,629 2,514 2,506 Financing debt owed to credit institutions 786 831 807 7 Financing debt 10,613 10,662 10,421 Liabilities arising from insurance contracts 356,075 362,378 358,146 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (c) 120,588 113,921 104,642 Total liabilities arising from insurance contracts 476,663 476,299 462,788 Liabilities arising from investment contracts with discretionary participating features 35,793 36,350 37,858 Liabilities arising from investment contracts with no discretionary participating features 183 251 380 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 4,039 4,080 3,621 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 30,643 29,983 26,336 Total liabilities arising from investment contracts 70,658 70,664 68,195 Unearned revenue and unearned fee reserves 3,006 2,897 2,975 Liabilities arising from policyholders' participation 25,423 31,357 17,944 Derivative instruments relating to insurance and investment contracts (1,207) (2,053) (2,056) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 574,542 579,165 549,847 Liabilities arising from banking activities (d) 36,428 33,494 34,023 Provisions for risks and charges 11,256 11,952 10,891 Deferred tax liabilities 4,157 5,175 3,793 Minority interests of controlled investment funds and puttable instruments held by minority interest holders 6,244 3,775 3,896 Other debt instruments issued, notes and bank overdrafts (d) 4,495 4,510 6,272 Payables arising from direct insurance and inward reinsurance operations 7,630 8,955 7,212 Payables arising from outward reinsurance operations 5,904 5,352 5,179 Payables – current tax 1,030 1,170 1,194 Collateral debts relating to investments under a lending agreement or equivalent 23,488 24,397 27,509 Other payables 15,862 17,296 18,056 Payables 64,653 65,454 69,317 4 Liabilities held for sale including discontinued operations (e) 6,157 189 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 761,627 761,862 727,226 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) Amounts are shown net of related derivative instruments impact. (e) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). 86 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .2 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2013 June 30, 2012 Restated (a) Gross written premiums 47,168 45,749 Fees and charges relating to investment contracts with no participating features 133 164 Revenues from insurance activities 47,301 45,913 Net revenues from banking activities 291 224 Revenues from other activities 2,451 2,268 Revenues (b) 50,044 48,405 Change in unearned premiums net of unearned revenues and fees (3,819) (3,962) Net investment income (c) 5,951 8,023 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity (d) 1,405 770 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (e) 6,500 6,550 of which change in fair value of assets with financial risk borne by policyholders (f) 8,070 6,224 Change in investments impairment (g) (390) (390) Net investment result excluding financing expenses 13,466 14,953 Technical charges relating to insurance activities (f) (45,267) (45,696) Net result from outward reinsurance (938) (572) Bank operating expenses (67) (64) Acquisition costs (4,628) (4,310) Amortization of the value of purchased business in force (59) (47) Administrative expenses (4,770) (4,671) Change in tangible assets impairment (0) (0) Change in goodwill impairment and other intangible assets impairment (46) (67) Other income and expenses (109) (175) Other operating income and expenses (55,884) (55,602) Income from operating activities before tax 3,806 3,795 Income arising from investments in associates - Equity method 62 42 Financing debts expenses (h) (348) (289) Net income from operating activities before tax 3,520 3,548 Income tax (899) (903) Net operating income 2,621 2,645 Net consolidated income after tax 2,621 2,645 Split between : Net consolidated income - Group share 2,467 2,544 Net consolidated income - Minority interests 154 101 8 Earnings per share 0.98 1.02 8 Fully diluted earnings per share 0.97 1.02 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Gross of reinsurance. (c) Net of investment management costs and including gains/losses from derivatives hedging variable annuities. (d) Includes impairment releases on investments sold. (e) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (f) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (g) Excludes impairment releases on investments sold. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). Half Year 2013 Financial Report 87 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2013 (a) June 30, 2012 Restated (a) (b) Reserves relating to changes in fair value through shareholders' equity (2,526) 1,810 Translation reserves (1,000) 646 Items that may be reclassified subsequently to Profit or Loss (3,526) 2,456 Employee benefits actuarial gains and losses 325 (891) Items that will not be reclassified subsequently to Profit or Loss 325 (891) Net gains and losses recognized directly through shareholders' equity (3,201) 1,565 Net consolidated income 2,621 2,645 Split between: Net consolidated income - Group share 2,467 2,544 Net consolidated income - Minority interests 154 101 TOTAL COMPREHENSIVE INCOME (CI) (580) 4,210 Split between: Total comprehensive income - Group share (731) 4,052 Total comprehensive income - Minority interests 151 158 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. 88 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in Euro million, except for number of shares and nominal value) Attributable to shareholders Share Capital Other reserves Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Shareholders 'equity opening January 1, 2013 Restated (a) 2,388,611 2.29 5,470 20,749 (364) 10,887 134 5,735 (2,889) 13,885 53,606 2,355 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,254 - - - - - - - - 2.29 - - - - - - - - 7 - - - - - - - - 28 23 - - - - - - - - 165 - - - - - - - - - - - - (0) - - - - - - - - - - - (19) - 252 (144) - - - - - - - - (0) - - - - - - - (1) 7 28 23 165 (19) - 252 (144) (1) - - - - - - - (153) Dividends paid (1,720) (1,720) Impact of transactions with shareholders 3,254 2.29 7 51 165 (0) 90 (0) (1,721) (1,408) (153) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - (2,573) - - (2,573) 53 - - 53 (155) - - (155) (848) - - (848) 324 2,467 2,791 (2,519) (1,003) 324 2,467 (731) (6) 3 0 154 151 Shareholders' equity closing June 30, 2013 2,391,865 2.29 5,477 20,800 (199) 8,314 187 5,670 (3,736) 14,955 51,468 2,353 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half Year 2013 Financial Report 89 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Share Capital Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Shareholders 'equity opening January 1, 2012 Restated 2,357,198 2.29 5,398 20,471 (385) Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 103 - - - - - - - - 2.29 - - - - - - - - 0 - - - - - - - - 1 16 - - - - - - - - 17 - - - - - Dividends paid Impact of transactions with shareholders 103 2.29 0 17 17 Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income - - - - - - - - - - Total Comprehensive Income (CI) Shareholders' equity closing June 30, 2012 2,357,301 2.29 5,398 20,488 (368) NB: amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS19. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.2.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. 90 (in Euro million, except for number of shares and nominal value) Attributable to shareholders (a) Other reserves Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests 4,838 50 6,059 (2,298) 12,244 46,377 2,367 - - - - - - - (0) - - - - - - - - - - - (16) - - (148) - - - - - - - - 0 - - - - - - - (66) 0 1 16 17 (16) - - (148) (66) - - - - - - - (47) (1,626) (1,626) (0) (164) 0 (1,692) (1,822) (47) 1,725 62 1,788 23 - - 1,725 - - 62 135 - - 135 474 - - 474 (889) 2,544 1,655 609 (889) 2,544 4,052 37 (2) 101 158 6,563 112 6,031 (1,824) 12,207 48,607 2,479 Half Year 2013 Financial Report Avec et sans PB discrétionnaire II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 II .5 CONSOLIDATED STATEMENT OF CASH FLOWS June 30, 2012 Restated (a) (b) (in Euro million) June 30, 2013 (a) Operating income including discontinued operation before tax 3,520 3,548 Net amortization expense (c) 357 305 Change in goodwill impairment and other intangible assets impairment (d) 12 Net change in deferred acquisition costs and equivalent (782) (1,219) Net increase / (write back) in impairment on investments, tangible and other intangible assets 416 427 Change in fair value of investments at fair value through profit or loss (10,037) (8,265) Net change in liabilities arising from insurance and investment contracts (e) 11,886 14,193 Net increase / (write back) in other provisions (f) (4) (59) Income arising from investments in associates – Equity method (62) (42) Adjustment of non cash balances included in the operating income before tax 1,774 5,353 Net realized investment gains and losses 2,054 859 Financing debt expenses 348 287 Adjustment for reclassification to investing or financing activities 2,401 1,146 Dividends recorded in profit or loss during the period (1,692) (1,595) Investment income & expense recorded in profit or loss during the period (g) (4,825) (6,959) Adjustment of transactions from accrued to cash basis (6,516) (8,553) Net cash impact of deposit accounting 858 130 Dividends and interim dividends collected 1,922 1,797 Investment income (g) 6,730 8,961 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (1,478) (1,279) Net operating cash from banking activities 160 (772) Change in operating receivables and payables (2,111) (2,550) Net cash provided by other assets and liabilities (h) Tax expenses paid (2,055) (765) (804) (563) Other operating cash impact and non cash adjustment 291 (1,542) Net cash impact of transactions with cash impact not included in the operating income before tax 3,552 3,379 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 4,731 4,873 Purchase of subsidiaries and affiliated companies, net of cash acquired (18) (13) Disposal of subsidiaries and affiliated companies, net of cash ceded 5 178 Net cash related to changes in scope of consolidation (13) 165 Sales of debt instruments (h) 30,649 34,363 Sales of equity instruments and non controlled investment funds (h) (i) 10,693 9,077 Sales of investment properties held directly or not (h) 630 182 Sales and/or repayment of loans and other assets (h) (j) 8,255 13,445 Net cash related to sales and repayments of investments (h) (i) (j) 50,228 57,067 Purchases of debt instruments (h) (32,014) (36,603) Purchases of equity instruments and non controlled investment funds (h) (i) (12,028) (9,806) Purchases of investment properties held direct or not (h) (1,236) (545) Purchases and/or issues of loans and other assets (h) (j) (12,416) (14,357) Net cash related to purchases and issuance of investments (h) (i) (j) (57,694) (61,311) Sales of tangible and intangible assets 4 3 Purchases of tangible and intangible assets (200) (230) Net cash related to sales and purchases of tangible and intangible assets (196) (226) Increase in collateral payable / Decrease in collateral receivable 22,171 29,894 Decrease in collateral payable / Increase in collateral receivable (22,693) (29,881) Net cash impact of assets lending / borrowing collateral receivables and payables (522) 13 NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (8,197) (4,292) Issuance of equity instruments 678 266 Repayments of equity instruments (382) (88) Transactions on treasury shares 153 (8) Dividends payout (1,873) (1,688) Interests on undated subordinated debts paid (101) (115) Acquisition / sale of interests in subsidiaries without change in control (21) (76) Net cash related to transactions with shareholders (1,546) (1,708) Cash provided by financial debts issuance 881 0 Cash used for financial debts repayments (1,676) (24) Interests on financing debt paid (k) (334) (238) Half Year 2013 Financial Report 91 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Net cash related to Group financing (1,130) NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (2,676) NET CASH PROVIDED BY DISCONTINUED OPERATIONS 0 CASH AND CASH EQUIVALENT AS OF JANUARY 1 (l) 30,101 Net cash provided by operating activities 4,731 Net cash provided by investing activities (8,197) Net cash provided by financing activities (2,676) Impact of change in consolidation method and of reclassifications as held for sale (261) Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (331) CASH AND CASH EQUIVALENT AS OF JUNE 30 (l) 23,367 (a) AXA Japan closed its 2011 and 2012 full year accounts at September 30 and its 2013 half year accounts at March 31. Given significant movement in foreign exchange rates between September 30, 2011 and December 31, 2011, September 30, 2012 and December 31, 2012 and between March 31, 2013 and June 30, 2013, balance sheet items have been translated using respectively December 31, and June 30, exchange rates. (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Includes premiums/discounts capitalization and relating amortization, amortization of investment and in the contest of owner occupied properties (held directly). (d) Includes impairment and amortization of intangible assets booked in the context of business combinations. (e) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (f) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (g) Includes gains/losses from derivatives hedging variable annuities. (h) Includes related derivatives. (i) Includes equity instruments held directly or by consolidated investment funds as well as non consolidated investment funds. (j) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (k) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (l) Net of bank overdrafts. (in Euro million) June 30, 2013 June 30, 2012 Cash and cash equivalent 24,816 Bank overdrafts (a) (1,449) Cash and cash equivalent as of June 30 (b) 23,367 (a) Included in "Other debt instruments issued and bank overdrafts". (b) The "Cash and cash equivalents" balances do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The "Cash and cash equivalents" item excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). 92 Half Year 2013 Financial Report (262) (1,970) (0) 30,033 4,873 (4,292) (1,970) (322) 358 28,680 30,417 (1,737) 28,680 CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 1 Accounting principles 1.1. GENERAL INFORMATION AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, North America and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA is listed on Euronext Paris Compartiment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on August 1, 2013. 1.2. GENERAL ACCOUNTING PRINCIPLES 1.2.1. Basis for preparation AXA’s consolidated interim financial statements are prepared as of June 30. However, certain entities within AXA have a different reporting year end, in particular AXA Life Japan, whose interim period ended at March 31. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are endorsed by the European Union before the balance sheet date with a compulsory date of January 1, 2013. The Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. Amendments to standards published and adopted on January 1, 2013 The amendment to IAS 19 – Employee Benefits, published on June 16, 2011, eliminates the corridor method that allows the deferral of recognition of gains and losses. However, this method was not applied by the Group since all actuarial gains and losses were recognized through shareholders’ equity. The amendment also replaces interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). In addition, the amendment no longer allows the deferral of past service costs which are immediately to be recognized in Profit or Loss when incurred. The amendment clarifies that the distinction between short-term and long-term benefits is based on whether payment is expected to be within the next 12 months, rather than when payment can be demanded. As a result, the Group reclassified some benefit obligations (mainly unused “vacation accruals”) in the category of other long-term employee benefits. The retrospective application of the amendments to IAS19 led to a reduction of retained earnings in shareholders’ equity of €39 million as of January 1, 2012 as well as a reduction in net consolidated income after tax of €43 million as of June 30, 2012. In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsDeferred tax assets 3,332 22 3,355 3,047 13 3,060 Liabilities arising from policyholders' participation (17,938) (6) (17,944) (31,350) (7) (31,357)Provisions for risks and charges (10,760) (131) (10,891) (11,789) (163) (11,952)Deferred tax liabilities (3,794) 1 (3,793) (5,196) 21 (5,175)Other payables (18,130) 74 (18,056) (17,373) 77 (17,296)NET EFFECT (39) (58)In Euro millionPublished amountsEffect of the changeRestated amountsPublished amountsEffect of the changeRestated amountsAcquisition costs (4,293) (17) (4,310) (9,539) (34) (9,574)Administrative expenses (4,630) (41) (4,671) (9,440) (98) (9,538)Income tax (919) 16 (903) (1,135) 36 (1,098)NET EFFECT (43) (96)Consolidated statement of incomeConsolidated statement of financial positionJune 30, 2012December 31, 2012January 1, 2012 December 31, 2012 Half Year 2013 Financial Report 93 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Additionally, the application of the following amendments to standards as of January 1, 2013 had no material impact on the Group’s consolidated interim financial statements: IFRS 13 – Fair Value Measurement, published on May 12, 2011, defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. The amendment to IAS 1 – Presentation of Financial Statements, published on June 16, 2011, requires entities to group together items presented within Other Comprehensive Income based on whether they are potentially reclassifiable to profit or loss in a subsequent period. The amendment also preserves the requirement that items in Other Comprehensive Income and profit or loss should be presented as either a single statement or two consecutive statements. The amendments to IFRS 7 – Financial Instruments Disclosure, published on December 16, 2011 amend disclosure requirements of information about rights of offset and related arrangements. Annual Improvements 2009 – 2011 Cycle, published on May 17, 2012, includes amendments to IFRS that are not part of a major project. They are presented in a single document rather than as a series of small changes. Standards, amendments and interpretations published but not yet being effective IFRS 9 - Financial Instruments, published on November 12, 2009, amended on October 28, 2010 and December 16, 2011 and applicable to the Group from January 1, 2015 with earlier application permitted, represents the completion of the first part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. At initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in Other Comprehensive Income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in Other Comprehensive Income, unless the recognition of the effects of changes in the liability’s credit risk in Other Comprehensive Income would create or enlarge an accounting mismatch in profit or loss. Moreover, the IASB issued an Exposure Draft on November 28, 2012 that proposes limited amendments to IFRS9, in particular the introduction of a third category of classification for financial instruments that would correspond to financial instruments held to collect contractual cash flows and for sale. These debt instruments would be measured at fair value with changes recognized in fair value through Other Comprehensive Income and realized gains or losses would be recycled through profit or loss upon sale. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting for which exposure drafts were published in 2012 and 2013), its method of implementation and its impact are currently being examined within the Group. A package of five new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the five standards have an effective date for annual periods beginning on or after January 1, 2013, with earlier application being permitted so long as each of the other standards in the package is also applied early. However, in December 2012, the European Union endorsed these five standards but decided to postpone to 2014 the 2013 mandatory application date required by IASB, still with early application permitted. As a result, the Group has chosen January 1, 2014, as application date. The potential impact on the Group’s consolidated financial statements with regard to the package of five new and revised standards is currently being analysed. IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, control is based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements and replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. The application of the equity method instead of the proportional consolidation is not expected to have a material impact on the Group’s consolidated financial statements. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. 94 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. The amendments to IAS 32 – Financial Instruments: Presentation published on December 16, 2011, provide clarifications of the application of the offsetting rules. The amendments to IAS 32 clarify that in order to result in an offset of a financial asset and a financial liability, a right to set-off must be available today rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014. An analysis of the amendments is currently in progress. Investment entities (Amendments to IFRS 10, IFRS 12 and IAS 27), published on October 31, 2012, provides an exemption from consolidation of subsidiaries under IFRS 10 – Consolidated Financial Statements for entities which meet the definition of an “investment entity”. Under the amendments, investment entities would measure their investment in subsidiaries at fair value through profit or loss. However, at a higher level, the parent company of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity, unless the parent itself is an investment entity. For these reasons, the amendments, that are effective for annual periods beginning on or after January 1, 2014, with early application permitted, are not expected to have a material impact on the Group’s consolidated financial statements. The amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets, published on May 29, 2013, address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014, with earlier application permitted if IFRS 13 has already been applied. The amendments are not expected to have a material impact on the Group’s consolidated financial statements. IFRIC 21 – Levies, published May 20, 2013, is an interpretation on the accounting for levies imposed by governments. The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The interpretation is effective for annual periods beginning on or after January 1, 2014 and is not expected to have a material impact on the Group’s consolidated financial statements. Narrow-scope amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting, published on June 27, 2013 provides relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The amendments are effective for annual periods beginning on or after January 1, 2014 (with earlier application permitted) and are not expected to have a material impact on the Group’s consolidated financial statements. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in paragraph 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million, and rounded up to the nearest whole unit, unless otherwise stated. 1.2.2. First time adoption of IFRS The AXA Group’s transition date was January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The Group’s IFRS adoption date was January 1, 2005. Half Year 2013 Financial Report 95 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The major options elected in accordance with IFRS 1 were the following: Purchase Accounting, goodwill and other intangibles related to past business combinations performed prior to January 1, 2004 AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS financial statements, except: goodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004 (transition to IFRS); and any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassified into goodwill. As a result, the goodwill gross value corresponds to the gross value of these goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003. Currency Translation Differences AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as of January 1, 2004. Pension accounting All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings as of January 1, 2004. Unless otherwise stated, the AXA’s accounting policies have been consistently applied to all the periods presented in its financial statements, including policies relating to the classification and measurement of insurance contracts, investment contracts and other financial investments and liabilities including derivatives. 1.3. CONSOLIDATION 1.3.1. Scope and basis of consolidation Companies in which AXA exercises control are known as subsidiaries. Under the current definition of IAS 27, control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27/SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity. Entities that are controlled in substance, even without any ownership interest, are also consolidated, as well as entities that are controlled in substance because of a specific statute or an agreement, even without any ownership interest. In particular this relates to special purpose entities, such as securitization vehicles. Companies over which AXA exercises a joint controlling influence alongside one or more third parties are consolidated proportionately. Companies in which AXA exercises significant influence are accounted for under the equity method. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or, for example, when significant influence is exercised through an agreement with other shareholders. AXA’s share of equity associates’ post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for under the equity method, depending on which conditions of IAS 27/SIC 12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. 96 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.3.2. ownership interest Business combinations and subsequent changes in the Group In accordance with the option made available by IFRS 1 – First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time. As the Group decided to early adopt Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date. Valuation of assets acquired and liabilities assumed of newly acquired subsidiaries and contingent liabilities Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and reflecting the difference between the fair value and the carrying value of the liabilities). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium. Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature. Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the New Business Value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item. To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash flows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity. In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group. Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred. In step acquisitions, any previously minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re- measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill). Half Year 2013 Financial Report 97 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 According to a decision taken for each acquisition, any minority interest may be measured at fair value or at its proportionate interest in the acquiree’s identifiable net assets. If the transaction is denominated in a foreign currency, the exchange rate used is that in force on the date of the transaction or on the starting date of the transaction (if it occurs over a period). Goodwill Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. If the cost of acquisition is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income. Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, finally meets the recognition criteria, the corresponding tax benefit is recorded in the consolidated statement of income without a corresponding adjustment in goodwill. Goodwill is allocated across operating segments (Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing. Purchase and sale of minority interests in a controlled subsidiary Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs). If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income. Put over minority interests When control over a subsidiary is acquired, a put option may be granted to minority shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations. When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date. Intra-group transactions Intra-group transactions, including internal dividends, payables/receivables and gains/losses on intra-group transactions are eliminated: in full for controlled subsidiaries, and to the extent of AXA’s interest for entities consolidated by equity method or proportionate consolidation. The effect on net income of transactions between consolidated entities is always eliminated. However, in case of a loss, an impairment test is performed, in order to assess whether an impairment has to be booked. In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position. 98 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’ participation recorded in connection to the transaction, which are maintained in the consolidated financial statements. These transfers also have an impact on Group shareholders’ equity (with a balancing entry recorded in minority interests). This impact is identified in the “other” changes of the consolidated statement of shareholders’ equity. 1.4. FOREIGN CURRENCY TRANSLATION OF FINANCIAL STATEMENTS AND TRANSACTIONS The consolidated financial statements are presented in Euro million, the Euro being the Group’s presentational currency. The results and financial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; revenues and expenses are translated at the average exchange rates over the period; all resulting foreign exchange differences are recognized as a separate component of equity (translation differences). At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in paragraph 1.9. As mentioned in paragraph 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date. Foreign exchange differences arising from the translation of a net investment in a foreign subsidiary, borrowings and other currency instruments qualifying for hedge accounting of such investment are recorded in shareholders’ equity under translation differences and are recycled in the income statement as part of the realized gain or loss on disposal of the hedge net investment. Foreign exchange differences arising from monetary financial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity. Regarding the cumulative amount of the exchange differences related to disposed business, the Group applies the step- by-step consolidation method (IFRIC 16). 1.5. SEGMENT REPORTING The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five business lines: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional “Holdings” segment includes all non-operational activities. 1.6. INTANGIBLE ASSETS 1.6.1. Goodwill and impairment of goodwill Goodwill is considered to have an indefinite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible. AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value models or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples. Half Year 2013 Financial Report 99 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.6.2. Value of purchased life insurance business in force (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see paragraph 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see paragraph 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions. 1.6.3. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features The direct costs of acquiring a portfolio of insurance contracts and investment contracts with discretionary participating features, primarily related to the selling, underwriting and initiating the insurance contracts in a portfolio, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned. For Life business, the asset is amortized based on the estimated gross profits emerging over the life of the contracts. This asset is tested for recoverability and any amount above future estimated gross profits is expensed. DAC are also tested through the liability adequacy test (see paragraph 1.13.2). For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to reflect changes in assumptions and experience. This asset is also tested for recoverability. DAC and DOC are reported gross of unearned revenues and fees reserves. These unearned revenues and fees reserves are separately recognized as liabilities and are amortized over the contract term using the same amortization approach used for DAC and DOC. 1.6.4. Unearned revenues reserves Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs. 1.6.5. Other intangible assets Other intangible assets include software developed for internal use for which direct costs are capitalized and amortized on a straight-line basis over the assets’ estimated useful lives. They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized on a straight line basis over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell. 1.7. ACTIVITIES INVESTMENTS FROM INSURANCE, BANKING AND OTHER Investments include investment in real estate properties and financial instruments including equity instruments, debt instruments and loans. 1.7.1. Investment in real estate properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. 100 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by- line approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. 1.7.2. Financial instruments classification Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: assets held to maturity, accounted for at amortized cost; assets held for trading and assets designated as at fair value with change in fair value through profit or loss; available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity; loans and receivables (including some debt instruments not quoted in an active market) accounted for at amortized cost. At inception, the option to designate financial investments and liabilities at fair value with change in fair value recognized through income statement is mainly used by the Group in the following circumstances: financial investments when electing the fair value option allows the Group to solve accounting mismatch, and in particular: o o assets backing liabilities arising from contracts where the financial risk is borne by policyholders, assets included in hedging strategies set out by the Group for economical reasons but not eligible for hedge accounting as defined by IAS 39, debt held by structured bond funds controlled and consolidated by the Group and made up of CDOs (Collateralized Debt Obligations); o portfolios of managed financial investments whose profitability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group risk management policy (“Satellite Investment Portfolio”, see definition below). In practice, assets held through consolidated investment funds are classified: either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or as assets of the “Satellite Investment Portfolios”, reflecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns. Underlying financial instruments held in the “Core Investment Portfolios” are classified as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement. Assets designated as available-for-sale, trading assets, investments designated as at fair value through profit or loss and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the IAS 39 fair value hierarchy. Loans which are not designated under the fair value option are accounted at amortized cost using the effective interest rate method. Impairment of financial instruments AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as “available for sale” is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated. Half Year 2013 Financial Report 101 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 For debt instruments classified as “held to maturity” or “available for sale”, an impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement. For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized. Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s effective interest rate (down to the loan’s observable market price), or on the fair value of the collateral. For financial investments accounted for at amortized cost, including loans and assets classified as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is first performed at the asset level. A more global test is then performed on groups of assets with similar risk profile. Methods for calculating the net book value of assets sold (average cost, first-in first-out, etc.) depend on local Assets and Liabilities Management (ALM) strategies as these strategies have been set up to take into account specific commitments to policyholders. These methods may differ within the Group provided that they are used consistently at each entity level. 1.7.3. Repurchase agreements and security lending The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. While substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements. The Group is also party to reverse repurchase agreements under which financial assets are purchased from a counterparty, subject to a simultaneous agreement to return these financial assets at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remain with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as financial assets of the Group. The amounts of cash disbursed are recorded under financial investments, except for transactions arising from banking activities, which are recorded as separate assets. Interest income on reverse repurchase agreements is accrued over the duration of the agreements. 1.8. ASSETS BACKING LIABILITIES ARISING FROM CONTRACTS WHERE THE FINANCIAL RISK IS BORNE BY POLICYHOLDERS Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments, etc.). Details of these assets are provided in the notes. 1.9. DERIVATIVE INSTRUMENTS Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a firm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash flow hedge); or (iii) hedging of net investments in foreign operations. 102 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected efficiency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash flows of hedged underlying items. Fair value hedge Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Therefore, the gain or loss relating to any ineffective portion is directly recognized in the income statement. Cash flow hedge The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement. Net investment hedge The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations. Derivatives not qualifying for hedge accounting Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. The Group holds financial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profit or loss if the impact is deemed material. For the statement of financial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting. 1.10. ASSETS/LIABILITIES HELD FOR SALE AND ASSETS/LIABILITIES INCLUDING DISCONTINUED OPERATIONS These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months. Subsidiaries held for sale remain within the scope of consolidation until the date on which the Group loses effective control. The assets and activities (assets and liabilities) concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate asset and liability items on the balance sheet. The liabilities of subsidiaries (excluding shareholders’ equity) held for sale are entered separately on the liability side of the consolidated balance sheet, with no netting against assets. In the event of a discontinuation of operations representing either a business line, a main and distinct geographical region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the financial statements. This separate line also includes the post-tax gain/loss recognized on the disposal of the discontinued operation at the date of loss of control. Details on information presented in the statement of financial position and statement of income are provided in the notes to the consolidated financial statements. 1.11. CASH AND CASH EQUIVALENTS Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility. Half Year 2013 Financial Report 103 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.12. SHARE CAPITAL AND SHAREHOLDERS’ EQUITY 1.12.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders. Additional costs (net of tax) directly attributable to the issue of equity instruments are shown in shareholders’ equity as a deduction to the proceeds. 1.12.2. Undated subordinated debt Undated subordinated debt and any related interest charges are classified either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or shareholders’ expectations). 1.12.3. Compound financial instruments Any financial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the Company) and a liability component (a contractual obligation to deliver cash) is classified separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refinancing of the equity component are recognized as changes to shareholders’ equity. 1.12.4. Treasury shares Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects. However, treasury shares held by controlled investment funds backing contracts where the financial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders. 1.13. LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 1.13.1. Contracts classification The Group issues contracts that transfer an insurance risk or a financial risk or both. Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are contracts that carry financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefits or bonuses on top of these standard benefits: they are likely to represent a significant portion of the overall contractual benefits; their amount or timing is contractually at the discretion of the Group; and they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the Company profits, a fund or another entity that issues the contract. In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually Unit- Linked contracts. 104 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The Group classifies its insurance and investment contracts into six categories: liabilities arising from insurance contracts; liabilities arising from insurance contracts where the financial risk is borne by policyholders; liabilities arising from investment contracts with discretionary participating features; liabilities arising from investment contracts with no discretionary participating features; liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to Unit-Linked contracts or multi-funds contracts containing a non-Unit- Linked fund with discretionary participating features; liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders. 1.13.2. participating features Insurance contracts and investment contracts with discretionary Except where IAS 39 applies, according to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), and the extension of shadow accounting . The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: reserves must be sufficient; life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield; acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts; property and casualty claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases. PRE-CLAIMS RESERVES Unearned premiums reserves represent the pro rata portion of written premiums that relates to unexpired risks at the closing date. For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses. Changes in reserves are booked if there are impacts caused by a change in the mortality table. Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are generally calculated using a prospective approach based on discount rates usually set at inception (similar to the retrospective approach, i.e. “account balance” methodology). The discount rates used by AXA are less or equal to the expected future investment yields (assessed on prudent basis). Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefits reserves relating to contracts where the financial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefit obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefit obligations is reserved as fees are collected over the life of the contracts. Some guaranteed benefits such as Guaranteed Minimum Death or Income Benefits (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and considers interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. Half Year 2013 Financial Report 105 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 This change in accounting principles was adopted on the first time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was first applied. POST CLAIMS RESERVES Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are generally not discounted, except in cases such as disability annuities. Claims reserves include the claims incurred and reported, claims incurred but not reported (IBNR) as well as claim handling costs. Claims reserves are based on historical claim data, current trends, actual payment patterns for all insurance business lines as well as expected changes in inflation, regulatory environment or anything else that could impact amounts to be paid. Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (for example “legal quote” for group insurance policies), Germany and France where the minimum is set to 90%, 90% and 85% respectively, of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less prevalent in the United States or in Japan. The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element. When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins. Unrealized gains and losses on assets classified as trading or designated at fair value through profit and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-for-sale (for which change in fair value is taken to shareholders’ equity) are booked through shareholders’ equity. Recoverability tests and liability adequacy test (LAT) Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders. Liability Adequacy Test In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts. such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; they include projections of future investments sales according to estimated surrender patterns; and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profit sharing between policyholders and shareholders. 106 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date. Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts are also considered. Depending on the type of business, the future investment cash flows and discounting may be based on a deterministic best estimate rate, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, etc.) directly with discounted cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets. Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DPA, DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. Embedded derivatives in insurance and investment contracts with discretionary participating features Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract. 1.13.3. Investment contracts with no discretionary participating features In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” paragraph below). These cash flows shall rather be recognized as deposits and withdrawals. This category includes mainly Unit-Linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these Unit-Linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in paragraph 1.6.3). UNEARNED FEES RESERVES Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs. 1.14. REINSURANCE Transactions relating to reinsurance assumed and ceded are accounted in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classification requirements and in agreement with contractual clauses. 1.15. FINANCING DEBT Financing debt issued to finance the solvency requirements of operational entities or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position and are accounted for at amortized cost. 1.16. OTHER LIABILITIES 1.16.1. Income taxes The half year income tax charge is based on the best estimate of the expected full year tax rate (if progressive tax rates, based on income levels) for each Group entity and for each tax category. Deferred tax assets and liabilities emerge from Half Year 2013 Financial Report 107 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 temporary differences between the accounting and fiscal values of assets and liabilities, and when applicable from tax loss carry forwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available to offset the temporary differences. The recoverability of deferred tax assets recognized in previous periods is re- assessed at each closing. In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due. Deferred taxes for taxable temporary differences relating to tax deductible goodwill are recognized to the extent they do not arise from the initial recognition of goodwill. These deferred taxes are only released if the goodwill is impaired or if the corresponding consolidated shares are sold. The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized. 1.16.2. Pensions and other post-retirement benefits Pensions and other post-retirement benefits include the benefits payable to AXA Group employees after they retire (retirement compensation, additional pension benefit, health insurance). In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets). Defined contribution plans: payments are made by the employer to a third party (e.g. pension trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. The contributions paid by the employer are recorded as an expense in the income statement and no liability needs to be recorded once contributions are made. Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefits is the difference between the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling). Actuarial gains and losses (now termed remeasurments under IAS19 revised) arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in Other Comprehensive Income) in full in the period in which they occur. Similarly, the actual return on assets and any change in asset ceiling, excluding the net interest income on assets, is recognized in shareholders’ equity. The regular impact in the income statement mainly relates to the current service cost (annually accruing employee benefit) and the net interest on the amount recorded in the opening balance sheet (unwinding of discount applied to the liability/asset at start of the annual period, taking account contributions and benefits payments during the period). Past service cost represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment to a plan. It is recognized totally and immediately in the income statement when incurred. Gains and losses on the settlement of a defined benefit plan also have an impact in the income statement when the settlement occurs. 1.16.3. Share-based compensation plans The Group’s share-based compensation plans are predominantly settled in equities. All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period. Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance sheet date with any change in fair value recognized in the statement of income. The AXA Shareplan issued under a specific French regulatory framework includes a traditional and a leveraged formula (with an application subject to specific local regulations within the Group). 108 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 The cost of the traditional formula of Shareplan is valued according to the specific guidance issued in France by the ANC (Autorité des Normes Comptables). The cost of the leveraged formula plan is valued by taking into account the five-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing. 1.17. PROVISIONS FOR RISKS, CHARGES AND CONTINGENT LIABILITIES 1.17.1. Restructuring costs Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives. 1.17.2. Other provisions and contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see paragraph 1.3.2). Provisions are measured at management’s best estimate, at the balance sheet date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions. 1.18. REVENUE RECOGNITION 1.18.1. Gross written premiums Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums. 1.18.2. discretionary participating features Fees and revenues from investment contracts with no Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” paragraph 1.13.3). 1.18.3. Deposit accounting Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues; claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees. Half Year 2013 Financial Report 109 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.18.4. Unbundling The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: the Group can measure separately the “deposit” component (including any embedded surrender option, i.e. without taking into account the “insurance” component); the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit” component. No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features. According to these principles, there are no situations in which all rights and obligations related to contracts are not recognized. 1.18.5. and fees Change in unearned premiums reserves net of unearned revenues Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in paragraph 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in paragraph 1.13.2) and investment contracts with no discretionary participating features (see paragraph 1.13.3 “Unearned fees reserves”). 1.18.6. Net revenues from banking activities Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests expenses not related to financing, banking fees, capital gains and losses on sales of financial assets, change in fair value of assets under fair value option and related derivatives. They exclude bank operating expenses and change in bad debt provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”. 1.18.7. Revenues from other activities Revenues from other activities mainly include: commissions received and fees for services relating to asset management activities; insurance companies revenues from non insurance activities, notably commissions received on sales or distribution of financial products; and rental income received by real estate management companies. 1.18.8. Policyholders’ participation The half year policyholders’ participation charge is based on the best estimate of the planned full year distribution rate for each portfolio of contracts at each Group entity level. 110 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 1.18.9. Net investment result excluding financing expenses The net investment result includes: investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments; investment management expenses (excludes financing debt expenses); realized investment gains and losses net of releases of impairment following sales; the change in unrealized gains and losses on invested assets measured at fair value through profit or loss; the change in impairment of investments (excluding releases of impairment following sales). In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item (see paragraph 1.18.6). 1.19. SUBSEQUENT EVENTS Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are authorized for issue: such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date; such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material. Half Year 2013 Financial Report 111 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 2 Scope of consolidation 2.1. CONSOLIDATED COMPANIES 2.1.1. Main fully consolidated companies June 30, 2013 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests France AXA AXA Asia AXA China AXA France Assurance Oudinot Participations Société Beaujon Parent company 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 AXA America Holding Inc. 100.00 100.00 United Kingdom Guardian Royal Exchange Plc AXA UK Plc 100.00 100.00 99.98 99.98 AXA Equity & Law Plc 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 Japan AXA Japan Holding 99.02 99.02 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 AXA Konzern AG 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 Finance Solutions SARL 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Italia S.p.A. AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 112 Half Year 2013 Financial Report December 31, 2012 Voting rights percentage Group share of interests Parent company 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 99.99 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.96 99.96 100.00 100.00 100.00 100.00 100.00 100.00 99.02 99.02 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Life & Savings and Property & Casualty France AXA France IARD AXA France Vie AXA Protection Juridique United States AXA Equitable Life Insurance Company Mony Life Insurance Company (a) AXA Re Arizona Company United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited AXA Portfolio Services Limited Ireland AXA Insurance Limited AXA Life Europe Limited AXA Reinsurance Ireland Limited Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (b) AXA Insurance Public Company Limited (Thailand) (c) Japan AXA Life Insurance Germany AXA Versicherung AG AXA Art AXA Lebensversicherung AG Pro Bav Pensionskasse Deutsche Ärzteversicherung AXA Krankenversicherung AG DBV-Winterthur Lebensversicherung AG Winsecura Pensionskasse AG Rheinisch-Westfälische Sterbekasse Lebensversicherung AG DBV Deutsche Beamten-Versicherung AG Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Les Assurés Réunis Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) AXA MPS Danni (Italy) AXA MPS Financial (Italy) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) AXA Middle East SAL (Lebanon) (c) Switzerland CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 June 30, 2013 December 31, 2012 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests 99.92 99.77 99.92 99.77 99.92 99.77 99.92 99.77 98.51 98.51 98.51 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 100.00 99.98 100.00 99.98 100.00 100.00 99.98 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 Minority interests buyout 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.41 100.00 100.00 100.00 100.00 100.00 100.00 42.41 Newly consolidated 99.31 99.31 100.00 99.02 100.00 99.02 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 99.74 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.74 99.74 100.00 Disposal 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Minority interests buyout 100.00 100.00 99.95 99.95 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.96 99.90 100.00 100.00 99.82 99.78 99.90 99.99 99.99 99.82 99.96 99.90 100.00 100.00 99.82 99.78 99.90 99.99 99.99 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Minority interests buyout 99.73 95.09 100.00 100.00 89.80 50.00 50.00 99.98 99.97 99.49 94.89 100.00 100.00 89.80 34.00 50.00 99.98 99.97 99.73 95.09 100.00 100.00 72.59 50.00 50.00 99.98 99.97 99.49 94.89 100.00 100.00 72.59 34.00 50.00 99.98 99.97 Newly consolidated 51.00 51.00 Half Year 2013 Financial Report 113 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance 100.00 66.67 100.00 66.67 100.00 66.67 100.00 66.67 AXA Insurance (previously Winterthur Swiss Insurance P&C) 100.00 100.00 100.00 100.00 Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary AXA Poland AXA Poland Pension Funds AXA Slovakia 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 AXA Ukraine 50.17 50.17 50.17 50.17 Direct (d) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) 100.00 99.52 100.00 100.00 100.00 100.00 100.00 99.52 99.02 100.00 100.00 100.00 100.00 99.52 100.00 100.00 100.00 100.00 100.00 99.52 99.02 100.00 100.00 99.99 Seguro Directo Gere Companhia de Seguros SA (Portugal) 100.00 100.00 100.00 100.00 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) AXA Group exercises control in accordance with shareholders' agreements. (c) Consolidation through Equity Method as a proxy due to low materiality. (d) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2013 December 31, 2012 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C AXA Global Life AXA Assistance (sub group) Portman Insurance Ltd. Colisée RE 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 AXA Corporate Solutions Life Reinsurance Company 100.00 100.00 100.00 100.00 June 30, 2013 December 31, 2012 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) 95.87 95.82 95.87 95.82 AllianceBernstein (sub group) (a) 64.20 64.20 65.51 65.51 (a) The decrease in the Group share of interest is mainly due to the granting of holding units to the employees in relation with the share-based compensation programs June 30, 2013 December 31, 2012 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque 100.00 99.89 100.00 99.89 AXA Banque Financement 65.00 64.93 65.00 64.93 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2013 December 31, 2012 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management 100.00 100.00 100.00 100.00 Consolidated investments and investment funds As of June 30, 2013, consolidated investment funds represented total invested assets of €109 billion (€104 billion at the end of 2012), corresponding to 298 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. 114 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013, the 30 consolidated real estate companies corresponded to total invested assets of €6,481 million (€6,717 million at the end of 2012), mainly in Germany and France. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of consolidated investment funds and puttable instruments held by minority interest holders”. As of June 30, 2013, minority interests in consolidated investment funds amounted to €6,244 million (€3,775 million as of December 31, 2012). 2.1.2. Proportionately consolidated companies June 30, 2013 December 31, 2012 Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Natio Assurances 50.00 49.96 50.00 49.96 2.1.3. method Main investments in companies accounted for using the equity Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2013 December 31, 2012 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie 39.98 39.98 39.98 39.98 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd (Thailand) ICBC-AXA Life Insurance Co. Ltd (China) PT AXA Mandiri Financial Services (Indonesia) Bharti AXA Life (India) 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 45.00 50.00 27.50 49.00 26.00 Bharti AXA General Insurance Company Limited (India) Newly consolidated 26.00 26.00 Russia Reso Garantia (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management AXA Investment Managers Asia Holdings Private Limited 49.00 46.95 49.00 46.95 Kyobo AXA Investment Managers Company Limited 50.00 47.91 50.00 47.91 Investment funds and real estate entities accounted for using the equity method. As of June 30, 2013, real estate companies accounted for using the equity method represented total assets of €274 million (€296 million at the end of 2012) and investment funds accounted for using the equity method represented total assets of €4,728 million (€4,900 million at the end of 2012), mainly in the United States, Germany, Belgium, Switzerland and the United Kingdom. 2.2. CONSOLIDATED ENTITIES RELATING TO SPECIFIC OPERATIONS Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. Held assets amounted to €1,200 million as of June 30, 2013. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Half Year 2013 Financial Report 115 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 3 Consolidated statement of income by segment Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holding companies" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding Company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The Group has set up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographic operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates nine geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, Central Eastern Europe, Asia and Other countries) and one operating component for the Direct business (previously included within countries and regions and now reported as a separate reporting unit). International Insurance: This segment’s operations include insurance products that notably relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company and the Group Property & Casualty run-off managed by AXA Liabilities Managers. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgage loans, savings) conducted primarily in France, Belgium and Germany. The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles and Special-Purpose Entities (SPE). The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. 116 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 3.1. CONSOLIDATED STATEMENT OF INCOME BY SEGMENT (in Euro million) June 30, 2013 Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations TOTAL Gross written premiums 28,927 16,665 1,843 (267) 47,168 Fees and charges relating to investment contracts with no participating features 133 133 Revenues from insurance activities 29,060 16,665 1,843 (267) 47,301 Net revenues from banking activities 287 0 4 291 Revenues from other activities 583 28 137 1,915 2 (214) 2,451 Revenues 29,643 16,693 1,980 1,915 290 0 (477) 50,044 Change in unearned premiums net of unearned revenues and fees (1,178) (2,496) (236) 90 (3,819) Net investment income (a) 4,849 1,008 78 4 (0) 307 (295) 5,951 Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 1,201 6,573 8,072 180 (109) 8 (7) (4) 24 19 32 (13) (3) 1,405 6,500 8,070 Change in investments impairment (296) (48) (9) (0) (38) (390) Net investment result excluding financing expenses 12,328 1,031 71 24 (0) 320 (307) 13,466 Technical charges relating to insurance activities (35,047) (9,433) (932) 146 (45,267) Net result from outward reinsurance (173) (415) (391) 41 (938) Bank operating expenses (68) 1 (67) Acquisition costs (1,984) (2,451) (222) 29 (4,628) Amortization of the value of purchased business in force (59) (59) Administrative expenses (1,488) (1,295) (111) (1,418) (206) (397) 145 (4,770) Change in tangible assets impairment (0) (0) Change in goodwill impairment and other intangible assets impairment (6) (40) (0) (46) Other income and expenses (74) (10) (0) (102) 13 108 (43) (109) Other operating income and expenses (38,832) (13,644) (1,656) (1,520) (261) (288) 317 (55,884) Income from operating activities before tax 1,961 1,585 158 418 28 33 (377) 3,806 Income arising from investments in associates – Equity method 46 15 0 0 0 62 Financing debt expenses (63) (3) (1) (17) (8) (663) 407 (348) Net income from operating activities before tax 1,944 1,597 157 402 20 (630) 30 3,520 Income tax (390) (445) (73) (128) 1 166 (30) (899) Net operating income 1,554 1,152 84 273 21 (464) 2,621 Net consolidated income after tax 1,554 1,152 84 273 21 (464) 2,621 Split between : Net consolidated income - Group share 1,501 1,130 83 196 20 (464) 2,467 Net consolidated income - Minority interests 54 22 1 77 1 (0) 154 (a) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (b) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half Year 2013 Financial Report 117 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 June 30, 2012 (a) Life & savings Property & Casualty International Insurance Asset Management Banking Gross written premiums 27,903 16,363 1,759 Fees and charges relating to investment contracts with no participating features 164 Revenues from insurance activities 28,067 16,363 1,759 Net revenues from banking activities 233 Revenues from other activities 575 28 146 1,734 2 Revenues 28,642 16,391 1,904 1,734 236 Change in unearned premiums net of unearned revenues and fees (1,353) (2,427) (276) Net investment income (b) 7,036 1,034 96 1 (1) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 496 6,659 6,227 189 (19) 7 27 (2) 21 Change in investments impairment (269) (102) (5) (1) Net investment result excluding financing expenses 13,922 1,103 125 19 (1) Technical charges relating to insurance activities (35,394) (9,274) (1,163) Net result from outward reinsurance (106) (538) 5 Bank operating expenses (64) Acquisition costs (1,724) (2,407) (189) Amortization of the value of purchased business in force (47) Administrative expenses (1,401) (1,311) (198) (1,305) (205) Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (20) (47) (0) Other income and expenses (79) 4 5 (128) 22 Other operating income and expenses (38,771) (13,573) (1,539) (1,433) (247) Income from operating activities before tax 2,441 1,493 215 319 (12) Income arising from investments in associates – Equity method 26 15 0 (0) Financing debts expenses (77) (3) (1) (22) (9) Net income from operating activities before tax 2,389 1,505 213 297 (21) Income tax (587) (480) (77) (84) 13 Net operating income 1,802 1,025 137 213 (9) Net consolidated income after tax 1,802 1,025 137 213 (9) Split between : Net consolidated income - Group share 1,781 1,008 135 152 (9) Net consolidated income - Minority interests 21 16 1 61 1 (a) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (b) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (c) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. 118 Half Year 2013 Financial Report Holding companies 0 0 265 80 (139) (14) 192 (0) (402) 64 (339) (147) 2 (658) (803) 279 (523) (523) (523) (0) Inter- segment eliminations (276) (276) (10) (215) (501) 94 (408) 0 2 (3) (406) 135 66 10 152 (64) 300 (514) 481 (33) 33 (in Euro million) TOTAL 45,749 164 45,913 224 2,268 48,405 (3,962) 8,023 770 6,550 6,224 (390) 14,953 (45,696) (572) (64) (4,310) (47) (4,671) (0) (67) (175) (55,602) 3,795 42 (289) 3,548 (903) 2,645 2,645 2,544 101 CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 4 Transactions announced in consolidated entities 4.1. MONY PORTFOLIO TRANSACTION On April 10, 2013, AXA announced that it had entered into definitive agreement with Protective Life Corporation to sell MONY life Insurance Company (“MONY”) and to reinsure an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (”MLOA”) primarily prior to 2004. Under the terms of the agreements and assuming a closing date of October 1, 2013, the total cash consideration will be $1.06 billion that corresponds to €0.81 billion using the foreign exchange rate as of June 30, 2013. This announced transaction led to recognize an estimated €-32 million exceptional loss in AXA interim consolidated financial statements as of June 30, 2013, resulting mainly from intangibles impairment, as well as associated costs with the announced transaction. The assets and liabilities of the MONY operations that are subject to the sale transaction were classified as held for sale separately from other assets and liabilities in the consolidated statement of financial position as of June 30, 2013. They related to the following main classes of assets and liabilities (amounts are presented net of intercompany balances with other AXA entities): (in Euro million) June 30, 2013 Intangible assets Investments 256 5,839 Other assets 621 TOTAL ASSETS HELD FOR SALE 6,716 Liabilities arising from insurance and investment contracts Provisions for risks and charges Other liabilities 6,240 10 (94) TOTAL LIABILITIES HELD FOR SALE 6,157 As of June 30, 2013, comprehensive income amounted to €25 million. 4.2. HSBC PORTFOLIO On March 7, 2012, AXA and HSBC announced they had entered into an agreement whereby AXA would acquire HSBC’s P&C businesses in Hong Kong, Singapore and Mexico. In addition, AXA would benefit from a 10-year exclusive P&C bancassurance agreement with HSBC in these countries as well as in China, India and Indonesia. On November 5, 2012, AXA announced it has completed the acquisition of HSBC’s P&C businesses in Hong Kong and Singapore, and that it has consequently launched its exclusive P&C bancassurance cooperation with HSBC in these countries. This operation resulted in a goodwill of €169 million. The value of the distribution agreement was recognized as an intangible asset of €145 million and will be amortized over 10 years. On April 1, 2013, AXA finalised the acquisition of HSBC’s P&C operations in Mexico and launched subsequently the exclusive P&C bancassurance cooperation in this country. The value of the distribution agreement is recognized as an intangible asset of €44 million and will be amortized over 10 years. The P&C bancassurance cooperation in China, India and Indonesia will be launched in due course. Half Year 2013 Financial Report 119 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 4.3. AXA BANK SWITZERLAND AXA Bank Switzerland closed its operations on February 29, 2012 following the transfer of its customer portfolio to Bank zweiplus on January 1, 2012. Related assets and liabilities (€189 million) were classified as held for sale as of January 1, 2012. 120 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 5 Investments Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the financial statements. In addition, this note also discloses the fair value of investment properties and financial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 5.2 (investment in real estate properties) and 5.5 (financial assets recognized at fair value). 5.1. BREAKDOWN OF INVESTMENTS Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro-hedges shown separately. Insurance June 30, 2013 (a) Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (b) Macro-hedge and other derivatives 20,895 1,056 16,462 1,056 2.75% 0.18% 3,176 2,080 5.39% 24,071 1,056 18,542 1,056 Investment in real estate properties 21,951 17,518 2.92% 3,176 2,080 5.39% 25,127 19,598 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (c) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (d) 324,190 33,329 314 6,828 324,190 33,329 314 6,950 54.10% 5.56% 0.05% 1.16% 9,512 71 22 2,603 9,512 71 22 2,603 24.65% 0.18% 0.06% 6.75% 333,702 33,400 335 9,432 333,702 33,400 335 9,554 Debt instruments 364,661 364,783 60.88% 12,208 12,208 31.63% 376,869 376,991 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (b) Equity instruments held for trading 13,209 6,755 96 13,209 6,755 96 2.20% 1.13% 0.02% 2,856 475 2,856 475 7.40% 1.23% 16,064 7,230 96 16,064 7,230 96 Equity instruments 20,060 20,060 3.35% 3,330 3,330 8.63% 23,390 23,390 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (b) Non consolidated investment funds held for trading 5,996 5,028 5,996 5,028 1.00% 0.84% 265 328 320 265 328 320 0.69% 0.85% 0.83% 6,261 5,356 320 6,261 5,356 320 Non consolidated investment funds 11,024 11,024 1.84% 912 912 2.36% 11,936 11,936 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 4,843 4,843 0.81% 1 1 0.00% 4,844 4,844 Macro-hedge and other derivatives 1,278 1,278 0.21% (1,452) (1,452) 3.76% (174) (174) Financial investments 401,866 401,989 67.09% 14,999 14,999 38.87% 416,865 416,987 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (b) Loans held for trading Loans at cost (e) Macro-hedge and other derivatives 0 0 - 25,999 0 0 - 24,998 0.00% 0.00% - 4.17% - - - 22,981 7 - - - 21,504 7 - - - 55.72% 0.02% 0 0 - 48,980 7 0 0 - 46,501 7 Loans 25,999 24,998 4.17% 22,989 21,511 55.74% 48,988 46,509 Assets backing contracts where the financial risk is borne by policyholders 154,681 154,681 25.82% 154,681 154,681 INVESTMENTS 604,499 599,187 100.00% 41,163 38,589 100.00% 645,662 637,776 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 449,817 444,505 74.18% Life & Savings Property & Casualty 383,999 58,307 379,455 57,541 63.33% 9.60% International Insurance 7,511 7,510 1.25% (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 Loans and Receivables measurement category. (e) Mainly relates to mortgage loans and policy loans. Half Year 2013 Financial Report % (value balance sheet) 2.91% 0.17% 3.07% 52.32% 5.24% 0.05% 1.50% 59.11% 2.52% 1.13% 0.02% 3.67% 0.98% 0.84% 0.05% 1.87% 0.76% 0.03% 65.38% 0.00% 0.00% - 7.29% 0.00% 7.29% 24.25% 100.00% 121 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Insurance December 31, 2012 Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro-hedge and other derivatives 20,348 1,224 15,968 1,224 2.64% 0.20% 3,487 2,461 6.99% 23,835 1,224 18,429 1,224 Investment in real estate properties 21,572 17,192 2.84% 3,487 2,461 6.99% 25,059 19,653 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (b) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (c) 341,965 29,861 405 6,191 341,965 29,861 405 5,998 56.45% 4.93% 0.07% 0.99% 8,372 63 21 1,817 8,372 63 21 1,817 23.78% 0.18% 0.06% 5.16% 350,336 29,924 426 8,008 350,336 29,924 426 7,815 Debt instruments 378,421 378,228 62.43% 10,273 10,273 29.19% 388,694 388,501 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) Equity instruments held for trading 12,630 6,635 45 12,630 6,635 45 2.08% 1.10% 0.01% 2,413 411 2,413 411 6.85% 1.17% 15,042 7,046 45 15,042 7,046 45 Equity instruments 19,309 19,309 3.19% 2,824 2,824 8.02% 22,133 22,133 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (a) Non consolidated investment funds held for trading 6,381 5,326 6,381 5,326 1.05% 0.88% 386 287 339 386 287 339 1.10% 0.82% 0.96% 6,767 5,613 339 6,767 5,613 339 Non consolidated investment funds 11,707 11,707 1.93% 1,013 1,013 2.88% 12,720 12,720 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 4,777 4,777 0.79% 1 1 0.00% 4,778 4,778 Macro-hedge and other derivatives 1,675 1,675 0.28% (1,988) (1,988) 5.65% (314) (314) Financial investments 415,889 415,697 68.62% 12,122 12,122 34.44% 428,012 427,819 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro-hedge and other derivatives (0) 0 - 27,324 (0) 0 - 25,772 0.00% 0.00% - 4.25% - 0 - 22,333 3 - 0 - 20,613 3 - 0.00% - 58.56% 0.01% (0) 1 - 49,657 3 (0) 1 - 46,385 3 Loans 27,324 25,772 4.25% 22,336 20,616 58.57% 49,660 46,388 Assets backing contracts where the financial risk is borne by policyholders 147,162 147,162 24.29% 147,162 147,162 INVESTMENTS 611,948 605,823 100.00% 37,945 35,199 100.00% 649,893 641,022 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 464,786 458,661 75.71% Life & Savings Property & Casualty 398,682 58,126 393,367 57,317 64.93% 9.46% International Insurance 7,978 7,977 1.32% (a) Assets measured at fair value under the fair value option. (b) Includes assets measured at fair value notably under the fair value option. (c) Eligible to the IAS 39 Loans and Receivables measurement category. (d) Mainly relates to mortgage loans and policy loans. The exposure as of June 30, 2013 and December 31, 2012 to sovereign debt securities issued by governments and related in Greece, Ireland, Italy, Portugal and Spain, and classified as available for sale was as follows: Issuer(in Euro million)Fair ValueAmortized Cost / Carrying valueUnrealized gains and losses(Gross value)Unrealized gains and losses (Net value)Fair ValueAmortized Cost / Carrying valueUnrealized gains and losses(Gross value)Unrealized gains and losses (Net value)Greece- - - - - - - - Ireland3,040 2,871 169 69 2,786 2,686 100 39 Italy17,715 17,440 275 11 16,214 15,881 332 63 Portugal622 735 (113) (9) 677 862 (185) (18) Spain9,227 9,210 17 81 7,160 7,552 (392) (60) Total30,605 30,255 349 151 26,837 26,981 (145) 24 June 30, 2013December 31, 2012 Net amounts correspond to amounts after the related impacts of deferred tax and shadow accounting on policyholders’ participation, deferred acquisition cost and value of purchased business in force and are presented at 100% share. Net amounts may evolve depending on the timing of realization of these potential gains and losses, and depending on the local regulatory environment. 122 Half Year 2013 Financial Report % (value balance sheet) 2.87% 0.19% 3.07% 54.65% 4.67% 0.07% 1.22% 60.61% 2.35% 1.10% 0.01% 3.45% 1.06% 0.88% 0.05% 1.98% 0.75% 0.05% 66.74% 0.00% 0.00% - 7.24% 0.00% 7.24% 22.96% 100.00% CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 5.2. INVESTMENT IN REAL ESTATE PROPERTIES Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: June 30, 2013 (a) December 31, 2012 (in Euro million) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Fair value Investment in real estate properties at amortized cost Insurance 18,986 (1,925) (599) 16,462 20,895 18,358 (1,850) (541) 15,968 20,348 Other activities 2,713 (218) (415) 2,080 3,176 3,019 (209) (350) 2,461 3,487 All activities 21,699 (2,143) (1,014) 18,542 24,071 21,377 (2,058) (890) 18,429 23,835 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). Fair value is generally based on valuations performed by qualified property appraisers. Valuations are based on a multi- criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment - Investment in real estate properties Amortization - Investment in real estate properties (in Euro million) June 30, 2013 (a) December 31, 2012 June 30, 2013 (a) December 31, 2012 Opening value 890 822 2,058 1,847 Increase for the period 111 91 131 266 Write back following sale or reimbursement (1) (23) (27) (29) Write back following recovery in value (6) (28) Others (b) 20 28 (19) (25) Closing value 1,014 890 2,143 2,058 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Includes change in scope and the effect of changes in exchange rates. 5.3. UNREALIZED GAINS AND LOSSES ON FINANCIAL INVESTMENTS Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: (in Euro million) June 30, 2013 (a) December 31, 2012 INSURANCE Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 301,022 6,961 10,851 325,118 6,839 13,036 325,118 6,961 13,036 26,830 111 2,350 2,734 233 165 308,760 6,010 9,547 342,815 6,203 11,757 342,815 6,010 11,757 36,295 232 2,257 2,240 39 47 Non consolidated investment funds available for sale 5,214 6,042 6,042 938 109 5,513 6,368 6,368 940 84 (in Euro million) June 30, 2013 (a) December 31, 2012 OTHER ACTIVITIES Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 9,656 2,603 3,005 9,617 2,603 3,223 9,617 2,603 3,223 133 259 171 41 8,539 1,817 3,108 8,615 1,817 3,483 8,615 1,817 3,483 250 380 174 5 Non consolidated investment funds available for sale 264 265 265 1 0 386 386 386 Half Year 2013 Financial Report 123 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) June 30, 2013 (a) December 31, 2012 TOTAL Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 310,677 9,565 13,856 334,735 9,443 16,259 334,735 9,565 16,259 26,963 111 2,609 2,905 233 206 317,299 7,827 12,655 351,430 8,020 15,241 351,430 7,827 15,241 36,545 232 2,637 2,414 39 52 Non consolidated investment funds available for sale 5,478 6,307 6,307 939 109 5,899 6,754 6,754 940 84 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Net of impairment - including premiums/discounts and related accumulated amortization. (c) Net of impairment. 5.4. FINANCIAL ASSETS SUBJECT TO IMPAIRMENT 5.4.1. investment in real estate properties) Breakdown of financial assets subject to impairment (excluding Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2013 (a) December 31, 2012 Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value (in Euro million) Debt instruments available for sale 311,013 (1,254) 309,759 23,943 333,702 317,609 (1,340) 316,269 34,067 350,336 Debt instruments (at cost) that are not quoted in an active market (e) 9,557 9,557 (4) 9,554 7,806 7,806 9 7,815 Debt instruments 320,570 (1,254) 319,316 23,940 343,256 325,415 (1,340) 324,076 34,076 358,151 Equity instruments available for sale 16,308 (2,452) 13,857 2,208 16,064 15,144 (2,488) 12,656 2,386 15,042 Non consolidated investment funds available for sale 6,464 (986) 5,478 783 6,261 6,937 (1,038) 5,899 868 6,767 Loans held to maturity Loans available for sale 4 (4) 0 0 0 (0) 0 0 0 Loans at cost (d) (e) 47,511 (621) 46,890 (388) 46,501 47,496 (601) 46,895 (510) 46,385 Loans 47,515 (626) 46,890 (388) 46,501 47,497 (601) 46,895 (510) 46,385 TOTAL 390,858 (5,318) 385,540 26,542 412,082 394,993 (5,467) 389,526 36,820 426,346 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (c) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (d) Including policy loans. (e) Revaluation to fair value for instruments at cost related to the application of hedge accounting. 5.4.2. in real estate properties) Change in impairment on invested assets (excluding investment (in Euro million) January 1, 2013 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (b) June 30, 2013 (a) Impairment - Debt instruments 1,340 66 (91) (4) (57) 1,254 Impairment - Equity instruments 2,488 225 (230) (32) 2,452 Impairment - Non consolidated investment funds 1,038 54 (64) (42) 986 Impairment - Loans 601 76 (4) (42) (6) 626 TOTAL 5,467 422 (389) (46) (136) 5,318 (a) Assets and liabilities related to MONY Life Insurance Company portfolio for which the disposal process is not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (b) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. 124 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 (in Euro million) January 1, 2012 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2012 Impairment - Debt instruments 2,474 127 (1,226) (25) (11) 1,340 Impairment - Equity instruments 2,883 411 (760) (47) 2,488 Impairment - Non consolidated investment funds 1,141 81 (155) (30) 1,038 Impairment - Loans 610 172 (6) (121) (54) 601 TOTAL 7,108 792 (2,147) (145) (141) 5,467 (a) Mainly relates ot changes in the scope of consolidation and impact of changes in exchange rates. 5.5. FINANCIAL ASSETS RECOGNIZED AT FAIR VALUE Among financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €410 billion as of June 30, 2013 (€423 billion as of December 31, 2012): €259 billion were determined directly by reference to an active market (€252 billion at the end of 2012), i.e. level 1 assets and €151 billion related to assets not quoted in an active market/no active market (€171 billion at the end of 2012), i.e. level 2 and level 3 assets, of which level 3 assets amounted to €10 billion (€10 billion at the end of 2012). Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IAS 39 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data: assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. As of June 30, 2013, some assets were reclassified out of level 2 into level 1. This was mainly related to some corporate bonds for which spreads tightened throughout the period. For sovereign bonds, trends observed in 2012 were confirmed in the first semester 2013 with an acceleration of peripheral countries spread contraction and liquidity improvement. These market indicators will continue to be followed to assess the sustainability of those improvements. Therefore, the classification as at June 30, 2013 is maintained similar to the one as at December 31, 2012 levels. Half Year 2013 Financial Report 125 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 6 Shareholders’ equity and minority interests 6.1. IMPACT OF TRANSACTIONS WITH SHAREHOLDERS The Consolidated Statement of Changes in Equity is presented as a primary financial statement following the amendment to IAS 1 as described in Note 1. 6.1.1. 2013 Change in shareholders’ equity Group share for the first half of a) Share capital and capital in excess of nominal value During the first half of 2013, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based compensation for €+23 million. Increase in capital €+36 million; b) Treasury shares As of June 30, 2013, the Company and its subsidiaries owned approximately 4 million AXA shares, representing 0.2% of the share capital, a decrease of 12 million shares compared to December 31, 2012. As of June 30, 2013, the carrying value of treasury shares and related derivatives was €197 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (61,455 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2013, 1.6 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €32 million and their market value €21 million at the end of June 2013. c) Undated subordinated debt and related financial expenses As described in Note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2013, the change in other reserves was due to: €+634 million from the issuance of a new undated subordinated debt; €-381 million following the exercise of an early redemption call on an undated subordinated debt; €-144 million in interest expense related to the undated subordinated debt (net of tax); €-155 million in exchange rate differences. 126 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013 and December 31, 2012, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million) June 30, 2013 December 31, 2012 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million October 29, 2004 - 375 M € 6.0% 375 375 375 375 December 22, 2004 - 250 M € 6.0% 250 250 250 250 January 25, 2005 - 250 M € 6.0% 250 250 250 250 July 6, 2006 - 1000 M € 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M £ 6.7% 500 578 500 607 July 6, 2006 - 350 M £ 6.7% 350 408 350 429 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 420 600 469 November 7, 2006 - 150 M A$ 7.5% 150 105 150 118 December 14, 2006 - 750 M US$ 6.5% 750 571 750 566 December 14, 2006 - 750 M US$ 6.4% 750 571 750 566 October 5, 2007 - 750 M€ 6.2% 750 746 750 746 October 16, 2007 - 700 M £ 6.8% 700 814 700 855 January 22, 2013 - 850 M US$, 5.50% 850 644 Undated notes - variables rates in € 660 660 660 660 Undated notes - 3.3% in JPY 27,000 209 27,000 238 Undated notes (of which 500 M US$ at 7.1% as of December 31, 2012) in US$ 375 287 875 663 Sub-Total Undated Subordinated Debt 7,238 7,786 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 7,333 7,880 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-2,269 million as of June 30, 2013; €-2,125 million as of December 31, 2012. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) Dividends paid At the shareholders’ meeting held on April 30, 2013, shareholders approved a dividend distribution of €1,720 million with respect to the 2012 financial year. 6.1.2. 2012 Change in shareholders’ equity Group share for the first half of a) Share capital and capital in excess of nominal value During the first half of 2012, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based payment for €+16 million. b) Treasury shares As of June 30, 2012, the Company and its subsidiaries owned approximately 16 million AXA shares, representing 0.7% of the share capital, a decrease of 1 million shares compared to December 31, 2011. Half Year 2013 Financial Report 127 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2012, the carrying value of treasury shares and related derivatives was €368 million. This figure included €1.0 million relating to AXA shares held by consolidated mutual funds (81,965 shares) not backing contracts where financial risk is borne by policyholders. As of June 30, 2012, 2.0 million treasury shares backing contracts where financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €43 million and their market value €21 million at the end of June 2012. c) Undated subordinated debt and related financial expenses During the first half of 2012, the change in other reserves was due to €-148 million in interest expense related to the undated subordinated debt (net of tax), and €+135 million in exchange rate differences. d) Dividends paid At the shareholders’ meeting held on April 25, 2012, shareholders approved a dividend distribution of €1,626 million with respect to the 2011 financial year. 6.2. COMPREHENSIVE INCOME FOR THE PERIOD The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. 6.2.1. Comprehensive income for the first half of 2013 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The decrease of gross unrealized gains and losses on assets available for sale totaled to €-10,282 million, of which €- 10,222 million lower unrealized capital gains on debt securities which was mainly driven by interest rates increase. The following table shows the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2013 December 31, 2012 Gross unrealized gains and losses (a) 27,290 37,572 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (14,162) (20,116) Shadow accounting on Deferred Acquisition Costs (b) (596) (801) Shadow accounting on Value of purchased Business In force (561) (651) Unallocated unrealized gains and losses before tax 11,970 16,004 Deferred tax (3,666) (4,831) Unrealized gains and losses (net of tax) - Assets available for sale 8,304 11,173 Unrealized gains and losses (net of tax) - Equity accounted companies (c) 49 4 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 8,353 11,177 Minority interests' share in unrealized gains and losses (d) (68) (78) Translation reserves (e) 29 (211) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (c) 8,314 10,887 (a) Unrealized gains on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including unrealized gains and losses on assets from discontinued operations. (d) Including foreign exchange impact attributable to minority interests. (e) Group share. 128 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 As of June 30, 2013, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to significant movements in shadow policyholders’ participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2013: (in Euro million) June 30, 2013 France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 8,472 4,190 2,108 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (6,065) (3,659) (1,731) Shadow accounting on Deferred Acquisition Costs (b) (113) (10) Shadow accounting on Value of purchased Business In force (53) Unallocated unrealized gains and losses before tax 2,294 530 314 Deferred tax (704) (170) (66) Unrealized gains and losses (net of tax) - Assets available for sale 1,590 361 248 Unrealized gains and losses (net of tax) - Equity accounted companies 19 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 1,609 361 248 Minority interests' share in unrealized gains and losses (c) (4) 0 Translation reserves (d) (165) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 1,605 361 83 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2013 and December 31, 2012 broke down as follows: (in Euro million) June 30, 2013 December 31, 2012 Unrealized gains and losses (net of tax) 100%, opening 11,177 5,218 Transfer in the income statement on the period (a) (513) (469) Investments bought in the current accounting period and changes in fair value (2,095) 6,659 Foreign exchange impact (238) (231) Change in scope and other changes 21 (1) Unrealized gains and losses (net of tax) 100%, closing 8,351 11,177 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. b) Translation reserve The total impact of foreign exchange rate movement was €-1,000 million (of which €-1,003 million from group share and €+3 million from minority interest rates) as of June 30, 2013. The group share translation reserves movement (€-1,003 million) was mainly driven by Japan (€-808 million), the United Kingdom (€-229 million) and Switzerland (€-172 million), partly offset by the Company (€+222 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations, and the United States (€+122 million). c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains for the first half year 2013 amounted to €+324 million net group share mostly due to the increase in discount rates. Half Year 2013 Financial Report 129 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 6.2.2. Comprehensive income for the first half of 2012 As described in Note 1.2.1, comprehensive income for the first half of 2012 was retrospectively restated for the amendments to IAS 19. a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity The increase of gross unrealized gains and losses on assets available for sale totaled €+7,651 million, of which €+7,601 million higher unrealized capital gains on debt securities was mainly driven by interest rates and corporate spreads decrease. b) Translation reserve The total impact of foreign exchange rate movement was €+646 million (of which €+609 million from group share and €+37 million from minority interest rates) as of June 30, 2012. The group share translation reserves movement (€+609 million) was mainly driven by the United States (€+221 million), the United Kingdom (€+126 million), Switzerland (€+87 million), Mexico (€+67 million) and Hong Kong (€+54 million) partly offset by Japan (€-99 million) and the Company (€-89 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations. c) Employee benefits actuarial gains and losses The total impact of employee benefits actuarial gains and losses for the first half year 2012 amounted to €-889 million net group share mostly due to the drop in discount rates. 6.3. CHANGE IN MINORITY INTERESTS Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. 6.3.1. Change in minority interests for the first half of 2013 Minority interests decreased by €2 million to €2,353 million driven by: Movements in the comprehensive income for the period, mainly Net income attributable to minority interests for €154 million; Transaction with minority interests’ holders, mainly Dividend payout to minorities for €-158 million. 6.3.2. Change in minority interests for the first half of 2012 Minority interests increased by €112 million to €2,479 million driven by: Movements in the comprehensive income for the period, mainly: o Net income attributable to minority interests for €+101 million; o Change in translation reserves for €+37 million; o Reserves relating to changes in fair value through shareholders’ equity for €+23 million. Transaction with minority interests’ holders, mainly: o Dividend payout to minorities for €-72 million. 130 Half Year 2013 Financial Report CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 7 Financing debt (in Euro million) Carrying value June 30, 2013 December 31, 2012 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated notes, 5.25% due 2040 (€) Subordinated notes, 5.125% due 2043 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus notes, 7.70 %, due 2015 MONY Life 11.25% Surplus notes due 2024 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 7,582 2,082 1,515 1,300 1,000 916 379 389 154 154 - 328 106 6,682 2,043 1,482 1,300 - 907 398 553 153 152 1 347 126 Undated Subordinated debt fixed rate 221 221 AXA-MPS Vita and Danni 108 108 Subordinated notes, euribor 6 months + 81bp 108 108 Other subordinated debt (under €100 million) 26 26 Subordinated debt 8,197 7,317 AXA Euro Medium Term Notes, 6.0% due through 2013, and BMTN 1,000 - 1,841 841 Euro Medium Term Notes, due through 2015 1,000 1,000 AXA Financial 268 264 Senior notes, 7%, due 2028 268 264 AXA UK Holdings GRE: Loan Notes, 6.625%, due 2023 178 178 188 188 Other financing debt instruments issued (under €100 million) 183 221 Other financing debt instruments issued (under €100 million) 211 220 Derivatives relating to other financing debt instruments issued (a) (28) 1 Financing debt instruments issued 1,629 2,514 AXA 785 830 Other financing debt owed to credit institutions (under €100 million) 1 1 Financing debt owed to credit institutions 786 831 TOTAL FINANCING DEBT (b) 10,613 10,662 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not qualified as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Main movements on financing debt during the period were the following: The issuance of €1 billion subordinated debt due 2043 (5.125% annual coupon, fixed until the first call date in July 2023 and floating thereafter with a step up of 100 basis points), to anticipate the refinancing of part of subordinated debt instruments maturing on January 1, 2014. The repayment of €841 million Euro Medium Term Note maturing in 2013. Half Year 2013 Financial Report 131 II II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2013 Note 8 Net income per ordinary share The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. (in Euro million) (a) June 30, 2013 June 30, 2012 Restated (b) Net income Group share 2,467 2,544 Undated subordinated debt financial charge (144) (148) Net income including impact of undated subordinated debt A 2,323 2,396 Weighted average number of ordinary shares (net of treasury shares) - opening 2,372 2,340 Increase in capital (excluding stock options exercised) (c) 0 0 Stock options exercised (c) 2 0 Treasury shares (c) 6 0 Share purchase program (c) Weighted average number of ordinary shares B 2,381 2,340 BASIC NET INCOME PER ORDINARY SHARE C = A / B 0.98 1.02 Potentially dilutive instruments : Stock options 2 1 Other 6 2 Fully diluted - weighted average number of shares (d) D 2,388 2,343 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 0.97 1.02 (a) Except for number of shares (million of units) and earnings per share (Euro). (b) As described in Note 1.2.1, comparative information related to previous periods was retrospectively restated for the amendments to IAS 19. (c) Weighted average. (d) Taking into account the impact of potentially dilutive instruments. As of June 30, 2013, net income per ordinary share stood at €0.98 on a basic calculation, and at €0.97 on a fully diluted basis. As of June 30, 2012, net income per ordinary share stood at €1.02 on a basic calculation, as well as on a fully diluted basis. Before the restatement required by the amendments to IAS 19, Half-Year 2012 net income per ordinary share stood at €1.04 on a basic calculation as well as on a fully diluted basis. 132 Half Year 2013 Financial Report STATUTORY AUDITORS’ REVIEW III Statutory auditors’ review report on the 2013 Half Year Financial Information Half year 2013 Financial Report 133 III III STATUTORY AUDITORS’ REVIEW PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Régnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2013 HALF-YEAR FINANCIAL INFORMATION This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: - the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2013 ; the verification of the information contained in the half-year management report. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly sur Seine and Courbevoie, August 2, 2013 The Statutory Auditors French original signed by PricewaterhouseCoopers Audit Mazars Michel Laforce Pierre Coll Philippe Castagnac Gilles Magnan Half year 2013 Financial Report 134 STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF YEAR FINANCIAL REPORT IV Statement of the person responsible for the Half Year Financial Report Half Year 2013 Financial Report 135 IV IV STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF YEAR REPORT Statement of the person responsible for the Half Year Financial Report I, the undersigned, hereby certify that, to the best of my knowledge, the consolidated summarized financial statements for the first half of the fiscal year 2013 have been drawn up in accordance with applicable accounting standards and give an accurate view of the assets and liabilities, the financial position and the profit or loss of the Company and of all businesses and firms included within the scope of the consolidated Group and that the half year activity report, to be found in the first part of this Report, accurately reflects the significant events which occurred during the first six months of the fiscal year as well as their impact on the financial statements, the main related-parties transactions and the principal risks and uncertainties for the remaining six months of the fiscal year. Paris, August 5, 2013. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations Half Year 2013 Financial Report 136 | Semestriel, 2013, Insurance, AXA | write me a financial report |
Semestriel | 2,014 | Insurance | AXA | Below is an instruction that describes a reporting task, paired with the specifics of the report. Write a response that appropriately completes the reporting task.
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Write a detailed financial report on the given subject and company.
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| Half Year Financial Report June 30, 2014 Table of contents I Activity Report ............................................................. II Consolidated financial statements ............................ III Statutory auditors’ review report on the 2014 Half- Year Financial Information ............................................ IV Statement of the person responsible for the Half- Year Financial Report .................................................... ACTIVITY REPORT I Activity Report / Half-Year 2014 Half Year 2014 Financial Report 1 I ACTIVITY REPORT CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document. Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to AXA’s Registration Document for the year ended December 31, 2013, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. Half Year 2014 Financial Report 2 I ACTIVITY REPORT FINANCIAL MARKET CONDITIONS IN THE FIRST HALF OF 2014 The first half of 2014 has been largely defined by central bank monetary policy, particularly in the US, UK and Europe, as well as the geopolitical risk in Russia, Ukraine and Iraq. Global stock markets rose to deliver +4.3% over the period (MSCI World Index) although in some areas returns were weaker than anticipated. Emerging markets experienced a weak start as growth in China slowed and several emerging economies were impacted as the US started to taper quantitative easing. This has seen fixed income markets rise and remain strong throughout the first half of the year, much in contrast to the bond sell-off that characterised the final months of 2013. As government bonds have rallied, their yields have fallen significantly causing investors to look to credit and high yield assets in search of yield. The US Federal Reserve maintained consistent monetary policy by steadily tapering quantitative easing and keeping the base rate at 0.25% throughout the period. The US, however, was hit by extremely harsh winter conditions that were largely cited as the cause of the softer economic data readings that emerged during the first half of the year. New Fed Chair Yellen caused some market fluctuations when she implied that interest rates might rise sooner than expected, but her long-term message was ultimately dovish. Recovery in Europe, although apparent, has been sluggish, with weak Eurozone GDP figures. The biggest threat, however, was the worryingly low levels of inflation. The European Central Bank took drastic actions to avoid potential deflation by introducing a number of measures, the most significant of which were cutting both the base and deposit rates to 0.15% and -0.10% respectively, and introducing a “targeted” long-term refinancing operation in order to stimulate growth and bank lending. Emerging markets struggled towards the start of the period as China released disappointing economic news and the US started tapering quantitative easing. Russia suffered on the back of its issues with Ukraine: its credit rating was downgraded and its growth forecast cut by Standard & Poor’s and the IMF respectively. However, India saw an exceptionally strong rebound in industrial production and Colombia and Mexico benefitted from improving economic data. Several regions struggled with inflation over the period, such as Brazil and Turkey. The Bank of Japan (BoJ) opted to continue its monetary easing policy as the economy showed distinct signs of recovery, inflation data being particularly encouraging. By period-end inflation had shown its fastest increase in 32 years. Stock Markets Equity markets had mixed performance in first half of 2014 across the globe with modest gains in US and European markets and decline in major Asian markets. The MSCI World Index increased by 4.3%. The Dow Jones Industrial Average Index in New York increased by 1.5% and the S&P 500 index increased by 6.1% in first half of 2014. The FTSE 100 Index in London decreased by 0.1% in first half of 2014. The CAC 40 index in Paris increased by 3.0% and the Nikkei index in Tokyo decreased by 6.9%. The MSCI G7 Index increased by 4.2% and the MSCI Emerging Index increased by 3.3%. The S&P 500 implied volatility Index decreased from 13.7% to 11.6% between December 31, 2013 and June 30, 2014. The S&P 500 realized volatility index increased from 10.3% to 11.3% between December 31, 2013 and June 30, 2014. Bond Markets The US 10-year T-bond ended the first half of 2014 at 2.53%, a decrease of 51 bps compared to December 31, 2013. The 10-year German Bund yield decreased by 68 bps to 1.25%. The France 10-year government bond yield decreased by 85 bps to 1.71%. The 10-year Japanese government bond ended the first half at 0.57%, a decrease of 18 bps compared to December 31, 2013. The 10-year Belgium government bond ended the first half at 1.70% (86 bps decrease compared to December 31, 2013). The 10-year government bonds in Eurozone peripheral countries decreased sharply: Italy ended the first half at 2.85% (a decrease of 128 bps compared to December 31, 2013), Spain ended the first half at 2.67% (a decrease of 149 bps compared to December 31, 2013), Greece ended the first half at 5.96% (a decrease of 246 bps compared to December 31, 2013), Ireland ended the first half at 2.36% (a decrease of 111 bps compared to December 31, 2013), Portugal ended the first half at 3.65% (a decrease of 248 bps compared to December 31, 2013). Half Year 2014 Financial Report 3 I ACTIVITY REPORT In Europe, the iTRAXX Main spreads decreased by 8 bps to 62 bps compared to December 31, 2013 while the iTRAXX Crossover decreased by 45 bps to 242 bps. In the United States, the CDX Main spread Index decreased by 4 bps to 59 bps. Exchange rates In this context, exchange rates were relatively stable during 1H 2014, but the Euro appreciated against main currencies compared to 1H 2013, as shown below: End of Period Exchange Rate Average Exchange Rate June 30, 2014 December 31, 2013 June 30, 2014 June 30, 2013 (for €1) (for €1) (for €1) (for €1) U.S. Dollar 1.37 1.38 1.37 1.31 Japanese Yen (x100) (a) 1.39 1.45 1.40 1.13 British Sterling Pound 0.80 0.83 0.82 0.85 Swiss Franc 1.21 1.23 1.22 1.23 (a) Yen average exchange rate for the six months ending March 31, 2013 used for half year 2013 accounts profit or loss. OPERATING HIGHLIGHTS Significant acquisitions AXA COMPLETED THE ACQUISITION OF 50% OF TIAN PING On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited ("Tian Ping") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces with a market share of 0.8%(1). On February 20, 2014, AXA announced the finalization of the acquisition. AXA has acquired 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 240 million(2)) and subsequently subscribed to a capital increase for RMB 2.0 billion (or Euro 251 million(2)) to support future growth, raising its stake to 50%. AXA and Tian Ping's current shareholders jointly control Tian Ping. AXA’s previously existing Chinese P&C operations have been integrated within the new joint venture. AXA becomes the largest foreign Property & Casualty insurer in China and consolidates its position as the largest international P&C insurer in Asia (excluding Japan). The acquired operations are consolidated through the equity method since February 20, 2014. AXA COMPLETED THE ACQUISITION OF 51% OF COLPATRIA'S INSURANCE OPERATIONS IN COLOMBIA On November 11, 2013, AXA announced it had entered into an agreement with Grupo Mercantil Colpatria to acquire a 51% stake in its composite insurance operations in Colombia (“Colpatria Seguros”)(3). On April 2, 2014, AXA announced it had completed the acquisition for a total consideration of COP 672 billion (or Euro 248 million(4)). The acquired operations are integrated within the Mediterranean & Latin American Region and fully consolidated since April 2, 2014. (1) Source: CIRC, December 2013. (2) 1 EUR = RMB 7.982 as of February 19, 2014. (3) The scope of the transaction includes the four insurance companies of Grupo Mercantil Colpatria: Seguros Colpatria S.A. (Property & Casualty), Seguros de Vida Colpatria S.A. (Life, Workers Compensation), Capitalizadora Colpatria S.A. (Capitalization) and Colpatria Medicina Prepagada S.A. (Voluntary Health). (4) EUR 1 = COP 2,711.67 as of March 31, 2014. Half Year 2014 Financial Report 4 I ACTIVITY REPORT Colpatria Seguros is the #4(1) insurance player in Colombia (7% market share), with operations in both Property & Casualty and Life & Savings. It enjoys strong positions in Property & Casualty (#2 with 9% market share), Workers Compensation (#4 with 14% market share) and Capitalization (#2 with 42% market share). The transaction allows AXA to enter the attractive Colombian market and benefit from its strong growth prospects through developed and profitable operations with a well-established local partner. AXA Colpatria Seguros will benefit from AXA’s strong know-how to accelerate further its development and leverage its competitive advantages in the Colombian market. Significant disposals AXA COMPLETED THE SALE OF ITS HUNGARIAN LIFE & SAVINGS INSURANCE OPERATIONS On June 3, 2014, AXA announced it had completed the sale of its Life & Savings operations in Hungary(2) to Vienna Insurance Group. AXA continues to have banking operations in the country. This transaction triggered an exceptional capital loss, which was accounted for in Net Income in 2013. Other PLACEMENT OF GBP 750 MILLION SUBORDINATED NOTES On January 9, 2014, AXA announced the successful placement of GBP 750 million of Reg S subordinated notes due 2054 to institutional investors. The initial coupon has been set at 5.625% per annum. It will be fixed until the first call date in January 2034 and floating thereafter with a step up of 100 basis points. The initial spread over Gilt was 215 basis points. The notes are treated as capital from a regulatory and rating agencies’ perspective within applicable limits. The transaction has been structured to comply with the expected eligibility criteria for Tier 2 capital treatment under Solvency II. PLACEMENT OF EUR 1 BILLION UNDATED SUBORDINATED NOTES On May 16, 2014, AXA announced the successful placement of EUR 1 billion of Reg S undated subordinated notes to institutional investors. The initial spread over swap is 225 basis points. The initial coupon has been set at 3.875% per annum. It will be fixed until the first call date in October 2025 and reset thereafter every 11 years with a 100 basis points step-up. The notes are treated as capital from a regulatory and rating agencies' perspective within applicable limits. The transaction has been structured to comply with the eligibility criteria for the 50% perpetual subordinated debt limit under Solvency 1 and in order to be eligible as capital under Solvency II. AXA Rating On March 11, 2014, Fitch reaffirmed all AXA entities' Insurer Financial Strength ratings at ‘AA-’. Outlook was revised to Stable from Negative. On May 9, 2014, Moody’s Investors Services reaffirmed the ‘Aa3’ insurance financial strength ratings of AXA’s main operating subsidiaries. The rating agency has also changed the outlook from negative to stable on all ratings. On May 26, 2014, S&P reaffirmed long-term ratings on AXA Group core subsidiaries at ‘A+’ with a stable outlook. Related-party transactions During the first half of the fiscal year 2014, there were (1) no modifications to the related-party transactions described in Note 28 "Related-party transactions" of the audited consolidated financial statements for the fiscal year ended December 31, 2013 included in the full year 2013 Registration Document (pages 320 and 321) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well (1) Based on information furnished by Colpatria and on Superintendencia Financiera de Colombia publicly available information. (2) AXA Insurance Company and AXA Money & More. Half Year 2014 Financial Report 5 I ACTIVITY REPORT as on the Company's website (www.axa.com), which significantly influenced the financial position or the results of the Company during the first six months of the fiscal year 2014, and (2) no new transaction concluded between AXA SA and related parties that significantly influenced the financial position or the results of the Company during the first six months of 2014. Risk factors The principal risks and uncertainties faced by the Group are described in detail in Section 3.1 “Regulation” and Section 3.2 "Risk factors" included in the full year 2013 Registration Document (respectively in pages 152 to 154 and pages 155 to 167) filed with the Autorité des marchés financiers and available on its website (www.amf-france.org) as well as on the Company's website (www.axa.com). The description contained in these Sections of the 2013 Registration Document remains valid in all material respects at the date of the publication of this Report regarding the appreciation of the major risks and uncertainties affecting the Group on June 30, 2014 or which management expects could affect the Group during the remainder of 2014. EVENTS SUBSEQUENT TO JUNE 30, 2014 There has been no event subsequent to June 30, 2014. Half Year 2014 Financial Report 6 I ACTIVITY REPORT REVENUES & EARNINGS SUMMARY The application of IFRS 10 and 11 has become effective since January 1, 2014, and the comparative information in respect of 2013 has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the new standards which in particular led to the change in consolidation method of a Property and Casualty company (Natio Assurances reported within the Direct segment) from proportionate consolidation to equity method. This change in consolidation method has no impact on the profit or loss for the current year or prior year. Consolidated gross revenues Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) June 30, 2014 / June 30, 2013 restated (b) Life & Savings 29,039 29,603 29,603 55,331 55,331 1.8% o/w. gross written premiums o/w. fees and revenues from investment contracts with no participating feature Property & Casualty 28,300 159 16,820 28,909 133 16,497 28,909 133 16,483 53,861 323 28,791 53,861 323 28,763 2.2% International Insurance 1,966 1,909 1,909 3,143 3,143 4.5% Asset Management 1,593 1,741 1,741 3,461 3,461 4.1% Banking (c) 287 293 293 524 524 3.3% Holdings and other companies (d) 0 0 0 0 0 n/a TOTAL 49,705 50,044 50,030 91,249 91,221 2.1% Revenues are disclosed net of intercompany eliminations. (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Changes are on a comparable basis. (c) Excluding (i) net realized capital gains or losses and (ii) change in fair value of assets under fair value and of options and derivatives, net banking revenues and total consolidated revenues would respectively amount to €286 million and €49,703 million for half year 2014 and €291 million and €50,028 million for half year 2013. (d) Includes notably CDOs and real estate companies. Consolidated gross revenues for half year 2014 reached €49,705 million, up 2.1% compared to half year 2013 on a comparable basis. The comparable basis mainly consisted in the adjustment of: (i) the foreign exchange rate movements (€-1.0 billion or -1.9 points), mainly Euro appreciation against JPY and USD, (ii) the alignment of closing dates in Japan(1) (€-0.2 billion or -0.4 point), (iii) the closed MONY portfolio transaction in 2013 (€-0.1 billion or -0.3 point), (iv) the disposal of AXA Private Equity (€-0.1 billion or -0.3 point), (v) the acquisition of Colpatria's insurance operations in Colombia in 2014 (€+0.2 billion or +0.4 point) and (vi) the restatement of the retrospective application of IFRS 10 and 11 as mentioned above. (1) AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. In the comparable basis, half year 2013 contribution was restated to cover January 1, 2013 to June 30, 2013 period. Half Year 2014 Financial Report 7 I ACTIVITY REPORT Life & Savings Annual Premium Equivalent (1) Annual Premium Equivalent (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 June 30, 2014 / June 30, 2013 (a) TOTAL 3,181 3,310 6,335 0.2% France 765 690 1,431 10.6% United States 634 655 1,322 1.2% United Kingdom 369 365 647 2.3% Japan 175 240 504 1.1% Germany 176 218 385 19.2% Switzerland 222 310 430 28.9% Belgium 72 94 151 23.5% Central & Eastern Europe 41 55 108 20.0% Mediterranean and Latin American Region 271 227 443 20.7% Hong Kong 226 215 443 9.3% South-East Asia, India and China 225 237 463 13.7% Mature markets 2,668 2,773 5,265 1.1% High growth markets 513 537 1,070 6.9% (a) Changes are on a comparable basis. Total Life & Savings New Business APE amounted to €3,181 million, down 3.9% on a reported basis or up 0.2% on a comparable basis. The increase in sales of G/A Savings and Unit-Linked products was offset by lower sales of G/A Protection & Health explained by the repositioning of the Group Life product mix in Switzerland and the non-repeat of 1Q13 strong Health sales recorded in Germany. High growth markets APE increased by 7% as strong growth in South-East Asia, India & China (+14% or €+31 million) and Hong Kong (+9% or €+20 million) was partly offset by a slowdown in Central & Eastern Europe (-20% or €-10 million). Protection & Health APE (38% of total) was down 4%, driven by (i) Switzerland, following the repositioning of the Group Life product mix towards more profitable semi-autonomous schemes (pure mortality and disability insurance contracts generating relatively lower APE but higher margins) and voluntary reduction in sales of full protection schemes, which have a capital intensive general account savings component, by (ii) Germany mainly in Health due to the non-repeat of 1Q13 strong sales resulting from the anticipation of a change in regulation and by (iii) the US mainly due to increased competition in Indexed Universal Life. This was partly offset by increased volumes in South-East Asia, India & China, France and Hong Kong. Unit-Linked APE (35% of total) was up 2% mainly driven by (i) the US primarily reflecting the continued success of the floating roll up rate GMxB product, and (ii) Germany and Italy mainly following the successful launch of new hybrid(2) products. This increase was partly offset by Belgium; General Account Savings APE (15% of total) was up 9% mainly driven by higher sales of hybrid products notably in France and Italy, partly offset by Germany mainly due to a voluntary shift in business mix towards Unit-Linked products. (1) Annual Premium Equivalent (APE) represents 100% of new regular premiums plus 10% of single premium, in line with EEV methodology. APE is Group share. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 8 I ACTIVITY REPORT Property & Casualty Revenues Property & Casualty Revenues (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) June 30, 2014 / June 30, 2013 restated (b) TOTAL . Mature markets Direct High growth markets 16,820 13,349 1,202 2,269 16,497 13,073 1,152 2,272 16,483 13,073 1,138 2,272 28,791 21,996 2,274 4,520 28,763 21,996 2,247 4,520 2.2% 1.2% 7.0% 4.8% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Changes are on a comparable basis. Property & Casualty gross revenues were up 2% on a reported basis, and on a comparable basis to €16,820 million. Personal lines increased by 1% mainly driven by France, Direct and Switzerland. Commercial lines increased by 3%, primarily in the Mediterranean and Latin American high growth markets, the United Kingdom & Ireland, France and Asia. Overall, average tariff increases amounted to 2%. Personal lines (57% of P&C gross revenues) were up by 1% on a comparable basis. Motor revenues grew by €61 million or +1% as a result of tariff increases in mature markets and higher volumes in Direct business and Asia, partly offset by lower average premiums with: Direct (+7%) driven by improved retention in the United Kingdom and South Korea, new business growth in France and Japan, partly offset by slowdown in Spain in a difficult market environment; France (+3%) driven by both tariff increases and higher volumes; Switzerland (+2%) driven by higher volumes; Asia (+7%) due to a strong increase in car sales in Malaysia; partly offset by Mediterranean and Latin American Region (-5%), primarily driven by Turkey (-14%) due to increased competition combined with a decrease in private car sales and by Italy (-5%) reflecting tariff decreases and a lower average premium. Non-Motor revenues increased by €58 million or +2% mainly driven by tariff increases across the board and higher volumes, partly offset by lower average premiums with: France (+3%) mainly driven by tariff increases in Household; Switzerland (+5%) reflecting tariff increases in Property and Liability; Direct (+9%) mainly attributable to Household in France and Accident and Health in South Korea; partly offset by the United Kingdom & Ireland (-5%) mainly due to the exit from unprofitable schemes and partnerships in the second half of 2013. Commercial lines (43% of P&C gross revenues) increased by 3% on a comparable basis mainly driven by tariff increases across the board as well as volume increases in high growth markets. Motor revenues increased by €33 million or +2%, mainly driven by: The United Kingdom & Ireland (+11%) principally due to increased new business volumes; France (+6%) mainly due to tariff increases; partly offset by Germany (-6%) reflecting stricter underwriting and pruning measures. Non-Motor revenues increased by €207 million or +4% mainly driven by: Mediterranean and Latin American Region (+8%) mainly driven by positive portfolio developments in Health in the Gulf Region and in Property in Turkey; France (+5%) following tariff increases in Property and positive developments in Creditor business; The United Kingdom & Ireland (+4%) as a result of new business increase in Property. Half Year 2014 Financial Report 9 I ACTIVITY REPORT International Insurance revenues International insurance revenues were up 5% on comparable basis to €1,966 million, mainly driven by (i) AXA Assistance up 7% to €558 million driven by higher volumes and (ii) AXA Corporate Solution Assurance up 3% to €1,379 million mainly as a consequence of positive portfolio developments and tariff increases in Construction, Marine and Property, partly offset by Aviation and Liability in a soft market environment. Asset management revenues and Assets under Management Asset Management revenues decreased by 9% on reported basis, or increased by 4% on a comparable basis, to €1,593 million mainly driven by higher management fees at both AllianceBernstein and AXA IM as a result of higher average Assets Under Management (AUM). AllianceBernstein revenues were up 3% (or €+28 million) on a comparable basis to €1,029 million mainly driven by higher management fees (€+22 million) resulting from higher average AUM (+4%), as well as higher performance fees (€+10 million). AUM increased by 7% or €25 billion from year-end 2013 to €371 billion mainly driven by (i) €+18 billion from market appreciation primarily on Fixed Income assets, (ii) €+3 billion net inflows, (iii) €+2 billion favorable foreign exchange rate impact and (iv) €+2 billion change in scope related to the acquisition of a Danish global equity asset management firm (CPH Capital). AXA Investment Managers revenues decreased by 15% (or €-121 million) on a reported basis to €707 million. Excluding distribution fees (retroceded to distributors) and on a comparable basis, net revenues increased by 5% (or €+27 million) mainly driven by higher management fees (€+26 million) resulting from higher average AUM (+3%). AUM increased by 6% or €35 billion from year-end 2013 to €582 billion mainly driven by (i) €+21 billion from market appreciation mainly on AXA’s insurance companies assets as a result of the decrease in interest rates and rising stock markets since end of 2013, (ii) €+11 billion net inflows and (iii) €+5 billion favorable foreign exchange rate impact. Net banking revenues Net banking revenues decreased by 2% on a reported basis or by 3% on a comparable basis to €274 million. Operating net banking(1) revenues were stable. (1) Before intercompany eliminations and before realized capital gains/losses or changes in fair value of fair value option assets and of hedging instruments. Half Year 2014 Financial Report 10 I ACTIVITY REPORT Consolidated Underlying Earnings, Adjusted Earnings And Net Income The application of IFRS 10 and 11 has become effective since January 1, 2014, and the comparative information in respect of 2013 has been restated (referred as “restated” in the tables of this document) to reflect the retrospective application of the new standards which in particular led to the change in consolidation method of a Property and Casualty company (Natio Assurances reported within the Direct segment) from proportionate consolidation to equity method. This change in consolidation method has no impact on the profit or loss for the current year or prior year. (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) Gross written premiums 46,944 47,168 47,154 85,509 85,481 Fees and revenues from investment contracts without participating feature 159 133 133 323 323 Revenues from insurance activities 47,103 47,301 47,287 85,832 85,804 Net revenues from banking activities 244 283 283 517 517 Revenues from other activities 2,316 2,451 2,451 4,900 4,900 TOTAL REVENUES 49,663 50,036 50,022 91,248 91,220 Change in unearned premium reserves net of unearned revenues and fees (4,266) (3,816) (3,816) (296) (298) Net investment result excluding financing expenses (b) 14,066 13,330 13,328 33,254 33,249 Technical charges relating to insurance activities (b) (45,895) (45,154) (45,148) (96,098) (96,087) Net result of reinsurance ceded (363) (938) (935) (1,209) (1,205) Bank operating expenses (37) (44) (44) (80) (80) Insurance acquisition expenses (4,607) (4,738) (4,736) (9,902) (9,899) Amortization of value of purchased life business in force (57) (50) (50) (167) (167) Administrative expenses (4,428) (4,491) (4,489) (9,231) (9,227) Valuation allowances on tangible assets (0) (0) Change in value of goodwill (1) (0) (0) (0) (0) Other (75) (136) (136) (240) (240) Other operating income and expenses (55,463) (55,551) (55,539) (116,928) (116,906) OPERATING EARNINGS BEFORE TAX 4,001 3,999 3,994 7,277 7,265 Net income from investments in affiliates and associates 91 53 56 119 127 Financing expenses (266) (333) (333) (601) (601) UNDERLYING EARNINGS BEFORE TAX 3,826 3,719 3,718 6,794 6,790 Income tax expenses (900) (990) (989) (1,761) (1,757) Minority interests (148) (150) (150) (305) (305) UNDERLYING EARNINGS 2,777 2,579 2,579 4,728 4,728 Net realized capital gains or losses attributable to shareholders 335 375 375 434 434 ADJUSTED EARNINGS 3,112 2,954 2,954 5,162 5,162 Profit or loss on financial assets (under fair value option) & derivatives 37 (228) (228) (317) (317) Exceptional operations (including discontinued operations) (45) (86) (86) 38 38 Goodwill and other related intangible impacts (55) (54) (54) (138) (138) Integration and restructuring costs (41) (118) (118) (263) (263) NET INCOME 3,008 2,467 2,467 4,482 4,482 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) For the periods ended June 30, 2014 and June 30, 2013, "the change in fair value of assets backing contracts with financial risk borne by policyholders" impacted the net investment result for respectivly €+5,613 million and €+8,070 million, and benefits and claims by the offsetting amounts respectively. Half Year 2014 Financial Report 11 I ACTIVITY REPORT Group underlying earnings Underlying earnings (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Life & Savings 1,651 1,534 2,793 Property & Casualty 1,226 1,128 2,105 International Insurance 135 103 202 Asset Management 184 194 400 Banking 68 61 78 Holdings and other companies (a) (486) (441) (851) UNDERLYING EARNINGS 2,777 2,579 4,728 (a) Includes notably CDOs and real estate companies. Group underlying earnings amounted to €2,777 million, up 8% versus half year 2013. On a constant exchange rate basis, underlying earnings increased by 11% driven by growth in most business segments. Life & Savings underlying earnings amounted to €1,651 million. On a constant exchange rate basis, Life & Savings underlying earnings increased by €198 million (+13%). On a comparable scope basis, mainly restated for the closed MONY portfolio transaction, Life & Savings underlying earnings were up €228 million (+15%) mainly attributable to the United States (€+170 million), France (€+44 million), the United Kingdom (€+22 million) and South-East Asia, India and China (€+17 million), partly offset by Japan (€-48 million) mainly resulting from: Higher investment margin (€+22 million or +2%) mainly attributable to (i) France (€+21 million) and (ii) Germany (€+16 million) both mainly reflecting lower crediting rates and (iii) the United States (€+15 million) driven by higher equity returns, partly offset by (iii) Japan (€-37 million) mainly due to the non-repeat of 2013 high dividends from equity and private equity funds following Japanese stock market rally. Higher Fees and Revenues (€+60 million or +2%): o Unit-Linked management fees were up €90 million mainly driven by (i) the United States (€+63 million) and (ii) France (€+17 million) as a consequence of higher average Separate Account balances following 2013 equity market rally; o Loadings on premiums and mutual funds were down €41 million mainly driven by lower Unearned Revenues Reserves amortization in the US (€-101 million) and France (€-64 million) due to assumptions and model updates. Excluding those impacts (largely offset in DAC), loadings on premiums and mutual funds were up €124 million driven by (i) Mediterranean and Latin American Region (€+49 million) mainly from increased surrenders at AXA MPS, (ii) Japan (€+40 million) due to higher loadings reflecting a better business mix and increased retention and (iii) Hong Kong (€+15 million) due to higher loadings on premiums stemming from new business and in-force growth; o Other revenues were up €11 million mainly driven by higher mutual funds product fees in the United States. Higher net technical margin (€+86 million or +23%) mainly attributable to (i) France (€+100 million) driven by a more favorable current year claims experience mainly in Group and Individual Protection business, and by higher positive prior year reserve developments in Retirement business, (ii) Germany (€+13 million) mainly driven by a higher mortality margins in all business lines, partly offset by the United States (€-23 million) primarily from lower life mortality margins, partly offset by an improvement in GMxB margin. Lower expenses (€+53 million or -2%) as a result of: o €+98 million lower acquisition expenses primarily driven by €+122 million lower DAC amortization mainly in the US (€+104 million) and France (€+72 million) due to assumptions and model updates, partly offset by Mediterranean and Latin American Region (€-26 million) reflecting increased surrenders. Excluding DAC amortization (largely offset in Unearned Revenues Reserves), acquisition expenses increased by €24 million mainly driven by higher commissions in line with activity growth mainly in Group Protection & Health business in France and Hong Kong; €-46 million higher administrative expenses as inflation, one-offs and business growth effects were partly offset by ongoing cost management efforts. o Half Year 2014 Financial Report 12 I ACTIVITY REPORT Higher tax expenses and minority interests (€-8 million or +2%) driven by higher pre-tax underlying earnings, partly offset by more favorable tax one-offs (€+121 million in the US in 1H 2014 vs. €+41 million in Japan and Hong Kong in 1H 2013). Property & Casualty underlying earnings amounted to €1,226 million. On a constant exchange rate basis, Property & Casualty underlying earnings increased by €105 million (+9%) mainly attributable to Germany (€+50 million), Switzerland (€+37 million), the Mediterranean and Latin American Region (€+18 million), and Direct (€+12 million), partly offset by France (€-20 million) mainly resulting from: Lower net technical result (€-5 million or -1%) driven by: o Current year loss ratio improving by 0.1 point as a result of tariff increases and lower claims frequency, partly offset by higher severity and higher Nat Cat charges (+1.0 point to 1.7%) that amounted to €245 million largely as a result of ELA hailstorm (€241 million at Group level or +1.7 points) mainly impacting France, Belgium and Germany while Half Year 2013 was mainly impacted by floods in Bavaria and Saxony (€73 million charge at Group level); o Lower positive prior year reserve developments by 0.6 point to -1.3 points (compared to 1.8 points in 1H 2013); o Lower expense ratio improving by 0.4 point to 25.9% with (i) 0.3 point reduction in the acquisition ratio driven by both productivity gains and decrease in commission ratio and (ii) 0.1 point decrease in the administrative expenses ratio benefitting from various efficiency programs net of inflation; o As a result, the combined ratio deteriorated by 0.2 point to 95.8% while current year combined ratio improved by 0.4 point to 97.1%. Higher investment result (€+125 million or +12%) mainly driven by (i) France (€+64 million) driven by higher exceptional distributions from mutual funds and (ii) the Mediterranean and Latin American Region (€+46 million) mainly in Turkey reflecting higher interest rates and increased average asset base. Higher tax expenses and minority interests (€-38 million or +8%) driven by higher pre-tax underlying earnings as well as less favorable tax one-offs (€-3 million in 1H 2014 vs. €+14 million in 1H 2013 in the Mediterranean and Latin American Region). International insurance underlying earnings amounted to €135 million. On a constant exchange rate basis, underlying earnings increased by €32 million (or +31%) mainly attributable to (i) lower taxes on prior year reserve developments at AXA Corporate Solutions and (ii) favorable developments on the run-off portfolios. Asset Management underlying earnings amounted to €184 million. On a constant exchange rate basis, underlying earnings decreased by €8 million (or -4%). On a comparable scope basis, restated for the sale of AXA Private Equity, Asset Management underlying earnings were up €19 million (+11%) attributable to AllianceBernstein (€+10 million) and AXA IM (€+8 million), both due to higher revenues net of variable compensation. Banking underlying earnings amounted to €68 million. On a constant exchange rate basis, underlying earnings increased by €7 million (+12%) mainly attributable to (i) Belgium (€+3 million) as a result of a higher interest margin and (ii) France (€+2 million) due to a rise in net operating revenues reflecting higher interest income on retail loans. Holdings and other companies underlying earnings amounted to €-486 million. On a constant exchange rate basis, underlying earnings decreased by €51 million mainly attributable to AXA SA (€-79 million) mainly reflecting (i) Group investments to support advertising campaigns across the Group and increase digital capabilities, (ii) a decrease in dividends received from non-consolidated subsidiaries and (iii) an increase in the French tax on dividends of 3% due to higher dividend paid by the Company. Group adjusted earnings to net income Group net capital gains attributable to shareholders amounted to €335 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders decreased by €42 million mainly due to: Half Year 2014 Financial Report 13 I ACTIVITY REPORT €-117 million lower realized capital gains to €439 million mainly driven by lower realized gains on fixed income assets (€-63 million), real estate (€-33 million) and equities (€-30 million); €+68 million lower impairments to €-91 million mainly driven by equities (€+45 million) and real estate (€+16 million); €+7 million less unfavorable intrinsic value to €-13 million related to equity hedging derivatives. As a result, adjusted earnings amounted to €3,112 million. On a constant exchange rate basis, adjusted earnings increased by €241 million (+8%). Net income amounted to €3,008 million. On a constant exchange rate basis, net income increased by €618 million (+25%) mainly as a result of: higher adjusted earnings (€+241 million); a favorable change in fair value of financial assets and derivatives in half year 2014 compared to an unfavorable change in half year 2013; a change of €+269 million to €37 million which can be analyzed as follows: accounting under IAS 39, mainly attributable to interest rates decrease; o €+46 million from the change in fair value of assets accounted for as under fair value option; o €-87 million following foreign exchange rate movements notably driven by an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting under IAS 39. lower negative impact from exceptional operations (€+40 million) mainly driven by the non-repeat of the realized loss from the closed Mony portfolio transaction (€+32 million); lower restructuring costs (€+78 million) mainly driven by the non-repeat of 2013 real estate lease write-off in the United-States. Half Year 2014 Financial Report 14 I ACTIVITY REPORT CONSOLIDATED SHAREHOLDERS’ EQUITY As of June 30, 2014, consolidated shareholders' equity totalled €58.9 billion. The movements in shareholders' equity since December 31, 2013 are presented in the table below: Shareholders' Equity At December 31, 2013 52,923 Share Capital 9 Capital in excess of nominal value 31 Equity-share based compensation 15 Treasury shares sold or bought in open market 28 Deeply subordinated debt (including interests charges) 814 Fair value recorded in shareholders' equity 3,950 Impact of currency fluctuations 530 Payment of N-1 dividend (1,960) Other 10 Net income for the period 3,008 Actuarial gains and losses on pension benefits (455) At June 30, 2014 58,903 SHAREHOLDER VALUE Earnings per share (“EPS”) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) December 31, 2013 published December 31, 2013 restated (a) Var. June 30, 2014 versus June 30, 2013 restated (a) (in Euro million except ordinary shares in million) Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Basic Fully diluted Weighted average number of shares 2,417.9 2,432.9 2,380.6 2,388.1 2,380.6 2,388.1 2,383.9 2,397.2 2,383.9 2,397.2 Net income (Euro per Ordinary Share) 1.18 1.18 0.98 0.97 0.98 0.97 1.76 1.75 1.76 1.75 21% 21% Adjusted earnings (Euro per Ordinary Share) 1.23 1.22 1.18 1.18 1.18 1.18 2.05 2.03 2.05 2.03 4% 4% Underlying earnings (Euro per Ordinary Share) 1.09 1.08 1.02 1.02 1.02 1.02 1.86 1.85 1.86 1.85 6% 6% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. Half Year 2014 Financial Report 15 I ACTIVITY REPORT Return On Equity (“ROE”) (in Euro million) June 30, 2014 June 30, 2013 published June 30, 2013 restated (a) Change in % points ROE 11.1% 9.5% 9.5% 1.6 pts Net income group share 3,008 2,467 2,467 Average shareholders' equity 54,107 51,714 51,714 Adjusted ROE 16.8% 16.5% 16.5% 0.3 pts Adjusted earnings (b) 2,964 2,810 2,810 Average shareholders' equity (c) 35,315 34,114 34,114 Underlying ROE 14.9% 14.3% 14.3% 0.6 pts Underlying earnings (b) 2,629 2,435 2,435 Average shareholders' equity (c) 35,315 34,114 34,114 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Including adjustement to reflect net financial charges related to undated debt (recorded through shareholders' equity). (c) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders' equity). Half Year 2014 Financial Report 16 I ACTIVITY REPORT LIFE & SAVINGS SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Life & Savings segment for the periods indicated: Life & Savings segment (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues (a) 29,100 29,643 55,433 APE (Group share) 3,181 3,310 6,335 Investment margin 1,314 1,327 2,710 Fees & revenues 3,561 3,753 7,706 Net technical margin 461 418 726 Expenses (3,207) (3,427) (7,274) Amortization of VBI (57) (49) (167) Other 57 44 85 Underlying earnings before tax 2,129 2,067 3,787 Income tax expenses / benefits (429) (484) (905) Minority interests (49) (50) (89) Underlying earnings Group share 1,651 1,534 2,793 Net capital gains or losses attributable to shareholders net of income tax 163 286 332 Adjusted earnings Group share 1,813 1,820 3,125 Profit or loss on financial assets (under FV option) & derivatives 79 (200) (270) Exceptional operations (including discontinued operations) 28 (24) (70) Goodwill and other related intangibles impacts (8) (15) (65) Integration and restructuring costs (8) (79) (107) Net income Group share 1,906 1,501 2,614 (a) Before intercompany eliminations. Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 France 7,535 7,211 14,131 United States 5,489 5,567 11,304 United Kingdom 303 285 569 Japan 1,895 2,605 5,579 Germany 3,308 3,232 6,542 Switzerland 4,878 5,206 7,067 Belgium 1,041 1,151 2,012 Central & Eastern Europe (a) 152 195 389 Mediterranean and Latin American Region (b) 3,366 3,001 5,581 Hong Kong 892 983 1,849 South-East Asia, India and China (c) 157 133 268 Other (d) 84 74 141 TOTAL 29,100 29,643 55,433 Intercompany transactions (61) (40) (103) Contribution to consolidated gross revenues 29,039 29,603 55,331 o/w. high growth markets 1,441 1,511 2,884 o/w. mature markets 27,598 28,092 52,447 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Mexico and Colombia. (c) South-East Asia revenues include Singapore and non bancassurance subsidiaries in Indonesia. (d) Other correspond to Luxembourg, AXA Life Invest Services, Architas and Family Protect. Half Year 2014 Financial Report 17 I ACTIVITY REPORT Underlying earnings (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 France 397 353 708 United States 431 311 559 United Kingdom 13 (9) (12) Japan 198 292 447 Germany 84 79 138 Switzerland 150 150 277 Belgium 88 81 167 Central & Eastern Europe (a) 24 15 32 Mediterranean and Latin American Region (b) 91 90 174 Hong Kong 136 132 251 South-East Asia, India and China (c) 60 54 92 Other (d) (21) (13) (41) UNDERLYING EARNINGS 1,651 1,534 2,793 o/w. high growth markets 232 209 394 o/w. mature markets 1,419 1,325 2,399 (a) Includes Poland, Hungary, Czech Republic and Slovakia. (b) Mediterranean and Latin American Region includes Italy, Spain, Portugal, Greece, Turkey, Morocco, Mexico and Colombia. (c) South-East Asia earnings include Indonesia, Thailand, Philippines, China, India and Singapore. (d) Other correspond to Luxembourg, AXA Life Invest Services, Architas and Family Protect. Half Year 2014 Financial Report 18 I ACTIVITY REPORT Life & Savings operations – France (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 7,535 765 589 741 316 (1,091) - 4 559 (161) (1) 397 66 463 10 - (4) - 469 7,211 690 568 790 215 (1,124) - 4 454 (101) (1) 353 214 567 12 - (10) - 569 14,131 1,431 1,179 1,583 455 (2,285) - 11 943 (232) (2) 708 295 1,003 47 - (9) - 1,042 Gross revenues increased by €324 million (+4%) to €7,535 million(1): Unit-Linked revenues (16% of gross revenues) decreased by €22 million (-2%) despite the strong performance in Individual Savings (€+225 million or +25%) following Unit-Linked oriented commercial efforts, as Group Retirement sales decreased due to non-recurring large contracts signed during the first semester of 2013. Individual Unit-Linked share in Savings premiums increased by 3 points to 31%, above market average of 17%(2); G/A Savings revenues (39% of gross revenues) increased by €249 million (+9%) benefiting from growth in hybrid(3) product (€+214 million) and Group Retirement (€+35 million) sales; G/A Protection and Health revenues (45% of gross revenues) increased by €94 million (+3%) driven by a €56 million increase in Group Protection and a €12 million increase in Individual Protection reflecting positive portfolio developments. Individual Health increased by €26 million driven by tariff increases. APE increased by €75 million (+11%) to €765 million: Unit-Linked sales (18% of APE) increased by €5 million (+4%) driven up by a strong performance in Individual Savings (€+26 million) reflecting the focus of the sales force towards Unit-Linked offers; G/A Savings sales (37% of APE) increased by €33 million (+13%), benefiting from growth in hybrid products (€+22 million) and Group Retirement business (€+10 million); G/A Protection and Health sales (44% of APE) increased by €37 million (+12%) driven by €27 million increase in Group Protection & Health reflecting developments in both international (Employee Benefits and Mortgages) and traditional French businesses. Individual Health sales increased by €7 million (+14%) reflecting volume growth, increase in average premiums and tariff increases. Individual Protection sales increased by €3 million (+9%) mainly driven by strong volumes growth. (1) €7,523 million after intercompany eliminations. (2) Source FFSA June 2014. (3) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 19 I ACTIVITY REPORT Investment margin increased by €21 million (+4%) to €589 million reflecting lower crediting rates, while investment results remained stable. Fees & revenues decreased by €49 million (-6%) to €741 million due to €-78 million Unearned Revenues Reserves impact mainly resulting from a €-66 million adjustment (fully offset in deferred acquisition costs), partly offset by higher fees both on Unit-Linked business, in line with a higher average asset base, and on Protection business, in line with revenues growth. Net technical margin increased by €100 million (+47%) to €316 million driven by an increased current year result, mainly in Group and Individual Protection business due to a more favorable claims experience and by higher positive prior year reserve developments in Retirement business. Expenses decreased by €33 million (-3%) to €-1,091 million: Acquisition expenses fell by €50 million (-7%) to €-643 million, driven by a €+76 million positive deferred acquisition costs impact mainly resulting from a €+66 million adjustment (fully offset in Unearned Revenues Reserves) and by lower general acquisition expenses (€+11 million), partly offset by higher commissions (€-37 million) in line with business growth; Administrative expenses rose by €17 million (+4%) to €-447 million driven by higher asset based commissions in Savings business in line with higher assets under management. As a result, the underlying cost income ratio decreased by 5.1 points to 66.3%. Income tax expenses increased by €61 million (+60%) to €-161 million mainly due to higher pre-tax underlying earnings combined with a lower level of non taxable revenues (€-21 million). Underlying earnings increased by €44 million (+12%) to €397 million. Adjusted earnings decreased by €104 million (-18%) to €463 million driven by lower net realized capital gains (€-160 million) mainly due to the sale of a 2.4% equity stake in BNP Paribas in the first half of 2013 (€- 151 million), partly offset by higher underlying earnings (€+44 million). Net income decreased by €100 million (-18%) to €469 million driven by lower adjusted earnings (€-104 million) and an unfavorable change in fair value of economic hedge derivatives not eligible for hedge accounting mainly as a consequence of lower interest rates (€-30 million), partly offset by a more favorable change in fair value of Mutual funds (€+27 million). Half Year 2014 Financial Report 20 I ACTIVITY REPORT Life & Savings operations - United States (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ 5,489 634 241 1,034 (139) (700) (9) - 427 4 (0) 431 (13) 418 11 21 (1) (1) 449 1.371 5,567 655 258 1,120 (82) (845) (11) - 441 (130) - 311 (24) 288 (218) (32) (1) (59) (23) 1.313 11,304 1,322 502 2,211 (113) (1,833) (20) - 746 (187) - 559 (47) 511 (301) (11) (1) (65) 133 1.327 On October 1, 2013, AXA Financial completed the closed MONY portfolio transaction. In 2013, MONY generated €131 million of Gross Revenues and €30 million of Underlying Earnings. Commentary below on a comparable basis reflects the exclusion of MONY and the change at constant exchange rate. Gross revenues decreased by €78 million (-1%) to €5,489 million(1). On a comparable basis, gross revenues increased €296 million (5%): Variable Annuity revenues (70% of gross revenues) increased by 8% reflecting strong sales results for non-GMxB investment only, floating roll up rate GMxB, and Employer Sponsored products; Life revenues (21% of gross revenues) decreased by 2% primarily driven by lower sales of Protection products; Asset Management fees (7% of gross revenues) increased by 5%, reflecting improved market conditions and sales; Mutual Fund revenues (2% of gross revenues) increased by 17%, reflecting higher advisory fees received driven by higher average assets. APE decreased by €21 million (-3%) to €634 million. On a comparable basis, APE increased by €8 million (+1%): Variable Annuity sales were up 6% to €353 million due to sales growth in the non-GMxB Investment only products (+5% versus 2013), in line with the strategy. Non-GMxB investment only and floating rate GMxB products launched since 2010 represented a combined 65% of first half 2014 Variable Annuity sales; Life sales decreased by 21% to €72 million driven by a decrease in G/A Protection products which were down 37% from the prior year, partly reflecting product repricing and the adverse interest rate environment impacting the competitivity of products as well as the non-repeat of a 2013 large case sale; (1) €5,488 million after intercompany eliminations. Half Year 2014 Financial Report 21 I ACTIVITY REPORT Mutual Funds sales were at €209 million, 3% better than prior year reflecting increased advisory account sales. Investment margin decreased by €17 million (-7%) to €241 million. On a comparable basis, Investment margin increased by €15 million (6%) principally due to higher equity returns, partially offset by lower balances and fixed income yields. Fees & revenues decreased by €86 million (-8%) to €1,034 million. On a comparable basis, fees & revenues decreased by €24 million (-2%) driven by the non-repeat of favorable assumption updates of Unearned Revenues Reserves in 2013 offset by higher fees reflecting higher average Separate Account balances. Net technical margin decreased by €57 million (-70%) to €-139 million. On a comparable basis, net technical margin decreased by €23 million (-19%) due to lower life mortality margins, partly offset by an improvement in GMxB margin. Expenses decreased by €145 million (-17%) to €-700 million. On a comparable basis, expenses decreased by €98 million (-12%): Expenses excluding DAC amortization increased by €7 million driven by higher asset based commissions on higher balances and mutual fund product sales, partially offset by continued expense management; DAC amortization of €96 million decreased €104 million from prior year, primarily driven by the non- repeat of unfavorable changes in expected future margins on variable and interest-sensitive life products due to updated mortality assumptions in 2013. Amortization of VBI decreased by €2 million (-15%) to €-9 million. On a comparable basis, amortization of VBI decreased by €1 million (-12%). As a result, the underlying cost income ratio decreased by 5.7 points to 62.4%. Income tax expenses decreased by €134 million from a tax expense of €130 million to a tax benefit of €4 million. On a comparable basis, income tax expenses decreased by €113 million, reflecting a €121 million benefit mainly from a tax settlement in 2014, partially offset by tax expenses from higher pre-tax underlying earnings. Underlying earnings increased by €120 million (+38%) to €431 million. On a comparable basis, underlying earnings increased by €170 million (+61%). Adjusted earnings increased by €130 million (+45%) to €418 million. On a constant exchange rate basis, adjusted earnings increased by €170 million (+64%) in line with higher underlying earnings. Net income increased by €472 million to €449 million. On a constant exchange rate basis, net income increased by €466 million primarily driven by (i) higher adjusted earnings, (ii) a favorable change in fair value of economic hedge derivatives mainly attributable to lower interest rates and (iii) the non-repeat of 2013 real estate lease write-off. Half Year 2014 Financial Report 22 I ACTIVITY REPORT Life & Savings operations - United Kingdom (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ 303 369 2 153 2 (150) - - 7 6 (0) 13 1 14 1 - (0) (3) 11 0.821 285 365 2 147 (0) (168) - - (19) 10 0 (9) - (9) (1) - - (18) (28) 0.851 569 647 4 296 2 (326) - - (24) 13 0 (12) 0 (11) (2) - - (25) (38) 0.846 Gross revenues increased by €18 million (+6%) to €303 million(1). On a comparable basis, gross revenues increased by €5 million (+2%). Revenues on Variable Annuity products were €8 million higher due to new business growth with a further €6 million increase driven by the growth of regular premiums on SunLife protection business. Recurring revenue streams on investment business also increased as a result of 10% growth in funds under management. This was partially offset by the one-off impact of exiting the Bancassurance channel in April 2013. APE increased by €4 million (+1%) to €369 million. On a comparable basis, APE was down 2% compared to prior year. New business through the Elevate platform continued to perform strongly with IFA APE up by €9 million (+8%) as the platform continues to establish itself as one of the leaders in the UK platform market. This growth was more than offset by lower APE from the Corporate Pension Investment business, which saw two very large schemes sold in the first half of 2013, and by the exit of Bancassurance channel. Investment margin was in line with prior year at €2 million. Fees & revenues increased by €6 million (+4%) to €153 million. On a constant exchange rate basis, fees & revenues were in line with prior year. The growth of regular fees from Elevate business broadly offset the reduction in initial revenues following the closure of the Bancassurance channel and the impact of the industry Retail Distribution Review (RDR). Net technical margin increased by €2 million on a constant exchange rate basis to €2 million. (1) €300 million after intercompany eliminations. Half Year 2014 Financial Report 23 I ACTIVITY REPORT Expenses decreased by €18 million (-11%) to €-150 million. On a constant exchange rate basis, expenses decreased by €24 million due to €15 million of recurring savings and a reduction in costs following the closure of the Bancassurance channel, partly offset by increases due to inflation and business growth. As a consequence, the underlying cost income ratio improved significantly, decreasing by 17.4 points to 95.6%. Income tax benefits decreased by €4 million (-40%) to €6 million. On a constant exchange rate basis, income tax benefit decreased by €4 million (-42%) due to the increase in pre-tax earnings. Underlying earnings increased by €22 million to €13 million. On a constant exchange rate basis, underlying earnings increased by €22 million. Adjusted earnings increased by €23 million to €14 million. On a constant exchange rate basis, adjusted earnings increased by €22 million mainly due to higher underlying earnings. Net income increased by €39 million to €11 million. On a constant exchange rate basis, net income increased by €38 million as a result of lower restructuring costs (€+15m) and higher adjusted earnings (€+23m). Half Year 2014 Financial Report 24 I ACTIVITY REPORT Life & Savings operations – Japan (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 (a) Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Yen (a) The contribution of AXA Life Japan to the AXA consolidated result for 2013 annual accounts exceptionally covered a period of fifteen months. 1,895 175 0 628 33 (347) (17) - 297 (97) (2) 198 0 198 16 - - - 214 140.410 2,605 240 37 738 28 (390) (14) - 399 (105) (3) 292 33 324 13 - - - 337 113.026 5,579 504 153 1,696 (92) (998) (82) - 677 (226) (4) 447 0 447 (9) - - - 438 124.765 AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. Half Year 2013 accounts were covering October 1, 2012 to March 31, 2013 period. For consistency reasons, 2013 APE and Gross revenues have been restated to cover the January 1, 2013 to June 30, 2013 period. This restatement as well as the change at constant exchange rate are refered to as “comparable basis” in the comments below. Gross revenues decreased by €711 million (- 27%) to €1,895 million(1). On a comparable basis, revenues decreased by €68 million (-3%): Protection revenues (45% of gross revenues) decreased by €9 million (-1%) reflecting a decrease in inforce run-off portfolio of Increasing Term products (€-27 million), partly offset by steady in-force growth in Term & Term Rider products (€ +17 million); Health revenues (38% of gross revenues) increased by €12 million (+1%) with higher new business in medical products, partly offset by lower revenues from inforce portfolios; Investment & Savings revenues (17% of gross revenues) decreased by €71 million (-15%) mainly due to lower sales of Variable Annuity products (€-62 million) following product redesign and a shift in client appetite. APE decreased by €65 million (-27%) to €175 million. On a comparable basis, APE decreased by €3 million (-1%): Protection sales (54% of APE) increased by €13 million (+12%) driven by newly launched Simple Underwriting Long Term Life product (€+14 million) and a strong shift of sales to the Low Cash Value Whole Life product (€+14 million) from Long Term Life products (€-21 million) impacted by a regulated repricing; (1) €1,895 million after intercompany eliminations. Half Year 2014 Financial Report 25 I ACTIVITY REPORT Health sales (40% of APE) decreased by €9 million (-9%) reflecting the non-repeat of the successful launch of Disability Income product in 2013 (€-12 million), partly offset by steady growth in Medical product sales; Investment and Savings sales (6% of APE) decreased by €6 million (-33%) due to lower sales of Variable Annuity products in the bancassurance channel following product redesign and a shift in client appetite. Investment margin decreased by €37 million to €0 million. On a constant exchange rate basis, investment margin decreased by €37 million mainly due to the non-repeat of 2013 high dividend income from equity and private equity funds following Japanese stock market rally. Fees & revenues decreased by €110 million (-15%) to €628 million. On a constant exchange rate basis, fees & revenues increased by €42 million (+6%) mainly due to higher loadings driven by a better business mix, increased retention in G/A Protection & Health business (€+19 million) and the non-repeat of 2013 lower Unearned Revenues Reserves amortization following an increase in Variable Annuity account value (mostly offset by deferred acquisition costs amortization). Net technical margin increased by €4 million (+15%) to €33 million. On a constant exchange rate basis, net technical margin increased by €12 million (+43%) mainly driven by improved mortality and surrender margins, partly offset by higher GMxB losses (€-19 million). Expenses decreased by €43 million (-11%) to €-347 million. On a constant exchange rate basis, expenses increased by €41 million (+11%) mainly due to the non-repeat of 2013 positive one-off effects and 2013 lower deferred acquisition costs amortization following an increase in Variable Annuity account value (mostly offset by Unearned Revenues Reserves amortization). Amortization of VBI increased by €2 million (+17%) to €-17 million. On a constant exchange rate basis, VBI amortization increased by €7 million (+45%) mainly driven by various assumption changes. As a result, the underlying cost income ratio worsened by 4.7 points to 55.1%. Income tax expenses decreased by €7 million to €-97 million. On a constant exchange rate basis, income tax expenses increased by €16 million due to the non-repeat of a positive tax one-off in 1H13 (€-31 million), partly offset by lower pre-tax underlying earnings (€+15 million). Underlying earnings decreased by €94 million (-32%) to €198 million or decreased by €48 million (-16%) on a constant exchange rate basis. Adjusted earnings decreased by €126 million (-39%) to €198 million or decreased by €80 million (-25%) on a constant exchange rate basis, due to lower underlying earnings and lower realized capital gains mainly on fixed income assets. Net income decreased by €123 million (-37%) to €214 million. On a constant exchange rate basis, net income decreased by €74 million (-22%) mainly due to lower adjusted earnings (€-80 million). Half Year 2014 Financial Report 26 I ACTIVITY REPORT Life & Savings operations – Germany (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,308 176 67 155 42 (118) (10) - 136 (52) (0) 84 (5) 78 9 11 - - 99 3,232 218 51 149 29 (100) (7) - 122 (42) (0) 79 17 96 11 2 - - 109 6,542 385 69 270 41 (158) (33) - 190 (51) (0) 138 4 142 11 0 - (2) 152 Gross revenues increased by €76 million (+2%) to €3,308 million(1): Life revenues (58% of gross revenues) increased by €22 million (+1%) to €1,931 million driven by Unit-Linked single premiums, partly due to the successful launch of a new hybrid(2) product. This was partly offset by lower G/A regular premiums; Health revenues (42% of gross revenues) increased by €54 million (+4%) to €1,377 million mainly due to premium adjustments to cover medical inflation. APE decreased by €42 million (-19%) to €176 million: Life sales decreased by €7 million (-6%) to €107 million due to decreasing G/A regular premiums, partly compensated by the successful launch of a new hybrid product; Health sales decreased by €35 million (-34%) to €69 million due to the non-repeat of strong sales in the first half of 2013 driven by the introduction of unisex tariffs at the end of 2012. Investment margin increased by €16 million (+31%) to €67 million mainly reflecting lower crediting rates. Fees & revenues increased by €6 million (+4%) to €155 million. Net technical margin increased by €13 million (+44%) to €42 million mainly due to a higher mortality margin in all business lines (€+7 million) and lower hedge losses on GMxB products (€+6 million). (1) €3,294 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 27 I ACTIVITY REPORT Expenses increased by €18 million (+18%) to €-118 million mainly due to higher investments in IT systems and health business activities, as well as refinement of cost allocation between AXA Germany entities. Expense reductions from the cost saving program offset overall increase in wages and other expenses due to inflation. Amortization of VBI increased by €3 million (+36%) to €-10 million due to model refinements and assumption changes. As a result, the underlying cost income ratio increased by 1.5 pts to 48.3%. Income tax expenses increased by €10 million (+24%) to €-52 million due to higher pre-tax underlying earnings. Underlying earnings increased by €5 million (+6%) to €84 million. Adjusted earnings decreased by €18 million (-19%) to €78 million due to lower net realized capital gains on fixed income and equity assets. Net income decreased by €10 million (-9%) to €99 million as the decrease in adjusted earnings was partly offset by a positive one-off effect this year following last year’s merger of two AXA pension entities. Half Year 2014 Financial Report 28 I ACTIVITY REPORT Life & Savings operations – Switzerland (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc 4,878 222 107 149 72 (129) (13) - 186 (37) - 150 43 193 14 - (3) - 204 1.221 5,206 310 103 147 73 (125) (1) - 196 (46) - 150 21 170 (13) - (3) - 154 1.230 7,067 430 193 288 143 (264) (7) - 353 (76) - 277 41 318 (21) - (7) - 290 1.229 Gross revenues decreased by €328 million (-6%) to €4,878 million(1). On a comparable basis, gross revenues decreased by €360 million (-7%): Group Life revenues decreased by €452 million (-10%) to €4,325 million driven by lower single premiums from full protection scheme contracts (€-475million) due to the strategic shift from full protection schemes towards semi-autonomous employee benefit solutions; Individual Life revenues increased by €91 million (+20%) to €553 million mainly due to higher single premiums (€+86 million) resulting from the continuing success of the G/A Protection with Savings product Protect Star. APE decreased by €88 million (-28%) to €222 million. On a comparable basis, APE decreased by €90 million (-29%): Group Life sales decreased by €101 million (-39%) driven by the strategic shift from full protection schemes towards semi-autonomous employee benefit solutions; Individual Life sales increased by €11 million (+23%) driven by the continuing success of the G/A Protection with Savings product Protect Star. Investment margin increased by €5 million (+5%) to €107 million. On a constant exchange rate basis, investment margin increased by €4 million (+4%) resulting from higher investment income mainly from equity investments due to a higher average asset base. Fees & revenues increased by €2 million (+1%) to €149 million. On a constant exchange rate basis, fees & revenues increased by €1 million (+1%) mainly resulting from higher Individual Life revenues. (1) €4,875 million after intercompany eliminations. Half Year 2014 Financial Report 29 I ACTIVITY REPORT Net technical margin remained stable at €72 million. On a constant exchange rate basis, net technical margin decreased by €1 million (-1%). Expenses increased by €4 million (+3%) to €-129 million. On a constant exchange rate basis, expenses increased by €3 million (+3%) mainly due to higher acquisition expenses driven by the success of protection products in Individual Life. Amortization of VBI increased by €12 million to €-13 million. On a constant exchange rate basis, amortization of VBI increased by €12 million mainly impacted by the non-repeat of 2013 model refinements. As a result, the Underlying cost income ratio increased by 4.2 points to 43.3%. Income tax expenses decreased by €10 million (-21%) to €-37 million. On a constant exchange rate basis, income tax expenses decreased by €10 million (-21%) driven by lower pre-tax underlying earnings and non- recurring tax charges from participation dividends in previous years. Underlying earnings remained stable at €150 million. On a constant exchange rate basis, underlying earnings decreased by €1 million (-1%). Adjusted earnings increased by €23 million (+13%) to €193 million. On a constant exchange rate basis, adjusted earnings increased by €21 million (+13%) mainly resulting from higher realized capital gains on equities and private equity investments. Net income increased by €50 million (+32%) to €204 million. On a constant exchange rate basis, net income increased by €48 million (+31%) mainly due to higher adjusted earnings and a positive change in fair value of economic interest rate hedge derivatives not eligible for hedge accounting. Half Year 2014 Financial Report 30 I ACTIVITY REPORT Life & Savings operations – Belgium (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,041 72 167 67 10 (121) 0 - 122 (35) (0) 88 71 158 30 - - (1) 186 1,151 94 162 61 12 (122) (2) - 110 (29) (0) 81 8 89 (19) - - (1) 69 2,012 151 339 132 18 (249) (4) - 237 (69) (0) 167 22 190 (15) - - (7) 168 Gross revenues decreased by €110 million (-10%) to €1,041 million(1): G/A Protection & Health revenues (39% of gross revenues) decreased by €5 million (-1%) mainly due to products in run-off in Individual Life Protection (€-4 million); Unit-Linked revenues (31% of gross revenues) decreased by €69 million (-18%) mainly due to a decrease in structured products (€-53 million) and variable annuity products (€-20 million); G/A Savings revenues (30% of gross revenues) decreased by €36 million (-10%) mainly due to the run-off Crest product line (€-14 million), and lower sales of the Oxylife hybrid(2) product (€-13 million). APE decreased by €22 million (-24%) to €72 million: G/A Protection & Health sales (13% of APE) were stable at €10 million; Unit-Linked sales (44% of APE) decreased by €13 million mainly due to a decrease in structured funds (€-5 million) and Oxylife hybrid products (€-4 million); G/A Savings sales (43% of APE) decreased by €9 million mainly due to lower new business in self- employed savings products. Investment margin increased by €6 million (+4%) to €167 million. Fees & revenues increased by €6 million (+10%) to €67 million driven by the growth in Unit-Linked fees as a result of higher assets under management. Net technical margin decreased by €2 million (-17%) to €10 million. (1) €1,041 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 31 I ACTIVITY REPORT Expenses decreased by €1 million (-1%) to €-121 million: Acquisition expenses fell by €3 million (-6%) to €-49 million mainly due to lower commissions on premiums; Administrative expenses increased by €3 million (+4%) to €-72 million mainly as a result of higher overhead costs from salary inflation, partly offset by continued costs management actions. Amortization of VBI decreased by €2 million (-104%) to €0 million. As a result, the underlying cost income ratio improved by 3.3 points to 49.9%. Income tax expenses increased by €6 million to €-35 million due to the increase in pre-tax underlying earnings. Underlying earnings increased by €7 million (+9%) to €88 million. Adjusted earnings increased by €69 million (+78%) to €158 million mainly due to higher realized capital gains (€+49 million) principally on equities and fixed income assets, and to lower impairments (€+16 million) mainly on real estate. Net income increased by €118 million (+172%) to €186 million due to (i) higher adjusted earnings (€+70 million), (ii) a more favorable change in fair value of mutual funds and other assets (€+26 million) mainly driven by a decrease in corporate spreads and (iii) a favorable change in fair value of interest rate hedging derivatives not eligible for hedge accounting (€+27 million). Half Year 2014 Financial Report 32 I ACTIVITY REPORT Life & Savings operations – Central & Eastern Europe (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 152 41 4 79 20 (72) (1) - 30 (5) (0) 24 0 25 (0) - (1) (0) 24 195 55 5 85 21 (92) (1) - 17 (2) (0) 15 (0) 15 (0) 11 (1) (0) 25 389 108 6 175 50 (192) (2) - 37 (6) (0) 32 0 32 (0) (52) (35) (3) (58) Gross revenues decreased by €42 million (-22%) to €152 million(1). On a comparable basis, gross revenues decreased by €16 million (-9%) driven by lower Unit-Linked new business sales in Czech Republic (-36% to €49 million), partly offset by higher revenues from Pure Protection business in Poland (+46% to €36 million), mainly through Bancassurance channel. APE decreased by €14 million (-26%) to €41 million. On a comparable basis, APE decreased by €10 million (- 20%) driven by Pension Fund activities impacted by the regulatory changes in Poland and Czech Republic (- 85% to €2 million). The region is currently focusing on other business lines with a significant increase in Protection business (+24% to €10 million), partly offset by lower production of Unit-Linked products in a continuing difficult economic environment. Underlying earnings increased by €10 million (+64%) to €25 million. On a constant exchange rate basis, underlying earnings increased by €10 million mainly driven by an exceptional result from the change in regulation on Polish Pension Funds. Adjusted earnings increased by €10 million (+65%) to €25 million. On a constant exchange rate basis, adjusted earnings increased by €10 million driven by higher underlying earnings. Net income decreased by €1 million (-3%) to €24 million. On a constant exchange rate basis, net income decreased by €1 million, despite higher adjusted earnings, mainly driven by the non-repeat of an exceptional positive result on Czech Pension Funds in the first half year of 2013 (€11 million). (1) €152 million after intercompany eliminations. Half Year 2014 Financial Report 33 I ACTIVITY REPORT Life & Savings operations – Mediterranean & Latin American Region (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,366 271 117 257 77 (266) (6) - 179 (42) (46) 91 (0) 91 (3) (0) 1 (1) 87 3,001 227 131 210 83 (245) (6) - 173 (37) (46) 90 11 100 (1) (2) (1) (1) 96 5,581 443 245 449 159 (509) (12) - 331 (75) (83) 174 17 191 3 (1) (1) (2) 190 Note: (i) Italy, Spain, Portugal, Greece, Turkey, Mexico, Morocco and Colombia are fully consolidated; (ii) Colombia was fully consolidated since April 2, 2014. In the comments below, the comparable basis includes April to June 2013 results of Colombia. Gross revenues increased by €365 million (+12%) or €309 million (+10%) on a comparable basis to €3,366 million(1): Mature markets were up €312 million (+11%) with higher sales of G/A Savings (€+555 million) mainly driven by increased volumes in both hybrid(2) and traditional products at AXA MPS as well as lower competition from bank deposit products in Spain and Italy, partly offset by lower Unit-Linked products sales (€-235 million), mainly due to lower “Protected Unit” product sales at AXA MPS; High growth markets decreased by €3 million (-1%) mainly due to lower sales of Individual Protection products in Turkey, partly offset by higher sales of Individual Protection in Mexico and growth from the newly consolidated entity in Columbia. APE increased by €44 million (+19%) or €47 million (+21%) on a comparable basis to €271 million: Mature markets sales were up €51 million (+26%) to €248 million driven by G/A Savings (€+40 million) from both hybrid and traditional products at AXA MPS as well as lower competition from bank deposit products in Spain and Italy, Unit-Linked products (€+7 million) and Group Protection business (€+4 million); High growth markets sales decreased by €4 million (-14%) mainly due to lower new large Group Protection accounts in Mexico (€-5 million), partly offset by Turkey (€+2 million) driven by Pension business. (1) €3,362 million after intercompany eliminations. (2) Hybrid products: savings products allowing clients to invest in both Unit-Linked and General Account funds. Half Year 2014 Financial Report 34 I ACTIVITY REPORT Investment margin decreased by €14 million (-11%) to €117 million. On a constant exchange rate basis, investment margin decreased by €12 million (-10%) mainly due to AXA MPS driven by a lower average yield as well as a lower average asset base as a consequence of high level of surrenders. Fees & revenues increased by €46 million (+22%) to €257 million. On a constant exchange rate basis, fees & revenues increased by €51 million (+24%) largely driven by AXA MPS (€+37 million) from higher Unearned Revenues Reserves amortization (partly offset in deferred acquisition costs) mainly reflecting higher surrenders combined with higher sales of Unit-Linked products. Net technical margin decreased by €8 million (-9%) to €77 million. On a constant exchange rate basis, net technical margin decreased by €5 million (-5%) mainly due to a deteriorated GMxB margin. Expenses increased by €21 million (+8%) to €-266 million. On a constant exchange rate basis, expenses increased by €27 million (+11%): Mature markets increased by €19 million mainly driven by AXA MPS reflecting higher deferred acquisition costs amortization in line with increased surrenders; High growth markets increased by €8 million primarily due to Mexico mainly due to higher deferred acquisition costs amortization. Amortization of VBI was stable at €-6 million. As a result, the underlying cost income ratio increased by 1.0 point to 60.3%. Income tax expenses increased by €5 million (+12%) to €-42 million. On a constant exchange rate basis, income tax expenses increased by €5 million (+13%), mainly due to higher pre-tax underlying earnings and lower tax benefit on General Account technical reserves evolution at AXA MPS, partly offset by a positive country mix. Underlying earnings increased by €1 million (+1%) to €91 million. On a constant exchange rate basis, underlying earnings increased by €2 million (+3%). Adjusted earnings decreased by €10 million (-10%) to €91 million. On a constant exchange rate basis, adjusted earnings decreased by €9 million (-9%) mainly driven by higher impairments on fixed income assets. Net income decreased by €8 million (-9%) to €87 million. On a constant exchange rate basis, net income decreased by €8 million (-8%) mainly due to lower adjusted earnings and change in fair value of interest rate hedging derivatives. Half Year 2014 Financial Report 35 I ACTIVITY REPORT Life & Savings operations – Hong Kong (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Investment margin Fees & revenues Net technical margin Expenses Amortization of VBI Other Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Hong Kong Dollar 892 226 7 240 24 (125) (2) - 145 (8) - 136 (0) 136 (11) (0) - - 126 10.633 983 215 6 241 21 (132) (7) - 130 2 - 132 6 138 16 (0) - - 154 10.186 1,849 443 6 478 44 (264) (6) - 257 (6) - 251 0 251 18 0 - - 269 10.291 Gross revenues decreased by €91 million (-9%) to €892 million(1). On a comparable basis, gross revenues increased by €24 million (+3%) mainly due to higher revenues from G/A Protection & Health products (€+64 million) driven by strong new business sales and a steady in-force growth, partly offset by lower revenues from G/A Investment & Savings products (€-27 million) with a decrease in retirement product sales and from Unit-Linked products (€-14 million) mainly due to the termination of bancassurance partnership. APE increased by €10 million (+5%) to €226 million. On a comparable basis, APE increased by €20 million (+9%) due to higher sales of G/A Protection with Savings products (€+16 million) driven by successful marketing campaigns, Pure Protection and Health products (€+7 million) demonstrating an increasing focus on this profitable segment, and Unit-Linked products (€+4 million) thanks to strong IFA sales and despite the termination of a bancassurance partnership, partly offset by lower retirement products sales (€-8 million). Investment margin increased by €1 million (+20%) to €7 million. On a constant exchange rate basis, investment margin increased by €2 million (+25%) mainly due to higher investment income boosted by higher dividends from equity, partly offset by higher interest credited to policyholders. Fees & revenues remained stable at €240 million. On a constant exchange rate basis, fees & revenues increased by €9 million (+4%) mainly driven by an increase in loadings on premiums stemming from both new business and in-force growth. Net technical margin rose by €3 million (+15%) to €24 million. On a constant exchange rate basis, net technical margin increased by €4 million (+20%) driven by a higher surrender margin from Unit-Linked products and better claims experience in G/A Protection & Health business. (1) €878 million after intercompany eliminations. Half Year 2014 Financial Report 36 I ACTIVITY REPORT Expenses decreased by €7 million (-5%) to €-125 million. On a constant exchange rate basis, expenses decreased by €1 million (-1%), despite a steady portfolio growth, mainly driven by lower IT costs. Amortization of VBI decreased by €5 million (-74%) to €-2 million. On a constant exchange rate basis, amortization of VBI decreased by €5 million (-73%) driven by favorable assumption changes. As a consequence, the underlying cost income ratio decreased by 5.0 points to 46.7%. Income tax increased from a €3 million benefit in 2013 to a €-8 million charge in 2014. On a constant exchange rate basis, income tax expenses increased by €11 million mainly due to the non-repeat of 2013 tax benefits (€10 million) from the change in the tax base for a block of insurance business in the context of the merger of two insurance entities. Underlying earnings increased by €4 million (+3%) to €136 million. On a constant exchange rate basis, underlying earnings increased by €10 million (+8%). Adjusted earnings decreased by €2 million (-1%) to €136 million. On a constant exchange rate basis, adjusted earnings increased by €4 million (+3%) driven by higher underlying earnings (€+10 million), partly offset by lower net realized capital gains. Net income decreased by €28 million (-18%) to €126 million. On a constant exchange rate basis, net income decreased by €23 million (-15%) as higher adjusted earnings (€+4 million) were more than offset by an unfavorable change in fair value of interest rate hedging derivatives not eligible for hedge accounting (€-23 million). Half Year 2014 Financial Report 37 I ACTIVITY REPORT Life & Savings operations – South-East Asia, India & China (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Gross revenues APE (Group share) Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 157 225 60 (0) 60 1 (3) - (0) 57 133 237 54 0 54 0 (2) - (0) 52 268 463 92 0 92 (1) (5) (13) (3) 70 2014 figures have been compared to the same scope for 2013 i.e. adjusted for alignment of reporting period with Group calendar year in India and Philippines since full year 2013. Gross Revenues(1) increased by €24 million (+18%) to €157 million. On a comparable basis, gross revenues increased by €40 million (+30%) mainly driven by higher revenues from G/A Protection & Health (€+34 million) mainly in Singapore reflecting employee benefits business growth after the acquisition of HSBC portfolio since the last quarter of 2013. Unit-Linked business recorded a growth of €+6 million due to higher single premium sales in Singapore, partly offset by Indonesia. APE(1) decreased by €12 million (-5%) to €225 million. On a comparable basis, APE increased by €31 million (+14%) mainly driven by: Strong performance in Thailand (€+30 million), in particular from G/A Protection with Savings products; China (€+8 million) and Singapore (€+3 million) with continued momentum in G/A Protection & Health business; Partly offset by a slowdown in Unit-Linked business in Indonesia (€-10 million). Underlying earnings(1) increased by €6 million (+11%) to €60 million. On a comparable basis, underlying earnings increased by €17 million (+31%) mainly due to: Business growth and higher investment earnings in Thailand (€+16 million); Improved business mix towards longer term G/A Protection & Health business as well as continuous expense management in India (€+5 million); Partly offset by the reversal of deferred tax assets in Indonesia (€-3 million). Adjusted earnings(1) increased by €6 million (+10%) to €60 million. On a comparable basis, adjusted earnings increased by €17 million (+31%) driven by underlying earnings growth. Net income(1) increased by €5 million (+9%) to €57 million. On a comparable basis, net income increased by €15 million (+29%) mainly due to higher adjusted earnings. (1) South-East Asia, India & China Life & Savings scope: (i) for gross revenues: Singapore and non-bancassurance subsidiaries in Indonesia, on a 100% share basis; (ii) for APE, underlying earnings, adjusted earnings and net income: China, India, Indonesia,Thailand, Philippines and Singapore, on a group share basis. Malaysia operations are not consolidated. Half Year 2014 Financial Report 38 I ACTIVITY REPORT Life & Savings Operations - Other The following tables present the operating results for the other Life & Savings operations of AXA: Consolidated Gross Revenues (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Luxembourg 65 61 112 AXA Life Invest Services 11 11 22 Family Protect 7 3 7 Other 0 (0) TOTAL 84 74 141 Intercompany transactions (10) (10) (21) Contribution to consolidated gross revenues 73 64 121 Underlying, Adjusted earnings and Net Income (in Euro million) June 30, 2014 June 30, 2013 December 31, 2013 Luxembourg 4 3 7 AXA Life Invest Services (8) (7) (17) Family Protect (17) (8) (31) Other (0) (1) (1) UNDERLYING EARNINGS (21) (13) (41) Net realized capital gains or losses attributable to shareholders 0 0 0 ADJUSTED EARNINGS (21) (13) (41) Profit or loss on financial assets (under Fair Value option) & derivatives 1 0 0 Exceptional operations (including discontinued operations) (1) (1) Goodwill and related intangible impacts Integration and restructuring costs (0) NET INCOME (20) (14) (41) FAMILY PROTECT Underlying earnings as well as adjusted earnings and net income were at €-17 million mainly due to higher direct marketing expenditures to ensure the progressive ramp-up of the activity. AXA LIFE INVEST SERVICES (1) Underlying earnings as well as adjusted earnings decreased by €1 million (-11%) to €-8 million. Net income remained stable at €-8 million. (1) AXA Life Invest Services aim to promote Unit-Linked products with guarantees through thid party bank patnerships. Half Year 2014 Financial Report 39 I ACTIVITY REPORT PROPERTY & CASUALTY SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income attributable to AXA’s Property & Casualty segment for the periods indicated. (in Euro million) HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) Gross revenues (b) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Before intercompany transactions 17,044 71.2% 69.9% 4,331 25.9% 1,115 1,719 (502) 29 (19) 1,226 16,693 71.3% 69.5% 4,329 26.2% 1,005 1,609 (467) 7 (22) 1,128 16,679 71.3% 69.5% 4,323 26.2% 1,003 1,605 (465) 10 (22) 1,128 151 102 102 1,378 1,229 1,229 (35) (20) (35) (1) (0) (1) (39) (24) 1,130 (48) (23) 1,286 (39) (24) 1,130 29,079 71.2% 70.1% 8,625 26.5% 2,042 3,028 (911) 29 (41) 2,105 108 2,213 46 20 (73) (121) 2,085 29,052 71.3% 70.1% 8,610 26.5% 2,037 3,016 (907) 37 (41) 2,105 108 2,213 46 20 (73) (121) 2,085 Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) France 3,355 3,188 3,188 5,942 5,942 United Kingdom & Ireland 2,202 2,109 2,109 3,907 3,907 Germany 2,404 2,386 2,386 3,807 3,807 Switzerland 2,485 2,425 2,425 2,714 2,714 Belgium 1,126 1,118 1,118 2,050 2,050 Central & Eastern Europe - Luxembourg (b) 87 97 97 171 171 Mediterranean and Latin American Region (c) 3,733 3,775 3,775 7,391 7,391 Direct (d) 1,202 1,152 1,138 2,274 2,247 Asia (e) 449 444 444 822 822 TOTAL 17,044 16,693 16,679 29,079 29,052 Intercompany transactions (224) (196) (196) (288) (288) Contribution to consolidated gross revenues 16,820 16,497 16,483 28,791 28,763 o/w. high growth markets o/w. Direct o/w. mature markets 2,269 1,202 13,349 2,272 1,152 13,073 2,272 1,138 13,073 4,520 2,274 21,996 4,520 2,247 21,996 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Central & Eastern Europe includes Ukraine and Reso (Russia). (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico and Colombia. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (e) Asia includes Hong Kong, Malaysia, Singapore. Half Year 2014 Financial Report 40 I ACTIVITY REPORT (in Euro million) Combined Ratio HY 2014 HY 2013 published HY 2013 restated (a) FY 2013 published FY 2013 restated (a) Total 95.8% 95.7% 95.8% 96.6% 96.6% France 96.3% 92.9% 92.9% 94.7% 94.7% United Kingdom & Ireland 98.0% 98.2% 98.2% 98.5% 98.5% Germany 94.8% 97.4% 97.4% 98.2% 98.2% Switzerland 86.4% 90.5% 90.5% 88.9% 88.9% Belgium 91.5% 89.2% 89.2% 93.7% 93.7% Central & Eastern Europe - Luxembourg (b) 101.7% 102.0% 102.0% 103.9% 103.9% Mediterranean and Latin American Region (c) 98.8% 98.7% 98.7% 99.3% 99.3% Direct (d) 98.9% 99.3% 99.5% 99.1% 99.5% Asia (e) 93.6% 93.2% 93.2% 93.1% 93.1% Mature 94.9% 95.0% 95.0% 96.0% 96.0% Direct 98.9% 99.3% 99.5% 99.1% 99.5% High growth 99.0% 97.6% 97.6% 98.1% 98.1% (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Excluding RESO - RESO combined ratio amounted to 98.3% as of June 30, 2014. (c) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico and Colombia. (d) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, United Kingdom, South Korea and Japan. (e) Asia includes Hong Kong, Singapore and Malaysia. Underlying earnings (in Euro million) HY 2014 HY 2013 FY 2013 France 274 294 531 United Kingdom & Ireland 116 114 202 Germany 193 142 295 Switzerland 223 185 405 Belgium 131 143 222 Central & Eastern Europe - Luxembourg (a) 17 5 25 Mediterranean and Latin American Region (b) 184 173 281 Direct (c) 53 41 85 Asia (d) 35 31 58 UNDERLYING EARNINGS 1,226 1,128 2,105 o/w. high growth markets 124 118 225 o/w. Direct 53 41 85 o/w. mature markets 1,049 969 1,796 (a) Central & Eastern Europe includes Ukraine and Reso (Russia). (b) Mediterranean and Latin American Region includes other than Direct operations in Italy, Spain, Portugal, Greece, Turkey, Morocco, Gulf Region, Mexico, Lebanon and Colombia. (c) Direct business in France, Belgium, Spain, Portugal, Italy, Poland, the United Kingdom, South Korea and Japan. (d) Asia includes India, Hong Kong, Malaysia, Singapore and Thailand. Half Year 2014 Financial Report 41 I ACTIVITY REPORT Property & Casualty Operations – France (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 3,355 73.8% 73.2% 786 23.1% 325 434 (160) - (0) 274 28 302 (31) - - - 271 3,188 72.0% 69.2% 866 23.7% 261 462 (168) - (0) 294 (0) 293 (2) - (3) - 288 5,942 73.7% 70.9% 1,710 23.7% 522 836 (304) - (1) 531 32 563 20 24 (3) - 604 Gross revenues increased by €167 million (+5%) to €3,355 million(1). On a comparable basis, mainly adjusted for the internal transfer to AXA Assistance of some service guarantees, gross revenues increased by 4% (or €+130 million): Personal lines (56% of gross revenues) were up 3% to €1,845 million mainly driven by tariff increases in all segments and positive net new contracts in Motor, while the portfolio remained stable in Household; Commercial lines (44% of gross revenues) were up by 5% to €1,458 million mainly driven by tariff increases, partly offset by lower volumes notably in Construction in a context of selective underwriting. Net technical result decreased by €80 million (-9%) to €786 million: The current accident year loss ratio increased by 1.8 points to 73.8% mainly reflecting higher attritional claims ratio due to higher Nat Cat charges (€59 million or +2.0 points related to ELA hailstorm) notably impacting Household and Motor, and a less favorable frequency in Bodily Injury mainly in Personal Motor, partly offset by tariff increases; The all accident year loss ratio increased by 3.9 points to 73.2%, due to the increase of current accident year loss ratio, as well as lower prior year reserve developments notably in Construction, partly offset by positive developments on Liability. Expense ratio decreased by 0.6 point to 23.1% mainly driven by a lower cost base reflecting continuous efforts to reduce expenses combined with a positive volume effect due to higher earned premiums. As a result, enlarged expense ratio was down 0.1 point to 30.1%, driven by an improved expense ratio. As a consequence, the combined ratio was up by 3.4 points to 96.3%. (1) €3,303 million after intercompany eliminations. Half Year 2014 Financial Report 42 I ACTIVITY REPORT Net investment result increased by €64 million (+24%) to €+325 million mainly driven by €+67 million higher exceptional distributions from mutual funds. Income tax expenses decreased by €8 million (-5%) to €-160 million mainly reflecting lower pre-tax underlying earnings. As a result, underlying earnings decreased by €20 million (-7%) to €274 million. Adjusted earnings increased by €9 million (+3%) to €302 million driven by higher net realized capital gains (€+28 million), mostly on equities, reflecting improved market conditions, partly compensated by lower underlying earnings (€-20 million). Net income decreased by €18 million (-6%) to €271 million mainly driven by a negative change in fair value of Mutual funds (€-30 million), partly offset by the increase in adjusted earnings (€+9 million). Half Year 2014 Financial Report 43 I ACTIVITY REPORT Property & Casualty Operations - United Kingdom & Ireland (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = £ (a) Before intercompany eliminations. 2,202 70.2% 69.1% 620 28.9% 105 144 (28) - (0) 116 19 135 (11) - (1) (2) 122 0.821 2,109 69.1% 68.4% 621 29.8% 106 142 (28) - (0) 114 0 114 4 - (1) - 118 0.851 3,907 67.2% 67.9% 1,264 30.6% 208 267 (65) - (0) 202 10 212 17 - (2) (12) 216 0.846 Gross revenues increased by €93 million (+4%) to €2,202 million(1). On a comparable basis, gross revenues increased by €26 million (+1%) Personal lines (45% of gross revenues) were down 3% to €974 million as a result of the ongoing strategy to focus on profitable growth. Motor was up 3% to €275 million due to AXA’s improved competitiveness in the UK, partially offset by lower new business volumes within Northern Ireland as AXA has maintained a strong pricing discipline in a softening market. Non-Motor was down 5% to €698 million: Property was down 7% to €224 million due to unfavorable market conditions and exiting of unprofitable schemes within the UK. Health was up 2% to €345 million with growth both in the UK and International business. Personal Other was down 19% to €129 million following the continued withdrawal from unprofitable schemes and the exit from the Pet insurance market in 2013; Commercial lines (55% of gross revenues) were up 5% to €1,197 million. Motor was up 11% to €231 million principally due to increased new business volumes in the UK. Non-Motor was up 4%. Property was up 9% to €340 million due to an increase in new business. Health was down 1% to €472 million due to the internal transfer of Asia business to the local AXA entity. Other was up 10% to €154 million due to new business sales and strong retention in Liability and Workers Compensation. Net technical result remained stable at €620 million. On a constant exchange rate basis, net technical result decreased by €20 million (-3%). The current year loss ratio increased by 1.1 points to 70.2% due to an increased Nat Cat charge (1.2 points). There were also increases in Personal Other from increased travel claims as the economy improves (0.3 point) and in Personal Motor in Ireland following increased weather related claims partly offset by improvements in the UK reflecting underwriting actions and the impact of legal reforms (0.2 point). In Property, increased natural weather events in in both UK and Ireland were more than offset by lower large losses (-0.1 point). Healthcare has decreased the overall loss ratio 0.5 point as International business margins improved ; The all accident year loss ratio increased by 0.7 point to 69.1% reflecting the increase in the current year loss ratio partly offset by higher positive prior year reserves developments (€+7 million). (1) €2,130 million after intercompany eliminations. Half Year 2014 Financial Report 44 I ACTIVITY REPORT Expense Ratio decreased by 0.9 point to 28.9%.The acquisition ratio was down 1.2 points to 20.0% mainly reflecting a decrease in commission ratio (-1.4 points) due to lower profit share costs and an improved business mix. This favorable movement was partly offset by the non-commission acquisition expense ratio up 0.2 point due to growth within UK Healthcare through ‘Health on Line’. The administrative expense ratio was up 0.3 point to 9.0%, reflecting the timing of project spend. As a result the enlarged expense ratio was down 0.8 point at 31.7% and the combined ratio was down 0.1 point to 98.0%. Net investment result decreased by €1 million (-1%) to €105 million. On a constant exchange rate basis, net investment result decreased by €4 million (-4%) mainly due to lower income from fixed maturity assets. Income tax expenses were in line with prior year to €-28 million. On a constant exchange rate basis, income tax expenses decreased by €1 million (-4%). Underlying earnings increased by €3 million (+3%) to €116 million. On a constant exchange rate basis, underlying earnings were in line with prior year. Adjusted earnings increased by €21 million (+19%) to €135 million. On a constant exchange rate basis, adjusted earnings increased by €18 million (+16%) reflecting increased realized capital gains (€+15 million) mainly on debt securities as well as lower impairment charges mainly on equities. Net Income increased by €4 million (+4%) to €122 million. On a constant exchange rate basis, net income increased by €1 million (+1%) due to the increase in adjusted earnings, partly offset by an unfavorable change in the fair value of financial assets and derivatives (€-18 million). Half Year 2014 Financial Report 45 I ACTIVITY REPORT Property & Casualty Operations – Germany (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 2,404 66.9% 66.5% 637 28.3% 178 277 (84) - (0) 193 12 205 14 - (2) (2) 215 2,386 70.0% 68.6% 592 28.8% 159 207 (65) - (0) 142 38 180 (24) 3 (2) - 158 3,807 70.3% 69.0% 1,179 29.2% 360 429 (133) - (0) 295 24 320 (25) 3 (4) (23) 271 Gross revenues increased by €18 million (+1%) to €2,404 million(1) : Personal lines (52% of gross revenues) were up 1% to €1,369 million driven by tariff increases, partly offset by lower volumes, mainly in Motor; Commercial lines (32% of gross revenues) were down 1% to €850 million, mainly in Motor due to stricter underwriting rules whereas Property and Liability increased slightly due to tariff increases; Other lines (16% of gross revenues) were up 7% to €425 million due to fronting business for the AXA Group. Net technical result increased by €45 million (+8%) to €637 million: The current accident year loss ratio decreased by 3.2 points to 66.9% reflecting improved attritional claims experience resulting from tariff increases in all retail lines and a mild winter. Nat Cat events remained stable as Half Year 2014 was impacted by ELA hailstorm (€54 million) while Half Year 2013 was impacted by floods in Bavaria and Saxony (€50 million); The all accident year loss ratio decreased by 2.2 points to 66.5% as the decrease in current accident year loss ratio was partly offset by lower positive prior year reserve developments as a result of reserve strengthening in commercial liability. Expense ratio decreased by 0.5 point to 28.3% mainly due to an administrative expense ratio down 0.6 point as a result of productivity programs and a refinement of cost allocation between AXA Germany entities. Enlarged expense ratio was down by 0.6 point to 31.5%. As a result, the combined ratio was down by 2.6 points to 94.8%. (1) €2,373 million after intercompany eliminations. Half Year 2014 Financial Report 46 I ACTIVITY REPORT Net investment result increased by €19 million (+12%) to €178 million mainly due to an exceptional interest profit on a tax claim. Income tax expenses increased by €19 million (+30%) to €-84 million following higher underlying earnings before tax. Underlying earnings increased by €50 million (+35%) to €193 million. Adjusted earnings increased by €24 million (+13%) to €205 million as the increase of underlying earnings was partly offset by lower net realized capital gains mainly on equities. Net income increased by €57 million (+36%) to €215 million due to the increase in adjusted earnings and favorable change in fair value of fixed income funds due to decreasing interest rates and corporate spreads. Half Year 2014 Financial Report 47 I ACTIVITY REPORT Property & Casualty Operations – Switzerland (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = Swiss Franc (a) Before intercompany eliminations. 2,485 69.3% 62.6% 519 23.8% 93 282 (58) - (2) 223 42 265 (1) - (12) - 252 1.221 2,425 72.8% 65.8% 461 24.7% 106 234 (48) - (2) 185 13 198 (10) - (13) - 175 1.230 2,714 69.1% 64.0% 972 24.9% 207 506 (98) - (3) 405 6 411 (5) - (26) - 379 1.229 Gross revenues increased by €61 million (+3%) to €2,485 million(1). On a comparable basis, gross revenues increased by €41 million (+2%): Personal lines (53% of gross revenues) were up 2% to €1,329 million as a consequence of volume growth, especially in Motor, as well as tariff increases in Household reflecting an increased frequency of theft; Commercial lines (47% of gross revenues) were up 1% to €1,163 million driven by volume growth despite a very competitive market. Net technical result increased by €59 million (+13%) to €519 million. On a constant exchange rate basis, net technical result increased by €55 million (+12%): The current accident year loss ratio decreased by 3.5 points to 69.3% driven by lower large claims as well as an improved attritional claims experience, mainly driven by Personal Motor; The all accident year loss ratio decreased by 3.2 points to 62.6% broadly in line with the improvement in the current accident year loss ratio. Expense ratio improved by 0.9 point to 23.8%. The acquisition ratio was down 0.4 point due to favorable seasonality effects while the administration expense ratio was down 0.5 point mainly driven by continuing cost management discipline. The enlarged expense ratio was down by 0.9 point to 27.5%. As a result, the combined ratio was down by 4.1 points to 86.4%. (1) €2,477 million after intercompany eliminations. Half Year 2014 Financial Report 48 I ACTIVITY REPORT Net investment result decreased by €13 million (-12%) to €93 million. On a constant exchange rate basis, net investment result decreased by €13 million (-12%) mainly attributable to low reinvestment yields on fixed income assets. Income tax expenses increased by €10 million (+21%) to €58 million. On a constant exchange rate basis, income tax expenses increased by €10 million (+20%) driven by higher pre-tax underlying earnings. Underlying earnings increased by €38 million (+21%) to €223 million. On a constant exchange rate basis, underlying earnings increased by €37 million (+20%). Adjusted earnings increased by €67 million (+34%) to €265 million. On a constant exchange rate basis, adjusted earnings increased by €65 million (+33%) mainly driven by higher underlying earnings and higher net realized capital gains, mainly on equities. Net income increased by €77 million (+44%) to €252 million. On a constant exchange rate basis, net income increased by €76 million (+43%) mainly driven by higher adjusted earnings and a positive change in fair value of private equity and hedge funds. Half Year 2014 Financial Report 49 I ACTIVITY REPORT Property & Casualty Operations – Belgium (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,126 67.1% 61.6% 393 29.9% 109 195 (65) - - 131 32 163 (4) - (1) (4) 154 1,118 65.7% 58.5% 424 30.7% 103 213 (70) - - 143 29 172 (18) - (1) (3) 150 2,050 66.9% 63.4% 756 30.3% 199 329 (106) - - 222 44 266 (10) - (2) (21) 233 (a) Before intercompany eliminations. Gross revenues increased by €8 million (+1%) to €1,126 million(1): Personal lines (47% of gross revenues) were down 1% to €534 million following negative net new contracts partially offset by tariff increases in both Motor and Household; Commercial lines (51% of gross revenues) were up 2% to €575 million mainly due to an increase in Workers’ Compensation (€+7 million) explained by tariff increases on small business enterprises and more favorable economic environment. Net technical result decreased by €31 million (-7%) to €393 million: The current accident year loss ratio increased by 1.4 points to 67.1% driven by higher natural catastrophe events (+5.1 points) mainly driven by €54 million from the ELA storm, partially offset by an improvement of attritional claims (-3.3 points) as a result of tariff increases and lower frequency; The all accident year loss ratio increased by 3.1 points to 61.6% as a result of the evolution of the current accident year loss ratio and lower positive prior year reserve developments. Expense ratio was down 0.7 point to 29.9% driven by lower administrative costs, reflecting continued costs management actions partially offset by higher overhead costs from salary inflation. Enlarged expense ratio down 0.6 point to 37.7%. As a result, the combined ratio was up 2.4 points to 91.5%. Net investment result increased by €6 million (+6%) to €109 million mainly due to higher dividends on equities and mutual funds. (1) €1,108 million after intercompany eliminations. Half Year 2014 Financial Report 50 I ACTIVITY REPORT Income tax expenses decreased by €5 million to €-65 million due to lower pre-tax underlying earnings. Underlying earnings decreased by €13 million to €131 million. Adjusted earnings decreased by €10 million (-6%) to €163 million due to lower underlying earnings, partially offset by lower impairments on equities (€+3m). Net income increased by €3 million (+2%) to €154 million mainly driven by a favorable change in fair value of private equity mutual funds and inflation derivatives, partially offset by a decrease in adjusted earnings. Half Year 2014 Financial Report 51 I ACTIVITY REPORT Property & Casualty Operations – Central & Eastern Europe and Luxembourg Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 Luxembourg Ukraine Reso (Russia) TOTAL Intercompany transactions Contribution to consolidated gross revenues 64 23 - 87 - 87 63 34 - 97 - 97 100 71 - 171 - 171 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 Luxembourg Ukraine Reso (Russia) (a) 3 0 13 2 1 1 3 2 20 UNDERLYING EARNINGS 17 5 25 Net realized capital gains or losses attributable to shareholders (0) 8 1 ADJUSTED EARNINGS 16 12 26 Profit or loss on financial assets (under Fair Value option) & derivatives Exceptional operations (including discontinued operations) Goodwill and related intangibles impacts Integration and restructuring costs 4 - (20) - 1 - (1) - 15 - (1) (0) NET INCOME (a) Reso accounted for using the equity method. AXA's share of profit is recognized in income statement. (0) 13 39 UKRAINE Gross revenues decreased by €11 million (-32%) to €23 million. On a comparable basis, gross revenues decreased by €3 million (-8%) driven by the political unrest in Ukraine and its consequences on the economic conditions in the country. Underlying earnings and adjusted earnings decreased by €1 million to €0 million due to lower technical result and lower net investment result. As a result, the combined ratio deteriorated by 4.2 points to 109.6%. Net income decreased by €21 million to €-20 million. On a constant exchange rate basis, net income decreased by €28 million driven by a full write-off of goodwill (€-20 million) as a consequence of deteriorated economic perspectives. RESO (RUSSIA) Underlying earnings increased by €14 million to €13 million on a constant exchange rate basis, mainly driven by the non-repeat of higher one-off expenses (€+5 million) in the first half of 2013, higher net technical margin (€+7 million) and higher investment result (€+2 million). As a result, the combined ratio was down 6.6 points to 98.3%. Adjusted earnings increased by €6 million to €13 million on a constant exchange rate basis, driven by higher underlying earnings, partly offset by lower net realized capital gains. Net income increased by €9 million to €16 million on a constant exchange rate basis, mainly driven by higher adjusted earnings. Half Year 2014 Financial Report 52 I ACTIVITY REPORT Property & Casualty Operations – Mediterranean & Latin American Region (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 3,733 72.3% 73.3% 948 25.5% 232 276 (80) 1 (13) 184 14 198 8 - (7) (11) 188 3,775 72.1% 73.6% 950 25.1% 202 250 (63) 1 (15) 173 15 188 13 (4) (10) (10) 176 7,391 72.7% 73.8% 1,901 25.5% 404 453 (150) 2 (24) 281 (9) 272 28 (4) (19) (31) 245 (a) Before intercompany eliminations. Note: (i) Italy, Spain, Portugal, Greece, Turkey, Mexico, Morocco, Gulf region and Colombia are fully consolidated; (ii) Lebanon is consolidated under the equity method and contributes only to the underlying earnings, adjusted earnings and net income; (iii) Colombia was fully consolidated since April 2, 2014. In the comments below, the comparable basis includes April to June 2013 results of Colombia. Gross revenues decreased by €43 million (-1%) to €3,733 million(1). On a comparable basis, gross revenues increased by €41 million (+1%) driven by high growth markets (+5% or €+91 million) principally in the Gulf region (€+75 million) and the newly consolidated entity in Colombia (€+35 million), partly offset by a decline in mature markets (-3% or €-51 million). Personal lines (56% of gross revenues) were down 2% to €2,095 million driven by Motor (-5% or €- 71 million) mainly reflecting a decline in Turkey (€-46 million) from increased market competition and change in mix towards lower average premium products and Italy (€-21 million) from average premium decrease, partly offset by Health (+10% or €+31 million) predominantly from high growth markets (€+23 million) driven by tariff increase in Mexico (€+13 million); Commercial lines (43% of gross revenues) were up 5% to €1,628 million driven by Health (+22% or €+66 million) especially in the Gulf Region (€+55 million) mainly driven by a favorable renewal timing effect and increase in renewals and Mexico (€+12 million) from tariff increase; Other lines (1% of gross revenues) were up 13% to €37 million. Net technical result result decreased by €2 million (-0%) to €948 million. On a constant exchange rate basis, net technical result increased by €40 million (+4%) driven by both mature markets (€+28 million) and high growth markets (€+13 million). The current accident year loss ratio increased by 0.3 point to 72.3%, including a higher Nat Cat charge (+0.3 point). Excluding Nat Cat charge, loss ratio in high growth markets improved by 0.4 point while it remained stable in mature makets. Improvement in high growth markets was mainly driven by (1) €3,698 million after intercompany eliminations. Half Year 2014 Financial Report 53 I ACTIVITY REPORT lower large losses and further optimization of reinsurance partly offset by adverse claims experience in motor in Turkey and higher average costs in health in Mexico. Mature markets were stable driven by lower large losses, partly offset by an increase of average costs and an unfavorable product mix change in motor in Spain; The all accident year loss ratio was stable at 73.3% on a constant exchange basis with less unfavorable prior year reserves developments (€+7 million) mainly driven by Spain (€+42 million) in motor, partly offset by Turkey (€-36 million) due to reserve strengthening reflecting an increase in both frequency and average costs of legal claims in Motor. Expense ratio increased by 0.3 point to 25.5% due to administrative expenses (+0.3 point). Mature markets deteriorated by 0.9 point due to a negative volume effect and higher IT and relocation costs in Italy. High growth markets improved by 0.1 point driven by a positive volume effect. Enlarged expense ratio deteriorated by 0.4 point to 28.4%. As a result, the combined ratio was up 0.3 point to 98.8%. Net investment result increased by €31 million (+15%) to €232 million. On a constant exchange rate basis, net investment result increased by €46 million (+23%) mainly driven by Turkey (€+30 million) as a result of both higher interest rates and average asset base. Income tax expenses increased by €17 million (+27%) to €-80 million. On a constant exchange rate basis, income tax expenses increased by €19 million (+30%) due to both higher pre-tax underlying earnings and an increase in the effective tax rate reflecting unfavorable evolution of tax one-offs (€-3 million negative tax one- off in Half Year 2014 and €+14 million positive tax one-off in Half Year 2013). Underlying earnings increased by €11 million (+6%) to €184 million. On a constant exchange rate basis, underlying earnings increased by €18 million (+10%). Adjusted earnings increased by €10 million (+6%) to €198 million. On a constant exchange rate basis, adjusted earnings increased by €17 million (+9%) driven by underlying earnings increase. Net income increased by €12 million (+7%) to €188 million. On a constant exchange rate basis, net income increased by €18 million (+10%) mainly driven by the non-repeat of an exceptional charge to close a litigation, partly offset by a negative impact from investments in foreign currencies. Half Year 2014 Financial Report 54 I ACTIVITY REPORT Property & Casualty Operations – Direct business (in Euro million) HY 2014 HY 2013 restated (a) FY 2013 restated (a) Gross revenues (b) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 1,202 77.4% 76.5% 265 22.3% 55 68 (18) 4 (0) 53 4 57 2 (0) (1) (1) 56 1,138 77.5% 77.1% 246 22.4% 49 54 (16) 3 (0) 41 (1) 41 1 - (1) (1) 39 2,247 77.1% 77.2% 497 22.3% 100 112 (35) 8 (0) 85 3 88 7 (2) (4) (4) 84 (a) Restated means comparative information related to previous periods was retrospectively restated for the application of IFRS10 and 11. (b) Before intercompany transactions Direct business includes operations in France (23% of total Direct gross revenues), the UK (22%), South Korea (20%), Japan (14%), Spain (7%), Italy (5%), Belgium (5%), Poland (3%) and Portugal (1%). Gross revenues increased by €64 million (+6%) to €1,202 million(1). On a comparable basis, gross revenues increased by €79 million (+7%): Personal Motor (86% of gross revenues) was up €65 million (+7%) to €1,036 million mainly driven by improved retention in the UK (+9% or €+18 million) and South Korea (+9% or €+18 million) as well as new business growth in Japan (+8% or €+14 million) and France (+6% or €+12 million), partly offset by Spain (-12% or €-11 million) following tariff increases and selective underwriting to improve the profitability; Personal Non-Motor (14% of gross revenues) was up €14 million (+9%) to €170 million mainly supported by higher new business in Household in France and in Health in South Korea. Net technical result increased by €19 million (+8%) to €265 million. On a constant exchange rate basis net technical result increased by €22 million (+9%): The current accident year loss ratio decreased by 0.2 point to 77.4% as a result of continued underwriting improvement and lower frequency in Motor, partly offset by higher Nat Cat charge (+1.2 points) following unfavorable weather conditions in France and Belgium ; The all accident year loss ratio decreased by 0.6 point to 76.5% mainly as a result of the decrease in current accident year loss ratio and more favorable prior year reserve developments. Expense ratio decreased by 0.1 point to 22.3% mainly driven by higher volumes. Enlarged expense ratio was increased by 0.1 point to 28.0%. (1) €1,202 million after intercompany eliminations. Half Year 2014 Financial Report 55 I ACTIVITY REPORT As a result, the combined ratio was down by 0.7 point to 98.9%. Net investment result increased by €7 million (+14%) to €55 million. On a constant exchange rate basis, net investment result increased by €6 million (+12%) mainly driven by a higher average asset base and increased returns from fixed income assets. Income tax expenses increased by €3 million (+18%) to €-18 million. On a constant exchange rate basis, income tax expenses increased by €3 million (+19%) reflecting higher pre-tax underlying earnings. Underlying earnings increased by €12 million (+30%) to €53 million. On a constant exchange rate basis, underlying earnings increased by €12 million (+30%). Adjusted earnings increased by €16 million (+40%) to €57 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+40%) due to higher underlying earnings and net realized capital gains. Net income increased by €18 million (+46%) to €56 million. On a constant exchange rate basis, net income increased by €18 million (+46%) mainly due to higher adjusted earnings. Half Year 2014 Financial Report 56 I ACTIVITY REPORT Property & Casualty Operations - Asia (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share 449 67.8% 65.7% 135 27.9% 11 36 (7) 10 (4) 35 1 36 (0) - (3) (4) 30 444 68.3% 65.7% 135 27.5% 9 36 (6) 5 (3) 31 (1) 30 0 - (6) (10) 14 822 68.0% 66.0% 270 27.0% 19 75 (13) 7 (10) 58 (3) 55 0 - (12) (30) 13 (a) Before intercompany eliminations. Note: Asia Property & Casualty scope (i) for gross revenues and combined ratio: Hong Kong, Malaysia and Singapore, on a 100% share basis; (ii) for underlying earnings, adjusted earnings and net income: China, India, Hong Kong, Malaysia, Singapore and Thailand, on a group share basis. Indonesia operations are not consolidated. China, India and Thailand are consolidated through equity method. China was consolidated for the first time in Half Year 2014 as of February 20th, 2014. In the comments below, the comparable basis includes the restated 4-month (March-June) results in 2013 for China. Gross revenues increased by €6 million (+1%) to €449 million(1). On a comparable basis, gross revenues increased by €36 million(2) (+8%): Personal lines (45% of the gross revenues) were up €10 million (+5%) to €203 million driven by (i) Motor (€+8 million) as a result of positive new inflows notably reflecting an increase in private car sales in Malaysia and by (ii) Non Motor (€+2 million) with a growth in Health business in Hong Kong; Commercial lines (55% of the gross revenues) were up €20 million (+8%) to €246 million mainly driven by (i) Health (€+7 million) from volume increases in Singapore and Malaysia, (ii) Property (€+6 million) mainly driven by higher business volume in Singapore, Hong Kong and Malaysia, (iii) Motor (€+5 million) mainly driven by Malaysia, and (iv) Workers Compensation (€+3 million) from price and volume increases in Hong Kong. Net technical result remained stable at €135 million. On a comparable basis, net technical result increased by €9 million (+6%): The current accident year loss ratio improved by 0.5 point to 67.8% mainly due to (i) Commercial Health (-2.0 points) driven by a favorable portfolio mix and improved reinsurance result in Malaysia, and tariff increases in Singapore, (ii) Commercial Property (-1.9 points) driven by lower attritional losses, (iii) Commercial Motor (-3.6 points) from lower attritional losses in Malaysia and Singapore, (1) €442 million after intercompany eliminations. (2) Including €5 million of fronting business not allocated to Personal and Commercial lines in 2013. Half Year 2014 Financial Report 57 I ACTIVITY REPORT partly offset by (iv) Personal Health (+3.5 points) driven by higher frequency and severity in Hong Kong as well as higher medical inflation in Singapore; The all accident year loss ratio improved by 0.1 point to 65.7% mainly due to the improvement of current accident year loss ratio, partly offset by lower positive prior year reserve developments. Expense ratio deteriorated by 0.4 point to 27.9%. On a comparable basis, expense ratio also deteriorated by 0.4 point mainly driven by higher acquisition expenses (+0.4 point) reflecting higher commissions in Singapore and non-commission expenses in Malaysia. Enlarged expense ratio deteriorated by 0.4 point to 30.8% on a comparable basis. As a result, the combined ratio deteriorated by 0.5 point to 93.6% on a comparable basis. Net investment result increased by €2 million to €11 million. On a comparable basis, the net investment result increased by €3 million mainly from higher yield on fixed income assets in Malaysia and change in asset mix in Singapore. Income tax expenses increased by €1 million to €-7 million. On a comparable basis, income tax expenses increased by €1 million due to higher pre-tax underlying earnings. Underlying earnings increased by €4 million to €35 million(1). On a comparable basis, underlying earnings increased by €2 million. Adjusted earnings increased by €6 million to €36 million. On a comparable basis, adjusted earnings increased by €4 million driven by higher underlying earnings and the non-repeat of 2013 net realized capital losses. Net income increased by €15 million to €30 million. On a comparable basis, net income increased by €13 million driven by the increase in adjusted earnings as well as lower integration costs in Hong Kong and Singapore, partly offset by €1 million integration costs related to AXA Tian Ping. (1) Including Thailand (Group share : 99.3%) and India (Group share: 26%) that were consolidated through equity method for the first time in 2013, and China (Group share : 50%) that was consolidated through equity method for the first time in 2014 as of February 20th. Half Year 2014 Financial Report 58 I ACTIVITY REPORT INTERNATIONAL INSURANCE SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AXA Corporate Solutions Assurance 1,379 1,341 2,099 AXA Global Life and AXA Global P&C 77 57 56 AXA Assistance 558 555 1,065 Other (a) 25 28 57 TOTAL 2,039 1,980 3,277 Intercompany transactions (73) (71) (134) Contribution to consolidated gross revenues 1,966 1,909 3,143 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA Corporate Solutions Assurance 86 72 149 AXA Global Life and AXA Global P&C 7 8 16 AXA Assistance 11 9 20 Other (a) 32 14 17 UNDERLYING EARNINGS 135 103 202 Net realized capital gains or losses attributable to shareholders 28 16 25 ADJUSTED EARNINGS 163 119 228 Profit or loss on financial assets (under Fair Value option) & derivatives 6 (11) (7) Exceptional operations (including discontinued operations) (0) (24) (32) Goodwill and related intangibles impacts Integration and restructuring costs (2) (1) (4) NET INCOME 166 83 184 (a) Including AXA Liabilities Managers and AXA Corporate Solutions Life Reinsurance Company. Half Year 2014 Financial Report 59 I ACTIVITY REPORT AXA Corporate Solutions Assurance (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues (a) Current accident year loss ratio (net) All accident year loss ratio (net) Net technical result before expenses Expense ratio Net investment result Underlying earnings before tax Income tax expenses / benefits Net income from investments in affiliates and associates Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (a) Before intercompany eliminations. 1,379 82.5% 81.1% 215 16.0% 95 128 (41) - (1) 86 26 112 6 - - - 118 1,341 82.4% 81.8% 210 15.3% 90 124 (50) - (1) 72 6 78 (9) - - - 69 2,099 85.5% 81.9% 381 15.8% 193 242 (91) - (2) 149 11 160 (11) - - - 150 Gross revenues increased by €38 million (+3%) to €1,379 million(1). On a comparable basis, gross revenues increased by €40 million (+3%) notably in Construction (+26%) from large corporate contracts, Motor (+6%) and Property (+2%) driven by portfolio developments and tariff increases. This growth was partly offset by a decrease in Aviation (-6%) mainly due to tariff decreases following favorable claims developments in recent years and in Liability (-2%) mainly due to cancellations in a soft market environment. Net technical result increased by €5 million (+2%) to €215 million. On a constant exchange rate basis, net technical result increased by €4 million (+2%). The current accident year loss ratio increased by 0.1 point to 82.5% driven by higher large losses in Property and Marine, partly offset by lower large losses in Construction; The all accident year loss ratio improved by 0.6 point to 81.1% mainly driven by higher positive prior reserve developments in Construction and Property. Expense ratio increased by 0.7 point to 16.0% due to a higher acquisition expense ratio resulting from higher commission rate resulting from a change in portfolio mix. Enlarged expense ratio deteriorated by 0.4 point to 19.8%. As a result, the combined ratio is stable at 97.1%. Net investment result increased by €4 million (+5%) to €95 million. On a constant exchange rate basis, net investment result increased by €4 million (+4%) mainly driven by higher dividends on equities. (1) €1,371 million after intercompany eliminations. Half Year 2014 Financial Report 60 I ACTIVITY REPORT Income tax expenses decreased by €10 million (-19%) to €-41 million. On a constant exchange rate basis, income tax expenses decreased by €10 million (-20%) mainly driven by lower taxes on prior year reserve developments. As a result, underlying earnings increased by €13 million (+19%) to €86 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+18%). Adjusted earnings increased by €34 million (+43%) to €112 million. On a constant exchange rate basis, adjusted earnings increased by €33 million (+42%) mainly driven by higher underlying earnings as well as higher net realized capital gains mainly on equities. Net income increased by €49 million (+71%) to €118 million. On a constant exchange rate basis, net income increased by €48 million (+70%) mainly driven by higher adjusted earnings and a positive foreign exchange impact. AXA Global Life and AXA Global P&C(1) Underlying earnings decreased by €1 million (-17%) to €7 million mainly due to lower brokerage income as a result of a decrease in premiums and commissions rate in AXA Global P&C, partly offset by a higher technical result on run off activities in AXA Global Life. Adjusted earnings decreased by €1 million (-16%) to €7 million mainly as a result of lower underlying earnings. Net income increased by €3 million (+42%) to €11 million mainly driven by a favorable change in fair value of Mutual funds and derivatives. AXA Assistance Gross revenues increased by €3 million (+1%) to €558 million. On a comparable basis, mainly adjusted for the internal transfer from AXA France of some service guarantees, the disposal of Cours Legendre and Domiserve, gross revenues increased by €32 million (+7%) mainly driven by strong developments in Travel, Ecommerce Business, Motor and Home activities combined with growth of the in-force base in Spain. Underlying earnings increased by €2 million (+19%) to €11 million mainly driven by strong growth of business and tight control of expenses in Europe. Adjusted earnings increased by €2 million (+22%) to €11 million mainly driven by higher underlying earnings. Net income increased by €22 million to €5 million primarily reflecting the non-repeat of 2013 exceptional capital losses following the disposal of French based companies. (1) Gathers both central teams from Life & Savings and Property & Casualty global business lines in addition to Group reinsurance operations. Half Year 2014 Financial Report 61 I ACTIVITY REPORT Other international activities Underlying earnings increased by €18 million to €32 million. On a constant exchange rate basis, underlying earnings increased by €18 million mainly driven by favorable developments on run-off portfolio. Adjusted earnings increased by €10 million to €34 million. On a constant exchange rate basis, adjusted earnings increased by €10 million driven by higher underlying earnings, partly offset by lower net realized capital gains in corporate debt instruments and on real estate restructuring. Net income increased by €9 million to €33 million. On a constant exchange rate basis, net income increased by €9 million driven by higher adjusted earnings. Half Year 2014 Financial Report 62 I ACTIVITY REPORT ASSET MANAGEMENT SEGMENT The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AllianceBernstein 1,069 1,087 2,177 AXA Investment Managers 707 828 1,638 TOTAL 1,776 1,915 3,815 Intercompany transactions (183) (174) (354) Contribution to consolidated gross revenues 1,593 1,741 3,461 Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AllianceBernstein 83 76 185 AXA Investment Managers 101 118 216 UNDERLYING EARNINGS 184 194 400 Net realized capital gains or losses attributable to shareholders (1) (1) ADJUSTED EARNINGS 184 194 399 Profit or loss on financial assets (under Fair Value option) & derivatives 7 8 13 Exceptional operations (including discontinued operations) (1) 0 180 Goodwill and related intangibles impacts Integration and restructuring costs (2) (6) (15) NET INCOME 188 196 577 Half Year 2014 Financial Report 63 I ACTIVITY REPORT AllianceBernstein (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues 1,069 1,087 2,177 Net investment result (2) (1) 2 Total revenues 1,067 1,086 2,179 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share Average exchange rate : 1.00 € = $ (857) 211 (54) (74) 83 0 83 (2) 0 0 (1) 80 1.371 (880) 205 (58) (71) 76 0 76 2 0 0 (2) 77 1.313 (1,719) 460 (114) (161) 185 0 185 1 0 0 (9) 176 1.327 Assets under Management ("AUM") increased by €25 billion from year-end 2013 to €371 billion at June 30, 2014 as a result of €18 billion market appreciation, net inflows of €3 billion (€2 billion net inflows from Institutional clients and €1 billion net inflows from Retail clients), change in scope of €2 billion and a €2 billion favorable foreign exchange rate impact. The positive change in scope related to an increase in AUM from the acquisition in June 2014 of CPH Capital Fondsmaeglerselskab A/S, a Danish global equity asset management firm. Gross revenues decreased by €18 million (-2%) to €1,069 million(1). On a comparable basis, gross revenues increased by €28 million (+3%) primarily due to higher investment management fees (+5%) resulting from a 4% increase in average AUM, higher Institutional Research Services fees up 8%, partly offset by distribution fees (-10%) due to outflows leading to lower average AUM in Retail mutual funds which charge these fees. Net investment result decreased by €1 million (-58%) to €-2 million. On a constant exchange rate basis, net investment result decreased by €1 million (-65%). General expenses decreased by €23 million (-3%) to €-857 million. On a constant exchange rate basis, general expenses increased by €14 million (+2%) due to higher compensation expenses resulting from increased revenues. The underlying cost income ratio improved by 0.4 point to 76.8%. Income tax expenses decreased by €4 million (-7%) to €-54 million. On a constant exchange rate basis, income tax expenses decreased by €2 million (-3%) due to a lower effective rate as a result of a favorable geographical mix of earnings. Underlying earnings and adjusted earnings increased by €7 million (+9%) to €83 million. On a constant exchange rate basis, underlying earnings increased by €10 million (+14%). (1) €1,029 million after intercompany eliminations. Half Year 2014 Financial Report 64 I ACTIVITY REPORT AXA ownership of AllianceBernstein at June 30, 2014 was 63.6%, compared to 63.7% at December 31, 2013. The slight decrease was mainly due to the exercise of options. Net income increased by €3 million (+4%) to €80 million. On a constant exchange rate basis, net income increased by €7 million (+9%) mainly due to the change in adjusted earnings. Half Year 2014 Financial Report 65 I ACTIVITY REPORT AXA Investment Managers (“AXA IM”) (in Euro million) HY 2014 HY 2013 FY 2013 Gross revenues 707 828 1,638 Net investment result (6) (9) (12) Total revenues 700 819 1,626 General expenses Underlying earnings before tax Income tax expenses / benefits Minority interests Underlying earnings Group share Net capital gains or losses attributable to shareholders net of income tax Adjusted earnings Group share Profit or loss on financial assets (under FV option) & derivatives Exceptional operations (including discontinued operations) Goodwill and other related intangibles impacts Integration and restructuring costs Net income Group share (543) 158 (52) (5) 101 0 101 10 (1) 0 (1) 108 (631) 188 (65) (6) 118 (1) 117 6 0 0 (4) 120 (1,281) 345 (119) (11) 216 (1) 214 12 180 0 (6) 401 In order to provide a consistent analysis following the sale of AXA Private Equity (“AXA PE”) on September 30, 2013, commentaries are based on restated figures with all P&L aggregates from revenues to net income excluding AXA PE contribution in 2013. AXA PE underlying earnings amounted to €26 million in the first half of 2013. Comparable basis in the commentaries below refers to AXA PE exclusion in first half of 2013, constant foreign exchange rate restatement, distribution fees netting and fund expenses denetting. Assets under Management ("AUM") increased by €35 billion from year-end 2013 to €582 billion at the end of June 2014, mainly as a result of €26 billion combined market and foreign exchange rate impact and €11 billion net inflows. Net inflows of €11 billion in the first half of 2014 were driven by inflows both on (i) Main Fund (€+5 billion) mainly from Real Estate, and (ii) Third party (€+6 billion) mainly from Asian Joint Ventures and Fixed Income. Gross revenues decreased by €121 million (-15%) to €707 million(1). On a comparable basis, net revenues increased by €27 million (+5%) to €541 million, mainly driven by higher management fees (€+26 million or +6%) as a result of 3% increase in average assets and +0.5bp management fee, owing to a better product and client mix. Net investment result increased by €3 million (+31%) to €-6 million. On a comparable basis, net investment result was stable. General expenses decreased by €88 million (-14%) to €-543 million. On a comparable basis, general expenses increased by €20 million (+6%) mainly due to the non-recurrence of a €6 million net insurance receivable in 2013 and a non-recurring provision for risk of €11 million in 2014. (1) €563 million after intercompany eliminations. Half Year 2014 Financial Report 66 I ACTIVITY REPORT The underlying cost income ratio increased by 0.8 point to 70.5%. Excluding the above mentioned non- recurring expenses impacts in 2013 and 2014, and on a comparable basis, the underlying cost income ratio improved by 2.5 points. Income tax expenses decreased by €13 million (-20%) to €-52 million. On a comparable basis, income tax expenses decreased by €4 million (-7%) due to a more favorable country mix, partly offset by higher taxable results. Underlying earnings decreased by €17 million (-14%) to €101 million. On a comparable basis, underlying earnings increased by €8 million (+9%). Adjusted earnings decreased by €16 million (-14%) to €101 million. On a comparable basis, adjusted earnings increased by €8 million (+9%) in line with underlying earnings increase. Net income decreased by €12 million (-10%) to €108 million. On a comparable basis, net income increased by €15 million (+16%) driven by adjusted earnings increase, as well as a more favorable mark-to-market of fixed income funds. Half Year 2014 Financial Report 67 I ACTIVITY REPORT BANKING The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking activities for the periods indicated: Consolidated Gross Revenues (in Euro million) HY 2014 HY 2013 FY 2013 AXA Banks (a) 274 287 507 Belgium (b) 197 189 316 France 50 66 131 Hungary 16 19 37 Germany 11 11 22 Other (c) 3 2 Other 2 2 6 TOTAL 276 290 513 Intercompany transactions 12 4 11 Contribution to consolidated gross revenues 287 293 524 (a) Of which AXA Bank Europe and its branches: €213 million. (b) Includes commercial activities in Belgium and shared services of AXA Bank Europe (treasury and support functions). (c) Includes Slovakia and Czech Republic. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA Banks (a) 70 62 80 Belgium (b) 65 63 80 France 2 0 1 Hungary Germany 3 2 5 Other (c) (3) (6) Other (2) (2) (2) UNDERLYING EARNINGS 68 61 78 Net realized capital gains or losses attributable to shareholders (1) 0 1 ADJUSTED EARNINGS 67 61 79 Profit or loss on financial assets (under Fair Value option) & derivatives (14) (13) (35) Exceptional operations (including discontinued operations) (33) (27) (37) Goodwill and related intangibles impacts Integration and restructuring costs (1) (1) (15) NET INCOME 19 20 (8) (a) of which AXA Bank Europe and its branches would amount to €65 million for half year 2014 and €60 million for half year 2013. (b) Includes commercial activities in Belgium for €47 million and shared services of AXA Bank Europe (treasury and support functions) for €18 million. (c) Includes Slovakia and Czech Republic. Half Year 2014 Financial Report 68 I ACTIVITY REPORT Belgium Net banking revenues increased by €8 million (+4%) to €197 million. Operating net banking revenues(1) were stable, as commercial margin increase (€+11 million) was offset by reduced reinvestment revenues due to lower credit spreads (€-11 million). Underlying earnings increased by €3 million (+4%) to €65 million due to lower provisions for loan losses (€+7 million) and lower distribution commissions (€+2 million), partly offset by a regulatory increase of levy rate on retail savings (€-6 million). Adjusted earnings increased by €2 million (+3%) to €66 million due to the increase of underlying earnings. Net income increased by €12 million (+25%) to €58 million. Positive evolution of adjusted earnings (€+2 million) and fair value of own debt (€+24 million), was partly offset by change in fair value of interest rate derivatives (€-16 million). Excluding charges paid by the foreign branches to the Belgian Head Office, net income of Belgian activities stood at €51 million, including realized capital gains and changes in fair values of €46 million. France Net banking revenues decreased by €16 million (-24%) to €50 million. Operating net banking revenues(1) increased by €2 million to €64 million, mainly due to higher interest income on retail loans primarily mortgages, as a consequence of increasing in-force business following the strong level of new credit production during the last two years, partly mitigated by higher commissions paid on new refinancing operations. Underlying earnings increased by €2 million to €2 million, following the rise in operating net banking revenues, while administrative expenses and cost of risks were globally stable. Adjusted earnings increased by €1 million to €1 million. Net income decreased by €9 million to €-7 million, as a result of the unfavorable impact from the decrease in interest rates on hedging instruments not eligible to hedge-accounting, partly offset by the increase in adjusted earnings. Hungary Based on the Hungarian Supreme court decision on June 16th, the Hungarian government enacted a legislation in July 2014 to retroactively correct bid-ask spread applied to retail forex loans and to abolish intransparant unilateral changes to interest rates and fees applied by the banks. As a result, a provision of €-18 million was set up to face the potential costs. Net income were decreased by €17 million at €-33 million. (1) Before intercompany eliminations and before realized capital gains/losses or changes in fair value of fair value option assets and of hedging instruments. Half Year 2014 Financial Report 69 I ACTIVITY REPORT Germany Net banking revenues remained stable at €11 million. Underlying earnings were stable at €3 million. Adjusted earnings and net income were stable at €3 million. Half Year 2014 Financial Report 70 I ACTIVITY REPORT HOLDINGS AND OTHER COMPANIES The Holdings and other companies consist of AXA’s non-operating companies, including mainly the AXA parent company, AXA France Assurance, AXA Financial, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding, CDOs and real estate companies. Underlying, Adjusted earnings and Net Income (in Euro million) HY 2014 HY 2013 FY 2013 AXA (360) (283) (589) Other French holding companies (26) (28) (31) Foreign holding companies (101) (130) (232) Other 0 1 2 UNDERLYING EARNINGS (486) (441) (851) Net realized capital gains or losses attributable to shareholders (6) (28) (31) ADJUSTED EARNINGS (493) (469) (882) Profit or loss on financial assets (under Fair Value option) & derivatives (21) 23 (64) Exceptional operations (including discontinued operations) (39) (10) (22) Goodwill and related intangibles impacts 0 0 0 Integration and restructuring costs (5) (7) (0) NET INCOME (558) (464) (969) AXA SA(1) Underlying earnings decreased by €79 million to €-360 million mainly due to: increased general expenses (€-37 million) in order to support advertising campaigns across the Group and invest in our digital capabilities; lower dividends received from non-consolidated entities (€-17 million); an increase in the French tax of 3% on dividends (€-13 million) due to a higher dividend paid. Adjusted earnings decreased by €86 million to €-371 million mainly driven by underlying earnings evolution. Net income decreased by €186 million to €-407 million. Excluding profits linked to the sale of the Group’s Canadian operations in respect of the deferred contingent consideration (nil in 2014 vs. €+8 million in 2013), net income decreased by €178 million mainly driven by: €-82 million mainly from a change in fair value of interest rate and foreign exchange economic derivatives not eligible for hedge accounting under IAS 39; €-86 million from adjusted earnings evolution. Other French holding companies AXA FRANCE ASSURANCE Underlying earnings increased by € 3 million (+15%) to €-20 million mainly due to dividends received from a non-consolidated entity (€+2 million) and lower taxes (€+1 million) resulting from a decrease in intercompany dividends. (1) All the figures are after tax. Half Year 2014 Financial Report 71 I ACTIVITY REPORT Adjusted earnings and net income increased by €3 million (+15%) to €-20 million in line with the increase in underlying earnings. OTHER FRENCH HOLDINGS Underlying earnings and adjusted earnings were stable at €-6 million. Net income increased by €8 million to €-19 million mainly due to a decrease in costs linked to the restructuring of the participation in Bharti AXA General Insurance. Foreign Holding Companies AXA FINANCIAL INC. Underlying earnings increased by €9 million (+11%) to €-69 million. On a constant exchange rate basis, underlying earnings increased by €6 million (+7%) mainly reflecting the impact of lower share-based compensation expenses. Adjusted earnings increased by €9 million (+11%) to €-69 million. On a constant exchange rate basis, adjusted earnings increased by €6 million (+7%), in line with underlying earnings evolution. Net income increased by €22 million (+22%) to €-78 million. On a constant exchange rate basis, net income increased by €19 million (+19%) reflecting the adjusted earnings evolution and a less unfavorable change in fair value of cross currency swaps. AXA UK HOLDINGS Underlying earnings increased by €6 million (+59%) to €-4 million. On a constant exchange rate basis, underlying earnings increased by €6 million mainly due to lower financing costs (€+3 million) and lower pension costs reflecting the reduction in pension deficit (€+5 million), partly offset by a reduction in investment income (€-3 million). Adjusted earnings increased by €11 million (+99%) to €0 million. On a constant exchange rate basis, adjusted earnings increased by €11 million (+99%) due to the increase in underlying earnings and realized capital gains. Net Income increased by €24 million (+118%) to €4 million. On a constant exchange rate basis, net income increased by €24 million (+117%) mainly driven by the improvement in adjusted earnings, a favorable change in the fair value of derivatives (€+7 million) due to foreign exchange and interest rate movements and non- repeat of 2013 restructuring costs (€+5 million). GERMAN HOLDING COMPANIES Underlying earnings increased by €3 million (+40%) to €-5 million mainly due to a higher investment result. Adjusted earnings increased by €28 million (+86%) to €-4 million mainly due to the non-repeat of impairment charges on real estate in the first half 2013. Net income increased by €31 million (+79%) to €-8 million mainly driven by adjusted earnings evolution. Half Year 2014 Financial Report 72 I ACTIVITY REPORT BELGIAN HOLDING COMPANY Underlying earnings increased by €1 million (+20%) to €-5 million. Adjusted earnings increased by €1 million (+11%) to €-5 million. Net income increased by €1 million (+12%) to €-4 million. MEDITERRANEAN AND LATIN AMERICAN REGION HOLDINGS Underlying earnings and adjusted earnings increased by €6 million (+22%) to €-19 million. On a constant exchange rate basis, underlying earnings increased by €6 million (+22%) mainly due by a higher investment income from interest rate hedging derivatives. Net income decreased by €2 million (-8%) to €-24 million. On a constant exchange rate basis, net income decreased by €2 million (-8%) mainly driven by adjusted earnings more than offset by change in fair value of hedging derivatives. Half Year 2014 Financial Report 73 I ACTIVITY REPORT OUTLOOK In a context of a challenging economic environment and low interest rates, AXA continues to successfully execute on its Ambition AXA plan. AXA is confident about the growth momentum for the year 2014 during which Life & Savings new business volumes and Property & Casualty revenues are expected to increase. The Asset Management business should continue to benefit from a good momentum driven by a favorable investment performance and a strong distribution footprint, whilst remaining sensitive to the evolution of financial markets. Ambition AXA is an important milestone of our long-term journey towards becoming a customer-centric organization, and thus further digital oriented. AXA will also focus on the more profitable market segments and faster growing geographies as well as on delivering the planned efficiency measures. This should enable to create lasting shareholder value and offer an attractive return. Half Year 2014 Financial Report 74 I ACTIVITY REPORT GLOSSARY The split between high growth market and mature market is detailed below: The notion of High Growth market includes the following countries: Central & Eastern countries (Poland, Czech Republic, Slovakia, Ukraine, Russia), Hong Kong, South-East Asia (Singapore, Indonesia, Thailand, Philippines, Malaysia), India, China, and the Mediterranean and Latin American Region (Morocco, Turkey, Gulf, Mexico, Lebanon, Colombia), excluding Direct operations. The notion of Mature Market includes the following countries: the United States, the United Kingdom, Benelux, Germany, Switzerland, Japan, Italy, Spain, Portugal, Greece and France. COMPARABLE BASIS FOR REVENUES AND ANNUALIZED PREMIUMS EQUIVALENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). ADJUSTED EARNINGS Adjusted earnings represent the net income (Group share) before the impact of: Exceptional operations (primarily change in scope and discontinued operations) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans Goodwill and other related intangibles, and Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets. Derivatives related to invested assets: Include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings, Exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy, And also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, for which cost at inception, intrinsic value and pay-off flow through adjusted earnings, and only time value flows through net income when there is no intention to sell the derivatives in the short term (if not, flows through adjusted earnings). Underlying earnings Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: Realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), Cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, Related impact on policyholder participation (Life & Savings business), Half Year 2014 Financial Report 75 I ACTIVITY REPORT DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any. Earnings per share Earnings per share (EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares. Diluted earnings per share (diluted EPS) represent AXA's consolidated earnings (including interest charges related to undated debts recorded through shareholders’ equity), divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares, provided that their impact is not anti-dilutive). Return On Equity (“ROE”) The calculation is prepared with the following principles: For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ / “Undated equity including undated subordinated debt (“Super Subordinated Debts” TSS Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI. For adjusted and underlying ROE: o All undated subordinated debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity Interest charges on TSS / TSDI are deducted from earnings o o OCI is excluded from the average shareholders’ equity. Life & Savings Margin Analysis Life & Savings margin analysis is presented on an underlying basis. Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with IFRS. As a result, the operating income under the Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the Statement of Income and the components of Margin Analysis as set out below. For insurance contracts and investment contracts with Discretionary Participation Features (DPF): o Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”. o Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. o The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”. o Change in URR (Unearned Revenues Reserves – capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. For investment contracts without DPF: o Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”. Half Year 2014 Financial Report 76 I ACTIVITY REPORT o Change in UFR (Unearned Fees Reserves - capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues & fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis. Underlying Investment margin includes the following items: Net investment income Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income. Underlying Fees & Revenues include: Revenues derived from mutual fund sales (which are part of consolidated revenues), Loadings charged to policyholders on premiums / deposits and fees on funds under management for separate account (Unit-Linked) business, Loadings on (or contractual charges included in) premiums / deposits received on all general account product lines, Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve), Other fee revenues, e.g., fees received on financial planning or sales of third party products. Underlying Net Technical margin includes the following components: Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves, Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination, GMxB (Variable Annuity guarantees) active financial risk management is the net result from GMxB lines corresponding to explicit charges related to these types of guarantees less cost of hedge. It also includes the unhedged business result, Policyholder bonuses if the policyholder participates in the risk margin, Ceded reinsurance result, Other changes in insurance reserves are all the reserves strengthening or release coming from changes in valuation assumptions, additional reserves for mortality risk and other technical impacts such as premium deficiency net of derivative if any. Underlying Expenses are: Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, Administrative expenses, Claims handling costs, Policyholder bonuses if the policyholder participates in the expenses of the company. Underlying VBI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by "underlying" operating margin, where "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues, and (iii) Underlying Net technical Margin (all items defined above). Half Year 2014 Financial Report 77 I ACTIVITY REPORT Property & Casualty (including AXA Corporate Solutions Assurance) Underlying net investment result includes the net investment income less the recurring interests credited to insurance annuity reserves Underlying net technical result is the sum of the following components: Earned premiums, gross of reinsurance, Claims charges, gross of reinsurance, Change in claims reserves, including claims handling costs reserves, gross of reinsurance, excluding the recurring interests credited to insurance annuity reserves, Claims handling costs, Net result of ceded reinsurance. Current accident year loss ratio net of reinsurance is the ratio of: current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year, excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. All accident year loss ratio net of reinsurance is the ratio of: all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to Earned revenues, gross of reinsurance. Underlying expense ratio is the ratio of: Underlying expenses (excluding claims handling costs), to Earned revenues, gross of reinsurance. Underlying expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio). Underlying expenses exclude customer intangible amortization and integration costs related to material newly acquired companies. The enlarged expense ratio is the sum of the expense ratio and claims handling cost ratio. The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio. Asset Management Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation. Underlying Cost Income Ratio: (general expenses net of distribution revenues) / (gross revenues excluding distribution revenues). Assets Under Management (AUM) are defined as the assets whose management has been delegated by their owner to an asset management company such as AXA Investment Managers and AllianceBernstein. AUM only includes funds and mandates which generate fees and exclude double counting. Half Year 2014 Financial Report 78 I ACTIVITY REPORT Banking Net New Money is a banking volume indicator. It represents the net cash flows of customers’ balances in the bank, with cash inflows (collected money) and cash outflows (exiting money). It includes market effect and capitalized interests over the period. Net operating revenues are disclosed before intercompany eliminations and before realized capital gains/losses or changes in fair value of « fair-value-P&L » assets and of hedging instruments. Half Year 2014 Financial Report 79 I CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II Consolidated financial statements / Half Year 2014 Half -Year 2014 Financial Report 80 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................................................... 82 II.2 CONSOLIDATED STATEMENT OF INCOME ........................................................................................... 84 II.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .......................................................... 85 II.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .................................................................... 86 II.5 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................. 88 NOTE 1 Accounting principles ........................................................................................................................... 90 1.1 General information ............................................................................................................................ 90 1.2 General accounting principles ............................................................................................................ 90 NOTE 2 Scope of consolidation ........................................................................................................................ 93 2.1 Consolidated companies..................................................................................................................... 93 2.2 Consolidated entities relating to specific operations ........................................................................... 96 NOTE 3 Consolidated statement of income by segment .................................................................................. 97 3.1 Consolidated statement of income by segment .................................................................................. 98 NOTE 4 Transactions in consolidated entities ................................................................................................ 100 4.1 TIAN PING insurance ....................................................................................................................... 100 4.2 COLPATRIA's insurance operations in Colombia ............................................................................ 100 4.3 Hungarian Life & Savings Insurance operations .............................................................................. 100 4.4 MONY Portfolio transaction .............................................................................................................. 100 NOTE 5 Investments ....................................................................................................................................... 102 5.1 Breakdown of investments ................................................................................................................ 102 5.2 Investment in real estate properties .................................................................................................. 103 5.3 Unrealized gains and losses on financial investments ..................................................................... 104 5.4 Financial assets subject to impairment ............................................................................................. 105 5.5 Investments recognized at fair value ................................................................................................ 106 NOTE 6 Shareholders’ equity and minority interests ...................................................................................... 108 6.1 Impact of transactions with shareholders ......................................................................................... 108 6.2 Comprehensive income for the period .............................................................................................. 110 6.3 Change in minority interests ............................................................................................................. 113 NOTE 7 Financing debt ................................................................................................................................... 114 NOTE 8 Net income per ordinary share .......................................................................................................... 115 Half -Year 2014 Financial Report 81 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in Euro million) Notes June 30, 2014 December 31, 2013 Restated (a) (b) January 1, 2013 Restated (a) (b) Goodwill 15,263 14,819 15,754 Value of purchased business in force (c) 2,317 2,382 2,685 Deferred acquisition costs and equivalent 19,925 19,345 19,042 Other intangible assets 3,098 3,159 3,349 Intangible assets 40,603 39,705 40,830 Investments in real estate properties 18,014 17,479 17,019 Financial investments 451,086 426,310 441,573 Assets backing contracts where the financial risk is borne by policyholders (d) 166,556 162,186 147,162 5 Investments from insurance activities 635,656 605,976 605,754 5 Investments from banking and other activities 36,743 35,790 33,298 Investments accounted for using the equity method 1,929 1,428 1,347 Reinsurers' share in insurance and investment contracts liabilities 18,054 17,808 10,620 Tangible assets 1,277 1,259 1,457 Deferred policyholders' participation assets 4 Deferred tax assets 1,683 2,240 3,054 Other assets 2,959 3,499 4,516 Receivables arising from direct insurance and inward reinsurance operations 15,518 14,096 14,926 Receivables arising from outward reinsurance operations 971 710 745 Receivables - current tax 1,885 1,885 1,855 Other receivables 13,830 12,926 15,315 Receivables 32,204 29,617 32,841 Assets held for sale including discountinued operations 183 164 181 Cash and cash equivalents 21,756 21,455 30,375 TOTAL ASSETS 790,088 755,441 759,762 All invested assets are shown net of related derivative instruments impact. (a) Before 2013, AXA Japan closed its full year accounts at September 30. Given significant movements in foreign exchange rates between September 30, 2012 and December 31, 2012, opening balance sheet items at January 1, 2013 were translated using December 31, 2012 exchange rates. Starting with 2013 annual accounts, AXA Life Japan aligned its closing date with the Group calendar year. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (c) Amounts are gross of tax. (d) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. Half -Year 2014 Financial Report 82 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 (in Euro million) Notes June 30, 2014 December 31, 2013 Restated (a) (b) Share capital and capital in excess of nominal value 26,239 26,199 Reserves and translation reserve 29,657 22,242 Net consolidated income - Group share (c) 3,008 4,482 Shareholders’ equity – Group share 58,903 52,923 Minority interests 2,597 2,520 6 TOTAL SHAREHOLDERS' EQUITY 61,500 55,444 Subordinated debt 6,814 7,986 Financing debt instruments issued 1,553 1,568 Financing debt owed to credit institutions 841 853 7 Financing debt 9,208 10,407 Liabilities arising from insurance contracts 361,557 348,334 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (d) 129,900 125,593 Total liabilities arising from insurance contracts 491,457 473,928 Liabilities arising from investment contracts with discretionary participating features 34,041 33,850 Liabilities arising from investment contracts with no discretionary participating features 97 99 Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,946 4,243 Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 33,093 32,682 Total liabilities arising from investment contracts 71,177 70,874 Unearned revenue and unearned fee reserves 3,039 2,999 Liabilities arising from policyholders' participation 36,205 26,271 Derivative instruments relating to insurance and investment contracts (1,639) (1,086) LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 600,238 572,985 Liabilities arising from banking activities (e) 36,297 35,375 Provisions for risks and charges 11,026 10,393 Deferred tax liabilities 5,394 4,223 Minority interests of consolidated investment funds and puttable instruments held by minority interest holders 8,381 7,795 Other debt instruments issued, notes and bank overdrafts (e) 2,848 2,550 Payables arising from direct insurance and inward reinsurance operations 6,717 8,305 Payables arising from outward reinsurance operations 12,297 12,225 Payables – current tax 1,108 968 Collateral debts relating to investments under a lending agreement or equivalent 20,328 20,909 Other payables 14,745 13,862 Payables 66,424 66,615 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 790,088 755,441 (a) Before 2013, AXA Japan closed its full year accounts at September 30. Given significant movements in foreign exchange rates between September 30, 2012 and December 31, 2012, opening balance sheet items at January 1, 2013 were translated using December 31, 2012 exchange rates. Starting with 2013 annual accounts, AXA Life Japan aligned its closing date with the Group calendar year. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (c) AXA Life Japan aligned its closing date with the Group calendar year starting with 2013 annual accounts. Therefore, its contribution to the AXA consolidated result for the 2013 annual accounts exceptionally covered a period of fifteen months. (d) Includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (e) Amounts are shown net of related derivative instruments impact. Half -Year 2014 Financial Report 83 January 1, 2013 Restated (a) (b) 25,549 28,058 n/a 53,606 2,371 55,977 7,317 2,514 831 10,662 362,292 113,921 476,213 36,350 251 4,080 29,983 70,664 2,897 31,357 (2,053) 579,079 33,495 11,951 5,170 4,005 3,123 8,937 5,350 1,170 24,397 16,446 63,428 759,762 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.2 CONSOLIDATED STATEMENT OF INCOME (in Euro million, except EPS in Euro) Notes June 30, 2014 June 30, 2013 Restated (a) Gross written premiums 46,944 47,154 Fees and charges relating to investment contracts with no participating features 159 133 Revenues from insurance activities 47,103 47,287 Net revenues from banking activities 286 291 Revenues from other activities 2,316 2,451 Revenues (b) 49,705 50,030 Change in unearned premiums net of unearned revenues and fees (4,269) (3,820) Net investment income (c) 7,600 5,949 Net realized gains and losses relating to investments at cost and at fair value through shareholders' equity (d) 1,107 1,405 Net realized gains and losses and change in fair value of investments at fair value through profit and loss (e) 6,884 6,500 of which change in fair value of assets with financial risk borne by policyholders (f) 5,613 8,070 Change in investments impairment (g) (221) (390) Net investment result excluding financing expenses 15,370 13,464 Technical charges relating to insurance activities (f) (46,639) (45,261) Net result from outward reinsurance (363) (935) Bank operating expenses (50) (67) Acquisition costs (4,606) (4,626) Amortization of the value of purchased business in force (58) (59) Administrative expenses (4,472) (4,768) Change in goodwill impairment and other intangible assets impairment (69) (46) Other income and expenses (114) (109) Other operating income and expenses (56,371) (55,872) Income from operating activities before tax 4,435 3,801 Income from investment accounted for using the equity method 99 65 Financing debts expenses (h) (365) (348) Net income from operating activities before tax 4,169 3,518 Income tax (1,010) (897) Net operating income 3,159 2,621 Net consolidated income after tax 3,159 2,621 Split between : Net consolidated income - Group share 3,008 2,467 Net consolidated income - Minority interests 151 154 8 Earnings per share 1.18 0.98 8 Fully diluted earnings per share 1.18 0.97 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Gross of reinsurance. (c) Net of investment management costs and including gains/losses from derivatives hedging variable annuities. (d) Includes impairment releases on investments sold. (e) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders' equity. (f) Change in fair value of assets with financial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities. (g) Excludes impairment releases on investments sold. (h) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). Half -Year 2014 Financial Report 84 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in Euro million) June 30, 2014 June 30, 2013 Reserves relating to changes in fair value through shareholders' equity 4,047 Translation reserves 546 Items that may be reclassified subsequently to Profit or Loss 4,593 Employee benefits actuarial gains and losses (455) Items that will not be reclassified subsequently to Profit or Loss (455) Net gains and losses recognized directly through shareholders' equity 4,138 Net consolidated income 3,159 Split between: Net consolidated income - Group share 3,008 Net consolidated income - Minority interests 151 TOTAL COMPREHENSIVE INCOME (CI) 7,297 Split between: Total comprehensive income - Group share 7,033 Total comprehensive income - Minority interests 263 Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Half -Year 2014 Financial Report 85 (2,526) (1,000) (3,526) 325 325 (3,201) 2,621 2,467 154 (580) (731) 151 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders Share Capital Other reserves (in Euro million, except for number of shares and nominal value) Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Restated (a) Shareholders 'equity opening January 1, 2014 2,417,865 2.29 5,537 21,170 (188) 8,488 162 5,418 (4,973) 17,310 52,923 2,521 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,855 - - - - - - - - 2.29 - - - - - - - - 9 - - - - - - - - 31 15 - - - - - - - - 28 - - - - - - - - - - - - - - - - - - - - - - - - (44) - 962 (148) - - - - - - - - - - - - - - - - 53 9 31 15 28 (44) - 962 (148) 53 - - - - - - - (187) Dividends paid (1,960) (1,960) Impact of transactions with shareholders 3,855 2.29 9 46 28 770 (1,906) (1,053) (187) Reserves relating to changes in fair value through shareholders' equity Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - 3,943 - - 3,943 8 - - 8 132 - - 132 398 - - 398 (455) 3,008 2,553 3,950 530 (455) 3,008 7,033 97 16 (0) 151 263 Shareholders' equity closing June 30, 2014 2,421,720 2.29 5,546 21,216 (160) 12,430 170 6,320 (4,575) 17,957 58,903 2,597 NB : amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.1.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half -Year 2014 Financial Report 86 II CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 Attributable to shareholders Share Capital Other reserves (in Euro million, except for number of shares and nominal value) Number of shares (in thousands) Nominal value (in Euros) Share Capital Capital in excess of nominal value Treasury shares Reserves relating to the change in fair value of financial instruments available for sale Reserves relating to the change in fair value of hedge accounting derivatives (cash flow hedge) Other (b) Translation reserves Undistributed profits and other reserves Shareholders' Equity Group share Minority interests Restated (a) Shareholders 'equity opening January 1, 2013 2,388,611 2.29 5,470 20,749 (364) 10,887 134 5,735 (2,889) 13,885 53,606 2,371 Capital Capital in excess of nominal value Equity - share based compensation Treasury shares Others reserves - transaction on treasury shares Equity component of compound financial instruments Undated subordinated debt Financial expenses - Undated subordinated debt Others (including impact on change in scope) (c) 3,254 - - - - - - - - 2.29 - - - - - - - - 7 - - - - - - - - 28 23 - - - - - - - - 165 - - - - - - - - - - - - (0) - - - - - - - - - - - (19) - 252 (144) - - - - - - - - (0) - - - - - - - (1) 7 28 23 165 (19) - 252 (144) (1) - - - - - - - (71) Dividends paid (1,720) (1,720) Impact of transactions with shareholders 3,254 2.29 7 51 165 (0) 90 (0) (1,721) (1,408) (71) Reserves relating to changes in fair value through shareholders' equity (2,573) 53 (2,519) (6) Translation reserves Employee benefits actuarial gains and losses Net consolidated income Total Comprehensive Income (CI) - - - - - - - - - - - - (2,573) - - 53 (155) - - (155) (848) - - (848) 324 2,467 2,791 (1,003) 324 2,467 (731) 3 0 154 151 Shareholders' equity closing June 30, 2013 2,391,865 2.29 5,477 20,800 (199) 8,314 187 5,670 (3,736) 14,955 51,468 2,450 NB: amounts are presented net of impacts of shadow accounting and its effects on policyholders' participation, deferred acquisition costs, and value of business in force. (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Mainly undated subordinated debts (TSS, TSDI), and equity components of compounded financial instruments (e.g convertible bonds) (see Note 6.1.2.c). (c) Including changes in ownership interest in consolidated subsidiaries without losing control. Half -Year 2014 Financial Report 87 II Avec et sans PB discrétionnaire III CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 II.5 CONSOLIDATED STATEMENT OF CASH FLOWS (in Euro million) June 30, 2014 June 30, 2013 Restated (a) Operating income including discontinued operation before tax 4,169 3,518 Net amortization expense (b) 278 357 Change in goodwill impairment and other intangible assets impairment (c) 21 Net change in deferred acquisition costs and equivalent (795) (781) Net increase / (write back) in impairment on investments, tangible and other intangible assets 234 416 Change in fair value of investments at fair value through profit or loss (7,639) (10,037) Net change in liabilities arising from insurance and investment contracts (d) 14,230 11,875 Net increase / (write back) in other provisions (e) (57) (4) Income from investment accounted for using the equity method (99) (65) Adjustment of non cash balances included in the operating income before tax 6,173 1,761 Net realized investment gains and losses (364) 2,054 Financing debt expenses 365 348 Adjustment for reclassification to investing or financing activities 1 2,401 Dividends recorded in profit or loss during the period (1,694) (1,692) Investment income & expense recorded in profit or loss during the period (f) (6,537) (4,822) Adjustment of transactions from accrued to cash basis (8,230) (6,514) Net cash impact of deposit accounting 773 858 Dividends and interim dividends collected 1,833 1,922 Investment income (f) 9,572 6,726 Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (2,010) (1,478) Net operating cash from banking activities Change in operating receivables and payables Net cash provided by other assets and liabilities (g) Tax expenses paid (902) (2,695) (1,679) (501) 76 (2,100) (2,014) (764) Other operating cash impact and non cash adjustment 154 291 Net cash impact of transactions with cash impact not included in the operating income before tax 4,545 3,517 NET CASH PROVIDED / (USED) BY OPERATING ACTIVITIES 6,657 4,684 Purchase of subsidiaries and affiliated companies, net of cash acquired (483) (17) Disposal of subsidiaries and affiliated companies, net of cash ceded 33 5 Net cash related to changes in scope of consolidation (450) (12) Sales of debt instruments (g) 28,601 30,646 Sales of equity instruments and non consolidated investment funds (g) (h) 12,763 10,675 Sales of investment properties held directly or not (g) 506 631 Sales and/or repayment of loans and other assets (g) (i) 13,131 8,255 Net cash related to sales and repayments of investments (g) (h) (i) 55,001 50,206 Purchases of debt instruments (g) (27,727) (32,009) Purchases of equity instruments and non consolidated investment funds (g) (h) (13,140) (12,005) Purchases of investment properties held direct or not (g) (1,067) (1,236) Purchases and/or issues of loans and other assets (h) (i) (14,653) (12,416) Net cash related to purchases and issuance of investments (g) (h) (i) (56,587) (57,666) Sales of tangible and intangible assets 1 4 Purchases of tangible and intangible assets (162) (200) Net cash related to sales and purchases of tangible and intangible assets (161) (196) Increase in collateral payable / Decrease in collateral receivable 10,684 22,171 Decrease in collateral payable / Increase in collateral receivable (12,599) (22,693) Net cash impact of assets lending / borrowing collateral receivables and payables (1,915) (522) Half -Year 2014 Financial Report 88 CONSOLIDATED FINANCIAL STATEMENT HALF-YEAR 2014 NET CASH PROVIDED / (USED) BY INVESTING ACTIVITIES (4,112) Issuance of equity instruments 1,034 Repayments of equity instruments (35) Transactions on treasury shares 57 Dividends payout (2,156) Interests on undated subordinated debts paid (103) Acquisition / sale of interests in subsidiaries without change in control 4 Net cash related to transactions with shareholders (1,199) Cash provided by financial debts issuance 920 Cash used for financial debts repayments (2,205) Interests on financing debt paid (j) (310) Net cash related to Group financing (1,594) NET CASH PROVIDED / (USED) BY FINANCING ACTIVITIES (2,794) NET CASH PROVIDED BY DISCONTINUED OPERATIONS CASH AND CASH EQUIVALENT AS OF JANUARY 1 (k) 20,477 Net cash provided by operating activities 6,657 Net cash provided by investing activities (4,112) Net cash provided by financing activities (2,794) Impact of change in consolidation method and of reclassifications as held for sale (l) 0 Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents 537 CASH AND CASH EQUIVALENT AS OF JUNE 30 (k) 20,765 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes premiums/discounts capitalization and relating amortization, amortization of investment and in the contest of owner occupied properties (held directly). (c) Includes impairment and amortization of intangible assets booked in the context of business combinations. (d) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (e) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (f) Includes gains/losses from derivatives hedging variable annuities. (g) Includes related derivatives. (h) Includes equity instruments held directly or by consolidated investment funds as well as non consolidated investment funds. (i) Includes sales/purchases of assets backing insurance & investment contracts where the financial risk is borne by policyholders. (j) Includes net cash impact of interest margin relating to hedging derivatives on financing debt. (k) Net of bank overdrafts. (l) Assets and liabilities related to MONY Life insurance Company portfolio for which the disposal process was not yet finalized were classified as held for sale as of June 30, 2013 (see Note 4.1). (in Euro million) June 30, 2014 June 30, 2013 Restated (a) Cash and cash equivalent 21,756 Bank overdrafts (b) (991) Cash and cash equivalent as of June 30 (c) 20,765 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Included in "Other debt instruments issued and bank overdrafts". (c) The "Cash and cash equivalents" balances do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The "Cash and cash equivalents" item excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts). Half -Year 2014 Financial Report 89 (8,190) 677 (382) 154 (1,873) (101) (21) (1,547) 881 (1,676) (334) (1,130) (2,676) 0 29,930 4,684 (8,190) (2,676) (261) (331) 23,155 24,604 (1,449) 23,155 III CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 1 ACCOUNTING PRINCIPLES 1.1 General information AXA SA, a French “Société Anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international financial services group focused on financial protection. AXA operates principally in Europe, Americas and Asia. The list of the main entities included in the scope of the AXA’s consolidated financial statements is provided in Note 2 of the notes to the consolidated interim financial statements. AXA is listed on Euronext Paris Compartment A. These consolidated interim financial statements including all notes were finalized by the Board of Directors on July 31, 2014. 1.2 General accounting principles AXA’s consolidated interim financial statements are prepared as of June 30. However, until 2013, certain subsidiaries within AXA had a different reporting year end. In particular, AXA Life Japan previously closed its interim accounts on March 31 and its full year accounts on September 30, however it aligned its closing dates with the Group calendar year starting with the 2013 annual accounts. The consolidated interim financial statements are prepared in compliance with IFRS standards according to IAS 34 – Interim Financial Reporting and interpretations of the IFRS Interpretations Committee that are endorsed by the European Union before the balance sheet date with a compulsory date of January 1, 2014. For existing and unchanged IFRS standards and interpretations, the accounting policies applied in the preparation of the consolidated interim financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended December 31, 2013. The 2014 half-year consolidated financial statements should be read in conjunction with the consolidated financial statements included in the 2013 annual financial report. Standards, amendments and interpretation published and adopted on January 1, 2014 A package of five new and revised standards was published on May 12, 2011 (followed by amendments for investment entities published on October 31, 2012) addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvement with other entities. IFRS 10 – Consolidated Financial Statements replaces the consolidation guidance in IAS 27 – Consolidation and Separate Financial Statements and SIC-12 – Special Purpose Entities, by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee. IFRS 11 – Joint Arrangements replaces IAS 31 – Interests in Joint Ventures. IFRS 11 eliminates the option to apply the proportional consolidation method when accounting for jointly controlled entities and focuses on the rights and obligations of the arrangement, rather than the legal form. IFRS 12 – Disclosures of Interests in Other Entities requires enhanced disclosures for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Amended IAS 27 – Separate Financial Statements sets out the unchanged requirements relating to separate financial statements. The other portions of IAS 27 are replaced by IFRS 10. Amended IAS 28 – Investments in Associates and Joint Ventures includes amendments for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. The retrospective application of these standards and amendments by AXA resulted in: the change in the consolidation method of a limited number of investment funds and real estate companies (with the full consolidation of some entities previously accounted for under the equity method or not consolidated, and, in contrast, the deconsolidation of others); Half -Year 2014 Financial Report 90 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 the change from the proportionate consolidation method to the equity method for joint ventures, in particular Natio Assurances. The changes have no impact on the total of the profit or loss for the current year and prior year and on shareholders’ equity – Group share reported. The retrospective effect on the aggregates of the consolidated statement of financial position and the consolidated statement of income are as follows: (in Euro million) December 31, 2013 PublishedDecember 31, 2013 RestatedEffect of the changesJanuary 1, 2013 PublishedJanuary 1, 2013 RestatedEffect of the changesIntangible assets 39,71039,705(6)40,83540,830(5)Investments from insurance activities 606,039605,976(64)605,823605,754(69)Investments from banking and other activities (a)37,36035,790(1,570)35,19933,298(1,901)Investments accounted for using the equity method 1,3871,428421,3121,34735Reinsurers' share in insurance and investment contracts liabilities 17,72717,8088210,55810,62063Other assets 3,5053,499(6)4,5224,516(6)Receivables 29,66329,617(46)32,88732,841(46)Assets held for sale including discountinued operations 164164-181181-Cash and cash equivalents 21,58821,455(133)30,54630,375(171)TOTAL ASSETS 757,143755,441(1,701)761,862759,762(2,100)Consolidated statement of financial position Shareholders’ equity – Group share 52,92352,923153,60653,606-Minority interests (b)2,3912,5201302,3552,37116Financing debt 10,40710,407-10,66210,662-Liabilities arising from insurance and investment contracts573,058572,985(73)579,165579,079(86)Liabilities arising from banking activities 35,37435,375233,49433,4951Provisions for risks and charges 10,39310,393(1)11,95211,951-Deferred tax liabilities 4,2264,223(4)5,1755,170(5)Payables (c)68,37166,615(1,756)65,45463,428(2,026)TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 757,143755,441(1,701)761,862759,762(2,100) (a) Changes mainly relate to the Investments in real estate properties resulting from the changes in the consolidation method of some real estate companies. (b) Changes in minority interests relate to the change in consolidation method of some real estate companies. (c) Changes mainly relate to Other debt instruments issued, notes and bank overdrafts (€-1,163 million as of December 31, 2013 and €-1,387 million as of January 1, 2013) and Other payables (€-822 million as of December 31, 2013 and €-850 million as of January 1, 2013). (In Euro million)December 31, 2013 Published December 31, 2013 Restated Effect of the changesJune 30, 2013 PublishedJune 30, 2013 RestatedEffect of the changesRevenues 91,24991,221(28)50,04450,030(14)Change in unearned premiums net of unearned revenues and fees (246)(248)(2)(3,819)(3,820)(1)Net investment result excluding financing expenses 33,95833,953(5)13,46613,464(3)Other operating income and expenses (118,221)(118,199)22(55,884)(55,872)13Income from operating activities before tax 6,7406,727(13)3,8063,801(5)Income from investment accounted for using the equity method 131139862653Financing debts expenses (618)(618)-(348)(348)-Net income from operating activities before tax 6,2536,249(4)3,5203,518(2)Income tax (1,466)(1,462)4(899)(897)2Net operating income 4,7864,786-2,6212,621-Net consolidated income after tax 4,7864,786-2,6212,621-Consolidated statement of income As a result of the application of the new standards IFRS 10 / IFRS 11 and amendments to IAS 27 / IAS 28, the Note 1.3.1. Scope and basis of consolidation included in the consolidated financial statement for the year ended December 31, 2013 is changed as follows: Companies in which AXA exercises control are known as subsidiaries. They are fully consolidated from the date on which control is transferred to AXA. Under IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Only substantive rights (i.e. the holder must have the practicability to exercise them) and rights that are not protective shall be considered. An investor can have power with less than a majority of the voting rights of an investee, in particular through: the proportion of ownership with regards to the other investors; rights arising from other contractual arrangements; or Half -Year 2014 Financial Report 91 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Under IFRS 11, companies over which AXA exercises a joint controlling influence alongside one or more third parties are joint ventures and are accounted for under the equity method. Companies in which AXA exercises significant influence are accounted for under the equity method. Under IAS 28, significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights. Significant influence can also be exercised through an agreement with other shareholders. Under the equity method, AXA’s share of equity companies’ post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”. Investment funds and real estate companies are either fully consolidated or accounted for under the equity method, depending on which conditions of IFRS 10 / IFRS 11 / IAS 28 listed above they satisfy. Fees received by asset managers are also taken into account in the assessment of the exposure to variability of returns. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”. Additionally, the application of the amendments and interpretations below as of January 1, 2014 had no material impact on the Group’s consolidated interim financial statements. The amendments to IAS 32 – Financial Instruments: Presentation published on December 16, 2011, provide clarifications of the application of the offsetting rules. The amendments to IAS 32 clarify that in order to result in an offset of a financial asset and a financial liability, a right to set-off must be available immediately rather than be contingent on a future event and must be exercisable by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy. Additional clarifications are presented regarding the settlement process. The amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets, published on May 29, 2013, address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. IFRIC 21 – Levies, published May 20, 2013, is an interpretation on the accounting for levies imposed by governments. The interpretation, early adopted by AXA, clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. Narrow-scope amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting, published on June 27, 2013 provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. Preparation of financial statements The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. The half year income tax charge is based on the best estimate of the expected full year tax rate. In preparing the consolidated interim financial statements, significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2013. As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement. All amounts in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity and in the notes are expressed in Euro million. Half -Year 2014 Financial Report 92 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 2 SCOPE OF CONSOLIDATION 2.1 Consolidated companies 2.1.1 MAIN FULLY CONSOLIDATED COMPANIES June 30, 2014 December 31, 2013 Parent and Holding Companies Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Parent company Parent company AXA Asia 100.00 100.00 100.00 100.00 AXA China 100.00 100.00 100.00 100.00 AXA France Assurance 100.00 100.00 100.00 100.00 Oudinot Participation 100.00 100.00 100.00 100.00 Société Beaujon 100.00 100.00 100.00 100.00 AXA Technology Services 99.99 99.99 99.99 99.99 United States AXA Financial, Inc. 100.00 100.00 100.00 100.00 AXA America Holding Inc. 100.00 100.00 100.00 100.00 United Kingdom Guardian Royal Exchange Plc 100.00 99.98 100.00 99.98 AXA UK Plc 100.00 99.98 100.00 99.98 AXA Equity & Law Plc 99.96 99.96 99.96 99.96 Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100.00 100.00 100.00 100.00 AXA Financial Services (Singapore) 100.00 100.00 100.00 100.00 AXA India Holding 100.00 100.00 100.00 100.00 Japan AXA Japan Holding 99.02 99.02 99.02 99.02 Germany Kölnische Verwaltungs AG für Versicherungswerte 100.00 100.00 100.00 100.00 AXA Konzern AG 100.00 100.00 100.00 100.00 Belgium AXA Holdings Belgium 100.00 100.00 100.00 100.00 Luxembourg AXA Luxembourg SA 100.00 100.00 100.00 100.00 Finance Solutions SARL 100.00 100.00 100.00 100.00 The Netherlands Vinci BV 100.00 100.00 100.00 100.00 Mediterranean and Latin American Region AXA Mediterranean Holding SA AXA Holding Maroc S.A. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 AXA Turkey Holding A.S. 100.00 100.00 100.00 100.00 Half -Year 2014 Financial Report 93 II Life & Savings and Property & Casualty France AXA France IARD AXA France Vie AXA Protection Juridique United States AXA Equitable Life Insurance Company AXA Re Arizona Company United Kingdom AXA Insurance UK Plc AXA PPP Healthcare Limited AXA Isle of Man Limited AXA Wealth Limited Architas Multi-Manager Limited AXA Portfolio Services Limited Ireland AXA Insurance Limited AXA Life Europe Limited AXA Life Invest Reinsurance Asia/Pacific (excluding Japan) AXA Life Insurance Singapore AXA China Region Limited AXA General Insurance Hong Kong Ltd. AXA Insurance Singapore PT AXA Life Indonesia MLC Indonesia AXA Affin General Insurance Berhad (a) Japan AXA Life Insurance Germany AXA Versicherung AG AXA Art AXA Lebensversicherung AG Pro Bav Pensionskasse Deutsche Ärzteversicherung AXA Krankenversicherung AG DBV Deutsche Beamten-Versicherung AG Belgium Ardenne Prévoyante AXA Belgium SA Servis SA Les Assurés Réunis Luxembourg AXA Assurances Luxembourg AXA Assurances Vie Luxembourg Mediterranean and Latin American Region AXA Vida, S. A. de Seguros (Spain) AXA Aurora Vida, S.A. de Seguros (Spain) AXA Seguros Generales, S. A. (Spain) AXA Interlife (Italy) AXA Assicurazioni e Investimenti (Italy) AXA MPS Vita (Italy) AXA MPS Danni (Italy) AXA MPS Financial (Italy) AXA Colpatria Capitalizadora (Colombia) AXA Colpatria Seguros de la vida (Colombia) AXA Colpatria Seguros (Colombia) AXA Portugal Companhia de Seguros SA AXA Portugal Companhia de Seguros de Vida SA AXA Assurance Maroc AXA Hayat ve Emeklilik A.S. (Turkey) AXA Sigorta AS (Turkey) AXA Cooperative Insurance Company (Gulf) AXA Insurance (Gulf) B.S.C.c. AXA Insurance A.E. (Greece) AXA Seguros S.A. de C.V. (Mexico) Switzerland AXA Life (previously Winterthur Life) AXA-ARAG Legal Assistance AXA Insurance (previously Winterthur Swiss Insurance P&C) Central and Eastern Europe AXA Czech Republic Pension Funds AXA Czech Republic Insurance AXA Hungary CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 June 30, 2014 December 31, 2013 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 99.92 99.77 98.51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 100.00 100.00 100.00 99.98 99.98 99.98 99.98 99.98 99.98 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 99.98 100.00 100.00 Minority interest buyout 100.00 100.00 100.00 100.00 100.00 100.00 42.51 100.00 100.00 100.00 100.00 100.00 100.00 42.51 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 100.00 100.00 100.00 100.00 100.00 42.48 100.00 99.02 100.00 99.02 Minority interest buyout Minority interest buyout 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.90 99.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.82 99.96 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.99 99.99 50.00 99.82 99.96 99.90 100.00 100.00 50.00 + 1 voting right 99.82 99.78 99.90 99.99 99.99 50.00 50.00 + 1 voting right 50.00 50.00 + 1 voting right 50.00 Acquisition Acquisition Acquisition Minority interest buyout 50.00 + 1 voting right 51.00 51.00 51.00 99.73 95.09 100.00 100.00 92.61 50.00 50.00 99.98 100.00 100.00 66.67 100.00 50.00 51.00 51.00 51.00 99.49 94.89 100.00 100.00 92.61 34.00 50.00 99.98 100.00 100.00 66.67 100.00 50.00 + 1 voting right - - - 99.73 95.09 100.00 100.00 92.61 50.00 50.00 99.98 99.97 100.00 66.67 100.00 50.00 - - 99.49 94.89 100.00 100.00 92.61 34.00 50.00 99.98 99.97 100.00 66.67 100.00 Disposal 99.99 100.00 - 99.99 100.00 - 99.99 100.00 100.00 99.99 100.00 100.00 Half -Year 2014 Financial Report 94 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 AXA Poland AXA Poland Pension Funds AXA Slovakia AXA Ukraine 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 100.00 100.00 100.00 50.17 Direct (b) Avanssur (France and Poland) Kyobo AXA General Insurance Co. Ltd. (South Korea) AXA Non Life Insurance Co. Ltd. (Japan) Touring Assurances SA (Belgium) Hilo Direct SA de Seguros y Reaseguros (Spain) Quixa S.p.A (Italy) Seguro Directo Gere Companhia de Seguros SA (Portugal) Minority interest buyout 100.00 99.61 100.00 100.00 100.00 100.00 100.00 100.00 99.61 99.02 100.00 100.00 100.00 100.00 100.00 99.55 100.00 100.00 100.00 100.00 100.00 100.00 99.55 99.02 100.00 100.00 100.00 100.00 (a) AXA Group exercises control in accordance with shareholders' agreements. (b) UK Direct activities are held by AXA Insurance UK Plc. June 30, 2014 December 31, 2013 International Insurance (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Corporate Solutions Assurance (sub-group) AXA Global P&C AXA Global Life AXA Assistance SA (sub group) Portman Insurance Ltd. Colisée RE AXA Corporate Solutions Life Reinsurance Company 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 98.75 100.00 100.00 100.00 100.00 100.00 100.00 June 30, 2014 December 31, 2013 Asset Management (entities having worldwide activities) Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests AXA Investment Managers (sub group) AllianceBernstein (sub group) (a) Minority interests buyout 96.17 63.55 96.11 63.55 95.87 63.68 95.82 63.68 (a) The decrease in the Group share of interest is mainly due to the granting of holding units to the employees in relation with the share-based compensation programs. June 30, 2014 December 31, 2013 Banking Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France AXA Banque 100.00 99.89 100.00 99.89 Germany AXA Bank AG 100.00 100.00 100.00 100.00 Belgium AXA Bank Europe (sub group) 100.00 100.00 100.00 100.00 June 30, 2014 December 31, 2013 Other Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France CFP Management 100.00 100.00 100.00 100.00 Consolidated investments and investment funds As of June 30, 2014, consolidated investment funds represented total invested assets of €95,041 million (€92,280 million at the end of 2013), corresponding to 255 investment funds mainly in France, Japan and Germany and in majority relating to the Life & Savings segment. As of June 30, 2014, the 24 consolidated real estate companies corresponded to total invested assets of €7,168 million (€5,025 million at the end of 2013), mainly in Germany, Japan and France. In most investment funds (particularly open-ended investment funds), minority interests do not meet the definition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of consolidated investment funds and puttable instruments held by minority interest holders”. As of June 30, 2014, minority interests in consolidated investment funds amounted to €8,369 million (€7,795 million as of December 31, 2013). Half -Year 2014 Financial Report 95 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 2.1.2 MAIN INVESTMENTS IN COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD Companies accounted for using the equity method listed below exclude investment funds and real estate entities: June 30, 2014 December 31, 2013 Change in scope Voting rights percentage Group share of interests Voting rights percentage Group share of interests France Neuflize Vie (previously NSM Vie) Natio Assurances (a) 39.98 50.00 39.98 49.96 39.98 50.00 39.98 49.96 Asia/Pacific Philippines AXA Life Insurance Corporation Krungthai AXA Life Insurance Company Ltd ICBC-AXA Life Insurance Co. Ltd (previously AXA Minmetals Assurance 45.00 50.00 45.00 50.00 45.00 50.00 45.00 50.00 Co Ltd) 27.50 27.50 27.50 27.50 PT AXA Mandiri Financial Services Bharti AXA Life Bharti AXA General Insurance Company Limited (India) AXA Insurance Public Company Limited (Thailand) 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 49.00 26.00 26.00 99.31 AXA Tian Ping Acquisition 50.00 50.00 Russia Reso Garantia (RGI Holdings B.V.) 39.34 39.34 39.34 39.34 Asset Management Kyobo AXA Investment Managers Company Limited Shares acquisition 50.00 48.06 50.00 47.91 Mediterranean and Latin American Region AXA Middle East SAL (Lebanon) 51.00 51.00 51.00 51.00 (a) Before the retrospective application of IFRS11 on January 1, 2014 (see note 1.2), Natio Assurances was proportionately consolidated. Investment funds and real estate entities accounted for using the equity method As of June 30, 2014, real estate companies accounted for using the equity method represented total assets of €261 million (€280 million at the end of 2013) and investment funds accounted for using the equity method represented total assets of €3,218 million (€3,076 million at the end of 2013), mainly in the United States, France, Germany, Belgium, Switzerland and the United Kingdom. 2.2 Consolidated entities relating to specific operations Arche Finance In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million. On January 14, 2014 the loan was reimbursed. Hordle In 2009, AXA set up a Group financing and cash management company which benefited from a loan of £673 million. Half -Year 2014 Financial Report 96 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 3 CONSOLIDATED STATEMENT OF INCOME BY SEGMENT Given the activities of AXA, the operating results are presented on the basis of five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. An additional "Holding companies" segment includes all non-operational activities. The financial information relating to AXA's business segments and holding Company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements. The Group has set up an organization by Global business lines for both Life & Savings and Property & Casualty in order to improve the speed and effectiveness of the organization and further leverage its size. The Life & Savings Global business line, as part of its role to define a common strategy has set the following priorities: accelerate diversification into Protection and Health; enhance profitability in Savings business; prioritize investments for growth; foster business efficiency. The Property & Casualty Global business line is responsible for: defining common Property & Casualty strategy; accelerating efficiency gains; building common platforms; leveraging global technical expertise. Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates ten geographic operating components: France, the United States, the United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, Asia (excluding Japan) and other countries. Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates nine geographical operating components (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, the Mediterranean and Latin American Region, Central Eastern Europe, Asia and Other countries) and one operating component for the Direct business. International Insurance: This segment’s operations include insurance products that notably relate to AXA Corporate Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company and the Group Property & Casualty run-off managed by AXA Liabilities Managers. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities, which are provided to a variety of institutional investors and individuals, including AXA’s insurance companies. The Banking segment includes banking activities (mainly retail banking, mortgage loans, savings) conducted primarily in France, Belgium and Germany. The Holding companies segment (that includes all non-operational activities), also includes some investment vehicles and Special-Purpose Entities (SPE). The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group. In this document, “Insurance” covers the three insurance segments: Life & Savings, Property & Casualty and International Insurance. The term “Financial Services” includes both the Asset Management segment and the Banking segment. Half -Year 2014 Financial Report 97 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 3.1 Consolidated statement of income by segment June 30, 2014 (in Euro million) Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations Gross written premiums 28,333 17,014 1,912 (315) Fees and charges relating to investment contracts with no participating features 159 Revenues from insurance activities 28,492 17,014 1,912 (315) Net revenues from banking activities 274 0 12 Revenues from other activities 608 29 128 1,776 2 (227) Revenues 29,100 17,044 2,039 1,776 276 0 (530) Change in unearned premiums net of unearned revenues and fees (1,433) (2,649) (297) 110 Net investment income (a) 6,467 1,119 115 (6) (0) 220 (316) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (b) of which change in fair value of assets with financial risk borne by policyholders 829 6,837 5,617 229 (21) 44 11 27 6 34 (4) (4) Change in investments impairment (182) (23) (3) (13) Net investment result excluding financing expenses 13,951 1,303 168 21 (0) 246 (319) Technical charges relating to insurance activities (36,098) (9,666) (1,019) 144 Net result from outward reinsurance 276 (416) (281) 57 Bank operating expenses (50) (0) Acquisition costs (1,932) (2,437) (245) 8 Amortization of the value of purchased business in force (58) Administrative expenses (1,299) (1,320) (120) (1,269) (199) (454) 189 Change in goodwill impairment and other intangible assets impairment (10) (58) (1) Other income and expenses (55) 3 13 (137) (5) 105 (39) Other operating income and expenses (39,176) (13,892) (1,652) (1,407) (254) (349) 358 Income from operating activities before tax 2,443 1,806 258 390 22 (103) (381) Income from investment accounted for using the equity method 63 31 0 0 5 Financing debt expenses (51) (4) (4) (17) (5) (665) 380 Net income from operating activities before tax 2,455 1,833 254 373 17 (762) (0) Income tax (498) (526) (86) (109) 3 205 0 Net operating income 1,957 1,307 168 265 20 (558) Net consolidated income after tax 1,957 1,307 168 265 20 (558) Split between : Net consolidated income - Group share 1,906 1,286 166 188 19 (558) Net consolidated income - Minority interests 51 21 2 76 1 0 (a) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (b) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half -Year 2014 Financial Report 98 TOTAL 46,944 159 47,103 286 2,316 49,705 (4,269) 7,600 1,107 6,884 5,613 (221) 15,370 (46,639) (363) (50) (4,606) (58) (4,472) (69) (114) (56,371) 4,435 99 (365) 4,169 (1,010) 3,159 3,159 3,008 151 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 June 30, 2013 Restated (a) (in Euro million) Life & savings Property & Casualty International Insurance Asset Management Banking Holding companies Inter- segment eliminations Gross written premiums 28,927 16,651 1,843 (267) Fees and charges relating to investment contracts with no participating features 133 Revenues from insurance activities 29,060 16,651 1,843 (267) Net revenues from banking activities 287 0 4 Revenues from other activities 583 28 137 1,915 2 (214) Revenues 29,643 16,679 1,980 1,915 290 0 (477) Change in unearned premiums net of unearned revenues and fees (1,178) (2,497) (236) 90 Net investment income (b) 4,849 1,006 78 4 (0) 307 (295) Net realized gains and losses relating to investments at cost and at fair value through shareholders'equity Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) of which change in fair value of assets with financial risk borne by policyholders 1,201 6,573 8,072 180 (109) 8 (7) (4) 24 19 32 (13) (3) Change in investments impairment (296) (48) (9) (0) (38) Net investment result excluding financing expenses 12,328 1,029 71 24 (0) 320 (307) Technical charges relating to insurance activities (35,047) (9,427) (932) 146 Net result from outward reinsurance (173) (412) (391) 41 Bank operating expenses (68) 1 Acquisition costs (1,984) (2,449) (222) 29 Amortization of the value of purchased business in force (59) Administrative expenses (1,488) (1,293) (111) (1,418) (206) (397) 145 Change in tangible assets impairment (0) Change in goodwill impairment and other intangible assets impairment (6) (40) (0) Other income and expenses (74) (10) (0) (102) 13 108 (43) Other operating income and expenses (38,832) (13,631) (1,656) (1,520) (261) (288) 317 Income from operating activities before tax 1,961 1,580 158 418 28 33 (377) Income from investment accounted for using the equity method 46 18 0 0 0 Financing debts expenses (63) (3) (1) (17) (8) (663) 407 Net income from operating activities before tax 1,944 1,595 157 402 20 (630) 30 Income tax (390) (444) (73) (128) 1 166 (30) Net operating income 1,554 1,152 84 273 21 (464) Net consolidated income after tax 1,554 1,152 84 273 21 (464) Split between : Net consolidated income - Group share 1,501 1,130 83 196 20 (464) Net consolidated income - Minority interests 54 22 1 77 1 (0) (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes gains/losses from derivatives hedging variable annuities within Life & Savings and International Insurance segments. (c) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders'equity. Half -Year 2014 Financial Report 99 TOTAL 47,154 133 47,287 291 2,451 50,030 (3,820) 5,949 1,405 6,500 8,070 (390) 13,464 (45,261) (935) (67) (4,626) (59) (4,768) (0) (46) (109) (55,872) 3,801 65 (348) 3,518 (897) 2,621 2,621 2,467 154 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 4 TRANSACTIONS IN CONSOLIDATED ENTITIES 4.1 TIAN PING insurance On April 24, 2013, AXA announced it had entered into an agreement with Tian Ping Auto Insurance Company Limited ("Tian Ping") shareholders to acquire 50% of the company. Tian Ping is mainly focusing on motor insurance and has Property & Casualty licenses covering most Chinese provinces as well as a direct distribution license covering these provinces with a market share of 0.8%(1). On February 20, 2014, AXA announced the finalization of the acquisition. AXA has acquired 33% of the company from Tian Ping's current shareholders for RMB 1.9 billion (or Euro 240 million(2)) and subsequently subscribed to a capital increase for RMB 2.0 billion (or Euro 251 million(2)) to support future growth, raising its stake to 50%. AXA and Tian Ping's current shareholders jointly control AXA Tian Ping. AXA’s previously existing Chinese P&C operations have been merged within the new joint venture. The acquired operations are consolidated through the equity method since February 20, 2014. Given the short timing between the acquisition and the interim closing, the initial accounting is still on-going as of June 30, 2014. 4.2 COLPATRIA's insurance operations in Colombia On November 11, 2013, AXA announced it had entered into an agreement with Grupo Mercantil Colpatria(3) to acquire a 51% stake in its composite insurance operations in Colombia (“Colpatria Seguros”). On April 2, 2014, AXA announced it had completed the acquisition for a consideration of COP 672 billion (or Euro 248 million(4)). The acquired subsidarieis are fully consolidated. The initial accounting for the assets, liabilities and minorities interests is still on-going as of June 30. In accordance with IFRS 3- Business Combinations, adjustments can be made within twelve months of the acquisition date if new information becomes available to complete the initial accounting. 4.3 Hungarian Life & Savings Insurance operations On June 3, 2014, AXA announced it has completed the sale of its Life & Savings operations in Hungary(5) to Vienna Insurance Group. AXA continues to have banking operations in the country. These transactions led to recognize a €-50 million exceptional loss (net of tax and group share) in AXA consolidated financial statements as of December 31, 2013. 4.4 MONY Portfolio transaction On April 10, 2013, AXA announced it had entered into definitive agreements with Protective Life Corporation to sell MONY Life Insurance Company (“MONY”) and to get reinsurance for an in-force book of life insurance policies written by MONY’s subsidiary MONY Life Insurance Company of America (“MLOA”) primarily prior to 2004. This announced transaction in 2013 led to recognize an estimated €-32 million exceptional loss in AXA interim consolidated financial statements as of June 30, 2013, resulting mainly from intangibles impairment, as well as associated costs with the announced transaction. (1) Source = CIRC, December 2013. (2) EUR = RMB 7,982 as of February 19, 2014. (3) The scope of the transaction includes the four insurance companies of Grupo Mercantil Colpatria: Seguros Colpatria S.A. (Property & Casualty), Seguros de Vida Colpatria S.A. (Life, Workers Compensation), Capitalizadora Colpatria S.A. (Capitalization) and Colpatria Medicina Prepagada S.A. (Voluntary Health). (4) EUR 1 = COP 2,711.67 as of March 31, 2014. (5) AXA Insurance Company and AXA Money & More. Half -Year 2014 Financial Report 100 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 On October 1, 2013, AXA announced it had successfully completed these transactions for a total cash consideration of US$1.06 billion (or €0.79 billion (1)). These transactions led to recognize €-11 million exceptional loss (net of tax and group share) in AXA consolidated financial statements as of December 31, 2013, following the refinement of the June 30, 2013 estimated impact. In AXA interim consolidated financial statements as of June 30, 2014 an exceptional gain of €+21 million (net of tax and group share) has been recognized following the re-evaluation of the transaction as part of the terms of the agreement. (1) EUR 1 = USD 1.35, as of October 1, 2013. Half -Year 2014 Financial Report 101 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 5 INVESTMENTS 5.1 Breakdown of investments Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro-hedges shown separately. Insurance June 30, 2014 Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (a) Macro-hedge and other derivatives 22,445 1,018 16,996 1,018 2.67% 0.16% 1,713 574 1.56% 24,157 1,018 17,570 1,018 Investment in real estate properties 23,463 18,014 2.83% 1,713 574 1.56% 25,175 18,588 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (b) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (c) 339,886 35,691 363 4,700 339,886 35,691 363 4,499 53.47% 5.61% 0.06% 0.71% 9,806 320 21 2,090 9,806 320 21 2,090 26.69% 0.87% 0.06% 5.69% 349,693 36,010 385 6,789 349,693 36,010 385 6,588 Debt instruments 380,640 380,439 59.85% 12,237 12,237 33.30% 392,877 392,676 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (a) Equity instruments held for trading 14,982 7,745 152 14,982 7,745 152 2.36% 1.22% 0.02% 1,235 374 1,235 374 3.36% 1.02% 16,216 8,118 152 16,216 8,118 152 Equity instruments 22,878 22,878 3.60% 1,608 1,608 4.38% 24,486 24,486 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (a) Non consolidated investment funds held for trading 6,273 5,066 6,273 5,066 0.99% 0.80% 35 255 428 35 255 428 0.09% 0.69% 1.17% 6,308 5,321 428 6,308 5,321 428 Non consolidated investment funds 11,339 11,339 1.78% 718 718 1.95% 12,058 12,058 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 7,633 7,633 1.20% 34 34 0.09% 7,666 7,666 Macro-hedge and other derivatives 620 620 0.10% (1,229) (1,229) 3.35% (609) (609) Financial investments 423,110 422,909 66.53% 13,368 13,368 36.38% 436,478 436,277 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (d) Macro-hedge and other derivatives 26 0 - 29,429 26 0 - 28,151 0.00% 0.00% - 4.43% - - - 24,501 (3) - - - 22,804 (3) - - - 62.06% 0.01% 26 0 - 53,930 (3) 26 0 - 50,955 (3) Loans 29,455 28,177 4.43% 24,498 22,801 62.06% 53,953 50,978 Assets backing contracts where the financial risk is borne by policyholders 166,556 166,556 26.20% 166,556 166,556 INVESTMENTS 642,583 635,656 100.00% 39,578 36,743 100.00% 682,161 672,399 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 476,028 469,100 73.80% Life & Savings Property & Casualty 404,928 63,949 398,863 63,088 62.75% 9.92% International Insurance 7,151 7,149 1.12% (a) Assets measured at fair value under the fair value option. (b) Includes assets measured at fair value notably under the fair value option. (c) Eligible to the IAS 39 Loans and Receivables measurement category. (d) Mainly relates to mortgage loans and policy loans. Half -Year 2014 Financial Report 102 % (value balance sheet) 2.61% 0.15% 2.76% 52.01% 5.36% 0.06% 0.98% 58.40% 2.41% 1.21% 0.02% 3.64% 0.94% 0.79% 0.06% 1.79% 1.14% 0.09% 64.88% 0.00% 0.00% - 7.58% 0.00% 7.58% 24.77% 100.00% II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Insurance December 31, 2013 Restated (a) Other activities Total (in Euro million) Fair value Carrying value % (value balance sheet) Fair value Carrying value % (value balance sheet) Fair value Carrying value Investment in real estate properties at amortized cost Investment in real estate properties designated as at fair value through profit or loss (b) Macro-hedge and other derivatives 21,754 1,033 16,446 1,033 2.71% 0.17% 1,617 573 1.60% 23,370 1,033 17,019 1,033 Investment in real estate properties 22,787 17,479 2.88% 1,617 573 1.60% 24,403 18,052 Debt instruments held to maturity Debt instruments available for sale Debt instruments designated as at fair value through profit or loss (c) Debt instruments held for trading Debt instruments (at cost) that are not quoted in an active market (d) 319,473 34,263 251 6,517 319,473 34,263 251 6,410 52.72% 5.65% 0.04% 1.06% 9,515 124 28 1,275 9,515 124 28 1,275 26.58% 0.35% 0.08% 3.56% 328,988 34,387 280 7,792 328,988 34,387 280 7,685 Debt instruments 360,505 360,397 59.47% 10,942 10,942 30.57% 371,447 371,339 Equity instruments available for sale Equity instruments designated as at fair value through profit or loss (b) Equity instruments held for trading 15,154 6,477 140 15,154 6,477 140 2.50% 1.07% 0.02% 2,035 374 2,035 374 5.69% 1.04% 17,189 6,851 140 17,189 6,851 140 Equity instruments 21,771 21,771 3.59% 2,409 2,409 6.73% 24,180 24,180 Non consolidated investment funds available for sale Non consolidated investment funds designated as at fair value through profit or loss (b) Non consolidated investment funds held for trading 6,041 4,396 6,041 4,396 1.00% 0.73% 281 213 388 281 213 388 0.79% 0.59% 1.09% 6,322 4,609 388 6,322 4,609 388 Non consolidated investment funds 10,437 10,437 1.72% 883 883 2.47% 11,320 11,320 Other assets designated as at fair value through profit or loss, held by consolidated investment funds 6,876 6,876 1.13% 13 13 0.04% 6,888 6,888 Macro-hedge and other derivatives 886 886 0.15% (1,362) (1,362) 3.81% (476) (476) Financial investments 400,474 400,366 66.07% 12,885 12,885 36.00% 413,358 413,251 Loans held to maturity Loans available for sale Loans designated as at fair value through profit or loss (a) Loans held for trading Loans at cost (e) Macro-hedge and other derivatives - 0 - 26,714 - 0 - 25,943 - 0.00% - 4.28% - 0 - 23,711 10 - 0 - 22,323 10 - 0.00% - 62.37% 0.03% - 0 - 50,426 10 - 0 - 48,266 10 Loans 26,715 25,944 4.28% 23,722 22,333 62.40% 50,436 48,277 Assets backing contracts where the financial risk is borne by policyholders 162,186 162,186 26.76% 162,186 162,186 INVESTMENTS 612,161 605,976 100.00% 38,223 35,790 100.00% 650,384 641,766 Investments (excluding those backing contracts where the financial risk is borne by policyholders) 449,975 443,789 73.24% Life & Savings Property & Casualty 383,193 59,510 377,779 58,740 62.34% 9.69% International Insurance 7,272 7,270 1.20% (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 Loans and Receivables measurement category. (e) Mainly relates to mortgage loans and policy loans. 5.2 Investment in real estate properties Investment in real estate properties include buildings owned both directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives was as follows: June 30, 2014 December 31, 2013 Restated (a) (in Euro million) Gross value Amortization Impairment Carrying value Fair value Gross value Amortization impairment Carrying value Investment in real estate properties at amortized cost Insurance 19,612 (1,984) (632) 16,996 22,445 18,984 (1,904) (633) 16,446 Other activities 785 (210) (0) 574 1,713 781 (208) (0) 573 All activities 20,397 (2,195) (632) 17,570 24,157 19,764 (2,112) (633) 17,019 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. Fair value is generally based on valuations performed by qualified property appraisers. Valuations are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Half -Year 2014 Financial Report 103 % (value balance sheet) 2.65% 0.16% 2.81% 51.26% 5.36% 0.04% 1.20% 57.86% 2.68% 1.07% 0.02% 3.77% 0.99% 0.72% 0.06% 1.76% 1.07% 0.07% 64.39% - 0.00% - 7.52% 0.00% 7.52% 25.27% 100.00% Fair value 21,754 1,617 23,370 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment - Investment in real estate properties Amortization - Investment in real estate properties (in Euro million) June 30, 2014 December 31, 2013 Restated (a) June 30, 2014 December 31, 2013 Restated (a) Opening value 633 552 2,112 2,058 Increase for the period 22 134 111 261 Write back following sale or reimbursement (3) (33) (17) (43) Write back following recovery in value (4) (18) Others (b) (16) (1) (11) (165) Closing value 632 633 2,195 2,112 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Includes change in scope and the effect of changes in exchange rates. 5.3 Unrealized gains and losses on financial investments Excluding the effect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, were allocated as follows: (in Euro million) June 30, 2014 December 31, 2013 Restated (a) INSURANCE Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 302,159 4,525 11,904 340,121 4,726 15,036 340,121 4,525 15,036 38,898 216 3,193 936 15 61 297,303 6,431 12,222 320,110 6,538 15,158 320,110 6,431 15,158 25,277 141 3,034 2,469 33 98 Non consolidated investment funds available for sale 5,292 6,226 6,226 957 23 5,113 6,002 6,002 901 11 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (in Euro million) June 30, 2014 December 31, 2013 Restated (a) OTHER ACTIVITIES Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 9,911 2,089 973 10,065 2,089 1,235 10,065 2,089 1,235 204 272 50 10 9,607 1,275 1,912 9,625 1,275 2,263 9,625 1,275 2,263 136 361 118 10 Non consolidated investment funds available for sale 24 35 35 10 0 276 281 281 6 0 (in Euro million) June 30, 2014 December 31, 2013 Restated (a) TOTAL Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Amortized cost (b) Fair value Carrying value (c) Unrealized gains Unrealized losses Debt instruments available for sale Debt instruments (at cost) that are not quoted in an active market Equity instruments available for sale 312,070 6,614 12,877 350,186 6,816 16,270 350,186 6,614 16,270 39,102 216 3,464 986 15 71 306,910 7,706 14,133 329,735 7,813 17,421 329,735 7,706 17,421 25,413 141 3,395 2,587 33 108 Non consolidated investment funds available for sale 5,316 6,261 6,261 967 23 5,389 6,283 6,283 906 11 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Net of impairment - including premiums/discounts and related accumulated amortization. (c) Net of impairment. Half -Year 2014 Financial Report 104 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 5.4 Financial assets subject to impairment 5.4.1 BREAKDOWN OF FINANCIAL ASSETS SUBJECT TO IMPAIRMENT (EXCLUDING INVESTMENT IN REAL ESTATE PROPERTIES) Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. June 30, 2014 December 31, 2013 Restated (a) Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value Cost before impairment and revaluation to fair value (b) Impairment Cost after impairment but before revaluation to fair value (c) Revaluation to fair value Carrying value (in Euro million) Debt instruments available for sale 311,942 (931) 311,011 38,682 349,693 306,962 (1,078) 305,884 23,104 328,988 Debt instruments (at cost) that are not quoted in an active market (e) 6,582 6,582 7 6,588 7,694 7,694 (9) 7,685 Debt instruments 318,523 (931) 317,593 38,688 356,281 314,656 (1,078) 313,578 23,094 336,672 Equity instruments available for sale 14,822 (1,945) 12,877 3,339 16,216 16,515 (2,380) 14,135 3,054 17,189 Non consolidated investment funds available for sale 6,283 (967) 5,316 992 6,308 6,418 (1,029) 5,389 934 6,322 Loans held to maturity Loans available for sale 26 (0) 26 26 0 (0) Loans at cost (d) (e) 52,095 (619) 51,475 (520) 50,955 49,235 (621) 48,614 (348) 48,266 Loans 52,121 (620) 51,501 (520) 50,981 49,235 (621) 48,614 (348) 48,266 TOTAL 391,748 (4,462) 387,286 42,499 429,786 386,824 (5,108) 381,715 26,734 408,449 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (c) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (d) Including policy loans. (e) Revaluation to fair value for instruments at cost related to the application of hedge accounting. 5.4.2 CHANGE IN IMPAIRMENT ON INVESTED ASSETS (EXCLUDING INVESTMENT IN REAL ESTATE PROPERTIES) (in Euro million) January 1, 2014 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) June 30, 2014 Impairment - Debt instruments 1,078 103 (283) (4) 37 931 Impairment - Equity instruments 2,380 78 (527) 14 1,945 Impairment - Non consolidated investment funds 1,029 28 (59) (31) 967 Impairment - Loans 621 64 (4) (50) (11) 620 TOTAL 5,108 273 (873) (54) 9 4,462 (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (in Euro million) January 1, 2013 Increase for the period Write back following sale or reimbursement Write back following recovery in value Other (a) December 31, 2013 Restated (b) Impairment - Debt instruments 1,340 76 (203) (6) (129) 1,078 Impairment - Equity instruments 2,488 443 (420) (131) 2,380 Impairment - Non consolidated investment funds 1,027 100 (91) (7) 1,029 Impairment - Loans 601 116 (3) (72) (22) 621 TOTAL 5,456 736 (718) (78) (288) 5,108 (a) Mainly relates to changes in the scope of consolidation and impact of changes in exchange rates. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. Half -Year 2014 Financial Report 105 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 5.5 Investments/Fair value Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IFRS 13 fair value hierarchy. Fair values for level 2 and 3 assets include: values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data. For all assets not quoted in an active market/no active market, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data (market observable inputs): assumed to be used by pricing services; or used by the Group in the limited cases of application of mark to model valuations. 5.5.1 INVESTMENTS RECOGNIZED AT FAIR VALUE Among financial investments measured at fair value in the consolidated statement of financial position (excluding derivatives, investment funds consolidated by equity method and contracts where the financial risk is borne by policyholders), i.e. €432 billion as of June 30, 2014 (€408 billion as of December 31, 2013): €277 billion were determined directly by reference to an active market (€259 billion at the end of 2013), i.e. level 1 assets and €155 billion related to assets not quoted in an active market/no active market (€149 billion at the end of 2013), i.e. level 2 and level 3 assets of which level 3 assets amounted to €10 billion (€10 billion at the end of 2013). For sovereign bonds, trends observed in 2013 were confirmed in the first semester of 2014 with an acceleration of Eurozone peripheral countries’ spread contraction and liquidity improvement. These market indicators will continue to be followed to assess the sustainability of those improvements. Therefore, the classification as at June 30, 2014 is maintained similar to the one as at December 31, 2013. As of June 30, 2014, some assets were reclassified between levels 1 and 2. This was mainly related to some corporate bonds for which spreads widened and narrowed throughout the period. Transfer in and out of the level 3 category and other movements From January 1, 2014 to June 30, 2014, the amount of level 3 assets remained stable at €10.4 billion, representing 2.4% of the total assets at fair value (2.5% at the end of 2013 i.e. €10.2 billion). Main movements relating to level 3 assets to be noted were the following: €+1.0 billion of new investments; €-0.3 billion of asset sales mainly non consolidated funds AFS and other FVO assets held by controlled investment funds; €-0.3 billion transfers out of level 3 category due to more observable data; €-0.2 billion of change in unrealized gains and losses; €-0.2 billion of other movements (forex impact, changes in scope…). 5.5.2 INVESTMENTS RECOGNIZED AT AMORTIZED COST Among financial investments measured at amortized cost in the consolidated statement of financial position i.e. €85 billion as of June 30, 2014 (€82 billion as of December 31, 2013): €0.2 billion were determined directly by reference to an active market (€1.3 billion at the end of 2013), i.e. level 1 assets and Half -Year 2014 Financial Report 106 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 €85 billion related to assets not quoted in an active market/no active market (€81 billion at the end of 2013), i.e. level 2 and level 3 assets of which level 3 assets amounted to €37 billion (€34 billion at the end of 2013). Half -Year 2014 Financial Report 107 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 6 SHAREHOLDERS’ EQUITY AND MINORITY INTERESTS The Consolidated Statement of changes in Equity is presented as a primary financial statement. 6.1 Impact of transactions with shareholders 6.1.1 CHANGE IN SHAREHOLDERS’ EQUITY GROUP SHARE FOR THE FIRST HALF OF 2014 a) SHARE CAPITAL AND CAPITAL IN EXCESS OF NOMINAL VALUE During the first half of 2014, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Stock option exercice of 2 million shares for €36 million; Share-based payments for €15 million. b) TREASURY SHARES As of June 30, 2014, the Company and its subsidiaries owned approximately 1 million AXA shares, representing 0.03% of the share capital, a decrease of 3 million shares compared to December 31, 2013. As of June 30, 2014, the carrying value of treasury shares and related derivatives was €160 million. This included €0.9 million relating to AXA shares held by consolidated mutual funds (69,818 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2014, 2 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €40 million and their market value €36 million at the end of June 2014. c) UNDATED SUBORDINATED DEBT AND RELATED FINANCIAL EXPENSES As described in the accounting principles, undated subordinated debt issued by the Group do not qualify as liabilities under IFRS. Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve. During the first half of 2014, the change in other reserves was due to: €+997 million from the issuance of a new subordinated debt (net of fees); €-35 million from the exercice of a redemption call on undated subordinated debt; €-148 million in interest expense related to the undated subordinated debt (net of tax); €+132 million from foreign exchange rate fluctuations. Half -Year 2014 Financial Report 108 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 As of June 30, 2014 and December 31, 2013, undated subordinated debt recognized in shareholders’ equity broke down as follows: June 30, 2014 December 31, 2013 Value of the undated subordinated debt in currency of issuance Value of the undated subordinated debt in Euro million Value of the undated subordinated debt in currency of issuance (a) Value of the undated subordinated debt in Euro million (in Euro million) October 29, 2004 - 375 M € 6.0% 375 375 375 375 December 22, 2004 - 250 M € 6.0% 250 250 250 250 January 25, 2005 - 250 M € 6.0% 250 250 250 250 July 6, 2006 - 1,000 M € 5.8% 1,000 994 1,000 994 July 6, 2006 - 500 M £ 6.7% 500 618 500 594 July 6, 2006 - 350 M £ 6.7% 350 437 350 420 October 26, 2006 - 600 M A$ (of which 300M A$ 7.5%) 600 410 600 386 November 7, 2006 - 150 M A$ 7.5% 150 103 150 97 December 14, 2006 - 750 M US$ 6.5% 750 546 750 541 December 14, 2006 - 750 M US$ 6.4% 750 546 750 541 October 5, 2007 - 750 M€ 6.2% 750 746 750 746 October 16, 2007 - 700 M £ 6.8% 700 871 700 837 May 20, 2014 - 1,000 M€ - 3.9% 1,000 997 January 22, 2013 - 850 M US$, 5.5% 850 617 850 611 Undated notes -625 M €, variables rates 625 625 660 660 Undated notes - 27,000 M JPY, 3.3% 27,000 195 27,000 187 Undated notes- 375 M US$, variables rates 375 275 375 272 Sub-Total Undated Subordinated Debt 8,855 7,761 Equity component of convertible debt (2017) 95 95 95 95 TOTAL 8,949 7,856 In addition to the nominal amounts shown above, shareholders’ equity included net accumulated financial expenses of: €-2,558 million as of June 30, 2014; €-2,410 million as of December 31, 2013. Undated subordinated debt often contains the following features: Early redemption clauses (calls) at the option of the Company, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and Interest rate step-up clauses with effect from a given date. d) DIVIDENDS PAID At the shareholders’ meeting held on April 23, 2014, shareholders approved a dividend distribution of 0.81€ per share corresponding to €1,960 million with respect to the 2013 financial year. 6.1.2 DHANGE IN SHAREHOLDERS’ EQUITY GROUP SHARE FOR THE FIRST HALF OF 2013 a) DHARE CAPITAL AND CAPITAL IN EXCESS OF NOMINAL VALUE During the first half of 2013, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: Share-based compensation for €23 million. Increase in capital of €36 million; Half -Year 2014 Financial Report 109 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 b) TREASURY SHARES As of June 30, 2013, the Company and its subsidiaries owned approximately 4 million AXA shares, representing 0.2% of the share capital, a decrease of 12 million shares compared to December 31, 2012. As of June 30, 2013, the carrying value of treasury shares and related derivatives was €197 million. This figure included €0.8 million relating to AXA shares held by consolidated mutual funds (61,455 shares) not backing contracts where the financial risk is borne by policyholders. In addition, as of June 30, 2013, 1.6 million treasury shares backing contracts where the financial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €32 million and their market value €21 million at the end of June 2013. c) UNDATED SUBORDINATED DEBT AND RELATED FINANCIAL EXPENSES During the first half of 2013, the change in other reserves was due to: €+634 million from the issuance of a new undated subordinated debt; €-381 million following the exercise of an early redemption call on an undated subordinated debt; €-144 million in interest expense related to the undated subordinated debt (net of tax); €-155 million in exchange rate differences. d) DIVIDENDS PAID At the shareholders’ meeting held on April 30, 2013, shareholders approved a dividend distribution of €1,720 million with respect to the 2012 financial year. 6.2 Comprehensive income for the period The Statement of Comprehensive Income, presented as primary financial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale financial instruments, the translation reserve, and actuarial gains and losses on employee benefit obligations. Half -Year 2014 Financial Report 110 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 6.2.1 COMPREHENSIVE INCOME FOR THE FIRST HALF OF 2014 a) RESERVE RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY The increase of gross unrealized gains and losses on assets available for sale totaled €+15,447 million, of which €+15,291 million increase in unrealized capital gains on debt securities which was mainly driven by interest rates and corporate spreads decrease. The following table shows the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million) June 30, 2014 December 31, 2013 Restated (a) Gross unrealized gains and losses 42,455 27,008 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (23,386) (14,270) Shadow accounting on Deferred Acquisition Costs (b) (815) (523) Shadow accounting on Value of purchased Business In force (251) (215) Unallocated unrealized gains and losses before tax (c) 18,003 11,998 Deferred tax (5,475) (3,580) Unrealized gains and losses (net of tax) - Assets available for sale 12,529 8,418 Unrealized gains and losses (net of tax) - Equity accounted companies (d) 28 8 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 12,557 8,426 Minority interests' share in unrealized gains and losses (e) (202) (104) Translation reserves (f) 76 166 UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (c) 12,430 8,488 (a) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. (b) Unrealized gains on total available for sale invested assets including loans. (c) Including unrealized gains and losses on assets from discontinued and/or held for sale operations. (d) Net of shadow accounting on unearned revenues and fees reserves. (e) Including foreign exchange impact attributable to minority interests. (f) Group share. As of June 30, 2014, most of the unrealized gains on assets available for sale related to the Life & Savings segment. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of June 30, 2014: June 30, 2014 (in Euro million) France Life & Savings Germany Life & Savings Switzerland Life & Savings Gross unrealized gains and losses (a) 14,032 6,529 3,112 Less unrealized gains and losses attributable to: Shadow accounting on policyholders' participation (10,452) (5,694) (2,546) Shadow accounting on Deferred Acquisition Costs (b) (184) (16) Shadow accounting on Value of purchased Business In force (71) Unallocated unrealized gains and losses before tax 3,396 836 479 Deferred tax (1,143) (267) (101) Unrealized gains and losses (net of tax) - Assets available for sale 2,253 568 378 Unrealized gains and losses (net of tax) - Equity accounted companies 23 UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 2,276 568 378 Minority interests' share in unrealized gains and losses (c) (6) 0 Translation reserves (d) (169) UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 2,270 568 209 (a) Unrealized gains and losses on total available for sale invested assets including loans. (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share. Half -Year 2014 Financial Report 111 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity relating to changes in fair value of assets in June 30, 2014 and December 31, 2013 broke down as follows: (in Euro million) June 30, 2014 December 31, 2013 Unrealized gains and losses (net of tax) 100%, opening 8,426 Transfer in the income statement on the period (a) (335) Investments bought in the current accounting period and changes in fair value (b) 4,418 Foreign exchange impact 86 Change in scope and other changes (b) (39) Unrealized gains and losses (net of tax) 100%, closing 12,556 (a) Transfer induced by disposal of financial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts. (b) As described in Note 1.2, comparative information related to previous periods was retrospectively restated for the application of IFRS 10 and 11. b) CURRENCY TRANSLATION RESERVE The total impact of foreign exchange rate movement was €+546 million (of which €+530 million from group share and €+16 million from minority interests) as of June 30, 2014. The group share translation reserves movement (€+530 million) was mainly driven by Japan (€+238 million), the United Kingdom (€+193 million), Switzerland (€+89 million), the United States (€+71 million), Medla (€+45 million) and Asia excluding Japan (€+28 million), partly offset by Russia (€-72 million), and by the Company (€-121 million) driven by a change in fair value of hedging of net investments in foreign operations. c) EMPLOYEE BENEFITS ACTUARIAL GAINS AND LOSSES The total impact of employee benefits actuarial loss for the first half year 2014 amounted to €-455 million net group share, mostly due to the decrease in discount rates. 6.2.2 COMPREHENSIVE INCOME FOR THE FIRST HALF OF 2013 a) RESERVE RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY The decrease of gross unrealized gains and losses on assets available for sale totaled to €-10,282 million, of which €-10,222 million lower unrealized capital gains on debt securities which was mainly driven by interest rates increase. b) CURRENCY TRANSLATION RESERVE The total impact of foreign exchange rate movement was €-1,000 million (of which €-1,003 million from group share and €+3 million from minority interest rates) as of June 30, 2013. The group share translation reserves movement (€-1,003 million) was mainly driven by Japan (€-808 million), the United Kingdom (€-229 million) and Switzerland (€-172 million), partly offset by the Company (€+222 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations, and the United States (€+122 million). c) EMPLOYEE BENEFITS ACTUARIAL GAINS AND LOSSES The total impact of employee benefits actuarial gains for the first half year 2013 amounted to €+324 million net group share mostly due to the increase in discount rates. Half -Year 2014 Financial Report 112 11,177 (472) (1,866) (386) (27) 8,426 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 6.3 Change in minority interests Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders. As described in Note 1.2, minority interests for the first half of 2013 were retrospectively restated for the application of IFRS 10 and IFRS 11. 6.3.1 CHANGE IN MINORITY INTERESTS FOR THE FIRST HALF OF 2014 The €76 million increase in minority interests to €2,597 million was mainly driven by the comprehensive income and transactions with minority interests’ holders: The comprehensive income for the period notably included the following: o Net income attributable to minority interests for €+151 million; o Reserves relating to changes in fair value through shareholders’ equity for €+97 million; o Foreign exchange movements for €+16 million; Transactions with minority interests’ holders, mainly included: o Dividend payout to minorities for €-197 million; o The acquisition of Colpatria in Colombia for €+43 million. 6.3.2 CHANGE IN MINORITY INTERESTS FOR THE FIRST HALF OF 2013 Minority interests increased by €79 million to €2,450 million including: Movements in the comprehensive income for the period, mainly Net income attributable to minority interests for €+154 million; Transaction with minority interests’ holders, mainly the dividend payout to minorities for €-158 million. Half -Year 2014 Financial Report 113 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 7 FINANCING DEBT Carrying value (in Euro million) June 30, 2014 December 31, 2013 AXA Debt component of subordinated notes, 2.5% due 2014 (€) Debt component of subordinated convertible notes, 3.75% due 2017 (€) Subordinated notes, 5.25% due 2040 (€) Subordinated notes, 5.125% due 2043 (€) U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) U.S. registered redeemable subordinated debt, 7.125% 2020 (£) Subordinated debt, 5.625% due 2054 (£) Derivatives relating to subordinated debts (a) AXA Financial Surplus notes, 7.70 %, due 2015 AXA Bank Europe Subordinated debt maturity below 10 years fixed rate 6,363 - 1,585 1,300 1,000 878 405 936 258 146 146 201 87 Undated Subordinated debt fixed rate 115 AXA-MPS Vita and Danni 79 Subordinated notes, euribor 6 months + 81bp 79 Other subordinated debt (under €100 million) 25 Subordinated debt 6,814 AXA 1,000 Euro Medium Term Notes, due through 2015 1,000 AXA Financial 255 Senior notes, 7%, due 2028 255 AXA UK Holdings GRE: Loan Notes, 6.625%, due 2023 190 190 Other financing debt instruments issued (under €100 million) 108 Other financing debt instruments issued (under €100 million) 155 Derivatives relating to other financing debt instruments issued (a) (47) Financing debt instruments issued 1,553 AXA 841 Other financing debt owed to credit institutions (under €100 million) 1 Financing debt owed to credit institutions 841 TOTAL FINANCING DEBT (b) 9,208 (a) Hedging instruments according to IAS 39 and economic hedge derivatives which are not qualified as hedge under IAS 39. (b) Excluding accrued interest on derivatives. Main movements on financing debt during the period were the following: the repayment of €2,122 million subordinated debt maturing on January 1, 2014. Issuance, on January 9, 2014, of £750 million (€936 million as of June 30, 2014 foreign exchange rate) subordinated debt due 2054 with an initial coupon at 5.625% per annum fixed until the first call date in January 2034 on January 9, 2014. Half -Year 2014 Financial Report 114 7,492 2,122 1,549 1,300 1,000 868 390 - 264 145 145 245 98 147 79 79 25 7,986 1,000 1,000 253 253 183 183 132 185 (53) 1,568 809 44 853 10,407 II CONSOLIDATED FINANCIAL STATEMENTS – HALF YEAR 2014 NOTE 8 NET INCOME PER ORDINARY SHARE The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: The calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period. The calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period. (in Euro million) (a) June 30, 2014 June 30, 2013 Net income Group share 3,008 2,467 Undated subordinated debt financial charge (148) (144) Net income including impact of undated subordinated debt A 2,860 2,323 Weighted average number of ordinary shares (net of treasury shares) - opening 2,414 2,372 Increase in capital (excluding stock options exercised) (b) 1 0 Stock options exercised (b) 1 2 Treasury shares (b) 2 6 Share purchase program (b) Weighted average number of ordinary shares B 2,418 2,381 BASIC NET INCOME PER ORDINARY SHARE C = A / B 1.18 0.98 Potentially dilutive instruments : Stock options 7 2 Other 8 6 Fully diluted - weighted average number of shares (c) D 2,433 2,388 NET INCOME INCLUDING IMPACT OF UNDATED SUBORDINATED DEBT 2,860 2,323 FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 1.18 0.97 (a) Except for number of shares (million of units) and earnings per share (Euro). (b)Weighted average. (c) Taking into account the impact of potentially dilutive instruments. As of June 30, 2014, net income per ordinary share stood at €1.18 on a basic calculation, and at €1.18 on a fully diluted basis. As of June 30, 2013, net income per ordinary share stood at €0.98 on a basic calculation, and at €0.97 on a fully diluted basis. Half -Year 2014 Financial Report 115 II STATUTORY AUDITORS’REVIEW III Statutory auditors’ review report on the 2014 Half-Year Financial Information Half -Year 2014 Financial Report 116 III STATUTORY AUDITORS’REVIEW PricewaterhouseCoopers Audit 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex Mazars 61, rue Henri Regnault 92075 Paris La Défense Cedex STATUTORY AUDITORS’ REVIEW REPORT ON THE 2014 HALF-YEAR FINANCIAL INFORMATION To the Shareholders AXA S.A. 25 avenue Matignon 75008 Paris In compliance with the assignment entrusted to us by your General Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of AXA SA, for the six months ended June 30, 2014 ; the verification of the information contained in the half-year management report. 1. CONCLUSION ON THE FINANCIAL STATEMENTS We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information. 2. SPECIFIC VERIFICATION We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements Neuilly-sur-Seine and Courbevoie, August 1, 2014 The Statutory Auditors French original signed by* PricewaterhouseCoopers Audit Mazars Michel Laforce Xavier Crépon Philippe Castagnac Gilles Magnan This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. Half -Year 2014 Financial Report 117 III STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF-YEAR REPORT IV Statement of the person responsible for the Half-Year Financial Report Half -Year 2014 Financial Report 118 IV STATEMENT OF THE PERSON RESPONSIBLE FOR THE HALF-YEAR REPORT Statement of the person responsible for the Half-Year Financial Report I certify, to the best of my knowledge, that the condensed financial statements for the past half-year have been prepared in accordance with applicable accounting standards and give a fair view of the assets, liabilities and financial position and profit or loss of the Company and all the undertakings included in the consolidation, and that the interim management report, to be found in the first part of this Report, presents a fair review of the important events that have occurred during the first six months of the financial year, their impact on the financial statements, major related-party transactions, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Paris, August 4, 2014. Henri de Castries Chairman & Chief Executive Officer Person responsible for financial information Denis Duverne Deputy Chief Executive Officer, in charge of Finance, Strategy and Operations Half -Year 2014 Financial Report 119 IV | Semestriel, 2014, Insurance, AXA | write me a financial report |